IFN Best Banks Poll 2016: Islamic finance giants return to claim glory alongside fresh faces

The global Islamic finance industry has spoken! With over 26,000 votes this year, the results for the illustrious IFN Best Banks Poll 2016 are finally in — and it is clear from the outcome that Islamic financial institutions worldwide are soldiering on amid a very trying year with many shocking and surprising turns politically and economically; at the same time, we saw the emergence of new winners, proving that innovation, determination and strategic thinking are still the names of the game. VINEETA TAN takes us through the victors of the distinguished IFN Best Banks Awards as honored by their peers.

Despite massive turbulence in the global economic landscape which significantly impacted the performance of global Islamic financial players worldwide, this year saw one of the best responses ever for the IFN Best Banks Poll with 26,507 votes from individuals all over the world cast. Preserving the quality and independence of the IFN Awards, this year’s screening process was ramped up employing greater due diligence and a stricter and more robust screening process.

In a year with many unprecedented and unexpected developments, from the UK deciding to leave the EU to the election of Trump as the president of the US, in the backdrop of stubbornly low oil prices and sluggish global economic growth, many Islamic finance stalwarts have demonstrated great resilience in maintaining their grip on being number one amid stiffer competition as we welcome many familiar faces back to the league of winners. Yet concurrently, we also open our arms to greet many new names that have turned the tables and shaken the status quo of the industry with their stunning victories.

Central bank champions
Proving that a change in leadership did not and would not affect its solid performance nor dilute its strong commitment to Islamic finance, Bank Negara Malaysia (BNM) this year emerged triumphant in a very tight race as the Best Central Bank for Promoting Islamic Finance, displacing last year’s winner, the State Bank of Pakistan, to second place.

Caught in the regional wave of volatility which sent the Malaysian currency plunging to record-low levels, BNM held its head up high and wasted no time mobilizing measures to bolster the financial community and nation’s economy. The departure of Dr Zeti Akhtar Aziz, one of the most respected central bankers of the world widely credited as an international champion of Islamic finance, in April may have caused some concerns over the future of Malaysia’s Shariah finance industry, but those doubts were soon silenced as her successor Muhammad Ibrahim, another strong advocate of Islamic finance, is proving his worth. Inheriting a strong legacy, BNM in 2016 made fintech a top priority in driving the Islamic and conventional finance industry forward: it launched the Investment Account Platform — the world’s first Shariah compliant bank-mediated fintech platform and set up a fintech sandbox to catalyze the development of fintech. The central bank also focused on building international and regional partnerships, signing bilateral MoUs with another solid Islamic finance player, Indonesia and also Thailand.

The SBP came in as a runner-up for the central bank category, but only by a very small margin. Introducing a slew of supportive measures for the Islamic banking industry including establishing four Islamic finance subcommittees to increase the sector’s reach and allowing Islamic banking branches of conventional banks to set up a separate Pakistan Real-Time Interbank Settlement Mechanism in a bid to optimize the efficiency of the financial services of the banking system, the Pakistani central bank is unwavering in its dedication to increase the market share of Islamic banks — the SBP is indeed deserving to be one of the top central banks in the world in promoting Islamic finance.

Sector stalwarts
The strong support of these central banks are yielding positive results as Malaysian and Pakistani Islamic banks dominate the table of sector winners this year. Malaysian heavyweight CIMB Islamic bagged multiple awards including Best Private Equity House for the second consecutive year and beating Qatar First Bank to the top by a comfortable margin. CIMB Islamic Bank was the runner-up for the categories of Best Islamic Retail Bank (first time being recognized in this global category) and Best Islamic Bank for Treasury Management. CIMB Islamic also once again was voted as the Best Islamic Bank in Malaysia, demonstrating it strength both in the local and international markets. CIMB Islamic Trustees proved that it is the undisputed Best Islamic Trustee/Custodian of the year, winning it three times in a row; Malaysia’s AmanahRaya Trustees came in second.

In terms of treasury management, this year the industry voted Asian institutions to the top, changing last year’s GCC-focused dynamics. Pakistan’s Meezan Bank took home the crown as the Best Islamic Bank for Treasury Management by a large margin; together with runner-up CIMB Islamic, they both ousted Middle Eastern giants Abu Dhabi Islamic Bank (ADIB) and Al Rajhi Bank from the league. Voted as the Best Islamic Retail Bank in 2015, Meezan Bank also tied with ADIB as the runner-up for Most Innovative Islamic Bank; after coming in second in 2015, Dubai Islamic Bank (DIB) was crowned champion in this innovation category. DIB, with its customer-centric approach, also flexed its muscles running ahead of CIMB Islamic to clinch the title of Best Islamic Retail Bank.

The year 2016 has witnessed massive shake-ups across multiple sectors with new names to the fore: Islamic Finance House, based in the UAE, was voted as the Best Islamic Leasing Provider, a strong win in its IFN Best Banks Poll debut; while Sri Lanka’s Al-Falaah, the Islamic Business Unit of LOLC Finance, moved up the ranks from third place in 2015 to second place in 2016. It has indeed been a good year for Al-Falaah which has also been recognized as the second Best Islamic Bank in Sri Lanka.

Winning gold in the Best Islamic Private Bank category for the second consecutive year, ADIB continues to wow its customers by enhancing its offerings by expanding its product suite and upgrading its IT infrastructure. From third place, Maybank Islamic climbed the ladder this year grabbing second place in this category. 

Country leaders 
Leading Islamic banks continue to hold their ground in the domestic landscape but 2016 has also unveiled surprising new winners, a sign of rising healthy competition.

In the Middle East, several countries saw the return of 2015’s victors asserting their dominance with their expansive network, innovative products and excellent customer service. These nations include Bahrain (Winner: Bahrain Islamic Bank; Runner-up: Al Baraka Islamic Bank), Oman (Winner: Meethaq Islamic Banking by Bank Muscat; Runner-up: Bank Nizwa), Saudi Arabia (Winner: Al Rajhi Bank; Runner-up: Arab National Bank), Qatar (Winner: Qatar Islamic Bank; Runner-up: Qatar International Islamic Bank), the UAE (Winner: DIB; Runner-up: ADIB), Palestine (Winner: Palestine Islamic Bank; Runner-up: Arab Islamic Bank), Syria (Winner: Syrian International Islamic Bank; Runner-up: Albaraka Bank Syria) and Yemen (Winner: Islamic Bank of Yemen; Runner-up: Saba Islamic Bank).

The status quo was nonetheless disrupted in other Gulf markets. In Kuwait, Al Rajhi Bank Kuwait for the first time made it to the top-two list — grabbing second place in the Best Islamic Bank in Kuwait category; but huge applause goes to winner Kuwait Finance House which, for the 12th year running (since the IFN Best Banks Poll was launched in 2005!), has been selected as Kuwait’s most premier Shariah bank by IFN readers worldwide. A record-breaking and outstanding achievement! Moving on to Lebanon: despite its national economy suffering from crises within and beyond its borders, Arab Finance House managed to pip former champion Al Baraka Lebanon to the post to win Best Islamic Bank in Lebanon. Bank Mellat is living up to its name as the ‘Bank of the Nation’ as it wins Best Islamic Bank in Iran, outstripping 2013 winner Bank Melli Iran by over 50% in votes. The Best Islamic Bank in Jordan award once again goes to Jordan Islamic Bank which won by a comfortable margin over Islamic International Arab Bank which saw itself move up the polls from third place in the previous year.

Flying off to Asia, we saw household names like Bank Muamalat Indonesia (Runner-up: Maybank Syariah) winning the Best Islamic Bank in Indonesia award again; Bank Islam Brunei Darussalam in a landslide victory maintains its position as the Best Islamic Bank in Brunei (Runner-up: Maybank); in an extremely tight race — possibly the tightest we’ve ever seen! — CIMB Islamic managed to outdo Maybank Islamic (only by a hair’s breadth) to win Best Islamic Bank in Malaysia. Bank of Tokyo Mitsubishi UFJ takes home the title of Best Japanese Islamic Bank (Runner-up: Sumitomo-Mitsui Banking Corporation); and in Thailand, despite the great challenges faced by the Islamic Bank of Thailand in grabbing market share and turning profits, voters seem to be optimistic of the state-owned bank’s major overhaul and debt restructuring strategy, as they again voted it as the Best Islamic Bank in Thailand (Runner-up: CIMB). 

The South Asian region is characterized by repeated winnings — an encouraging trend testifying to the strength and dominance of these major players. Unsurprisingly, mammoth Islami Bank Bangladesh won again, for the 9th time, the Best Islamic Bank in Bangladesh award, far ahead of runner-up ICB Islamic Bank. In Pakistan, the country’s largest Islamic bank, Meezan, deservingly bagged the Best Islamic Bank in Pakistan award for the 10th time (Runner-up: Al Baraka Pakistan); while Amana Bank is awarded Best Islamic Bank in Sri Lanka for the sixth time (Runner-ups: Muslim Commercial Bank — MCB Islamic Banking Division and LOLC Finance’s Al-Falaah).

Moving farther afield, there’s been a flip in standings as Muslim Community Co-Operative Australia overtakes Amanah Islamic Finance Australia as the Best Islamic Bank in Australia. Similarly in Turkey, Al Baraka Turk Katilim Bankasi, 2015’s runner-up, displaced Turkiye Finans Katilim Bankasi, which settled for second spot this year, to become the Best Islamic Bank in Turkey.

In any institution, a transition in power may present itself as a hiccup in operations; likewise 2016 was a year of major management changes for the Bank of London & The Middle East; however, the Islamic bank’s strong fundamentals and clear strategy continue to steer the bank to be honored as the Best Islamic Bank in the UK, a position it has been holding since 2009. Masraf Al Rayan again emerged as the runner-up.
The Best Islamic Bank in the US goes to Michigan-based University Islamic Financial (UIF). Delivering impressive results in 2016, UIF set a new record originating over US$200 million of financings in the third quarter and passed the US$1 billion of financings threshold since inception. This year, IFN welcomes runner-up Guidance Residential to the list of top US Islamic banks for the first time, which beat mainstays Lariba and Devon Bank in the polls.

Zooming into Africa, the Albaraka brand continues to exert its presence in all corners of the world: Al Baraka Bank Sudan adds yet another trophy (fifth) to its collection this year as Best Islamic Bank in Sudan (Runner-up Arab Sudanese Bank appears on the list for the first time); the Egyptian arm of Albaraka wins Best Islamic Bank in Egypt again (Runner-up: Faisal Islamic Bank of Egypt) and Albaraka also steals the show in South Africa with yet another consecutive win (Runner-up: FNB Islamic Finance). In Kenya, Gulf African Bank leapfrogged from third place to first as Best Islamic Bank in Kenya (Runner-up: First Community Bank).

Best of the best
And finally, saving the best for last, in one fell swoop, this bank again proves its worth, even more so during a year flooded with uncertainty and economic headwind as it goes on to win multiple awards across different categories, illustrating its enviable strength as an issuer, investor and retail player. The IFN’s 2016 Best Overall Islamic Bank award goes to Dubai Islamic Bank yet again! Winning the title for the second consecutive year, DIB’s 2016 IFN Awards stable also includes Best Retail Islamic Bank, Most Innovative Islamic Bank and Best Islamic Bank in the UAE. An extremely well-deserved win and IFN extends its heartiest congratulations to this global Islamic finance pioneer! Congratulations are also in order for runner-up CIMB Islamic Bank and second runner-up Abu Dhabi Islamic Bank for this coveted accolade. 

It is indeed a privilege to honor all the winners of the IFN Best Bank Poll 2016, which have showcased great fortitude, creativity and strength the past tumultuous 12 months with each leaving an indelible mark on the global Islamic finance and banking landscape — we thank and commend you for your excellent service and performance and are proud to recognize your contributions.

Best Islamic Bank by Sector

Best Overall Islamic Bank

1st: Dubai Islamic Bank* 2nd: CIMB Islamic Bank; 3rd: Abu Dhabi Islamic Bank

Best Central Bank in Promoting Islamic Finance

1st: Bank Negara Malaysia 2nd: State Bank of Pakistan

Best Islamic Leasing Provider

1st: Islamic Finance House 2nd: Al-Falaah, Islamic Business Unit of LOLC Finance

Best Islamic Private Bank

1st: Abu Dhabi Islamic Bank* 2nd: Maybank Islamic

Best Islamic Retail Bank

1st: Dubai Islamic Bank 2nd: CIMB Islamic Bank

Most Innovative Islamic Bank

1st: Dubai Islamic Bank 2nd: Abu Dhabi Islamic Bank & Meezan Bank

Best Islamic Trustee/Custodian

1st: CIMB Islamic Trustee* 2nd: AmanahRaya Trustees

Best Islamic Bank for Treasury Management

1st: Meezan Bank 2nd: CIMB Islamic Bank

Best Private Equity House

1st: CIMB Islamic* 2nd: Qatar First Bank*

Note: Red, Bold: winner; * Repeat winner

Ratings in Islamic finance — criteria upgrades and rating changes

Rating actions are one of the many indicators conveying risks, opportunities and challenges that can affect the performance of debt issuances, financial institutions, corporations, countries and other stakeholders in the Islamic finance industry. It has become an increasingly important determinant factor within the industry. DANIAL IDRAKI reviews rating activities across different regions in the industry in 2016.

Methodological developments
In September 2016, Malaysian rating agency RAM Ratings updated the criteria and methodology for Takaful and insurance companies, incorporating updates arising from industry, regulatory and accounting developments in recent years. The rating methodology also applies to captive insurers, reinsurers and financial guarantee insurers. RAM has also renamed the terminology used to assign ratings to insurance companies, from a claims-paying ability rating (applicable to most entities in the insurance industry) and a financial enhancement rating (applicable to financial guarantee insurers) to an insurer financial strength (IFS) rating. The IFS rating recognizes that insurers may have financial and/or debt obligations, on top of their obligations to policy/certificate holders and as such, indicates an insurer’s overall capacity to meet its financial obligations to policyholders and other creditors, including debt holders.

Another Malaysia-based rating agency, MARC, updated its rating approach to Sukuk in August last year, which was previously updated in April 2015. The updated approach includes slight changes to Sukuk rating definitions to accommodate both asset-based and asset-backed instruments. MARC currently uses two rating scales for rating Islamic fixed income instruments, an Islamic debt rating scale (with the subscript ID) and a Sukuk rating scale (with the subscript IS). It will migrate existing Islamic debt ratings to the Sukuk rating scale and subsequently withdraw its Islamic debt ratings and rating scale, which will affect 14 debt ratings accorded to outstanding combined conventional and Islamic medium-term note programs, Bai Bithaman Ajil debt securities and residential mortgage-backed securities of 12 issuers.

In January last year, Moody’s Investors Service republished its bank rating methodology to update Appendix 4, where the changes provide more clarity on how the rating agency distinguishes between the different legal aspects of resolution regimes and will not in themselves impact the credit ratings of any banks, according to a statement. The appendix details how certain legal aspects of bank resolution frameworks and bankruptcy law are considered in the application of Moody’s Advanced Loss Given Failure approach, and related key rating assumptions.

Fitch Ratings, meanwhile, updated its criteria for rating Sukuk in August last year, replacing the existing criteria published on the 18th August 2015. The new criteria apply to originator-backed (asset-based) Sukuk structures, internationally encompassing corporates, financial institutions, sovereigns, supranationals, public finance, insurers and global infrastructure, but not to asset-backed Sukuk which rely on underlying collateral.

Fitch’s analytical assumption under these criteria is that the structure of the Sukuk and the underlying transaction(s) provide for full recourse to the originator — as with a conventional bond issue — and the Sukuk rating is driven solely by the originator’s rating. The rating agency added that there remains a lack of legal precedents in terms of effective enforcement in many jurisdictions where Sukuk issuance is prevalent, and therefore it remains uncertain whether certificate holders will be able to enforce their contractual rights in local courts. Fitch further noted that the Sukuk analysis and ratings will reflect its view that the default of these senior unsecured obligations under the legal structure and Sukuk documentation would reflect the default of the entity in accordance with Fitch’s rating definitions.

Over in Pakistan, the Securities and Exchange Commission of Pakistan (SECP) had in August approved new regulations for credit rating agencies (CRCs) known as the Credit Rating Companies Regulations 2016, stipulating various new requirements and strengthening existing ones for CRCs. The new regulatory regime is in line with the SECP’s efforts to strengthen the capital market with a significant aspect being the introduction of a detailed licensing regime for CRCs with fit and proper criteria for promoters, chief executives, directors and senior management officers. 

Global review
Sovereign ratings across the globe reflect uncertain global economic conditions. RAM downgraded Saudi Arabia to ‘gAA3(pi)/Stable’ from ‘gAA2(pi)/Negative’ on the back of the Kingdom’s steep fiscal and current account deterioration, while it revised the outlook on Bahrain’s sovereign ratings to negative from stable on the global, ASEAN and Malaysia national scales. 

Moody’s revised the Omani banking system to stable from negative, while affirming Jordan’s ‘B1’ government issuer rating and ‘B1’ senior unsecured debt rating, with a stable outlook. The ratings reflect Moody’s view that the Hashemite Kingdom will manage to stabilize its main debt and external vulnerability indicator metrics even as overall debt remains high when compared to similarly rated peers.

Fitch, meanwhile, affirmed Kuwait’s long-term foreign and local currency issuer default ratings (IDRs) at ‘AA’ with a stable outlook. The rating agency also affirmed Qatar’s long-term foreign and local currency IDRs at ‘AA’ with a stable outlook. Over in Malaysia, S&P affirmed the country’s long-term and ‘A-2’ short-term foreign currency sovereign credit ratings and also its ‘A’ long-term and ‘A-1’ short-term local currency sovereign credit ratings with the outlook on the long-term rating remaining stable.

Singapore: Tough 2016

The Singaporean Islamic finance market has for years struggled to gain traction due to a variety of factors including weak political will to develop the industry, the absence of a sizeable Muslim population and the strength of its conventional finance market and it seems the Lion City had a tougher time pushing the proposition in 2016 as global economic pressures weigh heavily on the country. VINEETA TAN provides an overview of the Shariah finance landscape of the Asian tiger.

Regulatory environment
Rather than incentivizing market participants to encourage Islamic finance activities, Singapore’s approach differs from neighboring Malaysia in that it applies non-preferential treatment to create a level-playing field for both conventional and Islamic finance. Islamic finance and banking are governed under the same regulation, the Banking Act, which treats Shariah compliant finance within a secular legal structure, with no reference to Arabic names.

Nonetheless, like many other jurisdictions attempting to kick-start their Islamic finance industry, Singapore did make initial concessions to give the sector an advantage in its vastly conventional landscape. Several regulations were introduced between 2005 and 2009 legislating Shariah banking and financing instruments as well as amendments to tax regulations which removed additional tax obligations arising from the asset-based nature of Shariah transactions. In 2013 however, the central bank — the Monetary Authority of Singapore (MAS) — allowed two Islamic finance tax incentives (rolled out in 2008) to expire; this led to doubts on MAS’s commitment to Islamic finance and banking. Yet despite so, the regulator has consistently reaffirmed its Islamic finance dedication. On the 8th April 2015, a conditional provision for the remission of stamp duty to Islamic financial contracts was made via the Stamp Duties (Islamic Finance Arrangements) (Remission) Rules 2015.

In June 2015, the deputy managing director of MAS, Jacqueline Loh, confirmed that the apex bank was working in collaboration with industry participants and other government institutions to provide greater clarity in the regulatory and tax treatment for Sukuk including a potential pre-approved standardized template for common Sukuk structures.

Banking and finance
As far as the Islamic banking sector is concerned, the market suffered a blow following the 2015 announcement that the country’s sole fully-fledged Shariah bank, the Islamic Bank of Asia (IB Asia), will shutter its operations due to its failure in generating economies of scale. This is despite Shariah banking assets in Singapore growing 73% since 2010 and the number of banks involved in Islamic banking doubling to 15 over the five-year period since then. IB Asia’s parent DBS Group Holdings, however, has said that it will maintain an Islamic portfolio. Other prominent Islamic banking service providers include Maybank and CIMB. Nonetheless, several notable Shariah deals took place in 2016 including a SG$260 million (US$179.58 million) transaction by RB Capital, one of the largest Islamic deals in the city state and a SG$181 million (US$125.02 million) Islamic refinancing facility by Sabana REIT.

August 2016 saw the first-ever default in a local currency Sukuk facility: a subsidiary of Swiber Holdings was unable to meet its US$4.88 million obligation under its US$150 million 2013 Sukuk program. This was followed by several bond defaults by other oil and gas players in the industry. The defaults have raised concerns on the financial sector’s exposure to the oil and gas sector, with the expectation that tough market conditions are expected to continue in 2017.

The situation took place amid the biggest quarter-on-quarter GDP drop Singapore has experienced since 2012, as the economy contracted by 4.1% during the July-September 2016 period; year-on-year, this represented a 0.6% expansion, significantly lower than previous estimates of 1.7% growth. 

In general, Singapore has a relatively lackluster Sukuk market: government agencies have been active bond issuers in order to develop the nation’s capital markets; however, in the past five years (since 2015), there have only been 31 Sukuk issuances in the country, according to MAS. The lack of Sukuk activities has been attributed to the great comfort of issuers with conventional facilities and the lack of incentives to pursue Islamic debt.

Asset management
While Singapore’s Shariah banking and Sukuk segments may not be up to par, however, Asia’s Switzerland is well positioned to leverage its sophisticated wealth management expertise and the burgeoning wealth of Asia to develop a strong Islamic asset management repertoire. The country is home to one of the world’s largest Islamic real estate investment trusts, Sabana REIT, which continues to be active in the market: in December 2016 alone, Sabana REIT confirmed plans to acquire three different properties and also met with China’s Sichuan Development Holding to explore Islamic finance opportunities. As at the end September 2016, the REIT’s total assets reached SG$1.06 billion (US$732.15 million); gross revenue dropped 9.7% year-on-year to SG$23.03 million (US$15.91 million).

There is also a rise of Islamic crowdfunding platforms in Singapore. The city state is home to at least two such platforms: Club Ethis and Kapital Boost. In the final quarter of 2016, Kapital Boost was certified Shariah compliant by the Financial Advisory & Consultancy.

The slow momentum gained during 2016 is expected to persist well into 2017: analysts have downgraded their GDP forecasts for Singapore (OCBC revised growth to 1.5% from 1.9% and BMI Research from 2.2% to 1.9%) — and this is likely to impact the Islamic finance market as well. And while Singapore may have the makings to be a potentially significant Islamic wealth management center, the market lacks a substantial retail base and government support to propel the sector. Government support and continued public awareness are key in developing its Shariah finance industry.

Sovereign Sukuk: Nigeria and Saudi one step closer to joining the sovereign club

The new year looks to be off to a good start with a healthy dose of activity in the sovereign Sukuk space, while Nigeria is hard at work as it plans to issue its maiden offering this year. DANIAL IDRAKI brings you the latest developments across the sovereign Sukuk market.

Nigeria’s Debt Management Office (DMO) has announced that the country is seeking advisers and trustee firms to organize and manage its debut sovereign Sukuk. This initiative comes as an effort to establish funding and reduce budget deficits. The DMO also stated that the bids are to be submitted by the 9th January 2017. Issuance of a sovereign Sukuk is part of a plan by Nigeria to develop alternative sources of funding and to establish a benchmark curve.

Saudi Arabia
Saudi Arabia was reported to have discussed with banks on a possible Sukuk sale in the first quarter. According to Bloomberg, the sovereign is considering tenors of seven and 16 years, although no definitive size or timing has been decided yet. 

The government of Malaysia will issue a RM3.5 billion (US$779.96 million) government investment issue (GII) Murabahah facility with a profit rate of 4.79% on the 6th January 2017. The facility will mature on the 3rd March 2020, and BNM may purchase up to 10% of the issuance size.

The Central Bank of Bahrain (CBB) announced that its December Sukuk Salam issuance worth BHD43 million (US$112.37 million) has been fully subscribed. Maturing on the 22nd March 2017, the expected return for the 91-day paper is 2.05%. The issuance is the 188th of the CBB’s short-term Sukuk Salam series. The CBB also issued BHD26 million (US$68.47 million)-worth of Sukuk Ijarah; the facility was fully subscribed.

Upcoming sovereign Sukuk



Expected date

Saudi Arabia





First half 2017



First quarter 2017


US$2 billion



IRR60 trillion




First quarter 2017










South Africa






Hong Kong

US$500 million to US$1 billion


Ningxia Hui Autonomous Region

US$1.5 billion



XOF150 billion






US$500 million





Shandong Province

CNY30 billion


Sindh Province

US$200 million



KWD5 billion





Sri Lanka

US$1 billion



US$1 billion


IFN Monthly Review: Ringing in the new year with significant developments in December

Welcome to the first edition of our monthly global analysis for 2017, a comprehensive review of what’s been happening across the world’s Islamic markets over the past four weeks. December witnessed a number of interesting developments with a surge in oil prices along with steady Sukuk issuance and exciting news from across the banking markets. DANIAL IDRAKI brings you the round-up of the latest news.

2016 was indeed a turbulent year for the financial markets, and December wrapped up with key developments that would shape how the markets will operate in 2017. The Federal Reserve raised interest rates on the 14th December, which was only the second time in a decade since the housing crisis in the US reverberated throughout the world. Major oil-producing countries finally came to an agreement on oil production after Saudi Arabia and Iran, two main players in the energy sector and members of OPEC, signed a deal during a meeting in Vienna to reduce output.
Sovereign activity continues to reflect much promise, and Morocco plans to issue its first-ever sovereign Sukuk in the domestic market in the first half of 2017. According to Morocco’s finance minister, Mohamed Bossaid, the size of the issuance is yet to be decided though it will coincide with the launch of a market for Islamic banking after the country adopted legislation allowing Shariah compliant finance into the domestic market. 

Saudi Arabia, meanwhile, plans to raise between US$10-15 billion in international debts, which may include Sukuk, to fund its budget deficit for 2017. The authorities are predicting sales of SAR70 billion (US$18.65 billion)-worth Sukuk in the local market and are in talks with banks to discuss the prospective issuance, according to Mohammad Al Tuwaijri, the secretary-general of the Finance Committee at the Royal Court, who told Saudi-owned Al Arabiya Television.

Malaysia’s GII Murabahah continue to be oversubscribed after the RM1.5 billion (US$338.34 million) offering received 272 bids worth a total of RM5.63 billion (US$1.27 billion), while Brunei issued its 140th series of short-term Sukuk Ijarah. Bangladesh also saw an active month after the government issued its six-month Islami Investment Bond (BGIIB), which received a total of eight bids amounting to BDT1.67 billion (US$20.58 million). Supranational bodies have also been rather active toward the end of the year, with the International Islamic Liquidity Management Corporation’s US$500 million three-month tenor Sukuk facility at a profit rate of 1.35% oversubscribed after receiving a total of 10 bids.

Over in Kuwait, the National Bank of Kuwait and KAMCO were invited by the Public Debt Office to participate in a sovereign bond issuance. The government plans to issue US dollar denominated bonds amounting to US$10 billion, both conventional and Sukuk, to reduce deficits for the fiscal year ending on the 31st March 2017.

On the corporate front, Al Baraka Banking Group is planning a Tier 1 capital-boosting Sukuk worth US$300 million in the first quarter of 2017, and is currently in the midst of discussing with a number of banks about arranging the Islamic debt facility. Having sold a US$368 million Sukuk privately and a QAR2 billion (US$548.76 million) additional Tier 1 perpetual Sukuk facility in September last year, Qatar Islamic Bank has no immediate plans to issue more Sukuk, according to its CFO, Gourang Hemani.

In Saudi Arabia, international power and water company ACWA Power is set to raise approximately US$1 billion through a Sukuk issuance due 2039, which is rated ‘(P)Baa3’ with a stable outlook by Moody’s Investors Service. In Malaysia, the Federal Land Development Authority is looking to finance its 37% stake acquisition in Indonesia’s Eagle High Plantations through a mix of Sukuk issuances and loans, according to The Star. Approximately 50% of the fund, worth RM2.26 billion (US$503.8 million), will be financed by a loan from a European bank while the remaining fund would be from a Sukuk issuance. Maxis Broadband also issued its third Sukuk Murabahah amounting to RM2.45 billion (US$549.75 million).

December also saw an active period of Islamic financing, rights issuance and merger approval. The National Shipping Company of Saudi Arabia signed a syndicated Murabahah facility agreement worth US$350 million with a number of banks, while Ezdan Holding in Qatar received a US$460 million Islamic syndicated financing facility for a period of eight years. In Kuwait, Salhia Real Estate signed two Islamic credit facility agreements consisting of a KWD15 million (US$49.1 million) nine-year term facility and a KWD14.5 million (US$47.46 million) eight-year term facility with separate Islamic banks. Emirates Islamic, meanwhile, launched a AED1.5 billion (US$408.29 million) rights issue to boost its capital. In the UAE, shareholders of National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) approved a proposed merger of the two banks involving a share swap, in which FGB shareholders will receive 1.25 NBAD shares for each FGB share they hold.

December was a boost to the global markets after OPEC members pledged to cut production by about 4.5% or 1.2 million barrels per day, the first cut in eight years. Oil prices soared to more than 8% to reach nearly US$50 a barrel after the announcement was made.

The S&P Global BMI Shariah Index saw a rather steady month, after it rose slightly to 121.67 as at the 30th December from 120.24 from a month earlier, while the index’s one-year performance saw a rise of 6.2% to close the year on a more positive note. Its conventional twin, meanwhile, saw an upward shift of 2.15% at the end of December to reach 210.79.

The S&P Developed BMI Shariah Index also rose a marginal 1.37% to reach 127.42, although the S&P Emerging BMI Shariah Index saw a slight dip to 75.08 from 75.74 a month earlier. The Middle East closed the year on a high after the S&P Pan Arab Composite Shariah Index rose 4.08% to reach 120.6 at the end of December, although the S&P Pan Asia Shariah Index went in the opposite direction after losing 2.34% over the month. Africa ended the year with much optimism after the S&P Pan Africa Shariah Index rose 6.1% to reach 91.63 as at the 30th December.

Collaboration and development
The Islamic finance industry welcomed the long-awaited Shariah standard on gold after it was launched by AAOIFI and the World Gold Council. The standard will, for the first time, set specific rules for the use of gold as an investment in the Islamic finance industry and will also open up a new investment asset class, enabling Islamic banks and financial institutions to facilitate the creation of a broader range of saving, hedging and diversification products.

Shortly after the standard was announced, a number of entities made their bid in the Islamic gold investment space. Kuala Lumpur-based fintech firm, HelloGold, the first online gold platform to be endorsed as Shariah compliant by Amanie Advisors, confirmed that it is expanding beyond Malaysia to include other ASEAN markets in the second half of 2017, while in the European market, French Takaful specialist SAAFI launched a physical gold investment product, in collaboration with INAIA. Over in Ireland, GoldCore began working on a Muslim-friendly gold investment solution with plans to introduce it to the market by the first quarter of 2017.

Besides financial institutions, regulators around the world are also leveraging on the new standard after Dubai Multi Commodities Center and Borsa Istanbul signed an MoU to work toward establishing an international Shariah compliant precious metals platform. With the new Shariah standard on gold and its trading controls opening the floodgates to further gold investment in the Islamic finance universe, more collaboration between international market players are expected to come to the fore in the global commodities trading arena.

Asset management
Islamic asset management saw a slew of exciting developments over the past four weeks, with one of the most significant being the collaboration between Malaysia Venture Capital Management (MAVCAP) and Silicon Valley-based Elixir Capital to set up and operate the Global Islamic Economic Fund, targeting up to US$250 million for the Islamic innovative ecosystem. Elixir Capital’s managing director, Amir Azahar, confirmed with IFN that the new Islamic fund will make allocation for start-ups in OIC countries, with Malaysia and Indonesia being the prime focus.

Public Mutual declared distributions of more than RM95 million (US$21.28 million) for nine funds for the financial year ended the 30th November, with the Public Islamic Infrastructure Bond Fund registering the highest gross distribution of four Malaysian sen (0.9 US cent) per unit while the Public Islamic Alpha-40 Growth Fund, the Public Islamic Asia Leaders Equity Fund and Public Islamic Mixed Asset Fund registered distributions of 0.25 sen (0.056 US cent), 0.15 sen (0.034 US cent) and 0.4 sen (0.09 US cent) respectively. 

In Singapore, Shariah compliant Sabana REIT has entered into a conditional put and call option agreement with Singapore Handicrafts in relation to the proposed acquisition of a property worth approximately SG$20.9 million (US$14.44 million). Furthermore, the company entered into a conditional sale and purchase agreement with X Properties for the proposed divestment of a property worth SG$148 million (US$104.19 million), which is expected to be completed by the first quarter of 2017.

In a setback to South Africa-based PSG Melrose Arch, an investment management and financial services firm, its Official Shariah Certification was revoked and terminated after the firm failed a periodic Shariah audit and refused to grant access to the financial documents, processes and records of clients signed with the Islamic division. Over in the GCC, Shuaa Capital, a financial services firm, bought a 14.01% stake in its subsidiary, Khaleeji Commercial Bank (KCHB). 

December was also a month of major movements across the board. At the International Islamic Liquidity Management Corporation, Professor Dr Rifaat Ahmed Abdel Karim has stepped down as CEO after four years helming the institutions; Godwin Emefiele, the governor of the Central Bank of Nigeria, was appointed as IILM’s new chairman; Raja Teh Maimunah, currently the CEO of Hong Leong Islamic Bank, will be joining AmBank Group in April; Gulf Bond and Sukuk Association appointed Emirates NBD’s managing director and global head of debt origination and distribution, Andy Cairns, as the new chairman of the GBSA Regional Board, while Anita Yadav, the senior director for global markets and treasury and head of fixed income research of Emirates NBD, has been appointed as the acting vice-chair; Al Rayan Bank named Venkat Chandrasekar as its new COO; and Khaleeji Commercial Bank confirmed that its board member, Mohamed Barrak Al Mutair, has resigned effective 25th December 2016.

Women and Words: More jobs for the boys in iCSR?

By Laura Elder, a cultural anthropologist who teaches in the Department of Global Studies at Saint Mary’s College in Notre Dame. Her primary research interests are global political economy, Islam and gender. She can be contacted at lauraeveelder@gmail.com.

Corporate social responsibility (CSR) is meant to support social development initiatives. Of course, depending on the tax regime, CSR may also be particularly important in relation to reducing tax liabilities. But, focusing on social development goals for Islamic finance, AAOIFI has designated five mandatory disclosure requirements for CSR including elucidating policies for screening and dealing with clients, statement of earnings and expenditure prohibited by Shariah, employee welfare and Zakat. But, according to the recently released 2016 Islamic Finance Development Indicator Report, most Islamic finance institutions are not disclosing this information on their CSR initiatives.

CSR programs and initiatives also reveal interesting intersecting assumptions about women’s empowerment, expertise and social function. For example, Shariah advisors have repeatedly told me that female Shariah advisors are more often designated by their male colleagues as lead screeners and decision-makers for CSR funds. As reported by these women, they were assigned CSR roles in particular because their male colleagues assumed that they had more expertise in social development because of their ‘mothering’ expertise. At the other end of the spectrum, among receivers of CSR rather than among financiers, banking and finance institutions have become similarly interested in harvesting women’s social expertise in microfinance guarantee programs. Many analysts have labeled microfinance initiatives predatory because there is often an explicit transference of risk and responsibility onto women and women’s networks. For example, banks often outsource loan repayments to women’s groups as women’s consistency in paying back and managing the group’s finances reduces administration costs for financial institutions. In this way, women’s social expertise and networking are taken for granted and remain unrewarded.

In both of these cases, both iCSR and microfinance, the fundamental issue is that without adequate disclosure of a financial institution’s methodologies for screening, dealing and payments, it will never be possible to evaluate social development initiatives. Certainly, this is not a problem peculiar to Islamic financial institutions; however, I suggest that CSR disclosure is a particularly potent place to begin working toward transparency. Otherwise, both giving and receiving iCSR may result only in more unrewarding work for women. 

The outlook and predictions for Islamic fintech in 2017 and beyond

By Mohammad Raafi Hossain, a social entrepreneurship and ethical expert.

In the tech world – with fintech being no exception – there is a widely accepted adage: Change in consumer behavior doesn’t happen as fast as expected, but when it does, the results are far greater than anticipated. MOHAMMAD RAAFI HOSSAIN explores.

That being said, Islamic fintech is just catching on, but I would like to say certain concrete milestones were crossed in 2016 with the most prominent among them being the notion that Islamic fintech, being an actual, tangible industry, is real and here to stay. In 2015, Islamic fintech was not two words that were linked together in any meaningful way. Today, as one of its founding members, there is an Islamic Fintech Alliance with over a dozen members and continuing to grow. 

I expect 2017 to be a transition year for Islamic fintech with the industry going from a validation phase to a growth phase. Based on this outlook, I believe four things will happen to continue to facilitate that transition:

1)    Institutional support for Islamic fintech

With Islamic fintech now more than just a concept, there will be greater institutional support for current and future platforms to enter this burgeoning ecosystem. Such support will come, initially, from governments looking to solidify themselves as the future home of Islamic finance. 

There are already certain projects underway involving multiple governments for support toward the nascent Islamic fintech sector. Public sector support will also give asset managers, venture capitalists and other key institutional investment partners to take the deep dive into the Islamic fintech space. 

2)    The rise of the ‘tech’ in Islamic fintech

With the lack of significant institutional support in 2016, most Islamic fintech start-ups had to be creative in finding a way to prove their business models. Often times, this comes at the cost of integrating the most cutting-edge technologies.

However, many of the leading start-ups in 2016 will have much more freedom and larger budgets to incorporate more rigorous tech to scale their platforms in 2017 and beyond.

3)    Pilot collaborations from Islamic banks

In the conventional fintech space, 2016 was a year that marked ‘disruptors (start-ups)’ and ‘incumbents (banks)’ figuring out that sometimes joining together is the best way forward. As such, some of the largest banks in the world made a concerted effort to join forces with determined start-ups. 

Given the success of this shift in strategy, the same is expected to occur at an even more rapid pace in the Islamic finance sector in 2017 and beyond. 

4)    Diversification from just crowdfunding

With the rise of new technologies such as blockchain and a host of digital payment solutions, there is a new wave of platforms that are emerging around areas that are beyond the P2P crowdfunding space, including wealthtech, insuretech and other solutions that will affect every side of banking. 

There are already Islamic fintech start-ups venturing in this direction and it’s a welcome development, given that the founding members of the Islamic Fintech Alliance were all crowdfunding platforms.

Robust rating prospects for Islamic finance into the next decade

Growth prospects for Islamic finance are strong, as the Islamic banking sector continues to show higher growth. CHRISTIAN DE GUZMAN, SIMON CHEN and NITISH BHOJNAGARWALA opine that this trend should continue well into the next decade. 

Overall, growth is driven firstly by the persistent efforts of government agencies and central banks to put in place supportive legislation for the industry, and secondly, retail customer demand. 

An example of recent growth in the Islamic banking sector is Oman. Over the last three years, the sector has gone from zero to an aggregate of around 10% of Oman’s banking system financing assets as of June 2016 compared to Indonesia and Turkey, which have both taken over two decades to reach around 5% of banking system financing assets. Nevertheless, the governments of Indonesia and Turkey have taken initiatives to boost growth in the sector over the next 10 years. 

In fact, countries in which the penetration of Islamic banking assets remains relatively low – at between 5% and 10% of Islamic financing assets – should see further growth in their Islamic finance sector. 

As for Islamic banks in particular, the liquidity coverage ratios (LCRs) of such banks in key Asian and GCC countries highlight sound liquidity profiles and broad compliance with Basel III regulatory requirements. 

However, when compared to conventional peers, Islamic banks in some jurisdictions clearly face a shortage of Shariah compliant high-quality liquid assets (HQLAs), putting them at a disadvantage. 

In particular, the limited availability of HQLAs means that large, low-yielding buffers of cash or bills are commonly held, posing a persistent profitability challenge for Islamic banks in most GCC countries when compared to the situation for their counterparts in Malaysia, Indonesia and Qatar, where the sovereigns are supportive of the industry through the frequent issuance of Sukuk

Looking ahead, funding for Islamic banks will continue to benefit from the expansion of their retail businesses, while the development of domestic Sukuk markets will improve the banks’ access to HQLAs, further bolstering their LCRs. 

As for new Sukuk issuance, the outlook for volumes in 2017 is promising, with issuance likely from sovereigns, banks and corporates in the Gulf, as regional financing needs increase, amid historically lower oil prices. 

Sovereign Sukuk issuance in particular will be stable, as Malaysia, Indonesia and Turkey continue to regularly issue long-term sovereign Sukuk, while Gulf countries have favored conventional debt structures to finance their deficit. In general, the GCC sovereign Sukuk market remains dominated by Qatar, the region’s most active and regular issuer of long-term sovereign Sukuk

The choice between conventional and Islamic issuance depends on the investor base. Malaysia has already developed a deep and mature Islamic finance market, while Indonesia has been the most regular issuer of sovereign Sukuk in international markets. 

In the GCC, deposit growth – and therefore liquidity levels – has been higher among Islamic banks than conventional banks, but GCC financial institutions are constrained by the scarcity of highly rated Shariah compliant assets, including sovereign Sukuk

Sub-Saharan African (SSA) sovereigns are continuing to ramp up issuance. Senegal and Côte d’Ivoire are among a handful of new sovereign Sukuk issuers, while Nigeria is stepping up volumes. SSA sovereign Sukuk issuance is likely to remain active, as governments set up regulatory frameworks for a retail Islamic banking sector and test the market’s appetite.

Christian de Guzman is the vice-president and senior credit officer for Moody’s Investors Service’s Sovereign Risk Group; Simon Chen is the vice-president and senior officer for Moody’s Investors Service’s Financial Institutions Group; and Nitish Bhojnagarwala is an assistant vice-president and analyst for Moody’s Investors Service’s Financial Institutions Group. They can be contacted at Christian.Deguzman@moodys.com, Simon.Chen@moodys.com and Nitish.Bhojnagarwala@moodys.com respectively.

AmBank Islamic retains ‘AA2’ ratings

MALAYSIA: RAM has maintained its rating on AmBank Islamic at ‘AA2’, as announced in a press release. It has also reaffirmed its ‘AA2’ rating on the bank’s RM3 billion (US$668.77 million) senior Sukuk Musyarakah and ‘AA3’ ratings on RM2 billion (US$445.84 million) subordinated Sukuk Musyarakah and RM3 billion (US$668.77 million) subordinated Sukuk Murabahah. All ratings carry a stable outlook.

RAM maintains BGSM Management’s Sukuk rating

MALAYSIA: RAM has reaffirmed the ‘AA3’ rating of BGSM Management’s RM10 billion (US$2.23 billion) Sukuk, as announced in a press release. The rating is reflected by the firm presence of Maxis, BGSM Management‘s sole subsidiary, in the country’s telecommunications service providers market.



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