Islamic Banking and Finance news from Issue #14

Around the world

ITALY The first Islamic bank in Italy is due to open in 2008, the presidents of the Association of Italian Banks and the Union of Arab Banks announced jointly last month. “The next step should be the creation of a real Italian-Arab banking federation, which in perspective could represent a model to follow for other countries in the European Union,” said Corrado Faissoia, president of the Association of Italian Banks. The Union of Arab Banks, based in Beirut, comprises more than 300 Arab financial and banking institutions, representing the largest Arab banks in the region, the report said. Faissola added: “The consolidation of dialogue and cooperation opens important opportunities for growth and development, not only for the banking sector and for Italy but for all of Europe, and looking further ahead, for the stabilisation of the entire Mediterranean area and the Middle East.”
NETHERLANDS Amsterdam is going to urge Netherlands finance minister Wouter Bos to make it possible for Dutch banks to offer Islamic mortgages, Mayor Job Cohen said in response to a question last month by council member Hetti Willemse (PvdA). Willemse argues the lack of mortgages that conform to Islamic rules is preventing Muslim residents of the city from buying a house. According to Cohen, some 2.4% of Amsterdam residents may be interested in Islamic mortgages, but he emphasises this is a rough estimate. A controversial issue is whether Islamic mortgages should have fiscal advantages comparable with the tax deduction on interest that applies to current mortgages. In July, Bos said the development of Islamic banking is an opportunity for the Dutch financial sector.

Banks team up to launch green fund to offer new asset classes

Malaysia’s AmanahRaya investment bank is teaming up with Asian Finance Bank to launch an Islamic green fund. The 1bn ringgit ($294m) green fund will invest in environmentally friendly projects such as biofuel ventures in Malaysia and the Middle East.
“We want to provide an alternative to investors by creating new asset classes,” said Mohamed Azahari Kamil, managing director of AmanahRaya-JMF, the asset management unit of state-owned AmanahRaya. The green fund will be the second Islamic fund to be set up by AmanahRaya and Asia Finance Bank, a 71%-owned unit of Gulf-based Qatar Islamic Bank.
The two banks also signed an agreement to establish an Islamic marine fund that will invest in vessels from the oil and gas industry. It will also acquire bulk cargoes that carry halal goods, raising up to $250m to finance the purchase of its initial fleet of 10 vessels.
Plans for the funds come after the Malaysian government’s announcement of more measures aimed at promoting growth in the Islamic financial industry. Faisal Al Showaikh, CEO of Asian Finance Bank, said the bank will leverage its access to the GCC market to bring in Middle East investors

 ABC diversifes mortgage offering based on diminishing musharaka

ABC International Bank plc, part of the Bahrain-based ABC group and the leading provider of Islamic home finance in the UK, has launched the first fixed-priced Islamic mortgage aimed at buy-to-let investors.
ABC’s Alburaq Islamic home finance product ranges from the basic mortgages to buy-to-let and non-certification options. The products are available either directly or through selected independent financial advisers and through the Islamic Bank of Britain and Lloyd’s/TSB.
The rent for the buy-to-let mortgage product will be fixed until 30 September 2008 at an annual rental rate equivalent to 6.49%. Thereafter, the rate will be calculated every six months, on six months Libor plus a fixed margin of 1.79%, the guaranteed margin for the remainder of the term.
Under the buy-to-let scheme, customers can get finance of up to 85% of the value of the property or the purchase price, whichever is lower. Investors can build a portfolio of up to 15 properties and there is no tie-in, which means the mortgage can be redeemed fully paid at any time without any penalties. Customers can make additional payments every six months and can also take out a buy-to-let mortgage in addition to an existing home finance agreement or mortgage.
The Alburaq Islamic mortgage is based on the principle of diminishing musharaka, which combines the concept of co-owners of the property between the bank (the provider of the funds) and the customer (the purchaser of the property), and a diminishing rental payment by the customer for the equity portion of the bank plus a portion towards capital repayment over a given tenure. As soon as the capital is repaid, the title of the property is transferred to the customer.
The total Islamic mortgage market in Britain is set to rise to £1bn by 2010, according to projections.

Sukuk market moves into action in Pakistan

The market for sukuk in Pakistan is starting to perk up. Bankers say a stream of deals is likely to continue as borrowers tap into demand from the country’s swelling number of Islamic financial institutions. They also forecast an increase in the variety of structures on offer.
Accurate numbers are hard to come by as most offerings are private but according to the Islamic Finance Information Service, Pakistan companies raised PKR17.225bn in September, including power company Attock Gen Ltd raising PKR8.580bn from the country’s first syndicated Islamic project financing.
The Pakistan borrowers headed to the market include cement manufacturers Javedan Cement Ltd and Kohat Cement Co, textile companies Shahraj Fabrics Pvt Ltd and Amtextile (Pvt) Ltd and real-estate firm Eden Developers (Pvt) Ltd.
In the absence of a central government benchmark, the government is encouraging state-backed companies to tap the market. Many have or are pursuing a crucial government guarantee, which is especially attractive to Islamic banks looking for investments eligible for inclusion in their statutory liquidity reserves.
In the wake of two deals from state utility Wapda, Karachi Shipyard & Engineering Works, National Industrial Parks Development and Management Co and House Building Finance Corp are in the market for a combined PKR9.2bn and there is talk that Pakistan Agricultural Storage & Supplies Corp is seeking PKR10bn in funds through Islamic bonds.
Most of the deals have been structured using the ijarah leasing structure or the diminishing musharakah principle. However, bankers say new structures are on the way in Pakistan.
The cash-strapped national carrier Pakistan International Airlines, for one, is looking to follow up a recent PKR2bn sukuk, backed by aircraft, with another Islamic bond as part of its bid to raise PKR26bn to support restructuring and modernisation. Meezan Bank, which expects to get the mandate for a PKR6 billion offering, promises a new structure, as the airline has insufficient tangible assets to back another deal.

Giant sukuk deal for Saudi land developer

The Dar Al-Arkan real estate development company, a leading residential real estate developer in Saudi Arabia, has closed a US$1bn sukuk issued through Dar Al-Arkan international sukuk company arranged by a consortium of international banks.
Launched in June, the sukuk issue received an overwhelming response from institutions across the Middle East, South East Asia and Europe. It was significantly oversubscribed, raising close to US$1.5bn, with Dar Al-Arkan opting to close the issue at $1bn.
The joint lead managers and joint bookrunners of the transaction were ABC Islamic Bank, Arab National Bank, Deutsche Bank, Dubai Islamic Bank, Gulf International Bank, Kuwait Finance House (Malaysia) and Unicorn Investment Bank. The landmark five-year issue, based on an ijara structure, marks the second sukuk to be issued by Dar Al-Arkan. In March, the company closed its inaugural sukuk at $600m, marking the first sukuk to be issued by a Saudi corporation in the international capital markets.
Abdullatif Al-Shalash, managing director and board member of Dar Al-Arkan said: “We are delighted with the overwhelming response to our second sukuk issue, which affirms the strength of Dar Al Arkan’s business model, our strong growth prospects and the confidence of the international financial community in our strategy.
“Dar Al-Arkan is committed to playing a leading role in providing affordable housing solutions that meet international standards for middle income families across Saudi Arabia.”