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Islamic finance treads fine political line in kazakhstan

* Developing Islamic finance is government policy* Proponents see big untapped demand* 41-point road map extends to 2020* But friction with government's secular ideology* No sovereign sukuk likely any time soonBy Robin PaxtonASTANA, July 2 In Kazakhstan, a farmer and an imam approach the Islamic Development Bank for a loan. The farmer, an Orthodox Christian, needs tractors to plough his fields. The imam wants to repair the roof of his mosque. Which one gets the loan?Yerlan Baidaulet, a banker who is one of Kazakhstan's foremost proponents of Islamic finance, received both requests. He sent the imam away with a donation from his own pocket on the grounds that Islamic banking permits charity or grants, not loans, to religious institutions. The farmer, an ethnic Russian, got the loan he needed. Long since repaid, it was the springboard to the growth of a major farming enterprise in the grain belt surrounding Kazakhstan's futuristic capital, Astana."Islamic finance isn't only for Muslims," said Baidaulet, executive director for the Commonwealth of Independent States and Eastern Europe at the IDB, a Saudi Arabia-based multilateral lender. "Even dollar bills are printed with the words: 'In God We Trust'."Two decades after the collapse of the Soviet Union freed Kazakhstan from Marxist ideology, the country of 17 million people is making a bid to become a regional centre of Islamic finance, which is based on religious principles including bans on interest and pure monetary speculation. Strongman President Nursultan Nazarbayev, in power since Soviet times, has declared he wants Almaty to become a hub for Islamic banking in the former Soviet Union, which includes other majority Muslim states and Russian republics such as Tatarstan. While that reflects growing demand among a generation of practising Muslims who grew up after the Soviet Union's collapse, it could also bring direct economic benefits to Kazakhstan by linking the country to big pools of Islamic investment money in the Gulf and southeast Asia. On the face of it, the country is ideal for Islamic finance. About 70 percent of its population is nominally Muslim and, in the wake of the global financial crisis, people are more receptive to alternative forms of banking. But Islamic finance also challenges taboos on overtly religious practices in a society which is run along secular lines. In order to keep the peace in a multi-ethnic state, the government declares itself to be uncompromisingly secular.

Three thousand copies of 'The Handbook on Islamic Banking' by Mervyn Lewis and M. Kabir Hassan, translated into Russian for the local market, have not sold well."Some bookstores - the kind of stores that sell economic textbooks - have told us: 'It's a religious book. We won't sell it'," said Baidaulet, who also advises the Kazakh Ministry of Industry and New Technologies. PIONEER Abu Dhabi-based Al Hilal Bank became the pioneer for Islamic banking in Kazakhstan by opening its doors there in March 2010. It employs nearly 50 people in the country and its investments to date are worth $90 million, said Prasad Abraham, the bank's local chief executive, adding that it had set a target of $200 million by the end of 2012. So far, Al Hilal's business has been in the corporate sector and with state-owned companies such as postal firm KazPost, with which the bank signed a wakala or agency agreement worth 1.5 billion tenge ($10 million) in March. Legislation was passed in 2009 that would in principle allow the government to issue a sovereign sukuk or Islamic bond, which would be a big step in creating a sharia-compliant debt market. Zaratkazy Nurpiissov, chairman of the management board of Fattah Finance, the country's first brokerage to offer sharia-compliant services, said there was demand for Islamic consumer finance to buy cars and household goods.

Fattah Finance's Hajj fund, in which pilgrims set aside cash to visit Mecca, has accumulated $150,000 in its first year. Nurpiissov said such numbers were the tip of the iceberg."I would say there are more than 1 million people who wish to use Islamic finance services," he said. "That number is growing every year."Proponents of Islamic finance cite Kazakhstan's painful recent experience with conventional finance to make their case; a crisis in 2007-2008 was triggered by banks' exposure to bloated real estate markets and reliance on foreign funding. Islamic finance claims to be less risky because transactions are supposed to be based on income from real assets."Why did so many real estate companies go bust?" said Nurpiissov. "Because they borrowed money to buy land next to their existing construction projects without having any cash flow. Then the price of that land fell. Islamic finance would only lend money to build that one block of apartments."OBSTACLES The industry has run up against some major obstacles, however. Crucially, the debut sovereign sukuk issue has not yet materialised.

With over $50 billion stowed in its National Fund, which collects windfall oil revenues, Kazakhstan has no pressing need to borrow abroad. Not only the sukuk was pulled; a $500 million sovereign eurobond planned for 2010 was also shelved."It's not a question of sukuk per se. It's simply that we have no need to borrow money on the external market to finance a budget deficit," Finance Minister Bolat Zhamishev told Reuters."If it becomes timely to fix a benchmark for our corporate sector, we will think about sukuk issuance. But it wouldn't be effective were it just a one-off."That view is shared by Ana Lucia Coronel, head of the International Monetary Fund misson that visited Kazakhstan in April and May this year."This is not the right time for Kazakhstan to go ahead," she said in an interview in Astana in May. "The sukuk market cannot develop unless the traditional government bond market is sufficiently developed, so it will take a little time."With a sovereign sukuk off the table for now, the state-owned Development Bank of Kazakhstan is to take the lead in Islamic bond issuance. In March, the bank said it planned a sukuk programme worth up to $500 million, but it did not say when issues might take place. At present, Al Hilal remains the only Islamic commercial bank in Kazakhstan. Rules for entry into the sector are strict; the minimum capital requirement to establish any new bank, w he ther Islamic or conventional, is 10 billion tenge. Kazakh law does not permit conventional banks to run "Islamic windows", sections that would operate on religious principles."A second or a third bank would bring opportunities for transactions between Islamic banks that I'm not in a position to engage in at the moment," said Abraham at Al Hilal. According to Baidaulet, taxation is "the biggest trouble for Islamic finance in Kazakhstan". Deals based on the murabaha model, the most widely used Islamic financing structure, require bonds to be backed by assets that change hands more than once. In Kazakhstan, each sale of such commodities is subject to 11 percent value-added tax. A 41-point government road map for Islamic finance, released in March, extends to the year 2020. It envisages the issue of Islamic securities for some industrial projects. Taxation rules would be amended and several Islamic banks created by 2014. Implementing the road map, however, may yet require a shift in mindset within the government. While debating the sovereign sukuk issue, some members of parliament expressed horror at the prospect, however unlikely, of state-owned assets falling into foreign hands in the event of a default. A tough new law on religion passed last year, which includes a ban on prayer rooms in state institutions, hasn't helped. The law has been interpreted as a means to curb religious radicalism after a series of Islamist-inspired attacks unprecedented in Kazakhstan. While there is no suggestion that Islamic finance is linked with militant activity, few in government wish to appear overtly religious."People, especially civil servants, are now trying to distance themselves from the word Islamic," said Baidaulet, co-chairman of the working group for the road map. Abraham at Al Hilal said, "Islamic banking is not asking for special favours. We're just asking: make us equal to the conventional banks."

Just how stressful is business travel

( - If work-related stress is a "21st-century disease", as the International Labour Organization puts it, what happens when a busy travel schedule is added to the equation?According to a new study by a corporate travel agency, business travellers suffer especially keenly from stress. Using data gleaned from 6,000 travellers, Carlson Wagonlit Travel CWT. L found that unpleasant ‘surprises' like flight delays and luggage loss were the highest trigger of stress, especially for female travellers who were also more fazed by ‘routine breakers' like not being able to eat healthily. However, women felt decidedly less stressed about flying economy than men. CWT's "Travel Stress Index" also found that frequent fliers (over 30 trips per year) get most stressed from ‘lost time', with factors relating to the reimbursement of expenses, and from flying with a non-preferred airline, adding to their unease. Because senior air warriors in particular travel so much, their stress levels have no time to drop before they set off on another trip. This is why, CWT says, there's a difference of four ‘stress points' between frequent travellers and occasional travellers. While commending a study into a rarely examined issue, Cary L. Cooper, distinguished professor of organisational psychology and health at Lancaster University Management School, disputes the idea of specific stress triggers to travellers."When people are travelling, it's not just about bags and all the rest of it - it's about the whole process: Separation from your family for a period of time; the hassle of the airport; travelling ‘cattle class'; problems with hotels - it does accumulate up," he said by telephone."If I was looking at the impact of travel on my team of marketing people, I would also look at their sickness absence rates in contrast with others in different functions; their turnover rate; their performance appraisal compared to others."

THE STRESS OF BEING ALONE Though a comparison of stress between solo travellers and those journeying with companions was not included in the CWT study, it did find that business travellers with partners and families found that being on the road during weekends was significantly more stressful. Professor Cooper, who has the luxury of travelling with his wife on business, thinks it is important for frequent travellers to bring colleagues, their spouse, or an older daughter or son with them to offset the inherent loneliness of being away from home. "If the person feels more relaxed, can unwind quicker, can get over the jetlag better, they will perform better."IN MY ROOM

In a smaller study which recently probed the emotional health of business travellers, Fairfield Inn & Suites, a Marriott brand of select service hotel, found that the more one travels, the more likely they are to travel alone, with female travellers finding it more important than men to have someone to talk to. Only 16 percent of the 1,000 respondents in this survey reported feelings of stress, but 38 percent said they missed important events in their home life. In their report, Fairfield stress the importance of pre- and post-trip planning to reduce stress. Shruti Buckley, global brand manager for Fairfield Inn and Suites said in an interview she was surprised at the positive results, knowing how taxing and tough business travel can be, adding that hotel firms like hers are trying to create an environment where travellers can meet other people. STRESS REDUCTION STRATEGIES

According to psychologist Prof. Cooper, companies never do cost-benefit analyses on whether to send people long-haul cheaply, or on business class."Is there a difference on traveller's attitude, tiredness, performance? Businesses think they're making a saving; but you get someone in a really tired, exhausted state going to do a deal and what happens?"Adaptive travel policies are the way forward, thinks CWT. Vincent Lebunetel, co-author of its report, says he would recommend that clients take travellers' situations further into consideration. For example, "segmenting between those who are single, and those in couples or who have children, have a lot of stress travelling over the weekend or in trips of over three days."For their part, Fairfield Inn & Suites are using the results of their research to increase co-working hubs in guestrooms for colleagues to share, and, like a number of other properties, are working on their lobbies to "create spaces that inspire and encourage people to gather."Communal tables are being added, as are plug sockets so people can meet informally."Business travellers are always more critical judges of overall experience," says Buckley. "If we can meet their needs, we are almost automatically meeting the needs of leisure travellers."