IFSO Mag Fall 2013 www.ifso-asso.com 1

Fall 2013 Issue # 2

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Islamic Economy : Debt-free Economy ? by Mohamed Nouri Sukuks in Morocco, a new device support strategy for major projects by Ahmed Tahiri Jouti

The 9th WIEF London rolled out the red carpet for Islamic Finance, but can it

actually climb the stairs ...

ISLAMIC ECONOMY

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The scriptural basis of price regulation and the one-thrid rule

by Tarik Bengarai

Dr. Zeti Akhtar Aziz, Governor of Central Bank of

Malaysia.

Mrs. Raja Teh Maimumah, CEO of Hong Leong Islamic

Bank.

I F S O Mag Fall 2013 www.ifso-asso.com 2

ews were very rich since the publication of the first

IFSO MAG number last summer. Islamic finance has taken off and seems to be at a turning point of its history. For the first time an European country prepares itself to issue a sovereign sukuk.

The 29th of October, during the World Islamic Economic Forum (WIEF) of London and for the first time outside the Muslim world, the British Prime Minister David Cameron has announced that Great Britain wanted to become the first western country to launch in 2014 a sovereign sukuk of 200 million £.

The 30th of October Jim Yong Kim inaugurated the World Bank’s Islamic financial center in Istanbul. Observing such determination to contribute to the Islamic finance development by coutries and institutions as Great Britain, Luxembourg and the World Bank and knowing the precarious budgetary and energy situation in France, we can legitimately hope that Paris will react. It is troubling to see that the place reserved to Islmaic Finance during the MENA Economic Forum on November the 7th and 8th in Marseille was nonexistent, no specialist speaker was invited to contribute. It will be detrimental for Frane to loose economic attractiveness and competitiveness against other European countries and not to jump on the bandwagon of a finance that grow 50% faster than traditional finance. With the most important Muslim population in Europe and a never denied know-how in banking and insurance, France has serious assets that it should not neglect. We are pleased to offer you, in this number, different articles, interviews and analysis that provide not only the proof of Islamic finance’s vitality in the world but also that of its economic utility serving everyone.

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Editorial

Ezzedine Ghlamallah Président of IFSO

IFSO Mag Fall 2013 www.ifso-asso.com 3

Summary

I F S O Mag La Tribune de la Finance Islamique

Head of publication: Salah Aberkane Head of development: Lmahfoud Saadouni Chief Editor: Othman Benharoun

Editors: Nassima Belal, Nefeli Roupakia, Jamal Benerroua, Mouad Boutaour-Kandil, Klil Brahim, Ndiaga Cissé, Zakaria Ghadbane A Magazine Quarterly Issued by IFSO, Islamic Finance Student Organisation, Strasbourg. Email: ifsomag@ifso-asso.com

News : 4

Analysis :

WIEF in London, Islamic Finance and challenges 5 of globalization

Interview :

Dr. Zeiti Akhtar Aziz 6

Mrs Raja Teh Maimumah 7

Focus On :

Islamic Economy : a debt-free economy ? 9 by Mohamed Nouri

Sukuks in Morocco, a new device support strategy 11 for major projects, by Ahmed Tahiri Jouti

Expert Thoughts:

The sciptural basis of price regulation and the one-third rule 13 by Tarik Bengarai

Market Review :

Market Review 14

I F S O Mag Fall 2013 www.ifso-asso.com 4

Par Othman Benharoun

In Africa, The Islamic Development Bank

(IDB) has realeased, in partnership with the Earth institute of Columbia University (USA), 104 million USD to support the development of the rural areas of eight African countries. Those countries are Djibouti, Mali, Mozambique, Chad, Uganda, Senegal, Somalia and Sudan.The financing was provided in accordance with Charia principles : long-term and zéro interest. The IDB and the Earth insitute of Columbia University have built, since 2011, a partnership in order to support African countries in their fight against poverty. The American research institute brings a technical, operational and scientific support to the beneficiary ccountries.

In Morocco, The new law on the securisation

was published on September the 5th 2013 on the Official Journal. It plans the formation of a Charia board which will be appointed by a Dahir (Decree). This board will be in charge of approving the compliance of Islamic products as well as the following Sukuk issues.

In Tunisia, After Tunis and Sfax, Zitouna

Takaful has opened a network offices in Nabeul and in Sahel. During the official opening of Nabeul office, its General Director Makram Ben Sassi has clarified that Zitouna Takaful is bent to answer to a more and more expressed demand of a customer base requesting to use Islamic finance practices. He added tha Zitouna Takaful has the aim to offer an array of General Takaful and Family Takaful products and services, with a high added value and copliant with Islamic Finance, and to participate in the innovation and diversification of Tunisian insurance products as well as to contribute in the economic development of the country, in the durability of companies and in the social well-being of individuals.

In Senegal, Senegalese authorities announced

in a commun report with Islamic Corporation for the Development (ICD), the launch of a project of 200 million $ Sukuks, with the target of an issue in 2014. According to Amadou Ba, the Senegales Minister of Economic Affair and Finance, this project is « the begininning of an ambitious programme that could lead to the financing of innovative infrastructures and energetic projects via Sukuk issues ».

In Malaysia, According to Reuters, Société

Générale plans the launch of a first slice of a Sukuk in Malaysia on a notional amount of 300 million $ (1 billion Riggit) for the end of 2013. With this issue, the Société Générale would be the second European bank to issue an Islamic bond (Sukuk) after HSBC (500 millions $ issue in 2011 in the Middle-East) and the first in Asia. Having already received the fo-ahead to become a bond issuer from the Malaysian Central Bank, the French bank will shortly ask the sign-off form the National Securities Commission. The raised funds will be used to buy holdings in Dubai, which gives shelter to the Middle-East division of Société Générale for rhe private financial operations.

In Luxembourg, The Luxumbourg Stock

Exchange (LSE) and PricewaterhouseCoopers (PwC) have published a new brochure on the Sukuks. This document gives an outline of the Islamic Finance market and highlights the advantages of th valuation and the bargaining of Sukuks in Luxembourg. The principalty intends to reinforce its leadership position as the hub for Islamic finance products.

News

I F S O Mag Fall 2013 www.ifso-asso.com 5

WIEF in London, Islamic finance and the challenges of globalization by Salah Aberkane

he ninth World Economic Islamic Forum was hold in London from the 29th to 31st of October 2013. The event was opened by

the British Prime Minister, who announced, in front of more than 1800 economists and politicians, that he wanted to make the Citya great capital of islamic financein the same way as Dubai and Kuala Lumpur. « To invest is good for you and to open london to your investments is good for us », he added. According to the British government, Islamic finance should represent 1300 billion £, and 2700 billion £ in 2017, with a growth of 13% a year. The Treasury intends to issue next year the first sovereign Sukuk in a non-Muslim country, this issue will be of 200 million £, according to George Osborne, « this issue will act as a catalysor, attracting the investors and incinting Birtish companies to use this alternative for their funding ». The Pakistani Prime Minister was delighted that, thanks to this issue, « Islamic finance will no longer be confined to the Muslim world ». The London Stock Exchange intends, from its part, to create an Islamic rating which will gather British companies vouching to the Charia-compliant principles. The Birtish Prime Minister has also announced the will of his government to launch new types of loans for students and start-ups, addressed to the Bitish Muslims. The forum was the occasion to debate on the different challenges that Islamic finance should face in its project of globalization. A clear regulation is the key of the development, according to Muzaffar Hisham, CEO, Maybank Group Islamic Banking, Malaysia, « This forum sees Islamic finance in a global way. The debates among legal experts will always be there, my opinion is to have a clear regulation ». From his part, Sajid Javid, financial secretary at the British Treasury has anniunced the creation of group on Islamic finance and investment in the world, chaired by the British minister Baroness Warsi, this group will return its conclusion in the begininng of 2014, concerning the issue regarding the laws and the use of Islamic finance

tools to the funding of international projects. Another challenge of the Islamic finance is the simplification, according to Amr Al Menhali, Director at Islamic Banking, Abu Dhabi Commericla Bank, « The islamic finance industry currently needs simplicity, we should use the current terminology. You can go to two Islamic banks in the same country, in the same city, and the two contracts will be completely different. The Sharia legal experts carry on a heavy burden. How can we simplify things ? We should discuss with professionals of Islamic banking ». The standardization fo the products has already well advanced, thanks, in particular, to the AAOIFI standards, but they remain unattainable to individual customers. Education is another challenge of Islamic finance, according to Amr Al Menhali, « We must educate them, Muslims and non-Muslims, if we think of the globalization of Islamic finance. Every bank should take the initiative of making its customers aware, explaining to them the contract they subscribe and why it is Islamic. It is about a partnership, not only about a mere financial term ». The other challenge to take up is the negative perception, Islamic finance has to show off to advantage its benefits and the raisons why it constitutes a better option to the economy. Islamic finance principles have not been translated yet in recognizable notions to the parties xho don’t share the same valeus. Islamic banks practice finance in a different way than what Basel conceives, according to Abdulakadar Thomas, PDG of SHAPE Knowledge Services, Kuwait. Islamic Finance is at the heart of all the attentions, the challenges it must take up are sizeable, but it should not deviate, in favor of globalization, from its fundamental goal, namely to support the real economy leaning on the Islamic economic principles.

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Analysis

IFSO Mag Fall 2013 www.ifso-asso.com 6

IFSO Mag has attended the 9th WIEF in London, and has met on that occasion many influent personalities in international finance and particularly in Islamic finance. Among those, two women, Dr. Zeti Akhtar Aziz, Malaysian central bank governor and Ms Raja Teh Maimumah, CEO of Hong Leong Islamic Bank, have answered the questions of IFSO Mag.

By Mouad Boutaour-Kandil. Dr. Zeti Akhtar Aziz, current Malaysian central bank governor, she has contributed with her Asian and Middle-Eastern counterparts to the creation of the International Islamic liquidity Management. An institution that has as its shareholders the central banks of Indonesia, Kuwaitt, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Turkey, United Arab Emirates as well as the Islamic Developpement Bank. Its aim is to maintain the financial stability of islamic financial institutions by facilitating access to funding for their liquidity management.

L’International Islamic Liquidity Management (IILM) considers to issue Sukuks. How do you see the future of these instruments ? Will there be regular programmes of issues ? The IILM operations mandate consists of regularly issueing Sukuks, backed by high quality assets. The programme consists of regularly issueing short-term maturity instruments, up to twelve months. The first issue is a three months maturity sukuk. The issuances will meet the announced target amount of 1.5 billion $ next year. The operation will help create a benchmark rate curve, so that the other operators could issue sukuks on this base, in roder to answer to the global demand for short-term instruments. This will allow the Islamic financial institutions to have better access to high quality hort-term instruments for their liquidity management.

How will the market for this sukuks be organised ? Central banks and Islamic financial institutions are the primarly concerned by this kind of instruments. The first ones, who are the IILM shareholders, will constitute distribution channels by naming each five or six major dealers. These last ones will acquire these instruments on the primary market and will distibute them to the financial institutions. Will this market be open to other currencies ? The IILM aims at integrating other currencies. The first issue was in US dollar, and we will be obliged, accordingly to the demand on the market, to explore the possibility of issueing in other international reserve currencies.

Interview

IFSO Mag Fall 2013 www.ifso-asso.com 7

by Ezzedine Ghlamallah

Mrs. Raja Teh Maimumah, CEO of Hong Leong Islamic Bank, a malaysian bank, ranked among the most solid banks worlwide, according to the Asian Banker Survey (2011).

As the CEO of the HongLeong Islamic Bank, can you tell us more about your career in the Islamic finance industry? I started out as an investment banker 20 years ago. After more than a decade in investment banking covering debt and equity origination and equity sales, I had a moment of epiphany. A spiritual calling so to speak. I packed my bags in 2005 and went to Bahrain and began my conversion from an investment banker to an Islamic banker. My first stop was Bank AlKhair (then a start up Islamic investment bank), then I moved to Kuwait Finance House Malaysia (a new set up then) and thereafter I went to Bursa Malaysia to establish the world’s first Commodity exchange to facilitate Commodity Murabahah trades and Tawarruq transactions. I am now at Hong Leong Islamic Bank, a universal Islamic bank covering retail, corporate/commercial and investment banking. Islamic finance or Islamic Banks are perceived that its products and services are targeted to Muslims only; we know that Islamic Banks cater for all religions, or to every customer, please tell us how do you market the bank’s products & services to Muslims and Non-Muslims? I am very fortunate. The development of Islamic banking & finance in Malaysia is driven by the government and the Central Bank (Bank Negara Malaysia). As financial intermediaries, half the battle is already being fought for us. The government provides incentives for Islamic banking products e.g. tax relief. This was important to kick start the industry. The tax relief helped attract Malaysians across all religious

beliefs. Once they became familiar with the product features, the proposition became easier to fathom. Buyers of Islamic banking products in Malaysia are attracted to what they believe to be equitable e.g. restrictions over late payment charges and penalty clauses due to Shariah. The curb on excessive penalization is particularly attractive to everyone, Muslims and non-Muslims. The Malaysian story deserves to be told. How do you see the evolution of the Islamic financial services in Malaysia and in the global world in 10 years? I have very high hopes that Malaysia will continue its aggressive approach in the push to develop Islamic finance. It is a notable feature in our country’s 10-year Financial and Capital Market Masterplan. InShaAllah, Islamic finance will gain even greater traction in Malaysia. The recent Islamic Financial Services Act 2013 solidifies our position. We are the first nation to codify Shariah governance as law. Failure to comply with Shariah in finance is a crime punishable by detention. This just goes to show how serious we are about the industry. I’m enclosing the Act for your reference. Where global development is concern, a lot of work needs to be done in persuading various governments to adopt laws to facilitate Islamic finance, for the greater good of their people. I believe it must start with the Islamic nations where there is a natural demand for it. Although we see pockets of activities in the Islamic countries, the development of the industry is still very much left to be desired. The Islamic nations must act first. With volume, only then can we

Interview

IFSO Mag Fall 2013 www.ifso-asso.com

hope for Islamic fiannce to become main stream globally. Islamic banking assets of USD1 trillion is a fraction of global banking assets. We have a very long way to go. What is encouraging is that more people talk about it so awareness is now greater. What we need next is for them to walk the talk. “It is very rare to have a woman as a CEO of Islamic bank”, please share with us in terms of strength and challenges? I am not such a rarity in Malaysia. I’m not the only one nor am I the first. Again, I am fortunate be Malaysian. We don’t have glass ceilings in this sense. Our Governor of the Central Bank is a woman. There a dozen other female bank CEOs in this country. We have women Shariah scholars even. So I can’t really say I have challenges specific as a woman here. Though I can appreciate that this somewhat an unusual phenomena elsewhere! I have experienced difficulties in other countries, where women

generally stay home and behind veils. Sadly so, I have experienced poor treatment in those markets. I have been asked to enter through the back door because I am a woman, I have been denied entry into a building for a meeting because I am a woman and I have even been denied entry into a country simply because I wasn’t traveling with my husband. Breaking the cultural divide would be the single most difficult thing for women in those jurisdictions to rise up the corporate ladder. I am also fortunate that domestic help in Malaysia is plentiful and affordable. I am grateful to the women who have helped me raised my kids and manage my home while I pursue my career. I am also fortunate that the Malaysian culture embraces extended families which means that there is always family overseeing my children when I have to travel. I believe a woman can bring added value to the board room and management. We tend to be more nurturing and careful in assessing risks. Gender diversity and inclusion are also known to be a catalyst for innovation.

Sondage : Potentiel du développement du Takaful en France

Interview

IFSO Mag Fall 2013 www.ifso-asso.com

Islamic Economy

Islamic Economy : a debt-free economy ? summarised by Jamal Benerroua

The global economy has increasingly become a debt-based economy. The resources constitute a negligible fraction of it. The financial sectors are taking day by day priority over the real economy and the gap is dangerously

amplifying. In the United States, this gap between the two sectors is 10 times, in France, it is more than 50 times. In face of this

dramatic situation, a particular attention is drawn to the religions in general and to Islam in particular. Its ethical and middle-ground principles embody alternative directions to the crisis footholding in the world. Debt or the modern-economy cancer : Debt has become a real cancer that threatens the whole global economy. North and south, we are talking today about the dangers of debt and its social and économic implications. The severity of this situation has remarkably accelerated since the outbreak of the financial crisis in 2008 with the first subprime criris in the United States. The fact that the richest countries are most indebted is quite ironic. From Washington to London, from Tokyo to Paris, the debt dependance spreads like a virus that infects quickly developed countries and threatens the health of the global economy. Debt is no longer a solution to the economic development. It has become, by contrast, more and more an issue to be added to the typical economic problems and requires, for its own part, a solution. The idea of using debt as a political economy instrument is not a recent one related to the financial theory, public debt history stretches back to the Middle-Age. The two central questions that interested scholastic authors since St Thomas Aquinas were focused, on one side, on wether usury has an illegal nature or not, and, on another side, on the legitimacy of loans contracted by Cities-States. The debate

concerning the beneficial or harmful nature of debt was opened by the authors of Enlightenment, Montesquieu, Adam Smith, Hume and others claim that debt was a great danger for the economy. However, the reservation of the Enlightenment liberal economicsts and Smith on the State debt was exceeded by a more moderate approach during the XIXth century. Finally, a more public indebtedness-favourable approach was developed particularly under the influence of Keynesianism after the First World War. Among the « benefits » of this sovereign-debt crisis, drawing global attention to its dangers and to the absolute need to find a solution or an alternative. In this context, many economics and finance specialists, in this case from the western world, have raised the alarm bell on the dangers of such a situation and have recommended to get inspirer by the Islamic economic principles to remedy these dangers. According to a study by IMF researchers Islamic banks have shown a greater resilience than conventinal banks during the crisis. Authors have found that this good performance by Islamic banks was explained by their business model, inspired by Charia. This fact has prompted the interest of many researchers who are trying to get a better understanding of the founding principles of this alternative finance. The Islamic universal economic message : Thus, since more than fourteen centuries, the Islamic universal message promotes a debt-free economy, based not on debt but on resources and connected to the real sphere instead of the virtual one. Qur’an is very clear from the beginning with the announce, unambiguous, of the fundamental difference between salest transactions and credit operations with interests, in other words, between taking risk and transfert of risk, between sale and Riba : « God has made licit the sale ( in other words any activity related to production and risk taking) and illict the Riba (in other words the interestbearing loan, which is the main source of debt and indebtedness) ».

Focus On

M. Nouri Economist, President of

COFFIS

IFSO Mag Fall 2013 www.ifso-asso.com

Islamic Economy

The golden rule of the Islamic finance is that of the risk sharing, founded on the greatly important prophetic quotations « Alghounmou Bilghourmi walkharajou Biddhaman » which means that there is no benefit without risk and no remuneration without guarantee. Islamic financial philosophy is focused on the exchange. The need for capital reflects, indeed, a need to exchange mutual utility and leads to the realisation of the plus-value necessary to growth. The exchange assumes the presence of two elements : the price and the product. Islam requires the diversity of these two elements, not their similarity. Their diversity creates more value and produces more economic utility. While thei similarity means only barter or debt (price with price, debt financing for instance or a product with a product, such as barter of goods). The diversity expresses a mutual utility of both parts as in the sales and trade transactions. For this reason, the Qur’an instists, since centuries, on the distinction between sales and interestbearing transactions (Riba). The Qur’anic verse states it solemnly : « God has made licit the sale (trade) and illict the Riba (interestbearing loan) ». The economic analysis of the meaning of this verse allows for the distinction of the real sphere based upon exchange and sales transactions and the financial sphere based on credit and debt mechanism. The first means purchasing, sale, risk taking, wealth and job creation ; while the second one allows risk transfert and the dominance of an usurious economy based on debt. We can add to these principles, the interdiction to sell debt or credit securitisation, the prohibition to sell what we don’t own, the monopoly interdiction, the refusal of hoarding, the Zakat prescription and the interdiction of spoliation and any kind of unjustified gain. The concept of debt in the Islamic framework : If the word debt is essentially used for financial debts, the concept of debt in Islam is a more general one. It means any monetary or non-monetary credit, wether realated to a loan, and in

that case the loan must be interest-free in accordance with Charia principles, or related to an exchange transaction, which contitutes a debt towards a creditor. Any debt in kind must be backed by a sales or leasing or holding contract. It emanates from the real economy and it must remain attached to it. In parallel, and in order to encourage the non-profit sector and to promote the social solidarity, Islam urges to grant loans to those who need in order to put an end to usurious interests and its ways. The Prophet (Sws) has said : « He who lends money twice, it is as if he had given alms once ». And Islam has prescripted – without making it mandatory- to grant a stay and a delay to the indebted person who is in discomfort, Allah says : « To him who is in difficulty, grant him time till he is at ease, but it is better for you if you relieve the debt for charity ! ». And the Prophet (Sws) adds : « To him who wants Allah to save him from the anxieties of the Day of Resurrection, grant a stay or cancels its debts to the insolvent indebted person ». The concept of the debt, even in its most limited sense, ie without interest, is not very desired in an Islamic economy and is only a temporary solution to meet specific needs in society when other mechanisms are not sufficient. It remains a very heavy and cumbersome burden on the indebted person that we must liberate as quickly as possible. In this context, Islamic economics has developed other more effective and useful for the growth financial instruments, Sukuk (Islamic bonds) are among the most used, they are investment securities backed by tangible assets and real (goods and services). The returns of these assets will pay the ultimate investor (Sukuk buyer). As for the debt with interest, it is not completely ruled out from the economic system, but it is considered as the main source of slavery of individuals and enslavement of peoples. The 2nd Caliph of Islam (Umar ibn Alkhattab) has announced early « Since when do you make men slaves while God made them free? ».

Focus On

IFSO Mag Fall 2013 www.ifso-asso.com

Islamic Economy

Sukuks in Morocco, a new device support strategy for major projects

In Morocco, the interest for Islamic finance was often justified by the support of the population and the necessity to democratise the supply of financial products that seek, amongts other things, to improve the low rate of use of the anking system and to solve the problem of low liquidity from which the Moroccan

financial systme is suffering these last years. Nonetheless, this interest can also be justified by the flexibility of the Islamic financial instruments, which are more suitable to address the needs and the economic development choices of the kingdom. In fact, Morocco has adopted an economic development strategy focused on large projects of strategic importance that aim at filling the kingdom’s infrastructure deficit, at upgrading the industrial fabric and at improving the country’s competitive position. The main projects launched as part of this strategy focus on the economic sectors, regarded as deserving priority and with higher added value for the country, particulary through the Azur Plan, which aims to develop and reinforce tourism-related infrastructures, the Emergency

Plan which aims to reinvigorate the industrial fabric, the Green Morocco Plan, focused on the agricultural and agro-industrial sectors, the Halieuris Plan, directed to the reorganization of the fisheries sector, and the Moroccan Solar Plan, which envisages the construction of an electricity production capacity by using the solar energy. This development strategy has turned Morocco in large projects, the realisation of these projects needs the mobilisation of important financial resources. Being certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services or the ownership of

individual projects assets or any special investment activity, Sukuks are seen as an effictive Islamic funding mean likely to secure local and international funding. The AAOIFI’s 17th standard identifies various kinds of Sukuks : Sukuk al-ijarah: securitization of existing tangible leased assets; Sukuk ijarah mowsufa bi-thima: mobilization of the acquisition cost of tangible to-be-leased assets; Sukuk manfaa ijarah: securitization of the usufruct of existing leased assets; Sukuk manfaa ijarah mowsufa bi-thima: securitization of the usufruct of assets to be acquired and leased; Sukuk al-mudharaba: mobilization of funds from capital providers; Sukuk al-wakala: mobilization of capital to acquire certain goods that are en- trusted to an agent; Sukuk al-muzra’a: mobilization of funds for the cultivation of land; Sukuk al-musaqa: mobilization of funds for the irrigation and maintenance; Sukuk-al-muqarasa: mobilization of funds for the maintenance of land and crops. Sukuk milkiyat al-khadamat: pre-sale of the cost of services and their expected benefits; Sukuk al-salam: pre-sale of future delivery of goods or commodities; Sukuk al-istisna’a: mobilization of the cost of construc- tion and manufacturing of specific assets; Sukuk al-murabaha: mobilization of the acquisition cost of goods to be sold under a murabaha; Sukuk al-musharaka: sale of capital participations into a partnership; In fact, depending on the infrastuctures to be funded, the sector of activity and the earning capacity, there is an approriate Sukuk, that better addresses the issuers’ needs. Therefore, for infrastructures that can generate revenues like highways and ports, Moudaraba and Moucharaka Sukuks are the most suitable and will help the State generate debt-free revenue.

Focus On

A. Tahiri Jouti Researcher,

University of Tangiers, Morocco

IFSO Mag Fall 2013 www.ifso-asso.com

Islamic Economy

Nevertheless, other kinds of Sukuks such as Ijara or Istisna’ can be adopted. Similarly, there are Sukuks dedicated to the agricultural sector, and this constitutes the specificity of Islamic finance. Those are Mougharassa, Moussaqat, Mouzara’ and Salam Sukuks, that will help consolidate the modernization efforts of the sector. In conclusion, the strengthening and improving of the infrastructures constitute the strategic

choice of economic development in Morocco and Sukuks represent a real support and funding mechanism for the kingdom’s projects, which has just voted a law authorizing Sukuk issues. However, while waiting for the central Charia committee, which should approve the Islamic products on the Moroccan territory, the issues cannot be used for local investors.

Sondage : Potentiel du développement du Takaful en France

Focus On

IFSO Mag Fall 2013 www.ifso-asso.com

Scriptual basis of pricing and the one-third rule

In his book, Bidayat Al-Mujtahid wa Nihayat Al muqtasid vol. II ("The Distinguished Jurist's Primer", vol. II), Ibn Rush states in p. 261 that : “ the majority of the jurists agreed that sale is of two

kinds :musawama,and murabaha. Murabaha takes place when the seller declares the price for the buyer at which he had

bought the goods, and then stipulates some profit...”. (The Distinguished Jurist's Primer: A Translation of Bidayat Al-Mujtahid, Vol. 2, 1995, translation by Imran Ahsan Khan Nyazee). This is for the general forms of sales but we can cite other forms depending on the nature of the time limit or the mechanisms used, such as the sale with advance payment ( Salam) and the auction ( Muzayada) These sales are subject to the “protective” rules which derive from the great Islamic principles of justice, equity, transparency and the mutual consent of the contracting parties (see the list of these rules in our article regarding the principles of sale). The trade is managed in Islam by a moral code. The merchant is the one who should be flexible in his transactions, who should respect the moral rules of the trade and who should prohibit, concerning the price, the Ghabn Al-fahish Ghabn Al-fahish consists in selling the goods at an excessive price which exceeds the of the experts, this damages the buyer and constitutes an injustice and a deception at his regard. (taking advantage for instance of the fact that he ignores the market price). The price regulation is qualified in Muslim law as an act contrary to justice. The Islamic law stipulates that, in normal circumstances, there should be no regulation of prices; it is the market that is in charge. Anas (may Allah be pleased with him ) reported that : “ the prices became very expensive at the time of the Prophet ( peace and blessings be upon him), the people asked him then : “ o Messenger of Allah, set us the

prices”, the Messenger of Allah ( peace and blessings be upon him) answered: “It is Allah who is in charge, it is him that restricts or extends (his favors) and it is He who sustains the livelihoods. And I hope to meet my Lord without having made any injustice to anyone nor to his property or to his life." Narrated by al-Tirmidhi, qualified as good and authentic. As there is an exception to every rule, the exception cited by the jurists is the fact to be confronted with speculators on the market who inflate the prices by deception, cheating or speculative storage (Ihtikâr) and thus harm the economy. In this case, the authority has the right to carry out the fixing of the price scale and the pricing to erase the prejudice. As far as the one-third rule is concerned (33%) (opinion of a few Fuqaha) that consists in fixing the profit at one-third, it has no scriptural legitimacy for this subject. The profit of the trader/merchant is not limited, if it is not by the respect of the market price (prohibition of the Ghabn Al-fâhish). The one-third rule is a distant analogy (qiyâs ba'id) to the one-third rule in the wasiyya (will) (cited in the Hadith of Saad Ibn Abi waqqâs (RA)). The will (wasiyya) is indeed what the person bequeaths by living testament to one or several persons (non-heirs). There cannot be a bequest in favor of a legitimate heir. Bequests are levied on the one-third available ... what exceeds this one-third right is returned [to the legitimate heirs] unless they cede it willingly.. The fact of wanting to justify the fixing of the profits to one-third by this rule of the wasiyya is far removed from the logic and from the text What has been said here about pricing, also applies to the fixation of the maximum debt ratio of the clients to 33 %. It is a prudential rule and not a rule imposed by the Koran or the Sunna!! Ensure the solvency of a client is legitimate, but neither the Koran nor the Sunnah have fixed a value for the maximum debt ratio, they left that free and open to a fair valuation/assessment depending on the context. It manifests itself with this prudential rule by the fact of minimizing for the creditor the risk of insolvency of his client known as credit risk.

Expert Thoughts

T. Bengarai Researcher in

Islamic law and finance, CIFIE

IFSO Mag Fall 2013 www.ifso-asso.com

In partnership with Alkhawarizmi Group Sukuk Issuances : 3rd Quarter 2013 At the end of October 2013, we count more than 1800 Sukuks in flow, for a total amount bordering 325 billion of US dollars. Malaysia dominates by far the asset class with 63% of market share. SaudiArabia is the second country in termes of issues with a 10% market share, followed by the United Arab Emirates, Indonesia and Qatar. 60% of the Sukuks in circulation are denominated in Malaysian Ringgit. The US dollar is the second cuurency, with 23% of issues. We note de absence of papers denominated in Euro for the currently circulating issues. The sovereign or quasisovereign issues currently represent half of the Sukuks market. The other half (corporate) is dominated by financial coporations (20% of the issues). The utilities sector comes in the second place with a little more than 9% of the total amount of issues.

During the last quarter, we had two interesting Sukuk issues. The first is that of IILM (International Islamic Liquidity Management) with an amount of 490 million $ and a 3 months maturity. It is in fact the first issue realised by this institution that groups central banks and monetary agencies. This last one has the aim to offer Sharia compliant solutions of liquidity management. The second issue is the first slice, of 20 million $, of the Salam III programme. It is a Sharia compliant securisation Sukuk of life insurance policies (Takaful) managed by the Luxembourg insurer, Atlanticlux. The two sukuks are wakala sukuks. The first was issued on August the 29th 2013 with 0.5621% coupon. The second, with a 5 years maturity, was issued on October the 4th 2013 with a 7% expected return.

Basic Materials

0,91%

Communications

2,72%

Consumer, Cyclical3,44%

Consumer, Non-cyclical

5,18%

Diversified0,81%

Energy1,47%

Financial20,48%

Government49,50%

Industrial6,04%

Technology0,18%

Utilities9,28%

Sukuks by sector

Market Review

Performance of Islamic Financial Indices as of October 31st, 2013

Indices Performance 2013 Performance 1 yr

Dow Jones Islamic Market World Total Return $ 16,66 % 19,39%

MSCI USA Islamic Net Return $ 23,51% 25,07%

MSCI Emerging Markets Islamic Net Return $ (3,98%) 1,07%

Dow Jones Sukuk ex-Reinvest Total Return $ 0,28% 0,88%

MALAYSIA63,0%

SAUDI ARABIA

9,4%

UAE8,3%

INDONESIA5,6%

QATAR5,5%

TURKEY2,9%

PAKISTAN1,4%

BAHRAIN1,3% Supranational

1,3%

SINGAPORE0,5%

UNITED STATES

0,2%

KUWAIT0,2%

LUXEMBOURG

0,2%

Sukuks by country

IFSO Mag Fall 2013 www.ifso-asso.com

Rendez-vous of Islamic Finance around the World

The Future of Global Takaful

February 2014

Kuala Lumpur

The World Takaful Conference

April 2014 Dubai

Islamic Financial Services Board-10th Anniversary

May 2014 Mauricius

The World Islamic Banking Conference-Asia Summit

June 2014 Singapour

The World Islamic Economic Forum

November 2014

Dubai

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