Tag: islamic finance

Potential of Islamic finance yet to be fully explored in Maldives, suggests MMA governor

The scope and potential of Islamic finance, insurance, and banking in the Maldives is “yet to be fully explored”, suggests Maldives Monetary Authority (MMA) Governor Dr Azeema Adam.

Speaking at the opening ceremony of the first ‘Maldives Islamic Banking and Finance Industry Conference’ yesterday, Dr Azeema said Islamic finance “provides a springboard” to generate innovative ideas to cater to the financing needs of the domestic economy.

“The phenomenal growth of Islamic insurance and Islamic banking in the Maldives in the last few years suggest that there is still significant market to capture,” the central bank’s governor said in her keynote address at the conference.

“There is a need for financial institutions in the Maldives to strive to reach to every corner of the Maldives; every island in the country. There is a need to provide banking services to the unbanked,” said Azeema.

Islamic banking and capital market services were introduced in the Maldives in 2011, with the opening of the Maldives Islamic Bank (MIB).

Providing banking services to all inhabited islands “might not always be profitable,” Azeema continued, requiring innovation within the Maldivian financial sector.

“Financial products in the Maldives need to transcend the oceans and reach each and every person in the country, including those in the most isolated and remote islands.”

To support the growth of Islamic finance, Azeema recommended development of a “comprehensive legal and regulatory framework specific to Islamic finance”.

The MMA has formed a ‘Shariah Advisory Council’ to ensure Shariah compliance, she continued, while legislation on Islamic banking and Takaful has been drafted.

The governor expressed hope that laws on the “two key components of Islamic finance” could be enacted before the end of the year.

“Viable alternative”

Under Islamic Shariah, any risk-free or guaranteed rate of return on a loan or investment is considered riba (usury or interest), which is prohibited in Islam.

Conventional insurance is also prohibited in Islam because of forbidden elements such as riba.

Azeema observed that from a modest beginning in the 1970s Islamic finance was now a global industry with a total asset value of US$2 trillion.

“At its current pace, the growth in Islamic finance stands sharply ahead of conventional finance which experienced significant de-leveraging and slowdown in the wake of the global financial crisis,” she noted.

“One of the reasons for the phenomenal growth of Islamic finance is the perception that it is more ethical, compared to conventional finance, which is traditionally viewed as predatory when needed.”

While the industry represented a niche market for Muslims, Azeema said it has since “transformed to a viable alternative for consumers of convention finance, irrespective of their religious beliefs.”

“The basic tenets of Islamic finance, like the idea of sharing profits and losses, investments only in ethically permissible areas, and the inseparable link of finance with real and productive economic activities, are understandably appealing to all,” she explained.

“It is this humane face that is required to encourage and reward those Maldivians who work hard. The individual and self-employed entrepreneurs who needs a financier to realise their dreams; the creative youth who need a bank to fund their ideas; the small and medium enterprises who need access to easy financing; and the large enterprises who need a wide range of investment and financial products.”

In addition to its ability to cater to the diverse groups in the Maldivian economy, Adam suggested Islamic finance could “bring about a more equitable society; a responsible and hardworking society; a society where individual creativity and free enterprise thrive.”

“Long journey”

The governor suggested that competition among financial products could help correct “market failures” and was welcome in the Maldives.

Islamic finance could also be “a reliable alternative source of funding” for investors, she added.

The introduction of Islamic finance has been “a long journey,” Azeema said.

While Amana Takaful started selling insurance in 2003, the Maldives Islamic Bank commenced operations in March 2011.

“The strong mobilisation of deposits that followed the commencement of MIB confirmed the latent demand for Islamic finance and the need for an institution offering Islamic financial services,” she observed.

Since 2011, she noted, housing finance based on Shariah principles have been made available while Allied Insurance was offering takaful products through their window named Ayady Takaful.

The Bank of Maldives has meanwhile been given approval to establish an Islamic banking window, she added.

“The development of an Islamic Capital Market has also been initiated with one listed Shari’ah compliant equity,” she said.

In March, Deputy Islamic Minister Dr Aishath Muneeza said that, in addition to the introduction of Islamic fund management this year, the government planned to “introduce an Islamic finance centre that will not only provide offshore Islamic financial services, but this centre will act as the Islamic finance hub for the whole South Asia region.”

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Maldives “ideally placed” to be international financial centre, says CMDA chief

CEO of the Capital Market Development Authority (CMDA) Fathimath Shafeega believes the Maldives to be “ideally placed” to play the role of an international financial centre.

Describing the country as strategically well-placed, the head of the independent regulatory authority noted that the country’s nascent financial framework was both a weakness and a strength.

“We don’t have regulations hindering a lot of things,” noted Shafeega. “We can start from a clean slate.”

“But parliament needs to be very much involved in it. We might need to provide the software – laws and regulations and other policy frameworks – while investors can bring the hardware.”

Senior members of both the previous and the current administration have considered the development of offshore banking services as a way to diversify an economy heavily reliant on tourism.

“It’s very much still on the agenda,” said Shafeega.

Shafeega spoke with Minivan News following the release of the CMDA’s first quarterly report in 2014, which revealed the authority’s work this year had focused on drafting legislation to further modernise the market, as well as amending the Corporate Governance Code in order to increase gender diversity on the boards of publicly listed companies.

Islamic Finance

Established by the Maldives Securites Act in 2006, the CMDA’s quarterly report for the first time included details of the Islamic Capital Market – an area the report describes as having an “ever-green future in the Maldives”.

Indeed, Shafeega argued that the successful establishment of an Islamic Capital Market – featuring Shariah compliant financial products – would also add to the Maldives appeal as a future financial hub.

Introducing the quarterly update on the Islamic Capital Market development, Deputy Islamic Minister Dr Aishath Muneeza, argued that there was now a “global movement towards the creation of financial transactions based on underlying activities or underlying assets.”

“Relying on real economic activities has been the success secret of Islamic finance and now we are being forced to find innovative ways to adopt this method,” said Dr Muneeza.

Under Islamic Shariah, any risk-free or guaranteed rate of return on a loan or investment is considered riba, which is prohibited in Islam.

Also chair of the Capital Market Shariáh Advisory Council (CMSAC), Dr Muneeza this quarter became the first person granted Shariah advisor registration status in the Maldives.

CMSAC was created in December 2013 in order to advise the CMDA on the development of an independent Islamic Capital Market.

The council’s activities this quarter included the formulation of a five year plan to increase the availability of Shariah compliant services, raise awareness of Islamic finance, and establish an Islamic Finance Centre in the Maldives.

Writing for the Islamic Finance News website in March, Dr Muneeza  described Islamic Finance as “spreading like wildfire” since the introduction of Islamic banking and capital market services in 2011.

“It is hoped that in the upcoming years the Maldives can be used as a global case study to prove the success of Islamic finance,” she wrote.

Pensions

Shafeega also expressed confidence that the state pension fund – for which the CMDA plays a supervisory role – can soon successfully diversify its investment portfolio.

“As you know the pension system in Maldives has assumed that there will be a developed capital market. The development of the capital market has not kept pace with the pension development.”

Beginning in March this year, the government more than doubled the monthly pension – with individuals aged over 65 now receiving MVR5000.

The government had allocated MVR470 million (US$30.5 million) in the state budget to give out an MVR2,300 (US$149) in cash handouts, with head of the Cabinet’s Economic Council Ahmed Adeeb stating that “innovative” investment would prevent the need to divert funds from within the current budget.

The CMDA quarterly report noted that research had been carried out in order to ascertain potential avenues for investment beyond government or listed securities – the only options currently utilised.

“For the pension fund to be able to generate a good return for the members, we need to diversify the pension investment,” Shafeega told Minivan News.

“We need to find alternative investment that can generate a good return”

Shafeega also expressed confidence that the additional revenue could be realised, revealing that – following the authority’s recommendations – the government was planning to introduce changes to the Pensions Act during the 18th Majlis.

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Islamic finance has gained confidence in Maldives: Deputy Islamic Minister Dr Muneeza

Islamic finance has gained confidence in the Maldives with increased awareness among the public of its role in eliminating Riba (interest), according to Deputy Islamic Minister Dr Aishath Muneeza.

Writing in the Islamic Finance News website, Dr Muneeza stated that Islamic finance has been “spreading like wildfire” since the introduction of Islamic banking and capital market services in 2011.

“Demand for Islamic finance is evident and has proved that there is inherent demand for Islamic finance as the Maldives is a country with a 100% Muslim population. It is hoped that in the upcoming years the Maldives can be used as a global case study to prove the success of Islamic finance,” she wrote.

Under Islamic Shariah, any risk-free or guaranteed rate of return on a loan or investment is considered riba, which is prohibited in Islam.

In her article, Dr Muneeza explained that the first form of Islamic finance introduced in the country was Takaful in 2003, which involves mutual protection of assets and property and joint risk-sharing.

Conventional insurance is also prohibited in Islam because of forbidden elements such as Riba.

Following the wider introduction of Islamic finance in 2011, Dr Muneeza observed that it is now “considered as an integral part in the development of nation”.

The previous year meanwhile saw the introduction of “new innovative Islamic finance instruments” by both the government and private corporations, she noted.

In 2013, the government signed the first sovereign private Sukuk – an asset-backed bond which is structured in accordance with Shariah for trade in the market – deal in addition to the central bank issuing the first Islamic treasury bill.

Moreover, she added, four pieces of regulation governing Sukuk, Islamic securities, Shariah advisors, and the capital market Shariah advisory council were introduced last year.

The government-owned Housing Development Corporation also issued the first corporate Sukuk while the first Islamic hire-purchase product was unveiled by a private company, she noted.

In addition, the government formed the Maldives Hajj Corporation – of which Dr Muneeza is the chairwoman – as a pilgrimage fund and issued Halal certificates for fish products.

The Maldives Transport and Contracting Company (MTCC) hired a Sukuk advisor for real estate projects commencing this year, she added.

“Furthermore, regulatory consents have been given to the Islamic banking window of Bank of Maldives and the Takaful window of Allied Insurance Maldives to start their operations. Some products of these companies have been given consent by the Maldives Monetary Authority,” she wrote.

The government also planned to form “a national-level technical committee to monitor and supervise sovereign Islamic finance issues,” she revealed.

“Definitely, 2013 is a super duper hit year for the growth of Islamic finance industry,” Dr Muneeza suggested.

Developments expected in 2014 meanwhile included the inauguration of “Islamic windows” by the Bank of Maldives and Allied Insurance. The government anticipated that “a large number of customers will switch from conventional banking to Islamic banking when this takes place.”

Islamic fund management would also be introduced this year while the government had plans to “introduce an Islamic finance centre that will not only provide offshore Islamic financial services, but this centre will act as the Islamic finance hub for the whole South Asia region.”

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Amana Takaful posts MVR 4.5 million profit since Maldives Stock Exchange float

Sharia-compliant insurance company Amana Takaful (Maldives) PLC has announced a cumulative profit of MVR 4.5 Million (US$292,208) since listing on the Maldives Stock Exchange back in 2011.

Following the company’s second annual general meeting held Sunday (April 28), Amana Takaful  said a 10 percent dividend of MVR 2.6 million (US$168,831) would be paid among its Maldives-based shareholder members for the group’s performance during 2012.

Growth for the company during last year was said to be driven in particular by demand for medical and motor insurance following amendments to government regulations that has seen a number of insurers moving to offer 3rd party coverage in these areas.

A spokesperson for the company claimed that 3rd party motor cover was anticipated to continue to help drive growth for its Maldives operations in the coming years as a result of recent legislation imposed on the country’s motorists.

During its AGM, Amana Takaful also announced an underwriting result – earnings from premiums after deducting the costs of operating expenses and insurance claims – of MVR 20.7 million (US$1.3 million). This was said to be a 61 percent increase on the previous year.

As well as Sharia-compliant insurance, a growing number of private groups in the Maldives have moved to offer Islamic financing to their customers.

Specialist groups such as the Maldives Islamic Bank (MIB) are set to be joined in the segment by Bank of Maldives (BML), which this month announced the appointment of a four-member Sharia Advisory Committee.

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Amana Takaful seeking to “kick start” Maldives stock market with landmark IPO

Sharia-compliant insurance company Amana Takaful will issue 800,000 shares in an initial public offering (IPO) on the Maldives Stock Exchange (MSE).

In a first for the country, 20 percent of the shares will be made available to expatriates and 15 percent to overseas applicants. The remaining 65 percent will be offered to Maldivians.

The Sri Lanka-based company hopes to generate Rf16 million (US$1.4 million) in proceeds through the IPO, by selling shares at a low issue price of Rf20 (bundled in packages of 25).

Amana Takaful’s board of directors announced the IPO on Monday afternoon at the Nasandhura Palace Hotel.

CEO of Amana Takaful Maldives, Hareez Sulaiman, said the IPO would “change the way the Maldivian Stock Exchange operates as this will be the first time that Maldivians, expatriates and foreigners will be able to purchase securities in a Maldivian listed company.”

The decision to price the shares low “at a price affordable to any average Maldivian” also promised to “be a kick starter for an active stock market which may benefit the entire economy at large,” the company said in an accompanying statement.

The company expects the Sharia-compliant nature of its business to be a key attraction in the market, it noted in its prospectus, with the “growing religious awareness within the domestic market further reinforcing [Amana Takaful Maldives’] decision to embark on expanding its shareholder base in the Maldives.”

Globally, Director of Amana Takaful Osman Kassim, also chairman of the first licensed Islamic bank in Sri Lanka, Amana Bank, explained that Islamic finance was “a phenomenon worth 1.4 trillion and growing at a rate of 20 percent annually.”

It functioned, he explained, through the prohibition of riba, or interest.

“Taking a return without participating in the risk of the return is not allowed, be it 1 percent or 99 percent. Any additional revenue is riba,” he said. “Even if you give a loan and he gives a gift, and is not in the habit of giving a gift, that is also riba.”

Islamic finance in its current form emerged 40 years ago, Kassim explained, first in Egypt and the Arab Emirates.

“It promises to be a just system. Interest is oppression – the charging of something where nothing is due,” he said, noting that in the wake of the global financial crisis, “All major banks now have Islamic financing products, and the more adventurous have their own Sharia Councils.”

Certain terminology used in Islamic finance was now routinely used in normal banking, he said, also observing a rise in financial offerings that were all but labelled Sharia-compliant.

In its IPO prospectus, the company predicted strong potential growth on the back of a higher disposable income as the rufiya eased against the dollar, brought on by a “significant” decrease in the cost of imports.

The key areas of the Maldivian economy – fishing and tourism – had shown strong growth, the company noted. Tourist arrivals grew 18 percent in 2010, while bed nights grew 13 percent even as capacity grew by almost 3000 beds to roughly 24,000.

Fishing was a key area of interest to the company given the high number of insurables. The industry had registered a slight decline in productivity in recent months, the prospectus noted, but nonetheless annual fish purchases had increased 29 percent and fish exports by volume had risen fourfold. Higher prices had led to 77 percent increase in monthly earnings.

The company has set a target of 30-40 percent growth in the Maldives, identifying a key market as the local, atoll and city councils following the government’s policy of decentralistion.

“Considering the current trends in religious conciousness, it is generally believed that the level of awareness and preference for investing in Sharia- compliant investments would be greater at the grassroots level,” the company noted.

It also indicated its intention to offer a micro-insurance product in the Maldives targeting the expatriate market.

The IPO will open on September 20 and close on October 19. The company has pegged a minimum subscription of Rf 2.4 million (US$156,000) or 15 percent to proceed with the IPO.

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