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Friday, 22 March 2013

Islamic Banks in Indonesia, Malaysia Go Rural

Kuala Lumpur/Jakarta. Islamic banks in Malaysia and Indonesia are opening new branches in rural areas as they target the newly rich in Southeast Asia’s largest Muslim nations.     

HSBC Amanah Malaysia added 22 outlets in the last three years, bringing the total to 26 across the country, chief executive officer Rafe Haneef said in an interview on Wednesday. 

BRI Syariah, a unit of Bank Rakyat Indonesia, will set up 94 branches in 2013 to meet demand in smaller cities such as those on the islands of Java and Sumatra, according to Lukita Tri Prakasa, the bank’s corporate secretary.     

BRI Syariah predicts a record year for its Shariah- compliant savings, while HSBC’s Rafe said Islamic bank deposits now offer returns comparable to regular lenders. Malaysia’s per capita gross domestic product rose 6.3 percent to $16,900 in 2012 from 2010, while Indonesia’s equivalent climbed 11 percent to $5,000, US government data show.     

“Islamic banking has become more accessible,” Kuala Lumpur-based Rafe said. “It’s all about convenience, quality of service and pricing. Since we have more branches, we should be able to garner more deposits.”     

HSBC Amanah’s branches outside the capital Kuala Lumpur include one in the eastern state of Sabah on Borneo island.      

‘Tremendously Vast’     

Savings are rising as economic growth in Asia outpaces developed nations. Indonesia, Southeast Asia’s largest economy, will expand 6.3 percent to 6.8 percent in 2013, after growing 6.2 percent last year, the central bank said in a March 7 statement. The International Monetary Fund projected in January that the US will expand 2 percent, while the euro zone will contract 0.2 percent.     

BRI Syariah predicts its savings that comply with the Koran’s ban on interest will increase 73 percent to a record Rp 19 trillion ($1.9 billion) this year as the lender targets customers in rural areas, Jakarta-based Prakasa said in an interview on Wednesday.     

Indonesia’s Islamic deposits at all its 11 Shariah-compliant lenders rose 27.8 percent to an all-time high of Rp 147.5 trillion in 2012, central bank data show. Banking assets complying with Muslim tenets increased 34 percent to Rp 195 trillion, representing 4.6 percent of the total.     

“The market in Indonesia is still tremendously vast and relatively untapped,” BRI Syariah’s Prakasa said. “Our expansion isn’t so aggressive considering the sheer potential.”                          

Sukuk Demand     

Increasing savings may help spur demand for sukuk as banks look to invest their funds and boost returns. Global appetite for the debt is set to triple to $900 billion by 2017, according to a September report from Ernst & Young LLP.     

Worldwide sales of Islamic bonds fell 16 percent to $8.3 billion in 2013 from a year earlier, after reaching a record $46.4 billion in 2012, data compiled by Bloomberg show.     

Average yields on global Islamic bonds have climbed 10 basis points, or 0.10 percentage point, to 2.91 percent this year, 24 basis points off a record low of 2.67 percent on Jan. 10, the HSBC/Nasdaq Dubai US Dollar Sukuk Index shows. 

The premium investors demand to hold the securities over the London interbank offered rate, or Libor, narrowed seven basis points to 175 basis points.     

Islamic notes returned 0.4 percent in 2013, the HSBC index shows, while debt in emerging markets lost 2.2 percent, according to JPMorgan Chase & Co.’s EMBI Global Index.                      

‘Value Proposition’     

Malaysia’s CIMB Islamic Bank, part of CIMB Group Holdings, the nation’s biggest sukuk arranger last year, isn’t currently planning to add to its 312 outlets, chief executive officer Badlisyah Abdul Ghani said.     

“We are focused on relocation of existing branches,” Badlisyah said in an e-mailed reply to questions on Wednesday. “In growing markets such as Indonesia, greater awareness on the value proposition of Islamic deposits and greater deposit offerings would drive up demand.”     

Maybank Islamic, Asia Pacific’s largest Shariah-compliant lender and a unit of Malayan Banking, sees deposits increasing 15 percent to 20 percent this year from 71 billion ringgit ($22.8 billion) in 2012, chief executive officer Muzaffar Hisham said in a March 19 interview in Kuala Lumpur.     

The lender plans to roll out savings products that offer more competitive returns as Muslim wealth rises with Malaysia’s improving economic outlook, he said.     

“About 30 percent to 35 percent of our deposit base is from retail,” Muzaffar said. “We are still dependent on the liquidity of our institutional depositors but it’s a balancing act.”                        

Malaysia Growing     

The Southeast Asian nation’s gross domestic product will rise 5 percent to 6 percent in 2013 after growing 5.6 percent in 2012, supported by domestic demand, Bank Negara Malaysia forecast in its annual report issued yesterday.     

The Bloomberg AIBIM Bursa Malaysia Corporate Sukuk Index, which tracks 57 ringgit-denominated notes, climbed 1 percent to a record high of 103.305 this year.     

Islamic deposits in Malaysia increased 14 percent to a record 386.2 billion ringgit in 2012, according to the central bank’s annual report. There were 16 Shariah-compliant lenders and 10 booths at non-Islamic banks offering services in the country, it said. 

Banking assets complying with Muslim tenets rose 14 percent to 494.6 billion ringgit, or 23.8 percent of the total.     

“Deposits are growing due to an increase in structured investments which lock in deposits for a period of time,” HSBC’s Rafe said. “In Indonesia, the same applies. There are more Islamic banks and products.

(Jakarta Globe / 21 March 2013)

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Turkey urged to seize Islamic banking opportunity

The Turkish Islamic banking sector will triple in 10 years reaching $100 billion by 2023, while the country would have even more potential if it would meet the foreign demand by offering more of a variety of Islamic financial instrument, an Ernst & Young report has said. 

Islamic banking, which follows the requirements of Shaira and does not charge interest, has emerged as a prominent system at a time when European banks that have been the backbone of global sector are only slightly recovering from the aftermath of the financial crisis. The Islamic banking sector offers great opportunities for Turkey as well, as the country seeks its share in interest-free banking in light of the value and market presence of Islamic banks, also known as participation banks.

The report published by Ernst & Young on the sector says Turkish participation banks have expanded every year at an average of 19 percent and their commercial volume reached $1.3 billion in 2011.

Currently, all of the banks in Turkey that offer interest-free services to their customers hold 5 percent of the total banking market at a size of $31 billion, and the report expects Turkey will increase the size of its participation banks to over $100 billion.

While the general outlook of the sector looks promising, Turkey fails to reach its actual potential in the sector, the report warns.

Turkey has been trading only sukuk certificates indexed on rent certificates as an Islamic banking vehicle since last August, but there are three more non-interest financial instruments that are used in international markets.

New banks and new instruments coming 

The Turkish Capital Market Board (SPK) has announced that it is preparing the necessary regulations for introducing three new Islamic-compliant financial instruments to supplement the existing sukuks at the beginning of this month.

According to the report, serving new, non-interest financial instruments to foreign investor from Asian and Gulf countries and using sukuks to finance Turkey’s planned domestic infrastructure investments, projected to reach $20 billion by the end of 2013, would accelerate the sector’s growth. Currently only one Turkish participation bank, Bank Asya, is completely Turkish-capitalized. The majority stakes of the other three, Albaraka Türk, Kuveyt Türk and Türkiye Finans, are held by Middle Eastern capital owners. 

The Turkish state announced it will establish two new participation banks that offer interest-free services. 

(Daily News / 21 March 2013)

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Bahrain Champions Islamic Finance

Manama: March 20 -- (BNA)-- The Bahrain Chamber for Dispute Resolution (BCDR-AAA) this week hosted a high-level roundtable discussion in association with industry experts in Bahrain to explore best practices in the field of dispute resolution in Islamic Finance.

The roundtable, focused on Islamic Finance Dispute Resolution Issues, was moderated by James MacPherson, CEO of the BCDR-AAA. The discussion forms part of a series of events hosted and conducted by the Chamber in order gauge stakeholder insight and opinion of the alternative dispute resolution (ADR) services available in Bahrain and the wider region.

Speaking after the event, James Macpherson said: “Bahrain is currently a leader in conventional and Islamic finance and has a professional and well-established commercial legal system and related services. ADR is growing in popularity as businesses seek the rapid and cost effective resolution of commercial disputes, with demand the greatest in the financial sector.

“This event is just one example of how the BCDR-AAA continuously strives to explore and respond to the dispute resolution needs of the business community, and we are grateful to our industry colleagues for joining us for such an informative discussion.”

Oliver Agha, Partner and Head of Islamic Finance at Holland & Knight and Managing Partner of Agha & Co, led a discussion on the structural development of a world-class Islamic dispute resolution centre.

Speaking after the event, Mr. Agha, who is a member of the Board of AAOIFI said: "Islamic finance is at a juncture in its evolution.

Further development requires the establishment of a dedicated and specialist Islamic finance adjudication centre where adjudicators are well-versed in complex Islamic documentation, AAOIFI standards, applicable law and complex international and cross-border transactions.

“Establishing such a centre is critical in order to give stakeholders a reliable forum where they can have their complex Islamic transactions adjudicated by professionals that have the requisite background, training and capability. The need for such a centre is made more acute by the general lack of comprehensive regulatory legal frameworks that delineate the stakeholders' rights and obligations."

Mr. Richard Naimark, Senior Vice President of the American Arbitration Association (AAA) who also participated in the roundtable discussion said: "As Islamic finance becomes one of the key products of the financial transaction, there is a genuine need for establishing a dispute resolution centre to serve this important and growing market. Bahrain has demonstrated a cutting edge approach to ADR which, combined with a unique regulatory framework, makes it the perfect location for such a centre."

The BCDR-AAA provides international and regional businesses and governments, contracting in the Gulf and beyond, with purpose-built ADR solutions for the rapid, effective and binding resolution of commercial disputes.

(Bahrain News Agency / 20 March 2013)

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Malaysia: Islamic finance body in 'final stages' of 1st sukuk issuance, says BNM Governor

KUALA LUMPUR: International Islamic Liquidity Management Corp., backed by a group of central banks located in Asia and the Middle East, is in the "final stages" of issuing its first sukuk or Islamic bond, Malaysian central bank governor Tan Sri Dr Zeti Akhtar Aziz said on Wednesday.
Kuala Lumpur-headquartered IILM, established in 2010, was entasked to issue short-term sukuk, or Islamic bonds, to help sharia-compliant banks manage liquidity and create a liquid cross-border market for Islamic instruments.
"The shareholders (of IILM) are in the process of supplying the underlying assets for the sukuk," Zeti told reporters in the Malaysian capital. "There will be an announcement on this in the near term, it would be correct to say that it is in the final stages."
She added the IILM has hired primary dealers to distribute its maiden sukuk, which IILM officials preivously said would range between $300 million and $500 million.
Issuance of this sukuk has been delayed twice, as IILM faces a major challenge to ensure compliance with laws in all 12 member countries.
IILM members include monetary authorities in Indonesia, Iran, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Saudi Arabia, Sudan, Turkey and the United Arab Emirates as well as the Islamic Development Bank and the Islamic Corporation for the Development of the Private Sector. 

(The Star Online / 20 March 2013)

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Islamic finance to positively benefit local economy

MUSCAT --Highlighting the rapid growth demonstrated in the Islamic Finance sector, and the need for broader discussions on the opportunities for Islamic Finance, Abdul Rahman Barham, Chairman - Amanie Advisory Oman said, "Islamic finance is gaining pace in the Sultanate, and it is a great honour to be a part of this momentous growth. At Amanie Advisors , we specialise in this sector and feel that the great potential of Islamic finance is yet to be fully harnessed. Therefore, it is our duty to organise workshops to increase awareness and share our insights with other stakeholders from the Islamic Finance sector."

The Islamic finance workshop explored themes of the emergence of Islamic finance Oman and presenters delved deeper into the structure of Islamic finance while highlighting the significant progress the sector has undergone in the Sultanate. The workshop was attended by leading figures from the Banking, Investment and Islamic finance sector in Oman, including business leaders and government officials. Also present at the event were representatives from the Central Bank, Islamic banks, pension funds, and large corporations in Oman.

Among the key discussions of the workshop was the opportunity for foreign direct investments (FDIs) into Oman by creating a shariah compliant fund that will invest in strategic industries and small and medium sectors (SMEs). It was considered that this fund could also facilitate the transfer of technical know-how from world-class and reputable companies overseas to the local industries.

Senior speakers from Amanie Advisors Global addressed the attendees and recommended the adoption of state-of-the-art technology to conduct Islamic finance businesses in Oman. The participants were shown the latest tools and techniques developed by the Group inclusive of Shariah stock-screening solutions, cost effective core Islamic banking platform, global best practices in risk management, and the world's first shariah analytics driven by artificial intelligence (AI).

The underlying objective of the workshop was to share knowledge with regard to the latest developments in the Islamic finance industry, across the globe as well regionally and in Oman, while group discussions also centered on how best to harness the increasing interest in the Islamic Finance sector to positively benefit the Oman economy. It was also agreed that Islamic finance in Oman is in its formative years and the speakers recommended means for further growth and strengthening the operations of Islamic finance institutions. Fahad Alkhalili, the Executive Partner of Amanie House of Advisory Oman, concluded the workshop by expressing Amanie's keen interest to work with both public and private sectors to accelerate the development of an Islamic finance ecosystem in Oman.

Amanie Advisory House of Oman in 2012 organised the extremely successful and well-attended inaugural Muscat International Islamic Finance Forum. The Forum hosted the former Prime Minister of Malaysia, Tun Dr Mahathir Mohamad as keynote speaker and saw a huge turnout of prominent personalities from the private and public sector of the Omani Islamic Banking community.

(Zawya / 21 March 2013)

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