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DELOITTE: GROWTH POTENTIAL FOR ISLAMIC SUKUK FINANCING IN EUROPE

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Deloitte: Growth potential for Islamic Sukuk financing in Europe

-Newly released report and executive program bring industry leaders together to further discussion on the way ahead

The gap between the spending needs of developing countries and the pressure on financial institutions to carefully monitor their credit exposure in order to optimize their capital management driven by regulatory constraints on solvency, is creating opportunities for more diversified products of alternative funding.  Considering promoting the Islamic bond (Sukuk) market is on top of the agenda of credit risk management, thus creating room and greater opportunities of growth for Islamic products of asset based or backed instruments.

This context provided the background for the Deloitte and IRTI-IDB Group executive workshop, “The corporate Sukuk market in Europe: mapping the pathway for an alternative financing”, recently held in London. The event attracted strong attendance from senior executives in the financial service industry, as well as Sharia’ scholars, auditors, lawyers and professional development & education institutions.

“This Deloitte event provided a valuable platform for discussion among regulators, policy-makers and practitioners on the challenges and opportunities for corporate Sukuk and its growth prospects in Europe,” said Hatim El Tahir, Director of the Deloitte Islamic Finance Knowledge Center in the Middle East. “It fits with Deloitte’s Islamic thought leadership program strategy of engaging industry stakeholders in issues of market development and practices.”

The day-long program focused on five key practice areas: the regulatory and policy environment for the Sukuk market in Europe; making the markets for Sukuk issuance in Europe; Sharia’, legal and rating considerations; driving value through practice harmonization; addressing the skills gap and developing talented leaders. It was delivered by professionals from Deloitte, INCEIF, Henley Business School, IRTI-IDB Group, DDCAP Group, CISI, The CityUK and industry experts.

Discussed during the program, was Deloitte’s flagship thought leadership report, “Corporate Sukuk in Europe: alternative financing for large and mega investment projects”, which examines the different aspects of potential Sukuk growth in the European corporate context. The study is based on an innovative approach to Islamic financial research, involving extensive outreach and dialogue with the industry leaders’ community, academia and prominent Islamic finance thought leaders.

The report looks at key European countries in terms of their existing regulatory framework for Sukuk issuance and potential for growth in these markets. A number of European states have introduced laws and regulations to facilitate the growth of the Sukuk market. The most prominent issue in Europe to date took place in Britain and raised £200 million. It was significantly oversubscribed by 10 times the amount raised, attracting investors from the UK, Middle East and Asia.

“The need from European corporate to finance long-term projects that require large capital upfront is challenged by the scarcity of debt finance. At the same time, there is a need from Middle Eastern and Asian investors with funding capacity for Sharia’-complaint assets in maturing economies. This correlation between the needs of European corporates and investors in the Middle East and Asia points to strong potential for initiation of Sukuk products and market. However, this is subject to the existence of  the right regulatory and legal frameworks to ensure protection to investors, and apply the right governance and risk management over deployed funds, thus creating an opportunity to let it develop and grow in a market that is active and liquid,” said Joe El Fadl, partner and Financial Services Industry leader at Deloitte Middle East.

The Deloitte report provides a number of case studies of possible scenarios in which Sukuk could be applicable to certain industries in European countries. Sukuk are used to finance specifically designated “socially responsible investment” and holdings of Sukuk securities are regarded as ethical investments.  Germany’s renewable energy sector is one such industry that fits the ethical investment category and whose need for high collateral upfront makes alternative financing such as Sukuk a possible solution.

Some of the findings from the Deloitte’s Sukuk survey include:

  • Expansion followed by liquidity appeared to be the top corporate objective for fundraising for corporate professionals participating in the survey.
  • 91% of respondents have considered ethical investments in Sukuk.
  • 46% of respondents view ethical investments as extremely important to the company, whereas 20% view it as very important.
  • 76% of respondents acknowledge that there is adequate professional service providers – in their respective jurisdictions – to facilitate Islamic finance transactions.
  • 57% of respondents are more likely to consider Islamic finance transactions such as Sukuk, if its financial reporting is aligned with the treatment of other conventional counterparts.

Finance

KBC Bank chooses Finastra for LIBOR transition

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KBC Bank chooses Finastra for LIBOR transition 1

Fusion Loan IQ Alternative Reference Rate module and Fusion LIBOR Transition Calculator will help the bank move away from LIBOR

KBC Bank, a Belgium-based bank with operations across Europe, US and Asia Pacific, has chosen Finastra to help manage its transition through the upcoming interbank references rates changes. It has selected Fusion Loan IQ Alternate Reference Rates (ARR) module to manage new rates and to expand its lending business. The bank has also opted for the Fusion LIBOR Transition Calculator to help calculate rates ahead of the transition period.

Melinda Christens, Business Program Manager LIBOR Transition at KBC Bank said, “We’ve been using Fusion Loan IQ for a number of years, and have been impressed with the way the solution is able to continuously adapt over time, adding new functionalities in line with changing regulations. The transition away from LIBOR is daunting for most banks, but with the help of Finastra’s solutions we’re able to continue to calculate rates and embark on a smooth transition.”

Fusion Loan IQ is Finastra’s solution for commercial lending, powering 71% of all syndicated loans around the world. It alleviates the high costs of system and process redundancy within commercial lending operations, as well as increasing transparency, improving risk management and simplifying entry into new markets or business lines. The latest version of the solution, enhanced to support ARR, provides banks with core capabilities to issue new loans using the replacement rates, allowing them to begin to transition their existing LIBOR portfolio safely.

Fusion LIBOR Transition Calculator will help KBC Bank manage the transition before the ARR module is rolled out. It enables market participants to calculate their own ARR or Risk-Free Rates (RFR) and interest accruals. The calculator service independently accesses the ARR/RFR from external official sources, such as the Federal Reserve Bank of New York, for the secured overnight financing rate (SOFR). It then calculates compounded in arrears rates and daily non-cumulative compounded rates, along with corresponding interest accrual amounts for a set of inputs. Depending upon the rate method chosen, the calculator has the flexibility to calculate the daily compounding rates for the whole period or only for the end date. It follows Finastra’s Fusion Loan IQ ARR calculations, which gives market participants consistent and accurate results.

Built on FusionFabric.cloud, Finastra’s open innovation platform, the calculator’s open API facilitates the integration with systems that don’t yet have a solution in place for calculating ARR/RFR rates. This significantly reduces operational risk.

“The shift away from LIBOR is the biggest change the market has seen in lending over the last three decades. It is also a once-in-a-lifetime opportunity to innovate and serve customers better, and so the need for a flexible service that can expand over time is a must,” said Robert Downs, Global Head of Corporate and Syndicated Lending at Finastra. “Our Fusion Loan IQ ARR module and the transition calculator are designed to keep pace as ARR methodologies and conventions evolve, protecting our customers from risks associated with complex system changes and ultimately future-proofing their businesses.”

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Finance

How contactless payments helped a pizzeria survive 

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How contactless payments helped a pizzeria survive  2

By Kaushalya Somasundaram, Head of Payments Partnerships & Industry Relations at Square, UK

The Covid-19 pandemic has caused continued uncertainty for the hospitality industry. Many have been forced to pause operations or adjust the operations so they can keep trading.

Businesses are continuing to address social distancing rules by rapidly accelerating their digital capabilities. From bakeries to pubs, we have witnessed businesses shift to selling online, offering click and collect services to making their goods available for delivery.

But one of the most integral ways technology is aiding these businesses is on the payment front.

Contactless payments and cashless businesses have been around for years, gaining popularity for the ease and convenience it offers businesses and customers alike. However a new significance has been  placed on all technologies that reduce physical contact and time needed to complete a transaction.

It’s no surprise the number of cashless businesses in the food and drink sector is skyrocketing, from 8% in January 2020 pre-lockdown, to 33% in July 2020.

Contactless payment technology has played a vital role in the survival of many businesses, including a pop-up pizza business based in Cambourne, Cambridgeshire.

From hobby to hub

When Sam Corban first tried his hand at pizza-making, it was out of interest. But after moving to Cambourne, he decided to turn what had quickly become a hobby into a business.

Sam approached local council offices to seek support in getting his idea for an artisan pizza pop-up business off the ground. And in February 2017, 400° Pizzeria fired up its oven for the first time, trading every Friday night at the Cambourne Cricket Pavilion.

Prior to the pandemic, Sam’s trademark 24-hour slow proof dough – which had taken him almost nine months to perfect – had garnered him a fond reputation around the village. It wasn’t long before his popularity meant he could hire his first staff member.

However, fostering a close relationship with his local community has been equally essential to Sam’s success. He has several pizzas named after customers – from the classic Nduja to The Debbie – and often asks his regulars for feedback regarding new recipes.

The success of his pop-up has influenced other local artisan street food providers, who’ve since joined him at the Pavilion on Fridays which has helped create a local hub for Cambourne locals.

Once the pandemic hit and a new normal descended on the world, Sam knew he had to react quickly and intelligently if he was going to continue doing business and be a positive force in his community.

And that all started with how he took payments.

The unexpected virtues of contactless

Despite accepting cash, Sam has always encouraged his customers to pay with card whenever possible, even pre-pandemic. It’s simply a quicker way to complete a transaction, especially now most bank cards have contactless chips.

After trying out a few contactless terminals, Sam decided to use the Square Terminal, an all-in-one card machine for everything from managing items and taking payments to printing receipts and getting paid. Once the pandemic started it was a no brainer to become completely cashless. “As all my payments are processed seamlessly through the Square Terminal, I’m cash free,” explains Sam. “This means I can process orders faster and don’t have to deal with hygiene issues posed by taking cash.” 

And, the peace of mind this offers customers can’t be overstated. It means they can get a slice of community and normalcy (along with pizza) in a time where they’re cooped up at home and need to keep contact to a minimum.

As a result, Sam was able to keep operating safely and successfully throughout 2020.

A future-proofed pizzeria

Sam’s success is closely linked to how he connects and engages with his local community. As well as his weekly pizza pop up, he’s also started stocking his van with dry goods such as flour and pasta to deliver goods to those who can’t leave the house. He has even started offering home pizza making kits – giving local families a fun way to jump on the lockdown home baking trend.

These acts, plus the digital transformation he’s undergone over the course of the year, will resonate positively for the pizzeria long after this pandemic is past. Not only has he cemented his place in his local community, but the technology he’s adopted has helped him flex his operations.

As Sam shows us all, with a sprinkle of technology and a healthy serving of community spirit, every crisis can also be an opportunity to grow and evolve.

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Business

Ahead of expected IPO, Deliveroo recruits Next’s Wolfson to board

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Ahead of expected IPO, Deliveroo recruits Next's Wolfson to board 3

LONDON (Reuters) – Britain’s Deliveroo said on Tuesday it has beefed up its board ahead of an expected initial public offering this year with the appointment of Simon Wolfson, the veteran boss of clothing retailer Next, as a non-executive director.

The food delivery company said on Sunday it had raised a further $180 million from existing investors, including minority shareholder Amazon, in a move that values the business at more than $7 billion.

Deliveroo is set to hold an IPO in the coming months, in what would be the biggest new share issue in London for three years.

Wolfson’s appointment comes after Deliveroo named Claudia Arney as the company’s first chair in November.

Deliveroo founder and CEO Will Shu said Wolfson would bring “great knowledge and insight” to the board.

Wolfson has been Next’s CEO since 2001.

He is also a peer of Britain’s ruling Conservative Party, sitting in the upper house of parliament.

(Reporting by James Davey and Paul Sandle; editing by Sarah Young and Pravin Char)

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