Central Asia

Questions About Practices Of Private Iraqi Banks

Private banks in Iraq have almost utterly ceased to fulfill their traditional functions, e.g. giving out loans, lending credit and issuing letters of credit. The reason is the risk of default. That is why Iraqi private banks resort to participation in the currency auction regularly held by the Iraqi Central Bank instead. In order not to face defaults on payments, they demand exaggerated guarantees for the granting of any loans to local investors. Banking experts say that the value of some loans is not able to cover more than 40% of the guarantees which are demanded by the banks.

Islamic banking industry still has much to achieve

2013 is the 38th year for the global Islamic banking industry in its contemporary phase. The start of the new year is filled with invigorated optimism, partly due to its continued proliferation in new markets, particularly in Oman and Arab Spring countries. Another reason for the optimistic attitude is the impressive momentum of the sukuk market. However, the Islamic finance industry tends to be beguiled by its own relative success largely because of the absence of independent evaluation of its performance and policy and architectural development.

Meezan Bank to provide Shariah-compliant financing

Meezan Bank has become the first bank in Pakistan which offers Shariah-compliant agricultural financing by extending a Shariah-compliant financing facility to the agriculture industry of Pakistan. Adhering to the financial arrangement, the bank will sell DAP, urea, pesticides and seeds to its clients on a Murabaha basis. Expansion of the scope of this facility to other geographical areas is planned. Furthermore, a comprehensive Agricultural Financing Policy and detailed procedural manuals for this initiative has been developed.

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Outlook & Review 2012/2013

Dear Reader,

Islamic finance had another great year. Many of its market segments progressed, like for example the Sukuk market gaining more maturity. Despite the ongoing debt crisis a good sign of hope and happiness.

Nevertheless we are - as an industry - still not satisfied with the achievements. Islamic finance shall grow stronger in terms of social impact and in terms of substance:

Hence, please allow me to re-iterate my call for participating in international initiatives beyond just our own industry to learn and spread knowledge and experience:

Calling Islamic financial institutions to become member of the United Nations Finance Initiative

Inshallah we see more Islamic financial institutions taking a lead in SRI, Social Impact Investing and other approaches while contributing with Islamic finance knowdledge to the conventional industry. The time is now; and there are signs that Malaysia aims for a lead:

Islamic microfinance can bring people above poverty line

Islamic microfinance can bring people above the poverty line as well as enable self-reliance through a regular source of income. According to Muhammad Zubair Mughal, CEO of AlHuda Centre of Islamic Banking and Economics, adopting Islammmic microfinance can rid Muslim countries of poverty. Non-Muslim countries, however, are currently the leaders in this area. The Centre of Excellence on Islamic Microfinance will start operations simultaneously through its partners offices in other countries in order to contribute to the elimination of poverty through Islamic microfinance.

Islamic Development Bank Opens Clean-Energy Fund in Central Asia

The Islamic Corporation for the Development of the Private Sector gave start to a fund aiming to finance renewable- energy projects in Central Asia and plans another in Africa. The fund is worth $35 million and is situated in Kazakhstan. In the very near future the North Africa fund containing $35 million to $50 million is to be opened. Financing for renewables ventures is targeting emerging markets due to the governments' striving to curb reliance on fuel imports and cash-strapped nations in Europe cut subsidies for clean power.

Azerbaijan bank plans $150m Islamic loan

International Bank of Azerbaijan (IBA) considers to raise $150m using an Islamic syndicated loan at the beginning of 2013. Thus, the bank intends to double its Islamic banking assets by the end of next year. According to the bank's director of Islamic banking - Behnam Gurbanzada - signing a mandate in January and closing the deal in April is planned. The deal will be a one-year private syndication. It will contribute to IBA's intention to cater to the estimated 93% Muslims of its 9 million population.

Higher risk, higher return: ABL Asset Management to set up Islamic equity fund

Pakistani ABL Asset Management has announced the establishment of an Islamic equity fund. The fund is expected to tap the growing market of investors who want to make their investments in stocks of Shariah-compliant companies only. In contrast with the current offer of the company - the Islamic Income Fund - the new Islamic equity fund will entail higher levels of risk and return. The date of release is not known yet but according to the company's CEO Farid Ahmed Khan, it will be rather soon.

Meezan Bank approves first ever air-time Sukuk

Meezan Bank Limited has received the approval of its Shariah Supervisory Board (SSB) for the concept for the air-time based Sukuks which will be issued in Pakistan. Furthermore, detailed guidelines for Islamic banks involved in sharing of security with other banks for long-term Islamic projects and structured financing have been approved. The resolution was made at the 19th meeting of the SSB of Meezan Bank at Darul Uloom Korangi, Karachi. There, a summary of Meezan Bank's Shariah audit was presented to the SSB.

New Islamic financial products

Al Baraka Islamic Bank announced the introduction of new Islamic financial products. Furthermore, it will open several new branches in Pakistan with the purpose to facilitate the consumers of Islamic products. According to Adnan Ahmad Yousaf - president and CEO of Al Baraka Islamic Bank - Islamic banking is a modern alternative way of banking today and continuously attracts funds. Its aim is to generate economic activity and to spread money throughout society.

New rules for IBIs

Until now, rules and procedures Islamic Banking Institutions (IBIs) in Pakistan have been following were too general and occasionally not sufficiently specific. In fact, they were not much different from the conventional banking in terms of rate of return on deposits. However, on 19th November a landmark was set by the issuance of detailed instructions by the State Bank.

The instructions will serve to improve transparency and disclosures and bring standardisation in the IBIs' profit and loss distribution policies and practices. As the instructions determine, each pool of deposits established by IBIs would play the role of a virtual enterprise. It will have explicitly demarcated sources of funds, ownership of specific assets and income and expenses.

Report “Believers in the Boardroom. Religious Organisations and their Shareholder Engagement Practices” by 3IG

The practitioners report “Believers in the Boardroom. Religious Organisations and their Shareholder Engagement Practices” by 3IG is online. Please access the practitioners report by clicking on the following link :


The report also remains available as hard copy: http://www.3ignet.org/documents/OrderRSEresearchnow.pdf

BoK Raast Islamic Banking starts operations in Topi

According to the Managing Director if Bank of Khyber (BoK) - Bilal Mustafa - the bank is committed to cater the banking requirements of all segments of society. He further added that, for the purpose of encouraging the economic developmental activities in the region, the bank is providing Islamic as well as conventional banking & financial requirements. Bilal Mustafa made a statement at the formal inauguration of BoK Raast Islamic Banking branch at Main Bazzar Topi District Swabi. Other notable people in the areas of Islamic banking and the business community attended the inauguration ceremony. Some of the bank's plans revealed at the event are increasing branch net-work by establishing more branches by December 2012 as well as further enhancement next year.

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Debt to Equity in Microfinance

Dear Reader,

The issue of debt vs. equity is now going to be increasingly recognised - in microfinance - as I found out today on the cfi blog:

"Debt to Equity. The demand for equity and subordinated debt is huge and continuing to grow, mainly coming from mature MFIs. More MIVs are moving away from debt toward equity, being driven in part by a desire to be more involved in governance, to play a larger role in risk management, and because the regulators are requiring more capital. Also, fund investors increasingly want to know how much of a fund’s return is coming from debt versus equity. Some of the larger DFIs need to disburse large amount of funds, so they have to make debt investments, leaving an unmet demand for equity."


An important food for thought beyond microfinance itself in my opinion.

Best regards,

Michael Saleh Gassner

Neil Miller: For application of Islamic banking, Azerbaijan must engage in marketing in this sphere

According to Neil Miller - Global Head of Islamic Finance at KPMG - despite the global financial crisis, Islamic banking has demonstrated rapid development and lossless operation reaching an average growth rate of 10%. He further adds that the most significant development is observed in Malaysia. Azerbaijan should learn from Malaysia as well as from Kazakhstan. Azerbaijan should first take care of the lack of legislation in the area of Islamic finance in order to work on development in the spheres of Islamic banking and Islamic insurance.

Islamic banks await framework on profit distribution, pool management mechanism

The Islamic banking industry has been expecting the issuance of a standardised framework concerning the distribution of profit and pool management mechanism for the Islamic banking institutions. This framework is necessary for the procedure of financial reporting and general disclosure could be streamlined. According to a report by The State Bank of Pakistan’s (SBP) authorities, the bank has developed a comprehensive profit distribution and pool management framework. The development was conducted with consultation with the industry so that transparency could be increased and standardisation could be brought to the Islamic banking institutions’ practices in terms of profit distribution and pool management.

Islamic Bank allocated $25 million to Kazakhstan farmers

According to the Development Commission of Almaty Regional Financial Center of Kazakhstan's National Bank, the Islamic Development Bank (IDB) has allocated $25 million for Kazakhstan farmers. In 11 regions of the country, a series of training seminars aiming to teach Islamic financing methods for personnel of branches and representative offices have started. Professor Adalet Dzhabiyev, Director of Badr Finance & Investment, conducts the training.

Second National Islamic Microfinance Conference held

The second National Islamic Microfinance Conference, which was jointly organized by the State Bank of Pakistan, University of Veterinary and Animal Sciences (UVAS) and Farz Foundation, was recently held. At the conference, it was discussed that it was necessary for State Bank of Pakistan to develop a new policy instrument to deal with the financial needs of the small businesses. It was further noted that skilled people in the Islamic micro-finance industry were needed. A suggestion was made for Wafaqul-Madaris to introduce Islamic microfinance as a subject in order to be of help in guiding the banks who are working in this sector after studying.

Burj Bank announces Rs 147m profit in 6 months

The half yearly results of Burj Bank Limited (Burj) for the period until the end of June 2012 were made public. The bank registered profit before tax as high as Rs 147 million. The announcement is a reflection of the bank's turnaround in terms of continuous earning for the first two quarters of this year. Furthermore, the growth of the total deposits is 57% reaching Rs 32 billion in the first half of the year. The profits are seen as remarkable progress, especially having in mind the significant challenges the bank has faced in the period.

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Why the lack of profit/loss sharing?

Well, repeatedly we read and hear about the lack of profit/loss sharing (equity finance) in Islamic finance. Here my five cents about it:

1) Islamic commercial law, Fiqh Muamalat, per se has no preference of either permissible mode of finance, be it musharaka, ijara or murabaha whatsoever. All is halal. However, the call for modesty of debt in many hadith and the seriousness of being indebted upon death (withholding of death prayer) shows a call for a solid equity portion in business; let's call it a technical preference.

2) If we look up all debt financing modes (e.g.Murabaha, Ijara) there are remaining difficulties to finance wages, rents and installments on fresh debt. This is a true indicator for a required minimum amount of equity in a company.

3) Point 1) and 2) leads us to demand a sound debt/equity ratio.

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