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Ernst & Young Issued World Islamic Banking Competitiveness Report 2011-12
The 8th annual edition of the World Islamic Banking Competitiveness (WIBC) Report 2011-12 is developed in collaboration with leading global professional services and advisory firm, Ernst & Young, with a principal focus on A Brave New World of Sustainable Growth. The WIBC Report 2011-12 explores the key industry trends and the critical success factors guiding the global Islamic banking and finance industry to the next level of performance and growth. The global Islamic finance industry has undergone major transformations in the last few years in its quest to boost international competitiveness and to build a sustainably profitable business model. There has been a focus on product innovation efforts that aim to provide a more comprehensive array of Shariahbased products for the market. The global Islamic finance industry has also seen significant developments in regulatory frameworks and Shariah standardization initiatives. Industry forecast suggests that Islamic banking assets with commercial banks globally, will reach $1.1 trillion in 2012 (2010: $826bn). In MENA, Islamic banking assets increased to $416bn in 2010, representing a five year CAGR of 20% compared to less than 9% for leading conventional banks. As new geographies open up to Islamic banking, the MENA Islamic banking industry is expected to more than double to $990bn by 2015. However, there are significant performance variations across markets. In 2010, average Return on equity (ROE) of leading Islamic banks declined to 10%. Also, market valuations appear to be converging to that of regional conventional peers.
In MENA, I s l a m i c banking a s s e t s increased to $416bn in 2 0 1 0 , representing a five year CAGR of 2 0 % compared to less than 9% for leading conventional banks. The M E N A I s l a m i c banking industry is expected to more than double to $990bn by 2015.
O you who believe, be steadfast for (obeying the commands of) Allah, (and) witnesses for justice. Malice against a people should not prompt you to avoid doing justice. Do justice. That is nearer to Taqwa. Fear Allah. Surely, Allah is All-Aware of what you do. (Al-Maida: Ayat No. 8)
Local and 5 International News Get a glimpse of what has been happening in the world of Islamic finance Ask Us by Mufti Ibrahim Essa and Mufti Javed Ahmed In the Spotlight Find our read of the month Upcoming Events Institution in the Spotlight 7
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Editorial
Governance and Islamic Financial Institutions
Corporate Governance refers to the way an organization is directed, administrated or controlled. It includes the set of rules and regulations that affect the managers decision and contribute to the way company is perceived by the current and potential stakeholders. By doing this, it also provides the structure through which the companys objectives are set and the means of obtaining those objectives and monitoring performance. Good corporate governance ensures the accountability of the management and the Board. It is understood that efficient corporate governance will make it difficult for inappropriate practices to develop and take root, though it may not eradicate them immediately. The Islamic finance industry has been growing rapidly over the last few years. This is a commendable achievement given the instability prevailing in the international financial market. Since Islamic Financial Institutions (IFIs) in many ways are similar to the conventional financial institutions, the existence of a proper framework of corporate governance is a matter of dire necessity. However, different from conventional financial institution, IFI has the responsibility to ensure the compliance with the Shariah principles in its products, instruments, operations, practices, management etc. as opposed to conventional financial institutions. IFSB Guiding Principles on Corporate Governance states that an appropriate mechanism must be created to ensure the compliance with the Shariah principles. Similarly, IFSB Guiding Principles on Risk Management states that IFI shall have in place adequate systems and controls, including Shariah Board/advisor to ensure compliance with the Shariah principles. Shariah compliance is the backbone of Islamic banking & finance, giving its practices the due legitimacy. Good governance boosts the confidence of the shareholders and the public that all the practices and activities are in compliance with the Shariah at all times and this can be achieved by having a proper Shariah governance framework. This issue of IFP is out with a new and improved look where an interaction between Islamic finance professionals, industrialists, businessmen, Shariah advisors, students and any another stakeholder can take place. Your comments and contributions will be highly regarded and sought after. Muhammad Shahzad Hussain Arshad Hussain Zubairi Ammar Khalid Rima Farooq
Advisory Board
Syed Shahjahan Salahuddin Mufti Irshad Ahmed Aijaz Mufti Najeeb Khan Anwar Ahmed Meenai Mohammad Aslam Mujeeb Baig Faizan Memon
Editor-in-Chief
NusratUllah Khan
Associate Editors
Let us know, if you know friends or colleagues who, in your view, may benefit from this newsletter. Send us their email addresses at newsletter.ifp@gmail.com
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Strong historical growth, driven by core Islamic segment; going forward expect change of play as Islamic banks begin to compete for mainstream customers who are open to Islamic or conventional banking.
announce they are exploring merger, Goldman Sachs registers a $2bn Islamic bond programme with the Irish Stock Exchange and International Bank of Qatar announces the sale of its Islamic banking business to Barwa Bank.
Performance Analysis
Islamic banks have experienced a more painful decline in profitability over recent years but this now appears to be stabilizing. They are able to generate higher financing margins because of their relatively stronger retail focus. Equity multiplier suggests that Islamic banks have room for further expanding risk weighted assets. Islamic banks benefit from a higher proportion of free customer deposits but there is a
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Country Spotlight
Islamic banks have Malaysia, Banking Parameters: Total banking assets 2010: experienced a more US$505bn CAGR (06-10): 9.1%; painful decline in Islamic banking market share profitability over recent 2010: 17.3%; years but this now Total banking deposits 2010: US$ 360bn and CAGR [06-10] 9.5%; appears to be stabilizing. Banking asset penetration 2010: Islamic banks are able to 220%; generate higher financing Deposit penetration 2010 : 156%; margins also because of their relatively stronger retail focus. Summarized by Ammar Khalid
increase in retention and profitability. Banks in the region often use costly incentives to attract customers but then spend little on service to retain them this is unsustainable. A customer-centric operating model which has processes, built around the customer are the biggest drivers of benefits. Top risks for Islamic Banks are managing the transformation, to customer centric business model, reduced profits and valuations, geopolitical, macroeconomic shocks, human capital, including misaligned compensation structures, product risk, balancing innovation, law of the land
The operations of Islamic banks are based on Islamic law and differ from conventional banks in terms of spirit, cultural background and practice. However, both conventional and Islamic banks operate in a globally integrated banking industry, which is characterised by strong competition and rapid changes in technology. - Dr Farhad Reyazat
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'Best Islamic Technology More Banks Attracted to Worlds First Shariah Provider of 2011' Compliant Interbank
The trophy was granted to Path Solutions, which was received by Stanley T. Young, SVP Worldwide Sales who commented by saying, "We are delighted to get industry recognition for the value Path Solutions brings to the global Islamic finance industry. This award is a great achievement and testimony to our ability to respond to a challenging year and continue to be at the forefront of a growing industry".
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More international banks are attracted to the world's first Shariah compliant interbank benchmark. It has been reported that the recently laun che d Is la mic In te rbank Benchmark Rate (IIBR) aimed at raising the quality of the Islamic capital profile has some more banks knocking at its door.
For the third year in a row EY has won the Best Advisory Firm award 2011 in December. Andrew Barstow, MENA Financial Services Advisory Leader, received the award on EYs behalf. Running for its sixth year, The Islamic Finance and Business awards are widely considered as benchmark of excellence.
Islamic Research and Training Institute Appoints First Malaysian Director General
The Dean of Islamic Banking and Financial Institutions at International Islamic University Malaysia has been appointed Director General of the Islamic Research and Training Institute (IRTI). The IRTI is part of the Islamic Development Bank group (IDB), which is based in Jeddah, Saudi Arabia, and Datuk Dr. Mohd Azmi Omar will be its first Malaysian Director General.
Saudi Budget Report Suggests Growing Role for Islamic Finance Across Nation
Following the announcement of Saudi Arabias budget last week in the capital of Riyadh, despite the lack of mention of Islamic finance models, they are expected to grow in popularity within the nation over the coming year. Looking at the initiatives and plans launched by Islamic finance companies and banks leading up to the announcement of the nations annual budget, it would seem that they will be expected to have a growing role across Saudi Arabia in 2012. Besides providing funds for small and medium-sized enterprises (SMEs), which will help create jobs in a nation with a 10% unemployment rate, the provision of mortgage and housing finance, funding infrastructure and projects and helping businesses to diversify sources of funding are expected to be key areas for development. Sukuk, or Shariahcompliant bonds, are expected to be particularly successful in 2012.
Disclaimer:
The news included here is on the basis of information obtained from local and international print and electronic media sources. IFP team does not accept any responsibility about their bona-fide.
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An initiative of IFP forum
Re-composition of KSE- Government of Pakistan PIA gets $100m Islamic Meezan 30 Index (KMI-30) Ijara Sukuk financing
Karachi Stock Exchange (Guarantee) Limited has carried-out the exercise of re-composition of KSE-30 Index for the review period from January 1st, 2011 to June 30, 2011. The re-composition has been carried out on the basis of the criteria of selection of companies as detailed in the Brochure of KSE-Meezan 30 Index. In accordance with provisions of the notification of GoP Ijara Sukuk Rules, 2008, another GoP Ijara Sukuk will be issued as per the Structure and Assets described in Annexure C by Domestic Marker a n d M o ne t ar y M a n ag em e n t Department of State Bank of Pakistan (SBP). Pakistan International Airlines has closed a $100 million Shariacompliant financing facility. The facility was arranged by Abu Dhabi Islamic Bank, Al Hilal Bank, Citibank N.A., and United Bank Limited as mandated lead arrangers and joint book runners. Warba Bank in Kuwait has joined as lead arranger. Citibank N.A. is also performing the role of the account bank and security trustee. This innovative Islamic transaction is secured by PIA`s ticket sales generated in the UAE and aggregated through IATA`s Billing and Settlement Plan, and through sales by general sales agents. The three-year facility will be used for PIA`s general corporate purposes and reflects investor confidence in the airline and its strategic importance to Pakistan.
Disclaimer:
The news included here is on the basis of information obtained from local and international print and electronic media sources. IFP team does not accept any responsibility about their bona-fide.
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It appears to be an invaluable contribution, which should go a long way for people like us in understanding the burning topic of our times.
(Viquar Siddiqui - Ex CEO Central Insurance Limited)
This is definitely a very good contribution on the topic and I am sure, it will facilitate many individuals.
(Kamran Wahab Khan General Manager - Pakistan Petroleum Limited)
Omar is a Chartered Accountant by profession. Presently he is Partner / Head of Islamic Financial Services Group at Ernst & Young Ford Rhodes Sidat Hyder. Omar has gained professional experience of more than 17 years as partner. His key expertise includes advisory and assurance, auditing, financial reporting, sales tax, investigative auditing, internal controls and mergers etc. Omar has gained substantial experience in the audit and related services to local and multinational companies operating in diversified sectors. His area of specialization is providing audit and other services for Islamic finance industry. The clients he has served / is serving on assurance (including audits) in Islamic finance industry includes: full-fledged Islamic banks, Takaful companies, Islamic mutual funds and Modarabas. Besides audit and related services, Omar has acquired diversified experience in respect of the fields of Islamic finance and banking including Shariah Published by: Time Compliance inspection manual and operating manual for Islamic commercial Management Club banking and financial institutions. Available at: Fazlee Book Omar has been one of the key speakers and trainers for training courses for Super Store Islamic bankers, arranged by the National Institute of Banking and Finance Price: Rs. 300/(NIBAF) - an institute run by the State Bank of Pakistan.
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Ask US
By Mufti Ibrahim Essa and Mufti Javed Ahmed
Question: Kindly guide us about the Shariah rulings regarding the mortgage of financial papers and Sukuk. Answer: It is permissible to mortgage the financial papers and Sukuk which can be issued and transacted according to Shariah, such as Islamic Sukuk and shares of Islamic financial institutions. The shares of companies whose original activities are permissible can be added to this category. It is also permissible to mortgage usufruct-based Sukuk which represent common shares in the usufructs of specific assets. It is not permissible to mortgage financial papers and Sukuk that are not issued or transacted according to Shariah such as interest-based bonds, preference shares, debentures. Such financial papers include also traditional investment deposits and shares of the companies that peruse Shariah-banned activities like manufacturing of alcohol, swine trade and dealing in Riba. Among these financial papers also are shares of traditional financial companies, shares of conventional insurance companies and also such that originally deals in permissible activates, yet Riba-based and other prohibited dealings constitute a predominant part of their business activates. Question: Is it lawful in Shariah to allocate a profit of a certain class or period or portion of the capital for the institution or the investment account holders? Answer: The method of profit distribution should be well-known so that no room is left for uncertainty and dispute and it should be in terms of ratios of the entire profit of the whole period. Therefore It is impermissible to allocate within a single pool, the profit of a specific type or portion of the capital or assets into which capital is converted, for one of the parties i.e. institution and investment account holder. It is also impermissible to allocate within a single pool, the profit of a certain financial period or a specific transaction for one party, and the profit of another financial period or a transaction for the other.
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Program Recognition
PGD in Islamic Finance is being offered by The Guidance Institute in collaboration with PAF-KIET. The diploma will be issued by PAF-KIET which is an institute chartered by the Sindh government and recognized by the Higher Education Commission (HEC) of Pakistan. The Guidance Institute is the key learning center and executive training division of the Hikmah Foundation, a non-profit organization established to make a difference in the education field, leadership development and personal excellence.
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