Islamic Finance Malaysia

Friday 29 November 2013

Malaysia: New ruling to maintain Muslim business legacy

PETALING JAYA: The Labuan International Business and Financial Centre (LIBFC) has cleared the regulatory requirements that will allow Muslim businesses to maintain the core wealth of the company under Islamic beneficiary laws.
Dr Mohd Daud Bakar, chairman of the Shariah Advisory Council for Bank Negara Malaysia and LIBFC, said a fatwa issued by the council in April has allowed the creation of trusts that will allow the family business to be preserved and passed down to ensuing generations in a non-disruptive way.
Traditionally, Islamic wealth is passed down the generations through a system called ‘faraid’, which allows for the wealth to be divided among beneficiaries.
Mohd Daud said by creating trusts, Muslim family businesses will survive after the death of the principal.
“Businesses that had been build over a period of time would not be dismantled as Muslims can create waqf or trust foundations that will prevent the dissolution of business empires or lead to the massive erosion of wealth,” he told The Malaysian Reserve in Kuala Lumpur yesterday.
Speaking on the sidelines of the Islamic Wealth Management forum, Mohd Daud said these trust funds will be professionally managed in LIBFC. “Muslim families are given the option to create a foundation that ensure that wealth will not be subject to ‘faraid’ upon death as the trustee can manage for the benefit of the beneficiaries,” he said.
Mohd Daud, however, said though the new ruling is subject to challenges in the Shariah courts, it is a way to allow high net worth Muslims a way to ensure that their legacy is not broken up.
The fatwa that was issued in March allows Muslims to equally distribute the assets to sons and daughters and addresses the uneven distribution under ‘faraid’ that is biased towards male heirs.
Also at the forum, former Chief Justice Zaki Azmi said Islamic finance was sparked off by the discovery of oil in the Middle East that resulted in the demand for banking system that is free from interest and other non-halal practices.
Zaki said the sudden rise in wealth of Arab countries created a need for Western banks to adopt Islamic-compliant systems in order to attract Arab money.
“These Muslims wanted to invest but do not want their money to be tainted by transactions which are based on interest and therefore haram.
The monies belonging to billionaire Muslim Arabs were mostly in the western financial institutions, which practise the Jewish banking system (interest or usury-based),” said Zaki.
Speaking at the Islamic Wealth Management Seminar in Kuala Lumpur yesterday, Zaki said when Arabs became reluctant to put their money in the western banks, because they will be tainted by haram or illicit dealings, the banks had to tailor the investments to make them halal.
“It began in Dubai, hence the beginning of Islamic financing,” Zaki said.
He said from this spark, other countries, notably Malaysia has spearheaded the move to allow Islamic banking to flourish.
“To avoid any challenge that the method of financing was not according to Shariah, a fatwa council was set up giving confidence to investors of the compliance of the products with halal principles,” Zaki added.
Islamic banking assets under management is anticipated to reach US$2 trillion (RM6.46 trillion) by 2014 globally, while Malaysian banks are the leading Islamic banks in the South-East Asian region.
(Free And Independent / 28 Nov 2013)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Friday 15 November 2013

London, Dubai, Kuala Lumpur in three-way fight for Islamic finance crown

(Reuters) - When the British government said last month it would issue its first Islamic bond, the implications went far beyond the debt market: it was a signal that London will not back down in an escalating tussle among cities for Islamic financial business.
London has long been the default center for international firms to issue sharia-compliant bonds, part of a fast-growing Islamic finance sector that will be worth $2 trillion globally next year, according to consultants Ernst and Young.
But it faces a mounting challenge from two centres: Dubai and Kuala Lumpur.
Dubai, at the heart of the wealthy Gulf, announced a push into Islamic finance this year. It has an entrepreneurial culture which has already made it the Middle East's top conventional banking center, and big state-run firms which can be expected to support the government's strategy.
The Malaysian capital has a reputation for efficient regulation of Islamic finance and a huge domestic market for local-currency Islamic bonds, which is now starting to attract foreign issuers.
The final result of the three cities' rivalry may not be known for years, but thousands of jobs and large amounts of direct investment in companies and real estate are likely to depend on the outcome.
"You need a critical mass of borrowers and investors," said Khalid Howladar, senior credit officer at Moody's Investors Service. "You have multiple centres that are looking to establish their pre-eminence in the Islamic space."
GROWTH
Islamic banking, which obeys religious principles such as bans on interest and pure monetary speculation, is still dwarfed by conventional banking with over $100 trillion of assets.
But the top 20 Islamic banks have been growing 16 percent annually in the last three years, far outpacing their conventional rivals, according to Ernst and Young. That makes Islamic finance tempting for many non-Muslim institutions.
In an unstable global market environment, the conservatism of Islamic financial structures may be helping the industry. Its access to big pools of Islamic investment funds in the Gulf oil-producing states and southeast Asia is certainly a factor.
Over the past year, the industry has been expanding from its traditional bases in those two regions across many nations with significant Muslim populations, from North Africa and Kazakhstan to Nigeria and Djibouti. European financial firms have tapped Islamic funds by issuing sharia-compliant bonds, known as sukuk.
That promises big rewards for the financial centres which arrange issues of sukuk and other Islamic products, employ the experts who structure them, and host the scholars who vet them for religious permissibility.
"The pent-up demand for short-term papers to manage liquidity in Islamic finance is huge, and to meet this will require other market players to come in," Malaysia's central bank governor Zeti Akhtar Aziz told Reuters.
Dubai laid claim to such business in January this year when its ruler, Sheikh Mohammed bin Rashid al-Maktoum, announced a drive to develop the emirate as an Islamic financial center.
Its main competitors responded. In March, Britain launched a publicity campaign involving government junior ministers and private sector executives to burnish London's Islamic credentials.
In May and June, Malaysia took steps to strengthen its regulation of the industry while making it easier for its Islamic insurers to invest their money overseas.
SUKUK
The most high-profile - and most cut-throat - area of competition between the three centres is arranging sukuk. London has led in attracting issues by big international companies because of the massive size of its conventional financial markets and its globally respected legal system.
Malaysia, however, has the advantage of a vibrant market in local-currency sukuk, thanks to a Muslim-majority population; Kuala Lumpur has accounted for about two-thirds of all sukuk issued globally this year. That is persuading some foreign firms, from as far afield as Kazakhstan, to issue in Malaysia.
Dubai lists relatively few sukuk on its exchanges; traditionally its state-owned companies have gone to London to issue. But a determined campaign by Dubai's government is now convincing its companies to issue at home, and could attract business from firms in neighboring Gulf states.
British Prime Minister David Cameron appeared to be trying to head off that threat last month with his plan for Britain to become the first Western country to issue a sovereign sukuk.
"The UK sukuk announcement has really helped to galvanize the market," said Farmida Bi, European head of Islamic finance at law firm Norton Rose Fulbright in London, predicting the sovereign issue would help to trigger corporate issues.
However, Dubai won a victory this month when the Jeddah-based Islamic Development Bank, which has long operated sukuk issuance programs in London and Kuala Lumpur, said it would set up a $10 billion program on the Nasdaq Dubai exchange.
"I do believe Dubai can reach a leadership position, although progress has been slow and it will take a few years to reach the level of Malaysia," said Apostolos Bantis, emerging markets credit analyst at Commerzbank in London.
Because London is not located within a natural pool of sukuk issuers and European customers will remain a limited group, its position looks weakest among the three centres from a long-term perspective, Bantis added.
TAKAFUL
Other areas of competition include Islamic insurance, known as takaful, and asset management. Once again, London's sheer size gives it an advantage, while Kuala Lumpur benefits from its location in a vast, predominantly Muslim area of southeast Asia.
British-based firm Cobalt struck a blow for London earlier this year by developing a novel syndication model for takaful. The model offers A-rated capacity which most carriers in the Gulf lack, said chief executive Richard Bishop.
This could clash with Dubai's plans to expand in takaful. Abdulaziz al-Ghurair, head of the authority overseeing Dubai's financial center, said last month that since there were only 19 Islamic re-insurance firms globally, takaful firms were forced to transfer some of their risk to conventional re-insurers.
That creates a window for Dubai to set up Islamic re-insurers, he said without detailing how this would be done.
Ultimately, much will depend on which financial center can establish "thought leadership" in Islamic business, creating standards and structures which come to be accepted across regions and, ideally, across the global industry.
Traditionally, Malaysia has been influential because of its centralized model of regulation, which minimizes disputes among different boards of Islamic scholars. But some Gulf scholars view Malaysian regulation as too liberal, arguing that it permits structures which too closely mimic conventional finance.
Dubai has a chance to chart a path between these two camps; it has said that after consulting the industry, it will issue sukuk standards that are more detailed and comprehensive than others, hopefully resolving conflicts between the regions.

"This is very important. We think it's a basic requirement but it doesn't exist as we speak. But this will not come from the sharia scholars - it has to come from the industry," said Hamed Buamim, director-general of the Dubai Chamber of Commerce & Industry, which is promoting the emirate's Islamic push.
(Reuters / 12 Nov 2013)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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