Islamic Finance in the UK: A

The World’s Leading Islamic Finance News Provider 12th March 2014

(All Cap) 1100 Islamic finance in the UK: A

1075 period of transition 0.46%

1050 1,045.56 Islamic fi nance in the UK is already an an unrivalled pool of international talent established industry, ranking as the ninth and capital. London has the leading share 1,046.89 largest center for Islamic fi nance in the of trading in many international fi nancial 1025 world, according to the latest data from the markets including foreign exchange and UK Islamic Finance Secretariat. However, OTC derivatives trading, international 1000 despite government support and a strong bank lending and international insurance. T W T F S S M overseas investor base, the domestic London and the wider UK are also Europe’s Powered by: IdealRatings® banking sector remains small. As the UK premier center for the management of makes a serious push for 2014, we talk to sovereign wealth funds, hedge funds and Volume 11 Issue 10 the key players leading this transition to private wealth. IFN Rapids ...... 2 fi nd out what the UK needs to turn it from Islamic Finance news ...... 7 a duckling to a swan. The London Stock Exchange (LSE) is Shariah Pronouncement ...... 15 already a key global venue for Islamic IFN Reports: The Lord Mayor of London, Fiona Woolf, issuance, with more Sukuk listed than Islamic finance in Germany: Not why, but has been making a tour of the Middle East any other global exchange. To date over when; Kenya to establish separate regulatory this month; with Islamic fi nance one of the US$34 billion has been raised through 49 framework for Islamic finance; The future key issues on her agenda. Islamic Finance issues, while seven exchange-traded funds lies with boutique banks; Trade finance tops news caught up with her to discuss the city's and two exchange-traded products are the list as an attractive alternative to money ambitions for the industry in the UK. also quoted on the exchange. “London is markets; Islamic funds in Pakistan continue specifi cally targeting cross-border fl ows, to deliver; The size of the Islamic market: A “The UK is the leading non-Muslim helped by its scale as a fi nancial center and country and Europe’s premier center for its internationally recognized legal system,” continued uncertainty ...... 16 Islamic fi nance, with US$19.5 billion of confi rms the Lord Mayor. Case Study: World’s fi rst Basel III Tier 2 Sukuk: reported assets; and we expect this market AmIslamic Bank ...... 24 to continue to grow exponentially,” she City strength confi rms. “The whole country is committ ed Country Focus: Indonesia London has also benefi ted from consistent to expanding the role of Islamic fi nance as support from the UK government to IFN Analysis: Islamic fi nance in Indonesia .... 22 an investment alternative in the UK. We see Feature: The Indonesian Financial Service develop a competitive fi scal and regulatory Islamic fi nance as a growing component of framework for Islamic fi nance: including Authority (FSA): A new hope to boost the London’s role as a world leading fi nancial removing double tax on Islamic mortgages performance of Islamic fi nance ...... 29 center.” and extending tax relief to Islamic fi rms and individuals; and reforming bond issuance Sector Focus: Real Estate A thriving market rules to treat returns and income payments IFN Analysis: The continuing appeal of real The UK currently has 22 Islamic banks of as equivalent to interest, making London estate investment in Islamic fi nance ...... 23 which fi ve are fully Shariah compliant, more competitive for issuing and trading Feature: Real estate: The gateway to along with around 25 law fi rms Sukuk. Islamic finance in India? ...... 31 supplying Islamic fi nance services. Special Feature: Continuous support “This is substantially more than in This has done much to consolidate for the development of Islamic finance in any other western country,” points the city’s position as a leading Islamic Luxembourg ...... 33 out Woolf. “Our intention is to fi nancial center. Humphrey Percy, remain the leading western center.” CEO of Bank of London and The IFN Country Correspondents: According to the Lord Mayor, Middle East (BLME), one of the biggest Bangladesh; Turkey; Iran; US ...... 25 activity in the UK Islamic and most profi table fully-fl edged IFN Sector Correspondents: sector has risen by around Real Estate ...... 28 150% since 2007, buoyed by continued on page 3 Deal Tracker ...... 34 REDmoney Indexes ...... 35 Eurekahedge data ...... 37 Performance League Tables ...... 39 Events Diary...... 43 Follow us on Company Index ...... 44 Subscription Form ...... 44 www.islamicfi nancenews.com IFN RAPIDS

ICD and Al Ajial Funds sign as primary dealer for IILM’s market still not fully refl ecting DEALS MoU to co-invest in potential Sukuk program to enhance reinsurance premiums, Syarikat Prasarana Negara projects within Morocco’s secondary market according to Moody’s private sector launches US$610.5 million Despite strong growth Takaful has signifi cant dual-tranche Sukuk The potential of Islamic momentum and 10% market potential to grow in Turkey The IDB poised to join banking in Indonesia is based share, Islamic banking has yet according to EY report on public demand according to reach its full potential in the ranks of IILM as a Doha Insurance off ering a to Indonesian Islamic Pakistan, says federal minister multinational institution to total of 24.26 million new Banking Association member for fi nance issue short-term Islamic debt shares to shareholders on the Total Sukuk issuances reach Bank Rakyat makes Zakat 17th March US$9.07 for the fi rst two contribution to schools in months of 2014 according to conjunction with the opening th ASSET KFH Research of its 145 branch RATINGS TuranBank signs fi ft h Profi t payments due on MANAGEMENT Alam Maritim Resources’ agreement with the ICD Tanjung Bin Energy Issuer’s Mashreq converts Islamic facilities receive stable ratifying a fi ve-year US$5 US$1.37 billion Sukuk conventional MENA fund into outlook on their ‘A+IS’ and million fi nancing facility Indonesia’s record Sukuk sale a Shariah compliant vehicle ‘MARC-2ID/A+ID’ ratings Turkey wants to make itself from MARC helps reduce supply pressure i-Vcap Management looks to the premier Islamic fi nancial and borrowing costs list sophomore Islamic ETF on Moody’s maintains negative center in Western and Eastern the 21st March outlook on Pakistan’s banking Fawas Abdulaziz Alhokair Europe, and in MENA, system due to challenging Co plans to join Islamic affi rms Borsa Istanbul CEO Malaysia’s Employees operating conditions and high capital market with debut Provident Fund looking to Sumitomo Mitsui Banking bank exposure to government Sukuk off ering next fi nancial establish state-backed fully Corporation commences securities year Shariah compliant pension Islamic fi nance services in fund Fitch upgrades rating for Second tranche of LBS Bina Malaysia Saudi Arabia to ‘AA’ with a Group Sukuk to be fully Amanah Mutual confi dent of th Islamic fi nancial solutions are stable outlook redeemed on the 14 March at least 13% cumulative return more suited to fund Pakistan’s on recently-launched Shariah FGB to auction US$1.07 potential projects in energy, compliant fund billion Sukuk Wakalah health, food, pharmaceutical MOVES program in Malaysia and housing, says AAOIFI Lahore Stock Exchange Masraf Al Rayan board chairman of trustee board approves listing of NAFA of directors re-elects bank Islamic Principal Protected chairman, Dr Hussain Ali Al NEWS Association of Islamic Fund Abdulla Separate regulatory Banking Institutions framework for Kenyan Islamic Malaysia jointly organizes Abu Dhabi Islamic Bank NCB Capital to name Sarah fi nancial institutions to be roadshows with the central expands wealth management Al Suhaimi as new CEO bank to promote online off ering with capital-protected introduced in coming weeks, Former vice-governor of banking services notes investing in smartphone confi rms Capital Market Saudi Arabian Monetary manufacturing Authority Bangsamoro in need of Agency to head Arab Seeking a foreign partner for Islamic banking services and Monetary Fund as director Islamic subsidiary may be private sector involvement, TAKAFUL general and board chairman says chair of Bangsamoro in the cards for Att ĳ ariwafa MetLife AIG ANB Amr Al Jallal joins Jadwa Development Authority Bank as part of its strategy to Cooperative Insurance Investment following boost its Islamic operations Union of Small and Company receives resignation from Saudi EFG-Hermes offl oads 19% Medium Enterprises authorization by Saudi Fransi Capital as senior stake in Damas Interntional recommends Islamic fi nance regulator to conduct insurance vice-president of investment for US$150 million for the promotion of SMEs in business in the kingdom banking Pakistan Central bank governor Al Madina Takaful GFH Capital appoints Jinesh publicly comments that Islamic fi nance create stronger recommends a distribution of Patel as senior executive Mauritius does not have a ties between Malaysia and the 8.33 million shares from share offi cer UK, says Malaysian premier premium sense of urgency in pushing Barwa Bank names Khalid for the development of Bank Indonesia looks to Compound annual growth Yousef Al Subeai as acting Islamic fi nance att ract local bank to sign up rate in the GCC insurance CEO

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Islamic ﬁ nance in the UK: A period of transition Continued from page 1

Islamic banks in the UK, explained to Investment banking boom corporate banking, leasing and trade Islamic Finance news that: “The UK has As the economic cycle spins and fi nance as well as acquisition and ABL already diff erentiated itself from other the market conditions improve, so fi nance and an active asset management European countries. Combined with UK Islamic banks are concurrently division off ering fi xed income products. the size and depth of the other London stretching their wings. Aft er a period markets, Islamic fi nance has a strong of restructuring and reorganization A turnaround year advantage in London over other centers across almost every UK Islamic bank, EIIB-Rasmala was the fi rst UK Shariah given its access to the pool of skilled we are fi nally starting to see focused and compliant bank to be incorporated, in fi nancial staff and depth of liquidity.” directed strategies pushing forward. 2005; and aft er a period of restructuring and a tie-up with GCC asset management Sultan Choudhury, CEO of the Islamic fi rm Rasmala last year, the new EIIB- Bank of Britain (IBB), agrees. “London One shouldn’t Rasmala has launched itself back onto off ers investors an Islamic fi nance the Islamic scene with a splash. “We have industry which is established and regard the spent a considerable amount of time thriving, as well expertise which is over the last two years integrating and unrivalled elsewhere. Other European smaller institutions developing the EIIB-Rasmala platform countries will to have overcome a steep and have invested considerable resources learning curve to reach the level that the as niche players and time into gett ing that platform right UK is at.” and we are now seeing these eff orts that hang onto the starting to bear fruit,” confi rms Hydari. A shifting landscape 2013 was a highly productive year for However, the UK banking sector coat-tails of larger the group, which successfully launched remains limited in size and scope. The a number of diverse and innovative new banks primarily focus on bringing in players – we are investment products and surpassed US$1 overseas investors and the majority billion in funds under management, of their focus remains on the safe and very much capable making it one of the leading regional surging real estate market. Zak Hydari, asset managers. the group CEO of European Islamic of forging our Investment Bank (EIIB-Rasmala), Harris Irfan, the head of investment explained to Islamic Finance news that: own path banking and managing director “We consider ourselves a ‘specialist’ of EIIB-Rasmala, agrees that 2013 investment bank because we act as a was a turnaround year. “The bank ‘gateway’ between the UK and GCC. BLME is the largest of the UK Shariah demonstrated a very signifi cant One of EIIB-Rasmala’s key roles is to act compliant banks, and has been extremely transaction in the FWU Sukuk (a US$100 as an originator, facilitator and catalyst successful in diversifying into new million program, of which the fi rst for fi nancial and economic fl ows sources outside the traditional real estate tranche was issued in 2013) which was between these diff erent regions.” niche. The bank is focused on the UK the fi rst time a European-rated corporate mid-market and SME sector, to which it credit has been issued into the Islamic While they have seen much success in this, has already provided over GBP1 billion markets.” The transaction demonstrated to truly spread its wings the UK banks (US$1.66 billion) in fi nancing. “We that European companies can raise must start to step outside of this comfort continue to see interest from the UK mid- Islamic money but it also helped EIIB- zone. The majority of the windows have market, as this sector of the economy is Rasmala gain recognition as a product seen litt le penetration, while the only under-banked and we are able to provide manufacturer as well as a distributor. fully-fl edged Islamic retail bank, IBB, has a tailored and competitive service,” “This is important,” explains Irfan. struggled to achieve profi tability. The says Percy. “Takaful is also starting to “One of the diff erences between the big fi ve Shariah compliant banks have found gain momentum with interest growing conventional international banks and the successful niches in asset management, real from both consumers and fi nancial smaller domestic and regional Islamic estate investment and merchant banking institutions. In the UK we have seen the institutions is traditionally that the big but have they succeeded in establishing launch of Cobalt Underwriting Services, banks have done everything whereas a truly comprehensive Islamic banking the fi rst UK underwriters that provide the small banks have mainly been environment? access to market leading commercial distributors. I’d like to see that change insurance products that are also Shariah over the next few years. One shouldn’t While some would say no, this does now compliant.” regard the smaller institutions as niche seem to be changing. Speaking to the players that hang onto the coat-tails heads of three leading Shariah compliant BLME plans to continue to fund of larger players – we are very much banks in the UK, Islamic Finance news property development projects in capable of forging our own path.” discovered a tone of upbeat optimism 2014 and support its private regarding growth opportunities banking clients. However, Expanding horizons and development strategies for this the bank has a wide range And they certainly seem to be doing year. of products and services so. EIIB-Rasmala has seen signifi cant outside real estate: including continued on page 4

Islamic fi nance in the UK: A period of transition Continued from page 3 increases in investor demand and Qatar-based Masraf Al Rayan, and a the UK needs to be driven by the retail interest across all its off erings over the strategy focused on broader product sector, and at the moment we aren’t past year, both asset management and development, Choudhury confi rmed to quite there yet, primarily because of investment banking – mainly from Islamic Finance news that: “Our strategy lack of awareness,” agrees Irfan. “I’m international investors. “We believe for 2014 is to continue to off er Shariah very hopeful and very pleased that IBB there is a signifi cant demand for new compliant savings and home fi nance is capturing that market because there Shariah compliant investment and products to UK retail customers.” are very few, if any, competitors in banking solutions,” says Hydari. “Given that space. However, Shariah sensitive the investor take up and feedback we And although it has received some bad consumers in the UK are not aware yet of have received from the new products press in the past, Choudhury points out what is available to them.” we brought to the market during 2013… that the IBB has experienced year-on-year it is clear there is also a global shortage growth in revenues since its inception in So what needs to be done to move it of supply for diverse, well structured, 2004. Its 2012 retail deposits increased by forward? Breaking down the barriers to innovative and truly Shariah compliant 22% to GBP238 million (US$397 million) understanding for retail investors will fi nancial products and services. For and total customer fi nancing increased be a big driver for the industry, and it every new product we have launched of by 86% to GBP129 million (US$215 seems as if that has not yet happened late, we have seen a very healthy level million) while 2013 results (announced to a material degree. Some market of demand that far outstrips supply. We in April) are expected to be bett er participants have even commented that expect to see this growth continue into still. The bank plans to signifi cantly while several high street banks claim to 2014 and beyond.” develop commercial business activities, off er Islamic products, when called or including expanding property fi nance asked about these products the likelihood This rings true across the entire UK to businesses, including development was that the salesperson would have no banking sector. BLME and EIIB-Rasmala fi nance; as well as broaden its appeal and idea what you were asking – suggesting are not the only ones to emerge anew customer base and expand services for that Islamic products simply are not and surge into growth – both QIB Gulf–based customers looking to invest being sold correctly. (UK) and Gatehouse have also sett led in the UK. down into a consistent growth patt ern “From a retail perspective, the main following a period of reorganization. QIB challenge the IBB has faced so far is (UK) recently got a new board including the lack of understanding amongst a new chairman, Sheikh Jassim, and The UK Islamic consumers about how Islamic banking has introduced a number of off erings products work, thus aff ecting its including a mezzanine real estate banking sector ability to build out the market,” thinks fi nancing product to assist investors in Choudhury. “To combat this, IBB’s acquiring UK investment properties. has set its sights on marketing eff orts consist of activities such as community road shows, seminars Although Gatehouse Bank remains long-term success and events to explain the principles and primarily on the property investment benefi ts of Islamic banking.” and asset management side, it too has and is following an expanded its horizons from solely For long-term growth we need to see London-focused projects and into new integrated, united wholly Shariah compliant institutions fl agship regional developments. In enter this market. To a degree, that needs November last year the bank entered into and collaborative to be driven by overseas investors who a GBP700 million (US$1.16 billion) joint recognize the opportunity in the UK. venture with Sigma Capital to build 6,600 strategy to “But leveraging that opportunity comes new houses across the UK starting in down to the level of education you are north-west England. achieve that. able to give the consumer about these products,” emphasizes Irfan: “And that Retail race Growth is also gathering momentum just hasn’t happened yet.” Yet so far most of this growth has been outside of London, and the IBB recently constrained to the asset management and announced the completion of a commercial Building scale capital markets. What about the retail property fi nance deal in Glasgow with a This is a problem, because one of the sector in the UK – can we ever expect to community education center. biggest challenges holding back the see a material take-up? Few banks have UK banking sector at the moment so far succeeded in att racting customer Breaking down barriers is simply a lack of scale. “The att ention. This movement underscores the environment is heavily regulated crucial importance of developing and heavily taxed, and you are But again, this looks to be changing. IBB a strong retail market, which dealing by and large with celebrates its 10-year anniversary this could then support and undercapitalized institutions. year and now has over 50,000 customers. drive a stronger overall And that means they can’t With a capital injection of GBP100 million industry. “The development take full advantage of some (US$167 million) from its new parent, of a domestic market in of the most exciting things

Islamic fi nance in the UK: A period of transition Continued from page 4 going on in London and in the UK – issuance from Luxembourg, this should vocal about the potential for Islamic like SME lending, like infrastructure,” start to change. Much has been said investment in major UK infrastructure explains David Testa, CEO of Armila about the importance of the new Sukuk projects, telling Islamic Finance news Capital. in building the Islamic fi nance industry that: “These instruments have the scope This limits their ability to compete with in Europe and one of the key factors to transform infrastructure fi nance in the larger high street and conventional behind this will be the vital importance the UK.” banks, especially given the small size of providing UK Islamic banks with of the current sector, which has only the means to grow and invest in safe, However, not everyone agrees; due to two banks currently active in wider Shariah compliant liquidity instruments. a fundamental asset/liability mismatch investment banking activities. “The “Certainly we need it for our balance which inhibits Islamic institutions’ ability opportunities are very big but our sheet,” confi rms Irfan. “It is an essential to participate. Typically an infrastructure balance sheets are not as large as the part of our treasury portfolio.” project is a 10-30 year fi nancing. If large international conventional banks, the majority of buyers of that Islamic so there is a transitional period taking Limiting factors instrument are from the Middle East then place at the moment,” Irfan points out. But this capitalization issue is just one you would probably struggle to sell a of a number of limiting factors that fi nancing of that length of term, as they However with the advent of the new UK the UK Islamic banks must struggle to are used to buying fi ve or seven-year sovereign Sukuk, and a further potential overcome. The Lord Mayor has been Sukuk.

Home-grown: Why is there no fully UK-owned Islamic bank?

Although the UK is back in the is simply a natural progression due to suited to developing innovative spotlight once again for its Islamic the maturity of the Gulf Islamic fi nance new structures and to push the fi eld fi nance ambitions, it is worth noting market compared to the dynamics of the forward as there is a huge talent pool that out of the fi ve Islamic banks UK fi nancial markets. of fi nance professionals available to based in the UK, none are owned or complement London’s position as a indeed were even established by a “The [Middle East]’s excess liquidity, global fi nancial center. “I think it is UK-based entity. All the fully Shariah mature Islamic fi nance markets and very natural for there to be several compliant standalone UK banks are historic ties with the UK means fi nancial capitals for Islamic fi nance, in fact majority-owned by investors that companies from the region are including Kuala Lumpur as well as from the Middle East. So why is there naturally well-placed to drive Islamic Dubai and London. This triangle is no home-grown institution – and does banking here and, in time, Europe,” a good thing – it is important not to the market need one? explained Sultan Choudhury, CEO concentrate all the talent and all the of IBB. “Furthermore, there are many transactions in one place.” Qatar Islamic Bank has full ownership barriers to entry when sett ing up banks of QIB (UK), while Gatehouse Bank in a highly regulated environment, As stalwarts of the Islamic fi nance and Bank of London and the Middle such as the UK. These include industry with both the fi nancial East (BLME) are owned by Kuwaiti signifi cant capital requirements, which means and required expertise, and investors. Qatar-based Masraf Al companies in the Middle East are able with their traditional interest in UK Rayan recently acquired Islamic Bank to overcome more easily.” property, it comes as no surprise that of Britain (IBB) and EIIB-Rasmala is a GCC investors would fund UK Islamic culmination of investments by Gulf- Harris Irfan, the managing director banks. However, as the UK asserts its based individuals and institutions. and head of investment banking of own Islamic fi nance aspirations, the Notably, BLME also opted to list on EIIB-Rasmala, concurs. “Although question remains: Does London need NASDAQ Dubai instead of the London we are London-based and consider a UK-wholly-owned fully fl edged Stock Exchange last year (see IFN ourselves a London bank, the Islamic bank to seal its position in the report in Vol. 11 Issue 8), reportedly to infl uence of the Middle East is Islamic fi nance race? be closer to its shareholders and due very clear to see. That is where the to the greater familiarity of the region investor base is, that is where most No matt er what the current answer, one with Islamic fi nance. of the client base is, that is where the thing is certain: the market is set to see scholars are – that is where most of a signifi cant adjustment in the coming This lack of UK involvement and absence our stakeholders are. So naturally we years. Humphrey Percy, CEO of BLME, of initiative from either the government have a very strong link.” presages this transformation. “Now or domestic stakeholders to launch a that the global economy is recovering, fully-fl edged UK-owned Islamic bank Citing the competitive advantage and as the UK Islamic fi nance industry may seem to contradict its eff orts to that being in London aff ords becomes more established, we do establish itself as a leading Islamic Islamic fi nance players, Irfan also expect to see a gradual increase in UK fi nance player. However, industry highlighted that despite its slow investment in Islamic banks.” – VT participants suggest on the contrary, this start, London is a place naturally

“Infrastructure is one of those things 30-year paper and therefore investors Collaboration not competition which look fantastic on paper,” says are focused on three-seven-year But one of the biggest things the UK Testa. “But Islamic banks can’t do long- papers,” says Irfan. “But I remain very banking sector has going for it is its spirit term funding. Most can’t borrow for optimistic.” of cooperation and support. The boutique more than three months, so how can they Islamic banks may never compete with look at funding 10-25-year projects? Until Sovereign support the huge international banks – but then that asset/liability mismatch is overcome The arrival of the UK sovereign Sukuk again, they may not have to (see IFN it cannot happen.” should result not only in more corporates report, ‘The future lies with boutique coming to market, but in more issuers banks’, p.18). Percy agrees that UK banks “do not yet coming specifi cally to the UK. As the have suffi ciently large balance sheets to demand for Sukuk continues to outstrip “We don’t intend to compete with fund the largest infrastructure projects”. supply, this will act as a catalyst for them, we intend to complement them,” However, he points out that there are growth and we should expect big things. explains Irfan. And within the Islamic ways around this. BLME for example is peer group as well, the atmosphere able to arrange club transactions, which “The new plans for a Sukuk are is collaborative, not competitive. measurably increases its ability to fund especially positive for larger companies EIIB-Rasmala has already acted with larger transactions. that have investment plans in place, BLME on a number of transactions, for with steady cash fl ows att ached to those example. “It works very well for both “There would need to be a fundamental investments,” explains Choudhury. of us,” says Irfan. “It is very important change either in the mindset, or in the for players of our size to work together investor base if you want to sell long- “Once the UK government Sukuk is on larger transactions and pool our term concession-based project Sukuk,” launched, UK corporates will sit up and resources.” thinks Irfan. However, that doesn’t take notice,” agrees Irfan. Initially the big mean it is impossible. The pensions multinationals are likely to start issuing It is clear that despite its current industry and the insurance in the Islamic markets, and then limitations, the UK Islamic banking industry are just starting to eventually the smaller corporates sector has set its sights on long-term take off in the Middle East, and mid-markets will join in over success and is following an integrated, and as they develop they the next couple of years. “I would united and collaborative strategy will need access to long-term not be surprised if this time next year to achieve that. They may not have Shariah compliant assets, for we hear of a FTSE 100 company arrived yet, but the journey is well which project fi nancing could talking about a benchmark sized underway. — LM be perfect. “There has been issuance.” very few issuances of 20-

Malaysia issued 58 corporate Sukuk, FGB to auction US$1.07 billion DEALS worth US$2.6 billion, 33 sovereign and Sukuk Wakalah program in government-related entity Sukuk worth Prasarana Sukuk launched US$9.9 billion from the 1st January to Malaysia MALAYSIA: State-owned public the 28th February, with non-Malaysian GLOBAL: Abu Dhabi-based First Gulf transport operator Syarikat Prasarana jurisdictions issuing Sukuk worth Bank (FGB) plans to issue a Sukuk Negara has launched its dual-tranche US$19.92 billion for the same period. Wakalah program of up to RM3.5 billion RM2 billion (US$610.5 million) Sukuk (US$1.07 billion) in Malaysia. The Murabahah program comprising a Profit payments due debentures will be issued via the bank’s fi ve-year tranche worth RM1.5 billion funding conduit, FGB Sukuk Company (US$457.88 million) and a 10-year tranche MALAYSIA: Profi t payments on 31 stock codes of Tanjung Bin Energy Issuer’s II. The Sukuk is said to be a senior debt worth RM500 million (US$152.63 million) RM4.5 billion (US$1.37 billion) Sukuk issuance with proceeds to be used for in nominal value. Murabahah are due and payable on the the bank’s funding purposes. 17th March 2014. The fi rm is a subsidiary Guaranteed by the government, the fi ve- of independent water and power Speaking exclusively to Islamic Finance year facility received a bid-to-cover ratio producer Malakoff Corporation. news, Lim Yu Cheng, a senior analyst at of 1.14 times while the 10-year tranche RAM Ratings, explained that in light of garnered a 3.55 times bid-to-cover ratio. the global fi nancial crisis, UAE banks The fi ve-year tranche will carry a semi- Alhokair plans Sukuk are now trying to diversify their funding annual profi t rate of 4.08% per year while SAUDI ARABIA: Retailer Fawas bases, weaning off the euro-dollar and the 10-year facility a semi-annual 4.67% Abdulaziz Alhokair Co is reportedly approaching countries such as Malaysia, coupon rate per year. looking to make its foray into the Islamic Thailand and Japan to issue bonds. capital market with a Sukuk off ering in “We’re seeing the trend right now CIMB Investment Bank, Maybank the next fi nancial year. No further details where UAE banks are starting to turn to Investment Bank, Kenanga Investment have been provided. diff erent countries,” said Lim. Bank and RHB Investment Bank are the mandated joint lead managers and joint Indonesia meets Sukuk target The proposed Sukuk program has bookrunners for the deal, with the former been assigned a ‘AAA(s)/Stable’ rating, two also acting as joint lead arrangers. INDONESIA: Following the failure of two of its Sukuk auctions in meeting according to an emailed statement their goals, the Indonesian fi nance from RAM. The rating refl ects FGB’s IDB aiding liquidity ministry has exceeded its IDR18.5 trillion credit strength, as it is the obligor of SAUDI ARABIA: The IDB plans to (US$1.61 billion) target by concluding the proposed Sukuk program. RAM issue short-term securities this year, with IDR19.3 trillion (US$1.68 billion)-worth also assigned ‘AAA/Stable/P1’ fi nancial maturity ranging from 30, 60 and 90 of three-year Sukuk sale to households. institution ratings to FGB. days. The bank also has six and 12-month This record auction is said to have eased Sukuk in the pipeline for 2014, confi rmed supply pressure and reduced borrowing The ratings refl ect the high likelihood Dr Abdul Aziz Al Hinai, IDB’s vice- costs for the government. of government support, given that FGB president of fi nance. is the third-largest bank by assets in the UAE and 64%-owned by members of the Second tranche to be fully Abu Dhabi ruling family. FGB carries an Sukuk issuances lower than redeemed ‘A+’ long-term issuer default rating from 2013 figures MALAYSIA: The RM10 million (US$3.05 Fitch, an ‘A2’ long-term deposit rating GLOBAL: The global Sukuk market million) second tranche of LBS Bina from Moody’s and an ‘A+’ long-term recorded a dip in volume in February Group’s RM135 million (US$41.21 foreign currency rating from Capital 2014 with total Sukuk issuances reaching million) Sukuk Mudarabah Islamic Intelligence. US$9.07 billion, 3.1% lower than the medium-term note program, guaranteed US$9.36 billion issued in the same period by Danajamin Nasional, will be fully FGB reported a net profi t of AED1.37 in 2013 according to a recent report from redeemed and cancelled on the 14th billion (US$372.94 million) for the last KFH Research. March 2014. quarter of 2013, up 19.1% compared to the same period in 2012. The bank recommended a total dividend payout DEAL TRACKER Full Deal Tracker on page 34 of AED3 billion (US$816.66 million), a ISSUER ISSUING SIZE (US$) DATE 20% increase from the previous year. CURRENCY ANNOUNCED According to Andre Sayegh, CEO of Fawas Abdulaziz Alhokair Co TBA TBA 11th March 2014 FGB, the bank expects low double-digit profi t and revenue growth in 2014. It FGB Sukuk Company II US$ 1.07 billion 7th March 2014 aims to reach an 18% return on equity compared to 15.7% in 2013 according to IDB TBA TBA 7th March 2014 Thomson Reuters data. Government of Malaysia RM 912.94 million 26th February 2014 Bumitama Agri RM 152.56 million 25th February 2014 DanaInfra Nasional RM 60.86 million 24th February 2014

of introducing a commodity Murabahah Sumitomo Mitsui Banking AFRICA instrument and that the regulator received an application for a license Corporation commences Kenya’s impending Islamic to operate an Islamic window from an Islamic finance services in finance overhaul established bank in Mauritius at the end Malaysia of last year. KENYA: The Capital Market Authority GLOBAL: Japan-based Sumitomo of Kenya has confi rmed that the separate Mitsui Banking Corporation (SMBC) regulatory framework for Islamic ICD to co-invests in Morroco has successfully commenced Islamic fi nancial institutions is in its fi nal stages MOROCCO: The ICD has signed an fi nance services in Malaysia. According of preparation and will be launched in MoU with Al Ajial Funds through to Takeshi Kunibe, SMBC’s president the coming weeks, reported Reuters. The which the two entities will collaborate and CEO, the services are provided framework, part of a 10-year strategy to in establishing a cooperation framework through its wholly-owned subsidiary, enhance the republic’s capital markets, to co-invest in potential projects within Sumitomo Mitsui Banking Corporation will include the establishment of a single Morocco’s private sectors. Malaysia (SMBCMY). The venture acts national Shariah advisory board and an as a part of the initiatives to strengthen industry lobby group. SMBC’s operations in the Asia Pacifi c region. It seeks to utilize SMBCMY as Attijariwafawa to boost ASIA its key operational base for the whole of Islamic business Islamic banking in Indonesia Southeast Asia. MOROCCO: Att ĳ ariwafa Bank plans INDONESIA: The Indonesian Islamic to boost its Islamic operations, off ered fi nance industry has great potential Having obtained necessary approvals by its Shariah compliant unit, once the because it is being driven by society, from the Malaysian authorities on the th Moroccan parliament passes the Islamic according to Indonesian Islamic Banking 10 February 2014, SMBCMY is the fi nance bill, said the bank’s managing Association member, Imam T Saptono. second subsidiary of SMBC to provide director, Ismail Douiri. He also said that Despite this, however, Islamic banking Islamic fi nance services (the fi rst being seeking a foreign partner for its Islamic has a smaller than expected market Sumitomo Mitsui Banking Corporation subsidiary, although not a top priority, share for a Muslim majority country;at Europe). SMBCMY has procured a could potentially be an option for the approximately 4.86% based on data from license for foreign currency-based bank. September 2013. Islamic fi nance services in the country, where it will provide Shariah compliant Potential revival in private Bank Rakyat’s 145th branch fi nancial services in US dollars and other currencies. equity market MALAYSIA: Islamic cooperative fi nancial institution Bank Rakyat EGYPT: EFG-Hermes, which off ers According to sources, the banking has launched its 145th branch in the Islamic products, has offl oaded its 19% group aims to att ract clients from local Malaysian state of Johor. In conjunction share in jeweller Damas International companies and Japanese fi rms which with the launch, the bank made a Zakat to Qatar’s Mannai Corp (now the sole participate in natural resources and contribution of RM5,000 (US$1,526.26) to owner of the jeweller) for US$150 million, infrastructure development projects. Surau Al-Islah and a few schools in the almost double the US$85 million value SMBC is the fi rst Japanese bank to have Labis area. EFG-Hermes bought the stake for two an Islamic fi nance operational base both years ago. in Europe and Asia. TuranBank continues Islamic The investment bank also projects an finance projects SMBC is a wholly-owned subsidiary increase in private equity sales either AZERBAĲ AN: TuranBank has signed of Sumitomo Mitsui Financial Group through IPOs or strategic acquisitions st a fi nancial agreement with the Islamic (SMFG). As at the 31 December despite the lack of exit routes that has Corporation for the Development of the 2013, on a consolidated basis, SMFG’s been faced by the Egyptian market. Private Sector (ICD) for a fi ve-year US$5 total capital stood at JPY10.13 trillion million fi nancing facility. This accord (US$98.22 billion), while SMBC’s Mauritius trailing behind marks the fi ft h agreement with the ICD total capital stood at JPY10.06 trillion MAURITIUS: Following tension signed by the bank, which is currently (US$97.53 billion). In the nine months st between the central bank and the fi nance working on opening an Islamic window. ended the 31 December 2013, SMFG’s ministry over interest rate levels in gross profi t increased by JPY150.7 Mauritius, the central bank governor Turkey keen to develop billion (US$1.46 billion) year-on-year to JPY2.22 trillion (US$21.31 billion), Rundheersingh Bheenick, in an annual Islamic finance lett er to stakeholders, criticized the with total assets accounted at JPY15.71 country’s “foot-dragging” in developing TURKEY: The head of Borsa Istanbul, trillion (US$152.23 billion). Islamic fi nance which could potentially Ibrahim Turhan, has reaffi rmed the st delay much needed depth, diversifi cation country’s ambition to make Istanbul the For the fi scal year ending the 31 March and risk reduction in the island’s most important Islamic fi nancial center in 2014, SMFG forecasts an ordinary profi t fi nancial system. Western and Eastern Europe, the Middle of JPY1.28 trillion (US$12.4 billion) and East and North Africa. Speaking at a a net income of JPY750 billion (US$7.26 Bheenick also revealed that the central conference organized by the bourse in billion). bank is in the fi nal development stages continued

© 8 12th March 2014 NEWS continued... revealed that there has been interest from Summit Bank to convert into collaboration with the IDB, World Bank Malaysian banks to set up Islamic banks in the area. fully-fledged Islamic bank and the Turkish Central Bank, Ibrahim within three years said that Turkey has issued a total of 18 Sukuk programs worth US$7.2 billion Promotion of Islamic leasing PAKISTAN: Aft er receiving approvals since 2010. recommended from the State Bank of Pakistan (SBP) in January 2014, Summit Bank successfully PAKISTAN: The Union of Small and Islamic financing more launched its fi rst Islamic banking branch Medium Enterprises (UNISAME) in in Karachi on the 7th March 2014. During suitable for Pakistan Pakistan has submitt ed recommendations the inauguration Hussain Lawai, the PAKISTAN: In a meeting with senior regarding SMEs to the government, president and CEO of Summit Bank, offi cials of the State Bank of Pakistan for the forthcoming budget and trade revealed that the bank is underway to recently, Bahrain’s former minister for policies. The recommendations convert its entire operations to become housing, Ebrahim Khalifa Al Khalifa, regarding fi nance cover the promotion fully Shariah compliant over the next has highlighted the highly potential by Pakistan government of Islamic three years. sectors for project fi nancing including fi nancing, in particular leasing, hire energy, health, food, pharmaceutical purchase and commercial property “We have created an Islamic bank within and housing as areas in which the leasing. Summit Bank and plan to transform Pakistani Islamic banking industry has all branches into [an] Islamic mode more suitable solutions as compared Islamic finance to create of banking by the end of 2016,” said to the conventional. He also said that bilateral opportunities Hussain. Following the transformation, in order for the industry to move from the bank is expected to become the GLOBAL: Malaysian prime minister, present Shariah compliant products to second-largest Shariah compliant bank in Najib Razak expressed optimism that fully Shariah-based instruments, further Pakistan in terms of branch network. the relationship between Malaysia research is needed. Ebrahim, who is and the UK will grow stronger in the also the chairman board of trustees for Demonstrating support for the case of Islamic fi nance and open more AAOIFI, urged the Islamic banking transformation, the bank’s investors opportunities for Shariah compliant industry to step up in its eff orts to have injected PKR1 billion (US$9.59 investments. Najib made the statements increase the level of fi nancial penetration million) of fresh equity for its Islamic at the 50th Anniversary Gala of the in the republic. operations. Instead of opening new British-Malaysian Chamber of Commerce branches, Summit Bank’s management in Kuala Lumpur, where he signed a Pushing for online banking team has decided to convert its existing bilateral trade support initiative between conventional banking branches to Islamic MALAYSIA: Bank Negara Malaysia, Malaysia and the United Kingdom operations. The fi rst phase of the plan, the Association of Islamic Banking to encourage more British small and which is expected to materialize this Institutions Malaysia and the Association medium entrepreneurs to export to year, will see the establishment of these of Banks in Malaysia, have jointly Malaysia. branches in four major cities: Karachi, organized roadshows across the nation Lahore, Faisalabad and Islamabad. to encourage the use of online banking BI seeks local primary dealer services among small businesses. INDONESIA: Bank Indonesia, the Hussain further explained that Summit According to the central bank, only republic’s central bank, is hoping to Bank’s Islamic banking business 43% of internet banking subscribers are att ract a local Islamic bank to sign up as account will be structured and operated active online in their conduct of fi nancial a primary dealer for IILM’s short-term based on the Mudarabah principle. In transactions, despite 74% of bank Sukuk, in a bid to address the lack of accordance with the guidelines required account holders having access to internet secondary market trading activity for by the SBP, the bank has appointed banking. BNM, which targets to achieve the facility. Bank Indonesia is one of the Muft i Muhammad Najeeb as its Shariah its online payment goal by 2020, projects IILM’s 10 shareholders. advisor. “We have also initiated some that a successful migration to e-payment orientation programs for the customers to could potentially save the country promote Islamic banking, besides special approximately 1% of GDP every year. Pakistani government staff training for Islamic banking,” committed Hussain added. Great potential in PAKISTAN: Federal minister for fi nance Bangsamoro Mohammad Ishaq Dar has reaffi rmed In pursuit of its aims, the bank has the government’s determination to targeted a 30% growth for its Shariah PHILIPPINES: Dr Saff rullah M further nurture Pakistan’s Islamic fi nance compliant business and is confi dent of its Dipatuan, the chair of the Bangsamoro industry on sound foundations, citing estimations to exceed a 20% growth rate Development Authority board of the establishment of a steering committ ee this year. Hussain also pointed out that directors, has highlighted Bangsamoro on promotion of Islamic banking as an Islamic banking in Pakistan currently as a unique investment destination example of the government’s eff orts. commands a 12% market share of the due to its Muslim population and has Despite consistent strong growth country’s banking sector. Summit Bank urged for the private sector to invest in momentum and a market share of 10%, has been assigned a short term rating of the formerly unrecognized breakaway Ishaq said that Islamic banking has not ‘A-2’ and a medium to long term rating of Filipino state. Dipatuan emphasized reached its full potential considering the ‘A-’ with a stable outlook by local rating the great need of Islamic banking and agency, JCR-VIS. fi nancial services in Bangsamoro and has continued

© 9 12th March 2014 NEWS continued... equipment and related services from DMCC and BCG Partners large unbanked population including Ericsson and Nokia Solutions and Network Branch Operations Oy. collaborate to boost Shariah those from the agricultural and SME compliant commodity sector. Deutsche Bank, Credit Agricole Murabahah trading Corporate and Investment Bank, and UAE: The Dubai Multi Commodity Société Générale were the mandated lead Center (DMCC) and BGC Partners, a arrangers, advised by Allen & Overy. GLOBAL global brokerage fi rm, have entered Affin looks to Islamic banking into a partnership to market a Shariah GFH Tunisian project begins in Indonesia compliant commodity Murabahah GLOBAL: Islamic investment bank Gulf mechanism. It is the fi rst agreement GLOBAL: Affi n Holdings, which is in Finance House (GFH) will resuscitate between the DMCC and an interdealer the process of purchasing holdings of its US$3 billion fi nancial park and real broker to jointly develop commodity Malaysia-based Hwang-DBS including estate development project in north of Murabahah on the DMCC Tradefl ow a 49% stake in the investment bank’s Tunisia’s capital. Suspended for fi ve years Platform. The agreement will facilitate a Islamic fi nance business, has announced due to fi nancial pressures and political much faster and more effi cient method of that it is in talks to purchase a 24% instability in 2011, the project, said to trading this niche product for the trading share in Indonesia’s Bank Panin Syariah. be one of the largest private foreign community. Analysts have predicted that Affi n may investment in the North African state, pay less than RM100 million (US$30.53 will commence on the 15th March. Recognized as the largest and fastest million) for the stake in the Indonesian growing free zone in the UAE, the bank. Markaz’ findings DMCC aims to galvanize its position in the international market as a commercial SocGen eyes Gulf projects GLOBAL: Islamic banking assets in center of excellence for companies the GCC account for approximately GLOBAL: French bank Société Générale choosing to operate from Dubai. The 28.7% of global Islamic banking assets DMCC’s eff orts are believed to be in (SocGen) plans to capitalize on the totaling over US$1.5 trillion according to upcoming infrastructure projects in line with the development of Dubai as a anecdotal evidence reported by Kuwait global center of Islamic fi nance. the Middle East by leveraging on its Financial Center (Markaz). According lending capacity and advisory services, to Markaz’ recent summary of its report Commenting on the tie-up, Paul Boots, said Richad Soundardjee, the group on GCC banking, roughly 60% of the chief regional offi ce for the Middle East the director of Tradefl ow at the DMCC, region’s balance sheet can be found is confi dent that the mechanism will of the bank. This marks the potential in conventional banks with Islamic for SocGen, who has in recent times stimulate signifi cant interest from the operations as well as 63% of loans and trading community domestically and announced intentions to enhance its 65% of deposits. The report predicts the presence in the Islamic fi nancial markets, internationally. “With BGC’s premier overall profi tability of GCC banks to global reputation, its relationships with to raise funds in a Shariah compliant grow by 1% in 2014. manner. The bank last August announced top-tier institutions across the world and plans to launch a RM1 billion (US$305.25 its leading electronic trading capabilities, million) Sukuk program in Malaysia. KIPCO upgrades business we believe that commodity Murabahah platform customers will see signifi cant benefi ts in terms of effi ciency and transparency.” GCC to regulate spending GLOBAL: KIPCO Asset Management GLOBAL: GCC governments are has upgraded its IT provision with a “While trading of this product has been predicted to moderate spending in 2014 new business platform and technology in existence for some time, our joint as oil prices slow, according to Martin infrastructure from Islamic banking off ering brings a modernization to the Kohlhase, a vice-president — senior soft ware provider Path Solutions. process, off ering speed, convenience analyst at Moody’s. The rating agency and innovation to the execution of expects expenditure growth to slow and this popular product,” said Charlie fi scal breakevens to converge with actual MIDDLE EAST Sleightholme, the head of commodity prices. Murabahah business at BGC in Dubai. Footballer to promote Islamic Mobily’s twin Islamic banking transaction OMAN: Maisarah Islamic Banking Are you reading GLOBAL: Saudi Arabian Services has named Omani footballer, Ali telecommunications fi rm Mobily has Al Habsi, as its new brand ambassador us on your signed for two Murabahah facilities, to raise awareness of Islamic banking in backed separately by the Finnish Export Oman. Credit Agency (Finnvera) and the iPad / Swedish Exports Credit Guarantee Board CBB see more mergers iPhone? (EKN). The facilities, funded by Finvera BAHRAIN: The Central Bank of (US$280 million) and EKN (US$281 Bahrain (CBB) expects to see more million) respectively, will be used to fund bank consolidation in 2014, according the acquisition of telecommunications continued

© 10 12th March 2014 NEWS continued... bureaucracy and make application Mashreq converts to Rasheed Al Maraj, the central bank processes as simple and time-effi cient as possible. conventional MENA fund into governor, who alluded to possible a Shariah compliant vehicle mergers in the pipeline. Rasheed also said that the central bank was Cash dividend approved at UAE: Mashreq Asset Management encouraging Islamic banks in Bahrain to seventh AGM has announced the conversion of its obtain credit ratings from Fitch, Moody’s, Mashreq Arab Tigers Fund into a Shariah UAE: The Emirates NBD annual general S&P or the Islamic International Rating compliant vehicle. As part of the change, meeting has approved distribution of a Agency, within the next two years, in Mashreq has reformed the investment 25% cash dividend at 25 fi ls (US$0.07) order to enhance transparency within the guidelines while adapting to the per share for the year ending the 31st country’s Islamic banking sector. objectives and policies of the fund; and December 2013. will rename the fund the Mashreq-Al- Islami Arab Tigers Fund. Mubadala see wealth in Meethaq expands branch recovering markets network Following the conversion, the guidelines UAE: Abu Dhabi sovereign investment were adjusted to allow for the fund to OMAN: Meethaq, the Islamic banking fund, Mubadala Development Company, be solely invested in Shariah compliant arm of Bank Muscat, has opened a new plans to focus on the recovering US and stocks. The fund will mainly invest in branch in Ibri. Meethaq is slated to open European markets in 2014 according the S&P Pan Arab Composite Shariah another branch in Ibra, bringing the total to its deputy CEO Waleed Al Muhairi. Index, moving away from its previous number of Meethaq branches to eight. The fund aims to invest in real estate, benchmark, the S&P Pan Arab Composite healthcare, infrastructure and fi nance Large Midcap Index. Subject to the over the next fi ve years. Dana Gas confirms capital approval of its Shariah advisory board, increase the fund may also invest in certain off - benchmark investments. Local issuances in 2014 UAE: Dana Gas has increased its capital OMAN: Oman is not planning on share by AED85.26 million (US$23.21 As part of the conversion, aspects of issuing debt on the international market million), an increase of 85.26 million the fund’s ability to invest in fi nancial in 2014 according to Hamood Sangour ordinary shares as a result of voluntary derivative instruments, stock lending, Al Zadjali, the executive president of conversion notices received between th st repurchase agreements and reverse Oman’s central bank, although the the 16 January and the 31 January repurchase agreements will also be country is planning local debt issues of 2014, amounting to US$17.41 million removed. The Mashreq Arab Tigers Fund OMR300 million (US$777 million) over of convertible Sukuk. Approval by the nd is listed on the Irish Stock Exchange. As the course of the year. authorities was received on the 2 March of 25th February 2014, the fund recorded a 2014. Ordinary shares will be distributed 9.11% year-to-date return. United Arab Bank approves to the relevant convertible Sukuk certifi cate holders as per Abu Dhabi 2013 dividends At the beginning of 2014, Franklin Security Exchange procedures. Templeton suggested that Islamic fund UAE: The annual general assembly of assets were estimated to be between the United Arab Bank has approved Bank Nizwa eases Zakat US$60-70 billion. Still considered to be at a cash dividend of AED149.5 million payment a nascent stage, the industry is currently (US$40.69 million), the equivalent of concentrated with retail investors in OMAN: Islamic fi nancier Bank Nizwa 15% of the bank’s paid up share capital. countries such as Malaysia and Saudi has partnered with the Ministry of Also approved was a scrip dividend of Arabia. With the conversion of the Endowment and Religious Aff airs for the AED149.5 million (US$40.69 million). Mashreq Arab Tigers Fund into a Shariah ease of Zakat transfer for its customers. compliant vehicle, does this mean that Through the partnership, Bank Nizwa’s Both are subject to central bank approval there is increasing demand in the MENA th customers will be able pay Zakat from by the 9 March 2014. If central bank region? approval is not obtained then a lower their accounts into the allocated account of the ministry at Bank Nizwa, with fees distribution of 15.06% of the bank’s paid- This also raises the question of how associated to the account and transaction up capital as cash dividend amounting many non-Shariah compliant funds, waived. to AED150 million (US$40.82 million), currently termed as ‘ethical’, ‘green’ or and 10% of the bank’s paid-up capital ‘socially responsible’, could be converted as bonus shares, amounting to AED99.6 Big year for Saudi equity into being fully Shariah compliant? million (US$27.11 million) will be paid capital market Perhaps the additional cost commonly according to a pre-approved amount by associated with Shariah funds continues SAUDI ARABIA: The volume and the central bank. to be a deterrent for some. value of IPOs in Saudi Arabia this year UAE government inspires is likely to exceed the seven IPOs in 2012 valued at US$1.4 billion, said Yasir Mashreq campaign Al Rumayyan, the CEO of Saudi Fransi UAE: Mashreq, which operates an Capital. Last year, despite a 25.5% Islamic banking unit, has launched increase by the Saudi benchmark stock a new brand campaign called ‘We index, the kingdom saw a decrease in Make Possible’ which aims to reduce continued

continued... information on all Halal companies, fi nancial services to the real estate IPOs — fi ve off ers worth approximately banks, fi nancial institutions, Islamic industry. US$506 million. products and Islamic services in Dubai. This is in line with the government’s Warba Bank launches career Yasir also commented that even initiative to position Dubai as the world portal though more issuers are selling Sukuk, capital for Islamic economy within two KUWAIT: Islamic fi nancier Warba Bank competition for deal advisory roles has cut years. Dubai Exports aims to boost has announced the launch of its career into the fees banks earn to low levels. exports from the emirate by 20% in 2014 through the expansion to new markets, web portal, with the aim of making the according to Saeed Al Awadi, Dubai recruitment process easier and more Home buyers to disclose Exports CEO. effi cient for the bank and those seeking money source employment opportunities. UAE: Dubai Islamic Bank has Islamic financier promotes implemented a policy requiring potential social responsibility KFH-Bahrain rebrands mortgage applicants to reveal the BAHRAIN: Kuwait Finance House — source of income for the money that KUWAIT: Shariah compliant Kuwait Finance House (KFH) has hosted Bahrain has completed a rebranding will be placed as down payment when exercise for its priority banking business purchasing property. This is to ascertain students from the Junior Engineers Academy at its airport branch, to as part of its eff ort to provide its high net that the down payment was not procured worth clients with diff erentiated service. through personal loans or credit cards, inform them about Islamic fi nance, the importance of saving and the saving in line with the directives issued by the NBK’s regional strategy UAE central bank. options available from KFH. The Islamic fi nancier also recently contributed KUWAIT: In his fi rst public statement support for the 30th Unifi ed GCC Traffi c MahalThqa in Dubai as CEO of National Bank of Kuwait Week for the fi ft h consecutive year, in (NBK), Isam Al Sager has affi rmed UAE: A joint venture between Middle collaboration with the Ministry of the that the bank will focus its eff orts on Eastern fi nancial consultants Mondial Interior, as part of the bank’s social GCC countries, taking advantage of and US-based Shariah Capital, known as responsibility program. NBK’s existing franchise and promising MahalThqa, has opened shop in Dubai economic growth of the region. Isam targeting to off er Islamic investment EI’s new product also highlighted NBK’s Islamic banking solutions to the Arabic-speaking business has boosted the group’s population of the Middle East. UAE: Emirates Islamic (EI) has launched a new product, Financing Against Shares, profi tability and balance sheet. aff ording customers who invest in Barwa Bank backs DIMDEX Shariah compliant equities fi nancing of SIB enhances customer 2014 up to 50% of the value of their Shariah service compliant shares portfolio, with profi t QATAR: Shariah compliant Barwa UAE: Sharjah Islamic Bank (SIB) has rates starting at 3.5% fl at per year. The Bank has signed an agreement to act engaged Servion Global Solutions to scheme is available to customers with as gold sponsor for DIMDEX 2014, an design, deploy and maintain a range of a minimum investment of AED200,000 international maritime defense exhibition systems to facilitate the operations of an (US$54,449.6). and conference for the MENA region, upcoming new contact center. which will be held on the 25– 27th March 2014. Ezdan Holding acquires IHG shares GCC internal conflict impacts Islamic finance Board ensure Shariah QATAR: Following its decision to compliance of Meethaq disengage from the real estate sector and QATAR: Following the withdrawal workflow to shift its investments to other areas of the Bahraini, Saudi Arabian and especially in the fi nancial and industry the UAE ambassadors from Qatar last OMAN: The Shariah supervisory board sectors, Ezdan Holding Group has week, the yields on Sukuk issued by for Bank Muscat’s Shariah compliant acquired over 20% of Islamic Holding the government of Qatar and due in arm, Meethaq, has held its fi rst meeting Group (IHG) shares through Qatar January 2023 jumped six bps to 3.27%, of 2014. The board approved the Exchange. compared to the increase of one bps, to balance sheet for the 2013 fi scal year 4.85% for Middle East Sukuk according and discussed new products and new New technology for KFH to JPMorgan Chase indices. The yield on workfl ow processes to ensure Shariah the Ooredoo US$1.25 billion Sukuk rose compliance. KUWAIT: Shariah compliant Kuwait last week by 12bps to 2.68% and the yield Finance House (KFH) has announced on the Qatar Islamic Bank US$750 million Listing of all Islamic services the completion of the upgrade of its Sukuk also rose by 10bps. According to banking system. The bank has upgraded for Dubai Yaser Abushaban, the executive director to the ETHIX Finance solution, which for asset management at Dubai-based UAE: Dubai Exports, an agency of the integrates automatically with the Emirates Investment Bank, the ability Department of Economic Development, fi nancial institution’s salary system, of issuers to make all payments is really has proposed the set-up of an online customer deposit programs and central not aff ected, though the pricing of new Halal index to list all UAE-based Halal data management systems. The bank fi rms. The index will include relevant now off ers integrated Shariah compliant continued

continued... last year to work on the proposition and issuances may be impacted the longer it is to present a fi nal study to the EPF RATINGS this year. this goes on. Sukuk issued in Qatar have Alam Maritim affirmed been less aff ected than conventional MALAYSIA: Marine transportation bonds by the GCC dispute. AMB pushing to sell DAQ investment holding company Alam MALAYSIA: Amanah Mutual (AMB) Maritim Resources has had its ‘A+IS’ and targets to sell between RM400-500 million ‘MARC-2ID/A+ID’ ratings on its RM500 RESULTS (US$122.75-153.44 million)-worth of units million (US$152.63 million) Sukuk Ijarah in Shariah compliant capital-protected medium-term notes program and RM100 Meezan Bank close-ended fund, Dana Aqeel (DAQ). million (US$30.53 million) Murabahah PAKISTAN: Meezan Bank announced CEO Sheila Halim has said that the fi rm commercial papers/medium-term notes a slight increase in post-tax profi t to is confi dent in distributing at least 13% in facility affi rmed by MARC, with a stable PKR3.96 billion (US$37.42 million) in cumulative return based on the success outlook. 2013, from PKR3.51 billion (US$33.17 of the DAQ’s fi rst series, launched in 2010 and matured last May, which yielded a million) the previous year. Bank deposits Negative outlook for Pakistan accrued by 26% to PKR290 billion total cumulative return of 11.98%. DAQ2 (US$2.74 billion) while its fi nancing carries a maturity of three years and will PAKISTAN: Due to continued st portfolio reached PKR128 billion, mature on the 21 April 2017. challenging operating conditions, which marking a 44% growth. The board are likely to push banks’ non-performing recommended a 5% fi nal cash dividend New Shariah compliant listing loans higher to 15-16% by the end of distribution for 2013. this year, coupled with banks’ high and for Lahore Stock Exchange increasing exposure to ‘Caa1/Negatve’- PAKISTAN: The application for formal rated government securities, Moody’s Alkhabeer Capital listing and quotation of the units of the has maintained a negative outlook on SAUDI ARABIA: Saudi-based asset NAFA Islamic Principal Protected Fund- Pakistan’s banking system. The ratings management and investment fi rm, 1, an open-end fund managed by NBP agency however also projects banks Alkhabeer Capital, announced a net Fullerton Asset Management has been to sustain low-cost and stable deposit- income of SAR43.3 million (US$11.54 approved by the Lahore Stock Exchange, funded profi les, partially mitigating these million) for 2013, a 40% increase on with listing on the exchange commencing negative pressures. fi gures for 2012. Total revenues grew on the 6th March 2014. by 17% to SAR125 million (US$33.32 Saudi Arabia upgraded million) and earnings per share rose by ADIB expands investment 40% to SAR0.53 (US$0.14).Total assets SAUDI ARABIA: Fitch has upgraded under management grew by 52% to options Saudi Arabia’s long-term foreign and SAR2.49 billion (US$663.87 million) and UAE: Abu Dhabi Islamic Bank has local currency issuer default ratings to the market value of the fi rm’s investment launched a new wealth management ‘AA’ from ‘AA-’, both ratings come with portfolio rose by 20% to SAR671.5 million off ering allowing customers to acquire a stable outlook. Saudi Arabia’s country (US$179.03 million) providing a net 100% capital-protected notes investing ceiling has been upgraded to ‘AA+’ from income margin of 35%. in smartphone manufacturers including ‘AA’ and the country’s short-term foreign Apple, Lenovo Group, LG Electronics currency issuer default rating has been and Samsung Electronics. affi rmed at ‘F1+’. ASSET TAKAFUL Have you joined the MANAGEMENT leading Islamic finance MetLife receives SAMA i-Vcap to list ETF approval Linked-In Group yet? MALAYSIA: i-Vcap Management will SAUDI ARABIA: The Saudi list its sophomore Shariah compliant Arabian Monetary Agency (SAMA) exchange traded fund, the MyETF MSCI has authorized MetLife AIG ANB Malaysia Islamic Dividend ETF, on Kuala Cooperative Insurance Company to st Lumpur’s stock exchange on the 21 conduct insurance operations in the March. kingdom.

EPF plans Islamic pension Al Madina Takaful fund recommends distribution MALAYSIA: Malaysia’s state pension OMAN: Al Madina Takaful has proposed Come and join fund, the Employees Provident Fund a distribution of 8.33 million free shares thousands of other (EPF), is considering establishing a state- from the share premium or 5% of the backed pension fund in compliance with issued share capital of OMR16.67 million like-minded industry the Shariah, said to be one of the ﬁ rst in (US$43.18 million). The free shares is the world of its kind. EPF engaged EY practitioners now. and legal ﬁ rm Zaid Ibrahim & Co late continued

© 13 12th March 2014 NEWS continued... MOVES date has yet to be confi rmed, subject to equivalent to fi ve shares for every 100 approval by Saudi fi nancial regulators. shares held. Masraf Al Rayan Arab Monetary Fund QATAR: The Masraf Al Rayan board of Reinsurance set to expand in directors has re-elected Dr Hussain Ali SAUDI ARABIA: Former vice-governor the GCC Al Abdulla as the chairman of the bank of the Saudi Arabian Monetary Agency, with Dr Thani Abdurehman Shaheen Abdulrahman Abdullah Al Hamidy, GLOBAL: The 16.8% compound annual Al Kuwari appointed as vice chairman. has been appointed as the director growth rate seen in the GCC market from Manahe Khalid Mohammed Al Hajri, general and board chairman of the Arab 2006-12 has not yet been fully refl ected in Abdullah Ahmed Al Malki Al Jehani, Monetary Fund (AMF), succeeding reinsurance premiums, despite stronger Nasser Mohammed Al Abdullah, Jassim Al Mannai. In addition to his demand for both commercial and Khalaf Sultan Rashi Al Sahiri, Sheikh new role, Abdulrahman will also lead personal lines of insurance, according Nasser Hamad Nasser Al Thani were the Arab Trade Financing Program, to a report by Moody’s. There was a rate among those elected as new board a subsidiary of the AMF, as CEO and soft ening in the 1st January renewal due members with four reserve members chairman. to a lack of extreme losses in the GCC in also elected. An amount of QAR12.9 2013 coupled with the fact that insurers million (US$3.51 million) was approved cede less to reinsurers as local and Jadwa Investment as remuneration for the chairman and regional operators seek to capture more SAUDI ARABIA: Amr Al Jallal has board members for the year ending the of the value chain. st resigned as senior vice-president of 31 December 2013. investment banking at Saudi Fransi Moody’s nonetheless noted that the Capital to join Jadwa Investment, The general assembly approved the GCC insurance market still possesses reported Reuters. board’s recommendation to distribute the opportunity of medium-growth for cash dividends of QAR1.5 (US$0.41) reinsurers. per share, equivalent to 15% of the total GFH Capital paid-up shares of the bank. The general BAHRAIN: GFH Capital, a fully owned Opportunity in Turkey for assembly also approved the transfer subsidiary of Bahrain-based Islamic Takaful to the legal reserves 20% of the 2013 investment bank, Gulf Finance House, net profi t, instead of 10% as specifi ed has appointed Jinesh Patel as senior TURKEY: Takaful has signifi cant in the Masraf Al Rayan ‘s Articles of executive offi cer. Patel was previously development potential in Turkey given Associations. chief fi nancial offi cer of Dubai-based the US$39 billion in Islamic assets held Ammalay Commodities. by the country’s participation banks, which is predicted to grow to US$121 NCB Capital billion by 2018, according to the 2013- SAUDI ARABIA: National Commercial Barwa Bank 2014 Global Islamic Insurance Forecasts Bank has chosen Sarah Al Suhaimi as QATAR: Islamic fi nancier Barwa Bank Report by EY. The report indicates CEO of its Shariah compliant investment has appointed Khalid Yousef Al Subeai however, that the Takaful industry could banking arm, NCB Capital, according to as acting CEO, as part of the bank’s be held back by the small number of local reports. The move will make Sarah, Qatarization program. Khalid was Turkish participation banks, problematic currently the head of asset management previously CEO of The First Investor, pricing of Turkish insurance and the lack and chief investment offi cer at Jadwa Barwa Bank’s wholly-owned investment of regulation relating to Islamic insurance Investment, the fi rst female CEO of banking unit. He replaces Steve Troop, in the country’s insurance law.The lack an investment bank in Saudi Arabia. who will become adviser to the chairman of a developed Islamic capital market by According to local reports Sarah’s start and the board of directors. world standards is the primary obstacle to the spread of Islamic insurance in Turkey according to EY Turkey audit partner Seda Hacıoğlu.

Doha Insurance launches rights issue Maybank and Etiqa has 660 subscribers QATAR: Doha Insurance, which to Islamic Finance news, established Doha Takaful, will oﬀ er new shares to shareholders from the and pays less than US$18.93 per subscription. 17th-31st March as it seeks to almost IFN is for everyone, not just the CEOs double its capital to QAR500 million (US$135.79 million) by raising QAR436.7 million (US$118.6 million). A total of 24.26 million shares will be available Contact us now and see how we can help your entire team for purchase at QAR18 (US$4.89) per Call: +603 2162 7800 or share, a discount from QAR24 (US$6.52) Email: [email protected] on closing date. Shareholders will be allowed to subscribe for nine new shares for every 10 they currently own.

SHARIAH PRONOUNCEMENT

www.daralsharia.com Query:

A customer was granted a Salam ﬁ nance facility by an Islamic bank. In order to guarantee the obligations under the Salam facility, the customer provided post-dated cheques as security in favor of the Islamic bank.

Shariah guidance is sought as to whether it is permissible for the Islamic bank to cash the cheques in case of default by the customer to deliver the goods under the Salam facility.

Pronouncement:

Salam is a ﬁ xed price sale contract where an agreed quantity of described goods or commodities are sold by the seller on a deferred delivery basis against 100% upfront payment by the buyer.

Under a Salam contract, the customer (as seller) gets upfront cash payment — being the full Salam sale price from the Islamic bank — and is obliged to deliver the agreed quantity of described goods or commodity in the future in accordance with an agreed delivery schedule.

It is important to note that unlike Murabahah, the obligation on the customer under the Salam contract is the delivery of agreed quantity of described goods or commodity and not the repayment of a certain amount of money to the Islamic bank.

In order to secure the delivery obligation of the customer under the Salam facility, the Islamic bank can seek suitable collateral, including post-dated security cheques. However in case of failure of the customer to deliver the agreed quantity of described goods or commodity on an agreed date, the default pertains to the delivery obligation of the customer and shall not be considered as a monetary default.

In such a situation, the Islamic bank simply cannot cash the cheque on the due date and appropriate the proceeds towards reducing its Salam exposure on the customer. The Islamic bank shall be required to utilize the proceeds of the cheque to purchase the due and undelivered agreed quantity of described goods or commodity directly from the market or through a broker towards fulﬁ llment of customer’s obligation under the Salam contract. Once the goods have been procured, the Islamic bank shall sell them in the market to realize its investment and return under the Salam facility.

If the proceeds from the security cheques and other collateral (if any) are not adequate to purchase the due and undelivered agreed quantity of described commodity under the Salam facility, the shortfall in the quantity will remain debt on the customer. Nevertheless, if the proceeds from the security cheques and other collateral (if any) are in excess, such excess shall be returned by the Islamic bank to the customer.

Dr Hussain Hamed Hassan Chairman of the DIB Shariah Board, Managing director, Dar Al Sharia Legal & Financial Consultancy, Dubai, UAE

This Fatwa is brought to you exclusively by IFN in collaboration with Dar Al Sharia Legal & Financial Consultancy-Dubai. The Fatwa appearing in this space was obtained by Dar Al Sharia for issues faced by their clients and the documents stated in the Fatwa were developed at Dar Al Sharia. This Fatwa was compiled by Dr Muhiuddin Ghazi

Islamic finance in Germany: Not why, but when

When London decided to step up its likened the real estate fundamentals of While several Halal fi nancial products game in its bid to become the leading Germany to the UK with its clear legal are available in the market through the center for Islamic fi nancial investments structure, transparent market and the DWS Noor Islamic Funds by Deutsche by announcing a sovereign Sukuk, it availability of high quality properties, let Bank Group, Allianz Global Investors set off a spark to the rest of the world on long leases to solid covenants. “The Islamic Fund and the Meridio Islamic — prompting both newcomers and only thing that was holding Germany Fund (liquidated in 2010) as well as familiar faces in the industry to jump back from an international perspective a Shariah fund by Malaysia’s CIMB- on the Sukuk bandwagon. Countries was the euro crisis, with investors more Principal Islamic Asset Management, including Jordan, Tunisia, South Africa worried about the currency depreciating there is currently a lack of instruments and the Philippines have all reaffi rmed than the German economy itself,” for the retail segment. or revealed their intentions to issue explained Churchill. As the eff ects of Islamic debt. However, amid all the the euro crisis begin to wane and with However, come this second half of the hype, another silent yet potentially the European Commission forecasting year this gap will be fi lled by Kuveyt strong player also stands to benefi t from a German GDP growth of up to 2% this Turk Participation Bank. A representative the UK’s ambitions: Germany. year, the real estate market is back in the of the bank based in Frankfurt confi rmed spotlight — to both conventional and to Islamic Finance news that Kuveyt With a Muslim population of approxi- Islamic investors. Turk is anticipating to receive a license mately 4-5 million holding an estimated by the German authorities in September wealth of EUR18-25 billion (US$24.78- “What’s most interesting about Islamic to operate as an Islamic or interest-free 34.42 billion), Germany commands fi nance in Germany at the moment is the bank in the country. considerable potential for Islamic fi nance. appetite of non-German banks to provide Findings from a 2013 roundtable by K&L Shariah compliant fi nance facilities on “There is defi nitely demand for Islamic Gates lends strength to this assessment, German properties, which provides banking products in Germany as we banking on the close proximity between further evidence of the att ractiveness have received considerable inquiries Germany and the UK as well as a series of the country at the moment,” opined not only from Muslims but also from of sectors in the German economy suited Churchill. non-Muslims who are interested in the for Islamic money. Present word on the proposition Shariah compliant fi nancing ground is that there has been increasing It has been reported that Muslims in have to off er,” said the bank offi cial. interest from the Middle East and South- Germany have unusually high savings east Asia in Germany, especially in real rate in comparison to their non-Muslim In comparison to the UK, Germany may estate, and this could translate to Shariah counterparts: 18% or almost double the remain as yet a minor player in terms of compliant investment based on the pref- national average of 10%, which opens its Islamic fi nance ambitions. However, erence of such investors to transact in a up an att ractive market for Islamic retail the establishment of Kuveyt Turk in Halal manner. banking. And according to a 2010 survey, Germany coupled with rising interest 72% of Muslims living in Germany have from the Islamic world could potentially Speaking to Islamic Finance news, Philip said that they are interested in Islamic be a game changer — and one that Churchill, the founder partner of Shariah fi nance suggesting that the demand is should be watched with interest. — VT compliant 90 North Real Estate Partners, also present.

SHARIAH GOVERNANCE, CORPORATE GOVERNANCE & IFSA 20133 19th & 20th March 2014, Kuala Lumpur

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Kenya to establish separate regulatory framework for Islamic finance

The Capital Markets Authority (CMA) market for the eff ective mobilization of with a budget of KES360 billion (US$4 of Kenya recently submitt ed a proposal Islamic funds, the establishment of an billion) a year for the next 10 years. So for a separate regulatory framework appropriate institutional, policy and we are hoping that the move to put the for Islamic fi nance framework to the regulatory framework for the Islamic new framework in place, in order to National Treasury. The purpose of the fi nancial capital market in Kenya, and facilitate Islamic debt structures, will proposed framework is to further the working to enhance the profi le of the att ract additional funding in the form of development of the country’s fl edgling Islamic capital market domestically. Sukuk or real estate investment funds Islamic fi nance industry and increase The proposed timeline anticipates the from the Gulf investors that are looking the appeal of the Kenyan market to introduction of the framework by June for opportunities to invest outside of the international investors. The CMA 2014; however a CMA spokesman has Middle East.” framework is intended as a short-term said that it could be the end of the year measure to facilitate the growth of before the framework is actually in place. In the meantime, as the framework is Kenya’s Islamic capital market prior to under consideration, the CMA has also the National Treasury and the country’s put forward a proposal for a Shariah central bank implementing a more long- We are hoping advisory council, established and term Islamic fi nance policy. appointed by the minister of fi nance to that the oversee the Islamic banking, Takaful According to the 2009 census, Muslims and capital market industry in Kenya. make up 11.1% of the Kenyan population move to put the The proposed Shariah advisory council of 44 million and the CMA has identifi ed would be the apex advisor on Shariah the Islamic capital market as a niche new framework in compliance of the Islamic capital area that the country is keen to explore. markets products and services with Kenya has already begun to explore place will attract representation from academia, industry, retail Islamic banking, with the licensing the country’s council of Imams, as well as of two Islamic banks, Gulf Capital and additional funding nominees from existing Shariah boards First Community Bank; with other banks within the industry. off ering Shariah compliant products in the form of through Islamic windows. In 2009 FCB It is clear that the development of Kenya’s Capital was licensed to off er Islamic Sukuk or real estate Islamic fi nance industry is a key priority asset management, capital market for the country; new developments are products including the country’s fi rst investment funds occurring in the market, with Kenya Re Islamic Collective Investment Scheme, from Gulf confi rming that it will begin providing with Genghis Capital launching its re-Takaful products this year. The Amana Fund, another Islamic collective investors National Treasury has also confi rmed investment scheme last year. that the country plans to approach the IDB for funding and Kenya’s president The proposal the CMA has put forward Currently Islamic capital market Uhuru Kenyatt a chose to att end the third to the National Treasury specifi es activity in Kenya is negligible, but as Arab-Africa Summit in November to strategic objectives that have been Luke Ombara, the manager of policy build and strengthen ties with the Gulf identifi ed as key in the promotion of and market development at the CMA states. All of these point to a positive Islamic fi nance in Kenya, including the explains, this is a situation that the outlook for Kenya’s aim to become a facilitation of Islamic fi nance product and authorities in Kenya hope to change. “We leader in the East African Islamic fi nance service development, creation of a viable have an infrastructure project in place market. — RS

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The future lies with boutique banks

With many of the bigger international transactions. Now that the Islamic talent and conventional banks pulling back has spread into specialist and boutique We are in an from the Islamic fi nance market in fi rms, there is a greater opportunity for recent years to focus on handling those individuals to infl uence the culture ethical industry, their own economic challenges, the that they represent.” As a result, we can stage has been set for a new galaxy of hope for a shift not just in transactions and when it is being stars — the smaller boutique merchant themselves but in the culture and ethics of banks who have quietly taken over the the whole industry. run by a certain type opportunities left behind by the bigger players. And while several major players This is particularly notable in the area of institution it is have now expressed an interest in of innovation, which has long been a returning to the market as the economic buzzword in Islamic fi nance. As the talent very difficult for that cycle once again turns upwards, they base spreads more evenly across countries may fi nd the landscape rather diff erent and capitals, new competition is forming culture to come out the second time around. and new expertise is being leveraged. “I in Islamic finance think the future of Islamic fi nance lies While the withdrawal of the bigger with these smaller institutions,” affi rmed transactions. Now institutions had an undeniable impact another practitioner. “They have a long- on the development of the sector, it term commitment to the industry, and that the Islamic is becoming apparent that this eff ect they are now demonstrating that they are may not have been entirely negative. capable of putt ing together complex and talent has spread A leading Islamic banking practitioner unique transactions.” highlighted to Islamic Finance news that: into specialist and “With the downsizing of operations in A growing number of clients are the big international banks, you are now beginning to be convinced, and att racted boutique firms, beginning to see a lot of this talent fi lter to the boutique players by the advantages into regional and domestic fi rms.” This is that they off er — including a higher and there is a greater strengthening both their abilities and their more personalized standard of service performance, and driving forward the and a long-term relationship that may not opportunity for industry in a new direction by combining be available from the bigger banks that the technical expertise of experienced dip in and out of the industry at will as those individuals to talent with the ambition and innovation of the economic cycle shift s. smaller companies. influence the culture “If I was a client I would be looking very The Islamic fi nance industry has oft en closely at the boutique players, because I that they been criticized as merely replicating know the quality of the individuals who the conventional, and much of this have come from the bigger concerns, and I represent could be construed as a result of the know the amount of att ention and service conventional corporate culture of the that I will get from a smaller player, and expect a continued move towards using major international players. “We are in an that would be very important to me as an smaller boutique merchant banks, ethical industry,” explained the banker, issuer.” especially for Sukuk issuance. This can “and when it is being run by a certain only be a positive trend, as it strengthens type of institution it is very diffi cult for This year, despite the renewed interest the ethical foundations, innovation and that culture to come out in Islamic fi nance from multinationals, we can therefore independence of the industry. — LM

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Trade finance tops the list as an attractive alternative to money markets

As conventional interest rates creep In its recent ‘Islamic Finance Outlook banking and capital markets in the higher, Sukuk yields rebalance and 2014’, KFH Research suggested that region. Peter Sands, its group CEO, the seemingly never-ending bull bond trade fi nancing is one of the key areas confi rmed to the media that: “One of market looks to be drawing to a close, where the industry has not yet made its the critical things we focus is on trade. conventional and Islamic banks alike mark, despite its close ethical fi t with Dubai being an important global trading are seeking alternative low-risk returns Islamic fi nance principles. However, as hub, our operations here are very from new asset classes to diversify Islamic fi nancial institutions focus on important for us and our customers.” outside the traditional fi xed income proactively developing products to meet sphere. And while the conventional the changing needs of global market The asset class is also opening up sector has a far wider range of players, trade fi nance looks set to take beyond the traditional banking players. instruments available, the restrictions off in 2014 to become a fundamental As capital requirements from Basel on where Islamic banks can invest pillar of the Islamic investment industry. III implementation limit the ability of can seriously impact their ability to some banks to participate in deals, the manage capital, driving them to seek “There is a real need for it, and it asset management sector is taking on alternative investment classes. allows us to get the kind of returns that a greater role and analysts predict that we don’t normally get in the money investments in the trade fi nance sector markets. We are very restricted in the from the asset management industry ways we can invest. We can’t buy US could reach US$1 billion within three It is not treasuries or UK gilts. We have a very years. limited number of Sukuk we can buy. So about paper this is an opportunity for us to achieve NBAD Asset Management recently above money market returns in a liquid implemented a new trade fi nance transactions, it is way,” said Irfan. program for its institutional investor about lubricating clients comprising tailored fi nance Last year EIIB-Rasmala launched a solutions with a minimum investment the wheels of global Shariah compliant trade fi nance fund of US$10 million, through which clients domiciled in the Cayman Islands, can access trade fi nance opportunities trade — and Islamic targeting US$100 million with an targeting returns of around 4% per year. att ractive 4% rate of return. “Four banks are well- percent is prett y good at the moment,” According to NBAD’s head of asset confi rmed a Dubai-based banker. “That’s management, Mark Watt s, the fi rm also placed to do that in line with some of the corporate bonds plans to set up a trade fi nance fund we’re seeing in the GCC, and above later this year, domiciled in either the both structurally, sovereign yields.” Cayman Islands, Luxembourg or the UAE. “It’s a great asset class,” said Watt s commercially, and Other players across the Islamic fi nance in a recent interview. “The beauty of it is world are also jumping on board as that you get a good LIBOR-based return, from an ethical the alternative Islamic investment so there’s no fear of interest rate rises space gathers pace.In February of this and losing your money.” perspective year the CEO of Qatar International Islamic Bank, Abdulbasit A Al Shaibei, And although the Islamic trade fi nance Trade fi nance is therefore becoming highlighted the sector as a key target sector is still limited in terms of investor increasingly popular, especially given for growth. “Trade fi nance is one source base, with its size and timeframe the current vacuum in the sector as the that generates a lot of fee income. gearing it predominantly towards bigger suppliers have drawn back due Many government entities now ask sophisticated and institutional investors to credit constraints and trading fi rms international lett ers of credit to be who can aff ord to lock in the big ticket are fi nding it harder to get funding confi rmed by local banks. So, we are deals, the growth in trade fi nance from their traditional partners. This assuming that role now. My team at the funds (rather than direct fi nancing has opened up an opportunity for international department has started opportunities) suggests that gradually Islamic institutions who recognize that building relationship with foreign banks the class will open up to a wider client trade fi nance is intrinsically Shariah that have clients here.” base. — LM compliant. “It is not about paper transactions, it is about lubricating the And along with the smaller Islamic wheels of global trade — and Islamic banks, some of the big boys are banks are well-placed to do that both moving bank into the market. Standard structurally, commercially, and from an Chartered, a major international player ethical perspective,” explained Harris in trade fi nance with signifi cant stakes Irfan, the head of investment banking at in the UAE, this year announced its EIIB-Rasmala, to Islamic Finance news. intention to play a bigger role in Islamic

Islamic funds in Pakistan continue to deliver

Islamic funds in Pakistan have Top 10 Pakistan Islamic funds demonstrated strong performance statistics over the past year. According Rank Fund name Management company Fund January 2014 to data from Eurekahedge, the fi rst six domicile last 12-month returns(%) of the top 10 monthly returns for Asia Pacifi c funds, are funds domiciled in 1 UBL Shariah Stock UBL Fund Managers Pakistan 58 Pakistan. Based on our observations, 2 JS Islamic JS Investments Pakistan 58 Islamic funds in Pakistan have 3 Meezan Tahaff uz Al Meezan Investment Pakistan 50.93 performed consistently well over the Pension — Equity Sub Management past few year. Three Shariah compliant 4 Atlas Pension Islamic Atlas Asset Management Pakistan 45.68 funds domiciled in Pakistan made the Fund — Equity Sub top 10 Islamic funds in 2013 by key performance statistics, according to 5 Atlas Islamic Stock Atlas Asset Management Pakistan 40.85 data from Eurekahedge (see cover story 6 Alfalah GHP Islamic Alfalah GHP Investment Pakistan 19.14 Vol.11 Issue 8). This week, Islamic Management Finance news speaks to two of the 7 Meezan Balanced Al Meezan Investment Pakistan 14.72 industry’s leading fund managers to Management explore the key factors that drive its 8 Al Meezan Mutual Al Meezan Investment Pakistan 14.43 growth. Management 9 Pakistan International Arif Habib Investment Pakistan 12.35 One of the top performing funds in the Element Islamic Asset Management country is the JS Islamic Fund managed Allocation by JS Investments. The fund recorded 10 Meezan Tahaff uz Al Meezan Investment Pakistan 7.5 an annualized return of 15.51% (as Pension — Debt Sub Management per morning star formula). As of the 31st January 2014, the fund’s industry Another top-performing fund is the Pakistani fund managers are of the investment allocation included oil Atlas Pension Islamic Fund (APIF) view that the country possesses robust and gas (19.44%); general industrials (consisting of three sub-funds: equity, potential for the Islamic funds industry. (18.07%); automobile and parts (17.4%); debt and money market) from Atlas “Pakistan’s equity capital markets off er personal goods (8.5%); fi xed line Asset Management. Since its inception value pockets that do meet the pre- telecommunications (8.04%); others in November 2007, the fund recorded requisites of being qualifi ed as ‘foreign (11.79%). the following annualized returns: investors’ delight’ avenues off ering APIF (Equity) — 279.02%; APIF (Debt) far higher returns than asset-classes Commenting on the factors that drive the — 61.14%; APIF (Money Market) — such as commodities, currencies, debt JS Islamic Fund, Dr Ali Akhtar Ali, the 69.92%. Muhammad Abdul Samad, the instruments as well as other emerging chief operating offi cer at JS Investments, chief investment offi cer at Atlas Asset and frontier markets,” said Ali. said: “The fund follows a combination of Management, told Islamic Finance news: smart-beta and a core-satellite approach. “The funds’ Investment Committ ee The improving economic scenario It holds a concentrated portfolio of value evaluates the proposals received from and the political will to move towards bets that aim to signifi cantly out perform in-house research department with cost-eff ective fuels are also expected to the comparable benchmark. The portfolio respect to the overall asset allocation att ract foreign investments. Ali further is a combination of value and growth strategy of the fund prior to making suggested that these factors assisted mid-caps. Venturing into the stocks an investment decision. Other key to rejuvenate business confi dence in earlier in their respective turnaround/ factors that drive fund’s performance the country thereby, continuing the growth phase, enables JS Islamic Fund include strong emphasis on systems bull-run in the equity capital market of to deliver higher returns than peers that and controls, evaluation of att ractive Pakistan. — NA follow passive, benchmark-centric and Shariah compliant scrips/fi xed income market neutral bets.” instrument and market feedback.” Want to join IFN? Islamic Finance news is building its team and is now seeking budding journalists. So if you’d rather write the news than read it…drop us a line.

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The size of the Islamic market: A continued uncertainty

The Islamic fi nance industry has far Table 1: Size estimates of the Islamic fi nance industry surpassed its infant stages. As market participants continue to grow in Source Estimate numbers and performance year by year, EY • To exceed US$1.7 trillion in 2014 (World Islamic Banking global Islamic fi nance assets continue Competitiveness Report 2013-14) to rise. But how big exactly is the Financial Times • US$1.6 trillion in the next three years (3rd July 2013) industry? Industry reports have posted KFH Research • US$2.1 trillion by end of 2014 various confl icting fi gures estimating • “market consensus” US$6.5 trillion by 2020 the actual size of the market. From what we have gathered (as shown in Table 1) Malaysia International • US$1.8 trillion as of December 2013 Islamic Finance Center there seems to be multiple discrepancies in market projections that inevitably inhibit a fi rm assumption of size. Islamic banking windows, as reporting commanding the largest share in separately is not traditionally done or a this consumer-led industry. “Shariah Thus far, market estimates have requirement in many jurisdictions. This sensitivities are most prevalent in this suggested that global Islamic fi nance is the major reason for the discrepancy in segment of the market and continue to assets range from between US$1.6 trillion the actual size of the market.” fuel growth globally,” commented Ashar. to US$2 trillion. In terms of growth rates, KFH Research has calculated that the Ashar suggested that the only defi nitive Based on the double digit growth industry is seeing an approximate 16% method to ascertain a proper estimate witnessed over the past decade, EY’s year-on-year growth. EY on the other of the market size would be to request projection of the size of the market by hand suggests that the market will see a the data specifi cally from each Islamic the end of 2014 is around US$2 trillion. 17.6% annual growth rate over the next bank in each country, many of which Ashar highlighted that new markets four years. According to the Malaysian are unfortunately less than forthcoming especially in Africa and Qatar, Indonesia, International Islamic Finance Center, the in sharing sensitive data of this sort. Saudi Arabia, Malaysia, the UAE and Islamic banking sector is recording year- However: “What is important to note Turkey will continue to fuel the size, with on-year growth of over 19%. What they is not the exact fi gure of the size of the more mature Islamic markets continuing all agree on, however, is that the industry market but rather the fact that this is to look for refi nement in the Islamic has been experiencing double digit no longer a fringe market segment, but banking process. growth rates over the past several years. a major force in the world, one which requires investment to improve the Until Islamic banks and windows are Speaking to Islamic Finance news, Ashar quality and effi ciency of the system,” he willing to share the necessary data with Nazim, a partner at EY’s Global Islamic added. the relevant authorities, the true strength Finance Center, explained: “Banking and size of the Islamic fi nance industry data from some major Islamic countries EY’s current estimation of Islamic fi nance cannot be assessed. — NA is vague, and approximations have to assets globally stand at approximately be made for fi gures when looking at US$1.8 trillion, with the retail sector

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Islamic finance in Indonesia

Indonesia is home to the largest Muslim population in the world, but while its Islamic fi nance sector boasts double digit growth fi gures the acceptance of Islamic fi nance in country – and the role that Indonesia plays in the global Islamic fi nance industry – is not yet refl ective of the promise held by its population statistics. REBECCA SIMMONDS investigates the issues posed by Indonesia’s Islamic fi nance sector.

Regulatory and legal government in extending the provision Shariah compliant transaction structure Act No. 21 regarding Shariah compliant of Islamic fi nance to the country’s micro, in cooperation with the IDB’s private fi nance in Indonesia was enacted in 2008, small, and medium enterprises (MSMEs) sector arm, the Islamic Corporation for providing a comprehensive regulatory which represent 97% of all enterprises in Development of the Private Sector (ICD). framework for Shariah banking in Indonesia. Indonesia. Until the 31st December 2013, Challenges the regulation of Shariah compliant A recent report released by Bank According to World Bank 2011 fi nancial fi nance in Indonesia fell under the Indonesia anticipates slower growth inclusion data, only 20% of the jurisdiction of Bank Indonesia, the of the Islamic fi nance sector in 2014, population over the age of 15 holds an st country’s central bank. As of the 1 at between 19-29% and at the end account at a formal fi nancial institution. January 2014, all functions and duties as of 2013, the government announced Industry experts believe that an issue well as powers of regulation and banking focus on a number of areas including contributing to the slow growth of the supervision, licensing, inspection, strengthening of banking structure to Islamic fi nance institutions is a lack of investigation and consumer protection support development and transformation trust in organized banking on the part of have been transferred by Bank Indonesia of national economy, coordination and the general population. This also extends to the 35 (regional) offi ces of the Otoritas collaboration of microprudence and to the legislative framework for Islamic Jasa Keuangan (Financial Services macroprudence for fi nancial system fi nance in Indonesia, with uncertainty Authority). According to local reports, stability including a review regarding the regarding the issue of taxation of Islamic in 2013 Indonesian regulators submitt ed introduction of a Shariah lender of last structures such as Sukuk remaining a draft law to parliament regarding the resort and a more integrated and massive untested. licensing, market conduct, corporate education and promotion through the governance and consumer protection of implementation of the government’s both Takaful and conventional insurance Shariah Economic Movement. Opportunities fi rms that is predicted to be enacted Indonesia has the largest Muslim in 2015. The proposed legislation will Foreign investment population in the world, with require insurers to create stand alone approximately 88% of Indonesia’s In December 2013, it was announced population of 237 million identifying as entities for their Shariah compliant that Bank of Tokyo-Mitsubishi UFJ business with a minimum capital Muslim. The need for Islamic banking would become the fi rst Japan based services is present, as World Bank requirement of IDR50 billion (US$4.35 bank to take part in providing services million). fi nancial inclusion data shows that in in the Indonesian Islamic fi nancial 2011 around 42% of the population took sector with its participation in a US$50 a loan from family or friends within the Banking and finance million fi nancing deal to Indonesian previous year, compared to 9%, who According to Bank Indonesia fi gures, Astra Sedaya Finance. Other banks took a loan from a fi nancial institution. there are 11 fully-fl edged Islamic banks, involved in the deal alongside Bank There is interest in Asia as a market from 23 Islamic banking units, and 160 Islamic of Tokyo-Mitsubishi UFJ’S Malaysian- Islamic investors — and as the largest rural banks in Indonesia with increased arm include BNP Paribas, CIMB Bank, Muslim market in the world, Indonesia growth in the number of bank offi ces, HSBC Amanah, and Standard Chartered has the opportunity to take advantage despite the slow increase in the number Saadiq. The banks have each committ ed of the increased global interest in Sukuk of Islamic banks, since the establishment to providing US$10 million to Astra and issue its fi rst international dollar- of the country’s fi rst Islamic bank, Sedaya Finance to be used as operating denominated sovereign Sukuk. Bank Muamulat, in 1992. Following the funds, with a tenor of three and a half introduction of the 2008 Shariah banking years. Bank of Tokyo-Mitsubishi UFJ has law, banking assets of Islamic fi nancial also expressed an interest in expanding Outlook institutions have grown at increased its network in South East Asia to The outlook for Islamic fi nance in rates, with growth rate of 38.4% in 2013 Indonesia. Indonesia is positive despite the according to Bank Indonesia fi gures, with growth of the market being slower than total assets amounting to US$22.4 billion. As a major stakeholder of the IDB, the anticipated. With greater emphasis In spite of this, the Islamic banking sector multilaterial institution provides funding on education regarding Shariah accounts for only 4.9% of Indonesia’s to Indonesia and in January 2013 the compliant fi nancing in both the retail banking industry. IDB and Indonesia signed a cooperation and investment spheres and clearer agreement to improve their existing guidelines, regulations and outcomes Other than the government-issued Sukuk cooperation and exchange expertise in a for Islamic investment in Indonesia, the market, Shariah fi nance in Indonesia number of fi elds including establishment sector possesses the elements to become is also prevalent in the microfi nance of a framework to introduce and develop one of the largest in the Islamic fi nance industry with an increased interest by the Hajj Pilgrimage Savings trust using a industry.

The continuing appeal of real estate investment in Islamic finance

One of the most commonly used asset classes in Islamic fi nance, real estate continue to be a popular choice for Islamic investors, with interest in new markets and a return to traditional markets sett ing the stage for an active market in 2014. The size of the market is diffi cult to defi ne given the nature of the asset but the increase in the number of Islamic real estate investment trusts illustrate the continued interest in the asset class. REBECCA SIMMONDS assesses the Islamic fi nance real estate opportunities for the year ahead.

Shariah compliant real estate funds Top fi ve Islamic real estate funds by annualized returns The last six months has seen an increase Fund Rank Management Fund Annualized in the number of Islamic real estate company domicile return(%) investment trusts on the market, with last year witnessing the establishment Oasis Crescent Balanced High 1 Oasis Crescent South Africa 11.53 of Shariah compliant global real estate Equity Fund of Funds Management Company fund, the Basil Property Trust, managed by Malaysia-based Pelaburan MARA Oasis Crescent Balanced Stable 2 Oasis Crescent South Africa 9.02 and Singapore-based AEP Investment Fund of Funds Management Company Management. The managers of the fund, which is domiciled in Singapore, but Al Dar Real Estate Fund 3 ADAM Kuwait 6.12 looking to markets such as Australia, Markaz Real Estate Fund 4 Kuwait Financial Kuwait 5.64 Malaysia and Europe, aim to raise Centre US$200 million in equity by the end of Emirates Global Sukuk Fund 5 Emirates NBD Asset Jersey 5.34 2014 and plan to eventually list the fund Limited US$ Institutional Share Management as a real estate investment trust (REIT). Class (Acc) Source: Eurekahedge In February this year, Al Hadarah Boustead REIT, the fi rst plantation-based according to industry players, whilst growth with potential for investment for Islamic REIT in Malaysia confi rmed its the opportunities in the UK are still to Islamic investors interested in the rental privatization exercise, delisting from be found in offi ce space, residential care market. Following the introduction of Bursa Malaysia, the Kuala Lumpur stock homes and university accommodation. Saudi Arabia’s real estate laws last year, exchange following a drop in interest Some elements of the UK retail sector the sector is predicted to grow, with from investors. At the start of March, Al are also still ripe for investment. The US Islamic investors showing interest in Salam Bank — Bahrain launched the Al- as a destination market is also seeing residential opportunities in the kingdom, Salam Asia REIT fund, as the fi rst Shariah a resurgence in popularity despite the as well as development projects across compliant Asian real estate investment diffi culties posed by the distance and the breadth of the Arab Spring countries, trust. The bank will be the sponsor the time diff erence for Middle Eastern with standout cities such as Cairo and and seed investor of the fund, which investors, with the offi ce sector and Tunis, and the Iraqi real estate market, will be managed by Zurich-based B&I development of multi-family residential all being tapped as targets for Islamic Capital. March is also expected to see the accommodation providing opportunities real estate investment. Regional stability listing of Libya’s fi rst Islamic real estate for investment. and regulatory implementation remain investment fund on the Libyan stock challenges that will need to be met. exchange, according to industry reports. Investors are also showing interest in the opportunities available in the Middle Outlook Challenges and opportunities East and Asia, with the UAE and Qatar The outlook for real estate as an Traditional markets for Islamic att racting a lot of att ention due to their Islamic fi nance asset class continues investment in property, like the UK, are infrastructure plans ahead of Expo to be positive, as investors show an seeing renewed interest from investors 2020 and the FIFA World Cup 2022 increased appetite for risk in investment from the Middle East. Experienced respectively. The residential property and become more confi dent in the investors are looking to UK cities such as market in Dubai has seen a hike in prices, opportunities available in the form of Manchester or Edinburgh and showing almost approaching the levels seen new markets and types of real estate. an interest in investing in development prior to the crash of 2008, with the IMF The willingness of investors to extend opportunities. There has been an increase cautioning UAE authorities to be wary their scope beyond traditional and highly in interest in real estate in Europe among of a property bubble. UAE authorities competitive markets such as the UK and Islamic investors keen to gain euro have introduced restrictions regarding look towards investment in alternative exposure, with Germany becoming a the purchase of property with a limit real estate asset classes, in order to be more popular destination for investment on mortgages for individuals and 100% able to deploy their capital and make and the Spanish property market also land payment and 20% construction astute investments, bodes well for the generating a certain amount of interest. guarantee as collateral for developers. continued success of the real estate Logistics and warehousing is an area that In Abu Dhabi and Oman, the real estate market within Islamic fi nance. off ers a lot of opportunity in Germany sector is experiencing double digit

World’s first Basel III Tier 2 Sukuk: AmIslamic Bank

Right on schedule, AmIslamic provided through the commodity RM200 Million (US$61.15 Million) successfully auctioned its RM200 trading platform, Bursa Suq Al-Sila’. Basel III- compliant Tier 2 million (US$61.15 million) Sukuk Subordinated Sukuk Murabahah Murabahah issuance on the 28th “Murabahah was chosen for its February 2014. Mohd Eff endi underlying asset effi ciency which Abdullah, the director and head of leverages on Bursa Suq Al-Sila’s Islamic markets at AmIslamic, in mid- commodity and investor-familiarity February confi rmed to Islamic Finance on the structure,” he explained. news that the issuance would be made Additionally, Murabahah is also one 28th February 2014 within the fi rst quarter of the year (see of the principles provided under the Vol.11 Issue 7). AmIslamic has indeed Capital Adequacy Framework for delivered on its promise. Islamic Banks (Capital Components) Issuer AmIslamic Bank issued by Bank Negara Malaysia to The Sukuk is part of AmIslamic’s 30- structure Tier 2 capital instruments. Issuance amount RM200 million year subordinated Sukuk Murabahah (US$61.15 million) program of up to RM3 billion Commenting on the challenges faced Purpose of For AmIslamic’s (US$917.26 million). This particular in structuring the Sukuk, Eff endi issuance working capital, general banking purposes issuance holds a tenor of 10 years pointed out: “Incorporating the and refi nancing its (callable at the end of a fi ve-year required characteristics of Basel-III outstanding capital period), at a semi-annual profi t rate of capital instruments was a real challenge instruments, all of 5.07% per annum. Proceeds from the especially in ensuring that Shariah which shall be Shariah issuance will be used for the bank’s principles were met at the same time. compliant working capital, general banking It required close cooperation between Trustee Malaysian Trustees purposes and the refi nancing of its the principal adviser — AmInvestment Tenor 10 years, callable at the outstanding capital instruments, all of Bank — and the joint Shariah advisers, end of year fi ve which will be Shariah compliant. The together with the regulators, namely Profi t 5.07% per annum 30-year program provides AmIslamic Bank Negara Malaysia and the greater fl exibility to issue Sukuk of Securities Commission.” Profi t payment Semi-annual varying tenures on a “need to” basis Currency Malaysian ringgit from time to time. In compliance with Basel III, a th highlight of the Sukuk structure is the Maturity date 28 February 2024 provisions governing the issuance of the Sole principal AmInvestment Bank Murabahah Subordinated Sukuk Murabahah which adviser, lead requires for the Sukuk to have a loss- arranger and lead was chosen for absorbency mechanism at the point of manager its underlying non-viability, whereby upon occurrence Governing law Malaysia of a trigger event, the subordinated Legal advisor(s)/ Adnan Sundra & Low asset efficiency Sukuk Murabahah will be writt en off in counsel full. Listing Not listed. The Subordinated Sukuk which leverages on Assigned an ‘AA3’ rating by RAM, Murabahah may be Bursa Suq Al-Sila’s the rating action is one notch below listed on Bursa Malaysia AmIslamic’s long-term fi nancial Securities Berhad under commodity and institution rating, which refl ects its the Exempt Regime lower ranking in the priority of claims Identifi ed assets Shariah compliant commodities which upon bankruptcy or liquidation, relative investor-familiarity are provided through to senior unsecured creditors. the commodity trading on the platform, Bursa Suq AmIslamic has two other existing Al-Sila’ structure Sukuk programs: a RM2 billion Rating AA3 (RAM Ratings) (US$611.51 million) subordinated Joint Shariah AmInvestment Bank Sukuk Musharakah program launched advisors (backed by AmIslamic in 2011 which will be gradually Bank Shariah In a follow up interview, Eff endi redeemed as it does not meet capital Committ ee) and Amanie revealed the engineering of this instrument criterions under Basel III; Advisors historical issuance. The Sukuk was and a RM3 billion (US$917.26 million) Structure Murabahah (via a structured according to the Murabahah senior Sukuk Musharakah program, Tawarruq arrangement). principle through a Tawarruq a senior debt instrument issued by Tradability Yes arrangement. Assets backing the Sukuk AmIslamic. — NA Investor Domestic investors are Shariah compliant commodities breakdown

Shariah compliant index for the Dhaka IFN Country Correspondents BAHRAIN: Dr Hatim El-Tahir director of Islamic Finance Knowledge Center, Deloitt e & Stock Exchange Touche BANGLADESH: Md Shamsuzzaman executive vice president, Islami Bank Bangladesh BANGLADESH used to make their transaction of shares BELGIUM: Prof Laurent Marliere CEO, ISFIN parallel with non-Islamic stock and this BERMUDA: Belaid A Jheengoor By M Shamsuzzaman director of asset management, PwC had a discouraging eff ect on the capital BRUNEI: James Chiew Siew Hua market. To add to this, many Islamic senior partner, Abrahams Davidson & Co The Dhaka Stock Exchange (DSE) CANADA: Jeff rey S Graham funds did not have any guiding Shariah partner, Borden Ladner Gervais launched its fi rst Shariah compliant boards to supervise their activities, EGYPT: Dr Walid Hegazy index (the DSES) in January this year managing partner, Hegazy & Associates which put investors into doubt about FRANCE: Kader Merbouh as an investment tool to institutions co head of the executive master of the Islamic fi nance, Paris- their dividends. Policyholders hope Dauphine University who deploy fund in the capital market. to entice fund managers and investors HONG KONG & CHINA: Anthony Chan DSE collaborated with S&P Dow Jones founder, New Line Capital Investment Limited to participate in the DSES from now INDIA: H Jayesh indices in designing the methodologies founder partner, Juris Corp onward. INDONESIA: Farouk A Alwyni for the DSES. The index will serve CEO of Alwyni International Capital and the chairman of Centre for Islamic Studies in Finance Economics and as a Shariah compliant broad market Companies engaged in non-Shariah Development benchmark. Prior to this announcement IRAN: Majid Pireh compliant activities including non- Islamic fi nance expert, Securities & Exchange Organization the premier bourse sat with Islamic Islamic fi nancial institutions are ineligible of Iran IRAQ: Khaled Saqqaf fi nancial institutions including banks for listing under DSES. Organizations partner and head of Jordan & Iraq offi ces, Al Tamimi & Co and non-banks, insurance companies JAPAN: Serdar A Basara earning revenue exceeding 5% from president, Japan Islamic Finance and asset management fi rms working in JORDAN: Khaled Saqqaf non-Shariah compliant activities will also partner, Al Tamimi & Co the equity market for a couple of years be excluded from this index. Companies KOREA: Yong-Jae Chang comfortably with successful operations. partner, Lee & Ko engaged in advertising and media news KUWAIT: Alex Saleh One of DSE’s aims is to meet the or sports channels, newspapers, alcohol, partner, Al Tamimi & Co LEBANON: Johnny El Hachem requirements of Islamic fund investors. cloning, tobacco, gambling and trading partner – corporate, Bin Shabib & Associates LUXEMBOURG: Said Qaceme of gold and silver are not allowed to be senior manager of Advisory & Consulting, Deloitt e Tax & It had been a long-standing controversy added to the index. Only companies Consulting MALDIVES: Aishath Muneeza among small and medium investors as incorporated, managed and operated in deputy minister, Ministry of Islamic Aff airs, Maldives to whether capital market investment MALTA: Reuben Butt igieg a fully Shariah compliant manner, with president, Malta Institute of Management is allowed in Islam, the religion of the a Shariah supervisory board, are eligible MAURITIUS: Sameer K Tegally associate, Conyers Dill & Pearman vast majority of people in Bangladesh. for listing under the DSES. MOROCCO: Ahmed Tahiri Jouti senior consultant, Al Maali Islamic Finance Training and Whilst there is no restriction in Islam Consultancy relating to investment in companies in Until now some 70 listed companies are NEW ZEALAND: Dr Mustafa Farouk counsel member for Islamic fi nancial institutions, The expectation of a profi t return, trading in under the DSES. An investor, individual Federation of Islamic Associations of New Zealand (FIANZ) NIGERIA: Auwalu Ado futures speculating on the prospective or institution, will have to pay fees to Shariah auditor, Jaiz Bank value of a share (irrespective of the know the companies under the index OMAN: Riza Ismail senior associate, Trowers & Hamlins assets and turnover of a company) are but sensitive information disclosure is PAKISTAN: Muhammad Shoaib Ibrahim managing director & CEO, First Habib Modaraba not permissible; hence making the stock restricted by DSE for market discipline. PHILIPPINES: Rafael A Morales market largely a no-go area for Muslims. managing partner, SyCip Salazar Hernandez & Gatmaitan QATAR:Amjad Hussain Md Shamsuzzaman is the executive vice- partner, K&L Gates RUSSIA: Roustam Vakhitov With the inception of Islamic fi nancing in president of Islami Bank Bangladesh. He can managing partner, International Tax Associates the early 1980s, companies listed on DSE be contacted at [email protected]. SAUDI ARABIA: Nabil Issa partner, King & Spalding SENEGAL: Abdoulaye Mbow Islamic fi nance advisor, Africa Islamic Finance Corporation SOUTH AFRICA: Amman Muhammad CEO, First National Bank-Islamic Finance SINGAPORE: Yeo Wico partner, Allen & Gledhill SRI LANKA: Roshan Madewala director/CEO, Research Intelligence Unit SWITZERLAND: Khadra Abdullahi associate, Investment banking, Faisal Private Bank SYRIA: Gabriel Oussi, general manager, Oussi Law Firm TANZANIA: Khalfan Abdullahi head of product development and Shariah compliance, Amana Bank THAILAND: Shah Fahad Are there more than one of you in vice-president and head of strategic marketing and product development, Islamic Bank of Thailand TURKEY: Ali Ceylan your company involved in Islamic partner, Baspinar & Partners UK: Roshan Madewala Finance? CEO and director, Research Intelligence Unit UAE: Rima Mrad partner, Bin Shabib & Associates US: Joshua Brockwell investment communications director, Azzad Asset Management Join our company-wide YEMEN: Moneer Saif head of Islamic banking, CAC Bank IFN Correspondents are experts in their respective fi elds subscription today and are selected by Islamic Finance news to contribute designated short country reports. For more information about becoming an IFN Correspondent please contact www.IslamicFinanceNews.com [email protected]

Margin trading in the Iranian Islamic capital market

IRAN of these issues relates to the interest stocks listed in Tehran Stock Exchange rate. The other case relates to risks for (TSE) and two markets in Farabourse By Majid Pireh leveraging from Islamic viewpoint. company. Margin trading could simply be The Shariah Board of the Securities Moreover, the SEO currently has defi ned as a mechanism that provides and Exchange Organization (SEO) introduced 1.1 as the margin call level in more trade power for a brokerage in Iran, aft er discussing the topic in margin trading structure. fi rm's clients. In this method, the eight sessions, fi nally approved the brokerage fi rm provides for its clients model with fundamental corrections In other words, if value of margined some facilities that leverages securities purchase power. On the other aspect, it and revisions. The Shariah board shares comes to less than 1.1 times is a linkage between the capital market emphasized that there should be two than the face value of debt, then the and the banking sector in which separate legal relations between the brokerage fi rm shall ask the client to many brokerage fi rms look at banking bank and brokerage fi rm from one deposit more in the margin account. resources for providing some loans to side and the brokerage fi rm with If the client does not follow margin their clients. its client from the other side. The call command, then the broker has the board concluded that the facility to authority to sell the margined securities Additionally, the margined securities the brokerage fi rm shall be a case of in the market in order to receive its own typically shall be collateral for the Musharakah contract and the relation money. client's debt to the brokerage fi rm. between brokerage and its client shall be For example, for a trade that needs Murabahah. Additionally, the SEO has ratifi ed that US$1,000, the client may bring US$400 only fi rst and second grade brokerage and the brokerage fi rm US$600 and The Iranian capital market aft er the fi rms in the Iranian capital market aft er the deal, the securities shall be Shariah board introduced a model shall have the authority to give its collateralized for the client's debt. In for margin compliance with Shariah own client credit to at most fi ve times conventional fi nance, brokerage fi rms rules and regulation, reconsidered the of the shareholders equities in the look for some interest for the loan they issue and restructured the model for company balance sheet. For lower grade provide. application in the market. The only brokerage fi rms this level is restricted to important thing that should be solved only 10% of the company shareholders Margin trading is a useful technique in the market is tax issues for the case equities. that in many cases increases liquidity of two sales in the margin trading in many stock exchanges. But, as it structure (i.e. the securities sale at Majid Pireh is an Islamic fi nance expert is clear, many Islamic-related issues one level and Murabahah sale in the at Iran’s Securities and Exchange arise to ensure the method complies second level); nevertheless, the SEO has Organization. He can be contacted at with Islamic principles for trades. One limited marginable securities to only [email protected]. Turkish financial markets struggle amid political power fray

TURKEY or cancel their prospective investment investments and extending the maturity projects in Turkey. of existing loans. Kiler Holding’s chief By Ali Ceylan fi nancial offi cer, Kaan Aytogu, stated As a result of the political tension and that Sukuk issuance will be based on the Turkish markets have been threatened rising investor concern, the Central Bank Istanbul Sapphire Tower’s sale and rental by the political power struggle between of Turkey recently increased all interest income. prime minister Recep Tayyip Erdogan rates. Finance minister Mehmet Simsek and infl uential Muslim leader Fett ullah said that this move by the central bank In early February Kiler Holding’s Gulen since the fraud probe initiated has signifi cantly dispelled investors’ subsidiary, Turkish food retailer Kiler th on the 17 December 2013 against the concerns. He also added that the interest Alisveris, signed a US$120 million four- government offi cials. Both parties blame rate increase stemmed a currency sell-off year loan deal, which included a Shariah each other for corruption and creating and anchor infl ation expectations. compliant borrowing component, with a parallel state within the government Bank of America, Merrill Lynch and bodies. Furthermore, the upcoming However, although the political situation banks from the Gulf region. Additionally, local elections that will take place on is intense, Islamic fi nance investments another real investment trust, Is GYO, the 30th March 2014 have raised the are still taking place in Turkey. Turkish also announced that it has decided to political tension and negatively aff ected real estate investment trust Kiler GYO issue up to US$91 million in bonds or the fi nancial sector. announced that it is planning to issue a similar debt instruments to qualifi ed fi ve-year Sukuk worth at least US$100 investors on the domestic market. It is understandable that foreign investors million within the second half of 2014. are wary, and trying to understand Kiler GYO is in contact with the banks Ali Ceylan is a partner at Baspinar & the situation going on in Turkey. If the from Saudi Arabia and Qatar with Partners Law Firm. He can be contacted at instability continues it may be expected regards to buying the Sukuk certifi cates. [email protected]. that a number of the investors will hold This issuance will be used for new

Islamic finance and socially responsible investing

US denominations of Christianity. But forward. They cited academic research more generally, religion from its very demonstrating that companies with good By Joshua Brockwell beginning has been an important catalyst corporate policies oft en make sound for social reform, oft en taking on vested investments. And they went on to say Aimed to demystify the sometimes economic and fi nancial practices that that by excluding companies that expose misunderstood concept of Islamic exploited the underprivileged. That themselves to social and environmental fi nance and investing as well as explore was the focus of comments made by risks, investors can contribute to their the interplay between Islamic fi nance the Azzad representative, who also overall investment success without and socially responsible investing, on compromising their values. the 25th February a group of government presented the way in which his fi rm offi cials, academics, professionals, applies the principles of Islamic fi nance and students were brought together to mutual fund management. In 2010, SRI growth in America at an event titled ‘Islamic Finance and Azzad Asset Management launched the Over the past few decades, SRI investing Socially Responsible Investing (SRI): Azzad Wise Capital Fund, the Shariah has grown faster than the broader What we can learn from each other’, in compliant equivalent of a conventional universe of professionally managed Rome Auditorium at the Washington, short-term bond fund. The fund, which investments in the US. According to data DC campus of Johns Hopkins invests primarily in Islamic bank compiled by the Forum for Sustainable University’s School of Advanced deposits and Sukuk, is the fi rst Islamic, and Responsible Investment and outlined International Studies. socially responsible fi xed-income mutual during the panel discussion, between fund in the US. 1995 and 2012, professional SRI-managed A panelist prevailed upon the organizers assets increased 486%, while total assets to change the second part of the title to Besides Azzad Asset Management, other under professional management grew ‘An Evening of Dialogue and Learning’ panelists included representatives from at a more modest, though notable, rate since Islamic fi nance is already part and the University of Maryland — College of 376%. SRI assets currently represent parcel of SRI investing. He said faith- Park and Progressive Asset Management, 11.3% of the US$33.3 trillion in total based investing of many varieties has a Washington, DC-based socially assets under management tracked by always been a part of the movement responsible fi nancial services fi rm. Thomson Reuters Nelson. as it speaks to the important and long- standing tradition of social justice. Those speakers took on the thorny issue Joshua Brockwell is the investment of the performance of SRI strategies communications director at Azzad Asset Modern SRI investing in the US traces and what sort of return investors might Management. He can be contacted at joshua@ its roots to the Quaker and Methodist expect from SRI investments going azzad.net.

An Englishman’s home is his castle IFN Sector Correspondents ASSET MANAGEMENT Sean Daykin, head of investment funds, Emirates NBD REAL ESTATE Islamic investors and Islamic banks to Asset Management provide the investment than there was a CROSS-BORDER FINANCING: By Philip Churchill Fara Mohammad, senior lawyer and consultant in Islamic year ago. However, the Islamic fi nance fi nance industry is not the only one to spot this Twelve months ago I visited the DEBT CAPITAL MARKETS: opportunity, with intense competition to Muhammad Shoaib Ibrahim, managing director & CEO, viewing deck of Qatari Diar’s Shard, First Habib Modaraba secure the best opportunities. Europe’s tallest building, and reported DERIVATIVES ISDA how the skyline was changing thanks to investment from our Qatari LAW (MIDDLE EAST) There is Bishr Shiblaq, head of Dubai offi ce, Arendt & and Malaysian friends. Two pieces Medernach of residential research this week LEASING: even more Professor Dr Shahinaz Rashad, chairperson & CEO, reminded me of this. Egyptian Leasing Association MERGERS & ACQUISITIONS interest from both Jamal Hĳ res, CEO, Cappinova Investment Bank The fi rst was Knight Frank’s Prime MICROFINANCE (ASIA): Central London Sales Index, which Islamic investors Dr Mahmood Ahmed, executive vice president and reported strong value growth over the director training, Islami Bank Training and Research last 12 months, particularly with 12.8% and Islamic banks Academy MICROFINANCE (AFRICA): value growth in the sub-GBP2 million Mansour Ndiaye, director of microfi nance, Assistance and (US$3.34 million) market. Pushing these to provide the Consulting for Development values is a lack of supply, with Knight PRIVATE BANKING & WEALTH MANAGEMENT Khadra Abdullahi, associate, investment banking, Faisal Frank reporting a 21% fall in stock. investment than Private Bank PRIVATE EQUITY & VENTURE CAPITAL: The second was from the British there was a year ago. Arshad Ahmed, partner, Elixir Capital Property Federation, which sought to REAL ESTATE (EUROPE) address the commonly-held belief that However, the Islamic Philip Churchill, founder partner, 90 North Real Estate Partners the rising property values are being REAL ESTATE (MIDDLE EAST): solely driven by overseas purchasers, finance industry Yahya Abdulla, head of capital markets — Middle East, to the detriment of Englishmen looking Cushman & Wakefi eld for castles of their own. They concluded is not the only one REGULATORY ISSUES (ASIA) Intan Syah Ichsan , chief operating offi cer, Samuel Aset that overseas buyers accounted for 49% to spot this Manajemen of the Prime Central London market, a REGULATORY ISSUES (MIDDLE EAST): reassuring fi gure to my eye that there Mohammad Abdullah Malik Dewaya, head of Shariah opportunity compliance and audit, Maisarah Islamic Banking Services is still a high level of wealth among RETAIL BANKING: UK citizens and healthy diversifi cation Ris Rizqullah, lecturer, Trisakti University when marketing new developments. Perhaps it is the disappointment among RISK MANAGEMENT: The percentage of overseas buyers Hylmun Izhar, economist, Islamic Research and Training some investors not able to deploy their Institute, Islamic Development Bank Country fell to 20% for Inner London and 7% capital that is encouraging them to look for Outer London, with the report SECURITIES & SECURITIZATION: further afi eld. I have now witnessed the Nidhi Bothra, executive vice president, Vinod Kothari reaching a familiar conclusion that: Consultants fi rst glimmers of interest among Shariah “Undersupply is the greatest barrier to STOCK BROKING & TRADING: compliant investors to consider perhaps housing availability and aff ordability in Athif Shukri, research analyst, Adl Capital the wider South-East of England or one London.” SUKUK of the UK’s larger cities. Marco Mauri, senior director of asset management, Alkhair Capital Saudi Arabia Over the last 12 months, the Islamic TAKAFUL (UAE) Whilst an Englishman’s home will fi nance industry has continued to both Rima Mrad, Partner, Bin Shabib & Associates forever remain his castle, they are recognize this opportunity and do its TAKAFUL & RE-TAKAFUL: increasingly being fi nanced from Dr Sutan Emir Hidayat, senior lecturer, University College bit to increase supply. To date this has overseas. of Bahrain been almost exclusively in the Prime TREASURY PRODUCTS: Central London market, including Nafi th ALHersh Nazzal, certifi ed fi nancial & investment Philip Churchill is the founder partner of advisor our own 90 North with more than 90 North Real Estate Partners. He can be IFN Correspondents are experts in their respective fi elds GBP150 million (US$250.8 million) of and are selected by Islamic Finance news to contribute contacted at [email protected]. designated short sector reports. For more information developments underway. Meanwhile about becoming an IFN Correspondent, please contact there is even more interest from both [email protected]

The Indonesian Financial Service Authority (FSA): A new hope to boost the performance of Islamic finance

The 3rd December 2013 marked the last day that the supervision of banks (including Islamic banks) in Indonesia remained under the central bank, Bank Indonesia (BI). Eff ective from the 2nd January 2014, banks and other fi nancial institutions are now supervized and regulated under a new institution, the Financial Service Authority (FSA). DR SUTAN EMIR HIDAYAT and DR RADITYA SUKMANA discuss the implications of this move for the Islamic fi nance industry in the country.

The discussion to establish the FSA has Table 1: Profi le of Indonesian MSMEs in 2010 been underway for almost a decade, as the need for the new institution was No Indicator Unit 2010 debated. Among the issues was whether Numbers of units Unit Numbers Share the FSA would be truly eff ective 1 MSMEs Unit 53.82 million 99.99 given that all its intended functions were already conducted by various 2 Micro Unit 53.20 million 98.85 institutions. 3 Small Unit 573,601 1.07 4 Medium Unit 42,631 0.08 Another issue at that time was the fi nancing or funding to establish FSA as an establishment requiring new human Number of labor Person (unit) Numbers Share resources as well as offi ce buildings in 1 MSMEs Person 99,401,775 97.22 the capital, Jakarta, as well as in various 2 Micro Person 93,014,759 90.98 other locations all over Indonesia. Certainly, a signifi cant government 3 Small Person 3,627,164 3.55 budget had to be allocated at the initial 4 Medium Person 2,759,852 2.7 stage. Later, when the FSA had already started its operations, it had to fi nd its Contribution to GDP IDR billion (unit) Numbers Share own fi nancial sources through various means such as membership fees charged 1 MSMEs IDR billion 3.46 million 57.12 to its members (which are fi nancial 2 Micro IDR billion 2.05 million 33.81 institutions such as banks and insurance 3 Small IDR billion 597,770.2 9.85 companies). 4 Medium IDR billion 826,745.1 13.46 Another reason for the postponement Source: Ministry of Cooperation www.depkop.go.id, retrieved February 2012 was due to the unreadiness of the banks. At the beginning of the 21st of various regulators raised questions Islamic bank, the central bank would not century, banks in Indonesia had not on the issued policies from regulators, accept the complaint as the product is fully recovered from the fi nancial crisis. which may not always have been in line insurance and not originally a banking Hence, the regulator preferred to focus with the policy made by others. product. Meanwhile, if he wanted to on creating a conducive banking climate. complain to the Ministry of Finance as he To cut the story short, eventually the FSA For example, an Islamic bank att empted thought that Islamic insurance was under only offi cially started its operations at the to create more facilities to its customers this ministry, they would also not serve beginning of 2014. by accomodating Islamic insurance him as the product was off ered by a bank (Takaful) services by joining with an which is by law under the central bank’s 2014 is a new year with a new mega Islamic insurance operator in forming supervision. Under such condition, regulator for the fi nancial industry in bancaTakaful service. The aim of it is clear that the customer was at a Indonesia. Many Indonesians have big bancaTakaful is to make the customers disadvantage as no institution was expectations for this, particularly on the comfortable. Instead of visiting clearly responsible for his complaint. This impact of eff ective coordination between separately Islamic bank and Islamic has led to the clear need for the FSA, as the related institutions. Previously, insurance operator to get the two an institution that could compehensively BI only catered to the supervision of services, through bancaTakaful, both manage all fi nancial institutions. banks. The supervision of other fi nancial services are available in one place. The institutions and the capital market was issue was then raised — when there is a Another hopeful facet of the FSA could done by the Ministry of Finance through dispute, to which party can the customer be the development of the micro, small a board called BAPEPAM. In addition, send his complaint. If he complained and medium industries (MSMEs). ministry of cooperatives only handled the to BI as he assumed that the Islamic cooperative institutions. The existence insurance product was off ered by an continued...

Continued

Data shows that MSMEs contribute of micro, small and medium standing at is very important for the fi nanciers. signifi cantly to the Indonesian GDP. 33.81%, 9.85% and 13.46% respectively. Secondly, the owners of MSMEs are normally also at the same time the sole Table 1 looks into three important things This shows the importance of the MSME runners of the business. That is why with regard to the MSME sector. First is sector to the Indonesian market. The his absence from the company at any the number of the institutions within the sector has also been relatively unaff ected day normally results in the closing of sector. Second is the number of workers, by the recent global turmoil — largely the business on that day. As a result the while the last is the contributions of due to the nature of the business. One family cannot earn money for that day. MSME to the GDP. In terms of the characteristic of MSMEs in Indonesia is number of the institutions, it is revealed that majority of MSMEs are domestic From the MSME profi le above, it is that MSMEs contribute about 99.99% of players. This means they get their raw expected that microTakaful could off er the total enterprises in the country. The materials from local suppliers and an opportunity to assist them. Not remaining percentage is the number of manufacture their products locally and falling into the same hole as in its past big enterprises. Within the MSME sector sell their products to local buyers. As experience, the regulatory body on the itself, it shows that the number of units a result, they are not much aff ected by Islamic banks which provide fi nancing to for micro fi rms is dominant, comprising the international environment or the MSMEs must be under one roof with that up to 98.85% of total MSMEs, while the fl uctuations in the exchange rate. for the microTakaful operator. Therefore, remaining small and medium businesses the newly established FSA is mandated represent only about 1.07% and 0.08% For example, the recent European crisis for that purpose. If the FSA is able to of the total MSMEs in the country has resulted in a signifi cant decline conduct bett er supervision as compared respectively. in export volume of many countries to the two separate regulatory bodies in Asia to the European market. As a in the past, then it is expected that the With regard to the amount of labor consequence, the exporters in those future of Indonesian MSME industry absorbed by MSMEs, the data implies countries (mainly big corporations) are at and also the Islamic fi nance industry as a that MSMEs absorb a much bigger a disadvantage as their sales are falling. whole will be very bright. chunk compared to the big enterprises. Fortunately, this is not the case for Labor in the MSME sector contributes majority of Indonesian MSMEs. Dr Sutan Emir Hidayat is the assistant about 97.22% of the total labor market professor and academic advisor for Islamic in Indonesia. Again, labor in micro However, although the MSME sector fi nance at University College of Bahrain and enterprises is the biggest contributor. proved to be a buff er during the Dr Raditya Sukmana is the head of Magister Labor in small and medium enterprises economic crisis, it does not mean that Science in Islamic Economics at Airlangga stood only at around 3% or 2% this sector is free from any risk. In fact, University Indonesia. They can be contacted respectively. The last part of Table 1 is the risk in the MSME may be even higher at [email protected] and momyadit@gmail. about the contribution of MSMEs to GDP. than the risk in the big enterprise sector. com, respectively. MSMEs contribute more than 57.12% of This is because MSMEs, in many cases, Indonesian GDP, with the contributions cannot provide collateral for loans, which Advanced Sukuk & Islamic Securitization

4th – 6th May 2014, Riyadh

Course Highlights: • Compare and contrast between Sukuk, bonds and asset backed securities (ABS) • Identify different type of Sukuk and debt capital market strategies applied in the market • Examine various current issues related to Sukuk market-covering business, credit, legal, Shariah and other issues • Analyze various deal term sheets to determine risks, legal status and enforcement rights of investors • Structure suitable Sukuk solution to meet different financing and investment needs www.islamicfinancetraining.com [email protected]

Real estate: The gateway to Islamic finance in India?

Real estate as an asset class has always been a favorite within the universe of permissible asset classes under Shariah. Shariah-based real estate transactions in India can be an att ractive proposition, given the penchant for real estate among Indians in general and the large number of Shariah compliant investors in India. H JAYESH and SUPRIO BOSE explore the potential for this classic asset class to act as a pathway for the development of Islamic ﬁ nance in the vast new market of India.

Besides land, real estate as an asset to be launched with the approval of The second development has been the class also encompasses projects relating SEBI. Alternative investment funds amendment to the Waqf Act, 1995 in to housing, commercial premises, are classifi ed into diff erent categories 2013. The key impact of the amendments resorts, hotels, educational institutions, depending on their investment style (e.g. is as follows: shopping malls, hospitals, recreational Category I AIF deals with social venture facilities, city and regional level funds, start-ups and venture capital 1) Encroachment of Waqf property is a infrastructure, special economic zones, funds, Category III deals with leveraged cognizable off ence; townships, and more. investments and Category II is the 2) Management of state Waqf bodies residual category). shall be monitored by the central The notion of Shariah compliant Waqf council; investments (especially on a cross- 3) Composition of the central Waqf border basis) in real estate is not new. In We expect council to include experts and the past, dedicated Shariah compliant professionals; and real estate funds have been used to significant 4) Maximum period for lease of Waqf channel foreign investments into this land (other than agricultural land) sector. More recently, there have been activity in the real increased to 30 years from three unconfi rmed reports that Abu Dhabi years. Investment Authority (ADIA) intends estate space in a to invest about US$200 million in Indian These amendments are signifi cant in the real estate, refl ecting a trend for large few years time. In context of Islamic fi nance in real estate, Gulf sovereign wealth funds to diversify as it should allow effi cient monetization away from traditional developed markets our view, the market of Waqf properties. The commercials such as Europe. There have also been are also compelling. India has the similar reports about Oman’s State may be initially slow, largest number of Waqf properties in General Reserve Fund, the government the world. As per the fi ndings of the of Singapore Investment Corp, and but as the pieces fall Sachar Committ ee, there are more than Temasek had committ ed to an investment 490,000 registered Waqf properties and of US$200 million in a real estate into place, deal size the current annual income from these fund run by India’s biggest mortgage properties is estimated at INR1.63 billion lender, Housing Development Finance and volume should (US$26.65 million). Corporation. pick up The amendment to the Waqf laws in While such big ticket transactions are India should be read with the launch welcome, there appears to be a subtle of the National Waqf Development undercurrent which could be the Corporation (NAWADCO) on the harbinger of a bigger role and a bigger The funds can be structured as a 29th January 2014 (at the behest of the future for Islamic fi nance in India. Each Musharakah model, which allows Ministry of Minority Aff airs). The of these developments are isolated and parties to share in the profi ts and the objective of NAWADCO is to facilitate not related in any manner, but the timing risks. The returns can be segregated and mobilize fi nancial resources for is fortuitous. in order of priority, wherein investors the development of Waqf properties with limited risk appetite are paid out for community development purposes The fi rst development has been the fi rst. The Indian market has already in a joint venture with the State/ introduction of the Securities and witnessed a handful of Shariah compliant Union Territory Waqf Boards and the Exchange Board of India (SEBI) investments by venture capital funds. We Mutawallis. Alternative Investment Funds understand that various organizations Regulations 2012 (AIF regulations) that were previously seeking approval Another signifi cant development has which provided an avenue for dedicated of the Reserve Bank of India (RBI) to been the declaration of the Ministry Shariah compliant investment funds set up investment companies are now of Minority Aff airs to launch a pan- to be set up under the aegis of the considering registering with SEBI as Indian Shariah compliant mutual fund. AIF regulations. The AIF regulations alternative investment funds, or are in The objective of this fund is to solicit permit alternative investment funds the process of doing so. continued...

Continued investments from the Muslim community REITs from the income tax department, lending. Now that the RBI has granted a and other ‘deep pocket’ investors and at par with mutual funds. This will make license to a Shariah compliant NBFC, it is channel funds into minority welfare the product more att ractive. Globally expected that more NBFCs will operate schemes. Such a mutual fund can be REITs have been a much sought-aft er in the future. This will allow real estate used to invest in commercial and Waqf product among wealth managers. The and infrastructure players to tap into this properties also. This should assist in SABANA REIT of Singapore is seen by additional funding source. As an added achieving greater fi nancial inclusion and many as a refl ection of the global appeal advantage, we also expect the structured creating a wider class of investors in real of Islamic REIT. fi nance market for real estate in India to estate. get a boost. We also understand that as a result of SEBI has reinitiated eff orts to introduce the declaration made by Dr Manmohan Conclusion real investment trusts (REITs) in India. Singh (the present prime minister of We expect signifi cant activity in the real Back in 2008 draft guidelines on REITs India) in Malaysia to introduce Islamic estate space in a few years time. In our were introduced (but not notifi ed). fi nance, serious eff orts within the view, the market may be initially slow, Instead, SEBI opted to amend the mutual government of India are underway to but as the pieces fall into place, deal fund regulations to allow launch of real examine ways and means of introducing size and volume should pick up. State estate-dedicated mutual fund schemes. Islamic fi nance in India. In a related governments will need to do their bit by However not a single scheme has been development, we understand that the amending the present stamp duty laws launched, as the applicable norms are RBI has granted non-banking fi nancial and treat Islamic fi nance structures at par unworkable, especially norms on valuing company (NBFC) license to Cheraman with conventional fi nancing structures. investments in real estate. REITs are Financial Services in Kochi, to operate Shariah compliant products and off er yet as a Shariah compliant NBFC. We have H Jayesh is the founder partner and Suprio another alternative for Shariah compliant reiterated in the past, that NBFCs are Bose is a senior associate at Juris Corp. They investors in India. We understand that suitably placed to undertake not only can be contacted at [email protected] and SEBI has sought pass-through benefi ts for plain vanilla lending, but also structured [email protected] respectively.

Continuous support for the development of Islamic finance in Luxembourg

Luxembourg has a long history in Islamic fi nance, and in 1978 saw the fi rst Islamic fi nance institution to set up in a western country. Five years later, the fi rst Shariah compliant insurance company in Europe was established in Luxembourg and, in 2002, Luxembourg was the fi rst European stock exchange to list a Sukuk. PIERRE OBERLE discusses the strong foundations and bright future for Islamic fi nance in the Grand-Duchy.

The pace of development in the Islamic Financier (CSSF), the Grand Duchy’s Luxembourg State in October. The new fi nance sector has picked up sharply fi nancial regulator, took the same view, minister of fi nance deposited this draft in the past few years as the industry concluding that no specifi c legislation was bill to the parliament mid-December. The has benefi ted from initiatives by required for Shariah compliant investment project is a EUR200 million (US$275.35 Luxembourg’s government, which is funds, since Luxembourg’s current law million) Sukuk issuance. The Luxembourg strongly committ ed to helping it grow. contains no obstacles to it. The CSSF also government has also identifi ed three real In early 2008, the government set up noted that the role of the Shariah board estate assets to underpin the transaction. a taskforce to identify obstacles to the would have to be described in each fund’s development of Islamic fi nance and prospectus. There are also currently interesting suggest ways to promote its growth. developments in terms of products: a project to launch the fi rst Islamic bank in The Association of the Luxembourg Luxembourg’s Luxembourg is in the pipeline, a Takaful Fund Industry (ALFI), the offi cial product has been launched last year. representative body of Luxembourg’s strengths The investment fund sector remains the investment fund industry, simultaneously main driver in Islamic fi nance. Indeed, launched a dedicated working group that in conventional Luxembourg’s strengths in conventional conducted research into assets eligible investment funds make Shariah compliant for Shariah compliant funds. The group’s investment funds investment funds a natural next step. report concluded that Luxembourg Over the past 25 years, the Grand-Duchy was able to off er a range of vehicles that make Shariah has become the leading center for global are appropriate for Shariah compliant fund distribution and Europe’s number investment, meeting the specifi c needs compliant one fund domicile in terms of assets. of both investors and promoters without Luxembourg now ranks as the third additional legislation. investment funds a domicile for Shariah compliant funds in the world (behind Malaysia and Saudi Arabia) This work was the basis of what would natural next with, according to data from Reuters, 111 become the ‘ALFI collection of best funds and US$3.4 billion of assets under practices for sett ing-up and administering step management. Shariah compliant funds in Luxembourg’, published in December 2012. These Taxation is the only area in which special The list of fund promoters with Shariah guidelines provide in-depth information action has been taken. In January 2010, compliant vehicles in Luxembourg shows and guidance on the legal framework, Luxembourg’s direct tax authority that prominent international names in the fund set-up process, administration, published a circular on Islamic fi nance, conventional investment funds have been custody and depository bank services for clarifying the tax treatment of Murabahah quick to climb aboard. In most cases, these Islamic funds in Luxembourg. It also gives contracts and Sukuk transactions, and in promoters already had a conventional a high level indication of whether Islamic June 2010, a circular from the indirect tax range domiciled in Luxembourg and fi nance instruments are compatible with authority clarifi ed treatment of Murabahah simply added a Shariah compliant fund. Luxembourg fund laws and should enable and Ijarah contracts. More recently, players from the Middle service providers who are already active in East have also begun sett ing up funds this fi eld to align themselves with greater A new government took offi ce last in the Grand-Duchy. These promoters consistency and provide guidance to new December. Much to the delight of the usually already operate funds for domestic entrants as to all the areas that need to be local Islamic fi nance community, this investors in their home countries but have considered. Indeed, over the years, most new government has explicitly writt en in diffi culty selling them abroad. For them, service providers in Luxembourg have its coalition program that it will support Luxembourg’s international reach has set-up dedicated teams looking at Shariah the development of Islamic fi nance in defi nite appeal. While this is still a recent funds. This collection of best practices will Luxembourg. Offi cials have since then trend, it is set to intensify in the coming further contribute to establish Luxembourg reinstated that commitment on many months, with a number of projects now in as the center of reference for servicing occasions. the pipeline. Shariah compliant funds, whether they are domiciled here or elsewhere. The last action of the previous government Pierre Oberlé is the business development with regards to Islamic fi nance was to manager at the Association of the Luxembourg In a note published in May 2011 the approve the draft bill relating to the Fund Industry. He can be contacted at Pierre. Commission de Surveillance du Secteur issuance of a sovereign Sukuk by the [email protected].

DATE ISSUER SIZE ANNOUNCED Fawas Abdulaziz Alhokair Co TBA 11th March 2014 FGB Sukuk Company II US$1.07 billion 7th March 2014 MARCH IDB TBA 7th March 2014 MIFT: Structuring Sukuk and Islamic Government of Malaysia RM3 billion 26th February 2014 Capital Markets Products Bumitama Agri RM500 million 25th February 2014 9-11 March, MUSCAT th DanaInfra Nasional RM200 million 24 February 2014 MIFT: Structuring and Shariah Issues for 1Malaysia Development RM2.4 billion 19th February 2014 Sukuk and Islamic Capital Markets TSH Sukuk Ijarah RM20 million 18th February 2014 10-11 March, KUALA LUMPUR Kiler GYO US$100 million 13th February 2014 MIFT: Islamic Treasury Principles, Products and Operations Government of Tunisia TND700 million 7th February 2014 13-14 March, KUALA LUMPUR Government of Indonesia IDR1.57 trillion 6th February 2014 MIFT: Structuring Sukuk and Islamic th Flydubai TBA 4 February 2014 Capital Markets Products BNM Sukuk RM1 billion 28th January 2014 16-18 March, DUBAI Citra Marga Nusaphala Persada IDR1.75 trillion 23rd January 2014 MIFT: Shariah Governance, Corporate Bumitama Agri RM2 billion 22nd January 2014 Governance and IFSA 2013 19-20 March, KUALA LUMPUR Albaraka Turk Katilim Bankasi US$300-400 million 10th January 2014 APRIL Ĳ M Corp RM3 billion 10th January 2014 Government of Saudi Arabia TBA 8th January 2014 MIFT: Shariah Audit for Islamic Retail and Commercial Banking Products th Government of Luxembourg EUR200 million 7 January 2014 10-11 April, KUALA LUMPUR th Government of Oman OMR200 million 6 January 2014 MIFT: Accounting and Reporting for Vallianz Capital US$500 million 26th December 2013 Islamic Financial Products Bank Asya US$500 million 23rd December 2013 13-15 April, DUBAI Ahmad Zaki Resources RM1 billion 19th December 2013 MIFT: Shariah and Legal Issues in Sukuk Bank Rakyat RM9 billion 10th December 2014 Structuring and Documentation 13-15 April, DUBAI BIMB Holdings RM1.7 billion 10th December 2014 IFT: Structuring Islamic Trade Finance th State Bank of Pakistan PKR50 billion 9 December 2013 Solutions SP Setia RM700 million 6th December 2013 15-17 April, RIYADH Central Bank of Qatar QAR1 billion 6th December 2013 MIFT: Business and Operational Kuwait Airways TBA 4th December 2013 Strategies for Islamic Financial Hong Kong Government TBA 28th November 2013 Institutions 15-17 April, KUALA LUMPUR Binariang GSM RM6 billion 28th November 2013 MIFT: Islamic Trade Finance th Perusahaan Listrik Negara IDR2 trillion 27 November 2013 28-29 April, KUALA LUMPUR South African Government TBA 26th November 2013 RMT: Asset and Liability Management Mudajaya Group RM1 billion 19th November 2013 21-23 April, KUALA LUMPUR Emirates US$4.5 billion 18th November 2013 IFT: Structuring Islamic Trade Finance Federal Government of Nigeria TBA 13th November 2013 Solutions KPJ Healthcare RM1 billion 7th November 2013 28-30 April, ISTANBUL Asian Development Bank TBA 6th November 2013 MAY Jordanian Government TBA 30th October 2013 IFT: Advanced Sukuk and Islamic Securitization UK Treasury GBP200 million 29th October 2013 4-6 May, RIYADH Malaysia Building Society RM3 billion 29th October 2013 MIFT: Risk Management Framework and th Jana Kapital RM4 billion 29 October 2013 Principles for Islamic Finance Tunisian Government TND1 billion 29th October 2013 8-9 May, KUALA LUMPUR Moroccan Government TBA 25th October 2013 MIFT: Shariah Audit and Compliance for National Enforcement and Registration System RM595 million 25th October 2013 Islamic Banking 21-22 May, DUBAI Turk Telekomunikasyon US$1 billion 25th October 2013 National Commercial Bank SAR4 billion 11th October 2013 Islamic Development Bank US$10 billion 7th October 2013 www.REDmoneyTraining.com ACWA Power International US$800 million 4th October 2013

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REDmoney Global Shariah

Equities are considered eligible for inclusion Utilities Basis Materials Telecomunication Services 2% 15% into the REDmoney Global Shariah Index 2% Series only if they pass a series of market Consumer Goods Services 15% related guidelines related to minimum market Technology capitalization and liquidity as well as country 14% restrictions. Energy 8% Once the index eligible universe is determined Non-Cyclical the underlying constituents are screened Consumer Goods Services 7% Financials using a set of business and ﬁ nancial Shariah 4% guidelines. Industrials Healthcare 22% 11%

The REDmoney Global Shariah Index Series powered by IdealRatings consists of a rich subset of global listed equities that adhere to clearly deﬁ ned and transparent Shariah guidelines deﬁ ned by Shariyah Review Bureau in Jeddah, Saudi Arabia.

The REDmoney Shariah Indexes provides Islamic investors with an accurate and Shariah-specifi c equity performance benchmark with optimized compliance credibility due to the intensive research conducted to ensure that index constituents do not confl ict with the defi ned Shariah requirements.

IdealRatings™ is the leading provider of Shariah investment decision support tools to investors globally, including asset managers, brokers, index providers, and banks to empower them to develop, manage and monitor Shariah investment products and Shariah compliant funds. IdealRatings is headquartered in San Francisco, California. For more information about IdealRatings visit: www.idealratings.com

For further information regarding REDmoney Indexes contact: REDmoney Global Shariah Index Series Andrew Morgan Managing Director, REDmoney Group

RED Email: [email protected] Tel +603 2162 7800

Eurekahedge North America Islamic Fund Index 150

140

130

120

110

100

90 Index Values 80

50 Jul-03 Jan-07 Jun-09 Oct-11 Feb-14 Sep-04 Dec-12 Dec-99 Apr-08 Mar-01 Aug-10 Nov-05 May-02

Top 10 Monthly Returns for ALL Islamic Funds Funds Fund Fund Manager Performance Measure Fund Domicile 1 AlAhli Healthcare Trading Equity The National Commercial Bank 11.65 Saudi Arabia

2 DWS Noor Precious Metals Securities - Class A DWS Noor Islamic Funds 11.11 Ireland

3 AlAhli US Trading Equity The National Commercial Bank 8.08 Saudi Arabia

4 Al Qasr GCC Real Estate & Construction Equity Banque Saudi Fransi 6.90 Saudi Arabia Trading 5 JPM Islamic Global Dynamic Equity (USD) A (acc) JPMorgan International Bank 6.61 Luxembourg

6 Public China Itt ikal Public Mutual 6.14 Malaysia

7 Al Madar US Index Almadar Finance & Investment 5.97 Kuwait

8 Amana Growth Saturna Capital 5.84 US

9 Al Baraka Hermes Fund Management 5.81 Egypt

10 Al Danah GCC Equity Trading Banque Saudi Fransi 5.79 Saudi Arabia

Eurekahedge Islamic Fund Index 2.06

Based on 39.29% of funds which have reported February 2014 returns as at the 10th March 2014 Top 5 Real Estate Funds by 3 Month Returns Fund Fund Manager Performance Measure Fund Domicile 1 Al Qasr GCC Real Estate & Construction Equity Banque Saudi Fransi 6.04 Saudi Arabia Trading 2 Markaz Real Estate Fund Kuwait Financial Center 1.01 Kuwait

3 Al Dar Real Estate ADAM 0.26 Kuwait

4 Al-'Aqar KPJ REIT AmMerchant Bank -1.48 Malaysia

5 Oasis Crescent Global Property Equity Oasis Global Management Company -2.67 Ireland (Ireland) Eurekahedge Islamic Fund Index 0.63

Based on 100% of funds which have reported January 2014 returns as at the 10th March 2014

Comprehensive data from Eurekahedge will now feature the overall top 10 global and regional funds based on a specifi c duration (yield to date, annualized returns, monthly returns), Sharpe ratio as well as delve into specifi c asset classes in the global arena – equity, fi xed income, money market, commodity, global investing (which would focus on funds investing with global mandate instead of a specifi c country or geographical region), fund of funds, real estate as well as the Sortino ratio. Each table covering the duration, region, asset class and ratio will be featured on a fi ve-week rotational basis.

Eurekahedge Islamic Fund Balanced Index over the last 5 years Eurekahedge Islamic Fund Balanced Index over the last 1 year 160 109 108 150 107 106 140 105 130 104

Percentage Percentage 103 120 102

110 101 100 100 99 Jul-09 Jul-13 Jan-12 Jun-12 Feb-09 Feb-14 Jan-14 Oct-10 Jun-13 Sep-13 Feb-14 Feb-13 Dec-09 Oct-13 Sep-13 Dec-13 Apr-13 Mar-11 Nov-12 Apr-13 Mar-13 Aug-11 May-10 Nov-13 Aug-13 May-13 Top 10 Monthly Returns for Global Funds Funds Fund Fund Manager Performance Measure Fund Domicile 1 AlAhli Healthcare Trading Equity The National Commercial Bank 11.65 Saudi Arabia

2 DWS Noor Precious Metals Securities - Class A DWS Noor Islamic Funds 11.11 Ireland

3 JPM Islamic Global Dynamic Equity (USD) A (acc) JPMorgan International Bank 6.61 Luxembourg

4 HSBC Amanah Global Equity Index HSBC Amanah Central Shariah 5.61 Saudi Arabia Committ ee 5 Al Rajhi Global Equity UBS 5.45 Saudi Arabia

6 AlManarah High Growth Portfolio The National Commercial Bank 4.42 Saudi Arabia

7 WSF Global Equity - USD I Reliance Asset Management (Malaysia) 3.72 Guernsey

8 AlAhli Global Real Estate The National Commercial Bank 3.58 Saudi Arabia

9 AlAhli Global Trading Equity The National Commercial Bank 3.22 Saudi Arabia

10 AlAhli Small Cap Trading Equity The National Commercial Bank 3.07 Saudi Arabia

Eurekahedge Islamic Fund Index 3.91

Based on 32.73% of funds which have reported February 2014 returns as at the 10th March 2014 Top 5 Fund of Funds by 3 Month Returns Fund Fund Manager Performance Measure Fund Domicile 1 Al Yusr Tamoh Multi Asset Saudi Hollandi Bank 7.89 Saudi Arabia

2 Al Rajhi Multi Asset Growth Al Rajhi Bank 4.82 Saudi Arabia

3 Al Yusr Mizan Multi Asset Saudi Hollandi Bank 3.63 Saudi Arabia

4 AlManarah High Growth Portfolio The National Commercial Bank 3.53 Saudi Arabia

5 AlManarah Medium Growth Portfolio The National Commercial Bank 2.44 Saudi Arabia

Eurekahedge Islamic Fund Index 3.30

Based on funds which have reported February 2014 returns as at the 10th March 2014

Contact Eurekahedge To list your fund or update your fund information: [email protected] For further details on Eurekahedge: [email protected] Tel: +65 6212 0900

Disclaimer Copyright Eurekahedge 2007, All Rights Reserved. You, the user, may freely use the data for internal purposes and may reproduce the index data provided that reference to Eurekahedge is provided in your dissemination and/or reproduction. The information is provided on an “as is” basis and you assume and will bear all risk or associated costs in its use, and neither Islamic Finance news, Eurekahedge nor its aﬃ liates provide any express or implied warranty or representations as to originality, accuracy, completeness, timeliness, non-infringement, merchantability and ﬁ tness for any purpose.

Most Recent Global Sukuk Priced Issuer Nationality Instrument Market US$ (mln) Managers 3rd Mar 2014 Syarikat Prasarana Malaysia Sukuk Murabahah Domestic market 610 RHB Capital, Maybank, Kenanga Investment Negara public issue Bank, CIMB Group 27th Feb 2014 IDB Trust Services Saudi Sukuk Wakalah Euro market 1,500 Standard Chartered Bank, HSBC, National Arabia public issue Bank of Abu Dhabi, First Gulf Bank, RHB Capital, Natixis, CIMB Group, Commerzbank Group 20th Feb 2014 Bandar Malaysia Malaysia Sukuk Murabahah Domestic market 455 AmInvestment Bank public issue 17th Feb 2014 National Saudi Sukuk Domestic market 1,333 Saudi National Commercial Bank, JPMorgan, Commercial Bank Arabia public issue HSBC, Gulf International Bank 13th Feb 2014 Dubai Investments UAE Sukuk Euro market 300 Dubai Islamic Bank, Citigroup, Emirates Park Development public issue NBD, Al Hilal Bank Company 13th Feb 2014 Khazanah Nasional Malaysia Sukuk Musharakah Domestic market 391 HSBC, Maybank, CIMB Group private placement 10th Feb 2014 EXIM Sukuk Malaysia Sukuk Euro market 300 BNP Paribas, HSBC, Maybank, CIMB Group Malaysia public issue 24th Jan 2014 TNB Western Malaysia Sukuk Ijarah and Domestic market 1,109 CIMB Group Energy Wakalah public issue 24th Jan 2014 Pengurusan Air Malaysia Sukuk Ijarah Domestic market 364 RHB Capital, Bank Islam Malaysia, CIMB SPV private placement Group, AmInvestment Bank 22nd Jan 2014 Bright Focus Malaysia Sukuk Musharakah Domestic market 410 Standard Chartered Bank, Maybank public issue 10th Jan 2014 Mudajaya Malaysia Sukuk Murabahah Domestic market 110 OCBC, CIMB Group Corporation public issue 23rd Dec 2013 BGSM Malaysia Sukuk Murabahah Domestic market 2,091 RHB Capital, CIMB Group, AmInvestment Management public issue Bank 23rd Dec 2013 Boustead Holdings Malaysia Sukuk Domestic market 208 UOB, Aﬃ n Investment Bank public issue 18th Dec 2013 Jana Kapital Malaysia Sukuk Murabahah Domestic market 192 RHB Capital public issue 18th Dec 2013 Malaysia Building Malaysia Sukuk Murabahah Domestic market 152 RHB Capital Society public issue 12th Dec 2013 Malakoﬀ Malaysia Sukuk Domestic market 1,677 Maybank, CIMB Group public issue 12th Dec 2013 Imtiaz Sukuk II Malaysia Sukuk Musharakah Domestic market 156 Maybank, CIMB Group public issue 5th Dec 2013 SABB Saudi Sukuk Domestic market 400 HSBC Arabia private placement 3rd Dec 2013 UEM Sunrise Malaysia Sukuk Domestic market 217 Maybank, CIMB Group public issue 26th Nov 2013 Sukuk Funding UAE Sukuk Musatahah Euro market 750 Standard Chartered Bank, Goldman Sachs, (No 3) public issue National Bank of Abu Dhabi, First Gulf Bank, Dubai Islamic Bank

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

US$bn US$m US$bn Value (US$bn) Avg Size (US$m) US$m 12 1500 18 600 Value (US$bn) 16 10 1250 14 500 Avg Size (US$m) 8 1000 12 400 10 6 750 8 300 4 500 6 200 4 100 2 250 2 0 0 0 0 123 4 5 6 78 9 10 11 12 1 2 3 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q2Q 3Q 4Q 1Q 2013 2014 2009 2010 2011 2012 2013 2014

Top 30 Issuers of Global Sukuk 12 Months Issuer Nationality Instrument Market US$ (mln) Iss Managers 1 General Authority Saudi Sukuk Domestic market 4,056 10.3 Saudi National Commercial Bank, HSBC for Civil Aviation Arabia public issue 2 IDB Trust Services Saudi Sukuk Euro market 2,500 6.4 Standard Chartered Bank, National Consumer Cooperative Arabia Wakalah public issue Bank, RBS, National Bank of Abu Dhabi, Natixis, CIMB Group, Credit Agricole, Barwa Bank, HSBC, First Gulf Bank, RHB Capital, Commerzbank Group 3 Saudi Electricity Saudi Sukuk Euro market 2,000 5.1 Deutsche Bank, HSBC Global SUKUK Arabia public issue Company 2 4 Sadara Chemical Saudi Sukuk Domestic market 2,000 5.1 Deutsche Bank, Riyad Bank, Al-Bilad Bank, Alinma Bank Company Arabia Musharakah public issue 5 Malakoff Malaysia Sukuk Domestic market 1,521 3.9 Maybank, CIMB Group public issue 6 Perusahaan Penerbit Indonesia Sukuk Euro market 1,500 3.8 Standard Chartered Bank, Deutsche Bank, Citigroup SBSN Indonesia III public issue 7 Cagamas Malaysia Sukuk Domestic market 1,396 3.6 RHB Capital, CIMB Group, Maybank, AmInvestment Bank Murabahah public issue 8 National Saudi Sukuk Domestic market 1,333 3.4 Saudi National Commercial Bank, JPMorgan, HSBC, Gulf Commercial Bank Arabia public issue International Bank 9 Republic of Turkey Turkey Sukuk Euro market 1,250 3.2 Standard Chartered Bank, HSBC, QInvest public issue 9 Ooredoo Tamweel Qatar Sukuk Euro market 1,250 3.2 Deutsche Bank, HSBC, DBS, Qatar National Bank, QInvest public issue 11 Syarikat Prasarana Malaysia Sukuk Ijarah Domestic market 1,233 3.1 HSBC, RHB Capital, CIMB Group, AmInvestment Bank, Negara public issue Maybank, Kenanga Investment Bank 12 TNB Western Malaysia Sukuk Domestic market 1,109 2.8 CIMB Group Energy Ijarah and public issue Wakalah 13 DIB Tier 1 Sukuk UAE Sukuk Euro market 1,000 2.6 Standard Chartered Bank, HSBC, National Bank of Abu public issue Dhabi, Dubai Islamic Bank, Emirates NBD 14 Medjool UAE Sukuk Euro market 993 2.5 Standard Chartered Bank, Abu Dhabi Commercial Bank, Wakalah public issue Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD 15 DanaInfra Nasional Malaysia Sukuk Domestic market 820 2.1 RHB Capital, Maybank, CIMB Group, Affi n Investment Bank, Murabahah public issue AmInvestment Bank 16 Sukuk Funding UAE Sukuk Euro market 750 1.9 Standard Chartered Bank, Goldman Sachs, National Bank (No 3) Musatahah public issue of Abu Dhabi, First Gulf Bank, Dubai Islamic Bank 17 Dar Al-Arkan Saudi Sukuk Euro market 746 1.9 Goldman Sachs, Deutsche Bank, Masraf Al Rayan, Emirates International Sukuk Arabia Wakalah public issue NBD, QInvest, Bank Alkhair, Bank of America Merrill Lynch 18 Konsortium Malaysia Sukuk Domestic market 718 1.8 CIMB Group Lebuhraya Utara- Musharakah public issue Timur (KL) 19 Power & Water Saudi Sukuk Domestic market 667 1.7 HSBC Utility Co for Jubail Arabia private placement & Yabbu - Marafi q 20 Kapar Energy Malaysia Sukuk Ijarah Domestic market 581 1.5 AmInvestment Bank Ventures public issue 21 TNB Northern Malaysia Sukuk Domestic market 543 1.4 HSBC, KAF Investment Bank Energy Ijarah and public issue Wakalah 22 Turkiye Finans Turkey Sukuk Euro market 500 1.3 Saudi National Commercial Bank, HSBC, Citigroup, Noor Katilim Bankasi public issue Bank 22 SIB Sukuk Co III UAE Sukuk Euro market 500 1.3 Standard Chartered Bank, HSBC, Kuwait Finance House, Al public issue Hilal Bank 22 Government of Ras UAE Sukuk Euro market 500 1.3 Mashreqbank, Standard Chartered Bank, National Bank of Abu Al Khaimah public issue Dhabi, Citigroup, Al Hilal Bank 22 Al Hilal Bank UAE Sukuk Euro market 500 1.3 Standard Chartered Bank, HSBC, National Bank of Abu Mudarabah public issue Dhabi, Citigroup, Al Hilal Bank / Wakalah 26 Pengurusan Air SPV Malaysia Sukuk Ijarah Domestic market 473 1.2 CIMB Group, RHB Capital, Bank Islam Malaysia, private placement AmInvestment Bank 27 Bandar Malaysia Malaysia Sukuk Domestic market 455 1.2 AmInvestment Bank Murabahah public issue 28 Almarai Saudi Sukuk Domestic market 453 1.2 Banque Saudi Fransi, Standard Chartered Bank, BNP Paribas, Arabia private placement HSBC 29 National Higher Malaysia Sukuk Domestic market 418 1.1 RHB Capital, AmInvestment Bank Education Fund public issue 30 Bright Focus Malaysia Sukuk Domestic market 410 1.0 Standard Chartered Bank, Maybank Musharakah public issue 39,234 100

Top Managers of Sukuk 12 Months Sukuk Volume by Currency US$ (billion) 12 Months Manager US$ (mln) Iss % 15.2 1 HSBC 6,818 24 17.4 US dollar 2 CIMB Group 5,219 37 13.3 Malaysian ringgit 14.8

3 RHB Capital 2,718 34 6.9 Saudi riyal 8.9 4 Maybank 2,639 23 6.7 Singapore dollar 0.2 5 AmInvestment Bank 2,630 20 6.7

6 Saudi National Commercial Bank 2,486 3 6.3 Sukuk Volume by Issuer Nation US$ (billion) 12 Months 7 Standard Chartered Bank 2,468 16 6.3 Malaysia 14.6 8 Deutsche Bank 2,384 6 6.1 Saudi Arabia 14.2 9 Citigroup 1,103 7 2.8 UAE 4.7 10 National Bank of Abu Dhabi 944 8 2.4 Turkey 2.2 Indonesia 1.8 11 QInvest 741 3 1.9 Qatar 1.3 12 Emirates NBD 677 7 1.7 Singapore 0.4 13 Dubai Islamic Bank 591 4 1.5

14 Riyad Bank 500 1 1.3 Global Sukuk Volume by Sector 12 Months 14 Alinma Bank 500 1 1.3

14 Al-Bilad Bank 500 1 1.3 18% 26% Finance 17 Al Hilal Bank 456 6 1.2 Government 7% 18 First Gulf Bank 338 2 0.9 Utility & Energy Transportation 9% 19 JPMorgan 333 1 0.9 Real Estate/Property 21% 19 Gulf International Bank 333 1 0.9 Other 19% 21 Natixis 313 2 0.8 22 DBS 309 2 0.8 23 Goldman Sachs 284 3 0.7 Global Sukuk Volume - US$ Analysis 24 KAF Investment Bank 271 1 0.7 US$bn US$m 25 Aﬃ n Investment Bank 268 3 0.7 18 600 16 Non-US$ US$ 500 26 Qatar National Bank 250 1 0.6 14 12 400 10 27 OCBC 241 6 0.6 300 8 28 BNP Paribas 228 3 0.6 6 200 4 100 29 Abu Dhabi Islamic Bank 216 2 0.6 2 0 0 30 Commerzbank Group 188 1 0.5 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q2Q 3Q 4Q 1Q 2009 2010 2011 2012 2013 2014 Total 39,234 109 100

Top Islamic Finance Related Project Finance Mandated Lead Top Islamic Finance Related Project Financing Legal Advisors Arrangers 12 Months Ranking 12 Months Mandated Lead Arranger US$ (million) No % Legal Advisor US$ (million) No % 1 Public Investment Fund 674 3 8.8 1 Cliﬀ ord Chance 3,794 3 33.6 2 Samba Financial Group 606 3 7.9 2 Allen & Overy 3,065 4 27.2 3 National Bank of Abu Dhabi 483 3 6.3 4 HSBC Holdings 483 3 6.3 3 Sullivan & Cromwell 1,494 1 13.2 5 Arab Petroleum Investments 363 3 4.7 3 White & Case 1,494 1 13.2 6 Standard Chartered 338 3 4.4 7 Riyad Bank 291 2 3.8 5 Baker Bott s 668 1 5.9

8 Sumitomo Mitsui Financial Group 283 2 3.7 5 Chadbourne & Parke 668 1 5.9 9 Banque Saudi Fransi 283 1 3.7 7 Mohammed Al Zamil & Emad Al 97 1 0.9 10 Alinma Bank 281 2 3.7 Kharashi Law Firm

Top Islamic Finance Related Loans Mandated Lead Arrangers Ranking 12 Months Top Islamic Finance Related Loans Deal List 12 Months Mandated Lead Arranger US$ (mln) No % Credit Date Borrower Nationality US$ (mln) 1 Abu Dhabi Islamic Bank 689 6 6.5 th 2 Standard Chartered Bank 661 6 6.2 28 Mar 2013 Emirates Aluminium UAE 3,400

3 HSBC 567 3 5.3 10th Jun 2013 ICD UAE 1,675 4 Emirates NBD 561 5 5.3 th 5 Abu Dhabi Commercial Bank 525 3 4.9 5 May 2013 Saudi Aramco Saudi Arabia 1,400 6 National Bank of Abu Dhabi 466 4 4.4 17th Jul 2013 Al Jubail Petrochemical Saudi Arabia 800 7 Citigroup 411 2 3.9 (Kemya) 8 Arab Petroleum Investments 408 3 3.8 26th Mar 2013 GEMS Education UAE 545 9 Dubai Islamic Bank 398 3 3.7 18th Jun 2013 Turkiye Finans Katilim Turkey 502 10 Samba Capital 341 3 3.2 Bankasi 11 Credit Agricole 332 2 3.1 18th Jul 2013 Albaraka Turk Katilim Turkey 427 12 Sumitomo Mitsui Financial Group 328 2 3.1 Bankasi 2nd May 2013 Bank Asya Turkey 383 13 First Gulf Bank 327 3 3.1

14 Saudi National Commercial Bank 324 3 3.1 5th Jun 2013 Gulf Marine Services UAE 340 15 Noor Bank 296 5 2.8 st 16 Islamic Development Bank 258 3 2.4 1 Jun 2013 Mobily Saudi Arabia 321 17 Al Hilal Bank 236 3 2.2 18 Riyad Bank 236 2 2.2 Top Islamic Finance Related Loans by Country 12 Months 18 National Bank of Kuwait 236 2 2.2 Nationality US$ (mln) No % 20 Barwa Bank 189 3 1.8 1 UAE 6,359 7 59.7 21 Qatar Islamic Bank 179 3 1.7 2 Saudi Arabia 2,587 4 24.3 22 Union National Bank 172 1 1.6 3 Turkey 1,311 3 12.3 22 SG Corporate & Investment Banking 172 1 1.6 4 Qatar 271 1 2.5 22 Mitsubishi UFJ Financial Group 172 1 1.6 5 Malaysia 116 2 1.1 22 Export Development Canada 172 1 1.6 22 BNP Paribas 172 1 1.6 Top Islamic Finance Related Loans by Sector 12 Months 22 Al Khalĳ i Commercial Bank 172 1 1.6 Metal & Steel 28 Deutsche Bank 160 1 1.5 Finance 29 Gulf International Bank 156 1 1.5 29 Arab Bank plc 156 1 1.5 Oil & Gas Chemicals Top Islamic Finance Related Loans Mandated Lead Arrangers Professional Services 12 Months US$ bln0 126 3 4 5 Bookrunner US$ (mln) No % 1 Emirates NBD 668 4 19.2 Global Islamic Loans - Years to Maturity (YTD Comparison) 2 HSBC 419 1 12.0 2 Citigroup 419 1 12.0 2013 2 Abu Dhabi Commercial Bank 419 1 12.0 2012 2011 5 Noor Bank 399 4 11.5 2010 6 Standard Chartered Bank 249 3 7.2 2009 6 Arab Banking Corporation 249 3 7.2 2008 8 Barwa Bank 149 2 4.3 2007 9 Al Hilal Bank 100 1 2.9 0% 20% 40% 60% 80% 100% 0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs 10 Abu Dhabi Islamic Bank 82 1 2.4

Are your deals listed here? If you feel that the information within these tables is inaccurate, you may contact the following directly: Mandy Leung (Media Relations) Email: [email protected] Tel: +852 2804 1223

APRIL 2014

15th IFN Indonesia Forum Jakarta REDmoney Events

MAY 2014

19th - 22nd 11th Islamic Financial Services Board Summit Mauritius IFSB

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10th IFN Kuwait Forum Kuwait REDmoney Events

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13th IFN Sri Lanka Forum Colombo REDmoney Events

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90 North Real Estate Partners 16,28 EFG-Hermes 8 MARC 13 AAOIFI 9 EIIB-Rasmala 3,4,5,6,19 Mashreq 11 Abu Dhabi Investment Authority 31 Emirates Investment Bank 12 Mashreq Asset Management 11 Abu Dhabi Islamic Bank 13 Emirates Islamic 12 Masraf Al Rayan 14 Abu Dhabi Security Exchange 11 Emirates NBD 11 Maybank Investment Bank 7 Adnan Sundra & Low 24 Employees Provident Fund 13 Meethaq 11,12 AEP Investment Management 23 Ericsson 10 Affi n Holdings 10 Eurekahedge 20 Meezan Bank 13 Airlangga University Indonesia 30 European International Islamic Bank 3 Merrill Lynch 26 Al Ajial Funds 8 EY 14,21 MetLife AIG ANB Cooperative Insurance Co 13 Al Madina Takaful 13 Ezdan Holding Group 12 Mobily 10 Al Salam Bank – Bahrain 23 Fawas Abdulaziz Alhokair Co 7 Moody’s 7,11,13,14 Alam Maritime Resources 13 FCB Capital 17 Mubadala Development Company 11 Alkhabeer Capital 13 FGB Sukuk Company II 7 NASDAQ Dubai 5 Amanah Mutual 13 Finnish Export Credit Agency 10 National Bank of Kuwait 12 AmIslamic Bank 24 First Community Bank 17 National Waqf Development Corporation 31 Ammalay Commodities 14 First Gulf Bank 7 NBAD Asset Management 19 Apple 13 Fitch 7,11,13 NBP Fullerton Asset Management 13 Arab Monetary Fund 14 Franklin Templeton 11 NCB Capital 14 Armila Capital 4 FWU 3 Association of Banks in Malaysia 9 Gatehouse Bank 4,5 Nokia Solutions & Network Branch Operations Oy 10 Association of Islamic Banking Institutions 9 GFH Capital 14 Ooredoo 12 Association of the Luxembourg Fund Industry 33 Gulf Capital 17 Otoritas Jasa Keuangan 22,29 Astra Sedaya Finance 22 Gulf Finance House 10,14 Path Solutions 10 Atlas Asset Management 20 Housing Development Finance Corporation 31 Pelaburan MARA 23 Att ĳ ariwafa Bank 8 HSBC Amanah 22 Qatar International Islamic Bank 19 Azzad Asset Management 27 Hwang-DBS 10 Qatar Islamic Bank 5 B&I Capital 23 ICD 8,22 Qatari Dial 28 Bangsamoro Development Authority 9 IDB 7,22 QIB (UK) 4,5 Bank Indonesia 9,22,29 IILM 9,11 RAM Ratings 7,24 Bank Muamulat 22 IMF 23 Reserve Bank of India 31,32 Bank Muscat 11,12 Indonesian Islamic Banking Association 8 RHB Investment Bank 7 Bank Negara Malaysia 9,24 Is GYO 26 Bank Nizwa 11 Islami Bank Bangladesh 25 S&P 11,25 Bank of America 26 Islamic Bank of Britain 3,4,5 SABANA REIT 32 Bank of London and The Middle East 1,3,4,5,6 Islamic Holding Group 12 Samsung Electronics 13 Bank of Tokyo-Mitsubishi UFJ 22 i-Vcap Management 13 Saudi Arabian Monetary Agency 13,14 Bank Panin Syariah 10 Jadwa Investment 14 Saudi Fransi Capital 11,14 Bank Rakyat 8 JCR-VIS 9 Securities and Exchange Board of India 31 Barwa Bank 12,14 Johns Hopkins University 27 Securities Commission (Malaysia) 24 Baspinar & Partners Law Firm 26 JPMorgan Chase 12 Servion Global Solutions 12 BGC Partners 10 JS Investments 20 Sharjah Islamic Bank 12 BNP Paribas 22 Junior Engineers Academy 12 Sigma Capital 4 Borsa Istanbul 8 Juris Corp 32 Societe Generale 10 Capital Market Authority (Kenya) 17 K&L Gates 16 Standard Chartered 19 Central Bank of Bahrain 10 Kenanga Investment Bank 7 Central Bank of Turkey 26 KFH Research 7,21 Standard Chartered Saadiq 22 CIMB Bank 22 Kiler Alisveris 26 State Bank of Pakistan 9 CIMB Investment Bank 7 Kiler GYO 26 Sumitomo Mitsui Banking Corporation 8 CIMB-Principal Islamic Asset Management 16 Kiler Holding 26 Sumitomo Mitsui Banking Corporation Malaysia 8 Cobalt Underwriting Services 3 KIPCO Asset Management 10 Sumitomo Mitsui Financial Group 8 Commission de Surveillance du Secteur Financier 33 Knight Frank 28 Summit Bank 9 Credit Agricole Corporate and Investment Bank 10 Kuveyt Turk Participation Bank 16 Swedish Exports Credit Guarantee Board 10 Damas International 8 Kuwait Finance House 12 Syarikat Prasarana Negara 7 Dana Gas 11 Kuwait Finance House – Bahrain 12 Tehran Stock Exchange 26 Danajamin Nasional 7 Kuwait Financial Center 10 The First Investor 14 Dar Al Sharia Legal & Financial Consultancy 15 Lahore Stock Exchange 13 Tradefl ow 10 Deutsche Bank 10 Lenovo Group 13 TuranBank 8 Deutsche Bank Group 16 LG Electronics 13 Dhaka Stock Exchange 25 London Stock Exchange 1,5 UK Islamic Finance Secretariat 1 Doha Insurance 14 Mahal Thqa 12 Union of Small and Medium Enterprises 9 Doha Takaful 14 Maisarah Islamic Banking Services 10 United Arab Bank 11 Dubai Exports 12 Malakoff Corporation 7 University College of Bahrain 30 Dubai Islamic Bank 12 Malaysian International Islamic Finance Center 21 Warba Bank 12 Dubai Multi Commodity Centre 10 Mannai Corp 8 World Bank 22

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