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Saturday, 29 December 2012

Fiqh Academy issues edicts on five subjects

MAKKAH – International Islamic Fiqh Academy issued here Sunday fatwas or religious edicts on issues concerning Zakat, waiting period for a person who has gone missing, marriage of underage girls, maximum duration of pregnancy, and the right of a guardian.

The academy issued clarification on an earlier decision about prayer timings in countries situated between latitudes 48 degrees and 68 degrees north and south.

The edicts were issued during the academy’s 21st session, said Secretary General of the Muslim World League (MWL) Dr. Abdullah Abdulmuhsin Al-Turki.

The first edict said that Zakat was not compulsory on a creditor for debt which has not been repaid for any reason, but a creditor should pay Zakat on investment debt. If the investment debt has not been repaid for several years, its Zakat can be delayed until it is collected. In this case, the creditor should pay Zakat for the past years. The Zakat should be paid every lunar year. The Zakat is calculated on the investment for the past lunar year without the profits for the coming years.

The edict on the waiting period for a person who has gone missing states that the Qadhi should take a decision to declare the person dead. But the waiting period should not be less than one year and should not exceed four years from the day the person went missing. The circumstances of each case should be taken into consideration. After the elapse of the period decided by the Qadhi, the person’s wealth should be divided and his wife has to observe Iddah.

As to the marriage of underage girls, the Fiqh Academy decided after reviewing many researches and hearing many discussions that the matter needs further research. It also needs more study of statistics as well as social, psychological, medical and legal findings on the subject.

As regards the maximum duration of pregnancy, the academy said that Shariah does not contradict scientific proof, and so the Fiqh Academy has decided that the longest pregnancy duration is one year after the separation of the couple.

The academy said that guardianship will be transferred to the next person if a guardian does not care for his dependent who is sick. The guardian of the sick person should permit conducting a medical procedure if it is in the interest of the sick person.

(Saudi Gazette / 17 Dec 2012)

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Filling the gaps [Islamic Business & Finance]

The Investor for Securities Company launched Safa Investment Services, billed as the world's first global Islamic asset manager in the GCC, in October this year. Muslims currently make up 25 per cent of the world's population, and with 450,000 Muslim millionaires in the Middle East, Islamic investment options are becoming increasingly important on the world stage. However, their asset management needs seem to have been sadly neglected by the industry. John Sandwick explained to Islamic Business & Finance how Safa Investment Services has stepped in to fill the void.
What was the rationale behind the launch of Safa Investment Services?
Globally, there are about $80 trillion in professionally managed assets. Muslims must own at least $3 trillion or more of this, of which virtually zero is Shari'ah- compliant. In my nearly 20 years as a Swiss banker I've opened hundreds of private client and institutional managed accounts, mostly for Saudis. Nearly all those clients asked me to avoid Haram investing, or investing that is against their basic spiritual principles. Unfortunately most asset management is Haram. Hedge funds, derivatives, junk bonds, and the like are certainly not acceptable. I realised over five years ago that there is an enormous latent demand for Islamic asset management, but when I looked around there was absolutely no supply. Safa Investment Services fills that gap.
What differentiates Safa Investment Services from other Islamic asset management firms?
There are no other Islamic asset management firms. If you or your readers know of one then please tell me. I'm quite intimate with the domestic banking systems in Malaysia, and I've been of course throughout Saudi Arabia, Dubai, London and Switzerland. There is not one firm or entity doing Islamic asset management. There are many who create and manage Shari'ah- compliant products. But none assemble the best of those products in a disciplined, rigorous, professional fashion that results in robust portfolio allocations, which is the definition of asset management. In that sense Safa is the world's first and only Islamic asset manager. It does not produce investment products, it manages them.
What types of services are you offering?
We are not offering any products. There are other firms that produce and manage many products, about 850 of them by last count. Safa provides the same service you'd find at JPMorgan Asset Management, or Credit Suisse Asset Management. However, the difference is only in that we perform professional asset management of Shari'ah-compliant assets. We construct income, balanced and growth portfolios (low, medium and high risk) comprising cash, fixed income, equity and alternative investment allocations that include "best of class" assets in each category. Our allocations are back tested, benchmarked and then subjected to highly advanced technical analysis, just as you'd expect at BlackRock or Merrill Lynch. The funny thing is, when we compare our allocations to their conventional peers we see enormous outperformance and much lower risk metrics. In other words, Islamic asset management is proving superior to conventional when you make apple- to-apple comparisons.
What makes these products more ethical?
I like to tell people that Islamic asset management is the ultimate in socially responsible investing. It's true. Automatically you get allocations in underlying assets that
'do no harm.' That's what Shari'ah is all about. A Fatwa doesn't tell you if an investment is good or bad, it only tells you that the investment doesn't violate the principles of Shari'ah. Those principles ref lect nearly the identical value systems common among Christians, Jews and really just about everyone. So, to invest according to Shari'ah is essentially the same as ethical investing people are trying to achieve in conventional, Western markets.
What is your target market?
Our target market is multi-layered and will take time to cover. First and foremost we're going to Takaful companies, Islamic endowments, or Awqaf, and family offices throughout Saudi Arabia and the Gulf region. We are showing them how large, sophisticated professionals are doing asset allocation, like big insurers such as Allianz, big private foundations such as the Bill & Melinda Gates Foundation, and big endowments such as Harvard University Endowment.
Presumably these global, professional investors have learned a thing or two about asset allocation. Typically they are very light on real estate and private equity. Unfortunately those two niche, marginal asset classes are predominant in the portfolios of Saudi and Gulf region investors. Teaching people how to properly allocate their assets is our first job, and then showing them how to do so using only Shari'ah-compliant assets is our second job. We think we can capture a good deal of the $200 billion or more portfolio market in Saudi Arabia and the Gulf. Over time we'd like to take Safa to South Africa, Malaysia, Kazakhstan, and even here in Europe. Muslims won't give up their savings for bad investments, but they will always prefer professional investing with Shari'ah compliance over anything else.
What can clients expect from Islamic investing, in terms of levels of risk and length of investment? How does Islamic investing produce superior returns to conventional?
As mentioned, we are seeing that Shari'ah-compliant investing is superior to its conventional peers. Why? The answer is easy. If you
What is missing is a reliable public database of all Shari'ah-compliant assets, like a Bloomberg or a Reuters
follow the Shari'ah you also follow basic prudent investment management, meaning your fixed income (Sukuk and trade finance) must be truly asset-backed, not asset-based. Your equities have to be in companies that have very low debt levels, are not in financial services, and which utilise their cash. Of course one must avoid derivatives completely, meaning no hedge funds at all. By following these simple rules one eliminates much of the risk of conventional investing. Our portfolio optimisation software gives us 115 different risk measurements. In every one of them our Safa portfolios outperform conventional allocations. It really is superior.
Islamic asset management is said to be underserved; was this through a lack of demand, expertise, education or anything else?
It is certainly not demand. If you visit any Muslim who has managed wealth and tell him you can do the same thing, with more profits and less risk, but fully Shari'ah-compliant, is he going to say no? The reality is this: Islamic asset management is here, it is tangible and it is a service available now. There is no lack of expertise in asset management. What is missing is a reliable public database of all Shari'ah-compliant assets, like a Bloomberg or a Reuters. Also missing is recognition and credibility, which all new services lack. And, of course, people need to be educated not only on the availability of Islamic asset management, but on the basics of prudent asset allocation.
For example, we're looking at the Takaful industry. From 2003 to 2008 most Takaful treasuries were ploughed into local shares, real estate projects and private equity. The results were predictable. While Takaful underwriting is growing at double-digit rates, nearly all Takaful companies are suffering massive losses in their treasuries. Teaching Takaful asset managers on prudent asset allocation is timely and, given they cannot buy anything that's not Islamic, the billions available from Takaful are there for any manager willing to properly organise professional Islamic asset management. Look at Islamic endowments to see an even greater opportunity, where traditionally real estate comprised nearly 100 per cent of assets. There are at least $270 billion in Awqaf assets in Saudi Arabia that urgently need proper professional asset management, and again they can only own Shari'ah-compliant assets.
Is it challenging to have a global asset management firm when there is little standardisation across the Islamic finance world?
There is more to be done in terms of standardisation, but we are at the point where the industry is standardised enough to offer professional Islamic asset management. Groups like AAOIFI, which acts as a standards body, have made enormous progress in the past five years. For example, everyone now knows that Sukuk must be asset-backed, not asset- based. Any Sukuk issued after the famous AAOIFI ruling in February 2008 will likely be asset-backed, and therefore eligible for investing. Even the gap between Malaysian and Saudi and Gulf interpretations of Shari'ah is narrowing to the point of being negligible. We are seeing several large Malaysian asset managers packaging their mutual funds with an additional Fatwa from respected Saudi and Gulf scholars, meaning they are perfectly acceptable to investors in that region. A few years ago you couldn't sell Malaysian funds in Arabia because of the lack of standardisation. That's pretty much behind us now.
What are the myths about Islamic asset management that ought to be dispelled?
The myths exist on two levels. One, Arabs themselves have often thought of Shari'ah-compliant investing as inferior. They are genuinely surprised to see a highly professional team approaching them with a technically advanced investment methodology that is proving superior in terms of risk and reward. The negative image of Shari'ah-compliant investing was for the most part the result of groups like Gulf Finance House (GFH) selling private equity and real estate with gigantic up-front commissions, and then witnessing catastrophic losses in those investments. GFH and its sister and cousin firms were selling widely throughout Arabia, thus a negative perception among some who still remember the hype.
Fortunately liquid portfolio investing is a far cry from those illiquid offerings of years past, and the data doesn't have an agenda. If it shows superior performance then it is because performance is superior.
At another level there are still Western misperceptions of what exactly Muslims want and what exactly is Islamic asset management. I toured nearly every bank in Switzerland for over two years, talking about Islamic asset management. The concept was universally rejected. I think it's because asset managers in Switzerland are stuck in hedge funds, derivatives and other high-commission products that guarantee outsized revenue for an industry that has lost a lot of customers. The ability to see beyond tomorrow is difficult in times of crisis. One head of Middle East sales at a famous Swiss private bank told me, "We don't believe Muslims want Islamic investing." Another said, "We believe the Islamic banking craze will blow out along with the first scandal." Clearly these guys are out of touch with their own markets.
Islamic institutions have been criticised for an overreliance on real estate; surely there must be other suitable assets, or is diversification a challenge in Islamic finance?
In nearly all cultures worldwide there is a foolishness attached to real estate that requires a massive shock to dislodge. It is not only Arabs who fall for the real estate trap. Everyone at some point hears themselves say, "Real estate gets sick but never dies." Or the other favourite, "Real estate, God is not making any more." Real estate lulls investors into a sense of complacency. Look, however, at the tens of billions of dollars lost in Dubai real estate, or Bahrain real estate. For that matter, look at the tens of trillions that were lost worldwide, in particular from the American subprime debacle.
Anyone who had a portfolio of well-balanced, liquid assets would have been vastly better off from 2007 through today, including and in particular Muslims who owned Shari'ah-compliant liquid assets. The crash of real estate in historic proportions is a good lesson for investors in our markets. We are teaching them diversification across all asset categories. Thankfully they are listening.
What are the main challenges in Islamic asset management?
Fortunately the Islamic mutual funds industry is now nearly $100 billion strong and spread across well over 800 funds. Our "buy list" among these- the result of careful filtering, sorting and analysis-comprises nearly 400 mutual funds with over $50 billion in total assets. From this investible universe we can responsibly construct high-performance portfolios. But, compare this to conventional mutual funds, which number around 70,000 worldwide and with over $25 trillion in assets. In comparison the Islamic funds industry is barely visible. Clearly it must grow, and grow substantially. But, which comes first, the chicken or the egg? If there are no Islamic asset managers then the industry will always have few funds. But, with few funds how do you expect to grow the number of managers? The biggest challenge facing Islamic asset management is the parallel and related question: how do you get more investment products, and how do you stimulate the growth of more managers?
What is missing is a reliable public database of all Shari'ah-compliant assets, like a Bloomberg or a Reuters
I realised over five years ago that there is an enormous latent demand for Islamic asset management, but when I looked around there was absolutely no supply. Safa Investment Services fills that gap
In Saudi Arabia, the Investor for Securities will be offering this service. The Investor is a regulated investment company based in Riyadh with SAR 200 million paid-in capital.

(Equities.Com/28 Dec 2012)

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Sukuk Seen Topping $46 Billion Record on Debuts

Global sukuk sales will challenge this year’s record of $46 billion in 2013 as countries such as Oman, Tunisia and Egypt tap the market for the first time, CIMB Group Holdings Bhd. and OCBC Al-Amin Bank Bhd. say.
Borrowing costs on Shariah-compliant debt have fallen 11.4 percentage points to 2.82 percent since the end of 2008 as central banks in Europe, the U.S. and Japan pumped funds into their economies to spur growth. Demand will be driven by the rise in Islamic banking assets, which may reach $1.8 trillion next year, compared with $1.3 trillion in 2011, led by Saudi Arabia and Malaysia, Ernst & Young forecast in a Dec. 10 report.
Sales of bonds that comply with Muslim tenets jumped 25 percent in 2012 as companies sold debt as part of government programs in Asia and the Middle East to build railways, ports and roads. Thailand and South Africa have also announced plans to issue sukuk once legislation has been passed that will open up new markets for investors.
“Sukuk is an attractive channel to explore for those countries looking to expand funding sources,” Kuala Lumpur- based Alhami Mohd Abdan, head of international finance and capital markets at OCBC Al-Amin, a unit of Singapore’s Oversea- Chinese Banking Corp., said in a Dec. 21 interview. “Liquidity in the Islamic space is growing quite significantly.”

Biggest Sales

The biggest sales came out of Saudi Arabia and Qatar amid development programs of $373 billion and $130 billion, respectively. Malaysia has embarked on a $444 billion spending spree over 10 years that helped spur Islamic bond offerings to an all-time high of 95 billion ringgit ($31 billion) in 2012, data compiled by Bloomberg show.
Saudi Electricity Co. sold $1.75 billion of notes due in 2017 and 2022 in March. The yield on the five-year 2.665 percent securities has since dropped 55 basis points, or 0.55 percentage point, to 1.95 percent, according to data compiled by Bloomberg. Borrowing costs on global Shariah-compliant bonds fell 117 basis points this year and reached a record low of 2.76 percent on Nov. 30, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows.
Qatar completed a $4 billion offering in July. The yield on the 2.09 percent notes due in 2018 declined 13 basis points since the sale date to 1.97 percent.
“There’s an increasing number of governments from the Middle East and North Africa region looking to tap the sukuk market as part of efforts to widen their funding sources following theEuropean debt crisis,” Zakariya Othman, head of Islamic ratings at RAM Ratings Services Bhd., said in a Dec. 18 interview in Kuala Lumpur. “They’re also probably doing so to meet demand from their Muslim populations as there’s now greater awareness of Islamic finance globally.”

Record Yields

Shariah-compliant bonds sold on the international market returned 9.5 percent this year, compared with 7.2 percent in 2011, according to the HSBC/Nasdaq gauge. JPMorgan Chase & Co.’s EMBI Global Composite Index of emerging-market securities gained 18.2 percent, versus 8.5 percent.
The difference between average yields on sukuk, which pay returns on assets to comply with Islam’s ban on interest, and the London interbank offered rate narrowed 94 basis points in 2012 to 179 basis points as of Dec. 24, according to HSBC.
In Malaysia, borrowing costs on the 3.928 percent dollar- denominated Islamic notes due in 2015 dropped one basis point this month to 1.31 percent, near the all-time low of 1.28 percent reached on Dec. 14, according to data compiled by Bloomberg. The difference between Dubai’s 6.396 percent securities maturing in November 2014 and Malaysia’s debt narrowed 14 basis points in December to 77 basis points as of Dec. 24.

‘New Jurisdictions’

The Bloomberg-AIBIM Bursa Malaysia Sovereign Shariah Index of the most-active ringgit-denominated bonds rose 3.7 percent in 2012 to 109.5980 and touched a record of 109.882 on Nov. 8.
Central banks in the U.S., Japan and Europe have eased monetary conditions to support growth. The Federal Reserve has pledged to keep borrowing costs near zero until late 2014, while rates in the euro area and Japan are at 0.75 percent and zero to 0.1 percent, respectively. That compares with 2 percent in Saudi Arabia, 3 percent in Malaysia and 5.75 percent in Indonesia.
Issuers will be encouraged to tap the sukuk market as demand increases with a growing pool of wealth seeking Shariah- compliant assets, according to OCBC Al-Amin Bank.
Government Islamic securities accounted for 18 percent of the total global issuance this year, with Qatar, Indonesia, Turkey and the United Arab Emirates completing offerings.
“We expect to see issuance from new jurisdictions in Asia and Europe in 2013,” Mohamad Safri Shahul Hamid, the Kuala Lumpur-based deputy chief executive officer at CIMB Islamic Bank Bhd., a unit of CIMB Group, said in a Dec. 20 e-mail. “The benign interest-rate environment would also help spur the sukuk market in the near to medium term.”

(Bloomberg / 26 Dec 2012)

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