HSBC: Good Move Or Bad?

The World’s Global Islamic Finance News Provider 17th October 2012

RED (All Cap) 950 HSBC: Good move or bad? The recent announcement by HSBC Major player 925 to rein back its retail Islamic banking HSBC is one of the biggest fi nancial business has been received with mixed institutions in the world. Its parent 900 feelings. A pioneer in Islamic fi nance 885.25 0.5% company, HSBC Holdings, has around among conventional global banks, HSBC 7,000 offi ces in over 80 countries across has a strong record in the industry and 875 Europe, Asia Pacifi c, the Americas, the 880.23 HSBC Amanah, its retail branch, is one Middle East and North Africa (MENA); of the most recognizeable Islamic retail with assets of US$2.65 trillion as at the 30th 850 brands. So what led to this decision — and W T F S S M T June 2012. HSBC Bank, which covers the what does it suggest for the future? We Powered by: IdealRatings® UK, serves over 16.1 million customers and take a look at whether the bank’s glass is employs over 50,000 people. HSBC Middle Volume 9 Issue 41 half full… or half empty. East, the largest international banking organization across the MENA region, IFN Rapids ...... 2 On the 4th October HSBC Group announced Islamic Finance news ...... 6 operates in 14 countries through 273 offi ces that eff ective immediately, it would close with around 12,000 employees, and in IFN Reports: The measure of Islamic markets; its Islamic retail operations in the UK, Saudi’s Al Rajhi Bank posts negative surprise; 2011 recorded a pre-tax profi t of US$1.49 UAE, Bahrain, Bangladesh, Singapore and BIMB Holdings to pay US$324.78 million for billion. The bank has a 40% share in Saudi stake in Bank Islam Malaysia? ...... 10 Mauritius; and focus its eff orts solely on British Bank (through which its Islamic Malaysia and Saudi Arabia with a limited IFN Correspondents: Afghanistan; Czech retail products in Saudi Arabia will now Republic; Singapore ...... 13 presence in Indonesia. Wholesale Islamic be distributed) and a 49% share in HSBC Column: Daud speaks ...... 15 fi nancing, investments and Sukuk would Saudi Arabia (which handles its investment continue to be off ered to its global client Insider: banking activities in the kingdom); as Great Eastern Takaful remains on course amid base through HSBC Saudi Arabia. well as a majority share in Dar Es Salaam leadership change ...... 16 Investment Bank. Case study: Restructuring Bahrain Mumtalakat Holding Company’s The move is touted as the next step in the HSBC launched its global Islamic fi nancial US$98.08 million Sukuk Murabahah ...... 17 global restructuring strategy launched by services business in 1998, and HSBC Features: Stuart Gulliver, group CEO, in May 2011; Amanah has subsequently grown to be one Hukum Syara’ in Islamic banking and fi nance in which plans to cut up to US$3.5 billion continued on page 3 Brunei: Practical legal issues – Part one ...... 18 in costs and around 30,000 jobs by 2014. Using derivatives in Islamic fi nance...... 20 According to Gulliver, HSBC possessed Standardized documentation for Islamic insuffi cient scale in 39 retail markets Thinking outside the box derivative instruments ...... 21 covering 420 branches, resulting in a total pre-tax loss of US$244 million in 2010. Editor’s Note Islamic Investor The strategy has since seen the bank exit Low cost yet still unpopular ...... 23 40 business lines including insurance and Thanks to rapid growth and partly Market Commentary ...... 24 retail lines in the US, Thailand and South due to events in the global fi nancial Funds Data ...... 25 Korea; as well as banking operations in landscape, the Islamic fi nance industry Pakistan. has had to increasingly think outside the Takaful News box in order to progress beyond what it Tackling funds ...... 27 But while in some quarters the radical has already achieved. This could involve News ...... 28 decision has been met with praise for its innovating new products, accessing Feature: realistic stance, others have expressed funds from previously untapped markets Takaful in Kenya: Product innovation and concern at the wider implications such a or, like HSBC as highlighted in our cover profi tability ...... 29 high-profi le step could have for the future story this week, re-thinking unprofi table of the Islamic fi nance industry. So what business lines in favor of more promising Meet the Head: Khaldoun Malkawi, ...... drove the decision, and what can we expect prospects continued on page 5 chairman & CEO, Al Sanabel International now? Holding ...... 31 Deal Tracker ...... 32 REDmoney Indexes ...... 33 Performance League Tables ...... 35 Events Diary...... 39 Company Index ...... 40 Subscription Form ...... 40 www.islamicfi nancenews.com IFN RAPIDS

gold trading fi rms utilizing IDB signs MoU with World says Bahrain Insurance DEALS Shariah structure of Al-Bai Bank to collaborate in Islamic Association fi nance IDB approves US$170 million ICD fi nalizing establishment Takaful and insurance in fi nancing package for Iran of Ijarah leasing company in SHUAA Capital to launch the MENA region could see National Bank of Egypt Kazakhstan Islamic banking operations in slower growth ahead, says early 2013 AM Best considers Sukuk issuance Meezan Bank announces 16% MNRB Holdings to establish year-on-year growth in nine- National Bank of Kuwait Government-backed Takaful US$49 million Sukuk program month profi t announces US$384.6 million protection for Malaysian in third quarter net profi t paddy farmers Bahrain Mumtalakat Burj Bank reports US$1.54 Holding Company issues million in fi rst half pre-tax Central Bank of Oman US$98.12 million Sukuk in profi t fi nalizes Islamic banking RATINGS regulatory framework Malaysia Malaysian Muslim RAM reaffi rms ratings on Banque Saudi Fransi receives Consumers Association Barwa Bank bundles fi nancial Mukah Power Generation’s central bank approval for calls for leniency towards package for SMEs US$216.48 million Sukuk homebuyers program US$666.61 million Sukuk Al Rajhi Bank reports dip in QIIB issues US$700 million Gatehouse Bank advises profi ts as other banks record RAM reaffi rms ratings on Sukuk at a profi t rate of 2.69% on US$264.31 million central growth Besraya’s US$227.4 million London property Sukuk Shareholders approve IDB privately places fi ve-year, acquisition US$500 million Sukuk BankDhofar’s Islamic IIRA reaffi rms ratings on Islamic fi nance makes its way banking window plan Bahrain Islamic Bank International Islamic Trade onto the football pitch Finance Corporation channels Limitless to repay US$1.2 US$330 million in fi nancing to Authority proposes to block billion Islamic facility by 2016 Islamic fi nance windows government QIB launches three-year MOVES operating in QFC Australia’s Solar Guys investment product linked to JPMorgan Chase & Co announces Sukuk plan Crescent Wealth and BLME Islamic banking stocks appoints Ahmed Saeed as tie up for Sukuk investing head of Middle East division portfolio TAKAFUL BankDhofar appoints Dubai Bank and Emirates members to Shariah NEWS ING Groep to dispose of Islamic Bank launch Indian supervisory board Malaysian insurance business Barclays Bank Egypt mulls rupee remitt ance campaign over introduction of Islamic to AIA Group EFG Hermes and QInvest to products Low Family Takaful complete merger by the end penetration in the kingdom, Malaysian authorities probe of 2012

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HSBC: Good move or bad? CLOSING BELL Continued from page 1 BNM to issue Sukuk of the most recognized global brands in HSBC saw 2011 pre-tax profi t of US$259 MALAYSIA: Bank Negara Malaysia Shariah compliant banking; pioneering million with US$6 million coming from (BNM), the central bank, will issue two the sector among conventional retail banking. Given that the Islamic Sukuk of RM1 billion (US$326.4 million) international banks and claiming to be: retail market in the country is less each maturing in January and March “The largest and most comprehensive developed than in the other two markets 2013. Islamic proposition of any international and accounts for only around 3% of the bank.” In combination with its market- total banking market, this suggests an leading activities in Islamic wholesale Islamic banking profi t of just US$180,000 Authority backs merger banking and Sukuk issuance, Shariah for the bank. EGYPT: The Egyptian Financial compliant retail banking has been a Supervisory Authority has ratifi ed EFG fl agship for the brand for the last decade Hermes’ EGM, held on the 16th September — so why the sudden exit? In its other 2012, at which its shareholders approved its merger with QInvest. The backing All about profits Islamic retail provides a boost to the completion of the Patrick Humphris, the head of corporate transaction, which is expected to close by media relations at HSBC Holdings, markets the group the end of December this year. told Islamic Finance news that the bank was scaling back its retail Islamic saw around US$11 Masraf Al Rayan reports business because: “We cannot continue profit to support areas which are sub-scale, million in profit — or where returns are not acceptable.” QATAR: Masraf Al Rayan has announced HSBC Holdings does not separately just 0.2% of its total a net profi t of QAR354.8 million report results from HSBC Amanah, (US$97.45 million) for the third quarter of reporting instead by geographic region global retail 2012, 10.5% higher than a year earlier. and industry sector, so comprehensive fi nancial results from its Islamic business banking profit are not available. Moving on However HSBC Amanah Malaysia, one Its recent announcement confi rmed that of its biggest markets, reported pre-tax even aft er the cuts, the HSBC group profi t in 2011 of RM97.7 million (US$31.9 expected to retain 83% of its Islamic million) and fi rst half profi t in 2012 of banking business. With total Islamic RM28.9 million (US$9.4 million), up banking profi ts in 2011 from its three 23% from the same period last year. In remaining markets estimated by Islamic comparison, the bank’s total profi t from Finance news to be around US$53.7 Malaysia in 2011 was US$529 million million, this means that in its other with US$173 million deriving from retail Islamic retail markets the group saw banking, meaning that Islamic banking around US$11 million in profi t — just contributed around 20% to total retail 0.2% of its total global retail banking banking profi ts – roughly similar to the profi t of US$4.27 billion and 0.05% of Scholarships available for the overall estimated Islamic market share in the group’s total 2011 profi t of US$21.9 CIFP & MIF programmes Jan 2013 Intake the country of 23%. billion. This is lower than the retail INCEIF banking profi t in any of HSBC’s 80 scholarships to outstanding individuals to study the Chartered In its other key Islamic retail market, Islamic Finance Professional (CIFP) programme and Masters in markets worldwide apart from Turkey, Islamic Finance (MIF) as full-time students at our campus. HSBC saw a total profi t of US$361 Qatar and Indonesia. million from Saudi Arabia with US$57 Applicants will be assessed based on academic excellence and working experience. million from retail banking. With an Small wonder then, perhaps, that estimated 38% share of Both the CIFP and MIF equip students with in-depth knowledge, according to Humphris: “We will be analytical tools and strategic perspectives to fast-track their careers the total banking focusing our activities in Islamic fi nance practitioners or other related industry professionals. market, this in areas where we have suffi ciently large indicates Islamic business and scale; and where the returns Complete application with the relevant supporting documents must be submitted through our website for both programmes. banking profi ts and future prospects are strong.” for HSBC in For more information visit www.inceif.org or contact Saudi Arabia Mulyadi Harun, tel +603 7651 4000, email [email protected] of around Industry implications US$21.6 million. However, the concern lies in whether In Indonesia, this should be seen as a specifi c blow for where it plans the Islamic fi nance industry. Timucin to retain Engin, an associate director for Central & Eastern Europe, the Middle East and KPT/JPS (A8254) 06/12 a limited KPT/JPS (A8831) 02/13 presence, continued...

HSBC: Good move or bad? Continued from page 3

Africa with Standard & Poor’s, thinks window— then the majority of people in retail products and less of a competitive not: “I don’t think it will necessarily have the markets who don’t have an exclusive advantage for conventional products.” a meaningful impact. The outlook for Islamic banking system are going to the Islamic banking sector in the Middle compare what you off er to that of your Engin agrees: “Although HSBC is an East remains strong and Islamic banks conventional side. They will compare important bank in the Gulf region, its in the region, particularly in Qatar, are products, and it is going to come down to Islamic retail business outside Saudi continuing to grow at a fast pace. This a price comparison for the individual.” Arabia is not necessarily very large development seems to be bank specifi c — relative to the overall size of the market.” not due to market factors.” Play to your strengths “In fact,” says Jawad, “the success Capital focus Megat Shah, the senior executive of Islamic retail banking was never In contrast, HSBC is the market leader in director of assurance at Ernst & Young a foregone conclusion.” There is a Sukuk issuance; with twice the issuance in Malaysia, agrees: “Despite industry growing realization in the industry that volume of its nearest competitor, observers commenting on issues just because a country has a Muslim Maybank. According to Dealogic, HSBC surrounding the lack of scale and population — even a Muslim majority arranged 28 Sukuk issuances worth increasing costs (and therefore lack of population — does not necessarily mean US$10.12 billion over the last year, and profi tability) associated with Islamic that these people will voluntarily choose is the top manager of Sukuk for 2012; banking, the growth in Islamic banking Islamic banking if it does not meet their while its subsidiary Saudi British Bank assets are certainly one of the highest needs or off er a price advantage. arranged six Islamic fi nancing facilities within the fi nancial services industry valued at US$1.68 billion. over the past few years, and are expected to continue to grow at similar rates over It looks, therefore, as if the bank has at least the medium-term.” People have been simply decided to play to its strengths and focus on the areas where it makes Value proposition leaving HSBC the most money. Tim Doyne, the head of He suggests that while HSBC may not Amanah and moving regional communications Middle East at have been successful, this is no reason to HSBC, confi rmed exclusively to Islamic suggest that other banks could not take to other jobs, as it Finance news that: “Capital market advantage of the strong growth prospects activities: sales and trading of Sukuk will in the sector. “I believe this in itself is a became increasingly continue in Dubai and London (as well as strong value proposition for the local and Saudi Arabia and Malaysia). Origination international fi nancial institutions alike clear which way the and structuring of capital markets to enter or remain in the Islamic banking instruments will be handled from Saudi market. Beyond this, there is a need for wind was Arabia and Malaysia, as will Islamic large institutions and Islamic banking products that require Shariah oversight to co-exist, i.e. greater participation by blowing for execution and documentation, such the international players within Islamic as profi t rate swaps, Murabahas, and banking means greater branding and Waads.” So we should hopefully expect therefore growth within the overall “The strength of Islamic fi nance is on a continued strong performance from the Islamic banking sector.” the wholesale and investment side,” group in the capital markets. suggests Jawad. “What HSBC seems to With HSBC having exited around 20 have done is to try and double up on its Cash flow crisis? markets already in its retrenchment strengths. I would suggest that they have However, some market players have exercise however, this is not looking looked at the performance of their retail expressed concern that the cuts in its retail promising. It also suggests that in the banking operations in these countries Islamic business could have implications Islamic retail market, local regional for the past three or six years, examined for its investment banking business. In banks may be winning the batt le against their own record in these jurisdictions, many markets the retail side typically international windows in terms of and found that off ering retail Islamic provides an easy cash fl ow for investment competitiveness. banking products and services projects and capital funding. Could the in these particular countries is loss of retail fl ow aff ect HSBC’s capital Jawad Ali, the managing not profi table and they are not markets activity? Jawad thinks not. “If partner of King & Spalding reaping the returns they thought HSBC had a reliable fl ow of funds coming Middle East and the global they would reap; and so they from Shariah compliant depositors deputy head of the fi rm’s now plan to focus their eff orts in accounts that it could use to underwrite Islamic fi nance practice based jurisdictions where there is depth transactions, then that would be one in Dubai, explains that: “If you in the Muslim population thing. But I don’t think that the threshold are going to compete in and where the laws of of its Islamic deposits has reached a level the market and you are the land provide for where it has rendered HSBC dependent a fi nancial institution Islamic banking and on that source of funding to fi nance its like HSBC — not a full there is more of a level debt capital markets activities.” Islamic bank, but just a playing fi eld for Islamic continued...

HSBC: Good move or bad? Continued from page 4

Internal concerns Jawad is optimistic. “They have chosen fi nance market and the players in that Nevertheless, some fears remain for the three jurisdictions to focus on, and their market are maturing. Now, rather than future of the group’s Islamic fi nance coverage in these jurisdictions will need indiscriminately going around the world business; in particular with regards to its additional staff if it is to grow. So my and entering markets just because there human capital. HSBC is well known for hope is that the talent in their Islamic are Muslims in those countries, people its high quality and large team of Islamic banking team will not be wasted — I have suffi cient data and a suffi cient track fi nance experts. With the new cutbacks, would hope they are looking at this as a record that they can choose to focus will they be able to aff ord to maintain the reallocation of resources, rather than a on certain jurisdictions to take their current headcount? shrinking of their off ering.” operations there from one level to the next. They are not afraid to recognize Although the group has made no How full is the glass? that they have not done well in one offi cial statement regarding any job So is the move by HSBC a good thing jurisdiction and to identify the ones cuts associating with the reduction of or a bad thing? Well it all depends on where they can do bett er.” its Islamic banking division, Doyne told your point of view. Any institution Islamic Finance news that: “There is a that pulls out of a sector or jurisdiction Growing up small central Amanah team which will citing sub-scale performance is sending If the recent decision by HSBC is a be aff ected, which is located in Dubai.” a clear message to the market that this sign that the Islamic fi nance industry When asked whether this would aff ect has not been a successful endeavor, and is maturing to the point where it can any senior executive management HSBC this will inevitably refl ect on its overall discriminate between profi table markets refused to comment. However, one UAE- reputation. Looking at the glass as half and non-profi table ones, then that is a based banker commented that: “People empty; the bank has made a strong glass half full indeed. Perhaps in the have been leaving HSBC Amanah and statement that Islamic retail banking future the retail sector will develop to a moving to other jobs, as it became in these regions is not worthwhile. point where all Muslim markets provide increasingly clear which way the wind Megat comments that: “It is sad to hear real opportunity (see cover story next week was blowing.” of HSBC’s decision to close down its on the future of Islamic retail banking). Islamic retail banking business ... this is It would be a great shame if the defi nitely a step back for the industry as For now, however, it looks like rather streamlining of its Islamic operations a whole.” than taking a step back in Islamic fi nance, resulted in a negative impact for HSBC’s HSBC may instead have taken a brave overall Islamic operations — and for However, there is another view to take. step forward. — LM its reputation in the market. However, Jawad points out that: “The Islamic Thinking outside the box

Editor’s Note accomplish further growth, our industry @ James Chiew of law fi rm Abrahams, Thanks to rapid growth and partly has of late also had to take into account Davidson & Co writes the fi rst in a due to events in the global fi nancial the impact of new developments, such as three-part series on Islamic fi nance in landscape, the Islamic fi nance industry the introduction of the Tahawwut Master Brunei; and Abass Mohamed of Takaful has had to increasingly think outside Agreement and the Mubadalatul Arbaah Insurance of Africa contributes our the box in order to progress beyond frameworks, which as Fara Mohammad, Takaful feature on Takaful in Kenya. what it has already achieved. a senior lawyer and Islamic fi nance consultant, suggests in her contribution, Our IFN Reports cover the performance This could involve innovating new could take Islamic fi nancial institutions of Shariah compliance stocks and the products, accessing funds from some time to integrate into their systems. clash of Shariah compliance in Malaysia previously untapped markets or, like and the Middle East; and our IFN HSBC as highlighted in our cover story Another issue which our industry Correspondents write on developments this week, re-thinking unprofi table struggles with is the use of derivatives, in Afghanistan, Singapore and the business lines in favor of more leading to the continued search for Czech Republic. promising prospects. As our cover alternatives; and this week, Salman story notes, HSBC’s move should not Ahmed Shaikh of Pakistan’s Institute Meet the Head profi les Khaldoun necessarily be seen as a bad one, but of Business Administration, shares his Malkawi, the chairman and CEO of possibly as an example of how best to thoughts on a possible replacement for Al Sanabel International Holding; and manage Islamic fi nance as a business. the oft -debated instruments. our Case Study highlights Bahrain Mumtalakat Holding Company’s In addition to considering how to Meanwhile Muhd Jamil Abas Abdul ‘Ali US$98.08 million Sukuk issuance.

Saudi bank in Sukuk plan Solar Guys could help shed DEALS SAUDI ARABIA: Banque Saudi Fransi light into Australian Sukuk IDB funds Iran projects has received approval from the Saudi market Arabian Monetary Agency to issue up to IRAN: The IDB will provide a US$170 SAR2.5 billion (US$666.61 million)-worth AUSTRALIA: Local solar power fi rm million fi nancing package to fund the of Sukuk with a maximum tenor of fi ve Solar Guys has announced plans to issue establishment of four water treatment years to increase its capital and fund its a Sukuk to fi nance the development of plants in the country. fi nancing activities. a solar energy plant in Indonesia; in a funding plan that could help lead the Sukuk in the works? way in a country where Islamic bond QIIB sells Sukuk issuances have yet to see the light of day. EGYPT: National Bank of Egypt is QATAR: Qatar international Islamic reportedly considering the issuance of a Bank (QIIB) has issued a US$700 million, The plan is led by Mitabu Australia, Sukuk and could hold non-deal investor fi ve-year Sukuk at a profi t rate of 2.69%. which develops fi nancing options to fund meetings in Asia in the third week of energy infrastructure projects using solar October, said Tarek Amer, its chairman. The sale was oversubscribed more power technology; and will manage the than seven times, with its orderbook funding of the Indonesian project. Sukuk in the pipeline surpassing US$5 billion. MALAYSIA: MNRB Holdings has The Sukuk is expected to see investments proposed to establish a fi ve-year Sukuk HSBC, QNB Capital and Standard from Malaysia and the Middle East. Mudarabah program worth up to RM150 Chartered Bank were joint lead managers million (US$49 million) to refi nance a and joint bookrunners for the sale, while The Indonesian solar energy project, RM120 million (US$39.17 million) short- Qatar Islamic Bank and CIMB Investment which targets the provision of one solar term revolving credit facility due on the Bank acted as co-managers. watt per person in the country, is part 10th December 2012. of an agreement with the Indonesian IDB issues Sukuk government for Solar Guys to build solar The remainder of the funds raised will be power plants in Indonesia. GLOBAL: The IDB has privately placed put towards its working capital. a US$500 million Sukuk maturing in Solar Guys will act as the engineering, 2017 pursuant to its US$6.5 billion Sukuk The reinsurer and re-Takaful operator procurement and construction fi rm for program. also announced that it has secured the project. a RM200 million (US$65.28 million) The papers were priced at 30 basis points revolving credit facility from Standard Although an as yet untested market, over three-month Libor, in a transaction Chartered Saadiq. Islamic bonds have gradually gained arranged by CréditAgricole. awareness in Australia, with local fund Mumtalakat issues Sukuk manager Crescent Wealth recently ITFC funds for Egypt tying up with the Bank of London and GLOBAL: Bahrain Mumtalakat Holding EGYPT: The International Islamic Trade The Middle East to provide investors Company issued a RM300 million Finance Corporation (ITFC), a unit of exposure to Sukuk via a Sukuk (US$98.12 million) Sukuk on the 4th the IDB, will provide US$330 million in investment portfolio. Australian laws are October 2012, as the fi rst series of its fi nancing to the Egyptian government also said to be already conducive for the RM3 billion (US$981.22 million) Sukuk to fund imports of wheat and food issuance of Sukuk. Murabahah program. commodities. Solar Guys’ plan could also pip National In an announcement on the Malaysian The government will pay a profi t rate Australia Bank’s (NAB) earlier speculated central bank’s website, Standard of 3% for the fi nancing, which will also Sukuk sale as the maiden Islamic bond Chartered Saadiq, which was the lead be contributed by Arab Investment issuance by an Australian fi rm. Reported arranger, principal advisor and lead Bank, Bangladesh, Faisal Islamic Bank, in April this year, NAB is said to have manager of the deal, said that the fi ve- Jordan Islamic Bank, National Bank for been in talks for a possible Sukuk year notes will pay a profi t rate of 5.5%. Development and United Bank. sale, with further details on the plan’s CIMB Investment Bank was also a lead development remaining scarce. manager on the transaction.

DEAL TRACKER Full Deal Tracker on page 32 Are you reading ISSUING DATE ISSUER SIZE (US$) CURRENCY ANNOUNCED us on your MNRB Holding RM 49.17 million 5th October 2012 Banque Saudi Fransi SAR 666.6 million 4th October 2012 iPad / Edaran SWM RM 327.8 million 4th October 2012 iPhone? International Islamic Liquidity US$ 200 to 500 4th October 2012 Management Corporation million Turkish Airlines TBA TBA 4th October 2012

Kazakhstan to also see the set-up of a Authority proposes to block AFRICA Takaful company and its second Islamic Islamic finance windows bank, Fatt ah Finance, in the near future. Barclays Egypt going Islamic? operating in QFC EGYPT: Barclays Bank Egypt is said to be Solid growth for Meezan QATAR: The Qatar Financial Center mulling over the introduction of Islamic (QFC) Regulatory Authority has released PAKISTAN: Meezan Bank has banking products in the country to a consultation paper seeking feedback on announced a 16% year-on-year growth follow on from the progress of its Islamic its proposal to prohibit Islamic fi nance in net profi t to PKR2.66 billion (US$27.85 business in South Africa, off ered via its activities carried out through windows in million) for the nine months to the 30th Absa unit, according to Sherif Elbehery, the QFC. its director of strategy, planning, September 2012, while total assets rose 19% to PKR239 billion (US$2.5 billion). marketing and corporate aff airs. The plan follows the Qatar Central Bank’s ban on Islamic banking operations by con- Burj Bank posts profits ventional banks implemented last year. PAKISTAN: Burj Bank has reported a ASIA pre-tax profi t of PKR147 million (US$1.54 “The regulatory authority is proposing to Gold trading probed million) for the fi rst half of 2012. make changes to its rules to remove the MALAYSIA: Four local gold trading ability for authorized fi rms to commingle companies which use the Shariah Leniency urged both conventional and Islamic regulated structure of Al-Bai, or sale and activities that it directly conducts under MALAYSIA: The Malaysian Muslim Shariah. These changes would require purchase, have been accused of fi nancial Consumers Association has called on wrongdoing by the central bank, the fi rms to operate as either a conventional Islamic banks to stop demanding high fi nance or Islamic fi nance fi rm,” it said in att orney general’s chambers and the payments from buyers of housing left Royal Malaysian Police. a statement. The proposal also extends abandoned by developers. to Takaful and other Islamic fi nance The companies, Caesar Gold, Genneva business windows in the QFC, although Malaysia, Pageantry Gold and there are currently no such activities Worldwide Far East, possessed assets EUROPE undertaken in the center. that did not match amounts collected Gatehouse advises property from their investors, said the authorities Its consultation paper noted that Islamic aft er conducting a probe into their buy fi nance has continued to expand in Qatar, the GCC and globally over the activities. UK: Gatehouse Bank has acted as the last few years. “However, there has been investment and Shariah advisor for a continuing debate around the regulatory They also said that the schemes operated GBP165 million (US$264.31 million) framework for Islamic fi nancial by the companies are believed to be acquisition of a property in central institutions and its relationship to the unsustainable to provide the promised London for an undisclosed entity from regulatory framework for conventional high monthly returns, with the Malaysia. companies also unable to provide their fi nancial institutions, particularly with regard to allowing conventional fi nancial buy back guarantee on the gold. The property comprises offi ce, retail and institutions to operate Islamic branches residential space and houses the offi ces and Islamic windows,” it added. Investigations into the companies of law fi rm SJ Berwin. followed a raid on their businesses by the authorities on the 2nd October this year. The authority also disclosed that it re- Islamic finance makes its way cently reviewed its approach to the regu- onto the football pitch lation of Islamic windows, focusing on the Ijarah company in regulatory approach to Islamic windows UK: From news of GFH Capital’s planned internationally and the existing levels of Kazakhstan takeover of Leeds United Football Club Islamic window businesses in the QFC. KAZAKHSTAN: The Islamic (LUFC) to Muslim footballers taking Corporation for the Development of the a stand against sponsorship by Riba- While noting that there are advantages Private Sector (ICD), a unit of the IDB, related companies, Islamic fi nance has, and disadvantages to the window model, is in the midst of establishing an Ijarah of late, been cast in the spotlight of the it ultimately found that there were leasing company in the country with a ‘beautiful game’. consortium of foreign and local investors. “signifi cant challenges” in regulating and supervising banks which carry It has been speculated that Demba out conventional and Islamic banking; According to Khaled Al-Aboodi, CEO Ba, Papiss Cisse, Cheick Tiote and current limited business conducted of the ICD, the company, which will Hatem Ben Arfa, all Muslim players for through Islamic windows in the QFC; have an initial capital of US$35 million, Newcastle United Football Club (NUFC), and opportunities for regulatory will support the growth of small and could choose not to don their side’s kit arbitrage in allowing Islamic windows to medium-sized enterprises in Kazakhstan. which is set to be fi tt ed with the logo continue in the QFC while they are not of the club’s new sponsor, short-term allowed elsewhere in Qatar. He also noted that the country and others money lender, Wonga. The sponsorship in the Commonwealth of Independent deal is seen to potentially put off the States (CIS) provide signifi cant The authority’s proposals are open for side’s Muslim players who may not th opportunities for Islamic fi nance, with public consult until the 12 November continued... 2012.

© 7 17th October 2012 NEWS continued... RATINGS want to be associated with non-Shariah Remitting rupees compliant practices. GLOBAL: Dubai Bank and Emirates Ratings reaffirmed Islamic Bank have launched a three- MALAYSIA: RAM has reaffi rmed its The possible boycott would not be the week Indian rupee remitt ance campaign, long-term rating for Mukah Power fi rst time Muslim players have spoken allowing customers to remit funds to Generation’s RM665 million (US$216.48 up for their religion. In 2006, Frédéric India at a reduced exchange rate and million) Senior Sukuk program at ‘AA3’; Kanouté, a Muslim who was playing for zero processing fees. with a stable outlook. Spanish team Sevilla Fútbol Club at the time, refused to wear his team’s shirt as it displayed the logo of a gambling website. Merger imminent Standing strong GLOBAL: The planned merger between MALAYSIA: RAM has reaffi rmed its NUFC’s sponsorship deal has also been Egypt’s EFG Hermes and Qatar-based long-term ratings on toll road operator slammed for promoting easy credit QInvest is expected to be completed Besraya’s RM700 million (US$227.4 at allegedly exorbitant interest rates, within the next two months, according million) at ‘AA3’ with a stable outlook. especially as Newcastle has been shown to Mona Zulfi car, the non-executive to have the highest personal insolvency chairperson of EFG Hermes. Good progress rate in the UK, at 35.2% for every 10,000 adults, according to data from R3, a trade QInvest, which will take up a 60% stake BAHRAIN: IIRA has reaffi rmed body for insolvency professionals. in the new entity, is also said to be laying its ratings on Bahrain Islamic Bank off employees from its asset management ‘BBB/A-2’ with a stable outlook. Meanwhile, in the latest development and brokerage businesses. of the GFH Capital-LUFC deal, the two parties have issued a joint statement Partnership for Islamic clarifying certain points of the finance transaction; noting that the investment Have you joined the fi rm has been in talks for the transaction GLOBAL: The IDB has signed an with Ken Bates, the football club’s owner MoU with the World Bank to establish leading Islamic finance and chairman, since June this year; and a framework to collaborate on the not with the Leeds United Supporters development of Islamic fi nance. Linked-In Group yet? Trust. The agreement covers knowledge- Salem Patel, a director and the chief sharing; the conceptualization of ideas investment offi cer at GFH Capital, also to foster the growth of Islamic fi nance; said that: “Both GFH Capital and the increasing research and awareness on current owners of LUFC are working risk management for Islamic fi nancial hard to ensure a swift conclusion to this institutions and capacity building in the deal as possible,” adding that the fi rm Shariah compliant fi nancial industry. will be engaging with LUFC supporter groups and their members as soon as it is able. All parties are currently restricted by a confi dentiality clause MIDDLE EAST from providing too many details on the SHUAA plans Islamic business transaction. UAE: SHUAA Capital has applied for GFH Capital has also brushed off an Islamic banking license and plans to speculation that it will have trouble launch the business in the fi rst quarter funding its potential takeover of LUFC of 2013, according to Sheikh Maktoum due its parent, Gulf Finance House’s, Hasher Al Maktoum, its executive fi nancial woes following the 2008 chairman. fi nancial crisis. He added that the bank will target Shariah compliant fi nancing for small GLOBAL and medium-sized enterprises. Sukuk for Australian NBK reports growth investors KUWAIT: National Bank of Kuwait Come and join (NBK), which owns 58.34% of Shariah GLOBAL: Australian wealth manager compliant Boubyan Bank, announced thousands of other Crescent Wealth has partnered with Bank a net profi t of US$384.6 million for the of London and The Middle East (BLME) like-minded industry third quarter ended the 30th September to provide investors of the Crescent 2012, compared to a net profi t of practitioners now. Islamic Cash Management Fund with US$280.7 million a year earlier. exposure to Sukuk investments through a portfolio managed by BLME. continued...

© 8 17th October 2012 NEWS continued... growth in net income to SAR840 million MOVES For the nine months to the 30th (US$223.97 million). September, its net profi t rose to US$814.4 JPMorgan Chase & Co million from US$802.4 million in the Nod for Islamic window GLOBAL: JPMorgan Chase & Co has th same period of 2011. As at the 30 OMAN: BankDhofar’s shareholders have appointed Ahmed Saeed as the head of September, its total assets amounted to approved the bank’s proposal to launch its Middle East business. US$58.1 billion. Islamic banking services via a window operation as well as the appointment of a Ahmad was previously the managing Meanwhile, Boubyan Bank reported a Shariah supervisory board. director of investment banking at net profi t of KWD7.6 million (US$27.04 Nomura Holdings (Dubai). million) for the nine months to the 30th September 2012, up 10.14% from a year Limitless extends repayment earlier. UAE: Property developer Limitless has BankDhofar concluded a deal with banks including OMAN: BankDhofar has appointed During the period, its net fi nancing The Royal Bank of Scotland and four scholars to its Shariah supervisory income rose 33% year-on-year to KWD 38 Pakistan’s United Bank to restructure a board: comprising Shaikh Dr Salim Ali million (US$135.21 million), while total US$1.2 billion Islamic fi nancing facility al Dhahab, Shaikh Dr Mohamed Ali al assets rose 21% from a year earlier to originally due in March 2010. Lawati, ShaikhHumoud Abdullah al KWD1.8 billion (US$6.4 billion) as at the Rashidi and Shaikh Ahmed Awadh Al end of September this year. Ali Rashid Lootah, the fi rm’s chairman, Hassaan. said that Limitless will repay the funding Framework finalized by 2016, without disclosing any further details on the restructuring. OMAN: The regulatory framework for Islamic banking in the sultanate has The fi rm has announced however that it been fi nalized, with amendments to its has serviced all profi t payments on the banking law now in progress, according facility since securing it in 2008. to Hamood Sangour Hashim Al Zadjali, the executive president of the Central Bank of Oman. New investment from QIB QATAR: Qatar Islamic Bank has Islamic suite for SMEs launched Masaref, a three-year capital- protected investment with exposure to QATAR: Barwa Bank has launched a basket of equities comprising the bank Qotof, comprising bundled fi nancial itself, Masraf Al Rayan, Al Rajhi Bank, products initially sold separately to Alinma Bank and Bank AlJazira. increase cost effi ciency of the fi nancing; targeted at small and medium-sized enterprises (SMEs).

Saudi banks report results SAUDI ARABIA: Banks in the kingdom Coming up... have reported a mixed set of results for th the third quarter of 2012, with Al Rajhi Volume 9 Issue 42 — 24 October 2012 Bank, one of the largest banks in the kingdom and its biggest Islamic bank, Meet the Head Too many pieces recording a 3.61% year-on-year dip in Mohamad Donia, CEO, IdealRatings net income to SAR1.87 billion (US$498.63 in the puzzle? million). Features Islamic leasing fi nance laws in Saudi Let IFN put it together for you..... The bank however recorded a 14% Arabia; By Ahmed Butt , Of Counsel, growth in operating income to SAR3.64 Simmons & Simmons Middle East. billion (US$970.59 million) and a 5.1% expansion in profi t from fi nancing Islamic fi nance wealth management and investments to SAR2.41 billion fi nancial planning; By Ali M Shervani, (US$642.62 million). CEO, Consigliori Consultants.

Meanwhile, other banks which have Islamic law of wills: An overview; By reported results for the period include Hamid Harasani, consultant to Taylor Arab National Bank (ANB) and Riyad Wessing, UK. SUBSCRIBE TO IFN TODAY Bank, which booked increases in proﬁ t driven by higher operating income. Takaful: An ethical dimension of risk www.IslamicFinanceNews.com ANB’s net proﬁ ts increased by 10.3% management; By Dr Syahida Abdullah, to SAR573 million (US$152.78 million), researcher at the International Shari’ah while Riyad Bank reported a 5.8% Research Academy for Islamic Finance.

The measure of Islamic markets Not just acronyms Islamic fi nance industry is on a roll this S&P Dow Jones Indices in its September year with Sukuk issuances soaring to report revealed that the Islamic index over US$68 billion, the highest ever in of Sri Lanka was not only the best- IBA the industry, and hopes of topping the performing Islamic index in Asia (in OCBC US$100 billion mark by year end. terms of percentage) but also the best- performing market in the Asia Pacifi c NCB Shariah compliant stocks globally have region, with the DJIM Sri Lanka Index also showed positive signs despite the closing 21.65% higher as at the 28th ADCB ongoing uncertainties in the Eurozone. September than the previous month, as According to report released by S&P well as outperforming its conventional INCEIF Dow Jones Indices on the 3rd October, counterpart (DJ Sri Lanka Total Stock the Dow Jones Islamic Market (DJIM) Market Index) by 4.52%. The poorest- DIFX Titans 100 Index, which measures the performing Islamic index in the Asian top 100 global Shariah compliant stocks, region was the DJIM Singapore Index, EFG fi nished up 2.76% in September; although with a mere 0.15% increase from the it underperformed its conventional previous month, and underperforming KFH counterpart, the Dow Jones Global Titans its conventional counterpart by 3.24%. 50 Index, which measures the world’s 50 QIB largest companies and registered a 2.95% During the presentation Tariq also gain over the same period. raised the issue of the Arab Spring in the IBJ Middle East, suggesting that its impact OSK However, Islamic indices regionally on the regional markets had in fact been outperformed conventional indices. The only minimal and temporary. Out of BLME DJIM Asia/Pacifi c Titans 25 Index, which the three markets highlighted, Kuwait measures the performance of 25 of the and Saudi Arabia witnessed double CIMB leading Shariah compliant stocks in the the average volume of shares traded in Asia Pacifi c region, advanced 4.4% in the fi rst half of 2012 compared to the BNM September; while the Dow Jones Asian corresponding period last year; while the Titans 50 Index increased by 3.06%. A UAE experienced a 50% increase. AAOIFI positive performance was also seen in Europe, where the DJIM Europe Titans On investing trends, Tariq was of the BNP 25 Index surged 3.16% in September view that investors preferred ‘back compared to the conventional Dow to basics’ investing styles that were IBQ Jones Europe Titans 80, which advanced not complex or diffi cult to explain; 2.51%. and that hedge funds and derivative- RBS type products hold litt le att raction for Tariq Al-Rifai, the director of Islamic investors. “A lot of investments discussed HSBC market indices at S&P Dow Jones Indices, — hedging, derivatives and hybrids — IBT during his presentation at the recent IFN are well developed in the conventional Asia Forum 2012, pointed out that the space. In Islamic investing, there is UBS Islamic index had greatly outperformed not much interest. ‘Plain vanilla’ is its conventional counterpart in the long understated, because there is a lot to do MAVCAP term. He notes that the fi rst surge that in coming up with products that do not led to the outperformance came about require these complicated tools. I think PWC in 1996 with the ‘dotcom’ boom, as these simplicity is what investors are looking Islamic indices were highly weighted in for,” he stated. BFX the technology sector. Islamic indices are evolving towards BNY In the shorter-term, Tariq noted that customized indices following the needs the performance of the Islamic index of increasingly sophisticated investors, ANZ when pitt ed against the conventional according to Tariq. This was evident with index varied as it depended on each S&P Dow Jones Indices’ DJIM CHIME They’re our clients. of the markets. He said that despite Index focusing on the China, India and Malaysia’s strong performance (with the Middle East launched in January the DJIM Malaysia Index regarded as this year; designed to benchmark a new Are you? the best performing index globally in fund, the Tebyan CHIME Opportunities the 21-month period beginning January Fund, managed by Qatar-based Tebyan Contact us now for a free trial…… 2011), the Islamic emerging market index Asset Management. Tariq expects more (DJIM Emerging Markets) in which the customization in benchmarks in the Musfaizal Mustafa country was grouped was the poorest Islamic fi nance industry going forward. Subscriptions Director performer during the same period. – RW [email protected] Tel: +603 2162 7800 x 24

Saudi’s Al Rajhi Bank posts negative surprise

Al Rajhi Bank, which announced on-year basis. Saudi’s banks would record 8.7% higher on the 14th October 2012 a decline profi ts during the period, outpacing the in net profi t for the third quarter, is The glitch in the bank’s profi t follows two performance of banks in Kuwait, Qatar likely to have booked higher-than- previous quarters of growth. Al Rajhi and the UAE. expected provisions during the period, said that the decrease in profi t during the disappointing analysts who forecast a third quarter, which declined 3.61% year- In its report earlier this month, Moody’s strong quarter for the kingdom’s banks. on-year to SAR1.87 billion (US$498.62 noted that the outlook for Saudi’s million), was due to an increase in total banking system remains stable, driven In a research note, NCB Capital said that: operating expenses. by a benign operating environment, low “Based on the preliminary results, we “problem loan”/fi nancing levels, strong estimate an 85% year-on-year growth The bank’s performance contrasts that loss-absorption capacity and a low- in provisioning to SAR755 million of its peers, such as Arab National Bank, cost deposit base coupled with ample (US$201.32 million), which was 86% Bank Albilad, Riyad Bank and Samba liquidity. “ higher than our estimate of SAR405 Financial Group, which recorded growth million (US$107.99 million).” in profi ts in the third quarter; some However, these system-wide strengths as much as 40.5% higher than a year will remain counterbalanced by It also cautioned that while Al Rajhi earlier. The industry’s overall positive structural weaknesses – high loan and continued to expand its credit portfolio, performance is in line with analyst deposit concentrations and the fi nancial by 4.7% quarter-on-quarter and 23% expectations, with Riyad Capital earlier opacity of certain family conglomerates – year-on-year, this is likely to have come forecasting a 12% growth in third quarter over the 12-18-month outlook period,” it at the expense of margins, estimated to profi t for the kingdom’s top 10 banks. said. – EB have declined 32 basis points on a year- Arqaam Capital has projected that

BIMB Holdings to pay US$324.78 million for stake in Bank Islam Malaysia?

BIMB Holdings, which has received “We would think that a P/BV of 1.2-1.3 its ownership in the bank to 81.5%, is approval-in-principle from the times for Bank Islam would thus be seen as a positive development as the central bank, Bank Negara Malaysia, amenable to all parties.” This translates purchase would pave the way for larger to start talks with Dubai Financial into an acquisition cost of between earnings contributions from the bank. Group (DFG) to take over its 30.5% RM1.1-1.2 billion (US$357.29-389.77 However, a price tag of at least RM1 shareholding in Bank Islam Malaysia, million) for the 30.5% stake. billion means BIMB would have to pay could pay a minimum of RM1 billion more for a smaller stake in Bank Islam (US$324.78 million) for the stake. than the RM828 million (US$268.99 BIMB’s million) DFG paid for its original 40% “The average price-to-book value (P/ interest. DFG’s shareholding in Bank BV) for previous transactions for potential Islam was diluted to 30.5% in 2010 aft er it banking mergers and acquisitions in chose not to participate in a cash call by Malaysia is about 1.8 times. Pegging acquisition of the the bank. this to Bank Islam’s book value of RM2.79 billion (US$906.16 million) as stake in Bank Islam Analysts also remain mixed on how at the end of December 2011, a 30.5% BIMB would pay for the transaction, with stake in Bank Islam would cost RM1.53 is seen as a positive CIMB Research believing that the deal billion (US$496.93 million),” said CIMB could be part-fi nanced by the issuance Research. development as the of new capital. This is as the assumed acquisition price of RM1.53 billion would Maybank IB Research, which has taken purchase would lead to a “drastic” reduction in BIMB’s into account that DFG’s interest in Bank capital ratios. Islam is believed to form collateral for pave the way for US$330 million-worth of fi nancing for Maybank IB Research said that the DFG’s parent, Dubai Group, estimated larger earnings purchase would likely be funded via that Bank Islam’s P/BV as at the end borrowings, adding that: “We do not of June this year stands at around 1.15 contributions foresee the need for a capital raising times. exercise given the group’s strong capital ratios – core capital ratio of 1.44% and However, given Dubai Group’s need for risk-weighted capital ratio of 15.6%.” cash, with US$10 billion-worth of debt to BIMB’s potential acquisition of the stake – EB restructure, the research fi rm said that: in Bank Islam, which could increase

Clash of compliance

Shariah compliance in Malaysia has of interest and that is why they are not all levels; in Shariah, regulation, product sparked heated debate in the past, most acceptable in the Middle East. development and such,” he added. recently with Dr Amir Shaharuddin, the deputy dean (academic and research) at “In order to make Malaysia more Shariah Dr Sami Ibrahim Al-Suwailem however, the faculty of economics and Muamalat compliant, they need to reduce their a a senior economist at the Islamic at Malaysia’s Islamic Science University, debt-based products and promote more Financial Product Development Center noting that Islamic fi nancial institutions equity-based products,” he stressed. in Saudi Arabia, said that: “I don’t think in the country are seen to be less we can make a blanket statement that the Shariah compliant than those in the Middle East is more Shariah compliant Middle East. Right now than Malaysia,” noting that the two jurisdictions might have diff ering levels Some quarters have no qualms agreeing there is no of compliance in diff erent areas.“It seems with this view. Speaking to Islamic as though that there is generally more Finance news, associate professor Dr real cooperation public awareness regarding Shariah Younes Soualhi, the former deputy dean compliance in the Middle East than in of the Institute of Islamic Banking and between Malaysia Malaysia,” he said. Finance in Malaysia, said that there is a wide perception in the Middle East that and the Middle East. This is largely due to the presence of Malaysia is not as Shariah compliant more learning institutions devoted to as the Middle East as it only follows We need to enhance Shariah and Islamic studies in the Middle the teachings of one school of thought, East, although Malaysia has a bett er instead of following the view of the this cooperation at chance of becoming more Shariah com- majority of Muslim scholars. pliant overall. “Since Malaysia is a single all levels country, has a central Shariah board, an He noted that there is a tendency for active central bank and a capital market Malaysian Islamic fi nance practitioners authority, it is bett er positioned to take to fall into the usage of debt–structured steps to ensure the adherence and com- instruments such as the Bal Al Inah “They also need to work more with their pliance of the Islamic fi nancial industry and commodity Murabahah, which are partners in the Middle East in order to to Shariah standards. The Middle East viewed as ‘un-Islamic’ in the Middle East. develop products that could be traded [although] diverse in schools of thought both in Malaysia and the Middle East. in Shariah and [with] a multiplicity of “Bal Al Inah and commodity Murabahah Right now there is no real cooperation authorities, is less homogenous and are viewed as two instruments which between Malaysia and the Middle East. therefore less adaptable to centralized are used to circumvent the prohibition We need to enhance this cooperation at regulations,” said Dr Sami. – LR

Potential of Islamic finance in the Czech Republic

CZECH REPUBLIC minister of foreign aff airs, the minister of 12th - 13th November 2012 industry and trade and the fi rst vice-pres- By JUDr Ivana Hrdlickova Four Seasons Hotel Riyadh at Kingdom Centre ident of the senate of the Czech Republic. IFN Correspondent The ICC of the Czech Republic and the Lead Partners embassies of the OIC countries organized The Czech Ministry of Foreign Aff airs this conference in the Czech Republic. hosted a Czech-Pakistani business th investment seminar on the 8 October The main reason for organizing this confer- 2012, with the presence of Czech ence was to establish and strengthen the businessmen, the deputy minister of economic and investment cooperation foreign aff airs, the director of the Board between the Czech Republic and the OIC of Investment of Pakistan as well as countries. Special panels focused on trade other important businessmen. The between the Czech Republic and the OIC seminar focused on bilateral relations countries. A presentation by the economic between the Czech Republic and advisor of the National Investment Board Associate Partner Pakistan and investment opportunities in Iraq, an expert from the ministry of in both countries. There is no doubt that economy of Turkey, an expert from Sci- Islamic fi nance may play a signifi cant ence University Malaysia Terengganu and Endorser By Booth Sponsor role in business relations between the fi nancial experts from Algeria, Morocco Czech Republic and Pakistan. and Iran explained the possibilities and opportunities for business. The conference The Prague branch of the International was welcomed by the Czech business com- Executive Partners Commercial Chamber (ICC Czech munity and Islamic fi nance as an alterna- Republic) hosted the East-West Business tive has been mentioned several times. Forum 2012, on the 18-19th September. This fi rst business conference of the ICC JUDr Ivana Hrdlickova is a judge, Appellate Czech Republic with the OIC countries Court Pardubice, Czech Republic. She can be was organized under the auspices of the contacted at [email protected]. prime minister of the Czech Republic, the Afghanistan is moving towards an Islamic

Luncheon Exclusive Knowledge capital market Sponsor Partner AFGHANISTAN and DAB will be issuing Sukuk in Afghanistan for the fi rst time in 2013. By Zulfi qar Ali Khan, IFN Correspondent Supported By Event Stationer The main purpose for the Sukuk Sponsor The progress of Islamic banking issuance will be to support the and fi nance in Afghanistan has been government funding requirements for admirable during the last three years. the implementation of its economics and But what will happen when the North fi scal sustainability, liquidity requirements Branding Sponsors Atlantic Treaty Organization (NATO) and project developments. The Sukuk that forces leave the country in 2014 and the will be off ered include a treasury Sukuk, major donors reduce their aid? Offi cial VIP Badges & Lanyards government project Sukuk, provincial Transportation Sponsor government Sukuk, municipal Sukuk and The best option for the government possibly a government Sukuk program. of Afghanistan will be to raise funds Association Partner within the country, and that can be done The Sukuk may be issued in a number through the issuance of Islamic securities of Shariah compliant fi nancing to support the government funding structures: including Sukuk Ijarah, Sukuk Takaful & re-Takaful Multilateral requirements. Mudarabah, Sukuk Musharakah, Sukuk Day Endorser Strategic Partner Istisnah or any other structure, as long as The Sukuk law is currently being draft ed it is in compliance with Islamic principles by the Ministry of Finance (MOF) in and approved by the Shariah board. Partner Lead Media Partner Afghanistan and the IMF with the assistance of the central bank, the Da Zulfi qar Ali Khan is director of Islamic Media Partners Afghanistan Bank (DAB), which will be banking division at the Da Afghanistan submitt ed to the Ministry of Justice at Bank. He can be contacted at za.khan@ the end of September 2012. The MOF centralbank.gov.af.

Landmark convertible Sukuk issuance in Singapore

SINGAPORE rental for the purposes of the profi t real estate-related assets, in line with payments under the Sukuk. Shariah investment principles. By Yeo Wico, IFN Correspondent This represents a landmark Sukuk transaction for Singapore in many The landmark transaction comes in the On the 24th September 2012 Sabana Real respects; being the fi rst convertible middle of yet another record-breaking Estate Investment Management, as the Sukuk issuance in Singapore, the fi rst year for Sukuk issuances globally, and manager of Sabana Shari’ah Compliant Sukuk issued in Singapore based on marks Singapore as having a role to play Industrial Real Estate Investment Trust JTC properties and the fi rst ever Sukuk in the quickly maturing and evolving (Sabana REIT), announced that Sabana convertible into units in a real estate Islamic fi nance landscape. Treasury, a wholly-owned subsidiary investment trust. of Sabana REIT, issued SG$80 million Yeo Wico is a partner at Allen & Gledhill. (US$65 million) in principal amount This groundbreaking Sukuk transaction He can be contacted at yeo.wico@ of convertible Sukuk, which has been is an example of how the regulatory allenandgledhill.com. fully placed to institutional investors and tax infrastructure in Singapore is and accredited investors. supportive of complex Islamic fi nancing and Sukuk structures, and should be an The Sukuk were issued under a encouraging sign of possibly more big Have you joined combination of the Shariah fi nancing ticket Islamic fi nancing transactions to principles of Murabahah, Ijarah and come in the non-Muslim majority island Wakalah, innovatively structured to state. It also marks Sabana REIT’s fi rst enable the proceeds of the issuance to foray into the Sukuk market. be utilized to fi nance the acquisition by Sabana REIT from a third party vendor Sabana REIT is Singapore’s fi rst of a Jurong Town Corporation (JTC) certifi ed Shariah compliant REIT and industrial leasehold asset, which would was established principally to invest in then be used to underlie the Sukuk and income-producing real estate used for comprise the Ijarah assets generating our facebook page? industrial purposes in Asia, as well as

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Daud speaks Not just cities

By Daud Vicary Abdullah Algiers The messages I would like to think that, as an Buenos Aires industry, we are at a crossroads. What, conveyed you may well ask, is driving this Cairo particular thought at this particular around ethics, time? Well, to answer that question: Dhaka “The right place and the right time”. values and Essen Some further explanation is required and suggested ways Freetown I will try, in what remains of this column, to explain the circumstances and also my forward to execute Gaborone thinking. It really is a combination of four things and I will try to organize them in action were very Havana the order in which they happened. similar indeed Islamabad Firstly, I delivered a paper on ‘Ethical Jerusalem Values and Economic Crime’ at the University of Cambridge. During my interesting for me, as a participant who Kabul presentation I did not mention Islam was able to att end both events, was or Islamic fi nance once. As a result, the fact that without any obvious prior Lusaka the message of the paper, which was collaboration, the messages conveyed Minsk about a ‘back to basics’ approach for around ethics, values and suggested ethical values and a need to return to a ways forward to execute action were very Nassau state of trust in the global fi nancial similar indeed. It was almost as if system, provoked a number of a meeting of the minds from Ottawa comments from the audience the various participants, that the values put forward who were largely not Phnom Penh by Islamic fi nance may be aware of the other a viable alternative. event, was taking Quito place. If only we could Reykjavik Secondly, I visited connect up all of the Senegal where dots! Sarajevo we are working towards sett ing Fourthly, there was Tripoli up an academy to the convocation educate students in of my own Ulaanbaatar Islamic fi nance. The university, where Vientiane enthusiasm with a large number which our proposals of graduates from Warsaw were met and the around the world eagerness to get stepped into a new X………….. started by January world with their 2013 left with me a qualifi cations in hand. Yaounde lasting impression of Would they be able to the importance of the represent all the change Zagreb work that we are all doing that they want to see in in Islamic fi nance and the the world? Would they change for good that it can be able to carry the Islamic We have subscribers in all of these cities have for everyone. fi nance industry to another level? They have certainly Does anyone know anyone in Xangongo? Thirdly I att ended a been prepared. However, couple of conferences we must await the Can you spot the odd one concurrently in Kuala outcome of this out in the above list? Lumpur. One was particular crossroads very focused on the in their respective lives Contact us now for a free trial…… Islamic fi nance industry for a litt le while longer. in Asia and the other was Musfaizal Mustafa directed towards debating global As always, there is always much Subscriptions Director megatrends, including fi nance. to do and not a moment to [email protected] What was particularly lose.. Tel: +603 2162 7800 x 24

Great Eastern Takaful remains on course amid leadership change

Following the departure of Mohamad were in relation to matt ers on GE’s Al Rajhi Bank Malaysia and Kuwait Salihuddin Ahmad as CEO of conventional side and only involved its Finance House to increase distribution of Malaysia’s Great Eastern Takaful (GE conventional insurance agents. its products; while the Takaful operator Takaful) on the 21st September 2012, the also hopes to expand its product range. Takaful operator remains determined Meanwhile, Zafri also reiterated that GE to maintain the course steered by its Takaful’s business remains intact despite Its core business nonetheless continues former head, who helped set up the fi rm the departure of Mohamad Salihuddin, to come from its agency force, of which in 2010. noting that his charge is now to continue 4,000 market conventional and Takaful with the objectives set out by the fi rm’s products, with another 280 agents selling In an interview with Islamic Finance previous head. “It’s still the same ship, only Takaful. Zafri said that the fi rm news (the fi rst to report that Mohamad just with a diff erent captain,” he said, is planning to increase its agency force Salihuddin’s resignation was rumored disclosing that the fi rm is expected to of solely Takaful agents to 600 next to be due to a disagreement with offi cially name him as CEO aft er its next year, while terminating those who are the Great Eastern Group (GE) on GE board meeting in November this year, unproductive and incentivizing others to Takaful’s reporting structure) Zafri Ab following which his appointment will be ensure productivity. Halim, GE Takaful’s acting CEO and its submitt ed to the Malaysian central bank chief fi nancial offi cer (CFO), sought to for its approval. The fi rm’s measures are ultimately clarify that the fi rm’s operations remain targeted at achieving profi tability in fi rmly intact, with a target to achieve Zafri joined GE Takaful in April last 2015. As at the 30th June 2012, the Takaful profi tability in 2015. year, aft er returning to Malaysia from operator had already brought its losses an almost seven-year stint as the CFO at down to RM1.71 million (US$559,273), The fi rm also remains open to AlJazira Takaful in Saudi Arabia. from a net loss of RM3.84 million expanding its footprint to Indonesia; (US$1.26 million) a year earlier. while strengthening its presence in its Malaysian home base by improving the Overseas expansion plans effi ciency of its agency force and entering The firm is Zafri also said that GE Takaful still into more bancaTakaful agreements to plans to enter the Indonesian market, increase the distribution of its products. expected to marking the fi rm’s expansion abroad in a move that would leverage the Takaful Same ship, different captain officially name window of Great Eastern Life Indonesia. Despite market talk, GE Takaful’s offi cial Its plans however have been put on the stance is that Mohamad Salihuddin’s exit Zafri Ab Halim as back-burner, despite GE Takaful already was due to personal reasons, although having prepared its products for the Zafri confi rmed the structural changes CEO after its next Indonesian market. that now require the CEO of GE Takaful to report to Koh Yaw Hui, CEO and a board meeting in The delay is att ributed to new rules director of Great Eastern Life Assurance requiring Indonesia’s conventional (Malaysia), the local conventional Life November insurers with Takaful windows to spin insurance arm of the GE group, which off the Shariah compliant operations into is owned by Singapore’s Great Eastern this year fully-fl edged entities; the deadline of Holdings. which remains uncertain.

Zafri stressed that in spite of the new Strengthening Malaysian Until then, the fi rm will focus on reporting structure, GE Takaful’s business fortifying its base at home. With new operations remain independent from Continuing from the eff orts of its leadership in place GE Takaful will those of its conventional counterpart, previous CEO, Zafri said that the fi rm have to center all its eff orts on ensuring with the Takaful arm possessing a remains focused on strengthening a smooth transition following the separate board of directors and its its presence in Malaysia, where it is departure of its top fi gurehead. — EB own Shariah board. He also refuted currently ranked eighth in terms of speculation that the GE group has shown market share. “We have a lot more fl agging support for its Malaysian potential to develop and are working Takaful arm, noting that GE Takaful’s closely with our distributors to get more shareholders provide “full support” to business,” he noted, explaining that the fi rm. one challenge for the fi rm is that unlike many of its competitors, it does not have Additionally, he clarifi ed reports that a direct link to banks; thus closing off GE Takaful’s agents had demonstrated certain bancaTakaful arrangements. The in front of its offi ces in Kuala Lumpur in fi rm is however currently working on solidarity with Mohamad Salihuddin’s sett ing up bancaTakaful partnerships resignation, noting that the protests with MBSB (Malaysia Building Society),

Bahrain Mumtalakat Holding Company’s US$98.08 million Sukuk Murabahah

Bahrain Mumtalakat Holding Company The transaction was completed on a (Mumtalakat), the investment company private placement basis, with investors Bahrain Mumtalakat Holding for Bahrain’s non-oil and gas strategic comprising asset management Company US$980.84 million assets, issued a fi ve-year, RM300 million companies, which were allocated 50% of Sukuk Murabahah program (US$98.08 million) Sukuk on the 4th the notes, fi nancial institutions (40%) and October 2012. The issuance represents government agencies (10%). US$98.08 million Mumtalakat’s fi rst series from its RM3 billion (US$980.84 million) Sukuk Murabahah program set up in July this The issuance year. represents Utilization of proceeds Proceeds from the issuance will be used Mumtalakat’s for Mumtalakat’s Shariah compliant first series from 4th October 2012 general corporate purposes. its RM3 billion Fully owned by the Bahraini government, Issuer and Bahrain Mumtalakat the fi rm was established to support the (US$980.84 million) obligor Holding Company diversifi cation of Bahrain’s economy Issuance RM300 million (US$98.08 from oil and gas. Its investment in over Sukuk Murabahah amount million) 35 commercial enterprises, including Tenor Five years Gulf Investment Corporation, Bahrain program set up in Coupon rate / 5.5% Telecommunications Company (Batelco) July this year return and the McLaren Group, has created Payment Semi-annual a portfolio valued at BHD2.7 billion (US$7.16 billion) as at the 31st December Currency Ringgit 2011. Other sectors the fi rm is invested Maturity date 3rd October 2017 in include real estate, tourism, transport Lead arranger Standard Chartered and food production. Structure and principal Saadiq The Sukuk Murabahah is backed by advisor Pricing and placement Shariah compliant commodities, except Lead Standard Chartered for those in the category of medium of The off ering will pay a profi t rate of 5.5% managers Saadiq and CIMB exchange, such as currency, gold and Investment Bank per year. This compares to a coupon of silver. The commodities are provided 5% on Mumtalakat’s only other debt Legal advisors Zul Rafi que & Partners through Bursa Suq Al-Sila’, the issuance, a US$750 million, fi ve-year (for issuer in respect to Malaysian commodity trading platform. Malaysian law), Linklaters conventional bond issued in 2010. — EB (for issuer in respect to international law), Adnan Sundra & Low (for principal advisor/ lead arranger) and Haya Rashed Al Khalifa (for principal advisor/lead arranger in respect to Bahrain law) Governing Malaysia law PWC has 199 subscribers to Islamic Finance news, and pay less than US$60 per Shariah Standard Chartered subscription. advisor Saadiq Trustee Deutsche Trustees IFN is for everyone, not just the CEO’s Malaysia Rating ‘AA3’ by RAM and ‘BBB’ Contact us now and see how we can help your entire team by Fitch Structure / Murabahah instrument Call: +603 2162 7800 or Email: [email protected] Structure / Murabahah instrument

Hukum Syara’ in Islamic banking and finance in Brunei: Practical legal issues – Part one

MUHD JAMIL ABAS ABDUL ‘ALI @ JAMES CHIEW takes us through the meaning of Hukum Syara’ under the Shariah Supervisory Board Order 2006 in Brunei.

The Shariah Financial Supervisory the views of other Mazhabs can be meaning as that given in the SFSB Order. Board Order, 2006 (the SFSB Order) considered and/or adopted, or whether This is unlikely since the RCKA was was enacted in Brunei with the stated this is merely cosmetic without legal enacted in 1955 and the Constitution objectives: “To provide for the control consequences. of Brunei (1959) expressly states the of the administration and business Mazhab Shafeite is the prevailing dealings of fi nancial institutions Section 12 of the SFSB Order repeats the Mazhab. concerning Islamic products and any Syafeite Mazhab in priority to the other matt ers connected therewith and Mazhabs, but does not express that the Additionally, the RCKA requires incidental thereto.” views of the Syafeite Mazhab should (procedurally) the Majlis when issuing be considered or taken in preference. any ruling on Islamic law it is expected The SFSB Order is expressed as “for the Instead it states that: “When making any the Majlis “shall ordinarily follow control of,” but it is clear that one of its decision pursuant to the performance the orthodox tenets of the Shafeite main achievements is the reduction of of its duties under this Order, the sect…” The term “orthodox tenets” is Gharar which is espoused in Islamic board shall conform to and observe the understood to mean “Qaul Muktamad”. law by introducing a greater degree of accepted views of the Syafeite, Hanafi , A proviso allows that if this were to “be certainty on Islamic laws of transaction Maliki or the Hanbali sect of Ahlis opposed to the public interest”, it may relating to banking and fi nance. This Sunnah Waljamaah.” “follow the less orthodox tenets of the allows for the nurturing of the growth of Shafeite sect” unless the Sultan of Brunei Islamic banking and fi nance businesses. otherwise directs. “Less orthodox” is However, it is also evident that a number The terms and understood to mean “Qaul Daif”. of legal issues can be seen from a practical-application viewpoint. conditions A further proviso then allows that if this were also to result in opposition to “the The constitution of Brunei of 1959 pro- of pawnbroking public interest”, the Majlis may decide claims that the offi cial religion of Brunei to “follow the tenets of any of the three is Islam. The Islamic religion is defi ned as practiced by remaining sects as may be considered the religion according to the Shafi ete sect appropriate”. This departure requires of Ahlis Sunnah Waljamaah. It does not Islamic financial the “special sanction” of the Sultan of discriminate between observance of reli- Brunei. The SFSB board in making its gious duties and commercial obligations. institutions must decision to ascertain Islamic law relating The SFSB Order defi nes Hukum Syara’ to Islamic banking is not so restricted. as: “The laws of Islam according to the also be approved Syafeite, Hanafi , Maliki or Hanbali sect Confl icts can arise where two separate bod- of Ahlis Sunnah Waljamaah.” Obviously by the SFSB ies are endowed by co-extensive authority this is limited to Islamic banking and to make rulings. A confl ict can be a direct fi nance transactions only. board confl ict or an implied confl ict. It is not clear which will prevail, and if the courts Evidently, this can be fertile ground for were to shed their timorous shells and take arguments as to which of the laws will The conjunction “or” leans towards up the task of decision-making, how they prevail in a dispute as to the validity or an absence of intention to prefer the should decide the confl ict of views. otherwise of an Islamic banking product. views of one Mazhab over the others It is not immediately obvious that notwithstanding the clear words of the Ar-Rahnu diff erent scholars will always agree on constitution. An explanation for the Further, the Islamic banking product the same things. departure from the standard would have called Islamic pawnbroking (Ar-Rahnu) been useful. is regulated by the Pawnbrokers Order, Hukum Syara’ 2002 (PBO) and its stated objective is: “To The defi nition of Hukum Syara’ in the The Religious Council and Kadis Court regulate the business of pawnbrokers SFSB Order lists the Shafi ete Mazhab Act, Cap. 77 (1955) (RCKA) employs the in accordance with Hukum Syara’.” It before the Hanafi Mazhab and not term Hukum Syara’ but does not defi ne then defi nes Hukum Syara’ as: “The chronologically as is the generally it, stating that: “The Majlis shall take laws of any sects which the court accepted practice. No explanation is notice of and act upon all writt en laws in considers valid.” Exceptionally, exclusive provided for this change. Issues arising force in Brunei, and the provisions of the jurisdiction to hear disputes in such cases can include whether it is intended to Hukum Syarak’.” It is not entirely clear is conferred on the Shariah courts which give preference to the Shafi ete Mazhab, whether “shall take notice of …..Hukum Syarak’” under the RCKA has the same whether this a pre-condition before continued...

Continued

“shall hear or determine any claims or brunet.bn. proceedings”.

The terms and conditions of pawnbroking practiced by Islamic fi nancial institutions must also be 30th - 31st October 2012 approved by the SFSB board. It can be seen that whilst the board may consider and approve an application off ered to Following the tremendous success of last year, the public based on its specifi c given we are proud to announce the 2nd IFN Europe Forum! mandate, in the event of a dispute ¢ȱ£ȱȱȱęȱȱȱǰȱȱ¢ȱȱȱȱ ȱ arising, the Shariah courts are not bound ęȱǰȱLondon ȱȱȱȱȱȱȱȱIFN Europe Forum 2012ǰȱ ȱ ȱ by the same procedure for ascertaining ȱȱȱ30th - 31st October. the Hukum as the SFSB board since no Venue:ȱȱȱǰȱ particular procedure is expressed for the Syariah courts in arriving at its decision Issuers Day:ȱ¢ǰȱřŖthȱȱŘŖŗŘ and the Mazhab Shafeite is not listed in Investors Day:ȱ¢ǰȱřŗstȱȱŘŖŗŘ priority under the PBO. Time:ȱşǱŖŖȱȱśǱŖŖȱȱȱȱ¢ ȱȱȱȱȱȱȱȱȱȱȱȱȱȱŞǱŖŖȱȱŖşǱŖŖ

ȱ¢ȱ¢ȱȱȱȱȱȱǰȱȱ ȱ ȱȱȱȱ In the event of a ȱȱȱȱ¢ȱȱȱȱȱȱǯ

dispute arising, Issuers Day – Key Topics Ȋȱ ȱȱȱ ȱȱȱȱ the Shariah courts Ȋȱ ȱȱȱǭȱȱȬȱ ǰȱȱȱ Ȋȱ ȱǱȱȱȱȱȱȱȱȱ ȱ Ȋȱ ȱȱ¢ȱęȱȬȱǰȱȱȱȱ are not bound by ȱȱȱȱȱȱȱ Ȋȱ ȱ¢Ǳȱ ȱȱȱ the same procedure Ȋȱ ȱǱȱ ȱȱȱȱ ȱȱȱȱ for ascertaining Investors Day – Key Topics Ȋȱ ȱ¢ȱȱȱȱȱȱȱ Ȋȱ ȱȱȱȱȱȱ ȱ¢ȱȱ the Hukum as the Ȋȱ ȱ¢Ǳȱ Ȭȱ ȱ Ȋȱ ¢ȱǱȱ ȱȱȱȬȱ ȱ ȱȱ SFSB board since no Ȋȱ ¢ȱǱȱ ȱȱȱ¢ȱȱ ȱ Ȋȱ ȱȱȱȱĚ ȱȱȱǰȱ particular procedure ȱȱȱȱȱȱȱ Ȋȱ ȱ¢Ǳȱ ¢ȱȱȱ ŗŚȱȱ ȱȱ Ȋȱ ȱǱȱȱȱȱȱȱȱȱȱȱ is expressed for the ȱȱȱȱȱȱȱ ȱȱ

Syariah ȱȱ¢ȱȱȱ¢ȱȱȱȱȱǷ courts REGISTER ONLINE NOW at www.REDmoneyevents.com Conclusion One wonders how far the unrestricted Endorsed by Lead Sponsor words “laws of any sects which the court considers valid” will go in aﬀ ording unrestrained decision-making by the Shariah courts. The SFSB order does not make a decision of the SFSB board Supported by Exclusive Knowledge Partner Executive Partners binding on a “court”, especially the Shariah court, since the Interpretation and General Clauses Act, Cap. 4 states that “High Court” means the High Court Takaful & re-Takaful Day Endorser Partner Lead Media Partner constituted under the Supreme Court Act, Cap. 5 (the civil court).

Muhd Jamil Abas Abdul ‘Ali @ James Chiew Media Partners is a legal advisor with Abrahams, Davidson & Co. He can be contacted at chiewjamessh@

Using derivatives in Islamic finance

SALMAN AHMED SHAIKH discusses an alternative proposal to diminishing Musharakah which will make the transaction more transparent and realistic.

In Islamic banking, diminishing d) If the call buyer exercises the option, the house at a fi xed price rather Musharakah is used to off er home the Islamic bank gets the house price than paying fi xed installments until fi nancing products. It allows equity plus the rental income for the period maturity. participation in asset ownership and before the expiration of the options e) To propose a mechanism for sett ing provides a method through which the contract. rentals which refl ects true market bank keeps on reducing its equity rent rather than linking it with an in the asset and ultimately transfers The rent could be benchmarked using a interest-based benchmark. Hence, an ownership of the asset to the client as house rental index. The issue arises as alternative to Libor as a benchmark/ the client makes periodic installments. to whether a fi xed premium could be pricing rule has also been provided added or not. However, since the contract by linking the rentals with a house As practiced in Islamic banking, taking itself does not have any connection with rental index. an undertaking from the lessee is just interest or interest rate benchmarks and f) No matt er how high the price of option is, the customer would always like buying a ‘put option’ (with put the rent is charged as long as the house is be in a position not to pay higher than premium equal to zero) from the lessee, in usable condition, it does not contradict market prices. This is because the who acts as a put option writer. What with Islamic principles. this essentially does is enable the Islamic customer can decide not to exercise bank to avoid market and price risk. call option. However, it must be noted that this is not a new proposed avenue for investment. The Islamic bank only buys the house This could seem unatt ractive to the Hence, it is neutral to the issue as to when it has obtained a unilateral Islamic bank as it would have to take a whether it should have a secondary undertaking from the client that is legally certain risk this time, which all normal market or not. We have lived without enforceable and which allows the bank landlords take in the housing market. securitization of mortgages and this has to lock the subsequent lease contract and But, this proposal disallows the bank any charge stipulated periodic installments benefi ted Islamic fi nance during the great diff erential and preferential treatment. before committ ing any of its funds. recession which aff ected conventional Having said that, the bank still has fi nance so badly. certain key features which safeguard its If the above mentioned ‘put option’ interest, such as: provision is reversed, the client would Second, the proposal meets following buy the call option and the bank will sell specifi c objectives: a) Rent for some period could be fi xed the call option, i.e. acts as a call option by linking it with a rental benchmark. writer. To make it conform to Islamic a) To allow people to break free from It can be changed later on. For the principles, the call premium can be conventional mortgages if they feel purpose of hedging, some advance removed or if taken, it could be regarded that they are not able to keep paying rent could also be taken and this as a token amount for a subsequent installments. This is done by making would be an alternative to upfront down-payment. purchase of a house. If the client does not them call option buyers and hence, b) Rent could be set as a multiple of exercise the call option, then this amount they get a choice. a benchmark (house rental index), will be returned. In this way, the upfront b) To achieve separation of tenancy and although this would always depend call premium, if taken, will be a valid sale contracts. This is a requirement on the bargaining power of both consideration. in Islamic jurisprudence. This is parties. There could be a cap and achieved in Islamic fi nance currently fl oor just like in current practice. Alternatives to diminishing through a unilateral undertaking c) The option price together with Musharakah which is legally enforceable. Hence, targeted rentals will enable the bank the current mechanisms to separate This alternative could work as follows: to cover its cost. tenancy and sale are not ideal but a) The Islamic bank buys the house, simply legal solutions to the problem; d) If house prices are increasing, the paying the house owner the full unlike this proposal. house rent will also increase. So, if prices amount of the house. The Islamic c) To propose a mechanism that still are increasing, all benefi t will not accrue bank is now the owner of the asset. allows the bank to have reasonable to the lessee alone. With increase in rents, b) The Islamic bank then gives the house returns even when future prices are the shareholders and Rabb-ul-maal (de- on rent to the client and also enters low and when they are high. Future positors) of the bank will also benefi t. into an options contract as the call prices will determine the client’s option writer. decision to exercise or not to exercise Salman Ahmed Shaikh is a research associate c) If the call buyer does not exercise the the call option contract. and faculty member at the Institute of option, the options contract expires d) To propose a mechanism that still Business Administration. He can be and the Islamic bank is in a position allows the client to have a place for contacted at [email protected]. to give the house on rent again. living and an option to purchase

Standardized documentation for Islamic derivative instruments

FARA MOHAMMAD examines the Tahawwut Master Agreement and Mubadalatul Arbaah templates, and suggests that it may take some time before Islamic ﬁ nancial institutions are able to fully integrate the new framework into their own agreements and structures.

Islamic fi nancial institutions (IFIs), The TMA has been draft ed so as to be as assists in the management of profi t rate like their conventional counterparts, fl exible as possible as to what types of risks to enhance cash fl ows. are exposed to fl uctuation in foreign transactions may be concluded pursuant currency rates and cash fl ow mismatches to its terms. Mubadalatul Arbaah as a result of the inter-linkages with There are two sets of MA templates the global fi nancial system. However, When executing the TMA, each published and each set utilizes the unlike their conventional counterparts, party issues a Wa’ad (a promise to Murabahah structure and is Wa’ad-based the use of derivative products by IFIs is perform in the future) to enter into a (such Wa’ad diff er from those embedded in still limited. The lack of standardized Musawwamah (the sale of an asset for the TMA which relate to early termination). documents has been seen as a factor an undisclosed profi t) in the event of The parties to the MA will enter into a that has hampered the use of Islamic an early termination of the hedging series of separate confi rmations (DFT terms derivative instruments and to a arrangements. The Wa’ad is embedded confi rmations) whereby one relates to the certain extent, has inhibited IFIs from into the TMA and facilitates the payment fi xed profi t rate leg of a MA and the other operating outside its domestic markets. of an amount to refl ect the early relates to the fl oating profi t rate leg of a To address this issue, the industry has termination of the hedging arrangements. MA. As the Wa’ad for each leg needs to be undertaken the ongoing challenge of Only the party who would be entitled clear, distinct and separate from the other developing global Islamic hedging to the early termination amount may leg of the MA, there are two independent standards and documents, across both exercise the Wa’ad given in its favor. If, DFT terms confi rmations for each leg of global and Islamic fi nancial markets. in breach of the Wa’ad it has issued, a the MA. party fails to purchase the assets under a Tahawwut Master Agreement Musawwamah, liquidated damages are Each set of documentation envisages The Tahawwut Master Agreement determined and payable. a single sale structure or a two sales (TMA), released on the 1st March 2010 structure. When the Wa’ad is exercised was developed by industry experts to by a party (seller of assets) on a relevant provide a standardized framework that The TMA was date, the other party (buyer of assets) contains the general terms and conditions is required to purchase specifi ed assets that parties may agree to adopt pursuant a significant under a sale and purchase (Murabahah) to which the parties enter into Shariah contract with the seller and execute a compliant hedging transactions, utilizing milestone in the Murabahah asset sale confi rmation. the Murabahah and Wa’ad structure. An executed TMA and the accompanying development of The fi xed rate side of the transaction schedule (in which the parties make encompasses a transaction in which certain elections) serves as an umbrella risk management an asset is sold with a markup where agreement that may govern a series of installment payments are equal to future sale and purchase transactions in Islamic the fi xed rate profi t payments. On but does not give rise to an actual sale the fl oating rate side, an asset is sold and purchase transaction. The parties finance with a markup priced with a spread must enter into additional agreements over a fl oating rate benchmark where pursuant to which the parties determine installments are equal to the fl oating rate the specifi c terms of a particular sale and The TMA was a signifi cant milestone in profi t payment. purchase transaction. the development of risk management in Islamic fi nance and the development The parties repeat the fl oating rate The TMA documentation contemplates of the template documentation for contract until maturity using the fl oating two diff erent types of situations: (i) Mubadalatul Arbaah (MA) for Islamic rate benchmark at the time each contract transactions that occur immediately profi t rate swaps was a natural step in is signed. On both the fi xed rate side (transactions), which are documented the development of Islamic hedging and fl oating rate side, respectively, there pursuant to confi rmations; and (ii) instruments. The MA template was is a balloon payment of the principal transactions that may occur in the developed by industry experts to allow at maturity, and upon delivery of the future [(designated future transactions the bilateral exchange of profi t streams relevant asset the asset is sold at the (DFT)], which may be concluded under from fi xed rate to fl oating rate, and vice current market price. Each Murabahah agreements or undertakings (referred to versa. It aims to provide the industry sale entered into between the parties as DFT terms agreement). Once a DFT with access to consequential product documentation under the TMA and is concluded, it becomes a transaction. continued...

Continued constitutes a transaction under the TMA. to the fi xed profi t rate leg or the fl oating Conclusion profi t rate leg. Consequently, there will The TMA and MA templates have been It is contemplated that for each specifi c be one asset fl ow and one cash fl ow approved by prominent scholars and period (calculation period), a Murabahah between the parties in relation to each key experts in the industry. However, sale will be entered into either at the start calculation period for the MA. it is important to note that it is always of the calculation period or at the end the responsibility of the parties entering of the calculation period. With a single With a two sales structure MA, for each into the relevant hedging transactions to sale structure MA, only one of the Wa’ad calculation period, both Wa’ad in the ensure that their own Shariah advisors for the fi xed profi t rate leg and for the DFT terms confi rmations for the fi xed are satisfi ed that the relevant hedging fl oating profi t rate leg, respectively, will profi t rate leg and for the fl oating profi t transaction is Shariah compliant and be exercisable depending on whether the rate leg, respectively, will be exercised that the documents are suitable and specifi ed condition (the exercise condition) by the relevant parties. Accordingly, two appropriately utilized in the context of in relation to a calculation period, is met. Murabahah sales will be entered into in that particular hedging transaction. relation to the fi xed profi t rate leg and The exercise condition is determined by the fl oating profi t rate leg respectively Accordingly, it may take some time before establishing whether the profi t (being the and there will be two asset fl ows and two IFIs are able to fully integrate the new diff erence between the fi xed rate amount cash fl ows between the parties in relation framework and standards into their own and the fl oating rate amount) in relation to each calculation period for the MA. agreements and structures. Nevertheless, it to a calculation period is greater than In a two sales structure MA, payment is hoped that the long-term advantages of zero. If the profi t under one leg is greater obligations may be set-off against each standardization will provide IFIs with an than zero (i.e. positive), the profi t under other if the Murabahah sales are between incentive to make the transition. the other leg will be less than zero (i.e. the same parties, in the same currency negative), hence only the Wa’ad with the and are due on the same day, however, Fara Mohammad is a senior lawyer and positive profi t will be exercised and only the assets being purchased and sold an Islamic fi nance consultant. She can be one Murabahah sale will be entered into may not be set off and must always be contacted at [email protected]. between the parties, either with respect delivered.

Islamic Treasury Management & Derivatives 18th – 20th November 2012, DOHA

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Low cost yet still unpopular

Cover Story It does not come as a surprise that, post Volatile global markets and lackluster the global fi nancial crisis, investors investor sentiment have compelled Cerulli Associates recently released – whether conventional or Islamic – major ETF providers in the US such its latest report on the trends of retail have not only become more savvy as BlackRock, Charles Schwab and investors in the US, which revealed but also more att uned to managing Vanguard to go on a ‘fee-cutt ing war’ an increasing preference for low- their portfolios – including showing a in a bid to draw investors away from cost products. Cerulli stated that this preference for low-cost products. traditional mutual funds. preference has become a contributing factor to other trends it is currently This was highlighted by a prominent BlackRock is no stranger to Islamic ETFs tracking; most notably the growth of the fund manager in the UAE recently, when as its iShares, then an arm of Barclays direct channel as well as independent asked why he thought Sukuk funds had Global Investors, launched the fi rst advisor channels. not really taken off in that region. He Islamic ETFs in 2007 with the iShares claimed that it was due to the fact that MSCI World Islamic, the iShares MSCI Cerulli noted that open-ended mutual many investors, retail as well as high net USA Islamic and the iShares MSCI assets reached US$11 trillion by the end worth individuals, were more interested Emerging Markets Islamic. of the fi rst quarter of 2012, which the in investing directly to save on the cost of research house deemed to be a positive paying the fund manager. “Our att empts Eurekahedge currently lists 16 Shariah start, with net redemption of funds to educate investors on Sukuk funds compliant ETFs worldwide. ETF standing in excess of US$72 billion. are normally turned into a fact fi nding Securities’ ETFS Physical Gold is According to Scott Smith, the head of mission on their part to invest into Sukuk currently the largest fund in this space the intermediary practice at Cerulli, the directly,” he lamented. with assets under management of mutual fund redemption was not merely US$7.936 billion as at the 31st August a result of reduced interest in investing In an earlier report on Australia’s 2012. However, other Shariah compliant overall but was also due to investors’ superannuation funds, Cerulli also ETFs have received a lukewarm response preference for lower-cost products, stated that despite the large number of from investors, forcing two of these particularly exchange-traded funds, funds and types of funds, self-managed funds - one in the US and the other which saw infl ows of about US$112 funds have seen exponential growth, domiciled in Singapore – to close. billion in 2011. currently making up 33.9% of all the superannuation assets. Cerulli also With lack of education constantly cited Large outfl ows of assets from traditional predicts that the number of large ‘supers’ as a reason for the slow take up of ETFs, active fund managers that instead moved is likely to shrink as the total number of a concerted eff ort by fund managers to lower cost fund managers such as funds increases. is needed on a global scale to not only Vanguard that saw infl ows of assets create awareness but to att ract investors into six of its funds of more than US11.7 to this low cost and lucrative form of billion during the fi rst quarter of 2012 One popular investment product that has investment. x — RW while 19 of the top 25 equity funds in the seen much success in the conventional US experienced outfl ows of over US$15 space but not the Islamic fi nance industry billion during the same period, according is exchange-traded funds (ETFs). to Cerulli. Conventional ETFs came about in the early 1990s in the US and were originally In this issue... “These fi gures refl ect a growing used by professional investors, but Market commentary ...... 24 reluctance by investors and advisors to the passive investing with lower costs pay for what they believe to be broad eventually att racted retail investors as Fund Tables ...... 25 market returns,” commented Smith. well.

WE SEE AN EVEN BRIGHTER FUTURE IN ASIA eastspringinvestments.com.my

Reliance Global Equity Style Monitor – Market Commentary

Global equity markets rose strongly Table 1 – Style preference by Region in Q3 2012 during the third quarter of 2012, as investors recovered their appetite for Sep-12 Valued Growth Emom Pmom Financial Low Vol Quality risk courtesy of the worlds’ central US 7 6 6 5 10 6 2 bankers. Asset prices reacted positively Canada 5 3 6 7 5 3 6 across the globe in response to a third UK 7 4 2 3 10 3 3 round of quantitative easing by the US Europe 3 6 7 2 7 1 8 Federal Reserve and a vow from the Asia 8 4 3 2 7 4 9 European Central Bank to tackle the Japan 4 7 3 3 5 5 6 Eurozone debt crisis. Source: Reliance Asset Management Malaysia Date: 30 September 2012 In order to bett er understand the interaction between economics and investor sentiment, Reliance Asset Table 2 – Change in Style preference by Region Q3 2012 Management Malaysia evaluates Sep-12 Valued Growth Emom Pmom Financial Low Vol Quality companies in terms of investment US +4 +3 +1 +0 +1 (-2) (-2) ‘styles’, such as Value, Growth and Canada +2 +0 +0 +1 (-2) (-3) (-1) Momentum. UK +3 (-3) +0 (-2) +3 (-3) (-1) This analysis forms the basis of Europe +3 (-2) (-1) (-1) +2 (-2) +0 ‘Cognition’ our in-house stock selection Asia +0 +2 (-1) (-1) (-1) (-1) +0 model. The following ‘heat map’ of Japan (-3) +1 (-1) +1 (-1) (-1) +2 global style preferences tallies the number of sectors where analysis by Source: Reliance Asset Management Malaysia Date: 30 September 2012 Cognition over the past twelve months assigns a greater than equal weight to increasingly att racted towards those export dependent Japanese economy any given style (red being ‘hot’) against oﬀ ering the best relative valuation. has not yet recovered and we believe it those where it assigns a less than equal will only do so when global economic weight (blue being ‘cold’). Turning to look at the changes in style growth begins to accelerate. The style preferences during the third quarter diﬀ erences are a good demonstration that Although ‘Financial Strength’ clearly of 2012, we note a clear divergence recent equity market gains have been remains a ‘hot’ investment style, the in style trends at the regional level. driven by liquidity rather than any real number of sectors favoring ‘Value’ Greater risk appetite in the US, improvement in the global economy. has increased markedly in the US and Canadian, UK and European markets Europe. Investors continue to prefer contrasts markedly with a lower risk Reliance Asset Management Malaysia is companies with strong balance sheets appetite in Asia – ‘Value’ preferences Investment Manager of the WSF Reliance in most economic sectors across the remained static in Asia and actually Global Shariah Growth Fund. This fund developed world, but they are now fell in Japan. It is worth noting that the utilizes the Cognition investment process.

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Eurekahedge Middle East/Africa Islamic Fund Index

270

250

230

210

190

170 Index Values

150

130

110

90 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Apr-11 Aug-00 Aug-02 Aug-04 Aug-06 Aug-08 Aug-10 Aug-12

Top 10 Monthly returns for Asia Pacifi c funds Fund Fund Manager Performance Measure Fund Domicile 1 Al Rajhi India & China Equity Al Rajhi Bank 4.74 Saudi Arabia 2 Public China Itt ikal Public Mutual 3.95 Malaysia 3 CIMB Islamic Asia Pacifi c Equity UOB Asset Management 3.69 Malaysia 4 AAA Amanah Syariah Andalan Artha Advisindo Sekuritas 3.61 Indonesia 5 Al-'Aqar KPJ REIT AmMerchant Bank 3.57 Malaysia 6 PB Islamic Asia Strategic Sector Public Mutual 3.13 Malaysia 7 Public Islamic Asia Dividend Public Mutual 3.06 Malaysia 8 Public Asia Itt ikal Public Mutual 2.96 Malaysia 9 Am-Namaa' Asia-Pacifi c Equity Growth AmInvestment Management 2.89 Malaysia 10 PB Islamic Asia Equity Public Mutual 2.79 Malaysia Eurekahedge Asia Pacifi c Islamic Fund Index 0.18 Based on 53.59% of funds which have reported September 2012 returns as at 16th October 2012 Top 10 Monthly returns for Middle East/Africa funds Fund Fund Manager Performance Measure Fund Domicile 1 Amanah Growth Portfolio SABB 8.26 Saudi Arabia 2 Al Baraka Hermes Fund Management 7.05 Egypt 3 Faisal Islamic Bank of Egypt Mutual Hermes Fund Management 6.28 Egypt 4 Markaz Islamic Kuwait Financial Centre 6.02 Kuwait 5 Al Assjad IFA Islamic International Financial Advisors 5.39 Kuwait 6 Al-Aman Islamic Al-Aman Investment Company 4.45 Kuwait 7 Riyad Gulf Riyad Bank 1.94 Saudi Arabia 8 NBAD UAE Islamic (Al Nae'em) National Bank of Abu Dhabi 1.55 UAE 9 Al Dar Money Market ADAM 0.64 Kuwait 10 Emirates MENA Opportunities EIS Asset Management 0.52 Jersey Eurekahedge Middle East / Africa Islamic Fund Index 0.31 Based on 48.91% of funds which have reported September 2012 returns as at 16th October 2012

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

Eurekahedge Islamic Fund Fixed Income Index over the last 5 years Eurekahedge Islamic Fund Fixed Income Index over the last 1 year

125 104

103.5 120 103

115 102.5

102 110 101.5 Percentage Percentage 105 101

100.5 100 100 95 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 May-08 May-09 May-10 May-11 May-12 99.5 Oct-11 Aug-12 Apr-12 Jan-12 Jul-12 Sep-11 Sep-12 May-12 Mar-12 Dec-11 Jun-12 Nov-11 Feb-12

Top 10 Islamic Fixed Income Funds by 3 Month Returns Fund Fund Manager Performance Measure Fund Domicile 1 Atlas Pension Islamic - Debt Sub Atlas Asset Management 2.78 Pakistan 2 Meezan Tahaﬀ uz Pension - Debt Sub Al Meezan Investment Management 2.48 Pakistan 3 Jadwa Global Sukuk Jadwa Investment 2.31 Saudi Arabia 4 PB Islamic Bond Public Mutual 2.02 Malaysia 5 Public Islamic Enhanced Bond Public Mutual 2.00 Malaysia 6 CIMB Islamic Sukuk CIMB-Principal Asset Management 1.56 Malaysia 7 AMB Dana Arif Amanah Mutual 1.15 Malaysia 8 Public Islamic Bond Public Mutual 1.08 Malaysia 9 CIMB Islamic Enhanced Sukuk CIMB-Principal Asset Management 1.02 Malaysia 10 Public Islamic Select Bond Public Mutual 1.01 Malaysia Eurekahedge Islamic Fund Fixed Income Index 1.24 Based on 44.12% of funds which have reported September 2012 returns as at 16th October 2012 Top 10 Annualized Sortino Ratio for ALL Islamic Funds Fund Fund Manager Performance Measure Fund Domicile 1 Meezan Tahaﬀ uz Pension - Debt Sub Al Meezan Investment Management 13.83 Pakistan 2 Atlas Pension Islamic - Debt Sub Atlas Asset Management 13.58 Pakistan 3 Public Islamic Income Public Mutual 9.55 Malaysia 4 Commodity Trading - SAR Riyad Bank 7.95 Saudi Arabia 5 PB Islamic Bond Public Mutual 3.71 Malaysia 6 Public Islamic Bond Public Mutual 3.54 Malaysia 7 Emirates Global Sukuk USD Institutional Share Class (Acc) Emirates NBD Asset Management 3.06 Jersey 8 Public Islamic Select Enterprises Public Mutual 2.80 Malaysia 9 Public Islamic Select Bond Public Mutual 2.64 Malaysia 10 Atlas Pension Islamic - Money Market Sub Atlas Asset Management 2.54 Pakistan Eurekahedge Islamic Fund Index 0.09 Based on 52.68% of funds which have reported September 2012 returns as at 16th October 2012 Based on reporting funds with at least 12 months of returns till September 2012 as at 16th October 2012

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

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

Cover story have a longer duration of 20-25 years, terms of penetration, there needs to be and this is common in the Family funds sustainability in the market. Regulators According to the 2011 Ernst & Young portfolio. However, on the General side, in the Middle East - the GCC and report, Shariah compliant funds these funds have a shorter duration. UAE - are typically viewed as more lax totalled US$58 billion, whilst global Longer-duration funds are really scarce compared to Malaysia. For instance, Shariah compliant assets are estimated in the market, and fund managers are Malaysian Takaful operators have limits at US$300 billion. The diff erence currently struggling to seek longer-dated to their overseas investments, and even of US$242 billion are regarded as Sukuk. In terms of pricing, we still need for segregated mandates there is a risk institutional mandates, which have not to meet with the asset-liability matching, charge and reserve requirement, which been invested in either mutual funds or and the product has to be delivered is a lot higher than if they were to invest unit trust funds, but are instead assets as it had been priced. For instance, if locally. In the Middle East and the GCC, that are managed by fund managers you were to go abroad, like Etiqa, you we see a lot more fl exibility; therefore as a segregated account. Therefore, must take a currency view, or else you consumers need to be very careful as the in Malaysia for example, its Shariah will go abroad without knowing the overall yield and returns - even in 2008 compliant fund managers such as BNP implications to your currency. Based on and 2009 - were negative.” Paribas, Nomura Asset Management the Takaful guidelines for Malaysian and AmAsset Management currently Takaful operators, overseas investments Choong added: “Although the Malaysian manage assets in domestic unit trust are restricted to 10% per fund, and with Takaful industry is relatively more stable, and institutional assets from outside all the limitations and risk-based charges they are looking to explore more asset of Malaysia; particularly in the Middle (which will be enforced), there will have classes for diversifi cation purposes. Over East. to be further considerations. At present, the last few years, the industry has been a typical portfolio of a company with volatile. This is despite the Sukuk market On the buy side of the asset management an asset base of RM20 billion (US$6.55 doing well and seeing a tremendous industry are the Takaful operators, billion) comprises largely of Sukuk, improvement in liquidity. Takaful who are crucial in the asset-liability Shariah compliant indices and alternative operators have increased their allocation matching process for the institution. investments.” to global Sukuk in the last two years According to Norlia Mat Yusof, the chief from 10% to 30%; which is a great shift , investment offi cer at Etiqa Takaful, the Daniel Choong, an executive director given what is happening in the fi nancial major challenge to Takaful operators and the head of business development markets.” at present is to minimize the duration at Nomura Islamic Asset Management, gap as assets continue to increase, also shared his perspective from a fund He believes that regulators will play and to seek alternatives in the market manager’s point of view, stating that at a major part in stabilizing the Takaful outside of the traditional Sukuk and present, opportunities in the Takaful industry and implementing more equities investment channels. “We market are currently rife, on the back guidelines for its long-term protection, (Takaful operators) have begun to look at of excellent growth in the GCC and particularly in the investment space. alternative classes such as property and Malaysia. However, he added: “We are — NH private equity. However, in the case of seeing a slowdown to a certain extent, private equity, the risk associated with and seeing emerging markets gaining its returns is higher; with a risk-based traction in terms of Takaful penetration. In this issue... charge of 35%. This refl ects the risk There has also been talk about Malaysian News ...... 28 associated with the returns.” Essentially, players exploring Indonesia, given the Feature she adds, Takaful players are still seeking tremendous growth rate of over 5% in Takaful in Kenya: Product innovation and the elusive longer-dated Sukuk. profi tability ...... 29 the republic over the last few years. In “Life funds and family funds typically

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ING’s Takaful unit for sale than other insurance products, according insurance in the region recorded double- to Younis J Al Sayed, the chairman of digit growth in premiums in recent years, MALAYSIA: ING Group will sell Bahrain Insurance Association. growth has slowed and is expected to its Malaysian insurance operations, come in at less than 5% this year, partly including its 60% stake in ING Public He att ributed the slower growth of due to the region’s political instability Takaful Ehsan, to AIA Group for EUR1.3 Family Takaful to low awareness levels and the global ﬁ nancial downturn. billion (US$1.67 billion) as part of a and a lack of product distribution disposal of its Asian insurance and channels. investment management businesses. Takaful for paddy farmers MALAYSIA: Noh Omar, the minister of The sale remains subject to regulatory Slower growth in MENA agriculture and agro-based industry, has approval. GLOBAL: The Takaful and insurance announced that 170,000 paddy farmers markets in the MENA region remain will be placed under a government-led Low Family Takaful underdeveloped and could record slower Takaful scheme. growth going forward, said ratings penetration agency AM Best. The plan will be provided to operators of BAHRAIN: Family Takaful penetration paddy farms not exceeding 10 hectares. in the kingdom is signiﬁ cantly lower It added that while Takaful and

Shariah Audit and Compliance for Islamic Banking

1st – 2nd November 2012 Kuala Lumpur

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Takaful in Kenya: Product innovation and profitability

Product innovation in Takaful can lead to numerous opportunities and developments. Clients can now enjoy a pool of diverse underwriters with multiple beneﬁ ts and diﬀ erent models in the choice of covers. ABASS MOHAMED explores.

Product innovation means diff erent as ‘participants’, co-guarantee each other products and in the long run, the growth things to diff erent people. Some, for in the risk fund. Where underwriting of the insurance industry’s premium and example, tend to think in terms of a surplus or profi ts is declared at the end ultimate profi tability. product which is ‘fi rst-of-its-kind’, of the year, such surplus is shared among whether in Kenya or in some larger the policyholders who have not made Technology innovation market, or the gradual improvements claims. The contract of Takaful is thus Technology innovations have and can of features and benefi ts of existing one of ‘fairness and equity’ as stipulated also greatly enhance profi tability. Locally products. under Shariah for fi nancial transactions. in the Kenyan market, the use of mobile phones in the sale and distribution Thus product innovation in the insurance Growth of Takaful of insurance has grown signifi cantly. market in Kenya can be defi ned as either Takaful was pioneered in Sudan in 1979 Such platforms reduce distribution and improvements to existing products or and has since grown phenomenally administration costs. as upcoming developments. This is over the last three decades with over referred to as incremental innovation and 200 Takaful operators globally and According to the latest fi gures from the benefi ts insurers and customers alike. more Takaful windows in conventional Communications Commission of Kenya Some might describe this transaction-led insurance companies. Further re-Takaful (CCK), mobile subscribers in the country innovation as product fl exibility rather (re-insurance) has also grown to meet increased to 29.2 million between January than innovation per se. On the client side, re-insurance needs within the concept and March 2012, up from 28.08 million such policy refi nements – sometimes of mutual cooperation, thus enhancing in December 2011, and 89.1% of the called ‘deal-by-deal innovations’ — can innovation in the Takaful industry. population has access to mobile phones. be extremely important for shaping This shows a phenomenal platform that existing risks to make them or keep can be exploited for greater reach and them insurable. Innovations also help awareness. by saving on unnecessary cover and by Technology using re/insurers’ risk-absorbing capacity innovations In addition, one must remember that to reduce the overall costs of insurance. some people have two sim cards with have and can also two separate lines or telephones and For insurers, incremental innovation is that increases the numbers signifi cantly. absolutely essential. However, to step up greatly enhance The CCK is yet to release any data on to the challenges of the market a certain the actual numbers of those with double dosage of radical innovation may be profitability sim cards but nonetheless, the potential required. remains signifi cant and its impact is already been felt. Radical innovation or ‘fi rst-of-its-kind’ product development happens when In Kenya, Takaful Insurance of Africa Product innovation could also be new ideas or products are developed was licensed by the Insurance Regulatory interpreted as the use of new platforms from scratch. Such innovation has only Authority in 2008 and has shown grown on the social media scene, such as been pioneered by smaller fi rms with massive potential in its fi rst year of Facebook and Twitt er, to reach new identifi ed niche markets. Overall, radical operation. The coming of Takaful to markets and target clients. Kenya innovation has been hampered by the Kenya has signifi cantly enhanced the is constantly mentioned as a top nature of insurance risk that always increase in insurance penetration among African nation for Facebook users and forces the underwriters towards risk Muslims and other niche markets. Twitt er followers and with the proper aversion. integration these social sites could be Such penetration can thus be att ributed used to enhance product awareness. Nonetheless some amazing products to Takaful innovation, which continues Furthermore, other fi nancial institutions have been pioneered in the Kenyan to grow both locally and globally. have already used these platforms to market, especially in the Life industry. Product innovation in Takaful can great appeal. Takaful in general operates under the lead to numerous opportunities and mutual and solidarity principles where developments. Clients can now enjoy Innovation in some product lines, such policyholders pool together premiums a pool of diverse underwriters with as index-based livestock insurance, has in a collectively-owned risk fund that multiple benefi ts and diff erent models led to signifi cant developments in Kenya meets the claims and other policy holder in the choice of covers. Such diversity especially in the arid and semi-arid benefi ts. The policyholders, referred to enhances appreciation of insurance continued...

Continued areas. As well as increasing the reach of will challenge ‘product price wars’ and insurance to the very vulnerable groups, redefi ne customer relationships. Kenya is such products have led to enhanced value addition for the community and Examples of this in more developed constantly improved the image and perception of insurance markets include: insurance as a whole. Further research mentioned as a top and developments into these segments • Accident forgiveness, which keeps of livestock, poultry and farm insurance rates from going up because of an African nation for could also heavily infl uence the way accident; traditional farming or rearing is done. Facebook users and • Safe driving bonus, which rewards Micro-insurance consumers with up to 5% of their Twitter followers Micro-insurance is one platform which premiums back for every six months and with the proper has experienced signifi cant developments of accident-free driving; in the Kenyan market. Some companies • New car replacement, which replaces integration these have pioneered and enhanced both a car if a policyholder has an accident micro-health and other covers to the during the fi rst three years of social sites could lower-end mass market. Success in owning a new car; micro-insurance requires a great deal of be used to enhance effi ciency and mass market strategies • Recover care, which pays for to reach a critical mass. Administration assistance with cooking, cleaning, product costs and distribution channels have shopping, transportation and yard to be re-thought and restructured to work if the policyholder is injured in awareness provide for a leaner, easier system that a car accident; touches the client base directly through by US$150 and which continues to trusted forums. • Lifetime car repair guarantee, which provide reductions of US$50 for each reduces costs by using authorized year of a policy holder’s good driving While there has been slow uptake of repair shops to guarantee all repairs; record. new products in the market in the and last 10 years, this co-creation or co- Abass Mohamed is the corporate risk and development approach and the emerging • Disappearing deductible, which research manager at Takaful Insurance new products and services are poised rewards good driving with a of Africa. He can be contacted at abass. to disrupt market dynamics. Products reduction in the collision deductible [email protected] with built-in customer input and value

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Khaldoun What are the factors contributing to the success Malkawi, of your company? SANA is always creating innovative chairman & CEO, Islamic products and searching for unique Islamic investment Al Sanabel opportunities as well as adhering to International Shariah. Holding What are the obstacles faced in running your business today? Khaldoun Malkawi has served The general availability of information in various international banks remains limited for what is still a young and established his own asset and evolving industry. The rules and management companies in regulations locally and internationally Amsterdam and Geneva. He are not developed enough to practice obtained his Masters degree in the Shariah compliant investments in Islamic fi nance at Pebble Hills a proper way. We hope that a proper University, UK. solution will be resolved in the future. The supply of trained or experienced Could you provide a brief bankers has lagged behind the journey of how you arrived million) divided into 20 million expansion of Islamic banking. One of shares. It became a listed company in where you are today? the biggest challenges facing Islamic October 2006. Aft er meeting the listing institutions is the provision of short- Before establishing Al Sanabel requirements, SANA was moved to International Holding (SANA), I was term investment instruments. Several the fi rst market of the Amman Stock institutions have tried to develop high the fi nancial consultant for the palace Exchange in April 2009. in the UAE. I also served in diff erent quality short-term instruments, but international banks and established have been hampered by their ability to my own asset management companies Which of your products/ generate assets, by their credit ratings in Amsterdam and Geneva. I obtained services deliver the best and by liquidity. my Masters degree in Islamic fi nance results? in London, UK and pursued an We have structured the Al Sanabel Where do you see the executive course at Harvard Business International Holding Islamic Index, Islamic fi nance industry in School. Currently, I am in the midst of which monitors the Amman Stock completing my PhD in Islamic fi nance. the next fi ve years? Exchange listed stocks and fi lters the I believe that more innovative Islamic Shariah compliant ones, creating an fi nancial products will be created What does your role excellent benchmark for investors and the world will understand the involve? who are interested in investing in importance of Islamic fi nance. I act on behalf of SANA as the Shariah products within a diversifi ed portfolio. We are also in the process of communicator, decision maker, leader, Name one thing you would manager and executor and I also decide structuring an index fund for Sanabel on the policies and strategies. I advise Islamic Index. like to see change in the the board of directors and motivate world of Islamic fi nance. the employees. I also ensure eff ective What are the strengths of I would like to see more innovative communication with shareholders, your business? products which serve the needs of the government and other relevant SANA acts as an investment bank potential investors who are willing to constituencies. which gives us a bett er fl exibility levels invest in accordance with Shariah. The compared to the commercial ones. Islamic fi nance investment options What is your greatest SANA is currently pursuing a focused are still limited compared to the diff erentiation development strategy commercial ones which sometimes achievement to date? leave the investors with limited choices. Six years ago, I was the founder of the by concentrating on Shariah compliant investments exclusively and off ering a fi rst and only Islamic investment house I hope to see more integration between in the Levant area. SANA is a publicly comprehensive mix of fi nancial services to clients around the world with a tilt Islamic institutions globally and to listed Shariah compliant fi nancial establish communication channels investment fi rm on the Amman towards institutional and Jordanian investors. SANA achieves additional between Islamic entities enabling them Stock Exchange that was established to corporate with each other. in February 2006 with authorized diff erentiation by engaging in direct capital of JOD20 million (US$28.4 and indirect investments using its own capital.

DATE ISSUER SIZE ANNOUNCED IFN Correspondents AFGHANISTAN: Zulﬁ qar Ali Khan MNRB Holding RM150 million 16th October 2012 head of Islamic banking division, ﬁ nancial supervision department, Da Afghanistan Bank Banque Saudi Fransi SAR2.5 billion 15th October 2012 AUSTRALIA: Gerhard Bakker director, Madina Village Edaran SWM RM1 billion 5th October 2012 BAHRAIN: Dr Hatim El-Tahir director, Islamic Finance Knowledge Centre, Deloitt e & International Islamic Liquidity US$200 to 500 million 4th October 2012 Touche BANGLADESH: Md Shamsuzzaman Management Corporation executive vice president, Islami Bank Bangladesh

th BERMUDA: Belaid A Jheengoor Turkish Airlines TBA 4 October 2012 director of asset management, PwC

th BRUNEI: James Chiew Siew Hua Danainfra Nasional RM1.5 billion 4 October 2012 senior partner, Abrahams Davidson & Co

th CANADA: Jeff rey S Graham Weststar Capital RM900 million 4 October 2012 partner, Borden Ladner Gervais rd CZECH REPUBLIC: JUDr Ivana Hrdlickova, Dubai Electricity and Water Authority AED4.5 billion 3 October 2012 judge, Judiciary, Appelate Court Pardubice th EGYPT: Dr Walid Hegazy Tunisia sovereign TBA 30 September 2012 managing partner, Hegazy & Associates th FRANCE: Kader Merbouh Bank Asya TRY150 million 25 September 2012 co head of the Executive Master of the Islamic Finance, th Paris-Dauphine University Qatar Islamic Bank US$1.5 billion 16 September 2012 HONG KONG & CHINA: Anthony Chan partner, Brandt Chan & Partners in association with SNR TH Plantation RM1.5 billion 14th September 2012 Denton INDIA: Keyur Shah Bolton RM380 million 6th September 2012 partner, KPMG INDONESIA: Farouk A Alwyni HSBC Amanah RM3 billion 4th September 2012 chairman, Center for Islamic Studies in Finance, Economics, and Development Sime Darby US$1.5 billion 3rd September 2012 IRAN: Majid Pireh Islamic fi nance expert, SEO Malakoff Corporation RM1.8 billion 17th August 2012 IRAQ: Khaled Saqqaf partner and head of Jordan & Iraq offi ces, Al Tamimi & Co Putrajaya Holdings RM3 billion 13th August 2012 IRELAND: Ken Owens Shariah funds assurance partner, PwC Ireland Indonesia sovereign US$1 billion 10th August 2012 JAPAN: Serdar A. Basara president, Japan Islamic Finance Indonesia sovereign US$750 million 10th August 2012 JORDAN: Khaled Saqqaf partner and head of Jordan & Iraq offi ces, Al Tamimi & Co Tanjung Bin Power RM4.5 billion 7th August 2012 KOREA: Yong-Jae Chang partner, Lee & Ko Kuala Lumpur Kepong RM1 billion 1st August 2012 KUWAIT: Alex Saleh partner, Al Tamimi & Company Kimanis Power RM1.16 billion 16th July 2012 LUXEMBOURG: Marc Theisen partner, Theisen Law Syarikat Prasarana Negara RM4 billion 12th July 2012 MALAYSIA: Nik Norishky Thani head special projects (Islamic), PNB Türkiye Finans Katilim Bankasi US$300 million 9th July 2012 MALDIVES: Aishath Muneeza head of Islamic fi nance, Capital Market Development Sudan sovereign US$758 million 5th July 2012 Authority MALTA: Reuben Butt igieg South Africa sovereign TBA 4th July 2012 president, Malta Institute of Management MAURITIUS: Sameer K Tegally Indonesia sovereign IDR500 billion 3rd July 2012 associate, Conyers Dill & Pearman NEW ZEALAND: Dr Mustafa Farouk National Treasury South Africa US$500 - 700 million 3rd July 2012 counsel member for Islamic fi nancial institutions, FIANZ NIGERIA: Hajara Adeola Qatar sovereign US$4 billion 2nd July 2012 managing director, Lotus Capital Limited OMAN: Anthony Watson Indosat IDR300 billion 20th June 2012 senior associate, Al Busaidy Mansoor Jamal & Co PAKISTAN: Bilal Rasul Sadara SAR1.4 billion 13th June 2012 director (enforcement), SEC of Pakistan PHILIPPINES: Rafael A Morales UEM Group RM2.2 billion 13th June 2012 managing partner, SyCip Salazar Hernandez & Gatmaitan QATAR: Amjad Hussain General Authority of Civil Aviation TBA 24th May 2012 partner, K&L Gates SAUDI ARABIA: Nabil Issa Morocco sovereign TBA 23rd May 2012 partner, King & Spalding SENEGAL: Abdoulaye Mbow th Islamic fi nance advisor, Africa Islamic Finance Amer Group Holding EGP2.7 billion 14 May 2012 Corporation

th SOUTH AFRICA: Amman Muhammad Emirates NBD US$500 million 7 May 2012 managing director, Absa Islamic Bank

th SINGAPORE: Yeo Wico, Epmex RM1.35 billion 25 April 2012 partner, Allen & Gledhill

th SRI LANKA: Roshan Madewala Noor Islamic Bank US$1 billion 19 April 2012 director/CEO, Research Intelligence Unit

th SWITZERLAND: Khadra Abdullahi Encorp RM1.58 billion 18 April 2012 associate of investment banking, Faisal Private Bank

th TANZANIA: Khalfan Abdallah Johor Corp Group RM3 billion 13 April 2012 head of product development and Sharia compliance, Amana Bank th Citra Marga IDR1.2 trillion 12 April 2012 TURKEY: Ali Ceylan partner, Baspinar & Partners th Nakheel AED240 million 11 April 2012 UAE: Moinuddin Malim CEO, Mashreq Al Islami th Development Bank of Kazakhstan US$500 million 30 March 2012 UK: Siraj Ibrahim associate, Credit Agricole CIB Ethical Asset Management TBA 30th March 2012 US: Saeid Hamedanchi CEO, ShariahShares National Australia Bank US$500 million 29th March 2012 YEMEN: Moneer Saif head of Islamic banking, CAC Bank st Jebel Ali Free Zone AED2.4 billion 21 March 2012 IFN Correspondents are experts in their respective ﬁ elds and are selected by Islamic Finance news to Yemen sovereign US$232 million 20th March 2012 contribute designated short country reports. For more information about becoming an IFN Correspondent please contact [email protected] Saudi Electricity Company TBA 19th March 2012

REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 1110 1000

1018 920

926 840

834 760

742 680

650 600 Jan Feb Mar Apr May June July Aug Sept Jan Feb Mar Apr May June July Aug Sept

REDmoney GCC 6 Months REDmoney Global 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 780 1300

724 1176

668 1052

612 928

556 804

500 680 Jan Feb Mar Apr May June July Aug Sept Jan Feb Mar Apr May June July Aug Sept

REDmoney MENA 6 Months REDmoney US 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 750 1700

700 1520

650 1340

600 1160

550 980

500 800 Jan Feb Mar Apr May June July Aug Sept Jan Feb Mar Apr May June July Aug Sept

SAMI Halal Food Participation (All Cap) 6 months

2000

1825

1650

1475

1300 Jan-2012 Feb-2012 Mar-2012 Apr-2012 May-2012 June-2012 July-2012 Aug-2012 Sept-2012

REDmoney Global Shariah Index Series (All Cap) 6 Months REDmoney Global Shariah Index Series (Large Cap) 6 Months

REDmoney Asia ex. Japan REDmoney Global REDmoney Asia ex. Japan REDmoney Global REDmoney Europe REDmoney MENA REDmoney Europe REDmoney MENA REDmoney GCC REDmoney US REDmoney GCC REDmoney US 1100 1000

980 890

860 780

740 670

620 560

500 450 Jan Feb Mar Apr May June July Aug Sept Jan Feb Mar Apr May June July Aug Sept

REDmoney Global Shariah Index Series (Medium Cap) 6 Months REDmoney Global Shariah Index Series (Small Cap) 6 Months

REDmoney Asia ex. Japan REDmoney Global REDmoney Asia ex. Japan REDmoney Global REDmoney Europe REDmoney MENA REDmoney Europe REDmoney MENA REDmoney GCC REDmoney US REDmoney GCC REDmoney US 1700 1450

1460 1260

1220 1070

980 880

740 690

500 500 Jan Feb Mar Apr May June July Aug Sept Jan Feb Mar Apr May June July Aug Sept

REDmoney Global Shariah

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

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

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

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

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

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

Most Recent Global Sukuk

Priced Issuer Nationality Instrument Market US$ (mln) Managers

11th Oct 2012 Qatar International Qatar Sukuk Euro market 700 Standard Chartered Bank, HSBC, Qatar Islamic Bank public issue National Bank 4th Oct 2012 Edaran SWM Malaysia Sukuk Domestic market 245 Hong Leong Bank, CIMB Group public issue 3rd Oct 2012 Qatar Islamic Bank Qatar Sukuk Euro market 750 Standard Chartered Bank, Deutsche Bank, public issue HSBC, QInvest 1st Oct 2012 Khazanah Nasional Malaysia Sukuk Domestic market 651 CIMB Group, AmInvestment Bank Musharakah private placement 20th Sep 2012 Republic of Turkey Turkey Sukuk Euro market 1,500 HSBC, Kuwait Finance House, Citigroup public issue 20th Sep 2012 MISC Malaysia Sukuk Domestic market 163 HSBC, CIMB Group, AmInvestment Bank public issue 20th Sep 2012 HSBC Amanah United Sukuk Domestic market 163 HSBC, AmInvestment Bank, Hong Leong Malaysia Kingdom public issue Islamic Bank, Maybank Investment Bank 18th Sep 2012 Malaysian Airline Malaysia Sukuk Domestic market 165 Maybank Investment Bank System private placement 7th Sep 2012 National Higher Malaysia Sukuk Domestic market 321 CIMB Group, Maybank Investment Bank Education Fund public issue 3rd Sep 2012 Cagamas Malaysia Sukuk Domestic market 160 RHB Capital public issue 29th Aug 2012 Malakoﬀ Malaysia Sukuk Domestic market 577 Maybank Investment Bank Corporation private placement 28th Aug 2012 Syarikat Prasarana Malaysia Sukuk Domestic market 644 RHB Capital, Kenanga Investment Bank, Negara Murabahah public issue CIMB Group 15th Aug 2012 Tanjung Bin Power Malaysia Sukuk Domestic market 1,346 CIMB Group, Maybank Investment Bank private placement 14th Aug 2012 Celcom Transmission Malaysia Sukuk Domestic market 1,605 HSBC, CIMB Group, Maybank Investment (M) Murabahah public issue Bank 10th Aug 2012 Khazanah Nasional Malaysia Sukuk Domestic market 806 Kenanga Investment Bank, DRB-HICOM, Musharakah private placement CIMB Group, AmInvestment Bank 9th Aug 2012 Kuala Lumpur Malaysia Sukuk Ijarah Domestic market 322 CIMB Group, Maybank Investment Bank Kepong public issue 1st Aug 2012 SME Bank Malaysia Sukuk Domestic market 159 Kuwait Finance House, AmInvestment Bank, public issue Maybank Investment Bank 19th Jul 2012 Kimanis Power Malaysia Sukuk Domestic market 272 HSBC, CIMB Group public issue 17th Jul 2012 Aman Sukuk Malaysia Sukuk Domestic market 260 Lembaga Tabung Haji, RHB Capital, CIMB public issue Group, AmInvestment Bank, Maybank Investment Bank 12th Jul 2012 Emaar Sukuk UAE Sukuk Euro market 500 Standard Chartered Bank, HSBC, Dubai public issue Islamic Bank, Abu Dhabi Islamic Bank, Emirates NBD, Noor Islamic Bank, Al Hilal Bank, Barwa Bank

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

US$bn US$m US$bn US$m 12 1200 18 600 Value (US$bn) Avg Size (US$m) 16 Value (US$bn) Avg Size (US$m) 500 10 1000 14 8 800 12 400 10 300 6 600 8 4 400 6 200 4 100 2 200 2 0 0 0 0 1234567891011121234567 8 9 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q2Q 3Q 2011 2012 2007 2008 2009 2010 2011 2012

Top 30 Issuers of Global Sukuk 12 Months Issuer Nationality Instrument Market US$ (mln) Iss Managers

1 Projek Lebuhraya Malaysia Sukuk Domestic market 9,610 17.7 RHB Capital, CIMB Group, AmInvestment Bank, Maybank Usahasama private placement Investment Bank 2 State of Qatar Qatar Sukuk Euro market 4,000 7.4 Standard Chartered Bank, Deutsche Bank, HSBC, QInvest, public issue Barwa Bank 3 General Authority Saudi Sukuk Domestic market 4,000 7.4 HSBC for Civil Aviation Arabia private placement 4 Saudi Electricity Saudi Sukuk Euro market 1,750 3.2 Deutsche Bank, HSBC Company Arabia public issue 5 Celcom Malaysia Sukuk Domestic market 1,590 2.9 HSBC, CIMB Group, Maybank Investment Bank Transmission (M) Murabahah public issue 6 Manjung Island Malaysia Sukuk Ijarah Domestic market 1,545 2.9 Lembaga Tabung Haji, CIMB Group Energy public issue 7 Republic of Turkey Turkey Sukuk Euro market 1,500 2.8 HSBC, Kuwait Finance House, Citigroup public issue 8 Tanjung Bin Power Malaysia Sukuk Domestic market 1,298 2.4 CIMB Group, Maybank Investment Bank private placement 9 Dubai DOF Sukuk UAE Sukuk Euro market 1,250 2.3 HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, public issue Citigroup 10 National Higher Malaysia Sukuk Domestic market 1,110 2.1 CIMB Group, Maybank Investment Bank Education Fund public issue 11 Tanjung Bin Energy Malaysia Sukuk Domestic market 1,089 2.0 HSBC, OCBC, RHB Capital, DRB-HICOM, CIMB Group, Issuer Tawaruq private placement Affi n Investment Bank, Maybank Investment Bank 12 Perusahaan Penerbit Indonesia Sukuk Ijarah Euro market 1,000 1.8 Standard Chartered Bank, HSBC, Citigroup SBSN Indonesia II public issue 12 EIB Sukuk UAE Sukuk Euro market 1,000 1.8 Standard Chartered Bank, HSBC, Royal Bank of Scotland, public issue National Bank of Abu Dhabi, Citigroup, Emirates NBD, Dubai Islamic Bank, Credit Agricole 14 Johor Corporation Malaysia Sukuk Domestic market 939 1.7 CIMB Group, Affi n Investment Bank, AmInvestment Bank, public issue Maybank Investment Bank 15 Malaysia Malaysia Sukuk Domestic market 817 1.5 Maybank Investment Bank Murabahah public issue 16 Maxis Malaysia Sukuk Domestic market 805 1.5 CIMB Group, Maybank Investment Bank Musharakah public issue 17 IDB Trust Services Saudi Sukuk Euro market 800 1.5 Saudi National Commercial Bank, Standard Chartered Arabia public issue Bank, BNP Paribas, HSBC, CIMB Group 18 Sarawak Energy Malaysia Sukuk Domestic market 796 1.5 RHB Capital, Kenanga Investment Bank, AmInvestment public issue Bank 19 ANIH Malaysia Sukuk Domestic market 786 1.5 CIMB Group, Maybank Investment Bank private placement 20 DanaInfra Nasional Malaysia Sukuk Domestic market 752 1.4 Lembaga Tabung Haji, RHB Capital, CIMB Group, public issue AmInvestment Bank, Maybank Investment Bank 21 Qatar Islamic Bank Qatar Sukuk Euro market 750 1.4 Standard Chartered Bank, Deutsche Bank, HSBC, QInvest public issue 21 Kingdom of Bahrain Bahrain Sukuk Euro market 750 1.4 Standard Chartered Bank, BNP Paribas, Citigroup public issue 21 BSF Sukuk Saudi Sukuk Euro market 750 1.4 Deutsche Bank, Citigroup, Credit Agricole Arabia public issue 24 Qatar International Qatar Sukuk Euro market 700 1.3 Standard Chartered Bank, HSBC, Qatar National Bank Islamic Bank public issue 25 Aman Sukuk Malaysia Sukuk Domestic market 700 1.3 Lembaga Tabung Haji, RHB Capital, CIMB Group, public issue AmInvestment Bank, Maybank Investment Bank 26 Khazanah Nasional Malaysia Sukuk Domestic market 652 1.2 Kenanga Investment Bank, DRB-HICOM, CIMB Group, private placement AmInvestment Bank 27 Jafz Sukuk UAE Sukuk Euro market 650 1.2 Standard Chartered Bank, Abu Dhabi Commercial Bank, public issue National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD 28 Syarikat Prasarana Malaysia Sukuk Domestic market 644 1.2 RHB Capital, Kenanga Investment Bank, CIMB Group Negara Murabahah public issue 29 Malakoff Malaysia Sukuk Domestic market 577 1.1 Maybank Investment Bank Corporation private placement 30 DRB-HICOM Malaysia Sukuk Domestic market 561 1.0 Maybank Investment Bank private placement

Total 54,231 100

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

Manager US$ (mln) Iss % Malaysian ringgit 29.9 1 HSBC 10,366 29 19.1 US dollar 18.8 2 CIMB Group 9,096 38 16.8 3 Maybank Investment Bank 8,968 40 16.5 Saudi riyal 5.5 4 AmInvestment Bank 4,393 23 8.1 Singapore dollar 0.0 5 RHB Capital 3,148 31 5.8 6 Standard Chartered Bank 3,117 20 5.8 Sukuk Volume by Issuer Nation US$ (billion) 12 Months 7 Deutsche Bank 2,213 5 4.1 Malaysia 28.9 8 Citigroup 2,130 10 3.9 Saudi Arabia 8.8 9 Lembaga Tabung Haji 1,063 4 2.0 UAE 6.3 10 QInvest 988 2 1.8 Qatar 5.5 11 Dubai Islamic Bank 868 7 1.6 Turkey 1.9 12 Barwa Bank 863 2 1.6 Indonesia 1.2 13 National Bank of Abu Dhabi 797 6 1.5 Bahrain 1.1 14 Kuwait Finance House 678 5 1.3 15 Kenanga Investment Bank 666 4 1.2 Global Sukuk Volume by Sector 12 Months 16 Aﬃ n Investment Bank 468 4 0.9 17 Emirates NBD 439 5 0.8 12% 5% 27% Government 18 JPMorgan 425 2 0.8 Construction / Building Finance 19 BNP Paribas 410 2 0.8 15% Utility & Energy 20 Abu Dhabi Islamic Bank 409 5 0.8 Transportation 21 Hong Leong Bank 374 3 0.7 21% Other 20% 22 Credit Agricole 350 2 0.7 23 DRB-HICOM 348 8 0.6 24 Qatar National Bank 233 1 0.4 Global Sukuk Volume - US$ Analysis 25 OCBC 219 4 0.4 26 Abu Dhabi Commercial Bank 218 2 0.4 US$bn US$m 18 600 27 Saudi National Commercial Bank 160 1 0.3 16 Non-US$ US$ 500 14 28 Riyad Bank 153 2 0.3 12 400 10 300 29 Bank of America Merrill Lynch 125 1 0.2 8 30 Royal Bank of Scotland 99 2 0.2 6 200 4 100 2 Total 54,231 131 100.0 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q2Q 3Q Top Islamic Finance Related Project Finance Mandated Lead 2007 2008 2009 2010 2011 2012 Arrangers 12 Months

Mandated Lead Arranger US$ (million) No % Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months 1 Public Investment Fund 1,011 4 9.0 Legal Advisor US$ (million) No % 2 SABB 873 3 7.8 1 Allen & Overy 4,198 2 21.2 3 Arab National Bank 860 3 7.7 2 White & Case 3,579 2 18.1 4 Samba Financial Group 676 4 6.0 3 Skadden Arps Slate Meagher & Flom 3,281 1 16.6 5 Banque Saudi Fransi 537 3 4.8 4 Al-Jadaan & Partners Law Firm 1,586 2 8.0

6 HSBC Holdings 447 3 4.0 4 Baker & McKenzie 1,586 2 8.0 4 Cliﬀ ord Chance 1,586 2 8.0 7 Riyad Bank 428 3 3.8 7 Baker Bott s 917 1 4.6 8 Sumitomo Mitsui Financial Group 404 2 3.6 7 Chadbourne & Parke 917 1 4.6 9 KfW Bankengruppe 369 2 3.3 9 Linklaters 684 2 3.5 10 Mitsubishi UFJ Financial Group 360 1 3.2 10 Saudilegal 386 1 2.0

Top Islamic Finance Related Loans Mandated Lead Arrangers Top Islamic Finance Related Loans Deal List 12 Months Ranking 12 Months

Mandated Lead Arranger US$ (mln) No % Credit Date Borrower Nationality US$ (mln) 1 SABB 1,684 6 8.6 13th Dec 2011 Barzan Gas Qatar 5,442 2 Banque Saudi Fransi 1,232 5 6.3 12th Feb 2012 Mobily Saudi Arabia 2,667 3 Samba Capital 1,093 5 5.6 25th Jul 2012 Zain Saudi Saudi Arabia 2,600 4 Al-Rajhi Banking & Investment 1,075 5 5.5 11th Jun 2012 DanaInfra Nasional Malaysia 2,525 5 Saudi National Commercial Bank 991 5 5.0 nd 6 Arab National Bank 906 3 4.6 2 Dec 2011 Hajr for Electricity Saudi Arabia 1,981 Production 7 Maybank Investment Bank 819 5 4.2 4th Jul 2012 Dubai Duty Free UAE 1,749 8 AmInvestment Bank 704 3 3.6 14th Feb 2012 Power & Water Utility for Saudi Arabia 1,200 9 CIMB Group 679 2 3.5 Jubail & Yanbu 10 Standard Chartered Bank 636 9 3.2 13th Jun 2012 Jebel Ali Free Zone UAE 1,198 11 RHB Capital 631 1 3.2 30th Jun 2012 TIBAH Saudi Arabia 1,193 12 Emirates NBD 621 6 3.2 25th Jun 2012 Bawabat Al Shamal Real Qatar 1,154 13 HSBC 584 6 3.0 Estate Company 14 Noor Islamic Bank 566 7 2.9 15 Saudi Hollandi Bank 538 2 2.7 Top Islamic Finance Related Loans by Country 12 Months 15 Riyad Bank 538 2 2.7 Nationality US$ (mln) No % 17 Abu Dhabi Islamic Bank 495 8 2.5 1 Saudi Arabia 9,496 8 48.2 2 UAE 3,461 8 17.6 18 Dubai Islamic Bank 487 3 2.5 3 Malaysia 3,035 5 15.4 19 Citigroup 460 5 2.3 4 Qatar 1,317 2 6.7 20 Barwa Bank 378 3 1.9 5 Turkey 1,256 5 6.4 21 Standard Bank 289 1 1.5 6 Sri Lanka 350 2 1.8 21 National Bank of Kuwait 289 1 1.5 7 Pakistan 233 6 1.2 21 Gulf Bank 289 1 1.5 8 Singapore 207 1 1.1 9 Indonesia 183 4 0.9 21 DBS 289 1 1.5 10 Brunei Darussalam 170 1 0.9 21 Credit Agricole 289 1 1.5 26 Mashreqbank 226 4 1.2 Top Islamic Finance Related Loans by Sector 12 Months 27 Al Hilal Bank 224 6 1.1 Telecommunications 28 Qatar Islamic Bank 223 2 1.1 Construction/Building 29 Qatar International Islamic Bank 213 1 1.1 29 Masraf Al Rayan 213 1 1.1 Finance Utility & Energy Top Islamic Finance Related Loans Mandated Lead Arrangers 12 Months Transportation Bookrunner US$ (mln) No % US$ bln0 126 3 4 5 1 Credit Agricole 867 1 11.4 Global Islamic Loans - Years to Maturity (YTD Comparison) 1 Banque Saudi Fransi 867 1 11.4 1 Al-Rajhi Banking & Investment 867 1 11.4 2012 4 QInvest 517 2 6.8 2011 2010 5 HSBC 500 4 6.6 2009 6 Abu Dhabi Islamic Bank 470 5 6.2 2008 7 Emirates NBD 408 4 5.4 2007 8 Standard Chartered Bank 399 6 5.3 2006 9 Citigroup 390 4 5.1 0% 20% 40% 60% 80% 100% 0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs 10 Noor Islamic Bank 330 3 4.3

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

17th — 18th October 2012 Finance Conference 2012 4th – 6th December 2012 The SME Africa 2012 Kuala Lumpur, Malaysia 8th World Islamic Johannesburg, South Africa (Fleming Gulf) (Accounting Research Institute) Economic Forum Johor Bahru, Malaysia 17th — 18th October 2012 23rd November 2012 (WIEF Foundation) Middle East Takaful Forum IFN Roadshow Thailand Manama, Bahrain (MEGA Events) Bangkok, Thailand (REDmoney Events) 6th December 2012 IFN Roadshow Turkey th st th th 30 – 31 October 2012 27 — 28 November 2012 Istanbul, Turkey (REDmoney events) IFN Europe Forum 2012 2012 International Real Estate Finance London, UK (REDmoney events) (IREF) Summit 8th — 10th December 2012 London, UK (ICG Events) Global Islamic Microﬁ nance Forum 6th – 7th November 2012 Dubai, UAE (Al Huda CIBE) Islamic Banking Summit: Africa 3rd December 2012 9th — 11th December 2012 Djibouti, Africa (MEGA Events) IFN Roadshow Brunei Brunei (REDmoney events) The 19th Annual World Islamic Banking 12th – 13th November 2012 Conference IFN Saudi Arabia Forum 3rd December 2012 Manama, Bahrain (MEGA Events) Riyadh, Saudi Arabia (REDmoney events) Alpha Asia 2012 Singapore (All Events Group) 17th — 18th December 2012 20th November 2012 The 3rd Global Islamic Marketing IFN Roadshow Bangladesh 3rd — 4th December 2012 Conference: Africa Rises Dhaka, Bangladesh (REDmoney Events) AAOIFI World Bank Cairo, Egypt (International Islamic Annual Conference on Marketing Association) 20th — 21st November 2012 Islamic Banking and Finance International Islamic Accounting and Manama, Bahrain (AAOIFI)

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Abrahams, Davidson & Co 19 Eurekahedge 23 Merit Commodities Partners 24 Adnan Sundra & Low 17 European Central Bank 23 Mitabu Australia 6 AIA Group 28 Facebook 29 MNRB Holdings 6 Al Rajhi Bank 9,11,16 Faisal Islamic Bank 6 Moody’s 11 Al Sanabel International Holding 31 Fatt ah Finance 7 Mukah Power Generation 8 Alinma Bank 9 Gatehouse Bank 7 National Australia Bank 6 Allen & Gledhill 14 Genneva Malaysia 7 National Bank for Development 6 AM Best 28 GFH Capital 7 National Bank of Egypt 6 AmAsset Management 27 Great Eastern Group 16 National Bank of Kuwait 8 Appellate Court Pardubice, Czech Republic 13 Great Eastern Holdings Singapore 16 NATO 13 Arab Investment Bank 6 Great Eastern Life Assurance Malaysia 16 NCB Capital 11 Arab National Bank 9,11 Great Eastern Life Indonesia 16 Newcastle United Football Club 7 Arqaam Capital 11 Great Eastern Takaful 16 Nomura Assets Managment 27 Bahrain Insurance Association 28 Gulf Finance House 8 Nomura Holdings (Dubai) 9 Bahrain Islamic Bank 8 Gulf Investment Corporation 17 Nomura Islamic Asset Management 27 Bahrain Mumtalakat Holding Company 6,17 Harvard Business School 31 Oman Stock Exchange 31 Bahrain Telecommunications Company 17 Haya Rashed Al Khalifa 17 Pageantry Gold 7 Bank Albilad 11 HSBC 4,5,6 Qatar Central Bank 7 Bank AlJazira 9,16 HSBC Amanah 1,3,5 Qatar Financial Center 7 Bank Islam Malaysia 11 HSBC Amanah Malaysia 3 Qatar International Islamic Bank 6 Bank Negara Malaysia 11 HSBC Bank 1 Qatar Islamic Bank 6,9 Bank of London and The Middle East 6,8 HSBC Group 1 QInvest 8 BankDhofar 9 HSBC Holdings 1,3 QNB Capital 6 Banque Saudi Fransi 6 HSBC Middle East 1 RAM 8,17 Barclays Bank Egypt 7 HSBC Saudi Arabia 1,3 Reliance Asset Management Malaysia 24 Barwa Bank 9 IBFIM 12 Riyad Bank 9,11 Besraya 8 ICD 7 Riyad Capital 11 BIMB Holdings 11 IDB 6,8 Royal Malaysian Police 7 BlackRock 23 IIRA 8 S&P 4,10 BNP Paribas 27 IMF 13 Sabana Real Estate Investment Management 14 Board of Investment of Pakistan 13 ING Groep 28 Sabana Treasury 14 Boubyan Bank 8,9 ING Public Takaful Ehsan 28 SAMA 6 Burj Bank 7 Institute of Business Administration 20 Samba Financial Group 11 Caesar Gold 7 Insurance Regulatory Authority of Kenya 29 Central Bank of Oman 9 Islamic Financial Product Development Centre 12 Sevilla Fútbol Club 8 Cerulli Associates 23 ITFC 6 SHUAA Capital 8 CIMB Investment Bank 6,17 Jordan Islamic Bank 6 SJ Berwin 7 CIMB Research 11 JPMorgan Chase & Co 9 Solar Guys 6 Communications Commission of Kenya 29 Jurong Town Corporation 14 Standard Chartered Bank 6 Crédit Agricole 6 King & Spalding Middle East 4 Standard Chartered Saadiq 6,17 Crescent Wealth 6,8 Kuwait Finance House 16 Takaful Insurance of Africa 29,30 Da Afghanistan Bank 13 Leeds United Football Club 7 Tebyan Asset Management 10 Dealogic 4 Leeds United Supporters Trust 7 The Royal Bank of Scotland 9 Deutsche Trustees Malaysia 17 Limitless 9 Twitt er 29 Dow Jones 10 Linklaters 17 United Bank 6,9 Dubai Bank 8 Malaysia Building Society 16 University of Cambridge 15 Dubai Financial Group 11 Malaysian Muslim Consumers Association 7 US Federal Reserve 23 Dubai Group 11 Masraf Al Rayan 9 Vanguard 23 EFG Hermes Egypt 8 Maybank 4 Wonga 8 Emirates Islamic Bank 8 Maybank IB Research 11 Worldwide Far East 7 Ernst & Young 4,27 McLaren Group 17 Yassar 22 Etiqa Takaful 27 Meezan Bank 7 Zul Raﬁ que & Partners 17

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