Malaysia: Islamic finance future brighter than ever

KUALA LUMPUR: The future of Islamic finance following the global financial crisis in 2008 is even “brighter than before”, said the Regent of Perak Raja Dr Nazrin Shah.

The industry has expanded by 15% to 20% per annum since the 1990s and now amounts to over US$1.2 trillion (RM3.61 trillion) globally, said Nazrin, who is also the Financial Ambassador of Malaysia’s International Islamic Financial Centre.

“While this is less than 1% of global financial assets, it is expected to quadruple in the next decade,” he told participants at the launch of a book co-authored by lawyers from the ZICOlaw network entitled An Introduction to Islamic and Conventional Corporate Finance.

“Whereas before, oil-rich countries had few avenues to invest their surpluses in Islamic instruments, today, these are a distinct and rapidly growing asset class.

“At present, there are more than 300 Islamic financial institutions worldwide operating in more than 75 Muslim and non-Muslim countries.”

Nazrin added that the demand for syariah-compliant financial instruments among religiously-observant households, while the amount of global liquidity being mediated through Islamic finance was also growing.

Citing the Jan 5 issue of The Economist, which acknowledged Malaysia as “the world’s most important Islamic finance centre” and the first-ever issuer of sovereign sukuk in 2002, he said other countries, including non-Muslim ones, have followed in Malaysia’s footsteps.

“Since that time, other countries have started issuing Islamic bonds but Malaysia has remained the market leader. In the first three quarters of 2012, we were responsible for 80% of global sukuk issuances.”

However, he warned that the industry should not rest on its laurels.

“The nature of success is that one has to be constantly on the move, constantly thinking, planning and innovating, and constantly improving against a rising tide of competition.

“Indeed, success is something that is better seen in the rearview mirror just in case it blocks our view of the road ahead.

“We should not forget that although we have made a very strong start, the Islamic financial system is still a work-in-progress.”

Some areas for improvement, he said, included the liquidity of secondary markets and developing longer-term debt maturities so it can be a viable alternative to conventional finance.

(The Star Online / 16 Jan 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Oman: OAB launches Al Yusr Islamic banking window

MUSCAT — Oman Arab Bank launched here yesterday an independent Islamic banking window under the brand name “Al Yusr”.

The bank will launch its Islamic operations with the five branches across the major cities of the Sultanate during this year, said Abdul Kader Askalan, CEO, Oman Arab Bank.

Further, in line with CBO requirements, OAB also introduced a 3-member Shariah Advisory Board to ensure the Al Yusr operations are in compliance with Shariah (Islamic law). The OAB Shariah board members are Dr Khalid Salim al Siyabi, Dr Ahmed Subhi Ayyadi and Dr Essam Khalaf al Enezi.

In an exclusive interview with the Observer, Azmat Rafique, Head of OAB Islamic Banking, said the Al Yusr suite of banking products will have special focus on retail, SME and corporate banking segments of the market and plans are underway to launch innovative product offerings tailored to the needs of Omani customers.

OAB is well positioned to provide Islamic financial expertise to diverse segments and thereby promote the good of society as a whole. Rafique said Islamic banking, which seeks to promote the ideals of a prosperous society and stable economy based on Islam’s basic principles, is set to grow fast in Oman because the country already has a flourishing banking sector.

The amazing strides made by Islamic banking have prompted even the Western financial institutions to expand their Shariah-compliant instruments. Malaysia, Bahrain, Iran, Sudan and other countries have had their heydays since long. The reason for the growth of Islamic banking worldwide is that Islamic banking deals with real economy. There is no speculation.

Askalan said Al Yusr unit is being headed by Azmat Rafique who comes with rich experience in Islamic banking within the GCC and Pakistan. He is an experienced professional and well acknowledged in the field of Islamic banking and finance.

According to Rafique, Al Yusr will give return on saving accounts and fixed deposits on a monthly basis and it will not be difficult for the bank because it boasts very sophisticated tools to calculate return over investment.

Rafique said until recently Bahrain was the leader in Islamic banking in the GCC, but since it is embroiled in a political crisis, Oman has the potential to emerge as a regional hub of Islamic banking.

In Islamic finance one cannot make money out of thin air. One’s dealings have to be tied to actual economic activity, like an asset or a service. For example, someone wants a loan to buy a house or some items for marriage. In that case al Yusr will buy those items and sell to the ‘borrower’ on deferred payment terms with a profit margin.

In Islamic banking, depositors are like partners — their money is invested, and they share in the profits or, theoretically, the losses that result, said Rafique.

Interest and speculation-free Islamic financial model is attracting worldwide attention not only for the huge business prospects but also for the stability that it provides. Islamic banks operate an interest-free system, in which depositors’ share the risk of investment and either partake of the resulting profits or bear part of the losses. On the whole, money invested in many diversified sectors makes profits.

One of the requirements in Islamic banking is for transactions to be backed by tangible assets, profit sharing, prohibition of interest (Riba), said the OAB Shariah Advisory Board members in their speeches. In a nutshell, Islamic banking and the peaceful country like Oman are suited to each other and one hopes Oman will emerge as a regional centre for Islamic banking and finance in near future.

(Oman Daily Observer / 17 Jan 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Top tips on takaful, the insurance with an ethical focus

The Sharia-compliant takaful (insurance) industry is on the rise, with the sector forecast to be worth US$12 billion (Dh44bn) at the end of last year, according to a report by Ernst & Young. The UAE is one of the biggest markets for takaful and it is available to Muslims and non-Muslims alike. Abdulfattah Nasri explains what it's about and why it could be a good option for people seeking ethical insurance products.

1. A big deal

The spreading influence of Islamic banking and insurance products is notable and of increasing interest across the world. It is now possible to get Sharia-compliant cover - known as takaful - for just about every area of risk. Takaful derives from the Arabic verb kafalah, which means to help one another, or mutual guarantee. To this end, products revolve entirely around shared responsibility, shared guarantee, collective assurance and the notion of mutual undertaking.

2. How it works

There are two main models. The wakala model entails the takaful operator being paid an agency fee, which is deducted from the participant's contribution. The mudarabah model entitles the takaful operator to a fixed percentage of any investment profits or surplus made during year of operation. In this model, management or operating expenses cannot be charged to the risk fund. Expenses are borne entirely by the takaful operator from the shareholder fund.

3. Spot the difference

Takaful is similar to cooperative or mutual insurance, but differs in terms of operational models and rules governing investments and profit sharing. Unlike conventional insurance, where risk is transferred from the insured to the insurer, takaful ensures the mutual risk of insurance is shared among the participants. Takaful operations are based on the principles of mutuality, whereby each participant makes a donation to a fund. In the event of its loss, the participant will receive the amount of their claim.

4. Sharia principles

All investments managed by the takaful operator are made in accordance with Sharia principles. These funds are managed by the operator on behalf of the participants. Takaful participants retain an ownership interest in the fund. Contributions from the participants are later invested into Sharia-compliant funds to derive investment income.

5. Cash surplus

A key difference from conventional insurance is that at the end of each financial year, after the deduction of expenses, the remaining cash surplus will not be retained by the company or its shareholders, but returned to the policyholders in the form of cash dividends or distributions.

6. Investments

The investment assets that accumulate over the retained reserves, surpluses and provisions are invested by the shareholders managing the company on behalf of the policyholders. The shareholders are rewarded with a percentage of the profit on these investments.

7. Who oversees it?

A Sharia advisory board will preside over the scheme, monitoring the activities at every turn to ensure Sharia compliance.

8. Takaful ethics

One of the main attractions is a robust ethical focus. Sharia law presents investing in defined moral no-go areas, such as gambling or alcohol.

9. Decision time

If you think takaful might be for you, it is a good idea to talk to an independent financial adviser, who can take you through the pros and cons as they may apply to your individual circumstances.

(The National / 12 Jan 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com