Dubai Technology and Media Free Zone Authority
ISSUE 105
ISSUE 105 CHANGE IS HERE TO STAY David Power, Chief Executive Officer, KFH Malaysia
CHANGE IS HERE TO STAY David Power, Chief Executive Officer, KFH Malaysia
A CPI Financial Publication
PLUS:
20 TAKAFUL: Takaful’s value proposition
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42 SUKUK:
A focus on Saudi Arabia
44 INSIDE STORY: ‘Halal is awesome’
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CONTENTS
ISSUE 105
REGULAR SECTIONS
EDITOR'S LETTER
10
Greetings, all
W
elcome to Islamic Business & Finance. This is the 105th issue of the longest-running Islamic finance magazine in the world. I hope you all are enjoying what is certainly the busy season here in the Middle East. We here at CPI Financial are gearing up for two of the biggest days on our calendar— the Islamic Business & Finance Southeast Asia Awards, and the Islamic Business & Finance Awards. Read more about these on page 50. We’ve received some great feedback from our readership since we launched The Inside Story section of the magazine, where we look at Halal businesses and personal stories in Islamic finance. This issue, we have another great story, with a company called Sanabil based in Pakistan. They’re making some fantastic products that deserve more attention. Read more on page 44. Beyond that, there is plenty to peruse. I hope you enjoy digging into another great issue. Until next time,
NEWS ANALYSIS
6
16
News & Analysis
OPINION
8
HOW WILL SUKUK FARE IN 2018?
COVER STORY
10 KFH MALAYSIA:
Change is here to stay
ISLAMIC BANKING
16 ADIB EGYPT:
24
Gauging market sentiment
TAKAFUL
20 TAKAFUL’S VALUE PROPOSITION
KUWAIT
William Mullally
24 KUWAIT INTERNATIONAL BANK
Log on to www.islamicbusinessandfinance.com for news, polls, events, analysis, blogs, features, commentary and more.
www.islamicbusinessandfinance.com
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CONTENTS
CHAIRMAN
ISSUE 105
SALEH AL AKRABI
FEATURES
CHIEF EXECUTIVE OFFICER
MANAGING EDITOR
TONY LONG tony.long@cpifinancial.net Tel: +971 4 391 4681
GEORGINA ENZER georgina@cpifinancial.net Tel: +971 4 391 3728
EDITORIAL
editorial@cpifinancial.net EDITORS
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
ADVERTISING
sales@cpifinancial.net SALES DIRECTOR
OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419
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CONSULTANT
EVENTS MANAGER
BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719 SENIOR DESIGNER
FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724
34 THE RESURGENCE OF
ISLAMIC SOCIAL FINANCE
DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526 NIKHIL MATHUR nikhil@cpifinancial.net Tel: +971 4 391 3717
CHIEF DESIGNER
SOCIAL FINANCE
SIMON MOTWALI simon.motwali@cpifinancial.net Tel: +971 4 433 5321
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ADMINISTRATION & SUBSCRIPTIONS
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SUKUK
28 WHY ISLAMIC INDICIES
40 MARKETWATCH 42 BASED ON PRICE, IS
ARE OUTPERFORMING THEIR CONVENTIONAL COUNTERPARTS
SAUDI ARABIA BETTER OFF ISSUING BONDS?
MALAYSIA
THE INSIDE STORY
30 LOOKING TO CROSSSHARI'AH FOCUS
DIARY
32 CBB’S GROUNDBREAKING
Get the next issue of Islamic Business & Finance before it is published. Full details at www.islamicbusinessandfinance.com ISSUE 105 Dubai Technology
and Media Free
Zone Authority
Dubai Technology and Media Free Zone Authority
:
46 INSIDE STORY
DEVELOPING ISLAMIC FINTECH Abdulla Mohammed Al Awar, CEO, Dubai Islamic Economy Development Centre (DIEDC)
ICD’S VISION FOR ISLAMIC FINANCE Khaled Al-Aboodi, CEO, Islamic Corporation for the Development of the Private Sector (ICD)
PLUS:
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26 TAKAFUL:
Kenya’s challenges
34 SUKUK:
KSA’s Sukuk Program pushes forward
A CPI Financial Publication
KSA’s Sukuk pushes forward
ICD'S VISION FOR ISLAMIC FINANCE Khaled Al-Aboodi, CEO, Islamic Corporation for the Development of the Private Sector (ICD)
Kenya’s challenge
: 34 SUKUKProgram
KFH Malaysia
ISSUE 103
ISSUE 103
A CPI Financial Publication
PLUS:
26 TAKAFUL:s
Executive Officer,
A CPI Financial Publication
David Power, Chief
DEVELOPING ISLAMIC FINTECH Abdulla Mohammed Al Awar, CEO, Dubai Islamic Economy Development Centre (DIEDC)
KFH Malaysia
RE CHANGE IS HE TO STAY
Dubai Technology and Media Free Zone Authority
ISSUE 104
ISSUE 104
Executive Officer,
page 3-4 contents 105.indd 4
@IBFMag on Twitter for stories as they're being told
Chief STAY David Power,
Islamic Business & Finance | ISSUE 105
50 DATES FOR YOUR DIARY
REGULATIONS
CHANGE IS HERE TO
© 2017 CPI Financial FZ LLC All rights reserved. No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the Managing Editor.
44 ‘HALAL IS AWESOME!’
BORDER OPPORTUNITIES
ISSUE 105
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BUSINESS DEVELOPMENT MANAGERS
46 INSIDE STORY: Halal tourism in South Africa
07/09/2017 14:37
PLUS:
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TAKAFUL:
Inside Takaful Africa
SUKUK:
2017 brings new firsts
MALAYSIA:
KFH Malaysia's innovation
20/06/2017 09:39
Halal tourism in South Africa
www.islamicbusinessandfinance.com
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NEWS & ANALYSIS
The Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the Islamic Development Bank (IsDB), and Alfa Solar Co, a subsidiary of Alfanar Company, have signed facility agreements for a $28.5 million Shari’ah-compliant senior financing to part fund the development, construction and operation of a 50 megawatts solar PV project in the Arab Republic of Egypt. The collaboration with EBRD and ICD for financing this project has been a pivotal element in taking the project forward. Globally, countries are experiencing the effects of climate change and renewable energy investors and financier’s role is vital to cultivate more investment in the region for green energy and scale down the effects of global warming. This partnership will assist the socio-economic development in Benban by providing local population with infrastructure, job creation and skills training. The region has tremendous potential when generating power from the natural resources, and Alfanar will continue to actively consider venturing with ICD for additional renewable technology projects in solar, wind as well as energy from waste.” SABAH MOHAMMED AL MUTLAQ, Chairman of Alfa Solar and Vice-Chairman of Alfanar Group
Indonesia has ample room for growth as the second-largest Sukuk market in the world in 2016, Fitch Ratings says in a new report on Indonesian domestic corporate Sukuk issuance. Indonesia’s domestic corporate Sukuk market continues to lag far behind that of Malaysia, the largest Sukuk market in the world. The corporate Sukuk market in Indonesia is still in the early stages of development. The first corporate Sukuk issuance was in 2002, compared with 1990 in Malaysia. The market will grow as investors and issuers become more familiar with the risks related to the debt instrument.” BASHAR AL NATOOR, Head of Islamic Finance, Fitch Ratings
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OPINION
How will Sukuk fare in 2018?
S
ukuk has fared quite well in 2017. With big issuances all over the world, including a long-awaited issuance in Saudi Arabia, the story has been more positive than some believed last year. There have been many great stories, including the first ‘green’ Sukuk, Oman’s first issuance, and Tunisia’s Sukuk. Emirates NBD even launched its own Sukuk index. Not everything has been positive, of course. The much-discussed Dana Gas Sukuk has, at the time of writing, not been resolved, as the case is currently adjourned until mid-November. The case could still have a negative effect on trust in the Islamic instrument, though nowhere near as strong an effect as negative coverage has had historically when Sukuk was much more nascent. Will things continue in this direction? Dr. Mohamed Damak, Senior Director and Global Head of Islamic Finance for S&P Global Ratings, is not as confident. “We think that 2018 is less certain as we do not see some of the large issuances of last year repeating next year,” said Damak. What is the reason for that, especially at a time when countries that embrace Islamic finance so heartily such as Saudi Arabia, are looking to raise funds through financial instruments? As Islamic Business & Finance contributor Mohamed Khnifer, ever the honest voice in the industry, writes on page 42 of this issue, Saudi Arabia may turn more to conventional bonds to save costs. Damak has also said recently, “Despite positive strides in the past few months, the absence of a strong response to the long-standing debate
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about standardisation will continue to stymy the industry.” As long as issues such as standardisation and questions of cost rise, Sukuk will likely have a hard time trying to achieve its full potential. 2018 may be another surprising year for Sukuk, or it may not, but long-term, the issues facing it need to be fixed, and quickly.
William Mullally
Editor
www.islamicbusinessandfinance.com
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21X27CM .pdf
1
8/17/17
12:49 PM
BANKING EXCELLENCE INSPIRED BY TRADITIONAL VALUES Shari’a Compliant Window of the year
The Banker Islamic Bank of the Year Awards 2017
Best New Islamic Window UAE
Islamic Business and Finance Awards 2016
Our latest accolades further reinforces our commitment to providing innovative Shari’a compliant banking solutions across personal and business needs, that meet every requirement of modern life, whilst still maintaining the time-honoured values on which we were founded. To all our clients and business partners in the UAE and across the region, thank you for your continued partnership, support and trust in National Bank of Fujairah.
www.nbfislamic.ae
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COVER INTERVIEW
CHANGE (Farizun Amrod Saad/SHUTTERSTOCK)
is here to stay
10
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COVER INTERVIEW
DAVID POWER, CHIEF EXECUTIVE OFFICER, KFH MALAYSIA, SITS DOWN WITH ISLAMIC BUSINESS & FINANCE TO DISCUSS HIS INSTITUTIONS STRATEGY IN HARNESSING ITS FULL POTENTIAL
H
ow has the journey been for you since taking over the helm at KFH Malaysia last August? How you see the bank’s prospects going forward. What are the bright spots? There is no doubt that it has been a very challenging yet rewarding 12 months and one thing is for certain—change is here to stay! Having said this, we have centred our turnaround strategy on four key pillars, which are: SIMPLER BETTER FASTER–which is our new ethos in the way we do business. This allows us to focus on cutting out the red tape, significantly reducing processing times and ensuring that the customer journey and ultimately the customer experience is one that continues to delight. ‘WE CARE’ was launched in January this year which is a customer centric strategy with the common understanding that cont. on pg 12
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no matter whom you speak to within the organisation you will be helped. It is also based on the assumption that every staff member in the bank—no matter what level—is responsible. The programme has significantly improved our customer engagement and we are seeing some good growth in our net promoter scores. INSPIRE—this was also launched in January this year and is the cornerstone of how we do business. It has become our rallying call and clearly states our intentions when it comes our values and principals. These values are anchored on our core Islamic beliefs which are at the very centre of our organisation. STAFF ENGAGEMENT—Towards the end of last year we tested our staff engagement prior to starting on this transformation journey. We wanted to get pointers from them as to how they saw the organisation and what key things they would do to make it a ‘Great Place to Bank’ and a ‘Great Place to Work’. Over 100 work streams were set up to improve the overall engagement scores as well as implement the changes suggested by the staff. This has led to numerous town halls, smaller focus groups across the bank and direct engagement with all staff. We are also now leveraging on the Group and its 17000 employees across different industries to ensure we offer the best solution to our customer and that our overall approach is embedded with simplicity and transparency. Our tactical plan for 2017 has been to: Rebuild & stabilise Appointment of leadership team Embarked on digital banking project Commenced a benchmarking exercise Branding exercise–media engagement Re-balance portfolios Retail banking: Launched personal financing Launched cashline Launched Libshara account Launched SME account Salary campaigns L aunched Champions League for branches to compete in bringing in valuable business “Weekend” processing of auto financing Empowerment of line managers
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I am happy to note that we have done all of this and more in 2017 and we have now built a stable platform for growth for 2018. With the launch of our digital bank in 2018 we are poised to make a solid impact on the Malaysian Islamic banking market. Are you ready to grow financing more aggressively this year? Which areas will you focus more on, and which will you step back from? The simple answer is yes—we need to grow the balance sheet in a more organised and focused manner and in so doing build sustainability into our earnings for the years to come. What’s key here is to focus on the sectors and segments that not only complement our group areas of concentration, but to also add a Malaysian touch to key areas such as infrastructure, medical, education, trade and the likes.
proposition that will make us the bank of choice when it comes to Islamic banking solutions in the Malaysia. Going digital seems to be the name of the game now for most banks in Malaysia. Does KFH Malaysia plan to get on board with that too, or does it have other priorities for now? One of the key initiatives that is being undertaken by KFH Malaysia this year is the design of a state of the art digital banking solution that will give us a competitive edge over other banks who have a larger physical franchise. Phase 1 is to complete our ATM refresh, core banking upgrade and completely redesign and modernise our website. Phase 2 will be the launch of our Omni Channel digital banking solution at the beginning of 2018. The way of the future
KFH Malaysia firmly believes in creating lasting value to our customers instead of offering 'me too' solutions which already exist in the market.
David Power, Chief Executive Officer, KFH Malaysia,
By being part of the second largest Islamic bank globally, we always want to be seen as a responsible financier who at all times takes into account the needs and financial position of our clients and then structuring sensible solutions that meet their requirements. In addition to this we are placing a large emphasis on growing the deposit side of the balance sheet. To this end we have launched several new innovative savings products and campaigns in 2017 which have focused on growing our CASA base which in turn further improves our deposit mix and cost efficiency. KFH Malaysia firmly believes in creating lasting value to our customers instead of 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 of the above we are building a comprehensive and compelling value
is to acquire customers in the channel of their choice and when one considers the burgeoning youth population in Malaysia, true digital banking will be the only key differentiator when choosing a bank into the future. A framework has been developed that will chart the transformation of KFH Malaysia’s banking processes with enhanced digital processing capabilities. This will include business and technology support and IT infrastructure platforms that power the digital business ecosystems. A key part of our business strategy is being part of a global family, we plan to introduce our digital wallet that will enable our customers to perform a significantly increased number of transactions in a secure and timely manner inside and out of Malaysia. Mobility, security and 24 hour service is a necessity for the bank of the future. digitisation is a core element of the KFH portfolio of products and services going forward. This will allow us to; cont. overleaf
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A. Significantly enhance our customer relationship, B. Attract new customers and upsell to our existing customers at a location of their choice through multiple channels and C. Reduce operational cost from branch channel KFH Malaysia was the first foreign Islamic banking group to set up in Malaysia some 11 years ago. At that time, there were expectations that KFH Malaysia—and the other foreign Islamic banks that came in shortly after—would lead the way in innovation and that there would be an increase in Middle Eastrelated transactions in the country. What are the challenges the Bank is facing in realising its aspirations? As the first foreign Islamic bank in the country, we were the pioneer for a number of unique Shari’ahcompliant products catering to the Malaysian market. We introduced a number of new concepts some of which were the Gold Account, Tawarruq financing and the Reversed Tawarruq concept all which were a first for Malaysian customers. Our treasury business was the first to introduce the Ijarah Rental Swap which was the first Islamic profit rate swap in the country. KFH Malaysia was also the first Islamic bank to introduce the Promissory FX which allowed the customer to hedge their foreign exchange risk and finally Musharakah financing whereby the bank co-owns the asset with the customer. We believe that the demand for retail Islamic banking is growing steadily and over the last few years has surpassed the growth rate enjoyed by conventional banks. Our core belief is to provide our customer with an innovative financial solution instead of simply providing a product push strategy aimed at filling gaps in the market be it in terms of segments or product variants.
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Globally the KFH Group has always been synonymous with growth of Islamic finance and considers Malaysia to be a key market. According to the Bank Negara Strategy Paper on Value Based Intermediation, July 2017, the market share of Islamic banks in Malaysia quadrupled from 7.1 per cent in 2010 to 28 per cent in 2016. However, the annual growth declined from 24.2 per cent in 2011 to 8.2 per cent in 2016 which indicates there is much to be done to further spur the growth in the industry. Our aim is to position KFH Malaysia as the premier Islamic bank centred on superior customer service, innovative product suites and cutting edge technology. What do you see as your top challenges to navigate through the tougher Islamic banking landscape today? What do you think is needed to further advance the Islamic banking industry in Malaysia? The challenge is for the banking industry as a whole. We see tremendous opportunity for growth in the Islamic banking arena in the country as about 30 per cent of the country’s banking portfolio is Islamic. Robust technological changes; product innovation to compete with the conventional banks in order to assist Islamic banks to widen our reach to the customers. SUPPORT: Bank Negara Malaysia (BNM) has provided a robust framework in assisting the growth of Islamic Banks in the country. KFH Malaysia is able to leverage on this strength and operate in this favourable environment efficiently.
David Power, Chief Executive Officer, KFH Malaysia
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26/10/2017 15:02
TodayÕs Choices Shape TomorrowÕs Legacy As we celebrate our 75th anniversary in Kuwait, Ahli United Bank is honored to stand strong on a solid foundation of our clients’ trust. From one generation to the next, we have endeavored to bring you great success and satisfaction.
YEARS
www.ahliunited.com.kw
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ISLAMIC BANKING
Gauging market sentiment
ZEINAB HASHIM
ZEINAB HASHIM, CEO & MANAGING DIRECTOR, ADIB CAPITAL HIGHLIGHTS THE FIRM’S SUCCESSES AND HER EXPERIENCE OF WORKING IN THE SHARI’AH COMPLIANT BANKING SPACE
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ISLAMIC BANKING
B
efore joining ADIB Capital what were your previous roles in this industry? And how has your education contributed to your success? That is a very interesting question because my early education was actually science-oriented with a Master of Science in solid state physics and a Bachelor of Science in chemistry and physics from the American University in Cairo. It was only my second graduate degree—a Masters of Public Administration from the Kennedy School of Government, Harvard University—that strengthened my position in the financial sector and finally brought me to ADIB Capital. I believe however that a multifaceted education is an excellent basis for understanding ever-evolving industries and the constant innovation that greatly attracts investments. Before joining ADIB Capital I was Treasurer of National Bank of Egypt. Between 1976 and 2005, I was also the Treasurer for Barclays Bank Egypt and for Citibank Egypt, Tunisia, Turkey, Gabon and Jordan.
How does ADIB Capital serve the investment needs of ADIB-Egypt’s customer base? ADIB Capital delivers tailored Shari’ah-compliant financial solutions to its diverse client base, including government, private sector companies and middle market firms. Since its establishment in October 2012, ADIB Capital has executed transactions worth EGP 18 billion and boasts a solid pipeline that has witnessed exponential growth, contributing to ADIB Egypt’s brand image and cementing its position as a market leader, substantiated by Bloomberg rankings. ADIB Capital is focused on three lines of business in Egypt including Mergers and Acquisitions, the Debt Capital Market and the Equity Capital Market, advising and arranging Shari’ah Compliant financing, including syndications, with an emphasis on supporting national infrastructure projects.
banking perspective and apply this knowledge to utilise Shari’ah-compliant products that provide equally, or even more effective market solutions compared to conventional alternatives. Our team is able to meet the demands of a very specific clientele with a preference for Shari’ah-compliant solutions but who will not compromise on the return on their investments either. We constantly reevaluate our existing products and introduce new ones that address emerging needs or gaps in the market. One such offering are Sukuk which—once executive regulations are passed -will be utilised as a new financing tool to specifically —but not solely—meet asset managers’ investment needs.
What are the most popular products and services your investment banking clients utilise? Our most popular products are those used in raising funds in a Shari’ah-compliant manner. These include Mudharaba, Murabahah, Ijarah and Istisnah and Forward Lease. As noted, their popularity stems from their ability to meet the demand for both Shari’ah compliance and competitive return on investment. Financial advisory for such products compared to conventional banking products is essentially the same and therefore concepts need not be fundamentally rethought.
How has ADIB-Egypt’s Investment Banking changed in your tenure? Since our founding in 2012 we have established a solid foot-hold in the market, supporting our clients’ investment needs. ADIB Capital’s deal closures have contributed to ADIB Egypt being listed in Bloomberg EMEA’s market leader rankings since 2013 and cementing its position in 2016.In 2016 ADIB-Egypt ranked first Islamic Financing Bookrunner in Egypt and 11th in Eastern Europe, Middle East, and Africa (EEMEA) with a three per cent market share, more than double its share in 2015.
What differentiates ADIB Capital’s investment banking offerings from its competition?
What are your thoughts on the Islamic investment landscape currently? What are the key areas to invest in?
I believe our most important asset and standout characteristic is having a team whose members have in-depth market knowledge and who are able to gauge market sentiment from a conventional
The Islamic investment landscape is not really different from its conventional peers. As long as sectors meet potential investors’ criteria such as being consumer-driven they will attract investors cont. overleaf
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from both sides of the spectrum. The healthcare, education, food and beverage and retail sectors have a long-term positive outlook as do several other industries, particularly those involving Egyptian manufacturers for import substitutes with proven export track records. We also believe that there are a significant number of untapped resources in the Islamic domain that represent an opportunity for our investment clients.
What have been some of ADIB Capital’s most successful financing agreements? One of our milestone agreements that we are tremendously proud of was accomplished last year. We were awarded for our landmark Egyptian Electricity Transmission Company (EETC) EGP 2 billion transaction. This was in fact the second time we have won an award for our transactions, after 2014 and it remains a great honour for us. The EETC is an affiliate company of the E g y p t i a n E l e c t r i c i t y H o l d i n g Co m p a ny (EEHC) focused on managing, operating and maintaining the electric power transmission grids on extra and high voltages across Egypt, ensuring their optimal economic usage. Our agreement helped drive its on-ground transformation and financed the expansion of EETC’s transmission network.
Do you see ADIB Capital as playing a role in driving the Egyptian economy forward and contributing to the country’s infrastructure and progress? Absolutely, in fact we consider providing tangible support to the economy by helping secure financing for vital infrastructure projects and domestic industries a top priority. ADIB Capital has a long-standing track record supporting Egypt’s energy needs and the aforementioned agreement with the EETC is a clear example. In 2012 ADIB Capital acted as the Initial Mandated Lead Arranger, Bookrunner, Facility and Security Agent for the East Delta Electricity Production Company (EDEPC), on a Syndicated Mudharaba deal worth USD 110mn. ADIB Capital began financing energy sector projects early on and seeks to expand its efforts in this field, particularly with recent oil and gas discoveries promising a highly profitable future for the industry and the possibility of diversifying activities to incorporate
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more complex processes that will greatly benefit the economy in the long run. ADIB Capital also acted as the IMLA and Bookrunner for the EEHC in an EGP 1.6 billion transaction in April 2015, as well as the Global Coordinator in a EUR 40 million transaction in April 2017. ADIB Capital also previously acted as the IMLA and Bookrunner for EETC in February in an EGP 2 billion deal and as the IMLA and Bookrunner in a $150 million transaction with the Egyptian General Petroleum Company (EGPC) in September 2015, as well as acting as the Financial Advisor in a $200 million transaction with the same authority.
ZEINAB HASHIM, CEO & Managing Director, ADIB Capital
Though vital, ADIB Capital’s success is one aspect of ADIB-Egypt’s overall success, how do perceive your parent company’s most recent successes? Each subsidiary has a role to play helping contribute to ADIB-Egypt’s overall success. ADIB-Egypt’s most recent financial statements— for H1 2017—are testament to its stellar achievement, affirming the upward trajectory of its performance indicators. ADIB Egypt has successfully launched innovative products and services and continues to upgrade and expand its network infrastructure, bolstering its presence and enhancing the experience of customers. ADIB Egypt ’s performance has been recognised regionally and globally winning numerous international awards over the past few years.
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26/10/2017 15:03
Excellence through innovation Rewarding pioneers in Islamic finance
29th NOVEMBER 2017 Kuala Lumpur, Malaysia
12th DECEMBER 2017 Emirates Towers Hotel, Dubai
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For more information please contact CPI Financial’s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net
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TAKAFUL
(Naruedom Yaempongsa/SHUTTERSTOCK)
Takaful’s value proposition OMAR SHEIKH, CEO, TAKAFUL AFRICA, SHEDS LIGHT ON WHAT TAKAFUL HAS TO OFFER HIS HOME MARKET OF KENYA AND BEYOND
T
ell me more about Takaful’s value proposition in your market. The insurance market is awash with traditional products driven by price wars. Very little change happened in order to fill the huge gaps in the market. Customers have been appeased through serious price under-cutting across the market, rather than value addition, albeit at higher prices. The absence of a value proposition in traditional insurance fails to fulfil the ever-changing needs of customers. Takaful has developed two key products for key markets: First, an enhanced motor commercial product dubbed the Motor Commercial Club for our SME and corporates. This product was developed to provide one-stop shopping to the high net worth customers. After customers purchase commercial vehicles whether through direct or financing by a bank, they have various other needs including tracking device services and support in-facility repayment while out of business due to accident. Takaful developed a superior product coming with key benefits catering to the various key needs all embedded in this product. Second, we have developed Dada Takaful for women. This product for women was tailored made to put the majority of their needs under
a one-stop shop. This includes providing a courtesy car for 14 days, nil theft excess, no blame no discount, and free road rescue membership, among many other benefits. The two products were developed in tandem to group isolated needs under one roof. However, to avoid being perceived as an expensive company, we offer these new valuebased products alongside the traditional ones so as to provide varied choices for all customers. These products makes Takaful relevant in the market.
Exemplary customer service is an integral part of making Takaful succeed.
What are you doing to increase Takaful’s value for your customers? What is your strategy? We have been listening to the market to understand what customers want. Customers want quick services both in the on-boarding stage as well as at the time claims happen. They want a reminder on renewals well ahead of time. To achieve this, we had to enhance the capacity of our systems for all these cases while mitigating all the associated risks. We have introduced dashboards to measure the renewal levels by each branch staff and segment heads. This clearly informs us how well we are doing in renewals and discover any exiting customers. When those that exited are followed up with to understand why they cont. overleaf
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page 20-22 Takaful 105.indd 20
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TAKAFUL
cont. from pg 20
left, they get surprised at how we discovered the problems and as a result we get their appreciation for being valued while also helping us know the reasons for their exit to convince them to stay and improve on their service. We have placed cooperation and partnership as key to our strategy. The cooperation helps us recruit customers for each other while the partnerships help us do joint marketing, jointproduct launches and to develop ban-assurance products. We have partnered with banks to embed insurance benefits in their products, thus enhancing our customer bases and the revenue for both the banks and Takaful. Product innovation and enhancement remains a area of focus for our strategy to create a differentiation and segmentation in the market. Prompt claim settlement remains a focus area for us for being the core of any Insurance. We have put in place mechanisms to measure the time any claim takes for an approval or decline decision to be made and a dashboard measuring any time lapse. What is your approach towards customer service? As a part of enhancing our system to serve customers better, we adopted relationship management as a key service differentiator. This has not only made us understand and serve our customers better, but it taught us how to grow and protect our market. That personal touch through personalised services has made a big difference for Takaful. How important is your relationship management technique towards your overall success? To reap the benefits of relationship management, we blended this with relationship deepening. We thus categorised our customers into various groups depending on the level of relationship we have with them such that those who remained loyal over the years and who give us a bigger wallet share enjoy a different focus from those that are at a nascent stage in their relationship with us. This group consists of those whose exit can cause painful losses not only through revenue loss but also through loss of more
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loyal customers due to their influence in the market. These top customers who are opinion shapers in the market have enjoyed cordial relations with us and thus helped us reach markets that would have otherwise been ver y hard without their support. H o w d o yo u p l a n on improving your customer service in the future? To m a i n t a i n g o o d customer service, the following are critical for our success: We have created a delightful customer service strategy where customers appreciate the service levels we provide. We have plans to divide our territories into various zones. This is a joint effort by our branch team and relationship managers specifically to ensure that those in each zone are always and readily available to provide superior services to customers under their portfolio management. We intend to enhance our dashboards to drive customer service as a key agenda for each branch and the various departments. Grades will be assigned to distinguish their service delivery levels through meeting Service Level Agreement deadlines, implementing satisfaction surveys and getting customer feedback. The grades obtained will contribute to the overall evaluation of each branch and the department’s score card for year-end performance rating. Finally we have enhanced our systems to serve our customers better and will cotinue to do so to gain superior service differentiation in the market. Our product innovation, revolutionised service improvements backed by unique relationship management will help us stand out from the crowd teach old outfits a new lesson to change their game of price under-cutting.
OMAR SHEIKH
www.islamicbusinessandfinance.com
26/10/2017 16:57
.ﻃﺮﻳﻘﺔ أﺧﺮى ﻟﻼﺳﺘﺜﻤﺎر ﻓﻲ اﻟﻌﻘﺎرات another way to invest in real estate.
اﻻﺳﺘﺜﻤﺎر اﻟﻌﻘﺎري ﺑﺄﻣﺎن وﺑﺴﺎﻃﺔ ﺗﺘﻴﺢ ﻫﺬه اﻟﺸﺮﻛﺔ.ﺻﻨﺪوق اﻻﺳﺘﺜﻤﺎر اﻟﻌﻘﺎري “أو "رﻳﺖ" ﻫﻮ ﺻﻨﺪوق أو ﺷﺮﻛﺔ ﺗﻤﺘﻠﻚ ﻋﺪد ﻣﻦ اﻟﻌﻘﺎرات و ﺗﻌﻤﻞ ﻋﻠﻰ در اﻟﺮﺑﺢ ﻣﻨﻬﺎ . ﺑﺬﻟﻚ ﻳﺘﻮﻓﺮ ﻟﻠﻤﺴﺘﺜﻤﺮ ﺑﻴﺌﺔ آﻣﻨﺔ وﺑﺴﻴﻄﺔ ﻟﻼﺳﺘﺜﻤﺎر.اﻟﻔﺮﺻﺔ ي ﺷﺨﺺ ﻳﻮد اﻻﺳﺘﺜﻤﺎر ﻓﻲ اﻟﻌﻘﺎرات ﺷﺮاء أﺳﻬﻢ اﻟﺸﺮﻛﺔ
real estate investment made safe and simple A REIT, or Real Estate Investment Trust, is a company that owns real-estate properties and generates incomes from these properties. It allows anyone to invest in real estate in a safe and simple way: through the purchase of shares.
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KUWAIT ADVERTORIAL
Kuwait International Bank: More than four decades of banking excellence THE HISTORY OF KIB, FROM ITS EARLY DAYS AS A REAL ESTATE BANK TO A LEADER IN KUWAIT’S ISLAMIC BANKING COMMUNITY
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26/10/2017 17:21
KUWAIT ADVERTORIAL
(Arlo Magicman/SHUTTERSTOCK)
For more than three decades, the Bank established a name for itself as a key player in Kuwait’s financial market, before embarking on its unprecedented transformation into a Shari’ah-compliant financial institution in 2007.
KIB has been a part of Kuwait’s banking landscape for over 44 years.
T
he year 2017 marks a major milestone for Kuwait International Bank (KIB). As the Bank celebrates more than 44 years of banking excellence, it is also commemorating ten years since its history-making transformation into a Shari’ah-compliant bank. KIB’s legacy within the banking industry dates back to 1973, when it was initially founded as a specialised real estate bank. In those early days, it quickly carved a niche for itself as one of the only banks across the region to focus solely on the real estate sector. During that time, Kuwait was experiencing a major economic boom, with two key industries at the epicentre: the banking and real estate sectors. As the only bank of its kind in the country during this boom, KIB—then Kuwait Real Estate Bank—grew to dominate the sector by playing a prominent role on the national stage.
A first-of-its-kind transformation The growing demand for Islamic banking services and the evolving state of the banking industry paved the way for KIB’s successful transformation into a Shari’ah-compliant financial institution; thereby marking the first transformation of its kind in the Middle East. By embracing the Islamic banking model, the Bank was looking to capitalise on the enormous potential of the Islamic banking market, as it sought to remain at the forefront of its industry. It was a strategic move that paid off in spades, as the Bank continued to grow from strength to strength, and quickly positioned itself as one of the foremost Islamic banking institutions in Kuwait. A decade later, KIB continues to leverage the continued growth in the banking industry and the globalisation of Islamic finance through its forward-looking vision. Today, the Bank offers a comprehensive suite of Shari’ah-compliant banking services and solutions, as well as an expansive network of 26 branches distributed strategically across Kuwait. Its customer-focused offerings provide innovative, flexible solutions tailored to suit customer needs, alongside a diverse selection of corporate banking products and specialised real estate banking operations. Innovation at the heart of its strategy Alongside its remarkably consistent solid performance and fast-growth, KIB has continued to embrace technology and innovation at the very core of its business strategy. The Bank continues to take a leading role in delivering cutting-edge banking solutions that not only exceed customers’ expectations, but also set a new standard within the market. Fully aware of the dynamic nature of the market, KIB’s strategy is to never remain stagnant, as it continuously strives to enhance and expand its digital platforms, keeping in line with the latest global trends and developments. Most recently, KIB’s cuttingcont. overleaf
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KUWAIT ADVERTORIAL
cont. from pg 25
edge strategy resulted in the launch of the region’s first-of-its-kind Visual IVR service, which enables smart phone customers to enjoy a more visual banking experience through video. The launch of this service was only one part of a wider project which is aimed at digitally transforming the way KIB engages with customers across every touch point, be it email, voice, IVR, social media or chat. A partner in economic development KIB has the history, capacity, and accumulated experience to play a large role in the development of Kuwait’s economy. Even before its recent transformation, KIB had participated in the nation’s economic development through one of its key business sectors, actively contributing to the development of Kuwait’s economic, infrastructural and architectural landscapes. The Bank continues its role as a development partner, supporting the economy by boosting Kuwaiti labour force participation and promoting business innovation to spur economic growth and diversification within the financial sector. KIB has also sought to provide financing solutions for small and medium sized businesses, and has committed itself to investing in the local labour market, by nurturing, training and employing local talents. A socially-conscious institution Over the years, KIB remained committed to going beyond its financial responsibilities and playing its part as a true corporate citizen. Guided by its comprehensive and integrated social responsibility strategy, the Bank spearheads various social initiatives and community programmes that seek to impact real economic, social and cultural change. In addition to focusing on a wide range of basic needs programmes, the Bank has dedicated a large portion of its efforts towards two flagship platforms: the financial literacy programme and supporting local, young talents. As a financial institution, KIB has been placed in a unique position to spread financial awareness and economic education across Kuwait, as well as offer moral and financial support to aspiring young Kuwaiti talents. KIB’s unwavering commitment to serving the greater good of the community and creating
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sustainable development can be seen both internally as part of its corporate culture and externally across the community, as it is integrated into the very fabric of its organisation. Forward-looking vision KIB’s achievements provide valuable lessons for many other financial institutions across the region, particularly amidst the many demanding economic challenges in the industry. Despite KIB’s outstanding performance, its mission is far from complete, as the Bank continues to pursue new opportunities in line with its strategic objectives amidst the ever-changing banking sector. As regulatory frameworks continue to evolve, KIB must also shift to accommodate changing regulations, as well as cater to an increasingly sophisticated and globalised customer base. The dynamic and fast-paced nature of the banking industry has motivated KIB to adopt a strategic plan aimed at enhancing the Bank’s competitive edge and propelling it to the forefront of the Islamic banking sector. Since launching the strategic plan, KIB has achieved a number of key objectives, including rolling out a new governance model, carrying out key changes to its organisational structure, and recruiting a number of highly-qualified professionals and local talents across its organisation. The Bank’s strategic plan also focused on developing and streamlining its offerings to customers, and KIB has made great strides in developing its digital channels and enhancing its customer banking experience across all platforms, with a particular emphasis on simplifying procedures and improving distribution channels. KIB’s impressive track record in robust financial performance and resilient strategic planning has only been further demonstrated by the key milestones it has achieved in 2017. Most recently, Fitch Ratings reaffirmed KIB’s Long-term Issuer Default Rating (IDR) at ‘A+’ and affirmed its viability rating (VR) at “bb-” with a stable outlook. The Bank has also been included in the MSCI Index. Today, KIB remains committed to its comprehensive strategic plan, aiming at achieving its strategic vision of becoming the ‘Islamic Bank of Choice’ and the leading employer for young, talented locals.
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26/10/2017 17:21
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ISLAMIC INVESTMENT
Why Islamic indicies are outperforming their conventional counterparts MICHAEL ORZANO, HEAD OF EQUITY INDICES, S&P DOW JONES INDICES, WRITES FOR IB&F ABOUT THE CURRENT STATE OF ISLAMIC INVESTMENT
M
ost S&P and Dow Jones Shari’ahcompliant benchmarks outperformed their conventional counterparts year-to-date through 27 September 2017 as information technology and health care, which tend to be overweight in Islamic Indices, have been sector leaders, and financials, which are underrepresented in Islamic indices, have experienced some weakness. One notable exception has been in the Middle-East where equity markets have very little exposure to information technology and health care, so Shari’ah-compliant indices have not benefited from the strength in these sectors. Global equity markets powered higher in the third quarter adding to strong first half gains. As of 27 September 2017, the Dow Jones Islamic Market World and S&P Global BMI Shari’ah Indices each gained more than 17 per cent, respectively, for the year, outperforming the conventional S&P Global BMI by nearly 300 basis points. Outside of the Middle East, where the S&P Pan Arab Composite Shari’ah has underperformed the conventional S&P Pan Arab Composite, all other major regional Shari’ah-compliant indices remain well ahead
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of their conventional counterparts through late September. The S&P500 notched several new all-time highs in Q3. However, non-US equity markets have posted the strongest year-to-date returns. Emerging markets sustained momentum in Q3 as improved economic sentiment and weakness in the dollar boosted interest in the asset class. The Dow Jones Islamic Market Emerging Markets Index has jumped over 30 per cent for the year through 27 September. Despite a rebound in oil prices during Q3, MENA equities continue to lag broader global equity markets as sustained geopolitical concerns have weighed on sentiment and the regional equity market has seen little benefit from the soft dollar and boom in technology stocks that has powered emerging markets more broadly. The S&P Pan Arab Composite Shari’ah declined 1.3 per cent in the third quarter through 27 September, bringing the year-to-date return slightly into negative territory. The S&P Qatar BMI has experienced the steepest losses, falling 17.7 per cent year-to-date, while Kuwait has been one of the few bright spots as the S&P Kuwait BMI has gained more than 20 per cent on the year.
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24/10/2017 16:54
ISLAMIC INVESTMENT
EXHIBIT 6: COMPARATIVE PERFORMANCE OCT. 31, 2007-DEC. 30, 2011 (S&P 500 SHARIAH VERSUS S&P 500) 120 100 80 60 S&P 500 Shari'ah
40 S&P 500
20 0 Oct. 2007
Oct. 2008
Oct. 2009
Oct. 2010
Oct. 2011
Source: S&P Dow Jones Indices LLC. Data from Oct. 31, 2011, to Dec. 30, 2011. Past performance is no guarantee of future results. Chart is provided for illustrative purposes and reflects hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.
So Is Shari’ah compliant index strength a fluke based on 2017 developments, or a signal of long term stability and growth? Over the long-term, Shari’ah-compliant indices tend to perform similarly to conventional benchmarks as sector performance differences balance out over time. For example, in the mid-2000s, DJIM World significantly underperformed the DJ Global index when financials were outperforming. This reversed during the financial crisis when financials underperformed significantly. More recently, information technology has performed well, which has led to some outperformance by Shari’ah indices. Shari’ah-compliant MENA indices tend to perform much more similarly to conventional benchmarks because a larger proportion of the companies are Shari’ah-compliant. Th e G C C e q u i t y m a r k e t s h ave n o t participated in the strong growth experienced in global equities in 2017. The diplomatic rift between Qatar and several Arab nations has most severely impacted the Qatari market. However, the increased geopolitical risk has also impacted the region more broadly. The Information technology and health care sectors have led the global equity market. Because these sectors are almost non-existent in the regional equity market, the GCC has not benefited from this trend.
EXHIBIT 2: S&P 500 SHARI'AH SECTOR COMPOSITION Telecommunication Services
2.2%
Utilities
3.3% 0.5%
Financials
13.7%
0.6% 2.9% 3.6% 2.8%
Real Estate Materials
S&P 500 Shari'ah S&P 500
8.5% 6.0% 9.9% 12.5% 10.8% 9.4% 12.5% 10.2%
Energy Consumer Discretionary Consumer Staples Industrials
16.5% 13.9%
Health Care Information Technology
0%
5%
10%
15%
20%
23.2% 25% 30%
37.1% 35%
40%
Source: S&P Dow Jones Indices LLC. Data as of May 31, 2017. Chart is provided for illustrative purposes.
EXHIBIT 3: DOW JONES ISLAMIC MARKET WORLD INDEX SECTOR COMPOSITION Financials
0.6%
Utilities
0.6%
17.6%
3.3% 1.1% 4.0% 1.3% 3.0% 5.8% 5.8% 6.0% 5.6%
Real Estate Telecommunications Services Energy Materials Consumer Discretionary Consumer Staples Industrials
Dow Jones Islamic Market World Index Dow Jones Global Index
11.4% 12.4% 12.1% 9.1% 12.2% 11.8%
Health Care
10.7%
Information Technology
0%
5%
10%
19.4%
16.5% 15% 20%
29.6% 25%
30%
35%
40%
Source: S&P Dow Jones Indices LLC. Data as of May 31, 2017. Chart is provided for illustrative purposes.
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MALAYSIA
KFH Malaysia believes in a partnership models for Islamic finance.
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24/10/2017 17:00
MALAYSIA
Looking to crossborder opportunities KFH MALAYSIA SPEAKS WITH ISLAMIC BUSINESS & FINANCE ABOUT THE INSTITUTION’S CORPORATE FINANCE STRATEGY
W
ith the current global economic shift, what are the most vital challenge/challenges that KFH Malaysia need to counter in terms of corporate investment with the bank? Islamic banking was once considered a domain for the Middle East and specifically for Muslims. Everyone was familiar with conventional banking concepts but Islamic banking was alien to them. However, with the Government’s continuous support, the Malaysian population has become receptive towards Islamic banking. To-date, Malaysia has become one of the largest Islamic finance markets outside of the Middle East. Established corporates regularly tap the Islamic market to raise Sukuk, syndications, term-financing and working capital financing. Nevertheless, the challenges faced continue as new concepts are introduced and conventional banking continues to be the main avenue of fund raising. KFH Malaysia sees this as an opportunity to continuously innovate and educate the consumer on the benefits of Islamic banking. How would you tread in the coming years in order to maintain the business momentum? KFH Malaysia believes there is much more to be done to encourage the expansion of Islamic banking in the country. We firmly believe in the partnership model—partnering with our clients at every stage of their evolution, and deep understanding of their requirements, and common mutual benefits, to both parties, and society as a whole.
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To achieve this, it is crucial that we attract the right talent, evolve our product suite, and provide excellent client service. The ever-increasing potential of Islamic finance in Malaysia shows that people are the key pillar for commerce-building and creating holistic economic development. How does KFH Malaysia view giving out equal opportunities to all business models? Some of the key tenets of Islamic banking are profit sharing, mutual risk and fairness which are espoused in the spirit of entrepreneurship, trade, and societal development or benefits. Guided by these principles, KFH Malaysia has built a business that is welcoming of all industries and businesses from the small corporates to the multinationals and GLCs. We understand the nature of these businesses and how they benefit the society as a whole and fit into the country’s growth aspirations. What is the demand for corporate banking in the coming years likely to be for KFH Malaysia? Currently Islamic finance is contributing to 29 per cent of total industry loans as mentioned in the Bank Negara Strategy Paper on Value Based Intermediation, July 2017 and we believe that there is tremendous growth potential. The Malaysian economy continue to grow at a steady pace with emphasis on infrastructure spending. The knock on effect of infrastructure spending is tenfold covering all industries. We see opportunities in these areas and have products and expertise to tap these markets. Cross border opportunities are also evident with Malaysian corporate ventures outside Malaysia. KFH Malaysia aspires to be the core regional bank for these corporates as well.
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SHARI'AH FOCUS
CBB issues landmark regulations on Shari’ah governance
IN A MAJOR ATTEMPT TO ESTABLISH INDUSTRY LEADING SHARI’AH GOVERNANCE PRINCIPLES AND PRACTISES IN BAHRAIN, THE CENTRAL BANK OF BAHRAIN (CBB) HAS RELEASED A NEW SHARI’AH GOVERNANCE (SG) MODULE
I
ssued after extensive consultation with the industry and CBB’s Centralised Shari’ah Supervisory Board (CSSB), the landmark module is likely to result in a paradigm shift in improving the Shari’ah compliance and governance standards among Islamic banks in Bahrain and shall set proper benchmarks for global Shari’ah governance practises. It is expected to serve as an example for the region and the global Islamic banking market. “The Shari’ah Governance module sets higher standards of transparency, governance and competence for Islamic banks in Bahrain. It clarifies the roles and responsibilities of the management and the Board of Directors towards Shari’ah compliance. Adhering to high standards of Shari’ah governance also provides added protection to investors and other stakeholders”, said Khalid Hamad, Executive Director of Banking Supervision at the CBB. The new regulations will be applicable from 30 June 2018 on all Islamic retail and wholesale banks in Bahrain. For the first time an Independent External Shari’ah Compliance Audit (IESCA) has been made mandatory. The first IESCA report is to be issued in 2020 based on the transactions, structures and activities of 2019. It marks a significant new step in independent confirmation of whether Shari’ah governance is embedded in the day to day functioning of an Islamic bank. Islamic banks in Bahrain and other member states of the Gulf Cooperation Council (GCC) currently have their own internal Shari’ah boards to vet and confirm products’ Shari’ah compliance. The lack of a single standard contributes to Shari’ah compliance risk because interpretation of Shari’ah principles is subjective and various schools of Islamic thought differ. This risk was highlighted in June 2017, when Dana Gas (unrated), facing financial difficulties, claimed that $700 million Sukuk it issued in 2013 was non-Shari’ah compliant under United Arab Emirates’ law, Moody’s reported. Based on that argument, Dana asserted that payments under this structure were not legal, leaving creditors at risk
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of not receiving payments or being forced to restructure on inferior terms. Dana, which missed a profit distribution payment due in July, has filed a pre-emptive lawsuit in the High Court of Justice in London to protect its interests against any adverse action from its creditors. An initial court ruling is forthcoming, according to Moody’s. The approach to Shari’ah compliance in the GCC region, where banks have individual Shari’ah boards, contrasts with Malaysia, where there is a single regulatory authority that provides a clear and comprehensive Sukuk framework that standardises documentation and reporting, Moody’s reported. In May, the United Arab Emirates’ cabinet approved the central bank’s creation of a centralised high Shari’ah authority for Islamic finance to support its growth and development. The following are some of the most important provisions of the SG module: The Shari’ah governance structure of an Islamic bank must consist of four important components or elements—the Shari’ah Supervisory Board (SSB), Shari’ah Coordination and Implementation function, Internal Shari’ah Audit function and External Independent Shari’ah Compliance Audit. The module discusses the authority vested in the SSB and ensures their independence through various measures. It also discusses their eligibility criteria, roles and responsibilities and calls for more interaction with the board of directors. SSB’s rulings of standard products and the jurisprudential or other bases of such rulings must be made available for the customers and the general public by publishing it online and in the annual report. The module requires both Shari’ah Coordination and Implementation function and Internal Shari’ah Audit function to independently report to the SSB. The SG module can be viewed on the CBB website www. cbb.gov.bh.
www.islamicbusinessandfinance.com
24/10/2017 15:46
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(nmedia/SHUTTERSTOCK)
SOCIAL FINANCE
The resurgence of Islamic social finance ISLAMIC FINANCE’S FUTURE MUST EMBRACE ITS CORE PRINCIPLES, WRITES DR. ZIYAAD MAHOMED, ASSISTANT PROFESSOR, SCHOOL OF PROFESSIONAL STUDIES, INCEIF, WRITES
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24/10/2017 17:10
SOCIAL FINANCE
T
The resurgence of social finance can be attributed to the global drive towards the oft clichéd ‘better world’ through the UNSDG 17, writes Dr. Mahomed
he consistent growth of the global Islamic banking and finance has provided a niche market with solutions and financial inclusion through a well-defined Islamic ethos. Unfortunately, Islamic finance has been criticised for having diverted from its core principles of socioeconomic empowerment and upliftment. As in mainstream interest-based finance, Islamic financing and advances rely on the customers’ credit-worthiness and the ability to repay, inevitably supporting those with good credit standing to improve their financial status. But, how has Islamic finance improved the lot of the downtrodden? What about the ethical, socio-economic tenets that Islamic finance has so vociferously espoused? We are perhaps at the brink of a new era in Islamic finance, driven by a global appetite for socially responsible and ethical investment created by the hype from the UNPRI 61 and the more recent UNSDG 172. Rising income inequality and mass migrations due to natural disasters, war and political crises have increased substantially over the last decade. Reports by the World Economic Forum in 2011 and SRIs & the case for Islamic Investment Funds 3 in 2015, indicate that a paradigm shift in investment mindset is observable through divestments from fossil fuels to the funding of ethical, sustainable and good governance corporations. Between 2012 and 2014 alone, responsible investment grew by 76 per cent in the United States, to approximately $6.57 trillion or +-20 per cent of all assets under management. Doing ‘good’ seems to be the new investment mantra, where community investment is also on the increase (54 per cent growth observed between 2010 and 2014 in the US). As a model, Islamic finance has advocated the narrative of a sharing economy through risk-sharing, more equitable distribution of wealth and fairness and justice in all transactions. As an economic system, it encourages entrepreneurship, promotes real economic development and supports the principles of long-term sustainability. However, the growth of Islamic finance has been witnessed primarily in wealthy nations, supporting the premise that the current
Islamic finance system improves the lives of the wealthy without equally impacting those that are less fortunate. It would perhaps not be incorrect to suggest that Islamic finance has not provided the necessary impact in socio-economic development as its lofty ideals maintain. However, this is about to change as Islamic social finance applications are gaining momentum through a resurgence of primary Islamic social instruments to be implemented through collaboration and strategic deployment of capital.
A BETTER WORLD This resurgence can be attributed to the global drive towards the oft clichéd ‘better world’ through the UNSDG 17. Islamic finance is based on Islamic law. The overarching objectives (Maqasid) of the law are concerned with the protection of religious freedoms, family rights, the promotion of intellectual thought and reasoning and of course, the protection and preservation of wealth. A brief review of the UN SDG indicate that the Maqasid support the UN SDG 17 in achieving this ‘better world’. For example, Islamic finance objectives promote shared prosperity with, and financial inclusion of those that were either too poor to play a meaningful role in the economy or opted out due to their religious convictions. These objectives support SDG 1, 2, 3, 5, 6 and 16 on ending poverty, achieving food security, ensuring healthy lives, achieving gender equality and promoting a peaceful and inclusive society. Like that, it is easy to map the links between Islamic finance objectives and the rest of the UN SDG 17. Additional links include SDG 6, 7, 9 and 11 that intend to provide clean water and sanitation, affordable energy, infrastructure and shelter for all. A significant portion of those being addressed in these goals are in predominantly Muslim-populated countries. Islamic finance becomes an impactful method through innovative instruments such as SRI Sukuk and infrastructure Sukuk that can support these initiatives. Examples of these over the last two years include the GAVI Sukuk (funding vaccines) and the Khazanah SRI Sukuk (funding schools in Malaysia). The most recent Green SRI Sukuk Tadau issued cont. overleaf
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SOCIAL FINANCE
cont. from pg 35
by China-owned Edra Power Holdings unit Tadau Energy, is considered a breakthrough in a short list of renewable energy Sukuk (50 MW of solar power plant in Kudat, Sabah to the value of MYR 250 million) and is also certified by the centre for International Climate and Environmental Research – Oslo, Norway (Cicero). This suggests that the era of the ‘Green’ Sukuk is upon us, with many more social impact Sukuk issuances expected soon.
TRADITIONAL METHODS The more traditional methods of Islamic social finance have a long history of contributing to the development of Islamic nations. Zakat (alms-giving), Waqf (endowment) and Sadaqah (voluntary charity) have been used to provide for the basic means of livelihood for the poor and destitute albeit in a mostly informal structure. However, it is envisaged that the future application of these instruments will be exceedingly sophisticated, addressing the existing challenges of problems in calculation, poor collection mechanisms and inefficient distribution channels. The scepticism that Zakat payers and Waqf donors justifiably emphasise can be dealt with using advances in technology or the buzz of this period—blockchain. It is now not difficult to imagine that Zakat payment for example, can be calculated and made using smart apps that would present options to payers based on their personal preferences. For example, a Zakat payer that would like to see his/her funds being utilised for specific projects, emergency relief or water and sanitation may be presented with several initiatives from various reputable NGOs, together with an independently assessed benefit or efficiency rating. Then using token technology, payees would be linked via unique identifications to the system, with potential to verify that ownership has been transferred (a requirement in Zakat) and that the funds have been disbursed correctly. This has the potential of reducing bottle-necks in Zakat distribution and ensures that the deserving recipients benefit from these contributions. It also encourages NGOs to enhance the efficiency of their projects as they too have an objective of increased impact.
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The more traditional methods of Islamic social finance have a long history of contributing to the development of Islamic nations. International organisations such as the IFRC (International Federation of Red Cross and Red Crescent Societies) and UNDP (United Nations Development Programme) are also actively considering Islamic finance solutions to reduce the funding gap for social development and emergency relief. With regards to research and thought leadership, the International Centre for Education in Islamic Finance based in Malaysia (INCEIF), has embarked on a strategy to encourage policy change and to directly impact social well-being by utilising Islamic finance techniques. A dedicated Social Finance unit has been initiated at INCEIF with the following key objectives: To provide Islamic social finance critique and offer potential solutions in academic and professional research; T o conduct analysis, implementation and monitoring of Islamic Social finance pilot projects; To provide Islamic financial modelling techniques to deal with social challenges, utilising sustainable methodology through application of Zakat, Sadaqah, Waqf and hybrid solutions; T o increase Islamic finance literacy, promoting the understanding of Islamic finance concepts and how they can improve socio-economic well-being; To promote financial inclusion. It is time that formal Islamic finance goes back to its core ideals, extending its impact over the entire landscape of economic development. The recent global drive towards a more equitable existence is acting as catalyst for the resurgence of formal Islamic social finance. We hope that this can significantly contribute towards unified approach to global equality and achieve a ‘better world’.
1 The Six United Nations Principles for Responsible Investing 2 The Seventeen United Nations Sustainable Development Goals 3 Published by the Centre for Islamic Asset
www.islamicbusinessandfinance.com
24/10/2017 17:10
www.eigertrading.com
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ISLAMIC TECH ADVERTORIAL
Inside Commodity Murabahah fintech
Eiger, based in London, is a leader in Islamic fintech.
EIGER TRADING ADVISORS SHEDS LIGHT ON ITS OFFERINGS TO ISLAMIC FINANCIAL INSTITUTIONS
E
iger Trading Advisors Ltd. is a London-based commodity trading fintech company, specialising as an intermediary in Islamic financial products for almost 100 banking clients globally. Eiger has a consistent track-record for delivering technology-driven solutions to the Islamic finance sector since 2008, drawing from expertise in Shari’ah-compliant
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banking, IT-development and physical commodities. Eiger is the FCA-regulated provider and administrator of the Eiger Trading Platform (ETP), a secure and efficient end-to-end commodity trading marketplace that delivers trade facilitation services for Shari’ah-compliant products, including Commodity Murabahah and Tawarruq for deposits, financing, PRS, CASA, credit cards and mortgages.
Islamic Business & Finance | ISSUE 105
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The ETP can manage any number of bespoke workflows to suit your institution’s trading requirements, either as a standalone platform, or integrated with your core systems for maximum efficiency. When it comes to integration, Eiger’s APIs and in-house development team can provide for an STP automated commodity trading experience using the latest in web service technology.
www.islamicbusinessandfinance.com
26/10/2017 17:53
Ad_WIBC2017_21x27.pdf
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SUKUK
OUTSTANDING SUKUK MAP OUTSTANDING SUKUK MAP
THE SIZE OF THE OUTSTANDING SUKUK MARKET GLOBALLY AS OF 15 OCTOBER 2017 The size of the outstanding Sukuk market globally as of 06 Nov 2016
SOURCE: Zawya Islamic
ANNOUNCED/OPEN SUKUK IN OCTOBER 2017 STATUS
ISSUER NAME
SUKUK NAME
SUKUK STRUCTURE
COUNTRY
CURRENCY
SUBSC. DATE
ISSUE SIZE ($M)
MARGIN
TENOR
ARRANGER/ADVISOR
Announced
Aplya Star Holding III Limited
Alpha Star Hldg III Ltd 6.25% 20-04-2022
Ijarah
UAE
USD
20 April-17
500
-
Five Years
-
Announced
Dar Al-Arkan Sukuk Company Ltd.
Dar Al Arkan Sukuk Co. 6.875% 10 April 2022
Unknown
Saudi Arabia
USD
10 April-17
500
-
Five years
-
Announced
ICD Funding Limited
ICD Funding Ltd 4.625% 21 May 2024
Unknown
Saudi Arabia
USD
18-Oct-17
200
-
Seven years
ICD
Announced
IDB Trust Services Ltd
IDB Trust Services Ltd 2.261% 26 Sept 22
Unknown
Saudi Arabia
USD
22-Sept-17
1,250
-
Five years
IDB
Announced
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 4.150% 28 Mar 27 - Reg S
Unknown
Indonesia
USD
29 March-17
1,725.4
-
15 years
-
Announced
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 4.150% 28 Mar 27 - 144A
Unknown
Indonesia
USD
29 March-17
274.6
-
15 years
-
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 3.400% 29 Mar 22 - Reg S
Unknown
Indonesia
USD
29 March-17
855.62
-
10 years
-
Announced
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 3.400% 29 Mar 22 - 144a
Unknown
Indonesia
USD
29 March-17
144.38
-
10 years
-
Announced
IDB Trust Services Limited
IDB Trust Services Ltd 2.393% 12 April 22
Unknown
Saudi Arabia
USD
12-April 17
1,250
-
10 years
IDB
Announced
DIB Sukuk Limited
DIB Sukuk 14 Feb 2-22
UAE
USD
15-Feb-17
1,000
Dubai Islamic Bank
SOURCE: Zawya Islamic
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www.islamicbusinessandfinance.com
26/10/2017 17:27
Takaful Add (Saving Image) with tall free 2 copy.pdf
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Peace of Mind Comes from providing a secure future for them.
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Based on pricing, is Saudi Arabia better off issuing bonds? MOHAMMED KHNIFER, A SENIOR ASSOCIATE (DEBT CAPITAL MARKET) AT ISLAMIC DEVELOPMENT BANK GROUP, WRITES FOR ISLAMIC BUSINESS & FINANCE ON THE LATEST DEVELOPMENTS OUT OF SAUDI ARABIA
S
audi Arabia raised $12.5 billion from its second dollar bond sale this year. The issuance is going to be utilised for budgetary purposes and to support planned infrastructure projects. The closing day of issuance coincided with allowing women to drive, a move that was welcomed by investors as it signals the seriousness of the Saudi leadership toward the goals of 2030 vision, which aims to increase the employment of female workforce in the local market. Hence, the move will keep money inward rather than sending it with some of the expats’ remittance that would have gone outside the Saudi economy. The government sold $3 billion of long fiveyear notes, $5 billion of the 10-year tranche and $4.5 billion of the 30-year. Long five-year notes were priced at 110 basis points over US Treasuries, 10-year tranche at 145 basis points and 30-year bonds at 180 basis points. In terms of pricing, the 30 years tranche was priced inside the fair value of the exiting curve (of the first bond (same tenor)) that was issued in 2016. The high demand we saw in this tranche allowed the Saudis to price it competitively. Most importantly, this tranche (due in 2047) symbolises how investors bought into the Saudi vision of 2030. They wanted to take part of the success story of ongoing transformation of the Saudi economy.
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While the more-than-10-year tenor was priced flat to the existing curve, the other tranche of five and a half years was priced with premium. Overall, I was hoping we picked the mid-swap as a benchmark instead of US Treasuries. The reason behind that is historically speaking the mid swap is higher than UST. At the time of issuance, the mid swap was lower, notably on the 30 years end (mid swap was 2.45 bps vs 2.77 of UST). Following the issuance of a $9 billion international Sukuk, many might have wondered why Saudi Arabia has not issued another dollar-denominated Sukuk. One of the reasons I would expect is the fact that the existing structure of Sukuk, hybrid one, is still attracting a premium on the secondary market compared to plain-vanilla structures. From a pricing perspective, Saudi Arabia is better off issuing bonds rather than the hybrid Sukuk. According to Bank of America Merrill Lynch’s (BofAML) Global Economic Weekly report in April, the Sukuk bond spreads currently trade in line with similar-maturity Saudi government conventional bonds. Although this may reflect international bond-holders perceptions of the hybrid Islamic structure, the Sukuk appear cheaply priced to the curve as GCC sovereign Sukuk have typically traded 15 basis points tighter than their conventional peer instruments.
(vkilikov/SHUTTERSTOCK)
SUKUK
Dollar-denominated bonds and Sukuk are key to Saudi Arabia’s financial future.
Contact Mohammed Khnifer at mkhnifer@gmail.com or on twitter @mkhnifer
www.islamicbusinessandfinance.com
24/10/2017 18:01
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THE INSIDE STORY
‘Halal is awesome!’ SANABIL IS MAKING HALAL PRODUCTS COOL, ACCORDING TO ASAD SUFI, EXECUTIVE DIRECTOR, MEZAN CORPORATION (SMC-PVT) LTD, SANABIL DIVISION
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www.islamicbusinessandfinance.com
24/10/2017 18:11
THE INSIDE STORY
Asad Sufi, Head of Sanabil, at the Halal Expo Dubai
W
hat is Sanabil?
Sanabil is a premium quality Halalcertified and Shari’ah-compliant Islamic lifestyle brand, where all of our current and future product developments and services are meant to promote Halal healthy and wholesome living. We ensure that the Halal value chain is held up throughout our organisation and processes across the board. Our vision is to help build a ‘Halal Tayeb’ environment and to revive the ways of The Prophet [PBUH].
Could you tell me more about your products? For this we deal with natural and Prophetic-based [PBUH] products, such as honey, honey-blends, oils such as blackseed oil, and Miswak for dental hygiene. These are the core elements of Prophetic medicine [PBUH], which was presented 1400 years ago by the Prophet Mohammed [PBUH]. Apart from this we also deal in seeds, and we have herbal supplements. All of the supplements and our products are Halal to their core. Our certification is done by Sanah, which is a leading global Halal certification body, which assures our whole value chain. From our procurement, down to our processing, manufacturing, packaging, labelling, advertising, marketing, distribution, logistics, as well as customer service and feedback are Shari’ah compliant and ‘Halal Tayeb’ assured as well.
What is ‘Halal Tayeb’? Halal for Muslims is mandatory, as it should be. It is very important that you not only strive to attain what is Halal, but to strive to attain what is ‘Halal Tayeb’—Tayeb meaning pure. We take great pains to ensure that our value chain is managed in a manner that is both. cont. overleaf
www.islamicbusinessandfinance.com
page 44-48 Inside Story 105.indd 45
ISSUE 105 | Islamic Business & Finance
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THE INSIDE STORY
cont. from pg 45
This way you get something that is Halal, healthy, pure, safe—a great product for the Muslims and non-Muslims to consume. This is what Sanabil is. We do this without any compromise.
Do you work with Islamic banks? No, we are very particular about financing. We are Shari’ah compliant, and we do not do any borrowing. We say that whatever we have, we use that. It is Halal and clean, so we are satisfied with using that to fund whatever projects we have. We do not do any partnerships, or investments into the company. We are very clear about that. There is the concept of ‘Barakah’—it doesn’t mean that you have more, it means that your requirements are being met. In Islamic financing, I personally feel that, while I would not say that Islamic financing
is not right, whatever we have, Allah will put Barakah in our work, and we will see how it goes.
Sanabil specialises in traditional honey techniques.
Do you work with Takaful companies? Takaful, yes. Right now we do use Takaful, if and when needed for making deliveries abroad or export purposes. Our Shari’ah board assures that all of our processes are compliant, and so instead of going to large insurance companies, we go to Takaful companies if Takaful is needed by our customer when we are delivering our products to them. that is when we use Takaful.
How do you grow your customer base? This may sound a little odd, but I’ll share an experience with you. Mankind is made specifically for worship. You are not meant to go out and play, and while that can become worship, we need to cont. on pg 48
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Islamic Business & Finance | ISSUE 105
page 44-48 Inside Story 105.indd 46
www.islamicbusinessandfinance.com
26/10/2017 15:29
Conference Patron
Pla�n�m �ponsors
Islamic Banking �ol��ons Partner
Knowledge Partner
Corporate Exhibitors
Associate Partners
Impact Media Partner
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THE INSIDE STORY
cont. from pg 46
worship, and it is Allah’s responsibility to send to you customers. It is His responsibility—it is not ours. There is nothing in our hands. But what you need to do is keep your shop open. Obey Allah, ensure that you fulfil all of His commands properly, put faith and trust in Him, keep your shop open, and people will come, as Allah will send them. That doesn’t mean that you should do nothing. What you need to do is to do your best, and Allah will reward you. Our model is that we have a website, Sanabilglobal.com, and if you go there, while we are based in Pakistan, it is an online retail site for everywhere. We use the website and social media to market ourselves. We also are on platforms such as Alibaba to develop B2B
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linkages and to do market exports. How we built our customer base is mainly through social media, but our website attracts a lot of people. We invest a lot in our branding and packaging.
Sanabil believes that Halal can still be 'awesome'.
What is the brand’s ethos? I feel that you can be Islamic and still be cool. Because ‘Halal is awesome’. That is our tagline, because it’s a lifestyle that people should adopt. It’s healthy, it’s wholesome, and it gives you an alternative to the issues that lie with an unhealthy lifestyle. We do use a lot of media, but we are looking for distributors, stocks, and networks with which we can grow our brand, and bring Sanabil to the world.
www.islamicbusinessandfinance.com
24/10/2017 18:11
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DATES FOR YOUR DIARY
4-6 December 2017
8-9 November 2017
(Homo Cosmicos/SHUTTERSTOCK)
INTERNATIONAL ISLAMIC BANKING SUMMIT AFRICA
Building on the success of our previous summits where more than 250 Islamic banking leaders from across Africa and internationally gather each year to discuss new strategies to boost trade and investment between Africa, OIC countries and the broader international markets through Islamic finance, the International Islamic Banking Summit Africa: Djibouti 2017 will be held in conjunction with the Central Bank of Djibouti. VENUE: Djibouti Palace Kempinski http://www.ethicolive.com/events/islamicbankingdjibouti/
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(trabantos/SHUTTERSTOCK)
WORLD ISLAMIC BANKING CONFERENCE
Now reaching its 24th year, the World Islamic Banking Conference (WIBC) continues to be a key date on the yearly map for Islamic financial professionals worldwide, bringing together those from across the Islamic economy to discuss the most important issues of the day as well as making landmark agreements and announcements. VENUE: Manama, Bahrain www.WIBC2017.com
29 November 2017
12 December 2017
THE ISLAMIC BUSINESS & FINANCE SOUTHEAST ASIA AWARDS
THE 12TH ANNUAL ISLAMIC BUSINESS & FINANCE AWARDS
The Islamic Business & Finance Awards have been the premiere Awards programme in the industry since their inception over a decade ago. Focusing on Southeast Asian institutions contribution to the Islamic economy, these Awards will continue that longstanding tradition. The ceremony promises to be an essential part of the calendar for professionals across Southeast Asia.
For over a decade, CPI Financial has been gathering the industry’s leaders to honour the best of the best in the field. This December, we look forward to welcoming you to Dubai in order to do it all over again. As always, it will be the must attend event of the season. Keep an eye on www.cpifinancial.net on announcements on when voting will open!
VENUE: Kuala Lumpur, Malaysia www.cpifinancial.net
VENUE: Emirates Towers, Dubai www.cpifinancial.net
Islamic Business & Finance | ISSUE 105
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www.islamicbusinessandfinance.com
26/10/2017 17:51
National Bonds Wins BEST SUKUK TRADING PLATFORM FOR 2017
National Bonds is the region’s fastest growing Sukuk Trading Platform established to support shari’a compliant financing, liquidity management and interbank placements. The platform provides conversion solutions of existing portfolios to the Sukuk Trading Platform with convenience and efficiency. The Sukuk Trading Platform is servicing institutions, ranging from Islamic banks, windows and finance houses and has already reached a Sukuk transaction value of over AED 46 billion.
24/7 Availability | Flexibility | Complete Automation with 360 MIS Reporting | Bulk Buying | Core Banking Interface | End to End Solutions
Licensed and regulated by Central Bank of UAE bleed guide.indd 1
+971 4 3848010
www.nationalbonds.ae
stp@nationalbonds.ae 24/10/2017 19:04
KIB Awards (Combined) 220x270 EN 11-10-2017.pdf
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