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Pakistan cenbank widens islamic banks benchmark requirements

´╗┐Sept 12 Pakistan's central bank has amended its regulations to exempt Islamic banks from using interest-based benchmarks for some of their financing products, the latest government step aimed at boosting Islamic finance. Despite a direct ban on charging interest, interest-based benchmarks are used as a pricing reference by a majority of Islamic banks, due in part to the absence of stable and widely-published alternatives. In a circular, the State Bank of Pakistan said Islamic finance institutions would have to outline their alternative pricing mechanism for participatory financing schemes, replacing the use of the Karachi Inter Bank Offered Rate or KIBOR. Since 2004, the central bank has required all banks to use KIBOR as a benchmark rate. The use of such benchmarks is viewed as a shortcoming of Islamic banking that discourages wider adoption, in particular among retail clients. The government, however, wants to help develop Islamic finance, a sector which now holds 11.4 percent of all banking assets and 13.2 percent of all bank deposits in the Muslim-majority country.

The exemption applies with immediate effect to participatory modes of financing known as musharaka, mudaraba and wakala. Such sharia-compliant contracts are well-known but have traditionally been eclipsed by murabaha, a cost-plus-profit arrangement in Islamic finance.

Under murabaha contracts, one party agrees to purchase merchandise such as a commodity on behalf on another, which promises to buy it at an agreed mark-up. That mark-up has been commonly set against a financial benchmark such as KIBOR or LIBOR for dollar-denominated deals.

This has been criticised by some religious scholars as not being sufficiently based on real economic activity, a key principle in Islamic finance. The practice dates back to the beginnings of modern Islamic finance in the early 70's, with scholars giving their blessings to what was deemed a temporary measure until alternatives could be developed. Under the new directive, banks must ensure compliance with sharia standards issued by the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions, and must receive a sign-off from their internal sharia board.

Press digest sunday british business july 1

´╗┐LONDON, July 1 British newspapers reported the following business stories on this site SUNDAY TELEGRAPH: INVESTORS TURN ON BARCLAYS CEO DIAMOND Two of Barclays' leading shareholders have demanded the removal of Bob Diamond, the chief executive, and Marcus Agius, its chairman, as the firestorm surrounding the bank intensifies. For more background, see Reuters story from June 30:UK orders bank review, calls Diamond to panelNEW AVIVA CHAIRMAN DRAWS UP SALE PLANS British insurer is considering selling or closing up to a fifth of its business divisions. For more background, see Reuters story from May 17: Insurer Aviva to sell some businesses in overhaulASTRAZENECA FACES ATTACK OVER 2.2 BLN STG U.S. VENTURE Drugs giant will face questions from investors after announcing that it is to pay $3.4 billion towards the buyout of Amylin. For more background, see Reuters story from June 30: Bristol-Myers to buy Amylin for about $5.3 blnVODAFONE CEO HITS BACK AT 'SIMPLISTIC' CRITICISM OVER TAX

Vittorio Colao, chief executive of the British phone group, told the Sunday Telegraph that Vodafone would pay more corporation tax in Britain if the government handed back some of the 5.96 billion pounds the company was required to pay up front for access to mobile spectrum. For more background, see Reuters article on June 26: INSIGHT-Vodafone in new 1 bln stg UK tax 'scandal'GLENCORE COULD ABANDON XSTRATA DEAL Glencore CEO Glasenberg is preparing to walk away from the company's merger deal with rival Xstrata. SEYMOUR PIERCE SALE IS A STEP CLOSER The British investment bank is in the final stages of being sold to a financial institution from the former Soviet Union.

THE SUNDAY TIMES: FBI PROBES BARCLAYS RATES TRADERS Agents at the FBI's Washington headquarters are conducting an inquiry into the group accused last week by regulators of conspiring to rig interest rates. CHINESE SIGNAL INTEREST IN 2 BLN STG INVENSYS TAKEOVER China South Locomotive is understood to be in the early stages of plotting a move for the British engineering company.

GLENCORE IN CRUNCH DEAL TALKS WITH QATAR Glencore's CEO is to hold a 'showdown' meeting this week with Qatar's state investment fund in a bid to save the Xstrata deal. RUSSIAN BILLIONAIRE EYES DR MARTENS Pamplona Capital, an investment fund backed by Russian billionaire Mikhail Fridman, is in the running to pay up to 200 million pounds for British boot maker Dr Martens. THE OBSERVER: THROW OUT BANK CHEATS, CABLE TELLS SHAREHOLDERS British Business Secretary Vince Cable urged shareholders in UK banks to "rise up and purge" their companies of corrupt executives, whom he said had allowed 'systemic abuse' to take root in the banking system. FINANCIAL MAIL ON SUNDAY: BANK RATE FIXERS MAY FACE CRIMINAL CHARGES Andrew Tyrie, head of the British parliament's Treasury Select Committee, said the LIBOR interest-rate fixing scandal could lead to criminal charges against individuals. GLENCORE BOSS EXPECTED TO SWEETEN XSTRATA OFFER Xstrata shareholders expect Glencore boss Glasenberg to increase his offer to more than 3 Glencore shares for every Xstrata share.

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