Setting the Standard 950

The World’s Global Islamic Finance News Provider 4th April 2012 RED (All Cap) Setting the standard 950

1.56% Standard sett ing bodies in Islamic fi nance and IIFM handles the market processes and 925 are in the throes of an identity crisis. documentation. In practice however, things 906.05 Competing bodies, a lack of cooperation may not be quite so simple. 900 and confl icting remits have limited their eff ectiveness and caused many industry Flagship 892.12 experts to question whether they are 875 The IFSB is the leading standard sett ing losing their infl uence. Islamic Finance body in terms of position and power. It is news takes a closer look at who they really supported by the Malaysian government 850 are, what they really do and why we really and subscribed to by most of the central W T F S S M T need them. ® banks and supervisory agencies in its Powered by: IdealRatings member countries. It is also one of the Volume 9 Issue 13 The main players most transparent, with externally audited IFN Rapids ...... 2 The three main bodies serving the Islamic accounts that are presented annually to its Islamic Finance News ...... 6 fi nance industry are the Islamic Financial General Assembly for approval. Services Board (IFSB), the International IFN Reports: A long road ahead for Hong Kong; Healthy fi rst quarter for the industry ...... 15 Islamic Financial Market (IIFM) and the Most of the industry players we spoke Accounting and Auditing Organization for to were positive on the role of the IFSB. IFN Correspondents: Pakistan; Kuwait; Saudi Arabia ...... 17 Islamic Finance (AAOIFI). These are the Badlisyah Abdul Ghani, CEO of CIMB most infl uential, but are they losing their Islamic, notes that: “I have found the IFSB Column: Islamic banking is in the driving seat for wealth protection - Shan Saeed ...... 20 sway? One market expert questions: “What to be of the most benefi t to the industry.” have these three actually done? Nobody However, he clarifi es that: “The fact that we Case study: really follows them any longer – they prefer are based in Malaysia and the Malaysian Tanjung Bin Energy Issuer’s US$1.07 billion to set their own standards – aft er all it’s regulator has adopted some of the IFSB Sukuk Murabahah ...... 22 what the scholars say that counts.” guidelines is important.” There is some Features: concern over the regional bias of the Development of Islamic microfi nance: Malaysia .. 23 IFSB is a Malaysian government-supported body, and its eff ectiveness outside its core The Sukuk market performance in Malaysia .....26 statutory body launched in 2002 that markets. Samer Hĳ azi, a director at KPMG Trading Islamic fi nancial products on the London claims to be “an international standard- Financial Services in the UK, comments Stock Exchange ...... 29 sett ing body of regulatory and supervisory that: “Being based in the UK, we probably Tanzania embraces Islamic banking ...... 31 agencies” which promotes the development get less out of these industry association of the industry through “introducing new, memberships than perhaps my colleagues Islamic Investor or adapting existing international standards based in the Gulf states get more out of Tapping into the right avenue ...... 34 consistent with Shariah principles and AAOIFI and IIFM and, similarly, my Market Commentary ...... 35 recommending them for adoption.” colleagues based in Malaysia will get more News ...... 36 Bahrain-based AAOIFI on the other hand, Fund Focus: NewGold Exchange Traded Fund .. 37 which began back in 1990, has the objective continued on page 3 Fund Data ...... 38 “to prepare, promulgate and interpret accounting and auditing standards for Playing by the rules Takaful News Islamic fi nancial institutions”. IIFM was Explosive growth needed...... 40 also launched in 2002 and has the goal of Editor’s Note “the unifi cation of the Islamic fi nancial News ...... 41 In a world bound by rules, regulators market, particularly standardization of Feature: The evolution of Takaful models in and the authorities play a key role in Islamic capital and money market products, Malaysia ...... 42 ensuring that we toe the line. While the documentation and related processes.” importance of those authoritative bodies Forum ...... 44 cannot be denied, their presence also On paper it looks great. IFSB creates the Meet the Head: Dr Shahinaz Hanem Rashad puts forth the question: Who regulates overall Shariah standards, AAOIFI governs Abdellatif general manager & executive director, the regulators? the accounting and auditing standards, global Islamic fi nance consulting & training continued on page 6 division, Metropolitan Consultancy ...... 45 Deal Tracker ...... 46 REDmoney Indexes ...... 47 Performance League Tables ...... 49 Events Diary...... 53 Company Index ...... 54 Subscription Form ...... 54 www.islamicfi nancenews.com IFN RAPIDS

IDB approves US$389.3 Kingdom Holding Company Bahrain National Holding NEWS million-worth of fi nancing for gets shareholders’ nod to sell opens discussions with Gulf African Bank reports member countries conventional bond or Sukuk regional investors to jointly establish new Takaful 230% increase in 2011 profi t IDB allocates US$52 million Dubai Islamic Bank among company before tax for Gaza banks to raise US$1.1 billion for Dubai Duty Free AIA-AFG Takaful records Bank of Khartoum to establish Five new members join the IFSB 6,000 cases in the fi rst 10 new Islamic microfi nance DFSA delists DIB Sukuk IDB urged to set aside 40% months of 2011 institution, IRADA Company from offi cial list of of its budget for African securities Prudential BSN Takaful KFH eyes investment development opportunities in Morocco posts US$6.47 million in pre- Arcapita Bank receives US tax profi t for 2011 India’s legal system does not Bankruptcy Court’s consent to ISLAMIC Takaful Emarat launches allow Islamic banking, says manage cash and pay wages minister of state for fi nance INVESTOR new product for low-income Islamic fi nance expands workers UBL Fund Managers Cagamas issues US$162.34 outside core markets million Sukuk Wakalah announces payout for fi rst Goldman Sachs’ US$2 billion quarter of 2011 RATINGS Khazanah Nasional to use Sukuk receives scholars’ Crescent Wealth to off er four IIRA reaffi rms ratings of proceeds from exchangeable approval Sukuk for Asian investments new funds by the end of this Jordan Islamic Bank Sukuk sales make record start year MARC affi rms ‘AAAIS’ rating Islamic Bank of Thailand to to US$10.4 billion issue US$162 million Sukuk CIMB Strategic Assets and on TTM Sukuk’s US$195 by May this year IFSB council approves two US-based The Rohatyn million Sukuk Murabahah new guiding principles Group in JV to manage with a stable outlook Pakistan’s Islamic banking CapAsia funds sector expansion plan on LUKOIL Oil Company JCR-VIS harmonizes fund track, says central bank receives US$500 million from Local investors in the stability rating of UBL Islamic six banks including Dubai UK should consider self- Savings Fund at ‘AA-(f)’ IIFM and ISDA launch Islamic Bank certifi cation for Islamic MARC removes and Shariah compliant profi t rate banking products, says Ahli United Bank Kuwait withdraws ‘BBID’ rating on swap standard fi duciary specialist reports net profi t of US$113.2 Maxtral Industry’s US$26 AmBank to install Tata million for 2011 Rasmala Investment Bank to million BaIDS Consultancy Services’ launch Rasmala Global Sukuk National Bank of Kuwait S&P affi rms long-term credit banking soft ware Fund Bahrain announces net profi t ratings of National Bank of Arab investors not bailing out of US$70 million for 2011 Global Sukuk Plus Fund Kuwait at ‘A+’ of Medini Iskandar project, reports total returns since Turkey’s participation banks says Iskandar Investment inception of 21.43% shy away from Treasury’s MOVES Pembinaan BLT’s third Sukuk revenue-linked bonds Ethical Asset Management Emirates NBD names Jamal tranche fully subscribed launches investment Sukuk DBS expansion to strengthen Ghalaita as new CEO of its fund Bank Alfalah posts US$108 Islamic business? Islamic subsidiary, Dubai million in profi t before tax for Bank 2011 Saudi British Bank sells maiden subordinated Sukuk TAKAFUL Cagamas names Chung Chee Development Bank of worth US$400 million Oman United Insurance Leong as new CEO Kazakhstan to set up US$500 Company calls for more The Central Bank of the UAE National Commercial Bank million Sukuk Murabahah Takaful opportunities program not responsible for sett ing up names nine new board members Shariah supervisory board Tremendous potential for AMMB Holdings appoints Malaysia to issue parameters Malaysian Takaful industry to Saudi Electricity Company Ashok Ramamurthy as new on Islamic fi nance structures grow, says OSK Research launches US$1.75 billion dual group managing director Retail investors in Malaysia tranche global Sukuk Bank Asya refutes news United Gulf Bank names among regulator’s priorities reports on selling general Jafza reportedly preparing Faick Al Saleh and Bader insurance unit to Germany’s Bank Muamalat Indonesia syndicated loans to refi nance Al Awadi as independent Gothaer Insurance Group eyes full ownership of Al- part of US$2 billion Sukuk directors Ijarah Indonesia Finance Takaful Emarat reports total Family Bank joins Sanabel Qatar Islamic Bank names assets of US$32 million for CIMB Group to buy RBS’ Network for Middle East three new senior appointments 2011 Asian assets microfi nance institutions Bain & Company names

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Sett ing the standard CLOSING BELL Continued from page 1 Microfinance institution in out of IFSB as their standards are locally auditing and Sudan adopted. The issue in the UK is that the accounting SUDAN: The IDB, the Arab Gulf UK fi nancial services regulator has not position they Program for Development and the Sudan chosen to mandate any of the guidelines have nothing Government Microfi nance Corporation and standards issued by these bodies.” to contribute have contributed to the establishment of whatsoever the Al-Ebda’a Microfi nance Institution. – they need to Overlap The institution has a start-up capital of There are also concerns over the scope fi nd themselves a diff erent role, as their previous role is obsolete.” Hĳ azi agrees: US$5 million and aims to provide up of the IFSB, with one industry expert to US$23 million in microfi nancing to complaining that they can on occasion “The AAOIFI accounting standards were developed to meet a valid perceived about 80,000 clients by its fi ft h year of appear “just a glorifi ed conference operations. organizer” and should decide which gap in market application of accounting role they want to play rather than standards to Islamic fi nance. 20 years trying to be all things to all people. But have since passed and the world is More M&As in MENA another leading fi gure qualifi es that: “If already moving towards a single set of GLOBAL: Deloitt e expects M&A deals in they organize a generic Islamic fi nance high quality accounting standards in the MENA region to increase gradually conference – that is not their scope, it is IFRS. The industry needs to determine this year, especially from markets that not their reason for existence. But if they where the AAOIFI accounting standards are not impacted by liquidity constraints, organize a conference or event where fi t into all this.” namely: Abu Dhabi, Saudi Arabia, Qatar. they announce or explain their new The company also continues to see standards, if they use their conferences Standardization investment opportunities in certain as a market awareness exercise, that is AAOIFI itself appears to have segments of the MENA market; with the diff erent.” The organization counters that recognized this, and has recently begun possibility of a new round of asset sales it does not charge for any conferences to move towards the area of Shariah as part of refi nancing plans as US$25 apart from its annual summit, and that standardization. “They now want to billion-worth of Sukuk and conventional all its seminars and workshops (many be a Shariah standard body,” says a bonds mature this year. of which are restricted to members) are source. “The problem is that you cannot important in terms of off ering technical standardize Shariah. The very nature of Suvo rejoins ENBD assistance for the implementation of its Shariah from an international perspective UAE: Suvo Sarkar will reportedly return guidelines. is done on a case by case basis. So if to Emirates NBD (ENBD) as head of its you cannot standardize Shariah, it retail group, aft er leaving the bank two Hĳ azi points out, however, that: “One has no role.” Concerns also exist over years ago to join the National Bank of of the most important challenges that the overlap of these institutions. For Abu Dhabi (NBAD). the IFSB faces is the overlap between example IFSB has issued 11 Standards the standards it produces and those of and fi ve Guidance Notes covering He was most recently the general AAOIFI. I think that the industry needs aspects including capital adequacy, manager for consumer and elite banking to resolve which standards they think corporate governance, solvency, at NBAD. are best, and move towards closer co- securitization, Sukuk, transparency and operation between some of the bodies.” market discipline. AAOIFI has issued 25 Accounting Standards and fi ve Auditing Dubai Sukuk yields catch up Relevancy Standards, but it has also issued seven GLOBAL: The spread between Dubai and Malaysian Sukuk yields is closing AAOIFI in particular looks to be Governance Standards, two Ethics as the emirate’s economy shows signs of struggling to fi nd a niche for itself, Standards and 41 Shariah Governance recovery. as although in theory it covers the Standards, covering ground that logically transparency and auditing standard should already have been covered by The diff erence on Dubai’s unrated 6.4% side, many large fi nancial institutions are IFSB. Hĳ azi asks: “Does the market Sukuk maturing in 2014 and Malaysia’s increasingly looking to the larger, more really need all these bodies - are they recognized international conventional addressing a real hindrance to Islamic investment-grade 3.93% Islamic notes bodies and adapting their standards for fi nance? If so, the key test will be the due in 2015 has narrowed 81 basis points Islamic fi nance, rather than using the extent to which these standards need (bps) to 206 bps. AAOIFI standards. to be adopted around the world going forward.” Dubai’s debt now yields 4.13%, compared Badlisyah comments that: to 1.99% on the Malaysian securities. “CIMB was never a member Not everyone in the industry is of AAOIFI. We follow the so negative. Humphrey Percy, international standards – the CEO of Bank of London and The whole world is following Middle East, is positive that the international AAOIFI continues to make standards.” Another a valuable contribution player goes even further to the industry. “AAOIFI to say that: “From an continued...

Sett ing the standard Continued from page 3 is performing well with a growing look at standardizing anything: it looks have said that it has made the problem role. The new secretary-general has a at coming out with standard practice worse. The documentation is longer and defi nite strategic agenda on which I have documentation. Prior to that it did less straightforward. And at the end of consulted.” He also believes that “they not work so well because they wanted the day, the biggest players in Islamic are active in diff erent areas and don’t to do more than that – they wanted fi nance are not the standalone Islamic really compete”. When contacted, the to standardize Shariah practice. This banks but the windows of the big global IFSB also clarifi ed that they view the two will never work, because you cannot conventional players. No matt er what bodies as complementary. “IFSB focuses standardize Shariah.” But with the IIFM does, if they produce a contract the on standards for prudential supervision organization focusing on concrete banks will still take that contract through and regulation while AAOIFI is practice documentation it has become their full legal process, and if they don’t responsible for transparency and increasingly infl uential. Innovative steps approve it it won’t be used.” disclosure standards…and also provides such as partnering with the International standards on Shariah issues. We see no Swaps and Derivatives Association However most players applaud the confl ict with AAOIFI.” (ISDA) have also contributed towards a strong work of the body. Percy is wider acceptance of Islamic fi nance in confi dent in IIFM, confi rming that The body also noted that it saw no need the conventional industry as its processes although “some snags remain to be for any consolidation of the industry become standardized and more easily resolved, CEO Ijlal Alvi is a dynamic players. “Consolidation of prudential accessible. leader.” Another player says that: “Of supervision and regulation with the three main bodies, IIFM has certainly accounting and audit standards would However, Badlisyah suggests that they done the most recently. Their tie-up with take Islamic fi nance beyond what serves could benefi t from narrowing their focus ISDA over the last couple of years has as the norm globally.” still further. “For IIFM to be eff ective been welcomed and saluted. Ijlal Alvi has they need to work on standardizing done a good job.” Moving forward documents on a country basis, on a In fact one body is indeed pushing regional basis, and then on a global basis. Innovation Islamic fi nance beyond the norm. IIFM They must work on creating a common Some promising new steps look to have been very successful in recent agreement in the market, yes, but this be coming out of the partnership in years in developing standardized should be on a more specifi c basis the near future. Rebecca O’Neill, the documentation for Shariah processes: before they att empt to create Shariah communications director for ISDA in which the industry standards.” the EMEA region, told Islamic Finance has greeted with news that: “Given profi t rate swaps are approval. Focusing Paperweight the most relevant hedging instrument on a limited scope Although IIFM documentation (which for Islamic companies, that was the and working includes a profi t rate swap agreement, logical fi rst step and this will provide the towards concrete a Tahawwut Master Agreement, an format for a cross-currency confi rmation results appears to interbank Wakalah agreement and a template that will follow shortly. be a successful treasury placement master agreement) We expect a confi rmation template strategy. has been met with general approval for FX forwards will follow closely Badlisyah from the industry, this has not been behind and ISDA will shortly also be explains that: universal. One market player told Islamic publishing industry legal opinions on the “IIFM does Finance news in confi dence that: “Many not really people, especially in the money markets, continued...

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Sett ing the standard Continued from page 4 enforceability of transactions done under period, to implement our standards in to cover operational the ISDA/IIFM Tahawwut (Hedging) part or in full.” The Basel Committ ee expenses – that’s Master Agreement in England, Malaysia has a Standards Implementation Group what it’s there for. So and Singapore.” which enacts its proposals, and Ahmed is all the fee income suggests that “this and other measures pure profi t? Where Hĳ azi sums up that: “Any way for these may well serve the IFSB as it ramps up does that go?” bodies to start working together and its eff orts,” as well as calling for clearly moving in the same direction is positive defi ned ‘reform roadmaps’ at a national There has also for the industry.” level in member countries to work been dissatisfaction at the fees charged towards “a common, global system of for conferences, even for members. One Power struggle standards”. player asks: “If you still have to pay One issue which crops up over and to go to the conferences, what is the over again in our discussions with Accountability point of paying to be a member?” In market players is the question of what Another issue that is frequently raised addition, some sources claim that the role these standard sett ing bodies are is the high cost compared to actual body also requests sponsorship from actually trying to play, and how much benefi ts of membership. IIFM reportedly its members for its events. However, infl uence they really have. One industry charges US$10,000 per member, with 54 Ismail claims that: “Fees are charged expert asks: “How eff ective can they members, bringing its annual fee income only for the Annual IFSB Summit and for really be without legal power? And why, to just over half a million dollars. a couple of serial awareness programs given that most of them are made up of such as the Legal and Takaful seminars. members from the leading central banks, This is small change however, compared All other IFSB programs, seminars, are they not more powerful? Which of to the behemoth that is the IFSB. conferences, rountables and workshops these standards have actually become According to Siham Ismail, a member of are complimentary participation with standards? The vast majority are simply the IFSB Secretariat, in 2011 its fees were some programs only open to members.” guidelines.” Badlisyah agrees: “If the US$31,000 for full members; US$20,000 Perhaps in recent years the IFSB have standards are not regulated, then they for associate members; and US$10,000 quietly changed its policy, as several are of no value. The IFSB needs to do for observer members. Using the March publicly available brochures for ISFB very aggressive market awareness in 2012 member breakdown available conferences clearly request fees, such as order to get its standards adopted into on the IFSB website, this equates to the 2008 ‘IFSB-IIF Conference: Enhancing other national regulations.” approximately US$2.69 million per year the Resilience and Stability of the Islamic in fees (see chart 1). The IFSB also has Financial System’ at the Mandarin Khalid Howladar, the vice-president and an endowment fund from Bank Negara Oriental in Kuala Lumpur, which senior credit offi cer with Moody’s Middle Malaysia and the Islamic Development according to its cover sheet charged a East, suggests that: “Without any real Bank to defray operating costs, as well participation fee of US$400 for members regulatory powers the three main bodies admitt ing to “voluntary contributions and US$500 for non-members. really only serve as useful forums and from other members of the IFSB council”. think-tanks for Islamic issues. It’s really Member benefits the scholars and the needs of the market Chart 1: IFSB fee structure So apart from cheaper conference prices, (lenders and borrowers) that have much what do members actually get for their more direct infl uence on the shape of the Full 27 31,000 837,000 money? One leading fi gure complains: market.” member “Why do these players actually need to Associate 26 20,000 520,000 pay to be a part of these bodies when Implementation member they do the bulk of the work themselves? However, this could be about to Observer 134 10,000 1,340,000 Actually you’ll fi nd most don’t. Numbers change. IFSB have recognized the member are dwindling with many of the big problem, and in a speech at an event in players pulling out.” Total 187 2,697,000 February the secretary-general, Jaseem Ahmed, announced that :“The benefi ts Source: IFSB and Islamic Finance news The IFSB retaliates with the valid point provided by the IFSB’s issuance of global that it “provides the platform that standards will not be realized unless The IFSB claim that the money is used enables collective action on behalf of the the standards are implemented, on a for “administrative purposes, which industry: something that no institution or consistent basis, across jurisdictions,” cover the Secretariat costs and the IFSB individual is able to provide. and that “implementation is not only a operational costs”. While this is true, top priority of IFSB, but one that it shares operating costs must be high indeed The majority of participants in with its members.” to swallow a whole endowment fund our Working Groups are drawn along with a multi-million dollar annual from supervisory and regulatory The good news is that implementation fee income. One market player notes organizations… and in our recent survey does appear to be in progress. According that: “Obviously they have operational of members, 90% indicated that they to Ahmed: “Half of our jurisdictions have expenses but that shoudn’t take up wished to have greater involvement in plans, framed over a three to fi ve-year millions every year – and at the end of the preparation of our standards”. the day the endowment fund is meant

Sett ing the standard Continued from page 5

Involvement opinions and guidance: whether these are personal opinion, these bodies should While some players may be doubtful used depends on the quality of expertise interact more frequently and more of the benefi ts membership brings, and knowledge of the member.” substantially to evolve harmonization others are positive and appreciate the and standardization initially at the opportunity to work with the bodies What next? regional level and, with that success, to develop the industry. Ahmed notes Although there are mutt erings and move towards international level.” that during the IFSB’s public exposure complaints among industry players process for its Guiding Principles about the role of the bodies, there is no Identity crisis on liquidity management and stress denying that they play a vital role and He also points out that “their role is testing, both of which are currently at make a valuable contribution to the somewhat diff erent to that of IFRS or an advanced stage of preparation, “we development of the industry. The key IFSB, which deal with very mature encountered a high level of interest and now is to defi ne what that role really disciplines. These bodies represent very well informed views that we are is, so they can tailor their contribution a niche market now gradually now incorporating into the revised draft s towards what is really needed. entering into main stream.” It must be of the documents. The IFSB Secretariat remembered that Islamic fi nance is still a received over 300 writt en comments from Hĳ azi believes that: “Where I think there very young industry and, as Hĳ azi points more than 62 organizations representing might be a real gap in the market is out, best practice can be “somewhat of a 24 jurisdictions.” around Shariah standards and Shariah moving target”. Trying to be the voice of interpretation. In my view, AAOIFI has regulation for Islamic fi nance in such a Percy comments that: “We interact developed a set of Shariah standards that turbulent period of global regulation is a actively with IIFM. As a member of IIFM can be exported to any country that is tough challenge, and the industry is to a technical working Group, I have advised looking at Islamic fi nance.” certain extent playing “catch-up” with its on development of Master Agreement conventional cousin. for Treasury Placement, and the IIFM/ Percy agrees. “The capital adequacy ISDA Master Tahawwut (Hedging) Basel requirements and greater Nevertheless, there are clear issues that Agreement. There are diff erent categories regulatory requirements, auditing and must be addressed. The industry needs of membership. Members receive IT costs will expedite the consolidation standard sett ing bodies, but they need to documents in development stage and of institutions. There should be a certain decide who they are and what role they off er consultation.” However, he clarifi es degree of harmonization in Shariah want to play. Right now they seem to be that: “A paying member does not per se rulings and standardization of template suff ering from an identity crisis, and it’s assert infl uence. The member provides clauses in legal documentation. In my time to grow up. — LM Playing by the rules

Editor’s Note Azmi of the Asian Institute of Finance compliant insurance by Mohammad provides an excerpt of a chapter in the Mahbubi Ali of ISRA. In a world bound by rules, regulators Global Islamic Finance Report 2012; and the authorities play a key role in covering the Malaysian government’s Insider takes a look at developments ensuring that we toe the line. While support in developing Islamic at Kuwait Finance House; IFN Reports the importance of those authoritative microfi nance in the country. cover the development of Islamic bodies cannot be denied, their fi nance in Hong Kong and provide a presence also puts forth the question: Tanzania’s budding Islamic banking snapshot of fi rst quarter 2012 fi nancial Who regulates the regulators? market has also benefi ted from a sound results of banks and corporates in conventional regulatory framework; Malaysia and the Middle East; and Quite oft en, it is the theoretical fourth as Khalfan Abdallah of Amana Bank IFN Correspondents contribute reports estate which helps keep the higher-ups Tanzania writes on the development on the establishment of charitable in check; and this week, we at Islamic of the industry in the east African foundations in Saudi, new Takaful Finance news play our part with a closer country; while we cross to the UK with rules in Pakistan and the structuring of look at our industry’s standard sett ing a feature on Islamic fi nancial products Sukuk Wakalah. bodies; as covered in our lead story. on the London Stock Exchange (LSE) by Gillian Walmsley of the LSE. Meet the Head talks to Dr Shahinaz However, there is no escaping Hanem Rashad Abdellatif of Egypt’s regulations and regulators, which are We return to Malaysia with an article Metropolitan Consultancy; and crucial to growth and development; on the performance of the country’s our Case Study highlights Tanjung and our issue this week also gives a Sukuk market by Meor Amri Meor Bin Energy Issuer’s US$1.07 billion nod to the support that the law and Ayob of Bond Pricing Agency Malaysia; Sukuk. the authorities provide to our fl edgling and our Takaful feature on the industry. Dr Wan Nursofi za Wan country’s various models of Shariah

or Islamic banking, said Namo Narain IIFM and ISDA launch Shariah AFRICA Meena, the minister of state for fi nance. compliant profit rate swap 230% increase in net profit The central bank, the Reserve Bank standard AFRICA: Gulf African Bank has reported of India, has also pointed out that GLOBAL: The International Islamic a 230% increase in profi t before tax to the country’s statutory and fi nancial Financial Market (IIFM) and the KES155 million (US$1.8 million) for the regulatory framework do not make it International Swaps and Derivatives fi nancial year ended the 31st December feasible for local banks and their foreign Association (ISDA) have launched 2011, as net income rose 29% to KES95.3 branches to conduct Islamic banking standards for profi t rate swaps for million (US$1.13 million). activities, he added. Shariah compliant hedging; as the growing global business of Islamic The bank’s total assets amounted to Cagamas sells Sukuk fi nancial institutions point to the need to KES12.9 billion (US$152.6 million), 35% mitigate foreign currency risks. higher than a year earlier, as its fi nancing MALAYSIA: Local mortgage company Cagamas has issued a multi-tenored portfolio rose 19% to KES7.4 billion The new agreement, known as the (US$87.54 million). RM500 million (US$162.34 million) Sukuk Wakalah. Mubadalatul Arbaah (MA) standard, follows the ISDA/IIFM Tahawwut New Islamic microfinance The Sukuk was issued out of its RM60 (Hedging) Master Agreement launched institution billion (US$19.57 billion) conventional in March 2010. SUDAN: Bank of Khartoum, a subsidiary fi xed income and medium-term note programs and was priced at 3.35%, 3.5% “Islamic fi nancial institutions have of Dubai Islamic Bank, is planning to largely shown resilience in the current set up IRADA, a fully-fl edged Islamic and 3.7% for maturities of one, three and fi ve years, respectively. diffi cult fi nancial environment and some microfi nance institution, with US$10 are even going through an expansion million in equity participation from the phase. IDB. AmInvestment Bank and RHB Investment Bank were joint lead managers for the issuance. “However, due to the inter-linkages with The institution, which has received a the global fi nancial system, the balance license from the Central Bank of Sudan, sheets of Islamic fi nancial institutions will have a paid-up capital of SDG140 Sukuk to fund Asian are exposed to fl uctuations in foreign million (US$52 million). investments currency rates and also cash fl ow MALAYSIA: Khazanah Nasional, the mismatches due to fi xed and fl oating Bank of Khartoum will subscribe to 70% reference rates,” said Khalid Hamad, of IRADA’s shares. country’s sovereign wealth fund, will use the US$357.8 million in proceeds chairman of the IIFM. raised from its recent exchangeable KFH eyes Morocco Sukuk issuance to fi nance upcoming The standards allow for the bilateral investments investments in Asia. exchange of profi t streams from fi xed rate to fl oating rate, or vice versa. MOROCCO: Kuwait Finance House Mohd Izani Ghani, its director and (KFH) is eyeing investment opportunities While some quarters still disagree on the in Morocco as the country’s economy chief fi nancial offi cer, said that the funds may also go towards fi nancing its use of hedging under Shariah, it cannot becomes more att ractive to foreign be denied that Islamic banks need an investors, said Shaheen AlGhanem, a planned acquisition of an 8.85% stake in Sri Lankan conglomerate, John Keells instrument to protect against foreign deputy assistant general manager for currency risks. investments at Kuwait Finance House. Holdings. Banking giants such as Abu Dhabi The move follows expectations for IBT Sukuk to materialize Islamic Bank (ADIB) and Dubai Islamic Morocco to launch regulations on Islamic THAILAND: The Islamic Bank of Bank reported foreign currency exposure fi nance by the end of this year, as it seeks Thailand (IBT) is planning to issue a on assets worth AED70.68 billion to diversify its sources of income. Sukuk worth THB5 billion (US$162 (US$19.24 billion) and AED85.17 billion million) in the next two months, targeting (US$23.2 billion) for 2011, respectively. Yehia Banani, Morocco’s ambassador to the local market and corporate investors Kuwait, also noted that the government from Hong Kong and Malaysia. In its fi nancial statements, ADIB also is considering the issuance of Sukuk to noted that a 5% increase in the US dollar fi nance projects; and is looking to work The planned issuance is expected to have exchange rate would decrease its net with KFH on the matt er. a maturity of fi ve years. profi t by AED116.55 million (US$31.2 million) in 2011, against a decline of CIMB Islamic will act as the underwriter AED67.41 million (US$18.35 million) in ASIA for the transaction. 2010. India Islamic banking Banking growth on track The new standard from IIFM and ISDA will provide product schedules based on unfeasible PAKISTAN: The State Bank of Pakistan, two separate structures for transacting INDIA: The country’s legal system does the country’s central bank, reported MA to mitigate cash fl ow risks. not allow for the practice of interest-free continued...

© 7 4th April 2012 NEWS continued... Middle East entities that are investing in Retail investors among that the local Islamic banking industry Medini. regulator’s priorities has completed 94% of its approved MALAYSIA: Securities Commission expansion plan with a network of 886 PBLT Sukuk still in demand Malaysia (SCM) has outlined its plans branches at the end of last year. MALAYSIA: Pembinaan BLT (PBLT)’s for 2012, which include boosting retail third tranche of its Islamic medium-term participation in Sukuk and conventional The report stated that the combined notes program amounting to RM1.35 bonds by facilitating the off ering of Islamic bank assets and liabilities billion (US$440 million) was fully corporate bonds to retail investors. The constituted 7.8% of the overall banking subscribed by investors with a bid-to- Malaysian regulator is also set to launch industry in 2011, with an increase of cover ratio of 2.62 times at the close of a framework for business trust, to create 13% quarterly growth to PKR641 billion bookbuilding. a regional funds passport to facilitate (US$7.06 billion) in asset base. The cross-border unit trust investments. growth in assets was mainly att ributed The papers mature in three-15 years. to the simultaneous increase of fi nancing A statement released by SCM said: and investment by 15% during the Mohammed Redza Mohd Yusof, its “Retail investors can look forward to an quarter, registering a year-on-year managing director and CEO, said expansion in product range and asset expansion of 40%. that the strong demand for this third classes to cater to their investment needs. tranche shows investors’ confi dence in Other initiatives include improving the Fully-fl edged Islamic banks constituted the company, its credit rating and its access of retail investors to fi xed income, 66% of the Islamic banking industry progress in the construction and delivery derivative and regional products. To while Islamic windows made up the of police quarters facilitate retail participation in Sukuk remaining 34%. and conventional bonds, SCM and The Sukuk was priced at 3.6% for the Bursa Malaysia are working together to AmBank to set up ‘TCS BaNCS’ three-year tranche, 3.75% for the fi ve-year facilitate the off ering of corporate bonds MALAYSIA: AmBank will install Tata tranche, 4% for the seven-year tranche, to retail investors.” Consultancy Services (TCS)’s banking 4.13% for the 10-year tranche, 4.25% for solution, ‘TCS BaNCS’. the 12-year tranche and 4.4% for the 15- The regulator also revealed its eff orts year tranche. to protect foreign and local issuers and According to TCS, the banking system, investors in the private debt securities for conventional and Islamic banking, Profitable year for Bank and Sukuk markets by creating tailor- will support AmBank’s retail banking Alfalah made protection requirements for and lending activities. investors. PAKISTAN: Bank Alfalah has reported PKR9.76 billion (US$108 million) in profi t Arab investors still in It was also revealed that the amount of before tax for the fi nancial year ended the fundraising approved by SCM in 2011 st MALAYSIA: Local developer Iskandar 31 December 2011: a 74% growth from totaled RM118.93 billion (US$38.69 Investment has reaffi rmed its Middle 2010. billion), compared to RM77.02 billion East investors’ active involvement in the (US$25.5 billion) in 2010. Sukuk Medini Iskandar project located in the Its Islamic banking business recorded an approvals also more than doubled to state of Johor. increase of 47.48% in profi t before tax to RM78.9 billion (US$25.67 billion) from PKR1.43 billion (US$15.77 million). RM38.3 billion (US$12.46 billion) the Refuting an earlier report that its two year earlier. An increase in demand from major Arab investors had pulled out Sukuk for Kazakhstan global investors in private debt securities from the project, the company clarifi ed KAZAKHSTAN: The Development also boosted numbers to RM15.1 billion that its master developers, Global Capital Bank of Kazakhstan is expected to issue (US$4.92 billion) by the end of 2011, and Development and MetroGold, which a Sukuk Murabahah of between US$200- compared to RM14.3 billion (US$4.65 currently own about 40% of the gross 300 million maturing in at least fi ve years billion) the year before. Out of this, fl oor area in the project, would look as it sets up a US$500 million, short-term RM5.05 billion (US$1.64 billion) was to dispose of their land to other land Islamic bond program. invested in Sukuk. developers “over time”. The bank is currently in discussion with It also explained that based on regulators on the Sukuk; which are likely the progress payments, RM1.4 to follow Malaysian legislation. Are you reading billion (US$457 million) has been proportionately invested by its Middle us on your Eastern partners for their percentage Parameters for Islamic ownership in the respective master finance development companies. iPad / MALAYSIA: The government will issue Shariah parameters on the Islamic fi nance Global Capital is owned by Abu Dhabi’s iPhone? structures of Mudarabah, Musharakah, Mubadala Development Company, Ijarah and Istisnah this year; as part of an while MetroGold is a subsidiary of ‘entry point project’ under its Economic Kuwait Finance House (KFH). Mubadala Transformation Program. and KFH are part of the consortium of continued...

© 8 4th April 2012 NEWS continued... The fi nancing includes US$49 million Islamic finance expands The plan is in line with the country’s for rehabilitation and agricultural outside core markets aspiration to become the intellectual development projects in Sudan, US$120 million for water development and GLOBAL: Australia and Hong Kong and capital center for Islamic fi nance. It storage projects in Bahrain and US$116 have emerged as the latest non-Muslim also aims to increase its global share of million for water supply projects in Iran. majority jurisdictions to see Islamic Islamic banking assets to 13% in 2020 fi nance picking up speed; as the global from 8% currently. Funding for Gaza industry grew at a faster-than-expected pace last year. The Malaysian central bank will also GLOBAL: The IDB has signed aid strengthen legal support for the country’s agreements amounting to US$52 million Hong Kong’s government has launched Islamic fi nance transactions. with the Palestinian city of Gaza. a two-month consultation on proposed amendments to the Inland Revenue Also in the works are the Islamic According to a statement issued Ordinance and Stamp Duty Ordinance Omnibus Act, which will cover licensing by the bank, the funding has been aimed at developing the local Sukuk frameworks, supervisory powers, allocated to diff erent development market. Professor KC Chan, Hong Kong’s prudential requirements, intervention sectors of the city’s economy: including secretary for fi nancial services and the and resolution of fi nancial institutions; housing reconstruction, infrastructure treasury, said that the consultation is and a Law Harmonization Committ ee redevelopment, education rehabilitation, targeted at ensuring that the proposed that will focus on reviewing relevant healthcare and waterworks. legislative amendments, which are court rules to suit Islamic fi nance focused on creating a level playing fi eld practices. New members at IFSB for Sukuk and conventional bonds, are GLOBAL: The Islamic Financial Services practicable and able to meet market BMI seeks full control of unit Board (IFSB) has admitt ed fi ve new needs. INDONESIA: Bank Muamalat Indonesia organizations into its membership. (BMI) is planning to take full control of While Islamic fi nance has been slow Al-Ijarah Indonesia Finance by injecting The institutions comprise the Capital to develop in Hong Kong, the move additional capital of IDR70 billion Market Authority of Oman as a full illustrates the gathering pace of the (US$7.65 million) in the company in the member and the Agency of the Republic industry in the market. In mid-March, fi rst half of this year, said Andi Buchori, of Kazakhstan on Regulation and local commodities trading fi rm Nobel the compliance and risk management Kazakhstan’s Supervision of Financial Group set up a RM3 billion (US$983 director of BMI. Market and Financial Organizations as million) Murabahah medium-term notes associate members. program. The bank currently holds a 33% stake in Al-Ijarah, a local Shariah compliant Meanwhile INCEIF, Iran’s Amin Meanwhile, Australia, which has fi nancing company set up in 2006 with Investment Bank and Nigeria’s Shariah similarly been a traditionally small Kuwait’s Boubyan Bank and Bahrain’s compliant investment fi rm Lotus Capital market for Islamic fi nance, has also Alpha Lease and Finance Holding. joined as observer members. displayed a growing appetite for the The three shareholders provided the industry. National Australia Bank is said company an initial capital of IDR105 IDB urged to help Africa to be considering a US$500 million Sukuk billion (US$12 million). GLOBAL: Namadi Sambo, the vice issuance that could mark the debut of president of Nigeria, has urged the IDB Islamic bonds in Australia. In a separate CIMB Group buys RBS assets to set aside up to 40% of its operational development, local Islamic wealth budget for the implementation of the manager Crescent Wealth will off er four MALAYSIA: CIMB Group Holdings second phase of the bank’s special new products by the end of this year: will acquire most of The Royal Bank of program for the development of Africa. including an Islamic cash management Scotland (RBS)‘s Asian cash equities and fund launched in partnership with associated investment banking business Sambo said that the IDB could expand HSBC. for RM849.4 million (US$277.6 million). its reach in the region by making its private sector entities more familiar The activity in the two non-Muslim Once approved by regulators, the and responsive to African private sector majority markets is in tandem with transaction will see CIMB Group needs. fi ndings from TheCityUK’s UK Islamic expanding to Australia and Taiwan; and Finance Secretariat, which reported that in China, Hong Kong and India. Nod for Arcapita’s cashflow global Islamic fi nancial assets reached US$1.3 trillion last year; in comparison to GLOBAL: Arcapita Bank, which has the US$1.1 trillion projected for the end fi led for bankruptcy protection in the of this year by Ernst & Young. GLOBAL US, has received approval from the US IDB approves funds Bankruptcy Court to manage cash within According to the latest report the growth, GLOBAL: The IDB has approved a budget and pay wages to its employees. equivalent to a 150% increase over fi ve US$389.3 million-worth of new fi nancing years, follows the expansion of Islamic to support development projects in The bank’s requests were granted based fi nance into new countries beyond its member countries and other Muslim on an interim basis in order to avoid traditional markets of Malaysia and the communities. continued... Middle East.

© 9 4th April 2012 NEWS continued... eff ective management and supervision Participation banks shy away “irreparable harm” to the company, said of liquidity risk. The guidelines for Islamic fi nancial institutions cover the from Treasury’s revenue- Judge Sean Lane, the bankruptcy judge linked bonds overseeing the case. identifi cation, measurement, monitoring, control, reporting and mitigation of TURKEY: The country’s Islamic, or Arcapita was also granted permission to liquidity risk; while the principles for participation, banks have reportedly pay business partners deemed “critical.” authorities outline elements of the shied away from the Treasury’s auction supervisory framework of revenue index bonds on concerns that Its gross monthly payroll and average the papers are not Shariah compliant. monthly expenses amount to US$1.18 Meanwhile, the stress testing guideline million and US$308,000, respectively. provides a stress testing framework The banks’ decision is said to have for Islamic fi nancial institutions and been fuelled by comments from local regulators. Securing Goldman’s Sukuk Shariah scholar Professor Hayrett in Karaman, who noted that the structure of GLOBAL: Dar Al Istithmar (DI), the Islamic financing for LUKOIL revenue-linked bonds does not comply Shariah advisor for Goldman Sachs’ GLOBAL: Russian independent oil with Shariah as the revenue is based on planned US$2 billion Sukuk, has secured interest. approval from 10 scholars for the producer LUKOIL Oil Company has program. signed a fi nancing agreement for up to US$500 million with the Asian Turkey’s Treasury last issued revenue Development Bank, BNP Paribas, Credit index bonds on the 19th February this Dubai-based Sheikh Hussein Hamed year, with a total issuance amount of Hassan and Malaysia’s Dr Aznan Hasan Agricole, Dubai Islamic Bank (DIB), the IDB and the Korea Development Bank. TRY109.2 million (US$61.3 million). are two of the scholars endorsing the Coupon payments for the instruments Goldman Sukuk. Both belong to DI’s The funds will be used to fi nance are linked to revenue from state-owned fi ve-member Shariah supervisory board, enterprises, the Turkish Petroleum chaired by Sheikh Hussein. the company’s natural gas project in Uzbekistan. Corporation, the State Supply Offi ce, the State Airport Authority and the Coastal Geert Bossuyt, CEO of DI, said that Safety Administration. the scholars had established that the Goldman program was a valid example MIDDLE EAST As a result of the doubt cast over the of the Murabahah structure, similar to revenue-linked bonds, the country’s transactions carried out by other issuers Higher profit for AUB Kuwait participation banks, comprising Kuveyt in the past. KUWAIT: Ahli United Bank Kuwait Türk, Albaraka Turk, Türkiye Finans and (AUB Kuwait) has reported an increase Bank Asya, now reportedly are waiting He also said that the structure of the in net profi t to KWD31.5 million to invest in Sukuk instead. Turkey, which Sukuk had been suffi ciently debated; and (US$113.2 million) for the fi nancial year issued legislative changes in 2011 to that the next step for the issuance was up ended the 31st December 2011, against allow for tax neutrality measures for to Goldman Sachs. KWD27.44 million (US$98.61 million) the Sukuk Ijarah, has yet to issue a sovereign year earlier. Islamic bond. Kuveyt Türk was the fi rst Record start for Sukuk Turkish issuer to off er a Sukuk in 2010; GLOBAL: Sukuk sales staged a record The bank’s total assets rose to KWD2.5 and was also the fi rst to sell papers under start this year; reaching US$10.4 billion in billion (US$8.98 billion), while provisions the new Sukuk Ijarah law last year. the year-to-date. amounted to KWD19.8 million (US$71.15 million). Osman Akyüz, the secretary general of Additionally, the strong demand for the Participation Banks Association of Islamic bonds and a captive buyer base Its board of directors has also approved Turkey, is also quoted as saying that the have sent yields tumbling, with some a capital increase to KWD118.3 million banks are looking to invest in Sukuk by Sukuk trading at a tighter spread than (US$425.9 million) from KWD112.6 this August. According to data from the comparable conventional bonds. The million (US$405.4 million). association, as of March this year three yield of HSBC Nasdaq Dubai’s Sukuk of the country’s participation banks had index dropped to 3.65% this year, near 8% increase in net profit invested in TRY984 million (US$553 million)-worth of revenue index bonds. the record low reached in August last BAHRAIN: National Bank of Kuwait year. Bahrain has reported an increase of 8% in net profi t to BHD26.24 million (US$70 Have you joined New guidelines from IFSB million) for the fi nancial year ended the st GLOBAL: The council of the IFSB has 31 December 2011, in comparison to approved the adoption of two new BHD24.63 million (US$65 million) a year guiding principles on liquidity risk earlier. management and stress testing The bank’s total assets reached The liquidity risk management risk BHD1.55 billion (US$4.09 billion), guideline is aimed at providing guidance while shareholders’ equity rose 14% to to institutions off ering Islamic fi nancial BHD207.23 million (US$547 million) as at our facebook page? services and to fi nancial regulators on the end of 2011.

DBS expansion to strengthen 16 th - 17th April 2012 Islamic business? Grand Ballroom, GLOBAL: Singapore’s DBS Group Hotel Mulia Senayan, Jakarta Holdings (DBS) has announced two merger and acquisition transactions which could pave the way for the The two-day event will feature an Issuers Day, Investors Day, and Takaful and re-Takaful Day banking group to strengthen its existing and see the movers and shakers of the Islamic finance industry gather to discuss the most Islamic banking business. current and relevant issues within the Indonesian Islamic financial markets. Covering all sectors from retail to capital markets, the IFN Indonesia Forum aims to highlight key The group, which owns 50% of the developments in tax and regulations, investment opportunities in Indonesia, liquidity and corporate governance, as well as the growth potential for Takaful in Indonesia's thriving Islamic Bank of Asia, has entered into retail banking sector. an agreement with Fullerton Financial Holdings which would ultimately see DBS acquire Bank Danamon Indonesia. REGISTER ONLINE NOW DBS then expects to merge Danamon www.REDmoneyevents.com with its Indonesian unit, Bank DBS Indonesia; subject to regulatory Attendance, while FREE, is by invitation only and open to those who register approvals. and have an active interest in this fast growing industry. Separately, DBS’ unit, DBS Bank, has set its sights on Malaysia’s Alliance Financial SPONSORS & PARTNERS Group; and has received approval from Lead Partners the Malaysian central bank to start talks to acquire a 49% stake in Vertical Theme from Fullerton’s subsidiary, Duxton Investments. Vertical Theme, in turn, owns 29% of Alliance; and the transaction would give DBS Bank a 14% stake in the Malaysian banking group.

Associate Partners Danamon operates Bank Danamon Syariah, while Alliance owns Alliance Islamic Bank.

On its acquisition of Danamon, DBS Executive Partners said that the move is in line with the group’s intent to gain greater and more diversiﬁ ed access to the greater China, south Asia and Southeast Asia markets.

While DBS, Danamon and Alliance’s individual Islamic banking businesses currently lag that of its peers, including players such as CIMB Group and Lunch Sponsors Maybank, the planned consolidation among the three banking groups could see them emerge as stronger players in the Shariah compliant ﬁ nance space; in addition to opening up room for cross- Takaful & re-Takaful Day Endorser Exclusice Knowledge Partner border transactions.

The DBS group does not provide segmental reporting on its Islamic businesses. Bank Danamon Syariah Advertisement Sponsor Partner Lead Media Partner reported total assets of IDR1.36 billion (US$148,240) in 2011; while Alliance booked RM193.79 million (US$63.34 million) in net income from its Islamic banking business in the nine months to Media Partners the 31st December 2011.

SABB issues maiden Sukuk SEC said that the papers were taken up by investors across Asia, Europe and the RATINGS SAUDI ARABIA: Saudi British Bank Middle East by way of private placement. (SABB) has sold its debut subordinated Ratings reaffirmed Sukuk worth SAR1.5 billion (US$400 HSBC and Deutsche Bank were the JORDAN: IIRA has reaffi rmed Jordan million) via a private placement. mandated lead arrangers for the Islamic Bank’s (JIB) ratings on the transaction. national scale at ‘A (jd) / A-1 (jd)’ as the The Saudi riyal-denominated Sukuk is bank has been consistent in posting said to pay 120 basis points over three- strong fi nancial results and growth. month Sibor on a quarterly basis. Jafza eyes loans UAE: Dubai’s Jebel Ali Free Zone (Jafza) It also revised JIB’s foreign currency HSBC Saudi Arabia, its parent bank, is reportedly preparing to launch a rating to ‘BB+ / A-3’from ‘BBB- / A-3’, managed the transaction. syndicated loan to part-fi nance its based on developing pressures on US$2 billion Sukuk due to mature in Jordan’s economy. Shariah board not central November this year. Still in good shape bank’s job The company is said to be considering UAE: The Central Bank of the UAE is a US$900 million syndicated loan, to be MALAYSIA: MARC has affi rmed its not in charge of sett ing up a Shariah followed by a US$600 million Sukuk and ‘AAAIS’ rating on Trans Thai-Malaysia’s supervisory board for the country’s cash repayments of up to US$500 million TTM Sukuk’s (TTM SPV) RM600 million Islamic banks, as this matt er falls under over the coming months. The loan may (US$195 million) Sukuk Murabahah with the ministry of justice, said Obaid also be upsized should the company a stable outlook. Humaid Al Tayer, the minister of state for require it. fi nancial aff airs. UBL Islamic fund’s rating Abu Dhabi Commercial Bank, Emirates harmonized He also said that the ministry will only NBD, Dubai Islamic Bank, Citigroup PAKISTAN: JCR-VIS has harmonized provide support to the central bank in and Standard Chartered have reportedly the fund stability rating of UBL Islamic this regard. been mandated to manage for the transactions. Savings Fund at ‘AA-(f)’. Obaid said this in response to Ali Essa Al Nuaimi, a member of the Family Bank joins Notes redeemed Federal National Council, the federal microfinance network MALAYSIA: MARC has removed its authority of the UAE, who urged for the ‘BBID’ rating on Maxtral Industry’s RM80 BAHRAIN: Shariah compliant establishment of a centralized Shariah million (US$26 million) Bai BithamanAjil microfi nance bank, Family Bank, has authority to monitor Islamic banks in the Islamic debt securities (BaIDS) from joined the Sanabel Network, a non-profi t country. MARC Watch Negative and withdrawn regional network of small and medium- the rating following the full redemption sized enterprises (SME) in the MENA Ali has also said that he will ask the of the outstanding notes. region. council to vote on a recommendation to the Cabinet that the central bank set up a MARC’s rating coverage on the company The network connects SMEs across is now limited to its ‘MARC-4ID/BBID’- Shariah authority to govern the country’s Sanabel’s 87 members from 13 countries, Islamic banks. rated RM10 million (US$3.3 million) namely: Egypt, Iraq, Jordan, Lebanon, outstanding Murabahah underwritt en Mauritania, Morocco, Palestine, Saudi notes issuance/Murabahah medium- The next FNC meeting is scheduled on Arabia, Sudan, Syria, Tunisia and the 17th April. term notes program, which remains on Yemen. MARCWatch Negative. SEC launches Sukuk KHC gets green light for NBK on sturdy ground SAUDI ARABIA: Saudi Electricity Sukuk Company (SEC), a state-owned utility KUWAIT: S&P has affi rmed the long- fi rm, has launched a US$1.75 billion dual SAUDI ARABIA: Kingdom Holding term credit ratings of National Bank tranche global Sukuk maturing in fi ve Company (KHC) has secured of Kuwait (NBK) at ‘A+’. All the bank’s and 10 years. shareholder approval to issue either a ratings carry a stableoutlook. conventional bond or Sukuk worth up to The fi ve-year tranche, amounting to SAR3.75 billion (US$999.89 million). The ratings are based on the bank’s US$500 million, was priced at 2.67%, or strong business position, asset quality, at a spread of 140 basis points (bps) over The planned debt-raising exercise will capital and earnings, adequate risk midswaps; tighter than the 160 bps over mark the company’s maiden foray into position, funding and liquidity. midswaps indicated earlier. the kingdom’s capital market. However, KHC did not provide details on the time The second tranche, with an issue size frame or the structure of the issuance. of US$1.25 billion and a ten-year tenor, was priced at 4.21%, or at 195 bps over KHC is a local private investment fi rm midswaps. It was expected to be priced at owned by Saudi billionaire Prince EXTRACT MORE From your IFN subscription a spread of 210 bps. continued...

© 12 4th April 2012 NEWS continued... 2012. The repayment was made using MOVES Alwaleed Talal. As at the end of last funds from its revenues. year, the fi rm’s bank borrowings and DUBAI BANK loans stood at SAR1.46 billion (US$389 ADIB eyes global expansion UAE: Emirates NBD has appointed million). UAE: Abu Dhabi Islamic Bank (ADIB) Jamal Ghalaita as the new CEO of its is planning to expand its wealth Shariah compliant subsidiary, Dubai DIB in government deal management and private banking Bank. UAE: The Investment Corporation of division with a new offi ce in London and Dubai (ICD), the investment arm of additional units across Asia, Europe and Jamal will also continue to serve as the the Dubai government, has reportedly the Middle East, said Stuart Crocker, its CEO of Emirates Islamic Bank, another appointed Citigroup, Dubai Islamic head of wealth management and private Islamic unit of Emirates NBD. Bank (DIB), Emirates NBD and HSBC banking. Holdings to raise a fi ve-year, US$1.1 Additionally, the bank has also named billion fi nancing for its airport retailer The move comes as the bank targets Douwe Oppedĳ k, formerly the interim assets outside the UAE, where the private subsidiary, Dubai Duty Free. CEO of Dubai Bank, as the advisor to banking division has three offi ces. Jamal. The fi nancing is said to pay a margin of 3.5% over Libor and will be backed by Sukuk from Saudi Aramco CAGAMAS the retailer’s future earnings. SAUDI ARABIA: State-owned oil MALAYSIA: Cagamas has named company Saudi Aramco is reportedly Chung Chee Leong as its new CEO, planning to issue a US$2 billion Sukuk in DIB Sukuk Company delisted replacing Steven Choy, who has the third quarter of this year. UAE: The Dubai Financial Services completed his term of service with the Authority (DFSA) has delisted DIB fi rm. Sukuk Company, the special purpose The Export-Import Bank of Korea is expected to guarantee the Sukuk. vehicle of Dubai Islamic Bank (DIB), from Chee was previously the director of the offi cial list of securities. the Malaysian central bank’s banking HSBC MidEast to retain staff supervision department. The delisting follows the full repayment UAE: HSBC Bank Middle East (HSBC by DIB of its US$750 million, fi ve-year Middle East) will retain as much of its nd NATIONAL COMMERCIAL Sukuk, which matured on the 22 March continued... BANK SAUDI ARABIA: National Commercial Bank has announced the appointment AUSTRALIA of nine new members to its board of 8th May 2012 directors. The new members are: Mansour Al- A relatively newcomer to the world of Islamic fi nance, Australia is now making Maiman, Motlaq Al-Motlaq, Ibrahim waves with the emergence of Shariah compliant funds, Islamic focused fi nancial Al-Rumaih, Abdulkareem Abu Alnasr, institutions and strong support from the regulators. Supported by the State of Yousef Al-Maimani, Saad Al-Rowaite, Victoria Government, the IFN Roadshow Australia will return to Melbourne. Abdul Aziz Al-Zaid, Abdulrahman Al- REGISTER NOW Mfadhi and Khalid Al-Arfaj. at www.REDmoneyevents.com AMMB HOLDINGS Attendance is FREE, but seats are limited. Register now to ensure your place is confi rmed MALAYSIA: AMMB Holdings has announced the appointment of Ashok Ramamurthy as its new group Lead Sponsor managing director.

The move will also see him appointed to the board board of directors of AMMB Holdings and its subsidiaries: includingAmBank, AmInvestment Bank, AmIslamic Bank and AmInvestment Exclusive Knowledge Partner Partner Lead Media Partner Management.

He will also serve as CEO of AmBank and on the board of other key Media Partners subsidiaries including the group’s insurance companies.

continued...

© 13 4th April 2012 NEWS continued... Yemen issues Sukuk MOVES UAE workforce as possible following its YEMEN: Yemen has returned to the planned acquisition of Lloyds Banking Sukuk market this year by selling its fi rst UNITED GULF BANK Group’s UAE operations, said Simon Sukuk Al Salam, amounting to YER50 BAHRAIN: United Gulf Bank has named Cooper, its deputy chairman and billion (US$232 million). Faick Al Saleh and Bader Al Awadi as regional CEO. independent directors to its board. The Sukuk will mature on the 2nd April The transaction involves Lloyds’ on 2013 and off ers a return of 15-18%. shore banking businesses,comprising its QATAR ISLAMIC BANK retail, commercial and corporate banking Its next issuance is expected in July this QATAR: Qatar Islamic Bank has divisions, which were operated through year. appointed three new senior offi cials to its Lloyds TSB Middle East in Dubai. management team. More Saudi Sukuk? However, Cooper could not confi rm They are Constantinos Constantinides exactly how many of Lloyds TSB Middle SAUDI ARABIA: Fitch, which has as the chief strategy offi cer; and Bert East’s 233 employees would hold on to affi rmed Saudi Arabia’s long-term local de Ruiter and Ehab Mackeen Kamel their jobs once its operations merge with and foreign currency issuer default Hafazalla as the general manager HSBC Middle East. ratings at ‘AA-’ with stable outlooks, sees and assistant general manager of the more government-guaranteed Sukuk wholesale banking group, respectively. issuances from the kingdom following IPO for Alif Investments? the General Authority of Civil Aviation’s UAE: Dubai-based Shariah compliant recent US$4 billion off ering. BAIN & COMPANY investment companyAlif Investments QATAR: Global management consulting could launch an initial public off ering In a report, the ratings agency said that fi rm Bain & Company has appointed (IPO) in Saudi Arabia, the UAE or the UK this is despite the government’s move to Qasim M Qasim as itsnew senior advisor next year. continue paying down its public debt; in Qatar. with further Sukuk issuances to be used “We have decided in principle to launch to fi nance cash-generative projects. Qasim has over 40 years of experience in an IPO and list the company. The group commercial and Islamic banking across is considering various options and will Profitable land sale the Middle East. take a decision in due course,” said Asif Jabbar, the group chief executive of the KUWAIT: Kuwait Finance House has company. booked KWD10.19 billion (US$37 billion) in profi t from the sale of 20 parcels of The company, which specializes in land in the city of Mahboula. making strategic investments, is seeking the listing in an eff ort to expand its Salah Al-Khamees, its local real estate business in the GCC and globally. department manager, said that proceeds from the sale are expected to be included in KFH’s budget for the second quarter of Suspensions on KSE this year. KUWAIT: Shariah compliant investment group Al-Ahlia Holding Company and International Financial Advisors, which off ers the Al Asjad Islamic Fund, are Coming up... among 19 companies that have been Volume 9 Issue 14 — 11th April 2012 suspended from trading on the Kuwait Stock Exchange (KSE) for failing to report Meet the Head their earnings on time. Robert Minnegaliev, chairman of the board of AK BARS Bank, Russia The list now totals 31 companies, including The Investment Dar and Global Features Investment House. Oman prepares for the launch of Islamic fi nance; By Abid Shakeel, a member NIB in Dubai deal? of Ernst & Young’s Islamic Banking Advisory. UAE: Emirates NBD, Noor Islamic Bank (NIB) and Standard Chartered Global investments using Luxembourg 6 6 are reportedly among banks that may structured fi nance instruments by Bishr provide US$900 million in fi nancing to Shiblaq, head of Dubai representative DIFC Investments to repay its US$1.25 offi ce, Arendt & Medernach – Avocate. billion Sukuk due in June this year. Takaful Feature Two more banks may also join the Islamic insurance: A competitive business transaction; although no mandate has in Yemen; By Dr Moneer H Saif, head of been awarded yet. Islamic banking sector at CAC Bank.

A long road ahead for Hong Kong

Hong Kong is one of the major fi nancial According to Chan, the government is funds coming in that require immediate centers in the Asia — the Hong Kong close to fi nalizing the draft amendments method of investing, be it by way of a Stock Exchange (HKEX) is third largest to the relevant registration in relation to bond or Sukuk, which “has to be easily in Asia aft er Tokyo and Shanghai taxes on profi t and property as well as understood by the market,” noting bourses. As at February HKEX had 1,507 stamp duty. He added that consultations that domestic investors are not keen listed companies with a total market will be done to obtain a general to take up something that they do not capitalization of HK$20.75 trillion (US$ consensus on the practicability and understand. 2.67 trillion). meeting the latest market development needs. The bill is expected to be “Furthermore, Hong Kong is very The Special Administrative Region, introduced into the legislative council at fast-paced with a healthy and active as it has been known since 1997, fi rst its next seating, which is scheduled for conventional market… people do not announced its commitment to establish the 18th April. have the time to put their eff ort into the island as a hub for Islamic fi nance Islamic fi nance,” he said, adding that in 2007. It made a number of proposals However, a Hong Kong-based industry most investor sentiments are currently and recommendations to provide a level practitioner feels that it is still very early leaning towards shorter tenors. playing fi eld with conventional fi nance, days for Islamic fi nance on the island and particularly in terms of tax liabilities for a lot more work has to be done before He believes that beyond merely Sukuk issuances. seeing visible results. He said that the amending the regulations to facilitate fast-paced fi nancial environment in Hong Sukuk issuances, education is key to Five years and a global fi nancial crisis Kong has left market players disregarding increase the level of awareness of not later, and Hong Kong has reaffi rmed its Islamic fi nance aft er seeing few traces only Islamic fi nance but also a basic commitment towards Islamic fi nance of development since the government’s understanding of the religion among once again. At a special meeting of the announcement fi ve years ago. market players and investors alike. legislative council fi nance committ ee on the 7th March, Professor K C Chan, the “Time is crucial in Hong Kong and if the Islamic fi nance has big shoes to fi ll in secretary for fi nancial services and the government does not respond swift ly, when put alongside Hong Kong’s active treasury, highlighted the proposal for the market players are then of the opinion conventional market. It does seem that the development of an Islamic fi nance plat- that it is not necessary.” He explained journey of a thousand steps for the island’s form as one of areas to be zeroed in on. that there is a suffi cient infl ow of foreign regulators has only just begun. — RW

Healthy first quarter for the industry

As the results from the fi rst quarter of comparison to sales fi gures during the and tourism front, as well as a huge 2012 slowly trickle in, data is becoming 2008 property boom, the market remains improvement in investor sentiment, as increasingly favorable towards the optimistic of the emirate’s comeback in evidenced from the stock market index UAE’s economic growth, including its 2012. and property prices in the emirate,” an hardest hit sector, real estate. Banking analyst revealed. He added: “However, fi gures throughout the GCC, Indonesia it is important to keep in mind that while and Malaysia, based on results from the the volume and value of transactions is fi nancial year ending the 31st December Dubai’s up year-on-year, the market is still far 2011, along with pockets of results below the boom era of 2008, when 1,500 from the recently concluded quarter, property transactions worth US$5.09 billion took have also shown positive growth — market staged a place. 2012 is still down 56% and 71% particularly for Islamic banks. respectively over the four-year period.” strong comeback in However, sentiment is still mixed across Recent amendments to Qatar’s housing the board as the industry grapples with the first quarter of policies, led by big-name fi rms in the the ongoing Eurozone crisis, a bearish country, also bode well for the country’s equities market (with IPO levels at their the year, charting a residential leasing sector. Numbers have lowest since the second quarter of 2009), shown an increase in tenants and sale fl uctuating commodities prices and an 53% hike in volume of land, particularly in higher-end areas increasingly gun-shy investor base. such as the Pearl Qatar and West Bay. Jed of sales compared to Wolfe, the managing director of Asteco Dubai’s property market staged a strong Qatar, commented: “With prices having comeback in the fi rst quarter of the year, 2011 remained relatively fl at for 12 months, charting a 53% hike in volume of sales and still at a signifi cant discount to compared to 2011. However, the total pricing levels at the height of the market value of the 654 transactions totaled in 2008, serious investors are once again US$1.43 billion: up by 32% compared to “Dubai has shown some very promising reviewing their options with regard to the same period last year. And although signs already, including positive the volume of transactions pales in numbers on the corporate income, trade continued...

Continued residential property.” The country’s real share ownership. The Saudi market is estate sector also benefi ted from investors 80% retail, but foreigners trading through looking to accrue distressed assets in the swaps contracts have added to that. fi rst quarter of this year. Some hedge funds like the Saudi market because of the high volumes.” Law A recent report by consultancy AT Kearney based on the fi rst quarter The Malaysian Islamic fi nance industry Poll 2012 results also revealed the GCC’s resilience continues to thrive on the back of a to the current global economic crisis, growing retail banking sector, with The IFN Law Poll has returned. This claiming its banks to be “already at pre- growth fi gures reported all around ti me, bigger and bett er than ever crisis levels in terms of profi tability”. for consumer fi nancing and Takaful before. The report however warned that: products. The chairman of the Malaysian “Many Islamic banks have witnessed Takaful Association cited the country’s This year’s poll is a departure from double-digit growth rates over the Takaful sector to have performed “very last year’s format, speeding up the last decade, outgrowing conventional well” based on 2011’s year-end results. voti ng process by short listi ng both banks. However, there are indications The General Takaful sector successfully the individual lawyers and law fi rms the dynamics of Islamic banking are raised total contributions by 20% to by their areas of experti se. changing: Outgrowth is waning in RM1.6 billion (US$523.37 million) while many key geographies. While this is the Family Takaful sector saw a healthy Now in its 5th year, the IFN Law an early warning sign only, GCC banks chunk of new businesses, recording total Poll provides a holisti c guide to should take the time now to act. There contributions of RM2.7 billion (US$883.16 those legal enti ti es and individuals are opportunities to diff erentiate by million). recognized for their excellence leveraging the Islamic banking potential amongst their clients and peers. by means of a more sophisticated However, despite the encouraging strategic positioning.” The report also fi gures, Malaysia-based ratings agency Running throughout the month of encouraged GCC banks to “leverage RAM Ratings recently revealed in a April the IFN Law Poll is your chance on the Islamic banking potential” report published on the 20th March that to be recognized as one of industry’s by creating products att ractive to an the Malaysian banking sector is expected leading legal practi ti oners and fi rms increasingly curious investor base. to shift into lower gear this year due in the Islamic fi nance industry. to moderate loan growths of between Despite equity trading in IPOs taking 8-9%, increasing national debt and the This poll will only take a few minutes a signifi cant dive, global commodities uncertainty in the European markets. to complete. As an added incenti ve, continued on an upward trend, all respondents will receive a FREE with petrochemicals maintaining “We see our banking system shift ing copy of the IFN Law Supplement their bull run. Petrochemical stocks into lower gear in anticipation of the 2012 (July) plus 2 weeks full access maintained their lead on the Saudi bumpy ride ahead. Even so, the local to Islamic Finance news just for Arabia bourse, ending at their highest banking industry is still fundamentally completi ng this poll. level since September 2009 at 7,857 sturdy and the domestic economy points. “Investors are shift ing into remains resilient. This underscores our Please visit petrochemicals because fundamentals are stable outlook on the Malaysian banking www.islamicfi nancenews.com stronger, dividend yields are att ractive sector,” said Wong Yin Ching, the head of to start voti ng! and they haven’t risen as much as fi nancial institution ratings at RAM. smaller-cap stocks. He added: “The banking system, Expectations are that petrochemicals meanwhile, is still fl ush with liquidity. th April 2012 will post good results. A positive global Its loans-to-deposits ratio stood at a Closing Date: 30 backdrop, high oil prices and a fresh comfortable 76% as at the end of January fl ood of liquidity into the Saudi market 2012. Bearing in mind the anticipated also supports local investor confi dence,” slower loan growth this year, the banking a report stated. industry’s loans-to-deposits ratio is SPECIAL PRIZE: Should you expected to remain stable at around this complete every section of And although many investors would level.” the IFN Law Poll you will rather wait for the full outcome of the stand a chance to win one fi rst quarter of 2012 to be reported, many RAM however anticipates the of three individual full year have already expressed confi dence in government’s push towards achieving its subscriptions to Islamic Finance the Saudi Arabian market. They expect targets in the Financial Sector Blueprint news worth US$995, giving you the kingdom to be a hotbed for foreign 2011-2020, which includes growing unlimited access to over 21,000 trade and investments moving forward, the country’s Islamic fi nance sector, articles, including all 50 issues in line with the recent change in policies. and liberalizing the foreign ownership of the online weekly newsletter A trader revealed: “Liquidity has come market to be among the most important plus 12 issues of the monthly back in, partly because of expectations growth drivers to the country’s economy IFN Supplements series. the market will open up to direct foreign for this year. — NH

Sukuk Wakalah in Islamic finance

KUWAIT Under this paradigm, the relevant parties installment contracts. The installment are as follows: the consumer, the retailer, contract payments from the consumer, By Alex Saleh, IFN Correspondent the Wakeel, the investment manager and which are comprised of both the principal the investor. At the onset of the Wakalah and installment fees, are funneled A recent phenomenon in the practice of arrangement, the investors’ funds are through a warehouse investment account, Islamic fi nancing is the Sukuk Wakalah funneled through the Wakeel and its controlled by the investment manager vis- (Wakalah), where Wakalah translates warehouse investment account and the à-vis the Wakeel. In the same warehouse into a relationship between parties retailer becomes the recipient of the investment account, the investment where one party engages the other to act invested principal. Conversely, coming manager reinvests the principal it receives on its behalf. In some aspects it mirrors from the consumer’s end, those who into purchasing subsequent portfolios that of a principal/agent relationship seek to fi nance their purchases enter into of installment contracts, whereas the whereby in the Wakalah agreement, the installment contracts with the Wakeel. remaining funds are divided between investor acts as the principal and the paying the pre-determined profi t Wakeel acts as the agent, both being payments to the investors and using governed by the scope of services and Under this the remaining excess funds, if any, as an fee arrangement set forth under the incentive fee for the Wakeel. said agreement. Under this paradigm, paradigm, the it is the Wakeel who is appointed to Upon the occurrence of an event or invest the principal into a pool of assets relevant parties default, the Wakeel, in its capacity as a on behalf of the investor in order to trustee, may exercise its rights under an garner a profi t return on the investment are as follows: option agreement between the retailer for a specifi ed amount of time. Under and the Wakeel to require the retailer to the scope of its services, the Wakeel is the consumer, the purchase the Wakalah assets at a certain entrusted by the investors to choose and exercise price, oft en the fair market value. manage the investments to ensure the retailer, the Wakeel, Unexercised, the Wakeel will either be anticipated return of profi t. free to sell to a third party or hold on to the investment the assets outright. Unlike other Islamic fi nancing tools, the Wakalah arrangement provides manager and Ideally, upon the maturity date of the the investor with a pre-determined the investor Wakalah agreement the Wakeel, in its anticipated profi t return and therefore capacity as trustee, will be able to sell the any excess profi t returns are awarded to portfolio through a possible issuance of a the Wakeel as an incentivized fee. Correspondingly, the Wakeel, oft en Sukuk certifi cate issuance program. a special purpose vehicle, receives its Recently, the Wakalah arrangement has directives from its investment manager, Alex Saleh is a partner and head of the been utilized in the realm of Shariah who uses its expertise to select and Kuwait offi ce at Al Tamimi & Co. He can be compliant retail consumer fi nancing. manage the portfolio of approved contacted at [email protected].

Securities and Exchange Commission of Pakistan to consult public on new Takaful rules

PAKISTAN Pakistan will increase substantially as all compliance with the provisions of life and non-life insurance companies will the Shariah, and which provides for By Bilal Rasul also be allowed to oﬀ er Takaful products. mutual ﬁ nancial aid and assistance to the participants in case of occurrence of The Securities and Exchange These companies have wide certain contingencies and whereby the Commission of Pakistan (SECP) has distribution networks in the country participants mutually agree to contribute approved the draft Takaful Rules. and the new rules will enable them to the common fund for that purpose. to tap into the large market which The 2012 draft Takaful Rules suggested refrains from conventional insurance The existing rules were issued in 2005 the establishment of a central Shariah products, considering them un-Islamic. and over the years several practical issues board at the SECP, allowing conventional Consequently, it is likely to increase have been highlighted by stakeholders insurers to have Takaful windows; insurance penetration in Pakistan. regarding their implementation. To along with the formulation of risk Currently there are three General address these concerns, the SECP management and rating procedures by Takaful (non-life insurance) companies constituted a committ ee to review the Takaful operators; and separate solvency and two Family Takaful (life insurance) existing rules and recommend possible requirements for each participant companies operating in Pakistan. enhancements. The draft rules are based Takaful fund. It is expected that aft er on the committ ee’s recommendations and the promulgation of the new rules, the Takaful is a scheme based on the number of Takaful service providers in principles of mutual assistance in continued...

Continued subsequent detailed deliberations. The respectively. return-on-assets, return-on-equity, and SECP reviewed the draft rules and aft er The SBP report suggested that the profi t non-performing fi nancing remained seeking the expert opinion of Shariah growth rate of the Islamic banking more appealing than the conventional scholars and legal experts they are being industry was 6% higher than their banks over the last quarter. disseminated for public comment. counterpart conventional banks, that is, 37% and 31%, respectively. The Islamic The continuously rising trend in the Islamic banking profits banking also exhibited high operating profi tability of the Islamic banks is The State Bank of Pakistan (SBP) expenses as a ratio of gross income att ributed to the growth recorded in the reported on the 28th March 2012 that the owing to the expansionary policy of the deposits which reached PKR521 billion profi ts of the Islamic banking industry Islamic banks to create larger branch (US$5.7 billion), a growth of 12.5% over have surpassed the PKR10 billion networks. the last quarter and a 34% increase over (US$109.2 million) level for the fi rst the last year. time. The Islamic banks posted PKR5.7 Towards the last quarter of the current billion (US$62.7 million) in profi ts and year the Islamic banks had established Bilal Rasul is the director (enforcement) at the Islamic banking windows posted 886 branches and constituted 7.8% of the Securities & Exchange Commission of PKR4.7 billion (US$51.7 million) in the overall banking industry in terms Pakistan. He can be contacted at bilal.rasul@ profi ts, a contribution of 59% and 41%, of assets. Other indicators including the secp.gov.pk.

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A role model for corporate social responsibility

SAUDI ARABIA (iii) The members must be nationals of The board of directors is responsible for Saudi Arabia; preparing and submitt ing the annual By Nabil A Issa, IFN Correspondent fi nancials and the fi nancial forecast of (iv) The foundation is prohibited from the foundation to the MOSA, and the We have seen a number of companies entering into fi nancial transactions of organization must appoint a certifi ed operating on a Shariah compliant a speculative nature, but may invest accountant for these purposes. basis, wishing to establish charitable its funds aft er obtaining the approval foundations as part of their mission of the MOSA; Foundations are required to maintain to undertake corporate social a register of their members, which responsibilities. (v) The foundation is not permitt ed to set must contain the names, age, address, up branches without the approval of profession, joining date and subscription Charitable foundations and the MOSA; and fees paid by each member. Foundations establishments are regulated under are permitt ed to open a local bank the Charitable Foundations and (vi) The proceeds of liquidation of a account, and any withdrawal of such a Establishments Regulations, and the foundation cannot be distributed bank account must be done by a request Implementing Rules of the Charitable except for other non-profi t signed by the chairman of the board (or Foundations and Establishments organizations or charitable deputy chairman) and the accountant, Regulations (Regulations). The establishments with similar objects. and in accordance with the articles of regulators, however, are currently in the association. process of reviewing the Regulations and Foundations are managed and operated updating the same. by the general assembly which consists It is also possible under the Regulations of the active members, who have to set up a private charitable As per the current Regulations, charitable been members for at least a year. The establishment by at least one individual foundations and establishments may off er general assembly must convene in the or a corporate entity. We understand that social, educational, cultural or medical premises of the foundation unless a prior private charitable establishments are not services that are related to humanitarian approval is obtained from the MOSA heavily regulated in comparison with services. The articles of association of such foundations, and will not be subjected to entities are to include the objects, name, for the general assembly to convene in all notifi cations, reporting and restriction location, founding members, membership any other location. All meetings of the applicable to foundations. However, requirements and fees, members’ rights, general assembly must be notifi ed to the Regulations provide that private management fi scal year, and fi nancial the MOSA 15 days before the proposed charitable establishment will not be resources. Charitable foundations must date of the meeting, and the MOSA must entitled to fi nancial support provided be established for non-profi t objectives, be provided with the meeting’s agenda. by the MOSA and off ered for charitable and it is not permissible to exceed those Further, copies of minutes of meetings foundations. objectives, or to enter into fi nancial must be provided to the MOSA within 30 transactions of a speculative nature. days from the date of the meeting. However, it is required that the The foundations or establishments The general assembly is responsible for shareholders and members of a private are required to obtain approval, and reviewing and approving the fi nancials charitable establishment be of Saudi will be subject to the supervision of reports and forecast; review and discuss Arabian nationality. The articles of the Saudi Arabian Ministry of Social the report of the board of directors; review association for the private charitable Aff airs (MOSA). Upon incorporation, the and study the investment of foundation’s establishment must also be prepared in foundation or the establishment will be fund; elect the board members; appoint compliance with the provisions of the registered in a special register maintained the certifi ed auditor and any other matt er Regulations. by the MOSA. The MOSA is currently presented by the board. Amending the only approving such foundations on articles of association of the foundation; The Saudi Companies Regulations do a case-by-case basis due to the fact the disposal of its assets or dissolving the not recognize the concept of non-profi t Regulations may soon be revised. foundation must be approved by the organizations. However, it is still possible general assembly. for the members of the society to set There are a number of restrictions and up a company pursuant to the Saudi requirements relating to the set-up and The general assembly will appoint the Companies Regulations to conduct operations of a non-profi t charitable board of directors of the foundation, or activities similar to the activities of the foundation under the current Regulations other specialized committ ees, according society. that must be adhered to by the members to the articles of association. The directors and the society, such as: will be elected from current members by The most common type of entity under the general assembly with the att endance the Saudi Companies Regulations is the (i) The minimum number of members of a representative of the MOSA. limited liability company (LLC). The LLC is 20. (The MOSA has the right to must have at least two shareholders, and dissolve the organization if the We understand from our past discussions can only have up to 50 shareholders. members are less than 20); with the MOSA that directors must be Saudi nationals who are at least 21 years Nabil A Issa is a partner in the Dubai and (ii) Any member must not be less than 18 old, and must reside in the location affi liated Riyadh offi ces of King & Spalding years old; where the foundation is established. and he can be contacted at [email protected].

Islamic banking is in the driving seat for wealth protection

By Shan Saeed action to address the massive fi scal cliff the current growth rate, Islamic fi nancial of tax increases and spending cuts due to market assets will grow by US$3-4 The US economy: turmoil kick in early this year. Bernanke has been trillion in 2013, making the Islamic fudging fi gures to manipulate the mar- market a huge challenge to the global ahead kets: whether the equity or currency or conventional market. The US is cruising towards a 2013 ‘fi scal housing or commodity or bond market. cliff ’ which will send the economy Clients are looking to the Islamic banking tumbling with severe repercussions at It seems like every few days someone market for wealth protection in these the macro level. As tax cuts expire and asks me the following question: “ With turbulent economic times. Asia Pacifi c spending falls, the economy will be hit the market going up so much, do you will drive the growth rate for the Islamic with a 3.5% decline in gross domestic think that maybe the government can market. I am quite bullish on Malaysia, demand. The number of decisions to get away with using money printing to Indonesia, Hong Kong, Japan, Singapore kick the budgetary can down the road manipulate the markets for another four and the UAE, where Islamic assets are has conspired to place a remarkably or fi ve years?” My answer is no. growing at a phenomenal pace making large fi scal contraction on the calendar many market players wonder why they for January 2013 — unless congress Yes, Bernanke can get away with it for a missed the boat in the fi rst place. takes action to avoid it. while longer, just as I predicted two years ago, but even the current and Top banks like HSBC, CIMB, Credit Su- And if you’re like me, every time you past massive interventions isse, Deutsche Bank, Standard Chartered hear the story of the US congress haven’t exactly turned and OCBC are aggressively promoting taking an action to stimulate the economy red hot. Islamic banking products for their clients or kickstart the economy, Quantitative easing since there is a huge demand. Financial you think it is all a sham. If 1 and 2 have needs in this segment are providing a lot the house and the senate failed miserably of growth for the fi nancial institutions to don’t act in time, the to stimulate the make sustainable profi ts going forward. Bush tax cuts will expire, economy. And, make I have already writt en an article last year the temporary payroll no mistake about in which I predicted that Islamic private tax cut will end and it, the intervention wealth management would become unemployment benefi ts has been massive. will be severely a growing area of profi tability for the Keeping it up will major banks operating in the Asia Pacifi c curtailed — all on the ultimately be costly 1st January 2013. region, and drive the Islamic banking and increasingly less market. The potential is huge. Now eff ective. The fi scal disorder would banks have to get the fi rst mover advan- be colossal and as big as tage to take the lead to build a strong cli- what a number of European Islamic financial ent base and get the mind share to have countries are trying to do right market: Wealth strong market share in Asia Pacifi c. now, though with limited success protection area for and with notable collateral I am also bullish on the Sukuk market for damage to their economies. An investors the next fi ve years. abrupt fi scal contraction of 3.5 In the current economic % of GDP would be a disaster mess in Europe, Japan Happy investing in the Islamic market. for the US and is highly likely to and the US, Islamic stifl e the recovery. fi nancial markets (whose Shan Saeed is a fi nancial economist and assets are growing at an commodity expert with 12 years of fi nancial Ben Bernanke, the chairman of the exponential rate) provide the market experience. He graduated from Federal Reserve, also recently warned best alternative investment the University of Chicago, Booth School that the US recovery could come off the strategy for investors looking of Business, US. He can be contacted at rails in 2012 if congress fails to take for wealth protection. At [email protected].

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KFH announces restructuring

Kuwait Finance House (KFH) on the 26th for 2011 was almost half than what it also sees a need to boost its capital base, March announced the launch of a new recorded in 2010; as it recorded US$1.15 which declined to US$5.59 billion last fi ve-year transformation plan involving billion-worth of impairments. GIH also year from US$5.75 billion in 2010; and the restructuring, merging or sale of noted that KFH stood out among its to create a governance and inspection unprofi table affi liates. The bank is also Kuwaiti peers due to its provisioning. committ ee. looking to restructure its management and its fi nancial department; a move The bank has att ributed its weaker A point to note is that KFH’s current that comes as the bank continues to performance to the global economic plans sound similar to measures taken at struggle with provisions for bad debt. climate and “operational problems”. its Malaysian arm, Kuwait Finance House (Malaysia); which also instituted a fi ve- A key component of its management year plan in 2010. KFH Malaysia’s plan reshuffl e includes new executive involved a diversifi cation of income to appointments, which have received These were grow its retail business, following a spike approval from the board of KFH and in bad debt at its wholesale division. The now await the go-ahead from Kuwait’s the highest Malaysian arm also looked to enhance central bank. quarterly provisions its standard operating procedures, credit control and risk management in an eff ort With continuing negative surprises taken by KFH since to improve asset quality. emerging from its fi nancial results, could the bank’s new plans prove crucial to the fourth quarter Asset consolidation regaining its fi nancial freedom? Another development to look out for is of 2008 KFH’s decision on its affi liates. According Missing the mark to its 2011 annual report, the bank has Despite reporting a profi t of US$133.21 15 subsidiaries and fi ve associates. Its million for 2011 and strong top-line fi nancial statements also show that its growth of 67% quarter-on-quarter and Internal restructuring investment in associates amounted to 18% year-on-year, KFH’s fi nancial results The bank’s impending executive US$1.76 billion last year; while its share came in below market expectations. appointments are sure to be a key factor of loss of associates amounted to US$8.28 for the market to keep an eye on going million; compared with US$206.4 million Global Investment House (GIH), which forward. Its management currently in 2010. recently released its quarterly report on comprises Mohammed Sulaiman Al- GCC bank profi tability for the fourth Omar, its chief executive, fi ve assistant Sameer Yaqoub Al-Nafeesi, the quarter of 2011, noted that while all general managers and three deputy chairman of KFH, noted that the bank’s banks under its coverage in Kuwait assistant general managers. Mohammed new strategy, which it has appointed reported a sharp rise in provisions, “KFH Sulaiman, who announced the bank’s consulting fi rm Booz Company to help fared the worst and saw its provisions new initiatives and has been a stalwart at develop, is based on developing KFH’s rising 2.5 times over the previous quarter the bank for most of his career, may not investment portfolio and increasing and 118% year-on-year; these were the be aff ected by the management shake-up. coordination among its subsidiaries. highest quarterly provisions taken by KFH since the fourth quarter of 2008.” In addition to the appointment of new With its growing pile of bad debt and leaders, the bank is also looking to possibly convoluted web of subsidiaries, Its provisions underline a worrying trend reorganize its structure; establishing a litt le housekeeping may be just what in KFH’s profi tability that surfaced amid separate banking, investment, operations the bank needs to manage its growth. the 2008 fi nancial crisis. The bank’s profi t and wealth management divisions. It — EB

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Tanjung Bin Energy Issuer’s US$1.07 billion Sukuk Murabahah

Tanjung Bin Energy Issuer, a wholly- used to part-fi nance the development, owned subsidiary under the umbrella administration and management of the Tanjung Bin Energy Issuer of independent power producer construction of a 1,000 megawatt super- (IPP) Malakoff Corporation, issued a critical coal-fi red power plant in the state RM3.29 billion (US$1.07 billion) Sukuk of Johor, Malaysia. Murabahah on the 16th March. Structuring RM3.29 billion (US$1.07 billion) The issuance was part of a RM6.5 billion The Sukuk was structured as a (US$2.2 billion) transaction involving Murabahah Tawarruq, a “used and US dollar-denominated and Malaysian tested” structure in Malaysia, according ringgit-denominated senior loans and a to HSBC. “The structure is simple, Malaysian ringgit-denominated junior straightforward and accepted in the 16th March 2012 loan multi-tranche fi nancing. Malaysian market,” it said. The bank In a response to Islamic Finance news, added that the Istisnah and Ijarah HSBC said that the Sukuk is the fi rst structures were also considered in Malaysian ringgit-denominated Islamic structuring the transaction. debt fi nancing for a Malaysian IPP. Issuer Tanjung Bin Energy Issuer “The Tanjung Bin Energy (transaction) Investor summary Obligor / Tanjung Bin Energy is interesting as it is a greenfi eld project The orderbook for the Sukuk amounted Purchaser Issuer which involves construction risk,” said to more than RM16.9 billion (US$5.51 billion). Investors, all Malaysian, Issuance price RM3.29 billion (US$1.07 the bank. It also highlighted the 20-year billion) tenor of the Sukuk. comprised funds (18.7%), insurance companies (13.2%), fi nancial institutions Trustee HSBC (Malaysia) Trustee (39.9%) and government agencies (5%). Tenor Serial tenors from fi ve to Utilization of proceeds — EB Proceeds from the issuance will be 20 years Coupon rate / 4.65-6.20% return 7th Asia Takaful Conference Currency Malaysian ringgit 9 – 10 May 2012, Marina Mandarin Hotel, Singapore Number of 48 accounts Theme: “Takaful – Unravelling the th th Hidden Growth Areas in Insurance” Maturity date 16 March 2017 to 16 March 2032 The Asia Takaful Conference, now in its 7th successful year organised by Asia Insurance Review in strategic partnership with BEST RE, has the theme “Takaful: Lead HSBC, Maybank, Affi n Unravelling the Hidden Growth Areas in Insurance”. The two-day conference will manager(s) Bank, CIMB, Bank explore how Takaful players can better position themselves to identify key growth Muamalat , OCBC, RHB drivers and capitalise on the emerging growth opportunities in an increasingly Investment Bank competitive global Takaful landscape; strategies to translate such market potential to real growth; new business models; pertinent issues in regulating Takaful and Principal HSBC, Maybank Retakaful providers; exploring the latest innovations in the next generation of advisor(s) Takaful products in light of changing consumer expectations as well as improving capabilities in the Retakaful industry. Bookrunner(s) HSBC, Maybank Don’t Miss! Register now at Governing law Malaysia www.asiainsurancereview.com/AsianTakaful/registernow.html Legal Albar & Partners advisor(s) / counsel Listing None Underlying Shariah compliant assets commodities Rating ‘AA3’ by RAM Shariah HSBC, Maybank advisor(s) Structure / Murabahah Tawarruq instrument Tradability Yes

Development of Islamic microfinance: Malaysia

The success of Islamic microﬁ nance in Malaysia highlights the commitment of the government in providing a supportive environment that is conducive for the development of Islamic microﬁ nance. DR WAN NURSOFIZA WAN AZMI discusses.

The global success of the Islamic businesses in Malaysia and employ microfi nance through their participation fi nance industry has generated growing over 1.2 million people. Given that in the microfi nancing scheme introduced calls for a paradigm shift in Islamic a signifi cant percentage of SMEs are in 2006. The main purpose of the fi nance towards poverty alleviation. microenterprises, adequate access to scheme is to support the growth of With the ultimate goal of maximizing fi nancing for this segment of businesses microenterprises by improving their social benefi ts as opposed to profi t is vital in developing a sustainable access to the formal fi nancial system. maximization, Islamic fi nance through microfi nance industry. Shariah compliant microfi nance can Under the microfi nancing scheme, be a viable alternative to the socio- participating fi nancial institutions off er economic crisis that embodies the microfi nance loans to microenterprises western paradigm. Islamic microfi nance Since its ranging from RM500 (US$163.1) is a confl uence of two rapidly growing to RM50,000 (US$16,310 ). These industries — Islamic fi nance and introduction, microfi nancing facilities are meant microfi nance. As such it has the only for business fi nancing such as for potential of providing fi nancial access the Ar-Rahnu working capital and capital expenditure. to poor Muslims who currently reject The participating fi nancial institutions microfi nance products that do not scheme of Bank are not allowed to give out personal comply with Islamic laws. Rakyat has shown microcredit under the scheme. Based on Islamic doctrines of social an average yearly Apart from Bank Rakyat, Bank and economic justice, ethics, wealth Simpanan Nasional, and Agrobank; distribution and public interest; Islamic growth of other participating fi nancial institutions microfi nance advocates economic are CIMB, Maybank, Alliance Bank, empowerment through entrepreneurship, 20% AmBank, Public Bank, United Overseas risk sharing and fi nancial inclusion. Bank and EONCAP Islamic Bank. Under Charity fi nancing instruments such the recent fi nancial sector liberalization, as Zakat, Sadaqah and Waqf take on a Microfi nance providers in Malaysia take locally incorporated banks were allowed central position in poverty alleviation in four distinct forms: namely microfi nance to venture into microfi nance business. Islam. Hence, Islamic microfi nance can institutions, cooperative, development These banks were allowed to establish maximize social services by using these fi nancial institutions and commercial up to 10 branches throughout the Islamic charity instruments as sources of banks with microfi nance schemes. The country for this purpose. The commercial funds for microfi nance programs. three main microfi nance institutions are interest rate charged on microfi nancing Amanah Ikhtiar Malaysia (AIM), Yayasan loans is determined by the respective However, Islamic microfi nance need Usaha Maju (YUM) and Economic participating fi nancial institutions based not be restricted to non-profi t fi nancing Fund for National Entrepreneurs on their assessment of the borrower’s risk modes only, as the poor also need Group (TEKUN). Whilst AIM is a non- profi le. a variety of services and products governmental organization, both YUM to cater for their fi nancial needs. and TEKUN are under the purview of the The annual growth for total Islamic microfi nance institutions also ministry of agriculture and agro-based microfi nancing outstanding as at the off er microcredit using a variety of Malaysia. AIM and YUM off er loans end of 2010 was 30% which amounted mechanisms based on Shariah principles to the poor and hardcore poor whilst to RM776 million (US$255 million) with such as Qard Hasan, Murabahah, TEKUN concentrates on the poor and not the number of clients totaled at over Bai Bithaman Ajil, Ijarah and Salam. so poor segments of the population. 570,000. The outstanding fi nancing under Funds can also be raised by Islamic the microfi nancing scheme as at the end microfi nance institutions through Development institutions such as Bank of 2009 was RM617 million (US$202.7 participatory profi t-loss-sharing modes Rakyat, Bank Simpanan Nasional million) and the number of microfi nance such as Mudarabah and Musharakah. and Agrobank (formerly called borrowers was 449,703. This growth has Bank Pertanian Malaysia) have been been complemented by the 1Malaysia mandated by the government to provide Micro Protection Plan (1MMPP) which Islamic microfinance in microcredit facilities. Bank Rakyat off ers was developed to provide a fi nancial Malaysia an Islamic pawn broking scheme, Bank safety net for microenterprises and The microfi nance sector in Malaysia Simpanan Nasional off ers microloans to individuals against unexpected events is dominated by small and medium- fi nance non-agricultural activities whilst such as death, illness, accidents, fi res and sized enterprises (SMEs) where Agrobank provides microfi nance to loss of property. 90% of the SMEs are categorized as microenterprises in the agriculture and microenterprises. These microenterprises agro-based sectors. Commercial banks constitute more than 80% of all in Malaysia are also allowed to off er continued...

Continued

Microfi nance products off ered in several other institutions also off er policy. Various microcredit schemes have Malaysia are already Shariah compliant Ar-Rahnu including Agrobank, Bank been introduced to meet the diff erent products based on the concepts of Islam, Bank Muamalat, RHB Islamic and needs of the poor and microenterprises. Ar-Rahnu (provided by Bank Rakyat), YAPEIM; Bank Rakyat controls over 25% Towards this end, the National SME Qard Hasan (by AIM) and Bai al Inah of the Islamic pawn broking market with Development Council approved a (provided by several participating loans outstanding totaling RM1.2 billion framework in 2003 which among other fi nancial institutions providing the (US$394 million) annually. things identifi ed banking institutions, microfi nancing scheme). However, the development fi nancial institutions two main Islamic microfi nance providers Since its introduction, the Ar-Rahnu and cooperatives as microfi nance in Malaysia are AIM and Bank Rakyat. scheme of Bank Rakyat has shown an providers to complement the existing average yearly growth of 20%. In 2010, government-sponsored programs such AIM, established in 1987 as an NGO, the scheme registered US$373.13 million as AIM and TEKUN. The participation aims to eradicate hardcore poverty. in fi nancing and US$31.99 million of the banking institutions in the This institution is considered to be the in deposits. In the early years of its development of the microfi nance sector oldest Grameen Bank replication in inception, Bank Rakyat had only six Ar- through the microfi nancing scheme Asia. The objective of AIM is to give out Rahnu outlets under the supervision of was seen as important because of their benevolence to low-income households Bank Negara Malaysia as the advisor. large funding and network of branches, to fi nance income-generating activities to which are critical in ensuring wide improve their socio-economic condition In 2006, Bank Rakyat launched the Ar- market outreach. Since microfi nance was and ultimately lift these poor households Rahnu X’Change which is an Islamic incorporated into banking practices, the from poverty. Aft er more than two pawnshop franchise operated by the number of Malaysians having access to decades in operation, AIM has proven to bank’s subsidiary, Rakyat Management fi nancial services has increased to 80% of be an eff ective poverty alleviation tool Services. To date, there is a network of the population. and has provided fi nancial services to 26 Ar-Rahnu X’Changes, of which nine more than 80% of the poor households. are owned by the bank and the other 17 The framework also identifi ed three are owned by cooperatives under the strategic initiatives: namely defi ning the AIM adopts a group lending Ar-Rahnu franchise business. In 2010, parameters of appropriate microfi nance methodology based on the Qard Hasan Ar-Rahnu X’Change disbursed some products, raising awareness of principles. Members are restricted to RM121.7 million (US$40 million). microfi nance and att racting fi nancial the same gender and must be without institutions to participate in providing close family relationship. To be eligible microfi nancing solutions. for funding, gross monthly household Since the income must fall below the poverty line. As part of Bank Negara Malaysia’s inception of initiative to create greater awareness The microcredit approach adopted by of the availability of microfi nance, AIM is based on a small repayment the New Economic a national microfi nance logo was system to be paid on a weekly basis introduced in 2007 and all participating during the center meetings which AIM’s Policy in 1971, fi nancial institutions display this logo at members are obliged to att end. At their branches. Similarly, borrowers of present, almost 99% of the members are microfinance microfi nance are encouraged to display women and the loans are normally short- the logo at their business premises. term with a duration of between 25-150 has been on the weeks. Under the government transformation main agenda of plan and New Economic Model, several AIM is also involved in training female new microfi nance programs were entrepreneurs as part of its capacity the Malaysian initiated with the aim of eradicating building initiatives of eradicating poverty and raising living standards of extreme poverty and in line with government’s poor households. one of the core goals of the ‘National Key Results Area’ of the Malaysian economic Program such as 1AZAM have been government transformation program introduced with the objective of to improve the living standards of development providing the hardcore poor with the Malaysians in low income households. opportunity to generate income through As of 2011, AIM has provided training to policy the four core 1AZAM pillars: which more than 3,400 female entrepreneurs. are Azam Kerja (Work), Azam Tani (Agriculture), Azam Niaga (Business) Another alternative Islamic fi nancing Initiatives in developing and Azam Khidmat (Services). The mode of microcredit is the Islamic Islamic microfinance 1AZAM program aims to ensure that low pawnshop or Ar-Rahnu. Bank Rakyat, the Since the inception of the New Economic income families earn between RM720 largest Islamic cooperative in Malaysia, Policy in 1971, microfi nance has been (US$234) and RM2,000 (US$652.14) per off ers this type of microfi nance fi nancing on the main agenda of the Malaysian month, hence lift ing them out of the poor to its member cooperatives. Although government’s economic development continued...

Continued and hardcore poor categories. 1st - 2nd October 2012 Kuala Lumpur Convention Centre Several other government initiatives to Issuers Day: Monday, 1st October develop the Islamic microfi nance sector Investors Day: Tuesday, 2nd October and increase its market outreach were Takaful & re-Takaful Day: Tuesday, 2nd October also announced in the recent Budget 2012. TEKUN, which was allocated a sum of RM120 million (US$39.1 million) in 2011, was given a higher allocation in 2012 amounting to RM300 million The 7th IFN Asia Forum will be held in Kuala Lumpur, Malaysia. The renowned 'Issuers (US$97.8 million) whilst AIM received & Investors' format will again ensure both the buy-side and sell-side are fully incorpo- an additional RM2.1 billion (US$685 rated in this 2-day event. million). In an eff ort to reduce the cost of doing business for microenterprises, a With complimentary delegate passes for all issuers, investors, regulators and other 100% stamp duty exemption was given senior and relevant key practitioners, the IFN Asia Forum 2012 will be the industry’s largest and leading annual event. on loan agreements up to RM50,000 (US$163,103 ) under the microfi nance scheme.

Microfi nance is also part of Malaysia’s plan to become a fi nancially inclusive country. The recent Financial Sector Blueprint (2011-2020) released by Bank Negara Malaysia reinforces the www.REDmoneyevents.com government’s initiatives towards this Attendance, while FREE, is by invitation only and open to those who register end. Recognizing the fi nancial needs and have an active interest in this fast growing industry. of the Muslim poor who demand access to fi nancial services which do SPONSORS & PARTNERS not compromise their religious beliefs of interest prohibition, the blueprint Lead Partners advances the central bank’s agenda for an inclusive fi nancial system including Islamic fi nancial inclusion and microcredit.

The blueprint also sets out to facilitate Exclusive Partners the Takaful industry in developing micro- Takaful products, particularly to the underserved segment of the community, so that they have adequate protection against unexpected adverse events in a cost eﬀ ective manner.

Conclusion Even though Islamic microfi nance has gained some traction, it has yet to Exclusive Knowledge Partner UK Pavillion Sponsors develop as an important component of the Islamic fi nancial system. Hence, for the Islamic microfi nance industry to reach its fullest potential in poverty alleviation, governments and regulators should integrate this industry into the Takaful & re-Takaful mainstream banking and fi nance system. Day Endorser Corporate Gift Sponsor Booth Sponsor Partner

This article is an excerpt of a chapter in the Global Islamic Finance Report 2012.

Dr Wan Nursoﬁ za Wan Azmi is a senior research fellow at the Asian Institute of Lead Media Partner Media Partners Finance. She may be contacted at nursoﬁ za@ aif.org.my.

The Sukuk market performance in Malaysia

The increasing awareness of Sukuk has made the Malaysian Sukuk market a viable source of capital formation for eligible issuers. MEOR AMRI MEOR AYOB shares his insights.

The growth of the Malaysian bond Graph 1: Graph of Sukuk outstanding at the end of the year in RM billion (US$) market can be traced back to the 1970s, Amount Outstanding Annual growth rate when the government started issuing 100% bonds to meet the massive funding RM400 billion (US$130.43 billion) 90% needs for the country’s development. RM350 billion By the mid-1980s, the private sector (US$114.13 billion) 80% RM300 billion had assumed a more important role (US$97.82 billion) 70% in the strategic development of the RM250 billion 60% Malaysian economy, with the aim of (US$81.51 billion) RM200 billion 50%

making it the main driver of growth Growth (US$65.22 billion) 40% as well as fi nance. During that period, RM150 billion the corporate sector relied heavily on (US$48.91 billion) 30% RM100 billion bank loans, which in turn prompted the (US$32.61 billion) 20% government to pursue the development RM50 billion 10% (US$16.3 billion) of the corporate bond market as a key 0% strategic priority. Source: Bond Pricing Agency Malaysia The regulatory push to mould Malaysia Y2001 Y2002 Y2003 Y2004 Y2005 Y2006 Y2007 Y2008 Y2009 Y2010 Y2011 into a global hub for the development issuers. This pull factor on the demand at just 7.6%. Apart from that year, every of Islamic fi nance was also important side provides a powerful incentive for a other year has seen double digit growth. plus for the bond market. On the supply build-up on the supply side. Innovative side, the issuance of Sukuk in terms Sukuk structures incorporating one or Despite the global impact of the fallout of innovativeness and volume has more of the standard Islamic fi nancing from the US subprime mortgage crisis been equally matched by growth on contracts are continuously being and the Eurozone sovereign debt crisis, the demand side. The issuance of new developed and introduced to the market. their eff ect on the growth performance licenses for Islamic fi nancial institutions This conducive environment will elevate of the local Sukuk market has not and the rising number of dedicated the Sukuk market to higher levels, with been signifi cant. The Malaysian Sukuk Islamic funds all point to a bright future the trend expected to be maintained in market did not suff er much since most for the Malaysian bond market. the foreseeable future. of the Sukuk issued were for local infrastructure projects. A similar trend Historical perspective for the next few years is likely. The Malaysian bond market can be The regulatory characterized as being in a developing Market infrastructure phase. High growth rates have been push to mould The Malaysian Sukuk market would not its hallmark, att ributable to increasing have reached this level without having recognition of the local bond market as a Malaysia into a a strong market infrastructure in place. viable alternative for capital formation. The concept of Sukuk in Malaysia is Borrowers can have substantial infl uence global hub for the embedded in the Islamic banking and over the structure of a proposed bond fi nancial system. It began with the birth issue. Coupled with the vast number development of of the Pilgrimage Fund in 1973; the fi rst of potential investors with varying risk Islamic fi nancial institution in Malaysia. appetites, this has eff ectively fuelled Islamic finance was A decade later, with the enactment of the growth. The push by fi nancial institutions Islamic Banking Act 1983, Bank Islam to re-prioritize lending activities to the also important plus Malaysia became the fi rst fully-fl edged retail sector aft er the regional crisis Islamic commercial bank in Malaysia. In of the late 1990s has also accelerated for the bond 1993, the government took another bold market disintermediation, with corporate step and introduced the interest-free borrowers moving away from the banking market banking unit (IBU), an Islamic window sector to the bond market. within the existing commercial banks. The trends in outstanding quantities and The IBU allows for the parallel existence The Malaysian Sukuk market continues growth of the Sukuk market over the of conventional and Islamic banking to expand. The creation of a number last 11 years are depicted in chart 1. As systems within a bank. of Islamic fi nancial institutions and illustrated, the Malaysian Sukuk market the increasing awareness of Sukuk has been enjoying healthy annual growth Other infrastructure systems set up to as alternative asset class have made rates. For the last 11 years, the lowest support Islamic banking included the the Malaysian Sukuk market a viable annual growth rate ever registered by source of capital formation for eligible the Malaysian Sukuk market was in 2008 continued...

Continued

Sukuk prices, creates a situation of Chart 2: Evolution of the Malaysian bond and Sukuk markets — Key milestones information asymmetry between market players. Despite the market growing to Mandatory rating Financial sector master Bond Pricing Agency a substantial size, the ability of market requirement plan Capital master plan guidelines players to obtain independent pricing RAM established MARC BPAM as well as comparing and evaluating th formed formed portfolio performance of fund managers, is close to impossible.

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 To eliminate this impediment to the bond and Sukuk markets, the Securities Commission Malaysia created a new Initial PDS SC National Bond Guidelines created ȱĴ capital market infrastructure: the Bond by BNM Pricing Agency concept. Supranational bonds guidelines PDS Since the Bond Pricing Agency Malaysia guidelines (BPA Malaysia) was established in 2004, the company has provided daily Sukuk fi nancing and Islamic Interbank not encounter their next trade for several valuation for every bond and Sukuk money market. The Islamic money weeks or months. Hence the last traded traded in Malaysia. With eight years of market was established in 1994 as the price may no longer refl ect the bond’s data, BPA Malaysia is able to present fi nal major requirement for a complete true value as certain pricing factors may data series as well as design a set of Islamic banking system. It currently have altered, such as interest rates and indicators that can eff ectively show serves as a place to trade Islamic fi nancial credit environment. the performance level of a portfolio of instruments. In addition, a National bonds and Sukuk. With this data, for the Shariah Council was established: a fi rst time, performance benchmarking single source of reference for advice on becomes possible. the legality and compliance of Islamic Despite the fi nancial instrument transactions to global impact Performance benchmarking for the Shariah law, which streamlined the Malaysian Sukuk market development process. of the fallout from In late 2008, BPA Malaysia began to publish a set of bond and Sukuk A number of other important market the US subprime indices. In recognition of the quality of infrastructures have also been established the product, in October 2011 Thomson in the last two decades. Chart 2 shows mortgage crisis Reuters came on board to co-brand this an illustration of the establishment set of 108 indices, out of which there timeline for key market infrastructures in and the Eurozone are 36 Thomson Reuters-BPA Malaysia Malaysia. Sukuk Indices, 36 Thomson Reuters-BPA sovereign debt Malaysia Bond Indices and 36 Thomson Sustaining such growth requires a very Reuters-BPA Malaysia All Bond and good legal as well as price discovery crisis, their effect Sukuk Indices. mechanism to enable market participants to be well informed of valuation levels on the growth As a performance benchmark, it is and their rights. In this regard, Malaysia able to track the impact of the various has in place a very good legal framework performance of the international and local events. For which has shown its impartiality as reference, chart 3 is a performance graph well as its fairness. However, the issue local Sukuk market of valuation remains a very grey area. Chart 5: Simple average returns as of the This factor is important as only with a has not been 28th February 2012 strong valuation regime in place can one Period All Government Corporate confi dently assess the performance of the significant Bonds Sukuk Sukuk Malaysian Sukuk market. 1 0.63% 0.55% 0.83% Due to the low level of liquidity in the Month In marking-to-market using market price, bond and Sukuk markets compared 3 1.84% 1.82% 1.99% the last transacted price of the instrument to the equity market, the ability for Months is taken. Market price is reliable only in players to obtain market prices is an effi cient market where information extremely diffi cult. Moreover the ‘non- 6 2.60% 2.69% 2.72% Months infrastructures are established and independence’ of traditional sources liquidity is suffi cient. In the bond and of bond and Sukuk prices in Malaysia, 12 5.96% 5.53% 6.94% Sukuk markets, less than 1% of bonds and the lack of comprehensive rules and Months are traded on a daily basis. Furthermore, regulations regarding the origination Source: Bond Pricing Agency Malaysia and bonds and Sukuk that are traded may and usage of generated bond and Thomson Reuters

Continued

statistics shown in chart 4. A number of Chart 3: Events tracking via the TR-BPAM Sukuk Index Graph interesting observations can be found from the performance statistics. Sept 2008: Dec 2008: Worldwide stock OPR rate cut from 3.5% market collpased. to 3.25% Chart 5 is a table of the simple average Flight to safety Sep 2011: returns of the three diﬀ erent portfolios Jan 2009: Eurozone segregated in four distinctive periods. Sept 2008: OPR rate cut by 75bps to 2.5% Sovereign Debt Crisis ŗǯȱȱȱęȱ th 125 for bankruptcy. Mar 2009: At the reference date of the 28 February Řǯ ȱěȱ ȱ Government introduced 2012, the corporate Sukuk portfolio of its credir rating. RM60 billion stimulus plan recorded the best returns for all period 120 (US$19.6 billion) buckets. The corporate Sukuk portfolio June 2008: outperformed the government Sukuk Escalating oil prices. 115 Ě¢ȱǯ Oct 2010: portfolio at every period bucket. The Government government Sukuk portfolio recorded a Jan 2008: released 2011 110 higher return compared to the all bond Expectations on aggressive Budget (and Sukuk) portfolio in the six- month rate cut in US period bucket. 105 2H 2009: Jun 2010: ¢ȱĞȱŘŖŖŞ OPR rate hike by ęȱ 25bps to 2.75% These results are not only intuitive but 100 also very revealing. May 2010: OPR rate hike by 25bps to 2.25% June 2007: The adage ‘high risk, high return’ is 95 Fallout of the US subprime mortage sector Mar 2010: very much evident in the statistics. Since OPR rate hike by 25bps to 2.25% corporate issuers are riskier compared to government risk, it make sense for corporate Sukuk portfolios to register higher returns compared to government Sukuk portfolios. Another interesting

03-Jan-07 03-Jul-07 03-Jan-08 03-Jul-08 03-Jan-09 03-Jan-10 03-Jul-10 03-Jan-11 03-Jul-11 observation is the performance of the Source: Bond Pricing Agency Malaysia and Thomson Reuters government Sukuk portfolio compared to the all bond portfolio at the six-month Chart 4: Comparison between TR BPAM All Bond, Islamic-government and Islamic-corporate indices period bucket. For the government Sukuk portfolio to outperform the all bond portfolio, it would imply the TR BPAM All Bond Index 130.8 TR BPAM All Bond Index-Islamic Corporate conventional bond portfolio must have 128.62 TR BPAM All Bond Index-Islamic Government performed worst to bring the average 126.44 down. 124.26 122.08 Conclusion To sustain a growing and vibrant Sukuk 119.9 market, a number of key infrastructures 117.72 must be put in place. Increasing the 115.54 eﬃ ciency and ease for issuers as well as 113.36 investors in Sukuk products and services 111.18 will help to promote the viability of the market as a source for capital raising as well as an investment opportunity. However, an eﬃ cient market can

02/02/2010 12/04/2010 23/06/2010 03/09/2010 18/11/2010 02/02/2011 18/04/2011 30/06/2011 13/09/2011 25/11/2011 15/02/2011 only be att ained if valuation can be Source: Bond Pricing Agency Malaysia and Thomson Reuters easily ascertained and performance benchmarking is made available. This of the TR-BPAM All Bond Islamic Index stock market in the later part of 2008 also factor alone will introduce the necessary as well key events that have aff ected the appear to have had a signifi cant impact ingredient to promote the market movement of the graph across time. As to the Sukuk market. This index has transparency that is naturally available in shown in the graph, signifi cant economic consistently tracked events infl uencing equity markets. events both international as well as local the Malaysian Sukuk market. have had an eff ect on the performance of Meor Amri Meor Ayob is CEO of Bond the Malaysian Sukuk market, at varying A further breakdown of specifi c Pricing Agency Malaysia and he can be degrees. Major equity market events Sukuk classes such as government and contacted at [email protected]. such as the worldwide collapse of the corporate Sukuk markets yield the

Trading Islamic financial products on the London Stock Exchange

The LSE’s diverse range of markets and products spans the equity and ﬁ xed income markets, as well oﬀ ering exciting opportunities in a new segment for retail bonds. GILLIAN WALMSLEY explores.

The London Stock Exchange (LSE) has and has already seen two further Sukuk aware of the potential benefi ts and established itself as one of the key in 2012. advantages of these fl exible products. global markets for Islamic fi nancial There is however still very litt le instruments. The foundations of this secondary market trading activity in The LSE is one of the key global markets success are built on London’s broad these instruments and liquidity can be for ETFs and the Group’s off ering has international investor base and the thin. This is a characteristic of the Sukuk grown from a single ETF on the FTSE 100 deep liquidity of its markets, but to markets more generally. Index, listed in April 2000, to a product date, in the area of Islamic fi nance this range today which off ers more than 500 has been predominately a wholesale, Because of the limited range of Sukuk ETFs and 300 ETCs/ETNs. Investors can professional market. As the Islamic globally, and with the strong demand for now access a diverse range of underlying fi nance markets have developed such instruments from Islamic investors, markets and asset classes. however, and as the unique benefi ts of they tend to be seen as ‘buy-to-hold’ Islamic fi nance gain greater prominence investments rather than actively traded Not only can investors use ETFs to access amongst a wider audience, retail securities. However as more Sukuk are a wide range of equity indices, from demand for Shariah compliant products issued and the investor base expands domestic to international to specialist will continue to grow. further, liquidity will naturally build themed and sector indices, but there are and more active secondary markets will now also a growing number of fi xed Accessing the market develop. income ETFs which allow investors to gain exposure to government and London has a broad range of fi nancial corporate bond markets. institutions acting as intermediaries and which off er Islamic fi nancial products to In addition, ETCs can off er exposure to both wholesale and retail customers. The The indices commodity markets, allowing private UK has fi ve standalone wholly Shariah underlying investors to trade a security through compliant banks, including the retail- their stockbroker, just as they do for dedicated Islamic Bank of Britain. In these ETFs are shares. They enable users to take a addition there are 22 other conventional position on previously diffi cult to access banks off ering Shariah compliant constructed markets such as gold, oil and agricultural products through their Islamic windows. commodities. by screening There are more institutions off ering New ETN products allow investors to Islamic fi nancial products and services in constituents for trade volatility with products which track the UK than anywhere else in Europe or the so-called ‘fear index’, the VIX. One the Americas. Because Islamic fi nancial compliance with of the key att ractions of ETFs and other products are traded on the LSE on the ETPs is the transparency and security same trading platform as our broad Islamic investment off ered by trading on the LSE. range of conventional equity, fi xed income, listed funds and structured principles Unlike other funds, ETFs are products, this means that conventional continuously priced, with dedicated brokers executing orders for investors in market makers committ ed to providing conventional products can also interact on-screen two-way tradable prices with Shariah compliant products on our Shariah compliant exchange throughout the trading day. This means markets. traded funds that ETF investors can easily monitor the One product area where we have performance of their portfolio as well Sukuk seen particularly strong growth and as adjust their holdings by buying and Sukuk remains the key Islamic fi nancial increasing demand from stockbrokers is selling on exchange. instrument and the range of Sukuk on exchange traded funds (ETFs) and other our markets has continued to grow with exchange traded products (ETPs) such There are seven Shariah compliant several important new issues. Total as exchange traded commodities (ETCs) ETFs currently listed on our market. Sukuk issuance on our market has now and exchange traded notes (ETNs). The indices underlying these ETFs are exceeded US$24 billion with 43 issuances. constructed by screening constituents These products have proved particularly for compliance with Islamic investment Sukuk issuance has rallied aft er diffi cult resilient throughout the fi nancial crisis principles. iShares off ers funds tracking market conditions in recent years and the as more and more investors have become LSE saw 10 new Sukuk listings in 2011 continued...

Continued Not just countries the MSCI World Islamic, MSCI USA enter orders into the book, the market Islamic and MSCI Emerging Markets model means that private investors Islamic indices and db x-trackers, the will be able to see prices on-screen and ETF provider of Deutsche Bank, off ers trade in bonds in a similar way as they IrAq Islamic ETFs which are based on the currently do for shares. LuxemBourg S&P Japan 500 Shariah, S&P 500 Shariah, S&P Europe 350 Shariah and DJ Islamic Currently only conventional debt MoroCco ,, Market Titans indices. securities are available on the new ORB platform, but this new market could ThailanD m m off er exciting opportunities for issuers of The key benefit Shariah compliant securities wishing to IrEland access the retail market. of this new AFghanistan Structured products SinGapore retail market is that Another area of growing interest for private investors and stockbrokers is CHina it offers an open our segment for listed products such as covered warrants and structured BahraIn ,,,,, and transparent products. market structure DJibouti These are highly fl exible and tailored PaKistan for trading in products off ering a broad range of investment profi les and off ering simple AustraLia ... retail size and effi cient access to a diverse universe of underlying assets including domestic TurkMenistan and international indices, commodity markets, currencies, equities, funds, GermaNy ..... Retail securities futures and fi xed income securities. In the UK, we have seen a signifi cant shift Certain markets, accessed via covered CrOatia in private investor trading profi les, with warrants and structured products, are more retail market participants seeking oft en otherwise very diffi cult for private JaPan to take a more active role in managing investors to reach via direct investment their own investment portfolios. in the underlying asset. This also off ers Qatar att ractive opportunities for the potential for One of the key areas in which we have further development of bespoke structured FRance seen particularly strong investor appetite products on Shariah compliant indices. has been in the fi xed income asset IndoneSia .... class. UK investors have been looking to diversify their investment holdings Further development SwiTzerland beyond trading traditional equities The LSE’s diverse range of markets and and have looked to fi xed income as an products spans the equity and fi xed TUrkey alternative. income markets, as well off ering exciting MoldoVa .. opportunities in a new and expanding In response to this demand, the LSE has segment for retail bonds. KuWait introduced a new retail bond market for specifi cally for private investors. Further product development to expand MeXico the range of Shariah compliant products The new order book for retail bonds to a host of new and innovative exchange MalaYsia (ORB) off ers electronic trading in a traded funds and structure products, number of UK gilts and retail-size off ers a truly global market where BraZil corporate and supranational bonds investors can tailor investment portfolios and aims to respond to private investor to suit their needs. We continue to work demand for easier access to fi xed income. with issuers and investors to develop These are some of the countries we liquidity, transparency and accessibility have subscribers The key benefi t of this new retail market to Islamic fi nancial instruments on is that it off ers an open and transparent our markets and to further encourage Contact us now for a free trial…… market structure for trading in retail size. product innovation in this space. Because dedicated market makers are committ ed to quoting two-way prices Gillian Walmsley is the head of fi xed income Musfaizal Mustafa in a range of retail bonds throughout products at London Stock Exchange and Subscriptions Director the trading day and all other registered she can be contacted at islamicfi nance@ [email protected] member participants are also able to londonstockexchange.com. Tel: +603 2162 7800 x 24

Tanzania embraces Islamic banking

KHALFAN ABDALLAH discusses Islamic banking in Tanzania, the key players in the market and the future of Islamic ﬁ nance in the country.

Islamic banking has been growing at an unprecedented rate across the globe. In Table 1: Banks that off ers Islamic banking East Africa, the fi rst Islamic bank was Banks Established Model used established in 2007 in Kenya alongside KCB Bank (Tanzania) April, 2008 Islamic window fi ve conventional banks also off ering United Bank of Africa 2009 Islamic window Islamic banking products. In 2008, Tanzania decided to join the trend and National Bank of Commerce May, 2010 Islamic window allow Islamic banking products in the Stanbic Bank May, 2010 Islamic window country. The People’s Bank of 2010 Separate branch Zanzibar Amana Bank Nov, 2011 Fully-fl edged Islamic bank Islamic Source: Ernst & Young (2010) and author

banking Table 2: Some of the Islamic fi nancing products off ered PRODUCTS KCB NBC Amana UBA PBZ STANBIC also falls under & Bank the existing SERVICES Deposit Products conventional rules Amana Islamic Amana Bank Halal Wadiah Shariah savings savings savings savings current transact and regulations due account account accounts account account plus to the absence of Amana Islamic Amana Mudarabah Shariah current current Bank current saving personal specific laws account account accounts accounts account Amana cub Fixed-term Mudarabah Shariah account account time deposit private account Amana Shariah community business current account Brief history of the banking account sector Financing Products Commercial banking in mainland Tanzania began in 1905 during the Short- In the Working In the Murabahah In the German colonial rule when the Deutsch- term trade pipeline capital pipeline fi nancing:- pipeline Ostafricanische Bank opened its fi rst fi nancing fi nancing - Car - Land branch in Dar es Salaam. The bank Asset-based - Asset-based - Business was authorized to perform central fi nancing fi nancing inventory bank functions such as the issuance of Construction Motor - Airline currency, and acted as the bank of the materials vehicle tickets for government. Aft er the defeat of Germany fi nancing fi nancing business in the First World War, British banks trip, Hajj, Consumer including Standard Bank, Barclays Umrah, fi nancing Bank and National and Grindlays Bank, honeymoon Anglo Egyptian Bank and the National Ijarah Bank of South Africa replaced German fi nancing for banks; followed by the Bank of India in professional 1953 and Bank of Baroda in 1954. The equipment Ott oman Bank and Commercial Bank of Other Services Africa were established in 1958 and 1961 respectively. Bank LC under LC under guarantees Wadiah Wadiah These banks were unregulated and Lett ers of committ ed to protecting the interest of credits continued... Source: Author

Continued

customer relations, expansion of branch Table 3: Underlying Islamic contract networks and investment in technology Contract KCB NBC Amana UBA PBZ STANBIC so as to have a competitive advantage Bank over the other banks. Qard All Not All current Not N/A N/A Hassan deposit disclosed account disclosed One such innovation is the concept of products plus one Islamic banking. Tanzanian Muslims plus one loan loan product (35% of population of mainland Tanzania product and 99% of the Zanzibar population) have long been advocating to the Mudarabah N/A Not All savings Not Mudarabah N/A central bank to allow Islamic banking. disclosed accounts disclosed Saving and term account In 2008, the central bank allowed one deposits conventional bank to off er Islamic banking products in the country through Wadiah/ N/A Not N/A Not Wadiah Shariah Amana disclosed disclosed current transaction an Islamic window model. account Plus Now, there are six banks, accounting for Ijarah N/A N/A N/A N/A Applied N/A about 14% of the total banking sector, Wakalah N/A Not Applied N/A N/A N/A which off er Islamic banking products disclosed (See Table 1). These banks off er a range of Banking Applied N/A Applied N/A Applied N/A deposit products and asset products (See Murabahah Table 2). the owners, (Europeans and Asians) multinational banks off ering Islamic All these banks (except one) have rather than meeting the needs of the banking products in other jurisdictions, established their own Shariah Africans. in Tanzania there is still only one supervisory boards to review and fully-fl edged Islamic bank and fi ve approve their products. Besides this, all Post-independence conventional banks off ering Islamic products are required to comply with existing conventional banking rules and Aft er independence in 1961, the banking products. get an approval from the central bank. government established its own banks such as the National Bank of Regulatory environment Commerce (1965) in mainland Tanzania The banking sector is under the Murabahah and the People’s Bank of Zanzibar in watchful eye of the central bank, Bank The Isles. In 1967, in a drastic move of Tanzania, which is empowered to is used towards Ujamaa (African Socialism), license, regulate and supervise all the government adopted the Arusha banks and fi nancial institutions. Some extensively to meet declaration, nationalized foreign banks, of the laws and regulations that banks and established new banks such as the are required to observe are; Banking working capital Cooperative and Rural Development and Financial Institutions Act 2006; Bank, Tanzania Housing Bank, National Foreign Exchange Act 1992, Banking and needs of corporate Microfi nance Bank, Tanzania Postal Bank Financial Institutions Regulations 1997 and Tanzania Investment Bank. and the Risk Management Guidelines customers as 2010. Islamic banking also falls under In response to the 1980s economic crisis, the existing conventional rules and well as consumer the country embarked on social and regulations due to the absence of specifi c economic/fi nancial reforms including laws or regulations that regulate Islamic needs of individual banking sector liberalization, followed banking per se. by the privatization of poorly managed customers state-owned enterprises including state-owned banks in order to develop Islamic banking an effi cient fi nancial system and sustain The banking sector globally has economic growth. undergone dramatic changes over the last 20 years. In Tanzania, these changes Islamic contracts by banks in The result of these fi nancial reforms was were brought by the desire to keep Tanzania pace with the rapid development of an infl ux of banks to the market, both On the liability side, banks off ering local and foreign: from eight banks in technology, the global wave of new world Islamic banking products use Wadiah, the 1990s to 44 banks as at the end of fi nancial instruments, the development Qard Hassan and unrestricted February 2012. On average, over the last of international markets and the need Mudarabah contracts to structure savings 22 years there have been one to two new to att ract foreign investors. Locally, accounts, current accounts and fi xed- entrants into the market per year. competition brought by the increasing term deposit products. However, some number of banks has meant that fi nancial However, despite the presence of institutions have focused on innovation, continued...

Continued

customers while Wakalah is used for not forgett ing a sizeable number of Figure1: Future outlook of Islamic banking products the provision of various services such as Christians who are positive and ready to fund transfer services, salary processing use Islamic banking products. 8% Future services and tax payment collection Prospect services. Conclusion Islamic banking is gaining popularity 41% Potential for Islamic banking in the country. By the end of 2012 it is in Tanzania estimated that the total assets of Islamic A research report has shown that 63.6% banking will reach more than TZS100 of regulators and 66.6% of practitioners billion (US$62.5 million) with customer 51% view Islamic banking in Tanzania as deposits of TZS80 billion (US$50 million). viable. Another research report by Ernst & Young in 2010 showed that three out This can be achieved with fi nancial of four practitioners gave the rating of innovation; effi cient systems to deliver Soon ‘high’ and above when asked about the quality customer service; competitive No potential for Islamic banking products in pricing; effi cient execution of marketing Maybe the country. strategies and high technology methods to serve customers. Source: Ernst &Young, 2010 Tanzania Out of the 37 fi nancial institutions banking sector sector performance review that are not currently off ering Islamic Furthermore, the Bank of Tanzania is also banking products, three institutions have playing an important role in supporting banks don’t disclose the contract under confi rmed that they are going to launch Islamic banking by organizing Islamic which their products are based. Islamic banking products very soon; banking trainings in the country, holding while 15 say it is something that they discussions with Islamic bankers and On the asset side and other services, might consider in future and 19 have no training its own staff to grasp the concept most of them use Murabahah to purchase plans at all to have Islamic products. of Islamic banking. orderer, Qard, Ijarah and Wakalah arrangements. Murabahah is used Muslims in Tanzania constitute 35% Khalfan Abdallah is the head of product extensively to meet working capital of the 42 million Tanzanians who are development and Shariah compliance at needs of corporate customers as well as mainly involved in the agriculture Amana Bank Tanzania and Associate Fellow consumer needs of individual customers. and commercial sectors. This is almost Institute of Islamic Banking and Insurance, Qard Hassan is used to meet very 14 million people who could be the UK. He can be contacted at Khalfan. short-term liquidity needs of corporate potential target market for the products; [email protected].

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Tapping into the right avenue

Cover Story ȱ ȱ ¡ȱȱęȱ¡ȱ ȱǻ ¡ȱǱȱŘřǼ A report surfaced last week that Australian’s pension schemes will be 170 looking to increase the mandate of Asian ﬁ xed income in their portfolio 160 in the medium-term aft er the country’s senate passed what was termed 150 an “historic” piece of legislation compelling the increase of employees’ 140 superannuation contributions to 12% from the current 9%. ŗřŖ

Australian ŗŘŖ

investors 110 are not the only 100 ȬŖŖ ȬŖŗ ȬŖŗ ȬŖŘ ȬŖŘ ȬŖř ȬŖř ȬŖŚ ȬŖŚ ȬŖś ȬŖś ȬŖŜ ȬŖŜ ȬŖŝ ȬŖŝ ȬŖŞ ȬŖŞ ȬŖş ȬŖş ȬŗŖ ȬŗŖ Ȭŗŗ Ȭŗŗ ȬŗŘ ȬŗŘ investors who have ‘awakened’ from Source: Eurekahedge the aftermath of According to the Association of the sophistication of regulation and the Superannuation Funds of Australia transparency of governance besides the the global financial (ASFA), its members represent over understanding of the various drivers in 90% of the approximately 12 million the region’s economies. The two asset crisis in 2008 and Australians with superannuation and classes likely to see reorientation from as at September last year, assets stood developed markets to emerging markets the ongoing volatile at AU$1.3 trillion (US$1.35 trillion). Of are equity and fi xed income, predicted that amount, 29% is invested in domestic within the next three to fi ve years. economic equities, 24% in international equities, 10% in domestic fi xed income, 6% in The att raction of pension funds is too conditions international fi xed income, 3% in listed great to ignore. Australia’s only fully- property, 7% in unlisted property, 8% in fl edged Islamic asset manager, Crescent cash and the rest in largely illiquid assets continued... The report states that the near-term such as venture capital. impact on strategies is expected to be In this issue... negligible due to the gradual increase of The report further details the growing 0.25% over the next year to eventually appetite for investing in Asia as well as Market Commentary ...... 35 reach 12% in 2019-2020. However, the emerging markets particularly among News ...... 36 potential of accumulated asset and superannuation funds in Australia. Feature: capital deployment is anticipated to be NewGold Exchange Traded Fund ...... 37 relatively substantial. This is due to the improved conditions Eurekahedge Data ...... 38 of investing in this region including

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

Tapping into the right avenue Continued from previous page

Wealth, launched the Crescent Australian Australian investors are not the only According to the Eurekahedge Islamic Equity Fund, its fi rst Islamic equity investors who have ‘awakened’ from the Fixed Income Index, returns over the last fund in October last year with an initial aft ermath of the global fi nancial crisis in three months were 1.41% while the last 12 seed capital for Aon Hewitt , part of Aon 2008 and the ongoing volatile economic months provided 4.26%. Master Trust, a AU$2 billion (US$2.07 conditions. Global investors — retail and billion) superannuation fund in the institutional — have become more risk This should be a plus point for fund country. averse despite the recent trend of moving managers looking to entice pension back into riskier investments, and are funds particularly with the array of Pierre Kraft , the managing director still demanding greater transparency Islamic fi xed income funds in the Asia wealth management of Aon Hewitt , and governance in their investments: region, that have not seen a retraction in said then that Australian investors characteristics that already exist in Shariah returns since 2008. Asia and the emerging were uneasy about exposure to highly principles and therefore in Islamic funds. markets are looking to be a continuous leveraged companies or funding success story despite the challenges activities and such ethical screening As Sukuk has its ‘day in the sun’ and with faced. With Australia’s superannuation works well with the Shariah principles the uptrend set to continue, Islamic fi xed funds realizing this fact, it is the time of the fund, which he believed would income funds are also expected to continue for fund managers to also evaluate the appeal to many Australians. to outperform conventional bond funds. prospects ‘down under’. — RW Market Commentary

Investors in commodity markets took The Physical Commodity Index (ALL11)* some risk off the table last month in reaction to premier Wen Jiabao’s 1,000 announcement that Chinese growth will 800 slow to 7.5% this year, aft er sett ing the 600 400 target at 8% for the last seven years. Base 200 metals have been declining since the 0 start of March with prices losing 8.73% in LME Nickel, 7.94% in LME Lead and 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 6.83% in LME Aluminium, also refl ecting ALL11 ALL11+ tight credit conditions in China. The *The Physical Commodity Index includes gold, silver, platinum, zinc, nickel, copper, FTSE Physical Commodity Industrial aluminium, wheat, soybeans, corn and brent crude oil. Metals Index is up 6.27% year to date. Physical Commodity Agriculture Index* - 6 Months Precious Metals eased as gold lost 3.12% and silver declined 8.11%. Authorities 400 in various emerging markets are 350 increasingly trying to curb gold demand 300 in order to bett er control their currency 250 valuations. The Turkish government Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 recently designed plans to persuade people to deposit their gold bullion with *Physical Commodity Agriculture Index includes wheat, soybeans and corn. the banking sector to narrow its current- account defi cit. According to the World Gold Council, Turkey was the world’s consumer, announced further regulations number one minter of Gold coins and the aimed at controlling the nation’s gold Soybeans advanced for the second month fi ft h largest consumer of gold in 2011. market and to avoid further capital fl ight. and gained 3.12%, rising to the highest The price of gold reached its lowest level level in six months, as dry weather India, the world biggest bullion buyer, since the 10th January. minimizes the harvest in South America. has doubled import duties on gold for the second time this year. The nations Oil supply problems persisted in Iran, New York coff ee tumbled 10.46% and gold and jewellery dealers went on Syria, Sudan and Yemen but were off set has lost more than 40% from its peak their fi rst strike in seven years on the by increased output from Libya. While in March 2011 as prospects of a global 17th March and have not withdrawn WTI crude oil is trading in contango surplus in 2012-13 eased concerns about yet. India is experiencing a depreciating (spot below forwards), for the next tight supplies. currency and a widening current account 16 months the Brent curve remains defi cit aft er record gold purchases. backwarded, implying a tight market. Merit Commodity Partners. For more WTI prices were unchanged, Brent information or a daily update, contact info@ Vietnam, the world’s eight largest gold advanced by 1.7%. mcpag.com or info@ft se.com.

First quarter payout scholars is the lack of transparency from the Shariah boards in providing their PAKISTAN: UBL Fund Managers, a judgements. local asset management company, has announced a payout of PKR1.80 (2 However, he acknowledged that the US cents) per unit for its UBL Islamic Fatwa process provides legitimacy to a Savings Fund for the quarter ended the product. 21st March 2012. 2012 Calendar

The fund has returned 11.65% in the Rasmala’s new Islamic fund year-to-date. UAE: Rasmala Investment Bank, the newly acquired subsidiary of the New Islamic funds in the European Islamic Investment Bank April pipeline (EIIB), is planning to launch the Rasmala Global Sukuk Fund, an open-ended Islamic Banking & Finance AUSTRALIA: Crescent Wealth, a local Shariah compliant fund. Strategy Masterclass Islamic wealth manager, will off er four new funds by the end of this year, The US dollar-denominated fund will 16-18 April, SINGAPORE including an Islamic cash management be seeded with a US$25 million cash fund to be launched in partnership with investment from EIIB. Legal and Shariah Issues HSBC. in Sukuk and Islamic Solid returns Capital Markets The three other funds include an equities fund, an Islamic index and a GLOBAL: QIB (UK)’s Global Sukuk 18-19 April, JAKARTA superannuation off ering. Plus Fund, which recently broke the US$200 million mark in assets under management, has reported a total return Islamic Finance New partner for CIMB’s since inception of 21.43%. Qualification CapAsia 23-25 April, KUALA LUMPUR MALAYSIA: CIMB Strategic Assets, Launched in 2009, the fund, which raised over US$100 million last year, has booked a unit of CIMB Group Holdings, has Shariah Audit & Compliance established a joint venture (JV) with US annualized returns since inception of for Islamic Banking private investment fi rm The Rohatyn 6.21%. Group, to manage three companies 26-27 April, JAKARTA under CapAsia, a subsidiary of CIMB New investment Sukuk fund Strategic Assets. UK: Ethical Asset Management, a local Shariah compliant asset management CIMB Strategic and The Rohatyn Group company, has launched an investment will hold 40% and 60% respectively Sukuk fund which is set to raise GBP200 May in Capital Advisors Partners Asia, million (US$320 million) for assets in the CapAsia Islamic Infrastructure Fund UK student accommodation sector. Structuring and Legal (General Partner) and CapAsiaAsean Documentation for Infrastructure Fund III (General Partner). The fund, which is domiciled in Jersey, Islamic Banking Products will acquire existing income-producing CapAsia and its subsidiary, Capital properties located in university towns 8-10 May, BRUNEI Advisors Partners Asia, manage the Asia and cities throughout the UK without Infrastructure Fund Partnership, the using any debt or leverage. Islamic Treasury Islamic Infrastructure Fund Partnership Management & Derivatives and the South East Asian Strategic Assets It will also provide investors with full Fund, with collective assets under man- ownership of those properties. 21-23 May, KUALA LUMPUR agement of around US$500 million. The fi rm is expecting net annual returns Saving time for investors of between 4-6% for the fund. UK: Local investors should consider carrying out their own research on Shariah compliant investment products Are you a member For more details, contact us: to avoid the lengthy approval process by Shariah boards, said Trevor Norman, Tel: +603 2162 7800 a director of Jersey-based fi duciary Fax: +603 2162 7810 specialist Volaw Trust and Corporate Services. [email protected] Meanwhile Mahmood Faruqui, a senior advisor for the Bank of London and The of our Linked-In group? www.IslamicFinanceTraining.com Middle East, said another issue related to

NewGold Exchange Traded Fund

Absa Capital’s NewGold Exchange Traded Fund (NewGold) is one of the simplest and cost-eﬃ cient methods for investors to invest directly in actual gold. NewGold continuously tracks the gold price and enables investors to invest in a listed instrument (structured as a debenture) in which each security is equivalent to approximately 1/100 ounces of gold and is fully covered by holdings of gold bullion with the NewGold Custodian, Brinks. NewGold is the ﬁ rst and only product in South Africa through which institutional and retail investors can securely invest directly in gold bullion at competitive management fees.

What led to this fund being launched? How has this fund performed compared Fact sheet Our objective in designing and launching to your initial expectations? Manager NewGold Manager this fund was to provide institutional and It signifi cantly exceeded our expectations, (Pty) retail investors in South Africa with a both in terms of assets under management cost-eff ective, safe and convenient way to and in terms of fund performance. Shariah advisor Shariah Supervisory invest in physical gold bullion. Board of Absa Islamic Has your strategy for this fund changed Bank Why has this particular region / asset since inception, and if so how? Originator Absa Capital class been chosen? The only addition to the strategy was to South African investors at the time could start expanding the product into other Base currency ZAR track the performance of the gold price markets in Africa. Listing date 2nd November 2004 indirectly, through gold mining equities, or in an illiquid, costly and ineffi cient Why investors should choose this fund Net asset value 16,826,275,347.71 over others? way through investing in jewelry or gold NewGold price SAR128.30 (US$16.79) coins. Our belief was that this product We believe that investors should hold a would provide investors with a bett er portion of their assets in this fund for the Annualised TER * 0.40% way to get exposure to the gold price. following reasons: Monthly TER 0.03%

What are the key factors that drive the • Strategic: No. of securities 131,636,300 fund’s performance? o Gold is an eff ective portfolio issued As the fund is physically backed and tracks diversifi er – having low to negative correlation with other Quantity of gold 39.76 the spot price of gold bullion in South held (tonnes) African rand (ZAR) terms, the only two asset classes. o Gold is an excellent store of value. factors infl uencing the performance of the Quantity of gold 1,278,244.68 o Gold is a safe haven investment, fund are the US dollar spot price of gold held (oz) as it is among only a handful of bullion and the ZAR/US$ exchange rate fi nancial assets that do not carry Gold entitlement 97.10% credit risk. per debenture Who are your investors? o Gold is an excellent currency th NewGold investors are predominantly *As at the 29 February 2012 hedge. large South African institutional investors *Performance Summary (asset managers and pension funds). • Tactical: NewGold has also been very popular with o Current gold industry Annualised Last Return South African retail investors. However, fundamentals. return month since return inception NewGold has been cross-listed in two o Current economic fundamentals. other African markets, Botswana and 1 Year 33.73% - - Nigeria, with AUM in these markets • Practical: 2Year 23.80% -2.80% 387.83% of more than ZAR180 million (US$23.4 o Gold market is a very liquid, 24 3 Year 11.78% - - million) as of the end of February 2012. hour market. o Gold is recognized as one of de Since 24.14% - - What specifi c risks does the fund take facto global currencies.. Inception into consideration? And why? The main risks are the spot price of gold Quantity of Gold Held (Ounces)* bullion and the ZAR/US$ exchange rate. 1.8 million Investors do not carry any credit risk 1.5 million on the issuer, as the fund is ring-fenced 1.2 million and insolvency remote, fully backed by 9 million allocated gold bullion, which is fully 6 million insured and cannot be lent out. Ounces 3 million What is the market outlook for this 0 fund? It is equivalent to the market outlook for Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 ZAR gold price. Source: Absa capital Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11

Eurekahedge Islamic Fund Index

150

140

130

120

110

100 Index Values 90

70 Dec-99 Jul-00 Feb-01 Sep-01 Apr-02 Nov-02 Jun-03 Jan-04 Aug-04 Mar-05 Oct-05 May-06 Dec-06 Jul-07 Feb-08 Sep-08 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12

Top 10 YTD returns for ALL funds Fund Fund Manager Performance Measure Fund Domicile 1 ETFS Physical Silver ETFS Metal Securities 32.01 Jersey 2 Al Baraka Hermes Fund Management 25.76 Egypt 3 ETFS Physical Platinum ETFS Metal Securities 24.88 Jersey 4 Faisal Islamic Bank of Egypt Mutual Hermes Fund Management 24.06 Egypt 5 Al Fursan Banque Saudi Fransi 22.91 Saudi Arabia 6 Aman - CIB & Faisal Islamic Bank Mutual Commercial International Asset Management 21.32 Egypt 7 ETFS Physical PM Basket ETFS Metal Securities 19.23 Jersey 8 JS Islamic JS Investments 18.41 Pakistan 9 Atlas Islamic Stock Atlas Asset Management 17.09 Pakistan 10 Islamic Emerging Markets Equity ABN AMRO Bank 17.01 Not disclosed Certiﬁ cate Eurekahedge Islamic Fund Index 5.15 Based on 97.39% of funds which have reported February 2012 returns as at 3rd Apr-2012

Top 10 Sharpe ratio for ALL funds Fund Fund Manager Performance Measure Fund Domicile 1 Meezan Tahaﬀ uz Pension - Money Market Al Meezan Investment Management 9.85 Pakistan Sub 2 Insight I-Hajj Syariah Insight Investments Management 8.10 Indonesia 3 Meezan Tahaﬀ uz Pension - Debt Sub Al Meezan Investment Management 4.67 Pakistan 4 Atlas Pension Islamic - Debt Sub Atlas Asset Management 4.65 Pakistan 5 Public Islamic Money Market Public Mutual 3.56 Malaysia 6 SR International Trade Finance - (Al Samba Financial Group 3.43 Saudi Arabia Sunbula) 7 Al Rajhi Commodity Mudarabah - USD Al Rajhi Bank 3.12 Saudi Arabia 8 USD International Trade Finance - Samba Financial Group 2.98 Saudi Arabia (Al Sunbula) 9 Commodity Trading - SAR Riyad Bank 2.89 Saudi Arabia 10 Public Islamic Income Public Mutual 2.84 Malaysia Eurekahedge Islamic Fund Index 0.07 For funds having a track record of at least 12 months as at end February 2012

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

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

120 103

102.5 115

102

110 101.5 Percentage Percentage

105 101

100.5 100 100

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

Top 10 Islamic Fixed Income Funds by 3 Month Returns Fund Fund Manager Performance Measure Fund Domicile 1 ING Shariah Balanced ING Funds 6.13 Malaysia 2 Meezan Islamic Income Al Meezan Investment Management 4.26 Pakistan 3 Mega Dana Obligasi Syariah Mega Capital Indonesia 3.24 Indonesia 4 Insight I-Hajj Syariah Insight Investments Management 2.83 Indonesia 5 AMB Dana Arif Amanah Mutual 2.64 Malaysia 6 Meezan Tahaﬀ uz Pension - Debt Sub Al Meezan Investment Management 2.63 Pakistan 7 CIMB Islamic Enhanced Sukuk CIMB-Principal Asset Management 2.44 Malaysia 8 Jadwa Conservative Allocation Jadwa Investment 2.43 Saudi Arabia 9 CIMB Islamic Sukuk CIMB-Principal Asset Management 2.36 Malaysia 10 PB Islamic Bond Public Mutual 2.25 Malaysia Eurekahedge Islamic Fund Fixed Income Index 1.17 Based on 98.97% of funds which have reported February 2012 returns as at 3rdApril-2012

Top 10 Annualized Sortino Ratio for ALL Islamic funds Fund Fund Manager Performance Measure Fund Domicile 1 Meezan Tahaﬀ uz Pension Fund - Debt Sub Al Meezan Investment Management 12.90 Pakistan 2 Atlas Pension Islamic Fund - Debt Sub Atlas Asset Management 12.38 Pakistan 3 Commodity Trading - SAR Riyad Bank 8.64 Saudi Arabia 4 Kagiso Islamic Equity Kagiso Asset Management 4.77 South Africa 5 Taurus Ethical B Taurus Asset Management 3.89 India 6 PB Islamic Bond Public Mutual 3.55 Malaysia 7 Public Islamic Bond Public Mutual 3.55 Malaysia 8 ING i-Enhanced Cash ING Funds 3.29 Malaysia 9 Public Islamic Select Enterprises Public Mutual 2.74 Malaysia 10 Public Islamic Select Bond Public Mutual 2.59 Malaysia Eurekahedge Islamic Fund Index 0.28

Based on 97.39% of funds which have reported February 2012 returns as at 3rdApril-2012 Based on reporting funds with at least 12 months of returns till February 2012 as at 3rdApril-2012

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Cover story However, the overall Takaful and re- remained fairly consistent over the past Takaful market share as of December three years, highlighting the strength of Indonesia, despite its enormous 2011 still only accounts for 3.8% of the the conventional life insurance market in potential, has failed to explode onto current Indonesian insurance market the country as Family Takaful is unable the Takaful scene in as meaningful a despite a total combined annual growth to make as signifi cant inroads as it has in way as many industry observers had rate of Takaful in Indonesia over the past other jurisdictions. predicted. However, with a number fi ve years of an impressive 38%. of multinational insurance companies Although Indonesia has huge potential in expecting their Indonesian operations According to data from Indonesia’s terms of their Takaful business lines, the to begin accounting for a substantial Capital Market Supervisory Agency’s number of participants and contributions proportion of their future insurance Insurance Bureau, total Takaful are still worryingly low. Factors center contributions and growth in the contributions reached IDR4.97 trillion around a lack of awareness of the benefi ts years to come, it would be unwise to (US$543.29 billion) as of December 2011, that insurance protection and long-term underestimate this potential Takaful an increase of 35% on 2010. Indonesia’s fi nancial planning can off er. powerhouse. Takaful assets increased by 32% to IDR9.2 trillion (USD$1 billion) in 2011 Challenges to the Takaful industry Growth, while still impressive, has from a year earlier. It is not a leap of remain despite the growth: such as a lack failed to outshine the conventional faith to believe the Indonesian Takaful of awareness due to minimal funding market as it has in other majority- Association’s prediction that the market and low budget allocation for marketing Muslim jurisdictions. Currently not one share of Takaful will reach 5% in 2012. and promotion of Takaful; a distinct lack Indonesian Takaful or insurance operator of human resources; and the fact that the remains synonymous with the Takaful target market is predominantly in the market, much to the detriment of the middle to low-income bracket and there industry and highlighting the limited Total Takaful are limited Takaful products on off er marketing allocations that Takaful tailored to that market segment. promotion garners. contributions There remains a signifi cant mismatch Although Takaful’s market share is still reached IDR4.97 between Takaful products and customer small, the industry’s growth does remain needs. Specifi c research analysis and greater than that of the total insurance trillion (US$543.29 customer profi ling has yet to be carried industry and should be capitalized out for Takaful products and even on further. The growth of the Takaful billion) as of simple products are still lacking in the industry over the last four years was marketplace. Takaful in Indonesia has approximately 49.3% per year compared December enormous potential, but the realization to the conventional industry’s growth of still lags far behind. — SW 24% per year. 2011

By the end of 2011, it was modestly Family Takaful, like most jurisdictions, In this issue... predicted by many that the total assets continues to lead the uptake with 81% of the Takaful companies in Indonesia of total Takaful contributions to reach Takaful News ...... 41 would reach approximately IDR6 trillion IDR4.03 trillion (US$440.53 billion) as (US$650 million). As of December 2011 Feature: of December 2011, an increase of 33% The evolution of Takaful models in Malaysia ...... 42 the total combined assets of the Takaful on 2010. However Family Takaful’s and re-Takaful industry amounted to market share in 2011 was 4.14% and has IDR7.28 trillion (US$795.80 billion).

For more information, please call 03-2723 9999

www.takaful-ikhlas.com.my

More opportunities needed million) and RM1.83 billion (US$597.2 Mahmood also pointed out that the million), respectively, for 2013. initial capital of the proposed Takaful OMAN: Nassir Salim Al Busaidi, company will be dependent on the host the CEO of Oman United Insurance country’s law. Company, has called for more Bank Asya denies acquisition opportunities to be given to local talks He explained that capital of BHD5 companies to off er Takaful. TURKEY: Bank Asya has denied news million (US$13 million) will be required reports that it is involved in discussions if the Takaful operator is to be established He urged for local companies to be with Germany-based Gothaer Insurance locally, while at least BHD10 million licensed to sell Takaful, while allowing Group on the sale of its general insurance (US$27 million)-worth of capital is the entrance of foreign companies later unit, Işık Sigorta. needed, should it be formed in another to encourage the development of the Gulf state. domestic market. The bank also said that there has not been any negotiation for the sale Positive sale performance Potential to grow agreement with Gothaer regarding the MALAYSIA: AIA-AFG Takaful booked MALAYSIA: Local research house sale of Işık Sigorta’s shares. 6,000 cases with new premiums OSK Research sees strong growth for amounting to around RM20 million the domestic Takaful industry; with Takaful Emarat’s total assets (US$6.54 million) in the fi rst 10 months tremendous potential for the Life of 2011. Takaful market as demand for healthcare UAE: Takaful Emarat has reported strengthens, as well as a current low total assets of AED117.5 million (US$32 AIA-AFG Takaful, which started its penetration rate of Family Takaful. million) for the fi nancial year ended the 31st December 2011, a decrease of operation in January 2011, is a joint venture between AIA Malaysia and “The Takaful industry has been 15% from AED138.2 million (US$37.62 Alliance Bank Malaysia, a unit of Alliance experiencing strong growth in Malaysia million) a year earlier. Financial Group. during the last decade on the back of various government initiatives to Net shareholders’ equity also fell by 17% promote the country as a global Islamic to AED100.67 million (US$27.41 million), PruBSN chalks higher profit fi nancial center,” it said in a report. in comparison to AED120.65 million MALAYSIA: Prudential BSN Takaful (US$32.85 million) in 2010. has reported RM19.7 million (US$6.47 It also estimated that while the Malaysian million) in pre-tax profi t for 2011, a 41% life insurance industry is expected to New Takaful firm in the increase from 2010. grow at more than 8% per year, the making Takaful industry could grow by up Gross contributions climbed 32% to to 30% as the country becomes more BAHRAIN: Bahrain National Holding RM527.5 million (US$173 million), while familiar with the Shariah compliant (BNH), a local general insurance assets under management grew 39% to product. provider, is in talks with regional RM674.4 million (US$221 million). investors to jointly establish a new However, OSK Research expects Takaful fi rm in the kingdom or set up The company recorded a market share more competition within the industry, an operation in another Gulf state, said of 29% of the local Takaful industry with especially from bank-backed Takaful Mahmood Al Soufi , its CEO. RM231 million (US$76 million) in annual operators that are capable of distributing contribution equivalent. their product more aggressively. The announcement backs BNH’s three- year strategic plan to invest between Takaful for low-income It also forecast Syarikat Takaful Malaysia, BHD9 million (US$24 million) to BHD11 the only Takaful provider listed on million (US$29 million) in acquisitions earners the Malaysian stock exchange, to see and other opportunities across the UAE: Takaful Emarat has launched its consistent earnings growth going region. Sehat Plan, designed for low-income forward. workers earning less than AED5,000 The investments are seen as a way for (US$1,361) a month. The research house projected a net profi t BNH to increase its presence in the local of RM65 million (US$21.21 million) for market and to balance out its current Ghassan Marrouche, the CEO of Takaful the company this year; on the back of Bahrain-centric premium contributions. Emarat, said that the new product allows operating revenue of RM1.53 billion The company’s aim is to have regional the company to widen its reach and serve (US$499.26 million) and a net profi t and premiums account for at least 50% of more sectors of the market. turnover of RM71.9 million (US$23.46 total contributions by 2015.

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The evolution of Takaful models in Malaysia

MOHAMMAD MAHBUBI ALI traces the development of the various models of Shariah compliant insurance in Malaysia.

Takaful is an alternative model to share the underwriting surplus, instead same time, a Mudarabah capital. While conventional insurance, which is of a share of the profi t. Technically, Tabarru’ causes relinquishment of the prohibited in Islam as it contains the profi t from investment activity is donor’s ownership, in a Mudarabah intolerable elements such as riba, pooled into the risk fund, which, in contract the capital providers retain uncertainty (gharar) and gambling turn, will be used to pay claims and ownership of the capital. In case of a (maysir). Unlike conventional re-Takaful premiums and be channelled defi cit, does not obliging the operator to insurance, Takaful is established on the into reserves. The remaining balance inject money into the fund go against the concept of mutual assistance, mutual is treated as the underwriting surplus, essential concept of Mudarabah? security and responsibility, and mutual shared between the Takaful operators protection and assurance, incorporated and the participants at an agreed ratio. A Mudarabah contract is a trust contract into the concept of donation (Tabarru’). At this juncture, the Takaful operators in which the operator is a trustee- treat the underwriting surplus as an manager and is not a capital guarantor. In the operational context, Shariah investment profi t. In the modifi ed Mudarabah model, there scholars have identifi ed various are additional questions to be addressed: Islamic contracts, such as Tabarru’, Is it allowed for Takaful operators to take Mudarabah and Wakalah, as the basis The substantial a portion of the surplus as is practiced for various Takaful operations. Tabarru’ by their conventional counterparts? Is is considered to be the contractual criticisms the surplus equivalent to profi t? While relationship among the participants profi t is the positive outcome of business while Wakalah and Mudarabah contracts and Shariah issues activity, surplus on the other hand is the constitute the relationship between accumulation of profi t and what is left of participants and Takaful operators. associated with contributions aft er deductions for claims, reserves and re-Takaful. These contracts are used to construct the Mudarabah various models in Takaful, such as the The substantial criticisms and Shariah Mudarabah and Wakalah models. These model have pushed issues associated with the Mudarabah models were not launched concurrently; model have pushed Shariah scholars they were designed and developed Shariah scholars and industry players to search for an through a trial-and-error approach: one alternative model. Subsequently, they model was introduced to replace another and industry introduced the Wakalah model, and model in an eff ort to fi nd an ideal model Takaful operators gradually adopted for Takaful. players to search it. Under this model, the operator serves as an agent to manage the fund A trial and error approach for an alternative and, in compensation, will enjoy a Mudarabah was the fi rst model applied model pre-determined fee. The underwriting in the Malaysian Takaful industry. In this surplus, if any, will be channelled to the model, the Takaful operator serves as a participants. manager (Mudarib) while participants are the capital provider (Rab al Maal). As The use of the Mudarabah model in The Wakalah model in its pure form is Mudarib, the operator will be rewarded Takaful has provoked considerable again not really att ractive for operators with a share of the profi ts, based on a criticism. Some scholars argue that the due to the profi t consideration. Once ratio agreed up-front. The underwriting Mudarabah concept is highly suitable as again, the original model was modifi ed. surplus, if any, will be returned to the a banking model but not as an insurance In the modifi ed model, the operators, participants. In the event of a defi cit, model and that the implementation of in addition to their entitlement to the the Takaful operator should top up the the Mudarabah model will undermine Wakalah fee, are entitled to a portion fund through an interest-free loan (Qard the nature of Mudarabah. of the surplus based on the concept of Hasan). Ju’alah (performance fee). At the time the Takaful is established on the notion model was fi rst introduced, the operators The Mudarabah model, in its pure and of mutual assistance and to achieve took 90% of the surplus, with only 10% genuine form, is not really att ractive for societal goals while Mudarabah is a going to the participants. Takaful operators. The absence of surplus commercially-based contract; they are sharing makes this model unviable and two completely diff erent concepts with The same model has been applied in unprofi table from a business point of completely diff erent ultimate objectives. Saudi Arabia until the present. This too view. This model was therefore altered to The use of Mudarabah poses some has triggered many criticisms. Many become a modifi ed Mudarabah model. questions, such as whether it is possible considered the way in which surplus Unlike the pure Mudarabah model, from a Shariah perspective to treat a was being shared as exploitative and Tabarru’ contribution as being, at the under this model Takaful operators will continued...

Continued unjust. In response, the central bank of of Tabarru’ in a form that diff ers Malaysia issued guidance in the form of signifi cantly from pure Tabarru’: each Takaful operators in this model serve the Takaful Operator Framework (TOF), participant is obliged to do Tabarru’ if he as agents (Wakil) of shareholders and which limited the operators’ share to a wants to get indemnifi cation. participants to administer the fund, maximum of 50% of the surplus, with the including the claim payments. At the rest to be distributed to the participants. Conversely, the participant will only same time, they act as investment agents donate if he is entitled to indemnifi cation. to help invest the fund in Shariah- Despite the issuance of TOF, the The conclusion by many is obvious: the approved business activities. They will be practice of surplus sharing in the concept of Tabarru’ is being used to mask compensated with a certain percentage of modifi ed Wakalah model still provokes the elements of an exchange contract the pre-determined fee for underwriting many criticisms. This is because that are present in Takaful. If Takaful is a Waqf fund and a performance fee for the performance fee is based on the indeed an exchange contract, the issues investing the fund. operator’s capacity in underwriting the of riba, gharar and maysir re-emerge. risk fund. This criterion is very diffi cult However, there are, at least three main to measure and very easy to manipulate. concerns in applying the cash Waqf model in Takaful. First, the introduction For example, to generate a large surplus, The Wakalah of a cash Waqf model in Takaful claims may be made diffi cult, the reserve model in its undermines the primary objective of may be reduced and/or the re-Takaful Waqf. Ideally, the concept of Waqf portion may be minimized. Many argue pure form is again provides benefi ts for both the poor and that it would be fairer if the performance the rich. fee were based on the operator’s ability not really attractive to manage the investment fund. For Yet, in the context of Takaful, only the example, if the operator is able to for operators due rich (participants) will benefi t from the generate a profi t rate above 10%, it can Waqf fund, which departs from the noble keep the excess as a performance fee. to the profit objective for which Waqf was legislated. The hybrid model consideration Second, the infl ation and the volatility of Because of the many criticisms levelled fi at money could diminish the value of at the practice of surplus sharing in the Waqf fund, which would undermine the modifi ed Wakalah model, Shariah The diffi culty of fi nding a precise and the perpetual nature of Waqf. Thirdly, the scholars and industry players have acceptable model for Takaful demands possibility of loss in investing the Waqf developed a new model: a combination that scholars and researchers continue fund could decrease the Waqf fund’s of Mudarabah and Wakalah called ‘the exploring and searching. Muft i Taqi value, which is obviously also against the hybrid model’. The model is commonly Usmani has developed a cash Waqf concept of Waqf as perpetual. applied in Family Takaful; where the model combined with a Wakalah participants’ fund is divided into two contract, which has been successfully Conclusion pools: the participants’ risk fund (PRF) implemented in Pakistan and South The progression of Takaful models and the participants’ investment fund Africa. has been a long and zigzag journey. (PIF). Many contentious Shariah issues need .The general idea of this model is to to be sett led. Finding an ideal Takaful In this model, the Wakalah contract enable individuals to assist one another model is should be a focus for scholars, is employed to justify the contractual in the event of catastrophe, using the researchers, and industry players. relationship between the participants Waqf fund. and the operator in managing the Extensive research and deep study PRF. On the other hand, a Mudarabah Waqf fund are essential in order to arrive at contract is applied to the operator’s Under this model, the shareholders an ideal model as a basis for the role as the investment manager for the of the Takaful operator initially give operationalization of Takaful: a model PIF. As compensation, the operator will donations to establish the Waqf fund. that serves as a bridge to the achievement be entitled to a pre-determined fee for Simultaneously, participants also of the noble objectives of the Shariah. managing the PRF and a profi t share contribute donations to be put in the for managing the PIF. In this model, the Waqf fund. The views and opinions expressed in issue of surplus does not arise because this article are those of the author and do all surpluses will be returned back to the In this sense, the Waqf fund comes from not necessarily refl ect the offi cial policy participants. two sources: the shareholder’s fund and or position of ISRA and should not be the participant’s fund. The fund is then att ributed to it. Notwithstanding the above, the invested in Shariah compliant business introduction of the hybrid model still activities. If any of the participants were Mohammad Mahbubi Ali is a researcher at does not solve the most contentious to experience misfortune, the profi t the International Shari’ah Research Academy Shariah issue in Takaful operations. The generated from the Waqf fund will be for Islamic Finance (ISRA). He can be core problem in Takaful is the application used to assist them. contacted at [email protected].

Will more cross-border agreements between Islamic financial centers help to increase the trading of Islamic securities?

Cross border agreements can Having agreements between regulators Cross border agreements between A facilitate more trading in Sukuk is not suffi cient to ensure market A Islamic fi nancial centers will have securities and investment in Islamic participants will become more active. some impact on the trading in Islamic funds. It is of course helpful to have Ultimately it depends on willing issuers securities as the endorsement provides regulators from diff erent Islamic fi nance and willing investors. Currency is also a additional comfort to investors to . centers reaching agreement on the listing factor, as most Malaysian Sukuk are local However, this would only apply to and trading requirements for Sukuk. currency denominated, only a few are in Islamic investors. In addition, investors US dollars and none are in Euros or other in general will still need to be willing to The obvious partner for the Malaysian currencies such as Hong Kong dollars invest outside their own jurisdiction, and Securities Commission is Nasdaq Dubai or yen. The advantage of cross listing is although a cross border agreement may as it has a regional and international that it att racts a wider pool of investors help, in itself it is unlikely to be suffi cient focus and considerable potential to and helps increase market depth. This to persuade them. expand its business given the increasing however takes time. investor confi dence in Dubai with DR NATALIE SCHOON the problems of 2008 and 2009 being RODNEY WILSON Principal consultant, Formabb successfully resolved. Emeritus professor, Durham University

Next Forum Question:

What infl uence has Islamic fi nance had on the corporate governance practices of the wider fi nancial industry?

If you would like to air your views on the next Forum Question, please email your response of between 50 and 300 words to Christina Morgan, forum editor, at: [email protected] before the 14th April 2012.

briefings Delinking from Conventional Finance Pricing for Islamic Financial Instruments 18th June 2012, Dubai

Beneﬁ t from the Knowledge and Experience of your Expert Panel of Speakers:

• Dr Nasser H. Saidi — Chief Economist, Dubai International Financial Centre Authority (DIFC) & Executive Director Hawkamah Institute for Corporate Governance • Basheer Ahmad — Senior Manager, Markets, Dubai Financial Services Authority (DFSA) • Sheikh Yusuf Talal DeLorenzo — Shariah Scholar • Sayd Farook — Global Head Islamic Capital Markets, Thomson Reuters • Sohail Zubairi — Chief Executive Ofﬁ cer, Dar Al Sharia Legal & Financial Consultancy LLC • Haaris Masood — Vice President, DCM – MENA, Barclays Capital • Giambattista Atzeni — Vice President and MENA Business Manager, BNY Mellon Corporate Trust

For further details, please contact us at: Phone : +603 2162 7800 ext 28 Fax: +603 2162 7810 Email: info@islamicfi nancebriefi ngs.com Website: www.islamicfi nancebriefi ngs.com

• We also play an important role in Dr Shahinaz Hanem providing awareness and educating the customers; especially the small Rashad Abdellatif and medium-sized enterprises across all the governorates. general manager & executive director, What are the factors contributing to the success of global Islamic your company? A professional team of fi nancial finance consulting advisors with extensive know-how and backgrounds in various and well- & training division, diversifi ed fi nancial products.

Metropolitan In addition, the company has a wide pool of local and international networks Consultancy among clients on the one hand and investors/banking and non-banking fi nancial institutions on the other. In this Dr Shahinaz Hanem Rashad regard, the company has signed several Abdellatif is a graduate of the MOUs with local and international American University in Cairo, fi nancial institutions. Egypt, and holds a Bachelor of Arts (Honors) degree. She also has a What are the obstacles faced Masters in Business Administration in running your business (distinction) from Heriot Watt today? University, UK. One of the obstacles is the inability of Sukuk issuance, project fi nance, private some customers to diff erentiate between Could you provide a brief equity and venture capital transactions conventional and Islamic fi nance in Egypt. across the Middle East. journey of how you arrived Where do you see the Islamic where you are today? Meanwhile, Metropolitan Consultancy I was the vice-president of the has a division specializing in fi nancial fi nance industry in the next International Company for Leasing training under the name of the fi ve years? and the general manager for Upper Metropolitan Academy for accredited I expect more awareness about the Egypt for Leasing for 14 years. My Islamic fi nance and SMEs training. signifi cance of Islamic fi nance as main responsibility was to manage lease an alternative source of fi nance. portfolios for both corporate and small What is your greatest Accordingly, it is foreseen that the and medium-sized enterprises as well as Islamic fi nance industry shall permeate arranged syndications with prominent achievement to date? the developing markets in the Middle banks and other leasing companies Establishing several leasing companies East (especially Egypt, Libya, Tunisia, across several sectors. and founding several associations Maghreb, etc) and compete with its including the Egyptian Leasing conventional counterpart. I am also the founder and a board Association, and being an advocate for member of several associations as well as Islamic fi nance in Egypt. I anticipate that the global Islamic the chairperson of the Egyptian Leasing fi nance community will strive for more Association, which is the only specialized Which of your products/ consistency in terms of accounting rules, association that includes the majority services deliver the best Shariah governance, a supportive legal of conventional and Islamic bank- and regulatory environment and a strong related, independent and captive leasing results? judicial system. Thus, we should expect companies in Egypt. The product that delivers the best results more facilitation by allowing for Shariah is the Ijarah private equity. courts rather than civil courts. I also obtained an advanced diploma in Islamic fi nance from the Chartered What are the strengths of your Name one thing you would Institute of Management Accountants in business? like to see change in the 2010. • A well diversifi ed business model that encompasses a variety of world of Islamic fi nance. What does your role involve? fi nancial services (Islamic banking, Global standardization of Islamic The company acts as a global fi nancial leasing, private equity, etc). fi nance practices in general and product advisor for several fi nancial products • Global advisory services to allow structuring, risk management tools, such as dual banking, syndications and local borrowers and investors/ AAOIFI accounting, legal and Shariah structured Islamic fi nance: namely Ijarah, fi nancial institutions to meet. governance in particular; as well as the proliferation of Shariah scholars.

DATE ISSUER SIZE ANNOUNCED IFN Correspondents AFGHANISTAN: Zulfi qar Ali Khan State Bank of Pakistan TBA 2nd April 2012 head of Islamic banking division, fi nancial supervision department, Da Afghanistan Bank Saudi Aramco TBA 2nd April 2012 AUSTRALIA: Gerhard Bakker director, Madina Village Development Bank of Kazakhstan US$500 million 30th March 2012 BAHRAIN: Dr Hatim El-Tahir director, Islamic Finance Knowledge Centre, Deloitt e & Ethical Asset Management TBA 30th March 2012 Touche BANGLADESH: Md Shamsuzzaman National Australia Bank US$500 million 29th March 2012 executive vice president, Islami Bank Bangladesh BERMUDA: Belaid A Jheengoor Jebel Ali Free Zone AED2.4 billion 21st March 2012 director of asset management, PwC BRUNEI: James Chiew Siew Hua Indonesia sovereign TBA 20th March 2012 senior partner, Abrahams Davidson & Co CANADA: Jeff rey S Graham Yemen sovereign US$232 million 20th March 2012 partner, Borden Ladner Gervais EGYPT: Dr Walid Hegazy Saudi Electricity Company TBA 19th March 2012 managing partner, Hegazy & Associates FRANCE: Antoine Saillon Noble Group, Hong Kong RM3 billion 15th March 2012 head of Islamic fi nance, Paris Europlace HONG KONG & CHINA: Anthony Chan Kiler Group US$100 million 12th March 2012 partner, Brandt Chan & Partners in association with SNR Denton Dubai Investments US$200 million 12th March 2012 INDIA: Keyur Shah partner, KPMG Kazakhstan sovereign US$1 million 8th March 2012 INDONESIA: Rizqullah president director, BNI Syariah Encorp System Bilt RM1.58 billion 8th March 2012 IRAN: Majid Pireh Islamic fi nance expert, SEO First Community Bank KES2 billion 8th March 2012 IRAQ: Khaled Saqqaf partner and head of Jordan & Iraq offi ces, Al Tamimi & Co Pakistan sovereign TBA 7th March 2012 IRELAND: Ken Owens Shariah funds assurance partner, PwC Ireland Syarikat Prasarana Negara RM4 billion 6th March 2012 JAPAN: Serdar A. Basara president, Japan Islamic Finance CIMB Singapore SG$100 million 2nd March 2012 JORDAN: Khaled Saqqaf partner and head of Jordan & Iraq offi ces, Al Tamimi & Co Kingdom Holding TBA 1st March 2012 KAZAKHSTAN: Timur Alim area manager, Al Hilal Bank Qatar Petroleum TBA 27th February 2012 KOREA: Yong-Jae Chang partner, Lee & Ko Acwa Power US$800 million 27th February 2012 KUWAIT: Alex Saleh partner, Al Tamimi & Company South Africa sovereign US$500 million 23rd February 2012 LUXEMBOURG: Marc Theisen partner, Theisen Law Maybank RM7 billion 22nd February 2012 MALAYSIA: Nik Norishky Thani head special projects (Islamic), PNB th MAURITIUS: Sameer K Tegally Oman Arab Bank OMR10 million 20 February 2012 associate, Conyers Dill & Pearman th NEW ZEALAND: Dr Mustafa Farouk Yemen sovereign TBA 20 February 2012 counsel member for Islamic fi nancial institutions, FIANZ th OMAN: Anthony Watson Kuwait Finance House, Turkey TBA 18 February 2012 senior associate, Al Busaidy Mansoor Jamal & Co th PAKISTAN: Bilal Rasul Maxis RM2.45 billion 17 February 2012 director (enforcement), SEC of Pakistan th QATAR: Jaime Oon Egypt sovereign TBA 6 February 2012 solicitor, Eversheds th SAUDI ARABIA: Nabil Issa Development Bank of Kazakhstan TBA 6 February 2012 partner, King & Spalding rd SINGAPORE: Yeo Wico, Turkey sovereign TBA 3 February 2012 partner, Allen & Gledhill th SRI LANKA: Roshan Madewala Musteq Hydro RM80 million 24 January 2012 director/CEO, Research Intelligence Unit th SWITZERLAND: Khadra Abdullahi General Authority for Civil Aviation TBA 24 January 2012 associate of investment banking, Faisal Private Bank th UK: Dr Natalie Schoon Indonesian fi nance ministry IDR2 trillion 24 January 2012 Formabb rd YEMEN: Moneer Saif Albaraka Turk Katilim Bankasi US$200 million 23 January 2012 head of Islamic banking, CAC Bank AirAsia X US$200 million 17th January 2012 1Malaysia TBA 16th January 2012 IFN Correspondents are experts in their respective fi elds and HSBC Amanah TBA 12th January 2012 are selected by Islamic Finance th Bank Muamalat Indonesia IDR1.25 trillion 9 January 2012 news to contribute designated Sudan sovereign TBA 3rd January 2012 short country reports Malaysian Airline System and Air Asia RM12 billion 23rd December 2011 Emery Oleochemicals Group US$151 million 20th December 2011 Saudi Arabia sovereign TBA 13th December 2011 For more information KMCOB Capital RM343.1 million 5th December 2011 about becoming an IFN th Emirates NBD TBA 29 November 2011 Correspondent please Solum Asset Management TBA 27th November 2011 contact Bank Syariah Mandiri IDR500 billion 18th November 2011 sasikala@ UEM Group & EPF RM33 billion 17th November 2011 redmoneygroup. Abu Dhabi Islamic Bank US$500 million 9th November 2011 com

REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 1110 950

1018 880

926 810

834 740

742 670

650 600 Oct Nov Dec Jan Feb Mar Apr Oct Nov Dec Jan Feb Mar Apr

REDmoney GCC 6 Months REDmoney Global 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 780 1200

724 1096

668 992

612 888

556 784

500 680 Oct Nov Dec Jan Feb Mar Apr Oct Nov Dec Jan Feb Mar Apr

REDmoney MENA 6 Months REDmoney US 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 750 1670

700 1496

650 1322

600 1148

550 974

500 800 Oct Nov Dec Jan Feb Mar Apr Oct Nov Dec Jan Feb Mar Apr

SAMI Halal Food Participation (All Cap) 6 months

2000

1825

1650

1475

1300 Oct-2011 Nov-2011 Dec-2011 Jan-2012 Feb-2012 Mar-2012 Apr-2012

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

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

980 890

860 780

740 670

620 560

500 450 Oct Nov Dec Jan Feb Mar Apr Oct Nov Dec Jan Feb Mar Apr

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

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

1460 1260

1220 1070

980 880

740 690

500 500 Oct Nov Dec Jan Feb Mar Apr Oct Nov Dec Jan Feb Mar Apr

REDmoney Global Shariah

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

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

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

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

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

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

Most Recent Global Sukuk

Priced Issuer Nationality Instrument Market US$ (mln) Managers 28th Mar 2012 Saudi British Bank Saudi Arabia Sukuk Domestic market 400 HSBC private placement 28th Mar 2012 Aman Sukuk Malaysia Sukuk Domestic market 441 Lembaga Tabung Haji, RHB Capital, CIMB public issue Group, AmInvestment Bank, Maybank Investment Bank 27th Mar 2012 Saudi Electricity Saudi Arabia Sukuk Euro market 1,750 Deutsche Bank, HSBC public issue 21st Mar 2012 Cagamas Malaysia Sukuk Domestic market 163 RHB Capital, AmInvestment Bank public issue

12th Mar 2012 DRB-HICOM Malaysia Sukuk Domestic market 123 Maybank Investment Bank private placement 7th Mar 2012 Almara Saudi Arabia Sukuk Domestic market 267 HSBC private placement 7th Mar 2012 Tanjung Bin Energy Malaysia Sukuk Domestic market 1,089 HSBC, OCBC, RHB Capital, DRB-HICOM, Issuer private placement CIMB Group, Aﬃ n Investment Bank, Maybank Investment Bank 22nd Feb 2012 DRB-HICOM Malaysia Sukuk Domestic market 232 Maybank Investment Bank private placement 31st Jan 2012 MAF Sukuk UAE Sukuk Wakalah Euro market 400 Standard Chartered, HSBC, Dubai Islamic public issue Bank, Abu Dhabi Islamic Bank

17th Jan 2012 General Authority Saudi Arabia Sukuk Domestic market 4,000 HSBC for Civil Aviation private placement 12th Jan 2012 Tamweel UAE Sukuk Euro market 300 Standard Chartered, Dubai Islamic Bank, public issue Citigroup 11th Jan 2012 FGB Sukuk UAE Sukuk Wakalah Euro market 500 Standard Chartered, HSBC, National Bank of public issue Abu Dhabi, Citigroup 11th Jan 2012 Sarawak Energy Malaysia Sukuk Domestic market 796 RHB Capital, Kenanga Investment Bank, public issue AmInvestment Bank 10th Jan 2012 EIB Sukuk UAE Sukuk Euro market 500 Standard Chartered, HSBC, RBS, National public issue Bank of Abu Dhabi, Citigroup, Emirates NBD 16th Dec 2011 Projek Lebuhraya Malaysia Sukuk Domestic market 6,155 RHB Capital, CIMB Group, AmInvestment Usahasama private placement Bank, Maybank Investment Bank 16th Dec 2011 Projek Lebuhraya Malaysia Sukuk Domestic market 3,455 CIMB Group, AmInvestment Bank, Maybank Usahasama private placement Investment Bank 5th Dec 2011 Gulf International Bahrain Sukuk Euro market 300 JPMorgan Bank private placement 28th Nov 2011 DRB-HICOM Malaysia Sukuk Domestic market 132 Maybank Investment Bank private placement 24th Nov 2011 ANIH Malaysia Sukuk Domestic market 786 CIMB Group, Maybank Investment Bank private placement 22nd Nov 2011 ADIB Sukuk UAE Sukuk Euro market 500 Standard Chartered, Nomura, HSBC, public issue National Bank of Abu Dhabi , Abu Dhabi Islamic Bank, Citigroup

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

US$ bn Value (US$ bn) Avg Size (US$ m) US$ m US$ bn Value (US$ bn) Avg Size (US$ m) US$ m 12 1200 18 600 16 10 1000 500 14 800 8 12 400 6 600 10 300 4 400 8 6 200 2 200 4 100 0 0 2 12345678910111212 3 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2011 2012 2007 2008 2009 2010 2011 2012

Top 30 Issuers of Global Sukuk 12 Months Issuer Nationality Instrument Market US$ (mln) Iss Managers 1 Projek Lebuhraya Malaysia Sukuk Domestic market 9,610 2 RHB Capital, CIMB Group, Usahasama private placement AmInvestment Bank, Maybank Investment Bank 2 General Authority for Civil Saudi Sukuk Domestic market 4,000 1 HSBC Aviation Arabia private placement 3 Pengurusan Air SPV Malaysia Sukuk Murabahah Domestic market 2,388 3 HSBC, CIMB Group, Maybank public issue Investment Bank 4 Wakala Global Sukuk Malaysia Sukuk Euro market 2,000 1 HSBC, CIMB Group, Citigroup, public issue Maybank Investment Bank 5 Sarawak Energy Malaysia Sukuk Domestic market 1,783 2 RHB Capital, AmInvestment Bank, public issue Kenanga Investment Bank 6 Saudi Electricity Saudi Sukuk Euro market 1,750 1 Deutsche Bank, HSBC Arabia public issue 7 Manjung Island Energy Malaysia Sukuk Ijarah Domestic market 1,545 1 Lembaga Tabung Haji, CIMB Group public issue 8 Tanjung Bin Energy Issuer Malaysia Sukuk Domestic market 1,089 1 HSBC, OCBC, RHB Capital, DRB- private placement HICOM, CIMB Group, Aﬃ n Investment Bank, Maybank Investment Bank 9 Perusahaan Penerbit SBSN Indonesia Sukuk Ijarah Euro market 1,000 1 Standard Chartered, HSBC, Citigroup Indonesia II public issue 10 Aman Sukuk Malaysia Sukuk Musharakah Domestic market 812 2 Lembaga Tabung Haji, RHB Capital, public issue CIMB Group, AmInvestment Bank, Maybank Investment Bank 11 ANIH Malaysia Sukuk Domestic market 786 1 CIMB Group, Maybank Investment Bank private placement 12 Kingdom of Bahrain Bahrain Sukuk Euro market 750 1 Standard Chartered, BNP Paribas, public issue Citigroup 12 Islamic Development Bank Saudi Sukuk Euro market 750 1 Standard Chartered, Deutsche Bank, Arabia public issue BNP Paribas, HSBC 14 Syarikat Prasarana Negara Malaysia Sukuk Ijarah Domestic market 667 1 CIMB Group, Maybank Investment Bank public issue 15 First Gulf Bank UAE Sukuk Wakalah Euro market 650 1 Standard Chartered, HSBC, Citigroup public issue 16 HSBC Bank Middle East UK Sukuk Euro market 500 1 HSBC public issue 16 FGB Sukuk UAE Sukuk Wakalah Euro market 500 1 Standard Chartered, HSBC, National public issue Bank of Abu Dhabi, Citigroup 16 EIB Sukuk UAE Sukuk Euro market 500 1 Standard Chartered, HSBC, RBS, public issue National Bank of Abu Dhabi, Citigroup, Emirates NBD 16 Abu Dhabi Commercial Bank UAE Sukuk Euro market 500 1 Standard Chartered, JPMorgan, Abu public issue Dhabi Commercial Bank, Bank of America Merrill Lynch 16 ADIB Sukuk UAE Sukuk Euro market 500 1 Standard Chartered, Nomura, HSBC, public issue National Bank of Abu Dhabi, Abu Dhabi Islamic Bank, Citigroup 21 DRB-HICOM Malaysia Sukuk Domestic market 486 3 Maybank Investment Bank private placement 22 Saudi International Saudi Sukuk Domestic market 480 1 Deutsche Bank, Riyad Bank Petrochemical Arabia public issue 23 Cagamas Malaysia Sukuk Domestic market 408 10 AmInvestment Bank, CIMB Group, public issue Maybank Investment Bank, RHB Capital 24 Sharjah Islamic Bank UAE Sukuk Euro market 400 1 Standard Chartered, HSBC public issue 24 MAF Sukuk UAE Sukuk Wakalah Euro market 400 1 Standard Chartered, HSBC, Dubai public issue Islamic Bank, Abu Dhabi Islamic Bank 26 Saudi British Bank Saudi Sukuk Domestic market 400 1 HSBC Arabia private placement 27 Kuveyt Turk Katilim Bankasi Turkey Sukuk Euro market 350 1 Standard Chartered, HSBC, KFH, Abu public issue Dhabi Islamic Bank, Commerzbank Group 28 Tamweel UAE Sukuk Euro market 300 1 Standard Chartered, Dubai Islamic Bank, public issue Citigroup 28 Gulf International Bank Bahrain Sukuk Euro market 300 1 JPMorgan private placement 30 Putrajaya Holdings Malaysia Sukuk Musharakah Domestic market 294 2 CIMB Group, AmInvestment Bank, private placement Maybank Investment Bank, RHB Capital Total 40,134 114

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

Manager US$ (mln) Iss % Malaysian ringgit 22.3 1 HSBC 8,350 18 20.8 2 Maybank Investment Bank 7,174 33 17.9 US dollar 9.4

3 CIMB Group 7,129 29 17.8 Saudi riyal 4.7 4 AmInvestment Bank 4,917 30 12.3 Singapore dollar 0.0 5 RHB Capital 2,750 20 6.9 6 Standard Chartered Bank 1,874 12 4.7 Sukuk Volume by Issuer Nation US$ (billion) 12 Months 7 Citigroup 1,692 8 4.2 8 Deutsche Bank 1,302 3 3.3 Malaysia 24.0 9 Lembaga Tabung Haji 935 3 2.3 Saudi Arabia 5.5 UAE 3.8 10 BNP Paribas 438 2 1.1 Bahrain 1.1 11 JPMorgan 425 2 1.1 Indonesia 1.0 12 Aﬃ n Investment Bank 334 5 0.8 UK 0.5 13 OCBC 329 7 0.8 Turkey 0.4 14 National Bank of Abu Dhabi 292 3 0.7 15 Kenanga Investment Bank 265 1 0.7 Global Sukuk Volume by Sector 12 Months 16 Abu Dhabi Islamic Bank 253 3 0.6

17 DRB-HICOM 250 5 0.6 8% 6% 18 Riyad Bank 240 1 0.6 Construction 28% Government 19 Dubai Islamic Bank 200 2 0.5 17% Finance 20 Hong Leong Bank 141 4 0.4 Utility & Energy 21 Bank of America Merrill Lynch 125 1 0.3 Transportation 20% Other 21 Abu Dhabi Commercial Bank 125 1 0.3 21% 23 KFH 109 2 0.3 24 Public Bank 108 3 0.3 25 RBS 83 1 0.2 Global Sukuk Volume - US$ Analysis 25 Nomura 83 1 0.2 US$ bn US$ Non-US$ 25 Emirates NBD 83 1 0.2 18 16 28 Commerzbank Group 70 1 0.2 14 29 Malaysian Industrial Development 40 1 0.1 12 10 Finance 8 30 OSK 16 3 0.0 6 4 Total 40,134 114 100.0 2 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Top Islamic Finance Related Project Finance Mandated Lead 2007 2008 2009 2010 2011 2012 Arrangers 12 Months

Mandated Lead Arranger US$ (million) No % Top Islamic Finance Related Project Financing Legal Advisors 1 Samba Financial Group 592 4 6.2 Ranking 12 Months 2 Public Investment Fund 463 2 4.9 Legal Advisor US$ (million) No % 3 Arab National Bank 463 2 4.9 1 Allen & Overy 4,198 2 23.9 2 Skadden Arps Slate Meagher & 3,281 1 18.7 4 HSBC Holdings 447 3 4.7 Flom 5 Sumitomo Mitsui Financial Group 404 2 4.2 2 White & Case 3,281 1 18.7 6 Banque Saudi Fransi 386 2 4.1 4 Al-Jadaan & Partners Law Firm 1,200 1 6.8 7 KfW Bankengruppe 369 2 3.9 4 Baker & McKenzie 1,200 1 6.8 4 Cliﬀ ord Chance 1,200 1 6.8 8 Mitsubishi UFJ Financial Group 360 1 3.8 7 Baker Bott s 917 1 5.2 9 Saudi British Bank 324 1 3.4 7 Chadbourne & Parke 917 1 5.2 10 Australia & New Zealand Banking 289 1 3.0 9 Afridi & Angell 267 1 1.5 Group 9 Herbert Smith Gleiss Lutz Stibbe 267 1 1.5 10 Mizuho Financial Group 289 1 3.0 9 Latham & Watkins 267 1 1.5

Top Islamic Finance Related Loans Mandated Lead Arrangers Top Islamic Finance Related Loans Deal List 12 Months Ranking 12 Months Credit Date Borrower Nationality US$ (mln) Mandated Lead Arranger US$ (mln) No % 13th Dec 2011 Barzan Gas Qatar 5,442 1 Samba Capital 916 4 9.4 12th Feb 2012 Mobily Saudi 2,667 2 Saudi British Bank 814 3 8.3 Arabia 3 Banque Saudi Fransi 664 2 6.8 2nd Dec 2011 Hajr for Electricity Saudi 1,981 4 HSBC 554 5 5.7 Production Arabia 5 Al-Rajhi Banking & Investment 513 2 5.2 15th Oct 2011 Maaden Bauxite & Saudi 929 Alumina Arabia 6 Saudi Hollandi Bank 444 1 4.5 th 6 Riyad Bank 444 1 4.5 15 Sep 2011 Dubai Ports World UAE 850 th 8 Deutsche Bank 321 4 3.3 18 Jul 2011 Pembinaan BLT Malaysia 822 rd 9 Citigroup 316 8 3.2 23 Jun 2011 Salik One Spc UAE 800 th 10 Noor Islamic Bank 297 3 3.0 17 May 2011 Emaar Properties UAE 699 11 Barwa Bank 266 2 2.7 27th Feb 2012 Government of Dubai UAE 675 12 Maybank Investment Bank 264 2 2.7 23rd May 2011 Natrindo Telepon Indonesia 450 Seluler 13 Standard Chartered Bank 260 5 2.7 14 RBS 233 1 2.4 Top Islamic Finance Related Loans by Country 12 Months 15 Saudi National Commercial Bank 219 1 2.2 Nationality US$ (mln) No % 15 Arab National Bank 219 1 2.2 1 Saudi Arabia 4,177 4 42.7 17 Abu Dhabi Islamic Bank 219 5 2.2 2 UAE 2,048 8 21.0 18 CIMB Group 216 2 2.2 3 Malaysia 926 2 9.5 19 Qatar Islamic Bank 213 1 2.2 4 Qatar 850 1 8.7 19 Qatar International Islamic Bank 213 1 2.2 5 Turkey 689 4 7.1 19 Masraf Al Rayan 213 1 2.2 6 Indonesia 601 4 6.1 22 Arab Banking Corporation 172 4 1.8 7 Pakistan 203 4 2.1 23 RHB Capital 164 1 1.7 8 China 93 1 1.0 23 Lembaga Tabung Haji 164 1 1.7 9 Kuwait 87 1 0.9 23 AmInvestment Bank 164 1 1.7 10 Russian Federation 60 1 0.6 26 Emirates NBD 160 3 1.6 Top Islamic Finance Related Loans by Sector 12 Months 27 Bank of America Merrill Lynch 126 3 1.3 28 Bank of China 93 1 1.0 Telecommunications

29 Al Hilal Bank 70 2 0.7 Utility & Energy 30 Bank Al-Jazira 68 1 0.7 Finance 30 Alinma Bank 68 1 0.7 Oil & Gas Top Islamic Finance Related Loans Mandated Lead Arrangers 12 Months Real Estate/Property Bookrunner US$ (mln) No % US$ bln0 124 3

1 Citigroup 309 6 3.2 Global Islamic Loans - Years to Maturity (YTD Comparison) 2 HSBC 305 2 3.1 2011 3 Abu Dhabi Islamic Bank 267 5 2.7 2010 4 Samba Capital 233 1 2.4 2009 4 RBS 233 1 2.4 2008 6 Standard Chartered Bank 165 3 1.7 2007 7 Emirates NBD 122 2 1.2 2006 8 Maybank Investment Bank 100 1 1.0 2005 9 Bank of China 93 1 1.0 0% 20% 40% 60% 80% 100% 0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs 10 National Bank of Kuwait 87 1 0.9

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

16th — 17th April 2012 30th May 2012 1st – 2nd October 2012 IFN Indonesia Forum IFN Roadshow Hong Kong IFN Asia Forum 2012 Jakarta (REDmoney events) Hong Kong (REDmoney events) Kuala Lumpur (REDmoney events)

16th — 17th April 2012 5th — 6th June 2012 10th – 11th October 2012 The 7th Annual World Takaful Conference The 3rd Annual World Islamic Banking The 2nd Annual International Summit Dusit Thani, Dubai (MEGA Events) Conference: Asia Summit on Islamic Corporate Finance Singapore (MEGA Events) Abu Dhabi (MEGA Events) 18th April 2012 th st The 2nd Annual Middle East Islamic 11th June 2012 30 – 31 October 2012 Finance and Investment Conference IFN Roadshow Thailand IFN Europe Forum 2012 Dusit Thani, Dubai (MEGA Events) Bangkok (REDmoney events) London, UK (REDmoney events) 12th – 13th November 2012 8th May 2012 11th — 12th June 2012 IFN Saudi Arabia Forum IFN Roadshow Australia rd The 3 Annual World Takaful Riyadh (REDmoney events) Sydney (REDmoney events) Conference: Family Takaful Summit Kuala Lumpur (MEGA Events) 20th — 21st November 2012 9th — 10th May 2012 th International Islamic Accounting and The 7 Asia Takaful Conference th th 13 — 14 June 2012 Finance Conference 2012 Singapore (Asia Insurance Review) st The 1 International Forum for Islamic Kuala Lumpur (Accounting Research Banks and Financial Institutions th th Institute) 15 — 17 May 2012 Amman, Jordan (Strategy for Business The 9th Islamic Financial Services Board Development & CIBAFI) th Summit, Istanbul (IFSB) 26 November 2012 IFN Roadshow Brunei st th th 21 June 2012 Brunei (REDmoney events) 17 — 18 May 2012 IFN Roadshow Japan KAZANSUMMIT 2012 Tokyo (REDmoney events) 3rd December 2012 Kazan, Russia (Linova-Media) IFN Roadshow Egypt, Cairo (REDmoney events) 29th June — 1st July 2012 st nd 21 — 22 May 2012 International Conference of Islamic th th 6 December 2012 The 8 Annual World Islamic Funds Economics and Business IFN Roadshow Turkey and Financial Markets Conference Melaka, Malaysia (UiTM (Johor) & Istanbul (REDmoney events) Bahrain (MEGA Events) Universitas Indonesia) 9th — 11th December 2012 th th 29th — 30th May 2012 10 — 11 July 2012 The 19th Annual World Islamic Banking rd The 8th Annual Middle East Project The 3 Annual Asia Islamic Banking Conference, Bahrain (MEGA Events) Finance Forum, Dubai (Fleming Gulf) Conference, Kuala Lumpur (Fleming Gulf)

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Crescent Wealth 9, 34, 36 Maybank 11, 22, 23 Company Page Dar Al Istithmar 10 Merit Commodity Partners 35 AAOIFI 1, 3, 4, 45 DBS Group Holdings 11 MetroGold 8 Absa Capital 37 Deutsche Bank 12, 20, 30 Metropolitan Consultancy 45 Abu Dhabi Commercial Bank 12 Deutsch-Ostafricanische Bank 31 Moody’s 5 Abu Dhabi Islamic Bank 7, 13 DIB Sukuk Company 13 Mubadala Development Company 8 Agency of the Republic of Kazakhstan on Regulation 9 DIFC Investments 14 Nasdaq Dubai 10 Agrobank 23 Dubai Bank 13 National And Grindlays Bank 31 Ahli United Bank Kuwait 10 Dubai Duty Free 13 National Australia Bank 9 AIA-AFG Takaful 41 Dubai Financial Services Authority 13 National Bank of Commerce 32 Al - Ijarah Indonesia Finance 9 Dubai Islamic Bank 7, 12, 13 Al Tamimi & Co 17 Duxton Investments 11 National Bank of Kuwait 12 Al-Ahlia Holding Company 14 Economic Fund for National Entrepreneurs Group23, 24, 25 National Bank of Kuwait Bahrain 10 Albar & Partners 22 Egyptian Leasing Association 45 National Bank of South Africa 31 Albaraka Turk Participation Bank 10 Emirates Islamic Bank 13 National Microﬁ nance Bank 32 Alif Investments 14 Emirates NBD 12, 13, 14 Noble Group 9 Alliance Bank 23, 41 EONCAP Islamic Bank 23 Noor Islamic Bank 14 Alliance Financial Group 11, 41 Ernst & Young 9, 33 Oman United Insurance Company 41 Alliance Islamic Bank 11 Ethical Asset Management 36 OSK Research 41 Alpha Lease & Finance Holding 9 Export-Import Bank of Korea 13 Ott oman Bank 31 Amana Bank 33 Family Bank 12 Participation Banks Association of Turkey 10 Amana Bank Tanzania 33 Fullerton Financial Holdings 11 Pembinaan BLT 8 Amanah Ikhtiar Malaysia 23, 24 General Authority of Civil Aviation 14 People’s Bank of Zanzibar 32 AmBank 8, 13, 23 Global Capital and Development 8 Prudential BSN Takaful 41 American University in Cairo 45 Global Investment House 14, 20 Public Bank 23 AmInvestment Bank 7 Global Investment House 21 Qatar Islamic Bank 14 AMMB Holdings 41 Goldman Sachs 10 RAM 16 Anglo Egyptian Bank 31 Gothaer Insurance Group 41 Reserve Bank of India 7 Aon Hewitt 35 Grameen Bank 24 RHB Investment Bank 7 Aon Master Trust 35 Gulf African Bank 7 RHB Islamic Bank 24 Arcapita Bank 9 Heriot Watt University 45 S&P 12 Asian Development Bank 10 Hong Kong Stock Exchange 15 Saudi Aramco 13 Asian Institute of Finance 25 HSBC 9, 10, 12, 20, 22 Saudi British Bank 12 AT Kearney 16 HSBC Bank Middle East 13, 14 Bahrain National Holding 41 HSBC Holdings 13 Saudi Electricity Company 12 Bain & Company 14 HSBC Saudi Arabia 12 Securities and Exchange Commission of Pakistan 17, 18, 26 Bank Alfalah 8 IDB 9, 10 Securities Commission Malaysia 8 Bank Asya 10, 41 IFSB 1, 3, 5, 6, 9, 10 Stand Barclays Bank 31 Bank Danamon 11 IIFM 1, 3, 4, 6, 7 Standard Chartered 12, 14, 20 Bank Danamon Syariah 11 IIRA 12 State Bank of Pakistan 7, 18 Bank Islam Malaysia 24, 26 INCEIF 9 Supervision of Financial Markets and Financial Bank Muamalat Malaysia 24 Institute of Islamic Banking and Insurance 33 Organizations 9 Bank Muamalat Indonesia 9 International Company for Leasing 45 Syarikat Takaful Malaysia 41 Bank Negara Malaysia 9, 11, 13, 24, 25 International Financial Advisors 14 Tadawul 16 Bank of Baroda 31 Investment Corporation of Dubai 13 Takaful Emarat 41 Bank of India 31 IRADA 7 Tanjung Bin Energy Issuer 22 Bank of Khartoum 7 ISDA 4, 6, 7 Tanzania Housing Bank 32 Bank of Tanzania 34 Işık Sigorta 41 Tanzania Investment Bank 32 Bank Rakyat 23, 24 Islamic Bank of Britain 29 Tanzania Postal Bank 32 Bank Simpanan Nasional 23 JCR-VIS 12 Tata Consultancy Services 8 BLME 3 Jebel Ali Free Zone 12 The Development Bank of Kazakhstan 8 BNP Paribas 10 John Keells Holdings 7 The Investment Dar 14 Bonds Pricing Agency Malaysia 26, 28 Jordan Islamic Bank 12 The Islamic Bank of Asia 11 Booz Company 21 Khazanah Nasional 7 The Islamic Bank of Thailand 7 Boubyan Bank 9 King & Spalding 19 The Rohatyn Group 36 Brinks 37 Kingdom Holding Company 12 The Royal Bank of Scotland 9 Bursa Malaysia 41 Korea Development Bank 10 Thomson Reuters 26 Cagamas 7, 13 KPMG 1 CapAsia 36 Kuveyt Türk Participation Bank 10 Trans Thai-Malaysia 12 Capital Advisors Partners Asia 36 Kuwait Finance House 7, 8, 14, 20 Turkish Petroleum Corporation 10 Central Bank of Sudan 7 Kuwait Finance House Malaysia 21 Türkiye Finans Participation Bank 10 Central Bank of the UAE 12 Kuwait Stock Exchange 14 UBL Fund Managers 36 Chartered Institute of Management Accountants 45 Lloyds Banking Group 14 United Bank of Africa 32 CIMB 11, 20, 23 Lloyds TSB Middle East 14 United Gulf Bank 14 CIMB Group Holdings 9 London Metal Exchange 35 United Overseas Bank 23 CIMB Islamic 1, 3, 7 London Stock Exchange 29, 30 University of Chicago 20 CIMB Strategic Assets 36 Lotus Capital 9 Upper Egypt for Leasing 45 Citigroup 12, 13 LUKOIL Oil Company 10 Vertical Theme 11 Commercial Bank of Africa 31 Malakoﬀ Corporation 22 Volotrust & Corporate Services 36 Cooperative and Rural Development Bank 32 Malaysian Takaful Association 16 World Gold Council 35 Credit Agricole 10 MARC 12 YaPEIM 24 Credit Suisse 20 Maxtral Industry 12 Yayasan Usaha Maju 23

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