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Company shares as sukuk asset?‏ Company shares as sukuk asset?‏(0)

By Rushdi Siddiqui

Reuters recently reported that “Malaysia’s central bank has rejected Bimb’s proposal to secure the sukuk with shares of the company, which will need to identify an alternative asset for the exercise… Bimb last month proposed a 10-year Islamic bond, or sukuk, of 1.5 billion ringgit ($456.66 million) as part of a plan to acquire the 49 per cent stake it does not own in Bank Islam held by the Dubai Group and Tabung Haji.”

Sukuk has been issued where the underlying asset has been toll road revenue, aircraft leases, offshore oil drilling leases, mobile phone airtime, etc. Furthermore, a variety of sukuk includes convertible sukuk (to compliant company shares), exchangeable sukuk (another compliant company controlled by the sukuk-issuing company), perpetual sukuk (capital ratio), etc.

The regulator has to walk the fine line between encouraging Islamic capital market development with supporting compliant instruments and prudence, especially after Credit Crisis I (US subprime) and Credit Crisis II (eurozone sovereign debt).

It must be recalled that the derivatives market reached the size of $700 trillion, whilst the world economy was at $60 trillion. Hence, regulators conscious of maintaining the connection between offering instrument (abuse) and underlying (local) economy in an inter-connected capital markets.

Shares are asset?

According to Wikipedia, “a shareholder or stockholder is an individual or company that legally owns one or more shares of stock in a joint stock company… Shareholders are granted special privileges depending on the class of stock… and the right to a company’s assets during a liquidation of the company. However, shareholder’s rights to a company’s assets are subordinate to the rights of the company’s creditors.”

Thus, does the issue become “shareholders’ rights subordinated to creditors” for company shares secured to issue Sukuk?

Bank Negara prudence

The Malaysian central bank, Bank Negara Malaysia, was correct, on prudence, in rejecting Bimb’s proposal to secure sukuk issuance with the bank’s shares. As the Reuters story was lacking details, the rejection may be due to some of the following reasons:

1. Shares of an Islamic bank are generally illiquid (and smaller free float) compared to conventional counterpart publicly-listed bank, hence, an illiquid “holding” to an already illiquid instrument (attested by minimal secondary market trading volume for non-Murabaha sukuk)

2. What happens if the bank is acquired, taken private, stock-splits, issuance of additional shares, market sell-off, earnings declining due to non-performing loans and corresponding provisioning, or if it goes bankrupt? If the company goes bankrupt, the common stock holders would have the “residual assets of the company after discharge of all senior claims such as secured and unsecured debt”.

3. Now, assuming it was approved, what if the Shariah-compliant company, not Shariah-based like an Islamic bank, Takaful operator, Islamic Reit, violates one of the financial ratios (of the securities commission) at the review, and must removed from an Islamic index, what happens to the sukuk? Does it convert into a conventional bond, as the company is no longer Shariah-compliant? Will the “Islamic” holders of the paper need to sell immediately to continue being Islamic? Would clever lawyers be able to build in fail-safe mechanisms, but, will it make the sukuk, one, difficult to price/understand and, two, require a “fail-safe” premium?

4. Assuming it was approved, the 49 per cent would be in a trust, with corresponding responsibilities, would there be a conflict between sukuk holder and non-sukuk stock holders at AGMs, voting for directors, etc? Would the sukuk holders have some extra fiduciary duty, care and loyalty to the company?

Martin Whitman stated, “it can safely be stated that there does not exist any publicly-traded company where management works exclusively in the best interests of Opmi [Outside Passive Minority Investor] stockholders. Instead, there are both ‘communities of interest’ and ‘conflicts of interest’ between stockholders [principal] and management [agent]. This conflict is referred to as the principal/agent problem. It would be naive to think that any management would forego management compensation, and management entrenchment, just because some of these management privileges might be perceived as giving rise to a conflict of interest with Opmis.”

uBookworm / Foter / CC BY-NC-SA

Conclusion

Islamic finance, as it matures and evolves and becomes cross border, will encounter both diminishing tailwinds and increasing headwinds. To address the headwinds, prudence may demand erring on side of caution to protect and preserve confidence and trust in this niche market, hence, with the regulators saying, “no, not yet as more research required”.

“A ship in harbour is safe — but that is not what ships are for.” — John A. Shedd.

The writer is co-founder and MD of Azka Capital, a private equity advisory firm focused on halal industry initiatives, and an advisor to Thomson Reuters on Islamic finance and the halal industry. Views expressed are his own.

 

Muslim consumerism is linked to real economy sectors Muslim consumerism is linked to real economy sectors(0)

By Rushdi Siddiqui

Dubai actually has most of the attributes of an Islamic economy. For example, an activity log for a person in Dubai may entail:

He lives in a residence that is Islamically mortgaged by, say, Tamweel, and it is ‘insured’ by Takaful Re Limited. The profit rate payment is off Thomson Reuter’s six-month Islamic Interbank Benchmark Rate (IIBR). He has peace of mind as his biggest ‘asset’ is Shariah-compliant.
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Uniting Islamic finance and halal at conferences Uniting Islamic finance and halal at conferences(0)

By Rushdi Siddiqui, co-founder and MD of Azka Capital

Conferences provide an insight on the road ahead for industries, products, innovations, and services. The speakers are assumed to know more than most on the other side of the podium.

One of the interesting developments in the Islamic finance conferencing arena has been the introduction of topical issues from the $2.1 trillion halal industry. Is it because there is no ‘new new’ in Islamic finance or the realisation that Islamic finance needs to build bridges to new areas linked to the real economy or both?
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Common Bond — Islamic 
finance and clean energy Common Bond — Islamic 
finance and clean energy(0)

By Rushdi Siddiqui, co-founder and managing director of Azka Capital

There are a number of common denominators between Islamic (and ethical) finance and clean (green) energy. The colour green is closely linked to Islam, yet, very little ‘green’ (environment considerations) in Islamic finance (for real estate/project financing).

The demand for both Islamic finance (IF) and clean energy (CE) was a by-product of visionaries seeking alternatives for interest based finance and fossil fuel, respectively. The pioneers were often categorised as ‘ahead of their time’, a commonly understood code phrase for ‘won’t work or be accepted.’

Yet, propelling pioneers of both industries was the recognisation there would be negative consequences if the world continued to follow status quo, greenhouse gases resulting global warming and debt and derivative fuelled financial crisis. Thus, a viable option was needed that would eventually ‘scale size’ and become ‘conventionally competitive.’

As in any embryonic industry, like IF and CE, there are growing pains associated with inefficiency, availability, pricing, reliability, tax, etc., and, only through low or sunset subsidies and passage of time, would it become mainstream acceptance.

In assuming nearly four decades have passed since the birth of IF and CE, these two sectors have more in common and need to work together.

Ethics: Harm and Haram

Ethics is in the eye of the beholder, hence, one man’s ethics may be another’s sin. Notwithstanding, ethics can be viewed, at minimal, ‘do no harm’ and in the case of Islamic finance, ‘do no haram.’

Clean energy may be defined as ‘… sustainable provision of energy that meets the needs of the present without compromising the ability of future generations to meet their needs … sustainable energy include renewable energy sources, such as hydroelectricity, solar energy, wind energy, wave power, geothermal energy, artificial photosynthesis, and tidal power …’ Source: Wikipedia.

Islamic finance ‘… banking activity that is consistent with the principles of Shariah … Sharia prohibits … investing in businesses that provide goods or services considered contrary to Islamic principles is also haraam (‘sinful and prohibited’). Source: Wikipedia.

Thus, the overlap between IF and CE may be summed up as PPPA: Principals (secular conduct/behaviour and spirituality), Preservation (stewards of the Earth), Protection (of good), and Avoidance (of bad).

Application

All inventions and innovations attempt to address a gap, as the end goal is a knowledgeable customer that furthers the cause by purchasing and/or participating. To convince the customer of conscience requires primarily values alignment and, secondarily, acceptable levels of price penalty premium. But, for how long?

Query: Is there an acceptable premium on values?

For IF, the customer is willing to pay little bit more for financing home and car or insurance premium (Takaful), and willing to accept slightly inferior returns on their investment, as long as there are regulator and scholar sign-off. Thus, an acceptable level cost of being a Muslim (CoBM) in the short term, i.e., a sunset subsidy from the client to the compliant institution/offering.

In jurisdiction where taxes are part of the economic system, like the UK, Islamic finance had to lobby to level playing field. For example, as Islamic financing often requires ‘two transactions,’ hence, removal of double stamp duty for Islamic mortgages in UK was necessary to make it tax efficient. In such cases, there is often a ‘push back’ from conventional finance about ‘special treatment’ for IF.

For CE, subsidies, including tax credits, are the necessary spark to encourage its use and position as an asset class to make it ‘conventional competitive’ to fossil fuel and invite private sector money, respectively. However, once the subsidies are removed within the gestation period or earlier to, say, budget concerns or effective lobbying, it becomes less attractive asset class (for mutual or private equity funds) or use.

Conclusion

Greenhouse gases have resulted in global warming, and the financial crisis I and II presented a systemic risk to the global capital/financial markets. Clean energy is looking to diversify into growth stories of emerging markets, like Abu Dhabi’s Masdar City, and Islamic finance is looking to the west to showcase a blueprint linking financing to the real economy (asset backed).

Islamic finance and clean energy can work symbiotically, however, requires low level of subsidy and a leveled playing field. There are two types of returns: (1) financial returns and (2) societal (or social) returns, the key is finding right balance.

 

 

Sebastiano Pitruzzello (aka gorillaradio) / Foter.com / CC BY-NC-ND
Innovation and invention in modern Muslim world Innovation and invention in modern Muslim world(0)

By Rushdi Siddiqui,

The Islamic Development Bank, held their 24th Annual Symposium in beautiful Dushanbe, Tajikistan, invited me to chair a session on ‘Innovating for Economic Development in IDB Member Countries’.

At first glance, the words ‘invention’ and ‘innovation’ are not typically associated with the Muslim world.

The word ‘imitation’ (or reverse engineering) often is linked to the third world, Muslim majority countries. Yes, there is some element of innovation involved in reverse engineering, from pharmaceuticals to electronics, but it’s not something to be proud about to entice, say, foreign direct investment. The bigger question is, how much longer should the Muslim world continue to flatter via imitation, i.e., a ‘Xerox’ society.

Innovation and invention have been traditionally linked to Islam/Arab/Muslims since the birth of the religion, but something happened along the way. We have become a society of buyers over builders, consumers over savers, exporters of capital and importers returns, hence, an unsustainable situation.

The first revelation to the Prophet Muhammad (peace be upon him) was about reading:

Translation: In the name of Allah, the Most Beneficent, the Most Merciful.

Read: In the name of your Lord Who created.

Quran: 96:1

Created man from a clot of blood

Quran: 96:2

Read: And your Lord is the Most generous

Quran: 96:3

Who taught [man the use of] the pen

Quran: 96:4

and taught man that which he did not know

Quran: 96:5

Reading implies searching and seeking information to the far corners of the world, from Arabia to China and beyond, that yields knowledge, which eventually becomes wisdom. A wisdom that gets applied for betterment of man (individually), society (collectively) and the stewardship for future generations.

Thus, our predecessors have contributed to sciences, humanities, culture, arts, mathematics (algebra, logarithm, system of numbers), etc., and acknowledged by the likes of Prof Carole Hillenbrand’s book, ‘What the East taught the West.’

Furthermore, there is a ‘mobile’ museum, 1001 Inventions: The Enduring Legacy of Muslim Civilisation, .. ‘…1001 Inventions uncovers a thousand years of scientific and cultural achievements from Muslim Civilisation from the 7th century onwards, and how those contributions helped create the foundations of our modern world.’ It has been showcased in the GCC: Abu Dhabi, Doha, and Dhahran.

There are number of theories, from conspiracy to self destruction, on what happened along the way for the Muslim world, as a whole, to become a ‘knowledge deficient society.’ We only have to look at the small number of patents filed form the Muslim world to the US Patent/Trademark Office, countries aspiring to become knowledge based economies in their 2020/2030 vision planning, countries establishing entities, like Malaysia’s Talent Corporation, to bring back the emigrated human capital, and so on.

Innovation formula?

There is neither an exact formula for innovation nor a firm timetable with milestones. Instead, innovation is about establishing a fluid enabling infrastructure, with accountable benchmarks, customised to the local situation. Some of the elements of enabling include:

Initially government leads but removes itself from being a market participant to avoid crowding out affect, hence, a sunset privatisation of innovation

Availability and accessibility of risk capital PLUS mentoring, Muslim majority countries are about collateral based finance, including Islamic banking. Therefore, funds alone will not result in success, but MUST include mentoring to include, say, opening doors to suppliers/customers, legal documentation, etc.

Culture and cluster that is focused addressing national/regional needs, hence, one size fits all becomes a ‘white elephant’ project.

Education both university oriented (reverse linkage) and harnesses power of street smarts via inclusion to offer market demand, not just based, solutions.

First step

The IDB has the credibility and financial muscle to possibly fast track innovation in selected Muslim countries like the UAE, Malaysia, Turkey, Saudi Arabia, etc., however, it must take a stakeholder approach.

It must understand that the constraints of a country and work within those challenges to offer a market based solution as innovation is not only about economic development, but, as important, economic diversification.

The benchmarks must be reasonable and measurable with two important milestones: employment generation and raising the gross national income (GNI).

Thus, as a first step, IDB should create an Innovation Council (IC) for several selected member country as pilot programmes. The members of the IC may include financiers, regulators, businessmen, academics, etc., to give 360 degree review of the landscape and a pathway forward towards leading instead of following.

The writer is co-founder and MD of Azka Capital, private equity advisory firm focused on halal industry initiatives, and he is an advisor to Thomson Reuters on Islamic finance and Halal industry. Views expressed by the author are his own

Rushdi Siddiqui: Is the Islamic finance industry ready for social media? Rushdi Siddiqui: Is the Islamic finance industry ready for social media?(0)

By Rushdi Siddiqui, co-founder and managing director of Azka Capital

Social marketing eliminates the middlemen, providing brands the unique opportunity to have a direct relationship with their customers. — Bryan Weiner.

Today, it seems Islamic finance is still stuck at a hard-copy of stage communication (faxes) when the financial world has moved on to Facebook, Twitter, blogging, etc.

Many Islamic financial institutions have Web sites, but how often is it updated beyond awards won? How many Islamic banks, takaful operators, Shariah consulting firms, industry bodies, etc, are on Facebook? Yet, the youth — its future clients — in many Muslim countries with Islamic finance are on Facebook.

What about the cross-sell of Islamic finance to non-Muslims as an ethical alternative? These potential customers are an important cluster of social media and they are continuously looking for offerings aligned with their values.

Several Islamic financial institutions have Twitter accounts, unsure how many of their (retail) clients are on Twitter. Do these institutions believe SMS, Internet and mobile banking is the “social media” connection to their clients?

Maybe the culture of social media is lacking in, say, the GCC. But we saw how effectively social media was utilised during the Arab Spring.

Fear

Is there a fear of technology among Islamic financial institutions? The fear of hackers stealing from customer accounts and identity theft? They have heard about horror stories on hacking from US- and EU-based banks with allegedly better (read, more expensive) firewalls.

Is there fear that social media connectivity will raise the level of transparency to conventional benchmarks standards and with accountability to follow? Put differently, will social media result in enhanced governance? It is not a bad thing in this post-credit crisis environment where companies are rewarded via a stable stock price and rave reviews for transparency and governance.

Is there fear that “bad news” concerning Islamic financial institutions will spread like wildfire if (deeply) connected to social media? It will spread anyway as news organisation coverage is supplemented by bloggers and tweeters in real time.

Resources

Is it a lack of resource issue in having, say, a “chief social media officer”? It would appear that Islamic financial institutions have not looked at public relations and outreach as an investment in their brand, but, rather, a cost of doing business.

Brand-building goes towards commitment to not only clients and staff, but long-term growth of the institution, including eventual cross-border expansion and future clients. Furthermore, during challenging market cycles, the message to the community, whose attention has become shorter, is the confidence inspiring “business as usual”.

Guidance

The Thomson Reuters Islamic Finance Gateway, or IFG, may just provide a guidance for Islamic financial institutions on understanding about the benefits of social media connectivity. It comes down to market intelligence, and the market place is the best source of “knowledge that powers” market movements. The community connectivity function of the IFG comes down to insights by industry experts making sense of the information overload, communicating about important sign posts on the road ahead and allowing community to interface with experts on a secure platform.

LinkedIn, Twitter

At the behest of colleagues, I joined LinkedIn about a year ago to connect with like-minded colleagues globally to share ideas and articles. Outside of unsolicited endorsement of people I have connected with, but, not worked with, it has been a pleasant experience, especially reading leadership articles.

Furthermore, I started tweeting a few months ago, initially on Islamic finance and the halal industry, but have expanded to issues related to Muslims, Islam, Muslim countries, etc. It has been a fulfilling experience and I should have joined much earlier. Why?

1. Tweeting forces one to convey their message in 140 characters, becomes very important in today’s world of short-attention span and information overload. Islamic financial institutions should be able to convey thought leadership within these constraints.

2. Twitter brings news in real time from multiple eyes, hence, it’s a multiple “op-ed” of the market place on the subject matter. The raw news provides more colour than polished sound-bites.

3. Twitter has allowed me to follow the likes of global leaders like His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, and his comments in real time. He first tweeted about Dubai being a hub for an Islamic economy a few months ago.

Conclusion

Shaikh Mohammed’s tweets, at the time of writing this, on the performance of UAE government standards should encourage Islamic financial institutions to engage and embrace the social media to not only connect, but also to report developments.

Rushdi Siddiqui is co-founder and managing director of Azka Capital, a private equity advisory firm focused on halal industry initiatives, and an advisor to Thomson Reuters on Islamic finance and the halal industry.

Rushdi Siddiqui: Forming your own opinion Rushdi Siddiqui: Forming your own opinion(0)

By Rushdi Siddiqu, Global Head of Islamic Finance at Thomson Reuters

APRIL 1 — “I never considered a difference of opinion in politics, in religion, in philosophy, as cause for withdrawing from a friend.” — Thomas Jefferson

“Life is not a spectator sport. If you’re going to spend your whole life in the grandstand just watching what goes on, in my opinion you’re wasting your life.” — Jackie Robinson

Everyone has an opinion; however, some people are shy to share. An interactive article, much like a survey, requiring readers’ opinions may actually encourage wider audience participation. For many of us, constructive comments about an online article actually provide more insights than the article itself.

 

Politics

 

Why is that when China, North Korea, Russia, Venezuela (under the late Hugo Chavez) made/make provocative comments about the US, the reaction from the Tea Party loyalists and Fox talk show hosts are not immediate and proportional, if at all, when compared to comments from stateless extremists like Al Qaeda?

 

Is it because, in the mind of the loyalists, these sovereignties are not trying to expand religion, and they can actually do economic and/or military harm to the US? What about election year politics?

 

Many of the Muslim countries are trying to diversify their economies from natural resources, commodities, conventional banking, basic manufacturing, typically 4-5 economic sector bias, to a knowledge based economy as part of 2020 and 2030 vision plans.

 

The knowledge pursuit implies linkage of educational budgets for clusters, technology parks, equity financing (venture capital and crowd funding), legal protections, mentoring, etc. One way of looking at the output would be the number of patents registered with the US Trade & Patent Office. Does Malaysia have the most patents from the OIC?

 

Why do selected Muslim countries with excessive surplus continue to purchase trophy assets in the US and western Europe, at times at top of the market, and not invest more of the money in the “national mission” of establishing and enabling an educational infrastructure for future generations?

 

I recently had an eye-opening conversation with the former Prime Minister Tun Abdullah Ahmad Badawi, where he articulated that education starts in the mother’s womb with appropriate nutrition, food and spiritual guidance! The Muslim world needs this type of thinking to close the “knowledge” approach gap with the developed world.

 

Why has the OIC, as a whole, not captured the imagination of emerging market investors like BRICS? Is it because, out of the 57 OIC states, 22 are least developed but only three are G-20, there is corruption, capital flight, brain drain, and a host of most of the world’s intra-country conflicts, etc? Thus, requiring a sub-OIC, like SAMI +3, Saudi Arabia, Ankara, Malaysia, Indonesia, Pakistan, Nigeria, and Egypt? Who will promote such a clustering?

 

Inferiority complex

 

Why is it when celebrities like Mike Tyson or the late Michael Jackson allegedly “revert” to Islam, it spreads like wildfire on Muslim websites (with excitement)? Why is it when the UK wanted to issue a sovereign Sukuk (roughly and badly translated as an Islamic bond), the Islamic finance world spoke of it as a “badge of arrival” for the niche market? Do Muslims have an identity crisis and still mentally and/or are psychologically colonised by Western/conventional offerings?

 

Faith, finance, food and fashion

 

Islamic finance isn’t just about finance, but linked to faith, food, fashion, etc., hence, when will it or, rather, how will it step up and be the financial “lubricant” to these satellite-linked activities? Islamic finance needs to serve the economy, and not be positioned as the economy!

 

Should Ogilvy Noor, an Islamic branding consultancy, examine the merits of rebranding Islamic finance to Participation Finance, especially if the cross-sell to non-Islamic customers and countries is one of the KPI growth stories? Furthermore, how best to “educate” the anti-syariah movement, which attempts to link, without evidence, Islamic finance to terrorism financing?

 

Why Islamic finance, biased towards real estate financing, does not finance a real economy-linked movement like the halal food industry, as they are both mentioned in the same chapter of the Quran? The irony of the situation is a Muslim can consume the end product of certified halal food companies, like Malaysia-based Prima, but may not be able invest in the stock as it violates one of the financial ratios (too much conventional debt)!

 

Is the blame game spread to both halal (need to tell a better story of halal as an asset class) and Islamic finance (halal, asset backed, is ripe for Sukuk offering)?

 

Is food manufacturing considered a “sexy” or exciting industry compared to mega developments and information super corridors, etc.? Do people get excited about a food park or cows or chickens? Yet, everyone knows how important food security is to a country; hence, the disconnect.

 

Why is ethnic cuisine a great ambassador for a country? For example, in US, we have Italian, Chinese, Lebanese and Mexican food, Turkish delights, Pakistani biryani, Indian curry, Polish sausages, etc.

 

What Malaysian food/meal would be a good ambassador to the US? Would satay be a perfect food ambassador as the signature dish of Malaysia Airlines? How many Malaysian fast-food franchises exist in the US/UK?

 

Why is healthy food, vitamins, etc, expensive in Malaysia? This is one area, along with health club membership, the government should sunset subsidise until people feel the difference and understand the implications of health.

 

Human element

 

Why do Muslim countries not encourage local sport development by way of budgets, facilities and international coaches? Some of the countries offer “citizenship” for non-nationals to represent the country, and, even then a victory appears to be hollow.

 

For example, assume 25 per cent of the 1.8 billion Muslims are under 15 years old, there are Michael Jordans, Lebron Jameses, Tiger Woodses, David Beckhams, etc, in the Muslim world, and they would be wonderful ambassadors and role models for the country and its youth.

 

Who has a greater contribution to society, one who does not wear the “veil” and provides much charitable contributions, including the kindness of a smile, or the taker of charity, who passes judgment?

 

The highlight of the Proud to Be Human moment for 2012 had to be the recovery of Malala Yousufzai, the brave young Pakistani girl shot by the Taliban for promoting girls’ education. Her actions should earn a Nobel Peace Prize for the courage of a “special ops soldier”.

 

The Nobel committee needs to send a strong signal about girls’ education by awarding her the 2013 Nobel Peace Prize for Courage and Contribution to Girls’ Education in Emerging Markets.

 

“Too often we… enjoy the comfort of opinion without the discomfort of thought.” — John F. Kennedy

 

So, what is your thoughtful opinion?

 

* This is the personal opinion of the columnist.

Missing voice in Islamic finance industry: media Missing voice in Islamic finance industry: media(0)

As part of the on-going dialogue with Muslim entrepreneurs linked to Islamic finance and Halal industry, today’s interview is about media coverage of Islamic finance.

Meet Syaiful Naim bin Othman, founder/CEO of www.amilin.tv, and you see a man on a mission on connecting the masses to Islamic finance.

What was your motivation and objective to start this venture?

Media, much like food and clothing, is an important part of our everyday life. Through various mediums, radio, television, newspaper or the Internet, we are e-connected with a broad market place coming together based on common shared values.

The global financial media has made economics, finance, banking, capital markets as part of our daily lives, whether we ‘turn it on’ whilst eating breakfast or working out in the gym.

The world is now looking for growth markets and growth stories, and Islamic finance, OIC economy and Halal industry present compelling opportunities. However, the present approach to creating awareness, educating, addressing mis-perceptions and lifting the veil of mystery associated with this niche markets needs to be revisited.

Our mission is to provide the fastest and most comprehensive Islamic finance headlines and news of major events set to shape our business day ahead. For me, we need to put our house in order and the solution is Amilin TV. An online web TV, Amilin TV focuses on Islamic financial news, the OIC economy and the Halal industry.

We are the prime mover of Islamic finance news TV and we have the largest Islamic finance video repository on the Internet. To date, our hits for the Web TV include viewership from over 70 countries.

Do you think the media understands the importance of Islamic finance?

No, the story about Islamic finance is just not getting out, including majority of Muslims. Some think that Islamic finance is related to terrorist financial activity. Few think its just about prohibition against pork and interest. Others believe it’s just semantics combined with ‘smoke and mirrors.’

The industry has failed to educate and promote the ‘beauty’ of Islamic finance to the masses. Here, the media plays an important role, much like in conventional finance, in addressing information gaps, vacuums and dis-information.

From my point of view, we need to educate the media first. But, at Islamic finance events, media is ‘just’ a sponsor and not involved as panelists or even panel sessions on media.

The passive approach does not contribute to the dialogue, it’s a gatekeeper to its readers and viewers, hence, needs to be heard.

To attract more online subscribers what is the most important for Amilin TV?

We will launch our Islamic finance business talk show this year. It will be looked upon as a turning point for the Islamic finance industry to move to the next level.

It will provide the fastest and most comprehensive Islamic finance headlines and news of major events set to shape our business day ahead. Featuring analysis and breaking news on the Islamic financial market, our talk show will also broadcast global equity market reports presented in considerable banter between hosts and their guests.

Our target subscribers are affluent financial professionals from both the conventional and Islamic banking sectors.

What are your challenges and plans going forward?

When we first started a few years ago, we had many challenges for an on-line broadcasting entity. The financial industry is covered by the usual suspects, Thomson Reuters and Bloomberg, however, we have managed to find our target niche market. We have been recognised by the industry as the only online Islamic Finance news TV. If you Google Islamic finance TV, Amilin TV ranks number one and if you search for Islamic finance news, Amilin TV ranks number two. We are also a media partner and official web TV for international Islamic finance and Halal events happening in among others, Kuala Lumpur, Russia, Dubai, Doha, and Jakarta.

Our vision is to become the mainstream financial media. Currently we have our broadcast studio in Kuala Lumpur and plan to set up our next studio in Dubai soon.

Why Dubai?

His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, has announced his vision and initiative for an ‘Islamic economy’. Any country aiming to become the global hub in Islamic economy needs this kind of business media as a marketing arm to promote and propagate their Islamic finance agenda to the world.

The writer is the Global Head of 
Islamic Finance and OIC Countries for Thomson Reuters. Views 
expressed are his own and do not reflect the newpaper’s policy

Chance for Halal Industry to raise the bar Chance for Halal Industry to raise the bar(0)

visualpanic / Food Photos / CC BY

By Rushdi Siddiqui & Tina Jamaluddin

 A change agent must tell the truth to a benevolent dictator, religious hardliner, and compassionately connect with youth and have nots.

 

Breaking News: “Nestle removes beef pasta meals after finding horsemeat.  Nestle, the world’s biggest food company, has removed beef pasta meals from shelves in Italy and Spain after tests revealed traces of horse DNA.” — BBC News on Feb 19, 2013.

 

The Chinese new year of the Snake, seems to have become the year of Horse (meat). The year, 2013, did not start on a positive note for meat loving consumers in Europe with the mid-January announcement about Irish food inspectors finding horsemeat in some beef burgers heading for the UK supermarket chains.

 

This was followed almost immediately by announcement from the UK, Sweden and France that up to 100% horsemeat was found in several brands of frozen food.

 

In tracing the origins of the abattoirs responsible for contaminating the supply chain, it leads investigators across France to Cyprus to Netherlands to Romania and Luxembourg. The concern was the contamination seemed not to be accidental, but, rather the work of criminal conspiracy.

 

The world’s largest food manufacturer, Nestle, with a large imprint in the halal market, admitted that two of their beef products produced out of their factory in Italy and Spain contained more than 1% horse DNA. Furthermore, the possible source of contaminant was a supplier in Germany, a sub-contractor owned by JBS, the world’s largest meat processing company.

 

How does this affect consumer confidence in accepting the authenticity and integrity of the attached label?

 

Now, the entire supply chain, from the proverbial “farm to fork” is somewhat compromised, possibly not from a food safety perspective, but from an ethical and business standpoint. Nestle and JBS are listed No 1 and No 6, respectively, on the list of world’s largest food companies (by sales), and for all their food safety systems and standards, they still find themselves embroiled in this unfolding scandal.

 

The food retailers across Europe, with PR machinery in place, have firmly distanced themselves from the actions of their guilty suppliers, and have been adamant that they were as shocked as their customers by the discovery. Furthermore, the EU health ministers were quick to point out that while mislabeling is ethically questionable, the horsemeat contamination is not a food safety or public health issue, even though the equine drug Phenylbutazone, or bute, used on horses is not allowed to enter the food chain as it could pose a health risk in humans.

 

This leads back to the bigger question: how confident are we, as food consumers that we have not been exposed? Where does the “buck of responsibility stop?” The fingers are pointing to those making the larger profit margins, major food retailers have to bear some of the responsibility. Furthermore, it would appear they are constantly squeezing the supply manufacturers to produce cheap products while improving their own bottom line.

 

While eating horsemeat may be considered taboo or even unethical or unsavory in some parts of the world, Muslims are not prohibited from eating horse and camel if the animal is slaughtered in accordance with strict Islamic practices. However, the worry for Muslim consumers, who readily eat non-certified halal meat products with the justification that “as long as it’s not pork”, is that during the same testing process, food inspectors have also discovered minute traces of pork DNA in some beef frozen foods.

 

For example, Waitrose’s brand of British meatballs showed they contained some pork. Even some Halal meat pies produced in the UK were found to have traces of porcine DNA. The word distressing is an understatement for Muslims relying on truth in labeling by the name brand companies!

 

The potential fallout could be massive and will shift the mindset of Muslim consumers worldwide who already face challenges of finding halal food products on supermarket shelves. While the contamination of pork DNA in meat products might not be deliberate, traces of pork DNA may be the result of ultra sensitive DNA testing, which can detect traces at minute levels and will be evident in factories that also produce pork-based products or get their raw materials from abattoirs that slaughter pigs.

 

The implications of such a scenario are crap shoot “roll the dice” (willing to chance it) versus capital equipment expenditure. Thus, going forward, this means that non-halal manufacturers, who produce halal products, will either have to have dedicated factories for halal products or they might consider dropping the product altogether.

 

Today, not one halal company controls the entire supply food chain. It is well-known and accepted that supply chains are long, challenging and complicated. Thus, given the scare of cross contamination and food safety issues, it is imperative that halal institutions and food manufacturers take up the challenge and convey to the public at large that their supply chains encompass the essence of halal.

 

There are two very important halal lessons to be learned from Islamic finance on (1) what not to do and (2) what to do during external financial shocks.

 

In both niche markets, Islamic finance as a subset of social-ethical movement (a subset set of conventional finance) and halal food as a subset of the “food industry” (although halal includes pharmaceuticals, cosmetics, logistics, etc), a “call to action” plan explaining the merits and value proposition is urgently required to address the external turbulence.

 

For the halal industry, the horsemeat fiasco is about the “trust and confidence” of the food supply chain being compromised. It is here that the halal industry can show the transparency and accountability of the food supply chain from “farm to fork.”

 

The halal industry has the opportunity to raise the transparency bar for not only itself, but, more importantly, for its conventional brethren.

 

Rushdi Siddiqui is global head, Islamic finance and OIC countries, Thomson Reuters and Tina Jamaluddin is ex-head of business and product development of PrimaBaguz Sdh Bhd.

Looking for halal alpha in Dubai Looking for halal alpha in Dubai(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Halal needs to move from certification and ingredients to an asset class

It is one of the legs of an Islamic economy for Dubai, as recently mentioned by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. It is a $640-billion (Dh2.35 trillion) niche market with greater reach and traction than Islamic finance for Muslims. It is also a consumer non-cyclical, linked to the real economy and asset-backed. Furthermore, companies such as Nestlé, Unilever, Cargill, Kraft and other Fortune 500 companies produce goods for this niche market.

We’re talking about the halal industry: from food and pharmaceuticals to cosmetics, logistics and more — $2.1 trillion in total, with the food sector comprising about a third.

According to a consultant study, “Consumer spending on food in the GCC is expected to reach $106 billion in the next five years … [and] Saudi Arabia and the UAE together account for around 75 per cent of the region’s total food retail market”.

 

Halal was in the Arab Spring countries long before Islamic finance, and they are now just talking about building enabling environment for sukuk. Here, an agriculture sukuk would have a more direct impact than general purpose sukuk.

 

Halal presence is a better indicator of Muslim purchasing power than the traction of Islamic finance in Western countries. “Halal has gone mainstream,” says Darhim Hashim, CEO of the International Halal Integrity Alliance. “There are now aisles — no longer shelves — in supermarkets such as Asda and Tesco, dedicated to halal products.”

 

Halal needs to move from the present conversation of certification and ingredients to an asset class. Thomson Reuters and Idealratings launched the world’s first halal food index, the Socially Acceptable Market Investments Halal Food Index, at the World Halal Forum in 2011. At the launch, there were 240 companies from 15 Muslim countries, including seven from the UAE, thus facilitating inward investing and intra-Organisation of Islamic Cooperation (OIC) investing.

 

Two points need to be addressed. Firstly, Muslims do not control the halal food supply chain (the OIC, overall, are net importers), especially at the important midstream, manufacturing and processing stages. Secondly, the present approach to food security by way of agriculture, food and land bank funds has yet to meet expectations.

 

There is a third way, beyond domestic growth and importing, that is less about securing food supply and more about controlling it. However, to control it, one has to know the farm to fork to finance supply chain, as well as traceability, leakages and the like.

 

Shaikh Mohammad’s announcement has reached the far corners of the food and finance world, and Dubai has the vision, will and means to address food security and build a global brand in the food industry, much like Emirates is for air transportation.

 

— The writer is Global Head, Islamic Finance & OIC Countries, Thomson Reuters

Chance for halal industry to raise the bar Chance for halal industry to raise the bar(0)

Waugsberg / Foter.com / CC BY-SA

 By Rushdi Siddiqui & Tina Jamaluddin

“Nestle removes beef pasta meals after finding horsemeat.  Nestle, the world’s biggest food company, has removed beef pasta meals from shelves in Italy and Spain after tests revealed traces of horse DNA.” — BBC News on Feb 19, 2013.

The Chinese new year of the Snake, seems to have become the year of Horse (meat). The year, 2013, did not start on a positive note for meat loving consumers in Europe with the mid-January announcement about Irish food inspectors finding horsemeat in some beef burgers heading for the UK supermarket chains.
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Crescentrating Plans Halal-Friendly Travel Crescentrating Plans Halal-Friendly Travel(0)

By Rushdi Siddiqui, Global Head Of Islamic Finance at Thomson Reuters

The “Muslim travellers” is an important segment in the travel industry, however, not many hotel chains or destinations haven taken a serious look at their needs. So, many travellers have to manage their requirements while travelling or stick to familiar holiday destinations.

Now the media is full of reports on Muslim Travel market, as there are a host of destinations, hotel chains, tour operators etc., all targeting the billions of dollars of these travellers.
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Lessons from hiking for Islamic finance Lessons from hiking for Islamic finance(0)
Padraic Ryan / Foter.com / CC BY-SA

By Rushdi Siddiqui, Global Head of Islamic Finance at Thomson Reuters

In this age, which believes that there is a short cut to everything, the greatest lesson to be learned is that the most difficult way is, in the long run, the easiest. — Henry Miller

Of all the sports I play — basketball, tennis, football, biking, running and hiking — hiking provides a number of lessons for Islamic finance and the halal industry.

The metaphor is applicable to many economic sectors, industries and companies, but more so in these two inter-related yet mutually ignored movements.
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Shekra.com: Shariah-compliant crowd funding takes off Shekra.com: Shariah-compliant crowd funding takes off(0)

 

 

 

 

 

 

 

By Rushdi Siddiqui, Global Head of islamic Finance at Thomson Reuters

Is crowd funding the VC for the masses, finally? Crowd funding enables — through a collective cooperation of a network of investors — pooling capital and other resources to seed initiatives, startups, expansions, etc.

It also an opportunity to attain the core ethical values of Shariah and the intended purposes of Islamic Finance “to do good” by contributing to socioeconomic development.
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Rushdi Siddiqui: Why I decided to finally tweet Rushdi Siddiqui: Why I decided to finally tweet(0)

February 04, 2013

FEB 4 — I never thought I would say that publicly, but the lesson learned is, “Never say never!”

“Never’s a hard call, isn’t it? Never-ish.” — Terry Venables

Tweeting: Reasons and dangers

First, I wanted to understand why people tweeted.

Because they have something of substance or importance to say? On hindsight, probably not, because hyper-connectivity updates make a minute ago seem historical!

Because they want to connect with “like-minded people?” On hindsight, some of those “minds” should be blocked!

Because they want a following? On hindsight, thank God for the ability to block, as this becomes an addiction for some!

Because they want to only follow, say, a famous athlete, movie star, etc?

Or that they just want to be part of a fad and then drop out when it fades?

Second, I wanted to know the “dangers” of tweeting.

That which has been tweeted cannot be deleted. Possibly retreated. But from a public relations 101 angle, that which cannot be deleted is a disaster for reputation management.

The 24/7 information download world we live in reminds us more often than not of our missteps and failures than it does our successes. Hence to say “be careful before touching send button” cannot be overemphasised.

The apology tweet cannot undo the damage done, case in point people like Rupert Murdoch and many athletes, politicians, business leaders and why even some spiritual leaders.

There is also the danger of pranks played on tweet accounts. Ones opened in your name or those hacking into your account to score a point or to make a statement for individual/group benefit. This has happened to political and spiritual leaders of late.

It’s interesting to note that politicians, like US President Barack Obama, have a team that tweets on their behalf. Why you ask? These are what you call an “impersonal tweet” driven by careful public relations management.

The tweet can bring “rain or sunshine” to the subject matter depending on prominence of the tweeter. For example, during a recent college football game, the sportscaster made remarks concerning the beauty of one of audience members, and she suddenly went from less than 10,000 followers to over 200,000 followers (including a superstar basketball player by the name of Lebron James). So tweets can create overnight fame or notoriety depending on which side of an issue one stands and supports, and the reaction one poses to responses.

There are the spam tweets, hence, the nuisance of time consuming blocking comes into the picture.

Third, and probably the most difficult question, what value will I bring into the tweeting wide world? I come from the realms of Islamic finance and halal hence, and, much like TV sitcom actors, we have generally encased ourselves in that narrow arena. But this is what we do, and does not define who we are.

At one level, all of us have secret aspirations of becoming superstar athletes, CEOs of Fortune 500 companies, top journalists, movie stars, doctors, scholars, can-do politicians, inventors and entrepreneurs, better dads/moms, sons/daughters, even bad guys, etc., where what we say moves companies, markets, voters and arguments.

Thus, it seems tweeting is about being the first on headline commenting and/or reporting from the mundane (subjective) to the moving.

Exposure and experience

The nature of my “calling card”, global in title, has made me an international road runner. It has exposed me to so much in the last 15 years, from airline lounges, airlines and journeys of, at times, 17 hours, airports, hotels, taxis, tourist traps, meetings, etc. Thus, at times, I feel like a secret shopper, business development officer (outside my profession), observation tower (of people, marches, events, speeches, natural phenomenon, etc.), roving reporter, etc.

I want to share these moments, in the form of 140-character mini op-eds, but never took the first step for a number of reasons (probably intimidated by such media), and, on hindsight, missed the opportunity to connect and learn from others (much earlier). Initially, I would have probably tweeted to connect with fellow practitioners in Islamic finance and halal (large community?), and then expanded to the more pressing issues in the Muslim world, from sports to athletes to policy to tolerance to hypocrisy, and connectivity and perception influence of the non-Muslim world.

Lincoln quotes for Muslims

Let’s start with a tweet for all Muslims and non-Muslims:

“I don’t like that man. I must get to know him better.” Abraham Lincoln, 16th president of the US. How is this even different to the basic teachings of Islam or any other religion? Muslims, including myself, are you reading, understanding, and executing? The non-Muslim world needs to heed the advice of this statesman towards Islam.

He also said: “… Nearly all men can stand adversity, but if you want to test a man’s character, give him power.’” All of us have examples of people we know or can predict who will fail or have failed this character test! The Muslim world is not only cursed with black gold (oil), but also power without accountability still prevails in many parts of its society. Do we thank the colonial geographic boundaries that seem to have created mental barriers?

What would I ask in the world of Islamic finance and halal

I would tweet the following:

Students: they are spending money on courses, diplomas, etc., and want meaningful jobs upon graduation; yet, we talk about shortage of skilled people, huh? Walk the talk, Islamic finance.

Scholars: they are entitled to a livelihood to support families, but what is reasonable number of board membership?

Man on street: Islamic finance is not Qard Hassan (benevolent loan) or charity, but about profits not profiteering. Where are the imams, as they are the local trusted gatekeepers to the community, and, in Arab Spring countries, it’s about the mass retail.

Disenfranchised (bulk of the 1.6 billion Muslims): we are still waiting for Islamic finance and many of our Muslim-majority countries are non-co-operative, whom do we turn to? Shadow banking system is the only alternative as only collateral is life/blood?

Regulators/public sector: need to establish foundation for market, initially lead market and then regulate market, and cannot be an indefinite market participant as the “crowding out” phenomenon kicks in.

Anti-shariah movement: present your evidence on it financing terrorism, Malaysia and Dubai would host such an event to discuss its veracity.

Conventional institutions in Islamic finance: are you about absorbing liquidity or providing value and commitment? HSBC Amanah downsized operations in a number of countries where margins are not being met, profits versus commitment (beyond short term).

Islamic finance: you have proved you are viable (alternative), credible (non-Islamic institutions involved), durable (better survived the recent external shock, but not by much), but what are your sustainable and scalable growth plans?

Halal industry: what is your story (brand)? Why are you even more fragmented than Islamic finance? Don’t you realise you’re an asset class? Malaysia, you will just lose the halal hub title if you do not focus in building such companies (inorganically) as global brands versus the continued comments of Jakim, HDC, etc.

Modern-day lifetime achievement award for Islamic finance: Sh Mohammad bin Rashid Al Maktoum, Ruler of Dubai, VP and Prime Minister of UAE, two words: continued commitment.

The rest of the world: what is Islamic finance and how has it changed lives, inspired humanity, or rather where is IF in moments of global tragedies and catastrophes?

OIC tweets

I would tweet on following:

Why do we have “His/Your Highness”, “Your Majesty”, “Sultan”, “Emir”, “Prince and crown prince”, “Datuk and Tan Sri”, “King and Queen”, etc. when the Prophet of Islam did not have such references. Yes, we respect our leaders and titles like President, Vice-President, Prime Minister. Why can’t we make them more human, approachable and accessible? Aren’t these titles creating a mental and social class war/barrier? Is this an effective way to rule in the 21st century?

Where is the healthy food in Malaysia? Yet, what little is available tends to be expensive! I have been coming to Malaysia for 15 years, and go to the gym religiously, and rarely see Malaysian men there. Obesity-cum-diabetes is a major issue in the GCC, and Malaysia may not be far behind! (But Malaysian men may be spending time on football pitches and badminton courts — who knows?).

We have 57 Muslim countries in the OIC, but what clustering has captured the investing world’s attention like BRICS? I suggested SAMI + 3 — Saudi Arabia, Ankara (Turkey), Malaysia, Indonesia, Egypt, Pakistan and Nigeria. It could also be MIST + 3, but MIST implies a fog, haze, etc, lack of clarity.

To tweet or not

When Microsoft started making computers in the ‘70s, it wanted to put a PC in every home. In less than 40 years the world has changed and today we have a computer in every pocket/handbag.

The dangers of tweeting remain. Once you start, it is difficult to get out of it. It may rule your life (i.e. one keeps checking the phones at the expense of real-life human contact). But like everything in life, moderation is key in action.

Need to tweet to connect with a society wired on social media, yet to do so with wisdom, caution and more importantly substance. There are always the red herrings of “committed” tweeting communities that feel the need to share their every move — it is this culture that perhaps still stops those who would/could benefit the world of “tweet” from tweeting.

In conclusion, to tweet or not to tweet is no longer the relevant question to being relevant today. Maybe the question should be — do I tweet to share my next appointment or my next meal or my next relationship — or do I tweet to make the world a better place? To do my small part in making that difference?

So, for those about to tweet, we salute you (but be careful and responsible).

Unsung heroes of Islamic finance industry Unsung heroes of Islamic finance industry(0)

By Rushdi Siddiqui, Global Head of Islamic Finance at Thomson Reuters

For the first column in 2013, I did not want a me-too article about sukuk issuance for year ahead, central bank authorisation of a mega Islamic bank, or new IFSB or AAOIFI standards, but shine a spotlight on ‘unsung heroes’ of an Islamic financial institution.

At an Islamic award ceremony and ensuing Press release, the CEO of an Islamic financial institution usually thanks his staff and employees, and typically says, “… without our hard working employees none of these achievements is possible…” These are not hallow words, as he ‘flies or falls’ based upon staff meeting their KPIs down the chain of command to the clerk in the mailroom and the janitor.
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Rushdi Siddiqui on Dubai’s timely Islamic finance strategy Rushdi Siddiqui on Dubai’s timely Islamic finance strategy(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

As I was on DIFC’s Islamic Finance Advisory Council (2007) and presently on Malaysia’s Securities Commission International Islamic Advisory Council, hence, a number of colleagues have asked me about the recent announcement by His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

Shaikh Mohammed, stated: “Our cosmopolitan outlook to doing business continues to be our economy’s driving force. Adopting a modern and scientific framework for Islamic economies worldwide, here in Dubai, meets the demand from local, regional and international investors for a central hub to invest, grow and do business.”
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Back to the future of Islamic finance Back to the future of Islamic finance(0)

By Rushdi Siddiqui

When a person, company or ‘movement’ hit their glass ceiling of growth, then its time to go back to the future and review, reassess, and respond or ‘retire’.

At the recently concluded 19th World Islamic Banking Conference (WIBC), I spoke on ‘Global Strategies for Global Markets.’ For this niche market to have mainstream acceptance, its about the ‘4Ps.’

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Top Arab Banks Top Arab Banks(0)
Beauty Eye / Foter / CC BY-NC-ND

Regional banks had the lowest cost-to-income ratios in the world. The Banker magazine’s data shows Middle Eastern banks average cost-to-income ratio was 39.69%, down from 41.37% last year. CONTINUE READING

Islamic Finance: Does it include you? Islamic Finance: Does it include you?(0)

By Rushdi Siddiqui

There were three recent major Islamic finance conferences in Malaysia: Global Islamic Finance Forum (GIFF), Islamic Finance News (IFN), and Kuala Lumpur Islamic finance forum (KLIFF), and headline question was neither asked nor answered or raised?

Who represents the financial interests of the super-majority of 1.8 billion Muslims comprised of have nots, students and the youth? Are they ‘bankable in the wait’ for Islamic finance for sizing and seizing.
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Capital with a human face Capital with a human face(0)

By Rushdi Siddiqui, Global Head of Islamic Finance at Thomson Reuters

The forty-year old, $1.2 trillion Islamic finance industry needs to take stock and look in the mirror and examine the reflection holistically. Have we arrived at the ‘reset’ moment that every relationship, in this case, faith and finance, must surely undergo?

This fortnightly column, Participation Finance/Banking, will be about the signposts, speed bumps, potholes, and detours on the road ahead in Islamic finance. It’s about addressing the present challenges for tomorrow’s deliverables, changing today’s dialogue for tomorrow’s conversations, and focusing on the substance over form so we move towards financing/banking (with established rules) and away from sole reliance on the faith.
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The weakest link: short-term liquidity and how it impacts Islamic finance The weakest link: short-term liquidity and how it impacts Islamic finance(0)

By Rushdi Siddiqui, Global Head of Islamic Finance at Thomson Reuters

Let me start off with a loaded question, what one word in Islamic finance is as important as Shari’ah, tax, accounting, regulation, and standardisation (STARS)?

Here are some clues:

Islamic finance has institutions called Liquidity Management Center (LMC) in Bahrain, Liquidity Management House (LMH) in Kuwait, and International Islamic Liquidity Management Corporation (IILM) in Malaysia, plus other similar organisations with different names.

The UAE Central Bank has been encouraging commodity Murabaha certificate of deposits (CDs) and expanded to repurchase (repo) offerings to address short-term UAE Islamic bank needs.

The Central Bank of Bahrain (CBB) has been issuing liquidity, addressing Sukuk Al-Salaam, short term, non-tradable securities.

Index providers have created Shari’ah-compliant liquid blue chips, similar to the Dow Jones Islamic Market International Titans 100 Index.

At many of the Islamic finance conferences, there are speakers and sessions dedicated to liquidity management risk along with credit, operational, market, and Shari’ah non-compliant risk.

Thomson Reuters launched the Islamic Inter-bank Benchmark Rate (IIBR), decoupling from LIBOR, an indigenous innovation for Islamic banks to manage their own short term liquidity.

The Islamic Financial Services Board (IFSB) released documents directed towards enhancing reliability and stability in the industry, through The Development of Islamic Money Markets (technical notes), earlier this year.

The Bursa Suq Al-Sila (in Malaysia) is a commodity trading platform, underlying is, say, palm oil, directed towards facilitating Islamic liquidity management.

Well if you haven’t spotted the common thread, in a word it is liquidity and it goes with asset-liability matching. In Islamic finance, there has been a historical mismatch because of the lack of robust short-term money market instruments; primarily reliance on two party bi-lateral commodity Murabaha and Wakala agreements, to manage the liquidity, surplus and deficit of Islamic banks.

The challenges associated with bi-lateral agreements includes counter-party credit risk, meaning that the lending entity may not be able to get its funds back with profit, if the receiving entity goes out of business. Obviously, the situation becomes more pronounced if subjected to external shocks, like the credit crisis in 2008, where liquidity freezes, hence, presenting fire-priced asset sales as the only alternative with the resulting ‘systemic’ risk to the niche industry.

The short-term liquidity challenge has also produced something called ‘leakage,’ where Shari’ah-compliant funds are placed in ‘conventional’ spaces. For example, the CEO of CIMB Islamic Bank, Badlisyah Abdul Ghani, stated during an interview in 2007 that, “there is nothing wrong with commodity Murabaha as a structure … what is not liked is when proceeds … are used for non-Shari’ah purposes … this leakage of Islamic funds is huge … We estimate it is over $1.2 trillion … mostly invested in US Treasuries and non-compliant investment products …

There is continued chatter in the Islamic finance market place about authentic Shari’ah-based solutions, as today’s offering, to address short term liquidity, is about either removing the Haraam elements or placing Islamic ‘wrappers’ on their conventional counter-part products.

However, it must be understood that Islamic finance is an immensely small sub-set (valued at $1.2 trillion) of conventional finance (valued at over $100 trillion) and of course much younger, four decades versus four centuries. And to be fair yes, Islamic finance needs to stop using its infancy as an excuse and to dissociate from the law of necessity, as Islamic finance solutions are gradually surfacing.

Let’s also manage expectations accordingly on what issues Islamic finance can resolve today within this niche industry, before proposing it as a solution for the ills of conventional finance. Today, Islamic finance is more about incomplete product pushing at the national/country level, than providing holistic financial and financing solutions.

For example, conversations are invariably raised on the inefficiencies, such as the inability to achieve economies of scale/size or the lengthy time frame it takes to bring a Sukuk to the market in the GCC, associated with a lack of standardisation, hence, one possible reason that the conventional financial industry has not yet taken IF seriously. Thus, if we do not have a ‘unified’ and efficient approach to addressing some of our major issues like short term liquidity, then it is going to be a challenge for others to accept our advice regarding their concerns.

To grow Islamic finance to $2 trillion and cross-sell beyond its traditional markets, fundamental, not reactive, and foundational, not bi-lateral, approaches are needed and necessary. The thinking of ‘if, it ain’t broke, what you gonna fix,’ is no longer applicable to addressing short term liquidity in Islamic finance.

To get to the end-goal of so called ‘Islamic’ purity, the industry, with guidance from regulators, has to go through interim tolerance parameters that are time consuming to avoid self-destructive destabilisation. Islamic finance has to, at one level, reflect its age and maturity, and not that of the more established conventional finance. In fast tracking solutions, the law of unintended consequences kicks in, where the solution actually creates more problems.

Thus, the alternative approaches in different geographies to, say, liquidity to asset-liability mismatch is the industry recognising a challenge and transparently offering suggestions to find a solution. This reinforces the fact Islamic finance, today, is fragmented and domestic in nature, i.e., pieces in a jigsaw puzzle.

With the recent ‘conventional banking’ scandals over alleged Libor manipulation and money laundering, this openness needs to be both acknowledged and commended!

Information, The New Gold Dinar Information, The New Gold Dinar(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

I recently had the opportunity to sit down with one of the leading experts in Malaysia on bond/sukuk valuations, Meor Amri Meor Ayob, chief executive officer of Bond Pricing Agency Malaysia (BPAM) Sdn Bhd.

He articulates some extremely important takeaways on the role and impact of information, from availability to transparency to credibility, on capital market development for both Islamic finance and Muslim countries.

We often hear about exporting Malaysia’s Islamic finance model to jurisdictions wanting to be a complete financial hub. Malaysia may want to start with its flagship that measures the health and pulse of the fixed income market, BPA of Malaysia.

It’s an interesting story that deserves an information spotlight.

In the Beginning

The history of the world or humanity can be defined by distinct period of advancements. To name a few as example, The Stone Age, the Agricultural Revolution, the Islamic Golden Age, the European Renaissance, the Age of Enlightenment and the Industrial Revolution are all characterised by a common singular cause: the explosion of information.

The development of Malaysia’s bond and sukuk markets were also precipitated similarly. Introduction of various regulatory guidelines on the issuance process, as well as key market infrastructures such as credit rating agencies, automated systems for tendering, issuance and transfers of funds (FAST and RENTAS) and a trading dissemination system have contributed immensely to the growth in supply and demand.

Sustaining such a growth requires a very good legal as well as price discovery mechanism to enable market participants to be well informed of valuation levels and their rights. In this regard, Malaysia has in placed a very good legal framework which has shown its impartiality as well as fairness.

However, the issue of valuation remains a very grey area. This factor is very important as only with a strong valuation regime in place could one confidently assess the performance of Malaysia’s bond and sukuk markets.

In the Beginning

A relatively recent piece to the jigsaw is the introduction of the Bond Pricing Agency concept in Malaysia. Since Bond Pricing Agency Malaysia Sdn Bhd (or BPA Malaysia) was established in 2004, the company has provided daily valuation for every bonds and sukuk traded in Malaysia.

For the first time, market players have a valuation source that was established with the stated objective of being independent and conforming to the rules and regulations spelt out by the Securities Commission under the Bond Pricing Agency Guidelines 2006.

Despite having a regulatory based price discovery mechanism for market players, adoption of such a system requires a level of trust in the quality of output. For market players to be confident in the product, the highest level of excellence is a prerequisite for the service provider.

A formal feedback procedure must be made available to subscribers to query. The provider should also provide technical briefings as well as publish research papers to market players. These reactive and proactive measures can provide an invaluable insight into the valuation process.

The level of transparency helps build trust and confidence in the valuation system. This symbiotic relationship also helps the service provider to ensure its output is market relevant.

With eight years of data, there is now a treasure trove of information in BPA Malaysia. The company is now able to present data series as well as design sets of indicators that could effectively show the performance and risk levels of any portfolio of bonds and sukuk. Coupled with growing acceptance by more market players for the service, the bond and sukuk markets have forged forward with additional momentum.

Information is Golden

Revitalising trading in the secondary market has been a goal for all market players. Published evaluated prices (or commonly known as “mark-to-market” prices) from a bond pricing agency acts as a price discovery system, enabling traders to assess the feasibility of initiating a transaction.

This same price discovery system can also help revitalise the primary market for bonds and sukuk.

From an origination and underwriting perspective, primary level pricing becomes challenging especially for lower credits. Mark-to-market pricing on previously issued corporate bonds and sukuk can promote new issues by functioning as benchmarks for primary level pricing.

The clarity of price discovery and engagement between market players, promotes the depth and breadth of new product development. The availability of data and the buildup of market professionals will spur the evolution of the bond and sukuk markets. When advanced pricing methodologies are established, it will encourage more bond offerings and more active trading of these products in the secondary market.

The effect of such advancement also supports the work done in accounting as well as financial institution space. The availability of mark-to-market prices for bonds and sukuk from an independent bond pricing agency easily satisfies the requirements set by the accounting standards to value these particular financial assets on balance sheet.

The availability of market based credit curves now allow risk based capital requirements to be implemented for financial institutions.

All of this brings together the necessary conditions for a scientific way to approach the bond and sukuk markets.

Solving the “Valuation Dilemma” is one of the “Holy Grail” in the fixed income world. Lack of transparency perpetuates the problems of information asymmetry and discourage existing players to do more as well as becoming a substantial barrier to entry to new players.

Firms that are incapable of attaining unbiased, transparent and independent valuation of their portfolios would consequently face problems in managing risk and effectively the whole business.

Risk, return and valuation are interrelated. Valuation provides a holistic solution to counter the risk challenges of dealing with illiquidity and increasing complexity of the market. In addition, it promotes better capital return efficiency.

Quality versus Quantity of Information

History has shown the importance of quality valuation. The last decade alone, a number of financial crises in some regions of the world have shown the importance of fully understanding the ramifications of the pricing and valuation function. These events give a clear lesson not only why valuation is needed but more importantly, the quality of such services, if available, should not be taken for granted.

A laissez-faire attitude towards information can also create questions of accuracy and credibility. The onus of responsibility must be inculcated into each provider. Failure to conform to certain set standards can be costly for the market.

Unfettered right for anyone to provide data without the necessary safeguards could invite potential systemic risk for everyone.

BPA Malaysia is cognisant to this fact. The company has been working diligently for the last eight years to introduce new products and services to help market participants get the best relevant information for their fixed income and sukuk needs.

Credibility and capacity building are two focus areas for the company. Continuous open channel between the company and the market has allowed BPA Malaysia to continuously evolve its existing products and services to conform to current market needs.

For example, the coming together of Thomson Reuters and BPA Malaysia to co-brand an existing index product in late 2011, confirms our belief that the company’s products are of global standards.

This arrangement for the Thomson Reuters & Bond Pricing Agency Malaysia Sukuk and Bond Indices will provide a new global window to Malaysia’s sukuk and bond market. From a global perspective, BPA Malaysia is contributing to Malaysia’s aspiration to be a global financial centre especially in Islamic finance.

Conclusion

There are a number of important lessons that could be useful for other jurisdictions interested to replicate the Malaysian bond and sukuk growth story.

Capacity building in terms of regulatory framework and key market infrastructure is paramount. Using sports as an example, to play any game, understanding the rules and having the correct equipment allows players to compete fairly.

In a similar vein, such an environment must be made possible to encourage participations by market players as well as entice new players into the industry.

Every jurisdiction will have their own different level of economic, legal and market maturity. However, fundamentally, ingredients for growth remain similar regardless of development stage.

Availability, transparency and credibility of information; responsible stakeholders; clear rules of conduct; and strong investor protection regime makes potent growth drivers.

There is no secret ingredient for success. By making available the right conditions market forces will take over and make full use of it. This facilitate decision making as no market can progress or even operate effectively without having the availability, transparency and credibility of information.

The value of information in any markets has become higher than capital infrastructure and people. In current times, as evident from countless financial markets’ boom and bust events, it is perhaps high time for everyone to recognise information as the most important and valuable commodity not just for financial markets but the entire economy for any country.

When something as intangible as information can move markets, its value becomes immeasurable, but BPA Malaysia has done a commendable job!

Rushdi Siddiqui is the global head of Islamic finance at Thomson Reuters

 

 

Bond Pricing Agency Malaysia

 

Meor Amri Meor Ayob is the chief executive of Bond Pricing Agency Malaysia Sdn Bhd (BPA Malaysia). Over the last 6 years, Meor has progressively developed BPA Malaysia’s core business to become the principal source of valuation and data reference on the Malaysian Sukuk and Bond market.

He continues to reinforce BPA Malaysia’s position as a specialist in valuation and to expand its reach with its stable of innovative products, providing world class data in keeping with Malaysia’s leading position in the global sukuk market.

He has a Masters of Business Administration with specialisation in Finance from the International Islamic University, Malaysia. He also has a Bachelor of Science degree in Actuarial Science from the University of Kent in Canterbury, in the United Kingdom.

 

Mushtak Parker Interview Part III: Liquidity Management Challenge Mushtak Parker Interview Part III: Liquidity Management Challenge(0)

By Rushdi Siddiqui is the global head of Islamic finance at Thomson Reuters

In the last instalment of a three-part interview, Mushtak Parker, the leading journalistic voice on Islamic finance,   shares his   views on the  International Islamic Liquidity Management Corporation (IILM), education in Islamic finance, moving the industry to US$2 trillion (RM6.22 trillion), scholars on multiple boards, the late Dr Zaki Badawi and, finally, how he would like to be remembered. The following are excerpts from the interview.
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Mushtaq Parker Interview Part II: What Makes A Good Islamic Banker? Mushtaq Parker Interview Part II: What Makes A Good Islamic Banker?(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Will the “truth” set Islamic banking free from the “cheer-leading reins” that may be holding it back from authenticity-cum-innovation?

Mushtak Parker provides his insights on a successful Islamic banker and institution and some of the milestones of the industry.
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Mushtak Parker Speaks His Mind Mushtak Parker Speaks His Mind(0)

Leading journalist on Islamic finance tells why he is often ‘harsh’ on the industry and his other views

“To be persuasive we must be believable; to be believable we must be credible; (to be) credible we must be truthful.” Edward Murrow.
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SPECIAL COMMENT: Ramadan Wish List For Islamic Finance SPECIAL COMMENT: Ramadan Wish List For Islamic Finance(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

The Goal: The central issue is about the industry controlling its own destiny

“Behind every success is endeavour… behind endeavour, ability… behind ability, knowledge… behind knowledge, a seeker ….” Unknown.

As the blessed month of Ramadan arrives, here is my “seeking” list for Islamic finance. It’s not about another voice asking when the International Islamic Liquidity Management Corporation (IILM) will issue its first paper or disagreeing with CIMB Group CEO Datuk Seri Nazir Razak’s comment on “rolling back” government’s involvement in business, but more to do with controlling our own Islamic finance manifest destiny.
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Should Islamic scholars abide by an industry code of conduct? Should Islamic scholars abide by an industry code of conduct?(0)

By Rushdi Siddiqui, Global Head of Islamic Finance at Thomson Reuters

July 4, 2012

Excerpts from an interview between the columnist and Dr Mohamad Akram Laldin, the executive director of the International Shari’ah Research Academy for Islamic Finance (ISRA):

Rushdi: You were a Shariah scholar and now you are an executive director of ISRA. How did this come about?

Dr Akram: I am an academician at the International Islamic University Malaysia and, at the same time, developed my expertise in syariah advisory. I am member of several syariah boards in and outside Malaysia. In 2008, the central bank of Malaysia wanted to establish a Syariah Research Academy and I was selected to be the executive director, and I am still actively participating in my syariah advisory engagements.

Rushdi: What are the high level objectives of ISRA in contributing to Islamic finance?

Dr Akram: The objectives of ISRA can be summarised as:

* Spearhead and conduct-apply syariah research in Islamic finance. Since the establishment of ISRA in 2008, it has produced a number of academic research publications.

* Enrich resources of knowledge in Islamic finance through publications and collecting materials in Islamic finance. ISRA also has a large collection of fatwas translated into English on its website.
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SPECIAL COMMENT: OIC Islamic Index – The Malaysia Story? SPECIAL COMMENT: OIC Islamic Index – The Malaysia Story?(0)

By Rushdi Siddiqui, Global Head Of Islamic Finance, Thomson Reuters
June 28, 2012

There were two important announcements last week concerning Islamic equity index:

1. Malaysia’s Securities Commission ‘…announced the adoption of a revised screening methodology to determine the Shariah-compliant status of listed companies …’
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Exclusive: Lessons for Islamic Finance Expansion – Emirates Airline Exclusive: Lessons for Islamic Finance Expansion – Emirates Airline(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Islamic finance has reached it natural market share in certain markets according a recent A.T. Kearney report, hence, an early ‘amber colored flag alert’ on the need for international expansion.

Islamic finance needs to find an example of a model company, ideally from the Muslim world, which has become a global player based upon customer service, unique selling proposition, innovation, demand, and a charismatic leader.

Should it also look to the west, and examine the likes of Google, Apple, Coca Cola or Pepsi, ExxonMobil, etc.? Does it look at the management style of former GE Chairman Jack Welsh or the vision of the late Steve Jobs?
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SPECIAL COMMENT: Eliminating the disconnects in Islamic Finance SPECIAL COMMENT: Eliminating the disconnects in Islamic Finance(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

IF ISLAMIC finance (IF) is about business, then, logically, the product offering must primarily be about business and syariah compliance second, correct?  Read More

Islamic finance must finance its diversification Islamic finance must finance its diversification(0)

By Rushdi Siddiqui, Global Head Of Islamic Finance, Thomson Reuters

Islamic finance is usually described as an infant market with domestic focus and supported by the government, hence, much like a baby reliant upon it parents in a home environment of nutrition, nurturing, and natural growth.

“To be competitive in the new world order, one has to think like an immigrant, create like an artisan, work like a start-up and provide service like a waitress, and continuously create a unique value add.” Thomas Friedman, Foreign Affairs Correspondent of the NY Times.

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Islamic finance: Fitting In & Standing Out Islamic finance: Fitting In & Standing Out(1)

By Rushdi Siddiqui

A Sharia-compliant equivalent of the popular UK and US reality show The Apprentice has recently been announced by a UK-based organisation.

This follows the news of an ‘Islamic Facebook’ and ‘Halal-Tube.’ The Muslim world also has superheroes, like The 99, Muslim dolls (Dara and Sara), Muslim Cola (Mecca Cola), Islamic car, and so on.
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$1 Trillion (Islamic finance) meet $640 billion (halal industry) $1 Trillion (Islamic finance) meet $640 billion (halal industry)(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Halal industry, as an asset class, is looking for compliant liquidity. Islamic finance, as a movement connected to the real economy, is looking for impactful intra-OIC (compliant) investment and financing opportunities.

The convergence is happening in real time, and one of the “leaders” in the reunification is a strong-willed pioneering woman, Jumaatun (Juju) Azmi, founder and managing director of KasheDia.
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Special Comment: Hitting the glass ceiling? Special Comment: Hitting the glass ceiling?(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

To grow, Islamic banks must compete with conventional lenders

Dedicated Islamic banks are generally national in nature and in certain markets have reached their ‘natural market share’ for Islamic banking, according to an A.T. Kearney study.

A recent report by the consulting firm A.T. Kearney, The Future of Islamic Banking, and a Reuters article, ‘No windfall from Qatar ban on Islamic windows’, have generated much productive chatter globally.
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Where are the ‘sisters’ in Islamic finance? Where are the ‘sisters’ in Islamic finance?(0)

By Rushdi Siddiquim, Global Head of Islamic Finance, Thomson Reuters

The retirement of Tan Sri Zarinah Anwar as chairman of Malaysia’s Securities Commission (SC) was a defining moment on the need to establish a ‘bench’ strength for women in Islamic finance.
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Muslims on Wall Street: Pragmatic over dogmatic Muslims on Wall Street: Pragmatic over dogmatic(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

The New York Times recently interviewed several American Muslims, including me, working in the financial arena for an article Muslims on Wall Street, Bridging Two Traditions. It explored two ‘conflicts’: Muslims working in conventional finance may encounter ‘interest’ against their faith, and challenges of abiding by Islamic ‘traditions’ in a secular workplace.

Today, it seems to an outsider, the burning issues for Muslims on Wall Street include prayer breaks, fasting and productivity, bonding after-office drinks, shaking a woman’s hand wearing a hijab, and structuring instruments dealing with (the prohibited) interest.

This cannot be what Muslims are about. Also, more credit must be given to working non-Muslim colleagues on understanding Muslim sensitivities.

Common shared values

Muslims, like other people with strong beliefs, do not see themselves exclusively focused on or defined by such issues. Islam has spread throughout the world because of its dynamic nature, where it influences local customs and is ‘influenced’ by the older local culture.

Religion is a private matter and it’s looked upon as foundation for building inner discipline and external strength to address challenging situations. People of faith, like their secular colleagues, want to climb the corporate ladder and break the glass ceiling to get to the executive floor, if not the corner office. Muslims have been on Wall Street and High Street for many years, if not decades, and it’s only now they are being noticed. The difference between then and now is there are more Muslims in the financial sector and non-Muslim colleagues know more about Islam because of a combination of internet, 24-7 news, 9/11, documentaries, Dubai’s accomplishments, Islamic finance and personalities like His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

It should be noted that many Muslims were involved in the Occupy Wall Street movement because of common shared values. In the New York Times article there are two quotes that best summarise how Muslims, residing in a non-Muslim country such as the US, should think about and approach a place of work and perception of fellow workers. “I think Muslim professionals are too sensitive and underestimate our co-workers,” comments a consultant in the article.

“Seek the opportunities and firms that speak to their set of values, expertise and passion,” said Mohammad Al Arian, CEO of Pimco.

Just as an employer interviews a potential employee, the latter also needs to interview the former.

I have worked at two multinational companies in the US, heading their Islamic finance business, in New York. First at Dow Jones Indexes for 10 years and now at Thomson Reuters.

A common denominator for international companies is their diverse employee base due to extensive international presence, including many Muslim countries. The corporate culture in these companies reflects common shared values formalised in codes of ethics. Thus, these companies understand ‘sensitivities’, and have high expectations of all employees.

As Muslims working in the West we do have a tendency to initially “underestimate our co-workers” in understanding our rituals (prayers, fasting, etc.), and our prohibitions (alcohol). While it could be attributed to many things, such as prejudices, with time there is a mutual understanding and respect.

The New York Times article used examples of Muslims finding places for praying during working hours or Friday prayers, and fasting during Ramadan. The article should have taken this one step further, and asked the Muslim worker about non-Muslim colleagues fasting or visiting a mosque.

Most, if not all, of us have non-Muslim colleagues who have fasted, some partially (till lunch time) and others until sunset. One of the great attributes of Americans is they like challenges, and will push the envelope of endurance. Others have visited mosques, and made observations such as “nothing fancy inside”, “where are the stained glass windows, pews, gold crescent and star?”

Maybe the article should have interviewed non-Muslims working in senior positions in Islamic finance in Saudi Arabia, the UAE or Malaysia on drinking alcohol, shaking hands with conservative women, breaking meetings for prayer time and so on. As senior executives, they are deemed ambassadors of the Islamic financial institution, and it does imply abiding by a certain level of Islamic code of conduct in public places.

Bottomline

The bottomline is that there is understanding and respect for rituals as long as teamwork, quality and deliverables are not compromised.

Muslims working in non-Muslim countries do understand work is for work, even in Islamic finance, and informed non-Muslim colleagues understand basic tenets of Islam. Muslims need to continue taking a pragmatic, over dogmatic, approach to finding the balance between faith and finance.

The writer is Global Head, Islamic Finance and OIC Countries, Thomson Reuters. Opinion expressed here is the writer’s own

Open Letter to IDB President: Mega Islamic Trading Platform Open Letter to IDB President: Mega Islamic Trading Platform(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Dear Dr. Ahmad Mohamed Ali, President, Islamic Development Bank (IDB) Group:

Asalaam Alaikum:

The Islamic finance world welcomes your comments on the ‘Mega’ Islamic Bank to effectively compete against well capitalized conventional financial institutions.

“…The ‘Mega Islamic Bank’ comes as an initiative of the Islamic Development Bank in its efforts to address the dearth of senior financiers, the absence of the Islamic tools of stock exchange and the absence of market liquidity between Islamic banks.”

However, $1 billion, with $500 million in paid capital by the three founders (IDB, Dallah Albaraka and Qatar Government), is smaller than three existing Islamic banks, which have never addressed themselves as ‘mega.’ The three include Saudi Arabia’s Al Rajhi, Qatar’s Mashraf Al Rayan and Kuwait’s Kuwait Finance House (KFH). Furthermore, it seems the ‘mega’ story may be incomplete without Malaysia’s participation.

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Rushdi Siddiqui: Interview with Daud Vicary Abdullah, CEO of Inceif Rushdi Siddiqui: Interview with Daud Vicary Abdullah, CEO of Inceif(0)

By Rushdi Siddiqui

Daud Vicary Abdullah is an authority on Islamic banking and has contributed to a number of books on the subject.

He has been in the finance and consulting industry for more than 38 years, with significant experience in Asia, Europe, Latin America and the Middle East. Meet Daud Vicary Abdullah, the president and CEO of International Centre of Education in Islamic Finance (Inceif), the global university of Islamic finance.
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Rushdi Siddiqui: SAMI + 3 — Islamic World’s BRICS Rushdi Siddiqui: SAMI + 3 — Islamic World’s BRICS(0)

“We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.” – Sonia Johnson

The recent BRICS summit in New Delhi, India, should be a wake-up call for the Muslim world’s own proposed BRICS, called SAMI: Saudi, Ankara, Malaysia and Indonesia.

The BRIC story, Brazil Russia, India and China, started in 2001 by a Goldman Sachs’ Jim O’Neill, “Building Better Global Economics BRICs”. In late 2010, an “S” was added for South Africa. These are growth markets with increasing political clout, and combining for nearly 50 per cent of the world’s population, US$14 trillion (RM42 trillion) GDP, and excess of US$4 trillion (RM12 trillion) foreign reserves (source: Wikipedia).

Today, politics is increasingly subordinated to economic capitalism, as ideology can no longer address the concerns associated with the “Misery” Index: unemployment, inflation, etc. The author initially raised the “Muslim BRIC”, SAMI, concept last year, as existing Muslim country clusters like OIC, GCC, MENA, CIS, etc., have not captured the imagination of investors.

However, after meeting with various institutions and individuals, like Dr Nasser Saidi, chief economist of DIFC, from the Muslim countries, one of the most commonly heard feedback was the four country clustering, SAMI, was too small and not representative sample of the 57 Muslim countries (OIC).

Another feedback was there are political sensitivities with OIC sub-clustering, hence, it seems the politics (cart) are placed before economics and finance (horse). Finally, sporadic comments included, “why include Malaysia?” Answer is below.

SAMI + 3

The collective market place is more intelligent than an individual, hence, proposed Muslim majority countries to add to SAMI could include: Nigeria, Pakistan and Egypt. If we look at metrics for present and growth concerning population, GDP, regional influence (politically and economically), Islamic finance, halal industry, nuclear capability (Pakistan), inclusion in other grouping (Egypt as part of CIVETS, and NIGERIA as part of Next-11), etc., these three countries are ahead of their brethren Muslim countries.

If we look at projections from the 2007 Goldman Sachs study, BRIC and N11 Nations, we see that Nigeria (percentage growth from 2006 to 2050 is 1416 per cent), Egypt (1600 per cent) and Pakistan (908 per cent) are mentioned in the top 22 countries for GDP by 2050.

The challenge now becomes what to call the new grouping (not political club)? The world is about sound-bites and catch-phrases, as goes to retention and recall, hence, the appropriate naming will goes to reach/traction, assuming the combined substance of the countries conveys a strong message of growth and opportunity.

Thus, do we call the proposed grouping as SAMI + 3, SAMI and Beyond (sounds more like a cartoon outer-space movie), SAMI-PNE (pronounced as symphony) or something else.

The ideal situation may just be SAMI + 3. Why? As other Muslim countries grow and develop, they can be added easily without having to reconfigure the name. The only issue with plus (+) Muslim country scenario is the additions to not get the branding in the marquee name. Well, there are trade-offs and difficult to satisfy everyone.

(It should be noted that metrics on political freedom, human rights, corruption, illiteracy, healthcare, infrastructure, per capita income, brain drain, capital flight, etc., were not factored into the equation in suggesting Nigeria, Pakistan and Egypt.)

SAMI + 3 Bank

The naming of the Muslim country cluster is only a beginning. The lubricant for any country that wants to become high income economy is finance, Islamic, conventional or combination.

For example, does the Muslim world need a development bank? We already have the Triple A rated Islamic Development Bank, and, it has done a remarkable job since its inception under HE Dr Ahmad Mohamed Ali Al-Madani. However, one cannot have enough capital, especially, when some of the least developed countries with the fastest growing population happen to be Muslim countries.

(Some “experts” have equated the volatile mix of “poverty, population and pulpit pronouncements” as breeding ground for opposition, coups and extremism.)

If the recent BRICS summit can raise the prospect of a development bank, “BRICS Bank”, to fund infrastructure and development projects in the emerging markets, which happen to be all Muslim countries, then SAMI + 3 needs to consider merits of comparable bank.

Thus, as an alternative to the multi-lateral World Bank, Asia development Bank, Africa Development Bank, etc., is being considered for not only infrastructure but also facilitating trade, the Muslim world also needs to have some parallel thinking/development to capture the sloshing liquidity.

However, it should not be another dedicated Islamic financial institution or proposed Islamic Mega bank, as many Muslim and non-Muslim countries (read India) neither have a regulatory infrastructure in place nor have made Islamic finance a priority.

The lack of interest in Islamic finance may be due to the now disproven argument (in North Africa) about catering to Islamists. The more important point is not to wait for the “‘i’ to be dotted and ‘t’ to be crossed” for arrival of Islamic finance in these jurisdictions, as the law necessity can be invoked as interim suggestion for finance to fund growth, development and trade.

Malaysia Leads SAMI + 3

Malaysia has never been equated to be a surplus capital provider vis-à-vis the petro-liquid GCC region, however, increasing number of entities in the Gulf are raising money in Malaysia via sukuk and bond.

Thus, Malaysia may actually be perched in a unique (window closing) position to lead not only the Muslim world, but also the emerging markets to establish what the BRICS summit suggested: lead, house and host a (SAMI + 3) development Bank.

Thus, for once, a Muslim country leads by providing a model for BRICS with a “go to market concept” model development bank.

Malaysia has history of “vision, will and means”, in achieving the imaginable, be it overcoming the Asian financial crisis without IMF medicine, becoming a globally recognised Islamic finance hub from a modest start in 1983 or spear-heading and housing a multi-jurisdictional entity, IILM, to address short term liquidity for the US$1 trillion (RM3 trillion) industry.

Answer: Malaysia should be included in SAMI + 3!

For example, five of the IILM supporting countries, Malaysia, Saudi, Turkey, Indonesia, and Nigeria, overlap with SAMI + 3, and the new Egypt and Pakistan should be amenable to a development bank that could assist in job creating trade and investment.

Reality v Rhetoric

The real work commences after the photo-op sessions are over, and one finds there are real world challenges, from subtle to real and in-between. For example, some of the BRICS challenges that may have application with the proposed SAMI + 3 clustering:

Border challenges: India and China

* Indonesia and Malaysia or yesterday’s news?

Governing Ideology: Communism (China), Democracy (India/Brazil/South Africa), Democratic Authoritarianism (Russia)

* Outside of Saudi Arabia, six of the seven SAMI + 3 are democratically elected governments.

* Military influence (budget as percentage of GDP) can be seen within Turkey, Egypt, Pakistan, Nigeria and possibly Indonesia.

Regional influence (financial, military, etc): Russia and China

* Saudi Arabia and (the new) Egypt?

* Interesting possibility of India (BRICS) and Pakistan (SAMI + 3) for regional influence.

Obviously, there are other areas were “intent concerns” may lie amongst BRICS countries, but it would appear there are fewer areas of mutual suspicion within the SAMI + 3 for, say, a development bank.

First Summit

Malaysia, unlike many Muslim countries, typically puts on good international shows, be it conferences or summits. The time may be right and ripe to put on the First SAMI + 3 Summit in Malaysia, like the first BRIC Summit in 2009, and, like BRIC, led initially by finance ministers to issue a declaration for a just, financially inclusive, impact investing multi-polar world order.

This could possibly be bigger than or complimentary to the Asean story. The political impact, within Malaysia and outside, is a needed “feel good” story today within the Muslim world.

Thus, the alliance, SAMI + 3, may be just counter-balance to BRICS and G-7 on geo-political affairs.

The faces and places of a New World Order: Control our destiny or be defined by others?

Egypt?

Rushdi Siddiqui is the global head of Islamic finance at Thomson Reuters

Special Comment: Key-Person Risk in Islamic Finance Special Comment: Key-Person Risk in Islamic Finance(0)

By Rushdi Siddiqui, Global Head of Islamic Finance at Thomson Reuters

We already know about displaced commercial risk, credit, liquidity, operational, Shariah non-compliant, and markets risks in Islamic finance. What about ‘key-person’ risk in Islamic finance?

What does a former Minister of Economy of France (Christine Lagarde), former Prime Minister of United Kingdom (Gordon Brown) and former under Secretary for International Affairs, US Treasury (John Taylor) have in common? They were all high profile public sector personalities pushing Islamic finance in their respective jurisdictions, and, upon leaving office, the movement’s momentum has been meandering or has stop ‘cold’ in the tracks.
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Special Comment: Sound Bites in Islamic Finance Special Comment: Sound Bites in Islamic Finance(0)


By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

“Interest equals disinterest because the lender has nothing to do with the borrower and his business. Islamic finance aims at creating an economy in which one financial dollar equals one real economy dollar.” Yusuf Talal DeLorenzo, Shariah scholar
Today’s attention span can be described by a seven letter word “Twitter”. The amount of seconds in a minute, minutes in an hour and hours in a day is the same as far as one can remember, yet we seem to be busier than ever in an information overload world.

It seems the typical time for processing, analysing and drawing conclusions of, say, news headlines is confined to the first few paragraphs of a story and we must act fast in scrolling headlines in real time.
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Rushdi Siddiqui: May Be Islamic Finance Is Only For Muslims? Rushdi Siddiqui: May Be Islamic Finance Is Only For Muslims?(0)

March 14, 2012

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Provocative statements are commonplace in the world of politics, academia, business and finance. They serve a ‘perception of purpose’, from distraction to direction and denial to dissatisfaction.

Put differently, such comments are viewed as ‘info-tainment’ to stand out in a competitive market environment.
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Islamic finance: An industry inclusive to all, irrespective of background Islamic finance: An industry inclusive to all, irrespective of background(0)

Feb 27, 2012
By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Dr Mohammad Daud Bakr, president and CEO of Amanie Advisors, has the distinction of being both a globally-renowned Sharia scholar as well as an acclaimed entrepreneur.

His decades’ worth of industry experience is both Amanie’s pillar of knowledge as well as the focus of its clients’ attention.

In an exclusive interview with Gulf News, Dr Daud provides insights into Arab Spring countries’ potential for Islamic finance, scholars sitting on multiple Sharia boards and some of the challenges faced by the $1 trillion (Dh3.67 trillion) industry.
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Media and public relations — the missing link in Islamic finance Media and public relations — the missing link in Islamic finance(0)

By Rushdi Siddiqui, Global Head of Islamic Finance

NEED FOR CONTROL ROOM: The industry has alphabet bodies that deal with various issues but when it comes to public relations and marketing, there seems to be a gaping hole that is getting larger

Is there a media and public relations (PR) “control room” for Islamic finance that educates, creates awareness, undertakes damage control, etc, so that the industry is “conventionally efficient” media-savvy?

Some recent headlines, by-lined articles, blogs and press releases from Islamic finance provide the answer:

* Is Islamic Finance a Failure? Reuters (Guest Columnist)

* KFH: Banking Products that Cement Value of Savings in Society, press release

* Islamic Banks Misleading: Clients Emirates 24/7 (Dubai, UAE)

* Reporters Notebook: The Ethical Aspects of Islamic Banks, www.greenprophet.com

* Most Trusted Middle East Banks, www.Alifarabia.com

* Questionable Islamic Banking Principles, www.freemalaysiatoday.com

* Shining Star of the Middle East, Financial News

* The Trillion Dollar Hoax, The Islamic Globe

* The Lessons from the Goldman Sachs Proposed US$2 Billion Sukuk Saga, Arab News

* Mega Islamic Bank Plans Cancelled, Gulf Daily News (Bahrain).

Let’s put aside those writers seeking publicity, cheerleaders of the industry, the anti-syariah movement and the well-meaning purest, and those who, unfortunately, have had a bad experience, from inappropriate products to fraud to customer service, in Islamic finance. The truth about Islamic finance is somewhere between “today’s offering and where we eventually want it to be tomorrow”.

The continued “conflicting” headlines should be the “cold water” wake-up call for the industry on two fronts:

ADDRESSING the substance, over form, of the Islamic finance, and;

CONVEYING its message, as the perception of the industry is not aligned to the objectives of movement, including raising/writing comments after “unbalanced, out-of-context, exaggerated, or untrue” articles in the media circles.

Industry body

Usually, industries, from finance and healthcare to technology, have financed a designated company/industry body to educate, lobby, promote to new customers and market, undertake damage control, and so on. Their broad message is supplemented and complimented by local institutions with customised local message.

For example, in many of non-Muslim countries with an established Muslim population, there are Muslim organisations, like Council of American Islamic Relations in the US or Muslim Council of Britain and so on, that, in effect, act as the “PR” arm for “righting wrongs, damage control, or addressing media/political errors of omission and commission”.

In Islamic finance, we have alphabet industry bodies: for accounting and auditing (Bahrain-based AAOIFI), for prudential regulations and governance (Malaysia-based IFSB), for Islamic capital and money market (Bahrain-based IIFM), etc.

Although, they have some common shareholders, let’s put aside the inability of these industry bodies to host one Islamic finance event that is supported by all of them. Let’s put aside lack of speaker invitation of one industry body to the head of its sister industry body for a presentation slot.

Notwithstanding present “turf” challenges, these industry bodies have done a commendable job of raising awareness and educating the wholesale stakeholders of the technical aspects of Islamic finance, in Muslim and non-Muslim countries, on standards, governance, and regulations. However, when it comes to the public relations and marketing of Islamic financial institutions or even damage control, there is a gaping hole and it is getting larger.

In fairness to the above-mentioned industry bodies, they have resource constraints, from manpower to finance, and, furthermore, expanding their mandate to include marketing and public relations for a geographically- dispersed and fragmented industry at various stages of development is unreasonable. However, something more needs to be done as Islamic finance is only strong as the weakest link.

The continued negative headlines will not go away even if we continue to ignore them or convince ourselves that it’s the growing pains of an emerging industry. They should be seen as the tip of the iceberg of issues and feedback on the industry’s perception/message.

Funding of body

The time has arrived for the majority to conclude there is need for an industry body that is tasked with public relations and marketing of Islamic finance at, say, the “wholesale level” – governments, regulators, financial institutions, law firms, western media, and so on. It allows for a universal message, a necessary pre-requisite to achieve harmonisation-cum-standardisation, that builds the foundation for local Islamic financial institutions to customise and add local content.

After determining a need for an industry body to promote and educate Islamic finance, the funding question must be addressed. Fortunately, the experience of AAOFI, IFSB, IIFM, etc, suggests the stakeholders could include the Islamic Development Bank (IDB), Islamic financial institutions (possibly one from every country that has declared itself an Islamic finance hub), forward-looking governments like Malaysia, the United Arab Emirates, and possibly the existing industry bodies (to include their technical message).

One of the lessons learned from the existing industry bodies is the need for adequate capitalisation and annual budget (adjusted for demand). It makes no sense to provide a shoestring budget when the objectives are global and the awareness and education is on-going and expanding.

Location of industry body

One of the takeaways about an industry body’s location is that it raises the profile of the country and the country raises the profile of the industry body, as there is now a “go to” place on the global map. Thus, bodies like the AAOIFI, IIFM and IIRA have raised the profile of Bahrain, while the IFSB, ISRA, and INCIEF have raised that of Malaysia.

Therefore, Dubai (UAE), Qatar, Pakistan, Indonesia, Brunei or even London, Paris, or Luxembourg have an opportunity to host an industry body that promotes awareness and information about Islamic finance and shows their commitment to the industry. Furthermore, much like the phrase “think global, act local”, it makes to have geographically situated satellite offices to address local time zone challenges.

Mandates

Beyond awareness, education, damage control, etc, one of the areas that require immediate attention is a more robust investor relations depart of Islamic financial institution, including addressing media training for executives. The media, especially western, wants access to senior executives, which implies challenging questions, and, it is here that the industry can best utilise them to send its message to the masses globally.

Additional responsibilities could include establishing and hosting a Davos-type event, including the US$640 billion (RM1.9 trillion) halal industry, in Europe, the Gulf and Southeast Asia. Thus, not Islamic finance per se, but the link of Islamic finance and funding education, healthcare, infrastructure, know-ledge-based economy, etc.

Some examples where the proposed PR Islamic body could have provided guidance for clear, coherent and concise clarifications:

SCHOLARS (confusion as to their role in the West), purification and zakat (not funnelling money to financing extremists), money exchange places in Muslim countries are not Islamic financial institutions, etc.

COORDINATE with other industry bodies for job openings, direct inquiries to appropriate industry bodies and Islamic financial institutions (reduce information cost for existing/potential users)

PRODUCT launches, new bank/takaful launched, etc. I’m not convinced that a general or financial PR firm can provide the needed specialised message and follow-ups that a dedicated body can direct.

DAMAGE control includes recent media frenzy on Islamic banking in Nigeria, Goldman Sachs’ US$2 billion sukuk, sukuk defaults, Islamic funds closing, Islamic bank (Dubai Bank and Islamic Bank of Britain) rescue, etc.

BRANDING of Islamic finance. Has time arrived to survey the stakeholders on the naming? In Turkey, its called Participation Banking and it conveys the essence and objective of the movement and is less politically charged, especially if Islamic finance is for all mankind.

Continuing to call it “Islamic”, combined with marketing materials emphasising syariah board and adherence, may not convey its universality.

Many of these issues also go to trust and confidence of Islamic finance by depositors, investors, shareholders, etc.

Conclusion

Although Islamic finance is less than 40 years old, the time has arrived for the industry to have a dedicated well-financed body to send a coherent and consistent message about the industry. This is an investment and not a cost, and not having such a body is to have continued schizophrenia headlines and resulting systemic brand risk.

Rushdi Siddiqui is the global head of Islamic finance at Thomson Reuters

Islamic finance, Occupy protests and public good Islamic finance, Occupy protests and public good(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

There are only two ways to conquer and enslave a nation, one is by sword, the other is by debt,” said John Adams, the second president of the United States.

If we expand the quote, it could include debt without collateral asset, trading of such debt, and enhancing it with leverage. There are consequences as there are market cycles.

Can Occupy Wall Street (OWS), public good and Islamic finance converge? Yes, through the lofty principals of economic justice.

The essence of Islamic finance is about “risk sharing over risk transfer”, as it implies a financial and economic system of checks and balances. It implies an “ethical” financial intermediation linked to the real economy for “moral” value-added output. It implies modalities of contracts whose foundations are based on transparency, where asymmetric information is minimised to prevent abuses against the weaker counter-party.

Furthermore, Islamic finance is about financial inclusion paving the path for distributive wealth and income, and ensuing economic opportunities. Finally, it’s all about business and not religion, and it about profits but against profiteering.

OWS

According to commonly used information website Wikipedia, Occupy Wall Street is a protest movement which began last September 17… against social and economic inequality, high unemployment, greed, as well as corruption, and the undue influence of corporations — particularly from the financial services sector — on government. The protesters’ slogan ‘We are the 99 per cent’ refers to the growing income and wealth inequality in the US between the wealthiest 1 per cent and the rest of the population.

It would seem many of the concerns raised by the OWS movement were similar to its predecessor spark, the Arab Spring phenomenon, except replacing “corporations” with “corrupt and repressive governments”. As of now, the Arab Spring has had more impressive results than OWS after helping bring new governments in Tunisia, Egypt, and Libya, new governments in the “wait” in Yemen and Syria, and “new governance” in other regional countries.

The question becomes, how would the OWS movement react to Islamic finance? During a London demonstration along the OWS lines in 2011, a protester held up a sign, “Let’s bank the Muslim way”. Obviously, the reference is to Islamic banking, but the jury is still out if the industry will receive OWS’ endorsement as many of the financial institutions, such as HSBC and Citi, protested against have a presence in Islamic finance.

Public good

In March last year, the Securities Commission Malaysia (SC) and the Oxford Centre for Islamic Studies (OCIS) held a two-day closed roundtable on Islamic Finance and the Public Good.

Dr Raja Nazrin Shah, Crown Prince of Perak and Financial Ambassador to the Malaysia International Islamic Financial Centre (MIFC), who officiated the roundtable, said, “public good is one concept that is common to both conventional and Islamic finance.

The values advocated by Sharia are not only confined to the detailed technical aspects of transactions, but also in the extent to which the objectives of Sharia are achieved. If every aspect of Islamic finance were to be subject to a public good test, arguably no negative repercussion could ever arise.

Likewise, if all conventional financial products were subjected to a public good test, the catastrophic effects of the recent crisis could have been avoided; and finance would serve its rightful purpose — as an engine that drives and supports the real economy.”

At the same roundtable, the Chairman of SC, Tan Sri Zarinah Anwar, said, “… the virtues of Islamic fin-ance need to be unlocked further. Public good, ethics, shared values, governance, and real and tangible contributions to the economy hold the key to innovation and growth. Profits involving a higher social purpose and objective represent values that will create not just economic returns, but also comply with universal ethical standards. Putting all these in place will strengthen the universality and acceptability of Islamic finance, enabling it to offer a distinctive value proposition.”

Thus, Islamic finance is not about privatisation of profits and socialisation of losses by the financial sector. It’s about accountability rate of returns, via due diligence, as pre-determined rates of returns do not exist in Islamic finance.

Conclusion

When Islamic financial institutions, such as banks and takaful operators, are allowed to reach the point of presenting a systemic risk to the industry, that is, being too large to fail, then we have become conventionally inefficient. If bailouts and bankruptcies, combined with capital protected bonuses, become a common place in Islamic finance, then we will have our own Occupy Salaam Street (OSS) movement in the Islamic finance hubs.

However, today the aspirations and inspiration of OWS — the principals of economic justice — are aligned to the objectives of Islamic finance. It is about building a dynamic financial eco-system based on humanitarian beliefs, avoiding unjust enrichment and profiteering, and allowing for financial inclusion of the 99 per cent to achieve a basic necessity: human dignity.

The writer is Global Head, Islamic Finance and OIC Countries at Thomson Reuters. Opinions expressed here are the writer’s own

Shiekh Yusuf Talal Delorenzo: ‘We guide and let the markets decide’ Shiekh Yusuf Talal Delorenzo: ‘We guide and let the markets decide’(0)

Feb 17, 2012
By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Q: We are hearing more comments from Islamic bankers who are saying Sukuk are bonds with an Islamic wrapper, and the industry needs equity/investment sukuk, what are your comments?

YTD: Let’s consider the question and its source and then boil it down to a statement. Islamic investment bankers say they (when they say “the industry” I have to assume they are speaking of themselves) need equity/investment sukuk. Simple answer? AAOIFI has developed them. I have always maintained that the market will determine the direction of Islamic finance. It may well be at the present time that the market for sukuk is driven by the needs of Islamic bankers in treasury departments. These needs include predictable pricing. Thus, they have their own preferences for certain types of sukuk, maybe not the same types as Islamic investment bankers. And when the saturation point is reached, by which I mean when the treasuries of Islamic banks have sukuk holdings sufficient for their needs, regulatory and otherwise, the secondary market that everyone is hoping for will develop. It’s beginning already in a limited way. And I share the frustration of our bankers. But we need to keep working.

Q: A large number of Sukuk defaulted in last several years, about 30 from Malaysia with 10 BBA and 16 Murabaha structure, are defaults a cause for concern or actually beneficial for the industry?

YTD: At the 2005 IFSB conference in London on the subject of law and sukuk the subject of defaults, then only a possibility, was discussed often and widely. After all, until there are defaults, it is next to impossible to know how judges will view sukuk. The problem is multiplied when different jurisdictions and legal systems are involved. We are now, therefore, in discovery mode. And while it is indeed lamentable that sukuk have failed and investors have suffered losses, it is now the responsibility of all involved to study the cases to see what might be done better in the future.
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Mum, why Islamic finance? Mum, why Islamic finance?(0)

Jan 30, 2012

By Rushdi Siddiqui, Global Head of Islamic Finance at Thomson Reuters

There are two lasting bequests we can give our children. One is roots. The other is wings. — Hodding Carter

LET’S take a break from sukuk structuring and stock screening, and talk about the children of parents in Islamic finance. They may well be the industry’s future. I suspect many of us in Islamic finance do not come from Islamic banking parents or banking family dynasties.

We come from parents that were traditional bankers, engineers, physicians, scientists, journalists, merchants, civil servants, politicians, regulators, academics, and so on. And growing up, Islamic finance was probably not on our radar screen as a career.
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2011: Year of Shariah Compliant Index Out Performance 2011: Year of Shariah Compliant Index Out Performance(0)

January 17, 2012

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

“The proper man understands equity, the small man profits.” Confucius.

The year 2011 was the year for [Malaysia] Shariah compliant index out-performance against all conventional developed and emerging market country indicies and almost all frontier countries.

The Islamic finance industry has not talked up the Islamic equity capital market story, as the Islamic debt capital market poster child, ‘Sukuk,’ has become the alter-ego of Islamic finance. But, does that amount to concentration brand and business risk for a $1 trillion, where Sukuk are, at best, 20% of Islamic finance?
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The New Year Islamic Finance Landscape Survey The New Year Islamic Finance Landscape Survey(0)

January 2, 2012

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters 2011

“An optimist stays up until midnight to see the new year in. A pessimist stays up to make sure the old year leaves.”Bill Vaughn.

Islamic finance is staying up for new year for …….

The survey format is straight forward, 16 questions with multiple answers.
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Islamic Finance: A ‘come together’ consolidation? Islamic Finance: A ‘come together’ consolidation?(0)

Will 2012 be the year of “come together” consolidation for Islamic banks?

Size is often the justification for achieving economies of scale, used to access deals for league table prominence, used as a buffer in a challenging environment, used as defensive measure to ward off unwanted suitors, and so on.

Islamic banks are very much like Islamic (equity) funds. There are hundreds of Islamic banks and funds, but the paid-up capital and assets under management, respectively, is too small to be meaningful. Yet, both, more so Islamic banks, present a unique situation (of an industry risk) of “too small to fail”.

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SPECIAL COMMENT: Shariah Equity Compliance in the West SPECIAL COMMENT: Shariah Equity Compliance in the West(1)

By Rushdi Siddiqui, Global Head of Islamic Finance at Thomson Reuters

The time has arrived to take a deeper dive on better understanding of Shariah compliant companies in an Islamic (or Shariah compliant) equity indexes. To many informed and uninformed observers of Islamic equity investing, it seems to imply investing in publicly listed companies in Muslim countries.

The end results contradict the assumptions. This also rebuts the often heard allegations by many from the anti-Shariah movement that Islamic investing is about investing in companies linked to terrorism or financing terrorism. The largest companies in the S&P Global BMI Shariah include ExxonMobil, IBM, Chevron, Nestle, Microsoft, etc.
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A Step Forward For Islamic Finance Authenticity: IIBR A Step Forward For Islamic Finance Authenticity: IIBR(1)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

‘Don’t cheat the world of your contribution. Give it what you’ve got.’ – Steven Pressfield

On November 22, 2011, the world’s first Islamic interbank benchmark rate (IIBR) was launched. It is the result of a collaborative approach taken by many Islamic financial institution, industry associations, and Shariah scholars, over the course of 24 months, to a decades-old industry challenge: how to decouple Islamic finance from a conventional Western pricing benchmark (LIBOR) and the law of necessity when an ‘Islamic’ alternative was not available. The objective was to support and preserve Islamic finance authenticity.
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‘Cross pollinating’ Islamic finance in GCC, Malaysia ‘Cross pollinating’ Islamic finance in GCC, Malaysia(0)

Continuous effort – not strength or intelligence – is the key to unlocking our potential. – Winston Churchill

How many Malaysian Islamic bankers work in senior positions at Islamic financial institutions in the GCC (Gulf Cooperation Council), Pakistan and the UK? Conversely, how many non-Malaysians work in senior positions at Malaysian Islamic financial institutions?

Does the training and experience in Malaysia for Islamic finance somehow imply that it’s too Malaysia-centric (Shafi school) for GCC (Hanbali, Hanafi, Jafri schools) Islamic financial institutions? Does it somehow imply that there needs to be a “retraining” of Malaysian Islamic bankers to the GCC “way” of Islamic banking, finance and takaful?
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SPECIAL COMMENT: Uneven Development of Islamic Asset Management SPECIAL COMMENT: Uneven Development of Islamic Asset Management(0)

By John A. Sandwich, Islamic Wealth & Asset Management

This article first appeared in DJIM Newsletter and has been reprinted here with the kind permission of the author.

In recent months this author has frequented the asset management units at numerous banks, family offices, takaful insurers and asset managers in Saudi Arabia, Bahrain, the UAE, Qatar, and Malaysia, interviewing and questioning the status of Islamic asset management. The current state of affairs, unfortunately, is not good.
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Islamic Finance: Engagement, Inclusion & Expansion Islamic Finance: Engagement, Inclusion & Expansion(0)

By Rushdi Siddiqui, Global Head Of Islamic Finance, Thomson Reuters

On the long plane ride back from Malaysia to New York, I was thinking about ‘out-side-the box’ areas that would interest me to develop in Islamic finance. There were two areas that would not exit my thoughts.

Is Islamic finance capturing the imagination of the Generation Y and Z (the youth) as employees and customers? What has Islamic finance financed to build?
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Islamic Finance 2.0: One Year Anniversary Islamic Finance 2.0: One Year Anniversary(0)

“GOD gave you a gift of 86,400 seconds today. Have you used one to say ‘thank you’?” — Author unknown

I want to thank NST. Islamic Finance 2.0 is one year old.
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SPECIAL COMMENT: Turkish exchange plans ties with UAE and Egyptian markets SPECIAL COMMENT: Turkish exchange plans ties with UAE and Egyptian markets(0)

 

globetrottingrien /Foter

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Turkey has been building capital market bridges to GCC and South East Asia, and chairman of the Istanbul Stock Exchange, Hussain Erkan, has been a leading architect in establishing dialogue, hosting events, and facilitating cooperation and coordination with his counterparts for both Islamic and conventional finance. In this interview, Erkan shares his thoughts on the challenges and progress of Islamic finance in Turkey, among various other issues. He is hopeful that the improvements made should be able to attract investors from the GCC.
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SPECIAL COMMENT: Where Are The Islamic Angel Investors? SPECIAL COMMENT: Where Are The Islamic Angel Investors?(1)

“Angel investors don’t come with a halo and wings, but they can seem heaven-sent to an entrepreneur struggling to find financing.” – Cathie Gandel.

By Rushdi Siddiqui, Global Head Of Islamic Finance, Thomson Reuters

Malaysia has raised the profile of Islamic finance, Takaful and Halal industry, and, now, she must do the same to venture capital (VC). VC is an important emerging asset class that should contribute to government’s objective of building a knowledge based economy by 2020.
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SPECIAL COMMENT: Time To Move To Takaful 2.0 SPECIAL COMMENT: Time To Move To Takaful 2.0(0)

By Rushdi Siddiqui, Head Of Islamic Finance, Thomson Reuters 2011

A conference on the future and expansion of takaful, called Takaful Rendezvous 2011, took place in Malaysia under the banner of Kuala Lumpur Islamic Finance Forum (KLIFF) from October 4 to 6. Although the industry has come far in a short period of time, more needs to be done.

Much like the $640-billion (Dh2.35 trillion) halal industry, takaful needs to rise and address some of the challenges on size, representative industry body, and perception.
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SPECIAL COMMENT: Islamic Venture Capital – A Distinguishing Factor SPECIAL COMMENT: Islamic Venture Capital – A Distinguishing Factor(1)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Failure is a mark of success in venture capital, hence, it is an option with beneficial learning consequences.

Today, Islamic venture capital is a feel-good theory presented at (not many) conferences about the lofty goals of this niche market with the focus on the formalism of structuring and screening. Its impact investing, yet we seem to see it as a cost (at best) and a write-off (at worst).
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SPECIAL COMMENT: Islamic (Or Boring) Finance In Vogue? SPECIAL COMMENT: Islamic (Or Boring) Finance In Vogue?(0)

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

From September 19 to 23, Toronto hosted the massive Swift International Banking Operations Seminar (Sibos) event from Society for Worldwide Interbank Financial Telecommunication (Swift), where I was involved in the session called ‘Islamic Finance 2.0: Growth Opportunities for All’.

There were a number of interesting takeaways from the session that may provide insights on the marketing and positioning of Islamic finance in ‘open minded’ western countries, such as Canada and the Arab spring countries.
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SPECIAL COMMENT: Sisterhood in Islamic Finance SPECIAL COMMENT: Sisterhood in Islamic Finance(1)

By Rushdi Siddiqui, head of Islamic Finance at Thomson Reuters


If Islamic finance is about inclusion, where are the sisters?

Someone once said, ‘50% of the world’s population is women, and the other half, have mothers.’ Recently, two major articles were widely carried on women in Islamic finance, and highlighted the often heard issues: underrepresentation, interaction with male bankers, travel for meetings in conservative countries, from women scholars to women’s branches, and so on.

If Islamic finance (IF) is about inclusion, where are the sisters?

Stage one of IF has been male dominated industry. Stage two, march towards $2 Trillion, will require addressing a major bottleneck, lack of qualified people, and, its here, women can an important role.

There are numerous studies on poverty reduction in the third world, comprising of almost all of 57 Muslim majority countries, emphasizing the role of women as effective ‘managers’ in raising and educating children, household finances, dealing with stakeholders (extended families), etc., if they are empowered with the right ‘opportunity tools.’

It’s also important to separate cultural (mis)influence versus references to women in Holy Koran, Sunnah of Prophet (PBUH), and leading roles Prophet Mohammad’s (PBUH) wives, Khadija and Ayesha.
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SPECIAL COMMENT: Ramadan-inspired Dates Index & kebabonomics SPECIAL COMMENT: Ramadan-inspired Dates Index & kebabonomics(0)

I have been fortunate enough to be involved in many interesting conversations over the years from the potentially practical (Islamic stock exchange, Islamic LIBOR, convergence between Islamic finance and Halal industry), to potentially flawed (Islamic inflation, Islamic unemployment, consumer price index (CPI), Islamic car, Islamic washing machine), and the potentially feasible (Islamic currency, Dinar).

While some of these topics are ideally suited as conference panel sessions, research topics for academic papers, and even awards for innovation, we need to reflect on the source of ideas that connect to the roots of Muslims in a meaningful manner. Concurrently, these same ideas should also click and tick with the non-Muslim community.
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SPECIAL COMMENT: Antidote to Anti-Shariah Movement SPECIAL COMMENT: Antidote to Anti-Shariah Movement(0)

The article below expresses the personal views of the author

A recent article in The New York Times, Behind an Anti-Shariah Push, showcased the crusading efforts of Mr. David Yerushalmi, a 56 year old Hasidic Jew. His circle of support include like minded prominent visionaries, thought leaders and presidential candidates like Newt Gingrich, Michelle Bachmann, Sara Palin, Pamela Geller, Frank Gaffney all alleged experts on culture, financial systems, history and religion.

Mr. Yerushalmi has been taught Arabic and Shariah by two Islamic scholars, but won’t reveal their identities. The premise of his position is that Islamic law, or Shariah, ‘presents the greatest threat to American freedom since the cold war,’ whereby USA would eventually stand for United States of Afghanistan!

[Actually the biggest threat to America may be S&P recently downgrading US debt, from AAA to AA+, with the insulting negative outlook, and stating ‘… America’s governance and policymaking [is] becoming less stable, less effective, and less predictable than what we previously believed…’]
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