Monday, June 15, 2009

Is Halal Business Real?


For a long time, the halal simply meant buying meat from a halal butcher, who slaughtered in accordance with Islamic principles. But the halal food market has exploded in the past decade and is now worth an estimated $632 billion annually, according to the Halal Journal, a Kuala Lumpur-based magazine. That's about 16% of the entire global food industry. Throw in the fast-growing Islam-friendly finance sector and the myriad other products and services — cosmetics, real estate, hotels, fashion, insurance — that comply with Islamic law and the teachings of the Koran, and the sector is worth well over $1 trillion a year, according a recent report in Time magazine.

Time attributes the rise of the halal economy to the world's 1.6 billion Muslims, most of whom are younger and, in some places at least, richer than ever. Seeking to exploit that huge market, non-Muslim multinationals like Tesco, McDonald's and Nestlé have expanded their Muslim-friendly offerings and now control an estimated 90% of the global halal market.

McDonald's, Nestle and Tesco are not only non-Muslim owned and managed companies capitalizing on the growing demand for halal products. New ones, such as Canada-based Al Safa, whose products are found in major North American supermarket chains, are joining the fray.

A Muslim name, some Muslim employees, a logo containing Arabic, date palm tree, and a masjid, slick flyers announcing its Halal food products and a 1-800- number with a message greeting you with a Salam and a recording in English and Arabic.

But Al Safa Halal is not a Muslim owned company, according to Sound Vision website. The Kitchener, Ontario-based entity is actually owned by non-Muslim (Jewish) private investors, cashing in on the North American Muslim market.

Beyond halal food, the global economic crisis has brought attention to Islamic finance as an alternative for both Muslim and non-Muslim customers. In a recent article, the Vatican newspaper Osservatore Romano has voiced its approval of Islamic finance. The Vatican paper wrote that banks should look at the rules of Islamic finance to restore confidence amongst their clients at a time of global economic crisis. “The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service,” the Osservatore Romano said. “Western banks could use tools such as the Islamic bonds, known as sukuk, as collateral”. Sukuk may be used to fund the “‘car industry or the next Olympic Games in London,” the article says.

Investors are attracted by Islamic banking's more conservative approach: Islamic law forbids banks from charging interest (though customers pay fees) and many scholars discourage investment in excessively leveraged companies. Though it currently accounts for just 1% of the global market, the Islamic finance industry's value is growing at around 15% a year, and could reach $4 trillion in five years, up from $500 billion today, according to a 2008 report from Moody's Investors Service.

Pakistan's Islamic banks plan to expand their network of outlets this year to take advantage of rising demand for Shariah-compliant financing according to Pervez Said, director of Islamic banking at the State Bank of Pakistan. These banks have 500 branches, after adding 210 outlets last year. Pakistan is promoting growth in Islamic finance to expand the reach of the banking sector which has less than 25 million deposit accounts. Shariah-compliant facilities are forecast to rise to 277 billion rupees ($3.5 billion) this year from 185 billion in 2008, according to central bank data.

French retail giant Carrefour has been selling Halal products in many Muslim countries for several years now. In fact, Carrefour Malaysia created a unique program in collaboration with the Ministry of Domestic Trade and Consumers Affairs. The company has a dedicated team to monitor and assist small and medium-sized enterprises to develop Halal products, which will be distributed through the Carrefour chains in Malaysia and other countries. Carrefour is the second largest hypermarket in the world, while Carrefour Malaysia set up its Halal Department in 2006.

Carrefour is now looking to expand in several more Muslim countries, including Pakistan. “We are not interested in what I call ‘French North Africa’, so in the west we won’t go beyond Libya. To the east we are looking at markets like Iran and Pakistan. India is too far away for us.” François de Montaudouin, chief executive of Majid Al Futtaim Group, said recently.

Former Nixon adviser and now an American-Muslim commentator, Robert D. Crane, recently described "the universal principles of what may be called Islamic economics, not the glitzy stuff of the so-called Islamic banks but the maqasid al shari’ah or universal and essential purposes of justice as taught principally in the haqq al mal of classical Islamic thought, first revived in the modern era by Grand Mufti Ibn Ashur’s book, Maqasid al Shari’ah, published in 1946 and translated by the International Institute of Islamic Thought in 2007". Crane says that "these provide a new paradigm ready to replace the bankrupt paradigm of concentrated power that dominates in both socialism and capitalism."

The dramatic growth of interest in Halal business and finance can be measured by many international conferences and expos held each year to bring together various regional and international players. A number of major events are planned this year in Asia, Middle East and Europe.

While the Islamic finance is still early in its early development stage, I see it as a crucial vehicle to ensuring in the future that significant part of the wealth of Muslim investors is invested with Muslim businesses in Muslim nations to help them develop. Already, the biggest foreign direct investors in Pakistan are Muslims from Dubai, Malaysia and the Middle East.

APP reported that Malaysia topped the list of investors making Foreign Direct Investment (FDI) in Pakistan during first six month of year 2008, according to data released by Ministry of Foreign Affairs. The Foreign Direct Investment during the first five months of current financial year reached US$ 1.8 billion registering an increase of 1.5 percent, export reached to US$ 8.2 billion with a growth of 20 percent and foreign remittance at 2.9 billion registered an impressive increase of 15pc.

The May Bank of Malaysia made the biggest investment of US$ 907 million in banking sector followed by Saudi Arabia with an investment of US$ 750 million in steel sector and UAE with an investment of US$ 500 million in power sector in Pakistan.

The global economic meltdown has not deterred the foreign investors, including Malaysia, from investing in Pakistan, as the Pakistan’s economy showed extreme resilience and defied the economic recession with registering growth in FDIs, Export and Foreign Remittance.

Islamic bonds, called Sukuk, are a great way for Muslim nations to raise development funds from Muslim lenders, rather than do Euro or dollar offerings in Europe and America. This Islamic bond market is also beginning to develop.

It is important for Muslim businessmen and entrepreneurs to seize the opportunity from the projected phenomenal growth of the halal markets. There are a whole range of products and services from food and medicine to finance to travel and entertainment that can come out of the halal movement. It is clearly a mutli-trillion dollar opportunity during the next three to five years.

Related Links:

Halal Journal

Islamic Finance News

Top 10 Islamic Funds Performance

Pessimism is the Ultimate Kufr

Islamic Finance Summit

Foreigners Eying Farmland in Pakistan

FDI Rising in OIC Economies

35 comments:

Anonymous said...

I have yet to see the benefits of "Islamic Banking". The banks in Pakistan, who call themselves as Islamic banks charge the same amount of interest. They just call it a different name. I have myself observed this at Meezan Bank.

Anonymous said...

Islamic finance in vogues is not what the prophet wanted the society to follow. IT is old wine in the new bottle.

Even when u go to an islamic bank they still charge u an intesest in the name of profit. So the script is used by the intention is dead.

Further if u look closely at the GCC SWF, they invest in the debt instrument of USA as they are not comfortable with the concept of equity as it does not exist in their land.

As per duetche bank report approximately 2.5 trillion usd has been lost by the GCC swf. STill their underlying transaction are in dollar and they invest in dollars.

Riaz Haq said...

While the Islamic finance is still early in its development, I see it as a crucial vehicle to ensuring in the future that most of the wealth of Muslim investors is invested with Muslim businesses in Muslim nations to help them develop.

Already, the biggest foreign direct investors in Pakistan are Muslims from Dubai, Malaysia and the Middle East.

Sukuk is a great way for Muslim nations to borrow money from Muslim lenders, rather than do Euro or dollar offerings in Europe and America.

We should all support this development of Islamic Finance any way we can, even if it does not immediately show results.

Anonymous said...

Well the institutions who claim to be practicing "Islamic Banking" they do not claim that their's is a step towards Islamic banking, they claim THIS IS THE Islamic banking.

A guy who runs a so called "Islamic Financing Company" in Canada, tried to raise capital from investors in M.E. No body bothered as they are not interested if the *profit* is even less than 10%.

Islamic Banking is interesting to Western Banks as they see an opportunity to profit 15% instead of 5%. They have no problem to call the terms whatever words as long as the ROI is better:)

Offcourse as a Muslim I too have great expectations out of Islamic Banking. This can only be offered by institutions which are looking for khair in the akhira more than the ROI

Riaz Haq said...

Anon:
Islamic Finance is in very early stages of development. I expect it to evolve and offer many different financial products to fulfill various financial needs of consumers and investors. It currently accounts for just 1% of the global market but the industry's value is growing at around 15% a year, and could reach $4 trillion in five years, up from $500 billion, according to a 2008 report from Moody's Investors Service.

While the Islamic finance is still early in its early development stage, I see it as a crucial vehicle to ensuring in the future that significant part of the wealth of Muslim investors is invested with Muslim businesses in Muslim nations to help them develop. Already, the biggest foreign direct investors in Pakistan are Muslims from Dubai, Malaysia and the Middle East.

APP reported that Malaysia topped the list of investors making Foreign Direct Investment (FDI) in Pakistan during first six month of year 2008, according to data released by Ministry of Foreign Affairs. The Foreign Direct Investment during the first five months of current financial year reached US$ 1.8 billion registering an increase of 1.5 percent, export reached to US$ 8.2 billion with a growth of 20 percent and foreign remittance at 2.9 billion registered an impressive increase of 15pc.

The May Bank of Malaysia made the biggest investment of US$ 907 million in banking sector followed by Saudi Arabia with an investment of US$ 750 million in steel sector and UAE with an investment of US$ 500 million in power sector in Pakistan.

Since there is heavy emphasis on equity participation and/or leasing while leverage is discouraged, it'll probably be good for raising venture capital as well, but a case is going to be made by the entrepreneurs to give an outsize returns.

Anonymous said...

Hi

If the wealth lost is 2.5 trillin which could be 25% of their networth. The the remaininig is 7.5 trilliion usd. Pls see the total amount of islamic bonds. If might be few million usd or a maximum couple of billion against 7500 billion usd.

Further human greed has no end that is the reason they invest more in the so called developed economy than in developing economy.

Further most of the gcc swf goes to us fund manager who invest in bric. They pay 15% to the swf and make cool profit another 30%.

Islamic finance in the true sense is too noble for ordinary human to practice.

Riaz Haq said...

Anon:

As far as I know, most managed funds in the US have underperformed relative to the S&P500 benchmark over the last 10 years or more, hence the popularity of the index funds in America. The record of many of the hedge funds is not much better, with the credit and commodity bubble bursts of the last year. By their own admission, an average hedge fund lost 18.1% last year, the reality could be far worse after their toxic holdings are written down.

I expect new regulations to restrict the hedge funds activities an more disclosure requirements because of the massive negative impact they've had on the Main Street in America.

Islamic funds are clearly not yet large enough or diverse enough to accommodate big investors, but they are beginning to offer an alternative to investing elsewhere. And they don't suffer from the downsides of the hedge funds that are usually heavily leveraged and make extremely risky bets on derivatives and commodities.

Almost all ME sovereign have lost tons of money on their investments in US ad Europe.

At 15% per year growth and fresh interest in the Muslim world and the West, I expect to see a lot more money flow into them over the next 5-10 years. And they are going to have compete, just like non-Islamic funds for the investors' money.

Anonymous said...

Growth in GCC. Riaz you must be really joking. GCC can keep on building hotels and mall in km horizontal or vertical.

What is the value addition the economies are doing ? Export base product and even for that they pay an arm and leg as royalty. Royalty is some where between 25 to 40%.

Once again these gcc wealthy countries are controlled by the powerfull american politicians. After the overthrow of sadam with WMD lie no ruler in gcc will have the sense to take american on their wrong side.

There is no transparency of these swf of what is the oil money they got and what is the invested where. So it will be joint loot by american and GCC rulers family at the cost of the economy.

People follow their ruler and they are also blowing off the money rather than creating value. All this will go till the oil is the king and many part of the world depends upon oil as energy for their economy.

Riaz Haq said...

Anon: You think GCC growth is a joke. Have you heard about Singapore? Do you know how Singapore got to where it is? By making a center of trade and finance. That's what made it one of the wealthiest and most productive economies. Look at Singapore Airlines, Singaporean banks and financial institutions, Singapore tourism...all of these sources of wealth for its economy.

Global trade and investment has always been a way to grow and it is becoming more and more important. Even London, NY and Paris depend mainly on global trade and investment for their wealth.

Anonymous said...

Riaz

You are out of sync. Comparing the most discipline multipe cultural singapore with the medival oriented oil rich gcc.

Singapore earns by trading, facilitation and not by exporting the oil and spending the same as economy.

uae - gdp - 184 billion ud
kuwait 149 billion
saudi 582 billion
pakistan - 452 billion
india - 3.267 trillion usd.

all three gcc countries are just pumping out oil nothing else. What is ever is coming is spent on all luxuries and enjoyment. what is the value addition by the economy ?????????????????!!!!!!!!!!!!!!!
!!!!!!!!

Riaz Haq said...

Anon: I think you are out of sync with the reality in Gulf nations.

GCC countries have been diversifying their economies for over a decade now. Dubai's economy is already well diversified. Oil now contributes only 5 per cent of the gross domestic product (GDP). The trends show progress in this direction among other GCC nations.

Whether trade, finance or tourism, you see signs of diversification everywhere in Gulf nations.

These shaikhs running Gulf nations are not dumb. They are even turning their attention to high-quality education in collaboration with top western universities. Aljazeera is a shining example of the growth of media business in the Muslim world.

Anonymous said...

dubai's economy. Once again you are joking. The real estate market has fallen by 50% without any buyers in the market.

Thanks to fall, most of the expats have been thrown out of jobs which in turn has reduced the economy. Further as per CIA site at least 25% of gdp is out of oil export and the remaining are the bye product of the consumption.

High quality education is true, please go and see the participation of the same.

Tourism in desert. What happens in thailand open happens inside black rooms.

None of the GCC countries including UAE is a nation. It is a a federal of convenience. That is the reason that the balance sheets of all these emirates are different.

Riaz Haq said...

Anon: It seems you have some deep anger and resentment against the GCC nations, to the extent that you claim they are only about oil and nothing else.

But let's assume for the sake of argument that you are right. Do you think their oil money and massive sovereign funds can be a source of money for Islamic finance and investments in Pakistan and other Muslim nations? Do you not believe that many billions of dollars have flowed and continue to flow as FDI and remittances into Pakistan?

Anonymous said...

riaz

I donot have any hatred about gcc. I am just trying mock the hypocracy in the GCC. Nothing else as i know even this will pass away.


swf will not put their money in islamic funds as they want return on funds. So it will not happen. Even if that happen it will be a percentage point

With regard to the funds flowing into pakistan from any gcc countries purely depends upon USA. They will not invest in any place not shown by USA.

Acutally the money of export never comes to these gcc countries as it is deployed through the network of banks in europe and usa.

GCC countries does not want taliban in their backyard nor wants to invest in place where there is risk.

Please verify the investments of the gcc on any intangible asset based company like softwares or service. Generally they understand the gross substance and hence their investments are in more real estate as they are comfortable with. Their dependency can be displayed by their undying loyalty to dollar when everbody in the world is feeling that dollar is bound to depreciate.

"From Bubble to Bubble to Bubble The printing presses never stopped. Trillions of dollars
backed by nothing were magically manufactured. The US government assumed nearly a trillion dollars of debt by mid-fiscal year 2009. It issued $3.25 trillion worth of
Treasuries (nearly four times more than floated in 2008), and would chalk up a fiscal deficit equal to 12.9 percent of its GDP."

This is from trendsresearch report extract.

Anonymous said...

===========================
THIS TOO WILL PASS!
Once a King called upon all of his wise men and asked them "Is there a mantra or suggestion which works in every situation, in every circumstance, in every place and in every time? Tell me is there any mantra?"
After a lengthy discussion, an old man suggested something which appealed to all of them. They went to the king and gave him something written on paper. But the condition was that king was not to see it out of curiosity.Only in extreme danger, when the King finds himself alone and there seems to be no way, only then he’ll have to see it. The King put the paper under his Diamond ring.
After a few days, the neighbors attacked the Kingdom. It was a collective surprise attack of the King’s enemies. King and his army fought bravely but lost the battle. King had to flee on his horse. The enemies were following him. He could hear many troops of horses following him and the noise was coming closer and closer. Suddenly the King found himself standing at the end of the road - that road was not going anywhere. Underneath there was a rocky valley 1000 feet deep. The sound of enemy’s horses was approaching fast. The King became restless.
Then suddenly he saw the Diamond ring shining in the sun, and he remembered the message hidden in the ring. He opened the diamond and read the message. The message was very small but very great. The message was – “This too will pass."
The King read it. Again read it. Again & again he read it. Suddenly something struck him- Yes! It too will pass. Only a few days ago, I was enjoying my kingdom. I was the mightiest of all the Kings. Yet today, the Kingdom and all the pleasure have gone. I am here trying to escape from enemies. However when those days of luxuries have gone, this day of danger too will pass. Calm come on his face. The revelation of the message had a great effect on him. He relaxed and forgot about those following him.
After a few minutes he realized that the noise of the horses and the enemy coming was receding. They moved into some other part of the mountains and were not on his path. The King was very brave. He reorganized his army and fought again. He defeated the enemy and regained his lost empire. For a moment King said to himself," I am one of the bravest and greatest Kings. It is not easy to defeat me..:
People were dancing and singing. With all the reception and celebration he saw an ego emerging in him. Suddenly the Diamond of his ring flashed in the sunlight and reminded him of the message. He opened it and read it again: "This too will pass" He became silent. His face went through a total change –from the egoist he moved to a state of utter humbleness!
“If this too is going to pass, it is not yours. The defeat was not yours, the victory is not yours. You are just a watcher. Everything passes by. We are witnessing all this. We are the perceiver. Life comes and goes. Happiness comes and goes. Sorrow comes and goes.”
There is nothing permanent in this world…..Every thing changes except the law of change. If there are problems in the present, they too will pass away – including the current Financial Crisis – because nothing remains forever. Joy and sorrow are the two faces of the same coin. They both will pass away!
“Take no pride in your possession, in the people at your command, in the youthfulness that you have - Time loots away all these in a moment. Leaving aside all these, after knowing their illusory nature, realize the state of Brahman and enter into it!” – Adi Shankaracharya
=================================
Even this wealth of nation will pass away. Day before yesterday was UK, Yesterday was USA, tomorrow could be any body ??????

Riaz Haq said...

McDonald's, Nestle and Tesco are not only non-Muslim owned/managed companies capitalizing on the growing demand for halal products. New ones, such as Al Safa, whose products are found in North American supermarket chains, are joining the fray. Here's the Al Safa story from Sound Vision:

A Muslim name, some Muslim employees, a logo containing Arabic, date palm tree, and a masjid, slick flyers announcing its Halal food products and a 1-800- number with a message greeting you with a Salam and a recording in English and Arabic.

But Al Safa Halal is not a Muslim company. The Kitchener, Ontario-based entity is actually owned by non-Muslim (Jewish) private investors, intent on cashing in on the North American Muslim meat market.

While one of Al Safa Halal's proprietors, David Muller, refused to speak with Sound Vision, he directed our call to its Customer and Consumer Relations Manager AbdelKader Muhammad. Muller also would not disclose exactly who and how many people owned Al Safa Halal, saying this information is confidential.

Providing Halal meat products for Muslims was the first type of business Muslims in North America established long ago. After Masjids, the Halal grocery store became a need of the Muslim community in North America. Such stores have become part of the landscape.

Enter Al Safa Halal. While it was only launched last year, it emerged from the company MGI Packers, which is based in Kitchener, Ontario, Canada and had been in business as a slaughterhouse since 1987.

Anonymous said...

Halal business is great as it sell. But who does the selling. Who get the profit out of the transaction matters. If this is being done by any GCC / pakistan based company then it would be great.

You paying money for them to do the hallal. I think customer is the king and that is nothing great about the same.

Anonymous said...

http://timesofindia.indiatimes.com/Shiv-Sena-launches-Shiv-Vada/articleshow/4672572.cms

I would say this is great. Shiva sena is trying to take out of mumbai vada pav to all over the world whether it is a success or not it is to sell once concept to others.

If any company in gcc could sell halal concept to the world and then make money that would be creative.

Think for a while will these company sell with endeavour in case the gcc markets dry out of oil riches.

Riaz Haq said...

Anon:
I think it is ludicrous to compare Sena's vada or RSS's Gau Jal with the halal food products market.

At almost a trillion dollars, the halal market is real and growing. It has very little to do with a small GCC population but everything do with the 1.5 billion Muslim consumers (from Indonesia to Middle East to Asia, America and Europe) around the world.

Anonymous said...

Riaz

Hallal market for muslims is taken for granted. That market is also exploited by the western companies. HOw that can be great ? Probably you might feel that it is a recognition by the west of the muslim preference. If that recognition is what musim world expect then it is great.

However they pay the price for that recognition to the english and they make their profit.

It could have been great if any enterprise in gcc could have make the hallal as a great enterprice then it would have been great.

Coming to the practices of hinduism, it does not have money to offer any person to practice. Yoga has grown and recognized beyond the border of hinduism.

Latest is the topukaranam "which is done by hindus before ganapathy" is taken as superbrain yog. Earlier this is used to be called as blind belief and used to be rediculed by the western and rationalist. Today yale universtiy is trying to patent the same.

http://scienceofhinduism.blogspot.com/2009/03/thoppukaranam-alias-super-brain-yoga.html

Who knows what white has got an explanation offering for the practices which are mentioned just now by you as blind belief only time has to unravel the same.

Riaz Haq said...

Agence France-Presse AFP Singapore is reporting as follows:

Assets held by the world’s 100 biggest Islamic banks grew 66 per cent in 2008 from the previous year despite the financial turmoil that clobbered mainstream lenders, a report said Friday.

The top 100 Islamic banks held assets totaling 580 billion US dollars last year, up from 350 billion dollars in 2007, according to an annual report by The Asian Banker, a magazine for financial professionals.

In the same period, Asia’s 300 biggest banks saw their assets rise by a much slower 13.4 per cent, it said.

A financial storm sparked by a crisis in the US housing market swept across the world late last year. Its impact spilled over into the general economy and sent several countries into recession.

Prominent US investment bank Lehman Brothers collapsed into bankruptcy, while several other major Western banks suffered massive losses.

‘Despite the financial turmoil in late 2008 that crippled so many large Western institutions, Islamic banks have continued to grow in prominence and size,’ the magazine said in a press statement.

Emmanuel Daniel, the magazine’s president and chief executive, added: ‘Islamic finance has seen an incredible surge in popularity, based on stronger regulatory regimes and a better international understanding of its dynamics.’

Islamic banking fuses principles of sharia or Islamic law and modern banking. Islamic funds are banned from investing in companies associated with tobacco, alcohol or gambling.

Iranian banks were the biggest players in the global Islamic banking sector, holding seven out of the top 10 rankings and 12 out of the 100, but Saudi Arabian lenders were more profitable, the report said.

Saudi Arabia’s Al Rajhi Bank had the highest net income of 1.74 billion dollars, which is more than five times the earnings of Bank Tejarat, Iran’s most profitable lender.

Iranian banks also took up 40 per cent of the total assets of the top 100 banks, with the UAE, Malaysia, Saudi Arabia and Kuwait accounting for a combined 40 per cent. Smaller banks in 10 other markets accounted for the rest.

Outside of the Middle East, two Islamic banks in Britain made it to the top 100, according to the report.

Asian and North African banks ‘are still very small’ compared with the Middle Eastern players, it said, adding that ‘only Malaysian and Bangladeshi Islamic banks have a significant amount of assets’.

Indonesia, the world’s most populous Muslim nation, had only two banks on the list, Pakistan had three, while regional financial centre Singapore and the Malay Islamic kingdom of Brunei had one each.

Anonymous said...

There is more information about this at www.zabiha.com.

Riaz Haq said...

Here's a BBC report on Islamic finance in India:

The Bombay Stock Exchange (BSE) in the Indian city of Mumbai has launched a new index which consists of companies that meet the Islamic legal code.

The Tasis Shariah 50 was formed using guidelines from an Indian Shariah advisory board.

Studies have found that most Muslims in India are excluded from the country's formal financial sector.

That is because Islamic law does not allow investment in companies that sell goods like alcohol, tobacco or weapons.

Neither does it allow investment in companies that derive significant profit from interest.

The index is intended to be the basis for other Shariah-compliant financial products.

'Come and invest'

BSE Managing Director and Chief Executive Madhu Kannan said that the new index would attract Islamic and other "socially responsible" investors both in India and overseas.

Continue reading the main story “Start QuoteAll Muslim countries of the Middle East and Pakistan put together do not have as many listed Sharia-compliant stocks as are available on the BSE”
End Quote Tasis Director of Research and Operations Shariq Nisar
"This index will create increased awareness of financial investments among the masses and help enhance financial inclusion," he said in a statement.

Companies included in the index have been screened by Tasis, which is based in Mumbai and whose board members include Islamic scholars and legal experts.

"Before anyone can attract investors, we need to put in place institutional infrastructure, and having an index to track Shariah-compliant stock is important," MH Khatkhatay, senior adviser to Tasis, told the Reuters news agency.

"If you have an ETF (exchange traded fund), for example, you need an index, or if overseas investors want to invest in Shariah index in India, this is an invitation for people to come and invest."

Tasis said the index would "unlock the potential for Sharia investments in India".

"The BSE has the largest number of listed Sharia-compliant stocks in the world," said Shariq Nisar, director of research and operations at Tasis.

"All Muslim countries of the Middle East and Pakistan put together do not have as many listed Sharia-complaint stocks as are available on the BSE."

Stocks will be reviewed every month to ensure they continue to meet the criteria - any which do not will be removed, officials say

Riaz Haq said...

Rising crop prices in the US are helping economic recovery in the farm belt and lifting the value of farmland in the Midwest, according to the Wall Street Journal:

Farmland values in much of the Midwest are climbing at their fastest rates since the 2008 boom, the Federal Reserve Bank of Kansas City said Tuesday.

Fueled by rising crop prices, the value of irrigated and nonirrigated cropland across the region known as the 10th District jumped 14.8% and 12.9%, respectively, in the fourth quarter, compared with a year earlier.

The bank's quarterly survey of the region, which covers western Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and northern New Mexico, found that farmland prices rose for the fifth consecutive quarter since a drop in the third quarter of 2009, when the livestock sector was contracting amid the recession.

The Federal Reserve's regional banks closely track farm real-estate prices because they are a key indicator of the health of U.S. farming, which uses about half of the nation's land. Land is farming's largest asset and source of collateral, which means any increase in value lifts farmers' borrowing power.

The Federal Reserve Banks in Chicago and Minneapolis have yet to issue their quarterly surveys, but their reports are also expected to show that the farm belt is continuing to rebound from the recession more quickly than the general economy, which has been hobbled by high unemployment rates and weak home values.

Farmland prices in the 10th District are generating their biggest gains since the third quarter of 2008, when prices of irrigated farmland jumped 23.4% and prices of nonirrigated farmland rose 21.2%.

Still, it's not clear how long farmland prices can continue to climb so sharply. The Federal Deposit Insurance Corp. has already said it's watching for whether an asset bubble is building. One red flag in Tuesday's report is that cash rental rates for cropland across the 10th District rose only about 6% in the fourth quarter, far too little to justify such a big increase in land prices.

As a result, some farm bankers across the region are beginning to tighten their standards on real estate loans.

"Bankers in the survey were starting to raise questions about the sustainability of farmland values" and "paying closer attention to their loan-to-value ratios," said Brian Briggeman, an economist at the Omaha branch of the Kansas City Fed.

Farmland prices are heavily influenced by crop prices, which were climbing until the financial crisis and recession popped the commodity-price bubble in late 2008. Led by wheat, U.S. crop prices resumed their upward climb in June 2010 amid harvest problems in places such as Russia, and then the U.S. corn belt, as demand was recovering in the world's emerging economies.

The prices of corn and wheat grown in the Midwest are about double what they were a year ago, while cotton prices are up 155%. Soybean prices have climbed 50%. Those high commodity prices are giving farmers more money to spend on land, as well as attracting the interest of outside investors looking for an inflation hedge at a time when the cost of borrowing money for buying real estate is low.

The U.S. Agriculture Department said Monday that it expects net farm income, a widely followed barometer of the U.S. agriculture sector's profitability, to climb 19.8% this year to $94.7 billion, which would be the second-highest inflation-adjusted figure for net farm income in 35 years.

Riaz Haq said...

Here are a few excerpts from an Express Tribune story on Pakistan's growing meat exports:

Halal meat is also one of the fastest growing segments within the global food trade. Between 2001 and 2009, the global beef trade grew at an average of 10.4 per cent to reach just over $30 billion, according to data available from the UN Food and Agriculture Organisation (FAO). However, the market for halal beef imports in the Middle East and Southeast Asia alone grew by over 18.2 per cent to reach just under $2 billion a year during that same period.

Pakistan’s market share within this rapidly growing market is a paltry 2.9 per cent. However, Pakistani exporters seem to be determined to make up for lost time. In the six years ending in 2009, Pakistani red meat exports have risen by an average of 68.6 per cent a year, though admittedly from a very low base.

Yet with the advent of more and more new players, and with surprisingly robust support from the government, Pakistan is on the verge of becoming one of the largest players in the meat trade, at least within the Middle East and Southeast Asia.

Perhaps the single biggest advantage that Pakistan has is proximity. The country is closer to the Middle East than any of its biggest rivals in the market. The three countries with the largest market shares are Australia, Brazil and India, each of which has considerably higher shipping costs to these export markets compared to Pakistan.
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“The Brazilian animal is exactly the same as most of our breeds of cattle. The quality of meat is also the same. The only difference is their ability to market their meat better than us,” said Namazi. He argues that Pakistan can easily displace Brazil as the Middle East’s leading meat supplier.

Iran, in particular, seems to be keen for Pakistani beef. The Iranian government has invested 50 per cent of the capital in the Lahore Meat Company, a dedicated abattoir that will export meat to Iran.

Australian beef, with a powerful branding effort and a larger source animal, has a specific niche market that industry experts believe will be difficult for Pakistan to compete with in the medium term.

India, the one country that could completely destroy Pakistan’s potential in the meat trade, has placed itself outside the global beef market after a 2005 Indian Supreme Court ruling that upheld a ban on cow slaughter as constitutional.

Indian exporters only sell carabeef – meat from buffalo – which is considered inferior and commands lower prices and margins. Nevertheless, Indian exporters dominate the market in Malaysia for the lower end of beef, while Australians command the higher end.

“Malaysia is ripe for a middle-market meat supplier from Pakistan,” said another expert in the meat business. Malaysia has had a free-trade agreement with Pakistan since 2007.

Several companies from Pakistan have entered the red meat export business and even more are in the process of entering the market. The oldest and one of the most successful of these is PK Livestock, a Karachi-based abattoir which has been exporting red meat to the Middle East for over two decades.

Zenith, a Lahore-based exporter, became the first Pakistani company to sell beef to Malaysia, after the Malaysian government relaxed its regulatory requirements for Pakistani exporters.

Others, such as OMC and the Al Shaheer Corporation, have also successfully begun exporting to the Middle East and are aggressively seeking regulatory approvals for markets further afield in Southeast Asia.

Pakistan’s total meat exports may come close to $100 million in 2011 and could surpass the $500 million mark in about five years, according to projections by ASI Partners.
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Despite having the eighth largest herd of cattle and the third largest herd of goats in the world, Pakistan’s animal population is very scattered, which makes procurement of the animals for the abattoir expensive...

Riaz Haq said...

Pakistan, bidding to nearly double Islamic banking in the South Asian state by 2015, is focusing on poor, conservative villages to drive growth and has ordered Islamic lenders to open 20 percent of all new branches in rural areas, according to Reuters:

Islamic banking will help draw the funds of rural customers, a less sophisticated client base who also traditionally shun conventional banks due to concerns over interest which is forbidden under Islam, said Saleem Ullah, director of the Islamic banking department at the State Bank.

"Islamic banking, primarily being a faith-driven industry, has a significant potential in Pakistan as the concept directly appeals to the religiously sensitive segment of the society," Ullah said. "The share of the industry in the banking system has risen to over 7 percent from just 0.5 percent in 2002."

Pakistan's plan is to raise that figure to 12 percent from 7 percent currently by 2015.

Islamic finance growth has faced challenges due to the worsening geopolitical and security situation in Pakistan. But with a population of around 180 million Muslims, the small South Asian nation is still considered as one of the hottest growth areas for the industry.

Pakistan has five fully-fledged sharia-compliant banks and twelve conventional banks with Islamic operations, creating a network of 800 branches in Pakistan. Ullah anticipates that 150 new branches will open by the end of the year.

Islamic banking currently accounts for 497 billion rupees ($5.74 billion), or 7.3 percent of the country's overall banking system.

"Historically, the poor and oppressed in a society are more inclined to follow the norms of their religion than the affluent," said Muddassir Siddiqui, an Islamic scholar and partner at law firm SNR Denton in Dubai.

The combination of aggressive advertising and more Islamic branches in rural areas should drive the industry, Zahid Mansoor, treasurer at DIB Pakistan, a unit of Dubai Islamic Bank , said.

"The new regulatory requirements are a good first step by the government to reaching those in rural areas, where there is little trust for banks and people prefer to keep money under their pillows," he said.

"If you create awareness in the minds of these people, there is significant potential to take Islamic finance beyond a niche market and make it the main choice for banking."

DIB Pakistan, which currently has 59 branches throughout the country, should have 80 branches by the end of the year, Mansoor said.

The prospects for growth is already attracting interest from both the conventional banks in Pakistan and foreign institutions, primarily out of the Gulf region.

Both Dubai Islamic Bank and Bahrain's Al Baraka Bank have subsidiaries in Pakistan and Standard Chartered Saadiq, the Islamic arm of UK-based Standard Chartered , also launched operations in the country.

"We currently have 100 branches in Pakistan and consider it to be a growth area for us," said Adnan Ahmed Yousif, chief executive of Al Baraka Bank. "At our bank, we are looking to get to 200 branches over time. The country definitely has a lot of potential within Islamic finance."


http://uk.reuters.com/article/2011/08/14/pakistan-islamic-idUKL5E7JE02720110814

Riaz Haq said...

Here's an excerpt from a recent Washington Post report on Islamic banking in Pakistan:

Business experts say the burgeoning popularity of Pakistan’s Islamic banks — where deposits have gone from about $3 billion to nearly $4 billion in the past year — reflects both a reaction to the turmoil afflicting Western financial systems in recent years and a surge of religious feeling in an overwhelmingly Muslim society in which many people believe their faith is under assault from the West.

“Islamic banks have existed on the fringes of the banking industry for many years, but the global financial crisis has brought them into the limelight,” said a recent report in the Business Recorder, Pakistan’s daily financial newspaper. Today, it said, Islamic banking is “in fashion” and has “earned a shine that continues to attract funds.”

Meezan Bank, the largest of a half-dozen Islamic banks in Pakistan, draws Muslim consumers to its 54 branches by promising “the best of both worlds.” Its brochures advertise quick car loans that are “halal,” or in accordance with religious rules, and new-home mortgages that are “riba-free,” meaning that no interest is charged.

“Interest is a curse that must be eliminated from society,” said Irfan Zulqernain, a Meezan officer who has an MBA and a vision of Islam as a socially transformative force. “We don’t treat money as a commodity, which just makes a few people richer and everyone else poorer. Our way generates economic activity and spreads money throughout society.”

Islamic finance is based on a system of asset leasing and partnerships rather than outright moneylending, which Islam bans. The bank is allowed to turn a profit, but it does so by charging extra fees rather than interest — a distinction that critics say is virtually meaningless and intended solely to make Muslim customers think they are doing the right thing.

Religion as selling point

Banks are not the only businesses to capitalize on the new religious mood among consumers. More and more products are labeled “halal” even when there is no religious blessing involved. At a leading bookstore here in the capital, one of the hottest-selling items is a digitalized miniature version of the Koran that sells for $80.

“This is a precious object for us, and now it as easy to use as a mobile phone. You can just press a button and listen to any verse,” said Samira Imran, a customer who was buying one for her mother. “Our parents like to recite the Koran all the time, but this is a way to connect the new generation as well.”


http://www.washingtonpost.com/world/in-pakistan-islamic-banking-is-a-fast-growing-trend/2011/04/29/AFlF2iMF_story.html

Riaz Haq said...

Here's an excerpt from a piece by Pankaj Mishra published in Businessweek:

Nov. 18 (Bloomberg) -- During the worldwide depression of the mid-1930s, the poet and Islamic modernist Muhammad Iqbal, often called Pakistan’s spiritual founder, wrote a poem dramatizing the inadequacies of Western political and economic systems.

Democracy and capitalism had empowered a privileged elite in the name of the people, Iqbal felt. But he was not much fonder of Marxism, which was then coming into vogue among anti- colonial activists across South Asia and the Middle East:

But what’s the answer to the mischief of that wise Jew That Moses without light, that cross-less Jesus Not a prophet, but with a book under his arm For what could be more dangerous than this That the serfs uproot the tents of their masters

(Rooh-e-Sultani Rahe Baqi To Phir Kya Iztarab
Hai Magar Kya Uss Yahoodi Ki Shararat Ka Jawab?

Woh Kaleem Be-Tajalli, Woh Maseeh Be-Saleeb
Neest Peghambar Wa Lekin Dar Baghal Darad Kitab

Iss Se Barh Kar Aur Kya Ho Ga Tabiat Ka Fasad
Torh Di Bandon Ne Aaqaon Ke Khaimon Ki Tanab!)
------------
In any case, Tunisians voting for Ghannouchi and Pakistanis flocking to Khan’s rallies are not the radical revolutionaries or closet theocrats they are often made out to be by a paranoid local elite and a global liberal intelligentsia. Rather, these are people who have simply failed to develop the habit of seeing Islam as a purely religious phenomenon, separate from economics, politics, law and other aspects of collective life.

Whether liberal and secular elites like it or not, there are a large number of socially conservative Muslims who wish to see the ethical principles of Islam play a more active role in public life. The mind-numbing division between “moderates” and “extremists” that often passes for profound understanding of Islamic societies in the West simply fails to account for this invisible majority of Muslims, who are unlikely to plump for secular liberalism either now or in the near future.

For many nationalist and reflexively conservative Pakistanis, Imran Khan’s belief that “if we follow Iqbal’s teaching, we can reverse the growing gap between Westernized rich and traditional poor that helps fuel fundamentalism” is not the empty rhetoric it may sound to a Westernized Pakistani.

Indeed, the history of South Asia and the Middle East has repeatedly shown that the failure of modernizing endeavors, and the widespread suffering it unleashes, has always enhanced the moral prestige of Islam. In the eyes of its victims, the debacle of modernization and secularization has also diminished the credibility and authority of local elites as well as their Western sponsors.

The classic example, of course, was Iran. Visiting the Islamic Revolution after the fall of the secularizing Shah, the French philosopher Michel Foucault claimed that “Islam -- which is not simply a religion, but an entire way of life, an adherence to a history and a civilization -- has a good chance to become a gigantic powder keg, at the level of hundreds of millions of men.”

The 1979 Islamic Revolution in Iran that Foucault rashly cheered on has, in another generational shift, run its course. And revolution per se may be far from the minds of young Pakistanis and Tunisians trying to regain control of their national destiny. But the powder keg of political Islam that Foucault spoke of remains dry elsewhere in the Muslim world; and its potency is only likely to increase as Western political and economic systems and ideologies seem, to many Muslims, feeble, and yet so malign.


http://www.businessweek.com/news/2011-11-17/islam-offers-a-third-way-in-pakistan-and-tunisia-pankaj-mishra.html

Riaz Haq said...

Here are excerpts from The Nation's story on halal industry conference in Pakistan:

The speakers at a concluding session of the two days international conference on halal industry in Pakistan stressed the need for focusing on halal industry in the country, as it can give boost to the national economy.
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The conference was organized by Halal Research Council in collaboration with PAMCO and Livestock & Dairy Development Department Punjab in which research papers on various topics like export of Halal products from Pakistan, promotion of Pakistan’s Halal Industry internationally, International Halal Research & development and Certification, opportunities of promotion in the Global Halal Industry and the potential of Halal Industry in Punjab were presented.

In that conference, the MoU was signed amongst Philippine and Mauritius for the sake of promoting the Pakistan Halal products. The main subject of the conference was the proposal from Justice Khalil ur Rehman for the formation of Halal Authority which was unanimously appreciated by all.

Other accepted proposals include the Halal awareness Campaign, Research in the field of Halal and Halal Publications.


http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/business/20-Jan-2012/pakistan-to-become-halal-industry-hub

Riaz Haq said...

Here's Islamic News Agency on IDB/ADB financing of wind farms in Pakistan:

JEDDAH, 27 Jumada Al-Thani/19 May (IINA)- The Islamic Development Bank (IDB) in partnership with the Asian Development Bank (ADB) has signed a US$133 million agreement for long-term lease finance (Ijara) facility for the development of two wind power projects in the Sindh province of Pakistan.

A consortium of local financial institutions comprising National Bank of Pakistan, Faysal Bank, United Bank Limited, Allied Bank and Meezan Bank are also participating in the transaction. Under an innovative risk participation structure between IDB and ADB, the project companies were able to raise 100% Islamic financing for these important infrastructure projects.

The projects are sponsored by the Fauji Foundation and Tapal Group in Pakistan. Once complete, the projects shall add generation capacity of 100MW to the national grid under long term Energy Purchase Agreement with the National Transmission and Distribution Company (NTDC) of Pakistan and thereby make a significant contribution to improving the power supply situation in the country.

These projects are the first generation wind energy projects that Pakistan has embarked on. “Pakistan has enormous potential to tap wind energy, and successful implementation of these projects is expected to bring in further investment in developing more wind projects in Pakistan.” said Walid Abdelwahab, Director, Infrastructure Dept at IDB.

IDB has been a long term development partner of Pakistan and has been involved in both public and private sector projects. Since its inception, IDB’s cumulative operations in Pakistan have reached to almost US$7.5 billion.


http://iina.me/wp_en/?p=1008446

Riaz Haq said...

Pakistan ranks 8th in the world of Islamic Finance, according to a Guardian story. Here's an excerpt:

How it works

Islamic finance is all about sharing risk between financial institutions and the individuals that use them. To do that, the two parties are tied into a longer-term relationship with each other that is supposed to shift incentives and avoid cut and run financial deals.

So, for example, sharia-compliant mortgages mean that the bank and the borrower share the risks of repayment rather than charging any form of interest. Similarly, Islamic bonds like the one announced by David Cameron today involve both parties owning the debt, rather than a simple promise to repay a loan.

Since it's Islamic, that also means that financial trading is off-limits for things that are forbidden even if no interest is charged - so investments can't be made in alcohol, tobacco, non-halal meat products such as pork, pornography or gambling companies.

You don't have to be Muslim to use Islamic financial services - a fact which has stimulated further interest in the sector. The Islamic Bank of Britain reported a 55% increase in applications for its savings accounts by non-Muslims last year after the Barclays rate-fixing scandal.

In numbers

275: The number of Islamic financial institutions in the world.
75: The number of countries where they have a presence.
US$1.357 trillion: The value of the global Islamic finance services industry by the end of 2011.
US$4 trillion: The projected value of the global Islamic finance services industry by 2020.
£200m: The value of the planned Islamic bond being unveiled by David Cameron today.
11th: The ranking of the UK (up 4 places from 2011) in the Global Islamic Finance Report which weighs up variables like the number of institutions involved in Islamic finance industry, the size of Islamic financial assets and the regulatory and legal infrastructure.

Glossary

bay 'al-mu'ajjal: Instant sale of an asset in return for a payment of money (made in full or by instalments) at a future date
gharar: Describes a risky or hazardous sale, where the details of the sale contract are unknown or uncertain
ijarah: Leasing contract
istisna': Refers to an agreement to sell a non-existent asset, which is to be manufactured or built according to the buyer's specifications and is to be delivered on a specified future date at a predetermined selling price.
mudarabah: Profit and loss-sharing
musharakah: Joint partnership
qard hasan: Interest-free financing
riba' : Usury
sharikat al-'aqd: Contractual partnership
sharika al-milk: Proprietary partnership
sukuk: Islamic bonds
tahawwut: Hedging
takaful: Islamic insurance
wadiah: Safe custody
wakala: Investor entrusts an agent to act on his behalf
zanniyyat: probabilistic evidence


http://www.theguardian.com/news/datablog/2013/oct/29/islamic-finance-for-beginners

Riaz Haq said...

Here's a NY Times story on a Pakistani-American Halal food entrepreneur:

During the early months of 2010, Adnan A. Durrani found himself frequently thinking of kosher hot dogs. To be more precise, he was thinking of an ad campaign for them created decades earlier by the Hebrew National company. Its well-known slogan went, “We answer to a higher authority.”

Let it be said that Mr. Durrani was, in many ways, an unlikely recipient for such a revelation. An observant Muslim born to Pakistani parents, a Wall Street refugee turned natural-foods entrepreneur, he was then trying to create a line of frozen-food entrees adhering to the Muslim religious standard of halal for the American market.

And Mr. Durrani was doing so in an especially forbidding political climate, with a demagogic battle raging against a proposed Muslim community center in Lower Manhattan depicted as the “ground zero mosque,” and judicial and criminal attacks against a mosque being constructed in Murfreesboro, Tenn. “Perfect timing,” he recalled dryly.

Yet the Hebrew National mantra attested to the goal that Mr. Durrani had set for his nascent company, Saffron Road: to hit both the bull’s-eye of a specific religious audience and appeal to the concentric ring of other consumers inclined to impute positive traits to any food with a sanctified aura.

By the late summer of 2010, the first Saffron Road entrees landed store shelves. This year, as the Muslim holy month of Ramadan approaches, bringing with it daytime fasts and nightly iftar meals, the company has put out more than 50 different products and built annual sales on a pace to reach $35 million.

As significant, thanks to a close partnership with the Whole Foods chain, Saffron Road’s products have moved beyond a core audience of observant American Muslims and into the commercial mainstream. In that respect, Saffron Road is among the first halal producers to follow what might be called the kosher model of simultaneously serving and transcending a communal constituency.

“What it takes for an ethno-religious food to cross over into the mainstream is, first of all, buy-in from the general public — a perception that this food has something of value that other food does not,” said Sue Fishkoff, author of the book “Kosher Nation.” That something, she continued, might be a sense, even if inaccurate, that the food is healthier, purer or of higher quality because it has been produced under religious supervision.

The challenge for a halal product, then, is a foundational one. Instead of entering a marketplace that has an innocuously favorable view of a religion and its clergy, such as Judaism and Christianity enjoy in America, a brand like Saffron Road runs the risk of colliding with and even provoking Islamophobia. All of which makes its commercial success more notable, and one might say more heartening.
-----------
As of 2014, about two-thirds of Saffron Road’s products are gluten-free and about one-third do not use genetically modified ingredients. They are sold in such mainstream supermarket chains as Costco, Publix and Kroger.

Predictably, some anti-Muslim reaction has appeared, with a small number of bloggers assailing Whole Foods in 2011 for running a Ramadan promotion of Saffron Road products. Less predictably, however, the brouhaha wound up being a bonanza. Mr. Durrani went on CNN to defend his company and deployed a “rapid-response team” of bloggers, including a rabbi, to attack the attackers. Thanks to all the free publicity, Saffron Road’s sales shot up by 300 percent during that Ramadan.

“We say this is higher-powered,” Mr. Durrani said. “Angels come in from nowhere to help us.”

That part of the story, of course, just may not fit into an M.B.A. case study.


http://www.nytimes.com/2014/06/14/us/a-muslim-entrepreneur-follows-a-kosher-model-to-success.html?_r=0

Riaz Haq said...

A rally in Pakistan bonds bodes well for the world’s second-biggest Muslim nation as it prepares to sell global sukuk for the first time since 2005.

The government may issue $500 million of dollar Islamic notes by month-end, Finance Minister Ishaq Dar told reporters in Dubai on Nov. 8, reviving the sale initially scheduled for September. The yield on the nation’s conventional five-year U.S. currency debt sold in April dropped to a five-month low of 6.16 percent and Union Investment Privatfonds GmbH is predicting 6 percent for a similar-maturity sukuk.

Investors have sent the benchmark stock index to a record and the rupee to its strongest in more than two months as they focus back on the economy as Prime Minister Nawaz Sharif overcame pressure from opposition members to step down in August. Global sales of sukuk are heading for the worst fourth quarter since 2008, aggravating a shortage of Islamic securities that may support demand for Pakistan’s offering.

“The macroeconomic outlook of the country has vastly improved,” Vasseh Ahmed, chief investment officer of Faysal Asset Management Ltd., which oversees $85 million in Karachi, said in a Nov. 11 e-mail. “There is expected to be substantial interest owing to the lack of investment avenues for Islamic investors.”

Shrinking Sales

Worldwide sales of Islamic bonds dropped 81 percent this quarter to $2 billion from the previous three months, data compiled by Bloomberg show. Issuance climbed 11 percent in 2014 to $38.9 billion, trailing 2012’s record $46.8 billion total.

Pakistan tapped the international debt market in April for the first time since 2007. It sold $2 billion in total of 7.25 percent non-Shariah-compliant notes due in 2019 and 10-year 8.25 percent bonds whose yield was at a three-month low of 7.46 percent, data compiled by Bloomberg show. Demand exceeded the amount on offer by 14 times.

The nation has no global sukuk outstanding, only local-currency Shariah-compliant notes that were last issued in June.


A five-year note will pay from 6 percent to 6.5 percent and 10-year securities 7 percent to 7.5 percent, Mohammed Sohail, Karachi-based chief executive officer at Topline Securities Pakistan Ltd., said in a Nov. 11 e-mail.


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The South Asian nation’s foreign-exchange reserves totaled $14 billion in September, compared with $8.7 billion at end-2013, central bank data show. The fiscal deficit narrowed to 5.8 percent of gross domestic product in the 12 months through June, from 8.2 percent the previous year, according to official data on June 3.

‘Attractive Yield’

“The key factor will be the domestic political situation,” Sajjad Anwar, chief investment officer at NBP Fullerton Asset Management Ltd., which manages $456 million, said by phone on Nov. 11 from Karachi. “The economy is in better shape now and the response to the sukuk will be very encouraging.”

The nation, which is rated below investment grade at B- by Standard & Poor’s, is still likely to attract investor interest because of its higher yields. Qatar’s global Shariah-compliant debt due in 2023 yields 2.99 percent, while Malaysia’s 2021 sukuk pay 2.93 percent, according to data compiled by Bloomberg.

Pakistan has engaged in economic reforms to meet conditions of an International Monetary Fund bailout. The Washington-based lender said in a Nov. 8 statement that it will seek board approval to release $1.1 billion in loans in December. The reforms are “broadly on track” with growth forecast at 4.3 percent in the fiscal year ending June 2015, the fund said. GDP increased 4.1 percent in the last financial year.

“Pakistan is a very well known name to the sukuk investor community,” Union Investment’s Dergachev said in a Nov. 11 e-mail. “It still offers a very attractive yield compared to other sukuk issuers both in the sovereign and corporate space and that matters in a low-yield environment.”

http://www.bloomberg.com/news/2014-11-13/sharif-weathering-protest-revives-pakistan-plan-islamic-finance.html

Riaz Haq said...

Pakistan regulators merging three Islamic investment firms

Nov 17 (Reuters) - Pakistan regulators are merging three small Islamic investment firms after the central bank took control of Karachi-based KASB Bank Limited, accelerating efforts to strenghten financing by investment partnerships.

Last week, the government directed the central bank to reorganize or amalgamate KASB Bank in the next six months, after the lender failed to meet minimum capital requirements.

On Friday, KASB Modaraba said it had taken management control of First Pak Modaraba and First Prudential Modaraba, three of a total 26 modarabas active in the country.

Modarabas are a form of Islamic investment partnership where assets are managed on behalf of clients, with income and expenses shared under a pre-agreed ratio.

The sector remains a tiny part of the country's Islamic finance industry, with several firms lacking scale to compete.

Last week, First Habib Bank Modaraba, a unit of Pakistan's largest lender HBL Bank, liquidated its business.

As of March, the three modarabas held a combined 1.9 billion rupees ($18.7 million) worth of assets, dwarfed by larger peers such as Standard Chartered Modaraba with 5.3 billion rupees in assets.

The Securities and Exchange Commission of Pakistan (SECP) has also developed risk management guidelines for modarabas, last year introducing sharia compliance and sharia audit mechanisms to strengthen the sector.

http://www.reuters.com/article/2014/11/17/pakistan-modarabas-idUSL6N0T701320141117

Riaz Haq said...

From Wall Street Journal:

ISLAMABAD—Pakistan raised $1 billion through an Islamic bond issue on Wednesday, its first such issue in nearly a decade, in a bid to boost the country’s economy, finance ministry officials said.

The government initially planned to raise $500 million from the issue, but the bond was oversubscribed, with requests totaling $2.3 billion, the finance ministry said. Offers of $1 billion were accepted for a five-year maturity at a so-called profit rate, which is similar to a yield, of 6.75%.

The issue was part of Prime Minister Nawaz Sharif ’s ambitious plans to boost Pakistan’s economy, which include divestments and privatization of as many as 31 state-owned enterprises.

Finance Minister Ishaq Dar called the bond issue “a reflection of [the] international investor community’s [confidence] in the leadership of Prime Minister Nawaz Sharif and his economic policies.”

Officials on Thursday said the issue had added significance because of the abandoned sale of a part of the government’s stake in the country’s largest oil and gas business, due to poor investor response. That sale had been expected to raise $800 million, but investors tendered bids for only 52% of the shares on offer.

An Islamic bond, or Sukuk, doesn’t rely on interest, which is forbidden in Islam. Instead, the bonds are linked to assets and profits paid to investors based on revenue generated by the assets, or based on the investor’s part-ownership of the asset, depending on the bond’s arrangement.

“This [bond] issue has been very successful; It’s a big boost and a statement of trust from investors,” a senior finance ministry official said, requesting anonymity because he wasn’t authorized to speak to the media. “Our assessments proved correct: that investors were hungry for an Islamic bond.”

In a statement issued after the issue, Pakistan’s finance ministry said the profit rate of the $1 billion Islamic bond “compares favorably with the average weighted cost of comparable domestic debt of about 11%” and will result in annual savings worth 5 billion Pakistani rupees, or nearly $50 million, in debt servicing.

The ministry said the $1 billion proceeds from the bond issue will immediately go to the country’s central bank, which will help boost foreign exchange reserves. Pakistan had liquid foreign exchange reserves of $13.2 billion as of November 21, according to the State Bank of Pakistan. The government wants to increase reserves to $15 billion by the end of this year.

The International Monetary Fund is expected, pending a review by its executive board next month, to release a $1.1 billion tranche of a $6.6 billion loan to Pakistan.

http://online.wsj.com/articles/pakistan-issues-1-billion-of-bonds-1417113745