First Shariah compliant money market fund in Europe launched

First Shariah compliant money market fund in Europe launched

Bank of London and the Middle East (BLME) has launched the first Shariah compliant money market fund in Europe. Using Luxembourg’s specialised investment funds law, BLME has appointed European Fund Administration (EFA) and Banque et Caisse d’Epargne de l’Etat (BCEE) for fund servicing and custody.

 BLME Umbrella Fund SICAV-SIF, worth over $50 million, invests in a diversified portfolio of high quality Islamic money market instruments, such as commodity murabaha (exchange contract trade), sukuk (Islamic bonds) and ijara (assets leasing).

To respond to the significant market growth in Islamic investments, EFA has tailored the fund to its open fund accounting architecture and transfer agency platform while offering specific training to a dedicated team.

BLME is an independent UK wholesale Shariah compliant bank based in London authorised by the Financial Services Authority. It offers innovative Islamic investment and financing products to businesses and high net-worth individuals in the European, the US, South-East Asian and Middle East and North Africa regions.

EFA is an independent company specialised in administrating investment vehicles. It manages 2,700 funds units worth over €100 billion for more than 215 clients.

Al Yusr Islamic banking service launches new Car Murabaha

Al Yusr Islamic banking service launches new Car Murabaha

In line with its strategy of developing unique and innovative financing solutions to meet different customer needs, Al Yusr Islamic banking service of IBQ announced today the launch of its latest Sharia-compliant financing product. The new Car Murabaha product aims at providing customers enhanced flexibility and favourable repayment tenure while upholding the highest standards of Sharia compliance.

"The Al Yusr Car Murabaha has been developed to enable our customers to meet their financing requirements while benefitting from enhanced flexibility, competitive rates and a unique personalised service while adhering to the prudent risk management principles prescribed under Sharia," said Hassan Al Mulla, Head of Islamic Banking.

"At Al Yusr, our product development strategy is driven by innovation and a commitment to making the banking experience simpler and more rewarding for our customers, while having a positive impact on the overall economy. We believe Car Murabaha is a valuable addition to our product suite that will prove extremely beneficial to customers looking for Sharia-compliant and flexible financing options."

Al Yusr Car Murabaha enables customers to benefit from rewarding financing terms and flexible repayment tenures, without any requirements for salary transfer or guarantor.

The new product also allows customers to benefit from a fast approval process and an exceptional level of personalised service from Al Yusr’s highly competent and sophisticated customer service professionals.

Al Mulla added, "The growing range of Sharia-compliant financing products from Al Yusr Islamic banking service will not only provide customers with favourable financing options, but also enable them to achieve their short and long-term financing goals, while positively impacting the development of a sophisticated financing infrastructure in the state of Qatar."

IBQ launched its first Al Yusr Islamic banking service retail branch in May this year. The branch, which is located on the C-Ring road in Doha, offers a comprehensive range of banking and finance products to suit all needs.

S&P Reports ‘Sukuk’ Market is Growing, Despite ‘Some Roadblocks’

Insurance Journal: S&P Reports Sukuk Market is Growing, Despite Some Roadblocks

A report from Standard & Poor’s Paris office – The Sukuk Market Has Continued To Progress In 2009 Despite Some Roadblocks - notes that new issues of "sukuk (bonds compliant with Islamic law) topped $9.3 billion in the first seven months of 2009 compared with $11.1 billion during the same period in 2008.

"The smaller amount of issuance was due not only to the still-challenging market conditions and drying up of liquidity, but also to the less-supportive economic environment in the Gulf Cooperation Council countries, particularly in the United Arab Emirates," explained credit analyst Mohamed Damak.

"The medium-term outlook for the sukuk market remains positive, though, in our view, given the strong pipeline–with sukuk announced or being talked about in the market estimated at about $50 billion–and efforts to resolve the major difficulties impeding sukuk market development."

Malaysia has taken the lead as the major country of issuance for sukuk, accounting for about 45 percent of sukuk issuances in the first seven months of 2009. Issuers in the Kingdom of Saudi Arabia have contributed another 22 percent of sukuk issued during the same period.

S&P pointed out that the "default of a couple of sukuk was possibly partly responsible for the slowdown in issuance. The silver lining was that these defaults should provide the market with useful information on how sukuk will behave following default."

International takaful (Islamic insurance) market could be worth $7.7bn by 2012: Ernst & Young

International takaful (Islamic insurance) market could be worth $7.7bn by 2012: Ernst & Young

Takaful is the great success story of this region’s insurance industry, but will it ever catch on in the West, and are its Gulf prospects truly long-term?
From Manama to Malaysia, takaful, or Islamic insurance, is on the rise.While still a relatively immature industry, takaful is looking to ride on the back of the explosive growth of Islamic finance in the Arab world, and increase its share in the global insurance market.

Global accountancy firm Ernst & Young predict that the international takaful market could be worth $7.7bn by 2012, up from a mere $1.4bn in 2004. Last October, the world’s second largest reinsurer Swiss Re said in a report that takaful grew 25 percent a year from 2004 to 2007, while the conventional insurance market posted low double digit growth at 10 percent in the same period.

Half of the market will go Takaful. It could be as high as that; up to 50 percent in five years.Like all Islamic financial products, takaful has to adhere to the strict principles of Sharia law. Income derived from interest is forbidden, along with revenue derived from prohibited activities or trade such as gambling, pornography, and alcohol. Takaful in Arabic means joint guarantee and it works on the basis that a group of people agree to share risk by putting money into investment funds, sometimes through a charitable donation, and then draw on these funds when there is damage or loss to a party.

"There is tremendous opportunity because it [insurance] is very underserved – insurance as a whole is very underpenetrated [in the Gulf], says Dinesh Chandiramani, director of distribution in equity and credit sales at Dubai-based investment bank Arqaam Capital.

"People are looking at decent growth for the sector of around 15 to 20 percent on an annualised basis because there is a nascent market right now which is in the process of being built up. It could grow significantly beyond that if the product is well-received and people start to buy into it," he continues.

Nick Frei, chief executive of Bahraini Islamic insurer t’azur predicts that takaful could have a 50 percent market share in the Gulf’s insurance sector by 2014.
"I firmly believe half of the market will go takaful. It could be as high as that; up to 50 percent in five years" says Frei.

But the rise of takaful has not been plane sailing. It still only makes up a fraction of the global insurance market and the sector’s growth has been hamstrung by a dearth of takaful reinsurers. Some are emerging, such as the Dubai-based Takaful Re, but generally there are too few companies to underwrite the risks of the smaller takaful players.

Therefore, many takaful companies go down the conventional route when it comes to reinsurance, and because of the lack of options available to the industry, it usually comes with Sharia scholars’ approval.

Currently, Malaysia, the world largest Islamic financial centre, is the market leader in takaful. It is home to some of the biggest Islamic operators in the world such as Takaful Malaysia, which aims to capture over half of the market share of the industry in under three years-despite the economic gloom. In comments made by the group’s managing director Datuk Hassan earlier in the month, the industry is worth RM12bn ($3.65bn), with his company’s current share at $1.13bn.

In conventional insurance, risk is sold at a price depending on age, background and financial status, introducing a largely commercial aspect. In takaful, transactions that are deemed to be uncertain are banned.For example, a Western insurance broker will sell risk, such as home insurance, not knowing whether there will be claim on the house.

In the West, insurance companies may invest in ventures which make their money from interest or in sectors that are forbidden by Islam.

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Organized tawarruq is permissible: Sheikh Nizam Yaquby

Organized tawarruq is permissible: Sheikh Nizam Yaquby

The use of the organised tawarruq financing structure does not contradict Islamic law, prominent scholar Sheikh Nizam Yaquby said, disagreeing with a Saudi-based ruling to the contrary.

Tawarruq is a key financing structure of the $1 trillion Islamic finance industry.

But whether or not the way it is organised in modern banks contradicts sharia, or Islamic law, has triggered fiery debates between scholars as the industry is struggling with a decline in business during the global financial crisis.

The International Council of Fiqh Academy, a leading industry body based in Saudi Arabia, in April declared organised tawarruq "a deception" that carries elements of interest-based lending, prohibited under Islamic law.

"If proper procedures are implemented and checks and balances are put, then tawarruq is a useful tool and can be used," Yaquby told Reuters in an interview.

Widely used as a financing and liquidity management tool, tawarruq is an asset sale to a purchaser with deferred payment terms. The purchaser then sells the asset, such as a commodity, to a third party to get cash.

Under organised tawarruq, the transactions are organised through banks which are appointed as agents to sell off the asset, in what has been criticised as a mere paper trail circumventing Islamic law and blurring lines between the purchaser and the third party.

Yaquby said centuries-old Islamic finance tools needed to be reconciled with the procedures of the modern banking system.

"All these Islamic finance tools have certain amounts of organization and we must know that (given) modern contracts within the existing frameworks, legal structures, it is very difficult to do something which is not organized," he said.

LOWER TRANSACTION COSTS

Yaquby is globally recognized as one of the top Islamic scholars, and in particular wields influence in the Gulf Arab region, one of the industry’s most important regional centres.

He is listed by consultants Funds@Work as sitting on 46 sharia scholar boards, including at Islamic operations of BNP Paribas, HSBC and Standard Chartered.

Yaquby also said there were hardly any alternatives to tawarruq as a tool to satisfy legitimate financing needs, to which he gave more weight than how it is implemented.

He said the use of a bank in selling assets would help minimise the losses occurring from the additional transaction, which would be higher if the purchaser sold assets himself.

"How can sharia allow something which is burdensome on a person … and not allow something which is organised and well done, and this man who is in dire need for cash will not suffer a lot," he said.

He voiced support for the standards of Bahrain-based AAOIFI — the Accounting and Auditing Organization for Islamic Financial Institutions — which he said provided the necessary checks to prevent the abuse of tawarruq.

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