Voices Matter in This Issue IFN Rapid

Vol. 6, Issue 39 2nd October 2009 The World’s Global Islamic Finance News Provider

BRUNEI 20 th October 2009

All voices matter In this issue IFN Rapid ...... 2

Interaction — the free fl ow of ideas and As we greatly value the exchange of knowledge, Islamic Finance News ...... 3 opinions between people who are sure of their experience and expertise, at this year’s Forum stands on principles and policies — has always we made a special effort to collate these Rating News ...... 8 been the cornerstone of forums, roadshows, questions and sought those well-versed in IFN Report: conferences and other events organized by the respective areas to respond. The topics Wanted: ‘Transnational’ body ...... 10 Islamic Finance news. We have always believed are interesting, ranging from the secondary that people are the essence of Islamic fi nance, trading of Islamic papers to instances where Minor ‘hiccup’ ...... 11 as the system is all about enabling people to products that were being developed before Special Report ...... 12 improve their lot. the global fi nancial crisis struck are now being considered too risky or potentially “toxic,” such Articles: This is why networking is an essential item as Islamic collateralized debt obligation. Unique American Approach to Interest on the agenda of IFN events. And its must- Free Financing ...... 14 read weekly online newsletter as well. This It is this diversity in thought, view and stance Taking the Road Less Travelled ...... 17 newsletter facilitates the exchange of views that ironically fosters unity of purpose as and knowledge between Islamic fi nance well. Which is what this newsletter earnestly Product Innovation: Derivatives and practitioners and the related community, and promotes through its articles, reports and, Hedge Funds ...... 19 has now become the focal point of industry signifi cantly, its forum pieces. As the global interaction. fi nancial crisis shows signs of receding and Forum ...... 21 the prospects of economic recovery begin Meet the Head ...... 25 This is best exemplifi ed in this issue’s Forum to emerge, Islamic fi nance activities will Dr Bernd van Linder, Acting managing director section where a record 14 respondents doubtless pick up pace. Which makes it even of Saudi Hollandi Bank have their say on a topic that always vexes more important for interaction, the meeting of the practitioners, scholars and academics minds, to take place. Termsheet ...... 26 Syarikat Prasarana Negara’s Islamic Medium — Shariah compliant versus Shariah-based Term Notes products. Islamic Finance news will continue to facilitate this through its continuous process of upgrading Moves ...... 27 The debate goes from one extreme to another: quality and presentation. It is important that one says those indulging in this debate “have Islamic fi nance practitioners view the disparity Deal Tracker ...... 28 too much time on their hands,” while another in their stances in a positive light and seek Islamic Funds Tables ...... 29 infers that Shariah compliant products common ground in striving for what’s best for are really a stage of the evolution process the fi nancial system and society. S&P Shariah Indexes ...... 30 towards Shariah-based products. Many of the responses will trigger fresh thinking among Already, thinking outside the box has yielded Dow Jones Shariah Indexes ...... 31 our readers. Which is exactly what the Islamic ideas such as using Islamic fi nancing for the Islamic League Tables ...... 32 fi nance community always savors. construction of the Olympic village in London or using television rights to sports activities Thomson Reuters League Tables ...... 35 This issue takes interaction and networking as assets for Shariah compliant fi nancing further afi eld with a special report that answers products. Some practitioners are also looking Events Diary...... 38 several pertinent questions which were raised at venturing into distressed properties as Country Index ...... 39 by participants of the IFN 2009 Issuers and a viable revenue generator. These are all Investors Asia Forum held in Malaysia last proposals that emanate from exchanges of Company Index ...... 39 August but were not responded at that point ideas and opinions. Interaction is truly the real due to lack of time and opportunity. game. Subscription Form ...... 39 A round-up of all this week’s news IFN RAPID www.islamicfi nancenews.com

• The Saad Financial Advisory Services • Sorouh Real Estate’s CEO Mounir Haidar NEWS to give up its Dubai Financial Services resigns • Banque Al Baraka D’Algerie posts 39% Authority license increase in profi t to US$23 million in the • Macquarie Capital Advisors names fi rst half of 2009 RATINGS Andrew Low as chief operating offi cer • Al Baraka Bank opens its second branch • RAM Ratings reaffi rms the ‘AAA’ ratings of • Robert Waugh to join RBS as chief in Berea city Projek Lebuhraya Utara-Selatan’s Sukuk investment offi cer for the pension fund and insurance business • The Muslim Community Co-operative • MARC revises the outlook on MM Vitaoils’ Australia launches MCCA Income Fund US$13 million MCP rating to negative from • HSBC to move its CEO Michael Geoghegan stable to Hong Kong in February 2010 • Bank Negara Malaysia and the Hong Kong Monetary Authority sign MoU for • The foreign currency and fi nancial strength • Yahaya Besah and Dr Syed Musa Syed long-term strategic partnership ratings of Affi n Bank raised to ‘BB’ from Jaafar Alhabshi are Takaful Ikhlas’ ‘BB-’ independent non-executive directors • Bank Negara Malaysia: Strong legal framework in Islamic fi nance enables • RHB Bank’s foreign currency ratings • Mahdi Murad is appointed the new CEO of more innovative and complex products affi rmed at ‘BBB’ long-term and ‘A3’ short- AmIslamic Bank term • Sime Darby to undertake a US$1.3 billion • SABB Takaful appoints Philip Head as its IMTN • Preliminary ratings of ‘AAA-ID’ and ‘MARC- new CEO 1-ID/AAA-ID’ have been assigned to Sime • Indonesia to sell a global Sukuk of up to Darby’s proposed Islamic debt programs • Rasmala Investment Bank appoints US$1 billion by second quarter of 2010 Husam Kutaifan as head of corporate • The outlook on the long-term rating of fi nance and Michael Kidd as head of • Economist emphasizes the need for a Kesas’ US$230.5 million BaIDS revised private equity unifi ed regulatory framework for Islamic from negative to stable fi nance • Moody’s views the outlook for the • Bank Islam Malaysia: Dubai Financial direction of credit conditions in the Saudi Group has not subscribed to its portion of banking system as stable Islamic CRNCPS • Moody’s downgrades the long-term • Islamic banks need to resolve issues deposit ratings of Investcorp Bank to before France can grant license ‘Ba2’ from ‘Ba1’

• Crédit Agricole Asset Management • Jordan Islamic Bank gets ‘BBB- / A-3 / launches its ﬁ rst Shariah compliant sicav, Stable’ for foreign currency long term and CAAM Islamic short term obligations from IIRA

• National Bank of Kuwait launches Islamic • Fitch affi rms Ahli United Bank’s long-term KD Ijara Fund III Issuer Default Rating at ‘A-’ with stable outlook Launched in 2004 • Central Bank of Bahrain publishes a Japanese version of its book on Islamic • S&P affi rms National Bank of Kuwait’s 175 Issues published to date fi nance long term rating at ‘A+’ 12,000 articles and reports • Kuwait Finance House to reschedule Aref • S&P lowers its long-term counterparty featured Investment Group’s debts of US$461 credit and insurer fi nancial strength million ratings on Wethaq Takaful Insurance to 19,500 weekly readers from ‘BB’ from ‘BB+’ 53 countries • Central Bank of Bahrain’s monthly Sukuk issue oversubscribed 100% within a day MOVES 1 choice • MENA region’s fi rst Shariah compliant gold ETC increases four-fold in six months • BNP Paribas Wealth Management appoints Thierry Dana as CEO for Hong • Sharjah Islamic Bank launches its Kong and North Asia electronic banking service, Weyy@com • Four executives of Nakheel transferred • BMB Islamic to launch the World Zakat to Istithmar World under group The World’s Global Islamic Finance News Provider Fund in the fi rst quarter of 2010 organizational restructuring

AFRICA Good performer ALGERIA: Banque Al Baraka D’Algerie, a subsidiary banking unit of Al Baraka Banking Group, posted a 39% increase in proﬁ t to US$23 million in the ﬁ rst half of 2009 compared to the same period last year. Total operating income rose 16% to US$42 million, while net operating income climbed 13% to US$32 million.

The bank attributed the results to its 17% growth in fi nancing activities to US$828 million in the fi rst half of this year as total assets grew by 8% to US$1.1 billion, in turn fi nanced by a 7% increase in customer deposits and unrestricted investment amounting to US$833 million.

Banque Al Baraka D’Algerie plans a 33% increase in its US$105 million capital to US$140 million in response to a Central Bank of Algeria directive to banks to raise their minimum capital to DZD10 billion (US$140 million). continued... Bank chairman Adnan Ahmed Yousif said the capital increase would enable the bank to expand, including building a new headquarters and opening six new branches this year. It will also implement a new IT system, and plans to install an ATM network of 50 machines as well as introduce a number of new products and a variety of deposit schemes.

Al Baraka goes to Berea SOUTH AFRICA: Al Baraka Bank, the only full-ﬂ edged Islamic banking institution in the country, has opened its second branch in Berea city, said CEO Shabir Chohan. The subsidiary of Bahrain-based Al Baraka Banking Group also plans to expand its branches in the Limpopo and Mpumalanga provinces over the next two years, in addition to its current six retail facilities and four corporate ofﬁ ces.

ASIA Second fund from MCCA AUSTRALIA: The Muslim Community Co- operative Australia (MCCA), a specialized ﬁ nancial and wealth management services provider, has launched the MCCA Income Fund, following its recent release of the continued...

© Page 3 2nd October 2009 NEWS www.islamicfi nancenews.com continued... of innovation, scale and complexity of program (IMTN) of RM4.5 billion (US$1.3 transactions in the Shariah compliant billion) and an Islamic commercial paper nation’s fi rst Shariah compliant Mortgage industry despite the global fi nancial crisis. of RM500 million (US$144 million) with Income Fund. a combined master limit of RM4.5 billion Zeti regarded a robust Shariah legal system (US$1.3 billion). The fund is aimed at meeting the growing as being particularly important in preparing demand for a Shariah compliant investment the legal documentation for Islamic fi nancial The proceeds will be used for the group’s among the country’s population, with the working capital and general corporate transactions so as to avoid ambiguity, proceeds being used to provide Islamic purposes as well as to fi nance future inconsistency and the risk that the legal fi nance services for the local Muslim investments, capital expenditure and debt. document may be considered void by a court community and a growing base of non- The Securities Commission has approved the Muslims. of law on the grounds of contravention with two fi nancial programs. Shariah. MCCA said it will contact dealer groups and Exercising caution research houses to help place the fund on Two Sime Darby IMTN platforms and approved product lists as part INDONESIA: The country plans to sell a of its long-term plans. MALAYSIA: Sime Darby, the world’s largest global Sukuk of up to US$1 billion both listed oil palm plantation group, plans to undertake an Islamic Medium Term Note continued... Towards a common goal MALAYSIA: Bank Negara Malaysia (BNM) nnn%CXYlXe@9=:%dp and the Hong Kong Monetary Authority (HKMA) have signed a memorandum of understanding to cooperate in the SONG BIRDS 9XYYc\ij#ki`cc\ij#n_`jkc\ijXe[kXkkc\ijZfeki`Ylk\k_\ì development of the fi nancial services gXikkfDXcXpj`XËjiXè]fi\jkfiZ_\jkiX%?\Xik_\d]ifd ale^c\ki\\kfgj#dXeîfm\jXe[_`ccj% industry, particularly Islamic fi nance.

Targeting a long-term strategic partnership, both parties will facilitate and promote the development of an effective ﬁ nancial market infrastructure through the exchange of information and experience in developing legal, regulatory and supervisory frameworks for Islamic ﬁ nance.

The two organizations will also promote cross-border fi nancial activities through exploring the harmonization of standards and documentation relating to Islamic fi nance transactions. J?8I@8?%K8B8=LC%JLBLB%@A8I8% Legal Shariah bridge A language we are most fluent in. MALAYSIA: A strong legal framework in Cfe^Y\]fi\fk_\iali`j[`Zk`fejle[\ijkff[@jcXd`Z]èXeZ\#CXYlXe@ek\ieXk`feXc9ljè\jjXe[ Islamic fi nance instills public confi dence =èXeZ`Xc:\eki\nXjXci\X[p_`^_cpZfem\ijXekn`k_jlZ_èki`ZXk\k\idjXe[Zfdgc\ojkilZkli\j% in the system, and provides an enabling N\cc\efl^_kf`jjl\k_\]ìjk^cfYXcjlblbXe[k_\nfic[Ëj]ìjkjfm\i\`êjlblb%Fe\f]k_\cXi^\jk platform for practitioners to develop more XìZiX]k]èXeZè^kflj\@aXiXc\Xjè^nXjZfe[lZk\[_\i\% innovative and complex fi nancial products, :cfj\kfLJ;(-Y`cc`fenfik_f]`jjlXeZ\j#èZcl[è^jlblb#_Xm\Y\\e`jjl\[k_ifl^_ljXe[(. said Bank Negara Malaysia governor Zeti gi`mXk\@jcXd`Z]le[jnfik_LJ;*Y`cc`fe\jkXYc`j_\[%C\Xjè^Xjj\kj_Xm\îfnekfLJ;(.Y`cc`fe Xe[i\kXbX]lcYljè\jjgi\d`ldjèZi\Xj\[kfLJ;((.d`cc`fe%@e)''/#;XiXc$8ibXef]JXl[`8iXY`X Akhtar Aziz. c`jk\[XLJ;(Y`cc`fejlblbfek_\CXYlXe@ek\ieXk`feXc=èXeZ`Xc

8jYljè\jji\cXk`fejn`k_@jcXd`ZkiX[\gXike\ijZfekèl\kfîfnXkXeXjkfe`j_è^gXZ\#n\nfib A reliable legal framework would provide Zcfj\cpn`k_k_\DXcXpj`X@ek\ieXk`feXc@jcXd`Z=èXeZ`Xc:\eki\Xe[flifneJ_Xi`X_8[m`jfip the mechanism for dispute settlement that :fleZ`ckf]lik_\i]XZ`c`kXk\\e[fij\d\ekj% would take into account the distinct features Fm\i_\i\#n\dXb\`kfliYljè\jjkf_\\[pfliZXcc% of Islamic fi nancial transactions, which would act as a bridge between Shariah and legal parameters besides playing a role as a risk mitigator, she added. ?FC;@E>:FDG8E@

D8IB F==@:< CXYlXe @ek\ieXk`feXc 9ljè\jj =èXeZ`Xc :\eki\ @eZfigfiXk\[ J[e 9_[ /(.,0*; Jl`k\ )9$(($'* The governor attributed the strengths GcXqXJ\ekiXc#AXcXeJk\j\eJ\ekiXc#BCJ\ekiXc#,'+.'BlXcXCldgli#DXcXpj`X%K\c1"-'*)..*/0..=Xo1"-'*)./')'.. of Islamic fi nance to the increased level

© Page 4 2nd October 2009 NEWS www.islamicfi nancenews.com continued... DFG rejects offer end of next week to take up the offer. Standard & Poor’s Equity Research analyst offshore and in the domestic market by the MALAYSIA: Bank Islam Malaysia said Alexander Chia said the pullout will not second quarter of next year as an alternative one of its shareholders, Dubai Financial refl ect negatively on Bank Islam as it is likely source of budget funds. The Sukuk may be Group (DFG), has not taken up the offer to due to the fi nancial constraints on DFG, a backed by government-approved assets subscribe to its portion of Islamic Convertible subsidiary of Dubai Group that has been hit worth IDR25 trillion (US$2.5 billion) but the Redeemable Non-Cumulative Preference hard by the global fi nancial recession. Shares (Islamic CRNCPS) issued to increase tenor has not been determined yet. its capital base. In April, Bank Islam asked its shareholders Finance minister Sri Mulyani Indrawati said to subscribe up to RM540 million (US$150 Bank Islam has therefore offered DFG’s the government will however be cautious million) of Islamic CRNCPS on a pro-rata portion, worth RM216 million (US$62 basis to further strengthen its capital base in choosing the date and measures in million), to its other shareholders — BIMB and facilitate the further expansion of its tapping the global market as it anticipates Holdings and Lembaga Tabung Haji (LTH) business. competition from other countries which are — on a pro-rata basis. They have until the also issuing bonds, as well as the possibility continued... of rising global infl ation.

The planned Sukuk, if realized, would be the second global issuance from the country, after the success of the maiden US$650 Our comprehensive product-focused training programs are delivered by leading industry million fi ve-year offshore Sukuk sale in April practitioners and will equip you with a detailed knowledge of Islamic fi nance and fi nancial this year. products. For more information on a particular program, please don’t hesitate to contact us on the numbers below, or logon to www.islamicfi nancetraining.com Standardize or else … October Courses MALAYSIA: Designing and implementing Restructuring & Refi nancing of Sukuk Products th a unifi ed regulatory framework for 6 October 2009, Dubai Islamic fi nance is urgently needed as the Islamic Project Finance Transactions regulatory challenge is far more serious 5th – 7th October 2009, Kuala Lumpur for Islamic fi nance than the conventional Islamic Real Estate Finance system, said economist Dr Abbas 8th – 9th October 2009, Kuala Lumpur Mirakhor. Takaful Markets, Products & Operations 18th – 20th October 2009, Manama Mirakhor, a former International Monetary Fund executive director, Structuring Islamic Retail Products th nd acknowledged that the problem stems 20 – 22 October 2009, Doha from the fact that although there are Islamic Asset Backed Securitization more regulatory standards, there is 26th – 28th October 2009, Singapore no single organization to supervise the instruments, as currently every November Courses jurisdiction has its own regulations, Sukuk & Islamic Capital Markets th th and in some cases none, which opens 8 – 18 November 2009, Dubai the door for regulatory arbitrage and Modern Islamic Retail Banking & Financial Products therefore create risk for the system. 9th – 12th November 2009, Kuala Lumpur Shariah Compliance, Control and Audit for Islamic Financial Institutions He added that the need for a well- 15th – 17th November 2009, Dubai regulated Islamic fi nance is even more crucial due to its initial stage December Courses of development as any failure in the Risk Management for Islamic Finance & Banking th th fi nancial system will eventually jeopardize 6 – 8 December 2009, Abu Dhabi its reputation and survival. Credit Risk Management for Islamic Financial Institutions 9th – 10th December 2009, Abu Dhabi The economist cited the recent move by Modern Islamic Finance & Financial Products the Islamic Financial Services Board to 6th – 9th December 2009, Amman issue universal standards on Shariah Sukuk & Islamic Capital Markets products as an example of a standardized 7th – 10th December 2009, Kuala Lumpur regulation which, he said, will ensure the growth of Islamic fi nance. Please see www.islamicfi nancetraining.com for more details. For more information, please contact Ms Subashini Jaganathan at (Also see IFN Report on page 10) +603 2162 7800 ext 32 or email at [email protected]

© Page 5 2nd October 2009 NEWS www.islamicfi nancenews.com continued... three sub-funds, CAAM Islamic BRIC Quant, materials, telecommunication equipment, CAAM Islamic Asian Active Equity Ex-Japan networking equipment, material handling BIMB and LTH had accepted their and CAAM Islamic Multimanagers Global and other types of equipment to creditworthy entitlement amounting to RM275 million Equities. companies. (US$79 million) and RM48 million (US$14 million) of Islamic CRNCPS respectively in The fi ve-year Ijarah fund offering period is July, thereby raising Bank Islam’s total Tier 1 underway, from the 27th September to the capital by RM324 million (US$94 million). MIDDLE EAST 11th October, with the minimum investment Third fund on offer at KWD30,000 (US$104,600) followed by multiples of KWD10,000 (US$34,000). KUWAIT: National Bank of Kuwait (NBK) EUROPE has launched its Islamic KD Ijara Fund III, following the success of its fi rst two Ijarah Wooing the Japanese “Resolve issues fi rst” funds which were fully subscribed within days. BAHRAIN: The Central Bank of Bahrain has FRANCE: More efforts need to be taken published a Japanese version of its book to ensure that Islamic banks can operate The fund was created to grant NBK’s private on Islamic banking and fi nance, aimed at in tandem with the rest of the banking banking clients the opportunity to invest in promoting greater awareness of the Islamic system before France hands out licenses a diversifi ed portfolio of leasing contracts. banking sector and its potential among to them, as Islamic banks “pose specifi c These contracts involve the leasing of various Japanese bankers. It was initially published risks” to the fi nancial system as they are types of mission critical equipment including in 2002 as a reference for bankers, investors different from conventional banks, said manufacturing, IT hardware, construction and scholars. Bank of France governor Christian Noyer.

Noyer, who is also a European Central Bank governing council member, said the authorities need to clarify the governance of Islamic banks and the role of The World's Global Islamic Finance News Provider Shariah committees, as well as liquidity management issues and the access of Are you a pirate reader? Islamic banks to the Eurosystem funding.

“The legal classiﬁ cation of proﬁ t-sharing Is your viewing obscured? investment accounts and related coverage by the domestic deposit guarantee scheme will also need to be Do you only get to see a copy addressed before awarding licenses to of the printed newsletter? the Islamic banks,” he added.

His remarks came after France recently If so, add your name to your firms subscriptionon enacted a number of legal and regulatory package and enjoy full access to the online changes to boost the development of version of Islamic Finance news. Islamic fi nance in order to grab a share of the rapidly growing Islamic fi nance Online access includes: business which is dominated by London · 20,000+ articles and reports in Europe. · 200 Meet the Head interviews (Also see IFN Report on page 11) · 150 term sheets · Directory of all Islamic financial organizations First Shariah Sicav · New updated search engine FRANCE: Crédit Agricole Asset Management · Fully interactive editorial with easy links (CAAM), a privately owned investment company, has launched its fi rst Shariah · All past issues fully archived compliant sicav, CAAM Islamic. A sicav is an · Largest industry terminology glossary open-ended collective investment scheme · All supplements and reports common in western Europe, especially Luxembourg, Switzerland, Italy, Spain, · Access to the latest training and events Belgium and France. · Additional non-published industry reports CAAM Islamic will be available to both private And your copy, when YOU wantt it!it! and institutional investors. It will initially offer

KFH defers Aref debt Gold continues to display its value as an in the fi rst quarter of next year. The Islamic effective portfolio diversifi cation tool due to fund, which has US$50 million currently, KUWAIT: Kuwait Finance House (KFH) its low association to other key asset classes, is expected to grow to as much as US$10 has agreed to reschedule the debts worth as it acts against dollar weakness and an billion over 10 years and would be used to KWD132 million (US$461 million) of Aref outperformer in infl ationary conditions. help those in poverty and debt. Investment Group, a closed shareholding company, to enable Aref to pay its liabilities This is why the demand for it is expected to CEO Humayon Dar said the bank is targeting to foreign banks and investment funds. increase, according to the director of Dubai high net worth individuals and billionaires in Commodity Assets Management, Sameer the Middle East and North Africa region. KFH said the move will help reinforce Meralli. the central bank’s efforts to face the About 65% of the funds raised would consequences of the global fi nancial crisis. be invested in micro private equities to He added that the demand for gold ETCs will fi nance entrepreneurs in Shariah compliant continue, as investors avoid riskier assets Aref posted a KWD20.5 million (US$71.5 business, microfi nance for small business due to lingering concerns about the global million) loss in the second quarter of this in rural areas and Shariah-based liquid year. economic recovery. investments, with a target return of 10% to 15% a year. The rest would be used to fund Oversubscribed by 100% Sharjah goes online charitable causes, he added. BAHRAIN: The Central Bank of Bahrain’s UAE: Sharjah Islamic Bank (SIB) has License surrender (CBB) monthly issue of BHD6 million (US$16 launched its electronic banking service in million) Sukuk Al Salam has been 100% line with its expansion into technology to UAE: The Saad Financial Advisory Services, oversubscribed within a day, drawing BHD12 enhance its customer services. a unit of troubled Saudi conglomerate Saad million (US$32 million). Group, intends to give up its Dubai Financial “Weyy@com” enables customers to register Services Authority (DFSA) license. DFSA said The Sukuk has a 91-day maturity period for the electronic payment of utility bills. the company’s parent, LA Investments, was from the 30th September to the 30th placed into liquidation in the UK on the 21st December with an expected return of 0.8%. The 24-hour online service is available for September. This is CBB’s 16th issuance in the Sukuk retail customers only in the early phase Al-Salam series on behalf of the Bahraini of the project while the corporate banking “The indicators are that the liquidators are government. service, currently under process, is expected going to withdraw the license. That doesn’t mean they are bankrupt or anything,” said to be ready in the near future. Demand for gold continues DFSA managing director Michael Zamorski. UAE: The Middle East and North Africa Billions for charity He added that the withdrawal is not unusual (MENA) region’s fi rst Shariah compliant gold as DFSA has had fi rms withdraw their exchange traded commodity (ETC), Dubai BAHRAIN: BMB Islamic, a subsidiary of BMB license, but asserted that no fi rm has gone Gold Securities, has increased four-fold to Group, will launch the World Zakat Fund, the bankrupt in the Dubai International Financial 27,691 shares in six months. fi rst Islamic charitable donations manager, Centre in more than fi ve years.

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in asset quality and increasing interest provision charges. RHB Bank wholly owns ASIA differential. The bank’s capacity to generate RHB Islamic Bank. revenues has strengthened following the ‘AAA’ for PLUS’s Sukuk group’s extensive restructuring. MALAYSIA: RAM Ratings Sime debt papers stable Affi n’s low provision coverage ratio and its has reaffi rmed the ‘AAA’ MALAYSIA: Malaysian Rating lower than industry average profi tability NEW ratings of toll expressway Corporation (MARC) has ratios are constraining factors. The outlook operator Projek Lebuhraya assigned preliminary ratings for both ratings reverts to stable from Utara-Selatan’s (PLUS) RM3.6 billion of ‘AAA-ID’ and ‘MARC-1-ID/ positive. Affi n reported strong growth in (US$1.01 billion) senior Sukuk, RM2.3 AAA-ID’ to Sime Darby’s proposed Islamic net profi t in 2008 on the back of moderate billion (US$644,000) Sukuk Musharakah debt programs, which comprise RM4.5 increases in net interest and non-interest Series 1, RM2.41 billion (US$687,000) billion Islamic medium term notes (IMTN) income and sharply lower loan-loss provision Sukuk Musharakah Series 2 and RM4.5 and RM500 million Islamic commercial charges. But net profi t declined in the fi rst billion (US$1.28 billion) Sukuk Musharakah papers/IMTN (ICP/IMTN) respectively with a half of 2009 due to lower non-interest medium term notes program. All the long- combined limit of RM4.5 billion. revenues and increased provisioning. term ratings have a stable outlook. MARC said the ratings carry a stable outlook On the plus side, the interest differential RAM said PLUS has a strong business which incorporates some weakening of Sime continued to rise, the operating profi t to Darby’s near-term credit measures from profi le due to the North-South Expressway’s average total assets ratio held steady and historical levels given the lack of free cash strategic alignment as the backbone of non-performing loans declined from the end fl ow generation expected. connectivity for Peninsular Malaysia. This is 2008 level. Affi n’s capital adequacy ratio evidenced by the resilience of its traffi c fl ow has been maintained at an acceptable level The proceeds raised from the exercise would against external events. over the last few years and liquidity ratios are be used mainly to fi nance the Malaysian comfortable. multinational’s and its subsidiaries’ working capital requirements. Outlook turns negative Affi n provides Islamic banking products and services through its Islamic unit, Affi n Islamic MALAYSIA: Malaysian Rating The ratings are also based on MARC’s expec- Bank. Corporation (MARC) has revised tations that Sime Darby’s consolidated bal- the outlook on MM Vitaoils’ (MMV) ance sheet and cash fl ow coverage would be- RMR45 million (US$13 million) Strong profi tability come progressively stronger as the operating Murabahah Commercial Paper climate in its core business lines improves Program (MCP) rating to negative from MALAYSIA: Underpinned by over the intermediate term. stable. Concurrently, MARC affi rmed its its government ownership, ‘MARC-2ID’ rating on the MCP. RHB Bank’s foreign cur- It also refl ected Sime Darby’s favorable fi nan- rency ratings of ‘BBB’ long- cial fl exibility and the strong liquidity it had MARC said the outlook revision refl ects the term and ‘A3’ short-term have been affi rmed consistently maintained relative to leverage. slow build-up of liquidity ahead of signifi cant by Capital Intelligence, with the fi nancial sinking fund payments in 2011 as a result strength rating maintained at ‘BBB-’. of its modest positive cash fl ow from opera- Positive developments tions. The downstream edible oil producer Capital Intelligence had placed the bank’s MALAYSIA: RAM Ratings could face a funding gap in the intermedi- foreign currency and fi nancial strength has reaffi rmed the ‘AA3’ ate term if it is unable to access alternative ratings on a positive outlook last year. In view rating of highway toll sources of funding to the MCP by 2011. of the contraction in the local and regional concessionaire Kesas’ economies where the bank has a presence RM800 million (US$230.5 million) Bai The rating also acknowledges the company’s as well as of the increase in bad loans in Bithaman Ajil Islamic Debt Securities high fi nancial leverage and recent pressures the fi rst half of this year, an upgrade is not (2002/2014) (BaIDS), with the outlook on on profi tability which were the result of yet in order. The outlook therefore remains the long-term rating revised from negative to the competitive environment in MMV’s key positive. stable. markets and susceptibility to increases in raw material prices, it said. Its key export RHB Bank’s fi nancials improved last year. It attributed two developments for the markets comprise Central Asia, Europe and Profi tability ratios strengthened on the back reversal in outlook — traffi c volume improved the Middle East, with approximately 98% of of a wider interest differential, good cost in the fi nancial year March 2009, with a its revenue derived from export sales. control, and lower provision charges. 6% year-on-year growth, and government The conversion of preference shares into approval to reschedule its government Asset quality improves ordinary shares last year also reduced the support loan from three to eight installments. fi nancial obligation. The operating profi t to MALAYSIA: Capital Intelligence average total assets ratio and the return This has enhanced the company’s debt- (CI) has raised the foreign on average assets improved to acceptable coverage levels with additional cash buffers currency and fi nancial strength levels last year. Moreover, the bank was and also lifted its projected minimum and ratings of Affi n Bank to ‘BB’ from able to sustain this improvement in the average fi nance service coverage ratios to ‘BB-’ in view of the improvement fi rst half of 2009 despite higher loan-loss 1.6 times and 2.14 times, respectively.

The ‘Ba2/Not-Prime/D’ rating is supported fi rst half of this year. AUB aims to maintain MIDDLE EAST by Investcorp’s sound liquidity profi le, an optimal mix between Tier 1 and Tier 2 where cash resources currently exceed capital. The Fitch-eligible capital ratio, which Saudi outlook stable maturing debt for the next two fi scal years. includes equity credit for the bank’s hybrid SAUDI ARABIA: Moody’s However, the negative outlook on the bank’s capital, stood at a comfortable 12% at end- views the outlook for ratings refl ects concerns about the timing June 2009. the direction of credit and strength of a potential recovery in the conditions in the Saudi global economy and in investor appetite for banking system as stable, refl ecting the alternative investments. Well above average sector’s resilience and its ability so far to KUWAIT: Standard & Poor’s absorb the impact of the global fi nancial Strong liquidity Ratings Services (S&P) has crisis and deteriorating macroeconomic affi rmed National Bank of conditions. JORDAN: Bahrain-based Kuwait’s (NBK) long term NEW Islamic International Rating rating at ‘A+’, supported by its leading com- This view is underpinned by the sector’s Agency (IIRA) has assigned mercial position in the domestic market, its resilience and its ability so far to absorb its international scale ratings resilient operating performance and strong the impact of the global fi nancial crisis and of BBB- / A-3 / Stable for capitalization. However, the negative outlook deteriorating macroeconomic conditions. foreign currency long term and short term refl ects S&P’s expectations that the weak- obligations and BBB/ A-3/ Stable for ened operating environment stands to put Moody’s believes that the banking local currency long term and short term pressure on NBK’s stand-alone credit profi le. sector — comprising both conventional obligations of Jordan Islamic Bank (JIB). The and Islamic fi nance — will benefi t from rating agency has also assigned its National S&P pointed out that NBK’s risk-adjusted the Saudi government’s continued scale ratings of ‘A (jd)’ and ‘A-1 (jd)’ to the capital ratio is considered well above the commitment to supporting the economy long term and short term obligations of JIB. international bank average and strong by with an expansionary budget and numerous The outlook for the ratings is stable. regional standards. NBK’s asset quality infrastructure projects. metrics are strong and have held up amid The liquidity position is strong given the high the economic downturn in recent years The impact of the fi nancial crisis has level of assets, large proportion of individual unlike most of the Kuwaiti rated banks that been contained, as Saudi banks are not deposits, negligible reliance on bank have experienced sharp deterioration in loan signifi cantly dependent on market funding, borrowing as a funding source and sound quality since year-end 2008. while any losses from structured products loan to deposit relationships. and other risky investments have been comfortably absorbed. IIRA said JIB’s asset quality is good and is Takaful fi rm downgraded maintained through well-conceived credit KUWAIT: Standard and Poor’s (S&P) Grade cut for Investcorp and investment policies. Though non- has lowered its long-term counter- performing loans have shown an increasing party credit and insurer fi nancial BAHRAIN: Moody’s Investors trend over the last two years, they have strength ratings on Wethaq Takaful Service has downgraded the long- been covered adequately through loan loss Insurance to ‘BB’ from ‘BB+’, based term deposit ratings of Investcorp provisioning and the unutilized portion of the on the uncertainties of the troubles at par- Bank to ‘Ba2’ from ‘Ba1’ and investment risk reserve. ent Investment Dar and Wethaq’s weakening its bank fi nancial strength fi nancial and business profi le. rating (BFSR) to ‘D’ from ‘D+’, driven by the continued fragility of the investment Optimal mix capital S&P has removed the rating from bank’s fi nancial condition. The ratings of CreditWatch with negative implications its subsidiary, Investcorp based in the US, BAHRAIN: Fitch Ratings th were also downgraded to the same level. A has affi rmed Ahli United where they were placed on the 27 May negative outlook has been assigned to all Bank’s (AUB) long-term 2009. The negative outlook is based on the the ratings. Issuer Default Rating remaining pressure on Wethaq’s fi nancial (IDR) at ‘A-’ with stable outlook and short- and business profi le. The downgrade also The latest rating action was driven by the term IDR at ‘F2’ while support at ‘1’ and refl ects Wethaq’s marginal stand-alone continued fragility of Investcorp’s fi nancial support rating fl oor at ‘A-’, refl ecting the very fi nancial strength owing to its marginal condition, which Moody’s says is better high probability of support for the Shariah competitive position and aggressive refl ected by a rating in the middle of the Ba compliant bank from its core shareholders, if investment strategy. Factors supporting the category. needed, that limits the downside risk to the rating are good risk-based capital adequacy IDRs. Its individual rating affi rmed at ‘B/C’ and adequate operating performance. It had assessed the combined effect of reveals the bank’s expanding franchise, solid the bank’s placement of US$500 million operating profi t despite rising impairment Uncertainties regarding the outcome of of preference shares with investors in the charges, sound liquidity and asset quality troubles at Dar are likely to have a negative fourth quarter of 2008 to 2009 (fi scal year with diversifi ed funding. impact on Wethaq’s business and fi nancial ending June 2009) and the US$269 million profi le, although in S&P’s opinion, Wethaq’s loss it posted in the second half of 2008 to Its Tier 1 capital ratio, 10.1% at end-June independent balance sheet and regulated 2009. For the year, the bank lost US$781 2009 in accordance with Basel II, is below insurance company status could minimize million. regional standards, but has improved in the this impact.

GLOBAL Wanted: ‘Transnational’ body

Islamic ﬁ nance could face a systemic failure and reputation risk like the AAOIFI may appoint all its Shariah scholars from the majority schools conventional market unless there is a uniﬁ ed and dynamic regulatory of thought and none from the minority, which would result in the same framework applied not only domestically but also globally. “damage” continuing.

This strong counsel of caution came this week from economist and Mirakhor is against overemphasis on the Shariah compliance of a former International Monetary Fund (IMF) executive director Dr Abbas product as this would hamper the growth of Islamic fi nance. “If you Mirakhor. He also dismissed claims that Islamic Finance is a more do this, Islamic fi nance is not going to have a chance to grow. The regulated fi nance sector. strength of Islamic fi nance is not that it is Islamic but it works, and works much better than the conventional system,” he said. Mirakhor said that while every jurisdiction has its own Islamic regulations — and in some cases none — that gives the opportunity for He felt that making Islamic fi nance inclusive will create a monopoly regulatory arbitrage, while some issue Islamic instruments which may and thereby curb its growth when in fact it needs all the support it can be sub-par in jurisdictions which are very weak or with no regulations, get, being a nascent industry. and therefore create risk for the system. “We ought not to emphasize on the Shariah aspect, but not to the The economist elaborated on the matter to Islamic Finance news, extent that they should not be Shariah compliant or Islamic as all saying that the way forward is to establish a “transnational” body to that has its own rightful place. However, if you only emphasize on oversee Islamic fi nance so that it would be universally accepted by the Shariah aspect, you lose the non-Muslim market which is also the industry. attracted to this fi nancing,” he said.

“In other words, every Muslim legislature should grant authority to this Mirakhor declined to predict the future trends for Islamic fi nance, transnational body to not only set the standards but also undertake saying this would depend on the circumstances then and the mindset enforcement in the sense of upgrading and determining whether of all those involved in the industry. particular standards would harm or support an instrument. Then we would not have to reinventing the wheel,” he said. Noting that Malaysia has played a crucial role in the development of Islamic fi nance, he said: “I really shudder to think what Islamic fi nance Mirakhor added: “All that needs to be done is for all the central bank would be without Malaysia. Why? Because it was free to develop governors and fi nance ministers to come to a consensus in relation to instruments to fi nd ways and means of implementing Islamic fi nance. investing in enforcement, evaluation and quality control of all Islamic There may have been mistakes but it is the dynamism that Malaysia instruments that are issued and sold in the respective countries. Each created in implementing Islamic fi nance and banking that has really country would have a representative in the organization. This can be been an enormous impetus to the growth”. done but sadly, the will is not there.” However, he said, due to criticism, Malaysia has since adopted a Islamic Finance news reported in Vol 6, Issue 31 (7th August 2009) defensive stance thereby losing its dynamism. Saying that this has on the Accounting and Auditing Organization for Islamic Finance Institutions’ (AAOIFI) initiative to determine the Shariah compliance of created a constrained environment, he came to Malaysia’s defense, a product. contending that mistakes were necessary as they were an essential part of the growth of the industry. AAOIFI, regarded as an international standards setter, wants to take its role a step further by acting as a “guardian” of the industry as it “If not, Islamic fi nance will remain as it is and see no future growth examines and screens products in the global market and makes without a dynamic force behind it,” he said. periodic announcements as to their Shariah compliance. Moving on to the fi nancial theory of “spanning”, Mirakhor explained On AAOIFI’s initiative, Mirakhor was skeptical of its ability, saying that that Islamic fi nance has 14 basic instruments that could span into an the organization is not mandated to assume the role of “guardian” of infi nite number of instruments. the Shariah compliant instruments. “We are only limited by imagination, will power, training and education. “I am not against AAOIFI. I feel that the organization is doing an And the best thing for countries wanting to push the frontiers of Islamic excellent job in developing accounting standards for Islamic institutions fi nance is to invest in education by selecting the brightest of students but to be the so-called guardian of instruments issued would do more to eventually become fi nancial engineers, who can then develop these harm. The people who invested in setting up AAOIFI did not give it the sets of assets. And this will become attractive to others because of the mandate for this initiative,” he asserted. good returns and greater security, effi ciency and transparency. So you create your own demand,” he added. It was therefore crucial, he added, that a universal mandate is obtained because in determining the Shariah compliance of a product, By Raphael Wong

FRANCE Minor ‘hiccup’

France has been keeping itself in the limelight of the Islamic fi nance On the latest amendments to the French Civil Code, Saint Marc, who industry by insisting that it wants to make Paris Europe’s Islamic is also a partner at Gide Loyrette Nouel, said parliament recently fi nance capital in order attract petro dollars from Middle East. The adopted an amendment to the fi ducie regime (equivalent to the Anglo- talk gained strength when the French parliament last week approved Saxon trust) which provides that the fi duciaire (trustee) is vested with amendments to legislation to facilitate the issuance of Sukuk. the legal ownership of the entrusted assets that it holds for the benefi t of the designated benefi ciaries. It was reported that Qatar Islamic Bank has applied to be the fi rst Shariah compliant bank to open in France. This comes six months He explained that this amendment — combined with the existing French after the Qatar Financial Centre Authority and Paris Europlace signed securitization regime which allows the issuance of units representing a MoU setting out areas of cooperation between them to help develop the co-ownership rights of the investors in the underlying assets — the growth of fi nancial services between the two countries. will allow the issuance of Sukuk under French laws. “We will test this structure with (Shariah) scholars soon and hopefully we will be able to Earlier this year the French Minister of Economy, Industry and issue Sukuk in France in the coming months. Employment, Christine Lagarde, announced that several Islamic banks would open branches in the French capital in 2009. At least three ”Other points have already been clarifi ed. French regulator Autorite banks, she added, had requested permission to operate in France des marches fi nanciers (AMF) in July 2008 set the conditions for a —Qatar Islamic Bank, Kuwait Finance House and Al Baraka Islamic Sukuk prospectus for a public issuance,” he said. Bank of Bahrain. Saint Marc added that Euronext, a pan-European stock exchange based However, this week’s news indicated that the ambitious plans would in Paris and with subsidiaries in Belgium, France, the Netherlands, be moved to the backburner, for now at least. France’s central bank Portugal and the UK, indicated in July 2009 the conditions for listing governor Christian Noyer said more work is required to ensure that Sukuk on Euronext Paris, while the tax administration has cleared Islamic banks can operate safely in a conventional banking environment the tax treatment of Sukuk and Murabahah transactions, lifting in particular the double registration duties issue when transferring real before licenses can be issued to them. He assured that discussions on estate assets. these matters were at a well advanced stage and would soon come to a “satisfactory conclusion” but declined to elaborate. Norton Rose partner Erwan Hericotte told Islamic Finance news that it remains to be seen whether last week’s legislative amendments According to the Islamic Finance Committee of Paris Europlace would prove suffi cient to convince the Shariah board members that chairman Gilles Saint Marc, Noyer had mentioned three concerns that Islamic fi nancial institutions can operate in France. need to be addressed by those wanting to set up Islamic banks in France. He said it is diffi cult to determine the true reason for the delay in setting up an Islamic bank in France —the wait for regulatory amendments or One is the role of the Shariah board, which shall remain consultative the current turmoil affecting the entire banking community. and not act in place of the legal management bodies of the bank. Secondly, the profi t sharing investment accounts which shall comply “This is why the French government is attempting to introduce as many with the French deposit guarantee scheme. Thirdly is access of reforms as possible within a very short amount of time. On the other the Islamic banks to the liquidity on the interbank market and the hand, French regulatory authorities are keen to ensure that Islamic Eurosystem funding. banks meet their criteria, especially with regard to investment ratios and strong equity capital,” he said. “The fi rst two issues can be easily solved. The third one on the liquidity is more complex and tackles undoubtedly the ‘talon d’achille’ (Achilles Hericotte denied that the delay was due to some opposition politicians heel) of Islamic banks. accusing the government of undermining France’s much-prized secularism to accommodate the interests of the wealthy. “The delay With respect to access to the interbank market, solutions are available seems to be linked to the fact that (the Islamic bank) candidates through commodity Murabahah transactions or getting a bank are facing technical diffi culties (such as refi nancing and liquidity shareholder to access the liquidity on the conventional interbank requirements),” he explained. market and relay it to the Islamic bank. And while London remains the fi rst Islamic fi nance market in Europe, “On the access to the Eurosystem funding, one must still investigate Hericotte insists that France is sincerely trying to develop the necessary the kind of collateral that Islamic banks can provide to the European tools to compete with the UK. “Luxembourg and the Netherlands are Central Bank (ECB) when entering into repo transactions (repurchase ‘technical jurisdictions’ intended to further the development of funds agreements) with the ECB. The securitization of the assets held by the rather than a source of investment opportunities,” he concludes. Islamic bank into fi nancial instruments could be one way of creating eligible collateral to the ECB,” he told Islamic Finance news. By Raphael Wong

The IFN 2009 Issuers & Investors Asia Forum, from the 3rd to the 5th August in Kuala Lumpur, saw 1,198 delegates from all over the world. The participants followed the lively discussions among panelists, made up of senior Islamic industry practitioners, and shared fresh on how to be better performers and in the process advance the industry in a signiﬁ cant fashion. During the sessions throughout the three-day event, we received numerous constructive questions from our delegates. Unfortunately, due to time constraints, not all were answered. Below are some of the questions you have asked the panelists:

Secondary trading of Islamic papers is very minimal. Is this a thus further exacerbating the lack of activity. In all probability a Shariah issue or inadequate supply of Islamic papers? If the latter, large number of sellers have been forced sellers. how much more needs to be issued before we can see active secondary market? • Creation of new institutions’ Sukuk funds has been one of the few bright spots for the secondary market. BLME for example Humphrey Percy is such a participant with its US Dollar Income Fund that was CEO, Bank of London and The Middle East launched in March this year.

It is true to say that secondary trading of Sukuk • Some additional activity is noted with players making room for is minimal — especially when compared to new issues by selling old shorter tenor papers. conventional bond issues. • Some houses did try to create a secondary market during the Shariah interpretation and inadequate supply more liquid times but this was in a select number of issues and do have a part to play in the lack of a ‘proper’ now few are prepared to publish prices. secondary market but there are also other factors to take into consid- eration which have contributed to this: • It is only in recent months that a small degree of confi dence has returned to the corporate credit markets and fi ltered into • The market is still in its early stages. The conventional market parts of the Sukuk market. is a far more mature one. It would have taken many years — ______even in a normal credit environment — for a good secondary market to develop. The Indonesian US dollar Sukuk was priced at nearly 100bps over the conventional bond issued a couple of months before. Is this • Prior to August 2007 issuance of Sukuk had grown enormously the price that needs to be paid to get a “deal clone” even though over the previous fi ve years, but a secondary market had yet to it is asset based? emerge, with most of the paper being snapped up by buy-and- hold investors. Mohamad Safri Shahul Hamid, • The market at that time was in the region of US$40 billion to Deputy CEO, MIDF Amanah Investment Bank US$45 billion but that is tiny when compared to the US$15 trillion conventional bond market. Ordinarily one would have expected Pricing of Sukuk should mimic that of conventional to see the early signs of a secondary market developing soon (bond) issues — in fact ringgit Sukuk issues are thereafter but the credit environment changed so signifi cantly typically priced inside their conventional issues so as to postpone this. This may have repercussions for several for like-for-like issues and issuers, such as same years yet. credit rating and tenure.

• Both Islamic and conventional banks have struggled to Different story for US dollar Sukuk; because obtain suffi cient exposure to a relatively small amount the market is less developed (versus ringgit), of total issuance. Many primary issues are several times the pricing of dollar Sukuk is comparable or slightly more expensive oversubscribed and investors get severely cut back. Therefore due probably to unfamiliarity level on the part of some of investors there is less likelihood of a secondary market. (especially those are not or less familiar with Islamic structures, terms and such). Straight forward Ijarah Sukuk issued by the Indonesia • Lack of repo-market also weighs on acceptance among many government should be priced similar to that conventional issue. western investors who are not buy-and-hold investors. The 100bps difference is not totally correct as both issues were not done at the same time — the Sukuk book was oversubscribed seven • In the post August 2007 era many of these same constraints times and closed at the tight end of fi nal price guidance of 8.8%, remain valid. which implied an issue premium of 30% (versus pre-announcement secondary levels). Not bad for a fi rst time Sukuk issuer, don’t you However, liquidity took longer to dry up in the Middle East and think? many Middle East investors ended up having an even smaller pool of buyers to trade with on a secondary basis. They then In addition, asset-based does not necessarily mean that the Sukuk is ended up long of these assets as their other investments secured or collateralized against the Sukuk assets. All sovereign Sukuk started to decrease in value. As the credit-crunch hit the issues, such as Malaysia, Qatar, Bahrain, Pakistan and Indonesia are region hard — in particular Dubai’s property market — those issued without security, such as unsecured. very same investors had to start marking down their Sukuk ______holdings. Many have been reluctant to sell into a falling market continued...

• Remain committed to research and development (R&D) and With Singapore and other jurisdictions, changing their tax laws to product innovation in particular for the purpose of: accommodate Islamic fi nance, how will Malaysia stay competitive i. designing universally acceptable Islamic fi nancial to be at the forefront of Islamic fi nance — whether regulatory, solutions in order to address the issue of differing Shariah infrastructure or otherwise? interpretations across jurisdictions ii. developing a broad range of competitively priced Islamic Zukri Samat fi nancial products & services Managing Director, Bank Islam • Implement holistic human capital and skills development Although Singapore and other jurisdictions programs in order to: are scrambling to overhaul their tax laws in i. develop an adequate pool of Islamic fi nance experts in all particular the tax neutrality aspect in order to IFSI domains in particular to create fi nancial savvy Shariah render Islamic fi nancial products to be on a par scholars as well as Shariah savvy fi nancial practitioners with their conventional peers and to facilitate and lawyers Islamic fi nancial transactions, I would argue that ii. to make available a suffi cient number of world-class, well- Malaysia still holds an edge on various counts trained and high caliber talents as well as management over other contenders in the race to become the international centre teams with the required expertise for Islamic fi nance. All in all, I would say that Malaysia is well-positioned to become an While many global Islamic fi nancial hub aspirants are playing catch-up, international or at least regional centre for Islamic fi nance. Malaysia can take pride in its well-developed fi nancial infrastructure, ______supported by robust prudential, regulatory and supervisory structure; legal and Shariah framework apart from the highly attractive taxation What are the products that were in the process of developing by regime specifi cally for its Islamic fi nancial services industry (IFSI) and a the Islamic fi nance industry before the current crisis that have now slew of non-tax incentives such as enabling business environment and been put on hold or discarded entirely because they appear too investment-friendly policies to further promote and strengthen Malay- risky or too potentially “toxic” in light of the crisis, such as Islamic sia’s leadership position as an international centre for Islamic fi nance. collateralized debt obligation (CDO)?

Indeed, there are a number of features unique to Malaysia that should distinguish us from other global Islamic fi nancial hub challengers. The Mohd Effendi Abdullah, Director/Head Islamic most prominent and unrivaled attribute is the fact that Malaysia has Markets AmInvestment Bank Group) developed a holistic and complete IFSI, encompassing all segments and sub-segments of the three major IFSI components, namely Islamic There are many products/instruments presently banking, Takaful and Islamic capital market. In contrast, other Islamic in the development stage in the Islamic fi nance fi nancial hub contenders have opted to focus on selected segments. industry, which also includes innovative structured and derivatives products. However, the products In Singapore for instance, the core of its still fl edgling Islamic banking has which have the elements of riba, gharar (vagaries developed very much around wholesale commercial banking, corporate in contracts), maysir (speculation) and others fi nance and wealth management whereas in Malaysia, you will fi nd the which are non-Shariah compliant would not pass the screening and would entire spectrum of fi nancial products and services for mass-market not be developed into an Islamic product. Hence, CDOs having some of retail banking, personal fi nance, commercial and corporate banking, the above non-Shariah compliant elements would not be developed into corporate fi nance and other investment banking activities, interbank an Islamic product, elements which are prevalent in the conventional and money market, fund management and wealth management, among products that have brought forth to the global economic crisis. a multitude of many other segments and sub-segments. Still, to hold on ______to our leading position while consolidating our fi rst-mover advantage, I am of the opinion that all IFSI stakeholders in Malaysia, be they On the comments that risk allocation is more balanced in Islamic- regulators/supervisors, Islamic fi nancial institutions or customers, type structures, does this imply that investment returns of an have a role to play in unlocking the true potential of Islamic fi nance. Islamic-type structure are typically less than that of conventional On top of the “must-do” list, Malaysia should: products?

• Strengthen the international dimension and competitiveness of its domestic IFSI, all for the purpose of harnessing Etsuaki Yoshida, Deputy Head Africa & Middle Malaysia’s appeal as the premier destination for global Shariah East, Japan Bank for International Cooperation compliant capital/funds, foreign Islamic fi nancial institutions, international Islamic fi nance experts, and such by: I believe I meant that due to the limitation of i. enhancing infrastructure, capabilities, capacity and variety in products, an Islamic bank is less resources across all segments of the IFSI balanced in terms of risk allocation. Also, I meant ii. undertaking a constant review of tax and non-tax incentives about the variety in types of products in terms as well as other relevant measures of a fi nancial institution as a whole, and did not iii. fast-tracking the implementation of further fi nancial sector mean the difference between an Islamic bank liberalization and deregulation policies and a conventional bank. Empirically speaking, iv. encouraging domestic Islamic fi nancial institutions to it is hard to tell one is more profi table than the other. “export” Malaysia’s brand of Islamic fi nance ______

Unique American Approach to Interest Free Financing By Liaquat Ali

Due to the demographic realities of the Muslims population in relation to the general American population, how real estate is bought and sold in the US, and how the US tax code handles real estate capital gains, Vacation it is possible to conduct uniquely American interest-free fi nancing by Trade-Up Homes Homes convincing sellers to act as fi nanciers. Starter 48 Resorts Homes The ideas discussed in this article could be used by individual Muslims Apartments 42 Shopping 55 Vacation/ as well as real estate agents and investors. The Shariah compliant Spending fi nance houses can also expand their deal fl ow by acting as agents Centers Retirement Homes for sellers who are interested in seller-fi nancing their properties on an Offices interest-free basis. Colleges 31 63 26 Due to the absence of the need to bring cash to the closing table, 21 these fi nance houses can process considerably more transactions 18 than they are currently able to do. This, in turn, can lower their 2024 28 32 36 40 44 48 52 56 60 64 68 operating costs which could eventually mean lower transaction costs Age for their clients for all of their Shariah compliant products. The general Source: Dent, Harry S. 2008. The Great Depression Ahead: How to Prosper in American population has certain demographic trends which favor the Crash Following the Greatest Boom in History. New York: Free Press. seller fi nancing. The primary factors are age, family size and education, and income levels of the Muslim population in relation to the general A survey done by Zogby International in 2000 puts a little over 52% American population. of Muslims in the age group of 30 to 49, which according to Dent is the prime home buying age. Another Zogby study in 2001 indicates Americans are used to buying houses on installments. A typical Ameri- that 62% of Muslims either had bachelors or advanced degrees. If you can goes through a 30-year regimen of making mortgage payments include those who have some college education, the number goes up before his house is paid off. Therefore, he is mentally prepared to to more than 81%. entertain seller-fi nancing offers if they are presented in a convincing fashion and the owner falls within certain demographics which are The Muslim population is younger than the general American more likely to entertain such proposals. population. According to JW Thompson, 67% of Muslims were 40 years or younger in 2007 compared to the general American population, 67% Capital gains taxes are due in the year when those gains are realized. of which was older than 40 years. According to Pew Research’s 2007 Unless buyers are falling over each other to purchase a piece of study, only 13% of the Muslims were in the 55+ age group compared property — which is not going to happen for the next few years — a cash to 30% for the general American population. sale fetches a lower price and an instant capital gains tax. The 2007 American Housing Survey conducted by the US Census A seller-fi nancing transaction typically fetches a higher sale price and Bureau estimated that out of the 128 million total housing stocks, deferred capital gains taxes. Due to extremely favorable capital gains the number of owner-occupied dwellings was slightly over 75 million, tax benefi ts on owner-occupied houses, such capital gain deferment and the “free and clear” units to be around 25 million. In other words would most likely be relevant to non-owner-occupied properties. approximately 33% of owner-occupied housing units did not have any mortgages. Let’s look at the demographics in detail. The American Muslim population would reach 16 million by 2014, according to data compiled by The population of the US was 302 million on the 1st July 2007. Seventy Allied Media Corporation which provides ethnic market data and trend fi ve million owner-occupied houses translated into one owner-occupied consulting to governmental and non-governmental organizations. In house for every four Americans in 2007. 2007, when the Muslim population was estimated to be around six million to eight million, the disposable income of Muslim consumers According to a Cornell University study, the Muslim family size was was estimated by US advertising agency JW Thompson to be US$170 25% larger than the US average family size in 2002. Other more billion. Therefore, conservatively speaking, that disposable income recent estimates indicate that the Muslim family size is as large as could easily be north of US$340 billion in 2014. 40% compared to the US average. The home ownership number needs to be reduced by 25% to 40% for Muslims, that is, one owner-occupied According to Harry Dent of HS Dent Financial Advisors Network, who house for every 5 to 5.6 Muslims. Therefore, seven million Muslims has written several books on the demographic impact on the economy, could be the proud owners of 1.26 to 1.4 million owner-occupied Americans purchase their starter homes in their late 20s up through housing units in 2007. the age 33. As their kids are nearing or entering high schools, they purchase their trade-up or larger homes. This buying cycle peaks As the American Muslim population goes to 16 million, they will go between the ages of 37 and 42. At around age 48 the vacation home from owning approximately 1.26 million to 1.4 million owner-occupied buying cycle peaks, and then at around age 50 the overall spending homes in 2007 to approximately 2.72 million homes in 2014. cycle peaks for the heads of the families. continued...

Unique American Approach to Interest Free Financing (continued)

Now let’s look at the non-owner-occupied housing stock. In 2007, 302 million Muslims, 130,960 bought a house, approximately the same million Americans owned 53 million non-owner-occupied housing units number of Muslims sold a house. such as second homes, rental homes and vacation homes. That is, one non-owner-occupied housing unit for every 5.8 Americans. Since data indicate that the Muslim population is twice as likely to be under 40 years of age, the prime buying age, the number of owner- Since Muslims, due to their younger age, are half as likely to own occupied home purchases by Muslims could be as high as 175,486 in non-owner-occupied houses, it can be estimated that one non-owner- 2007. Keeping the annual number of existing home sales to an average occupied unit existed for 11.6 Muslims. Therefore 7 million Muslims of fi ve million a year, Muslims would purchase around 330,000 houses owned 603,448 non-owner-occupied housing units in 2007. No family in 2014. size correction is applicable here because those units are more likely occupied by non-Muslims. The Shariah compliant fi nance houses are currently fi nancing 3,000 to 4,000 houses a year. Even if they increase their capacity 100-fold, Giving a 5% increment to that non owner-occupied housing stock from they would only be helping Muslims buy 30,000 to 40,000 houses by 2007 to 2014, and using the projected US population of 322 million 2014. This leaves a gap of approximately 300,000 houses in 2014 in 2014, one non-owner-occupied housing unit will exist for every alone, and nearly a couple of million more between 2009 and 2014. 5.79 Americans and for every 11.58 Muslim. With a population of 16 million, Muslims will own 1.38 million non-owner-occupied housing Based on the unsustainable infl ation of housing prices in the past units in 2014. several years, this author believes that the overall pricing trend for real estate would be downward until the prices hit the 2000 price levels. Muslims will go from 1.87 million—2.0 million total housing units in 2007 to 4.1 million housing units in 2014. This may be why AIG With the average house price at US$181,000 in 2009 and recently launched its home Takaful product in the US. US$120,000 in 2000, US$150,000 is estimated to be a fair number to use for average house price in the next few years. Based on the In 2007, 5.65 million existing homes were sold in the US for an US$219,000 average price in 2007 and the US$150,000 estimated average price of US$219,000, according to the National Association purchase price in 2014, the 2.1 million houses Muslims will buy be- of Realtors (NAR). For the sake of simplicity, let’s assume that 5.65 tween 2009 and 2014 will be priced at US$387 billion. At an effec- million Americans sold 5.65 million houses to 5.65 million other tive interest rate of 6%, Muslims would have to deal with US$23.22 Americans. The total American population in July 2007 was 302 billion of riba each year on top of the riba being paid on the majority million. If the Muslim age demographics were the same as the general of the two million houses they owned as of 2007. American population, then it could be estimated that out of seven continued...

Muslim home ownership in relation to the general American population 2007 2014 US population 302 million (1) 322 million (1) Muslim population 7 million (4) 16 million (2,3) Muslim purchasing power US$170 billion (3) US$340 billion

Owner-occupied units 75 million (5) 79 million Non-owner-occupied units 53 million (5) 56 million Total housing units 128 million (5) 134.4 million

Muslim family size 25% (7) – 40% larger 40% larger

Owner-occupied units owned by Muslims 1.26 – 1.4 million 2.72 million Non-owner-occupied units owned by Muslims 603,448 1.38 million Total housing units owned by Muslims 1.86 – 2.0 million 4.1 million Average existing home price US$219,000 (6) US$150,000 Total value of housing units owned by Muslims US$407 - $438 billion US$615 billion Number of housing units purchased during the year. 175,486 330,000 (1) US Census Bureau. (2) Allied Media Corporation (3) JW Thompson (4) Council on American Islamic Relations (5) 2007 American Housing Survey by US Census Bureau (6) National Association of Realtors Existing Home Sales Report (7) Cornell University April 2002

Unique American Approach to Interest Free Financing (continued)

According to certain private Muslim population estimates, 63% of forecasts by Dent and others, price appreciation should not be part Muslims live in colder states which are more likely see the exodus of any real estate buying decisions. Therefore, the buyers need to be of the general American retiring population. This group of Americans very clear that whatever kind of ﬁ nancing they take has to pay down is more likely to own free and clear housing units than the younger the principal in the shortest period of time because that’s where the Americans. equity will come from, not from price appreciation.

Assuming that fi ve million existing housing units continue to change Those who don’t understand how to chart the murky waters of real hands each year, a turnover of 30 million units will take place in the estate valuations in the next few years are better off renting. next six years. Some of those units will change hands more than once. A concerted effort needs to be applied to convince the sellers in Muslims are half as likely to be in the age group which has the most the specifi c age group and geography to sell their properties on zero “free and clear” homes. Therefore, the “free and clear” homes owned percent seller fi nance basis to Muslims as well as non-Muslims. by Muslims would be around 16.5% compared to 33% for the general population. Using such approximation would yield 330,000 houses to The benefi ts for the seller are: quick sale, high sale price, potential tax be owned by Muslims without any mortgages in 2007 and 676,500 deferment benefi ts, and a monthly check. The benefi ts for the buyer houses in 2014. are: quick purchase process, saving of most of the closing costs, quick payoff of equity, and a possibility of getting fl exible payment terms. For Since Muslims cannot continue to be on the receiving end of the Muslim buyers, the primary reason is to meet one of their religious development of interest-free fi nance space on the shoulders of obligations — avoiding riba. non-Muslims, a certain number of these Muslim owners need to be persuaded to make their properties available on interest-free basis to Assuming an annual interest rate of 6% and an average down Muslims as well as non-Muslims. payment of 10%, the average Muslim buyer of a US$198,000 house in January 2008 would have fi nanced US$178,200. He would pay nearly A non-profi t down payment assistance program will need to be US$71,283 in interest and the principal owed would still be at around established to cater to the situations where the seller is ready to seller- US$159,737 at the end of 2014. Statistically speaking, it is more fi nance the sale on an interest-free basis, but the buyer does not have likely that he would have sold that house for a price hovering around the required down-payment. These loans need to be on a Qard Hasan US$150,000 before 2014 without making much dent on the principal. basis. Zakat funds may be used. Thus he loses his 10% deposit in addition to all of the interest paid. If he continued to own the house he would have to make monthly Liaquat Ali’s areas of expertise are real estate investments and “private payments for the next 23 years to pay it off completely. money” which he has used for his real estate transactions during the past six years. He is the author of “Private Money: The #1 Solution to A similar US$198,000 house purchased on seller-fi nancing with 10% Eliminate Booms and Busts in Real Estate Forever!” down, 0% interest and 14 years payment plan, the principal owed would be US$89,100 at the end of 2014 with only seven more years to fully pay the house off. The monthly payment for a 14-year payment plan on 0% interest would be the same as the monthly payment based on 30 years amortization at 6% interest. The interest saved after the Liaquat Ali 14th year could be used to purchase another house, save for other Founder major expenses, improve lifestyle or to spend on community needs. TrulyInterestFree.com [email protected] Due to the current credit freeze, the general sell orientation of 67% www.trulyinterestfree.com of the richest and the aging population, as well as soft economic

Comparison of conventional versus truly interest free seller fi nancing Type of fi nance Æ Conventional Truly interest free seller fi nancing Price in January 2008 US$198,000 US$198,000 10% down payment US$19,800 US$19,800 Amount fi nanced US$178,200 US$178,200 Interest rate 6% 0% Method of payment calculation 30-year amortization Deferred payment of principal Monthly payment amount US$1,068 US$1060 Interest paid through December 2014 US$71,283 0 Equity gained by December 2014 US$38,263 US$108,900 Balance outstanding in December 2014 US$159,737 US$89,100 Total amount paid for the house US$404,424 US$198,000 Total interest paid US$206,424 0 Effective price of the house 128% higher 0% higher

Taking the Road Less Travelled By Islamic Finance news

The crude oil boom in 2007 made the Middle East the most attractive out of the realm of “conventional” expectations. A true Islamic deal and lucrative region in the world. Many saw it as an opportunity manages risk sharing between the parties. Unfortunately, the pre- waiting to be seized and hence began the exodus of some of the crisis market has been fl ooded with questionable structures, claiming biggest international institutions and fi rms to this geographically arid to be Islamic but being conventional in substance. Agha & Shamsi’s region. International legal giants also did not want to miss out on this goal is to develop innovative but genuine structures. chance to be part of multi-million — and sometimes multi-billion — dollar ventures began opening up offi ces in the fastest booming city What are the distinguishing characteristics that allow Agha & Shamsi in the Gulf – Dubai. to operate according to Shariah principles? First and foremost, Agha & Shamsi, pursuant to being a Shariah The Dubai International Financial Centre’s (DIFC) website reveals that compliant fi rm by mandate, does not represent parties that engage over 90% of the 38 law fi rms operating there are international law in non-compliant activities, such as interest-based transactions, fi rms, and almost all of them have legal experts in Islamic fi nance. The speculative activities (hedge funds), as well as in deals related to bigger the better, it seemed. alcohol, tobacco, gaming (casinos) or pornography.

Oliver Agha, however, chose a path not taken by many. DLA Piper’s The fi rm itself does not avail of any credit/debt facilities and does not former global head of Islamic fi nance instead decided to set up a invest in interest-based (usurious) instruments. Naturally, we have Shariah compliant law fi rm, believed to the fi rst in the world, in January had to forgo a very large base of clients, including conventional banks, 2009. insurance companies and funds but that is a volitional policy decision for us. Together with Emirati lawyer Dr Saeed Mohammed Al-Shamsi, Agha & Shamsi established a non-exclusive relationship with US fi rm Pillsbury, Agha & Shamsi maintains a Shariah Supervisory and Advisory Board marking the latter’s fi rst Gulf affi liation. The fi rm currently has six which comprises leading Shariah scholars and experts in Islamic lawyers focusing on Islamic fi nance, energy, restructuring and project fi nance. The board ensures that the operations and activities of the fi nance. fi rm, and transactions presented to it, are in compliance with the Shariah. Islamic Finance news spoke to Agha (pic) on his unique journey. The lawyers of the fi rm work very closely with the board to offer the market innovative and commercially friendly products that are Shariah How did the idea come about to establish a compliant not only in form but, more importantly, in substance as well. Shariah compliant law fi rm? Being Muslim and having studied Islamic Agha & Shamsi’s professionals have had extensive exposure to Islamic jurisprudence, I have been interested in fi nance and have an independent knowledge of fi qh. We also have a playing a role in the development of a fi rm that chance to infl uence and support the development of the Islamic fi nance by express mandate adheres to the higher market through our active participation in the work of Accounting and spiritual law, as well as the law of the land, Auditing Organization for Islamic Financial Institutions (AAOIFI). Our while providing excellence in the practice lawyers are on two AAOIFI committees. of law. Establishing a fi rm that provides seamless transactional counsel coupled with a genuine knowledge of Additionally, Agha & Shamsi lawyers share their expertise by speaking Shariah, in my view, fi lls a noticeable void in the marketplace. at numerous conferences and publishing articles on many topical questions and issues in a rapidly evolving marketplace. Furthermore, the crises in the conventional banking arena, proliferation of Islamic banking and robustness of the economies of the Middle Does operating as a Shariah compliant fi rm limit your scope of work? East suggested that the time for implementing the vision was right. Does it affect your practice? Like I said, operating as a Shariah compliant fi rm does signifi cantly If you scrutinize Islamic fi nance practices, it is an area that is not very limit the scope of work to those matters that are appropriately deemed well understood and is not staffed adequately vis-à-vis the tremen- to be permissible and to those clients that are engaged in sanctioned dous opportunity and responsibility that Islamic fi nance represents, businesses. invariably exposing potential Islamic fi nance clients to an undisclosed universe of potential risks. However, there are many areas that are open to us and Agha & Shamsi employs experienced international lawyers to provide a one-stop shop For quite a while, I have felt that the Islamic fi nance marketplace as well as world-class transactional counsel on modern complex more than justifi es a standalone and uncompromised Shariah com- transactions, whether in relation to large-scale projects, real estate, pliant practice, which will allay potential pitfalls for clients interested construction, dispute resolution, mergers and acquisitions or private in “genuine,” not “form over substance” Islamic fi nance. equity transactions. Agha & Shamsi provides multi-disciplinary legal services in complex cross-border transactions with a focus on the When questionable structures are presented for enforcement to a GCC. Shariah adjudicator, depending upon the fora, the result may be well continued...

Taking the Road Less Travelled (continued)

Agha & Shamsi has made a move many would describe as courageous weigh the liabilities associated with missteps. It would be great if “pure to establish a Shariah compliant law fi rm in the midst of a global play” independent competitors emerge. economic crisis which has affected the Islamic fi nance industry as well. Could you comment on that? Is Agha & Shamsi a GCC centric Shariah compliant law fi rm? Are there plans to expand the fi rm’s business outside of the UAE and While the decision to establish the fi rm was philosophically driven, we Saudi Arabia? believe that it also makes commercial sense and will be a successful At the moment, in terms of client representations, Agha & Shamsi has model. The Islamic fi nance market, even though still nascent, has been focused on the Middle East and North Africa (MENA) countries. outperformed the conventional one during these trying times. However, from the outset, we have been a fi rm that has a global perspective. Besides MENA, Agha & Shamsi’s lawyers have extensive experience in providing legal counsel for projects in Europe, North America, “It is also worth noting that the the Commonwealth of Independent States and Southeast Asia.

Islamic fi nance world has proven The fi rm directly, and through its affi liates, offers qualifi ed legal advice under the laws of UAE, Saudi Arabia (through affi liation), to be far more resilient during England & Wales, New York and Connecticut, other US states through affi liation (California/Texas/Virginia/District of Columbia), the Russian the global fi nancial crisis than its Federation, China (through affi liation) and Japan (through affi liation)).

conventional counterpart” Thus, Agha & Shamsi’s ambit extends beyond the GCC, giving the fi rm potential to become a global player as a transactional law fi rm and From this standpoint, creating a dedicated Shariah compliant only simultaneously open a unique gateway to uncompromised “genuine” service provider to address a burgeoning and an almost US$800 benefi ts of Shariah compliance. The fi rm’s multilingual professional billion market may also be viewed as astute. team speaks English, Arabic, Spanish, Russian, French, Dutch, Portuguese, Italian, Hindi, Urdu, Malayalam and Kashmiri. It is also worth noting that the Islamic fi nance world has proven to be far more resilient during the global fi nancial crisis than its conventional Being the fi rst Shariah compliant law fi rm, how receptive has the counterpart. market been towards Agha & Shamsi? While it is still very early, we are very pleased with the reception we While conventional assets have depreciated by anywhere from 30% have had from our clients and the market. to 60%, depending on the asset class and geography, over the course of the past 18 months, Islamic fi nance assets on a global basis have increased by more than 30%. The reason for this is, of course, that at its core, Islam prohibits the products that have been the culprits behind the conventional crises.

How is the fi rm performing? What are your large deals and how extensive are your activities? Agha & Shamsi in its fi rst six months of operations has performed beyond my expectations. We have represented, for example, a large Saudi sponsor in connection with project documentation for a large steel project; a member of the Saudi royal family in a joint venture general manufacturing project in the kingdom; an American company in a joint venture in Abu Dhabi; a UAE entity in structuring and documenting novel Islamic fi nancing arrangements with a strategic investor; and another UAE entity in reviewing and advising on its Islamic Ijarah documentation.

We are currently pitching for very interesting work in relation to Islamic arbitration and a large cross-border restructuring.

Does Agha & Shamsi foresee setting the trend for other law ﬁ rms to establish standalone Islamic establishments? Given that the sources of revenue for most international ﬁ rms come from proscribed areas as well as inextricable links with the conventional system, I surmise that this will not be an easy decision.

Furthermore, law ﬁ rms are risk averse and for a ﬁ rm to create a structure that sets up an independent “Islamic” establishment will have to consider many issues that may render the structure inopportune and

Product Innovation: Derivatives and Hedge Funds By Robert Rilk and Dr Humayon Dar

As Islamic banking is coming of age, product innovation, besides that economic success comes along with entrepreneurial spirit and standardization and qualiﬁ ed human capital, is one of the main hence successful risk taking — “nothing ventured, nothing gained”. hurdles to be overcome for the industry not to lose momentum and realize sustainable growth. Hedge funds, structured in a Shariah Until now, most of the few existing publications on Islamic derivatives compliant way, have long been an all-time sensation on the Islamic and Shariah compliant hedging strategies stress the speculative banking scene, receiving publicity even if the underlying structures aspect without a close examination of the ideas behind them, as well were not disclosed at all. as the implementation under a given jurisdiction.

More recently, Shariah compliant hedging tools have been discussed A closer look at the Shariah aspects of hedging, hedge funds and more openly by various players and innovative derivatives have been derivatives, and their legal precepts in a modern jurisdiction — here promoted to fi ll the gap and to facilitate access to the general asset Switzerland serving as an example — may help the reader to at least class of hedge funds even for Shariah-concerned investors. raise some relevant questions where appropriate answers still have to be found. Hedging is essentially all about risk management. Derivatives also fi t risk management needs, but in a different economic environment and from a different investor’s perspective. “Risk management, especially From a Shariah perspective, hedge funds, hedging techniques and hedging techniques, may result derivatives have been associated with undesired speculation, rightly or wrongly understood to be seen prohibited in light of the Islamic in risk containment or adversely stance on transactions involving gharar (contractual uncertainty). fuel speculation and generate These instruments have also been doubted for being zero-sum games where nothing is traded for something, tantamount to riba, to the new risks” detriment of the less informed investor. Hedge funds and hedging Furthermore, hedge funds and derivatives face the allegation that they From the outset, the idea of hedging risks was founded on the idea contribute to a transfer of risk from those more willing but presumably of risk containment, such as managing risk rather than eliminating it. less able to bear these risks. The investors’ hunt for outperformance added to this entrepreneurial goal an impetus of pushing the borders of profi tability to a further limit. A better understanding of the nature of — and the reasons behind Thus, hedging got associated with speculation. — hedge funds, hedging techniques and derivatives as well as an open discussion about the Shariah-related issues involved could From the beginning, hedge fund investors have hoped that hedge differentiate these allegations and help push forward product funds would achieve absolute returns, no matter how a benchmark — innovation considerably. Moreover, the impact of regulators on the for instance in downsliding stock markets — would perform during the marketplace must not be underestimated. same period.

Product innovation needs a suitable regulatory environment with a While investors’ intention in bearish markets was to create returns perspective of stability. Switzerland, ranking fi rst worldwide in private even if the rest of the world generated losses, a bullish environment wealth management and displaying traditionally a liberal regulation in also whetted their appetite for outperformance above the average. In investment instruments, leaped forward by the enactment of a new spite of that, investors have not been too disturbed by the fact that investment law. hedge funds were historically only partially able to match the investors’ expectations in several respects. While offering considerable new opportunities for issuers, the Swiss regulators did not fail to keep a traditionally vigilant eye on the issue Some studies about hedge fund performance show that hedge of investor protection. funds perform better than the market in bullish as well as bearish environments. In the context of the pretext that hedge funds and derivatives would contribute to transferring risks to those more willing but less able to Thus, hedge funds indeed seem to fi t the expectations attributed to bear them, the “qualifi ed investor concept” as stipulated in Article them: relatively low covariance with other classes of fi nancial assets 10 II, III CISA (Collective Investment Schemes Act) could help tackle and market neutral performance due to better market timing and relevant Shariah-related questions by a graded protection model. greater fl exibility in asset allocation.

Risk management, especially hedging techniques, may result in risk Closing the loop from hedging as risk containment up to speculation and containment or adversely fuel speculation and generate new risks. back to risk management again, one must bear in mind that hedging Even if Shariah seems averse to gharar and ignorance as to the parties’ initially means to create a situation with weak correlation between the knowledge of all relevant details of a transaction, it has to be noted continued...

Product Innovation: Derivatives and Hedge Funds (continued) performance of an investment and the general performance of the conclusion of the sales contract (short-selling) by expecting to buy market. these positions on delivery date at a lower price. An earlier Shariah compliant solution to short-selling was based on Salam — advance To achieve this goal, Alfred Winslow Jones, creator of the long-short payment of the total purchase price to the seller for a deferred supply equity strategy adopted the following equation to determine market of goods. exposure: However, a Salam contract on stocks for future delivery is forbidden Market Exposure = (Exposure on Long Positions – Exposure on Short by AAOIFI (Accounting and Auditing Organization for Islamic Financial Positions)/Capital Institutions) Standard 21, 3/11, on the grounds that a tangible asset is missing in the transaction. Expecting increasing markets, the fund manager could boost the long positions, thus creating a higher market exposure. Anticipating It has to be noted that the above-mentioned Al Fanar hedge fund declining markets, the fund manager would in contrast reduce the reportedly uses such a Salam construction despite the AAOIFI long positions and go short on a bigger share of the invested capital proclamation. In fact, a minority of scholars endorses the use of Salam in order to achieve outperformance by a declining settlement price for trading in stocks. compared to the initial sales price of the underlying. An alternative solution has since been proposed to replicate short- This strategy raises questions as to the screening criteria of long selling, using Arbun, a contract similar to Salam, with the difference positions as well as the permissibility of short selling. The following that the buyer only has to pay a downpayment instead of advancing deliberations will focus on the classical Jones’ long-short hedge fund the full price. strategy, as this constitutes a basic model of the hedge fund style of investments. The Arbun buyer can create outperformance by obtaining the short- ed shares in the market if the total sum of “advance payment plus Available statistics reveal that long-short funds represent the largest market price” is lower than the total price agreed upon in the Arbun share in the universe of current hedge funds, approximately 30%. contract.

Shariah-related issues This is an extract from a book titled The Chancellor Guide to the Legal Recognition of need for Shariah compliant hedging tools in the forex and Shari’a Aspects of Islamic Finance edited by Humayon A Dar sector reinforces the view that Islamic banking, like its conventional and Umar F Moghul, reproduced with the permission of Chancellor counterpart, requires effective risk management. Publications. www.chancellorpublications.com

However, it is a separate question to which extent hedging can be used for enhancing returns. Whatever the answer to this question, it is an undeniable fact that the future development of the Islamic ﬁ nancial industry very much depends on its ability to develop and use effective risk management solutions.

The industry indeed does recognize the important role of hedging in ﬁ nancial risk management. Shariah scholars and other experts, however, emphasize that Islamic hedging techniques must integrate risk and reward with actual ownership of the assets to be traded in the process.

In the context of hedge funds, long positions are perfectly permissible if invested in a permissible underlying such as stock of a halal company. For this purpose, well-established screening standards can be used, applying quantitative and qualitative criteria.

On the contrary there is still a lot of confusion on the permissibility of short-selling. Although a number of fatwa exist on the permissibility of long-short hedge funds, many enthusiastic Shariah observers disseminate contradictory information on such issues.

As mentioned above, long positions can easily be screened from a Shariah point of view. The situation is not that straightforward with respect to short-selling, as conventional ways of doing so involve the sale of a security the seller may not own but may borrow.

Given a declining markets’ perspective, the Jones’s long-short model would require selling positions the fund doesn’t own at the time of

Some argue that numerous products available in the Islamic space are cloaked as being Shariah compliant. Should the industry demand Shariah-based products? Discuss.

Although there is general agreement on what is meant by the term “Shariah compliant” there is no single deﬁ nition of what is meant by being “Shariah-based”. Some believe that the products offered by exclusively Islamic banks are Shariah- based, whereas those offered by conventional banks can merely be Shariah compliant.

A second view is that products approved by national Shariah bodies such as the Shariah council of Bank Negara Malaysia are Shariah-based, whereas those approved by boards at the commercial bank level are merely Shariah compliant.

A third view, and one to which I subscribe, is that Shariah-based refers to products based on Islamic structures such as Murabahah, Ijarah, Musharakah and such, whereas conventional instruments such as equities, which are halal for investment purposes are Shariah compliant. Investment in traded stock of public liability companies was not a concept which was found in traditional Fiqh, but which nevertheless can be regarded as permissible.

Whether Shariah-based is institutionally or functionally deﬁ ned, there is no reason why the industry should demand products exclusively categorized in this way. Private and public investment in equity which is Shariah compliant should be legitimate for Islamic investors and they should not simply be conﬁ ned to more restrictive structures such as Mudarabah or Musharakah.

PROFESSOR RODNEY WILSON: Director of postgraduate studies, Durham University

To undertake Islamic ﬁ nance, the basis must always be Shariah compliant. What does it mean actually? One has to ensure that the transaction complies with the main sources of Islamic law. Anything other than that for the sake of ensuring competitiveness or to be commercial would be categorized as cloaking a product to be Shariah compliant. My short response is that the industry should demand for products which are Shariah compliant. They may be Shariah-based as long as it is consistent with Islamic law.

MOHAMED RIDZA: Managing partner, Mohamed Ridza & Co

The question is somewhat disingenuous, because industry participants merely follow the requirements of their clients. The sad fact is that clients typically have an appetite for risk and reward which can only be satisﬁ ed by leverage, and there is no such thing as Shariah compliant leverage.

So, while the industry undoubtedly should be demanding Shariah-based products, unless there is a sea change in clients’ expectations, they are unlikely to do so.

CHRIS COOK: Principal, Partnerships Consulting

People who are debating the terms “Shariah compliant” versus “Shariah-based” have too much time on their hands, and may not even understand the fundamental premise of Fiqh al Muamalat, which is permissibility unless proven otherwise.

ABDULKADER THOMAS: CEO and President, SHAPE ─ Financial Corp

Take Malaysia for example. Each (Shariah) product must be endorsed by Shariah advisors or scholars before it can be rolled-out. Granted that most of these products were “copied” from their conventional peers, such as Sukuk, Islamic hedging/derivative products and Islamic home ﬁ nancing — even though the end result is the same, the features of the Shariah products are visibly different. continued...

For instance, a customer wishing to obtain an Islamic fi nancing to purchase a house will get his or her wish if he or she qualifi es, the qualifying criteria of which are the same as that of a conventional home loan. Another customer who has an existing Islamic facility and feels that the market “interest” rate will likely go up may want to consider entering an Islamic profi t rate swap to hedge his or her position.

Shariah practitioners have been calling for true (or truer) Shariah compliant products not because the current ones are merely the concealed version of conventional products. Sukuk structure is a good example — the purchase undertaking (or put option) feature is embedded within most Sukuk issues that carry a fi xed income element to create an explicit obligation on the part of the obligor. Sukuk issues utilizing Mudarabah and Musharakah principles may be best suited for non-fi xed income structures, which a carry fl oating rate return.

The Islamic fi nance industry is still very young and its growth is, and will continue to be, focused on the Middle East and Asia. The last couple of years has seen growing interest for Shariah-based products in new areas such as Europe, China, Hong Kong, Japan and the US. The global fi nancial meltdown has further pushed for a new and better fi nancial system which is based on, amongst others, proper (and transparent) sharing of risk and reward and ethical conduct of tangible and productive business.

MOHAMAD SAFRI SHAHUL HAMID: Deputy CEO, MIDF Amanah Investment Bank

The Islamic fi nancial industry as we currently know it is still relatively young compared to the fi nancial industry as a BANK OF LONDON whole. The challenge that has faced, and still is facing, Islamic fi nancial institutions is largely associated with their AND THE MIDDLE EAST integration in a mature and long established fi nancial market. The regulatory infrastructure is generally focused on conventional fi nance and Shariah compliant instruments do not always easily fi t within this.

Where possible, products should be enhanced to ensure that they become Shariah-based. It is generally easier to achieve this from a practical starting point, such as a product in use than from a theoretical basis. It is now up to the industry to come up with products that can be accepted by regulators and ﬁ nd a more solid basis in the Shariah framework.

DR NATALIE SCHOON: Head of product management, Bank of London and the Middle East

Having Shariah-based products is the ideal and ultimate objective that any Islamic banker and anyone else involved in Islamic banking and ﬁ nance would aim for. But given the existing global riba-based ﬁ nancial order, which has evolved over many centuries and has been embraced by all economies, creating the ideal Islamic economic order would take time.

The inter-twining of the economies cannot be unraveled in the short term, however much one would want to do it. In the interim, therefore, realistically one has to be content with Shariah compliant products. The consolation is that now, at least there are Shariah compliant products available when only 30 years or so ago there were none.

MOHAMED ISMAIL SHARIFF: Partner, Skrine

This is clearly a valid point, and central to the positive development of Islamic ﬁ nance, and has been raised as such for some time now by concerned practitioners and investors.

The solution, however, is one that requires clear understanding of the cause behind the current situation. Products that demonstrate Shariah compliance rather being Shariah-based are a symptom of the issue, and not the underlying cause. If we look at one particular area, which is benchmarking to LIBOR (London Interbank Offered Rate), or other interest rate benchmarks, we see, for example, Sukuk and interbank liquidity products ﬁ tting this deﬁ nition.

If you are an Islamic institution that raises funds from the capital markets, and thus are paying a LIBOR-based cost of funding, in order to efﬁ ciently service these liabilities, it almost becomes necessary to invest in assets that have a higher return than the cost, and generally also linked to LIBOR.

That is why you would require your Sukuk investments to deliver a LIBOR-based return. If that is the demand being articulated by a large range continued...

© Page 22 2nd October 2009 FORUM www.islamicﬁ nancenews.com of Islamic ﬁ nancial institutions (FIs), then quite naturally Sukuk will be structured and priced along those lines to service investor requirements. Non-Islamic FIs that invest in Sukuk will also clearly have requirements that Sukuk delivers LIBOR-based returns.

Similarly, for interbank liquidity, banks typically have a clear requirement to raise liabilities, place assets and earn a spread on this activity, and this is one of the reasons that all such activity is again benchmarked to LIBOR.

It is very diffi cult for a single institution to effect a change from such Shariah compliant products to Shariah-based products as long as one side of its balance sheet has LIBOR related liabilities. In order to invest in any meaningful way in Shariah-based assets, it must fi rst make sure its liabilities are not LIBOR-linked. And, in order to raise liabilities that are not LIBOR-linked, investors must be prepared to accept non-LIBOR-linked returns. So quite quickly it becomes a circular problem. This means that several banks working together may achieve this, but a single bank on its own will fi nd it exceedingly diffi cult.

Meaningful progress can only be made if Islamic FIs work together to ensure that they can raise liabilities (from among themselves, initially) that are not linked to LIBOR but to the proﬁ table and enterprise-linked activity of those ﬁ nancial institutions. Once such interbank activity is realized, then it can position the Islamic FIs in terms of facing external investors and look to raise liabilities that are also non-LIBOR linked.

Islamic FIs must develop a functioning interbank system (not linked to LIBOR or any variant thereof) ﬁ rst, before expecting other investors to be willing to place funds at non-LIBOR-linked proﬁ t rates. This will have a knock-on effect in terms of Sukuk demand as FIs, which are the majority investors in Sukuk, will no longer have a binding requirement that their Sukuk assets deliver a LIBOR-based return. Sukuk issuers will need to react to such change in demand, and we will then see a shift in the Sukuk market to more Shariah-based products, delivering enterprise linked returns.

Once the Islamic interbank and capital markets develop a practice of no longer linking to LIBOR, this will necessarily see much greater use of Shariah-based products, and provide a sound platform to enable this philosophy to extend to the wider Islamic investment market.

SAFDAR ALAM: Executive director and head of Islamic structuring, JP Morgan

I ﬁ nd that the discussion of such terms as Shariah compliant, Shariah-based and “cloaking” to be confusing not only for ﬁ rst time investors in Islamic products but seasoned ones as well. I believe that a product is either compliant or not. Obviously, someone will have to make the call as to whether a product is compliant and this is where Shariah advisors come in.

The industry and Islamic players need to assume a more proactive role than merely demanding Shariah-based products by investing in research and development (R&D) type efforts to develop products that truly address the needs of the Islamic communities where those players are active.

Eventually, there are lessons we all need to learn from the current economic turmoil: the industry should stick to the basics of transparency, economic fairness and a focus on what is ethical. This should be supplemented by a study of what Islamic investors truly need.

If there is one thing that has hindered the industry more than any other, it is the reverse engineering of conventional products into Islamic ones. Some of the early efforts of the late 1990s and early 2000s involved a high degree of innovation but at some point in the process, the focus seemed to have shifted to Islamically packaged (“wrapped” for a more technical term) products that smell and taste like conventional ones

AYMAN H A KHALEQ: Partner, Vinson & Elkins

Yes, the Islamic ﬁ nance industry should demand genuinely compliant Islamic products — the industry has a duty to the public to proffer genuine not sham products. Many products that have been offered are based on the replication of conventional banking products. Neither the industry nor the consumers beneﬁ t from such products or structures.

In fact, the industry suffers as people lose faith in the Islamic fi nance industry. For Islamic fi nance to serve its goal — such as the fulfi llment of an egalitarian society that has at its core synergistic partnerships, not exploitative and contentious lender/borrower constructs — it must move to genuine Islamic products not replicated conventional banking products.

OLIVER ALI AGHA: Managing partner, Agha & Shamsi

continued...

To ensure that all Islamic products offered by the bank are Shariah compliant, we use the advice of our Shariah Board to ensure that we are following the Shariah correctly, and obtain from them a pronouncement to that effect. On top of that, there is also a responsibility to ensure that the products you propose also follow the spirit of the Shariah.

Much responsibility lies with the parties conducting the transaction to ensure that they follow the spirit as well as the letter of the Shariah.

SIMON EEDLE: Global head of Islamic banking, Calyon

The product mix right now in Islamic fi nance is largely focused on replicating conventional fi nancial products and there has always been a divide between the theory-of profi t-and-loss sharing products and the reality that most products are fi xed payments through either Ijarah or Murabahah.

These products will and probably should remain the mainstay for the Islamic fi nancial industry because their fi xed returns promote stability in the Islamic banking industry. Stability should always be the top priority. That said, the “Shariah compliant” versus “Shariah-based” discussion should focus on the direction of innovation in Islamic fi nance.

Currently, the main thrust of new innovations comes from replicating more complex conventional fi nancial products. Creating Islamic hedge funds and principal-protected notes with returns based on another investment’s performance seem to be the frontier of innovation in the last year. It would be more benefi cial if there was more focus placed on two areas: • Developing products that assist the stability of banks like Shariah compliant hedging tools and short-term liquidity management instruments. • Developing products that can in the future replace Shariah compliant products with more “Shariah-based” products that incorporate profi t-and-loss sharing.

Innovation can be positive, but it is not always positive. Innovation should be judged on the merits of the innovation on its own, as a part of the broader ﬁ nancial industry and how it affects the development of the Islamic ﬁ nancial industry.

BLAKE GOUD: Principal, Sharing Risk dot Org

The retail Islamic ﬁ nance market has not matured over a few percentage points in many markets due to many factors which include the Shariah-based nature of products As the market matures the demand for more Shariah-based products will occur and you will see a trend towards more Shariah-based products. The current Shariah compliant products are simply a ﬁ rst step towards the ideal of the industry — the rise of truly just, equitable and trade-based transactions.

OMAR KALAIR: President and CEO, UM Financial Canada

What about a focus on the standardization of Islamic products ﬁ rst, before trying to copy products!

RODNEY J RINGROW: Senior vice-president and managing director, State Street Middle East North Africa

Next Forum Question Global experts have warned that the push to clear over-the-counter (OTC) derivatives through central counterparties (CCPs) could become a new form of risk in the ﬁ nancial system. Will CCP risk become a threat to the Islamic ﬁ nance industry? What are the safeguards needed? If you would like to air your views on the next Islamic Finance Forum Question, please email your response of between 50 and 300 words to Christina Morgan, Forum Editor, at: [email protected] before Wednesday, 14th October 2009.

Islamic Finance news talks to leading players in the industry

Name: Dr Bernd van Linder hedging solutions we offer to our clients, covering their exposure to both foreign exchange and to interest rate risk. Position: Acting managing Also worth mentioning is the range of investment funds we offer director through our investment banking subsidiary, Saudi Hollandi Capital. The Al Yusr Saudi Equity Fund has been the best performing fund in Company: Saudi Hollandi Bank the market during the current year. I believe that this is an excellent achievement in very tough market conditions. Based: Riyadh, Saudi Arabia What are the strengths of your business? Age: 41 The bank stays very close to its clients. We have been operating in Saudi Arabia for over 80 years, through all kinds of times, and pride Nationality: Dutch ourselves on understanding and supporting our clients through good times and less good times. Could you provide a brief journey of how you arrived where you are today? What are the factors contributing to the success of Following completion of my PhD, I spent a brief period at Philips your company? Electronics before moving on to ABN AMRO Bank. Over the past 15 The key factor in any business is the people you work with. Especially in years, I’ve worked in various roles within ABN AMRO before moving to banking, which is a service industry with very similar products across Saudi Hollandi Bank in 2006. all companies, where the quality of your people is the key driver for success. Originally, treasurer of the bank I was asked to take on the responsibilities of managing director in May this year. At Saudi Hollandi, we consider ourselves fortunate to have a team of highly qualifi ed, well-motivated staff. What does your role involve? As acting managing director, I am overall responsible to the Board What are the obstacles faced in running your and the shareholders for the performance of the bank. Saudi Hollandi business today? Bank was the fi rst bank in Saudi Arabia and is active in corporate The kingdom has survived the fi nancial crisis better than most countries banking, consumer banking, investment banking and treasury, with owing to prudent monetary policy and expansive fi scal policy. an insurance business under formation. The prime example of the latter is the sizeable investment program The bank operates a Shariah compliant window called Àl Yusr’, and committed to by the Saudi government. The bank needs to make sure offers a full range of Islamic products across all business lines. The that it is prepared and equipped to make the most of the opportunities bank employs over 1,600 staff and operates 43 branches, eight that will present themselves over the coming years. ladies sections, 22 preferred banking centers and 217 ATMs providing banking services throughout the kingdom. Where do you see the Islamic fi nance industry in, say, the next fi ve years or so? What is your greatest achievement to date? The core principle of Islamic fi nance is that it is an ethical and equitable I prefer to think in terms of the journey rather than in terms of individual mode of fi nance. The fi nancial crisis as we have experienced it over the achievements. The journey has been great so far! past two years has clearly shown the need for such a form of fi nance.

If you would like me to mention one achievement, it would have to be As such, I expect the Islamic fi nance industry to continue to grow and the issue of the fi rst Tier II capital Mudarabah Sukuk at the end of 2008. prosper over the coming years. The demand for Shariah compliant In very diffi cult market circumstances, we managed to successfully products will continue to increase, particularly in countries where the launch this product, which was a fi rst in the region. Further proof that industry today is less developed. this was a special achievement is the awards we won for this issue. Name one thing you would like to see change in the Which of your products/services deliver the best world of Islamic fi nance. results? I would like to see more research and development in the Islamic All of our products and services are successfully serving the respective fi nance fi eld. This will help to further develop the industry and help customer needs and it is hard to make a selection. If I would have it play a bigger role in the economies of the countries where it has a to do so, I would like to mention the full range of Shariah compliant major share of the fi nancial market.

Syarikat Prasarana Negara’s Islamic Medium Term Notes

Syarikat Prasarana Negara (Prasarana), an infrastructure development company fully owned by the Malaysian ISSUER government

FACILITY An Islamic medium term notes (Sukuk) issuance program (Islamic MTN Program)

FACILITY LIMIT RM4 billion (US$1.15 billion)

PROGRAM TENOR Twenty years from the date of the ﬁ rst issue under the Islamic MTN Program

FIRST ISSUE Sukuk of up to RM2 billion (US$575 million) in nominal value, to be guaranteed by the Malaysian government

TENOR OF THE FIRST Fifteen years from the date of issue of Sukuk ISSUE

PURPOSE OF To ﬁ nance Prasarana’s capital expenditure and other funding requirements, all of which will be Shariah ISSUANCE compliant

MATURITY DATE 28th September 2029

JOINT LEAD ARRANGERS AND JOINT LEAD CIMB Investment Bank (CIMB) and Maybank Investment Bank MANAGERS/JOINT BOOKRUNNERS

CO-MANAGER Bank Islam Malaysia

CENTRAL DEPOSITORY Bank Negara Malaysia (BNM) & PAYING AGENT

LEAD ARRANGER/ FACILITY AGENT (for CIMB BNM purposes)

TRUSTEE AmanahRaya Trustees

LEGAL COUNSEL FOR THE JOINT LEAD ARRANGERS/JOINT Shearn Delamore & Co LEAD MANAGERS/ JOINT BOOKRUNNERS/ FACILITY AGENT

SHARIAH ADVISORS CIMB and Maybank Islamic

OBLIGOR/LESSEE Prasarana

SERVICE AGENT Prasarana

UNDERLYING ISLAMIC The issuance is based on the Ijarah principle TRANSACTION For more termsheets, visit www.islamicfinancenews.com

BNP PARIBAS running the company’s business in Asia for the Malaysian branch while maintaining his six years, will maintain his Asia head title current role. FRANCE: BNP Paribas Wealth Management and to take on the new role in January, in has appointed Thierry Dana as CEO for addition to assisting Macquarie Group in its Hong Kong and North Asia replacing Claude overall strategy and growth. TAKAFUL IKHLAS Haberer, who will become head of key clients MALAYSIA: Takaful Ikhlas has made for the wealth management business in Low has worked for almost 20 years in amendments to its announcement on Asia. Dana is currently regional manager fi nancial services in Asia, Australia, Europe newly appointed members of its board of for Switzerland, Southern Europe and Latin and North America and joined Macquarie a directors that was published in the Islamic America, and a member of the BNP Paribas decade ago with the Bankers Trust Australia Finance news issue 37 volume 6 dated the wealth management executive committee. acquisition. He led the acquisition of ING’s In 18th September. In a fresh statement, it said August, Gulf Finance House and Macquarie st Yahaya Besah and Dr Syed Musa Syed Jaafar His new role, effective the 1 October, Group announced plans to establish a joint Alhabshi are the independent non-executive involves, among others, increasing the Islamic fi nancial services platform in the directors effective from the 20th August presence of BNP’s private banking business Middle East. in North Asia. Dana has been with the BNP 2009. Paribas group for almost 20 years. During his tenure, he has held a number of client-facing RBS Yahaya was a former director in the positions in various markets. insurance supervision division of Bank UK: The head of UK equities at Lloyds’ Negara Malaysia and later the director of fund management arm Scottish Widows internal audit at the central bank. Syed Musa NAKHEEL Investment Partnership (SWIP), Robert is currently a full time associate professor at Waugh, will join RBS as chief investment the Graduate School of Business, Universiti UAE: Four executives of developer Nakheel, offi cer for the group’s pension fund and Tun Abdul Razak. which is struggling to repay a US$3.5 insurance business. billion Sukuk due in December, are being transferred to investment subsidiary At SWIP, Waugh was responsible for GBP17 AMISLAMIC BANK Istithmar World as part of what parent Dubai billion (US$27 billion) of assets under World terms an ongoing organizational MALAYSIA: AmBank Group has appointed management and in charge of a team of 13. Mahdi Murad as the new CEO of its Islamic restructuring process within the group. He will be overseeing a combined portfolio unit AmIslamic Bank. He was the executive worth GBP25 billion (US$40 billion) at RBS. director of retail banking at AmBank Hamza Mustafa, who was the managing Malaysia since 2002. director for the hotels and commercial RBS is grappling with a GBP2 billion buildings division, will join Istithmar World as (US$3 billion) pension defi cit, and recently managing director of real estate. reduced UK staff benefi ts to keep a lid on its SABB TAKAFUL GBP27 billion (US$43 billion) of liabilities. Other executives to follow suit are chief It operates one of the few remaining fi nal SAUDI ARABIA: SABB Takaful (Saudi British investment offi cer Andy Watson, chief salary schemes. Waugh’s job will be to set Bank Takaful) has appointed Philip Head as its new CEO. His responsibilities include fi nancial offi cer Binod Narasimhan and a new strategy to improve the performance driving the development of Takaful products managing director of private equity Sandesh of the asset base to help trim the gap and Pandhare. All three will assume the same across all businesses. He has over 30 years reduce the defi cit. titles at Istithmar World. experience in the global insurance industry, including 10 years in the Middle East during HSBC which he occupied many leading positions SOROUH with large insurance institutions in the region GLOBAL: The group will move its CEO and the world. UAE: Sorouh Real Estate, Abu Dhabi’s Michael Geoghegan to Hong Kong in second largest real estate developer, February 2010 with a newly created board confi rmed that CEO Mounir Haidar is role to develop group business in China. He RASMALA resigning this month to seek new challenges will also take over from Vincent Cheng as and opportunities. A replacement has not SAUDI ARABIA: Rasmala Investment Bank chairman of HSBC in Hong Kong. Cheng, who been found, the company said. has appointed Husam Kutaifan as head of remains a board member, will continue to corporate fi nance and Michael Kidd as head build international bank leadership in China. Abubaker Al Khouri will continue to lead the of private equity. Kutaifan was the head of company as managing director while Gurjit mergers and acquisitions at Samba Capital Singh, currently chief development offi cer, has Mark McCombe, now the London-based in Saudi Arabia and the head of corporate been promoted to chief operating offi cer. chief executive of HSBC Global Asset fi nance in Atlas Investment Group. Management, will become chief executive of all Hong Kong banking business. Kidd joins Rasmala from Intaj, a MENA MACQUARIE GROUP focused mid-cap private equity fund. Irene Dorner, the deputy chairman and Previous to that he was the executive director AUSTRALIA: Macquarie Capital Advisors has CEO of HSBC Bank Malaysia, will become at CIBC Capital Partners in London focusing named its Asia head Andrew Low as chief president and CEO of HSBC Bank US. on mid-cap private equity. He also worked at operating offi cer, and is moving him from Mukhtar Hussain, the head of HSBC McKinsey & Co in the US. Hong Kong to Sydney. Low, who has been Amanah, will take over Dorner’s position at

Islamic Finance news Deal tracker Advisory Board: Keeping you abreast of the world’s upcoming Shariah compliant deals Mr Daud Abdullah (David Vicary) Another Islamic Finance news exclusive Chairman, Global Islamic Finance Group Deloitte ISSUER SIZE (million) INSTRUMENT Dr Mohd Daud Bakar Terengganu Investment Chief Executive Offi cer US$1.42 Islamic medium-term notes Authority International Institute of Islamic Finance Dubai Department of Prof Dr Mohd Masum Billah US$10 billion Sukuk Finance Chairman Middle Eastern Business World Sakana Holistic Housing US$50 Sukuk Solutions Dr Humayon Dar Chief Executive Offi cer Dar-Al Dhabi Holding US$346.4 Sukuk BMB Islamic Unicorn Investment Bank US$425 Sukuk Ijarah Mr Badlisyah Abdul Ghani Tourism Development and Chief Executive Offi cer TBA Sukuk Investment Company CIMB Islamic Islamic Bank of Thailand US$1.4 billion Sukuk Ms Baljeet Kaur Grewal Managing Director/Vice Chairman HSBC TBA Sukuk Head, Global Research KFH Research Limited Majlis Bandaraya Melaka US$27.63 Sukuk Bersejarah Mr Sohail Jaffer Partner Qatar Gas Transport Up to US$500 Sukuk International Business Development Company FWU International Islamic Development Bank US$500 Sukuk Dr Monzer Kahf Cagamas US$1.1 billion Sukuk Consultant/Trainer/Lecturer Private Practice Bank Negara Indonesia US$50 Sukuk Mr Mohamed Ridza Abdullah Japan Bank for International US$200 TBA Managing Partner Cooperation Mohamed Ridza & Co Agni US$71 Sukuk Prof Bala Shanmugam Director of Banking & Finance Bakrieland Development Up to US$101 Sukuk Monash University Malaysia City Development US$708.32 Sukuk Mr Muhammad Nejatullah Siddiqi Malaysian Debt Ventures Up to US$449.07 Sukuk Author, Scholar, Speaker, Trainer Bumiputra-Commerce Mr Rushdi Siddiqui US$572.18 Sukuk Holdings Head of Islamic Finance Thomson Reuters Islamic Bank of Thailand US$178.77 Ijarah Mr Dawood Taylor ETA Star Property Up to US$150 Sukuk Regional Senior Executive-Middle East Developers Prudential PLC

Abu Dhabi Commercial Bank US$1.07 billion Islamic MTN Mr Abdulkader Thomas Metrodata US$10,703.00 Ijarah President & CEO SHAPE – Financial Corp First Fidelity US$2.9 Diminishing Musharakah Mr Paul Wouters US$93.5 million senior Partner Prolintas US$187 Ijarah, US$93.5 million junior Bener Musharakah Prof Rodney Wilson Qatar Islamic Bank US$300 Sukuk Director of Postgraduate Studies Barwa Real Estate US$800 Sukuk Durham University Tabreed Up to US$500 Sukuk Mr Sohail Zubairi Chief Executive Ofﬁ cer For more details and the full list of deals visit Dar Al Sharia Legal & Financial Consultancy www.islamicﬁ nancenews.com

Eurekahedge Middle East/Africa Islamic Fund Index 270 250 230 210 190 170 150 130 110 90

7/1/00 1/1/01 7/1/01 1/1/02 7/1/02 1/1/03 7/1/03 1/1/04 7/1/04 1/1/05 7/1/05 1/1/06 7/1/06 1/1/07 7/1/07 1/1/08 7/1/08 1/1/09 7/1/09 12/31/99 Annualized returns for ALL funds (as of the 30th September 2009)

FUND FUND MANAGER PERFORMANCE MEASURE FUND DOMICILE

1 Atlas Islamic Atlas Asset Management 12.18 Pakistan 2 Atlas Pension Islamic - Equity Sub Atlas Asset Management 11.59 Pakistan 3 Al Meezan Mutual Al Meezan Investment Management 10.83 Pakistan 4 Meezan Islamic Al Meezan Investment Management 10.67 Pakistan 5 Alfalah GHP Islamic Alfalah GHP Investment Management 8.94 Pakistan 6 United Composite Islamic UBL Fund Managers 7.69 Pakistan 7 Meezan Balanced Al Meezan Investment Management 6.62 Pakistan 8 Mega Dana Syariah Mega Capital Indonesia 5.57 Indonesia Islamic Certiﬁ cate on the LLB Central Hilal TR 9 ABN AMRO Bank 4.83 Switzerland Index 10 Public Islamic Opportunites Public Mutual 4.29 Malaysia Eurekahedge Asia Paciﬁ c Islamic Fund Index* 0.95

Annualized Standard Deviation for ALL funds (as of the 30th September 2009) FUND FUND MANAGER PERFORMANCE MEASURE FUND DOMICILE 1 Mawarid Industrial and Petroleum Services National Investments Company 8.64 Kuwait 2 Zajil - Service & Telecommunications National Investments Company 8.14 Kuwait 3 Sanabel Prime Asset Management 7.63 Egypt 4 Al Aman Islamic Al Aman Investment Company 7.30 Kuwait 5 Markaz Islamic Kuwait Financial Centre 6.64 Kuwait 6 Al Danah GCC Equity Trading Banque Saudi Fransi 5.96 Saudi Arabia Islamic Certiﬁ cate on the LLB Top 20 Middle East 7 ABN AMRO Bank 5.58 Netherlands TR Index (EUR) 8 Riyad Gulf Riyad Bank 5.54 Saudi Arabia 9 Al Assjad IFA Islamic International Financial Advisors 5.38 Kuwait 10 Al Huda Islamic Gulﬁ nvest International 5.12 Kuwait Eurekahedge Middle East/Africa Islamic Fund Index* 1.50

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.

S&P Shariah Indices Price Index Levels

1180 1070 960 850 740 S&P 500 Shariah 630 S&P Europe 350 Shariah 520 S&P Japan 500 Shariah 410 300 190 80 30/9/09Aug-09 July-09 June-09 May-09 Apr-09 Mar-09

Index Code Index Name 30/09/09 Aug-09 July-09 June-09 May-09 Apr-09 Mar-09 SPSHX S&P 500 Shariah 945.321 913.542 899.016 842.797 836.573 799.755 752.048 SPSHEU S&P Europe 350 Shariah 1134.881 1095.741 1058.270 977.823 995.630 894.958 843.893 SPSHJU S&P Japan 500 Shariah 994.367 996.042 959.584 908.760 878.263 826.363 755.552

1250 S&P Pan Asia Shariah 1130 S&P GCC Composite 1010 S&P Pan Arab Shariah S&P BRIC Shariah 890 770 650 530 410 290 170 50 30/9/09Aug-09 July-09 June-09 May-09 Apr-09 Mar-09

Index Code Index Name 30/09/09 Aug-09 July-09 June-09 May-09 Apr-09 Mar-09 SPSHAS S&P Pan Asia Shariah 916.579 846.106 867.704 780.340 797.647 708.922 624.982 SPSHG S&P GCC Composite Shariah 709.603 669.202 654.208 671.614 599.648 519.529 481.323 SPSHPA S&P Pan Arab Shariah 123.831 118.463 115.322 112.643 113.860 102.133 89.561 SPSHBR S&P BRIC Shariah 1066.062 973.014 996.242 924.814 978.497 807.592 694.799

1200 S&P Global Property Shariah 1080 S&P Global Infrastructure Shariah 960 840 720 600 480 360 240 120 0 30/9/09Aug-09 July-09 June-09 May-09 Apr-09 Mar-09

Index Code Index Name 30/09/09 Aug-09 July-09 June-09 May-09 Apr-09 Mar-09 SPSHGU S&P Global Property Shariah 655.839 625.881 641.907 592.683 586.922 506.477 434.684 SPSHIF S&P Global Infrastructure Shariah 96.587 82.238 80.488 75.034 75.918 66.983 62.583 The S&P Shariah Indices. Creating opportunity for Islamic investors.

To learn more, contact [email protected].

PERFORMANCE OF DJ INDEXES

DJIM World DJIM US

5 PRICE RETURN (%) 0

-5

-10 1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD

INDEX PRICE RETURN (%) 1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD DJIM World -0.78 -1.09 1.80 6.38 19.74 28.45 0.36 25.54 DJIM US -0.17 -0.95 1.77 5.46 17.24 21.57 -5.31 17.75

PERFORMANCE OF DJ TITANS INDEXES

DJIM Titans 100 DJIM Asia/Pacific Titans 25

PRICE RETURN (%) 0

-5 1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD

INDEX PRICE RETURN (%) 1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD DJIM Titans 100 -0.84 -1.10 0.9 4.33 15.78 22.25 -2.69 13.72 DJIM Asia/Paciﬁ c Titans 25 -0.79 0.11 2.9 6.11 20.05 31.76 12.40 29.74

DESCRIPTIVE STATISTICS Market Capitalization (US$ billions) Component Weight (%) Component Float Index Full Mean Median Largest Smallest Large Small number adjusted DJIM World 2412 14819.41 11635.02 4.82 0.96 329.73 0.00 2.83 0.00 DJIM US 622 6491.09 6067.92 9.76 2.35 329.73 0.13 5.43 0.00 DJIM Titans 100 100 6539.67 5854.31 58.54 40.75 329.73 13.29 5.63 0.23 DJIM Asia/Paciﬁ c Titans 25 25 1000.25 677.71 27.11 20.17 71.64 13.29 10.57 1.96 Mean, median, largest, smallest and component weights are based on ﬂ oat adjusted market capitalization, not full market capitalization.

For more information, please visit www.djislamicmarkets.com or contact

Anthony Yeung Ariff Sultan Sumeet Nihalani Regional Director Business Development Director Senior Director Sales Hong Kong, China, Philippines, Taiwan, Malaysia, Singapore, Indonesia, India, Middle East Korea, Japan, Australia & New Zealand Thailand, Pakistan, Sri Lanka & Bangladesh Tel: +971 4364 4968 Tel: +852 2831 2580 Tel: +65 6415 4262 [email protected] [email protected] [email protected]

TOP ISSUERS OF ISLAMIC BONDS SEP 2008 – SEP 2009

Issuer or Group Nationality Instrument Amt US$ m Iss. % Manager

1 Saudi Electricity Saudi Arabia Sukuk 1,867 1 14.4 HSBC, Samba Financial Group

2 Petronas Global Sukuk Malaysia Sukuk Ijarah 1,498 1 11.6 Morgan Stanley, CIMB, Citigroup

Terengganu Investment Murabahah Islamic 3 Malaysia 1,422 1 11.0 AmInvestment Authority bond

4 Islamic Development Bank Saudi Arabia Sukuk Wakalah 850 1 6.6 BNP Paribas, CIMB, Deutsche Bank, HSBC

5 Kingdom of Bahrain Bahrain Sukuk Ijarah 750 1 5.8 Deutsche Bank, HSBC, Calyon

Standard Chartered, HSBC, Barclays 6 Republic of Indonesia Indonesia Sukuk Ijarah 650 1 5.0 Capital, (Persero) Danareksa, Trimegah Securities, Bank Mandiri CIMB, AmInvestment, Maybank Investment 7 Khazanah Nasional Malaysia Sukuk Musharakah 601 3 4.7 Bank Standard Chartered, AmInvestment, 8 Cagamas Malaysia Murabahah MTN 589 4 4.6 Maybank Investment Bank, HSBC, CIMB, RHB Capital

9 Syarikat Prasarana Negara Malaysia Ijarah MTN 573 1 4.4 CIMB, Maybank Investment Bank

10 Danga Capital Malaysia Sukuk Musharakah 444 1 3.4 CIMB, AmInvestment

Standard Chartered, Dubai Islamic Bank 11 Islamic Republic of Pakistan Pakistan Sukuk 441 3 3.4 Pakistan

12 Penerbangan Malaysia Malaysia Murabahah MTN 411 1 3.2 HSBC, CIMB, AmInvestment

13 MISC Malaysia Murabahah MTN 368 2 2.9 HSBC, CIMB, AmInvestment

14 Seaﬁ eld Capital Malaysia Sukuk Musharakah 269 1 2.1 CIMB

15 Saudi Hollandi Bank Saudi Arabia Sukuk 207 1 1.6 Saudi Hollandi Bank

Dar Arkan Real Estate 16 Saudi Arabia Sukuk Ijarah 200 1 1.6 HSBC, Samba Financial Group Development Company

17 Projek Lintasan Shah Alam Malaysia Murabahah MTN 174 4 1.4 RHB Capital

18 PLUS SPV Malaysia Sukuk Musharakah 151 1 1.2 BIMB Holdings, CIMB

AmMerchant Bank, Bank Muamalat Jimah Energy Ventures 19 Malaysia Istisna MTN 149 2 1.2 Malaysia, RHB Investment Bank, MIMB Holdings Investment Bank

20 UMW Holdings Malaysia Musharakah MTN 141 1 1.1 Maybank Investment Bank Bhd

Total 12,926 66 100.0

For all enquires regarding the above information, please contact: Jennifer Cheung (Media Relations) Email: [email protected] Phone: +852 2804 1223

TOP ISSUERS OF ISLAMIC BONDS JUNE 2009 – SEP 2009

Issuer or Group Nationality Instrument Amt US$ m Iss. % Manager

1 Saudi Electricity Saudi Arabia Sukuk 1,867 1 31.26 HSBC, Samba Financial Group

Morgan Stanley, CIMB Group, 2 Petronas Global Sukuk Malaysia Sukuk Ijarah 1,498 1 25.09 Citigroup

BNP Paribas, CIMB, Deutsche Bank, 3 Islamic Development Bank Saudi Arabia Sukuk Wakalah 850 1 14.24 HSBC

4 Syarikat Prasarana Negara Malaysia Ijarah MTN 573 1 9.59 CIMB, Maybank Investment Bank

5 MISC Malaysia Murabahah MTN 368 2 6.16 HSBC, CIMB, AmInvestment

CIMB, AmInvestment, Maybank 6 Khazanah Nasional Malaysia Sukuk Musharakah 214 1 3.58 Investment Bank

7 Islamic Republic of Pakistan Pakistan Sukuk 174 1 2.92 Standard Chartered

8 UMW Holdings Malaysia Musharakah MTN 141 1 2.36 Maybank Investment Bank

9 Cagamas Malaysia Murabahah MTN 130 1 2.18 HSBC, CIMB, RHB Capital

10 CIMB Islamic Bank Malaysia Sukuk Musharakah 86 1 1.43 Maybank Investment Bank

11 Makro Utama Malaysia Sukuk Istisna 28 1 0.48 Kenanga Investment Bank

Madani Securities, Bahana 12 Bakrieland Development Indonesia Sukuk Ijarah 15 1 0.25 Securities

Malaysian Industrial Development 13 Tanjung Langsat Port Malaysia Sukuk Musharakah 11 1 0.19 Finance

14 Offshoreworks Capital Malaysia Musharakah MTN 11 1 0.19 MIDF Amanah Investment Bank

15 Serrisa Sinar Malaysia Murabahah MTN 3 1 0.05 MIDF Amanah Investment Bank

16 TSH Sukuk Ijarah Malaysia Sukuk Ijarah MTN 3 1 0.05 OSK Asia Securities

Total 5,971 17 100.00 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] Telephone: +852 2804 1223

ISLAMIC BONDS SEP 2008 – SEP 2009 ISLAMIC BONDS JUNE 2009 – SEP 2009

Manager or Group Amt US$ m Iss % Manager or Group Amt US$ m Iss % 1 CIMB 2,943 28 22.8 1 CIMB 1514 8 25.4 2 HSBC 2,198 14 17.0

3 AmInvestment 2,049 11 15.9 2 HSBC 1297 4 21.7 4 Samba Financial Group 1,033 2 8.0 3 Samba Financial Group 933 1 15.6 5 Maybank Investment Bank 718 12 5.6 Standard Chartered 622 7 4.8 5 4 Morgan Stanley 499 1 8.4 7 Morgan Stanley 499 1 3.9 4 Citigroup 499 1 8.4 8 Citigroup 499 1 3.9

9 Deutsche Bank 463 2 3.6 6 Maybank Investment Bank 427 2 7.2 RHB Capital 335 9 2.6 10 6 Deutsche Bank 213 1 3.6 11 Calyon 250 1 1.9 8 BNP Paribas 213 1 3.6 12 Barclays Capital 217 1 1.7 9 Standard Chartered Bank 174 1 2.9 13 BNP Paribas 213 1 1.6 10 AmInvestment 65 1 1.1 14 Saudi Hollandi Bank 207 1 1.6 11 RHB Capital 65 1 1.1 15 Dubai Islamic Bank Pakistan 133 2 1.0 12 Kenanga Investment Bank 28 1 0.5 16 BIMB Holdings 129 3 1.0 Malaysian Industrial 13 25 3 0.4 Malaysian Industrial 98 7 0.8 Development Finance 17 Development Finance 14 Madani Securities 7 1 0.1 18 EON Bank 66 3 0.5 19 Oversea-Chinese Banking 55 1 0.4 15 Bahana Securities 7 1 0.1 20 Bank Muamalat Malaysia 37 2 0.3 16 OSK 3 1 0.1 Total 12,926 66 100.0 Total 5,971 17 100.0

ISLAMIC BONDS BY COUNTRY SEP 2008 – SEP 2009 ISLAMIC BONDS BY COUNTRY JUNE 2009 – SEP 2009

Amt US$ m Iss % Amt US$ m Iss %

Malaysia 7,850 53 60.7 Malaysia 3,065 13 51.3

Saudi Arabia 3,123 4 24.2 Saudi Arabia 2,717 2 45.5 Indonesia 762 5 5.9 Pakistan 174 1 2.9

Bahrain 750 1 5.8 Total 5,971 17 100.0 Pakistan 441 3 3.4 ISLAMIC BONDS BY CURRENCY JUNE 2009 – SEP 2009 Total 12,926 66 100.0 Amt US$ m Iss % ISLAMIC BONDS BY CURRENCY SEP 2008 – SEP 2009 US dollar 2,348 2 39.3

Amt US$ m Iss % Saudi Arabian riyal 1,867 1 31.3

Malaysian ringgit 6,352 52 49.1 Malaysian ringgit 1,567 12 26.3

US dollar 3,748 4 29.0 Total 5,971 17 100.0 Saudi Arabian riyal 2,273 3 17.6 For all enquires regarding the above information, please contact: Pakistan rupee 441 3 3.4 Jennifer Cheung (Media Relations) Indonesian rupiah 112 4 0.9 Email: [email protected] Total 12,926 66 100.0 Phone: +852 2804 1223; Fax: +852 2529 4377

© Page 34 2nd October 2009 LEAGUE TABLES www.islamicfi nancenews.com ALL DATA AS OF THE 30th SEPTEMBER 2009 SUKUK MANAGERS(12 months) SEP 2008 – SEP 2009 SUKUK MANAGERS (3 months) JUNE 2009 - SEP 2009 Manager Commitment Market Manager Commitment Market Manager Issues Manager Issues (in US$) Share % (in US$) Share % 1 Malaysia (Government) 26,273,568,819 177 54.1 1 Malaysia (Government) 13,356,016,300 23 52.6 2 CIMB 6,808,207,074 131 14.0 2 CIMB 4,483,206,371 22 17.6 3 AMMB Holdings 2,670,426,199 105 5.5 3 HSBC Banking Group 1,617,245,621 17 6.4 4 HSBC Banking Group 2,292,743,770 46 4.7 4 Citigroup 1,224,896,320 6 4.8 Malaysian Industrial Development 1,636,193,054 320 3.4 5 5 Morgan Stanley 1,215,000,000 5 4.8 Finance 6 Samba Financial Group 933,261,000 1 3.7 6 Citigroup 1,267,746,162 7 2.6 7 RHB Banking Group 750,623,400 7 3.0 7 RHB Banking Group 1,260,427,495 58 2.6 8 Malaysian Industrial 719,613,050 81 2.8 8 Morgan Stanley 1,215,000,000 5 2.5 Development Finance 9 Samba Financial Group 933,261,000 1 1.9 9 AMMB Holdings 368,836,155 21 1.5 10 Malayan Banking 830,502,110 116 1.7 10 Malayan Banking 207,421,819 24 0.8 11 Standard Chartered Bank 620,398,282 17 1.3 11 OSK Holdings 105,020,715 10 0.4 12 Barclays Bank 435,500,000 3 0.9 12 Affi n Holdings 99,884,730 4 0.4 13 Affi n Holdings 369,343,339 40 0.8 13 Cagamas 90,274,851 10 0.4 14 Cagamas 345,537,496 34 0.7 14 EON Capital 69,866,782 22 0.3 15 OCBC Bank 255,660,812 36 0.5 15 Standard Chartered Bank 61,388,915 3 0.2 16 OSK Holdings 250,459,165 27 0.5 16 Hwang-DBS (Malaysia) 31,283,190 4 0.1 17 EON Capital 195,075,025 84 0.4 17 OCBC Bank 29,936,788 6 0.1 18 Indonesia (Government) 186,708,865 7 0.4 18 United Overseas Bank 26,228,080 3 0.1 19 United Overseas Bank 141,219,560 14 0.3 19= Barkun Citra Nusantara 7,356,547 2 0.0 20 Bukhary Capital 80,786,486 6 0.2 19= Indonesia (Government) 7,356,547 2 0.0

SUKUK ISSUERS(12 months) SEP 2008 – SEP 2009 SUKUK ISSUERS (3 months) JUNE 2009 - SEP 2009

Issuer Commitment Market Issuer Commitment Market Issuer Issues Issuer Issues (in US$) Share % (in US$) Share % 1 Malaysia (Government) 8,340,558,223 23 19.4 1 Malaysia (Government) 4,081,743,000 6 24.8 2 Bank Negara Malaysia 7,722,049,319 136 18.0 2 Petronas Global Sukuk 3,000,000,000 2 18.2 3 Bank Indonesia 3,341,471,209 52 7.8 3 BNM Sukuk 2,702,112,000 11 16.4 4 Petronas Global Sukuk 3,000,000,000 2 7.0 4 Saudi Electricity 1,866,522,000 1 11.3 5 BNM Sukuk 2,815,683,834 12 6.5 5 Bank Indonesia 892,557,702 14 5.4 6 Saudi Electricity 1,866,522,000 1 4.3 6 Khazanah Nasional 706,310,000 2 4.3 7 Khazanah Nasional 1,700,063,549 5 4.0 7 Syarikat Prasarana Negara 577,872,000 2 3.5 8 Terengganu Investment Authority 1,419,647,927 8 3.3 8 MISC 572,905,000 6 3.5 9 ESSO Malaysia 297,574,500 4 1.8 9 Indonesia (Government) 1,300,000,000 2 3.0 10 Rantau Abang Capital 287,900,000 1 1.7 10 Cagamas 927,322,675 34 2.2 11 Bank Negara Malaysia 282,342,000 5 1.7 11 Perusahaan Penerbit SBSN Indonesia 794,953,034 4 1.8 12 Cagamas 203,168,170 10 1.2 12 ESSO Malaysia 609,897,044 12 1.4 13 Pakistan (Government) 174,265,020 1 1.1 13 Syarikat Prasarana Negara 577,872,000 2 1.3 14 CIMB Islamic Bank 86,680,800 1 0.5 14 MISC 572,905,000 6 1.3 15 Mulpha International 50,962,875 7 0.3 15 Danga Capital 454,287,337 2 1.1 16 Hytex Integrated 44,561,256 21 0.3 16 Pakistan (Government) 440,994,225 3 1.0 17 Perbadanan Kemajuan Negeri 42,667,140 4 0.3 17 Penerbangan Malaysia 425,894,378 1 1.0 Selangor 18 Malakoff 340,715,503 2 0.8 18 Hubline 42,655,210 4 0.3 19 Rantau Abang Capital 287,900,000 1 0.7 19 Goodway Integrated Industries 41,010,805 9 0.2 20 Seaﬁ eld Capital 269,733,106 9 0.6 20 Oilcorp 34,028,080 4 0.2

Islamic Sukuk league tables reﬂ ect Shariah compliant bonds showing evidence of ownership of assets or their earnings. These results include (but are not limited to) the following securities/assets: Sukuk Salam, Sukuk Mudarabah, Sukuk Ijarah, Sukuk Murabahah, Sukuk Istisna and Sukuk Musharakah. For more information please contact: Aimee Webster Telephone: +1-646-223-6816 Email: [email protected]

LOAN MANDATED LEAD ARRANGERS(12 Months) SEP 2008 – SEP 2009 LOAN BOOKRUNNERS(12 Months) SEP 2008 – SEP 2009

Market Pro Rata Full Credit Market Lender Pro Rata ($) Full Credit ($) Deals Lender Share % (US$) (US$) Deals Share %

1 Dubai Islamic 1,365,903,212.63 3,283,225,701.00 4 20.0 1 Standard Chartered 542,112,850.50 1,821,225,701.00 2 14.6 Bank 2 Dubai Islamic Bank 495,500,000.00 2,109,000,000.00 2 13.4

2 Standard 687,864,557.16 3,842,225,701.00 5 10.1 3= Calyon Corporate & 387,500,000.00 775,000,000.00 1 10.5 Chartered Bank Investment Bank 3 Samba Financial 583,214,285.71 2,977,000,000.00 2 8.5 3= Al Rajhi Banking & 387,500,000.00 775,000,000.00 1 10.5 Investment 4 Calyon Corporate 430,961,344.54 2,796,000,000.00 4 6.3 & Investment 5= Al Hilal Bank 368,500,000.00 1,474,000,000.00 1 10.0 Bank 5= Samba Financial 368,500,000.00 1,474,000,000.00 1 10.0 5 Al Hilal Bank 368,500,000.00 1,474,000,000.00 1 5.4 7 Mashreqbank 173,612,850.50 347,225,701.00 1 4.7 6 HSBC 289,294,677.87 2,061,000,000.00 4 4.2 8= Emirates Bank 127,000,000.00 635,000,000.00 1 3.4 7 Emirates Bank 222,069,879.29 1,137,225,701.00 3 3.3 8= Industrial & 127,000,000.00 635,000,000.00 1 3.4 Commercial Bank of 8= Bank of China 214,714,285.71 1,503,000,000.00 1 3.1 China 8= Alinma Bank 214,714,285.71 1,503,000,000.00 1 3.1 8= Noor Islamic Bank 127,000,000.00 635,000,000.00 1 3.4

8= National 214,714,285.71 1,503,000,000.00 1 3.1 8= WestLB 127,000,000.00 635,000,000.00 1 3.4 Commercial Bank 12 BNP Paribas 119,166,666.67 280,000,000.00 2 3.2 11 Al Rajhi Banking & 172,647,058.82 1,075,000,000.00 2 2.5 Investment 13 Citigroup 95,013,500.00 190,027,000.00 2 2.6

12= Gulf Bank of 155,000,000.00 775,000,000.00 1 2. 14 Kuwait Finance 77,500,000.00 155,000,000.00 1 2.1 Kuwait House 12= Standard Bank 155,000,000.00 775,000,000.00 1 2.3 15 Deutsche Bank 75,013,500.00 150,027,000.00 1 2.0 Group 16= Liquidity 41,666,666.67 125,000,000.00 1 1.1 12= National Bank of 155,000,000.00 775,000,000.00 1 2.3 Management House Kuwait for Investment 16= Gatehouse Bank 41,666,666.67 125,000,000.00 1 1.1

15 WestLB 144,647,058.82 935,000,000.00 2 2.1 18 HSBC 20,000,000.00 40,000,000.00 1 0.5 16= Qatar National 137,500,000.00 275,000,000.00 1 2.0 Bank 16= Qatar 137,500,000.00 275,000,000.00 1 2.0 ISLAMIC LOANS RAISED(12 Months) SEP 2008 – SEP 2009 International Islamic Bank

18= Industrial & 127,000,000.00 635,000,000.00 1 1.9 Borrower Country Islamic Loan Amount (US$) Commercial Bank of China 18= Noor Islamic Bank 127,000,000.00 635,000,000.00 1 1.9 1 Rabigh Independent Power Saudi Arabia 1,503,000,000 Project 20 BNP Paribas 94,313,725.49 580,000,000.00 3 1.4 2 Dubai Electricity & Water UAE 1,474,000,000 21 Citigroup 88,346,833.33 190,027,000.00 2 1.3 Authority 22 Deutsche Bank 75,013,500.00 150,027,000.00 1 1.1 3 Borse Dubai UAE 827,000,000 23= Societe Generale 61,247,058.82 518,000,000.00 2 0.9

23= Arab Bank Group 61,247,058.82 518,000,000.00 2 0.9 4 Zain Saudi Arabia 775,000,000

25 Mashreqbank 61,050,271.45 647,225,701.00 2 0.9 5 Dubai Department of Civil UAE 635,000,000 Aviation

26 Kuwait Finance 51,666,666.67 155,000,000.00 1 0.8 6 Al Ghurair Centre UAE 347,225,701 House 27= Abu Dhabi Islamic 43,403,212.63 347,225,701.00 1 0.6 7 Al Dur Power & Water Bahrain 300,000,000 Bank

27= Ajman Bank 43,403,212.63 347,225,701.00 1 0.6 8 Qatar Real Estate Investment Qatar 275,000,000 27= First Gulf Bank 43,403,212.63 347,225,701.00 1 0.6 9 Dolphin Energy UAE 218,000,000 27= Arab African 43,403,212.63 347,225,701.00 1 0.6 International Bank 10 Commercial Real Estate Kuwait 155,000,000

31= Ahli United Bank 25,000,000.00 125,000,000.00 1 0.4 11 Port & Free Zone World UAE 150,027,000 31= Liquidity 25,000,000.00 125,000,000.00 1 0.4 Management 12 Burgan Co for Well Drilling Kuwait 125,000,000 House for Trading & Maintenance Investment 13 Boyner Holding Turkey 40,000,000 31= Gatehouse Bank 25,000,000.00 125,000,000.00 1 0.4

SUKUK BY COUNTRY(12 Months) SEP 2008 – SEP 2009 LOANS BY COUNTRY(12 Months) SEP 2008 – SEP 2009

Country Volume Issued Volume Outstanding Country Volume (US$) Market Share(%) Malaysia 31,581,480,155 20,125,650,898

Indonesia 4,279,926,936 1,244,773,854 UAE 3,651,252,701 53.5 Eurobond 2,150,000,000 2,150,000,000 US 2,150,000,000 2,150,000,000 Saudi Arabia 2,278,000,000 33.4 Saudi Arabia 2,073,188,667 2,073,188,667 Bahrain 300,000,000 4.4 Pakistan 440,994,225 440,994,225

Bahrain 251,750,301 60,718,197 Kuwait 280,000,000 4.1 Singapore 67,944,014 67,944,014 Qatar 275,000,000 4.0 Cayman Islands - - UAE - - Jersey - - LOANS BY INDUSTRY(12 Months) SEP 2008 – SEP 2009

SUKUK BY INDUSTRY(12 Months) SEP 2008 – SEP 2009 Industry Volume (US$) Market Share(%)

Industry Volume Issued Volume Outstanding Utilities 3,277,000,000 48.0 Sovereign 21,320,185,739 10,387,870,575

Other ﬁ nancial 11,908,588,304 10,397,025,073 Financial services 827,000,000 12.1

Agency 2,605,826,824 2,549,040,907 Telecommunications 775,000,000 11.4 Electric power 1,985,214,278 1,959,660,615

Manufacturing 1,604,021,923 582,941,693 Government 635,000,000 9.3

Transportation 1,379,309,135 1,231,683,481 Real estate 430,000,000 6.3 Service company 835,393,196 626,246,452

Energy company 761,654,670 138,214,671 Retail and supermarkets 387,225,701 5.7

Banks 350,133,384 350,133,384 Oil and gas 343,000,000 5.0 Consumer goods 164,604,772 90,783,080

Gas distribution 80,352,073 - Business services 150,027,000 2.2

GLOBAL ISLAMIC VOLUME SUKUK/LOANS (US$ IN MILLIONS)

18,000

16,000 Sukuk 14,000 Loan

12,000

10,000

8,000

6,000

4,000

2,000

0 1Q - '07 2Q - '073Q - '07 4Q - '07 1Q - '08 2Q - '08 3Q - '084Q - '08 1Q - '09 2Q - '09 3Q - '09 TD

For more information please contact: Aimee Webster Telephone: +1-646-223-6816 Email: [email protected]

Islamic Finance news team EVENTS DIARY 2009 Published By: 21/F, Menara Park, 12, Jalan Yap Kwan Seng 50450 Kuala Lumpur, Malaysia Tel: +603 2162 7800 Fax: +603 2162 7810 DATE EVENT VENUE ORGANIZER EDITORIAL TEAM Managing Editor S.Sivaselvam October [email protected] Editor Raphael Wong [email protected] 12th – 13th 5th Middle East Insurance Forum Bahrain MEGA Events Senior Copy Mary Zachariah Editor Mary.Zachariah@ REDmoneyGroup.com Copy Editor Sasikala Thiagaraja 12th – 15th Funds World Turkey 2009 Istanbul Terrapinn [email protected] Writer Lai Pei Yee [email protected] th th 13 – 14 Opportunities and Challenges in the World of UK ISFINCO Staff Writer Nazneen Abdul Halim Islamic Finance [email protected] Senior Jennifer Jacobs th 20 Brunei IFN Roadshow Brunei Islamic Finance Correspondent [email protected] events Correspondents Kamal Bairamov, Shirene Shan Features Editor Shabnam Mokhtar November [email protected] Forum Editor Christina Morgan [email protected] 2nd – 3rd Private Client Middle East Dubai IIR Publishing Melisa Idris Manager [email protected] Production Hasnani Aspari Manager [email protected] 2nd – 3rd Private Client Symposium Middle East Dubai IBC Production Muhammad Najib Abdul Rahim Executives [email protected]

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© Page 38 2nd October 2009 Company Index Company Page Company Page Company Page Company Page AAOIFI 10, 17, 19 CBB 6, 7 KFH 7, 11 RHB Bank 8 ABN AMRO Bank 25 Central Bank of Algeria 3 LA Investments 7 RHB Islamic Bank 8 Afﬁ n Bank 8 CIMB Investment Bank 26 LTH 5 S&P 5, 9 Afﬁ n Islamic Bank 8 DFG 5 Macquarie Group 27 Saad Financial Advisory Services 7 Agha & Shamsi 17, 23 DFSA 7 MARC 8 Saad Group 7 Ahli United Bank 9 DIFC 7, 17 Maybank Investment Bank 26 SABB Takaful 27 Al Baraka Bank 3 DLA Piper 17 Maybank Islamic 26 Saudi Hollandi Bank 25 Al Baraka Banking Group 3 Dubai Commodity Assets Management Group 7 MCCA 3 Saudi Hollandi Capital 25 Al Baraka Islamic Bank of Bahrain 11 Dubai Gold Securities 7 MIDF Amanah Investment Bank 12, 21 SC 4 Allied Media Corporation 14 Dubai Group 5 MM Vitaoils 8 SHAPE ─ Financial Corp 21 AmanahRaya Trustees 26 Durham University 21 Mohamed Ridza & Co 21 Sharing Risk dot Org 24 AMF 11 ECB 11 Moody’s 9 Shearn Delamore & Co 26 AmInvestment Bank Group 13 European Central Bank 6 Nakheel 27 SIB 7 AmIslamic Bank 27 Fitch 9 National Association of Realtors 16 Sime Darby 4, 8 Aref Investment Group 7 HKMA 4 NBK 6, 9 Skrine 22 Bank Islam Malaysia 5, 13, 26 HS Dent Financial Advisors Network 14 Norton Rose 11 Sorouh 27 Bank of France 6 HSBC 27 Paris Europlace 11 State Street MENA 24 Banque Al Baraka D’ Algerie 3 IFSB 5 Partnerships Consulting 21 Syarikat Prasarana Negara 26 BIMB Holdings 5 IIRA 9 Pew Research 15 Takaful Ikhlas 27 BLME 12, 22 IMF 5, 10 Philips Electronics 25 TrulyInterestFree.com 16 BMB Group 7 Investcorp Bank 9 Pillsbury 17 UM Financial Canada 24 BMB Islamic 7 Investment Dar 9 PLUS 8 US Census Bureau 15 BNM 4, 26 Japan Bank for International Cooperation 13 QFCA 11 Vinson & Elkins 23 BNP Paribas 27 JIB 9 QIB 11 Wethaq Takaful Insurance 9 CAAM 6 JP Morgan 22 RAM 8 Zogby International 15 Calyon 24 JW Thompson 14 Rasmala 27 Capital Intelligence 8 KESAS 8 RBS 27

Country Index Country Title Page Country Title Page Country Title Page Algeria Good performer 3 Global Forum — Some argue that numerous products Malaysia ‘AAA’ for PLUS’s Sukuk 8 America Country Report — Unique American approach to available in the Islamic space are cloaked as being Outlook turns negative 8 interest free fi nancing 14 Shariah compliant. Should the industry demand Asset quality improves 8 Australia Second fund from MCCA 3 Shariah-based products? Discuss 21 Strong profi tability 8 Bahrain Wooing the Japanese 6 Special Report 12 Sime debt papers stable 8 Oversubscribed by 100% 7 Indonesia Exercising caution 4 Positive developments 8 Billions for charity 7 Jordan Strong liquidity 9 Termsheet — Syarikat Prasarana Negara’s Islamic Grade cut for Investcorp 9 Kuwait Third fund on offer 6 Medium Term Notes 26 Optimal mix capital 9 KFH defers Aref debt 7 Saudi Arabia Saudi outlook stable 9 France “Resolve issues fi rst” 6 Well above average 9 Meet The Head — Dr Bernd van Linder 25 First Shariah Sicav 6 Takaful term downgraded 9 South Africa Al Baraka goes to Berea 3 IFN Report — Minor ‘hiccup’ 11 Malaysia Towards a common goal 4 UAE Demand for gold continues 7 Global IFN Reports —Wanted: ‘Transnational’ Body Legal Shariah bridge 4 Sharjah goes online 7 10 Two Sime Darby IMTN 4 License surrender 7 Focus — Product innovation: derivatives and hedge Standardize or else… 5 Interview — Taking the road less travelled 17 funds 19 DFG rejects offer 5

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