Creating awareness: The ownership and control of Islamic banks in Pakistan

There are five Islamic banks operating in Pakistan. The significant shares of paid-up capital actually comes from the high net worth families and institutions in the Middle East, especially the six countries comprising the Gulf Cooperation Council (GCC). There are six countries - Kuwait, Saudi Arabia, UAE, Bahrain, UK and Singapore - from where individuals and institutions have invested in the five fully-fledged Islamic banks in Pakistan. Almost all of these banks are advised by the graduates of Darul Uloom Karachi, Jamiatul Uloom Islamia Binnori Town Karachi and Jamiatul Rasheed Karachi – well-known religious seminaries of Deobandi school of thought.

Regulating Islamic finance market: SECP sets up specialised department

To regulate and develop the Islamic financial market, the Securities and Exchange Commission of Pakistan (SECP) has established an Islamic Finance Department. The new specialised department shall carry out the functions of Shariah regulation and compliance, product development, market awareness, Shariah securities market development and international liaison and networking. The Islamic Finance Department will act as a backbone for co-ordination between the SECP's operational departments with the primary objective of regulating and promoting Islamic finance and Shariah compliance in the capital market. Out of Pakistan's total Islamic financial assets of over Rs 1.7 trillion, around 40 percent assets are directly or indirectly regulated by the SECP.

Managing liquidity through Sukuk

Liquidity management has become easier for Islamic banking institutions as well as for the State Bank with the Sukuk-backed open market operations gaining momentum. The central bank has so far conducted about a dozen Sukuk OMOs since the introduction of this concept in October 2014 and IBIs have responded to it in good spirit. Central bankers say holding of OMOs using Islamic financial concept of Bai-Muajjal is but one component of a broader plan for better liquidity management. The plan, drawn up after seeking inputs from stakeholders, also envisages establishment of a discount window for IBIs later this year. But in addition to several other things, IBI’s want of interest in human resource building also impedes fast-tracking of the planned moves for this purpose.

Dawood Capital: SECP realises mistake after two years, restores licence

Securities and Exchange Commission of Pakistan (SECP) Executive Director Nasim Shahid cancelled the licence of the asset management company Dawood Capital Management on March 22, 2013. He concluded in his order that Dawood Capital Management CEO Tara Uzra Dawood used privileged information and forged documents to avoid an imminent loss of Rs18.2 million. He also imposed a penalty of Rs20 million on her. The appellate bench of the SECP set aside the earlier order on January 22, saying the SECP executive director “did not have the power to pass the impugned order”. The bench also overturned parts of the 17-page original order that held Dawood guilty of having defrauded investors in the run-up to the write-down in the value of the mutual funds.

Jahangir Siddiqui & Co to invest Rs1.669 bn in Bank Islami Pakistan

The shareholders of Jahangir Siddiqui & Co Ltd, the flagship company of JS Group, in their general meeting held on February 2, have unanimously approved to invest up to Rs1.669 billion in the Bank Islami Pakistan Limited. On December 30, 2014, the Board of Directors of Bank Islami Pakistan Limited had approved to issue ordinary shares of Rs10/- each by way of rights to its members to raise the paid up capital of the bank by Rs4.320 billion.

Pakistan's Bank Islami to study purchase of KASB Bank

Bank Islami Pakistan has received regulatory approval to study the acquisition of KASB Bank Limited. An acquisition could see Karachi-based Bank Islami add 105 branches to its existing network of 213, while the transaction would require the conversion of KASB Bank's conventional financial products into sharia-compliant ones. In November, the central bank placed KASB Bank under a six-month moratorium as it struggled to meet capital adequacy requirements. Last week, Bank Islami's board of directors approved a plan to raise 3.5 billion rupees ($34.8 million) via subordinated Islamic bonds to fund its expansion strategy.

Bank Islami aims to raise Rs 3.5 billion via subordinated sukuk

Bank Islami Pakistan aims to raise Rs3.5 billion ($34.8 million) via subordinated sukuk. With Basel III global banking standards being introduced around the globe, several Islamic banks have issued such capital-boosting instruments, including those in Turkey, Malaysia, Saudi Arabia and the United Arab Emirates. Last week, Bank Islami’s board of directors approved a plan to raise Tier 2 capital in tranches of Rs500m to help fund its expansion, the Karachi-based lender said in a bourse filing.

Network expansion: Mobilink to raise $68.6m via sukuk

Pakistan Mobile Communications (Mobilink) plans to raise Rs6.9 billion ($68.6 million) via Islamic bonds this quarter. The sukuk will help fund the network expansion of Mobilink, a subsidiary of Global Telecom Holding, and majority-owned by Russia’s VimpelCom. The credit guarantee will be extended by Mauritius-based GuarantCo, a specialised financial guarantor, indirectly owned by the development agencies of Britain, Switzerland, Sweden and the Netherlands. Credit guarantees for sukuk are rare because of the profit-sharing nature of Islamic finance, but they could prove to be an important development, attracting a wider range of corporate and sovereign issuers to the Islamic bond market.

Third phase of financial innovation fund to focus on Islamic financing

Pakistan's federal government on Friday launched the third round of Financial Innovation Challenge Fund designed to promote Islamic financing. The fund was launched with the assistance of the United Kingdom under the UKAid-sponsored Pakistan Financial Inclusion Programme being executed by the State Bank of Pakistan. The earlier two rounds focused on promoting innovative agricultural and rural financing in the country. Meanwhile, a steering committee constituted to promote Islamic banking has prepared an interim report and its recommendations will help in setting a roadmap and deciding a future course of action for providing an enabling environment for the growth of Islamic finance.

Burj-NBP deal on the cards?

Pakistan's banking sector enters 2015 promising more deal-making activities. State-run National Bank of Pakistan has expressed interest in potentially acquiring Burj Bank Ltd. NBP recently said it will conduct due diligence on Burj, and hoped to complete the exercise in a ‘short timeframe’. The Burj deal is being closely watched by the market, as it has so far failed to meet the central bank’s minimum capital requirement (MCR) of Rs10bn. In case the deal goes through, it remains to be seen if Burj would exist as a standalone Islamic bank, or if its operations will be merged with NBP’s Islamic banking section.

Dar reiterates government’s resolve to switch over to Islamic banking

Pakistan's Minister for Finance, Muhammad Ishaq Dar, Friday reiterated the government's resolve to switch over from conventional banking to Islamic banking and finance to enhance shariah compliant assets. Dar said that Pakistan has taken several steps to promote Islamic banking and finance in the country, such as issuing sukuk bonds in international markets as well as forming a steering committee which was actively working on the development of reliable database and human resource needed by the Islamic banking. The industry now constitutes over 10 percent of the country's financial system but needs trained human resource in order to realize the true market potential, he added.

Shariah-compliant: IGI Life Insurance to enter Takaful business

The board of directors of IGI Life Insurance has approved the commencement of family Takaful business in Pakistan. Total gross premiums of IGI Life amounted to over Rs1.8 billion at the end of the first nine months of 2014. In April last year, IGI Insurance acquired a 69.7% stake in American Life Insurance Company Pakistan (Alico) for Rs732 million. The establishment of the window family Takaful operation is accompanied with the allocation of Rs50 million for this purpose. In addition, Jubilee Life, EFU Life and Adamjee Life have also expressed their intention to establish Islamic window operations recently.

Pakistan’s Dollar Sukuk Extend Losses; Yield Highest Since Sale

Pakistan’s dollar-denominated Islamic bonds fell for a ninth straight day, pushing the yield up 2 bps to 7.48 percent, highest since debt sold in November. Pakistan issued $1b of the 6.75% notes last month in its first dollar sukuk offering since 2005; the sale was 5 times oversubscribed.

State Bank of Pakistan hires veteran Islamic finance specialist

The State Bank of Pakistan has added to its Islamic finance push with the hire of a well known market specialist. Yavar Moini, the former head of Islamic finance at Morgan Stanley, has joined SBP as a director in Islamic banking.

Corruption ranking

Last week Pakistan rejoiced at its ranking in the Corruption Perception Index (CPI) 2014 improved by a notch with a score of 29 out of 100 in a scale from 0 (perceived to be highly corrupt) to 100 (very clean) as per the report issued by Transparency International (TI). Denmark comes on top of the list with a score of 92 and North Korea and Somalia share last place scoring 8. The Corruption Perceptions Index (CPI) ranks countries and territories based on how corrupt their public sector is perceived to be. It's a composite index-a combination of polls- drawing on corruption - related data collected by a variety of selected institutions.

Pakistan sovereign sukuk signals Islamic finance shift

Pakistan's $1 billion sukuk offering was its first shariah-compliant deal since 2005. It signals that Muslim-majority countries will actively rely on Islamic finance markets for at least part of their fundraising going forward. The sovereign's five-year sukuk closely follows its $2 billion souvereign bond sold in April - its first foray into the foreign debt markets after a seven-year hiatus. But investors have anticipated a sukuk due to its strong domestic Islamic finance market. It demonstrates that the global Islamic finance markets have developed to the point that Muslim-majority countries can rely on it for their annual fundraising plans.

Pakistan receives $1bn sukuk payment

Pakistan has received $1 billion payment for its recent sukuk sale, a spokesman for the State Bank of Pakistan (SBP) has said. The government issued sukuk on Nov 27 to raise its foreign exchange reserves in line with International Monetary Fund’s demands. The government had initially planned to float $500 million worth of the Islamic bonds. But in the wake of high demand, which rose to $2.3bn, it decided to raise $1bn. The five-year sukuk were sold at a profit rate of 6.75 per cent. The country’s total liquid foreign exchange reserves declined to $12.993bn during the week ending November 28 compared to $13.219bn the previous week.

Sukuk yields $1bn in international bond market

Pakistan raised $1 billion from the international Islamic bond market on Wednesday by selling its Sukuk papers at 6.75 per cent profit rate. The government received a subscription of $2.3bn, which was nearly five times the targeted amount. With the proceeds, the country’s foreign exchange reserves are estimated to touch $14.1bn on Dec 1. And after the disbursement of $1.1bn by the International Monetary Fund (IMF) expected in the second week next month, the country is set to cross the $15bn reserves barrier and will be eligible to benefit from the concessionary development lending window of the World Bank — International Bank for Reconstruction and Development.

Pakistan's Asia Insurance to enter takaful market

Lahore-based Asia Insurance Company Ltd will seek shareholder approval next week to offer takaful products.The company will seek approval to allocate 50 million rupees ($492,853) in capital to its takaful operation, the minimum capitalisation requirement. It will also seek to increase its authorised capital to 500 million rupees from 300 million currently. Asia Insurance joins a growing list of firms in offering sharia-compliant products including United Insurance Company and EFU insurance group. In May, Pakistani regulators introduced new takaful rules that allowed conventional firms to enter the sector. Regulators expect as many as half of all conventional insurers in Pakistan to eventually offer takaful products.

Moody's assigns (P)Caa1 to Pakistan's sovereign Sukuk

Moody's Investors Service has assigned a provisional (P) Caa1 senior unsecured rating to the proposed US dollar Trust Certificates to be issued by The Second Pakistan International Sukuk Company Limited, a special purpose vehicle established in Pakistan, by the Islamic Republic of Pakistan. Moody's Caa1 government bond rating and stable outlook on Pakistan reflects the country's large but moderating fiscal deficits as well as its stabilizing external liquidity position. It also factors in high susceptibility to event risk, both on the political front and in terms of economic vulnerabilities that could arise. The (P)Caa1 rating assigned to the trust certificates is at the same level as Pakistan's Caa1 issuer ratings.

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