T TNew Hororizon Global Perspective on Islamic Banking & Insurance

No. 106. February 2001 / Dhul Qa'dah - Dhul Hijja 1421

Islamic Retail Market: A Neglected Sector

Mutually Beneficial

Market in Shariah Compliant Real Estate Investments

Islamic Banking Conferences 2001

Philosophy of Islamic Economics

Institute of Islamic Banking & Insurance • London REAL ESTATE in) Islamic Asset Management

ABCIB ISLAMIC ASSET MANAGEMENT LTD (lAM) recognises that Real Estate is a primary asset class for the faith-based professional investor seeking Sharia'a compliance in his portfolio. In many cases, real estate outperformed equities and gilts as an asset class in 2000. If you are seeking the superior returns and reduced risks that the diversification into actively managed direct investments in Real Estate could bring, then you will also want a partner who is well acquainted with the risks involved and is prepared to align his interests with yours.

The lAM team provides a full range of real estate related services, catering to the professional non• resident investor in UK, European and US real estate. The focus of the real estate team is to draw together the four main issues the non-resident Islamic investors are faced with when placing funds:

• Structuring investments in accordance with the Shari'a • Identifying attractive real estate • Asset analysis • Planning for tax efficiency

Investment Management Private Portfolio Management lAM staff has extensive experience in advising lAM specialises in advising professional investors Funds and direct investors who are creating who are entering the real estate markets through dedicated pools of real estate assets. The invest• club transactions. This can be the preferred option ment management strategy of lAM is to look for for those who wish to exercise greater control niche plays in the market in order to add value over their investment strategy and lAM can assist and increase the possibility of out performance. from acquisition through to disposition. Examples of this entered into by lAM personnel include successful investments into the Student, Asset Analysis, Corporate Structuring & Healthcare, and Residential markets. Tax Planning The Real Estate Division researches local conditions in international markets and locates transactions lAM's fundamental approach to real estate is to that suit the portfolios of direct and Fund understand the pricing of real assets and its rela• investors. tivity to lease length, tenant covenant and asset quality Equally important to the offshore investor Where lAM is involved it will seek an investment is corporate and financial structuring to ensure from ABC International Bank pic by way of co- efficient tax planning. lAM staff have long experi• investment to ensure an alignment of interests in ence in many offshorejurisdictions, including the the risks and the rewards of the investment. Channel Islands, British Virgin Islands, Dublin, Bahamas and Madeira. Sharia'a Compliance lAM is fortunate to be able to call on the advice Contact: Arab Banking Corporation House, and direction of five exceptionally experienced 1-5 Moorgate, London, EC2R 6AB Sharia'a Scholars who form the Sharia'a Telephone: +44 (0) 20 7776 4000 Supervisory Board of the company. Facsimile: +44 (0) 20 7600 7569

An appointed representative of ABC International Bank pic, regulated by the Securities and Futures Authority Limited, for the purposes of carrying on investment business activities CONTENTS New- HORIZOR Comment - The Islamic Retail market, a Neglected Sector

Chairman of Editorial Board Muazzam Ali 3 Feature - Mutually Beneficial by John Bauer, Marketing Director, International Editors Samba Capital Management International (SCMI), UK. Dr Rifaat Ahmed A. Karim Mr Bauer writes on the mutual funds market Manama Dato' Fadzh Yusof Kuala Lampur 5 Islamic Financial Market Indices - The Dow Jones Islamic Market Index Yusuf Talal DeLorenzo a The International Investor FTSE Global Islamic Indices United States Dr Ahreza Rahimi Brougerdi Philosophy of Islamic Economics - Concluding part Tehran 6 Suleiman Dualeh by Dr Alireza Rahimi Boroujerdi of the Central Bank of Iran United Kingdom Prof Murat Cizacka Istanbul Capital Intelligence Ratings of Islamic financial institutions Editor Rakiya Ibrahim Editorial Assistant 8 IIBI Forum - IIBI Shariah Scholars provide answers to questions and Hussain Rizvi issues pertinent to Islamic banking Executive Editor S.Ghazanfar Ali Research Associate 9 IIBI Guest Column - Under this section Richard Thomas, Daphne Buckmaster Executive Director and Robbie Morrison, Head of Real Estate at ABCIB Design £t Production Islamic Asset Management (lAM), UK, take a timely look at The Market Imtyaz Ahmed in Shariah compliant real estate investments CONTAa Editorial 16 Grosvenor Crescent 13 Kuw/ait Finance House profits and activities in the year 2000. London SWlX 7EP, UK Tel+44 (020) 7245 0404 Fax+44 (020) 7245 9769 [email protected] Corporate Profile Subscription £t Advertising 1 4 2nd Floor The financial and business analysis of Islamic financial institutions 16 Grosvenor Crescent London SWlX 7EP, UK Td+44 (020) 7245 0404 Fax+44 (020) 7245 9769 [email protected] 16 IIBI News - Monthly Lecture organised by the Institute URL http://www. islamic-banking.com Annual Subscription Rates 17 Islamic banking Conferences - 2001 UK £45; Europe ft Rest of the World £55 includes pp Price per copy 18 News Monitor - New Horizon reports on recent developments within UK £4.00; Europe a Rest the Islamic financial world of the World £5.00 Published Monthly by Institute of Islamic Banking 20 Currency Exchange Rates for Islamic countries - Courtesy of the and Insurance 16 Grosvenor Crescent Islamic Investment Banking Unit of the United Bank of Kuwait, London SWlX 7EP, UK London

®1999 Institute of Islamic Banking and Insurance ISSN 0955-095X Views expressed in this magazine are not necessarily those of the Publisher or of the IIBI.

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 1 COMMENT The Islamic Retail Market, a Neglected Sector slamic banking is without doubt an important The Islamic banks need to ensure that high levels of financial system within the global financial scene. capital are maintained to support their businesses IFor Muslims it is a question of conscience and reli• thereby guaranteeing that their capital adequacy gious obligation. For non-Muslims, its attractiveness ratios remain high. lies in its ethical foundations and its potential for Islamic banking shares the fruits of economic lucrative returns on investments. Services and prod• activity generated by intermediation through savers ucts offered are becoming more sophisticated and and investors. There is still generally a lack of geared towards the needs of the customer. The ques• awareness of the alternatives that are Islamically tion is, "Which customer"? acceptable. The onus, therefore, falls on Islamic Most Islamic financial institutions target the niche banks to diversify, advertise their services and markets comprising high net-worth individuals and aggressively market this over neglected sector corporates and by and large neglect the retail sector - through good marketing techniques and research middle class and the low-income earners. Majority of activities. them impose a high minimum investment requirement The ultimate goal of Islamic financial institutions thereby cutting out the retail market. According to sta• is to be able to compete along side conventional banks tistics, there are approximately one billion Muslims in and offer a full range of Shariah compliant products the world with roughly $100 billion US to invest, an and services that are competitive and attractive. They amount growing by an estimated 15 per cent a year. must also meet the needs of the retail sector by pro• This market is generally untapped. For example in viding Shariah compliant services like savings the UK alone, there are 2-3 miUion Muslims, 350,000 accounts, cheques, investment funds, home financing, Muslim households, 170,000 Muslim businesses, zakat payments etc. 52,000 Muslim professionals. Yet despite these statis• According to David Cowan, a writer on Islamic tics, no Islamic bank has so far been established in the finance, "Banking success lies in 3 elements. Firstly by UK. Most UK-based Islamic investment funds target safeguarding depositors money, not protected by a Saudi Arabia and the Gulf, as those markets are more guaranteed fund or financial insurers, but by bankers. lucrative, ignoring the Muslim communities in which Such safety will ensure the trust of one generation and they are based. These Muslims have lots of savings gain the habit of the next. Secondly, funds and and nowhere to invest them. Many find themselves deposits must be invested safely with good returns and patronizing conventional banks as they do not have make enough money to pass on to the customer whilst much of a choice. retaining profit for the bank. According to Professor Rodney Wilson "London's Finally by keeping expenses low, investing in tech• role in serving the British Muslim community has nology, good administration and delivery of service been disappointing and after almost two decades of and products, the marriage of Islamic principles with experience of Islamic financing, there are few retail modem commercial experience will ensure success of products available." Islamic banking for the years to come." He explains that the reason for this is that the Under the Shari'a, the bedrock of the Islamic faith, Islamic financial community is not willing to take on the fact that an Islamic financial institution under• promotional and marketing risks. takes or professes to be involved in Islamic banking Public sector banks should open 'special windows and/or finance, has major responsibilities to shoulder. for Islamic banking' to mobilise the vast resources Islamic banking is essentially concerned with the lying idle with the community due to religious reasons redistribution of money in society. which forbid Muslims to take interest on their savings. Apart from maximising their profits and ensuring What the Islamic banks fail to realize or refuse to that money is invested in sound and viable projects, acknowledge is that this untapped US$1 billion, if Islamic banks have a social obligation to societies in pooled, would create a viable and liquid market that which they operate. Likewise Muslims in those com• will provide a credible alternative to the traditional munities have a duty to back and support these debt markets, and give them an effective cash-man• financial institutions, as the Islamic economic system agement tool. This liquidity would increase the prof• is an integral part of their faith. itability of the banks, investors and society at large.

2 NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 Mutually Beneficial

1 he recent boom in Islamic However, these products are not finance has created a range aimed solely at the Muslim market. of fascinating new mutual We design our products so that funds whose performance should they have a strong enough appeal attract both Islamic and non- to be not just an Islamic product, Islamic investors. but something that should be of Islamic banking is the practice interest to anybody in the market• of banking in conformity with the place. principles of Shariah (Islamic law). In January 2000, SCMI released The most fundamental difference their Islamic Global Equity Fund, between Islamic and conventional which invests solely in Shariah- banking is the prohibition of compliant stocks, giving prospec• Interest in Islamic banking. tive Muslim investors an opportu• Therefore, as institutions can• nity to trade actively o- the world BY JOHN BAUER not charge Interest, participation market without worrying that they Marketing Director, Samba Capital in an enterprise is on a profit-and- are contravening religious codes. Management International (SCMI), UK loss-sharing basis. This risk is However, the constituents of reduced by careful investment pol• these indexes must remain limited, icy, diversification of risk and pru• as few leading companies do not dent financial management. The derive revenues in part from inter• alcoholic beverages, tobacco, profit-and-loss concept therefore est, which is disallowed. SCMI has a entertainment, financial services, distinguishes between good per• Shariah supervisory board in order and pork products. Fixed income formance and bad. to satisfy its guidelines. It gives a securities unapproved mutual Islamic banks are clearly struc• fatwa for each individual fund, funds, futures contracts, options tured to retain a clearly differenti• which the manager then receives and short sales are also excluded. ated status between shareholders' and applies during stock selection. SCMI has entered into a strate• capital and clients' deposits in For an organisation such as gic alliance with Dow Jones order to ensure correct profit shar• Samba, it is thus very important Indexes, which screens companies ing according to Islamic law. that the members of their Shariah in its 2700 strong Dow Jones Today, there are more than 160 committee are respected and Global Index (DJGI) for compli• Islamic financial institutions esteemed members of the Islamic ance with the Shariah guidelines. offering a wide variety of products community, as it is on the basis of After screening, at present approx• previously unknown in the west, their recommendations and imately 550 stocks are eligible for including ijara (leasing) and methodology that stocks are select• inclusion in the mutual fund. murabaha (trade financing). ed or discarded. Although that creates a smaller With over 2.5 billion Muslims The screening out of companies financial universe to work with living worldwide and controlling is based on the knowledge of their from the stocks that pass the over US$100 billion of available products, services, balance sheets guidelines, we pick and choose the funds most of which, it is estimat• and Income statements and is a best ones using established invest• ed, is not invested properly in an continual and regular process. ment criteria. Islamic way. As three of the four members of This does not seem to have There is vast potential in a the Samba Shariah committee also hampered them though as Samba's market which is expected to grow sit on the Dow Jones Islamic Luxembourg registered Islamic at an annual rate of IQo/o. Mutual Indexes Shariah Committee, the Global Equity Fund has comfort• funds, in particular, are proving results are philosophically consis• ably outperformed the Dow Jones popular with Islamic Investors. In tent between the two in terms of Islamic Market (DJIM) Index since Saudi Arabia alone, the mutuals guidelines. If they were not we the fund's launch in December market is currently worth approx• would have a problem. 1999. During 2000, the firm was imately 25 billion riyals which is Excluded investments are those down in volatile markets but did equivalent to US$7 billion. primary business which includes outperform.

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 3 CAPITAL INTELLIGENCE RATINGS

It is suggested that a variety of It is therefore little surprise ly. Islamic methods of banking are factors can account for this. We that Samba do not intend to stop growing in prominence as the were investing slightly differently, here and are intending to launch opportunity to invest In Muslim- for instance, compared to the Dow two or three new funds in the near friendly products and services Jones we were underweight on future, one of which will be a develops into a global financial technology stocks and the global technology fund and business with assets in excess of Americas, but overweight in another a US small companies $150 billion. Europe and Asia, particularly in fund. Samba is also investigating By following the financial rules Japan from which we did very the possibilities of real-estate of the Qur'an, Islamic and non- well. Overall it comes down to the investment trusts. Islamic investors have to har• basics - good asset allocation, The commercial banks that monise their investments with a strong stock picking and the right offer Islamic investments include slightly different regulatory sys• sector choices. the National Commercial Bank, tem. Islamic finance is beginning The emergence of Islamic equi• Jeddah, with nine Islamic funds. to attract increasing international ties on the London and New York Citibank with one fund, The Gulf attention. stock exchanges has created a vis• Bank, with one fund, Emirates ible benchmark for investors and a Bank, with one fund, Riyadh Conclusion blossoming relationship between Bank with four funds and Saudi Overall, ethic funds are growing Islamic banks and western finan• American Bank (Samba), with rapidly and will continue to do so. cial institutions. one active fund and more due .Historically there has been a lack Deutsche Bank, HSBC, Citibank soon. of good quality investment prod• and ANZ Investment Bank are The reconciliation of Islamic ucts for the Muslim community some of the larger organisations and western concepts of banking that meet with their principles. that are investigating and entering is an issue at the heart of the It would seem this is all about the Islamic financial world, some recent surge of Interest in Islamic to change, and is a situation that of whom have created Islamic funds and banking. Alternative, should be monitored by Islamic banking and finance divisions. non-western and, more particular• and non-Islamic Investors alike.

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4 NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 DOW JONES

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have all been poor performers this year. As a result. Islamic fund man• Third Quarter 2000 Summary agers have been buying stakes in the The volatility in world equity markets year, compared to a loss of 8.1% for the energy and pharmaceutical sectors continued through the third quarter MSCI World Index.The best performing and slowly reducing their positions in eliminating what few gains were made global equity funds year-to-date were technology until the sector shows earlier in the year. Islamic funds and Alfanar Investment Holdings, which signs of a rebound. Current favorites indices were hit harder due to over was the only Islamic fund in the global among Islamic fund managers include weighting in the technology sector. equity category that held on to a gain the likes of Astrazeneca, Pharmacia, The top performing Islamic indices of 2.3%, and the Miraj Global Equity Pfizer and Exxon Mobile. Long-term for the year were the Til Small Cap US with a loss of 0.74%. favorites continue to be Nokia and LM Index and the Dow Jones Islamic The worst performing global equi• Ericsson. Technology Index, which gained ty funds were the Mendaki Global During this quarter the Failaka 19.3% and 11.7% respectively. The Equity with a loss of 23.3% and the Islamic Fund Quarterly (FIFO) added worst performing indices were the Al-Bait Global Equity with a loss of two more funds to the list; Al-Bait Dow Jones Islamic UK Index, Dow 12%. Blue-chip tech stock were espe• Global Equity and Al-Hilal Fund. This Jones Islamic Asia Index and the FSE cially hit hard with heavy-weights brings the total funds covered in FIFO Islamic Asia/Pacific Index, which lost such as Microsoft, Intel and Lucent to 51. However, three funds will be 18.1%, 17.9% and 17.2% respectively Technology loosing more than 30% of dropping from the list Fleming's Oasis for the year.On the global side, there their value, much of it during the International Equity is liquidating and was more consistency and slightly less third quarter. AlBaraka's GAM AlKawthar and the volatility. The Dow Jones Islamic The most widely held stocks in American Express Islamic Multi- Market Index lost 9.3% and the FSE Islamic funds have been Intel, Investment Fund seem to be doing the Global Islamic Index lost 9.1% for the Microsoft and Cisco Systems, which same.

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 5 ISLAMIC ECONOMICS The Philosophy of Islamic Economics

Theorizing Methodology BY DR ALIREZA RAHIMI BOROUJERDI, of the Islamic economic system are MBRA President and Economic and Research recursive, experimental and refutable. Adviser to the Governor of the Central Bank of The methodology of inference in the In designing a system, we need to the Islamic Republic of Iran and Professor of Economic School is the same as in know which organizational methods Economics, University of Tehran, Iran other areas in Islam. Here, we also and decision-making procedures can need different inferences from con• fulfil our objectives. To answer this cepts and general trends of economic question, the constant and variable Conclusion: thought. Each of these makes a part of factors must be clarified, the specific The Methodology of The the foundation of the Islamic features of the time must be brought Economic School. But this jurispru• into account and the methods and Islamic Economic School dence methodology is prone to mis• behaviour that are chosen must have takes, i.e., different versions can hypo- the maximum efficiency in regard to Generally, the subjects of Islamic eco• thetically be assumed of the Economic attaining our objectives. nomics fall into two areas: School. One of the bases of mistakes There are three approaches, func• • "What exists?" This is the field of made is that other trends and thoughts tional, historical and analytical, to scientific studies in which the real may influence jurisprudence. Yet this system analysis. All three can be used relations between phenomena will be method is agreed with by all jurispru• to analyze economic systems, but the discovered. dents since, they believe that the analytical approach is more suitable to • "What should exist?" This includes answer to these problems is not a per• ones needs, owing to its high efficien• distinct general trends, long-lasting sonal matter, but is within the author• cy in the design of the models of basic rules and by-laws. ity of the Islamic ruler. Islamic economic changes. The second group is not subject to This point of view has some There are many institutions in the testing and refuting, since God is not advantages: it has functional and prac• economy, but the School does not experimental. But in the first group, sci• tical fruits; It defines the duties of the make them; it only forms the rules. It entific criteria as refutability, recursive• state; It influences thinkers and opens is society that founds these institu• ness and experience may be used. the way for future developments. The tions according to its needs. To estab• The Islamic Economic School question here is whether this matter is lish Islamic institutions, the proper In this School, there exists teach• up to Muslims to discover or whether constants of Islam must be looked at ings and fixed concepts to which time it is part of the obligations of every to find those most compatible with and place are irrelevant. Three differ• Muslim. To answer this question, we each period of time. ent aspects of this School are - must first see whether the matter is a) Optimal economic objectives - These within the boundaries of science or The Concept and include general welfare, economic within the limits of discovery. This Place of Justice growth and economic justice. question is yet to be clearly answered. b) General principles and frameworks What we want in the Islamic First View: The concept of justice has - Matters such as the modes of Economic School is a set of frame• seen many definitions through the ownership, the freedom to engage works for values and institutions, ages. Some of them involve observing in economic activities, the kind of upon which a system can be designed. and encouraging people's rights and restrictions on production, transac• The point is that the School must equality, using moderation and creat• tions, distribution and consump• guide us in a correct direction. What ing optimum situations, according to tion, the role of the state, the dis• we have witnessed so far is that Jurists various standards. The Islamic Econo• tribution of natural wealth and do not have a social view. More infor• mic School, too, defines an optimum resources, etc., are dealt with in mation is required. state in which the position of each ele• this framework. ment in the sysem is clearly defined. c) Legitimate methods of economic Methodology of the Islamic Question: Are religious rules based activities - These are the methods Economic System on justice or is "justice" subject to that Islam approves or prohibits. Eor whatever religion defines it as? In other example the prohibition of usury Obviously, the Islamic economic sys• words, is justice a religious concept or and the approval of participation. tem is set on the basis of ideological does it extend beyond religion? Methodologically, the first aspect, is fundamentals. However, the main Islamic thinkers believe that Islam mainly philosophical, the second is points in this regard are the questions rules according to justice, and not that legal and the third can be deduced of how and by which method? The justice is what Islam says. Therefore, if from jurisprudence texts. question here is whether the theories we act according to the methods and

6 NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 CAPITAL INTELLIGENCE RATINGS

.S CAPITAL ISLAMIC BANKS/FINANCIAL INSTITUTIONS 1 intelligence CURRENT RATING 18 January 2001 FOREIGN CURRENCY DOMESTIC SUPPORT OUTLOOK SINCE BANKS LONG SHORT STRENGTH TERM TERM BAHRAIN • Albaraka Islamic Investment Bank BB A3 NA 2 Stable Aug-2000 • Bahrain Islamic Bank BB+ A3 BBB- 3 Stable Aug-2000 • Faysal Islamic Bank of Bahrain BB B BB+ 2 Stable Nov-2000 • A! Amin Co. for Securities £t Investm't Funds BBB NA NA NA NA Aug-2000 • Al Tawfeek Co. for Investment Funds Limited BBB NA NA NA Stable Sep-2000 JORDAN • Jordan Islamic Bank for Finance BB- B BB 3 Stable Sep-2000 KUWAIT • Kuwait Finance House BBB+ A3 BBB+ 2 Stable Jun-2000 • Investment Dar Kuwait NA NA BB- 3 Positive July-2000 QATAR • Qatar International BB+ B BB+ 3 Stable July-2000 • Qatar Islamic Bank BB+ A3 BB+ 3 Stable Sep-2000 SAUDI ARABIA • Al-Rajhi Banking ft BBB+ A3 A- 3 Stable July-2000 UAE • Dubai Islamic Bank BB+ A3 BBB- 2 Stable Aug-2000 MALAYSIA • Bank Islam Malaysia BB+ A3 BB+ 2 Stable Feb-2000 PAKISTAN • Allied Bank of Pakistan C C C 4 Stable Nov-2000 • Askari Commercial Bank C C BB 3 Stable Apr-2000 • Faysal Bank C C B- 2 Stable Nov-2000 • Habib Bank C C C+ 2 Stable Nov-2000 • Muslim Commercial Bank C C B+ 4 Stable Nov-2000 • National Bank of Pakistan C C B+ 2 Stable Dec-2000 • Union Bank C C B 4 Stable Dec-2000 • United Bank C C B+ 2 Stable Apr-2000 PALESTINE • Arab Islamic Bank NA NA B 4 Stable Aug-2000 KEY S [STABLE] P (POSITIVE) N [NEGATIVE] ALL RATINGS ARE REVIEWED ON A REGULAR BASIS Source: Capital Intelligence (CI), Bank Analysis and Rating Service, Lirrassol, Cyprus Tel: (Cyprus) +357 5 342 300 Fax: (Cyprus) +357 5 343 739 / 817 750 Email: [email protected] Internet: http://www.ciratings.com guidelines of religion, we will reach a tions are considered superior to our 2. Fear is another thing which over• just ruling. Here, justice is a criterion understanding of justice. shadows logical decisions. by which to measure a ruling as to The other point is that on many 3. Needs and interests also overshad• whether it is Islamic or not. occasions, the concept of justice is ow justice. God Himself has declared that He based on the inferences of different So we need another source that is acts according to justice. This means people, which may vary. Communists not influenced by these problems and, that if we come across a rule which the and capitalists each have their own according to the philosophy of Islam, Jurists and thinkers believe is not just, version of justice. Which one is cor• we believe that only God Almighty is it cannot be a holy rule. This is the rea• rect? So the main principle is that reli• the source of justice and so justice is son that justice is a criterion by which gious rules provide justice. what God has revealed and ordered. to judge the rules. We should note that human reason Second View: How do we define jus• has three problems in deciding what Economic Justice tice? Who is capable of understanding justice is: it? If some thinkers were to reach an 1. Reason itself is ignorant of some Justice is not the same as equality, but understanding of justice that opposed problems, natures and concepts and equality is a part of justice. The ques• the holy revelations, which definition therefore cannot always recognize tions that arise here are: What mecha• should we choose? This is why revela• justice correctly. nism is needed? Who must decide and continues on pi2

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 7 SHARIAH QUESTIONS

Questions Answers

Mutual promises in Deposits in conventional Distribution of Profits exchange banks before the Mudarabah is concluded 0. What is the ruling about mutual Q. To what extent is it lawful for promises in the exchange of currencies? Islamic Banks to deposit sums in com• Q. The administration of the bank sug• mercial banks without interest if there gests that the bank distributes profits FATWA: A mutual promise in the sale is an understanding that these banks from investments to those of its clients of currencies involving a delay in will agree to deal with the Islamic with investment accounts once every payment of the price is lawful as Banks in the same way? three months instead of waiting for long as the mutual promise is not the end of the period designated for considered binding. FATWA: Despite a possible personal the investment account. The reason dislike of dealing with conventional for this suggestion is the bank's desire Options for the sale of banks and in the view of the wide• to become more competitive by offer• currencies spread nature of the affliction and ing investors opportunities not offered the general necessity to deal with by other banks. The administration Q. Is it lawful to purchase foreign cur• such banks, there will be no legal further explains that its practice in rencies on the basis of what is called impediment to extending them regard to the distribution of profits to an option contract in which a sale is beneficent (interest-free) loans, and its investment accounts is to wait until concluded in the following manner: to borrowing from them on the same the end of the year when the general The buyer agrees with the bank to terms. The hope here will be that by budget for the bank is presented and a right to a certain currency, in a cer• dealing with them in this manner, ratified in a lengthy formal process. In tain amount, for a certain price, dur• they may be encouraged to deal in the past, many of the bank's clients ing a certain period of time. Then, in the same (interest-free) way. have complained of problems resulting return for the right to exercise the from these procedures; and many have right given by the bank to the buyer Differences in profits requested that changes be made. (the one profiting), the one profiting will agree to a fee or something extra Q. Is it lawful for amounts of profit FATWA: The books of fiqh allow for for the seller (the bank), which will be among investors in a single mudarabah the early distribution of profits at the paid at the time of entering into the operation to differ in accordance with request of the partners. The majority contract for the right to an option to differences in the periods of their of jurists have allowed this even in purchase currency. involvement in the operation? mudarabah partnerships when the During the agreed period, the investor and the agent-manager buyer may pay the agreed price and FATWA: Yes, this is lawful, because agree to the same. In Nawawi's al purchase the currency, regardless of lower profits for some of the Muhadhdhab, vol. I, p. 384, it is the market price current at the actual investors equal higher profits for written that the Shafi'i school holds time of purchase. The purchaser may others when they keep their money that "if the two decide to distribute also opt not to buy the currency. This in the mudarabah for longer periods (the profits), that will be lawful is the nature of this contract. So the of time. The amounts earned may be because the prohibition (against only requirement, should the purchas• determined by the percentages of the doing so) is in order to protect their er decide not to purchase the curren• partnership in the mudarabah, the rights; and in this case they have cy, is the payment of a fee at the time the capital is allowed to remain, mutually agreed." The Hanbali beginning of the option contract. This and in accordance with the standards school, as represented by the author will be in return for the opportunity to established by a just Islamic accoun• of alMuharrar, vol. 1, pp 351-352, have an option, a fee that may not be tant. All of this will be conditional on states, "The agent-manager owns returned regardless of whether or not its being understood by both the his/her share of the profits as they a sale takes place. investors and the agent-manager, accrue. But these may not be distrib• and specified in the mudarabah con• uted while the mudarabah contract FATWA: It is not lawful to sell cur• tract itself, and agreed to in writing remains without the agreement of rencies on option because such a by the client investors. the two parties." sale is incomplete. It is lawful how• ever to stipulate an option in other Finally, in this matter, as in all other matters, it is Allah (SWT) Who knows . sorts of sales, or shares of goods.

8 NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 IIBI GUEST COLUMN

By Richard Thomas, Executive Director and Robbie Morrison, Head of Shariah Comphant Real Estate at ABCIB Islamic Asset Management Limited (lAM) Real Estate Investments Subsidiary Arab Banking Corp.

Introduction Islamic financing to deal with devel• exhibits a low standard deviation of The past twelve months has seen opment, financing and leverage, return from expectations (even Shariah compliant real estate asset securitisation and liquidity manage• accounting for understated volatility management emerge from the shad• ment are finally maturing as we figures based on appraisal values ows of both Equities and Leasing as enter 2001 and this factor alone will assumed during periods of low market one of the most desirable major have a disproportionate effect on liquidity) and low correlation with the components of any balanced Shariah allocation as it simply becomes eas• performance of other asset classes such compliant portfolio of investments. ier to intermediate the market. as equities. It is also a proven inflation When a trade transaction is syn• The work done by Shariah schol• hedge. dicated or an equity fund is ars to review and comment on the In terms of Country Risk launched into the Islamic financial emergence of this new Islamic finan• Allocation to direct investments, marketplace, the attendant market• cial technology is one of the most many highly specific factors should ing and publicity ensures a level of important features of its develop• affect decisions to invest. South East market awareness. Real estate, on ment. It is therefore timely to look Asian markets for example have the other hand, often takes the form behind the marketing literature at very significant local differences in of private, off market transactions, what investment issues should really both legal, tax and currency con• for high net worth individuals, cor• affect decisions to invest, whether it trols, as well as investment climates. porates and Islamic institutions, the be in direct investments or real As a rule of thumb, investors in terms of which are frequently kept estate mutual funds. Hong Kong must be aware that tech• out of the public eye. nical obsolescence is a massive issue To anyone not as involved as In this article we are focusing on when looking at buildings, also, as a ABCIB Islamic Asset Management three main areas: Special Administrative region of (LAM) is at this end of the market, China, all land belongs to the the large amount of business being a) asset allocation strategy. Government and land tenure is on a transacted would come as a great b) the risk factors, which relate to renewable leasehold basis, although surprise. However in 2000 a prolifer• the investment in and manage• there are no current restrictions on ation of particularly US Islamic ment of real estate, a) at the foreign property ownership, as there property funds has grabbed some macro economic and political are in mainland China. headlines. 2001 promises to rein• level, and b) at the micro, asset There are no special foreign force the trend towards larger real specific level; investment incentives, a low estate asset allocations by major c) the importance of real estate Corporate tax of I60/0 is applied and Islamic investors seeking above cycles; why they occur, and how, there are no dividend, capital gains average returns. where possible, the cycle risk can or sales taxes. Many new investors are also be managed In Singapore, it is supply and expected to enter the market for the Whilst we would like to cover non demand cycles that drive prices, first time, enticed by the strong 2000 western real estate markets in more land tenure permits freehold and performance and the bright detail, space limits our ambition in leasehold, but generally, the owner• prospects in selected sectors in 2001, this article. ship of buildings and land are not not to mention by the marketing of separate, there are some restrictions western sales teams who will a) Asset allocation strategy on foreign property ownership, undoubtedly wish to take advantage particularly in residential proper• of the good conditions. Classically, professional asset man• ties. Foreign exchange controls Going forward, more liquid prop• agers applying 'modern portfolio theo• have not applied since 1978. erty funds and tradable Sukuk secu- ry' seek to truly diversify their portfo• Foreign investment incentives do ritisations of real estate assets will lios to minimise volatility in returns exist for certain leisure and busi• transform the importance of this and to seek protection from un-sys- ness enterprises. Tax is withheld as asset class to the Islamic financial tematic risks (local event risk). Real trading profits on properties sold markets. The tools and techniques of Estate, in its various forms, historically within 3 years at a profit.

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 9 IIBI GUEST COLUMN In Malaysia it is the political cli• in the USA, about 8% in Canada and gains, or a search for above average mate and currency that drive invest• around 10% in the UK. portfolio returns or simply an index ment conditions. Land tenure is per• One reason given for this is the expectation) but they are also affect• mits both Freehold and Leasehold. way that conventional investment ed by local market conditions and There are restrictions on foreign managers are structured, with nearly risks. An investor may be drawn to ownership, for instance foreign pur• all their focus on financial and deriv• buying a building offering a high chasers of residential units can only ative assets and no substantial real rental income with a lease to a sell up after 5 years if the purpose of estate teams of their own in house. In Government tenant. purchase was investment. these cases it may be that substantial This high income might lead to an Also, foreign exchange controls allocations to real estate would unexpected capital loss if the lease is exist, although they are less stringent require allocating out the manage• short term and the rental too high on real estate than they are on shares, ment to other firms, with the resul• (over rented). When you are being ^ bonds and financial instruments. tant loss of fee income? Other rea• offered opportunities that might State property, corporate and capital sons include relative lack of liquidity show some of these characteristics by i gains taxes are applied, but wider for• and high transaction costs. firms who have taken the trouble to eign investment incentives may be In our opinion, even adjusting come from the USA or UK even applied for. In our own case, lAM upwards the standard deviation of though they don't have offices in relies a lot on our local offices in this risk towards that of equities to iron your region, this could in some cases region for advice and information on out the calming effect of appraised be because the local market at home the various local anomalies. rather than market values in times of wont buy them. The very deep and highly devel• illiquidity, then minimum levels of It is prudent to ask who else these oped markets for real estate in the USA 15% to 20% of portfolio asset alloca• transactions have been shown to, and and UK make these the most heavily tion ought to be to real estate in one why these people are not investing. invested markets in the world. Clear form or another to optimise portfolio Better still ask for a second opinion. legal and (mostly) tax frameworks and performance. Having determined an allocation liquid markets, access to transparent Islamic investors should see an policy, the next step is to assess the market information and, in the USA at advantage in their own portfolio specific investment opportunities that least, little currency risk, ensure that asset composition over conventional you are offered not only from the they also dominate our investment investors because investment man• point of the current income that they strategies in lAM. agers such as our lAM team in offer, or their prospects for capital Once again we rely heavily on our London do have specialist real estate gains, but also in the light of the risks local presence to inform us of the key teams and therefore allocations are that could be associated with them. In issues effecting investment decisions. much more proportionally weighted lAM we focus on the following pri• In a market that is considered to be in favour of this asset class. mary areas to protect ourselves and efficient in property terms and at a Equally however, because the real clients from adverse decisions. plateaux in terms of value, it is the estate market is not an auction mar• niche market opportunity that will pro• ket offering divisible shares in every vide investors with their best opportu• property, (even with REIT's and b) Risk Factors in Real nities in the US in 2001, opportunities Funds, the underlying properties Estate - Macro / Political that take advantage of the systematic have significant analytical require• trends in the US market. ments) and information fiows are • Taxation Changes Asset Class Allocation. In 1985 complex, these features place a pre• This is the most changeable element Ibbotson estimated that real estate mium on investment judgement. of government policy, but rarely is it formed about 55% of the worlds Investment judgement requires a retrospective. The most topical taxa• physical and financial capital. Within thorough understanding of macro tion change in the UK has been the H the USA, residential real estate and micro risk factors and a local issues surrounding Stamp Duty. In a ' accounted for about 39% of invest• capability, not a reliance upon finan• drive towards fiscal homogeneity ment assets with business real estate cial data and charting alone. with continental Europe and in ' and farmland accounting for about Style allocation. Real estate is as attempting to create some semblance 7% each. prone to style effects as equities of convergence, the Government Given these factors it is surprising (value V growth, small cap v large increased Stamp Duty from 1% to 4% to learn that the proportion of real cap). One basic decision to make is in 2 years. It should come as no sur• estate allocation in conventional whether to invest for income or for prise to learn that transactions by institutional portfolios is quite small capital gains. These decisions are of offshore investors into onshore assets relative to market value. Amongst course influenced by personal cir• increasingly take the form of off• the largest institutional investment cumstances and preferences, (for cur• shore corporate acquisitions rather portfolios it comprises less than 5% rent income, lock ups for future than on shore asset acquisitions.

1 0 NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 IIBI GUEST COLUMN

• Jurisdiction Scrutiny Risk factors in real estate - the minimum requirements, but build• Increasingly, Governments are tak• Micro / Asset Specific (unsys• ings with "last mile cabling" demand a ing a closer look at the practices tematic risk) premium in today's technological age. and benefits of offshore jurisdic• tions. The stated reason is to prevent • Location • Management money laundering from organised The old adage of location, location, Of especial concern to clients from crime. Broadly, we see this increased and location being the only three overseas is the issue of management. focus on offshore jurisdictions in a things you need worry about when For single tenanted buildings, this is positive light. Some of the less buying a piece of real estate, is well often just a question of rent collec• savoury practices have fallen by the worn but still apposite, however it is tion, but for diversified funds or wayside and the more sophisticated also knowing what the best location multi-tenanted assets, especially res• locations, such as the Channel actually is, and what it might be idential, this is a far more funda• Islands may, paradoxically, benefit going forward. What is the best loca• mental issue. Without active, hands from the fact that their house is in tion for a warehouse or "internet on management, values can be order and there will be less excuse hotel'. Not Mayfair, Madison Avenue swiftly eroded to remove their status. or Park Lane or Park Avenue. The unsystematic risks outlined above are simple in concept, but by • Economy • Supply / Demand no means exhaustive. In a technical Inflation is frequently viewed as This is a continuous cycle and is sense, without specialist local pres• the real estate investor's friend. largely a question of timing. For ence, these risks are broadly mitigat• However, the negative corollary example, Canary Wharf and the dock• ed by diversification. with inflationary benefits is that lands redevelopment in London was The most important factor for an Governments tend to see higher always going to work, but only when overseas investor is local knowledge. interest rates as the method by economic conditions justified it. UK and US real estate brokers have which the economy may be cooled. not always done well when it comes This has obvious ramifications for • Tenant Quality to analysing the quality of assets those who have borrowed too high• This is an important element to any they have been offering investors in ly to make acquisitions. Currency, analysis and goes hand in hand with the Gulf Fundamentally, this is due especially for our client base, looms lease considerations. Overseas to there being no alignment of inter• large in the investment process. investors from the Middle East could est. Brokers are paid on deals sold as A number of investors now view be the target of unscrupulous agents opposed to ongoing performance. the UK and Euroland as good real in this area particularly. The most The caveat is meant to be that estate locations not only for the common mistake is to endow "gov• good deals produce repeat clients, asset dynamics but also because ernment tenant" with too much but usually the imminence of a clos• they believe that currency gains importance. A job centre in a deprived ing fee replaces any concerns over will be realisable on maturity. This area of low employment is not the longer term relationships. has proven correct in the most same as the Foreign Office headquar• The requirement for a trustworthy recent past and 2001 will be an ters for example. Look for tenant partner with a) local knowledge and interesting year for both Euro and analysis that is comprehensive. b) a willingness to co - invest or Sterling! finance is paramount. What is true • Lease Structure for the investor is also true for the • Legal System The traditional, 25 year, upward only financier. We are currently looking In both the US and the UK, the legal lease is beginning to disappear in the at two South Fast Asian transactions, systems, so far as they relate to real UK as landlords move closer to tenant which we would not do unless we property, are sophisticated and are requirements and understand that had the assistance and experience of one of the reasons why so much shorter leases can be beneficial to local ABC entities to back us up. inward investment is directed to them as well. One type of lease that is these two countries. Where there becoming more common is the infla• may be an issue, however, is in the tion related lease, which moves up c) Cyclicality, systematic risks attempts to mitigate tax liabilities against a basket of comparable prop• through tax efficient structures. erties or against an RPI base. Sometimes non local events, remote Tax counsel are faced with the and apparently unconnected with dilemma of trusting their judge• • Obsolescence real estate, cause real estate cycles. ment in the face of untested struc• Since the deregulation of the markets, This is systematic risk which is not tures and regulations, or to obsolescence has played a much immediately eradicable by diversifi• approach the IRS or Inland greater role than before. Automated cation. For example the outbreak of Revenue directly. lighting, air temperature controls are the Arab Israeli war and the subse-

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 11 IIBI GUEST COLUMN quent quadrupling of oil prices, in nities in the USA in particular that Overview: Western conjunction with an already floun• we have not seen for some years, Investment Market Outlook dering UK economy led to the crash particularly with developers. of 1974. Reversionary and secondary UK assets saw their value disappear • Abolition of Exchange Controls Yields have hardened across office, almost overnight. It is interesting to The abolition of exchange controls meant commercial and retail. Inflation looks note, however, that outside of that money could flow freely into the UK, set to remain within Government tar• London's financial district, rental and combined with the deregulation of par• gets of 2.50/0 and labour markets are values held up well. ticularly the building societies, led to a tightening. Without moving up the huge rise in borrowing by UK households. risk curve, strong out performance is • Obsolescence Et Deregulation This translated into an unsustainable eco• unlikely at a market level, although Increasingly, obsolescence is playing nomic boom and a parallel boom in prop• pockets of niche investments will a greater role in asset selection and erty values. continue to do well. vogues for new industry classes cer• tainly add to the issue of cyclicality. Europe The micro-electronic revolution has Managing this cyclicality / Due to less developed, more imper• hastened the obsolescence of exist• systematic risk fect nature of this market, there is ing buildings. Following the deregu• room for more capital uplift. lation of the financial markets in the The reality is that it is very diffi• However, a number of issues con• late '80s, the requirement and speci• cult to manage cylicality, the only spire against the unwary. Taxation is fication for space in the City - sure way to reduce systematic risk frequently levied at a far higher rate London's financial district is to reduce long term average than in the UK. Competition from changed. Large floor plate and open returns by going to cash or domestic institutions such as the plan office space was required for Treasury Bonds. One possible German insurance companies is the trading floors. There is currently approach, however, is to look at fierce, and the legal system is an undersupply of such space in demographics and some skewed towards the tenant rather London and much less building than "inevitable" trends. The "greying" than the landlord. Lastly, the market has been the case in previous years. (ageing) of western populations has to be viewed in the context of its What price the Millenium Dome? gives an indication of what type of currency, the Euro. real estate may be required - like• • Debt Crises wise the growth in tertiary educa• USA Following the third world debt crises tion gives another indication, or The US has experienced a lengthy of the early 1980's, international the demographic pointers in the period of growth and prosperity. The banks were forced to seek new out• USA residential markets. There will real estate market has done extreme• lets for their lending activities, which be cylicality within these sub mar• ly well in the past year and a half resulted in an enormous increase in kets due to obsolescence or chang• and, assuming there is no hard land• lending to the property industry and ing government regulations, but ing, should continue to perform well. subsequent over supply. Capital is the broad trend can be discerned. Otherwise, great care will be needed more restrained these days and this to identify those niche areas with leads to the kind of market opportu• good prospects. continued from p7 how is his eligibility judged? And what facilities takes precedence over that of not quick to remove it, but rather leaves should be done to enforce justice in income and wealth. Having in mind the it to the further efforts of the person societies in which injustice is incorpo• differences in people's abilities, an himself to tackle the problem. rated? It seems that "justice" is an arbi• equitable distribution of resources An important aspect of economic trary concept and its interpretation leads to an unjustifiably unequal distri• justice is reasonable prices. The market fully depends on the school of thought. bution of wealth and income. sets the prices, but which market? In The justice of Islam is therefore differ• But in Islamic economic justice, Islam, if the market behaviour is ent from the justice of other schools of society is more important than the indi• Islamic, that is, within the boundaries thought. Hence, the criteria of justice vidual. If there is a conflict of interest and frameworks of Islam, its economic must be derived from the rules of the between these two, society comes first. behaviour and activities are accepted religion. Islam tries to eradicate the social basis in the market and the prices are con• To establish economic fairness, an of poverty. If the poverty is due to the sidered to be fair. equitable distribution of resources and activities of the person himself; Islam is

1 2 NewHORIZON February 2001 DJmi Qa'da - Dhul Hijja 1421 CONFERENCES

The Middle Eastern Marketplace • Developing of International Islamic • Credit rating of Islamic-based for alternative investments Financial Money Market; financial instruments. 6th - 7th February 2001 • Harmonising Shar'iah • A case study on measuring Islamic Venue: The Jumeira Beach Hotel, Interpretation; Banking Performance in Malaysia: Dubai, United Arab Emirates • Challenges Towards Deepening of A financial ratio approach Organisers: Tearrapinn the Islamic Bond Market and Islamic Multi -Investment Funds; Further information: Further information: • Risk Management in Islamic CERT Business Consulting Tom IVIurray Banking; 289A Jalan Bandar 11, Pusat Bandar Tel: 44 (020) 78275942 • Strengthening of the Islamic Melawati 53100 Kuala Lumpur Fax: 44 (020) 72421508 Financial System: Challenges of the Telephone: 603 4108 1439/ 4108 Email: [email protected] 21 Century 9012 Fax: 603 4108 1548 URL: www.altinvest.org Email: [email protected] Further information: BIMB Institute of Research a Training The Vehicle for Exploring Sdn Bhd 20 ft 21 Floor, GREECE and Implementing Shari'ah Menara Tun Razak Jalan Raja Laut Mini Workshop: Islami'iah in Accounting, 50350 Kuala Lumpur Empiricism in Islamic Economics Commerce a Finance Tel: 603 2693 2936 ext 119/138 14th - 19th March 2001 Fax: 603 2691 0453 Mini Workshop at the 51st Annual 12-14 February 2001 Email: [email protected] Conference of the International Venue: Palmerston North Atlantic Economic Society, Athens New Zealand Organisers: Dr Humayon Dar and Organiser: The College of Business, Seminar on Islamic Banking Professor John Presley of the Massey University, New Zealand Et Finance Department of Economics, Loughborough University, Further information: 26 - 27 February 2001 Leceistershire LE11 3TU, UK. Atique Islam, PhD. Vice -President Venue: Hilton Kuala Lumpur International Conference IV Organiser: Centre for Research and Further information: P.O Box 2036 Churchlands, Training, Malaysia Dr Humayon Dar at the above address WA 6018 Australia A practical and up to date 2-day Email: [email protected] Telephone: 64 6 356 5065 seminar highlighting the opportuni• Fax: 64 6 356 6692 ties, strategies and latest develop• ments in Islamic Banking and Finance. CYPRUS Topics: Capital Intelligence Seminar/ Kuala Lumpur International • The working of Shariah principles in Workshop on "Bank Analysis ft Summit on Islamic Banking Islamic Banking and Finance Ratings" and Finance: "The Challenges of • Funding Istisna project with con• Location: Limassol, Cyprus the Ummah in the New vertible bonds Date: 19th ft 20th March 2001 Millennium" • Features of Legal documentation in Contact: Dina Vanessa James, Islamic Banking Marketing Officer £t Seminar 19-21 February 2001 • Arbitration tribunal for solving Co-ordinator Venue: Hotel Istana Kuala Lumpur Islamic Banking dispute Tel: (357) 5 342 300 Kuala Lumpur, Malaysia • Islamic Private Debt Securities Fax: (357) 5 343 739 / 817 750 Organisers: Jointly organised by Bank (IPDS) email: [email protected] Negara Malaysia (Central Bank of • Liquidity management and Islamic website: www.ciratings.com Malaysia) and BIMB Institute of securitisation Research and Training Sdn Bhd (BIRT). • Debt Financing viz-a-viz equity Islamic Banking B Finance Topics: financing in Islamic Banking Conference - 9-10 April 2001 • Global development and Strategies • Recent development of Accounting Hotel Nikko, KL, Malaysia for Islamic Banking and Finance; and Auditing standards for Islamic Organiser: Asia Business Forum • Strategic Alliance and Capitalising financial institutions Tel: (65) 536 8676 Fax: (65) 536 4350 the Information and Communication • The prospect of Takaful Instruments E-mail: info@abf com.sg Technology (ICT) era; in Islamic Banking Website: www.abf-asia.com

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 13 CORPORATE PROFILE

Islami bank Bangladesh Limited

Financial & Business Analysis: 1999 Financial Trends "An excellent year, with sound strategic direction, higher deposit Foreign Exchange Rate 31 Dec 99: balances, increased profitability and operational enhancements " 1 US Dollar = 51.15 Bangladeshi Taka

Ownership and Legal Status Net Profit

Islami Bank Bangladesh Limited was established in 1983 as the first interest free ^ 400 284 Shari'a Bank in the Country. The equity is widely held. Foreign sponsors include O Islamic Development Bank, Jeddah; Kuwait Finance House; Jordan Islamic Bank; ~ 300 171 -148 178 Bahrain Islamic Bank, Al-Rajhi Company, K.S.A. Paid-up Capital is Tk.320 million, E 200 with shares held 38% by local shareholders and 62% by foreign shareholders. The JS 100 Bank has 110 Branches in 6 zones employing 2302 people. 0 1995 1996 1997 1998 1999

The Year in Brief Total Assets Total income after provisions increased by 20.67% to Tk.l.966 million (1998: Tk.l.629 million). Pre-tax profit increased by 20.18% to Tk.178.31 million (1998: Tk.148.39 30.84 million). Total Assets increased by 19.26% to Tk.36.785 billion (1998: Tk.30.843 22.99 22.75 billion). Within this total, investments increased by 42% to Tk.l4.849 billion (1998: Tk. 10.422 billion). Deposits and other accounts increased by 25.86% to Tk.24.859 bilUon (1998: Tk.19.751 billion). Expenses (excluding profit to Mudaraba depositors) I were Tk.492.6 million (up by 12.73% from Tk.437 million in 1998). Expenses as a 1995 1996 1997 1998 1999 percentage of income were 25.06% (1998: 26.83%). Business Highlights Deposits " The year saw a push to increase the deposit base, with total deposits up by Tk.5.108 billion or 25.86%, against an average growth rate in the Banking 20 13 05 14.33 16-87 [-, sector of 15.53%. The Mudaraba Savings Bond introduced to match assets was a very popular vehicle, while the 5 and 10-year term Mudaraba Special 10 I Savings (Pension) scheme was also a source of considerable growth. I 0 I • A 7-year perspective investment plan was introduced, aimed at diversification 1995 1996 1997 1998 1999 of the investment portfolio by size, sector, geographic area, economic purpose and securities to bring in phases all sectors of the economy and all types of Number of Employees economic activity and economic groups of society. The plan aims to achieve composition of the investment portfolio comprising 5% for Agriculture and I rural development; 20% Industrial term investment; 16% Industrial working 1778 1903 capital; 7% for Housing and Real Estate; 6% Transportation and 2000 1 1350 Communications, 1% for utilities, 40% for Import, export and other trade 1000 1 activities and 2% for other activities. 1995 1996 1997 1998 19 Sector Amount 1999 Amount 1998 Total Equity (Taka Billion) (Taka Billion) 2000 "7430 1518 16S0 Commercial 8.968 4.063 1500 Industrial 4.153 5.417 1000 Real Estate 1.142 0.557 500 Transport 0.702 0.545 I 0 1 Agriculture 0.108 0.104 1995 1996 1997 1998 1999 Others 3.180 2.746 TOTAL 18.255 13.434 Total Income Total FX business increased by 5.10% to Tk.43.609 billion (1998: Tk.41.493 2500 2000 billion). Of this amount, some Tk.20 billion related to import, Tk.l4.8 billion 1500 1097 to export and the remainder to remittances. 1000 ; —I 5 new branches were opened during the year. Dhaka Zone was divided into 500 I 0 1 two; giving 7 administrative zones providing effective control, close 1995 1996 1997 1998 1999 supervision and proper monitoring of branch operations, and assistance with business development. Total Expenditure Total headcount rose to 2302, with 81 officials recruited during the year to meet increased volumes of business, man new branches and provide full 2000.0 ,,;g. J, 1500.0 1198.0 „ training for all employees. 1000.0 An additional 30 Branches were computerised with IBBS software, bringing 500.0 the total to 110 - all branches were computerised by year-end. It is planned to I 0.0 L introduce ATMs on a shared network basis by 2001. 1995 1996 1997 1998 1999

14 New/HORIZON February 2001 Dliul Qa'da - Dhul Hijja 1421 CORPORATE PROFILE

TADAMON ISLAMIC BANK

Financial & Business Analysis: Year to 31 December 1999 Financial Trends

"Continued growth in a more benign economic environment, Exchange Rate 31 Dec 1999 although rising expenses limited profit growth. " 1 US Dollar = 256 Sudanese Dinars

Associated Companies Ownership and Legal Status Name Incorp. Equity % Net Profit Tadamon Sudan 99% SD1.597 million Tadamon Islamic Banli was established and registered as a public company with Real Estate limited liability in Khartoum in 1981, and has operated since with criteria based on Company Tadamon Sudan 99% SD0.715 million firm obligadons towards Islamic Shari'a. The Bank carries out its business Trading activities through its head office in Khartoum and a total of 22 branches in the Company Tadamon Sudan 99% SD0.065 million Sudan. Paid Up Capital is SD4.974 million. Agricultural The Year in Brief Company

Total revenues for the year after deduction of unrestricted investment holders share Total Income were 12% higher at SDl.Ol billion (US$3.95 mdlion), (1998: SD905 million). Total expenditure increased by 19% to SD665 million (1998: SD557 million). 400 349 348 Ratio of Expense to Total Revenues was 65.7% (1998: 61.45%) Total Profit was g 300 228 |—1 n 120 122 marginally lower, at SD348 million (1998: SD 349 million). Shareholders Equity E 200 increased by 2.10% to SD1.498 billion (1998: SD1.467 billion. Capital adequacy Q 100 ratio was 15% by year-end against a local minimum requirement of 8%. Total m 0 Assets grew by 275% from SD 30.3 billion in 1998 to SD83.5 billion by year-end 1995 1996 1997 1998 1999 1999. Business Highlights Within Sudan, the economy grew by 6% during the year, exceeding the average growth rate for African and Underdeveloped countries. Contribution from productive sectors reached 65.6%, that of service sectors was 34.4%. After many years of depreciation, the Sudanese Dinar maintained a stable value v. the US Dollar. Average inflation was 16% (1998: 18%) Total executed investment operations totalled SD1.4 billion, comprising Musharakat SD551 million, Murabahat SD740 million and others SD96 million. These financings were distributed to industrial sectors: Total Assets Agricultural: SD178 million Industrial: SD582 million Export Sector: SD227 million II) 100.0 p 83.5 TransportAVarehousing: SD70 million = 50.0 30.3 Handicraft & Professional:SD 105 million iQn 1 Local Trade: SD129 million W 0.0 L Others: SD96 million 1998 1999 Total foreign currency returns were US$2.2 million, of which US$1.4 million were from overseas investment deposits and US$0,781 million were from local Deposit Growth Murabaha operations. Return from banking services continued to be good, increasing by 22% toSD503 million (1998: SD411 million). An advanced electronic net system was introduced during the year, linking head office with all branches. The next stage is to link branches to one another, and to the clearing department in the central bank. The Bank plans to join SWIFT in June 2000. Additionally, automation in the Shares section of the Financial Affairs Department now allows the automated insertion and classification of shareholders and transfers via the Khartoum Stock Exchange. Rxed Assets Training sessions were held throughout the year for some 207 employees, with an 1361 additional number receiving training at foreign correspondent banks. The branch « 1500 network was enhanced by the construction of a new building for Ommdurman 12i&A22Z Branch and the construction of Kosti Branch. The Bank takes its social role most .2 1000 seriously, and continued the provision of research material to students and researchers, the publication of monthly and annual journals and the participation in a number of conferences. 1995 1996 1997 1998 1999

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 15 Performance of Kuwait Finance House 2000 Mr. Bader Abdul Mohsen Al Mokhai- oping its position in the field of banking means of financing in several economic zeem, the chairman of the board and the services by focusing on speed and qual• sectors. To date 926 buildings have been Managing Director has announced that ity elements, adding to this the diversi• sold and 69 villas have been construct• Kuwait Finance House "KFH" is contin• fication in services offered. The main ed and propagated in the arable area of uing to achieve profits in a successive concern during the year 2000 was try• Al Fintas in association with "Kuwaiti and stable way. It has achieved 115 mil• ing hard to present most of KFH services Manager Company" . KFH is also con• lion Kuwaiti Dinars profit in the year through all available channels. These structing and propagating 20 villas in 2000 which represents an approximate services will reach customers via its Al Salam area along with a commercial increase of 10% over the profits of the branches, telephone, automatic teller building in Hawalli, the cost of which last year. machines and through the internet and may reach around 5 millions Kuwaiti The profits distributed to investment cellular phones. Dinars. Depositors, amounting to 67 million KFH has continued securing the Kuwaiti Dinars are distributed as per Product developing consumer goods and necessary needs profit rates as follows: At the level of new products, KFH has for clients at the best prices. KFH has • Unlimited Continuous Investment launched new bank accounts starting achieved great results in the year 2000 Deposits 6.625 o/o from the second quarter of the year as sales have grown at 12.6% compared • Unlimited Confined Investment 2000 with Short-Term (Quarterly) with the year 1999, with noticeable Deposits 5.889 % investment deposit account, which dis• growth in car rentals. • Investment Savings Accounts 4.417 % tributes its profits every 3 months. This To fulfill the general strategy of The profits distributed to stockhold• product has achieved a big success and KFH, the commercial sector commenced ers reached approximately 48 million its actual growth rates have exceeded transferring its experiences outside the Kuwaiti Dinars representing an increase the estimated figures. The demand has country by establishing several compa• of 3 million Kuwaiti Dinars, i.e. 7% more doubled after distributing profits on this nies inside and outside Kuwait. The than the profits of last year. This took product during the year 2000. KFH has most noteable among these are the Return on Share Capital to 78%. also launched the "Bara'em Account" "AutoTrast" Company in the free zone The Board also recommended dis• for children that too has met great of Kuwait. Besides these there are other tributing to the stockholders cash divi• acceptance from our customers. companies in the United Arab Emirates, dend of 42% and stock dividend of Germany and The United States. (6%), after having the approval of the Major projects In the field of financing Islamic general assembly and the relevant The chairman also referred to several companies and Automotive Agencies, authorities. major projects in which KFH has partic• KFH has financed this sector with 51 Al Mukhayzeem also said that "KFH" ipated e.g. signing an agreement worth million Kuwaiti Dinars depending on in the year 2000 has entered a new $200 million with EFECo Company for the interest product. "KFH" has also phase of development and renewal of purchasing and leasing 4 Airbus planes financed the construction of the student every aspect of the banking, commer• (A320-200 type). hostel in Sharja at a value of 10 million cial, investment and financing opera• The year 2000 also was the scene of Kuwaiti Dinars depending of the com• tions. Its strategy has focused on intro• establishing new lease portfoho in co• mission product. ducing dynamics in the operations of operation with Citi Bank, including res• investing and financing. KFH will rein• idential, commercial and industrial Ready to enter the new century force its investment in promising mar• buildings. The value of this real estate Al Mukhayzeem assured that KFH is in kets, and work for streamlining its orga• portfolio is $106 mihion, aiming to continuous progress as it has been able nizational structure and its working achieve a monthly return in addition to during the last quarter of the 20th cen• methods and following the new techno• expected Capital profits. In the field of tury to establish the values and dig out logical advances in the finance sector. direct investment, KFH has established the Islamic doctrinal writings to present KFH will further focus on improving "Solidarity Insurance Company" with a financial and investment tools and this delivery systems in its banking services Capital of 10 million Kuwaiti Dinars and became an example to follow. KFH is in several ways, aiming to achieve with a share of 27.5% of the Capital now ready to enter the wide horizons of increases in its financial sources and net value. the 21st century with all its opportuni• profits. ties and challenges depending on The new strategy has required a Activities within the Real Estate and understanding every new creation in the marked expansion of the local branches Commercial Markets field of money and business and network, and developing its information KFH has contributed a great deal in depending on undertaking the modern base and reinforcing its human activating the real estate and commer• technology with all its technical and resources. KFH has succeeded in devel• cial happenings in Kuwait through human special abilities. In this field,

16 NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 efforts have been offered to renew the porting education under the slogan Al Mukhayzeem welcomed the organizational structure like the intro• "May Allah grant you success" establishment of a legal frame sup• duction of an electronic services unit Those contributions were a continu• porting the Islamic Financial and banking products developing unit. ation of KFH efforts in serving and Foundations in Kuwait, that gives the improving the society. Central Bank the right of supervising The social role of Kuwait Finance Islamic Banks. Expressing his hope that House Competition is welcomed this will come after investigating the Al Mukhayzeem praised the social role Al Mukhayzeem mentioned his trust in opinions of experts and those involved of KFH, as it has contributed to spon• the ability of KFH to continue its efforts in this field, and that the legislation soring several scientific, cultural and to reinforce its position in the local must be an incentive and supporting to economic conferences inside and out• arena. He also asserted that KFH is bal• working within the frame of enriching side the country. It has also contributed ancing its external directions and inter• the experience, which has become a in an effective way to dealing with nal activities. distinguished example for the present pressing national issues, these issues He said that KFH welcomes the Kuwaiti economic situation. includes problems with drug addiction. competition and the presence of new At the end of his statement, Al In a historical step in Kuwait, KFH has Islamic financial foundations. He con• Mukhayzeem expressed his gratitude donated the construction of a siders this as one of the factors ensur• and appreciation to all formal and pub• Rehabilitation centre for drug addicts at ing the success of the Islamic experi• lic authorities and to the Islamic fatwa a cost of 4 mihion Kuwaiti Dinars. ment and the soundness of the and legal control authority and clients Adding to this is its contribution to the procedures which KFH has worked of "BCFH", stockholders and investors, national media campaign for fighting according to for more than twenty and to all the employees at all levels drugs, as a principal sponsor. KFH has years and was the first and only one at and and of course to the Kuwaiti soci• also supported the campaign for sup• that time. ety in general.

Professor Rodney Wilson's presenta• seem reluctant to take the initiative by IIBI LECTURE tion was on Islamic investment products promoting Shariah compliant products available in the United Kingdom. Prof for the local market. Whether the new n the 17th of January 2001, the Wilson gave an overview of the Islamic on-line financial services groups such as Institute of Islamic Banking and investment funds available and discussed ii-online.com or ihilal.com break into this Insurance hosted a lecture on the fund management possibilities in the market remains to be seen, but this may ODeveloping, Structuring and Availability United Kingdom. Prof Wilson explained be one way forward". I of Islamic Investment products in the that "London is the major European cen• The lecture was very well attended by United Kingdom. The lecture was chaired tre for fund management, both for funds a cross section of representatives from by Mr Waheed Qaiser, Head, Islamic listed onshore and offshore funds listed Islamic as well as conventional financial Investment Unit, United Bank of Kuwait. in the Channel Islands, Dublin, institutions. Mr John Bauer's presentation was on Luxembourg and other centres. There are Developing and structuring Islamic seven Islamic funds that are promoted in investment products. Mr Bauer has been the Muslim world but managed from a senior executive for thirty years with London. Four funds are promoted and experience in financial services in several managed from London. All of these are financial organisations. He discussed the designed for clients in Saudi Arabia and development and structure of products the Gulf with the prices denominated in in order to comply with the Shariah, dollars and the funds administered from Islamic Investment Market and the key offshore tax havens". success factors in offering Islamic prod• He also selected some of the Islamic ucts. Mr Bauer pointed out that there is financial institutions and discussed their Above: John Bauer, Waheed Qaiser, and a large market for Islamic investment as Professor Rodney Wilson. activities, for example HSBC, which there are over 1.5 billion Muslims world• according to Prof Wilson, has the poten• Below: Cross section of Guests. wide and Muslim investors control over tial to offer Islamic financial services to $100 billion of the available funds. Mr the local Muslim community. Prof Bauer also gave a detailed insight on the Wilson emphasised that "although f Islamic products used for investment. He London has emerged as the major west• ' also emphasised the need of Shariah ern centre for Islamic finance so far it supervisory boards in order to satisfy has failed to serve the United Kingdom investors that investments will comply Muslim community. The major retail with Islamic standards. banks and fund management institutions

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 1 7 NEWS MONITOR BAHRAIN LEBANON Merchant Bank Bhd (AMMB). The ratings agency said the reaffirmation followed the central bank's nod to Islamic Bank gives BDIm Islamic banking allow Arab-Malaysian Banking Group to terminate its merger deal gift to charities conference to be held in with Utama Banking Group. Lebanon Bank Negara also allowed Arab- Community projects and charities Malaysian Banking Group to start are to share a BD 1,141,000 gift from Beirut will host an Islamic banking negotiations with national banks' the Bahrain Islamic Bank. The aim conference in March as part of the recapitalisation agency Danamodal was to help the needy through vari• country's plans to participate more to acquire MBF Finance Bhd. ous charity establishments, as well in this fast-growing financial sector. "The outlook on AMMB is sta• as to support social, educational, "Lebanon is one of the best coun• ble," S8tP said in a statement. health, youth and welfare societies, tries qualified to deal in Islamic finan• Malaysia had ordered its 54 financial said Bahrain Islamic Bank Managing cial instruments due to the regulations institutions to merge into 10 core Director Abdul Latif Abdul Rahim that exist in the country," Ibrahim bin banking groups by December 31 Janahi. Khalifeh al-Khalifeh, Bahrain's deputy 2000. Only six of the 10 groups were He said BD200,000 had so far finance and economy minister, said at able to meet the deadline. been paid out, including BD50,000 a press conference. to the Shaikh Isa bin Salman Al "Lebanon enjoys the confidence Khalifa Library project, BD 10,000 to of a number of international finan• 2001 could be milestone Bahrain University and BD 10,000 to cial institutions, which are currently year for Islamic banking the Bahrain Centre for Studies and getting more interested in Islamic Research. banking ventures," he said. This year could mark a milestone for Others to benefit include: Bahrain The conference originated from the Islamic banking in Malaysia as it Red Crescent Society, Muharraq 25th annual meeting of the Islamic sets its sights on expanding opera• Centre for Social Care, the Shaikh Development Bank held in Beirut last tions offshore to tap the vast poten• Mohammed bin Khalifa Al Khalifa year. Prime Minister Rafik Hariri also tial that the global market has to cardiac centre at the BDF Hospital, promised to ease Islamic banking offer. Bahrain Welfare Society, Mother and operations in Lebanon. The conference In the first quarter, plantation Child Welfare Society, Al Eslah will be held on March 20-21. group Kumpulan Guthrie Bhd will Society, Islamic Society, Al Noor The conference will be jointly become the first local firm to issue Charity Society, Islamic Educational organized between Islamic Develop• global Islamic bonds valued at Society, Home Child Care Society, ment Bank, the Lebanese Central US$100mil to finance its operations. UCO Home for the Elderly, the Orphan Bank and other financial institutions. Making this possible is the Care Society, Bahrain Mobility Only a handful of banks offer Offshore International Islamic International Mobility Centre, Riffa Islamic financial services in Money Market (IIMM) carried out by Cultural Welfare Centre, Discover Lebanon. Labuan Offshore Financial Services Islam, the National Commission for Around 25 speakers from institu• Authority (Lofsa) with the co-pera- Wildlife Protection and others. tions including the World Bank and tion of the Islamic Development Charity funds to benefit include International Monetary Fund will Bank and the central banks of sever• Muharraq, Hidd, Budaiya, Riffa, Al speak on subjects such as transparen• al Islamic countries. Jasra, Naim, Hamad Town, Jidhafs, cy, corporate governance and risk While Guthrie would receive Sitra, Sanabis, Busaiteen, Shakhura, management and how they affect honours for being the first, it would Maameer, Malkiya, Mahooz and the Islamic banking. certainly not be alone as several joint funds for Sanad and Jurdab. more companies are expected to join the bandwagon to take advantage of the huge resources outside Malaysia. MALAYSIA There are nearly 200 Islamic financial institutions in the world NewHorizon welcomes news, with combined assets of over than deals, events, conferences, etc Ratings of Malaysian US$170bil, more than capable of related to Islamic banking Islamic Banks meeting the needs of Malaysian around the world to be published Islamic bonds. Standard a Poor's have reaffirmed "We will certainly be seeing more in the coming issues. the B+ long-term and B short-term companies coming forward (to issue credit ratings of Arab-Malaysian global islamic bonds) as they will

1 8 NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 NEWS MONITOR soon see the advantage of doing so," While the present remains rosy PNG were doing well. "We are look• an analyst said. "It is certainly easi• for Islamic banking, observers feel ing into a third branch in Papua New er to raise a large amount of funds that Islamic financial institutions Guinea," he said. overseas than domestically and it should not rest on their laurels. They Choo added that there were many would certainly raise their profde must move forward to face the chal• opportunities in the Greater China internationally." lenging banking environment ahead belt covering China, Hong Kong, His views were shared by Bank in the wake of globalisation. Cambodia, Vietnam and Laos. Islam (Labuan) Ltd chairman Datuk "This is especially in view of the Ahmad Tajuddin Abdul Rahman Maybank to expand development projects by the Asian who said that other potential issuers Development Bank in Cambodia, were the major corporations which overseas ops Vietnam and Laos," Choo said. have constantly been showing keen interest. The likes of Shell Malaysia Malayan Banking Bhd (Maybank) is could be among these major corpo• aiming to expand its overseas oper• PAKISTAN rations. Shell plans to invest ations, which contributed a pre-tax RM20bil over the next five years to profit of RM200.3mil for the last expand its oil and gas operations. financial year. Over the medium Pakistan to implement riba Shell corporate treasurer Lim Tau term, the focus would be on the Kien had said recently that the com• China and Middle East markets, its law from July, 2001 pany would be looking at all finan• executive director Datuk Mohammed cial instruments available in Labuan, Hussein said. Pakistani Religious Affairs Minister Dr including the Islamic bonds to raise "The Beijing representative office Mahmood Ahmed Ghazi has said that fund. is likely to be upgraded to a branch with the enforcement of 'Riba On the domestic front, the Islamic office in the next one to two years," Prohibition Ordinance' by July 1st, banking sector led by Bank Islam he said, adding that Maybank 2001, domestic transactions and inter• and Bank Muamalat Malaysia Bhd expected its newly-opened branch at nal dealings will be strictly in accor• continued to make inroads by gain• the Pudong financial district, dance with Shariah and no person, ing popularity across Malaysia's Shanghai, to take off well. group of persons, individual, associa• multi-ethnic and multi-racial soci• "The next step is to look at the tion or any institution will have the ety. Islamic banking total assets central region of China," said Choo authority or freedom to do any Riba- grew strongly as at end-1999 by Yee Kwan, general manager of inter• oriented transaction. RM14.1bil or 65.3% to RM35.8bil. national operations. "With foreign He made clear that in the event of "This is certainly an achievement investment moving into the centre, violation, the defaulters will incur the to be proud of, considering that the region especially around the penalisation provided in the Draft Islamic banking assets were only at Wuhan-Chongqing industrial belt, Ordinance. He pointed out that at the about RM5 billion five years ago," will become more important" same time no court would issue any the analyst said. Meanwhile, the bank has applied decree for the enforcement of Riba He said Islamic banking had also for a presence in Bahrain to do after the Prohibition of Riba gained its deserved recognition for Islamic financing in capital markets. Ordinance. its role in the local private debt secu• "We want to tap the main source As for international transactions, rities (PDS), gaining prominence and of Islamic capital instruments, in one should bear in mind that the preference among local institutions line with the Labuan Offshore Supreme Court has not issued any and companies. Financial Services Authority's directive on them, he added. This is Total funds raised through the (Lofsa) aim to promote these instru• because international transactions Islamic debt securities in Malaysia as ments," Mohammed Hussein said. are not regulated by any law of at Aug 31 2000 stood at RM6.079bil Maybank's global network com• Parliament and the Supreme Court is or 40% of the total funds raised in prises Malaysia (355 branches); the striking down some of the laws. the financial system compared with Philippines (59 branches); Singapore Hence international transactions are RM8.69bil raised through the con• (22 branches); Brunei (3 branches); not directly affected by the judge• ventional PDS. The main reasons for Papua New Guinea (2 branches), the ment of the Supreme Court. this success were largely due to US, Britain, Indonesia and Cambodia But the proposed law takes inter• increasing number of Islamic funds (one branch each); Vietnam (one national dealings into consideration and the rising number of unit trust branch and one rep office). The bank and has provided some basic princi• funds tapping the bond market also has a rep office each in ples under which the government which had turned to Islamic Private Myanmar and Uzbekistan. will be bound to make efforts to Debt Securities as a means to diver• Mohammed Hussein said the reorganise international dealings in sify their portfolios. bank's operations in Cambodia and such a way that they conform with

NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 19 NEWS MONITOR the principles of Shariah. He reit• Minister for Religious Affairs erated that the government will Dr Mahmood Ahmad Ghazi Courtesy of United Bank of Kuwait abide by the time frame set by presided over the meeting and The Islamic Investment Banking Unit the Supreme Court with regards asked the authorities to utilise all to the switch over to the interest efforts for the purpose. EXCHANGE RATES free economy. Asked how far he was confi• SPOTS STG USD dent that the system would work, ALGERIAN DINAR 102.6439 69.94 he said, "I am very optimistic SAUDI ARABIA BAHRAINI DINAR 0.5531 0.3769 and confident that the alterna• DJIBOUTI FRANC 161.4 tive system is viable and it 236.8706 EGYPTIAN POUND 5.6503 3.85 would work effectively and the IDB reports its activities transition would be smooth and GAMBIAN DALASI 22.0140 15 there would be no problem at all. From an official statement, Islamic INDONESIAN RUPIAH 13,795.44 9,400.00 As a Muslim, I believe that Development Bank's Director Dr. IRANIAN DINAR 2,546.29 1,735.00 since Allah has abolished inter• Abderrahim Omrana stated that •IRAQI DINAR 0.46 0.31 est. He must have given viable IDB has approved 230 operations JORDANIAN DINAR 1.0391 0.708 alternatives. In the absence of amounting to US$2100 million in KUWAITI DINAR 0.4491 0.30604 viable alternatives the prohibi• favour of 43 member countries LEBANESE POUND 2,202.87 1501.00 tion of Riba becomes doubtful and 18 Muslim communities in •LIBYAN DINAR 0.7900 0.5383 and there is nothing doubtful in non-member countries. MALAYSIAN RINGGIT 5.5761 3.7995 the Quran. The very Quranic With the addition of the oper• MOROCCAN DIRHAM 15.5511 10.5963 verse in which Riba has been ations approved during the past NIGERIAN NAIRA 160.56 109.40 prohibited also provides the months of 142IH, the total alternatives. amount approved by the IDB since OMAN! RIAL 0.5650 0.38498 The verse provides that trad• it started financing operations 25 PAKISTANI RUPEE 85.7078 58.4 ing has been permissible and years ago reaches US$ 24.6 billion QATAR RIAL 5.3413 3.6395 Riba has been prohibited. It in favour of 53 member countries SAUDI ARABIAN RIAL 5.5042 3.7505 means that trading in which and 63 Muslim communities in STERLING POUND 1.00 1.4676 there is equal participation by non-member countries. •SUDANESE DINAR 379.6681 258.7000 both parties, the financier and The year 1420H was marked SYRIAN POUND 66.0420 45.0000 the entrepreneur is the alterna• by a recovering world economy, TUNISIAN DINAR 2.0190 1.3757 tive mode and Riba is prohibited. which suffered in the mid-90's TURKISH LIRA 986,858 672,430 Riba is not trading. due to the South East Asian crisis. UAE DIRHAM 5.3901 3.6727 But any trading transaction The world output grew by 3.3 % UGANDAN SHILLING 2,709.19 1,846.00 between both parties which is in 1999, the Middle East benefit• UNITED STATES DOLLAR 0.6814 1 equal and has mutual participa• ing also from growing oil prices. YEMEN RIAL 241.90 164.83 tion, is permissible." In the IDB member countries, the growth of the Gross Domestic "Please note these currencies are estimated values only, Product (GDP) in the year 2000 is as for political reasons or otherwise, are not readily traded. estimated at 4.5 % thus being Pakistan sets up higher than the growth rate of Shariah advisory board GDP in western countries. The trade balance position of in Muslim countries, especially in Africa. in State Bank the IDB member countries, which Currently more than 660 million people in The government has decided to improved from a deficit of US$ IDB countries, or 60% of their entire popu• set up Shariah Advisory Board in 20 million in 1998 to a surplus lation representing a quarter of the world's State Bank of Pakistan to elimi• of US$ 38.6 billion in 1999 is a poor. It is especially here that not only the nate Riba and bring banking positive sign. This is again IDB but other Islamic financial institutions laws in consonance with Islamic explained by the increased earn• and the ummah as a whole need to focus injunctions. ings of oil exporting countries as on. The decision was taken in a well as the recovery of some Not is it only the duty of Muslims to meeting of task force constituted major members like Malaysia. help their poorest brothers and sisters by government for the purpose One of the major reasons why world wide, but without helping them to of moulding existing banking IDB was established in 1975 create economic strength it will remain system into interest-free Islamic remains at least as critical as it very difficult to set the basis for a better system of banking. was then, that is to fight poverty future of the Muslims.

20 NewHORIZON February 2001 Dhul Qa'da - Dhul Hijja 1421 The Premier Conference on Leading Presenters From MALAYSIA, BAHRAIN, KUWAIT, INDIA and the UNITED KINGDOM include:

• Abdeitiai( El-Kafsi Managing Director ISLAMIC islamic Finance Consultants (IFC), Bahrain • Hafedh Maamourl Consultant, Partner with islamic Finance Consultants (IFC), Bahrain • Tariq Ai-Rifai, Partner The International investor, Kuwait • Danial Mah Abdullah Director, Banking & Marketing Department Labuan Offshore Financial Services Authority & FINANCE • Meor Amri Bin Meor Ayob Head of Islamic Debt & Key Su€€ess Tools and Sfraiegies Transportatton Rating Agency Malaysia §or fhe 2V* Cenfury • Dato Dr. Kamaruddin 9 -10 April 2001, Hotel Nikko, Kuala Lumpur, Malaysia Sharif, Principal Officer / General Manager Takaful Nasionai Vital Issues to be Addressed; • Assoc. Prof. Dr. Mohd Global Trends and Outlook of Islamic Banking and Finance Daud Baiur, Dean, Centre Islamic Banking and Finance in Labuan lOFC tor Postgraduate Studies international islamic Strategic Risk Management with Financial Derivatives in Islamic Financing University

Practical Considerations in Islamic Project Financing • Wan Hasian Wan Hassan Advantages of Islamic Banking in Project Finance Head, Finance and Corporate Affairs e-Age Technologies in Islamic Banking Marditech Corporation Management of Risk Factors in Islamic Project Finance • Azmi Mohd Ail, Partner Latest Developments in Islamic Insurance / Takaful Azmi & Associates Evaluating and Rating Islamic Based Financial Instruments • Warren Edwardes Marketing of Islamic Financial Products and Services Head of Treasury & Capital Markets Sales Retail Islamic Financial Products in a Western World KBC Bank NV, London Equity Financing viz-a-viz Debt Financing in Islamic Project Financing: • Girish G. Vaidya Shari'ah and Legal Issues, Instruments and Prospects Senior Vice President and Head, Banking Business Unit Organised by: Endorsed by; Official Publication: infosys Technologies, India The Asia • Mohamed Ismail m^^^. J Institute of Islamic BUSINESS Mohamed Shariff ^^^^^ Banking and Insurance Principal Partner FORUM Mohamed Ismail & Co www.abf-asia.com Special Discount of 10% to the members of Institute of Islamic Banking & Insurance

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