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Sunday, 3 February 2013

Bahrain to issue new takaful rules this year

The Central Bank of Bahrain (CBB) is rolling out draft rules this year to enhance the operational model for the takaful industry in the second part of a two-phase process, says Mr Nader Al Mandeel, Director, Insurance Supervision Directorate in an interview with the Middle East Insurance Review.
 Mr Al Mandeel says the CBB has earmarked the following areas in takaful business where it intends to issue new, enhanced and updated rules and requirements in 2013: solvency (Phase II) and corporate governance.  Actuarial reporting requirements for the overall insurance business is another area which will see new rules in the year ahead.
“The objective of modifying the existing takaful rules was to facilitate a faster growth of the takaful business in Bahrain while protecting the interest of all stakeholders, vis-à-vis participants, shareholders and takaful operators,” says Mr Al Mandeel.
The revision of the existing takaful model is also a step in “reaffirming Bahrain as the jurisdiction of choice for all takaful and retakaful companies globally,” he adds.
(Asia Insurance Review / 02 Feb 2013)

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Islamic finance model growing globally

The Islamic financial system has grown tremendously over the last 40 years, says Dr Hatim El Tahir, Director, Islamic Finance Group, for Deloitte and Touche.

“The total size of the Islamic insurance industry  is US$1.3 trillion which is still small compared to the international financial market. In 1973 it was only US1$ billion,” he said on Thursday night during his contribution to a seminar on Islamic Banking hosted by the Agricultural Development Bank (ADB) at the National Academy Performing Arts (NAPA) in Port-of-Spain.

The seminar was attended by members of the local Muslim community as well as other stakeholders including PSA president Watson Duke. During his presentation, El Tahir quoted a Professor of Finance and advisor to the Bank of England who said it is time for policy makers to look at the Islamic finance model to finance customer needs through the equity based model that underpins the system.

Devant Maharaj, Minister of Food Production, who gave the feature address, said Islamic banking is practised globally and “represents a way of expressing financial transactions to comply with Islamic law”.

“It is estimated that 300 financial institutions across the globe practise Islamic financing but this mode of financing is new to the ADB. It is important to share insights into Islamic financing. Other large institutions tried to introduce Islamic financing many years ago. The ADB now stands way ahead. In the future new products will be made available to Muslims and non-Muslim agri-entrepreneurs of T&T,” Maharaj said.

He said the provision of concessionary terms plays a role in stimulating investment in the agricultural sector through the introduction of new grants.

“These include the reduction in loan lending rates, new rebranding of products at more competitive terms than ever before, increased banking visibility and accessibility for customers to make financing more accessible to the farmers.

It is within the very turbulent economic environment characterised by growing food insecurity that the PP Government has consistently stressed  the importance of agriculture  as one of the key areas in national development,” the minister said.

(Guardian-Media / 02 Feb 2013)

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Islamic Financing holds promises in Yemen

Economists in Yemen have for several years now encouraged the state to move away from its dependency on oil and gas revenues to explore other avenues which would generate national growth and sustain economic development.

Many foresee that the financial sector and more particularly, the Islamic finance sector would prove a fructuous venture for a country such as Yemen where tradition and Islamic values are more prominent.

Nathan Giliano, a professor of Economics in Vancouver, Canada explained that over the past few years - since the world economy so famously land-slided on Wall Street slope - Islamic financial products had grown in popularity across the Arab world and its emerging economies.

"So far Malaysia has dominated the market, if only by the sheer size of its banking institution. However, emerging countries such as Yemen with a 20 something million market pool tag could become very attractive indeed and outweigh established competitors."
He added that already Saudi Arabia was working at becoming the Peninsula's next financial hub, replacing Bahrain.

"Mecca's Mayor, Dr. Ossama al-Bar announced in 2012 he planned to eclipse Dubai, Bahrain and Malaysia and turn his city into the banking capital of the Muslim world."

But while Mecca can claim its religious heritage by offering its clients a "cache of religious excellence", Yemeni bankers believe too their country has something to offer and certainly something to gain from boosting its Islamic banking sector.

In 2012, Mohamed Al-Farhan, an economic analyst working in Saudi Arabia emphasized that a spike in demands for Islamic financial tools led many banking institutions to study ways in which they could enhance their services to customers and create an entirely new banking culture. “The increased demand for Islamic banking services and products, such as speculation, trade credit, trading and leasing, stimulated the rapid growth of the sector,” he said, adding "this sector is unique in terms of its accounting systems because its revenue accounting, project evaluation, and partnership and speculation methods differ radically from the traditional accounting methods used worldwide.”

Economists and financial analysts are already calling Islamic financing an alternative to capitalism and socialism saying that it offered a different approach in strategy, answering the need for “moral banking”.

Islamic Banking Principles
While Islamic banking is essentially based on the principle that interests - riba in Arabic - are forbidden, it is not simply an interest-free financial structure. Islamic banking is based on Islamic economics, a complete system of social and economic justice which deals with property rights, incentive system, the allocation of resources, economic freedom and decision-making as well as the proper role of government.

Although such principles have been applied for centuries throughout the Muslim word it is only recently that such rules were transferred in their applications to private or semi-private commercial institutions. 

Under an Islamic banking system, the cost of capital is not analogous to a zero interest rate, as some people wrongly assume it to be. The only difference between Islamic banking and interest-based banking in this respect is that the cost of capital in interest-based banking is a predetermined fixed rate, while in Islamic banking; it is expressed as a ratio of profit. 

At a seminar in london in 2021, Professor Henry Wilson told his audience "A contraction of western economies is leading investors to seek alternative investments strategies, putting the emphasis on safety and moral responsibility. Islamic banking answer this need."

He added “Investors and individuals realize that the capitalist banking system was not only flawed but led to criminal abuse. They are looking for more dignified way shall we say to make money. Islamic banking offers exactly that, a moral, sensible way to turn a profit. Moreover, the Islamic financial system proved to be resilient to even the harshest economic environment and this is something investors found attractive.”

And indeed, even die-hard capitalist banks are now looking into the market, wanting to attract Muslim clientele -- HSBC, Barclays, Lloyds --
Yemen move toward Islamic banking

Although Yemen has much progress to make in regards to its banking sector, the state already made some improvement in February 2011 when its central Bank first introduced Islamic sukuk to finance state-run projects.

Kamal al-Rabie explained at the time in an address to the press that “Salam sukuk were issued to help the government raise funds to purchase consumer commodities for the public. We conducted a potential market return study and determined that the profit margin would range between 15% and 18%, which offered financial benefits for the government, commercial banks and the community through the provision of strategic commodities such as oil derivatives.”

Government officials repeatedly throughout 2012 announced the government would consider modifying its current legislation as to accommodate financial products and allow Yemen financial service industry to thrive.

Economists also theorized that in a country such as Yemen where citizens are not familiar with the banking sector and do not even hold for a great majority a bank account, Islamic banking could prove a perfect bridge, generating trust and educating Yemen's next generation of entrepreneurs.

Islamic Micro-finance
In a country such as Yemen where 40% of the population is said to be living under the poverty line with less than $2 per day, micro-finance has become a life line for many.

Islamic micro-finance is the provision of financial services for low-income populations in which the services provided is conformed to Islamic financing principles.

Islamic micro-finance providers have developed a number of financing mechanisms that can be utilized according to the nature of the commodity or business and the period for which financing is sought. These are generally known by their Arabic names. Murabaha, is the most popular and widely used Islamic financing instrument. This involves the resale of a commodity after the lender adds a specific profit margin, which is paid by the borrower who agrees to buy that commodity.
Usually, repayment is made in installments to the financier, who pays the price to the original supplier of the commodity. This type of finance is commonly used for financing assets or working capital inputs, such as raw materials, machinery or equipment. 

In September 2012, an Islamic micro-finance training workshop was held in Sana'a, the capital by al-Huda Centre of Islamic Banking and Finance and Yemen micro-finance Network to raise awareness and present to the industry the new tools and products which had been developed.

Chief Executive Officer of al-Huda Centre of Islamic Banking and Economics, Muhammad Zubair Mughal said a"l-Huda has established a separate department for the promotion of Islamic micro-finance - Centre of Excellence in Islamic Micro-finance - so that awareness, consultancy and training could be provided to all micro-finance Institutions."

Islamic Insurance
In modern-day conventional insurance, the insurance company sells policies and invests the proceeds for the profit of its shareholders. Payouts to policyholders may vary depending on financial performance, but a minimum positive return is always contractually guaranteed.

Takaful or most commonly referred to as Islamic insurance functions differently.

Takaful is founded on the cooperative principle and on the principle of separation between the funds and operations of shareholders, thus passing the ownership of the Insurance fund and operations to the policyholders. Muslim jurists conclude that insurance in Islam should be based on principles of mutuality and co-operation, encompassing the elements of shared responsibility, joint indemnity, common interest and solidarity.

In takaful, the policyholders are joint investors with the insurance vendor, who acts as a manager for the policyholders. The policyholders share in the investment pool's profits as well as its losses. A positive return on policies is not therefore legally guaranteed.

This new system of insurance was introduced to Yemen in 2010 by the United Insurance Company. Soon after that Yemen's main insurers followed suit, realizing the potential Islamic products had in a country were traditions and the respect of Islamic principles often by-pass profiteering.

Although Yemen has yet to perfect its financial sector, Islamic banking holds much promises for the future.

(Yemen Port / 02 Feb 2013)

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Qatar Islamic Bank signs QR800m financing deal with NBK Holding

Qatar Islamic Bank (QIB), one of the leading Islamic banks in Qatar, has announced the signing of an QR800m financing deal with NBK Holding.

The signing ceremony took place at NBK Holding's headquarters and was attended by His Excellency Sheikh Nawaf Nasser Bin Khaled Al Thani, Chairman and CEO of NBK Holding, and Mr Ahmad Meshari, Acting Chief Executive Officer of QIB.

His Excellency Sheikh Nawaf commented, "The financing agreement with QIB will enable NBK to move forward with its ambitious expansion plans. NBK Holding's subsidiaries have significantly contributed to the Qatari private sector and the company's strategy is to continue its pioneering role in the economic growth of Qatar."

He said, "This collaboration between NBK Holding and QIB is an example of successful partnerships that should and do exist between local institutions. We are very happy with the Islamic finance solutions that QIB presented to us to finance our projects, and we will work with the Bank to develop this relationship further into the future by nurturing the constructive co-operation between the two organisations."

"The diversity in the activities of NBK will enable it to help achieve the aspirations of the wise leadership of the country which is to diversify its economic resources in order to achieve sustainable economic growth," said HE Sheikh Nawaf.

Mr Ahmad Meshari, QIB's Acting Chief Executive Officer, added, "QIB has a strategic vision that aims to provide Islamic financing solutions to national companies. It also aims to build partnerships with these companies based on common interest and continuous co-operation to achieve the objectives of the Qatar National Vision 2030, one of which is to build an even stronger local economy."

He said, "This financing agreement reflects the strong relationship between QIB and NBK Holding that has a great history of serving the Qatari economy. NBK Holding widened its umbrella of businesses to encompass several new companies with various operations including cars, heavy equipment, real estate and others."

"This new arrangement enhances the leading role of the Bank in supporting local businesses and financing national development projects. QIB directs 98% of its operations and funding activities to the local market, and this is reflected in the growth of the financing activities of the Bank, which reached QR43.1bn by the end of 2012, a 45.7% increase compared to the 2011 figure," said Mr Meshari.

( Ame.Info.Com / 3 Feb 2013)

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