Islamic assets not ‘immune’ to global economic downturn
Points of Essence:
- There have been misconceptions that Islamic finance does operate in its own league without any link to the conventional system. Sharia compliant assets differ although structurally and principally unique but they work in a similar way as conventional assets and the related economics are identical.
- In equity business, the same volatility pattern is shared. Akin to conventional equities, the Islamic equity subscribes to investor sentiment, news flow, dividend distribution, volatility pricing, etc. Thus, the downturn in global equities caused by the subprime crisis affected the global sharia compliant equity asset class.
Mohamad Safri Shahul Hamid is Head of Islamic Structuring Asia and Manar Mahmassani is an analyst at German investment bank Deutsche Bank. They look at how Islamic financial investments and conventional ones compare in the global downturn. - Editor
DUBAI, Oct 14, (RTRS): In the context of the current persisting credit crisis and worsening global macroeconomy, it is essential that any misconceptions in the markets about Islamic finance be addressed. Unlike its conventional peer, Islamic finance is based on productive activities: trading, leasing, partnership/joint venture etc. All these activities involve the use of assets or businesses that comply with Islamic law or Sharia. Islamic finance does not typically differentiate between ‘good’ or ‘bad’ performing assets - it does not claim that it offers safe(r) investment but rather, it provides investors with opportunities to put their monies into ethical investments.
Islamic finance needs its own efficient price indicators
Points of Essence:
- The author suggested an Islamic reference price indicator for Islamic financial instruments and securities. The heavy reliance on the prevailing interest based benchmarks i.e the London Interbank Offered Rates (LIBORs), will only implicate the Islamic securities from any movements in global interest rates.
Azrul Azwar Ahmad Tajudin, senior economist at Bank Islam , the second-biggest Islamic bank in Malaysia by assets, considers the need for an efficient price indicator for Islamic finance instruments.
KUALA LUMPUR, Oct 14: Sharia compliant assets have emerged as a viable alternative asset class as part of the strategy to diversify portfolios of investors. The outperformance of a number of global Islamic indexes in the medium-to-long term should encourage investors to consider allocating a portion of their portfolios to Islamic investment vehicles. To conform to sharia requirements, Islamic products will have to avoid elements of riba (usury), gharar (ambiguity/uncertainty/ misinformation or deceit/fraud), maisir (gambling) and zulm (oppression), among others. Although the obligation to eliminate riba may result in complex structures for Islamic financial instruments, I believe the prohibition of other elements as mentioned above in Islamic contracts and in strict adherence to sharia rules and principles, should help assuage many investor concerns.
Islamic Finance System ‘Can Replace Capitalism’
Points of Essence:
- Behind the financial crisis lies a great opportunity Muslims to build a financial system based on Islamic principles.
- A renowned Islamic scholar, Sheikh Yusuf Al Qardawi reckons the collapse of the capitalist system, which is based on usury and securities rather than commodities in markets, paved the way for the Islamic philosophy to replace the Western capitalism. This should not be a huge challenge as Muslims already have the economic and human resources, he reiterates .
- A Saudi trader in Riyadh
Monday, October 13, 2008
By Patrick Goodenough, International Editor
on Wednesday, Oct. 8, 2008 (AP Photo)(CNSNews.com) - Muslims should seize the opportunity provided by the global financial crisis to build a system based on Islamic principles, an influential Sunni cleric said on Sunday.
“We have our own economic philosophy and system which others do not have,” Sheikh Yusuf al-Qaradawi told a conference in Doha, Qatar.
“The collapse of the capitalist system, which is based on usury and securities rather than commodities in markets, shows us that it is undergoing a crisis and that our integrated Islamic philosophy - if properly understood and applied - can replace the Western capitalism,” Qatar’s Gulf Times quoted him as saying.
Group to push Birmingham as a centre for Islamic banking
Points of Essence:
- Birmingham is set to rival London as a new Islamic financial center as it seeks to leverage on the good reputation of the Islamic Bank of Great Britain and forge alliances with major stakeholders of the Islamic financial services industry. Attending a world event on Islamic finance in Bahrain will be its first step.
By Anna Blackaby, Business Staff
Birmingham’s growing reputation as a centre for Islamic finance is set to receive a boost when a delegation from the city attends the sector’s major event in Bahrain.
Takaful Ikhlas Aims For 20 Pct Share Of Malaysian Takaful Market In 2010
Points of Essence:
- Takaful Ikhlas aims to capture a 20% market share of the Takaful sector in Malaysia by 2010. Currently at 11% of the market share, the company looks set to achieve the target as it continues to expand, with RM60 million in premiums is expected to be collected by March next year.
By: ramjit
PUTRAJAYA, Oct 13 (Bernama) — Takaful Ikhlas Sdn Bhd has set the target of capturing 20 percent of the takaful market in 2010, said its chairman Sharkawi Alis.
Reuters Summit-Rich Asians still cool on Islamic finance
Points of Essence:
- The booming Shariah finance has escaped the watchful eyes of Asian tycoons who adopted ‘a wait and see’ attitude for they need to be convinced that Islamic finance can survive long enough to deserve their involvement in the sector.
By Liau Y-Sing SINGAPORE, Oct 13 (Reuters) - Islamic finance hasn’t yet fired up the imagination of wealthy Asians who want to see a longer track record from the industry before jumping in, a private banker said on Monday.
Sharia banking has boomed in recent years but there are concerns about whether the $1 trillion sector will go out of fashion as energy prices come down to earth. Strong growth in the business has been largely driven by Middle East oil earnings as crude prices shot to a record high earlier this year.
CIMB Islamic Offers Syariah-Compliant Forex Product
Points of Essence:
- CIMB Islamic Bank has introduced an innovative Shariah compliant FOREX investment product known as FXOP-i. The product will allow customers to cap the forex risk in advance to maximise returns on their investment in accordance with the Islamic principles of tawarruq, commodity murabahah, bai al inah, waad and bai al sarf.
KUALA LUMPUR, Oct 13 (Bernama) — CIMB Islamic Bank Bhd has launched FXOP-i, an Islamic foreign exchange instrument with Syariah-compliant option features which allows customers to hedge their foreign exchange (forex) risk.
“FXOP-i enables customers to lock in a forex rate in advance by engaging in a Shariah-compliant financial transaction with CIMB Islamic,” the bank said in a statement Monday.
The economic boom in India is over
Points of Essence:
- India acceded to the fact that the impact of the US credit crunch has left the authorities scurrying to deflate the damages that may have battered the country’s previously booming economy. This may delay India’s plan to introduce Islamic financial services as economic revival seems to have taken priority at this stage.
By COOMI KAPOOR
Policy-makers have taken urgent steps to try and stop further haemorrhage of the Indian rupee and equities, but these efforts may not be able to hold off a full-scale recession that may last well through 2009.
DESPITE Finance Minister P. Chidambaram’s best efforts to insulate the Indian economy from catching the Wall Street cold, the contagion finally spread to these shores last week in a rather rude manner.
Bahraini Chamber sounds alert over crisis
Points of Essence:
- Key industry leaders urged Bahraini Government to disseminate crucial information of the measures taken by the Government to cushion the impact of the US financial crisis to the Bahraini banking and financial sector. This will spur confidence to businessmen and investors alike.
By GEOFFREY BEW
A LACK of transparency about the impact of the global credit crunch in Bahrain could have disastrous consequences for the country’s economy, business leaders warned yesterday. The Bahrain Chamber of Commerce and Industry (BCCI) says the government must provide more information about its readiness to deal with the international crisis, which has slashed share values worldwide.
Ajman Bank will be the first Islamic bank in Ajman
Points of Essence:
- Another new entrant to the Islamic banking industry, Ajman Bank, will be offering Islamic financial services in United Arab Emirates. Based in the Emirates of Ajman, the bank will be the first in the UAE to raise capital by issuing IPO to seek public funding.
Posted on October 11, 2008 by ribh
Ajman Bank PJSC, which is expected to start its operations in January 2009, will be the first Shariah based Islamic bank incorporated and headquartered in the Emirate of Ajman. The Bank’s strategy is “to target the rapidly expanding Shariah financial services market with innovative products and services, designed to meet customers’ needs, all supported with outstanding levels of customer service”.
Bahrain to Host Islamic Banking Meet
Points of Essence:
- The 15th Annual World Islamic Banking Conference (WIBC) will be held next month in Bahrain, supported by the Central Bank of Bahrain. The event has confirmed participation from more than 1,000 delegates from 45 countries with prominent keynote speakers include Rasheed M. Al Maraj, the Governor of The Central Bank of Bahrain, and Heng Swee Keat, Governor of the Monetary Authority of Singapore. The highlight of the event will be its prestigious Islamic Banker of the Year Award.
By Suad Hamada
MANAMA -Bahrain will host the 15th Annual World Islamic Banking Conference (WIBC) next month that will bring together international industry leaders who have contributed significantly to forging the future of this industry to map out the next phase of development.
David McLean, the Managing Director of MEGA, the owners of the WIBC brand told Khaleej Times on Friday that WIBC will be celebrating 15 years of success in bringing together the industry’s thought leaders and foremost practitioners to chart the future direction of the industry.
Islamic finance rides the storm
Points of Essence:
- As the western financial system got mired in deep malaise over the current credit crash, Islamic finance pronounced steady growth as it steered clear of the financial trouble affecting its conventional counterparts. Strictly guided by the divine principles of justice, partnership and opposition to excessive risk which underscored Islamic finance, Islamic financial institutions are prohibited, among others, to deal with speculative and unethical investments. In essence, it links the financial system to real economic activities which western economics may want to learn from.
By Clancy Yeates
A thriving financial sector sounds like an oxymoron these days. Even Australia’s banks - among the most profitable in the world - kept a fifth of this week’s interest rate cut to cushion their margins. But there is one sector that has tongues wagging in the hubs of commerce: Islamic finance.
While the Western world’s financial system has been imploding, this small but rapidly growing share of world capital has weathered the storm.
Sharemarkets in London and New York are a third off their peaks. Dow Jones’s Islamic financials index, in contrast, rose 4.75 per cent in the most recent September quarter and lost a modest 7 per cent in the previous year.
Tamweel Reverts to 80% Limit on Housing Loans
Points of Essence:
- The current credit woes had influenced Tamweel to restore its original 80% home financing scheme, thus slashing its current promotional offer of up to 90% financing. Citing a need to be prudent with its resources, it plans to finance more genuine home buyers rather than speculative buyers, which industry analysts said it signals the end of an era of “easy and liberal” home loans.
By Issac John
DUBAI - Tamweel, a Dubai-based Islamic mortgage company, said on Thursday it had ended a promotional offer of up to 90 per cent home financing and was increasing its equity requirements by reverting to its original 80 per cent scheme, a move banking analysts say signals the end of an era of “easy and liberal” home loans.
Nabil Abou Alwan, group head of marketing and product development at Tamweel, said the mortgage firm was trying to be prudent with its resources to finance more genuine home buyers, rather than speculative buyers. “Given the current credit crunch, the move will boost our capacity to finance end-users who are willing to put up more equity,” he told Khaleej Times.
West turning to sukuk as debt markets dry up
- Western companies had found relief in Sukuk being an alternative funding as the credit crunch left many established financial institutions in tatters. However, it may not provide panacea to the plight of those companies as the market for Islamic bonds is declining with the value of issuances shrunk nearly 40 % year-on-year in the first eight months of 2008.
Western companies unable to secure debt from conventional lending sources are turning to Islamic bonds, or sukuk, for alternative funding, the secretary general of the Association of Southeast Asian Nations (ASEAN) said on Wednesday.
Surin Pitsuwan, former Thai foreign minister, was speaking at a summit held by eight ASEAN finance ministers in Dubai, who were discussing the economic outlook for Southeast Asian countries.
“I think foreign companies realise there are alternatives and they will explore more, and look at new initiatives at Islamic banks to draw more capital and resources to service their clients. This is certainly growing,” Pitsuan told Arabian Business on the sidelines of the conference.
Malaysia To Continue Registering Growth, Says Nor Mohamed
Points of Essence:
- While current financial turmoil may have overwhelmed the world’s biggest economies, it was a rare chance for Malaysia to showcase its established Islamic financial sector to the US and Europe bound runaway investors.
By: Ramjit
DUBAI, Oct 9 (Bernama) — Malaysia will continue to register positive growth for this year and 2009 and is not heading for a recession, says Second Finance Minister Nor Mohamed Yakcop.
However, he said while the government was confident of achieving a growth of 5.7 percent this year, the 5.4 percent target for next year will have be recalculated because of the global financial turmoil.
“We believe we can weather this crisis although we cannot be unduly complacent and have to be ever vigilant in the context of the daily changing turmoil,” he told Malaysian reporters yesterday evening during a cocktail reception in conjunction with the ongoing Cityscape Dubai event here.
Key agreement boost for global Islamic finance
Points of Essence:
- Advocating standardisation of Islamic finance legal documentations, the IIFM has issued the benchmark legal documents governing over-the-counter (OTC) Commodity Murabaha transactions. With a growing significance of commodity murabahah as an Islamic money market product for liquidity management purposes, the IIFM Master Agreement for Treasury Placement (MATP) is expected to be adopted by global financial institutions. This is a crucial step in promoting transparency, robustness and consistency in Islamic financial transactions.
Manama: The Bahrain-based International Islamic Financial Market (IIFM) has launched the world’s first-ever standardised Master Agreement in Islamic finance. The IIFM Master Agreement for Treasury Placement (MATP) can be used by financial institutions across the globe for their over-the-counter (OTC) Commodity Murabaha transactions.
The MATP comprises of standalone Master Murabaha Agreement, Master Agency Agreement and Letter of Understanding.
