Nascent nature of Islamic funds limits products, says report
Gulf Cooperation Council (GCC) revenue has soared in the last decade. Nominal GDP in the region was calculated at $341.6bn in 2000, and it is forecast to reach $1trn in 2010 and $2trn in 2020, according to the Economist Intelligence Unit. GCC revenue growth has particularly benefited the asset management sector, says ratings agency Standard & Poor’s (S&P) in its report “Using fund ratings to assess credit and market risks in Sharia funds.”
While the Middle East is the largest market for Islamic funds, many conventional providers across Europe, South Africa and the us have issued Shariah-compliant funds to attract Islamic investors. But the number of product types remains limited, says S&P, because of the nascent nature of Islamic funds.
Funds have to be invested in ways permitted under Islamic law.
Shariah funds, unlike traditional bond funds, do not invest in conventional rated fixed-income securities because these are, by definition, financial instruments that accumulate interest and are therefore not considered Shariah-compliant.
...................................................................................................................................................
Specialist education addresses all levels
As conventional institutions reduce their workforces to cover losses incurred during the global crisis, Islamic finance faces an altogether different challenge.
Despite huge growth over the last two decades, the lack of skilled professionals is slowing the industry’s expansion. But business schools and universities across the sector are responding to demand by offering a variety of Islamic finance courses.
Many Islamic finance practitioners have a conventional finance background, and as the industry develops, so must its professionals. Humayon Dar, CEO of BMB Islamic UK Ltd and co-founder of an MSc programme in Islamic economics banking and finance at Loughborough University, says that while conventional bankers initially served a purpose in setting up Islamic banks, “continuing with this practice will dilute authenticity and hurt future growth in the long run”.
..................................................................................................................................................
Perceived 9/11 terrorist link fades as sector outlook viewed 'overwhelmingly positive'
A study surveying Islamic financial professionals’ and general and specialist media’s perceptions of Islamic finance after the terrorist attacks in the US on 11 September 2001 (9/11) finds its development has not been hindered, and the outlook is “overwhelmingly positive”.
Turn the clock back almost nine years and the prognosis could have been very different. A trillion-dollar lawsuit filed on behalf of the families of the victims of 9/11 named seven banks and eight Islamic foundations as accomplices to terrorism, and concerns mounted that Islamic banks’ American assets would be frozen indiscriminately. Islamic banks’ neutrality was undermined by former national security adviser Sandy Berger telling the press shortly after 9/11 that it would be difficult to track down Osama bin Laden’s money because it was in “underground banking and Islamic banking facilities”.
..................................................................................................................................................
Globe-trotting Muslims given direction as halal travellers
If you consider that United Arab Emirates (UAE) residents alone spend about $6.6bn annually on international holidays, it’s surprising that travel resources for Muslims are limited.
Irfan Ahmad, founder of irhal.com, an online travel guide for Middle Eastern tourists, described his inspiration in a BBC interview. “I visited Longyearbyen, the northernmost city in the world. There is no sunset, just perpetual sunlight. Muslims have to pray five times a day—before sunrise, at noon, in the afternoon, at sunset and one later in the evening. There was no sunrise or sunset; what does one do?”
The penny dropped, leading Mr Ahmad to create a website for Muslim travellers. Irhal.com has information on tourist attractions, halal restaurants and hotels in cities worldwide and provides details of mosques, and prayer timings.
Halal-friendly travel is attracting investment interest across the tourism sector. Many of the world’s 1.6 billion Muslims are young, affluent and travel-hungry, and halal markets are projected to have remarkable growth over the next few years.
..................................................................................................................................................
Australia reviews its tax laws in anticipation of industry growth
Australia’s Board of taxation is to undertake a review of the country’s tax laws to ensure they do not inhibit the expansion of Islamic finance. Senator Nick Sherry, assistant treasurer, says: “Islamic finance is a rapidly growing part of the global financial system and Australia is in an excellent position to capitalise on that growth, but we have to identify whether our tax system doesn’t unnecessarily prevent that from happening.” The Australian Financial Centre Forum recommended the review to the board of taxation to make sure that Islamic finance products hold the same value as conventional products.
“Australia has made major inroads into integrating an economic substance approach into our tax laws, particularly with the latest taxation of financial arrangements legislative reforms which are based on assessing the economic substance of a transaction rather than its legal form,” says Senator Sherry.
“The review will take this work to the next level by examining the Australian tax laws to make sure the wholesale market for Islamic instruments is not being hampered,” he says. ..................................................................................................................................................
Singapore clarifies its position on istisna
Real estate and infrastructure development in Asia have experienced significant growth and potential still looms large. Singapore is keen to ensure that its own growth continues unabated and, with that in mind, has clarified its position on istisna, a popular instrument for financing construction projects.
Singapore’s central bank, the Monetary Authority of Singapore (MAS), oversees the regulatory treatment of specific Islamic structures. MAS executive director Tai Boon Leong says MAS will issue banking regulations making it clear that Singapore-based banks may enter into istisna transactions. “Banks must ensure that they manage their risks prudently and have in place effective risk mitigation measures. With the issuance of the istisna regulations, mas has extended Islamic finance into the field of participatory finance for economic projects.”
..................................................................................................................................................
Tahawwut master agreement drawn up for Islamic derivatives
The legitimacy of Islamic derivatives has long been a controversial sticking point among Shariah scholars, resulting in limited implementation across the industry. But the practice of using derivatives for hedging—and not for speculation or enhancing returns—is gaining ground.
For the past four years, the International Islamic Financial Market (IIFM) and International Swaps and Derivatives Association (ISDA) have been working on standardised documentation for Shariah-compliant derivative instruments.
The fruit of their labour is the Tahawwut Master Agreement, the first financial industry framework document for privately negotiated Islamic hedging products. The IIFM and ISDA say it can be applied across all jurisdictions where Islamic finance is practised. The standards may encourage Islamic banks, as well as conventional banks with Islamic windows, to hedge more risk and will provide the institutions with more robust risk management. The document provides the structure under which institutions can transact Islamic hedging transactions such as profit-rate and currency swaps and can be used between two principal counterparties as a master agreement, the IIFM and ISDA say.
