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Tuesday, 21 May 2013

IDB chief: Islamic banking not confined to Muslim communities

The global credit squeeze and recession have made many countries turn to the Islamic Development Bank more than ever to seek help in their development projects, says its President Ahmed Mohammed Ali.
"Islamic banking is a fast-growing global industry. This is due to the integration with the real activity," he said.
"It is to be noted that Islamic banking is not confined to Muslim communities. Many social sectors participate in it," the president said in an interview.
Can you tell us about the size of the bank's assets since its establishment? What is the growth rate achieved last year? What are your growth prospects for next year?
IDB's assets are estimated at US$ 17 billion. Operational assets are estimated at $ 10 billion. Last year's loans ratio was about 13 percent, totaling $ 7.9 billion.

These include project finance and trade operations. We expect that the bank's operations will grow by 15 percent this year. The bank decided to increase its annual total operations by 30 percent, during the period 2009-11, in order to help member states to weather the effects of the world financial crisis.

Starting from 2013, the bank's financing went back to its earlier growth rates, estimated at 15 percent.

In addition to the above, insurance commitments issued by the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) until the end of 2012 are estimated at $ 17 billion.

What is the impact of the global crisis on IDB? How much are the bank's earnings for last year? What are the expected earnings for this year?
The global crisis led to an increase of the financing activity in the member states. As a result of the crisis, the global credit squeeze and recession made many countries turn to the bank more than ever to seek help in their development projects.

The annual growth rate of financing operations was increased from 15 percent in 2009 to 30 percent by the end of 2011. Thus the growth in the bank's operations during these three years was 90 percent.

Although IDB is an international development institution that complies with the Shariah rules in all its transactions, the bank's annual earnings were around 5 percent. We do not distribute dividends. We allocate them to the various operations and to shore up the bank's reserves. The bank's profits in 2012 were $ 175 million, with an expected growth rate similar to the previous years.

How much did the bank's group finance economic and social development?
Since its establishment and until November 2012, the group allocated around $ 90 billion for the member countries, which were channeled to economic and social development. This was warmly welcomed by many interested circles and by the international rating agencies. Thanks to the generous support of the member countries, IDB for the eleventh year in a row, got a triple-A rating with a positive outlook from the major rating agencies, Standard and Poor's, Moody's, and Fitch.
What do you think of the activities of the Islamic banks? Do they cooperate and achieve harmony amongst themselves?
Islamic banking is a fast-growing global industry. This is due to the integration with the real activity. There are now around 300 Islamic banks all over the globe. In addition, Islamic banking windows in international European banks stand now at 30, and are expected to rise.
It is to be noted that Islamic banking is not confined to Muslim communities. Many social sectors participate in it.

Islamic banking now can boast a solid infrastructure and this will surely help it to push forward in international banking operations. I believe now is the right time to invigorate the industry to transform the quality of its products and services in order to better serve the world's aspirations for safer and more creative banking.

Can you tell us about the Islamic International Finance Market (IIFM)?
IIFM was established in Bahrain in 2002 to address the lack of Islamic investment financial instruments, as well as address the problem of liquidity at Islamic banks, since Islamic banks transactions deal mostly with commodities.
But of course there are other investment instruments available for these banks, like Islamic sukuk, leasing sukuk which have gained currency recently.
How are Islamic banks rated internationally?
Islamic International Rating Agency (IIRA) was established in Bahrain in 2004. It was the first agency that gives ratings to Islamic banks and financial institutions. Before IIRA was established, they used to rely on the traditional international agencies for rating.
IIRA helped Islamic institutions offer their securities in international markets by giving them an international rating. It also helps increase transparency in the operations of these institutions, and enables them to assess operating risks.
How do you see Islamic banks in terms of anti-corruption and governance?
Islamic banking, by its very nature, complies with the Shariah rules. Not only do these rules supervene on financial transactions and contracts, but also on every aspect of any transaction with the shareholders, investors, and depositors. Therefore governance in Islamic banks is more stringent than in traditional banks. But of course the people working in these institutions are human after all, and they can make mistakes. But since the very concept of Islamic banking is asset-based, there can be less chances for corruption, and this imposes a solid framework for governance.
How does the bank handle financing operations with the non-Islamic international institutions?
We can have cooperative financing. In principle, Islamic contracts do not generate interest but they can give guarantees similar to interest-generating loans. For example, financing through leasing gives the investor more guarantees that mortgaging assets. This is so because the assets in the leasing arrangement are registered the assets in the name of the financier, not the person who got the loan.
As I can see it, there is nothing that stops traditional banks from using Islamic contracts, like the Istisn'a contract, where you can get a letter guaranteeing execution for an Islamic bank, so that the financier does not become vulnerable to unacceptable risks.
Does IDB work toward creating a common Islamic market?
We need to increase intra-country trade among Islamic nations. This is a strategic objective and a necessity imposed by the global economic developments.

The volume of intra-country trade is 18 percent, which is not enough to warrant the establishment of a common Islamic market. That project is a dream we want to come true. It would facilitate our adaption to a globalized economy and our response to the external challenges in commerce, productivity, and technology. It would also increase our competitiveness in international markets and help achieve social and economic growth in Islamic nations.

(Arab News / 21 May 2013)

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Islamic finance needs global sharia board - IDB president

The Islamic Development Bank (IDB), a Jeddah-based multilateral institution, has called for the creation of a global sharia advisory board that can offer greater uniformity for the Islamic finance industry, its president said on Thursday.
A centralised format to the supervision of sharia-compliant banking products is gaining favour across the globe, as regulators seek to standardise industry practices and improve consumer perceptions.
"IDB and IFSB (Islamic Financial Services Board) should study ways for creating globally acceptable references for the industry for the benefit of all," IDB president Ahmad Mohamed Ali said at a conference in Kuala Lumpur.
"This could include striving for the concept of a globally accepted sharia committee or body, which would be able to assist all Islamic financial institutions and bring them in line with a uniform standard."
Malaysia pioneered the country-level sharia board and in recent months several countries have introduced central boards of their own, including Dubai, Oman, Pakistan and Nigeria.
Countries like Oman have gone as far as imposing term limits on the sharia scholars who are members of these boards, while also requiring they abide by a code of conduct.
Islamic scholars are experts in financial and religious law, but they are not certified or accredited like other professions, so regulators are increasingly developing ways to ensure the hiring of experienced and financially literate scholars.
A global sharia board would also allow the industry to address low penetration rates in majority Muslim countries such as Pakistan, Indonesia, Turkey and Egypt where the industry's share of banking assets remains below 10 percent.
A global sharia board would provide a more structured approach to the industry, which has its core markets in the Gulf and Southeast Asia.
"This is very important as it gives a much needed structure to the industry, thus enabling it to be more stable and allowing it to grow further," Ali added.
Ali also called for the IFSB to assist the IDB and its member countries in providing technical assistance, while urging the industry to focus on Islamic microfinance and youth employment.
The IFSB is one of the main bodies setting standards globally for Islamic finance, although national financial regulators have the final say on their implementation and enforcement.
(Reuters / 16 May 2013)

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Jordan's appetite for Islamic banking

Sami Al Afghani, CEO of Jordan Dubai Islamic Bank talks to Banker Middle East about the growing interest towards Islamic banking products and practices within Jordan's banking and finance sector.

How do you see the growth in Islamic banking in Jordan?
Islamic banking is an increasingly growing sector in Jordan and is in a position to fulfill all the financial needs and requirements of customers in all categories. There is a growing trend in Jordan whereby a large number of customers are shifting their business to Islamic banks. This trend is made rather clear from the increasing market share for Islamic banks, due mainly to a host of new competitive Islamic products.
At Jordan Dubai Islamic Bank , we are placing all our focus on the local market for the time being to ensure our position in the market as the leading providers of Islamic banking products in Jordan.
There is room for Islamic banking to grow in Jordan and the opportunity for it is rather great due to an ever increasing Muslim community, interested only in dealing with Islamic financial products especially where there are clear guidelines and structures. Islamic banking is not only a matter of providing the service but more importantly, it is about the quality of this service which is highly affected by Shari'ah Islamic laws.
I believe that the entrance of new players into the Islamic banking market is beneficial for all, as it will help in allowing for more regulations for this sector and will highlight Shari'ah- compliant products making them more familiar to the public, as new comers will enhance the experience and culture in this sector in the same way that Jordan Dubai Islamic Bank has.
What is your view of the Sukuk market growth in Jordan, regionally and globally?
The Sukuk market is growing rapidly both regionally and globally. This growth rate reflects the economic development of the Middle East region, the financial appetite of countries such as those in the GCC, as well as the growing appetite for Shari'ah-compliant instruments.
Last year in October 2012, the Sukuk law was approved in Jordan. Now there is a committee consisting of the Central Bank of Jordan, Jordan Securities Commission, Ministry of Finance and Dar Al Efta', to place detailed instructions and mechanisms to issue sovereign Islamic Sukuk, which will be the benchmark for the private sector to issue Sukuk, and we expect this to be finalised within the second half of this year. Sukuk issuance will help Jordanian Islamic banks invest their liquidity surplus, which means managing the funds more efficiently which will in turn be reflected in depositors and shareholders' profitability.
The increased conservatism of the Arab banking sector in its lending policies resulted in a noticeable surplus of funds amongst some of them. How can these banks invest their surplus and what is the impact of its accumulation on the Bank's profitability?
I think that the tightening in Arab banking lending/financing policies is a normal reaction to the various financial challenges and its negative impact on the world's economy. This negative impact and slowdown is affecting every sector and therefore banks have to be more cautious and do have to analyse every aspect, which is already in the core structure of banking business. However, during financial slowdowns similar to the one we are going through, banks increase their terms and level of analysis in order to protect their depositors and shareholders.
How has the Bank performed at end of 2012? And what are your plans for the future?
Jordan Dubai Islamic Bank started operations in 2010. By the end of its third year of operating as an Islamic Bank, working under the Central Bank of Jordan's regulations, the Bank's total assets exceeded $670 million and its shareholder's equity exceeded $179 million. Our results for fiscal year 2012 were much better than original expectations as we have adopted flexible plans taking into consideration regional developments and their impact on the Jordanian economy. Despite the difficulties that have faced Jordan Dubai Islamic Bank in 2012, we were successful in building a high-quality financing portfolio that generated operating profit and at the same time we have been able to distribute competitive profit rates to our depositors.
Mr. Sami Al Afghani, CEO of Jordan Dubai Islamic Bank since its establishment in January 2010 has 26 years of experience in banking, holding different positions in several banks across the region such as the Abu Dhabi Islamic Bank, Arab National Bank and Arab Bank.

(Zawya / 20 May 2013)

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Islamic Microfinance research study initiated in Yemen

AlHuda Center of Islamic banking and economics (CIBE) Initiated a Islamic Microfinance research study for Yemen Microfinance Network (YMN) in Yemen.

This study will be conducted in the Yemen's capital Sana'a including Taiz, Adan and Almoukla, so that the Islamic Microfinance products can be examined broadly and further Islamic Microfinance products can be developed for Yemen Microfinance sector with the compatibility of existing structure. Consequently, maximum people utilize the Microfinance facility and the alleviation of poverty would be assured. 

Najah Al-Mugahed Managing Director of Yemen Microfinance Network explained the association memorandum of research study that Microfinance market size in Yemen is more than one million but only 80,000 (eighty thousand) people are barely facilitating with the services and products of Microfinance which is approximately 8% of the total Microfinance market size. Its major reasons are; Non-existence of complete Islamic Microfinance range of products, Domination of Murabaha in Islamic Microfinance sector, increasing rate of Murabaha and percentage of interest in Microfinance are the obstacles in the expansion of Microfinance industry. An appropriate implementation plan would be prepared through this research study to strengthen the Yemen's Microfinance sector.

Muhammad Saleh Al-Lai Chairman of Yemen Microfinance Network and Executive Director of Alamal Microfinance Bank proclaimed that Yemen's Islamic Microfinance market is very promising and we want to make it stronger through this study so that Yemen could get a distinguished level through Islamic Microfinance. He further mentioned that this is our privileged that Al-amal Microfinance Bank won the award of Islamic Microfinance Challenge 2010 which was organized by Islamic Development Bank and CGAP (World Bank) which shows a clear understanding of our strong structure of Islamic Microfinance.

Muhammad Zubair Mughal Chief Executive Officer of Alhuda Center Islamic Banking and Economics (CIBE) said that our selection for the research study is a great honor for AlHuda CIBE. He mentioned that they have developed a strong research methodology for this study and used different research instruments e.g surveys, focus group discussion (FGDs), stake holder's interviews, desk review of MFI's and meetings with prestigious professionals of Microfinance industry to get primary & secondary information etc which will help to design the ideal products for Yemen Islamic Microfinance sector.

He further mentioned that the share of Islamic Microfinance in Yemen's Microfinance sector is approximately 90% and remaining 10% are also converting their portfolio into Islamic Microfinance, Yemen Microfinance Industry will be further strengthened with the development of new Islamic Microfinance products, It will increase the outreach of Microfinance sector and help out to eradicate poverty.

(Ame.Info.Com / 21 May 2013)

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