By Rushdi Siddiqui

In London, an acknowledged hub for Islamic finance, the Times had an eye-catching headline recently: ‘After six years, Sharia-compliant bank products are ‘huge flop.’ It resulted in numerous comments by those involved in Islamic finance, reminding us all that negativity draws a reaction. But the jury is still out on the embryonic Islamic finance sector in London, and using a micro-cap size listed Islamic bank, the Islamic Bank of Britain (IBB), may be more about the entity and its offering than the viability of Islamic finance in a non-Muslim country.

Lets take a closer look at retail Islamic finance in G-20 countries like UK. IBB’s situation may have been more about the consequence of cheerleading Islamic finance by emphasizing quantity – namely the two million Muslims in the UK – over quality. Obviously not many efforts have yet been bankable.

A quick glance at Islamic retail banking in Muslim countries – Islamic finance hubs like Bahrain, UAE, and Malaysia – reveals that not one country had Islamic finance surpass an estimated 30% of all types of banking. Yet, in Malaysia, majority of the customers for Islamic finance are not Muslims, but ethnic-Chinese and they are commonly assumed to be shrewd and savvy on financing.

So, how does the industry take this successful aspect of Islamic finance in Malaysia and transplant it to the UK? Or, is there more to the story, since ethnic Chinese are the largest Islamic finance users in Malaysia, and this phenomenon may not necessarily be transferable to Britain?

Economic immigrants
There is a “numbers bias” for British Muslims, as large majorities are from the Indian subcontinent – India, Pakistan, and Bangladesh. They came seeking better economic opportunities, education for their children, upward mobility, and so on. These immigrants came from countries where Islamic finance was, at best, more of a theory and less of a practice in the 1960s-70s. But although the British Islamic banking experience, from Albaraka to United Bank of Kuwait to (now) the Islamic Bank of Britain, generally resulted in a leveled regulatory and tax playing field, that has not opened the floodgates to Islamic finance. Why?

First, the British government has been talking about a sovereign sukuk for a few years, though nothing has yet materialized. Post Prime Minister Tony Blair, each successive government has stated their enthusiastic commitment and firm support for Islamic finance, and yet the industry still awaits for this magical sukuk.

Yes, the credit crisis has provided set-backs, buts let’s hope its not an opportunistic excuse for further delays. France’s recent interest in being an Islamic finance hub, coupled with their comments about a corporate benchmark sukuk could actually pressure Britain to issue a sovereign sukuk beforehand.

Second, the inability of Islamic finance to take off at the retail level in Britain, or any other G-20 country for that matter, may be attributed to a variety of factors. The lack of interest in Islamic finance, coupled with a comfort with conventional finance, may foster the interpretation that a certain type of ‘interest’ is acceptable. Often, Islamic finance is simply too expensive, resulting in a financial ‘penalty’ for being a Muslim. For some, Islamic finance, as presently offered, is not ‘Islamic’ enough, or the scholars signing off on such products may not be well known or credible. Education may not be responsive to the needs of the bankable masses. Finally, in a post-9/11 environment, some Muslims may be concerned that if they adopt Islamic finance, they may end up on a government watch-list.

Then there is the theory that some Muslims may have a debt-averse mindset, compounded, in Britain, with the availability of ‘Islamic’ debt offerings, such as Islamic mortgages. The anti-debt mindset may be a cultural influence and/or a literal interpretation from the Holy Qur’an, which describes the permissibility of trade and prohibition against interest (2:275-79). There are countless stories of British Muslims living and operating in a cash economy, renting apartments, and accumulating enough savings over years or decades to finally buy a home in cash.

Education and awareness
We have all heard about the need for education about Islamic finance, in the form of seminars, workshops, conferences, newsletters, industry organizations, or on-line courses. The slow consumer acceptance of Islamic products may then be due to incomplete education, absorption, or understanding, leaving the reaction time cycle for product buy-in much longer than expected.

But what about all the surveys and questionnaires about Islamic finance that offer support as basis for the offering? The possibility of survey and interview bias must be factored into the formula. During the survey stage with the ‘man on the street’ and written questionnaires, there may not have been a conscious awareness of minimizing leading questions and minimizing impact of ‘politically correct’ answers. It would seem that British Muslims, like any other Muslim or non-Muslim interested in Islamic finance, want broad spectrums of products at market prices with comparable customer service and support.

However, the bottom-line is to look at the end result, as the take up of Islamic finance at the bankable retail level has not met expectations. Are a majority of British Muslims simply too old, too poor or too new to be interested in Islamic finance?

Back to basics
The stakeholders pushing Islamic finance may need to have a reality check concerning retail offerings in non-Muslim countries with an established Muslim minority. The enthusiasm Islamic bankers have had for Islamic finance may not be shared by a percentage of Muslims at the retail level. The Islamically bankable population appears to be quite small, hence requiring a better understanding of demand, the right mix of product offerings, proper distribution channels, and support service.

Calling Islamic financing a ‘huge flop’ may be a needed wake-up call for Islamic finance on the true market size and opportunity that exists and our ability to manage demand expectations. Obviously, something is broken and we need to move out of the cheerleading comfort zone, realistically assessing the lack of interest by the ‘Muslim on the street’ when it comes to Islamic finance.

KUALA LUMPUR, April 30 (Bernama) — Malaysian and British Islamic banks have agreed to greater collaboration in cross-border Islamic liquidity management transactions, the Association of Islamic Banking Institutions Malaysia (AIBIM) said on Friday.

The decision was made at the end of the two-day Malaysian-UK Islamic Treasurers Workshop, held in London from April 12.

The workshop, part of a four-day business visit to London, was aimed at encouraging greater interaction between and harmonising business practices of Malaysian and British Islamic banks.

Attended by over 40 senior treasury officials from both countries, the workshop was supported by Bank Negara Malaysia and facilitated by the AIBIM.

RHB Banking Group Treasurer Datin Zaimah Zakaria, who led the Malaysian delegation, said the business visit was part of continuous efforts by Islamic banks in Malaysia to link Kuala Lumpur with other major international financial hubs.

Besides London, Malaysian Islamic banks have organised similar business visits to Hong Kong and Jakarta, Indonesia.

AIBIM said Malaysian bankers and their UK counterparts were confident cross-border business activities between Islamic banks in both countries would be further enhanced following the visit.

– BERNAMA

By FIONA MACLEOD

A SCOTTISH university is to offer the UK’s first postgraduate course in Islamic finance.

Dundee University will unveil its MSc in Islamic accounting and finance at a conference on ethical finance in Edinburgh today. The course has been created to meet increased demand from the banking sector.

Dr Rania Kamla, a lecturer in the accountancy and finance department at Dundee who will lead the new course, said high street banks were increasingly catering for Muslims and needed knowledgeable staff.

She said Islamic banking should not invest in areas in conflict with the religion’s teachings such as pork products, alcohol, the arms trade, or pornography.

“But it is also about the deeper impact, so it would also encourage investment in communities and try to reach out to disadvantaged groups, “she added.

There is only one dedicated bank that adheres to the teachings of Sharia law, the Islamic Bank of Britain.

Dr Kamla said: “It was originally based in London and Birmingham, but has now expanded to Scotland. Up to 20 financial institutions in the UK now provide Islamic products, including HSBC. It is not allowed in Islam to charge interest, therefore they promote interest-free banking.

“Instead, they depend on profit and loss sharing, so you both share in the risk.”

The MSc course, which begins in September, is expected to take a handful of students in the first year while the university gauges demand.

Omar Shaikh of the Islamic Finance Council said: “This is a wonderful opportunity for Scottish students to study Islamic finance, in Scotland.

“Education is extremely important if we are to realise the ambition to make Scotland and UK a global gateway for Islamic finance.”

Legal firm Tods Murray, which created the first Islamic mortgage in Scotland, organised today’s conference. Partner Graham Burnside said: “The role of Islamic finance and ethical-based financial systems in today’s economy has not been fully explored, and the launch of Dundee University’s course is an important step to ensure that Scotland does not miss out on the potential it offers.”

The Islamic and Ethical Finance Conference, takes place at the Tods Murray headquarters in Edinburgh Quay, and will explore the various faces of ethical finance and Scotland’s heritage in faith-based finance.

Speakers include specialists from the Islamic finance industry and representatives from the Church of Scotland, the Co-Op Bank and the Scottish Widows Investment Partnership.

Professor Christine Helliar, dean of the school of accounting and finance at Dundee University, said of the new course: “Graduates will be able to bridge the gap between accounting and financial knowledge and how it relates to Islamic law. The programme will include an introductory element to the main issues, coverage of the most popular products and how they relate to Sharia law, and how conventional banks compare with the practices of Islamic banks.”

DIVINE PROFITS
UNDER Islamic teaching usury is not allowed therefore borrowing money must be done under special arrangements.

For example if you wanted a mortgage to buy a property, the bank would buy the house and then sell it back to you but charge you profit.

In other words the deal would be based on profit sharing by both parties rather than interest payments.

This is because profit is allowed under Sharia law while charging interest on debt is considered immoral.

Islam also precludes banking which invests in businesses which go against the teachings of the religion.

So for example, it would be un-Islamic to invest in the arms trade or pornography.

But it would also not be seen as ethical to gain profit out of firms that are involved with pork products or alcohol which are also barred by the religion.

BANK Islam Malaysia Bhd (5258), the country’s oldest Islamic bank, is in talks to take over rivals abroad as part of its long-term growth plans.

Managing director Datuk Seri Zukri Samat said the lender was in talks with a few Southeast Asian Islamic banks from time to time, but “nothing concrete” had emerged yet.

“To get married, not only the girl must like you; the father-in-law, brother and sister, also must like you. So, it’s not easy. We are still talking,” Zukri said in Kuala Lumpur yesterday.

For now, Bank Islam prefers to buy a controlling stake in another Islamic bank and will consider a smaller strategic stake only if it can play a key role in operations.

Although Zukri declined to identify the party it was talking to, he said the lender was keen on Indonesia, among others.

“It is a very interesting market. With 250 million people, if you want to grow Islamic banking, this is one country you can’t ignore,” he said.

The bank’s overseas expansion plan is part of its new three-year blueprint, dubbed Sustainable Growth Plan. The plan was set in motion in July last year.

Zukri was speaking to the media after the launch of Bank Islam’s 100th branch in Wisma Bank Islam in Jalan Dungun, Bukit Damansara.

The 3,765 sq ft branch, which has four-teller workstations, was launched by Second Minister of Finance Datuk Seri Ahmad Husni Mohd Hanadzlah.

Bank Islam is also beefing up its domestic operations. Its goals include 10 per cent loan growth in its second half (financial year ending June 30 2010) and expanding its branches to 115 by the middle of next year.

Bank Islam Malaysia Bhd is looking for merger and acquisition opportunities in the Southeast Asian region, according to managing director, Datuk Zukri Samat.

“We are looking at any opportunity for mergers and acquisitions or taking a strategic stake in banks around the region,” he told reporters, after the official opening of Bank Islam’s 100th branch at Bukit Damansara, here today.

The opening was officiated by Second Finance Minister, Datuk Seri Ahmad Husni Hanadzlah.

Zukri said Indonesia is one of the markets Bank Islam is eyeing, adding that with a population of 250 million, it offers enormous opportunities to grow Islamic banking.

He said the merger and acquisition exercise is a component under Bank Islam’s sustainable growth plan. The three-year plan is aimed at increasing organic growth and strengthening the bank’s position on the domestic front.

“We are strengthening our position in the domestic market and at the same time looking for opportunities to grow beyond our shores,” he explained. He said Bank Islam’s focus is on Islamic banks and there was no intention to acquire any conventional bank.

Asked if Bank Islam prefers a strategic or controlling stake, Zukri said: “Preferably, we would like a controlling stake. But, if there is a good proposition, we may consider a strategic stake.” He also highlighted that Bank Islam is hoping to grow its customer deposits by expanding the network of branches. Bank Islam’s customer deposits stood atRM25.2 billion as at June 30, 2009.

He stated that Bank Islam plans to move aggressively to add 15 new branches in strategic centres nationwide by the first half of next year and increase innovative offerings of products and services.

On the Dubai Group LLC, which owns 30.5 per cent of Bank Islam and plans to sell its stake, for RM1 billion, he said this was a shareholder matter. Dubai Group has announced, it is prepared to sell the stake in Bank Islam, if there is a right offer.

Asked if any interested parties were talking to Bank Islam regarding a possible purchase, Zukri said no one had sought due diligence on the matter. — Bernama

Karachi: Emirates Global Islamic Bank has launched a BancaTakaful product ‘Sarparast Family Takaful Plan’ in collaboration with Pak-Qatar Family Takaful and FWU AG a global facilitator of BancaTakaful.

Sarparast is the latest addition to EGIBL’s product portfolio, and has primarily been designed keeping in mind their customers’ security and customer satisfaction. Sarparast will provide customers with long term saving plans by addressing their future financial needs, and will offer financial protection to families in the unfortunate case of the breadwinner’s untimely death. EGIBL is a dedicated Islamic bank with a nationwide network of 60 branches in 36 cities. Primary sponsors are from the United Arab Emirates and Saudi Arabia .

Pak-Qatar Family Takaful, the pioneer of Family Takaful in Pakistan , is the fastest growing Takaful Company in the region. PQFT is sponsored by the leading financial institutions in the state of Qatar . Having a customer centric strategy, PQFT is serving Pakistani customers with risk mitigation and savings products which are both competitive and comprehensive. The FWU Group has its Headquarters in Munich and is a recognized “Global Leader in Takaful expertise”, winning six Takaful Industry Awards in the past 2 years. It facilitates distribution of Family Takaful and unit linked savings products via a web based Point of Sale and administration system.—RT

ISTANBUL, Jan 29 (Reuters) – Islamic lender Al Baraka Turk’s (ALBRK.IS) deposits and loans grew in-line with those of Turkey’s Islamic Banking sector in 2009, where deposits rose close to 40 percent and loans climbed 30 percent, general manager Fahrettin Yahsi said in an interview.

He added the bank targeted loan and deposit growth of 25 percent in 2010, and aimed to open 20 branches.

The bank was founded in Turkey in 1984 and is a part of Bahrain’s Al Baraka Banking Group BARKA.BH.

(Reporting by Ebru Tuncay and Alexandra Hudson)

By Subramanian Swamy

Islamic scholars argue that payment of interest is a bane on the society. What are the alternatives especially example, for old-aged people who live on the interest from deposits of their lifelong savings, if interest is prohibited? How will banks survive without charging interest on loans extended?

An Islamic banks cannot charge interest, but then what does it do to survive? By giving by one hand, and taking away twice as much or more by the other hand! Let us take an example: If you want to purchase a house worth Rs 10 lakh an Islamic bank will not give you a loan of Rs 10 lakh at a rate of interest and fixed maturity as non-Islamic banks would. Instead the Islamic banks will purchase the house and sell it to you at a higher price! This means they will make a profit and such profit is called halal, as per Sharia! They will ask you to pay this back in say 15 years or so. Of course, interest-free. This is back-door collection of interest.

Thus, an Islamic bank is like a boiled ice cream; it cannot exist in real life without tricking our confidence.

An Islamic bank, or even NBFC, that operates in India, would violate at least the following laws, rules and regulations:

1. Partnership Act (1932), which stipulates a maximum of 20 partners, since KSIDC says it will be an open partnership between it and private investors without limit.
2. Wagering (not permitted under Sharia) as per Section 30 of Indian Contract Act (1872).
3. Sections 5(b) & (c), 9 and 21 of Banking Regulation Act (1949) on prohibition of profit-sharing, buying and selling property, and for not charging interest.
4. RBI Act (1934)
5. Negotiable Instruments Act (1881)
6. Co-operative Societies Act (1961)

Islamic banks will not be permitted by Sharia to give loans for liquor manufacture, cinema, hotel, entertainment industry, etc. These however are under current laws of India legitimate and legal activities. When the government is a partner in the NBFC (as proposed in Kerala), how can an NBFC, which is partnered by KSIDC, deny loans for such legitimate activities, without violating Article 14 of the Constitution, a fundamental right of equality before the law?

It is clear that Islamic bank or NBFC cannot be started in India without violating numerous laws and regulations. Can Kerala legislature amend the laws to make it Islam-compliant? Not possible because under Article of the Constitution 246 only the central government is empowered to change banking and financial statutes. Moreover, Article 27 explicitly bars using tax money with government for furthering any religion.

The G.O issued by the Kerala government explicitly states that the Islamic bank and NBFC would be Sharia-complaint.

Why then is the CPM-led Kerala government so keen? Because the government of Kerala, through KSIDC, is out to placate Muslim voters by promising Islamic bank, voters that the Nandigram incident in West Bengal drove away from CPM. This shows how bogus is CPM’s commitment to what they call secularism.

And why does the Congress not protest? Because they do not want to annoy rich Dubai-based industrialists and hawala operators. Moreover, since the Prime Minister’s Principal Secretary TKA Nair is the Chairman of the KSIDC, and Dr Manmohan Singh believes that Muslims must get first charge on our resources, they are keeping silence, much as Bhisma and Drona kept quiet when Draupadi was disrobed. Hence, now patriots in Kerala must rise and protest to save Kerala from fast-creeping Islamisation. And rest of India must help.

(The writer is former Union Law & Justice Minister.)

With the global financial crisis raising doubts over the world’s conventional financial system, the banking industry in Indonesia stands to benefit from the global downturn and expects to continue rapid growth in the coming years. The financial crisis is having no negative impact on the development of Islamic banking in the country. So far, Islamic banks have not showed any weakening of their performance and we expect both assets and lending would grow at a CAGR of over 50% between 2009 and 2013. This optimistic view is based on its very nature (avoid involvement of interest rates), extremely low penetration and a healthy growth in lending over the past two years.

While it makes sense for global financial institutions to continue growth, exploit the opportunities offered by the Islamic banking market despite the financial crisis, and keep themselves regularly updated against the status of Islamic banking market in some of the emergent countries, it is worthwhile to keep eyes on developments in Islamic banking markets. Keeping the same fact in mind, RNCOS decided to research on one of the fastest growing Islamic banking destinations – Indonesia – and launched a report, “Indonesian Islamic Banking Outlook to 2013”.

The report gives an extensive research and in-depth analysis on the Islamic banking market in Indonesia and helps clients to analyze the opportunities being opened by it. Based on this analysis, the report gives a forecast of the market intended as a rough guide to the direction in which the market is likely to move. The report provides 4-year industry forecast (2009-2013) on various key banking performance indicators, including:

§ Islamic banking assets
§ Islamic bank financing
§ Islamic bank deposits

KUWAIT CITY (AFP) — Kuwaiti Islamic lender Boubyan Bank on Sunday started a major rights issue aimed at raising its capital by 50 percent, the bank said.

In a statement on the Kuwait Stock Exchange website, the bank said the share price in the rights issue will be at a nominal value of 100 fils (0.35 dollars) in addition to a premium of 155 fils (0.54 dollars).

The bank’s current capital of 116.6 million dinars (406.2 million dollars), will rise to 174.9 million dinars (609.4 million dollars) after the increase.

The rights issue of 583 million new shares to raise 148.6 million dinars (518 million dollars), will continue until February 7, the statement said. It will be open to current shareholders only.

The bank’s shares were trading at 435 fils (1.51 dollars) on Sunday. The emirate’s largest lender, National Bank of Kuwait, holds a 40-percent stake in the bank. The oil-rich Gulf state of Kuwait has six conventional and three Islamic banks.

Unlike conventional banking, Islamic finance is based on the principles of sharia or Islamic law, and charging interest on loans is regarded as usury. The system also bans dealings related to alcohol and gambling.