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In 2004 first Islamic Bank - Islamic Bank of Britain was formed. Through the Finance Acts 2005 and 2006, the UK government implemented further measures aimed at putting other Islamic products on the same tax footing as their conventional counterparts. In April 2007, the treasury established an Islamic Finance Expert Group representing a broad cross section of opinion from the industry, the city, Muslim organizations, and other bodies including FSA. The general objective is to advice the Govt. on the opportunities of Islamic Finance in U.K. The UK government has also made significant amendments to regulations with the aim of facilitating sukuk transactions (Shariah-compliant debt instruments). The Finance Act 2007 clarified the tax framework in relation to the issuance of sukuk In the U.K budget 2008, Chancellor of Exchequer Mr. Alistair announced to examine the feasibility of a sovereign sukuk issue and in Finance Bill 2008, take legal powers by facilitating the issuance of sukuk by classifying sukuk as loan 4 Continued capital for stamp duty purposes.
Gateway Bank, the fifth Islamic Bank in Britain submitted an application for license in November 2007 and got License approved on April, 22, 2008, in a short span of six months. Islamic Bank of Britain wins Global Finance award on 9 June, 2009. The 2009 act provides relief from some capital gains tax related to Shariacompliant offerings and relief from stamp duty land tax where transactions are a part of an alternative finance investment bond issue. To date, the FSA of the UK has authorised at least five Islamic banks* to operate in the United Kingdom, including the Islamic Bank of Britain and the European Islamic Investment Bank. The FSA has also authorised one Islamic hedge fund manager and is considering an application from the first wholly Islamic Takaful (insurance) provider. The above-mentioned developments in the UK are important because of the UKs status as a G8 industrialized country and because of Londons preeminence as a global financial centre.
*Bank of London and the Middle East plc (BLME), European Finance House, European Islamic Investment Bank 5
PLC (EIIB), Gatehouse Bank and Islamic Bank of Britain (IBB)
A presence in Islamic Banking is key to becoming a leader in the Asian Capital Market., Jackson Thai, CEO, DBS. The Monetary Authority of Singapore (MAS) is to accommodate Islamic finance within the existing conventional regulatory framework and to level the playing field by ensuring the neutrality of regulations where Islamic financing is similar to conventional financing in economic substance and risks. Issued the Banking (Amendment) Regulations 2005 to exempt Murabaha financing from the restriction in the Singaporean Banking 6 Act against non-financial activities Continued
The first shariah-compliant pan-Asian equity index launched in Feb 2006. First Islamic Bank started in Singapore by DBS Bank in May 2007, named as Islamic Bank of Asia (IB Asia).
In 2007, MAS accorded retail Murabaha investors the same regulatory protection under the Singapore Banking Act as conventional depositors, for example in priority of claims ahead of general unsecured creditors Singapore has also removed the imposition of double stamp duties in Islamic transactions involving real estate and accorded the same concessionary tax treatment on income from Islamic bonds.
In February 2008, the Singaporean Finance Minister announced the introduction of a 5% concessionary tax rate for 5 years for qualifying Shariah-compliant financial activities such as in lending, fund 7 management takaful and retakaful. Continued
In 2009, Singapore passed legislation allowing Singapore-based banks to enter into diminishing Musharaka financing and spot Murabaha transactions. In addition, MAS has recently published extensive guidelines providing banks with guidance on the regulation of Islamic banking in Singapore. It is expected that these changes will allow banks to conduct a wide range of Islamic financing activities, and to have greater flexibility in structuring instruments to meet their risk management needs. MAS is currently part of the IFSB Supervisory Review Process Working Group and the IFSB Islamic Money Market Taskforce. On January 19,2009, The Govt. of Singapore launched an $200m (US $134m) shariah-compliant sovereign Sukuk designed specifically to attract foreign direct investment and to establish Singapore as an emerging regional centre for Islamic Finance. Sixth annual summit of IFSB Islamic financial services board- meet at 8 singapore on May 11, 2009
The Hong Kong Monetary Authority has formed a working group in coordination
with the Dubai International Financial Centre to promote the mutual development of Islamic finance and financial market infrastructure. Hong Leong Islamic Bank (HLISB) is a wholly owned subsidiary of Hong Leong Bank (HLB). While it began as the Islamic Banking arm of HLB, it was eventually incorporated as a separate entity on 28 March 2005 and is today a full-fledged Islamic Bank. In March 2009, Hong Kong announced its budget, claiming that the Hong Kong special administrative Region government would send a draft law to the Legislative Council later in the year, aimed at creating a level playing field between Islamic financial products and conventional ones. In 2009, the Hong Kong Monetary Authority also signed a Memorandum of Understanding with Bank Negara Malaysia on co-operation in the development of the financial services industry, particularly in the area of Islamic finance. Hong Kong monetary Authority is also an associate member of International 10 Financial Services Board (IFSB).
Huge potential for Islamic Finance among Japanese utilities, especially in the power, electricity, oil and natural gas sections. The utilities also have huge potential to issue sukuk and other Shariahcompliant securities.
State owned Japanese Bank for International Cooperation (JBIC) is in the process of issuing $100 million Islamic bonds.
US treasury Department visited Harvard law school Islamic legal Division for in depth study of Islamic Banking & Finance after Financial Tsunami of 12 Sept. 2008
Economy minister Christine Legarde pledged to take steps to make Islamic Banking activities as welcome in Paris as they are in London or elsewhere (Reuters) Following a round table discussion with important industry participants in May 2008, the French Ministry of Economy and Industry (the Autorit des Marchs Financiers authority or AMF) announced regulatory and tax changes to facilitate Islamic finance in France, including changes related to sukuk listings in France, the tax treatment of Islamic finance transactions and the introduction of trusts (fiducie) into French law which form the central basis for modern sukuk transactions.
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The AMF also published a statement in July 2008 relating to the listing of sukuk on French regulated markets. The AMF stated that sukuk issues may be structured either as asset-based or asset-backed. The AMF also set out the level of disclosure and other requirements in relation to the prospectus for each type of sukuk. In 2008, France introduced tax neutrality laws for murabaha and sukuk. The French legislation will ensure that for tax purposes, Islamic transactions would be treated the same as conventional offerings and would not be subject to additional taxes, despite the alternative vehicles used in Sharia-compliant transactions. On September 17, 2009, French parliament passed legislation to make issuance of SUKUK- Shariah compliant bonds for 1 Billion EURO. Amended the legislative structure known as FIDUCIE, Article 2011 of the French Civil Code relating to the formation of trusts. (still certain legal hurdles in the procedural approach and not the content of the legislation remains to be 14 fulfilled).
The Thailand Islamic bank is cooperating with the Office for Small and Medium Enterprise Promotion and other government agencies to ease the liquidity problem of SMEs, with a loan target of 1,400 million baht a year. Measures and mechanisms have been worked out for transparent and systematic lending at an internationally accepted standard. A new export guarantee programme from the Islamic Bank of Thailand (I bank) is aimed at helping Thai halal food manufacturers conquer Middle East markets. the Islamic Bank offers loans as well as trade and investment advice on halal food because of the substantial size of the potential global market with a total value of about Bt6 trillion, a market that Thailand has only impacted minimally with just 1-2 per cent of the total market share. Issuing Sukuk to finance infrastructure projects which require an investment 17 of US $50 billion (McKinsey).
Amana Investment Limited and Ceylinco Islamic Investment Corporation are the two Shariah compliant institutions in Sri Lanka
There is no explicit provision on the Shariah governance framework
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market. Conventional credit is not enough, and we need to diversify our sources of funding said Lee Hyun-joo, the managing director of the
global capital markets division of Woori Financial Group, Seol, Korea.
The government has also moved to amend its financial laws to accommodate Sukuk issuance in the domestic market. The Parliament is discussing the draft, and bankers expect amendments to be enacted by the end of this year.
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products such as funds and sukuk, and is poised to become the first European Union
country to be an associate member of the Islamic Financial Services Board (IFSB). In April 2008, the government set up a multi-disciplinary task force charged with identifying obstacles to the development of Islamic finance in Luxembourg and ways to support its growth. Working groups on Islamic finance were also formed by the Luxembourg Investment Fund Association (ALFI) and Luxembourg for Finance (LFF).
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The government, revealed Mersch, has also instructed the tax authorities to come up with proposals to have a level playing field and ensure tax neutrality for Shariah-compliant transactions (essentially sukuk and Murabaha) There are some 15 sukuk listed on the Luxembourg Stock Exchange with a combined value of 5 billion euros; and over 40 Islamic investment funds, largely equity funds domiciled in Luxembourg. In 2009, a major German bank also domiciled its new Islamic finance platform in Luxembourg called Al Miyar to facilitate the issuance of
Shariah-compliant securities.
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Islamic Principles
PROHIBITIONS 1. No RIBA: No return of money on money / No increment above a debt or loan 2. No GHARAR: No Speculation, Short selling, ambiguity, uncertainity etc. 3. No MAYSIR: Gambling, transaction overly advantageous to one party, Conventional insurance, derivatives.
4. No KHABISAT: Moral Screening, Prohibits investment on casinos, pork, pornography, liquor, health hazard, environmental harmful products, Weapons of Mass Destruction.
PROMOTIONS 1. Encouragement of profit & loss sharing. 2. Encouragement for Public need and necessity.
Growth oriented, focus on investment, developmental and linked to production
Islamic Products
1. 2. 3. 4. 5. 6. 7. 8. 9. Musharaka (Equity finance) Mudaraba (Agency finance) Murabaha (Working Capital finance) Ijara (Hire purchase) Salam (Advance purchase) Istisna (Project finance) Quard Hasan (Rehabilitation finance) Takaful (Mutual Insurance) Sukuk (Asset based -Bonds)
Conventional banks have since inception, had only one product that is loan with interest, Shariah has unlimited products to suit every customer and every project under any circumstances
Dr. Hussein Hamid Hassan
Chairman, Shariah Board, Dubai Islamic Bank The Economics Times December 3, 2007 25
Similar characteristics to conventional bonds, the difference being they are asset backed and
represent proportionate beneficial ownership of underlying assets. Returns are based on the yield generated by these assets. Multinational corporations, sovereign bodies, state corporations and financial institution have all used international Sukuk issuance as an alternative to conventional syndicated financing.
(KPMG- Growth & Diversification in Islamic Finance)
Sub-Prime mortgages :Dubiously rated, collateralized debt obligation CDO :Debt against debt, Remotely linked from the asset More than $ 400 Billion losses to conventional banks Islamic Bank virtually unscathed from the crisis SUKUK IS THE ANSWER TO THE SUB-PRIME CRISIS (Bahrain Tribune 19 Sept. 2008)26
market in 2004, raising sum 100 million euros via Sukuk issue.
In US, The east cameron Gas company, Texas became the first entity to make a SUKUK issue in order to attract demand from investors in the Gulf . The company sold US $ 165 million Sukuk backed by royalties from the companies hydrocarbon reserves off the coast of the Gulf of Mexico. Jan 2009, Singapore launched $ 200 Million Shariah Compliant Sovereign Sukuk. November 2009, IFC*- International Finance Corporation Word Bank Group issued IFC Hilal Sukuk $ 100 Millions which has been rated Aaa by Moodys The Sukuk global asset class has a market value of ever $ 200 billion.
*IFC is the first Non-Islamic Financial Institute to issue a Sukuk for term financing in GCC.
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Current Trends
Todays Islamic finance industry is rapidly evolving from niche to mainstream, with growth of Islamic banking assets now estimated at $750bn and growing at a rate of 15% to 20% a year. The Gulf Co-operation Council (GCC) proportion of total Islamic banking assets has reached 30% and is projected to rise to 40% in the next three years. In Malaysia, the Islamic share is currently 12% and the government is committed to boosting this to 20% by 2010. In Islamic countries such as the United Arab Emirates (UAE), where less than 30% of the local population are Arabs, sharia-compliant banks are gaining market share at the expense of conventional banks. The spectacular acceptance and demand for Islamic finance means that within the next decade, the industry is likely to capture half the savings of the 1.6 billion-strong Muslim world.
(The Banker: www.thebanker.com)
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Country has an enormous human resource with abundant technical and managerial talent.
Half of Fortune 500 companies have their presence in India.
Direct Investments, Portfolio Investments and Venture Capital Investments are on all time high.
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November 2007
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Bearys Global Research Triangle Velcan Hydro Electric Dam Energy City of India
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(SEDCO) 275 2,000 National Bank of Dubai Gulf Finance House, Bahrain
Many of the Underlying principles investment strategies and objectives in the Ave Maria Catholic Values Fund are strikingly similar to those of Islamic alternatives. 32
(A New Financial Dawn: The Rise of Islamic Finance by Joseph Divanna & Antoine Sreih, Page No. 92)
Perrine Fiorina
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The Vatican offered Islamic finance principles to Western banks as a solution for worldwide economic crisis.
"The ethical principles on which Islamic finance is based may bring banks closer to their
clients and to the true spirit which should mark every financial service,"
(the Vatican's official newspaper LOsservatore Romano said in an article dated 5th march 2009)
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In many emerging economies, Islamic financial institution are leading the way to provide services to under banked populations previously ignored by conventional banks.
(A
New Financial Dawn: The Rise of Islamic Finance by Joseph Divanna & Antoine Sreih, Page No. 116) 36
While interest-free banking is provided in a limited manner through NBFCs and cooperatives, the Committee recommends that measures be taken to permit the delivery of interest-free finance on a larger scale, including through the banking system. This is in consonance with the objectives of inclusion and growth through innovation. The Committee believes that it would be possible, through appropriate measures, to create a framework for such products without any adverse systemic risk impact.
(Chapter 3: Broadening Access to Finance Page:35) High Level Committee of Planning Commission of India Report submitted to Chairman, Dr. Manmohan Singh, PM on Sept 12th, 2008
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Potential for Islamic banking in India India has the potential of emerging a significant market for ISLAMIC BANKING provided there is a favorable change in the regulatory environment & increased awareness among Muslims and India as a whole.
GRAIL : US market intelligence & data analysis provider The Stateman, August 9, 2008
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- PMs office, chaired by Mr. Rahman Khan, Deputy Chairman, Rajya Sabha - recommended favouring a Shariah Compliant Investment Scheme to fund Hajj Pilgrimage like TABUNG Haji in Malaysia is under consideration since 2006.
As a test case, if it succeeds, then full fledged Islamic banking can be introduced.
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Discussion with Dr. Isaac Thomas, Finance Minister, Kerala about feasibility of Islamic Banking & Investment in India
KSIDC will have 11% share and remaining 89% from private investors.
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A delegation of Indian Centre for Islamic Finance (ICIF), consisting of its General Secretary, H Abdur Raqeeb and two of its trustees Dr. Rahmatullah (Chairman, AICMEU) and Mr. KM Abdul Salam, (Director, AICL & former Manager of RBI) met Dr. K C Chakrabarty, Deputy Governor, Reserve Bank of India, at the RBI headquarters in Mumbai on 11 September 2009
Presented a memorandum along with the important documents of FSA, Lovells, IMF working paper, HM Treasurys, etc.
The Deputy Governor said that RBI is not against Interest-free Banking but needs a regulatory amendment by the government through the Parliament to include the 45 same.
A memorandum was submitted to Finance Minister, Shri Pranab Mukerjee on the Interest free Islamic Banking in India on 24 October 2009 in Kolkatta. 46
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