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Wednesday, 29 May 2013

Gatehouse Bank eyeing universal banking licence in Malaysia

KUALA LUMPUR (May 29, 2013): London-based Kuwaiti-owned Gatehouse Bank Plc, a syariah-compliant investment bank, is looking to secure principal banking licences in Malaysia after opening a representative office here yesterday, said its senior executive.
The bank is exploring licences in universal banking, investment banking and wealth management.
Its chief representative in Malaysia, Richard Thomas, said the bank will work closely with the local regulators to see what would be the most appropriate licence(s) for the bank here.
"The representative office is very much a first step and it's our intention to develop the bank here," he told reporters at the opening ceremony yesterday, adding that the bank aims to expand its operations here over the next two years.
He said the bank also intends to use its Malaysian office as springboard into other Asian markets such as Singapore and Brunei.
On its targets for the Malaysian market this year, Thomas said it is in the midst of building its key performance indicators.
"Our core strength is in real estate but we are also looking at the sukuk market and Malaysia is of course the largest global sukuk market.
"Cross border reach between London and Kuala Lumpur for developing capital markets is also important for us and wealth management services as well," he added.
He noted that Gatehouse Bank has been approached by two or three parties, but the bank has yet to profile their risk appetites.
He said the Malaysian office would also help global investors understand the Asian market better, especially its global clients who are interested in investing here.
Meanwhile, Gatehouse Bank chairman and interim CEO Fahed Boodai said Malaysia will be a hub for the bank to diversify its client base that are mostly from the Gulf region.
"Our international clients are looking for investment opportunities that promote wealth preservation in mature and stable markets, and responding to their needs on an on going basis remains a core priority for the bank.
"Expanding our global footprint so that the bank can act as a gateway between the Islamic finance markets in Europe, the Gulf Cooperation Council and now Asia is fundamental to achieving this objective and establishing a new base in Malaysia is not only an exciting development for the bank but one that will help to deliver significant longer term value on behalf of our clients," he added.
Fahed also said there is a strong trend among Malaysian investors actively buying in the UK including both institutional and private investors.
The bank expects to make two billion pounds worth of real estate acquisitions in the US and UK markets this year.
Gatehouse Bank specialises in originating, structuring and funding investments in a syariah-compliant manner driven by a real estate strategy. Since its inception in 2008, the bank has established a global portfolio worth in excess of US$1.5 billion spread across real estate assets, capital investments and term deposits.
(The Sun Daily Mail / 29 May 2013)

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The rise of Islamic banking

Earlier this year Sheikh Mohammed bin Rashid Al Maktoum, the UAE’s vice president and prime minister, and ruler of Dubai, claimed that the country has what it takes to become a world hub for Islamic finance.
Indeed, Dubai has launched a drive to develop its Islamic business sector, while Qatar looks to establish an international Islamic Bank, Oman has raised the operating standards of its own Islamic banking rules, and world renowned Saudi investment firm Kingdom Holding has formed its own sharia board of scholars in a bid to raise more of its funds through Islamic finance.
Islamic banking is on the rise, gaining in popularity among Muslims and non-Muslims at a rapid rate with an Ernst & Young report estimating that Islamic banks now command a 25 percent share of the banking market in the Gulf Cooperation Council (GCC) countries.
But for many people Islamic finance is still a concept which is mired in unfamiliar terms and principles, leading to confusion and hesitancy.
To those without an Islamic or banking education, concepts such as riba, mudarabah and sukuk require a lot of explanation, but more and more people are taking the time to understand their meaning. The same Ernst & Young report projects that by 2015 the MENA Islamic banking industry will be worth US$990bn as the take up of Islamic banking surges, more than double the 2010 figure of US$416bn.
Islamic banking is set up in accordance with the principles of sharia – the moral code and religious law of Islam – and many of its rules have been particularly laid out with business and trade in mind, something which attracts many small and medium sized enterprises.
Tooran Asif, senior vice president, head of personal banking at Mashreq Bank explains the main concepts of Islamic banking.
“The basic principle which differs between Islamic finance and conventional finance is that there’s no element of riba – which is interest.
“The other differing principle is that is that it works on asset backed transactions, and then there are other things related to the element of trade. Some sectors are a definite no-no. There’s also a profit and loss sharing aspect between the two parties as well.”
Mashreq Al Islami, the Islamic banking division of Mashreq, recently underlined its commitment towards its Islamic offering by announcing the launch of Islamic Gold – a new product which offers a full range of retail banking services.
Asif explains the growth in the bank’s services mirrors that of the sector itself, and that people from outside Islam are signing up thanks to the comprehensive range of services now on offer.
“Islamic finance has grown in the past 30 years,” he says.
“Different sorts and groups of people have taken it either on their beliefs or because they find it competitive. We’ve reached a point where it’s not just about the ethical side of things. It’s also competitive in rates, returns, and services. It’s moved beyond what it used to be.
“If you look at Islamic banking ten years back it was all about basic deposit accounts. Now we’re offering everything. It’s well developed now.”
Advocates of Islamic banking cite the notion that the strict structure and rules make it fairer for those who use it as one of the main attractions, particularly the ban on riba.
Riba can be translated as interest, usury, excess, increase or addition, and is seen in Islam as unjust and exploitative.
Other principles which are viewed as beneficial to the individuals and businesses rather than to the bank include mudarabah, which is profit sharing between partners, and musharakah, which is a relationship between two or more parties that divides the profit and loss fairly depending on each party’s contribution.
(Arabian Business.Com / 26 May 2013)

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Explainer: What Is Islamic Banking?

When Islamic banking was first developed in the 1970s in the Persian Gulf states, its Stomers were almost exclusively observant Muslims who wanted a banking system that complied with their religious values. These include prohibitions against lending money with interest, which is defined as usury, and investing in businesses deemed morally harmful, such as alcohol or pornography. 

But today, Islamic banking is getting wider attention, including among non-Muslims. That is because Islamic banks, which are open to people of all faiths, have largely survived the global economic crisis intact. So far, none has had to receive substantial bailouts to keep them afloat, suggesting that they somehow offer a safer haven to savers than conventional banks.

Mohammed Amin, a London-based Islamic finance consultant, says that perception is partly true, and partly not.

In practice, he says, Islamic banks are often more conservative in their commercial activities than ordinary banks. Their prohibitions against interest-bearing loans, for example, meant they did not buy up the large quantities of bad consumer debt that now burdens Western banks and has threatened many with collapse.

But individual Islamic banks -- like any savings institution -- can still expose their customers to risk. And that is because, while they shun interest-bearing transactions, they still do many of the same things conventional banks do, only by different means.

Sharing Profits

Amin cites payments on savings accounts as one example. In conventional banks, a saver receives a guaranteed interest payment of, for instance, 5 percent in exchange for keeping money in the institution. In Islamic banks, savers can earn the same amount but instead of receiving it as interest, they do so by sharing in the profits of the bank:

"You put your money into that Islamic bank," says Amin. "It pools that money with all the rest of the money it has. It uses it to run its business, which is providing money to other customers. And at the end of the year it will reckon up its results and the likelihood is that it will pay you [for example] 5 percent, maybe a little bit more or a little bit less, unless the bank has had a really bad year."

He notes that in a bad year, the Islamic bank might not pay a profit share, whereas a conventional bank is contractually bound to pay customers the promised interest rate.

Like conventional banks, Islamic banks make their profits by loaning money to customers. But whereas a bank loans with interest, Islamic banks do so through buy-and-sell transactions.

"An Islamic bank will say, 'You tell us which car you want, tell us which showroom it is in, we will go and buy that car and we will resell it to you,'" Amin says. "So, an Islamic bank will buy that particular car for, say, $1,000 and sell it to the customer and they will sell it to the customer for say $1,150 payable in 36 months' time. So, the Islamic bank is making a gain on the sale of the car. It is not lending money; the contract is the sale of the car for $1,150."

Still Plenty Of Risks

However, just as with conventional banking, there is nothing about Islamic banking that by itself guarantees that its commercial transactions are risk-free.

Banks can still face problems when the parties to whom they provide money are unable to fully pay back the sums. And, if an individual Islamic bank's owners are high risk-takers, they can still make bad investment choices, which can end in bankruptcy for the institution.

Many Islamic banks try to guard against such pitfalls by setting formal limits on how much risk they take.

According to Sahar Ata at the London School of Business and Finance, that mindset comes from Islam's prohibition of "gharar," which roughly translates as "excessive risk taking." She notes that Islamic banks usually try to limit the amount of debt they will assume in amassing their own capital to no more than 30 percent. At the same time, individual Islamic banks report to councils of Shari'a experts, who monitor the bank's operations and advise when its activities stray from underlining principles.

Still, the fact that Islamic banks duplicate many of the operations of conventional interest-based banks causes some Islamic scholars to criticize them as disingenuous. They argue that the current model of Islamic banks will inevitably place them on the same trajectory Western banks have followed in assuming ever greater risks to make higher profits.

Tarek El Diwany of London-based Zest Advisory, an Islamic banking and investment consultancy, suggests that what the critics would prefer is to see Islamic banks eschew all forms of debt-based finance, where one person seeks to profit from another’s debt.

"An alternative to the current Islamic banking model would be a true profit-sharing model, more akin to an investment fund, where I invest in your business, you make a profit, I share it, if you make a loss I share it," he says. "Whereas what tends to happen in debt-based finance is I give you $100 of capital and whether you make a loss or a profit I want $110 back at the end of the year. That is seen as fundamentally unjust, why should I benefit if you don't?"

However, other Islamic scholars defend the existing Islamic banking system as being reasonably compliant with Islam's prohibitions on usury and, so far, the controversy has remained largely under the surface.

Today, Islamic banking still accounts for only a tiny fraction of the global banking industry. The amount of money held in Islamic banks totals about $1 trillion, or less than 1 percent of global financial assets. But in many countries Islamic banking is growing rapidly.

In the last seven or eight years, the United Kingdom has licensed five fully Islamic banks, Islamic financial institutions are operating in the United States, and there are plans to open others in Western Europe. That is in addition to the many that already exist in the Middle East and Southeast Asia.

(Radio Liberty / 28 May 2013)

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Bahrain: Al Baraka unveils Islamic finance product

Bahrain-based Al Baraka Islamic Bank has launched a new financing product in the local market to fund the services under the umbrella of Taqseet finance.

This is in addition to other facilities provided by the product Taqseet to finance purchasing of cars, boats, other goods and real estate.

The idea of the new product is based on the Sharia principle of Ijara to finance various services where the bank will lease the client a particular service that will exist in the future as forward Ijara for a specific period of time.

Customers can take advantage of this product to finance their needs of education, medical treatment, travel and tourism, marriage, Haj and Umrah.

Al Baraka Islamic Bank chief executive Mohammed Al Mataweh said the product is in line with the bank's strategies in providing innovative new products.

(Trade Arabia / 29 May 2013)

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