Islamic Finance worldwide

Differences AAOIFI & IFRS

Islamic Banking

Shariah Analysis of Bitcoin, Cryptocurrency, & Blockchain

Shariaa Standards – ENG


Bitcoin presentation Almir Colan


IRTI Islamic Social Finance Report 2017


Retail Sukuk (Sukuk Ritel):
Indonesia Experience

Retail Sukuk-Indonesia Experience (1)

World News on Islamic Finance (31.03.2015)

1) Private equity: Abraaj has raised more than USD1.3b for two African funds, according to various reports. The Sub-Saharan focused fund was capped at USD990m, exceeding original target of USD800m while the North African fund is expected to be oversubscribed at USD340m, more than target of USD 250m.

2) Sukuk: Emirates Sukuk backed by the UK’s Export Finance was 3.6 times oversubscribed attracting orders of USD3.2b. The certificates are expected to be issued today and will be listed on London Stock Exchange and NASDAQ Dubai.
3) Pakistan: The Islamic Banking Industry (IBI) is continued to grow as the market share of Islamic banking assets and deposits in overall banking industry reached double digits by end December 2014. State Bank of Pakistan (SBP) on Monday revealed that asset base of IBI reached Rs 1.259 trillion by end December 2014, depicting an increase of 24.2 percent as compared to previous year.

In terms of market share, Islamic banking assets in overall banking industry increased to 10.4 percent end of CY14 up from 9.6 percent in CY13, reflecting relatively better growth in assets of IBI compared to assets of overall banking industry.

21st WIBC (1-3 Dec 2014)

The site has presentations from recently held 21th  professional conference on Islamic finance – WIBC.

A Credit Rating AgencyтАЩs Perspective On Basel III Sukuk_Promod Dass

Emerging Islamic Liquidity Management_Ismail Dadabhoy

Expansion of the Sukuk Market_Afaq Khan

Gold Sukuk Reserve_EL Mostafa Belkhayate

Green Sukuk_Anouar Hassoune

Growing the Global Footprint of Sukuk_Shaima Hasan

IIFMтАЩs Master Collateralised Murabahah Agreement_T.Pleys

Islamic hedging products Dodd-Frank and EMIR_Tim Plews

Overview of Malaysian Islamic Capital Market Bursa Malaysia Shariah Products_Jamaluddin Nor Mohamad

Positiva Banking_Riyadh Y. Al-Rabiah

Recent Developments in the Global Sukuk Market_Ijlal Ahmed Alvi

Shariah-Compliant Technologies_Abd El Aziz Lotayef

Standardisation of Legal Documentation_Salman Ahmed

Strategic options for Islamic banks in response to Basel III_CIBAFI


Islamic Capital Markets: A Selective Introduction


In the third quarter of 2012, for the first time, sukuk issuances (US-dollar volume) exceeded bond issuances in the countries of the Gulf Cooperation Council (GCC). In 2012, total issuances globally were $143.4 billion, up 54 per cent from 2011; miniscule in comparison to total global bond issuances ($6 trillion to $8 trillion of issuances, plus massive rollovers and refinancings). However, the comparative issuance trend is notable as a harbinger of the future in the GCC and in the 53 countries of the Organisation for Islamic Cooperation (OIC). The sukuk issuance figure is also a notable trend indicator, historically considered. Some examples: the first sukuk issuance occurred in 2002–2003, some six or seven years after the inception of modern Islamic finance. The total cumulative issuance volume from industry inception to November 2008 was approximately $89 billion. Sukuk issuance is the fastest-growing component of the activities constituting “Islamic finance”. And Islamic finance may be the most rapidly growing component of finance, considered globally.

While interesting, that summary provides little information and raises more questions than answers. What aresukuk? How are they structured? How do they operate? Who is involved? What are the Islamic capital markets? Where do sukuk fall within Islamic finance (and what is that anyway)? This note attempts to provide a selective and rudimentary introduction to the Islamic capital markets.

Contextually, and from the practitioner’s vantage, it is important to note the following: Islamic finance is ethical finance. Its principles mirror those of other ethical funds and programmes (eg, Roman Catholic, Lutheran, Talmudic, secular, etc). Involvement with certain categories of activities are impermissible (eg, pornography, prostitution, weapons of mass destruction, alcohol and pork for human consumption, interest-based banking and finance, non-mutual insurance and certain others). Islamic finance is structured finance, in terms of risk and cash flow structuring (rather than derivatives). Islamic finance contractual structures (eg, leases, partnerships, sales agreements) are very similar – indeed, almost identical – to their conventional equivalents. Islamic finance, although somewhat different and based in religion, is not a realm of mystery. What’s more, it is encountered in every jurisdiction – and this will only increase.


Conceptually, modern Islamic finance is comprised of four areas of commercial and financial activity, each conducted in compliance with current interpretations of Islamic shariah. These are: banking; investments; finance, including capital markets; and takaful (insurance). Islamic finance is an outgrowth of the post-World War II devolution of the Islamic states from colonial powers after a long interregnum in which interest-based commerce and finance were dominant. Islamic banking began in the 1970s and developed erratically until the mid-to-late 1990s, when its focus expanded from deposit-side activities to include investment and finance activities. Investment and finance activities commenced in the mid-1990s and have grown continuously at an accelerated rate ever since. Takaful started in the early 1980s and has been slower to develop.

In each case, growth has been somewhat disorganised and sporadic – with the notable exception of Malaysia, which introduced organisational formalities (including laws) in the early 1980s.

The shariah is commonly considered to be Islamic law, but this is a woefully inaccurate characterisation. Theshariah is the path or guide by which a Muslim leads his or her life, in every facet, activity and detail of life. It is religion, ethics, morality and much more, including aspects that constitute “law”. The principles are embodied in the revealed sources: the Qur’an (Islam’s holy book); and the Sunna (practices, examples and decisions of the Prophet Mohammed). Principles are also discerned by other methods, most importantly (particularly in Sunni Islam) the consensus of the community of shariah scholars (ijma) and analogical deduction and reasoning (qiyas). The shariah is not a monolithic construct. There are multiple schools of Islamic jurisprudence: for example, the four main orthodox schools of Sunni Islam dominantly effect modern Islamic finance.

Interpretation of the shariah as applied in contemporary Islamic finance is performed by shariah scholars, most frequently sitting on shariah supervisory boards comprised of at least one scholar (commonly three). These scholars are retained by individual investors, banks, financial institutions, family offices, standard-setting organisations and other industry participants to provide advice and fatwas, or opinions, on commercial and financial transactions, activities and entities, including structures and documentation. Fatwas are rendered specifically to the retaining entity in respect of discrete and definable transactions and activities. Standard-setting organisations also have shariah boards that issue and approve advisory standards for the industry. Many such standards pertain to contracts and structural arrangements used in Islamic finance transactions and activities. An example of a prominent standard setting organisation is the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).


The Islamic capital markets are comprised of an equity side and a “debt” or finance side. The equity side commenced in 1998, after issuance of a fatwa by the shariah board of Dow Jones Islamic Market Indexes (DJIMI fatwa), which set forth parameters and principles for the screening of equities for shariah compliance and inclusion in Dow Jones indices. In so doing, it also institutionalised certain principles allowing for “permissible variances” from (or “permissible impurities” regarding) strict interpretations of relevant shariahprinciples; and methods of “cleansing” or “purifying” impurities. For example, until issuance of the DJIMI fatwa, a strictly observant Muslim could not purchase non-controlling positions in equity securities because virtually every business entity either paid or received interest, both of which are forbidden under currentshariah interpretations. The balance-sheet ratio tests set forth in the DJIMI fatwa allow investments in permissible equity securities if certain ratios are satisfied. The ratios relate to debt to market capitalisation; cash and marketable securities to market capitalisation; and accounts receivable to market capitalisation. No ratio can exceed 33 per cent. Cleansing is obtained by donating any interest income to charity. The “conglomerate” issue (an entity that directly or indirectly conducts impermissible or haram business activities) was also addressed: investments are impermissible if such activities constitute “core” activities of the entity.

The DJIMI fatwa may be the most influential fatwa issued in the history of modern Islamic finance and is one of seven critical factors enabling the growth of modern Islamic finance (a grouping that also includes sukukand the bifurcated lease structures discussed below). The permissible variance, cleansing and core business activities principles set forth in the DJIMI fatwa have been applied in a broad range of contexts and have been instrumental in allowing Islamic finance to exist, and thrive, in Western markets and in transactions involving Western interest-based participants. Thus, for example, application of the “core business activities” principles may allow, as permissible tenants in buildings owned by shariah-compliant investors, automatic teller machines owned and operated by interest-based banks; supermarkets that sell pork and alcohol; and back office operations of interest-based banks, among others. Permissible leases to these tenants may include nonconforming provisions relating to default interest, non-takaful insurance, and non-compliant structural maintenance. “Single Islamic tranche” project financings may be incorporated in structures that also include conventional interest-based debt. And “bifurcated lease structures” that utilise structurally isolated interest-based debt are almost standard throughout the world.

Sukuk are the most important and most rapidly expanding component of the finance side of the Islamic capital markets. Sukuk are not “bonds”, despite their persistent characterisation as such by the press. They are either asset securitisations or whole business securitisations, in each case akin to their conventional counterparts in that they are structured with asset isolation and servicing of the securitisation instrument (thesukuk) from cash flows from those assets. They resemble pass-through certificates of the early 1980s: fractional undivided ownership interests, albeit with cash flow restructuring. They must be structured around tangible assets, usufructs or services. Under the relevant AAOIFI shariah standard, which is widely followed in the industry, there are 14 categories of permissible sukuk. Five involve lease arrangements. These pertain to existing or to be acquired tangible assets or leasehold estates and presales of services. One relates to construction funding; another to the production or provision of commodities or goods at a future date (a forward-sale contact). One relates to acquisition funding of goods for future sale (a murabaha contract), although this structure has been stretched to almost any type of financing and debt generation. Two relate to capital participation in a project or business (mudaraba, or service-capital partnership, and musharaka). One relates to asset management (wakala or agency) and three relate to land and agricultural activities.

Malaysia has consistently been the global sukuk issuance leader, with 69–77 per cent of global issuances. In recent years, it has been followed by Saudi Arabia, Qatar and the United Arab Emirates, which is reflective of their infrastructure development programmes. Bahrain’s central bank is a consistent issuer of sukuk that function as short-term commercial paper equivalents. Domestic offerings constitute a huge portion (91 per cent) of all issuances, which is indicative of extensive risk concentrations due to, and loan-substitute nature of, purchases by domestic banks and financial institutions. Viewed historically, lease-based sukuk are the most common structures. However, since the onset of the 2007 financial crisis, the use of murabaha-basedsukuk has increased dramatically. A murabaha is a cost-plus sale, and murabaha-based sukuk frequently make use of metals or palm oil murabaha transactions in which the commodities serve solely as a vector for debt generation. Musharaka (partnership or joint venture) structures experienced a high point just before the financial crisis, and were the subject of stringent criticism by shariah scholars because they were structured to be, essentially, bonds rather than profit-and-loss-sharing instruments. Government issuances dominate, at approximately 65 per cent of all issuances. Government-owned corporate issuances comprise the great bulk of the remaining issuances. True asset securitisations are rare. Malaysia is the exception: private corporate issuances constitute notably larger percentages. Apart from infrastructure-related issuances, the primary categories of issuances are in the financial services and real estate sectors. However, that pattern varies over time, economic cycle and region.

As the trend data illustrates, sukuk issuances will continue to dominate the Islamic capital markets, and the issuance rate will accelerate, even if governments, quasi-governmental entities and government-owned corporates remain the primary issuers. The explosion in sukuk issuance will occur if private entities can access the domestic and international capital markets. The undertaking to achieve that result is daunting. It will entail significant legal, regulatory, tax, administrative and financial reform in OIC jurisdictions. Examples of concepts, regimes and constructs that will need to be developed and implemented are, among many others:

• true sale concepts;

• insolvency and bankruptcy regimes;

• legal, regulatory, financial, administrative and substantive law constructs and regimes that recognise the distinctive elements of securitisation;

• corporate governance principles;

• lien laws and recordation systems, particularly regarding perfection and prioritisation;

• regimes for issuance and publication of judicial opinions;

• regimes that infuse stare decisis concepts into legal systems;

• trust concepts, even in jurisdictions based upon civil law;

• concepts that clarify the definition and role of the shariah in each jurisdiction; and

• regimes that implement and strengthen the elements and clarify the role of the rule of law.


There is evidence that, directly and indirectly, Islamic finance – and particularly the growing reach and power of the Islamic capital markets – may provide the necessary impetus to effectuation of some of the necessary reforms in OIC jurisdictions, even where similar reforms based upon secular efforts have stalled or been rejected or deferred. Consider the adoption of trust concepts in Bahrain and a mortgage and lien recordation regime in Saudi Arabia.

Hopefully, the eminent practitioners listed in this volume will undertake to contribute to this reform programme, whether in self-interest or a broader commitment to global legal reform. In any such case, the benefits to the entirety of commerce and finance, the global community, global understanding and tolerance, self-knowledge and awareness, and individual legal practices will be profound.

Michael J T McMillen, Curtis, Mallet-Prevost, Colt & Mosle LLP

Tunisia Islamic Finance Country Report: Cautiously Optimistic

Thomson Reuters, Islamic Research and Training Institute (IRTI), General Council for Islamic Banks and Financial Institutions (CIBAFI), bring you the Tunisia Islamic Finance Country Report (‘Report’) which provides substantive due diligence on the opportunities for Islamic financial services in the North African country.

Features & Benefits

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What is in the Report?

  •  Retail Consumer Survey findings
  •  Macro – Economic Environment
  •  Financial Market Landscape & Trends
  •  Islamic Finance Demand & Potential
  •  Islamic Finance Investment Scenarios
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Governance unit’ for UAE Islamic banks

Will act as reference point in any dispute

The UAE Central Bank is planning to create a ‘governance unit’ that will organise the activities of Shariah-compliant banks and Islamic units at commercial banks in the second largest Arab economy, a newspaper reported on Sunday.

The UAE Banks Union has requested the creation of such a unit with the aim of organising the work of Islamic banks and unifying criteria and laws for their Shariah-compliant banking operations in the country, Alkhaleej said.
“The plan has been prompted by the presence of a gap in such laws…the services at some Islamic banks widely differ from those at other similar banks,”the paper said, quoting what it described as an “informed” banking source.
“This unit will be created and based at the Central Bank and will act as a reference for all Shariah-compliant banks operating in the UAE in case any disputes arise.”
The source said such a body has become essential following a steady and rapid increase in demand for Islamic banking services, adding that such services have grown in the UAE alone by around 20 per cent annually.
According to the source, Islamic units at UAE-based conventional banks have largely expanded over the past years, contributing 10-15 per cent of their total profits.
Eight of UAE’s 51 banks are Shariah-compliant units, with their total assets exceeding Dh200 billion at the end of 2012.

Labuan FSA to fare better this year

The performance of Labuan Financial Services Authority (Labuan FSA) is expected to grow in 2013 due to continuation in the growth trajectory across key business sectors.

Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz said the growth would be underpinned by businesses including leasing activities, foundations, insurance and Islamic finance.

She said the growth would be seen in all segments in the Labuan International Business and Financial Centre (Labuan IBFC).

“Many of these activities evolve because of the investment activities going on in the Asian region including in infrastructure, aviation as well as oil and gas.

“These industries are experiencing solid growth and as a result, Labuan has benefitted from this,” Zeti told a media conference here on Labuan FSA Annual Report 2012.

The Labuan IBFC houses 59 banks, 203 insurance and insurance-related companies, 257 leasing companies and 37 trust companies.

In 2012, Labuan foundations increased by 62.5 per cent to 65 foundations from 40 the year before.

During the year, registration of companies in IBFC also recorded a growth of 8.9 per cent or 779 companies, bringing the total number of companies to 9,487 as of December 2012.

Up to May 31, 2013, the number has increased to 9,811, in tandem with the favourable economic growth in Asia, with more than 50 per cent of the Labuan companies originating from this region.

“Labuan, which is strategically located in the centre of Asia, is well-positioned to serve as a gateway for advancing investment activities in the region.

“In 2012, companies that were incorporated in Labuan can now seek listing on the Hong Kong Stock Exchange to tap the growing opportunity in Asia,” said Zeti.

The ratio of gross non-performing loans of Labuan banks improved to 1.3 per cent in 2012 from 1.5 per cent in the previous year.

The industry’s average risk-weighted capital ratio and core capital ratio stood at 20.6 per cent and 20.5 per cent, respectively.

Overall, the banking sector’s asset base grew to US$42.1 billion from US$38.3 billion in 2011.

Correspondingly, loan and advances continued to expand during the year with non-residents nominated the majority of 60.6 per cent of the total loan outstanding.

The Labuan banking sector also posted an increase of 41.2 per cent in its pre-tax profit for 2012.

The total assets for Labuan insurance entities jumped 16 per cent to US$4.2 billion and total gross premium grew to US$1.7 billion, with non-resident business constituting a higher share of 53.9 per cent.

In 2012, two large reinsurance companies relocated their branches to Labuan IBFC from Europe to focus their businesses on the Asia and Oceania region.

Labuan’s leasing business saw 41 new leasing companies approved.

The continued rising demand for leasing facilities, particularly in the oil and gas and aviation sectors had contributed to the expansion in the sector’s cumulative asset leased valued at US$32.4 billion from US$27.6 billion previously. — Bernama


Story on Islamic finance in South Africa

AL BARAKA Bank, the sharia-compliant local subsidiary of Bahrain-based Al Baraka Banking Group, is investigating a mobile application (app) for its clients, and enabling its bank cards for use in foreign markets.

Al Baraka Bank CEO Shabir Chohan said in an interview on Wednesday that although the bank was relatively small, with about 2% of the wider Al Baraka group’s assets, the competitive nature of the South African banking market meant it had to keep up with the bigger banks in terms of new technology and making banking easier for clients.

Durban-based Al Baraka Bank is South Africa’s only fully fledged sharia-compliant bank, although two much bigger banks, Absa and First National Bank, have “Islamic windows” in that they offer sharia-compliant banking products.

There is also a host of sharia-compliant investment products on the local market such as Old Mutual’s Albaraka Equity Fund, and other funds and unit trusts that are available from asset managers including Stanlib, Kagiso Asset Management and Oasis Asset Management.

Al Baraka opened its doors in South Africa in 1989 and it has branches and offices in eight locations, with four branches in Johannesburg: Fordsburg, Laudium, Lenasia and Killarney Mall.

The bank’s gross advances book increased 15% last year, while the deposit book was up 15.3% to R3.3bn. Its total assets grew 14.5% to more than R3.7bn last year, and by the end of last month the figure had surpassed R4bn, Mr Chohan said.

He said the international parent had over the years steadily increased its stake in the South African business, from 50% to 62.15% currently. Al Baraka Bank has more than 1,000 individual shareholders, with the four top shareholders holding about 80% of the shares.

DCD Holdings has an 8.61% stake, DCD London and Mutual holds 4%, while Johannesburg-based Timewest Investments has a 7.67% interest in the bank.

Mr Chohan said banking regulation in South Africa was effective, although it was a challenge for smaller banks to fund the increasing workload of regulatory compliance. “We have to keep adding significantly to our back-office staff,” he said. On the other hand, the local unit was one of few in the wider parent’s global operations that complied with Basel 3, the new international banking regulations that came into effect in South Africa in January this year.

Mr Chohan said a steady progression of new products at the bank was opening up nonfunding sources of revenue for the bank in South Africa, in the form of fees and bank charges. For instance, the bank did not have an electronic banking platform before 2009, and now its cards are accepted at all automatic teller machines in South Africa.

Among the products rolled out since 2009 were debit cards, electronic banking, the issuing of chequebooks to some clients, and the licence granted recently for the bank to become an authorised dealer in foreign exchange. These meant it could now become “a full banker for our clients”, he said.

Sharia promotes profit and risk sharing in a commercial transaction, while it prohibits the payment or receiving of interest in any transaction. The increased interest in sharia-compliant banking is reflected in amendments to South Africa’s tax laws, which now make provision for Islamic banking.


Sukuk demand may jump 300%

       The global demand for Islamic bond, known as sukuk, is expected to jump 300 per cent to $900 billion by 2017, compared to present level of more than $300 billion, said Ernst & Young in a recent forecast.

       The exponential rise is primarily a result of double-digit growth of the Islamic banking industry, and the increasing appetite for credible, Shari’a compliant, liquid securities, according to estimates by Ernst & Young’s  Global Islamic Banking Centre of Excellence.

       The demand comes from Islamic financial institutions as well as fund managers and high net worth individuals. Conventional institutions are also showing renewed interest in investing in sukuk after the eurozone debt crisis primarily as these Islamic products are backed by real assets.

       “Sukuk continues to be in the spotlight, especially after the global economic meltdown, where we learnt that carrying excessively risky debt on the books can lead to financial collapse during black swan events,” said Ashar Nazim, Mena Islamic Finance Services Leader, Ernst & Young.

       The intended differentiation is that sukuk securities are backed by real assets and projects, Nazim said, adding: “Major S are the most common structures. However, since the onset of the 2007 financial crisis, the use of pimg class=”alignleft size-full wp-image-2238″ style=”border: 10px solid white;” title=”labuan” src=”” alt=”" width=”200″ height=”220″ /outh East Asian and Middle Eastern companies are tapping into the international sukuk market to raise Shariah-compliant funds. Global financial firms are also in the fray to raise money through sukuk instruments and to offer Shariah-compliant products.”

       The fastest growing segment is the Ringgit denominated sukuk, which accounts for more than two thirds of the total global issuance. Malaysia has successfully and regularly tapped into the sukuk market to support its infrastructure development programme, a model that other markets are keen to replicate.

       “However, one of the foremost challenges faced by the sukuk market is the supply side constraint as demand continues to outpace new issuance coming into the market. An absence of a global standardised sukuk trading platform open for all Islamic and conventional financial institutions is a major factor hindering growth,” Nazim said.

       The unprecedented growth in demand is good news for governments and corporates seeking new avenues of funding. In 2011, approximately 86 per cent of total sukuk issuances were from sovereign linked entities. In Saudi Arabia, the recent passage of mortgage law will drive billions of dollars of mortgage financing, and sukuk capital market will be a primary beneficiary.  Similarly large natural markets like Malaysia, Indonesia and Turkey are set to benefit from the rising demand for Shariah-compliant securities backed by quality, real assets.

       “There is an urgent need for a new direction in the market to be led by leading Islamic financial institutions and multilateral institutions in a collaborative manner. Globally, at least 14 Islamic banks today have the financial muscles to venture into international sukuk capital market. Pre-requisites are international connectivity, sukuk structuring and trading expertise and balance sheet strength,” he said.

       Post global financial crisis, there was an upsurge in interest and eagerness amongst international conglomerates to explore avenues into the vastly liquid Islamic debt market.

(Khaleej Times / 09 Sept 2012)


Malaysia sets Islamic finance example

       Malaysia leads the world in providing a sharia-compliant environment for savings. CIMB Islamic’s Badlisyah Abdul Ghani charts the rise of Islamic finance since its founding in the country 50 years ago.

       The Islamic finance industry tells a story of constant development and growth across the globe. Its growth has far outstripped that of conventional riba or usury (interest)-based finance over the same period. Some argue, however, that this is only because the industry has been growing from a low base by conparison with conventional financial activities.

       This may be true, but take as an example the sukuk market. The European sukuk markets took less than five years to breach the $10bn mark in terms of total outstanding issuance globally, while the Eurobond markets took slightly more than 10 years to breach the same mark.

       Even then, some would still argue that it is because the market infrastructure for European sukuk is better today compared with what the Eurobond market started out with. Irrespective of the arguments, it cannot be denied that Islamic finance has been growing significantly over the past 50 years. In fact, it is the fastest growing segment of the modern financial market, recording growth of about 20% to 25% per annum internationally, and it is continuing to gain traction in countries around the world.

Spectacular growth

       The growth of the Islamic finance industry has been most spectacular and notable in south-east Asia and the Gulf Co-operation Council countries. Many believe that the Islamic finance industry that we know today was first reintroduced in modern times in the early 1900s in Egypt, but this early attempt failed due to a lack of legislative and regulatory support.

       Others believe that the industry as we know it today was first started in the mid-1970s, somewhere in Dubai, when a commercial financial institution with ‘Islamic bank’ in its name was established. Unfortunately, this is not true; most ‘Islamic’ financial institutions back then were either not regulated (thus their activities were not related to banking and finance but more of a trading company) or were regulated as a conventional bank (in a way that does not allow them to fully operate in a sharia-compliant manner).

       Unbeknown to a lot of people, the birthplace of today’s Islamic finance industry took place in the 1960s in Malaysia; a small country with 28 million people today. Federal legislation saw the Tabung Haji (or the Pilgrimage Fund) established, which led to the creation of the first legislated and formal savings institution in the world carrying out modern financial transactions in a sharia-compliant manner.

       This led to the establishment of the world’s second legislated Islamic institution, the Islamic Development Bank in Kuala Lumpur, Malaysia, in 1974, before its headquarters were transferred to Jeddah in Saudi Arabia in 1975, after Saudi Arabia agreed to support the initiative and became its biggest capital provider.

       The establishment of Tabung Haji and the Islamic Development Bank eventually led to the enactment of the world’s first specific formal legislation for the Islamic finance industry called the Islamic Banking Act (1983). Both Tabung Haji and the Islamic Development Bank became shareholders of the world’s first regulated and formal Islamic bank, Bank Islam Malaysia Berhad, which operated under the supervision of Malaysia’s central bank, Bank Negara Malaysia.

Legislative activity

       Since then, Malaysia has introduced many legislative enactments and amendments. These include the Takaful Act (1984), which saw the establishment of regulated takaful companies; the Banking and Finance Industry Act (1989), which saw the establishment of Islamic window operations under conventional licensees; the Real Property Gains Tax Act (1976), which saw the exemption from real property gains tax in Islamic financial transactions; the Income Tax Act (1967), which saw the exemption of double stamp duty as well as any other tax expenses over and above what is payable under a similar conventional financial transaction; the Securities Industry Act (1983), which saw the birth of the Islamic equity capital market; and the Central Bank Act (2009), which saw the official recognition of a dual-banking industry in the country and the recognition of the Sharia Advisory Council of the central bank as the ultimate authority on sharia in the financial market, thus institutionalising and embedding the Islamic banking industry as a formal feature of the overall financial market of the country.

       There are many more legislative enactments and amendments aimed at facilitating effective and efficient Islamic financial activities in Malaysia that are too numerous to list here. No other country’s legislative bodies have come close to doing what Malaysian legislators have done for the Islamic finance industry.

Financial inclusion

       Malaysia has also overseen the provision of various regulations by relevant financial bodies to facilitate the undertaking of Islamic financial activities in a manner that would ensure optimum financial inclusion, consumer protection and prudent management of licensed sharia institutions.

        Guidelines on financial reporting for Islamic financial institutions, sharia governance frameworks, capital adequacy, Islamic securities, Islamic initial public offerings, Islamic warrants and sharia-compliant stocks, among others, have been introduced and followed by continuous improvements over the years in Malaysia.

       These specific guidelines for licensed Islamic financial institutions are applicable over and above all other guidelines issued by regulators, ensuring there is no gap in regulatory supervision and minimising any possible negative impact on the overall financial market in the country. No other country’s financial regulator has come close to Bank Negara Malaysia, the Securities Commission of Malaysia and the Labuan Financial Services Authority in the oversight and supervision of the Islamic finance industry and the licensed financial players, both in onshore and offshore activities.

Global leader

       Off the back of Malaysia’s comprehensive legislative and regulatory framework for Islamic finance, the country arguably has the most conducive legal environment to hear disputes on Islamic financial transactions anywhere in the world. Sharia is recognised as the law of the land and, with the exception of private and family law, falls under the ambit of the civil court.

       Most Islamic financial transactions in the country have been fully tested in court, which helps to provide clarity. The sharia governance framework in Malaysia is fully legislated and regulated as well, allowing for all sharia interpretation and application, regardless of the sharia school of law practised in the industry on a free-market principle, but subject to the legitimate parameters of sharia law as found in the Koran and Hadith (a saying or an act ascribed to the Islamic prophet Muhammad).

       All sharia schools of law are applicable, valid and enforceable in the industry, as long as their applications are approved by the country’s relevant financial authority on sharia.

       Malaysia has been so effective in promoting and propagating the growth of Islamic finance because it has approached the industry’s development from a purely commercial perspective. Many countries today have some form of legislative and regulatory framework in place for the industry, but they lack the comprehensiveness that exists in Malaysia. Some have enabling legislation for Islamic banking, but nothing for Islamic capital markets. Others have legislation for Islamic capital markets, but nothing for Islamic asset management or banking.

       The enigma of Islamic finance is the lack of comprehensive legislation, regulation and a sharia-compliant governance framework in many countries. It is an enigma because after 50 years, Islamic finance has not been properly legislated and regulated in practically all countries but one, and is therefore not fully supported by a conducive legal environment and infrastructure, as well as a rigorous and dynamic sharia regime.

       There seems to be significant reluctance on the part of many countries’ legislators and regulators (including those in Islamic countries), to have this framework in place. This has cost Islamic finance its real growth potential and deprived the world of the opportunity to benefit from a more inclusive global economy and the greater economic development that Islamic finance can offer.

       Badlisyah Abdul Ghani is executive director and chief executive officer of CIMB Islamic bank.


Cagamas – a barometer for Malaysian sukuk in 2013

       Research by Siti Sarah Mohamad Aslan

With its Malaysian government backing and mission, the National Mortgage Corporation (Cagamas) has been and is expected to continue to be a big player in the sukuk market. However, this may soon prove to be the case not just in Malaysia but also on the world stage – acting as an indicator for the country’s greater engagement with other Islamic finance centres.

       Despite its focus to date on the domestic sukuk market, it is likely that Cagamas is ready to venture out on an international level – where the reception in Europe and the Middle East of Sime Darby’s recent multi-currency sukuk debut proved there is demand for high quality Malaysian issuers. Expanding its reach to overseas investors could be good for Cagamas and for Malaysia but also for the wider sukuk market, since Cagamas has the capacity to create versatile and pace-setting sukuk series.

Cagamas was established 27 years ago to encourage house ownership and to contribute to the growth of the secondary mortgage market in Malaysia. It issues debt securities to finance its purchase of housing loans from financial and non-financial companies. Cagamas has high credit quality (AAA and P1 by RAM Rating) and is now entering its 12th year as a borrower in the Malaysian sukuk market. 

       Cagamas’s first issuance was on February 26, 2002 using a murabaha structure. The MR50m ($16.4m) sukuk acted as a litmus test for the newly emerging market and in April 2002 Cagamas issued a much bigger MR500m sukuk. Cagamas also set down a marker by issuing the first ever MR1bn sukuk al-amanah li al-istithmar (sukuk alim - a type of investment sukuk that is tradable in the secondary market) in August 2010 (see news), as well as the first ever issuance of MR500m sukuk wakalah bil istithmar (investment sukuk mixing debt with equity assets) in March 2012 (see news).

       Over 12 years, Cagamas has most often issued sukuk based on the principle of sukuk al ijara (leasing), due to the popularity of the structure and Cagamas’s position as a mortgage securities issuer as well as intermediary between primary lenders and long term fund investors. From a total of just over MR23bn worth of Cagamas sukuk, the company has issued MR15.5bn according to this principle.

       Cagamas’s next most utilised structure follows the principle of bai’ bithaman ajil (BBA – deferred payment sale), with 18% of total issuance, and sukuk al musharakah (joint enterprise), with 10%. For an institution that has indirectly interest in property market, it is surprising to see only MR32.3m of issuances are based on the istisna’ (contract of exchange with deferred delivery) principle, which is the structure that is normally used in financing large construction projects.

       Cagamas is one of the most prominent sukuk issuers in the world, with average issuance per year of  up to MR2.3bn for the past 10 years, over eight different sukuk facilities. Only one of these facilities was issued on a short term basis. All the others were longer-stretch sukuk, with the longest tenor at 20 years. 2007 saw Cagamas’s highest level of issuance, with MR11.3bn, while 2003 marked the lowest with MR115.7m – a remarkable range within five years in the market.

       Following the announcement of the Malaysian budget 2013, the government is allocating MR1.9bn to build 123,000 affordable housing units in the country. This has boosted Cagamas’ expectations in the property market and the company announced it would increase its debt securities issuance by 20% to MR6bn in 2013, compared to MR5bn in 2012, following the recent sale of MR125m sukuk commodity murabahah. This demonstrates Cagamas’s confidence in the Malaysian property market and eases any public perceptions that property bubbles could happen.

Euromoney Institutional Investor PLC

Tunisians Look to Islamic Finance To Address Economic Woes

Mahfoudh Barouni, an expert in banking and finance, said, “The term ‘Islamic’ should not be used with anything related to the economy.”

According to him, this would affirm that the user of such a word is more Muslim than others. The difference between Islamic and conventional terms in finance stems from doctrine, in the sense that reflection on the mechanisms and structures of operation is simply based on two different perspectives, one of which includes the component of religion by referring to religious texts specifically.

Islamic finance has been considered lately to be the ultimate remedy for those economies’ vices that have resulted from the global finanical crisis. It was then that Westerners embarked on a mission to study the possibilities of developing Islamic finance as a solution.

According to Ferjani Doghmane, a Tunisian Ennahda MP in the National Constituent Assembly (NCA) who is the chairman of the Finance and Planning Committee, in Tunisia Islamic finance did not just appear in 2009. He was alluding here to the creation of the Zitouna Bank by Sakhr El Materi, the son-in-law of former President Zine El Abidine Ben Ali. We certainly agree with Doghmane’s ideas. Islamic finance was not exclusively introduced by Materi, but we cannot deny the role Zitouna Bank played in the “democratization” and “popularity” of this type of finance.

As part of an organized informational meeting held on June 11 at the Employers’ Federation by Zitouna Takaful Insurance Co. on the theme, “Takaful Insurance at the service of individuals and economic institutions,” Doghmane, in his position as a member and chairman of the NCA’s Finance Committee, stated his position on Islamic finance and insurance. In the past, there were already laws governing the sector that had been drafted according to market needs, but this legislation did not actually govern the Islamic finance sector. Currently, there are texts that legislate Islamic finance and grant all Tunisians the freedom to choose between Western and Islamic finance.

Doghmane added that the NCA has integrated several draft laws into its program of work, and also into the work of committees, including Islamic projects. Wassim Bel Arbi, a journalist who moderated the meeting, commented, rightly, on the word “Islamic projects,” emphasizing that this could lead to confusion or feed the fears of some people who dread the Islamization of the constitution through the establishment of such projects.

Nevertheless, Doghmane explained that there is no reason to be afraid of this word because the people are Muslim, and their elected officials have not included anything that would scare them in the constitution. Still, some controversial draft laws are essentially aimed at Islamizing society and the economy.

One of these disputed draft laws is that involving Islamic sukuks (bonds). Doghmane recalled that the 2013 Finance Law provides 1 billion dinars (about $620 million) in cash based on the issuance of sukuks. Therefore it is a new resource, the purpose of which needs to be clarified. He added that the final report on the Islamic sukuks draft law will be presented by the end of June 2013.

Speaking on the topic of Islamic insurance, the CEO of Zitouna Takaful, Makram Ben Sassi, recalled that this business has existed in Tunisia for 30 years, adding that his company offers a rich range of 30 products dedicated to individuals and economic institutions. Yet, the real problem is that there is a lack of awareness and responsibility rooted in the mentality of Tunisians in general.

In other words, an individual does not get enrolled in an insurance plan except by obligation and not by choice. In some cases, individuals even resort to self-insurance and eventually end up getting into trouble. Moreover, Ben Sassi draws the attention to the fact that insured individuals do not trust insurance companies to a certain level and often believe that they are profiting at the expense of customers. Therefore, the creation of Islamic insurance has given insured individuals some comfort and trust and encouraged them to benefit from the insurance services more objectively.

Tunisians are choosing Islamic insurance more and more since it complies with their principles better than conventional insurance. According to Barouni, this type of consumer has the right to benefit from the products of Islamic finance, which significantly contributes to the revitalization of the national economy.

Today, the development of Islamic banking and Islamic insurance primarily depends on the introduction of a law that is more in line with market needs and expectations. Still, Barouni believes that the imperfections of the existing law have not so far hindered the smooth development of Islamic finance.

Oman: Regulating Islamic finance

The Middle East | 11 Jan 2013

       The recently released Islamic Banking Regulatory Framework (IBRF), a 500-page document setting out the regulations that will govern Oman’s financial sector, is set to open the door for both conventional and Islamic banks to market sharia-compliant products. In a statement accompanying the regulations, the Central Bank of Oman (CBO) described the IBRF as “a detailed and comprehensive document covering all aspects of Islamic banking”.

       While conventional lenders will be allowed to conduct Islamic banking operations, the IBRF requires them to open separate branches for the two different products and make clear the sources of their funds and what they are used for. The requirement for individual branches for both conventional and Islamic operations will impose additional costs on banks seeking to operate in both segments, although the strict reporting requirements should limit any concerns regarding crossover of funds from non-accepted sources.

       The regulations do not put in place a centralised body to supervise and vet Islamic products, allowing each bank to have its own sharia board to oversee products. Each board is required to have a minimum of three scholars – each with a proven knowledge of legal and financial matters and a minimum of 10 years of experience.

       All such scholars will be subject to performance assessments throughout their terms of office and will be limited to serving two consecutive three-year terms. These requirements are tighter than many applied in other Gulf countries, as is the restriction on board members being allowed to work for two competing Islamic financial institutions.

       Another area where the regulations are more stringent than those in other markets is tawarruq or commodity murabaha, the buying of an item or product from a bank through a deferred payment arrangement by a person or entity, who then sells the item to a third party for cash. The IBRF rules out this instrument, saying, “Commodity murabaha or tawarruq, by whatever name called, is not allowed for the licensees in the sultanate as a general rule”. Tawarruq has come under criticism by some scholars for not being fully compliant with Islamic financial requirements.

       Oman’s banking sector has long been awaiting the CBO’s regulatory framework, after Sultan Qaboos bin Said Al Said issued a decree in May 2011 authorising the establishment of Islamic banking. Currently, seven conventional lenders – Ahli Bank, Bank Dhofar, Bank Muscat, Bank Sohar, the National Bank of Oman, the National Bank of Abu Dhabi and the Oman Arab Bank – are planning to offer services in the sharia-compliant segment, along with the two dedicated Islamic banks in the market, Bank Nizwa and Alizz Islamic Bank. With the IBRF now in place, most will be looking to open their Islamic windows early this year.

       Though banks have been lining up to enter the market, Oman’s new sharia-compliant banking sector will face a number of challenges and potential pitfalls in its early stages, according to Khalid Yousaf, the director of Islamic finance advisory services at KPMG in Oman, a financial services firm.

       “The biggest challenge will be for the industry to educate their customers and general public about the essential, basic facts about Islamic finance, and the biggest threats may be the shortage of skilled resources as well as the shortage of available products for banks to place their surplus liquidity,” Yousaf told media in December.

       As Oman does not have a history of formal sharia-compliant banking, it has a shallow pool of experienced staff and Islamic scholars well versed in financial matters. However, banks will be able to tap experts from other Gulf states for rulings on regulatory issues, and many lenders have already begun training courses for staff in anticipation of opening their Islamic banking windows.

       The Fitch ratings agency has also suggested it may not be plain sailing for the Islamic banking sector, saying in a note issued in October that it will be some time before stand-alone Islamic banks in Oman will be able to compete effectively with their conventional rivals, which will have their established networks, brand names and operational scales of efficiency to back up their own Islamic windows.

       “Newly created Islamic banks in Oman will face competition from incumbents such as Bank Muscat and HSBC Bank Oman, which are setting up Islamic banking arms in preparation for the upcoming rule changes,” Fitch’s note said. “While the established banks will need to keep their existing and Islamic operations separate at the point of contact with the customer, there will be plenty of opportunities for cost savings at the operational level.”

       While the report identifies that there is a market for dedicated Islamic banks, with higher government spending and economic growth opening doors in the retail banking segment, the agency said many clients would chose to remain with their existing lenders, even if they shift to sharia-compliant accounts.

       Oman already has a competitive banking sector and the opening of the Islamic segment of the market will only serve to make it more so. The success of the two dedicated sharia-compliant banks, and that of the segment as a whole, will likely depend on how well new products are promoted and services are provided.

Islamic banking in Bangladesh

       Mohammad Abdul

      Bangladesh is the third largest Muslim populated country of the world with around 140 million of Muslim population. The hope and aspiration of the people of the country to run religiously compliant banking system came into reality in 1983 five years after the OIC recommendation at its Foreign Ministers meeting in 1978 at Senegal to develop Islamic banking system in all of OIC member countries. Earlier in 1974 Bangladesh signed the Charter of Islamic Development Bank (IDB) which is the sign of its commitment towards recognising Islamic economic and financial system. After the inception of Islamic banking in Bangladesh in 1983 there was a consistent growth and today out of 47 commercial banks in Bangladesh 7 are fully fledged Islamic banks. In addition, 15 other regular commercial banks and two foreign banks are offering Islamic products through their Islamic banking branches/windows. Currently, the combined share of Islamic banks accounts around 25 per cent of the total banking market of Bangladesh. As common good, socio-economic justice and equitable distribution are important objectives of Islamic economic system Islamic banking industry of the country should positively come forward to contribute in this sector. Corporate Social Responsibility (CSR) from the Western perspective evolved more than half a century ago. But from Islamic perspective the concept of CSR is not new. This concept would already practice in the era of Prophet (PBUH). Journey of Islamic banking in Bangladesh is journey through multi dimensional challenges. The most important challenge is not having necessary legal framework for Islamic banking. Since introduced in Bangladesh in 1983 Islamic banking had passed 29 years. During this long period no comprehensive law had been enacted to regulate Islamic banking except a Guideline for Islamic Banking issued in 2009 and a few amendments in the application of existing laws by the government and Bangladesh Bank. Malaysia also started Islamic banking in 1983. But Malaysia enforced Islamic Banking Act before commencement of Islamic banking business. This was an advantage for Malaysia to become an important centre of Islamic banking in the world. Islamic banking mechanism is a completely distinguished mechanism from its conventional counterpart and religiously complaint to Muslims. But there is no befitting separate regulatory framework in Bangladesh regarding supervision and inspection of Islamic banks, rather an equal treatment is being followed for all banks-Islamic and conventional. However, Central Bank has given some special provisions for Islamic banks. But experts think that for smooth development of the sector Bangladesh Bank should devise regulatory and supervisory framework dedicated for Islamic banks which must include Shariah governance framework also. Another big challenge for Islamic banking in Bangladesh is lack of educations on Islamic finance. There is huge shortage of academic and training institutes to learn Islamic finance. Consequently, there is huge shortage of talent in Islamic banking sector of Bangladesh. To establish Islamic banking and financial system on strong ground it is very much essential to create sufficient graduates on Islamic banking and finance having full command on Shariah, Fiqh, and Islamic financial products. Proper educations certainly raise standards of Islamic finance.


Islamic Finance in Phillipines

       MONETARY AUTHORITIES could allow the introduction of Islamic banking products — given the huge market potential — as long as the framework is “market driven.”
       ”Considering that there’s market potential … We can look into the possibility of allowing conventional banks to provide Islamic banking products,” central bank Deputy Governor Nestor A. Espenilla, Jr. yesterday said.

       ”However, we have not received any proposal so far,” he added.

       ”Perhaps the problem is a dearth of providers with sound Islamic banking business models,” Mr. Espenilla noted.

       Al-Amanah Islamic Investment Bank of the Philippines, formed by virtue of Presidential Decree 264 issued by then President Ferdinand E. Marcos, is the only one authorized to service the local Muslim community. Islamic banking adheres to the laws of the Koran and as such does not charge interest.

       ”That franchise has not been well-utilized so far,” Mr. Espenilla claimed.

       Bankers have cited the absence of a regulatory framework as the main hindrance in implementing Islamic finance in the country.

       This was noted by Malayan Banking (Maybank) President and CEO Dato’ Sri Abdul Wahid Omar, who said: “We (Maybank) have to expand the current offering that we have … but the current regulations do not allow that.”

       ”Currently, there is no framework to operate Islamic banking in the Philippines. I guess we need to study the market first, look at the Islamic banking model that will be acceptable for the market and see how it can be implemented in the Philippines,” he added.

       He noted that the expansion of Islamic banking offerings was relevant given development plans for Mindanao.

Govt encourages sharia banks to take reins in managing haj funds

The Jakarta Post | Feature | Wed, February 06 2013, 12:23 PM

       Performing the haj or pilgrimage is one of the pillars of Islam for Muslims who are physically and financially capable. It is a huge annual undertaking, especially for Indonesia with 90 percent Muslim adherence among its population of 240 million.

       The government believes that managing the huge amount of funds must be the responsibility of Islamic banks instead of conventional banks. It was an opinion reiterated recently at a seminar in Jakarta initiated by the Director General of Haj and Umrah (minor haj) Affairs Anggito Abimanyu.

       He said the funds reached around Rp 50 trillion in 2012. “Surely, the huge funds would be very useful to propel the Islamic economy,” he said. In addition, Islamic banks’ responsibility for overseeing the funds was in accordance with a 2008 law on the haj.

       The one-day seminar, “Managing Haj Funds with Sharia Economic Principles”, was organized by the daily Pelita and sponsored by Bank Indonesia. Anggito said that efforts were underway to finalize the bill on managing haj funds in which the policy on haj funds will be separated from the haj management.

       “The management of haj funds in public service agency will be conducted in a professional, accountable, transparent and trustworthy manner,” he said.

       The government is striving to provide a direct investment opportunity from haj funds to raise the value, following the calculation of value gained from the placement of the funds in bank deposits and sukuk (Islamic bonds).

       Under the 2008 law, haj funds cannot be used for direct investment but are only allowed to be invested in deposits and Islamic bonds. “So the regulation allows us to make a direct investment but in a limited amount,” he said.

       Executive Director of Bank Indonesia’s Islamic Banking Department Edy Setiadi said in his keynote address that the central bank would coordinate intensively with the Religious Affairs Ministry to seek ways to optimalize the haj management system to be beneficial for the public and Islamic banking.

       “The public can take advantage of haj savings deposited in Islamic banks for productive activities through financing by Islamic banks,” he said. The president director of Bank Syariah Mandiri, Yuslam Fauzi, disclosed that Islamic banks have conducted a discussion with the Deposit Insurance Agency (LPS) regarding the replacement of the haj funds in Islamic banks.

       “The discussion is aimed to make sure that LPS can provide certainty about the insurance of the haj funds to be placed in Islamic banking institutions,” he said. According to him, the Religious Affairs Ministry drew upon the haj funds for the investment in Islamic bonds in early 2012, which led to the Islamic banking industry experiencing slow growth last year. Starting in mid-2013, the haj funds will be returned to Islamic banking in stages, he said.

‘Wakaf’ funds

       Edy Setiadi also disclosed in his address the significant potential for wakaf (money for religious purposes) as alternative financing to support the fund disbursement in Islamic banking.

       “If 10 million Indonesian people set aside wakaf of Rp 10,000 to Rp 100,000 each per month, then around Rp 5 trillion will be collected within a year,” he said.

       Data in the International Center for Education Islamic Finance (INCIEF) shows that wakaf funds in Indonesia are currently US$1.5 million, or about Rp 11.7 billion. Indonesia lags behind other nations in the sector.

       For example, Malaysia with a Muslim population of 17.3 million, collects wakaf funds of Rp 644 billion, or about 61.3 percent of its Muslim population. Funds in Turkey with a Muslim population of 73.9 million reach Rp 239 billion, or about 98.6 percent of the population. The United Kingdom, with a Muslim population of around 2.7 million, collects about Rp 31 billion in reaching approximately 4.8 percent of its Muslim population.


       Edy said that Islamic banking assets in 2013 were projected to grow around 36-58 percent whether the situation was pessimistic, moderate or optimistic.

       A pessimistic scenario happens when the Islamic banking expansion encountered pressures, either from internal or external factors. The internal factors include the failure to collect funding as expected and the decline in the amount of third-party funds. External factor relates to the decline in national economic performance.

       Meanwhile, a moderate scenario takes into account the current acceleration of Islamic banks through continued financing expansion and the increase in third-party funds, he said.

       He further said that a positive scenario happens when, for example, more new Islamic banks are opened; Islamic business units are converted to Islamic banks and conventional banks are turned into Islamic banks.

       “The scenario also includes an increase scenario if the government funds are placed in Islamic banks (haj funds, Islamic bonds, etc.),” he said.

The development of Islamic finance in the GCC

by Mr.Rodney Wilson








Egypt Islamic Banking

By:Ayat Al-batawi

       There has been growing interest recently among conventional banks in Egypt who own licences to provide Sharia-compliant services, to restructure their branches which offer such services.

        Such banks are looking to increase their investment and transaction portfolios in a bid to boost profits amid the current dearth in investment opportunities for traditional banking.

        Leading the way among traditional banks offering Sharia-compliant services is Banque Misr, with a total of EGP 22bn in Sharia-compliant transactions.

        It is followed by the National Bank of Egypt (NBE), whose total Sharia-compliant transactions totalled EGP 1.6bn.

        The Principal Bank for Development and Agricultural Credit (PBDAC) was third with total Sharia-compliant transactions reaching EGP 1bn.

        It was followed by the Suez Canal Bank (SCB) with EGP 700m, the Egyptian Gulf Bank (EGB) with EGP 650m, the Arab Investment Bank (AIB) with EGP 230m, and  Société Arabe Internationale de Banque (SAIB) with EGP 200m.

        In the midst of this competitive atmosphere in the Islamic banking sector, Islamic banks themselves are preparing to apply their new investment plans.

        Financing for small and medium sized enterprises (SMEs) has also seen a spike in interest so far this year, with conventional banks aiming to strike agreements with the Social Fund for Development (SFD) in order to increase their presence within the SME segment.

        “Now is the time to apply banks’ delayed plans, which have been studied intensively during the last year,” said Ashraf Tala’at, manager of the Islamic Banking Unit-Treasury at NBE. He added that during the coming period, banks will seek to increase portfolios related to Islamic transactions, in addition to expanding geographically, in order to reach all the market’s segments and achieve profits capable of matching those achieved by specialist Islamic banks operating within the sector.

        Tala’at also confirmed that these investment portfolios will focus on SME financing in order for banks to increase their share in this lucrative market which has garnered great interest from all market segments and which allow the banks to utilise their available liquidity to achieve healthy profits and provide employment opportunities.

        Tala’at believes 2013 will witness the signing of many Murabaha contracts (an Islamic financing structure, where an intermediary buys a property with free and clear title to it) with the SFD, stressing that the funding rates will increase by a large margin.

       He also said that conventional banks which have Islamic branches will try to keep the independence of these branches, which will have their own administration policy as a kind dealing with clients transparently and to achieve the aims of Islamic finance.

        Retail banking activity in Islamic banks will remain as is since the market has reached saturation-point. Corporate finance activity is subject to status and stability of the market, where funding currently so low that no clear indicators can be extracted.

        Tala’at predicted that after the recovery of the economy, we will see banks compete each other to finance companies once again.

        Bank of Egypt owns approximately 34 branches as possess an Islamic National Bank and Arab investment bank branches only, and there is only one branch of the Bank banking company and the Suez Canal, Egyptian Gulf.

         Banque Misr has approximately 34 branches offering Islamic banking products and services, while NBE has two branches, as does the Arab Investment Bank (ABC). SAIB), SCB and EGB all have one branch.

         Abd El-Rhman El-Kafrawy, director of Islamic banking at PBDAC said that most Islamic banks have begun to increase their funding for SMEs. “The banking sector hopes that economic stability will return, which will contribute in developing focused plans to finance SME projects, which must be funded by the banks under a plan set by the government,” he said.

         He also added that retail banking in Islamic banks is yet to meet the market’s needs and yet achieved significant growth rates during 2012. “In order to attract SMEs to seek financing from Islamic banks, we must adopt clear and transparent funding  policies in order to attract customers,” he added.

         Head of Islamic banking at SAIB, Alaa Bondoq, said that his bank seeks to increase its Islamic transactions portfolio, which is expected to grow by 20% this year, and added that Islamic banking has achieved significant growth during the last year.

         He also mentioned that there currently exists healthy demand for Sharia-compliant transactions, meanwhile most banks are waiting for CBE approval about their request for Ijarah,an exchange transaction applicable in Islamic regions, which involves trading a specified asset available for a payment, and where the ownership of the asset is not transferred.

         The Arab Bank and Mashreq Bank have both submitted a request to the CBE for Islamic banking licences, meanwhile the Housing and Developing Bank (HDB) intends to offer Islamic products such as saving certificates and receptacles with variable returns to fulfil customer needs without CBE authorisation for an Islamic license.


Islamic finance looks to pastures new

       To maintain its phenomenal growth rates, Islamic finance is increasingly looking beyond sukuk and property investment to growth areas such as renewable energy and healthcare.

       The ongoing global economic crisis is still being felt by much of the world and, in particular, many conventional banks. They are focused on implementing the new regulatory requirements that demand that they strengthen their balance sheets. This has led some banks to reassess and ultimately withdraw lending facilities rather than raise more capital. Some are also trying to manage the damage to their reputation caused by the scandals associated with their roles in the economic crisis. Although not immune to these challenges, Islamic banks are starting to enter new markets and sectors that were previously dominated by conventional finance.

       Now more than ever, Islamic banks are in a position to take advantage of these opportunities. The global Islamic finance industry has increased in volume by 33% since 2010, reaching $1100bn in 2012 according to Standard Chartered, and there are no signs of this slowing.

       Not only is the growth significant in many key regions, but the market share in some countries is close to reaching critical mass. For the Islamic finance industry to sustain these growth levels, it must look to new markets, regions and services.

Sukuk still key

       Despite this clamour for new avenues of growth, the sukuk market is still playing an important role in increasing Islamic finance’s international profile and attracting both sharia and conventional issuers and investors alike. This year has been a bumper year for sukuk, with issuance to the end of September matching the whole of 2011, placing the market back at pre-2007 levels.

       This momentum is likely to continue with an expected threefold increase in sukuk issuance from $300bn in 2010 to $900bn by 2017, according to a report published in 2012 by Ernst & Young entitled Global Islamic Banking Centre of Excellence.

       Currently the majority of issuance is from Malaysia and the countries that make up the Gulf Co-operation Council (GCC), with the latter dominating the US dollar sukuk market with 70% of the market share, totalling about $8.5bn, as reported by Standard Chartered’s Middle East Compendium in 2012.

       However, investor demand for sukuk from outside Malaysia and the GCC is growing rapidly and bringing new investors to sukuk issuers. Some sukuk issued in 2012 have been 20 times oversubscribed. This demand is opening up Islamic finance on a global scale, with the number of countries issuing sukuk doubling since 2006. In the same period, the number of currencies sukuk has been issued in has also doubled.

Sovereign issue

       A milestone for the industry has been the entrance of conventional sovereign issuers onto the scene. In July 2012, South Africa announced that it was planning to launch sub-Saharan Africa’s first Islamic bond, with the country’s treasury stating that it was leaning towards a dollar-denominated, five-year sukuk using an ijara structure. Kenya, Nigeria and Tanzania have also been planning sukuk issues.

       September 2012 saw the first sovereign sukuk issued by Turkey. The $1.5bn transaction was significantly oversubscribed, with the book size closing at more than $8bn. Further progress is being made as countries such as Egypt and South Africa make their tax and regulatory environments compatible with sukuk.

       Already there has been work done by conventional names such as Goldman Sachs, HSBC Middle East and the United Arab Emirates conglomerate Majid Al Futtaim to help pave the way for other non-Islamic corporates and financial institutions, and we expect to see a far more active primary and secondary market in the future.

       The pent-up investor demand is providing the catalyst for conventional players to start issuing sukuk and, as longer-dated US dollar swap rates fall, the sukuk market will continue to outperform many conventional bonds, thereby attracting a new group of investors.

       It is not only sukuk that appeals to countries looking to enter the Islamic finance space. Countries such as Australia are looking not only to tap domestic investors, but also to position themselves as the financial services hub for the Asia-Pacific region, which has a large Muslim population. Other countries such as France and Nigeria continue to review their regulatory framework to include the Islamic finance industry.

New markets

        However, in many ways the sukuk market is only a small part of the Islamic finance industry. Current estimates put it at 7% of the total asset base. Therefore, if Islamic finance is to maintain its growth rates it will not only need to widen its geographical spread, but also to move outside its traditional markets of sukuk and property into areas such as renewable energy.

       Renewable energy is a significant growth market, with global investment of $195bn in 2010, which is forecast to rise to $395bn in 2020 and $460bn by 2030. To sustain this level of growth, nearly $7000bn of new capital is required. Islamic banks, with their strong balance sheets and ethical principles, are well positioned to become leaders in this space.

       Geographically, Europe is the largest regional market for renewables, with 25% of world investment. However, the eurozone crisis may impact negatively on the level of investment in future. The US has the highest investment amount of a single country in the world, followed by China and Germany.

       A key region for this segment of Islamic finance will be the GCC, which has significant liquidity generated by its oil industry that can be used to finance future renewable energy projects.

       The governments of the GCC countries are looking to the future, and high on their agenda are plans to diversify into a sustainable post-oil economy. The Middle East and north Africa (MENA) region is expected to at least double its renewable energy capacity over the next 10 years.

       The GCC is already taking significant steps in building a solid foundation for renewable energy and encouraging development of the market. The region has the potential to become a key hub for the sector, and the International Renewable Energy Agency has decided to open an office in the ‘zero-carbon’ Masdar City in Abu Dhabi.

Green sukuk

       In March 2012, the Climate Bonds Initiative, the Clean Energy Business Council of MENA and the Gulf Bond & Sukuk Association joined forces to launch a Green Sukuk Working Group. The group aims to channel market expertise to develop best practices and promote the issuance of sukuk for the financing of climate change investments and projects, including those in renewable energy.

       Using its petrodollars (US dollars earned by selling oil to another country), there has been significant financial investment within the GCC to support the burgeoning green energy supply. In January 2012, the Dubai government announced a $3.2bn plan to develop the region’s largest solar power plant.

       In May this year, Qatar Solar Technologies secured $1bn in financing for its flagship polysilicon manufacturing plant located outside Doha. The Saudi-headquartered Islamic Development Bank is also looking to resource-rich Kazakhstan and and the rest of central Asia with the launch of a $50m renewable energy fund.

Healthcare importance

       The Islamic finance sector continues to grow in the GCC, with its market share of all banking assets having reached 25%. This growth and liquidity bodes well for future investment in emerging sectors, such as renewable energy and healthcare.

       The provision of healthcare, particularly for the elderly, is becoming a more pressing issue for many countries. The deficiencies and weaknesses in the healthcare systems will become more apparent as Western populations age and as regions such as the GCC prioritise caring for their populations.

       Healthcare expenditure against gross domestic product in the GCC lags behind many developed countries, such as the US (20%) and western Europe (10%), with levels varying from 2.4% in the UAE to 5% in Saudi Arabia, according to a report published by PricewaterhouseCoopers in 2011 entitled MENA Private Equity: the Next Five Years.

       Many GCC governments are actively promoting private investment in this sector to reduce reliance on public finance, which is thought to sit at about 70%. With government backing, policy reform and a large funding requirement, this sector offers a range of attractive financing prospects for Islamic banks.

       Part of the appeal of healthcare investment to Islamic banks is that it is often based on a property investment. However, there is also potential for the leasing of medical assets. Healthcare is also appealing as it provides regular cash flow, is linked to inflation and contributes to the well-being of society. As such, it is aligned to the ethical principles of Islamic finance. The Bank of London and the Middle East is already taking advantage of the opportunities in this sector in funding UK healthcare businesses, including care homes for companies such as Signature Homes, lease finance for healthcare assets and homes for the elderly with UK firm Retirement Security.

       These opportunities and new markets not only offer Islamic banks diversified investment opportunities, but will stimulate product and service innovation while bringing Islamic finance to a global audience.

By Humphrey Percy | Published: 07 November, 2012

Humphrey Percy is chief executive of Bank of London and the Middle East


Sukuk maturity trends show Islamic markets’ changing fortunes

Research by Nada Sakr

       Over the past five years, sukuk issuers in both the GCC and SEA regions have tended towards short term funding but have also shown a greater trend for long term over medium term deals, the IFIS Sukuk Database shows. For the purposes of this analysis IFIS defines short term tenors as ones with less than one year maturities, medium as between one to five years and long term as five years and beyond.

       For instance, GCC issuers have brought 145 sukuk to market since the start of 2008. Of these, 112 had a short term maturity, 18 had long term tenor and 15 had a medium term tenor.

       SEA issuers were much more active, issuing 2913 sukuk. Of these, 1883 of them were short termed, 643 long term and 523 medium term.

       Outside the GCC, the MENA region preferred issuing medium term sukuk over this same period, however. Though issuers only brought eight sukuk in the past five years, a complete absence of long term issuance is noticeable. Two of the deals were short term while six issuances were medium term sukuk.

       There is a correlation between tenor and each of the sukuk issuer types. For instance, corporate and financial sukuk tend to have short-term maturity because they are usually issued for day to day liquidity and expansion purposes. This is reflected in the 1413 short term corporate sukuk (out of 2364 total issuances).

       On the other hand, sovereign sukuk and those of government related entities tend to have long term maturities, since they are mainly used to finance infrastructure and debt repayment. Still, the number of issuances alone from both suggests that only GRE sukuk rationalise this preference for long term maturity sukuk. However, there is a good reason why sovereigwbr/p/pn short-term sukuk appear to be more prevalent than long term deals.

       Most sovereign short term sukuk are actually tranches of long term sukuk programmes. For instance, Bank Negara Malaysia had 339 tranches in one of its programmes; all of these tranches had short to medium term maturity while the programme itself had a long term maturity.

       Studying the overall trend of the past five years, two things are quickly apparent. Firstly, the number of issued sukuk hits its peak in 2009 with 826 issuances. Secondly, there was a big leap in short-term sukuk issuances in 2009 (increasing by 716.5% from the previous year), followed by a steady decrease in the years since.

       The increase, whether in the number of issuances in general or the number of short term sukuk in particular, could be partly attributable to the fact that bonds (conventional or Islamic) have greater interest rate risk for long-term maturities than short-term ones. This relationship between tenor and risk could explain this leap in an environment where interest rates were uncertainn and banks and corporates needed short term funding to support the leverage they had been building up.

       A big problem of the financial crisis was that short term liquidity suddenly began to dry up globally, leaving companies exposed on their longer dated assets and investments. This was a problem for all markets, not just sukuk – and this fall off in short term liquidity is seen later in the Islamic data, falling through 2009.

       With the lessons of the financial crisis in mind, there has been a greater emphasis in recent years on longer term borrowing. This has dovetailed with the improvement of Islamic economies and the rising need to obtain funding for long term infrastructure and energy projects in the GCC and SEA regions.

Source: Islamic Finance Information Service (IFIS)

12th Annual Islamic Finance Summit

Date: 26 February 2013 – 27 February 2013
Venue: The Landmark London Hotel, London , UK

       Euromoney Seminars’ prestigious Islamic Finance Summit is renowned for assembling the most important players in the global Islamic Finance industry. Now in its 12th year, the conference continues to play a pivotal role in the further consolidation and development of the Islamic finance market worldwide.

       Islamic finance is becoming an increasingly popular alternative to conventional forms of banking and finance meaning that there has never been a more vibrant and exciting time for the industry. It is rapidly becoming more complex and sophisticated in the core, traditional markets of South East Asia and the Gulf and expanding to new, emerging markets in North Africa and the CIS region. 

       This year has seen an explosion of sukuk issuance which, according to IFIS data, had exceeded $104bn year to date by October 2012, a staggering 45% increase from the same time last year.

       A truly international audience will assemble in London, at the home of global finance and banking. Join them in February and benefit from: 

▪ Unparalleled networking opportunities with over 400 industry stakeholders and decision-makers assembled from leading investment and retail banks, corporations, law firms, asset management companies and institutional investors. 
▪ Top quality discussion and in-depth analysis of the most pressing and pertinent issues for the market 
▪ Expert insight from The Annual Open Fatwa and Shariah Audience Discussion, the largest open discussion with senior Shariah scholars which encourages interaction with the audience.  This has been extended this year to encompass even greater critical analysis and debate 
▪ A unique opportunity to hear from the Governors of the central banks of Kazakhstan, Oman and Turkey.  What policies are these countries putting in place to develop Islamic finance? 
▪ The views of IFSB, AAOIFI and IIFM on the key regulatory aspects affecting the heart of the industry   

       Be there to meet new and existing clients to expand your business and move the industry forward.

       Here is what some of last year’s delegates had to say: 

“Demonstrably the stand-out event in the annual Islamic Finance calendar” 
Graham Philip, Eiger Trading

“The best international Islamic event for delegates and topical content” 
L. Chandler, Emirates NBD

“The Shariah scholar session is an annual event on the calendar in itself” 
Rahim Ali, IIBI

 “Once again Euromoney has lived up to its reputation of bringing together the most respected scholars, influential leaders and practitioners all under one roof to discuss issues that were topical and thought-provoking “
Samiul Siddique, Fyshe Crestar

Confirmed speakers to date include:

  • Grigoriy Aleksandrovich Marchenko, Governor, National Bank of Kazakhstan

  • His Excellency Hamood Sangour Al Zadjali, Executive President,Central Bank of Oman
  • Murat Çetinkaya, Deputy Governor, Central Bank of the Republic of Turkey
  • Sheikh NizamYaquby, Shariah Scholar
  • Dr Mohamad Akram Laldin, Executive Directive, International Shariah Research Academy for Islamic Finance (ISRA)
  • Mufti Abdul Kadir Barkatulla, Shariah Scholar
  • Dr Muhammad Imran Ashraf Usmani, Shariah Scholar
  • Sheikh EsamM. Ishaq, Shariah Scholar
  • Dr Mohamed A. Elgari, Shariah Scholar
  • Dr Mohammed Daud Bakar, Shariah Scholar
  • Dr Aznan Hasan, Shariah Scholar
  • Jaseem Ahmed, Secretary General, IFSB
  • Dr. Khaled Al Fakih, Secretary General, AAOIFI
  • Ijlal Alvi,Chief Executive Officer, IIFM
  • Khairul Nizam, Deputy Secretary General, AAOIFI
  • Dr. Aleksandar Devic, Head of Asset Management, QIB-UK
  • Anouar Adham, Head ofAsset Management, QIB-UK
  • Michael Clark, Chief Executive Officer, QIB-UK
  • Qudeer Latif, Partner, Clifford Chance
  • Debashis Dey, Partner, Clifford Chance
  • Badlisyah Abdul Ghani, Executive Director & CEO, CIMB Islamic
  • Stella Cox, Managing Director, DDCAP Limited
  • Farmida Bi, Partner, Norton Rose
  • Dr Dominic Selwood, Head of Islamic Products, Barclays
  • Muhammad Noman Ansari, Director Funding &∓ Investments, Head of Corporate Finance, Saudi Telecom Company
  • Ahmed Saad, Deputy CEO, Sharjah IslamicBank
  • Daniele Vecchi, Senior Vice President, Head of Group Treasury, MajidAl Futtaim Group
  • Lawrie Chandler, Head of Europe Asset Management, Emirates NBD
  • Mohieddine Kronfol, Chief Investment Officer, Global Sukuk and MENA Fixed Income, Franklin Templeton Investments ME)
  • Kevin Xayaraj Tay, Chief Executive Officer, Sabana Real Estate Investment Management Pte. Ltd.
  • Onur Takmak, CFA, Founding Partner& Chairman, Rhea Asset Management
  • Rajit Nanda, Chief Financial Officer, ACWA Power International
  • Irfan Said, Head of Corporate Finance, Samba Capital
  • Omar Shaikh, Director, Islamic Finance Council (IFC)
  • Michael Kidd, Chief Operating Officer, Rasmala Investment Bank Ltd.
  • Feyzullah Egriboyun, ExecutiveVice-President, Asya KatilimBankasiA.S.
  • Mike Rainey, Chair, UKIFS Real Estate Group
  • Ramzi Al Sewaidi, Head of Investment Banking, First Energy Bank
  • Sohail Jaffer, Deputy CEO, FWU Global Takaful Solutions

       Book now to stay ahead of the competition in a vibrant market:

       For speaking opportunities please contact Nicholas Cano, Seminar Manager.  Email:, Tel: +44 (0)20 7779 8063

       For sponsorship opportunities please contact Jack Clarke, Business Development Manager.  Email:, Tel:+44 (0) 20 7779 8569

       For registrations and marketing enquiries please contact Stacey Kelly, Marketing Executive.  Email:, Tel: +44 (0)20 7779 8514


Shariah compliance framework at MBL



IF News Digests forRussian-speaking audience 


30.03.2012 – 30.04.2012 

21.02.2012 – 28.03.2012

01.01.2012 – 30.01.2012


21.11.2011 – 09.12.2011

01.11.2011 – 16.11.2011

17.10.2011 – 26.10.2011

01.10.2011 – 17.10.2011

19.09.2011 – 30.09.2011

12.09.2011 -16.09.2011


22.08.2011 – 31.08.2011

01.08.2011 – 19.08.2011






Islamic Funds & Investments Report E&Y 2011


World IB Competitiveness Report E&Y 2011


IBCRReport2011(LR) Final






Sukuk Report Zawya 2009



MIFC Newsletter January 2013

MIFC Newsletter February 2013


19.09.2011 – 30.09.2011/p