Islamic finance industry charts high-tech future

A trader walks underneath stock display board at the Dubai Stock exchange. Islamic finance has become a $2 trillion business over the past two decades, covering everything from bonds to buying a car. (AFP)
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Updated 13 April 2020

Islamic finance industry charts high-tech future

  • Based on the concept of shared profit and loss, the sector has in its relatively short existence grown to be worth $2.1tn

DUBAI: “Is it halal to buy shares in Tesla?” a young Muslim would-be investor asks on Twitter.

Islamic finance — an amalgamation of Shariah law and modern banking — has become a $2 trillion business over the past two decades, covering everything from bonds to buying cars.

But it’s not easy for observant Muslims to decide whether or not an investment is halal (religiously permissible). Yet new technology is helping.




Zoya app logo

Tesla, the American electric car pioneer, for example, is considered 96 percent Shariah compliant, according to the Zoya mobile application.

The app screens US-listed stocks based on criteria issued by the Accounting and Auditing Organization for Islamic Financial Institutions, one of several bodies that set Islamic finance standards.

Islamic funds are banned from investing in companies associated with tobacco, alcohol, pork or gambling. Earning interest is also banned as “usury.”




Wahed Invest logo

US-based Wahed Invest, an online halal platform, uses those criteria to help tens of thousands of people invest “ethically.”

Islamic bankers are hoping that modern platforms will open the industry up to young investors, and that its innately ethical credentials will prove to be another draw.

Mehdi Benslimane, Global Expansion Strategist at Wahed Invest, said the guidelines in religious texts boil down to two conditions.

“A business must have a real economic impact, not just a speculative one. And it must have a positive contribution to the world,” he told AFP.

According to the ratings agency Standard & Poor’s, the Islamic finance industry has in its relatively short existence grown to be worth $2.1 trillion.

In projections made before the coronavirus outbreak, it predicted the sector would “continue to expand slowly” in 2020.

Financial technology, or fintech, could help the industry grow by “facilitating easier and faster transactions,” it said in its Islamic Finance Outlook 2020 Edition.

The meltdown the coronavirus pandemic has caused in other parts of the economy has prompted fears of a collapse in the sector. Dubai Islamic Bank has already delayed a planned issue of Shariah-compatible bonds, according to Emirati media reports.

Yet Islamic finance — based on the concept of shared profit and loss, thus minimizing risk for banks — has fans well beyond the Muslim world.

For example, the Jeddah-based Islamic Development Bank in November signed an agreement with Japan’s mammoth pension fund to support the development of sustainable Shariah-compliant products.

And the Responsible Finance & Investment (RFI) Foundation, a think tank, has talked up their ability to respond to the latest crash, due to the fact they are anchored in the real economy.

It also suggests that profits on investments in industries such as protective medical equipment could be donated to charities, helping tackle the coronavirus crisis without breaking the Islamic ban on interest payments.

But the sector’s current slow-moving nature may hobble its ability to respond to crises.

The emphasis has been on growing the market rather than making it more efficient, said Mohammed Al-Sehli, CEO of Wethaq Capital, a Dubai-based fintech firm.

The sector must focus more on innovation after “suffering from lack of innovation, standardization and automation of processes,” he told AFP.

 


China’s niche LNG buyers plan billion-dollar investments, double imports amid reforms

Updated 23 October 2020

China’s niche LNG buyers plan billion-dollar investments, double imports amid reforms

SINGAPORE: A group of niche Chinese gas firms is set to make waves in the global market with plans to invest tens of billions of dollars and double imports in the next decade as Beijing opens up its vast energy pipeline network to more competition.

The companies, mostly city gas distributors backed by local authorities, are ramping up purchases of liquefied natural gas (LNG) as newly formed national pipeline operator PipeChina begins leasing third parties access to its distribution lines, terminals and storage facilities from this month.

The acceleration in demand in what is already the world’s fastest-growing market for the super-chilled fuel is a boon for producers such Royal Dutch Shell, Total and traders like Glencore faced with oversupply and depressed prices.

Just last month, UK’s Centrica signed a 15-year binding deal to supply Shanghai city gas firm Shenergy Group 0.5 million tons per year of LNG starting in 2024.

“They’re very, very interested in imports — we’re talking to a lot of them already,” said Kristine Leo, China country manager for Australia’s Woodside Energy, which signed a preliminary supply deal with private gas distributor ENN Group last year.

China could buy a record 65-67 million tons of LNG this year and is expected to leapfrog Japan to become the world’s top buyer in 2022. Imports could surge 80 percent from 2019 to 2030, according to Lu Xiao, senior analyst at consultancy IHS Markit.

State-owned Guangdong Energy Group, Zhejiang Energy Group, Zhenhua Oil and private firms like ENN were quick to take advantage of the market reforms and low spot prices for LNG, said Chen Zhu, managing director of Beijing-based consultancy SIA Energy.

Their imports will reach some 11 million tons this year, up 40 percent versus 2019, more than 17 percent of China’s total purchases, said Chen.

For years such companies have worked to expand a domestic consumer base among so-called “last mile” gas users like tens of millions of households, shopping malls and factories, but they had to rely on state majors for supplies.

With greater access to distribution networks, they are now incentivized to build their own import terminals that could account for 40 percent of the country’s LNG receiving capacity by 2030, versus 15 percent now, Chen said.

Frank Li, assistant to president of China Gas Holdings, a private piped gas distributor, said his company has been in talks with PipeChina for infr structure access as it prepares to import LNG next year.

In Southern China’s industrial hub Guangdong, companies like Guangzhou Gas, Shenzhen Gas and Guangdong Energy hold small stakes in LNG facilities operated by China National Offshore Oil Company. They imported their first cargoes from these terminals last year.

Guangzhou Gas is set to import 13 LNG shipments this year, up from five last year, after “tough negotiations” with CNOOC won it access to terminals, said Vice President Liu Jingbo.

“The reform is bringing us diversified supplies, helping us cut cost,” Liu said.

Some companies also plan to beef up trading expertise by opening offices overseas, such as in Singapore, executives said.

“Naturally, companies will be thinking of growing into a meaningful player globally,” said a trading executive with Guangdong Energy, adding that his firm looks to Tokyo Gas , Japan’s top gas distributor and trader, as a model.

The rise of niche players will erode some market share held by state giants CNOOC, PetroChina and Sinopec, prompting them to scale back gas infrastructure investment and focus on global trading, while extending into retail gas distribution at home, officials said.