November 2012
Islamic Finance Bulletin
Gulf One Lancaster Centre For Economic Research
www.lums.lancs.ac.uk/research/centres/golcer/
From the Team There is probably more to feature in terms of institutional change this month than in respect of any strength in market direction. Stocks and bonds have tended relatively speaking to tread water, considering the uncertainty arising from political impasse on budgetary and financial affairs in both the US and Europe. Likewise, political transition in China has not left any sense of dynamism overcoming inertia. As weather vanes of the global economy, commodities have not inspired confidence either. More notable then, are further signs of Islamic finance’s progress in Malaysia, where merger and consolidation may build upon the sector’s advances so far, and the potential for the industry’s breakthrough in the mass market that is India. Frankly, we may wait considerably longer for the kinds of market-oriented structural reform that might stand a chance of kickstarting economic growth in the Western world, still operating a fairly one-dimensional approach to reigniting demand. And it is that missing factor which may be necessary to give conventional assets the prompting necessary to restore self-sustaining confidence. Tending still to be governed ultimately by much the same global influences, Islamic indices are likely to be similarly affected. In the meantime, the likes of copper, gold and oil prices have shown a distinctly soft side, reflecting the weakness in economic activity and outlook. If inflation picks up, however, as some policy makers appear to have noticed it might, then markets will have another cue to reckon with.
Contents HIGHLIGHTS (p.3) RECENT DEVELOPMENTS (p.4) STOCK MARKETS (p.6) COMMODITIES (p.9) BOND AND CDS MARKETS (p.11) ACCOUNTANCY ISSUES (p.14) PERSPECTIVE (p.15) DIARY OF EVENTS (p.16) Page 2
Highlights Malaysia: As a foremost centre in Islamic finance, Malaysia appears to be sustaining its momentum. Although the sector has shown a reluctance to pursue mergers between its institutions, and a shifting attitude appears to be geared to coping with cost structures, talk of tie-ups in the industry may lead to greater critical mass to compete with conventional banks. In the meantime, significant IPOs are helping to cement the country’s emerging reputation. (Recent Developments)
Oil & Gas: Conditions specific to the US economy sparked oil and gas prices in different directions within the past month. Weak economic data and the accumulation of crude oil stockpiles added to the existing level of inventory restraint on the WTI benchmark, as well as the development of shale. At the same time the devastation brought by Hurricane Sandy applied the opposite pressure to prices already elevated by the onset of the winter season. (Commodities)
India: Discussions between the government and central bank, following other meetings between and reports by national bodies, suggest that India is making steps towards accommodating the Islamic model within its general banking system. Investigations so far seem to suggest that decisive steps towards such a breakthrough in financial provision would involve adjustment to taxation rather than banking laws themselves. (Accountancy Issues)
Page 3
Recent Developments in the Islamic Finance Industry Malaysia’s Islamic banks seek consolidation While Islamic banks since their inception have shown reluctance towards merging, recently it has become clear that they are now ready for that evolution in Malaysia, one of the biggest hubs of Islamic finance. For example, Bank Muamalat Malaysia Bhd is in the process of approving an M&A deal for US$143.6bn. Islamic finance in Malaysia has shown substantial growth, now accounting for 23.7% of total banking assets. The current calls for M&A in Islamic banking result from the need to cope with rising operational costs, and the insufficient professional experience of some Islamic bank managers for running operations successfully in compliance with Shariah. Islamic banks in the past have opposed the idea of M&A, fearing a loss of control, as the sector discourages risk-
will eventually be more profitable to shareholders and investors in the medium and long terms. That idea taps into the fear and experience of investors and depositors losing capital, as well as the substantial demand for ethical banking. Islamic finance principles are essentially identified with their ethical and moral dimensions. Source: AMEinfo.com, October 28th
taking.
World Bank and IDB sign Islamic finance deal
From GOLCER’s point of view, we find this step
A three-year agreement between the World Bank
a remarkable initiative that will tend to create conglomerates of Islamic banks, with the prospect of matching or outperforming conventional banks, given the current fierce competition
and the Jeddah-based Islamic Development Bank (IDB) has been signed to share expertise in Islamic finance as well as study its impact on developing economies. The IDB comprises 56 member coun-
between the two banking sectors.
tries. The bank seeks to provide financing, loans
Source: Arabian Business News.Com, October
paths which are consistent with Shariah. Under this
18th
deal the two bodies will cooperate to investigate
ADIB promotes global ethical business Abu Dhabi Islamic Bank (ADIB), a top-tier
and technical assistance promoting developmental
issues in Islamic finance related to areas such as financial stability as well as promote best practices in the industry.
Islamic financial institution, has engaged in marketing Islamic finance as an ethical and sus-
GOLCER takes the view that, since Islamic finance
tainable business model worldwide. The bank
and banking is expanding tremendously nowa-
was exclusive sponsor at the inaugural episode
days, studying this phenomenon in terms of its
of ‘Faith in Finance’, a new six-part series
stability and its financial as well as social contribu-
launched by Bloomberg TV. The programme
tions to the public has become essential. We also
emphasized the view of Islamic banking as not
consider that this collaboration is likely to have a
only an ethical business model but one which
massive impact on industry practice in the near
Page 4
future, given the recent trend toward adopting
ic banking instruments. It is also likely to convey
Islamic finance in many countries like Egypt, Libya
positive signals to different parties as stakeholders
and Tunisia.
in the banking sector.
Source EIN news, October 18th
Source: Reuters, October 21st
Islamic finance struggling in Azerbaijan
IILM hires new chief executive
Existing policies in Azerbaijan towards Islamic
The International Islamic Liquidity Management
finance, particularly by the government, show an
Corp (IILM), backed by central banks located
obvious fear from the political perspective about
mainly in Asia and the Middle East, has ap-
expanding this sector. Over recent years sever-
pointed a new CEO ahead of its first issuance of
al banks in Azerbaijan have offered a limited range
Sukuk of $300 to $500 million within the next few
of services along Islamic principles. The coun-
months. The main rationale of this company is
try’s largest bank, considered a public bank, has
to help Islamic banks in managing their liquidity,
opened an “Islamic window” providing finance to
as well as facilitate liquidity across the industry’s
small companies. A limited number of conventional
Islamic instruments. IILM has faced a challenge in
banks are allowed Islamic windows. There are no
promoting compliance with Islamic laws among
banks operating purely as Islamic institutions.
members in the participating countries. The
The Azerbaijan government is reluctant to take the
members include monetary authorities in Indone-
critical step of stipulating legislation to regulate the
sia, Iran, Kuwait, Luxembourg, Malaysia, Mauri-
industry and aid its expansion, as well as enable
tius, Nigeria, Qatar, Saudi Arabia, Sudan, Turkey
the issuance of Sukuk (Islamic bonds). That stance
and the United Arab Emirates, as well as the
is attributable to fears that Islamic finance could en-
Islamic Development bank and the Islamic Corpo-
courage Islamist politics in a country in which 93%
ration for the Development of the Private Sector.
of the population are Muslims. Source: Reuters, October 16th
Source: Reuters, October 19th
Dubai’s Emicool signs $216 million Islamic loan A joint venture between Dubai Investments and Union Properties, Dubai-based Emirates District Cooling (Emicool), has signed a 793 million dirham ($216 million) Islamic loan guaranteed by both parents. The 10-year credit facility has been structured according to Shariah requirements. Its purpose is to refinance a 668 million dirham bridge loan and other facilities to finance the construction of cooling plants within the emirate. GOLCER finds that this substantial loan is likely to set an obvious lead in increasing demand for Islam-
Page 5
Stock Markets With sentiment preoccupied with worries over the US fiscal cliff and continuing recession and tensions in the Eurozone, markets worldwide were fairly gloomy in October. The US has little time to solve its budgetary dilemma. As the Financial Times explained, if by this year-end the US government doesn’t come up with a resolution, then the economy will be hit by a USD 600 bn tax increase and USD 100 bn spending cut which would threaten another recession in the first half of next year, GDP projected to contract by 4%.
2.6% owing to more country specific factors. A
Taxes would penalize dividends and capital gains,
tense socio-political situation and related pro-
and spending cuts would affect those companies
tests damaged investor sentiment. The Oman
which depend on the state sector the most, namely health care and defence contracting.
index rose by 4.8% on the month upon increased
GCC
market.
oil production and rising demand from the Asian
Markets in the GCC region were mixed. Saudi
MENA
Arabia, Kuwait and Bahrain closed in the red while Oman, UAE and Qatar showed positive returns. With
The Centamin verdict in Egypt outweighed the
trading being very thin owing to the religious holi-
hopes of foreign investors as to the long awaited
days, much of the stock movements were based on
billion dollar loan from the IMF. The Egyptian
global headlines, tending to the negative. Moreover,
court suspended the operations of the foreign
the IMF has warned the GCC countries to cut back on
company, which ran a gold mine in Egypt, citing
their state spending, predicting deficits in the next five
irregularities in the renewal of its contract. The
years. Should a deep recession hit the world econo-
Egyptian index dipped by 5.2%, while the Leba-
my, oil prices would plunge and oil producers would
nese index fell by 2.6% as a result of a sluggish
be the most affected. The UAE’s index rose by 4.2%
economy over the past several months. Figures
after HSBC’s PMI index climbed through the 50 mark,
showed the country’s trade deficit expanding by
reflecting non-oil sectors, and Fitch Ratings suggested
13.9% year on year during the first nine months of
a strong start for the retail and hospitality industry in
the year.
Dubai in 2013. However, the Kuwaiti index fell by
96.5
68
MENA
920
97
360
900
350
Islamic Index
67
95 94.5
66.5
94 66 65.5 01−Aug
Page 6
93.5 19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
93
Egypt Islamic Index
Correlation (1 mth) 0.976836 95.5
67.5
Conventional Index
96
880
340
860 330
840
Correlation (1 mth) 0.2244
820 800 01−Aug
19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
320 310
MENA Aggregate Index
GCC
68.5
Far East
as a whole, the Taiwanese index fell by 6.7%. In spite of a pick-up in demand from the UK and US, the Taiwanese economy has struggled with tepid domestic consumption. The trimming of growth forecasts by the government is
Malaysia Islamic Index
computer company Acer and the tech industry
380 375
1.15
The Far Eastern region also showed mixed results in October. Dragged down by the
Far East
4
365
1.14
360 1.13
355 350
1.12 1.11 01−Aug
said to have restrained spending in the coun-
370
Correlation (1 mth) 0.117483 345
19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
Aggregate Far East
1.16 x 10
340
try, while analysts claim there is room for either monetary or fiscal support to create demand. 1480
up by 3.0%, amidst thin trading during the religious holidays as a result of increased hopes of improvement in the Chinese economy. Capital diminishing unsold inventories projected an upswing in activity.
S&P 500
Economics reported that increased orders and
Rest of the World As part of a territorial dispute between the two trading giants, Japan’s stocks were hit
680
1460
670
1440
660
1420
650
1400
640
1380
Correlation (1 mth) 630 0.64223
1360 01−Aug
last month upon lower exports into China.
World Conventional Benchmarks
19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
Euronext 100
The Indonesian index closed positively, moving
620
Meanwhile, weaker earnings led to the Japa2400
the other hand saw a gain of 4.1% as its PMI reached a level of 50.2, indicating a potential
by 0.4%. India’s index fell by 4.9% as the RBI (central bank) announced it would hold the repo rate steady, and no further action would be taken until 2013. The real estate and banking sectors in the country have taken a hit recently.
DJ Islamic Index
to a sympathetic rise in the Hong Kong index
1750
2350
escape from the slowdown, and an associated lift to investor confidence. This also led
World Islamic Benchmarks
1700
2300 1650 2250 2200 2150 01−Aug
Correlation (1 mth) 0.991131
19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
1600
FTSE Shariah World Index
nese index falling by 0.7%. China’s index on
1550
Source: GIC, Banque Audi, Gulf Base, Ahram Online, Financial Times, Reuters
Page 7
Islamic Stock Markets Islamic or Shariah compliant indices exclude industries whose lines of business incorporate forbidden goods or where debts/ assets ratios exceed 33%. The increasing popularity of Islamic finance has led to the establishment of Shariah compliant stock indices in many stock markets across the world, even where local Muslim populations are relatively small, such as in China and Japan.
Evolution of Islamic Stock Markets in October 2012 for GCC, Far East, Middle East North Africa (MENA) and Rest of the World markets. Prices represent the closing price of the respective index at 31/10/2012. Percentage Month-to-Month (MTM) Change and percentage Volatility. Source: Datastream
Conventional Stock Markets
Volatility is a measure of uncertaincy of market returns. It is calculated as the standard deviation of the returns in the reported month. The formula for the standard deviation is: Ďƒ=E[(X-Îź)2]1/2
Evolution of Stock Markets in October 2012 for GCC, Far East, Middle East North Africa (MENA) and Rest of the World markets. Price represent the closing price of the respective index at 31/10/2012. Percentage Month-to-Month (MTM) Change and percentage Volatility. Source: Datastream
Page 8
Commodities Overall a decline in commodity prices was seen in October as a result of falling global economic optimism and rise in supply levels.
120
Crude Oil
115 110
went on a selling spree after the announcement of weak US corporate earnings, implying a softening of demand,
USD/barrel
WTI prices remained stable during the first half of the month but dropped swiftly towards the end. Investors
Crude Oil
105 100 95
which led also to a decline in other commodity markets.
90
Concern arose also about the US’s ‘fiscal cliff’, threaten-
85
ing simultaneous spending cuts and tax hikes. Moreo-
Brent Oil Dubai Oil WTI Oil
80 01−Aug
ver, the US government reported larger than expected
19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
12−Oct
30−Oct
crude oil stockpiles towards the month’s end. According to Department of Energy data, the rise in inventories was prompted by the increase in shale oil delivery. This stockpile boom has weighed on WTI prices in particular as compared to other global oil price indices. While WTI
3.6
fell by 7.4%, the Dubai and Brent benchmarks fell by
US, meant that Henry Hub gas prices closed with an
USD/MMBTU
Hurricane Sandy, which pummelled the East Coast of
Natural Gas
3.4
3.9% and 2.6% respectively.
Natural Gas
Natural Gas
increase of 10.5% in the last week of October. That shift
3.2 3 2.8
was the result of the destruction of refineries, pipelines and distribution terminals. A price rally had already
2.6 01−Aug
been in place prior to the hurricane owing to a sea-
19−Aug
06−Sep
24−Sep
sonal effect of forecast colder weather. However, the US Energy Information Administration reported a rise in 1800
out prices in the coming weeks.
Gold falling by 6.2% on the month as the dollar advanced and curbed the demand for the precious metal as a pre-eminent alternative investment. The sell-off in oil markets also translated across to gold. Weak global cues, especially a slowdown in the Chinese economy, combined to contribute to the slide. Firmer economic growth and higher resulting incomes across markets that collectively need to
2400
Precious Metals Index
2350
1750 USD/Troy Ounce
Gold prices declined to a six-week low in late October,
Gold
2300 2250
1700
2200 1650
2150 2100
1600
2050 1550 01−Aug
19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
Precious Metals Index
working natural gas in storage which is likely to flatten
2000
take stock of gold’s escalation so far will need to be seen for those markets to extend their medium-term run.
Page 9
Copper Concerns about growth in China and the failure of its fiscal stimulus have led to falls in metal prices. Cop-
8400
per, seen as the bellwether among metals in gauging
8200
7800
3400 3300
7600
biggest producer, and the International Copper Study
3200 7400
Group forecasts a further 6.4% rise in 2013, which would be the fastest rise since the 1990s.
3100
7200 01−Aug
19−Aug
06−Sep
Sugar
by 4.3% on the month. Even so, the significant rise in
and the prospective crop. Besides weather-related reasons, the ‘ethanol-parity’, the price at which it’s
Agriculture Aggregate Index
3000
620 610
22 USD cents/lb
support level, owing to uncertain Brazilian weather
30−Oct
22.5
the first half of October, helping to push down prices sugar supply has not driven prices below a certain
12−Oct
Sugar
23
Brazil showed strong output in sugar production during
24−Sep
more profitable to convert sugarcane into ethanol,
600
21.5 21
590
20.5
580
20 570
19.5
provides a safety net for prices.
Metals Aggregate Index
3500
19 01−Aug
19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
560
Agriculture Aggregate Index
to decline further. Output has surged in Chile, the
3700
8000 USD/MT
coupled with rising production, the metal seems likely
3800
3600
the state of the global economy, fell by 3.6% in October. With the biggest consumer struggling, a factor
Copper Metals Aggregate Index
Palm and Soybean Oils Palm & Soybean Oil
1050
October, by 6.8% and 0.9% respectively. In fact the
17.5
1000
17
to the exceptionally good soybean harvest earlier this
950
16.5
900
16
850
15.5
800
15
month, as well as to a rising yield of palm oil itself. An exceptionally good harvest led to the drop in soybean prices, but higher demand from China provided offsetting support. Source: Financial Times, Natural Gas Weekly Update, US EIA, Commodities Monthly Report, ITAU BBA.
Palm Oil (USD/MT)
recent drop in palm oil prices can be partly attributed
Soybean Oil
750 01−Aug
19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
Evolution of highly traded commodities in October 2012. MTM Change and Percentage Volatilities. US $ and US c indicate United States Dollar and United States cent repsectively. bbl = billion barrels, MMBTU = Million British Thermal Unists, MT = Metric Tonne, LB = Pound and Bsh=Bushel. Prices represent the price of the respective commodity at 31/10/2012. Source: Datastream
Page 10
14.5
Soybean Oil (USD/Bsh)
Palm oil and soybean oil prices continued to fall in
Bonds and CDS markets As a proxy for the Gulf, sentiment in the Bahraini
Egyptian bond market yields broke through 6% in
bond market remained positive in October, with
October and closed at 5.7%. Sentiment was largely
sovereign yields closing the month at around 4%.
unaffected by the court’s ruling in the Centamin
The regional outlook remains positive, with encour-
case, which stripped the company of its licence to
aging infrastructure programmes planned, and bond
mine gold in a move that could potentially harm
issuances from corporations in Bahrain (Investcorp)
inward investments. The country has managed to
and Qatar (Qatar International Islamic Bank) primar-
secure oil supplies for the rest of the year, something
ily, but also from the Islamic Development Bank. The
that has been a concern since the 2011 revolution;
economies of the Gulf are perceived as having a
foreign suppliers seem to be willing to do business.
favourable economic environment because of firm oil
However, the fact that bond yields remain at early
& gas prices, which have led to some discussion of a
September’s level suggests that the IMF reconstruc-
reconsideration of the US dollar peg, and by impli-
tion plan has met with a continuing scepticism.
Bahrain Bond Yields & Prices
7
134
Egypt Bond Yields & Prices
240 235
132
4.5
128 126
4
Yield to Maturity (%)
130
Bond Index
Yield to Maturity (%)
5
124 3.5 01−Aug
19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
122
6.5
230 225
6
220
Bond Index
5.5
215 5.5 01−Aug
19−Aug
06−Sep
24−Sep
12−Oct
210
30−Oct
As global benchmark, average US sovereign bond
Average sovereign bond yields in Malaysia moved
yields had an upward but fluctuating trend dur-
sideways during October, initially rising before trend-
ing October, closing at 1.7%. While the fiscal cliff
ing down and closing at 1.8%. The early setback was
remains to be confronted, Europe’s difficulties too
associated with the continuing slide in palm oil prices
have helped generated a certain amount of vola-
that has caused trouble in the Malaysian economy
tility. Whereas some days that crisis seems more
as Indian importers have delayed their purchases.
or less under control, by the eurozone’s financial
However, the Malaysian money market is gaining in
commitments and arrangements, on other days
reputation, and aims to gain traction compared to
the implausibility of peripheral countries’ recovery
those of China and Japan, as large IPOs take place
under current strictures presents a challenge to
in reflection of the stability and regulatory effective-
market mood. Civil disturbances have been recur-
ness of the country’s authorities. Astro Malaysia’s
rent, sparking the view that in fact the crisis might
$1.5bn issue in October, following the $2bn issue
be far from over. There is also the notion supported
of Felda back in June (the second largest IPO in the
by many analysts that issuers need to take advan-
world) has helped establish the country on the market
tage of the bond market as these conditions are
map. Moreover, liquidity-laden pension funds eager
too good to last, implying that danger has not been
to invest in bonds solidify that equation, verifying
fully factored into prices.
275
Yield to Maturity (%)
273
2.1
272 2
271
1.9 1.8 01−Aug
270 19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
269
Yield to Maturity (%)
274
2.2
US Bond Yields & Prices
159 158
1.8
Bond Index
2.3
Malaysia Bond Yields & Prices
1.9
157
1.7
156 1.6
155
1.5 1.4 01−Aug
Bond Index
Malaysia as among the elite of bond markets.
154 19−Aug
06−Sep
24−Sep
12−Oct
30−Oct
153
Source: GIC Research, Bloomberg, The Malaysian Insider
Page 11
Sovereign Bond Markets
Evolution of Bond Markets in October 2012 relative to the previous month. The table reports the price index on which the MTM Change is calculated (month-to-month) and the Yield of sovereign bond maturities typically between 6 months and 25 years. Data as at 31/10/2012.
Credit Default Swap Markets A Credit Default Swap (CDS) is designed to transfer the credit exposure of fixed income products between parties. A CDS is also referred to as a credit derivative contract, where the purchaser of the swap makes payments up until the maturity date of a contract. The buyer of the CDS makes a series of payments (the CDS “fee” or “spread” quoted in basis points) to the seller and, in exchange, receives a payoff if the loan defaults. Riskier economies will have higher CDS “spreads”. The CDS spread can be more informative on the risk of the country as the CDS market is more liquid than the bond market. Evolution of CDS Spreads in October 2012 relative to the previous month. The index reported here represents the average basis points (bp) of a 5-year CDS for protection against sovereign bonds. Data as at 31/10/2012. MTM Change refers to the change relative to the previous month.
Page 12
Islamic Bonds (Sukuk) Despite a lull in the GCC money markets towards the end of the month due to Eid holidays, the fixed income Sukuk market sustained its upward trend and closed higher on the month. The HSBC/ NASDAQ Dubai US Dollar Sukuk Index rose from 143.68 to 145.02. Spreads tightened by 22bps (Sukuk over LIBOR), yielding 2.86%. Investors cited many factors fuelling the trend. Global market conditions -- specifically the Euro fiscal crisis -- are having particular effect, with rates likely to continue decreasing as central banks pump money into their economies, encouraging investments in markets with higher yields but offering apparent, relative safety with the backing of healthier finances. A drop in Islamic bonds’ borrowing costs is said therefore to be liable to continue, as nervousness develops over global growth. A lack of supply in primary markets and strong demand, along with improving liquidity and increasing appetite for Sukuk among Middle Eastern institutional investors, is likely to offer continuing market support in the near future.
Sukuk is the Arabic name for financial certificates, but commonly refers to the Islamic equivalent of bonds. Since fixed income, interest bearing bonds are not permissible in Islam, Sukuk securities are structured to comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and nontradability in the secondary markets.
Page 13
Accountancy Issues Rules and Regulations IFSB revises capital adequacy standard The Islamic Financial Services Board (IFSB) has issued new draft guidelines on capital adequacy for Islamic banks and the risk management practices of takaful (Islamic insurance) companies. The original standard was issued in December
the Islamic banking model than ever before. Source: EIN News, October 16th
Tunisia’s calls for Islamic finance have political echoes
2005, based on Basel II regulations currently
Following several attempts, and prolonged secular
applying to banks around the world. In line with
rule, Tunisia’s government aims to develop Islamic
the future adoption of the Basel III standard, the
banking in the country. However, concerns have
IFSB’s new guidance aims to elaborate on the
been raised that it might have political rather than
issue of the composition of capital in relation to
economic motives behind this initiative. With re-
Sukuk. A draft of the IFSB’s new guidelines was
cent interest targeted at accessing the huge pool of
due to be issued in the first week of November for
Islamic investment funds from the Gulf, the contro-
public consultation.
versy in Tunisia has some political complications.
Source: Reuters, October 30th
RBI looks at encouraging Islamic banking Discussion and debate around the issue of applying an Islamic banking model have been raised by the central bank and the finance ministry, seeking to identify the rules needed to converge to practices in line with Shariah law. The Reserve Bank of India (RBI) governor has been engaged with the government on how existing laws can be restructured or amended. The finance ministry recently requested the RBI to examine the possibility of making the interest-free model part of India’s Rs 75 trillion banking system. That was followed by an RBI meeting with the National Commission for Minorities (NCM) to study the proposition of Islamic banking. A National Committee on Islamic Banking (NCIB) report has indicated that it is not necessary to change banking laws to implement interest-free products, but that tax laws would need to be changed. GOLCER believes that India is closer to applying
Page 14
Delays in developing the basis for Islamic finance in Tunisia are attributable to the severe competition from conventional banks. At the same time, the accusation has arisen that this development is designed to attract support and head off any challenge from Islamists in parliamentary elections expected next year. Source: Reuters, October 10th
Perspective Markets struggle with a dysfunctionally integrated world by Andrew Shouler
down further or speeding up again -- have taken on
Any view of international financial and commodity mar-
an unprecedented degree of importance to the rest of
kets, as we carry in this bulletin, comes face to face with
the planet.
the fact of global interconnectedness.
Indeed the country’s claim on resources and every-
Just as developing Islamic indices remain related to
one’s attention is likely only to be accentuated, as a
conventional counterparts which have already reached
simple function of population trends, let alone devel-
maturity -- visibly both in stock and bond markets, so
opmental surge.
the traditional instruments around the world in those categories still relate back to the default benchmarks.
Among other things, it is regrettable, therefore, that China’s growth impetus hitherto has been unsustain-
Although market behaviour in recent years has been
ably imbalanced towards overinvestment, leading
distorted by the experience of the financial crisis, and its
inevitably to booms and busts that will, also unavoid-
inducement of risk-on/risk-off patterns, what happens in
ably, cast doubt over the momentum in international
the dominant US dollar and euro markets still provides a
trade.
critical lead to the rest of the world, especially when the news in those crucial arenas is of fundamental importance.
Key regions of relevance to this publication, such as the Arabian Gulf, will be highly dependent on such overarching international trends for as long as their
So America’s so-called ‘fiscal cliff’ budget challenge,
economic output is export-oriented and their indig-
and Europe’s own damaging budget rift, and especially
enous consumption and investment are underde-
its laboured but hugely significant steps towards fis-
veloped by comparison, even though that’s been a
cal and banking union, have overshadowed markets’
natural product of historic development based on an
mood, particularly as the prospect of any convincing
overwhelming resource endowment in oil and gas.
upturn in the global economy appears to be lacking.
Indeed, in current circumstances it may be that oil
Many would prefer to draw upon more promising signs
prices might actually need to be lower precisely to get
from the East, rather than be subdued by the West’s
the world economy moving faster again -- the clearest
growing sense of inertia, and resulting slow growth.
demonstration of the state of interdependence.
The trouble, however, is that much of Asia’s dynamism has followed the recycling of its payments surpluses into its’ customers’ debt load, limiting, at least according to that mercantilist model, its own ability henceforth to continue to grow at its relatively breakneck pace. China is the prime example, of course, and our reference to the weakened state of the copper market, for example, is a direct reflection of a slowdown in world growth that is responding as much to the difficulties of the emerging economies as to the well-established locomotive blocs of the past.The latest Chinese economic data – indicating whether the juggernaut is slowing
It may also be that without some policy reinvention in both hemispheres, markets will reflect only moderate outlooks for rates of economic activity, while, it seems, having to worry more about inflation than a high proportion of mainstream economists had imagined. Just as the Gulf states should probably not re-live the 1970s in terms of recycling their petrodollars unproductively abroad, equally, reacquainting with the stagflation of that era is not the most promising future for sustained market performance in any asset class.
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Diary of Events February: 14-15, 2013 Kuala Lumpur, Malaysia ICIBFC 2013: International Conference on Islamic Banking, Finance and Commerce The XXXIV International Conference on Islamic Banking, Finance and Commerce aims to bring together leading academic scientists, researchers and scholars to exchange and share their experiences and research results about all aspects of Islamic Banking, Finance and Commerce, and discuss the practical challenges encountered and the solutions adopted. More Information: http://www.waset.org/conferences/2013/kualalumpur/icibfc/ March: 11-12, 2013 Lahore, Pakistan Global Forum on Islamic Finance (GFIF) 2013: COMSATS Institute of Information Technology Lahore, Pakistan is hosting Global Forum on Islamic Finance with the collaboration of Lancaster University UK to provide an opportunity to share latest developments among scholars from around the globe in the field of Islamic finance. The theme of the Conference is “Islamic Finance: New Realities, New Challenges�. The GFIF will consider the political and socio-economic developments and their likely effects on Islamic financial institutions. Contact: Dr. Yahya Rashid COMSATS Institute of Information Technology, Lahore, Pakistan. islamicfinance@ciitlahore.edu.pk More Information: http://www.inomics.com/economics/conferences/2012/9/6/global-forum-islamicfinance-gfif-2013 March: 17-18, 2013 Muscat, Oman Oman Second Islamic Banking and Finance Conference: Oman Second Islamic Banking & Finance Conference is to take place on the 17th & 18th of March 2013 at the Al Bustan Hotel in Muscat, to shed light on latest developments in the banking industry of the Sultanate and explore outlook and challenges of implementing Islamic banking. Contact: OIBF@iktissad.com More Information: http://www.iktissadevents.com/events/OIBF/2 Training Courses: GOLCER Training Courses in Finance, Management and Statistics: More Information: http://www.lums.lancs.ac.uk/files/coursesnew.pdf
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Marwan Izzeldin Director m.izzeldin@lancaster.ac.uk
Research Team Gerry Steele g.steele@lancaster.ac.uk Vasileios Pappas v.pappas@lancaster.ac.uk Rhea George r.george@lancaster.ac.uk Marwa El Nahass m.elnahass@lancaster.ac.uk Andrew Shouler a.shouler@lancaster.ac.uk
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