Archive for Islamic fund

Malaysia: CIMB Aviva survey shows trend for capital guaranteed products

Malaysia: CIMB Aviva survey shows trend for capital guaranteed products

4 September, 2008

The investment environment might not look too rosy for now but people are still generally receptive towards investment products that offer guaranteed capital protection, investment diversification and insurance protection.

This is evident from the simple survey conducted in August 2008 by CIMB Aviva Malaysia (CIMB Aviva) which showed 67.9% of respondents saying they will invest in a product that offers all the three elements.

Asian markets such as China, India, Philippines, Indonesia, Thailand and Malaysia are still the preferred investment location with 74% choosing Asia as the continent that they think they would be interested to invest in now vs 10.7% for Australia or 5.4% for North America.

“CIMB Aviva decided to get some feedback on investor sentiment that is currently very difficult to predict due to unsettling factors such as global economy slowdown, rising cost of living and local political developments. This survey gives us a better picture of what to expect and supported the strategy of our latest product, CIMB Islamic Market Select,” said Encik Zainudin Ishak, CEO of CIMB Aviva Takaful Berhad.

“CIMB Islamic Market Select is a Shariah-compliant product which provides a 100% capital protected guarantee along with the upside of investing in 17 different countries. This means not only portfolio diversification that mitigates overall portfolio risk but also a higher potential for growth. The fact that most of those surveyed still view Asia optimistically means this is an ideal product for all,” he added

CIMB Islamic Market Select gives investors the opportunity to ride on the existing investment wave of mature markets such as the US, promising Asian markets such as China and India plus the added advantage of investing into new emerging markets such as Brazil and Turkey which are set to take off as the next investment hotspots offering potential for long-term growth potential.

When applied to historical data, Market Select’s dynamic investment allocation strategy gives average annual returns of 16.5% and 23.6% for its three-year and five-year plan which means potentially higher returns than a conventional fixed deposit account.

A CIMB Islamic Market Select investor also benefits from takaful coverage, which pays surviving nominees a maximum of 125% of his single investment if he passes away before the investment matures.

Market Select applies the Best Performing Strategy that refers to the Dynamic investment allocation strategy. With this strategy, the returns at maturity are allocated based on a 60:20:20-allocation rate for the three market categories. This means investors enjoy 60% of the return based on the best performing category and 20% respectively for the remaining two categories. This product offers the option of a three-year and a five-year select terms with the latter having the added flexibility of providing yearly income distribution.

CIMB Islamic Market Select is available at all CIMB Islamic branches, which are co-located at CIMB Bank’s 366 branches nationwide until 19 September 2008. For further information, investors can call 1 300 880 900 or visit http://www.cimbbank.com.my.

-ends-

Enquiries:
Andi McLennan
Director of Marketing
CIMB Aviva Assurance Berhad
Telephone: 03-03-2612 3724
E-mail: andi@cimbaviva.com

Tricia Loh
Head of Brand & PR
CIMB Aviva Assurance Berhad
Telephone: 03-2614 3599
E-mail: tricia@cimbaviva.com

Notes to editors:

What questions and answers did we get?

1. Which age range do you fall into?
Above 50 6.25%
Between 41 and 50 15.18%
Between 31 and 40 43.75%
Between 21 and 30 32.14%
Under 21 1.79%
2. Your current annual gross income level is:
Under RM24,000 11.61%
Between RM24,000 and RM50,000 41.07%
Between RM50,000 and RM100,000 33.04%
Above RM100,000 11.61%
3. What is the average savings amount in your deposit account now?
Below RM1000 32.14%
RM1000 – RM5000 25.89%
RM5000 – RM20,000 18.75%
RM20,000 – RM50,000 14.29%
Above RM50,000 8.04%
4. Currently, do you think you have enough savings to cope with rising cost of living?
Yes 10.71%
No 86.61%
5. If you have excess cash in hand, where would you prefer to put it at present?
Keep in the bank 26.79%
Invest in shares 8.93%
Invest in unit trust or insurance 22.32%
Invest in properties 27.68%
Other 13.39%
6. Which of the following continents in the world do you think would be interesting to invest in now?
North America (eg US, Canada) 5.36%
South America (eg Argentina, Brazil) 3.57%
Africa 3.57%
Asia 74.11%
Australia 10.71%
7. Which of these markets would you choose to invest in if given the choice?
Developed markets eg US, Europe & Japan 25.00%
Asian markets eg China, India, Indonesia, Philippines, Malaysia and Thailand 59.82%
New markets eg Russia, Kazakhastan, South Africa, Brazil, Egypt, Turkey, Mexico and Vietnam 14.29%
8. How confident are you now to invest your money vs two months ago?
Very confident 1.79%
More confident 11.61%
Neither confident nor not confident 51.79%
Less confident 27.68%
Not confident at all 8.04%
9. What is your primary investment objective?
Highest potential returns 28.57%
Growth of income 35.71%
Diversification across different asset classes 8.04%
Secure investing 26.79%
10. If you could securely invest your excess money in your deposit account within 17 countries across Asia, Africa, Europe, North and South America whilst benefiting from 100% capital protection and with an element of additional life cover protection, would you do so?
Yes I’d invest 67.86%
No I’d leave my money in my deposit account 8.93%
I don’t know 23.21%

Which countries does CIMB Islamic Market Select invest in?

Developed Markets US, Europe and Japan
Asian Emerging Markets China, India, Indonesia, Philippines, Malaysia and Thailand
Next Emerging Markets Russia, Kazakhastan, South Africa, Brazil, Egypt, Turkey, Mexico and Vietnam

Who is CIMB Aviva?
CIMB Aviva is a joint venture company between CIMB Group and Aviva plc. CIMB Group is Malaysia’s second largest financial services provider and one of Southeast Asia’s leading universal banking groups, and Aviva is the world’s fifth largest insurance group* and the largest insurance services provider in UK.

Through the joint venture, CIMB Aviva offers a comprehensive range of life insurance and takaful products and services via the 366 branches of CIMB Bank and CIMB Islamic, two subsidiaries under CIMB Group.

CIMB Aviva also rides on the global expertise of Aviva, which services 45 million customers in 27 countries around the world. Aviva recorded total sales of £49.2 billion (RM337.5 billion) at 31 December 2007 and funds under management of £359 billion (RM2.28 trillion) at 30 June 2008.

*based on gross worldwide premiums
Average exchange rate 1£ = RM6.86 (2007), RM6.34 (6-month 2008)

Source: http://www.aviva.com/index.asp?PageID=55&category=aviva&year=2008&newsid=4367

Advertisements

Leave a Comment

Muslims to be offered Sharia-compliant pensions by Government

Muslims to be offered Sharia-compliant pensions by Government

Muslims are to be offered Sharia-compliant pension funds by a new Government body.

The scheme to provide retirement funds for millions who do not already have a company pension is likely to include a special option that would not invest in companies deemed sinful under Islam.

Ministers are keen to get Muslims saving with the Personal Accounts Delivery Authority, as many who have low-paid jobs or who have moved to Britain in recent decades are unlikely to have put away much for their old age.

The decision to provide a Sharia-compliant pension fund is another sign of the growing influence of Islamic law in British public life and in particular the country’s finance industry.

The prospect of some aspects of Sharia law such as divorce proceedings and dispute resolution being enshrined in the English legal system – raised by the Archbishop of Canterbury and Lord Chief Justice this year – remains highly controversial because of fears that the system discriminates against women and that a two-tier approach would be divisive.

But more and more financial products are being tailored to cater for Britain’s population of 2million Muslims.

The religion’s holy book, the Qu’ran, forbids Muslims from making money from money, so they cannot use products that involve the charging of interest nor invest in traditional financial services firms.

Gambling, drinking and pornography are also seen as immoral under Islam, so Muslims cannot put their money into companies that promote these activities.

The Islamic finance market is estimated to be worth £500million already and is growing rapidly.

Families can already get Sharia-compliant baby bonds under the Government’s Child Trust Fund scheme while the UK is likely to become the first Western country to issue Islamic bonds in order to raise money from the Middle East.

This year has also seen the launch of Britain’s first Islamic insurance company and pre-paid MasterCard. There are a handful of wholly Islamic banks in the country and several more that offer alternatives to mortgages which do not involve the charging of interest.

When the Personal Accounts Delivery Authority launches in 2012, as many as 10 million people who do not have a decent occupational pension will become automatically enrolled and made to save a minimum of 4 per cent of their earnings a year, matched by a 3 per cent contribution from their employer and 1 per cent tax relief from the Government.

Savers will be able to choose from a range of funds into which their money will be invested, with one option likely to be Sharia-compliant.

A spokesman for the authority said: “In early 2009 we will be consulting on the potential approach to investment. Issues that we envisage incorporating into the consultation document include the overarching investment objective, the default strategy and lifestyling of funds and fund choices beyond the default strategy.

“This will include the appropriateness of making available religion compliant funds (e.g. Sharia) and funds focussing on social, environmental and ethical issues.”

Its plan was backed this week by a report by the Pensions Policy Institute and the Equality and Human Rights Commission on how to improve the lot of Britain’s “under-pensioned”, such as disabled people, women and ethnic minorities, who in many cases have not worked long enough to be entitled to a full state pension of £90.70 a week when they retire.

The study said: “The inclusion of a Sharia-compliant investment choice might be important to encourage participation among some ethnic minority groups.”

Douglas Murray, director of the Centre for Social Cohesion think tank, said the Government should not be creating parallel financial or legal systems for different groups in Britain.

He said: “It’s a great mistake for the Government to think this is desirable or even necessary.”

Source: http://www.telegraph.co.uk/finance/personalfinance/pensions/3496730/Muslims-to-be-offered-Sharia-compliant-pensions-by-Government.html

Leave a Comment

Product development for Islamic banks discussed at MEFX conferences

Product development for Islamic banks discussed at MEFX conferences
By: Mike Gallagher

Greater visibility needed if Islamic finance is to become internationally acceptable. International listings and uniformity of standards key to spread say delegates.

MEFX, Islamic real estate investment trusts, Sukuk, Qatar, Alpen Capital, Sanjay Vig, Saadiq, Ghazanfar Naqvi, Mobily Sukuk, standardisation

Delegates at the Future Proofing Your Bank MEFX conference in Dubai on Sunday discussed the vexing issue of product development from an Islamic finance perspective. Standardisation was given the most attention, as it always seems to at conferences where Islamic finance is discussed, but how much progress is taking place with regards to the subject is still not certain.

Sanjay Vig, managing director of Alpen Capital, which was behind several high profile Sukuk, such as the Berber Cement Sukuk in Sudan and the Mobily telecoms issuance in Saudi Arabia, pointed out that the issue of standardisation was not just an issue between regions, but also sometimes between countries. He said that while the Mobily Sukuk was accepted in Saudi Arabia, it was not in the UAE.

Vig also said that sorting out the critical issue of uniformity was vital if Islamic finance wanted to become globally acceptable. Uniformity and replication of products would speed up the process because the complex documentation that is part and parcel of the current trend in Islamic finance was slowing down its spread. Any bank that became involved had to run the product past its Shari’ah board, which also added to the time it took to bring it to market. Uniformity would greatly speed up that process, he said.

Ghazanfar Naqvi, director of Islamic products for Saadiq in the UAE added that very few law firms in the region understood Islamic finance and he said they needed “to gear up” to be able to meet demand. One thing that would help product development, said Naqvi, would be if more conventional bankers moved over to Islamic banking. “You cannot teach banking to everyone, but you can teach Islamic [law],” he said.

Delegates were told that not more than 20 to 30 per cent of Islamic banks portfolios from the GCC are invested outside the region and that more diversification of risk was required. This, they were told, would also help to increase the awareness and popularity of Islamic finance.

Vig said that more international listings of Sukuk on exchanges like New York, Hong Kong and London would increase its visibility and he said would assure investors that by listing there, that they were meeting internationally recognised standards.

There was also talk among delegates about the role of Takaful in markets such as the UAE and Qatar where a huge real estate boom was taking place. Many wondered why Takaful had such a small share of the market, compared to conventional insurance, when so much money was being invested in real estate. Others expressed wonderment at why Islamic real estate investment trusts were not more popular, given that India, Pakistan and Malaysia were actively considering them.

Source: http://www.cpifinancial.net/v2/News.aspx?v=1&aid=431&sec=Islamic%20Finance

Leave a Comment

Principles of Shariah Governing Islamic Investment Funds

Principles of Shariah Governing Islamic Investment Funds
By Mufti Taqi Usmani

– Equity Fund
– Conditions for Investment in Shares
– Ijarah Fund
– Commodity Fund
– Murabahah Fund
– Bai’-al-dain
– Mixed Fund

The term “Islamic Investment Fund” in this article means a joint pool wherein the investors contribute their surplus money for the purpose of its investment to earn halal profits in strict conformity with the precepts of Islamic Shariah. The subscribers of the Fund may receive a document certifying their subscription and entitling them to the pro-rated profits actually accrued to the Fund. These documents may be called “certificates” “units” “shares” or may be given any other name, but their validity in terms of Shariah, will always be subject to two basic conditions:

First, instead of a fixed return tied up with their face value, they must carry a pro-rated profit actually earned by the Fund. Therefore, neither the principal nor a rate of profit (tied up with the principal) can be guaranteed. The subscribers must enter into the fund with a clear understanding that the return on their subscription is tied up with the actual profit earned or loss suffered by the Fund. If the Fund earns huge profits, the return in their subscription will increase to that proportion; however, in case the Fund suffers loss, they will have to share it also, unless the loss is caused by the negligence or mismanagement, in which case the management, and not the Fund, will be liable to compensate it.

Second, the amounts so pooled together must be invested in a business acceptable to Shariah. It means that not only the channels of investment, but also the terms agreed with them must conform to the Islamic principles.

Keeping these basic requisites in view, the Islamic Investment Funds may accommodate a variety of modes of investment which are discussed briefly in the following paragraphs.

Equity Fund

In an equity fund the amounts are invested in the shares of joint stock companies. The profits are mainly achieved through the capital gains by purchasing the shares and selling them when their prices are increased. Profits are also achieved by the dividends distributed by the relevant companies.

It is obvious that if the main business of a company is not lawful in terms of Shariah, it is not allowed for an Islamic Fund to purchase, hold or sell its shares, because it will entail the direct involvement of the share holder in that prohibited business.

Similarly the contemporary Shariah experts are almost unanimous on the point that if all the transactions of a company are in full conformity with Shariah, which includes that the company neither borrows money on interest nor keeps its surplus in an interest bearing account, its shares can be purchased, held and sold without any hindrance from the Shariah side. But evidently, such companies are very rare in the contemporary stock markets. Almost all the companies quoted in the present stock market or in some way involved in an activity which violates the injunctions of Shariah.

Even if the main business of a company is halal, its borrowings are based on interest”. On the other hand, they keep their surplus money in an interest bearing account or purchase interest bearing bonds or securities.

The case of such companies has been a matter of debate between the Shariah experts in the present century. A group of the Shariah experts is of the view that it is not allowed for a Muslim to deal in the shares of such a company, even if its main business is halal. Their basic argument is that every share-holder of a company is a sharik (partner) of the company, and every sharik, according to the Islamic jurisprudence, is an agent for the other partners in the matters of the joint business. Therefore, the mere purchase of a share of a company embodies an authorization from the share-holder to the company to carry on its business in whatever manner the management deems fit. If it is known to the share-holder that the company is involved in an un-Islamic transaction, still, he holds the shares of that company, it means that he has authorized the management to proceed with that un-Islamic transaction. In this case, he will not only be responsible for giving his consent to an un-Islamic transaction, but that transaction will also be rightfully attributed to himself, because the management of the company is working under his tacit authorization.

Moreover, when a company is financed on the basis of interest, its funds employed in the business are impure. Similarly, when the company receives interest on its deposits an impure element is necessarily included in its income which will be distributed to the share-holders through dividends.

However, a large number of the present day scholars do not endorse this view. They argue that a joint stock company is basically different from a simple partnership period. In partnership, all the policy decisions are taken by the consensus of all the partners, and each one of them has a veto power with regard to the policy of business. Therefore, all the actions of a partnership are rightfully attributed to each partner. Conversely, the policy decisions in a joint stock company are taken by the majority. Being composed of a large number of share-holders, a company cannot give a veto power to each share-holder. The opinions of individual share-holders can be overruled by a majority decision. Therefore, each and every action taken by the company cannot be attributed to every share-holder in his individual capacity. If a share-holder raises an objection against a particular transaction in an annual general meeting, but his objection is overruled by the majority, it will not be fair to conclude that he has given his consent to the transaction in his individual capacity, specially when he intends to withdraw from the income attributable to that transaction.

Therefore, if a company is engaged in a halal business, however, it keeps its surplus money in an interest-bearing account, wherefrom a small incidental income of interest is received, it does not render all the business of the company unlawful. Now, if a person acquires the shares of such a company with clear intention that he will oppose the incidental transaction also, and will not use that proportion of the dividend for his own benefit, how can it be said that he has approved the transaction of interest and how can that transaction be attributed to him?

The other aspect of the dealings of such a company that it sometimes borrows money from financial institutions. These borrowings are mostly based on interest. Here again the same principal is relevant. If a share-holder is not personally agreeable to such borrowings, but has been overruled by the majority, these borrowing transactions cannot be attributed to him.

Moreover, according to the principals of Islamic jurisprudence borrowing on interest is a grave sinful act for which the borrower is responsible in the Hereafter; however, this sinful act does not render the whole business of the borrower as haram impermissible. The borrowed amount being recognized as owned by the borrower, anything purchased in exchange of that money is not unlawful. Therefore, the responsibility of committing a sinful act of borrowing on interest rests with the person who willfully indulged in a transaction of interest, but this fact does not render the whole business of a company as un-lawful.

Conditions for Investment in Shares

In the light of the forgoing discussion, dealing in equity shares can be acceptable in Shariah subject to the following conditions:

1. The main business of the company is not in violation of Shariah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shariah, such as the companies manufacturing, selling or offering liquors, pork, haram meat, or involved in gambling, night club activities, pornography etc.

2. If the main business of the companies is halal, like automobiles, textile, etc. but they deposit there surplus amounts in a interest-bearing account or borrow money on interest, the share holder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.

3. If some income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the share-holder must be given charity, and must not be retained by him. For example, if 5% of the whole income of a company has come out of interest-bearing deposits, 5% of the dividend must be given in charity.

4. The shares of a company are negotiable only if the company owns some non-liquid assets. If all the assets of a company are in liquid form, i.e. in the form of money that cannot be purchased or sold, except on par value, because in this case the share represents money only and the money cannot be traded in except at par.

What should be the exact proportion of non-liquid assets of a company for the negotiability of its shares? The contemporary scholars have different views about this question. Some scholars are of the view that the ratio of non-liquid assets must be 51% at the least. They argue that if such assets are less than 50%, the most of the assets are in liquid form, therefore, all its assets should be treated as liquid on the basis of the juristic principle: The majority deserves to be treated as the whole of a thing. Some other scholars have opined that even if the non-liquid asset of a company or 33%, its shares can be treated as negotiable.

The third view is based on the Hanafi jurisprudence. The principle of the Hanafi school is that whenever an asset is a mixture of a liquid and non-liquid assets, it can be negotiable irrespective of the proportion of its liquid part. However, this principle is subject to two conditions:

First, the non-liquid part of the mixture must not be in a negligible quantity. It means that it should be in a considerable proportion. Second, the price of the mixture should be more than the price of the liquid amount contained therein. For example, if a share of 100 dollars represents 75 dollars, plus some fixed assets the price of the share must be more than 75 dollars. In this case, if the price of the share is fixed as 105, it will mean that 75 dollars are in exchange of 75 dollars owned by the share and the rest of 30 dollars are in exchange of the fixed asset. Conversely, if the price of that share fixed as 70 dollars, it will not be allowed, because the 75 dollars owned by the share are in this case against an amount which is less than 75. This kind of exchange falls within the definition of “riba” and is not allowed. Similarly, if the price of the share, in the above example, is fixed as 75 dollars, it will not be permissible, because if we presume that 75 dollars owned by the share, no part of the price can be attributed to the fixed assets owned by the share. Therefore, some part of the price (75 dollars) must be presumed to be in exchange of the fixed assets of the share. In this case, the remaining amount will not be adequate for the price of 75 dollars. For this reason the transaction will not be valid.

However, in practical terms, this is merely a theoretical possibility, because it is difficult to imagine a situation where a price of the share goes lower than its liquid assets.

Subject to these conditions, the purchase and sale of shares is permissible in Shariah. An Islamic Equity Fund can be established on this basis. The subscribers to the Fund will be treated in Shariah as partners “inter se.” All the subscription amounts will form a joint pool and will be invested in purchasing the shares of different companies. The profits can accrue either through dividends distributed by the relevant companies or through the appreciation in the prices of the shares. In the first case i.e. where the profits earned through dividends, a certain proportion of the dividend, which corresponds to the proportion of interest earned by the company, must be given in charity. The contemporary Islamic Funds have termed this process as “purification.”

The Shariah scholars have different views about whether the “purification” is necessary where the profits are made through capital gains (i.e. by purchasing the shares at a lower price and selling them at a higher price). Some scholars are of the view that even in the case of capital gains the process of “purification” is necessary, because the market price of the share may reflect an element of interest included in the assets of the company. The other view is that no purification is required if the share is sold, even if it results in a capital gain. The reason is that no specific amount of price can be allocated for the interest received by the company. It is obvious if all the above requirements of the halal shares are observed, the most of the assets of the company are halal, and a very small proportion of its assets may have been created by the income of interest. This small proportion is not only unknown, but also a negligible as compared to the bulk of the assets of the company. Therefore, the price of the share, in fact, is against the bulk of the assets, and not against such a small proportion. The whole price of the share therefore, may be taken as the price of the halal assets only.

Although this second view is not without force, yet the first view is more cautious and far from doubts. Particularly, it is more equitable in an open-ended equity fund because if the purification is not carried out on the appreciation and a person redeems his unit of the Fund at a time when no dividend is received by it, no amount of purification will be deducted from its price, even though the price of the unit may have increased due to the appreciation in the prices of the shares held by the fund. Conversely, when a person redeems his unit of the Fund at a time when no dividend is received by it, no amount of purification will be deducted from its price, even though the price of the unit may have increased due to the appreciation in the prices of the shares held by the fund. Conversely, when a person redeems his unit after some dividends have been received in the fund and the amount of purification has been deducted therefrom, reducing the net asset value per unit, he will get a lesser price compared to the first person.

On the contrary, if purification is carried out both on dividend and capital gains, all the unit-holders will be treated at par with the regard to the deduction of the amounts of purification. Therefore, it is not only free from doubts but also more equitable for all the unit-holders to carry out purification in the capital gains. This purification may be carried out on the basis of an average percentage of the interest earned by the companies included in the portfolio.

The management of the fund may be carried out in two alternative ways. The managers of the Fund may act as mudaribs for the subscriber. In this case a certain percentage of the annual profit accrued to the Fund may be determined as the reward of the management, meaning thereby that the management will get its share only if the fund has earned some profit. If there is no profit in the fund, the management will deserve nothing, but the share of the management will increase with the increase of profits.

The second option of the management is to act as an agent for the subscribers. In this case, the management may be given a pre agreed fee for its services. This fee may be fixed in lump sum or as a monthly or annual remuneration. According to the contemporary Shariah scholars, the fee can also be based on a percentage of the net asset value of the fund. For example, it may be agreed that the management will get 2% or 3% of the net asset value of the fund at the end of every financial year.

However, it is necessary in Shariah to determine any of the aforesaid methods before the launch of the fund. The practical way for this would be to disclose in the prospectus of the fund on what basis the fees of the management will be paid. It is generally presumed that whoever subscribes to the fund agrees with the terms mentioned in the prospectus. Therefore, the manner of paying the management will be taken as agreed upon on all the subscribers.

Ijarah Fund

Another type of Islamic Fund may be an ijarah fund. Ijarah means leasing. In this fund the subscription amounts are used to purchase assets like real estate, motor vehicles, or other equipment for the purpose of leasing them out to their ultimate users. The ownership of these assets remains with the Fund and the rentals are charged from the users. These rentals are the source of income for the fund which is distributed pro rated to the subscribers. Each subscriber is given a certificate to evidence his subscription and to ensure his entitlement to the pro rated share in the income. These certificates may be preferably called “sukuk” — a term recognized in the traditional Islamic jurisprudence. Since these sukuk represent the pro rated ownership of their holders in the tangible assets of the fund, and not the liquid amounts or debts, they are fully negotiable and can be sold and purchased in the secondary market. Anyone who purchases these sukuk replaces the sellers in the pro rated ownership of the relevant assets and all the rights and obligations of the original subscriber are passed on to him. The price of these sukuk will be determined on the basis of market forces, and are normally based on their profitability.

However, it should be kept in mind that the contracts of leasing must conform to the principles of Shariah which substantially differ from the terms and conditions used in the agreements of the conventional financial leases. The points of reference are explained in detail in my book “Islamic Finance.” However, some basic principles are summarized here: 1. The leased assets must have some usufruct, and the rental must be charged only from that point of time when the usufruct is handed over to the lessee.

2. The leased assets must be of a nature that their halal (permissible) use is possible.

3. The lessor must undertake all the responsibilities consequent to the ownership of the assets.

4. The rental must be fixed and known to the parties right at the beginning of the contract. In this type of the fund the management should act as an agent of the subscribers and should be paid a fee for his services. The management fee may be a fixed amount or a proportion of the rentals received. Most of the Muslim jurists are of the view that such a fund cannot be created on the basis of mudarabah, because mudarabah, according to them, is restricted to the sale of commodities and does not extend to the business of services and leases. However, in the Hanbali school, mudarabah can be affected in services and leases also. This view has been preferred by a number of contemporary scholars.

Commodity Fund

Another possible type of Islamic Funds may be a commodity fund. In the fund of this type the subscription amounts are used in purchasing different commodities for the purpose of the resale. The profits generated by the sale are the income of the fund which is distributed pro rated among the subscribers. In order to make this fund acceptable to Shariah, it is necessary that all the rules governing the transactions and fully complied with. For example:

1. The commodity must be owned by the seller at the time of sale, therefore, short sales where a person sells a commodity before he owns it are not allowed in Shariah.

2. Forward sales are not allowed except in the case of salam and istisna’ (For their full details my book “Islamic Finance” may be consulted).

3. The commodities must be halal, therefore, it is not allowed to deal in wines, pork, or other prohibited materials.

4. The seller must have physical or constructive possession or the commodity he wants to sell. (Constructive possession includes any act by which the risk of the commodity is passed on to the purchaser).

5. The price of the commodity must be fixed and known to the parties. Any price which is uncertain or is tied up with an uncertain event renders the sale invalid.

In view of the above and similar other conditions, it may easily be understood that the transactions prevalent in the contemporary commodity markets, specially in the futures commodity markets do not comply with these conditions. Therefore, an Islamic Commodity Fund cannot enter into such transactions. However, if there are genuine commodity transactions observing all the requirements of Shariah, including the above conditions, a commodity fund may well be established. The units of such fund can also be traded in with the condition that the portfolio owns some commodities at all times.

Murabahah Fund

“Murabahah” is a specific kind of sale where the commodities are sold on a cost-plus basis. This kind of sale has been adopted by the contemporary Islamic banks and financial institutions as a mode of financing. They purchase the commodity for the benefit of their clients, then sell it to them on the basis of deferred payment at an agreed margin of profit added to the cost. If a fund is created to undertake this kind of sale, it should be a closed-end fund and its units can not be negotiable in a secondary market. The reason is that in the in the case Murabahah, as undertaken by the present financial institutions, the commodities are sold to the clients immediately after their purchase from the original supplier, while the price being on deferred payment basis becomes a debt payable by the client. Therefore, the portfolio of Murabahah does not own any tangible assets, rather it comprises of either cash or the receivable debts, and both these things are not negotiable, as explained earlier. If they are exchanged for money, it must be at par value.

Bai’-al-dain

Here comes the question whether or not Bai’-al-dain is allowed in Shariah. Dain means “debt” and Bai’ means sale. Bai’-al-dain, therefore, connotes the sale of debt. If a person has a debt receivable from a person and he wants to sell it at a discount, as normally happens in the bill of exchange, it is termed in Shariah as Bai’-al-dain. The traditional Muslim jurists (fuqaha’) are unanimous on the point that Bai’-al-dain is not allowed in Shariah. The overwhelming majority of the contemporary Muslim scholars are of the same view. However, some scholars of Malaysia have allowed this kind of sale. They normally refer to the ruling of Shaf’ite school wherein it is held that the sale of debt is allowed, but they do not pay attention to the facts that the Shaf’ite jurists have allowed it only in a case where a debt is sold on its par value.

In fact, the prohibition of Bai-al-dain is a logical consequence of the prohibition of “riba” or interest. A “debt” receivable in monetary terms corresponds to money, and every transaction where money is exchanged from the same denomination of money, the price must be at par value. Any increase or decrease from one side is tantamount to “riba” and can never be allowed in Shariah. Some scholars argue that the permissibility of Bai’-al dain is restricted to a case where the debt is created through a sale of a commodity. In this case, they say, the debt represents the sold commodity and its sale may be taken as a sale of the commodity. The arguments, however, is devoid of force. For, once the commodity is sold, its ownership is passed on to the purchaser and it is no longer commodity of the seller. What the seller owns is nothing other than money, therefore if he sells the debt, it is no more than a sale of money and it cannot be termed by any stretch of imagination as the sale of the commodity. That is why this view has not been accepted by the overwhelming majority of the contemporary scholars. The Islamic Fiqh Academy of Jeddah which is the largest representative body of the Shariah scholars and is represented by all the Muslim countries, including Malaysia, has approved the prohibition of Bai’-al-dain unanimously without a single decent.

Mixed Fund

Another type of Islamic Fund maybe of a nature where the subscription amounts are employed in different types of investments, like equities, leasing, commodities, etc. This may be called a Mixed Islamic Fund. In this case if the tangible assets of the Fund are more than 51% while the liquidity and debts are less than 50% the units of the fund may be negotiable. However, if the proportion of liquidity and debts exceeds 50%, its units cannot be traded in according to the majority of the contemporary scholars. In this case the Fund must be a closed-end Fund.

Source: http://www.albalagh.net/Islamic_economics/finance.shtml

Leave a Comment

First Islamic equity product launched in UK

First Islamic equity product launched in UK

Mushtak Parker | Arab News – 23 June 2008

LONDON: The London-based ABC International Bank’s Islamic Asset Management (IAM) entity, both of which are subsidiaries of the Bahrain-based consortium bank, Arab Banking Corporation (ABC), has launched the first retail Shariah-compliant capital-protected equity product in the UK under its ‘Alburaq’ brand.

The savings product, which has a minimum subscription of just £500 and is a Shariah-compliant alternative to a conventional guaranteed equity bond, adds to an increasing number of retail Islamic financial offerings in the UK market, which now includes mortgages, Takaful (insurance), pensions, current and deposit accounts and even escrow accounts for money transfers. Other Shariah-compliant retail products in the process of being launched include ISAs (investment savings accounts) and child trust accounts.

The product was structured by ABC International Bank and is offered in partnership with the Bank of Ireland, which has a long history of providing guaranteed equity bonds to UK consumers. ABC Group is one of the largest banks in the Arab world with assets totaling around $32.7 billion at the end of December 2007. The group announced net profits of $125 million for the year 2007.

The government of Prime Minister Gordon Brown has been very supportive of developing the Islamic finance sector under the Labor Party’s social and financial inclusion policies. At the same time, it is the stated policy of the UK to develop London into an international hub for Islamic finance, investment and trade. Only yesterday at the Jeddah oil summit, Brown reiterated that oil producers in the GCC states should divert some of their record liquidity surpluses to investment in the developed countries in renewable energy initiatives and other sectors. These funds could be channeled through sovereign wealth funds; through conventional or Islamic capital flows. Bahrain-based Arcapita Bank, for instance, was one of the first Islamic financial institutions to invest in alternative energy in the UK in a wind farm project developed by Innogy.

The UK Treasury and Financial Services Authority (FSA), however, are only too aware that the Islamic finance industry in the UK needs to improve customer access to and awareness of Islamic retail financial products. UK Economic Secretary and City Minister Kitty Ussher, who is effectively in charge of Islamic finance at the treasury, at a meeting of the Islamic Finance Experts Group (IFEG) at the treasury earlier this year, stressed that “the UK is at the forefront of developments in Islamic finance and London continues to seize new opportunities. We have made tremendous inroads in the wholesale markets. But there is also an important domestic market, which we want to be accessible and open.

“There are nearly two million Muslims living in the UK and, thanks in part to legislative changes introduced by this government, the Islamic mortgage market is now worth over £500 million. Going forward, the government and industry want to continue to do all it can to see the retail market flourish and ensure that everyone – regardless of faith – has equal access to competitive financial products,” he said.

ABC International Bank claims that the Alburaq savings plan provides a new way for those wishing to invest in accordance with their faith and provides savers easy exposure to potentially unlimited returns linked to shares in major companies, all with the added comfort of capital protection and Shariah compliance.

According to Keith Leach, head of Alburaq at ABC International Bank, said, “Alburaq is very excited to be the first to bring a Shariah compliant capital protected product to the retail market in the UK. Over the past few years the UK has seen an increase in the availability of Islamic home finance products, but there remains very few options for Muslims wishing to save money in accordance with their religious beliefs. This new account is also an easy way for Muslim savers to gain exposure to the equity markets, in a secure way. While it is considered permissible within Islam for Muslims to own shares, there are restrictions on the type of companies that are considered allowable. The companies must not be over-reliant on debt nor must they be engaged in activities that conflict with the principles of Shariah. Many of these principles will be similar to those required by ethical investors.”

Savers will be able to deposit funds with the Bank of Ireland for five years in an account structured under the Wakala contract. At maturity, savers will receive their initial capital back together with 100 percent of any gain in the performance of a basket of 20 shares in global companies selected from the Dow Jones Islamic Market (DJIM) Titans 100 Index.

Des Crowley, chief executive of the Bank of Ireland UK Financial Services, is confident that “this is a highly innovative product, which is the first of its kind and directly addresses the saving needs of the Muslim community. We have been working with Alburaq for four years providing Islamic Home Finance and (this product) should be seen as the next stage in our development of Shariah compliant products.”

The Alburaq fixed-term savings product offer closes on Sept. 5 2008 and investors will have their funds tied up for five years. The maximum opening deposit is £1 million and the promoters stress that there is no cap on the returns; in other words customer’s enjoy 100 percent of the calculated return.

Capital protected funds are not new in the market. Several institutions – such as HSBC, the National Commercial Bank, Al-Rajhi Bank, Deutsche Bank and others – have launched Shariah-compliant capital protected funds in the Middle East.

While this product is new in the UK, Islamic equity funds per se are not, although they have had a very mixed record. Al-Madina Equity Fund, the Al-Safa Equity Fund and the Parsoli Global Equity Fund, which were launched at different times over the last decade or so, have all dismally failed. The first two were closed soon after they were launched. The latter has failed to make any impact. The reasons are manifold – the wrong promoters, wholly inadequate marketing strategies and resources, and perhaps the wrong timing.

Source: http://www.arabnews.com/?page=6&section=0&article=111139&d=23&m=6&y=2008

Leave a Comment

Islamic investors ‘ignore’ important assets

Islamic investors ‘ignore’ important assets
by Reuters on Wednesday, 28 May 2008

Lack of diversity in their investments could mean Islamic asset managers lose out to conventional firms, a report published this week said.

Accounting firm Ernst & Young said Muslim investors hold $1.6 trillion in assets of all kinds, a figure forecast to rise to $2.7 trillion by 2010.

Islamic funds, which invest in accordance with Islamic law, ignore important asset classes and in Saudi Arabia, one of the world’s two biggest markets for Islamic asset management, fund subscription has fallen since 2005, the report said.

“As demand for diversification grows, Islamic institutions will face the risk of losing significant market share to conventional institutions that can provide more comprehensive coverage,” Ernst & Young said in the report.

By the end of March there were more than 500 funds globally that comply with Islamic law, Ernst & Young said in its Islamic Funds and Investments report, launched at a two day Islamic banking conference that ended on Monday.

Some 153 Islamic funds were launched last year, and the figure is projected to rise to 1,000 funds by 2010, Ernst & Young said.

A key gap in the variety of investments offered by Islamic funds are fixed income assets, such as Islamic bonds. Only 7% of Islamic funds target such assets, compared with 22% of conventional mutual funds.

Issuance of Islamic bonds, or sukuk, has been slowed by a global credit crunch triggered by defaults on US home loans last year

The secondary market for the instrument is small, as most sukuk buyers hold the asset to maturity, and bankers complain of a lack of market makers.

Other assets under-utilised by Islamic funds include commodities and Islamic Real Estate Investment Trusts (REITS).

Equities are the dominant asset class for Islamic funds, with allocation above that in conventional funds. In Saudi Arabia, a stock market crash in 2006 continues to weigh on investor sentiment.

“Saudi investor confidence remains low following stock market corrections in 2006,” Ernst & Young said.

Despite the lack of diversity in asset classes, Islamic funds have increasingly diversified the geographical reach of their investments, and last year 76%t of them targeted regions outside the Middle East and Africa, Ernst & Young said.

Last week, Bahraini Islamic lender Ithmaar Bank was among a group of firms to launch a Latin America real estate fund, while fellow Bahraini lender Gulf Finance House has launched an energy fund in Kazakhstan.

Islamic law prohibits interest, and bans investment in certain business sectors, such as alcohol, pornography and gambling.

Source: http://www.arabianbusiness.com/520533-islamic-investing-must-diversify-to-compete-report?ln=en

Leave a Comment