Contenu connexe Similaire à Islamic finance news Similaire à Islamic finance news (20) Islamic finance news1. Vol 7 Issue 23 9th June 2010
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The right approach is key In this issue
IFN Rapid ..................................................... 2
The New Muslim Consumer is a new Mutanaqisah in particular are explored in a Islamic Finance News ................................ 3
phenomenon that the world is becoming two part series that focuses on the solicitor. It
Takaful News ................. .............................7
aware of and coming to grips with as a covers an introduction to the facility and the
powerful and untapped market audience. In a differing expecactions that the banks and the Rating News ................................................ 8
pioneering research done by communications customer expects of the solicitor. IFN Report:
group Ogilvy & Mather in collaboration with First US fund manager.............................. 9
market research specialist TNS, the New Private equity and venture capital have the Eager for Islamic investors..................... 9
Muslim Consumer is defined as young, proud potential to be key growth engines for the
of their religion and with substantial spending Islamic finance industry. Shariah compliant Articles:
power. private equity and seems plausible if the right Thai SEC To Permit Sukuk Issuance
— First Deals Likely To Follow .............. 10
human capital is deployed, that can combine
Their profile debunks the many myths and not only advance finance skills but also solid The Role of Venture Capital Model in
stereotypes that surround Muslim consumer knowledge of Shariah. an Islamic Economic System ..............12
attitudes towards brands and their marketing Private Equity — Its Relevance for
communications. The role of venture capital in an Islamic Islamic Finance Today ..........................14
economic system seems likely only if the Ogilvy Noor Targets the New Muslim
More importantly, the study highlights the government facilitates it. The critical issues Consumer ............................................... 16
risks that exist once Muslim consumers include an adequate legal framework, and Musharakah Mutanaqisah Financing
are alienated, and provides guidelines for Facilities Legal Issues and Challenges
easy entry and exit mechanism and potential
companies on how to avoid a mistaken (Part I) .....................................................18
entrepreneurs. It seems ideal for Islamic
approach in their marketing communications. Takaful Surplus Distribution:
finance through the participatory financing
A Controversy ......................................... 21
modes with the Mudarabah concept being
The study serves as a platform for the
the most common.
launch of Ogilvy Noor, a joint venture of Forum .........................................................23
Ogilvy & Mather and TNS, which aims to be Meet the Head .......................................... 24
The Thai Securities Commission is currently
a multidisciplinary global Islamic branding Yeo Wico, Partner of Allen & Gledhill
in the process of issuing a new regulation by
practice that aims to help brands better
July this year that permits both domestic and Termsheet ..................................................25
engage with Muslim consumers worldwide. MTD Infraperdana Islamic Dual Tranches Medium
international issuances of Sukuk certificates. Term Notes
A mistaken approach is often taken by Takaful Moves .........................................................26
marketers when wooing customers. There The country’s ministry of finance has also
is a misconception that Takaful is basically prepared a draft regulation to exempt the Deal Tracker .............................................. 27
insurance with surplus distribution. This originator from land transfer taxes and Islamic Funds Tables ................................28
image does not do justice to Takaful operators, registration fees, which is up for cabinet
approval. S&P Shariah Indexes ...............................29
as surplus distribution overshadows the
concept of Tabarru, or risk sharing, which is Dow Jones Shariah Indexes ....................30
at the very heart of Takaful. So we put surplus In the coming months, there is talk that Islamic League Tables ............................. 31
distribution under scrutiny as it applies to the the Bank of Thailand plans to issue a Baht
denominated Sukuk with an issue size of Thomson Reuters League Tables ...........34
Wakalah and Mudarabah models, and study
it for appropriateness and viability. approximately THB5 Billion (US$153 million). Events Diary............................................... 37
Given this situation, Allen & Overy Thailand
Company Index .........................................38
The legal issues and challenges in the takes us through the first few deals likely to
contract of Musharakah, and Musharakah follow. Subscription Form ....................................38
2. A round-up of all this week’s news IFN RAPID
www.islamicfinancenews.com
•NEWS
• Gulf African Bank reaps maiden
• Brunei can build halal sector via
Sukuk
• Early purchase for Takaful and
insurance vital, says expert
profits after launch in 2008
• Absa Islamic Bank launches new
• Islamic Finance news to host IFN
Roadshow at Grand Hyatt Istanbul in
Turkey
RATINGS
• RAM reaffirms AEON Credit Service’s
Islamic product enhanced long-term rating of ‘AA1’
• Bank of London and the Middle East
• ApexAfrica Capital is set to launch a sets up Reval software • RAM revises Senai-Desaru
Shariah compliant unit trust Expressway’s rating to ‘BBB3’
• Russia and the Commonwealth of
• Islamic Finance news hosts roadshow Independent States offer room for • RAM reaffirms Esso’s Islamic papers
at the American University in Cairo Islamic finance growth at ‘P1’
• S&P has affirmed the ratings of
• The North Jersey Federal • Kuwait Turkish American International Assurance
Credit Union offers Islamic Participation Bank plans for Company
banking Islamic bonds • S&P assigns ‘A-’ on Malaysia’s global
Sukuk
• Fortis battles Khazanah Nasional in • Islamic finance faces a challenge in
• RAM reaffirms Public Islamic Bank’s
bid for Parkway Healthcare corporate governance
long- and short-term financial
• Al Rajhi Bank to use Trasset treasury • Shariah scholars to define application institution ratings
management solution of riba
• RAM affirms National Bank of Abu
• The Monetary Authority of Singapore • Qatar issues local currency-based Dhabi at ‘AAA’ and ‘P1’
will relax its regulations to expand Sukuk
• S&P revises The Saudi Investment
Islamic finance
• Dubai government to keep investors Bank’s outlook to stable
• Malaysia’s Islamic banking sector informed on developments
• Fitch rates Mumtalakat Holding
close to reaching targeted market
• Gulf Bank to be sales agent for two Company at ‘A’ with a stable outlook
share
GCC funds
• Moody’s downgrades Dubai Bank to
• The Malaysian International Islamic
• Sharjah Islamic Bank unveils ‘Baa2’/Prime-3 from ‘A3’/’Prime-2’
Financial Centre, Bank Negara
‘Employee Payment’ program
and the Securities Commission
launch global search for outstanding
individual in Islamic finance
• National Bank of Kuwait unveils MOVES
• Omar Merican steps down as Bursa
Thahabi Ijara Fund VI
Malaysia’s chief operating officer
• Merger plan to proceed, despite
• The International Sharia takeover plans by Dubai Islamic • Macquarie Capital hires Steve
Research Academy for Bank Baldwin as its managing director and
head of UK corporate broking.
Islamic Finance to work on • HSBC Amanah to open Islamic
Islamic pricing next year banking branch in Doha • GE Capital appoints Alan Austin as
regional director
• Ahmed Salem Bugshan Group to
• Pakistan to double its Islamic raise US$100 million Sukuk • HSBC appoints Mohammad Al
banking services in three years Tuwaijri as new MENA head
• Capitas Group International releases
• Bank Negara Malaysia says no to whitepaper • Barclays appoints Aaron Gurwitz as
Affin Holdings’s takeover discussion CEO
• Abu Dhabi Islamic Bank unveils new
• ICB Islamic Bank to change hands brand identity • Matthew Moran joins BNP Paribas as
director in global execution services
• AmIslamic Bank inks pact to be
TAKAFUL
group
financier and facility agent
• Hong Kong Monetary Authority
• Islamic finance to provide alternative • Metropolitan Life Insurance unveils appoints Mu Huaipeng as senior
source of funding for Australian banks insurance for Muslims advisor
• The Kerala High Court adjourns • Malaysian consumer group wants • Trowers & Hamlins recruits four new
petition against the formation motor insurance policy plan to be lawyers
of Al Baraka Financial Services shelved
Corporation • Vince Niblett is Deloitte Touche
• Prudential quits American Tohmatsu’s new global leader for
• CIMB Standard has been rebranded International Group’s deal due to a audit
to CapAsia price disagreement
© Page 2 9th June 2010
3. NEWS
www.islamicfinancenews.com
AFRICA discussions. REDmoney Group is the
organizer for this roadshow.
financial cooperative that serves 30,000
members.
Rural banking growth
KENYA: Gulf African Bank has recorded a
gross profit of KES25 million (US$312,000)
AMERICAS ASIA
in the first quarter of 2010, the first time Meeting Shariah needs Vying for control
since its launch in 2008.
US: The North Jersey Federal Credit Union SINGAPORE: India-based Fortis Healthcare
During this period, customer deposits has created an Islamic banking division to is up against Khazanah Nasional to gain
have doubled to reach estimated levels of cater to the needs of its Muslim members. a controlling stake in healthcare group,
KES16.4 billion (US$204.6 million), which Parkway Holdings.
will propel its anticipated financing program According to the credit union, New Jersey is
at ease. home to the second largest percentage of Fortis increased its stake in Parkway
Muslims in the country. by 0.03% through the purchase of
The Gulf African Bank was launched with 350,000 shares on the market just prior
an investment of KES1.75 billion (US$21.8 Founded in 1936, the North Jersey Federal to Khazanah’s offer of SG$1.18 billion
million). It was formed to provide banking Credit Union is a member-owned, non-profit continued...
services to Muslim communities and
those neglected by mainstream financial
institutions.
Banking for all SONG BIRDS
SOUTH AFRICA: Absa Islamic Bank and
Absa Private Bank have launched an Islamic
private banking solution.
The product will provide equal banking
opportunity for Muslims in the country.
Absa Islamic Bank and Absa Private Bank
are the subsidiaries of Absa Bank.
Pioneer Islamic unit trust
KENYA: ApexAfrica Capital is set to launch
a Shariah compliant unit trust. It is the first
Islamic equity product to make its presence
in East Africa.
The unit trust is available with a minimum of
A language we are most fluent in.
KES25, 000 (US$304).
Law firm Hamilton Harrison & Mathews will
advise ApexAfrica Capital on this issuance.
Staying informed
EGYPT: Islamic Finance news will host an IFN
Roadshow at the American University in Cairo
on the 9th June.
The one-day only roadshow aims to explore
and analyze the latest developments in the
Egyptian Islamic financial market.
The Egyptian General Authority for
Investment chairman Osama Salleh will
deliver the key-note luncheon presentation,
and 20 key industry practitioners will
participate in a series of round-table
© Page 3 9th June 2010
4. NEWS
www.islamicfinancenews.com
continued... The selection process will be based on an Traders, Alliance Holdings, Summit Alliance
independent international jury, chaired by Port and Shore Cap Holdings.
(US$835 million) through its subsidiary, World Islamic Economic Forum chairman Tun
Integrated Healthcare. Musa Hitam. The decision is due to growing concerns
on high bad debt provisioning. The change
Khazanah may have plans to issue up to of hands is expected to be completed by
SG$500 million (US$ 354 million) in Islamic Viability study September 2010 based on regulatory
bonds to finance the deal, which would be approval.
Khazanah’s first bond issue in Singaporean MALAYSIA: The International Sharia
dollars. Research Academy for Islamic Finance (ISRA)
ICB Banking Group acquired 50.1% of the
will complete its study into the viability of an
issued share capital of Oriental Bank in
Fortis bought into Parkway in March and Islamic benchmark pricing rate in 2011. 2006 when Bank Bangladesh dissolved
currently holds a 25.37% stake, while the latter on grounds of mismanagement.
Khazanah owns 23.2% of the company. The study will incorporate industry feedback Oriental Bank was subsequently renamed as
including the concern on the difficulty of ICB Islamic Bank.
running two policy rates within one banking
New software system.
MALAYSIA: Al Rajhi Bank will start using Double roles
the Trasset software solution developed in ISRA proposed that Malaysian Islamic banks
MALAYSIA: AmIslamic Bank signed a
Hungary for treasury management. use industry specific benchmark pricing rates
MoU with state education loan provider
that are derived from underlying assets.
Perbadanan Tabung Pendidikan Tinggi
The new software which replaces Thompson
Nasional (PTPTN) to become a financier
Reuters’ Kondor+ has a wide range of
Doubling services and facility agent for a 10-year RM1.5
solutions including Sukuk management,
Mudarabah-based wealth management and continued...
PAKISTAN: The country plans to double its
Islamic financing.
Islamic banking services in the next three
years to meet rising demand and interest for
Room for growth investments that comply with Muslim tenets,
according to the central bank.
SINGAPORE: The Monetary Authority of
Singapore (MAS) will relax regulations on
business related or complementary to core
State Bank of Pakistan director of Islamic
banking Salim Ullah said the growth will
I = INDEPENDENT
financial business. be driven by domestic factors, and also by
increased global interest in Islamic finance.
F = FACTUAL
The new consultation paper issued by MAS
has identified the need to adopt a case The central bank has given prior approval to
N = NEUTRAL
by case approach in allowing financial establish two new Islamic banks, bringing
institutions to develop new businesses that the total to eight Islamic banks.
are related or complementary to the bank’s
main functions, which may not be clearly
financial. Islamic finance is among the key No to takeover talks
areas covered in these new guidelines.
MALAYSIA: Bank Negara Malaysia has
rejected Affin Holdings’ request to start talks
On the right path with EON Capital for a possible takeover.
MALAYSIA: The country’s Islamic banking
system is well on track to achieve the goal of The central bank’s decision now leaves Hong
the Islamic Financial Services Master Plan Leong Bank as the sole bidder for EON’s
banking assets.
DON’T YOU
of 20% of total banking market share by the
end of 2010.
Hong Leong Islamic Bank is a subsidiary of
THINK YOU
Currently, the market share of Islamic bank-
ing in the total banking sector is 19.6%.
Hong Leong Bank.
SHOULD BE
New owners SUBSCRIBING?
Global award BANGLADESH: ICB Banking Group, the
GLOBAL: The Malaysian International Islamic majority shareholder of ICB Islamic Bank has
Financial Centre (MIFC), Bank Negara and signed an agreement with a local consortium
the Securities Commission have launched to sell its controlling stake.
a global search to recognize and honor For more information, visit
outstanding contributions of an individual in The new owners are Summit Industrial www.islamicfinancenews.com
the Islamic finance industry. and Mercantile Corporation, Cosmopolitan
© Page 4 9th June 2010
5. NEWS
www.islamicfinancenews.com
continued... Group and South Africa-based Standard Bank in-house software application for fair-value
Group. It specializes in middle level capital hedging of its large portfolio of Sukuk and
billion (US$451 million) Bai Al Inah term infrastructure investments in Southeast Asia for cash-flow hedging of its portfolio of
financing. and Central Asia. deposits.
The proceeds of the facility will be utilized CapAsia currently manages about US$460 Reval is a risk management and hedge
to provide Shariah compliant education million worth of infrastructure investment accounting solutions provider.
financing for PTPTN. funds around the region. The bulk of it is in
Malaysia and Indonesia.
Shariah investments to
Bright prospects It currently manages three main funds — the expand
South East Asian Strategic Assets Fund,
AUSTRALIA: The development of Islamic RUSSIA: Russia and the Commonwealth
Islamic Infrastructure Fund, and the Asia
finance in the country could provide banks of Independent States (CIS) has been
Infrastructure Fund.
with an alternative source of wholesale identified as a promising destination for the
funding and draw Islamic banks to set up introduction of Shariah compliant banking
operations in the country. Industry booster and finance.
In addition, assistant treasurer Nick Sherry BRUNEI: The country can build the halal According to Dubai-based Amanie Islamic
said that it would also attract investment in sector via Islamic finance by raising capital Finance Consultancy and Education
Australian assets from Shariah investors, through the issuance of Sukuk. executive director Mark Smyth, Russia being
offer new funding routes through Sukuk and the 8th largest economy in the world houses
allow the establishment of Shariah compliant Thomson Reuters global head of Islamic 20 million Muslims.
investment products. finance and OIC countries Rushdi Siddiqui
said that increased investment in the form “Russia has managed to maintain its per
Sherry attributes this to the excess liquidity of Sukuk will develop more Shariah based capita income levels at US$15,100 despite
generated from oil revenues in the Middle companies as opposed to Shariah compliant the global recession and lower oil prices.
East and the increase in economic growth companies.
The untapped markets in the CIS should
in countries with huge Muslim populations, be the key focus for Shariah compliant
such as Indonesia, India and Pakistan. He said that the investments would create
investments,” he said.
the necessary environment to establish
The government has recently pledged to Shariah based companies which need not be
amend tax laws to win a slice of Islamic screened, enabling Brunei to be a leader in Sukuk in the pipeline
finance market. this area.
TURKEY: Kuwait Turkish Participation Bank
will launch a US$100 million Sukuk in the
Petition postponed EUROPE next two to three months.
INDIA: The Kerala High Court has adjourned The bank plans to raise the funds from
the petition challenging the establishment Staying up-to-date GCC investors, as there is a little liquidity in
of Al Baraka Financial Services Corporation Europe. It also plans to conduct roadshows
under the Islamic banking system in Kerala TURKEY: Islamic Finance news will host an
IFN Roadshow at Grand Hyatt Istanbul on the in Dubai and Saudi Arabia to attract potential
to the 7th September.
11th June. investors for the Sukuk.
A division bench adjourned the petition on
This one-day only roadshow aims to generate According to its Dubai’s branch senior
the formation of Al Baraka with 11% stake
ideas, explore and analyze the latest executive officer Rahim Albayrak, the
for Kerala State Industrial Development
developments in the Turkish participation proceeds will be used to boost the bank’s
Corporation (KSIDC), based on a request of
financial market. capital and fuel expansion plans.
Reserve Bank of India seeking more time.
The KSIDC had proposed the first state- Central Bank of the Republic of Turkey’s board
aided Islamic Bank in Kochi in 2009, with
plans to register the bank as a non-banking
member Professor Turalay Kenc, will deliver
the key-note address, followed by a series of
GLOBAL
finance company and later transform it into a round-table discussions with 21 key industry Conflicting interest
Shariah compliant bank. practitioners from around the region.
GLOBAL: Islamic finance faces a challenge
REDmoney Group is the organizer for this in corporate governance in aligning the
New name event. ideas of the Shariah board with those of the
management of institutions, according to a
MALAYSIA: CIMB Standard has been scholar.
rebranded to CapAsia. Hedging technology
According to the University of Bahrain
CIMB Standard is a joint venture private equity UK: Bank of London and the Middle East scholar and National Corporate Governance
fund manager between Malaysia-based CIMB has deployed Reval in place of its original
continued...
© Page 5 9th June 2010
6. NEWS
www.islamicfinancenews.com
continued... in Islamic financing. The entire issuance was of the proposed merger between Tamweel
to raise US$6.5 billion last year. and Amlak Finance.
committee member Dr Jasim Al-Ajmi, this
challenge involved whom the board reports
to, level of transparency and the amount Deal closed Islamic branch
of information disclosed by the Shariah
KUWAIT: Global Investment House and Gulf QATAR: HSBC has decided to open a fully
supervisory board.
Bank have signed a MoU where the bank will fledged Islamic banking branch in the
act as a sales agent for selected investment country. The establishment of more branches
Al-Ajmi added that conflict will always arise
funds managed by the former. is to follow based on an assessment
between Shariah and performance because
conducted to identify demand in the sector.
compliance could be regarded as a cost by
The agreement will see Gulf Bank offering
the management.
its priority banking clients the opportunity to The new HSBC Amanah branch will be
invest in the Global GCC Large Cap Fund and opened in Doha and will cater to all the
Riba defined Global GCC Islamic Fund. Shariah compliant financial requirements of
its customers.
GLOBAL: Shariah scholars have agreed on
the importance of setting up a committee to New in the market
characterize the definition of riba and when
UAE: Sharjah Islamic Bank launched a new
Sukuk financing
it is allowed.
Shariah-based ‘Employee Payment’ program, SAUDI ARABIA: Ahmed Salem Bugshan
targeting companies and employees. Group (ASB Group) is preparing to raise an
This was concluded during a recent Islamic
Ijarah-based US$100 million through the
workshop where different schools of thought
The product provides salary transfer issuance of Sukuk.
highlighted that riba, though prohibited in
services, which is based on the country’s
general in Islamic finance, can be allowed in The Sukuk is being structured with a five
payment protection laws.
some cases. year-term maturing in 2016 and offering a
semi-annual return of 125 basis points over
New Shariah fund the US dollar, six- month London Interbank
MIDDLE EAST KUWAIT: The National Bank of Kuwait
Offered Rate.
launched the US dollar-denominated Thahabi Proceeds from the Sukuk will be used to
Going local Ijara Fund VI. fund the expansion of its existing projects
QATAR: The country has issued QAR10 billion including a mega-steel plant and a real
(US$2.8 billion) in local bonds made up of The fund will invest all of its assets in the estate project.
conventional and Ijarah-based Sukuk with a purchase of equipment or portfolios of
6.5% coupon rate. equipment, and lease this equipment to a
diverse range of tenants. Whitepaper on mortgage
The riyal-based bonds provide a channel to
This fund comes with a four-week subscription SAUDI ARABIA: Shariah compliant Capitas
pool excess liquidity in the banking sector
period, which started on the 6th June. Group International, an affiliate of the Islamic
and diversify its funding away from dollars.
Corporation for the Development of the
To date, government debt issues have been
Private Sector has released a whitepaper —
predominantly US dollar-denominated.
No change “Expanding the Saudi Mortgage Market: The
The eight-year issue is evenly split with five Path to Homeownership.”
UAE: Islamic mortgage finance firm Tamweel
local conventional banks getting QAR1 billion continues to work on a restructuring plan
(US$275 million) each, while four Islamic The whitepaper highlights the key stages
with Amlak Finance, led by a steering of development in the mortgage industry,
banks share the rest. committee, which is appointed by the federal examines the role that mortgage liquidity
government. centers have played in other emerging
Situation report Tamweel’s statement comes in response
markets, and outlines solutions for Saudi
Arabia.
UAE: The Dubai government will meet to Dubai Islamic Bank’s announcement
with European investors to update them last week that it was evaluating a potential
on current economic developments in the increasing in its stake in the mortage New changes
country. company.
UAE: Abu Dhabi Islamic Bank has unveiled
Dubai’s department of finance said the The restructuring scenario that had been its new brand identity and introduced a new
meeting will not be used to promote bonds discussed until recently was the merger of slogan.
but will be a continuation of the investor the two firms to establish an Islamic bank
update program launched last year. that would receive the financial support of The new brand identity brings to the fore
the government. its core values. These values are — simple
As part of its debt restructuring plans, the and sensible, transparency, mutual benefit,
Emirates was successful in raising US$4 bil- According to analysts, the new developments hospitality and tolerance and Shariah
lion using Islamic bonds and US$2.5 billion added to the ambiguity surrounding the fate inspired.
© Page 6 9th June 2010
7. TAKAFUL NEWS
www.islamicfinancenews.com
AFRICA The central bank had recently proposed
to restructure the policy in line with the
vote on the 7th June, unless the price was
renegotiated.
government’s aim of ensuring access for
New kid on the block motorists to the mandatory Third-Party Bodily Prudential and Bank Simpanan Nasional
GHANA: Metropolitan Life Insurance Injury and Death insurance coverage. jointly own the Prudential BSN Takaful firm in
launched a life insurance and investment Malaysia.
scheme, Labaika, targeting the Muslim At the end of 2009, there were 10.8 million
community. It is the first of its kind on the motor insurance and Takaful policies issued
Ghanaian market. by insurers and Takaful operators.
GLOBAL
The insurance holders are entitled to receive Be more prudent
a fixed sum should death occur during the
term of the insurance.
EUROPE GLOBAL: The GCC’s real estate and
mortgage industries need to consider their
Pulling the plug Takaful or other insurance-related options
ASIA UK: Prudential had decided to abandon an
agreement to buy American International
at the earliest stage possible as their future
survival depends on it.
Group’s (AIG) Asian business after the
More time needed latter’s board voted against cutting the Solidarity General Takaful Company
MALAYSIA: The Consumers Association of purchase price from US$35.5 billion. general manager Gopi Rao said Takaful
Subang and Shah Alam, Selangor has urged and insurance-related buying decisions
the government to order Bank Negara to The deal came to an end after Prudential’s in this region are mostly made as an
postpone its proposal to restructure the investors signaled that they would not afterthought, which can expose participants
motor insurance policy. support the AIA purchase in an impending to unnecessary risk.
Islamic Finance: Opportunities for Tomorrow
25th - 28th October 2010, Kuala Lumpur
The Global Islamic Finance Forum (GIFF) 2010, themed “Islamic Finance: Opportunities for Tomorrow”, is a high-level multi-
track event that brings together regulators, scholars and financial industry players who are key drivers in shaping Islamic
finance globally.
The multi-track events of GIFF 2010 includes a Global Business Leaders Dialogue, Public Lecture, Regulators Forum,
Media Engagement Programme, the IFN Issuers and Investors Asia Forum 2010 by REDmoney, International Shari’ah
Scholars Forum by ISRA, Global Islamic Liquidity Management Workshop by AIBIM and The Takaful Rendezvous by MTA.
Sponsors for IFN Asia Forum 2010
Lead Sponsors
Associate Sponsors UK Pavilion Sponsors Research Partner Technology Partner
Booth Sponsors Takaful Associate
For further information on GIFF 2010 or to register, please visit www.GIFF2010.com
© Page 7 9th June 2010
8. RATING NEWS
www.islamicfinancenews.com
ASIA The ratings were attributed to the
announcement that its holding company,
Good financials
American International Group has terminated SAUDI ARABIA: S&P has
Triple strength its agreement with Prudential to acquire the revised its outlook on The Saudi
AIA Group. Investment Bank to stable from
MALAYSIA: RAM Rating
negative.
Services (RAM) has
reaffirmed the enhanced AIA owns a Takaful subsidiary in Malaysia.
At the same time, S&P has affirmed the ‘A-
long-term rating of ‘AA1’
/A-2’ long and short-term counterparty credit
for AEON Credit Service’s RM400 million
(US$122 million) conventional and Islamic
Stellar performance ratings on the bank. The outlook is attributed
to the bank’s resilient financial profile.
Commercial Papers/Medium-Term Notes MALAYSIA: Standard & Poor’s
(CP/MTN) Program, with a stable outlook. Ratings Services (S&P) has The Saudi Investment Bank provides Islamic
assigned a long-term foreign banking products.
The rating is attributed to the strength of currency issue rating of ‘A-’ on
the guarantee extended by a consortium of Malaysia’s US$1.25 billion global
three banks — The Bank of Tokyo-Mitsubishi Sukuk trust certificates. Strong bond
UFJ, Mizuho Corporate Bank, and Malayan
Banking. The rating is based on the final offering BAHRAIN: Fitch Ratings
agreement dated the 27th May 2010, and (Fitch) has assigned a long-
the various agreements, undertakings term foreign currency Issuer
Improved rating and the declaration of trust the 31st May Default Rating (IDR) of ‘A’
2010. on Mumtalakat Holding Company, with a
MALAYSIA: RAM has revised stable outlook.
the rating of Senai-Desaru
Expressway’s RM1.46 million Brilliant performance Fitch has also assigned Mumtalakat’s senior
(US$445,000) Bai Bithaman Ajil unsecured ratings of ‘A’ and a short-term IDR
Islamic Debt Securities (BaIDS) to MALAYSIA: RAM has of ‘F1’. The firm’s ratings are aligned with
‘BBB3’ (Negative Rating Watch). reaffirmed Public Islamic Bahrain’s (‘A’/Stable/’F1’), reflecting the
Bank’s respective long- strong relationship between the two.
At present, Senai-Desaru Expressway is and short-term financial
working on restructuring the BaIDS, with institution ratings at ‘AAA’ and ‘P1’. The long-
its appointed financial advisor, Maybank term rating has a stable outlook. Double slide
Investment Bank.
RAM has also reaffirmed its parent — Public UAE: Moody’s Investors Services
Bank’s long- and short-term financial has downgraded the local and
Parental support institution ratings at ‘AAA’ and ‘P1’ foreign currency deposit ratings
respectively. of Dubai Bank to ‘Baa2’/’Prime-3’
MALAYSIA: RAM Rating from ‘A3’/’Prime-2’.
Services (RAM) has The Public Islamic Bank ratings are
reaffirmed the ‘P1’ rating attributed to the bank’s credit profile, which At the same time, Moody’s has downgraded
of Esso Malaysia’s RM300 mirrors that of its parent — Public Bank. Dubai Bank’s bank financial strength rating
million (US$90 million) Islamic Commercial to ‘E+’ from ‘D’. The ratings carry a negative
Papers Issuance Facility Program. outlook.
The rating is supported by the strong MIDDLE EAST The downgrade hinges on the material
financial flexibility of its parent company — weakening in Dubai Bank’s standalone
Exxon Mobil Corporation. Standing firm strength as a result of the ongoing credit issues
UAE: RAM has assigned surrounding the Dubai corporate sector.
respective long- and short-
In tip-top condition term financial institution
HONG KONG: S&P has ratings of ‘AAA’ and ‘P1’ to
affirmed its ‘A+’ local National Bank of Abu Dhabi (NBAD).
currency counterparty Too many pieces
At the same time, the bank’s proposed
credit and insurer financial
strength ratings on American International US$916 million of Senior Unsecured Islamic/ in the puzzle?
Assurance Company (AIA) and American conventional Medium-Term Notes program
International Assurance Company has been assigned a long-term issue rating Let IFN put it together for you…
(Bermuda). of ‘AAA’. All the long-term ratings have a
stable outlook. SUBSCRIBE TO
S&P had also removed them from
The ‘AAA’ ratings are attributed to the bank’s
IFN TODAY
CreditWatch, where they were placed with
developing implications. The outlooks are solid shareholder support and NBAD’s strong www.IslamicFinanceNews.com
developing. franchise in its domestic financial market.
© Page 8 9th June 2010
9. IFN REPORT
www.islamicfinancenews.com
First US fund manager Eager for Islamic investors
MALAYSIA: US fund manager Saturna Capital Corporation was granted KAZAKHSTAN: The financial crisis that hit Kazakhstan’s banks has
an Islamic fund management license by the Securities Commission made the nation look for alternative models of finance and economic
(SC) in May, setting a precedent in two ways. First, a US fund manager growth. Four of the nation’s 38 banks are currently working towards
was granted an Islamic fund management license in Malaysia. restructuring about US$20 billion of debt. Of its 16.5 million people,
Secondly, the method entailed an existing asset management 60% are Muslim and are slowly rediscovering their roots after a long
company being converted into an Islamic one for the first time. period of religious suppression under the Soviet regime.
Saturna in fact bought over Alpha Asset Management which was not Kazakhstan is rich with fossil fuel reserves, minerals, metals, a large
Islamic, but it held a conventional fund management license. Saturna agricultural sector featuring livestock and grain. Its industrial sector
then converted Alpha’s conventional assets into Shariah compliant rests on the extraction and processing of these natural resources
portfolios. The venture was then renamed Saturna. and the country is now engaged in a drive to woo Shariah compliant
investments to develop the agriculture, oil and gas, metallurgy,
“Alpha Asset Management held a conventional fund management mining, energy and industrial sectors.
license at the time Saturna acquired control. Upon acquisition we
immediately contacted existing clients to notify them of our intention The minister of industry and trade and the deputy prime minister
to operate under an Islamic fund management license, and offered of Kazakhstan Aset Issekeshev told Islamic Finance news that the
them the option to continue using our services under an Islamic government has already assured state support for Shariah financial
mandate,” said Saturna chief investment officer Bryce Fegley. investments. They have identified the urgency to resurrect these
dormant industries with fresh investments sourced using ethical
“The focus of our business going forward will be management financing.
of individually structured investment portfolios. To that end, the
conversion process for our existing clients entailed the restructuring The country began exploring the potential of Islamic finance in 2007.
of their individual portfolios to ensure they were Shariah compliant,” The adoption of its maiden laws on Islamic banking and finance in
Fegley continued. April 2009 followed very quickly with the formation of Fattah Finance
in March, the country’s first brokerage specializing in Islamic finance,
Affin Fund Management CEO Mohamad Ayob Abu Hassan confirms and Kausar consulting, the first Islamic finance consultancy. This
that it is a cumbersome process to convert conventional investments year itself, the much awaited launch of Al Hilal Bank, a joint venture
into Islamic finance instruments. “The conversion needs investor’s between the government and its UAE counterpart took place. The
approval regardless of the status — whether they are private country’s first Islamic bank opened two branches in Almaty and
placements or unit trust. Failing such approval, the only available Astana, with another two in the pipeline by the end of the year.
option is to refund the respective conventional investments,” he said.
“Islamic finance is crucial for economic development and innovations.
Approving the Saturna’s move, Al Rajhi Bank vice-president for It has weathered financial crises and is proven for its quality, reliability
investment banking Mabel Lee said: “Internationally the fund markets and the transparency. Having understood the vital role it can play to
are volatile and this could prevail for some time. Fund managers attract investments from the Islamic nations, the government has
need to be opportunistic in this turbulent market condition. So, they extended the state patronage by amending the laws. We are confident
consider the Asian region as room for growth. However, the Malaysian that Islamic finance will lead the way to attract investments especially
fund market is relatively small in size but stable. This feature attracts from the GCC and the other Muslim countries to develop all these
new investments as well as market players to Malaysia.” sectors,” said Issekeshev.
Explaining the market dynamics instrumental for its new subsidiary, IFI Consulting Company deputy general manager Sabry Kozhakhmetov
Fegley told Islamic Finance news, that the promising long-term optimistic about Islamic and finance how it could help to attract
economic fundamentals prevailing in Asia were the deciding factor. investment said: “People waited a long time for the opening of an
Islamic bank in Kazakhstan. Now the Shariah based financial system
“We source opportunities for making investments both for our clients’ has started to progress in the country. There are a considerable
portfolios as well as investing in our own future growth. Malaysia number of Islamic investors willing to invest here. We have worked
serves us as a regional hub in terms of Islamic finance due to its closely with the regulators and are confident of the fundamentals.
convenient geographical positioning and its relatively liberalized However, it will take time to smooth out the differences and minor
markets and the economy. The country’s strong investor protection transitional issues.”
mechanisms and state patronage are additional advantages,” said
Fegley. Promoting the available investment opportunities in this 9th largest
country in the world, Visor Capital managing director Jose Luiz Gaviao
In addition to asset management, Saturna conducts international said: “In general terms, the economy has survived difficult periods
equity research, investment advisory services, sales and marketing. quite well, with most of the debt restructuring of its financial systems
Through its subsidiary Saturna, Saturna Capital Corporation plans to already concluded. That was achieved without denting its sovereign
tap into Malaysia’s Islamic financial growth and to reap benefits from ratings or imposing heavy toll on local tax payers. The country is
the prevailing investment friendly environment. known for its very conservative approach in terms of fiscal policy,
which coupled with better than expected oil prices.”
With a strong track record in managing Shariah compliant portfolios
and other international equities, Saturna enjoys 100% market Reports by Arfah Hani Abdullah and Ashwin Hemmathagama
leadership in Islamic fund management in the US.
© Page 9 9th June 2010
10. COUNTRY REPORT
www.islamicfinancenews.com
Thai SEC To Permit Sukuk Issuance
— First Deals Likely To Follow
By Stephen Jaggs, Siripen Kaodara and Matthew Waudby
The Thai Securities and Exchange Commission (SEC) is currently apply for SEC approval by submitting to the SEC an application form,
in the process of issuing a new regulation to permit both domestic together with the required corporate documents. The SEC will inform
and international issuances of Sukuk certificates in accordance with the applicant of the result within seven business days of receiving the
Islamic financing principles (the Sukuk Regulation). We have been complete and accurate application form and supporting documents.
informed that the new regulation is likely to be issued in around July
this year. In addition, to facilitate Sukuk issuance, the Thai Ministry This is effectively an application for the approval of the issuer and, once
of Finance (MOF) has prepared a draft regulation to exempt the the SEC grants its approval, the issuer will be considered to have been
originator from land transfer taxes and registration fees which is due “shelved” as an issuer with the SEC. As a shelved issuer it may issue
to be submitted for cabinet approval shortly. as many series of Sukuk certificates of unlimited value within two years
from the date of the SEC approval. However, prior to each issuance,
Previously there had been no laws in place to accommodate Sukuk issu- the approved issuer must disclose features of the Sukuk certificates
ance in Thailand and no deals had taken place. However, according to and submit certain documentation to the SEC (including transactional
press reports, the Islamic Bank of Thailand plans to issue Thailand’s first documentation and board of directors’ or shareholders’ approval).
Sukuk certificates this year once the new regulations are issued. With a
Muslim population of approximately nine million, market sentiment per- Filing requirement: In addition the issuer must file a registration
mitting, there are hopes that the new regulations will enable Thailand statement and draft prospectus with the SEC prior to each issuance.
to take the first steps towards developing into an Islamic finance hub, The Issuer and a financial advisor must jointly prepare and certify
enabling it to draw capital from the Middle East and elsewhere. the accuracy of information in the registration statement and draft
prospectus, except where (i) the issuer is a listed company or a legal
Based on a draft summary of the Sukuk Regulation previously entity established by special legislation, or (ii) the Sukuk certificates
circulated by the SEC in late 2009 and other publicly available are short-term certificates. An offer can only be made after the filing
information, this article seeks to assess the general legal framework becomes effective, which is 14 days after the date the SEC receives the
for Sukuk issuance in Thailand by analyzing the likely key provisions complete registration statement and draft prospectus. Except where
of the Sukuk Regulation and related laws. Please note however that (i) the issuer is a listed company or a legal entity established by special
the final version of the Sukuk Regulation may well feature certain legislation, or (ii) the Sukuk certificates are short-term certificates.
amendments to the previously circulated draft summary. It is possible
that the details summarized below may be subject to change as may Rating requirement: The Sukuk certificates must be rated. If the
the timing of issue of the finalized regulation. certificates are short-term with a maturity period of 270 days or less,
the SEC may permit the issuer to use an additional issuer rating.
Sukuk Regulation
The Sukuk Regulation will essentially seek to set out what Sukuk Trustees: For each issuance of Sukuk certificates, the SEC requires
structures are permitted, together with the applicable SEC approval the appointment of: (i) an asset trustee, which will hold the underlying
and filing requirements. The latter will essentially dictate which entities assets and issue the Sukuk certificates; and (ii) a Sukuk trustee, which
can issue Sukuk certificates and in what circumstances. will be appointed to represent the investors. The trustees must be
separate entities to ensure that there are no conflicts of interest.
Permissible Sukuk structures
Initially, the SEC will permit the issuance of Sukuk certificates under • Asset Trustee: The asset trustee may be the originator or
five popular types of structure, namely: Ijarah (leasing), Istisna (custom a subsidiary of the originator. The asset trustee will be
manufacturing), Mudarabah (cost-plus financing), Musharakah responsible for issuing Sukuk certificates, buying, holding
(partnership) and Wakalah (agency). The Sukuk certificates must be and selling the underlying assets. The asset trustee must
unsecured, unsubordinated, with a definite term such as not perpetual receive permission from the SEC to act as an asset trustee.
certificates and must not be convertible. To ensure that Sukuk The asset trustee may only look after assets relating to the
certificates are issued in accordance with Shariah principles, the SEC Sukuk certificates which it issues.
requires the structure to be reviewed by a Shariah advisor.
• Sukuk Trustee: The Sukuk trustee performs a role similar
Approval and filing requirements to that of a bondholders trustee and has a fiduciary duty to
It is anticipated that the Sukuk Regulation will permit both public the investors. The Sukuk trustee must be a licensed trustee
offerings and private placements of Sukuk certificates. Generally, the pursuant to the Trust Act.
applicable approval and filing requirements are likely to be similar to
those of the SEC for conventional bonds with the key requirements for Underwriter: Subject to certain exceptions, the issuer must appoint an
domestic offerings being as follows: underwriter.
(a) Public offerings Listing requirement: The issuer must list the Sukuk certificates with
Approval requirement: To be able to go ahead with an issuance, the the Thai Bond Market Association.
issuer and, if they are not the same entity, the originator must jointly continued...
© Page 10 9th June 2010
11. COUNTRY REPORT
www.islamicfinancenews.com
Thai SEC To Permit Sukuk Issuance — First Deals Likely To Follow (continued)
Eligible applicants: Importantly, the issuer and originator must be Listing requirement: No listing requirements exist for private
either a company incorporated in Thailand (which would include a placements except for Sukuk certificates offered to institutional
special purpose vehicle (SPV)), a foreign bank with a full branch in investors or high net worth investors which must be listed with the
Thailand or a legal entity established in Thailand by special legislation. Thai Bond Market Association.
The SEC’s requirement that any SPV issuer be incorporated in Thailand
means that foreign investors will be unable to seek to reduce their Eligible applicants: Eligible applicants for private placements are the
country exposure through the use of an offshore SPV issuer. Though same as for public offerings.
typically one may expect the issuer to be an SPV, the Sukuk Regulation
also contemplates that the issuer may be either the originator or an International versus Domestic Issuances
SPV. The above summary is drafted from the perspective of domestic
issuances. The main difference for an issue to offshore investors is
(b) Private Placements likely to be that there will be no filing requirement (the issuer would
Under the Sukuk Regulation it is anticipated that a private placement merely have to apply for SEC approval and the criteria for approval are
will be defined as: likely to be less stringent than for domestic issuances). In addition the
general approach is likely to be that domestic deals would need to be
• an offer to institutional investors or high net worth investors denominated in Thai Baht, whereas foreign deals would need to be
of unlimited value, denominated in a foreign currency.
• an offer to not more than 10 specific investors during any four-
Other Key Thai Laws
month period, or
Proposed tax and registration fee exemptions
Potential market participants have previously commented that the Thai
• an offer for which special waiver is granted by the SEC.
tax code has hindered the development of Islamic finance in Thailand,
pointing out that: (i) returns from Sukuk investments are classified as
Institutional investors are usually defined by the SEC as commercial
rental revenues subject to a property tax; and (ii) transfers of land or
banks, finance companies, securities companies, credit foncier
property assets to a SPV are taxed as a land transaction. In this regard
companies, insurance companies, state enterprises, governmental
agencies, legal entities incorporated by specific legislation, the Bank the exemption from land transfer taxes and registration fees proposed
of Thailand, international financial institutions, the Financial Institution by the MOF may further facilitate transactions.
Development Fund, the Government Pension Fund, the Provident
Fund, mutual funds and similar types of foreign investors. A high net The Trust Act
worth investor is likely to be defined as an individual having assets The other key Thai law that will combine with the Sukuk Regulation to
worth THB40 million (US$1.22 million) or more (excluding debts) or a facilitate Sukuk issuance in Thailand is the Act on Trusts for Capital
legal entity having assets worth THB200 million (US$6.12 million) or Market Transactions (the Trust Act). This was enacted in 2007 and
more according to its most recent audited financial statements. crucially allows for the concept of an asset trustee and a Sukuk trustee
in a civil law system which previously had no ‘trust’ concept.
Approval requirement: The issuer and the originator will not be required
to submit an application for approval but will instead likely be deemed Conclusions
to have received SEC approval once the issuer: (i) registers the transfer The anticipated SEC permission to issue Sukuk certificates, together
restriction applicable to an issuance with the SEC; and (ii) submits to with the MOF’s proposed exemptions from land transfer taxes and
the SEC the draft terms and conditions and trustee agreement. Note registration fees, are likely to be very encouraging. By removing key
that prior to each issuance, the approved issuer must disclose features impediments, they may well enable Thailand to take its first steps into
of the Sukuk certificates and submit certain documents to the SEC. the vast Islamic finance market. Indeed press reports suggest that in
the coming months the Islamic Bank of Thailand plans to issue a Baht
Filing requirement: There is no filing requirement for private denominated Sukuk adopting a Wakalah structure with an issue size
placements other than for offerings to institutional investors or high in the region of THB5 billion (US$153 million).
net worth investors, in which case the issuer must file with the SEC
a certified registration statement and draft prospectus. The filing Stephen Jaggs
effective date is five business days after the date the SEC receives the Partner
complete registration statement and draft prospectus. Allen & Overy (Thailand)
Email: Stephen.Jaggs@bangkok.allenovery.com
Rating requirement: There is no rating requirement for private
placements except for offers to institutional investors or high net worth Siripen Kaodara
investors, in which case, either the Sukuk certificates or the issuer Senior associate
must be rated. Allen & Overy (Thailand)
Email: Siripen.Kaodara@bangkok.allenovery.com
Trustees: The same principles apply in respect of trustees as for public
offerings. Matthew Waudby
Senior associate
Underwriter: An underwriter is not required to be appointed for private Allen & Overy (Thailand)
placements. Email: matthew.waudby@bangkok.allenovery.com
© Page 11 9th June 2010
12. SECTOR REPORT
www.islamicfinancenews.com
The Role of Venture Capital Model in
an Islamic Economic System
By Kashif Nisar
Since their inception, Islamic banks have been criticized for not falls on the shoulders of leading Islamic banks to take the lead and
using participatory (profit and loss sharing) modes of financing such promote participatory financing modes wherever possible.
as Musharakah and Mudarabah. Generally, scholars argue that
participatory financing is the key to achieve the main goal of equitable Overall, the combination of the ‘trust’ factor of depositors, ‘return’
distribution of wealth in society. There has been little progress in this expectation from shareholders and strict regulatory control make it
area and Islamic banks still heavily rely on less risky financing modes difficult for the management of an Islamic commercial bank to have a
such as Murabahah and Ijarah. Hence there is a need to revisit the large portfolio based on participatory modes. This is exactly where the
whole process to find out whether the criticism of Islamic banks venture capital model scores.
is justified and whether the ‘current commercial Islamic banking
model’ can alone achieve an equitable distribution of wealth.
“There is a need to revisit
Any person would feel reluctant before handing over his life savings
and expensive belongings to another individual for safe keeping. The the whole process to find out
reason for such reluctance is the ‘trust’ factor as it is possible that
the person responsible for safekeeping may not return the belongings whether the criticism of Islamic
back to the actual owner. But when we talk about the commercial
banking model, the same owner would readily deposit his funds and
banks is justified and whether
keep his belongings in lockers with a bank and would feel very secure
after doing so. The commercial banking model exists on the basis
the ‘current commercial Islamic
of ‘trust’. A depositor may have opened an account to avail certain
banking services or to earn periodical profit on his funds. But in either
banking model’ can alone
case, he trusts the bank to prudently manage his funds and ensure achieve an equitable distribution
that his principal funds remain intact. Imagine a depositor entering in
an Islamic bank branch to withdraw part of his funds. He is, however, of wealth”
informed at the cash counter that out of the total PKR500,000
(US$6,000) deposited by him only PKR300,000 (US$3,512) were Venture capital is a type of private equity capital mainly provided
available in the account due to the default of a corporate client, with for early-stage, high-potential, growth companies in the interest of
whom the Islamic bank had entered into a Musharakah transaction. generating a return through an eventual realization event such as buy
out or initial public offering. In such a model, there is an inherent risk
In spite of signing the Mudarabah contract at the time of account of losing one’s entire investment in a startup company. In other words,
opening and knowing about the possibility of loss in Mudarabah, it the investor in venture capital may accept failure of six out of seven
is much likely that the depositor may not accept such loss. He may transactions. But the depositors and shareholders of an Islamic bank
question the prudence and risk management exercised by the Islamic have a limited risk appetite.
bank while investing his funds. He may even doubt the integrity of that
Islamic bank and feel that the bank is deceiving him. Once the trust Venture capital can be used as a tool for economic development in
level is shaken, the existence of that Islamic bank may be in jeopardy developing regions. It contributes to the economy as follows:
as other depositors may also approach the bank for withdrawal of their • Venture capital is most attractive for new companies with limited
funds. operating history that are too small to raise capital in the public
markets and have not reached the point where they are able to
Similarly, the shareholders would generally expect the bank to perform avail financing from banks;
better or at least at par with other competitor banks. They would have a • Technology advancement;
certain expected return in mind as they have invested large amounts of • Increase in job creation and innovation in an economy. We have
funds and may also look towards alternative investment opportunities examples of highly successful companies originated by Venture
in case the Islamic banks fail to provide the desired return. So there is capitalists such as Google, Amazon, Apple Computer, Intel, FedEx
a dilemma for the Islamic banks. The fund providers (depositors and and Microsoft.
equity holders) are generally risk averse, whereas, other stakeholders
expect Islamic banks to deploy funds in participatory modes of finance It was initially in the US that venture capital originated as an industry.
which are riskier in nature. Accordingly the US venture capital companies have been the major
participants in venture investments. Venture capital investments later
Therefore, the criticism that Islamic banks are not investing the increased in other regions such as Europe, Canada, China, Malaysia,
majority of their funds in participatory modes seems unfair. But, as is India, Thailand and such.
always the case, any extreme position taken is wrong. On one hand, it
is unrealistic to expect an Islamic bank to base the majority of its asset The venture capital model works in a region when there are some
portfolio on participatory modes. On the other hand, it is disappointing initial success stories. For example, in the case of China, the venture
to see that, apart from a few players, there have been no visible efforts capital industry started in the 1980s. Initial efforts failed due to lack of
to utilize these modes even in a gradual manner. Major responsibility continued...
© Page 12 9th June 2010
13. SECTOR REPORT
www.islamicfinancenews.com
The Role of Venture Capital Model in an Islamic Economic System (continued)
experience in this area. However, due to continuous support from the financing whereas the manager/entrepreneur will propose a business
Chinese government as well as from the private sector, the industry venture and will be responsible for the management and work. As per
took off from 1999 onwards. the Mudarabah principles, the parties will have to agree in the contract
on the proportion of the actual profit arising from the business venture.
As with China, the venture capital industry in Pakistan has witnessed Loss in the venture will have to be borne by the investors unless
sluggish development. One of the venture capitals, Pakistan Venture the loss is caused due to the negligence or violation of the contract
Capital, had to shift from the venture capital model due to portfolio terms by the entrepreneur. In the Islamic venture capital company,
issues and problems created by the local loan recovery procedures. a Shariah Advisor should be appointed who will provide guidance on
In 2000, the government launched a US$50 million venture capital conformance to the Shariah principles in all matters and will ensure
fund for technology development in Pakistan, but no notable progress that the proposed investment contract and instrument structures are
was achieved and the initiative soon fizzled out. Steady support from Shariah compliant.
the government and private sector is required to make the venture
capital model a success since many high-potential projects in different The Malaysian government is playing a major role in this area and is
sectors such as energy, agricultural and health remain untapped due encouraging Islamic venture capital firms to establish bases in the
to lack of funding. The government needs to facilitate the venture country. In this regard, the Securities Commission of Malaysia has
capital industry through different measures to ensure its success. The already introduced a set of guidelines and best practices to promote
critical issues include development of an adequate legal framework, the adoption of appropriate standards for the development of the
an easy entry and exit mechanism, necessary relaxations in the Islamic venture capital industry. It is expected that other regions,
regulatory framework and promoting innovative ideas and potential specifically where Islamic banking is growing rapidly, will follow suit
entrepreneurs. The government can also play a major role by creating and promote the Islamic venture capital industry. The Islamic venture
its own venture capital fund. capital model can provide ideal support to Islamic banks in achieving
the vision of equitable distribution of wealth in the economy.
Venture capital is a mode of investing that seems ideal for Islamic
finance through the application of participatory financing modes Kashif Nisar
with the Mudarabah concept being the most common. In the Islamic Section head, product and business development
venture capital model, Mudarabah financing will involve a partnership BankIslami Pakistan Limited
contract under which the investor (or ‘Rab-ul-maal’) will provide Email: kashif.nisar@bankislami.com.pk
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