Vatican Endorses Islamic Finance For Western Banks

In yet another act of conciliation on the part of Western religions towards Islam, the Vatican newspaper Osservatore Romano has voiced its approval of Islamic finance. The Vatican paper wrote that banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global 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 Osservatore Romano said. “Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral”. Sukuk may be used to fund the “‘car industry or the next Olympic Games in London,” the article says.

The Vatican article is only one of many articles that have recently appeared on the acceptance by Western governments and bankers of an Islamic financing system. More than accepting it, they seem to be welcoming it, though they are certainly being pressured into this by unnamed forces bowing to the dictates of Islam.

Last December, the French Senate looked at ways to eliminate legal hurdles, particularly levies, for Islamic financial services and products in France and the potential for listing companies on the Paris Stock Exchange. Senate sources said that this area of the financial market is worth from 500 to 600 billion dollars and could grow by an average 11 percent a year.

French Finance Minister Christine Lagarde has announced France’s intention to make Paris “the capital of Islamic finance” and announced several Islamic banks would open branches in the French capital in 2009.

This hearkens back to a video from November 26, 2008 that was posted at many French websites showing Madame Lagarde announcing with (according to some bloggers) visible embarrassment the decision to allow Islamic financing in France. Whether or not this move is constitutional is apparently not even an issue, since European countries change their laws to accommodate Islam. If the “sacred” law separating Church and State can be violated, any law can. The video, with its very soft audio, shows the minister in a strange garb, and struggling to present a happy countenance. There is no way of knowing if this is merely the quality of the video, or an indication of her emotional state. An article from Le Parisien dated November 27, 2008 provides the following information, in addition to the facts presented above:

A revolution in the banking world. After London, where the first Islamic bank opened its doors in September 2004, France could authorize banks respecting sharia law to open in 2009 (...) Hervé de Charette, president of the Franco-Arab Chamber of Commerce emphasizes that “importing Islamic banking into France would help the integration process”. The main obstacle: “Islamic banking arouses fear because it is associated, wrongly, with religious fundamentalism, even with the financing of terrorism,” deplores Elyès Jouini, professor of economics at the University of Paris. (...)

The world economic crisis has changed the ball game. From New York to Hong Kong, all the financial centers on the planet are grabbing the billions of dollars amassed by the oil-rich monarchies of the Gulf. To tap into this manna (...) is the stated goal of Christine Lagarde. “We are determined to make of Paris a great center for Islamic finance,” declared the Finance Minister as she inaugurated the second French forum on Islamic banking.

For another longer English-language article, visit Islam On Line. This article goes back to July 2008, showing that even before the crisis, France had initiated a policy favoring Islamic banking.

Source: Brussels Journal

Related Links:

Will American Capitalism Survive?

Islamic Finance Products

Vatican Says Islamic Finance May Help Western Banks in Crisis

Easing Limits on Islamic Finance in France

Video of Christine LeGarde on Islamic Finance

Blame for Global Financial Crisis

Islamic Banking Principles

Comments

Riaz Haq said…
Pakistan ranks 8th in the world of Islamic Finance, according to a Guardian story. Here's an excerpt:

How it works

Islamic finance is all about sharing risk between financial institutions and the individuals that use them. To do that, the two parties are tied into a longer-term relationship with each other that is supposed to shift incentives and avoid cut and run financial deals.

So, for example, sharia-compliant mortgages mean that the bank and the borrower share the risks of repayment rather than charging any form of interest. Similarly, Islamic bonds like the one announced by David Cameron today involve both parties owning the debt, rather than a simple promise to repay a loan.

Since it's Islamic, that also means that financial trading is off-limits for things that are forbidden even if no interest is charged - so investments can't be made in alcohol, tobacco, non-halal meat products such as pork, pornography or gambling companies.

You don't have to be Muslim to use Islamic financial services - a fact which has stimulated further interest in the sector. The Islamic Bank of Britain reported a 55% increase in applications for its savings accounts by non-Muslims last year after the Barclays rate-fixing scandal.

In numbers

275: The number of Islamic financial institutions in the world.
75: The number of countries where they have a presence.
US$1.357 trillion: The value of the global Islamic finance services industry by the end of 2011.
US$4 trillion: The projected value of the global Islamic finance services industry by 2020.
£200m: The value of the planned Islamic bond being unveiled by David Cameron today.
11th: The ranking of the UK (up 4 places from 2011) in the Global Islamic Finance Report which weighs up variables like the number of institutions involved in Islamic finance industry, the size of Islamic financial assets and the regulatory and legal infrastructure.

Glossary

bay 'al-mu'ajjal: Instant sale of an asset in return for a payment of money (made in full or by instalments) at a future date
gharar: Describes a risky or hazardous sale, where the details of the sale contract are unknown or uncertain
ijarah: Leasing contract
istisna': Refers to an agreement to sell a non-existent asset, which is to be manufactured or built according to the buyer's specifications and is to be delivered on a specified future date at a predetermined selling price.
mudarabah: Profit and loss-sharing
musharakah: Joint partnership
qard hasan: Interest-free financing
riba' : Usury
sharikat al-'aqd: Contractual partnership
sharika al-milk: Proprietary partnership
sukuk: Islamic bonds
tahawwut: Hedging
takaful: Islamic insurance
wadiah: Safe custody
wakala: Investor entrusts an agent to act on his behalf
zanniyyat: probabilistic evidence


http://www.theguardian.com/news/datablog/2013/oct/29/islamic-finance-for-beginners
Riaz Haq said…
A rally in Pakistan bonds bodes well for the world’s second-biggest Muslim nation as it prepares to sell global sukuk for the first time since 2005.

The government may issue $500 million of dollar Islamic notes by month-end, Finance Minister Ishaq Dar told reporters in Dubai on Nov. 8, reviving the sale initially scheduled for September. The yield on the nation’s conventional five-year U.S. currency debt sold in April dropped to a five-month low of 6.16 percent and Union Investment Privatfonds GmbH is predicting 6 percent for a similar-maturity sukuk.

Investors have sent the benchmark stock index to a record and the rupee to its strongest in more than two months as they focus back on the economy as Prime Minister Nawaz Sharif overcame pressure from opposition members to step down in August. Global sales of sukuk are heading for the worst fourth quarter since 2008, aggravating a shortage of Islamic securities that may support demand for Pakistan’s offering.

“The macroeconomic outlook of the country has vastly improved,” Vasseh Ahmed, chief investment officer of Faysal Asset Management Ltd., which oversees $85 million in Karachi, said in a Nov. 11 e-mail. “There is expected to be substantial interest owing to the lack of investment avenues for Islamic investors.”

Shrinking Sales

Worldwide sales of Islamic bonds dropped 81 percent this quarter to $2 billion from the previous three months, data compiled by Bloomberg show. Issuance climbed 11 percent in 2014 to $38.9 billion, trailing 2012’s record $46.8 billion total.

Pakistan tapped the international debt market in April for the first time since 2007. It sold $2 billion in total of 7.25 percent non-Shariah-compliant notes due in 2019 and 10-year 8.25 percent bonds whose yield was at a three-month low of 7.46 percent, data compiled by Bloomberg show. Demand exceeded the amount on offer by 14 times.

The nation has no global sukuk outstanding, only local-currency Shariah-compliant notes that were last issued in June.


A five-year note will pay from 6 percent to 6.5 percent and 10-year securities 7 percent to 7.5 percent, Mohammed Sohail, Karachi-based chief executive officer at Topline Securities Pakistan Ltd., said in a Nov. 11 e-mail.


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The South Asian nation’s foreign-exchange reserves totaled $14 billion in September, compared with $8.7 billion at end-2013, central bank data show. The fiscal deficit narrowed to 5.8 percent of gross domestic product in the 12 months through June, from 8.2 percent the previous year, according to official data on June 3.

‘Attractive Yield’

“The key factor will be the domestic political situation,” Sajjad Anwar, chief investment officer at NBP Fullerton Asset Management Ltd., which manages $456 million, said by phone on Nov. 11 from Karachi. “The economy is in better shape now and the response to the sukuk will be very encouraging.”

The nation, which is rated below investment grade at B- by Standard & Poor’s, is still likely to attract investor interest because of its higher yields. Qatar’s global Shariah-compliant debt due in 2023 yields 2.99 percent, while Malaysia’s 2021 sukuk pay 2.93 percent, according to data compiled by Bloomberg.

Pakistan has engaged in economic reforms to meet conditions of an International Monetary Fund bailout. The Washington-based lender said in a Nov. 8 statement that it will seek board approval to release $1.1 billion in loans in December. The reforms are “broadly on track” with growth forecast at 4.3 percent in the fiscal year ending June 2015, the fund said. GDP increased 4.1 percent in the last financial year.

“Pakistan is a very well known name to the sukuk investor community,” Union Investment’s Dergachev said in a Nov. 11 e-mail. “It still offers a very attractive yield compared to other sukuk issuers both in the sovereign and corporate space and that matters in a low-yield environment.”

http://www.bloomberg.com/news/2014-11-13/sharif-weathering-protest-revives-pakistan-plan-islamic-finance.html
Riaz Haq said…
#Sharia compliant #Islamic #banking available 2,322 branches in 112 districts across #Pakistan

http://www.khaleejtimes.com/business/banking-finance/why-pakistans-islamic-banking-industry-can-only-get-better


The growth and expansion of the Islamic banking is moving fast. This is the view of Islamic scholars who spoke at a seminar arranged by the Securities & Exchange Commission of Pakistan (SECP), the official regulator of Islamic banking in the country.

At the same time, the World Bank and the Islamic Development Bank, in their first global review of the fast-track movement of the Islamic banking system, have reported that Pakistan is among those countries in which the government and the central bank are "not taking Islamic banking lightly".

The SECP reports that "there is an even stronger growth of Islamic assets in the non-banking financial institutions. Their market share is now approaching 33 per cent, - up from 14 per cent in 2012".

What's behind this growth? One, the persistently strong demand from customers of the country of 200 million, largely Muslims, and two, the fact that the State Bank of Pakistan (SBP), the central bank, the government of Pakistan and the SECP "created the enabling regulations environment for this fast track growth".

These were the views made at a seminar held at the SECP in Islamabad. Hayat says "the priority and responsibility of the regulator like SECP is to develop [an] Islamic capital market."

The SECP on its part, recently had two sessions for consultation with banking sector participants to help investment in issuing sukuk and real estate investment trusts (Reits).

As of now, the SECP is analysing the proposals from the financial and banking sector to formulate necessary amendments into the regulations to further reduce the cost for such investment. The SECP is also considering the banking sector and investors' proposals regarding the existing tax problems relating to sukuk and Reits and to overcome such problems.

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The bankers and Islamic scholars also debated at the SECP seminar as to which model is to be adopted, because in 2001 policy makers had decided to allow both Islamic and conventional banking in Pakistan. This policy continues as of now.

As at now, 21 banking institutions are providing Islamic banking services and products, through their 2,322 branches in 112 districts across Pakistan. Abbasi said: "The SBP has a holistic approach for the promotion of Islamic banking, and is providing the enabling policy environment for Shariah governance, risk management and capacity building." The Islamic Finance News, in 2015, adjudged the SBP as the "Best Central Bank for Promoting Islamic Finance".

Another Islamic scholar, Dr Shafiullah Jan, says: "The economic substance in Islamic banking may seem to be the same as that of the conventional banking, but the underling process is different."

Dr Jan said along with the growth of the Islamic banking industry, more attention should be given to ask as to why this industry was created, and whether it is delivering along the Islamic vision of development that it is associated with.

Now let us go back to the first-ever Islamic banking report issued last week by the World Bank and Islamic Development Bank. It says: "The fact that a strategic roadmap on a national level is in place in jurisdictions. These jurisdictions include Indonesia, Malaysia and Pakistan, [and] shows that the governments in those countries are no longer taking Islamic financing lightly."

It says, "Indonesia and Pakistan are, perhaps, the strongest proponents of incorporating financial inclusion as a policy objective."

As the banking sector expands as a result of financial inclusion, Islamic banking is projected to expand more.

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