#103 - June 2017 by CPI Financial

Dubai Technology and Media Free Zone Authority

ISSUE 103

ISSUE 103 ICD'S VISION FOR ISLAMIC FINANCE Khaled Al-Aboodi, CEO, Islamic Corporation for the Development of the Private Sector (ICD)

ICDâ&#x20AC;&#x2122;S VISION FOR ISLAMIC FINANCE Khaled Khaled Al-Aboodi, Al-Aboodi, CEO, CEO, Islamic Islamic Corporation Corpporatioon for for the the Development Develoopment of of the the Private Private Sector Sectorr (ICD) (ICD)

A CPI Financial Publication

PLUS:

bleed guide.indd 1

TAKAFUL:

Inside Takaful Africa

SUKUK:

2017 brings new firsts

MALAYSIA:

KFH Malaysia's innovation

22/06/2017 12:38

Rated ‘A-’ by Fitch

SHARE THE AMBITION

TOGETHER LET’S MAKE A MARK ON THE WORLD STAGE

Every company has unique goals. But we are all guided by one vision – to support the UAE in becoming one of the strongest nations in the global arena. Let our corporate banking solutions strengthen your position as we continue to build our mutual path in support of this vision.

bleed guide.indd 1

800 6667 noorbank.com

13/06/2017 17:55

CONTENTS

ISSUE 103

REGULAR SECTIONS

EDITOR'S LETTER

Greetings, all

elcome to our latest issue of Islamic Business & Finance. Welcome to the 103rd issue of the first and longestrunning Islamic finance magazine in the world. I hope you are all having a wonderful and reflective Ramadan with your families. You'll be sure to enjoy our cover story with the head of the ICD, Khaled Al-Aboodi. No doubt you have been following our website and the many moves that ICD has made in recent months, so there is no better time to talk to Al-Aboodi than during this time when so many great leaps forward have been made in so many burgeoning markets for Islamic finance, as well as the developed ones. Beyond that, there is plenty to peruse. I hope you enjoy digging into another great issue. Until next time,

NEWS ANALYSIS

News & Analysis

OPINION

EMBRACING BLOCKCHAIN

COVER INTERVIEW

10 ICD’S VISION FOR ISLAMIC

FINANCE Khaled Al-Aboodi, CEO, ICD

COUNTRY FOCUS: BAHRAIN

16 BAHRAIN’S

TRANSFORMATION

20 ‘REMARKABLE RESILIENCE’ MALAYSIA

William Mullally

24 ENHANCING TRUST TAKAFUL

26 TAKAFUL AFRICA Log on to www.islamicbusinessandfinance.com for news, polls, events, analysis, blogs, features, commentary and more.

www.islamicbusinessandfinance.com

page 3-4 contents 103_2.indd 3

ISSUE 103 | Islamic Business & Finance

22/06/2017 13:34

CONTENTS

CHAIRMAN

ISSUE 103

SALEH AL AKRABI

FEATURES

CHIEF EXECUTIVE OFFICER

MANAGING EDITOR

ROBIN AMLÔT robin@cpifinancial.net Tel: +971 4 391 4681

GEORGINA ENZER georgina@cpifinancial.net Tel: +971 4 391 3728

EDITORIAL

ADVERTISING

editorial@cpifinancial.net

sales@cpifinancial.net

EDITORS

SALES DIRECTOR

Islamic Business & Finance WILLIAM MULLALLY william@cpifinancial.net Tel: +971 4 391 3718 JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024 NABILAH ANNUAR nabilah.annuar@cpifinancial.net Tel: +971 4 391 3726 MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716 LONDON BUREAU

OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419

MOHAMED MAKSOUD mohamed@cpifinancial.net Tel: +971 4 433 5320

CHIEF DESIGNER

EVENTS MANAGER

SENIOR DESIGNER

CREATIVE DESIGNER

ANA MAKSIĆ ana@cpifinancial.net Tel: +971 4 391 3723

EXPERT OPINION

DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526 NIKHIL MATHUR nikhil@cpifinancial.net Tel: +971 4 391 3717

FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724

SIMON MOTWALI simon.motwali@cpifinancial.net Tel: +971 4 433 5321

ISLA MACFARLANE isla@cpifinancial.net TEL: +44 7875 429476

BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719

BUSINESS DEVELOPMENT MANAGERS

NATALIA KAILA natalia.kaila@cpifinancial.net Tel: +971 4 365 4538 FINANCE MANAGER

SHAIS MEMON, ACCA, CMA Shais.memon@cpifinancial.net TEL: +971 4 391 3727 DATA ANALYST

NADINE ABOUZEID nadine@cpifinancial.net Tel: +971 4 433 5322

ONLINE CONTENT MANAGER

SIYA PAINAYIL siya@cpifinancial.net Tel: +971 4 391 3722

enquiries@cpifinancial.net Tel: +971 4 391 4682 Tel: +971 4 391 3709

SUKUK

28 ISLAMIC IMPACT

40 MARKET WATCH 42 2017 BRINGS NOTABLE

AFRICA

THE INSIDE STORY

32 MOROCCO

46 A BOARD MEMBER’S

ISLAMIC INVESTEMNT INVESTMENT

Get the next issue of Islamic Business & Finance before it is published. Full details at www.islamicbusinessandfinance.com ISSUE 103 Dubai Technology

and Media Free

Dubai Technology and Media Free Zone Authority

ISSUE 101

ISSUE 102

ISSUE 101

ISSUE 102

KBW LAUNCHES ISLAMIC FUND An exclusive with HRH Prince Khaled bin Alwaleed bin Talal

Islamic Corporation for the Development

KBW LAUNCHES ISLAMIC FUND

FOR ICD’S VISION CE ISLAMIC FINAN ent ion for the Developm CEO, Islamic Corporat (ICD) of the Private Sector

PLUS:

TAKAFUL:

Takaful in Indonesia

SUKUK:

DUBAI:

Metito’s experience DIEDC’s updated in Africa strategy

AN EXCLUSIVE WITH HRH PRINCE KHALED BIN ALWALEED BIN TALAL

A CPI Financial Publication

(ICD)

Khaled Al-Aboodi,

KBW LAUNCHES ISLAMIC FUND

HE Ahmed Osman, Governor, Central Bank of Djibouti

A CPI Financial Publication

of the Private Sector

@IBFMag on Twitter for stories as they're being told

CEO, FINANCE Khaled Al-Aboodi,

PLUS:

page 3-4 contents101.indd 1

A CPI Financial Publication

page 3-4 contents 103_2.indd 4

Zone Authority

ICD'S VISION FOR ISLAMIC

Islamic Business & Finance | ISSUE 103

50 Dates for your diary

DANA GAS SUKUK LAWSUIT

TAKAFUL: Africa

PLUS:

Inside Takaful

SUKUK:

2017 brings new

firsts

TAKAFUL:

Takaful in Indonesia

SUKUK:

DUBAI:

Metito’s experience DIEDC’s updated in Africa strategy

15/02/2017 14:45

MALAYSIA:s innovation KFH Malaysia'

20/06/2017 09:39

bleed guide.indd

DIARY

ISSUE 103

STORY

35 THE DICKENSIAN

www.cpifinancial.net PRINTED BY Traffic Media FZ LLC – Dubai, UAE

FIRSTS

SHARI'AH FOCUS

CPI FINANCIAL FZ LLC P.O. Box 502491, Dubai Media City, Dubai, UAE Fax: +971 4 390 9576

Registered at the Dubai Media City

OF THE ISLAMIC ECONOMY

ADMINISTRATION & SUBSCRIPTIONS

36 YOUTH AND THE FUTURE

www.islamicbusinessandfinance.com

22/06/2017 13:34

bleed guide.indd 1 Untitled-1 1

13/06/2017 06/02/2017 16:58 14:05

NEWS & ANALYSIS

In June, a coalition of countries led by Saudi Arabia and the UAE broke off all ties with Qatar, due to the country’s connections to terrorism. This could have an effect on the Islamic banks of the country, including Qatar Islamic Bank, which was downgraded to ‘CreditWatch negative’ by S&P. “We believe the recent developments might result in an outflow of external funding for Qatari banks over the next few months, depending on how the situation evolves. In our opinion, the banks’ current liquidity profiles should help them absorb a moderate drop in external funding. Overall, Qatari banks’ net external debt totaled about $50 billion at the end of April 2017… If the situation is not resolved relatively quickly, it might exert further pressure on banks’ credit quality. To capture these risks, we placed our ratings on the four Qatari banks on CreditWatch with negative implications...Among the rated banks, the least exposed to outflows from the GCC is Qatar National Bank, while the most exposed is Qatar Islamic Bank.” MOHAMED DAMAK, Global Head of Islamic Finance, Standard & Poor’s Rating Services

THE UAE will set up a Higher Shari’ah Board for Banking and Finance, a move that other leading Islamic finance countries have made in recent years. “The Cabinet also approved the formation of the board members of the Higher Shari’ah Board for Banking and Finance to strengthen consistency of the Islamic finance industry across the UAE. The Board is responsible for setting rules, standards and general principles for banking and financial activities that comply with Islamic laws. As well as setting a general framework for Islamic governance and Fatwa issuance on matters highlighted by the Central Bank or other financial institutions in the country.” WAM, UAE’s state news agency

Islamic Business & Finance | ISSUE 103

page 6-News Analysis 103.indd 6

www.islamicbusinessandfinance.com

20/06/2017 12:40

CMY

bleed guide.indd 1

13/06/2017 17:56

OPINION

Embracing blockchain

’ve said it again and again—the Islamic finance world has to contend with the technological developments in the broader industry, and they have to do it now. Those that do not risk being left behind, as the rapid changes are likely to be different from anything we’ve ever seen before. Though not the only one, one UAE bank is certainly making moves. In June, Emirates Islamic became the first Islamic bank in the country to integrate blockchain technology into its cheques. The bank is calling it ‘Cheque Chain’. The bank will issue new cheque books carrying a unique QR (Quick Response) code on every leaf, along with a string of 20 random characters. In the next phase of the Cheque Chain project, the bank will have each cheque leaf registered on the Bank’s blockchain platform enabling it to validate the authenticity of the cheque at source. “Blockchain has the potential to significantly increase security and protection in banking transactions and we are delighted to be among the first in the UAE to utilise this new technology,” said Suhail Bin Tarraf, Chief Operating Officer, Emirates Islamic. “We anticipate that Cheque Chain will dramatically reduce cheque frauds in this market helping us provide our customers greater peace of mind and security.” “Emirates Islamic is making deeper investments in digital technologies to enhance and improve the banking experience, as part of our commitment to support the vision of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of UAE and Ruler of Dubai in making Dubai the global capital of Islamic economy. We are confident that our efforts will be well received by our customers and partners,” continued Bin Tarraf.

Islamic Business & Finance | ISSUE 103

page 8 opinion 103.indd 8

I welcome these moves, and encourage all others to do the same, and more. Bin Tarraf is right—if Dubai is to be the capital of the Islamic economy, it’s going to need to embrace technology to the fullest extent. Luckily, Dubai has always been on the forefront of technological upgrades, and this is a very encouraging sign that one of the biggest banks in the UAE’s Islamic banking world is taking this initiative very seriously.

William Mullally

Editor

www.islamicbusinessandfinance.com

20/06/2017 12:41

bleed guide.indd 1

13/06/2017 17:57

COVER INTERVIEW

Khaled Al-Aboodi, CEO, Islamic Corporation for the Development of the Private Sector (ICD)

Islamic Business & Finance | ISSUE 103

page 10-15 Cover Interview 103.indd 10

www.islamicbusinessandfinance.com

22/06/2017 12:25

COVER INTERVIEW

ICD'S VISION FOR ISLAMIC FINANCE

KHALED AL-ABOODI, CEO, ISLAMIC CORPORATION FOR THE DEVELOPMENT OF THE PRIVATE SECTOR (ICD) SPEAKS EXCLUSIVELY WITH THIS PUBLICATION ABOUT THE HUGE MOVES ICD HAS MADE IN 2017

CD has been incredibly busy. What would you highlight as the moves that you are most excited about? A major milestone in our operation in the year 2016 was the conversion of traditional lunar Hijri as our financial year to solar Hijri year. The Board of Directors of the ICD and General Assembly recommended and approved to adopt the same financial year as the IsDB. Our impact on private sector development stretched over a wide range of sectors reflecting our responsiveness to the needs of the market, as well as the corporation’s strategic priorities and goals. In order to conform to our channels strategy, we have approved about $462 million of investment, or nearly 56 per cent of our total approvals in 2016 in the financial sector. Additionally, the majority of the ICD’s new project approvals in the corporate sector were concentrated in high-impact sectors such as industry and mining, energy, and infrastructure. The ICD’s asset management activities also maintained a growth trajectory, with $115 million of approvals last year, increasing total assets under management to $866 million

across the globe. Moreover, in 2016, the ICD has signed 14 advisory mandates and six memoranda of understanding (MoU) across various member countries to materialise its continuous support to the development of member countries, through advisory, building capacity, technical assistance and partnership activities. ICD has always made a point to help develop Islamic finance out of its traditional markets. Tell me about the moves you’ve made on that front in 2017. ICD fund projects that are aimed at creating competition, entrepreneurship, employment opportunities and export potential. We also bring additional resources to projects, encouraging the development of Islamic finance, attracting co-financiers and advising governments and private sector groups on how to establish, develop and modernise private enterprises and capital markets. We advise on best management practises and enhancing the role of the market economy. We always make interventions in member countries that are appropriate to their stage of development. In less developed member cont. on pg 12

www.islamicbusinessandfinance.com

page 10-15 Cover Interview 103.indd 11

ISSUE 103 | Islamic Business & Finance

22/06/2017 12:25

COVER INTERVIEW

cont. from pg 11

countries, we focus on building the basics of competitiveness and improving the regulatory environment. However, in betterdeveloped countries, we focus on enhancing private sector markets by increasing business sophistication. Which market do you think Islamic finance has the most untapped potential? Even in countries where Islamic banking is relatively strong, it usually still accounts for a minority of the overall market. Other than places like Sudan, and windows—where all banks are Shari’ah compliant—it is only in Saudi Arabia where Shari’ah-compliant banks hold a majority market share, with 51 per cent, all the other countries are much less. Of course, the Islamic finance industry extends beyond banking to encompass products such as Shari’ah-complaint insurance (Takaful) and Islamic bonds (Sukuk). However, banking remains by far the most important segment. According to ICD Thomson Reuters, total Islamic banking assets were $1.45 trillion in 2015. There is clearly plenty of scope for further growth. Two billion adults do not have a bank account and millions of small businesses do not have access to the financing they need. Many of these unbanked people and businesses are obvious targets for the Islamic finance industry as they are in countries with large Muslim populations, running in a line from Morocco in the west, through parts of Africa and the Middle East and into south and south-east Asia. Many of them are expected to be among the fastest-growing economies in the world in the next few years, including the likes of Côte d’Ivoire, Niger and Yemen. There have also been interesting opportunities in western markets. The UK and Luxembourg governments issued sovereign Sukuk and the following year KT Bank was set up in Germany as the first Islamic bank in the Euro zone. You’ve also been working to develop Islamic microfinance. What do you find is so important about microfinance for the future of Islamic finance? ICD launched the microfinance programme (MFP) to serve a new segment of the population

Islamic Business & Finance | ISSUE 103

page 10-15 Cover Interview 103.indd 12

and the market, which are the micro enterprises, low income and un-bankable people who are in need of a wide range of Shari’ah-compliant financial services. The aim is to encourage the involvement of the private sector in Islamic microfinance industry by encouraging the private sector actors to partner with ICD to establish new Islamic microfinance institutions/ entities on sharing bases. ICD can inject equity growth capital and provide line of finance (LOF) to those existing institutions with high potential to grow and diversify their products. We also believe that ICD can help shape the Islamic microfinance environment & institutional capabilities to maximise the outreach to the target clients through providing advisory services in different areas. You’ve made moves to ensure that Islamic finance is working more with SMEs. Do you think that the Islamic finance world doesn’t work enough with SMEs, and why? SMEs are vital to the economy, driving economic growth, job creation and reducing poverty, so giving the country’s entrepreneurs improved access to finance is vital. Line of finance has proven to be a very effective tool for development with higher multiplier effect. It has direct and indirect benefits with a diverse set of stakeholders such as SMEs, micro-entrepreneurs, key sector corporates etc. This tool is particularly important for those economies with low levels of Islamic finance and poor access to affordable financing. Last year we increased our approval figures for LOF by committing 14 new projects with a gross value of nearly $400 million. Our LOF approvals included one regional project for Sub Saharan Africa and 13 country-level facilities. What countries do you expect to issue their first Sovereign Sukuk in the coming years? Last year we began extending products and services, which we offer to new member countries. This includes some of our schemes as well as our Sukuk advisory services

www.islamicbusinessandfinance.com

20/06/2017 12:43

COVER INTERVIEW

A view of every country that ICD has worked in to further the Islamic finance industry.

plus our finance deal and privatisation project structuring. In 2016, ICD signed four new Sukuk mandates in four different member countries, either as a debut or as second tranche and closed the Jordan Sovereign Sukuk (mandated in 2015). Other member countries might follow the steps after the success stories in Cote dâ&#x20AC;&#x2122;Ivoire, Senegal, Togo, Suriname and Jordan. Morocco is considering many possibilities and do not exclude the issuance of sovereign Sukuk.

Besides what we have mentioned, what are the main challenges facing the development of Islamic finance? Industry challenges vary by country and by intensity, but in general, most jurisdictions are facing problems due to a number of fairly similar factors. For example, just to name a few, the lack of skilled human capital and well-developed capital markets, the absence of financial integration both regionally and internationally, the poor capitalisation of Islamic financial institutions, the shortage cont. overleaf

www.islamicbusinessandfinance.com

page 10-15 Cover Interview 103.indd 13

ISSUE 10 3 | Islamic Business & Finance

20/06/2017 12:43

COVER INTERVIEW cont. from pg 13

of liquidity and cash management tools and the poor public awareness of Islamic finance products are all factors impeding Islamic finance growth. Seeing that ICD is a multilateral developmental financial institution, some of these challenges are inadvertently ours as well. The lack of financial intermediation facilities is what distinguishes poor countries from their richer counterparts. To this end, ICD is enhancing economic development by providing a variety of Islamic financial services and products throughout its member countries. We have several academies in the pipeline designed to enhance knowledge of this fast-growing industry. The complex regional and international regulator y, economic and political context, and the growing need for scalable interventions to achieve meaningful

Islamic Business & Finance | ISSUE 103

page 10-15 Cover Interview 103.indd 14

developmental impact, requires broad-based co-operative efforts to ensure success and sustainability. ICD has been active in reaching out to governments and institutions, and devising new ways for cooperation and collaboration.

ICD is based in Jeddah, Saudi Arabia, pictured above.

How do you see the state of the Halal business landscape? The Islamic economy continues to evolve, driven by growing demand requiring companies to provide products and services that meet faith-based needs. According to Thomson Reuters, the Islamic economy was estimated to be worth $2 trillion in 2015. No doubt, this market presents a significant opportunity for businesses. While huge brands in food industry, finance, travel, fashion or even pharmaceuticals and cosmetics are beginning to engage with

www.islamicbusinessandfinance.com

20/06/2017 12:43

COVER INTERVIEW

this market in a targeted way, the potential is still mostly untapped. At the same time, there are some unique challenges: the market is very diverse, has unique consumption nuances, carries for mainstream brands reputation concerns, and is geographically fragmented. What are your thoughts on the importance of Islamic finance institutions developing their technology, with fintech and blockchain two important innovations that need to be implemented? Do you think financial institutions are doing enough on this front. I read in a report released last September based on findings from a survey of 200 banks, that banks and other financial institutions are adopting blockchain technology ‘dramatically faster’ than initially expected. With 15 per cent of top global banks intending to roll out full-scale commercial blockchain products next year and 65 per cent of banks expected to have blockchain projects in three years’ time. Islamic banks are not an exception. They are enthusiastic about the prospects. A recent report by EY says 40 of the biggest have approved investment of $15 million to $50 million for digital initiatives. The industry reaches nearly 100 million customers worldwide but the potential market is six times that. Fintech, especially blockchain technologies, ought to be a boon for Islamic finance, because it can streamline transactions between institutions that apply different versions of Shari’ah law. Islamic banking users are keen: three out of four say they are ready to look elsewhere for a better digital experience. How do you see the state of the Takaful landscape? Islamic banks, Ijarah, Takaful and investment companies play a pivotal role, creating a multiplier effect in the socio-economic development of member countries. Establishing alternative modes and channels of Islamic finance in member countries helps to meet the growing demand for affordable finance among retail companies and other SMEs.

www.islamicbusinessandfinance.com

page 10-15 Cover Interview 103.indd 15

ICD actively explored equity investment options in various member countries with larger populations, relatively strong economies, and resilient and well-regulated financial sectors, combined with a strong demand for Shari’ah-compliant products. To that end, we expanded the ICD’s institutional equity investment exposure in Bangladesh, Morocco, Saudi Arabia, Turkey and West Africa. These investments were aimed at equity participation in the capital of Shari’ah-compliant financial institutions. The total value of these projects amounts to $62.84 million. What else should we expect for the remainder of 2017? ICD will continue focusing on the development of what we call ‘Islamic finance channels’ designed to reach out and spread Islamic financial products far more widely with the objective of having a greater developmental impact in its member countries. This will be achieved substantially through setting up Islamic banks, investment and Ijarah companies, Takaful and ReTakaful companies in our member countries. ICD is pioneering many aspects of Islamic finance and sees its role as being a powerful driver for economic change.

In broad terms, the following is what ICD plans to achieve going forward: • Capture the growing demand for Islamic products • Create opportunities for growth and diversification • Create opportunities to attract incremental capital to support future expected growth • Create opportunities to attract strategic expertise from established Islamic financial institutions • Create opportunities to attract Islamic investors looking to diversify geographically their portfolios • Provide opportunities to generate capital gains/value enhancements for the parent financial institution shareholders • Plan to extend finance to infrastructure and PPP projects

ISSUE 103 | Islamic Business & Finance

22/06/2017 12:27

BAHRAIN

Bahrainâ&#x20AC;&#x2122;s transformation

(P.V.R.M/SHUTTERSTOCK)

DAVID PARKER, EXECUTIVE DIRECTOR, FINANCIAL SERVICES BAHRAIN ECONOMIC DEVELOPMENT BOARD (EDB), WRITES EXCLUSIVELY FOR IB&F ABOUT MOVEMENT IN THE SECTOR

Islamic Business & Finance | ISSUE 103

page 16-18 Bahrain_103.indd 16

www.islamicbusinessandfinance.com

20/06/2017 13:09

BAHRAIN

e in Bahrain are very excited about the next few years in the Islamic banking sector. Financial technology has the potential to transform Islamic finance, just as it has transformed the conventional financial sector. Not only could this lead to rapid growth and innovation in the sector but it could also play a role in enhancing financial inclusion across the MENA region. Bahrain has always been at the heart of the development of the sector and we are keen to play our part in the future of the industry. With over four decades of experience as a regional financial centre, Bahrain has the largest concentration of financial institutions and funds registered and domiciled in the region. The Kingdom is home to over 400 licenced financial institutions, including around 80 conventional banks, 25 Islamic banks and over 35 insurance firms; in addition to more than 2,800 authorised funds, predominantly made up of offshore funds. All of these are regulated by single regulator since 2002—the highly regarded Central Bank of Bahrain (CBB). Bahrain plays a central role in the development of the Islamic finance sector and recently the ICDThomson Reuters Islamic Finance Development Indicator ranked the Kingdom as the most developed Islamic financial market in the Middle East and the second in the world. Bahrain is also home to a number of the institutions that set the standards for industry around the world (e.g. AAOIFI, CIBAFI and IIFM) and to a number of global centres of excellence and research. Bahrain also announced the first Shari’ahcompliant stock market index in the Gulf and the region’s first central Shari’ah supervisory board at the CBB which should help to enhance standardisation and subsequently drive down costs. A view of Bahrain World Trade Center and other high rise buildings in Manama City in 2017.

2017 DEVELOPMENTS The demand for new products and services, alongside Bahrain’s increased focus on innovation and support for fintech focused businesses creates cont. overleaf

www.islamicbusinessandfinance.com

page 16-18 Bahrain_103.indd 17

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:09

BAHRAIN

cont. from pg 17

exciting opportunities in the Islamic finance sector. In March, Bahrain signed an agreement with the Singapore Fintech Consortium to develop a fintech ecosystem and regulatory framework for the Kingdom. Bahrain has also recently launched a consultation paper on developing a regulatory sandbox for fintech, which is aimed to launch soon this year. The response for the sector has been encouraging and many financial organisations are willing to test new innovative products and services.

ADDRESSING CHALLENGES One of the constraints on growth in the sector has been a lack of trained personnel in handling Islamic finance products. To address these challenges, the Central Bank of Bahrain led the effort to put investment into Islamic finance training and education through the Waqf Fund and has worked alongside a number of other institutions in Bahrain, such as Tamkeen and the Bahrain Institute of Banking and Finance (BIBF). AAOIFI, which is based in Bahrain, has also led the development and issuance of standards for the global Islamic finance industry for over two decades, which helps make Islamic finance more uniform and cost efficient. The Shari’ah board at the Central Bank of Bahrain also helps oversee Islamic finance products in the Kingdom, and often introduces initiatives to strengthen governance in the sector.

OPPORTUNITIES This is an exciting time for the Islamic finance sector as it’s beginning to take off around the world. In the mid-1970s, Bahrain was the first country to focus on Islamic Banking and to nurture the concepts, rules and common standards of Shari’ah compliance. Now, Bahrain is one of the leading global Islamic finance centres due to its concentration of institutions and skilled local workforce. As of September 2016, the Kingdom hosted 25 Islamic banks whose assets under management total valued at around $25.7 billion. Bahrainis are also financially and technologically literate, educated, and have the skills to support the workforce needed to meet the growing demand for Islamic finance. Bahrain’s competitive operating costs and high quality technology infrastructure also enable

Islamic Business & Finance | ISSUE 103

page 16-18 Bahrain_103.indd 18

DAVID PARKER, Executive Director, Financial Services Bahrain Economic Development Board (EDB)

firms to operate efficiently and cost-effectively across the region. At the Bahrain Economic Development Board (EDB), we are committed to help link businesses to the opportunities and as our remit is to attract investment in order to generate high quality jobs for Bahrainis, we are not just interested in getting companies to sign up, we also want them to prosper in the years to come.

FOCUS ON FINTECH Similar to conventional banks, it is very important for Islamic banks to adapt and develop fintech infrastructure. The Gulf is home to a young tech savvy population that is open to adapting to a new way of banking—a 2017 McKinsey survey found that about 80 per cent of consumers in the Kingdom of Saudi Araba and United Arab Emirates, the two biggest banking markets in the Gulf, are willing to shift from a third to more than half of their credit-card, savings, and borrowing activity to banks with strong digital offerings. Growing consumer interest in digital banking services will continue to force banks to change. As Islamic banks adapt and develop their fintech infrastructure, it is likely we will see more financial inclusion in the way that mobile technology spread across the MENA region. The change in infrastructure will boost accessibility and support the continued growth of Islamic finance and banking across the world.

www.islamicbusinessandfinance.com

20/06/2017 13:09

Excellence through innovation Rewarding pioneers in Islamic finance

Islamic Business & Finance AWARDS 2017

12th DECEMBER 2017 Emirates Towers Hotel, Dubai

Voting commences Mid-October through end of November

For more information please contact CPI Financialâ&#x20AC;&#x2122;s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net

bleed guide.indd 1

14/06/2017 16:20

BAHRAIN

‘Remarkable resilience’ DR. JARMO KOTILAINE, CHIEF ECONOMIC ADVISOR–BAHRAIN ECONOMIC DEVELOPMENT BOARD (EDB) WRITES EXCLUSIVELY FOR IB&F ABOUT THE BAHRAINI ECONOMY IN 2017

(Zawin DirKrikouryan/SHUTTERSTOCK)

Islamic Business & Finance | ISSUE 103

page 20-22 Bahrain_103.indd 20

www.islamicbusinessandfinance.com

22/06/2017 13:09

BAHRAIN

The Bahraini economy has been growing in the non-oil sector, a very welcome development.

www.islamicbusinessandfinance.com

page 20-22 Bahrain_103.indd 21

he Bahraini economy has continued to display remarkable resilience and dynamism during a challenging economic cycle in the regional context. Economic growth in the non-oil sector, which now makes up over 80 per cent of GDP, reached 3.7 per cent in 2016, marginally faster than in 2015. The overall headline real GDP growth rate, similarly, accelerated somewhat to three per cent in 2016. Growth in Bahrain has been very broad-based. The fastest pace of expansion in 2016 was seen in social and personal services, which grew 9.1 per cent, a sector dominated by private education and health care. The construction sector expanded by 5.7 per cent and financial services, the largest sector in the non-oil economy, posted 5.2 per cent YoY growth. This remarkable momentum of the non-oil sector is due to very strong structural growth drivers. It is also benefiting from the largest pipeline of infrastructure projects in the Kingdom’s history, where the strategically significant projects alone are roughly equal to the country’s GDP in their aggregate value. Bahrain is benefiting from significant manufacturing and housing investments, along with major transportation projects such as the $1.1 billion airport modernisation programme. Bahrain recognises the importance of a dynamic approach to competitiveness as critical for a small, open economy. Efforts to diversify the economy and boost its long-term growth rely critically on attractive regulation, a qualified workforce, and excellence in connectivity. While openness has been central to Bahrain’s identity for millennia, enhancing these, and other drivers, has been central to Bahrain’s reform efforts for years. cont. overleaf

ISSUE 103 | Islamic Business & Finance

22/06/2017 13:10

BAHRAIN

cont. from pg 21

Recent examples of significant economic reform initiatives in Bahrain include the introduction of an electronic corporate registration system which has driven a sharp increase in new company formation. Bahrain has also introduced key amendments on its Commercial Companies Law to further increase the competitiveness of the business environment. One key amendment is the abolition of the minimum capital requirements for different types of companies including WLLs and SPCs. This will, among other things, help reduce business costs for startups in areas such as fintech. Bahrain is pursuing a structured strategy to set up a comprehensive ecosystem that supports creative technology start-ups. Three recent laws are designed to offer new financing structures to complement the existing opportunities in the Kingdom. They are likely to be instrumental in driving the growth of venture capital and private equity, among other things. The Investment Limited Partnership law made Bahrain the first country in the GCC to introduce and integrate the law in its legal system. The Kingdom also saw the introduction of the Trusts Law and Protected Cells Companies Law. The Central Bank of Bahrain is currently working to create a regulatory sandbox to support the development of the country’s emerging fintech industry. This will make it easy for innovative start-ups to develop and trial their ideas before taking them to market. A modern bankruptcy law is also being prepared as a further key element in creating a conducive environment for entrepreneurship. Establishing simple, transparent, and efficient mechanisms for restructuring or winding down companies is seen as critical to support the country’s growing cluster of creative entrepreneurs.

RELATIONSHIP WITH THE US Bahrain has long had a strong relationship with the US. Among other things, it is one of a small number of countries globally to have a full Free Trade Agreement with the US. Bahrain recently celebrated the 10th anniversary of the agreement which has seen strong, solid growth in trade and investment flows between the two sides. We feel that the Bahraini-US relationship continues to present tremendous potential for

Islamic Business & Finance | ISSUE 103

page 20-22 Bahrain_103.indd 22

DR. JARMO KOTILAINE, Chief Economic Advisor– Bahrain Economic Development Board (EDB)

future growth and win-win outcomes for both sides. The compelling growth dynamics in the GCC, along with the exceptionally strategic location of the region, can create attractive opportunities for American businesses. At the same time, American businesses have a key role to play in further consolidating and supporting the GCC region’s efforts to drive economic diversification.

www.islamicbusinessandfinance.com

20/06/2017 13:11

CMY

bleed guide.indd 1

13/06/2017 17:00

ISLAMIC BANKING

Enhancing trust JULIO LOBO, CHIEF RETAIL BANKING OFFICER FOR KFH MALAYSIA TALKS EXCLUSIVELY WITH ISLAMIC BUSINESS & FINANCE ABOUT HOW IT’S FOCUSING ON INNOVATION AND CUSTOMER RELATIONSHIPS

h at a r e t h e p r o s p e c t s o f demands for retail and in the coming years?

We have evidenced higher growth in Islamic banking in comparison to conventional banking, especially on retail banking. At KFH Malaysia Retail, our objective is to launch innovative Shari'ah solutions instead of launching products that already exist with our competitors. The key is to innovate both on the product and process areas to identify and meet market needs at a much faster pace. We are building a strong digital platform which allows us to reach customers via multiple channels and at the same time, empower them to apply for products and services through any channel of their choice.

How does KFH Malaysia aim to develop a business that corresponds towards customer based services that ultimately leads to the customer needs and satisfaction? Outstanding service remains the cornerstone of success in every industry and at KFH Malaysia, it is no different. We strive to provide what we’d like to state as five-star service every time a customer walks into our bank or engages across any touch point within our network. Every product or service initiative is carefully planned to ensure a superior customer experience which fuels positive brand identification and allows us to deepen customer relationships. One such example is our “We Care” initiative which fosters the spirit of building, nurturing and rewarding relationships be it within staff or to our customers. In addition, with our digital banking initiative which is underway presently, we will be simpler, better and faster to address customer needs.

Islamic Business & Finance | ISSUE 103

page 24-25 Islamic Banking 103_3.indd 24

What are the trends that you expect to evolve in the Digital Landscape? Banking is becoming more convenient thanks to the internet, and the future of the banking industry is growing digitally; but the penetration of smartphones in the recent years has truly caused mobile banking to go mainstream. The smartphone is becoming the fundamental component of the future of digital banking, especially among younger customers who will wield financial influence in the coming decades. Consider the following data from a BI Intelligence survey (of businessinsider.com): • 7 1 per cent of millennials say it's very important to have a banking app, and 60 per cent say it's very important to have an app to make payments. • 51 per cent say that they have made a purchase through a mobile website or through an app in the last month.

EXPECTATIONS FROM DIGITAL INVESTMENTS Grow Revenue

38%

Create Better Customer Experience

24%

Increase Profits

17%

Achieve Cost Savings

Enhance Brand and Reputation

Innovate Our Products

Improve talent Retention and Recruitment Improve Decision Making

Combat New Industry entrants

Disrupt Our Own/Other Industries

www.islamicbusinessandfinance.com

20/06/2017 13:14

ISLAMIC BANKING

• 27 per cent say they have used their phone to make a payment at a checkout in a store in the last month. Small businesses are also adopting technology and increasingly installing inexpensive mobile point-of-sale products in order to accept credit and debit cards when they previously could not. This technology further eliminates the need for cash.

of its kind Gold Account that enables customers to transact in physical gold and is free of any hidden charges and other attractive deposit options offering rates as high as 10.88 per cent on deposit balances. We are also in the midst of launching a payroll account replete with innovative features aimed at both employers and employees when they choose KFH Malaysia as their payroll partner

What would be the Key strategies in moving towards digitalisation?

How these products aimed to represent KFH Malaysia as a formidable Islamic Banking Institution?

Our digital banking approach is aimed at achieving the below Key Result Areas: • Removing friction from the customer journey for superior customer experience • Increased use of big data, AI and advanced analytics to identify, track and evolve products and services to suit customer needs • Offer an integrated omni-channel banking experience to our customers via mobile, web, ATM, call centre, etc. • Use of open APIs in banking systems to enable efficient collaboration with third parties to generate more value to our customers • Partnerships between banking and fintech to boost financial inclusion and reach. • Expansion of digital payments via digital wallet, P2P payments, QR codes to support the BNK initiatives to reduce cash payments • I n n o v a t i o n - l e d g r o w t h ( d i g i t a l banking, upgraded core banking, card management systems, etc.), participation in key BNM initiatives (MyClear, Sandbox, etc.)

What are the current products that KFH Malaysia has to offer? KFH Malaysia’s retail banking division has a suite of products to cover the varying needs of a diverse customer base both within the bank as well as those who are yet to initiate their banking relationship with us. Apart from standard products such as Personal/ Auto or Home Financing, KFH Malaysia Retail also offers innovative products such as the Cashline which gives customers both the flexibility and peace of mind to meet unforeseen needs, an attractive SURE Current/ Savings account that rewards customers with an attractive profit rates, a first

www.islamicbusinessandfinance.com

page 24-25 Islamic Banking 103_3.indd 25

JULIO LOBO, Chief Retail Banking Officer for KFH Malaysia

KFH Malaysia firmly believes in creating lasting value to our customers instead of just offering “me too” solutions which already exist in the market. As a result, our product portfolio is constantly being evaluated to help us effectively answer a simple question; “Why choose us”? As a result, in addition to standard we are in the midst of launching several new products that will carry a compelling value proposition that will make us the bank of choice when it comes to Islamic banking solutions in the country.

What’s the level of trust from non-Muslim customers to your products? Islamic banking is not new to Malaysian customers. However for those customers who are not exposed to Islamic Banking products, it is imperative we explain the concept and the transparent way in which business is conducted under Shari'ah, which enhances trust among non-Muslim customers.

W h at a r e t h e v i s i o n fo r KFH Malaysia in promoting Shari'ah compliant banking for the consumers? As a global leader in Islamic banking, we want to be known as a responsible lender who provides relevant solutions that benefit a wide range of customers and their financial needs in a transparent and fully Shari'ah-compliant manner. We will continue to drive group synergy with the global transfer of knowledge and leverage the strength of the group to bring in more innovative products for our Malaysian customers.

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:14

TAKAFUL

The story of Takaful Africa AN EXCLUSIVE INTERVIEW WITH TAKAFUL INSURANCE OF AFRICA CEO OMAR SHEIKH

ell me about the history of Takaful Africa.

Takaful Insurance of Africa was licenced by the Government of Kenya in 2011 to provide a Shari’ah-compliant alternative in the Kenyan market which was predominantly dominated by conventional insurance. Eight years ago, the Muslim community in Kenya was faced with an ethical and religious dilemma between protecting their wealth, which is a tenet of Islamic maxim (Maqaasid

Islamic Business & Finance | ISSUE 103

page 26-27 Takaful 103.indd 26

Shari’ah) to having a truly trustable insurance model which both serves the wealth protection and their religious belief. The dilemma ended with the birth of Takaful Insurance of Africa. The thirst for the push of a Takaful model was propelled by the birth of Islamic banks which had made inroads in the country. The next pressing point was thus to have Islamic insurance to make transactions Shari’ah-compliant across the value chain. The regulator found it easy to accommodate the concept riding on the birth and success of

www.islamicbusinessandfinance.com

20/06/2017 13:17

TAKAFUL

Islamic banks which were born few years earlier and were being felt across the market. Takaful operates as risk management model that pools participants’ contribution through donations to a pool and indemnifying members of the pool from risk fund; a cushion against loss that serves the Muslims’ needs. The financial result is a testimony of the growth in profitability. The concept of pooling resources together as a form of cooperative arrangement, the voice of popular scholars and the surplus profit sharing which was paid to participants from the first year, made the Takaful concept very popular and a voice to reckon with in the whole of Africa. It’s for this reason that I, the country CEO, express confidence that Takaful Insurance of Africa will continue to meet and exceed the expectations of its customers.

A view of Kenya, where Takaful Africa is based.

• Fire and perils • Domestic package • Contractors all risks • Goods in transit • Index-based livestock insurance – severe drought intervention • Work Injury Benefits Act (WIBA) • Employers liability • Public liability • Electronic equipment • Professional indemnity • Personal accident & group personal accident • Theft classes of insurance i.e. money, fidelity guarantee, burglary and all risks • And all other types of insurance covers

What have been the main developments by Takaful Africa in the last few years?

Tell me about the products and services you offer. What are Takaful’s products? Takaful offers a wide range of products including: • Motor vehicles cover both commercial and private • Marine insurance

Takaful Africa CEO OMAR SHEIKH admiring his award.

These include system development to support business needs and growth, process re-engineering and procedures development to set the controls standards in the industry, role matching and business re-alignment. We developed an index-based livestock product that is meant to intervene during drought times thus playing the role of protection rather than replacement. When the drought level is flagged as heading for danger, we pay out to support livestock owners to buy fogger for their animals. This way, so many animals were saved. This made Takaful Africa win the Innovation of the Year award at the 44th Annual Conference by the African Insurance Organisation held in Kampala in May 2017. The reform programmes undertaken in the last few years made Takaful post 300 per cent profit over the previous year, making it join the top 10 insurance companies in profitability.

What are your main plans for the rest of 2017? First we will roll out superior products based on a value proposition away from the common price wars in the industry. The products ready for launch are women products and a product for the up market clientele. I can also confirm that the company is under taking further reform programmes to serve its customers better. We are focusing on quick claim settlement, superior customer services, relationship management and product modernisation among other initiatives.

www.islamicbusinessandfinance.com

page 26-27 Takaful 103.indd 27

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:17

ISLAMIC INVESTMENT

Islamic impact investment A NEW REPORT FROM THE ISLAMIC DEVELOPMENT BANK (IDB) GROUP AND THE UNITED NATIONS DEVELOPMENT PROGRAM (UNDP) OUTLINES WAYS THAT ISLAMIC FINANCE CAN WORK TOWARDS ACHIEVING THE UNâ&#x20AC;&#x2122;S 2030 AGENDA FOR SUSTAINABLE DEVELOPMENT

Islamic Business & Finance | ISSUE 103

page 28-31 Islamic Investment_2 103.indd 28

n 1 January 2016, the 17 Sustainable Development Goals (SDGs) of the United Nations, as outlined in the 2030 Agenda for Sustainable Development, officially kicked in. With the scale and ambition that comes along with these goals, an estimated $5-7 trillion will be needed each year for the next 15 years. Islamic finance is a perfect fit to help fulfil these goals, as impact investment can help achieve some of the goals of Islamic finance. This is according to a new report, I for Impact: Blending Islamic Finance and Impact Investing for the Global Goals, launched

www.islamicbusinessandfinance.com

20/06/2017 14:01

(sutipond/SHUTTERSTOCK)

ISLAMIC INVESTMENT

Although organisation of Islamic Cooperation (OIC) member countries account for 22 per cent of the world population, they house 40 per cent of the world’s poor who live on $1.25 a day or less.

by IDB President Dr Bandar Hajjar, and UNDP Assistant Secretary General Magdy MartínezSolimán, during the 42nd Annual Meeting of the IDB Group in Jeddah, Kingdom of Saudi Arabia.

According to the report, these sums are far beyond the scope of individual governments and the multilateral funding agencies. Private sector funding, capabilities and knowhow need to be mobilised to sustain the new development agenda and the global partnership for sustainable development, to operationalise the policies and actions outlined

in the Addis Ababa Action Agenda and end poverty within a generation. “The world we live in today is full of challenges of poverty, social inequality and environmental adversities that cannot be taken lightly. In response, the 2030 Agenda for Sustainable Development envisages a revitalised global and innovative partnership for sustainable development to address such challenges. In this regard, the Islamic Development Bank Group (IDBG) and the United Nations Development Programme’s (UNDP), have formed a partnership to establish the Global Islamic Finance and Impact Investing Platform (GIFIIP),” said Marcos Neto, Director, Istanbul International Center for Private Sector in Development. But what is impact investment exactly? Impact investment, defined as the deployment of funds with the aim to generate social and environmental impact as well as a financial return, has established itself as an important source of funding the SDGs. Its global reach is growing rapidly. As much as three quarters of total impact investment assets is in developing countries and a fifth is allocated to microfinance, contributing to development efforts. Private debt and equity together account for 65 per cent of impact investments, with bonds a prominent instrument. While institutional investors are currently constrained from large-scale participation in impact investing by their legal and fiduciary responsibilities, high net-worth individuals (HNWIs) are key players. Impact investment funds and development finance institutions (DFIs) are also prominent as impact driven organisations. Critical drivers of impact investing include the failure of governments to increase and deliver on their ODA commitments and the emergence of the ‘value-investor,’ said the report. The Islamic finance sector, meanwhile, has grown from a market of $200 billion in 2003 to an estimated $1.8 trillion in 2014 and is expected to reach $2.7 trillion in 2021. According to the report, this represents a strong potential source of financing for the SDGs, fostering development and helping to end poverty. Although organisation of Islamic Cooperation (OIC) member countries account cont. overleaf

www.islamicbusinessandfinance.com

page 28-31 Islamic Investment_2 103.indd 29

ISSUE 103 | Islamic Business & Finance

20/06/2017 14:02

ISLAMIC INVESTMENT

cont. from pg 29

for 22 per cent of the world population, they house 40 per cent of the world’s poor who live on $1.25 a day or less. Reaching more of those at the bottom of the pyramid by deepening and widening the range of Islamic financing solutions available to the poor, especially microfinancing products, according to the report, would be a major contribution to the 2030 Agenda. “Islamic finance’s resilience to the 2008 financial crisis has enhanced the prominence of Islamic finance and the market for its products and services is growing. Its key pillars: asset backed; ethical; participatory and good governance underline its suitability for deployment in pursuit of the 2030 Agenda and the elimination of poverty. Islamic financial assets are currently concentrated in the three markets of Malaysia, Saudi Arabia and Iran. The Islamic fund industry, dominated by Malaysia, Saudi Arabia and Luxembourg, is growing, but still of limited scale. Individuals, notably HNWIs, Sovereign Wealth Funds, and pension funds, are among the key actual and potential investors. Among the DFIs, the Islamic Development Bank Group (IDBG), fully compliant with Islamic financing principles, is preeminent, with 57 member countries,” said Professor Dr Mohamad Azmi Omar, Director General of Islamic Research and Training Institute (IRTI), Islamic Development Bank Group. With their rigorous moral and social criteria, their emphasis on inclusiveness and broader understanding of business-society relations, the principles of Islamic finance and impact investing complement each other, the report argues. “Both Islamic finance and impact investment occupy value-based investment universes, associate themselves with a moral purpose, offer access to finance to those directly or indirectly kept out of the conventional financial investing arena and share a broader understanding of the relationship between business and society. These similarities suggest that bridging the two sectors offers a promising avenue to respond to the growing challenges related to development financing through collaboration, cross-learning and reaching new markets.

Islamic Business & Finance | ISSUE 103

page 28-31 Islamic Investment_2 103.indd 30

“Islamic finance impact investing offers a potent new mechanism for fulfilling SDG poverty-reduction targets by harnessing private sector finance targeted, in particular, at MSMEs that are often excluded from conventional financing mechanisms,” said Neto. The market for impact investors can access new sources of finance and develop new markets by addressing Islamic finance; this will increase the range of impact investing tools and has the potential to help speed and simplify access to finance for small companies

We do believe that Islamic finance is profoundly attuned to impact investing since they are both based on rigorous ethical and social criteria with an emphasis on inclusiveness and a broader understanding of business-society relations. MARCOS NETO, Director, Istanbul International Center for Private Sector in Development

using Islamic financial instruments, said the report. For Islamic financiers, partnering with the impact investing sector, especially in monitoring and evaluation methodologies, offers the potential for expansion of scope and scale and for greater worldwide recognition. The poorer segments of society in OIC member countries could gain greater access to finance and development opportunities and the toolbox of Islamic financing instruments could be greatly enlarged, it continued. “We do believe that Islamic finance is profoundly attuned to impact investing since they are both based on rigorous ethical and social criteria with an emphasis on inclusiveness and a broader understanding of business-society relations,” said Neto. “Such a bridging [between Islamic finance and impact investment] could pave the way for an effective joint response, invoking both, to the mounting challenges related to development financing,” said Omar.

www.islamicbusinessandfinance.com

20/06/2017 14:02

ISLAMIC INVESTMENT

The report outlines a few clear goals that the Islamic finance community should work on in order to work towards better supporting impact investment towards achieving the SDGs. One, an enabling environment to promote “Islamic finance impact investing” should be created as part of the larger dialogue on inclusive financial systems and responsible investing principles. Next, support should be offered to the creation and functioning of an effective capital market system for Islamic finance impact investing, including supporting existing and new intermediaries. Third, well thought out, comprehensive regulatory, accountability, tax and legal frameworks are needed and it is important to raise the awareness of the current and potential levels of convergence of Islamic and impact investing. Fourth, standards for impact measurement and reporting should be established so that the sector’s metrics are aligned with the common practises of the global impact investing community. There must also be broad-based cooperation. Key stakeholders from governments, the private sector and support organisations in both the Islamic and conventional impact investing spaces should be brought together to discuss critical bottlenecks, learn from best practises, establish relationships and benefit from cross-pollination of ideas and shared beliefs. A centre of excellence should be established to take the lead in positioning Islamic finance impact investing as part of the global dialogue on politically neutral, inclusive financial systems and to connect innovators and interested parties to raise awareness and encourage cooperation, according to the report. To further these recommendations, UNDP and the Islamic Development Bank established the Global Islamic Finance and Impact Investing Platform (GIFIIP) in 2016 to position Islamic finance impact investing as one of the leading enablers of SDG implementation around the world through private sector engagement. According to their joint statement, UNDP and the Islamic Development Bank aim to create a collaborative working space among stakeholders to address above mentioned challenges, and nurture an Islamic finance impact investing business ecosystem.

www.islamicbusinessandfinance.com

page 28-31 Islamic Investment_2 103.indd 31

ISLAMIC FUNDS LAUNCHED AND OUTSTANDING BY REGION, Figure 6: Islamic2014 Funds Launched and Outstanding by Region, 2014 Figure 6: Islamic Funds Launched and Outstanding by Region, 2014 Islamic funds AUM launched by region Islamic funds AUM launched by region Islamic funds AUM outstanding by region Islamic funds AUM outstanding by region 0%

20%

40%

60%

80%

100%

20%

40%

60%

80%

100%

GCC Southeast Asia GCC North America Southeast Asia Europe North America Other MENA Europe Sub-Sahara Other MENAAfrica South Asia Africa Sub-Sahara Other Asia South Asia Other Asia

Source: ICD, and Thomson Reuters, 2017. 124 Source: ICD, and Thomson Reuters, 2017. 124

SOURCE: ICD, and Thomson Reuters, 2017

ISLAMIC FUNDS AUM OUTSTANDING BY TYPE, 2015 Chart 10: Islamic Funds AUM Outstanding by Type, 2015 Chart 10: Islamic Funds AUM0,1% Outstanding by Type, 2015 0,4% 0,4% 5%

0,1% 4% 4%

8% 5%

43%

Equity Equity Money Market Money Sukuk Market Sukuk Mixed Assets Mixed Assets Real Estate Real Estate Commodity Commodity Others

40%

Others

40%

SOURCE: ICD, and Thomson Reuters, 2017

GLOBAL ISLAMIC FUNDING BY SIZE, 2015 Chart 11: Global Islamic Funding by Size, 2015

< US$ 1 million US$1-5 million US$5-10 million US$10-50 million US$50-100 million US$100 million

SOURCE: ICD, and Thomson Reuters, 2017

ISSUE 103 | Islamic Business & Finance

22/06/2017 12:30

AFRICA

What Islamic finance will mean for Morocco AFTER THE MOROCCAN CENTRAL BANK FINALLY APPROVED ISLAMIC FINANCE IN EARLY 2017, THE FIRST ISLAMIC BANK HAS OPENED, WITH PROMISING GROWTH PROSPECTS FOR THE BANKING INDUSTRY AS A WHOLE

Islamic Business & Finance | ISSUE 103

page 32-34 Africa_103.indd 32

www.islamicbusinessandfinance.com

20/06/2017 13:21

AFRICA

(saiko3p/SHUTTERSTOCK)

After years of effort, Islamic finance has begun in earnest in the country, with the first branch opening in Rabat.

fter years of rejection from the central bank, Islamic finance in Morocco is now a reality. In addition to the five new Islamic banks approved in January by Bank Al-Maghrib, the country’s central bank, an announcement earlier this year further granted three banks permission to sell Islamic products. A statement from the central bank noted that a Shari’ah Committee for Participative Finance will be established to govern all Islamic finance activities. The five banks are: CIH Bank in partnership with Qatar International Islamic Bank; BMCE Bank of Africa jointly with the Saudi/Bahraini group Dalla Al Baraka; Banque Centrale Populaire with the Guidance Financial Group; and Crédit Agricole du Maroc in partnership with the Islamic Corporation for the Development of the Private Sector (ICD), a subsidiary of the Saudi-based IDB. Banque Marocaine du Commerce et de l’Industrie, Crédit du Maroc and Société Générale have also been approved to sell Islamic banking products, whilst Attijariwafa Bank is in talks about a potential future partnership. “The launching of participative (Islamic) finance products in Morocco complements and expands the range of products offered by the domestic banking sector and opens it to new financing capacities,” a statement from the Central Bank said. “It will strengthen the attractiveness of Casablanca as a leading financial hub in Africa, in accordance with the will and guidance of His Majesty the King, may God assist Him.” “We are delighted by the news that we will be able to positively impact the Moroccan consumer finance market,” said Khaled Elsayed, President and CEO of Guidance Financial Group, USA. He added, “It is also nice to know that this achievement is yet another positive result of the remarkable success our distinctive US Islamic home finance programme has had since it was introduced over 15 years ago to the US Muslim consumer market.” Guidance stated in a press release that the collaboration with Banque Centrale Populaire is aimed at fulfilling the growing demand in Morocco for Islamic financial products. Though it was expected that Morocco would issue its first ever Sukuk for the domestic market in the first half of 2017, to date no such announcement has been made. cont. overleaf

www.islamicbusinessandfinance.com

page 32-34 Africa_103.indd 33

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:21

AFRICA

cont. from pg 33

In addition, there has not yet been any approval for a bill on the regulation of Takaful.

THE GROUND BREAKS The first Islamic bank was launched in Morocco in June. QIIB announced the launch of the operations of Umnia Bank in Morocco, which is the result of a partnership between QIIB and Crédit immobilier et hotelier (CIH) and Moroccan Deposit and Management Fund. The bank is the first Islamic bank in Morocco. This comes six months after the Central Bank first approved the operations of Islamic financial institutions. The Bank’s operational works began through its branches in Casablanca and Rabat, where Umnia is considered as the first bank of its kind to obtain the necessary approval of the Central Bank of Morocco to promote its products in the Kingdom of Morocco. Umnia Bank has formulated an operational strategy that focuses on expanding in various cities in the Kingdom of Morocco and offers innovative and different banking bank products including everyday banking solutions, finance and investments as well as deposits and savings.

A MODEST STIMULUS Islamic banks, referred to as ‘participation banks’ in Morocco, are likely to provide a modest stimulus to deposit growth in the country, Fitch Ratings wrote in a statement. Morocco’s central bank granted its first licences to Islamic banks in June. Fitch's discussions with rated banks indicate that the ability to offer Islamic banking products could expand their deposit bases by five per cent to 10 per cent. The ability to grow the deposit base is positive for Morocco’s economic development because deposits represent about 70 per cent of banking sector funding. “We expect growth of participation banks will be high initially, as was the case following the introduction of Islamic banking in Turkey and Indonesia. The ability to access Islamic products will ensure that customers have access to a more comprehensive range of services. Customers who have avoided transacting with conventional banks for Shari’ah-related reasons can now move into the formal banking sector,” said Bashar Al Natoor, Head of Islamic Finance for Fitch Ratings. However, banking penetration is already high in Morocco, with 70 per cent of adults holding a bank account, suggesting that most

Islamic Business & Finance | ISSUE 103

page 32-34 Africa_103.indd 34

Moroccans have not shied away from the banking sector on faith grounds. Participation banking is therefore unlikely to take a significant market share from the well-established conventional banks, according to Fitch. The growth of participation banks will be affected by several factors, including the spread of awareness of Islamic finance, the extent to which the government stimulates expansion, population growth rates and regulatory developments. Positively, the central bank has established a central Shari’ah board of Islamic scholars to oversee the sector, which should help to provide a cohesive framework under which the banks can operate. Greater clarity on essential aspects, such as how participation banks will manage their liquidity in a Shari’ah-compliant manner and how financing contracts will be drawn up, would help to stimulate the sector. However, delays in establishing a clear framework could hinder the development of participation banks, forcing up funding costs and resulting in insufficient depth in product offerings, according to Fitch. Growth rates in the Moroccan banking sector have been volatile in recent years, reflecting unsteady economic trends. Deposit growth (nearly seven per cent in 2016) has outstripped loan growth (3.9 per cent) in recent years, but credit demand is set to accelerate in line with an improved economic outlook in 2017. This could force banks to compete more aggressively for deposits, putting pressure on margins at the conventional banks, said Fitch. The ability to offer participation banking services could broaden the pool of potential depositors in the country, mitigating the competitive pressure. Only existing conventional banks have applied for participation banking licences and Fitch is not aware of any independent Islamic banks making requests to operate in Morocco. Banks owned by domestic shareholders, such as the aformentioned Attijariwafa Bank, BMCE Bank, Groupe Banque Centrale Populaire and Credit Immobilier et Hotelier, have opted to establish separate participation banking subsidiaries, while subsidiaries controlled by French parents, such as Societe Generale Marocaine de Banques (controlled by Societe Generale), Banque Marocaine pour le Commerce et l’Industrie (BNP Paribas) and Credit du Maroc (Credit Agricole), have chosen to provide services through special Islamic banking ‘windows’, according to Fitch.

www.islamicbusinessandfinance.com

20/06/2017 13:21

SHARI'AH FOCUS

The Dickensian Dana Gas Sukuk lawsuit DANA GAS STUNNED THE INDUSTRY WHEN IT DECLARED ITS OWN SUKUK UNLAWFUL. MOHAMMED KHNIFER, ISLAMIC DEBT CAPITAL MARKET BANKER AT THE ISLAMIC DEVELOPMENT BANK GROUP, ANALISES THE SITUATION FOR IB&F

a n a’s s t u n n i n g S u k u k incident echoes Charles Dickens’ A Tale of Two Cities where the Sukuk-holder found themselves at the mercy of Dana’s shareholder in a twist chain of events that we only see in hollowed movies. While I do not question the validity of Dana Gas’ newly-introduced Shari’ah argument, I do, nonetheless, question the motive. Others believe that it is more than coincidence that the firm decided that the Sukuk is not Shar ’ah- compliant four months before maturity. This begs Mohammed Khnifer the question on the Shari’ah ruling of the previous profit distribution of the Sukuk. Should Islamic investors, in this case, put this newly-discovered ‘interest payment’ in a special fund for non-Shari’ah income? Overall, this specific Shari’ah-compliance risk is unprecedented for the following unique reasons. First, technical default will happen and it would be due to non-payments of two profit rates. Second, because of the reversing a previous Shari’ah pronouncement/approval (Fatwa) for the previous Sukuk that was issued in 2013. Each party has a solid argument (i.e. Dana’s statement on why it views its existing Sukuk is not Shari’ah compliant versus the creditors’ argument that the English law should be prevailing not the UAE one). In what could be described as preemptive and coordinated move, Dana Gas protected itself from any potential aggressive move by the creditors. Technically speaking, technical default will happen and it would be due to nonpayments of two profit rates. However since the court hearing would be in December 2017, investors cannot view it, legally speaking, as technical default nor can put a claim on the Sukuk assets.

www.islamicbusinessandfinance.com

page 35 Shari'ah Focus DanaGas 103.indd 35

I do hope that the famous Shari’ah advisory firm that issued Dana’s Fatwa in 2013 can make a stand. The least they can do is to let us know if it is Shari’ah permissible to reverse an old Fatwa or not. I do recall that non-banking scholars in 2007 said the Mudharabah and Musharakah-based Sukuk (that existed at that time) are not valid. I am referring to Sheikh Muhammad Taqi Usmani when it was reported that he said that up to 85 per cent of gulf Islamic bonds do not comply with Islamic law. If the creditors fail to prove their argument, then this will damage the confidence in the Sukuk industry and hurt the credibility of the banking scholars. Those who will be affected the most are UAE Sukuk issuers (who are using Mudharabah and Musharakah structures). Overall, it is unfortunate to see Dana put its interest first with no regards to the potential reputation risk that this case could bring to the Islamic finance industry.

INVESTORS MORE CAUTIOUS? While this unfolding event that is the Dana Gas Sukuk lawsuit could be an isolated incident, issuers could be more cautious for upcoming issuance. This incident has startled our Islamic finance industry and brought back the memory of Goldman Sachs Sukuk debate in 2013. Noting that the industry has moved forward (ever since) by implementing notable reforms regarding banking scholars and putting in place efforts to avoid conflict of interests. I do not think the existing Sukuk issuance would be affected. Even pricing wise, I do not think investors will demand a premium on the Shari’ah or legal risk. Maybe some investors will feel better if they see two Fatwas on the same Sukuk (from different lead arrangers).

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:23

EXPERT OPINION

Youth and the future of the Islamic economy ABDULLA MOHAMMED AL AWAR, CEO OF DIEDC, SHARES HIS THOUGHTS WITH IB&F ABOUT WHERE WE MUST GO FROM HERE

Islamic Business & Finance | ISSUE 103

page 36-39 Expert Opinion 103.indd 36

www.islamicbusinessandfinance.com

20/06/2017 13:58

EXPERT OPINION

(oneinchpunch /SHUTTERSTOCK)

henever an Arab or Muslim nation is mentioned, it is always referred to as a young nation where the youth constitutes its majority population. Some mention this fact to highlight the need to produce goods and services that cater to the youth segment. Others encourage young people to focus on shaping careers in economy and business through highlighting the latest technologies used in these sectors. While these may be significant, two areas of focus take centre stage when we discuss our youth. Since the young generation makes up the largest component of the population, our resources, ambitions and capacities are young and replete with opportunities for the future. If we consider our development strategy in this region for a minute, we will realise that it is targeted at the youth first and foremost, and has considerable potential—it is a work in progress that is being shaped by the youth. Therefore, the economy of the region is uniquely different from any other economy in the world as it has not yet exhausted its possibilities and experiences. Young generations can successfully build their careers through utilising the talents and knowledge they have. Likewise, they can benefit from the business of economics that has historically proven that only a responsible and ethical economy will secure sustainability and long-term growth. Which brings us to our second area of focus concerning the youth today—namely the Islamic economy. Today’s millennials were lucky to witness its birth as a comprehensive alternative economic system. Young people can now add value to it and see for themselves its fairness, standards and ethics that promote sustainable development based on equality and justice. The Islamic economy has given youth the answer to a question that they did not know existed—the answer to the correlation between education and work. A debate that has prevailed for the longest period across various economic systems questions whether education programmes actually meet the needs of the job market. Or equally, whether education and knowledge define the nature of job markets and create new types of employment in line with people’s ambitions for a comprehensive and just development. The Islamic economy offers a clearcut answer through its definition of the purpose and goals of the economic activity.

Children are the future of the Islamic economy, and we must plan for their needs now.

cont. overleaf

www.islamicbusinessandfinance.com

page 36-39 Expert Opinion 103.indd 37

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:58

EXPERT OPINION

cont. from pg 37

The simple answer is that human beings— especially the educated and empowered ones—are the defining influence on job markets and can shape them according to their aspirations. What awaits youth is a market that can be shaped and driven by them. Their knowledge and education will mould its features and trends. This immediately puts paid to the doubts they have about not being involved in the labour market. there is nothing to fear as the education and knowledge youth possesses have absolute power in setting its trends. The Islamic economy, which has become an integrated system that effectively competes and holds its own against other economic systems in labour markets with great strength and efficiency, is offering young and ambitious entrepreneurs distinctive opportunities through its emerging sectors that require qualified human resources. These resources are not limited to Muslims only but include everyone without exception—regardless of nationalities, ethnicities or beliefs. To clarify another misperception— these opportunities are not restricted to the Islamic banking and finance industry that has spread across the world and entered major international institutions such as the World Bank and the International Monetary Fund or the Asian Development Bank. Its range of employment spans all other sectors such as the Halal industry, Takaful, arts, design, pharmaceuticals and digital economy. The jobs expected to be offered in the Islamic economy space increase daily and exceed all projections and available statistics. It is safe to say therefore that job prospects for the Islamic economy sector are in a state of sustained growth for the foreseeable future. According to the State of the Islamic Economy Report 2015/2016, the volume of Islamic financial assets is projected to reach $3.24 trillion by 2020. Meanwhile, reports from the Organisation of Islamic Cooperation (OIC) estimate the size of the global Halal market to be valued at $2.3 trillion and expect international food trade to grow to about $1.6 trillion by early 2020. The digital and technology industry in the UAE—and I know how interested the youth is in this exciting sector—accounted for more than 30 per cent of the total IT spending of the GCC countries. This amounts to a whopping AED 100.9 billion.

Islamic Business & Finance | ISSUE 103

page 36-39 Expert Opinion 103.indd 38

Technology spending in the UAE increased four per cent to about $8.2 billion in 2015, according to the annual report of International Data Corporation (IDC). The share of the Islamic economy today within the global economy, has reached $6.7 trillion. This figure is likely to rise if we factor in the rapid and sustainable growth rates of various sectors of the Islamic economy. I mention these figures to draw attention to the fact that these sectors of the Islamic economy have thus far achieved significant milestones. They now await the youth’s management, wisdom, knowledge and passion to achieve an even more transformational difference in our world. One key factor for the young generation to remember is that the volume of employment generated by the Islamic economy so far has surpassed

www.islamicbusinessandfinance.com

20/06/2017 13:58

EXPERT OPINION

ABDULLA MOHAMMED AL AWAR, CEO of DIEDC

all expectations—reaching tens of millions of opportunities across all sectors. The Islamic economy offers more than just an employment opportunity. It provides solutions to problems related to emerging SMEs. The International Finance Corporation has recently revealed that between 16 and 17 million small and medium enterprises do not benefit from the financing support offered by conventional banks. Here is the opportunity I was referring to earlier—Islamic financial institutions prioritise such projects. What’s more, the support they offer is based on the principle of partnership and not religion. As our brightest minds today, the world is certainly expecting a lot from the youth in exchange for the opportunities provided by the Islamic economy. We hope they will ensure

www.islamicbusinessandfinance.com

page 36-39 Expert Opinion 103.indd 39

that this economy retains its noble dimension through maintaining ethics in their workplace. They need to understand that any rapid growth that does not factor in the social dimension falls apart soon and leads to stagnation, as is the case today in many parts of the world driven by the conventional economy. For our future economy to be truly capable of harnessing young energies, here’s a snapshot of the goals and objectives that youth needs to prioritise as key stakeholders of the Islamic economy: • Ensure the sustainability of resources. Use them wisely and always consider the preservation of the environment while designing production processes and implementing investments across the work place. • Raise awareness for responsible and green investments that provide sustainable and safe jobs through financing real economic projects. Such projects do not affect the stability and balance of the environment. • Achieve just development outcomes and reduce social inequalities through contributing to creating an active environment that is effectively involved in both production and consumption. One of the reasons for the economic slowdown is the presence of more than two billion people without even the minimum purchasing power. This means the margin of consumption is narrow and limited in growth. • A ll the means of production related to companies, institutions, human and natural resources, owe their existence to the community: the family, the school, the university and public institutions and infrastructure. Without such supporting entities, it would have been impossible for these means of production to develop and thrive. Giving back should include putting the institution at the service of the community, not the other way around. To sum up, these are not just ideal recommendations. They are guideline principles on which the Islamic economy is based. These are the principles being unanimously advocated by our world today—even by those that remained silent for decades and were compelled to speak up after they became aware of the significance of emerging societies in building developing institutions.

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:58

SUKUK

OUTSTANDING SUKUK MAP OUTSTANDING SUKUK MAP

THE SIZE OF THE OUTSTANDING SUKUK MARKET GLOBALLY AS OF 15 JUNE 2017

The size of the outstanding Sukuk market globally as of 06 Nov 2016

SOURCE: Zawya Islamic

ANNOUNCED/OPEN SUKUK IN JUNE 2017 STATUS

ISSUER NAME

SUKUK NAME

SUKUK STRUCTURE

COUNTRY

CURRENCY

SUBSC. DATE

ISSUE SIZE ($M)

MARGIN

TENOR

ARRANGER/ADVISOR

Announced

Aplya Star Holding III Limited

Alpha Star Hldg III Ltd 6.25% 20-04-2022

Ijarah

UAE

USD

20 April-17

500

Five Years

Announced

Dar Al-Arkan Sukuk Company Ltd.

Dar Al Arkan Sukuk Co. 6.875% 10 April 2022

Unknown

Saudi Arabia

USD

10 April-17

500

Five years

Announced

Hong Kong Sukuk 2017Limited

Hong Kong Sukuk Ltd 3.132% 28 Feb 2027

Unknown

Hong Kong

USD

27-Feb-17

1,000

15 years

Announced

Warba Tier 1

Warba Tier 1 Sukuk Ltd 6.500% PRP

Unknown

Kuwait

USD

14 March-17

250

Warba Bank

Announced

Perusahaan Penerbit SBSN Indonesia III

Indonesia III 4.150% 28 Mar 27 - Reg S

Unknown

Indonesia

USD

29 March-17

1,725.4

15 years

Announced

Perusahaan Penerbit SBSN Indonesia III

Indonesia III 4.150% 28 Mar 27 - 144A

Unknown

Indonesia

USD

29 March-17

274.6

15 years

Perusahaan Penerbit SBSN Indonesia III

Indonesia III 3.400% 29 Mar 22 - Reg S

Unknown

Indonesia

USD

29 March-17

855.62

10 years

Announced

Perusahaan Penerbit SBSN Indonesia III

Indonesia III 3.400% 29 Mar 22 - 144a

Unknown

Indonesia

USD

29 March-17

144.38

10 years

Announced

IDB Trust Services Limited

IDB Trust Services Ltd 2.393% 12 April 22

Unknown

Saudi Arabia

USD

12-April 17

1,250

10 years

IDB

Announced

DIB Sukuk Limited

DIB Sukuk 14 Feb 2-22

UAE

USD

15-Feb-17

1,000

Dubai Islamic Bank

SOURCE: Zawya Islamic

Islamic Business & Finance | ISSUE 103

page 40 Market Watch_103.indd 40

www.islamicbusinessandfinance.com

20/06/2017 13:26

CMY

bleed guide.indd 1

13/06/2017 18:15

SUKUK

2017 brings notable firsts OMAN ISSUED ITS FIRST SUKUK, TUNISIA MAY NOT BE FAR BEHIND, AND THE MALAYSIA WENT ‘GREEN’ IN A BIG FIRST HALF

(Romas_Photo/SHUTTERSTOCK)

Islamic Business & Finance | ISSUE 103

page 42-45 Sukuk-103.indd 42

www.islamicbusinessandfinance.com

20/06/2017 13:27

SUKUK

View from a hill in Byrsa with ancient remains of Carthage and landscape in Tunis, Tunisia.

ny worries about the Sukuk market’s growth in 2017 can be put to rest. Total gross bond issuance in the GCC has already surpassed 2016’s total value in the first five months of this year, according to Fisch Asset Management, a global leader in convertible and corporate bond strategies. Current market conditions have created a favourable landscape for new bond issuances, with the GCC Sukuk market issuing up to $22 billion in sovereign and corporate bonds year-to-date. In 2016, a total of $21 billion bonds were issued. This figure is itself was up by 74.6 per cent on 2015 when issuances amounted to $12.6 billion. Positive performance in 2017 is linked to ongoing strong investor demand for emerging market assets, due to the higher yield available compared to developed markets and supported by upbeat global economic growth. “Many factors have contributed to this positive trend in 2017, for example lower oil prices mean higher funding requirements, there is attractive pricing after markets have rallied, there is ample liquidity in the region and there has been a strong revival in credit markets on a year-to-date basis so far,” said Philipp Good, CEO at Fisch Asset Management. Corporate debt in the Middle East has also been a solid performer in 2017. Spreads of investment-grade rated bonds have dropped by 20 bps, significantly outperforming Asia, where spreads have seen a decline of only four bps. Other regions have seen a more pronounced narrowing of spreads, but this needs to be seen against the backdrop of Middle Eastern bonds already displaying the lowest spreads of all emerging markets regions at 170 bps. By comparison, Asian spreads stand at 195 bps, while Latin American ones are the highest at around 250 bps. This development is a result of the inflows into emerging markets and reflects the comfort global investors have with the GCC region, according to Fisch. Dr. Hansjoerg Herzog, Head of Sales at Fisch, said, “We have found that after this strong regional performance, GCC corporate treasurers are increasingly aware of the need to explore alternative capital market funding strategies, such as global convertible bonds. We therefore expect these kinds of instruments to become increasingly relevant as GCC markets develop.” cont. overleaf

www.islamicbusinessandfinance.com

page 42-45 Sukuk-103.indd 43

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:27

SUKUK

cont. from pg 43

OMAN’S MAIDEN VOYAGE Oman has also joined the fray, issuing its first Sukuk programme in the second quarter of the year. The maiden OMR 25 million issuance, which is part of a larger OMR 100 million Sukuk programme for retail and institutional investors, was heavily oversubscribed and is awaiting regulatory approvals for exercising the green shoe option and allocation to investors. Sulaiman Al Harthy, Deputy Chief Executive Officer—Islamic Banking, said “Meethaq Islamic Banking is delighted to successfully close the debut issuance under Sultanate’s first Sukuk programme which is set to transform the landscape of Islamic banking in Oman. We thank the regulatory authorities—Capital Market Authority and the Central Bank of Oman—for their support and guidance on the Sukuk issuance. We also thank the investor community, both retail and institutional, for their confidence in Meethaq. Most Sukuk issued till date in the Sultanate have been targeted at institutional investors. Reiterating the core Islamic banking values, Meethaq is proud to extend the opportunity to spread wealth for the progress and prosperity for all in the nation.” Analysts welcomed the move. “The latest example of an issuer taking advantage of this positive environment is the Sultanate of Oman. I view this as a huge success and a clear indicator of confidence throughout the region,” said Goodd. Meethaq is the first Islamic banking entity to obtain CMA approval for a Sukuk issuance targeting retail investors in Oman. The Sukuk allotment is expected to be announced next week after which the Sukuk will be listed on Muscat Securities Market (MSM). Under the OMR 100 million programme, Meethaq will issue Sukuk in various tranches from time to time, to fund its growth plans and expansion of Islamic banking services across the Sultanate. The Sukuk will be listed on the Bond and Sukuk market of Muscat Securities Market (MSM), thus offering liquidity.

THE FIRST GREEN SUKUK Malaysia, a leader in the Sukuk space, is going green. One notable Sukuk will be Malaysia’s first Green Sustainable and Responsible Investment (Green SRI) Sukuk to be issued by a solar power producer. QSP Semenanjung is a wholly-owned subsidiary of Quantum Solar Park Malaysia, with

Islamic Business & Finance | ISSUE 103

page 42-45 Sukuk-103.indd 44

the latter’s ownership interest equally divided among ItraMAS Technology Sdn Bhd, MalTechPro Sdn Bhd and CamLite Sdn Bhd. MARC has assigned a preliminary rating of AA-IS to Quantum Solar Park (Semenanjung) Sdn Bhd’s (QSP Semenanjung) proposed Sukuk Murabahah of up to MYR one billion. The outlook on the rating is stable. Proceeds from the proposed Green SRI Sukuk will be utilised to construct three 50-megawatt (50MW) alternating current solar photovoltaic (PV) power plants concurrently, one each in Gurun (Kedah), Merchang (Terengganu) and Jasin (Melaka) owned by QSP Semenanjung’s three wholly-owned project companies. With a combined capacity of 150MW, QSP Semenanjung will be the largest solar power producer in the country. The total project cost of about MYR 1.24 billion will be funded on an 80:20 Sukuk-to-equity financing basis. The stable outlook reflects MARC’s expectation that the project will achieve scheduled COD within the allocated budget and the project sponsors will adhere to the pre-determined capital commitment and obligations under the financing structure. Upon successful commencement of operations, the rating may be revised upwards if the project manages to demonstrate that its actual energy output is able to meet or exceed the projected estimates.

TUNISIA TURNS TO SUKUK The government of Tunisia together with Bourse de Tunis and Nasdaq Dubai have set up a task force to pave the way for Tunisia’s first ever issuance of a Sukuk. The task force is considering commercial, l e g a l a n d r e g u l at o r y i s s u e s i n c l u d i n g Shari’ah-compliance, so that Tunisia can create a solid framework for capital-raising through selling Islamic bonds to domestic and international investors. Nasdaq Dubai, the MENA region’s international financial exchange, is providing the task force with global expertise, as the world’s largest exchange for Sukuk listings. Tunisian members of the task force include the Head of Government’s Office, Ministry of Finance, Ministry of Development, Central Bank, Financial Market Council and Bourse de Tunis. Bilel Sahnoun, Chief Executive Officer of Bourse de Tunis, said, “The task force will work

www.islamicbusinessandfinance.com

20/06/2017 13:27

SUKUK

speedily and thoroughly, to help us create robust infrastructure for Sukuk issuance that will give the government and Tunisian private sector a valuable new tool for raising capital. Tunisia’s entry into the Sukuk sector will promote international and domestic investment and confidence in our economy that will help to fund our national growth and development.” Hamed Ali, Chief Executive of Nasdaq Dubai, said, “We greatly appreciate this opportunity to add our experience to the task force, drawing on our expertise in working with issuers and their advisers to bring Sukuk listings to the exchange from across the MENA region as well as East Asia. Tunisia’s commitment to issuing Sukuk will play an important role in the continuing global expansion of the sector, as more countries and more investors make use of its benefits as an effective Shari’ah-compliant capital markets tool.” A recent meeting of the task force discussed legal and regulatory matters as well as challenges that will be faced by first-time Sukuk issuers and how they can be overcome. The workshop included input from the law firm Norton Rose Fulbright, Emirates NBD Capital, the investment banking arm of Emirates NBD bank, and Menacorp, one of the largest brokers in UAE. The task force will consult a range of Tunisian and overseas potential issuers, banks, lawyers and investors, in order to create an efficient issuance framework that meets the commercial requirements of the market for streamlined capital-raising and investment, both for the public sector and the private sector. In March 2017 Nasdaq Dubai and Bourse de Tunis signed a Memorandum of Understanding for collaboration on listings and Islamic finance solutions.

A NEW INDEX Emirates NBD has launched the Emirates NBD Markit iBoxx USD Sukuk, covering global USD denominated Sukuk. The Index will contain 98 Sukuk from 61 issuers with a current market value of over $90 billion. “Demand for sovereign and corporate Sukuk has increased significantly over the last few years attracting significant international capital. With the launch of the Emirates NBD Markit iBoxx USD Sukuk Index, we aim to provide investors with world-class analysis tools and standardised performance

www.islamicbusinessandfinance.com

page 42-45 Sukuk-103.indd 45

measurement to enable them to make the best investment choices. The Index will also enable the creation of products that will pave the way for greater access to the Sukuk market for retail investors who have historically been underserved by opportunities to invest in this asset class. Synergising the bank’s longstanding expertise in Islamic capital markets with IHS Markit’s globally trusted expertise in creating and providing indices, the Index will be a catalyst for advancing the global Islamic finance economy,” Ahmed Al Qassim, Chief Executive Officer of Emirates NBD Capital said. Developed by Emirates NBD Group in collaboration with IHS Markit, a world leader in the provision of fixed income and macroeconomic indices, the Emirates NBD Markit iBoxx USD Sukuk Index is a market-cap weighted index dedicated to capturing the performance of the Sukuk market. It will be used for benchmarking, risk and performance analysis and as an underlying for tradable products. In order to meet the growing demand for Shari’ah-compliant solutions, it is envisaged that the Index will be utilised by a range of institutions including asset managers, banks, pensions and sovereign wealth funds and ETF issuers. “With a strong level of 2017 Sukuk issuance from both sovereigns and corporates, led by Saudi Arabia, and a promising pipeline for the rest of the year, the Emirates NBD Markit iBoxx USD Sukuk Index will be a valuable tool for fund managers both within the GCC and further afield. From an asset management perspective, we look forward to the product development opportunities the index can provide, creating new avenues for regional and global investors to access the investment opportunities provided by Sukuk. We have worked closely with Emirates NBD Capital and the Group’s Research department to develop the Index, and look forward to our continued partnership on this project,” Tariq Bin Hendi, Executive Vice President and Head of Products and Advisory, Emirates NBD said. Tim Fox, Chief Economist and Head of Research at Emirates NBD, said,“The Index would provide an additional avenue for accurate assessment of the overall development and performance of Islamic debt capital markets in the region. While there is a plethora of indices available for conventional bonds, reliable and easily available Sukuk indices are few and far between.”

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:27

(Peshkova/SHUTTERSTOCK)

THE INSIDE STORY

Islamic Business & Finance | ISSUE 103

page 46-49 Inside Story 103.indd 46

www.islamicbusinessandfinance.com

20/06/2017 13:29

THE INSIDE STORY

A board memberâ&#x20AC;&#x2122;s story NISREEN MUSLEH, BOARD MEMBER OF ARAB ISLAMIC BANK (APRIL 2016â&#x20AC;&#x201C; APRIL 2017), PROVIDES INSIGHT INTO HER EXPERIENCE OPERATING IN A TURBULENT MARKET

have recently completed serving a full term on the Board of Directors of the Arab Islamic Bank (AIB), the first Islamic bank to be established in Palestine following the establishment of the Palestinian National Authority. A publicly traded, $75 million business that is rapidly approaching a $1 billion asset base, with nearly 300 professional staff members in the West Bank and the Gaza Strip. The bank represents all that corporate Palestine has to offer. Reflecting on this experience, some insights gained from this valuable opportunity are worthy to share. Although intrigued to engage in this new role, I wondered if my experience would add the envisaged value not being a banker myself. It only took a few board meetings to prove my doubt was misplaced. I founded my own business 15 years ago where I aligned all my know-how in people management and organisational design with a total emphasis on the operational side. My line of business is in professional training and language services, two highly competitive sectors. Despite my diverse experience as a business owner and consultant having to deal with various sectors and having profit and loss responsibility, meeting these same business challenges from inside a large corporate structure was enriching in many ways. I was first introduced to Islamic banking over ten years ago in a seminar at Wharton Business School at the University of Pennsylvania.

Musley has been a board member since 2006.

cont. overleaf

www.islamicbusinessandfinance.com

page 46-49 Inside Story 103.indd 47

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:29

THE INSIDE STORY

cont. from pg 47

Like so much else in business, being exposed to something in an academic setting is very different to fully understanding how concepts are practised in the marketplace. During AIB board meetings and committee discussions, especially when the Islamic Shariâ&#x20AC;&#x2122;ah representative joined these meetings, I could see the practicality of Islamic financing modalities. In these board committees, Shariâ&#x20AC;&#x2122;ah-compliant products are aligned to daily financing needs and totally in line with our modern lifestyles. My involvement in Islamic financing has motivated me to learn more about this rapidly growing sector. Islamic financing is not only growing in Palestine, which stands at 12-13 per cent of the banking sector, but is currently growing its market share globally too. This growth can be seen not only in Islamic countries, but in non-Islamic countries all over the world. Globally, Islamic banking claims $2.5 trillion in assets and operates through 700 banking institutions located in

Globally, Islamic banking claims $2.5 trillion in assets and operates through 700 banking institutions located in 60 countries. NISREEN MUSLEH

60 countries. Yet this impressive presence in the market comprises only one per cent of the global banking sector and 20 per cent of the banking sectors in Arab and Islamic countries, clearly indicating significant room for future growth in Palestine and globally. Once sitting in the AIB boardroom, I understood the deep value of bringing diverse individual experiences to the corporate environment. When corporate boards bring together a healthy mix of corporate professionals representing equity interests and professionals from the marketplace, firms become well positioned to maximise their potential combining operational and leadership approaches, while remaining grounded in the communities being served is the backbone of any successful business.

Islamic Business & Finance | ISSUE 103

page 46-49 Inside Story 103.indd 48

NISREEN MUSLEH, Board Member of Arab Islamic Bank

At AIB, discussions always revolved around clients, be it internal discussions between departments or talks with external customers. Challenges were addressed in the most professional manner while always being aligned with customersâ&#x20AC;&#x2122; needs. I admired this, as concerns for people-oriented approaches is assumed to be less common in the corporate world and more prevailing in SME settings. Having had this valuable corporate board experience, I now carry the responsibility of passing this knowledge on to business circles, especially family-owned businesses, in order to combine proper structure, group thinking and collective decision-making. Many Palestinian small and medium sized firms are locked into individual and centralised management styles, missing out on all that good governance has to offer. The simple proven idea is that collaborative work is the key driver towards growth. I served as a member in the Audit Committee and the Risk, Compliance and Governance Committee. Board committees are where the nuts and bolts of corporate governance takes place. Rigorous efforts are vested in these committees to ensure that the backbone of governance is in place. My engagement in these committees brought to life my conceptualised understanding of corporate governance. I have seen various models of governance throughout my education, the first being at the Coca-Cola headquarters in Atlanta, USA, when I was there on a fellowship programme for five months. The issue of governance is thrown around in our culture as if it is a side issue, but is rarely taken seriously. Following my US experiences, I brought all I observed on governance into my business which

www.islamicbusinessandfinance.com

20/06/2017 13:29

(NesterovIV/SHUTTERSTOCK)

THE INSIDE STORY

The city of Hebron in Palestineâ&#x20AC;&#x2122;s West Bank.

manages over 50 people, between staffers and outsourced professionals. However, having served in a corporate governance position in Palestine and seeing its significance from the inside of the boardroom, I feel further equipped with new knowledge to act on and share with others. The amount of attention paid to governance at AIB is impressive. The way policies, standard operating procedures, job descriptions and employee evaluations, just to name a few, are all handled under enlightened leadership to create a room for best practises in our business community. Striving at every turn to reduce decision making based on personal whims and replace this with sound business analytics must become the norm if we are to succeed. We can excel, even under the occupation in which we live. The personal value I gained from serving on the Arab Islamic Bank board was significant. I had the chance to meet and work with thought leaders, operational leaders, action-oriented leaders and conservative leaders as well. This dynamic experience has driven my eagerness

www.islamicbusinessandfinance.com

page 46-49 Inside Story 103.indd 49

to seek further growth through diversity and highlighting the unique positives every person possesses. I have truly enjoyed being the first female voice at the AIB board table. It was refreshing to be able to comfortably occupy my professional space, rather than having to fight for a seat at the table as is the case in so many venues in our community. Seamlessly, being able to freely share my opinions and thoughts, while remaining a full member of the team is a takeaway from this experience that I will pass on to many others. Young professionals seeking to climb the corporate ladder need to embrace diversity of opinion and drive the constructive mindset into each and every discussion.

Nisreen Musleh is currently the Founder and Managing Director of RITAJ Managerial Solutions in Ramallah. She is a board member of the Palestinian Trainerâ&#x20AC;&#x2122;s Association (PTA) and Americans for a Vibrant Palestinian Economy (AVPE).

ISSUE 103 | Islamic Business & Finance

20/06/2017 13:29

DATES FOR YOUR DIARY

13-14 September 2017

11-12 July 2017

(Greg Ward NZ/SHUTTERSTOCK)

INTERNATIONAL TAKAFUL SUMMIT LONDON

The UK’s Islamic finance community should gear up for London’s premiere Takaful summit. The event, now in its 11th year, usually attracts over 350 – 400 international delegates. Done by invitation only, the summit is free of charge to attend, as it is fully subsidised by the hosting organisations and supporting sponsors.

(f11photo/SHUTTERSTOCK)

GLOBAL ETHICAL FINANCE FORUM

With a focus on sustainable capitalism, the second annual GEFF will continue to promote collaboration and cooperation amongst stakeholders from the traditional ethical and Islamic finance sectors, whilst deliberating on key strategies to mainstream ethical finance. Venue: Royal Bank of Scotland’s Headquarters in Edinburgh

Venue: Millennium Gloucester Hotel, Kensington http://www.takafulsummit.com/2017/

16-17 11 May August 2017 2017

23-26 October 2017

(ESB Professional/SHUTTERSTOCK)

11TH IFSB-INCEIF EXECUTIVE FORUM

Held under the title “Creativity and Innovation in Islamic Financial Products: Standardisation and Competitiveness”, this year’s Forum will highlight more than ever the essential issue of fintech and digital development and how it relates to the Islamic finance industry. VENUE: Sasana Kijang, Kuala Lumpur http://www.ifsb.org/event_detail.php?e_id=297

(anderm/SHUTTERSTOCK)

IFSB SUMMIT

The IFSB Summit aims to bring together industry leaders and experts from across the globe. In particular, participants of the previous Summits have included key players of the Islamic Financial Services Industry (IFSI), especially members of the IFSB from among regulatory and supervisory authorities, international inter-governmental organisations, scholars in the field, and market players. VENUE: TBD Abu Dhabi

Islamic Business & Finance | ISSUE 103

page 50 Diary103.indd 50

www.islamicbusinessandfinance.com

22/06/2017 12:50

P R IZE SAVI NGS ACCO U NT

More Winners with Bushra. More Joy! RO

100

DAILY DRAW 25 WINNERS

1,000

WEEKLY DRAW 3 WINNERS

25,000

50,000

MONTHLY DRAW 1 WINNER

QUARTERLY DRAW 1 WINNER

100,000

YEARLY GRAND PRIZE WINNER

Every day, 5 lucky winners get RO 100 each Now with Bushra Prize Savings Account, you can win Daily Prizes too! Whatâ&#x20AC;&#x2122;s more, you receive expected monthly profit on your savings, besides chances to win daily, weekly, monthly, quarterly and annual cash prizes. To qualify, just open your Bushra Prize Savings Account today with a minimum balance of RO 100. For more details please visit your nearest branch, or call 800 7 2265

bleed guide.indd 1

13/06/2017 17:59

bleed bleed guide.indd guide.indd 1 1

13/06/2017 28/08/2016 18:00 10:58