NEW Muharram–Rabi Al Awwal 1428 ISSUE NO. 163 HORIZON JANUARY–MARCH 2007 MUHARRAM–RABI AL AWWAL 1428 PUBLISHED SINCE 1991 GLOBAL PERSPECTIVE ON ISLAMIC BANKING & INSURANCE BAHRAIN: MIDDLE EASTERN PROMISE INNOVATIONS IN ISLAMIC FINANCE ISLAMIC BANKING AND TAKAFUL IN RUSSIA SUKUK: MANAGING LIQUIDITY ISSUES TAKAFUL AT BANK AL JAZIRA CREDIT RISK MANAGEMENT IN ISLAMIC FINANCE www.islamic-banking.com IIBI 1 NEWHORIZON January–March 2007 2 IIBI www.islamic-banking.com NEWHORIZON Muharram–Rabi Al Awwal 1428 CONTENTS Features 12 12 Islamic banking and takaful in Russia: What the future holds Today’s challenges and the future prospects of the industry in the world’s largest country with over 15 million Muslim population. 22 The London Islamic Financial Services Summit Discussing London’s role in the Islamic banking industry. 25 Bahrain: Middle Eastern promise A country focus on Bahrain’s financial services market and its main regulator, the Central Bank. 32 First line of protection Bank Al Jazira introduces takaful ta’awuni, the first and only Islamic protection savings plan in Saudi Arabia. 32 38 The role of the sukuk in managing liquidity issues An interview with Stella Cox, managing director of the UK-based DDGI Ltd, one of the leading Islamic asset investment companies. 40 Innovations in Islamic finance Dr Humayon Dar, CEO of Dar Al Istithmar, gives his view on what is the next big thing in Shari’ah-compliant finance. Regulars 05 NEWS 23 RATINGS AND INDEXES 43 APPOINTMENTS A round-up of the important stories from the last quarter around the globe. 36 ACADEMIC ARTICLE 44 ACADEMIC ARTICLE Credit risk management in The time value of money in 18 IIBI NEWS Islamic finance. Islamic banking. 19 IIBI LECTURES 42 ANALYSIS 48 DIARY January, February and March lectures Healthy Islamic banking sector reaches reviewed; April lecture preview. new heights in Pakistan. 50 GLOSSARY www.islamic-banking.com IIBI 3 EDITORIAL NEWHORIZON January–March 2007 Editor’s Note NewHorizon is possibly the oldest magazine published in English on Islamic banking and insurance. It has been in publication for over 15 years, and is the official journal of the Institute of Islamic Banking and Insurance (IIBI), an independent not-for-profit organisation. Founded EXECUTIVE EDITOR Mohammad Ali Qayyum, in London back in 1991, it is now one of the world's Director General, IIBI leading independent education, training and research EDITOR organisations dedicated solely to the promotion and Tanya Andreasyan implementation of Islamic finance in the UK and globally. CONTRIBUTING EDITORS Tom Alford Don Brownlow NewHorizon publishes in-depth articles on various James Ling aspects of Islamic banking and insurance and also IIBI EDITOR reports on events and developments from around Mohammad Shafique the world. The magazine enjoys a wide readership IIBI EDITORIAL PANEL in around 105 countries. Mohammad Amin Stella Cox Over the years the look and contents of NewHorizon Dr Humayon Dar Iqbal Khan have evolved to reflect the times. IIBI is now working Richard Thomas with IBS Publishing, a UK-based company, to produce Dr Imran Ashraf Usmani the magazine, with the first issue of this quarterly journal DESIGN CONSULTANT covering the period from January to March 2007. Becky Ellison PUBLISHED BY NewHorizon embraces challenges facing the IBS Publishing Ltd Islamic financial sector right across the globe, from 8 Stade Street the developments in the well-established Islamic Hythe, Kent, CT21 5DT United Kingdom banking markets in the Middle East, through the Tel: +44 (0) 1303 262 636 growing markets of Pakistan, UAE and the UK, to the Fax: +44 (0) 1303 262 646 Email: [email protected] attempts to introduce this industry in Russia. African Web: www.ibspublishing.com developments continue at pace with Kenya becoming one of the latest countries to provide its citizens with CONTACT Advertising Islamic financial services. IBS Publishing Ltd Paul Minister Advertising Manager The range of such services continues to expand. Shari’ah- Tel: +44 (0) 1303 262 636 compliant credit cards and personal loans are amongst Fax: +44 (0) 1303 262 646 the newcomers. Sukuk (government bonds) are becoming Email: [email protected] more prominent in the Islamic banking market. This SUBSCRIPTION issue of NewHorizon also tackles the subject of takaful Institute of Islamic Some previous (Islamic insurance) with further in-depth analysis of Banking & Insurance (IIBI) NewHorizon issues 12–14 Barkat House this matter to come in our future publications. 116–118 Finchley Road London NW3 5HT United Kingdom Whether you are already an Islamic finance specialist, Tel: +44 (0) 207 245 0404 about to enter the world of Islamic banking and Fax: +44 (0) 207 245 9769 insurance or just interested in this subject, we hope you Email: [email protected] Web: www.islamic-banking.com find the magazine interesting, cognitive and educational. ©Institute of Islamic Banking and Insurance ISSN 0955-095X Views expressed in this magazine are not Mohammad Ali Qayyum necessarily those of the Publisher Director General IIBI 4 IIBI www.islamic-banking.com NEWHORIZON Muharram–Rabi Al Awwal 1428 NEWS Bank and real-estate developer sign Memorandum of Understanding Islamic bank, Masraf Al Rayan, The Lusail Corniche Project is and real-estate developer, part of the waterfront district Qatari Diar, have signed a of the Lusail development. Memorandum of Understanding Consisting of two small islands, worth $2.25 billion for the the Corniche district will have development of the Lusail around two and a half Corniche Project in Qatar. kilometres of waterfront Under the terms of the promenade made up of retail agreement, Masraf Al Rayan and restaurant outlets. Qatari will take the primary role in Diar, a real-estate company arranging and managing the wholly owned by the Qatar mobilisation of funds to finance (above). Both men were happy of local financial institutions’. Investment Authority, is the the project. However, the bank with the agreement and saw it as company behind the Lusail is not only limited to a financial a step forward for their relative Masraf Al Rayan is the only development. The waterfront role within the project, it will institutions. Al-Abdulla fully-fledged Islamic commercial district looks to be a popular also be working with Qatari described the agreement as one and investment bank in Qatar, area for the developers; recently Diar to develop the project that will ‘strengthen our position and has an entirely Shari’ah- all 46 plots within the district through an investment fund. in the local market and help us compliant portfolio of products. were sold to investors within to achieve our goals of being This deal will come as no hours of going on sale. The agreement was signed a truly progressive force in surprise; the bank has been Development of the Corniche by Dr Hussain Al-Abdulla, the banking world’. Al-Ansari heavily involved with the Project is planned to start by chairman and managing director saw the deal as ‘part of our financing of new real estate the end of this year, with a of Masraf Al Rayan, and Nasser strategy in developing projects developments in Qatar since its completion date set for the Al-Ansari, CEO of Qatari Diar in partnership with and support inception in October last year. end of 2009. Maybank tops The Government of Abu Dhabi Asian Banker survey sets up Al Hilal Bank Maybank has been ranked as the standalone Islamic bank was The government of Abu Dhabi been designed to cater to largest Islamic banking service Bank Islam Malaysia; this had is setting up an Islamic bank project-related requirements provider in the Asia Pacific about half as many Shari’ah- with $1.1 billion in authorised and provide credit facilities region by The Asian Banker compliant assets as Maybank capital. The new bank, called for the private sector, which Islamic Bank 40 survey. The and was ranked number two Al Hilal Bank, will operate will be the backbone of the annual study identifies the 40 in the region. under the provisions of Islamic economic development of key players in the Asia Pacific Shari’ah while rendering all the country’. banking sector, and ranks them The study also revealed that modern services required for according to the size of their Malaysia was leading the way the business sector, as well as The bank will deal with Shari’ah-compliant products. for Islamic financial services investment in the industrial, corporate and retail banking, industry in the region. It agricultural and real estate consultancy services, funds The inaugural study has showed the country to have sectors. management and will invest revealed that Maybank, which 17 institutions which hold customer funds in Shari’ah- is not a standalone Islamic bank, 73 per cent of the top 40’s The bank will be aimed at the compliant financial currently holds over $6.4 billion total assets. private sector. The Founders’ instruments. in assets through its Islamic Committee says, ‘the bank has banking window. The largest www.islamic-banking.com IIBI 5 NEWS NEWHORIZON January–March 2007 UK to become global centre Global House to establish for Islamic finance Islamic bank in Syria Plans to establish the UK as a capital gains and capital The Bahrain-based investment year, since the country became leading global centre for Islamic allowances will be published, banking group Global House is more open to international finance have been announced to provide certainty of to launch a new Islamic bank in investors. It concluded that by economic secretary, Ed Balls interpretation. In his speech, Syria. The new bank will be set it would be feasible for Global (below). In his speech to the Balls also announced the plans up with an initial capital of House to invest in more than Euromoney Annual Islamic to publish guidance on how $500 million; so far half of this one Syrian city.