Shall We Dance? 850 the Increasing Att Ractions of Kazakhstan

The World’s Global Islamic Finance News Provider 5th October 2011 RED (All Cap) Shall we dance? 850 The increasing att ractions of Kazakhstan

825 Cover Story introduced a raft of legislation to encourage Islamic fi nance, att racting considerable Aft er years of being the wallfl ower, 800 800.31 3% foreign interest, and has plans to issue a the CIS region is fi nally starting to debut sovereign Sukuk of US$500 million att ract interest from investors. Islamic by the end of the year. It has the clear 775 institutions in the Middle East and goal of becoming the regional leader for 776.64 Asia are turning their att ention to the Islamic fi nance. But how 15 former Soviet 750 successful have these W T F S S M T republics that make steps been, and which Powered by: IdealRatings® up the Commonwealth other regional debutantes of Independent Volume 8 Issue 39 are also hoping for a States, which together dance? IFN Rapids ...... 2 with Russia have an Islamic Finance News ...... 6 estimated Muslim IFN Reports: Fundraising oppurtunities remain; population of over Domestic Renewed interest; ...... 12 120 million; off ering development IFN Correspondents: Brunei; Canada; an att ractive array of 17th to 19th October 2011, “I see huge potential Indonesia; Saudi Arabia; SriLanka; UK ...... 13 potential partners. Out Kuala Lumpur Convention Centre for Islamic fi nance Insider: of the many Muslim- development both in EIIB’s new shareholder casting doubts on business? ....17 majority CIS countries, www.ifnforums.com retail and corporate Features: Kazakhstan has emerged sectors, particuarly for Challenges: First Islamic fi nancing for real estate as the most nimble- SMEs,” says Olzhas investments in Japan...... 18 footed. But is the country dancing the Beisembayev of BTA Bank, Kazakhstan’s Structured fi nance in the microfi nance sector in right steps, and if it stumbles, who else is third largest lender. “Islamic fi nance India ...... 20 waiting in the wings? continued on page 3 Can Islamic banking benefi t from the present economic turbulence? ...... 23 With GDP growth of 6.8% in 2010 and Unlocking latent Shariah risk: Measuring and treatment...... 26 revenue from oil exports estimated at opportunities over US$38.2 billion in 2010 with around Islamic Investor US$76 billion in foreign direct investment, Editor’s Note Japan: Steadfast despite adversities ...... 29 Kazakhstan is a regional economic News ...... 30 powerhouse. The country reads as a As we commence the fi nal quarter Feature: regional success story, and its banking and of 2011, it is unfortunate to note that Islamic wisdom will save the west ...... 31 fi nance sector has developed accordingly, economic and fi nancial conditions have Fund Focus: with total capitalization in 2010 of KZT1.77 deteriorated since the beginning of the OSK-UOB Global Food Islamic Equity Fund ..... 33 trillion (US$12 billion) and total assets of year, with the outlook ahead increasingly Funds Tables ...... 34 KZT11.93 trillion (US$80.6 billion). weighed down by negative prospects.

Takaful News The country has a population of 16.6 While the Islamic fi nance industry has All-encompassing ...... 36 million of which over 70% are Muslim, not been shielded from the gloom, we at Islamic Finance news prefer to stay News ...... 37 and the government has indicated that the cautiously optimistic and hold strong Feature: emerging Islamic fi nance sector will play a to the view that growth prospects still Islamic banking and Takaful in Oman: What key role in its industrial growth program, remain as long as we stay wary of could this mean for the country? ...... 38 with plans to att ract up to US$10 billion in risks and keep an open mind towards Islamic fi nance over the next fi ve to seven untested opportunities. Meet the Head: years: giving Islamic fi nance a 10% share of continued on page 5 Wan Azman Wan Mamat, CEO, AIA AFG Takaful .. 40 the country’s banking asets. Kazakhstan has Deal Tracker ...... 41 REDmoney Indexes ...... 42 Perfomance League Tables ...... 44 Events Diary...... 48 Company Index ...... 49 Subscription Form ...... 49 www.islamicfi nancenews.com IFN RAPIDS

Qatar International S&P has affi rms its ‘AAA’ NEWS Islamic Bank plans to issue INVESTOR long-term and ‘A-1+’ short- KLCC Property Holdings to benchmark-sized Sukuk Emirates NBD Asset term credit ratings for the IDB issue US$274 million Sukuk to News of four shopping Management collaborates Moody’s affi rms a provisional refi nance existing debt malls used to guarantee with Man Group to manage ‘(P)A3’ rating on TAQA’s and grow its alternative Malaysia needs to produce US$800 million fi nancing is planned US$1.1 billion Sukuk strategies fund dynamic Shariah intellectuals, “categorically incorrect”, says program Emaar Properties says deputy fi nance minister HSBC’s second US$100 RAM reaffi rms ‘AA1’ rating million HSBC UAE SME Credit Agricole to move its Qatar First Investment Bank of Ranhill Powertron’s fund fully allocated in three M&A business in the Middle receives 10% stake in Watania US$169 million Islamic notes months East back to France IPO Vanguard Life Assurance More oil and petrochemical Total deposits of banks in MOVES Kuwait increased by 9.6% to Company plans to introduce companies in the Gulf turn to Sharifuddin Khalid, director US$6.2 billion in the fi rst half Shariah compliant pension Islamic fi nancing of promotion unit at MIFC to of 2011 fund Bank Asya to acquire local leave on the 30th September Abu Dhabi National Energy Growth of global Islamic brokerage house Barclays Wealth appoints plans to set up fi rst ringgit- funds likely to be hampered Rory Gilbert as managing PwC‘s Middle East practice denominated Sukuk program in 2011, says SEI Investments director and head of MENA posted 31% growth for the worth US$1.1 billion fi nancial year ended the 30th June for its international private Islamic fi nance industry can TAKAFUL banking unit US$63 billion-worth of help improve global fi nancial Great Eastern Takaful Sukuk were issued during Kuwait International stability, says IDB president seeks up to US$11 million in the fi rst nine months of 2011, Bank appoints Loay Fadhil total weighted contribution according to Zawya Sukuk Abdullah Al-Khodari & Sons Maqams as executive through i-Great Amal plan by Monitor Company renews Islamic vice-president and general fi nancing facilities worth the end of 2012 manager of fi nance and KFH-Bahrain unveils new US$240 million AIA Malaysia launches fi rst investment mobile banking service Emirates NBD looks to Takaful agency in the country Emirates NBD Capital names Mouwasat inks two expand to Asia Pacifi c through joint venture with Khaled Masri as CEO Murabahah fi nancing AIA AFG Takaful agreements with Samba First Leasing Bank considers Government appoints seven PruBSN Takaful introduces Financial Group worth merger with Ithmaar Bank new directors for Reserve PruBSN link series Bank of India US$46.7 million Fawaz Abdulaziz Alhokair Takaful Emarat establishes Nakheel has no plans to issue and Company gets US$50 Banque Saudi Fransi new head offi ce in Dubai more Sukuk million Murabahah fi nancing appoints Patrice Couvegnes facility Etiqa Takaful launches four as managing director and Tamweel plans to issue foreign partner representative KFH secures approval from new Takaful products US$300-500 million-worth of to its board of directors Sukuk in the fourth quarter of central bank to extend share this year buy-back period by six RATINGS Bank Pembangunan months Malaysia names Mohammed Bahrain’s US$1 billion RAM reaffi rms Hong Leong Hussein as chairman sovereign Sukuk to have Political instability could push Industries’ ‘AA3/P1’ ratings seven to 10-year maturity up the price of Bahrain’s for US$157 million Islamic SHUAA Capital appoints planned US$1 billion notes Michael Philipp to board of Yemen government approves sovereign Sukuk directors fi nancing agreement with the Fitch affi rms Mashreqbank’s IDB worth US$21 million SHUAA Capital and long-term IDR at ‘A’ RBC Dexia Investor Services National Bonds Corporation names Cormac Sheedy as Project Sukuk issuances ink MoU to establish strategic MARC withdraws senior executive offi cer for expected to increase with the alliance ‘AAIS’ rating on DRIR Middle East and Africa region launch of SATORP’s US$1 Management’s senior class A billion Sukuk Aabar Investments to borrow Sukuk Ijarah medium-term Law fi rm King & Spalding US$1.9 billion from Abu notes appoints fi ve lawyers to its Former CEO and founder of Dhabi Commercial Bank to offi ces in Abu Dhabi, Dubai Unicorn Investment Bank fund acquisition of Malaysia’s Moody’s assigns ‘Baa’ rating and Riyadh says Deloitt e investigation a RHB Capital to BLME US Dollar Income confl ict of interest Fund

Disclaimer: Islamic Finance news invites leading practitioners and academics to contribute short reports each week. Whilst we have used our best endeavors and eﬀ orts to ensure the accuracy of the contents we do not hold out or represent that the respective opinions are accurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright remain with REDmoney.

Shall we dance? CLOSING BELL Continued from page 1 Jaiz to start before year-end would be the perfect tool for investing to the Law on NIGERIA: The country’s fi rst Islamic in agricultural projects, infrastructure Capital Markets were bank, Jaiz International Bank, will projects, the construction of airports and adopted, which allow commence full operations before the the purchase of aircraft .” government bodies end of 2011, according to Sanusi Lamido as well as legal Sanusi, the governor of the Central Bank The domestic market for Islamic fi nance entities resident of Nigeria. has been developing in Kazakhstan in Kazakhstan since 2006, when BTA Bank att racted a to issue Islamic Jaiz received its license from the central Murabahah Islamic syndicated loan of securities. To bank in June 2011. US$200 million. In 2007, BTA att racted create favorable conditions for Sukuk a further US$250 million syndicated issuance, a securities sector has been set No Islamic finance regulator Wakalah facility. Originally launched up on the Kazakhstan Stock Exchange for just US$150 million, BTA increased and new listing rules have been OMAN: The Central Bank of Oman the facility to US$250 million due to adopted.” The government plans to issue (CBO) is not planning to establish a its popularity with Middle East and its debut sovereign Sukuk for US$500 national Shariah board to regulate Malaysian investors, and according million by the end of 2011, and Omarov the Islamic banking sector, despite to Beisembayev it became “the largest adds that: “The issuance will create a earlier reports that it would, according Islamic fi nancial institution syndicated benchmark for corporate lenders.” to Hamoud Sangour al Zadjali, the deal outside the Middle East at that executive president of CBO. time”. Subsequent to this success, BTA In 2010, the country continued its Bank established a separate department development program with the 2010- Hamoud explained that the central bank dealing with Islamic fi nance, pushing for 2012 Islamic Finance Development will most probably ask the individual the national regulators to develop a legal Roadmap, which aims among other banks to set up their own Shariah infrastructure to encourage the industry, things to att ract further foreign direct supervisory boards. and in 2008 Nursultan Nazarbayev, the investment from member countries of president, approved a government group the OIC, which Kazakhstan currently MALAYSIAN ASSURANCE to begin developing amendments to chairs. Omarov outlines the areas allow Islamic banking. covered by the Roadmap, including: ALLIANCE “Further development of legislation, MALAYSIA: Malaysian Assurance assistance in issuing Sukuk, att racting Alliance (MAA) has appointed Chee of Islamic investors, adoption of Cheong as its CEO, replacing Muhamad Kazakhstan international standards, establishing an Umar Swift , with immediate eff ect. educational center for Islamic fi nance, has a unique cooperation with international Islamic The appointment follows the acquisition institutions and building Islamic fi nancial by Zurich Insurance Group of 100% competitive architecture.” of MAA’s share capital. Chee was advantage in previously the chief distribution offi cer, On a regulatory level, additional Global Life Asia Pacifi c and Middle East attracting Islamic developments are also forthcoming. at Zurich. Omarov confi rms that: “For further finance improving legislation the national LABUAN FINANCIAL SERVICES bank has initiated amendments to investments the current law on insurance in order AUTHORITY to create a legislative framework for MALAYSIA: Islamic Finance news has Takaful companies, along with changes learnt that Ahmad Hizzad Baharuddin Legislative growth to develop the Islamic banking sector has been appointed the director general In 2009, the republic became the fi rst such as Islamic deposit insurance, the of the Labuan Financial Services country to introduce legislation for operating of commodity Murabahah and Authority, replacing Azizan Abdul Islamic fi nance with amendments to a Wakalah, the registration of assets, and Rahman. number of its national laws including tax issues.” the Civil Code, the Tax Code, the Law Ahmad Hizzad was previously the of Banks and Banking Activities and the At the Kazakhstan Islamic Finance director of Islamic banking and Takaful Law on Financial Markets. In addition: Conference, held in March 2011, the at Bank Negara Malaysia, the central “A lot of work has been carried out deputy prime minister Asset Issekeshev bank. He has been replaced by Wan in relation to the enhancement of the reiterated the importance of Islamic Mohd Nazri Wan Osman. legislative and taxation basis for the fi nance in diversifying the national issuance of Sukuk,” says Timur Omarov, economy: “Islamic fi nance is crucial for Wan Mohd Nazri was previously the the head of the fi nancial literacy division economic development and innovations. director of the fi nancial intelligence unit for the National Bank of the Republic of Having understood the vital role it can at the central bank. Kazakhstan. “In July, new amendments continued...

Shall we dance? Continued from page 3 play to att ract investments from Islamic Kausar Consulting, Akyl-Kenes the tax legislation, nations, the government has extended Consulting, Islamic Financial Instruments the tax treatment state patronage by amending the laws. and Mutual Halal Insurance Takaful. of certain Islamic We are confi dent that Islamic fi nance will products also remains lead the way to att ract funds, especially Kuwait Turk Participation Bank has also unfavorable compared from the Gulf countries and the other reportedly received a license from the to conventional Muslim countries.” Turkish central bank to open a branch counterparts, in Kazakhstan, and has already opened particularly regarding International interest a representative offi ce in Almaty, while VAT treatment. In this respect, Kazakhstan has been a local subsidiary of Russian Sberbank the most successful among its regional has expressed readiness to establish its According to Beisembayev, Sukuk also peers. In its 2011 report, Challenges & Islamic fi nance business. According to still poses some problems: “For instance, Opportunities for Islamic Finance in Beisembayev: “Sberbank Kazakhstan, originators are limited to Islamic banks Kazakhstan, Ernst & Young confi rmed Akyl-Kense Consulting (Kazakhstan) and national holdings or managing that: “The government’s commitment and Unicorn Investment Bank (Bahrain) holding companies. Market players to make Kazakhstan an Islamic fi nance recently signed a memorandum of would like to see state and privately- center, coupled with the country’s cooperation, and companies have already owned companies also issue Sukuk current leadership in the CIS in making expressed readiness in utilizing Islamic directly. The government of Kazakhstan legislative changes to allow the operation fi nance instruments when fi nancing can issue sovereign bonds, but not a legal of Islamic fi nance institutions, should projects of Sberbank’s clients.” entity such as a special purpose vehicle.” give Kazakhstan a unique competitive advantage in att racting Islamic fi nance In addition, he says, the forced The former chairman of the Regional investments and help the country achieve Industrialization Program 2020, led by Financial Center of Central Asia, Arken its goal of becoming a leading fi nancial President Nursultan Nazarbayev, has Arystanovm, has stressed that local center for the region.” att racted interest from a number of business strongly needs Sukuk issuance foreign investors, including Мubadala by the ministry of fi nance, a transaction “As the Islamic fi nance market in Group, FORAS International, Homeland which should then be followed by Kazakhstan is at very early stage of Development Group (КСА), MAY Group, issuances from state-owned companies development, its growth can be boosted ALM Group and Markmore Holding KazAgro and Prodkorporaciya, as “local mainly by investments from overseas,” (Malaysia), Kuwait Finance House, business can not access foreign capital explains Beisembayev. “For now, Kazakh EMP Partners, Batelco and CAPIVEST markets and att ract Islamic fi nance authorities specifi cally rely on investors (Bahrain). without having a benchmark”. from Middle East and Southeast Asia regions.” Joining the dance Many CIS The industry is in its infancy in the CIS Between 2006-2007 the country’s region and while the initial lead may private fi nancial institutions, including players are have been taken by Kazakhstan, the fl oor BTA Bank, signed several agreements remains open for new players. However, with international partners in the struggling with many are struggling with government sector. In 2009 Kazakhstan signed an apathy or in some cases even antipathy, intergovernmental agreement with the government apathy, which in contrast to Kazakhstan’s UAE to set up its fi rst Islamic bank, eagerness has considerably restricted Al-Hilal, in Almaty. Al-Hilal currently or in some cases development. As Omarov explains: has around US$250 million in assets, even antipathy “Within the CIS region Kazakhstan is by predicted to reach US$1 billion in two no means the only country where there years, and has opened two further is an interest in Islamic fi nance, but it is branches in Astana and Shymkent. considerably further along the road.” Fatt ah Finance, a local Islamic brokerage Hiccups and hurdles company with shareholders including There is no doubt that Kazakhstan is the Azerbaĳ an’s aspirations of becoming Malaysia’s AmanahRaya (55%) and the current belle of the CIS ball. However, a regional hub for Islamic fi nance state-owned Development a number of challenges still remain. are constrained by its legal set-up. Bank of Kazakhstan Conventional banks currently are not According to the team leader for the (40%), plans to allowed to provide Islamic fi nancial introduction of Islamic banking at establish a second products as Islamic windows are the International Bank of Azerbaĳ an Islamic fi nancial prohibited under the General Banking (IBA), Behnam Gurbanzade, there is institution in Law. Legal issues involving the transfer a strong demand from both corporate 2011. Other of ownership rights are still complex, and private individuals for Islamic players include while the system of accounting principles banking products and services, and IBA the Istisna’a for Islamic products leaves a lot to is planning to launch an Islamic branch Corporation, be desired. Despite amendments to continued...

Shall we dance? Continued from page 4 in the autumn of 2011. Several banks had no plans to develop Islamic banking Bank, IFC Linova, Al Shams Capital and already off er interest-free banking on a within the next two to three years. Yumart Finance. voluntary basis, including Kauthar Bank Following this statement Kovarsbank, a and Russian-owned Bank Nikoil, while small domestic bank att empting to off er The president of Tatarstan, Rustam Amrahbank (partially owned by Bahrain- a full range of Islamic banking services, Minnikhanov, is pushing for based International Investment Bank) saw its license withdrawn by the central amendments to Russian federal also has plans to tap the Islamic market. bank in January 2011. Azerbaĳ an has legislation that will encourage Sukuk, a strongly secular government, and and in January signed an accord with Gurbanzade warns that: “It is clear that AmanahRaya, Kuwait Finance House, the introduction of the Islamic banking in and Linova during a visit to Malaysia. With its Azerbaĳ an should be gradual and should However while experts at the Russian not violate the constitution and banking Finance Academy are reported to be pioneering legislation,” which is likely to limit its working on a draft law for Islamic potential. fi nance, the vice president of Russia’s moves in the region, Regional Banks Association, Oleg Ivanov, Similarly Russia, which should be an has been quoted as saying that: “We Kazakhstan can obvious player with an estimated Muslim should not expect it for another two to pave the way for population of 25 million and several three years.” Muslim-majority regions including the development Tatarstan, Bashkortostan, and Dagestan, Belle of the ball also has as yet no specifi c legislation to Beisembayev hopes that: “With its of Islamic finance facilitate Islamic fi nance. pioneering moves in the region, Kazakhstan can pave the way for the in other CIS A number of signifi cant transactions development of Islamic fi nance in other have recently been enacted: including CIS countries,” and it certainly looks countries Tatarstan’s fi rst Sukuk announced in June like there are no current challengers to 2011, and a US$60 million syndicated Kazakhstan’s dominance. Despite some Murabahah facility launched by Akbars setbacks, the country’s enthusiasm for However, the sector is hindered by laws Bank in September, which it is hoped will the industry sets it in stark contrast to its which do not currently allow a full range open the door for other Islamic fi nance neighbors. Perhaps its success will give of Islamic banking services, and at the projects. Several institutions are already its CIS siblings the confi dence to stand end of 2010 the chairman of the central off ering some form of Islamic products up and dance. — LM bank, Elman Rustamov, announced that it and services in Russia, including Ellips Unlocking latent opportunities Editor’s Note CIS region, especially Kazakhstan. Islamic hedge funds, while Al Madina Insurance Company contributes our As we commence the fi nal quarter Managing risk is also an important of 2011, it is unfortunate to note that Takaful feature on Islamic banking and factor in navigating these tough times economic and fi nancial conditions Takaful in Oman. and Shan Saeed, a fi nancial economist have deteriorated since the beginning and commodity expert, contributes of the year, with the outlook ahead Insider highlights recent developments increasingly weighed down by an article on how Islamic banks can at the European Islamic Investment negative prospects. maneuver through this trying period; Bank and we also have IFN reports on while Hassan Ahmed Yusuf, the the prospects for corporate fundraising operational risk manager at Masraf Al While the Islamic fi nance industry has in current market conditions, and the Rayan, discusses how to measure and not been shielded from the gloom, we resurgence of American investment manage Shariah risk. at Islamic Finance news prefer to stay banks in Indonesia. cautiously optimistic and hold strong to the view that growth prospects still Meanwhile, asset and fund management Our IFN correspondents have remain as long as we stay wary of fi rm Atlas Partners Japan writes on writt en on Brunei’s Center for Islamic risks and keep an open mind towards the development of Shariah compliant untested opportunities. structures and products in Japan. Banking, Finance and Management; the implication of the growth of rahn This week, our cover story looks at Our Islamic Investor feature this fi nancing in Indonesia’s Islamic banks; some of the most frequently overlooked week is contributed by Toby Birch and the development of the Islamic markets, highlighting the developments of Oppenheim & Co, who looks at fi nance industry in Canada, Saudi of the Islamic fi nance industry in the the permissibility of and need for Arabia, Sri Lanka and the UK.

extensive provision of Islamic fi nance AICL in Shariah quandary contributing to the buyers’ att raction to AFRICA INDIA: The central bank, Reserve Bank the market. Call for zakat foundation of India (RBI), has ordered Alternative Investments and Credits (AICL) to TUNISIA: Shariah scholars and legal Branching out explain the basis of its ‘participative experts have urged for the formation fi nancing’ deals and to publish an interest of a zakat foundation to overcome MALAYSIA: HSBC Amanah Malaysia rate structure aft er a recent inspection of poverty and unemployment as well as has opened a new branch in the state of the company. to contribute to the development of the Perak, its ninth branch in the country. country’s economy. Junior savings launched According to RBI, AICL is not complying with the central bank’s requirements for Methodology replication MALAYSIA: Bank Islam Malaysia conventional banks, which consists of a CAMEROON: The Islamic Saving expects to att ract 100,000 depositors fair practice code requiring fi nanciers to and Credit Cooperative of Cameroon and RM50 million (US$15.7 million) in provide the terms and conditions of their (CECIC) will replicate Pakistan- deposits within the fi rst year of launching funding. based Farz Foundation’s microfi nance its Al-Awfar Junior Savings Account-i. methodology. KM Abdul Salam, the managing director Al-Awfar Junior is a Murabahah-based of AICL, said that the company’s Farz will provide CECIC with technical savings account for children. directors have since met with RBI assistance on Shariah compliant poverty offi cials to explain the confl ict of interest alleviation services. Subsidiaries up for sale between the central bank’s directive and INDONESIA: Bank Negara Indonesia the laws of Shariah, which forbid the Call for Takaful is putt ing three of its subsidiaries up use of interest rates and instead rely on principles of profi t sharing. NIGERIA: A lack of Islamic insurance to for sale: namely BNI Life Insurance, BNI Multifi nance and BNI Syariah, , protect the investments of Islamic banks According to the principles of profi t could slow the growth of the country’s according to Yap Tjai Soen, a director at the bank. sharing, Islamic banks receive funding Islamic fi nance industry, according charges consisting of the share of profi ts Sanusi Lamido Sanusi, the governor of from their borrower’s payments if the the Central Bank of Nigeria. Yap elaborated that investors from Asia and the Middle East were interested in borrower has earned a profi t. He added that the country also lacked buying the subsidiaries, but there have been no fi rm discussions yet. However, if there are any unavoidable the knowledge, skills and technical losses at the end of the year, the borrower capacity as well as the legal guidelines is not required to pay any funding required to regulate and supervise First tranche of US$623 charges. This was one of RBI’s primary Islamic banks. million Sukuk issued concerns regarding AICL. MALAYSIA: AmIslamic Bank, a subsidiary of AMMB Holdings, has KM Abdul said that the company will ASIA issued a RM600 million (US$187 million) strive towards making its funding Sukuk comprising the fi rst tranche structure adhere to RBI’s banking Holistic approach of its RM2 billion (US$623 million) regulations while maintaining Shariah PAKISTAN: Non-banking fi nancial subordinated Sukuk Musharakah compliance. Institutions and the Modaraba program. Association of Pakistan have stressed AICL has been given until mid- the need for a comprehensive Shariah Proceeds from the US$187 million October to comply with the directives. compliance system to maintain the tranche will be channeled towards Additionally, RBI has also asked the confi dence of stakeholders in the Islamic AmIslamic Bank’s general working company to review its fi nancial model. fi nancial system. capital, which includes refi nancing its existing RM400 million (US$124 million) AICL is a non-banking fi nancing Islamic finance pulls real subordinated Sukuk Musharakah and company based in the state of Kerala. funding the expansion of its Islamic The company has a paid-up capital of estate buyers fi nancial services business. INR75 million (US$1.5 million) while MALAYSIA: Economic uncertainty its liabilities and assets comprise of and the availability of Islamic fi nance OSK merger moves shareholder funds and various non- are spurring more Middle Eastern real fi nancing funding in the form of estate investors to look into markets MALAYSIA: RHB Capital and OSK participative fi nance respectively. such as Malaysia, according to IP Global, Holdings have submitt ed applications to a property investment company, in its the central bank, Bank Negara Malaysia, latest report. to commence merger discussions.

The report stated that Middle Eastern OSK Holdings, in a separate statement, investment into Malaysian real estate said that it is seeking approval in projects rose 11.4% year-on-year in the principle to commence discussions for a third quarter of 2011, with the country’s continued...

© 6 5th October 2011 NEWS continued... eff ectiveness by providing quality, multi- Financing via Islamic picking possible merger between its investment currency, short-term Islamic papers. up banking group and RHB Capital’s GLOBAL: Increasing numbers of oil banking business. Islamic banks’ profits surge and petrochemical-based companies in PAKISTAN: The local Islamic banking the Middle East region are turning to This comes three months aft er Maybank industry’s profi ts almost tripled to PKR5 Islamic fi nancing, especially syndicated and CIMB Group Holdings, the country’s billion (US$57.2 million), increasing by fi nancing and Sukuk, in order to fund two largest banks, called off separate 194% in the three-month period ended their respective infrastructure projects. merger negotiations with RHB Capital the 30th June 2011. following concerns over price. Qatar Petroleum has completed a 16- According to the central bank, State Bank year US$5.5 billion syndicated fi nancing Islamic banking resilient of Pakistan, the increase is att ributed consisting of Islamic facilities and MALAYSIA: Islamic banking’s systems to the banks’ growing investments in commercial debt aimed at funding the and principles make it resilient against government papers. Barzan gas project, worth US$10 billion. fi nancial crises such as those causing global economic turmoil now, said KLCC Property refinances The fi nancing has a maturity period of 16 Mahathir Mohamad, former prime years and is denominated in US dollars. minister of Malaysia. Sukuk However, the fi rm might lower the MALAYSIA: KLCC Property Holdings, syndication to US$4 billion if a bond is He elaborated that Islamic fi nance’s ban co-owner of the Petronas Twin Towers, issued in late 2011 or early 2012. on interest and the industry’s moral is refi nancing RM799 million (US$249 codes ensure the stability of the market million)-worth of Sukuk aft er market The syndication was executed with a and can avoid any periodical collapse of yields dropped to the lowest level in group of banks from Italy, Japan, South the Islamic fi nancial system. more than two years. Korea, the Middle East and the US. Islamic banks that participated were Mahathir added that the stability in It will issue RM880 million (US$274 Barwa Bank, Masraf Al Rayan, Qatar International Islamic Bank, and Qatar Islamic banking creates slower economic million)-worth of 10-year securities to Islamic Bank. growth and wealth creation compared to refi nance the current debt held by its its conventional counterpart, but conclud- parent company, Petroliam Nasional. In Iran, the state-owned National Iranian ed that the resilience of Islamic banking The developer will also have to pay a Oil Company is looking to issue an would outweigh this in the long run. RM35.3 million (US$11 million) penalty to redeem the notes, which mature in Islamic bond in 30-45 days to fi nance November 2011 and 2012. oil industry projects. The issuance is Call for Islamic asset currently pending regulatory approval. platforms Average yields on Malaysia’s highest- No further details have been revealed. MALAYSIA: The government should rated corporate notes fell to 4.82% on Last month, Saudi Aramco Total Refi ning consider creating regional and the 21st September, the lowest level since and Petrochemical Company (SATORP), international platforms in various Islamic February 2009, according to data from the a joint venture established by Saudi asset classes to att ract more investors to central bank, Bank Negara Malaysia. Aramco and France’s Total, unveiled a utilize the country as an Islamic fi nance public off ering for its 14-year domestic hub, said Dr Mohd Daud Bakar, CEO of Shariah intellectuals needed Sukuk upon obtaining approval from Amanie Business Solutions. MALAYSIA: The country needs to Saudi Arabia’s Capital Market Authority. He said such platforms, including for produce dynamic Shariah intellectuals The Islamic bond will be issued through currencies, hedging, commodities and who can assume a response to the government’s call to make Malaysia the the Arabian Aramco Total Services liquidity, are easy to implement and can reference center for global Islamic fi nance Company, a special purpose vehicle be used to support Islamic asset classes practices, according to Dr Awang Adek established by SATORP to issue the and services worldwide. Hussin, the deputy fi nance minister. Sukuk, which will be used to fi nance the construction of a US$12 billion refi nery He also said that the government, Awang added that in line with current project in Jubail. which is due to unveil its 2012 Budget needs, Islamic scholars should widen their on the 7th October, should create a more knowledge base to include strong eco- Deutsche Securities Saudi Arabia, cohesive legal and taxation framework to nomic, fi nancial and legal knowledge. Samba Capital and Saudi Fransi Capital encourage the establishment of Islamic are the joint lead managers and joint fi nance joint ventures between Malaysian bookrunners for the Sukuk. and international parties. EUROPE Tax incentives could also be used to promote Islamic investments, he said. Presence in the Middle East reduced Daud also added that the International FRANCE: Credit Agricole will move its Islamic Liquidity Management mergers and acquisitions business in the Corporation could increase its continued...

© 7 5th October 2011 NEWS continued... September, selling US$5.45 billion-worth RHB and OSK merger plans of Islamic bonds. Middle East back to Paris as part of its MALAYSIA: RHB Capital, which is eff orts to focus on Europe and Asia. reportedly considering an off er of around RM1.72 billion (US$536.4 million) to The move includes the relocation of MIDDLE EAST RM1.99 billion (US$620.6 million) for a its Bahrain offi ce to Dubai, which is planned takeover of OSK Holdings, has expected to be completed by June next Mobile banking hired Credit Suisse Group to advise on year. BAHRAIN: Kuwait Finance House - the deal. Bahrain has launched its new mobile Bernard Mignucci, Credit Agricole’s banking service. RHB Capital and OSK Holdings general manager for the Gulf countries, announced on the 29th September 2011 was quoted saying that “the move will The service will enable the bank’s that they had submitt ed applications to aff ect around fi ve to six people,” as customers to check their account and the central bank, Bank Negara Malaysia, some employees turned down relocation card statements, make phone bill to commence merger discussions. The off ers and at least two bankers opted to payments, transfer money and view their central bank is expected to give its leave. last fi ve transactions. approval in the next few weeks.

Acquisition in the pipeline Mouwasat raises US$46.7 With speculation rife that RHB will use the merger as a platform to take over TURKEY: Bank Asya is in the midst of million OSK’s investment banking business, the acquiring a local brokerage house in SAUDI ARABIA: Mouwasat Medical purported off er price amounts to 1.9 to order to enter the investment banking Services has signed two Murabahah 2.2 times OSK Investment Bank’s book and securities business, according to fi nancing agreements with Samba value, which was estimated to be around Abdullah Çelik, its CEO. Financial Group amounting to SAR175 RM906.4 million (US$282.7 million) as at million (US$46.7 million). the end of 2010. He did not disclose the name of the brokerage house, although Ata Invest, SAR150 million (US$40 million) will RHB Capital is not expected to make a an Istanbul-based full service securities be channeled towards a hospital cash off er and would likely fi nance the fi rm, has been speculated as the bank’s construction project in Dahran, while merger through the issuance of new target. the remaining SAR25 million (US$6.7 shares to OSK Investment Bank or its million) will be utilized to fi nance a shareholders. housing complex in Riyadh. GLOBAL The off er is below the value estimated Mouwasat is involved in the by research fi rm Hwang DBS, which Strong Gulf business ownership, management, operation, values the deal at between RM2.1 billion (US$655 million) and RM2.8 billion GLOBAL: PwC‘s Middle East practice and maintenance of hospitals, medical (US$873.2 million), based on OSK posted 31% growth for the fi nancial year centers, medicine warehouses and th Investment Bank’s latest book value of ended the 30 June. pharmacies. RM1.57 (US$0.49) per share as at the 30th June 2011. Warwick Hunt, the managing partner of No further issuances PwC, Middle East, said that the region is the fastest-growing in the wider PwC UAE: Nakheel has no plans to issue It is believed that if the merger goes network. more Islamic bonds aft er the sale of through, the new entity would oust the fi nal tranche of its US$1.63 billion CIMB Investment Bank as the country’s Globally, PwC reported gross revenues Sukuk as the company does not need leading stockbroker by trade value. of US$29.2 billion for its worldwide further fi nancing, according to Ali Rashid network of fi rms. Lootah, its chairman. According to the annual reports, as at the 31st December 2010, RHB Capital’s Sukuk in abundance Its upcoming Sukuk is expected to be Islamic banking business contributed issued by the end of the year. The tranche 6.1% of its operating revenue while OSK GLOBAL: A total of US$63 billion- will be used to sett le contractor claims. Holdings’ net income for its Islamic worth of Sukuk were issued during the banking business contributed RM6.09 fi rst nine months of 2011, up 90% from Tamweel Sukuk by year-end million (US$1.9 million) of its total issuances during the same period in 2010, revenue of over RM1 billion (US$312 according to Zawya Sukuk Monitor. UAE: Tamweel is planning to issue million). between US$300-500 million-worth of It reported that at least US$5.7 billion- Sukuk in the fourth quarter of this year, RHB Capital stands to gain a regional worth of Sukuk were issued in according to Varun Sood, its acting CEO. platform for the Southeast Asian market September 2011, a 9% increase from the through OSK Investment Bank, which same period last year. He added that the Sukuk could be priced has an extensive network of investment in US dollars or Malaysian ringgit. Three brokerage fi rms in China, Cambodia, Except for small issuances by the central banks have been appointed to manage Hong Kong, Indonesia, Singapore and banks of Bahrain and Gambia, Malaysia the sale, although their identities have Thailand, explained Kellee Kam Chee was the sole issuer of all Sukuk in not yet been disclosed. Khiong, CEO of RHB Capital.

Long-term sovereign Sukuk investigation, which gave rise to a confl ict of interest. However, he did RATINGS BAHRAIN: The kingdom’s planned not specify what the alleged confl ict of US$1 billion Sukuk sale scheduled in Sturdy support interest is based on. October will have a maturity of between MALAYSIA: RAM has reaffi rmed seven to 10 years, according to Rasheed He also said that Deloitt e’s fi ndings the ‘AA3/P1’ ratings of Hong Leong al-Maraj, the governor of the Central excluded evidence that he had submitt ed Industries’ RM500 million (US$157 Bank of Bahrain. as part of his full cooperation with the million) Islamic commercial papers/ probe. medium-term notes program. The long- Proceeds from the Sukuk will be used term rating has a stable outlook. to help fi nance a budget defi cit of about His comments came aft er Unicorn said 5% of gross domestic product. Rasheed an investigation by Deloitt e had found Strong support added that the Sukuk has also received that Majid, who left the bank in August an encouraging response from its UAE: Fitch has affi rmed the long-term 2010, committ ed criminal off ences investors. issuer default rating of Mashreqbank at including misappropriating bank funds. ‘A’. The rating has a stable outlook. US$21 million utility Majid is alleged to have been involved in Off the list financing transactions without the approval of the MALAYSIA: MARC has withdrawn its YEMEN: The government has approved bank’s board of directors, destroying over 8,000 bank documents and preventing ‘AAIS’ rating on DRIR Management’s a fi nancing agreement worth US$21 senior class A Sukuk Ijarah medium-term million, signed with the IDB on the 30th bank partners and authorities from obtaining documents. notes following full redemption of the June 2011. remaining outstanding RM40 million (US$12.5 million) principal amount of The investigation was commissioned by The fi nancing will be used to fund Sukuk on the 28th June 2011. a US$26.25 million water resource the general prosecutor, who has now enhancement project in Sana’a, the referred the case to Bahrain’s criminal country’s capital. court. Fund recognition UK: Moody’s has assigned a ‘Baa’ bond Issuance to herald more Bahrain authorities have placed a travel fund rating to the Bank of London and ban on Majid, while Unicorn fi led two The Middle East (BLME)’s Sharia’a project Sukuk civil cases against him and two other Umbrella Fund - USD Income Fund, SAUDI ARABIA: The issuance of Saudi former employees in September last year domiciled in Luxembourg. Aramco Total Refi ning and Petrochemical to reclaim the funds. The bank has not Company’s (SATORP) US$1 billion disclosed the amount of the funds. Nigel Denison, the director and head Sukuk is expected to open the doors of wealth management at BLME, for the country to launch more project Sukuk on the cards said that the rating demonstrates that Sukuk issuances, according to Jarmo Islamic funds can compete with their QATAR: Qatar International Islamic Kotilaine, the chief economist of National conventional counterparts besides Bank is planning to issue a benchmark- Commercial Bank. off ering an international visibility. sized Sukuk, likely to be US dollar- denominated, either by the end of this He said this is because there are now Sturdy grades more advisors that can off er solutions year or in early 2012. for this type of funding, which would SAUDI ARABIA: S&P has affi rmed its generate more interest. According to Edward Wong, its chief ‘AAA’ long-term and ‘A-1+’ short-term fi nancial offi cer, QNB Capital, Standard credit ratings for the IDB with a stable According to the Saudi government, Chartered Bank and HSBC have been outlook. investors need to issue project Sukuk to hired to arrange the Sukuk. diversify their funding sources to fi nance Fine ranking an estimated US$620 billion-worth of Emaar denies reports UAE: Moody’s has affi rmed a provisional projects in the country. UAE: News reports that Emaar ‘(P)A3’ rating on Abu Dhabi National Properties is using four of its shopping Energy Company (TAQA)’s planned Unicorn’s ex-CEO in hot seat malls as collateral for an US$800 million RM3.5 billion (US$1.1 billion) Islamic BAHRAIN: Majid Al Refai, the former two-tranche fi nancing are “categorically bond program with a stable outlook. CEO and founder of Unicorn Investment incorrect”, said the land and real estate Bank, has said that Deloitt e did not developer. On robust ground disclose its interests in its investigation MALAYSIA: RAM has reaffi rmed the It was previously reported that Emaar that concluded that he allegedly ‘AA1’ rating of Ranhill Powertron’s will utilize the Dubai Mall, Dubai Marina committ ed 58 criminal off ences against RM540 million (US$169 million) Islamic Mall and the Gold and Diamond Park Unicorn. medium-term notes program with a shopping center as guarantees for the stable outlook. In a statement, he claimed to be facility, consisting of a fi ve-year tranche “disappointed” that Deloitt e did not and an eight-year amortizing fi nancing. disclose its personal interest in the continued...

© 9 5th October 2011 NEWS continued... He explained that Islamic fi nance’s risk MOVES Dubai Islamic Bank, the National Bank sharing principles would encourage of Abu Dhabi and Standard Chartered “greater discipline” in the global MIFC fi nancial system. bank are said to be arranging the MALAYSIA: Islamic Finance news has transaction. Financing agreement learnt that Sharifuddin Khalid, the director of the promotion unit at the QFIB gets 10% of Watania renewed Malaysia International Islamic Finance QATAR: Qatar First Investment Bank SAUDI ARABIA: Abdullah Al-Khodari Center (MIFC), has vacated his post (QFIB) has been allocated a 10% stake & Sons, a local construction-based fi rm, on the 30th September to become the in Abu Dhabi–based National Takaful has signed an agreement with Riyad director of the strategic communications Company’s (Watania) May 2011 IPO, Bank to renew its existing Islamic department at the central bank, Bank following the bank’s subscription to the fi nancing facilities worth SAR901.53 Negara Malaysia. off ering. million (US$240 million). Sharifuddin will be replaced by Nik The bank has also received a seat on the The funds will be used to create Mohamed Din Nik Musa, who is Takaful operator’s board of directors. bonding commitments, fi nance capital currently the deputy director of the requirements and working capital promotion unit. Positive growth needs for the company’s projects and businesses. BARCLAYS WEALTH KUWAIT: Total deposits of banks in the UAE: Barclays Wealth has appointed country increased by 9.6% to KWD1.7 Forty fi ve percent of the facility Rory Gilbert as the managing director billion (US$6.2 billion) at the end of June was comprised of Tawarruq, while and head of Middle East and North from KWD1.5 billion (US$5.44 billion) the remaining 55% was made up st Africa for its international private on the 1 January 2011, according to of Murabahah, multi bonds and banking unit. the Al-Joman Center for Economic documentary credit. The fi nancing can Consultancy. be renewed upon its maturity in 2014, Gilbert was previously the managing although the credit limit extended by The increase in deposits is att ributed to Riyad Bank will mature over the life of director and head of the UK high net the decrease in fi nancings in the six- the company’s respective projects, which worth at Barclays Wealth. month period. range between two and four years. KUWAIT INTERNATIONAL Boubyan Bank reported the highest Expanding east BANK growth in provisions at KWD34 million (US$123.4 million) while Kuwait Finance UAE: Emirates NBD is looking to open KUWAIT: The Central Bank of Kuwait House reported the highest provisions representative offi ces in China and other has approved Kuwait International for fi nancings at KWD55.3 million Asia Pacifi c countries in addition to Bank’s appointment of Loay Fadhil (US$200.7 million). growing its Islamic banking operations in Maqams as its executive vice-president the region, according to Brian Shegar, the and general manager of fi nance and general manager for the Singapore-based investment. TAQA plans ringgit-based branch of the bank. Sukuk EMIRATES NBD CAPITAL UAE: Abu Dhabi National Energy Merger on the cards? SAUDI ARABIA: Emirates NBD Capital (TAQA) is planning to launch its fi rst BAHRAIN: Islamic Finance news has reportedly appointed Khaled Masri ringgit-denominated Sukuk program has learnt that First Leasing Bank is as the new CEO. worth RM3.5 billion (US$1.1 billion) to considering a merger with its parent diversify its fi nancing options. bank, Ithmaar Bank. Khaled was previously a partner and the head of brokerage at Dubai’s Rasmala According to a company statement, According to a source, the transaction Investment Bank. once regulatory approval is received could take place next year. the program will allow the fi rm to issue quickly if and when market conditions RESERVE BANK OF INDIA are optimal. continued... INDIA: The government has appointed Anil Kakodkar, Dipankar Gupta, Ela TAQA is 75% owned by the Abu Dhabi Have you joined Bhatt , Indira Rajaraman, Kiran Karnik, government and invests in the global M Rao, and Najeeb Jung as the new energy sector. directors of the Reserve Bank of India, the central bank. Islamic finance praised The appointment follows the retirement SAUDI ARABIA: The Islamic fi nance of Sanjay Labroo, Suresh Kumar, industry can help improve the global Vaidyanathan, UR Rao, and YH Malegam fi nancial system’s stability and resilience, as directors of the board. according to Dr Ahmad Mohamed Ali, the president of the IDB. our facebook page?

© 10 5th October 2011 NEWS continued... The cost to insure Bahraini bonds rose MOVES Ithmaar is First Leasing Bank’s single 93 basis points to 386 basis points in largest shareholder and owns 21.32% of September, the highest level since June BANQUE SAUDI FRANSI the bank. 2009, while yields on the country’s 6.247% Sukuk maturing in 2014 reached SAUDI ARABIA: The Saudi Arabian a four-month high of 3.241% on the 26th Monetary Agency has approved the Financing for expansion September. appointment of Patrice Couvegnes as the SAUDI ARABIA: Local clothing managing director and foreign partner retailer Fawaz Abdulaziz Alhokair and The Central Bank of Bahrain is seeking representative to the board of directors of Company has signed a US$50 million returns of around 3.25% for the Banque Saudi Fransi. Murabahah-based fi nancing facility with upcoming issuance. th International Finance Corporation, a The appointment is eff ective from the 27 member of the World Bank. Partnership deal September 2011. UAE: SHUAA Capital and Shariah The fi nancing will be used to expand BANK PEMBANGUNAN compliant savings scheme, National the company’s operations outside Saudi Bonds Corporation (NBC), have signed MALAYSIA Arabia. an MoU to form a strategic alliance. MALAYSIA: Bank Pembangunan Malaysia has appointed Mohammed Qatar Petroleum in Under the terms of the agreement, Hussein as its chairman, replacing Dr syndicated financing deal SHUAA and its associated companies Abdul Samad Alias. will provide fi nancial advisory, QATAR: Qatar Petroleum has completed brokerage, and investment management Mohammed is also the chairman of Bank a US$5.5 billion syndicated fi nancing services to NBC in the UAE and the Maybank Syariah Indonesia, Malaysia consisting of commercial debt and MENA region. Commercial Development and Quill Islamic facilities, aimed at funding the Capital Management. Barzan gas project. SHUAA and NBC will also launch several programs to expand their SHUAA CAPITAL The fi nancing for the US$10 billion respective customer bases. project has a tenor of 16 years and is UAE: SHUAA Capital has appointed denominated in US dollars. The company Michael Philipp to its board of directors. might reduce the syndication to US$4 Aabar buys RHB with ADCB billion if a bond is issued later this year funds Philipp was previously the chairman and CEO for Europe, Middle East and Africa or early next year. UAE: Sovereign fund Aabar Investments at Credit Suisse Group. will borrow US$1.9 billion from Abu Qatar Petroleum carried out the Dhabi Commercial Bank (ADCB) to syndication with a group of banks from fi nance the acquisition of its 25% in RHB RBC DEXIA INVESTOR Italy, Japan, South Korea, the Middle Capital from ADCB. SERVICES East and the United States. Islamic banks UAE: RBC Dexia Investor Services has that are involved in the transaction are Aabar’s parent fi rm, International appointed Cormac Sheedy as its senior Barwa Bank, Masraf Al Rayan, Qatar Petroleum Investment Company, has executive offi cer for the Middle East and International Islamic Bank, and Qatar provided its deposits with ADCB as Africa region, based in Dubai. Islamic Bank. collateral for the funding, which will be repaid by Aabar. Sheedy was previously the head of sales KFH to extend share buy-back at SHUAA Capital. KUWAIT: Kuwait Finance House has obtained approval from the Central Bank Coming up... KING & SPALDING of Kuwait to extend the period to buy th GLOBAL: Legal fi rm King & Spalding back up to 10% of its issued shares by an Volume 8 Issue 40 – 5 October 2011 has increased its presence in the Middle additional six months. East with the appointment of fi ve Meet the Head lawyers to its offi ces in Abu Dhabi, The new buy-back period starts from the Qasim Aslam, senior associate, fi nance, Dubai, and Riyadh. 19th October: the date its current period Herbert Smith expires. The att orneys are: counsel Mazhar Khan Features and associate Hassan Al Jarrah in Abu Higher yields for Bahrain Islamic Finance – Corporate Governance; Dhabi; senior associate Phillip C Sacks by Moinuddin Malim, CEO of Mashreq sovereign in Dubai; and associates Sanjarbek Al-Islami Finance Company and head Abdukhalilov and Martin Forster-Jones BAHRAIN: The government may have of Islamic banking division at Mashreq in Riyadh. to pay higher yields for the planned sale Bank. of its US$1 billion sovereign Sukuk in Their arrival adds to King & Spalding’s November as the kingdom’s debt risk Growth of Islamic Finance in Malaysia strength in the areas of Islamic fi nance, surged to a two-year high on concerns of and Beyond; by Alhami Mohd Abdan, fi nance, investment funds, mergers and political instability. head of international fi nance & capital acquisitions and corporate commercial markets at OCBC Al-Amin Bank. work.

Fundraising opportunities remain

The current economic climate has led Middle East, while the year started more than 20% on the region’s debt to upheaval in global markets, but the with a lot of optimism, over the last few worries, while those in Asia also saw prevailing conditions have not yet left months the performance of markets have double-digit losses in the three months to corporate fundraising at a standstill. caused some concern. Hence, the timing the 30th September. According to industry players there of when some transactions can come to are still opportunities for fi nancing, market has not been fi xed. To note is that the current market although the environment has become conditions have put off Khazanah increasingly challenging. “Some deals can still go through, such Nasional’s planned landmark yuan- as bilateral transactions, but across the denominated Sukuk issuance, estimated “In general, it is diffi cult, but for specifi c region, capital market transactions are to amount to between CNY300 million products there is still demand. It depends becoming more diffi cult to complete,” (US$47.05 million) and CNY500 million on the product and the assets,” said a he said. However, Eversheds is still (US$78.42 million). Bahrain-based Islamic banker. seeing activity and according to Amjad, is currently involved in advising Bankers for the deal, comprising BOC Speaking to Islamic Finance news, he mergers and acquisitions and corporate International, CIMB Group and The said that while transactions involving restructurings. It also recently closed Royal Bank of Scotland, marketed the real estate and private equity may have fi nancings exceeding QAR1.6 billion issuance to investors in Hong Kong been put on hold, opportunities remain (US$439.37 million). and Singapore on the 19th and the 20th for income-generating products which September, only to have the transaction provide “aggressive” cashfl ow, such as Global markets showed one of the put on hold the following week as leasing products. worst performances in years in the third market conditions deteriorated. The quarter of 2011, with the New York Stock issuance was postponed before it could Amjad Hussain, a partner at legal fi rm Exchange declining to its lowest level be priced. — EB Eversheds in Qatar, said that in the since 2008 and markets in Europe losing Renewed interest

During the 1997 Asian fi nancial crash, sector for entities related to the region in Testament to the international banking Indonesia proved to be one of the worst unprecedented ways. community’s renewed interest in the hit among the aff ected Southeast Asian Indonesian market is JP Morgan’s interest countries. With sky-rocketing infl ation However, the tables have now turned; and in funding the country’s infrastructure rates and a rapidly defl ating currency, with Indonesia’s strengthening rupiah, projects under the republic’s Master the country’s banking system was alongside more prudent regulatory Plan of Expansion and Acceleration of faced with incredibly bleak prospects. reforms as a result of the crisis, American Indonesian Economic Development International banks also took a massive investment banks such as JP Morgan, (MP3EI) program; which was recently hit during the crisis, with operations in Citigroup and Morgan Stanley are showing confi rmed by the bank’s CEO, James Asia including Indonesia facing painful a renewed interest in the country; uplift ing Dimon, during a meeting with the losses, as experienced by Citicorp and its status from a once derelict economy republic’s president, Susilo Bambang JP Morgan among others. over ten years ago, to today’s emerging Yudhoyono. The bank has also made market with gleaming prospects. high-profi le moves and senior hires this The Asian turmoil in 1997 reduced year to boost its presence in the ASEAN Citicorp’s pretax earnings by Chetan Ahya, a Singapore-based economist region and encourage investor activity. approximately US$250 million, and at Morgan Stanley, was recently quoted as at the 31st December 1997, Bank of as saying that Indonesia, with its strong According to one Indonesia-based America’s net income from Asia had growth prospects and increasingly bullish analyst, American investment banks dropped from US$224 million in 1996 to economy, should be included in the current are also expected to further boost the negative US$218 million. In the fourth BRIC market block alongside Brazil, domestic Islamic issuance market. “The quarter of 1997, JP Morgan designated Russia, India and China, based on its GDP presence of established investment banks US$587 million to non-performing loans, growth prospects. and an increasingly positive outlook by swaps and debt investment securities in American banks in particular; with their Indonesia, Thailand and South Korea. “What this means for the investor unrivaled experience in structuring and community is that they need to look at this aligning deals, is expected to increase The bank also reported charge-off s asset class more seriously. Political stability, the infl ux of foreign investments in of US$24 million in the same period, improved government fi nances and a Indonesia and provide a suitable market along with 60% of its total allowance for natural advantage from demography and for corporate bond issuances; including credit losses of US$1.081 billion to these commodity resources are likely to unleash the highly marketable 144A papers, and three troubled economies. The Asian Indonesia’s growth potential,” he said. JP boost the republic’s desire to amend its fi nancial crisis aff ected the US economy Morgan’s May 2011 Global Data Watch also regulatory and tax environment for the on both a macro and microeconomic forecasts Indonesia’s GDP growth for 2011 creation of an active corporate Sukuk level: impacting growth rate, interest and 2012 at the promising levels of 6% and issuance market.” — NH rates, trade balance and the banking 6.7% respectively.

CIBFM: The Center for Islamic Banking, Finance and Management

BRUNEI This greater participation of industry CIBFM is guided by a board of directors players will benefi t the Brunei fi nance which provides strategic direction and By Muhd Jamil Abas Abdul ‘Ali, IFN industry as a whole in bringing about its make policy decisions, and an executive Correspondent development in a holistic manner. committ ee which determines the operational needs and course content The Ministry of Finance of Brunei Presently, the management of CIBFM of CIBFM. The management team is led (MOF) has established a center for includes representation from the MOF by Makhtar Abdullah, the acting CEO/ learning called the Center for Islamic and nine institutional banks in Brunei, director of training and promotion, and Banking, Finance and Management Suriati Mohamad Taib, the assistant (CIBFM), specializing in further although it is expected to further director of training and promotion. education and training of human include government bodies, universities, resources involved in the fi nance statutory bodies, selected incorporated Makhtar, who is trained in both legal industry. This is a signifi cant step in the entities (both local and foreign) and and accounting, is experienced in development of the fi nancial system alliance partners. restructuring and green fi eld operations and fi nancial institutions in Brunei. The CIBFM’s core areas of concentration and worked in Dubai before joining CIBFM. Suriati is an experienced The center was incorporated on the are in human talent development, regulator from the MOF and Authoriti 30th January 2010 as a limited company. product development, education and Monitori Brunei Darussalam and has Although the center is the brainchild reference points (for product knowledge, experience in marketing, promotion of the MOF, its stakeholders comprise databases and new product structure). As and human resource training. Their the MOF and fi nancial institutions. part of its program, the CIBFM will invite shared experience will be a source of The objective of the MOF is to include speakers and researchers in various fi elds benefi t to the CIBFM. The list of courses other stakeholders to enhance regulator connected with its core areas. off ered by CIBFM covers both Islamic participation with appropriate industrial and conventional banking and fi nance inputs. This is a laudable eff ort since Interestingly, one of CIBFM’s areas of subjects, including areas of soft skills CIBFM will be providing courses which interest is in product development and management. cater to both the needs of the regulator the structuring of more complexed, and those of Islamic and conventional liquid and long-term products that will Muhd Jamil Abas Abdul ‘Ali is a legal advisor fi nance industry players: which will meet the broad needs of investors and with Abrahams, Davidson & Co and he can be foster Brunei’s aim of becoming an issuers of fi nancial instruments with contacted at [email protected]. alternative fi nancial hub in the region. particular focus on the needs of Brunei.

SIBOS: The SWIFT International Banking Operations Seminar

CANADA (TFSA). The Islamic fi nance panel The panel discussed the need for discussion provided a good opportunity standardization, noting that good By Jeff rey Graham, IFN Correspondent to demystify the industry to the audience progress with treasury documentation and to correct misconceptions (e.g. that and product structures across markets is SIBOS, the SWIFT international Islamic fi nance is only for Muslims). being made. As the business continues banking operations seminar, is to be more globalized, particularly in an annual banking and fi nancial The panel: of Rushdi Siddiqui (Thomson capital markets, the business is already conference held by the Society for Reuters), Yakub Bobat (HSBC Amanah), harmonized. Further, the panel noted Worldwide Interbank Financial Daud Vicary Abdullah (Global University that diff erences are minor and healthy to Telecommunication in various cities Of Islamic Finance [INCEIF]) and Afaq provide for innovation. around the world. The fi rst SIBOS Khan (Standard Chartered Saadiq), noted conference was held in Brussels in 1978. that Islamic fi nance will become the The benefi ts of Islamic fi nance as a largest part of the banking system across medium of banking for all were also noted, Most recently, SIBOS was held for the a number of Islamic countries in the GCC and that value-based Islamic equity funds fi rst time in Toronto, from the 19th - 23rd and Asia by the end of the decade. performed bett er than conventional funds September 2011. SWIFT, the Society for through the recent global crisis given the Worldwide Interbank Financial Telecom- There was a discussion on Sukuk, environmental, social and governance munication, is a member-owned coop- with a number of points being made fi lters, including leverage. erative that provides a communications including that there is a need for more platform, products and services connect- Sukuk instruments and for sovereigns to It was noted that Islamic funding ing more than 9,500 banking organiza- lead the way. Further, it was noted that happens to be somewhat cheaper due to tions, securities institutions and corporate Sukukholders tend to hold to maturity the considerable liquidity looking for a customers in 210 countries. given the scarcity of Sukuk instruments, home. Further, Islamic fi nance is seen as thus impacting the availability of Sukuk being a bridge to connect GCC capital to For the fi rst time, in 2011 SIBOS in the secondary market. Finally, it was meet the fi nancing requirements of the featured a panel on Islamic fi nance, a noted that the public and private sectors Asian emerging markets. topic suggested by representatives of should consider the potential of Sukuk the Toronto Financial Services Alliance funds for project fi nance infrastructure. Continued

Continued

The need for continued investment in introduction of Islamic fi nance by the rather than risk shift ing, and faith-based raising awareness among all stakeholders European markets will be slow and new investing), and its prospects for growth and target markets was discussed, markets will introduce Islamic fi nance in the rapidly developing economies with the importance of investment in within their system (such as Egypt of Southeast Asia and elsewhere. Daud education for a future talent pipeline and other North African countries). It Vicary described the important role being being acknowledged. The panel noted was noted that Canada has a strong played by INCEIF in creating a talent the need for regulatory reforms to likelihood of developing appropriate pool for the Islamic fi nance industry, its facilitate the establishment of Islamic regulations to meet the needs of a growing international allegiances and fi nance in western countries such as growing minority affi nity population. its diverse student population, including Canada. 30% non-Muslims. Later, at a local reception of the TFSA Finally, looking ahead panelists Islamic Finance Working Group hosted at Jeff rey Graham is a partner at Borden Ladner suggested that in the next 12 to 24 the offi ces of KPMG, Rushdi highlighted Gervais and he can be contacted at JGraham@ months, Asian emerging markets some of the important characteristics blg.com. will be the key drivers of growth, the of Islamic fi nance (e.g. risk sharing

Implications of the growth of rahn on Islamic banks

INDONESIA 10 Year Gold Price in US$/oz Last Close: 1776.40 By Rizqullah, IFN Correspondent High: 1889.70 Low: 272.20 1488.30 516.59% 2000 In general, a bank acts as an 1800 intermediary institution between those 1600 who have funds and those who need 1400 them. The Indonesian Shariah Banking Act No. 21/2008 states that the function 1200 of an Islamic bank is not only that of an 1000 intermediary institution, but is also: 800 600 • Obligated to raise funding from the 400 community and distribute it amongst 200 the community; 0 • Allowed to perform social functions 2002 2004 2006 2007 2009 2011 in the form of Baitulmal. Its task is Source: www.goldprice.org to collect funds from the community (zakat, infaq, sedekah, hibah and Under the above banking act, Islamic Research conducted by one of the Islamic other forms of charity); banks are also allowed to perform pawn banks in Indonesia shows that rahn • Allowed to collect funds through services (rahn). Rahn means to hold fi nancing is used to obtain short-term waqf, then fund these to nazhir and debtors’ certain properties as guarantee liquidity: for capital funds, consumption distribute the funds to the community or collateral for a loan the debtor purposes, healthcare, school fees and based on the waqf expectation. borrows. others. However, now gold rahn is not only used to get short-term liquidity, but The main role of an Islamic bank is to be The properties in custody must have an is also an investment instrument. This is an intermediary institution of funding and economic value, so that the creditor has a because the price of gold is more stable fi nancing for the community, with a social guarantee to get back all or a part of his than foreign currencies. value in particular, so that it will generate receivables. Rahn is a loan guarantee or economic activities for the community. pawning done in accordance with Islamic Statistically, the price of gold has risen teachings. by approximately 40% per annum as Islamic banking has a great infl uence investors perceive that gold is the best in promoting small and medium-sized The collateral, gold in particular, is investment instrument to protect wealth enterprises, which have proven to endure placed in a deposit box during the from infl ation. The above chart shows the amid the global crisis. That is why, since pawning fi nancing contract and the trend of gold prices over the last 10 years: its establishment in 1992, the fi rst Islamic bank charges some fees for the deposit bank in Indonesia and other Islamic box (maintenance) to the customer. The It should be noted that qard contracts banks established later were not aff ected fi nancing itself is provided using a qard restrict any kind of multiplier too much by the crisis due to, among contract — goodwill fi nancing for social transactions, whereby the amount of the other things, the absence of speculative or commercial purposes with specifi c fund returned must be the same as when and derivative transactions in their terms and conditions. it was given in the fi rst place. In Islamic activities. Continued

Continued banks, qard contracts are usually bundled fi nancing with a perspective towards gold is considered to be the steadiest with other products in order to avoid investments. investment instrument, and it can recover misuse of the qard fund. Qard per se gains quickly, in previous years there will give a negative impact on the bank’s Statistical data from the Central Bank have also been times when the price of balance sheet and the main function of of Indonesia shows that fi nancing gold fell signifi cantly. the bank as an intermediary fi nancial with qard until June 2011 amounted to institution will be ineff ective. Qard funds IDR7.36 trillion (US$828 million), tripling The Islamic banks aggressively booking are eff ective if used to promote economic the amount from previous years. Qard rahn are therefore advised to take activities in the real sector, so as to boost fi nancing contributes to 8.9% of the stringent measures to mitigate such a national economic growth. overall fi nancing of Islamic banks, which risk in order to avoid losses and possible has reached IDR 82.61 trillion (US$9.3 contagious eff ects in the Islamic banking billion). Rahn products bundled with industry. Proper standard operating Under Fatwa No. 79/DSN-MUI/III/2011 qard have signifi cantly contributed to procedures should be in place and the issued by the National Shariah Board, the profi t increase of Islamic banks as the fi nancing limits must also be set clearly it is clearly writt en that qard funds fees earned from this product are higher and precisely. Furthermore, continuous taken from customers’ funds are only than the margin obtained from other monitoring on rahn fi nancing will help complementary contracts for commercial fi nancing activities. It is no wonder that the banks to bett er manage their business purposes. Funds for social purposes almost all Islamic banks in Indonesia and risks. cannot be taken from the customer’s aggressively att empt to boost the volume fund. This fatwa provides a wide of rahn in their books. Rizqullah is the president director of BNI opportunity for Islamic banks to use qard Syariah and he can be contacted at rizqullah@ as a complementary contract in rahn. In The rule of thumb in every business is: bnisyariah.co.id. practice, Islamic banks use rahn to extend higher return, higher risk. Although

Saudi Arabia: CMA-regulated investment funds

SAUDI ARABIA arrangement between the fund manager launch within 15 business days (unless and the unit holders, and which contract the CMA raises any objections). By Nabil Issa, IFN Correspondent must be in the form of the terms and conditions prescribed by the Regulations. A CMA fund also has some signifi cant There is no perfect solution when CMA funds invest through a ‘custodian’, tax advantages. The CMA fund and the structuring investments in Saudi Arabia which is generally a subsidiary of the Saudi limited liability company enter due to foreign ownership restrictions, fund manager. into and fi le certain agreements pursuant tax and the legal system. However, an to which they agree that the true owner investment fund established under There are generally no restrictions on the of the underlying investments is the the Investment Fund Regulations nationality of investors in CMA funds. CMA fund. Therefore, the Saudi limited (Regulations) issued by the Capital However real estate funds are, strictly liability company is currently exempt Market Authority (CMA) overcomes speaking, restricted to Saudi nationals, from all Saudi Arabia taxes (including most of these obstacles and is one of the GCC nationals and foreign residents of withholding tax and zakat). best ways for foreigners, including GCC Saudi Arabia. Furthermore, no single nationals, to invest in the kingdom. investor (other than the fund manager) In addition, the CMA fund itself is not This article discusses CMA-regulated should own more than 10% of the currently subject to tax in the kingdom investment funds (CMA funds) and interests in a CMA fund. However, the because it is not a legal entity and the some of the salient advantages and authors are aware of numerous examples tax authorities do not currently have disadvantages thereof. where the Saudi authorities have relaxed the ability to tax a CMA fund. While such restrictions. the Saudi tax authorities may develop a Fund managers should note that it is means of taxing CMA funds in the future, a challenge to raise money if the CMA The biggest disadvantage of a CMA at present, it is the most tax effi cient fund is not Shariah compliant. fund is that it must be established and structure possible. managed by a CMA authorized person. If There are a number of sectors in Saudi a fund manager is not a CMA authorized Furthermore, a CMA fund allows Arabia which are restricted to Saudi and person then it will need to liaise with a foreigners to invest in restricted sectors GCC investors, including the healthcare CMA authorized person to form a CMA and real estate in most of Saudi Arabia. and education sectors, among others. fund. If the fund manager is established The main hurdles are partnering with a Foreign investors cannot operate in these in a well-regulated jurisdication, it may CMA authorized person and structuring sectors and cannot own interests in a be possible to be the sub-fund manager. the ownership of the Saudi limited company operating in such sectors. liability company. Apart from this, CMA funds are A CMA fund is not a legal entity and relatively straightforward to establish. Nabil Issa is a partner in the Dubai and cannot own investments by itself. In Once the CMA fund has prepared and affi liated Riyadh offi ces of King & Spalding. short, a CMA fund is a contractual fi led its documents with the CMA, it may He can be reached at [email protected].

Islamic finance is a priority from a development perspective

SRI LANKA/MALDIVES that alternative banking arrangements and 15% to overseas applicants, with the are currently a priority from a remaining 65% going to the Maldivians. By Roshan Madawela development perspective. The IPO opened on the 20th September Islamic fi nance should really take Peoples Leasing Company recently 2011 and will close on the 19th October off in Sri Lanka as it is currently the launched new branches in the east of 2011. The company hopes to generate need of the hour to have an alternative Sri Lanka, where there is a high level LKR16 million (US$1.4 million) in fi nancing system, according to KMM of demand and interest. Moreover, proceeds through the IPO, by selling Jabir, the deputy general manager of there have also been a high number of shares at a low issue price of LKR20 Peoples Leasing Company. Furthermore, transactions taking place in the initial (US$0.18) (bundled in packages of 25). he added that: “What we have recently stages, thereby proving the underlying witnessed is that the conventional demand for these services. Hareez Sulaiman, the CEO of Amana fi nancial system is not best suited Takaful Maldives, said that the IPO to address the needs of the diff erent We have also found that other Islamic would “change the way the Maldivian communities — the system has proven fi nance service providers have been Stock Exchange operates, as this will to be vulnerable.” stepping up their activities. However, be the fi rst time that Maldivians, the problem of geographic investment expatriates and foreigners will be able to In the Sri Lankan context, there is a imbalance remains to be addressed. purchase securities in a Maldivian listed massive pent-up demand within the Currently, 70% of the savings are raised company.” rural Muslim communities. We fi nd that in rural areas, but they only receive a something in the range of 70-75% of small 30% share of the investments. The decision to price the shares low people do not partake in the conventional “at a price aff ordable to any average banking system due to their religious Meanwhile, Amana Takaful issued Maldivian” also promises to “be a kick beliefs. 800,000 shares in an IPO on the Maldives starter for an active stock market which Stock Exchange in September. The may benefi t the entire economy at large,” As a result, a colossal amount of funds company, in its IPO prospectus, said said the company. are lying idle whereby they are used that the Shariah compliant nature of its neither for investments nor for the business is expected to be a key att raction Roshan Madawela is the CEO/director of country’s economic growth, according to in the Maldives because of its growing the Research Intelligence Unit and he can be KMM Jabir, who made these comments religious awareness. Amana Takaful will contacted at [email protected]. in a recent report from KPMG and the off er 20% of the shares to expatriates Research Intelligence Unit. He argues

Shifting of financial burden in higher education system

UK Union of Students (NUS) to formulate Investments) has announced that its a reform that could be acceptable for all next meeting will take place on the 18th Dr Natalie Schoon, IFN Correspondent students. of October 2011 and will address how Islamic asset management compares to The Lord Browne report on higher On a related topic, Gatehouse Bank the wider asset management industry. education, published in October 2010, completed the acquisition of a purpose- The UK Islamic Finance Secretariat is outlined a number of reforms for the built student accommodation property now fully integrated in TheCityUK, higher education system in the UK in Glasgow which brings the total value and is currently further formalizing its including a raise in tuition fees and of the bank’s real estate portfolio up to off ering. the shift ing of the fi nancial burden for GBP280 million (US$435.91 million). education from the tax payers to the Dr Natalie Schoon is the principal consultant graduates themselves. In early September, Bank of London and at Formabb and she can be contacted at mail@ The Middle East published its interim formabb.co.uk. This has resulted in the proposal that report for the fi rst six months of 2011 graduates earning in excess of GBP21,000 reporting a 12% increase in operating (US$22,694) per year should be required income and a net operating profi t before Are you a member to pay interest on their student loans tax of GBP2 million (US$3.11 million). of up to 3% above infl ation instead of paying the rate of infl ation, as is Excluding the eff ect of any recoveries, currently the case. this compares to GBP2.2 million (US$3.43 million) during the fi rst half of last year, The Federation of Student Islamic which is a reduction of 8%. Societies (FOSIS) has opposed this reform as being unacceptable for Muslim The Islamic Finance Forum (a students due to the prohibition on riba. professional interest group of the FOSIS will be working with the National of our Linked-In group? Chartered Institute for Securities and

EIIB’s new shareholder casting doubts on business?

Barely a year since the European Islamic challenging for all banks, however with According to its profi le, HBG serves Investment Bank (EIIB) embarked on our strong liquidity and capital position, high net worth private and institutional a new business strategy in response to EIIB is well-positioned to capitalize on clients in the GCC. Its four business lines fl agging profi ts from the global fi nancial any opportunities which may arise.” comprise quoted equity, unquoted equity, crisis, there is speculation that the HBG did not respond to requests for real estate and strategic advisory. bank’s outlook is in doubt once again comment. following the entry of HBG Holdings as At the time of HBG’s acquisition of EIIB, its largest shareholder. Trying for a turnaround which is listed on the London Stock Exchange’s Alternative Investments Benkhadra was appointed as CEO at Islamic Finance news understands that Market (AIM), Toxvaerd said that: “This EIIB in March last year to help reverse HBG has not prioritized discussions strategic stake in EIIB is in keeping with the bank’s fortunes aft er it was almost with management on the bank’s strategy. our objective of investing in undervalued brought to its knees by the fi nancial It is also speculated that the departure AIM-listed companies. We believe there crisis. The announcement of his exit, on of Subhi Benkhadra, who was EIIB’s is signifi cant upside potential in this the 16th June 2011, came a litt le over a CEO, was a result of misunderstandings business and we hope to play an active week prior to the bank’s announcement between HBG and the bank’s role in unlocking value.” management. of record profi ts in the fi rst half of this year, following four straight years of HBG may have yet to see signifi cant HBG, a UK-based private equity and losses from 2007 through to 2010. capital gains from its entry into EIIB. fund management fi rm with offi ces in As at the 30th September, the bank’s Dubai and Saudi Arabia, has increased The bank has now realigned its strategy share price stood at GBP2.80 (US$4.34) its stake to around 15% in EIIB since it to focus on three core businesses within compared to GBP3.07 (US$4.76) at the fi rst bought around 13% of the bank at Islamic markets: namely investment time of acquisition. an undisclosed price in the middle of this management, banking and fi nancial year. services. However, the bank has fared bett er in improving its fi nancial position. For the Trouble at the top? HBG has yet to six months to the 30th June, it reported According to a source, HBG has yet a record net income of GBP11.8 million to outline clear business plans and a outline clear (US$18.3 million) compared to a loss of direction for the bank. Two directors, GBP2.2 million (US$3.41 million) a year George Morton and Salman Abbasi, business plans and earlier and GBP5.92 million (US$9.18 have resigned from the bank’s board, million) at the end of 2010, mainly due and another director, Yusef Abu Khadra, a direction for to a gain from its disposal of oil and gas reportedly chose not to stand for re- properties. It also recorded a GBP3.2 election due to a confl ict with the new EIIB million (US$4.96 million) profi t from the shareholder. reversal of previous impairments.

The bank has also seen the appointment In June this year, the bank chose to EIIB’s fi nancials have clearly perked of Zulfi -Caar Hydari, CEO of HBG, and relocate some personnel from its UK up since suff ering the impact of the Michael Toxvaerd, the chief investment headquarters to Bahrain, in an eff ort to last fi nancial crisis. It remains to be offi cer of the private equity fi rm, to its move closer to its target Islamic markets. seen whether its new shareholders can board of directors. The relocated staff comprised those from maintain the bank’s upward momentum the bank’s private equity and capital or if their entry has resulted in further Islamic Finance news has also learnt markets businesses, while it also made uncertainty for the bank. — EB that EIIB’s merger and acquisition some real estate hires. plans, through which it has been eyeing expansion in Bahrain, have been put When announcing Benkhadra’s on hold as a result of the uncertain departure, EIIB said that the day-to- Are you reading atmosphere at the bank. day operations of the bank would be overseen by Keith McLeod, its fi nance us on your EIIB declined to comment when queried director and deputy CEO, and the on Benkhadra’s departure and on the remaining management team, who will iPad / impact HBG’s entry has had on the bank’s also be assisted and supported by the operations. However, it highlighted the bank’s board. iPhone? bank’s record result for the fi rst half of 2011, “which refl ects the bank’s ability Finding value to source and develop successful private It is speculated that HBG does not have a equity investments and the hard work of long-term view with regard to its interest EIIB’s dedicated staff ”. in EIIB, as its objective as a private equity fi rm is primarily to increase the value of It also said that: “The market assets to achieve a profi table exit. environment remains extremely

Challenges: First Islamic financing for real estate investments in Japan

MIKIHISA HIRAI highlights the challenges faced by private practitioners in developing Shariah compliant structuring and product oﬀ erings that are also compatible with the Japanese tax and legal regime.

Japan is a non-Muslim country. With for over seven years. Naturally, we have eventually be deemed too primitive and only 50 mosques in Japan in 2009, developed our own signifi cant interest small in size in subsequent years. the country’s Muslim community in Islamic fi nancing and devoted much (estimated to represent far less than att ention towards executing Shariah For any ‘fi rst’ kind of deal, you do 1% of the population) is very small. compliant real estate transactions. not want to have parties whose pett y It is therefore unsurprising that the concerns, grievances, and other Japanese legal and tax system has only Our extensive discussions with a considerations could potentially stall the a faint notion of how to accommodate number of Islamic fi nancial institutions process and possibly risk the closing of transactions that comply with Shariah and our relentless eff orts to fi nd a way the deal. Oft en, the signifi cance of the principles. to develop and implement Shariah completion of the deal itself can work to compliant fi nancing in Japan for real nullify and negate any minor concerns Importance of accommodating estate culminated in 2007 when we some parties might have expressed. Islamic fi nance successfully delivered (and continue to manage) a Japanese commercial real Based on this principle, I eliminated the Despite the relatively minuscule Islamic footprint within Japan’s borders, Japan’s estate investment involving three offi ce option of using a trust benefi cial interest, economic relationship with Islamic properties in Tokyo for a Gulf-based which is used extensively for Japanese countries is surprisingly substantial. For Islamic global real estate fund. real estate investments in conventional example, Japan imports almost all of its space. oil needs, which make up approximately 15% of all Japanese imports, and roughly As is customary The biggest challenges and 90% of which is supplied by the Gulf solutions implemented nations. in today’s Paying or receiving interest is prohibited structured financing, as riba under Islamic principles. Further, Japan’s socio-economic ties with Therein lies a central challenge: in a Indonesia, a predominantly Muslim both the lessor and country where Islamic principles are country, are growing, as evidenced by not recognized, it is a formidable task to increases in both Indonesian students create an ‘interest-free debt fi nancing’ and in skilled nurses in Japan. the lessee vehicles transaction. However, because of their sheer size and various other reasons, real Moreover, in today’s fi nancial world, were placed under estate transactions require substantial capital travels across country borders at amounts of debt funding. volumes and speeds unimagined even bankruptcy-remote a decade ago. The characteristics of In addressing these challenges, we fi rst investment capital exporters have also structures studied the use of installment sales diversifi ed. It is litt le wonder then that techniques. Islamic fi nancing has att racted att ention from a variety of parties and that its techniques have evolved, becoming more Strategies as a pioneer However, we quickly realized that unless sophisticated. In the past, I was instrumental in certain components of such installment pioneering a number of ‘fi rst time’ sales payment amounts are explicitly Therefore, it is essential for any non- fi nancial transactions. Beginning with (1) stated as representing interest in the Muslim country wanting to capitalize a debt assumption transaction I executed relevant agreement, such payment on these developments to improve its for a Japanese corporation in the 1980s, I amounts would be subject to Japan’s fi nancial infrastructure to accommodate have also initiated and delivered (2) US consumption tax at a rate of 5%. Shariah compliant products and fi nancial real estate investment funds for Japanese techniques. life insurers and corporate investors in In a real estate transaction for which a the 1980s and (3) in 1990, bulk sales of substantial portion of the acquisition Japanese non-performing loans. is fi nanced by debt, such a tax burden First Islamic fi nancing for real would erode the value of the transaction estate When faced with a new type of substantially. Sett ing aside how the I run a Japan-based real estate fund and transaction, my philosophy is to get it transaction is documented, it has raised asset management fi rm, which is unique done with the least number of parties a fundamental question of how to in that it has been managing investment involved in the most simplistic way, diff erentiate between the summation capital from institutional investors from although this novel transaction may the Middle East into Japanese real estate Continued

Continued of installment sales payments and the to the buyer for the former, whereas it Conclusion acquisition price of the real estate assets. remains with the lessor (seller) for the The experience outlined above was If it were recognized as an ‘interest’, it latt er. In terms of tax treatment, real very instructive, in that we found that would have created a problem from the estate holding tax, certain transaction- the Japanese tax regime presented the Shariah perspective. related tax items and consumption taxes biggest challenge. We were somehow are treated diff erently for ‘installment able to fi nd valid solutions to circumvent On the other hand, if it were recognized sales’ and ‘fi nance leasing’.) the tax regime’s restrictions. as commission, then we would have faced the additional cost of consumption This means that the lessor ends up However, I am not sure whether the taxes. We have abandoned this approach recording revenue recognition of close Japanese tax regime can be amended because this conundrum is essentially to 30% initially. Assuming that it incurs to provide easier solutions. As private irreconcilable. its fi nancing cost on a level basis, practitioners, we need to continue the lessor would end up recording a to develop bett er Shariah compliant Second, we studied a fi nance lease disproportionate taxable income at the structuring and product off erings that transaction as an acceptable analogue outset. This further means that it would are also compatible with the Japanese tax to Ijarah fi nancing. Simply stated, the have substantial tax payment obligations, and legal regime. lessor leases the relevant real estate for which it would then have to fi nd asset (provides a debt fi nancing, under appropriate funding. This creates both We are encouraged because the Japanese conventional concepts) to the lessee, funding and deal-economics problems. government is making conscious eff orts which here would be an equity investor. to promote capital infl ows from the Despite its Islamic world by introducing a favorable Under the relevant lease agreement, the withholding tax treatment on fi xed- lessee makes a series of lease payments, inherent dividend payments made by a specifi c beginning with a lump sum payment purpose trust, which is akin to Sukuk. of, say, 30% of the acquisition value advantages, this of assets. This would be followed by In accordance with the Asset Liquidation a series of equal payments at a rate bankruptcy-remote Law, the Special Tax Measurement Law commensurate with what a debt provider and related regulations amended in May under conventional terms would request structuring also 2011, profi t distribution and profi t from as interest, until the remainder, say 70% redemption in connection with certain of the acquisition value, is fi nally paid. created a tax bond-type-trust benefi ciary interest becomes exempted from taxation. Naturally, in our case, the lessee is problem from willing to accept a balance sheet Detailed treatments will be published treatment that recognizes that the the viewpoint by the related enforcement orders in economic substance of the relevant real accordance with the enforcement of the estate assets resides with the lessee. of Japanese amendments of the laws. Structuring the lease agreement to this eff ect was relatively easy. It is important corporation Under the principle that a favorable to understand that in this case the legal tax treatment may be made available ownership of the assets resides with the to bond-akin investments, this new lessor. tax break route may be strategically well-utilized for real estate equity As is customary in today’s structured For a while, we were at a loss for a investments. fi nancing, both the lessor and the lessee solution to these problems, but we vehicles were placed under bankruptcy- eventually found an answer in a section I do hope that these preliminary eff orts, remote structures. of the Japanese tax code connected with a by both private sector practitioners sale and leaseback transaction. and government offi cials, will pave the Despite its inherent advantages, this way towards a Japanese investment bankruptcy-remote structuring also By implementing a combination of a sale environment more accommodating for created a tax problem from the viewpoint of assets and a leaseback on a fi nance Islamic capital providers and their users. of Japanese corporation tax. Under the lease basis, which is deemed as a loan tax rule, the above-mentioned fi nance from the lessor to the lessee under It is also important to note that Islamic lease transaction is treated in almost Japanese tax perspectives, the subject fi nancing is not solely for Muslims. It can the same way as a sales transaction, asset is not deemed to have changed be made available to whoever recognizes for which payments are made on an hands. and wishes to leverage its advantages. installment basis. Therefore, the lessor vehicle is relieved Mikihisa Hirai is the CEO of Atlas Partners (The diff erence between ‘installment from the potential of substantial Japan and he can be contacted at mikihisa. sales’ and ‘fi nance leasing’ is that the income recognition, with its att endant [email protected]. ownership of the asset is transferred diffi culties, at the outset.

Structured finance in India’s microfinance sector

What is the outlook for the microﬁ nance sector in India, and what challenges are hindering its development? H JAYESH explores the current microﬁ nance landscape for the world’s third largest Muslim population: including the regulatory framework, the structures and opportunities available, and the potential pitfalls.

In our previous articles we have although a bill on microfi nance has been to name a few. However some scholars discussed how Islamic fi nance can pending with the Indian Parliament for have expressed doubt, since they believe fl ourish in India, if the market is willing some time. Microfi nance institutions Murabahah fi nancing is disguised to look beyond the hurdles and focus on (MFIs) can be set up as non-deposit riba and therefore violates the spirit of how to tap the vast resources. We have accepting non-banking fi nancial Shariah. also writt en on how Islamic fi nance can companies (NBFCs), and they fall within be structured for investments in real the purview of the regulatory scrutiny This issue can be resolved by funding estate and trade fi nance. of the Reserve Bank of India (RBI), the selected assets which can appreciate regulator for banks and non-banking in value. So instead of on-selling at a There are a few other sectors, however, fi nancial institutions. mark-up to the borrower, the asset can where Islamic fi nance can make an be bought by the MFI who will retain immediate impact through appropriate They can also be set up as not-for-profi t ownership while conferring possession structuring. This article att empts to companies. Besides these formal set-ups, (of the assets) to the borrower. discuss one of these sectors: where non-government organizations and self- foreign investment can be structured on help groups also populate the sector. a cross-border basis using appropriate entities. Due to some recent incidents in Andhra One of the key Pradesh, where MFIs were reportedly Microfi nance charging usurious rates, a committ ee set challenges for Microfi nance has witnessed exceptional up by the RBI has recommended that a growth in India and has garnered the separate category of NBFCs be licensed foreign entities in att ention of the international investor whose primary business would be to community. Notwithstanding the recent fi nance the microfi nance sector. the microfinance political developments, the sector still has the ability to grow exponentially, If the proposals are implemented, it space in India is the given the copious need for funds from would bring about greater transparency to people who are currently outside the the sector. Another benefi t is that currently ability to repatriate formal fi nancial system. 100% foreign investments in NBFCs are permissible. the money This, coupled with the fact that India outside India continues to off er a steady growth rate Structures of at least 6% compared to western It is possible to structure funding to the economies, and notwithstanding the microfi nance sector in various ways. The If the borrower is able to repay as per global turmoil, makes a compelling case simplest structure would be to set up a stipulation, then the ownership will be for investments in microfi nance. 100% foreign-owned NBFC under the transferred by the MFI to the borrower at automatic route which in turn lends to the end of the tenor of the facility. Another reason why we feel that the microfi nance sector. Alternatively, Islamic fi nance should succeed in the investors can set up an off shore fund Alternatively, MFIs can look to replicate microfi nance context is because the under a Musharakah structure, which the partnership model. This structure industry eschews riba, which intuitively invests in existing NBFCs. would be viable at a slightly more holds singular appeal, as it provides sophisticated level, where funding an effi cacious remedy to the vexing Lending at the local level can also be is needed for small projects such as issue of usurious rates which is causing carried out using the various permissible providing clean drinking water facilities, consternation to policymakers in India. structures under Shariah. For example, or an education facility or even micro using Murabahah for below poverty power projects. It also holds the potential to make line borrowers, the MFI can buy the fi nancial inclusion more inclusive, since goods and sell at a mark-up on an The MFI can take equity and managerial even the Muslim population would installment basis. This may increase the stakes in such projects to ensure that defi nitely want to be part of such a cost of the transaction from a stamp duty the proceeds of the funds are used as system. perspective. mandated.

Regulatory framework This structure can be easily replicated MFIs models that are set up as NBFCs India currently does not have any formal and is prevalent in Sudan, Syria, legislation to regulate microﬁ nance, Bangladesh, Bangladesh, Afghanistan, Continued

Continued allow scalability, in the sense that such with select MENA MFIs and works proceedings would have to be initiated NBFCs can tap local funds besides foreign at increasing their capacity by in civil courts, which is time consuming. funding. Also, the NBFCs can down-sell providing fi nancial support, technical However, typically recovery modus their loans to other corporate entities. assistance, training and access to involves peer/social pressure. translated resources on best practice Since the loans are backed in most cases microfi nance. Shariah scholars: This is a serious by real assets, we do not think that such challenge facing not just India, but other a transaction would be impermissible • Islami Bank Bangladesh/Social jurisdictions as well. There is a dearth under Shariah. and Investment Bank Bangladesh, of quality scholars in this fi eld, as the Al-Fallah and Rescue: Promotes industry struggles with growing demand MFIs can also replicate the Ijarah model, microfi nance in Bangladesh, using and an inadequate talent pool. Also although this would result in higher structures such as Murabahah and because there is no standardization of costs. deferred sale contracts (bai mu’ajjal) what constitutes a permissible Shariah based on group lending principles. structure, diff erent scholars have One of the key challenges for foreign diff erent interpretations. entities in the microfi nance space in India • Saudi Credit Bank (SCB): Helps is the ability to repatriate the money Saudi citizens with limited fi nancial Such interpretations are usually a outside India. Alternative funding resources overcome their fi nancial function of the stage of development of structures would have to be used. This diffi culties. SCB extends interest- jurisprudence in the particular region. would involve creating synthetic cross- free loans for marriage, home repair, India in particular faces signifi cant border bridges. vocational pursuits, and other social challenges in this regard, since diff erent endeavors, including family loans, to regions of the country have their own Global experience Saudi citizens. specifi c customs and mores that result in The global experience of microfi nance diff erent practices. Thus it is possible for using Shariah is positive. Some of the • Community fi nancing: In Pakistan Shariah scholars from the north to have notable microfi nance initiatives are: Islamic microfi nance is dispensed by diff erent views compared to Shariah small interest-free charitable loans scholars from the south. • Arab Fund for Economic and (Qard Hasan) in a spirit of Islamic Social Development (AFESD): An brotherhood. There is no funding A related point is the complex issue autonomous regional pan-Arab from international donors or fi nancial of the involvement of local scholars in development fi nance organization institutions. cross-border structures. If the foreign made up of the members of the entity sets up an off shore vehicle to fund League of Arab States. AFESD All activities revolve around the an onshore entity, then will it involve promotes the economic and social mosques and involve close interaction foreign scholars of that jurisdiction to vet development of Arab countries. with the community. There are no the viability of such a structure or would independent offi cers and loans are Indian scholars also have a say? • Abdul Latif Jameel Company disbursed and recovered in the Community Service Programs mosque. It uses collateral-free group Again, how will confl icts between (ALJC): Launched on the basis of and individual fi nancing based on diff erent scholars be resolved? The a business plan developed by the mutual guarantees. current practice (as we understand), Grameen Foundation and benefi ting is to empanel select scholars or form a from the continued support of Challenges in India committ ee. The board of the off shore Grameen Bank advisors, ALJC aims entity then takes the fi nal approval of to empower low-income women Foreign exchange norms: We have such a committ ee. The committ ee is in Saudi Arabia to improve their dealt with some of these restrictions in responsible for vett ing all structures and lives and has piloted a ‘micro-retail’ our previous articles. To reiterate, the investments undertaken by the foreign strategy that uses female loan offi cers Indian rupee is not fully convertible on entity, including as regards cross-border. to off er interest-free loans. the capital account and the RBI imposes signifi cant restrictions on foreign Jurisdiction issues: Perhaps the biggest • Grameen-Jameel Pan-Arab exchange movements. challenge facing the entire Islamic fi nance Microfi nance: Launched in 2003 market today is the issue of enforcement as “the fi rst social business in the Although in recent years a gradual of foreign judgment in local courts. This Arab world” and operational across, relaxation of restrictions in the foreign may not be directly relevant for a MFI inter alia, Egypt, Jordan, Lebanon, exchange market has been witnessed, structure wherein all the partners are Morocco, Palestine, Saudi Arabia, some of the structures commonly used located off shore and investments are Sudan, Syria, Tunisia and Yemen, elsewhere may need modifi cation. made purely on a cross-border basis. Grameen-Jameel is a partnership between the Bangladeshi Grameen Enforceability: Recovery proceedings However, if a local entity is involved with Foundation and the Saudi Arabian in India can lead to inordinate delays, which the foreign investor enters into a Abdul Latif Jameel Group. especially when lenders do not have joint venture agreement, then jurisdiction access to special recovery laws that can be a tricky issue to deal with. It forms strategic partnerships are designed for banks. Loan recovery Continued

Continued

Generally, courts in India allow modalities of the structure to avoid of a state-sponsored entity investing in enforcement of foreign judgments, ambiguity down the line. an entity looking to sponsor Shariah subject to certain exceptions (for example fi nance in India, the regulators have if the decision of the foreign court is maintained a studied silence so far. considered as against public policy in Lack of India). What causes worry are media reports regulatory that the RBI has issued notices to Also if India has reciprocal arrangements Shariah compliant NBFCs undertaking with other jurisdictions (such as with pro-activeness is the participative fi nancing, asking them to England), then decisions of courts in such justify how their practices are compliant jurisdictions become enforceable in India biggest reason why with guidelines issued to NBFCs. as well. Islamic finance is not While we believe that NBFCs can A related issue therefore is whether undertake Shariah fi nance/participative Islamic fi nance would constitute ‘law’ flourishing in fi nancing, regulatory scrutiny of in the eyes of Indian courts and would this nature could discourage market be enforceable as such, or whether India participants and further stifl e Islamic Shariah structures would be treated as fi nance from growing in India, ‘customary practices’. potentially killing the “goose that laid the Regulatory apathy: Lack of regulatory golden eggs.” It is critical to ensure that the intentions pro-activeness is the biggest reason why of the parties are clearly incorporated Islamic fi nance is not fl ourishing in India. H Jayesh is the founding partner of Juris into the contractual documents. The Despite the Kerala High Court judgment Corp Advocates & Solicitors and he can be agreements should spell out the which upheld the constitutional validity contacted at [email protected].

Can Islamic banking benefit from the present economic turbulence?

SHAN SAEED analyzes how Islamic banks can maneuver in these challenging times, and explores strategies to capture the mind share in order to conquer the market share.

I see a bloodbath in the fi nancial citizens are violently protesting in the send a signal to the markets that markets of Europe. Riots and social streets. Portugal, Italy and Spain may not unrest threaten the stability of the be rescued either. It would suddenly Eurozone and very fabric of society in If Germany allows Greece to default, become much, much more expensive for America. The world is entering into an that is going to start fi nancial dominoes those countries to borrow money, which economic mess likely to last for a very tumbling around the globe and it is going would make their already huge debt long period of time. Financial history to be a signal to the fi nancial markets problems far worse. If Italy or Spain were is repeating itself, with the markets that there is a very real possibility that to go down, it would wipe out major gett ing distressed again. Portugal, Italy and Spain will be allowed banks all over the globe. to default as well. Needless to say, all hell Global outlook for the will break loose at that point. So why is Inside news of the oil Greece so important? fi nancial market industry The global outlook for the fi nancial Saudi Arabia is quitt ing the oil business market is scary. Is the market on the in the next 10 years. The world’s verge of a massive fi nancial collapse Saudi Arabia is richest oil state is doing the incredible. in Europe? Rumors of an imminent According to Khalid Al Falih, the CEO default by Greece are fl ying around and quitting the oil of Saudi ARAMCO: “It’s going to change Greek government offi cials are openly [our] portfolio in signifi cant ways.” admitt ing that they are running out of business in the next money. Saudi Arabia, the crown kings of oil, 10 years. The world’s have reportedly set in motion a truly Without more bailout funds, it is incredible plan — to drastically cut their absolutely certain that Greece will richest oil state is use of crude oil, starting immediately. default on its debts. But German offi cials Khalid added that: “Our goal is to reduce are threatening to hold up more bailout doing the to the maximum extent possible the payments until the Greeks do what they utilization [of oil].” agreed to do. The att itude in Germany is incredible that the Greeks must now pay the price And it is not just talk. Backing it up is a for going into so much debt. Well, there are two reasons. Firstly, US$130 billion investment from the Saudi major banks all over Europe are heavily royal family to make the switch. This Offi cials in the Greek government are invested in Greek debt. Since many sum is more than Exxon’s net income becoming frustrated because the more of those banks are also very highly for the last three years combined. But austerity measures they implement, leveraged, if they are forced to take huge the switch to what, exactly? What could the more their economy shrinks. As the losses on the Greek debt it could wipe possibly make the world’s richest oil state economy shrinks, so do tax payments many of them out. cut down on crude? Well, Saudi Arabia and the budget defi cit gets even larger. will apparently be focusing on shale gas, Meanwhile, hordes of very angry Greek Secondly, if Greece defaults, it would which is the next revolution in the energy market. US National debt (1900-2011, in trillions) US$14 Banks going bust and the US$13 Since Obama fragile US economy US$12 Ĝce Bank of America plans to slash 30,000 US$11 US$10 jobs. More banks will soon follow in its US$9 footsteps. The reason is that the banks US$8 took position on risky assets with no US$7 fundamentals. Toxic assets will kill many US$6 jobs in banks and fi nancial institutions in US$5 the US and in Europe. US$4 US$3 US$2 We need to get ready for fi nancial turmoil US$1 over the next two years. Unless the government takes swift and intelligent

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Continued

Continued

Federal debt held by foreign & international investors (1900-2011, in billions) advocated the merits and advantages of the Islamic fi nancial system. US$3,600 US$3,200 This system has weathered the storm and has avoided the losses which the US$2,800 present fi nancial markets face, which US$2,400 amount to US$12.87 trillion, according to US$2,000 independent research by the World Bank/ IMF. This is huge for the system. US$1,600 US$1,200 According to my research and through US$800 talking to major players in North America and Europe, in August 2011 US$400 alone US$3.67 trillion of wealth was US$0 wiped off from the portfolio of high net worth clients in these regions. 1970 1975 1980 1985 1990 1995 2000 2005 2010 Ǳȱȱȱȱȱ¢ǰȱęȱȱȱŘŖŖşȱǯǯ A new framework and a new strategy needs to be analyzed which provides action, the number of unemployed could strategy to capture the mind share of solid protection to wealthy and ultra high soar from 25 million to 40 million. clients in order to increase their market net worth clients who want sustainable share, customer loyalty and enhanced returns with peace of mind in these How can Islamic banks sustainable customer experience to challenging times. High net worth maintain an edge in these bad times. maneuver in these tough individuals are seeking wealth protection for their generation by taking positions in times? A clearly stated simple message is real assets to avoid wealth destruction. Devising and maintaining a clearly required to make things easy for clients defi ned strategy can butt ress the to make the fi nal decision of parking 3. Real assets: Investment in assets that eff orts of Islamic banks to achieve the their funds with Islamic banks. Full provide value-factoring in the long-run desired results. To achieve excellence in thrott le advertising can do the trick for The biggest benefi t or advantage in strategy, banks need to be clear about banks in their eff orts to enhance their associating with this form of fi nancial what the strategy is and to constantly clients and deposit base. Capturing the market is the investment in real assets communicate to external clients, internal mind share means conquering the market without taking undue risk in toxic assets. clients and key stakeholders involved share in the Islamic fi nancial market. Investments in these assets provide with the strategy. In a tough world, banks wealth protection in this turbulent era. can survive by using these key strategies. I cannot predict The golden principle in the Islamic It is a simple approach: focus on value banking market is to invest in real proposition and defi ne the benefi ts in the the timing of assets whereby the value of the asset is long-run for wealth protection. Islamic determined and fi xed so as to provide banks are in an advantageous position the next crisis, but a satisfaction and guarantee to all the whereby they can convince clients purely stakeholders involved in the fi nancial on strong fundamentals on the asset-class I strongly believe transaction. Some of the real assets portfolio. in Islamic banking are Islamic REITS, that the global stock investments in sovereign Sukuk, In order to get into a favorable position, investments in stocks and Islamic mutual banks need to study and to maneuver markets are going funds. in the batt lefi eld. The batt lefi eld is the minds of the clients and the potential down because it is Financial transactions are carefully prospects. High net worth individuals executed in order to process the assets are looking for wealth protection to save discounting a very at fair value with all parties taken themselves from wealth destruction in in the loop. This is hugely benefi cial these distressed economic times. Some bad event to all since the transactions are kept proven strategies are mentioned below. transparent and open for the execution of due diligence later, if required for any 1. Capture the mind share: A new misinterpretation. paradigm shift in the growth frontier 2. Personality endorsement: Enhancing Islamic banks should aggressively brand value 4. Workshops/Seminars: Making market their products and services Islamic banks should get endorsements strategic partners and spokespersons to clients who are looking for wealth from famous people such as legendary This is an ideal time for Islamic banking protection and peace of mind. boxing champion Mohammad Ali in the to organize and to deliver workshops, US, or basketball player Karem Abdul They need to devise a strong positioning Jabbar - or Pope Benedict, who has Continued

Continued

share with their clients. This integration Range 6.11-6.28 P/E - of products not only narrows down the clients’ perspective but also brings 6.12 52 week 6.01-15.31 Div/yield 0.01/0.65 about a global context for their enhanced Open 6.24 EPS -1.65 -0.26 (-4.08%) experience. Real-time: 9:32AM EDT Vol/Avg. 4.85M/324.12M Shares 10.13B NYSE real time data - Disclaimer Mkt cap 61.92B Beta 2.21 5. Equitable and fair value system are Currency in USD the hallmarks of Islamic banking Wealthy investors should realize that Compare: Add Dow Jones S&P 500 more speculation and exploitation of funds can fi zzle out very soon. Within just a week (1st - 6th August), US$3.2 trillion–worth 11 of wealth was wiped from the equity We are 13 cents before 10.5 market. a U$5 print. Capital 10 However, Islamic fi nancial markets destruction is about to happen 9.5 prohibit speculation and exploitation of assets with zero fundamentals and 9 fudged facts. The real question of fair 8.5 value takes a new perspective in the 8 Islamic fi nancial market. 7.5 Conclusion 6.5 I cannot predict the timing of the next crisis, but I strongly believe that the global stock markets are going down because they are discounting a very bad event. As a staunch believer in and inviting present and potential through top tier one fi nancial institutions free markets, I think government clients. This would provide them with an like HSBC, Deutsche Bank, JP Morgan, intervention has gone so far that opportunity to share benefi ts with clients Goldman Sachs, Citibank, UBS, Barclays, reducing intervention and lowering the who are not aware of the system, and to Credit Suisse and Standard Chartered defi cit will cause temporary pain but it remove ambiguous fear or apprehension Bank. is not working. It would create massive for clients ranging from North America ineffi ciencies in the system. That is what to Europe and Africa. These banks have signed agreements is happening right now. with top Islamic institutions with a basic The decision for clients to sever the premise to off er Islamic products to a Shan Saeed is a fi nancial economist and link to the old system and move to an vast number of clients through their commodity expert. He graduated from alternative fi nancial landscape can take a global networks. the Booth School of Business, University while. of Chicago, US. He can be contacted at This helps because it integrates the [email protected]. Many Islamic banks’ products are sold variety of products available for banks to

Subscription Package Benefits

,VVXHVRIWKHZHHNO\,VODPLF)LQDQFHQHZV KDUGFRS\,)16XSSOHPHQWVDQG5HSRUWV :HHNO\HPDLODOHUWDQQRXQFLQJWKHODWHVWLVVXHҋVDUULYDO )XOOL3DGL3KRQHDQG$QGURLGRSHUDWLQJV\VWHPVDFFHVV $FFHVVWRWKH,)1'LUHFWRU\ZLWKRYHU,VODPLFILQDQFLDOLQVWLWXWLRQV 7KHDELOLW\WRSURGXFHDQGUHWDLQXQOLPLWHGH[FOXVLYH,)15HVHDUFK5HSRUWV email: [email protected] for more information or call +603 2162 7800 today

Shariah risk: Measurement and treatment

Sound and proper Shariah risk management starts with understanding the basic concepts of managing risk in the industry. HASSAN YUSUF provides insights on how to deal with risk and its impact.

Islamic banking and fi nance has undertake and process their operations Even if this type of risk is realized experienced tremendous multi- through binding contracts and specifi c (depending on the stage of risk dimensional growth in the last 30 formats dictated by Shariah guidelines occurrence), there are techniques and years and this is clear from the product and it is one of the fundamental methods in Shariah for its treatment, as engineering that has fl ooded the distinctions between Islamic fi nancial Shariah has an embedded mechanism market. Since the inception of Islamic institutions and their conventional to protect from adverse and negative banking and fi nance, the focus has been counterparts. consequences that can aff ect the general on removing interest from the system, interests of society. as some outlook changes and many Shariah risk can appear in diff erent operational changes were left intact places and stages throughout the To understand this mechanism, we need based on the conventional system. process of product implementation and to have a good comprehension of the the intensity of the impact of Shariah role of Shariah in a fi nancial transaction. As we have seen from recent court cases risk depends on the degree of Shariah The Shariah section that deals with and defaults, there is a clear shift taking divergence in a particular stage or place commerce, trading and fi nancial place in the Islamic fi nance industry, in the life cycle of the product. activities, or what is generally termed as to focus on the robust development ‘muamalat’, is based on the permissibility of operational matt ers to align with of origins. Islamic fi nance requirements. Part of this includes understanding the risks in To understand This means that fi nancial dealings are Islamic fi nance from a Shariah point of considered permissible regardless of the view as Shariah has its own mechanism this mechanism, shape or fi nancial product used in the to address and mitigate risks. process as long as there are no breaches we need to have a in Shariah principles that govern Sound and proper Shariah risk ‘muamalat’. management starts with understanding good comprehension the basic concepts of managing risks; On the other hand, there are two broad Shariah guidelines that relate to of the role of Shariah categories in Shariah: Al Mutaqayarat (the ‘muamalat’; and how to deal with risks dynamic) and Al thawabit (the static). and its impact. in a financial transaction The static part of Shariah refers to those Clear and accurate understanding of principles and rules that are fi xed and these concepts and the correction of cannot be changed or altered by any any misconception surrounding the circumstances. For instance, trading fundamentals and assumptions of Shariah For example, a receivable commission in pornography, liquor or in the wine risk provides clear procedural guidelines was discovered to be part of a particular industry (including transporting, in eliminating, mitigating or transferring project approved by a Shariah board, but consulting, or developing projects for the Shariah risk and off ers robust, eff ective the commission itself was not part of the wine industry) is prohibited. and effi cient oversight management of approved fees allowed by the Shariah Shariah risk. board (there are certain fees that are not The dynamic part of Shariah deals with allowed by Shariah boards: including things that are related to our daily lives Risk is an event that relates to an management fees, early sett lement which help us improve our lives. In uncertainty with a measurable impact fees, commitment fees, extension fees, this area we use fi qh to deal with the and risk constitutes the level of administration fees and non-utilization challenges, and this is where the format uncertainty of the event which has fees). of fi nancial products is shaped. an unfavorable outcome or adverse There are certain principles in Shariah consequences. In other words, the The treatment of such a violation involves that provide a direction for certain measurement of risk is essential and cancelling the commission only, and it situations, based on the well-known quantifi able; it is impractical to mitigate does not aff ect the rest of the transaction or legal maxim that necessity permits risk if risk cannot be measured. project involved, as this type of risk has a minimum impact at this stage. prohibitions. It is part of the fi qh to understand and deduce accordingly Shariah risk treatment However, there are certain cases that from the circumstances that surround the Shariah risk is the risk that arises from can bring a whole institution to its knees whole case. a lack of Shariah compliance rules and and have a high reputational impact, regulations in relation to Islamic fi nancial although this rarely happens. One Another Shariah mechanism which is institutions or any entity that undertakes example of this type of risk is mentioned frequently used is the fi qh principle Islamic fi nancial services. Shariah is the in the following table (in the exclusion basis of Islamic fi nancial institutions to zone column). Continued

Continued

Pre-structure stage Pre-structure stage Exclusion zone Risk Probability Impact Severity Pre-structure This includes interest, alcohol The risk pre- The chance that this The impact of If risk elements in stage: This stage (including production, structure stage type of risk can be exclusion zone the exclusion zone mainly consists marketing, selling), tobacco constitutes realized is minimal elements is quite are realized based of formulating, and its relative products, inclusion of and is rare. As this high risk if it is on the cooperation designing the pork-related products and non- excluded items in is the fundamental realized, but to of individuals in product and compliant food production project fi nancing, principle which defi nes realize such an the organization. presenting the (food that is prepared based products or Islamic fi nancing incident is diffi cult This can have severe workfl ow of the on a non-halal procedure), investment funds. from conventional as the Shariah board consequences and can product to the entertainment like hotels, Exclusions of fi nance. For example, a approves initial bring down the whole Shariah board. In gambling (including casinos, these elements mutual fund company products based organization, fund this stage certain lott ery and internet gambling), carry the risk which invested the on the exclusion or project. And may elements are cinema and movie theatres, that nullifi es the proceedings of the fund zone. But in a case also have a contagion avoided which are music, pornography, weapons product. to a haram (prohibited) realized, based on eff ect to other areas of prohibited by the and defense*, conventional business by giving the example given the organization such Shariah (exclusion fi nancial services like insurance false information in the probability as the loss of trust zone). and banking, and companies to investors. The column, this can and confi dence from involving human and animal probability of realizing happen only by a) the public. If the risk genetics. a risk such as this is the cooperation of realized is based on a very low. many individuals in lone actor, the impact is *Some scholars exclude defense the organization or lesser and cancelling the weapons by b) a lone actor. fund or transaction is suffi cient.

Post structure stage Process Review zone Risk Probability Impact Severity Post-structure The elements that are The risk in the The probability of this Risk realized post Risks in the post- stage: This stage is reviewed by the Shariah review zone type of risk is realized implementation has less implementation the period where auditor are the product category has more compared to impact compared to process do not carry the product is implementation as per diff erent impact the pre-structure the pre-structure stage. high severity as implemented. the layout of Shariah levels: from stage. Since the Usually if any such risk is multiple checks and This stage mainly principles specifi c to cancelling the implementation is from realized, correction and reviews are done by deals with the that particular product. contract of a a practical point, and elimination is applied. the Shariah board, process workfl ow These are: event dates, specifi c project involves human error, There is no defi ned Shariah auditor and the of the product signatures, ownership to a minor client competition, treatment as such but it legal unit. Frequency is implemented documentation, purpose impact where etc. For example, if depends on the stage of of realizing risk in as per Shariah of funds, agreed an immediate not all documents are occurrence and severity. post-implementation is board advised specifi c action from the correction can be provided because of the For example, certain high but severity is low. and approved. counterparty like the applied which length of time available. deposit products may This can be minimized The elements that debt ceiling should be requires one step The remedy for this not be processed by the or eliminated with the need to be checked a particular ratio, and only. For example, would be to provide customer service of the passage of time through in this stage un-approved elements if the date is not the documentation bank where the client risk awareness sessions, are mentioned which are included mentioned in the within a specifi ed has already signed the proper Shariah training (Review zone). by error such as the contract. This period. documentation. If this is for staff etc. collection of unapproved step needs to be realized aft er one week, fees, mismatch dates, corrected before either the client has to human error etc. going further with forgo the profi t in that the project. period or the bank has to pay to the customer. based on the famous narration “no is where the risk is inevitable but the based on the quantity that is considered harm and no reciprocating harm.” eff ect varies depending on the outcome, impure or deemed illegal. This is based Maslaha public interest is involved to and in this case Shariah encourages on a well-known fi qh ruling that purity, permit or prohibit something based the acceptance of a type of risk, based ‘tahara’, is not aff ected by a small level on public benefi t. For example, this on choosing the risk that has the least of impurity if it is restricted to a certain can be applicable where the wealth of impact. In Islamic fi nance, this could level (a known quantity). shareholders is wiped out or reduced to a be applied to a transaction where low level due to lack of conformation to a the acceptance of certain risks are Thus in Islamic fi nance, regarding Shariah principle. unavoidable: such as penalty fees where investing in mutual or equity funds, the fees must be paid or the project risks if riba interest involvement is 1-5%, it In a practical sense, this can be used cancellation. doesn’t aff ect the other 95% which is for certain risks that have adverse considered permissible: based on the consequences for a larger segment of There is another fi qh understanding above explanation that a small impurity society. where if there is a part of the transaction Another fi qh ruling that can be used that is deemed impure, fi qh will judge Continued

Continued does not infl uence or aff ect the larger of the event. Having a comprehensive structuring a product and its life cycle. part of purity and since the percentage understanding of this background may In a simple format, we divide the process of impurity is well-known in fi nancial help in mitigating the Shariah risk, based of structuring Islamic fi nancial products terms, it is taken out of the transaction on the stage of occurrence. It should into two stages: as featured in the table. and it can be segregated from the rest of not be thought that everything related the transaction. to Shariah risk can have a ready-made The elements that constitute Shariah risk answer. However, it must be stressed have diff erent levels of impact subject to Another Shariah remedy or fi qh ruling is that Shariah risk remedies are widely the article or the clause that is breached, that sometimes the outcome of a certain available and there are a variety of and depend on the stages and places of event or its impact is considered, if options. risk occurrence. such consequences may have a negative impact with multiple eff ects on society. As stated in the table, the most frequent This is based on a well-known case risks are in post-implementation, and where allowance of divorce in Islam is Shariah risk some of these risk occurrences, such as accepted beyond the known threshold missing dates in contracts can happen (three times) for certain individuals elements occur frequently due to of human error. Shariah whose infl uence to their people is dates are an essential component in unlimited: such as kings, sultans or the in different places, Islamic fi nance contracts as the ownership heads of a tribe. transfer is checked through dates: and such as pre- and in Islamic fi nance no sale can take place Similarly in Islamic fi nance, the failure without the ownership right. There are of one of the largest Islamic fi nance post-structuring a tremendously rich resources available in services providers in a country, such as dealing with all types of risk in Islamic Maybank in Malaysia or Al Rajhi bank in product and banking fi nance, but the area urgently Saudi Arabia, may be prevented through needs more research on how Shariah intervention based on the undesirable its life cycle embedded mechanisms can be used by consequences of their failure, based on the Islamic fi nance industry to avoid and the above fi qh ruling. Shariah risk measurements mitigate risk. Financial products off ered by Islamic The above scenarios are given to fi nancial institutions are diff erent from Hassan Ahmed Yusuf is the operational risk highlight that Shariah has mechanisms those off ered by their conventional manager at Masraf Al Rayan and he can be to deal with risks depending on the level counterparts. Shariah risk elements occur contacted at [email protected]. or stage, quantity and consequences in diff erent places, such as pre- and post-

Our short, comprehensive programs will equip you with detailed knowledge of Islamic finance and products, allowing you to confidently participate in this growing area.

For more details, please contact us

Tel: +603 2162 7800 Fax: +603 2162 7810 [email protected] www.miftraining.com

Japan: Steadfast despite adversities

Cover Story of management personnel or in the Tokyo-Mitsubishi UFJ (Malaysia) set direction of the company. “Everything up its international currency business Last week saw the completion of in the company remains the same,” unit with the approval of Bank Negara a merger between two Asian asset assured a source. The merger has raised Malaysia, the country’s central bank. management houses to form what is eyebrows, particularly in the asset touted to be the largest entity in the management sector, as this is Nikko’s The same year also saw Sumitomo region. Nikko Asset Management maiden foray into in the Islamic fi nance Mitsui Banking Corporation opening (Nikko AM) has now combined with industry. Japan’s att raction to Islamic up an offi ce in the Qatar Finance Center, DBS Asset Management (DBSAM) in a fi nance is anything but new however, making it the fi rst Japanese institution union that will boost Nikko AM’s assets particularly in the corporate sector. to do so in the country. Subsequently, under management (AUM) by US$7.9 Its roots can be traced back as early as Daiwa Asset Management launched billion to an combined total of over its FTSE Shariah exchange traded fund US$165 billion (estimated from pre- (ETF), the Daiwa FTSE Shariah Japan 100 merger assets as at the 30th June 2011). Despite the ETF, which became the fi rst Islamic ETF to be listed on the Singapore Exchange. The merger involves the acquisition of multiple DBSAM by Nikko AM for S$137 million In 2009, Nomura Islamic Asset (US$104 million), while DBSAM’s parent launches, the Management was licensed in Malaysia, group, DBS Bank (the largest banking marking its entry into the Islamic fund group in Southeast Asia) has acquired a establishment of management arena as well its foray into 7.25% interest in the new entity. DBSAM managing Shariah compliant fi nancial Singapore has been renamed Nikko Asset these institutions products. Management Asia. and funds has Despite the multiple launches, the The terms of the merger agreement establishment of these institutions and stipulate that Nikko AM acquires 100% been sporadic funds has been sporadic; a situation of DBSAM, the asset management largely blamed on the global fi nancial subsidiary of DBS, and a 30% stake in 1998, when Noruma Investments formed crisis. Nonetheless, Japanese institutions Hwang-DBS Investment Management a strategic alliance with Al-Tawfeek continue to forge ahead and are (HDBS IM), a fund management fi rm in Company, one of the major subsidiaries increasingly making their presence felt in Malaysia. of Dallah AlBaraka Group, to launch the the Islamic fi nance industry. Nikko AM’s Al-Nukhba Asia Equity Fund: targeting interest in AIIMAN proves once again Nikko AM has also acquired 100% Southeast Asia companies in which both the keen interest that corporate Japan has of DBSAM’s Hong Kong subsidiary parties had invested an equal 10% of the in the Islamic fi nance industry. and a 51% stake in Asian Islamic subscribed capital. Investment Management (AIIMAN), a joint venture between Singapore’s DBS This was followed by the real estate In this issue... Asset Management and Hwang-DBS investment in 2006 known as the (Malaysia) focused on Shariah compliant News ...... 30 Boubyan Global Real Estate Fund, which investment solutions. acquired three properties in Tokyo Feature: Building a unique wealth management business .31 worth JPY4.38 billion (then about US$40 Despite procuring a new majority Fund Focus: million). However, Japanese institutions shareholder, it is learnt that there will Global GCC Islamic Fund ...... 33 really began making their presence felt be no change to AIIMAN in terms Funds Tables ...... 34 in the industry in 2008; when Bank of

Prudential Al-Wara Asset Management Berhad (PRU Al-Wara') is the Islamic asset management business of Prudential Corporation Asia. Established in 2009 andnd headquartered in Malaysia, PRU Al-Wara' is responsible for managing Shariahah comcompliantnt assets on behalf of retail and institutional investors, as well as onshore andd ooffshoreffs institutional mandates. Visit www.prudentialfunds.com.my for more information.

Collaboration to cultivate The fund is aimed towards local and come to a grinding halt this year. international companies looking to growth fi nance cross-border business activities, Jahangir Aka, a senior executive offi cer at UAE: Emirates NBD Asset Management as well as Emirati-owned companies asset management fi rm SEI Investments, has collaborated with Man Group to seeking expansion. att ributed this retreat to poor sentiment allow the London-based hedge fund in fi nancial markets and the lackluster manager to manage and grow the bank’s The HSBC UAE SME fund can also interest among Islamic institutional Emirates Islamic Alternative Strategies be accessed through HSBC Amanah, investors. Fund. enabling investors to use Shariah compliant fi nancings to grow their He said that despite Ernst & Young’s The fund’s assets will be allocated to the business. report that Islamic funds’ assets grew Man GLG Multi-Strategy Fund, which 7.6% in 2010 to US$58 billion, this was seeks to produce annual returns of 3-5% New Islamic pension fund much slower than the 35% growth over Libor. experienced by conventional funds, MALAWI: Ghana-based life insurer which benefi t from investments from Vanguard Life Assurance Company is pensions funds. Successful take-up reportedly planning to launch a Shariah UAE: HSBC’s second US$100 million compliant pension fund, the Mudaraba Aka said that the growth of Islamic HSBC UAE SME fund has been fully Equishare Fund, in Malawi in December mutual funds will remain modest allocated in only three months, almost 2011. unless there is more investment from twice as fast as its fi rst fund, which was institutions. launched last year. The fund will invest in conventional investment vehicles that do not “We have to develop a deeper This shows that small and medium- contradict Shariah rules. institutional investor base. We have a sized enterprises in the UAE are “keen couple of big families, a supranational to expand, but are constrained in their Bleak future bank and a few Islamic banks. But none access to funds,” according to Rana Al of them are major investors in the mutual Emam, the head of business banking at UAE: The growth of the global Islamic fund market,” he said. HSBC’s UAE branch. asset management industry is predicted to face a possible slowdown or worse yet,

17th to 19th October 2011, Kuala Lumpur Convention Centre

An IFN Asia 2011 update Less than two weeks away, the IFN Asia Forum 2011 on the 17th - 19th October is expected to be this year’s most interactive and high-profi le Islamic fi nance conference due to unprecedented support from industry players and regulators. With the aim to create a comprehensive platform for discussion and debate, the IFN Asia Forum 2011, which encompasses an Issuers, Investors, Equities & Financial Markets, and Takaful & re-Takaful day, will cover a gamut of issues relevant to the industry and today’s investment market; including Global Growth and Development of the Sukuk market in 2011 and 2012; enhancing cross-border trade and investments; issues pertaining to risk and liquidity management; as well as a comprehensive look at investor appetite for Islamic capital in today’s investment environment, among others. Latest updates The event, which is supported by Luxembourg for Finance and will be represented by 50 delegates from the Grand Duchy, will also see H.E Luc Frieden the Minister of fi nance deliver a keynote address on the 19th October. An exclusive case study on the Celcom Axiata Sukuk will be a key feature of the Issuers Day by Chari TVT, Chief Financial Offi cer, Celcom Axiata Berhad and Roslinda Ahmad , Director Product Distribution & Strategy, CIMB Islamic. Latest Key Speakers Confi rmed Include • Ahmad Nazir Che Yen - Senior Vice President, Treasury Islamic, Group Treasury, CIMB Islamic • Kazi Md. Mortuza Ali - Managing Director, Prime Islami Life Insurance Limited • Nasser Yassin - Consultant, REDmoney Training • Simon Glover - Partner & Member of the Board, Merit Commodity Partners • Luc Frieden - Minister of Finance and the Grand Duchy of Luxembourg • Ismail Mahbob - President & CEO, MNRB Retakaful • Majid Pireh - Islamic Finance expert, Securities and Exchange Organization of Iran (SEO) Tehran • Hooman Sabeti-Rahmati - Partner, Allen & Overy • Bilal Rasul - Director, Enforcement Department for the Securities & Exchange Commission of Pakistan • Roslinda Ahmad - Director Product Distribution & Strategy, CIMB Islamic • Raja Teh Maimunah - Industry Practitioner

Islamic wisdom will save the west

There are diﬀ ering opinions on the permissibility of Islamic hedge funds. TOBY BIRCH looks at the broader aspects of this particular fund class and questions the need for it.

Very few westerners are aware that it is our own lifecycle or the recurrence Instead, Dr Suwailem proposes risk much of the writt en knowledge of of Fibonacci numbers, there is clearly sharing, which goes back to the the ancient world was saved from ebb and fl ow all around us. Anyone who fundamentals of the Islamic approach destruction then copied and enhanced studies chart patt erns will be familiar to trade, money and community. This by Islamic scholars. An academic with the expansion and contraction of cannot be brushed aside as Muslim powerhouse of the day known as the volatility, as seen in the Bollinger Band propaganda against speculation, which is House of Wisdom was established analysis. Reversion to mean is a powerful of course forbidden. during Europe’s Dark Ages. Much force that regulates and restrains many of the groundwork for modern excesses that would otherwise engulf In ‘A Demon of Our Own Design’, Wall medical, mathematical, and scientifi c us. The beauty of the credit crisis is that Street risk manager Richard Bookstaber advancement can be credited to it has shown us that mankind is not makes a similar case. In the study of this institution. There is now a real in control; and the growth-at-any-cost both industrial disasters and fi nancial possibility that the ancient wisdom model has been exposed as a sham. crises, common themes emerge. Speed, embedded in Islam will ascend once Recent years have been needlessly complexity and over-regulation lead to more, ironically, to save the west from wasted in an att empt to resurrect a tight coupling that in turn increases the self-destruction. fl awed fi nancial system, with unintended vulnerability and volatility of the system. consequences of spiralling food prices as In the case of fi nancial markets we have Since the break-up of the Gold Exchange the US dollar devalues. high frequency trading, excess leverage Standard forty years ago, the perceived and ever-more complicated algorithms wisdom has been that never-ending Such ponderings may seem alien or even which increase correlation: the ‘fl ash growth could be funded by an ever- irrelevant to an article about Islamic crash’ will become a regular event. expanding money supply. Once free hedge funds. Rather than indulging in from the restraint of precious metals, the tired debate of whether such funds It then begs the question as to why governments in tandem with banks could are an oxymoron or innovation one can Muslims would want to buy hedge fund military expansion and a merry-go- instead ask more fundamental questions funds, even if they brandish a scholar’s round of populist policies for the baby about the role of money. stamp of approval. Is it just a case of boom generation. It was convenient to seeking the best return and reducing treat the resulting appreciation of asset Hedge funds have been subject to risk or is something more fundamental prices as a ‘boom’ and to nurse the myth a witch-trial by the media and by at play? For one thing it is hard to fi nd that one’s house was a pension pot. European politicians accusing them of out the facts on how large or popular causing the credit crisis. One can sense these funds are. The opaque world of There was however a catch to the a whiff of jealousy in targeting a group Islamic fund statistics is a stumbling process: the dual devils of interest of wealthy people who apparently made block as they are only available to paid and infl ation. The mathematical genii fortunes as others suff ered. Headline subscribers. (or even djinni) that work in fi nancial examples of hedge fund folk raking it markets overlooked the juggernaut of in were very much the exception in fact, For now we shall overlook the irony of compound interest that snowballs debt as many suff ered crippling losses and a fi nancial industry based on principles into an avalanche of liabilities. Creating major outfl ows of capital. Aft er all, unlike of transparency that fails to share data yet more interest-bearing bonds is the investment banks, hedge funds were not which is freely available for conventional surest form of fi nancial suicide, yet this the benefi ciaries of the public purse. funds. One suspects that Islamic hedge is the same solution served out for every funds are being promoted and purchased crisis, to buy more time. We cling to a Nevertheless, speculation is not a guilt- because they appear to be glamorous, failed fi nancial system through want of free pastime, nor is leverage a zero sum sophisticated and western. familiarity combined with a fear of the game. The lame euphemisms about ‘price unknown. discovery’ and ‘liquidity’ seem a heavy If there is indeed a desire for such funds price to pay for their destabilizing eff ect then it may well be a symptom of human While it is popular to demonise bankers, on fi nancial markets. behavior that has been prevalent for they are simply symptoms and servants centuries. When dominant nations form of a philosophy that is widespread in the As highlighted in Dr Sami Suwailem’s empires, the conquered countries oft en west. Its tenets dictate that mankind is book, ‘Hedging in Islamic Finance’, the adopt the fashions, architecture and master of the universe, unconstrained by use of derivatives increases systemic lifestyles of the leading power. the greater forces that operate around us. risk as investors take ever-bigger bets The concept of economies lying fallow because they think they are protected. In the case of America, the empire is for a period of respite is intolerable. We In practice, the risks accumulate in the a fi nancial one with the US dollar as a should instead accept and appreciate the hands of those who cannot aff ord to take form of tribute which everyone must cyclicality and seasonality that are an them and the liabilities end up with the indelible tapestry of our being. Whether government by way of bail-outs. Continued

Continued buy for commodity transactions. The capital into real assets for productive, from our proprietary ‘Gaia Filter’: IMF in turn has used debt as a conduit communal improvement. of colonial power to extract cheap raw • Natural Resources: Commodities, materials from developing countries. The hoarding of wealth (in the form rare earth metals, forestry, water Sovereign wealth funds of many Muslim gold and silver in the time of the nations accumulate interest-bearing debt Prophet) was viewed as selfi sh and • Food Chain Disruption: Fertiliser, seemingly without question, as though destructive. Scholars liken money agriculture, soft commodities, Islamic principles need not apply to to water; only useful when fl owing, infrastructure institutions. otherwise stagnating if uncirculated. Zakat is of course the charity tax on • Population Growth: Healthcare, However there is also a practical liquid assets that are not invested in biotech, waste management, aspect in that there is litt le outside of productive ventures, acting as a form of emerging markets conventional bond markets than can negative interest rate; a case of “use it cater for the size of such investments. As or lose it”. Many investors are sensibly • Currency Devaluation: Precious ever, the wisdom of the Prophet echoes buying bullion as a means of protecting metals & mining stocks to off set down the ages: when he informed his themselves against the devaluation of currency dilution companions of a time “when not a single mainstream currencies. person remains except that he consumes • Green Revolution: Clean technology, riba,” or at the very least “its dust will However, gold is simply a measure of the renewable energy and strategic assets reach him” (reported by al-Hakim and malaise of modern money, like mercury others from Abu Huraira). in a thermometer. Other than boosting Inevitably we could be accused of the profi tability of mining companies and hypocrisy by purchasing futures It is easy to become despondent when bullion dealers, there is litt le benefi t to contracts to gain exposure to food looking at history but there is also humankind, let alone the environment, and other commodities. Likewise the scope for optimism. Maturing empires as prices surge. Commodity appreciation holding of precious metals may well have a tendency to import ideas as is feeding a frenzy of resource depletion be exacerbating the upward price well as impose them. In the Roman and associated pollution that we will trend. Where we seek to be diff erent era what was once deemed barbaric later come to regret. Swathes of capital is that we will be donating a portion became fashionable as beards festooned are being allocated to passive lumps of of our performance fee to promoting previously clean-shaven faces and togas metal locked underground. It does not sustainable communities in developing were discarded for trousers. Christianity fund industries starved of fi nance in the countries. This is not the same as charity likewise became the state religion having wake of counter-productive bank bail- but an att empt to promote a strong work been suppressed on pain of death in outs. ethic through interest-free loans. We earlier centuries. would also welcome the opportunity to In the meantime, we are failing to see create a Shariah compliant version, which While the likelihood of the west the wood for the trees concerning the would be diffi cult but not impossible converting wholesale to Islam is rather ongoing credit crisis. Investors face with the correct guidance. unlikely, the power of its fi nancial greater threats from a range of natural principles may well take root. Aft er and man-made disasters. We believe The challenge is to fi nd a willing Islamic all, the spread of Islam was not that population growth, environmental bank to form a partnership and a scholar necessarily about conquest but about degradation and the mutation of who will share the risk and reward the respect gained when dealing with fi nancial markets are closely correlated. without charging a large, fl at fee. Great Muslim traders, renowned for their We are witnessing an unprecedented change happens through small episodes honesty and dependability, if not for confl uence of factors caused by climate of leadership by example. At the risk their hard bargaining. We may now change and resource scarcity, exacerbated of sounding naïve, we hope that an be on the verge of a new era where by currency devaluation. The public investment fund which helps investors the mutual risk/reward of equity face severe infl ationary pressures from escape the eff ects of infl ation while topples the iniquity and imbalance diminishing supplies of raw materials promoting sustainability can be a catalyst of interest-bearing debt. The fi rst combined with an exponential escalation for fi nancial reformation. rumblings of such an approach have in demand. been proposed by the world-renowned Toby Birch is the managing director of economist Professor Kotlikoff , who has As investment managers we see our Oppenheim & Co in Guernsey. He is author recommended that European banks role in a more holistic light than many of ‘The Final Crash: Addictive Debt and convert to mutual funds. of our counterparts. We have gone the Deformation of the World Economy’, beyond the tedium of money-making published in 2007. He has been a fund The famous Victorian playwright and for its own sake and now seek to benefi t manager for 20 years, is a Chartered Fellow one-time Guernsey resident Victor our clients as well as the companies of the Chartered Institute for Securities Hugo said that: “There is nothing more we invest in by following the recycling and Investment, and also holds the Islamic powerful than an idea whose time has approach to capital. We are therefore Finance Qualifi cation. He can be contacted come.” The fundamental message of launching a multi-asset fund called Gaia by e-mail on [email protected] or by Islamic economics is that of recycling Opportunities, investing in fi ve themes telephone on +44 1481 721 981.

OSK-UOB Global Food Islamic Equity Fund

The fund aims to achieve medium to long-term capital appreciation, through investments in Shariah compliant securities of companies that are involved in the food-based and/or food-related business globally.

Could you provide an overview on the From the news in the mainstream media, FACT SHEET asset / asset class which this fund is we are already seeing growing interest investing in? from multinational companies in the Fund manager OSK-UOB Islamic Fund Management The fund will invest in halal food halal sector. companies as well as globally listed Trustee HSBC (Malaysia) Trustee food-based companies which are How does the theme of the asset class of Shariah compliant. The companies this fund fi t with investors today? Shariah OSK Investment Bank can be involved in either upstream or By nature of it being defensive, it fi ts advisors downstream activities. investors that prefer equity investment but at the same time are not willing to Benchmark 7% growth per annum in What are the factors that were take extra risk especially during the (Index) Net Asset Value considered prior to launching this fund? current period of volatility. The fund We aim to launch products that are would fi t individuals who are medium to Domicile Malaysia innovative and diff erent from products long-term investors. th that are currently in existence. Based on Inception date 11 August 2011 our research, I believe this is the only How oft en will you review this fund? Fund Fund Type – Open / halal food fund in the world. This fund is very dynamic and characteristics Closed investment in equity/cash can range Open End In addition to being an Islamic fi nancial between zero to 100%. Thus the review hub, Malaysia also aspires to be a halal will be done on a monthly basis where Fund Size hub as well. I believe this fund will help we will review the fund’s performance to 400 million units to promote such an aspiration. In years see where we did well and where we can NAV per share to come, we hope Malaysia will not only improve. RM0.50 (US$0.15) at initial become a physical halal hub but will also off ering been known as the fi nancial halal hub. How will the fund’s portfolio be When I say fi nancial halal hub I mean that I structured? Minimum / Subsequent hope that halal food companies from other Generally, the fund will have a Shariah Investment parts of the world will one day list their compliant equity exposure of 70-98% Minimum: companies in Malaysia under the halal of the fund’s net asset value to generate RM1,000 (US$313.4) food sector of Bursa Malaysia. returns to the fund. Min Subsequent Investment: Food companies are very defensive in However, the fund manager may lower RM100 (US$31.3) nature. Food consumption is always on the Shariah compliant equity exposure an increasing trend in line with the rise in of the fund in favour of Sukuk, Islamic Management Fee population. money market instruments and Islamic 1.8% per annum of deposits in order to help achieve the net asset value before Furthermore people need to be fed even benchmark return and / or to help deducting the manager’s when times are bad. Thus, this fund is preserve capital and return. and trusteee’s fees for that particular day. ideal for investors who prefer equity investment and yet want to limit their Accordingly, the fund’s exposure Dividend policy risk exposure. to Sukuk, Islamic money markets Consistent with the instruments and Islamic deposits may fund’s objective which What is the short-term and long-term increase up to 100% of the fund’s net aims to achieve medium outlook of the sector in this fund? asset value until such time when the to long-term capital In addition to food being a necessity Manager considers the investment in appreciation, distributions and with demand ever increasing equity appropriate. will therefore be of secondary importance. with the rising population, there is Net distributions, if any, also a mismatch between the Muslim What is the projected rate of return of will be reinvested. population and halal food production. this fund? Our targeted return is 7% per annum. Halal food production currently makes up 16% of the global food production What is the market outlook for this As mentioned earlier, the mismatch but the Muslim population makes up fund? between Muslim population and halal about 23-25% of the world’s population. We are very excited about the potential food consumption will narrow, which We believe this mismatch will narrow of this fund. Not only will it benefi t from will push demand for food consumption. as the economies of countries with the rising global food demand, but it will The fund will also benefi t from the rising Muslim majorities (such as Indonesia and also benefi t from the potential growth of purchasing power due to the economic Pakistan) improves. the halal food segment. growth of Muslim countries.

Eurekahedge Global Islamic Fund Index

120

110

100

80 Index Values

60 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10

Top 10 Monthly returns for All funds Fund Fund Manager Performance Measure Fund Domicile 1 ETFS Physical Gold ETFS Metal Securities 12.35 Jersey 2 ETFS Physical PM Basket ETFS Metal Securities 6.09 Jersey 3 DWS Noor Precious Metals Securities - DWS Noor Islamic Funds 5.29 Ireland Class A 4 ETFS Physical Platinum ETFS Metal Securities 3.03 Jersey 5 ETFS Physical Silver ETFS Metal Securities 2.84 Jersey 6 ING i-Enhanced Cash ING Funds 2.56 Malaysia 7 Avenue AsnitaBond Avenue Invest 1.28 Malaysia 8 Pak Oman Advantage Islamic Income Pak Oman Asset Management 1.24 Pakistan 9 United Islamic Income UBL Fund Managers 1.08 Pakistan 10 Meezan Islamic Income Al Meezan Investment Management 1.07 Pakistan *Eurekahedge Asia Paciﬁ c Islamic Fund Index -4.65 * Based on 99.98% of funds which have reported August 2011 returns as at 4th October 2011

Top 10 Monthly Returns for Global funds Fund Fund Manager Performance Measure Fund Domicile 1 ETFS Physical Gold ETFS Metal Securities 12.35 Jersey 2 ETFS Physical PM Basket ETFS Metal Securities 6.09 Jersey 3 DWS Noor Precious Metals Securities - Class A DWS Noor Islamic Funds 5.29 Ireland 4 ETFS Physical Platinum ETFS Metal Securities 3.03 Jersey 5 ETFS Physical Silver ETFS Metal Securities 2.84 Jersey 6 CIMB Islamic Commodities Structured 2 CIMB-Principal Asset Management 0.72 Malaysia 7 Solidarity International Real Estate Solidarity Funds Company 0.52 Bahrain

8 USD International Trade Finance - Samba Financial Group 0.09 Saudi Arabia (Al Sunbula) 9 Euro International Trade Finance - Samba Financial Group 0.09 Saudi Arabia (Al Sunbula) 10 SR International Trade Finance - Samba Financial Group 0.09 Saudi Arabia (Al Sunbula) * Eurekahedge Middle East/Africa Islamic Fund Index -4.28

* Based on 99.74% of funds which have reported August 2011 returns as at 4th October 2011

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

Eurekahedge Islamic Fund Money Market Index over the last 5 years Eurekahedge Islamic Fund Money Market Index over the last 1 year

111.5 100.9

109.5 100.7

100.5 107.5 Percentage Percentage 100.3 105.5

100.1

103.5 99.9

101.5 99.7

99.5 99.5 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11

Top 10 Islamic Money Market Funds by 3 Month Returns

Fund Fund Manager 3-Month Return (%) Fund Domicile 1 ING i-Enhanced Cash ING Funds 3.08 Malaysia 2 Meezan Tahaﬀ uz Pension - Money Market Sub Al Meezan Investment Management 2.78 Pakistan 3 Atlas Pension Islamic - Money Market Sub Atlas Asset Management 2.73 Pakistan 4 PNM Amanah Syariah PNM Investment Management 1.52 Indonesia 5 Solidarity Leasing Solidarity Funds Company 0.97 Bahrain 6 Al-Hilal Islamic Kuwait Investment Company 0.74 Jersey 7 MAAKL Al-Ma'mun MAAKL Mutual 0.69 Malaysia 8 OSK-UOB Institutional Islamic Money Market OSK-UOB Unit Trust Management 0.66 Malaysia 9 PB Islamic Cash Plus Public Mutual 0.66 Malaysia 10 PB Islamic Cash Management Public Mutual 0.64 Malaysia *Eurekahedge Islamic Money Market Fund Index -0.11

* Based on 98.94% of the NAV for August 2011 as at 4th October 2011

Top 10 Islamic Commodity Fund by 3 Month Returns

Fund Fund Manager 3-Month Return (%) Fund Domicile 1 ETFS Physical Gold ETFS Metal Securities 17.91 Jersey 2 ETFS Physical PM Basket ETFS Metal Securities 10.20 Jersey 3 ETFS Physical Silver ETFS Metal Securities 6.85 Jersey 4 DWS Noor Precious Metals Securities - Class A DWS Noor Islamic Funds 5.49 Ireland 5 CIMB Islamic Commodities Structured 2 CIMB-Principal Asset Management 1.43 Malaysia *Eurekahedge Islamic Commodity Fund Index 5.50

* Based on 100% of funds which have reported August 2011 returns as at 4th October 2011

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

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

Cover story signifi cant resources and investment series provide a unique life achievement behind their Takaful operations and based loyalty bonus to participants. This The recent launch of the PruBSN product suites that will only help to unique loyalty bonus is a key feature of Takaful’s link series highlights that enhance the industry moving forward. the revamped product suite, rewarding product innovation in the Malaysian participants through milestones such Takaful sector remains alive and This unique approach in a crowded as academic excellence and other life kicking. In the past, Takaful products market place should allow PruBSN achievement-based bonuses whereby have been specifi cally targeted to a Takaful to realize its aspiration of the policy will pay a percentage of the specifi c want or need from the market. becoming the number one Takaful annual contribution as a reward for As a gap in the market emerges it is operator in Malaysia. With a fi rst quarter milestones reached or achieved: such fi lled with a product that can meet 2011 Takaful market share of around as marriage, property ownership or that demand, creating a raft of similar 26%, PruBSN Takaful has come a long undertaking umrah or haj. infl exible products in a heavily way for a relatively new company. Azim saturated market sector. Mithani, the CEO, hopes that this latest This creates att ractive benefi ts, appealing off ering shows that the company is a to those looking to build for their futures. However, as the Takaful industry leader in product development and It is hoped that this will provide a continues to grow apace, product that it is comfortable in bringing new motivational aspect to the policy. It also sophistication has to take place in order products to customers. serves as a means of att racting policy for the Takaful products to remain uptake for those who do not immediately relevant in a rapidly evolving landscape This is a demonstration that the Takaful recognize the benefi ts of such product and against a highly competitive market has become increasingly off erings, such as young adults with conventional insurance industry. perceptive to the needs of its customers. other priorities and limited budgets. It also highlights that consumers have As part of its fi ve-year celebrations become increasingly aware of Takaful As always, a low contribution entry point PruBSN saw an opportune time to launch products as a whole and of their own will be critical in gett ing fi rst time buyers something diff erent into the market. As a individual requirements from such into the policies. However, the greater result it has looked at, strengthened and products. sophistication of products now available reinvigorated its core product off ering. in the market should encourage people Its original Takaful link product was It also highlights the role of the agency to think about protection benefi ts at an launched at PruBSN’s inception and this distribution model in Malaysia. It is this earlier age, lessening the cost of accessing latest off ering serves as an evolution to model that has allowed Takaful operators such products and rewarding policy those building blocks. to gain a greater level of feedback on holders in due course. – SB their product off erings as to the needs As a result it is hoping that this latest and wants of the customer, something product evolution will widen the critical to any formative industry. The target audience of its Takaful product, constant evolution and enhancement as from its inception it has sought to of the features off ered through Takaful In this issue... off er a product suite that caters to the products continue to demonstrate the News ...... 37 whole cross-section of the Malaysian robustness of such off erings and their Feature: population. success. Islamic banking and Takaful in Oman: What could this mean for the country? ...... 38 The product is extensive in its off ering and demonstrates a willingness by Life achievement bonus Takaful and insurance operators to put All three plans under the PruBSN Link

For more information, please call 03-2723 9999

www.takaful-ikhlas.com.my

Ambitious target Wan Azman Wan Mamat, the CEO of consolidation of operational resources AIA AFG Takaful, also announced that from its Sharjah and Dubai offi ces, as MALAYSIA: Great Eastern Takaful is the company will open fi ve new branches part of its expansion in the UAE. targeting a total weighted contribution of in various states in the country by the between RM25 million (US$7.9 million) end of the year. Ghassan Marrouche, its general manager, and RM35 million (US$11 million) by the said that the new headquarters signals end of 2012 through its fi rst Takaful term its intent to grow its market share in plan, i-Great Amal. PruBSN product launch the UAE, with further plans for the MALAYSIA: PruBSN Takaful has establishment of more branches around Mohamad Salihuddin Ahmad, its CEO, launched its latest product suite, called the emirates. said that the company aims to secure the PruBSN link series. between 30,000 and 50,000 policyholders He said that more than 80 employees for the scheme. He added that the Azim Mithani, CEO of PruBSN Takaful, would be brought over to the new head company is also planning to launch an said that this is a strengthening of the offi ce from its Sharjah branch. education Takaful scheme by the end of fi rm’s core product off ering that will the year. increase its appeal to a wider cross section of the population. Four new products for Etiqa AIA’s Takaful expansion MALAYSIA: Etiqa Takaful has launched The product suite consists of three four new Takaful products, consisting MALAYSIA: American International unique products: PruBSN FirstLink, of a fund for children’s education and Assurance (AIA) Malaysia has launched PruBSN SmartLink and PruBSN protection, as well as three investment its fi rst Takaful agency in the country TakafulLink. All three plans under the funds. through a joint venture with AIA AFG PruBSN Link series provide a unique Takaful. life achievement-based loyalty bonus to The products aim to provide participants. comprehensive protection and savings The launch follows the approval of AIA benefi ts for all stages of life. Malaysia’s family Takaful license from the central bank, Bank Negara Malaysia. Strengthening UAE presence The new agency, based in the state of UAE: Takaful Emarat has set up its Penang, will be headed by Helen Seet. new head offi ce in Dubai following a

Is there a topic you’d like to see featured?

If so, send us an email with your suggestions and we’ll find the industry’s best to author it.

We’ll then publish it within these pages.

Please email your suggestions to [email protected]

Islamic banking and Takaful in Oman: What could this mean for the country?

Following the government’s approval of Islamic banks, GAUTAM DATTA explores what the changes could mean for the country and the corporate sector, especially Takaful, as well as the challenges to be overcome.

In Oman, this year will not be just the potential in Oman may have been business opportunities once the option remembered for the Arab Spring conservative as the interest of the is made available. This will allow them that swept the region, but will also public in Islamic banking in the country to access fi nancing for building homes be remembered as the year when becomes increasingly palpable with the or buying a car. It will allow them to Sultan Qaboos approved the licensing opening of the fi rst Islamic bank and fi rst buy family protection (life insurance) to of Islamic banking, marking the Takaful fi rm in Oman. Oman extends protect their families fi nancially in the introduction of Islamic fi nancial well beyond its main cities of Muscat, event of untimely death which in the past services in the country. Oman had so far Sohar and Salalah as over 27% of the was ‘haram.’ It will allow them to save been the only member country in the population lives in non-urban or rural for important milestones in their lives GCC that did not provide for Islamic areas. such as the education of their children or fi nancial institutions in the country. the marriage of their sons and daughters, This deprived a section of its citizens and to provide for their own retirement. from having a choice that was available The success of to their counterparts in other GCC While the feeling of community countries. the banking continues to be a strong bond among the people of Oman, economic conditions no It is not very clear as to how this has industry shows that longer allow them to be as generous with impacted the decision of these citizens. their time and money to help out their Did it drive their business abroad? its participants neighbors, because times are tough for Did they fall back on the options that everyone. were available to them in their own understand country? Or did they just abstain from Jobs are at a premium, relocation from participating in the market and leave issues relating to their villages for the sake of employment their needs unfulfi lled? and moving away from their support distribution better system due to necessity has become There have been various reports on the the norm. Under such circumstances value of global Islamic fi nancial services than their insurance the need for insurance to protect their reaching US$1 trillion in 2011, and that fi nancial assets or fi nancial security for of the global Takaful business reaching counterparts the future is urgent and due to their US$15 billion by 2015 (E&Y Takaful religious beliefs, what was not possible in Report). It is not clear as to how much the past has now become a viable option. of this could be generated by the new There is also a sizeable middle class Islamic fi nancial market in Oman. where government grants and subsidies If this need gets converted into an have not substituted the need for identifi able demand, then projections made In Oman it is estimated that there are sustained employment. The current by various bodies in terms of business over 2.3 million Muslims. Many of them rate of unemployment is about 15% opportunities for new Islamic banks, are quite conservative in their faith. which stretches the fabric of community Shariah compliant windows and Takaful It is said that many of these religious support. People residing in small villages companies could very well come true. Muslims have been increasingly have a strong feeling of community demanding Islamic fi nancial services to and their traditions are deeply rooted The companies will have to work hard satisfy their life style needs like fi nancing in their religion. There has been some to convert this potential demand into for starting a business or buying a home inevitable dilution of this tradition on reality, however. The key challenges are: or even a car. account of economic development and to some extent due to globalization and the Awareness At present they are constrained by the impact of the internet. While people are aware of the non- compulsion to pay interest, which is compliance of conventional fi nancial forbidden in Islam. The decision to allow The Omani public has accepted instruments, they are not familiar with Islamic banking services may have been conventional banking and insurance the structure of Islamic products. They a concession to this segment but there is when forced to by law, as in the case are also not aware of their rights and also an economic imperative, recognizing of compulsory motor insurance or obligations under a typical Takaful the money that was being lost to Islamic insurance by banks whenever they have contract, for instance, which can be quite banks in neighboring countries. had to take loans. It is however clear diff erent from those under a conventional that they will be motivated to access the one. The new entrants have to undertake It is possible that initial estimates of Islamic fi nancial market and explore new Continued

Continued an extensive exercise to get their message based consumers only. for family members. They also do not across. Unlike a conventional product insure their cars against comprehensive where marketing is mainly based on a A detailed study carried out by McKinsey insurance, and buy legally required particular need, the selling of an Islamic on Islamic fi nancial services has shown liability insurance only. product during the early days will be that for the business model to work well, based on faith. Islamic fi nancial products must have a In my estimate, the number of such broad-based appeal. Takaful business in enterprises will not make any signifi cant This is quite a complex situation and to Oman will not be feasible if its marketing impact on business volume but will make sure that there is no exploitation, focuses on Muslims only. It has to appeal infl uence the way public opinion is the credibility of the product and to the community at large through its shaped regarding the long-term viability its compliance with Shariah will be core principles of transparency, ethical for Islamic business. of critical importance. In Takaful, investment and equity. for example, the policyholder has to As for Islamic banks and Takaful understand the concept of how his Business hurdles companies lining up for a license, they contribution builds the policyholder Entry barriers for almost all new may take solace in some hard numbers. fund. businesses in an established market can Total banking assets in Oman currently seem to be insurmountable and it will be amount to US$17 billion and experts The role of the shareholder is really no diff erent for new Islamic banks and believe that in few years time Islamic that of an agent (wakeel) who operates Takaful companies. banking could add another US$6 billion. the fund on behalf of the policyholder. This amounts to over 30% growth and a Hence the policyholder has actually a For Takaful companies, these include: 25% share of the total market, which will stake in the way the product is priced lack of trained resources with necessary be impressive if it comes to fruition. and the fund is managed and the fee language (Arabic) skills; the lack of a that is charged to ensure long-term level playing fi eld for Takaful companies There are currently no such projections profi tability of the fund. Unfortunately compared to conventional companies; for the Takaful market, but if one were the tendency has been to delegate this limited Shariah compliant investment to work on a market share basis and take concept of ownership to the shareholder, instruments; lack of AAIOFI-compatible a more conservative estimate, of 10% of which progressively dilutes the spirit of IT systems; high start-up costs that put the market turning to Takaful, then the immense pressure on policyholders’ solidarity among the policyholders that potential Takaful premium could work funds; the challenges of qard hassan is central to the theme of Takaful. out to around US$60 million. and its impact on return on capital; the need to educate the masses; the need for Distribution This does not take into account life endorsements from Shariah scholars that The success of the banking industry insurance premiums, which is where are acceptable to the local population; shows that its participants understand I believe lies the real potential for the and the need to create a platform for issues relating to distribution bett er than Takaful market in Oman. In the absence education and distribution through their insurance counterparts. This has of a structured study, it is however ‘mosque assurance’. These are just some been compounded by a lack of critical diffi cult to estimate the business that of the business hurdles to be overcome. mass in many of the GCC states, and potentially exists if all the tools to convert over the years, a fragmentation of the this business were eff ectively deployed. industry. The problems of distribution, What does this mean for Omani companies? Faith is not as much of critical mass and fragmentation have This still means that local businesses a governing factor when it comes to affl icted the Takaful industry as well can expect a demand surge, driven by deciding on fi nancial solutions — banking when one takes into account the number fi nancial transactions generated through or insurance — for a corporate body. of Takaful companies in the GCC (over 65 Islamic banks and Takaful companies. It is As mentioned earlier, there will be a according to PwC). however diffi cult to assess how much of it small number of companies that will will be cannibalized from existing business be exceptions to this rule. These will While the regulator in Oman has and how much will be new demand. unequivocally stated that there will be typically family-run units that are be no Takaful windows, having seen conservative and follow faith-based the direction provided by some of the practices more consciously, with their Conclusion neighboring countries like Qatar, Bahrain business decisions driven by this principle. In the end, what will matt er is the change and the UAE, there will be more than one in the country’s psyche. A lesson learnt Takaful company in the market putt ing I have met a diversifi ed trading group in from the recent crisis in US and Europe pressure on what is already a very the country that believes in conducting is that hope and optimism are important fragmented industry. most of its business in cash, and that does factors for an economic revival, and the not believe in funding from banks to introduction of Islamic fi nancial services In addition to the geographical challenge facilitate their business activities. in Oman has defi nitely generated high of reaching out to the rural population levels of these two critical ingredients. with suitable products, the new entrants They do not have any life insurance have to ensure that the segmentation of - notwithstanding the fact that their Gautam Datt a is the CEO of Al Madina their market does not become too narrow wealth does not really require insurance Insurance Company SAOC and he can be and be wary of restricting it to faith- to provide for future fi nancial security contacted at gautam.datt [email protected].

in the Takaful industry. Staff members Wan Azman Wan of our distribution channels have been working very hard in promoting our Mamat, CEO, range of Takaful products. Also, our dynamic team of management and AIA AFG Takaful staff , whose talent and dedication has propelled AIA AFG Takaful to its position today. Wan Azman Wan Mamat has extensive experience in the What are the obstacles faced marketing fi eld, starting with a career in the banking, oil and gas in running your business industries as well as the unit trust today? industry. Under his leadership, AIA It is quite a challenge to fi nd the right AFG Takaful aims to become one of talent to serve within the Takaful Malaysia’s top three Family Takaful industry because it is fairly new and providers within three years. demands are competitive. As my passion lies in people development, I want to be involved with initiatives that can help Could you provide a brief to create more talents and develop their journey of how you arrived career in the Takaful industry. where you are today? In 2003, I was att ached with an Where do you see the Islamic international insurance company, and medical card which off ers options for fi nance industry in the next I was given the task of sett ing up their family plan packaging with no lifetime Takaful unit in 2006. I was the regional fi ve years? limit. I would like to see the Islamic fi nance chief distribution offi cer with a local industry to be on the same level with Takaful company from 2009, prior to the conventional industry, if not bett er: sett ing up AIA AFG Takaful in January What are the strengths of your especially in countries such as Indonesia, 2011. business? Our strength lies in our multi- China and India. What does your role involve? distribution channels approach, because we believe it is the best way to The Islamic fi nance industry continues to As CEO, my role is to provide leadership capture all market segments. Now we improve by off ering more sophisticated and inspiration for the team to achieve are distributing our Takaful products and innovative fi nancial solution the company’s vision and mission. through agency, bancaTakaful and direct products and services. I can assure you marketing channels. that it will become a global fi nancial I also look forward to playing a phenomenon very soon. bigger role in the development of We plan to expand our multi-distribution new Shariah compliant products and channels through strategic alliances related distribution channels. This will Name one thing you would with agencies, worksite marketing and ultimately build a stronger Takaful like to see change in the independent fi nancial advisors. industry. world of Islamic fi nance. We must change the perception that Furthermore our partnership with Islamic fi nance is an alternative solution What is your greatest Alliance Bank to introduce innovative to conventional. We can change that achievement to date? products and a strategic product mix has by taking on more creative approaches I am pleased to have gathered a team of been fruitful. in providing fi nancial solutions and bright talents in AIA AFG Takaful and services that can cater to our customers together we aim to set new trends in the The synergistic activities are well in on a global scale. Takaful industry in the way we do our place and we are looking forward to business. the roll-out of a series of compelling It is time to be bold and move away products to cater to the arising needs of from the traditional methods of doing the customers. Which of your products/ business. Another way to achieve this is services deliver the best by encouraging Islamic fi nancial solution What are the factors results? providers to work together to bring more In less than a year from our formation, contributing to the success of comprehensive and holistic products to we have received an overwhelming your company? the market. response for two of our core products, I att ribute our emerging success to our A-Mas and A-Medik. A-Mas is an shareholders, AIA and Alliance Bank. I think it is time for us to elevate the investment-linked Family Takaful plan They are well-recognized for their Islamic fi nance industry as the solution to which can also be att ached with an brands, strong agency force and network all fi nancial needs. A-Medik rider. A-Medik is an innovative of branches, making our presence felt

DATE ISSUER SIZE ANNOUNCED IFN Correspondents AFGHANISTAN: Dr Alam Khan Hamdard National Iranian Oil Company TBA 1st October 2011 chief of Islamic banking, Kabul Bank AUSTRALIA: David Wood Qatar International Islamic Bank TBA 28th September 2011 partner, Mallesons Stephen Jaques BANGLADESH: Md Shamsuzzaman Tamweel US$300-US$500 million 27th September 2011 executive vice president, Islami Bank Bangladesh BRUNEI: James Chiew Siew Hua Albaraka Turk Katilim Bankasi US$200 million 25th September 2011 senior partner, Abrahams Davidson & Co CANADA: Jeff rey S. Graham Emery Oleochemicals RM480 million 17th September 2011 partner, Borden Ladner Gervais EGYPT: Dr Walid Hegazy KLCC Property RM880 million 15th September 2011 managing partner, Hegazy & Associates FRANCE: Antoine Saillon Tenaga Nasional RM5 billion 15th September 2011 head of Islamic fi nance, Paris Europlace HONG KONG & CHINA: Anthony Chan Khazanah Nasional RMB500 million 14th September 2011 partner, Brandt Chan & Partners in association with SNR Denton Bank Negara Malaysia RM1 billion 6th September 2011 INDIA: Keyur Shah partner, KPMG th INDONESIA: Rizqullah Indonesian fi nance ministry US$1 billion 6 September 2011 president director, BNI Syariah th IRAN: Majid Pireh Bank Syariah Mandiri IDR450 million 25 August 2011 Islamic fi nance expert, SEO th IRAQ: Hadeel Hassan Aref Investment Group TBA 24 August 2011 senior associate, Al Tamimi & Co nd IRELAND: Ken Owens Kuala Lumpur Kepong Berhad RM300 million 22 August 2011 Shariah funds assurance partner, PwC Ireland st JAPAN: Serdar A. Basara Aramco US$1 billion 21 August 2011 president, Japan Islamic Finance th KAZAKHSTAN: Timur Alim Nakheel AED4.8 billion 10 August 2011 area manager, Al Hilal Bank

th KOREA: Yong-Jae Chang Chemical Company of Malaysia RM120 million 5 August 2011 partner, Lee & Ko

nd KUWAIT: Alex Saleh Hub Power Company PKR2 billion 2 August 2011 partner, Al Tamimi & Company LEBANON: Mohamad Bakkar KNM Group RM1.5 billion 28th July 2011 managing partner, Bakkar Advocates & Legal Consultants LUXEMBOURG: Marc Theisen Petronas Gas RM1.2 billion 25th July 2011 partner, Theisen Law MALAYSIA: Nik Norishky Thani Government of Abu Dhabi TBA 21st July 2011 head special projects (Islamic), PNB MAURITIUS: Sameer K Tegally Gulf International Bank, Bahrain US$1 billion 21st July 2011 associate, Conyers Dill & Pearman NEW ZEALAND: Dr Mustafa Farouk ACWA Power International US$300 million 9th July 2011 counsel member for Islamic fi nancial institutions, FIANZ OMAN: Anthony Watson Al Hilal Bank TBA 7th July 2011 senior associate, Al Busaidy Mansoor Jamal & Co PAKISTAN: Bilal Rasul Egypt TBA 2nd July 2011 director (enforcement), SEC of Pakistan QATAR: Amjad Hussain Islamic Bank of Thailand US$150 million 29th June 2011 partner & head, banking & Islamic fi nance, Eversheds RUSSIA: Dr Adalet Djabiev Islamic Bank of Thailand THB5 billion 29th June 2011 CEO, Al Shams Capital SAUDI ARABIA: Nabil Issa Kenchana Petroleum RM700 million 16th June 2011 partner, King & Spalding SINGAPORE: Andrew White Kenchana Petroleum RM350 million 16th June 2011 associate professor, Singapore Management University SRI LANKA: Roshan Madewala director/CEO, Research Intelligence Unit BRI Syariah TBA 15th June 2011 SWITZERLAND: Khadra Abdullahi th associate of investment banking, Faisal Private Bank Government of Palestine US$50 million 6 June 2011 TURKEY: Cenk Karacaoglu st vice president of fi nancial institutions division, Bank Asya Bank Muamalat Malaysia and Tael Partners US$100 million 1 June 2011 UAE: Neil D Miller global head of Islamic fi nance, KPMG th Adventa RM150 million 26 May 2011 UK: Dr Natalie Schoon Formabb th National Bank of Abu Dhabi TBA 30 May 2011 YEMEN: Moneer Saif head of Islamic banking, CAC Bank Perusahaan Listrik Negara US$2 billion 27th May 2011 Jasa Marga, Indonesia TBA 13th May 2011 IFN Correspondents are Government of Malaysia TBA 12th May 2011 experts in their respective th Qatar Islamic Bank TBA 12 May 2011 fi elds and are selected Islamic Development Bank TBA 12th May 2011 by Islamic Finance news Bank Muamalat Indonesia US$100 million 10th May 2011 to contribute designated Bank Muamalat Indonesia IDR1.5 trillion 9th May 2011 short country reports Al Baraka Banking Group US$300 million 4th May 2011 Jordan fi nance ministry US$500 million 4th May 2011 Gazprombank US$200 million 4th May 2011 For more VTB Bank US$200 million 4th May 2011 information about Esso Malaysia RM300 million 3rd May 2011 becoming an IFN Correspondent please contact Indonesia fi nance ministry US$1 billion 3rd May 2011 [email protected] Mazaya Qatar TBA 14th April 2011

REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 1250 1100

1130 1000

1010 900

890 800

770 700

650 600 Mar Apr May June July Aug Sep Oct Mar Apr May June July Aug Sep Oct

REDmoney GCC 6 Months REDmoney Global 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 700 1200

660 1096

620 992

580 888

540 784

500 680 Mar Apr May June July Aug Sep Oct Mar Apr May June July Aug Sep Oct

REDmoney MENA 6 Months REDmoney US 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 700 1550

660 1400

620 1250

580 1100

540 950

500 800 Mar Apr May June July Aug Sep Oct Mar Apr May June July Aug Sep Oct

SAMI Halal Food Participation (All Cap) 6 months

1400

1175

950

725

500 Mar-2011 Apr-2011 May-2011 June-2011 July-2011 Aug-2011 Sep-2011 Oct-2011

REDmoney Global Shariah Index Series (All Cap) 6 Months REDmoney Global Shariah Index Series (Large Cap) 6 Months REDmoney Asia ex. Japan REDmoney Global REDmoney Asia ex. Japan REDmoney Global REDmoney Europe REDmoney MENA REDmoney Europe REDmoney MENA REDmoney GCC REDmoney US REDmoney GCC REDmoney US 1050 1000

940 890

830 780

720 670

610 560

500 450 Mar Apr May June July Aug Sep Oct Mar Apr May June July Aug Sep Oct

REDmoney Global Shariah Index Series (Medium Cap) 6 Months REDmoney Global Shariah Index Series (Small Cap) 6 Months REDmoney Asia ex. Japan REDmoney Global REDmoney Asia ex. Japan REDmoney Global REDmoney Europe REDmoney MENA REDmoney Europe REDmoney MENA REDmoney GCC REDmoney US REDmoney GCC REDmoney US 1550 1450

1340 1260

1130 1070

920 880

710 690

500 500 Mar Apr May June July Aug Sep Oct Mar Apr May June July Aug Sep Oct

REDmoney Global Shariah

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

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

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

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

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

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

Most Recent Global Sukuk Priced Issuer Nationality Instrument Market US$ (mln) Managers 23rd Sep 2011 AmIslamic Bank Malaysia Sukuk Musharakah Domestic market 190 Public Bank, public issue AmInvestment Bank 14th Sep 2011 MISC Malaysia Sukuk Murabahah Domestic market 263 HSBC, CIMB Group, public issue AmInvestment Bank 13th Sep 2011 Telekom Malaysia Malaysia Sukuk Domestic market 101 CIMB Group, public issue AmInvestment Bank, Maybank Investment Bank 5th Aug 2011 Kencana Petroleum Malaysia Sukuk Mudarabah Domestic market 167 AmInvestment Bank private placement 26th Jul 2011 Syarikat Prasarana Malaysia Sukuk Ijarah Domestic market 667 CIMB Group, Maybank Negara public issue Investment Bank 26th Jul 2011 First Gulf Bank UAE Sukuk Euro market 650 Standard Chartered, public issue HSBC, Citigroup 21st Jul 2011 Gulf Investment Kuwait Sukuk Domestic market 250 AmInvestment Bank Corporation public issue 21st Jul 2011 Besraya (M) Malaysia Sukuk Mudarabah Domestic market 233 AmInvestment Bank public issue 6th Jul 2011 Cagamas Malaysia Sukuk Domestic market 206 CIMB Group, Maybank public issue Investment Bank 28th Jun 2011 Wakala Global Sukuk Malaysia Sukuk Wakalah Euro market 2,000 HSBC, CIMB Group, public issue Citigroup, Maybank Investment Bank 17th Jun 2011 Pengurusan Air SPV Malaysia Sukuk Murabahah Domestic market 1,910 CIMB Group, Maybank private placement Investment Bank 16th Jun 2011 Ranhill Powertron II Malaysia Sukuk Domestic market 228 Maybank Investment public issue Bank 14th Jun 2011 Sarawak Energy Malaysia Sukuk Domestic market 988 RHB Capital, public issue AmInvestment Bank 13th Jun 2011 Saudi International Saudi Arabia Sukuk Domestic market 480 Deutsche Bank, Riyad Petrochemical public issue Bank 8th Jun 2011 Bank Muamalat Malaysia Sukuk Domestic market 133 DRB-HICOM, Maybank Malaysia private placement Investment Bank 2nd Jun 2011 Ranhill Power Malaysia Sukuk Domestic market 266 Maybank Investment private placement Bank 26th May 2011 Putrajaya Holdings Malaysia Sukuk Musharakah Domestic market 229 CIMB Group, private placement AmInvestment Bank, Maybank Investment Bank 26th May 2011 HSBC Bank Middle UK Sukuk Euro market 500 HSBC East public issue 18th May 2011 Islamic Development Saudi Arabia Sukuk Euro market 750 Standard Chartered, Bank public issue Deutsche Bank, BNP Paribas, HSBC 18th May 2011 Sharjah Islamic Bank UAE Sukuk Euro market 400 Standard Chartered, public issue HSBC

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

US$ bn Value (US$ bn) Avg Size (US$ m) US$ m US$ bn Value (US$ bn) Avg Size (US$ m) US$ m 7 700 10 400 9 6 600 350 8 300 5 500 7 4 400 6 250 3 300 5 200 4 2 200 150 3 100 1 100 2 0 0 1 50 123456789101112123456 789 0 0 2010 2011 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 2006 2007 2008 2009 2010 2011

Top 30 Issuers of Global Sukuk 12 Months Issuer Nationality Instrument Market US$ (mln) Iss Managers 1 Pengurusan Air SPV Malaysia Sukuk Murabahah Domestic market 3,460 4 HSBC, CIMB Group, Maybank private placement Investment Bank 2 Wakala Global Sukuk Malaysia Sukuk Wakalah Euro market public 2,000 1 HSBC, CIMB Group, Citigroup issue Maybank Investment Bank 3 Senai Desaru Expressway Malaysia Sukuk Domestic market 1,275 2 Maybank Investment Bank public issue 4 Islamic Development Bank Saudi Arabia Sukuk Euro market public 1,250 2 Standard Chartered, HSBC, CIMB issue Group, Citigroup, Deutsche Bank, BNP Paribas 5 Sarawak Energy Malaysia Sukuk Domestic market 988 1 RHB Capital, AmInvestment Bank public issue 6 GovCo Holdings Malaysia Sukuk Murabahah Domestic market 985 1 HSBC, RHB Capital, CIMB Group private placement 7 Cagamas Malaysia Sukuk Murabahah Domestic market 825 14 AmInvestment Bank, RHB private placement Capital, Al-Rajhi Banking & Investment, HSBC, CIMB Group, Maybank Investment Bank

8 Abu Dhabi Islamic Bank UAE Sukuk Musharakah Euro market public 750 1 Standard Chartered, HSBC, issue Barclays Capital 9 Syarikat Prasarana Negara Malaysia Sukuk Ijarah Domestic market 667 1 CIMB Group, Maybank public issue Investment Bank 10 First Gulf Bank UAE Sukuk Euro market public 650 1 Standard Chartered, HSBC, issue Citigroup 11 HSBC Bank Middle East UK Sukuk Euro market public 500 1 HSBC issue 11 Emaar Sukuk UAE Sukuk Euro market public 500 1 Standard Chartered, HSBC, RBS issue 13 Saudi International Saudi Arabia Sukuk Domestic market 480 1 Deutsche Bank, Riyad Bank Petrochemical public issue 14 Malaysia Airports Capital Malaysia Sukuk Murabahah Domestic market 476 1 CIMB Group, Citigroup public issue 15 Sharjah Islamic Bank UAE Sukuk Euro market public 400 1 Standard Chartered Bank, HSBC issue 16 Government of Ras Al UAE Sukuk Euro market public 393 1 RBS, Citigroup Khaimah issue 17 Aman Sukuk Malaysia Sukuk Musharakah Domestic market 361 1 Lembaga Tabung Haji, RHB Capi- public issue tal, CIMB Group, AmInvestment Bank, Maybank Investment Bank 18 Maybank Islamic Malaysia Sukuk Musharakah Domestic market 330 1 Maybank Investment Bank private placement 19 Konsortium Lebuhraya Malaysia Sukuk Musharakah Domestic market 280 13 CIMB Group Utara-Timur public issue 20 Bank Aljazira Saudi Arabia Sukuk Mudarabah Domestic market 267 1 JPMorgan, HSBC private placement 21 Ranhill Power Malaysia Sukuk Domestic market 266 1 Maybank Investment Bank private placement 22 MISC Malaysia Sukuk Murabahah Domestic market 263 1 HSBC, CIMB Group, AmInvest- public issue ment Bank 23 Gulf Investment Kuwait Sukuk Domestic market 250 1 AmInvestment Bank Corporation public issue 24 Besraya (M) Malaysia Sukuk Mudarabah Domestic market 233 1 AmInvestment Bank public issue 25 Putrajaya Holdings Malaysia Sukuk Musharakah Domestic market 229 1 CIMB Group, AmInvestment private placement Bank, Maybank Investment Bank 26 Ranhill Powertron II Malaysia Sukuk Domestic market 228 1 Maybank Investment Bank public issue 27 Telekom Malaysia Malaysia Sukuk Domestic market 200 2 CIMB Group, AmInvestment public issue Bank, Maybank Investment Bank 28 Trans Thai-Malaysia Sukuk Malaysia Sukuk Musharakah Domestic market 195 1 HSBC, CIMB Group private placement 29 Boustead Holdings Malaysia Sukuk Domestic market 193 3 OCBC, Public Bank, Aﬃ n Invest- private placement ment Bank 30 AmIslamic Bank Malaysia Sukuk Musharakah Domestic market 190 1 Public Bank, AmInvestment Bank public issue Total 20,727 100

Top Managers of Sukuk 12 Months Sukuk Volume by Currency US$ (billion) 12 Months

Manager US$ (mln) Iss % Malaysian ringgit 13.4

1 Maybank Investment Bank 4,928 27 23.8 US dollar 6.5

2 CIMB Group 4,351 44 21.0 Saudi riyal 0.7

3 HSBC 3,565 16 17.2 Singapore dollar 0.1

4 AmInvestment Bank 2,016 27 9.7

5 Citigroup 1,306 6 6.3 Sukuk Volume by Issuer Nation US$ (billion) 12 Months

6 Standard Chartered 1,203 7 5.8 Malaysia 15.0 UAE 7 RHB Capital 953 5 4.6 2.9 Saudi Arabia 2.0 8 Deutsche Bank 427 2 2.1 UK 0.5 9 RBS 416 3 2.0 Kuwait 0.5 Singapore 0.3 10 Barclays Capital 250 1 1.2 US 0.1 11 Riyad Bank 240 1 1.2

12 BNP Paribas 188 1 0.9 Global Sukuk Volume by Sector 12 Months 13 Public Bank 163 5 0.8

14 OCBC 157 5 0.8 11% 15 Aﬃ n Investment Bank 155 4 0.8 Finance 6% 32% Utility & Energy 16 JPMorgan 133 1 0.6 Government 10 % Construction/Building 17 DRB-HICOM 123 2 0.6 Transportation 16% Other 18 Lembaga Tabung Haji 78 2 0.4 25% 19 Hong Leong Bank 40 2 0.2

20 Al-Rajhi Banking & Investment 16 1 0.1 Global Sukuk Volume - US$ Analysis 21 OSK 13 2 0.1 US$ bn US$ Non-US$ 22 Mitsubishi UFJ Financial Group 6 2 0.0 10 9 Total 20,727 100 100.0 8 7 6 5 Top Islamic Finance Related Project Finance Mandated Lead 4 Arrangers 12 Months 3 2 Mandated Lead Arranger US$ (million) No % 1 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 1 Banque Saudi Fransi 701 3 19.4 2006 2007 2008 2009 2010 2011 2 Riyad Bank 224 2 6.2

3 HSBC Holdings 207 2 5.7 Top Islamic Finance Related Project Financing Legal Advisors 4 Samba Financial Group 177 2 4.9 Ranking 12 Months

5 Al-Rajhi Banking & Investment 169 1 4.7 Legal Advisor US$ (million) No %

5 Saudi Hollandi Bank 169 1 4.7 1 Al-Jadaan & Partners Law Firm 2,509 2 29.5

7 Bank Al-Jazira 166 2 4.6 1 Baker & McKenzie 2,509 2 29.5

7 Public Investment Fund 166 2 4.6 1 Cliﬀ ord Chance 2,509 2 29.5

9 Emirates NBD 127 2 3.5 4 Herbert Smith Gleiss Lutz Stibbe 400 1 4.7

10 Standard Chartered 119 1 3.3 4 Latham & Watkins 400 1 4.7

Top Islamic Finance Related Loans Mandated Lead Arrangers Top Islamic Finance Related Loans Deal List 12 Months Ranking 12 Months Credit Date Borrower Nationality US$ (mln) Mandated Lead Arranger US$ (mln) No % 30th Nov 2010 Saudi Arabian Mining 1 HSBC 1,005 6 11.4 Saudi Arabia 1,913 2 Maybank Investment Bank 824 5 9.4 13th Dec 2010 Saudi Electricity Saudi Arabia 1,333 3 Samba Capital 660 4 7.5 18th Jul 2011 Pembinaan BLT Malaysia 822 4 AmInvestment Bank 471 3 5.4 23rd Jun 2011 Salik One Spc UAE 800 5 Saudi National Commercial Bank 462 2 5.3 31st Mar 2011 National Central 5 Banque Saudi Fransi 462 2 5.3 UAE 757 Cooling 7 Citigroup 425 6 4.8 17th May 2011 Emaar Properties UAE 699 8 Standard Chartered Bank 409 6 4.7 th 9 Abu Dhabi Islamic Bank 398 3 4.5 29 Oct 2010 Parkway Holdings Singapore 578 10 RBS 233 1 2.7 23rd May 2011 Natrindo Telepon Indonesia 450 11 CIMB Group 232 3 2.6 Seluler th 12 Emirates NBD 180 3 2.0 16 Nov 2010 Jambatan Kedua Malaysia 383 22nd Sep 2011 Albaraka Turk 13 RHB Capital 164 1 1.9 Turkey 344 13 Lembaga Tabung Haji 164 1 1.9 15 Arab Banking Corporation 162 3 1.9 Top Islamic Finance Related Loans by Country 12 Months 16 Deutsche Bank 150 1 1.7 Nationality US$ (mln) No % 17 Noor Islamic Bank 147 2 1.7 1 Saudi Arabia 2,924 3 33.3 2 Malaysia 1,777 5 20.2 18 BNP Paribas 134 3 1.5 3 UAE 1,704 8 19.4 19 OCBC 131 2 1.5 4 Turkey 988 5 11.3 19 DBS 131 2 1.5 5 Singapore 655 2 7.5 21 Riyad Bank 129 1 1.5 6 Indonesia 450 1 5.1 21 Bank Al-Jazira 129 1 1.5 7 China 93 1 1.1 23 UOB 116 1 1.3 8 Kuwait 87 1 1.0 24 WestLB 115 3 1.3 9 Russian Federation 60 1 0.7 25 Bank of China 93 1 1.1 26 Saudi Hollandi Bank 74 1 0.8 Top Islamic Finance Related Loans by Sector 12 Months 26 Export Development Canada 74 1 0.8 Utility & Energy 26 Arab Petroleum Investments 74 1 0.8 Mining 26 Arab National Bank 74 1 0.8 26 Alinma Bank 74 1 0.8 Construction/Building

Finance Top Islamic Finance Related Loans Mandated Lead Arrangers 12 Months Real Estate/Property Bookrunner US$ (mln) No % US$ bln0 1 2 3 1 Samba Capital 1,566 2 17.8 Global Islamic Loans - Years to Maturity (YTD Comparison) 2 Citigroup 524 6 6.0 3 Abu Dhabi Islamic Bank 428 3 4.9 2011 2010 4 Maybank Investment Bank 237 1 2.7 2009 5 RBS 233 1 2.7 2008 5 HSBC 233 1 2.7 2007 7 Standard Chartered Bank 105 1 1.2 2006 8 Bank of China 93 1 1.1 2005 0% 20% 40% 60% 80% 100% 9 National Bank of Kuwait 87 1 1.0 0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs 10 Credit Suisse 50 1 0.6

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

4th – 5th October 2011 30th October – 3rd November 2011 23rd – 25th November 2011 2nd Annual Retail Banking Asia Pacifi c Alternative Investment Strategies Abu Asian Finance Forum Kuala Lumpur (Fleming Gulf) Dhabi 2011 Bali, Indonesia (Asian Institute of Finance) Abu Dhabi (Leoron Events JLT) 30th November 2011 10th – 11th October IFN Roadshow Brunei International Summit on Islamic 30th October 2011 Brunei (REDmoney events) Corporate Finance IFN Country Briefi ngs: Egypt Abu Dhabi (MegaEvents) Cairo (REDmoney events) 6th December 2011 IFN Country Briefi ngs: Indonesia 3rd November 2011 17th – 19th October 2011 Jakarta (REDmoney events) IFN Roadshow Turkey IFN Asia Forum Istanbul (REDmoney events) th th Kuala Lumpur (REDmoney events) 6 – 7 December 2011 3rd Annual SE Asian Institutional 8th November 2011 Investment Forum 18th – 20th October 2011 IFN Country Briefi ngs: Canada Kuala Lumpur (Asian Investor) 3rd Annual World Islamic Toronto (REDmoney events) Retail Banking 11th – 12th December 2011 Dubai (Fleming Gulf) 9th – 10th November 2011 1st Annual Project Finance and Trade Credit Risk Asia Finance Summit Dubai, UAE (Global 20th October 2011 Kuala Lumpur (Fleming Gulf) Islamic Finance Magazine) Indonesia Trade & Commodity Finance Conference 10th November 2011 Jakarta (Exporta) IFN Country Briefi ngs: USA Are you a member New York (REDmoney events) 23rd – 24th October 2011 th Annual Conference on Islamic 15 November 2011 Banking and Finance IFN Country Briefi ngs: Hong Kong Bahrain (AAOIFI) Hong Kong (REDmoney events) 21st – 23rd November 2011 th th 24 – 27 October 2011 The World Islamic Banking Islamic Investment and Conference Finance Forum 2011 Bahrain (MegaEvents) of our Linked-In group? Istanbul (IIR Middle East)

Production Hasnani Aspari Subscriptions Ratna Sari Ya’acob Manager [email protected] Executive [email protected] Tel: +603 2162 7800 x 38 Features Editor & Lauren Mcaughtry Production Mohd Hanif Mat Nor Copy Editor [email protected] Editors [email protected] Sivaranjani Sukumaran Sivaranjani [email protected] Associate Editor Scott Weber Norzabidi Abdullah Tel: +603 2162 7800 x 41 Scott [email protected] [email protected] Subscriptions Logeswaran Kuladevan Islamic Investor Raphael Wong Senior Production Mohamad Rozman Besiri Sponsorship Sales [email protected] Editor [email protected] Designer [email protected] Manager Tel: +603 2162 7800 x 64 Supplements Nazneen Halim Editor [email protected] Web Designer Tunku Isqandar Yahaya Administration Dhana Dorasamy [email protected] Executive [email protected] Senior Publishing Sasikala Thiagaraja Manager [email protected] Financial Faizah Hassan Business Andrew Cheng Controller [email protected] Copy Editor Roshan Kaur Sandhu Development [email protected] [email protected] Managers Tel: +603 2162 7800 x 55 Deputy Publisher Geraldine Chan & Director [email protected] Senior Reporter Ellina Badri June Abu Zaid [email protected] [email protected] Managing Director Andrew Tebbutt Journalists Lai Pei Yee Tel: +603 2162 7800 x 56 Andrew.Tebbutt @REDmoneyGroup.com [email protected] Rizal Halim Dahlan Managing Director Andrew Morgan [email protected] Siew Han Liang & Publisher [email protected] Tel: +603 2162 7800 x 13 [email protected]

Correspondents Kamal Bairamov, Shirene Shan Published By: Subscriptions Musfaizal Mustafa 21/F, Menara Park, 12, Jalan Yap Kwan Seng Forum Editor Christina Morgan Director [email protected] 50450 Kuala Lumpur, Malaysia [email protected] Tel: +603 2162 7800 x 24 Tel: +603 2162 7800 Fax: +603 2162 7810

DISCLAIMER All rights reserved. No part of this publication may be reproduced, duplicated or copied by any means without the prior consent of the holder of the copyright, requests for which should be addressed to the publisher. While every care is taken in the preparation of this publication, no responsibility can be accepted for any errors, however caused.

Aabar Investments 11 Deutsche Bank 25 Moody’s 9 AAOIFI 39 Deutsche Securities Saudi Arabia 7 Morgan Stanley 12 Abdul Latif Jameel Company 21 DRIR Management 9 Mouwasat Medical Services 8 Abdullah Al-Khodari & Sons Company 10 Dubai Islamic Bank 10 Mubadala 4 Abu Dhabi Commercial Bank 11 Ellips Bank 5 Nakheel 8 Abu Dhabi National Energy 9 Emaar Properties 9 National Bank of Abu Dhabi 10 AIA 37 Emirates NBD 10 National Bank of Kazakhstan 3 AIA AFG Takaful 37, 40 Emirates NBD Asset Management 30 National Bonds Corporation 11 AIA Malaysia 37 Emirates NBD Capital 10 National Commercial Bank 9 Akyl-Kense Consulting 4 Ernst & Young 4, 30 National Iranian Oil Company 7 Al Madina Insurance Company 39 Etiqa Takaful 37 National Union of Students 16 Al Rajhi Bank 25 European Islamic Investment Bank 17 New York Stock Exchange 12 Al Shams Capital 5 Eversheds 12 Nikko Asset Management 29 Al-Falah Bangladesh 21 Farz Foundation 6 Nikko Asset Management Asia 29 Alliance Bank 40 Fawaz Abdulaziz Alhokair and Company 10 Nomura Islamic Asset Management 29 ALM Group 4 Federation of Student Islamic Societies 16 OIC 3 Al-Tawfeek Company 29 First Leasing Bank 10 Oppenheim & Co 30 Alternative Investments and Credits 6 Fitch 9 OSK Holdings 6, 8 Amana Takaful Maldives 16 FORAS International 4 OSK Investment Bank 8, 33 AmanahRaya 5 Formabb 16 OSK-UOB Islamic Fund Management 33 AmIslamic Bank 6 Gatehouse Bank 16 Peoples Leasing Company 16 AMMB Holdings 6 Global Data Watch 12 Petroliam Nasional 7 Amrahbank 5 Gold Exchange Standard 31 PruBSN Takaful 36, 37 Arab Fund for Economic and Social Development 21 Goldman Sachs 25 PwC 8 Arabian Aramco Total Services Company 7 Grameen-Jameel Pan-Arab Microfi nance 21 Qatar Finance Center 29 Asian Islamic Investment Management 29 Great Eastern Takaful 37 Ata Invest 8 HBG Holdings 17 Qatar First Investment Bank 10 Atlas Partners Japan 19 Hong Leong Industries 9 Qatar International Islamic Bank 9 Authoriti Monitori Brunei Darussalam 13 HSBC 9, 25, 30 Qatar Petroleum 7, 11 Bank Asya 8 HSBC (Malaysia) Trustee 33 QNB Capital 9 Bank Indonesia 12 HSBC Amanah 13,30 RAM 9 Bank Islam Malaysia 6 HSBC Amanah Malaysia 6 Ranhill Powertron 9 Bank Negara Indonesia 6, 37 Hwang DBS 8 RBC Dexia Investor Services 11 Bank Negara Malaysia 6, 8 Hwang-DBS (Malaysia) 29 Regional Financial Center of Central Asia 4 Bank Nikoil 5 Hwang-DBS Investment Management 29 Research Intelligence Unit 16 Bank of America 23 IDB 9 Reserve Bank of India 6, 10, 20 Bank of London and The Middle East 9, 16 IFC Linova 5 RHB Capital 6, 7,8, 11 Bank Pembangunan Malaysia 11 IMF 23, 30 Riyad Bank 10 Banque Saudi Fransi 11 INCEIF 7, 13, 14 Russian Finance Academy 5 Barclays 25 International Bank of Azerbaĳ an 4 S&P 9 Barclays Wealth 10 International Finance Corporation 10 Samba Capital 7 Barwa Bank 7 International Investment Bank 5 Samba Financial Group 8 Batelco 4 International Islamic Liquidity Management SATORP 7 BNI Life Insurance 6 Corporation 7 Saudi Aramco 23 BNI Multifi nance 6 International Petroleum Investment Company 11 Saudi Aramco Total Refi ning and BNI Syariah 6, 15 IP Global 6 Petrochemical Company 7 BOC International 12 Islami Bank Bangladesh 21 Saudi Credit Bank 21 Borden Ladner Gervais 14 Islamic Saving and Credit Saudi Fransi Capital 7 Boubyan Bank 10 Cooperative of Cameroon 6 Sberbank Kazakhstan 4 BTA Bank 1, 3 Ithmaar Bank 10 SEI Investments 30 Bursa Malaysia 33 JP Morgan 12 SHUAA Capital 11 Capital Market Authority 7 Juris Corp Advocates & Solicitors 22 Social and Investment Bank Bangladesh 21 Capivest 4 Kauthar Bank 5 Standard Chartered Bank 9, 10 Center for Islamic Banking, Finance Kazakhstan Stock Exchange 3 State Bank of Pakistan 6 and Management 13 Khazanah Nasional 12 Sumitomo Mitsui Banking Corporation 29 Central Bank of Bahrain 9, 11 King & Spalding 11 SWIFT 13 Central Bank of Kuwait 11 KLCC Property Holdings 7 Takaful Emarat 37 Central Bank of Nigeria 6 KPMG 14, 16 Tamweel 8 Chartered Institute for Securities and Investments 16 Kuwait Finance House 4,5, 10, 11 The Royal Bank of Scotland 12 CIMB Group 12 Kuwait Finance House-Bahrain 8 TheCityUK 16 CIMB Group Holdings 6 Kuwait International Bank 10 Toronto Financial Services Alliance 13 CIMB Investment Bank 8 Maldives Stock Exchange 16 Total 7 Citibank 25 Maldivian Stock Exchange 16 UBS 25 Citicorp 12 Man Group 30 UK Islamic Finance Secretariat 16 Citigroup 12 MARC 9 Unicorn Investment Bank 4, 9 Credit Agricole 7, 8 Marksmore Holding (Malaysia) 4 University of Chicago 25 Credit Suisee 25 Mashreqbank 9 Vanguard Life Assurance Company 30 Daiwa Asset Management 29 Masraf Al Rayan 28 Wallstreet 29 Dallah AlBaraka Group 29 MAY Group 4 Watania 10 DBS Asset Management 29 Maybank 7 World Bank 10, 23 DBS Bank 29 MIFC 10 Yumart Finance 5 Deloitt e 9 Modaraba Association of Pakistan 6

Each subscription will receive:

ȊȱśŖȱȱȱ ȱȱnews available Yes! I would like to subscribe to: every Wednesday Ȋȱ¢ȱ ȱ INDIVIDUAL SUBSCRIPTION COMPANY WIDE SUBSCRIPTION Ȋȱ¡ȱȱȱȱȱ ŗȱȱȱǞşşśȱĴ ŗȱȱȱǞŚǰŚşśȱĴ ȊȱUnlimited access to entire archived library ŘȱȱȱǞŗǰŝşŖȱĴ ŘȱȱȱǞŝǰŝşśȱĴ ȊȱAll additional supplements, guides and reports (Max: 10 Individual Subscriptions) YOUR DETAILS

Full Name: (First Name) (Surname) Company Name: Job Title:

Address:

Postal/Zip: Country:

Work Email: Telephone: Fax:

The information you provide will be safeguarded by REDmoney, whose subsidiaries may use it to keep you informed of relevant products & services. TO INITIATE YOUR SUBSCRIPTION, RETURN FAX TO +603 2162 7810

Payment can be made in US$ by: How to subscribe: ȱȱȮȱ ȱȱ ǯę ǯȦǯ +603 2162 7800 +603 2162 7810 Check Telegraphic Transfer (T/T) [email protected] ȱȱ¢ȱȦȱȱ ȱ¢ȱȱȱȱȱȱ¢ȱȱȱ¡ǯȱȱęȱ ȱȱȱȱ¢ȱȱǯȱȱȱȱȱȱȱęȱȱ¢ȱ 21/F, Menara Park, 12, Jalan Yap Kwan Seng has been made in full. 50450 Kuala Lumpur Malaysia NE-IFN0/39