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ISSUE 101
ISSUE 101 KBW LAUNCHES ISLAMIC FUND An exclusive with HRH Prince Khaled bin Alwaleed bin Talal
KBW LAUNCHES ISLAMIC FUND AN EXCLUSIVE WITH HRH PRINCE KHALED BIN ALWALEED BIN TALAL
A CPI Financial Publication
PLUS:
page 3-4 contents101.indd 1
TAKAFUL:
Takaful in Indonesia
SUKUK:
DUBAI:
Metito’s experience DIEDC’s updated in Africa strategy
15/02/2017 14:47
bleed guide.indd 1
13/11/2016 12:19
CONTENTS
ISSUE 101
REGULAR SECTIONS
EDITOR'S LETTER
10
Greetings, all
W
elcome to our latest issue of Islamic Business & Finance. This is the 101st issue of the first and longest-running Islamic finance magazine in the world. It was so wonderful to meet all of you at the Islamic Business & Finance Awards 2016. Congratulations again to all of the winners, and I wish you all the best of luck when Awards time comes again later this year. I’m very excited to bring you the cover story to this issue, our exclusive interview with HRH Prince Khaled bin Alwaleed bin Talal and the launch of his first Islamic fund with KBW Investments. One of the true leaders in the investment world today, and one of the most sought after voices in the space, it was an honour to break the story ourselves, and bring you all the details. Please enjoy the interview, and we look forward to bringing you more huge exclusives like this as the year goes on. There’s plenty to peruse. I hope you enjoy digging into another great issue. Until next time,
OPINION
8
6
WIBC 2016: The race to innovate
COVER INTERVIEW
10 KBW LAUNCHES
ISLAMIC FUND HRH Prince Khaled bin Alwaleed bin Talal
SUKUK
38 MARKET WATCH 40 METITO’S EXPERIENCE
40
WITH SUKUK IN AFRICA
TAKAFUL
44 INDONESIAN TAKAFUL
NO LONGER OUTPACING CONVENTIONAL INSURANCE
DIARY AND NEWS ANALYSIS
6
NEWS & ANALYSIS
50 DATES FOR YOUR DIARY
William Mullally www.islamicbusinessandfinance.com
page 3-4 contents101.indd 3
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CONTENTS
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ISSUE 101
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QATAR
LONDON
16 QATAR AIMS BIGGER
28 LONDON’S ISLAMIC FINANCE FUTURE
SHARI’AH FOCUS ISLAMIC BANKING
20 AAOIFI UNVEILS NEW
35 NBF ISLAMIC: Meeting
SHARI’AH STANDARD ON GOLD
customer’s needs
24 SHARI’AH IN THE MARKET
THE INSIDE STORY
ECONOMY
46 ROUGE COUTURE:
DUBAI
Modest style
32 DIEDC UPDATES ITS STRATEGY
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ISSUE 100
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
bin Talal
BIN ALWALEED BIN
PLUS:
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TAKAFUL:
Takaful in Indonesia
SUKUK:
Mohammed Qasim Al Ali, CEO, National Bonds
Fadi Al Faqih, CEO, Bank of Khartoum
TALAL
TAKAFUL:
Mixed results for GCC Takaful in 2016
SUKUK:
Turkey aims for a bigger slice
A CPI Financial Publication
page 3-4 contents101.indd 4
HRH PRINCE KHALED
A CPI Financial Publication
AN EXCLUSIVE WITH
A CPI Financial Publication
Islamic Business & Finance | ISSUE 101
ENSURING A BETTER FUTURE Mohammed Qasim Al Ali, CEO, National Bonds
ENSURING
A BETTER FUTURE
FINDING
GLOBAL SUCCESS
CHES KBW LAUNFU ND ISLAMIC
AWARDS:
The Islamic Business & Finance Awards 2016
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PLUS:
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TECH:
The great enabler
SUKUK:
SRI in Malaysia
AWARDS:
The Islamic Business & Finance Awards 2016
18/09/2016 17:12
DUBAI:
e DIEDC’s updated Metito’s experienc strategy in Africa
15/02/2017 14:45
page 3-4 contents101.indd
4
ISSUE 99
FINDING GLOBAL SUCCESS Fadi Al Faqih, CEO, Bank of Khartoum
Prince Khaled bin Alwaleed
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NEWS & ANALYSIS
The industry needs to move faster to innovate. A report by Thomson Reuters launched at the WIBC 2016 stated that Islamic banks in the GCC hold approximately $100 billion in cash and money market placements, the majority of these placed with instruments based on commodity Murabahah, which has a number of operational and Shari’ah issues.
(Florante Magsakay/CPI FINANCIAL)
The UAE, and specifically Dubai, has become one of the most active financial hubs globally. In the context of Dubai’s drive to establish itself as a capital of Islamic economy, it is necessary that financial transactions align with Islamic values to ensure a sustainable and lasting economic and social impact. Preserving the financial sector is vital to shaping a stable national economy. In order to achieve this, we need to keep innovating new products & services that bridge the gaps in existing liquidity management platforms and to comply with Shari’ah standards related to funding individuals and companies. MOHAMMED QASIM AL-ALI, CEO of National Bonds
The proposal by the AAOIFI for centralised Shari’ah boards, if implemented in countries active in Islamic finance, should help the industry move toward greater standardisation and harmonisation in Shari’ah interpretations. In our opinion, the lack of such standardisation has prevented the industry from achieving a greater degree of global integration, and accounts for its current fragmentation. The lack of standardisation has also created an additional layer of complexity for Islamic financial market instruments, particularly Sukuk, and has deterred some potential issuers from tapping the market. We think AAOIFI’s proposals represent a step in the right direction. As a further step, we believe the industry could benefit from additional recommendations about how national boards could interact and cooperate, accelerating global standardisation. DR. MOHAMED DAMAK, Global Head of Islamic Finance at S&P Global Ratings
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SPONSORED BY:
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Untitled-1 1
08/02/2017 16:46
OPINION
WIBC 2016: The race to innovate
A
t WIBC 2016, held as always in Manama, Bahrain at the beginning of December, there was more focus on technology than ever before. The entire first day of the conference was dedicated just to fintech, and how the many developing technologies in that space will affect not only Islamic banks, but the entire banking world, both conventional and Shari’ah-compliant. For all of the substantive discussions that both banks and fintech vendors had, the message was simple: adapt or get left behind. This message was echoed by the Governor of the Central Bank of Bahrain, HE Rasheed Mohammed Al Maraj, who spoke on technology in his opening speech. “The point is about the smart use of technology, which is a game-changer in the banking business, as in most other facets of our lives,” he said. “Technology has made it possible to access more customers in a more comprehensive way at a lower cost than in the past. Islamic banks must make full use of these technological enhancements and invest more in this space. Financial technology or ‘fintech’ is leading the way. The CBB believes in embracing new technology and will soon be issuing regulations to facilitate fintech solutions. We would like to see Islamic banks come forward and take the lead in this area.” Not every bank in the world is a leader, though you won’t hear them say that. But while in the past it may have been possible to let another bank lead the way in innovation, let them make the mistakes before seeing what works and adopting it, with the coming fintech revolution, that just won’t be possible. Things are going to change faster than ever before, and the banks that don’t jump to innovate and adopt new technology will be too far behind. It’s time we stopped talking about fintech and started doing more about it.
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William Mullally
Editor
www.islamicbusinessandfinance.com
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COVER INTERVIEW
KBW LAUNCHES
ISLAMIC FUND
IN AN EXCLUSIVE INTERVIEW, HRH PRINCE KHALED BIN ALWALEED BIN TALAL REVEALS THE FULL STORY BEHIND HIS INVESTMENT FIRM’S JUMP INTO THE SHARI’AH SPACE
T
ell me about the history of KBW Investments. I founded KBW Investments four years ago with the idea that it would act as the vehicle for most of my corporate investment activities, and that it would later act as the holding company or ‘parent’ company for entities that would work well in the Group's overall portfolio. KBW’s Group CEO Ahmed Alkhoshaibi proposed that we begin with investing in manufacturing via acquisition, and from there we began developing the schema that the Group follows until the present day. In mid-January we launched our newest company, ARADA, in partnership with Basma Group and we’ll be announcing ARADA’s first development project shortly. Outside of KBW Investments, I have my private investment activities in an angel capacity, and I’ve also solely founded KBW Ventures.
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When did you start considering getting into the Shari’ah-compliant investment space? What interested you? Crestmount Capital is KBW’s first movement in the Shari’ahcompliant investment space. I find the opportunities in Islamic finance interesting—there’s a lot to discover both cont. on pg 12
www.islamicbusinessandfinance.com
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COVER INTERVIEW
HRH Prince Khaled bin Alwaleed bin Talal
www.islamicbusinessandfinance.com
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ISSUE 101 | Islamic Business & Finance
11
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COVER INTERVIEW
cont. from pg 11
professionally and personally. On a professional front, I found the fairness of it most appealing. The extensive work that we’ve done in preparation of launching Crestmount Capital with Amanie Advisors has been really educational. Everything from the issuances of Fatwas for funds and other Islamic financial instruments, to the process behind Shari’ah-compliance assessment to the recommendations on best practices—it was an exciting arena for me to be in as there was a learning curve in terms of processes and procedures; it was pretty much a new frontier altogether for our business. From a personal perspective, it’s also about meeting new investors who I previously had no interaction with in a business respect. Even the entities that we went with to help us hone our specialisation in best-in-class Islamic finance were different than who we typically work with. Crestmount Capital’s development, launch and successful execution served to really expand my knowledge base, and at the same time really hooked me on Islamic investing's potential.
Ahmed Alkhoshaibi, Group CEO, KBW Investments
How did you settle upon this particular plan? We decided to move forward on Islamic financial instruments when formulating plans on how best to diversify the KBW Investments portfolio. We already work in what is considered the more ‘mainstream’ investment arenas, so this gave us an additional value-added facet while providing a fresh avenue for overall company growth, diversification, and expansion. We decided on Crestmount Capital as the vehicle for our new Shari’ah-compliant investment fund so that it could operate as a standalone entity with autonomy, and simultaneously be fully in-line with the specific principles and needs of Islamic finance. Crestmount’s Shari’ah Supervisory Board, all of whom are renowned scholars across various disciplines in Islamic economics and finance, are the widely-acknowledged architects of the actual Islamic financial structures. We feel that having such strong figures vetting Crestmount operations and instruments is key, and to successfully go that route we needed to have a full enterprise dedicated solely to it. Tell me more about PietyTHP Developments. PietyTHP Developments is based in Australia, and will be delivering the projects that
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COVER INTERVIEW
Crestmount Fund I will be investing in. The projects targeted for the capital are new high density, residential developments developed by Piety Investments, the largest Shari’ah compliant developer outside of the GCC and Asia. PietyTHP Developments is a joint venture between Piety and the property arm of Lembaga Tabung Haji of Malaysia. Lembaga Tabung Haji, Malaysia’s largest Islamic fund manager, has more than 50 years of experience in deposits, Hajj services and operations, and investments. What work went into setting it up? To launch Crestmount, first we had to justify launching Crestmount. That meant some heavy research into whether or not it was viable, sustainable, and worthwhile. After the initial research was undertaken and that we were
IThe
launch of CRESTMOUNT CAPITAL
KBW Investments KBW, established by Chairman HRH Prince Khaled bin Alwaleed bin Talal, announces the launch of Crestmount Capital (Crestmount), dedicated exclusively to the Islamic finance sector. In tandem with the founding of the Crestmount the company today confirmed that Crestmount Fund I, a fully Shari'ah compliant real estate investment fund (REIF), has attained the full commitment of AED 267 million. Crestmount Fund I, with plans to immediately deploy the raised amount into five separate Australian Shari'ah-compliant projects at a local market value of $100 million (AUD), privately circulated the opening investment opportunity under the guidance of Amanie Advisors. The projects targeted for the capital, at varying stages of progress, are residential developments conceptualised and developed by the largest Shari'ah-compliant developer in Australia, PietyTHP Developments.
A salient takeaway is that not only is the appetite for Islamic investment opportunities strong, it’s much more pervasive than we first thought. HRH KHALED BIN ALWALEED BIN TALAL
sure we could clear the barriers to entry and add value, we became confident market-wise. We then began to look into respective fund structures and what avenues best suited our existing knowledge base and access levels. Once we had a working model, we went into deep legal and financial preparations, and sought out Amanie Advisors based on their extensive industry recommendations and demonstrated delivery with both theoretical and practical experience. Tell me more about the Fund itself. How is it structured, and what kind of returns can investors expect? Crestmount Fund I, a closed-ended Shari’ahcompliant real estate private equity fund, is structured as a Cayman Islands entity. It will fund five identified under-development cont. overleaf
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residential projects in Sydney, Australia, through Shari’ah-compliant commodity Murabahah agreements. Crestmount Fund I is expected to generate a return ranging between 15-20 per cent per annum. In terms of the company parameters, and the Fund itself, every base was analysed to ensure that we had our investors’ best interests at the forefront of our value proposition. We’ve engaged KPMG as Crestmount’s auditors, given their respected stance in the Islamic financial marketplace, to ensure full transparency and detailed externally-generated overviews. Out of the ‘Big Four’, we felt that KPMG would be the most suitable for our present needs, and that they would see to Crestmount’s business meticulously. Legally, we’ve taken extra steps by bringing King & Spalding on board to assist us with the overall structure—this was one of the best decisions we’ve made thus far as it really helped us hone our position. We also engaged an additional firm, King & Wood Mallesons, to help us shape and define our structure as a best-fit scenario within Australian legal framework as Fund I’s capital is deployed in that market. We’ve opted for heavy-hitters across the board for Crestmount, as we’re in this for the long-term. How has the market responded to the fund thus far? We were very comfortable going to market and privately circulating Crestmount Fund I. The response was a very quick and simple confirmation of our initial findings: there is interest in Islamic investment instruments so long as the Fund itself looks to deliver on its promises and at an advantageous rate within a better-than-average turnaround time. We’re very happy with this early success, but we’ll be taking our time before we take on a second leg—we won’t be rushing. With Fund I, we were able to deploy the capital into a project that was secure and promised good results that more than satisfied our investors. Are you certain to have more Islamic activities in the future? What ‘consistent milestones’ are you aiming to hit? We launched a full company dedicated to pursuing our ambitions in the Islamic finance arena. Crestmount Fund I was a great
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COVER INTERVIEW
experience, and gives us a good platform to build on. We’d like to continue to source the right opportunities matched with the right investors.
you make. So, if you’re into a certain type of fund or a certain investment class, you typically meet those who echo your existing interests. Through launching Crestmount, and subsequently Crestmount Fund I, we were exposed to a different set of market players and market influencers. We learned a great deal about Islamic financial hubs, and when and how the deal flow itself is actually occurring.
What do you feel the Islamic finance space most needs to improve upon in the future? While standards and guidelines do exist for Islamic financial instruments, presently some aspects are positioned more as recommendations rather than absolutely binding. It’s true that certain parameters must be followed, but others are suggested as a best practise scenario. One codified source of requirements and recommendations that would act as the formal global ‘rule book’, so to speak, would be optimal. This, developed by a global governing body incorporating the opinions of the established Islamic economics and finance experts, could also perhaps archive the respective Fatwas in the financial space. It would be really useful and help to promote more integration, in my opinion. Last year, the UAE announced the launch of the country’s Shari’ah Authority. We’ve been told that UAE’s governing Shari’ah body would likely be similar to the Malaysian model, functioning primarily for standardisation of Shari’ah application purposes in the country and potentially also see to dispute resolution. The Malaysian Central Bank, BNM, introduced the Shari’ah Governance Framework in 2010 which governs Islamic financial affairs only for Islamic banking institutions, not funds or capital market products per se. One overall entity, again, based on a global consensus, issuing and standardising Islamic financial instruments and acting as the main reference and go-to point, would be in everyone’s best interests. I would really like to see that happen.
What have you found to be the main benefits of the Shari’ah-compliant structure? The main benefit to participating in the Islamic financial marketplace is the fairness and ethics involved, in my opinion. By not investing in prohibited areas, you aren’t contributing to potential pitfalls in society—that’s always a plus. Is it a benefit? Sure, you’re able to put your money into businesses that still turn a profit while remaining aligned with your own personal moral compass; that, to me, is a win-win situation from both commercial and ethical perspectives depending on what value system you choose to adopt.
How great are the opportunities for Islamic finance and investment, in your view? In my opinion, the activity is really very attractive and the potential for growth is limitless. We are committed to Crestmount for the long-term, and we have gone the extra mile to work with the strongest and most relevant entities across industries to ensure that it made a surefooted market entry, together with a stable future roadmap. If we thought there was a ceiling to where Crestmount could go and what it could do, we wouldn’t have created a standalone company with its own structure and resources.
What did you learn about the Islamic investment space through the process of setting up this fund? A salient takeaway is that not only is the appetite for Islamic investment opportunities strong, it’s much more pervasive than we first thought. Initially, the idea was floated that it was a ‘niche’, which it isn’t. I think in investment circles an echo chamber exists— the type of investors you end up interacting with are based on the types of investments
The main benefit to participating in the Islamic financial marketplace is the fairness and ethics involved, in my opinion. HRH KHALED BIN ALWALEED BIN TALAL
HRH Prince Khaled Bin Alwaleed Bin Talal
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QATAR
Qatar aims bigger MASRAF AL RAYAN, BARWA BANK AND INTERNATIONAL BANK OF QATAR TO CREATE LARGEST ISLAMIC BANK IN QATAR IN A POTENTIAL MERGER WHICH COULD MATERIALISE IN THE NEXT SIX MONTHS
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QATAR
M
asraf Al Rayan, Barwa Bank and International Bank of Qatar (ibq) have announced in December 2016 through a joint statement that they have entered into initial negotiations for a potential merger. Speaking off the record, a source close to the merger expects the consolidation to materialise six months down the road, following positive negotiations.
CREATING SUSTAINABILITY
(Fitria Ramli/SHUTTERSTOCK)
Qatar’s Islamic finance future could be set on a new path with this merger.
A successful amalgamation between the three banks will create the largest Shari’ah compliant bank in Qatar and the third largest Shari’ah compliant bank in the Middle East with assets worth more than QAR 160 billion ($43.92 billion) and a share capital of more than QAR 22 billion ($6.04 billion). It would also aggregate in the combined entity the key strengths of the three banks, particularly in the areas of retail and private banking, services to corporations and government institutions, Sukuk capital markets as well as wealth and asset management. Commenting on the significance of the potential merger, Mohamed Damak, Global Head of Islamic Finance, S&P Global Ratings said, “I think the merger is a step in the right direction as it might help in consolidating the banking system in Qatar which we view as highly competitive especially on intermediation margins that dropped by more than 80 bps since 2011. In the currently less supportive economic environment, the announcement made by these banks shows that shareholders of the Qatari banks are looking at their cost base and trying to look for some synergies and cost
reduction opportunities. If the merger goes through it will result in creating a significant player in Qatar with a market share of 13-14 per cent that would be able to compete head-on with other large players and to exploit the opportunities offered by Islamic banking in Qatar and more generally in other GCC countries.” The proposed merger is subject to the approval of the Qatar Central Bank (QCB), the Qatar Financial Markets Authority, the Ministry of Economy and Commerce, and other relevant official bodies. The union is also contingent upon the shareholder approvals of Masraf Al Rayan, Barwa Bank and ibq after the completion of detailed legal and financial due diligence on all three banks.
In the currently less supportive economic environment, the announcement made by these banks shows that shareholders of the Qatari banks are looking at their cost base and trying to look for some synergies and cost reduction opportunities. MOHAMED DAMAK, Global Head of Islamic Finance, S&P Global Ratings
The merged institution would operate in compliance with Shari’ah principles. This will mean that conventional bank ibq will have to conduct an overhaul of its business to become Shari’ah compliant. This is in line with ibq’s expansion agenda revealed in the cover story December 2016 issue of Banker Middle East where Omar cont. overleaf
www.islamicbusinessandfinance.com
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QATAR
Qatari Islamic and Conventional Banks' Lending Growth Islamic banks total assets (LHS) Conventional banks total assets (LHS)
cont. from pg 17
Bouhadiba, Managing Director of ibq said, “ibq’s expansion plans are very clear: organic and domestic.” According to data from QCB, the country’s banking system has $330 billion in total assets. The combined entity will possess approximately $44 billion in assets, commanding up to 14 per cent market share of the entire banking system. This puts the bank in the market position and balance sheet to compete with conventional banks, particularly on larger deals where many Islamic banks lack sufficient scale. If completed, the merger would make the combined bank the fourth largest Islamic bank in the world (excluding Iran) and sixth largest including Iran— according to industry reports— behind industry heavyweights, Al Rajhi Bank, National Commercial Bank and Kuwait Finance House.
STRENGTH IN NUMBERS The Islamic banking sector in Qatar has posted a steady growth. According to a recent report by Fitch Ratings, the Islamic banking growth rate was 7.2 per cent, while conventional banks grew at about 6.5 per cent in 1H16. This was mainly due to higher retail and real estate financing. Islamic banks accounted for 25.2 per cent of total financing at end1H16, against 25 per cent at end2015 (including Qatar National Bank’s acquisition of Turkey’s Finansbank, Islamic banks had 23 per cent at end-1H16). Despite high financing growth, Islamic banks in the country remain well-capitalised with an average Fitch Core Capital ratio of 18.3 per cent at end-2015. Comfortable capital buffers are believed to be needed in light of the banks’ high financing book
18
Islamic banks total gross financing (LHS) Conventional banks total gross loans (LHS)
(%) QATARI ISLAMIC AND CONVENTIONAL LENDING GROWTH Share of Islamic as % of total banks gross BANKS' financing (RHS) 80 (QARm)
Qatari Islamic and ConventionalGrowth Banks' Lending Growth of gross financing (Islamic) (RHS)
1,000
Conventional banks total assets (LHS)
40
Islamic banks total gross financing (LHS)
20 (%) 080
Conventional banks total gross loans (LHS)
(QARm) 0 1,000
Share of Islamic as % of total banks gross financing (RHS)
1H16
Growth of gross financing (Islamic) (RHS)
2015
2014
2013
2012
60 40 20 0
0
1H16
2015
2014
2013
2012
ASSET QUALITY AND CAPITALISATION Asset Quality and Capitalisation
Islamic banks impaired financing ratio (impaired financing/gross financing) Conventional banks NPL ratio (impaired loans/gross loans (%)
Tangible common equity/tangible assets (%), (conventional) Tangible common equity/tangible assets (%), (Islamic) Islamic banks finance impairment reserves/gross financing (%)
(%)
Conventional banks loan impairment reserves/gross loans (%) Asset Quality and Capitalisation 18 Islamic banks impaired financing ratio (impaired financing/gross financing)
12
Conventional banks NPL ratio (impaired loans/gross loans (%)
Tangible common equity/tangible assets (%), (conventional)
6
(%) 0 18
Tangible common equity/tangible assets (%), (Islamic) Islamic banks finance impairment reserves/gross financing (%)
1H16
Conventional banks loan impairment reserves/gross loans (%)
2015
2014
2013
2012
12 Fitch, banks Source:
SOURCE: Fitch, banks 6
concentration and exposure to real 0 1H16 2015 estate. Islamic banks calculate their Source: capital ratios according to Fitch, banks Basel III maintaining a minimum capital adequacy ratio of 12.5 per cent as per QCB requirements. In spite of its healthy capitalisation, some deterioration is expected in terms of asset quality. The average Islamic bank impaired loan ratio was 1.1 per cent at end-1H16, lower than the conventional bank average of 2.1 per cent, due to high financing growth. However, asset quality is expected to weaken with slower growth and seasoning of the financing book. All banks have high exposure to real estate and contracting, which has deteriorated due to delays in government payments to contractors. Islamic financial institutions in the country have relatively narrow
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Islamic banks total assets (LHS)
investment options. Due to limited 2014 2013 Shari’ah-compliant investment opportunities, liquidity is usually deployed in short-term placements with other Islamic banks. In 2016, the government issued Sukuk to domestic Islamic banks, which gave them access to a broader range of liquid assets, with better yields. Nevertheless, the Qatari financial industry has a relatively solid regulatory landscape. Islamic banks in the country follow the Islamic Financial Services Board guidance and prepare their financial statements in accordance with Accounting and Auditing Organisation for Islamic Financial Institutions standards, Shari’ah rules and regulations. Fitch expects profitability to remain healthy, but margins to be pressured by tighter market liquidity, which will increase banks’ funding costs.
2012
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SHARI'AH FOCUS
(Arsel Ozgurdal/SHUTTERSTOCK)
AAOIFI unveils new Shari’ah Standard on gold DEVELOPED IN COLLABORATION WITH THE WORLD GOLD COUNCIL, THE NEW STANDARD SETS OUT THE FRAMEWORK FOR SHARI’AHCOMPLIANT INVESTMENT IN GOLD AND SILVER
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he new Standard was officialy unveiled at a launch event in Dubai on 5 December 2016 where the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the World Gold Council jointly announced the issuance of ‘Shari’ah Standard No. 57 on Gold and its Trading Controls. The Standard deals with the Shari’ah rulings for gold in its various forms and categories, the Shari’ah parameters for gold transactions and the rulings for gold-based financial products in institutions. The Standard will, for the first time, set specific rules for the use of gold as an investment in the Islamic finance industry. However, within the Standard it is also made clear that all Shari’ah rulings on gold apply equally to silver. Until now, there have been no such rules. Discussions on the Standard (no. 57) were finalised at the AAOIFI Shari’ah Board meeting on 17-19 November 2016, where the final wording of the Standard was approved. The Standard development followed the usual strict AAOIFI process and incorporated a consultation period including public hearing sessions involving all key stakeholders, to ensure that the final Standard would be a practical tool for the industry.
financial institutions to satisfy consumer and investor demand through the development of new Shari’ah compliant gold products. The Standard shows that investment in gold is permissible provided that all the relevant Shari’ah rulings are satisfied, including those relating to taking possession of gold and the proper calculation of Zakah. Dr. Hamed Hassan Merah, Secretary General of AAOIFI, said, “This all-important Shari’ah Standard culminates substantial efforts exerted by the AAOIFI Shari’ah Board, being the leading and most influential Shari’ah authority across the Islamic finance industry worldwide. It constitutes a new addition to the existing set of AAOIFI’s standards as it covers Shari’ah- compliant mechanisms for dealing and investing in gold in present-day setting, potentially setting ground for constructing and structuring of new investing products in conformity with Shari’ah rules and precepts, in addition to those relating to liquidity management
for Islamic financial institutions. Hopefully, this would represent a progressive stride for the Islamic finance industry.” Dr. Merah added that the AAOIFI Shari’ah Board consisted of 20 scholars from 15 countries around the world. In the development work on the new Standard, three public hearings were held in Oman, Sudan and Malaysia and more than 100 hours of meetings took place.
This will be the first time specific rules have been set on gold for Shari'ah-compliant investment.
SHARI’AH CONSIDERATIONS According to Shari’ah rules, gold can be both a currency and a commodity. It is a Ribawi item, and, along with silver, belongs to the subcategory known as ‘the two precious metals’. In both cases, the Shari’ah rulings on currency exchange (Sarf) must be adhered to when trading in gold, where Shari’ah rules consider the exchange of gold for gold permissible provided that the two legs of the transactions are equal in weight and that the exchange is concluded on the same day or session.
AAOIFI’s Shari’ah Board met in Bahrain 17-19 November 2016 to review and approve the new Shari’ah Standard on gold.
cont. overleaf
THE GOLD STANDARD The Standard was designed to clarify the rules on investing in gold in Islamic finance. It will enable more Shari’ah-compliant investment and govern an important asset class, which by its nature is highly liquid and constitutes an alternative investment vehicle within the Islamic finance industry. The Standard will allow Islamic
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cont. from pg 21
However, if gold is exchanged for silver or any other form of money, the transaction is considered permissible provided that handing over and taking possession are carried out based on Shari’ah rulings with respect to Taqabudh (i.e. in the session of the contract ‘trade date or T+0’). The condition of Taqabudh (immediate payment and receipt by the two parties to an exchange) does not apply to the exchange of gold for other commodities or services or other Ribawi items that belong to the subcategory of foodstuffs, e.g. wheat, dates, etc. The Standard covers the use of gold in various contractual settings including partnerships, sales, noncommutative contracts (donations), and contracts of security (surety). These applications of the Standard may be used to develop Shari’ahcompliant products such as vaulted gold, regular gold savings plans, gold certificates and physical gold ETFs, amongst others.
‘requires specific identification of the gold’. In fact, the initial work on establishing a Shari’ahcompliant gold investment solution began with consultation between the World Gold Council and Amanie Advisors, prior to the work of AAOIFI. Speaking at the launch of the Standard, Natalie Dempster, Managing Director, Central Banks and Public Policy for the World Gold Council, noted that gold plays three key roles in investment: in wealth preservation; in risk management; and in diversification. In each case she emphatically underlined,
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Size of gold market versus Islamic asset classes
Takaful US$23 billion Islamic Funds US$71 billion
Gold US$7 trillion
A NEW ASSET CLASS? It is likely to help open up a new investment asset class, enabling Islamic banks and other financial institutions to grow their customer bases and facilitate the creation of a broader range of saving, hedging and diversification products. A number of existing gold investment products are likely to be deemed acceptable under the Standard but no current futures or forward contracts are considered to be Shari’ah-compliant. One of the key factors is tracing ownership, thus any product with unallocated gold cannot be compliant; the Standard, said Datuk Dr. Mohd Daud Bakar, Founder and Executive Chairman, Amanie Group,
“Yes it does!” to the question of whether gold plays the same role for the Islamic investor as for the conventional investor. The Standard means that s ave r s a n d i nve s t o r s m ay benefit from gold in a Shari’ahcompliant way. Gold is a physical, tangible asset with no credit risk, it acts as a unique portfolio diversifier, it outperforms in times of crisis, it outperforms major currencies, and it protects against inflation / preserves capital in the long run. World Gold Council research shows that modest allocations to gold of between 2-10 per cent can protect
Sukuk Outstanding US$291 billion
Islamic Banking Assets US$1.5 trillion
SOURCE: IFSB, World Gold Council Gold market based total above ground stocks SOURCE: IFSB,size World GoldonCouncil Gold market size based on total above ground stocks
DJ Sukuk Index
Gold less volatile than most Islamic finance asset classes
8.0%
Gold
19.0%
DJ Islamic Index
19.3%
FTSE World Shariah Index
19.5%
Axis REIT
20.5%
FTSE NASDAQ Shariah Index
24.8%
Bloomberg Takaful Index
32.8% 0
5
10
15
20
25
30
35
SOURCE: Bloomberg, World Gold Council
SOURCE: Bloomberg, World Gold Council
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Natalie Dempster, Managing Director, Central Banks and Public Policy, World Gold Council
Dr. Hamed Hassan Merah, Secretary General, AAOIFI
and enhance the performance of a typical Shari’ah-compliant investment portfolio. Research by the Council suggests that gold is less volatile than major Islamic equity indices, REITs and the Takaful index. While it can be more volatile than Sukuk, gold may be considered a ‘safer’ asset class because it carries no credit risk or third-party liability. The gold market dwarves many existing Islamic finance asset classes. With regard to the impact on the gold market of the new Standard, Dempster said, “Islamic countries [currently] hold significantly less gold than their conventional counterparts. Many don’t hold enough to figure in the official statistics; those that do hold gold, it has been limited very much to bars and coins. They haven’t adopted exchange-traded or modern products… AUM [assets under management] in Islamic finance amounts to $2 trillion. If just one per cent of that was to go into gold it would equate to 500 tonnes, a quarter of all the gold mined each year.” In a statement to the press, Aram Shishmanian, CEO of the World Gold Council, said, “This is a ground breaking initiative for Islamic investors and for
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Datuk Dr. Mohd Daud Bakar, Founder and Executive Chairman, Amanie Group
the gold industry at large. We are delighted that there is now definitive Shari’ah guidance on the permissibility of investing in gold. Gold is a proven wealth preservation asset that Islamic investors can now deploy to protect their wealth and diversify market risks.”
BANKING ON GOLD As a Shari’ah-compliant asset class, gold could attract the attention not just of both Muslim and non-Muslim individual and institutional investors but also of Islamic commercial banks. Dependent upon Central Bank approval, gold could be considered a high quality liquid asset [HQLA] under the Basel III liquidity requirements. Such a move could ease the issues facing Islamic banks in meeting these requirements through only a limited supply of Sukuk. Dempster confirmed that this ‘could be an additional use for gold if national regulators deem it appropriate’. It would be surprising if Central Banks do not follow this route. The relative illiquidity and limited size of investable asset classes remain major problems in Islamic finance. Illiquidity is compounded by the scarcity of
investable assets, which itself leads to investor hoarding once the assets have been acquired. The suspension in 2015 by Bank Negara Malaysia of its shortterm Sukuk issuance highlighted the limitations on the liquidity management tools available in Islamic finance. Gold, on the other hand, according to the World Gold Council publication Advancing Islamic finance through gold, is one of the world’s largest and most liquid asset classes and is some 24 times larger than the current volume of issued Sukuk. Following the launch in Dubai, AAOIFI took the new Standard on the road—to Bahrain, back to Dubai, to Malaysia and Indonesia to meet with banks and physical gold dealers. The Standard will be adopted by countries and jurisdictions that currently adopt AAOIFI’s rulings on a mandatory basis (Bahrain, Oman, Pakistan, Sudan, Syria), as well as those countries that use these Standards as the basis for national Shari’ah guidelines (Indonesia and Malaysia) as well as individual institutions in other jurisdictions where the AAOIFI standards are used as the basis for internal guidelines (Saudi Arabia, France, UK, UAE, Qatar and countries in Africa, Central Asia and North America). The new Standard was first published in Arabic but will be available in other languages shortly, including English, Russian and Urdu among others. It may be accessed by subscribers to the digital version of AAOIFI’s Standards (through AAOIFI’s website and mobile app platforms) or via the specially created website www.shariahgold.com.
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Shari’ah in the market economy
A picture of the IE Business School
VALENTINO CATTELAN, PH.D, ASSOCIATE RESEARCHER AT IE BUSINESS SCHOOL (SAUDI-SPANISH CENTER FOR ISLAMIC ECONOMICS AND FINANCE) DISCUSSES HIS RESEARCH INTO FIQH AND ISLAMIC CONTRACT LAW
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A
lthough Islamic finance has constantly grown in the last decades, key theoretical and operative issues are still under debate. But, despite the strong religious commitment embedded in Muslim Fiqh, it is the theory and practise in the Western legal sense that usually dominates this debate, thus paradoxically marginalising the ethical dimension of Islamic finance and altering its fundamental rationales in a secular perspective. By reviewing this trend, my study primarily aimed at re - contextualising Islamic contract law within its original background, the science of Fiqh as human understanding of the divine Revelation. Accordingly, it highlighted how a better comprehension of the contract (Aqd) in the Islamic tradition can be achieved in the light of an Actor/agent relationship where the exchange is performed by the agent, but whose conditions and effects are already established at Law. Following this approach, my research covered both theoretical and operative aspects. From a theoretical perspective, it clarified to which extent the contractual theory framed by Muslim scholarship diverges from the Western one in reflecting the cultural postulates of Fiqh juristic rationality. More in detail, the study investigated the notion of contractual freedom in an Islamic context, by locating this topic in the intersection between the logic of Fiqh and the contemporary law of Islamic finance. Looking at the topic of freedom of contract from a Muslim perspective, my research highlighted how, by mirroring the perpetual actualisation of
God’s supremacy in man’s agency (where the right, Haqq, realises, in the proper sense of ‘making actual’, God’s decree, Hukm, in the creation), Fiqh necessarily proceeds by deeming each individual and circumstance unique, and ijtihad occurrence-specific. Consequently, the abstract and general conception of contractual freedom belonging to Western legal thought, applicable equally to ‘all’ (as indistinguishable members of a generic species, equal before the ‘blind lady’ of justice) is deprived of consistency in the logic of Fiqh, where the rich and the powerful do not stand on a par with the poor and the weak, being the latter to be protected, and their disadvantage turned into an advantage in the light of Shari‘ah. In other words, to the extent to which the West separates the general rule of contractual freedom from the real economic conditions of market actors, Fiqh, conversely, connects this ‘real’ to the particular rights of the parties in order to ‘empirically’ guarantee their (full) contractual freedom as materialisation of God’s Will. Moving from the theory of Islamic law to the practise of Islamic finance, my search also drew from this understanding of contractual freedom as materialisation of God’s Will consequent policy-making inputs to the debate over Islamic finance regulation. In particular, a d o u b l e - l e ve l r e g u l at o r y framework was suggested to merge the legal and moral dimensions of fiqh when dealing with contractual freedom, looking at the waqf as a valuable tool to realise this reconciliation in the marketplace.
This proposal was presented at the 5th SC-OCIS Roundtable H a r n e s s i n g Wa q f i n t o a bankable social financing and investment asset class 22-23 March 2014, Malaysia by taking the ‘contextualisation’ of justice inherent in Islamic contractual freedom as cornerstone to advance valuable policy-making inputs for the implementation of the Waqf in the marketplace.
We tend to look at the governance of Waqf basically from a legal perspective. In my opinion, this can deeply undermine the possibility of reaching at its best the philanthropic objectives that are a part of the Waqf tradition. VALENTINO CATTELAN, Ph.D, Associate Researcher at IE Business School (Saudi-Spanish Center for Islamic Economics and Finance)
In this regard, my study underlined how, to the extent to which the development o f n at i o n a l l e g i s l at i o n s / codifications, legal collections, maxims or standards aimed to harmonise the practises of Islamic finance at a national/global level are certainly helpful and desirable for market actors, these normative devices cannot replace the necessary Ijtihad by Shari‘ah scholars, in order to contextualise justice in the empirical situation, for the contractual freedom to be ‘realised’ according to God’s Will. Accordingly, a double-level regulatory framework (linking the general norm to the particular recipient of the rule in the reality of God’s creation) should be promoted in Islamic finance in order to reconcile the legal and cont. overleaf
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cont. from pg 25
moral dimensions of Fiqh when dealing with contractual freedom. Two normative suggestions can be advanced to reinforce the governance of Islamic financial institutions and their contribution to social development. First, a criterion of Shari‘ah scholars accountability for connecting general legal rules (as shaped in state legislations or standardised practises) to real economy should be introduced, thus filling the gap between ‘abstract’ freedom and ‘empirical’ economic life of market actors by contextualising justice in the transaction. Second, a corresponding move towards a paradigm of close financing should be further implemented in the industry of Islamic finance in order to connect the ‘right’ to the ‘real’ contractual freedom. To conclude, the paper underlined how the practise of Waqf could play a primary role as an instrument to connect the (global) capital market to (local) responsible investments, thus contextualising justice in market economy by fulfilling contractual freedom according to an Islamic perspective. We tend to look at the governance of Waqf basically from a legal perspective. In my opinion, this can deeply undermine the possibility of reaching at its best the philanthropic objectives that are a part of the Waqf tradition. There are other fundamental issues to be taken into consideration, such as the passage from the tradition of Islamic Fiqh to the modernity of Islamic law; but actually, when we look at Waqf, we should keep in our mind that the fundamental aim is the performance of God’s will. It is not the application of Islamic law.
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Moving from the application of Islamic law to the performance of God’s will, changes radically the conceptualisation that we give to the problem of Waqf. In that sense, when I look into Islamic contract law as a comparative lawyer, I will always try to make an intersection between the logic of Fiqh on the one side, with a traditional perspective, and the contemporary law of Islamic finance. Western scholarship, even when written by Muslims, has rarely presented Islamic law to demonstrate its values rather than the values of the observers. In a certain sense, when we look at Islamic law, it is quite different from what the traditional scholars had in their mind. They were not really interested in a sensible corpus of law in this research of practical rules, but was
much more of an engagement towards the interpretation of the divine creation. What we need is a contextualisation of justice in the empirical situatio [as in] the traditional practise of Fiqh. In this sense, a comprehensive regulatory framework should try to link the efficiency of legal standards to the legitimacy of the logic of Fiqh in the realisation of God’s will in the context of the reality of real economy. What I suggest is to reconcile the legal and the moral dimension of Fiqh when dealing with contractual freedom, looking into the needs of the society apart from the general rules given from the legal standardisation.
The IE Business School was founded in 1973
EDITOR’S NOTE: Some of this article was edited down from its original form.
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LONDON
London’s Islamic finance future WITH BREXIT MOVING AHEAD, HOW WELL IS LONDON PLACED AS AN ISLAMIC FINANCIAL CENTRE IN THE YEARS AHEAD?
P
rofessor Jason Chuah is the foremost legal expert on Islamic financial law in a western context. His scholarship on the way on which Islamic financial products are structured, received and enforced in western jurisdictions such as the UK, has been cited in some of the most important legal research undertaken on the subject in the UK and further afield. In this exclusive interview, he answers some pressing questions about the impact of Brexit on the UK as an Islamic financial centre.
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How important is Islamic finance to London as a financial centre? You would naturally expect an academic to say that ‘importance’ is a difficult term to define. What I would say, though, is that it had been government policy to place London alongside Dubai as an international Islamic financial capital. In more recent times, we have also seen the UK Government issuing an Islamic bond in 2014. A Sukuk issue valued at GBP 200
Islamic finance has become a key part of London's financial landscape.
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LONDON
speaking, Islamic finance in general is still a small, but healthily growing, corner of the larger international finance tapestry.
Does Brexit mean London will suffer as an emerging Islamic financial centre?
(IR Stone/SHUTTERSTOCK)
million maturing on 22 July 2019, was sold to investors. This was the world’s first sovereign Sukuk issued by a non-Islamic country and orders were already totalling around GBP 2.3 billion. In 2015, the UK also guaranteed, again for the first time, a Sukuk bond issued by Emirates Airlines. The guarantee was for a 10-year $913m issue. By any measure, that is the largest guarantee in the aviation sector by any export credit agency. Of course, relatively
Under EU law, an authorisation by a member state given to a financial service provider to operate in that country will normally be also recognised in other member states. This is known as “passporting”. The question, therefore, is how important this passporting privilege is to Islamic finance providers. I do not think that Brexit will necessarily be a deterrent to Islamic financial institutions looking to internationalise their client and investor base. In terms of deposit taking, the majority of Islamic banks do not take deposits outside their home countries. Brexit is therefore not likely to be an issue for deposit taking. As to attracting investors, there is no need to be established in the EU to draw inward investments. The EU is not a homogenous market as far as Islamic finance is concerned. Islamic finance providers know the different advantages in the different Member States and pitch their business accordingly. Luxembourg, for example, already is one of the largest non-Islamic countries of domicile for Islamic investment funds. But it does not have the kind of corporate and real property advantages that the UK has. One of the important advantages held by the UK is the presence of a well-established legal system for dealing with financial contracts whether they are for Islamic or conventional finance. There are important factors for the Islamic finance provider. The UK has a tax and legal environment which is highly conducive for the unique features of Islamic finance. Brexit has of course caused some risks for Islamic financial institutions— the main one being legal uncertainty. How, and to what extent, the current banking and financial regulations which have largely been influenced by EU law will change is a relevant risk. Careful handling by the government is needed to ensure that disruption to the general financial regulatory framework is minimal.
How will Brexit affect current Shari’ah compliant debt or investment contracts? Although from a constitutional law point of view, the change is hugely significant, it is unlikely to make performance of such contracts cont. on page 30
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cont. from pg 29
impossible. The economic consequences of Brexit may make performance more difficult —if say for example the pound falls even further - by making it more expensive for a UK business to repay loans expressed in a foreign currency, but under English law, a contract cannot be said to be frustrated merely on the basis that performance is uneconomic or more inconvenient. Some contracts may have so-called force majeure clauses or “material adverse change” clauses. For most borrowers or issuers of Islamic finance, Brexit or the events leading to Brexit should not materially affect their rights and obligations. Such clauses are also almost always very strictly and narrowly interpreted. If their contracts are expressed to be governed by English law, it should be remembered that general English commercial contract law is largely unaffected by EU law. That said, it is very likely that the government will put in place legislation providing for continuity of contracts.
How will Brexit affect the practise of applying Islamic law to Islamic financial contracts? This is a controversial issue. Islamic banks and their stakeholders are always keen to see that their financial arrangements are subject to Islamic law or Shari’ah. However, the English Court of Appeal has held previously that an English court would not be in a position to enforce Islamic law even if the parties explicitly stipulate that Shari’ah shall govern the contract. That is because the English court, relying on EU law, held that parties could only choose the law of a country to govern their commercial relationship—and Shari’ah is not the law of a country. That EU law has recently been amended, though it remains arguable whether the change allows for the incorporation of Shari’ah as the governing law. If the relevant EU law in question (the so-called Rome I Regulation) no longer applies in the UK after Brexit, it is likely that the English court will nevertheless hold that Shari’ah is not merely a set of legal rules, but moral and religious principles. As such, the English court as a secular court of law would not have the competence to enforce Shari’ah in those circumstances. It is of course possible for the banks, and investor/borrowers to set out those specific Shari’ah principles they are keen to enforce properly incorporated into the
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contract as express terms and conditions. In this scenario, the secular court is no longer required to apply moral or religious principles, but the explicit terms and conditions of the contract.
Should Islamic financial institutions and their investors and clients anticipate Brexit by making changes to their contracts? I think it is too early to know the full impact of Brexit on current law; it would not be sensible to provide for Brexit in the contracts, when nobody knows what Brexit really entails at this time. Mandatory legislation may be introduced which could invalidate these contractual provisions anyway. Worse still, these contractual provisions may in fact override any helpful but non-mandatory legislation introduced to help businesses in the event of Brexit. Businesses and financial institutions, whether Islamic or not, do not like uncertainty. Hence, the need to “do something” is irresistible. Some have even been talking about “flexit” clauses in their credit or loan agreements.
What are “flexit” clauses? These are clauses introduced into loan agreements which permit lenders, including those who provided finance without seeking interest return on the capital, to increase the margin (or collateral) on loans in the event of Brexit. The usefulness of such a clause depends entirely on what the contract defines Brexit to be. Given that we don’t yet know what Brexit will look like, such clauses are at best a stab in the dark. As far as Islamic finance is concerned, not all products lend themselves to an increase in the margin. There is also some doubt as to the legality of the right to increase the margin unilaterally in Shari’ah.
Any concluding thoughts? Far too many people are talking about doomsday scenarios and the like for the City of London. On the contrary, I have to say that Islamic finance providers, including some of the largest Islamic investment funds, have taken the line that Brexit could very well bring about different opportunities especially with the UK being more than ever before, keen to attract inward investment. Still, some others might well wish to take a “wait and see” approach to investing in the UK.
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DUBAI
A renewed mission THE DUBAI ISLAMIC ECONOMY DEVELOPMENT CENTRE HAS UPDATED ITS MISSION TO ACCOMMODATE CHANGING TIMES
T
he Dubai Islamic Economy D e ve l o p m e n t C e n t r e (DIEDC) has refreshed its strategy for 2017-2021. The move was made under the directives of His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai, Chairman of Dubai Executive Council and General Supervisor of the Dubai Capital of Islamic Economy initiative.
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Making the announcement, His Highness Sheikh Hamdan said, “The new strategy uses a two-pronged approach. The first part concentrates on the development of the Islamic economy system and includes identifying new key performance indicators (KPIs) for monitoring the growth of important sectors and measuring their contribution to the national economy.
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“The second component includes enhancing Dubai’s status as a global reference for Islamic finance, industry, trading standards and culture, and as a prime destination for Halal trade and family tourism.” Part of the update was to bring the strategy up to date with how the Islamic economy has developed in today’s world. “Contrary to what some may
The leaders of Dubai’s Islamic economy gather to discuss its future.
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DUBAI
think, the Islamic economy does not belong to the past— rather, it is firmly rooted in the present and the future. Achieving progress is meaningless without sustainability, financial security and economic stability. Most young people today, especially in the UAE, no longer revel in material excesses. Instead, they enjoy applying creativity and innovation in producing real tools for development,” said HH Sheikh Hamdan. “For a strategy to truly succeed, it should first and foremost equip people with the skills needed for its implementation. It is crucial to empower young talent with the latest advancements in knowledge and technology as well as with the ethical fo u n d at i o n s t h at I s l a m i c economy incorporates. The success of our efforts will depend on our creativity in developing the ethical framework of the Islamic ecosystem.” “When His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, launched the Dubai Capital of Islamic Economy initiative in 2013, he did not aim to make a quantitative addition to current global economies. His vision was to establish an ecosystem that can inspire next generations looking to build a more prosperous future. Today, our youth have the means to make this goal a reality,” continued HH Sheikh Hamdan. Earlier, a board meeting of DIEDC, headed by His Excellency Sultan bin Saeed Al Mansouri, UAE Minister of Economy and Chairman of DIEDC, unanimously approved the new strategy that will continue to consolidate the position of Dubai
and the UAE on the global Islamic economy map. Reinforcing and building on the momentum established by the ‘Dubai, Capital of Islamic Economy’ initiative, the updated strategy focuses on ensuring long-term impact. Its main objective is to lead the growth of the Islamic economy sectors on a local, regional and international scale, and to set a benchmark for the Islamic ecosystem worldwide, according to a media statement from the DIEDC.
KEY PILLARS At the heart of the refreshed strategy are three key pillars— Islamic finance, Halal sector, and Islamic lifestyle that includes culture, art, fashion and family tourism. Knowledge, standards and digital Islamic economy serve as cornerstones in supporting the pillars while playing a pivotal role in shaping an enabling environment for sustainable investments and real development. Highlighting the importance of the updated Islamic economy strategy, Al Mansouri stressed that Islamic economy is based on foundations of innovation, knowledge and human capital— all highly dynamic elements that continue to evolve with time. He pointed out that with its ability to diversify national incomes and contribute to building a post-oil economy, the Islamic economy system has attracted the attention of several prominent nations and continues to do so. He noted that DIEDC’s efforts in the last three years have resulted in giving Islamic economy a strong foothold worldwide. Al Mansouri said, “Rather than defining Islamic economy or advocating its importance,
D I E D C ’s l at e s t g o a l i s t o demonstrate the positive impact of Islamic economy on overall socio-economic development. To fulfil this objective, we need to establish the structural framework of the ecosystem. Finance, production and consumption must feature in it as integrated systems aligned with the UN Sustainable Development Goals—especially in terms of managing resources and preserving the environment.” He added, “One of our main objectives is to increase the contribution of Islamic economy to the country’s GDP. Achieving this aim requires putting a plan in place to refine the structure and concept of Islamic economy and enhance its competitiveness. Among the most prominent emerging trends that support
For a strategy to truly succeed, it should first and foremost equip people with the skills needed for its implementation His Highness SHEIKH HAMDAN BIN MOHAMMED BIN RASHID AL MAKTOUM, Crown Prince of Dubai
our efforts are national income diversification, production and trade expansion, and a growing confidence in Dubai’s position as a global centre for Islamic industry, culture and Halal products.” His Excellency Sultan bin Saeed Al Mansouri highlighted the keenness of emerging economies in Asia, Europe, Africa and Latin America to establish partnerships with Dubai and the wider UAE in diverse Islamic economy sectors, and linked this trend to the efforts of these countries to increase the contribution of cont. overleaf
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DUBAI
cont. from pg 33
Islamic economy to their own national GDPs. In addition, he noted that DIEDC seeks to spearhead growth, innovation and standardisation across Islamic economy sectors. Pointing out the need for universally accepted standards governing each sector, he stressed that the UAE will focus on refining these standards in the coming years to lead their adoption on a global level. Speaking on the strategic objectives for the period from 2017 to 2021, HE Issa Kazim, Secretary General of DIEDC, said, “Our primary objective, in collaboration with our partners, is to make Islamic economy a major contributor to the growth, diversification and sustainability of the national economy. To this end, we will work on defining KPIs to measure the share of Islamic economy and the trading volume of Islamic products within the UAE’s GDP.” He added, “Our second goal is to reinforce Dubai’s status as a top-of-mind hub for Islamic economy sectors and a central destination for investors in this field. The third objective focuses on developing an innovative ecosystem to enhance the valueadd of Islamic economy and its role in stimulating knowledge and R&D, and encouraging projects that promote its ethics and principles.”
SPOTLIGHT ON HALAL BUSINESS In December 2016, DIEDC organised two workshops for its strategic partners to assess the accomplishments of the Dubai, Capital of Islamic Economy initiative. Participants discussed the challenges of boosting the growth of Islamic economy,
34
advancing its legislative and regulatory framework, and creating opportunities for sustainable investments. The workshops laid down the foundations for defining the goals of the refreshed strategy and establishing mechanisms to implement some of the plans launched over the past three years. In addition, they generated ideas for new programmes pertaining to select key sectors. During the board meeting, Abdulla Mohammed Al Awar, CEO of DIEDC, delivered a presentation on the outcomes of both workshops including general objectives, suggested initiatives, and KPIs that need defining. With regard to the three main sectors that will be the Centre’s focus in the coming years, he said, “Through Islamic finance, we are looking to expand the footprint of Dubai and the UAE in Islamic capital markets. With our 2017-2021 strategy, we also seek to elevate the country’s position as a global platform for educational
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programmes in Islamic finance and charity projects.” Speaking on the Halal sector, Al Awar said, “ We aim to transform Dubai and the UAE into a leading hub for Halal trade and logistics services through increasing the trade volume of Halal products. Our objective is to create an environment that stimulates the Halal sector with globally-accepted standards and proactive government support.” He added, “Islamic lifestyle is a wide-ranging sector that includes Islamic culture with all its ethical, artistic and social dimensions. In this field, we seek to attract global talent that can help develop Dubai’s cultural identity and turn the city into an appealing destination for creative professionals across the globe who are looking to explore Islamic culture, art and heritage. We also plan to increase the contribution of Islamic entertainment activities to the country’s GDP and establish world-class facilities to showcase Islamic art and design.
Dubai’s Islamic economy has a plan for steady growth, led by the pillars which make up the Board of the DIEDC.
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15/02/2017 15:46
ISLAMIC BANKING
VINCE COOK, CEO, National Bank of Fujairah
Delivering tailored Islamic banking solutions VINCE COOK, CEO, NATIONAL BANK OF FUJAIRAH SHEDS LIGHT ON THE GROWTH OF NBF ISLAMIC AND HIS VIEWS ON ISLAMIC FINANCE IN THE UAE
W
hen we launched NBF Islamic, it was done as a natural—and timely—response to a growing number of requests we were receiving for Shari’ah-compliant banking services, especially from customers in our home emirate of Fujairah. As we reviewed the potential for this offering, we also saw an opportunity to provide Islamic banking cont. on pg 36
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ISLAMIC BANKING
cont. from pg 35
36
services that complement our existing propositions in our core Corporate & Institutional Banking (C&IB) business.
our staff and bringing more industry experts on board.
Since the division’s inception at the end of 2014, our first offering was our Shari’ahcompliant suite of retail banking services in Fujairah. The reason for this limited approach was to allow us to test the waters and determine the appetite for our offering, as well as our ability to provide a service that could compete with some of the larger Islamic financiers. We were also very concerned that the integrity of our compliance with the principles of Shari’ah-based financing should be of the highest order. Following its launch and the initial encouraging observations of our Shari’ah board, we were pleasantly surprised with the customer response and it’s safe to say that the business has surpassed our initial expectations. I n t u r n , we l au n c h e d Shari’ah-compliant corporate banking services in 2015 and have seen huge demand in the market from companies looking to do business with us. Moving ahead, once we have grown our core business and our market share, we may look to expand into areas such as capital markets. Central to these developments will be our focus on ensuring that our Islamic capabilities reflect our organisational strength in fulfilling customer needs quickly and effectively. This includes implementing systems and building processes to support our infrastructure; as well as investing in the ongoing development of
Indicative of NBF Islamic’s success, we were able to break even within the first year of operation, and doubled our initial deposit base last year. Similarly, we were able to grow our Islamic balance sheet in quick order to reach AED three billion in financing.
PIPELINE
20%
NBF Islamic's expected annual growth in 2017
1-2%
market share that it is aiming to capture by 2018
In fact, if you look at the bank’s annual results, you will see that our operating income growth has primarily been driven by our Islamic banking business. Additionally, we outperformed new entrants in the industr y and won the award for “Best New Islamic Window UAE” at the Islamic Business & Finance Awards 2016, which positions us as one of the leading providers of comprehensive
Islamic Business & Finance | ISSUE 101
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suite of Shari’ah-compliant banking solutions. Related to this, we now have a full suite of Shari’ahcompliant treasury products and plan to continue to grow our retail product base— including the planned launch of Mudarabah based savings accounts—this year. On a bank-wide level, investment in technology is a priority, and we continue to enhance our digital channels to improve our clients’ banking experience. We have just launched a mobile banking app and are currently upgrading our online banking service for our corporate and business banking customers. This will see the introduction of new features such as corporate cheque printing. All such developments are now accommodating both Shari’ah and conventional customer needs. Moving ahead, once we have grown our core business and our market share, we may look to expand into areas such as the issuance of Sukuk. Another area of interest relates to the recent development of a Shari’ah standard for gold-based products. The establishment of a new set of standards by AAOIFI means that there are now a whole range of Islamic banking services we can provide in this space. We are keen to leverage this and build on our existing expertise and long-standing business in the precious metals and jewellery sector, in order to provide the most innovative Shari’ah-compliant services to businesses in this industry. At the same time, continuing to improve
VINCE COOK, CEO, National Bank of Fujairah
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ISLAMIC BANKING
our customer service levels will be a priority, as it will enable us to develop longt e rm rel at ion s h ip s wi th clients that will in turn drive our long-term growth. Over time, we would like to see our Shari’ah-compliant business grow and eventually reflect the local banking sector as a whole, with a 75:25 split between conventional and Islamic banking.
OUTLOOK It is widely known that UAE’s retail banking landscape is
saturated, and even in terms of Shari’ah-compliant financiers, there are a number of wellestablished banks in this space. With this in mind, competition will be one of the biggest challenges we face, although we believe that we can differentiate our offering sufficiently to make good headway. In the short term, the current market environment is also likely to impact our growth aspirations, but we see this as a temporary phenomenon. Nevertheless, our expectations of annual
a result, we see that there is demand for the transparency and asset-backed financing that Islamic banking provides, along with the tailored service and innovative products that conventional banks are more recognised for today. We are well positioned to meet both these needs, as we are able to combine our renowned corporate and commercial banking expertise with our Shari’ah-compliant facilities. In particular, we are able to bring our segmented financing approach that has
Within the UAE, the demand for Islamic banking has been growing for quite some time as more and more customers in the retail and commercial banking segments— many of them non-Muslims—begin to appreciate its viability as an alternative to conventional banking. VINCE COOK, CEO, National Bank of Fujairah
growth for NBF Islamic are still around 20 per cent and we believe we will soon be able to capture a one to two per cent share of the market. I think that within the UAE, the demand for Islamic banking has been growing for quite some time as more and more customers in the retail and commercial banking segments—many of them nonMuslims—begin to appreciate its viability as an alternative to conventional banking. As
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seen us positioned as the ‘Bank for Business’ in the UAE, through which we look to create bespoke financing solutions for clients by combining our expertise across areas like trade finance and treasury. A d d i t i o n a l l y, t h e D u b a i Government’s efforts to become the capital of the global Islamic economy will certainly fuel the demand for Shari’ah-compliant financing services, which is where we believe we can add value.
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16/02/2017 13:04
SUKUK
OUTSTANDING SUKUK MAP OUTSTANDING SUKUK MAP
THE SIZE OF THE OUTSTANDING SUKUK MARKET GLOBALLY AS OF 5 FEBRUARY 2017 The size of the outstanding Sukuk market globally as of 06 Nov 2016
SOURCE: Zawya Islamic
ANNOUNCED SUKUK IN FEBRUARY 2017 STATUS
ISSUER NAME
SUKUK NAME
SUKUK STRUCTURE
COUNTRY
CURRENCY
SUBSC. DATE
ISSUE SIZE ($M)
MARGIN
TENOR
ARRANGER/ADVISOR
Announced
Cahya Mata Sarawak Bhd
Cahya Mata Sarawak Sukuk Ijarah Program
Ijarah
Malaysia
MYR
-
-
-
-
-
Announced
Ministere des Finances - Tunisie
Tunisia Sukuk
Unknown
Tunisia
TND
20-Oct-16
443.361
-
-
-
Announced
Saudi Arabian Airlines
Saudi Arabian Airlines 2016 Sukuk
Unknown
Saudi Arabia
SAR
14-Jul-16
1,333.37
-
-
HSBC Saudi Arabia Limited
Announced
Jordan Dubai Islamic Bank
TAJ Mall Sukuk
Ijarah
Jordan
JOD
13-Jul-16
63.559
-
7 Years
Bank Alkhair B.S.C. Jordan Dubai Islamic Bank Jordan Investment Trust P.L.C
Announced
DSI Perpetual Sukuk Limited
Drake & Scull International Sukuk II
ModarabahMurabaha
UAE
USD
10-Jul-16
150
-
-
Al Hilal Bank PJSC Emirates NBD Capital Limited HSBC Bank Middle East Limited Standard Chartered Bank
Announced
Bank AlBilad
Bank Albilad Sukuk
Unknown
Saudi Arabia
SAR
16-Jun-16
266.709
-
-
-
Announced
FGB Sukuk Company Limited
First Gulf Bank Sukuk
WakalaMurabaha
UAE
USD
8-Jun-16
3,500
-
-
Citigroup Global Markets Limited HSBC Bank
SOURCE: Zawya Islamic
38
Islamic Business & Finance | ISSUE 100
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15/02/2017 12:08
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SUKUK
40
Islamic Business & Finance | ISSUE 101
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SUKUK
Metito’s Sukuk experience in Africa WAFIC GHANEM, CHIEF FINANCIAL OFFICER, METITO WRITES FOR ISLAMIC BUSINESS & FINANCE ABOUT HIS EXPERIENCE IN RECEIVING ISLAMIC FINANCING IN THE AFRICAN MARKET FOR HIS FIRM’S PRIVATE SECTOR INFRASTRUCTURE PROJECTS
M
etito is a water and wastewater treatment company with presence across the water treatment value chain. Founded in 1958, Metito is the largest privately held water treatment company in the Middle East and the Group is also the largest foreign private investor in the water and waste-water treatment sector in China. Metito is an emerging market-focused group with a presence in 23 countries. The group has an operating capacity of 1.3 million cubic metres a day. Metito’s African operations account for nearly about a third of its revenues and the current backlog is around $300 million. The Group has strong presence in North Africa spreading across Egypt, Libya, Tunisia, Algeria, and Morocco. The group also has recently expanded into Sub Saharan Africa and secured projects in Rwanda and Angola. Metito is actively pursuing projects in Sub Saharan Africa alongside its established presence in North Africa.
A wastewater treatment plant, much like the ones that Metito builds across the world.
cont. overleaf
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SUKUK
cont. from pg 41
As part of its corporate finance strategy, Metito approached Islamic banks in early 2014 to tap on their resources to support the Group’s growth. As a result of this initiative, the Group tapped into Islamic financing in 2015 for the first time. As of today, a major of the long-term financing that the group has received in GCC region is comprised mostly of Shari’ah-compliant financing tools. Shari’ah-complaint working capital facilities have been also deployed to support short-term funding required for the EPC business unit. The total size of Islamic financing facilities currently in use stand at around $150 million and the share is expected to increase over the next 12 months. The Group has so far availed three types of Islamic finance financing tools, being Musharakah, Ijarah and Murabahah. The Musharakah structure has been used to project finance an on-going project in the Gulf. The variable profit rates relating to this facility has been hedged using Shari’ah-compliant products. The Ijarah structure was used to avail a facility to fund capital injection in concession projects in the emerging markets in order to facilitate competitive tariff pricing for these projects. The Murabahah structure was used for both long-term and short-term financing requirements. This is an asset-based structured facility secured by a lien on land usufruct. Despite contemplating the use of Sukuk, Metito ultimately used a combination of bilaterally negotiated Islamic funding tools as detailed earlier. During the assessment process, it became clear to our Group that it would not be possible, or difficult to say the least, to tap into Sukuk. The first challenge was the tenor and the refinancing risk: shorter tenor of typical private sector Sukuk issuances is one of the key challenges in its deployment for infrastructure projects. While infrastructure projects require over 10 to 15 year tenor, what we have seen is typical Sukuk tenors range from five to eight years for private sector issues. As to the refinancing risk, since Sukuk financing is preferable in a strong economic environment, issuers are faced with the risk of having to refinance in a weak economic environment at potentially unfavourable terms to avoid default on outstanding Sukuk. The second challenge we faced was the process cost and time: the structuring complexity of Sukuk renders it somewhat slightly more expensive than
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Islamic Business & Finance | ISSUE 101
page 40-43 Inside Story-Metito101.indd 42
Wafic Ghanem, Chief Financial Officer, Metito
conventional bonds. The time and cost involved in both Sukuk and conventional bonds is higher than that of bilaterally negotiated facilities. Rating of the projects poses another challenge as well. Though unrated Sukuk issuance can expedite the process, it comes with the risk of under subscription of the issue and higher interest / profit rate; securing desired longer tenor is another challenge.
As of today, a major of the long-term financing that the group has received in GCC region is comprised mostly of Shari’ah-compliant financing tools WAFIC GHANEM, Chief Financial Officer, Metito
Similar to issuing conventional bonds, success of Sukuk issuance is largely dependent upon the economic environment and market sentiment. In addition, Sukuk issuance for refinancing presents a higher degree of uncertainty of subscription than Sukuk intended for funding new projects. Shari’ah interpretation varies across issuers resulting in structuring complexities. Metito has not yet considered tapping into Sukuk issuance for its African business due to the following reasons. First, Africa has only seen Sovereign Sukuk issuances up to this point; there has been no precedence of corporate / private sector Sukuk issuance given the infancy of Sukuk market in the continent. Given the country risk and typical project risks, we believe possibility of competitive pricing of corporate Sukuk is another key aspect of uncertainty for private sector. The project Sukuk market is yet to be developed to serve the financing requirement of Africa infrastructure projects.
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SUKUK
Next, there is a need for expansion of the Sukuk investor base in Africa. African infrastructure development has been mainly financed by grants, soft funding and by multilateral agencies, such as the Development Finance Institutions (DFIs) and the World Bank and International Finance Corporation (IFC). However, African Sukuk issuances usually tend to attract investors from the Middle East, owing to familiarity with Shari’ah-compliant financing and African markets. Lack of participation from DFIs and multilateral agencies to provide longterm funding for infrastructure projects makes Sukuk less suitable for private sector infrastructure projects.
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Based on our Group’s recent experience with Islamic finance products including the issuance of Sukuk, I believe at least three factors need to be in place to support promotion and successful issuance of Sukuk. First, there is need for government sponsorship for infrastructure development through a strong legal and economic framework facilitating corporate /project Sukuk issuance. Second, one would need support from financial institutions and rating agencies to bridge the gap between demand for and supply of capital through sourcing funds from a broad long-term investor base. Last, there needs to be private sector initiatives to initiate sound business models that can provide infrastructure facilities at reasonable price.
The inside of a modern wastewater treatment plant, which Metito has used Islamic financing to construct.
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TAKAFUL
Indonesian Takaful no longer outpacing conventional insurance ACCORDING TO A REPORT FROM FITCH RATINGS, TAKAFUL IN INDONESIA STILL HAS A FAVOURABLE OUTLOOK DUE TO THE MASSIVE POTENTIAL FOR SHARI’AH-COMPLIANT PRODUCTS IN THE POPULOUS NATION
T
respectively, in 2015, outpacing their conventional insurance counterparts. Nevertheless, expansion in the Shari’ah segment has declined in recent years, and is now more in line with the overall industry,” said Bashar Natoor, Global Head of Islamic Finance. According to the report, Takaful products are still in lower demand in the Indonesian market compared to they are around the region, though Indonesia has the largest Muslim population of any country. “A lack of awareness and understanding of Takaful
akaful in Indonesia, while still growing, has tapered off compared to the boom of the last few years, according to a recent report from Fitch Ratings. “Total Indonesian general and life Shari’ah gross premiums stood at IDR 2.2 trillion and IDR 7.7 trillion in October 2016, achieving 63 per cent and seven per cent growth, respectively, compared with 19 per cent and 30 per cent for conventional counterparts. Five-year compound annual growth rates (CAGRs) for general and life Shari’ah contributions were 24 per cent and 31 per cent
INDONESIA INDUSTRY IndonesiaINSURANCE Insurance Industry General Shari’ah
(IDRtrn) 140 120
-GROSS PREMIUMS - Gross Premiums Life Shari’ah
80 60 40
20
7.2
5.2
4.1
Life Insurance 126.9
121.7
104.5 58.3
53.1
51.4
43.2
37.8
General Insurance
106.0
102.7
89.9
100
products among consumers—and more broadly, the lack of a robust Islamic finance system to support long-term growth—restrains further sector expansion. The government aims to address the former through awareness programmes and educational campaigns,” said Natoor. Life insurance is still the leader in terms of Takaful products, according to Fitch. “Life Shari’ah remained the largest contributor to the Shari’ah insurance market as of October 2016, accounting for 78 per cent of the total. There are
8.4
57.9
9.3
8.3
0 2011 Source: OJK, Oct 16 SOURCE: OJK, Oct 16 data is annualised
2012
- yoy Growth
General Insurance General Shari’ah | ISSUE 101 Islamic Business & Finance
(%) 100 80 page 44-45 Takaful 101.indd 60 40
44
2014
2015
Oct 16 (ann.)
data is annualised
Gross Premiums 44
2013
Life Insurance Life Shari’ah
Sharia Insurance
- Market Share
Gross premium of all Shari’ah insurance business (LHS) www.islamicbusinessandfinance.com Shari’ah % of total industry premiums (RHS) (IDRtrn) (%) 6.2 6.0 14 7 5.4 5.2 12 6 4.5 3.8 10 5
15/02/2017 12:09
120 140 100 120
40 60 20 40
4.1
200
37.8
43.2
37.8
43.2
5.2
5.2 2012
4.1 2011
0 2011 2012 Source: OJK, Oct 16 data is annualised
GROSS PREMIUMS
106.0
102.7
89.9
80 100 60 80
104.5
102.7
89.9
-YOY GROWTH
53.1
58.3
57.9
51.4
53.1
58.3
57.9
7.2
8.4
8.3
7.2 2013
8.4 2014
8.3 2015
2014
2015
2013
General Insurance Shari’ah Life General Life Shari’ah Insurance (%) General Shari’ah Life Shari’ah 100 (%) 80 100 60 80 40 60 20 40 0 20 -20 0 -40 -20 2011 2012 2013 2014 2015 Oct 16 -40 (ann.) 2011 2012 2013 2014 2015 Oct 16 Source: OJK, Oct 16 data is annualised SOURCE: OJK, Oct 16 data is annualised (ann.) Sharia Life Insurance Product Mix Source: OJK, Oct 16 data is annualised
End -2015 SHARI'AH LIFEInsurance INSURANCE - Product -PRODUCT Sharia Life MixMIX PA Health Endowment End -2015 0.3% PA 0.3%
121.7
104.5
51.4
Gross - yoy Growth Source: Premiums OJK, Oct 16 data is annualised General Insurance - yoy Growth Life Insurance Gross Premiums
2.0% Health Term life2.0% 12.9% Term life 12.9%
126.9
1.5% Endowment 1.5%
9.3
TAKAFUL
9.3 Oct 16 (ann.) Oct 16 (ann.)
SHARI'AH INSURANCE
-MARKET SHARE
Sharia Insurance - Market Share Gross premium of all- Shari’ah insurance Sharia Insurance Market Sharebusiness
(LHS) Gross premium of all Shari’ah insurance business Shari’ah % of total industry premiums (RHS) (LHS) (IDRtrn) Shari’ah % of total industry premiums (RHS) (%) 6.2 6.0 14 (IDRtrn) (%)7 5.4 5.2 12 6 6.2 4.5 6.0 14 75 5.4 3.8 10 5.2 128 64 4.5 3.8 106 53 84 42 62 31 5.1 6.9 9.0 10.0 10.2 11.9 40 20 5.1 6.9 9.0 10.0 10.2 11.9 2 1 2011 2012 2013 2014 2015 Oct 16 0 0 (ann.) 2011 2012 2013 2014 2015 Oct 16 Source: 16 data is annualised SOURCE: OJK, OctOJK, 16 dataOct is annualised (ann.) Sharia Non - Retention Source: OJK, Oct 16-Life data isInsurance annualised
SHARI'AH NON-LIFE INSURANCE --RETENTION Ratio Non Sharia -Life Insurance Retention
Ratio (%) (%) 90 90 85 85 80 80 75
75 70 Investment linked 83.3% Investment linked 83.3%
Source: OJK Source: OJK
SOURCE: OJK
2011 65 Source: 2011 OJK
2012
2013
2014
2015
2012
2013
2014
2015
Source: OJK
SOURCE: OJK
47 insurance companies with Shari’ah units and 11 Shari’ah insurance companies in the country, among which are 21 life Shari’ah companies and six Shari’ah units,” said Natoor. Under the Financial Services Master Plan for 2015-2019, measures were proposed to refine regulations for Shari’ah insurers, mainly in the form of higher capital adequacy and increased oversight of product development. Fitch Ratings expects the concrete guidelines stemming from the proposal to be positive for the industry from a supervisory perspective, aligning
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70 65
it more closely with policies of conventional peers. As the regulatory deadline to spin off the Shari’ah business from the conventional one is six years’ away, Fitch expects any consolidation among Takaful operators to be ‘long-tailed’, as the “window” operations of current Takaful operators remain relatively small, according to the report.“Nevertheless, the gradual build-up of economies of scale of the Takaful operations will narrow the expense ratio disadvantage visà-vis the conventional business, and facilitate expansion into rural areas and secondary markets,
where the predominantly Muslim demographics represent strong potential,” said Natoor. The outlook for Takaful in Indonesia, despite challenges, remains positive, in the eyes of Fitch. “Fitch expects the Shari’ah segment to continue to build its presence and market share within Indonesia’s insurance industry, supported by favourable structural demand factors,” said Natoor. “On balance, further impetus in developing the regulatory environment to support industry growth will represent a key advancement towards unlocking the industry’s potential.”
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THE INSIDE STORY
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THE INSIDE STORY
Modest style HER EXCELLENCY SARA AL MADANI, BOARD MEMBER AT SHARJAH CHAMBER OF COMMERCE AND INDUSTRY AND DIRECTOR OF ROUGE COUTURE HAS BROUGHT STYLE AND ENTREPRENEURIAL SPIRIT TO THE WORLD OF HALAL FASHION
W
hat inspired you to get into the abaya business? What did you feel the Halal fashion industry lacked in the UAE?
What inspired me when I was 15 to enter into Halal fashion was my curiosity and desire to change the abaya. Also, I wanted to position the Arabic woman in the fashion industry with her traditional clothes, make her part of the industry with traditional wear, and yet keep it modest. The modern fashion industry is a billion-dollar industry—it is undeniable that there is a huge need and demand for it. Right now, Dubai is reaching out globally and is positioning itself in this world. This is helping us position our traditions as well. I think a lot of doors are going to open in the future, with this Dubai growth, and modest fashion will be based in the UAE. Right now, we do not have any events that promote modest fashion internationally in the UAE, but hopefully in the future we will have that, because the demand for it is undeniable.
How did you begin to get your idea off the ground? What work did you do behind the scenes to make it happen?
HE Sara Al Madani wearing one of her own designs.
I am a very creative person, and I come from a very creative background; creativity runs in my blood. Everything inspires me because when you seek inspiration you find it in everything, but when you are waiting for inspiration to find
you, it will never happen. So, everything inspires me—food, countries, cultures, floors, flowers, personalities, everything. Because I am creative and full of inspiration, this helped me to start my business at a young age. It pushed me and it was my fuel to start very young. I had no fashion background when I started, I learned it all within the last 15-16 years. It was all self-taught; I learned a lot and failed a lot. I just picked myself up and built myself better.
How are you financing the business? My business is self-financed. When I opened my company, I gathered around AED 20,000 and opened my store. Back then, that was a huge amount that could cover your rent for up to two years at least. I started by selling my things, and gathered money by doing side jobs to be able to self-fund everything. I did not allow my parents to take part of this because my dad taught me that if I wanted something then I have got to do it myself. I did not want to feel obliged or think about anyone else. In case I failed, I wanted to fail on my own terms.
Have you worked with Islamic banks? Why or why not? I have not worked with Islamic banks honestly, but I have a lot of friends who financed their projects through Islamic banks and they have cont. overleaf
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very good deals. Right now, the opportunities that are available and the services that available from banks are amazing for SMEs. They might not be the best, or the most ideal, but there are a lot of initiatives happening. I have never been through a bank, as I mentioned I was self-funding, as I started small and it took me years to grow. But would I ever work with a bank? Maybe, why not? There are some good opportunities out there.
How are you marketing your products? I have been marketing alone all my life, through social media, digital content, printed media or TV. I have done different and various kinds of things, and I started my project when I was 15 and I am 31 so back then when I started, marketing was very limited. We had no access to a lot of things that we have access to now. But I grew up with the brand, and even the marketing and the strategy changed as the brand grew and expanded.
How has the reception been from customers? The reception for clients has always been priority, clients always come first. Follow up, feedback, staying in touch, understanding, and listening; the consumer always comes first and the consumer is always right. This is how we deal with our clients, we are always in constant communication and engagement with them.
How have you altered your product based on the feedback you have gotten from customers? Because I am dealing with a traditional piece, I have done so many fashion shows in Paris and I’ve had so many requests from nonArabs for my pieces. In terms of colours, cuts, and other basics I’ve catered m product to a global audience, Muslim and non-Muslim, to accommodate different mentalities, groups, ethnicities, people, and countries. If your brand is successful, you will be able to adopt and accommodate any request. My brand has definitely been catering to different requests for different people.
One of HE Sara Al Madani’s designs at a recent fashion line launch.
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What else would you like to see improved in the Islamic economy? What other areas do you feel are under-serviced? I would like to see more unity in terms of supporting each other. We need to work on bringing the spotlight on Islamic entrepreneurship because there is a lot of creativity out there. I have met a lot of people who are in the Islamic economy who do a lot of things related to Islam; and their ideas are so creative and so beautiful. We just need to shine the spotlight to see what we can do within our religion and how we can celebrate it and actually work with it.
Where do you plan to go from here? I just want to grow, and with the strong digital influence we have in the world right now I am thinking of selling more online and reducing the plan I have of expanding to different branches. Right now, you can reach the world with just a click, so I am investing a lot in online retail and not investing as much on the on-ground expansion. I believe that this is the smartest way to do things.
What advice do you have for those who want to start their own business to join the growing Islamic economy? My advice is to stay true to yourself and your identity, and do not get influenced. Because the beauty of starting something Islamic and traditional is sticking to these things, if you change them and modify them you will lose your base and your flavour with time, so stay true to what you do. Make sure to target specific customer groups and market a lot, because these kinds of things need a lot of marketing, so that the consumer can understand your product. Make sure that you market it in ways that are appealing because a lot of people perceive that religion and traditional things are not very popular. Although there is a huge demand, it might still not be broadly popular. Make sure to work hard on proving your product, and that you can make a difference. I am living proof that you can. Take your traditions, take whatever Islamic products you have, and always stay true to who you are and never change.
HE Sara Al Madani got her start in the Halal fashion world at age 15.
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DATES FOR YOUR DIARY
11 May 2017
11 April 2017
(sevenMaps7/SHUTTERSTOCK)
SUB-SAHARAN AFRICA ISLAMIC FINANCE CONVENTION
The second annual edition of the Sub-Saharan Islamic Finance Convention: Uganda 2017 is a joint venture between Ethico Live UK and local Uganda partner, ABL Dunamis. The Convention aims to provide a fresh approach to how industry leaders from the key markets of Africa and internationally can engage with the major issues that will successfully boost the impact of Islamic finance across the continent.
(shutterlk/SHUTTERSTOCK)
THE BANKER MIDDLE EAST INDUSTRY AWARDS
The most prestigious Awards in the world of Middle East conventional banking and beyond return once again this year, held by Islamic Business & Finance’s publisher CPI Financial. Be sure to book your table early and keep an eye on when voting opens on our website in order to assure that your institution will be a part of the must-attend event of the year. Venue: TBA Dubai, UAE www.cpifinancial.net
Venue: Kampala Serena, Uganda www.ethicolive.com
11-12 April 2017
25-26 May 2017
(ESB Professional/SHUTTERSTOCK)
(Dmitry Birin/SHUTTERSTOCK)
WORLD TAKAFUL CONFERENCE
The 12th annual event, run by Middle East Global Advisors in partnership with the Dubai International Financial Centre (DIFC), will be held under the theme of “Stability, Authenticity & Technological Transformation”. It is slated to build on the event’s long-standing reputation for nurturing the development of the Takaful industry by facilitating thought-provoking discussions, actionable insights and connectivity.
LONDON SUKUK SUMMIT
The London Sukuk Summit is a platform for industry experts and those interested in accessing the industry to meet and discuss the key issues, highlight and identify new opportunities and forge new business relationships in the Islamic investment space. VENUE: TBA London, UK https://www.sukuksummit.co.uk/
Venue: Dusit Thani Hotel, Dubai, UAE www.wtc17.com
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