Best Islamic Banks Poll 2006

Vol. 3, Issue 45 15th December 2006 The World’s Global Islamic Finance News Provider

In this issue INDONESIA News Briefs Bank Indonesia Shariah boost Capital Markets ...... 1 Bank Indonesia has launched a program to strategies which include promoting supply US$3.5 billion Sukuk up for grabs accelerate the development of Indonesia’s and demand, strengthening the Shariah European asset managers take on Bahrain Islamic banking sector. Currently, Shariah banking system in terms of capitalization compliant banking comprises only 1.68% of and management, optimizing the functions INCEIF University the country’s total banking assets, a ﬁ gure of government and the Central Bank and EIIB in strategic link-ups that the Central Bank aims to increase to inducting all the stakeholders in the Shariah 5.25% by the end of 2008. banking sector into the program. Ratings ...... 8 Fitch assigns AA+ to IDB It is hoped that the bank’s program will boost The Central Bank will also look to increase the sector by 75% to an approximate US$5.3 government participation, its deputy governor KMCOB receives rating billion by end of 2007 and a subsequent Siti Fadjriah revealed: “We also expect Cover Story ...... 9 235% to US$10.1 billion by 2008. government agencies to start utilizing the Offshore Financial Centers - Then and Now Shariah system for their banking activities, The program will be based on four main such as disbursing funds.” Offshore Financial Centers ...... 11 Shariah Law and Jersey Structures

Offshore Financial Centers ...... 13 BAHRAIN From Cayman to Dubai Corporate Governance and Shariah CIMB – KANOO alliance Compliance ...... 15 CIMB and Yusuf bin Ahmed Kanoo Holdings Badlisyah Abdul Ghani, CEO of CIMB Corporate Governance ...... 17 (Kanoo Group) will each hold a 50/50 Islamic and board member of CIMB–Kanoo, Stakeholders’ Financial Interest stake in the recently launched CIMB–Kanoo elucidated: “CIMB Group is excited to be in Islamic Investment Company, which will begin Term Sheet ...... 19 Bahrain and the Middle East through this AREF Investment Group operations with a paid-up capital of US$20 partnership with the Kanoo Group. We are million. committed to the Middle East and it is our Term Sheet ...... 20 vision to provide a ﬁ nancial services bridge UNION NATIONAL BANK Having been licensed by the Central Bank Forum ...... 21 of Bahrain, this joint venture aims to market linking this dynamic region to the East.” and distribute specialized Islamic investment Meet the Head ...... 22 banking products and services to the Middle In related news, CIMB Group’s Islamic arm John Weguelin East. Its primary focus will be debt and equity projects that it will arrange at least RM25 capital markets, corporate banking, asset billion (US$7.03 billion) in Sukuk issuance for Takaful News ...... 23 management and treasury services. 2007, similar to the total achieved for 2006. Takaful Report ...... 24 The Legal Framework of Takaful in Malaysia

CHINA Takaful Forum ...... 25 GIH wins bid Moves ...... 26 Global Investment House (GIH)’s Shariah tate Fund initially closed on the 6th November Eurekahedge ...... 27 compliant Global Asia Real Estate Fund, to- with US$75 million, but has now reopened to gether with a Kuwaiti partner has won the bid new investors with a second closure planned Dow Jones Islamic Indexes ...... 28 to acquire a distressed asset in China. The as- within the next two months. The fund’s pro- set, located in north-east China’s Dalian Eco- jected internal rate of return is an annual 20% Bondweb ...... 29 nomic and Technological Development Area, net of total fees, cost and taxes. Dealogic – League Tables ...... 30 possesses a value of US$32 million. Global plans to continue its Asian expansion, Events Diary...... 33 Cushman & Wakefi eld Capital Asia advised having already identifi ed the initial portfo- Global’s acquisition of the deal via innovative lio of properties in the region. Pakistan and Subscriptions Form ...... 34 fi nancial restructuring techniques, including Vietnam are slated to be next in line after the put and call options. The Global Asia Real Es- fund’s Chinese and Indian investments. Country Index ...... 34 Company Index ...... 34 Best Islamic Banks Poll 2006 ...... 30 Best Islamic Banks Poll Submission dateline 15th December 2006 www.islamicfi nancenews.com NEWS BRIEFS Islamic Finance news UAE (Abu Dhabi) Advisory Board:

US$3.5 billion Sukuk up for grabs Mr Daud Abdullah (David Vicary) The UAE developer Aldar Properties will sell a total of US$3.5 billion in Sukuk in the fi rst quarter Managing Director of 2007; twice the amount the company initially announced. Hong Leong Islamic Bank Proceeds from the bonds may be converted into shares in Aldar or be used to repay investors in Dr Mohd Daud Bakar cash, said Shafqat Malik, the company’s chief fi nancial offi cer. “The terms will allow the board Chief Executive Offi cer to make that decision at maturity,” he added. International Institute of Islamic Finance Depending on demand, Aldar is considering raising the entire amount in a single issue, making Prof Dr Mohd Masum Billah the Islamic bond the second largest Sukuk in the world. Associate Professor International Islamic University of Malaysia BAHRAIN Dr Humayon Dar Managing Director European asset managers take on Bahrain Dar Al Istithmar Dexia Asset Management, a subsidiary of the US$136 billion Dexia group, has begun its venture into the Middle East. Dexia’s Middle East offi ce will provide services to Lebanon, Jordan, Mr Badlisyah Abdul Ghani Egypt and the GCC region. Chief Executive Offi cer CIMB Islamic Henri-Michel Tranchimand, a member of the executive committee at Dexia Asset Management, stated: “After recently opening our branches in Scandinavia and in Germany, we are confi rming Ms Baljeet Kaur Grewal our strategy of expansion and our wish to grow towards the Middle East. Bahrain is an ideal Chief Economist platform on which to develop our regional presence.” Aseambankers Mr Sohail Jaffer This move comes less than a month after Dexia Private Bank of Switzerland established its Partner & Chief Executive Offi cer representative offi ce in Bahrain. (See Moves, page 26.) FWU Group Dr Monzer Kahf Consultant/Trainer/Lecturer MALAYSIA Private Practice INCEIF University Mr Mohd Ridza bin Mohammed The International Center for Education in Islamic Finance (INCEIF) has been conferred univer- Abdullah sity status by Malaysia’s Ministry of Higher Education. Managing Partner Mohamed Ridza & Co Dr Zeti Akhtar Aziz, governor of Bank Negara Malaysia and also chairman of INCEIF’s board of directors, received the conferment letter on behalf of the university from the Minister of Higher Prof Bala Shanmugam Education. Director of Banking & Finance Monash University Malaysia INCIEF has also signed a MoU with nine other universities in Malaysia to create an alliance in terms of education, training, research and development of Islamic fi nance. The universities in- Mr Muhammad Nejatullah Siddiqi volved include University Malaya, Universiti Kebangsaan Malaysia, Universiti Putra Malaysia, In- ternational Islamic University Malaysia, Univiersity Utara Malaysia, University Malaysia Sabah, Author, Scholar, Speaker, Trainer Monash University Malaysia, Universiti Teknologi MARA and Open University Malaysia. Mr Rushdi Siddiqui Global Director The newly awarded university has established a Professional Development Panel comprising Dow Jones Islamic Indexes of 13 individuals. These individuals will possess the highest authority with regard to academic affairs. The panel is represented mainly by academia from local and international institutions Mr Dawood Taylor and prominent individuals from the fi nancial industry. Head of Takaful Taawuni Division Bank Aljazira Additionally, INCEIF has awarded six research grants to four of its allied universities, amounting to RM700,000 (US$197,228). Mr Abdulkader Thomas President & Chief Executive Offi cer SHAPE – Financial Corp. BAHRAIN Mr Paul Wouters Of Counsel New Sukuk hub Bener Law Offi ce A US$200 million Sukuk Exchange Center (SEC) will be set up in Bahrain by early 2007. Inves- tor response has been encouraging, amounting to 70% of the total capital, with the remaining Prof Rodney Wilson US$60 million to be raised via private placement. Director Durham University Islamic Finance Fuad Hamed Al Homoud, chairman of the founding committee, confi rmed that the center would Program create new Islamic investment and fi nancial tools to support and contribute liquidity in the Is- Mr Sohail Zubairi lamic capital and investment markets. Vice President & Head Shariah Coordination SEC’s alliance with the region’s major fi nancial companies will also boost its standing in the Dubai Islamic Bank Sukuk sector.

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PAKISTAN SINGAPORE Islamic banks regulated CapitaLand Islamic fund The State Bank of Pakistan (SBP) has granted permission for Islamic Singapore’s CapitaLand will set up a US$630 million Shariah com- banks to invest in the share market under regulated conditions. pliant real estate fund, investing in Bahrain’s prime waterfront development – Bahrain Bay. According to the SBP: “The Islamic banks in the course of their business may invest their surplus funds in the shares of such companies Proceeds from the Raffl es City Fund will be used to develop a 43,000 whose primary business is not prohibited under Shariah.” square meter reclaimed site in Bahrain Bay. 60% of the space will be allotted for residential use, 30% for retail and leisure outlets and The pre-investment procedure will be initiated by a screening pro- the remaining 10% for serviced apartments. cess advised by the SBP’s Shariah advisor. Remaining stocks will then be evaluated according to several ratio fi lters, also advised by CapitaLand will acquire a 20–30% stake in the Raffl es City Bahrain the Shariah advisor, in order to eliminate companies with unaccept- fund, with the remaining 70–80% open to institutional investors. able levels of non-Shariah compliant debt, non-Shariah compliant income or liquid assets.

Once successful in meeting the prescribed criteria, purifi cation of income is performed. The banks will then donate the purged non- UAE (Abu Dhabi) Shariah compliant income to charity. The donations will be made on US$1 billion syndication closed declaration of results or on receipt of the dividends. Union National Bank (UNB) has closed its US$1 billion syndicated The Islamic banks are advised to maintain a list of eligible securi- term facility with the help of its mandated lead arrangers and under- ties vetted by the SBP’s Shariah advisor to calibrate future invest- writers Arab Banking Corporation, the Bank of Tokyo-Mitsubishi UFJ, ments. Citibank London, Commerzbank, ING Bank and Raiffeisen Zentral- bank Österreich Aktiengesellschaft. The Central Bank wants to bring transparency to the country’s Is- lamic banks, issuing detailed new instructions on what Islamic The syndication was oversubscribed by a 100% margin, pushing banks must disclose to SBP. The Central Bank has also detailed the UNB to increase the initial launch amount to US$1 billion. A total permitted modes of Islamic fi nancing, although it has stressed that of 35 banks from Europe, North America and Asia, as well as those there is the possibility for Islamic banks to develop new modes of within the Arab world, committed their support to the syndication. fi nancing, with approval. Mohammad Nasr Abdeen, CEO of UNB, explained: “The strong appe- tite evinced by the regional and international banks is a testament to the sound strategy, the solid fi nancial position and the steady growth in the profi ts and business of the bank.” (See Islamic Finance UK news, Vol. 3, issue 40, page 2.) EIIB in strategic link-ups European Islamic Investment Bank (EIIB) has forged a series of strategic deals to regulate growth of the Islamic fi nancial services BAHRAIN sector and further the development of Islamic fi nance, promoting GFH completes facility innovation and new product design. Gulf Finance House (GFH) has completed a US$300 million interna- EIIB’s strategic cooperation agreement with the Liquidity Manage- tional credit facility in London. The Shariah compliant facility held a ment Center (LMC) of Bahrain focuses on treasury, capital markets, three-year tenor, and was supported by 30 banks. asset management and corporate fi nance. The transaction is slated to give GFH more fl exibility in funding its The key focus of this agreement will be the Sukuk market, with the own operations, adding to an already debt-free position, and to enhancement of secondary market liquidity, new issue innovation pursue its strategy of geographic expansion and income diversifi ca- and appropriate standardization of market practices as top priori- tion. The three times over-subscribed facility will replace a previous ties. US$90 million standby facility which will expire in June 2007.

John Weguelin, managing director of EIIB, explained the mutual WestLB and RZB acted as joint lead arrangers, co-underwriters and benefi t of the agreement: “EIIB’s role is to act as a bridge between western and Islamic markets, and this makes the LMC a very logical joint book runners. WestLB also acted as the investment agent. partner for us. We are rapidly becoming a major provider of Sukuk market liquidity – by combining our resources and expertise and working in partnership, both our institutions will benefi t, and more importantly, so will investors in the Islamic markets.” Another deal was signed with Bahrain Islamic Bank (BIsB) in order ARE YOU ON A CORPORATE to regulate growth of the Islamic fi nancial services sector. The banks will work under non-exclusive terms for treasury, capital markets, SUBSCRIPTION? asset management and corporate fi nance. 60% cost savings to your company The deal includes the promotion of Islamic fi nance awareness internationally by fi nancing exhibitions and conferences, as well as the distribution of Islamic fi nancial products. Make Islamic Finance news available group wide through your intranet These partnerships are in tandem with EIIB’s recent establishment in Bahrain, after its initial establishment in London.

QATAR UK HSBC Amanah arranges Sukuk EIIB’s real estate endeavor HSBC Amanah will act as sole lead manager and book runner for The European Islamic Investment Bank (EIIB) has launched its Sha- Abu Dhabi Islamic Bank (ADIB)’s US$800 million, ﬁ ve-year Sukuk riah compliant real estate fund, mandating Knight Frank Investment debut. Management as property fund advisor. The closed-end EIIB Pan-European Islamic Real Estate Fund will be The Sukuk has attracted over US$1 billion, double its initial offering a ﬁ ve-year fund, plus a maximum of two years wind-down, with a tar- of US$400–US$500 million. Its size was increased to accommo- get size of between US$264 million and US$660 million. Its return date a large number of high quality investors, making it one of the target is 11% net, with a targeted net income of 7% (US$0.13) per largest books for a corporate, non-equity linked issue. year, encompassing fees and expenses.

Half of the issue transpired from the Middle East, with 12% from The fund plans to invest approximately 25% (US$0.49) in the UK Asia, 37% from Europe, and 1% from offshore US. Banks accounted in high quality “core” properties, yielding 5–8% a year. The remain- for 58% of the transaction, 31% fund managers, 8% corporate, and ing three-quarters (US$1.47) will be invested in continental Euro- 3% non-specifi c issuers. pean “value-added” properties yielding 12% (US$0.23) to 15% (US$0.29). Razi Fakih, acting CEO of HSBC Amanah explained: “This is the fi rst rated Trust Certifi cate Program by a commercial bank and the larg- The fund may consider public listing after the deployment of its ini- est in size among all trust certifi cate programs. The US$800 million tial capital. EIIB’s existing Shariah supervisory board will advise on Sukuk is ADIB’s debut debt capital market issue and is the largest the fund’s activities. bank Sukuk ever issued and we are proud to be the sole arranger for it.” UAE (Dubai) Moody’s has rated the Sukuk at A2 and Fitch has given it an A. Badr Al Islami launch Badr Al Islami has launched a fi rst-of-its-kind Shariah compliant MALAYSIA product to aid customers looking to trade in the Dubai and Abu Dhabi stock exchanges. Al Rajhi expansion plan Al Rajhi Bank plans to establish up to 50 branches in Malaysia Taha Ahmed Eltayeb, vice-president of Badr Al Islami, commented: alone, having already set up nine banking facilities and employed “Before the introduction of this service to our clients, we have con- more than 300 people, including eight division heads. sidered that the clients’ funds are safe in case of serious losses due to a dip in stock market prices. With this service we delegate clients At least six more outlets of the Shariah compliant bank are set to to buy and sell shares. The repayment period, which is between one open early next year in various locations throughout the country. and twelve months, gives the client fl exibility in controlling their trading.” With its established track record in the Islamic sector, the bank believes it would “play a catalytic role in support of Malaysia’s plans to Badr Al Islami will begin its service operations with a capital of evolve into a vibrant Islamic fi nancial hub for the South-East Asian Dh500 million (US$136.13 million). region.” UAE UK US$1.2 billion facility for MTC IFQ benchmark ABC Islamic Bank, Arab Bank, Calyon, Gulf International Bank, Ku- UK Securities & Investment Institute (SII) chief executive Simon Cul- wait Finance House, and the National Bank of Abu Dhabi acted as hane has launched the Islamic Finance Qualifi cation (IFQ) bench- mandated lead arrangers for the US$1.2 billion Murabahah facil- mark. ity for Mobile Telecommunications Company (MTC), which has now been successfully closed. Gulf International Bank acted as the in- The IFQ is the fi rst global benchmark examination covering Islamic vestment agent. fi nance to be available to candidates via computer-based testing. It is also the world’s fi rst global benchmark qualifi cation to cover Income derived from the facility will be used to refi nance the existing Islamic fi nance from both technical product knowledge and Shariah US$750 million Murabahah for an additional period of 12 months, aspects. as well as for general corporate purposes.

SII’s mission is to aid individuals working in the fi nancial services MTC, which has been actively bidding for mobile businesses over industry to reach and uphold their high levels of competence and to the past three years, has historically relied on conventional facilities encourage the highest levels of personal behavior and integrity. for debt funding requirements. The company’s decision to tap the Islamic market for the second time through this Murabahah facility Initiated by the Central Bank of Lebanon and jointly developed in the is in line with the company’s overall strategy to diversify its sources last year by SII and the France-based Ecole Supérieure des Affaires, of funding. the launch of the IFQ is in response to the rapid expansion of the Islamic fi nance and banking sector. A total of 28 fi nancial institutions from the MENA region, Asia and Europe participated in what was touted to be one of the largest Is- lamic fi nancing deals of the year.

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KUWAIT QNB in Kuwait Qatar National Bank (QNB) has been granted a license for a full service branch by the Central Bank of Kuwait. This is the bank’s fourth license in six months. presents The bank’s new branch will provide a wide range of banking services to both corporate CALENDAR 2006 and individual customers, offering advanced banking solutions and unique investment opportunities for its clients in both Doha and Kuwait. Sukuk, Islamic Capital Markets and Derivatives The previous quarter showed impressive expansion worldwide for QNB, including in 12 – 14 December, KUALA LUMPUR Libya, Yemen and Singapore. QNB received high ratings in the third quarter of 2006, refl ecting the effi ciency of its investment and expansion policies and its strong fi nancial Key Legal and Documentary and Structuring results. Issues for Islamic Financial Products 19 – 20 December, BAHRAIN BAHRAIN Risk Management in Shariah Financing Exploring Islamic Wholesale Banking Opportunities Structures The McKinsey Competitiveness Report 2006 has identifi ed the industry’s fi nancial per- 21 December, BAHRAIN formance and strategic excellence. The objective of this report is to examine trends in Is- lamic banking and to explore potential growth and improvement areas for the industry.

Among the key fi ndings of the report, which was released this week, were the bullish CALENDAR 2007 growth of Islamic banks, their advantages over conventional banks, wholesale banking as a strong contributor to banking revenues in Islamic economies, its positive prospects, Managing the Shariah Advisory Process and the emergence of Islamic structures as a major component of the wholesale bank- 11 – 13 February, DUBAI ing market. Sukuk, Islamic Capital Markets: Products & The report suggested that players should focus on large-scale and lucrative activities Documentation 11 – 14 March, DUBAI to strengthen their position in Islamic wholesale banking. The development and re-en- forcement of risk management and front-end excellence is also vital in determining the Sukuk & Islamic Capital Markets continued growth of the Islamic industry. 2 – 4 April, SINGAPORE PAKISTAN Structuring Islamic Derivatives 5 April, SINGAPORE Micro-fi nancing the Islamic way Structuring Islamic Financial Products Pakistan’s Central Bank has permitted the establishment of fully fl edged Islamic micro- 22 – 25 April, DUBAI fi nance facilities across the country to boost the country’s micro-fi nance sector. Islamic Treasury Simulation State Bank of Pakistan has released draft proposed guidelines for both Islamic and 13 – 14 May, DUBAI conventional banks interested in establishing micro-fi nance services in accordance with 2001’s micro-fi nance institution ordinance. The draft guidelines have been sent to key Risk Management in Islamic stakeholders for their comments by the 6th January 2007. Banking & Finance 7 – 10 May, KUALA LUMPUR The setting-up of Islamic micro-fi nance counters, stand-alone micro-fi nance branches and mobile banking is being encouraged by the Central Bank in order to encourage the Islamic Real Estate Finance and I-REITs expansion of the industry. 28 – 30 May, KUALA LUMPUR Islamic Finance One-Day Workshop Series UAE (Dubai) 4 – 7 June, BAHRAIN

Al Islami Land Trading Islamic Financial Engineering and Dubai Islamic Bank (DIB) has launched the Shariah compliant Al Islami Land Trading Advanced Products Finance for UAE nationals purchasing land. 11 – 14 June, KUALA LUMPUR

Habib Bitar, vice-president and head of DIB’s real estate fi nance facility affi rmed the timeliness of Al Islami: “The launch of Al Islami Land Trading Finance represents our commitment in providing innovative fi nancial products and services for the real estate sector. Traders require cash to buy land, and we have realized the potential market that exists in Dubai for a niche product such as this.” www.IslamicFinanceTraining.com

Al Islami Land Financing will allow fl exible payment options via “bullet” payment, or regu- FOR MORE INFORMATION, contact: lar quarterly, bi-annual, or annual payments amortized over the period of the fi nance. Andrew Tebbutt Tel: 603 2143 8100; The product offers 50% fi nancing of the land purchase price and a repayment period of Email: [email protected] two years.

UAE (Dubai) INDIA/GCC Dual listing for Dubai exchanges? Free trade agreement The Dubai Financial Exchange (DFX) and the Dubai Financial Market India and the Gulf Cooperation Council (GCC) are expected to sign a (DFM) are in talks to align their activities, which may entail allowing free trade agreement by the end of 2007. dual listing. India wants to expand its links with the GCC to attract more Arab in- Nasser Al Shaali, chief executive of Dubai International Financial vestment, especially for the infrastructure, port, energy, railway and Center Authority (DIFCA), has confi rmed that alignment of activities construction sectors. Kamal Nath, the Indian Minister of Commerce between the two exchanges is on the agenda. “The DIFX and DFM and Industry, explained: “India needs to spend US$400 billion in will continue to complement each other, as they have always done. the next fi ve years on building infrastructure to keep pace with a The DFM primarily serves as Dubai’s local market, while the DIFX is fast-growing economy. There is very little investment in India’s urban established as the region’s international exchange, as demonstrat- infrastructure even to sustain our levels of growth now.” ed by its issuer base,” Nasser affi rmed, adding that the exchanges will maintain their own, separate, regulators. Both parties are confi - The GCC region is currently India’s most active investor, with an es- dent the synergy will benefi t issuers, members and investors. timated US$2 billion in investments anticipated in the next three years. Dubai real estate developer Emaar has pumped US$600 mil- In related news, DIFX has been approved as a correspondent mem- lion into Indian projects so far. ber of the World Federation of Exchanges, the international body that promotes the interests of securities markets. Correspondent GCC currently supplies 60% of India’s energy imports, with India status is the fi rst step towards full membership of the Federation. expecting a further 30% annual growth in its non-oil trade with the region. Bilateral trade between the GCC and India was valued at US$12.9 billion, with Indian exports amounting to US$8.6 billion UAE from April 2005 to March 2006. Injazat acquires AOME shares Injazat Capital’s US$50m Islamic Technology Fund, the fi rst Islamic BAHRAIN venture capital fi rm in the MENA region, has bought a 19% stake in international IT services provider Atos Origin Middle East (AOME). TAIB announces Acacia AOME focuses on consulting and systems integration and managed TAIB Bank has launched its Shariah compliant company Acacia Real operations. It offers a range of IT services from system design and Estate BVI, worth US$500 million. integration to managing outsourced IT operations. Acacia will start with an initial paid-up capital of US$150 million, Ramzi Bazzi, principal of the Injazat Technology Fund, stated: “This and focus on investing in income generating properties and select strategic investment in Atos Origin Middle East reinforces our com- development projects, both Shariah compliant and conventional. mitment towards the development of the region’s information technology industry. In addition to AOME’s strong market presence and Iqbal G Mamdani, vice-chairman and CEO of TAIB is confi dent. “Our great potential it provides a high degree of synergy with other ITF experience in real estate investments provides the right platform for portfolio companies, both at the geographic and product level.” this strategic initiative. It is also the right time as India, Turkey and the countries of the GCC in particular offer innumerable investment Injazat’s AOME stake is expected to consolidate and boost the com- opportunities in the real estate sector.” pany’s standing in the regional IT industry. Ferras Zalt, CEO of AOME affi rmed, “Injazat’s support will ensure that our business has the required fi nancial backing, and we can also benefi t from the resources of Injazat’s high profi le constituent companies.” BAHRAIN ABC closes debt fi nancing SAUDI ARABIA The Arab Banking Corporation (ABC) has successfully closed United Stainless Steel Company (USCO)’s US$153 million syndicated debt Jabal Omar appoints IPO manager fi nancing facility. Bank Abilad has been appointed by Jabal Omar Development Com- pany (JODC) to manage JODC’s SR2.014 billion (US$537.05 million) ABC was the mandated lead arranger for the 12½ year deal involv- initial public offering (IPO). ing the Commercial Bank of Qatar, Mashreq Bank, National Bank of Abu Dhabi, National Bank of Dubai and the Qatar National Bank as The purchase of the 201.4 million shares up for trading – amount- lead arrangers, alongside Abu Dhabi Investment Company, National ing to 30% of JODC’s capital – will be restricted to Saudi nationals. Bank of Kuwait, and the OPEC Fund as arrangers. The minimum number of shares available to prospective shareholders will be 50, but there is no maximum number. The facility will be used to partially fi nance the construction and operation of a 90,000 tonnes per annum cold rolled stainless steel JODC is currently in charge of one of the largest real estate proj- mill in Bahrain’s Hidd Industrial Area, making USCO the region’s ects in the region, having been licensed with a capital of SR6 billion pioneer producer. (US$1.59 billion) by the Saudi authorities to undertake a project estimated at SR12 billion (US$3.19 billion).

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MALAYSIA Labuan IOFC – The Investment Route to Asia

The Labuan Offshore Financial Services Authority (LOFSA) held a Labuan’s incentives – 3% or RM20,000 (US$5,640) if it falls under one-day event in Kuala Lumpur on the 12th December, which marked the defi nition of “offshore trading activities,” no withholding tax, no the closing of its tenth anniversary celebrations. Held in association value-added tax, no stamp duty and no exchange control restrictions with RedMoney and entitled “Labuan IOFC – The Investment Route to when dealing in foreign currency and with non-residents – are all im- Asia,” the conference attracted over 750 delegates. The event covered portant for structuring Islamic fi nancing. a broad spectrum of topics by 23 speakers and below we present a snapshot of these topics. David Levere Azlan Hashim Partner, Ernst & Young, USA Chairman, Proton Labuan can coexist with some countries’ tax systems, if not all. Where The Government’s strong commitment is further refl ected by an alloca- the Cayman Islands are active due to easy access from the US, sharing tion under the Ninth Malaysia Plan of some RM120 million (US$33.8 the same time zone, language and culture, similarly Labuan can play million) for the future development of the Labuan IOFC. The Labuan the same role in Asia. International Offshore Financial Centre (IOFC), as an active center for Islamic fi nance, is becoming a home for innovative Islamic fi nancial Azizan Abdul Rahman solutions, serving both regional and international clients. Director general, LOFSA Consultants would be engaged to review its business operations and Adha Amir Abdullah Head of Group Strategy, Bursa Malaysia determine a niche market that could transform LOFSA into a vibrant Labuan International Financial Exchange (LIFX) has negligible trading fi nancial center among international investors. Strategies related to compared to other global exchanges. As at end of November 2006, tax, such as double taxation agreements which will be comparative market capitalization was US$14.4 billion compared to the Cayman to other countries or attractive to more foreign investors, are being Islands’ US$104.6 billion and the latest Stock Exchange of Mauritius’ looked into. US$5.1 billion. The options opened to LIFX include ceasing operations, continuing with external assistance that is willing to re-invigorate the LFX by providing user-friendly trading platforms and supply of products or rebirth/total transformation specialist Islamic exchange; to fi t in with Malaysia’s Islamic capital market aspirations.

Baljeet Kaur Grewal Director & Chief Economist, Kuwait Finance House It is estimated that by 2006 US$12–15 billion Sukuk will be outstanding and by 2008 approximately US$30 billion Sukuk would be outstanding. An increasing number of mutual funds, pension managers, fi - nancial institutions and Central Banks are holding Sukuk paper as part of diversifi cation strategy. By geographical distribution, Sukuk issuance of Islamic Devel- Paul On Wee Sen opment Bank (IDB) was CEO, AmInternational equally split between Labuan can act as an exchange for tech stocks that are versatile (IP, conventional (52%) and biodiesel, carbon credit, derivatives). It is a six-year-old baby with a rich Islamic (48%) investors father and a god-father with deep pockets (the ninth Malaysian Plan). in Qatar, equally split The exchange needs to be marketed aggressively with road shows to between conventional London, the Middle East, China, India, and even Kuala Lumpur. As a and Islamic investors in baby LFX must reach a critical mass of 40 listings compared to 24,000 Dubai and 70% were in the Middle East with equal distribution in Asia and Europe. One of the key reasons why issuers want to structure Su- for Luxembourg. kuk fi nancing through Labuan is the tax neutrality. Shabbir Rashid In terms of opportunities for offshore international banking, Islamic Vice-president, Islamic Structural Finance, ABN Amro products which can be marketed are Sukuk, structured products like Labuan can attract more investors from the GCC by focusing on its asset-backed securities, exchange-traded funds under the Asian Bond Islamic fi nance potential. After 911, Arabs have diversifi ed out of the Fund initiatives, non-ringgit denominated supranational bonds and west and returned to their home base. Labuan is where the potential real estate investment trusts (REITs). lies for Malaysia.

This withdrawal was in response to confi rmation from the deal’s facility GENERAL agent – Amanah Short Deposits – that the issuer had fully redeemed Fitch assigns AA+ to IDB the facility’s outstanding amount. Fitch Ratings has upgraded the Islamic Development Bank (IDB)’s issuer default rating to AA+ with a positive outlook. Its short-term rating has been affi rmed at F1+. The outlook has been amended from BAHRAIN positive to stable. Shamil receives quick upgrade The ratings refl ect the IDB’s key shareholders’ improved credit Shamil Bank’s long-term foreign currency and fi nancial strength rating quality in 2006 and the bank’s increase in capital. IDB’s projected has surged from a BBB- to BBB in a month, with the bank’s short-term concessional fund creation is also likely to enhance its asset quality. foreign currency and fi nancial strength rating maintaining at A3, and The rating action is further supported by the IDB board of governors’ a support rating of 2. All ratings have a stable outlook. decision to launch a substantial increase in subscribed, paid-in and callable capital, translating into an approximate 50% rise in paid-in This rating – issued by Capital Intelligence – refl ects the bank’s prudent capital over the next fi ve years. risk management and fi nancial stability. Shamil Bank experienced a 96% increase in net income to US$50.2 million, compared to US$25.6 MALAYSIA million in the 2005 fi nancial year. KMCOB receives rating Shamil’s previous BBB- rating was issued by Standard & Poor’s on the 11th November 2006. Malaysia Rating Corporation (MARC) has assigned a long-term rating of AA-ID (CG), with a stable outlook to KMCOB Capital’s RM630 million (US$177.55 million) Murabahah Medium-Term Notes. CG refers to the corporate guarantee from KMCOB’s 100% shareholder KMC Oiltools MALAYSIA (Bermuda). No change for IOI The rating was assigned based the robust growth of the oil and Rating Agency Malaysia (RAM) has revealed that IOI Corporation’s gas upstream segment, and the accruing profi ts and increased proposed acquisition of the entire equities of Pan Century Edible Oils competitiveness of Scomi’s (KMCOB’s subsidiary) oilfi eld service and Pan Century Olechemicals for RM423 million (US$119.3 million) business. The rating is moderated by KMCOB’s weak capital structure will not affect the current AA2/P1 ratings on the corporation’s RM300 and its limited fi nancial fl exibility. million (US$84.62 million) Murabahah commercial papers/medium- term notes facility. MALAYSIA The retaining of the corporation’s AA2/P1 rating is due to the fact that the proposed acquisition is well within IOI’s fi nancial capacity. IOI is MARC withdraws KNM rating expected to fund the exercise via its internal funds and borrowings. Malaysia Rating Corporation (MARC) has withdrawn KNM Group’s In addition, IOI is likely to support all its debt obligations with its RM150 million (US$42.3 million) Murabahah Underwritten Notes annual operating cashfl ow of RM600–800 million (US$169.2–225.6 Issuance Facility/Islamic medium-term notes. million). THIS TIME LAST YEAR

Bahrain Monetary Agency issued an initial government’s fi nancing requirements; Shamil Bank consultation paper on work completed on a new launched a Shariah compliant, capital-protected regulatory and supervisory framework for investment product investing in currency-linked instruments in business licensees: volume 4 of the BMA Rulebook; collaboration with Deutsche – the US$20 million Affi n Holdings announced it would buy a 36.84% Shamil FX Mudarabah; Affi n Merchant Bank was stake in Affi n Merchant Bank from the shipping appointed by Hubline to act as principal advisor and company MISC. Affi n Holdings would pay US$44.99 lead arranger for Hubline’s proposed issuance of million cash for the stake before the end of the year; Murabahah CPs/IMTNs of up to US$39.73 million; The Bahrain Monetary Agency signed a MoU with the The Islamic Finance Advisory Council appointed six Tokyo Commodity Exchange to develop co-operation honorary members to sit on its board for two years; between Bahrain’s Central Bank and the world’s new Takaful company Takaful Re was offi cially leading bullion and energy exchange; Dubai Islamic inaugurated in Dubai on the 20th November; six Bank was granted a license to operate in Pakistan companies received Mudharabah payments totaling by the State Bank of Pakistan; Maybank introduced US$46,084.89 from Syarikat Takaful Malaysia; Islamic deposit products based on the Islamic interest in Bank Negara Malaysia’s new Takaful principle of Al Wadiah Yad Dhamanah in Singapore; licenses was received from as far afi eld as Australia, the sale of the Malaysian government’s fi ve-year Japan, Europe and the Middle East, including from Islamic bonds was delayed to accommodate the conventional fi nancial institutions.

Page 8 15th December 2006 © www.islamicﬁ nancenews.com Offshore Financial Centres – Then and Now By Nora Salim

Introduction Liberia and Honduras were guaranteed anonymity and zero taxation for foreign earnings. Offshore fi nancial centers (OFCs) have a complex background. While places like Switzerland have for a long time facilitated banking secrecy, Rich citizens from the UK, the US and Canada who were owners of others such as the Bahamas, Luxembourg and New Jersey in the US transnational corporations (TNCs) then formed offshore trust and are trying to follow behind, to differing extents. Panama and Liberia holding companies in the Channel Islands and the Bahamas to are said to provide some form of escape from regulation for shipping safeguard their wealth from taxation. Captive insurance companies through onshore jurisdictions. There was dissatisfaction when some subsequently developed in offshore locations including Bermuda and nation states – Monaco and Liechtenstein – tried to control the the Cayman Islands, enabling their owners to escape taxation and domestic economy, trading their sovereignty to attract and offer refuge regulation and generate huge cost savings. These continue to the for “hot money.” Despite all of these moves, OFCs have emerged and present day. expanded in the context of capitalism. There are western states that have concurrently put a leash on capital through domestic regulation Tax treaties which have since been formed between various nations and yet have allowed the OFCs to emerge and hence fostered their now permit TNCs to deduct charges for interest and costs for managing global developments. the companies. This is before working out any tax obligations. The robust growth of direct foreign investments (FDIs) has encouraged OFC history many jurisdictions to offer facilities for TNCs to avoid tax and regulation. US banks also began forming branches in tax havens to get As we know, capitalism was born out of a need to seek opportunities for eurocurrency loans and avoid US taxation and regulation on capital making profi ts. Thus capital found its way around the world in search fl ows. This fostered the development of offshore interbank markets. of new markets, higher economic surpluses, favorable or low costs and The eurodollar market was a further boost to the expansion of OFCs. taxes, aided by compliance with regulations. Some liberal states have Operating offshore helped companies and wealthy individuals to played a major role by adopting conditions for accumulating capital avoid the need for maintaining reserve ratios, onshore securities and in both their domestic markets and in the global sphere. For their exchange control laws. survival, these states are dependent upon revenues through taxation levied upon profi ts; wages and expenditures brought by private capital. Nonetheless, as national and global economies are not free from “While the Sukuk market is still potential crises, these states are compelled to adopt an array of crisis management processes so as to create long-term confi dence in their very small compared to the systems. Among others, these can take the form of investigation of corporate failures, fraud, regulation or deregulation, protection of conventional debt market, there property rights or crime control. is enormous potential for growth

Stable politics not only protect the interests of citizens, but also play from both local investors and a part in keeping capital and economic capital under control. Those seeking “shelter” for their capital would be attracted to places which international markets” “ask few or no questions,” and yet provide political stability. This is where professionals such as accountants and lawyers play a creative role to structure transactions and strategize so as to secure an economic Nominee companies, offshore trust companies and shell companies advantage for the capital. These are the professionals who are highly fronting bank accounts in tax havens were devised to avoid UK taxes. rewarded for fi nding or constructing legal ways to avoid regulation, As one offshore banker has said: “Banks in some OFCs are merely costs and taxes. Their success at enabling capital to “escape” domestic closets with computers which can be formed with as little as £500 but politics and shelter in favorable offshore jurisdictions depends largely have the power to move money all over the globe with ease.” on interpretations of territorial boundaries, business entities, domicile, citizenship and nationality. The Cayman Islands are recognized globally as having a sophisticated, mature and diverse fi nancial center. As a premier fi nancial services During the 1800s, some nations were put under pressure from major jurisdiction, Cayman attracts the world’s leading accounting, legal and corporations and their wealthy owners. Subsequently, companies investment fi rms, and the banking industry remains a cornerstone originating from the US, the UK and also Scandinavia, used Panama of Cayman’s success. Currently, there are 295 banks licensed under and Liberia to register their ships and thus establish “residence,” the Banks & Trust Companies Law (revised in 2003), representing thus avoiding their profi ts being taxed in the US and the UK; dividend 54 countries and trust companies in Cayman, including 43 of the payments also went without deduction of withholding tax. Over the world’s largest 50 banks. Of these, 19 are category A banks. The years, owners of Middle Eastern oil tankers registered in Panama, continued...

Cayman Islands fi nancial services industry encompasses banking, Dubai offi ce as a means of raising fi nance and accessing debt markets mutual funds, captive insurance, vessel registration, companies and while still adhering to Islamic religious principles. partnerships, trusts, structured fi nance and the Cayman Islands Stock Exchange. In a recent report, Robert Varley, a partner in Walkers’ Dubai offi ce, said: “While the Sukuk market is still very small compared to the Latest fi gures from the Cayman Islands Monetary Authority reported conventional debt market, there is enormous potential for growth from that banks’ total assets amounted to US$1,413 billion as at the both local investors and international markets.” 30th June 2006. There are increasing signs that the banking sector of the Cayman Islands fi nancial services industry is maturing. While Earlier this year, a US$3.5 billion Sukuk was issued by Dubai Ports. consolidation facilitated by globalization has resulted in a reduction In July 2006, a US$200 million issue from Tabreed became the fi rst in the number of bank licensees, the volume of assets being booked Sukuk to be listed on the London Stock Exchange and was rated BBB- through the jurisdiction has continued to increase. /stable by Standard & Poor’s, making it one of the fi rst rated corporate Sukuk in the Middle East. Jersey, in the English Channel, is another of the world’s major international fi nance centers. Its combined stability and reliability has Walkers is expecting to see a large increase in the number of US$150 successfully kept Jersey at the forefront of global fi nance for almost million to US$1 billion deals for these vehicles. The range in deal half a century. The island offers a wide range of fi nancial, accountancy, size underscores the fl exibility of the structures. While they can be legal and other professional expertise; independent and stable political complicated structures to construct, Sukuk can play an important role and economic strategies; internationally recognized regulation and in accessing debt without violating Shariah rules. As local institutions leading edge legislation; state of the art electronic communications in the Middle East partner with conventional western banks to issue and industry-wide selection of investment services and opportunities. these types of bonds with increasing frequency, it is certain that banks outside the region are watching the Sukuk market with great interest. Where to from here? Jersey is also seeing huge potential demand in Islamic fi nance products. The Cayman Islands are seeing the growing need to be more active Finance industry professionals and legal fi rms are participating in in the Islamic fi nance industry. Walkers Global, an offshore legal fi rm global Islamic banking and fi nance conferences to highlight the in the Cayman Islands, is seeing an increasing use of Sukuk in their island’s skills as a center for Shariah compliant investment business.

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Page 10 15th December 2006 © www.islamicﬁ nancenews.com Shariah Law and Jersey Structures

By Bill Gibbon

The island of Jersey, the largest of the British Channel in the Dubai International Finance Center (DIFC). Voisin is the fi rst Islands and one of Britain’s pre-eminent offshore Jersey law fi rm to have been granted authorization to issue and conduct jurisdictions, has been particularly active in recent years proceedings in the prestigious DIFC courts. Rights of audience in the DIFC courts will enable Voisin to represent institutional and private in developing Shariah compliant products and legal clients in matters arising within the DIFC. It is anticipated that this will structures. be of great assistance to the fi rm’s worldwide clients in respect of the Collective Investment Law DIFC Law No 1 of 2006 and, in particular, Voisin, one of Jersey’s largest corporate law fi rms (who are also in relation to the new Dubai Trust Law 2006. As with any legislation specialists in Islamic fi nance) has witnessed a spectacular increase which is in its infancy, the new Dubai Trust Law will undoubtedly be in demand for Shariah compliant investment funds. Voisin has also tested. There will inevitably be occasions when new trustees will need seen substantial growth in the development of structured products to seek direction from the court on a non-contentious basis, as well as aimed at sophisticated Gulf-based and institutional investors. Jersey’s in contentious litigation. The ability of a Jersey law fi rm schooled in the regulatory regime is becoming very familiar with the requirements and principles of offshore funds and trust law to advise clients in Dubai is precepts of Shariah law. Jersey’s fund and trust service providers are seen as a major new direction. also increasingly exposed to Shariah principles, simply due to the sheer number of alternative structures being developed through Jersey. “Jersey’s Islamic products Jersey’s Islamic products are, typically, either full-scale collective investment funds or private corporate arrangements developed by are, typically, either full-scale larger institutions. Much of the most recent investment in Shariah compliant products has, in fact, been into UK and European real collective investment funds or estate/property. The popularity of UK property investment through Jersey schemes derives partly from Jersey’s historic associations private corporate arrangements with the GCC region, and also its reputation for management and ” administration of UK real estate funds. developed by larger institutions

Historically, Jersey has been active in the area of Islamic investment Although most investment in Jersey’s Shariah products has been funds and Sukuk since the mid-1980s. In addition to investment in from Muslim investors, Shariah products do hold attractions for the UK and European real estate, more recently Jersey Shariah compliant conventional institutional investor. Shariah compliant funds combine investment funds have also been set up to invest in property the virtues of ethical investment with the advantages of non-correlation development projects in the Gulf region. Inward investment into the with mainstream equity markets and investment trends. It has been GCC and MENA regions has proved to be a new direction for Jersey said that Shariah constraints on investment, such as restrictions on investment funds. debt margins, have meant that Shariah funds have been less likely than conventional funds to chase over-extended markets. Shariah investors Although Shariah compliant investment funds are aimed principally and Shariah compliant funds will largely look towards property and at Muslim investors, investment in Shariah products does not come asset-backed investments. They do not, for instance, tend to invest in exclusively from the GCC and MENA regions. Jersey Shariah compliant technology products because of such products’ typical debt to equity products have proved to be attractive to Muslim investors worldwide. levels. Further evidence of the link between the Channel Islands, the global investment funds industry and the Gulf region has perhaps come It must be stressed, however, that Shariah investors are (as with from the most recent fund developments in Dubai. Dubai is seeking conventional investors) increasingly looking to new investment to develop as a center for well-regulated collective investment funds. directions. These involve equity and equity-linked investment funds Some of its legislation has been specifi cally modeled on the statutes and include the developing idea of the Shariah compliant hedge fund. of existing offshore jurisdictions, particularly Jersey’s. For instance, Voisin has been greatly involved in the structural and contractual Dubai has recently enacted the Collective Investment Law DIFC Law No developments that have made the Shariah compliant hedge fund 1 of 2006. Under this new statute, Jersey is a “Recognized Territory.” industry a real prospect for the next few years. The Shariah compliant Jersey is also a Recognized Territory within the associated Conduct of new product areas are amongst the most fascinating structures being Business Module published by the Dubai Financial Services Authority developed at present in the corporate world. (DFSA). This means that Jersey funds can continue to be marketed and sold within Dubai, subject to certain conditions. Over the past few years, Voisin has worked with a large number of worldwide institutional clients and Jersey service providers in Following on from Voisin’s reputation in the fi eld of Islamic fi nance, developing Shariah compliant investment products. The Islamic fund the fi rm has recently been granted licences for two of its partners – administration arm of Voisin’s associated trust company, Volaw Trust Advocate Ashley Hoy and Advocate Michael Preston – to have rights of & Corporate Services (Volaw), now administers many forms of Shariah audience and accordingly to make representations on behalf of clients continued...

© 15th December 2006 Page 11 www.islamicfi nancenews.com Shariah Law and Jersey Structures (continued...) compliant structures. These cover all forms of funds, companies and Jersey unclassifi ed fund have proved very popular with Gulf-based trusts. The Volaw brand name is well recognized throughout the Gulf promoters. region and Volaw’s principal fund and corporate services director, Trevor Norman, regularly speaks at worldwide Islamic fund seminars. Voisin has recently been involved in helping to develop Islamic securitization structures. Since securitization seeks to repackage (what Voisin has worked on the legal documentation for a large number of may already be Shariah compliant) assets into securitized instruments, Shariah compliant funds over the last 10 years. For instance, Voisin securitization is often seen as a logical new direction for Islamic and Volaw have been involved in structuring a number of Shariah fi nance. Islamic fi nance dovetails with conventional asset-backed compliant property/real estate funds for the DMI group. These include securitization. Shariah compliant Sukuk structures and conventional the fi rst Jersey Shariah compliant property/real estate fund, originally asset-backed securitization structures each, for instance, transfer the launched in 1996. Many of the fi rst Shariah compliant funds invested legal ownership of assets and/or its cash fl ows to the new holders of principally in US real estate (through a variety of investment and the Sukuk/security. The aim of each is to generate predictable, but not holding structures). These Shariah compliant property/real estate guaranteed, returns for investors from the cash fl ows generated from funds were variously set up in Jersey as limited partnerships, hybrid the assets themselves. corporate structures and/or Jersey property unit trusts. Islamic securitization requires two separate levels of Shariah compliance. First, the underlying assets must be Shariah compliant. Suitable assets include motor vehicle fl eets, aircraft, ships and “Securitization is often seen as a equipment leases. In addition, the contract governing the ownership and use of assets must be drafted in accordance with Shariah logical new direction for Islamic principles. Contracts governing the assets will typically be in the form fi nance” of Ijarah, Istisnah, Murabahah or Mudarabah contracts. Typically, these contracts are specifi cally approved in advance by Shariah scholars.

Voisin has also set up a Shariah compliant Egyptian country fund Voisin was particularly involved in the award-winning Caravan 1 Sukuk for Faisal Finance, as well as a Shariah compliant Japanese equities transaction, which helped to kick-start the Islamic securitization market. fund for Industrial Bank of Japan and other Gulf promoters. During The Caravan 1 securitization involved the refi nancing of Hanco Rent- the 1990s, several Gulf promoters also looked at establishing Shariah a-Car’s SR102 million (US$27.2 million) motor vehicle receivables. It compliant technology and venture capital funds, in which Voisin was is believed that the deal enormously assisted the transformation of heavily involved in the legal documentation and structuring. More Hanco Rent-a-Car in Saudi Arabia. On this deal, Voisin worked closely recently, Voisin has assisted with the set-up of a range of funds for with the securitization specialists Beirut-based BSEC. Volaw and a variety of Gulf-based promoters. Jersey has also been the base for Voisin were responsible for ensuring (and arranging for) the Shariah diverse Shariah related special purpose and private equity structures compliance of the structure. Volaw continues to administer the special aimed at Gulf-based sophisticated and institutional investors. purpose vehicles at the heart of this securitization structure, as well as acting as the overall paying agent and security trustee. Obviously the greater part of legal work on Islamic funds is document- based. The documentation for Shariah structures can be complex. Voisin believes that Jersey-based Shariah products provide a challenging Shariah compliant investment funds will tend to appoint a Shariah new direction for Jersey’s traditional commercial fi nance specialists. supervisory board (SSB), which will oversee the investment of the fund Voisin also believe that the dual factors of Jersey’s reputation as a well- and sign off on its contracts. The SSB will periodically review all the regulated jurisdiction, combined with the familiarity of Gulf investors assets of the Jersey fund as part of its ongoing Shariah compliance. with Jersey’s products, will mean that Jersey will increasingly be used Any minor amounts of derived income which may have come from for inward investment into the Gulf region, as well as for worldwide impure investment activity will be purifi ed under the guidance of the investment using Shariah compliant structures. Jersey fund’s SSB. This often involves a percentage of the fund’s income being paid away to nominated Islamic charities.

Voisin anticipates that Jersey will see the increased use of Shariah Bill Gibbon is an English solicitor at Voisin. compliant expert funds in the next few years. Jersey’s expert fund He has led Voisin’s Shariah funds and regime – introduced in 2004 and updated in November 2006 – has investment funds department since 1996. facilitated the swift set-up of collective investment funds in Jersey. He has over 10 years of experience in setting These sophisticated investment funds can actually be set up in only up all forms of Jersey fund structures, three days. The Jersey regulator gains comfort from the fact that the including Shariah funds, hedge funds and nominated investment manager is regulated in another jurisdiction other Shariah compliant products. and is appropriately experienced. The regulator is also guided by the fact that the fund is aimed at sophisticated investors. Over the last 10 He can be contacted by telephone: + 44 (0)1534 500300 and email: years, both the sophisticated investor fund and the more conventional [email protected].

Page 12 15th December 2006 © www.islamicﬁ nancenews.com From Cayman to Dubai By Tahir Jawed

Funds have always been a focus for offshore law fi rms. tax effi ciency and stability of these jurisdictions and to resolve any The legal certainty and tax effi ciency offered by the uncertainty in relation to inheritance issues. traditional offshore jurisdictions, together with the Another factor relates to proximity. While most offshore fi rms are tailored, user-friendly regulatory regimes, have long represented in the Caribbean, the Channel Islands and the Far East, attracted funds to offshore centers. It is estimated that there was a gap in time and distance with the Middle East. Historically, some 70% of the world’s hedge funds are domiciled this was due to the regulatory problems with establishing a presence in the Cayman Islands. Private equity funds usually in the Middle East business centers. However, with the development take the form of companies, partnerships or trusts and of “free zones” – areas established within jurisdictions where local ownership and regulatory restrictions do not apply – in the Middle provide important work for Cayman Islands lawyers, as East, the opportunity to fi ll the void was apparent. well as service providers such as fund administrators and accountants. “The growth of Islamic fi nance The growth of Islamic fi nance has also caught the attention of offshore lawyers. Islamic fi nance transactions in particular have presented has also caught the attention of offshore law fi rms with an opportunity. Most Shariah advisors today offshore lawyers. Islamic fi nance prefer the issuer of trust certifi cates to be an off-balance sheet company. The off-balance sheet company has long been the backbone transactions in particular have of the offshore fi nancial industry and the traditional “orphan special purpose vehicle (SPV)” concept has adapted well to the structures. A presented offshore law fi rms large number of the landmark issuers over the past year have been domiciled in the Cayman Islands and the trend seems set to continue, with an opportunity” with arrangers and onshore lawyers appreciating the effi ciency with which these issuing companies can be established in the Cayman The next reason was the absence of an obvious base to cover the Islands. Middle East, even when there was a desire to establish there and regulatory restrictions had been relaxed. This issue has been resolved Dramatic rise in DIFC by the establishment of the DIFC. This was the fi rst free zone to focus on the fi nancial industry. The DIFC provided fi nancial institutions and With the opening of the Dubai International Financial Center (DIFC) service providers with a well-regulated jurisdiction with zero taxation last year, both new and old fund managers are scrambling to establish and low regulatory fees. Combined with the rise of Dubai as a business, themselves there, rather than being spread all over the Middle East. transport and tourist center in the Middle East, the decision to move Within the last year several funds have been announced that had has become even easier. the intention of raising over US$1 billion each, and such funds are often oversubscribed. Private equity funds have become a focus in the Lastly, and most importantly, was the dramatic increase in economic region for investors looking to invest in the local infrastructure, energy, activity in the region. Fueled by the repatriation of local investors’ property and tourist sectors. There is no doubt that investment funds funds, an increase in oil prices and a boom in the infrastructure, have always existed in the region, but their recent growth has been energy, tourism and property markets, most Middle East economies nothing short of dramatic. are growing at a dramatic rate. This has attracted banks, investment houses and onshore lawyers to the region as fi nance structures have Although offshore law fi rms have been active in the Gulf region for developed to support the growth. In particular there has been a focus some time, providing trust structures and holding companies, the on private equity and Islamic fi nance, both important to the offshore move to establish in the Middle East has largely resulted from the legal industry. increase in private equity and Islamic fi nance. Movement to Dubai Combined magnetism As the world’s leading offshore law fi rm advising on Cayman Islands, There is obviously more than just this factor that is attracting offshore the British Virgin Islands (BVI), Jersey and Irish law, Maples and Calder’s law fi rms to want to set up offi ces in Dubai. While the reasons have establishment in the DIFC is indicative of its long-term commitment in little or no connection to each other, in combination they have acted the region. It was the fi rst offshore law fi rm to open a transactional like a magnet. Most of the established offshore fi rms have a long- offi ce in Dubai. Being located in the DIFC, Maples is well placed to take standing traditional client base in Dubai. Investors in the Middle East advantage of Dubai’s buoyant fi nancial and legal industry, and clients have continuously been using offshore companies to organize their have access to a full range of legal advice and transactional services. investments and to structure their personal wealth, often establishing family trusts in the Cayman Islands or Jersey to benefi t from the continued...

Around the same time as the arrival of the offshore fi rms in Dubai, a number of onshore law fi rms also made the decision to establish themselves in Dubai. Many of the considerations will have been the same as for the offshore fi rms, with the added opportunities for project fi nance and traditional corporate work. In fact, almost all of the 10 largest law fi rms from London are now in Dubai or are on their way, with many more set to follow. Interestingly, there are now also US law fi rms following behind. Module 1 Initially, the onshore law fi rms were a little concerned at the intentions of the offshore fi rms. With only one exception, the offshore law fi rms have made it clear that they do not intend to practice onshore law, Islamic Trade Finance local law, or to compete with the onshore or local law fi rms in Dubai. The concerns have largely been laid to rest and the offshore fi rms A Case Study-driven programme Identifying the Key Issues have been welcomed by the onshore fi rms as a useful addition to involved with Islamic Trade Finance the options available to them when structuring a new transaction. In particular, capital markets and funds lawyers were pleased to •Incorporating Shariah Principles into Trade Finance no longer have to communicate with Cayman counsel nocturnally, •Understanding Core Islamic Financial Transactions given that there is a nine-hour time difference between the Cayman •Protecting against Obligor Failure Islands and Dubai. •Islamic Finance and Forfeiting

The arrival of the Caribbean ﬁ rms also meant that onshore lawyers 11th DECEMBER 2006 now had the option of using the Cayman Islands and the BVI, as well Concorde Hotel, KUALA LUMPUR as Jersey, Guernsey and Mauritius. This was appreciated given the reduced fees normally charged by the Caribbean jurisdictions and the reduced regulatory requirements.

Big rewards

Prospects for offshore law fi rms already established in Dubai Module 2 certainly appear to be bright. The offi ces seem to be growing and more offshore fi rms are arriving. The fi rst offshore lawyers to arrive have built good relationships with local fi nancial institutions, and Sukuk, Islamic Capital Markets onshore law fi rms and are now part of the landscape. The volume of private equity and Islamic fi nance continues to grow and there are and Derivatives new opportunities as Shariah compliant hedge funds and insurance Understanding the latest Islamic Financial Instruments products are developed. There is also a move towards securitization, and Product Developments which has always been a focus for the offshore industry. •Understanding Sukuk and Sukuk Structures The faith of the fi rst offshore lawyers to move to Dubai seems to •Assessing Legal, Tax and Infrastructure Issues have been rewarded, and – as always in Dubai – it has paid to be •Managing Syndicated Transactions fi rst. •Applying the latest Islamic Derivative Structures •Case Studies

12th - 14th DECEMBER 2006 Concorde Hotel, KUALA LUMPUR

The author is managing partner in the Dubai offi ce of Maples and Expert Course Director: Calder. He joined the fi rm’s Cayman offi ce in 2000 and became a partner in 2005. His expertise is in Islamic fi nance structures, Abdulkader Thomas including acting on the fi rst issue by a Cayman Islands company to be listed on the Dubai International Financial Exchange, the fi rst to President & CEO be listed on the Irish Stock Exchange, the fi rst program to be listed SHAPE™ Financial Corp on the London Stock Exchange and the fi rst issuance in the GCC to be rated. Visit www.IslamicFinanceTraining.com today He can be contacted at [email protected]. or call +603 2143 8100 for more information

Page 14 15th December 2006 © www.islamicﬁ nancenews.com Corporate Governance and Shariah Compliance By Waﬁ k Grais and Matteo Pellegrini

Internal arrangements for Shariah compliance disclosure strengthens stakeholders’ confi dence in the credibility of SSB assessments. Institutions offering Islamic fi nancial services (IIFS) have in-house religious advisors, who are collectively known as the Shariah supervisory Besides Shariah boards, most institutions offering Islamic fi nancial board (SSB), and whose role covers fi ve main areas. These areas are: services, particularly those complying with Accounting and Auditing certifying permissible fi nancial instruments through Fatwas; verifying Organization for Islamic Financial Institutions (AAOIFI) standards, have that transactions comply with issued Fatwas; calculating and paying established another internal Shariah review structure in the form of Zakat; disposing of non-Shariah compliant earnings; and advising review units, independent from other departments, or as an integral on the distribution of income or expenses among shareholders and part of the internal audit and control department. investment account holders. The scarcity of professionals with combined Shariah knowledge and The functioning of SSBs raises fi ve main issues of corporate governance, fi nancial skills also affects internal Shariah review departments. Te namely independence, confi dentiality, competence, consistency and scarcity of such experts is likely to bear on the quality of Shariah disclosure. reviews in IIFS.

The dual relationship that SSB members have with the institution – as Strengthening internal arrangements for Shariah compliance providers of remunerated services and as assessors of the nature of operations – could be seen as creating a potential confl ict of interest. Prevailing approaches to the regulation of internal audit departments In practice, however, the risk of such a confl ict of interest is mitigated and external audit fi rms can provide guidance on how to ensure the by the ethical standards of the SSB members and the high cost that integrity of pronouncements on Shariah compliance. a stained reputation would infl ict upon them and upon the fi nancial institution concerned. Generally, members of SSBs are highly regarded Clarity of defi nition of the auditor’s responsibilities, the position of the Shariah scholars and guardians of the principles of Shariah. auditor within the organizational structure of the institution and the reporting authority for audit results all signifi cantly contribute to the The issue of confi dentiality is intertwined with that of independence. degree of auditor independence. Often, Shariah scholars sit on the SSB of more than one fi nancial institution, which gives that scholar access to proprietary information The Basel Committee on Banking Supervision (BCBS) and the of other, possibly competing, institutions. Thus SSB members may fi nd Organization for Economic Co-operation and Development (OECD) themselves with another type of potential confl ict of interest. Malaysia codes contain clear provisions on directors’ independence designed to has attempted to deal with this issue by dissallowing jurists from sitting curb collusion opportunities between management and other internal on the SSB of more than one IIFS. bodies. Likewise, AAOIFI’s Governance Standards on the Defi nition, Appointment, Composition and Report of SSBs and Codes of Ethics While Malaysia’s approach does eliminate confi dentiality concerns, the contain clear provisions on the duties and powers of SSBs that would practice poses other potential problems. These include exacerbating limit a bank’s discretion in the defi nition of SSB prerogatives and the unavailability of competence due to the lack of Fiqh Muamalat thereby deprive managers of one instrument of control. Following jurists; decreasing the economic appeal of the profession; and the practice of periodically rotating external auditing companies, undermining impartiality related to the nature of the competence mandatory rotation of SSBs would also seem to be desirable. required of SSB members. Proponents of this measure argue that a long-term client relationship SSB members should ideally be competent in both Islamic law and can impair the auditor’s objectivity. Opponents of this measure argue commercial and accounting practices (Fiqh Muamalat). Progress that by destroying rents from an ongoing relationship, the rotation rule in this direction is already noticeable in countries where the Islamic undermines incentives for building up a reputation of honesty. It is fi nancial industry is well established. For instance, the Securities therefore suggested that competition in the auditor market may be a Commission of Malaysia has certifi ed a total of 27 individuals and better safeguard for auditors’ independence. three companies eligible for Shariah advisory on unit trust funds, for a total of 24 companies offering such funds. Preserving confi dentiality of information may require solutions that echo those applied to the auditing profession. For instance, Shariah The fourth issue concerns the consistency of judgment across banks, auditors may be required to abide by codes of professional conduct – over time, or across jurisdictions within the same bank. The activities AAOIFI’s Code of Ethics for Accountants and Auditors for Islamic Banks of SSBs involve creating jurisprudence by the interpretation of legal and Financial Institutions provides conduct guidelines tailored to Fiqh sources, hence creating confl icting opinions on the admissibility of Muamalat professionals. specifi c fi nancial instruments or transactions. A General Council of Islamic Banks and Financial Institutions (CIBAFIs) sample of about Ensuring the competence of SSB members and Shariah reviewers 6,000 Fatwas found that 90% were consistent across banks. This requires a multi-pronged approach. Short-term policies to increase the suggests consistency in the interpretation of the sources and points to number of qualifi ed Shariah advisors would include training activities a substantial independence of SSBs. in Fiqh Muamalat at the bank level, in specialized training institutes and other government-recognized or related organizations such as A transparent fi nancial institution would ideally disclose the duties, Central Banks. A national registration process might be established decision-making process, areas of competence and the composition of along the lines of the certifi cation of Shariah advisors implemented by its SSB, as well as publishing all Fatwas issued by the SSB. Such public the Securities Commission of Malaysia. continued...

Disclosure of the processes leading to Shariah pronouncements and institution’s management. It is not certain, however, that switching related information needs to be the cornerstone of Shariah governance. to external Shariah audit would bring tangible guarantees of Shariah These issues may not have received suffi cient attention either from compliance. IIFS themselves or their regulators and supervisors. Therefore, policies need to be put in place to ensure adequate disclosure, in terms of both The idea of external fi rms undertaking Shariah audit presents quality and ease of retrieval, such as through IIFS websites and annual some advantages if it is viewed as complementing internal Shariah reports. Of particular importance would be the SSB annual report and audit. Shariah audit fi rms would perform a role similar to that of its Fatwas. their counterparts in conventional fi nance, thus introducing an additional layer to the Shariah verifi cation process. Such a system External arrangements for Shariah compliance would obviously entail a clear separation of pre-audit and post-audit functions. Complementary internal and external audit would apply only External arrangements, including mechanisms of market discipline, to post-audit, while the internal pre-audit unit, the SSB, would have the can provide complementary channels inducing compliance with sole authority to issue Fatwas. Internal audit by the SSB would have rulings and their harmonization. The following examines the existing an independent appraisal function, including the review of Shariah external arrangements before considering options to strengthen them. verifi cation systems and controls, while external Shariah auditors The broad Shariah governance framework may feature arrangements would have a statutory responsibility to express an independent put in place by regulators and the presence of providers of fi nancial opinion on Shariah compliance. To avoid duplication, the latter could information services external to the fi rms. Among regulatory be performed by Shariah departments set up by existing chartered arrangements, centralized SSBs are the most noteworthy. auditors.

One distinctive goal of these bodies is the standardization of Shariah A framework of co-existing internal and external Shariah audits as practices within their jurisdictions. Countries such as Kuwait, Malaysia described above does not help to resolve the diffi culties caused and Pakistan have taken signifi cant actions in this respect, while by inconsistencies in the body of Fatwas. In an effort to alleviate others have not followed this route. The standardization of Islamic this problem, some jurisdictions have moved towards a system of instruments may be a major determinant in ensuring the enforceability centralized SSBs. However, the ongoing globalization of Islamic of Islamic fi nancial contracts in disputes brought before civil courts fi nance, as well as constraints on its applicability in secular countries, that are not legally bound by the Shariah. limits the feasibility of this approach.

Private mechanisms for the external governance of Shariah compliance To circumvent these limitations, gradual international codifi cation and are equally limited. In particular, private rating agencies have not yet standardization of Fatwas has been recommended. This duty may be developed the necessary skills or found suffi cient incentives to monitor delegated to an existing international organization. However, despite IIFS’s Shariah compliance. its apparent advantages, the creation of a global Shariah regulator is likely to meet with resistance, specifi cally from jurists who regard “Islamic rating” has so far been the exclusive domain of government- Islamic Fiqh as a pluralist body of knowledge. Also, the centralization of sponsored organizations such as the International Islamic Rating competences in a global regulator may undermine product innovation Agency (IIRA) and the Malaysian Rating Corporation (MARC). Other and fi nancial engineering. external entities with an interest in Islamic fi nance, such as the fi nancial media and external auditors, are still generally less concerned Conclusion with assessments of Shariah compliance. A notable exception is the multiplication of stock market Islamic indices, whose major Overall, current practice to ensure Shariah compliance relies essentially contribution is the identifi cation of halal investments. Islamic stock on internal corporate structures, in particular SSBs. Nevertheless, market indices – like the FTSE Global Islamic Index, the Dow Jones they face a number of challenges relating to their independence, the Islamic Indexes and the Indonesian Shariah Index – may contribute confi dentiality of institution-specifi c proprietary information, the limited to better Shariah governance for publicly traded IIFS. By fi ltering out availability of professionals with both Shariah scholarship and fi nancial companies with activities that are incompatible with the Shariah, as skills, and the need for consistency in pronouncements between well as fi rms with unacceptable levels of debt or interest income, they the various SSBs. A few jurisdictions have tried to address some of contribute to reducing adverse selection in investments by IIFS, and these issues by introducing an external institutional infrastructure. give additional comfort on the halal nature of IIFS activities. However, This, however, creates potential diffi culties arising out of inconsistent current practice is not likely to meet with a full consensus of Shariah pronouncements for IIFS groups operating in different jurisdictions, scholars. Usually, these indices include companies that deal in interest and may be problematic for regulators in non-Islamic countries. Market because of the lack of a fully interest-free international market. While solutions to offer services that would promote Shariah compliance are some Islamic fi nance scholars may fi nd this approach acceptable, still minimal. others will not, thus limiting the role of these indices in enhancing Shariah governance. Wafi k Grais is a senior advisor at the Financial and Private Sector Development (FPD) Network, World Strengthening external arrangements for Shariah compliance Bank, Washington DC, US. His areas of specialization are fi nancial sector assessments, trade and energy Recent literature and practice have focused on establishing external policies and private sector development. He has also corporate governance structures to ensure effective Shariah audit. led several country assessments, as well as the bank’s work and This process is already underway, as evidenced by the increasing number of independent consulting companies and law fi rms offering partnerships on Islamic fi nance. He can be reached by telephone Shariah advisory services. In addition to reducing the IIFS’s internal on: +1 202 473 8087. audit costs, the use of such services would possibly give the institution access to a broader range of expertise. The public may also perceive This article is an excerpt from the World Bank Policy Research chartered Shariah audit companies as more independent from the Working Paper Series, November 2006.

Page 16 15th December 2006 © www.islamicﬁ nancenews.com Corporate Governance – Stakeholders’ Financial Interests By Waﬁ k Grais

Given that the core mission of a fi nancial institution in directly monitoring the institution’s performance. However, this is to enable its stakeholders to pursue their fi nancial requires an institutional infrastructure that facilitates the production of accurate fi nancial information, the availability of agents that can interests, the corporate governance (CG) arrangements interpret and disseminate it, as well as arrangements to protect its for institutions offering Islamic fi nancial services (IIFS) integrity. On all these counts, the Islamic fi nancial industry may be cannot under-estimate the importance of having a facing challenges. The existing limited infrastructure reduces the role framework that credibly protects these interests while that information fl ows can play in promoting competition and market not breaching their values. We focus attention in this activities that would induce managers to adopt sound CG practices. article on three main categories of stakeholders, namely shareholders, depositors and borrowers. The prevailing “Overall, internal and external organizational structure of IIFS is that of a shareholding company. corporate governance structures can complement each other Generally, IIFS offer three broad categories of deposit accounts: current, unrestricted investment and restricted investment. Each in strengthening stakeholders’ category raises some CG issues, but those of unrestricted investment account (UIA)-holders may be the most challenging. Essentially, the protection” challenge lies in the asymmetry between the extent of these depositors’ participation in bearing investment risks and their ability to infl uence Of particular relevance to the fi nancial information infrastructure is the operations of the institution. a chart of accounts for businesses to organize and produce credible fi nancial statements. To enable IIFS to achieve this, the accounting UIA-holders are often the most important category of IIFS depositors. profession has developed standards at both national and international They enter into a Mudarabah contract with the fi nancial institution to levels. An increasing number of countries have adopted the International manage their funds. The UIA-holders, and not the IIFS, bear the risk of Financial Reporting and Accounting Standards (IFRS) in the wake of an a poor performance of the investment pool, except for misconduct on apparent consensus to promote international convergence. However, the part of the fi nancial institution. Thus, UIA-holders are stakeholders these standards are designed for conventional businesses. In the akin to shareholders. The IIFS practice of commingling shareholders’ case of IIFS, their practice of setting up reserve funds to smooth and depositors’ resources in investment pools can raise the possibility profi t distribution and protect the UIA-holders’ principal, and the of confl ict of interest. The management’s discretion in the confi guration commitment to distribute Zakat, are among the features that make the of the pools and in the investments made from them can result in IFRS not wholly suitable for IIFS. This led to the establishment in the differential treatment of various stakeholders. Moreover, the practice early nineties of the Accounting and Auditing Organization for Islamic may reduce the transparency of IIFS’s compliance with their clients’ Financial Institutions (AAOIFI), which developed standards specifi c to investment objectives. IIFS.

Disclosure Protecting Stakeholders

Accordingly, regulatory authorities may need to prescribe disclosure There are three alternative approaches to empowering and protecting rules, and possibly fi rewalls and sanctions for breaches. This is of UIA-holders. Rights that normally belong to equity-holders could be paramount importance to UIA-holders, whose funds are normally extended to UIA-holders. Or, moving in the opposite direction, UIA- common-pooled with those of shareholders. IIFS generally create holders could be granted full debt-holding status and the protection reserve funds to smooth the returns to UIA-holders or to protect their it carries. Alternatively, the sui generis status of UIA-holders could principal in case of adverse developments in the performance of the be maintained, provided that specifi c governance structures for the investment portfolio. IIFS consider these funds important to deal with protection of UIA-holders’ interests are in place. The fi rst option would competitive pressure from institutions offering conventional fi nancial be the extension of shareholders’ rights and duties to UIA-holders. services and other IIFS. Given their equity-like investment, it may be argued that UIA-holders should be on an equal footing with shareholders and thus be granted Financial information the right to have a voice by electing board representatives. This measure would increase their ability to air their demands and concerns Widely available and affordable fi nancial information can enhance the with management. It would also satisfy these depositors’ demand for effectiveness of offi cial and private monitoring of fi nancial businesses’ greater involvement in the strategic management of the IIFS. performance. It promotes transparency and supports market discipline, two important ingredients of sound CG to protect stakeholders’ fi nancial If extending shareholders’ rights to UIA-holders is deemed impractical, interests. Financial information may be particularly important for IIFS depositors’ protection may be an alternative option. However, the because of the private equity nature of UIAs and the assumption that moral hazard argument against deposit insurance schemes would UIA-holders have more at stake than conventional depositors. UIA- need to be addressed. Furthermore, the profi t and loss sharing nature holders could therefore be expected to have a heightened interest continued...

© 15th December 2006 Page 17 www.islamicfi nancenews.com Corporate Governance – Stakeholders’ Financial Interests (continued...) of investment accounts prevents the application of deposit insurance undermine their credibility as fi nancial businesses offering services in in its present form, and a Shariah compliant version would need to be compliance with Shariah. Given the fl edgling nature of the sector and developed. The third option is creating new governance structures that its ethical foundations, the effects of a CG failure could be particularly cater to the specifi c needs of UIA-holders. damaging.

One possibility is to elect a special representative or body that would While international standards applicable to conventional fi nancial act as an intermediary and, if necessary, expose wrongdoings. Such a businesses can offer useful inspiration for IIFS CG, their simple policy would provide the key rationale for the creation of a permanent extension to IIFS would not be effective in providing safeguards for institutional channel to facilitate information fl ows from and to UIA- IIFS stakeholders. The ongoing efforts of national and international holders. However, the creation of a new agent would bring with it bodies to address these issues focus on the existing shareholding additional agency problems and the risk of multiplying rather than corporate structure of IIFS. They generally do not address the issue of diffusing the asymmetries of information to which UIA-holders are the nature of the corporate structure that would be best adapted to the subject. founding principles of Islamic fi nance, the services it would offer, and the competition it would face. It would seem, however, that no single Concerns regarding potential confl icts of interest should lead regulators model of corporate governance is likely to prevail, as the effectiveness to emphasize a transparent conduct of business. In this regard, of any framework would depend on the socio-economic context and smoothing of returns to UIA-holders as currently practiced appears to the specifi c needs of each jurisdiction. be a signifi cant obstacle to transparency. The practice of smoothing of returns introduces a veil of opacity between depositors and the fi rm, Confi dence in the consistency of business practices with Shariah can whereas, in all circumstances, an IIFS should be fully transparent in emanate from a SSB, as is currently the case. The fi nancial competence the use of funds. AAOIFI Financial Accounting Standard 11 provides of SSB members and their independence would need strengthening. clear principles and guidelines on this issue. In particular, it requires The availability of Shariah compatible guiding principles whose IIFS to disclose the shares of the actual profi ts and of the funds from interpretation has broad international acceptability can be helpful. An the profi t equalization reserve in the returns they receive. In addition, international self-regulatory Shariah fi nancial scholars’ association each IIFS needs to adopt clear provisions regulating contributions to may help to reconcile the requirements for innovation with the need for these funds and their disclosure in fi nancial statements and annual broad standards. Business confi dence would be strengthened through reports. credible expectations of enforceability of contracts. Ex post verifi cation of Shariah compliance could be handled by internal review units and Overall, internal and external CG structures can complement each other certifi ed by external auditors and reputation agents. in strengthening stakeholders’ protection. Internally, the protection of minority shareholders and provisions for increased disclosure Protecting the interests of UIA-holders has developed into one of need attention, but these can be addressed by the application of the main challenges of IIFS CG. Their status as quasi-shareholders, existing rules. The commingling of resources, balancing UIA-holders’ bearing investment risks but not having a voice, has led to a number risks and rights, and the utilization of reserve funds need concrete of arrangements. They include profi t equalization reserves, investment actions to enhance the soundness of the internal CG frameworks of risk reserves, special board committees, or special supervisory IIFS. Externally, recognizing the specifi city of IIFS within the broader attention. Shortcomings in current practices may require a combination institutional infrastructure would contribute to greater transparency. of solutions. In particular, the protection of stakeholders’ fi nancial priorities calls for attention to the protection mechanisms for “weak Whichever regulatory approach is chosen, it can be guided by two rules voice” stakeholders, including minority shareholders, the position of of thumb. First, regulators need be fl exible and to work with IIFS in UIA-holders, transparent use of reserves, disclosure of policies and order to become acquainted with the needs of the industry and be able structures, and the soundness of regulatory and broader institutional to develop acceptable regulatory frameworks. Secondly, private self- controls. Strengthened arrangements that would lead to the emergence regulatory initiatives can provide channels to market discipline and of reputation agents that can exert market discipline would be most may be as important in Islamic fi nance as in a conventional fi nancial helpful. The synergies between regulations, arrangements at the system. In jurisdictions where regulations result in constraints on corporate level and the actions of market reputation agents could help Islamic fi nance, IIFS need to evaluate which licensing status is best to enhance CG soundness. suited to their need for protecting stakeholders’ interests. Regulatory authorities and market participants ought to become well-versed in the nature and implication of the rules adopted, and thus help to promote Wafi k Grais is a senior advisor at the Financial and market discipline without placing an undue burden on the IIFS. The Private Sector Development (FPD) Network, World existence of an infrastructure, such as IIFS-adapted accounting and Bank, Washington DC, US. His areas of specialization auditing standards, that would permit the production of timely and are fi nancial sector assessments, trade and energy reliable fi nancial information, would complement the role of public policies and private sector development. He has also authorities and reputation agents. led several country assessments, as well as the bank’s work and partnerships on Islamic fi nance. He can be reached by telephone Conclusion on: +1 202 473 8087.

Poor CG can carry heavy ﬁ nancial costs for IIFS’s stakeholders, as it This article is an excerpt from the World Bank Policy Research can for other corporations. In addition, poor governance in IIFS would Working Paper Series, November 2006.

Page 18 15th December 2006 © TERM SHEET

AREF Investment Group

INSTRUMENT Syndicated Revolving Murabahah Financing Facility

OBLIGOR AREF Investment Group

PRINCIPAL ACTIVITIES AREF is primarily involved in Islamic ﬁ nance and investment.

AREF enjoys a strong principal shareholding, which includes a majority shareholding by Kuwait Finance House (51%), in addition to the Public Institution for Social Security (13%), with the balance being held by the general public (35%).

AREF heads a group of diversifi ed affi liates and subsidiary companies, and its principal activities relate to investment in local and international markets, Murabahah fi nancing real estate, banking and fi nance, including leasing and fi nancial services, education, health care and technology. In addition, AREF also offers its clients traditional fi nancial services and facilities. The company holds a signifi cant position amongst the leading investment institutions in the region and over the past 30 years has maintained a track record of effi cient performance.

BOARD OF Dr Ali Al Zumai, chairman and managing director; Mr Emad Al-Thaqeb, vice-chairman; Mr Adnan Al- DIRECTORS Wazzan, board member; Mr Jasar Al-Jassar, board member; Mr Mohammad Al-Qassar, board member. FACILITY AMOUNT US$200 million (increased from the original launch amount of US$100 million).

FACILITY STRUCTURE The structure is based on a sell and purchase structure on an LME traded commodity.

SIGNING DATE 6th November 2006

MATURITY DATE 3 years

AUTHORIZED PAID-UP KD43.855 million (US$151.72 million) CAPITAL

MANDATED LEAD ABC Islamic and Standard Chartered Bank ARRANGERS/ UNDERWRITERS PARTICIPANTS The mandated lead arrangers and other regional and international ﬁ nancial institutions participated in the facility. It was hugely over-subscribed, which resulted in the increase of the size of the facility. LEGAL COUNSEL Denton Wilde Sapte

SHARIAH ADVISORS Standard Chartered Bank and ABC Islamic Shariah Advisory Board.

PURPOSE The facility will be used for general corporate purposes and business expansion in the ﬁ nancial market industry. RATINGS Not rated

For more term sheets visit www.islamicﬁ nancenews.com.

www.islamicﬁ nancenews.com TERM SHEET

UNION NATIONAL BANK

INSTRUMENT Syndicated Term Loan Facility

ISSUER Union National Bank (UNB)

PRINCIPAL ACTIVITIES UNB is a public joint stock company incorporated under the laws of the UAE. UNB is headquartered in Abu Dhabi and operates as a commercial bank with a network of 44 branches, all of which are located in the UAE. UNB is the seventh largest national and commercial bank in the UAE in terms of shareholders’ equity and the sixth largest in terms of total assets, not including foreign banks and Islamic institutions, as at the 31st December 2005. UNB’s core business is focused on corporate banking, retail banking and treasury.

BOARD OF Chairman: Sh. Nahayan Mabarak Al Nahayan; Members: Ahmed Saeed Al Badi, Mohammad Ahmed Al DIRECTORS Bowardi, Rashid Darwish Al Ketbi, Sami Dhaen Al Qamzi, Mohammed bin Rashid bin Ahmed Al Nassari, Ahmed Yousuf Abdullah Al Sayegh and Buti Saeed Al Ghandi.

REPAYMENT Total outstanding facility amount to be repaid on the ﬁ nal maturity date.

ISSUE SIZE US$1 billion

MATURITY 5 years

COUPON 0.275% per annum

LEAD ARRANGER Bank of New York, BayernLB, CALYON, DBS Bank, Deutsche Bank AG, KBC Bank NV, Mizuho Corporate Bank, Qatar National Bank, SANPAOLO IMI BANK IRELAND, Standard Chartered Bank.

JOINT BOOKRUNNERS Citigroup, Commerzbank AG, ING Wholesale Banking and Raiffeisen Zentralbank Österreich Aktiengesellschaft.

UNDERWRITERS Arab Banking Corporation, Bank of Tokyo-Mitsubishi UFJ, Citigroup, Commerzbank AG, ING Wholesale Banking and Raiffeisen Zentralbank Österreich Aktiengesellschaft.

DOCUMENTATION Arab Banking Corporation AGENT

PUBLICITY AGENT Arab Banking Corporation

PURPOSE OF ISSUE General corporate purposes and reﬁ nancing.

FACILITY AGENT Bank of Tokyo-Mitsubishi UFJ

RATINGS UNB’s long-term ratings are A1 by Moody’s, A- by Fitch and A+ by Capital Intelligence.

MAJOR The Government of Abu Dhabi (40%), Abu Dhabi Investment Authority (10%) and the Government of SHAREHOLDERS OF Dubai (10%). The remaining 40% of the shares are held by the general public and are publicly traded. UNB

For more term sheets visit www.islamicﬁ nancenews.com.

www.islamicﬁ nancenews.com www.islamicﬁ nancenews.com

As we near the end of 2006 we can look back over yet another groundbreaking year for Islamic fi nance. What in your view have been the outstanding achievements within the global Islamic banking industry? And why? In 2006 the major developments involved Sukuk, with record new issuance in terms of both the number and value, greater geographical diversifi cation of the issuers, with substantial offerings from the Gulf, including the largest ever from DP World and a highly signifi cant offering by SABIC. Innovative structuring has also appeared, including Musharakah based and hybrid Sukuk.

Signiﬁ cant trading has also started in the Gulf through the Dubai International Financial Exchange (DIFX).

Islamic banks have continued to diversify their product offerings, reducing exposure to any single asset class, a welcome development, and clients sensible enough to place their investments in Shariah compliant global funds have fared better than those focused on volatile Gulf markets. The Takaful industry is also steadily and rapidy expanding, although its capacity beyond the retail level remains limited. This, however, may be what to watch out for in 2007.

PROFESSOR RODNEY WILSON: Director of Postgraduate Studies, Durham University

The outstanding achievements in the industry in my eyes have been as follows:

1. Sukuk, because Islamic bonds are establishing the infrastructure for the development of the bond market, which is a must for an Islamic capital market. The three most important Sukuk stories have been:

• DP Ports Convertible Sukuk (now Nakheel Sukuk). • Launch of the DJ Citigroup Sukuk Index. • Khazanah Exchangeable Sukuk.

2. A non-Shariah compliant, non-ﬁ nancial institution conversion, where PLUS (the largest toll operator in Malaysia), slated to become a Shariah compliant company (according to Dow Jones Islamic Market (DJIM) screens), used a Musharakah Sukuk to reﬁ nance conventional debt and Bai Bithaman Ajil debt, and hence to appeal to a wider base of investors. This will be a case study for corporate conversions.

3. Dubai Financial Market declaring itself to be an Islamic Stock Exchange. This is a promising development, but a number of other issues must also be addressed, including: listing of Shariah compliant products, parking of IPO cash proceeds not utilized in operations, “regulating” the behavior of buyers (leveraged lending, margin trading, etc), futures, options, and derivatives trading. Another set of obvious issues relates to the listing of companies in Muslim countries (like Malaysia) and deemed Shariah compliant by home country scholars, but not passing the DJIM (which is the present industry standard) screens.

4. Statements made by Gordon Brown, Chancellor of Exchequer in the UK, about the country becoming the “Gateway” to Islamic ﬁ nance, and the Economic Treasury making statements about leveling the playing ﬁ eld for Sukuk issues.

RUSHDI SIDDIQUI: Dow Jones Indexes

The views expressed in Islamic ﬁ nance forum are those of our panelists, and not necessarily those of Islamic Finance news.

Next Forum Question A simple one to kick the New Year off - Your predictions please! What markets and sectors do you foresee as the forerunners for Islamic ﬁ nance in 2007? If you would like to air your views on the next Islamic Finance Forum Question, please email your response of between 50 and 300 words to Christina Morgan, Forum Editor, at: Christina.Morgan@islamicﬁ nancenews.com before Wednesday 3rd January 2007.

Name: John Weguelin broader, more sophisticated range of Shariah compliant products than any of our competitors. Finally, EIIB is the fi rst independent Shariah compliant investment bank to be authorized and regulated by the Position: Managing director FSA, and this strong regulatory framework is a signifi cant attraction for potential customers. Company: European Islamic Investment Bank What are the factors contributing to the success of your company? Based: London, UK EIIB bridges the gap between the Middle East and Asian markets and western markets. We are servicing the active market for Islamic Age: 55 securities in the Middle East and Asia, as well as targeting the growing market for Shariah compliant products in Europe. The Islamic fi nance Nationality: British market is experiencing rapid growth and EIIB is well-positioned to capitalize on this. Could you provide a brief journey of how you arrived where you are today? What are the obstacles faced in running your busi- After 30 years in investment banking – 20 of which were working ness today? for Bank of America, the world’s largest fi nancial institution – the Hiring the right staff is always a challenge as our standards are very opportunity to be involved in setting up and running a new, independent high. The right – or wrong – team can have an enormous impact on the Shariah compliant investment bank in London in such an important performance of a business. and growing segment of the global fi nancial market very rarely comes along in one’s working life, and was just too good to be missed. Where do you see the Islamic fi nance industry, maybe in the next fi ve years? What does your role involve? The Islamic fi nance sector is experiencing rapid growth. In the near My role has changed considerably as the business has gone through future, I believe Islamic fi nance will continue to grow rapidly across a various stages of its development. As managing director, I am ultimately range of sectors and become increasingly mainstream, not least as responsible for the running of the company, reporting to the board. A ethical investing and increasingly liquid markets make it attractive for key part of my role is managing the implementation of European Islamic non-Muslim participants as well. Investment Bank (EIIB)’s business plan, to help the company achieve its long-term, strategic objective of becoming a leading independent Name one thing you would like to see change in the Islamic investment bank, but perhaps most importantly I see myself as the senior relationship manager and salesperson for the company. world of Islamic fi nance? That’s impossible to do, but there are a number of things that we as With the company now moving from start-up phase to a real business, practitioners need to address. First, and perhaps most importantly, I spend a considerable amount of time meeting with shareholders and Islamic fi nance must remain true to the Islamic principles of Shariah. clients and interviewing prospective job candidates. Understanding our Failure to do so will result in Islamic fi nance devaluing itself. Islamic clients’ needs is vital for the business. We are also actively recruiting banking is a different way of banking and we must continue to and my view is that you can never spend enough time making sure that respect and protect those differences and values. Secondly, in order you hire the right people. for the Islamic markets to resolve pricing differentials, they need to adopt the same levels of transparency in respect of disclosure and fi nancial covenants as in conventional markets. Thirdly, instruments/ What is your greatest achievement to date? investments need to be price and yield competitive for both borrowers I am very proud to be part of a growing business that has achieved so and investors if is to be a truly viable alternative. Fourthly, there needs much in a short space of time. EIIB was incorporated in January 2005; to be greater liquidity. Borrowers like to access new sources of funding received its authorization by the UK’s Financial Services Authority and investors, but they also want to establish new benchmarks, and (FSA) in March 2006, as the fi rst Islamic investment bank it regulates; in a world of cheap credit, they will only pay up so much to establish and fl oated on London’s Alternative Investment Market (AIM) market a benchmark in a new market segment. This also involves addressing shortly after. I am happy to say we are proceeding exactly according to the issues of transferability. the timetable set for our business roll-out. Fifthly there is a lot of talk about “consistency” of interpretation of Which of your products/services deliver the best Shariah law. Every legal system on occasion has interpretations. Why should Shariah law be any different? Consistency and standardization results? potentially stifl e innovation, so we need to be clear what we mean. We are not overly dependent on one product or service. All business Finally, one of the biggest challenges we face as an industry is people. areas contribute to the overall strength of the company. We have There is just not enough talent at the moment. One of the reasons why started with treasury and capital markets, and we are now expanding, EIIB was set up in London, as opposed to being just another Islamic in line with our plan, in asset management and corporate fi nance. investment bank in the Middle East, was so we could attract talent from conventional institutions into the Islamic fi nancial markets, bringing with them the new skill sets needed to help develop new products and What are the strengths of your business? asset classes. I see several areas of strength in our business. First EIIB is a fully compliant Shariah institution, whereas the majority of our peers European Islamic Investment are operating through an Islamic window. Through our experienced Bank (EIIB)’s mission is to management team, we have people with a mix of conventional and achieve excellence in the Islamic banking experience and, thus, the capability to leverage provision of Shariah compliant relationships in the Middle East, Asia and Europe. As we are based in investment banking products and services. EIIB offers its customers London, one of the world’s leading fi nancial centers, EIIB has access Shariah compliant treasury and capital markets, asset management to a large pool of talent to develop a sophisticated range of Islamic (including private banking), trade fi nance and correspondent products. Product innovation is the key to success in our market banking and advisory and corporate fi nance services. and I believe that over the next couple of years EIIB will be offering a

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PAKISTAN GERMANY Takaful Pakistan to start ops Hannover Re Takaful Takaful Pakistan will begin operations with an initial paid-up capital Hannover Re of Germany has established its Shariah compliant of PKR200 million (US$3.29 million) and authorized capital of re-Takaful arm Hannover Re Takaful. This move is in tandem with PKR300 million (US$4.93 million). Hannover’s recent licensing with the Central Bank of Bahrain.

Takaful Pakistan will provide fi re (property), engineering, motor, Wilhelm Zeller, CEO of Hannover Re, is optimistic about the marine, liabilities and miscellaneous covers at competitive rates establishment of the company’s re-Takaful subsidiary: “Bearing while adhering to Shariah guidelines. in mind that a quarter of the world’s population are adherents to the Islamic faith, 70% thereof are under the age of 35 and the MALAYSIA global Islamic insurance market is scarcely developed as yet, we see extremely attractive growth prospects and scope for innovative Kurnia targets policies product design in this area.” Malaysian motor insurance provider Kurnia Insurance has targeted between RM20 million (US$5.64 million) and RM30 million Zeller also stated that he believes that 2006 will see a doubling (US$8.46 million) in medical insurance policies for its current in the premium volume for worldwide re-Takaful, as compared to fi nancial year ending on the 30th June 2007. 2004. Hannover Re Takaful will have an authorized share capital of BD50 million (US$132.62 million). The company’s chief executive offi cer Kong Shu Yin expects Kurnia’s eight new medical policies to contribute RM15 million Hannover Re is the fi rst of the major western reinsurance groups to (RM4.23 million) to the total targeted premium income. Previously, serve the emerging re-Takaful market with a dedicated subsidiary. motor insurance contributed over 90%, with the remaining income derived from fi re insurance, marine insurance, personal accident and medical insurance. IRAN Insurance sales up Kurnia is considering re-applying for a Takaful license from Bank The period between March and September 2006 saw the Iranian Negara Malaysia, after previously being denied such a license. insurance market grow by 23%, with the country’s insurance penetration rate standing at 1.3% – still relatively low by international PAKISTAN norms. RMS in Pakistan Nourouz Kahzadi, head of Iran’s Central Insurance Company, said Risk Management Services (RMS) Private has been given the green that at present several bills were being studied by the government light to serve as an insurance broker in Pakistan. and by parliament to ensure that the quality of insurance offered matched international standards. Insurance broker and consultant Risk Management Services jointly sponsored the company with a Pakistan-based group. SRI LANKA This approval is the third license granted by the Securities and Exchange Commission of Pakistan, which is in charge of Ceylinco’s Takaful venture supervision, regulation and development of Pakistani insurance. Ceylinco Takaful Insurance has set up a joint venture with Shiekan Previous companies granted insurance brokerage licenses include Insurance and Reinsurance Company (SIRCL) to introduce Takaful Greenshield Insurance Brokers and AON Insurance Brokers. in Sri Lanka. MALAYSIA Ifthicar Ahamed, head of marketing for Ceylinco Takaful Insurance, affi rmed total Shariah compliance, stating that Ceylinco SIRCL will Takaful Ikhlas optimistic follow the exact concept of Takaful as practiced elsewhere in the Takaful Ikhlas, a subsidiary of Malaysian National Reinsurance, is world. confi dent of hitting its RM320 million (US$90.2 million) target by the 31st March 2008. SAUDI ARABIA Wala’s IPO offering Syed Moheeb Syed Kamarulzaman, managing director of Takaful Ikhlas, confi rmed: “We believe we can meet the target as we have Wala Insurance of Saudi Arabia will mark the commencement of the infrastructure in place.” its operations in the second quarter of 2007 through a 40% IPO offering of its 20 million shares.

Takaful Ikhlas is on track to meet its RM220 million (US$62.05 The cooperative insurance company will issue 8 million shares of its million) premium collection target for the ﬁ nancial year ending on SR200 million (US$53.3 million) capital, at a SR10 (US$2.66) per st the 31 March 2007. The Takaful operator has procured RM134 share rate to the public by February 2007. The remaining 12 million million (US$37.79 million) in premiums so far in the eight months shares have been distributed among the company’s founding leading up to November 2006. members.

Participants in Takaful in Malaysia are clearly protected by the DGT to ensure the operations of its Takaful business are in by section 21 of the Takaful Act 1984, Malaysia, by which compliance with Shariah principles. Takaful operators are required to establish and maintain Section 16 of the Act clearly identifi es the authority of the SAC in Takaful guarantee scheme funds. ascertaining Islamic law related to Takaful business or any other business based on Shariah principles, and is supervised and regulated The guarantee fund, which derives income from the levies imposed by the Central Bank. Anyone who is involved with Takaful has a right to on Takaful operators, including profi ts or dividends derived from the seek advice from the SAC. fund’s investment, is similar to a deposit insurance scheme for bank deposits, and can be withdrawn or utilized to meet the administrative, The SAC is also empowered to make a decision should any question legal and other costs of maintenance and administration, as well as relating to Shariah principles arise during any court proceedings liabilities of any insolvent operator. Withdrawal from the fund is only involving the Takaful business. Any ruling made by the SAC will be permitted with the approval of the director-general of Takaful (DGT). The binding in a court of law. establishment of such guarantee fund is related to family solidarity, or family Takaful, and general business carried out by Takaful operators. Under family Takaful, if the policyholder is a Muslim, the nominee is not treated as the sole benefi ciary, but merely as a trustee or executor Section 65 of the Takaful Act gives peace of mind to the participant to receive the benefi ts under the policy. He is entrusted to distribute in family Takaful in the event that he passes away. His rightful the benefi ts to the benefi ciaries according to Islamic law of succession, benefi ciaries, or those determined as the “proper claimants,” will be or Faraid, and any money paid is treated as part of the estate of the entitled to receive the benefi ts laid out by the terms of the Takaful deceased. Where the policyholder is not a Muslim, the nominee is the operation, even without the production of any probate or letters of absolute benefi ciary and the monies paid are not part of the estate, as administration, following which the operator is discharged from all stipulated under sections 166 and 167 of the Insurance Act. liability in respect of the sum paid. Variations of three basic models – Mudarabah, Wakalah and Waqf Takaful under the Act is defi ned as a scheme based on brotherhood, – are used to implement a Takaful scheme. The variety of products solidarity and mutual assistance, which provides for mutual fi nancial include Mudarabah with only sharing of investment profi t, Mudarabah aid and assistance to the participants in case of need, whereby the with sharing of investment profi t and surplus with the operator, participants mutually agree to contribute for that purpose. It is based Wakalah with sharing of investment profi t and/or surplus with the on the concept of Takwun – mutual assistance – where members operator, Wakalah on the contribution with no profi t/surplus sharing mutually and voluntarily agree to contribute money to support a with the operator and Wakalah on the contribution with sharing of common goal of providing mutual fi nancial aid to members of the surplus with the operator based on Jualah (performance fees). There group, should the need arise. is yet to be Takaful based on the concept of Waqf.

Only registered Takaful operators – either a company under the Some scholars have suggested a Waqf model whereby the Waqf fund Companies Act 1965, or a co-operative society under Co-operative is divided into two accounts – one investment and the other risk. Societies Act 1993 (section 4) – can conduct Takaful business. All The Takaful company operates the risk or Wakalah account, while Takaful operators in the country are required to be registered and the investment fund goes into Mudh or Musha. The Waqf fund then come under the supervision of the DGT. This registration can be with distributes the fund according to its own principles and guidelines. or without conditions. While the principle is that Takaful operations are Shariah compliant, Each Takaful operator is required to maintain a Takaful fund for each the Takaful Act is actually silent on whether investments as between class of Takaful business that it carries out. The assets of these the Takaful operator and the participants should be made on the basis Takaful funds should meet the operator’s liabilities and expenses. As of the Shariah principles of Mudarabah, even though this would refl ect for family Takaful, the Takaful benefi ts are paid out from the surplus the actual practice for Takaful operations. of assets over liabilities. The assets of any Takaful fund under this Act are required to be kept separate from all other assets of the operator. These should not include assets comprised in a deposit under this Act, nor any amounts on account of goodwill, the benefi t of development expenditure or similar items not realizable, apart from the business or part of the business of the operator.

As a means of internal control, the aims and operations of Takaful The author is a partner in the Islamic Banking and Finance Practice operators do not involve any element not approved by the Shariah. at Zaid Ibrahim & Co, Malaysia. He can be contacted by email on: The articles of association of the Takaful operator provide for the [email protected]. establishment of a Shariah Advisory Council (SAC) as may be approved

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Can Takaful companies reinsure with non-Takaful companies?

Such reinsurance is undesirable in principle, but in practice there are few re-Takaful companies, and their resources are limited. It is therefore expedient to re-insure with conventional companies, as it is better to have an element of Takaful than no Takaful.

Much Takaful is retail, family Takaful being the most rapidly expanding area. However, for aircraft or marine insurance the risks are much greater, and few Takaful companies have the resources to make claim pay-outs of hundreds of millions of dollars. If Takaful is to be available at this level, reinsurance with conventional insurers is inevitable. The aim should be to engage with conventional insurers, and encourage them to provide underwriting in as Shariah compliant a way as possible.

PROFESSOR RODNEY WILSON: Director of Postgraduate Studies, Durham University

My answer is a YES but with a strong qualiﬁ cation.

A Takaful operator acts as a manager, managing the risk fund on behalf of the many contributors. The Takaful operator as such functions both as a risk as well as an asset manager. As a risk manager he knows that he has to spread the risk. In the context of the risk fund he is managing, this means that segments or part of the risk pool could be transferred to participate in other Takaful risk pools. It has to be appreciated here that re-Takaful schemes or programs should contain the elements, features and aqads found in Takaful schemes.

Most re-Takaful practices currently follow conventional reinsurance practices and contract wordings. I wonder how this relates to the Fiqh Academy Resolution No 5 of 1985. For example, has the issue of gharar been addressed in current re-Takaful aqads? My view is there is still work to be done to bridge the issue of Shariah compliance in re-Takaful. This may take time and will not happen overnight. In the meantime, re-Takaful companies should be given all the necessary support, despite present shortcomings, to enable them to grow and be able to address Shariah compliance issues. Re-Takaful capacity should be maximized before conventional reinsurance facilities are utilized on the basis of “dhoruroh.”

The Takaful operator has to ensure that the funds so transferred are at least preserved, if they are not creating some investment income. This requires an analysis of the re-Takaful operator’s operating model, strategies, underwriting philosophy and portfolio quality. Consideration should be given to the technical expertise, experience and ﬁ nancial strength of the re-Takaful operator, as well as to compliance with Shariah. In other words, re-Takaful security and quality is an extremely important criteria, so that no harm befalls the portion of risk fund “ceded” out.

Only when we run out of re-Takaful capacity, in line with best practice and good Shariah governance, should we utilize reinsurance capacity.

SYED MOHEEB: Managing Director, Takaful Ikhlas

At the present moment Takaful operators have no alternative but to cover some of their risk with reinsurers. The main problem worldwide is the lack of re-Takaful companies. Even the existing re-Takaful companies are under-capitalized and/or more particularly not rated (most regulators require rated reinsurers or re-Takaful companies).

This has resulted in Takaful companies having to reinsure on a conventional basis, contrary to the preferred option of seeking cover on Islamic principles. The main objective of customers utilizing the services of Takaful operators is to avoid violating Islamic principles, as found in conventional insurance. Therefore Takaful operators would ﬁ nd it very difﬁ cult to justify the use of reinsurers to cover their risk.

The other option is for Takaful operators to not cover with conventional reinsurers for the moment, and thus working with reduced capacities. This would result in Takaful operators not being able to cater to the market or to compete with conventional insurers.

At Amana Takaful, in common with most Takaful operators, the Shariah scholars have allowed Takaful companies to reinsure on a conventional basis in the absence of re-Takaful alternatives. We have to maximize our re-Takaful options ﬁ rst. Having placed with re-Takaful companies and fully utilized their capacities, we are permitted thereafter to place the balance with conventional reinsurers.

The positive aspect, however, is that in the last few years the percentage of business placed with re-Takaful operators is growing very fast, and with the fast growth of Takaful operators worldwide, it is only a matter of time before we see more re-Takaful operators and conventional reinsurers having windows for re-Takaful. This would indeed increase the capacities available in the re-Takaful market.

EHSAN ZAID: Chief Executive Ofﬁ cer, Amanah Takaful, Sri Lanka

MOVES

and product specialists across the Rothschild Group based on its ABN AMRO – Hong Kong members’ strong cross-border advisory experience. James Pearson has been moved from ABN Amro’s China offi ce to Hong Kong as head of fi nancial institutions and public sector. “Our presence at the DIFC comes after careful strategic evaluation,” commented Lionel Zinsou, head of Rothschild Middle East and Africa. Mr Pearson was previously running ABN’s corporate, investment “We are proud to be at the DIFC because the center of the world’s banking and institutional business for China, based in Shanghai. He economic gravity is evolving, and our presence here enables us to add moves to Hong Kong to lead a newly structured group comprising the necessary and important Middle Eastern link.” coverage and product bankers. EUROPEAN ISLAMIC INVESTMENT BANK – Bahrain Mr Pearson’s experience in the banking industry includes a tenure as managing director of mergers and acquisitions with Morgan Stanley. The European Islamic Investment Bank has appointed Toby Lanyon as general manager of the bank’s Bahrain offi ce.

AMERICAN EXPRESS PRIVATE BANK – Global Mr Lanyon was previously with Nomura Investment Banking in Bahrain Kirsten Fuchs has been appointed marketing director for American as director, head of equity derivatives marketing for the Middle East, Express Private Bank (AEPB) in Europe, the Middle East, Africa and in charge of business development, marketing of equity funds, hedge Greater India, based in London. funds and commodity derivative products throughout the region.

Ms Fuchs will spearhead the strategizing of marketing activities in Mr Lanyon has also pioneered a range of Shariah compliant equity these regions. Prior to taking this role, Ms Fuchs was involved in client derivative products. He brings with him over 10 years of experience in acquisition strategy, fund launches and sponsorship marketing at marketing and business development in the GCC. Janus Capital Group and card management at Citigroup. DEXIA ASSET MANAGEMENT – UAE (Dubai) ROTHSCHILD – UAE (Dubai) Firas Mallah has been appointed as head of Dexia’s Asset Rothschild’s recent launch in the Dubai International Financial Center Management Middle East ofﬁ ce in Bahrain. The newly set up branch (DIFC) will be led by Michael Helou as co-head of Investment Banking has also mobilized a team of four people under Firas’ supervision. Middle East. His appointment is in tandem with Dexia Asset Management’s Mr Helou will be supported by the bank’s team of senior Arabic establishment in Bahrain, which will service nine countries including speaking bankers. The new team will interact with industry sector Lebanon, Jordan, Egypt and the GCC (see News Briefs, page 2).

World Leaders in Training for Shariah Compliant Banking and Finance

• Islamic Financial Products & • Legal and Documentary Issues for Engineering Islamic Finance • Islamic Funds • Takaful & Islamic Insurance • Islamic Capital Markets and • Financial Product Manual Derivatives Development • Risk and Financial Management For full listing visit www.islamicﬁ nancetraining.com

Page 26 15th December 2006 © www.islamicﬁ nancenews.com

Eurekahedge Islamic Funds Page

Eurekahedge Islamic Fund Index

140

130

120

110

100 Index Values 90

9 0 0 0 1 1 1 2 2 2 3 3 3 4 4 4 5 5 5 6 6 9 -0 -0 0 -0 -0 0 -0 -0 0 -0 -0 0 -0 -0 0 -0 -0 0 -0 -0 c- r g c- r g c- r g c- r g c- r g c- r g c- r g e p u e p u e p u e p u e p u e p u e p u D A A D A A D A A D A A D A A D A A D A A

MONTHLY RETURNS FOR ALL FUNDS All Islamic Funds (as of 14th December 2006) FUND MANAGEMENT COMPANY Oct Returns (%) FUND DOMICILE 1 Zajil - Service & Telecommunications Fund National Investments Company 15.96 Kuwait 2 Al Darij Investment Fund National Investments Company 8.51 Kuwait 3 Al Dar Securities Fund ADAM 8.46 Kuwait 4 Solidarity Global Growth Fund Solidarity Funds Company 7.77 Bahrain 5 Al Danah GCC Equity Trading Fund Banque Saudi Fransi 7.67 Saudi Arabia 6 Amana Income Saturna Capital Corp 5.73 United States 7 Al Noor Equity Trading Fund Banque Saudi Fransi 5.41 Saudi Arabia 8 Intrinsic Crescent Ethical MDA Intrinsic Investmemt Management 5.25 Australia 9 AlAhli Small Cap Trading Equity Fund The National Commercial Bank 4.99 Saudi Arabia 10 ABC Clearing Company Fund ABC Islamic Bank 4.95 Cayman Islands Eurekahedge Islamic Fund Index 1.61

MONTHLY RETURNS FOR GLOBAL FUNDS Geographic Mandate = Global (as of 14th December 2006) FUND MANAGEMENT COMPANY Oct Returns (%) FUND DOMICILE 1 Solidarity Global Growth Fund Solidarity Funds Company 7.77 Bahrain 2 AlAhli Small Cap Trading Equity Fund The National Commercial Bank 4.99 Saudi Arabia 3 Amanah Global Equity Index Fund The Saudi British Bank 4.67 Saudi Arabia 4 BNP Islamic Equity Optimizer BNP Paribas Asset Management 4.61 Luxembourg 5 Al Dar Fund of Funds ADAM 4.11 Kuwait 6 AlAhli Islamic Global Equitybuilder Certiﬁ cates The National Commercial Bank 3.34 Germany 7 AlAhli Global Trading Equity Fund The National Commercial Bank 2.65 Saudi Arabia 8 AlManarah High Growth Portfolio The National Commercial Bank 2.24 Saudi Arabia 9 AmOasis Global Islamic Equity AmInvestment Management 2.08 Malaysia 10 AlManarah Medium Growth Portfolio The National Commercial Bank 1.75 Saudi Arabia Eurekahedge Global Islamic Fund Index 2.49

Contact Eurekahedge To list your fund or update your fund information: [email protected] For further details on Eurekahedge: [email protected]

Disclaimer Copyright Eurekahedge 2006, 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.

PERFORMANCE PRICE RETURN (%)

DJIM World DJIM Asia/Pacific DJIM Europe DJIM US 30

5 PRICE RETURN (%) 0

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

Index 1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD DJIM World -0.24 1.09 1.46 2.08 8.7 13.97 13.18 14.48 DJIM Asia/Paciﬁ c -1.13 1.57 2.68 3.06 6.84 12.26 13.25 10.44 DJIM Europe 1.13 2.45 3.2 3.47 11.21 17.13 22.04 23.83 DJIM US -0.51 0.37 0.23 0.95 7.42 12.94 9.35 11.36

PERFORMANCE PRICE RETURN (%)

DJIM Titans 100 DJIM Asia/Pacific Titans 25 25

5 PRICE RETURN (%)

0 1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD -5 1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD Index 1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD DJIM Titans 100 0.09 0.79 1 1.37 7.71 14.5 12.54 14.23 DJIM Asia/Paciﬁ c Titans 25 -1.39 1.16 1.5 1.96 8.36 15.79 19.76 18.74

DESCRIPTIVE STATISTICS Market Capitalization (US$ billions) Component Weight (%) Component Float Index Full Mean Median Largest Smallest Largest Smallest number adjusted DJIM World 2273 16570.26 14214.84 6.25 1.46 459.9 0.01 3.24 0 DJIM Asia/Pacifi c 904 2904.91 2127.46 2.35 0.57 89.17 0.01 4.19 0 DJIM Europe 327 4107.4 3303.53 10.1 2.7 225.1 0.12 6.81 0 DJIM US 730 8288.66 7897.58 10.82 2.78 459.9 0.17 5.82 0 DJIM Titans 100 100 7520.31 6883.71 68.84 47.5 459.9 8.97 6.68 0.13 DJIM Asia/Pacifi c Titans 25 25 846.88 599.25 23.97 18.53 61.56 8.97 10.27 1.5 Mean, median, largest, smallest and component weights are based on fl oat adjusted market capitalization, not full market capitalization.

Learn more about the Dow Jones Islamic Market Indexes

Anthony Yeung [email protected] Regional Director Tel: +852 2831 2580

Page 28 15th December 2006 © www.islamicﬁ nancenews.com

MALAYSIAN ISLAMIC BOND UPDATE

RINGGIT ISLAMIC DEBT MARKET: WEEKLY SNAPSHOT AS AT 14th December 2006 Key Benchmarks Trend (by volume) Rating This week close (RM) 6 December 06 (RM) 29 November 06 (RM) 22 November 06 (RM) Private Debt Securities KLT IMTN 0% 14.05.2010 A+ ID (MARC) 99.97 102.33 102.69 102.71 JEV IMTN 3836D 12.11.2015 AA3 (S) (RAM) 115.27 114.54 115.63 113.16 PLUS IMTN 0% 08.10.2021 – TRANCHE 2 AAA (RAM) 47.77 48.06 46.71 46.59 RANTAU IMTN 15.03.2011 – MTN 1 AAA (RAM) 101.04 101.08 100.89 100.78 PUTRAJAYA IMTN 5.600% 13.07.2018 AAA ID (MARC) 109.18 108.72 107.06 109.31 Government Investment Instruments PROFIT-BASED GII 3/2006 15.11.2016 n/a 100.19 100.32 100.07 99.99 PROFIT-BASED GII 1/2006 14.04.2009 n/a 100.61 100.59 100.59 100.54 PROFIT-BASED GII 2/2006 14.07.2011 n/a 103.94 103.99 103.89 103.83 GII 2/2004 0.00000% 30.09.2011 n/a 83.79 83.84 83.44 83.54 Quasi Government KHAZANAH 0% 08.12.2016 n/a 68.34 n/a n/a n/a KLIA 0.000% 30.01.2016 PN n/a 128.17 128.05 127.66 126.13 CAGABAIS 191/2005 02.03.2007 AAA (RAM) 99.92 99.90 99.88 99.87 CAGABAIS 13/2006 0% 10.08.2009 AAA (RAM) 101.68 101.76 101.53 101.36

SPREAD VS GII (in b.p) TENURE 1Y 2Y 3Y 5Y 7Y 10Y GII 3.55 3.61 3.66 3.71 3.75 3.81 Cagamas 0.14 0.19 0.17 0.25 0.3 0.34 Khazanah 0.07 0.07 0.05 0.08 0.09 0.09 AAA 0.34 0.36 0.41 0.54 0.68 0.77 AA1 0.43 0.47 0.52 0.65 0.76 0.9 A1 1.31 1.45 1.62 1.97 2.33 2.67

MYR ISLAMIC DEBT YIELD CURVES YTM Curves 5 YEAR YTM Historical Charts (weekly closing, over last 6 months)

ISLAMIC FINANCE LEAGUE TABLES

TOP ISSUERS OF ISLAMIC BONDS DECEMBER 2005 – DECEMBER 2006

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

1 Nakheel Development UAE Convertible Sukuk 3,520 1 23.6 Barclays Capital, Dubai Islamic Bank Ijarah

2 Malaysia Malaysia Islamic Sukuk 2,595 3 17.4 Malaysian Government bond 3 Cagamas Malaysia Bithaman Ajil Islamic 1,003 14 6.7 Cagamas, AmMerchant Bank, Securities Aseambankers 4 Rantau Abang Capital Malaysia Sukuk Musharakah 999 2 6.7 CIMB, AmMerchant Bank MTN

5 ADIB Sukuk UAE Sukuk Ijarah 800 1 5.4 HSBC

6 Rafﬂ esia Capital Malaysia Periodic Payment 750 1 5.0 CIMB Investment, HSBC Amanah, UBS Exchangeable Trust Certiﬁ cates 7 Projek Lebuhraya Utara Selatan Malaysia Sukuk Musharakah 743 18 5.0 CIMB (PLUS) MTN

8 Aabar Sukuk UAE Exchangeable Sukuk 460 1 3.1 Deutsche Mudarabah

9 Putrajaya Holdings Malaysia Murabahah MTN 456 9 3.1 Alliance, CIMB, RHB Sakura

10 Maybank Malaysia Bai Bithaman Ajil 416 1 2.8 Aseambankers Subordinated Bonds

11 Jimah Energy Ventures Malaysia Istisnah Islamic MTN 308 20 2.1 AmMerchant, Bank Muamalat, MIMB, RHB Sakura

12 Segari Energy Ventures Malaysia Sukuk Ijarah 258 6 1.7 Aseambankers Malaysia

13 SIB Sukuk UAE Musharakah Sukuk 225 1 1.5 HSBC

14 Tabreed 06 Financing Corp UAE Sukuk Istisnah 200 1 1.3 CIMB, HSBC, Dreer Kleinwort Wasserstein

15 East Cameron Gas US Asset-backed Sukuk 168 1 1.1 Merrill Lynch International

16 Sistem Penyuraian Traﬁ k KL Barat Malaysia Bai Bithaman Ajil 136 5 0.9 United Overseas Bank (Malaysia) Notes Issuance Facility

17 WAPDA First Sukuk Pakistan Sukuk Ijarah 134 1 0.9 Citibank (Pakistan), Jahangir Siddiqui & Co, MCB 18 Special Power Vehicle Malaysia Bai Inah Islamic MTN 110 10 0.7 AmMerchant, Bank Muamalat, MIMB 19 Bank Pembangunan Malaysia Malaysia Murabahah MTN 109 1 0.7 CIMB, HSBC 20 BNM Sukuk Malaysia Sukuk Ijarah 107 1 0.7 Malaysian Government bond

Total of issues used in the table 14,885 261 100.0

For all enquires regarding the above information, please contact: Catherine Chu Email: [email protected] Phone: +852 2804 1223; Fax: +852 2529 4377

ISLAMIC FINANCE LEAGUE TABLES

TOP ISSUERS OF ISLAMIC BONDS YEAR–TO–DATE

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

1 Nakheel Development UAE Convertible Sukuk Ijarah 3,520 1 24.1 Barclays Capital, Dubai Islamic Bank

2 Malaysia Malaysia Islamic Sukuk 2,595 3 17.8 Malaysian Government bond

3 Cagamas Malaysia Bithaman Ajil Islamic 1,003 14 6.9 Cagamas, AmMerchant, Securities Aseambankers 4 Rantau Abang Capital Malaysia Sukuk Musharakah MTN 999 2 6.8 CIMB, AmMerchant 5 ADIB Sukuk Co UAE Sukuk Ijarah 800 1 5.5 HSBC

6 Rafﬂ esia Capital Malaysia Periodic Payment 750 1 5.1 CIMB Investment, HSBC Amanah, Exchangeable Trust UBS Certiﬁ cates 7 Projek Lebuhraya Utara Selatan Malaysia Sukuk Musharakah MTN 743 18 5.1 CIMB Investment (PLUS)

8 Aabar Sukuk UAE Exchangeable Sukuk 460 1 3.1 Deutsche Mudarabah

9 Putrajaya Holdings Malaysia Murabahah MTN 456 9 3.1 Alliance, CIMB, RHB Sakura

10 Maybank Malaysia Bai Bithaman Ajil 416 1 2.8 Aseambankers Subordinated Bonds

11 Jimah Energy Ventures Malaysia Istisnah Islamic MTN 308 20 2.1 RHB Sakura, MIMB, Bank Muamalat, AmMerchant

12 Segari Energy Ventures Malaysia Sukuk Ijarah 258 6 1.8 Aseambankers

13 SIB Sukuk UAE Musharakah Sukuk 225 1 1.5 HSBC

14 Tabreed 06 Financing Corp UAE Sukuk Istisnah 200 1 1.4 CIMB, HSBC, Dreer Kleinwort Wasserstein 15 East Cameron Gas US Asset-backed Sukuk 168 1 1.1 Merrill Lynch

16 WAPDA First Sukuk Pakistan Sukuk Ijarah 134 1 0.9 Citibank (Pakistan), Jahangir Siddiqui & Co, MCB

17 Special Power Vehicle Malaysia Bai Inah Islamic MTN 110 10 0.8 AmMerchant, Bank Muamalat, MIMB

18 Bank Pembangunan Malaysia Malaysia Murabahah MTN 109 1 0.7 CIMB, HSBC

19 BNM Sukuk Malaysia Sukuk Ijarah 107 1 0.7 Malaysian Government bond

20 Syarikat Pengelar Air Sungai Malaysia Murabahah MTN 103 19 0.7 United Overseas Bank (Malaysia) Selangor (SPLASH)

Total of issues used in the table 14,612 240 100.0

LEAGUE TABLE DATA – IS IT CORRECT??? INFORMATION

If you feel that the information within the league tables Catherine Chu is incorrect then please contact the following: [email protected] +852 2804 1223 If you don’t release the information on the deals you have advised on then you can’t expect to have the information included! INFORMATION ENSURE YOU CLAIM YOUR RIGHTFUL PLACE

ISLAMIC FINANCE LEAGUE TABLES

ISLAMIC BONDS DECEMBER 2005 – DECEMBER 2006 ISLAMIC BONDS YEAR–TO–DATE Manager or Group Amt US$ m Iss. % Manager or Group Amt US$ m Iss. % 1 Malaysian Government bond 2,702 4 18.2 1 Malaysian Government bond 2,702 4 18.5 2 Barclays Capital 1,760 1 11.8 2 Barclays Capital 1,760 1 12.0 3 Dubai Islamic Bank 1,760 1 11.8 3 Dubai Islamic Bank 1,760 1 12.0 4 CIMB 1,710 43 11.5 4 CIMB 1,699 42 11.6 5 HSBC 1,474 8 9.9 5 HSBC 1,474 8 10.1 6 AmMerchant 1,191 43 8.0 6 AmMerchant 1,180 42 8.1 7 Aseambankers 850 22 5.7 7 Aseambankers 839 21 5.7 8 Cagamas 592 8 4.0 8 Cagamas 592 8 4.1 9 Deutsche 460 1 3.1 9 Deutsche 460 1 3.1 10 United Overseas 341 38 2.3 10 RHB 279 45 1.9 11 RHB 279 45 1.9 11 UBS 250 1 1.7 12 UBS 250 1 1.7 12 Alliance Investment 201 16 1.4 13 Alliance Investment 201 16 1.4 13 United Overseas 193 32 1.3 14 Merrill Lynch 168 1 1.1 14 Merrill Lynch 168 1 1.1 15 Standard Chartered 150 17 1.0 15 Standard Chartered 150 17 1.0 16 Bank Muamalat 134 32 0.9 16 Bank Muamalat 123 31 0.8 17 MIDF-Sisma Securities 116 29 0.8 17 MIDF-Sisma Securities 116 29 0.8 18 EON 114 30 0.8 18 EON 114 30 0.8 19 OCBC 106 18 0.7 19 OCBC 83 11 0.6 20 Avenue Securities 77 4 0.5 20 Avenue Securities 77 4 0.5 Total of issues used in the table 14,885 261 100.0 Total of issues used in the table 14,612 240 100.0

ISLAMIC BONDS BY COUNTRY DECEMBER 2005 – DECEMBER 2006 ISLAMIC BONDS BY COUNTRY YEAR–TO–DATE

Amt US$ m Iss. % Amt US$ m Iss. % Malaysia 9,221 250 62.0 Malaysia 8,949 229 61.2 UAE 5,205 5 35.0 UAE 5,205 5 35.6 US 168 1 1.1 US 168 1 1.1 Pakistan 152 2 1.0 Pakistan 152 2 1.0 Kuwait 100 1 0.7 Kuwait 100 1 0.7 Indonesia 21 1 0.1 Indonesia 21 1 0.1 Saudi Arabia 18 1 0.1 Saudi Arabia 18 1 0.1 Total 14,885 261 100.0 Total 14,612 240 100.0

ISLAMIC BONDS BY CURRENCY DECEMBER 2005 – DECEMBER 2006 ISLAMIC BONDS BY CURRENCY YEAR–TO–DATE

Amt US$ m Iss. % Amt US$ m Iss. % Malaysia 8,471 249 56.9 Malaysia 8,199 228 56.1 US 6,241 9 41.9 US 6,241 9 42.7 Pakistan 152 2 1.0 Pakistan 152 2 1.0 Indonesia 21 1 0.1 Indonesia 21 1 0.1 Total 14,885 261 100.0 Total 14,612 240 100.0

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Company Index

Company Page Company Page Company Page Company Page

ABC Islamic Bank 4 Ceylinco Takaful Insurance 23 Hannover Re Takaful 23 OPEC Fund 6 ABN Amro 7,26 CIMB Group 1 HSBC Amanah 4 PROTON 7 Abu Dhabi Investment Company 6 Citibank London 3 INCEIF 2 Qatar National Bank 5,6 Abu Dhabi Islamic Bank 4 Citigroup 26 ING Bank 3 Raiffeisen Zentralbank Osterreich Al Rajhi Bank 4 Commercial Bank of Qatar 6 Injazat Capital 6 Aktiengesellschaft 3 Aldar Properties 2 Commerzbank 3 IOI Corporation 8 Rating Agency Malaysia 8 American Express Private Bank 26 Cushman & Wakeﬁ eld Capital Asia 1 Islamic Development Bank 8 Risk Management Services 23 AmInternational (L) Ltd 7 Dexia Asset Management 2,26 Jabal Omar Development Company 6 Rothschild 26 AON Insurance Brokers 23 Dexia Group 2 Janus Capital Group 26 RZB Bank 3 Arab Bank 4 Dexia Private Bank 2 KMCOB 8 Securities and Exchange Commision of Pakistan 23 Arab Banking Corporation 3,6 Dubai Financial Exchange 6 Knight Frank Investment Management 4 Shamil Bank 8 Atos Origin Middle East 6 Dubai Financial Market 6 KNM Group 8 Shiekan Insurance and ReInsurance Company 23 Badr Al Islami 4 Dubai International Financial Center 26 Kurnia Insurance 23 Standard & Poor’s 8 Bahrain Islamic Bank 3 Dubai International Financial Center Authority 6 Kuwait Finance House 4 State Bank of Pakistan 3,5 Bank Abilad 6 Dubai Islamic Bank 5 Kuwait Finance House 7 Sukuk Exchange Center 2 Bank Indonesia 1 Ecole Supérieure des Affaires 4 Labuan Offshore Financial Services Authority 7 TAIB Bank 6 Bank Negara Malaysia 2 Ernst & Young, USA 7 Liquidity Management Center 3 Takaful Ikhlas 23 Bank of Tokyo-Mitsubishi UFJ 3 European Islamic Investment Bank 3,4,26 Malaysia Rating Corporation 8 Takaful Pakistan 23 Bursa Malaysia 7 Fitch ratings 8 Malaysian National Reinsurance 23 UK Securities & Investment Institute 4 Calyon 4 Global Asia Real Estate Fund 1 Mashreq Bank 6 Union National Bank 3 Capital Intelligence 8 Global Investment House 1 Morgan Stanley 26 United Stainless Steel Company 6 CapitaLand 3 Greenshield Insurance Brokers 23 National Bank of Abu Dhabi 4,6 Wala Insurance 23 Central Bank of Bahrain 1 Gulf Finance House 3 National Bank of Dubai 6 WestLB 3 Central Bank of Lebanon 4 Gulf International Bank 4 National Bank of Kuwait 6 Yusuf bin Ahmed Kanoo Holdings 1 Central Insurance Company Iran 23 Hannover Re 23 Nomura Investment Banking 26

Country Index

Country Title Page Country Title Page Country Title Page

Bahrain CIMB-Kanoo alliance 1 Hong Kong Moves 26 Pakistan RMS in Pakistan 23 European asset managers to take on Bahrain 2 India Free Trade agreement 6 Qatar HSBC Amanah arranges Sukuk 4 New Sukuk hub 2 Indonesia Bank Indonesia Shariah boost 1 Saudi Arabia Jabal Omar appoints IPO manager 6 GFH completes facility 3 Iran Insurance sales up 23 Wala’s IPO offering 23 EIIB’s real estate endeavor 4 Kuwait QNB in Kuwait 5 Singapore CapitaLand Islamic fund 3 “Exploring Islamic Wholesale Malaysia INCEIF University? 2 Sri Lanka Ceylinco’s Takaful venture 23 Banking Opportunities” 5 Al Rajhi expansion plan 4 UAE US$3.5 billion Sukuk up for grabs 2 ABC closes debt ﬁ nancing 6 KMCOB receives rating 8 US$1 billion syndication closed 3 TAIB announces Acacia 6 MARC withdraws KNM rating 8 Badr Al Islami launch 4 Shamil receives quick upgrade 8 No change for IOI 8 US$1.2 billion facility for MTC 4 Moves 26 Kurnia targets policies 23 Al Islami Land Trading 5 China GIH wins bid 1 Takaful Ikhlas optimistic 23 Dual listing for Dubai exchanges? 6 GCC Free Trade agreement 6 Labuan IOFC- Investment route to Asia 7 Injazat acquires AOME shares 6 General Fitch assigns AA+ to IDB 8 Pakistan Islamic banks regulated 3 Moves 26 Germany Hannover ReTakaful 23 Micro-ﬁ nancing the Islamic way 5 UK EIIB in strategic link-ups 3 Global Moves 26 Takaful Pakistan to start ops 23 IFQ benchmark 4

NE-IFN03/45 POLLS BEST ISLAMIC BANKS POLL 2006

In January 2007 Islamic Finance News will publish the results of its 2nd Best Islamic Banks Poll.

This is the industry’s true global poll where the practitioners and professionals have their say on who is the best in a series of categories.

Note: You are not required to complete every section CLOSING DATE: Sunday, 31st December 2006

Best Overall Islamic Bank: ______Best Islamic Bank: By Country Africa: ______Oman: ______Bahrain: ______Pakistan: ______Brunei:______Qatar: ______Egypt:______Saudi Arabia:______India: ______Turkey:______Indonesia: ______Europe:______Iran: ______UAE:______Jordan: ______USA:______Kuwait:______Others:______Malaysia:______

Best Retail Islamic Bank:______Most Innovative Islamic Bank : ______Best New Islamic Bank:______Central Bank in promoting Islamic Financial Services: ______Best Individual Islamic Banker: ______Best Advisory Firm:______Best Islamic Ratings Agency : ______Best Takaful Company :______Best Islamic Asset Manager : ______Best Islamic Wealth Management Firm : ______Best Islamic Technology Provider : ______Best Law Firm : ______

RESPONDENTS: i FREE copy of the IFN Guide 2007 (January 2007) i 1 Month subscription free

NAME: ______FIRM: ______

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