Sharia Banking and the Financial Industry

Al-’Aqar Healthcare Real Estate Investment Trust (REIT), Malaysia’s oldest Islamic REIT, is considering opening a trust in Indonesia as the nation reviews its first application five years after legalizing such property companies. Kuala Lumpur-based Al-’Aqar, which already owns two hospitals in Indonesia, would look at registering a trust in the Southeast Asian country provided it gets tax incentives and clearer rules on foreigners owning land are implemented. Indonesia has received its first proposal for a real-estate trust five years after introducing laws allowing them, according to the Capital Market and Financial Institution Supervisory Agency.
Expanding Industry Indonesia is trying to expand its Islamic finance industry to catch up with Malaysia, which has eight times the amount of financial assets that comply with the religion’s ban on interest, with just 8 percent of the number of Muslims. Islamic bond sales worldwide have reached $13.3 billion in 2012, compared with $5.8 billion in the same period last year, according to data compiled by Bloomberg. Shariah-compliant securities, or sukuk, returned 3.4 percent in 2012, while developing- market debt rose 7.2 percent, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.

Malaysia was the first country to issue rules for Islamic real-estate trusts in Nov. 2005, stipulating they must earn at least 80 percent of income from Shariah-compliant activities. Property trusts in the world’s largest Islamic bond market are exempt from paying income taxes should they distribute at least 90 percent of their annual earnings to investors, according to Bursa Malaysia. Indonesia can start a REIT market when it drafts similar regulations to Malaysia.
Indonesia has no provisions to allow income-tax relief on distributed profits or stamp duty exemptions. The government only allows citizens to hold full land ownership, while companies and foreigners may buy leases for the right to use, cultivate or build on a plot. These contracts last 20 to 25 years and can be extended depending on approval from the National Land Agency.

Muamalat targeting can raise funds from share-e savings account $ 1 trillion at the end of this year. Achievements are supported by the growth of share-e gold card. Director of Compliance and Risk Management Muamalat, Andi Buchori said the growth of share-e gold has exceeded 100 thousand cards within one year. This growth increased the number of share-e card owners that have penetrated more than 1 million holders. Muamalat to increase the share of e-gold continue to increase savings by increasing services such as cooperation with the various merchants. Share of services in e-gold is currently provided by the various advantages such as providing discounts at certain restaurants. The cards also can be used for international transactions because there is a visa service. Share-e card features will be enhanced by utilizing a variety of co-operation. To increase share-e savings account, Muamalat to add to your office network next year. Targeted additional 100 branches supported by 500 Automated Teller Machine (ATM). Shopping places targeted for the addition of ATM Bank Muamalat. The addition of Muamalat network will be focused in the country. Bank Muamalat already had offices in Malaysia Kuala Lumpur but the addition of a branch office in Malaysia may not be done in the near future. It is because the performance of the transaction in Malaysia branch is not optimal. Transactions at the branch office in Malaysia are still limited. Bank Muamalat non-ringgit transactions is limited and regulation is still rigid (tight). However, there are a number of U.S. dollar transactions with a capacity large enough value in Malaysia. Muamalat asset value as of November 2011 has reached Rp 28 trillion. This number grew 46.9 percent compared to last year, while total funding has reached Rp 21.4 trillion.

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The government is considering reactivating the crisis alert status that it deactivated recently as negative external sentiment hit the nation’s financial markets hard again on Monday. The rupiah dropped 1.7 percent to Rp 8,938 against the US dollar as refreshed fears of a global economic slowdown over eurozone debt woes and the US’ stalling economic recovery prompted foreign investors to dump risky assets and shift to savings or safer instruments such as the US dollar. In the stock market, international funds, which control more than half of publicly traded stocks at the Indonesia Stock Exchange (IDX), sold a net Rp 532 billion (US$59.75 million) on Monday, pressuring the benchmark stock index to tumble 5.64 percent or more than 200 points to 3,348.71.

The government continue to monitor market updates. The alert status indicates the need to utilize the coordinated crisis management protocol between the government, Bank Indonesia (BI) and related institutions including the IDX which would step into the market to calm volatility and stabilize prices. Spiking government bond yields — which means falling prices — has strained the government’s and companies’ balance sheets as borrowing costs surge, while lower stock prices could have negative impacts on listed companies’ valuation.
Past crises show that financial market turmoil could affect the real sector as negative perception about the economy could multiply as a weaker rupiah could hurt people’s purchasing power and the government’s and companies’ ability to repay foreign debts. The Jakarta Composite Index (JCI), however, has over performed regional and global peers as it lost 9.59 percent so far this year versus more than a 10 percent slump in Singapore, Thailand, South Korea, Japan, Hong Kong and India. A stronger base of domestic investors had helped minimize the stock index’s slump despite heavy foreign selling pressures amounting to Rp 14 trillion in the past two months. Indonesia’s domestic stock investors increased by 200,000 in the past two years, a number Ito considered “enough” to mitigate negative external shocks in the stock market. Domestic investors’ transaction currently accounts for 66 percent of the overall 115,000 transactions. Authorities have reiterated the urge for investors not to panic and be overly worried as Indonesia’s fundamentals remain strong despite global economic uncertainties, with economic growth targeted at 6.5 percent, while inflation remains manageable at below 5 percent, public debt level low at about 26 percent of the country’s gross domestic product (GDP).

Asset management involves both fund management and discretionary portfolio services consistent with the goals and plans of the individual clients. As there are now 100+ Shariah-compliant funds, the opportunities for high net worth investors to take advantage of asset management services have grown significantly. Private banking clients may have specialized needs, such as management of trusts, established for tax or inheritance factors. In addition to fund management, clients can now received services based on a wide-range of portfolio, ranging for stocks, Islamic sukuk securities, etc.
Parallel to Islamic financial institutions, conventional financial institutions with Islamic windows are now able to offer competitive and quality services based on their resources and experience. Of course, such conventional institutions employ their own Shariah supervisory boards to ensure compliance of their products and services with the Shariah. Investing with conventional financial institutions with Islamic windows has become increasingly popular because of their better capacity to manage risk through globally diversified portfolio accompanied by high level of liquidity. Now beyond single manager equity funds, there are also fund of funds to better deal with Islamic asset management. Despite the fact that Shariah-approved hedging techniques as part of fund risk management remains limited, stock options are gaining recognition as an acceptable vehicle as part of the tool kit of fund management.

Monetary manipulation (seen as inflation) sustaining the system of interest is a serious fraud and massive crime against humanity. Together with interest it has crippled market and lead to gross injustice, all round inefficiency and waste. These create massive economic, social and political problems leading to continuum of economic crisis and loss of peace and growing terror and terrorism. Its solution lies in monetary correction. A simple and nearly cost free solution to monetary/economic problems is to link FFFM with a standard basket of national product with purchasing power equal to currency on a properly selected date and to make it redeemable with equivalent purchasing power. Alternatively, it may be linked to and be made redeemable with a basket containing fixed quantities of gold, silver, power and a major standard edible commodity. Gradually we may shift to currencies having same purchasing power as the coins made of fixed and known quantities of gold and silver and redeemable with equivalent purchasing power with freedom to people to use currency of choice.
Money must be a technically acceptable (standard) measure of value and unit of account but freely floating Fiat Money (FFFM) is not. Improving Accounting Standards can not help much when the Accounting Unit itself is unreliable. With agents of the system of interest in near total control and system of interest assisting them enslave the humanity, efforts to free humanity from clutches of interest are not producing desired result. There are no shortcuts to establish just and stable monetary system and just/efficient markets. It is necessary to know reality of Riba as it exists in this system and devise ways to remove the compulsion of indulging in Riba, Protect resources of the righteous from being usurped by the interest seekers and address the problem of unemployment. Riba as defined by Qurane Hakim and Sunnah Mubarkah is a quantitative excess over principal and in case of real money nominal interest is same as quantitative excess that is Riba. However in our contemporary economic environment for FFFM it is equal to real interest. In this environment interest (nominal interest) free dealing is impractical however Riba (real interest) free is not only practical but also just and efficient. In the absence of monetary correction, an essential Shariah requirement/condition for economic welfare, justice and peace is that all dues and accounting for capital, profit and loss for businesses that are spread over time be corrected for monetary manipulation by using Consumer/Whole Sale Price Index. This is equivalent to accounting in real terms. It will allow the righteous to free them from compulsion of dealing in Riba and to use socially efficient and just economic and financial products and procedures. Insha Allah this will create awareness and create conducive environment for establishment of justice and elimination of Riba and monetary manipulation and freeing humanity from compulsion of indulging.
Source : Hifzur Rab

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Bank Central Asia has signed a deal that makes it the preferred bank of Nahdlatul Ulama in a move expected to boost its lending business while financing thor BCAe projects of the country’s largest Islamic organization. BCA’s president director, signed the deal on Wednesday with officials from NU, which has about 70 million members nationwide. BCA will focus on growing housing loans as high as possible,” Jahja said on Wednesday. BCA, the country’s biggest bank by market value, aims to raise mortgage lending by 35 percent this year. Last year, its mortgage lending business increased by 39 percent to Rp 18.3 trillion ($2.1 billion) from Rp 13.2 trillion a year earlier. The 2010 figure represented around 13 percent of the country’s total mortgage market. The Jakarta-based lender, partly owned by American equity firm Farallon Capital Management, also aims to clinch NU customers who are working abroad, the backbone of the lucrative remittance market.

NU deal would be a good opportunity for BCA to establish microfinance services, or loans as low as Rp 500,000. currently, BCA don’t have microfinancing because its costly, It needs huge investment in employees and branches, because each request has to be evaluated individually. BCA expects lending to increase by 25 percent this year, higher than the central bank’s target of 24 percent for loans. In return, NU’s secretary general, said on Wednesday that the bank would finance health, education and entrepreneurship programs for its Muslim membership. Marsudi said the bank “could count on” NU members living in rural areas of Central Java and East Java to open a sizeable number of BCA accounts. BCA is planning to launch a computer literacy program for residents in rural areas to facilitate remittance claims. BCA will teach them how to operate a simple computer program for sending and receiving money, It’s cheap for BCA and for the customers because they don’t have to go to cities to receive remittances from family members abroad.

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