HiNew nortzonGlobal Perspective on Islamic Banking & Insurance No. 108. April 2001 / Muharram - Safar 1422

Zakat: Concept of Social Security

Ijara Leasing as a Shariah Compliant Investment

Islamic Banking and UK Regulations

Problems Facing Islamic Investment Funds in the UK

Takaful Industry: Global Profile and Trends 2001

Institute of Islamic Banking Et Insurance • London LEASING Islamic Asset Management

As the demand for Sharia'a compKant investments in hard asset classes continues to grow there develops an increasing need to understand the risks and rewards associated with those investments. Equipment leasing meets the Islamic market's demand for capital investment in tangible and productive assets that are used in many busi• nesses to generate income and profits for the company using those assets. Capital equipment can be almost any physical item with a useful life of three or more years, with some equipment types staying in productive service for many decades. The basis of the leasing industry is the knowledge and professional management of the equip• ment being leased, the company and industry it is being used in, and the legal contract that ties the end-user (lessee], owner (lessor) and leased assets together. ABCIB Islamic Asset Management ('LAM' for short) apphes high levels of professional due diligence and direct market experience, gained over many years in the leasing industry, to provide investors with sound investment advice on opportunities in the equipment leasing markets. The LAM team specialises in the US market and provides a range of leasing-related services, catering to the profes• sional non resident investor, and draws together the four main issues which face non resident Islamic investors when evaluating opportunities: • How to structure investments in accordance with • The appropriate asset analysis Sharia'a • The means of identiiying attractive lease assets • How to plan for tax efficiencyM

Investment Management Sharia'a Compliance LAM actively advises on equipment leasing investments LAM is able to call on the advice and direction of five in the United States, visiting with many people and experienced Sharia'a Scholars form the lAM's Sharia'a companies involved in the industry. In such a large Supervisory Committee and diversified market it is necessary to understand fully the operational mechanics of equipment leasing Asset Analysis and significant issues such as taxation, legal consider• Our fundamental approach to leasing is to understand ations and credit quality. LAM possesses the necessary the pricing of lease assets relative to lease tenor, expertise to assess properly the many leasing business lessee quality and asset quality. This then needs to be opportunities that arise, analyse transactions in terms considered in a corporate context to ensure efficient of the risks, mitigants, and residual economics, and tax planning. LAM applies a disciplined methodology recognise when to decline leases that do not meet our to its analysis of equipment leases, and follows an investment criteria. Hand-on management of the independent valuation policy that is endorsed by its leased assets after they have been purchased is also auditors. Once lAM makes an investment it continues vital in translating good potential into results the due diligence process by reviewing each lease on achieved. an ongoing basis, to ensure that the expected financial performance is realised. Moving into 2001 it is clear Structuring Appropriate Investment Vehicles that economic conditions are changing in the world's LAM specialises in advising professional investors main equipment leasing market, the United States. who are entering the leasing markets. This can be the These changes will throw up new, profitable and preferred option for those who wish to exercise greater different opportunities for Sharia'a compliant lease control over their investment strategy and lAM can investments, and those opportunities are now being assist from acquisition through to disposition. developed by lAM.

Contact Arab Banking Corporation House 1-5 Moorgate, London, EC2R 6AB Telephone: +44 (0) 20 7776 4000 • Facsimile: +44 (0) 20 7600 7569 An appointed representative of ABC International Bank pic, regulated by the Securities and Futures Authority Limited, for the purposes of carrying on investment business activities CONTENTS

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HORIZON. 2 Comment: Zakat - Concept of Social Security

Chairman of Editorial Board Muazzam All 3 Ijara Leasing as a Shariah compliant Investment Richard Thomas, Executive Director and Mark Mortimore, Leasing International Editors Dr Rifaat Ahmed A. Karim Manager at ABCIB Islamic Asset Management Ltd (JAM), review and Manama demystify the Ijarah leasing contract and the US equipment leasing Dato' Fadzli Yusof industry and explore its growing potential for Shariah compliant Kuala Lampur investment Yusuf Talal DeLorenzo United States Dr Alireza Rahimi Brougerdi 5 Islamic Financial Market Indices Tehran Suleiman Dualeh United Kingdom 6 Stella Cox Explains the problems facing Islamic Investment funds in the UK Prof Murat Cizacka Istanbul Editor y Islamic Financial Market Indices - The Dow Jones Islamic Rakiya Ibrahim-Sanusi Market Index a The International Investor FJSE Global Islamic Indices Editorial Assistant Hussain Rizvi Executive Editor 8 Islamic banking and UK Regulatory controls S.Ghazanfar Ali Research Associate

Daphne Buckmaster 10 Takaful Industry: Global profile and Trends 2001 by Design ft Production Ajmal Bhatty Imtyaz Ahmed

CONTACT Editorial 16 Grosvenor Crescent 1 3 Capital Intelligence ratings of Islamic financial institutions London SWIX 7EP, UK Tel+44 (020) 7245 0404 Fax+44 (020) 7245 9769 IIBI @ islamic-banking.com 1 4 Corporate profile Subscription £t Advertising 2nd Floor Abu Dhabi Islamic Bank, and Bank Muamalat Indonesia 16 Grosvenor Crescent London SWlX 7EP, UK 1 6 News Monitor Tel+44 (020) 7245 0404 Fax+44 (020) 7245 9769 Recent developments within the Islamic financial world [email protected] URL http://www. 20 Currency Exchange Rates for Islamic countries islamic-banking.com Annual Subscription Rates UK £45; Europe ft Rest of the World £55 includes pp Price per copy UK £4.00; Europe ft Rest of the World £5.00 Published Monthly by Institute of Islamic Banking and Insurance 16 Grosvenor Crescent London SWIX 7EP, UK ®1999 institute of Islamic Banking and Insurance ISSN 0955-095X Views expressed in this magazine are not necessarily those of the Publisher or of the IIBI. NewHORIZON April 2001 Muharram - Safar 1422 1 COMMENT Zakat: Concept of Social Security The concept of social security was introduced by Islam Caliph Abu Bakr waged war against the Arab tribes 14 centuries ago, thus ushering in an era of a welfare who refused to pay Zakat. Saying that, "By Allah, I shall state. This revolutionary socio-economic system changed fight those who differentiate between Salat and Zakat. the lives of human beings and gave them dignity and a By Allah if they refuse to give me one baby goat that sense of security which was unknown till then. Islam for they used to give the Messenger of Allah, I shall fight the first time in history guaranteed that the basic needs them for it." of man were met. Today the West takes pride in provid• Collection and distribution of Zakat must be properly ing social security to its people not realising that it was done. In so doing, the great social benefits of Zakat will Islam that introduced the system centuries ago. be realised. It is a means of security for the poor and the The system of welfare state is implemented through more that is given poverty will be reduced. The unem• Zakat - a system that aims at building a social order in ployment, deprivation and starvation that afflicts devel• which basic human needs are met adequately. Our Holy oping countries would be alleviated, as the monies col• Prophet (SAW) was the first head of state to take upon lected for Zakat will be used to rehabilitate the poor and himself the onerous responsibility of meeting the the destitute. requirements of all the needy in the State through Zakat Sheikh Saleh Abdullah Kamel, founder of the Islamic and Baitul Mai. banking group, Al Baraka highlighted the many positive Zakat is an economic instrument, which serves as a economic and social effects of Zakat: great equilibrium in the Islamic society. Without Zakat a) The relatively high rate of Zakat on liquid assets this balance would not be achieved and an Islamic econ• encourages people paying Zakat to employ their wealth omy would not be fully functional. The essence of Zakat in a profitable manner, such as business ventures. is twofold - to cleanse and purify one's wealth; and to b) The principle of taking Zakat from capital gains, or provide for the poor, needy and other persons that qual• from yield will lead to the selection of better or more ify for Zakat. In a Hadith the Prophet (SAW) said, "Zakat profitable projects and greater efforts to ensure that the is to be collected from the rich amongst you and to be management remains cost effective, thereby resulting in distributed among the poor of you". a higher rate of profit. In Islamic countries, the responsibilify of collection c) Variation in the amount of Zakat from one field of and distribution of Zakat falls on the State to ensure that economic activity to another inspires people to invest the necessary machinery and legislation is in place to their money where Zakat is taken from the returns only. ensure the proper implementation of the Zakat fund. Accordingly, the wealth is invested in medium and long- MusUms in non-Islamic countries, find ways in which term projects, where it gives more yield and contributes they pay Zakat and set up Zakat funds through small to overall development. organisations and local mosques for onward distribution d) The banks may give their depositors opportunity to to the needy in their communities. benefit from this difference in the rates of Zakat through Regrettably, nowadays, there is a lack of trust and the establishment of different types of investment instru• loss of confidence amongst us especially when it relates ments to provide short-medium and long term options. to public funds. For this reason many Muslims make Thus a greater portion of depositors may be directed to their own private arrangements for the distribution of long term investments such as agricultural and industri• their Zakat as they believe that if given to the officials, it al projects. would be misappropriated and not used for the purpose e) The principle of distribution in the place of collec• for which it is meant. That is why officials involved in tion gives those living in rural areas a better chance to carrying out this task must be trustworthy, honest, com• benefit from Zakat and to be helped to a level of self-suf• petent and above all God fearing. And to remember that ficiency. in the discharge of their duties, they will be fully f) If the distribution and payment of Zakat to the dis• accountable for every sum collected and distributed. abled and lower socio-economic sectors is carried out There are millions of Muslims that do not give Zakat, effectively and diligenfly, it will lead to the creation of either out of ignorance or sheer miserliness. Zakat being effective demand and consequentiy more supply, a high• a debt payable to Allah, Muslims, have no rights over that er rate of employment, further demand etc. It will final• portion of their wealth that is Zakatable. The seriousness ly lead to economic prosperity and social development, of failing to make payment is so grave that the conse• and thus the collection of Zakat presents society with a quence of non-compliance with this obligation is reflect• solution to the dreadful social ills of recession, unem• ed in Hadiths and Qur'anic texts. The enforcement of tak• ployment and inflation." • ing is an area that is neglected and must be looked into.

2 NewHORIZON April 2001 Muharram - Safar 1422 ISLAMIC LEASING Ijarah Leasing contract as a Shariah compliant Investment By RICHARD THOMAS, Executive Director, and MARK MORTIMORE, Leasing Manager at ABCIB Islamic Asset Management Limited (lAM)

Introduction cross border leasing investments by As the demand for Shariah-compli- Islamic investors is taking place in ant investments in hard asset classes America. We are therefore looking RICHARD*THOMAS continues to grow there develops an particularly at the comparisons increasing need to understand the between Islamic lease arrangements arrangement or credit process and underlying contracts and the risks and those prevalent in America. this explains in part why higher and rewards associated with those This review of the U.S. equipment returns are available. investments. Leasing has so many leasing industry will describe and An indication of the demand for types, styles, accounting conven• explain in a non-technical fashion this lease management expertise is tions, risks and mitigants that it is the following topics that are of sig• provided by the size and depth of the sometimes difficult to form an nificant importance to Islamic U.S. equipment leasing industry. informed view of the type of portfo- investors in this asset class: Modern leasing, revived from its ho most appropriate for a given set • Rationale for investing in the U.S. ancient roots in the Middle East, first of Islamic portfolio investment leasing industty became a useful business service in the guidelines. In this article we are • Types of Shariah compliant Ijarah I950's when the railway companies attempting to demystify some of the / leases available for investment adopted it for financing their cars and issues and highlight some of the key • Risks and mitigants associated wagons. This financing was certificat• terminology. with leasing, including legal, tax, ed and could be seen as an early Sukuk Equipment leasing meets the and credit risks. structure. It took off in the 1960's Islamic market's demand for capital when computer manufacturers offered investment in tangible and produc• Business rationale for Investing lease solutions to customers for their tive assets that are used in many in the U.S. Leasing Industry new, expensive mainframe computer businesses to generate income and systems. Instead of having to budget profits for the company using those The fundamental justification for the vety large amounts of capital to obtain assets. Durable goods can be almost leasing industry's existence is this revolutionaty technology U.S. any physical item with a useful life summed up in this definition: companies adopted leasing and quick• of three or more years, with some "Leasing transfers certain risks ly saw the benefits of renting the equipment types staying in produc• associated with capital equipment equipment over purchasing it. tive service for many decades. The from end users to leasing companies Since then equipment leasing has foundation of the leasing industry is that specialise in managing those expanded to become the 10th largest the knowledge and professional risks." industty in the Unites States, with management of the equipment being In other words, the vast majority over 2,000 leasing companies and leased, the company and industry it of end user companies are not pri• $260 Billion of new business trans• is being used in, and the legal con• marily in business for the purpose of acted annually. Leasing has now tract that ties the end-user (lessee), managing their equipment - rather, penetrated the U.S. business commu• owner (lessor) and leased assets they are just using the equipment to nity to the extent that 30% of all together. generate profits from their main line durable goods produced annually are As we move ahead into 2001 and of business. Eor each business risk leased to companies, with 80% of all beyond it is clear that changing eco• there is a need for appropriate man• U.S. companies using equipment nomic conditions in the world's agement, which is where leasing leasing to some extent. Much of the main equipment leasing market, the companies bring in their equipment leasing done today is provided by a United States, will throw up new, expertise to reduce substantially the range of expert lessor manager com• profitable and different opportuni• risks of equipment ownership to panies, which are broadly classified ties for Shariah compliant invest• those companies. This is a value as independents, industrials, captives ments in this area. The majority of added process, not just a financing and banks.

NewHORIZON April 2001 Muharram - Safar 1422 3 ISLAMIC LEASING The primary business reasons for increasing use of the Internet to unacceptable to the Islamic faith, investing in the U.S. leasing market enhance the distribution channels. such as interest banking or alcohol, are briefly described below: In lAM we have found it impor• we decline those leases and leave Market Size - at $260 Billion of tant to develop a range of indepen• them for conventional investors. new business volumes annually the dent equipment appraisers and re- Also, we stress the need for open• U.S. leasing market is by far the marketers which we use to validate ness in our equipment leasing busi• largest in the world. This lease vol• equipment value throughout each ness and make available to investors ume covers all types of equipment lease and, if required, provide cost- all the information on each lease and end-user company, so that effective and timely releasing or concerning the equipment and the diversification parameters for a sales services for all equipment company using it. sound investment can easily be classes. We are able to provide such a achieved. Every corporate segment, Market Liquidity - Leasing bestows broad choice of Shariah compliant subject to Shariah compliance, is depreciation benefits upon the leasing investments because there available for equipment lease owner of the underlying equipment, are many types of equipment that investments and companies ranging and those benefits can be bought companies acquire through leasing. from the largest corporations with and sold to provide an owner with The lease types themselves are the strongest credit quality to the shelter against corporate taxes. This divided broadly into two categories, newest high-tech start-ups all use is an important aspect of equipment with each one providing significant• equipment leasing. lAM has found leasing in the United States and cre• ly different benefits to the leasing it necessary and beneficial to devel• ates a large secondary market in company and end-user. op an in house lease analysis capa• equipment lease paper. For this rea• These two categories, which are bility and to assess thoroughly all son, equipment lease paper that can Operating Ijarah and Ijarah Muntahia investment opportunities in any be arranged to conform with Sukuk Bittamleek, have been recognised by area of equipment leasing in the can be sold throughout the year to the Accounting, Auditing and United States, and in this way we provide Islamic investors with the Governance Standards for Islamic can identify and help mitigate the liquidify demands that arise from Financial Institutions (AAOIFI) in various risks accordingly. time to time. Also, leasing institu• their Financial Accounting Standard Market Depth - equipment leas• tions may change their focus No 8 (adopted June 1997, revised as ing depends on the depth of the regarding the markets they serve at December 1998). market for its penetration perfor• and may look to either buy or sell Both categories are described mance. This means that if necessary lease portfolios for both cash gener• under Ijarah, which is defined as the (or desired) leasing companies are ation and tax efficiency reasons. transfer of ownership of a service able to manage their returned lease LAM constantly watches the market for an agreed upon consideration. assets through either re-leasing for any significant developments in According to fuqaha, Ijarah has them to other end users or selling this respect, looking for opportuni• three major elements: them in the deep secondary market. ties that may provide our clients • A form which includes an offer Examples of this are in the construc• with exceptional asset-backed and a consent tion and trailer equipment markets investment opportunities. • Two parties: a lessor (the owner where the assets may go on and off of the leased asset), and a lessee (the lease frequently over periods of up Two types of Shariah-compli- party who reaps the services of the to twenfy years. These and other ant leases and the AAOIFI leased asset) types of used equipment are readily Islamic accounting standards • The object of the (Ijarah) con• refurbished and can be profitably and Shariah Standards. tract, which includes the rental rented out repeatedly, to recoup the To provide Islamic investors with amount and the service (transferred original equipment cost many times acceptable investments in equip• to the lessee) over. Equipment that is leased in ment leasing LAM works closely a) Operating Ijarah is classified as the U.S. ranges from the single fax with its Shariah Board to provide an operating lease that does not machine used by a small accountan• compliant leases and equipment. In include a promise that the legal title cy firm through to the most power• accordance with the Islamic princi• in the leased asset will pass to the ful locomotives used by the nation's ples of transparency and equity in lessee at the end of the lease. largest railway companies. The sec• business we carefully consider each b) Ijarah Muntahia Bittamleek ondary market for leased equipment investment with regard to the (Ijarah wa Iqtina) is classified as a in the United States is well estab• underlying investment and business lease that concludes with the legal lished across the country, making purpose, and choose only those leas• title in the leased asset passing to the re-marketing of off-lease equip• es that meet our demanding require• the lessee, either through gift (trans• ment an extremely efficient process, ments. Where there is any involve• fer of legal title for no considera• now made even better by the ment in areas that are considered tion), sale at the end of a lease term

4 NewHORIZON April 2001 Muharram - Safar 1422 ISLAMIC FINANCIAL MARKET INDICES for a token amount or other amount as specified in the lease, sale before the end of the lease term for a price equivalent to the remaining Ijarah -DJIM instalments, or through a gradual "US transfer (sale) of the leased asset. Appendix (B) of AAOIFI's FAS 8 •UK goes on to describe the Juristic rules of Ijarah and Ijarah Muntahia Tech Bittamleek. The Appendix defines - Japan Ijarah and establishes its legitimacy in terms of Shariah ruling and sup• - "Europe" porting evidence, it then goes on to ° Canada offer good detail on the elements of 500 -"— Pacific Dow Jones Ijarah in the three general areas of ooocpocpooocpooooo Islamic .Market Index the wording, the contracting parties ^^^^^^^^^ and the subject matter of the con• ro 4 a> o "2 tract, including consideration (rent) and benefits from the use of the asset. This work is very thorough 250 r and well worth obtaining. TNG Whilst it is too comprehensive to • On quote from in full, we would make a • THE couple of direct quotes from pas• 200 sages in reference to a couple of •TIIA areas that it touches upon that come up regularly for LAM when building 150 ° TISA a portfolio of leases for Islamic investors. — TIPB • Maintenance of the leased 100 asset. The Lessee can be asked to carry out the maintenance based upon the following: 50 I I I - To carry out the operating oooooooooooooooooo

maintenance which is required as a I 1 I I I 1 ) I I I I I I I I I I I unr^cDOJro^LncDCT^O'— result of using the leased asset and is CN Csl OJ rvl needed in order to ensure its contin• o o o o uous utilisation (for example, oils needed for machines and equipment) - Periodic maintenance, which is not be made conditional on the exe• We cover this issue in the second required to enable the asset to con• cution of the lease transaction in section of this article appearing in tinue providing the benefit. order not to violate the Juristic rule the next issue. It is worth noting that - Maintenance that is specified in that the execution of a contract must the burgeoning Takaful market sees description and amount in the con• not be made contingent on the exe• a bright future in providing insur• tract or according to practice cution of another contract. However, ance on equipment on lease in the whether such maintenance is merely it is permissible for the parties to the USA that is owned by Islamic work or involves the use of known contract to reach an understanding investors. materials or spare parts because this between them. It is also permissible Leasing is a detail intensive busi• type of work is considered as rent that one party promises the other ness where experience and concen• taken into consideration. party to lease to/from him the asset. tration on the detail of the documen• • Sale and Leaseback: The AAOIFI standards for Ijarah tation, the underlying equipment - One of the common forms of and Ijarah Muntahia Bittamleek and the ongoing due diligence, will Ijarah is the case where an individ• must, in practical areas, dovetail into translate over a period of time into ual sells his own asset to another the American lease accounting stan• superior performance. This is as true party and then leases it back from dards for Islamic investors to be able for Shariah-compliant investment as him. It is a Juristic rule that the exe• to avail themselves of this most for its conventional counterpart. • cution of the sale transaction must developed of markets for investment. To be concluded in the next issue

NewHORIZON March 2001 Dhul Hijja - Muharram 1422 5 ISLAMIC INVESTMENT FUNDS financial institutions. 1 believe that Explanation of the Problems afflicting HMIC's gross distributions to investors Islamic investment funds in the UK have ranged between 3.6% and 4.8% during the past 4 years and have actu• By STELLA COX, Managing Director, ucts throughout the 1990s. Secondly, ally been quite competitive within their Dawnay Day Global Investments Professor Wilson mentions the Halal sector. Mutual Investment Company (HMIC), a The Fund's aggregate assets under I read with interest Professor Rodney mutual fund incorporated in Dublin, management have not exceeded £2mn, Wilson's article Islamic Investment and managed by Al Tadamon Company which is, undeniably, modest but HMIC Products in the UK (New Horizon with the objective of investing as a is sponsored by a private company with March 2001). This was a most informa• trade finance Modaraba. capital resources that cannot possibly tive piece, although there are one or Dr. Wilson suggests that the Fund match those available to the big banks two subjects that Prof Wilson covered was not "of much interest to British and financial institutions. HMIC sought that I believe require a response for the Muslims" because of its modest track wider distribution capability through purpose of clarification. record of returning 3.6 to 3.8 per cent association with several of the major Firstly, Dr. Wilson mentions that gross per annum. As a Director of the British financial houses. From experi• The Islamic Fund, launched by HMIC, I would like to emphasise that ence, I can confirm Professor Wilson's Kleinwort Benson in 1986 (with the the Fund was launched with the very comment that, whilst interested, those purpose of investing in global equities specific objective of offering a low risk institutions are reluctant, right now, to with a Shariah compliant strategy) was savings product, with weekly liquidity, accept the promotional, marketing and wound up in 1989 due to poor sub• that prioritised capital preservation. It in some cases the perceived regulatory scriptions. At the time, I was part of the also sought to generate a regular, semi• risks of offering Shariah compliant Islamic Finance and Investment team at annual return or profit to investors financial services in the UK. Kleinwort Benson Limited and recall from the Fund's individual Morabaha Furthermore, in this increasingly the launch of The Islamic Fund by our investment transactions. competitive global, financial environ• sister company, Kleinwort Benson To comply with UCITS Regulations ment there is considerable reluctance to Investment Management Limited the transactions were all required to be offer essential administrative and cus• (KBIM). The wider acceptance of effected with counter-parties bearing a todial services to innovative projects Shariah compliant investment in inter• minimum Single A rating. We had that need a period of time to develop national equities that we now experi• detected that many people wanted a and consolidate. This certainly reduces ence was not a feature of the Islamic Shariah compliant investment product the prospects of success for indepen• financial marketplace in 1986. through which they could invest essen• dent funds like HMIC. Professor Although the Fund benefited from the tial funds and access them at very short Wilson's article evidences that there application of the industry and finan• notice. Those people wanted to save for have been a number of products cial screens that are applied to the com• annual travel and recreational projects, launched to offer individual financial ponent stocks of all Islamic equity ongoing school fees, housing deposits services to British Muslims, including funds today; in 1986 it was suggested etc. Clearly, such investors should not investment funds and the much needed that the product was a little ahead of its be exposed to inappropriate levels of Al Manzil House Purchase plan. time, as Shariah endorsement of inter• risk on their investment capital and Perhaps the principal problem is national equity investment was not recent Shariah endorsed alternatives for that, since the closure of Albaraka Bank widely available. British Muslims have primarily been to (UK) Limited, there has been no single, Nevertheless, at its peak, the Fund's invest in funds that, in turn, invest in recognised institution domiciled in the assets under management approached international equity. UK that has been able to provide a USD 30mn and it was distributed by The latter, as we are all so aware at diversified range of Shariah endorsed, National Bank of Bahrain and also by the moment, are only suited to retail financial services. Whereas inde• Gulf Bank, which retailed the product investors that are willing to commit pendently sponsored products have in Kuwait as the Dow Fund. Kuwait was their funds for a minimum three to five their place, and offer choice and diver• the Fund's most successful marketplace year period and fully understand the sification to customers, we cannot real• and it was the invasion of Kuwait in the risks of the market. HMIC has been ly escape from the fact that, ultimately, early 1990's that, not surprisingly, led made available to investors with as lit• British Muslims want and need access to heavy redemption by the Fund's tle as £250 to invest which, I believe, to a full range of financial services and investors. Subsequently it was decided makes it unique amongst other Shariah facilities. Our own research suggests that the product would benefit from a endorsed investment products available that the overwhelming preference is for general restructuring and Kleinwort to British Muslims. It has always these to be made available in combina• Benson (which became Dresdner benchmarked itself against the returns tion with the level of security retail Kleinwort Benson) continued to offer available to depositors investing a min• customers derive from transacting with its clients a range of Shariah compliant imum of £500 in instant access savings a regulated, licensed bank. There really investment and financial services prod• accounts with the major high street is no substitute for that. •

6 NewHORIZON April 2001 Muharram - Safar 1422 ISLAMIC BANKING Islamic banking and the UK regulatory controls

ThSeminae Islamic r financialhoste sectod bry i s thgrowine Institutg Implementine of Islamig soonc, Bankininstead of ga ancipled sInsurance outlined by th,e FSALondo. n worldwide, particularly in the UK, banking licence, the FSA would give a The principles of businesses state according to Mr Stephen Foster, permission to do securities business, the following: Manager, Emerging Markets, Financial take deposits, and to mange assets. "To • Business must be run with integrity, Services Authority, who was speaking do Islamic finance you don't need to be skill and care at the seminar hosted by the Institute of a bank, if you do want to be a bank you • Management and control must meet Islamic Banking and Insurance. Mr can do that by obtaining a banking best practice standards Foster said, "We are aware of the com• licence which is already around." added • There must be financial prudence petition and we have a duty to encour• Mr Foster. • There must be good market conduct age and to support financial product The FSA has four main objectives, for the people in the company, and innovation. London is a huge source of • Maintaining confidence in the finan• • Individuals running the business revenue for the FSA. It is vital to main• cial system must be competent enough to per• tain the presence of London in the • Promoting public understanding of form. intemafional financial market. It is a the financial system Prior to authorising a firm, the FSA well-regulated, open and free and a • Protecting customers looks at the legal status of the firm. good place to do business". • Fighting financial crime Where is it incorporated? Where its Addressing the Institute on 'Islamic Currently, under the Banking Act head office is? The head office has to be banking and the UK Regulatory Issues, 1987, the FSA has established what where it is incorporated. The FSA also Mr Foster said, "The role of Financial they call 'threshold conditions' that are looks at the group structure of the firm, Services Authority (FSA) is to supervise taken into consideration by the FSA its shareholders and those who are banks, financial institutions, asset when authorising a firm to conduct involved in managing the business. The management firms, securities firm, and business. Conditions are as follows: FSA also conducts checks whether the is predicated on fundamental business • Firms must show they can manage people are suitable to run the institu• principles. These principles are the their affairs prudently. tion. guidelines on which FSA allows firms to operate in the United Kingdom and on which the FSA supervises them." The Financial Services Authority (FSA) - until October 1997 known as the Securities and Investments Board Panel at the Seminar: (From left) Stella Cox, Duncan Smith, Tariq Hussain, Prof Rifat Abdel Karim, (SIB) - is an independent Stephen Foster, James Hume, Prof Simon Archer, Waheed Qaiser non-governmental body, which exercises statutory powers • They must have at least two people It is the responsibility of the FSA to under the Financial Services Act 1986 involved in every management deci• ensure that the management, senior and the Banking Act 1987 (and certain sion, staff and the board act with integrity, other legislation). In summer 2001, FSA • The composition of the board, skill, care and diligence in their job. will bring into effect a new Financial • Firms to cany out operations with Due to the lack of resources to investi• Services and Market Act, making it the Integrity and skill, and gate each and every problem the insti• single regulator for the UK's financial • Minimum number of net assets. tutions face, FSA relies on the manage• services industry. The FSA changes Failure to meet any of the above- ment to be honest about the issues. these principles on an average every mentioned conditions along with con• Thus, one of the reasons for establish• three years, a practice which has been fused links or complicated sharehold• ing the basic business principles. continued for the past ten years. Under ing structure, results in denial of Customer interest is an important the new Financial Services and Market authorised business operation in the issue for the FSA. For the first time the Act, the principals will stay the same UK. regulators have this specific objective but the terminology will be a little dif• The threshold conditions lay down of making sure that the people buying ferent, as it will cover all firms regard• the foundations which are then built investment products have an actual less of the nature of their operations. upon by sustaining basic business prin• understanding of what they are doing.

NewHORIZON April 2001 Muharram - Safar 1422 7 The FSA checks how the firms com• Some of these issues have now been equivalent to the Basel Accord for municate with their customers? How partly resolved because of the develop• Islamic banks." the firms look after their customers' ments in the disclosure and accounting A meeting was held in interest? Are they deliberately hiding standards within Islamic banks and Washington to look into the draft of behind chargers? Are they explaining also due to the way investment is being the structure of this board. In April their products in an open and honest treated in Islamic institutions. 2001, during the spring meeting of the manner? How the firms deal with con• Like any other regulatory body, the IMF, the governors of the central flict of interest? Do they ensure safety FSA has accounting and disclosure banks are expected to meet in either to their customers? The FSA feels it is standards. Any Islamic bank incorpo• Bahrain or Malaysia to approve the their responsibility to promote public rated in the UK must meet and follow board. "The Islamic Financial Board understanding, as they are here to look the UK's generally accepted account• will issue supervisory standards for after consumer interest. ing principles. When it comes to the Islamic financial institutions. Once the Another major issue for the FSA is Islamic financial market, the issue in board is formed it will be very inter• the relationship of the firm with the the past was what is the consistent esting to see how Financial Services FSA as well as the regulators in the basis for measuring and looking at the Authority will response to an interna• home country i.e. do they have open accounts of the company? The debate tional body like this board. Whether it and honest dealings with market and about how to treat certain aspect of would have implications on the rules with regulators where it is incorpo• Islamic banking has driven the Islamic and regulations for licensing Islamic rated? It is critical for the firm to financial institutions in producing banks in the UK. Whether the Islamic have strong and trustworthy relations with the regulators in the home country. For instance, if there is a branch in London of an overseas institution, technically the legal responsibility of the FSA extends to the whole firm and therefore under the threshold conditions the FSA makes sure that the whole firm com• plies accordingly. "The Islamic financial sector is growing world• The Islamic banking industry is wide, particularly in the UK. We are aware of the facing some serious issues that must competition and we have a duty to encourage financial institutions will follow the be resolved in order to seek FSA' s and to support financial product innovation. It is UK or international set of standards." approval. The FSA feels that it needs vital to maintain the presence of London in the Added Prof Karim. to be educated to be completely able to international financial market. It is a well-regu• The traditional role of the Shariah issue regulatory standards for Islamic lated, open and free and a good place to do busi• boards is to serve as an advisory financial institutions. These issues are, ness". Mr Stephen Foster, Manager, Emerging board. This is now a much understood • Calculation of capital Markets, Financial Services Authority. and resolved issue. The argument in • Accounting 8t disclosure standards the past had revolved around the • Role of Shariah board consistent accounting standards for degree of involvement of the Shariah • Liquidity management Islamic finance. It is a step forward as board in the decision-making, keeping An on going debate has existed the FSA needs to be able to look at the abreast of the jurisdiction of the exist• concerning the calculation of capital. set of figures and be able to under• ing board of directors and the line of What is the basis of calculation of cap• stand and compare them with either senior management of any given firm. ital? How are the items on the balance Islamic institutions or non-Islamic Upon investigation the FSA did not sheet, although the many Islamic insti• institutions. Although it is more of an find any discrepancies whereby the tutions claim they are not, appear to issue with the auditors and the man• Shariah Board had been involved in be deposits as they are secured and agement rather than the regulators making credit decisions. Thus, it is expected to go back to the individual. nonetheless, it is essential for the FSA widely expected the Shariah board will It is quite ambiguous to what extend to see that the firms are able to mea• provide the much-needed backbone of an Islamic bank is required to hold sure figures on a consistent basis. regulation previously lacking. capital against risk weighted assets? Professor Rifat Abdul Karim, The esteemed members selected for What is a deposit? Is the item a deposit Secretary General of AAIOFI, chairing the discussion panel included Ms Stella or an investment? Also, funds are the seminar disclosed a new develop• Cox, Managing Director, Dawnay-Day; shared on traditional basis under ment in this issue. Prof Karim said, "At Mr Tariq Hussain, Director, ANZ; Mr Islamic banking; some regulators con• the initiative of the IMF, AAIOFI and James Hume, Director, Clayton-Hume sider it not as a deposit, rather a risk- IDB, an Islamic Financial Board will be Associates; Mr Roger Sanders, sharing fund. created. The board will serve as an Executive Director, ihilal; Mr Waheed

8 NewHORIZON April 2001 Muharram - Safar 1422 Qaiser, Head of UK Islmaic finance, Roger Sanders, Executive Director, Mr Duncan said, "In terms of bank• IIBU; Professor Simon Arciier, ihilal, focused on the issues of trans• ing services there is still the issue of University of Surrey, and Mr. Duncan parency, and investor protection, con• sanctity-in UK Law-of a clients Smitii, Managing Director, ABCIB cerning offshore Islamic financial deposit and his right, whether he likes Islamic Asset Management Ltd. institutions contemplating marketing it or not, to get that deposit back, plus Stella Cox, Managing Director in the UK. "There is a supreme irony in interest, at maturity. The only Dawnay-Day, highlighted the insur• the ethical aspects of Shariah funds on 'deposits', which would work as mountable issues that hindered the the one hand and the opaqueness of things, stand under secular and reli• efforts of Islamic banking in meeting Islamic institutions wishing to market gious legal codes would be current the existing UK banking regulations those self-same funds in the UK." said account deposits and this is not really and supervision criteria. Ms Cox Mr Rogers. helpful to small British Muslim savers specifically stressed the importance of In the past the difficulties encoun• who need a low risk, though income- the concerns relating to lack of ability tered by the offshore Islamic financial generating, home for their hard earned in Islamic banks to satisfy liabilities to institutions are due, in part, to a fun• money. On the 'form over substance' depositors in extreme market condi• damental misunderstanding of the point in connection with credit ser• tions. This point was further discussed sophistication of the UK market and of vices, I find it difficult to see how the by Mr Foster who in turn linked the the prospective British Muslim regulators can-in the case of a lease issue as of paramount importance in investor. An investors' "Britishness" is based home finance product such as obtaining a licence in the UK. of equal importance to that of he or Manzil Ijara - do anything, other than she being a follower of Islam. The oppose what seems to be the fair cap• products aimed at this market ital treatment of this form of finance ignore this basic fact at their peril. as a 50% risk weighted asset for the Mr Roger regarded the investor purpose of calculating a UK bank's protection regulations under the capital adequacy. I have some sympa• present Financial Services Act thy with our regulators here as the law 1986, as some of the most rigorous itself rather than its interpretation, to be found anywhere in the world. may need modification. He said "Quite rightly, the FSA, act• The second area concerns the ing on behalf of the current regula• availability of a suitably broad range tor, the Personal Investment of investment products for the UK's "At the initiative of the IIVIF, AAIOFI and Authority, needs to satisfy itself on Muslim communities. Here, the legis• IDB, an Islamic Financial Board will be created. issues relating to capital adequacy and lation - which was introduced primar• The board will serve as an equivalent to the conduct of business. This means that ily to protect small savers - is not Basel Accord for Islamic banks. It will be very the accounts of offshore institutions sympathetic to the Shariah-sensitive interesting to see how Financial Services wishing to obtain UK authorisation investor. UK retail funds - whether Authority will response to an international body must be capable of being clearly unit trusts or open ended investment like this board." Professor Rifat Abdul Karim, understood and drawn up in accor• companies - cannot under the regula• Secretary General of AAIOFI. dance with UK accounting standards. tion make 'investments' in the hard Self-evidently, many institutions have asset type (equity real estate, equip• Ms Cox also suggested that insuffi• fallen at this all-important first hurdle ment leasing etc.) provided to Islamic cient access to information had been in the past. The same institutions have investors elsewhere. an area that hampered distribution, also failed to grasp the importance of They have to restrict themselves although there was sufficient demand recruiting appropriately qualified and largely to publicly traded equities for Shariah compliant financial ser• experienced personnel to run their UK (with all the volatility and cost that vices from the Muslim community. business of funds. Until many of the implies to small savers) and to money People had been deterred by the fact institutions based in the Arabian Gulf market instruments - notes, bonds, that they had little information about get their acts together, these difficulties deposits etc. - all of which are interest the structuring methodology applied are likely to remain an insurmountable based and therefore not open to to Islamic finance and investments barrier for entry to the UK and EU Islamic investors. Again, I am sympa• contracts. Most of the Shariah compli• market and, thereby, satisfy the pent thetic to our regulators, having myself ant retail financial products made up demand for Islamic products and spent a significant amount of time and available to date have been through services. money (on lawyers) in the past on the private and smaller institutional spon• Mr. Duncan Smith, Managing detail of the regulations, as they exist. sors that were not bale to benefit from Director, ABCLB Islamic Asset Manage• My belief is that some changes are the strength of mainstream distribu• ment Ltd, put a spotlight on two impor• needed to the relevant laws to enable tion and had, perhaps been unable to tant issues that he believed required British Muslim savers to get a level reach as wide a marketplace as intended. legislation rather than regulation. playing field." •

NewHORIZON April 2001 Muharram - Safar 1422 9 ISLAMIC INSURANCE Takaful Industry: Global Profile and Trends, 2001 Takaful industry is still not past its Table 1: Geographical spread of BY MOHAMMAD AJMAL BHATTY, formative years and there are many Chief Executive, Takaful International, Bahrain areas unresolved, especially in life Takaful business - 2000 insurance. The key areas to resolve are Estimated figures Takaful % of total The insurance providers in year 2001 the global standardization of takaftil $143m 27% and beyond should find Takaful sector terminology, the development of an Malaysia acceptable form of Hfe insurance (fam• Other Asia Pacific $50m 9% an exciting sector of insurance to be $6m 1% in. This presentation focuses on ily takaful) especially for countries in Europe, USA Arab countries $340m 63% growth potential that exists in Takaful the Arab regions and a common con• $538m ^00% with great many opportunities for sensus for a system to determine prof• Total innovative development of unique its (or surplus) distributable to partici• The growth in Takaful business in products, techniques and systems pants and shareholders.The very first Malaysia has been impressive. Starting needed to fill gaps in insurance pene• Takaful company was established in from a low base in 1994, the annual• tration in many of the markets around 1979 - the Islamic Insurance Company ized average growth used to be in the the globe. This paper presents an of Sudan. Today there are some 28 order of 92% in Family Takaful and insight into the size of the current registered Takaful companies world• 34% in General. Since 1998, the takaful industry worldwide and wide writing takaful directly and 10 growth rate has slowed down to sketches the signs of change that may more as Islamic windows or marketing around 30% in Family Takaful and lead to realization of the potential that agencies placing insurance risk with 17% in General. In Family Takaful the exists in this sector. conventional and takaful companies. products sold were individual and In fact the number of takaful com• group term and savings products, mortgage policies and pension plans. Overview of takaful The takaful panies is higher as all insurance com• brand of insurance is a classic example panies in Sudan are deemed to operate In General takaful all classes of busi• of consumer-driven response to their in accordance with Islamic Sharia ness were sold. (See Table 2). needs. For generations, Muslims principles. In addition, new takaful around the world have grown with a companies have been established Takaful in Arab Countries mind set that insurance (especially life recently in Sri Lanka and Tunisia. At To illustrate the penetration of takaful insurance) is taboo because it contra• least four more Takaful companies are in the private sector, the following venes some of the Islamic tenets. Life under formation in the Middle East table provides a picture of business insurance as sold in conventional way (viz. Kuwait, UAE and Egypt). Several written by companies in the Arab was declared unacceptable in 1903 by other Takaful companies are being countries excluding NCCI in Saudi some prominent Islamic scholars in the contemplated in various countries Arabia. This company's business is Arab countries. The search was on for such as Pakistan, Australia and mainly generated from government an acceptable alternative ever since, Lebanon. It is also understood that sources and its exclusion from the fig• and not until the 1970's the debate interest is shown in Takaful in South ures provide a better measure of how took sufficient momentum to reach a Africa, Nigeria, and some of the former takaful companies are doing in the consensus. In 1985, the Grand Counsel states of the Soviet Union.Takaful market place where they compete with of Islamic scholars in Makkah, Saudi industry in the Middle East is under• conventional insurance companies. Arabia, Majma al-Fiqh, approved developed compared to other markets (See Table 3). takaful system as the alternative form such as Malaysia. The more successful of insurance written in compliance companies in the Middle East have Takaful business has generally grown with Islamic Sharia. It is outside the grown at 10% p.a. whereas in at a higher rate than the total insur• scope of this presentation to explain Malaysia the rate of growth has been ance business in each of these coun• how the takaful system works except 60% p.a. tries. Growth rates reflect the increas• to say that it is a concept of protection A broad estimate of the total ing market share of Takaftil business for the good of society, a concept that Takaful industry in 2000 is approxi• over the same period, 1995 to 1999 for was never an issue in Islam in the first mately US$550m for both life and these countries: place. non-life business, of which around The Grand Counsel approved this $193m pertains to Asia Pacific. Reinsurance or Retakaful system as a system of co-operation Malaysia is one of the largest markets Reinsurance of takaful business on and mutual help but the exact method outside the Arab region for Takaful, Islamic principles has been an area of and operation was left to Islamic writing 72% of the non-Arab takaful much debate. Reinsurance on Islamic scholars and insurance practitioners to business. A geographical spread of principles is known as retakaful. The resolve, develop and implement. takaful business is as follows. problem has been one of lack of

10 NewHORIZON April 2001 Muharram - Safar 1422 ISLAMIC INSURANCE retakaful companies in the market. The Middle East and indeed many for the Arabian Gulf countries. This has left the takaful companies of the Muslim countries are a mixture • greater reliance on social welfare with a dilemma of having to reinsure of some rich and some poorer provisions on conventional basis, contrary to the economies. Insurance density and • extended family system customer's preference of seeking cover penetration in some of these countries • attitude to personal risk on Islamic principles. The Sharia show the low expenditure in life Nevertheless many of the classic scholars have allowed dispensation to insurance in Saudi Arabia of $1 per parameters of old are changing, such takaful operators to reinsure on con• head and UAE of $68. In comparison, as the extended family system. The ventional basis so long as there was the world average life premium per pace of change has increased mani• no retakaful alternative available. capita was $235, the UK $2,503, USA fold due to urbanisation and industri• Takaful companies therefore actively $1,447 and Switzerland $2,914 (high-' alisation and the recent phenomenon promote co-insurance. of liberalisation and A number of large globalisation. conventional reinsur• Table 2: Growth of Takaful In Malaysia Moreover, populations ance companies from of many developing Muslim countries take USSm Family o/o General % Total % Muslim countries are on retrocession. Still Takaful increase Takaful increase Takaful increase skewed towards younger there is a lack of 1998 55.0 36.6 91.6 age groups, which has 1999 70.0 270/0 42.7 17% 112.7 23% capacity within the 33% put greater pressure on Takaful industry 2000 93.2 49.8 17% 143.0 27% limited resources and worldwide. A certain employment. proportion of risk is Exchange rate RM2.43 to $ (1997 prices) The economic fac• placed with interna• tors have kept insur• tional reinsurance Table 3: Takaful business in the Arab Region - 1999 ance low in many of companies that oper• Takaful figures estimated, Market figures from Sigma SwissRe £t ArIg these countries. People ate on conventional may be aware of insur• basis. The retrocession US $m Life General Total Total Takaful Mar• ance needs but cannot from Takaful compa• Takaful Takaful Takaful Market ket Share afford to buy the nies ranges from some S.Arabia 1.3 60 61 781 *8% required protection. 10% in the Far East UAE 1.1 12 13 815 2% The minority, who can where Takaful compa• Qatar - 6 6 153 4% afford, are either not nies have relatively Bahrain - 5 5 134 4% convinced or are not smaller commercial Sudan 0.4 27 27 33 830/0 interested. Poor mar• risks (so far), to the Jordan 0.3 6.3 7 141 5% keting has been one of Middle East where up Total 3.1 116 119 2,057 6% the contributory factors to 80% of risk is rein• * Takaful share for Saudi Arabia increases from 8% to 36% sured on conventional if NCCI's premium is included above. Company Profiles basis. The status and type of activities carried out by Market characteristics est). The GDP in many of these coun• takaful companies worldwide, is The market characteristics of the Arab tries is high, such as Kuwait, Saudi mainly based on data collected direct• region are quite different from other Arabia and UAE, and yet insurance ly from the companies through a regions. The main differences are in penetration is not commensurate with questionnaire sent to some 30 compa• terms of the attitude to risk and lack the high GDP. This reflects the indif• nies. All except Takaful USA are con• of insurance awareness. The level of ferent attitude to risk in these coun• tinuing to transact business. The posi• awareness is very low about financial tries. tion about Takaful USA is not clear as protection amongst individuals. This The insurance penetration in the of March 2001. is not the case for Malaysia, Indonesia UK was 13.35% (life 10.30%), USA The more successful Takaful com• and Brunei, certainly not to the same 8.55% (life 4.23%), and South Africa panies in the Arab region managed a extent. This is illustrated by compar• 16.54% (life 13.920/0) the highest. dividend of up to 80/0. Nevertheless, ing insurance density and penetration Insurance penefration for the Middle they can do much better if the critical of conventional insurance and East is very low at I.60/0. mass of business is built up. Lack of Takaful aggregated. Tradittonally the reasons for low capacity to write different classes of The average ratio of capital to pre• penetration for insurance in the business, low retention, limited prod• miums for many Arab insurers is Middle East, particularly in life insur• uct range and lack of good service around 1 whereas the ratio should be ance, used to be: have been the impediments of the in the region of 2.5 times. • lower disposable incomes, except past and these parameters are fast

NewHORIZON April 2001 Muharram - Safar 1422 1 1 ISLAMIC INSURANCE changing for the better, especially in in the region increased by around 30/0 each country and the take up rates Jordan, Bahrain and Qatar. New in 1999 compared to 12.50/0 in Iran for takaful products as opposed to Takaful companies in Kuwait and the and 5.30/0 in Kuwait. conventional products. (See Table 4). UAE are expected to add to this The takaful industry holds the key Twenty-seven countries were improving scenario for Takaful to unlocking this potential where life selected where most of the demo• industry. insurance can actually be provided graphic and insurance statistics was through "family takaful" naturally available. It was estimated that the Signs of Change: acceptable to the masses. The demand global takaful premium could be in Tracing For Takaful Potential for Islamic products is evident from the region of US$7.4 billion in 15 The world population in 1999 is esti• the success of Islamic finance and years' time, growing at nearly 200/0 mated to be around 6 billion as per banking that has now firmly estab• per annum. This is not an unachiev• the Global Population Project based in lished itself with a total of more than able task when we have Malaysian the United States. The data on Muslim $7 billion of capital, $4.1 trillion of takaful business growing at 6O0/0 pa population is not readily available. It assets and more than $120 billion of and the Middle East at lOo/o. With was estimated by using information deposits. concerted effort on part of the contained in a publication entitled The potential Takaful volumes Takaful operators worldwide, a Islamic Beliefs and Teachings from were estimated by taking into growth of 200/0 pa should be very India. Accordingly there may be account the growth inertia achieved much possible. around 1.5 billion Muslims making up for 250/0 of the total world pop• Conclusion ulation in 1999. As we look around Syria - Insurance, especially life insur• Morocco - Table: 4 throughout the Muslim world it is Plnilippines h ance is an essential part of the quite evident that people have not Turl

1 2 NewHORIZON April 2001 Muharram - Safar 1422 ISLAMIC FINANCIAL INSTITUTIONS' RATINGS

ISLAMIC BANKS/FINANCIAL INSTITUTIONS

13 March 2001 CURRENT RATING FOREIGN CURRENCY DOMESTIC SUPPORT OUTLOOK SINCE LONG SHORT BANKS TERM TERM STRENGTH

BAHRAIN • Albaraka Islamic Investment Bank BB A3 NA 2 Stable Aug-2000 • Bahrain Islamic Bank BB+ A3 BBB- 3 Stable Aug-2000 • Faysal Islamic Bank of Bahrain BB B BB+ 2 Stable Nov-2000 • Al Amin Co. for Securities £t Investm't Funds BBB NA NA NA NA Aug-2000 • Al Tawfeek Co. for Investment Funds Limited BBB NA NA NA Stable Sep-2000 JORDAN • Jordan Islamic Bank for Finance BB- B BB 3 Stable Sep-2000 KUWAIT • Kuwait Finance House BBB+ A3 BBB+ 2 Stable Jun-2000 • Investment Dar Kuwait NA NA BB- 3 Positive July-2000 • "Ayan Leasing 6t Investment Co NA NA BB 3 Stable Aug-2000 QATAR • Qatar International BB+ B BB+ 3 Stable July-2000 • Qatar Islamic Bank BB+ A3 BB+ 3 Stable Sep-2000 SAUDI ARABIA • Al-Rajhi Banking £t Investment Corporation BBB+ A3 A- 3 Stable July-2000 UAE • Dubai Islamic Bank BB+ A3 BBB- 2 Stable Aug-2000 MALAYSIA • Bank Islam Malaysia BB+ A3 BB+ 2 Stable Feb-2000 PAKISTAN • Allied Bank of Pakistan C C C 4 Stable Nov-2000 • Askari Commercial Bank C C BB 3 Stable Apr-2000 • Faysal Bank C C B- 2 Stable Nov-2000 • Habib Bank C C C+ 2 Stable Nov-2000 • Muslim Commercial Bank C C B+ 4 Stable Nov-2000 • National Bank of Pakistan C C B+ 2 Stable Dec-2000 • Union Bank C C B 4 Stable Dec-2000 • United Bank C C B+ 2 Stable Apr-2000 PALESTINE • Arab Islamic Bank NA NA B 4 Stable Aug-2000 KEY S [STABLE] P [POSITIVE] N [NEGATIVE] ALL RATINGS ARE REVIEWED ON A REGULAR BASIS Source: Capital Intelligence (CI), Bank Analysis and Rating Service, Limassol, Cyprus

Tel: (Cyprus) +357 5 342 300 Fax: (Cyprus) +357 5 343 739 / 817 750 Email: [email protected] Internet: http://wwvi;.ciratings.com L

Apology Qualify to be an Islamic Banker The Institute of Islamic banking and Insurance would like to bring to the notice of its readers and the general public a mistake in its publica• Enlist for the Distance Learning Post-graduate tion "Anthology of Islamic banking". In the arti• Diploma Course in Islamic Banking & Insurance cle entitled "Life Insurance: The Islamic Model" Out of 390 students enrolled from 41 countries for the Diploma, written by Dr Masum Billah of International 105 have graduated. Islamic University, Malaysia, was inadvertently attributed to Mr Musa Shihadeh. Institute of Islamic Banking and Insurance The Institute unreservedly apologies to Dr Billah 16 Grosvenor Crescent, London SWIX 7EP and deeply regrets any inconvenience caused. Tel: +44 (020) 7 245 0404 • Fax: +44 (020) 7 245 9769 Email: [email protected] Management UrI: http://www.islamic-banking.com

NewHORIZON April 2001 Muharram - Safar 1422 1 3 CORPORATE PROFILE

Abu Dhabi Islamic Bank Financial & Business Analysis 1999

FX Conversion Rate: "A promising start for a young operation - a sound strategy, growing At 31 December 1999 asset base and reasonable profitability " 1 US$ = 3.67 AED (Utd. Arab Emir. Dirham)

Ownership and Legal Status Financial Trends Abu Dhabi Islamic Bank is a public joint stock company, incorporated in the United Arab Emirates under Federal Law 8 of 1984 and Amiri Decree No. 9 for 1997. The Bank was registered in the commercial register on 3 November 1997 and commenced commercial operations on 11 November 1998. The Bank's main activities include carrying out banking, investment, trading and other banking service activities in accordance with Islamic principles. The Bank operates solely in the United Arab Emirates and employed 241 employees at year-end 1999 (1998: 177). Authorised, issued and fully paid share capital at year-end 1999 was AED 1 billion (US$272 million). The Year in Brief Shareholders' Funds (The comparative period ended 31 December 1998 included 14 months) Total assets increased by 83% to AED2.66 billion (1998: AED1.48 bilHon). Total deposits increased by 444% to AED1.50 billion (1998: AED0.33 billion), while Shareholders' funds increased by 1.58% or AED17.45 million to AED1.121 billion (1998: AED1.103 billion). Total operating income (prior to distribution to depositors) 1998 increased by 53.55% or AED36.134 million to AED103.61 million (1998: AED67.48 million). After distribution to depositors, income comprised AED72.06 million, up AED4.97 million or 7.41% (1998: AED 67.09 miUion). Operating expenses increased Depositors' Accounts by AED20.02 million or 59.4% to AED53.71 million (1998: AED33.69 million). Ratio of operating expense to operating income (less distribution to depositors) was 74.53% 1,499 (1998: 50.21%). Staff cost per employee was AED128,402 (1998: AED125,604).

0.337 Business Highlights 1 1 The external domestic environment was buoyant, with considerable growth in the local economy (GDP up 10%). Trade surplus was 34%, inflation was steady at 2% and average per capita income rose 9%. The average price of oil reached US$17.48 per barrel, up 41% from 1998, but still below levels reached in 1996 (US$19.70) and 1997 Net Operating Profit C 33;39«. (US$18.60). The enactment of laws to establish a formal stock market and commodity O exchange in the U.A.E. will shape the future of domestic financial and commodity markets and have positive implications for the economy generally. The Bank, in cooperation with other Islamic financial institutions, invested in the Awqaf properties in Muslim countries. It also participated in major projects such as Qatar Telecommunications (Q-TEL), whose capital reached QR5 billion. Assets were deployed 11% in the local market, 55% in the Middle East and 34% in Europe and other markets. Net Profit

c The Bank is developing a number of investment products and services, including the o 'ADIB Al Hilal Fund', comprising three portfolios (global equities, medium-term 'E financing and short-term financing) and the 'ADIB Ijara Fund 1' that invests in Q equipment leases. These two funds are in the process of being launched. LU 18.350 < 1 1 The Bank's strategic plan envisages expansion of its activities to all cities in the U.A.E. To this end, three new branches were opened - Al Ain in July; Dubai in November and a second branch in Abu Dhabi in March. New branches are planned for Sharjah, Fujairah, Baniyas, Gheyathi and others. Earnings per Share

O I The introduction of policies and procedures relating to control and risk management lU i continued to be given a high priority, with particular emphasis on setting risk-based controls for credit and investment activities. An Internal Audit Committee was formed 0.184 to enhance the audit function within ADIB. ,1—n

14 NewHORIZON April 2001 Muharram - Safar 1422 CORPORATE PROFILE

BANK MUAMALAT Financial & Business Analysis 1999 ^^^^^ Pertama Sesuai Syariah ''Material improvement over the crisis year of 1998, with less FX Conversion Rate: At 31 December 1999 reliance on external financing account - but problems remain''' 1 US$ = 7050 Indonesian Rupiah Ownership and Legal Status Financial Trends PT Bank Muamalat Indonesia was established on 1 November 1991, commencing operations on 1 May 1992. The Indonesian Council of Ulama (MUI), supported Total Assets by a group of entrepreneurs and Muslim intellectuals who are amoung the 227 shareholders, initiated the establishment of the Bank. The Bank's scope of I 1394.5 ^•'^•^ ^^^'^ 446.9 activities is to conduct commercial banking business based on Islamic Shari'a principles. The Bank became a Foreign Exchange Bank In 1994, and after 8 years a. of operation is the leading Shari'a bank in Indonesia. The Bank has 9 branch offices, 2 sub-branch offices and 26 cash offices. Plans are to open a further 10 a. 1995 1996 1997 1998 1999 offices in 2000. The Year in Brief Total Customer Financing 459.2 462.1 Against a backdrop of continuing serious political and economic instability. Bank c Muamalat has show considerable resilience, with indications that depositors 1li 5 : 288.6 312.2 regarded the Islamic system to be a reliable home for their money during a difficult period. Capital adequacy rado wasl4.09%, double the 1998 level of a. 6.76%, and places the Bank in the A category established by Bank Indonesia. 1995 1996 1997 1998 1999 Total Assets increased by 44.7% or Rp214.2 billion to Rp.693.3 billion (1998: cc. Rp.479.1 billion). Stockholders' equity increased by 41.8% or Rp.29.9 billion to Rp.101.4 billion (1998: Rp.71.5 billion). Total Deposits increased by 34.7% or Total Equity Rp.l36 billion to Rp.528.1 billion (1998: Rp.391.9 billion). Net income for the year was Rp.2.7 billion (Rp.20 per share) against a loss of Rp.75.5 billion in 1998 107.4 105.9 109.0 101.4 (Rp.624 loss per share). Margin income and profit sharing net to the Bank was 357% or Rp.6.6 billion higher at Rp.9.1 billion (1998: Rp.2.6 billion). Other operating income was sharply lower by 85% or Rp.65.0 billion at Rp.l 1.3 billion Q. (1998: Rp.76.3 billion), the comparison reflecting a more normal FX gain of 1995 1996 1997 1998 1999 Rp.9.1 biOion (1998: Rp.75.2 billion). Operating expenses (excluding provisions) were 4.3% or Rp.l.62 billion higher at Rp.39.3 billion (1998: Rp.37.7 billion). Provisions were sharply lower by 89.2% at Rp.15.7 billion (1998: Rp.146.2 billion). Total Revenues Business Highlights A Group Investment Banking and Treasury unit was formed to promote the 'Universal Value' of the Bank, focussing on the management of liquidity and the coordination of ALCO policies. This unit provided Rp.9 billion of profits from 1995 1996 1997 1998 1999 interbank (largely FX) transactions. 11 ATMs were in place at year-end, using wireless communication technology in Operating Profit remote areas. Plan is to join the 'ATM Bersama' together with the provision of debit card facilities at point-of-sale. A rights issue during the year resulted in an increase in paid-up capital of Rp.26.5 million and other paid-in capital of Rp.27.2 billion, derived from the Islamic Development Bank. An additional rights issue in 2000 is expected to raise a 1995 1996 1997 1998 1999 further Rp.50 billion. This additional capital is being used: 1. To increase asset quality by decreasing the financing of problematic portfolios. Net Income After Tax 2. To maintain asset quality by precise monitoring of customer payment record and prospects c 1-4:9 2:3 5:3- -2^ 3. To anticipate potential problems by early identification and evaluation of O ; problem assets °- 4. To improve documentation, administration and legal support. CC. L =75:5- — 1995 1996 1997 1998 1999

NewHORIZON Apri I 2001 Muharram - Safar 1422 1 5 NEWS MONITOR

BAHRAIN for any market and Visa welcomes the Bahrain studies issuing development of newer and newer prod• ucts," added Mr. Scriven. The Gulf Islamic bonds, T-bills Bahrain Islamic Cooperative Council offers tremendous Bahrain is studying plans to issue potential for growth for a card, as card Islamic government bonds and treasury Investment to Offer usage is comparatively low. bills to help boost liquidity in the Wider Services Islamic financial market, the governor of Bahrain's central bank said. The pro• Bahrain Islamic Investment Co (BIIC), in Specialized rating agency posed bonds and treasury bills would restructuring its management and oper• for Islamic financial insti• support the creation and developing of ation, is developing wider services an Islamic financial market in the besides its existing consumer finance tutions under consideration island, according to Bahrain! official. products. Chairman Abdul-Latiff Janahi A meeting took place to discuss a Bahrain Monetary Agency (BMA) stated that the BIIC plans to introduce proposed specialized rating agency governor Sheikh Abdullah bin Khalifa services like Ijara, direct investment, for Islamic financial institutions. The Al-Khalifa told a banking seminar the asset management, health care, educa• meeting of the working committee of proposed bonds and treasury bills would tion financing and financial consulfing. the Bahrain-based International support the creation and developing of He said the new developments will com• Islamic Rating Agency (IIRA) dis• an Islamic financial market in the island. mence by June, with a new location cussed a strategic plan on organizing Bahrain, the Gulfs main financial and which will include, in addition to the the agency. banking hub, is home to around 18 company's principal office, a showroom The committee was formed during Islamic financial institutions. It was not for cars and another for electrical as September 2000 meeting of prospective immediately clear how the planned well as electronic households appliances shareholders of the IIRA, the establish• bonds and treasury bills would deal with and other goods that are of interest to ment of which is being promoted by the the issue of interest, which is banned consumers. Islamic Development Bank (IDB). under Islamic shariah laws. Islamic He added that the new strategy to The committee was mandated with banks do not pay or charge interest - the enhance the Image of the company the task of working out the details of the core of Western banking system - as it is comes after Gulf Finance House proposed agency, which is to be set up considered by many Muslims as usury. (Bahrain) and Gulf Investment House with a paid up capital of $2 million and Two BMA officials said the plan was (Kuwait), acquired controlling stake in an authorized capital of $10m, the still under study and declined to give the company. paper said. any further details. Sheikh Abdullah The meeting is being organised by said Bahrain had taken steps together Bahrain Islamic Bank (BIB), a prospec• with Malaysian authorities to establish Visa International to tive shareholder in the project. It also the first Islamic inter-bank market, Endorse Islamic Credit discussed a budget for the agency and which would help ease day-to-day liq• measures to be taken to encourage uidity problems facing Islamic financial Card Islamic financial institutions to become institutions. Malaysia last week agreed Visa International has welcomed the members in the project, said BIB man• with Gulf market regulators and bankers idea to endorse an Islamic debit card. aging director and general manager to set up the inter-bank market. Mr Peter Scriven, General Manager, Abdul Latif Janahi. Bahrain and Malaysia's Labuan would Dubai, has said that VISA has not yet "We are aiming to establish an be the two trading centers for the US dol• been approached by any of its member agency which will be internationally lar-based Islamic money market which banks for support, although it is open to recognized, to enable our users to know will mobilize billions of dollars of Islamic new (products) ideas and would support what the Islamic banking industry is funds and facilitate liquidity manage• any method of payment. doing", added Mr Janahi. ment 24 hours a day. "We hope the Speaking at a press conference to The shareholding of the IIRA will be Islamic market will soon see the light," launch Citibank's Visa credit card in held by the IDB, which is to provide 15 Sheikh Abdullah told the gathering. Bahrain, Mr. Scriven said, "Visa is a per cent of the paid up capital, while 50 Bankers say one of the major prob• general payment method and as long as per cent of the shareholding will be sub• lems currently facing Islamic institutions a product meets our payment require• scribed by rating agencies in IDB mem• was a lack of means to manage their day- ments, we would support it. So, we ber countries and the remaining 35 per to-day liquidity requirements. Bahrain would definitely lend our name to an cent by Islamic financial institutions or currently issues a weekly 10-million Islamic debit card," conventional banks with Islamic win• dinar ($26.5 million) treasury bills to "A competitive market place is good dows in IDB member states. banks mainly to finance its budget deficit.

1 6 NewHORIZON March 2001 Dhul Hijja - Muharram 1422 NEWS MONITOR

LEBANON MALAYSIA merger must be another alternative for we must not be marginalized," he said. Although Islamic countries are Islamic Banking will Islamic nations pledge to home to one-fifth of the world's popu• lation, Daim said, their total amount of Necessitate Reforms in press ahead with devel• funds accounted for only about 10 per• Lebanon oping Islamic banking cent of global funds. "Large amounts of private assets belonging to Muslims Lebanon's Central Bank has suggested An Islamic financial system, which dis• are still nesting with the traditional that Islamic banks will need more time courages speculation, could benefit bankers," he said, adding Islamic coun• before they can operate fully in developing nations more than the cur• tries must foster greater cooperation Lebanon. rent Western system, senior Islamic and "not guard their turf enviously." Addressing more than 350 partici• bankers said. Daim said Malaysia, along with a group pants at a conference on Islamic finan• Large amounts of private assets of central banks in Muslim countries cial institutions at the Phoenicia belonging to Muslims are still nesting and the Islamic Development Bank, was Intercontinental Hotel, Salameh, the with the traditional bankers. "The working on an International Islamic Lebanese Central Bank Governor Riad financial crisis in Southeast Asian Financial Market to address liquidity Salameh made it clear that more work countries indicated that the financial needs, and to broaden finance, invest• needed to be done to pave the way for systems in Islamic countries are highly ment and products globally. He later Islamic banks in Lebanon. fragile and vulnerable to external launched Malaysia's Islamic banking "The nature of work between shocks and excessive financial flows," and finance institute, which would Islamic and conventional banks makes said Mohsen Nourbaksh, governor of conduct research and training. us a bit cautious in order to preserve the central bank of Iran. "Islamic bank• Abdul Rahim Hamdi, chairman of the stability in our banking system and ing has a lot to offer in this respect," he Sudan's Financial Investment Bank, to safeguard the money of the clients in told a three-day conference on Islamic said there were now some 180 Islamic our financial markets," Salameh told banking and finance in Malaysia. institutions managing more than 200 the participants. Imtiaz Alam Hanfi, chairman of the billion dollars in 30 countries including However, he also stressed that the Commission for Transformation of the United States and Russia. The Central Bank was seriously considering Financial Systems in the State Bank of Islamic system has developed into a several laws that would allow Islamic Pakistan, said Islamic banking was fair• "credible banking alternative" as it was banks to operate in the country. Several er and designed to guard against spec• socially responsible and versatile in its Islamic banks have requested permis• ulation. "... Contemporary financial modes of financing and pricing, he sion from the Central Bank of Lebanon system is fragile and unpredictable, said. "Islamic banking is no longer a to open branches in the country for with adverse consequences particularly freak or niche banking." fiilly-fledged Islamic banking, which for the developing and for the econom• operates according to principles of ically weaker countries," he said. Sharia law. But the Central Bank and "Islamic financial system that is based Terengganu to Promote the Association of Banks in Lebanon on real transactions without speculative Islamic Pawnshop System said that allowing Islamic banks to activity can be more stable with operate in the country would require a increased allocative efficiency and The Terengganu Government in change in the money and credit law of encouragement to genuine entrepre- Malaysia will promote the Islamic the Central Bank. neurship." pawnshop system in line with its policy The Central Bank has so far allowed The payment of interest is banned to implement Islamic law in the state, commercial banks to offer certain types under the Islamic banking system, as Menteri Besar Abdul Hadi Awang said. of Islamic banking services to their shariah law forbids usury. Hanfi urged He said the Finance Ministry had clients. With $10 billion of capital the Organisation of the Islamic approved only one licence for such a worldwide. Islamic banks have more Conference to lead in developing a uni• pawnshop in the state but efforts to than $170 bilhon of assets. form interpretation of the shariah for promote the Islamic pawnshop system processes, financing modes and regula• among existing pawnshops would be tory standards. stepped up. Malaysian Finance Minister Daim "We are campaigning for the The combined May/June Zainuddin in his opening speech urged Islamic Muamalat system among (exist• issue of New Horizon Islamic banks to consolidate. "Up to ing) pawnshop operators as the Islamic will cover Riba and now, no one Islamic bank has made the Muamalat system is more beneficial," all its aspects list of top 100 largest banks in the he said at a religious ceremony before world by asset size or capital strength... some 10,000 people. He said this was

NewHORIZON April 2001 Muharram - Safar 1422 1 7 NEWS MONITOR part of the state government's moves to 2001 deadline fixed by it in December, was quoted by the news service as say• implement Islamic laws and encourage 2000 for Islamisation in Pakistan's ing that on-line banking will become a business activities to follow Islamic economy. A committee set up to exam• regional norm within 3-6 years and principles, adding that only one opera• ine issues relating to implementation of those who don't respond to the chal• tor was doing this. Hadi said the state the supreme court's ruling is due to lenge will be "at a serious disadvantage." government was serious in wanting to submit its recommendations in may Al Saleh will address the First Arab implement Islamic laws in the state in this year. E-Banking and E-Security Summit, stages. He said the state government which is to be held in Dubai in April, had started introducing Islamic laws, and attended by more than 250 Arab, the first being the Ombudsman Act. Seminars to be held on Islamic and international bankers, and "The Sultan of Terengganu has given Islamic economic system will outline the case for Internet bank• his consent and the law is now being The International Institute of Islamic ing and present a case study of alarabi- implemented effectively," he said. Economics (HIE) has decided to com• ebank - the first Internet banking solu• mence a series of fortnightly seminars tion to be introduced in Saudi Arabia. on "Islamic Economics". Institute's Director General Dr Abdul Rahman New finances approved PAKISTAN Yousri delivered the first lecture of this series. A large number of economists for the IBD attended the lecture. Dr Yousri in his Riba-free banking not to speech said that basic concept of The Islamic Bank for Development Islamic Economics is to free the human (IBD) has approved new finances esti• disturb old commitments beings from the yoke of others. mated at more than US $ 300 million Finance Minister Shaukat Aziz said Dr Yousri stated that the Institute has for IBD member states and the Islamic that Riba-free banking in Pakistan prepared an outiine of Islamic econom• communities as smooth, non- prof• will not disturb the commitments ic system, which was acknowledged by itable loans including US $ 19 million made under the interest based system. the Islamic Development Bank Jeddah. for the Palestinians in support of the Speaking at a television programme Recently the Institute was given a prize Palestinian Intifada. 'Hard Talk' Mr Aziz said that people of $40,000 for this achievement. The bank said that it had proposed should not be apprehensive about their financing operation estimated at investments in different schemes, US$885 minion for the Hijra Fiscal including bonds, certificate and other Habib Bank to introduce year, which starts, by the end of March saving schemes as the government will Islamic banking against US$ 827 million for this year. honour its commitment to them. Zakir Mahmood president of Habib Chief Executive General Pervez Bank has announced that Habib Musharraf has constituted a high-pow• Bank is introducing Islamic Banking Al-Rajhi Bank's 2000 net ered committee, comprising the federal within two or three months. Mr profit rose 1.85 billion ministers for finance, religious affairs Mahmood was addressing the execu• and law and justice and the Governor tive committee of the Multan Al-Rajhi Banking and Investment Corp's State Bank of Pakistan, to study issues Chamber of Commerce and Industry, profit rose 23 percent to 1.85 biUion relating to elimination of Riba. which was chaired by Khwaja M. riyals ($494 million) compared with the The international transactions Yousuf president of the chamber. previous year. A company statement would also remain out of the purview said, "the Board of Directors of the bank of Riba judgment. Talks between has recommended distributing 1.26 bil• Pakistan and the IMF mission which lion riyals in dividends of 28 riyals per recently visited Pakistan proved fruit• SAUDI ARABIA share. Operating income stood at 3.7 bil• ful, as both parties expressed satisfac• lion riyals by end 2000 and customer tion over the targets set under the deposits reached 34.4bn riyals." agreements, he added. Internet Banking Managing Director Abdullah Al- Inevitable for Middle East Suleiman Al-Rajhi said, "The rise in net Arab banks need to build knowledge• profits was achieved despite an unspec• Pakistan seeking time for able human resources around Internet ified increase in provisions for bad Riba-free banking solutions and to take up the on-line debts. The bank set up 55 new branch• challenge observed a leading Saudi es totalling to 362 by end 2000", Mr. Al It appears that the government of Internet banking expert. Abdul Razzaq Rajhi added. Al-Rajhi Bank operates Pakistan will ask the Country's Al Saleh, Head of Internet Banking at according to Islamic law, which forbids Supreme court to extend its June 30, Saudi Arabia's Arab National Bank, the payment and receipt of interest.

1 8 NewHORIZON April 2001 Muharram - Safar 1422 NEWS MONITOR

41 nations attend first sion, although its English name will this year, in Dhaid and Sharjah city, to remain the same. add to its present nine. The new Islamic fair in Saudi The decision to shift to Shariah was branches will initially follow conven• Arabia taken at an extraordinary general tional banking practices. Also on the meeting following its 25th annual cards are more ATM sites in addition Some 41 countries, including Morocco general meeting in which shareholders to the present 19 Islamic banks to participated at the first International approved a 15 per cent cash payout enjoy new rating agency. Islamic Trade Fair, in March in Jeddah, and a 1:10 bonus for 2000 atop a one Saudi Arabia. per cent rise in net profit to Dh91 mil• Other participating countries were lion. The government has a 42 per cent Albania, Algeria, Azerbaijan, Bahrain, stake in the bank. UNITED KINGDOM Bangladesh, Benin, Brunei, Burlcina The bank's chairman. Sheikh Faso, Cameroon, Comoros, Egypt, Sultan bin Mohammed bin Sultan Al Gambia, Guinea, Indonesia, Iran, Qasimi, Crown Prince and Deputy Barclays Capital appoints Jordan, Kazakhstan, Kyrgyz, Mali, Ruler of Sharjah, said, "After studying Director to head its new Mauritania, Malaysia, Mozambique, the matter for over two years, under• Niger, Oman, Pakistan, Palestine, taken with independent agencies, we Islamic Banking Unit Qatar, Saudi Arabia, Senegal, Sierra found this route was the best to Barclays Capital, the investment bank• Leone, Somalia, Sudan, Syria, improve profitability, given the keen ing division of Barclays PLC, has Tajikistan, Togo, Tunisia, Turk• shareholder interest in and customer announced the appointment of Saleha menistan, Uganda, United Arab demand for Islamic banking." The Lahiani-Dao as Director of its newly- Emirates (UAE) and Yemen. bank plans to increase capital by 10 created Islamic Banking Unit. The fair, sponsored by the Islamic per cent, offering this stake directly to Mrs Lahiani-Dao will be responsi• Development Bank (IDB) and the Kuwait Finance House at Dh8 per ble for setting up an Islamic Banking Jeddah Chamber of Commerce and share, each of face value Dh2.50. Unit within Barclays Capital and will Industry (JCCI), offers the chance to Meanwhile, it has approved a total develop relationships with Islamic effectively raise the level of trade GCC stakeholding of up to 20 per cent, institutions. She will work closely between Muslim countries. A state• indicating KFH can acquire another 10 with product areas to give Barclays ment from the organizers said each per cent. access to a new investor base country's national stand had a show• Two KFH nominees will be taken through a range of innovative prod• case with a range of items from simple on the board, which was augmented ucts. She will be joined by Jon traditional products to highly sophisti• with the inclusion of Ahmed Al Monnickendam, a Director in cated technology. Shamsi. Other board members include Barclays Middle East team. Companies representing the Islamic Mohammed Saeed Al Husseiny, Mrs Lahiani-Dao joins the firm services industry were also invited to Ahmed Ghanim Al Suwaidi, Ali bin from the London office of the Saudi- attend and gave advise on finance and Salim Al Mazrou, Othman Mohammed based Al Rajhi Banking and insurance, said Majed Al-Kassabi, Sharif Zaman, and Abdul Rahman Investment Corporation, where she JCCI's secretary-general. Mohammed Nasser Al Owais. Sheikh worked for 14 years in business and Sultan said, "There would be no lay• product development. Prior to that she offs. Training of existing staff will was at Rabobank in Trade and start immediately, while we sit with Commodity Finance and at Gulf UAE our strategic partners to set up plan• International Bank in Corporate ning committees and outline our Banking. future course." Elie Khouri, CEO for the region, National Bank of The first Islamic products are likely said he was delighted with the creation to be unveiled in six months. A bank of an Islamic Banking Unit as it Sharjah converts to spokesman said the shift would be demonstrated Barclays commitment to Islamic banking unique in the annals of banking. "We the Middle East and, more important• The National Bank of Sharjah has will have to explore possibilities of ly, to a rapidly growing and affluent formally agreed to convert itself whether customers would prefer to market. "This is an important develop• into an Islamic bank. In keeping shift with us, or whether we could 'sell' ment for all concerned", he noted, "I with its new identity, likely to be them to other banks," he said. believe that the combination of achieved over two years, it will be The internal systems, including the Saleha's extensive experience and the known in Arabic as "Masrif Al computer networks, will also have to expertise of Barclays Capital will Watani" instead of "Bank Al be made compatible. Meanwhile, the ensure that the team will be immedi• Watani" to better reflect its conver• bank plans to open two new branches ately recognized as a market leader"

NewHORIZON April 2001 Muharram - Safar 1422 1 9 NEWS MONITOR

Neyar Malik Joins team, which manages over $550 Courtesy of Dawnay Day million of real estate investments United Bank of Kuwait for Gulf-based investors, will act as fhe Islamic Investment Banking Unit Dawnay, Day Global Investment Investment Adviser to the fund. Limited are pleased to announce The fund's entry limit has been the appointment of Neyar Malik set at only £10,000 so as to maxi• EXCHANGE RATES as Assistant Manager. Dawnay mize its attractions to investors SPOTS STG USD Day represents a number of pri• seeking exposure to the real estate vately owned Middle Eastern asset class. ALGERIAN DINAR 103.9014 73.17 organizations in their Islamic BAHRAINI DINAR 0.5352 0.3769 financing and investment activi• DJIBOUTI FRANC 224.6440 158.2 ty. In her new position Neyar will EGYPmN POUND 5.5132 3.8825 focus on developing Dawnay, UNITED STATES GAMBIAN DALASI 21.1580 14.9 Day's rapidly expanding struc• INDONESIAN RUPLAH 14,739.60 10,380.00 tured trade portfolio. Previously, IRANIAN DINAR Fifth Harvard 2,463.70 1,735.00 Neyar spent 3 years at United •IRAQI DINAR 0.44 0.31 Bank of Kuwait. Latterly she was University Forum on JORDANIAN DINAR 1.0054 0.708 responsible for Murabaha trans• KUWAITI DINAR Islamic Finance 0.4374 0.30805 actions within IIBU." LEBANESE POUND 2,137.10 1505.00 •LIBYAN DINAR 0.7607 0.5357 The Harvard Islamic Finance MALAYSIAN RINGGIT UBK announces open• 5.3959 3.7999 Information Program (HIFIP) is MOROCCAN DIRHAM 15.5622 10.9593 ing of UBK Islamic holding its Fifth Forum on Islamic NIGERIAN NAIRA 173.24 122.00 Finance: Dynamics and OMANI RIAL Property Company 0.5467 0.38499 Development. It will be held on 6th PAKISTANI RUPEE 84.2060 59.3 The United Bank of Kuwait PLC and 7th October, 2001 at the QATAR RIAL 5.1681 3.6395 (UBK) announced that it will be Harvard University campus in SAUDI ARABIAN RLAL 5.3243 3.7495 taking investment subscriptions Cambridge, Massachusetts, USA. STERLING POUND 1.00 0.7042 for 'The UBK Islamic Property HIFIP has been organizing the •SUDANESE DINAR 367.3540 258.7000 Company Limited'. annual Harvard University Forum SYRLAN POUND 65.3200 46.0000 The fund will invest in a diver• on Islamic Finance since 1997. TUNISIAN DINAR 2.0347 1.4329 sified portfolio of real estate prop• With its unique blend of academic TURKISH LIRA 1,381,660 973,000 erties located in the United scholarship and industry experi• UAE DIRHAM 5.2155 3.6729 Kingdom. Each investment will be ence, the Forum has become a UGANDAN SHILLING 2,556.00 1,800.00 selected so as to comply fully with leading event on the Islamic UNITED STATES DOLLAR 1.4200 1.00 the rules and principles of Shariah. finance calendar. YEMEN RLAL 234.06 164.83 UBK's Shariah Board will monitor Leading academics, Shariah the fund. scholars, economists, and Announcing the launch, UBK's financiers, as well as students and •Please note these currencies are estimated values only, Head of Real Estate Fund individuals interested in Islamic as for political reasons or otherwise, are not readily traded. Management, Roddy Sloan, said: finance expected to participate. "UBK is delighted to offer its cus• The Forum will take a holistic tomers a real estate product which approach to exploring issues fields ranging from internet commerce to inter• will comply fully with the rules involving the ideals, ideas, prac• national financial engineering, from main-street and principles of Shariah. We also tice, and prospects of Islamic service to mega-deal structuring. These develop• consider that the investment tim• finance. ments demand careful dialogue between theory ing is opportune with UK property The Forum will critically exam• and practice, ethics and enterprise. markets continuing to benefit from ine the state of Islamic finance in sustained economic activity and the light of its past development equity markets so volatile." and achievements, its present par• The investment return will be ticipants and scope, and its poten• delivered through a combination of tial for improvement and growth. semi-annual income distributions Islamic finance has shown remark• plus appreciation in the value of able dynamism. The industry con• the shares. UBK's London-based tinues to move toward new goals Real Estate Fund Management and sees innovations emerging in

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