Dubai Technology and Media Free Zone Authority
ISSUE 95
T H E A U T H O R I TAT I V E V O I C E O F I S L A M I C F I N A N C E ISSUE 95 INSPIRED TO INNOVATE Emirates Islamic CEO Jamal Bin Ghalaita
INSPIRED TO INNOVATE Emirates Islamic CEO Jamal Bin Ghalaita
A CPI Financial Publication
PLUS:
bleed guide.indd 1
AWARDS:
The Islamic Business & Finance Awards Asia
SUKUK:
Cote D’Ivoire’s first launch
TAKAFUL:
The road forward
23/02/2016 09:19
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18/02/2016 14:07
CONTENTS
ISSUE 95
REGULAR SECTIONS
EDITOR'S LETTER Greetings, all
W
elcome to our latest issue of Islamic Business & Finance. After our recent 10 yearanniversary, Islamic Business & Finance now enters its second decade. What will the next ten years bring? First, there will be a slight change in our Awards schedule. For the last 10 years, tradition has held that every December, the leaders of the Islamic financial industry gather together in Dubai to receive honours and to in turn honour their peers. This year, things will be a bit different. Rather than have all of Asia travel to Dubai, this year, we will be bringing the Awards closer to home. The Islamic Business & Finance Awards Asia will be coming to Kuala Lumpur this May. Read more on page 10. It was a pleasure seeing so many of you at the World Islamic Banking Conference last December as well. A successful event as ever, it was wonderful to hear from people from across the Islamic financial landscape, as well as to see so many familiar faces. This issue, we’ve turned our focus to the home of the WIBC: Bahrain. Hear thoughts from the Bahrain Economic Development Bank, as well as the Central Bank of Bahrain, in our country focus beginning on page 17. Until next time,
William Mullally
12 OPINION
8
DOES OPTIMISM REMAIN?
AWARDS
10 ANNOUNCING THE ISLAMIC BUSINESS & FINANCE AWARDS ASIA
10
COVER STORY
12 INSPIRED TO INNOVATE
Emirates Islamic CEO Jamal Bin Ghalaita
SUKUK
38
38 A DECADE OF GROWTH IS ONLY THE BEGINNING
42 COTE D’IVOIRE LAUNCHES FIRST SUKUK
TAKAFUL
44 TAKAFUL’S ROAD FORWARD
DIARY AND MARKET WATCH
6 7
DATES FOR YOUR DIARY MARKET WATCH
Log on to www.islamicbusinessandfinance.com for news, polls, events, analysis, blogs, features, commentary and more.
www.islamicbusinessandfinance.com
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ISSUE 95 | Islamic Business & Finance
3
23/02/2016 16:31
CONTENTS
CHAIRMAN
ISSUE 95
SALEH AL AKRABI CHIEF EXECUTIVE OFFICER
MANAGING EDITOR
ROBIN AMLÔT robin@cpifinancial.net Tel: +971 4 391 3723
GEORGINA ENZER georgina@cpifinancial.net Tel: +971 4 391 3728
EDITORIAL
ADVERTISING
editorial@cpifinancial.net
sales@cpifinancial.net
EDITORS
SALES DIRECTOR
Islamic Business & Finance WILLIAM MULLALLY william@cpifinancial.net Tel: +971 4 391 3718
FEATURES
JON DESPRES jon@cpifinancial.net Tel: +971 4 433 5321
SALES DIRECTOR
SARAH OWERMOHLE sarah@cpifinancial.net Tel: +971 4 375 2527
OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419
JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024
BUSINESS DEVELOPMENT MANAGERS
28
LIAM O'CONNOR liam@cpifinancial.net Tel: +971 4 391 4680
SPECIAL FEATURE
DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 3752526
28 Malta Stock Exchange
FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724
NIKHIL MATHUR nikhil@cpifinancial.net Tel: +971 4 391 3717
COUNTRY FOCUS: BAHRAIN
CREATIVE DESIGNER
MOHAMED MAKSOUD mohamed@cpifinancial.net Tel: +971 4 433 5320
CHIEF DESIGNER
BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719 SENIOR DESIGNER
ANA MAKSIĆ ana@cpifinancial.net Tel: +971 4 391 3723 ONLINE EDITOR
MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716 ONLINE CONTENT MANAGER
SIYA PAINAYIL siya@cpifinancial.net Tel: +971 4 391 3722 CONTRIBUTORS
RAM RATINGS BLAKE GOUD
LONDON BUREAU
ISLA MACFARLANE isla@cpifinancial.net Tel: +44 7875 429476
HEAD OF CONTRACT PUBLISHING & BUSINESS DEVELOPMENT
VINOD THANGOOR vinod@cpifinancial.net Tel: +971 4 391 3725
FINANCE MANAGER
UMAIR AHMED KHAN, ACA umair@cpifinancial.net Tel: +971 4 391 3727 DATA ANALYST
NADINE ABOUZEID nadine@cpifinancial.net Tel: +971 4 4335322
ADMINISTRATION & SUBSCRIPTIONS
enquiries@cpifinancial.net Tel: +971 4 391 4682 Tel: +971 4 391 3709
launches Islamic Index
17 Bahrain’s place in the global economy
46
20 Central Bank of Bahrain:
Bahrain still has its crown
24 Bank ABC Islamic performs
LEGAL FOCUS
in tough conditions
36 Law brings Islamic
banking to Uganda
ISLAMIC TECH
32 Path Solutions 34 Nucleus Software
THE INSIDE STORY
46 Capsters: the perfect fit
Get the next issue of Islamic Business & Finance before it is published. Full details at www.islamicbusinessandfinance.com ISSUE 95
Dubai Technology
and Media Free
Zone Authority
Dubai Technology and Media Free Zone Authority
CPI FINANCIAL FZ LLC P.O. Box 502491, Dubai Media City, Dubai, UAE Fax: +971 4 390 9756
R I TAT THE AUTHO
ISSUE 93
ISSUE 94
ISSUE 95
JORDAN RISING JDIB, led by CEO Sami Al-Afghani, is bolstering the Islamic finance industry in Jordan
BANK OF KHARTOUM’S BIG MOVES CEO Fadi Al Fiqih on bok’s expansion plans in the region and beyond
INSPIRED TO INNOVATE Emirates Islamic CEO Jamal Bin Ghalaita
SPIRED
BIG MOVES
Islamic Business & Finance | ISSUE 95
page 3-4 contents95.indd 4
A CPI Financial Publication
4
AWARDS:Business &
PLUS:
The Islamic Asia Finance Awards
Cote D’Ivoire’s first launch
AWARDS:
The Islamic Business & Finance Awards 2015
SUKUK: Malaysia in 2016
TAKAFUL:
A CPI Financial Publication
PLUS:
bleed guide.indd 1
© 2016 CPI Financial FZ LLC All rights reserved. No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the Managing Editor.
JDIB, led by CEO Sami Al-Afghani, is bolstering the Islamic finance industry in Jordan
CEO Fadi Al Faqih on BOK’s expansion plans in the region and beyond
Jamal Bin Ghalaita Emirates Islamic CEO
SUKUK:
JORDAN RISING
BANK OF KHARTOUM’S
IN TO INNOVATE
A CPI Financial Publication
PRINTED BY United Printing & Publishing – Abu Dhabi, UAE
@IBFMag on Twitter for stories as they're being told
ISSUE 93
T H E A U T H O R I TAT I V E V O I C E O F I S L A M I C F I N A N C E
T H E A U T H O R I TAT I V E V O I C E O F I S L A M I C F I N A N C E
www.cpifinancial.net Registered at the Dubai Media City
Dubai Technology and Media Free Zone Authority
ISSUE 94
FINANCE OF ISLAMIC IVE VOICE
DEWA’s employee initiative
19/11/2015 10:22
PLUS:
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AWARDS:
The Islamic Business & Finance Awards 2015
SUKUK:
Sukuk’s global footprint
TAKAFUL:
Takaful Emarat’s inside story
19/10/2015 16:50
TAKAFUL:
The road forward
18/02/2016 13:16
page 3-4 contents95.indd
1
www.islamicbusinessandfinance.com
23/02/2016 16:31
11th Annual 11th Annual
11 & 12 April 2016 Dubai, United Arab Emirates 11 & 12 April 2016 Dubai, United Arab Emirates
PRUDENT PRACTICES PRUDENT PRACTICES FOR GLOBAL GROWTH FOR GLOBAL GROWTH KEYNOTE SPEAKERS KEYNOTE SPEAKERS
Abdulla Mohammed Al Awar Chief Executive Officer Dubai Islamic Economy Development Centre (DIEDC) Al Awar Abdulla Mohammed Chief Executive Officer “Strengthening Takaful as a key pillar Dubai Islamic Economy Development Centre of the Islamic ecosystem” (DIEDC)
“Strengthening Takaful as a key pillar of the Islamic ecosystem”
Dave Matcham Member of Executive Committee Islamic Insurance Association of London Dave(IIAL) Matcham Member of Executive Committee Horizons for Takaful Islamic“New Insurance Association of London - Opportunities in Takaful in the UK” (IIAL)
“New Horizons for Takaful - Opportunities in Takaful in the UK”
WTC 2016 to feature exclusive launch of groundbreaking “Finance Forward World Takaful Outlook Report 2016” WTC 2016 to feature exclusive launch of groundbreaking “Finance Forward World Takaful Outlook Report 2016”
@WorldTakaful, #WTC16 | WTC16.COM For Partnership opportunities, please contact us at: @WorldTakaful, #WTC16 | WTC16.COM partnerships@meglobaladvisors.com
ORGANISED BY
For Partnership opportunities, please contact us at: partnerships@meglobaladvisors.com
ORGANISED BY
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22/02/2016 11:53
DATES FOR YOUR DIARY
05-06 April 2016
03-04 May 2016
(Noppasin/SHUTTERSTOCK)
ISLAMIC BANKING & INVESTMENT ASIA/MIDDLE EAST CONGRESS 2016
The Islamic Banking & Investment Asia/Middle East Congress 2016 aims to bring together the leading players from the Middle East and Asia to explore, engage and showcase opportunities that are emerging from a wave of increasingly strong attention from mainland China, Indonesia, as well as high-potential sectors such as marine, energy and the SME market. Venue: Intercontinental, Singapore http://www.ethicolive.com/events/islamicbankingsingapore
11-12 April 2016
WORLD TAKAFUL CONFERENCE 2016
Now in its 11th year, the World Takaful Conference (WTC) is a leading global forum for Takaful. The events aids the development of the industry by staging a platform for thoughtprovoking discussions, producing quality research and actionable insights. WTC gathers leaders together from all around the world, ranging from key markets for Takaful such as the GCC and SE Asia to emerging markets such as Africa and Europe. Venue: Dusit Thani, Dubai, UAE http://wtc16.com/
Islamic Business & Finance | ISSUE 95
page 6 Diary95.indd 6
CIBAFI GLOBAL FORUM
Themed under the concept 'rethinking values for sustainable growth’, the Forum, which will be held under the patronage of the Central Bank of Bahrain, will discuss some of the most pressing priorities currently facing the Islamic financial industry in sustaining growth and the stability of the financial markets. Venue: TBD, Manama, Bahrain http://www.cibafi.org/
24 May 2016 (Anna Omelchenko/SHUTTERSTOCK)
6
(Eugene Sergeev SHUTTERSTOCK)
(zhu difeng/SHUTTERSTOCK)
THE ISLAMIC BUSINESS & FINANCE AWARDS ASIA 2016
After 10 successful years honouring the Islamic finance industry in Dubai, Islamic Business & Finance will be holding its first Awards ceremony in Kuala Lumpur.The Awards ceremony, held by CPI Financial. promises to gather leaders in the industry from around the region in order to celebrate the best and the brightest that the Islamic finance world has to offer. Email events@cpifinancial.net for more details on the event and how to be a part of it. Venue: TBD, Kuala Lumpur, Malaysia www.cpifinancial.net
www.islamicbusinessandfinance.com
22/02/2016 12:05
MARKET WATCH
OUTSTANDING SUKUK MAP
THE SIZE OF THE OUTSTANDING SUKUK MARKET GLOBALLY AS OF FEBRUARY 2016
SOURCE: Zawya Islamic
OPEN SUKUK IN FEBRUARY 2016 STATUS
ISSUER NAME
SUKUK NAME
SUKUK STRUCTURE
COUNTRY
CURRENCY
SUBSC. DATE
ISSUE SIZE ($M)
MARGIN
TENOR
ARRANGER/ ADVISOR
Open
Sunway City Berhad
Sunway Treasury Sukuk(ICP 57)
Modarabah
Malaysia
MYR
18-Feb-16
24.096
-
29 Days
Kenanga Investment Bank Berhad
Open
Gamuda Bhd.
Gamuda Sukuk(ICP/IMTN 10)
Murabahah
Malaysia
MYR
17-Feb-16
24.096
-
90 Days
AmIslamic Bank Berhad
Open
KT Sukuk Company Limited
Kuveyt Turk Tier 2 Sukuk
Ijarah
Turkey
USD
17-Feb-16
350
7.90%
10 Years
Abu Dhabi Islamic Bank PJSC Dubai Islamic Bank PJSC Emirates NBD PJSC HSBC Bank KAMCO Investment Company K.S.C.P. KFH Capital Investment Company K.S.C.C. Noor Bank PJSC QInvest LLC
Open
Maybank Islamic Berhad
Maybank Islamic Subordinated Sukuk(Tranche 2)
Murabahah
Malaysia
MYR
15-Feb-16
242.424
4.65%
10 Years
Maybank Investment Bank Berhad
Open
Sunway City Berhad
Sunway Treasury Sukuk(ICP 56)
Modarabah
Malaysia
MYR
15-Feb-16
24.242
-
29 Days
Kenanga Investment Bank Berhad
Open
Bank Negara Malaysia
BNM Mudarabah Sukuk
Modarabah
Malaysia
MYR
10-Feb-16
-
-
-
Bank Negara Malaysia
Open
National Commercial Bank
NCB Subordinated Tier I Sukuk (December 2015)
Modarabah
Saudi Arabia
SAR
23-Dec-15
720.134
-
-
National Commercial Bank
SOURCE: Zawya Islamic
www.islamicbusinessandfinance.com
page 7 Market Watch95.indd 7
ISSUE 95 | Islamic Business & Finance
7
17/02/2016 18:30
OPINION
Does optimism remain? W
ith all that has changed in the Islamic finance world and the broader Islamic economy in the last few decades, with all the growth that the industry has found, one thing has remained: optimism. But with all the volatility we have seen in the global economy, can that optimism continue into 2016 and beyond? When speaking to some banks on my recent travels, it was clear that there is some reason to express concern for Islamic finance’s short-term future—after all, Islamic banking is still banking. No banking system can be completely immune from the world around it, as the world around it is where the bank finds its business. Rather than try to answer the question ourselves, we turned recently to you, our readers, for your opinion on the matter. The good news is this: optimism remains. The number of voters said they were optimistic in general about Islamic finance in 2016 almost doubled those who voted ‘no’. In fact, broad optimism garnered 49 per cent of all votes. 26 per cent of voters, though, did say they were not optimistic about Islamic finance for this year. But for some, their optimism was regional—16 per cent of voters said that they were optimistic about 2016 in the Middle East only, while nine per cent of voters said they were optimistic about South East Asia only. All and all, that means that 74 per cent of voters were optimistic in some way about the state of Islamic finance in 2016. So while some may remain apprehensive, most are still looking forward to all that will happen throughout the industry this year. Let’s hope that optimism can continue!
8
Islamic Business & Finance | ISSUE 95
page 8 Opinion95.indd 8
William Mullally
Editor
www.islamicbusinessandfinance.com
22/02/2016 12:16
The region’s most transparent awards
The BME100, a list of the region’s top-performing banks, is not only a benchmark in bank performance, but the judging process is unequivocally transparent. Each bank is ranked according to its financial performance relative to other regional banks, there are no grey areas. Every bank’s financial data is carefully scrutinised by our in-house analytics team and each bank is ranked in our BME100 list according to that financial data. Our analysts use the Data Envelopment Analysis (DEA) method for analysing the efficiency of the banks in the BME 100. The analytical framework of our BME100 reports is based on secondary data drawn from the annual reports of the major financial institutions and Islamic windows around the MENA region. In our analysis we measure the performance of the whole banking sector of the countries against each other and compare the best banks of each country against each other. Where annual reports are not publically available on the institution’s website for the year in question, the institution is not included in the analysis.
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Results are collated in the currency in which they are originally published and are then converted into US dollars and normalised before the institutional rankings are calculated. The currency conversions are carried out using the prevailing exchange rate at the end of each year and as published by the relevant Central Bank. The institutions are ranked according to both the absolute size of and the dollar value increase in size of the following: ÜAssets ÜLiabilities ÜIncome ÜNet profit The rankings obtained within these areas are then combined to create an overall ranking.
CHECK OUT OUR LATEST BME100 HERE:
http://www.cpifinancial.net/flipbooks/SUPPLEMENTS/ 2015/BME1002015/
18/02/2016 14:24
ISLAMIC BUSINESS & FINANCE AWARDS
Announcing the Islamic Business & Finance Awards Asia AFTER 10 SUCCESSFUL YEARS HONOURING THE ISLAMIC FINANCE INDUSTRY IN DUBAI, ISLAMIC BUSINESS & FINANCE WILL BE HOLDING ITS FIRST AWARDS CEREMONY IN KUALA LUMPUR
F
or 10 years, CPI Financial has proudly honoured the leaders of the Islamic finance industry every year at the Islamic Business & Finance Awards, to which bankers and industry pioneers travelled from across the world. In 2016, we ourselves will embark on a journey across the world, this time bringing the Awards directly to those in Southeast Asia. On 24 May, the inaugural Islamic Business & Finance Awards Asia will be held in Kuala Lumpur. Just as held true in Dubai for the last 10 years, the event in Kuala Lumpur promises to be a who’s who of the Islamic finance industry, with industry leaders flying in from across the region in order to meet with, receive their well-deserved honours as well as recognising the accomplishments of their peers in this ever-growing field. We celebrate the growing importance of Islamic finance as a global phenomenon with the establishment of the Islamic Business & Finance Awards Asia,” said Robin Amlôt, Chief Executive Officer of CPI Financial, publisher of Islamic Business & Finance. “Our magazine itself recently celebrated its 10th anniversary, the longest established regular magazine coverage of this dynamic industry. “We take this opportunity to mark the growth and diversity of Islamic finance by bringing our recognition of in excellence in Islamic finance to Kuala Lumpur,” Amlôt continued. 2015 was a milestone year in the development of Islamic finance, with many leaders in the Islamic economy making great strides to forward both their firms and their industry. 2016 promises many milestones of its own. CPI Financial will once again honour those who have done so much to further Islamic finance at this must-attend event.
Email: events@cpifinancial.net for more details, and don’t forget to check www.cpifinancial.net and www. islamicbusinessandfinance.com to vote once voting begins.
10
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www.islamicbusinessandfinance.com
22/02/2016 12:20
Unl cking Finance Expanding impact
30 & 31 mArcH 2016, KuALA LumPur, mALAYsiA
Capitalize on emerging market growth of Islamic & traditional responsible finance HigH PRofile sPeakeRs @ tHe ResPonsiBle finance summit
dR. Zeti akHtaR aZiZ GovErnor Bank negaRa malaysia
His Royal HigHness emiR muHammadu sanusi ii Emir of Kano
PRofessoR datuk Rifaat aHmed aBdel kaRim ChiEf ExECutivE offiCEr inteRnational islamic liquidity management coRPoRation
HOsTed by
geoRg kell viCE Chairman aRaBesque PaRtneRs
Organised by
CO-Organised by
rf-summit.com
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22/02/2016 12:22
COVER INTERVIEW
Inspired to
INNOVATE JAMAL BIN GHALAITA, CHIEF EXECUTIVE OFFICER, EMIRATES ISLAMIC, ISLAMIC BUSINESS & FINANCE AWARDS’ BANKER OF THE YEAR 2015, ON THE BANK’S ACCOMPLISHMENTS AND PLANS FOR THE FUTURE
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18/02/2016 09:20
COVER INTERVIEW
Bin Ghalaita is committed to playing a leading role in supporting individuals, entrepreneurs, corporates and SMEs that shape the future of the UAE’s economy.
W
hat is Emirates Islamic’s main strategy at the moment? As one of the fastest growing banks in the UAE, we will continue to focus on the domestic UAE market with our core businesses, namely corporate, SME and consumer banking. Since the launch of our transformation journey in 2011, we have reported rapid growth for four consecutive years and it is now time for us to consolidate our position as a leader in the Islamic banking sector. Currently, the market conditions are challenging but we have implemented a strategy of sustainable growth over the coming years. We will continue expanding our network, investing in innovation and the latest technology and improving our customer service delivery, in order to achieve the growth objectives we have set for ourselves.
Tell me about the Islamic trade platform Emirates Islamic has launched. EI trade is the world’s first fully-integrated online Islamic trade and supply chain platform and it offers our corporate and business customers the convenience of a 24/7 secure electronic platform to initiate trade finance transactions. The portal can be used to submit, process and monitor various types of trade-related transactions including letters of credit issuances/amendments, promise to purchase, Murabahah sales contract, Wakalah contracts, master agreements, and various types of advices online at a click of a button. Dubai, with its strategic location and highlydeveloped infrastructure, will continue to be a global leader in trade and logistics. We are confident that EI trade will transform and catalyse Islamic trade finance transactions in the country and the wider region as it offers UAE businesses a reliable, convenient and secure solution to conduct these transactions in a Shari’ah-compliant manner.
W h at we r e E m i r at e s I s l a m i c ’s k e y achievements in 2015? Emirates Islamic reported strong financial growth in 2015, announcing a net profit of AED 641 million, a 76 per cent year-on-year increase. The bank’s total net income during the period rose to AED 2.43 billion, up 25 per cent over the previous year on the back of a 26 per cent increase in our customer base. cont. overleaf
www.islamicbusinessandfinance.com
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23/02/2016 16:36
COVER INTERVIEW cont. from pg 13
2015 saw the launch of EI trade, the world’s first fully-integrated online Islamic trade and supply chain platform.
Our strong balance sheet and performance led Fitch, the global ratings agency, to assign Emirates Islamic a long-term issuer default rating (IDR) of ‘A+’ with a stable outlook, short-term IDR of ‘F1’, and a viability rating (VR) at ‘bb-’. The rating agency also affirmed the bank’s support rating of ‘1’. This rating places Emirates Islamic among the highest ranked banks in the UAE and is a key milestone on the bank’s road to growth and success. In 2015, we launched the UAE’s first consumer focused survey on Islamic Banking: ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™, as part of our commitment to furthering the uptake of Shari’ah-compliant banking in the UAE. This year marked a series of successful launches at Emirates Islamic, aimed at making banking more accessible. In addition to EI trade, we expanded our banking channels with the launch of EI World, a mobile banking app that allows Emirates Islamic customers to conduct banking transactions in a fun and engaging environment. The bank’s impressive performance continued to be recognised across the industry, winning awards including ‘Best Retail Bank (UAE)’, ‘Best Commercial Bank (UAE)’ and ‘Best Wealth Management (ME)’ at CPI Financial’s Islamic Business & Finance Awards, as well as ‘Best Savings Account’ and ‘Best New SME product’ at the Banker Middle East Product Awards 2015.
What does Emirates Islamic have planned for 2016? In 2016, we will focus on our core strategy of Islamic banking innovation and providing accessible banking solutions to our customer base. This includes launching propositions for targeted customer segments, enhancing our suite of products for our individual and business customers as well as investing in our digital channels to offer enhanced services on mobile, phone and online banking platforms. Emirates Islamic is a customer-oriented bank and we recognise the critical importance of providing the best levels of service. To improve the customer journey and provide a seamless banking experience, we will work on improving our back-end systems and processes. As a home-grown bank, we play a key role in the welfare of the nation and supporting the overall community. Over the years, we have supported a
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23/02/2016 16:36
COVER INTERVIEW
range of charitable organisations to provide basic amenities, health treatment and education to the less fortunate. In 2016, we will increase our efforts substantially to reach out to more people who need support.
What separates Emirates Islamic from its competitors? What consumers want is a bank they can trust that also responds to their business and lifestyle needs. I am proud to say that Emirates Islamic has distinguished itself as a bank built on timeless Shari’ah values, with a truly modern, innovative approach. Our innovative spirit has helped us anticipate and respond to market needs and create products and services that not only set the benchmark for Islamic banking in the UAE, but also support the nation’s economy and the community.
How will it be affected by economic developments in the region? Low oil prices and tightening liquidity are looming challenges this year that have dampened investor and market sentiment globally and in the region. It is expected that the uncertain conditions may prevail for some time. However, I am confident that the UAE, under the wise direction of the nation’s leaders will be able to weather these conditions and continue to grow. The UAE Vision 2021 national agenda aims to put UAE at the heart of the global economy, improving the country’s business environment and increasing its attractiveness to foreign investment. The Government has also committed to infrastructure spending in the run up to Dubai Expo 2020, which will help drive growth over the coming years. In such a scenario, I expect substantial business opportunities for Emirates Islamic. With our culture of innovation, we expect to continue on our growth trajectory, supporting the nation’s drive to success.
What are your thoughts on the broader state of Islamic finance worldwide? Where do you see the key growth potential to be? Following the lessons learned from the global credit crisis in 2008-2009, Islamic finance assumed greater relevance as a more reliable alternative to the conventional financial system. As markets and economies witness turbulence again, we
strongly believe that Islamic banking, with its focus on asset backed, risk sharing financing, will continue to gain wider acceptance. Islamic finance is already witnessing high growth rates, which far exceeds its conventional counterpart. In the UAE in particular, the vision of His Highness Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President and Prime Minister and Ruler of Dubai to make the emirate the global capital of the Islamic economy, has served as a catalyst of this remarkable growth.
I am proud to say that Emirates Islamic has distinguished itself as a bank built on timeless Shari’ah values, with a truly modern, innovative approach. JAMAL BIN GHALAITA, Chief Executive Officer, Emirates Islamic
Globally, the growth of the Islamic banking sector will be driven by the growth of the Islamic economy. As per estimates, the global Islamic finance market is set to almost double by 2020 from the current $1.81 trillion to $3.25 trillion, led by banking and Takaful assets. As the Halal economy grows, we foresee increasing partnerships between Shari’ah-compliant financial institutions and companies operating in sectors such as food, travel, pharmaceutical, media and fashion. The imperative now is to organise ourselves collectively and focus on standardisation of regulation and policy so we are truly ready to leverage the opportunities that await us.
What should Islamic institutions be working on harder? Our recent Islamic consumer banking survey, ISLAMIC BANKING INDEX by EMIRATES ISLAMIC™ has indicated that there is a perception gap when it comes to Islamic banking. There is a widely held view that Islamic banks support the community in meaningful ways and offer better value to customers. Yet, the same consumers also want the best products, technology and service from their bank. This represents an opportunity for the industry to focus on continued innovation, adapt global best practice and invest in digitisation to cont. overleaf
www.islamicbusinessandfinance.com
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COVER INTERVIEW
Emirates Islamic aims to be reliable for both the business and personal needs of its customers.
cont. from pg 15
create the products and services that will meet the needs of our customers. In doing this, we will ensure we play a leading role in supporting individuals, entrepreneurs, corporates and SMEs that shape the future of the UAE’s Islamic economy.
What is your personal management philosophy? I have a very hands-on philosophy and I like to interact, hear and learn from all levels across the bank because I strongly believe that good ideas can come from anybody. I always encourage my team towards‘innovation’ and‘education’. Innovation is not just creating new solutions, but it can also mean adapting existing best global practices to our environment. When you develop a mindset of being open to ideas and learning from others and the world around you, you are inspired to innovate.
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When you develop a mindset of being open to ideas and learning from others and the world around you, you are inspired to innovate. JAMAL BIN GHALAITA, Chief Executive Officer, Emirates Islamic
www.islamicbusinessandfinance.com
23/02/2016 16:36
COUNTRY FOCUS BAHRAIN
Bahrain’s place in the global economy DR JARMO KOTILAINE, CHIEF ECONOMIST, BAHRAIN ECONOMIC DEVELOPMENT BOARD, SPOKE ON THE SIDELINES OF THE WORLD ISLAMIC BANKING CONFERENCE IN BAHRAIN ABOUT BAHRAIN’S POSITION IN THE CURRENT ECONOMIC CLIMATE
T Dr Jarmo Kotilaine, Chief Economist, Bahrain Economic Development Board
he latest global economic downturn is showing no signs of ending even though we have been in this malaise for eight years. I remember back in the day writing a piece about what was coming compared to the challenges that Japan was facing during its big downturn. People looked at me
and said, there is no way the world is going to have a lost decade, and here we are, eight years into it, with no obvious bright shining light at the end of the tunnel. The problem is the global economy remains broken in many fundamental ways; it is fragile, very reliant on artificial stimulus measures, and as a cont. overleaf
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cont. from pg 17
result, more volatile than it used to be. Obviously for any economy, this is a challenge. This is a particular challenge for an economy that historically has been primarily a commodity exporter because, as we know, this volatility has hit and will continue to influence commodity prices in different ways. How does Bahrain fit into this? The interesting thing is that even though Bahrain is a small, highly open economy, its performance during this challenging period has been marked by a very high degree of resilience and continuity, I would
When we try to account for the resilience of Bahrain in the stormy waters of the global economy, I think that economic growth has become a lot more diversified, and this is very important. Dr Jarmo Kotilaine, Chief Economist, Bahrain Economic Development Board argue. Not only has the economy continued to perform reasonably well, and particularly well by global standards in today’s world, as I realise those global standards keep getting revised, but at the same time it has in fact continued to undergo what of the past ten years has really amounted to a transformative change. In 2000, 44 per cent of this country’s real GDP at that time came from hydrocarbons. Today that figure has come down to 20 per cent. I am not saying that Bahrain is a post-oil economy, the oil sector is still important, but the reality
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is that the non-oil economy has not only grown at a brisk pace over the past 10 years, the non-oil economy has grown at an average pace of more than seven per cent a year. This has transformed the growth of the economy. When we try to account for the resilience of Bahrain in the stormy waters of the global economy, I think that economic growth has become a lot more diversified, and this is very important. This is no longer an economy that goes up and down purely as a result of what happens in oil. Oil clearly influences activities and influences Government spending, influences confidence and has an impact on the level of liquidity, but this is not nearly as significant as it was at the turn of the millennium. As is the case across the GCC, the population growth rate in Bahrain has remained very impressive over the past ten years, a growth of three-plus per cent year on year. Some of that is natural fertility; a lot of it is an influx of people from other parts of the world. This is not a new thing in Bahrain—it is something that has been going on for thousands of years because of the openness and inclusiveness of this country as a trading hub. But what is important in the GCC context is the competitiveness, the value proposition of this economy, is increasingly unique.
WHAT MAKES BAHRAIN A PLACE TO BANK ON? If we look at the GCC from the perspective of somebody sitting in New York, London, Malaysia or somewhere else, what they see is a region largely characterised by its hydrocarbons wealth, a lot of
money in this part of the world, and the connectedness of these two things. But, contrary to what others may surmise, the Bahraini economy competes, above all, with its human capital. That is not to say just that the country attracts people, but the Bahraini population is economically active in a broad-based way. Two-thirds of Bahrainis are active in the private sector, not the public sector. It is a highly educated, and cultured population, as the ethos of studying and working is deeply engrained. Bahrain has had a formal system of education that has been around longer than the rest of the region, for many generations in fact, and is embedded in the DNA of the people. What this gives to companies and investors who come to this country is a pool of qualified local talent that is willing to work. That is a significant competitiveness driver, certainly in the GCC context as people in the region would appreciate, and the Bahraini Government at the same time have created various mechanisms that can keep refreshing and upgrading this human capital. So for instance, there is a Government labour fund called Tamkeen, which helps Bahrainis set up and grow their own companies. This is really at the heart of what makes Bahrain significant in the region, and gives it a lot of value opportunities. B e yo n d t h at , B a h r a i n’s regulatory system keeps it competitive. Bahrain has been recognised for a long time as a liberal business environment, and that is coupled with quality regulation that is not achieved
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through purely jurisdictional fragmentation. Bahrain does not create a physical area for a particular activity—Bahrain has a whole economy where the same liberal rules apply. Therefore, what you have as a foreign investor is the opportunity to fully control your company and your intellectual property, which makes 100 per cent ownership the norm, not the exception. Your company is then a Bahraini company, treated as a Bahraini company, and a GCC company. You create in legal terms a bridge to the rest of the GCC. When people say Bahrain is a gateway to the GCC, this is how it happens in practice. I think this is what has led to a situation where even during these current global economic situation, the Bahraini economy has continued to grow year after year. The lowest real growth rate achieved during the global crisis is 2.1 per cent in 2011. 2.1 per cent is not a fantastic figure but in today’s world, a lot of countries would probably be happy to have that kind of growth story. Of course, the average growth rate has been much higher, over the last year the growth rate was 4.5 per cent, and the year before it was 5.3 per cent. Even during this current climate, we expect this growth rate to be maintained and, hopefully, we are working towards making it even higher with a new push for regulatory reforms in different areas and efforts to support private investment projects. I think our view is that this is an economy with very solid and, in the regional context, unique fundamentals which
are ideally suited for longt e r m va l u e c r e at i o n . B u t let’s be honest, the countries that make it in today’s world sustainably are countries that get it right in the human capital space. We live in a knowledgebased global economy. This is the way to create sustainable value. This is something that is recognised here in Bahrain, along with recognition of its fundamentals—regulatory and price stability, as well as reasonable operating costs. Do I see elements in place that will allow the global economy to emerge from this crisis? Do
20%
of Bahrain’s real GDP is hydrocarbons based now compared to 44% in 2000
I see the necessary healing and mending happening? The honest answer is no, I don’t. I think this crisis has been misunderstood by many, and continues to be misunderstood by many. I think it was seen initially as a cyclical downturn, and governments responded to it through fiscal easing, and above all, through monetary easing. The problem was that it was a structural downturn, and cyclical remedies cannot fix a structural downturn, only structural reform can fix a structural downturn. And the reality in today’s world is that
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structural crises of the global economy continue to manifest themselves in many ways. We are still addicted to leverage, we are seeing stagnant or declining productivity throughout the global economy, and at the end of the day, what gives you growth is either increases in the factors of production—labour, land and capital—or in increased productivity. If you are not seeing increases in these things, then how can you be expected to see growth? The reality is what growth we have seen was through various kinds of stimulus measures, and I think part of the reason that people now worry, for instance, about emerging markets is that stimulus measures do not last forever and real structural reform has not taken its place in many countries. The risk in today’s world is that unless people somehow muster the will to tackle the root causes of this crisis and to endure a little bit of pain and deprivation in the process, all we can look forward to really is something along the lines of secular stagnation. In the GCC, because of the fact that countries have extensive growth potential from the population growth and the connectivity of the GCC countries, one unequivocal and very impressive success story of this region is over the past 15 years it has really done a phenomenal job of capitalising on its potential—there is more trade, travel, tourism, capital, you name it. These things will support this region, but for the world as whole, the next big thing is to get the productivity narrative back on track.
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Bahrain still has its crown
Abdulrahman Al Baker, Executive Director, Financial Institutions Supervision–Central Bank of Bahrain
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ABDULRAHMAN AL BAKER, EXECUTIVE DIRECTOR, FINANCIAL INSTITUTIONS SUPERVISION – CENTRAL BANK OF BAHRAIN SAT DOWN AT THE WORLD ISLAMIC BANKING CONFERENCE 2015 TO DISCUSS BAHRAIN’S PLACE IN THE REGION, WHAT IS DRIVING GROWTH, THE IMPORTANCE OF REGULATION, AND KEY INITIATIVES PLANNED FOR 2016
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(Philip Lange/SHUTTERSTOCK)
COUNTRY FOCUS BAHRAIN
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W
hat is driving growth in the conventional sector?
With regards to conventional banking, the area of growth consists of retail business. There is quite a good growth in the retail business, with various types of services offers, be it loans, investment products and more. Wholesale banking, too, as well as investment banking and certain types of funds, also are showing growth. For sure, the conventional play an important part in the loan syndication and that is quite a big area, taking into consideration infrastructure projects that need to be financed. Obviously, loan syndication is a big market for these infrastructure projects to be financed through. These are the areas of growth. Wholesale banking plays an active role in the private placement market, as well as in financing the regional projects. In spite of budget challenges, most of the governments in the GCC are keeping the spending on these projects the same. All of these projects need to be financed through loans, through Sukuk, or through both. And that’s already started to happen. The volume of these infrastructure projects is around $100 billion. Today there are a huge number of projects that need to be placed, and at the end of the day it’s the kind of capital expenditure that’s going to produce income. Spending should also remain the same on projects related to roads, certain announced events, such as Expo 2020, and Qatar’s World Cup, which have already been budgeted for. If I speak about these projects happening in the region, there is a stake for all the players in the financial services sector as they cannot be financed by just one bank.
Do you think that cutting subsidies is the right call? Cutting subsidies allows governments to reallocate spending to other, more fruitful, initiatives. Subsidies need to be addressed. All the governments wished to keep these subsidies, but it’s important to make sure that those receiving the subsidies are the ones who deserve it. They are good now to clearly differentiate what should be subsidised and what should not. The Government is handling this situation
10
$
BILLION The amount the GCC will subsidise Bahrain by
400
banks and financial institutions operate in Bahrain
right. But it’s fair as well, to look at how you are going to spend your money, and making sure you are subsidising the right people. That’s fair for anyone to do.
What’s happening with GCC support of Bahrain? That’s continuing as usual. The GCC has already decided they are going to subsidise Bahrain by $10 billion, and that’s continuing as usual every year from those GCC countries clearly indicating that they will have their contribution to that fund. I believe that fund is already starting to contribute to certain infrastructure projects.
Where do you see Bahrain relative to other financial centres in the GCC? What are Bahrain’s strengths in hoping to compete? I believe that Bahrain still has its crown as the key financial centre in the region. That’s due to the fact that the number of institutions here. Frankly, I don’t see any place in the Middle East that has this number. Around 400 banks and financial institutions operate in Bahrain, the number of banks operating is around 113. We have around 25 Islamic banks, and I’m not seeing any other place that has that number. Today, we have 91 Islamic funds. I hope cont. overleaf
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that some other Middle East countries have that many in place. The major contributor to the GDP is the financial services sector, at almost one-fifth. For other Middle Eastern nations, this is not as big a contributor to the overall economy. One of our main resources is our people. In the financial services, talent is important. Bahrain has the local and human resources. These are our jewels. This is our main wealth. More than 14,000 individuals are working the financial services sector. The Bahrainis represent, in the whole sector, around 68 per cent. We don’t have a law saying we need to recruit Bahrainis into the financial services sector, where there are other countries that do. In Bahrain, there is no need for intervention. In just banking, Bahrainis reached 79 per cent of the workforce, and now, I believe, rest at 77 per cent.
What is your opinion regarding greater cooperation and unity between the GCC nations? Frankly, Bahrain is a great believer in the GCC. Why? Because we think this is the way forward. This is a great way to create a bigger market. And with the existing overall economies of the GCC, the features of these economies are almost the same. Some are more advanced in certain sectors than others, but more or less, the economic features are almost identical, and there is a great opportunity for a greater union to happen. We in Bahrain support a GCC union, and we have said this for years. Today, any GCC national that sets up anything in Bahrain is treated like a local.
What lessons has Bahrain learned from the 2008 financial crisis? We are a great believer that you need to be in line with regulation, specifically in the financial services sector. Why? It’s very simple. It’s like a traffic signal. If you do not abide by traffic signals, stop signs, and so on, maybe you will pass it once or twice, but eventually, you will get in an accident. This is why we always ask our financial institutions to abide by these rules—for their own safety. At the time of the booming real estate market in the Gulf, we introduced regulation saying you cannot invest in any one sector above 25 per cent. At that time a lot of financial institutions made a fuss about this, saying that it restricted their
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TOP 10 BANKS BY ASSETS SIZE RANK
BANK'S NAME
ASSETS ($'000)
1
Ahli United Bank
33,444,888
2
Arab Banking Corporation
29,356,000
3
Al Baraka Islamic Bank *
23,463,589
4
BBK
9,311,003
5
Ithmaar Bank *
7,860,904
6
National Bank of Bahrain
7,283,138
7
Al Salam Bank - Bahrain *
5,200,258
8
Kuwait Finance House - Bahrain *
3,941,606
9
United Gulf Bank
2,777,830
10
Bahrain Islamic Bank *
2,327,678
SOURCE: CPI Financial
TOP 10 BANKS BY LIABILITIES SIZE RANK
BANK'S NAME
LIABILITIES ($'000)
1
Ahli United Bank
29,614,669
2
Arab Banking Corporation
24,930,000
3
BBK
8,355,279
4
Al Baraka Islamic Bank *
7,249,174
5
National Bank of Bahrain
6,277,766
6
Ithmaar Bank *
5,115,386
7
Al Salam Bank - Bahrain *
4,250,910
8
United Gulf Bank
2,197,443
9
Kuwait Finance House - Bahrain *
1,627,949
10
BMI Bank B.S.C
1,581,383
SOURCE: CPI Financial
* Shari'ah compliant
I believe that Bahrain still has its crown as the key financial centre in the region. That’s due to the fact that the number of institutions here. Frankly, I don’t see any place in the Middle East that has this number. Abdulrahman Al Baker, Executive Director, Financial Institutions Supervision—Central Bank of Bahrain
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TOP 10 BANKS BY REVENUE SIZE RANK
BANK'S NAME
REVENUE ($'000)
1
Ahli United Bank
2
Al Baraka Islamic Bank *
1,041,268 917,562
3
Arab Banking Corporation
888,000
4
Investcorp Bank
391,464
5
BBK
312,622
6
National Bank of Bahrain
237,261
7
Ithmaar Bank *
227,760
8
Kuwait Finance House - Bahrain *
171,295
9
Gulf Finance House *
161,450
10
Al Salam Bank - Bahrain *
123,503
SOURCE: CPI Financial
TOP 10 BANKS BY NET PROFIT SIZE RANK
BANK'S NAME Ahli United Bank
531,254
2
Arab Banking Corporation
318,000
3
Al Baraka Islamic Bank *
274,767
4
National Bank of Bahrain
142,128
5
BBK
133,793
6
Investcorp Bank
131,171
7
Future Bank B.S.C.
47,508
8
Al Salam Bank - Bahrain *
42,077
9
Alubaf Arab International Bank
40,700
10
Eskan Bank
27,872
SOURCE: CPI Financial
moves, but this was the best move. Concentration of whatever type of risk is dangerous.
What are the implications for Bahrain on sanctions being lifted in Iran? In Bahrain, it’s business as usual. We are not concentrating on one country or another. We understand that usually securities are coming before any type of financial services. We hope that Iran and other players in the region hope that it’s important to maintain good relations with all GCC countries. Today, we are largely in the same boat. But for us in the financial services sector, it is business as usual— we are not affected by anyone lifting sanctions. This is for sure good for them, and if this leads to more investment for financial institutions here, then great. We already have Iranian banks here. This is not something new. We already have an insurance company in place as well.
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We have enforcement regulation. When there is a violation, we go to the financial institution and say what it is not in line with regulation, and give them a formal warning, telling them that something needs to be corrected, and usually giving them 30 days to do something about it. Let’s assume that they do not. We then increase that warning into a formal direction. If they do not do that, then they have to pay a penalty, and also make the correction. Then we could appoint an auditor just to look at exactly what is happening. If all of these things do not happen, then the action is obvious. But we have never had to cancel someone’s license.
NET PROFIT ($'000)
1
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There are a large number of banks and financial institutions. How does the Central Bank deal with violators of the system?
What’s the progress with the Shari’ah board? The main purpose with the Shari’ah board is to have more standardisation. This is to create consistency across the board. It is going to be implemented soon, possibly in 2016. They have started to appoint members, and their mandate is to create consistency. Whatever practices they have planned should begin in early 2016.
What other initiatives do you have planned for 2016? We have several initiatives in planning. We just finished the initiative to create a new capital adequacy ratio for Takaful, which I think is going to attract several international players in the Takaful business. It is a new initiative that will end up, I think, with a better treatment of the policyholders funds, which at the end of the day is going to end up with certain dividends that is going to be distributed to these policy holders in the Takaful business. We are working on some Islamic banking initiatives with respect to money markets, with respect to certain activities and certain products that will be announced in 2016. We are also looking to implement some new initiatives in the insurance sector. Beyond that, we are working on introducing a new type of structure for investment products that include limited partnership protected-sell companies, which is in its final stages, and should be introduced as a law in 2016 and be ratified by other branches of the Government.
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Bank ABC Chairman Saddek Omar El Kaber
Bank ABC Islamic performs in tough conditions BAHRAIN’S BANK ABC ISLAMIC FOUND SUCCESSIN 2015. WHY DOES ISLAMIC FINANCE CONTINUE TO FIND SUCCESS IN BAHRAIN? BANK ABC ISLAMIC HAS SOME ANSWERS 24
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B
ank ABC is no stranger to Bahrain’s banking scene. Since the 1980s, Bank ABC has been a player in the region’s banking industry, providing wholesale financial products and services that include corporate banking, trade finance, project and structured finance, syndications, treasury products and Islamic banking. It also provides retail banking services through its network of retail banks in Jordan, Egypt, Tunisia and Algeria. In 2015, Bank ABC’s profits dropped year on year. Consolidated Group net profit for the year 2015 was $180 million, 30 per cent lower than a profit of $256 million for the previous year. Net profit for the fourth quarter was $36 million, 39 per cent lower than the $59 million reported for the same period last year. “The Group’s performance for the year was significantly affected by deteriorating economic conditions in key markets in which the bank operates. A combination of volatile trading conditions and appreciating US dollar against domestic currencies were the main headwinds during the year. In particular, the Brazilian real and Algerian dinar weakened during 2015, by over 30 per cent and 20 per cent respectively,” said a media statement. Bank ABC’s Chairman, Saddek Omar El Kaber, commented,“2015 was a year that was adversely affected by emerging market currency depreciation, market volatility and geopolitical issues in our key markets. Yet, many of our core businesses remained resilient and continued revenue growth trajectory. Improvements to our operational platform were also stepped up during the year as we accelerated our investments in
people, products, compliance and risk management in line with our strategy to further transform the Group and to enhance the quality of earnings.” Though volatile economic conditions affected many areas of the business, “underlying businesses continued to show strong and sustained performances in local currency terms despite the declining economic conditions; notably wholesale and Islamic businesses in Bahrain,” the statement continued. So why does Bank ABC Islamic, a wholly owned Islamic subsidiary of Bank ABC, continue to find success? “For Islamic banking, the whole industry is growing. A major chunk of our growth I would attribute to the growth of the industry,” said Hammad Hassan, Head of Corporate and Financial Institutions, Bank ABC Islamic.“What we have been doing differently is more on the capital markets side, and focusing more on the distribution of assets. That has, in addition to the build up of assets, been quite beneficial for us.” Furthermore, it is its broadbase of business across the GCC that has also contributed to Bank ABC Islamic’s success. “We are quite unique in that, sitting out of Bahrain, we cover the entire GCC. We are not a local bank in any of the markets, but we have over the period of years developed an expertise in these markets. What works for us is that we have assets in Saudi Arabia that other banks would not have. We have assets in Turkey, the UAE, which other banks in the GCC would not have. We are a good conduit to them, which is how our distribution model works. For us, we warehouse assets from across the GCC in the primary and
then distribute them. That has been a pretty successful model for us,” said Hassan. Bank ABC Islamic deals in “mostly corporate and institutional assets,” according to Hassan. “For Bank ABC overall, our distribution has been pretty strong. That includes not just Islamic but also our conventional banking, but on the Islamic banking side we have been very active in the Turkish market. We have been bringing the Turkish participation banks to the market, on a year on year basis, every year. We take them to the Islamic loan markets and then distribute those assets.” Regional corporates, too, have received Bank ABC Islamic’s help. “We have also taken some large corporate—a Saudi corporate,
Islamic banking is banking. When overall banking gets affected, Islamic banking will be affected HAMMAD HASSAN, Head of Corporate and Financial Institutions, Bank ABC Islamic
and some others as well—and helped them tap the Islamic debt markets,” said Hassan. For Bank ABC Islamic and ABC Bank as a whole, though, both regional and worldwide activity has always been key to its strategy. “We have representative offices and subsidiaries all over the world. The idea is to capture the trade flows that happen between MENA and the rest of the world,” said Hassan. To continue its growth, Bank ABC Islamic is prioritising entering new markets. “Bank ABC Islamic does not plan to stop there. We are expanding. We have plans of capturing the Asian markets as cont. overleaf
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well. We have a representative offices in Singapore, but we are looking at beefing it up and expanding to Hong Kong and China as well,” he said. Asia is a key priority for Bank ABC and Bank ABC Islamic moving forward. But why now?“I think there are two drivers,” said Hassan.“One is that we are upbeat on the Asian markets, and that is geographically an area that we have not focused before. On the Islamic side, we see a lot of opportunity in markets like Malaysia, Indonesia, and the rest of the area as well. Overall, again we feel there is potential. “Second, it is a diversification strategy. We all know where we are with oil prices, and how they are affecting this part of the world. In terms of timing, we believe this is the right time for us to look into markets we have not historically been in. This is a group-wide strategy, which we as an Islamic bank, follow suit with,” said Hassan. But increasing operations in Asia will not happen overnight. “This will take time. The regulatory and compliance regime are not straight forward, but we have started the work, put together a team in the head office in Bahrain focused on the Asia strategy, for which we hired people from Asian banks who are spearheading the project,” said Hassan. Though Bank ABC Islamic’s long-term growth strategy involves new markets, the bank is not expecting huge outperformance in 2016. “We are not, in all honesty, projecting very high growth for 2016 in terms of assets. This is a function of what the markets are today and where we expect them to be. We are projecting growth, and that will come again from the ‘originate, sell and distribute’ model that we have. But we are not
26
looking for very high actual asset growth,” said Hassan. Why the lack of high expectations? “There are a couple of factors that are going to affect the market. There is going to be an overall liquidity squeeze in the region, which banks are already faced with. This means that the cost of funding for most institutions is going to go up, and there is going to be an overall economic slowdown. This will mean that loan pricing will go up, which is why we are confident that if we remain focused it should not affect our profitability as much,” said Hassan. Bank ABC Islamic’s diversification should help its success continue. “We are quite diversified. I can tell you which sector we are not keen on—real estate. But other than that, we are diversified between manufacturing, trading, services to financial institutions, and some public sector work as well. Oil & gas should not see any significant growth.” In Hassan’s view, the notion that Islamic banking is an island that is not affected by the broader economy is just not true. “Islamic banking is banking. When overall banking gets affected, Islamic banking will be affected. I think it’s a bit of a fallacy to say that Islamic banks are not affected whenever there is an economic downturn. When you have strong financial headwinds, the entire financial sector will be affected because the corporate and retail sectors are affected.” That does not mean, however, that Islamic banks are not particularly safeguarded—they are. “I think where Islamic banking has a niche, and we see from the lessons we have learned in the previous economic crisis, is that Islamic banks were not invested into extremely
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leveraged complex financial benefits. Islamic banks are naturally hedged. Beyond that, in terms of assets today, a good percentage of Islamic banking assets are backed by real tangible assets. That makes things, from a risk point of view, better in an economic downturn. That does serve as a saving grace for Islamic banking in rough times.” In spite of volatility, growth is certainly on the horizon for Islamic finance globally, in Hassan’s view. “Will Islamic banks grow faster than conventional banks? I think that trend will still continue. That will be purely, simply demand driven. You still have more demand for Islamic banking assets than the supply has been. That is also a function of the small base. Islamic banking assets have been growing but other assets have not been growing. Fund management has not picked up as much, neither has the insurance industry. Capital markets have picked up but there is as lot more room—the market could still absorb a lot more debt issuance than we are currently getting. That is why Sukuk have been priced tighter than bonds, which shows there is more demand than there is supply,” said Hassan.
Bahrain is a useful homebase for regional banks.
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SPECIAL FEATURE
MALTA STOCK EXCHANGE
LAUNCHES ISLAMIC INDEX MALTA IS “AN IDEAL PLACE” TO ATTRACT ISLAMIC BUSINESS TO ITS SHORES, SAID MSE CEO EILEEN MUSCAT IN AN EXCLUSIVE INTERVIEW
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18/02/2016 08:50
SPECIAL FEATURE
M
alta Stock Exchange (MSE) launched an Islamic Index on 8 February. The Index will be available on the exchange’s website www.borzamalta.co.mt, and a full list of component companies will also be made available on the website, according to Eileen Muscat, Chief Executive Officer of MSE. The growth of Islamic finance globally as well as in Malta contributed to the decision to launch the index, according to Muscat. “The financial services sector in Malta have developed
significantly in recent years and now enjoys a strong international presence through the provision of many cost effective and very professional services,” said Muscat. “The Islamic finance sector is an important area which is seen to have huge potential to create a specific niche market. While Islamic finance has been discussed for a number of years and a number of initiatives have been taken by market players, the Exchange has taken a very visible and concrete initiative by creating and supporting an Islamic Finance Equity Index, cont. overleaf
The skyline of Valletta, the capital city of Malta, in which the Malta Stock Exchange is located.
(INTERPIXELS/SHUTTERSTOCK)
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SPECIAL FEATURE cont. from pg 29
Malta’s multi-disciplinary financial sector, its ‘can do’ and ‘open for business’ attitude, its close cultural and geographical position and EU membership, make it ideally place to attract this business to our shores. – EILEEN MUSCAT, CEO, Muskat Stock Exchange
giving a clear message of its interest in developing this important market in Malta.” In the eyes of Muscat, a number of factors make Malta an ideal location for such an index. “Gauging the right time to launch something like this new Index is certainly never easy and is dependent on many factors. Certainly this initiative is part of the Exchange’s overall strategy to seek international business which we believe is our next stage of development. We believe that Malta’s multi-disciplinary financial sector, its ‘can do’ and ‘open for business’ attitude, its close cultural and geographical position and EU membership, make it ideally place to attract this business to our shores.” Though Malta does have a Muslim population, it is not the main contributing factor to the launch of the Index. Whilst there is a significant Muslim community in Malta, we do not see this as being viable on its own, and would need a much stronger international presence in order for Islamic finance to develop properly,” said Muscat. The MSE will furthermore be reaching out directly to potential issuers through a number of road shows that will take place over the course of this year, according to Muscat. “We would need to promote our services in this regard, and will be doing so in
30
Dubai, and other places over the coming months, and more so if and when the Sukuk structure is in place.” Muscat added that the current regulatory framework does not impede equity listings.“The equity part of the Islamic finance project is relatively straightforward in that equity issuance does not raise any particular legal or regulatory issues.” The MSE hopes to attract Halal companies that have not previously listed with the exchange.“Besides the equities that have been certified to be compliant, and will form part of the new Index, we would welcome new international companies seeking to list their Islamic compliant equity in Malta. In fact, the Exchange itself has entered into an agreement with an Islamic Scholar to ensure the continued compliance of the component companies within the Shari’ah Index as well as to ensure compliance of new companies coming to the market,” said Muscat. The MSE has effectively cleared the way for a Sovereign Sukuk issuance from the Republic, and now work is being done from all sides in order to explore that option. The Government of Malta has declared it is studying the possibility of issuing a Sovereign Sukuk, since this would also give a clear message about our plans in this regard. The Exchange and other practitioners are currently working
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together to develop a business case in this regard, and to give advice on any legal and regulatory amendments that may be required,” said Muscat. “We would need to amend some parts of legislation and regulations, but if the new Index shows interesting results and potential for new business, then this would be an encouraging development and would certainly create the momentum to take this next step.” The Index was developed with the aide of Dubai-based Shari'ah advisory firm Dar Al Sharia.“The m o ve r e f l e c t s t h e s t r o n g commitment of the Maltese authorities towards promoting Islamic finance and positioning the country as a hub in the industry for the South European and North African region. Dar Al Sharia has been working with Maltese officials for some time now, and given our experience with the authorities there, we strongly believe that we will see more exciting developments in the world of Islamic finance from Malta. Looking ahead, the launch of an Islamic index by a bourse in the European Union for the first time is bound to attract the attention of Islamic investors and fund managers towards Maltese equities, which are performing satisfactorily under the current market conditions,” reflected Sohail Zubairi, CEO, Dar Al Sharia, on the move.
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Untitled-2 1
15/12/2015 15:47
ISLAMIC TECH
Path to better fintech ISLAMIC BUSINESS & FINANCE CAUGHT UP WITH MOHAMMED KATEEB, GROUP CHAIRMAN & CEO OF PATH SOLUTIONS TO DISCUSS THE COMPANY’S LEADERSHIP ROLE, PLANS AND THE NEW DEVELOPMENTS IN THE ISLAMIC BANKING SEGMENT
I
n Islamic banking technologies, there’s only one company that leads the field. How does Path Solutions maintain its leadership position? What about the other players in the segment?
Since 1992, the year when Path Solutions was founded, much has changed and technology has evolved by leaps and bounds. But for us, the principles have remained constant, by offering a comprehensive suite of Shari’ah-compliant software solutions and services for the Islamic financial services sector. Path Solutions is set to continue to dominate the Islamic core banking system market globally, as Islamic banks take a cautious approach to IT vendor selection in the context of the challenging market conditions, and look for a strong IT partner to help guide through compliance with industry and local and international regulations. In addition to our focus on sales, we are investing heavily in our R&D to ensure that our clients benefit from technology trends and from a wide range of innovative Shari’ah-compliant software solutions. Path Solutions has a history of 24 years of technology innovations, and I believe it’s because of our profound domain knowledge. In fact, we capitalise on the talent of our team. Team building
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better prepares our team to meet challenges as they arise and helps them grow over time. By sharing industry expertise our team builds professional muscle, and we gain recognition for thought leadership. It is our continuous pursuit of excellence that fosters a passion for progress to reach the next level of success. We are never impressed by the other players trying to getting into our space.
W hat concerns do you believe exist currently around Islamic banking and why? Islamic banking is facing some important challenges worldwide because the financial system is more favourable almost everywhere to conventional banking. Major challenges are brought by disparate accounting models, jurisprudence and some other constraints such as the unfamiliarity with the Islamic banking system and lack of funding. I believe a reshaped banking sector can rise to these challenges. If those challenges are addressed proactively, it would most likely reinforce the credibility of Islamic banking globally, contribute to the sustainable growth and success of an industry which has produced notable achievements, and may dilute the formversus-substance debate.
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ISLAMIC TECH
core banking system to suit business needs and local regulatory requirements in fulfilling this purpose. Otherwise, this significant item of investment will drain the organisation forever. Path Solutions has a solid record in helping conventional banks to convert into Islamic by providing modern Shari’ah-compliant software solutions and services, reengineering processes and products, performing data migration and staff training and reorientation in a timely manner. A successful conversion is then measured in increased market share for the bank, footprint expansion, quick time to market, superior service quality with a lower cost infrastructure and total cost of ownership.
How would you define Path Solutions’ client support?
How disruptive is Shari’ah-compliant technology for an existing conventional bank willing to conver t into fully-fledged Islamic? As Islamic banking continues to grow globally on a double digit basis, much faster than conventional banking in several markets, some existing conventional banks are introducing or converting into Islamic. In both theor y and practice, Islamic banking differs from conventional banking in many respects, but the bank’s technological requirements are no different except for Shari’ah compliance and transparency, and both are very critical for the operation of an Islamic bank. The bank’s ambition here is to position itself as technology-driven offering true Shari’ahcompliant banking products to its clientele. So, a bank may deal with this conversion depending on the market in which it is operating and customer relationships. Usually, its business implications are assessed prior to embarking on the conversion, as these implications will have an impact on cost and profitability in the short to long-run. Hence, utmost care should be taken to identify the right Islamic
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Mohammed Kateeb, Group Chairman & CEO of Path Solutions
Path Solutions is transforming the Islamic financial services industry by making Islamic banks more resilient, more efficient and more competitive. Our client support team is responsible for the delivery of high quality service, an excellent customer experience and creating sustainable and continuously improving relationships with our clients. Client support integrates with other key functions of our organisation and all departments collaborate together to deliver an outstanding service for our clients, so that they continue to benefit from ongoing product and functional support. Besides, our clients benefit from hands-on training and interactive learning interventions such as webinars and user groups to build their knowledge and get familiar with the applications.
What are your thoughts on the next two to three years for Path Solutions? How and where will you further expand? We will continue to grow in new and existing markets with a focus on quality, sustainability and continued high profitability. The strong pace of expansion in North Africa will continue into 2016 to cover Tunisia and Morocco. There are also opportunities for expansion in other existing markets such as the Middle East and Sub-Saharan Africa. We will diversify our Shari’ah-compliant offerings to satisfy unmet market needs and capture opportunities in priority geographies.
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ISLAMIC TECH
Tech to fuel industry growth TECHNOLOGY CAN PROVIDE IMPETUS IN THE ISLAMIC BANKING SECTOR ACCORDING TO RAVI PRATAP SINGH, EXECUTIVE DIRECTOR & PRESIDENT – PRODUCTS, NUCLEUS SOFTWARE
Ravi Pratap Singh
H
ow can banks improve their offerings to customers with the correct Islamic banking software?
Customers are demanding more, they want more convenience, more products offered across more channels, and they want more value. To respond, banks need to increase agility, improve product innovation capabilities and deliver process efficiencies. Banks are looking to implement solutions that help them digitise while delivering significant efficiency, cost savings and scalability improvements. In effect, banks need to overhaul the design of their end-to-end processes to offer a seamless experience to the customer. By doing so, banks can differentiate their services and sharpen their competitive edge. In many respects, Islamic banking is not very different because customers’ expectations remain the same. While increasing competition and complexity of operations are putting pressure on margins, there is also a lack of standardised regulatory framework. And because many Islamic banks differ in terms of scale when compared to non-Islamic banks, it becomes even more important for them to adopt online and mobile channels while maintaining a single view of the customer. To further complicate matters, a lot of Islamic banking processes are manual, involving physical documents and multiple layers of decision making. The right software can help the banks bridge these gaps effectively while driving organisational
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objectives for growth and improved customer service. Banks need to make targeted IT investments to simplify, redesign and automate processes, which can yield significant efficiency enhancements. Islamic banks need modular, flexible, highperformance solutions, which can provide differentiated product design capabilities and improved levels of operational excellence. However, to reap the true benefits gained from implementing these tools, banks must be careful. For example, customers are keen to access banking on mobile but despite high smart phone usage; the penetration of mobile banking in the UAE still stands at 34 per cent, followed by 27 per cent in Kuwait, 19 per cent in Qatar and 15 per cent in Saudi Arabia. One of the key reasons for this low penetration is the lack of convenience and simplicity for the customers. I see this as an interim improvement opportunity where banks have taken the first move to a digital platform but have not taken the next logical step of enhancing customer experience.
Would you say the Islamic banking software market is one that is still in development, with the sector rapidly growing as Islamic finance grows in popularity? Technology continues to develop at astounding rates, offering new challenges and opportunities to banks. Today’s software for financial services firms is now sophisticated enough to take advantage of these opportunities, however the specialisation
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ISLAMIC TECH
required for Islamic banking adds another layer of complexity. Until quite recently, Islamic banking was dominated by highly customised solutions, often developed in-house, but today, there is an increasing demand for more modern, specialised Islamic banking technology solutions. As Islamic banks continue to grow and compete more aggressively, they are keen to take advantage of what the new technology solutions have to offer. There is a growing requirement for solution partners who not only have deep business experience and technology expertise but also have proven credentials in delivery. There are very few solution providers who qualify on these criteria and yes, there is a lot of scope for further enhancement.
Are there any software holes that need to be filled in the sector? The modular design of today’s leading software solutions helps banks deploy the components they need, when they need them—for example, if they need to enhance their customer acquisition process or if they need to improve their collections business. Our solutions have been designed to be deployed this way. By supporting both on-premises and cloud-based deployment options, we help Islamic banks manage their cost bases efficiently as well. For instance, if you want to create and launch a new product in a matter of minutes [our product], FinnOne Neo for Islamic banking will help you do it. If you want to offer the widest set of products while delivering a market leading, omni-channel customer experience, FinnOne Neo will help you deliver it. Likewise, if you are looking for ways to enhance your credit quality by automatically filtering out the applications which do not comply with your credit policies, we can help you do it. Many Islamic banks today lack the ability to target their credit business approaches driven by deep analytics. With the huge growth of data, banks can gain a strategic advantage by using predictive insights to make improved lending decisions that are better aligned to current and future economic conditions. They can use predictive analytics to rapidly adjust to fast changing market conditions and steer their portfolios through uncertain times.
What is your outlook for the growth of the sector in 2016? EY’s recent World Islamic Banking Competitiveness Report showed that Qatar, Indonesia, Saudi
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Arabia, Malaysia, UAE and Turkey (QISMUT) will have a combined GDP of $4.8 trillion, a mostly young population of around 419 million, trade flows of $3.6 trillion, and banking assets of $6 trillion by 2018. Islamic banking assets with commercial banks in QISMUT have surpassed $801 billion in 2015, which represents 80 per cent of the international Islamic banking assets. By 2020, Islamic banking profit pool would reach $30.3 billion, out of which $27.8 billion is expected to come from these markets. Saudi Arabia, Qatar, Kuwait and Bahrain are seeing Islamic banks capturing market share by outgrowing their traditional peers. We see a growing demand for specialised Islamic banking solutions as banks step up to realise the full potential of this sector.
What can Nucleus Software offer to banks for helping them compete and innovate? For three decades, we have been working with some of the world’s most innovative financial services firms. We have built up a wealth of knowledge about global best practices–we know what works and what doesn’t work. And of course, we know how technology can help as well. We recognised that the Islamic banking market would evolve and there would be a need for specialist solutions. That’s why we created solutions with a unique combination of deep business expertise with the latest, proven technology. The result is a set of solutions that are uniquely placed to support agile business models. FinnOne Neo, our flagship solution which manages the entire loan lifecycle for Islamic banking, has been designed after exhaustive market and customer research and enables banks and finance companies to deliver outstanding customer experience while constantly innovating and responding to changing market demands. It has been designed to be delivered specifically via public or private cloud as well as on premise. Nucleus Software’s state-of-the-art mobility and analytics solutions, part of the FinnOne Neo solution, equip banks and other financial institutions to not only help meet customer expectations, but to drive growth through increased customer satisfaction. Our vision is to empower our customers to deliver world-class products and experience to their customers, and run their businesses efficiently and successfully.
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LEGAL FOCUS
Law brings Islamic banking to Uganda
Islam is practiced by 12.1 per cent of Uganda, according to the 2002 National Census.
THE PASSAGE OF SEVERAL SIGNIFICANT AMENDMENTS USHERS IN ISLAMIC BANKING A WELL AS, BANCASSURANCE AND NEW MOBILE AND AGENCY BANKING REGULATIONS
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LEGAL FOCUS
T
he Bank of Uganda, the county’s central bank, has approved long-awaited amendments to the Financial Institutions Bill, including provisions to allow for Islamic banking, as well as bancassurance and agency banking. Islam is practiced by 12.1 per cent of the population, according to the National Census 2002. The new regulations also allow for more participation in the mobile banking sphere by telecommunications companies,
The amendments contained in the bill are intended to bring financial services closer to the people. — Minister of State for Finance, Planning and Economic Development
though they will “have to play a limited role in the provision of money transfer services”, the Parliament of Uganda stated in its amendments to the bill. “Innovation and technological developments have led to new ways of providing access to financial services,” the Parliament said with regard to mobile banking regulation, though the sentiment could perhaps be applied across their new amendments. The provision to allow for Islamic banking had garnered support from President Yoweri Museveni, and, according to the Parliament, 11 out of 22 Ugandan banks that have expressed interest in offering Shari’ahcompliant services. The bill will allow Islamic banking products such as Murabahah (cost plus),
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Musharakah (partnership) and Mudarabah (profit-loss sharing) which are currently prohibited under the 2004 Financial Institutions Act. However in order for the Islamic banking regulations to go through, the BOU will have to establish a Central Shari’ah Advisory Board to regulate participating banks. New legislation for agency and mobile banking is also designed to penetrate under-served market. Agency banking, also known as branchless banking, has also been on the rise in the region due to its flexibility for rural or hard to reach areas. Banks welcomed the new allowance for a banking agent, or a licensed retail or postal outlet to carry out limited banking transactions in lieu of a full-fledged branch. “With proper guidelines, agency banking will offer a viable solution to increasing and expanding the outreach of financial services in Uganda, particularly in the rural areas,” the Parliament said. Similarly, the Parliament a d m i t t e d t h at , “ B e c a u s e of their wide outreach, telecommunications companies have created deeper access for the rural and unbanked population.” However while it recommended new regulations to monitor the mobile market, it warned against lumping together mobile banking and money transfer services.
LONG ROAD TO REFORM The process of amending the Financial Institution Bill, first passed in 2004, was a long one. Speaking to the Parliament in August 2015 when the amendments were first introduced, Fred Omach, Minister of State for Finance,
Planning and Economic Development, said the previous bill was outdated. He especially highlighted the demand for Islamic banking and agency banking models, based on feedback from banks. But perhaps what most showed the previous bill’s age was its lack of regulation for mobile banking, which has blossomed in the region. “Some provisions in the current legislation were found to be barriers to new financial products’ developments and innovations which are less costly and more consumer-driven,” Omach said. “The amendments contained in the bill are intended to bring financial services closer to the people.” “Also, due to the passage of time, some aspects of the Financial Institutions Act, 2004 have become outdated in light with the present day policies, international obligations, globalisation and technological developments,” he added. With regards to Islamic banking, the bill stipulates that, “On the commencement of this Act, an already licensed financial institution carrying on business, may apply to the Central Bank in accordance with this Act to carry on Islamic financial business in addition to its existing licensed business.” This business will be carried out ‘through an Islamic window’. The Bill also states that the Central Bank, in consultation with the Minister of Finance, shall make special provisions for the licensing and operation of Islamic banking. Every financial institution which conducts Islamic finance business must also appoint and maintain a Shari’ah Advisory Board.
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SUKUK
Sukuk: a decade of growth is only the beginning RAM RATINGS DISSECTS THE GLOBAL SUKUK MARKET GOING FORWARD
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SUKUK
S
Outstanding Sukuk has increased in value by more than 1000 per cent in the last 10 years.
ynonymous with ethicalbased values, Islamic finance has become one of the fastest-growing financial markets and is set to become an integral component of the mainstream global financial system. The Islamic finance market grew exponentially between 2009 and 2014, with a compounded average growth rate of about 17 per cent to $2.1 trillion by end-2014. Issuance of Sukuk has played an integral role in expanding the reach of Islamic finance not only in OIC countries but also across non-Muslim jurisdictions. A decade ago, outstanding Sukuk was valued at approximately $23.9 billion with issues concentrated amongst a handful of issuers. By 2014, global Sukuk outstanding topped $277.1 billion (equivalent to 13 per cent of total Islamic finance assets) underpinned by an exponential growth in the number of large issuance and diversification of issuers.
alternative liquidity-management products in the market was the reason quoted for BNM’s decision to pull back the issuance of its Islamic securities. BNM has since resumed issuance of its Islamic securities with a total value of $131.0 million as at end-October 2015. Despite the temporary stop in BNM’s issuance of Islamic securities, Malaysia still takes up a significant slice of the global Sukuk pie, with a market share of 51 per cent as at end-October 2015 or equivalent to $29.4 billion versus global Sukuk issuance $58.2 billion.
Kingdom, Hong Kong, Senegal and South Africa in 2014. Hong Kong’s second Sukuk issue in May 2015 and the inaugural sovereign Sukuk issuances from Oman in October 2015 and Ivory Coast in November 2015, highlights the Sukuk market’s attractiveness in offering an alternative funding platform to diversify its investor base as well as take advantage of the increasing demand for Shari’ah-complaint assets.
SUKUK MARKET GOES GLOBAL
Malaysia’s dominance over the Sukuk market is largely driven by the strong support it receives from the country’s private sector (or corporate issuers). Since the mid1980s, the private sector has been playing an instrumental role in the strategic development of the Malaysian economy. Spurred by strong economic expansion and the concerted support and efforts of regulators as well as market
Other key markets include GCC and combined with Malaysian Sukuk issuance, both markets have historically accounted for 70-80 per cent of global Sukuk issuance. In recent years, the market witnessed greater traction of Sukuk issuance in non-Muslim countries supported by debut sovereign issuances from United
GOVERNMENT EFFORTS AND MOMENTUM FROM CORPORATES
cont. overleaf
MALAYSIA, THE MULTIPLIER EFFECT TO GLOBAL SUKUK H i s t o r i c a l l y, M a l a y s i a ’ s contribution to global Sukuk issuance has grown above the 50 per cent mark. From $6.9 billion in 2005, the amount has strengthened to $84.2 billion by end-2014. Since 2012 in tandem with the slowdown to world economy and particularly the effects of lower oil prices, Malaysia and GCC’s contribution to global Sukuk issuance has been on the downtrend. The decline is more felt in Malaysia due to Bank Negara Malaysia’s (BNM) decision to halt issuances of Islamic securities in the 1H 2015. The proliferation of
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GLOBAL SUKUK ISSUANCE BY SECTOR Islamic Funds $75.8b (4%)
Takaful Assets $21.5b (1%) Islamic Banking Assets $1,700.0b (82%)
Sukuk Outstanding $277.1b (13%)
2014 $2.1 trillion
Islamic Banking Assets
Sukuk Outstanding
Islamic Funds
Takaf ul Assets
SOURCE: Zawya
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SUKUK
cont. from pg 39
participants, the corporate bond market had charted an upward growth trajectory. The catalyst for this remarkable expansion was the Asian financial crisis in 1997, which highlighted the mismatches in funding maturities and the need for diversification f r o m b a n k f u n d i n g . Th e intermediation by the bond market had allowed the matching
global Islamic finance centre, the Malaysian government and regulators introduced several fiscal and financial incentives, i n c l u d i n g a t a x- n e u t r a l framework and tax deductions of issuance expenses on qualified Islamic securities. As a result, Malaysia’s Sukuk market boosts a fairly large corporate sector representing on average 30 per
of long-term, capital-intensive spending with the long-term liquidity provided by institutions, pension funds and insurance companies, among others.
CORPORATE SECTOR INCLUSION In gaining further ground with corporate issuers as well as to fulfil its agenda to become a
GLOBAL SUKUK ISSUANCE BY REGION 100%
160.0
80%
120.0
60% 80.0 40% 40.0
20%
0.0
0% 2005
2006
2007
2008
Malaysian Sukuk Issuance
2009
2010
2011
Global Sukuk Issuance
2012
2013
2014
Oct-15
Malaysian Sukuk Issuance (as % Total)
SOURCE: Zawya
GLOBAL SUKUK ISSUANCE BY TYPE OF ISSUER USD billion 120
80
40
0 Malaysia
Asia -Pacific (exc. Malaysia)
GCC
2012
2013
2014
Others
YTD Oct 2015
SOURCE: Zawya
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SUKUK
GLOBAL SUKUK ISSUANCE BY SECTOR Governmental Institutions
Governmental Institutions Financial Services Power and Utilities Transport Construction Real Estate Telecommunications Conglomerates Health Care Oil and Gas Agriculture Consumer Goods Industrial Manufacturing Leisure and Tourism Mining and Metals
2005
Total Sukuk issuance Number of sectors
= $10.8b =15
Financial Services Transport Construction Oil and Gas Power and Utilities Real Estate
2015
Conglomerates Telecommunications Food and Beverages Services Agriculture Health Care Education Consumer Goods Information Technology
Total Sukuk issuance Number of sectors
= $58.2b =16
SOURCE: Zawya
cent of the country’s contribution to global Sukuk issuance. The balance of historical issuance comprises approximately 40 per cent of BNM Islamic securities, 20 per cent from government and 10 per cent from quasi-government issuance. This trend is clearly reflected in global Sukuk issuance by s e c t o r w h e r e g o ve r n m e n t issuers continue to dominate the market space. In new emerging Sukuk markets, issuances by the public sector is the catalyst for the development of benchmark pricing and progress in the framework development for tax, legal, etc are envisaged to have a ripple effect in bolstering participation from the corporate s e c t o r. A s at e n d - O c t o b e r 2015, the bulk of global Sukuk issuance from the corporate sector is largely dominated by financial services and transport, power and utilities which form the infrastructure development sector.
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EXPANDING THE BREADTH AND DEPTH OF THE SUKUK MARKET Development of innovative structures that meet the varied needs of issuers and expansion of the range of assets that Sukuk are backed by has facilitated the trajectory growth for Sukuk. The market has witnessed an array of perpetual, subordinated Tier 1 and subordinated Tier 2 Sukuk issuances by financial institutions to support their capital ratios and comply with global capital structure (i.e. Basel III). Particularly for Malaysia, infrastructure projects have built the base in deepening its Sukuk market. Committed projects under Economic Transformation Programme, the 11th Malaysian Plan and Budget 2015 are expected to shore up Malaysia’s Sukuk issuance in the near future. As for GCC countries, future Sukuk issuances are targeted to support funding expenditures c e n t r e d i n S au d i A r a b i a ,
Bahrain and Kuwait in line with the respective countries’ infrastructure development plans. Over time, these trends should make Sukuk increasingly diversified by country, sector and capital structure, and perhaps more importantly, deliver a risk/return profile that is unique to the asset class.
TREMENDOUS GROWTH POTENTIAL FOR SUKUK In comparison to international bonds, the global Sukuk market has tremendous room for improvement. The outstanding value of global bonds surmounts to more than $80 trillion in 2014 compared to outstanding Sukuk of $281.8 billion as at endOctober 2015. As Islamic finance achieves greater inclusion amongst international players (i.e. issuers and investors) we estimate growth of the Sukuk market to move in tandem to become an instrumental funding option in the mainstream global financial system.
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SUKUK
Cote d’Ivoire launches first Sukuk THE REPUBLIC’S $244 MILLION SUKUK IS THE LARGEST TO DATE FROM ANY WEST AFRICAN SOVEREIGN
T
he Republic of Côte d’Ivoire, acting through the Ministry of Economy and Finance, closed an inaugural local currency, CFA 150 Billion ($244 million) Sukuk al-Ijara on 21 December 2015. Its first Sukuk is also the largest issuance out of a West African sovereign, and drew subscriptions by regional and international institutional investors, including members of the West African Economic and Monetary Union (WAEMU). The Islamic Corporation for the Development of the Private Sector (ICD) Bank, acted as the Lead Arranger for the issuance. Legal firm Hogan Lovells advised the ICD. “The ICD will do its best to contribute in the transformation of the WAEMU Capital Market. ICD is committed to promote and increase substantially the volume of Islamic financing transactions toward the economies of the Union,” ICD CEO Khaled Mohammed Al Aboodi said. According to the ICD, the issuance was attractive to MiddleEastern and North African buyers, with 56 per cent of Sukuk allocated to West Africa and six per cent to North Africa while Middle-Eastern buyers snapped up to 38 per cent.
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The ICD had previously arranged Senegal’s debut issuance of XOF 100 billion ($170 million) in June 2014 and has put a special focus on working with African countries to enter the Sukuk market. Zaky Sow, Sukuk Project Manager for ICD added, “We are delighted to have brought this ground-breaking Sukuk to the market and to also introduce Islamic finance to Cote d’Ivoire. The Sukuk opens up a whole new stream of investment into the country, which will ultimately benefit the people.”
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In October 2015, Cote d’Ivoire reelected President Alassane Ouattara to a second term in office “in an atmosphere of calm and order, in stark contrast to 2010”, according toAïchatou Mindaoudou, the UN Special Representative in the country. On 6 January 2016, Ouattara’s Government, including the Prime Minister, resigned citing his call to “inject a new dynamic” into policy and action. Overall, many are optimistic about the incoming reforms the President has planned to both encourage growth and end poverty.
Abidjan, the capital of Cote d’Ivoire, is a fast-growing centre in West Africa.
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Business
ision awards 2016 FinanceME is pleased to announce that the awards evening for our Business Vision Awards 2016 will take place on 23 March 2016 at the Jumeirah Emirates Towers, Dubai. Nominations will be accepted until the end of February. The nominations remain open across 20 categories catering to SME service companies, start-ups, franchises and SME businesses.
CATEGORIES
Awards for business service: • Best Business Technology Provider • Best IT Services Provider • Best Business Advisory Service • Best Accounting/Auditing Service • Best Law Firm • Best Business Consultancy • Best Business Solutions Provider Awards for business: • Top Seller 2015 (retailing) • Top Trader 2015 (trading) • Top Manufacturer 2015 (manufacturing) • Top Developer 2015 (construction/development) • Top Services 2015 (service sector) • • • • • • • • •
Best giving back initiative of the year Best Practice in Employment Best Start-up Most Improved Company of the Year Best Established Business Best Small Business Best Home-Grown Brand Best Franchise Inspirational Business Person of the Year
To enter, head to our nominations page on the website www.cpifinancial.net – pick your category and submit 300 words explaining why YOUR company deserves to win the award!
HAPPY NOMINATING!
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TAKAFUL
Takaful’s road forward THE MIDDLE EAST’S TAKAFUL INDUSTRY HAS WORK TO DO IF IT’S GOING TO CATCH UP TO MALAYSIA’S, WRITES BLAKE GOUD, CHIEF RESEARCH OFFICER, MIDDLE EAST GLOBAL ADVISORS
(5 second Studio/SHUTTERSTOCK) Blake Goud
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Family Takaful is a key growth area for Middle Eastern Takaful companies to prioritise.
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TAKAFUL
T
he experience in Middle Eastern insurance and Takaful markets, with the possible exception of Saudi Arabia, stand in stark contrast with the more favourable developments occurring in Malaysia. Despite the economic disruption during 2015 caused by the drop in the ringgit and slowing of the economy ’s growth rate, Takaful continued growing at a faster rate than conventional insurance. Fitch Ratings noted recently that general and family Takaful grew by 8.3 per cent and 9.9 per cent, respectively. This compares to 6.6 per cent growth in general insurance and a drop of 0.4 per cent in conventional life insurance. The most notable aspect of Malaysia’s Takaful market is the sizeable share represented by family Takaful— almost two-thirds—in contrast to under one-quarter of the market in the GCC. The development of Takaful— and insurance more broadly—in the Middle East has seen much more growth in compulsory lines like auto and health insurance. When we asked insurance market professionals in the Middle East (both conventional and Islamic) for the Finance Forward Middle East Insurance Outlook Report 2016 what the biggest challenge facing the industry in 2016, the most frequent response was intensified competition. The high competition, which is particularly intense in personal non-life lines, shifts pricing away from the underlying risk which forces insurers to depend on more volatile investment income to make profits. As the markets
from which they generate this income (fixed income or real estate) are hit by turmoil, as they are today, it can hit insurers’ profits hard. The development of more family Takaful, overseen by prudent regulations to ensure that risks are being priced properly, can help to increase the size of the Takaful industry in markets outside of Malaysia particularly if it can reach similar scale. At the level of development for family Takaful in Malaysia it enjoys today, it is able to grow more than 10 per cent faster than conventional life insurance. This has benefits for the consumers, who are able to buy protection for their families from unforeseen injury or death, as well as investment options that combine insurance which can provide a replacement for the private pension systems that are absent today and may be necessary in the future if governments (particularly in the GCC) are forced to cut back by fiscal considerations. Expanding the Takaful market can provide wider benefits beyond just the consumers and the Takaful operators, particularly in markets where private pensions are not common. By collecting a large, relatively stable base of assets that must be invested to meet relatively predictable, longterm liabilities, it can create an institutional asset base that is lacking in domestic markets. If these assets are required, as Takaful funds would be, to invest in only Shari’ah-compliant assets, it could have a particularly important effect for a period of low oil prices. The deficits created
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by low oil prices for oil-exporting countries will have to be filled with a combination of domestic and international bond or Sukuk issuance. Having a long-term focused institutional investor base with a Shari’ah-compliant mandate can provide natural buyers for sovereign Sukuk and
At the level of development for family Takaful in Malaysia it enjoys today, it is able to grow more than 10 per cent faster than conventional life insurance. BLAKE GOUD, Chief Research Officer, Middle East Global Advisor
help expand the yield curve towards longer tenors which provides more diversity to the government. If the Middle East can follow Malaysia and see wider adoption of Takaful, and particularly more family Takaful, it can provide the Takaful industry new avenues for growth, help consumers and help create an institutional investor base for the region’s Sukuk market that it mostly lacks today. For more information on the World Takaful Conference 2016 visit http://wtc16.com Investigations sparked by claims made in the Wall We Invite you to complete a short survey of your outlook for the global Takaful industry. Your informed views will shape one of the highlights of the upcoming World Takaful Conference (WTC) in April 2016: the Finance Forward World Takaful Outlook Report 2016. https://www.surveymonkey.com/r/3TTSWKP
ISSUE 95 | Islamic Business & Finance
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THE INSIDE STORY
The perfect fit IN 1999, CINDY VAN DEN BREMEN, FOUNDER & CREATIVE DIRECTOR OF CAPSTERS, HEARD ABOUT A WOMAN WHO WAS EXPELLED FROM GYM CLASS FOR WEARING A HIJAB—AND SHE DID SOMETHING ABOUT IT. HER GROUNDBREAKING HIJAB DESIGNS FOR ACTIVE LIFESTYLES ARE NOW USED WORLDWIDE
The fit of Capsters products are designed for maximum comfort.
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THE INSIDE STORY
W
hat was your original inspiration for the sports hijab?
I wanted to integrate the hijab into the western wardrobe back in 1999, but my teachers were not too fond of a designer touching the rather sensitive topic of hijab in the West. Therefore, I dove further into the matter and found a girl being expelled from gym class in the Netherlands due to her supposedly unsafe hijab. The case went to court and it was decided the teacher could prohibit the hijab in gym class due to safety reasons. As an alternative it was suggested the girls could wear a swimming cap and turtle neck instead. This made me realise it was not about the covering itself, but the way the girls are covered and that I as a designer could design something that would meet both parties: both on the safety as well as on the identity issues.
We aim for high quality well designed [sport] hijabs, and we value the feedback of our wearers and use role models and ambassadors to promote Capsters as the leading global brand in sport hijabs. CINDY VAN DEN BREMEN, Founder & Creative Director of Capsters
Capsters hijabs are made for full mobility for different activities.
How did you begin? What work did you do behind the scenes to make this happen? I was a bit insecure on me being a Dutch, nonMuslim designer to touch upon the heavy-loaded subject of the veil in the West. Was I allowed to design something new? I wanted to research the matter inside out: I wanted to know everything about the hijab that I could find. I started reading, talking to women and girls, and visiting women’s organisations. For me, integrity as a designer is the key idea. I call myself an empathic designer: I want to empathise with the user of my designs. I want to explore their context and I want to co-design with them. From the beginning of my design project, from the research to the final outcome, the users were involved. By getting their input, it was clear to me what I had to design. Once I had the sketches and styling ready, I went back to them to ask their feedback and input. It improved the designs significantly since they have the wearer’s knowledge that I don’t have. A zipper in the neck for the outdoor design made of fleece changed into a velcro closing.
How else have you altered your product based on feedback you have gotten from users? As I said before, I believe in co-design. For me cont. overleaf
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THE INSIDE STORY cont. from pg 47
there is no other way to work as a designer than to closely involve the user group in my process. They give valuable feedback and significant details that you only know when having firsthand knowledge. Up to today we still use the valuable feedback of our fans and customers for improving our designs or for new designs. It resulted in important adjustments for the final design such as the tennis design [not part of the Capsters collection anymore]. When out on the tennis court a Muslim felt my prototype was making noise around the ears. I used a rather stiff white but stretchable material because I didn’t want the material to be translucent. But this stiffness created a noise around the ears. As a result, I changed it in a more soft and movable fabric. When the final prototypes were finalised I visited an imam in Amsterdam to ask for his feedback and approval. He was pleased to find out a non-Muslim took the effort to solve their problem of sports and hijab and also asked me if I could design a solution for swimming.
Modest style has come to the forefront of global fashion.
Tell me more about the range of products you produce. We have different categories in the Capsters brand: a sports line, a water sports line, a casual line. We offer different hijabs in different price range, materials and colors.
What sets your products apart from competitors? Have you had to deal with imitators?
We work with role models—girls and women that inspire others to overcome barriers and to push boundaries. I published a book on veiling in the Netherlands and turned it into a traveling exhibition throughout the country, visiting low profile locations such as community centres and libraries, working with local women’s organisations. In that time there were a lot of discussions on hijabs, but what I did is show the individuals behind the veil, showing it was a rather diverse group of girls and women and not just a homogeneous group. We work
Capsters has a ready-made fit, no pins or undercover is needed and we use stretchable [breathable] materials in different colors and color combinations. Our Capsters Runner is our best seller, made of stretchable light weight mesh and breathable material. The biggest compliment we received was from a Muslim in Indonesia who was delighted she ‘felt the wind blowing through her hair again’ while wearing our Capsters Runner. Some wrote us that they have to keep checking in the beginning if they are actually wearing a hijab since our Capsters designs are so light weight and comfortable that they don’t actually feel it in comparison to the more traditional hijabs they usually wear. More and more hijab brands are introducing a sport hijab which only confirms the growing market and the need for modest sportswear. We distinquish ourselves by an original design based on both aesthetics as well as functionality. We use high-quality material and I am very picky in the production and finishing of our product. We have an
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Since your intention is to empower women, what other work do you do to support Muslim women worldwide?
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together with organisations such as Shirzanan Global who put female Muslim sport heroes in the spotlight to smash stereotypes and I write articles about my research, findings and the stories of girls and women who wear a hijab to increase acceptance of the veil in the west, I participate in discussions and panels to share my view and vision on the matter.
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THE INSIDE STORY
extended collection of different styles, materials and colors, suitable for different sport purposes. All this makes us the world-leading brand in sport hijabs.
What is your marketing strategy for Capsters? We aim for high quality well designed [sport] hijabs, and we value the feedback of our wearers and use role models and ambassadors to promote Capsters as the leading global brand in sport hijabs. We feel our sport hijabs are a means to empower women worldwide. We work with a worldwide network of local resellers who can serve our clientele in all corners of the world in their own language, decreasing the shipping costs for our customers. We have resellers in almost all continents of the world who give us valuable feedback for their specific needs and demands of local users.
What are your plans for the future? To design even better and more different sport hijabs for different sports and specific needs.
How else do you run Capsters as a Halal business? Integrity and respect are the key words within our company, we create value by listening carefully to our customers. During the GIES summit in Dubai the question rose on what Halal business is all about outside the food segment. How do you define and measure whether or not a company is Halal? I think it is about ethics and value. We put a lot of time and effort in our customer support. If you mail us with a question, you get a personal answer from us and if you’re not satisfied with our products we want to know why and how we can improve our products or services. From everything we do and get ourselves involved in, it is clear that it is not only about the money; our intentions are sincere.
Customers everywhere have given positive feedback for the designs.
What else would you like to see improved about the Islamic economy? What other areas do you feel are under-serviced? At long last, more and more recognition is coming from the west that the Muslim market is interesting and booming. I would love to see cont. overleaf
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more companies like us not only being concerned about the value of money, but also about related social issues, especially in the west. As a company we can contribute to a better understanding of the Muslim world. For example, as a designer and as a company we put in a lot of time and effort to lift the FIFA hijab ban in 2012. With our Capsters football design, that has a velcro closing and releases quickly when being pulled from behind, that has been tested and approved on safety, we enable girls and women worldwide to participate in football matches. We feel it is our obligation to interfere with these barriers that can be removed by designing alternatives. We actively approach the organisations that create these barriers by not allowing girls to wear hijabs in their competition and we sponsor girls and women fighting these rules that enable them to participate in the sport they love. Usually the argument is safety, but by designing a safe hijab we have shown this issue can be resolved by design.
Activities previously difficult to wear Hijabs with are now much easier, according to Capsters.
What advice do you have for those that want to start their own business to join the growing Islamic economy? After my graduation I received a lot of media attention with my designs. It was never my intention to run a hijab company worldwide. But the existing sport brands were not interested, and did not acknowledge the Muslim market, in my eyes, so I decided to produce myself since the orders started coming in. I felt I had a responsibility and needed to follow up the idea and designs with the production of a brand. I’ve learned a lot along the way, and if I had known the difficulties I would face I might not have started this company but it surely has been an adventure! I am proud of the fact that we’ve enabled girls and women worldwide to participate in sport and not see the hijab as a barrier. Up till today we still receive—and have received over the past 16 years—thank you mails and messages from fans and customers that thank us for making their lives easier. That’s what keeps us going and puts a smile on our faces! Believe in your dreams and don’t put your eyes of your goals and help others achieve theirs!
For more information, visit www.capsters.com
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