Excerpts of news from around the world today:
Excerpt One from Bernama News
Five top international law firms experts in Islamic finance will be allowed to practise in Malaysia, Prime Minister Datuk Seri Najib Tun Razak announced on May 6th, 2009.
The latest announcement complements the financial sector liberalisation package announced last month that covers issuance of new licences for seven banks and two takaful insurance players between this year and 2011, he said when opening the Sixth Malaysia International Halal Showcase (MIHAS) 2009 and the Second World Halal Research Summit 2009 hosted by the Malaysia External Trade Development Corporation (Matrade).
Also incorporated in the flexibility is foreign equity limits from 49 per cent to 70 per cent accorded for investment banks, Islamic banks, insurance companies and takaful operators.
Excerpt Two from The Business Times
While Islamic finance continues to develop, it has been hit by a liquidity crunch. The sector is grappling with the plunge in oil revenues and the impact on many of the Middle East countries. The slump in property prices is another big headache, given the asset-based nature of Islamic finance.
In February, Abu Dhabi gave a US$10 billion ($14.78 billion) bailout to neighbour Dubai as it reeled from the property bust. Dubai has accumulated US$80 billion in debt to build real estate projects, including the world's tallest building.
There have also been dire warnings that some Islamic banks may be forced to merge later this year if liquidity does not improve.
Said Vince Cook, chief executive of the Islamic Bank of Asia (IB Asia): 'While the industry is not exposed to the triggers of the sub-prime crisis, it is not immune to the secondary effects, such as the liquidity crunch, slowdown in economic activity as well as transaction flows. Nonetheless, the industry is at a nascent stage of development and still has plenty of room to grow. The global sukuk market, for instance, while depressed, is gradually gaining acceptance in the Gulf as a preferred means of financing and investment.'
Sukuk or Islamic bonds issuance has contracted and is slated to be lower than in previous years. Malaysia's capital market regulator last week estimated that global Islamic bond issuance this year would be worth at least US$10 billion, said a Reuters report.
New sales of Islamic bonds fell to US$15.77 billion last year from US$46.65 billion in 2007, the Islamic Finance Information Service (IFIS), which tracks data in the Islamic finance industry, said.
Against this backdrop, Singapore this week plays host to the 6th Islamic Financial Services Board (IFSB) summit, a high-profile event which brings together regulators, major market practitioners, especially from the Middle East, and academics involved in Islamic finance.
The theme of the summit is the future of Islamic financial services. The IFSB, which is based in Kuala Lumpur, serves as an international standard-setting body of regulatory and supervisory agencies that have a vested interest in ensuring the soundness and stability of the Islamic financial services industry. The 6th IFSB summit will be the first time that the event is held in East Asia.
According to the Monetary Authority of Singapore, the president of the Islamic Development Bank (IDB) and eight central bank governors and deputy governors have confirmed their participation in the summit.The governors/deputy governors are from the Middle East and Asia (Bahrain, Jordan, Korea, Malaysia, Qatar, Saudi Arabia and the United Arab Emirates), and Sudan.
Excerpt Three from Middle East Online
The business model and growth of the Islamic finance sector – the only financial system in the world today that is based on the teachings of a major religion – may present new opportunities for American households – Muslims and non-Muslims alike.
The Islamic home financing sector is active in nearly 40 states in the United States. While operating on an interest-free business model, Islamic home financial institutions are compatible in every way with modern capitalism, just like conventional financial institutions.
There are differences, however.
At the core of the Islamic model is the view that lending is a charitable act as opposed to a business activity, that debt is not something to be exploited for profit.
Instead, Islamic finance uses a participatory model that seeks to engage all parties – as partners – in the sharing of both risks and rewards, without guaranteeing returns.
By prohibiting interest, Islam has actually prohibited disinterest, in the sense that partnerships encourage active management, accountability, responsibility and joint oversight.
Islamic home financing means that an Islamic bank and its client-partner acquire a real-estate asset jointly – as co-investors. Where conventional mortgage banks profit from interest, Islamic home finance companies derive revenues from co-ownership agreements in which rent – in return for the client-partner’s ability to live on the property – is paid to the finance company on its portion of the property.
“Rent plus equity” payments are usually equal to “principal plus interest” payments. When the client-partner takes full title of the home, rent payments to the bank partner stop.
Because Islamic home finance caters to first-time buyers who for religious or financial reasons cannot consider conventional, interest-based mortgages, the business continues to grow and thrive as Islamic banks expand their services within the US market, even in this time of shrinking job markets and economic crisis.
The three largest US-based Islamic home finance companies (Chicago-based Devon Bank, Virginia-based Guidance Residential and Michigan-based University Bank) report that they have done “substantially more” business in the first two months of 2009 than during the same period in 2008. Devon Bank reports that operations during this period have nearly doubled.
In keeping with the concept of partnership and risk sharing, Islamic home finance is more attractive to American buyers because it uses non-recourse contracts. This means that banks can recover no more from homeowners facing foreclosure than their homes. While conventional mortgages work this way in some states, Islamic home finance companies offer non-recourse contracts to buyers in every state in which they operate. Thus, even if the value of the home falls below the amount financed, the finance company has no recourse to the other assets of the homeowner.
Islamic home finance companies have also shown themselves more willing to restructure financing than to foreclose. The three largest Islamic finance institutions in the United States report, for instance, that delinquencies “are less than half the conventional mortgages rate.”
While the fewer cases of foreclosure, coupled with the willingness to restructure financings, may be a function of the still relatively small size of the Islamic home finance sector (estimated at less than one billion dollars in annual investment for each of the three largest institutions in the United States), it is also reflective of the basic philosophy of concerned partnership and joint responsibility.
Perhaps now is the time for ethical and religious values to make a comeback in the banking business, and in the home finance sector in particular. In 2009, while the world looks for solutions to the global financial crisis and American families worry about the financing of their homes, the goal of Islamic finance, like that of all successful commerce, should be to profit by sharing what it knows with others.
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