UAE Regulator Cuts Minimum Sukuk Size, Eases Securities Borrowing

The United Arab Emirates’ financial market regulator has set new rules for Islamic and corporate bonds to encourage trading in them, and amended rules on securities lending and borrowing to make it easier for foreign institutions to operate.

The changes are part of plans to introduce at least two new rules covering the stock exchanges every year, in an effort to have the Arab world’s second biggest economy upgraded to developed market status in 2018, said Abdullah Salem al-Turifi, chief executive of the Securities and Commodities Authority.

UAE equity markets are expected to see more participation by foreign investors after late May, when international index compiler MSCI will raise the country to emerging market from frontier market status.

“We have a very ambitious plan to be upgraded to developed market within five years. I don’t want to be over-optimistic, but this is our target and we are working towards that,” Turifi said at a conference on Sunday.

“What is needed is a new set of rules and regulations that are being studied and will be introduced, hopefully two or three every year, including options, futures, depositary receipts, fund administrators, nominee accounts and many others.”

The new rules for sukuk spell out standards for their issuance, listing and trading, treating them “as an ownership tool and not a debt one” – a key principle in Islamic finance, which stresses the importance of investors sharing profits and losses.

This is in line with Dubai’s drive to develop as an Islamic financial centre, the SCA said in a statement on its website.

The rules ease requirements in some areas; the minimum size of a sukuk listing is now Dhs10 million ($2.7 million), down from Dhs50 million previously.

But strict requirements are specified in other areas. Sukuk issues must be approved by the sharia committee of the applicant for listing, or by a sharia committee accredited by the regulator of the issue. While listed sukuk may be traded outside the market, the trading must follow market procedures.

The new corporate bond rules include a requirement for a joint stock company’s general assembly to approve any issuance of bonds.

A change to rules for lending and borrowing securities will facilitate borrowing, the SCA said; if brokerages fail to deliver securities under Delivery versus Payment procedures, they can borrow the securities they need without necessarily having to seek SCA approval. This may reduce the risk of investors’ trades not being completed.

The amendment also allows foreign institutions to lend and borrow securities between themselves through direct clearance, which will encourage them to operate in UAE markets, the regulator added.

Turifi said a new framework allowing shares in private joint stock companies to trade on a “second market” of the stock exchanges would be introduced in the third or fourth quarter. It will aim to encourage trade in shares of small and medium-sized enterprises.

(Gulf Times / 28 April 2014)

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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 coming of age

Islamic banking is now recognised as a mainstream activity not just in Muslim-majority countries but also in global finance, Bangladesh Bank Governor Atiur Rahman said yesterday.

In Bangladesh, Islamic banking constitutes about a fifth of the total banking market, Rahman said.

He spoke at a seminar on shariah banking, organised by the Islamic Banks Consultative Forum (IBCF), a forum of the Islamic banking industry, at Radisson Hotel in Dhaka.

Islamic banking has been gaining ground in the post-global financial crisis period because of its in-built risk sharing, speculation-averseness, value driven features, he said.

The Islamic banking industry is one of the fastest growing sectors of the international financial system, said M Azizul Huq, an Islamic banking consultant.

Deposits with Islamic banks in the country grew by 25.60 percent in the last five years till 2013 as compared to 22 percent for conventional banks, he said during a keynote presentation.

Growth of investment for the same period of conventional banks was 20 percent against 24.60 percent for Islamic banks, he said.  Total deposits of the Islamic banks and windows in December 2013 stood at Tk 1.198 trillion, holding market share of 19.3 percent.

In the mid-1990s, the size of the world Islamic finance assets stood at $150 billion, which has reached $1.80 trillion at the end of 2013, he said.

The value of Islamic finance assets is estimated to reach $6.5 trillion in 2020, Huq said.

Shariah banking is steadily growing in socially responsible financing roles of trade and output activities in the country's economy, including under-served and un-served sectors such as agriculture and micro, small and medium enterprises, Rahman said.

The self-regulation and oversight of its shariah compliance practices are delegated to the shariah-based financing community, he said.

“This has served well thus far in providing a level playing field for shariah-based financing alongside the conventional options.”

“BB acted early on towards introduction of a government Islamic investment bond of six-month tenure to facilitate liquidity management of Islamic banks, introduction of another similar instrument of three-month tenure for further facilitation is at the final stage.”

Currently eight full-fledged Islamic banks and 15 conventional local and foreign banks with 825 Islamic branches and windows are operating in the country with a market share of 22 percent in assets and 19 percent in deposits.  

With the effort of IBCF, the Shariah Board is now successfully functioning in Bangladesh, said Ahmad Mohamed Ali, president of Islamic Development Bank.

The issuance of shariah banking and money market guidelines by the central bank will help achieve further economic growth of the country through influx of additional foreign direct investment and employment generation, Ali said.

(The Daily Times / 29 April 2014)

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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