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Djibouti enlists islamic finance to boost banking penetration

Nov 7 Djibouti is promoting Islamic finance to increase banking penetration in the tiny African nation and help fund upgrades to the country's infrastructure, its central bank governor said. More than most countries, where Islamic banking developed in the shadow of a large conventional banking sector, Djibouti sees sharia-compliant finance as a way to pull itself out of poverty. That's because most people are still not customers of banks, which limits the economy's ability to assemble capital for investment. Central bank governor Ahmed Osman said banking penetration had risen from 10 percent of the population six years ago to 17 or 18 percent now, but that conventional banks were not attractive to many people for religious reasons."There is big appetite - 90 percent of the population is Muslim and we understand the rate of bank penetration is low due to religious beliefs," he said in a telephone interview. The spread of Islamic banking will also help authorities move more business activity from the informal economy, which is unregulated and untaxed, to the formal sector, he added.

Foreign investment from Gulf countries has improved Djibouti's economic outlook but 42 percent of the population of about 900,000 lives in extreme poverty and 48 percent of the labour force is unemployed, according to an April report by the International Monetary Fund. BANKING LAW

An Islamic banking law introduced in 2011 and seven guidance notes from Djibouti's central bank have helped to develop the industry, which follows religious principles such as bans on interest and gambling. Four of the 11 small banks in the Horn of Africa state are Islamic: Saba Islamic Bank, Salaam African Bank, Dahabshil Bank International and Shoura Bank. The latter two were set up in 2010. The Islamic banks, which now account for about 15 percent of the country's total banking assets and 12 percent of deposits, are backed by investors from Yemen, Somalia, the United Arab Emirates and Egypt - regional links which Djibouti hopes to strengthen.

"We are pushing them to grow. Two of them are new and they need training, new technology, new products," Osman said. Islamic banks have been growing at an annual rate of 20 percent, and as many as three other banks are considering whether to establish Islamic windows, although there are no current applications, he added. The IMF forecasts real gross domestic product growth in Djibouti of 5 percent for 2013, buoyed by port activity, trade with Ethiopia, construction, and foreign direct investment. Djibouti hosts a French military base and a U.S. base; its port is used by foreign navies protecting the Gulf of Aden's shipping lanes, some of the busiest in the world, from Somali pirates. The government wants to finance projects which include upgrading ports, rebuilding the railway in the south and developing new road and rail links with Ethiopia. This is an opportunity for Islamic finance, which could help to attract regional investors for the projects, Osman said."Financing of infrastructure is definitely an option, if we find more financial vehicles that are more adapted and more cost-effective."The country's Doraleh container terminal was built through a venture between the government and Dubai's DP World ; financing came through a $396 million Islamic deal partly funded by the Jeddah-based Islamic Development Bank.

Dutch launch new tribunal for finance disputes

THE HAGUE Jan 16 A new tribunal for the resolution of disputes involving complex financial instruments opened in The Hague on Monday, a bid by the Netherlands to win more business in the financial and legal services sectors. The Panel of Recognised International Market Experts in Finance - or PRIME Finance - is intended to settle disputes in the global financial markets, such as those arising from the collapse of Lehman Brothers in 2008 and the subsequent financial crisis. Lord Woolf, the former Lord Chief Justice of England and Wales, and Nout Wellink, who was president of the Dutch central bank at the time of the financial crisis, are on the new tribunal's advisory board. The panel's experts cover areas such as market practice, arbitration and mediation, and have worked at financial institutions, leading law firms, regulatory agencies and universities, specialising in derivatives, structured products, and collateralised debt obligations. The Hague has a reputation as a centre for international justice, particularly in instances where crimes against humanity cannot be tried in their home countries. The city is already home to several world courts including the International Court of Justice, the International Criminal Court, and other war crimes tribunals,

But the Netherlands' position as an international financial centre was dealt a severe blow in the 2008 financial crisis, when the state had to stump up nearly 40 billion euros to rescue several financial institutions. Leading bank ABN AMRO had to be nationalised while ING Groep is still in the process of repaying state funds.

The global crisis prompted some experts to call for a specialist tribunal to handle disputes arising from financial transactions involving more than one jurisdiction."The PRIME Finance project emerged against the backdrop of financial market crisis and legal uncertainty," said Jeffrey Golden, a visiting professor at the London School of Economics and Political Science, who is on the panel's management board.

"The amounts at stake are staggering, the legal and contractual issues are complicated, and the volume of complex product cases is increasing," he said in a statement. Golden said that national courts and ad hoc arbitration have not yet been able to build a unified, authoritative body of law."Decisions are unpredictable, too decentralized, often taken too slowly, and not always enforceable in the parties' home jurisdictions."However, some legal experts consider it unlikely that investment banks and financial institutions in the United States and United Kingdom will want to try out a new tribunal, rather than use existing courts in New York or London with which they are already familiar.