The rapid international expansion of Islamic finance reflects its ability to remain competitive and to increasingly meet the complex requirements of the global financial community.
With various countries now intensifying efforts to develop their respective Islamic financial capabilities, it is becoming increasingly vital to build deeper relationships between the key markets for Islamic finance and also between the leading industry players in each of these jurisdictions.
Bahrain plans to issue a sovereign bond by the summer, its central bank said on Tuesday, a sign that the Gulf country is confident it can draw international investors despite ongoing social unrest and budgetary pressures.
A year of clashes between protesters from the Shi'ite majority and security forces has weighed on the small non-OPEC oil exporter, eroding capital parked in its mutual funds, while fiscal handouts have raised the average oil price the kingdom needs to balance its budget to near-market levels.
Traditionally, Islamic banks have outperformed their conventional peers in most markets. However, a closer look suggests the market dynamics are changing, demonstrating a new trend. Two key indicators are cause for reflection: slowing growth rates and eroding profitability, A.T. Kearney, a global management consultancy, said Monday.
Declining growth rates are occurring in key geographies including Saudi Arabia, Bahrain and the UAE, where growth rates have dropped to between 3 and 8 percent from double-digit figures. In parallel cost income ratios are increasing in most markets, putting pressure on profitability.
Global Islamic insurance contributions surged 19 percent in 2010 to $8.3 billion helped by Saudi Arabia, the world’s biggest oil exporter, which made up more than half the industry, an Ernst & Young report said.
The six-nation Gulf Cooperation Council, which also includes the United Arab Emirates, Qatar, Bahrain, Oman and Kuwait, made $5.68 billion of Islamic insurance or takaful contributions in 2010, and South East Asia $2 billion, according to the World Takaful Report 2012 e-mailed today.
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has proposed more detailed accounting standards for real estate while increasing disclosure for Islamic banks’ investment accounts.
The move by the Bahrain-based AAOIFI, one of the main standard-setting bodies in Islamic finance, suggests it is responding to the same kind of pressure to tighten standards that has been seen in the conventional finance industry since the global financial crisis erupted in 2008.
Despite talk of the kingdom losing its sheen as a financial hub amid its political instability, new data shows that a growing number of financial institutions registered in Bahrain up to the end of January, bringing the amount registered to 415 from 403 a year earlier.
While banks such as Crédit Agricole CIB and BNP Paribas grabbed headlines last year on news that some of its operations in Bahrain will move to Dubai, it has since emerged that those decisions were not based on the political situation in the kingdom. Instead, Bahrain’s financial sector has appeared to remain resilient, charting a 1.7% growth during the first half of last year.
Much of Bahrain’s banking sector recovery hinges on the government’s plans to resume spending on infrastructure projects and consolidation among its fragile Islamic financial institutions, following a year of unrest that has dimmed the sector’s prospects.
Bahrain was once a financial hub in the Gulf, attracting international lenders such as BNP Paribas and Citigroup to the island state’s shores before the emergence of similar commercial centers in Doha and Dubai. It is home to 123 conventional banks with combined assets of around $200bn.
Takaful operators must focus on improving the quality of their product offerings, Takaful awareness and investment discipline to help in sustaining the rapid growth expected in 2012, said an expert.
Ghassan Marrouche, general manager at UAE-headquartered Takaful Emarat, a Shariah compliant life and health insurance company, will be a panellist at the forthcoming eighth Middle East Insurance Forum which is set to take place on the February 7 and 8 at the Gulf Hotel in Bahrain.
Tighter funding in Europe is pushing Middle East issuers to tap the still-liquid Islamic finance markets for funds. Two regional banks have sold Islamic bonds, or sukuk, this week.
Dubai-based Emirates Islamic Bank issued a $500 million, five-year Islamic bond with a yield of 4.718%, while Abu Dhabi-based First Gulf Bank sold a $500 million, five-year sukuk with a yield of 4.046%.
Bouncebackability was a phrase coined by the aesthetically-challenged former soccer striker and manager Ian Dowie. It described the ability of Crystal Palace Football Club, a side Dowie managed between 2003 and 2006, to recover from going down a few goals early on in the game to gain a draw or win in the match. Dowie, affectionately known as Quasimodo, the fictional inhabitant of the Notre Dame Cathedral in Paris by opposing fans, was renowned for his ability to recover from a severe bashing as a manager or center forward and bravely stick his face back in the danger zone when duty called.
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