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Wednesday, 6 January 2016

Prospects of Islamic banking in Pakistan

A hallmark of Islamic banking and finance in 2015 has been the resilience of Islamic retail banks in the Gulf Cooperation Council (GCC) countries in the wake of historically low oil prices.

The year has proven to be a testing period for the global Islamic financial services industry, with the gradual exit of the likes of Islamic Bank of Asia in Singapore and the visible diminishing enthusiasm in Islamic banking and finance of global banks.
Pakistan ranks third in Islamic finance awards
Furthermore, Islamic asset management industry has also been slow in attracting new players from the western world. While the likes of Amana Growth Fund managed by Saturna Capital and Shariah-compliant funds by Azzad Asset Management have continued to excel, new players like Arabesque Asset Management, despite having some of the most impressive investment philosophies and methodologies, have yet to make a mark.
SEDCO Capital is another success story. It has shown great commitment to offer Shariah compliant funds with social responsibility in the heart of its investment philosophy.
However, other socially responsible Shariah compliant funds have not been as successful as the ones mentioned. For example, F&C Responsible Shariah Global Equity Fund’s assets under management (AUM) have shrunk from over $50 million in 2014 to $4.5 million at the end of October 2015.
There is some anecdotal evidence that sensitive investors prefer dealing with fund managers who manage only Shariah compliant funds and portfolios. Conventional fund managers managing compliant funds are fast going out of favour of Islamic investors. With this backdrop, Islamic asset management industry is poised for growth in Pakistan, where Islamic financial institutions adhere to Shariah standards more religiously than in many other countries.
This is consistent with what has for long happened in Islamic retail banking, which is dominated by full-fledged Islamic banks. Conventional banks offering Islamic financial services through dedicated Islamic branches or Islamic windows only feature marginally in Islamic retail banking.
There are certain exceptions to this general observation.
The likes of ADCB in the UAE and Bank Alfalah in Pakistan operate vibrant Islamic windows and close sources suggest that these banks are preparing for full-fledged subsidiary Islamic banks.
MCB Bank in Pakistan has already received a licence for full-fledged subsidiary Islamic banks and is in fact preparing for its full launch in 2016. On December 16, 2015, the board of directors of MCB Bank Limited approved the sale of the bank’s entire Islamic banking operation to its wholly-owned subsidiary MCB Islamic Bank Limited (MCBIBL) for Rs7.946 billion. The bank’s extraordinary general meeting to approve the transaction is scheduled for 8 January 2016.
While the global Islamic financial services industry continued to grow, it is the second consecutive year of single digit growth – 7.3% in 2015 – as opposed to 9.3% in the previous year. In fact, Islamic banking and finance has grown with a declining rate since 2013 when it grew by only 12.3%, compared with the 2012’s growth of 20.2%.
In this context, predictions by some industry observers and consultancy firms of the estimated size of the industry to reach $3.5 trillion seem to be exaggerated.
The Global Islamic Finance Report (GIFR) 2015 predicted that Islamic financial assets would reach $5.3 trillion by the end of 2020. However, in expectation of further slowdown in the growth of Islamic financial assets in the wake of low oil prices, continued social disorder and political conflict in some of the key IBF markets, Edbiz Consulting, the publisher of the report, has decided to revise future size estimates.
Situation in Pakistan
In Pakistan, however, Islamic banking has continued to grow, with share of Islamic banking assets in the national banking sector having grown to 11%. The industry is poised for further growth, as the fundamentals are right.
The State Bank of Pakistan, which commissioned Edbiz Consulting to conduct a survey ‘Knowledge, attitude and practices of Islamic banking in Pakistan’ in 2014, has confirmed time and again that there is an overwhelming and evenly distributed demand in the urban and rural areas of the country for Islamic banking.
Pakistan slips in WEF competitiveness rankings
According to Edbiz Consulting, the demand for Islamic banking is as high as 95% among the households at the retail level. “Demand stands at 73% among the businessmen,” according to the SBP survey, which is based on 9,000 households nationwide and includes banked and non-banked customers, and 1,000 corporates.
(The Express Tribune / 28 December 2015)
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

Egypt takaful industry set for 20% growth in 2016

Islamic insurance has been gaining ground in Egypt as customers seek out sharia-compliant products.

The takaful industry in Egypt is expected to growth around 20% in 2016 as more players enter the market to meet robust demand for Islamic insurance products and services, the chairman of the country's insurance watchdog said.
Abdel-Raouf Kotb, chairman of the Insurance Federation of Egypt (IFE), said that growth has also been fueled by the introduction of new products to meet customer needs, such as insurance against risks from political violence as well as credit insurance, which had proven popular especially after local banks expanded their lending policies.
"The micro insurance instrument is expected to be issued soon to insure the production tools of lower income segments against theft and fire. It also aims to bridge the micro enterprises funding gap in Egypt," Kotb told Zawya.
Takaful insurance companies accounted for 12% of Egypt's insurance market during the period from January to August 2015, compared with a share of 8.75% for the whole of 2014, according to a report issued by the Egyptian Financial Supervisory Authority ( EFSA ) last November.
EFSA said that premiums of new and existing life takaful insurance certificates rose 38.7% to USD 1 billion at the end of October 2015, compared with USD 900 million a year earlier. New and renewed issues of property insurance witnessed slight growth of 1.1% during the period to reach USD 639 million.
Kotb said the number of takaful companies in Egypt has risen to nine with the entry of Emirate Egyptian Takaful Life Insurance Co., a subsidiary of SALAMA (Islamic Arab Insurance Company), last year.
"Growth in the takaful insurance sector is due to the acceptance it enjoys from large segments of clients looking for products that comply with the rules of Shariah, as well as from the Islamic finance sector's expansion in Egypt."
"Premiums of takaful insurance on properties amounted to USD 62 million as of the end of June 2015, which represents about 15.4% of the total insurance premiums worth around USD 385 million during the same period," said Kotb, who is also managing director of Egyptian Saudi Insurance Home (ESIH).
Kotb said the ESIH has been strengthening its financial position in anticipation of the market's expansion by raising its capital to EGP 120 million (USD 15.3 million) after a recent injection of EGP 20 million.
"The premiums of ESIH stood at EGP 190 million in 2015, registering an increase of 4% compared with the year before, which was EGP 182 million. The company is targeting a growth of 13% in its direct premiums in 2016, which amounts to EGP 215 million," he said.
ESIH's total investment portfolio grew 11.6% to EGP 432 million in 2015, up from EGP 387 million by the end of June 2014.
Established in 2003, ESIH is the first takaful insurance company in Egypt and is backed by Gulf Arab investors, with contributions from Saudi and Emirati investors in the company estimated at 86.5%.
According to the Egyptian Financial Supervisory Authority , overall investments of insurance companies and cooperative insurance societies amounted to USD 7 billion in 2015 distributed across various investment channels, namely fixed bank deposits (26.1%), treasury bonds and government securities (23.8%), securities for sale (18.2%) and loans against insurance documents (1.3%).
(Zawya / 05 January 2015)
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia:

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