IILM sukuk aims at creating cross-border liquidity instrument

LONDON – After much speculation and expectation about a debut sukuk launch last April 6, the announcement in Doha by the Governing Council of the International Islamic Liquidity Management Corporation (IILM) that it was merely launching a sukuk program has turned out to be somewhat of an anti-climax. The expectation is now that the IILM will eventually issue its debut sukuk in the third quarter of 2013 – a $500 million issuance. 

Bankers have long past expressed their disappointment in the seeming inability of the IILM to get its act going since its establishment in October 2010 – that of issuing AAA-rated papers in a cross-border market to generate short-term liquidity management for the global Islamic finance industry. It was only the replacement of the inaugural CEO of IILM Mahmoud Abu Shamma by Dr Rifaat Abdel Karim, former Secretary General of the Islamic Financial Services Board (IFSB) a year ago, that the IILM has progressed to its current position. 

But little did the powers that be on the IILM Governing Council, which is currently chaired by Abdulla Saoud Al-Thani, who is also the Governor of the Central Bank of Qatar (CBQ), anticipate the abrupt divestment from the IILM’s equity subscription by the Saudi Arabian Monetary Agency (SAMA) last Friday. SAMA together with Bank Negara Malaysia are the two largest founder equity subscribers of IILM at $10 million each. 

In terms of the politics of global Islamic finance, this is an earthquake measuring some 6 to 7 points on the Richter scale. 

But what impact the Kingdom’s departure will have on the future of the IILM remains a moot point.  According to bankers, who wish to remain anonymous, there will be some damaging fallout, albeit that the biggest effect could be psychological. 

The message the events of the last few days emits to the world is that the world of Islamic finance is disunited at the highest levels and that even petty disagreements could not be resolved on the basis of primus inter pares. 

Whatever the reasons behind the Kingdom’s decision to leave the IILM, market sentiments remain strong that the Governing Council must re-engage with SAMA Governor Fahad Al Mubarak with the aim of getting Riyadh to rejoin the corporation. The reasons are manifold. The Kingdom is the single largest market for Islamic finance in terms of assets and liquidity. It is a member of the OIC, the Arab League and the G20, one of only three Muslim countries, the other two being Turkey and Indonesia.  

Saudi Arabia’s departure brings the shareholding membership of the IILM to 10 countries and 2 multilaterals, with the total paid-up capital of $80 million and authorized capital of $1 billion however remaining unchanged. The Central Bank of Qatar (CBQ) and Bank Negara Malaysia (BNM) have each purchased additional shares in the IILM thus absorbing the SAMA shareholding. This means that the BNM’s equity share in IILM increase to $15 million and CBQ’s to $10 million.

 

IILM members include monetary authorities in Indonesia, Iran, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, 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 launch of the highly-rated IILM Sukuk Program is a milestone for the IILM. It will be the first step toward creating a cross-border liquidity instrument for the International Islamic Financial Services (IIFS) industry. The IILM Sukuk will help to address the challenges that IIFS have been facing globally with regard to their need for highly rated financial instruments to manage their liquidity compared to their conventional counterparts”, said Chairman Abdulla Saoud Al-Thani. 

The launch of the program is pursuant to the granting of an A-1 public rating by Standard & Poor’s Rating Services. But the Governing Council could not even bring themselves to give any indication as to the size of the program. A $500 million sukuk in September later this year is not going to even begin to address the cross-border liquidity management challenges that the Islamic finance industry is faced with. 

In a statement, the IILM stressed that its short-term Sukuk Program with an A-1 short-term rating will be a significant milestone as it will be the first Shariah-compliant US dollar denominated short-term highly rated financial instrument in the market to be issued at maturities of up to one year; it will be a money-market instrument backed by sovereign assets in the form of sukuk; and it will have a multi-jurisdictional primary-dealer network which will facilitate distribution to investors worldwide.

“The Governing Council anticipates that there will be a strong response to the IILM Sukuk Program. The launching of this historic program and the obtaining of a public rating from an international rating agency marks the first step in the IILM’s achievement of its mandate,” the corporation added in the statement. 

While this may be true, the real challenge is for the Corporation to get member countries to contribute qualifying highly-rated assets as the underlying for the sukuk issuances. 

Several central bank participants at the launch of the IILM did express a ‘wait- and-see’ attitude as to the operational efficacy of the proposed IILM mechanism. Some were particularly concerned about the availability of a critical mass of AAA-rated papers, especially given that sovereigns through central banks would not donate assets directly but would only nominate entities to donate such assets. 

As such, it will be interesting to see the asset compilation of the proposed debut IILM Sukuk in Third Quarter 2013. 

Perhaps equally important is the fact that the IILM also signed signed a Memorandum of Understanding (MoU) with the Asian Development Bank (ADB) in Doha on Saturday to strengthen cooperation between the two organizations.

 “The MoU will facilitate mutual cooperation and collaboration between the IILM and the ADB besides fostering the development of global cross-border Shariah-compliant liquidity management for institutions offering Islamic financial services (IIFS),” said the Chairman of the IILM Governing Council, Abdulla Saoud Al-Thani.

The collaboration with the ADB could see the issuance of a spate of short-term sukuk by the Asian multilateral under the IILM umbrella aimed at liquidity management enhancement of banks in member countries common to both organizations. 

The ADB already has a collaboration with the Islamic Development Bank, a founder shareholder of the IILM, in a joint infrastructure and development fund which co-finances projects in member countries common to both.

(Saudi Gazette / 08 April 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

Singapore Defends Expiry Of Islamic Finance Tax Breaks

In his welcome remarks at the Islamic Finance News Singapore Roadshow, Ng Nam Sin, Assistant Managing Director of the Monetary Authority of Singapore (MAS), pointed out that, despite the expiry of certain tax incentives, Singapore is still looking to develop the city's Islamic finance capabilities by ensuring it a level playing field with conventional financial products.

To ensure that level playing field between Islamic finance and conventional financial products, he said that Singapore "has recognized the unique characteristics of the former in both regulatory and tax treatments. We have ensured the neutrality of the rules insofar as Islamic financing is similar to conventional financing in economic substance and risks. Where the structures are unique, we have and will continue to work closely with industry stakeholders to ensure that level playing field is preserved."

Ng noted that, "over the past few years, the range of financial instruments in Singapore has expanded. Leveraging on the depth and diversity of Singapore's capital market, … the growth potential for Islamic finance in Singapore is strong. As such MAS remains committed to further grow this important sector of our financial services industry."

He confirmed that, despite the lapsing of two tax incentives for Islamic finance introduced in the 2008 Budget, which, like all Singapore's tax incentives, have a fixed tenure – in this case, of five years, Islamic finance activities will continue to be incentivized alongside conventional finance activities under Singapore's other existing schemes.

"The lapsing of the two incentives is no reflection of MAS’ continuing commitment to develop Islamic financial services in Singapore," he concluded. "Singapore’s proposition for Islamic finance must be broader than just tax advantage. Singapore’s success as an international financial sector stems from its high standards of regulation; deep and liquid capital market, the presence of international buy side players, and a critical mass of financial intermediaries with expertise to address a wide range of financing needs. It is these strengths that allow Singapore to support the growth of Islamic finance."

The 2008 Budget enhanced Singapore's Financial Sector Incentive by granting a 5% concessionary tax rate on income derived from performing specific Shariah compliant activities, from April 1, 2008, to March 31, 2013 (both dates inclusive), and also gave a 5% concessionary tax rate to an insurer on income derived from offshore Islamic insurance (takaful) or reinsurance (retakaful) business, for the same period.

Those tax incentives have now expired, and the income tax rate on Islamic finance activities will now revert to 12%, rather than the normal corporate tax rate of 17% in Singapore. According to the Government, the tax treatment of Islamic contracts remains aligned to the treatment of conventional financing contracts to which they are economically equivalent .

However, others have remarked that Singapore is now lagging behind Malaysia, which is establishing itself as the major Islamic financial hub in the region, by going beyond the provision of a level playing field in the inclusion of tax exemptions for income derived from Islamic financial products and structures.

(Global Tax News / 08 April 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

15 Things Successful People Do

“Success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome.”

Whether in business or life, there's a fine line between success and failure. Booker T. Washington’s quote highlights the inevitability of obstacles on the path to success. In fact, I firmly believe success and failure go hand-in-hand. Those looking to succeed must first fail or learn from those who failed.

Successful individuals aren’t just born, there’s a lot more that goes into the equation. I've found those who are highly successful have a lot more in common than we may think. If you’re seeking success, these habits may come in handy.

1. Learn from failure. No matter how hard you work, failure can and will happen. The most successful people understand the reality of failure, and its importance in finding success. Rather than running and hiding when you fail, embrace it. Learn from this mistake and you won’t fail in the same way again.

2. Set goals. Those who are successful set daily achievable goals. Find success by solidifying S.M.A.R.T. -- smart, measurable, attainable, realistic, timely -- goals. Stop juggling a mental to-do list of just long-term goals and establish small daily goals to achieve your vision.

3. Don’t rely on luck. Many relate success to being in the right place at the right time. While this is an element of success, there’s also the crucial involvement of blood, sweat, and tears. Don’t hold yourself back by waiting for the perfect timing or idea. Some of the most successful people got there by hitting the ground running, even if timing wasn’t perfect.

4. Track progress. Success comes from regularly monitoring behaviors, strategies, and tactics. How can you make adjustments if you don’t know how you’re doing? Hold yourself accountable by checking your progress as often as possible.

5. Act. Successful people don’t always know the right answer, but the keep moving anyway. Don’t let obstacles stall you when you’re searching for the right solution. Taking action will lead to answers.

6. Connect the dots. Those who are successful have the ability to see the greater picture. They identify and connect the tiny details to get there. Look at things in a “past, present, and future” context to receive favorable results.

7. Display realistic optimism. Those who succeed truly believe in their abilities. This respectfully drives them forward. Assess your abilities to gain a clear understanding of what you are able to accomplish. This will allow you balance yourself through the aid of find someone or something else.

8. Continued improvement. Successful people habitually thrive on self-improvement, whether it’s in terms of learning from mistakes or simply using their weaknesses as opportunities. Channel this habit by continually searching for ways to be better. Maybe your networking skills are rusty or you need some extra training -- set goals for improving your weak spots.

9. Commit. Success doesn’t come without effort. The most successful individuals are often the most committed to what they’re working toward. Throw yourself into your tasks and go the extra mile every single day. Make no exceptions.

10. Be alert. A keen sense of awareness breeds success. If you’re not keyed into your environment, you’re sure to miss opportunities. Do you know what’s being said within your company, feedback from clients, or even in your entire industry?

11. Persevere. Truly successful people never give up. Do they ever fail? Yes. But as times get hard, their stamina to move forward doesn’t wane. Develop a willingness to work through the challenges you encounter along the way.

12. Communicate with confidence. Those who are successful have an ease for convincing others. They don’t manipulate or pressure, but logically explain the benefits. Communicating with confidence will allow you to more easily negotiate your visions.

13. Display humility. The most successful individuals lack an ego. It’s their fault when they fail. Hold yourself accountable for every aspect of your life by focusing on remaining focused and humble.

14. Be flexible. Plans may change. Successful people roll with the punches. Rather than getting frustrated, swiftly maneuver in another direction.

15. Make connections. Successful people often attribute their achievements to the help of others. You can’t and won’t be able to do this alone. Invest in generating mutually beneficial business connections and partners. Even if you have all the skills necessary to run your company, a business partner could complement your weaknesses.

Initiating these habits of successful people will fuel you on your search for achievement.

What do you think is the most important habit of successful people?

(Ilya Pozin)

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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