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need it, will they be able to represent hope for a better future for the Muslim world,” he added. The Malaysia Showcase dinner, at- tended by some 450 industry players and regulators, was organised in conjunction with the Seventh Islamic Financial Services Board Summit, which starts today.

Total Assets of Islamic Banking set to hit $1 trillion

The Islamic finance industry is set to achieve a historic milestone this year, with total assets with such financial institu- tions to cross the $1 trillion mark.

“Never before has the role of regulators and standard-setting bodies been more impor- tant for the industry than now,” said Ernst & Young’s Islamic Financial Services Bahrain team head Ashar Nazim in an address to the IFSB Summit.

“From being a niche segment to becoming a trillion-dollar industry brings an enormous fiduciary responsibility for Islamic financial institutions,” he said.

“And regulators and infrastructure institu- tions need to provide active direction for a balanced and sustainable growth of all seg- ments of the sector.

“The industry’s ability to absorb the shocks of financial crises better than conventional institutions has attracted unprecedented at- tention, including from non-core markets of Europe and North America,” he said.

“Islamic assets are projected to increase five-fold to $5trn, although achieving this level first requires a new level of regulatory support.

“Protection of savings and sanctity of com- pliance is the industry’s priority. “One of the key issues is the protection of smaller depositors at Islamic retail banks through a Sharia-compliant deposit protec- tion scheme,” he said.

“The Islamic finance industry needs to establish an explicit legal and regulatory protection framework for unrestricted in- vestment account holders to safeguard the interest of smaller depositors,” added Ernst & Young’s Islamic Financial Services Group Middle East head Sameer Abdi.

Shariah Compliant Bonds to be Launched in Kenya

The Central Bank of Kenya (CBK) has an- nounced that it is working on plans to launch the flotation of sharia-compliant bonds and treasury bills in the Kenyan money market as they look to bring Islamic

banking to the region.

The inclusion of sukuk bonds and bills, which will be structured in compliance with sharia law, is likely to increase the amount of cash flowing into Kenya from the Gulf region. The CBK Governor, Prof Njuguna Ndungu, said the two sharia-compliant banks in Kenya have contributed to the development agen- da by participating in the sukuk component of infrastructure bonds issued by the apex bank on behalf of the Kenyan government.

“We are still waiting for ’structured sukuk’ to cover the bonds and T-bills market,” Ndungu said.

According to CBK figures, Gulf African Bank (GAB) invested KSh500 million (US$6.5 mil- lion) in the sukuk portion of a government infrastructure bond issue last year and re- ceived a 13.5% rate of return.

In a speech read on his behalf by Alex Nandi, the deputy director banking supervision at the CBK, during the opening ceremony of the Second Gulf African Bank Annual East and Central Africa Islamic conference in Nai- robi, Ndungu said the entry of Islamic bank- ing institutions in the country posed a chal- lenge for the CBK in terms of regulation.

“Islamic banking prohibits interests and al- lows profit sharing; however, our prudential returns and disclosure report formats were tailored for institutions which have an ele- ment of interest in their financials. We have therefore tailored our returns and disclosure formats to cater for the new market niche,” Ndungu said.

He said the CBK grants exemptions to Is- lamic banking institutions upon request in transactions that involve wholesale trading and holding land and buildings since the Banking Act prohibits these activities.

Ndungu commended the two fully fledged sharia-compliant banks in Kenya, First Com- munity Bank (FCB) and GAB, for enabling for- merly unbanked Kenyans, specifically those in the Muslim community and rural areas, to access financial services.

The two banks currently boast of 1,570 loan accounts and 58,548 deposit accounts and control 0.8% of the banking sector’s net as- sets after being in operation for less than two years. Ndungu warned that the lack of research and innovativeness by Islamic banking institutions will hamper their growth and competitiveness.

Chief executive officer of GAB, Najmul Has- san, said that Islamic banking institutions have to come up with innovative banking products and solutions targeting its Muslim and non-Muslim clients.

“We should strive to reach clients who are not driven by fear or faith but by innovative products that meet their demands,” Hassan added.

Germany to Welcome Islamic Banking

The European Union’s largest and strong- est economy, Germany, is finally edging toward facilitating Islamic finance in its jurisdiction. Germany has a growing Mus- lim population of 4.3 million, the second largest Muslim population in the EU after France with 5.5 million.

Reports from Germany stress that the coun- try’s banking regulator, the Federal Financial Services Authority (BaFin), has issued a lim- ited banking license to Kuveyt Turk Partici- pation Bank, one of Turkey’s four so-called participation (Islamic) banks.

Kuveyt Turk is majority-owned (62 percent) by Kuwait Finance House, one of the largest Islamic banks in the world in terms of capital and assets. The Islamic Development Bank (IDB) also has a 9 percent stake in Kuveyt Turk Participation Bank.

At the same time, Cologne-based Meridio AG has recently launched the Meridio Glo- bal Islamic Multi Asset Fund, a Luxembourg- domiciled mutual fund, which the promoters claim is the “first approved, actively man- aged, international, ethically compliant, balanced mutual fund under European in- vestment laws” and is aimed at retail and institutional investors in Germany and the Euro zone countries initially, and later in the Middle East, Malaysia, Russia, India, Pa- kistan and East Asia. The investment pool comprises Shariah-compliant equities and sukuk.

These developments come after the first-ev- er Islamic finance conference held by BaFin in October 2009 in Frankfurt-an-Main, which was addressed inter alia by Jochen Sanio, president of BaFin, Muhammad Al-Jasser, governor of the Saudi Arabian Monetary Agency (SAMA) and Nik Ramlah Mahmood, managing director of the Securities Commis- sion of Malaysia.

Kuveyt Turk is arguably the most proactive of Turkey’s four Islamic banks, which also include Turkiye Bankasi, in which Saudi Ara- bia’s National Commercial Bank (NCB) has a majority stake; Albaraka Turk Participation Bank, which is a subsidiary of the Albaraka Banking Group, which in turn is majority owned by Saudi Arabia’s Dallah Albaraka Group, headed by Saleh Kamel; and Asya Bank.

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