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Islamic Finance
UK firm Quilter Cheviot launches Sharia compliant investment service

The multi-billion dollar investment manager is targeting high wealth individuals and sees further opportunities in developing more Islamic services. 


London: Quilter Cheviot, an arm of UK-based multibillion dollar investment manager Quilter, has launched a new Sharia compliant wealth management product for high-net-worth individuals and institutional clients.

The new Sharia compliant discretionary investment service will offer portfolios to private clients and institutional investors with a minimum of $1 million of available capital. These portfolios will consist of a broad spread of global equities and can be held within a range of structures including trusts, companies, foundations, pensions and portfolio bonds.

Quilter Cheviot is primarily involved in structuring and managing discretionary portfolios for private clients, charities, trusts, pension funds and intermediaries. Its parent company, Quilter, manages around £27.7 billion ($37.3 billion) in funds. 

Discretionary investment management is a form of investment management where buy and sell decisions are made by a portfolio manager or investment counsellor on behalf of a client.

This discretionary Sharia compliant portfolio service allows Quilter Cheviot’s specialist investment managers to tailor customers’ investment portfolios, according to Mark Leale, head of Dubai office and senior executive officer at Quilter Cheviot.

“The launch of this service is based on 12 months of groundwork,” he said. “The investments held in portfolios will be made into global equity markets and therefore customers will require a higher risk appetite.”

The service will be managed centrally by an investment team at the firm’s Jersey,  UK office, utilising the expertise of their London research analysts. The service will initially be offered to clients in the Middle East and Africa via the firm’s Dubai International Finance Centre (DIFC) branch.

The investment team will work closely with London-based Sharia advisory firm Yasaar and its Sharia Supervisory Board. Majid Dawood, CEO of Yasaar, said that the Sharia audit will be done on a quarterly basis as well as on an annual basis.

“Our engagement with QC [Quilter Cheviot] will be very close so as to identify any issues that arise, [such as] whether a company falls out of Sharia compliance and will need to be monitored, there is a corporate event or such like that requires a review within the quarter as necessary,” said Dawood. 

Growing Islamic wealth space

According to a recent report on 'Global Attitudes to Islamic Wealth Management' commissioned by Jersey Finance, 62% of respondents said they would always choose a Sharia compliant investment even if the performance was inferior to an equivalent conventional investment.

Faizal Bhana, director of Middle East, Africa and India at Jersey Finance, believes that the new Quilter Cheviot Sharia discretionary investment service highlights the increasing demand for Sharia-compliant products and services, particularly for the high and ultra-high net worth market segments.

“This product is designed to target the sophisticated investor,” he said. “Once this is rolled out successfully, it will open doors to other offerings by other providers for different types of investors, including those with smaller savings. These types of products help, not only with increasing awareness, but also to scale up the market in the private wealth space.” 

Quilter Cheviot’s new discretionary service will join a small but growing number of asset and wealth managers offering Sharia compliant portfolios.  Providers offering Sharia compliant discretionary investment services include TAM Asset Management, Lombard Odier Assayil and Simply Ethical.

Better education needed

Whilst the introduction of halal portfolios is positive, it is important for asset and wealth managers to ensure they communicate and educate the benefits of Sharia compliant portfolios as well as the differences to conventional investments.

“Whether if this is retail banks offering access to vanilla products, or family offices looking to inform the next generation, not only is there competitive advantage in educating clients on the benefits of investment, but there is also arguably a social responsibility to do so, particularly for the mass market segment,”  said Thomas Woods, senior consultant, Wealth & Asset Management Consulting at Capco UK. “It will be interesting to see how firms approach this topic, particularly through harnessing digital channels.”

More products on the horizon

Depending on the success of this new investment service, Quilter Cheviot is also open to looking at launching other Islamic wealth management products and portfolios including at the lower end of investment scale, according to Leale.


© SalaamGateway.com 2021 All Rights Reserved

Islamic Finance
Newswrap: Islamic Finance

A summary of the latest Islamic finance news from around the world.


Islamic funds market expands by 300% over a decade 

The global Islamic funds market has expanded by over 300% over the last decade, now totalling some $200 billion in assets under management, according to the Bahrain-based General Council for Islamic Banks and Financial Institutions (CIBAFI), Reuters reported. Saudi Arabia has the most assets under management in the Islamic funds market, followed by Iran and Malaysia, according to the report, Reuters noted. It added that Malaysia has the highest number of funds at 401, followed by Indonesia with 209 and Saudi Arabia with 183. There are 1,508 Islamic funds globally, operated by 345 Islamic financial institutions in 29 countries, CIBAFI said.

Emirates Islamic Bank reports net profit of $224 million 

Emirates Islamic Bank (EIB) reported a profit of AED 823 million ($224 million) last year, a 20% year-on-year increase, according to Zawya. Customer financing was recorded at AED 42.6 billion ($11.59 bn), an increase of 4% from 2020 while customer deposits were at AED 47.3 billion ($12.87), an increase of 1% from 2020 with CASA balances at 78% of total deposits, according to figures published by Zawya. The bank said one of its major achievements was the successful issuance of a $500 million five-year Sukuk. 

Fitch forecasts Islamic finance growth in Nigeria

Nigeria’s Islamic finance industry is forecast to continue to grow in 2022-2023, according to Fitch Ratings. This growth will be driven by sukuk issuance by the federal government, asset growth by newly-established Islamic banks, and enabling regulations, Fitch said. It warned however that the industry needs to address challenges including “the limited bottom-up public demand for Islamic products, low awareness, and the still-developing regulatory and debt capital market infrastructure in Nigeria.” The Nigerian Islamic finance industry was estimated to be valued at $2.3 billion by end-2021, according to Fitch. Outstanding sukuk was the largest segment at 66%, followed by Islamic banks at 32% (total assets), and the remaining 2% between Islamic funds (total assets) and takaful (total contributions), Fitch said. 

Malaysia’s Al Rajhi Bank chooses Thought Machine to build Islamic digital bank

Al Rajhi Bank Malaysia (ARBM) has selected Thought Machine, the cloud banking technology firm, to build a new digital bank in 2022 with a range of retail and SME financial services, such as savings and financing products, IBS Intelligence reported. ARBM, a wholly-owned subsidiary of the world’s largest Islamic bank by assets, Saudi Arabia’s Al Rajhi Bank, will deploy Thought Machine’s core banking engine, Vault, to design, launch and manage a full suite of products on a single, clear architecture, according to IBS Intelligence.

© SalaamGateway.com 2021 All Rights Reserved

Islamic Finance
United Bank of Albania plans a digital turnaround amid losses

The country’s Islamic bank has struggled in recent years, despite support from the Islamic Development Bank.


When Bosnian Amel Kovačević took over as CEO of United Bank of Albania (UBA) in 2020, the institution recorded a loss of over 356.6 million Albanian Lek ($3.3 million), falling from a 30.7 million Lek ($0.3 million) profit in 2018 and 8.7 million Lek ($0.08 million) in 2019.

Speaking to Salaam Gateway, Kovačević confirmed that the 1994 founded bank has started a comprehensive turnaround exercise to transform UAB into a progressive and modern Islamic bank.

“In 2020, our strategy was to cleanse the bank’s portfolio, consequently resulting in a negative financial performance,” Kovačević said.

Part of the strategic plan is focused on retail banking and expanding its current network of four branches. In addition, the development of a digital ecosystem is expected to provide efficiencies and attract the younger generation as clientele.

The results for the three quarters ending 30 September 2021, showed a 22.1 million Lek ($0.21 million) loss. Kovačević faces challenges ahead, coinciding with an notable shift in shareholders.

UBA’s CEO hopes that the new structure with Eurosig as the primary stakeholder will synergise customer acquisition. The local insurance company became the bank’s majority shareholder in 2021 when the Islamic Development Bank (IsDB) sold 30% of its shares. Currently, Eurosig holds 51.02% and IsDB 42.2%.

Kovačević, who served as Bosnia and Herzegovina's ambassador to China and Mongolia from 2010 to 2013 ,and as Sarajevo’s regional finance minister for 16 months, brings diplomatic skills, experience and knowledge to the table to manage the bank’s transformation.

Before his UBA appointment, Kovačević was the head of retail banking at Sharia-compliant Bosna Bank International (BBI), which IsDB also co-founded.

Considering that UBA is the smallest of the 12 banks operating in Albania, Kovačević tries to position the bank as a niche player, banking on the movement around the UN’s Sustainable Development Goals (SDGs).

“It’s very fashionable now, globally accepted and inclined to Islamic finance, too,” Kovačević said.

The finance expert believes that Islamic finance will attract foreign investments into Albania, accelerate economic participation, and help redistribute income in society.

But he also pointed out that Islamic banking in Albania, an OIC member state with a population of 2.8 million, is not going to answer all problems or fix socio-economic issues such as poverty. Around 60% of the population is Muslim.

“UBA tries to provide a fresh approach to Albania’s development,” Kovačević said.

“Albania is going to be a prosperous country in years to come because of its competitive advantages,” Kovačević said, referring to its location in the Mediterranean, which provides an ideal climate for agriculture and tourism.

However, the country still shows weak structural conditions for sustained development.

Although growth averaged 3.3% in 2015-2019, Albania’s stagnant productivity, a landscape dominated by small and medium-sized enterprises that employ low-skilled and low-wage labour, limited access to finance, burdensome logistics, and poor market integration discourages private investment, the World Bank wrote in its Europe and Central Asia economic update 2021.

What Albania lacks in private investment the IsDB compensates for with infrastructure investment. In December 2021, the development bank announced the latest project - $56.8 million to construct a section of the Tirana-Korca Corridor, improving connectivity between the capital with East Albania’s largest city.

Kovačević was surprised that many of the IsDB projects were not going through UBA while realising the limitation to absorb transactions exceeding the bank’s capacity.

“We’re working on having much more synergy between IsDB and UBA and on channelling as much of IsDB’s activities as possible towards UBA,” Kovačević said. “They understand the need for us to be part of those projects as well,” he said about his discussions with the ministry in charge.

IsDB so far has approved 39 investment projects in Albania, in total worth $597.6 million.

Referring to Albania’s economic development over the past 30 years, Kovačević is optimistic about successfully transforming UBA.

“Progress happens,” Kovačević said, “and Albania is a country with great potential.”

© SalaamGateway.com 2021 All Rights Reserved

Islamic Finance
Outlook 2022: UK Islamic finance sector navigates COVID-19 and the post-Brexit era

UK Islamic finance sector makes progress during pandemic but needs continuing development, say stakeholders.


London: After two years of the COVID-19 pandemic and in a post Brexit era, Islamic finance is set to play a greater role in the country’s economic recovery and future, but practitioners say that more development is needed to realise the potential.

Bashar Al Natoor, the Global Head of Islamic finance at Fitch Ratings, said that the UK Islamic finance industry has growth potential.

“The government’s promotion of London as a Western hub for Islamic finance and as a key international sukuk listing venue, along with the small-albeit-growing Muslim population, and regulations, legal, and tax infrastructure that are able to accommodate Islamic products,” he said.

However, he said that the domestic Islamic finance industry in the UK is niche and is not likely to gain mainstream relevance in the long-run.

“The sector faces multifaceted challenges, including the lack of bottom-up public demand for Islamic products as Muslims make up only about 5.1% of UK’s population as of 2017,” he said. “Growth is hindered by a lack of public awareness, with segments of their target market lacking confidence in the Sharia-compliance of products.”

BoE’s ALF set to support banks

The most significant development has been the opening of the Bank of England’s (BoE) alternative liquidity facility (ALF), which officially began accepting deposits last month.

The ALF seeks to enable British Islamic banks to have an account at the central bank to use as a high-quality liquid asset (HQLA). Similar to conventional banks, Islamic banks are required to hold a buffer of HQLA. Historically, this was difficult for Islamic banks in managing liquidity because the BoE’s existing facility is interest-based and there were no Sharia compliant liquidity facilities. The new ALF is seeking to level the playing field for Islamic banks.

“[The ALF] is something that Al Rayan Bank has long called for – and which will help to ensure that Islamic banks have greater flexibility in meeting regulatory requirements under Basel III prudential rules,” said Maisam Fazal, Chief Commercial Officer at Al Rayan Bank.

Charles Haresnape, CEO of Gatehouse Bank, one of the UK’s Sharia compliant institutions, said that the creation of an overnight banking facility for Sharia compliant institutions is a fantastic step forward and is another example of the UK leading the way in Islamic finance.

Banks upbeat about 2022

There are six Islamic banks in the UK, although each are serving different areas of the market like retail, corporate, private and real estate financing.

At least two executives expressed optimism for 2022, despite the ongoing pandemic and domestic economic challenges like rising inflation and a tightening supply chain.

“This year is about growth. We have ambitious plans across our three distinct and complimentary businesses - wealth management, real estate and Nomo, our digital bank,” said Andrew Ball, CEO of Bank of London and the Middle East (BLME). “This is core to achieving our goal to become the UK’s leading provider of Sharia compliant wealth management solutions for Gulf Cooperation Council (GCC) nationals.”

Similarly, Charles Haresnape is similarly upbeat about the coming year but has urged caution due to certain challenges.

“[In terms of challenges] the future impact of the COVID-19 pandemic and the UK economy are the biggest unknowns as well as inflation and the trajectory of the BoE base rate. Their impact on the property, investment and savings markets will have to be closely watched this year.”

Muted sukuk issuance

In March 2021, the UK sold its second sovereign sukuk. The £500 million ($681.6 million) Sharia compliant debt which matures on 22 July 2026, offers a profit rate of 0.333%, flat to the yield on the 1.5% gilt (British sovereign bonds) due July 2026.

The sophomore sukuk follows the UK’s debut sukuk in 2014, which consisted of a five-year £200 million ijara sukuk.

In terms of another potential issuance Stella Cox, managing director of DDCAP Group, said that the financial infrastructure, and structural and transactional precedents, are firmly in place after the two sovereign issues.

“I am sure that HMT [Her Majesty’s Treasury], which has long since viewed Islamic finance as a significant contributor to the UK's and London's capacity, diversity and competitiveness as a leading, global financial centre, will continue to explore all available options,” she said.

A HMT spokesperson told Salaam Gateway in an emailed statement: “The position remains that HMT and DMO [Debt Management Office] keep the case for issuing further sukuk under review, but there are no current plans to issue in the immediate future.”

Outside of the sovereign’s two respective issuances, there has been little activity in the domestic market. In February 2018, Al Rayan Bank sold a £250 million sukuk which consisted of a Sharia compliant equivalent of a residential mortgage-backed security.

Bashar Al Natoor, the global head of Islamic finance at Fitch Ratings, is sceptical as to whether there will be a flurry of UK sukuk activity in the coming year. “UK-based corporates, financial institutions and government agencies are not active sukuk issuers and investors,” he said.

Green sukuk, ESG on the agenda

Another area which is set to gain more attention this year will be green and sustainable sukuk as well as the role of environmental, social and governance (ESG) principles in Islamic finance.

In November, industry stakeholders led by the UK Islamic Finance Council (UKIFC), established a High-Level Working Group (HLWG) on green sukuk.

The three-year initiative, which launched on the sidelines of the UN Climate Summit COP26 in Glasgow, seeks to focus on the development of green and sustainable sukuk. Members of the group include HMT, Indonesia’s finance ministry and the Islamic Development Bank, which seek to focus on green and sustainable sukuk.

Omar Shaikh, advisory member of UKIFC, said the not-for-profit group will seek to build on HLWG on green sukuk launched at COP26. He said that 2022 activities will include working group meetings in the first and second quarter, and at COP27, as well as public events, workshops and annual progress reports

He also said that UKIFC will continue with progress that has been made on the Global Islamic Finance and Sustainable Development Goals (SDGs) Taskforce that it established in 2020.

“We are looking to re-run our Global Islamic Finance and SDGs Summit during the UN General Assembly in September,” said Shaikh. “We will also be exploring specific projects on Islamic social finance with the UN and the tayibb concept.”

The tayyib, or wholesome, concept, according to the UKIFC, “contends that the focus of Islamic finance products and services should be on the evaluation of wider societal impact rather than an overly legalistic analysis of Sharia compliance.”

Overseas markets

The UK and GCC states are working to sign a free trade agreement by the end of this year. The GCC is a strategic trading partner with the UK, accounting for £22 billion ($29.9 billion) in British exports and £30 billion ($40.9 billion) in bilateral trade.

As result, British authorities will be keen to utilise Islamic finance through UK Export Finance (UKEF), the country’s export credit agency.

A UKEF spokesperson said that the Middle East accounts for the largest share of UKEF’s portfolio and made up around 44% of UKEF’s international portfolio in 2020/21. The majority of this resulted from support of UK exports to Oman, the UAE, Iraq and Saudi Arabia, according to the spokesperson.

“UKEF has experience in supporting Islamic finance structures and we are keen to draw further on that experience,” said the spokesperson. “As with other forms of finance, UKEF’s support allows for the diversification of the financing accessible by sovereigns or corporates.”

In the past, UKEF has been involved in sukuk and other Islamic transactions. For example, it supported the delivery of four Airbus A380 aircrafts to Emirates Airlines by guaranteeing the issuer’s sukuk in 2015.

“UKEF has provided Islamic finance support to UAE and Malaysian borrowers,” said the spokesperson. “UKEF has cover available in more than 200 countries and is open to explore adequate financial structure for projects in the Middle East but also Asia or Africa where Islamic finance might be required.”

Rise of fintech and digitalisation

Imam Qazi, partner at law firm Foot Anstey, believes that one of the biggest opportunities for Islamic finance in 2022 lies in embracing technology.

“There are opportunities for fintech companies to grab market share and accelerate the growth of the market by introducing fresh products and services to the younger generation. (They) are new to the world of financial services and have an impatient demand for the seamless delivery of products that are ethical and fully aligned to Islamic values,” he said.

Qazi said there are opportunities for all Islamic finance market participants to up their technology game to drive efficiencies and improve output.

Islamic neo banks offering Sharia compliant services have seen significant activity over the past few years and is likely to continue in 2022.

Similarly, the emergence of crowdfunding, peer to peer (P2P) and investment platforms are likely to continue. For example, Nester, a new Sharia compliant P2P platform, which is to roll out later this quarter, will seek to offer real estate financing as well as fixed income investment opportunities.

“Sharia compliant crowdfunding and P2P platforms are also enjoying a very strong growth trajectory that is having an increasingly positive impact on both the mobilisation of funding and the diversity of asset classes that Sharia compliant funds can encompass, including those with lower ticket values,” said DDCAP Group’s Cox.

Similarly, incumbent Islamic banks increased their digital offering during the pandemic and this is likely to continue.

“We’ve already seen over 30,000 of the bank’s customers choose our digital banking platform for their day-to-day banking with us, and the expansion of this channel is continuing to be driven by customers’ demand,” said Al Rayan’s Fazal.

Other UK Islamic banks could also offer new platforms to meet their customers’ needs and demands.

For example, in July 2021, Kuwait-based Boubyan Bank, a majority shareholder in BLME, said it launched Nomo. It classified a Nomo as a fully licenced and regulated UK digital Islamic bank and launched it through BLME.

© SalaamGateway.com 2021 All Rights Reserved

Islamic Finance
US Islamic investment platform Wahed rolls out Sharia-compliant ESG-themed fund

US-based Islamic investment platform Wahed has rolled out a new Sharia-compliant ESG themed exchange traded fund (ETF).


The Wahed Dow Jones Islamic World ETF (Ticker: UMMA) began trading last Friday on the Nasdaq stock exchange. 

The actively managed fund will benchmark to the Dow Jones Islamic Market International Titans 100 Index, a data-driven index owned and maintained by S&P Dow Jones Indices. The fund is designed to measure the stock performance of the largest global companies – excluding the US – that adhere to Sharia compliance guidelines. 

The new ETF utilises RepRisk, an environmental, social and governance (ESG) data science provider combining machine learning and human intelligence to assess ESG risks. UMMA has an expense ratio of 0.65%

“We’re using RepRisk for daily filtering, screening, and analysis of controversies related to companies within the fund,” said Samim Abedi, chief investment officer at Wahed. “Such analysis includes a range of issues such as economic crime and corruption, fraud, illegal commercial practices, human rights issues, labour disputes, workplace safety, catastrophic accidents and environmental disasters.”

This latest ETF follows Wahed’s first ETF, the Wahed FTSE USA Shariah ETF (Ticker: HLAL), a strictly US equity focused fund which it launched on the Nasdaq in 2019. Wahed says its new ETF would be the first Sharia compliant ESG-focused/theme ETF on Nasdaq.

It joins the growing activity of providers of combining Sharia compliant and ESG principles. Most recently, in November, Saturna Capital, a US-based investment manager partnered with London-based ETF platform HANetf to launch the Saturna Al-Kawthar Global Focused Equity UCITS ETF. The London Stock Exchange, Borsa Italiana and Germany’s XETRA listed actively managed ETF consists of Sharia compliant stocks with positive ESG characteristics, primarily targeting European investors.

Wahed’s ETFs also joins a growing number of Islamic ETFs in the market which include SP Funds, S&P Global REIT Shariah and, depending on the broker access, BlackRock's iShares Islamic ETFs.

The rationale of establishing this new ETF came down to two main reasons, Wahed's Abedi noted.

“Firstly, as we look to provide long-term capital appreciation to investors, we wanted to provide better diversification through international exposure,” he said. “As part of our investment thesis, we see the possibility of international and emerging markets playing catch-up to the US market over the next few years, so we believe it’s an ideal time to add this global exposure.” 

“Secondly, we’re seeing the line between ethical, socially responsible and ESG funds continue to blur,” he said. “Investors are increasingly looking for more personalised investing options that better fit their individual beliefs. By bringing these values-based investment principles together, we believe we’re addressing a clear gap in the market for an international Sharia-compliant fund managed through an ESG investing lens.”

To ensure flows and liquidity, the ETF is listed on the Nasdaq, which will allow American investors to have access to investing in both ETFs through their brokerage or using the Wahed Invest app or platform, Abedi said.

“UMMA is equity-focused, and many of the top holdings are large-cap and well-known companies, so we’re highly liquid,” he said. “Additionally, we have dedicated liquidity providers looking to ensure the fund trades on a relatively tight bid-ask spread, closely tracking the net asset value of the underlying constituents.”

Blake Goud, CEO of the RFI Foundation, a think-tank which seeks to converge various forms of responsible finance including ESG, impact investing and Islamic finance, said it is encouraging to see more funds that combine Sharia compliance and ESG screening. 

“On the ESG front, RFI's research has shown that different ways of using ESG data can interact with Sharia screens in different ways,” he said. “And so, as with all ESG funds but particularly for funds that combine ESG and Sharia screening, it's important to have transparency around ESG policies, both for their screening and active stewardship practices.”

Aside from the ETF, Abedi said that Wahed is working on new products for 2022 across different geographies.

“Wahed has products in the pipeline and will provide more details as we near live dates across various markets,” he said. “For the US market, we’ll be launching an updated version of our app in the coming months, which will bring additional functionality and products.” 

© SalaamGateway.com 2021 All Rights Reserved

Islamic Finance
Analysis: Indonesia’s ruling on haram crypto raises eyebrows

Indonesia’s MUI has deemed ‘using’ cryptocurrency to be haram, but the ruling does not chime with Islamic scholars and regulators around the world.


In early November, Indonesia's National Ulema Council (MUI), the country's top Muslim clerical body, ruled that "using" cryptocurrency is haram (not permissible), due to its "uncertainty" and "potential for wagering and harm".

The 11 November ruling, which was not accompanied by any public clarification of MUI's position on what constitutes "using" cryptocurrency, sent ripples through the Islamic world and reignited discussions about the role of the rapidly expanding digital assets sector in Sharia-compliant finance.

Whether or not cryptocurrency, which is essentially a means of currency exchange via digital payments platforms using blockchain technology, can be Sharia-compliant, or halal, has been the focus of much religious, professional and academic Islamic debate since cryptocurrencies first emerged with the launch of Bitcoin in 2009.

In the past 18 months, the volatility of Bitcoin in particular and reports of cryptocurrencies being used by criminal organisations to launder stolen or illegally earned money, commit fraud and demand ransoms in software hacks, have heightened fears that using cryptocurrency may be contrary to Islamic teachings.

In December 2020, the Kuala Lumpur, Malaysia-based Islamic Financial Services Board (IFSB), an international standard-setting body for the Islamic financial services industry, said in a note on investor protection in capital markets (IFSB-24), that the Sharia debate about the permissiveness of cryptocurrency should be focused on digital tokens that are treated as currency, with no inherent value of their own.

By contrast, digital tokens treated as securities, conveying an interest in the assets or earnings of a business, or asset-backed or utility tokens, which are tethered to some underlying asset or service of value, have not attracted the same controversy.

The IFSB has not yet stated a definitive position on cryptocurrency, preferring to host, and relay perspectives from, regular programmes and events for the Islamic finance industry, where the role of cryptocurrencies and other fintech products in Islamic finance are discussed.

Dr Gapur Oziev, Associate Professor in the Department of Economics at the Kulliyyah of Economics and Management Sciences, part of the International Islamic University of Malaysia, said the main concerns about cryptocurrency relate to how such currencies may enrich users at the expense of others, rather than their fundamental nature as digital forms of money.

"There is no single valid argument from the text of Sharia to prohibit cryptocurrency as such, because the nature of the money, or currency, can be absolutely anything – gold, silver, paper, cow-hide, plastic etcetera,” he said, noting that its permissibility depends on a certain government or “a large group of sound people use it without causing harm to anyone."

Harm, in an Islamic finance context, is generally taken to mean deception, corruption or money laundering, but Dr Oziev said concerns about crypto could be broader. While using cryptocurrencies to pay for assets is not reprehensible from a Sharia perspective, he said, activities such as trading currency, crypto-mining and swapping cryptocurrencies maybe unacceptable.

From an academic perspective, Dr Oziev suggested it might be possible for cryptocurrencies to be accepted as Sharia-compliant, if they are recognised and integrated into the central banking systems of Islamic countries, removing their ambiguity, drastic volatility and susceptibility to speculation.

However, others experts see no contradiction between Sharia law and cryptocurrency and are fervently in favour of all cryptocurrency use cases within the Islamic finance system.

Cypto: more halal than other forms of cash?

Fait Muedini, the Frances Shera Fessler Associate Professor and Director of International Studies at Butler University in Indianapolis, USA, argues that cryptocurrencies like Bitcoin are not only halal, but are much more halal than other forms of money.

"I disagree with the statement MUI made [about cryptocurrency in November], and believe that their concerns do not address all of the positive benefits that Bitcoin offers within an Islamic financial context," he said.

In Professor Muedini's view, cryptocurrency is compatible with Sharia law because, unlike traditional fiat (government-issued currency that may not be backed by a commodity such as gold), the supply of Bitcoin and many other digital currencies is fixed, thereby eliminating potential for gharar (deception) and inflation.

"In addition, unlike fiat and precious metal coins, digital currencies cannot be altered, forged, or manipulated," he noted, adding that the peer-to-peer (P2P) nature of cryptocurrency transactions removes the need for banking institutions to handle the assets, eliminating risks associated with giving a third-party control of the money.

Other approaches to crypto

The MUI's ruling was striking because it was the most explicit stance taken against cryptocurrency by a major Islamic authority to date. Other Islamic finance authorities have generally taken a measured but tolerant approach to cryptocurrency, approving its use for certain purposes.

For example, in 2019, the Central Bank of Bahrain (CBB) issued its "final rules" on crypto-asset

services and crypto-asset exchanges, permitting their use by bringing crypto-related activities within its regulatory perimeter.

In July 2021, the Central Bank of the United Arab Emirates (CBUAE) announced plans to introduce a central bank digital currency (CBDC), as part of its 2023-2026 strategy to promote digital transformation in UAE's financial services sector and make cross-border payments faster, cheaper and more secure through a network of multiple Central Bank Digital Currencies (mCBDCs).

Prior to this, in December 2020, the CBUAE collaborated on a venture with the Saudi Arabian Monetary Authority (SAMA) known as ‘Project Aber’, a joint digital currency and distributed ledger proof of concept project also aimed at facilitating smoother cross-border payments between central banks.

In November 2021, Dr Yasir Qadhi, Dean of Academic Affairs of the Houston, Texas-based Al Maghrib Institute and part of a panel of experts of the independent organisation, the Assembly of Muslim Jurists of America (AMJA), broadcast a YouTube video Q&A on Bitcoin, where he expressed the view that cryptocurrency is not haram.

The ambiguity around cryptocurrency's Sharia status has not deterred issuers of digital tokens from targeting the Islamic finance market.

In January 2021, Bahrain-headquartered CoinMENA launched what it describes as a Sharia-compliant digital assets exchange that is licensed and regulated by the CBB. Users of CoinMENA can buy, sell, store, and receive major cryptocurrencies such as Bitcoin, Ethereum and Ripple, as well as deposit and withdraw funds in their local currency.

In March, Switzerland-based Caizcoin launched what it claims is the first fully Sharia-compliant cryptocurrency. Like other cryptocurrencies such as Bitcoin, Caizcoin is built on a decentralised blockchain, however it is the design of the blockchain that its developers say will ensure Cazcoin is halal.

For example, the system's e-wallet for holding the tokens will be kept separate from "haram activities", such as businesses dealing in mortgages, weapons, tobacco, alcohol or pork, or lending with interest, and Caizcoin can only be invested in "halal activities", such as government bonds, stocks, property and transferring funds, or being used to make Zakat payments to charities.

According to Islamic scholars Mufti Faraz Adam, Shaikh Muhammad Ahmad and Mufti Irshad Ahmad, part of the scholarly network of the Shariyah Review Bureau, a Sharia advisory service for the financial sector based in Jeddah, Dubai and Bahrain and with clients across the world, there is no agreed Islamic law perspective on crypto-assets.

"Since the crypto-boom in 2016/2017, we have continuously researched internally and engaged with various scholars, practitioners and regulators on this topic. We are of the view that a general view cannot be taken as a Fatwa [a formal ruling or interpretation on a point of Islamic law], because of the various nuances and possibilities with crypto-assets," they explained in a joint statement sent to Salaam Gateway.

They said that the term "cryptocurrency" is used to refer to a vast array of digital assets with different uses and functionalities. They also dispute that the potential for speculation is an innate feature of crypto-assets, arguing that Sharia concerns with crypto-assets arise when the contract used, and the underlying asset, are not Sharia-compliant.

"An investor in a Sharia-compliant transaction is speculating and taking a view on the market. Speculation […] exists everywhere, and it is only an issue when the tools used to speculate and the reference point of speculation are problematic," they said.

"We promote the idea of evaluating in light of Sharia principles each crypto-asset and checking on the project underpinning the crypto-asset, the utility of the token, the tokenomics, the financials, the staking process and governance," they added.

However, every Islamic finance authority may take its own view on how to treat cryptocurrency.

A case by case approach

In the view of the scholars of the Bahrain-based Shariya Review Bureau, an advisory institution, each Islamic finance authority is likely to take its own approach to the use of cryptocurrency in its respective jurisdiction. This advisory institution is licensed and regulated by the Central Bank of Bahrain.

"Each authority is a sovereign and independent, and we hope that each regulator will have sufficient expertise and insight, as well as the due process to form an informed response and framework to deal with crypto-assets," they said, adding that moves are underway to formally adopt Sharia-compliant crypto assets.

"This is already happening with different scholars and platforms coming with interesting concepts that show genuine use cases and implementations of blockchain and crypto-assets. Regional crypto-operators (…) are regulated and have Sharia supervisory boards in place to ensure Sharia-compliance with periodical Sharia audits in place."


© SalaamGateway.com 2021 All Rights Reserved

Islamic Finance
Canada’s Manulife adds Islamic funds to meet growing demand in North American market 

Manulife, a Toronto-based insurance and financial services firm with around $826 billion of assets under management, has added two Sharia-compliant funds to its portfolio to meet growing demand from Canadian Muslim investors.

Manulife Canada Retirement launched the Manulife SP Funds S&P 500 Shariah Industry Exclusions ETF (exchange traded fund) Fund and the Manulife SP Funds Dow Jones Sukuk ETF Fund to its iWatch platform.

SP Funds are part of ShariaPortfolio, a US-based boutique asset management firm specialising in socially responsible and halal investing. The firm also has a presence in Canada.

A key driver behind Manulife’s addition of these Islamic funds is Canada’s sizable and growing Muslim population. Muslims make up around 3.2% (or over one million people) of the nation’s population, according to a 2017 study by Statistics Canada. This is expected to grow to somewhere between 5.6% to 7.2% by 2036.

“With over a million Canadians identifying as Muslim, there have been a limited amount of professionally managed investment options that align with Shariah law,” said a Manulife spokesperson. “This has forced many Muslim plan members to potentially accept alternate solutions that can have implications to their overall retirement savings.”

The SP Funds S&P 500 Shariah Industry Exclusions ETF (SPUS) is an existing instrument which aims to track the performance–before fees and expenses–of the S&P 500 Sharia Industry Exclusions Index, co-developed by S&P Dow Jones Indices and by SP Funds. The SP Funds Dow Jones Sukuk ETF (SPSK) aims to track the performance–before fees and expenses–of the Dow Jones Sukuk Total Return (ex Reinvestment) Index.

The instruments are available to both Manulife’s savings sponsors and members in Canada. Sponsors can choose to add them as an investment option under their group savings plans. Sponsors are defined as an entity, often an employer, that sponsors group savings plan. The plan is also available to members, which are defined as individuals that opt into the group savings plans.

“Manulife is now offering two segregated funds that have been certified as Shariah-compliant with broad equity and fixed income exposure to meet the needs of Muslim Canadian group plan members and other group plan members interested in halal investments,” said the Manulife spokesperson.

The Islamic Finance Advisory Board (IFB), a Canada-based Sharia advisory board which provides advice and guidance, certified the funds as Sharia compliant and will audit them annually. “All Sharia EFTs work under the same Sharia guidelines but are slightly different from each other in terms of their objectives,” said Tahmyna Qazi, Liaison at Islamic Finance Advisory Board. “[For example], the two Manulife EFTs have the following objectives:  SPUS is a fund that invests only in US Equity with the objective of having a variable income, and SPSK invests globally to have a fixed income.”

The Manulife spokesperson said that whilst they can’t anticipate the flow of these segregated funds, they wanted to provide two funds so plan members can properly diversify portfolios.

“Manulife will follow the demand of the product through continued consultation of our plan sponsors and members,” said the spokesperson.

Adding to growing Canadian asset universe

Manulife’s addition of these new Islamic funds to its portfolio comes amid growing activity in the Islamic asset universe offering in Canada. 

Earlier this year, Toronto-based Wealthsimple launched Canada’s first ever listed halal ETF (Wealthsimple Shariah World Equity Index ETF) which aims to replicate the Dow Jones Islamic Market Developed Markets Quality and Low Volatility Index

Wealthsimple’s Islamic ETF joins a growing number of ETFs in the market including Wahed Invest’s FTSE Shariah ETF, SP Funds S&P Global REIT Shariah ETF and depending on the broker access to BlackRock’s suite of iShares Islamic ETFs.

Mohamad Sawwaf, co-founder & CEO of Manzil, a digital platform that offers Sharia compliant financing and investment solutions, welcomed Manulife’s inclusion of these funds.

“It's definitely a good move as it allows Canadian Muslims to access Sharia compliant ETFs for their group plans while not having their funds sit in cash with no return,” he said. “This will also allow SP ETFs to grow their assets under management much more rapidly due to the increased distribution.”

Naushad Virji, CEO of ShariaPortfolio said it can be challenging to enter a new market. “It’s important to show people that this is a viable solution to their needs,” he said. “Even though our USA affiliate has around 20 years of experience, we have only been in Canada for about two years. We are already seeing a greater degree of interest in our services.”

He said SP Funds are working with other major asset managers including Franklin Templeton in the USA which is using one of their ETFs in their multi-asset mutual fund. “We are in talks with several banks around the world in structuring similar products for their institutions. In addition, we have many asset managers around the world using our ETFs for both Muslim clients and also clients looking for investments with minimal leverage. A number of robo-advisors have also included our funds in their offerings.”

More products needed

Whilst Manulife’s funds inclusion has been welcomed, market participants have called for more products to serve consumer needs.

“The market needs to expand its Sharia compliant product offerings especially in the financing space: cars, equipment leasing, commercial real estate etc,” said Sawwaf. “This is still a major gap along with Shariah compliant bank accounts (i.e., deposit and day to day transaction).”

Qazi said that there is a strong halal retail market and also an evolving halal investment products market in Canada, all due to the grassroots demands of the local Muslim communities.

“The challenges we see Muslims facing is mainly a shortage of halal mortgage products in the country as opposed to demand for such products,” said Qazi. “However, due to the active involvement of the Canadian Muslim consumers, the market is evolving more than some other western countries.”

© SalaamGateway.com 2021 All Rights Reserved

Islamic Finance
UK Islamic banks set to receive a boost as Bank of England opens alternative liquidity facility

The UK’s Islamic banks are set to receive a welcomed boost as the Bank of England opened its Alternative Liquidity Facility this week and accepted deposits from participating banks for the first time.


LONDON: The much-awaited Alternative Liquidity Facility (ALF) is structured as a wakalah or fund-based facility and will enable participating banks to deposit funds. Participants’ deposits are backed by a fund of high-quality Sharia compliant securities (sukuk). The return from these instruments (minus hedging and operating costs) will be paid to depositors in lieu of interest.

The Bank of England (BoE), the country’s central bank, said that the fund purchased sukuk issued by the Islamic Development Bank (IsDB) in the first instance. The IsDB is a Sharia-compliant multilateral development bank and carries a triple AAA credit rating.

“This [the ALF opening] is a significant and positive advancement that further underlines UK government policy and support for Sharia compliant banking and financial services,” said Stella Cox, managing director of DDCAP Group.

Levelling the playing field

Like conventional banks, Islamic banks are subject to strict regulatory requirements. This includes holding a buffer of high-quality liquid assets (HQLA) to meet obligations as they fall due. Conventional banks are able to hold deposits at the central bank to help meet their buffer requirements but Islamic banks have been unable to do so before, because deposits were interest bearing.

As a result, British Islamic banks have faced challenges in managing their liquidity because the BoE’s existing facility is interest-based and there were no Sharia compliant liquidity facilities. Similarly, Islamic banks were also unable to invest in Gilts (UK government bonds) or interesting-bearing reserves accounts at the central bank.

At the same time, Islamic lenders had to fund their activities or products in expensive or inefficient ways, like holding large amounts of non-interest bearing cash or limiting their short-term deposits.

“There has been a shortage of UK-based liquidity management tools in British pound sterling (GBP) denomination,” said Omar Shaikh, a member of the UK Islamic Finance Council’s (UKIFC) advisory board. “To date efforts have been facilitated through interbank deposits, but normally this is the function of a central bank. Such facilities allow banks to manage their capital requirements and get some minimal return (in the current interest rate environment) on their liquidity.”

In a speech last year, Andrew Hauser, Executive Director for Markets at the BoE, highlighted that the ALF was an important step in providing a level playing field, and enabling greater flexibility in meeting regulatory requirements under Basel III prudential rules.

Good things come to those who wait

Last December, the BoE said that it was preparing to launch the ALF and planned to open it during the first quarter of this year.

The ALF has been in the pipeline for a while. In 2015, the central bank conducted a feasibility study of establishing a standalone non-interest-based facility. It followed up in 2016, with a public consultation, and then in 2017, when it sought to fine tune its approach.

“It has been a long time in development, there were challenges to be resolved to enable its implementation, but the BoE has been unwavering in its commitment to deliver the ALF throughout that extended period and it has achieved an industry first in becoming the first Western central bank to create such a facility,” said Cox.

Shaikh said that the fact the BoE has done this is beneficial to UK Islamic banks as they have an additional tool through which they can manage liquidity more effectively.

“It also demonstrates the UK's ongoing commitment to the Islamic banking sector,” he said. “This particular tool was promised some time ago and it has eventually come through, which is welcomed.”

The opening of the ALF follows the UK’s second sovereign sukuk which took place earlier this year. HM Treasury sold a five-year £500 million ($663 m) sukuk in March. The UK sold its maiden sovereign sukuk in 2014, which consisted of a £200 million ($265 m) issuance.


© SalaamGateway.com 2021 All Rights Reserved

Islamic Finance
Russia’s largest lender sees bigger role for Islamic finance as it rolls out first halal ETF

Russia’s largest lender sees a bigger role for Islamic finance in its 2022 strategy after launching the country’s first ever halal exchange traded fund (ETF) last month in a bid to fill the gap for Islamic financial products.


State-owned Sberbank via Sber Asset Management rolled out Russia’s first ever Sharia compliant ETF called Halal Investments towards the end of November.

“The ETF is based on the MOEX Shariah Total Return Index designed by Moscow Exchange (MOEX) together with Sberbank,” said Behnam Gurbanzada, chief Islamic finance officer at Sberinvest Middle East. “The index is composed of the 15 most heavily traded stocks of Russian companies on MOEX. Our main idea was to create a Sharia compliant ETF for the local market.”

The passively managed ETF is available for both Russian and international clients, said Gurbanzada, adding that investors can purchase even one share in the Halal Investments ETF.

“The recommended investment term is three years,” he said. “The liquidity of the products is high. Investments in the assets are denominated in roubles. Next year the ETF will be also be available in US dollars.”

He highlighted that the ETF will be screened monthly and audited quarterly by the Sharia Supervisory Board, adding that non-halal funds will go to charity.

“We observe a demand for Sharia compliant products in the market,” Gurbanzada said. “Furthermore, clients are focusing more and more on investment products rather than on deposits. This fund is primarily designed for people seeking to invest and adhere to Sharia. The ETF’s financial attractiveness is not inferior to other conventional investment instruments.”

Sber’s halal ETF comes shortly after the introduction of two new Islamic indices that it helped to create with MOEX.

In October, the bourse launched the MOEX Shariah Index and MOEX Shariah Total Return Index. The indices enable investors to invest in halal instruments.

Gurbanzada said there were administrative and educational challenges in developing their new ETF.

“It was a completely new product for the Russian market and for Sber as well,” he said. “Our team was very excited to learn about ethical requirements for investment products. Based on the experience achieved during the work we found out some new investment ideas applicable to Islamic financing.”

As part of new investment ideas, Sber’s Islamic finance team is working in two areas. The first is the adoption of existing products to Sharia required standards. The second is structuring new products.

“At the present time we are focused on corporate financing,” he said. “Bank accounts for corporate clients, financing, investment products for individuals, operational leasing etc.”

Underserved market

Russia’s Muslim population ranges between 10% to 15% of the country’s 144 million, according to various estimates.

One Moscow-based banking analyst, who asked for anonymity, said local experts in Islamic finance point out the lack of information about the genuineness of Sharia compliance in the fund.

“I doubt that the investor community in Russia cares much about Islamic instruments,” he said. “Whether this ETF will be of interest to non-Russian residents, I’m not too sure.”

But a practitioner familiar with the Russian Islamic finance market disagreed, saying it was a positive development.

“This ETF is positive because Muslim consumers or those seeking Sharia compliant investments in Russia have little to no choice,” he said.

Despite a sizeable Muslim population, and a gap for Islamic financial products, there are few players in the market. Market participants point to some of the legal and regulatory challenges.

“There is still no law on Islamic finance and subsequently the tax treatment, and in particular VAT [valued added tax], makes Sharia-compliant products uncompetitive,” said the practitioner, who also requested anonymity.

Sber Islamic finance strategy

Sberbank’s Islamic finance efforts will be underpinned by Sberinvest Middle East, Sber’s subsidiary in the Abu Dhabi Global Market (ADGM).

The subsidiary has been operational since June 2021, when it received its final authorization from the Financial Services Regulatory Authority (FSRA) of ADGM, noted Gurbanzada.

Sber’s foray into the Middle East follows a lengthy application process. In October 2020, Salaam Gateway reported that the Russian lender was working on the process.

In September 2020, the state-owned lender signed a strategic agreement with Mubadala, Abu Dhabi’s sovereign investment company. The agreement covered cooperation in several areas including Islamic finance.

“Our strategy is to create accesses for all clients,” said Gurbanzada. “To establish a secured bridge between Russia and the MENA. The bridge which will be based on partnerships.”

To meet their clients’ needs and demands, Sber’s Islamic finance team are working on Sharia-compliant asset management products.

“We are considering several investment products for local and international clients together with Sberinvest Middle East,” he said.


© SalaamGateway.com 2021 All Rights Reserved

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