Islamic Finance Malaysia

Saturday, 29 September 2012

Malaysia still global runaway sukuk leader

KUALA LUMPUR: Malaysia is still the global runaway leader in the sukuk market,accounting for 68 per cent of the total global sukuk outstanding and 71 per cent market Share of the sukuk issued as at end-July. 

Bursa Malaysia remained the top sukuk listing destination, with 19 listed totalling RM99.6 billion (US$31.7 billion) as at end-July, according to the 2012/2013 Economic Report released by the Finance Ministry. 

Malaysia also remained among the global leaders in the Islamic finance management industry with the number of full-fledged Islamic fund management companies at 18 at end-July, it said.

The net asset value of Islamic unit trust funds at end-July stood at RM33 billion (RM28 billion at end 2011) and the Islamic wholesale funds at RM14 billion (RM7 billion at end-2011).

It said at end-July, 825 Syariah-compliant securities were listed on Bursa Malaysia, representing 89 per cent of the total listed securities with a market capitalisation of RM931 billion.

The report also said the Islamic banking business in the country will continue to expand, with total assets growing 20.6 per cent to RM469.5 billion as at end-July, representing 24.2 per cent of the total banking system assets (end-2011: 24.1 per cent).

The Takaful industry assets have increased to RM18.3 billion at end-July against RM16.9 billion last year.
It accounted for nine per cent of the total insurance and takaful assets as compared with 8.6 per cent in the January to July period.

(Berneo Post Online / 28 Sep 2012)

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Islamic banks' market share grows in Malaysia

Malaysia's Islamic banks gained a slightly larger share of total assets in the banking system in the first seven months of 2012, said the government in an annual economic report published on Friday.
Islamic banks accounted for 24.2 percent or 69.5 billion ringgit of the country's total banking assets as at end-July, up from 23.7 percent at the end of last year.
Total assets grew at a faster rate of 20.6 percent between January to July, compared to 15.4 percent in the same period last year.
The Islamic banks' deposits amounted to 362.7 billion ringgit at the end of July, increasing the share of total deposits to 26.1 percent from 25.8 percent at the end of last year.
Islamic financing accounted for 26.6 percent of total loans at the end of July, compared with 25.9 percent at the end of last year.
The household sector accounted for over two-thirds of loans made through Islamic financing.
Islamic financing is expected to account for 40 percent of total financing by 2020 due to greater participation and more diverse offerings, under the financial sector blueprint prepared by the central bank.
The Islamic capital market, consisting of equities compliant to sharia or Islamic law, improved its share of total trade volume to 66.8 percent from 59.1 percent last year.
"This market has contributed significantly to the development of the overall capital market, it remains an important alternative source for the raising of capital," said the report.
The share of sharia-compliant equities was unchanged at end-July, accounting for 65 percent, or 931 billion ringgit, of the total market capitalization.
Malaysia retained its pole position in the issuance of Islamic bonds, or sukuk, with a 71 percent share of global issuances, and it accounted for 68 percent of sukuk outstanding globally as at end-July.
The takaful industry increased its assets to 18.3 billion ringgit, or 9 percent of total insurance assets in the seven months, with nearly 80 percent concentrated in fixed income and government securities.

(Reuters / 28 Sep 2012)

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Tuesday, 25 September 2012

Malaysia Leads Way in Islamic Finance

Malaysia’s claims to being in the forefront of the internationalization of Islamic finance have been further strengthened by the attention given to the Global International Financial Forum (GIFF) held in Kuala Lumpur last week.

The third such gathering organized by the Bank Negara, it attracted not merely practitioners, academics and Islamic scholars discussing often highly technical subjects but Ali Babacan, the deputy prime minister of Turkey and a man who played a crucial role in the revival and modernization of Turkey’s economy after its 2001 crisis. 

Even after 10 years of government by a moderate Islamist party headed by Erdogan, only some 5 percent of Turkish financial assets are in the Islamic sector but the country recently made a significant contribution to the international sukuk (Islamic bond) market when it made a US$1.5 billion issue.

Turkey, out of deference to the state’s secular philosophy, does not even call its non-conventional system Islamic but refers to it as “participation” finance. It is a moot point whether this makes it more attractive to non-Muslims or less appealing to devout Muslims but it does attempt to get across the claimed benefit of Islamic finance, that borrower and lender share in what profits or losses emerge.

The engagement of Turkey, the most developed and democratic large Muslim-majority nation in the international Islamic finance arena, must give hope to those promoters who fear that the growth of the movement has been almost entirely due to the large surpluses of the oil rich Gulf states helped along by a Malaysia which has been the leader in developing a regulatory system and in providing consistent and timely interpretations of shariah law which can be applied to new issues and instruments.

In addition to Turkey, other important recent breakthroughs for sukuk market development include an issue by South Africa and issues denominated in non-dollar currencies, including the Singapore dollar and Chinese yuan. Kazkhastan has done a US dollar issue and even Ireland is considering one. Longer maturities are also now possible With oil rich Muslim countries still flush with cash, demand for sukuks appear to exceed supply and sukuk issues tied to specific projects are being promoted as a way to encourage issues by developing countries for infrastructure development.

Nonetheless it remains the case that this is a market in which the main issuer is Malaysia itself, which now accounts for over 50 percent of global outstanding issuance with Gulf countries accounting for most of the rest. To a large extent Malaysian buyers and issuers are captives – issuers being the Malaysian government or government-linked companies and buyers often being local pension and other funds. 

Malaysian issues do attract foreign interest, especially from the Gulf, and for now at least Malaysia’s stable currency and strong foreign reserves enable it to allow free trading of ringgit paper and hence promote the internationalization of the sukuk market. Total outstanding ringgit bonds are expected to top RM100 billion by the end of this year of which 60 percent are sukuk.

The role of Islamic products in Malaysia has been rising steadily and now account for about 22 percent of the overall financial system. But that success may be due partly to active encouragement – there is no official discrimination in favor of Islamic finance but Bank Negara is naturally keen to see its baby prosper – and partly to the ease with which major banks including the likes of HSBC are able to run parallel conventional and Islamic products. Thus many non-Muslims now also use Islamic banking and insurance vehicles.

Its expertise and training systems have made Malaysia the Asian center for international banks such as Citibank and HSBC from which to conduct their regional Islamic banking. However, though Islamic finance is likely to continue to grow faster than conventional finance it remains small on the global scale. 

Indeed, the biggest single Islamic finance system is found in Iran which accounts for 39 percent of the global total but is largely cut off from the outside world by sanctions. It seems that even in the world of Islamic brotherhood, the diktats of New York prevail over financial dealings with the Islamic republic. 

Plenty of other problems remain in the broader world of Islamic finance. One is the difficulty of liquidity management and the need to link it to specific contracts such as a commodity trade. Another is the development of frameworks for dealing with insolvency. Yet another is the creation of genuine demand in populous Islamic countries such as Pakistan and Indonesia.

For many, both users of Islamic finance and skeptical outsiders, many Islamic finance products appear simply to ape conventional finance. They use complex formulae which purport at least to tie all financial transactions to actual trade or investment. Money itself is not traded. Many Muslims see it as insufficiently different or moral to be worth worrying about. Other Muslims worry that it is insufficiently distinct and failing to provide products, other than shariah compliant equities, which genuinely rather than notionally link risk to reward.

However, the promoters of it can reasonably claim that its rules do at least prevent aping of the derivative products which have cost conventional banking so dearly, particularly in the west. Computer-driven fast trading of equities is also outside the bounds of what is acceptable under shariah law. And with the Asian crisis and various Malaysian bank rescues in recent memory, Malaysia appears to be taking a firm regulatory line with its own Islamic bankers as well as conventional ones. 

Whether Islamic finance elsewhere will prove in any way superior remain to be seen. At worst the imprimatur ofshariah compliance could fool the faithful more easily than conventional. But even well-known mainstream economists such as former IMF chief economist Kenneth Rogoff believe in its principles of being rooted in real transactions as opposed to conventional finance which has become too clever by half. So its rise has a way to run – at least unless and until oil and gas prices collapse and Gulf demand dries up.

(Asia Sentinel / 24 Sep 2012)

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Sunday, 23 September 2012

Malaysia : Centre for Islamic Wealth Management launched in Malaysia

INCEIF, BNP Paribas inaugurated the Centre for Islamic Wealth Management. The launch was held on the side lines of GIFF (Global Islamic Finance Forum) 2012. Malaysia is a nation that seeks to become an internationally recognised hub for Islamic wealth management. The research centre is located on INCEIF s Campus in Kuala Lumpur.
BNP Paribas Malaysia CEO Krishna Chetti and INCEIF President and CEO Daud Vicary Abdullah exchanged the Memorandum of Agreement (MoA) to commemorate the launch witnessed by BNP Paribas Malaysia Berhad Chairman Dato Abdullah Mat Noh, BNP Paribas Malaysia Board Member En. Halim Bin Din, Deputy CEO of BNP Paribas Investment Partners APAC, Vincent Camerlynck and INCEIF Board Member Rozali Mohammed Ali.
BNP Paribas is honoured to be a part of this landmark collaboration with INCEIF which reaffirms our commitment to Malaysia. Through this research centre, BNP Paribas hopes to contribute towards the growth of the Islamic Finance sector in Malaysia and the region, as Malaysia is a strategic hub for BNP Paribas Islamic Banking business in Asia-Pacific, said Krishna Chetti, Chief Executive Officer, BNP Paribas Malaysia.
In June 2012, BNP Paribas Malaysia launched its Islamic banking window under the Najmah brand, complementing our existing Islamic finance activities in Asset Management and international banking in Malaysia. We are serious and committed to build a solid base in Kuala Lumpur, with a strong focus on cross border. To succeed, talent development is crucial and we are looking forward to making a contribution to the industry, he added.
The research centre will carry out researches and developments in the area of Islamic wealth management, asset management and capital markets. The centre aims to be a catalyst of innovation in the nascent area of Islamic wealth management by enhancing the knowledge and know-how of players, including practitioners, Shari ah scholars, students, investors and the public, towards the development of a wider and diversified range of financial products and solutions.

(Equities.Com / 22 Sep 2012)

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Friday, 21 September 2012

Ireland's Electricity Supply Board (ESB) considers sukuk issue in Malaysia

Ireland's Electricity Supply Board (ESB) is considering whether to become the first large non-financial company from Europe to sell Islamic bonds by issuing a sukuk in Malaysia.
The issue could help to develop a new source of funding for European firms as the euro zone debt crisis constrains sources of finance at home. Sukuk are bought by cash-rich Islamic funds in the Gulf and southeast Asia.
"As part of ESB's overall funding programme, we are exploring many different options and are looking at the option of a bond in Malaysia," a spokeswoman for the state-owned utility said by email on Wednesday. A sukuk is one of the options being considered, she added.
Kieran Donoghue, head of the Irish Development Authority (IDA), told Reuters that ESB was considering a sukuk issue within the next 12 to 18 months. The IDA, a government organisation which attracts foreign direct investment to Ireland, is assisting the company with the issue, he said.
A source familiar with the matter said ECB had applied to local regulators for permission to issue a sukuk, and that the company might raise 1 billion euros ($1.3 billion).
Structuring of the sukuk could begin as early as January, once the application is approved by Malaysia's central bank. It might have multiple tranches denominated in currencies such as U.S. dollars and Malaysian ringgit, the source said.
ESB operates seven thermal power stations and ten hydro stations in Ireland, and has over 12 billion euros in assets with operating profits of 469 million euros in 2011.
These assets could be used to back the sukuk; because of Islam's ban on interest payments, sukuk pay investors with profits derived from assets.
Earlier this month ESB issued a 600 million euro, five-year conventional bond through its unit ESB Finance Ltd, which is rated BBB+ by Standard and Poor's.
"The recent issuance should be able to sustain them for a while," the source said.
Liquidity needs for the company, however, will exceed 900 million euros over the 12 months from June 2012, with 700 million euros required for capital expenditure alone, S&P said in an August report.
A sukuk issue by an investment-grade European company like ESB might have little trouble in attracting investors because globally, there is a large imbalance of demand over supply for sukuk, analysts say.
In Malaysia, sukuk accounted for nearly half of total bonds outstanding in the first half of this year, reaching 421 billion ringgit ($137 billion), compared with 35 percent in the same period last year, data from the Securities Commission shows.
Because of the strong demand, some global sukuk issuers this year have been able to raise money more cheaply than they could through conventional bonds.
"For a triple-A bond or sukuk, issuers can gain savings of up to 4 basis pointss to 6 bps. This may not be very much, but if the issuance size is big, the savings can be quite substantial," a Malaysian central bank official said.
The handful of previous sukuk issues by European entities have included a 100 million euro issue in 2004 by the German state of Saxony-Anhalt, and a $10 million issue in 2010 by International Innovative Technologies, a maker of milling machines in northeast England. The Middle East unit of European bank HSBC issued a $500 million sukuk last year.
Ireland has sought to position itself as a financial services hub and identified Islamic finance as a growth area. In June, Dubai's Jebel Ali Free Zone listed a $650 million, seven-year sukuk on the Irish stock exchange.
"There is the political will and determination to develop Islamic finance," said Neil Ryan, assistant secretary for the financial services division of Ireland's Department of Finance.
He said he was aware of an Irish company planning to issue sukuk, but declined to give details. "The decision to do this is up to them, but I think it will be determined by the price they achieve," he said.
"Islamic nations have cash, and Europe needs it."
(Reuters / 20 Sep 2012)

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Thursday, 20 September 2012

Islamic finance must be dynamic, innovative - Governor Zeti

KUALA LUMPUR: The rapid internationalisation of Islamic finance will hinge on three key factors including the wide range of global supply of high-quality Islamic financial products and services, said Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz.
Speaking at the Global Islamic Finance Forum 2012 on Wednesday, she said Islamic finance needed to be dynamic and innovative, and hence the second factor was a diverse and dynamic intermediaries and market participants with a global focus. The third factor was the required talent to steer the Islamic financial sector towards increased internationalisation, she said.
Zeti said these factors were crucial to ensure the sustainability of Islamic finance, which was undergoing rapid internationalisation.
Commenting on the first factor, she said there must be a wide range of global supply of high-quality Islamic financial products and services to meet the requirements of international businesses.
"In this phase of growing international transactions, Islamic finance needs to be dynamic and innovative, with an emphasis on the development of diversified and comprehensive Shariah-compliant financial solutions to meet the differentiated needs of various businesses, including the requirements of international businesses and thus facilitate cross-border investments," she pointed out.
Secondly, Zeti said there was a need for a diverse and dynamic intermediaries and market participants with a global focus.
"This includes having Islamic banking, takaful and capital market players that venture beyond domestic boundaries to tap global opportunities. Global ancillary services that are proficient in the Shariah, also have an important role in providing supportive professional services for such intermediaries and market players to effectively embark on such cross-border activities," she added.
The required talent was also crucial to steer the Islamic financial sector towards increased internationalisation.
She said the new financial landscape would require world-class business talent and boards with knowledge of the risks associated with internationalisation.
Zeti pointed out greater collaboration between the industry and education service providers would be important to support the talent requirements of the industry in its new phase of development.

(The Star Online / 19 Sep 2012)

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Sunday, 16 September 2012

Malaysia: Islamic finance players call for a regulatory framework that does not impede growth

There should be a balanced regulation for Islamic finance, one that does not impede its growth or allow for abuse, according to leading industry players.
CIMB Islamic Bank Bhd CEO Badlisyah Abdul Ghani says the Islamic finance industry needs a balanced regulation, adding that there is always fear for any industry to be over regulated
“We need regulation and the financial regulator must always strive for a balanced regulation so that it is not too rigid as to choke the industry or too slack, thus allowing for abuse,'' he tells StarBizWeek in an email reply.
The kind of regulation needed for Islamic finance for any jurisdictions will be the kind that is found in Malaysia but tweaked and adapted to the specifications of each jurisdictions, he notes.
Furthermore, he says financial regulators must not see the act of regulating Islamic finance as an act of regulating religion but merely regulating commercial transactions just like any other financial transactions.
Maybank Islamic Bhd CEO Muzaffar Hisham says currently there is the uncertainty surrounding the shift to an over regulation of the industry.
“I believe, where appropriate, there should still be proper adequate regulations based on the needs of the market but do, however, feel an open and free market economy mechanism is able to provide the required market discipline,'' he adds.
He says intervention by the regulators should take into account the overall long term impact of the efficiency of the market, adding that the potential uncertainties in the changes in Islamic finance regulations could impact the risk management of the industry in the long run.
HSBC Amanah Malaysia Bhd CEO Rafe Haneef, while agreeing that there should a balanced regulation in Islamic finance, says Bank Negara has done the right thing in setting up a comprehensive standard for regulating Islamic banking to ensure prudent banking even though some quarters feel that it is over regulated.
“Malaysia's Islamic fiance industry is one of the most comprehensive in the world in terms of regulatory framework and syariah governance framework. This is because the regulatory framework , among others, clearly spells out the responsibilities of the board, management and syariah committee, etc,” he adds
Asked whether Islamic finance can enhance or promote global financial stability in view of the current global economic environment, Badlisyah says it can, if the ethics in Islamic finance (as enshrined under Syariah) are codified within a country's banking and financial regulatory framework. Without codification of these ethics, the financial market including Islamic finance will still be subject to abuse from human greed, he notes.
He feels Islamic finance biggest contribution in the enhancement and promotion of a more stable global financial market and economy, will be the facilitation of optimal financial inclusion in any nation and the encouragement of a broader and wider distribution of wealth between the poor and the rich and between nations as well as within any nation.
Rafe says besides fulfilling religious needs, Islamic finance helps the financial system to mobilise all surplus savings and enhance the country's economy and gross domestic product growth.
On the difference in risk management systems in Islamic finance compared with conventional banking, Rafe says they are parallel in most areas although there are more constraints in Islamic banking. Some of these constraints include disallowing short selling and speculative transactions, he notes.
Muzaffar feels although there may not be any fundamental differences in managing risks between conventional and Islamic, there is still a need to be vigilant in managing Islamic finance risk, adding there is a need to constantly ensure any specific risk areas that needs to be addressed adequately.
Badlisyah, Rafe and Muzaffar will be among the captains of Islamic finance who will give their views at the third Global Islamic Finance Forum (GIFF) from 18 20 September. It will be hosted by Bank Negara and the event will held at Sasana Kijang. The theme of the Forum is “Internationalisation of Islamic Finance: Bridging Economies”.
GIFF 2012 is a high-level multi-track event that brings together regulators, scholars and financial industry players who are key drivers in the global development of Islamic finance.
This event is organised in collaboration with the Securities Commission, Malaysia, Bursa Malaysia, the Association of Islamic Banking Institutions Malaysia (AIBIM), Malaysian Takaful Association (MTA) and the International Shari'ah Research Academy for Islamic Finance (ISRA). The main coordinator for the event is the Islamic Banking and Finance Institute Malaysia (IBFIM).
(The Star Online / 15 Sep 2012)

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Islamic banks sacrifice returns for liquidity – Experts

A recent Islamic Finance Industry Leaders Round Table Discussion has pointed out that as Islamic banks are generally more liquid than their conventional counterparts, Islamic banks end up earning lower returns on short-term investments.
The forum, hosted by KPMG Sri Lanka and addressed by Neil Miller, KPMG’s Global Head of Islamic Financial Services who is an International expert in the field of Islamic Finance however highlighted that this is because there are fewer short term liquidity management options available to them to manage their surplus liquidity.
The round table discussion, while comparing Islamic finance in other countries, interestingly commented on the role of tea as a commodity and the role it could play on Murabaha based treasury placements.

The forum considered the viability of using tea as an alternate commodity that Sri Lankan Islamic Finance institutions could rely on in substitution to the metal used by London or Palm oil used in Malaysia. This was followed by a detailed discussion with regards to Sukuk and different means of structuring different types of sukuk such as Sukuk al Ijara and Sukuk al Mudaraba.
“Another issue highlighted was that while conventional banks can manage their surplus liquidity by transferring funds to interest-yielding accounts with Central Banks (even on an overnight basis), most Central Banks do not offer any Shari-a compliant returns to Islamic Banks on a similar basis. It was also pointed out that an investment other than on a short term basis can create a mismatch in the maturity profile of an Islamic bank’s assets and liabilities thus exposing the bank to a greater risk. The forum also noted that most of the Islamic Finance institutions in Sri Lanka were only engaged in issuing Murabaha, Mudaraba, Ijara and Diminishing Musharaka,” a participant at this conference told The Nation.
The participant, who did not wish to be quoted, said that another key matter discussed was the treasury placement issues for Islamic banks.

KPMG Sri Lanka hosted a CEO and Islamic Finance Industry Leaders Round Table Discussion on Friday t September 7, at the KPMG premises in Colombo. 
The event had commenced with a presentation by Miller covering the areas of money market instruments, financing and capital market product, consumer financing and government notes for Islamic Finance. This was followed by an interactive discussion with the audience on the status of the development of Islamic Financial services in Sri Lanka; where the industry peers pointed out the issues pertaining to the lack of investment opportunities facing Islamic financing institutions in the country.

Miller then spoke on how, many of the banks in Sri Lanka are engaged in issuing conventional credit cards and then went on to enlighten the audience as to the mechanisms of structuring different Shari’a compliant credit card structures such as Bai Al’Inah (Buy back finance based), Tawarruk (Cash finance based), Ijara (Lease based), Ujrah (Fee based) and Kafalah (Guarentee fee based).
KPMG is a recognized global leader in Islamic Finance and has been named ‘Best Islamic Assurance and Advisory Services Provider’ in the Euromoney Islamic finance awards for five consecutive years. 
(The Nation / 16 Sep 2012)

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Friday, 14 September 2012

Malaysia charts faster sukuk growth in first half of 2012

Islamic bonds accounted for nearly half of total issuances in Malaysia in the first half of the year, compared with 35 percent over the same period last year, data from the Securities Commission (SC) showed, reflecting the growing importance of sukuk in the country's capital market.
Sovereign and corporate sukuk in the six months to June increased to 420.8 billion ringgit ($136.96 billion) from 315.6 billion ringgit ($102.72 billion) over the same period last year.
The pace of growth suggests that the country is on course to reach its target of one trillion ringgit of sukuk bond issuances by 2020 as part of its capital markets plan for the 2010-2020 period.
"Malaysia is now the world leader in sukuk issuance. Political will, recognition of beneficial ownership, tax incentives, and a rising investor base have all supported the country's continued growth trajectory," ratings services agency Standard & Poor said in a report this week.
The agency said the growing popularity of sukuk was due to the decreasing number of conventional loans and their shortened tenures. Companies are also considering other options for financing, and Islamic instruments are expected to become a key funding source for the Gulf Cooperation Council region and Asia.
S&P said the G CC issued $19 billion in sukuk as of July, the same amount for the whole of 2011. Asia issued $57.9 billion in the same period, compared to $64.9 billion last year.
Malaysia accounted for two-thirds or $165.2 billion of global outstanding sukuk as at June. These included PLUS Berhad's 30 billion ringgit sukuk and issuances by government-linked firms, Khazanah Nasional Bhd and Cagamas Bhd.

(Reuter / 13 Sep 2012)

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Tuesday, 11 September 2012

UAE: National Bank of Abu Dhabi Soars on Malaysia Islamic License Plan

National Bank of Abu Dhabi PJSC climbed the most in almost a year after the largest lender in the United Arab Emirates by market value said it plans to seek an Islamic banking license in Malaysia.
The shares jumped 4.4 percent, the most since Oct. 30, to 8.83 dirhams at the close in the emirate. The benchmark ADX General Index (ADSMI) advanced 1 percent.
The Abu Dhabi-based lender wants to expand after starting non-Islamic commercial banking operations in Southeast Asia’s third-largest economy in July, Leong See Meng, chief executive officer of National Bank of Abu Dhabi Malaysia Bhd, said in an interview in Kuala Lumpur Sept. 7. Malaysia’s Islamic banking assets rose 21 percent to 359 billion ringgit ($115 billion) in July from a year ago, driven by government incentives for Shariah-compliant products, according to central bank data.
“Investors liked the news that NBAD is venturing into Islamic banking in Malaysia,” said Nabil Farhat, a partner at Abu Dhabi-based Al Fajer Securities.
National Bank of Abu Dhabi was among five foreign institutions, including Indonesia’s PT Bank Mandiri, which received central bank approval in 2010 to begin non-Shariah banking operations. “There are opportunities across the board,” Leong said.
National Bank of Abu Dhabi already offers products that comply with the religion’s ban on interest in the United Arab Emirates, including savings accounts, treasury instruments and trade financing.

(Bloomberg Business Week / 09 Sept 2012)

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Saturday, 8 September 2012

Malaysia: Islamic banking drives MBSB 1H profits

Malaysian Building Society Berhad (MBSB) posted strong growth with a pre-tax profit of RM233 million, an increase of 18 per cent or RM36 million from RM197 million for the same period last year. The improved financial results were mainly due to the increase in net income from Islamic banking operations especially in the retail segment. “The growth in revenue from the retail segment is mostly attributed to the good response from customers towards MBSB’s personal-financing-i “transfer package” launched early this year and extended into the second quarter which enabled customers to refinance their borrowings with our lower costs of personal financing-i and at a 100 percent disbursement payout,” said Datuk Ahmad Zaini Othman, MBSB’s President and Chief Executive Officer recently.
On a quarterly basis, the Group recorded a pre-tax profit of RM123 million which is an increase of 11 per cent and 16 per cent from the first quarter 2012 and second quarter 2011 respectively. “The deposits which stood at RM17.9 billion as at 30 June 2012 grew by 33 per cent from 31 December 2011 of RM13.5 billion,” added Datuk Ahmad Zaini. The company has announced an interim dividend of 6 per cent less 25 per cent income tax or 4.5 sen net per ordinary share. 

(Realestate And Decor / 07 Sept 2012)

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Malaysia: Bank Muamalat Q1 profit up 42%

KUALA LUMPUR: Bank Muamalat Malaysia Bhd’s net profit for the first quarter ended June 30 surged 41.6% to RM45.2mil compared with a year ago, underpinned by a 14.5% rise in revenue, which increased to RM255.6mil.
Financing income rose 18.1% to RM148.3 mil due to increased financing growth while fee and other income delivered a 55.8% jump with major increases registered in wealth management, trade and financing related activities, apart from some capital gains from sale of securities registered during the quarter.
In respect of capital adequacy, the bank’s key capital ratios remains higher than the industry level, with core capital ratio and risk weighted capital ratio standing at 13.6% and 18.9% respectively, well above the minimum regulatory requirement.
(The Star Online / 07 Sept 2012)

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Thursday, 6 September 2012

Malaysia: Government urged to look at halal economy from business perspective

There is a need for the government and the private sector to look at the halal economy from a business perspective instead of a purely religious one, to fully capitalise on the opportunities so that Malaysia is not left behind in meeting the burgeoning global demand for halal products.

“When you talk about the halal economy, you should segregate the religious and business part of it. All this while, there has been a lot of focus on the religious side. What about the business side of it?

“If we don’t have capable players and good products, it still doesn’t bring anything to the country,” said Halal Industry Development Corp (HDC) chief executive officer (CEO) Datuk Seri Jamil Bidin.

He was speaking at The Malaysian Reserve (TMR) roundtable discussion on the halal economy last month, attended by industry players. The roundtable discussion was hosted by HDC and moderated by TMR chief operating officer/ group editor Abdul Halim Wahab.

Participating in the roundtable discussions were Islamic Development Bank (IDB) regional officer-in-charge of Malaysia Kunrat Wirasubrata, AYS Sdn Bhd CEO Liaw Ren Jian, Kontena Nasional Bhd CEO Hood Osman, Nestlé (M) Bhd executive director of human resource and group corporate affairs Zainun Nur Abdul Rauf and Nestlé Malaysia chairman of halal committee, regulatory and scientific affairs Othman Md Yusoff Jamil pointed out that there is an urgent need for the opportunities to be fully capitalised on by local players as “halal means business”.

“That is why many non-Muslim countries are jumping into this industry now. China is coming in big, Thailand is there, so are South Korea and Japan because they too see that halal is business.

“The demand at the moment is so huge but the supply is not there, so they are filling that gap. As a country, we should not miss this because even though we are the first mover, the industry is moving so fast that they might catch up and we will be left behind,” he said.

The following are excerpts of the roundtable discussion:

TMR: To put it in perspective, the halal economy in Malaysia and throughout the world was once disorganised. But today it has turned into a serious economic sector creating a new wave of economic opportunities and investments. In fact, it’s been referred to as the “3rd billion economy” after China and India.

The global halal food market was valued at more than US$600 billion (RM1.87 trillion) last year and it is estimated to grow by 15% to 20% this year. The key drivers are the increase in the global Muslim population, the economic development of Muslim countries and more demand from new markets in Europe, China and India. What are the challenges and prospects for the halal economy going forward?

Jamil: Firstly, calling it the halal economy is the right term as industry is not the appropriate word. Halal is not a single industry. Halal economy is more appropriate because if you look the halal concept itself, it is very diverse.

It covers food, non-food, services and almost everything in our life. So the halal economy is a lot bigger than just the food industry, even though a lot of focus has been put on the food industry in the past.

The biggest problem in the past has been that awareness of halal itself was very low even among the Muslim countries. What more among the non-Muslim countries. Even in Malaysia, the understanding of halal is not at a comfortable level. But when we start talking about the halal economy, people will begin to understand that there is a lot more to halal. For the non-Muslims, the concept of toyiban has not been well explained or even spoken about. That is the reason why in certain countries, halal is associated with religious products and exclusively for Muslims, which is not correct at all. We want to re-brand halal as inclusive and not exclusive.

Secondly, I think the issue of certification has been talked about for many years. While all this argument about certification is happening, business is still going on. We find that many consumers around the world are not concerned whether the logo comes from Malaysia, Thailand, Indonesia or Singapore or from which ever country. TMR: I suppose having one halal standard is still work in progress.

Jamil: Yes it is still work in progress, but I think the bigger issue is about halal food insecurity. While we are debating on this at the Organisation of Islamic Cooperation level, the agenda about halal food insecurity was never discussed.

There are 1.8 billion Muslims around the world. By the year 2013, the Muslim population is going to be 37% of the global population. If you look at the halal supply side now, it’s very small even though Malaysia was the biggest exporter last year. There is big opportunity here and industry players need to come in and step up supply.

TMR: Given this perspective, what is Nestlé’s point of view on the challenges and prospects as a global food manufacturer?

Zainun: As a food producer, Nestlé also faces challenges in terms of food insecurity. For instance, if you want to expand your product range, we have to make sure that the raw materials used in our production are halal. But to get the supply of these materials is always an issue for us which in turn makes it difficult for us to expand as there is no other supplier. That is always an issue. More importantly, if our suppliers are hit by a crisis, we are stranded. It is important to have awareness on the importance of the halal label. Of course, the certification is important to ensure we have continuous supply of raw materials.

Othman: The supply of halal products has not met demand. Even for Nestlé, which is the biggest halal food producer, our total halal food production is just 1% of global demand. So just imagine there is a lot of potential in certified halal products. But there are also halal products which are not certified.

We (Nestlé) have taken this initiative to pave the way because we have said that if we want to do it right we need to do it systematically. When I joined the company in 1988, we already had the halal committee up and running. So with that we started building the knowledge.

The most common challenge the industry faces today is in the supply of ingredients etc. We would definitely want our source to be from here or somewhere nearby. When you speak about ingredients, apart from halal, the ingredients must meet the specifications. There is a technological aspect to it, that is whether an ingredient can be made as part of industry requirements in terms of the specifications, microbiological counts and particle size. We need to ensure that the standard is met and supply can be sustained.

A key area that we should look into is to grow in terms of halal ingredients suppliers. As a halal hub, I foresee that one day we won’t need to go out and promote logos as the value will come from the products that we produce, not in the certification.

TMR: What are the challenges from the perspective of Kontena Nasional as a logistics player?

Hood: Based on what we’ve gone through so far, we started talking to HDC in 2009 with regard to a positive collaborative engagement to identify possibilities to create another revenue stream which is to offer halal logistics services.

From then on, we’ve made strides with regard to the preparation of the infrastructure which I think is very important. As a trade facilitator, which is what a logistics service provider is, providing the infrastructure, the know-how, personnel and appreciation of halal logistics services is crucial.

The challenges we face are more on the appreciation, understanding and acknowledgement of halal, be it certified or non- certified. Non-certified is a bit more difficult because people will start questioning how the halal process is being done. Certification makes it easier for us to start.

But it doesn’t stop there, especially in our role as a PNB (Permodalan Nasional Bhd) company to spur small and medium industries (SMEs). As you know in order for Malaysia to become a halal hub SMEs must come into play with regard to right-sizing the economy. If you look at it, Indonesia is one of the good examples, where SMEs are coming up like mushrooms. There is a demand for local produce, because with 240 million people, there is that kind of consumption.

But Malaysia is heading towards a much more strategic dimension with regard to technicality, technology and a systematic approach.

TMR: While halal logistics is another revenue stream for the company, is investing in it an issue?

Hood: Initially, yes. It is in fact because you have a three-phase investment, from my perspective. If you look at Kontena Nasional, we already have warehouses in Penang, Central, Kuantan and Johor, so transforming that as part and parcel of a halal ecosystem was easy. But for somebody to start fresh, if he was to propose a full halal supply chain, then the warehouse investment must come in.

When we take a look at our fleet, when transporting perishable goods, cross-contamination becomes an issue, so you need to put aside a few containers just for halal foods. If you go one step beyond that, you look at refrigerated containers. They also cannot be contaminated with other goods, as although Kontena Nasional does not carry any non-halal items, the audit is quite strict.

TMR: Market access and branding are important in any business. So is funding, which is where IDB comes in. How do you see this market progressing and what role can the bank play in terms of funding the halal economy?

Kunrat: One of the things that we have been working on is to try to connect interested investors from all countries, so this is one way of increasing investments. We have to consider that ‘halal’ per se comes from a religious concept.

Although you would like people to grasp the concept of halal, it is still identified as an Islamic concept, like kosher products are identified with the Jews.

My view is investment in halal should not be expensive. If you are looking for 100% purity, it is very difficult, as even during the Prophet’s time some contamination was permitted. The search for 100% purity may lead to excessiveness.

We are currently talking to a Malaysian financial institution to provide a line of financing. This is one of the proactive stances that we are taking. We have established a small team in Kuala Lumpur and Jeddah to discuss whether we will focus on the business side.

TMR: Perhaps, Mr Liaw can add his perspective as an SME player. As far as funding for halal is concerned, how easily available is

Liaw: You can look at me as a 2-in-1, a multinational company (MNC) mindset wrapped around an SME. This is due to my 14 years’ experience in the corporate side in the manufacturing and marketing of halal personal care products in Malaysia, but today, I run my own halal business. Secondly, you can look at me from the non-Muslim perspective.

Number one, it is a high cost business, full stop. When it comes to the SME, the challenge is even greater. From an MNC perspective, sourcing and buying is not an issue because they can afford it, but when it comes to SMEs, every dollar comes from the owner. To add to that, sourcing is always a challenge because we do not have the leeway to buy from a cheaper option as the cheaper option normally does not come with a halal certification.

The other bigger problem for us is the logistics. For Sabah, Sarawak and Brunei, the cost is high to ship our frozen ready-made meals there. Why? As an example, our logistics provider initially thought that they could have economies of scale. If they were already in the frozen food business, they thought they could put our products in and maximise the container load factor. Unfortunately, I told them, I needed exclusivity for my container because we have to make sure that the total supply chain is halal-certified, so that adds up cost. Being in the business of frozen products, cost is even higher. It is the high cost that affects us when we ship our products.

I met Datuk Seri (Jamil) last year and asked him “what do you think about a non-Muslim in the halal business? Are we just trying to get money from the Muslims?” I liked the way he answered. He said it is about the consumer market, supplying what the Muslim market wants, and just because the player is not a Muslim doesn’t mean he cannot enter the market.

But, we need to adhere to the set of rules and that’s how I learnt about the halalan toyyiban concept, which is a very good idea. If we can share this concept, it will benefit the non- Muslims as well because it is about wholesomeness. We want our food to be produced in a clean, safe, and hygienic environment, this is a universal value.

With regard to funding in Malaysia, the banks don’t really see whether it is a halal business. They see your business performance. For SMEs, there is difficulty in convincing them. If we say, we are a halal company, it doesn’t add any value, sorry to say that. This is something perhaps the agency can look into.

What the panelists say… 
On the supply chain 
Jamil: If you look at industry players like Nestlé, they still have problems when it comes to the whole value chain. They are the biggest food producer but they are finding difficulties in getting the raw material supply. So this is where most of the industry players must look at the whole value in the value chain. Instead of being crowded in the end part of the value chain, why can’t I be in the ingredient part of the chain? Logistics? Or the softer part, marketing? I can be a good trading company. If you look at the whole value chain, there are a lot of components, even banking. Once people become more aware about the need for Islamic banking in the halal economy, then there will be demand. In Malaysia we still have that problem, the awareness about being in the various parts of the value chain.

Zainun: In the last few years, Nestlé has actually been working with the SMEs in terms of passing the knowledge on how to produce
not just halal but a sustainable supply of raw materials. For example, we were looking for a raw material that we have been
importing over the last few years. We tried to get a local supplier but it turned out there is nobody that could actually supply
us with the materials that we wanted. There is a ready market but there is no one to supply to us. So there is always an
imbalance in terms of the product that we want and the supplier of the raw material.

On certification and cost… 
Hood: There could be a day, maybe 30 years down the road that we don’t need halal certification anymore because everybody acknowledges, admires and respects that this is halal and this is not. But right now because it is during this migration, there is a need for you to draw the line. But once you have drawn the line, you need to understand that it goes back to practical business utilisation. Halal is not halal just because it is for Muslims. Halal is because the food is safe, secure and hygienic. So basically when we promote that, it goes beyond the 1.8 billion people we are trying to market to. So the economic scale automatically comes in and the cost will come down.

(The Malaysian Reserve / 05 Sept 2012)

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