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Bursa Malaysia and KRX: Support of the Malaysia International Islamic Financial Centre’s Initiative aims to boost Growth of Islamic Finance Market- Event 19.11.2009

The Korea Exchange (KRX) and Bursa Malaysia will be playing host to the Korean investment bankers, advisers, issuers and institutional investors at its inaugural KRX-Bursa Malaysia Islamic Capital Market Conference, which will be held on 19 November 2009 in Seoul, Korea. This conference which is co-organised in support of the Malaysia International Islamic Financial Centre (MIFC) initiative, aims to share Malaysia’s Islamic finance experience and to promote the opportunities in the Malaysian Islamic capital market landscape. This collaborative effort hopes to strengthen the growth opportunities of Islamic finance amongst the discerning Korean investors and issuers.

This conference is timely as there is a strong interest for Korea to grow the Islamic finance industry, following from the proposed liberalisation measures by the Korean government which are aimed to allow the issuance of Islamic bonds or sukuk as well as allow incomes from sukuk to be tax-exempted. These proposed laws are expected to be passed by the Korean government’s National Assembly later this year.

In conjunction with the KRX-Bursa Malaysia Islamic Capital Market Conference, delegates of the MIFC initiative, which comprises senior management of Bank Negara Malaysia (Central Bank of Malaysia), Securities Commission Malaysia and Bursa Malaysia, will be participating in the conference. Malaysia acknowledges Korea as a potential Islamic financial market and welcomes Korea’s participation in shaping the Islamic finance landscape together, via leveraging on Malaysia’s more than 30 years of experience in developing the world’s most comprehensive Islamic financial system.

Chief Executive Officer of Bursa Malaysia Berhad, Dato’ Yusli Mohamed Yusoff said, “We hope this conference will stimulate interest in the Shari’ah compliant products which are currently in demand from investors who are seeking returns from alternative and ethical investments. In addition, this visit by the delegates from the MIFC will pave the way for more opportunities to exchange ideas in Islamic finance and forge greater working relations between Korea and Malaysia for the interest of growing this important industry. We are confident that the Malaysian and Korean authorities as well as KRX and Bursa Malaysia would be able to leverage on our respective strengths in the establishment of an Islamic capital market in Korea.”

This KRX-Bursa Malaysia Islamic Capital Market Conference is expected to attract 200 participants and will provide a platform for all attendees to gain an insight into the outlook and trends of Islamic capital markets. Key discussion topics will centre around the liberalisation of Islamic financial markets, investment and business opportunities in Islamic capital market, the Islamic finance landscape and framework as well as the growth of Islamic finance products in Asia and globally.

Source: MondoVisione, 16.11.2009

Filed under: Asia, Events, Exchanges, Islamic Finance, Korea, Malaysia, News, Services, , , , , , , , , , ,

Islamic banks need to ‘revamp model’

Islamic banks in the Gulf Arab region need to adopt a new business model and take on more customers to weather the economic downturn, Ernst & Young’s head of Islamic finance said.

Islamic banks, many of which are investment houses, have been heavily exposed to the real estate market, which saw prices start to plummet at the end of last year.

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Islamic finance: Sukuk market on trial as Islamic bonds default, Euromoney July 2009

They channelled the wealth accumulated during the six year oil boom that ended in mid-2008 into regional real estate through private equity and asset management.

“They relied heavily on selling investments and placements and that business model is being questioned,” Sameer Abdi, who is also a partner at Ernst & Young, said.

The global liquidity constraints will force Islamic banks to look for new customers and sources of funding, including moving into corporate banking, trade finance and retail banking, Abdi said.

Islamic banks cater to investors who do not want to earn or pay interest, viewed as usury under Islamic law.

Some banks have already started to set up funds that enable retail customers to buy sukuk, or Islamic bonds, which in the past were mostly bought by regional banks and large Western financial institutions.

However, analysts have said that it will not be easy for Islamic banks to reduce their heavy exposure to real estate, as they are too small to move into such areas as regional infrastructure and energy projects, which require large investments.

Islamic and conventional banks in the region still have more of the financial crisis ahead of them, Abdi said. “The financial industry is not out of the woods in the Middle East at all, in fact we are still in the middle of our crisis,” he said.

“It’s going to take some support from regulators and governments to actually come out of the crisis, and that may be six to nine months away, at least.”

The restructuring of the debts held by troubled Saudi family groups Saad and Algosaibi could heavily impact many banks in the region.

The United Arab Emirates alone face at least $3bn in potential losses from their exposure to the two groups, an Emirati newspaper reported on Thursday.

Abdi also said corporate defaults of private sector companies in the region were very likely over the next six months.

Source:Gulf times, Reuters/ Manama, 06.07.2009

Filed under: Islamic Finance, News, Services, , , , , ,

Asian stock exchanges find ways around falling volumes

The financial crisis has reduced profits for Asia’s stock exchanges, but they are finding a variety of opportunities to grow revenues.

It’s a tough time to be an Asian stock exchange. A new study by Celent finds all of them suffering lower trading volumes, lower margins and reduced profits as a result of the global financial crisis and the introduction of alternative trading systems — at a time when new regulations and risk management issues are likely to impose additional challenges. Click here for original article.
Exchanges are, however, finding a variety of ways to maintain their position, and in many ways, may be in a better position than counterparts in Europe and America to grow.

On average, Asian exchanges enjoyed robust growth in the years before the crisis, with an almost 30% compound annual growth rate in revenues from 2005 through 2007. But in 2008 this reversed: for example, Singapore’s exchange saw net profit down 40% in the first three quarters of 2008; Hong Kong’s exchange saw revenues fall by 10% and profits down 17% in 2008. The news is similar for others in the region.

These declines are due to the lack of listings and steep declines in both cash and derivative trading. These had a knock-on effect on other revenue-generating services offered by exchanges, including clearing and information products.

Celent reckons these losses are not going to be easily reversed in 2009. Exchanges are relying more on new initiatives to maintain their quasi-monopolistic positions and their profitability.

These include trying to attract cross-border listings in emerging markets, going head-to-head with the likes of NYSE, Nasdaq and the London Stock Exchange. The Korea Exchange, for example, has entered into equity stakes in the new bourses of Laos and Cambodia, partly in order to get new companies there to cross-list in Seoul. Singapore’s exchange has a partnership with the provincial government of Fujian to attract its companies. Hong Kong and Shanghai have signed a number of collaborative measures.

Trading is the biggest revenue generator, and has come under pressure from the rise of alternative systems such as Instinet and Liquidnet, and from the promotion of dark pools by broker dealers or the likes of ITG.

However, in Asia, such alternatives do not threaten exchanges as they have done in the United States, in part because Asian bourses enjoy monopolistic positions among fragmented, less liquid markets. This has prevented alternatives from being able to undercut the exchanges on pricing or service, despite the anonymity they offer. In Hong Kong, alternative platforms actually operate as members of the exchange.

Only in Japan is there a true alternative market, with 2% of all electronic trading executed on true off-exchange platforms, and crossing networks are popular.

Nonetheless the exchanges can’t be complacent, and are improving their products and their pricing. This includes upgrading their systems to be faster and accommodate more trades, and improving their market-data services. Singapore is working to attract more algorithmic traders, both through operational improvements and perhaps fee cuts. Korea Exchange’s introduction last year of KoreaCross, a VWAP anonymous electronic platform for local and international institutional investors, will also spur block trading. Taiwan is taking similar action.

Other important initiatives that are sweeping the region are the development of derivatives trading and cross-border initiatives.

With regulation likely to encourage the OTC derivatives market to move onto an exchange, exchanges are trying to develop products that are standardised and easy to use, but also provide the benefits of OTC trades. For example, Korea Exchange has begun a market-making scheme to provide liquidity to 10-year Korea treasury bond futures. It has also allowed Eurex to list, trade and clear daily futures on Kospi 200 options worldwide after Korean trading hours.

Southeast Asia has seen five nations form an Asean electronic trading link, which should allow investors in their markets to trade regional securities through local brokers. Other examples of international initiatives include the Tokyo Stock Exchange taking a 5% stake in SGX in 2007, as part of a plan to give Tokyo access to superior technology.

The next most active area for growth is in product development, with Islamic products at the forefront. The idea is to attract investment from the Middle East. Last year, SGX listed Singapore’s first sharia-compliant ETF covering 100 eligible Japanese companies. Carbon emission products are also expected to grow, with Japanese bourses at the forefront.

Taken together, these and other initiatives should be enough to keep Asia’s exchanges on the path to growth, thanks to the region’s strong economic fundamentals and GDP growth prospects.

Source:, 25.05.2009 by Jame DiBiasio

Filed under: Asia, China, Exchanges, FIX Connectivity, Hong Kong, Japan, Korea, Library, Malaysia, Market Data, News, Singapore, Trading Technology, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Singapore’s Take on Islamic Finance

Singapore’s plunge into the Islamic finance scene did not come as a surprise to many in the industry. Seeing the Islamic finance industry take-off in Malaysia and with Hong Kong and Indonesia playing catch up, Singapore’s obvious move was to take on this ethical form of financing with formidable force. Despite being the first Asian country to fall into a recession, which prompted the government to declare the situation as the worst ever for it, the Lion City was still optimistic about launching its first Sukuk at a signing ceremony last month. Eureka – Islamic_Finance_News article

Monetary Authority of Singapore (MAS) managing director Heng Swee Keat described the Sukuk as the Shariah-compliant equivalent of Singapore Government Securities (SGS) and said it was of the highest credit standing. He assured investors that it would be given equal regulatory treatment as SGS, such as qualifying as an asset in the computation of capital and liquidity requirements, and as eligible collateral for tapping MAS’ liquidity.

“MAS is committed to the facility, issuing to meet the needs of financial institutions that are carrying out or plan to carry out Shariah-compliant activities in Singapore, as this will strengthen their ability to meet their capital and liquidity requirements.” He added.

Research and consulting firm Cerulli Associates released a report recently on the Islamic finance industry in Singapore, focusing on the Islamic funds available in the republic. According to it, Hong Kong and Singapore have been financial services hub rivals in Asia and their competition has now extended to Islamic finance. The report states that the Islamic finance is not to cater for their relatively small Muslim populations, but rather to encompass all areas of financial services as well as attract the petro-dollars from the Middle East.

Describing Hong Kong’s and Singapore’s effort as wholesale as opposed to Malaysia’s and Indonesia’s “more retail approach”, Cerulli said the Singapore government had decided several years ago that as trade with its Middle East counterparts increased, there would be a need for an Islamic finance industry. Its Middle East trade doubled to US$37 billion in four years to the end of 2007.

“MAS has been proactive in trying to create a level playing field for the conventional and Islamic approaches – in 2005, for example, it remitted the additional stamp duties that Islamic financing arrangements on property were incurring, and allowed banks to offer Murabahah financing,” the report stated.

Cerulli added that income tax and goods and services tax (GST) treatments for Shariah-compliant financing arrangements and Sukuk were clarified and given a level playing field as conventional products. “Retail investors in Murabahah are now given the same regulatory protection under Singapore’s Bank Act as any conventional depositor. And a 5% concessionary tax rate was announced in February 2008 on income derived from qualifying Shariah-compliant financial activities, including lending, fund management, insurance and reinsurance.”

Cerulli noted that the significant step in Singapore’s Islamic finance push came with the formation of the Islamic Bank of Asia (IB Asia) in June 2007. Singapore’s largest bank, DBS, holds the majority share in the bank together with Middle East investors. IB Asia has since opened a representative office in Bahrain. It focuses on Shariah-compliant commercial banking, corporate finance, capital market and private banking services.

According to Cerulli, the Sukuk issuance working on reverse inquiry that would be issued based on the needs of the republic’s financial institutions could boost the development of Islamic finance. However it would not be the republic’s first issuance as there have been several other issuances such as the MBB Sukuk Inc established by Maybank that raised US$300 million two years ago.

Cerulli observed that Singapore has its own Shariah index, the FTSE SGX Asia Shariah 100 Index, which is designed to be used as a basis for exchange-traded funds and over-the-counter trading instruments although it maintained that none have yet been launched. “There are currently six managers with Shariah funds registered in Singapore who are collectively responsible for assets worth about US$470 million, although this figure was somewhat higher prior to the current financial crisis.”

Click on the image for an enlarged preview

Shariah-compliant funds have also found a place in Singapore. Cerulli states that NTUC Income, a cooperative insurance society and a leader in life and general insurance with more than 1.8 million policyholders, currently offers the republic’s two largest Shariah funds.

The Amanah Bond Fund is managed by RHB Investment Management and CIMB-Principal Asset Management. It had US$157 million under management at the end of October last year. The other fund is NTUC’s Amanah Equity Fund, described by Cerulli as a global passive product, which is managed by State Street Global Advisers and has US$164 million under management. NTUC also offers a Takaful fund, jointly managed by NTUC Income and Wellington International Management with US$55 million under management.

Cerulli’s report also notes that other local players offering funds include UOB Asset Management, Singapore Unit Trusts (SUT) and Swiss-Asia Financial Services. UOB Asset Management offers the Afdaal Asia Pacific Equity Fund, for which CIMB-Principal Asset Management is the advisor. SUT, a member company of Malaysia’s Permodalan National Berhad (PNB) Group, has two Shariah-compliant funds: the Ethical Value Fund and Ethical Growth Funds, both being global equity products; while Swiss-Asia Financial Services launched its first Shariah fund, an absolute return Asian equity product named the Mashriq Fund, in July 2006.

According to Cerulli, the largest Shariah-compliant investment product sold in Singapore to-date was by a group called Pacific Star Investment and Development, which sold the now closed Baitak Asian Real Estate Fund at US$600 million. On offshore funds, Cerulli states that the available Shariah-compliant funds from the offshore managers are the DWS Noor range, including an Asia-Pacific equity fund, China equity fund, Global select equity fund, Japan equity fund and a precious metals securities product. “All are sold in Singapore (though they are domiciled in Ireland), as are CIMB Islamic’s Asia-Pacific equity fund and several HSBC products, domiciled locally under the HSBC-Link Ethical brand,” it added.

Source: Eurka Hedeg, Islamic Finance News, 22.04.2009

Filed under: Asia, Banking, Indonesia, Islamic Finance, News, Services, Singapore, , , , , , , , , , , , ,

Challenges and opportunities for Islamic finance; BMB Islamic UK

Humayan Dar, chief executive officer of BMB Islamic UK, discusses new developments in Shar’iah-compliant finance.

BMB Islamic was founded in 2007 in London to provide Shar’iah advisory and structuring services. It enlists Shar’iah scholars and Islamic financial consultants to guide investors, lawyers and other investment professionals.

What new developments are taking place in Islamic finance?
There is little in the world of conventional finance that Islamic finance cannot replicate – whether in terms of financial instruments or funds. Sukuk — similar to bonds — are of course very well established now, and going forward it will be interesting to see which jurisdiction, whether Malaysia or the Middle East, will evolve as the dominant one for issuance and trading. But even sophisticated fund structures, such as private equity, hedge funds or specialist funds, are being set up so they are Shar’iah-compliant. We, at The BMB Group, have recently formed a private equity joint venture with Emerging Markets Partnership (EMP) to invest in emerging markets. BMB Islamic is also helping an investment bank to set up a Middle East infrastructure.

What about regional cooperation?
On February 18, The BMB Group formed a partnership with the International Zakat Organisation (IZO) to set up and manage a 2 billion Malaysian ringgit Global Zakat and Charity Fund, which will manage zakat (the act of giving alms to the poor) and other charitable funds to alleviate poverty in the 57 states which are members of the Organisation of the Islamic Conference. It is a long-awaited initiative. There has been inevitably a huge emphasis on Shar’iah-compliance in Islamic banking and finance, but the announcement of a Global Zakat and Charity Fund is the beginning of a new Islamic financial trend, which favours social responsibility and community development.

Will there be a resolution of what seems to be conflicting jurisdictions and centres for Shar’iah interpretation, and also competing centres for Islamic business?
In Malaysia there is strong inherent demand for Islamic products and the country has rapidly developed as a centre for Islamic finance. Perhaps most importantly, the government has provided institutional support, particularly through Bank Negara Malaysia (the central bank) but also through favourable legislation and tax treatment, for Islamic products. Middle Eastern financial houses have recognised this, and hence have entered the Malaysian market either directly or through partnerships and joint ventures. Malaysia is also correctly perceived as a gateway to other Asian markets.

Significantly too, Shar’iah-compliant financial products are now seen as competitive alternatives for non-Islamic people, who will happily buy them if they prefer the returns or their risk profiles compared with conventional products. Islamic finance is in the mainstream in Malaysia and is likely to become so elsewhere in the world — even Europe. Product standardisation will come through time, not by edict but through a wide acceptance of a particular norm.

What about Indonesia?
Indonesia, with its vast Muslim population obviously has tremendous potential. Once the institutional framework is in place — and already the government has issued its first sukuk — then the market should develop quickly. Perhaps the authorities need to be more like Malaysia and be more proactive and encouraging. Islamic finance will expand to countries and regions where there is a friendly regulatory environment, supported by a clear legal framework.

How will this year pan out, and what will be your main role?
This year will be tough, as it will be for all financial markets. However, pressure on government budgets, especially in the Middle East due to the lower oil price, means that some significant sukuk issuance is likely.

But, actually, the current conditions also offer the potential to take advantage of new opportunities and provide new products. With so much uncertainty, investors are seeking alternative havens for their capital, while depressed asset values of all kinds means there is a chance to build portfolios from a reasonable cost base. For instance, Islamic art funds are becoming popular.

An essential role for us is to monitor the Shar’iah-compliance of funds which are advertising and marketing themselves to Islamic customers. Integrity and credibility is all important.

Source:, Rupert Walker , 26.02.2009

Filed under: Banking, Islamic Finance, News, , , , , , , , , ,

BMB Group to partner with International Zakat Organization to establish and co-manage a Global Zakat & Charity Fund

International Zakat Organization (IZO) announced today its partnership with the prestigious BMB Group to establish and co-manage a multi-billion Global Zakat and Charity Fund. In his address at the signing ceremony, the Honourable Dato’ Seri Dr Ahmad Zahid Hamidi, Minister in the Malaysian Prime Minister’s Department and Chairman of the Board of Directors of IZO, said, “The purpose of IZO is to uphold Zakat as a tool for economic development, social Takaful, the enhancement of solidarity and the promotion of cooperation between Muslim communities and countries around the world, especially for the sake of Ummah.

The Global Zakat and Charity Fund will offer us the required transparency in operations and financial expertise for the management of funds.” He further added that “Every Muslim should take into consideration the fact that the whole Muslim nation, both individuals and governments, has the responsibility to solve the collective crises of poverty, corruption and inequality suffered by millions of Muslims throughout the Islamic World. The only way to solve these crises is through the duty of Zakat. The implementation of Zakat will be in accordance with the Quran and Sunnah. We will see how a properly implemented system can solve the current economic problems of not just Muslims, but of the whole world.”

The proposed Fund will manage Zakat and other charitable funds to alleviate poverty in the member committees of the Organisation of the Islamic Conference (“OIC”). “It is a long-awaited initiative,” said Dr Humayon Dar, CEO of BMB Islamic, a subsidiary of The BMB Group. “There has been inevitably a huge emphasis on Shari’a compliance in Islamic banking and finance, but the announcement of a Global Zakat and Charity Fund is the beginning of a new Islamic financial trend which favours social responsibility and community development.”

OIC has 57 member states of which some have already committed themselves to IZO and its various initiatives. In addition to co-managing the fund, The BMB Group will assist in involving the remaining governments in this special project. The expected size of the fund will be Two Billion Malaysian Ringgit in the current calendar year.  Mr. Mohammad Hassan Esa, Managing Director and CEO of IZO, who has played a pioneering role in establishing the IZO, was thrilled by the prospect of contributing to poverty alleviation among poor Muslim communities. He commented “Zakat is a tool that can single-handedly eradicate poverty not only from the Muslim world but from the entire world. The only condition is that we collect and manage the funds efficiently. The Global Zakat and Charity Fund is a step towards achieving that efficiency.”

The proposed fund will be co-managed by the IZO and The BMB Group, which benefits from Shari’a advisory and structuring capabilities of BMB Islamic. BMB Islamic was recently voted voted the Best Shari’a Advisory Firm for the year 2008 at the IFN Awards. The fund will invest in community development projects with an emphasis on sustainability. The three major areas to be targeted are: (1) income generation through the provision of affordable financing to small and medium enterprises; (2) development of social enterprise through the establishment of hospitals, educational institutions and housing associations; and (3) the provision of relief and emergency funding.

Rayo Salahadin Withanage, Chairman and CEO of The BMB Group commented, “The BMB Groups lead role in this initiative reinforces our heart found commitment to Islamic communities around the world. At this juncture in history where the world faces serious economic challenges, it is important for Muslims around the world to unite behind the common good of helping with the social, economic and environmental challenges that face our planet. We are delighted to be part of the IZO initiative.”

Source: BMB/UpStream Asia 24.02.2009

Filed under: Islamic Finance, News, , , , , , , , ,

Malaysia raises profile as an Islamic fund hub

Malaysia now has more sharia funds than Saudi Arabia, but is still second in terms of assets under management. Malaysia’s efforts to promote itself as a global Islamic investment hub are paying off.

The country has overtaken Saudi Arabia in terms of the number of locally domiciled sharia funds, and is second to the huge Middle East market in terms of sharia assets under management (AUM), based on data from financial services research firm Cerulli Associates.

As of November 2008, sharia funds domiciled and managed in Malaysia totalled 145, compared to just 131 in Saudi Arabia. These range from investments in money markets and sukuks (bonds) to regional and global equities.

Malaysia has, over the past few years, worked to establish itself as a centre for sharia fund manufacturing, in line with its efforts to promote itself as a global Islamic investment hub. Malaysia now possesses the most highly developed regulatory structure for Islamic finance in the world, according to Cerulli.

So far, Malaysia has attracted eight international sharia fund managers by offering a host of tax and other incentives.

However, in terms of sharia AUM, Saudi Arabia is still the clear winner worldwide. Sharia AUM in Malaysia has grown from $1.4 billion in 2003 to $4.6 billion in November 2008. That’s nevertheless just a fraction of Saudi Arabia’s $13.9 billion in sharia AUM. Malaysia’s sharia AUM is also small compared with the estimated $40 billion in AUM of conventional funds managed onshore.

“Malaysian-domiciled sharia funds are still unable to compete with Saudi funds in terms of asset size,” says Ken Yap, Singapore-based head of Asia-Pacific research at Cerulli.

To illustrate his point, Cerulli data shows that the AlAhli Saudi Riyal Trade Fund in Saudi Arabia is the world’s largest sharia portfolio, with $3.6 billion in assets. In contrast, Malaysia’s largest sharia portfolio — Public Ittikal Fund — has $421 million in assets.

“While the Malaysian sharia market has shown impressive growth, managers need to do more to build up assets in each of its sharia funds, rather than simply continuing to launch more funds,” says Shiv Taneja, London-based managing director at Cerulli. “This means marketing sharia funds to high-net-worth individuals and institutions, and working with the banks, including Islamic banks, to improve sharia fund distribution to the public.”

Saudi Arabia’s obvious advantage over Malaysia, Cerulli’s Yap notes, is the deep pockets of its institutional, high-net-worth and retail investors.

In Malaysia, the focus has been mostly on retail investors — understandably so because they are an easy target for the asset management arms of banks, for example. Asset management companies with a conventional funds business in Malaysia are also setting up sharia units and they are targeting existing clients.

“The sharia funds in Malaysia are focused more towards the retail client base, which needs more variety and, thus, fund managers need to launch more funds. In Saudi Arabia, the funds are focused more towards the wholesale client base,” says Trica Sum, a Singapore-based analyst at Cerulli.

Both Saudi Arabia and Malaysia are capable of attracting and managing offshore funds, but the Gulf state has done more to cultivate that market over the years.

Cerulli’s Yap believes that in the near-term the potential for sharia AUM growth in Malaysia still rests with the retail market. Over the long-run, however, he says there is strong potential for growth in the offshore market of sharia firms in Malaysia, the demand from institutional investors and pension funds in Malaysia, and in new businesses from new Islamic fund management company license holders.

Malaysia’s Securities Commission has awarded eight foreign Islamic fund management licenses to Aberdeen Islamic Asset Management, BNP Paribas Islamic Asset Management, Nomura Islamic Asset Management, Kuwait Finance House (Malaysia), DBS Asset Management, CIMB-Principal Asset Management, Global Investment House and Reliance Asset Management.

The Malaysia government allows 100% foreign ownership of Islamic fund management companies, in line with its bid to attract more key fund players to the country. The incentive is part of ongoing liberalisation measures in Malaysia’s capital market as well as being aimed at complementing the broader Malaysian International Islamic Finance Centre (MIFC) initiatives of positioning the country as a hub.

Islamic fund management companies are allowed to invest all their assets overseas and will be given income tax exemption on fees received until 2016. They will also be able to tap into M$7 billion ($2.1 billion) in seed money from the Employees Provident Fund, the national pension fund for the private sector in Malaysia. Tax incentives are also being offered to existing stockbrokers that set up Islamic subsidiaries.

Cerulli estimates that global sharia fund assets totalled around $35 billion in October 2008 and had been growing at 23% over the past five years, well ahead of conventional mutual funds. Although this rate is expected to ease during the course of the global financial crisis, the firm believes Islamic finance has only started to take root in many Muslim nations and has plenty of room for expansion.

Source:AsianInvestor, 19.02.2009

Filed under: Islamic Finance, Malaysia, News, Services, , , , , , , , , , , , , ,

BMB Islamic wins IFN award for best Shariah Advisory Firm

BMB Islamic, part of the Cayman Islands global alternative asset management firm BMB Group, was named as the Best Shariah Advisory Firm in Islamic Finance News (IFN) Poll conducted by Kuala Lumpur based Redmoney Group.

This award reiterates BMB Islamic’s leading role in the increasingly competitive global Islamic market. The Islamic Finance News (IFN) Awards are the most transparent and competitive awards in Islamic finance. They are based on a global poll in which nearly 2,500 votes were cast this year by leading practitioners and participants in the industry.

BMB Islamic will receive the prestigious award at two special Awards ceremonies: A ceremony for IFN Asia readers will take place on the evening of 12th February at the Mandarin Oriental Hotel in Kuala Lumpur followed by another at the Grand Hyatt Dubai on 3rd March 2009 for IFN Middle East readers.

Dr Humayon Dar, CEO of BMB Islamic UK Limited commented, “BMB Islamic are proud to be recognised by the global Islamic finance industry as the best team of Shariah technicians. We remain committed to Shariah-authentic innovation to offer ‘best of the best’ financial solutions to institutions offering Islamic financial services”.

Source: UpstreamAsia, 12.02.2009

Filed under: Banking, Islamic Finance, News, , , , , ,

Islamic Finance Shows Resilience As London Consolidates Position As Key Western Centre

The global market for Islamic financial services rose by 37% to $729bn at end-2007. In 2008, IFSL’s Islamic Finance report notes that the industry has felt the influence of the credit crunch and downturn in the global economy – Sukuk issuance has more than halved and the value of equity funds has fallen. Islamic banks, however, have been less affected than many conventional banks as they are prohibited from activities that have contributed to the credit crunch, such as investment in toxic assets and dependence on wholesale funds.

London has been consolidating its position as the key western centre for Islamic finance in 2008. Two Islamic banks, Gatehouse Bank and European Finance House, have been granted licences bringing to five the number of fully Sharia compliant banks in the UK. Principal Insurance became the first Shariah compliant independent company authorised to offer Takaful to UK residents. In capital markets, four new exchange traded funds and two new equity funds were launched.

IFSL’s report indicates that the UK’s offering includes a total of 22 banks, far more than in any other Western country. Professional services are provided by 18 law firms and the Big Four accounting firms. A cumulative total of 18 Sukuk issues raising $10bn have been listed on the London Stock Exchange, second only to Dubai. With 55 institutions offering educational and training products in Islamic finance, the UK has more providers than any other country worldwide.

Duncan McKenzie, IFSL’s Director of Economics said “The UK has benefitted considerably from supportive government policies intended to put Islamic services on the same footing as conventional services. Evidence of London’s growing role in Islamic finance is shown in the UK being the only western country to feature prominently, 8th with assets of $18bn, in a global ranking of Sharia compliant assets by country.”

Sir Andrew Cahn, UK Trade & Investment’s Chief Executive Officer said: “Despite its origins overseas, Islamic finance has found a natural home in the UK. Though no sector is immune to the global financial crisis, Islamic finance has shown great resilience. It is important we continue to work with our Islamic finance partners to maintain our position as the leading western centre for Islamic finance service providers.”

Source: Mondovisione, Exchange News 09.02.2009

Filed under: Islamic Finance, News, , , , , , , , , ,

Thai bourse to launch Islamic index in Q2

The Stock Exchange of Thailand plans to launch an Islamic Index in the second quarter of this year, the bourse’s Group Head of Market Development Santi Kiranand said Monday.

The index, to be called the FTSE SET Shariah Index, will comprise 55 stocks with a combined market capitalisation of around THB1.7 trillion (US$49 billion), equivalent to 47% of the total stock market, Santi told reporters.

The bourse is scheduled to meet investors in the United Arab Emirates and Abu Dhabi in the second half of this year to promote the Islamic index, he added.

The exchange also plans to launch a social responsibility index in the third quarter. Stocks under this index would account for 10% to 20% of total market capitalisation, Santi said.

Source: Intellasia | Dow Jones, 04.02.2009

Filed under: Exchanges, Islamic Finance, News, Thailand, , , , , , , ,

Global Megatrends 2009: Ernest & Young Analysis

Download report Global Megatrends 2009 EY

Each year, the EY Global Strategy Team conducts an analysis of external trends to inform the Global Executive’s discussion about priorities and initiatives for the coming year.

The report provides a good overview of important external influences affecting all organizations.

While the EY megatrends document was previously for limited distribution, this year the report is shared more broadly since the issues it addresses are no doubt also on the top of mind for many.

Source: Ernest & Young, 29.01.2009

Filed under: Asia, Banking, Energy & Environment, Islamic Finance, Latin America, Library, News, Wealth Management, , , , , , , , , , , , , , , , , , , , , , , , , , ,

Malaysia gives out more Islamic fund licenses

The country steps up efforts to become a global hub for Islamic investments by awarding licenses to Aberdeen, BNP Paribas and Nomura.

Malaysia’s Securities Commission has awarded three new foreign Islamic fund management licenses to Aberdeen Islamic Asset Management, BNP Paribas Islamic Asset Management and Nomura Islamic Asset Management. That brings to eight the total number of fund houses allowed to operate Islamic fund operations in the country.

The three fund houses already have a presence in the traditional asset management industry in Malaysia, as part of the five licenses issued under a special scheme announced in 2005 that allowed foreigners to gain access to the local market after eight years of strict capital controls.

The securities commission believes that the growing interest among foreign fund houses in the Islamic licenses up for grabs in Malaysia reflects their confidence that the country can be a global hub for Islamic fund and wealth management activities. Malaysia has an equities market that is more than 85% sharia-compliant, is the world’s largest issuer of Islamic bonds, and has more than 13 Islamic unit trust funds. Sharia principles generally preclude investment in businesses such as conventional financial services, alcohol, pork-related products, gambling, leisure and entertainment. Sharia principles also preclude interest-bearing investments and investments in companies with unacceptable levels of debt.

“Despite the global slowdown, the coming on board of these three international players reflects the strong growth potential in niche areas like Islamic fund management,” says securities commission chairman Dato’ Sri Zarinah Anwar. “This will help add depth and breadth to the Islamic finance industry, of which Malaysia commands a leadership role.”

The Malaysia government allows 100% foreign ownership of Islamic fund management companies, in line with its bid to attract more key fund players to the country. The incentive is part of ongoing liberalisation measures in Malaysia’s capital market as well as being aimed at complementing the broader Malaysian International Islamic Finance Centre (MIFC) initiatives of positioning the country as a hub.

Islamic fund management companies are allowed to invest all their assets overseas and will be given income tax exemption on fees received until 2016. They will also be able to tap into M$7 billion ($2.1 billion) in seed money from the Employees Provident Fund, the national pension fund for the private sector in Malaysia. Tax incentives are also being offered to existing stockbrokers that set up Islamic subsidiaries.

Fund management companies are hungry for a portion of the wealth of the Islamic community – especially those communities in the oil-rich Middle East – and Malaysia is creating the platform for them to be able to do just that. The opportunities are vast. The world’s Muslim population is estimated at around 1.5 billion, that’s around 22% of the world’s 6.7 billion population.

There are more than $202 billion in Islamic bank deposits worldwide growing by around 10% to 20% annually and around 300 Islamic financial institutions with assets of more than $560 billion, according to modest industry estimates. Boston-based financial services research firm Cerulli Associates notes that there are around $65 billion in sharia-compliant investments worldwide. Around 53% of those assets, or $35 billion, are held in mutual funds. Specifically, $33.6 billion is managed by local fund managers, while $1.4 billion is managed by foreign fund managers.

Islamic fund management is expected to sustain the growth of Malaysia’s asset management industry. Other countries in Asia are attempting to be an Islamic hub of sorts, either in banking or asset management. Malaysia is ahead of the pack in Asia and other markets in terms of manufacturing Islamic funds and this is among its main attraction for fund houses that want to set up shop there. The industry is still growing at a considerable pace and demand for unit trust products continues to be strong.

In granting the approval to the three fund houses, the securities commission considered, among other things, the scope of operations that will be established by each of the firms in Malaysia, their fund management experience, brand value, expertise in various markets, geographical presence, and compliance and risk management capabilities.

Atsushi Yoshikawa, president and CEO of Tokyo-based Nomura Asset Management says Islamic fund management is one of the fund house’s “most important strategies”.

Vincent Camerlynck, global head of business development and member of the executive committee at BNP Paribas Investment Partners in Paris, confirms that Malaysia will serve as a strategic hub for the fund house’s Islamic business and complements its Europe and Middle East centres.

The launch of BNP Paribas Islamic Asset Management Malaysia complements the fund house’s overall exposure to the Islamic fund industry through partnerships such as the SAIB BNP Paribas Asset Management in Saudi Arabia; products such as the BNP Paribas Islamic Equity Optimiser Funds, Easy ETF DJ Islamic Market Titans 100; advisory services such as the i-VCap’s listing of the MyETF Dow Jones Islamic market Malaysia Titans 25, Asia’s first Islamic ETF; and developments in setting up sukuk (Islamic bonds) and murabaha (Islamic financing) private placement funds.

BNP Paribas Islamic Asset Management Malaysia will be led by executive director Hisham Abdul Rahim, who has 12 years of experience in the financial services industry, including Islamic finance and asset management.

Gerald Ambrose, managing director of Aberdeen Asset Management in Malaysia, says the Islamic fund license is key to the firm’s expansion in the country. Aberdeen Asset Management was the first foreign fund house to set up operations in Kuala Lumpur to manage portfolios for institutional clients in 2005. That made Aberdeen, through its Aberdeen Asset Management Sendirian Berhad entity in Malaysia, the first foreign fund manager to have a presence in Malaysia in eight years.

Having an Islamic fund management license will allow Aberdeen to tap the retail market in Malaysia. Aberdeen manages an ‘Amanah’ or an Asia ex-Japan equity fund that is sharia-compliant, which has around $100 million in assets, for a client. The client has a set of advisors and sends Aberdeen a list of stocks that it can’t invest in. It is a unit trust with Middle Eastern subscribers, run by a bank there that has given Aberdeen the mandate to manage the fund from its Singapore office.

Islamic fund management licenses were previously granted to Kuwait Finance House (Malaysia), DBS Asset Management, CIMB-Principal Asset Management, Global Investment House and Reliance Asset Management.

See here for full article from Asian Investors


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Tehran Stock Exchange Signs MOU With Korea Exchange

Tehran Stock Exchange Corporation (TSE) signed MoU with its Korean counterpart, Korea Exchange (KRX) on 21 January 2009.

Including six cooperation areas, the Memorandum is signed and exchanged in order to establish and encourage relations and collaboration between both Exchanges. Both parties are interested to have participation in mutual training of the personnel, information exchange, and promotion of securities markets and the tradable products, especially bonds trading system.

TSE and KRX are also looking forward to benefit each side’s consultancy services for development of risk management systems, as well as the joint working groups for focusing on the common interests.

Source: Mondovisione, 24.01.2009

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Islamic Finance Faces Legal Challenges

Some are claiming that greater use of Islamic finance could have averted, or at least minimised, the global financial crisis. However, the sector has potential problems of its own, which may become apparent in 2009 as the real economy in most countries starts to suffer.

The musharakah contract, in which a bank acts as a partner in a business interest, could potentially expose institutions to legal action. The bank is likely to be involved in management decisions, and it could be vulnerable if business is conducted improperly.

“In the case of negligence or misconduct, the Islamic bank will be liable for the capital of musharakah,” said Dr Sabir Muhamed Hassan, governor of the Central Bank of Sudan, speaking in Malaysia last month. “Modern insolvency laws in some countries impose liability on the officers and directors for actions taken on the eve of insolvency.”

The application of insolvency laws will be vital in determining whether more complex Shariah compliant derivatives work. Securitisation is permitted under Islamic guidelines, but the difficulty comes in proving that a particular transaction is a ‘true sale’, in which risk has been completely transferred.

There were also contracts in the past which did not make it clear whether in the event of an issuer’s insolvency its sukuk holders would have a claim to the sukuk assets, or only the income from those assets, which would probably have ceased by that stage. However, guidelines from the Islamic Financial Services Board (IFSB), an international standards board, have since stated that sukuk holders should have a claim on the assets held in the investment vehicle.

“I actually think the next few years will be very difficult for the Islamic finance industry from a litigation perspective,” says Hari Bhambra, a lawyer who has worked on Islamic finance regulations for the UK Financial Services Authority and Dubai Financial Services Authority, and is now a senior partner at consultancy Praesidium. “It’s not quite clear whether some of the elements of the Islamic structure have legal force, so I think they will be tested.”

So far, few Islamic finance contracts have been taken through the courts, but she says that the experience in the UK has not been encouraging. Judges have ruled that customers have limited rights to pull out of a contract if they are given information about the structure of a product and the reasons why it is Shariah compliant.

Bhambra says: “But in market practice, customers are given a product, it’s got a fatwa stamped on it, so it’s been approved. There’s usually little information about why.”

She calls for increased disclosure of fatwa details, particularly since some Islamic finance products with the same name could differ vastly from country to country.

This would also make Shariah scholars more accountable for their decisions. Sheikh Muhammad Taqi Usmani, chairman of the board of scholars at think tank AAOIFI (the Accounting and Auditing Organisation for Islamic Financial Institutions), is widely credited with contributing to a slowdown in sukuk issuance, after he announced in November 2007 that 85% of sukuk in existence were not Shariah compliant because they included repurchase agreements. Investors in and issuers of Islamic products currently run the risk that the scholar who approves their structure could change his mind a few years later, a situation in which they have no legal recourse.

An economic slowdown and the possible end of the Gulf real estate boom are likely to create conditions under which many of these structures will be tested. If any widely used structures are found to fail under the stress, 2009 could be a painful year for Islamic finance.

Source: AsianBanker, Daniel Stanton, 17.12.2008

Filed under: Banking, Islamic Finance, Malaysia, News, Risk Management, , , , , ,

The coming of age of Islamic structured products

Malaysia’s structured products market is benefiting from the development of a liquid Islamic capital market.

slamic finance is coming of age. Today, for the first time, Islamic structurers in Malaysia and the Middle East are starting to create new financial products and infrastructure from scratch – developments that do not simply wrap their conventional counterparts in a Shar’iah structure but which are Islamic from start to finish.

Already this year, in its effort to develop a wholesale Islamic capital market, Malaysia’s Syariah Advisory Council has approved a Shar’iah-compliant commodity exchange and it has also given the go-ahead for securities borrowing and lending, which will support the creation and redemption of Islamic exchange-traded funds, or ETFs. The first Islamic ETF was launched in January this year.

A broad universe of Shar’iah-compliant underlyings is particularly significant for the structured products market, and most of all for equities structurers. Shar’iah-compliant underlyings often have no volatility market, which makes it difficult for providers to manage their risks, and they are typically illiquid, expensive and difficult to access.

Fixed-income structurers have an easier time of it. The increasing popularity of Islamic bonds has given them more to work with and, in fact, sukuk issuance is now starting to spread outside the Islamic world as borrowers learn to appreciate their value as a way to access new markets. A German state recently issued a sukuk and the UK is also considering one.

But the conventional structured products market in Asia is overwhelmingly dominated by equity and this is where the greatest development in Islamic products is focused……

Risk sharing

Islamic structures are sometimes criticised as mere financial jiggery pokery – a clever dodge that lets Muslim investors achieve the exact same results as conventional investors. There are certainly some structures and products in the market that deserve such criticism, but Ahmad Chaudry, an Islamic finance specialist at Royal Bank of Scotland, argues that Islamic finance techniques can also offer very different solutions to conventional finance, which can appeal to Muslims and non-Muslims alike.

Islamic mortgages are a good example, he says. With a regular home loan, the would-be homeowner borrows money from a bank, invests it in a property and pays back the loan over time, plus interest. “The only circumstance under which the bank cares about the value of your property is if you default,” says Chaudry. “In Islamic finance, the bank buys the property with you – you share the risk.”

In this type of Islamic mortgage, the investor might buy 10% of the property, while the bank buys the rest. The investor reclaims equity stakes from the bank over time and also pays rent on the bank’s stake. Most important, the investor buys this equity at the prevailing market values, which means the bank is taking risk on changes in the value of the property over time. “This is something we don’t see in conventional finance,” says Chaudry. “The sharing of risk is something that is extremely central to Islamic finance.”….

“Islamic banks have too much cash and not enough assets to buy into,” says Lee Kok Kwan, head of treasury at CIMB. “There is always a lot of liquidity on the deposit side.”

This is one of the principal motivations for Malaysia to develop its Islamic capital market – to provide a way for all these deposits sitting in Islamic banks to find a productive use in the economy. The creation of new Islamic underlyings and a greater diversity of products should certainly help in that effort.

Source: 15.11.2008 for full article click here.

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