's SABIC gets $1bn credit from Alinma Bank

by Souhail Karam

Saudi based Alinma Bank said it would grant a $1 billion credit facility to Saudi Basic Industries Corp (SABIC), plugging a financing gap at the world's biggest petrochemicals group.

In a statement confirming a report by Al Hayat online news service on Tuesday, Alinma said: "The facility will fund some of SABIC's petrochemical projects as part of its strategic plans to enhance financing performance, boost competitiveness and help it achieve (its) expansion and growth strategy."

It did not disclose the terms of the facilities, saying only they complied with Islamic law.

Alinma was set up by royal decree in 2006. Government owned pension funds are its biggest shareholders with a 30 percent stake while Saudi citizens hold the remaining 70 percent.

SABIC Chief Executive Mohamed al Mady declined to comment while Chief Financial Officer Mutlaq al Morished could not immediately be reached for comment. Alinma said Morished signed the agreement on behalf of SABIC.

SABIC's financial arm SABIC Capital delayed last month a benchmark dollar bond issue due to jitters that hit global credit markets over fiscal problems in some euro zone countries.

It was not immediately clear if there was a link between the Alinma deal announced on Tuesday and the delay in SABIC Capital's delayed bond issue.

Ratings agency Moody's assigned the planned bond an A+ rating and said it understood it would be used to refinance or repay debt at SABIC Innovative Plastics Holding, the renamed GE Plastics.

SABIC Capital was established in 2008 to look after the financing and tax operations of SABIC's investments in Europe and the United States after the acquisition of DSM Petrochemicals and GE Plastics.

Between July 2006 and May 2008, state controlled SABIC raised 16 billion riyals ($4.27 billion) from three Islamic bond issues. It raised $533.2 million in December 2009 from a private bond placement.

A typical benchmark bond issue is for a minimum $500 million. SABIC said that it has to repay $1.47 billion in long term loans in 2010 and $3 billion in 2011.

Source : Reuters

Islamic Finance Moves Toward Common Standards

By Oxford Analytica,

Regulation should help provide a basis for the industry's expansion.

Islamic finance is one of the fastest growing segments of international financial markets. Currently, total sharia-compliant assets amount to an estimated $1.125 trillion to 1.275 trillion, with an annual growth rate of 15-20%. The global credit crunch has not left it unscathed, and recent capital market growth has been hampered by conflicting interpretations of the sharia compliance of specific wholesale product structures (sukuk). Nevertheless, the outlook for the sector is positive.

AAOIFI. Efforts to standardize Islamic financial products should enhance the sector's prospects. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) plays an important role in this regard:

--Originally subscribed by an alliance of domestic and international Islamic banks as well as the Islamic Development Bank, industry-sponsored AAOIFI has since extended its membership categories to include authorities that regulate and supervise Islamic financial institutions.

--It also offers observer member status to conventional financial institutions that operate Islamic 'windows' (special facilities offered by conventional banks to provide services to Muslims who wish to engage in Islamic banking).

Standards. AAOIFI’s Sharia Standards 2010 contains 41 standards, including 11 new stipulations pertaining to gharar (uncertainty) in financial transactions, arbitration, zakat (alms giving) and online financial transactions among others. Additionally, its Accounting, Auditing and Governance Standards 2010 contains 40 standards covering the areas of accounting, auditing, ethics and the governance of Islamic financial institutions.

National adoption. These standards are primarily targeted at individual Islamic financial institutions, but they have also been adopted at a national level:

--The AAOIFI's standards have been made mandatory for Islamic financial institutions in Bahrain, Dubai International Financial Centre, Jordan, Sudan, Syria and Qatar.

--Last month the State Bank of Pakistan announced that it had begun selectively to implement AAOIFI Sharia Standards and has advised Islamic banks to prepare for the phasing in of further standards in the near future.

--In other countries, including Indonesia, Lebanon, Malaysia, Saudi Arabia and the United Arab Emirates, AAOIFI standards have been incorporated into national guidelines and are adhered to by AAOIFI member institutions.

Standardization issues. The lack of standardization of Islamic financial products has been a major barrier to the cross-border sale of Islamic financial products. The AAOIFI and its sister standard-setting organization, the Kuala Lumpur-based Islamic Financial Services Board (IFSB)--primarily tasked with developing capital adequacy rules for Islamic financial institutions--have become key players in the construction of the emerging international framework that governs Islamic finance. The AAOIFI has over 200 members from 45 countries while the IFSB has 193 members operating in 39 jurisdictions.

More intrusive regulation. So far the compliance of member institutions with the standards can neither be enforced nor fully monitored, unless they are mandated at country level and then enforced by domestic regulators. Last month, the AAOIFI announced a timetable for taking a more intrusive approach to regulating Islamic financial products, including plans to create a watchdog committee--composed of sharia scholars and market practitioners--by the second half of 2010. However, increasingly different trajectories of Islamic banking and Islamic capital market development could in turn affect the further standardization of Islamic financial products.

Challenges. There are two major challenges to the further growth prospects and pace of development of the industry. Both could benefit from enhanced standardization and the AAOIFI's work more generally:

--Interpretation of Islamic law. Given the absence of a highest religious authority in majority Sunni Islam, assessing the Sharia quality of Islamic financial products depends on a number of representatives from different legal schools with sometimes widely varying interpretations.

--Scarcity of qualified sharia scholars. To address the shortage of scholars well versed in both sharia and finance, a number of programs have sprung up that offer degrees in Islamic finance.

Outlook.Overall, the outlook for Islamic finance remains positive. Recent efforts to develop common standards for Islamic financial institutions should help to provide a sound basis for the expansion of the industry. Learn more Understanding Islamic Finance (The Wiley Finance Series)

Source : Forbes.com

Is Islamic finance at tipping point?

By Christopher Watts

Shari'a-compliant banking is fast moving from niche to mainstream, says Christopher Watts. But while continuing growth seems certain, challenges remain.

In January this year when the UAE's Sharjah Electricity and Water Authority (SEWA) needed cash to construct a power generation and desalination plant in the town of Hamriyah, it was Islamic finance that provided the answer: The utility raised USD 350 m by issuing its first ever sukuk – asset-backed bonds that comply with Shari'a, the Islamic legal code that prohibits interest.

By no means is SEWA alone in venturing into the Islamic capital markets. Corporate sukuk issuance leapt from USD 0.4 billion in 2000 to USD 24.5 billion in 2006, according to International Islamic Financial Market (IIFM), an industry association. Growth topped 122% in 2006 alone. "Islamic finance is no longer a niche market," says David Pace, CFO of Bahrain-based Unicorn Investment Bank (UIB), a Shari'a-compliant house. "It is increasingly a mainstream component of the global banking system."
To be sure, while the world's first Islamic bank was founded back in 1975, it is only in the last five years or so that Islamic finance has surged. Sniffing opportunity, conventional banks are now scrambling to set up Shari'a-compliant operations; and there has been a flurry of all-Islamic start-ups, from full-service investment banks to specialist advisory firms. Products have moved beyond lending, insurance and investment funds to include sukuk, hedge funds, currency swaps, and more.

Despite this boom – largely concentrated in the Middle East and South-East Asia – it's plain the Islamic finance industry still lacks global scale. Professor Rodney Wilson of the Institute for Middle Eastern and Islamic studies at Durham University in the UK estimates Islamic banking assets speak for less than 0.5% of the world's total. And worldwide sukuk debt outstanding amounts to perhaps USD 100 billion – just 0.1% of the global bond market.

Still, the signs point to a continuing surge in Islamic finance. Take economic growth: The Middle East and Asia are the two fastest-growing areas of the world. Kuwait Finance House expects 2007 GDP to rise 6.1% in the GCC and 6.2% in South-East Asia – in contrast to 2.4% in the EU and 2.2% in the US. Oil revenues lie behind the boom in the GCC; and in South-East Asia it is "the financial rigour adopted in the wake of the Asian currency crises," according to Douglas Clark Johnson, CEO of Calyx Financial, an alternative investment adviser based in New York.

Continuing growth in the GCC states and South-East Asia is fast creating a prosperous middle class among the regions' combined 410 m-strong Muslim population. As the ranks of the regions' newly well-off snap up credit to buy homes and cars, and invest in savings and retirement plans, demand for Shari'a-compliant retail financial services is set to accelerate. Behind such consumer products is a need for Islamic institutional finance too.

Consider, too, the vast cash-flows into the GCC region and South-East Asia: The IMF expects Indonesia and Malaysia alone to record a cumulative current account surplus of USD 132 billion for the five-year period to end-2008, in contrast to a deficit of USD 32 billion for the same period a decade earlier. And in the GCC, the surplus should reach USD 680 billion, versus a prior deficit of USD 8 billion.

Buoyed by this cash, regional governments are planning ambitious infrastructure programmes: Indonesia alone expects USD 110 billion of expenditure in the five years to end-2010; and consulting firm McKinsey estimates the GCC will invest USD 200 billion in the same period. Much of this spending is already being financed by sukuk – and the volume is set to balloon: Following its successful sukuk issue, SEWA hopes to raise another USD 2.7 billion. And in neighbouring Dubai, the electricity and water authority is eyeing a debut sukuk issue, with plans to raise USD 2.5 billion.

With ever-stronger foundations in the Middle East and Asia, Islamic finance is now starting to take hold in London, too. The UK's first standalone Shari'a-compliant bank opened its doors in 2004; two others have followed; another is on the way. (All are backed by Middle Eastern institutions.) And in April this year the London Stock Exchange listed its maiden sukuk, adding much-needed depth and liquidity to the market. Another milestone is in sight: the UK government is mulling its first sovereign sukuk issue, perhaps as soon as early-2008.

But challenges remain. If Islamic finance is to move deeper into mainstream global finance, the industry needs to improve transparency and foster credibility by harmonising standards and practices. Not least, Shari'a interpretation varies between regions and even institutions. Regulatory oversight need to be sharpened as well. These measures – and others – could be critical in broadening the appeal of Islamic finance and bridging the gap between Islamic and conventional financial systems.

The Islamic finance industry needs to work on innovation, too. Shari's-compliant products can be more complex than conventional ones because every transaction is backed a non-financial trade. Many instruments are still lacking, including corporate treasury and derivatives products. As UIB's Pace points out: "We [in the industry] need to change our perception of R&D, and view it as a core ingredient of success." But at the same time, innovation is hampered by the limited number of Islamic scholars able to vet financial products for Shari'a compliance.

For certain, industry practitioners are making progress. Earlier this year the International Capital Market Association and the IIFM agreed to develop standard contracts and common best practice for secondary trading of sukuk and other Islamic instruments. And it may help, too, that global banking giants are putting their weight behind Islamic finance. (Deutsche Bank, Barclays Capital and BNP Paribas are already among the world's top five issuers of sukuk.)

The question whether Islamic finance has reached critical mass remains open, of course. But Johnson of Calyx Financial is optimistic: "The tipping point may already have arrived," he ventures. Even if Johnson is wrong in his optimism, it seems unlikely history will prove him to have been very far wide of the mark.
Source : Economist.com

Islamic Finance: safer than Wall Street?

By David Rocks

I spent the past few days in Kuala Lumpur at a conference on American relations with the Muslim world sponsored by the Brookings Institution, the Asia Foundation, and Malaysia’s Institute of Strategic and International Studies. I was on a panel that looked at economic issues in Muslim countries, and one thing that came up was whether Halal financial instruments had held up better than traditional stocks and bonds. I hadn’t thought about this much, but it makes some sense given that Islamic finance is based on the concept of shared risk. The main instrument is called a sukuk, and any money proffered (it’s not technically a loan) is backed by some collateral held by the person or institution putting up the funds. That would pretty much eliminate the arcane instruments such as collateralized debt obligations and credit default swaps that got the Western financial world into so much trouble.

Since I really didn’t know much about it, I spent some time looking into the question today. I still have to plead relative ignorance, so I’d be grateful for any insights readers might have. But I found this story that said the total money invested in Halal instruments had grown to $1 trillion, five times the level of a half-decade ago.(As it turns out, the story came out of a conference in KL—which has become a center for Islamic finance—on Monday and Tuesday, the same days I was there at the Brookings gathering.)

I also found this story out of Australia that says the Dow Jones Islamic Finance Index rose nearly 5% in the most recent quarter. As I understand it, though, the DJ index measures shares in companies that have been judged to be Shariah-compliant (they don’t sell alcohol, pork products, and the like), not a measure of how well sukuks have fared in the market recently.

So that leaves me still looking for some kind of broader measure of the health of the Islamic finance sector. One of the other panelists yesterday, by the way, noted that while sukuks aren’t subject to the kind of turmoil now facing Wall Street, they have some disadvantages. Since they require collateral, they’re often backed by real estate—not necessarily a smart investment these days. In any event, as I discovered from this story in the Guardian, it appears Asian investors aren’t yet convinced Islamic finance is the right place to invest their money.

Qatar Real Estate in $275mn Islamic financing deal

by Lin Noueihed
Qatar National Bank's Islamic branch and Qatar International Islamic Bank signed on Tuesday a 1 billion riyal ($275 million) Islamic financing deal with Qatar Real Estate Investment Co.
They said in a statement the funds would go to future Qatar Real Estate developments in the Gulf Arab country, which is the world's biggest exporter of liquefied natural gas, estimated to be worth 2.5 billion riyals.

The announcement of the Islamic financing or ijara deal comes at a time when real estate developers in the nearby United Arab Emirates scale back major projects as the global financial crisis freezes credit lines and hits demand.
Some analysts have said that Islamic financing could receive a boost as conventional credit markets suffer, because Islam bans interest and favours revenue derived from underlying physical assets.

QNB Al Islami will contribute 700 million riyals and Qatar International Islamic 300 million in the deal which comes into effect in January.

QNB Al Islami was previously mandated to lead arrange an Islamic finance deal worth 1.37 billion riyals for Qatar Real Estate, which was Qatar's first corporate sukuk and used to fund property projects in Qatar.

Qatar Real Estate said in February it planned to borrow funds by the third quarter, possibly by selling Islamic bonds, to finance up to 3 billion riyals of projects.

The government of Qatar owns 27 percent of Qatar Real Estate. (Reuters)

Obama gets down to business

CHICAGO: President-elect Barack Obama said yesterday that the US is facing the greatest economic challenge of our lifetime and were going to have to act swiftly to resolve it.

However in his first news conference since winning the presidency on Tuesday, Obama deferred to President George W. Bush and his economic team, noting that the country has only one government and one president at a time.

But, he said, immediately after I become president I will confront this economic crisis head-on by taking all necessary steps to ease the credit crisis, help hardworking families, and restore growth and prosperity.

The president-elect spoke after he and Vice President-elect Joe Biden met privately with economic experts to discuss ways to stabilize the troubled economy.

The meeting included Lawrence Summers, who some have mentioned as a candidate for treasury secretary, a post he held in the Clinton administration, as well as executives from Xerox Corp., Time Warner Inc., Google Inc. and the Hyatt hotel company.

Rep. Rahm Emanuel, who will be Obamas White House chief of staff, also participated in the meeting. Were not starting from nowhere, Summers told NBCs Today show. Throughout his campaign the president-elect has been talking about what we need to do. We need to put the middle class at the center of the policy approach in a way that it hasnt been these last years.

Exit polls from the election showed that the economy was far and away the top issue for voters. More evidence of a recession came yesterday when the government reported that the unemployment rate had jumped from 6.1 percent in September to 6.5 percent in October.

Obama has been meeting privately with his transition team, receiving congratulatory phone calls from US allies and intelligence briefings, and making decisions about who will help run his government after he is sworn in Jan. 20.

His first choice was Emanuel for White House chief of staff, a fiery partisan unafraid of breaking glass and hurting feelings. The choice of Emanuel is a significant departure from the soft-spoken, low-key aides that No-Drama Obama surrounded himself with during the campaign. And transition chief John Podesta, like Emanuel, is a former top aide to President Bill Clinton and a tough partisan infighter, though less bombastic than the new chief of staff.

The selections are telling for Obama, who campaigned as a nontraditional, almost post-partisan” newcomer. People close to him say the selections show he is aware of his strengths and weaknesses, and knows what he needs to be successful as he shifts from campaigning to governing.

Obama and his wife, Michelle, planned to visit the White House on Monday at President George W. Bushs invitation.

Obama planned to stay home through the weekend, with a blackout on news announcements so he and his staff can rest after the grueling campaign and the rush of Tuesday nights victory.

Obama, who bested Sen. Hillary Rodham Clinton for the Democratic presidential nomination, has made it clear he will rely heavily on veterans of her husbands eight-year administration, the only Democratic presidency in the past 28 years.

Source : Islam Online

Sale of Gold and Silver Against Gold and Silver

If gold is sold against gold, and silver is sold against silver, whether it is in the form of coins or otherwise, if the weight of one of them is more than that of the other, the transaction is haraam and void. If gold is sold against silver, or silver is sold against gold, the transaction is valid, and it is not necessary that their weight be equal, but if it is sold on credit or stipulated time, the transaction will be void.
If gold or silver is sold against gold or silver, it is necessary for the seller and the buyer that before they separated from each other, they should deliver the commodity, and its exchange to each other. And if even a part of the thing about which agreement has been made, is not delivered to the person concerned, the transaction becomes void.
If either the seller or the buyer delivers the stock in full as agreed, but the other person delivers only a part of his stock, and they separate from each other, the transaction with regard to the part exchanged will be valid, but the person who has not received the entire stock can cancel the transaction.
If silver dust from a mine is sold against pure silver, and gold dust from a mine is sold against pure gold, the transaction is void, unless one is sure that the quality of silver dust is equal to the quantity of pure silver. However, there is no harm in selling silver dust against gold, or gold dust against silver, as mentioned earlier.

Persons Who Have No Right of Disposal or Discretion Over Their Own Property

A child who has not reached the age of puberty, (bulugh), has no right of discretion over the property he holds or owns, even if he is able to discern and is mature, and the permission of his/her guardian does not apply in this case. However, in those cases where a Na-baligh is allowed to make a transaction, like when buying or selling things of small worth as mentioned in rule 2090, or his testament for his relatives and kinsmen, as will be explained in rule 2706, the right can be exercised. A girl becomes baligha upon completion of her nine lunar years, and a boy is baligh when stiff pubic hair grow, or when he discharges semen, or upon completion of fifteen lunar years.
Growing of stiff hair on the face and above the lips may be considered as signs of bulugh, but their growth on chest and under the armpits, and the voice becoming harsh etc. are not the signs of one's reaching the age of puberty, except that one may become sure of having reached the age of puberty due to these changes.
An insane person has no right of disposal over his property. Similarly, a bankrupt (i.e. a person who has been prohibited by the Mujtahid to dispose of or have discretion on his property because of the demands of his creditors) cannot dispose his property without the permission of the creditors. And a feeble-minded person (Safih) who squanders his property for useless purposes, has no right of disposal or discretion over his property.
If a person is sane at one time and insane at another, the right of discretion exercised by him during his lunacy will not be considered valid.
A dying man in his terminal illness can spend his own wealth on himself, on the members of his family, his guests and on other things as much as he likes, provided that, it is not considered to be extravagance on his part. Also, he can sell his property at its proper value, or hire it. But if he gives away his property as gift, or sells it at a lower price than usual, it will be valid if the property gifted or sold cheap is equal to or less than 1/3 of his estate. And if it is more, it will be valid only if the heirs allow, and if they do not, then whatever he spent in excess of 1/3 of his estate will be considered void.