Clare Nuttall in Almaty -

Fattah Finance was launched in March, immediately after Kazakhstan's law on Islamic finance came into force. By moving quickly, the firm hopes to carve out a large share of the market for Sharia-compliant financial services.

A subsidiary of Almaty-based financial services provider Almaty Financial Centre, Fattah currently offers only brokerage services, but plans to expand its range of activities later this year as it grows its team. It offers its clients shares that are listed both in Kazakhstan and in other markets. "It doesn't matter where the shares are listed, only whether they are Sharia compliant or not," says Ussenzhan Turdiev, head of Fattah's information and analysis department.

The firm works in accordance with internationally accepted standards to determine whether a product is suitable to invest in. Key criteria include that the company isn't active in areas such as alcohol, cigarette production or gambling, that the debt-equity ratio does not exceed 33%, and that accounts receivable are no more than 45% of the company's capital.

According to Turdiev, Fattah can't yet provide any bonds from the Kazakh market where only conventional bonds are available, but it will offer Islamic bonds - sukuks - from other countries. The company hopes to see revisions to the law on Islamic that would make it easier to issue sukuks in Kazakhstan. Currently, only Islamic banks and national holdings, or companies 100% owned by national holdings, can issue sukuks. "It would be a great opportunity for us if the situation concerning sukuk issues was changed in Kazakhstan. If we issued some sukuks here, we could easily sell them," says Turdiev. "For example, Indonesia, which has a lower sovereign rating than Kazakhstan, carried out a $650m sukuk offering, and demand was seven times higher than supply."

Recruitment

Fattah currently has 10 people on board, and is in the process of recruiting more professionals with experience in Islamic finance. "We particularly want people with experience abroad, for example in the Middle East, Malaysia or London, but who are from Kazakhstan or the CIS, because then they can understand the mentality of CIS people," says Turdiev, who spent three years at KPMG before joining Fattah. "We want to be pioneers in this area and in time will offer a full range of financial services."

Kazakhstan's government has been firmly behind the idea of promoting Islamic finance as it seeks to promote the country as a regional financial centre. It could also provide an opportunity to bring in money from outside Kazakhstan and help out cash-starved companies. Turdiev notes that since a number of KASE-listed bonds have been unable to pay their coupon rate and entered into default, "companies which want to raise some money will find it really hard to do so. There is also not enough money in Kazakhstan to fund some of the companies here. We know from our partner companies in Malaysia and Bahrain that there is a lot of interest in Kazakhstan as an emerging market."

In addition, Turdiev considers that the global financial crisis has caused people to question the principles of the western banking system and to look at alternative financial models. "My understanding is that the government hopes people will trust the Islamic finance institutions, because trust in traditional financing has been eroded," he says. "In Islamic finance, every dollar must represent some material thing. This is why Islamic finance avoids derivatives and other financial products where there is no material pledge for the cash. Islamic banks usually finance 'real' businesses rather than traditional financial institutions. Of course, Islamic banks have been affected by the crisis too because they are part of the world financial system. However, the crisis originated with the traditional banks, and since Islamic banks are not involved in this sector, they suffered less than others."

Turdiev also believes that Islamic financial institutions will be among the first to emerge from the crisis. "Crisis is followed by recovery like night is followed by day. We think day will come soon for Islamic finance. There is demand for finance already, mostly from 'real' businesses, for example in the agriculture and manufacturing sectors."

While Fattah was a first mover, other firms are expected to enter the market for Islamic finance in Kazakhstan. Since BTA Bank is in the midst of restructuring, its plans to launch an Islamic bank are on hold, but Turdiev anticipates international banks could enter the market. Al Hilal Bank, the second largest Islamic bank in the United Arab Emirates, is understood to be planning a move into the Kazakh market, and may open offices in both Almaty and Astana.

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