SINGAPORE - Investment products that adhere to syariah or Islamic principles are slowly growing in popularity in Singapore.
Franklin Templeton has launched another three syariah-compliant funds, as the asset manager recognises the growth of Islamic finance.
The three funds are the Franklin Templeton Global Sukuk Fund, Templeton Shariah Global Equity Fund and Templeton Shariah Asian Growth Fund, and will be made available to retail investors.
A syariah-compliant product is one that operates in accordance with the religious beliefs of Islam. For example, syariah-compliant funds are not allowed to invest in businesses associated with activities barred by Islam, such as gambling or alcohol.
Conventional financial services are also excluded as they go against the religion's ban on interest.
To ensure compliance with syariah guidelines, Franklin Templeton scrutinises the business activities of every company that it picks at a granular level, and the three new funds have been independently reviewed and endorsed by the Amanie International Shariah Supervisory Board.
The Global Sukuk Fund focuses on fixed and floating rate syariah-compliant securities issued by government, government-related entities and corporates. Sukuk means Islamic bond.
For those who prefer equity investments, the Templeton Shariah Global Equity Fund will invest in the most undervalued opportunities globally.
The Templeton Shariah Asian Growth Fund will invest primarily in syariah-compliant equity and equity-related securities listed in the Asia region, excluding Australia, New Zealand and Japan.
Dr Mark Mobius, executive chairman of Templeton Emerging Markets Group, who will manage the Templeton Shariah Asian Growth Fund, said: "Syariah-compliant strategies are an important and growing market in many parts of the developing world, and Templeton is pleased to bring its emerging markets expertise to bear on this new offering for syariah investors globally.
Singapore's market for syariah-compliant funds is not deep, with about 15 on the market, including the DWS Noor Precious Metals Securities Fund that is managed by Deutsche Asset Management, and the DBS Mendaki Global Fund.
HSBC Insurance also offers investment-linked plans (ILPs) that are invested in syariah-compliant funds. However, HSBC's ILP products and platforms are non-syariah-compliant.
Mr Wong Sui Jau, general manager of Fundsupermart.com, said that the market for syariah-compliant funds may still be considered a niche, and investors still do not see the funds as mainstream products.
"The bulk of the investors interested in such funds are still Muslim, because it is at the end of the day, compliant with Islamic law. It is slightly different from having a fund that claims to invest in socially responsible businesses," he explained.
However, Mr Wong added that there are still a few non-Muslim investors who have inquired about syariah-compliant funds.
Similarly, Aberdeen Asset Management Asia senior investment manager Christopher Wong said that most Singaporean investors still lack the awareness of such funds.
Aberdeen recently launched some syariah-compliant funds in Malaysia, but it does not sell such funds in Singapore.
"I don't think there is much demand for syariah-compliant funds at the moment, so it is hard to find a compelling investor base here to support the development of Islamic fund management in Singapore," he added.
KUALA LUMPUR, Malaysia — When Fabiola Nava Carrera told her friends that she was going to pursue a master of business administration degree in Islamic finance at a Malaysian university, they were taken aback.
“I was very interested in going there to see what was going on, because I knew nothing about Asian and Islamic culture,” said Ms. Carrera, a 27-year-old Mexican who had previously worked in international trade. “But my friends in Mexico couldn’t believe that I wanted to go to Malaysia, because they thought that it would be too dangerous or that the culture would be too different.”
Ms. Carrera went anyway. Last year, she was one of four students, three of whom were non-Muslim, who graduated from the inaugural class of the Universiti Tun Abdul Razak’s Global Islamic Finance M.B.A. program in Kuala Lumpur.
Islamic finance differs from conventional banking systems in that usury and speculation are prohibited. Transactions have to comply with Shariah, the legal code of Islam based on the Koran, and are based on principles of risk and profit sharing.
Islamic finance is booming. According to figures from Hong Leong Islamic Bank, a financial institution in Kuala Lumpur, Islamic finance activity has been growing 14 percent per year, with Islamic finance assets exceeding $1.1 trillion in cumulative value in 2011.
Such growth has pushed more educational institutions into creating degree programs in Islamic finance. In 2005, the International Islamic University Malaysia created an Islamic banking institute that offers students Master of Science and doctoral degrees in the subject. In recent years, at least half a dozen business schools in Britain, including the University of East London and Bangor University in Wales, have set up M.B.A. programs in Islamic finance.
Ms. Carrera’s alma mater, also known as Unirazak, is a rare business school located in an Islamic banking hub — according to the school, about a quarter of financial activity in Malaysia is compliant with Islamic law and customs — and yet foreigner-friendly.
“Malaysia is the third largest Islamic market after Saudi Arabia and Iran,” said Geoffrey Alan Williams, Unirazak’s deputy vice chancellor, whose jacket lapel sported a pin of the E.U. flag intertwined with the Malaysian flag. “So if you want to be in Islamic banking, you have to come here, unless you want to be in Tehran.”
Unirazak’s participation in the International Business School Alliance, a network of seven schools, also helps. The alliance, which Unirazak joined in 2011, allows students in member institutions to spend time in two schools and graduate with two M.B.A.’s. After one year in school, two thirds of which were spent in Bremen University of Applied Sciences in Germany and a third at Unirazak, Ms. Carrera graduated with an M.B.A. in logistics and supply chain management from the European school and an M.B.A. in Islamic finance from the Malaysian institution.
The other universities in the alliance are the University of Valencia in Spain, the University of Hertfordshire in Britain, Novancia Business School in Paris, the Institute of Business Studies in Moscow and the University of North Carolina Wilmington.
Each alliance member specializes in a particular area of finance and only students enrolled in their university’s specialty program can attend classes at sister schools. While Unirazak also offers more conventional M.B.A. programs, students there do not have access to I.B.S.A. resources.
“Our partners were initially quite skeptical because they thought” an Islamic finance program would be risky, said Barjoyai Bardai, the program’s director. “But global Islamic finance is trendy and will make an impact. A year on, I think we all feel we made the right choice.”
Unirazak has had to engage a wide range of faculty members to teach the course, with a specialized lecturer for each module. Apart from trained accountants like Dr. Barjoyai, the school has brought in a Shariah scholar from Egypt.
Most students, even practicing Muslims, are unfamiliar with the basic concepts of Islamic finance.
So classes are especially vigorous, since the school needs to impart very specialized knowledge in a limited time.
For a typical module in Islamic products and services, for example, students will have 14 four-hour lectures. The classes are aimed at both familiarizing them with the history of Islamic banking products, and encouraging them to think about developing more contemporary services. Apart from lectures, students are also expected to work on their own project papers.
“It would have been easier to get an M.B.A. in something else,” said Azrina Muhammad Aznan, a 28-year-old Malaysian enrolled in the program. “Other students have time to go to parties, but I have to sit down and do work.”
“If you are trained in Islamic banking, you should also be able to do conventional banking,” said Raja Teh Maimunah, the chief executive officer at Hong Leong Islamic Bank, who recently gave a talk to Islamic finance students at Unirazak.
The global Islamic finance master’s degree at Unirazak costs students more than 61,460 Malaysian ringgit, or nearly $20,000. At 29,020 ringgit, the master’s degree in leadership that Unirazak also offers costs less than half as much.
Dr. Williams, the university administrator, said the reason for the discrepancy was the standardization of prices for all programs under the I.B.S.A. aegis.
Because Islamic finance master’s degree programs were developed quite recently, it is difficult to assess how successful their graduates are.
“It must be relatively new, because I don’t see many of them,” said Ms. Maimunah, the banker. “I can see the benefits of regular conventional bankers going through certification programs that help them understand Islamic jurisprudence. I don’t know whether someone with an Islamic M.B.A. can give me something different.”
She cited programs like those offered by the International Center for Education in Islamic Finance, or Inceif, an organization established by the Malaysian central bank, as ones that were particularly valued in the industry.
Noting that Unirazak collaborates regularly with Inceif, Dr. Williams insisted that such programs were complementary with his school’s degrees.
“The whole industry is exploding in size, so we’re not fighting with other people,” he said, adding that Unirazak was preparing to roll out graduate degrees in Islamic branding and halal management in 2014. “There is so much demand, we just need to find out the right type of courses.
Pushing to expand the use of Islamic bonds to diversify the country's financing sources, the Turkish government is working on new regulations to allow wider use of a range of sukuk debt.
The Turkish treasury currently only issues ijara Islamic bonds, which are among the most widely used internationally. However, that type of sukuk also has it limitations. Hence, Ankara is hoping to have legislation to support the use of of istisna, murabaha, mudaraba, musharaka and wakala bonds ready in the coming months, reports Reuters.
"Ijara has a limit - real estate or leasing revenue is necessary and that is very limiting, maybe not for the Treasury but for the corporates," an unnamed banking source told the newswire. Other sources said the Turkish Capital Markets Board will complete its work within a couple of months, as it seeks to ensure the new types are in line with internationally accepted standards for Islamic finance.
"Turkey's preparing the legal framework for the sector to use whenever it needs. These issues will not become widespread in the short term," a senior official said. "The regulation will include both the treasury and corporates, and will allow any company or the treasury to issue them whenever there's demand for such an issue. That way, we'll be able to meet the global demand whenever we need."
Turkey's heavy dependence on the shaky European banking sector is a significant concern. It stands behind the huge concern over the country's current account deficit, which dictates central bank policy and raises borrowing costs by depressing Turkey's sovereign rating. Ankara has also seen privatization efforts sabotaged in recent years by financing difficulties on the part of corporates.
At the same time, Prime Minister Recep Tayyip Erdogan is desperate to boost Turkey's standing to that of a regional leader in the Middle East. All of which makes the recent turn by the government to tap the cash rich Islamic countries of the region an obvious move as Europe lurches through its debt crisis.
After several years of almost imperceptible development of Islamic finance, Turkey issued its first sovereign sukukin September, clearly expressing the hope that it would open the market for corporates. Ankara has since issued another two Islamic bonds for a total value of $3.25bn, while several banks have also entered the action. The treasury has announced it will issue lira-denominated sukuk twice a year.
The new regulations will give Turkish issuers more flexibility to take advantage of investor demand for various types of sukuk at certain times, sources claim to Reuters. Bankers cited the case of a perpetual sukuk - ie. without a maturity date - issued by Dubai Islamic Bank in March as an example. The $1bn issue was almost 15-times oversubscribed. "It was one of the most demanded issues in sukuk history, but it's hard to know when there will be demand for different types of issues," an Istanbul-based banker said.
A new report has predicted that Qatar will soon become a “key international distribution hub” for Shariah-compliant products as the Islamic finance market grows at an unprecedented pace.
Qatar Financial Centre Authority in its first ‘Mena Asset Management Barometer‘ suggests that Qatar’s position in the Islamic finance market will be boosted with the development of new infrastructure projects that will help in the growth of alternative fund structures and encourage public-private partnerships.
Currently, about 50 percent of the funds in Qatar are Shariah-compliant. Therefore, along with Saudi Arabia, Qatar is rated as a prominent Islamic finance fund centre. The demand for Shariah-compliant products is expected to grow because of increased interest from MENA’s internal markets, Southeast Asia, Australia and pension funds in the UK and Europe.
The report also highlights that the asset management sector in Qatar is still in its infancy and the alternative sector will need time to develop. In 2013, the respondents believe that asset management sector will develop well because of increased infrastructure spending, financial support of government agencies and financial regulation to promote strategy diversity among the country’s pool of asset management firms.
As Qatar accelerates investment on infrastructure projects to host the 2022 FIFA World Cup, the country envisages public investment plans worth USD 95 billion over five years. Several private equity and infrastructure funds are keen to relocate to Qatar to benefit from the country’s infrastructure boom through direct investment or by holding stakes in firms engaged in supply chains of the development projects.
The survey respondents also believe that, within the MENA region, Qatar was most likely to introduce short-selling regulation that would help in the creation of a domestic hedge fund sector. The county was also chosen by hedge fund management firms as the most favored location to establish a presence in the GCC.
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