Sharia Banking and the Financial Industry

AXA Mandiri since April 2008 began to expand its distribution channels through telemarketing. But for Islamic insurance products is expected to begin marketing this year through telemarketing. Chief Financial Officer of AXA Mandiri, Iwan Pasila, said that while AXA Mandiri telemarketing has developed distribution channels, but not Islamic insurance products are marketed through these channels. Today AXA Mandiri have not entered Islamic products through telemarketing. Still try to discuss it first with the Sharia Supervisory Board, but AXA Mandiri have a plans to go there and if it is possible could start this year.
Now it was setting up syariah insurance products which will be sold through telemarketing. Director of AXA Mandiri, Albertus Wiroyo, which refers to a significant record of productivity through the route, claiming AXA Mandiri has recorded the highest sales in Indonesia through telemarketing. Although a relatively new but high growth with average sales of new insurance premiums of Rp 50 billion per month. It also adds human resources in telemarketing as many as 200 people to be able to continue to boost premiums Raihan via that route. AXA Mandiri has recorded a total 400 thousand customers.

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The central bank is considering easing restrictions on Islamic banks by allowing them to adjust loan terms and boost lending. Shariah banks have asked that loans that are still current be allowed to be restructured . Bank Indonesia  is having intensive discussions and will make a decision by the fourth quarter at the latest.  Current regulations, issued in 2008, only permit terms to be altered once debt becomes non-performing.
Indonesia, home to 192 million Muslims, introduced a law two years ago allowing financial institutions to offer services that comply with Shariah principles, 25 years after Malaysia.  Islamic banking assets total $93 billion in Malaysia in 2009, or 20 percent of the total, compared with 2.9 percent in Indonesia, according to central bank data.  Islamic finance assets in Indonesia may increase 30 percent to Rp 97 trillion ($10.77 billion) by the end of 2010, up from Rp 75 trillion in 2009.  The 2008 law requires all lenders to spin off their Shariah divisions into separate units by 2023, he said. Non-performing loans at Indonesia’s Islamic banks fell to 3.89 percent of total lending in June, down from 4.39 percent in the same month a year earlier, according to the central bank’s Web site. That’s more than the 2.24 percent rate for troubled loans at secular commercial banks, down from 2.72 percent a year ago. (more…)

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The Philippines’ state-owned Al-Amanah Islamic Bank may sell the nation’s first Shariah-compliant bonds to finance development in Muslim Mindanao. Armando Samia, president of Al-Amanah, the only bank in the Philippines with a mandate to sell the Islamic notes said that there was a lot of money in the market for sukuk that can be tap. Lack of regulations governing issuance makes it difficult to sell securities in the Philippines that comply with the religion’s laws banning payment of interest.

The Autonomous Region of Muslim Mindanao had per capita gross domestic product that’s about 23 percent of the national average. BNP Paribas Investment Partners, which manages the equivalent of $700 billion globally, said investors would be interested in the bonds. Global sales of debt that conform to Shariah law haven fallen 29 percent to $6.65 billion this year. The state-run Islamic Bank of Thailand plans to sell sukuk to expand financial services for minority Muslims, while Tokyo-based Nomura Holdings is raising $100 million in its first sale in Malaysia as it develops a Shariah-compliant business. Muslims in the Philippines account for about 10 percent of the country’s 100 million population. (more…)

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Ratings agency Standard & Poor’s stated that Islamic bond offerings may accelerate in the next 18 months, led by first-time issuers in Asia, after the region accounted for the most sukuk sold this year. While issuance of sukuk, or Islamic bonds, are down 17 percent globally this year, Asianborrowers issued $5.3 billion, about 68 percent of the total $7.8 billion worldwide. Sales from companies in the Persian Gulf dropped 24 percent to $2.5 billion so far in 2010 — the lowest level since 2005 — after Dubai World, one of the three main state-owned business groups in the United Arab Emirates, announced plans to restructure debt in November.

One credit analyst and joint chair of the Islamic finance working group at S& P in Paris stated that Sovereigns, particularly from Asia, are pushing for the revival of the sukuk market. Additional countries, or issuers domiciled in countries new to Islamic finance, to tap the sukuk market in the near future was expected. Likely, it will be within the next 18 months.
The Philippines’ state-owned Al-Amanah Islamic Bank is exploring a sale, according to bank president Armando Samia. Economic growth in developing Asia, including Malaysia and Indonesia, will accelerate to 9.2 percent this year from 6.9 percent in 2009. Middle Eastern economies may expand 4.5 percent compared with 2.4 percent, according to estimates by the International Monetary Fund.
Governments are tappinglocal and international sukuk markets to help set benchmark rates for corporate bond sales. The debt is typically backed by assets or cash flow because Islamic law bars interest payment. Instead, investors earn profits from the assets.

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