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"The company has already received an exemptive relief order from the Securities and Exchange Commission (SEC), the US regulator, to launch the funds on the US exchanges," Saeid Hamedanchi, CFA, president & CEO of Florentez (ShariahShares ETF), said in an exclusive interview with Arab News here recently.
Hamedanchi, who was traveling to the GCC (Gulf Cooperation Council) countries to test the waters for demand for ETFs, said Islamic finance is growing by leaps and bounds in the US in recent times. He said, for example, Amanah funds have had spectacular asset growth in the US. "More and more investors wanting to invest according to Shariah in the US. There are seven to 10 million Muslims in the US. A majority of them are affluent immigrants from Southeast Asia, the Indian Subcontinent and the Arab world," he said, adding that even non-Muslims are buying these Shariah-compliant funds due to strong performance.
He also emphasized the fact that CFA Institute that grants highly coveted Chartered Financial Analyst (CFA) designation from Charlottesville, Virginia, US, is planning to offer curriculum in Islamic finance and socially responsible investing/ethical investing (SRI). This clearly shows that Islamic finance has made it to mainstream in the financial services industry globally.
He added that non-Muslims are also investing in Shariah-compliant ETFs due to financial ratio and Shariah indexes being more financially conservative than their conventional counterparts. Highly indebted companies get into financial distress when their debt level reaches a certain level. In that circumstance, they are no longer held by Shariah indexes. For Example: Enron, Worldcom and others as evidenced in the 2001-2003 recession, he said. This causes the Shariah indexes to outperform the conventional indexes during market downturns. Another factor has been lack of exposure to conventional bank and financial institutions. He added that Shariah-compliant indexes have outperformed conventional indexes in the developed markets for the past five years.
Hamedanchi said after the NYSE listing, we will move to the London Stock Exchange (LSE). The LSE will be gateway to the Gulf region."
Hamedanchi, who had worked at the Jeddah-based Islamic Development Bank (IDB) for nearly four years from 2003 to 2006, said Florentez, which was founded in 2006 by Hamedanchi and Jim Altenbach, CFA, is planning to list ETFs in the GCC exchanges in the future.
"We are planning to offer products in the GCC region, especially in Saudi Arabia. We believe that Saudi Arabia has a big future in Islamic finance because of its solid economic fundamentals and the desire of investing public to invest according to their faith" he added.
Hamedanchi said very few ETFs are there in the Gulf region now. It is a new market in the GCC and very exciting to be in this market.
ETFs are investment funds traded on the exchange during trading time, similar to stocks. ETFs enjoy several advantages over mutual funds and stocks.
Like other investment funds, ETFs are composed of a basket of assets (listed companies shares), however unlike mutual funds, ETFs are traded on the exchange. ETFs are more transparent since they track the movement of the underlying assets index and investing in the index by the same proportions. It is easier for investor to measure the performance of the ETF by tracking the movement of the underlying assets index. ETF units are traded by Bids and Asks during trading time.
Hamedanchi said "We are in the middle of a road show and talking to potential investors in Saudi Arabia and other GCC countries about our exciting venture. For the best interest of investors, we are offering low investment management fees and great value for our fund management services."
He said Florentez is planning to have big presence in the region by opening offices in GCC countries. "We are looking for distribution partners in GCC countries, probably first in Saudi Arabia because of its big market size."
Hamedanchi said Saudi Arabia launched its first ETF on Sunday. The first ETF by Falcom Financial Services, which will be accessible to foreign investors, was listed and started trading on Tadawul on Sunday. Falcom won approval from the Capital Market Authority (CMA) earlier this month to list a Saudi Equity ETF on the bourse.
Hamedanchi said the Falcom ETF would be a huge success as Saudi Arabia is trying to attract more foreign money to its bourse. This will increase the number of offered tradable products consequently help investors to diversify their investments.
Global banks and fund managers have opened up their offices in Riyadh and are exploring ways to tap opportunities on the best performing bourse last year and so far in 2010. Despite gains of more than 10 percent since January and 27 percent in 2009, investors still see potential for stocks.
Hamedanchi said many other ETFs would be launched in the GCC countries during this year and next year as well. The Kuwait-based Global Investment House (Global) said Dow Jones, leading global index provider, has given National Bank of Abu Dhabi a license to launch Dow Jones UAE 25 Index, which measures the performance of the 25 largest and most liquid equity securities trading in UAE.
ETFs entered global markets for the first time in the year 1989 through the Canadian market followed by the US in 1993. Since then ETFs have experienced very rapid growth, the ETF assets have increased from $72 billion in 2001 to $700 billion by the end of 2009 in the US market alone. The ETF industry has witnessed 40 percent annual growth rate for the past ten years, according to the industry sources. Furthermore, the industry expects growth of 20-25 percent in the next five years, according to Euromoney. Furthermore, assets under management reached $1 trillion by at the end of 2009, according to Black Rock's Debbie Fuhr.
Source : Arab News 2010
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29 March 2010 SHARJAH - Sharjah Islamic Bank (SIB) has donated AED 5 million to the Abu Dhabi Zakat Fund, an independent establishment aiming to spread awareness of Zakat (giving a small percentage of one's possessions to charity) and its impact on society, and to collect Zakat and spend it locally in accordance with Islamic teachings (Shariah). Mohammed Abdullah, SIB Chief Executive Officer, says of the Bank's initiative: "SIB's contribution to the Zakat Fund is aimed at supporting efforts seeking an integral and united society. The initiative is also in line with SIB's goal of spreading communal partnership and the core ideals of social development that we are proud to uphold". "Private establishments in the country have a vital role to play in the support of charitable initiatives if they seek to contribute to their country, and we are proud to announce a strategic communal partnership with the Zakat Fund," he adds. Zakat Fund Secretary General Mr. Abdullah Bin Aqeeda Al Muhairi says of this event "Our partnership with SIB is in line with the Zakat Fund's strategic plan to cooperate with local and international establishments and institutions concerned with Zakat and charity work". Al Muhairi was excited at receiving the charity money through the partnership with SIB, which strives to realize the concept of communal partnership that contributes to the development of society and human relations. We hope that everyone follows in the footsteps of Sharjah Islamic Bank to strengthen the relations between people and organizations looking to make a contribution, and people who need Zakat. Sharjah Islamic Bank is the first bank to successfully convert from traditional banking to Islamic banking in 2002, offering a wide range of Shari'a-compliant services and international banking to individuals, establishments, institutions and investors. Through well-place risk management strategies SIB has managed to achieve an unprecedented growth rate, launching 23 branches throughout the UAE, in addition to over 100 strategically-located ATM machines at residential areas, shopping centers and entertainment centers.
Source: The Saudi Gazette 2010 |
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29 March 2010 SHARJAH - Sharjah Islamic Bank (SIB) has donated AED 5 million to the Abu Dhabi Zakat Fund, an independent establishment aiming to spread awareness of Zakat (giving a small percentage of one's possessions to charity) and its impact on society, and to collect Zakat and spend it locally in accordance with Islamic teachings (Shariah). Mohammed Abdullah, SIB Chief Executive Officer, says of the Bank's initiative: "SIB's contribution to the Zakat Fund is aimed at supporting efforts seeking an integral and united society. The initiative is also in line with SIB's goal of spreading communal partnership and the core ideals of social development that we are proud to uphold". "Private establishments in the country have a vital role to play in the support of charitable initiatives if they seek to contribute to their country, and we are proud to announce a strategic communal partnership with the Zakat Fund," he adds. Zakat Fund Secretary General Mr. Abdullah Bin Aqeeda Al Muhairi says of this event "Our partnership with SIB is in line with the Zakat Fund's strategic plan to cooperate with local and international establishments and institutions concerned with Zakat and charity work". Al Muhairi was excited at receiving the charity money through the partnership with SIB, which strives to realize the concept of communal partnership that contributes to the development of society and human relations. We hope that everyone follows in the footsteps of Sharjah Islamic Bank to strengthen the relations between people and organizations looking to make a contribution, and people who need Zakat. Sharjah Islamic Bank is the first bank to successfully convert from traditional banking to Islamic banking in 2002, offering a wide range of Shari'a-compliant services and international banking to individuals, establishments, institutions and investors. Through well-place risk management strategies SIB has managed to achieve an unprecedented growth rate, launching 23 branches throughout the UAE, in addition to over 100 strategically-located ATM machines at residential areas, shopping centers and entertainment centers.
Source: The Saudi Gazette |
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Open-ended Sharia-compliant fund, with daily dealing Low risk investment opportunity Access to Sharia-compliant liquid instruments Offers diversification benefits Special two-week offer available
Dubai, March 29, 2010:
Emirates NBD, the largest banking group in the Middle East in terms of assets, announced today the launch of Emirates Islamic Money Market Fund (the "Fund"), a daily dealing Sharia-compliant open ended fund domiciled in Jersey. The Fund aims to achieve higher profit return than comparative Sharia-compliant bank deposits, predominantly from a diversified portfolio of Sharia-compliant money market instruments.
"The Fund is one of the first of its kind globally and will look to access the growing range of Islamic cash or near cash investments. It will also seek to benefit from the yield pick-up in USD-pegged currencies and the current cost of funding for corporates and banks," said Deon Vernooy Head - Asset Management, Emirates NBD.
"As Islamic investment draws increasing interest from large financial institutions worldwide, Emirates NBD continues to stay ahead of the curve by developing and managing innovative and sophisticated investment vehicles that adhere to the highest standards of Sharia-compliance," he continued. The Fund provides investors diversification from traditional equity and real estate investments and can form part of an investor's portfolio irrespective of their investment horizon. Further, the Fund can also be used as a parking facility during periods of surplus liquidity.
The Fund will acquire a diversified portfolio, including but not limited to, Islamic deposits, murabaha, sukuk and international trade contracts. Assets will be diversified across a range of durations and liquidity terms in order to optimise potential for higher profit, without unduly increasing volatility or hampering daily liquidity. Investors may invest at a discounted upfront fee during a special two week offer period, which will start towards the end of March. The Fund will be managed by Emirates NBD Asset Management, the same team that managed the award winning "Emirates Sukuk Fund No.1 Limited" and also won the "MENA Asset Manager of the Year 2009." Emirates NBD Asset Management is a fully-owned subsidiary of Emirates NBD Bank and is regulated by the Dubai Financial Services Authority.
Source : Press Release Zawya
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26 March 2010 PARIS: Qatar Islamic Bank (QIB) is all set to enter into the retail insurance market of France in a big way. QIB and the French insurance giant BPCE have signed a Memorandum of Understanding (MoU), setting up the framework of a common reflection in the field of Islamic finance.
The MoU is designed to promote cooperation between the two banks in France, and try to build a lasting partnership.
Islamic finance is a segment of world's finance experiencing a strong and sustained growth over the last decade. It can be considered as an alternative or ethical finance, taking into account extra-financial criteria, while offering competitive financing or investment solutions structured upon specific financial schemes, differing from those used in conventional finance,Salah Mohammed Al Jaida, CEO of QIB said. BPCE and QIB believe that they could take advantage of working together in this field by pooling their respective experiences and expertises.
QIB has more than 25 years experience in the provision of Islamic banking and finance services and is the first global Islamic bank, one of the 5 largest Islamic banks in the world and the leading Islamic bank in Qatar in all markets segments. QIB group is ideally equipped to provide superior quality and innovation in Islamic banking services to its growing customer base around the world. With a presence in the Middle East, Europe and Asia, QIB is constantly searching for opportunities to work in partnership with leading institutions to facilitate expanding its Islamic banking operations into new markets. |
Source : Article originally published by The Peninsula 26-Mar-10 |
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London, 16 March, 2010 - Bank of London and The Middle East plc (BLME), London's leading wholesale Sharia'a compliant bank, announced today the launch of its Premier Deposit Account (PDA), the first online Sharia'a compliant PDA in the UK. With a minimum investment of £50,000 this account is ideal for investors looking for a competitive rate of return on an ethical, alternative investment.
BLME's PDA allows the investor competitive returns on their investment deposited with BLME when compared with other UK high street institutions' deposit products. BLME pay profit upon maturity of the original agreement or on the anniversary of the investment - based on which comes first. BLME is covered by the FSCS £50,000 deposit guarantee scheme.
Humphrey Percy, CEO of BLME, said:
"The launch of the PDA highlights London's leading role in the development of Sharia'a compliant products in Europe. Since its establishment in 2007, BLME has witnessed a growing demand among medium to high net worth individuals for a banking option that incorporates the transparent and ethical principles inherent in Islamic finance with competitive returns. With the financial climate improving, individuals are looking to diversify their investments that were previously solely held by UK high street banks."
In addition to Sharia'a values of transparency and ethical business practice, the PDA also boasts competitive rates for customers, as seen in the chart below.
Term |
£50,000+ |
£100,000+ |
£750,000+ |
3 months |
0.35% |
0.65% |
0.75% |
6 months |
2.00% |
2.30% |
2.40% |
12 months |
3.10% |
3.40% |
3.50% |
18 months |
3.50% |
3.80% |
3.90% |
2 years |
4.00% |
4.30% |
4.40% |
Humphrey Percy added:
"The PDA expands our product offering and continues to demonstrate that BLME is an innovator of Islamic banking solutions. Excellent client services and relationship management remain a crucial value for BLME and its business approach."
-Ends-
About BLME
Bank of London and The Middle East plc ("BLME") is an independent UK wholesale Sharia'a compliant bank based in London. BLME received FSA authorisation in July 2007 and is the largest of its peers in Europe. It is led by a management team that brings together a combination of experienced international bankers and leading experts in Islamic finance.
The five core areas that set the foundations for BLME's competitive offering are Private Banking, Asset Management, Corporate Advisory, Corporate Banking and Markets Division.
BLME is dedicated to offering innovative Islamic investment and financing products to businesses and high net-worth individuals in the European, US, SE Asian and MENA regions. To ensure that BLME's services and operations are wholly Sharia'a compliant, the Bank has a dedicated Sharia'a Supervisory Board ("SSB"). The SSB's role is to review contracts and agreements relating to all transactions ensuring that they are consistent with the principles of Islamic jurisprudence.
About Islamic banking
Islamic Finance upholds the principles of fairness, integrity and transparency.
The principle of fairness is reflected in the risk and reward-sharing element that forms the foundation of every Islamic financial transaction.
Islamic finance aims to create business activities that generate a fair and equitable profit from transactions that are backed by real assets. This method of financing avoids speculation, short selling and excessive credit creation whilst encouraging sound risk management procedures.
Islamic banking has a robust system of risk management and self-regulation to ensure that each transaction is transparent and that the appropriate due diligence and higher standards of disclosure required are observed. To ensure compliance with these requirements each transaction and agreement is reviewed and approved by a Sharia'a Supervisory Board. This Sharia'a specific regulation and governance is in addition to the conventional regulation that applies to all UK based financial institutions.
Source: Capital MS&L
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BAHRAIN, Monday, March 1, 2010 – The International Islamic Financial Market (IIFM) and the International Swaps and Derivatives Association, Inc. (ISDA) today launched the ISDA/IIFM Tahawwut (Hedging) Master Agreement.
The development is a breakthrough in Islamic finance and risk management, and m
arks the introduction of the first globally standardized documentation for privately negotiated Islamic hedging products. The ISDA/IIFM Tahawwut (Hedging) Master Agreement is the first financial industry framework document that is applicable across all jurisdictions where Islamic finance is practiced. The launch of the Tahawwut Master Agreement was officially announced at a launch event in Bahrain hosted by IIFM and ISDA under the patronage of H. E. Rasheed Mohammed Al Maraj, Governor, Central Bank of Bahrain.
IIFM and ISDA jointly developed the Tahawwut documentation under the guidance and approval of the IIFM Shari’ah Advisory Panel for this project and in consultation with market participants. The published document consists of the Tahawwut Master Agreement and an Explanatory Memorandum, both of which are part of the official Shari’ah Pronouncement.
“Given the growing nature of the Islamic finance industry, the institutions operating on Shari’ah principles can no longer afford to leave their positions un-hedged,” said Khalid Hamad, Chairman of IIFM and Executive Director of Banking Supervision at Central Bank of Bahrain. “Hence, some key hedging products are now becoming common across jurisdictions to mitigate risk. The ISDA/IIFM Tahawwut Master Agreement gives the industry access to a truly global framework document which is neutral in terms of treatment to both the transacting parties and at the same time strictly conforms to Shari’ah principles. IIFM is honored to have achieved this milestone in collaboration with ISDA and I am confident that such joint efforts will continue in the future.”
“Demand for customized, privately negotiated hedging tools that conform to the principles of Islamic finance has increased in momentum,” said Eraj Shirvani, Chairman of ISDA and Managing Director, Head of Fixed Income for the EMEA Region, Credit Suisse. “The Tahawwut Master Agreement provides the critical framework for the growth and evolution of Shari’ah-compliant hedging instruments.”
The ISDA/IIFM Tahawwut Master Agreement provides the structure under which institutions can transact Islamic hedging transactions such as profit-rate and currency swaps, which are estimated to represent most of today’s Islamic hedging transactions.
It is designed to be used between two principal counterparties as a master agreement. Parties understand that no interest shall be pay¬able or receivable and no settlement based on valuation or without tangible assets is allowed. Moreover, the counterparties to the Tahawwut Master Agreement make representations as to the fact that they enter into Shari’ah-compliant transactions only.
It is a completely new framework document though the structure of the document is similar to the conventional ISDA Master Agreement. However, the key mechanisms and provisioning such as early termination events, closeout and netting are developed based on the Islamic Shari’ah principles.
“Standardization is a key element in the progress of Islamic finance though it is not a simple process as evident from the efforts put in to the development of this master agreement,” said Ijlal Ahmed Alvi, Chief Executive Officer, IIFM. “A record number of drafts - 24 drafts – were developed during the industry consultation and Shari’ah guidance process before ultimately reaching the final version, which is comprehensive as well as practical in terms of usage with no compromise to Shari’ah principles. It was indeed a pleasure to work with such an experienced and dedicated execution team and the efforts were supplemented by exemplary understanding and cooperation shown by ISDA, our joint partner. We express our heartfelt thanks to the Central Bank of Bahrain for their continuous support and to all who were involved in completing this important project. ”
“ISDA is pleased to have partnered with the IIFM as part of its own on-going efforts to promote prudent risk management and to support the efficient development of privately negotiated hedging products,” said Robert Pickel, Executive Vice Chairman, ISDA.” The Tahawwut Master Agreement represents a major milestone in the development of risk management in Islamic finance.”
“IIFM has taken a lead in preparing Shari'ah complaint Master Agreements for specific areas of Islamic finance, which a number of financial institutions globally have recognized and adopted in order to avoid misunderstanding, uncertainty, and confusion; and also to seek clarity and sound business activities. The adoption of these Master Agreements will pave the way not only for Shari'ah compliance but also product innovation” said Dr Ahmad Rufai, IIFM Shari'ah Head. “The IIFM Shari'ah Advisory Panel have considered the Tahawwut Master Agreement to be a necessary step forward for promoting global standardization for Islamic financial product standards, because the absence of a global Shari'ah compliant standardized agreement may lead to negative effect in the industry. On this occasion, the IIFM Shari'ah Department would like to thank the IIFM Shari'ah Advisory Panel for their indispensable and greatly appreciated support. We don't know where the TMA development would be without their invaluable help and patience in reviewing many of the drafts. Maybe it would not have seen the light.”
In addition to developing documentation for Islamic transactions, ISDA in coordination with IIFM is in contact with various regulators in a number of Islamic jurisdictions, such as the Gulf Cooperation Council (GCC) region, namely UAE, Bahrain and Qatar, plus Pakistan to improve the local legal framework for hedging products and close-out netting provisioning.
The ISDA/IIFM Tahawwut Master Agreement is available at IIFM’s website www.iifm.net or at ISDA’s website www.isda.org.
About IIFM
IIFM is the global standard setting body for the Islamic Capital & Money Market segment of the IFSI. Its primary focus lies in the standardization of Islamic products, documentation and related processes. IIFM was founded with the collective efforts of Central Bank of Bahrain, Central Bank of Indonesia, Central Bank of Sudan, Labuan Offshore Financial Services Authority (Malaysia), Ministry of Finance (Brunei Darussalam) and Islamic Development Bank (Saudi Arabia). Besides the founding members, IIFM is supported by its permanent members namely State Bank of Pakistan and Dubai International Financial Centre (UAE). IIFM is further supported by a number of regional and international financial institutions as well as other market participants as its members.
About ISDA
ISDA, which represents participants in the privately negotiated derivatives industry, is among the world’s largest global financial trade associations as measured by number of member firms. ISDA was chartered in 1985, and today has over 810 member institutions from 57 countries on six continents. These members include most of the world’s major institutions that deal in privately negotiated derivatives, as well as many of the businesses, governmental entities and other end users that rely on over-the-counter derivatives to manage efficiently the financial market risks inherent in their core economic activities. Information about ISDA and its activities is available on the Association's web site: www.isda.org.
KEY COMMENTARY:
Below is some key commentary from IIFM Shari’ah Scholars and IIFM Board Members on the ISDA/IIFM Tahawwut Master Agreement:
Shari’ah Scholars:
Shaikh Nizam Yaquby: “IIFM and ISDA have done a great service to the Islamic Financial Institutions by this document. This is the second standard document issued by IIFM and it is the right example to follow in future documentations. The amount of time, efforts, and resources put to achieve this standard document will only be appreciated by those who understand the difficult and complex discussions and research phases that this document was subjected to. Congratulations IIFM and ISDA and keep up the good job!”
Shaikh Esam Mohammed Al Shaikh Ishaq: “This ISDA/IIFM Tahawwut Master Agreement has been the end result of a long and difficult process, in which meetings between scholars, practitioners and others took place for a period of over three years. The process was arduous, involving tight-rope walking, navigation on many Shari’ah issues and concerns, while keeping in mind the interests of the industry simultaneously. I pray Allah blesses this document with proper understanding and implementation by all involved. This document is definitely an addition of great value to Islamic Finance & Banking.”
Shaikh Dr Mohammed Daud Bakar: “Risk management or hedging which is compliant to Shari’ah principles is a must in Islamic finance industry. Standard documentation on this aspect by IIFM and ISDA is not only timely but also evidence that standardization is always possible in this young and promising industry. This ground breaking achievement will be the start of many more institutional achievements.”
Shaikh Dr Mohammed Burhan Arbouna: “This Islamic hedging document is a milestone for the Islamic banking and finance industry. The birth of this document shows the flexibility of Islamic legal principles to attend to the need of societies as they conduct daily commercial activities according to the tenets of Islam. The document has passed through an extensive scholarly discussion and scrutiny for the past few years, the reason being to ensure that the mechanisms employed in the hedging industry are fully agreed upon by the majority of the IIFM Shari’ah Advisory Panel. We wish that this document will shape the road for other developments in the Islamic banking and finance industry.”
IIFM Board Members:
Dato’ Azizan Abdul Rahman, Director General, Labuan Offshore Financial Services Authority (LOFSA): “The global financial crisis has underscored the importance of sound risk management, primarily related to hedging transactions. The Tahawwut Master Agreement provides the needed consistency and predictability to ensure deep and liquid international Islamic financial markets. Such standardization initiative undertaken by IIFM and ISDA is a testament to the greater convergence in Shari’ah interpretations of universal recognition and acceptance. Labuan FSA will continue to support and provide impetus towards such endeavors.”
Farhan Al Bastaki, Executive Director, Islamic Finance, DIFC Authority: “DIFC is very happy to have been associated with the development of the Tahawwut Master Agreement. We are keen to promote and support initiatives that drive standardization in the Islamic finance industry. As DIFC evolves further into a global hub for institutional finance and a gateway for capital and investment in emerging markets, Islamic finance is one of the key sectors we are focusing on. The Tahawwut Master Agreement will help in boosting the growth of the Islamic financial services industry and the development of the Islamic capital & money markets across the world.”
Afaq Khan, Chief Executive Officer, Standard Chartered Saadiq: “This is a great accomplishment as this will allow Islamic banks to offer end-to-end solutions to their customers and it will allow better treasury risk management tools for Islamic financial institutions to competitively manage the market risks. Standard Chartered Saadiq is proud to have been part of the development of this market standard and will continue to play a positive and proactive role in industry development initiatives.”
Naveed Khan, Managing Director, ABC Islamic Bank: “It is encouraging that the IIFM and ISDA are launching this ground breaking initiative, which will not only provide the market with an essential tool for hedging but will also remove the current disadvantage experienced by Shari’ah-compliant customers versus their conventional competitors. That they can do it in a way that carries the blessings of a regulatory authority which is interested in enhancing industry benchmarks and standards is also really remarkable. ABC Islamic Bank is proud to have been associated with the IIFM as a part of this initiative.”
Lilian Le Falher, Executive Manager, Treasury & Financial Institutions, Kuwait Finance House: “Hedging products are becoming mainstream products for Islamic financial institutions. Too often, transactions in our industry face delays in their execution due to the lack of standardization. The ISDA/IIFM Tahawwut Master Agreement will provide practitioners with an appropriate and globally recognized legal framework for hedging transactions.”
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05 October 2009
France hopes that this amendment, first approved by the Senate in June, will help the sukuk market take off in France, which has an estimated Muslim population of between 8 million to 10 million. French President Nicolas Sarkozy earlier this year publicly declared that his government supports the facilitation of Islamic finance products in France under the country's financial inclusion policy and is keen to make Paris the other Islamic finance hub in Europe.
In April, the French government started to overhaul its tax laws to facilitate Islamic financial transactions such as Murabaha (cost-plus-financing) used primarily in commodity finance; and for sukuk. This move has been on the cards since the summer of 2008 when Paris announced that it had started its tax neutrality review to facilitate Islamic financial products.
France is also keen to attract Islamic investment both at home and through joint ventures in third countries, especially in Francophone North African and Sub-Saharan African countries, most of which are member countries of the Islamic Development Bank. Islamic finance might also be attractive to French corporates and all those interested in ethical finance.
Indeed over the last year there have been rumors of an imminent French sukuk issuance and also the authorization of the first full-fledged Islamic bank in France. Unfortunately, nothing has materialized, which has disappointed many Islamic financial institutions, who have been waiting for concrete developments in France Some cynics stress that the French Islamic finance initiative is more hype than substance.
They point to the fact that the French Islamic finance initiative has been led by Paris Europlace and LunaLogic, which are both essentially marketing and promotion agencies. This is unlike in the UK where the Bank of England under the Gov. Eddie George set up an Islamic Finance Advisory Group in which top city law firms, banks, auditors and government departments participated. Indeed the likes of HSBC and Norton Rose, the City-based international law firm, did many of the initial discussion documents and research on a pro bono basis, which formed the basis for the enabling laws and amendments for the provision of alternative housing finance (Islamic mortgages) and alternative financial investment bonds under the Finance Acts in 2006, 2008 and 2009. The Banque de France, the central bank, does not have a similar organization in place although it has some ad hoc advisers in Islamic finance.
Some officials of French financial institutions and professional finance and business organizations privately rue the fact that the French Islamic finance initiative is being led by promotional agencies which lack the in-depth knowledge of the dynamics of the financial markets and centers let alone Islamic finance. They would like to see a much more proactive role played by the Banque de France and other government departments.
The amendment to Article 2011 of the French civil code relating to the formation of trusts, stress French bankers, should pave the way for the first French sukuk origination. Indeed, according to reliable French sources, who wish to remain anonymous, the Sarkozy government and the French regulators have already given the approval for the first sukuk offering from France, but declined to stress whether it will be a corporate or sovereign issuance. The issue could be as large as 1 billion euros probably before the end of 2009 or by first quarter 2010. The changes in the French tax laws pertain to the Murabaha tax regime, relating to taxation of the financier's profit; to real estate sales; to local business taxation and minimum tax contribution; and to the taxation of Murabaha transactions.
The other changes pertain to sukuk and assimilated products, covering corporate income tax and tax treatment of non-residents; and tax arrangements in relation to value added tax (VAT). The changes in the tax laws bring the above Islamic financial products on par with equivalent conventional products thus ensuring equal tax treatment and a desire by the French authorities to ensure that Islamic financial products are not discriminated against in terms of taxation.
For example, according to the new law, in the Murabaha the financier's profit from the deferment of payment granted to the purchaser is taken into account in the taxable result by spreading it evenly throughout the period during which payment is deferred. When the financier is not resident in France and his customer is legally in France, the profit is exempt from French withholding tax.
The above French sources also confirmed that France is nearer to authorizing its first full-fledged Islamic commercial bank. "The bank will most likely be supported by Qatari investors. President Sarkozy is a close friend of the Emir of Qatar and they have discussed this during visits in the past. The proposed bank would have a capital in excess of 50 million euros," they added.
France is also interested in developing two other market segments related to the Islamic finance sector. Euronext Paris, one the largest stock exchanges in the world, is already working on an initiative to start listing Islamic investment funds and sukuk to rival the London Stock Exchange and Luxembourg Stock Exchange.
French universities and educational institutions such as INSEAD, Sciences-Po and Dauphine University are also in the process of launching degree, post-graduate research and training courses in Islamic finance, economics and business.
The French ambition is not only to become the other Islamic finance hub in Europe, in addition to London, and to develop the Islamic finance sector per se, but also to highlight that France has been re-inventing itself as a business-friendly destination for industry and professional services in recent years. Changes to the labor laws (which have effectively dismantled the 35-hour week); the R&D tax credit in Europe, which is considered to be the most favorable in Europe, are two such measures.
Islamic bankers are indeed keeping an eye on developments in Paris.
"We are keeping a close eye on the developments in France, although the French have still got a long way to go in achieving their objectives no matter what their PR might say. We have an ambitious French project under way which is ongoing and looking at France as a jurisdiction for Islamic finance to internationalize the reach of Islamic finance as a mode of finance. This project also tracks and helps with the development of Islamic finance in France, and we would extend that to any mature economy in Europe that is interested to learn from the experience in London. It depends on the ability of the market to open up there. We would keep a commercial interest there as well in the medium term. We have an interest in the infrastructural development of France as a center for Islamic finance in Europe. We also have an interest in France as a destination for investment capital. We are interested in investing in French property, confirmed Richard Thomas, CEO of Gatehouse Bank, the latest Islamic investment bank to be authorized by the UK regulator, the Financial Services Authority (FSA). Gatehouse is a wholly-owned subsidiary of Kuwaiti Islamic investment group, The Securities House. © Arab News 2009
POTENTIALLY the largest domestic market for Islamic finance in Europe, France recently took a step nearer to developing Paris as a hub for Islamic finance. The move was made with the adoption in late September by the French National Assembly to amend Article 2011 of the French Civil Code relating to the formation of trusts. The amendment is generally regarded as a positive step toward facilitating the origination of Sukuk (Islamic securities) out of France.
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