All posts related to KL Conference on Islamic Wealth Management & Financial Planning 2016 - KLC-IWM-2017

Monday, 31 August 2015

Saudi's Othaim Malls raises 1 bln riyals in debut sukuk -sources

Aug 30 Saudi Arabia's Al Othaim Real Estate and Investment Co, owner of five shopping malls in the kingdom, has raised 1 billion riyals ($267 million) through a debut sukuk issue, two banking sources said on Sunday.
The five-year issue was priced at 170 basis points over the six-month Saudi interbank offered rate, the sources said.
The company, also known as Othaim Malls and part of family owned conglomerate Al Othaim Holding, began marketing the sukuk in early August, earmarking part of the planned proceeds to fund expansion plans.
Othaim Malls is building five shopping centres, three of which are likely to be completed by end of the year, with the rest finalised by the end of 2016.
A company source, who declined to be named, said the sukuk settlement was on Sunday.

The transaction was arranged by the investment banking arms of Banque Saudi Fransi, Gulf International Bank and National Commercial Bank.
(Reuters / 30 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

The huge potential in Islamic Finance

SANDTON – Responsible investing is becoming a major theme across the global industry. And one of the most significant areas within this sphere is faith-base dinvesting.
Speaking at the Money Expo 2015 at the Sandton Convention Centre, investment analyst at 27Four Investment Managers Nadir Thokan said that the Islamic Finance industry is still in the early stages of growth, but the potential is significant.
“The conventional financial services industry is more than 400 years old,” Thokan said. “But Islamic finance only dates back 40 years.”
While there has been substantial innovation over that time, the market remains relatively small.
“Currently the global market for Islamic finance is $1.5 trillion and its growing at 30% per annum,” Thokan said. “But penetration levels are still very low. Twenty-six percent of the world’s population is Muslim, but just 1% of banking assets globally are Shari’ah compliant. Given the huge pools of wealth in the Muslim world, this is poised for massive increases over the next few years.”
Thokan believes that the biggest potential for growth is in asset management, which still makes up a very small part of the Islamic finance industry as a whole.
“Of the $1.5 trillion in Shari’ah compliant assets, only $64 billion sits in fund management,” he said. “Only $25 billion of that is in equity mandates. But this is a multi-trillion dollar industry in the conventional asset management space.”
He argued that as penetration of products increases and as more people take a greater interest in Shari’ah compliant finance, this will also be a platform for very attractive returns moving forward. As flows into these products increase, returns will move upward.
In particular, he highlighted the global Sukuk market as one in which 27Four sees huge potential.
In simple terms, Sukuk can be described as a Shari’ah compliant bond product. With a bond, an issuer will receive capital from a pool of investors and in return will pay them an interest coupon over a set period and return their capital to them at the end of it.
Sukuk works in a similar way, but it is structured differently in that it gives ownership in a particular product. It therefore does not pay interest, but rather a share of the issuer’s earnings.
“With a conventional bond you take very little risk because unless the company goes bankrupt you are guaranteed the interest and your money back at the end of the term,” Thokan explained. “With Sukuk, however, you participate in profit and loss of that company. Typically what we’ve seen happening though is that it finances fairly low risk projects where cash flows are reasonably certain.”
Thokan said that there is huge potential in this market as it is tapping into a huge source of potential funding that is looking for good rates of return.
“In the Sukuk market there has always been more demand than supply,” he said. “So people have been willing to pay up. And as the industry grows and more people realise the benefits of issuing Sukuk we are likely to see the depth and liquidity of the market increasing.”
A significant benefit of Sukuk is that it shows very low correlation to other asset classes, including global bonds. It is therefore a great tool for diversification, making it appealing not only to investors looking for Shari’ah compliant products, but any investor looking for alternative sources of return.
The market is already showing signs of expanding out of its traditional base, with increasing numbers of issuers coming from outside of Asia and oil-producing nations. Recently Sukuk has been issued by the likes of investment bank Goldman Sachs, multinational conglomerate General Electric, and the German state of Saxony-Anhalt.
“We are going to continue to see rapid rates of growth because it is an attractive avenue for issuers to look at in terms of diversifying their funding base,” Thokan said. “And as the market gets bigger it will attract larger pools of money, bigger issuers and more attractive returns.”
(Money Web / 25 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Sunday, 30 August 2015

Oman’s Islamic banking could achieve 17% of total banking asset in 5 years, Bank Nizwa CEO


MUSCAT: Islamic banking in Oman could achieve around 15 to 17 per cent of the total banking asset within the next five years in normal market conditions with recovery and stability in the oil market, says a bank official.

Speaking to the Times of Oman, Dr Jamil El Jaroudi, chief executive officer of Bank Nizwa, said it is ‘difficult’ to estimate the share of Oman’s Islamic banking operations at this juncture due to the volatility in oil prices, which is affecting the country’s growth.

According to the Central Bank of Oman, the combined assets of Islamic banks and window operations surged ahead by 64.08 per cent to OMR1,832.6 million by end-June 2015, from OMR1,116.9 million for the same period last year, while conventional banks’ total assets moved up by 11.22 per cent to OMR27,391.9 million, over the same period of 2014.

“This is an important variable that would determine the nature of the competition for the banking sector going forward,” El Jaroudi noted.

However, assuming a normal market condition and recovery with some stability in the oil price, it is fair to assume that Islamic banking could achieve a level of around 15 to 17 per cent of the total banking asset within the next five years, he added.

“This level would be similar to the other markets in the region including the United Arab Emirates (UAE) and Bahrain,” said the CEO of Bank Nizwa.

Remarkable growth

Commenting on the performance of Islamic banking in Oman, El Jaroudi said, “If you look at the industry reports, both fully-fledged Islamic banks in Oman and Islamic windows combined saw an average growth rate of over 40 per cent year-on-year, in terms of total assets.”

The average growth for conventional banks on the other hand was around nine per cent for the same period, he added.

“In terms of financing portfolio growth, it is even more remarkable, as we have grown by more than 300 per cent on an average during the same period, compared to the conventional banks’ average of approximately 15 per cent,” the official noted.

Other countries

He added that these figures are in line with the other countries in the region which are experiencing the same challenges in growing their Islamic banking industries.

“For example, the five-year compound annual growth rate (CAGR) in Qatar was 31 per cent which is 1.8 times faster than its conventional banking with $54 billion worth of Islamic assets representing 24 per cent market share,” he said.

In the UAE, it is lower at 14 per cent but still three times faster than its conventional banking sector with $83 billion worth of Islamic assets representing 17 per cent market share, El Jaroudi explained.

He added that in some other countries, the Islamic banking sector has experienced more challenges that curtailed its growth altogether, although it could be due to geo-politics or that Muslims are not the majority in those markets.

“So we have to look at the growth of this growing sector in Oman and appreciate its achievements thus far,” the CEO of Bank Nizwa concluded.


(Times Of Oman / 30 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance assets to touch $3.2t by 2020

The islamic finance industry will continue to grow strongly as the value of assets is expected to increase by 80 per cent to reach $3.24 trillion over the next five years, according to initial findings of State of the Global Islamic Economy (SGIE) report.
The report, which is commissioned and supported by Dubai Islamic Economy Development Centre (DIEDC) in partnership with Thomson Reuters, and in collaboration with DinarStandard, will be published ahead of the second Global Islamic Economy Summit (GIES), taking place in Dubai this October.
The 2015 summit, organised by Dubai Chamber, DIEDC and Thomson Reuters, is set to gather over 2,000 policymakers, thinkers and business leaders on October 5 and 6 at Madinat Jumeirah, Dubai.
Islamic finance is considered the most developed sector within the various pillars of the Islamic economy. The growth in the global Shariah-compliant economy is broadly measured by the value of Islamic finance assets.
In 2014, Islamic finance assets had an estimated value of $1.8 trillion, with Islamic banking representing 74 per cent of total Shariah-compliant assets, followed by 16 per cent in outstanding sukuk, based on ICD Thomson Reuters Islamic Finance Development Indicator (IFDI 2015).
According to Thomson Reuters' projections, Islamic finance is expected to grow to reach $3.2 trillion by 2020, with Islamic banking constituting $2.6 trillion of this figure.
The total number of Islamic financial institutions operating globally has reached 1,143, divided between 436 Islamic banks/windows, 308 takaful institutions and 399 other Islamic financial institutions, such as financing and investment companies.
Most of these Islamic finance institutions are located in GCC countries and Southeast Asia, while the others are distributed between other Mena countries, South Asia and other regions. Most Islamic finance assets are held by Saudi Arabia, Iran, Malaysia and the UAE.
As global acceptance of Islamic finance continues to grow, more corporates and non-Muslim sovereigns are announcing Islamic finance initiatives such as ethical or Shariah-compliant regulations, as well as products such as sukuk issuances. This increased appetite demonstrates that the market is attracted to the benefits surrounding the ethical principles of Islamic finance, linking finance to physical assets, productive fiscal activities and real economic growth.
One of the key sessions at GIES 2015 will discuss the importance of the Islamic economy's broader sectors to Islamic finance. It will feature a debate by Tirad Al Mahmoud, Jamal Bin Ghalaita and Dr Adnan Chilwan, the chief executives of leading Islamic banks Abu Dhabi Islamic Bank, Emirates Islamic and Dubai Islamic Bank respectively.
The debate will be followed by one of the key sessions of the summit, covering how Islamic financial institutions have moved from niche to mainstream by being part of the global agenda. The session will discuss whether Islamic financial institutions can meet the needs of people who are financially excluded solely for religious reasons, and whether Islamic finance can act as a financial inclusion mechanism for non-Muslims.
The GIES 2015 is taking place under the patronage of His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. Featuring more than 60 international speakers across 15 sessions, the summit will offer insights on the seven pillars of Islamic economy: Islamic finance, halal industry, family tourism, Islamic knowledge, Islamic arts and design, Islamic digital economy and Islamic standards.
(Khaleej Times / 30 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Friday, 28 August 2015

Australia's NAB seals maiden Islamic financing deal

Aug 27 National Australia Bank Ltd has closed its first onshore Islamic financing deal, a A$19.9 million ($14.2 million) arrangement to fund a real estate purchase by Sydney-based asset manager Crescent Wealth.
The funding platform designed by NAB, the country's No.4 lender by market value, could help open Australia to Islamic investors from the Gulf and Southeast Asia that seek to adhere to religious principles such as bans on interest and gambling.
Crescent Wealth used the four-year financing for a A$30.75 million commercial property acquisition in South Melbourne, with plans to build a portfolio of commercial assets across the east coast, said Talal Yassine, managing director of Crescent Wealth.
"It marks a significant moment for the industry in Australia as the funding was supported by an Australian retail bank."
Until know, such deals had to be purely funded by equity, but the sharia-compliant structure would help to significantly remove transaction risk, in particular for foreign investors, said Yassine.
"We plan to secure a second asset by year end and again, will be leveraging the existing structure we have with NAB."
Crescent Wealth, established in 2011, currently has over A$100 million in assets under management across five Islamic funds which include cash, real estate and domestic and international equities.
In April, the firm set up an office in Malaysia and is now considering applying for a boutique fund management license.
TAXES
Islamic financing has struggled to gain traction in Australia due in part to tax issues which can penalise the asset-based nature of such transactions.
Structures such as sukuk, or Islamic bonds, can attract double or even triple tax charges because they require multiple transfers of title of the underlying asset.
The Australian Board of Taxation presented an Islamic finance paper to the government in June 2011 aiming to address such issues, but Canberra has yet to give a response or release the final review.
In the meantime, Britain, Luxembourg, South Africa and Hong Kong have all passed tax amendments to facilitate such transactions. All have issued sukuk over the past year.

The NAB used a structure known as wakala, where one party acts as an agent for another to manage a pool of assets. Wakala is widely used overseas, with Hong Kong using the format for its second issuance of sukuk in May, a $1 billion deal.
(Reuters / 27 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Tuesday, 25 August 2015

Kremlin moves to attract Islamic funds

Russia may amend its financial regulations to allow Islamic banking in abid to attract funds from Muslim countries, as its economy struggles with a recession and Western sanctions.
The move comes as economists, including those at the International Monetary Fund, say U.S. and European sanctions are having a significant negative impact on the Russian economy by blocking important Russian companies from accessing global financial markets.
Officials have created a task force charged with implementing Islamic banking in the country, including amending the country’s banking laws, said Dmitry Savelyev, deputy chairman of the State Duma Committee on Financial Markets and the leader of the task group, the TASS news agency reported.
Islamic law, known as Sharia, places restrictions on certain types of financial transactions, such as interest payments. Over the years, a sophisticated field of banking practices compliant with Sharia has arisen to facilitate financial activity among pious Muslims, including the issuance of Islamic bonds, known as “sukuk.”
The market for Islamic finance is expanding rapidly and should reach a total size of $2.6 trillion by 2017, according to a report by global consulting firm PricewaterhouseCoopers. Another estimate by the IMF said totalglobal Islamic assets would reach $3.4 trillion by the end of 2015.
Russia has a significant Muslim minority, estimated at about 15% of the population, which could make the practice attractive here.
Konstantin Baymukhashev, an attorney at UFS IC, said the changes in Russian legislation should help attract investment into the Russian economy from Arab countries.

Attracting Islamic assets

Rustam Minnikhanov, the president of Tatarstan, one of Russia’s predominantly Muslim regions, has been one of the most vocal proponents for bringing Islamic finance to Russia.
“The Muslim countries have not taken part in the attempts to isolate ourcountry on the international stage, and the latest developments in the world economy have shown that Islamic banks can withstand variousglobal crises and complement the global financial system,” Mr. Minnikhanov said in a speech in June at the KazanSummit Economic Forum.
Islamic finance will help Russian companies compensate for the lack of funding caused by the recent deterioration of relations between Russia and the West, he argued.
In July, Mr. Minnikhanov concluded a cooperation agreement with the president of Russia’s largest lender, state-owned retail banking giant Sberbank, involving the development of Islamic banking in Tatarstan.
Ahmed Mohammed Ali Al-Madani of the Islamic Development Bank, a multilateral Islamic lending organization based in Saudi Arabia, told RIR that Sharia-compliant bonds have also been issued by entities based in non-Muslim countries, including the United Kingdom, and that the worldwide amount of such assets has reached $120 billion.
“The republic of Tatarstan could be promoted as an Islamic finance hub within Russia,” Mr. Al-Madani said. Tatarstan’s largest bank, AK Bark, has already attracted some funds based on Islamic investment. Furthermore, in January 2015, local insurance operator Alliance began selling a specialized insurance product called“Halal Invest” that is compliant with Islamic norms.
“This kind of business is gaining momentum around the world, and by developing it in this country, we will diversify sources of funding and increase confidence in the banking system,” said Semyon Nemtsov, an analyst at Russ-Invest investment company.
However, analysts said Russia is unlikely to see a sudden surge of investment from Islamic countries.
“Islamic banking is first and foremost a religious and ideological concept. Its actual financial significance is secondary. This is why there are in fact a great deal of obstacles that hamper its implementation within Russia’s legal and financial system,” said Konstantin Korishchenko, deputy director of the Department of Capital Markets and Financial Engineering at the Russian Presidential Academy of National Economy and Public Administration.
According to Mr. Korishchenko, there are numerous factors that will significantly complicate the alignment of Islamic finance and standardized Western banking, including the facts that Islamic regulations require that assets be sorted according to their source and deny explicit interest payments or futures transactions.
Moreover, Russia is likely to have more difficulties introducing Islamic finance than do common law countries like the UK. The introduction of Islamic banking will require deep, fundamental changes to Russian law.
According to Mr. Baymukhashev, Islamic and Russian banking systems are radically different from each other. “Islamic banks do not provide their clients with loans in the classical sense, but rather sell actual products or act as partners (co-investors) in some kind of a project, thus bearing all the associated risks with the client,” Mr. Baymukhashev explains, adding that Islamic banking also precludes the financing of companies that produce or sell alcoholic drinks.
“The difference between those two financial systems is significant. Amending the law is only a part of the ground we will have to cover while implementing Islamic banking in Russia,” says Mr. Baymukhashev.
(Russia And India Report / 23 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

The huge potential in Islamic Finance

SANDTON – Responsible investing is becoming a major theme across the global industry. And one of the most significant areas within this sphere is faith-basedinvesting.
Speaking at the Money Expo 2015 at the Sandton Convention Centre, investment analyst at 27Four Investment Managers Nadir Thokan said that the Islamic Finance industry is still in the early stages of growth, but the potential is significant.
“The conventional financial services industry is more than 400 years old,” Thokan said. “But Islamic finance only dates back 40 years.”
While there has been substantial innovation over that time, the market remains relatively small.
“Currently the global market for Islamic finance is $1.5 trillion and its growing at 30% per annum,” Thokan said. “But penetration levels are still very low. Twenty-six percent of the world’s population is Muslim, but just 1% of banking assets globally are Shari’ah compliant. Given the huge pools of wealth in the Muslim world, this is poised for massive increases over the next few years.”
Thokan believes that the biggest potential for growth is in asset management, which still makes up a very small part of the Islamic finance industry as a whole.
“Of the $1.5 trillion in Shari’ah compliant assets, only $64 billion sits in fund management,” he said. “Only $25 billion of that is in equity mandates. But this is a multi-trillion dollar industry in the conventional asset management space.”
He argued that as penetration of products increases and as more people take a greater interest in Shari’ah compliant finance, this will also be a platform for very attractive returns moving forward. As flows into these products increase, returns will move upward.
In particular, he highlighted the global Sukuk market as one in which 27Four sees huge potential.
In simple terms, Sukuk can be described as a Shari’ah compliant bond product. With a bond, an issuer will receive capital from a pool of investors and in return will pay them an interest coupon over a set period and return their capital to them at the end of it.
Sukuk works in a similar way, but it is structured differently in that it gives ownership in a particular product. It therefore does not pay interest, but rather a share of the issuer’s earnings.
“With a conventional bond you take very little risk because unless the company goes bankrupt you are guaranteed the interest and your money back at the end of the term,” Thokan explained. “With Sukuk, however, you participate in profit and loss of that company. Typically what we’ve seen happening though is that it finances fairly low risk projects where cash flows are reasonably certain.”
Thokan said that there is huge potential in this market as it is tapping into a huge source of potential funding that is looking for good rates of return.
“In the Sukuk market there has always been more demand than supply,” he said. “So people have been willing to pay up. And as the industry grows and more people realise the benefits of issuing Sukuk we are likely to see the depth and liquidity of the market increasing.”
A significant benefit of Sukuk is that it shows very low correlation to other asset classes, including global bonds. It is therefore a great tool for diversification, making it appealing not only to investors looking for Shari’ah compliant products, but any investor looking for alternative sources of return.
The market is already showing signs of expanding out of its traditional base, with increasing numbers of issuers coming from outside of Asia and oil-producing nations. Recently Sukuk has been issued by the likes of investment bank Goldman Sachs, multinational conglomerate General Electric, and the German state of Saxony-Anhalt.
“We are going to continue to see rapid rates of growth because it is an attractive avenue for issuers to look at in terms of diversifying their funding base,” Thokan said. “And as the market gets bigger it will attract larger pools of money, bigger issuers and more attractive returns.
(Money Web / 25 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Friday, 21 August 2015

‘Zakat’ brings hope for poor kids who want to study


RAIPUR: Chhattisgarh Zakat Foundation (CZF), is focusing on educational support for families in need and has created corpus fund from the obligatory charity money 'zakat' to extend assistance for the academic needs of children. 

'Zakat' is paid at the rate of 2.5% on assets, on which one year has lapsed. Take the case of Afsha Bano, who lost her father when she was a child. She was all smiles after her hope to accomplish her studies was rekindled by the foundation. Bano is now a student of Pandit Ravi Shankar university

Another recipient Abdul Haque, who is a labourer and resident of Chirmiri, felt reassured by zakat assistance which will help in shaping the destiny of his two sons. "It was tough for me to support my son who is doing engineering and another who is aspiring to become a doctor," he said. 

As many as 149 students received the zakat amount through cheques for their school fee and books at a simple function organised at G N Pandey government school auditorium in Raipur on Tuesday. Syed Akil and Mohammed Tahir of the CZF said that the selection and short-listing process of students was judiciously undertaken to ensure only deserving students remain beneficiaries. About Rs 7 lakh zakat fund was given away as scholarship to 149 students, most of them girls. 


(The Times Of India / 20 August 2015)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Saudi Arabia’s Almarai to issue 2 bln riyal sukuk

Saudi Arabian dairy producer Almarai will issue a senior sukuk of up to 2 billion riyals ($533 million) to help finance investment plans, it said on Tuesday in a statement published on the bourse website.
The sukuk will be offered to local investors and is subject to market conditions, it said in its statement, adding it had mandated HSBC Saudi Arabia and Samba Capital and Investment Management Co to act as joint lead managers.
(Al-Arabiya News / 18 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Tuesday, 18 August 2015

Malaysia: Time dotCom to raise RM1b Sukuk to expand fibre footprint


KUALA LUMPUR: Time dotCom Bhd plans to raise RM1bil under its proposed Sukuk programme 2015-2035 which would be used to expand its fibre footprint and for other operations.

RAM Ratings said on Tuesday it had assigned a preliminary rating of AA3/Stable to the Islamic medium-term notes (MTN) programme.

“The rating reflects Time dotCom’s sound business position in the fixed-line space and the earnings diversity from its international bandwidth business as well asdata centre. 

“Nonetheless, the rating is constrained by Time dotCom’s small market share compared to its larger rival’s which commands the lion’s share of the wholesale and enterprise fixed-line market,” it said. 

RAM Ratings said the proceeds would be used to expand its fibre footprint, further develop its data operations, refinancing of credit facilities and working capital requirements. 

“As such, the group’s balance sheet and debt-servicing indicators are envisaged to moderate in line with its increasing debt load over the next few years – its funds from operations debt coverage ratio and gearing ratio are expected to come in at an average of 0.3 times over the next three years,” it said.

RAM Ratings said Time dotCom is a data-centric, fixed-line telecommunications provider based in Malaysia. The group delivers fibre optic-based telecommunication solutions to wholesale, enterprise and retail customers within Peninsular Malaysia. 

Since 2012, the group has also been involved in the international bandwidth business (via GT Group) and data-centre operations (via the AIMS Group of Companies).  

The fixed-line division will remain the linchpin of the Group’s earnings, supported by the strong performance of the enterprise and wholesale segments. 

RAM Ratings’ co-head of infrastructure and utilities ratings Davinder Kaur Gill said: “Sturdy demand for bandwidth capacity and higher Internet usage remain a boon to the fixed-line segment.” 

She noted that Time dotCom was increasing its network presence by expanding the retail (mainly mutli-dwelling units) and enterprise segments. 

On this note, Time dotCom’s revenue and OPBDIT show CAGRs of a respective 19.3% and 28.5% for the past three years, recording highs of RM596.28mil and RM219.18mil in fiscal 2014.

Time dotCom’s international bandwidth business has been registering strong revenue and earnings growth over the past 3 years, underpinned by improved capacity utilisation for the trans-Pacific Unity North Cable System (UNITY), which reached approximately 90% in 2014. 

Prospects for its international bandwidth business remain bright pending the completion of the construction of three new international submarine cables – FASTER, Asia-Africa-Europe (AAE-1) and Asia Pacific Gateway (APG). 

Time dotCom recently inked a MoU to explore constructing a submarine cable from Peninsular to East Malaysia in collaboration with Telekom Malaysia, although details are scant at this juncture. 

Time dotCom’s data-centre business, meanwhile, has also been enjoying strong top-line growth, although margins have been trending downwards amid the more competitive operating environment.



(The Star Online / 18 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Monday, 17 August 2015

Funding of SMEs and Islamic Banking Option

With the age-old funding challenges that Small, Medium scale Enterprises (SMEs) have to contend with and the steady ascendancy of non-interest banking, analysts x-ray the possibility of Islamicbanking bridging the funding gap in the SME sector, writes Olaseni Durojaiye
Against the backdrop of the importance of Small and Medium scale Enterprises (SMEs) to the growth of per capital income and the economy of any country as a whole, the funding challenges faced by the sector, especially with the seemingly prohibitive lending rate from conventional banks, the issue of alternative and friendly funding have again returned to the front burner of discourse amongst economists and analysts alike.

According to Director General, Lagos Chamber of Commerce and Industry (LCCI) Alhaji Muda Yusuf, “The SMEs sector contributes over 70 per cent of the jobs in the economy and yet enjoys less than 10 per cent of total credit in the financial system.  This is critical issue that needs to be addressed if the economy must be inclusive,” he told THISDAY.
THISDAY findings indicated that funding is a major problem for many small businesses.  Most small business owners finance their businesses through personal savings, support from family and friends and suppliers credit. This challenge, findings revealed, is one of the major impediments to job creation in country.

It will be recalled that the International Organisations of Securities Commissions (IOSCO) had among others stated that “Capital Markets therefore have a role in bridging this financing gap for SMEs by providing alternative funding sources,”
Reacting to enquiries on capital markets as a source of access to fund by SMEs, Chief Executive Officer of Global Analytics Derivatives, Tope Fasua, had contended that the Nigeria Capital Market was not accustomed to providing financing for SMEs at the present and argued that this may be due to issues bordering on sharp practices on the part of some of the listed corporation and companies in the bourse.

According to Fasua “At present, our Capital Market is not very much attuned to helping SMEs raise money, chiefly because we have issues with the big companies already listed and if we should concentrate on SMEs raising money at the stock exchange, things could get pretty messy. There are strict rules, and global best practices that must be adhered to for a company to raise money in the capital market. What we have seen is a situation where even the large companies cut corners, present fake accounts, and perpetrate a lot of schemes and scams that have reduced confidence in capital markets”.

This, among other factors, has caused industry watchers to look the way of Non-Interest bankingmore popular as Islamic banking as a possible route for accessing funds by SMEs. Proponents of this line of thought argued that besides that Islamic banking is open to Muslims and non-Muslims alike, it presents a win-win situation for the borrower as it helps to shoulder the risks involved in the eventuality of loss. They also added that some SMEs may not be able to access funding from Islamic banking by virtue of the kinds of business they do.
Background
Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Sharia, known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba´ (interest). Amongst the common Islamic concepts used in Islamic banking are profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah).

However, Islamic banking in Nigeria received the nod from the central bank in 2011 after several years of attempts by different groups and organizations. A framework, released in the same year by the Central Bank of Nigeria (CBN), spelt out guidelines for the establishment, operations, Shari’ah governance and supervision of Islamic banks which can be standalone full-fledged institutions, subsidiaries or windows.

Both Jaiz Bank Plc and Stanbic IBTC were granted licenses to operate based as a full-fledged Islamic bank and window respectively in the same year and both began operations in 2012. Sterling Bank Plc joined the market in April 2013 as a window.

THISDAY findings revealed that Jaiz bank, which was licensed to operate as a regional bank, is already eyeing a national license to enable it to penetrate the southern part of the country. The bank’s balance sheet grew to about 36 billion naira as at the end of 2012 and its branch network increased from an initial three in 2011 to 14 as at May 2013 and 30 by June 2015. The other two operators that operate as Islamic windows offer Islamic banking products and services in all their branches nationwide. This has helped expand the reach to prospective clients even in the southern part of the country where the majority of the population are not Muslims.

Islamic banking operators collectively provide several Shari’ah-compliant products and services to cater for the diverse needs of their clients. These include products based on murabaha, mudaraba; musharaka, ijara WA iqtina and kafala, the products provided include current, term deposit and savings accounts on the liability sides using qard, wadiah and mudaraba contracts. Financing of automobiles, household equipment, housing, and import financing have been the major focus of the Islamic banks, using murabaha, ijara wa iqtina and istisna contracts.

As part of efforts to extend its tentacles to the South-West of the country, the South-West Zonal Committee for the operations of Jaiz Bank recently held a stakeholders forum in Ibadan, Oyo State where it drummed up awareness for the concept of Islamic banking.
Speaking at the forum, an economist with specialization in banking operations, Professor Abdul-Hakeem Mobolaji, condemned what he described as exploitative interest rates charged by Nigerian banks and urged the apex bank to relax its regulations for Islamic banking to grow adding that “Islamic bank grows at an annual rate of 17.6 percent . The bank is not only for Muslims. In Britain, 73 percent of those who patronize the bank are non-Muslims,“ he stated.
Analysts’ reactions
Reacting to THISDAY enquiries, Head, Intelligence and Research, BGL Securities, Femi Ademola, explained tha,t “If we use the performance of the Jaiz Bank over the years, it shows that the specialised bank has grown quite impressively in the last three years, increasing total assets from N14.11 billion in 2012 to N44.5 billion in 2014. Muharaba receivables which represents loans and advances in traditional banks also grew from N1.1 billion to N10.28 billion over the period; leading to increase in profitability from a loss of N728m in 2012 to a profit of N691m. This can be taken as a sign of good performance of non-interest banking over the period.

“With the increase in the amount of financing by the Jaiz Bank, it can be inferred that SMEs would benefit from funding from Islamic Banking. The fact that most of the financing granted by Jaiz Bank is to corporate customers also shows that the bank is ready to finance any organised SME,” he stated.

However, in a telephone interview with THISDAY, an economist and Chief Executive of EZ Comms Resources, Ezeh Wordu, contended that before SMEs approach Islamic bank for funding it is important that the bank and the firm understand how the operations of the SMEs runs. He added that being an interest free banking makes it all the more suitable for SMEs to approach for funding compared to conventional banking considering the current exchange rate.

“Even though I am not a Muslim I wouldn’t hesitate to approach Islamic Banking for funding to execute a project; the fact that it is interest free makes it more convenient for any SMEs; however, it is important that the bank understands the kind of business that the SME is into to forestall issues cropping up in future,” Wordu stated.

Meanwhile, an economist and banker with a third generation bank with head office in Victoria Island Lagos who spoke to THISDAY under the condition that he is not named stated that Islamic Banking or non-interest banking was a good source of funding for SMEs, however noted that not all SMEs can access funding from the bank due to its strict compliance with Islamic law adding that the business line of the SMEs must however be Islamic compliant

” Islamic banking is restricted to islamically acceptable deals, which exclude those involving alcohol, pork, gambling. Unfortunately, this is a limitation on the kinds of SMEs that can approach the bank for funding. That said, it still remain a veritable source of funding for serious and well organized SMEs,” he stated.

But speaking further, Yusuf stressed that, “Interestingly, the most difficult funding challenge of small business is the problem of credit access rather than cost of credit.  Many SMEs cannot meet the credit risk assessment criteria of the banks, especially with regard to collateral.  This is why they fall back on finance companies and the informal financial markets where they pay atrocious interest rates, sometimes as high as 80 percent per annum.

“The Islamic banking model has not gained much currency in the Nigerian economy because of its peculiar framework and possibly because of perception.  The concept of Islamic banking forbids interest charges and payments.  This implies that debt financing is ruled out.  What is allowed is profit sharing. Not many SMEs are comfortable with this model of financing. Most small business owners and indeed many indigenous businesses would rather own 100 percent of nothing, than say 50 percent of something.   This is a major issue. The failure of the Small and Medium Enterprises Equity Investment Scheme [SMEIS] for SMEs was largely as result of this disposition of small business owners.

“The second key principle in Islamic finance is that there should be no reward without taking risk.  Capital can only be rewarded if it is exposed to risk.  This comes to the primacy of partnership.  This again could be a limitation to the growth of Islamic finance.  In partnership, trust is very critical; and in this environment, trust deficit is very high.  Therefore, a financing concept that would be driven principally by character and integrity of players may be difficult to sustain.  The risk management challenges in Islamic finance are enormous. This is why debt financing seems to be holding sway in the Nigerian economy.”
(This Day Live / 16 August 2015)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com