Dubai Technology and Media Free Zone Authority
A VISION OF SANCITON-FREE SUDAN Elbaqir Elnouri, General Manager, Faisal Islamic Bank Sudan
PLUS:
TAKAFUL:
Livestock in Kenya
SUKUK:
Dana Gas case UK ruling
46 INSIDE STORY:
A Swiss master switches to Halal
COUNTRY FOCUS
2
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CONTENTS
ISSUE 106
REGULAR SECTIONS
EDITOR'S LETTER
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Greetings, all
W
elcome to Islamic Business & Finance. This is the 106th issue of the longest-running Islamic finance magazine in the world. I hope you all are enjoying what is certainly the busy season here in the Middle East. We here at CPI Financial are still gearing up for two of the biggest days on our calendar— the Islamic Business & Finance Southeast Asia Awards, and the Islamic Business & Finance Awards. Read more about these on page 50. If you’re reading this at those events, please come say hello! The Dana Gas Sukuk case finally got some clarity from a ruling in the UK court system. Though this is far from over, it is an important development that maverick expert Mohamed Khnifer digs into on page 42. Beyond that, there is plenty to peruse. I hope you enjoy digging into another great issue.
NEWS ANALYSIS
6
OPINION
8
Intra-African collaboration?
COVER STORY
10 FAISAL ISLAMIC BANK:
a vision of post-sanction Sudan
ISLAMIC INVESTMENT Until next time,
16
News & Analysis
16 DIEDC:
20
South-South investment
TAKAFUL
20 Takaful Africa and the livestock market
ISLAMIC BANKING
William Mullally
24 IBDAR BANK: Islamic fintech will foster a culture change
Log on to www.islamicbusinessandfinance.com for news, polls, events, analysis, blogs, features, commentary and more.
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ISSUE 106 | Islamic Business & Finance
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CONTENTS
CHAIRMAN
ISSUE 106
SALEH AL AKRABI
FEATURES
CHIEF EXECUTIVE OFFICER
TONY LONG tony.long@cpifinancial.net Tel: +971 4 391 4681
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ANA MAKSIĆ ana@cpifinancial.net Tel: +971 4 391 3723
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OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419
MANAGERS
28
SIMON MOTWALI simon.motwali@cpifinancial.net Tel: +971 4 433 5321
42
AFRICA
DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526
28 Gulf bank experiences
SUKUK
NIKHIL MATHUR nikhil@cpifinancial.net Tel: +971 4 391 3717
ISLAMIC TECH
30 Temenos
41 Marketwatch 42 Dana Gas 44 Fitch
THOUGHT LEADERSHIP
THE INSIDE STORY
34 Future insights for
46 A European master
WEALTH MANAGEMENT
DIARY
38 National Bonds
50 Dates for your diary
EVENTS MANAGER
NATALIA KAILA natalia.kaila@cpifinancial.net Tel: +971 4 365 4538 FINANCE MANAGER
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in Afirca
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switches to Halal
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CHANGE IS HERE TO
Islamic Business & Finance | ISSUE 106
er, , General Manag Elbaqir Elnouri Bank Sudan Faisal Islamic
A CPI Financial Publication
4
A VISION OF EE SUDAN SANCITON-FR
A CPI Financial Publication
© 2017 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.
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DEVELOPING ISLAMIC FINTECH Abdulla Mohammed Al Awar, CEO, Dubai Islamic Economy Development Centre (DIEDC)
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PLUS:
TAKAFUL:
Livestock in Kenya
SUKUK:
Dana Gas case UK ruling
46 INSIDE STORY:
A Swiss master switches to Halal
DEVELOPING ISLAMIC FINTECH Abdulla Mohammed Al Awar, CEO, Dubai Islamic Economy Development Centre (DIEDC)
PLUS:
26 TAKAFUL:
Kenya’s challenges
page 3-4 contents 104.indd 1
34 SUKUK:
KSA’s Sukuk Program pushes forward
46 INSIDE STORY: Halal tourism in South Africa
16/08/2017 12:00
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COUNTRY FOCUS
BANKING EXCELLENCE INSPIRED BY TRADITIONAL VALUES Shari’a Compliant Window of the year
The Banker Islamic Bank of the Year Awards 2017
Best New Islamic Window UAE
Islamic Business and Finance Awards 2016
Our latest accolades further reinforces our commitment to providing innovative Shari’a compliant banking solutions across personal and business needs, that meet every requirement of modern life, whilst still maintaining the time-honoured values on which we were founded. To all our clients and business partners in the UAE and across the region, thank you for your continued partnership, support and trust in National Bank of Fujairah.
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NEWS & ANALYSIS
HE Mubarak Rashed Khamis Al Mansoori, Governor of the UAE Central Bank, opened the two-day IFSB Summit 2017, speaking of the UAE’s strides in the industry. The Central Bank of the UAE supports the robust and long-term growth of the vital Islamic finance sector through issuing Islamic deposit certificates and providing a collateralised murābahah facility. This marginal lending facility aims to increase the capacity of Islamic banks to manage their liquidity while adhering to Islamic principles.” “In the UAE, the capital adequacy ratio of the Islamic banking system is in the range of 17 per cent to 16.7 per cent for Tier 1 capital. Significantly over the mandatory 10 per cent, the sector’s liquidity assets ratio also registers 17 per cent. Today, Islamic banks in the UAE continue to build credibility and foster financial stability through their principled operations across the country.” HE MUBARAK RASHED KHAMIS AL MANSOORI, Governor of the UAE Central Bank
C
M
Y
CM
MY
At the IFSB Summit 2017, the Islamic Financial Services Board (IFSB), represented by Zahid ur Rehman Khokher, Acting Secretary-General and International Islamic Liquidity Management Corporation (IILM), represented by Abdoul Aziz Ba, Acting Chief Executive Officer, signed a Memorandum of Understanding (MoU), to further strengthen cooperation and collaboration in enhancing the ability of each institution to achieve its respective objectives and mandates. This MoU provides an excellent opportunity for the IFSB and IILM to explore new avenues to support member jurisdictions and enhance understanding of the issues relevant to Shari’ahcompliant financial safety nets, development of Islamic money and capital markets as well as liquidity management regulation and supervision. Specifically, both the institutions will work together in joint activities and awareness programmes in efforts to promote policy dialogue and support the member regulatory and supervisory authorities as well as market players in areas of mutual interest.” ZAHID UR REHMAN KHOKHER, Acting Secretary-General, IFSB
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CMY
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COUNTRY FOCUS
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OPINION
Intra-African collaboration
E
arlier this month, I moderated the International Islamic Banking Summit Africa, hosted by the Central Bank of Djibouti, and organised by Ethico Live. It was a great honor to introduce HE Ismaïl Omar Guelleh, President of the Republic of Djibouti and Head of Government before his presidential plenary address, as well as the other esteemed guests. This year saw some new faces that I was incredibly happy to see there and to be a part of the event with. In particular, I was excited to see HE Abderrahim Bouazza, Director-General, Bank Al-Maghrib of Morocco come after the year that Morocco has had in establishing Islamic finance in the country, a monumental move for the industry. One thing that I have noticed in my four years of participation in the Summit is the increasing collaboration between African nations in furthering their goals through Islamic finance. In Djibouti’s neighbor Kenya, great strides have been made, as Paul Muthaura, CEO of the Capital Markets Authority Kenya noted, “In Kenya, this is exemplified by the support that the country's financial sector regulators have given to the on-going policy and regulatory reforms aimed at enhancing the penetration of Islamic finance, with the country now getting increasingly well positioned to become a hub for Islamic finance. Kenya's Islamic finance sector now constitutes three fully-fledged Islamic Banks, four Islamic windows, two credit unions, one Takaful company, one Takaful broker, one ReTakaful window and two capital market Unit Trust Funds. Through such developments, Africa's Islamic finance market continues to witness extensive growth and, with a robust and facilitative environment, Africa is creating a real opportunity to attract investment and capital inflows through Islamic finance, locally, and internationally.''
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International collaboration has always been key to Islamic finance’s development across the continent. The Islamic Development Bank in particular has done great things for establishing Sukuk and Islamic finance across the continent. But for Islamic finance to really soar across the continent, it’s going to take more collaboration between the African nations themselves. When I spoke to HE Ahmed Osman, Governor, Central Bank of Djibouti, he told me about the increasing collaborations with Ethiopia, and how Islamic finance could be a bridge to furthering collaboration between the two countries. After the conference, I contacted friends in Kenya about helping to set up Takaful in Djibouti. It’s a truly inspiring time.
William Mullally
Editor
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COVER INTERVIEW
Elbaqir Elnouri, General Manager, Faisal Islamic Bank Sudan
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COVER INTERVIEW
A VISION of sanction-free SUDAN ELBAQIR ELNOURI, GENERAL MANAGER, FAISAL ISLAMIC BANK SUDAN ON THE OPPORTUNITIES AND CHALLENGES FACING SUDAN’S ISLAMIC BANKING LANDSCAPE IN LIGHT OF LIFTED SANCTIONS
Tell me about the current landscape for Islamic finance in Sudan? Since the establishment of the Central Bank of Sudan in the 1960s, the Sudanese economy has remained a traditional economy. It has relied on direct and indirect monetary policy instruments that enable it to control credit such as interest rates. In the 1980s, the Islamic banking system was adopted as an alternative to traditional banking. After the success of Faisal Islamic Bank (FIBS)’s experience, all banks operating in Sudan were forced to work in the Islamic banking system and until now the Sudanese finance system works under Shari'ah obligations.
Currently, financing in Sudan is directed to the economic development sectors, where financing of the agricultural sector and domestic trade sector accounts for 23 per cent and 20 per cent, respectively, of more than SDG 83 billion. This is the result of the 2016 bank financing in Sudan. Also, we expect an increase in the proceeds of finance in the remainder of this year in proportion to the decision of the US to lift economic sanctions on Sudan. How does Faisal Islamic Bank fit into that landscape? FIBS is the first bank that has operated with the Islamic banking system since the 1970s cont. overleaf
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COVER INTERVIEW
cont. from pg 11
and it is one of the pioneers of Islamic banking in the world. The performance of the FIBS during 2016 was a significant development. Our market share is 18 per cent among all banks that are working in Sudan. Likewise, among the total of more than SDG 67.7 billion that represents the outstanding financial balance in Sudanese banking in 2016, FIBS has more than 15 per cent of this balance. The total consolidated budget of the Bank raised to SDG 15.7 billion, compared to SDG 12.5 billion in 2015. That is an increase of 26 per cent, due to the significant expansion in the bank's resources, with an increase in deposits by 26 per cent and property rights by 16 per cent. The growth of the dividends for investment deposit holders and shareholders has increased the confidence of investors to keep their investing in the bank, which helped to employ these resources efficiently, which leads to increase the profitability and liquidity ratios. What have been Faisal Islamic Bank's main accomplishments and initiatives in the last two years? Despite the global and local changes, FIBS has remained the top in all areas of banking industry. This has been evident in the bank's advanced classifications and achievements in the Islamic, African and Arab banking industries at all levels, including the Excellence and Innovation in Africa 2017 award that was presented by the Union of Arab Banks as well as we the award for Excellence in Banking in Sudan for 2017, which was granted by the International Federation of Arab Bankers. We also took home the Award for Best Corporate Finance in Africa, awarded by CPI Financial for the fourth year in a row at the Islamic Business & Finance Awards last December. FIBS has been awarded multiple ISO certificates of conformity (ISO 14001) (ISO 9001) as well as the Occupational Health and Safety Management System (OHSAS 18001) granted by International companies accredited by Germany’s National Accreditation Body (DAKKS), the United Kingdom Accreditation Service (UKAS) and QA technic. Notably, Faisal Islamic Bank Sudan (FIBS) is the only institution in Sudan winning these certificates.
What are your thoughts on the development of Islamic fintech? FIBS has been the pioneer of Islamic financial technology in Sudan as we have innovated and developed the latest technologies since the 2000s. Nowadays we are planning to develop Shari'ahcompliant products to offer our services to a wide range of people in Sudan to support the financial inclusion strategy that has been adopted by us. We are planning to adopt a blockchain-based financial inclusion product to remove the need for third-party verification. Also we are fostering safety and trust by setting up standards for fintech and following the ones that established by the regulatory bodies. What are the main challenges facing Faisal Islamic Bank, and how are you overcoming those challenges? Although the sanctions have been lifted, it is mixed blessing. The main challenge is the increasing competition in the market from new competitors that have a large capital base. In spite of this, the bank has already positioned itself as a one of the biggest brands in the Sudanese market and it is keen to attract deposits, which are among the most important indicators of competition here in Sudan. Another challenge is the parallel foreign currency market, which has grown due to the sanctions. Nevertheless, the bank has developed a strategy in parallel with the central bank that will to overcome these difficulties. What are the main opportunities for growth in Sudan? The decision to lift the economic embargo is an important step for the Sudanese economy as general and specially for the banking sector. It will enable the sector to practice its natural operations at the regional and global levels, which will allow the Sudanese economy to take a new step towards the growth. The bank has designed a flexible strategy to exploit the possible opportunities of the decision to lift the economic sanctions to attract investments and capital of foreign funds that will invest in Sudan due to its diversified economy and the availability of natural resources. cont. on pg 15
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COVER INTERVIEW
Elbaqir Elnouri, General Manager, Faisal Islamic Bank Sudan
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COVER INTERVIEW
Faisal Islamic Bank Sudan, based in Khartoum, is a market leader in Islamic finance.
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COVER INTERVIEW
The decision to lift the economic embargo is an important step for the Sudanese economy as general and specially for the banking sector. It will enable the sector to practice its natural operations at the regional and global levels, which will allow the Sudanese economy to take a new step towards the growth. ELBAQIR ELNOURI, General Manager, Faisal Islamic Bank Sudan
cont. from pg 13
(Dragos Lucian Birtoiu/SHUTTERSTOCK)
In addition, the Bank has focused since last year on the strategy of financial inclusion in response to the directions of the Central Bank of Sudan through geographical spread and the development of banking technology.
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What is your personal management philosophy? I believe management should provide steering, direction, leadership, and eventually set a model for employees. My management philosophy is to provide a suitable working environment for subordinates, which could be acheived through strategic planning as well as by placing in focus their contribution in setting short-term goals and close control to achieve these goals. In another side, we are always reevaluating the management structure. For instance, we have recently introduced a new department that works closely with other departments for financial inclusion. What do you think the Islamic finance industry needs to work on most? I think the Islamic banking needs more experts to work at developing new Islamic products and reduce the reliance on Murabahah as the main product on offer.
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ISLAMIC INVESTMENT
The demand for Shari’ah-compliant products in Africa has beenproducts in Africa has been growing
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ISLAMIC INVESTMENT
What the Islamic economy can offer in terms of South-South investment IN RECENT YEARS, THERE IS AN INCREASING TENDENCY AMONG INVESTORS FROM DEVELOPING COUNTRIES TO CHANNEL THEIR FUNDS INTO OTHER DEVELOPING COUNTRIES, WRITES ABDULLA MOHAMMED AL AWAR, CHIEF EXECUTIVE OFFICER, DUBAI ISLAMIC ECONOMY DEVELOPMENT CENTRE
F Abdulla Mohammed Al Awar, Chief Executive Officer, Dubai Islamic Economy Development Centre
or decades, we have witnessed investors from developed countries—collectively referred to as ‘North’ due to their prevalent geographic concentration—playing an integral part in supporting developing countries, also known as ‘South’. However, in recent years, there is an increasing tendency among investors from developing countries to channel their funds into other developing countries, leading to the South-South investment phenomenon. Today, emerging markets are hungry for new investments—their immense potential for growth is inherent in their definition. However, such investments pose a whole host of challenges for local and foreign investors alike, particularly in terms of regulatory and legislative frameworks that govern cooperation between the public and private sector as well as corporate social responsibility. The significant gap created by the decline in agriculture and manufacturing in emerging
countries and the huge demand for quality agricultural products and manufactured goods in these markets is a matter of common knowledge. However, most investors are doing little to leverage this tremendous opportunity. According to the World Investment Report 2017, prepared by the United Nations Conference on Trade and Development (UNCTAD), the flow of foreign direct investments (FDIs) to the least developed countries (LDCs) in 2016 fell by 13 per cent. This is primarily due to the investment policies, as well as prevailing investment trends and culture. In contrast, in 2007—just one year before recession hit—the total volume of FDIs across the globe reached $1.53 trillion—an 18 per cent hike on 2006, when it recorded $1.30 trillion. Some may argue that investing in emerging economies is too risky. However, modern history says otherwise. In the aftermath of the global financial crisis of 2008, the total value of the world economy cont. overleaf
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ISLAMIC INVESTMENT
The increasing desire of governments and the wider society for economic stability, in addition to the global efforts to achieve the United Nations’ Sustainable Development Goals (SDGs), has helped the Islamic economy penetrate even nonIslamic markets. ABDULLA MOHAMMED AL AWAR, Chief Executive Officer, Dubai Islamic Economy Development Centre
cont. from pg 17
plummeted by 45 per cent. The losses that caused investment equation. The presence of standards this sorry state of affairs did not occur because help gauge the social and cultural impact of of investing in emerging countries but due to investments—such as their role in developing the lack of a responsible investment culture in infrastructure as well as education and health developed countries. services in beneficiary countries—and ultimately A prime example of a responsible investment guarantee their sustainability. is investing in agriculture in emerging countries. Furthermore, the Islamic economy offers Amidst rising concerns about future food security, investment vehicles based on the principle of risk such an investment is a much smarter choice sharing rather than pre-defined profit. Islamic than investing in indiscriminately dispensed financial instruments are not commodities sold to consumer loans. customers with a certain profit margin. Rather, This validates the core premise of the Islamic they serve as the means of financing real projects economy—when it comes to the efficiency of within a specific framework, and profits are the an investment, its purpose is more important results of successfully executed ventures. than its size. In 2016, global investments in Islamic economy Therefore, foreign investors must, first and sectors reached $8 trillion, and the number of foremost, consider the safety and sustainability their beneficiaries is estimated to amount to of investments. Their objectives should transcend about a quarter of the world's population. This the accumulation of profits and focus more on figure includes both Muslims and non-Muslims ensuring a positive impact on the lives of people are seeking a secure future and quality products. in the beneficiary countries. Only then can we The increasing desire of governments and the turn the global economy around. wider society for economic stability, in addition In 2007, the World Economic Outlook by the to the global efforts to achieve the United International Monetary Fund (IMF) highlighted Nations’ Sustainable Development Goals (SDGs), declining risk rates the previous year and indicated has helped the Islamic economy penetrate even that the global economy would continue to grow. non-Islamic markets. A year later, disaster struck in the form of the Today, introducing and promoting financial biggest financial meltdown since the Great services across the globe is easier than ever before. Depression. Given such a high probability of error, It is now common for banks worldwide to provide it is clear that we must update the benchmarks Islamic finance solutions in addition to their for evaluating economic performance, and regular offerings. New technologies, innovative create new assessment tools that are objective Islamic finance products, and the commitment and neutral. of the Islamic finance sector to supporting The Islamic economy has standards in place small and medium enterprises are collectively to measure the efficiency of investments and helping the Islamic economy reach the next stage (Alexandra Lande/SHUTTERSTOCK) ensure balance between the variables of the of growth.
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TAKAFUL
Excellence through innovation Rewarding pioneers in Islamic finance
Islamic Business & Finance AWARDS 2017
12th DECEMBER 2017 Emirates Towers Hotel, Dubai
Voting commences Mid-October through end of November
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For more information please contact CPI Financial’s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net
(Dragos Lucian Birtoiu/SHUTTERSTOCK)
TAKAFUL
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The Kenyan livestock sector is estimated to be worth $5 billion.
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TAKAFUL
Inside
how Takaful Africa won a lucrative government contract to cover the livestock market OMAR SHEIKH, CEO, TAKAFUL INSURANCE OF AFRICA, SPEAKS EXCLUSIVELY WITH ISLAMIC BUSINESS & FINANCE ABOUT HOW TAKAFUL IS OUTPACING THE ESTABLISHED CONVENTIONAL PLAYERS IN KENYA
What made Takaful go into the livestock market? Apart from the usual Takaful products we offer for all our clientele, we were driven by innovation to meet the needs of the pastoral communities of Kenya who are hit by drought from time to time. The Northern part of the country produces over 70 per cent of the total livestock population in Kenya. The sector is estimated to be worth $5 billion.
We found a big gap left unattended. The usual insurance concept is based on pooling of risks and therefore asset replacement. Nobody ever thought of providing insurance to such a large population. Takaful came up with a new concept dubbed ‘asset protection’ rather than replacement. It’s that mutability concept that helped us design a befitting product to protect animals against prolonged forage scarcity due devastating drought.
cont. overleaf
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TAKAFUL
cont. from pg 21
How does Takaful cover work in this market? It ’s difficult for people to understand the concept of livestock insurance at times, thinking that they stand to be compensated if lifestock are killed by wild animals. To make them understand the method, we hold consumer education forums at the grassroots level and invite key stakeholders, including scholars. We have further partnered with some organisations who were impressed with the concept. These partnerships are to support the initiative by helping to meet expenses towards such forums. The village elders, government representatives at the village, and livestock traders became handy in helping to disseminate the message. With this kind of outreach, it became clearer to the pastoralists what the cover was all about. They quickly bought into the idea that it’s an asset protection cover where beneficiaries are paid before the onset of the drought to help them buy fodder and medicine for their animals until the beginning of the rainy season. We have adopted a working model where shop owners at the village level sign up as our agents and sell the cover to the livestock owners wherever they may be. How does Takaful handle the operations of such unique products? We developed a tailor-made system supported by an app to
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recruit customers. The agents are trained in populating the relevant data in the app, indicating the customer details, including the nature of the animals covered and the applicable premium. A unique policy number specifically for the respective customer is generated immediately, against which a premium is submitted instantly even from the remotest village, just by using m-pesa. This convenience and the support structure on the ground from the town centres to the village level made the product very popular. Who are your main partners in the project and how did they support this new and unique Takaful concept? When we developed the concept, we realised we needed the support of reliable partners to make it work better. We partnered with the International Livestock Research Institute (ILRI) to determine the weather pattern in every area. Having the expertise, they have a mechanism of monitoring the severity of the weather and once the fodder levels start dwindling, they raise the red flag to alert us. Th i s a l e r t t r i g g e r s t h e compensation to the covered livestock owners. To make it convenient for them, they get paid through their phones using m-pesa. This has become very convenient for the unbanked majority, thus raising the popularity of the product (Alexandra Lande/SHUTTERSTOCK) even more.
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Why did the Government choose Takaful in 2017 for the lucrative livestock insurance scheme in Kenya? The Government initiated an insurance scheme to support livestock owners on pilot basis in a few dry areas of the country two years after Takaful rolled out the concept. The contract w a s d o mi nat e d b y b i g g e r conventional insurers. The Government officials who visited the drought prone areas were confronted with the desire for Takaful rather than a conventional insurer. This is because the majority of livestock owners in the target area profess the Islamic faith and hence it was in order for them to get covered by Takaful. The officials discovered that though Takaful is much younger and smaller than the big players who won the contract in the past, Takaful had built much a superior infrastructure and was much more prepared to deal with the effects of the drought than the big players. The Government tendered the cover in the middle of 2017, and was impressed by the capability displayed by Takaful which was far superior to the bigger players. The simple technology used to on board the participants, the use of m-pesa for prompt premium payments and prompt compensation well ahead of the bigger players impressed the government officials. Takaful therefore won the lucrative Government contract of $2.4 million for the year 2017.
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(FOTOGRIN/SHUTTERSTOCK)
TAKAFUL
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ISLAMIC BANKING
Islamic fintech will foster a culture change AYMAN SEJINY, CHIEF EXECUTIVE OFFICER, IBDAR BANK, SPEAKS WITH ISLAMIC BUSINESS & FINANCE ABOUT THE INDUSTRY’S FUTURE
Do you think fintech will be the single greatest driver of change in the Islamic finance industry in the next decade? Why or why not? Fintech is fast becoming a major disruptor to the financial services industry and I believe it is going to be one of the biggest drivers of change in the new Islamic banking era, and its emergence will have a substantial impact, both socially and economically, in many parts of the world. Fintech initiatives will not only improve existing customer’s banking experience by offering greater user friendliness, but also has
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the potential to bring the two billion financiallyexcluded individuals globally into the banking system. These people, who although they are unbanked have access to fintech through their mobile phones, where they can access credit, pay for goods and services online and start their own businesses, have the potential to transform the global Islamic banking industry. Gen Y or ‘millennials’ who have virtually grown up connected are the industry’s future customers, and financial services will be driven by these expectations.
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(By trabantos/SHUTTERSTOCK)
ISLAMIC BANKING
The skyline of Manama, Bahrain, where Ibdar Bank is based.
What do you think the landscape will look like ten years from now? Fintech in the Islamic financing space is promising and over the next decade will change the Islamic banking experience for customers and service providers. Malaysia, Indonesia, the UAE and Bahrain, driven by an influx of start-ups in the crowdfunding and payment space, have already positioned themselves to lead the field by formally regulating crowdfunding and implementing sandboxes or special fintech licencing schemes. These markets should therefore see huge growth in crowdfunding,
P2P and payments platforms and even an increase in the use of AI in the form of robo-advisers. Bahrain, in particular, has made great strides. Bahrain, with the Central Bank of Bahrain taking decisive steps towards a fintech supportive environment with the establishment of one of the first sandboxes in the region, is allowing the financial sector to test new tools and services. Regulators are an extremely important part of the financial services eco-system and, apart from their oversight of the industry’s development, have an important role in consumer protection. cont. overleaf
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ISLAMIC BANKING cont. from pg 25
The Islamic financial services industry is of systemic importance for the Kingdom of Bahrain and the leadership of the Kingdom understand this, as underscored by the CBB’s continued support, and the great effort undertaken by the Economic Development Board (EDB) in order to establish Bahrain at the centre of Islamic fintech. The more exchange and consultancy that is established between government agencies and the private sector, the better the results will be. At this point, time-to-market is of the essence and the faster authorities react cross-divisions with approvals to support the sector, the better is the chance to manifest the Kingdom of Bahrain as a centre of excellence and a reference point in the Islamic world.The UK and even the US will also see more investment in fintech startups to meet the demand for Shari’ah products in these markets. In addition to the impact of fintech, increasing sovereign Sukuk issuances, especially in nonMuslim jurisdictions, will broaden the horizon of Islamic finance with Sukuk enhancing access to sustainable, responsible and impact investment, actively directing efforts to promote and reach out to investors whom are value driven. What have been the key developments that Ibdar has made in terms of fintech? Ibdar has set out a comprehensive plan for our engagement with fintech service providers. We are digitising our own operations and processes, and focusing on advising clients with regards to digital finance catering for the needs of a Global Islamic Digitised Economy (GIDE). Digitisation requires a shift in the mix of skill-sets. We are also in the process of building a world-class, in-house fintech team and are providing fintech training to upgrade the knowledge and skills of our existing team.
Ayman Sejiny, Chief Executive Officer, Ibdar Bank
The bank is also engaging with fintech firms from all over the world. Our digital transformation is comprehensive and will permeate across our back-, middle-, and front-office. We are also opening new delivery channels providing valueadded processes for our clients. We are investing substantial amounts in the further development of advisory capacity with regards to fintech, especially distributed ledger technologies (DLT) and cryptoassets for governments and the private sector.
Beyond just internal procedures, how else will customers feel the changes that fintech will bring? Technological advances have completely changed the relationship customers have with their banks. Customers now rely less on human interactions, such as walking into a bank branch or relationship manager’s office, in order to fulfil their banking needs. Customers will enjoy increased convenience, reliability, and speed. Fintech startups have the advantage that they How is Ibdar positioning itself to continue to be a leader in the field in the long term? have no existing structure to change, so they For banks to compete successfully with fintech can really change everything! Also, the structure startups—and adapt and implement digital of Islamic financial institutions is historically innovations—there must be culture change. We hierarchical and silo-based. Banks must flatten their must not be held back by legacy—legacy technology, organisational structures in order to be more agile, legacy processes and, most importantly, legacy and embrace a culture of transparency, collaboration thinking. This means that culture change is a and change. It is also important to ensure a customer big part of the overall transformation needed, centric, rather than an internal focus. This will be and it must be sponsored from the top down in facilitated by flattening the structure and reducing order for it to be embraced. Ibdar is a young, internal politics. It’s all part of the required culture change-ready organisation that is embracing change that will create a foundation for creativity, (Alexandra Lande/SHUTTERSTOCK) this change internally. innovation and change.
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www.islamicbusinessandfinance.com
TAKAFUL
www.islamicbusinessandfinance.com
ISSUE 97 | Islamic Business & Finance
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AFRICA
(vkilikov/SHUTTERSTOCK)
Gulf bank experiences in Africa RENOY KUNDUKULAM, HEAD OF WEALTH MANAGEMENT, NOOR BANK SHEDS LIGHT ON THE UAE BANK’S GROWING ACTIVITIES IN THE CONTINENT
A
frica is a continent that is rich in natural resources and has growth drivers which are becoming increasingly diverse, led by resource-based, construction and services sectors. According to industry reports, in the next few years, it is estimated
28
that seven out of the 10 fastest growing economies in the world will be in Africa. In addition, favourable demographics and closer regional ties are expected to further drive this growth, especially in East Africa. In terms of demographics, Africa currently
Islamic Business & Finance | ISSUE 106
has a population of more than one billion people with the population of young, middle-class Africans rising increasingly. As per The Wealth Report 2017, over the last 10 years, the number of ultra-high net-worth individuals (UHNWIs) have risen by 13 per
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AFRICA
countries like Senegal, Uganda, Morocco, Kenya, Gambia and Nigeria, have already reformed banking laws to allow the setting up of Islamic institutions. To cater to this growing demand, there are over 50 financial institutions operating in Shari'ah-compliant finance space in Africa, according to industry reports. Various news reports have also indicated that Kenya has been at the forefront, with three Islamic banks as
numerous queries from existing and potential clients based in Africa, who are interested in investing our wealth management products such as Sukuk, structured products, mutual funds, Takaful products, as well as home finance solutions for UAE-based properties they wish to invest in. Each client is assigned a dedicated relationship manager and has a dedicated customer
The demand for Shari'ah-compliant products in Africa has been growing for both Muslims and non-Muslims, and most countries like Senegal, Uganda, Morocco, Kenya, Gambia and Nigeria, have already reformed banking laws to allow the setting up of Islamic institutions. RENOY KUNDUKULAM, Head of Wealth Management, Noor Bank
The demand for Shari’ah-compliant products in Africa has been growing
cent in Africa, and is expected to grow by 33 per cent in the next 10 years. In fact, of the 20 countries globally whose UHNWI population has grown the fastest over the last ten years, 11 are in Africa. Additionally, around 50 per cent of the total population is Muslim—which includes a high percentage of Muslim expats from Asia who have settled there. That is the reason why Africa is seen as a huge untapped market for Islamic banking. The demand for Shari'ahcompliant products in Africa has been growing for both Muslims and non-Muslims, and most
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well as five conventional banks offering Shari'ah-compliant products, through dedicated Islamic windows. However, the availability of Islamic banking products with regards to wealth management is practically non-existent and is a big opportunity for banks. There is enormous potential for UAE banks in particular, as many African companies leverage Dubai as their trading hub due to its geographical proximity a n d c o nve n i e n t a c c e s s t o other markets in Asia etc. This ensures that Dubai becomes the natural choice for Africans to invest their wealth, especially in real estate. At Noor Bank, our wealth management team addresses
service officer who caters to any financial queries the client may have. Apart from that, the client may also email us or call our 24/7 call-centre at any time they require assistance. Our client-servicing model for Africa is the same and is governed by a robust, cross-border regulatory framework which takes into account both Africa and UAE’s cross-border banking and compliance laws—and provides a seamless banking experience for our African clients. Going forward, we are keen to expand and capitalise further on this market opportunity, and will evaluate setting up offices there, based on a sound business case and should the right opportunity present itself.
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ISLAMIC TECH
Who will realise the $227 billion digital opportunity? FADI YAZBECK, PRODUCT MANAGER AT TEMENOS HIGHLIGHTS THE IMPORTANCE OF DIGITISATION FOR ISLAMIC BANKS
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ISLAMIC TECH
T
echnology is now considered integral in our daily lives. It allows us to access a huge range of services, and to view masses of information instantly. Purchases and payments can (and are now expected to be) made from anywhere at any time. Banks are having to join this digital revolution to survive and Islamic banks are no exception. A report by Deloitte and Noortel (supported by Dubai: the Capital of Islamic Economy), highlighted in particular that “Populous OIC countries are emerging as high growth Islamic Finance markets, but low penetration and GDP per capital is driving the need for access to digital funding services.� Annual digital market spend is expected to reach $4.3 trillion by 2020 and of that $227 billion is expected to derive from Muslim communities. However, are Islamic banks completely ready for this opportunity? Digital is so much more than channel capabilities.
(By everything possible/SHUTTERSTOCK)
Digitisation has already changed the world, and the Islamic banking community must keep up with its future.
Experience-driven banking While the majority of banks offer digital channels, a truly digital bank should cover both the customer and the execution experience, providing a personal, targeted approach. At Temenos, we are seeing a dramatic shift to true digital banking realisation, and Islamic banking is no exception. Customers today want a different relationship with their financial services providers. They want their banks to become more involved in their commercial and financial lives. Surveys show that people would expand their relationship (or pay more) in return for providers giving expert advice, finding ways for them to save money, rewarding their loyalty and proactively recommending products and services that they really need. cont. overleaf
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ISLAMIC TECH
cont. from pg 31
When financial providers combine this kind of personalised service with other information, such as context and channel preferences, they benefit from experience-driven banking. Islamic banks can use data to deliver high value customer insights, at the time and place customers need it and over their preferred channel. For Islamic banks to offer true experience banking, they need channel solutions to deliver Shari'ah-compliant products and services for any business line, across all selfservice and assisted channels, for both bank staff and customers, in any language and optimised for any device. And for a truly seamless experience, all of this should be available from a single user experience platform (UXP). The digital opportunity for corporates The opportunity for digital banking goes way beyond offering just mobile personal banking but it’s not just retail banks and their customers that can benefit from the digital revolution. Islamic digital corporate banking offers accessibility and convenience for all, particularly for those businesses based rurally. The right solution enables a corporate user Starting at the core in any location to respond instantly to real-time Banks within the Middle East are now starting information at a time and place they need it. to realise the opportunity and invest. Examples Digital corporate services means minimising the include Arab Bank for Investment & Foreign need for business managers to attend meetings Trade (Al Masraf), who recently confirmed their with their bank managers face to face, leading move to a new front-to-back solution to support to increased interactions due to greater ease and their ‘ambitious growth plans and improve their as a result higher retention and cross-sales rates. ability to bring innovative products to market Video, screen-share and even live chat assistance more quickly and efficiently’. offer instant access, saving time and money I’m personally working with the team at Al on travel. Masraf; they have recognised that they must focus Digital brings not only customer service on instant customer fulfilment, easy integration advancements but also empowerment. Solutions with the bank's other systems and full exploitation such as hybrid tablet client applications, which of the bank's data assets. Real-time, innovative, are based on a multichannel UXPs, are giving integrated and open banking software at the corporates greater control which in turn means core is essential though to deliver a unique and lower operational support requirements for differentiated customer experience. The full banks. These platforms should integrate into the picture must be considered; if your core isn’t able financial institution's existing extranet/internet to process in real-time and seamlessly connect infrastructure and be highly configurable. They to the channel then the benefit of digital is lost. give corporates the control to modify their standard application very easily using intuitive screens, A quick solution to and display any information available within digital efficiency the portfolio management tool in real-time However, achieving operational efficiency continues (Alexandra Lande/SHUTTERSTOCK) from anywhere. to be a major problem for some, with operating
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Fadi Yazbeck, Product Manager at Temenos
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ISLAMIC TECH
expenses on average being 50 per cent higher for Islamic banks. These legacy systems are starting to become a hindrance in the execution of digital strategy for financial institutions, the cost to fulfil a digital offering is too high. Digital banking is becoming more sophisticated across the world and progressive renovation is increasingly seen as a way of quickly accessing this market. Progressive renovation allows banks to increase their reach in terms of services, improve customer experience and cut the cost of technology and operating costs without wholesale change. Rather than add to the complexity of their existing systems by adopting apps individually, banks approach their requirements holistically, adding capabilities using software-as-a-service hosted in the cloud for example. This way, change
modularity, deployed in stages, allow for faster time-to-value and lower risk and upgradability (perhaps independently). Ensuring banks always stay ahead of market trends (with tools to design and deliver new Islamic banking products), should also be considered. Open API’s must be accessible; ensuring that easy access to innovation and services. All this whilst driving massive efficiencies in a Shari'ah-compliant back-office, achieved through front office differentiation with back office automation. Moreover, the speed of fulfilment is also critical, the digital solution must therefore be front-toback. It ultimately comes down to using a single platform, a recent shift in banks decision making highlighted within the recent Ovum Decision
According to the EY World Islamic Banking Competitiveness Report 2016, the boards of most of the 40 systemically important Islamic banks are set to spend between $15 million and $50 million over the next three years on digital initiatives. FADI YAZBECK, Product Manager at Temenos
can be made slowly, step by step, and services can be migrated to a new platform when the bank is ready. However, although progressive renovation addresses the challenge of digital efficiency, this does not address the high overall operating expenses that Islamic banks continue to witness. To reduce these operating costs sufficiently, a new, single core solution is required. One that is componentised to allow for progressive renovation, yet also seamless and future-proof in order to evolve and adapt, ensuring the issue of legacy is eradicated permanently. Enabling the move to digital Being a truly digital bank means offering the right customer insights at the right time, via the right channel. The quality of the overall user experience requires banks to draw insights in real-time and from multiple datasets. Other elements such as
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Matrix: Selecting a Digital Banking Platform, 2017–18. According to the EY World Islamic Banking Competitiveness Report 2016, the boards of most of the 40 systemically important Islamic banks are set to spend between $15 million and $50 million over the next three years on digital initiatives. They are ‘well aware that inaction could cost up to 50 per cent of their retail banking profit in next few years’. But the opportunity is so much more than just in retail banking, it stretches to corporate, private and beyond, however, all rely on having a core to that can adapt as your digital strategy evolves. A core that supports Shari’ah compliance according to your individual needs. One that connects seamlessly to any channel, enabling instant fulfilment. Digital is part of our daily lives, instant is expected, it’s not the future, it’s the now and without it in banking there may be no future.
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THOUGHT LEADERSHIP
Future insights for Islamic finance:
Sustainable finance disruption a potential boon for the industry
ASST. PROF. DR. ZIYAAD MAHOMED, INCEIF, WRITES EXCLUSIVELY FOR ISLAMIC BUSINESS & FINANCE ABOUT THE TREND
T
he global Islamic banking and finance industry has been growing consistently notwithstanding the periodic shocks and turbulent economic conditions in various parts of the world. However, looking ahead, what would ensure the growth of the industry and maintain its value proposition? We consider some of these emerging trends. A r g u a b l y, t h e t w o m o s t significant trends in the financial service space have been the rise of advanced financial technology and the buzz on the ‘green economy’ or
sustainable financing. For both, this has evolved into introductory r e g u l at i o n t h at d e f i n e s t h e parameters of application whilst enabling the success of these initiatives by capable participants. Their impact on the Islamic finance sector have been primarily positive as social impact and real economylinked transactions become more popular. Islamic Banking & the Green Economy The global move towards SRI (socially responsible investment) and ESG
(ethical, social and governance) investment has supported the triple bottom line measurement for responsible companies. Earlier efforts in ethical investment raised the ire of return-seeking investors as ‘ethical’ was synonymous with welfare and handouts, translating into the sacrificing of returns for the benefit of ‘doing good’. However, research indicates that returns on ethical investment post-2007 have been either on par or have outperformed traditional investment. A Sharpe-adjusted return comparison attests to this:
Source: SRIs & The Case for Islamic Investment Funds, CIAWM (2015)
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www.islamicbusinessandfinance.com
(CREDIT: wk1003mike/SHUTTERSTOCK)
THOUGHT LEADERSHIP
The green economy and islamic finance should move forward hand in hand.
It seems that investing responsibly is actually profitable, even in the short-term. The spin-off over the longer term is significantly profitable as the economy grows and more participants populate various strata of the financial power index, ultimately generating more wealth and prosperity for all. The popular Islamic finance mantra of a sharing economy envisages a financial system that supports a real economy rather than creating an unsustainable, superficial wealth cloud from a financial system that is created in and of itself. In this quest for economic balance and reduced income inequality, the most recent trend is marked by the rise of sustainable banking that places people and planet first. As humanity is becoming more aware of the impact
of its use of resources and shortterm driven wealth goals, ethical finance and investment is increasing exponentially (more than 30 per cent of global assets are in SRI at the beginning of 2017). Islamic finance and banking is based on an ethical premise, therefore, it is expected that it would play a significant role in the emergence of value-based banking and intermediation over the next five to 10 years. Value-Based Intermediation (VBI) Markets are beginning to respond to calls for financial services that are responsible and provide positive socio-economic impact. For example, the environmental organisation Greenpeace documents their YouTube campaign exposing Banco Santander’s loans of GBP 400 million to a logging
company expanding its operations in Indonesia. After three million views in just two days and subsequent public protest, the bank announced within 48 hours that it would no longer lend to the company and that future lending would be based on new sustainability objectives. Malaysia’s value -based intermediation strategy, driven by Bank Negara Malaysia (regarded as a global exemplar in the dual-banking system) is expected to move the Islamic finance industry into the next phase of sustainable, long-term economic development. The industry is expected to intensify its distinction and personify its existence through value -based intermediation or VBI. Built upon the pillars of entrepreneurship, community empowerment and self-governance, cont. overleaf
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THOUGHT LEADERSHIP cont. from pg 35
service) solutions that are coupled with APIs (application programme interfaces) can be integrated with existing banking solutions to provide interactive digital platform banking. Overall developmental costs are also reduced since SaaS and API are constantly releasing updates based on efficacy and customer needs. The Securities Commission (SC) of Malaysia, under an initiative known as the Alliance of FinTech Community or‘afFINity@SC’, has also been active in preparing regulation that will allow for fintech solutions to operate more seamlessly in the country. The initiative includes : Source: BNM Strategy Paper on Value-based intermediation (2017)
VBI promotes innovation, efficiency and transparency in a substantive ecosystem. Since Islamic finance already echoes these principles, it is seen as a natural vehicle for the sustainable and socially responsible finance paradigm. Without effective measurement, even the noblest of models may not achieve the desired impact. Hence, clear measurements have been proposed by Bank Negara Malaysia (BNM) to ensure effective implementation. VBI practice is assessed on impact, i.e. measuring the real and potential impact to society, environment and the economy whilst driving the optimum allocation of resources to productive economic activities. For example, BNM’s recent strategy paper on VBI suggest the following potential indicators for impact assessment on entrepreneurial mindset: • Number of innovative products a n d s e r v i c e s i n t r o d u c e d fo r the community; • Number of community-based projects driven by VBIs; • Number of individuals benefitted from community-based projects;
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• Social impact indicators e.g. enhanced standard of living. Through a gradual adoption of VBI policy and measurement standards, the impact over the long-term is expected to be significant. Fintech The use of technology in financial services is not new. However, the extent of the role it has played in the operational infrastructure has evolved since the late 19th century. From the invention of the telegraph to the advent of the personal computer, financial services development has been closely correlated to the pace of technological advancement. In order to remain competitive, banks have adopted new product solutions that utilise virtual channels and mobile or online delivery. ‘Digital readiness’ or IT capacity for adopting new technological p l at fo r m s b e c o m e c r u c i a l t o traditional bank’s survival in the near future. As software becomes more open-sourced, programming units have opportunity to mould them to suit specific sector needs. For example, SaaS (software-as-a-
I. Creating awareness and catalysing innovative fintech solutions; II. Forming clusters to organise and nurture a wider fintech ecosystem; and III. Providing policy and regulatory clarity that is conducive for innovation. The objective of the framework, is to enable a variety of company forms to participate and access market-based funding through a digital platform. Conclusion The Islamic banking and finance industr y is as susceptible to disruptions as the conventional sector. Therefore, digital strategy and fintech development should form a vital part of research and development expenditure as virtual banks and digital platforms threaten the status quo. However, Islamic finance finds itself at the right place and the right time as sustainable finance strategy becomes trendy. It is only for the captains of this industry to recognise the enormous potential in the field of profitable ethical finance, to truly car ve out a niche and catapult the sector into the mainstream.
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THOUGHT LEADERSHIP
MASHREQ AL ISLAMI
A PARTNER WHO SHARES YOUR ISLAMIC VALUES WE MAKE POSSIBLE. Mashreq Al Islami doesn’t only offer you Shari’ah-compliant banking solutions, but provides you with a banking experience that is built on trust, honesty and mutual respect. We always work hard to build fruitful relationships with our esteemed clients. Here are some of the benefits that Mashreq Al Islami offers: • A variety of financial solutions to suit your every need • Mashreq Al Islami Platinum Credit Card • Advanced digital platform
523899
681804
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Terms and Conditions apply.
TO APPLY, CALL 04 424 4411, SEND ‘ISLAMI’ TO 4250 OR VISIT MASHREQALISLAMI.COM ISSUE 106 | Islamic Business & Finance
37
WEALTH MANAGEMENT
Bringing ‘prestige’ to Shari’ah-compliant investment
Islamic investment for the HNWI, now at National Bonds.
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Islamic Business & Finance | ISSUE 106
www.islamicbusinessandfinance.com
WEALTH MANAGEMENT
MOHAMED SALAH, HEAD OF CORPORATE & WEALTH MANAGEMENT AT NATIONAL BONDS SPOKE WITH IB&F ABOUT PRESTIGE, ITS PRODUCT AIMED AT HNWIS
W
hat led to the launch of Prestige? National Bonds was first launched to meet a demand for a service that rewarded investors. Since then, we have continually developed tailored products that meet the ever-changing needs of our customers. Launched in 2016, Prestige is unique offering and the first of its kind in the UAE. The product was designed by our Wealth Management team with the aim of providing high net worth individuals with investment advice and opportunities within the National Bonds Corporate (NBC) portfolio. Private wealth in the UAE is growing exponentially and is expected to reach $1 trillion by 2020. With this in mind, Prestige aims to provide customers with guidance around risk management and responsible investments to help achieve sustainable financial security. How does Prestige differ from other similar offerings in the market? Prestige combines expert financial advice with industry-leading products. It offers investors a tailored and personal service. The programme consists of three categories: Prestige Gold offers customers a portfolio of beneficial services and access to Wealth Managers who are among the industry’s best. Our Gold Members enjoy the highest level of service in the region and is only open to customers who have invested a minimum of AED 350,000 with us. Prestige Silver is only available to customers who have invested a minimum of AED 150,000 with us. We offer our Silver members services that include exclusive investment opportunities and direct access to our world class relationship managers.
Bronze Membership is only available to customers who have invested a minimum of AED 50,000. Our collective experience and wealth of local knowledge means that our Bronze Members have access to unrivalled financial advice. In addition, clients across all tiers have access to value-added services such as a pick-up and drop-off service for cheques and application services, free financial planning, advisory services and same day processing. Prestige also offers access to a dedicated Prestige desk at all National Bonds corporation branches. One of the products unique selling points is the ability to invest in our real estate inventory that offers investors the best payment plan in the UAE: a 10 per cent down payment followed by 90 per cent over a seven-year payment plan post-handover. How can executives and entrepreneurs cultivate a savings culture in the UAE market? Education is key to creating a savings culture and we believe employers play an important role in helping to raise awareness of financial planning and regular savings programmes in the UAE. As a business, we are passionate about educating the public on the importance of saving. To do this, we play a major role in educating residents and nationals on financial literacy. For example, we host financial workshops for companies on the saving and investment outlook in the UAE and compile an annual National Bonds Savings Index, which analyses the spending savings and spending habits of UAE residents. cont. overleaf
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WEALTH MANAGEMENT
cont. from pg 39
However it is not just about education. We also have a series of programmes tailored to suit all investor needs. Take our Employee Savings Programme (ESP), this was created for companies as a way to retain employee talent, enhance employee well-being and increase staff retention. Nationals Bonds will continue to raise awareness of Shari’ah-compliant savings and investments tools to residents and nationals across the emirates with a view to increase the number of regular investors in the UAE. Through financial instruments and planning, we aim to help boost the national economy and help investors achieve sustainable financial stability and security. What are the company’s plans moving forward? As mentioned, we are committed to increasing the number of regular investors in the UAE and in line with the government’s vision; we are striving to help foster a savings culture through education and awareness. At National Bonds, we are continually adjusting our various offerings to suit the needs of our customers; the environment and the ever-changing market we live in. There are so many options available when it comes to savings and investment and our mission is to ensure our customers take the right steps to achieve their goals. This means providing them with the best advice, a successful financial plan and access to a wide-range of products. Our customers sit at the heart of everything we do and drive our business goals. Our mission is simple. We want to continue to provide excellent customers service. For example, we are currently working to develop cheque deposits and collection services. We have also adopted a digital-first approach, seen in a number of enhancements made to our digital platforms. Our customer-centric approach will benefit all our customers, those who seek financial advice in our physical branches and those who want to carry out transactions via online platforms on the go. Our digital platforms will play a key role in this, as it will allow us to reach our customers faster and provide customers with a seamless customer journey, end to end.
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The product was designed by our Wealth Management team with the aim of providing high net worth individuals with investment advice and opportunities within the National Bonds Corporate (NBC) portfolio. MOHAMED SALAH, Head of Corporate & Wealth Management, National Bonds
MOHAMED SALAH
www.islamicbusinessandfinance.com
SUKUK
OUTSTANDING SUKUK MAP OUTSTANDING SUKUK MAP
THE SIZE OF THE OUTSTANDING SUKUK MARKET GLOBALLY AS OF 15 NOVEMBER 2017 The size of the outstanding Sukuk market globally as of 06 Nov 2016
SOURCE: Zawya Islamic
ANNOUNCED/OPEN SUKUK IN NOVEMBER 2017 STATUS
ISSUER NAME
SUKUK NAME
SUKUK STRUCTURE
COUNTRY
CURRENCY
SUBSC. DATE
ISSUE SIZE ($M)
MARGIN
TENOR
ARRANGER/ADVISOR
Announced
Aplya Star Holding III Limited
Alpha Star Hldg III Ltd 6.25% 20-04-2022
Ijarah
UAE
USD
20 April-17
500
-
Five Years
-
Announced
Dar Al-Arkan Sukuk Company Ltd.
Dar Al Arkan Sukuk Co. 6.875% 10 April 2022
Unknown
Saudi Arabia
USD
10 April-17
500
-
Five years
-
Announced
ICD Funding Limited
ICD Funding Ltd 4.625% 21 May 2024
Unknown
Saudi Arabia
USD
18-Oct-17
200
-
Seven years
ICD
Announced
IDB Trust Services Ltd
IDB Trust Services Ltd 2.261% 26 Sept 22
Unknown
Saudi Arabia
USD
22-Sept-17
1,250
-
Five years
IDB
Announced
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 4.150% 28 Mar 27 - Reg S
Unknown
Indonesia
USD
29 March-17
1,725.4
-
15 years
-
Announced
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 4.150% 28 Mar 27 - 144A
Unknown
Indonesia
USD
29 March-17
274.6
-
15 years
-
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 3.400% 29 Mar 22 - Reg S
Unknown
Indonesia
USD
29 March-17
855.62
-
10 years
-
Announced
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 3.400% 29 Mar 22 - 144a
Unknown
Indonesia
USD
29 March-17
144.38
-
10 years
-
Announced
IDB Trust Services Limited
IDB Trust Services Ltd 2.393% 12 April 22
Unknown
Saudi Arabia
USD
12-April 17
1,250
-
10 years
IDB
Announced
DIB Sukuk Limited
DIB Sukuk 14 Feb 2-22
UAE
USD
15-Feb-17
1,000
Dubai Islamic Bank
SOURCE: Zawya Islamic
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ISSUE 106 | Islamic Business & Finance
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SUKUK
(Evlakhov Valeriy/SHUTTERSTOCK)
Dana Gas case highlights English law’s importance to Sukuk AFTER THE UK RULING, DANA GAS SUKUKHOLDERS MAY GO AFTER THE UNDERLYING ASSETS, WRITES MOHAMMED KHNIFER, A SENIOR ASSOCIATE (DEBT CAPITAL MARKET) AT ISLAMIC DEVELOPMENT BANK GROUP 42
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SUKUK
The Dana Gas Sukuk has been one of the most pivotal stories of the year for the industry.
F
ollowing a UK court ruling in November 2017 in favour of the Dana Gas Sukukholder, the Islamic finance industry has seen some relief, even though we are not out of the woods yet. This can be seen as a sign of relief because it reconfirms and reinforces the superiority of the English law used in Sukuk prospectuses worldwide. This ruling upholds the underlying contractual agreements entered
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into by Dana Gas, particularly the purchase undertaking over the variation of Shari'ah interpretation. We say we are not out of the woods yet because there is a risk we might end up with two contradictory rulings, if in fact Dana receives favourable outcome from the Sharjah courts. Even if that happens, Sukuk-holders can target the Sukuk assets in the British Virgin Islands (which follows
English law), Bahrain and Egypt, which could bring ‘value destruction’ to Dana Gas. Nonetheless, if we reach this stage, Sukukholders know that the value of the external assets are not enough and they have to go after the Sukuk assets in the UAE. First, they need to make the UK ruling enforceable within UAE. Keep in mind that the UK court ruling takes into consideration that the Sukuk might not be upheld under the UAE law. However, if this turns to be the case, the liability of that is borne by Dana Gas. Hence, the company must honour the purchase undertaking given to the Sukukholders. Given that Lord Justice of Appeal George Leggatt ruled that the company’s challenges to the purchase undertaking behind the Sukuk were ‘unfounded’ and that the agreement was ‘valid and enforceable’, appealing such ruling will only delay the unavoidable. Sukukholders will be now more inclined to rely heavily on English law and avoid local laws as much as possible with dollardenominated issuance. Contact Mohammed Khnifer at mkhnifer@gmail.com or on twitter @mkhnifer
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SUKUK
(Marcel Jancovic/SHUTTERSTOCK)
Leaving the door open for divergence in interpretation STANDARDISATION IS NECESSARY FOR THE FUTURE OF SUKUK, WRITES BASHAR AL NATOOR, GLOBAL HEAD OF ISLAMIC FINANCE, FITCH RATINGS
T
he lack of standardisation in Islamic finance is a significant constraint on the industry's growth and we
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expect progress to be slow given the scale of the challenge. Greater harmonisation of Shari'ah codification within and
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between jurisdictions is often cited as a limiting factor. But we believe it is just one of five overlapping areas where greater
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SUKUK
The lack of standardisation leaves the door unlocked for greater issues to creep in.
standardisation and codification will be needed if Islamic finance is to gain wider acceptance among regional and international investors. As well as Shari'ah, we see product structure and documentation, supervisory and regulatory frameworks, law and dispute resolution, and financial and accounting reporting as the main areas where standardisation would be advantageous. In some cases, there is still little standardisation even at a local level, while in others, progress would be needed on a regional, or international, basis. One of the barriers to standardisation is the argument
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that it may limit innovation, but we do not believe this to be the case. Malaysia is the most standardised market in the Islamic finance community and remains one of the most i n n o v at i v e . S t a n d a r d s i n regulatory and legal areas, which aim to describe rights and obligations under all circumstances, would support c o n s i s t e n c y, s t r e n g t h e n supervision and enable the industry to move to the next phase of its development. This would be particularly important for driving corporate S u k u k i s s u a n c e l o c a l l y, regionally and internationally, which is dominated by sovereign issuance. New Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council (GCC) region, Malaysia, Indonesia, Turkey and Pakistan totalled $49.6 billion in the first nine months of 2017. This is 24 per cent more than the $40 billion issued in the whole of 2016, driven predominantly by increased sovereign issuance in the GCC. Sukuk's share of total issuance in these markets has also risen to 30 per cent this year, from 29 per cent in 2016. While there is broad agreement on key Shari'ah principles, their interpretation and the process for assessing compliance can vary s i g n i f i c a n t l y. M a l a y s i a ' s centralised Shari'ah supervisory board warrants all Sukuk are compliant with nationally accepted principles. GCC member states, on the other hand, leave the question of compliance to Shari'ah boards of
individual financial institutions and Sukuk stakeholders, which leave the door open to divergence in Shari'ah rulings and interpretation. There has been progress recently in some GCC countries, most notably Bahrain's creation of a central Shari'ah board, which supervises Islamic finance product development and provides guidance to the central bank. However, there is still limited clarity on these initiatives' mandate and influence. Th e s e d i f f e r e n c e s i n interpretation can deter investors, especially when combined with similar variation in laws and their application, and the lack of legal precedence for effective enforcement of creditor rights in many jurisdictions. This is highlighted by Dana Gas's court case, after the company said it had received legal advice that its Sukuk in its present form is not Shari'ah compliant and is therefore unlawful under UAE law. Industry groups, such as the Accounting and Auditing O r g a n i s at i o n f o r I s l a m i c Financial Institutions (AAOIFI), are expanding and have developed standards to try and drive harmonisation in several areas, including Shari'ah and financial reporting. AAOIFI recently admitted Saudi Arabia's central bank as a member and also issued a new standard that encourages the creation of central Shari'ah boards and sets out common principles for establishing them. However, implementation of standards like this has been slow and patchy, and we expect this to remain the case.
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THE INSIDE STORY
A European master switches to Halal SWISS MEAT PRODUCER FABIAN MOLINARI, FOUNDER OF MOLINARI-HALAL, IS BRINGING HIS FAMOUS QUALITY TO THE MUSLIM CONSUMER
(DavidYoung/SHUTTERSTOCK)
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THE INSIDE STORY
The livestock of Switzerland are renowned for their high quality.
Have you always made Halal meat? We started making Halal meat six months ago. Why did you switch from producing non-Halal meat to Halal meat? Before, I was producing non-Halal meat. The quality of our animals in Switzerland is high because they grow up in the Swiss mountains with fresh air. My friends asked me, ‘why are you not doing this quality in Halal meat, so we can also eat your meat?’ First I was trying lamb sausage, and then beef. When I gave it to people to test it, everybody liked it. As I am Swiss, I don’t know what people in the Middle East are looking for. My Syrian friend has suggested we do a lamb sausage with pine nuts in the future. Coming from a non-Halal background, now that you’re working in Halal, was it a difficult transition? It is not difficult to switch. It was absolutely an easy process. We would like to share our meat quality with everybody. Our government told us to put sheep and cows in the mountain, and give money to help us. These days fewer and fewer farmers are active in the mountains of Switzerland. Muslims eat a lot of this kind of meat, and I would like to share this quality of meat with them. Do you find the Halal process improves the quality? In fresh meat, I can see the difference in quality. If I see a piece of Halal meat versus a piece of nonHalal meat, it looks different, better, and fresher. You can taste and feel the different flavour. cont. overleaf
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THE INSIDE STORY
In fresh meat, I can see the difference in quality. If I see a piece of Halal meat versus a piece of non-Halal meat, it looks different, better, and fresher. You can taste and feel the different flavour. FABIAN MOLINARI, Founder, Molinari-Halal
cont. from pg 47
For me today, Halal has a much better flavour than non-Halal meat. How have you gone after getting customers in the Muslim world? What ’s amazing is that ever ybody likes Switzerland. When I tell people that I am from Switzerland, they think of high quality, elegance, good flavour, and more. There are three companies in Singapore and Malaysia who are interested in our truffle products specifically because we are from Switzerland.
For example, if a customer comes to me and asks me to cook something after it is dried, I will not work with them. What I will do is dried beef with truffle—that is the next project. Then I will try beef sausage with beets and potato, a traditional recipe from my country. I want to go back to the old-style sausages that we did before and bring them to a whole new region. Fabian Molinari, Founder, Molinari-Halal
What’s your plan for the next six months? In the next six months, we want to get Halal certification for the UAE, and apply for another certification for Saudi Arabia, and then expand throughout the rest of the GCC. This will slowly start our Halal business. I can say with pride that this quality that we produce doesn’t exist in the market. Everything, from every step of the farming and slaughtering, is done by me and my father. It’s a two-man family business. I do not do quantity—I do quality. That’s the difference. Do you want to do different types of products in the future? I’m open to everything. But over time, it will depend on the quantity of animals that I can get, and the different type. I will not do what my clients tell me to do if I feel it will affect our quality.
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THE INSIDE STORY
(hessianmercenar/SHUTTERSTOCK)
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Switzerland may have gotten its first Halal entrepreneur in Molinari.
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DATES FOR YOUR DIARY
29 November 2017
4-6 December 2017
(trabantos/SHUTTERSTOCK)
THE ISLAMIC BUSINESS & FINANCE SOUTHEAST ASIA AWARDS
WORLD ISLAMIC BANKING CONFERENCE
The Islamic Business & Finance Awards have been the premiere Awards programme in the industry since their inception over a decade ago. Focusing on Southeast Asian institutions contribution to the Islamic economy, these Awards will continue that longstanding tradition. The ceremony promises to be an essential part of the calendar for professionals across Southeast Asia.
Now reaching its 24th year, the World Islamic Banking Conference (WIBC) continues to be a key date on the yearly map for Islamic financial professionals worldwide, bringing together those from across the Islamic economy to discuss the most important issues of the day as well as making landmark agreements and announcements.
VENUE: Kuala Lumpur, Malaysia www.cpifinancial.net
VENUE: Manama Bahrain www.WIBC2017.com
13 December 2017
11-12 December 2017
(TTstudio/SHUTTERSTOCK)
THE 12TH ANNUAL ISLAMIC BUSINESS & FINANCE AWARDS
For over a decade, CPI Financial has been gathering the industry’s leaders to honour the best of the best in the field. This December, we look forward to welcoming you to Dubai in order to do it all over again. As always, it will be the must attend event of the season. Keep an eye on www.cpifinancial.net on announcements on when voting will open! VENUE: Emirates Towers, Dubai www.cpifinancial.net
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16TH ISLAMIC FINANCIAL STABILITY FORUM: THE EVOLVING FINTECH LANDSCAPE AND FINANCIAL STABILITY CONSIDERATIONS IN ISLAMIC FINANCE
The IFSB will be organising its 16th Islamic Financial Stability Forum (IFSF) under the theme ‘Resolution, Recovery and Insolvency of Institutions Offering Islamic Finance Services’ on 11 December 2017 in Kuala Lumpur, Malaysia, jointly hosted by the Central Bank of the Islamic Republic of Iran and Bank Negara Malaysia. The 16th IFSF is held in conjunction with 31st Meeting of the Council of the Islamic Financial Services Board. VENUE: Kuala Lumpur, Malaysia http://www.ifsb.org/event_detail.php?e_id=307
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DATES FOR YOUR DIARY
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COUNTRY FOCUS
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ISSUE 92 | Islamic Business & Finance
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