KUALA LUMPUR: Syarikat Takaful Malaysia Bhd expects revenue contributions from its Indonesian operations to easily increase to 20% once the ruling on sales of takaful products by stand-alone takaful companies comes into force in 2015.
Group managing director, Hassan Kamil, said currently the Indonesian operations contributed about 10%.
“Our takaful company in Indonesia is a stand-alone company. So by then we hope the competition will be more equal and fair.
“Currently, the playing field is not level. A lot of conventional companies operate as a window, so they have a significant advantage compared with us as they use the conventional arm to support the takaful window, without the need of a separate capital,” he told a media briefing after the group’s annual general meeting today.
On the group’s plan to acquire a property in London, Hassan said, the plan was put on hold as the Islamic Financial Services Act (IFSA) would be in place this June.
“The IFSA will allow us to have a structure where there is a financial holding company, so we will wait for specific guidelines from Bank Negara Malaysia before we proceed with our next steps in acquiring the property in London.
“With the existence of the financial holding company, this will probably allow us to benefit more from the tax structure if we were to establish the financial holding company in Labuan,” he said, adding that the group expected to restart negotiation on the acquisition in London next year.
The new Act would require conventional and takaful insurers to relinquish their composite licences and conduct their life and general insurance businesses under separate units.
On other possible overseas venture, he said, Takaful Malaysia has looked at the China and Middle East markets, which had large Muslim population.
However, he said, China lacked Syariah-compliant instruments for the group to invest its premiums while Middle East was unstable in terms of security.
Moving forward, Hassan said, the industry’s prospects remained positive and it was anticipated to grow between 20% and 25% this year.
“We hope to ride on that momentum and to grow at least at that percentage to ensure that our market share is sustained,” he said.
Takaful Malaysia, which will present its internal target capital level to BNM by September, is set to have a dividend policy next year.
Hassan said even without a dividend policy, the group has been distributing a good amount of returns to shareholders.
Last year, a total of RM57 million was paid out against net profit of RM100.1 million, he said.
Noor Islamic Bank on Monday said its net profit rose Dh26.4 million, or 54 per cent, to Dh75.5 million in 2012 year-on-year.
Based on the significant progress made in 2012, the shareholders have underlined their confidence in the bank’s future performance, approving a capital injection of Dh150 million. Currently, Noor Islamic Bank’s capital adequacy ratio stands at 19.54 per cent, with the tier-1 ratio at 14.1 per cent.
Hussain Al Qemzi, Chief Executive Officer of Noor Islamic Bank and Group CEO Noor Investment Group, said: “In line with our strategic road map, building a healthy balance sheet and diversifying core revenue generation capabilities remain our key priorities.
“Following a second consecutive year of registering net profits, the capital injection reflects the shareholders’ confidence. It places the bank in a strong position to take advantage of the much improved economic situation in the UAE and growth opportunities in key emerging markets.”
In 2012, Noor’s liquid asset ratio rose to 27 per cent, marking a 13 per cent increase year-on-year. The bank also saw its advances to deposit ratio fall by 17 per cent, to stand at 75 per cent and a growth of 18% in customer deposits. Overall, the bank’s balance sheet recorded a growth of 6.4 per cent, compared to 2011.
Streamlining remedial management and credit undertaking criteria, which are key priorities for Noor’s management, allowed Noor to improve its nonperforming loan (NPL) ratio by 7.6 per cent, compared with 2011. In addition, its NPL coverage ratio also improved by 16 per cent year-on-year. Provisions for the year amounted to Dh166 million, a 74 per cent decrease from last year, representing 1.4 per cent on gross advances of Dh11.8 billion.
Since its launch in 2008, Noor has gained a reputation for offering innovative, client-focused, banking products and services. It continues to lead the retail banking market in providing convenient banking solutions, including the UAE’s first fully operational mobile internet banking experience in the Arabic language. Noor was also the first Islamic bank to offer an on-line account opening service.
Hyderabad: The subject of Islamic finance has surfaced at copious controversies in India, travelling through court cases, to political podiums, after all of it; finally this vast lucrative finance market is getting a mainstream acceptance, at least academically.
Monad University Uttar Pradesh is introducing Islamic finance as higher educational courses. The university, in collaboration with Institute of Islamic Banking Finance & Insurance (IIBFI), Chennai is providing three passages for Islamic finance education. MU is introducing Post Graduate Diploma in Islamic Banking & Finance (PGDIBF), MBA in Islamic finance and PhD in Islamic finance.
Few years back the Aligarh Muslim University also started a diploma in Islamic banking and finance.
According to MU, these three courses ‘will give students an edge to meet the growing interest in Shariah-compliant finance across the world’, which is according to them, ‘is currently the fastest-expanding sector of the global financial market’.
The entry in the courses is according to the UGC guidelines, as any degree from UGC recognized university is required for enrolling into Post Graduate Diploma in Islamic Banking & Finance (PGDIBF), and MBA in Islamic finance and for enrollment in Ph.D. Islamic finance a Post-Graduation degree and approval of university academic syndicate is essential.
Vice Chancellor of the university Dr. Mian Jaan introducing the university’s Islamic finance courses in Hyderabad addressed a press conference. Dr. Mian Jaan said “In every age, there is a need of knowledge specialization according to the changing trends in the world, and Islamic finance is the next big thing in the coming decade, as already 100 nations has introduced this market, which has now grown to be 1.3 trillion dollar financial service.”
Dr. Mian reiterated that in coming decade there will be a requirement of 5 lakh professional to monitor Islamic finance and his university want to provide job opportunities to the students globally.
He said Monad University, Hapur near Gaziabad which has been established vide Act No.23 of 2010 of the Government of Uttar Pradesh, is offering Islamic finance higher education from this academic year of 2013-2014, the department of Islamic finance will be formally inaugurated by Moulana Arshed Madani of Jamiatul Ulema on May 5th.
Zahid Ali Khan, chief editor of Siasat Urdu daily, who was also present in the conference praised MU for taking a pioneering step in the field of Islamic finance education. Khan urged that India should not shy away from Islamic finance which is a safe investment market and growing many folds every year. He stressed that many nations like America and European countries which has nothing do with Islam is getting attracted towards the market due to its safe and lucrative investment policies.
Khan advised other universities in India to introduce higher educational Islamic finance courses to provide diverse job opportunities to the students.
Md. Asim Farooq Director Academics and Administration IIBFI said Monad University has already selected six students for P.h.D in Islamic finance for this academic year, and University along with IIBFI is planning to start distance educational courses in Islamic finance from next academic year.
Prime Minister David Cameron is looking to Southeast Asia to boost the UK’s role in Islamic finance. It’s the Bank of England he needs to convince first, say Shariah-compliant lenders based in Britain.
Central bank rules require lenders to hold easy-to-sell assets as protection against short-term funding shocks. Most are off-limits for Islamic banks because they pay interest.
Islamic lenders are "disadvantaged," Sultan Choudhury, managing director of Islamic Bank of Britain, said in a phone interview from Birmingham, England, on April 22. "We want the ability to operate without the restrictions that we are facing. The biggest example of that is in the liquidity rules."
Cameron visited Malaysia, the biggest center for the more than US$1 trillion-a-year market, last year to build on a pact to promote bilateral engagement in the industry and created an Islamic Finance Task Force in March. Britain’s six Shariah-compliant lenders will struggle to grow unless regulators adapt bank liquidity rules or highly rated borrowers issue sukuk in pounds, according to Choudhury and Bank of London & the Middle East’s Nigel Denison.
"For an Islamic bank, there is a lack of liquid assets available," Denison, the London-based lender’s head of markets, said by phone. "If there were a liquid sukuk, particularly in sterling -- because we report in sterling -- that would make our lives a lot easier."
The UK announced plans five years ago to become the first western government to issue sukuk, only to disband the initiative in 2011 when the Debt Management Office said they don’t "provide value for money."
The average yield on Shariah-compliant debt has climbed 16 basis points this year to 2.8 per cent on April 24, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The yield on 10-year gilts fell 14 basis points to 1.69 per cent, data compiled by Bloomberg show.
"The cost of funding via conventional sovereign bonds -- gilts -- is still more advantageous than the cost of funding via sukuk," Haissam Saleh, Qatar Islamic Bank UK Plc’s London-based head of Middle East and North Africa treasury structuring and sales, said by e-mail April 17.
A Treasury spokesman said March 11 there are no immediate plans to issue sukuk. The press service didn’t respond last week to requests for comment.
"The UK’s liquidity regime applies to all firms equally," Liam Parker, a spokesman for the Bank of England, said in an e-mailed response April 24. "An allowance is made for Shariah-compliant firms with regard to the instruments they are required to hold to meet their liquidity requirements, but not to the quantity of liquidity."
The overhaul of bank rules known as Basel III may take account of Shariah lenders in the European Union, Parker said.
"The UK is actively engaged with international regulatory counterparts both in Basel and within the EU on this issue," Parker said. "We would expect that EU implementation will make suitable allowance for Shariah-compliant firms."
The only sukuk currently meeting Bank of England criteria are dollar notes from Islamic Development Bank, a Saudi-based multilateral lender, according to Choudhury and Denison. The bonds rank AAA at Fitch Ratings, one above the UK.
The lender may issue sukuk in pounds, Wayne Evans, an adviser to TheCityUK, a group representing financial services companies, said by phone April 2. IDB "is not yet in a position" to comment, Abdul Aziz Al Hinai, vice president for finance, said by e-mail April 22.
Global Islamic debt sales jumped to US$7.23 billion in March, the third-highest monthly total, data compiled by Bloomberg show. The debt avoids interest through contracts such as Murabahah, where lenders own an asset and sell it back at a mark-up.
Borrowers are put off selling sukuk in the UK in part because the holder would be liable for value added tax, Gary Campbell, a partner at Deloitte LLP in London, said by phone March 25. The underlying assets would need to be based outside of the UK for exemption, he said.
"We understand that the UK government is very sympathetic and is keen to eliminate any kind of discrepancies," Campbell said. "Whilst they are sympathetic, they haven’t issued anything formally in writing on the VAT treatment of sukuk."
Only one Shariah-compliant lender has set up in the UK in the past five years -- Abu Dhabi Islamic Bank PJSC, according to TheCityUK. HSBC Holdings Plc stopped offering Shariah-compliant services in the UK last year.
The Islamic Finance Task Force will look at ways to encourage sukuk, Richard Thomas, a member of the working group and chief executive officer at Gatehouse Bank Plc, said in a March 14 interview from Dubai.
"We need to have appropriate liquidity instruments," Mansur Mannan, executive director of DAR Capital, a London-based financial adviser, said in a phone interview March 21. "If regulations can be changed somewhat, that would be a step in the right direction.
Despite misunderstandings about Islamic banking in different sections of the society, it is growing at a rapid pace in Pakistan and the growth will accelerate further if the central bank continues to chalk out policies.
These were the views of Executive Vice President Head of Product Development & Shariah Compliance, Meezan Bank, Ahmed Ali Siddiqui, who was speaking to a select group of journalists at a workshop on ‘Islamic Banking’ at Meezan Bank’s head office on Tuesday.
Siddiqui believes that Islamic banking will be a strong Rs1 trillion industry by 2015 and its size will be 20% of the country’s banking industry.
“Islamic banking is different from conventional banking and it is completely incorrect to say that both are same things with different names. Here your bank becomes business partner that provides you raw material for a joint business in which both profit and loss are shared among both partners,” he claimed.
Since Islam permitted trade and prohibited interest, Islamic banking focuses on trading by becoming a partner of its clients and does joint trading, he added.
“The size of Islamic banks in Pakistan is growing considerably, I believe that the time is not too far when people will start realising that this system is different and it can boost trade and economy of the country,” he stressed.
Islam encourages circulation of wealth and discourages its concentration in a few hands to narrow down the distinction between rich and poor. “The circulation of wealth is as important as blood in our body. As a blood clot paralyses the body, the concentration of wealth in a few hands paralyses the economy, which is why monopoly is prohibited in Islam,” he said.
Siddiqui said the concept of banking based on pooling of excess funds of depositors and channeling them towards those who require it for investment is not only approved but encouraged by Islam. However, he clarified that the concept of lending and borrowing on the basis of interest in not allowed in Islam.
A fixed rate of return is not permitted under Islamic Shariah. However, the fixed return does not make a transaction halal or haram such as profit on trading and rent on property, he explained.
The total size of the world’s Islamic banking industry is around $1.2 trillion whereas many leading conventional banks have Islamic windows such as Citibank, ANZ, RBS, Goldman Sachs, HSBC, Saudi American Bank, Saudi British Bank and USB AG.
Today, Pakistan has five full-fledged Islamic banks and at least 12 conventional banks are also operating Islamic banking branches.
KARACHI: That’s a very difficult question to answer, but one that has been asked many times. The thing is this question can only be answered by financial professionals within the Islamic finance world, or people who practice conventional banking. The first obviously say that it is. After all, it’s their baby, why would they say it isn’t. The second group consists of people who don’t understand the concept enough to give an answer, or they brush it off by saying that there is very little different, it’s just interest under a different name.
Whether it is different or not, really Shariah compliant or not, Islamic finance is gaining clout and influence every passing day. It is the fastest mode of finance in Pakistan and the world with assets and deposits growing faster than its conventional counterpart. It has now become a trillion-dollar industry worldwide and is expected to continue this growth as more and more Muslim countries climb the development ladder with rising incomes.
So this gives rise to another question. Is Islamic finance – considering its increasing clout – really a viable alternative financial system and solution? The answer would seem to be that yes it is.
Let’s get one thing straight, the simplistic description that any zero-interest-rate system is Islamic is superficial. After all, this is the exact term used by mainstream central bankers when they talk about policies pursuing what they call ‘quantitative easing’, so it is not something exclusive to Islamic finance. Islamic finance is a lot more than just the absolute prohibition of interest. There is also the effort to maintain high moral and ethical standards on the part of lenders and borrowers. In fact, if practiced and implemented in letter and spirit, this is perhaps the key thing that sets Islamic finance apart from conventional finance.
And there can be no denying that there is definitely a lot of room for ethics in today’s financial world.
In fact there can be no greater argument or rationale for a zero-interest-rate system than the John Maynard Keynes’s The General Theory, and I quote:
“Provisions against usury are amongst the most ancient economic practices of which we have record … In a world, therefore, which no one reckoned to be safe, it was almost inevitable that the rate of interest, unless it was curbed by every instrument at the disposal of society, would rise too high to permit of an adequate inducement to invest.”
Keynes’s endorsement does not necessarily make this system right, but his analysis does suggest that it should be regarded as a serious proposition.
And the single greatest reason why I feel that Islamic finance, for what it’s worth, can work and can be a successful alternative to conventional systems is the fact that although interest is prohibited under Islamic finance, profit is not; the latter is derived from various arrangements that combine finance and enterprise. In essence, this is a profit-sharing and risk-sharing system that is based entirely on equity finance.
This is the only area where I am not yet entirely convinced that there actually is equitable risk sharing. In theory, at least, Islamic finance contrasts with the current dominant system based on interest-bearing debt, in which risks are theoretically transferred to debt holders. I am not entirely sure if this is entirely the case in practice as well.
But this is where it gets tricky. One may agree that that if people adhere strictly to its ethical requirements, there would be fewer moral-hazard problems in Islamic banking. But we also know that whether any particular system is efficient in avoiding moral hazard is a matter of practice, rather than of theory. And if in the world of Islamic finance, this adherence to ethics cannot be guaranteed, there really is no need of it as a separate or alternative system.
Muscat - There is huge potential for significant growth of Islamic finance in Oman and we are confident of expanding our horizons and activities to create a very successful environment, said Dr Jamil el Jaroudi, CEO of Bank Nizwa .
Speaking at a recent economic forum dedicated to Islamic finance, Dr Jaroudi said, "We have established Bank Nizwa as a centre of excellence for Islamic banking where we provide a just and equitable model for economic growth through a range of banking tools. This is particularly true of our Islamic principles which leverage the economy to new heights through the financing of public sector projects."
Dr Jaroudi, a leading expert in Islamic finance, delivered a presentation under the theme "Islamic Banking, Great Hopes for Investments," which gave participants the opportunity to gain first-hand information on the importance of the industry to the financial landscape of Oman. It included in-depth insights into the Islamic banking tools available to realise growth in the economy.
The forum, which was facilitated by Al Roya newspaper, drew delegates from many important industries across the sultanate.
Dr Jaroudi's address was dedicated to pressing issues of the current stage of Islamic finance development in the sultanate and delved into new approaches to understanding the future for the industry. The guest of honour at the event was H E Darwish al Balushi, Minister Responsible for Financial Affairs.
The Bank Nizwa CEO outlined his hopes for Islamic banking playing a role in spurring the development of Oman's economy. "There is huge potential for significant growth of Islamic finance in Oman, and we are confident of expanding our horizons and activities to create a very successful environment."
Dr Ashraf al Nabhani, general manager, corporate support, Bank Nizwa , also participated in the panel discussion on "Capital Market - Expected Performance. (Zawya / 22 April 2013)
KARACHI: While Islamic financial institutions have passed the robustness test by exhibiting greater resilience during the recent global financial crisis, the crisis has also brought under the spotlight some important challenges the industry is currently facing. Going forward, the stakeholders of Islamic finance will need to address a broad spectrum of issues surrounding the industry.
Highlighting the inherent strengths of Islamic finance, the recent global financial crisis coincided with the growing concerns over the possibility that excessive financial innovation might lead the Islamic finance products to bend certain key precepts of Muslim jurisprudence to breaking point. Perhaps the most prominent example is the Sukuk – sometimes even called the “Islamic bond” – as many Islamic Sukuks have gone too far in mimicking conventional, interest-bearing bonds, which are prohibited in Islam.
Since there is little room for diversification of assets, the risk management capabilities of the Islamic financial institutions are limited. A direct consequence of this was observed in the last financial crisis when large exposure to real estate of Islamic financial institutions resulted in falling asset values in many of these institutions operating in the OIC member countries, particularly in the MENA region. A study by Ernst & Young (2011) reveals that the real estate concentration still remains a concern for Islamic finance industry and may affect its future growth.
The low penetration levels of Takaful (Islamic insurance) in OIC countries are posing another challenge for the Islamic finance industry. OIC member countries as key Takaful markets are characterised by low insurance penetration rates versus huge potential for rapid economic growth. Global Takaful premiums are estimated by Ernst & Young (2011b) to have reached $16.5 billion in 2011. Moreover, Takaful premiums remain highly concentrated in Iran which generated almost 30% of the global Takaful premiums in 2011. Similar to the relative size of Islamic finance to the global financial industry, the Takaful market represents only 1% of the global insurance market at present (Ernst & Young 2011c).
Regulation and standardisation
Another major impediment to the growth of Islamic finance industry is the weak Islamic finance enabling infrastructure in many OIC countries. Enabling infrastructure would include, among others, legislative, regulatory, legal, accounting, tax, human capital, and Shariah business frameworks. Although member countries such as Bahrain, Malaysia and UAE are among the major Islamic finance centres with developed infrastructures, in many others, an enabling environment is not in place. This, in turn, increases operational risks, including the risk of Shariah compliance.
Development of Islamic money and capital markets, provision of standardised liquidity management tools, improvement of the operational efficiencies of Islamic financial institutions, standardisation in products, synchronisation of regulatory frameworks, and human capital accumulation are other areas where the Islamic finance industry needs to take structural steps.
Broadening the skill base
The broadening of the global skills base in Islamic finance is desirable since the number of qualified practitioners, as well as Shariah scholars available for Shariah boards, is currently very low.
Representation of Shariah scholars on Shariah boards is highly concentrated. A survey by Funds@Work (2011) reveals that only the top 20 Shariah scholars hold 619 board positions which represent more than half of the 1,141 positions available.
All in all, with the challenges ahead, the growth of Islamic finance, free from interest and subject to high moral codes, will be slow in the long-run. And the slow growth of the industry would also slow down economic growth and wealth creation. However, the wealth created would be real, more equitably and profitably distributed, and would encourage spin-offs into real economy, creating jobs, increasing trade both domestically and internationally.
Friday, April 19, 2013 - According to Abdullah ibn Masud (RA), the Holy Prophet (PBUH) said: ‘Seeking halal earning is a duty after the duty.’ In other words working to earn a halal living is itself a religious obligation second in importance after the primary religious obligations like prayers, fasting and hajj. This brief hadith contains three very important messages. First, it points to the Islamic way out of the apparent dichotomy between the material and the spiritual worlds. We often see them working in opposite directions. Indulgence in the material world does lead one away from the spiritual world. Spiritual uplifting seems to accompany a tendency to distance oneself from the material pleasures. There is a conflict, but is there a contradiction also?
Is it possible to resolve the conflict in a way that one can take care of both? Or are they mutually exclusive? This has been a central question for all religions and many in the past suggested the second answer, making hermits as the ideal for the humanity. Unfortunately not much humanity is left when one moves too far in this direction. One can read today the horror stories of Christian and Hindu monks, among others, who tried to seek spiritual purification this way. As a reaction, some took the other course, making material pleasures the goal of this life. The westerncivilization today is the prime example of that. Its toll on human spirit and morality is well known and is a constant reminder that something is wrong here as well. In between the two extremes Islam points out the proper path. Man is both a material and a spiritual being. The solution does not lie in denying the material needs and desires but in denying their claim to primacy.
They are part of being but not the reason or goal of being. As long as they are kept in place, they are an important part of our life. The problem is not money but the love of it. Wealth itself is not bad. In fact Qur’an refers to it as ‘ ... your wealth which Allah has made for you a means of support.’ [Al-Nisa, 4:5]. And another hadith praises the merits of ‘the halal wealth of a pious person.’ The effort to earn a living is not only against spirituality, it is a religious obligation! But this earning must be through halal means. This is the second message of this hadith. Our obligationis not just to make money but to make halal money. This is a broad statement that is the basis for Islamisation of a society’s economic life. Not every business idea or possible business enterprise is good for the society. And the decision regarding right and wrong here cannot be left to the so-called market forces.
Right and wrong in the economic life, as in all life, must be determined by a higher source. Shariahguides us as to the halal and haram business enterprises and practices, and at both individual and collective levels we must follow that guidance. At times that guidance may conflict with the prevailing practices. For example riba (interest), gambling, pornography, and liquor are haram, and no matter how attractive the financial rewards of engaging in those enterprises may seem to be, a Muslim must refrain from them. This is the economic struggle of a believer, and it is obvious why it should be carried out as a religious obligation. At the individual level the obligation is to engage is halal professions and businesses.
At the collective level the obligation is to establish a system that facilitates such individual efforts and discourages their opposite. Third, all this effort for halal earning should not eclipse our primary religious obligations. Indulgence even in a purely halal enterprise should not make us miss our Salat, or hajj, for example. This hadith may help us set our priorities right: The economic endeavour is a duty after the primary duties. And let us remember: In economics, as well as in religion, getting the priorities right is part of being right.
The global family takaful industry is on track for a sharp growth with its gross contributions set to treble by 2016 to $5.6 billion, an industry study said.
The growth of family takaful has outperformed the growth in conventional life insurance, and over the past five years it has picked up pace at a compound annual growth rate, or CAGR, of 32 per cent, according to a report released at the opening of the 8th Annual World Takaful Conference, or WTC, in Dubai on Monday.
The global takaful industry has been experiencing double-digit growth rates with the GCC and Malaysia being the major contributors, said David McLean, executive of the WTC.
“However, the latest industry data reveals a slight deceleration in the growth rates. A critical factor that will determine the success in taking the industry to the next level of development is the existence of players with the right quality and calibre, as well their readiness in terms of capacity and capability to formulate and execute successful strategies in response to new market opportunities,” he said.
“To achieve this, it is essential that key players in the industry remain profitable in the long run and the current slowdown makes it even more challenging for takaful operators to maintain momentum while boosting profitability. This calls for taking proactive steps and rethinking strategies to overcome diverse challenges to sustain the forward growth momentum,” McLean told a gathering of more than 400 senior decision makers from over 150 organisations.
Jeff Singer, chief executive officer of the Dubai International Financial Centre Authority, inaugurated the two-day event.
Safder Jaffer, managing director of Milliman Middle East and Africa, said that over the past five years, growth in family takaful has increased at a CAGR of 32 per cent. “Growth of family Takaful in Asia and Indonesia in particular is increasing at far higher rates, and Malaysia continues to provide global family takaful leadership on all fronts. In the Middle East, family takaful penetration has not been as rapid, though the region has all the necessary ingredients to make family Takaful more viable and profitable than general takaful.”
The Global Family Takaful Report, developed by Milliman and released at the WTC, provided research insights into the performance of family takaful offerings, the future direction of the market and new opportunities for the growth of family Takaful across key international markets.
By 2016, family takaful contributions are poised to grow to $5.6 billion from $2.2 billion in 2011, the report said. The global takaful industry had been projected to record gross contributions of $17 billion by the end of 2012.
The report also noted that with bottom-line profitability on the general takaful front facing stiff competition from a relatively soft market, family takaful is seen as a long-term and sustainable proposition with strong bottom-line expectations.
Though the challenges of matching the long-term liability profile of family takaful with similar duration Shariah-compliant assets remain, higher profit margins and the potential for surplus sharing make family takaful a more viable long-term proposition and ideally placed to meet the “spiritual” dimensions of takaful, the report said.
“This report addresses the increased need for a pertinent reference source to help industry leaders navigate the evolving family takaful landscape.”
Discontent is on the rise among Western banking customers faced with abuses such as Libor rigging, mis-selling of financial products, hidden trading losses and sloppy anti-money laundering, writes Paul McNamara
As the conventional financial system takes blows to its credibility, the question arises whether there is a better financial system waiting to be found.
Many believe the answer lies in some form of ethical finance with a philosophy that is underpinned by moral tenets or religious beliefs. While Islamic finance scores highest in this area in terms of the number of headlines it secures, other religious groups can find themselves in lockstep with these same views.
Ethical finance encompasses a wide range of issues from sustainability to firearms, exploitation of people and resources to environmental concerns. Investors who require an ethical overlay to their money management want to look after the world they live in and this can mean investing in companies which have business models that are sustainable in an ecological, social, economic and political way.
Islamic finance, through its investment filters, provides one means of doing so. In 2009, the Vatican's official voice piece, the newspaper L'Osservatore Romano, came out in favour of Sharia financing saying: "The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service."
In the UK, there has been a push towards ethical finance. Campaigns, such as Move Your Money, launched last year urging consumers to shift funds from mainstream banks to ethical alternatives.
Graham Burnside, partner and chairman of law firm Tods Murray and a board member of the Islamic Finance Council UK, points to the growth of the Co-operative Bank, which saw primary current accounts increase 8.2 per cent last year, as a sign that things are moving in an ethical direction.
The emergence of Triodos Bank, the self-proclaimed "world's leading sustainable bank", may also hint at what the future holds in store. Triodos posted a 31 per cent rise in 2012 net profits and a 23 per cent rise in its customer base in the year. Such growth may be impressive, but it is coming off a very low base.
Mr Burnside suggests that while there is some "thought and discussion around other faith-based finance initiatives" in the UK - the Church of Scotland has a committee devoted to it, for instance - "it is still some way from turning into an offering in the market".
For ethical finance to take firm root, it must appear to be as competitive as conventional finance.
Customers, after all, may not be willing to pay a premium for their beliefs. However, for investors cynical about the cash value of "doing the right thing", a quick look at the DAXglobal Sarasin Sustainability Germany Index, which tracks German and Swiss companies that meet sustainability criteria, should give pause for thought. The index has been known to outperform the DAX index by 100 per cent over extended periods.
In many markets, Islamic banks are very keen to promote that they are open to non-Muslims and Muslims alike. Indeed, in Malaysia it is not uncommon for an Islamic retail bank to have more Chinese non-Muslim customers than Muslims.
Throughout the Gulf, many Islamic banks focus their promotional message on the fact that their roots are in ethical finance first and foremost. "The ethos of Islamic finance is universal and is really coming to the fore of how people want to conduct business," says Saadat Khan, chief executive of Sharia-compliant firm Ethical Asset Management. "If we take away the Islamic finance label and present it as ethical financing, which is what it is, there is a lot of demand."
This article was originally featured in Raconteur's special report on 'Islamic Finance' which published in The Times newspaper on April 16, 2013.
The Australian government has said that the Islamic finance provides a opportunity for growth in the both the Australian financial services sector and the wider economy.
Addressing delegates at the first Amanie Australia Islamic Finance Forum in Melbourne, Parliamentary Secretary to the Treasurer Bernie Ripoll said the introduction of Shariah products to the domestic market would help to create jobs and boost sustainable growth.
"The Shariah prohibition of highly speculative activities not only helps to protect the economy against abuses and distortions, but also forges a closer link between financial activity and the real economy," he said.
The Islamic finance industry is growing at a rate of 15%-20% per year and recent estimates cited by Ripoll say it could be worth as much as $2 trillion within the next three to four years.
Ripoll said the growth would benefit not only the Australian Muslim community, but the financial services industry as a whole.
"The introduction of Islamic finance products into the Australian market is not a replacement for other forms of finance, but rather a door to new opportunities for our financial services sector and for our economy more broadly," he said.
Ripoll also sought to reassure delegates that Shariah-compliant products would be privy to the same regulation and capital laws that governed all Australian financial products.
"As well as a large and growing Muslim population, Australia has several advantages that make us well-placed to facilitate further demand for Islamic finance services," Ripoll continued.
"Our geographic position places us in close proximity to large Muslim populations. Over twenty years of the Superannuation Guarantee means our financial institutions have extensive funds management expertise. Additionally, we have a well-resourced, well-regulated and innovative financial sector."
Ripoll added that the government would commit to a greater focus on deepening Islamic finance skills though education, training and qualifications as well as to examine whether any changes to tax laws were needed to ensure parity between Islamic and non-Islamic financial products.
MANAMA: Bahrain continues to be the intellectual hub of Islamic finance powered by its deep-rooted institutions, a leading industry thought leader said.
"With institutions like the Accounting and Auditing Organisation for Islamic Financial Institution (AAOIFI) and a regionally respected regulator like the Central Bank of Bahrain (CBB), the kingdom will continue to provide guidance to the industry as it grows," AAOIFI board of trustees chairman Shaikh Ibrahim bin Khalifa Al Khalifa told the GDN.
He was speaking on the sidelines of the Annual Sharia Conference 2013 organised by the AAOIFI under the patronage of the CBB.
The event concluded yesterday after two-days of active deliberations at the Diplomat Radisson Blu Hotel, Residence and Spa.
"Although it is clear that for major players in the industry, Bahrain lacks size and scale, the kingdom has qualified manpower with in-depth experience honed over many years," Shaikh Ibrahim said.
"With a significant increase in the market share of Islamic banks in the GCC and given the increasing appetite for Sharia-compliant financing and investment alternatives, the industry is yet to fully realise its full potential in the region," he added.
"The recent increased international attention on Islamic finance, post the financial crisis, presents a unique opportunity for the industry to further strengthen its appeal by attracting investors who are now turning to more ethical products that are based on risk participation," he added.
Participants were of the opinion that institutions now need to reorient themselves so that their products and services are 'Sharia-inspired' and not just 'Sharia-compliant'.
The convergence and integration of key components of a holistic Islamic economic system, will set a new growth wave for the Islamic banking and finance industry not only locally, but globally, they said.
According to KFH-Bahrain managing director and chief executive Abdulhakeem Alkhayyat, the conference is an essential forum to meet and discuss various key issues among participants and specialists.
"The AAOIFI continues to lead the way by gathering the major financial institutions together and set new standards and best practices for Islamic financial institutions.
"The valuable discussions held during the sessions will help steer the Islamic finance industry towards growth and this influence will be felt worldwide as the concept of ethical banking continues to develop and expand," Mr Alkhayyat added.
KFH-Bahrain was a Gold Sponsor of the event. Another key sponsor was Ithmaar Bank.
"With our long, proud history as a pioneer of Islamic banking in the region, Ithmaar remains as committed as ever to further developing the concept of Islamic banking and finance and, more importantly, to delivering a premium Islamic banking offering," said Ithmaar Bank chief executive and board member Mohammed Bucheerei.
"Our relationship with and support for AAOIFI go back to the very establishment of the institution," Mr Bucheerei said.
"In fact, Ithmaar Bank, then Faysal Islamic Bank of Bahrain, the predecessor of Shamil Bank and later Ithmaar Bank, was the very first bank anywhere in the world ever to publish its financial results in accordance with AAOIFI standards," he said.
We all have different reasons to invest our hard-earned money. It might be for a short-term purpose like the purchase of a car or a house, or a long-term goal such as funding our children's education or ensuring a more comfortable retirement.
Investing can take on a religious significance, too. For a growing Muslim audience, investments must not only be able to achieve their goals, but also be compliant with the Islamic law.
The principles of Shariah investing dictate that to be considered acceptable, companies must pass a certain set of criteria. Among them, the balance sheet structure should contain neither too many liquid assets nor debt, and the company should not engage in "haram" (forbidden) industries such as alcohol, tobacco, gambling as well as specific foods considered non-halal or impure.
Advisers who are considered experts in Islamic law are integral to the investment selection and review process. At Franklin Templeton Investments, for instance, portfolios are independently reviewed and endorsed by the Amanie International Shariah Supervisory Board, which is highly regarded for its extensive Shariah and technical expertise.
The Amanie scholars provide initial approval on investment objectives and strategy, as well as ongoing supervisory and monitoring services to ensure continuous adherence to internationally accepted Shariah principles and standards.
Implementation of these standards can be subjective at times, as it depends on the interpretation of different Shariah boards - a challenge to portfolio managers. In addition, this can lead to a lack of homogenized investment approach as well as confuse potential investors.
Shariah Investing 101
Generally, a company that holds too many liquid assets may have Shariah restriction on eligibility. So one would think, this will result to the elimination of the company.
However, this is not always straightforward. It can depend upon the Shariah screening methodology applied by the fund adviser in the review process in which one calculates the company's financial ratio.
If a company classifies a large portion of its liquid assets as long-term, certain Shariah benchmarks will not include it as part of their liquid asset calculations. In addition, some benchmarks will use market capitalization as the denominator while others will use total assets - both of which could provide different results.
Using market capitalization as the denominator is particularly difficult for value investors (like us) because as a stock gets cheaper and hence provides more long-term value, it could suddenly become ineligible as the market capitalization falls relative to the liquid assets or debt.
Stocks that were compliant at one time but then later deemed non-compliant must be disposed of, but once again it's all about details. For example, the frequency at which the company pays its dividends (once a year, semi-annually or annually) could make a difference to eligibility.
Depending on the Shariah screening methodology, a company that accumulates large amounts of cash throughout the year before paying it out in the form of dividends runs the risk of becoming non-compliant. Once it pays the dividend, it may become compliant and hence an eligible investment once again.
The grace period given to dispose a stock (once it becomes non-compliant) is also different from one benchmark or adviser to another. For instance in as far as dividend is concerned, if the grace period to sell non-compliant stocks is short, one may be forced to sell it before it pays the dividend. Conversely, if the grace period is long, the stock could remain compliant by paying the dividend and reducing cash on the balance sheet.
Such are the challenges of Shariah investing. But despite the constraints, we are able to find plenty of potential opportunities.
In managing Shariah portfolios, we leverage the same investment team and research process. So Muslim investors essentially get a subset of our broader portfolio, which is compatible with specific Shariah principles.
Overall, our team is finding potential opportunities in the healthcare, energy, and telecommunications sectors. European financials represent a sector our Shariah portfolios cannot invest in, but we've been finding a lot of value over the past year there in our other portfolios.
By country, Malaysia represents one of the biggest markets right now for Shariah investing, and is growing because of its advanced national pension scheme. There is a mandatory monthly contribution into the national pension fund that grows with population and income levels.
Other emerging centers include Middle East financial hubs like Dubai and Abu Dhabi. I think the natural interest in Shariah investing is likely to be confined to Muslim nations, but it would not be surprising to find other countries that are also keen to offer an Islamic investment vehicle. This is due in part to a large and growing Muslim diaspora globally.
Our potential investment opportunities could likewise continue to expand, and we think it's an exciting time to be an investor in this growing space.
Alan Chua is a Singapore-based EVP and portfolio manager at Templeton Global Equity Group.