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Islamic Finance: Islamic banks outstrip high street rates

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  • Zafar Khan
    Islamic banks outstrip high street rates October 7, 2011 5:44 pm By Elaine Moore
    Message 1 of 1 , Oct 30, 2011
      Islamic banks outstrip high street rates
      October 7, 2011 5:44 pm
      By Elaine Moore


      Islamic banks now provide the best returns on cash deposited for two, three, four and five years – and these market leading rates are encouraging more UK customers to put money into sharia-compliant accounts.

      Since advertising savings rates of up to 4.8 per cent on comparison sites such as Moneysupermarket.com, the Bank of London and the Middle East (BLME) has seen a fourfold increase in customer deposits.

      “The demographic of our investors is in fact mostly non-Muslims,” said Nigel Denison, executive director of BLME, one of the main providers of Islamic finance in the UK. “People are trying to diversify their holdings and we offer any term between three months and five years, so that flexibility is attractive.”

      HSBC, one of the largest UK banks, said it had seen the customer base for its Islamic Amanah Finance, which offers current accounts and loans, double in the past two years. “There has been an increase in understanding of what Islamic finance is,” said Riaz Hassan, HSBC Amanah UK national manager. “Non-Muslim customers like the ethical stance that the accounts take, and the popularity is such that we’re now looking at the prospect of offering savings accounts.”

      Rather than paying interest on customer money, Islamic savings accounts offer an “anticipated profit rate”, based on returns from commercial transactions. These commercial ventures must not include activity counter to the ethical stance of Islamic finance – which means deposits cannot be used to back businesses associated with tobacco, alcohol or pornography.
      “If we think that we won’t get the return advertised, we write to the clients and allow them to either dissolve the investment, taking their money and the rate advertised up to that date, or continue with the investment at a lower rate,” explained Samir Alamad, senior manager at Islamic Bank of Britain.

      Islamic finance is still a developing market in the UK, and relative newcomers such as BLME and IBB hope that market-leading rates will attract high street banking customers unhappy with the low interest rates offered by UK institutions, and their conduct during the financial crisis.
      Although a small number of banks from the Middle East came to London to offer bespoke services in the 1970s and 80s, it is only in the past decade that the industry has launched retail products, such as sharia-compliant credit cards, car loans and insurance.

      IBB, set up in 2004, was bought out by Qatar International Islamic Bank in 2010, following substantial losses. But, like BLME, it is regulated by the Financial Services Authority, which means that balances up to £85,000 are protected by the Financial Services Compensation Scheme. Although returns are “profit”, they are treated in the same way as interest on cash savings accounts for tax purposes.

      However, Islamic bank accounts will not be suitable for all savers. IBB requires customers to deposit at least £1,000 while BLME sets a more prohibitive £50,000 minimum – bringing it closer in line with investment banks than high street banks. Average deposits at BLME are currently £93,000.

      Islamic banking services even extend beyond sharia-compliant products. United National Bank – formed in 2001 from the merger of the UK branches of two Pakistani banks, United Bank Limited and National Bank of Pakistan – now offers non-Islamic savings accounts. Its three-year bond, paying 4.25 per cent, is the best non-Sharia rate now available to savers.
      Parents interested in setting money aside for their children when Junior Isas are launched in November can also opt for the sharia junior individual savings account (Isa), investing in the Global Islamic Equity Fund, from Scottish Widows Investment Partnership.

      Europe can learn from Islamic finance, says Luxembourg's Finance Minister
      Published: Wednesday October 19, 2011 MYT 1:45:00 PM


      KUALA LUMPUR: Europe can learn and gain from Islamic finance, given that financial institutions under it, have remained stable against the backdrop of the eurozone debt crisis.

      This observation was made by Luxembourg's Minister of Finance, Luc Frieden, in a keynote address at the IFN 2011 Issuers & Investors Asia Forum here today. Frieden said despite the credit crunch that has impacted Europe's banks, Islamic financial institutions had weathered the global crisis and emerged to be the most well managed.

      "Therefore, we can learn a lot from Islamic finance and from Asia, as we have much in common.

      "The key elements in Islamic finance that we need in the world today, particularly in Europe, are stability, financial partnership, provision of excessive risk and speculation as well as ethical principles," he added.

      He said in Islamic finance, the financial relationship between the lender and borrower, had assured the "partnership mentality", which was found to lead to certain stability.

      Explaining the need to avoid excessive risk taking place, Frieden said this is among the key goals of Europe and is an important feature found in Islamic finance.

      "The provision against speculation and gambling which is prohibited in Islamic finance, is what we can concentrate on," he added.

      He also said the element of ethical principles should not be limited to the Islamic finance industry alone. Frieden gave an assurance that Europe would find a solution to the debt-crisis that had led to volatility in the global economy.

      "There's no one easy solution and one meeting can't solve the crisis. We have embarked on a step-by-step process to solve the problems.

      "We will find a solution to the Greek issue. The Euro will be a currency you can count on in the future and see growth," he said.

      He said Asia and Europe must join forces for the development and prosperity of the global economy.

      "Therefore, Asian investors should look at Europe for trade and investment purposes, going forward," he added. - BERNAMA

      Islamic finance forum focuses on Shariah in banking
      Published: Oct 2, 2011 20:44 Updated: Oct 2, 2011 20:44


      WASHINGTON: The US-Qatar Business Council and the Bilateral US-Arab Chamber of Commerce hosted the 2nd Annual Islamic Finance Forum last week, offering much-needed insights into the growing use of Islamic financing and Shariah-compliant business contacts in the United States. The forum, held at the George Washington University Law School in Washington DC, featured academic, legal, banking and business experts analyzing how Islamic financing works in the US and how domestic economic development could use Islamic financing.

      Panelists discussed the growing trend among state legislatures to try to ban the recognition or practice of Islamic financing and Shariah law, actions that threaten to derail the growth of Islamic financing opportunities in the US and block US access to billions in Shariah-compliant investments from Middle Eastern countries.

      "This year's forum demonstrated that Islamic finance is not antithetical to the American way of conducting life or business, but is instead an inventive approach to financing business transactions that will open up the US market to greater foreign investment," said Ambassador Patrick Theros, USQBC president and executive director.

      "Islamic financing, once properly understood and leveraged, will not only strengthen economic ties between the US and the Middle East, but will prove beneficial to US companies willing to explore alternative financial arrangements."

      Zamir Iqbal, a leading investment officer with the quantitative strategies, risk and analytics department in the treasury of the World Bank in Washington who has written extensively and co-authored several books on Islamic Finance, used the opportunity to say the "economic principle of Islam is to promote social justice." The problem is that there are many Muslim countries that are engulfed in poverty, injustice and corruption, he said.

      There should be more emphasis on risk sharing, not only financial but also at society level, Iqbal said. "Those who are less privileged of society should be able to participate in Islamic economic activities," he said and cited Garmeen Bank as the famous example of successful micro financing which has helped micro financing to become a profitable adventure. Islamic finance promotes risk sharing and entrepreneurship, he said, adding that this created the instruments of re-distribution between the haves and have-nots. "Zakat, if collected and distributed properly, can help bring peoples out of poverty," he concluded.

      Ghiath Shabsigh, assistant director of the monetary and capital market department at the International Monetary Fund, who has previously managed the IMF's financial sector work in the Middle East and Central Asia region, said the veil of mystery shrouding Islamic banking has lifted. "There is a better grip on clarity" in Islamic banking and because of the extra scrutiny, the risk management is actually better," he said.

      But still there are many hindrances many of which have resulted from inexperience, he added. In some countries with large Muslim populations they tend to put their money in non-interest bearing accounts. "The majority are unsophisticated borrowers, especially in low-income countries. Still the concept of micro-loan financing is catching on," Shabsigh said. "It is a new concept and is picking up quickly, especially in Africa."

      Umar F. Moghul, a lawyer who works in banking and finance, private equity and real estate with his legal practice encompassing counseling financial institutions with respect to their obligations under the USA Patriot Act, warned of the young population in Egypt, Tunisia and the MENA region, where the "youth bulge" is drastic as is the cost of living. "This, along with high demand for education, infrastructure, health and wealth makes the transition from youth to adulthood all the more difficult. There, the GDP is not a sufficient indicator for wellbeing, and cannot mitigate these social stresses," he said. "This is not unique to Egypt and Tunisia, but could also be true for the US. "Islam is perhaps the only world religion with a moral economy and a strong rule of law," said Moghul. "This rule of law, Shariah, is seen as a source of justice. And a stable regime is critical to create stability."

      Along the lines of social justice, most of Islamic law's implementation and enforcement is a matter of private consciousness, he said, but added that "honesty, fairness, transparency, justice, and wealth distribution — as a law, Shariah is concerned about everyone. Counterparts, employees, the poor, orphans - everything is included, including animals and plants." He concluded by asking if the contemporary Muslim institutions are providing this.

      Rafi-uddin Shikoh, CEO and managing director at DinarStandard, agreed with Moghul, saying the "underlying fundamental presence of Islam is its founding on economic social justice." "What Grameen has done is something that financial institutions should have done a long time ago," he said.

      Islamic finance is all-in-all doing quite well, but added that the challenge is that the "the industry must not miss the tremendous opportunity to establish a leadership role in the global financial landscape or to even realize its full potential within its primary Muslim markets." At issue is the fact that many who have taken leadership roles within Islamic finance institutions come from conventional banking systems, said Shikoh. "Leaders need to embrace the unconventional, spirituality drive purpose of Islamic institutions and let those be the key driving forces that produce financial results, while maximizing returns to a higher calling."

      Islamic Banking, a Market with U.S. Potential, Hampered by Politics
      By Robert Barba
      JUN 9, 2011 7:10pm EDT


      Islamic finance is growing, but politics, and perhaps prejudice, might be hamstringing this business in the United States.

      In the past few years bills have been introduced in at least 20 states to forbid courts from invoking foreign laws in rulings. Proponents have touted the bills as a way to prevent Sharia, a code derived from Islamic law, from becoming the law of the land — a risk that many attorneys say is nonexistent. Arizona, Louisiana and Tennessee have passed "Sharia ban" laws, which critics call a way of scoring political points by exploiting anti-Muslim sentiment.

      It is unclear whether those laws would directly affect the growth of Islamic finance, which follows the tenets of Sharia law, such as a ban on paying interest. But at the very least, the political climate for Muslims is certainly not fostering a welcoming environment for what experts call an emerging market.

      "The U.S. is behind. There is a strong and rapidly growing Muslim population," said Steven Watts, a partner with KPMG's financial services consulting practice in Toronto. "The holdup seems to be largely political, but it is to the detriment of the U.S."

      Karen Hunt-Ahmed, an assistant professor of finance and management at DePaul University, said that even if the state laws have no direct effect on Islamic finance, they could still discourage Muslims from seeking such products.

      "They could make it psychologically more difficult for Muslims to participate in our banking system," she said. "There are social implications here."

      The United States began to lag in Islamic finance after the 9/11 terrorist attacks, she said.

      "Europe and other parts of the world decided to increase funding to study Islamic finance. Generally, the governments wanted to actively watch it and said they were going to be more involved and interested," Hunt-Ahmed said. "In the U.S., funding got cut and the sector became marginalized."

      A few small banks in markets with large Muslim populations view Islamic banking as a worthwhile.

      The $115 million-asset University Bancorp in Ann Arbor, Mich., has offered Sharia-compliant products since 2003 and is expanding to offer mortgages in places like New York City and Washington, D.C. This year it opened a branch in Chicago.

      The Pew Research Center estimates that there are 2.6 million Muslims in the United States, but not all adhere to Sharia.

      "There's not enough of a business to attract a major bank," said Stephen Lange Ranzini, University's president and chief executive officer. "It is a big enough niche for us to make a small profit."

      Watts said there are more opportunities, namely "ethical" investments that avoid putting money in gambling or alcohol and could appeal to Muslims and non-Muslims alike.

      However, Sharia-compliant mortgages (which are permissible under Islamic law because they are structured as lease-back or co-ownership arrangements) are a great entrance to the Islamic finance world, he said.

      Ranzini said that while anti-Sharia legislation has largely been passed in states that have small Muslim populations, he sees it as harmful.

      "Passing laws to ban Sharia when we have American soldiers in two Muslim countries and bases all across Europe where there are large minority Muslim populations is an ill-considered idea," Ranzini said. "The people that are hyped up about this issue are just very uninformed."

      A central player is the Center for Security Policy, a Washington think tank that published a book titled "Shariah: The Threat to America."

      Chris Holton, the center's vice president, said the state measures ensure that foreign laws do not impinge on Americans' constitutional rights. "It has no impact at all on Sharia-compliant finance," he said.

      Targeting Islamic finance is on the center's agenda, though.

      In 2009 the center's general counsel filed a lawsuit against Treasury Department Secretary Timothy Geithner and the Federal Reserve in the U.S. District Court for the Eastern District of Michigan.

      The complaint accused American International Group Inc. of using the money it received as part of the Troubled Asset Relief Program to fund its small Islamic finance business. The court ruled for the defendants, saying that the Tarp investment was secular and that there was no evidence AIG used Tarp money to support the Islamic finance business.

      "What we specifically call for is a standard of full and fair disclosure," Holton said. "They are already falling short."

      Holton claimed regulators have not adequately monitored Islamic finance. "You could take what the FDIC knows about Sharia and put it in a thimble and have room left over," he said.

      Holton has also criticized the Fed for holding informational sessions about Islamic banking.

      A spokesman for the Federal Deposit Insurance Corp. said that the industry is expecting to see more Islamic finance products in coming years and that some examiners specialize in Sharia compliance.

      Regulators have gone to great lengths to vet and understand Islamic finance.

      For instance, University Bank is two years into a process with the FDIC to get cleared to offer Islamic financing for residential homes.

      Ranzini said there are further hurdles, such as getting approval for Sharia-compliant loans backed by the Small Business Administration and Federal Housing Administration.

      Ranzini said there are 300,000 Muslims in the United States who are renters, despite having the attributes of creditworthy borrowers.

      "Bringing these Muslims onboard as homeowners is good public policy and would assist with solving the housing crisis," Ranzini said.

      Experts to debate impact of Islamic finance on economy
      Mon Oct 24 2011 09:00:55 GMT+0400 (Arabian Standard Time) Oman Time


      MUSCAT: Leading experts in Islamic finance will converge on Muscat in December to attend a major conference on Islamic finance.

      Organised by Amjaad Development, a major engineering group and chief organiser, Oman Islamic Economic Forum 2011 will be held at Al Bustan Palace Hotel from December 17 to 18. Leading practitioners in the fields of economics and finance will come under one roof to address the ways in which Islamic finance dealings can have a huge impact on global economy in general and the local economy in particular.

      The focus will also be on key issues in Islamic finances.
      Tun Abdullah bin Haji Ahmad Badawi, former prime minister of Malaysia, will be a keynote speaker at the two-day conference.
      The event aims at helping global stakeholders foster relationship with their counterparts in Oman.

      Addressing the media here yesterday, Khalid Hilal Alyahmadi, chairman of Amjaad Development said: “After the recent global financial crisis, more and more emerging global markets are looking to explore Islamic finance, making way for commercial opportunities for local corporations as well as international banks.”

      He pointed out that the sukuk market is worth $50 billion across the world. Oman now looks forward to bringing the takaful owing to the growing demand of Islamic banking in the country, he added.

      Amjaad Development hopes to become a pioneer in creating awareness on Islamic finance in Oman and has appointed a London-based Islamic advisory firm, Edbiz Consulting as a senior advisor.

      Professor Humayon Dar, a world renowned Islamic economist and Sharia technician, chairs it.

      Giving reasons for choosing Oman as the venue for the forum, Alyahmadi said: “Oman has the potential to become a regional centre of excellence for Islamic finance. We will start from the level where others have reached instead from scratch.”

      The Oman Islamic Economic Forum will also hold annual Global Islamic Finance Awards (GIFA) in recognition of outstanding contributions in economics. The awards will be based on an objective.

      proprietary methodology developed by Edbiz Consulting.
      According to the Global Islamic Finance report, the Islamic finance industry across the world is valued at $1.14 trillion. It is expected to grow from 10 per cent to 15 per cent per annum over the decade.

      The conference hopes to provide Oman the opportunity to optimise the potential of the industry.

      The sponsors of the event include Bank Nizwa, the first Islamic bank in Oman, BankMuscat and Al Madina Financial and Investment Services Company.

      OMAN: KPMG hosts seminar on Islamic Finance
      Sun, 23 October 2011


      Pakistan: SBP launches Islamic financing for farmers
      Published: October 19, 2011



      Thursday, October 27, 2011, 12:37 , by Joanna Ripard
      Experts eye impact of Sharia law on Maltese business with Libya


      It is too early to determine the implications of Libya’s plans for an Islamic banking structure for Maltese firms operating there, but they will certainly have to heighten their cultural awareness, Islamic finance expert Reuben Buttigieg told The Times Business.
      Declaring Libya liberated on Sunday, three days after the death of Colonel Muammar Gaddafi, transitional leader Mustafa Abdul-Jalil said that Islamic Shariah law would be the “basic source” of legislation and all existing laws contradicting Islam would be nullified.
      He said new banks would be established on banking principles which comply with Islam’s ban on interest and speculation. Interest would be cancelled from any personal loans already taken out for less than 10,000 Libyan dinars.
      Islamic finance is a $1 trillion global industry and incorporates one of the fastest growing forms of banking.
      “It is too early to determine the implications,” Mr Buttigieg said. “It all depends whether a dual system of banking will be allowed in Libya. If it is, then much will depend on Maltese firms’ partners and whether those organisations want to be Shariah-compliant.
      “If a unique, Shariah-compliant system is adopted, then one needs to take this into account particularly when it comes to joint ventures and co-mingling of funds. Certainly, the introduction of Shariah-compliant financing in Libya and the way that Jalil communicated it makes one think that Maltese firms need to change their modus operandi with Libyan entities. Maltese entrepreneurs need to be more culture-conscious and aware of what can and cannot be proposed.”
      Maltese authorities will have no choice but monitor the effects this will have on the Maltese economy and perhaps adopt a more proactive approach than Malta has so far, he added.
      Mr Buttigieg, chairman of the Malta Institute of Management and who for the past few years has lobbied for the introduction of a legislative framework that would allow Malta to become a centre of excellence for Islamic finance, stressed Jalil’s statement was a major development for Islamic finance practitioners.
      Maltese regulation allows some specific Islamic finance activity.
      “This is an even greater opportunity for Malta,” Mr Buttigieg explained. “New governments and new regulators may not immediately have the structures and legislative instruments in place. There will be strong interest from investors, Islamic microfinance institutions, and Islamic banks to head to Libya, but they will need the necessary peace of mind that their transactions are within an appropriately regulated framework. Finance Malta and the Malta Financial Services Authority should ensure that Malta takes the proactive role necessary to tap into this unique economic opportunity that will also assist in Malta continuing its humanitarian role.”
      He explained that many Libyan entrepreneurs will need financing and Malta could act as a conduit of financing into the North African country to support people realise their business ideas.
      Malta, however, needed to step up its communications to make it clear that Islamic finance is welcome and to offer a helping hand to Islamic finance institutions expressing interest in Malta. Authorities and ambassadors needed to be more active in promoting Malta and in encouraging Maltese firms to tap this opportunity. The island’s role would be key if a clear strategy on Islamic finance is in place, he said.
      Developments in Libya would have to continue to be watched closely for indications on when and if Libyan nationals move their deposits back home. Mr Buttigieg said Libya did not yet have its house in order and it will have to be seen when it would start building the necessary confidence and structures for people to move monies.
      Even here, he pointed out, Malta could have a role to play in terms of training, consultancy and assistance on structure building, but it had to be pro-active and act fast.
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