Saturday, 26 July 2014

Event Summary (KLCIF2014) - KL Conference on Islamic Finance 2014

KL Conference on Islamic Finance 2014

Date    : 26-27 August 2014
Venue : Grand Seasons Hotel, Kuala Lumpur - Malaysia

“An international gathering of practitioners, scholars and experts to discuss and share their knowledge, expertise and experience on the principles, instruments and issues related to Islamic finance, to be held at the world’s leading Islamic financial centre…Kuala Lumpur.”

Event site :

- Product development and Implementation of Islamic financial products
- Ensuring Shariah compliance in Islamic financial instruments
- Sukuk: development, issues and challenges
- Islamic gold account: a golden opportunity
- Islamic mutual funds (unit trusts): factors to consider in making an investment
- The rise of Islamic wealth management in Islamic finance industry
- Islamic financial planning: success in both worlds
- Takaful: innovation and solutions
- Enterprise risk management for Islamic banks
- Enterprise risk management for takaful operators
- Accounting and auditing
- Human capital development in Islamic finance industry
- Legal issues and challenges in Islamic finance
- Dispute settlement in Islamic finance: issue and solutions
Islamic ethics in financial services industry
- Corporate governance for Islamic finance industry


Speakers are selected from Islamic banks, takaful operators, academicians, legal practitioners, consultants, regulatory bodies.

Among the speakers are:

- Islamic bankers/bankers
- Takaful/insurance operators
- Regulators
- Head of governmental departments
- Financial planners/wealth advisors
- Financial consultants
- Legal practitioners (lawyers)
- Academicians (lecturers)
- Entrepreneurs (businessmen/importers/exporters etc)
- Other professionals 

Early Bird Fee: 
Registration with payment by 21 July 2014
Malaysian   :  RM1,500
International  :  USD600

Normal Fee:
Registration with payment after 21 July 2014
Malaysian  :  RM1,800
International  :  USD700
Special fee for Malaysian university lecturers :  RM1,000 (group discount not applicable)

Fee is inclusive of lunch, refreshments and seminar package only.

Group Discount:
Enjoy 20% discount for third and subsequent delegates registered from the same organisation and the same billing source.

(will be uploaded soon...for now you may request for tentative program or you will be given a tentative program when register online)

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Grand Seasons Hotel, Kuala Lumpur - Malaysia


Kuala Lumpur


Luxembourg Sukuk Bill Adopted

On 9 July 2014, the Luxembourg Parliament has adopted the bill of law 6631 on the sale and buy back of real estate assets compulsory for the issuance of a sovereign Sukuk in an amount of Euro 200 million.

To this end, a Luxembourg SPV will be created and will be fully owned by the Luxembourg State. Such SPV will purchase three main buildings located in Luxembourg and will benefit from a guarantee from the Luxembourg State.

The SPV will issue Sukuk and lease back to the Luxembourg government the underlying real estate assets for a duration of 5 years corresponding to the duration of the Sukuk. The rental income to be received by the SPV, equivalent to the periodic amount to be paid to the Sukuk holders, will be used for such purpose in compliance with Sharia.

The enactment of such law by the Luxembourg legislator demonstrates a strong and clear political will to diversify and develop alternative markets such as Islamic Finance within the financial services industry in the Grand-Duchy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

(Mondaq / 24 July 2014)
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Islamic financing to overtake conventional banking in Kuwait Finance House (KFH)

An increasing number of Kuwaiti lenders are moving away from traditional banking in a bid to tap into a booming market for Sharia-compliant financial products in the region -- a move that could soon see Islamic financing overtake conventional banking in the Gulf state.
Commercial Bank of Kuwait (CBK) is the latest to unveil plans to turn into a fully-fledged Islamic institution. CBK announced in July that it had received regulatory approval to issue up to KD120m ($425.16m) in bonds in preparation for the transition, which received the approval of 85% of its shareholders in April. The move by CBK, to be completed by the end of 2014, will help Kuwait cement its position as a provider of Sharia-compliant products and services. There are already five other Kuwaiti Islamic banks; Kuwait Finance House ( KFH ), Boubyan Bank, Al Ahli United Bank, Kuwait International Bank, and Warba Bank, which was established in 2010. This compares with four conventional banks.Kuwait's Islamic banking assets grew by 8.7% during the first nine months of 2013, reaching KD22.5bn ($79.7bn), while Islamic financing grew by 11.2% to hit KD13.5bn ($47.8bn) during the same period, reported in The Banker in April. This exceeded the growth rates in the overall banking sector, which saw a 7.1% growth in assets and a 7.5% growth in loans between January and September. 

This move toward Islamic banking follows a broader regional and indeed global trend. Islamic finance industry's assets worldwide are estimated to have grown 18.6% annually to reach $1.8trn at the end of 2013, according to KFH Research, which projects that total Islamic financial assets will reach $2.1trn globally by 2015. The Sharia compliant sector has expanded rapidly within Southeast Asia and the Gulf Cooperation Council (GCC), whose assets accounts for more than a third of the worldwide total according to KFH . Other banks in this region are also looking to make the switch to Islamic banking. Malaysia's Agro Bank plans to convert to Islamic banking by 2015 while the country's SME Bank is planning a full conversion by 2018 according to Reuters. In Pakistan, Faysal Bank and Summit Bank are mulling similar plans. 

LargestIn Kuwait, the sector's history goes back to 1977 with the establishment of KFH Group, Kuwait's largest Islamic bank. For the last three years to end-2013, KFH total assets grew at a compounded annual growth (CAGR) rate of 8.8% to reach KD16.1bn ($57.2bn).CBK, the state's fifth-largest lender by assets, is following in the footsteps of both Boubyan Bank and Ahli United Bank (AUB) Kuwait in converting from a conventional lender, drawn by the sector's rapidly rising popularity and promising outlook for growth, which continues to outpace that of conventional lenders. According to Reuters, CBK's conversion will increase Islamic banks' market share in Kuwait above an estimated 40%. AUB Kuwait, (formerly known as the Bank of Kuwait and the Middle East) posted a record $579.4m in net profit in 2013, a 72.6% increase over 2012's $335.7m, which Deputy CEO Ahmed Zulficar attributed to the switch to Islamic Banking: "Since the bank's conversion to Islamic banking, our performance has improved". 

(Zawya / 24 July 2014)
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Thursday, 24 July 2014

Takaful Insurance Vs Conventional Insurance

From the onset Takaful insurance is like mutual insurance, the only difference is that there is investment condition and Shariah compliance in Takaful operation whereas there is none in mutual insurance. The whole idea of Takaful operation is borne out of the objective of Shariah (Maqasid al Shariah) which suggest that a Takaful participant is consciously fulfilling a moral obligation for the betterment of the society in order to achieve public good (Maslaha) regardless of the religious backgrounds of participants in the scheme. This idea also means that Takaful operation has some basic attributes that are at variance with conventional insurance practice. Therefore, the main differences between conventional insurance and Takaful practice are described as follows: (1) Contract difference: Takaful operation is based on mutual assistance agreement and a combination of donation (Tabarru), agency (Wakala) and or profit sharing (Mudaraba) contract between the operator and participants which is unlike the conventional insurance operation that is entirely based on sale and purchase contract between the insurer and the insured. However, a typical Takaful contract is determined by the chosen business model as described below. (2) Mutual Contribution and Donation (Tabarru): Takaful is also a contract based on mutual contribution by the participants rather than the conventional idea of sale or purchase contract between policyholders and insurers. The aspect of donation is treated in the Takaful contract agreement where each participant willfully relinquishes a certain proportion of his contribution to assist others in the scheme. (3) Ownership of Contribution by the Participants: Takaful operators make use of participants contribution only for the intended purpose of “joint guarantee” while in conventional insurance the operator use the premium paid by policyholders in investments in order to suit his shareholders needs. (4) Share in Profit and Surplus: Takaful participants have a share in the surplus and profits of the risk and investment funds respectively based on a pre agreed ratio between the operator and the participants while in conventional insurance policyholders have no share in the business of the company. (5) Moral obligation to the society: Takaful participants contribute to the scheme as part of fulfilling or adhering to the injunctions drawn from the Qur’an that says “Help one another in goodness and piety but help not in sin and transgression” (Holy Quran 5:2) while in conventional insurance the insurer is driven by the desire to make profit for his company without any moral restrictions. (6) Investment of Funds: Takaful operator is strictly guided to invest his funds in accordance with the provisions of Shariah and that of prudential requirements whereas the conventional insurance operator is guided by prudential requirements only. This further indicates the existence of multiple regulatory layers. Hence, a Takaful Operator is both regulated by the appropriate government authority in the country of its operation in terms of technical soundness and also the advisory council of experts (ACE) to ensure or guide its operation towards adhering to the business ethics of Islamic law (Shariah), while a conventional insurer is only regulated by the laws of the country of its operation without adhering to any divine laws. (7) Treatment of Risk: Risk is always shared by the participants of Takaful contract as opposed to the idea of risk transfer practiced by the conventional insurance. This makes it even difficult to differentiate between an insurer and the insured in Takaful scheme since the risk fund is owned by the participants whereas the operator is only a fund manager and not a risk bearer. (8) Classification of Business: The classification of Takaful business is on Family and General rather than Life and General Businesses as practiced in the conventional type. The idea of applying the concept of Family class of Takaful business as opposed to the Life business is to inculcate family solidarity investment strictly in line with the Shariah provisions on inheritance. Therefore, the beneficiaries of family Takaful scheme should only be the rightful inheritors of the participant in accordance with Islamic law. This rule is only applied to Muslim participants whereas non Muslim participants are free to appoint their chosen recipient(s).
Takaful Business Models
It is interesting to note that this year marks the 30th anniversary of the advent of the pioneering Malaysian Takaful Act which gave credence to the emergence of the first full pledged Takaful operator Syarikat Takaful Malaysia (STMB) in 1984. Since then Takaful is increasingly taking the center stage of the interdependency circle of global financial market players. It is on record that by the end of 2013, the global Takaful market players have rapidly grown to constitute more than 200 operators.
Takaful operations are widely centered on four business models as follows: (1) Mudharaba Model (Profit sharing business): According to Maulana Taqi Usmani “Mudaraba is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called Rabb-ul-mal (owner of fund or asset) while the management and work is an inclusive responsibility of the other, who is called Mudarib (fund or asset manager)” However, in Takaful business operation, the entire investment is provided by the participants as contribution from the owners of fund (Rabb-ul-mal), while the Takaful operator manages the investment as fund managers (Mudarib) in a Shariah complaint manner. In this model profit is shared among the two partners (both Takaful contributor and operator) while loss is only borne by the contributors alone. If there is deficit in the risk fund, the Takaful operator is expected to inject money through an interest free loan (Qard Hasan) arrangement to settle claims. (2) Wakala Model (fee based agency): This model is somewhat similar with Mudaraba only that in wakala the investor (Rab-ul-mal) pays a performance fee to the Takaful operator without sharing in profit nor loss in the Takaful business. This means that the operator is only acting as agent to the contributors for a fixed fee. Similarly, in Wakala model the operator also provides interest free (Qard Hasan) loan to the deficit in the participants fund but only receives administrative charges for the loan (3) Wakala-Mudharaba Model (Hybrid Takaful business): This is also referred to as the mixed model where the operator receives a moderately low agency fee from contributors for managing underwriting operations and also acts as the fund manager for investing participants Takaful Fund where he shares in the profit gained from the investment. (4) Waqf Model (Endowment trust business):
This is a type of model where both the operators and the contributors are totally not expecting any profit because the idea of Waqf is same with public foundation directed and targeted for a particular purpose or segment of the society. However, the participants in the endowment have to employ the expertise of the operator for a fee on the basis of agency (Wakala). The participants in this type of model are entitled to share in the surplus from the risk fund and the profits derived from the investment fund. However, this is depended upon the initial agreement reached between the operator and the participants. It is worthy to note that the hybrid (Mudaraba-Wakala) type of model is the most preferred because it encourages the operator to exert all his energy in executing his role for the betterment of all participants and the investments of the business.
It also encourages participants from contributing to the business, unlike in Wakala where the operator knows exactly what he earns whether the investment yields profit or not or in pure Mudaraba where the operators sees the other contributors as “sleeping partners” in the business. But in the hybrid model because of the double role of the operator and of course double share in terms of receiving agency fee and sharing in the profit gained from the investment fund. Naturally, this arrangement gives encouragement for the Takaful operator to put his best into action in order to protect and safeguard the business interest of all participants.
(Leadership / 21 July 2014)
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India: Hyderabad trust uses zakat to promote education

A Muslim trust here is showing the way how a collective system of 'zakat', an obligatory system of charity in Islam, can lift the community out of poverty and illiteracy. 

Though many organisations collect zakat and use it for the poor and needy, the Hyderabad Zakat and Charitable Trust is delivering tangible results in the area of education.

 More than 25,000 students are studying in educational institutions run by the trust in Telangana, Andhra Pradesh, Karnataka and Maharashtra. Started in 1990, the trust, headed by philanthropist Giasuddin Babu Khan, has so far helped over 400,000 students graduate. Many of them are now engineers, doctors, lawyers and chartered accountants. 

"The trust has done a lot of work in education. We have so far spent Rs.110 crore on our activities," Mohammed Ziauddin Nayyar, trustee, Foundation for Economic and Educational Development (FEED), a part of Zakat Trust, told IANS. 

Zakat, one of the five pillars of Islam, is a mandatory charity for every well-to-do Muslim as a measure to remove economic inequality.

According to Islamic scholars, every Muslim whose assets reached 'anisab' or minimum value (current market price of 60.65 tolas of silver) has to pay 2.5 percent Islamic annual tax on his wealth. Most Muslims pay this during the holy month of Ramadan. 

For want of a collective system of zakat, the money gets scattered among individuals and charity groups. The Hyderabad trust is trying to show how zakat, if properly channelled, can achieve its purpose of eradicating poverty and backwardness. 

The trust, which believes that education is the most powerful weapon to battle poverty, has adopted 105 government-run Urdu medium schools. Over 3,000 students also study in its five English-medium high schools in Telangana.

 Focussing on excellence in education, the trust last year set up the Hyderabad Institute of Excellence (HIE) to hone the skills of 10th standard toppers from poor and needy families. More than 250 students are studying in 11th and 12th standards at its sprawling 120-acre campus near Hyderabad. 

They are also receiving coaching for entrance exams for professional courses. HIE will also have a high school from next year. "HIE is in line with the vision of Giasuddin Babu Khan to provide world-class facilities to poor but bright students so that they can excel and become assets," said Nayyar. The trust also helps the poor and needy with financial assistance to make a living. This Ramadan it distributed ration and clothes to 3,000 widows to help them celebrate Eid. 

The young widows were given packets worth Rs.950 to Rs.2,000. The trust also motivates young widows to re-marry and provides an assistance of Rs.25,000 each. It has helped in re-marriage of 120 widows. Last year, the trust received over Rs.9 crore zakat. 

It has a network of 60 employees to identify the deserving. The families of Babu Khan and Abdul Aleem Khan, who heads FEED, contribute the maximum for the trust. Hyderabadi Muslims settled in the US and the Gulf also make a sizable contribution. "After seeing our activities and the transparency, more NRIs are coming forward to contribute," Nayyar said. The trustees, however, feel that what the trust receives is not even one percent of the zakat Muslims can pay in Hyderabad and other parts of Telangana.

 According to Babu Khan, the potential of zakat collection in Telangana is Rs.1,000 crore but the actual collection and distribution is only Rs.100 crore. Community elders say only 10 percent Muslims pay zakat to institutions, mainly madarsas, while 90 percent pay to individuals who approach them. "They don't even check whether those seeking zakat are really poor and needy. Thus the really deserving who don't beg are deprived," said a member of Jamaat-e-Islami, which is active in distributing zakat. Activists also rue the fact that many wealthy Muslims don't pay total zakat. "If all Muslims pay zakat in full and it is channelled properly, the community can overcome the problem of poverty," said Nayyar.

(One India News / 23 July 2014)
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Wednesday, 23 July 2014

Saudi Market Surprise Sparks Speculation of Sukuk Access

Saudi Arabia’s plan to open its $531 billion stock market to foreigners is prompting speculation that Islamic bonds will be next.
The government’s approval of overseas financial institutions to trade equities may herald a similar relaxation of rules in the local-currency primary debt market, according to Mashreq Capital DIFC Ltd. and Rasmala Investment Bank Ltd. The nation’s Capital Market Authority said yesterday that the stock-market change would take place in the first half of next year.
“Capital markets are a package, you can’t have one part without the other,” John Sfakianakis, chief investment strategist at Riyadh-based investment company MASIC, said by phone yesterday. “The fact is that Saudi sukuk eventually should also be open to everyone.”
Opening the local-currency sukuk market would give foreign investors access to companies that sold 42 billion riyals ($11.2 billion) through a dozen sales in the past year. That’s more than three times the amount of dollar Islamic bond sales, which are open to overseas buyers.
In the 12 months through yesterday, only four dollar-denominated sukuk have been sold in Saudi Arabia. Those came from two issuers, Dar Al Arkan Real Estate Development Co. and Saudi Electricity Co., according to data compiled by Bloomberg. Twelve different borrowers, including National Commercial Bank and Almarai Co. (ALMARAI), each issued a riyal-denominated Islamic security in the period.

Pricing Tightly

“It’s a step in the opening up of Saudi capital markets overall, and that benefits sukuk investors because there will be more potential product if we can get access,” Abdul Kadir Hussain, who oversees about $700 million as chief executive officer at Mashreq Capital in Dubai, said in a phone interview yesterday. It will also make it easier for domestic borrowers to issue Islamic bonds, he said.
Access to the kingdom’s debt market may appeal more to investors wanting to broaden their exposure than to those seeking yield, according to Doug Bitcon, a Dubai-based fund manager at Rasmala.
“Lots of Saudi debt prices very tightly,” Bitcon said by phone yesterday. “I’m not sure how attractive that will be to international investors beyond portfolio diversification.”
The average profit rate, equal to a bond’s interest rate, of 41 outstanding sukuk from Saudi Arabia is 3.11 percent, according to data compiled by Bloomberg. That compares with 5.06 percent for 44 Islamic bonds outstanding from the neighboring United Arab Emirates, the data show.

Saudi Growth

Gross domestic product in Saudi Arabia will probably expand by 4.15 percent in 2014, versus 3.8 percent last year, economist estimates compiled by Bloomberg show.
The world’s biggest exporter of oil and de facto leader of OPEC is removing barriers to one of the most restricted major stock exchanges as the government pursues a $130 billion spending plan to boost non-energy industries. The move may lead to the country’s inclusion in MSCI Inc.’s indexes, which are used to measure performance by money managers with an estimated $9 trillion of assets.
“Opening the debt market would be part of the openness and all inclusiveness that the policy makers want to demonstrate,” Sfakianakis said.
(Bloomberg / 23 July 2014)
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H Abdur Raqeeb on The Need for Islamic Banking in India

India's central bank is reviewing regulations on Islamic banking in Asia's third-largest economy.
The Reserve Bank of India has set up an internal committee to examine the matter, unnamed sources told
The RBI has reportedly set up a three-member panel comprising senior RBI officials Rajesh Verma, a deputy general manager with the Department of Banking Operations, Archana Mangalagiri, general manager, Non-banking Supervision and Bindu Vasu, joint legal adviser.
Islamic banking is practiced in several countries, including in the UK, which in June issued an Islamic bond that attracted orders in excess of £2bn ($3.4bn, €2.5bn) from global investors.
What is Islamic Banking?
Islamic banking follows the Shariah law. The model differs from conventional banking in that it does not accept deposits, only investments, which essentially make banking a venture capital activity. The model also encourages interest free loans in a bid to boost financial inclusion.
Islamic banking is also based on profit and loss-sharing; the model forbids the payment and receipt of interest and prohibits investment in businesses that are considered sinful – such as adult entertainment or the production of alcohol.
Speaking to IBTimes UK, H Abdur Raqeeb, General Secretary, Indian Centre for Islamic Finance (ICIF) told us how India stands to benefit from the roll out of Islamic banking.
Q: Do you think that India is a key place for growing the Islamic banking market and why?
AR: The misconception among many Indians is that Islamic banking caters to only the Muslim population. The model promotes financial inclusion. India's small farmers and petty traders for instance are still not part of the banking system despite over 40 years of nationalisation of the country's major banks. They cannot go to the capital markets to raise money. Islamic banking can cater to [the millions] outside the commercial banking system.
In addition, Muslims' savings are not being ploughed back into the Indian economy as a large section of the Muslim population here does not bank with commercial lenders.
Q: What needs to be done in terms of rolling out Islamic finance in India?
AR: Political will is necessary. The government has to take a decision on Islamic banking and the RBI has to regulate it. The central bank has to look into it.
We have been pleading with the government and have met Finance Ministry officials in the previous [Congress Party-led] regime.
Moreover, we don't have to use the term 'Islamic banking' in India. We can refer to it as alternate banking, which is what the UK calls it. Or, we could call it participatory banking, which is what they call it in Turkey.
Q: But, if India adopts Islamic finance on a broader scale, will this mean that a lot of the legal framework will have to change?
AR: Not much actually. We in India can borrow and benefit from examples of Islamic banking in the UK or in Singapore.
India Reforms
The question about whether India should allow Islamic banking has been debated for long.
In 2008, India's Planning Commission roped in Raghuram Rajan, the present RBI governor and a former Professor at the University of Chicago, to head its High Level Committee on Financial Sector Reforms (CFSR).
The CFSR, tasked to identify 'real sector reforms', recommended that New Delhi 'permit the delivery of interest free finance on a larger scale, including through the banking system.
(International Business Times / 22 July 2014)
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