LANGUAGES

Entries in English and Malay (Bahasa Melayu)

Wednesday, 29 July 2015

South Africa proposes extending sukuk to corporate issuers

South Africa's Treasury has proposed extending tax reforms to facilitate the issuance of sukuk, or Islamic bonds, by listed companies after the government did a $500 million debut deal last September.
Sukuk transactions in Africa have been few and infrequent but this is gradually changing as governments see an opportunity to tap cash-rich Islamic investors from the Gulf and Southeast Asia.
Senegal issued sukuk for the first time in June last year while Niger, Nigeria and Ivory Coast are planning debut deals.
South Africa introduced tax amendments in 2011 to allow the government to issue sukuk and this was extended to public entities in April this year. The proposed changes will come into effect in January 2016.
"It has always been the government's intention to ensure that these financing arrangements are accessible to other entities as well as an additional source to raise capital," the Treasury said in the draft of the legislation.
Taxation is often problematic for sukuk because of their asset-backed nature, which means multiple asset transfers may be required for a transaction to take place, creating a heavy tax burden for issuers unless special legislation is in place.
Firms such as South African National Roads Agency Ltd (Sanral) and power utility Eskom have been considering following the government's sukuk deal, which attracted an order book of $2.2 billion.
Sanral has studied sukuk for years but has faced some challenges relating to the transfer of assets and its tax status, the company told Reuters in May.
Both Sanral and Eskom have said they would only sell sukuk if this was cost-effective versus other funding sources.
(Reuters / 28 July 2015)

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

WHAT DODD-FRANK CAN LEARN FROM ISLAMIC FINANCE


Five years ago this month, Congress took a step toward reining in elements of a troubled financial system when it passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The move was touted as an end to the laissez-faire principles embodied in the repeal of Glass-Steagall, which had previously protected against many of the excesses the banking industry is now notorious for.

A Pew poll from earlier this year found that 63% of Americans said the US economic system is no more secure today than it was before the 2008 economic crisis. One explanation for this may have to do with inadequacies in the legislation. How can we continue to make things better? One answer can be found in the principles of Islamic finance.

Almost everyone remembers that high-risk loans, speculation, and leverage fueled the run-up to the Financial Crisis. As the financial sector began to collapse in mid-September 2008, the aggregate default and the trading of mortgage-backed securities (MBS) was a major liability. Banks bought and sold MBS products of all types, keeping some on their books but shifting most of the credit risk to bank trading partners. Although Dodd-Frank provides for securitizing banks to retain an economic interest in the credit risk of any asset transferred, sold, or conveyed to a third party, the amount is less than 10% and exemptions to this rule abound. Islamic finance expressly prohibits the buying and selling of debt and elevates lending (without interest) to be a charitable activity, incentivizing instead risk-taking ventures in partnership with customers in order to produce a tangible impact in communities.

At its core, the credit and housing market crisis was caused by a banking industry that issued loans at excessive interest rates to home buyers who ultimately defaulted. Families with adjustable-rate mortgages were left vulnerable to fluctuating interest rates. These unsound banking practices are still condoned by Dodd-Frank in various forms.

Islamic finance, which recognizes the consequences of charging a gain without sharing the risk, prohibits these practices due to the inherent inequity this arrangement causes between the parties. According to Islamic finance, riba, which is usually translated as “interest,” “usury,” or both, is considered a tool of oppression, as it exploits the needy by unjustly taking their money and enabling those who receive it to -illicitly hoard wealth. Over time, the effects of riba take a toll on society, limiting upward mobility and creating an entrenched financial elite.

The principles of Islamic finance are steered by the need for justice and fairness in financial arrangements. Dodd-Frank was an attempt to move us closer to correcting the excesses of a banking sector still desperately in need of structure, or at the very least a conscience. There’s something to be said for the stability brought by a system centered on justice. Until we have a banking system that more fully participates in a partnership with customers—instead of treating them like nameless, faceless numbers on a spreadsheet—we distance ourselves from the ideals of a just society.

Finally, one of the biggest reasons we still sit on the precipice of crisis five years after Dodd-Frank is that many of its components still need to be written. Doubtless, this has created an environment of uncertainty and timidity in the banking industry. Politicians talk about making lasting reforms but have yet to follow through. This regulatory limbo cannot abide.

Talk is cheap. Dodd-Frank can be better, and the principles of Islamic finance can help.

About the author
Joshua Brockwell is the Director of Investment Communications at Azzad Asset Management. Azzad Asset Management is investment advisor to the Azzad Funds, halal mutual funds that follow investing criteria outlined by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Azzad is renowned both for its advocacy of the Seven Tenets of Halal Investing and as sponsor of the first Shariah-compliant, socially responsible fixed-income mutual fund in the United States, the Azzad Wise Capital Fund.



(Oil And Gas Financial Journal / 27 July 2015)
---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Latest Posts

Upcoming Events on Islamic Finance, Wealth Management, Business, Management, Motivational

Alfalah Consulting's facebook

NOTICE

Alfalah Consulting is NOT providing any kind of loan to finance project etc and asking for a fee. If you've received any email claiming to be from Alfalah Consulting, offering loan to you, please ignore it or inform us for further actions. Our official email is info@alfalahconsulting.com. If you've received an email from afalah.consulting@gmail.com, that's NOT from us. Be cautious!