Hayya alal falah...Let's achieve success

Hayya alal falah

Let's achieve success
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic banking has great potential

Experts see bright future, say industry needs to be innovative and competitive to reap benefits 

Islamic banking is one of the fastest-growing segments in the world, but it needs to be innovative and competitive to realise the true growth potential in years to come, experts say. 

Addressing the fifth World Islamic Retail Banking Conference here on Tuesday, top executives of leading Islamic banks underlined the need to address the challenges being faced by the industry to increase its share in global banking industry.

“There is urgent need to develop Shariah regulatory framework to realise the true potential of Islamic retail banking,” said Adnan Yousif, president and chief executive of the Al Baraka Banking Group.

He delivered the keynote speech entitled “The Changing Retail Banking Landscape” and said the lack of awareness about Islamic banking products is one of the main challenges, which needs to be settled to promote the industry.

“The media can play an important role to develop awareness about Islamic banking industry,” he said, adding that Bahrain has already launched good initiatives including Islamic finance as a subject at the secondary level, colleges and universities.

Yousif also hailed Dubai’s recent initiatives to become a capital of Islamic economy and said local banks — Dubai Islamic Bank, Noor Islamic Bank, Mashreq and Al Hilal Bank, among others — are doing good to promote Islamic retail banking.

Criticising conventional banking, he said it is just compiling “toxic loans” or “bad debt”, which is not beneficiating the economy.

“I wish we could have a huge Islamic bank in the Arab world that could help develop big industries,” he said.

Asad Batla, head of the consumer banking division of Bank Nizwa and who was chairman for the first day of the conference, said Islamic banking industry is relatively new and “we need to give our best to promote this segment”. 

Abdulrahman Turki, general manager of retail banking at Bahrain Islamic Bank, said Islamic banking is doing good compared to conventional modes of business. However, he stressed the need to create awareness about Islamic banking through various channels to increase its share in the industry.

“We are one of the top Islamic banks operating in Bahrain with 14 branches and have launched couple of good initiatives to promote Islamic banking in the country through conferences and meetings,” he said.

The annual CEO roundtable, entitled “Developing Islamic Retail Banking, reaching to the retail target segments: Back to Basics”, highlighted the basic practices and the potential of immense opportunities that Islamic banking offers to the global retail banking sector.

Jordan Islamic Bank’s vice-chairman and CEO Musa A. Shihadeh explained the reasons why Islamic banks failed to build up the assets and said industry need to bring down the cost of funding to competitive levels.

Dr Jamil El Jaroudi, CEO of Bank Nizwa, said the industry is doing well and not piling up “toxic loans” like conventional banks.

Irfan Siddiqui, president and CEO of Meezan Bank, shared the success story of the bank and said about 70 per cent of customers are still untapped and there is huge potential to promote Islamic banking across the globe.

Wasim Saifi, CEO of Standard Chartered Saadiq Berhad and global head of Islamic Consumer Banking of Standard Chartered Bank, said Islamic banking should be high on bankers’ agenda to gain more share of the banking industry.

“Substantial opportunities exist in East and West Africa and the next decade is very important for the industry. Major Muslim countries need to realise the true potential of Islamic banking,” he said.

Sultan Choudhury, executive board director and managing director of the Islamic Bank of Britain, said the UK is a very integrated market for the banking industry and the bank more dependent on technology and Internet banking. He said non-Muslims are also strong customers for Islamic banking products.

Moinuddin Malim, CEO of Mashreq Al Islami, said Islamic banking has done a good job compared to conventional units, however the quality of service, education and innovasion are keys to promote the industry.

In his presentation John Chang, head of consumer banking at Noor Islamic Bank, enlightened the audience on how to achieve total organisational alignment. Renowned Shariah scholar Shaikh Nizam Yaquby acknowledged the queries of the participants during the annual open fatwa session, which was moderated by Professor Humayun Dar, chairman of Edbiz Corporation.

The other participating Shariah scholars and experts were Dr Muhammad Al Bashir Muhammad Al Amine, group head of Shariah at Bank Alkhair; Shaykh Haytham Tamim and Momin Hyat, Shariah scholar and manager of Shariah Governance and Compliance at Mashreq Al Islami.

R. Lakshmanan, chief executive of Sakana Holistic Housing Solutions, focused on the different models used to understand housing finance such as Ijara, Musharaka and Murabaha.

Tamas Erni, managing partner at Loxon Solutions, addressed the issues pertaining to credit risk origination through IT platforms in his presentation.

Imran Samee, head of the Consumer Banking Division at Bank Islam Brunei Darussalam, presented the Case Study Brunei on Islamic retail banking, emphasising on reposition, distribution and risk management issues.

The first day of the conference marked its closure with the networking reception, which also paved the way for the inauguration of the Global Islamic Finance Awards, which was hosted by WIRBC and organised by Edbiz Consultancy late on Tuesday.

(Khaleej Times / 27 Nov 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

First Eurozone Islamic Bank Planned For Luxembourg

The Eurozone is to get its first Islamic bank after a consortium of Gulf businessmen and a UAE royal family announced an agreement to set up a new lender headquartered in Luxembourg.

Eurisbank will have a start-up capital of 60 million euros and is set to have branches in Paris, Brussels, The Netherlands and Frankfurt. The bank will offer services in retail, corporate and private banking.

The consortium – which also includes an unnamed bank – plans to launch the new lender in the fourth quarter of 2014.

Deloitte’s feasibility study of the bank demonstrated high return on investment, taking advantage of being the first Islamic lender to be based in the Eurozone.

The investors and Deloitte have concluded a meeting with the CSSF – Luxemburg’s Supervisory Authority – which has welcomed the idea and gave directions to prepare the documents required to obtain a banking license.

“As the worldwide Islamic finance industry moves from niche to critical mass while Europe is becoming an attractive and promising market that is not yet served by Shari’ah-compliant banking services, considerable potential exists for the expansion of Islamic Finance,” said Marco Lichtfous, partner in Deloitte Luxembourg.

“The global market for Islamic financial services is estimated at USD 1.8 trillion, and by opening new markets the numbers are set to grow significantly in the years ahead,” he added.

Deloitte and Excellencia Investment Management have been assigned to conduct all procedures and to finalise the establishment of Eurisbank.

“A large untapped customer base with more than 20 million Muslims in the EU represent a significant market growth potential for Islamic Finance, and with the strong support of the European governments and regulatory authorities of the Islamic Finance Model, the unification of the regulatory framework within the European Union is a significant advantage to serve Muslim and non-Muslim communities across Europe,” said Ammar Dabbour, Managing Partner in Excellencia Investment Management.

“With low penetration rates of Islamic banking products in Europe resulting from a lack of supply and the strong demand from Muslim clients for Shari’ah-compliant services which are not appropriately addressed by current banking offering, Eurisbank is devised to supply a much needed spectrum of services and products unique to their audience.

(Gulf Business / 26 Nov 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance gains popularity across the globe

A flourishing industry

Islamic finance is gaining popularity across the globe and Islamic banking assets are expected to reach $1.4 trillion this year, according to a report.

The share of Islamic assets in core Muslim majority markets is steadily rising with Saudi Arabia’s reaching 49 per cent and various other markets expanding with double-digit growth, according to the report released by Thomson Reuters ahead of the Global Islamic Economy Summit, starting today in Dubai.

The existing Islamic finance market stands at an estimated $1.35 trillion in assets based on disclosed assets by all Islamic finance institutions — full Shariah-compliant as well as those with shariah windows — covering commercial banking, funds, sukuks, takaful and other segments.

The breakdown by category includes $985 billion for commercial banking, $251 billion for sukuks, $44 billion for Islamic funds and $26 billion for takaful, or insurance.

“This represents a very small proportion of the global financial assets, it is a fast growing segment rising at 15 per cent to 20 per cent a year in many of its core markets,” the report says.

In addition, an estimated $628 million of Islamic microfinance assets is also a growing segment although only representing about 0.8 per cent of the estimated total global microfinance market of $78 billion in 2011.

Globally, banking assets, excluding funds, insurance and other distinct segments, accounted for $123.7 trillion in assets in 2012. Current Islamic banking assets amount to $985 billion, comprising less than one per cent of global assets.

The gap between the potential and existing Islamic finance market remains large. Assuming an optimal scenario in core Islamic finance markets of countries of the Organisation of Islamic Cooperation, or OIC, the 2012 potential of the Islamic banking universe could reach $4,095 billion in assets within the OIC. The optimal scenario assumes full regulatory support for Islamic finance in OIC markets and a 100 per cent Islamic banking penetration with the proportionate Muslim demographic of OIC countries. 

Islamic microfinance

With a large segment of the global low-income population concentrated in Muslim majority countries, it is also estimated that 72 per cent of people living in Muslim-majority countries do not use formal financial services. This makes Islamic microfi-nance an important market given Islamic finance law sensitivities among all segments of the Muslim popula-tion.

The Islamic microfinance market is also a growing segment but with a huge gap relative to its potential. According to the study released by the Consultative Group to Assist the Poor, or CGAP, the estimated size of Islamic microfinance today is $628 million in managed assets, which is 0.8 per cent of the estimated total global microfinance market of $78 billion. Between 2006 and 2011, Islamic microfinance market has quadrupled, according to the CGAP study. 

Attracting global banks

Islamic finance has attracted the attention of global finance while becoming a major economic driver for the economies of Muslim-majority countries.

Global banks such as Deutsche Bank, HSBC, Standard Chartered and Citi have their investment banks serving as lead arrangers on sukuk issuances around the world.

“Many global banks have an Islamic window or separate Islamic banking subsidiaries, while the United Kingdom’s government has become the first non-Islamic country to announce a major sukuk issuance,” the Thomson Reuters study says.

UK Prime Minister David Cameron recently announced a £200 million sukuk to be issued in 2014. This issuance hopes to make England at par with other global leaders within the Islamic finance industry. It is also expected to strongly strengthen the domestic Islamic finance industry. The current legislation within the UK supports sukuk’s unique infrastructure and has resulted in over $34 billion in sukuk listings. In parallel, the London Stock Exchange will create an index to give a more accurate rating to sukuks.

Demand for sukuk

The demand for sukuk, or Islamic bonds, is expected to almost double in value over the next four years, driven by strong economic growth in the Middle East and Asia and their spread to new markets, according to a report by Thomson Reuters.

Global demand for sukuk is expected to reach $421 billion by 2016 from $240 billion in 2012, according to a Thomson Reuters survey of 169 investors and sukuk arrangers, mainly from the Gulf region and Asia, conducted in August and September.

According to Thomson Reuters, sukuk issuance in all currencies fell by more than a quarter to $79 billion during the first nine months of 2013 compared to $109 billion in a similar period a year ago. It attributed the decline to a rise in global credit spreads since May due to the prospect of US monetary tightening. However, the same report forecasts that sukuk issuance would resume rising rapidly next year, hitting $130 billion in 2014.

Dubai, which is facing stiff competition from London and Kuala Lumpur in attracting Islamic finance, has made a significant progress in sukuk listings this year and lifts the emirate’s leadership vision to become an international hub of Islamic economy. The emirate’s capital markets are expected to cross $16 billion sukuk listings by year-end. So far, nine sukuks worth approximately $13 billion are listed on Dubai’s exchanges this year, the third largest in the world, underlining the growing success of the “Dubai, the Capital of the Islamic Economy” initiative.

Referring to some potential upcoming sukuks, Thomson Reuters report said Tunisia has aimed to issue one billion dinars ($634 million) worth of Islamic bonds, the first time the country had used the developing sector to fund public borrowing.

“One billion dinars are to be available from the Islamic bonds by 2013 budget for the first time,” Finance Minister Slim Besbes told state radio. The issuance is now expected in February or March of 2014.

While the fall of the Muslim Brotherhood means less political support for Islamic finance development in Egypt, both economic pressure and strong consumer demand means the industry should continue to grow, albeit slowly. A planned major sovereign sukuk programme seems shelved for now but there is no official “no” either.

Pakistan’s Meezan Bank is planning to issue a $68.5 million sukuk for a telecommunications operator in the country. The Islamic bond will have a five- to 10-year maturity period.

France’s second-largest bank will also become the second bank in Europe to issue a sukuk and the first bank within the region to issue one in Asia. Societe Generale first sought the expertise of Hong Leong Islamic Bank before planning to issue the $300 million sukuk. The approval has been granted by the central bank and the funds are expected to be re-invested in the purchase of assets in Dubai, which also serves as the Socite Generale’s headquarters.

FWU AG Group, a Munich-based financial services company, recently issued a $55,000,000 sukuk — the first-ever sukuk issuance by a German corporate and the largest ever sukuk from a European corporate. This is also the first sukuk to utilise a computer software programme and intellectual property rights under an Ijara structure.

Moreover, Abu Dhabi Islamic Bank, or ADIB, attracted a spec-tacular order book of over $15 billion for the $1 billion perpetual sukuk, which has no maturity date. The bank can choose to repay the bond on certain dates from 2018 if it wishes. The hybrid sukuk was the first to be publicly issued by a bank to meet the Tier 1 capital requirement in Basel III global banking standards that will be phased in around the world over the next several years — although ADIB privately placed a $2 billion Tier 1 note in 2009.

Almarai became the first corporation in the Gulf to issue a hybrid sukuk worth $435 million. It enables Saudi food producer to diversify its funding sources to pursue its expansion strategy in a cost-effective way.

(Khaleej Times / 25 Nov 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com