Financial statments

Aaoifi issues 7 sharia standards for islamic finance


The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has introduced new guidelines for applying religious law to finance, as it prepares to launch a sweeping review of the industry. The seven new standards, which help scholars decide whether financial activities and products conform with sharia law, address issues including financial rights, bankruptcy, capital protection, entrusting money to an agent for investment, and contract termination.

Capital protection has been widely discussed in the industry over recent months; some investment firms are keen to offer it in products, but Islamic principles do not allow companies to promise guaranteed returns. AAOIFI's new standards also cover the ways in which financial institutions manage their liquidity, discussing the sources and uses of funds and offering rules for calculating and distributing profits from investment instruments.

How to increase liquidity has been a key concern for Islamic banks. Last month two global bodies launched a standard contract for Islamic profit rate swaps, which banks can use to manage their exposures over varying time periods.

The Bahrain-based AAOIFI announced the new standards on Sunday after several days of internal discussions among sharia scholars, its deputy secretary-general Khairul Nizam told Reuters. The standards are being issued first in Arabic and will be translated into English later. AAOIFI, one of the top standard-setting bodies in Islamic finance globally, will over the next couple of years conduct a broad review of how the industry operates, addressing issues such as how boards of scholars work, the organisation's secretary-general Khaled Al Fakih said earlier.

Africa money uganda oil a sad story of the three gs


Nov 15 Oil in Africa tends to depend on the three "Big Gs" of geology, geography and governance and investors in east Africa's much-hyped finds are discovering the hard way what happens when they are not perfectly aligned. Six years after Uganda struck oil in its interior, all of the pieces are beginning to click into place for a boom that holds the promise of prosperity for one of the continent's poorest states. A number of oil firms including Total and Tullow Oil plc are engaging and plans are in place for the infrastructure needed to exploit estimated reserves of around 3.5 billion barrels. But production is still not seen before 2015 and may take longer, while the pipeline to get the oil to the coast for export will not be in place before 2018 at the earliest. Compare that to the Atlantic coast nation of Ghana 2,000 km west, which took only 3-1/2 years to crank out its first barrel of crude after oil was discovered and is already seeing its first exports, and it looks like Uganda has missed out."Here's a country that discovered oil in 2006. Hasn't produced a drop. And they say they will only export crude when they have a refinery and the best estimates for operators like Total is 2017 for production," said Dr Duncan Clarke, chairman of oil/gas advisors Global Pacific & Partners."So this is 11 years of an interrupted exploration cycle which typically you associate with a war or civil conflict or a meltdown ... 11 years of lost impact in GDP growth."ON-SHORE VS OFF-SHORE Where the geology in east Africa has been favourable for oil, the geography has been less so. Huge gas discoveries off Tanzania and Mozambique are extremely promising but the Indian Ocean waters off east Africa have yet to produce a commercially viable oil source.

Land-locked Uganda's on-shore oil reserves are certainly on a commercial scale but they lie 1,300 kms from the coast and so a costly pipeline is the only way to export the crude. Neighboring Kenya is not land-locked but the oil encountered there at two wells by British explorer Tullow and its partner Africa Oil Corp has also been onshore. Ghana's Jubilee field by contrast is conveniently off-shore and its location places it bang in the heart of a mature oil region where nearby countries like Nigeria have been producing the commodity for decades."Ghana is very familiar with everything to do with an oil economy because of its neighborhood," said Tara O'Connor, managing director of Africa Risk Consulting. For Uganda by contrast - and east Africa in general - everything about oil is new.

"No matter where you are in the world, where there's no infrastructure and no history of the oil business, it will take at least half a dozen years to go from exploration phase to development concepts," Tim O'Hanlon, Tullow's vice president for Africa, told Reuters. GOVERNANCE Governance also matters - a lot. In the case of Ghana, its development into a stable democracy with a relatively diverse economy helped to get the oil flowing."Ghana was in a very good position to meet the challenge of becoming an oil producer because it had already diversified its economy," said O'Connor. Diversification also meant Ghana, a rising gold producer and the world's second-biggest cocoa grower, did not regard oil as a get-rich-quick fix for the fiscus.

"Tax stability is important for any investor, and Ghana has maintained a stable fiscal regime for existing investors," said Martin Kelly, Wood Mackenzie's lead analyst for Africa. In Uganda, analysts say tax disputes point to a growth in "resource nationalism" as the government of long-time President Yoweri Museveni eyes oil as a panacea to its fiscal woes. Explorer Heritage Oil and the Ugandan government are in arbitration after the Britain-based firm disputed the tax bill from the sale of its assets there to Tullow for $1.45 billion in 2010. The oil explorer has argued its earnings were not subject to capital gains tax because the transaction in question was executed outside Uganda. Critics have said the government appears to be changing the goal posts."In Uganda, you have potential rent seekers emerging out of the political system who see oil as a way to compensate for the lack of fiscal discipline," said O'Connor. Uganda has also thrown another obstacle in the way of actually extracting oil by insisting that any development plan involve the construction of a refinery - a hugely costly undertaking with an estimated $2.5 billion price tag that is fraught with risk. The Ugandan government and operators working there disagree over how big the refinery needs to be. Operators say its capacity should not exceed 60,000 barrels per day to be attractive to investors but the government insists a facility with a maximum output of 120,000 bpd is viable and can easily attract investors. Ghana has also had delays. It began pumping oil from its Jubilee oil field in November 2010 and while it had hoped to hit 250,000 barrels per day by 2013, it has averaged under 80,000. Still, the rewards of getting past the barriers to production quickly are evident: Ghana's economy expanded almost 15 percent last year and the government expects 2012 growth of just over 7 percent.

Africa money waking up to the maths of malaria


To the minerals and mobiles underpinning Africa's pacy growth over the last decade, you may soon be able to add malaria - or at least its absence. Besides the huge human cost imposed on the continent - 90 percent of the 655,000 deaths estimated worldwide in 2010 - the mosquito-borne disease is an economic millstone, draining public and private resources and hammering productivity. According to a 2001 study co-authored by U.S. economist Jeffrey Sachs, the disease imposes an annual "growth penalty" of 1.3 percentage points on afflicted states, which includes most of those south of the Sahara apart from South Africa. In Nigeria, Africa's most populous nation and its biggest oil producer, malaria is responsible for up to 25 worker days lost per person per year, or two a month, due to direct infection or the need to stay at home to nurse a sick family member, often for a week or more. In Zambia, it is the leading cause of absenteeism, accounting for more than twice as many days off as HIV/AIDS, and can consume up to 40 percent of the public health budget in cash-strapped frontline states. It may not always be thus.

The number of malaria deaths has fallen dramatically in the last decade due to increased aid spending on basic items such as insecticide-treated bed nets and drugs, the World Health Organization (WHO) says. More excitingly, the holy grail of a vaccine against a notoriously adaptable parasite no longer appears unobtainable after an experimental vaccine from GlaxoSmithKline was shown last year to halve the risk of African children getting the disease. Even before the prospect of a vaccine, companies across Africa were waking up to the commercial sense of investing in a malaria-free workforce - and the results are encouraging governments to get in on the act.

Faced with endemic malaria in the 240,000 population town around its Obuasi gold mine in Ghana, AngloGold Ashanti , the world's third largest bullion producer, launched a multi-pronged campaign of bed-nets, indoor insecticide spraying and drugs that cut infections from 79,237 in 2005 to fewer than 16,000 in 2008. The programme cost the Johannesburg-based firm $1.3 million a year, but over that time the malaria drug bill at the mine's hospital dropped from $55,000 to $9,800 a month, while work days lost each month fell from 6,983 to just 282."It really made economic sense because of the absenteeism and the cost of medication," said Steve Knowles, the head of AngloGold's anti-malaria operations.

The Ghana model is now being extended to commmunities around its mines in Democratic Republic of Congo, Tanzania, Mali and Guinea, bringing as many as 500,000 people under its umbrella. Europe's financial crisis and relatively sluggish rich-world growth have left a question mark over cash pools such as the Global Fund to Fight AIDS, Tuberculosis and Malaria that have been complementing state and private sector efforts, threatening to unravel the gains made. But Knowles said many governments were becoming increasingly aware of the mathematics of beating malaria and starting to put their own programmes in place. The prospect of an affordable vaccine is only going to increase the power of that argument for a region forecast to grow at 5.4 percent this year - even with malaria. Without it, that figure could be knocking on 7 percent."Now that they're seeing the aid funding may not be there, it's a bit of a wake-up call and governments are looking to do it themselves," Knowles said. "What difference will a vaccine make? If it comes through, it's going to be huge."

Australias fairfax in exclusive talks with business spectator source


Australian newspaper company Fairfax Media Ltd is in exclusive talks to acquire the publisher of independent news and opinion website Business Spectator, a source with direct knowledge of the situation said on Tuesday. Fairfax and Australian Independent Business Media (AIBM), which owns Business Spectator, have been in exclusive talks for a week, said the source, who declined to be identified because the matter is confidential. Media reports, which have put the value of a deal around A$20 million ($21 million), have said that Fairfax was vying with News Corp's Australian arm News Ltd for AIBM. Business Spectator had revenues of A$3.6 million in the last fiscal year, according to reports.

Fairfax, which publishes the Australian Financial Review, the Sydney Morning Herald and The Age in Melbourne, has said it is in the hunt for acquisitions. Business Spectator editor-in-chief Alan Kohler told Reuters a sale process has been underway for some time, but declined to comment on whether there were exclusive talks.

"We have had a wide range of interest, some in the business and some investors. The process is still going on," Kohler said.

Chief Executive of the Australian Financial Review Group, Brett Clegg, referred to previous comments by Fairfax that it was seriously looking at Business Spectator, but declined to comment further. As well as Business Spectator, AIBM also owns the Eureka Report personal investment newsletter.($1 = 0.9697 Australian dollars)

Bahrain to require external sharia auditors for islamic banks


Bahrain's central bank has proposed new governance rules that would require Islamic banks in the kingdom to conduct external sharia audits of their operations, representing a shift away from the long-held practice of self-regulation. Islamic banks in the Gulf have traditionally used in-house boards of Islamic scholars to determine whether religious principles are being obeyed, such as a ban on payment of interest. Some scholars argue that this decentralised approach allows more flexibility and diversity in Islamic finance, but there has been growing support in the region for measures to increase transparency and reduce scope for conflicts of interest. Such measures would aim to address concerns of potential customers who believe that the banks too closely mimic conventional finance operations.

Bahrain's central bank said that a public consultation period for its draft rules would close on Oct. 16. The draft is part of an effort by Bahrain to regain prominence in Islamic finance, an industry it helped to pioneer, against competition from centres such as Dubai and Kuala Lumpur. Islamic banks are subject to general financial oversight by national regulators in all countries where they operate, but in many countries authorities have largely left questions of sharia-compliance to the in-house sharia boards.

The new guidelines for Bahrain would oblige banks to have all their operations audited annually by external sharia experts such as Islamic advisory firms. The auditors would need to be approved by the central bank. Scholars sitting on banks' in-house sharia boards would be required to disclose potential conflicts of interest in writing, and where conflicts are found to exist, to recuse themselves from decisions.

These provisions could place Bahrain among the strictest jurisdictions for sharia scholars. Other proposals include disclosure requirements that would include publication of the aggregate remuneration paid to in-house scholars. The banks would also have to disclose any non-permissible income and specify how they intend to dispose of assets generated by non-sharia-compliant earnings or acquired through prohibited expenditure.

Blueprint calls for shifting us housing finance to private sector


* Bipartisan group recommends winding down Fannie, Freddie* MBS issuance would be taken over by private sector* Public guarantor for MBS under catastrophic circumstances; funding from premium paymentsBy Margaret ChadbournWASHINGTON, Feb 25 A bipartisan research group called on Monday for winding down government-controlled mortgage finance firms Fannie Mae and Freddie Mac as part of an effort to have private lenders take on more of the risk of supplying the housing market with credit. The proposal from the Bipartisan Policy Center aims to jump-start a stalled debate on the government's role in housing and help build a consensus for change. Under the plan, banks and other private companies would take the lead not only in originating mortgages, but in issuing mortgage-backed securities as well. The private sector would then bear the losses for defaulted mortgages, except in catastrophic circumstances, in which case a public guarantor funded by premium payments would provide a backstop.

"Our housing system is outdated and not equipped to keep pace with today's demands and the challenges of the imminent future," the group said in a report outlining its recommendations. Fannie Mae and Freddie Mac buy mortgages from lenders and repackage them as securities for investors, which they guarantee. The firms were seized by the government in 2008 as spiraling mortgage losses threatened their solvency, and they have since drawn almost $190 billion from the U.S. Treasury. The latest proposal, which was pulled together over the last 16 months by a 21-member commission, would attempt to shrink the government's footprint in housing and have private capital play a larger role, a process that promises to take years. Fannie Mae, Freddie Mac and the Federal Housing Administration currently back nearly nine of 10 new mortgages. At a news conference to unveil the report, members of the commission said winding down Fannie Mae and Freddie Mac would be a five to seven-year process.

A Treasury Department official said the White House hopes the proposal moves the debate on housing finance reform forward and helps build a political consensus for change. However, with Congress focused on budget debates and with immigration and gun control top priorities, action on housing is not likely to come until at least 2014. After years of red ink, Fannie Mae and Freddie Mac are now profitable and the housing market is recovering, taking away the urgency for action. Still, both Democrats and Republicans generally agree the system needs to change."Greater federal intervention was necessary when the market collapsed, but the dominant position currently held by the government is unsustainable," the report stated.

In a first step to open the door wider for private capital, the report said Congress should gradually reduce the loan limits for government-guaranteed mortgages. The paper suggests limits of about $275,000 for loans eligible for government backing, down from $417,000. Later, Fannie Mae and Freddie Mac would be replaced with a "public guarantor" that would provide a limited and explicit government guarantee for mortgage-backed securities, but would only step in if private insurance companies were unable to cover losses when loans default. The public guarantor would oversee the mortgage market, set standards for the mortgages backing government-guaranteed securities, and determine which loan products would be eligible for federal backing. The guarantor would bear a risk only if private sector credit-risk bearers were wiped out. To ensure taxpayers are protected, fees would be levied on mortgage-backed securities to fund the federal backstop. Many Republicans dislike the idea of an ongoing government guarantee for the mortgage market. But the commission saw a need for the government to step in under unusual circumstances. The commissioners made it clear they believed it would be important to ensure U.S. home buyers had access to 30-year fixed-rate mortgages. They also proposed new approaches for the distribution of federal rental subsidies and calls for greater attention to rental housing sector. The commission was headed by two Democrats - former Senator George Mitchell and former Housing and Urban Development Secretary Henry Cisneros - and two Republicans - former Senator and Housing Secretary Mel Martinez and former Senator Kit Bond.