Presentation Transcript

1. Islamic FinanceCreating an enabling framework for Azerbaijan Neil D Miller Global Head of Islamic finance 16 November 2012
2. Islamic Finance – Why?
3. Global Islamic banking assets are growing… Source:: Deutsche Bank, company data, Central Banks, The Banker, Reuters 
4. … and forecast to continue growing. Source: Deutsche Bank, company data, IMF, Central Banks (The sample group of countries includes Iran, Saudi Arabia, Malaysia, UAE, Kuwait, UAE, Qatar, Bahrain, Turkey, Indonesia, Jordan, Bangladesh and Pakistan), Reuters  
5. Islamic finance is spreading across the Islamic world… Number of institutions offering Islamic finance products Source:Deutsche Bank, CIBAFI, IFSL.
6. …and across the secular world. Number of institutions offering Islamic finance products Source:Deutsche Bank, CIBAFI, IFSL.
7. Islamic finance activity centres Developing / interested centres: Australia Azerbaijan Canada France Germany Hong Kong Indonesia Ireland Kazakhstan Nigeria Pakistan Singapore South Africa United States Major activity centres: Bahrain Dubai Malaysia United Kingdom 69 – 50% 29– 10% Less than 2% 100 – 70% 49– 30% 9 – 2% Muslims are approximately 25% of the worlds population…
8. Several Muslim states are investing immense wealth across borders… Source: Deutsche Bank, Sovereign Wealth Fund Institute.
9. …and financing through the use of Sukuk Global Sukuk issuances (USD) Source: Deutsche Bank, Bloomberg Finance LP, Zawya, IIFM, KFH Global Sukuk Report 
10. The commercial case for Islamic finance
11. Azerbaijan Source: http://www.stat.gov.az/menu/6/statistical_yearbooks/SYA2012
12. Islamic finance in Azerbaijan International Bank of Azerbaijan is leading Islamic Banking in Azerbaijan and opened Islamic Window. International Bank of Azerbaijan provides various Islamic Banking Products, such as wadiah, wakala, mudaraba, etc. Amrah Bank conducted market analysis of Takaful (Islamic Insurance).
13. Creating an enabling framework for Islamic finance Phase 1 Evaluate whether new laws are needed or whether existing framework can be adapted. Learn from others’ experience, including Kazakhstan. In addition to banking, the framework should also facilitate Sukuk transactions Identify and make legal changes to facilitate the establishment of a robust and well regulated Islamic banking sector. Financial accounting and reporting Shari’a governance and oversight Liquidity management for Islamic banks Islamic Capital markets and Sukuk Legal and supervisory framework Structure of Islamic banking institutions Phase 2 Once an enabling environment for Islamic banking industry is created and the Islamic banking industry establishes itself it will create demand for other sectors of the economy to be similarly enabled for Islamic financial products. Over time, enabling framework can be created to facilitate all segments of Islamic finance sector Identify and make changes required to facilitate other segments of the Islamic finance sector Islamic fund management Microfinance Others Takaful
14. Learning from others’ experience
15. Kazakhstan experience Amendments made to the following laws: Civil Code of Kazakhstan (General Part) dated 27 December 1994 (the “Civil Code - GP”); Civil Code of Kazakhstan (Special Part) dated 1 July 1999 (the “Civil Code - SP” and, together with the Civil Code – GP, the “Civil Code”); Tax Code of Kazakhstan dated 10 December 2008 (the “Tax Code”); Law On Banks and Banking Activity in the Republic of Kazakhstan dated 31 August 1995 (the “Banking Law”); Law On Partnerships with Limited and Additional Liability dated 22 April 1998; Law On the Securities Market dated 2 July 2003 (the “Securities Market Law”); Law On Investment Funds dated 7 July 2004; Law On Mandatory Guaranteeing of Deposits in the Second-Tier Banks of the Republic of Kazakhstan dated 7 July 2006; Law On Licensing dated 11 January 2007; and Law On State Registration of Rights to Immovable Property and Transactions Therewith dated 26 July 2007.
16. Kazakhstan experience (continued) On 14 March 2009 the Prime Minister issued an order (No. 40-r) directing that 11 sets of implementing normative legal acts be adopted including the following: amendments and changes to certain resolutions on bookkeeping and financial reporting by Islamic special finance companies (the “ISFC” ) (National Bank of Kazakhstan (the “NBK”) Resolution No. 24 dated 20 March 2009); instruction on bookkeeping by Islamic special finance companies (NBK Resolution No. 25 dated 20 March 2009); rules governing transfer of property and liabilities under investment deposits of liquidated Islamic banks to another selected Islamic bank (FMSA Resolution No. 51 dated 27 March 2009); extension of rules for issuance of bank establishment permits and for licensing of banking and other operations to cover Islamic banks (FMSA Resolution No. 53 dated27 March 2009); requirements for the establishment and operation of ISFCs (FMSA Resolution No. 54 dated 27 March 2009); rules on voluntary reorganization or liquidation of Islamic special finance companies (FMSA Resolution No. 55 dated 27 March 2009); requirements for content of an agreement between the issuer and the representative of holders of Islamic securities and the functions and duties of the representative (FMSA Resolution No. 56 dated 27 March 2009); and instruction on prudential standards for Islamic banks (FMSA Resolution No. 66 dated 27 March 2009).
17. The UK experience Commodity Murabaha transactions executed through the London Metal Exchange since 1980 Islamic finance formally acknowledged in 2003 with changes to stamp duty legislation Changes made to tax laws in almost every Finance Act since 2003 to accommodate additional products The term “Islamic” or “Shari’a” does not appear in any UK statute. However, these terms are used in the guidance notes issued by the regulatory authorities No major change in the regulatory framework – Islamic finance accommodated within the existing framework The FSA is a financial regulator and does not have the mandate to regulate on matters of Shari’a compliance The UK does not mandate the application of AAOIFI or IFSB.
18. Malaysian experience Islamic Banking Act enacted in 1983 Takaful Act introduced in 1984 Amendments made to Government Funding Act of 1983 to facilitate Sukuk issuances by the Malaysian government Between 1983 to 2000, various amendments made to the Banking and Financial Institutions Act of 1989 Between 2001 to 2010, various amendments made to several laws, including: The Central Bank of Malaysia Act of 1958 to facilitate window operations Development Financial Institutions Act of 2002 to facilitate Islamic DFIs Capital Market Services Act 2007 Several amendments made to tax laws to remove tax anomalies and to provide incentives for IFIs Shari’a governance framework and guidelines on corporate governance for Islamic banks issued by the regulator A dedicated high court to facilitate dispute resolution in Islamic finance
19. Next steps for Azerbaijan? – The Market/Industry readiness matrix Government Initiate and germinate Consider creating opportunities – Pension/Sukuk? Location incentives/training subsidies Encourage and facilitate Actively invite and solicit market entrants Help them navigate the system Investigate and regulate Identify road blocks and reform Create supporting regulations and rules Private sector
20. Next steps for Azerbaijan? – The Market/Industry readiness matrix Government Initiate and germinate Evaluate feasibility given potential demand, no roadblocks, clear regulations and facilitative environment and develop strategy Develop products to meet demand given clear tax and legal treatment and supportive regulators, invest in systems, people, training and marketing Deliver local demand, learn, innovate, develop overseas demand, attract capital, become specialist, develop leadership and dominate the region Encourage and facilitate Investigate and regulate Evaluate feasibility Develop and execute Innovate and grow Private sector
21. Next steps for Azerbaijan? – The Market/Industry readiness matrix Government Initiate and germinate POTENTIAL Encourage and facilitate Investigate and regulate PRESENT STATE Evaluate feasibility Develop and execute Innovate and grow Private sector
22. Thank You Neil D. Miller Global Head of Islamic Finance Email: neilmiller@kpmg.com Questions?