Iraq: a Nation on the Edge

The World’s Leading Islamic Finance News Provider 18th June 2014

(All Cap) 1100 Iraq: A nation on the edge

Although the ongoing confl ict in Iraq has in oil reserves according to global fund 1075 been an inevitable impediment to the manager FMG. 1,056.41 development of its fi nancial markets, in 1050 1,054.34 recent years a surprisingly strong macro 0.19% Banking strength environment has driven impressive Iraq has a huge banking sector, which still 1025 growth in the banking sector, while dominates its fi nancial system – despite renewed interest from foreign investors losing more than half its value between has highlighted its exceptional potential. 1000 2010-11 after the withdrawal of US forces. W T F S S M T Yet the catastrophic events of the past In 2012 total assets of the banking system few days have placed all this in jeopardy, Powered by: IdealRatings® amounted to IDR130 trillion (US$116 as the country balances on the brink of billion) – less than half of the IDR340 trillion Volume 11 Issue 24 civil war and radical forces threaten to (US$304 billion) it was worth in 2010. overwhelm its fragile government. In this However, recent analysis suggests renewed IFN Rapids ...... 2 atmosphere of uncertainty we take a look Islamic Finance news ...... 6 growth prospects for the country’s fi nancial Column: Daud speaks ...... 15 at all that is positive about its prospects – system on the back of the sustained Shariah Pronouncement ...... 16 and just how much it stands to lose. economic performance, and the government IFN Iran Forum 2014 Post-event report: has made a concerted eff ort to expand and Gateway to a new market ...... 17 Despite the turmoil of the last decade Iraq liberalize the sector through the relaxation IFN Reports: has seen an exceptional improvement Sukuk race: Finally, a winner in sight; New of foreign investor laws, the encouragement opportunities in Islamic commercial insurance; in economic performance, with GDP up of international banking presence and Saudi’s new sovereign wealth fund — more by 38% over the past fi ve years thanks a drive to grow and promote the stock exciting than you might think; What impact will primarily to a strong recovery in 2011-12. markets. the ASEAN Economic Community have on the Despite its ongoing instability, until the region’s Islamic fi nance sector?; Virgin Mobile events of the past few days most analysts fi nancing — testament to the versatility of Islamic There are currently 55 banks including instruments; Liberalizing Malaysia’s capital were surprisingly optimistic about its seven state banks, which dominate the markets paints a brighter picture for Sukuk; What economic prospects. Last year saw GDP sector, holding around 90% of total assets. impact will the implementation of GST have on growth of 4.4%, which the IMF predicted However, the country remains one of Malaysia’s Islamic fi nance industry?; What if could increase to 6.7% this year, and expand the most under-banked in the MENA Qatar loses the right to the World Cup? No big by over a third by 2019. The ICAEW/CEBR deal; Africa: Approach with caution; ...... 18 region, with only around 20% of the Special Reports: Economic Insight Middle East Report Q1 population holding an account and around Lack of integration keeps Sukuk issuance a local 2014 identifi ed Iraq as: “The Middle East’s fi ve branches and one ATM per 100,000 aff air ...... 28 brightest growth prospect,” predicting residents. Nevertheless, instability aside, Beyond Murabahah — new ways to serve “spectacular growth as the country begins Iraq’s banking sector off ers some appealing Muslim microfi nance clients ...... 30 to make use of its natural resources”. Looking through the eyes of Islamic prospects for investment. According to windows...... 31 Singapore-based Sansar Capital, which Case Study: Maiden Sukuk issuance: Etiqa Home to the world’s fi fth-largest oil runs a US$30 million Frontier Fund Takaful ...... 33 reserves, this year Iraq overtook Iran invested wholly in Iraq, the banking to become OPEC’s biggest producer sector “is poised for signifi cant Country Focus: Thailand after Saudi Arabia, contributing to IFN Analysis: An opportunity for Islamic earnings and asset growth over fi nance? ...... 26 an economy reported to be worth the next decade,” with the top fi ve Features: over US$225 billion and which private banks seeing aggregate net Thailand: Time to start afresh ...... 37 Citigroup has predicted could income grow by over 200% reach US$2 trillion by 2050; between 2010-12. Sector Focus: Cross-Border Financing while the IMF estimates IFN Analysis: The international impact .... 34 that revenues from oil Nozad Dawood Fatt ah Al IFN Country Correspondents: exports could bring in over Jaff , the chairman of North Indonesia; Japan ...... 34 US$5 trillion by 2035. Iraq IFN Sector Correspondents: currently has US$14 trillion continued on page 3 Leasing ...... 36 Deal Tracker ...... 38 REDmoney Indexes ...... 39 Eurekahedge data ...... 41 Performance League Tables ...... 43 Events Diary...... 47 Company Index ...... 48 Subscription Form ...... 48

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billion (US$533.2 million) instruments will add depth, network with opening of new DEALS Sukuk to strong demand diversity and boost volume branch in Salmabad Albaraka Turk holds investor Kuveyt Turk mandates banks Fourteen areas in Indonesia Wethaq Takaful agrees meetings ahead of possible for Sukuk issue according to keen to develop Halal capital hike and looks to US$500 million Sukuk issue reports tourism industry, confi rms launch a mutual fund vice-minister of tourism and Emaar Malls Group tightens International Finance Corp Egyptian Life Takaful creative economy pricing on US$750 million considers Sukuk program plans to introduce new Sukuk further following with possible issuance in 2015 Industry participants express products subject to central orders worth more than fi scal year concerns over Otoritas Jasa bank approval of protocol US$5.5 billion from investors Keuangan’s potential move activation with three banks Engro Corp taps the retail to increase cash reserve levels Nakheel makes AED220 Sukuk market with two- Dubai Islamic Bank for Islamic banks million (US$59.88 tranche sale worth PKR1 distributes 10% surplus to million) profi t payment to billion (US$10.04 million) Academic institutions customers of SALAMA’s Al Sukukholders reaching out to State Bank Islami Takaful Riayati Plan Talam Transform makes early of Pakistan for fi nancial Recurring Sukuk program partial redemption on Islamic Willis Real Estate Practice aid to set up Islamic fi nance under consideration by the securities plans new Islamic policy education centers and Jordanian government with to service the booming modules a potential issuance as early construction sector as next year, according to NEWS Sukuk market gaining sources Social Fund for significance but Morocco RATINGS Al Hilal Bank engages banks Development negotiating has no immediate plans to commence roadshows for with United Bank over for Sukuk, says finance Societe Generale’s proposed potential benchmark-sized EGP50 million (US$6.97 minister Sukuk – a triple-‘A’ paper for perpetual Sukuk sale million) Shariah compliant Middle East expansion fi nancing contract for SMEs Bank Negara Malaysia ASSET MARC withdraws rating to issue four more Islamic Nigeria launches appeal fund of the third tranche of facilities by the end of this for the construction of an MANAGEMENT Cagamas MBS’ RM270 million Islamic education center (US$83.57million) Sukuk month RHBAM introduces new following its full redemption JAFZ Sukuk to make periodic Amana Bank introduces fund on the back of improved distribution on US$650 Shariah compliant NGO performance of the global MARC assigns ‘AA-IS’ rating million trust certifi cate on the account to facilitate local Sukuk market to Tanjung Bin O&M’s th and foreign non-profi t RM470 million (US$146.6 19 June based on 7% profi t National Bank of Abu Dhabi organizations million) Sukuk Wakalah rate delivers 2.87% dividend SPRINT’s Islamic facility due Sukuk presents an to subscribers of its Sukuk and payable on the 27th June opportunity for att racting Income Fund investment to the US, Shariah compliant funds Bumi Armada establishes according to FAAIF CEO MOVES suff er US$10 billion in RM1.5 billion (US$467.38 Ahamed Imruz Kamil Islamic Bank of Thailand sets outfl ows last year, according million) Sukuk program joins Richard Peiris Arpico target for reduction in non- to Eurekahedge Finance to head its Islamic Pricing set on Banque Saudi performing fi nancing Fransi US$533 million Sukuk fi nance operations Malaysia to take the lead in TAKAFUL deal, according to sources Sagheer Mufti joins Abu Islamic wealth management Phoenix of Zambia Dhabi Islamic Bank as UK sovereign Sukuk according to fi nance deputy Assurance inaugurates global head of operations and imminent minister Takaful window in Lusaka technology Periodic payment of RM10.3 Bank Asya considers potential United Insurance Company Weqaya Takaful accepts million (US$3.2 million) for sale of its subsidiaries Bank Muamalat Sukuk due of Pakistan seeks shareholder resignation of board member United Bank stake sold to approval to launch Takaful Khalil Ibrahim Al Shami KDU University College to foreign buyers for US$387 products Asian Development Bank make second profi t payment million as part of Pakistan’s Etiqa Takaful looks to names Juan Miranda as new on RM350 million (US$109.06 privatization initiative million) Sukuk Ijarah on the growing Family Takaful managing director general th Industry experts agree that business to support overall 30 June Barclays names Makram removing credit ratings for growth of group Azar as chairman for MENA Saudi Telecom debuts SAR2 Malaysian capital market Medgulf Takaful expands business

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Iraq: A nation on the edge Continued from page 1

Bank, the country’s largest private bank, Table 1: Iraq 2003-13 in a recent interview highlighted the room for growth: “This market is very Nominal GDP (US$ billion) 12 225 new and it is an open market. The size of GDP capita (US$) 500 6800 the economy in Iraq is so big that there GDP growth(%) -41 9 is room for another hundred banks to Oil production (Million b/day) 1.3 3 enter.” Popultaion (Million) 27 34 International appeal Mobile user (Million) Negligible 29 International banks have not been behind Government Dictatorship Democracy in recognizing the opportunity. Standard Government debt (US$ billion) .100 19.3 Chartered launched operations in Iraq Net foreign currency reserves (US$ billion) 5 80 in February last year, while in July 2013 Citigroup announced its intentions of Source: FMG Iraq Report 2014 entering the market, swiftly followed by Chart 1: Iraq outperforms emerging and frontier markets JPMorgan. 2,000 MSCI Frontier Market Index Iraq MSCI Emerging Market Index Seventeen international banks now operate in Iraq, and the central bank 1,500 continues to encourage participation with the reported approval of 15 new licenses for Arab and international bank branches 1,000 in Baghdad in the fi rst three months of 2014. “Although the region continues to be dogged by outbreaks of violence, there 500 is nonetheless evidence that companies MAR JUN SEP DEC MAR JUN SEP DEC MAR JUN SEP DEC MAR JUN SEP DEC are increasingly keen to operate there,” 2010 2011 2012 2013 confi rmed the IAEW/CEBR report. “Strong growth will become self- Source: FMR Iraq Report 2014, Bloomberg reinforcing, as international fi rms seek a piece of the action and invest.” in the private sector, all fi ghting for a Dr Sadiq Rashid Al Shammari, the share of the tiny proportion of the market managing director of Iraq’s National The banking sector doesn’t just off er not dominated by the state banks. Islamic Bank, has also emphasized that growth opportunities, but has reassuring Islamic fi nance is now more popular than fundamentals behind it as well. Iraq’s The limited options from domestic conventional banking in Iraq, although domestic credit stands at just 9% of providers have nevertheless encouraged there is still a need to raise awareness GDP (compared to an average 55% international Islamic banks to enter the and training in the fi eld and the lack of in the GCC) while the country’s total country: leveraging their social, cultural regulation continues to hold back the credit outstanding is just US$10 billion. and religious ties to take advantage of the industry. According to the World Bank, the considerable opportunities in the sector. country’s asset-to GDP ratio was 73% last Ahmad Waleed Ahmad, the chairman Gulf interest year, compared to 130% for the wider of the Iraqi Islamic Bank for Investment MENA region. Several Middle Eastern banks have and Development, the oldest Shariah already established a presence in the compliant bank in Iraq, recently claimed market through partnership with local Islamic opportunity that the Iraqi banking sector was fi nally banks: including Capital Bank of Jordan, Yet despite a staunchly Muslim taking serious steps towards achieving the National Bank of Kuwait and Ahli population of around 33 million, the global standards, and noted the United Bank of Bahrain. Lebanon is Islamic banking sector in Iraq remains increased provision of Islamic products also a surprisingly infl uential player, small and there is as yet no Islamic and services in the market. However, with seven Lebanese banks operating banking legislation to encourage he highlighted the need to att ract new 14 branches in the country, and banking participation or level the playing fi eld. In investors, especially from the Gulf giants BLOM Bank and Bank Audi the absence of a National Shariah region. “Given the appetite for planning to enter this year to leverage the Board, Fatwas and religious Islamic banking products expected investment in rebuilding and questions are determined in the Iraqi market, there is infrastructure. by state religious leaders, a large class of traders and resulting in a confl icted investors, venture capitalists “Lenders can open subsidiaries or and uneven application and big believers [who want to] enter the market through acquisitions of the Shariah. There are work in accordance with the of existing banks with established currently eight domestic Islamic Shariah and Islamic networks,” said Jaap Meier, an analyst at Islamic banks compared banking.” to 23 conventional banks continued on page 4

Iraq: A nation on the edge Continued from page 3

Arqaam Capital, recently told the media. are now able to own enterprises as investment (FDI), an increase of 50% over “For example, Dar es Salaam Bank, in well as invest in equity markets. A the previous fi ve years. ICAEW/CEBR in which HSBC is looking to divest its stake, 2009 revision allowed foreigners to fact go as far as predicting that FDI fl ows we believe is a potential takeover target own land and develop residential real to the ‘GCC+5’ countries of Egypt, Iran, for one of the GCC banks.” estate projects, and in March of this year Iraq, Lebanon and Jordon will overtake housing minister Mohammed Al-Darraj fl ows to the central six GCC states by Abu Dhabi Islamic Bank (ADIB), the specifi cally called on UAE investors to 2019. second-largest Islamic lender in the enter the property market. UAE, began operations in Iraq 2010 Infrastructure needs and recently announced its intentions Much of this interest has been driven to expand. “With Iraq rebuilding its We found that by the massive expected investment economy through investing in its in Iraqi infrastructure. The second infrastructure, energy and industry, Iraq offers National Development Plan, launched we are seeing growing demand for our last year, announced a planned US$357 banking services, from foreign companies a very favorable billion infrastructure investment doing business in Iraq as well as from over the next fi ve years; along with a local companies that are looking for foreign investment US$620 billion investment through its capital and world class services,” said a Integrated National Energy Strategy. representative of the bank. “We are in the environment, This is being supported by international process of extending our branch network development agencies including the IDB, and launching a new consumer banking making it a lucrative which recently signed an agreement for solution that includes long-term deposits US$217 million to fund the construction accounts, auto fi nance and property market for of Expressway No. 1, a major trade fi nance in the near future.” corridor planning to connect Iraq with investment neighboring countries in the Gulf region. On the 9-10th June ADIB sponsored Trade UAE-Iraq, a forum to promote business Hospitality and real estate are a key To meet these requirements, the Iraqi between the two countries and highlight growth area, and the Starwood, Sheraton government is planning to establish opportunities for trade and investment. and Wyndham hotel groups are all a state-funded investment bank, Interaction has increased between the reported to be venturing into the country. announced in January of this year, two countries, and last week the Dubai Dubai-based Range Hospitality, which to help fi nance major infrastructure Chamber of Commerce and Industry specializes in Shariah compliant religious projects and encourage private sector (DCCI) urged Iraqi banks and fi nancial and pilgrimage accommodation, last participation. The Investment and institutions to expand their networks year completed its Shariah compliant Development Bank of Iraq would within the Islamic economy through Al Rawdatain Residences hotel project receive a planned 1% of annual state Dubai. The DCCI recently also announced in Iraq’s pilgrimage center of Karbala, budget allocations over seven years, plans to open a regional offi ce in Iraqi part of its US$1 billion religious and could begin with an investment Kurdistan in 2014, with DCCI president hospitality push, under an innovative capital of over US$10 billion. Although Hamad Buamim commenting that: “Iraq Shariah compliant fractional ownership the country currently by necessity has a as a whole, given its rebuilding eff orts, has scheme. “We found that Iraq off ers very limited capital market, the increased signifi cant potential for Dubai businesses a very favorable foreign investment involvement of state institutions and the to increase trade and investment and the environment, making it a lucrative major infrastructure requirements could stability of the Kurdistan region off ers a market for investment,” said Munaf Ali, also in future result in the issuance of suitable base.” In May, the Municipality CEO of Range Hospitality. The project Sukuk to fund these projects. of Dubai also proposed a twinning was funded by Abu Dhabi investment project with the Kurdistan region of Erbil fi rm Noor Capital, on an Islamic basis. "We need this (state-funded investment to enhance real estate investment and bank) to push forward the economy,” governance cooperation. These changes have had a signifi cant Dr Sami Al Araji, the chairman of the impact and in 2012, foreign fi rms and National Investment Commission, told Foreign investment investors reported over US$60 billion Reuters at the time of the announcement. This comes at a time when the Iraqi in commercial activities and contracts "Our existing commercial banks do not government is making a sustained in Iraq – compared to just US$3 billion have the skills or experience." eff ort to att ract international in 2008 - while total deal value investors by relaxing restrictions increased by 40%. Iraq registered 374 representative offi ces of Arab Asset managers enter and enacting new laws to Iraq’s private sector has also seen positive accommodate investment. The companies in 2012, as well as 83 branches of other foreign fi rms. growth despite the troubled backdrop. Investment Law No. 13 of 2006 Several GCC funds are fully invested removed many impediments The International Trade Center estimates that Iraq in the market, with fund managers as well as off ering tax and highlighting the huge opportunities investment incentives: att racted over US$1.6 billion in foreign direct and foreign investors continued on page 5

Iraq: A nation on the edge Continued from page 4 it represents. “Corporate profi ts are companies listed. This makes it less than Major potential booming despite the security backdrop,” 5% of Iraq’s total GDP – compared to an And although challenges still exist, they said Sanjay Motwani, president and average 50% for the GCC states. Should are gradually being met one by one. portfolio manager at Sansar Capital, in a the stock exchange continue to grow at For example, in recent years one of the recent interview. “Can you imagine what the same pace to reach an equivalent biggest impediments to foreign fund will happen if things actually get bett er?” capitalization, this could deliver investment has been the lack of custodian exceptional returns for investors who services in Iraq, leading to concerns over Geoff rey Batt , who manages of the US$82 have a strong enough risk appetite to get third-party risk. This has inhibited large million Iraq fund from New York-based in at the ground. New developments institutions from entering the market Euphrates Advisors, has also urged his are also strengthening the exchange, and restricted the stock exchange from enthusiasm in the media. “It’s one of the including an agreement last year with expanding. hott est places on earth. If you can focus on NASDAQ OMX to upgrade to its latest making your distribution system effi cient, trading platform, which is expected to “That is the main problem now because it’s a story about volume growth, [aided complete by the end of this month. non-Iraqi banks are scared,” confi rmed by] very strong demographics and rising Ali Jalil Obaid, the chairman of the ISX per-capita GDP.” board, speaking in Dubai. “We issue We are of the a message to all international banks: Sherif Salem, the manager of the US$21 come for we need any bank to give million Iraq Opportunity fund from view that Iraqi this [custody] service to the Iraq Stock Invest AD, an arm of the Abu Dhabi Exchange – the door is open.” Investment Council, has also pointed equities have the out that many Iraqi fi rms especially in At the end of last year the ISX asked the consumer and industrial sectors are potential for one of the Iraqi Securities Commission to being held back by a lack of capital and ease requirements for the holding of technical expertise, making them prime the greatest rallies shares, and some of the bigger banks targets for private equity takeovers. in the market are reported now to be “These companies are not operating as in the developing exploring the possibility of custodian well as they could. So there is a lot of services – including the National Bank potential.” market of Kuwait through its local subsidiary Credit Bank of Iraq, which is reported Shariah compliant funds are also taking universe to have started off ering its services off in the country: and the Iraqi Islamic in January after obtaining a lett er of Bank for Investment and Development in The ISX has seen the world’s fastest authorization from the ISX board of April last year reportedly teamed up with earnings-per-share growth over the governors, and is already custodian of Bahrain-based Al Baraka Islamic Bank past fi ve years, although this has not shares from the recent Asiacell IPO. Some to develop the fi rst Islamic fund in Iraq yet been refl ected in pricing. “We are industry insiders have estimated that the that will be marketed to foreign investors of the view that Iraqi equities have the introduction of custodian services alone, and externally regulated (by the Central potential for one of the greatest rallies in and the subsequent surge in foreign Bank of Bahrain). According to local the developing market universe,” said institutional investment, could lead to media reports the fund, which focuses on the report. Although local investors still an explosion of upwards of 300% in the the Halal food sector (especially sugar), account for over 90% of daily volume, value of Iraq’s capital markets. has already achieved signifi cant take-up foreign participation is growing – Abu from GCC and European investors and Dhabi’s Invest AD recently took up a has increased in size from US$50 million signifi cant share in the February IPO The tipping point to US$75 million – although litt le further launch of Iraq telecoms fi rm Asiacell, All these developments point to the information regarding the fund is so far while investors are reported to be looking pace, progress and positive potential available. forward to new IPOs this year from Zain of Iraq. Yet they also highlight the Iraq and Korek Telecom, as well as a precariousness of its current position, number of Islamic family-owned fi rms. with the very strength of its progress Equity markets rally demonstrating exactly how much the Another positive trend in Iraq has country has to lose should it once again been the exceptional equity market A new stock exchange in semi- autonomous Kurdistan is also due to descend into war. Islamic fi nance could performance, supported by a signifi cant play an instrumental role in rebuilding state drive to stabilize and develop launch this year, with trading to start as early as August, which could boost Iraq’s a country that, while decimated by its stock market. A 2014 Iraq research strife, has demonstrated exceptional report from FMG noted that the market appeal to international investors. The Erbil Stock Exchange will have an initial and unexpected resilience. We can only capitalization of the Iraq Stock Exchange hope, in the midst of this current crisis, (ISX) has tripled in the past three capitalization of US$8 billion and hopes to see up to 10 listings by the end of the that it is granted the opportunity to do years: although the value of the entire so. — LM exchange is still a tiny US$10 billion year. Representatives of both exchanges (compared to the US$400 billion market traveled to Dubai in May this year to cap of Exxon Mobile alone) with just 84 att ract UAE investors.

Al Hilal considers Sukuk UK sovereign Sukuk imminent DEALS UAE: Al Hilal Bank has chosen itself UK: The UK government has declared Investor meetings for as well as Citigroup, Emirates NBD, that it will auction a GBP200 million Albaraka Turk HSBC, National Bank of Abu Dhabi (US$336.36 million) Sukuk “in the and Standard Chartered to arrange coming weeks”, subject to market TURKEY: Albaraka Turk, a unit of roadshows for a potential benchmark- conditions. Having fi rst announced Bahrain-based Shariah compliant Al sized Tier 1 capital-boosting Sukuk. The its intention last October, it has been Baraka Banking Group, begun fi xed perpetual Sukuk will be denominated in suggested that the issuance will be income investor meetings in Asia, Europe US dollars and may be issued following off ered before the month of Ramadan, th and the Middle East on the 13 June. It the investor meetings. which begins the end of this month. was reported that the meetings could The global Sukuk issuance is part of the lead to a Reg S, US dollar-denominated BNM’s June issuance plans government’s long-term economic plan senior unsecured Sukuk off er, of up to to establish the UK as the center of the US$500 million with a fi ve-year tenor. MALAYSIA: Bank Negara Malaysia global fi nancial system. Emirates NBD, QInvest and Standard (BNM) has announced plans to issue four Chartered have been picked as joint lead Islamic facilities in the second half of The sovereign paper will carry a managers and joint bookrunners. June. Issue amount may range between RM200 million (US$62.32 million) to RM3 maturity of fi ve years and is structured billion (US$934.76 million). based on the principle of Ijarah. The High demand for EMG Sukuk Sukuk will be underpinned by rental UAE: The US$750 million Sukuk from JAFZ Sukuk makes income from three central government Emaar Malls Group (EMG) received offi ce properties, which will remain orders worth more than US$5.5 billion distribution in government ownership during the from investors, according to the banks UAE: The periodic distribution on JAFZ lifetime of the facility. arranging the transaction. Sukuk’s US$650 million trust certifi cate is due on the 19th June. Based on a 7% per Speaking exclusively to Islamic The debut Sukuk from Emaar Malls year profi t rate, total distribution amount Finance news, Richard Thomas, the Group (EMG) sold on the 11th June priced will be US$22.75 million. senior advisor to the board and chief at par, with a profi t rate of 4.56%. The representative of Gatehouse Bank US$750 million Sukuk was trading with SPRINT redeemable Malaysia, said: “Excellent progress, bid-off er quotes at 100.40/100.50 on the MALAYSIA: Highway concessionaire the issue should conform to all 12th June according to report by Reuters. SPRINT’s RM510 million (US$158.91 requirements to qualify as high quality Initial distribution of the Sukuk in the million) Al Bai Bithaman Ajil Islamic liquid assets and put that issue to bed primary market saw investors from bonds will be due and payable on the 27th fi nally for the UK’s standalone Islamic the Middle East taking 33%, European June. banks.” investors 38% and investors from Asia taking 29%. New Sukuk program from Earlier in April, Gatehouse announced that it intends to purchase Nakheel makes payment Bumi Armada approximately GBP30-40 million UAE: Nakheel has instructed the MALAYSIA: Malaysia-based (US$50.45-67.27 million) of the Islamic registrar and paying agent for its Sukuk, international off shore oilfi eld service debt. The bank predicted that bids for Deutsche Bank, to deliver a profi t provider Bumi Armada has announced the UK’s maiden Sukuk issue would be payment of AED220 million (US$59.88 the establishment of a RM1.5 billion in the range of billions of pounds. million) to all Sukukholders on the 15th (US$467.38 million) Sukuk program to be June 2014 against the facility issued used for project fi nance and to refi nance Several other non-Islamic countries amount of AED4.4 billion (US$1.2 billion) the company’s current debts. The unrated have announced similar intentions to to date. Sukuk uses the Murabahah structure issue sovereign Sukuk including: South under a Tawarruq agreement. Africa, Luxembourg and Hong Kong. Jordanian Sukuk in 2015? Should this issuance materialize prior BSF Sukuk to complete by end to Ramadan, the UK will become the JORDAN: A sovereign Sukuk proposal of June fi rst country outside the Islamic world is currently under consideration by the to issue a sovereign Islamic debt and Jordanian government, with an issuance SAUDI ARABIA: Banque Saudi Fransi the deal will be marked as the largest program potentially starting as early as (BSF) will complete a SAR2 billion issuance of sterling Sukuk to date. A next year, sources have said in a report (US$533 million) Sukuk to boost the spur in volume of non-Islamic sovereign by Reuters. A source has said that a bank’s capital by the end of June, Sukuk issuances could be a game- recurring Sukuk issuance program is according to Reuters. Sources claim that changer for the industry. being considered with details still to be the deal has been priced at 140bps over determined. The issuance of a Sukuk SAIBOR, with a tenor of 10 years and a Together with HSBC, four other banks could aid the country’s Islamic banks by fi ve-year repayment clause, with order have been mandated as joint lead providing a tool to manage surplus funds books to be closed at the end of this week managers namely: Barwa Bank, CIMB, and encourage the issuance of corporate and the transaction completed shortly National Bank of Abu Dhabi and Sukuk, however government preference after. It is thought that the deal will be Standard Chartered. Linklaters acts as for soft loans from aid donor countries, arranged by Saudi Fransi Capital, BSF’s the legal advisors for the deal. may present obstacles. investment banking arm.

Periodic payment due for Investment has been appointed as global RHBAM introduces new fund coordinator, with Citi, Emirates NBD on the back of improved BMMB Sukuk Capital, HSBC, KFH Investment and MALAYSIA: The sixth periodic Standard Chartered Bank as joint lead global Sukuk performance distribution date for the BMMB RM400 managers and joint bookrunners. MALAYSIA: RHB Asset Management, million (US$124.26 million) subordinated a subsidiary of the fourth-largest Sukuk program, stock code PN110022, IFC considers Sukuk integrated fi nancial services group in was due and payable on the 16th June GLOBAL: The World Bank’s the country, has introduced the RHB- 2014 for an amount of RM10.3 million OSK Global Sukuk Fund — Series 1, a (US$3.2 million). International Finance Corp (IFC) may issue a Sukuk in the 2015 fi scal year close-ended Shariah compliant fund that with the issuance still in early stages of invests into a concentrated portfolio of KDU Sukuk Ijarah payment discussion, according to its director for global Islamic fi xed income instruments due MENA, Mouayed Makhlouf. with at least 70% of its net asset value MALAYSIA: The second profi t payment invested in Sukuk to lock in yields. on KDU University College’s RM350 Engro Corp issues It carries a medium-term investment million (US$109.06 million) nominal horizon of three years and assumes PAKISTAN: Conglomerate Engro Corp, moderate risks. value Islamic medium-term notes a former unit of Exxon Mobil Corp, has program will be due and payable on the sold retail Sukuk worth PKR1 billion th In a statement to Islamic Finance news, 30 June. (US$10.04 million) under its PKR4 billion Ho Seng Yee, CEO of RHBAM, affi rmed (US$40.15 million) Islamic debt program. his confi dence in the performance of Saudi Telecom debuts Sukuk Issued in two tranches, the fi rst one is the global Sukuk market. “The global a three-year PKR750 million (US$7.53 SAUDI ARABIA: Saudi Telecom has Sukuk market continues its recovery million) facility with a 13% profi t rate, issued its inaugural Sukuk under its trajectory in line with the improved while the second is a PKR250 million SAR5 billion (US$1.33 billion) riyal- global economy. This would provide a denominated private placement Sukuk (US$2.51 million) fi ve-year tranche with a stronger support for more issuances with program. Worth SAR2 billion (US$533.2 13.5% profi t rate. bett er and improved credit standing. We million), the 10-year facility was almost believe there are opportunities arising twice oversubscribed and carries a Partial redemption for Talam from debt instruments investments that fl oating profi t rate of 70bps over three- Transform will off er consistent and regular income month SIBOR. MALAYSIA: Talam Transform (formerly to investors,” said Ho. known as Trinity Corporation) partially Planned Sukuk issuance for redeemed RM1.32 million (US$410,065) According to RHBAM the fund adopts Turkish bank of its outstanding RM88.7 million a simple structure that off ers bett er TURKEY: Shariah compliant Kuveyt (US$27.55 million) Bai’ Bithaman Ajil returns compared to Islamic deposits Turk has mandated banks for a Sukuk debt securities on the 16th June 2014. of similar investment tenor. The initial issue according to reports. KFH issue price of the fund is RM1 (US$0.31) per unit, with a minimum investment of RM1,000 (US$310.11). It aims to provide DEAL TRACKER Full Deal Tracker on page 38 a 4.5% yearly return of investors’ initial investment amount as well as to preserve ISSUER ISSUING SIZE (US$) DATE and return an investor’s capital at the end CURRENCY ANNOUNCED of the fund’s tenor.

th International Finance Corp TBA TBA 17 June 2014 RHBAM’s Global Sukuk Fund enables investors to tap into a well-diversifi ed Bank Negara Malaysia RM various 13th June 2014 portfolio of Sukuk, Islamic commercial Al Hilal Bank US$ 500 million 13th June 2014 papers, Islamic bankers’ acceptances and Islamic notes issued by corporations, IOI Properties RM 465.17 million 9th May 2014 fi nancial institutions, supra-nationals, governments and their agencies on a Jeddah Economic Co TBA TBA 17th June 2014 global scale. The fund’s investments additionally include Islamic money st UEM Sunrise RM 620.22 million 21 January 2014 market instruments as well as Islamic deposits. Aktif Bank TRY Up to 93.65 17th June 2014 million RHB Banking Group, the parent Government of Ras Al Khaimah TBA TBA 6th June 2014 company of both RHBAM and RHB Islamic Bank, registered a pre-tax profi t th Government of Jordan TBA TBA 5 June 2014 of RM2.47 billion (US$763.47 million) in the fi rst half of 2013, marking a 3.6% Bank of Tokyo-Mitsubishi UFJ US$ Up to 500 5th June 2014 year-on-year growth despite an 11.5% million drop in profi tability.

million) in new fi nancings for 2014 and Phoenix of Zambia Assurance AFRICA a capital adequacy ratio of 8.5%, as required by the central bank, up from its inaugurates Takaful window SFD and United Bank to fund current ratio of 1.43%. A capital injection ZAMBIA: Phoenix of Zambia SMEs of THB2.5 billion (US$76.88 million) is Assurance has successfully launched rd EGYPT: The Social Fund for expected from the Ministry of Finance, an its Takaful window on the 23 May Development (SFD) and United Bank IBank stakeholder. 2014. Commencing operations in the are negotiating a new Shariah compliant capital city of Lusaka, Phoenix’s Takaful fi nancing contract worth EGP50 million Malaysia’s plans to drive venture is a fi rst for its parent company, Phoenix Assurance Group. (US$6.97 million), which will be Islamic ϐinance channeled towards supporting SMEs, according to Nevine Gamea, the head of MALAYSIA: Malaysia is the world’s Speaking exclusively to Islamic Finance SFD’s central sector for small enterprise third-largest market for Shariah news, Joof Momodou Musa, the chief fi nance. assets, consisting of Islamic banking operations offi cer of Phoenix of Zambia product and services, Sukuk and Takaful Window (who was previously Appeal fund for Islamic center Takaful, according to Ahmad Maslan, the managing director, CEO and the country’s fi nance deputy minister. founder of Takaful Gambia in West NIGERIA: A NGN1.9 billion (US$11.48 Speaking at a conference on Islamic Africa), provides an insight into its million) appeal fund has been launched fi nance, the minister outlined Malaysia’s debut business operations. for the construction of the Sheikh Tahir hopes to develop the Islamic wealth Usman Bauchi Institute for Islamic and management sector and champion the “The Takaful window seeks to provide Science Education, an international product under the Islamic fi nancial an alternative to the Muslim community Islamic center in Nigeria’s capital city, system, and to establish the country as as well as a fairer system of insurance to Abuja. a center of intellectual excellence in the non-Muslims looking for a more ethical fi eld of Islamic fi nance. way to doing insurance business,” Amana Bank launches new said Joof. “Our immediate objective product Bank Asya to consider is to become leaders of the Zambian insurance industry by being the insurer TANZANIA: Islamic fi nancier Amana subsidiary sale of choice for both intermediaries and Bank has launched a Shariah compliant TURKEY: The board of Bank Asya consumers of insurance services. NGO product, designed to facilitate local has mandated the participative bank’s Our long-term goals are to cover the and foreign non-profi t organizations management to explore the possibilities continent providing the most effi cient, based in Tanzania. The product is said for sale of its subsidiaries, according to a to be the only Shariah compliant deposit reliable and cost eff ective services in statement submitt ed to the Istanbul Stock conventional and Takaful off erings.” product in the country. Exchange. As a start, Phoenix’s Takaful products Pakistan re-enters world currently cover: motor, marine, travel, AMERICAS equity market fi re and general accident as well as bancassurance. According to Joof, Sukuk in the US PAKISTAN: The government of Pakistan Phoenix seeks to further expand its has sold its 19.8% stake in United Bank, US: The US should consider taking variety of product suite to include which off ers Islamic banking products advantage of Sukuk on a wider scale medical insurance, personal accident through UBL Ameen, for US$387 million in order to att ract investments into the cover for schools, Family Takaful and to foreign buyers including Morgan country, according to Camille Paldi, CEO Shariah compliant investment windows. of the Franco-American Alliance for Stanley, Wellington and Templeton. The sale was made as part of the government’s Islamic Finance, speaking at the Chicago Conveying his outlook on the Takaful Islamic Finance Conference. initiative to privatize 68 public companies including 10 banks, and was Pakistan’s sector in Africa, Joof expounded: fi rst capital market transaction in eight “Takaful has great potential in Africa years. The government aims to raise US$5 because the global economic crisis ASIA billion in privatization revenue in the next has less impact on the continent. Furthermore, there is also strong IBank to write off bad two years to ease pressure on strained public fi nances, according to Mohammad reception of Takaful in the region as well ϐinancings Zubair, chairman of the Privatization as high sensitivity to fairness in business THAILAND: The Islamic Bank of Commission. practices.” Thailand (IBank) is aiming to reduce its non-performing fi nancing (NPF) rate Sukuk market to beneϐit from The African region has demonstrated signifi cant success in the Islamic from 36% to 17% of total outstanding liberalization fi nancings through write off s and debt insurance landscape and these restructuring worth THB10 billion MALAYSIA: Malaysia’s measures to developments promise a potentially (US$307.53 million). The bank’s NPF remove mandatory credit ratings for healthy appetite for Shariah compliant rate peaked at 43% in 2013 and total Sukuk and bonds will not only diversify fi nancial products in the region. outstanding fi nancings currently amount the market but also boost volumes in the to THB106 billion (US$3.26 billion). IBank debt markets supported by a reduction in is targeting THB15 billion (US$461.3 issuance costs, according to experts.

Indonesia to boost Islamic to Ibank’s acting president Kunchit B&I Capital and IdealRatings tourism Singsuwan. to provide Islamic REIT INDONESIA: Local governments of The bank targets to reduce its non- solutions 14 areas in Indonesia are keen to off er performing fi nancing to 17% from 36% GLOBAL: Switz erland-based B&I their cooperation in developing Halal by the end of this year. Capital has partnered with IdealRatings tourism in their respective jurisdictions, to provide investment solutions for confi rmed vice-minister of tourism and IDB moves to tackle polio asset owners seeking to tap into Shariah creative economy, Sapta Winandar. The compliant listed REIT companies. republic, which is presently home to 12 PAKISTAN: The IDB, in collaboration Islamic tourism destinations, agreed to with the government of Pakistan and the International Islamic Advisory Group The amalgamation demonstrates both boost eff orts in developing the industry companies’ commitment to the Islamic of Islamic lifestyle during the 1st OIC on Polio Eradication (consisting the IDB, OIC, Cairo’s Al Azhar University fi nance industry by creating a new International Conference on Islamic investment sector into Islamic REITs. This Tourism held earlier this month. and International Fiqh Academy) have organized an International Ulama was a diffi cult area a few years ago as Conference in Islamabad to discussion fund managers were unable to identify the Changes for Islamic banks the Islamic position on polio vaccination non-permissible income from the tenants INDONESIA: Otoritas Jasa Keuangan and how to tackle the challenges of polio in the REITs due to data issues and an (OJK), Indonesia’s fi nancial services eradication in Pakistan and other polio acceptable fi nancial modeling by Shariah authority, is considering increasing the endemic countries. scholars for non-permissible income. required level of cash reserves for Islamic With this solution Shariah compliant banks in the country, according to Mulya No Sukuk for Morocco yet Siregar, OJK’s deputy commissioner; a investors are now able to have equities, move that industry participants believe MOROCCO: Morocco has no current Sukuk and REITs in their overall may slow the growth of the industry. plans to issue Sukuk, according to investment portfolio which is 70% of Islamic banking assets grew 15% in Mohamed Boussaid, the country’s fi nance the investment quadrant, with the fi nal March, according to OJK data, the minister, however Boussaid has said that quadrant on commodities. smallest growth since 2003. The Indonesia the country is working on the jurisdiction Islamic Banking Association predicts an for Sukuk according to a report by In a statement to Islamic Finance industry growth rate of 6%, less than the Reuters. news, Mohammad Donia, CEO of OJK projection of 7% for 2014. IdealRatings, said: “B&I Capital will Bursa Malaysia focuses on be able to use the IdealRatings solution for their data on the listed REITs and SBP focuses on Islamic ESG investment the non-permissible income for their ϐinance education MALAYSIA: Bursa Malaysia will work selection of the REITs universe. The PAKISTAN: The Institute of Business in partnership with FTSE to implement front and mid-offi ce solution provides Administration has reportedly received the FTSE4Good Index series based on a market level information for the fund a substantial fi nancial grant by the State companies listed on the Malaysian manager decisions to buy/sell/hold their Bank of Pakistan (SBP) to set up a center exchange. This ESG Index series is investments.” of excellence in Islamic fi nance, taking expected to att ract the US$3.4 trillion advantage of the SBP’s recently-launched socially responsible investments from Donia added: “We foresee a huge initiative to develop and support Islamic around the world, according to Tajuddin growth of the Shariah compliant REITs fi nancial education centers at various Atan, CEO of Bursa Malaysia. investment globally since it is now learning institutions. Lahore University possible to have an exposure in this of Management Sciences has also applied Labuan Islamic ϐinance sector which was not possible a few years for fi nancial aid to develop Islamic activities growing ago. Instead of buying a property and fi nance courses and modules. managing the property to deliver the MALAYSIA: Shariah compliant returns, investors are fi nding REITs an Ibank rushes to lend fi nancing activities in the Labuan federal easier vehicle to have an exposure into territory have grown 46.8% to US$775.6 the property sector and annual gett ing THAILAND: Islamic Bank of Thailand million last year against fi gures from annual dividend returns.” (IBank) is seeking to extend fi nancing of 2012, according to a report by Labuan up to THB15 billion (US$461.3 million) in Financial Services Authority. In 2013, 19 B&I will begin managing the Al Salam the second half of 2014 as the country’s new insurance and insurance-related REITs Fund that has an exposure to a economic sentiments have improved due licenses were also granted in Labuan selected number of countries in Asia — a to the junta’s economic initiatives. A total including to three re-Takaful operators. region which has risen in prominence of THB11 billion (US$338.29 million) in in the last few years, as Middle Eastern fi nancing is pending the bank’s approval investors show keenness to diversify while THB2 billion (US$61.51 million) their investments and gain exposure to is allocated to the Halal Trade Finance EUROPE this asset class and Asia itself. project. Another THB800 million are Tax relief for investors consumer fi nancing while THB1.05 Given that the IdealRatings screening billion (USS$32.29 million) is from a UK: UK government initiative, the Enterprise Investment Scheme, which solutions are also able to screen for scheme of the previous government’s global Islamic REITs, the exposure can be policy on tackling loan sharks, according continued further extended to Global REITs.

© 9 18th June 2014 NEWS continued... trends in the Sukuk market and the Societe Generale’s proposed provides investors with income tax relief use of Shariah compliant fi nancing as a development tool at a recent conference Sukuk — a triple-‘A’ paper for at 30%, capital gains tax exemption, loss Middle East expansion relief and relief of 100% for inheritance in Dakar. The seminar was presented by tax, has been highlighted as a possible Debashis Dey, the head of Middle East GLOBAL: The third-largest banking platform for Islamic fi nance investments, capital markets at Cliff ord Chance, and group in France by assets, Societe as it mitigates the exposure for Shariah Hani Ibrahim, the head of debt capital Generale (SocGen), last year announced compliant structures to high taxation. markets at Shariah compliant investment intentions to auction a RM1 billion UK-based Islamic fi nancial advisory banking fi rm QInvest on behalf of the (US$311.49 million) Sukuk in Malaysia. fi rm Simply Sharia is using the tax GBSA Islamic Finance Practice Group. It has been confi rmd that the Sukuk relief granted by the scheme to create They were also joined by Nouran Yousef will be issued by Societe Generale Bank a Wakalah funding structure for its of the Egyptian Ministry of Finance and and Trust (SGBT)’s wholly-owned planned solar power plant. Farid Masmoudi of the ICD. subsidiary, ALEF II SA, an SPV set up as a funding conduit for SGBT. SGBT in Disappointment for UK AAOIFI and BIBF collaborate turn is a wholly-owned subsidiary of Societe Generale Group. Proceeds from Islamic banks GLOBAL: AAOIFI and the Bahrain Institute of Banking and Finance (BIBF) the issuance will be used to diversify the UK: Surprise has been expressed by hosted a discussion on new Shariah bank’s funding sources as well as for the the UK’s Islamic banks, that none have standards for the Islamic fi nance purchase of assets in Dubai. been chosen as issuers of the country’s industry, during which AAOIFI affi rmed upcoming Sukuk. The UK’s Islamic banks its commitment to develop high-quality Malaysian rating agency RAM recently are expected to be active buyers of the standards and to share its expertise with assigned an ‘AAA(s)/Stable’ rating to forthcoming Sukuk but some view the the support of BIBF. the proposed multi-currency Islamic decision not to use a local Islamic bank medium-term notes program. Refl ecting as issuer as a missed opportunity. The the group’s sound capitalization, strong fi ve banks chosen to lead the sale were Saudi-Jordan enhance ties franchise in retail banking as well as selected following open and competitive GLOBAL: Saudi Arabia and Jordan have corporate and investment banking in process, according to the UK Treasury. both agreed on making concerted eff orts Europe, RAM also reaffi rmed SocGen’s to further strengthen cooperation by ‘AAA/Stable/P1’ fi nancial institution promoting trade and commerce between ratings. the two countries. This was agreed GLOBAL upon during the 14th Saudi-Jordan joint The Sukuk structure features back-to- IDB pledges resources to committ ee held recently at the Riyadh back Shariah compliant contracts with its Chamber of Commerce and Industry. wholly-owned subsidiaries, SGBT (the Benin obligor) and ALEF (the issuer), according GLOBAL: The IDB has signed a US$12 Gap in the market for SME to RAM. While SGBT is the immediate million fi nancing agreement with the counterparty to ALEF, the transaction government of the Republic of Benin, ϐinancing structure also provides the Sukukholders to fi nance a project to build and equip GLOBAL: Approximately 35% of SMEs legal recourse to SocGen. 339 primary school classrooms and 189 in the MENA region are unable to fi nd houses for teachers in rural areas. Further the Shariah compliant products they seek In an emailed statement to Islamic resources have also been pledged by in the formal banking sector according to Finance news Foo Su Yin, CEO of RAM, Dr Ahmad Mohamed Ali, the president a new study by the International Finance said: “SocGen’s maiden Sukuk also has of the IDB, to aid the country in its Corporation (IFC), creating a potential the distinction of being Malaysia’s fi rst development and its aim to become an market gap of up to US$13.2 billion for Sukuk to be issued by a French bank. economic hub in Africa. The government Islamic fi nancing in region. The study This milestone is a notable achievement of Benin has recently allocated land also revealed that of the 36% of MENA for the global Sukuk market and in Cotonou, as Waqf to the Islamic banks off ering SME products, only 17% reinforces Malaysia’s position as an Solidarity Fund for Development (ISFD), off er Shariah compliant options. international Islamic fi nancial center.” the poverty alleviation arm of IDB. Growth for GCC Sukuk market The French bank recently revealed its plans to capitalize on upcoming Goldman Sachs to advise on GLOBAL: Investors should consider infrastructure projects in the Middle East including GCC Sukuk in their portfolio sale by leveraging on its lending capacity due to the growing depth and liquidity GLOBAL: Goldman Sachs Group has and advisory services. This marks the of the market for Sukuk, according been hired as exclusive fi nancial advisor potential for SocGen, who has in recent to Mohieddine Kronfol, the chief by Asya Katilim Bankasi in the sale of a times announced intentions to enhance investment offi cer of Franklin Templeton stake of the Turkish participation bank to its presence in the Islamic fi nancial Global Sukuk and Mena Fixed Income Qatar Islamic Bank. markets, to raise funds in a Shariah Strategies. Sukuk is estimated to account compliant manner. The issuance would for over half of total GCC debt issuance be the second major European institution Focus on Islamic ϐinance in 2013 and Mohieddine believes that to issue Islamically (following the US$500 GLOBAL: The Gulf Bond and Sukuk the GCC capital markets in general, and million HSBC Middle East issuance in Association (GBSA) held a seminar bond markets in particular, are poised for 2011) and the fi rst ever in Asia. on Islamic fi nance, covering current rapid, secular growth.

ADIB plans new Iraqi branch the Takaful sector accounts for 14% of sector looks more optimistic with banks total premiums and contributions in the expecting to have another year of strong GLOBAL: Abu Dhabi Islamic Bank insurance and Takaful industry. fi nancial performance. (ADIB), which has two branches in Iraq, is assessing the feasibility of opening a new branch in Basra before the end of the IDB funds Islamic Boubyan on track year. development KUWAIT: Shariah compliant Boubyan GLOBAL: The IDB has so far mobilized Bank will open 30 branches by the end New collaborative avenues up to US$2.3 billion to alleviate poverty of June in line with its fi ve-year strategic plan, according to Abdulla Al Tuwaijri, GLOBAL: Malaysia is considering new in its member countries and has a the bank’s deputy CEO. The bank also areas of collaboration with Turkmenistan targeted fi gure of US$10 billion to aid in aims to incorporate the latest technology, including Islamic banking and Halal the development of infrastructure and particularly mobile banking technology, products, according to Najib Razak, Islamic funds, according to IDB vice- to push its banking services. Malaysia’s prime minister, on an president Ahmet Tick Tick. The IDB has offi cial visit to Turkmenistan. This a fi nancing capacity of up to US$5 billion visit saw the countries signing four for developmental projects and 1,000 Nomura expands to Dubai collaborative documents including an staff and has so far extended up to US$98 UAE: Japanese fi rm Nomura Asset MoU on education cooperation and million in fi nance for trade, development, Management has announced the in the development of the oil and gas microfi nance, energy effi ciency, opening of the fi rm’s fi rst offi ce in the sector. Total trade between Malaysia and sustainable development of villages, and Middle East, located in Dubai. The asset Turkmenistan in 2013 was recorded at aff ordable solar power projects. management fi rm’s business in the region US$33.13 million. has more than doubled in the last fi ve Real estate opportunities years and as a result has established a Real estate markets looking GLOBAL: In order to meet increasing fi ve-person offi ce to manage Nomura’s up interest from Qatari investors, QIB- current management portfolio of about UK, the UK-based subsidiary of Qatar US$7 billion in assets for sovereign funds, GLOBAL: Investors in the Middle East Islamic Bank, has established a team banks, pensions and other institutional are expected to spend US$180 billion of real estate specialists to off er QIB- investors from the GCC. in commercial real estate markets UK clients early access to residential outside the Middle East over the next real estate opportunities. The bank has Al Anwar sells Bank Sohar 10 years, due to a mismatch between developed a range of residential Shariah the spending power in the region and stake compliant real estate fi nancing products a lack of institutional real estate in OMAN: Al Anwar Holdings has and commercial options including domestic markets, according to research offl oaded its entire stake (18.85 million investment, residential development and from property advisor CBRE. Targeted shares) in Bank Sohar, which operates mezzanine fi nancing. markets are the UK, France, Germany, Sohar Islamic, for OMR4.32 million Italy and Spain. (US$11.19 million) at a price of 230 baiza (US$0.6) per share. The shares booked a Middle East investors have spent MIDDLE EAST profi t of OMR79,086 (US$204,833) (net of US$20 billion in the last two years on brokerage) as they were carried at a value commercial property outside of the Insight into Islamic banking of 225 baiza (US$0.58) per share in the region, with sovereign wealth funds from OMAN: Shariah compliant Bank Nizwa company’s fi nancials. the Middle East expected to make a large has hosted a delegation of professors impact as they increase their investment from colleges under Oman’s Ministry of New Tradeϐlow participant in alternative assets from its current 9% Higher Education, providing an insight of total portfolio. into the country’s Islamic banking UAE: Al Wifaq Finance Company, the system. The visit was initiated by Sheikh Islamic subsidiary of Union National Bank, Malaysia at the helm Ibrahim Al Sawafi , a member of Bank has joined the Dubai Multi Commodities Nizwa’s Shariah supervisory board and Center (DMCC) Tradefl ow Platform. The GLOBAL: The Asian region has been led by Dr Anwar Soubra, the bank’s head company will use the platform to conduct highlighted by KFH Research in its of Shariah compliance. commodity Murabahah transactions for its recent report, as the likely key driver retail and SME clients. of Islamic banking growth in the Increasing interest in Islamic near future based on the untapped Al Babtain procures IDB opportunities in Indonesia, Bangladesh banking ϐinancing and India as well as growing uptake in UAE: Greater interest in Islamic banking Malaysia and Pakistan. The research will be one of the key trends in the UAE SAUDI ARABIA: The IDB has granted fi rm particularly pointed out Malaysia as banking industry this year, according to Saudi-based Al Babtain Power & the main engine of regional growth due the annual report from the UAE Banks Telecommunication Co a four-year to its lead position in the global Sukuk Federation. Islamic trade fi nance is Shariah compliant fi nancing facility markets with 63% of new Sukuk issuance highlighted in the report as having the worth SAR300 million (US$79.98 and 58.8% of global Sukuk outstanding potential to provide new opportunities million). The facility will replace a clutch as at the fi rst quarter of 2014. Malaysia is and become the preferred choice for of short-term loans and will be utilized to home to the highest number of Islamic emerging rapid growth markets. Overall improve the fi rm’s liquidity and cashfl ow funds in any single country at 287 and the report has said that the banking from the second half of 2014 onwards.

New Bahraini regulations aims to boost its Qatarization rate, and is New branch for SIB in line with the bank’s move to sponsor UAE: Shariah compliant Sharjah Islamic introduced 28 Qatari students who will be employed Bank (SIB) has inaugurated a new branch BAHRAIN: Bahrain bourse has at QIB following graduation. approved regulations allowing trading in Jebel Ali, bringing the total number of SIB branches in Dubai to four and in the of exchange-traded funds and real estate QInvest promotes ϐinance investment trusts. The bourse has also UAE to 32. Given Jebel Ali’s position as one introduced a framework for market industry of the largest industrial areas in the region, makers and margin trading in order to QATAR: Shariah compliant investment the new SIB branch has a center for trade boost liquidity. bank QInvest has recently held two fi nance services, as well as banking services seminars on the fi nance industry for over for retail and corporate clients. KFH highlights security 300 students preparing to decide their main fi eld of study at Qatar University. GFH appeal rejected KUWAIT: Shariah compliant Kuwait Topics discussed included treasury, Finance House (KFH) has stated that the KUWAIT: Bahrain-based Gulf Finance operations, marketing, human resources, bank is keen to tighten the security on House has had its appeal against the its banking systems and is working to legal and compliance. A 20% increase Capital Markets Authority (CMA)’s highlight the risks of fraud and electronic in the number of students enrolling decision to monitor its Kuwait-listed crimes to KFH customers especially in fi nance courses compared to 2013 shares, rejected. CMA maintained its when travelling, according to Salem Al fi gures, was noted following the QInvest previous decision to monitor the stock Duwaisan, the senior manager for card seminars. following an unusual surge in stock support. trading prior to the signing of agreement Tadawul joins IOSCO between GFH associate Khaleeji New branches for Muzn SAUDI ARABIA: In line with its plans Commercial Bank with Bank Alkhair in to enhance its status, the Saudi Stock May 2013 to explore a possible merger, OMAN: The opening of fi ve new which eventually fell through in March. branches of the National Bank of Oman Exchange (Tadawul) has gained affi liate membership with the International Shariah compliant GFH defends that Islamic banking window Muzn, has these events are unrelated. been approved by the board of directors, Organization of Securities Commissions th subject to regulatory approval. The new (IOSCO), eff ective the 20 May. branches will be located in Mabela, Sur, GFH Capital takes case to Sohar, Salalah and Nizwa. Shariah compliant cards court contribute to growth UAE: GFH Capital, subsidiary of Shariah KHCB’s new investment SAUDI ARABIA: A greater number of compliant Bahrain-based Gulf Finance account banks in Saudi Arabia are introducing House, is pursuing a civil suit against payment cards targeting specifi c segments David Haigh, the former deputy CEO BAHRAIN: Khaleeji Commerical Bank of the company, who is accused of (KHCB) has announced the launch of the of the market with Shariah compliant cards, cards aimed at women and frequent embezzling US$5 million. Whilst Dubai Call Mudarabah account, an investment authorities are pursuing criminal charges account based on the Shariah principle of fl yers as examples. The greater credit and debit card penetration in the country has against Haigh, GFH Capital is seeking Mudarabah. The account can be utilized US$5 million in damages, plus interest, like a current account by the account also led to a 43% increase in e-commerce growth, the highest in the MENA region costs and “other relief as the court thinks holder, but also features the profi t-sharing fi t”. It is believed that it could take more aspects of a Mudarabah investment for the fi rst quarter of 2014, according to data from Visa. than eight months for all the documents account, with an expected profi t returned to be prepared and for the trial to take on a quarterly basis. The account is place. Haigh has denied the allegations open to both individuals and companies Al-Cham Islamic on DSE through a spokesman. resident in Bahrain and the GCC with a SYRIA: Al-Cham Islamic Bank, which BHD10,000 (US$26,383.10) deposit. is planning to open two more branches Maisarah’s new Mudarabah this year, has listed 50 million of its ADIB launches card for shares with a capital of SYP5 billion product women (US$334,896) on the Damascus Securities OMAN: Bank Dhofar’s Maisarah has Exchange (DSE). The bank is now one of launched a new Mudarabah product for UAE: In association with MasterCard and the 13 banks (out of 23 companies) on the its corporate customers, designed to meet the Emirates Business Women Council, DSE. their short-term and day-to-day business Abu Dhabi Islamic Bank (ADIB) has requirements. launched the Dana MasterCard, a credit card designed for women customers. New targets for Alkhabeer Capital QIB seeks new talent SAUDI ARABIA: Saudi-based asset RESULTS QATAR: Shariah compliant Qatar Islamic management and investment fi rm EPF Alkhabeer Capital has launched a new Bank (QIB) hosted a career day on the MALAYSIA: The Employees Provident th private equity strategy aimed at high- 17 June in association with the Ministry Fund (EPF), which invests in Shariah growth Shariah compliant SMEs in Saudi of Labor & Social Aff airs. The event compliant portfolios, has generated a promoted the career opportunities within Arabia and the UAE, according to local the bank for Qatar nationals as the bank reports. continued

continued... being the NAV as at the 29th May 2014. gross income of RM8.83 billion (US$2.75 A dividend payout of US$0.15 will RATINGS billion) for the fi rst quarter of this year, be delivered to each unit in the fund, MARC withdraws rating marking a 58% increase from the same which earned interest equivalent to th MALAYSIA: The ‘AAAIS’ rating with period last year. US$926,428.67 from the 29 November 2013 to 28th May 2014. a stable outlook assigned by MARC to Cagamas MBS’s RM270 million (US$83.57 Abu Dhabi Islamic Bank-Egypt million) third tranche, under the RM2.11 Islamic funds suffer EGYPT: Abu Dhabi Islamic Bank-Egypt billion (US$653.15 million) asset-backed has announced a surge in net income for GLOBAL: Shariah compliant funds over Sukuk Musharakah issuance, has been the fi rst quarter of 2014, with growth of 2013 experienced a US$10 billion outfl ow, withdrawn following full redemption th 400% to EGP57 million (US$7.95 million) according to Eurekahedge. Dropping of the tranche on the 29 May 2014. The when compared to EGP11 million over 10% in asset base as compared to MARC rating for the outstanding RM1.25 (US$1.53 million) for the fi rst quarter the US$7 billion of infl ows in 2012, the billion (US$386.94 million) amount under of 2013. The bank’s total revenues for decline is said to have been triggered the remaining tranches of the issuance the fi rst three months of 2014 reached after the US Federal Reserve’s tapering holds at ‘AAAIS’, with a stable outlook. EGP218 million (US$30.41 million), an announcement last year. 86.1% increase from the same period in MARC rates Tanjung Bin O&M 2013, and up from EGP62 million (US$8.5 MALAYSIA: Tanjung Bin O&M’s million) reported for the fi nal quarter of RM470 million (US$146.4 million) Sukuk 2013. The bank’s capital adequacy ratio TAKAFUL Wakalah has been affi rmed at ‘AA-IS’ by reached 11.1% as at March 2014, above United Insurance seeks MARC, with a stable outlook. the regulatory requirement of 10%. approval for Takaful Cagamas PAKISTAN: United Insurance Company IJM Sukuk rating unaffected of Pakistan on the 12th June sought MALAYSIA: IJM Corporation’s proposed MALAYSIA: National mortgage shareholder approval at an extraordinary acquisition of Sistem Lingkaran-Kajang corporation Cagamas has issued audited general meeting to off er Takaful and (SILK) for RM398 million (US$124.01 results for 2013, reporting company profi t re-Takaful products locally and abroad, million) and the privatization of its of RM22.53 million (US$3.28 million) according to a bourse fi ling. property unit (IJM Land) for RM1.98 and group profi t of RM527.59 million billion (US$616.94 million), will have no (US$73.6 million) for the year. More emphasis on Family immediate eff ect on the rating of its Sukuk Takaful Murabahah program which stands at Islamic Republic of Pakistan ‘AA3/Stable’, according to RAM. PAKISTAN: Combined profi tability of MALAYSIA: Etiqa Takaful plans to grow Pakistan’s Islamic banking sector for its agent base to 12,000 Family Takaful Ratings afϐirmed for Bahrain the fi rst quarter of 2014 was reported agents in the next two years from the BAHRAIN: Bahrain’s long and short- at PKR3.2 billion (US$32.24 million), an current 8,000, in a bid to boost its Family term foreign and local currency sovereign increase on the Islamic banking sector Takaful business (which currently stands credit ratings have been affi rmed at combined profi ts of PKR2.2 billion at 60%) to account for 65% of the group’s ‘BBB/A-2’ with a stable outlook by S&P, (US$22.17 million) for the same period total contribution. with the country’s central bank rating also in 2013. According to State Bank of confi rmed at ‘BBB/A-2’. The ratings are Pakistan data assets of the Islamic banking Medgulf Takaful expands supported by Bahrain’s relatively stable sector grew by 0.2% to PKR1.02 trillion BAHRAIN: Medgulf Takaful has opened growth prospects and expectations that (US$10.24 billion) in the fi rst quarter of a new branch in Salmabad in line with its average oil prices of US$103 per barrel in the year from PKR1.01 trillion (US$10.22 expansion plans. 2014-17 will support public fi nances. billion) in the previous quarter, although the market share of Islamic banking assets in the overall banking industry declined Mutual fund for Wethaq MARC rates Maybank Islamic over the fi rst three months of the year, EGYPT: Wethaq Takaful, whose MALAYSIA: Maybank Islamic has been growing at a slower pace than the assets of shareholders have recently agreed to aff orded a fi nancial institution ratings the overall banking industry. inject EGP40 million (US$5.56 million) of ‘AAA/MARC-1’ while its RM1 billion to raise its capital to EGP100 million (US$312.53 million) Islamic subordinated (US$13.91 million) in the next few Sukuk has been assigned ‘AA+IS’. Rated months, is looking to launch a mutual by MARC, all the ratings carry a stable ASSET fund. outlook.

MANAGEMENT New products for Egyptian Eversendai Sukuk rated NBAD Sukuk fund delivers Life Takaful MALAYSIA: Eversendai Corporation’s UAE: Subscribers of National Bank of EGYPT: Egyptian Life Takaful plans RM500 million (US$156.26 million) Abu Dhabi (NBAD)’s Sukuk Income to off er fi ve new insurance products Sukuk Musharakah Islamic commercial Fund (as of the 28th May) will be paid a through three banks, subject to the papers/Islamic medium-term notes semi-annual distribution equal to 2.87% program (2013/2020) have been of the net asset value (NAV) of US$5.25, continued reaffi rmed at ‘AA3/P1’ by RAM.

continued... in the UK. Underwritt en by London- approval from the Central Bank of Egypt based Cobalt Underwriting, security is MOVES for activation of banking insurance provided by QBE Insurance (Europe) and protocols with the selected banks, which XL Group. ADIB have been chosen due to their client UAE: Abu Dhabi Islamic Bank (ADIB) numbers. Egyptian Life Takaful also More Shariah products from has hired Sagheer Mufti as its global plans on expanding its product range Willis head of operations and technology. into micro-insurance policies in the near Sagheer was previously the global head UK: Global risk advisor and insurance future. of anti-money laundering operations at broker Willis Group Holdings, which Citigroup. earlier this month launched UK’s fi rst DIB distributes surplus Shariah compliant commercial real estate UAE: Dubai Islamic Bank (DIB) has insurance off ering, has plans to launch Weqaya Takaful made a 10% surplus distribution of further products in the Islamic space due SAUDI ARABIA: Khalil Ibrahim Al contributions to customers under the Al to high client demand. Shami has resigned as a board member Islami Takaful Riayati Plan off ered by of Weqaya Takaful Insurance and SALAMA and distributed by DIB. “We are currently in the process Reinsurance Co, eff ective since the 10th of developing a Shariah compliant June. Robust Takaful growth for construction policy which will off er protection for works and liabilities Asian Development Bank Oman in connection with developments,” OMAN: Al Madina Takaful anticipates confi rmed account director Adrian Hastie GLOBAL: Juan Miranda has been the Takaful market in Oman to grow to Islamic Finance news. announced as the new managing between OMR60 million (US$155.4 director general of the Asian million) to OMR70 million (US$181.31 Takaful targets for AIA Development Bank (ADB), eff ective million), in the worst case scenario while from the 1st July. Miranda, who is in the best case scenario, the market MALAYSIA: Insurance company AIA currently the director general of the is projected to reach OMR150 million has announced plans to grow its Takaful ADB’s South Asia department, in his (US$388.51 million) to OMR180 million business signifi cantly in the second new role will be working directly with (US$466.21 million) in the next three to half of 2014 following the launch of the ADB president Takehiko Nakao and fi ve years, according to its CEO Gautam company’s unifi ed Takaful entity AIA his management team, to implement Datt a. Gautam cautioned however that Public Takaful, according to Bill Lisle, reforms agreed after the ADB’s recent the projection is based on trends in AIA CEO. Lisle made the comments at strategic framework mid-term review. neighboring country which could be the opening of the newly refurbished signifi cantly diff erent in Oman. AIA Finance Center. Barclays GLOBAL: Barclays has appointed Al Madina, which recently launched Makram Azar as chairman for its MENA a new promotion campaign for motor insurance, is planning to expand operations, replacing previous CEO its consumer segment by growing John Vitalo. Makram will continue its distribution channels as well as as vice-chairman of the bank’s global diversifying its retail and personal lines investment banking division. The bank portfolio. has also named Andrew Mortimer as country manager for the Middle East. Barclays in April signed an agreement to Predicted investment for sell its UAE retail business to Abu Dhabi Egypt Takaful Insurance Islamic Bank. EGYPT: Egyptian Takaful Insurance has announced that its total expected Richard Peiris Arpico investment will reach EGP280 million Finance (US$39.1 million) by the end of June. Too many pieces The EGP251 million (US$34.91 million) SRI LANKA: Ahamed Imruz Kamil, initial investment target for the end of in the puzzle? who was previously the chief manager of Islamic fi nance at People’s Leasing this current month has been exceeded to Let IFN put it together for you..... EGP265.8 million (US$36.97 million) due & Finance’s Al-Safa Islamic Financial to the successful acquisition of a plan Services Unit, is now the head of Islamic with a 5.9% growth rate at the end of fi nance at Richard Peiris Arpico Finance, March. the latest fi nance company to commence Islamic fi nance operations in Sri Lanka. Real estate Takaful for UK The fi rm, which is owned by Richard Peiris Group, a large conglomerate in UK: Insurance and reinsurance broker Sri Lanka with diversifi ed business Willis Group Holdings has launched a interests, is in the midst of sett ing up Shariah compliant commercial real estate SUBSCRIBE TO IFN TODAY an Islamic window, separated from its insurance product, said to be the fi rst www.IslamicFinanceNews.com conventional business.

Daud speaks

By Daud Vicary Abdullah humanity. This was perhaps the Islamic Finance’ can be good for their friendliest IFSB Summit that I have business. This knowledge, when turned May continued on from April as a att ended and our hosts and the into practice, will not only fuel the very busy month for me. Once again I organizers are to be congratulated growth of the industry but was able to return to the beautiful and warmly for that. will also validate the need friendly island of Mauritius, this time for graduate and post- for the IFSB Summit. This is the fi rst Discussions in Mauritius graduate students to time that the event has been held on also lead me to comment perpetuate the in-depth African soil! on the continuing need analysis, research and to educate and to build thought leadership Besides the two days of summit activity, capacity in our industry. that the industry will the event was also preceded by an While this undoubtedly require to grow to additional two days of pre-summit a truism, I am becoming the next level and presentations and discussion groups. more and more beyond. The quality of these events augur well convinced that the need for the industry as the range and depth for quality, accredited In the last couple of of the discussion was both helpful, in professional years we have seen the sharing of experience, as well as education also needs a growth spurt in pragmatic in providing insights and to be coupled with Executive Programs advice on how to move forward and the business driver (EPs) and I believe that take action. Hopefully, we will see a of helping business to we will continue to see continuation of the pre-summit activity understand the value further rapid growth in at future IFSB Summits. proposition of Islamic this area. The importance fi nance bett er. Producing of these EPs will only graduate and post-graduate be enhanced by both Education students of high quality professional accreditation is a must, but this can only and the built-in fl exibility of is the most be a medium to long-term the program to allow both part of the solution, as it broader and more in-depth powerful weapon takes a minimum of two or study as required by the three years of concentrated student. that we have. Let eff ort. In the short- term, what is required Education is the most us use it is a series of focused powerful weapon that executive programs that we have. Let us use it effectively target business, entrepreneurs, eff ectively. regulators, professional services fi rms and conventional practitioners, There is much to do and not a Overall my impression of the summit and equips them with the moment to lose! was one of professionalism with ability to understand ‘How

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SHARIAH PRONOUNCEMENT

Query:

A company has sought ﬁ nancing from an Islamic bank. As stated by the company, the utilization is required for two purposes:

www.daralsharia.com 1. To meet with working capital requirements, such as procurement of new IT system and other infrastructure-related expenditure besides payment of staﬀ salaries. 2. To repay conventional debt availed by the company as the owners would like to shun Riba (usury).

Can the company’s above requirements be met in a Shariah compliant manner?

Pronouncement:

The company’s subject requirement has two issues which should be addressed separately:

1. Working capital requirement Musharakah (partnership) is an appropriate structure to meet the working capital requirements of a company, provided it fulﬁ lls the following prerequisites:

a) Business activity of the company is in compliance with Shariah. b) Financials of the company meets with certain Shariah criteria in terms of conventional loans and deposits and the income from prohibited sources. c) Feasibility study prepared and submitt ed by the company meets with the commercial expectations of the Islamic bank.

Since working capital is a part of the general business activity of the company, therefore, under a Musharakah structure, the overall business of the company shall be considered as the Musharakah project. The contribution of the Islamic bank will be in cash - equal to the ﬁ nance amount required by the company — and the contribution of the company (its net asset value or networth) shall be considered as the existing value of the company.

The proﬁ t distribution in Musharakah could either be on pro-rata basis as per the contribution or on the basis of a pre-agreed ratio between the Islamic bank and the company. Nevertheless, the losses, if any, shall be shared proportionately to the extent of each partner’s contribution in the Musharakah capital. The Islamic bank and the company may agree to distribute the proﬁ t at the end of Musharakah tenure or periodically on the basis of constructive liquidation of Musharakah.

• The tenure of the Musharakah shall be the period for which the company is seeking the ﬁ nance. Upon completion of the agreed Musharakah tenure, the company shall actually or constructively liquidate the Musharakah assets to redeem the Islamic bank’s investment. The Musharakah tenure may also be extended with mutual consent.

2. Conventional debt repayment In principle, the funds provided by Islamic bank under the Musharakah agreement must be invested in the business activities of the company and should not be used, in full or in part, for repayment of already established obligations towards a conventional bank.

However, to meet with such desire of the company, the following procedure may be adopted:

• Pursuant to the completion of the Musharakah agreement and the release of capital by the Islamic bank to the company, the company shall sell to the Islamic bank a part of its asset(s) equal to the conventional debt value. • Such a sale shall result in an increase in the share of Islamic bank and the corresponding decrease of the company’s share in the in the overall Musharakah. • The terms of the Musharakah shall be altered in favor of the bank by way of an addendum to the Musharakah agreement. • The sale proceeds shall be utilized to fully sett le the conventional debt.

Dr Hussain Hamed Hassan Chairman of the DIB Shariah Board, Managing director, Dar Al Sharia Legal & Financial Consultancy, Dubai, UAE

This Fatwa is brought to you exclusively by IFN in collaboration with Dar Al Sharia Legal & Financial Consultancy-Dubai. The Fatwa appearing in this space was obtained by Dar Al Sharia for issues faced by their clients and the documents stated in the Fatwa were developed at Dar Al Sharia. This Fatwa was compiled by Dr Muhiuddin Ghazi

Gateway to a new market

By Majid Pireh

On the 10th June REDmoney Group held its inaugural IFN Iran Forum in Tehran, representing a landmark moment for the country’s Islamic ﬁ nance industry as it moves towards wider global acceptance.

Although a one- day forum was by necessity limited in its capacity to cover all the issues relevant to the market, it was notable that panel- based discussions and with a fi nancial system prohibited Securities and Exchange Organization, such as these are from issuing non-Shariah compliant who in his keynote address emphasized instruments, it is a market that has long the exciting potential in the Iranian relatively uncommon held an appeal for Islamic investors. fi nancial system and its appeal to During the forum, speakers and panelists international investors. The managing in Iran: making debated the various areas of investment director of REDmoney Group, Andrew potential in the Iranian market, especially Morgan, also contributed his views on the debate all the within the oil and gas sector. The the importance of making the wider debate was enthusiastic and opinions fi nancial community more aware of more valuable by varied: with some raising concerns as the capabilities of the Iranian market, coordinating the to the Shariah compliance of the overall noting that the inaugural IFN Iran Forum fi nancial system, while others pointed represented a desirable platform through relevant experts and out that a wholly Shariah compatible which to enhance the development of the structure reduced competition by country’s fi nancial system. participants in removing the conventional pillar and therefore resulted in a less stable What remains now is the question of the market fi nancial environment with issues over how Iran’s policymakers will tackle the transparency and stability. systemic challenges that continue to inhibit foreign investment. However, the The forum provided a valuable Although a one-day forum was by att ractive profi t rates and an increasing platform for investors to become more necessity limited in its capacity to cover focus on improving the regulatory familiar with the Iranian fi nancial all the issues relevant to the market, it structure should go some way towards system and explore its investment was notable that panel-based discussions improving conditions and att racting potential. Following years of sanctions such as these are relatively uncommon Islamic interest in particular. It is obscuring the potential inherent in the in Iran: making the debate all the more important to note, nonetheless, that industry, the recent relaxation of US valuable by coordinating the relevant the open dissemination of information and UN restrictions has led to a surge experts and participants in the market. through online portals is vital to facilitate of interest from investors – as well as Special credit must go to Hooman Sabeti greater global investor att ention. increased interaction and understanding of Allen & Overy, who did a sterling job between Iranian investors and issuers in managing the panel discussion and Majid Pireh is the Islamic fi nance senior themselves. handling the Q&A session. expert at Securities and Exchange Organization of Iran. He can be contacted at Iran is considered to be the largest Other illustrious att endees included Dr [email protected]. Islamic economy in the world by assets, Ali Saleh Abadi, the president of the

Sukuk race: Finally, a winner in sight

“I can also confi rm tonight our intention Sukuk is really peanuts in the overall off in Kuala Lumpur on the 17th June, in the next few weeks, subject to market scheme of things — this is more of a will be followed by Doha on the 18th June conditions, for Britain to be the fi rst demonstration of the UK’s commitment then Abu Dhabi and Dubai on the 19th western nation to issue a sovereign to Islamic fi nance in order to support all June. Investor meetings will conclude in Sukuk — an Islamic bond.” And the the other sectors of the industry.” London on the 20th June, and the Sukuk crowd went wild — well, at least in the is widely anticipated to be issued in the Islamic Finance news (IFN) offi ce it did. week to follow — signifi cantly ahead of the UK’s initial timeline of the end of For the IFN editorial team, this For the IFN the 2014 fi nancial year, and beating the announcement by the UK’s chancellor September deadline set by Hong Kong, of the exchequer, George Osborne, on editorial team, our previously favored contender. the 12th June was the tipping point of our Sukuk race. Since the beginning of this announcement However, the day is not yet won — as our coverage of the race in April, the IFN has also heard rumors that Senegal UK has never topped our readers’ poll by the UK was the could also be ready to issue any day now, as the likely winner: primarily due to its with an announcement expected in the lack of urgency to issue coupled with a tipping point of coming week. While not strictly a non- postponement of the intended issuance Muslim nation (with an Islamic majority date. Such sentiments were confi rmed our Sukuk race of 92%) the African country nevertheless at the IFN Asia Forum just last month, represents yet another outsider rounding where market players were less than A Hong Kong-based market player also the post in the Islamic issuance race. optimistic about the UK’s progress. confi dently opined that: “Hong Kong is well ahead of London and Luxembourg What an exciting time for the fi nancial “It becomes less and less credible for the in terms of making this issuance a community, as we balance on the edge of UK government to promote themselves reality.” a truly historical moment for the Islamic as the center for Islamic fi nance when fi nance industry. And who knows — this they themselves do not fully embrace Oh, how we were mistaken. Because in time next week, we could very well have it (tapping the Islamic debt market),” one fell swoop, the UK has denounced a winner for our Sukuk race… so stay commented a leading Islamic fi nance the non-believers and is now back in the tuned! — VT practitioner based in the UK. “Issuing limelight with an expected early victory. a GBP200 million (US$336.36 million) IFN has learnt that roadshows kicking Who will win the sovereign Sukuk race?

New opportunities in Islamic commercial insurance

While retail Takaful has developed into law for major risks, has not previously billion, Qatar with US$273 billion and a small but successful niche market, been available in the UK.” Kuwait with US$249 billion. commercial Islamic insurance has until now been limited in its scope by a lack Platforms such as Cobalt are aiming This represents a vast expenditure and, of scale and an absence of underwriting to change that, and revolutionize the inevitably, a concurrently large risk — capacity. However, a surge in demand scope of Islamic insurance provision. resulting in a surge in the demand for from the property and constructions Launched early last year, in May 2013 the insurance and reinsurance capacity to sectors along with some exciting new fi rm joined forces with global insurance cover the upcoming projects. While not developments in the market suggest giant XL Group to provide expanded all these projects are fi nanced Islamically, that this could soon be changing — capacity for global Islamic insurance and a considerable proportion are being bringing with it a whole new world of reinsurance products. “The scope for developed either by the state or in public- potential for the large-scale writing of Shariah insurance is substantial,” said private partnerships of joint ventures commercial risk. Bishop of the partnership at the time. with the government or sovereign wealth “Islamic fi nance is mainly asset-based, funds, while many leading GCC property Investor inϐluence so you tend to be looking at types of developers (such as Emaar, Dar Al Much of this movement is being driven coverage needed to protect those assets. Arkan and Aldar) have also raised funds by the frenetic activity across the Naturally, property, construction and with high profi le Sukuk issuances. This international property market, as Islamic related lines of business are a strong fi t.” combination of Islamic investor interests, investors fl ock to high yield locations state involvement and Shariah compliant such as London and are increasingly “We’re initially putt ing sales capacity fi nancing sources has highlighted the demanding insurance options that behind commercial property, targeting dearth of Shariah compliant insurance coincide with their religious beliefs. Last businesses with a turnover of US$50 and underwriting capability, and opened week global risk advisor and insurance million or more,” confi rmed Jason up a new channel of potential in the broker Willis Group Holdings responded Harris, CEO of international property wider Islamic insurance industry. to this with the launch of the UK’s fi rst and casualty insurance for XL Group, at Shariah compliant commercial real estate the 2013 launch. “We believe this is the Widening the scope insurance off ering. most appropriate starting point, but this Earlier this year Cobalt proved this initiative does not start and end with by expanding its reach yet further in Speaking to Islamic Finance news Adrian commercial property.” a second agreement signed in May Hastie, an account director with Willis with Australian insurance giant QBE, Real Estate Practice, confi rmed that: Willis has already looked beyond its enabling it to signifi cantly grow the size “There has been signifi cant activity with initial Shariah compliant product to new of its existing product lines: including the growth of Islamic investment in the pastures, and Islamic Finance news can an increase in its property risk from UK and Europe from the Middle East reveal that the fi rm is currently in the US$300 million to US$425 million and its and [Asia Pacifi c], where there is an process of developing a new Shariah construction risk from US$100 million to increasing desire for a fully compliant compliant construction policy, which US$160 million; as well as a new US$50 Shariah solution. We developed the according to Hastie “will off er protection million line of casualty capacity. insurance in response to the growing for works and liabilities in connection demand from property investors for with developments”. The opportunities in the market are insurance cover that is compliant with att racting renewed interest from Islamic law. We have already placed GCC growth opportunities both local and international players. business under the policy, with other The renewed construction boom is one According to a recent report from global opportunities currently going through.” of the most signifi cant new opportunities law fi rm Clyde & Co: “Conditions in the in Islamic commercial insurance — Middle East are now ripe for a slew of The product was developed specifi cally especially across the Gulf region. A transactional activity. With governments to meet existing requirements, suggesting report from Citigroup released last making signifi cant infrastructure that there is a strong swell of demand. month confi rmed that the trend for investments and looking to develop “This latest policy… is intended to MENA property has come full circle, mandatory health insurance, interest respond specifi cally to the need for Shariah with a booming construction sector from foreign players is considerable.” compliance within the commercial real not only back on track but scaling estate sector from an Islamic investor’s record heights in the fi rst quarter: with Although this has not yet translated perspective,” agreed Hastie. an estimated US$2.5 trillion-worth of into signifi cant deal activity, this is set to projects of which 90% are located in the take off in 2014 as new legislation from Underwriting ability GCC and 60% accounted for by the UAE regulators across the region encourages The product is supported by Cobalt and Saudi Arabia alone. US$1.4 trillion- international players to enter the market. Underwriting, one of the fi rst Shariah worth of projects are already underway, “Against the backdrop of the region’s compliant insurance and reinsurance with the bulk of these in real estate while compelling growth prospects, the scene platforms in the UK. John Dilley, CEO of infrastructure (US$812 billion), oil and is set for an upturn in M&A activity in Willis Group, commented that: “Hand in gas (US$376 billion) and power and the short to medium-term,” confi rmed hand with the growth in Islamic fi nance water (US$298 billion) also contribute James O’Shea, the Middle East regional is the demand for Shariah compliant signifi cant spending proportions. Saudi head of corporate insurance at Clyde insurance cover, in particular for real Arabia is at the head of the pack with & Co. “The only questions that remain estate investors. Access to underwriting US$784 billion in terms of country spend, are when and how quickly this will be capacity, which is compliant with Islamic closely followed by the UAE with US$669 realized.” — LM

Saudi’s new sovereign wealth fund — more exciting than you might think

Saudi Arabia is in the process of sett ing the new fund is allocated for Shariah only low-yielding foreign bonds and up a sovereign wealth fund (SWF) to compliant purposes, it could spur the domestic investments in order to be invest its budget surplus. The proposal Islamic fi nance industry in the US, more diversifi ed in international equity has been tabled to the Shura Council Europe, Asia — and wherever the and real estate investments. While and is currently under deliberation. Shariah compliant SWF decides to invest. Saudi Arabia’s strategy appeared to be Once the Shura Council approves the Nabil further pointed out that such a the correct course of action during the proposal, legislation will be enacted move would distinguish Saudi’s SWF most recent global recession, many now to eff ect the establishment of the SWF. from existing global sovereign funds; and believe that the country urgently needs Proposed to be based in Riyadh with send a message that the Saudi SWF will to diversify its investments globally to branches around the country, the fund only invest in an ethical manner, thus maximize its returns. aims to guarantee fi nancial stability encouraging target companies to operate in the kingdom by investing in state in a way to make themselves more Qatar and Abu Dhabi have had a reserves while enjoying fi nancial and att ractive to a Shariah compliant SWF. tremendous infl uence on the fi nancial administrative independence. This could also entail the preference of community internationally and have Sukuk as a debt off ering rather than a made high profi le investments in Saudi Arabia has traditionally used bond. everything from professional soccer its surplus cash and invested through teams to trophy buildings. “As Saudi the Saudi Arabian Monetary Agency Arabia has historically been more (SAMA) in US treasury bills and As Saudi conservative than its neighbors, we other conservative fi nancial products. assume a Saudi Arabian SWF will focus Consisting mainly of oil surpluses it Arabia has less on trophy assets and more on assets is currently the world’s third-largest that are undervalued and expected to producer with assets totalling US$737.6 historically been deliver steady returns,” suggested Nabil. billion. Bankers and lawyers in the country are more conservative expected to revise their focus from just SAMA has long managed the country’s Saudi Arabia in order to be able to assist investment of oil surpluses abroad, than its neighbors, the SWF with its investments regionally focusing on low-risk assets. Its and globally. investments in real estate and companies we assume a Saudi have generally been reinvested in the The proposed SWF’s resources will country. The size of Saudi Arabia’s Arabian SWF will reportedly consist of capital allocated by foreign reserves suggests the new the state at the start of its operation, with sovereign wealth fund could become one focus less on trophy a proviso that this is not less than 30% of the largest in the world, depending on of the total accumulated budget surplus the proportion of reserves it is allocated. assets and more over the past years. Withdrawals from the national reserve fund are prohibited Speaking to Islamic Finance news, Nabil on assets that are except in extremely urgent cases and Issa, a partner at King & Spalding, would require a Royal Decree. The fund pointed out: “It would be accurate to say undervalued and will also have a president with the rank that Saudi Arabia has not yet had a SWF of minister, who will be the executive that invests in signifi cant foreign illiquid expected to deliver offi cer in charge of the management of assets such as property and shares of the fund’s aff airs. A governing council companies. One must keep in mind that steady will be created to oversee the activities of while Saudi Arabia is a wealthy country, the SWF, as well as a committ ee to review it also has over 20 million citizens while returns the fund’s compliance with its own Abu Dhabi and Qatar have far smaller procedures and the kingdom’s fi nancial populations. Thus, Saudi Arabia must legislation. — NA also guard against having too much Given the size and infl uence of its parent, wealth in illiquid assets abroad [in case] a Saudi Arabian SWF is undoubtedly it needs to bring the money home quickly an exciting development for the global Have you joined in the event that oil prices collapse fi nancial community. Details of the — or in the belief that there are still proposed entity’s investment strategies signifi cant investment opportunities in are yet to be disclosed; however, if the kingdom.” the fund is operated similarly to other wealthy Gulf state funds such as those It is also hoped that Saudi Arabia could of Qatar and Abu Dhabi, it could mean use its SWF to further encourage the a change in the way Saudi money fl ows Islamic fi nance industry. Currently most through global markets. Some industry of the regional SWFs appear to invest players believe that the kingdom should our facebook page? in an agnostic manner. If a portion of already have diversifi ed from holding

What impact will the ASEAN Economic Community have on the region’s Islamic ϐinance sector?

As the deadline of 2015 approaches the ASEAN Trading Link, envisioned market in the Philippines: “Given the for the implementation of the ASEAN to connect seven of the exchanges recent agreement regarding Islamic Economic Community (AEC), could the within ASEAN (Malaysia, Vietnam, fi nance between Malaysia and the closer economic relationship between Singapore, Indonesia, Thailand and the Philippines, the development in Sukuk the 10 ASEAN countries have an eff ect Philippines) to promote the growth of structures in Malaysia could be utilized on the region’s developing Islamic the regional capital market. The Trade in the Philippines for the funding of fi nance market? Will the infl uence of Link was joined by Malaysia, Singapore infrastructure development, providing the more developed Islamic fi nance and Thailand as part of the fi rst wave progress for the people of Mindanao sectors in Malaysia and Indonesia have following its launch in 2012, but as yet using Islamic fi nance.” an impact on the corresponding sectors no other exchanges have elected to take in ASEAN or will they feel the impact part despite Vietnam in March last year Cross-border Sukuk activity is already themselves? stating that its two exchanges would be taking place between Indonesia and the next to join. Malaysia with the issuance of Sukuk Ariff Sultan, the regional director (Asia) from Indonesian and Singaporean for IdealRatings, believes that the The capital market appears to be the palm oil producers taking advantage of outcome could be a positive one: “There most likely place that the impact of Malaysia’s double-taxation deduction. are great possibilities theoretically for Islamic fi nance collaboration within The Sukuk market in Indonesia and the development and utilization of ASEAN will occur, also lending itself Singapore is developing and although Islamic fi nance within ASEAN. How the to the implementation of a number neither is as well established as that of governments will facilitate it in order of ASEAN pillars and core elements Malaysia, the respective governments to realize its full potential is where the including the free fl ow of investment, of these countries have demonstrably question will be. Malaysia has provided freer fl ow of capital and equitable committ ed to the expansion of the a model for Sukuk structuring that could economic development. Ariff believes Islamic capital market within their own be used as an ASEAN model.” that the implementation of the AEC borders and outside them, creating hope could provide great opportunities for for the further development of the wider One of the initiatives launched as part the equities market in Thailand and Islamic fi nance industry within ASEAN of the AEC Blueprint agreed in 2007 was the development of the Islamic capital in 2015 and beyond. — RS

Virgin Mobile ϐinancing — testament to the versatility of Islamic instruments

As a result of increased infrastructure Arabia, Virgin-branded services in the which demanded a tailored approach to investment and development in the kingdom and the UAE are both planned structuring, knowledge of doing deals in Gulf states, the telecommunications for commercial launch later in the year. the GCC and industry expertise. sector in the Middle East is witnessing VMMEA has a target to serve more than signifi cant growth. Earlier this month, 10 million customers and to generate BLME employed a local counsel to Virgin Mobile Middle East Africa US$1 billion in sales over the next fi ve advice on the requirements involved for (VMMEA), the regional mobile virtual years. cross-border security registration and network operator (MVNO) group, perfection, in addition to negotiating an secured a Shariah compliant fi nancing As an MVNO, the company’s main value extended fi nancial covenants package facility worth US$15 million. The derives from intangible assets: such with the company. The exercise sought facility was concluded between BLME, as branding, intellectual property, and to balance bankability with operational as the fi nancier, and Moobility Telecom core supply and customer relationships. fl exibility during the investment and International Holding, which is the The fi nancing facility was engineered growth phase of the business plan. holding company for the VMMEA based on the Murabahah structure, According to BLME, the challenges group of companies. allowing BLME to extend fi nancing to the were resolved by performing exhaustive company against incremental future cash fi nancial and legal due diligence. Speaking to Islamic Finance news fl ows from planned rollouts as well as Massoud Janekeh, the head of Islamic the cash fl ows that the existing business “The successful conclusion of the capital markets at BLME, provided an will continue to generate. With a tenor facility is a sign of trust in the current insight into Virgin Mobile’s inaugural of fi ve years, profi t payments are made VMMEA operations and future plans. Islamic fi nance facility. “The facility was quarterly, on a fully amortizing basis. The deal with VMMEA demonstrates procured to fuel rollouts in a number The deal has been structured to allow for the versatility of Islamic fi nance in of countries across the GCC and Africa, future investors to participate under an off ering structured funding products which according to the company’s CEO Investment Agency agreement. to businesses in diff erent sectors,” is “an enabler for future accelerated concluded Massoud. —NA growth,” he explained. In partnership The deal culminated in a cross-border with Saudi Telecoms Company in Saudi agreement for fi nancing and security,

Liberalizing Malaysia’s capital markets paints a brighter picture for Sukuk Malaysia is one of the largest regional With the democratization of the bond Domino effect investors for intra-regional investment market from mandatory ratings, more So while Malaysia gears up to further (along with Singapore and Thailand) issuers are expected to come to market strengthen its capital market, the and it also leads in the banking sector due to the drop in issuance costs; international Islamic fi nance community in the ASEAN region. Yet the rising driving up Sukuk volumes as well as will undoubtedly be impacted as well, economic prowess of neighboring bring diversifi cation in terms of risk considering the solid anchor the country ASEAN peers such as Cambodia, and types of issuers. Not forgett ing that represents in the global space with its Vietnam, Laos and Myanmar is without the need for a rating exercise, robust Sukuk market: boding well for pushing Malaysia to re-think its issuers could issue faster and more the progress of the wider Islamic fi nance strategy to remain competitive in the frequently. industry. — VT region; sett ing the impetus for drastic liberalization measures including the removal of its mandatory credit ratings Discerning Not just cities requirement by 2017, apart from lifting the barrier on new foreign unit trust investors will Algiers management companies entering Malaysia. As the world’s largest Sukuk be the key driver of Buenos Aires market, this credit rating measure (to Cairo be gradually implemented beginning credit ratings in the next year) is set to impact its domestic Dhaka capital markets as well as the wider future, and this will Essen global Islamic debt market. be important for the Freetown Gaborone Market-driven continuity of pricing “The removal of the mandatory credit Havana ratings is a positive move as it will transparency Islamabad open up the market to diff erent types Jerusalem of issuers; allowing the capital markets to be more market-driven, rather than Kabul regulatory-driven,” explained an Lusaka analyst to Islamic Finance news (IFN). “With the liberalization of the bond This shift towards a market-driven market, we can expect to see more SMEs Minsk environment means that investors, who and listed companies tap the unrated Nassau have long relied on rating agencies to bond market,” shared the top executive analyze the creditworthiness of issuing of an international asset management Ottawa companies, will need to assume higher fi rm based in Malaysia, with IFN. Phnom Penh responsibility in terms of due diligence. This is expected to deepen market Quito “Discerning investors will be the key liquidity and coupled with the fl exibility Reykjavik driver of credit ratings in the future, and in terms of tradability of unrated Sukuk st Sarajevo this will be important for the continuity and bonds (to take eff ect on the 1 of pricing transparency,” Foo Su Yin, January 2015), more trading interest will Tripoli CEO of RAM Ratings, confi rmed this in emerge within this space; giving the lackluster secondary Sukuk market a Ulaanbaatar an emailed statement to IFN. much-needed boost. Vientiane Warsaw Cheaper and faster Rating agencies irrelevant? Pricing has generally been a key So does the removal of credit ratings X………….. concern for Sukuk issuers worldwide render rating agencies irrelevant then? Yaounde and the bulk of the cost is tied to Not necessarily. While it may be possible Zagreb rating exercises. According to experts, to ascertain the creditworthiness rating agencies could charge issuers of public-listed companies as their in Malaysia up to 6bps of their total fi nancials are publically available, that is We have subscribers in all of these cities program size for their services, while not the case for privately-owned fi rms. an annual review costing another Investors would likely to ask for a bond Does anyone know anyone in Xangongo? 5bps could deter foreign issuers to or Sukuk to be rated due to a dearth of Can you spot the odd one out in the above list? Malaysian shores as this would add to information. This is especially true in the transaction cost already escalated by Malaysia, whereby most investors are Contact us now for a free trial…… [email protected] legal and accounting advising fees. averse to unrated Sukuk/bonds.

What impact will the implementation of GST have on Malaysia’s Islamic ϐinance industry?

The date of the 1st April 2015 has fi nally of the Islamic fi nance industry without however the apprehension shown with been set for the implementation of the the looming fear of the imposition of regard to the introduction of the new tax Malaysia’s new goods and services tax excessive additions to the cost of banking. is due to a lack of understanding and (GST), announced at the October 2013 According to the guidance supplied by awareness of its parameters. The GST, in reading of the government budget for RMCD, the sale of an asset by an Islamic replacing the country’s current limited the following year. Despite the initial bank is exempt from GST and any input consumption tax from 10% in the form of proposal in 2009 of an alternative to tax incurred on other transactions made service tax to 6% across the board, should replace the current 10% sales and services to fulfi l the process of fi nancing are fully in theory reduce certain costs. However tax, Malaysia moved no further forward claimable by the bank. it will be down to suppliers as to whether with the plan to implement the 6% GST this saving will be passed on.” Given that until the announcement in October. Much of the antipathy displayed the GST rate of 6% is one of the lowest However, it has since outlined the towards the GST comes from the lack of in the world, the Malaysian government implementation of the new tax for various awareness regarding the specifi cs of the has allocated RM100 million (US$31.06 industries, including Islamic fi nance. tax, according to Yap. “There may be an million) for an information campaign infl ationary impact witnessed in April regarding the implementation of the An industry expert speaking to Islamic 2015 with the introduction of the GST, impending tax. — RS Finance news (IFN) asserted that the most important distinction to be made in the GST legislation for Islamic fi nance is the defi nition of Islamic structures and how An overview of the they are interpreted by the law — form SAVE over substance. This appears to have key financial markets * been taken into consideration by the 25% Quote IFH25 on Royal Malaysian Customs Department www.wiley.com (RMCD) as its moves forward toward in Islamic Finance implementation of the tax, with the The Islamic Finance Handbook services provided by Islamic fi nance is the definitive report for the Islamic finance industry. Written by the falling under the banner of three GST industry’s leading practitioners, the book provides a supply types: standard rate, zero rated country-by-country breakdown of the current state and exempt. of the Islamic market, including league tables by region and by country. Relevant case studies are used According to Bernard Yap, an analyst with throughout to illustrate the practical aspect of the EY, with the introduction of the new tax, information presented. Organized for easy navigation, each chapter features sub-sections that allow instant Islamic fi nance continues to remain on an comparison between countries even standing with conventional fi nance in a specific area of interest. in terms of legislative treatment. “The t Current macroeconomic and microeconomic RMCD has agreed to uphold the neutrality conditions principle ensuring that the Islamic fi nance t Regulatory and political situations industry is not more aff ected in any way by t Recent transactions, key participants, and the the introduction of GST. Whilst in principle investor climate this is positive, how it will be implemented t Real-world cases, as opposed to speculative scenariosrios is still to be seen. However, it sets the foundation for Malaysia to continue to lead About REDmoney in the development of the Islamic fi nance REDmoney is a publishing and events company focusing purely on the global Islamic finance industry.” market. The company was started in mid-2004 in Kuala Lumpur, Malaysia, by Andrew Morgan and Andrew Tebbutt, and initially rolled out two products: Islamic finance training and Islamic finance news. Since then, a range of other products have been introduced including conferences, print Retail banks and their customers are likely media, and consulting. to experience the impact of GST most keenly, as are trade fi nance participants, Buy your copy today! with the standard rate being applied to fee-based services including annual www.wiley.com/buy/9781118814413 subscription for bank cards, processing fees and commission for fi nancing and advising on fi nancial services. However 978-1-118-81441-3 | Cloth | 592pages | April 2014 | US$150; €72.00; £60.00

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What if Qatar loses the right to the World Cup? No big deal

The general atmosphere was glum has been a slowdown in projects in light 12th June. Volume of shares fell to 9.66 from the get-go when Qatar won the of the controversy surrounding Qatar’s million from 12.77 million; while value bid to host World Cup 2022, with more hold on the World Cup. But the source of shares tumbled to QAR441.02 million questions and doubts than excitement remained unfazed by the ramifi cations (US$121.05 million) from QAR610.92 from the international soccer community. of potentially losing the World Cup bid. million (US$167.68 million). The banking Despite this, the win did set off a spark “We have to bear in mind that these industry was one of the most aff ected — within the investment fraternity — projects were going to happen with or Qatar Islamic Bank lost 2.54% to QAR96 the fl oodgates for investments were without the World Cup anyway, as part (US$26.35) while Qatar National Bank opened and the sultanate revved up of the country’s National Master Plan.” declined 2.59% to QAR180.2 (US$49.46). the gear for infrastructure projects and experts also projected Islamic fi nance But does this pose a threat to the activities to surge riding on the wave of sultanate’s investment environment? project development. But as evidence of We have to “There’ll be some short-term eff ects, corruption and allegations of modern- but I don’t see any long-term eff ects [in day slavery come to light, Qatar’s grip bear in mind the context of equities markets],” the on the bid is under serious threat. The that these projects investment analyst asserted. question now is: What would it mean to Qatar, economically and fi nancially, were going to An obvious reason for the sense of if its right to the host the world’s largest comfort amid the chaos is Qatar’s sheer soccer event was taken away? happen with or wealth. It is the richest country in the world, Qatar reached an estimated per “If it happens fi ne, if it doesn’t — it’s no without the World capita GDP of US$105,000 last year big deal,” quipped an Islamic banking (according to the IMF World Economic investment analyst to Islamic Finance Cup anyway, as part Outlook 2013). The country also achieved news. Yet this does not tally with the an astounding budget surplus of amount of preparation for the event that of the country’s QAR94.6 billion (US$25.95 billion) for the Qatar has already planned. According to July-September 2012-13 period. And the Deloitt e, the state in 2013 was ready to National general consensus among experts is that invest some US$200 billion over the next even if Qatar had to concede its grasp fi ve years into transforming its landscape Master Plan on the World Cup 2022 bid, the fi nancial to accommodate world-class stadia and aftermath would be manageable, if other construction projects, and was also not negligible. The economy will still willing to inject another US$140 billion Despite the optimism from within the be driven forward by its aggressive to upgrade its transport infrastructure, country, it is clear that repercussions are urbanization plans, and business will which includes a new metro line. already being felt. On the 15th June the remain as usual in the long-run, albeit Qatar Exchange took a beating when with perhaps a slightly bruised ego from An industry insider, who asked to trading closed at 12,733.2 points, 1.58% its World Cup debacle. —VT remain anonymous, confi rmed that there lower from the previous closing on the Islamic Finance QQualification (IFQ) 23rd – 25th June 2014, Kuala Lumpur

Key Highlights: • Key Islamic Finance Principles • How Islamic and Conventional Finance Differ • Structuring Rules for Islamic Financial Products • Sukuk & Islamic Securitization • Islamic Asset & Fund Management • Takaful • Financial Statements for Islamic Banks • Corporate Governance for Islamic Finance

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Africa: Approach with caution

Africa is often heralded as the next Speaking exclusively to Islamic Finance warned Griff erty. “Each issuance will be frontier for Islamic fi nance, and news he remained cautious on the considered on its own. When they open there is no doubt that the continent immediate investment prospects in their doors there will be demand, but holds exceptional opportunities the continent, despite the strong levels only if they meet the right criteria.” both for domestic development and of interest on both sides of the strait. international development. However, “We work closely with a number of These include a strong asset base and a challenges remain that make this international fi nancial institutions; and reasonable credit rating — something market very far from perfect, and its we have seen a great deal of interest, that is lacking at the moment. “The potential should not be taken at face both offi cial and otherwise, in Islamic infrastructure used to issue also has to value, but considered in the wider fi nance and in Sukuk especially,” he be standard,” according to Griff erty. context of overall commercial value. confi rmed. “But there are concerns about “If issuances are in local currency keeping expectations in line as to what for example, the central banks will can be accomplished, and we have to be eventually have to link to international Issuers need aware of the limitations of the prevailing sett lement systems. Investors are not only environment.” concerned about yield and credit — they to understand evaluate other types of risk as well.” The continent is on the eve of at least who to reach out to, one sovereign issuance, with Senegal Another issue is that most capital due to announce any day now. But while markets in Africa are being driven from and that will take a maiden issuance will set a valuable the top down rather than from the some maturing benchmark for the market, there are still bott om up, with relatively litt le demand serious issues around the lack of a clear seen from the private sector. “I don’t legal, tax and regulatory framework in really see a groundswell of interest from and growth. The corporates yet,” noted Griff erty. “I think most African countries which are not it will be government-led for a while.” issuer and arranger only delaying the issuances themselves, but could deter investors. And these governments do not always community in Africa understand the investor base that they “It takes a while for fi rst-time issuers are trying to att ract, especially if they to get things done and there are doesn’t have a lot are unfamiliar with the Sukuk market considerations that policymakers here in general. “Issuers need to understand haven’t dealt with before, that can take of experience in the who to reach out to, and that will take time to make satisfactory arrangements some maturing and growth. The issuer special needs of the for,” explained Griff erty. “But equally, and arranger community in Africa Sukuk there has to be an understanding of the doesn’t have a lot of experience in the level of demand. These are relatively small special needs of the Sukuk investor.” investor issuances from small issuers of fairly low credit quality. Even though there is a large Emphasis should also be placed on pool of liquidity in the Gulf for Islamic the importance of African sovereigns instruments, this doesn’t automatically integrating their Sukuk into existing The chairman of the Gulf Bond and mean it will fl ow into these issuances.” debt management frameworks and debt Sukuk Association, Michael Griff erty, issuance programs, from a legal and this week returned from holding a African products will be reviewed on a market infrastructure point of view. seminar on Islamic fi nance in Dakar, credit base, and while there is defi nite “This way they are more likely to build Senegal in collaboration with the African interest from investors, they will a capability to last beyond an initial Development Bank, International inevitably be judged on a commercial issuance and also to leave a legacy for Monetary Fund (IMF) and European basis. “There is no generalized push corporates and projects to benefi t from,” Investment Bank. to invest fi xed income in Africa,” explained Griff erty. — LM

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Thailand: An opportunity for Islamic ϐinance?

Despite the introduction of an act relating to Islamic fi nance in 2002, the industry in Thailand has seen litt le developmental progress over the years, due to minimal support from the Thai government for a comprehensive legislative and regulatory system for the sector. As the country’s sole Islamic bank, the Islamic Bank of Thailand, recovers from a particularly tumultuous 2013, REBECCA SIMMONDS explores the current condition of Thailand’s Islamic fi nance off ering.

Legal and regulatory a 49% direct stake in IBank and also has three insurance companies is expected Islamic fi nance has been present in stakes in shareholders KTB, bringing its to reach THB30 million (US$917,016). Thailand in some form since 1987, when combined ownership of the bank to 98%. the Patt ani Islamic Saving Cooperative In May 2013, the bank’s non-performing Shariah compliant index was established to manage funds in loans reached 20% of its lending and the The FTSE SET Shariah Index was southern Thailand, which were worth country’s Ministry of Finance approved launched by the Stock Exchange of THB90 million (US$2.75 million) in a THB6 billion (US$185.3 million) fund Thailand (SET) and the FTSE Group in assets at the end of 2001. By the end to recapitalize the bank, with THB3 April 2009 and is reviewed in June and of 2001, four other Islamic saving billion (US$92.6 million) provided by December. The index is comprised of cooperatives has been introduced in the ministry itself and shareholders GSB 86 companies with Shariah compliance the same region: Ibnu Aff an Saving and KTB providing the remainder. is assessed by rating debt ratio limits Cooperative, As-Siddiq Saving measured as less than 33.33% of total Cooperative, Saqaff ah Islam Saving In June 2013 IBank announced plans assets, and total interest and non- Cooperative, and Al- Islamiah Saving for a capital increase of THB7.11 billion compliant activities income should not Cooperative. (US$217.33 million) and the issuance exceed 5% of total revenue. Industrial of a THB5 billion (US$152.83 million) goods and services, construction The Government Savings Bank utilized Sukuk, which would be the country’s and materials and real estate are the an Islamic window to provide Islamic fi rst, to aid the bank’s capital-raising categories with the most constituents; banking products and services for the plans. IBank’s previously stated plans fi nancial services were not represented country’s four million Muslims (around for a Sukuk included the naming of on the index at all as of 31st May 2014. 6% of the total 66.8 million population), CIMB Bank Malaysia as the arranging along with the Bank for Agriculture bank, with investors in Hong Kong and Challenges and opportunities Malaysia targeted for the proposed fi ve- and Agricultural Cooperatives. In 2001, The introduction of the ASEAN single year issuance. However, no issuance has KrungThai Bank opened an Islamic market in 2015 has been hailed as an yet been forthcoming. branch just prior to the introduction of opportunity for the development of the the Islamic Bank of Thailand Act which Islamic fi nance industry in Thailand and In February 2014, the bank issued results was instituted in 2002, paving the way a chance to introduce foreign Islamic for the establishment of the state-owned of an unaudited profi t of THB2.7 billion banks to the country to meet both Islamic Bank of Thailand the following (US$82.53 million) for the fi nancial year the needs of the indigenous Muslim year. 2013, a marked increase on the loss of population and those of the predicted THB13.25 billion (US$405.02 million) the number of Muslims to visit the country, As early as 2010, the Thai government previous year, as a result of an overhaul as a result of the establishment of the stated that a regulatory framework of its bad debt portfolio and increases single market. Calls have been made by regarding tax issues for a sovereign in deposits and small business lending. politicians, practitioners and academics Sukuk, called the Trust Act, would Along with the results, the bank stated alike for a greater understanding of be put in place however this has not that it aimed to increase loans by THB20 Muslims to be cultivated in general materialized and the regulations for billion (US$611.34 million) and deposits and a greater understanding of Islamic Islamic fi nance as whole still remain by THB25 billion (US$764.18 million) fi nance in particular, to make the most fragmented. Currently the country’s in 2014. IBank has a branch network of of the opportunity. only Shariah compliant bank, the Islamic 106, as of February 2014, with plans to Bank of Thailand, is prohibited from expand to the Middle East within the Outlook investing abroad; limiting its scope to next three years, and grow its domestic Islamic fi nance education and the Shariah compliant investment options network from 106 branches to 130. within Thailand. gamut of Islamic fi nancial options could be welcomed in this largely In June, the bank signed an MoU with untapped market although the Banking and ϐinance three insurance companies — Thai necessary changes to the regulatory The Islamic Bank of Thailand (IBank) Life Insurance, South East Insurance framework to create an even playing has acquired the Islamic banking and Muang Thai Life Assurance — to fi eld for Islamic fi nance structures windows of the Government Savings promote its Takaful off ering, with would be a key step indicating that Bank (GSB) and Krung Thai Bank (KTB) predicted combined contributions of the government is actually willing to making it the only bank to off er Shariah THB500 million (US$15.28 million) for make the commitment to the further compliant banking products in the IBank by the end of the year, whilst the development of the country’s Islamic country. The Ministry of Finance owns fee income from selling products to the fi nance provision.

Cross-border Islamic ϐinance: The international impact

According to global management consulting fi rm McKinsey, cross-border foreign capital into emerging markets totaled US$1.5 trillion in 2012, accounting for 32% of global capital fl ows. Cross-border investment is a growing sector for emerging markets and a prime opportunity for Islamic fi nance provided the relevant legislation is in place to ensure an equal operating system for investors. REBECCA SIMMONDS investigates the developments in cross-border Islamic fi nance over the last six months.

Cross-border demand for In March, Singapore-listed palm oil markets, hold the key to the success Sukuk producer Bumitama Agri issued a of Islamic cross-border fi nance. In a Sukuk program worth up to RM2 billion recent report the EY Global Islamic Sukuk make up a prominent proportion (US$606.29 million) in Malaysia in Banking Center stated that across Qatar, of cross-border Islamic fi nance order to diversify its US dollar funding Indonesia, Saudi Arabia, Malaysia, the transactions. Multilaterals including the sources, as just one of a number of UAE and Turkey, the combined profi ts IDB, ICD and IILM have all emphasized Indonesia-based palm oil producers of Islamic banks exceeded US$10 billion the importance of strengthening Islamic taking advantage of Malaysia’s three- for the fi rst time at the end of 2013 and cross-border fi nance and highlight this, year double tax deduction. In June, Bank could pass US$25 billion by 2018 if as well as aiding liquidity, as a driver of Tokyo-Mitsubishi UFJ announced its the current growth rate is maintained. for continued and increased dollar- denominated Sukuk issuance on their intention to fl oat up to US$500 million In African countries such as Nigeria, part. The distribution of Sukuk among worth of yen-denominated Sukuk in Kenya, Libya and Senegal there has investors is diverse for such issuances, Malaysia as a means of breaking in been a push to improve the countries’ with the most recent IDB issuance to the global Islamic fi nance market respective Islamic fi nance frameworks seeing a geographical distribution across and creating a channel for Islamic in order to make the most of the Asia, Europe and the Middle East and a investment in Japan. opportunities that Islamic fi nance off ers. wide distribution among investor types as well. Cross-border collaborations Greater connectivity between these At the start of June 2014, Virgin Mobile markets is the key element involved Sukuk off erings from corporate issuers Middle East & Africa secured a US$15 in growing the rate of cross-border have also drawn international att ention, million senior secured fi nancing facility activity and with talks between the including the recent issuance by Emaar from UK-based BLME, with the cross- EU and Africa regarding an economic Malls Group, which saw initial primary border agreement covering operations in partnership agreement making litt le market distribution of its debut US$750 Oman, Jordan, Saudi Arabia, Malaysia head way, the relationship between million Sukuk reach investors from and South Africa and being used to Africa, Asia and the Middle East the Middle East (33%), Europe (38%) fund the company’s growth in the GCC promoted in part by the OIC, provides and Asia (29%). Impending sovereign region expanding on its current markets. an opportunity to ensure that cross- Sukuks from Hong Kong, Luxembourg border Islamic fi nance gains a foothold and the UK have also peaked investor Also in June, the ICD signed an MoU via intra-OIC trade. Indonesia is interest globally, especially with the with the Saudi-Egyptian Business currently the top pick for expansion news that the UK will issue its Sukuk by Council, which under the umbrella opportunities among Malaysian SMEs the end of June. of the Saudi Ministry of Trade and seeking to grow their business in Industry and the Egyptian Ministry of Southeast Asia according to a survey by Turkey was the location of the year’s Industry and Investment, to cooperate United Overseas Bank, with FDI into fi rst US dollar-denominated Sukuk on agricultural projects and support South-east Asia growing 136% from issuance by Turkish participation bank Saudi businesses in Egypt, off ering US$47 billion in 2009 to US$111 billion Turkiye Finans, issuing a fi ve-year Islamic fi nance solutions to foster in 2012. US$500 million Sukuk through SPV cross-border trade and investment. The TF Varik Kiralama. The issuance was Saudi side of the Business Council is Outlook almost three times oversubscribed with responsible for monitoring of all Saudi As the international appeal of Islamic orders worth approximately US$1.4 investments in Egypt, which reportedly fi nance continues to develop, cross- billion from 125 investors across Europe, amount to US$27 billion. border transactions are becoming more Asia and the Middle East. In May, common and the scope of the market Saudi-based Dar Al Arkan followed: will continue to grow. The infl uence of issuing the country’s fi rst US dollar- SMEs multinationals such as IDB, ICD and denominated real estate Sukuk of the According to a number of industry IILM continues to be a driver for the year and listing on the Irish Stock experts, the next major growth driver progress of the sector, as will the growth Exchange. Dar Al Arkan has since listed for cross-border Islamic fi nance activity of SMEs, as their business becomes more three facilities from its Sukuk program is SMEs. Growing trade fl ows between international. worth a total of US$1.15 billion on Asia, the Middle East and Africa, all of NASDAQ Dubai. which have developing Islamic fi nance

Lack of integration keeps Sukuk issuance a local affair

Over the past decade, the global Sukuk market has grown strongly and become more diversiﬁ ed. In the last three years, total worldwide issuance has exceeded US$100 billion each year, with total issuance in 2013 of US$117 billion. Looking ahead, long-term prospects for the Sukuk industry remain promising, as regulators continue to build and strengthen their frameworks to minimize barriers in the market and deepen liquidity. Yet as MOHAMED DAMAK explains, despite this favorable outlook, challenges to growth remain.

One of the main issues eff ecting growth Chart 1: International and total Sukuk isuance 2003-13 prospects is that the market is still not fully integrated and continues to ȱȱȱǻĞȱǼ operate as a collection of local markets. ȱȱȱǻĞȱǼ ȱȱȱȱȱȱȱȱȱȱǻȱǼ The strongest market for Sukuk issuance, which has helped fuel the impressive ǻȱǞǼ ǻƖǼ growth over the past 10 years, is Malaysia, 160 60 followed by the countries in the GCC. In 140 2013, Malaysian issuance totaled US$82.1 50 billion, whereas in the GCC (Bahrain, 120 40 Kuwait, Oman, Qatar, Saudi Arabia, and 100 the UAE), issuance reached US$26.5 billion. 80 30 Over 40% of worldwide issuance in 60 20 2013 was short-term Sukuk issued in 40 ringgit by just one issuer — Bank Negara 10 Malaysia, the central bank. In 2013, 20 it issued more than US$50 billion of 0 0 short-term Sukuk, to provide domestic 2003 2004 2005 2006 2007 2008 2009 2012 2012 2013 2014 Islamic banks with liquidity management instruments. We have also seen a few Source: Zawya and Standard & Poor’s issuers from GCC countries, China, and Singapore taking advantage of the breadth of the Malaysian Sukuk market Chart 2: Geographic distribution of international Sukuk issuances in 2013 to issue small amounts, a trend Bahrain Germany Indonesia we expect will continue in the future. Japan Kuwait Luxembourg Malaysia Pakistan Qatar Saudi Arabia Singapore Sudan However, the majority of this Sukuk Turkey United Arab UK US issuance in Malaysia and the GCC Emirates occurs locally in domestic currencies. International Sukuk issuance — that is ǻȱǞǼ 25 Sukuk listed on a major exchange and generally issued in hard currencies — 20 remains very low. Issuance in domestic currencies continues to signifi cantly 15 outpace issuance in ‘hard’ currencies such as US dollars. In fact, of the US$117 10 billion in Sukuk issued in 2013, only 16% was truly ‘international’, which is 5 considerably lower than 48% of the total that was seen in 2006 (see Chart 1). 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 International issuance has not only fallen as a percentage of the total, it has Source: Zawya and Standard & Poor’s also fallen slightly in absolute terms. Just US$18.9 billion was issued in 2013, return to growth as part of the fi nancing stronger interest from nontraditional compared with US$19.1 billion in 2012; for investment projects in core markets. issuers in regions such as North Africa, some Sukuk issuances were not repeated. While international issuance by entities sub-Saharan Africa, Europe, and domiciled outside traditional markets countries such as Russia. That said, while Despite this fall in issuance, we anticipate now represents only a small share of that international Sukuk issuance may Sukuk issued worldwide, we have seen continued...

Continued

Chart 3: Investor locations weighted ȱŚǱȱ¢ȱȱęȬ¢ȱȱȱȱȱ¢ by investment size ǻƖǼ Conventional Sukuk Middle East 36% 4.5 US 12% 4.0

3.5

3.0 Europe 17% 2.5

2.0

Domestic (country

ȱȱȬŗřƖǼ 31/12/2004 31/12/2005 31/12/2006 31/12/2007 31/12/2007 31/12/2008 31/12/2009 31/12/2010 31/12/2012 31/12/2013 31/12/2014 Asia 22% Source: Central Bank of Malaysia issuance in these countries may support market development, we expect progress Chart 5: S&P MENA Sukuk and conventional bond indices yields to be slow. S&P MENA Sukuk index S&P MENA Bond and Sukuk Index Overall, most international Sukuk S&P MENA Bond Index originate in the GCC. Around 75% of those issued in the past decade were ǻƖǼ originated by issuers from Middle 4.0 Eastern countries (see Chart 2), mainly 3.8 issuers from the UAE, followed by Saudi 3.6 Arabian and Qatari issuers. 3.4 3.2 Over the past few years, new players 3.0 have entered the international issuance 2.8 market, especially from Indonesia 2.6 and Turkey, eager to att ract a new 2.4 investor class. Over the past three years, 2.2 Indonesia in particular, has issued three 2.0 sovereign Sukuk of US$1-1.5 billion each. Meanwhile, Turkish issuers — including the government — have tapped the 08/01/2013 15/08/2013 29/08/2013 09/12/2013 26/09/2013 10/10/2013 24/10/2013 11/07/2013 21/11/2013 12/05/2013 19/12/2013 01/06/2014 20/01/2014 02/03/2014 17/02/2014 international issuance market for a total of about US$4 billion. MENA-Europe, the Middle East and Africa

We expect this trend to continue as were from the Middle East and 22.4% off ered by Sukuk or the diversifi cation it issuers in certain other countries have from Asia. The remaining investors were brings to their portfolios. announced their willingness to tap this mainly from Europe (16.8%) or the US market to diversify their investor base (12.3%; see Chart 3). That said, because Mohamed Damak is a credit analyst of and att ract funding in a foreign currency. the data are based on a limited number fi nancial services at S&P. He can be contacted However, this does not imply a shift of Sukuk, we consider these fi gures to be at [email protected]. in the composition of the international indicative. Sukuk market. Interest from issuers outside the Narrowing our focus to Sukuk issued by traditional markets has increased, chiefl y entities domiciled outside the GCC and because Shariah compliance att racts Malaysia, data we have compiled from deep-pocketed Middle Eastern and Asian investors. We understand that about  various sources indicates that, from 2001 to 2013, a high proportion of investors for half of Sukuk investors invest in such such international Sukuk came from the instruments for religious reasons. These To read the rest of this article, Middle East and Asia. investors typically include Islamic banks, Takaful companies, Islamic funds, and please log on to These investors represent an average high-net-worth individual investors. The www.islamicfi nancenews.com of about 60% of Sukuk investors; 36.% other half is either interested in the yield

Beyond Murabahah — new ways to serve Muslim microϐinance clients

It is increasingly evident in the microfi nance sector that millions of potential Muslim clients will remain outside the fi nancial mainstream unless they have access to Shariah compliant products that comply with Islamic rules against earning interest. Yet so far the microfi nance institutions that have ventured into this space have limited their services largely limited to the cost-plus-markup product known as Murabahah, which is geared toward asset purchases, and not working capital. MAYADA EL-ZOGHBI discusses new methods through which clients could be assisted.

With an estimated 650 million Muslims In all cases, however, more evidence of by Pakistan-based Wasil Foundation, living on less than less than US$2 these non-Murabahah products’ viability ultimately won the US$100,000 prize for a day, fi nding sustainable Islamic and reach was needed to help the Islamic its sustainability, potential to scale up — microfi nance models is a crucial part to microfi nance industry grow — an including among smallholder farmers include the poor in the formal economy. imperative equal to the vast numbers of in other predominantly Muslim — and, To move beyond Murabahah and begin Muslim poor who may otherwise shy most importantly, its impact on the lives to explore other, more innovative ways away from conventional microfi nance of Wasil’s clients. to serve Muslim microfi nance clients — products. Given the costs and risks and ultimately help them generate the associated with Shariah compliant Arriving at the decision was not easy, income they need to rise out of poverty products — and the ways in which these but the judging process off ered a — a fi rst step is to identify what Islamic costs could be amplifi ed when dealing window into the potential application of microfi nance practitioners are doing with microfi nance clients — the Islamic sophisticated Islamic fi nancial products to boost their outreach in some of the Microfi nance Challenge sought to within the microfi nance sector. After Muslim world’s least served markets. support existing innovative models that shortlisting three applicants using a That is why the global development demonstrated potential for sustainability scorecard and a confi dential vote, the group Consultative Group to Assist the and scale. In all cases, these models had to judges gathered in London on the 3rd Poor (CGAP), recently partnered with have, at their core, a demonstrated ability June to hear live pitches from each of the the IDB, Al Baraka Banking Group to meet the fi nancial needs of poor and fi nalists and ask questions. The other two and Triple Jump to sponsor the Islamic economically vulnerable populations. fi nalists — Sudan’s Bank of Khartoum Microfi nance Challenge. and the Kyrgyz microfi nance institution Kompanion Invest — made compelling The global contest invited applications With an cases for their respective applications, detailing non-Murabahah products, both of which featured Mudarabah a deliberately narrow focus designed estimated 650 products. to uncover innovation in an Islamic microfi nance market marked by growing million Muslims living In the end, though, it was Wasil’s demand and an as-yet-narrow product demonstrated track record of improving off ering. This stands to reason, of course: on less than less than its clients’ lives — and those of their alternatives to the straightforward families — that swayed the judges. Murabahah transaction, including the US$2 a day, ϔinding In fact, their deliberations, which profi t- and loss-sharing products called were fi lmed and will form part of an Musharakah and Mudarabah, are costly sustainable Islamic upcoming video documenting the to administer and require risky equity Islamic Microfi nance Challenge, yielded fi nancing of microenterprises whose microϔinance models a unanimous decision in the Pakistani proprietors often mix personal and institution’s favor. Upon hearing the business expenditures or do not keep is a crucial part to news, Wasil founder and CEO Farida fi nancial records at all. Tariq expressed her thanks to the team of include the poor in organizers for having “given recognition Still, the Challenge organizers wanted to our work on Islamic fi nance”. to know what other models exist. For the formal example, for those potential Islamic That recognition, we hope, will lead microfi nance clients who are already economy to further improvement of Wasil’s engaged in income-generating activity outstanding work and — crucially (e.g. farmers), other products such as CGAP received applications from 11 — provide an incentive for other Salam fi nancing, which essentially countries stretching from Sudan to microfi nance providers to explore their provides advance payment against future Kyrgyzstan. The diversity of countries own Shariah compliant off erings. delivery, may be more viable. So too with was matched by the products on Istisnah, a product that defers delivery off er, which ranged from Mudarabah Mayada El-Zoghbi is the senior fi nancial of mainly manufacturing supplies until off erings to a package of Salam and sector specialist at CGAP, the Consultative clients have paid off these assets in fi xed Ijarah products designed specifi cally for Group to Assist the Poor. She can be installments. agricultural clients. The latt er, proposed contacted at [email protected].

Looking through the eyes of Islamic windows

This decade has seen an explosion of activity in Islamic fi nance, and many conventional banks have recognized the opportunity and opened Islamic windows to cater to the growing needs of Islamic customers. Among the fi rst top 500 Islamic fi nancial institutions globally, 359 currently operate fully under Shariah compliant principles while 141 conventional institutions are operating with Shariah compliant windows. CHOWDHURY SHAHED AKBAR explores the challenges involved.

Issues with Islamic windows Contrary to the above, there is a group These scholars argue that our prophet At the beginning of the Islamic banking of scholars who advocate this type of never disapproved such transactions journey, there were only fully-fl edged investment as long as the conditions and assert that when Islam allows Islamic banks and no such thing as stipulated by Shariah are fulfi lled. Their fi nancial transactions with non-believers, Islamic windows. The substantial growth view stands on two very important facts: it also means Islam allows fi nancial demonstrated by Islamic banks and their transactions with Muslims whose ability to capture considerable market Firstly, money itself is not unlawful, but wealth is a mixture of permissible share has led the conventional banking becomes prohibited through the way and non-permissible sources. These industry to introduce fi nancial tools it is procured. Sin does not move with views of the scholars are also in line the money from one party to another with ethos of Shariah objective and and products that comply with Shariah, and by nature money is not like some appropriate in the environment where which eventually led to the creation of items such as pork or liquor which are the Islamic banks now operate. Since, it Islamic windows. However, the journey physically prohibited as any mix up of is impossible to avoid mixed capital in of Islamic windows was not as easy as pork or liquor with another permissible current environment, it is permissible it was for fully-fl edged Islamic banks. item through any form of contract or to have deals (with it) even beyond It faced challenges which it still faces convergence will contaminate the item the emergency boundaries, because today even after years of operation. Its and will make the item forbidden. “if the people were limited to only two main challenges are: fi rstly, some emergency boundaries, thus human life people doubt the purity of the initial Secondly, capital employed by the parent will end, systems will be damaged and capital for Islamic windows and raise the companies of Islamic banks may not be at that point religious aff airs will also question whether these organizations entirely from prohibited sources. The be damaged and Islam will collapse are truly Islamic when their capital is paid-up capital is normally sourced from (because nothing can be done without not completely Halal. Secondly, it is individuals and permissible government the role of wealth),” as said by Imam also diffi cult for these Islamic banks to and private organizations, hence, it is Gazzali. convince clients to trust in them and their likely that the funds originated only ability to genuinely implement Islamic from permitt ed sources. It is to be From the above, it can be said that the Shariah law without manipulation or mentioned here that the initial capital of capital in a conventional bank, therefore, fraud as Shariah law does not permit Islamic banks is confi rmed as being from cannot be regarded as prohibited in its interest which is directly confl icting to permitt ed and Halal sources. Even if it is totality and cannot be rejected as the the principle of conventional banking from mixed sources, there is no problem initial capital for establishing Islamic system. Many customers also believe in accepting so. windows. It is bett er for banks to ensure that conventional banks are involved in that only the permitt ed portion is used many non-permissible activities from a The majority of Hanafi scholars including and separated specifi cally for Islamic Shariah point of view including usury, Ibn Qasim from the Maliki sect, Hanbali, windows. If it is not possible to fund speculating on derivatives, and fi nancing Ibn Taimiyah and a few prominent from only permissible sources, bank can activities and their money. The former scholars such as As-Syawkani and use non-permissible sources. problem is a much debated issue in the al-Muhasibi are of the opinion that it scholarly circle and banks themselves can is permissible to perform transactions Regulators view do litt le to tackle this apart from leaving with the owners of mixed capital when The regulatory views in regard to the it with Shariah scholars. the majority of the capital comes from permissibility of Islamic windows vary permitt ed sources. There is a strong basis from country to country. Malaysia (for Scholar’s opinion for their argument and is backed by the retail banking), Qatar and Lebanon do Some scholars hold the view that many dealings of the prophet during not allow Islamic banking windows conventional banks do not comply with in his lifetime. The Prophet and his and only permit fully-fl edged Islamic the Shariah in regards to the basics on companions performed transactions with banks. On the contrary, Ethiopia is a which these banks are established on the people of Makka before migration country where only Islamic windows are in the fi rst place and therefore it is not to Madina and the Bedouin Arab allowed and not fully-fl edged Islamic possible for these banks to comply with community when most of them were banks. In Oman, windows are allowed it in their funds, branches or windows. non-believers and their income were only through standalone branches. In They also buy the view that the funds from prohibited sources. Even during most of the rest of the countries in the of these conventional banks are drawn the migration, the prophet transacted world where Islamic banking exists, from non-permissible earnings and any with the Jews from Madina and the conventional banks are allowed to open investment of these funds into Islamic Bedouin Arabs who permitt ed what was products is not permissible. prohibited in Islam. continued...

Continued

Islamic windows. Recently Pakistan, this compliance to its customers • Banks should follow and comply which allows both Islamic windows via its annual reports, prospectus, with the standards set out by AAOIFI and fully-fl edged Islamic banks, made websites and other promotional and IFSB in its operations, reporting it a requirement that bank has to obtain materials. and audit. The AAOIFI and IFSB are writt en approval from State Bank of internationally recognized body for Pakistan before opening each Islamic • Islamic windows should have an Islamic banking practitioners and window and provide the regulator independent Shariah supervisory the collective personal reasoning with additional details on staffi ng, committ ee consisting of prominent (Ijtihad) of the AAOIFI and IFSB training and marketing arrangements. scholars who are highly qualifi ed are highly important for uniformed Bangladesh has now decided not to to issue Fatwas on fi nancial practices of Islamic banking globally. allow any new Islamic banks or Islamic transactions and have considerable Many countries in the world have windows of conventional banks until experience with knowledge of followed these standards and obliged the formation of a Central Shariah modern fi nancial dealings and their fi nancial institutions to comply Supervisory Council. Currently, there is transactions. This committ ee should with these standards. Confi rming no Central Shariah Supervisory Council freely give opinions and endorse all to these standards will help Islamic to regulate or monitor Islamic banks in the contracts, dealings, transactions windows to avoid confusion, the country. and investment activities through misunderstanding, and ambiguity monitoring, supervision and close and ensure clarity and sound Islamic The role of banks scrutiny of contracts, transactions, banking practices. In order to tackle the challenges they and procedures. Banks should faced initially, conventional banks arrange regular Shariah inspection Islamic windows of conventional banking are now providing Islamic banking established separate division within and audit at branch level. services to a greater section of Islamic the bank under which their Islamic banking customers. Therefore, these windows were opened. This division • If any funds or income are generated banks should deal with its challenges in was an independent division within the from non-permissible sources, such a way that will enable its customers these should be a small portion bank and appointed religious bodies to understand the issues arise in their compared to total income and (Shariah Supervisory Committ ees) to minds and help them to clear confusion supervise their operations and authorize should be purifi ed or cleansed in from their minds. Otherwise, mistrust and inspect their fi nancial products. the Shariah-prescribed manner. The and misunderstanding prevailing in the The Islamic windows of conventional bank can state its position in this minds of some section of customers will banks have now gained a considerable regards and disclose information as make Islamic banks look un-Islamic or amount of trusts of the clients and began to the percentage of these sort funds in some cases similar to conventional to compete with fully-fl edged Islamic or income and its chronological counterpart. banks. However there still exists a sense reduction by way of cleansing. of suspicion and mistrust among some It is viewed by Shariah scholars that clients with regards to genuineness of • The management of the banks should Shariah compliant transactions and Islamic windows of conventional banks be committ ed and dedicated to run its Islamic sound contracts are not confi ned and their Islamic products. This is an business according to the principles to a certain group of people, rather, it att itude that should be taken seriously by governing Islamic banking. The should be permitt ed to anybody who are the banks and they can take the following management has a critical role to willing to conduct dealings in accordance measures, some of which many have play as, at the end of the day, if they with Shariah. Hence, the regulatory already taken, to eradicate this mindset: are not committ ed to implement the body should allow conventional banks principles and policies, no matt er to operate Islamic windows. When it • One of the main distinguishing how strict and stringent Fatwa and is possible to run fully-fl edged Islamic characters of Islamic bank is contracts are, there will be no sound banks in the conventional economic interest-free banking. Islamic practices and deviation will prevail. system, it is equally possible to run banking has its own principles, tools Islamic windows of conventional and techniques through which it • There should be suffi cient trained banks as long as the Shariah conditions operates. Therefore, the funds of Islamic bankers in management. stipulated for them are fulfi lled. Besides, Islamic banking windows should Adequate training should be existence of more similar institutions will be completely separated from those arranged for all level of staff s starting promote competition which will lead funds in which Shariah provisions are from the senior management to Islamic banks to exercise more diligence not observed. The funds mobilized branch level staff s. Bank should and care in conducting their business through Islamic windows should arrange regular training program activities. not be commingled with the funds and workshop on Islamic banking of the deposits mobilized through principles and other related issues. Chowdhury Shahed Akbar is working in conventional branches. This should It is to be ensured that employees Southeast Bank in Bangladesh and has a be done through maintaining having proper knowledge of buying post-graduate degree in Islamic banking, separate accounts, books, and records and selling in investment operations fi nance and management from the UK. He confi rming this complete segregation of Islamic banking are recruited at can be contacted at akbar.chowdhury@yahoo. of funds. The bank should disclose branch level. com.

Maiden Sukuk issuance: Etiqa Takaful

Etiqa Takaful, the Takaful arm of Shariah compliant Takaful business as Malaysian banking conglomerate the Musharakah venture. Maybank, successfully issued RM300 Subordinated Sukuk Musharakah million (US$93.47 million) in Sukuk on According to Maybank IB, the main the 30th May 2014. The auction received challenge faced in the process of the encouraging response from investors issuance was to obtain the competitive RM300 million (US$93.47 million) resulting in an oversubscription of 1.75 pricing for the issuance of the times. With a maturity period of 10 Subordinated Sukuk Musharakah. The years, proceeds from the fl oat will be introduction of Basel III regulation on used to fund the company’s business capital components which came into operations, working capital and other eff ect early last year spurred a number of Shariah compliant corporate purposes. Basel III-compliant capital instruments in the Malaysian debt capital market In an exclusive interview with Islamic including Maybank’s RM1.6 billion 30th May 2014 Finance news John Chong, CEO of (US$497.04 million) Tier 2 subordinated Maybank Investment Bank (Maybank Notes in January 2014 and Maybank IB), the lead manager, principal advisor Islamic’s RM1.5 billion (US$465.98 and bookrunner for the issuance, reveals million) Tier 2 subordinated Sukuk in the hurdles and challenges encountered. April 2014. Issuer Etiqa Takaful Issuance price RM300 million “These have set a challenging pricing (US$93.47 million), benchmark with investors preferring to issued at par The main subscribe to Basel III-compliant capital instrument given the higher yield Purpose of To fund the issuer’s challenge compared to Basel II-compliant capital issuance business operations, instrument. To ensure that Etiqa’s Sukuk working capital and other Shariah compliant faced in the process was priced optimally, Maybank IB corporate purposes launched an intensive marketing exercise of the issuance for the Sukuk; by engaging the investors Trustee Pacifi c Trustees early and continuing to engage them was to obtain the throughout. This strategy worked and Tenor 10 years on a 10-year competitive pricing Etiqa’s Sukuk did achieve the optimum non-callable 5-year basis pricing which the issuer expected,” Profi t rate 4.52% for the issuance of elaborated Chong. Apart from that, timing to market and current market Payment Semi-annual the Subordinated conditions were also key considerations for Maybank IB to launch the Sukuk Currency Malaysian Ringgit Sukuk off ering. Maturity date 30th May 2024 Musharakah As the fi rst Takaful sector subordinated Lead manager, Maybank Investment Sukuk in the world, the ‘AA1’ standalone principal advisor Bank issuance was wholly subscribed by and bookrunner “The Musharakah structure was selected Malaysian investors comprising of Governing law Laws of Malaysia for this exercise for its simplicity, the asset managers, corporates and Islamic cost effi ciency and its familiarity by fi nancial institutions. — NA Legal advisor(s)/ Adnan Sundra & Low investors in the Malaysian Sukuk market. Counsel Furthermore, it was chosen because it does not require the issuer to commit Rating ‘AA1’ by RAM Rating a pre-identifi ed tangible asset for the Shariah Maybank Islamic tenure of the Sukuk Program.” Are you reading us on your iPad / iPhone? Advisor(s) The Sukuk issuance was based on the Structure Musharakah Musharakah structure, a principle Investor Asset managers (65%), based on a partnership contract with breakdown government agencies a partnership structure for sharing (26.7%), Corporates profi ts and losses. It involves investment (5%), Financial from all the partners and an agreement Institutions (3.3%) to share profi ts in a predetermined ratio and to share losses in the ratio Face value Not applicable. of contribution. For the subordinated / minimum investment Sukuk facility, the issuer contributes its www.IslamicFinanceNews.com

The market trends of Islamic investment IFN Country Correspondents AFGHANISTAN: Manezha Sukhanyar head of Islamic banking, Ghazanfar Bank funds in Indonesia AUSTRALIA: Gerhard Bakker director, Madina Village Community Services BAHRAIN: Dr Hatim El-Tahir director of Islamic Finance Knowledge Center, Deloitt e & INDONESIA Islamic investment funds consisting Touche mainly of government Sukuk and Islamic BANGLADESH: Md Shamsuzzaman By Farouk Abdullah Alwyni executive vice president, Islami Bank Bangladesh banks’ deposits. BELGIUM: Prof Laurent Marliere CEO, ISFIN The Islamic investment (portfolio) BERMUDA: Belaid A Jheengoor In addition to initiatives coming from director of asset management, PwC funds, known in Indonesian terms as BRUNEI: James Chiew Siew Hua regulators, the eff ort to increase the senior partner, Abrahams Davidson & Co Reksadana Syariah, started in 2003. market share of Islamic investment funds CANADA: Jeff rey S Graham Reksadana generally consists of Shariah partner, Borden Ladner Gervais is also shown by the industry players EGYPT: Dr Walid Hegazy compliant shares, Sukuk, and Shariah managing partner, Hegazy & Associates themselves. Some industry players now compliant deposits and/or Islamic FRANCE: Kader Merbouh are trying to tap the retail market by co head of the executive master of the Islamic fi nance, Paris- money market instruments. Over Dauphine University creating Shariah investment funds where HONG KONG & CHINA: Anthony Chan the last 10 years, the share of Islamic founder, New Line Capital Investment Limited people can invest as low as around INDIA: H Jayesh investment funds as compared to total founder partner, Juris Corp US$25. INDONESIA: Farouk A Alwyni funds has increased steadily to 4.9% CEO of Alwyni International Capital and the chairman in 2013 from 0.1% in 2003, as shown in of Centre for Islamic Studies in Finance Economics and This new marketing approach most Development Table 1. IRAN: Majid Pireh Islamic fi nance expert, Securities & Exchange Organization likely will contribute to the expansion of Iran of local individual investors to the IRAQ: Khaled Saqqaf The recent plan of the Financial Service partner and head of Jordan & Iraq offi ces, Al Tamimi & Co securities market, which has been highly JAPAN: Tareq Rahman Authority, known by its Indonesian Islamic fi nance consultant acronym as OJK, to lobby the Tax institutionalized for sometime. As on the JORDAN: Khaled Saqqaf 28th March 2014, local individuals only partner, Al Tamimi & Co Directorate General to give fi scal KOREA: Yong-Jae Chang incentives for the issuance of corporate held 7.2% of the total value of securities partner, Lee & Ko KUWAIT: Alex Saleh Sukuk, will also indirectly foster the in the market. partner, Al Tamimi & Co LEBANON: Johnny El Hachem growth of Islamic investment funds in partner – corporate, Bin Shabib & Associates Indonesia. This plan for fi scal incentives In view of the above, Indonesia may LUXEMBOURG: Said Qaceme senior manager of Advisory & Consulting, Deloitt e Tax & will basically complement the earlier witness further growth of Islamic Consulting MALDIVES: Aishath Muneeza plan of the OJK to study the possibility investment funds in coming years. This deputy minister, Ministry of Islamic Aff airs, Maldives is compounded also by the fact that MALTA: Reuben Butt igieg of developing rules, regulations, and president, Malta Institute of Management procedures for the issuance of corporate the country has been witnessing the MAURITIUS: Sameer K Tegally associate, Conyers Dill & Pearman retail Sukuk. growing composition of the middle MOROCCO: Ahmed Tahiri Jouti senior consultant, Al Maali Islamic Finance Training and class with new awareness to do business Consultancy and make investments in a Shariah NEW ZEALAND: Dr Mustafa Farouk These above-mentioned plans, if counsel member for Islamic fi nancial institutions, The approved, are expected to encourage compliant way. Federation of Islamic Associations of New Zealand (FIANZ) NIGERIA: Auwalu Ado corporates to issue Sukuk and/or retail Shariah auditor, Jaiz Bank OMAN: Riza Ismail Sukuk instead of conventional bonds. Farouk Abdullah Alwyni is the CEO of senior associate, Trowers & Hamlins More corporate Sukuk in the market Alwyni International Capital (AIC) and the PAKISTAN: Muhammad Shoaib Ibrahim managing director & CEO, First Habib Modaraba means more asset classes available for chairman of the Center for Islamic Studies PHILIPPINES: Rafael A Morales in Finance, Economics, and Development managing partner, SyCip Salazar Hernandez & Gatmaitan Islamic investment funds. In addition, QATAR:Amjad Hussain this will also give more alternatives to (CISFED). He can be reached at faalwyni@ partner, K&L Gates RUSSIA: Roustam Vakhitov existing fi xed income instruments of alwynicapital.co.id. managing partner, International Tax Associates SAUDI ARABIA: Nabil Issa partner, King & Spalding SENEGAL: Abdoulaye Mbow Table-1: Number and net asset value (NAV) of Indonesian Islamic investment funds Islamic fi nance advisor, Africa Islamic Finance Corporation SOUTH AFRICA: Amman Muhammad Number % of Islamic funds NAV of Islamic % of NAV of Islamic CEO, First National Bank-Islamic Finance SINGAPORE: Yeo Wico of Islamic compared to total Investment funds funds compared to partner, Allen & Gledhill investment funds funds (IDR billion) total funds SRI LANKA: Roshan Madewala director/CEO, Research Intelligence Unit 2003 4 2.15 66.94 0.10 SWITZERLAND: Khadra Abdullahi associate, Investment banking, Faisal Private Bank 2004 11 4.47 592.75 0.57 SYRIA: Gabriel Oussi, general manager, Oussi Law Firm 2005 17 5.18 559.10 1.90 TANZANIA: Khalfan Abdullahi head of product development and Shariah compliance, Amana Bank 2006 23 5.71 723.40 1.40 THAILAND: Shah Fahad vice-president and head of strategic marketing and product 2007 26 5.50 2,203.09 2.39 development, Islamic Bank of Thailand TURKEY: Ali Ceylan 2008 36 6.35 1,814.80 2.45 partner, Baspinar & Partners UK: Roshan Madewala 2009 46 7.54 4,629.22 4.10 CEO and director, Research Intelligence Unit UAE: Rima Mrad 2010 48 7.84 5,225.78 3.51 partner, Bin Shabib & Associates US: Joshua Brockwell 2011 50 7.74 5,564.79 3.31 investment communications director, Azzad Asset Management YEMEN: Moneer Saif 2012 58 7.69 8,050.07 3.79 head of Islamic banking, CAC Bank IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute 2013 65 7.90 9,432.19 4.90 designated short country reports. For more information about becoming an IFN Correspondent please contact Source: Indonesian Financial Service Authority (OJK) [email protected]

Effective branding of Islamic ϐinance in Japan

JAPAN general the majority of the population or even alternative investment which is are unfamiliar with Islamic fi nance. If profi table, then Japan could tap into the By Tareq Rahman anything, when they hear anything to Islamic fi nance realm. The verifi cation of Shariah compliance can be easily Over the past decade, Japan has shown do with religion, the Japanese tend to outsourced to various global Islamic growing interest in Islamic fi nance. be hesitant as the topic of religion is fi nance consulting fi rms. As a point of Many renowned Japanese fi nancial considered to be a sensitive matt er. But interest, the FTSE Shariah Japan 100 institutions have launched Islamic this does not mean that Islamic fi nance Index has outperformed its conventional banking operations in countries like doesn't have a chance in Japan. It is all counterpart over the past seven to eight Malaysia. Recently, Sumitomo Mitsui about branding. Most of the populace in years, both before and after the Lehman Banking Corporation received its Japan may not be aware that topics like shock. license to engage in Islamic banking corporate social responsibility (CSR) and and fi nance activities. In general, socially responsible investments (SRIs) In a country like Japan, where Islam is Japanese fi nancial institutions have are inherently Islamic. still under-represented, if the investor been eyeing profi table transactions like can be convinced that Islamic fi nance Islamic project fi nance. As of now, the For example, structuring Japanese stresses risk management, CSR, and current banking rules and regulations equity funds consisting of Halal SRI, then Islamic fi nance still has a good prohibit Japanese fi nancial institutions Japanese fi rms is very feasible onshore. chance of making it big. from engaging in Islamic fi nance Many of the fi rms off er funds based on activities onshore. They only allow various themes such as BRICs, ASEAN, Tareq Rahman is an Islamic fi nance overseas subsidiaries to engage in such and such. So structuring an Islamic consultant based in Japan. He can be activities, hence there is no onshore Japanese equity fund is simply another contacted at [email protected]. Islamic fi nance. fund based on a diff erent theme. It can Even though several Japanese fi rms also fall under alternative investments. have been engaged in Islamic fi nance, in As long as it could be branded as SRI

The potential of microTakaful for the poor IFN Sector Correspondents ASSET MANAGEMENT Sean Daykin, head of investment funds, Emirates NBD microϐinance segment Asset Management CROSS-BORDER FINANCING: Fara Mohammad, senior lawyer and consultant in Islamic LEASING Savings and credit facilities can assist fi nance DEBT CAPITAL MARKETS: the poor to overcome unforeseen losses; Muhammad Shoaib Ibrahim, managing director & CEO, By Professor Dr Shahinaz Rashad First Habib Modaraba however, their benefi ts are limited to the DERIVATIVES capacity of individuals to save or make Suhaimi Zainul - Abidin, treasurer for Gulf-Asia Shariah The MicroTakaful experience is still Compliant Investment Association and advisor to 5Pillars repayments. LAW (EUROPE): limited and cannot be compared Ayhan Baltaci, att orney at law, Bereket & Baltaci Law Firm to micro-insurance, yet it has great LAW (MIDDLE EAST) Bishr Shiblaq, head of Dubai offi ce, Arendt & potential in the light of the growing Medernach MicroTakaful LEASING: demand for Shariah compliant Professor Dr Shahinaz Rashad, executive director, microfi nance. MicroTakaful is a socially Financial Services Institute, Egyptian Financial can be an Supervisory Authority. responsible tool that aims to reduce MERGERS & ACQUISITIONS poverty; to help the vulnerable and Jamal Hijres, CEO, Cappinova Investment Bank effective mechanism MICROFINANCE (ASIA): to assist the underserved population Dr Mahmood Ahmed, executive vice president and director training, Islami Bank Training and Research through fi nancial inclusion and to mitigate risk for Academy practices such as pooling within villages MICROFINANCE (AFRICA): Mansour Ndiaye, director of microfi nance, Assistance and or communities. Consulting for Development the poor by reducing PRIVATE BANKING & WEALTH MANAGEMENT Khadra Abdullahi, associate, investment banking, Faisal MicroTakaful can be an eff ective Private Bank their vulnerability PRIVATE EQUITY & VENTURE CAPITAL: mechanism to mitigate risk for the poor Arshad Ahmed, partner, Elixir Capital PROJECT & INFRASTRUCTURE FINANCE by reducing their vulnerability to the to the impact Anthony Coleby, head of corporate commercial impact of disease, theft, disability and department, Said Al Shahry Law Offi ce (SASLO) REAL ESTATE (EUROPE) other hazards as well as safeguarding Philip Churchill, founder partner, 90 North Real Estate of disease, theft, Partners the productive use of savings and credit REAL ESTATE (MIDDLE EAST): Yahya Abdulla, head of capital markets — Middle East, facilities. The role of MicroTakaful is to disability and Cushman & Wakefi eld alleviate poverty by encouraging savings; REGULATORY ISSUES (ASIA) Intan Syah Ichsan , chief operating offi cer, Samuel Aset especially in countries such as Egypt other hazards Manajemen REGULATORY ISSUES (MIDDLE EAST): where microfi nance institutions and Mohammad Abdullah Malik Dewaya, head of Shariah micro-leasing companies are not allowed compliance and audit, Maisarah Islamic Banking Services RETAIL BANKING: to accept deposits and microfi nance MicroTakaful for the poor usually Ris Rizqullah, lecturer, Trisakti University RISK MANAGEMENT: segments with no savings. Thus, off ers Family Takaful products such Hylmun Izhar, economist, Islamic Research and Training microTakaful helps sustain the poor Institute, Islamic Development Bank Country as domestic credit insurance, material SECURITIES & SECURITIZATION: microfi nance users through savings and damage and livestock, fi re, burglary and Nidhi Bothra, executive vice president, Vinod Kothari Consultants to become socially responsible; while also agricultural insurance policies with very STOCK BROKING & TRADING: matching the principles of solidarity and Athif Shukri, research analyst, Adl Capital small contributions. So far, microTakaful STRUCTURED FINANCE: brotherhood. initiatives are operational in several John Dewar, partner and head of Islamic fi nance, Milbank, Tweed, Hadley & McCloy African countries such as Sudan, where SUKUK Research shows that the majority of the Anthony Coleby, head of corporate commercial Takaful in conjunction with micro-credit department, Said Al Shahry Law Offi ce (SASLO) very low income population in Africa is utilized for micro projects such as TAKAFUL & RE-TAKAFUL: Dr Sutan Emir Hidayat, assistant professor and academic who are considered poor (living on crops and insurance against draught and advisor for Islamic fi nance, University College of Bahrain less than US$4 per day) or below the TRADE FINANCE natural disasters. Anthony Coleby, head of corporate commercial line of poverty (less than US$1.25 per department, Said Al Shahry Law Offi ce (SASLO) TREASURY PRODUCTS: day) are vulnerable to sickness, death Professor Dr Shahinaz Rashad is the Nafi th ALHersh Nazzal, certifi ed fi nancial & investment by accident of the family breadwinner; executive director of Financial Services advisor IFN Correspondents are experts in their respective fi elds natural disasters; climate change Institute at the Egyptian Financial and are selected by Islamic Finance news to contribute designated short sector reports. For more information (draught); fi re or theft; loss of the Supervisory Authority. She can be contacted about becoming an IFN Correspondent, please contact main source of income; and loss of job. at [email protected]. [email protected]

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Thailand: Time to start afresh

Thailand has had its share of political crises during the past 10 months, which saw the closure of Bangkok when the protesters against the government took over the streets of the city. The political turmoil not only took 27 lives but also took its toll on the economic growth of the country. S M AAMIR SHAMIM discusses the state of Islamic ﬁ nance amidst the chaos.

The expected growth rate, which was pledging scheme was another major task The development and growth of Islamic predicted to be around 5% came down completed by the present administration. banking in Thailand will only happen to 1.8% in April 2014. The situation The Thai baht has managed to regain when fi nancial institutions in general also resulted in massive outfl ows of its strength and the stock market is also and from Malaysia and Singapore in FDI from Thailand and a rapid decline gett ing back up with overseas investors particular show their interest in entering in the tourism industry — one of the returning. into the market. The initiatives taken by main bread earners for the people and the central bank and the government the government. This had lead to the On the Islamic banking front the have laid down the foundations of decline in the value of the currency and situation is the same as before with Shariah compliant banking in the its stock market. This uncertainty and Islamic Bank of Thailand (IBank) still country, which already has a very the unwillingness of stakeholders to see the only provider of Shariah compliant strong, stable and liquid conventional the bigger picture that was the economic banking facilities. The eff orts of the bank banking system. It’s up to the big names and social welfare of the people of in creating awareness of Takaful services in Islamic banking, particularly in Thailand, led the armed forces of the have now taken a visual turn and soon Malaysia, to use this base to capture the country to take charge of the aff airs the bank will be providing this service market both on the corporate as well as of the nation. Since the takeover by from its counter as MoUs have been investment banking side. the armed forces, the Thai economy is signed with local Takaful providers. struggling to get back on its feet. The news of the administration’s interest The bank will soon launch its retail in the THB2 trillion (US$61.8 billion) products, which include housing and mega projects plan of the previous The car fi nancing schemes. IBank has also government has created a new wave of entered into an agreement with the interest in the fi nancial sector. Although development Federation of Thai ICT for Savings and they will undergo strict scrutiny, some Credit Cooperatives to allow federation of the projects are expected to be taken and growth of members to use the bank’s ATM service up in the days to come. The concept of as part of its eff ort to increase its fee- funding will be based on public private Islamic banking based income. In the initial stage 100,000 partnerships and a large quantity of ICT members will be using the ATM funds will be generated out of the in Thailand will cards of IBank with an expected number budgetary sources, meaning off shore to reach 300,000 in future. or from the public. This will be a great only happen opportunity for investment banks and The bank will also initiate fi nancing that Islamic banks to show the stakeholders when ϔinancial was delayed during the fi rst half of the the capacity of Sukuk issuance to year due to the political and economic generate funding from untapped institutions in crises. An expected THB15 billion sources. This will hopefully lead to the (US$463.4 million) has been allocated start of Shariah compliant instruments general and out of which THB11 billion (US$338.29 and investments in Thailand. from Malaysia million) in fi nancing has been pending the bank’s approval since January 2014, S M Aamir Shamim is the senior vice- and Singapore in primarily into the semi-corporate and president and Islamic banking specialist of SME sector; while THB2 billion (US$61.51 treasury & investment group at the Islamic particular show million) is allocated to the Halal trade Bank of Thailand. He can be contacted at fi nance project which the bank has [email protected]. their interest in focused on since last year as a major area entering into for trade fi nance and exchange income. Another THB800 million (US$24.7 the market million) is for consumer fi nancing in the area of car and housing loans; and THB1.05 billion (US$32.29 million) The biggest achievement has been the is from a scheme of the previous revival of tourism, despite a curfew government’s policy on tackling loan from midnight to 4am. The payments sharks, who are the major source of to the rice farmers under the rice fi nancing for small vendors.

DATE ISSUER SIZE ANNOUNCED International Finance Corp TBA 17th June 2014 training Bank Negara Malaysia Rmvarious 13th June 2014 JUNE Al Hilal Bank US$500 million 13th June 2014 IFT: Islamic Finance Qualiﬁ cation IOI Properties RM1.5 billion 9th May 2014 23-25 June, KUALA LUMPUR Jeddah Economic Co TBA 17th June 2014 IFT: Structuring Islamic Legal st UEM Sunrise RM2 billion 21 January 2014 Documentation Aktif Bank Up to TRY200 million 17th June 2014 23-25 June, ABU DHABI Government of Ras Al Khaimah TBA 6th June 2014 IFT: Risk Management & Capital Adequacy Government of Jordan TBA 5th June 2014 for Islamic Banks 26 June, KUALA LUMPUR Bank of Tokyo-Mitsubishi UFJ Up to US$500 million 5th June 2014 AUGUST Kuveyt Turk Up to US$500 million 4th June 2014 Al Othaim Real Estate and Investment Co Up to SAR1billion 2nd June 2014 IFT: Advanced Sukuk & Islamic Securitization nd Bank Islam Malaysia Up to RM1 billion 2 June 2014 19-21 August, ISTANBUL th Government of Indonesia IDR1.5 trillion 29 May 2014 IFT: Islamic Finance Qualiﬁ cation Government of the Philippines TBA 26th May 2014 24-26 August, DUBAI Felda Global Ventures Holdings US$1 billion 22nd May 2014 IFT: Structuring Islamic Retail Banking Al Baraka Banking Group US$200 million 20th May 2014 Products Government of Tunisia US$140 million 7th February 2014 25-27 August, MUSCAT South African Government US$500 million 26th November 2013 IFT: Shariah Audit for Islamic Banking 19-21 August, KUALA LUMPUR Banque Saudi Fransi US$530 million 15th May 2014 SEPTEMBER Meethaq OMR300 million 5th May 2014 IFT: Structuring Islamic Trade Finance Khazanah Nasional RM1 billion 2nd May 2014 Solutions Government of Pakistan TBA 2nd May 2014 8-10 September, DUBAI th Pelaburan Mara RM1 billion 30 April 2014 IFT: Internal Audit for Islamic Banking Hua Yang RM250 million 30th April 2014 22-24 September, KUALA LUMPUR Dubai Islamic Bank TBA 18th April 2014 IFT: Islamic Treasury & Risk Management Government of Pakistan PKR542 billion 16th April 2014 Products 22-24 September, KUALA LUMPUR KLCC REIT RM3 billion 11th April 2014 IFT: Islamic Fund & Asset Management Emaar Misr for Development TBA 10th April 2014 25-26 September, KUALA LUMPUR Sabah Credit Corp Up to RM1.5 billion OCTOBER Electricity Supply Board - Ireland RM500 million 4th April 2014 IFT: Structuring Islamic Legal Japan Bank TBA 4th April 2014 Documentation Treedom Group TBA 2nd April 2014 14-16 October, KUALA LUMPUR Maybank Islamic RM10 billion 27th March 2014 IFT: Shariah Governance, Corporate Bumi Armada Capital RM1.5 billion 27th March 2014 Governance and IFSA 2013 Saudi Investment Bank TBA 21st March 2014 15-16 October, KUALA LUMPUR Gulf Finance House US$500 million 20th March 2014 IFT: Shariah Audit for Business Banking 28-30 October, KUALA LUMPUR Bank Muscat - Saudi Arabia SAR1 billion 20th March 2014 NOVEMBER Bank Muscat OMR500 million 20th March 2014 IFT: Advanced Sukuk and Islamic Sabana Sukuk SG$85 million 12th March 2014 Securitization th FGB Sukuk Company II US$1.07 billion 7 March 2014 10-12 November, KUALA LUMPUR th IDB TBA 7 March 2014 IFT: Accounting & Reporting for Islamic DanaInfra Nasional RM200 million 24th February 2014 Financial Products 1Malaysia Development RM2.4 billion 19th February 2014 10-12 November, KUALA LUMPUR TSH Sukuk Ijarah RM20 million 18th February 2014 IFT: Application of Islamic Principles in Shariah Fund Management Kiler GYO US$100 million 13th February 2014 13 November, KUALA LUMPUR Turkiye Finans RM3 million Flydubai TBA 4th February 2014 www.REDmoneyTraining.com Citra Marga Nusaphala Persada IDR1.75 trillion 23rd January 2014

REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 1250 1200

1130 1120

1010 1040

890 960

770 880

650 800 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun

REDmoney GCC 6 Months REDmoney Global 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 1250 1450

1100 1296

950 1142

800 988

650 834

500 680 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun

REDmoney MENA 6 Months REDmoney US 6 Months

All Cap Large Cap Medium Cap Small Cap All Cap Large Cap Medium Cap Small Cap 1100 2200

980 1920

860 1640

740 1360

620 1080

500 800 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun

SAMI Halal Food Participation (All Cap) 6 months

2050

1980

1910

1840

1770

1700 Jan-2014 Feb-2014 Mac-2014 Apr-2014 May-2014 Jun-2014

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 1350 1250

1190 1090

1030 930

870 770

710 610

550 450 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun

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 2200 2000

1860 1700

1520 1400

1180 1100

840 800

500 500 Jan Feb Mar Apr May Jun Jan Feb Mar Apr May Jun

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

Eurekahedge Middle East/Africa Islamic Fund Index

255

235

215

195

175

155 Index Values 135

115

95 Oct-10 Oct-04 Dec-11 Dec-05 Dec-99 Mar-13 Mar-07 Mar-01 Aug-09 Aug-03 May-14 May-08 May-02

Top 10 Monthly returns for Asia Pacifi c funds Fund Fund Manager Performance Measure Fund Domicile 1 AlAhli Asia Pacifi c Trading Equity The National Commercial Bank 5.57 Saudi Arabia 2 Meezan Tahaff uz Pension — Equity Sub Al Meezan Investment Management 2.96 Pakistan 3 CIMB Islamic Asia Pacifi c Equity UOB Asset Management 2.16 Malaysia 4 Am-Namaa' Asia-Pacifi c Equity Growth AmInvestment Management 1.86 Malaysia 5 Al Rajhi India & China Equity Al Rajhi Bank 1.81 Saudi Arabia 6 Al Naqaa Asia Growth Banque Saudi Fransi 1.61 Saudi Arabia 7 CIMB Islamic Equity CIMB-Principal Asset Management 1.49 Malaysia 8 Public Islamic Asia Tactical Allocation (PIATAF) Public Mutual 1.43 Malaysia 9 PB Islamic Asia Strategic Sector Public Mutual 1.06 Malaysia 10 Public Islamic Select Treasures Public Mutual 1.06 Malaysia Eurekahedge Islamic Fund Index -0.22 Based on 48.70% of funds which have reported May 2014 returns as at the 16th June 2014

Top 10 Monthly Monthly returns for Middle East/Africa funds Fund Fund Manager Performance Measure Fund Domicile 1 Al-Beit Al-Mali Global Investment House 11.28 Qatar 2 Emirates MENA Opportunities EIS Asset Management 6.40 Jersey 3 Al-Mubarak Pure Saudi Equity Arab National Bank 4.31 Saudi Arabia 4 Al Qasr GCC Real Estate & Construction Equity Trading Banque Saudi Fransi 3.98 Saudi Arabia 5 Riyad Gulf Riyad Bank 3.44 Saudi Arabia 6 Amanah Saudi Equity SABB 3.42 Saudi Arabia 7 Al Rajhi Petrochemical and Cement Equity Al Rajhi Bank 3.21 Saudi Arabia 8 Jadwa Arab Markets Equity Jadwa Investment 3.09 Saudi Arabia 9 Amanah GCC Equity SABB 3.08 Saudi Arabia 10 AlAhli Saudi Mid Cap Equity NCB Capital Company 3.08 Saudi Arabia Eurekahedge Islamic Fund Index 1.44

Based on 60.23% of funds which have reported May 2014 returns as at the 16th June 2014

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 Equity Index over the last 5 years Eurekahedge Islamic Fund Equity Index over the last 1 year 175 101.5 165 101 155 145 100.5 135 125 100

Percentage 115 Percentage 99.5 105 95 99 Oct-10 Oct-04 Jun-13 Oct-13 Feb-14 Dec-11 Dec-05 Dec-99 Dec-13 Mar-13 Mar-07 Mar-01 Apr-14 Aug-09 Aug-03 May-14 May-08 May-02 Aug-13 May-14

Top 10 Islamic Fixed Income Funds by 3 Months Returns Fund Fund Manager Performance Measure Fund Domicile 1 MAA Takaful Shariah Flexi MAA Takaful 3.13 Malaysia 2 Mega Dana Obligasi Syariah Mega Capital Indonesia 2.40 Indonesia 3 Atlas Pension Islamic — Debt Sub Atlas Asset Management 2.40 Pakistan 4 BNI-AM Dana Syariah BNI Asset Management 2.17 Indonesia 5 Meezan Tahaﬀ uz Pension — Debt Sub Al Meezan Investment Management 2.08 Pakistan 6 Public Islamic Enhanced Bond Public Mutual 1.62 Malaysia 7 Jadwa Global Sukuk Jadwa Investment 1.59 Saudi Arabia 8 BNI-AM DanaPlus Syariah BNI Asset Management 1.38 Indonesia 9 MAA Takaful Shariah Income MAA Takaful 1.09 Malaysia 10 Public Islamic Bond Public Mutual 0.73 Malaysia Eurekahedge Islamic Fund Index 0.40 Based on 66.67% of funds which have reported May 2014 returns as at the 16th June 2014

Top 10 Annualized Sortino Ratio for ALL Islamic funds by 3 Months Returns Fund Fund Manager Performance Measure Fund Domicile 1 Atlas Pension Islamic — Debt Sub Atlas Asset Management 15.30 Pakistan 2 Meezan Tahaﬀ uz Pension — Debt Sub Al Meezan Investment Management 15.11 Pakistan 3 Commodity Trading — SAR Riyad Bank 6.56 Saudi Arabia 4 AlAhli GCC Growth and Income NCB Capital Company 4.13 Saudi Arabia 5 Public Islamic Income Public Mutual 3.95 Malaysia 6 Public Islamic Bond Public Mutual 3.28 Malaysia 7 PB Islamic Bond Public Mutual 3.24 Malaysia 8 Public Islamic Select Enterprises Public Mutual 2.70 Malaysia 9 Public Islamic Select Bond Public Mutual 2.42 Malaysia 10 Atlas Pension Islamic — Money Market Sub Atlas Asset Management 2.40 Pakistan Eurekahedge Islamic Fund Index 0.22 Based on 56.77% of funds which have reported May 2014 returns as at the 16th June 2014

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

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

Most Recent Global Sukuk Priced Issuer Nationality Instrument Market US$ (mln) Managers 11th Jun 2014 Emaar Malls Group UAE Sukuk Wakalah Euro market 750 Mashreqbank, Standard Chartered Bank, public issue Morgan Stanley, National Bank of Abu Dhabi, First Gulf Bank, Dubai Islamic Bank, Union National Bank, Abu Dhabi Islamic Bank, Emirates NBD, Al Hilal Bank, Noor Bank 5th Jun 2014 Public Islamic Bank Malaysia Sukuk Domestic market 155 Public Bank, AmInvestment Bank public issue 4th Jun 2014 Saudi Telecom Saudi Sukuk Domestic market 533 Saudi National Commercial Bank, Standard Company Arabia public issue Chartered Bank, JPMorgan 28th May 2014 Pengurusan Air Malaysia Sukuk Ijarah Domestic market 187 Maybank SPV private placement 21st May 2014 Dar Al-Arkan Saudi Sukuk Wakalah Euro market 400 Goldman Sachs, Deutsche Bank, Masraf International Sukuk Arabia public issue Al Rayan, Emirates NBD, Al Hilal Bank , Company QInvest, Barwa Bank, Bank Alkhair 20th May 2014 Aman Sukuk Malaysia Sukuk Musyarakah Domestic market 491 RHB Capital, Maybank, Bank Islam public issue Malaysia, CIMB Group, AmInvestment Bank 14th May 2014 ICD UAE Sukuk Euro market 700 Standard Chartered Bank, HSBC, Dubai public issue Islamic Bank, Citigroup, Emirates NBD 30th Apr 2014 RHB Islamic Bank Malaysia Sukuk Domestic market 153 RHB Capital public issue 23rd Apr 2014 Midciti Sukuk Malaysia Sukuk Murabahah Domestic market 476 Maybank, CIMB Group, AmInvestment public issue Bank 22nd Apr 2014 Government of UAE Sukuk Ijarah Euro market 750 Standard Chartered Bank, HSBC, National Dubai public issue Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD 15th Apr 2014 Turkiye Finans Turkey Sukuk Euro market 500 HSBC, Citigroup, Emirates NBD, QInvest Katilim Bankasi public issue 9th Apr 2014 DanaInfra Nasional Malaysia Sukuk Murabahah Domestic market 801 HSBC, RHB Capital, Maybank, CIMB Group, public issue AmInvestment Bank 2nd Apr 2014 Saudi Electricity Saudi Sukuk Euro market 2,500 JPMorgan, Deutsche Bank, HSBC Company Arabia public issue 2nd Apr 2014 DAMAC UAE Sukuk Euro market 650 Deutsche Bank, National Bank of Abu Dhabi, Real Estate public issue Barclays, Dubai Islamic Bank, Abu Dhabi Development Islamic Bank, Citigroup, Emirates NBD 1st Apr 2014 IJM Corporation Malaysia Sukuk Domestic market 153 HSBC, RHB Capital, Maybank, CIMB Group, public issue Aﬃ n Investment Bank 27th Mar 2014 Maybank Islamic Malaysia Sukuk Domestic market 455 Maybank private placement 25th Mar 2014 National Higher Malaysia Sukuk Murabahah Domestic market 757 Maybank, CIMB Group Education Fund public issue 13th Mar 2014 Imtiaz Sukuk II Malaysia Sukuk Musharakah Domestic market 304 Maybank, CIMB Group public issue 12th Mar 2014 Rantau Abang Malaysia Sukuk Musyarakah Domestic market 305 Standard Chartered Bank, HSBC, CIMB Capital public issue Group 11th Mar 2014 SME Bank Malaysia Sukuk Wakalah Domestic market 305 KFH, Maybank, AmInvestment Bank public issue

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

US$bn US$m US$bn Value (US$bn) Avg Size (US$m) US$m 12 1500 18 600 Value (US$bn) 16 10 1250 14 500 Avg Size (US$m) 8 1000 12 400 10 300 6 750 8 4 500 6 200 4 100 2 250 2 0 0 0 0 123 4 5 6 78 9 10 11 12 1 2 3 4 5 6 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q2Q 3Q 4Q 1Q 2Q 2013 2014 2009 2010 2011 2012 2013 2014

Top 30 Issuers of Global Sukuk 12 Months Issuer Nationality Instrument Market US$(mln) Iss(%) Managers 1 General Authority Saudi Sukuk Domestic market 4,056 10.0 Saudi National Commercial Bank, HSBC for Civil Aviation Arabia public issue 2 Saudi Electricity Saudi Sukuk Domestic market 3,700 9.1 Banque Saudi Fransi, HSBC, JPMorgan, Deutsche Bank Company Arabia Istithmar public issue 3 DanaInfra Nasional Malaysia Sukuk Domestic market 1,621 4.0 RHB Capital, Maybank, CIMB Group, Aﬃ n Investment Murabahah public issue Bank, AmInvestment Bank, HSBC 4 Malakoﬀ Malaysia Sukuk Domestic market 1,521 3.8 Maybank, CIMB Group public issue 5 Perusahaan Penerbit Indonesia Sukuk Euro market 1,500 3.7 Standard Chartered Bank, Deutsche Bank, Citigroup SBSN Indonesia III public issue 5 IDB Trust Services Saudi Sukuk Euro market 1,500 3.7 Standard Chartered Bank, HSBC, National Bank of Abu Arabia Wakalah public issue Dhabi, First Gulf Bank, RHB Capital, Natixis, CIMB Group, Commerzbank Group 7 National Saudi Sukuk Domestic market 1,333 3.3 Saudi National Commercial Bank, JPMorgan, HSBC, Gulf Commercial Bank Arabia public issue International Bank 8 Republic of Turkey Turkey Sukuk Euro market 1,250 3.1 Standard Chartered Bank, HSBC, QInvest public issue 8 Ooredoo Qatar Sukuk Euro market 1,250 3.1 Deutsche Bank, HSBC, DBS, Qatar National Bank, QInvest public issue 10 Cagamas Malaysia Sukuk Domestic market 1,247 3.1 RHB Capital, Maybank, CIMB Group, AmInvestment Bank Murabahah public issue 11 Syarikat Prasarana Malaysia Sukuk Ijarah Domestic market 1,233 3.0 HSBC, RHB Capital, CIMB Group, AmInvestment Bank, Negara public issue Maybank, Kenanga Investment Bank 12 TNB Western Malaysia Sukuk Domestic market 1,109 2.7 CIMB Group Energy Ijarah and public issue Wakalah 13 National Higher Malaysia Sukuk Domestic market 946 2.3 RHB Capital, AmInvestment Bank, Maybank, CIMB Group Education Fund Murabahah public issue 14 Sukuk Funding UAE Sukuk Euro market 750 1.9 Standard Chartered Bank, Goldman Sachs, National Bank (No 3) Musatahah public issue of Abu Dhabi, First Gulf Bank, Dubai Islamic Bank 14 Government of UAE Sukuk Ijarah Euro market 750 1.9 Standard Chartered Bank, HSBC, National Bank of Abu Dubai public issue Dhabi, Dubai Islamic Bank, Emirates NBD 14 Emaar Malls Group UAE Sukuk Euro market 750 1.9 Mashreqbank, Standard Chartered Bank, Morgan Stanley, Wakalah public issue National Bank of Abu Dhabi, First Gulf Bank, Dubai Islamic Bank, Union National Bank, Abu Dhabi Islamic Bank, Emirates NBD, Al Hilal Bank, Noor Bank 17 Konsortium Malaysia Sukuk Domestic market 718 1.8 CIMB Group Lebuhraya Utara- Musharakah public issue Timur (KL) 18 ICD UAE Sukuk Euro market 700 1.7 Standard Chartered Bank, HSBC, Dubai Islamic Bank, public issue Citigroup, Emirates NBD 19 Dar Al-Arkan Saudi Sukuk Euro market 694 1.7 Goldman Sachs, Deutsche Bank, Emirates NBD, Bank of International Sukuk Arabia Wakalah public issue America Merrill Lynch, Bank Alkhair, Masraf Al Rayan, Al Hilal Bank, QInvest, Barwa Bank 20 Pengurusan Air SPV Malaysia Sukuk Ijarah Domestic market 659 1.6 CIMB Group, RHB Capital, Bank Islam Malaysia, private placement AmInvestment Bank 21 DAMAC Real UAE Sukuk Euro market 650 1.6 Deutsche Bank, National Bank of Abu Dhabi, Barclays, Estate Development public issue Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD 22 Kapar Energy Malaysia Sukuk Ijarah Domestic market 581 1.4 AmInvestment Bank Ventures public issue 23 Saudi Telecom Saudi Sukuk Domestic market 533 1.3 Saudi National Commercial Bank, Standard Chartered Bank, Company Arabia public issue JPMorgan 24 Turkiye Finans Turkey Sukuk Euro market 500 1.2 HSBC, Citigroup, Emirates NBD, QInvest Katilim Bankasi public issue 24 Government of Ras UAE Sukuk Euro market 500 1.2 Mashreqbank, Standard Chartered Bank, National Bank of Al Khaimah public issue Abu Dhabi, Citigroup, Al Hilal Bank 24 Al Hilal Bank UAE Sukuk Euro market 500 1.2 Standard Chartered Bank, HSBC, National Bank of Abu Mudarabah public issue Dhabi, Citigroup, Al Hilal Bank / Wakalah 27 Aman Sukuk Malaysia Sukuk Domestic market 491 1.2 RHB Capital, Maybank, Bank Islam Malaysia, CIMB Group, Musharakah public issue AmInvestment Bank 28 Midciti Sukuk Malaysia Sukuk Domestic market 476 1.2 Maybank, CIMB Group, AmInvestment Bank Murabahah public issue 29 Imtiaz Sukuk II Malaysia Sukuk Domestic market 460 1.1 Maybank, CIMB Group Musharakah public issue 30 Maybank Islamic Malaysia Sukuk Domestic market 455 1.1 Maybank private placement 40,595 100

Top Managers of Sukuk 12 Months Sukuk Volume by Currency US$ (billion) 12 Months Manager US$ (mln) Iss % 17.7 1 HSBC 6,389 23 15.7 Malaysian ringgit 2 CIMB Group 6,060 41 14.9 US dollar 14.6

3 Maybank 4,296 32 10.6 Saudi riyal 8.0 4 AmInvestment Bank 3,093 23 7.6 Singapore dollar 0.2 5 RHB Capital 2,655 35 6.5

6 Saudi National Commercial Bank 2,539 3 6.3 Sukuk Volume by Issuer Nation US$ (billion) 12 Months 7 Standard Chartered Bank 2,441 16 6.0 Malaysia 17.6 8 Deutsche Bank 1,785 6 4.4 Saudi Arabia 12.8 9 JPMorgan 1,344 3 3.3 UAE 5.1 10 Citigroup 1,171 8 2.9 Turkey 1.8 Indonesia 1.7 11 National Bank of Abu Dhabi 867 8 2.1 Qatar 1.3 12 QInvest 841 4 2.1 Singapore 0.4 13 Emirates NBD 760 8 1.9

14 Banque Saudi Fransi 713 2 1.8 Global Sukuk Volume by Sector 12 Months 15 Dubai Islamic Bank 676 6 1.7

16 First Gulf Bank 406 3 1.0 14% 25% Finance 17 Al Hilal Bank 393 5 1.0 6% Government Utility & Energy 18 DBS 345 3 0.9 12% Real Estate/Property 19 Gulf International Bank 333 1 0.8 Transportation Other 20 Aﬃ n Investment Bank 298 4 0.7 19% 24% 21 Goldman Sachs 259 3 0.6 22 Qatar National Bank 250 1 0.6 23 Mashreqbank 218 3 0.5 Global Sukuk Volume - US$ Analysis 24 Abu Dhabi Islamic Bank 211 3 0.5 US$bn US$m 25 Bank Islam Malaysia 189 2 0.5 18 600 16 Non-US$ US$ 500 26 BNP Paribas 188 2 0.5 14 12 400 10 27 Natixis 188 1 0.5 300 8 27 Commerzbank Group 188 1 0.5 6 200 4 100 29 UOB 180 2 0.4 2 0 0 30 OCBC 160 5 0.4 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q2Q 3Q 4Q 1Q 2Q 2009 2010 2011 2012 2013 2014 Total 40,595 110 100.0

Top Islamic Finance Related Project Finance Mandated Lead Top Islamic Finance Related Project Financing Legal Advisors Arrangers 12 Months Ranking 12 Months Mandated Lead Arranger US$ (million) No % Legal Advisor US$ (million) No % 1 Public Investment Fund 463 2 16.1 1 Allen & Overy 2,365 3 43.8 2 Samba Financial Group 434 2 15.1

3 Banque Saudi Fransi 283 1 9.8 2 Cliﬀ ord Chance 1,600 1 29.6 4 Alinma Bank 281 2 9.8 5 National Bank of Abu Dhabi 200 1 6.9 3 Baker Bott s 668 1 12.4 6 Al-Rajhi Banking & Investment 188 1 6.5 7 Mizuho Financial Group 166 2 5.8 3 Chadbourne & Parke 668 1 12.4 7 Standard Chartered 166 2 5.8 9 HSBC Holdings 100 1 3.5 5 Mohammed Al Zamil & Emad Al 97 1 1.8 Kharashi Law Firm 9 Mitsubishi UFJ Financial Group 100 1 3.5

Top Islamic Finance Related Financing Mandated Lead Arrangers Ranking 12 Months Top Islamic Finance Related Financing Deal List 12 Months Mandated Lead Arranger US$ (mln) No % Credit Date Borrower Nationality US$ (mln) 1 Standard Chartered Bank 255 4 7.7 7th May 2014 Emirates Steel Industries UAE 1,300 2 Barwa Bank 209 3 6.3 3 Saudi National Commercial Bank 169 2 5.1 17th Jul 2013 Al Jubail Petrochemical Saudi Arabia 800 (Kemya) 3 Samba Capital 169 2 5.1 18th Jun 2013 Turkiye Finans Katilim Turkey 502 5 Arab Banking Corporation 169 4 5.1 Bankasi 6 Noor Bank 149 3 4.5 18th Jul 2013 Albaraka Turk Katilim Turkey 427 Bankasi 7 Qatar Islamic Bank 140 2 4.2 23rd Dec 2013 Kuveyt Turk Katilim Turkey 388 8 Emirates NBD 136 3 4.1 Bankasi th 9 National Bank of Abu Dhabi 113 2 3.4 24 Mar 2014 Ezdan Real Estate Qatar 350

10 Sberbank 111 2 3.4 26th Sep 2013 Qatar Electricity & Water Qatar 271 11 Masraf Al Rayan 90 1 2.7 25th Jul 2013 National Petrochemical Saudi Arabia 267 12 Banque Saudi Fransi 89 1 2.7 Industrial Company 13 Dubai Islamic Bank 89 3 2.7 18th Sep 2013 Alok International (Middle UAE 150 14 Riyad Bank 80 1 2.4 East) 5th Dec 2013 Puncak Wangi Malaysia 68 14 National Bank of Kuwait 80 1 2.4 14 Arab Petroleum Investments 80 1 2.4 Top Islamic Finance Related Financing by Country 12 Months 17 Union National Bank 72 2 2.2 Nationality US$ (mln) No % 17 Abu Dhabi Islamic Bank 72 2 2.2 1 Turkey 1,317 3 39.8 19 Al Hilal Bank 64 2 1.9 2 Saudi Arabia 867 2 26.2 20 Islamic Development Bank 61 1 1.8 3 Qatar 621 2 18.7 21 Mashreqbank 58 1 1.8 4 UAE 393 2 11.9 21 Bank Islam Brunei Darussalam 58 1 1.8 5 Malaysia 116 2 3.5 21 Ahli United Bank 58 1 1.8 24 RHB Capital 58 2 1.8 Top Islamic Finance Related Financing by Sector 12 Months 24 CIMB Group 58 2 1.8 Finance 26 Citigroup 57 2 1.7 Chemicals 26 Abu Dhabi Commercial Bank 57 2 1.7 Real Estate/Property 28 Saudi British Bank 50 1 1.5 Utility & Energy 28 Ajman Bank 50 1 1.5 30 KFH 44 1 1.3 Metal & Steel US$ bln0 126 3 4 5 30 HSBC 44 1 1.3

Top Islamic Finance Related Financing Mandated Lead Arrangers Global Islamic Financing - Years to Maturity (YTD Comparison) 12 Months 2013 Bookrunner US$ (mln) No % 2012 1 Barwa Bank 435 2 25.6 2011 2 Noor Bank 336 3 19.8 2010 3 Standard Chartered Bank 186 2 10.9 2009 2008 3 Emirates NBD 186 2 10.9 2007 3 Arab Banking Corporation 186 2 10.9 0% 20% 40% 60% 80% 100% 6 Al Hilal Bank 100 1 5.9 0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs

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AAOIFI 10,32 Employees Provident Fund 12 People’s Leasing & Finance 14 Abu Dhabi Investment Council 5 Engro Corp 7 Phoenix Assurance Group 8 Abu Dhabi Islamic Bank 4,11,12,14 Erbil Stock Exchange 5 Abu Dhabi Islamic Bank-Egypt 12 Etiqa Takaful 13,33 Phoenix of Zambia Assurance 8 Adnan Sundra & Low 33 Euphrates Advisors 5 Phoenix of Zambia Takaful Window 8 African Development Bank 25 Eurekahedge 12 Privatization Commission (Pakistan) 8 Ahli United Bank (Bahrain) 3 European Investment Bank 25 Qatar Exchange 24 AIA 14 Eversendai Corporation 13 Al Anwar Holdings 11 Exxon Mobil Corp 4,7 Qatar Islamic Bank 10,12,24 Al Azhar University 9 EY 23 Qatar National Bank 24 Al Babtain Power & Telecommunication Co 11 EY Global Islamic Banking Center 27 QBE 14,19 Al Baraka Banking Group 6,30 Federation of Thai ICT for Savings and Credit Co-op 37 QIB-UK 11 Al Baraka Islamic Bank 5 FMG 1 Al Hilal Bank 6 Franco-American Alliance for Islamic Finance 7 QInvest 6,10,12 Al- Islamiah Saving Cooperative 26 Franklin Templeton 10 RAM Ratings 10,22,33 Al Wifaq Finance Company 11 FTSE 9,26,35 Range Hospitality 4 Albaraka Turk 6 Gatehouse Bank Malaysia 6 RHB Asset Management 7 Al-Cham Islamic Bank 12 GFH Capital 12 Aldar 19 Goldman Sachs Group 10 RHB Banking Group 7 Alkhabeer Capital 12 Government Savings Bank 26 RHB Islamic Bank 7 Allen & Overy 17 Gulf Bond and Sukuk Association 10,25 Richard Peiris Arpico Finance 14 Alwyni International Capital 34 Gulf Finance House 12 Richard Peiris Group 14 Amana Bank 7 HSBC 4,7,10 Arqaam Capital 4 Ibnu Aff an Saving Cooperative 26 Royal Malaysian Customs Department 23 Asiacell 5 ICAEW 1,4 S&P 13,29 Asian Development Bank 14 ICD 10,27 SALAMA 14 As-Siddiq Saving Cooperative 26 IDB 9,10,11,27,30 Sansar Capital 1,5 B&I Capital 9 IdealRatings 9,21 Bahrain Bourse 12 IFSB 15,32 Saqaff ah Islam Saving Cooperative 26 Bahrain Institute of Banking and Finance 10 IILM 27 Saudi Arabian Monetary Agency 20 Bank Alkhair 12 IJM Corporation 13 Saudi Fransi Capital 6 Bank Asya 7 IMF 1,25 Saudi Telecom Company 7,21 Bank Audi 3 Indonesia Islamic Banking Association 9 Bank Dhofar 12 Institute of Business Administration 9 Securities and Exchange Organization (Iran) 17 Bank for Agriculture and Agricultural Cooperatives 26 International Finance Corporation 7,10 Sharjah Islamic Bank 12 Bank Negara Malaysia 6,28 International Islamic Advisory Group 9 Sheraton 4 Bank Nizwa 11 International Trade Center 4 Simply Sharia 10 Bank of Khartoum 30 Invest AD 5 Bank of Toyko-Mitsubishi UFJ 27 Investment and Development Bank of Iraq 4 Social Fund for Development 7 Bank Sohar 11 IOSCO 12 Societe Generale 10 Banque Saudi Fransi 6 Iraq Stock Exchange 5 Sohar Islamic 11 Barclays 14 Iraqi Islamic Bank for Investment & Development 5 Bawra Bank 6 Irish Stock Exchange 27 Southeast Bank 26,32 BLME 21,27 Islamic Bank of Thailand 7,9,26,37 SPRINT 6 BLOM Bank 3 Islamic Solidarity Fund for Development 10 Standard Chartered 3,6 BMMB 7 JAFZ Sukuk 6 Standard Chartered Bank 7 Boubyan Bank 11 JP Morgan 3 Bumi Armada 6 KDU University College 7 Starwood 4 Bursa Malaysia 9 KFH Investment 7 State Bank of Pakistan 9 Cagamas 13 Khaleeji Commercial Bank 12 Stock Exchange of Thailand 26 Capital Bank of Jordan 3 King & Spalding 20 Sumitomo Mitsui Banking Corporation 35 Capital Markets Authority (Kuwait) 12 Kompanion Invest 30 CBRE 11 Korek Telecom 5 Talam Transform 7 CEBR 1,4 KrungThai Bank 26 Tanjung Bin O&M 13 Central Bank of Bahrain 5 Kuveyt Turk 7 Thai Life Insurance 26 Central Bank of Egypt 14 Kuwait Finance House 12 Triple Jump 30 CGAP 30 Labuan Financial Services Authority 9 CIMB 6,26 Lahore University of Management Sciences 9 Turkiye Finans 27 Citi 7 Linklaters 6 UBL Ameen 8 Citigroup 1,3,6,14,19 MARC 13 UN 17 Cliff ord Chance 10 MasterCard 12 Union National Bank 11 Clyde & Co 19 Maybank 33 Cobalt Underwriting 14,19 Maybank Investment Bank 33 United Bank 8 Credit Bank of Iraq 5 Maybank Islamic 13,33 United Insurance Company of Pakistan 13 Damascus Securities Exchange 12 Medgulf Takaful 13 United Overseas Bank 27 Dar Al Arkan 19,27 Moobility Telecom International Holding 21 US Federal Reserve 13 Dar Al Sharia Legal & Financial Consultancy 16 Muang Thai Life Assurance 26 Dar es Salaam Bank 4 Muzn 12 Virgin Mobile Middle East & Africa 21,27 Deloitt e 24 Nakheel 6 Visa 12 Deutsche Bank 6 NASDAQ Dubai 27 Wasil Foundation 30 Dubai Chamber of Commerce and Industry 4 National Bank of Abu Dhabi 6,12 Weqaya Takaful Insurance and Reinsurance Co 14 Dubai Islamic Bank 14 National Bank of Kuwait 3 Dubai Multi Commodities Center 11 National Bank of Oman 12 Willis Group 19 Egyptian Financial Supervisory Authority 36 National Investment Commission 4 Willis Group Holdings 14,19 Egyptian Life Takaful 13,14 National Islamic Bank 3 Willis Real Estate Practice 19 Egyptian Takaful Insurance 14 Nomura Asset Management 11 World Bank 3,7 Emaar Malls Group 6,27 Noor Capital 4 Emaar Properties 19 North Bank 1 Wyndham 4 Emirates NBD 6 Otoritas Jasa Keuangan 9,34 XL Group 14,19 Emirates NBD Capital 7 Patt ani Islamic Saving Cooperative 26 Zain Iraq 5

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