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Saturday, 18 May 2013

Turkey: Islamic banks continue raising funds

Turkey’s Islamic banks maintained their upward momentum in the first quarter of 2013, continuing a trend that began last year, according to an association of the lenders.

The Participation Banks Association of Turkey (TKKB) said Turkey’s four Islamic lenders, also known as participation banks, raised 53.1 billion Turkish Liras in funds in the first three months of the year, an 8 percent increase compared to the same period last year. The banks yielded 226 million liras in net profit in the first three months of the year. 

Islamic banks operate in compliance with Islamic financial rules which ban interest. Along with the rising presence of Islamic-compliant financial instruments in the global financial markets, Turkey’s Islamic banks benefited from decreasing confidence in regular lenders in the wake of the global crisis. 

“The share of participation banking overall banking sector fell to 1 percent in 2011. We raised it to 6 percent in 2012. Out growth is on the upturn,” Albaraka CEO Fahrettin Yahşi told Anatolia agency yesterday. Turkey’s four participation banks, Albaraka, Bank Asya, Kuveyt Türk and Türkiye Finans, have 836 branches among them across the country. 

(Daily News / 18 May 2013)

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UK's biggest Islamic bank eyes closer ties to Gulf

The Bank of London and The Middle East (BLME), Britain's largest standalone Islamic bank, is targeting 15 percent growth in assets this year, with plans for a Dubai office to help boost its capital markets and wealth management offerings.
BLME plans to have a presence in the emirate's offshore financial district later this year to attract regional business from countries such as Qatar and Saudi Arabia, chief executive Humphrey Percy told Reuters in an interview.
"Our Dubai office will help identify opportunities for club transactions, syndications and for our wealth management offering," Percy said.
There are no plans for seeking a full branch licence or a presence in other countries, he added.
BLME, which offers corporate banking and wealth management services, has carved a niche in middle-market transactions while benefiting from limited Gulf-based competitors and reduced activity from large British banking groups, he said.
The bank expects double-digit asset growth in coming years, with its balance sheet growing past 1 billion pounds ($1.6bn) by December 2012, up from 807 million pounds in 2011.
"We target 15 percent growth in assets this year, with ambitious targets from there onwards."
The bank was founded in 2006 with the backing of Kuwaiti investors, including Boubyan Bank, which held 21.8 percent of BLME shares as of December 2012.
The bank returned to profitbality in 2012, posting a net operating profit of 5.5 million pounds, after a 10.8 million loss in 2011.
Focus areas include healthcare, transportation and real estate, where BLME is further diversified across property development, investment holdings and residential financing.
"At this point in the cycle, real estate development is attractive and showing good results," he added.
The bank holds over $100m in assets under management across a range of Islamic funds, including a fixed income fund rated A by Moody's.
In October, Australian fund manager Crescent Wealth appointed BLME as the investment sub-adviser to its Islamic cash fund
(Arabian Business.Com / 17 May 2013)

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Muslim banking in Canada: A paradigm shift

It is likely that Islamic finance in Canada will increase in popularity given the number of potential households it could serve. It is also likely that as the regulatory framework for such institutions solidifies, more entrants into the market will help satiate the desire for economies of scale. Many emerging markets around the world with relatively large Muslim populations already have significant Islamic banking institutions. Needless to say, Islamic finance still remains a mystery to many in the Western world.
One of the fundamental tenets of banking is known as interest. There are several historical accounts of interest payments being made as far back as several centuries BC. Interest exists in two general types: a) a fee that is paid by a borrower of money; and b) a fee that is earned from the deposit of money. The difference between b) and a) is often referred to as "the spread." The spread is how most financial institutions make revenue. Take for example a bank that takes a deposit from a customer of $100 and pays that customer interest of 2 per cent or in this case $2 after a year's period. The bank will then take that same $100 and lend it out to a different customer who must pay borrower's interest of 5 per cent or $5. In this case, the bank has made a spread (or profit) of $3.
Islamic banks adhere to religious law — called "sharia" — which affects how they operate. Under sharia law, Muslims do not pay or receive interest. This practice is known as "riba" in Arabic. When gold currency was used for normal transactions, it was acceptable for a loan of 100 gold dinars to be paid back as 110 gold dinars because it was considered tangible value. However, when economies moved toward the use of fiat (or government regulated) money, the practice of riba was inconsistent with Islamic principles and therefore, not permitted. Riba is defined as surplus value without counterpart. This distinction between tangible (gold) and intangible (fiat) transactions is at the root of what makes Islamic banking unique.
If Islamic finance prohibits charging interest (riba), how do they function? Ensuring fair play is at the core of Islamic banking. As such, the principle of "risk-sharing" is a critical component. In essence, the Islamic bank becomes a business partner with the customer. For example, a car lease is appropriate because the bank has a stake in the ownership of the car. There are two principle financing arrangements offered to borrowers: murabaha (instalment sale) and ijara (redeemable lease). In the murabaha example, the bank buys the asset (e.g. large screen television) and then resells it to the customer at a higher price while the customer still uses it. In this case, the customer will have an instalment plan of those repayments. In the ijara example, the customer would use the asset (e.g. large screen television) over a number of years and at the end of the agreement pay cash to own it outright.
When it comes to deposit accounts, Islamic banks have a similar philosophy to credit unions. They will both share in the profits of the organization. The main difference in Islamic finance is that the profits that will be distributed are at a rate agreed to when the account is initially opened. As such, if the Islamic bank does not make any profit, the depositor will not receive any payment. This is an example of the risk-sharing principle outlined earlier.
Islamic finance is an interesting topic of study. There are courses now offered in business schools across the country including ours at DeGroote. A handful of Islamic credit unions are popping up across Canada, although some have struggled to survive. A well-regulated and beneficial Islamic financial infrastructure is indeed possible, and most importantly, necessary for long-term viability in Canada.
Nick Bontis is a professional speaker, management consultant, business adviser, McMaster University professor and author.

(Thespec.Com / 17 May 2013)

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Malaysia: Zeti gives advice on Islamic financial innovations

KUALA LUMPUR: Innovations in Islamic financial solutions will need to take into account the higher regulatory expectations for more transparency, as well as the effective management of risks and capital, said Bank Negara govenorTan Sri Dr Zeti Akhtar Aziz.
She also noted that while Islamic finance had benefited from a well developed, more competitive and well-regulated eco-system, it needed to build on and reinforce the “solid foundations that have been achieved in this decade”.
“As the industry transitions into a new era of growth and development, the competitive financial landscape is being redrawn by the evolving international regulatory reforms, changing operating models, rising consumer expectations and increased competition,” she said.
“In this more challenging environment, the success of sustaining the momentum of Islamic finance as a transformative agent for the economy, will hinge on the ability to keep raising the bar in the pursuit of an effective functioning and sound financial system,” she told an international audience at the Islamic Financial Services Board (IFSB) Summit 2013, The Future of the Islamic Financial Services Industry: Resilience, Stability and Inclusive Growth, yesterday.
The event was also held in conjunction with the IFSB's 10th anniversary.
The summit sessions allowed industry players to network and discuss market prospects for Islamic finance, identify measures needed to connect Islamic financial institutions and market segments.
Zeti also spoke on the severe damage caused by the global financial crisis and the ensuing economic downturns, and how enduring recovery would “demand a global policy response that would bring about a new economic plan”.
She alluded to the need for more responsible financial practices from the financial sector, which included the commitment to achieve socio-economic goals.
“Much has been achieved, both in terms of the role and contribution of the IFSB, and the advancement made by Islamic finance in this recent decade.
“Our commitment and strategies to keep raising the bar on Islamic finance will enhance its prospect to contribute to achieving our shared vision of inclusive growth in an environment of financial stability,” she added.
Qatar Central Bank govenor and chairman of the IFSB 2013 Sheikh Abdulla Saoud Al-Thani said the Islamic finance industry grew an estimated 15% annually.
“The IFSB remained firm in ensuring that challenges arising out of this sharp growth did not cause problems and that the development of Islamic finance before the involvement of IFSB was mainly prevented by the fact that Islamic financial concepts may have been unfamiliar to regulators and the business community,” he said.
Zeti also spoke on the severe damage caused by the global financial crisis and the ensuing economic downturns, and how enduring recovery would “demand a global policy response that would bring about a new economic plan”.

(The Star Online / 17 May 2013)

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Malaysia: Islamic finance moving towards greater convergence, says Zeti

KUALA LUMPUR: Islamic Finance is moving towards greater convergence with issues on harmonisation of Syariah interpretation and coordination of international policy and the governance process among industry players’ main discussion topics.

Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said greater dialogue among scholars and greater awareness would contribute towards harmonisation in Islamic principles.

“There is already convergence of 80 per cent of the issues in the Islamic finance industry and 20 per cent of the fundamental issues are still outstanding.

“But the move is towards greater convergence,” she said at the 10th Islamic Financial Services Board (IFSB) Summit at the panel discussion on “Lessons Drawn: Prospects for the Future.”

Zeti said the IFSB, which is focusing on institution building, had established the Islamic Financial Stability Forum to allow greater engagement with the industry to share information and experience.

“The next level is the policy coordination, which comes from the international dimension and governance process,” she added.

Zeti said in Malaysia, Islamic finance has grown tremendously, with Islamic banking having grown to 23 per cent of banking system.

Meanwhile, speakers at the IFSB Summit highlighted the usefulness of Islamic finance in targetting the poor based on Islamic financial instruments that are based on risk-sharing principles.

However, there need to be more human capital development efforts to support awareness of the benefits of Islamic finance, they said.

Director-General of Islamic Research & Training Institute (IRTI), Islamic Development Bank Group, Prof. Dr Azmi Omar, said one such instrument is Islamic microfinance.

“The use of Islamic microfinance is still not substantial.

“What we need is to provide the required training and capacity building for Islamic microfinance to support small businesses,” he said.

(Berneo Post Online / 18 May 2013)

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Islamic Finance: BLME Targets 15% Asset Growth in 2013

Britain's Bank of London and the Middle East (BLME) is aiming to grow its assets by 15% this year following the significant rise in Islamic finance activity in the Gulf region.

The London-based Shariah compliant bank is targeting more business from the Middle East, in its capital markets and wealth management divisions, with the opening of a Dubai office later in 2013.
Its new office will be housed in the Dubai International Financial Centre. 
The total assets of BLME that was set up six years ago and owned primarily by Kuwaiti shareholders, increased to more than £1bn ($1.52bn, €1.18bn) at the end of 2012.
The UK's largest standalone Islamic bank plans to attract more business from neighbouring countries such as Qatar and Saudi Arabia with its presence in the United Arab Emirates, BLME's CEO Humphrey Percy told Reuters in an interview.
Islamic finance activity is rising in the Gulf region, especially with increased issue of Islamic bonds known as sukuk.
In January, Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, announced a plan to place Dubai at the centre of the global Islamic economy, replacing Bahrain plagued by social unrest.
The office in Dubai would help identify opportunities for club transactions, syndications and for wealth management offering, Percy noted. However, the Dubai office will be a representative office, promoting the bank's services. The bank is not seeking a full branch license or a presence in other countries and it will not operate any investment funds there.
In 2012, BLME returned to profitability with a net operating profit of £5.5m, after posting a £10.8m loss in 2011. It operates in three core business areas including wealth management, corporate banking and treasury, adhering to principles of Islamic law that forbid charging or paying interest, among other norms. The business sectors on focus include healthcare, transportation and real estate.
(International Business Times / 17 May 2013)

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