Tokyo: The rise of Asian ship finance gets ever more sophisticated in its offerings.
Bank of Tokyo-Mitsubishi UFJ and Sumitomo Mitsui Banking have organized a syndicated loan of $184m for Brunei Gas Carriers (BGC). The loan complies with Sharia law, which prohibits the charging of interest. The loan is being paid to a special-purpose company that will buy LNG ships and lease them to BGC. Instead of interest, the Japanese banks will receive charter fees.
This is the second loan the two banks have made to BGC following a $170m syndicated loan from a year ago.
The Nikkei newspaper reports that Bank of Tokyo-Mitsubishi UFJ has set up a section specializing in Islamic financing at a local unit in Malaysia.
Also, Mizuho Financial Group gearing up to begin offering Islamic financing in Malaysia within the next couple of months.
Not to be left behind, Tokio Marine & Nichido Fire Insurance Co and Orix Corp are expanding their Islamic insurance and leasing businesses.
The Agricultural Development Bank (ADB) is hoping to introduce Islamic banking services for its clients within one year. Jail Leladhasingh, corporate manager, business development at ADB made the announcement to the media on Monday when he introduced Dr Hatim El Tahir, director, Deloitte and Touche, Bahrain, and Bassel Nadim, senior manager and strategist, Deloitte and Touche, Dubai.
The ADB brought the duo into the country as consultants to educate the public about Islamic banking methods and strategies. Leladharsingh said the ADB is exploring the possibility of setting up the bank to offer this alternative service to farmers. He said the ADB’s Islamic banking facilities will be accessible to Muslims and non-Muslims.
Laladhasingh said the idea of setting up an Islamic bank within the ADB came out of a memorandum of understanding signed with the Government and the Islamic community last year. The principle of Islamic banking is based on risk-sharing rather than the risk-transfer of conventional banking. It involves concepts such as profit sharing (mudharabah), safekeeping (wadiah), joint venture (musharakah), cost plus (murabahah), and leasing (Ijar).
El Tahir said Islamic banking is governed by local laws and the Shariam, the moral and religious laws of Islam. He explained that it helps the less privileged who are without access to capital and the advantage of sharing risks ensures a commitment from the financier toward the growth of the community.
Nadim said Islamic banking follows a different business model while still complying with local laws. Its popularity varies in the countries where it has taken root. He said in Malaysia, a big portion of the Islamic bank’s clients are non-Muslims, while in the Gulf States, Islamic banks control 22-25 per cent of the market share.
Kingdom Holding Co, the international investment firm of Saudi billionaire Prince Alwaleed bin Talal, has formed a sharia board of prominent scholars in order to raise more of its funding through Islamic finance.
The decision by one of the most prominent investment firms from the Gulf is likely to be seen as a boost to the Islamic finance industry, which obeys religious principles such as bans on interest payments and pure monetary speculation.
“The sharia committee was established to study the gradual conversion of future sources for loans for the company to be sharia-compliant,” Kingdom said in a brief statement.
Sharia boards decide whether products and activities obey Islamic principles. Kingdom’s four-member sharia board includes high-profile Saudi scholars Sheikh Mohamed Ali Elgari and Sheikh Abdullah Sulaiman Al Manee’a, who will serve as chairman.
Elgari serves on several sharia boards including the Islamic arms of HSBC and Standard Chartered Bank. Al Manee’a is chairman of the sharia board of Saudi Arabia’s National Commercial Bank and a member of the senior scholars council of the Kingdom of Saudi Arabia.
Kingdom Holding officials could not be contacted to elaborate on the statement, which appeared to be a recognition of the growing size and liquidity of Islamic capital markets.
Global issuance of sukuk (Islamic bonds), which are structured to avoid the payment of interest, hit about $121 billion in 2012, according to Thomson Reuters data, up from around $85 billion in 2011. Islamic banking is estimated to account for about a quarter of the Gulf’s banking sector.
Kingdom, which holds stakes in major Western companies such as Citigroup, News Corp and Twitter, did not give any indication in its statement that it would adjust its investment strategy in response to Islamic principles.
Last week the company posted a net profit of SAR209.6 million ($55.9 million) for the three months ended in December, up 11.6 per cent from a year earlier.
Last October, banking sources told Reuters that Kingdom was planning to raise up to $500 million from a syndicated loan, with the proceeds largely to refinance existing debt. Earlier, the company had considered a maiden debt issue in the Saudi bond market.
SYDNEY: Oman’s new Islamic banking rules could encourage the development of a larger pool of Shariah scholars and ultimately help to raise operating standards for them around the world, according to bankers and scholars.
Last month, the sultanate’s central bank released an extensive Islamic banking rulebook which included provisions for Shariah scholars, such as fit-and-proper criteria and term limits on scholars’ appointment to Shariah boards, which decide whether products and activities obey Islamic principles.
Oman is the last country in the six-nation Gulf Cooperation Council to introduce Islamic banking, but the level of detail in the rules could help set it apart from the others, and even give it some influence over global trends in the industry.
“I admire the positive spirit behind many articles in the law, which aims to achieve a higher level of good governance and avoidance of conflicts,” said Washington-based scholar Muddassir Siddiqui, president and chief executive of ShariahPath Consultants LLC.
“Oman came from behind but it is now among the very few jurisdictions to introduce such a comprehensive set of rules. I am sure it will inspire others to follow.”
The objectives behind the rules include enlarging the pool of qualified scholars as well as addressing issues of scholar capacity and conflict of interest, Siddiqui added.
Capacity refers to the amount of time scholars can devote to each of their board appointments; multiple commitments raise concerns that scholars may not be able to carry out their supervisory roles effectively.
In an attempt to build a larger talent pool, Oman’s rules state that scholars can only be appointed for three-year terms and serve a maximum of two consecutive terms, thus requiring banks to hire new scholars periodically.
Such term limits are rare in Islamic finance, where scholar appointments have often been considered long-term or even permanent. “I believe this is a good practice as it will provide an avenue to more scholars to share their expertise in the deliberation of a Shariah supervisory board (SSB),” Mohamad Akram Laldin, Executive Director at the Malaysian-based International Shariah Research Academy for Islamic Finance, said.
Both Laldin and Siddiqui are members of the sharia standards committee at the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), a major standard-setting body.
AAOIFI, recognising that lengthy appointments “could lead to a close relationship which could be perceived to be a threat to independence and objectivity”, recommends that institutions rotate at least one Shariah board member every five years. But Oman’s rules go further by applying term limits to all members.
Oman’s rules struck a chord in the Islamic finance community because loose regulation of scholars is acknowledged by many people in the industry to be a major weakness, and an obstacle to growth.
There have been a series of calls for reform in the industry and AAOIFI has said it will conduct consultations on how Shariah boards operate.
A final draft of its conclusions is not expected to be ready before the end of this year at the earliest, however, and analysts warned that it remained to be seen whether Oman’s approach would be adopted in other jurisidictions where entrenched interests might be reluctant to change.
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