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Wednesday, 26 June 2013

Malaysia: New legal set-up to pave way for syariah framework

KUALA LUMPUR: The new legal framework for Islamic banking and takaful, that will come into force this year, will pave the way for the development of an end-to-end Syariah-compliant regulatory framework for the conduct of Islamic financial operations, said Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz.
The new framework would provide clarity on the fundamental requirements of Syariah that must be adhered to for the contractual arrangements between the financial institution and the customer to remain enforceable, she said.“The framework also outlines the operational requirements for the effective application of Syariah principles in the conduct of Islamic financial institutions.“This aims to strengthen the risk management practices beyond the traditional credit, market and liquidity risks to also include inventory risk, ownership risk and Syariah compliance risk,” Zeti said at the opening of the Brunei Darussalam Islamic Investment Summit 2013.
The text of her speech titled, “Tapping and Expanding the Global Investment Opportunity in Asia’s Market”, was made available here today.
She said the legislation also provided for the resolution of Islamic financial institutions to be in line with distinctive elements of the relevant Islamic contracts, thus improving the legal and procedural aspects for the orderly resolution of Islamic financial institutions.
On the Islamic finance development, Zeti said the new wave of internationalisation for Islamic finance required increased collaboration across jurisdictions. — Bernama
to strengthen the international financial infrastructure of Islamic finance.“This is to ensure that the greater internationalisation of Islamic finance takes place in an environment of financial stability,” she added.
At the national level, Zeti said the first priority relates to trend for the domestic Islamic financial system to become more integrated, allowing for risks to be rapidly transmittal, across the financial system.“This requires the development of enhanced regulatory, supervisory and legal frameworks that are also adaptive and effective to the innovative dynamics and unique mix of risks in Islamic finance,” she said.
Zeti said the increased cross-border reach of Islamic finance has also underscored the importance of enhanced cross-border collaboration among the supervisory authorities.“Information-sharing and effective coordination among supervisors will enable a complete understanding of the entire risk spectrum of the risk taking activities undertaken across jurisdictions by the Islamic financial institutions,” she added.
Another key area is the evolution of the legal framework for Islamic finance to provide greater certainty and to build public confidence in the system as a whole, said Zeti.“This necessitates a legal framework that enforces end-to-end Syariah compliance in the Islamic financial services industry - through provisions and mechanisms that unambiguously define the conduct and governance of Islamic financial institutions,” she added.
Zeti also said with greater liberalisation, Islamic finance was increasingly supporting regional and international trade and investment flows, intermediating significant cross-border financial flows.“With its internationalisation, Islamic finance has become an increasingly more important channel for the efficient allocation of Asia’s surplus funds towards productive investments in the region,” she added.
Zeti also said efforts to strengthen the foundations for Islamic finance to ensure its continued resilience, amid the more challenging environment, must remain a priority going forward into the future.“Indeed, our commitment to act guided by this foresight will strengthen the prospect for Islamic finance to realise its potential in the region and beyond,” the governor added. 
(The Star Online / 21 June 2013)

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Malaysia: Cagamas Issues RM500 Million Three-month Islamic Commercial Papers

KUALA LUMPUR, June 25 (Bernama) -- Cagamas Bhd, the national mortgage corporation, has announced the issuance of RM500 million three-month Islamic Commercial Papers (ICPs).

In a statement Tuesday, Cagamas said the proceeds from the issuance will be used to fund the purchase of Islamic mortgages from the financial system.

Its president/chief executive officer, Chung Chee Leong, said a strong demand from diverse investor base comprising of financial institutions, insurance companies and fund managers has resulted in orders of over RM1 billion, representing an oversubscription rate in excess of two times.

"The ICPs were competitively-priced despite increased volatility in the bond market," he said.

He said the issue will increase Cagamas' total issuance for the year to RM1.6 million.

Since incorporation in 1986, Cagamas has cumulatively issued RM267.3 billion of conventional and sukuk.

(Bernama / 25 June 2013)

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Oman: New developments in Islamic financial services

A NEW index for Oman’s stock exchange is expected to provide a boost to the Sultanate’s nascent Islamic financial services sector and lead the way for additional sharia-compliant products. In early June, the Muscat Securities Market (MSM) announced that it was close to launching a new index, one for listed companies that operate according to the principles of sharia, as set down by the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions.

To be known as the MSM Sharia Index, the benchmark will contain 31 listings. Industrial firms will be the best represented, with 18 companies, followed by 10 from the services sector and three from the financial industry. This is the inverse of the MSM30, the exchange’s primary index, which is heavily weighted towards banks. The low number of financial firm listings in the new index can, to some degree, be explained by Oman’s late entry into the sharia-compliant finance field, with authorisation for Islamic banking coming only in 2011.

One of the smaller Gulf exchanges, the MSM has a market capitalisation of around $30 billion (compared to a GDP of about $72 billion), with 165 companies trading on its boards. To ensure that the companies listed on the MSM Sharia Index continue to comply with Islamic business principles, quarterly reviews of their activities will be conducted, a process aimed at both maintaining standards and promoting confidence in the products being offered to investors.

The index is the latest development in Oman’s Islamic financial services market, which has been in existence since the His Majesty Sultan Qaboos issued an enabling Royal decree in May 2011. Since then, two new institutions — Bank Nizwa and Al Izz International Bank — have acquired banking licences, while established conventional lenders have opened Islamic windows. In 2012 both Nizwa and Al Izz floated initial public offerings (IPOs), in line with the central bank requirement that they list at least 40 per cent of their shares. The IPOs were strongly oversubscribed, suggesting an appetite for Islamic products on the MSM.

Sharia-compliant banks are expected to draw in new customers rather win market share from their conventional counterparts.

As Hamod bin Sangour bin Hashim al Zadjali, Executive President of the Central Bank of Oman (CBO), told OBG in 2012, “The CBO... believes that the advent of Islamic banking in Oman will complement existing conventional banking, augment financial inclusion and promote growth in the economy for years to come.”

According to Pradeep Asrani, Managing Director of Investment Services firm Gulf Baader Capital Markets, Islamic banks will capture a market share of up to 5 per cent within two years, which in turn could promote further expansion into sharia-compliant investment funds and brokerages, as well as sukuks (Islamic bonds).

More generally, the availability of Islamic banking and other financial services is expected to act as a spur to the market and to the economy as a whole.

In 2012, Ahmed bin Saleh al Marhoon, the MSM’s director-general, told OBG that the introduction of Islamic banking would inject more liquidity into local capital markets as individuals seeking sharia-compliant investment options would no longer have to look abroad. The new MSM Sharia Index will provide one more reason for these investors to place their funds locally.

(Oman Daily Oberver / 26 June 2013)

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