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Islamic Finance
Islamic finance should tread cautiously as momentum for ESG-aligned reaches fever pitch

Pitfalls can trip up the unwary.

 

Blake Goud has been the CEO of the London-based RFI Foundation since the organisation’s incorporation in 2015. The RFI Foundation works to promote responsible finance in Islamic markets and Islamic finance, and to support its members' adoption of responsible finance practices and their integration into the global responsible finance industry.

 

The powerful desire for Islamic finance to embrace environmental, social and governance (ESG) development is gaining traction, given this sector’s close association to the United Nations Sustainable Development Goals (SDGs).

Those goals have a commonality with the higher objectives of Sharia and obviously Islamic finance should find opportunities to connect within this sphere of growing investor interest, but it must remain mindful.

Islamic finance knows from first-hand experience that mainstream interest can be a double-edged sword. I have seen the process unfold largely for the better over the past 15 years, but there are countless pitfalls accompanying rapid growth.

It brings with it a growing need for industry frameworks to promote institutionalisation and standards. Islamic finance has an advantage over ESG as these organisations have been developing for two to three decades – far longer than most within ESG and responsible finance.

While the ESG market has grown rapidly, with the 2020 Global Sustainable Investment Alliance data indicating it now accounts for $25.2 trillion in assets for ESG integration, it has been fragmented.

ESG integration means different things to different investors, asset managers and asset owners and there is a diverse variation in its actual practice of ESG integration.

Some investors view it as a simple binary screen where a single data provider’s ranking includes or excludes an investment based on where it falls relative to its peers. Others focus purely on financially material ESG issues and their risks and opportunities when developing forecasts for companies’ financial performance. Still more view ESG screens as merely a way to divide between green and not green sectors without regarding social and governance concerns.

Flexibility has some merit

This flexibility makes sense from one perspective: it represents an overarching term referencing various investment approaches and ESG issues and now encompasses different, sometimes contradictory, ideas while capturing a fast-growing share of financial assets.

Given assets grew 143% between 2016 and 2020, the space has become too attractive to ignore for those seeking opportunities to grab on to its coattails.

Regulators now react to the initial opportunism that accompanied this growth with crackdowns on blatant greenwashing where statements promoting financial products outpace their ability to follow through. Meanwhile, the patchwork of guidelines and standards are being consolidated through standards from the International Sustainability Standards Board (ISSB) as companies and investors make disclose their ESG.

Banks are waiting on the implementation of the Basel Committee on Banking Supervision’s principles on effective management and supervision of climate-related financial risks. This is new ground for ESG as, until now, standards have been varied and voluntary, lacking anything resembling a global baseline.

Islamic finance has a long history of industry infrastructure organisations

By contrast, Islamic finance has a much longer history of industry organisations collaborating to define the principles for a thriving financial sector built around interest-based finance. The adversity Islamic finance faced growing up in this financial system means it has a stronger architecture to evolve a global baseline, despite diverse opinions and practices.

Consequently, it is easier to understate the challenges and risks from a rush for Islamic finance to adopt ESG. Much of what is labelled ESG is described as originating from “socially conscious investors’ actions”, but equally described as “focusing solely on financially material considerations relevant to all investors”.

Sometimes the combination of ethically- and financially-motivated ESG investors can be reconciled, but at others, the definitions’ fuzziness and market applicability given the wide, potentially contradictory approaches, become fuel for greenwashing.

Greenwashing is a short-term motivated action for windfall gains at the expense of credibility. It emerges from the conflation of the ethical motivations of some ESG investors with the financial outcomes intended by others who use ESG integration. A greenwasher claims both ethical and financial motivations but is unable to fully deliver on either.

It thrives where an idea catches mass appeal, but before regulators and standard setters can lay the groundwork for a global baseline to reduce the asymmetry of information between the financial sector and market.

In delivering on ethical and financial objectives, Islamic finance is different. It has a consistent, coherent rationale for ESG integration on ethical grounds and provides well-developed financial screening practices that can complement ESG integration.

However, because Islamic finance promises to unite ESG’s ethical and financial benefits, it risks being perceived as another greenwashing potential unless each element is distinctly articulated. If Islamic finance is aligned with ESG, it must prove it can deliver the following elements in different situations:

  • What actions are motivated by extra-financial (ethical) requirements where Sharia compliance requires them, regardless of the short-term costs?

  • What actions are motivated by financial risk mitigation or opportunity seeking where ESG integration overlays Sharia compliance screening?

  • What elements of responsible finance go beyond the ethical requirements for compliance and pursue extra-financial objectives such as Maqasid-aligned impact to promote balance in planetary systems or social harmony and well-being?

  • What elements from Sharia screening, designed for ethical compliance purposes, can complement ESG integration’s financial outcomes?

Each characteristic is found where Islamic finance and ESG intersect, but they are distinct features typically present in different Islamic financial services. It is not immediately obvious to most people what is meant when the two are discussed together.

Sometimes the conflation of ethical and financial objectives in Islamic finance can be mistaken for short-term opportunism. Maintaining clear, consistent and transparent definitions about Sharia compliance, improved financial outcomes or striving for an extra-financial impact will avoid the ESG-associated risks.

It will preserve the biggest advantage Islamic finance has within responsible finance of being guided by consistent, long-term oriented principles and objectives.

© SalaamGateway.com 2022. All Rights Reserved

Islamic Finance
Global Islamic finance sector moves towards incorporating ESG concerns

Islamic finance industry looking for growth in new areas.

 

London: Global Islamic finance industry observers are predicting significant growth in Sharia-compliant environmental and social governance (ESG) investment, as the demand for institutions to ethically deploy funds, along with an awareness of climate change and social justice, expands.

According to research conducted by Maybank Islamic Berhad, the Islamic banking arm of Malaysia’s Maybank Group, and IslamicMarkets.com, a UK-based financial intelligence and investing platform, more than a third (36%) of Islamic finance professionals expect “dramatic growth” in combined ESG/Sharia compliance funds over the next two years.

The research, published in a report called Driving Sustainable Impact Through Islamic Finance in March this year also showed 73% of those surveyed believe the Islamic finance market has yet to meet the demand for ESG investment strategies.

They add there is ample room for new Sharia-compliant ESG products. The Maybank findings also indicated the majority of these new funds could be bought by non-Muslim investors whose appetite for ESG investments will potentially outstrip Islamic investors given the comparatively larger non-Muslim finance market.

These investors are also unconcerned about whether the key ESG component is Sharia compliant.

Research by Refinitiv, an American-British global provider of financial market data owned by the London Stock Exchange (LSE), also published in March, claims 2021 was a particularly busy year for the launch of Sharia-compliant funds with an ESG focus.

Refinitiv points to the establishment of new funds in Saudi Arabia (SEDCO Capital), Switzerland (Lombard Odier) and Malaysia (Pheim Global ESG Islamic Fund – PPGEIF) as examples of some of the most recent launches.

The group identifies Saudi Arabia as the global hotspot for Sharia-compliant capital aimed at ESG. The kingdom’s favoured approach to ethical investment has been to issue ESG-focused sukuk (Sharia-compliant bond-like instruments used in Islamic finance).

Refinitiv’s data shows in the first two months of 2022, the kingdom issued ESG sukuk totalling $1.5 billion, more than any other country. The Refinitiv league table names next largest sukuk issuers were Indonesia, Malaysia and the United Arab Emirates (UAE) as the next largest sukuk issuers.

Muhammed-Shahid Ebrahim, a professor of finance at Durham University’s Business School in the UK, said part of the reason the Islamic finance market was playing catch-up with ESG-focused investment opportunities was that “financial literacy” in the Muslim community had not been historically widespread to support growth in Sharia-compliant ESG investments.

Unlike the non-Muslim finance industry, partly driven towards ethical investments by retail investors, individual shareholders and pension fund members, the appeal of ESG-focused investments in the Islamic finance market has been mostly limited to institutional and sophisticated investors.

“ESG-focused assets use a general value system instead of a religious value system. An average Muslim consumer is keener on an investment approved by religious scholars than one based on general values,” Ebrahim explained, adding a lack of development of theory in Islamic finance had similarly restricted the expansion.

Despite this partial hesitancy of the Islamic finance market to embrace ESG investing, according to some experts, incorporating ESG principles into Islamic finance was a natural fit. A central pillar of Islamic finance is to screen Sharia-compliant products to avoid industries deemed unlawful (haram) under Islamic guidance and law. This includes tobacco, alcohol, weapons and gambling – areas theoretically also prohibited in ESG investing.

Amanjit Fagura, a Dubai-based partner at US-headquartered international law firm Morgan Lewis, says because ESG-focused and Islamic investments are guided by principles of morality, transparency, and fairness, it was possible for an investment to be simultaneously Sharia and ESG compliant.

However, the two concepts do not always overlay each other perfectly. Fagura cited investment into a highly leveraged solar energy project.

“(This) may be a sound ESG investment, but would not be Sharia-compliant due to the prohibition on riba (earning interest on loans),” she said.

Improving access

Fagura acknowledges there is currently a lack of access to investment opportunities that explicitly satisfy both sets of values, but this is changing as financial institutions respond to market demand.

“While green investments that tick the boxes of ESG and Sharia compliance may currently be limited, the rise in innovative structured solutions that allow for exposure to certain ESG investments not otherwise Sharia compliant are increasingly being used by family offices, regional banks and institutional investors,” Fagura said, noting this could further bridge the gap between Islamic finance and ESG investing.

A 2019 report published jointly by the World Bank and Securities Commission Malaysia suggests such innovative structures could include sukuk designed exclusively to manage green projects, mortgage-backed securities that could act as a new asset class to bridge sustainability and profit; waqf (a special philanthropic deed that involves donating a fixed asset to produce a financial return or provide a benefit) and zakat (an annual obligation to donate a proportion of wealth to charitable causes) funds structured into broader financing purposes that give impacts on social and environmental dimensions.

Another solution to the access issue could be developing Islamic fintech that promises to bring retail investing to Muslim consumers who have hitherto lacked the opportunity to participate in financial markets.

Bashir Yusuf Ahmed, founder and CEO of eTijar, a Nigerian Sharia-compliant fintech platform providing Islamic investment and saving services to Muslims and non-Muslims, expects young Islamic consumers to be attracted by the prospect of making direct ethical choices about their investments.

eTijar screens for Sharia-compliant investments and mutual funds to offer its users, allowing customers to build their portfolios using its platform and earn profit rather than interest.

“For the general ethical user, (our screening process means) they know we are playing by ESG rules and not dealing with anything that conflicts with (Islamic) principles and beliefs,” Yusuf explained.

However, he admits there is work to do to persuade potential investors to choose ethical investments.

“Some people think when you talk about halal or ethical (investing), this means there is no return on investment, but in fact there is the possibility of very good returns. Some of the industries or companies that qualify (as ESG investments) are dividend-paying entities,” said Yusuf.

Ebrahim thinks breaking down cultural barriers and better financial education would allow Muslims to make informed and participate more in financial markets while broadening the appeal of Islamic finance to the wider market.

“The integration of the Muslims with the rest of the society can lead to the development of ESG Sharia funds. There are issues in the Islamic scripture and traditions … not understood or applied by the religious scholars or political Islamists. If these issues are understood in their proper context, it will expand the scope of ESG Sharia funds and attract non-Muslims,” he added.

Standardisation

An issue repeatedly cited as a barrier to the growth of ESG investing in Islamic finance is the lack of agreed standards for what constitutes an ESG investment and how that maps across to Sharia principles.

According to the Maybank report, 72% of recipients felt introducing a global standard for ESG and Sharia would boost the demand for ESG investment opportunities among Islamic investors. However, immediate progress in this area was not anticipated.

“Respondents are concerned about the lack of a global standard for ESG and Sharia,” it said, with 55% of respondents believing the launch of a global standard was two years or more away.

While global ESG standards were under development by bodies including the newly established International Sustainability Standards Board (ISSB) that incorporate work developed by the older Sustainability Accounting Standards Board (SASB), there was no current move to link these standards to Sharia rules.

Meanwhile, standards were being set in individual markets, presenting the challenge of harmonisation. A joint 2019 report by the United Nations-supported Principles for Responsible Investment (PRI) and the CFA Institute, a US-based finance education organisation, stock exchanges are developing reporting guidance and listing standards for ESG that impact Islamic finance.

According to the report titled ESG and Islamic Finance: Complementary Investment Approaches, this standardisation method has been followed by the Dubai Financial Market (DFM), a Sharia-compliant exchange. In 2019 it updated its DFM Shari’a Standards to cater to investors’ growing interest in sustainability and a green economy and in 2020 launched its own ESG Index.

In principle, until more comprehensive regulation is approved, especially internationally, anything can be marketed as an ESG/Sharia investment and it was up to investors to decide if they agreed – a situation that makes some Muslim investors uncomfortable.

Fagura said, “Investors will likely conduct their due diligence on any Sharia-compliant opportunities claiming to be ESG investments to ensure such investments do comply with their investment aims and are not misled by greenwashing”.

Some national regulators are taking steps to tackle this issue by personally vetting ESG claims. Securities Commission Malaysia launched the FTSE4Good Bursa Malaysia Sharia index in July 2021 that measures the companies demonstrating strong ESG practices.

It seems likely Sharia-compliant and ESG investing are destined to remain separate approaches for the time being, but will increasingly converge as market factors and financial and technological innovations break common ground.

Ebrahim said the Islamic finance industry had a long way to go before seeing “a truly Islamic financial architecture” that could comfortably accommodate ESG investing.

© SalaamGateway.com 2022. All Rights Reserved

Islamic Finance
Chimera Capital launches two US Shariah-compliant exchange traded funds

Chimera Capital, an Abu-Dhabi-based investment management firm and subsidiary of Chimera Investment, announced today the launch of the Chimera S&P US Shariah Value Exchange Traded Fund (Bloomberg: CHUSSHINV) and the Chimera S&P US Shariah Growth Exchange Traded Fund (Bloomberg: CHUSSHG). The two funds are physical, in-kind, liquid and fully fungible exchange-traded funds (ETF).

Basar Shueb, Chairman of Chimera Capital, commented: “The launch of the two US Shariah-compliant ETFs adds to Chimera Capital’s suite of now eight ETFs that have exceeded AED 420 million in AUM within two years. The latest two launches now provide investors with direct access to the biggest and most active stock market in the world, underlining Chimera’s commitment to playing an active role in deepening and expanding the UAE’s capital markets landscape.”

Saeed Hamad Al Dhaheri, Managing Director and Chief Executive Officer of Abu Dhabi Securities Exchange: “The listing of Chimera Capital’s Shariah-compliant S&P US ETFs will provide investors on the ADX with new opportunities to diversify their holdings in an efficient and low-cost manner and has made our exchange home to the largest number of ETFs in the region. As part of our strategy to enhance market liquidity and attract more international investments, we will continue to encourage new listings and roll out products and services that meet the needs of market participants.”

The Chimera S&P US Shariah Value ETF is the fourth Shariah-compliant sub-fund under the SCA-registered Chimera Umbrella Fund. The ETF will track the performance of the S&P High Yield Dividend Aristocrats U.S. Shariah Top 30 35/20 Capped Index (Custom) (Bloomberg: SPHYSCAP). The index, which is provided by S&P Dow Jones Indices, is designed to measure the performance of thirty of the biggest and most liquid Shariah-compliant companies within the S&P Composite 1500 that have followed a managed-dividend policy of consistently increasing dividends every year for at least 20 years. The index includes blue chip stocks such as Johnson & Johnson, Procter & Gamble, and Exxon Mobil.

The Chimera S&P US Shariah Value ETF is an Income Share Class B which will be listed on the Abu Dhabi Securities Exchange (ADX). Any dividends collected by the fund will be distributed to investors, as available.

Meanwhile, the Chimera S&P US Shariah Growth ETF, the fifth sub-fund under the SCA-registered Chimera Umbrella Fund, will track the performance of the S&P 500 U.S. Shariah Top 30 35/20 Capped Index (Custom) (Bloomberg: SPSHXCAN). The index, which is also provided by S&P Dow Jones Indices, tracks the performance of thirty of the biggest and most liquid Shariah-compliant constituents of the S&P 500, the leading benchmark for the US equity market, including companies such as Apple, Tesla, and Amazon.

The Chimera S&P US Shariah Growth ETF is an Accumulating Share Class A listed on the ADX and will reinvest income back into the fund at no additional expenses to the unit holders.

The new Shariah-compliant ETFs will offer UAE investors direct access to US equity markets, further expanding Chimera’s product offering. The latest launches come on the back of two other ADX-listed, ETF listings earlier this year, the Chimera S&P KSA Shariah and Chimera S&P Kuwait Shariah ETFs.

Sherif Salem, Chief Investment Officer – Public Markets at Chimera Capital, added: “We are pleased to be able to offer investors on the ADX direct access to the US market for the first time. The two US Shariah-compliant ETFs provide exposure to some of the biggest and most exciting US-based companies. Moreover, the ETFs offer investors two strategies to meet their investment preferences – the Growth ETF will include high growth companies and be dominated by the tech sector while the Value ETF will contain more mature companies that pay regular dividends.”

Both the Chimera S&P US Shariah Value ETF and the Chimera S&P US Shariah Growth ETF will be managed by Chimera Capital’s onshore company, Chimera Capital LLC, which is licensed by the Securities and Commodities Authority (SCA) as an investment management company. BNY Mellon will act as the ETFs’ global custodian. Meanwhile, Authorized Participants for the funds are International Securities, EFG-Hermes, Arqaam Capital, Daman Securities and BHM Capital.

Marius Baumann, Global Head of Custom Indices at S&P Dow Jones Indices, commented: “S&P Dow Jones Indices is pleased to continue working with Chimera Capital LLC on the launch of their two new funds tracking the S&P High Yield Dividend Aristocrats U.S. Shariah Top 30 35/20 Capped Index (Custom) and the S&P 500 U.S. Shariah Top 30 35/20 Capped Index (Custom). Through our innovative index solutions, we are able to empower our customers such as Chimera as they continue developing index-based solutions for their end clients.”

Anthony Habis, Head of Middle East and Africa, BNY Mellon, added: “With a 238-year legacy as America’s oldest bank, we look forward to expanding our collaboration with Chimera Capital by offering UAE investors direct access to U.S. equity markets via two new ETFs. As the global custodian for all of Chimera Capital’s Shariah-compliant ETFs, we continue to help deliver new and innovative products to investors in the Middle East’s dynamic marketplace and beyond.”

Islamic Finance
Wahed Inc. on course to secure $50 million Series B financing, preps digital banking platform

Islamic fintech firm is on course to secure financing through a consortium of investors to support its growth, which is expected to take its valuation to around $300 million.

 

London: New-York based Islamic fintech firm Wahed Inc. is on course to close $50 million in Series B financing with a consortium of investors to support its growth as well as the preparation of its digital banking platform in the UK.

 

Wa’ed Ventures, the venture capital arm at Saudi Aramco Entrepreneurship Center (Wa’ed) is leading the round with HSBC acting as the lead financial advisor. Other investors include French footballer Paul Pogba, who recently joined the Islamic economy start-up as a brand ambassador. Strategic family offices and institutions are also participating in this round.

Junaid Wahedna, CEO of Wahed, told Salaam Gateway that the fintech firm will have a valuation of approximately $300 million post financing. He said that this investment round will support the start-up’s current growth phase as well as preparation of its neobank, Niyah, on its platform in the UK later this year.

Launched in 2017, Wahed is considered one of the most successful Islamic economy start-ups. Its product portfolio includes its two ETFs in the US as well as halal workplace and pension portfolios for UK employees. The US-based platform has a presence in nine jurisdictions including operating licences in the US, UK and Malaysia.

In June 2020, it secured $25 million in a funding round led by the VC arm of Saudi Aramco. Wahed’s other shareholders include Cue Ball Capital, Dubai Cultiv8 and Rasameel. The Islamic fintech said that it has over 300,000 customers globally, as of June 2022.

Industry stakeholders said that Wahed’s financing is a positive sign of investor confidence, particularly in the current economic environment.

Ibrahim Khan, founding partner at IFG, a UK-based Islamic finance platform, said that Wahed’s Series B financing is a great validation for the Islamic fintech ecosystem as a whole.

“With the new cash I am excited to see what they [Wahed] build,” he said. “At this mature stage I would expect them to branch out into other interesting products to supplement their main offering and increase margins."

Wahed’s successful fundraising comes after a difficult start to the year.

In February, the US’ Securities and Exchange Commission (SEC) charged the Islamic investment platform for making misleading statements and breaching its fiduciary duty, and for compliance failures related to its Sharia advisory business from September 2018 through July 2019. Wahed agreed to a cease-and-desist order, paid a $300,000 penalty, and agreed to retain an independent compliance consultant among other undertakings.

Vladimir Malenko, Islamic finance advisor at Bedford Row Capital, said that Wahed’s ability to overcome the bad publicity and raise financing from investors is impressive.

“Some thought that they [Wahed] wouldn’t recover after that story with Sharia compliance,” he said. “It shows that the market has a very short memory, and a financially attractive project will find its investors, despite past transgressions.”

To improve corporate governance, Wahedna said Wahed established a risk and audit department headed by industry veteran Umer Suleman, and recently added Lori Richards, a former SEC director to its board.

© SalaamGateway.com 2022. All Rights Reserved

Islamic Finance
National Zakat Foundation of New Zealand launches to serve growing Muslim population

The move comes nearly a decade after the international organisation established a presence in Australia.

 

The National Zakat Foundation (NZF) has officially launched in New Zealand with the organisation anchored on providing an end-to-end service for the country’s growing Muslim community, specifically in respect of Islamic almsgiving, zakat.

Born out of the UK-based organisation, NZF New Zealand had a soft launch at the end of April and officially rolled out at the end of May. The organisation joins other NZF members in Australia, Canada, Switzerland and the Netherlands.

Ishrar Mohammed, CEO NZF New Zealand said the establishment of an NZF in the country was long overdue given NZF Australia was established almost a decade ago.

“Our mandate is the core mandate of all NZF member countries – to strengthen the third pillar of Islam in the local community,” he said.

This would be achieved through five key activities:

  • Raise awareness of zakat;

  • Provide education services focused on zakat;

  • Provide a comprehensive, localised zakat calculation service;

  • Provide a modern, efficient zakat collection service using the latest fintech solutions and

  • Distribute zakat locally with efficiency, transparency and dignity.

Mohammed said NZF New Zealand was live and accepting zakat payments and adaqah (voluntary act of charity) donations, as well as receiving zakat assistance applications.

“For zakat awareness and education, we are launching a social media campaign targeting both zakat payers and zakat receivers. We will also launch the ‘Are you in need or know someone in need?’ poster campaign; a highly successful campaign during the launches of NZF UK and NZF Australia,” he said.

The organisation is currently recruiting staff, both paid and volunteers, who will be trained in zakat calculation and assessment. In terms of providing a comprehensive localised zakat service, NZF New Zealand will collaborate with other NZF entities.

“We are working with colleagues at NZF Australia and NZF Worldwide to initially implement systems and processes developed over 10 years and tested in Europe, North America and Australia and then localising these to suit the New Zealand context,” said Mohammed, adding that localisation was a key goal for the first year.

Addressing Muslim needs

Muslims account for around 1% of New Zealand’s 5 million-strong population, with that figure expected to reach 3% by 2050, according to Pew Research. The growth will be driven by immigration, a young median age and higher fertility rate.

“Our demographics and community challenges are similar to our bigger neighbour, but on about one-tenth scale. We have an even mix of potential zakat payers and zakat receivers,” he said.

However, with an increase in asylum seeker and refugee intake, as well as a rising number of indigenous Muslims, pressure from zakat receivers will increase. Mohammed said zakat receivers were often overlooked in Organisation for Economic Co-operation and Development (OECD) countries.

As well as a spiritual obligation, it is important for zakat payers to have the right methodology of calculating and paying the correct amount.

“For the modern zakat payer, especially with those in OECD countries with the complex financial instruments and assets they may hold, they are often overlooked or incorrectly accounted for during zakat calculations,” he said.

Equally, it was vital to acknowledge the emerging needs of the zakat receiver.

“(The receiver) is completely overlooked in countries like Australia and New Zealand to the point that many in the community don’t think this person exists here,” he said, indicating the number of people relying on food banks and charity shops was increasing daily.

The Muslim community was not immune with Muslims disproportionately over-represented in those categorised as living in poverty.

In addition to mosques, NZF New Zealand will join local and national organisations like New Zealand Zakat Foundation, Kiwi Muslim Directory, Al-Ameen Islamic Development New Zealand and Al Manar Charitable Trust that collect and distribute zakat within the Muslim community.

Challenges

NZF New Zealand’s biggest challenge will be convincing the country’s Muslim community that a local zakat receiver exists, according to Mohammed.

“We are encouraged by Australia, UK, Canada, Netherlands and Switzerland where they faced (and overcome) similar challenges … There the debate is no longer about local zakat receiver, but rather what percentage of zakat should be spent locally versus abroad,” he said.

NZF New Zealand would work with Muslim and non-Muslim organisations to fulfil its activities.

“Capacity building in our community cannot be achieved by any one single organisation. We absolutely believe in cooperating with both Muslim and non-Muslim organisations across New Zealand,” Mohammed concluded.

© SalaamGateway.com 2022. All Rights Reserved

Islamic Finance
Newswrap: Islamic finance

Bangladesh’s Deshbandhu Group to issue $250 million sukuk; Sydney-based Ijarah Finance launches financing for construction sector; Football star Paul Pogba becomes Wahed brand ambassador; Abu Dhabi Islamic Bank launches ‘open banking revolution’; UAE’s ADEX signs export financing agreement with Capital Bank of Jordan.

 

Bangladesh’s Deshbandhu Group to issue $250 million sukuk

The Deshbandhu Group is to issue a $250 million sukuk in July through the Al Waseelah Sukuk issuance platform, reported Islamic Sustainable. The high-yield sukuk is to have a 9% semi-annual profit rate over six years, and is to be issued in US dollars and Malaysian Ringgit. The Bangladesh based Group is involved in 16 companies, including food, beverages, fibers, textiles, trading, power and properties. The website noted that the sukuk issuance is intended to bolster foreign exports, domestic market share and invest in new technologies and people. The sukuk is not to feature ESG performance indicators but is intended to focus on United Nations Sustainable Development Goals (SDGs), notably no poverty (SDG 1), gender equality (SDG 5) and decent work and economic growth (SDG 8).

Sydney-based Ijarah Finance launches financing for construction sector

Islamic finance firm Ijarah Finance has developed a Sharia-compliant product for builders and property developers, reported Australian Broker. The product “gives leverage and capability to help builders take on construction projects of up to 5 million Australian dollars ($3.4 million) using a non-interest finance approach known as “Ijarah”, a term in the Arabic language meaning “lease”. Ijarah Finance’s approach adopts the principle of rent to own or “Ijarah Muntahia Bi Tamleek”, which is known as “rent ending with ownership” in Sharia financing,” the website reported. “Our office has been based in south-west Sydney since 2003, so we have many builders and developers of the Muslim faith seeking finance to build commercial developments without undertaking a conventional interest-based loan arrangement,” said Ijarah Finance director Walid (Wally) Ayad to Australian Broker.

Football star Paul Pogba becomes Wahed brand ambassador

French football star Paul Pogba has become an investor and brand ambassador for Islamic fintech company Wahed, reported AhlulBayt News Agency. Pogba joins brand ambassador Khabib Nurmagomedov, a UFC champion. The agency noted that Pogba and Wahed’s CEO Junaid Wahedna “met in September 2021 and found common ground in Wahed’s mission to make ethical investing as accessible and affordable as possible”. Pogba said: “I knew I wanted to be part of it, because growing up, we didn’t have access to a safe way to manage and grow our money.”
Wahedna said “Pogba is a high-performing leader in his industry, which fits with the vision and mission of what we’re trying to achieve,” adding: “We are very excited to welcome him as our new brand ambassador as we continue to reimagine a fairer financial ecosystem.”

Abu Dhabi Islamic Bank launches ‘open banking revolution’

Abu Dhabi Islamic Bank (ADIB) launched its first Application Programming Interface (API) developer portal, allowing fintech developers to use ADIB APIs for the purpose of developing their own applications, according to a press release. The new ADIB API Developer portal will drive Open Banking in the market, allowing fintech developers to build new products that interact seamlessly with ADIB’s platforms. This means that ADIB customers will be able to connect to secure apps and services to their banking easily, including the ability to see accounts held with other providers through their ADIB mobile app. ADIB's Open Banking API platform follows UK Open Banking standards. It aims to provide a range of data to access, use and share by Third-Party Providers (TPPs) such as payment initiators, account aggregators, and other fintechs to deliver new digital services to meet customer and market expectations. Open Banking also offers customers more control over their financial data. The portal complies with the highest international standards on data privacy, ensuring the security of customers’ personal data.

ADIB API developer platform comes as part of ADIB’s vision to become the world’s most innovative Islamic bank. It fully embraces the opportunities of Open Banking which has the potential to revolutionise the industry and the way that people manage their money and do their banking. ADIB API portal will make it really simple for developers to build services that work seamlessly with ADIB’s platforms, and to deliver even more exceptional customer experiences.

UAE’s ADEX signs export financing agreement with Capital Bank of Jordan

Abu Dhabi Exports Office (ADEX), the export-financing arm of Abu Dhabi Fund for Development (ADFD), signed a financing agreement with Capital Bank of Jordan for a credit line of approximately AED73.4 million ($20 million) to support collaborative efforts to enhance the UAE’s exports to the region and boost economies of the two countries, according to a press release.

The agreement will allow ADEX to open a credit line with Capital Bank to re-lend to importers on competitive terms to buy Emirati goods and services.

“The agreement will enable us to work towards fulfilling the vision of our leadership to develop Emirati export and accelerate the pace of UAE’s economic diversification. This strategic partnership is in line with the UAE Centennial 2071, which aims to take the UAE economy to new heights and double the country’s gross domestic product. The agreement also contributes to consolidating the country’s position as an epicentre of global trade,” said Mohamed Saif Al Suwaidi, Director General of ADFD.

Islamic Finance
Islamic finance increases its role in non-Muslim majority countries

As Islamic finance grows both in concept and popularity, service providers are broadening their reach into non-Muslim majority markets to compete head-to-head with conventional options.

 

As Islamic finance strengthens and diversifies, service providers are increasingly targeting non-Muslim majority markets and competing directly with conventional services.

Demand in the non-Islamic market has been historically tied to factors spanning real estate investment in the Gulf Cooperation Council (GCC) economies to wealth management among Muslim minority populations in non-Islamic countries. Now impetus is coming from Islamic finance’s closeness to the environmental, social and governance (ESG) criteria used by socially conscious investors.

Illustrating these dynamics, a recent Maybank Islamic Berhad, the Islamic banking arm of Malaysia’s Maybank Group, survey showed Islamic finance professionals believe current 10-15% growth rates could be boosted by the growing focus on ESG and sustainability. Indeed, 58% of respondents believe annual growth rates over the next five years could be higher than 15%.

UK-based Islamic finance bankers told Salaam Gateway the sector took growth in the non-Muslim market very seriously.

“We have two distinct categories of clients: one is GCC investors who see the UK as a safe haven while also having a preference for Islamic finance for faith reasons and the other people in the UK and Europe who want transparent deposit accounts without hidden fees or charges and where the bank’s role is very clear,” said Andrew Ball, CEO of Bank of London and The Middle East (BLME).

Noting the potentially tight relationship between ESG markets and Sharia, he said: “ESG is huge on the regulatory agenda and we are only at the start of a journey. Clients and regulators are (considering the) impact and striving to make more conscious decisions,” he added.

Ball dismissed the widespread notion that Islamic banking necessarily involves higher fees, but acknowledged it had slightly more complex documentation than conventional banking. BLME has an in-house Sharia board that regularly monitors and is engaged in transactions. This means transactions were subject to an additional audit alongside the conventional one.

In Dubai Muneer Khan, Middle East regional head of UK-based law firm Simmons & Simmons, told Salaam Gateway it was no surprise Britain had a more developed Islamic finance industry than France and Germany, despite both having larger Muslim populations.

The UK is home to the major standalone Sharia-compliant bank BLME. UK banks including HSBC Amanah, Lloyds Bank Islamic Bank Account and Standard Chartered Bank also operate major Islamic branches.

Khan noted the UK has the most advanced Islamic finance market in the western hemisphere partially due to its advanced tax system that levelled the playing field for Sharia-compliant products and services.

Specifically, a series of amendments implemented in the 2000s removed additional taxes and stamp duties charged on Sharia-compliant structures due to their often-layered transaction structuring and non-interest charging basis. Khan referred to amendments related to the UK Finance Act 2005 that ensures payments made through Islamic financing arrangements were taxed as though they were interest.

“Whereas the Islamic finance industry has been developing in the UK, it is proportionately much larger in certain majority Muslim countries in the Middle East and southeast Asia. Islamic banks in the region are offering a wider range of products and services (including online services) that are competing head-to-head with their conventional competitors and even taking market share,” Khan said, citing the First Abu Dhabi Bank in the United Arab Emirates (UAE) and Maybank in Malaysia as examples.

Meanwhile, the advance of fintech, including blockchain technology, is expanding Islamic finance’s reach. In February Australian-headquartered halal, decentralised finance platform MRHB DeFi launched Sahal Wallet that the company claims to be the world’s first ethical and halal crypto wallet.

Its $MRHB token is currently listed on both peer-to-peer decentralised crypto exchange marketplaces DEX and CEX and can be traded on PancakeSwap, a leading decentralised exchange on the Binance Smart Chain (BSC) network.

“All other projects in the crypto ecosystem are unable to address the faith-based communities, including in non-Islamic northern Europe and CIS (Commonwealth of Independent States covering former Soviet republics) where many of our 7,000 users are based. By being halal, MRHB is becoming a gateway for the $3 trillion worth of Islamic finance liquidity entering the crypto ecosystem,” MRHB DeFi CEO Naquib Mohammed, told Salaam Gateway.

Reflecting on Islamic finance’s shift toward presenting itself as an ethical and truly inclusive ecosystem, rather than one emphasising faith-related aspects, MRHB’s ecosystem roadmap contains 10 products – of which only two are Muslim market-targeted.

These are Souq NFT, a non-fungible token (NFT) marketplace offering users the chance to trade NFTs on the blockchain-based gaming platform Gachyi Land and Philanthropy Protocols that aids social initiative funding via the quadratic funding model.

“Quadratic funding applies mathematics to ensure the optimal funding – more democratic, more scalable – of community and social, charitable initiatives,” said an MRHB note.

Other products are neutral, marketed as conventional products, such as its artificial intelligence-based (AI) portfolio management for low-risk investing, the Non-Custodial Wallet.

Rakaan Kayali, CEO of US-based Practical Islamic Finance, argued true Islamic finance would offer a distinct utility and not be limited to making Muslims feel pious. His company shares reviews of investment targets ranging from US automaker Tesla to German chemical producer BASF for Sharia compliance and recommends accordingly.

“You will know when this distinct utility is being provided when non-Muslims use the product too,” said Kayali.

© SalaamGateway.com 2022. All Rights Reserved

Islamic Finance
Newswrap: Islamic finance

Islamic finance sector slated for 10% growth in 2022-23; Indonesia and Islamic Development Bank ink $150 m loan for highway; Egypt delays sukuk issuance; Mobiquity releases global digital Islamic banking prototype.

 

Islamic finance sector slated for 10% growth in 2022-23

The $2.2 trillion Islamic finance industry is forecast to grow by 10% in 2022-23, following similar growth in total assets in 2021, according to a S&P Global Ratings report.

“This year, we think higher commodities prices will underpin a stronger recovery in many core Islamic finance markets. Moreover, most of these countries are relatively resilient to macroeconomic shocks resulting from the Russia-Ukraine conflict. This will support the industry's prospects for 2022-2023 but global headwinds could change the picture,” said S&P Global Ratings head of Islamic finance Mohamed Damak, in the Khaleej Times.

Driving growth is investors seeking Sharia-compliant investment vehicles this year. Islamic exchange-traded funds (ETFs) are set to boost global Islamic finance assets to $4.94 trillion by 2025.

The report noted that the Islamic finance industry is facing structural obstacles, notably “the complexity inherent to transactions and the correlation of performance with oil prices given concentration in commodities-exporting countries.” The preference of Sharia scholars for sukuk to have a higher proportion of profit and loss sharing is also posing certain legal challenges.

“However, we see opportunities in the alignment of certain Islamic financial products and environmental, social, and governance (ESG) factors and recent strides in digitalisation. We expect to see a higher volume of green and sustainability sukuk (from a low base) as issuers look to broaden the investor base and include funds aligned with sustainability themes. Moreover, digital sukuk could generate significant investor interest in the future once the necessary prerequisites are implemented,” said the report. “Based on these factors, we believe the market will expand about 10% in 2022-23 after 10.2% growth in total assets in 2021 (excluding Iran),” Damak said.

Indonesia and Islamic Development Bank ink $150 m loan for highway

Indonesia and the Islamic Development Bank (IDB) inked a $150 million loan to finance a toll road project on the island of Java, reported Reuters. The $450 million highway is to connect the central Yogyakarta province with the eastern city of Malang. Additional funding is to come from the Asian Development Bank.

 

Read -
10 years on: What’s next for the global Islamic economy?
 
Read - Islamic finance increases its validity within non-Muslim majority countries

 

Egypt delays sukuk issuance

Egypt was to issues its first Islamic sovereign bonds, sukuk, this financial year, to 2023, but has delayed the planned issuance, Finance Minister Mohamed Maait told Ahram Online.

The minister said that the government had not set a value on the issuance, and that the sukuk are not commercial bonds but meant to address Egypt’s budget deficit as well as attract new investors.

“Sukuk issuance needs great efforts as these kind of bonds are an unconventional way to secure finance. It needs capital, investors, capabilities and a suitable infrastructure,” the minister said at the 47th annual meetings of the Islamic Development Bank (IsDB) in Sharm El-Shiekh.

Mobiquity releases global digital Islamic banking prototype

Mobiquity, part of Hexaware, a full-service digital transformation enabler, has launched a global digital Islamic banking MVP (minimum viable product) for the Muslim community, reported FinExtra. The Sharia-compliant demo - front-end solution- enables financial institutions to enhance their offerings and deliver personalised, ethical digital Islamic banking to their customers. Focusing on Murabaha car finance, the application is core banking platform agnostic and can be integrated and extended with any of the bank's systems
Mobiquity recognises the potential to evolve and serve the Islamic finance sector by provisioning for Islamic banking, particularly in the Middle East, Asia, Africa and parts of Europe where there is a strong Islamic community.
“The future of Islamic finance is disrupting traditional models as more people, particularly the younger generation, seek banking solutions that meet religious needs and encourage an ecosystem of fair, ethical and moral responsibility. Mobiquity creates a global digital Islamic banking MVP that prioritises social and ethical consciousness” said Matthew Williamson, VP Global Financial Services, Mobiquity. “Millennials make up a large percentage of Islamic banking customers. The UK has experienced the highest growth in Islamic fintech companies demonstrating the need to optimise this sector to meet customer expectations. To meet customer expectations, Islamic fintechs worldwide need to use technology that enables flexible banking solutions to suit their customers’ lifestyles. Customers increasingly want digital banking that they can trust and that are convenient to use,” he said.

Islamic Finance
10 years on: What’s next for the global Islamic economy?

Dr Sayd Farook is a Board Member and Senior Partner for the global consulting firm Dinar Standard, which also manages Salaam Gateway and publishes the annual publication State of the Global Islamic Economy Report. Dr Farook is also responsible for Group strategy at Crescent Group which comprises Crescent Wealth Super, Crescent Finance, Crescent Institute and Crescent Foundation.

 

I recall the day vividly. It was December 2012 and I had been recently handed the responsibility to look after the Thomson Reuters global Islamic Finance and Capital Markets business stretching across four continents and deliver a profitable proposition for the group.

I had stumbled across a local newspaper article that spurred my excitement – Dubai led by H.H. Sheikh Mohammed Bin Rashid Al Maktoum, the Vice President and Prime Minister of the UAE (United Arab Emirates) and Ruler of Dubai, announced his intention for the country to become the global capital of the Islamic economy.

Based in Dubai at the time with teams in Dubai, Bahrain and Malaysia, we were waiting until the country made a concerted play for Islamic finance, given its natural economic strength to support the concept.

I told our managing director Russell Haworth I would galvanise our brains’ trust and pitch our capabilities to Al Maktoum. Our unique placement in the heart of Islamic finance could transform their positioning in global Islamic finance. Following his green light, I contacted my then thought leader partner in the halal lifestyle space, Rafi-uddin Shikoh at Dinar Standard.

Yet, I still couldn’t get my head around the construct Islamic economy. In context there was no State of the Global Islamic Economy report, no Salaam Gateway and no Global Islamic Economy Summit.

The Islamic economy was a theoretical construct about which Islamic scholars had written in the 1960s, yet no one had specifically defined it with numbers or sectors. The only tangible context was the World Islamic Economic Forum (WIEF) that Malaysia had vigorously administered since Tun Abdulla Badawi’s spirited action to lead the Islamic economy.

As a trail-blazing Emirate, Dubai’s ambitious vision put a fresh twist to the scattered initiatives to provide a unique, modern and transformative sense of vigour. The rest was history.

With the support of Sheikh Al Maktoum’s executive office, we launched various world firsts including the Islamic Economy Award, Global Islamic Economy Summit, Global Islamic Economy Indicator, Salaam Gateway and State of the Global Islamic Economy Report. Together these defined the modern concept of the Islamic economy in the global business vernacular.

We launched an industry defining report; identified trailblazers across multiple sectors and launched detailed indices that enabled countries to benchmark while developing the Islamic economy.

At the end of this year, it will be a decade since that defining moment and what did it achieve? What is in store for the Islamic economy? These were questions raised during the Islamic economy panel discussion organised by Crescent Rating for its Halal in Travel Summit from 1-3 June 2022.

I was joined by Rafi-uddin Shikoh, Managing Director of Dinar Standard, Kerim Ture, CEO of Modanisa, and Sutan Emir Hidayat, Director, National Committee for Islamic Economy (KNEKS) Indonesia.

My perspective was initially sceptical, but the fellow panellists convinced me that the prospects of this global movement were good – actually better than original estimates and bright prospects were developing across the board.

Rafi-uddin Shikoh, who manages the State of the Global Islamic Economy Report and Indicator, stated there was intense energy and follow-on investment to monitor and improve their standing in the Islamic economy. This included Indonesia and Saudi Arabia in addition to Islamic economic heavyweights like Malaysia, Bahrain and the UAE.

Hidayat said President Joko Widodo’s leadership had mobilised Indonesia as he galvanised various key institutions under Vice President Maruf Amin and direct supervision of the Finance Minister Sri Mulya Indrawati. I felt the growing momentum for this space during the State of the Global Islamic Economy Report 2022 launch in Indonesia the week earlier.

Across the Indian Ocean, Rafi-uddin Shikoh noted the significant energy and momentum developing in Saudi Arabia around the Islamic economy issue would potentially play out in the next few years.

Finally, Kerim Ture offered profound reflections after his more than 10 years in this space as a global modest fashion brand. The company ships to 5 million customers in 126 countries nad has 300 million visits to the Modanisa’s platform annually.

He stated by 2030, approximately 900 million Muslims would be middle class and was bullish about the prospects for the halal lifestyle space. He was looking forward to becoming not just a platform for modest fashion, but for the whole halal goods and services spectrum including halal travel.

After this conversation, there is no doubt there is an institutional momentum towards the Islamic economy, led by the Muslim world’s two major economies Saudi Arabia and Indonesia. Yet, there is an often-whispered challenge in the corridors of Islamic economy conferences – the state of venture funding.

This is noticeably lacking, potentially because opportunities in the Muslim lifestyle market were not widely understood before the defining 2013 State of the Global Islamic Economy report was released. Now there are start-ups basing their business models on the Islamic economy and raising multi-million-dollar rounds from various investors including conventional venture capitalists.

These includes Durioo+, the Muslim-based streaming channel that has raised almost $2 million after graduating from Y-Combinator; Wahed Invest that raised multiple rounds to reach a valuation beyond $100 million and Launchgood that has become the global de facto crowdfunding platform for Muslim causes.

Perhaps the watershed moment for the global Islamic economy will be when an actual institutional venture fund is launched that focuses primarily on the Islamic economy sectors. Given what we have witnessed, it is likely to be initially Islamic fintech with its tangible traction across multiple markets and jurisdictions.

© SalaamGateway.com 2022. All Rights Reserved


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