new hope dawns in the pearl of asia

T h e Wo r l d ’ s G l o b a l I s l a m i c F i n a n c e N e ws P rov i d e r

www.islamicfi nancenews.com

Cover Story

Iran is the largest Islamic fi nancial system in the world (and the only one that is 100% Shariah compliant), with assets estimated at over US$315 billion and home to seven of the world’s top 10 Islamic banks. Goldman Sachs has estimated that the country has the potential to become one of the largest global economies of the 21st century, and major transformations in the fi nancial sector are spurring this development. However, progress has been impeded by the sensitive political situation, resulting in restrictive US and UN-imposed sanctions. Given the importance of Iran to the Islamic fi nance world, should the industry be trying harder to access its untapped opportunity?

Islamic infl uenceHome to around 75 million people, two thirds of which are under 30, Iran is an exciting new market despite its shaky political position. Iran’s economy is growing at a rate of 3.2%, and the IMF in August reported its growth to be accelerating, making it one of the few economies to maintain positive growth following the 2008 global crisis.

The country is already one of the most infl uential players in Islamic fi nance, despite its relative insularity. In 2009 Iranian banks accounted for over 40% of the total assets of the world’s top 100 Islamic banks, and Bank Melli Iran (BMI) is the largest Islamic bank in the world with total assets estimated to be over US$59 billion,

while Bank Mellat and Bank Saderat Iran are also in the top four. Although its capital markets are underdeveloped, the country also reportedly accounted for US$47 billion out of US$233 billion-worth of Islamic bonds published worldwide between 1994 and 2010, according to government offi cials.

Iran is also the third largest shareholder in the IDB with 28%, and is one of its fi ve main decision-makers, making it highly infl uential in the developing Islamic world. Iran’s economy minister, Seyed Shamseddin Hosseini recently called for the, international economy to shift towards Islamic fi nance at the September 2011 IMF annual meeting in Washington DC.

The country is actively developing its fi nance sector, which is becoming increasingly sophisticated. The Tehran Stock Exchange (TSE) grew by 200%

28th September 2011

Iran and the future of Islamic finance

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Volume 8 Issue 38

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IFN Rapids .........................................................2Islamic Finance News .......................................5IFN Reports: Market conditions weigh on Khazanah’s dim sum Sukuk; Kuwaiti funds CMA-ready; Islamic fi nance in a multipolar world ................................................................11IFN Correspondents: Egypt; Hong Kong & China; Kuwait; Malaysia ..................................14Insider: UBS crisis: An opportunity to rekindle Islamic business? ............................................................17Features:Off shore centers for Islamic fi nance ...................18Choosing an Islamic investment jurisdiction: Bermuda as a primary case study ......................20New hope dawns in the pearl of Asia .................23

Islamic InvestorUncle Sam’s Islamic funds ................................25Feature:Building a unique wealth management business ......................................26Fund Focus: Global GCC Islamic Fund ..................................... 29Funds Tables ....................................................30

Takaful NewsMaintaining a talent pipeline .......................................32News .................................................................33Feature:Islamic insurance: Identifying a clear need for consumer education .........................................34 Forum ................................................................36Meet the Head:Shahzad Siddiqui, CEO, Shahzad Siddiqui Professional Corporation ....................................................................37Case study:Sakana and Khaleeji Commercial Bank in US$10.6 million medium-term fi nancing deal ..........................38Deal Tracker .....................................................39REDmoney Indexes ........................................40Perfomance League Tables ............................42Events Diary.....................................................46Company Index ...............................................47Subscription Form ...........................................47

RED

17th to 19th October 2011, Kuala Lumpur Convention Centre

www.ifnforums.com

Sidestepping instability

Editor’s Note

With global markets behaving as they are due to unabated worries over Europe’s debt crisis, and the world economy increasingly on edge, it makes sense to search for new prospects for which the outlook is not so bleak.

Islamic fi nance, prudent as it is, remains just as exposed to the whims of the markets as its conventional cousin - as evidenced by the postponement of Khazanah Nasional’s...

continued on page 4

2© 28th September 2011

IFN RAPIDS

Disclaimer: Islamic Finance news invites leading practitioners and academics to contribute short reports each week. Whilst we have used our best endeavors and eff orts to ensure the accuracy of the contents we do not hold out or represent that the respective opinions are accurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright remain with REDmoney.

NEWSMedini Iskandar Malaysia proposes revision to principal terms and conditions for US$334 million IMTN program

IDB looks to cooperate with India to improve Muslim population’s standard of living

Indonesian Islamic banks complete changes in standard operation procedures for their gold pawn broking businesses

Azerbaĳ an poised to become regional hub for Islamic fi nance

Central bank of Pakistan stresses need for Islamic banks to diversify their investment portfolios

Khazanah Nasional postpones yuan-denominated Sukuk

Interactive Data expands agreement with BPA Malaysia to boost international content for fund administrators and custodians

Agrobank begins restructuring to become fi rst Islamic agriculture bank in the region

Central Bank of Oman to establish national Shariah board in the sultanate

Bank Islam Malaysia looks to Indonesia for foreign expansion

Emirates Islamic Bank plans to develop range of Islamic banking products with Indonesian conventional banks

ITFC team expected to visit country to determine economic situation before extending more fi nancing

Central bank of India orders Alternative Investments and Credits to explain basis of ‘participative fi nancing’ deals

KFH-Malaysia keen on

expanding in Indonesia to tap Islamic banking opportunities

Intan Barupana Finance receives US$8.3 billion from Bank BNI Syariah to fi nance expansion of heavy machine fi nancing

Albaraka Türk Katılım Bankasi closes US$350 million dual-currency syndicated Murabahah fi nancing facility

Gulf investors looking to open participation banks in Turkey

AAOIFI helps universities to start courses in Islamic fi nance

Assets under management of global Islamic funds have increased by 7.6% to US$58 billion in 2010, according to E&Y

Islamic fi nance needs to support investments in real economy to internationalize industry

Oracle releases update of Basel II application

International economy advised to shift to Islamic fi nance, says foreign minister of Iran

Dubai will back government entities and related enterprises

Nakheel rebukes media reports on Sukuk assets

Bahrain picks BNP Paribas, Citigroup and Standard Chartered Bank to advise on US$1 billion Sukuk issuance

Mobily to seek US$2.7 billion refi nancing from international banks

Central bank of Bahrain’s US$53 million Sukuk Ijarah oversubscribed by 242.5%.

Ports & Free Zone World signs US$850 million refi nancing agreement for US$1.15 billion facility

Emirates Islamic Bank to cooperate with Sharjah government to provide fi nancing for public housing projects

Al Hilal Bank commences development of fl agship commercial development in Abu Dhabi

Bank Nizwa and Al Izz International Bank to fl oat IPOs by end of 2011

National Bonds Corporation keen on investing in Nakheel’s US$1.03 billion Sukuk

Dubai Real Estate Court replaces judicial panel in hearing cases relating to Tamweel and subsidiaries

QInvest starts operations in Saudi Arabia

Albaraka Banking Group may sell around US$500 million in Sukuk by year end

Al Hilal Bank unveils gold dispensing machine

Saudi Aramco and Total fi x initial price guidance for Sukuk at six-month SAIBOR rate plus 95-105 basis points

London Central Portfolio launches Prime Residential London Fund

TAKAFULAllianz Takaful partners with MedGulf for Bahrain and Qatar markets

UAP Insurance plans to unveil General Takaful products in October

84% of Malaysian middle-income earners do not own life Takaful product, according to ING Dashboard survey

MAA Holdings approves sale of Malaysian Assurance Alliance and its other units to Zurich Insurance for US$108 million

Life Insurance Corporation of India to consider tapping Takaful industry

Three local associations in Malaysia join hands to set up Joint Insurance-Takaful Council

RATINGSPACRA downgrades long-term ratings on Maple Leaf Cement Factory’s US$91.2 million Sukuk to ‘D’

CI affi rms Rakbank’s long- and short-term foreign currency ratings at ‘A-’ and ‘A2’

Moody’s upgrades Masraf Al Rayan’s ‘A3’ issuer ratings to positive from stable

RAM assigns ‘A1’rating to AmIslamic Bank’s US$627 million proposed subordinated Sukuk

Fitch affi rms National Bank of Umm Al-Qaiwain’s long-term IDR at ‘BBB+’

MOVESGatehouse Bank promotes Jamie Munday to vice president, asset manager

Dow Jones Indexes names Edward Lim as director-business development for South Asia

Emirates Islamic Bank names Jamal Ghalaita as CEO

Law fi rm Ashurst names Alistair Holland as managing partner for Abu Dhabi offi ce

S&P names Stuart Anderson as regional manager in the Middle East, based in DIFC

Hassan Ali Manik steps down as director of Amana Takaful (Maldives)

Mashreqbank names Karim Mahmoud as CEO of Abu Dhabi and Al Ain

Gulf African Bank names Asad Aziz Ahmed as CEO

The Royal Bank of Scotland appoints Mark Webster as head of FX Sales EMEA


COVER STORY

between April 2009 and April 2011, while a mass privatization program has put 80% of the state’s assets up for sale, 40% of which are being sold via IPOs, leading to market capitalization doubling between 2006 and 2010. In 2009, mutual funds were licensed as a means to encourage market turnover, and the country now has over 50 funds and 4 million direct retail accounts on the TSE. Iran also has an active commodities trading market on the Iran Mercantile Exchange, which the government is actively encouraging with recent steps including the approval of non-residents to trade from the off shore center of Kish island in the Persian Gulf.

In 2009 Iran launched a fi xed income market and approved the issuance of several new Sukuk structures. Capital market activity is on the rise, with a couple of big transactions last year including a sovereign issuance of US$2.3 billion-worth of rial-denominated Islamic bonds to fi nance the second development phase of its South Pars gas fi eld. Although up until now the secondary market has been limited because Iran’s Islamic bonds have hitherto been redeemable at face value, in April 2011 Iranian Islamic bonds moved to a Sukuk format, which is forecast to dramatically stimulate the market. Up until 2010 bond issuance in Iran stood at around 1% of GDP; but between 2010-2011 this jumped to 4%, illustrating the potential for growth.

Liberalization and reformThe country’s fi nancial system has also undergone a period of signifi cant regulatory transformation in the past few years. The private banks in Iran are currently the largest and most infl uential in the system, following the landmark privatization of the big public commercial banks in 2009. Bank Mellat Iran, Bank Refah, Bank Tejarat, and Bank Saderat in 2011 hold a combined 56% of the Iranian banking market, compared to just 13% in 2007. The CBI has also issued

eight new licenses in the past year, and demonstrated an encouraging commitment to growing and regulating the sector.

The reform strategy is central to its national development, and

Islamic fi nance will play a vital role in Iran’s future growth. The capital markets (the TSE and the Iran Mercantile Exchange) are at the center of the government’s strategy to mobilize private capital to fi nance the economy. 2010 saw the introduction of the fi ft h Five-Year Development Plan (5YDP) which incorporates an extensive privatization program, a comprehensive development strategy for 2010-2015, and a specifi c focus on strengthening and liberalizing the fi nancial system. Key reforms include permission for banks to borrow abroad for the fi nancing of the private sector; the ability to issue Sukuk in foreign capital markets; the introduction of a deposit guarantee scheme; the creation of a new system of accounting standards; the introduction of new Sukuk structures including Istisnah, Murabahah, and Tanzeel; and the registration of all capital markets with the Securities and Exchange Organization (SEO). However, perhaps the most important reform for the Islamic fi nance industry comes with Article 87 of the 5YDP, which allows foreign investment in Iranian banks.

Opening its doorsThis reaffi rms the move made by the Iranian government in 2009, allowing foreign banks to establish branches in the country and engage in normal banking operations for the fi rst time since the 1979 revolution. Previously, Article 44 of the Iranian Constitution gave the government sole control of banking activities, which eff ectively blocked foreign banking operations outside of the Iranian free zones. Following the privatization law however, the country is opening its doors to foreign banks for the fi rst time.

According to the CBI, over 44 foreign banks have already expressed their interest in establishing local branches throughout the country, which would most likely be achieved by entering into joint ventures with domestic banks or through a process of mergers and acquisitions. The government further stimulated the sector in 2010 by removing the cap on the percentage of shares in Iranian banks that can be owned by a foreign individual or institution; which was previously limited to 10% (5% for an individual). Four US banks including Citibank and Goldman

continued...

Iran and the future of Islamic fi nance Continued from page 1

CLOSING BELLSecurities market poised to growBAHRAIN: Islamic securities markets in the GCC are likely to improve due to the rise in commodity prices and expansion of the region’s fi nancial markets despite the recent economic turmoil, according to Abdul Rahman Al Baker, the executive director of fi nancial institutions supervision at the Central Bank of Bahrain.

Abdul Rahman also urged for the promotion of active secondary markets for Sukuk and for more collaboration between Islamic and conventional fi nancial institutions globally.

FRANKLIN TEMPLETON INVESTMENTSMALAYSIA: Franklin Templeton Investments has appointed Nor Hanifah Hashim as the new head of its Malaysian fi xed income team.

Nor Hanifah will oversee the fi rm’s domestic fi xed income business in Malaysia, which includes conventional fi xed income and Sukuk strategies.

She was previously the head of fi xed income at CIMB Principal Asset Management.

No rush for consolidationMALAYSIA: There is no urgency for further consolidation between domestic banking entities due to the banks’ high degree of resilience, according to Dr Zeti Akhtar Aziz, the governor of the central bank, Bank Negara Malaysia.

However, she did not discount the possibility of future consolidations and affi rmed that such moves are encouraged as size is an important factor for domestic institutions that want to go international.

OMAN INSURANCE COMPANYOMAN: Oman Insurance Company has appointed Patrick Choff el as its CEO.

Choff el was previously the regional president of the Middle East, Africa and South Asia region at the American Life Insurance Company, based in Dubai.


COVER STORY

Sachs have reportedly made formal applications to open branches in Iran. No news has as yet emerged as to their success, but in 2010 the Tehran Times reported that banks from “states in the Persian Gulf and the Middle East regions as well as Asia” were also fi ling requests.

Western institutions have unsurprisingly been slower to climb onboard. However, its proximity to the GCC, and especially the Islamic fi nance hub of Bahrain, make it a potentially att ractive prospect particularly for Middle East banks. Simon Eedle, the managing director of Global Islamic Banking at Credit Agricole CIB in Bahrain, commented in 2009 that: “I hope that world leaders will embrace Iran because I think it’s got great potential for our business.” However, when contacted again for this article, Eedle noted that he could no longer

comment as “due to sanctions, we have no business these

days in Iran.”

Looking to AsiaSanctions are the key

barrier preventing the development of Iran’s fi nancial sector. The UN,

the EU and the US have all imposed measures to isolate and restrict Iranian banks suspected of illegal activity including the fi nancing of weapons of mass destruction, with the west increasingly concerned over the nuclear threat Iran could potentially pose. The UN and the US have blacklisted Bank Sepah, Bank Melli, Bank Mellat, and the First East Export Bank of Iran, while over 80 global fi nancial institutions including Credit Suisse and Deutsche Bank have ended or restricted their relationship with the country, severing credit lines and refusing to process oil and gas payments (which represent around 80% of Iran’s revenue).

However, despite western antipathy, there remains opportunity for the country in the Middle East and Asia. Bank Melli operates in Hong Kong, while Bank Mellat has a branch in Seoul and First East Export Bank has a subsidiary in Labuan, Malaysia. In fact, a spokesperson from the Labuan Off shore Financial Services Authority specifi cally confi rmed that: “The US sanctions do not aff ect the subsidiary’s operations in Labuan,” insisting that the sanctions would only aff ect the bank’s direct business with

the US. As a result, Iran is increasingly relying on Asia, and in the past year trade between the two regions has increased by 15%. In 2009 China was Iran’s biggest economic partner with trading exceeding US$21 billion and over 100 Chinese companies operating in Iran. South Korea and Iran have a relationship worth around US$10 billion, while Malaysia and Iran have strong links in the energy sector with Malaysian companies heavily involved in the development of the Resalat oil fi eld – although a result of US pressure, Petronas has halted gasoline shipments to Iran since March 2010.

No matt er what your political views are - and there is no denying the situation is sensitive – Iran represents a fascinating opportunity in terms of growth and development. Majid al-Sayed Bader al-Refai, the former CEO of Unicorn Investment Bank, is quoted as saying that: “Iran is a massive market, it’s huge. If you don’t see that, you just don’t know the market.” It is also one from which the mainstream Islamic fi nance industry is perfectly positioned to benefi t. — LM

Editor’s Note

With global markets behaving as they are due to unabated worries over Europe’s debt crisis, and the world economy increasingly on edge, it makes sense to search for new prospects for which the outlook is not so bleak.

Islamic fi nance, prudent as it is, remains just as exposed to the whims of the markets as its conventional cousin - as evidenced by the postponement of Khazanah Nasional’s landmark yuan-denominated Sukuk featured in one of our IFN reports this week. However, the industry still provides various alterna-tives to the conventional market which allow not just for capital growth, but protection, in whichever markets may be safest, even if it is away from home.

Islamic investing has proven to be one of those options and in this issue, Muath Mubarak of Qatar’s Barwa Bank

writes on the prospects presented by Sri Lanka’s Islamic capital markets, while Advent Soft ware contributes a report on the att ractiveness of the various off shore jurisdictions for Islamic investing and Cheryl Packwood, CEO of Business Bermuda and Belaid A Jheengoor, a director of asset management at PwC, together discuss the advantages of Sha-riah compliant investing in Bermuda.

For fi rms looking to provide solutions to investors’ needs amid this volatile period, Malik Sarwar, a wealth management expert, provides insights into building a wealth management franchise in our Islamic Investor feature this week.

Swiss Re Retakaful contributes our Takaful feature in this issue and takes a look at the need for consumer education for Takaful in Malaysia and Indonesia.

Insider considers the direction of UBS’s Islamic business, while we also have

IFN reports on Islamic fi nance’s place in the new economic order and new laws recently released by the Kuwait Capital Market Authority.

Our IFN correspondents have writt en on Islamic banking in Kuwait, Shariah compliant funds in China, develop-ments in Egypt and the potential for the further growth of Islamic fi nance in Malaysia via the country’s economic transformation program.

We also get to know Shahzad Siddiqui, CEO of legal fi rm Shahzad Siddiqui Professional Corporation, in Meet the Head and our case study highlights Sakana and Al Khaleej’s US$10.6 million commodity Murabahah fi nancing facility. Our cover story this week looks at the landscape of Islamic fi nance in Iran and discusses the need for the country to join the mainstream market – both for its own sake and for the industry.

Sidestepping instability

Iran and the future of Islamic fi nanceContinued from page 3


NEWS

AFRICAIDB funds for EgyptEGYPT: Egypt is planning to borrow US$2.5 billion-worth of fi nancing over the next three years from the IDB to help its economy recover from the eff ects of the political revolution which took place early this year, according to Ahmed Mohamed Ali Al Madani, the president of the IDB.

Appeal in the pipelineETHIOPIA: The country’s fi rst interest-free bank, ZamZam International Bank, is planning to appeal against a directive on interest–free banking issued by the central bank, National Bank of Ethopia, which compels it to have a conventional banking operation.

According to the directive, which will be eff ective from the 1st October, interest-free banking will only be allowed via a window in conjunction with banks’ conventional services.

New Mudarabah fundMALAWI: Zimbabwe Stock Exchange-listed Fidelity Life Assurance has launched a Mudarabah-based fund in Malawi, according to Simon Chapereka, its managing director.

The fund, which taps into Muslim funds, is expected to create more underwriting business and provide more liquidity for Fidelity.

Changing regulationsGABON: The government is reportedly planning to change its fi nancial laws to allow Islamic fi nance, in order to att ract Islamic foreign direct investment as part of its economic reforms.

ASIATelco financingINDONESIA: BNI Syariah is looking to participate in a IDR150 billion (US$16.8 million) syndicated fi nancing deal for a telecommunications project, according to Bambang Wĳ anarko, its director.

He did not disclose further details on the transaction.

Meanwhile, he said that the bank will continue to focus on its mortgage business, which contributed IDR5

trillion (US$560.6 million), or 40%, to the fi nancing portfolio of its parent, Bank Negara Indonesia, in August 2011. Outstanding home fi nancings reached IDR2.1 trillion (US$235.4 million) in the same period.

Medini Iskandar proposes revisions to IMTNMALAYSIA: Medini Iskandar Malaysia, the developer of one of Iskandar Malaysia’s fl agship projects, has proposed to revise the principal terms and conditions for its RM1 billion (US$334 million) Islamic medium-term notes (IMTN) program.

The proposed amendments include an extension of the IMTN’s availability period and tenor. The developer will also have to provide further security for the program in the form of shares in its affi liate, Medini Development, in favor of CIMB Islamic, the primary subscriber of the papers. The debenture created by Medini Iskandar Malaysia over all its undertakings, goodwill, property, assets and rights has also been proposed to be released and discharged.

The profi t rate of the notes has also been proposed to be revised to a variable rate based on the cost of funds and 1.4% per year subject to a ceiling profi t rate of 10.75% per annum with eff ect on and aft er the 30th September. The development of this zone is undertaken by a public-private partnership involving Iskandar Investment, Global Capital & Development and Medini Central.

Medini Central is a special purpose vehicle majority-owned by Al-Nibras 2, a Labuan- based private fund company managed by Kuwait Finance House (Labuan).

IDB eyes India tie-upINDIA: The IDB is looking to cooperate with India to improve the standard of living of Muslims in the country, according to K Rahman Khan, the deputy chairman of Rajya Sabha, the Council of States of India.

The IDB will hold a conference on Islamic banking in order to spread awareness and further develop Islamic banking in the country.

The bank also aims to aid in the preservation and development of 200,000

continued...

SOP changes completedINDONESIA: Local Islamic banks have completed the changes in the standard operation procedures (SOP) for their gold pawn broking businesses (rahn fi nancing), following the central bank, Bank Indonesia’s, concern that rahn fi nancing will become the core business of Islamic banks.

The amendments to the banks’ SOP include enhancing the fi nance-to-value (FTV) threshold and controlling transaction frequencies, as well as restricting the gold bookpawning portfolio.

CIMB Niaga Syariah applies the FTV limit at 85% of the gold value, allowing the bank to provide funds equal to 85% of the gold value used as collateral.

Similarly, Bank Syariah Mandiri (BSM) has opted to impose a FTV ratio of 90% and restrict its gold pawn broking portfolio to 10%. BSM is also monitoring the rahn fi nancing transactions at all its branches, restricting the frequency to one transaction per customer.

BNI Syariah will cap its rahn fi nancing activities up to 25% of its total fi nancing. Presently, the gold pawn broking services make up 10-15% of the bank’s total fi nancing or IDR500 billion (US$57 million).

Meanwhile, Bank Mega Syariah has restricted its gold pawn broking products to 10% of its fi nancing portfolio. The value of the bank’s current gold pawn broking products stands at IDR84 billion (US$9.14 million) compared to its total fi nancing portfolio of IDR3.3 trillion (US$359 million).

Introduced in 2005, the gold pawn broking services were originally off ered by Islamic banks as a source of low-cost fi nancing for the public. However, rahn fi nancing grew in tandem with the increase in gold prices over the past two years, as more people began pawning the precious metal in exchange for funds.

As of July 2011, gold pawn broking transactions in Islamic banks reached IDR7.5 trillion (US$844 million), a 200% increase from IDR126 billion (US$14 million). —PY


NEWS

Upcoming national Shariah boardOMAN: The Central Bank of Oman (CBO) has taken steps to establish a national Shariah board to regulate the Islamic fi nance and banking sector in the sultanate, according to Hamood Sangour al Zadjali, its executive president.

It is believed that the move will make Oman the fi rst country in the GCC to have a centralized Shariah referral body. The CBO has also issued a directive on the mandatory establishment of Shariah boards for Islamic fi nance and banking organizations.

Hamood added that the CBO is currently working on completing a legal framework to govern the rules and regulations for Islamic banking in the sultanate.

In May 2011 Sultan Qaboos Said, the ruler of Oman, issued a Royal Decree to allow Islamic banking in Oman. Following the decree, a circular was issued by the CBO allowing local conventional banks to open Islamic windows, but did not permit them to convert into Islamic banks.

Since then, numerous Oman-based banks have shown interested in opening Islamic windows to tap into the growing demand for Islamic banking in the sultanate.

Abdullah Salem Al Salmi, the executive vice-president of Oman’s Capital Market Authority, believes that it is a “mixed blessing” that Islamic fi nance is being introduced now.

“The bad thing is that we have to learn a lot in a very short time, and the good thing is that we’re starting from where others have reached,” he explained.

Deloitt e’s Islamic Finance Knowledge Center has off ered to aid regulators and banks in the sultanate to speed up their understanding on the existing models, frameworks and policies of the other GCC countries.

Dawood Ahmedji, the European Islamic fi nance leader at Deloitt e, elaborated that advice could be given on government support, Shariah confi dences, Islamic fi nancial products and understanding of the Islamic market, as well as on the importance of gett ing local Shariah scholars involved in Islamic banking and fi nance in the sultanate. — HLS

hectares of waqf properties in India and use the income generated for improving the social and educational wellbeing of the country’s Muslims. The IDB also proposed the adoption of Malaysia’s pilgrims fund system, which serves to manage haj pilgrimages.

Gearing up for Islamic financeAZERBAĲ AN: The country is poised to become a hub for Islamic fi nance in the region by promoting cooperation between Islamic banks in the Persian Gulf and Central Asia, according to Behnam Gurbanzade, the head of the Islamic banking introduction team at the International Bank of Azerbaĳ an.

Gurbanzade added that according to market analysis, there is a demand from both corporate and private individuals for Islamic banking products and services in the country.

Call to diversify PAKISTAN: The central bank, State Bank of Pakistan, has urged local Islamic banks to diversify their investment portfolios by providing more fi nancing to small and medium-sized enterprises and the agriculture, housing fi nance and microfi nance sectors.

Muhammad Kamran Shehzad, its deputy governor, said that by targeting these sectors, Islamic banks will be able to increase their depth and breadth as well as contribute to a higher level of fi nancial inclusion in the country.

Yuan Sukuk delayedMALAYSIA: Khazanah Nasional has postponed the issuance of its yuan-denominated Sukuk Wakalah due to instability in the fi nancial market, shortly following expectations that the deal would be priced on the 22nd September.

Khazanah is said to have been eyeing a return of around 2% for the papers, which are expected to be between CNY300 (US$47) and CNY500 million (US$78.2 million) in size. Its orderbook was reportedly oversubscribed by 1.5 times following meetings with investors in Hong Kong and Singapore on the 19th and 20th September.

Yeah Kim Leng, the group chief economist of RAM Ratings, expects to see high investor interest for the Sukuk due to the rise in investor appetite for yuan-denominated assets globally as the Chinese government gradually internationalizes its currency.

Enhancing ties MALAYSIA: Interactive Data Corporation has expanded its agreement with Bond Pricing Agency Malaysia (BPA Malaysia) to boost international content for fund administrators and custodians.

The company is currently distributing evaluated pricing for long-term Malaysian fi xed income assets from BPA Malaysia. Demand for this content is increasing internationally due to the rapid growth of Islamic fi nance over the past few years.

Interactive Data is a US-based provider of fi nancial market data, analytics and related solutions to fi nancial institutions and traders, as well as soft ware and service providers.

Upcoming agriculture bankMALAYSIA: Agrobank has commenced a restructuring exercise in a move to become the fi rst Islamic agriculture bank in the region, according to Wan Mohd Fadzmi Wan Othman, its president and CEO.

continued...

continued...

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NEWS

continued...He said that the restructuring, which is expected to be completed by 2015, is also part of the bank’s eff orts to align itself with the government’s economic transformation program.

Bank Islam still keen on M&AMALAYSIA: Bank Islam is looking to expanding outside Malaysia, specifi cally Indonesia, due to the low penetration of Islamic banking there, according to Zukri Samat, its managing director.

He added that the bank is still interested in expanding its business through mergers and acquisitions despite several failed merger att empts recently. Earlier this year, the bank was in talks to merge with Bank Muamalat, another Malaysian Islamic bank, but the deal did not progress due to a lack of synergistic benefi ts.

EIB eyes IndonesiaINDONESIA: Emirates Islamic Bank (EIB) is planning to develop a range of Islamic banking products with conventional banks in Indonesia by investing up to 20% of shareholding, according to Abdulla Abdul Karim Showaiter, its CEO.

However, Abdulla said that EIB will have to study the Indonesian Shariah banking laws fi rst.

ITFC to assess Maldives economyMALDIVES: A team from the Islamic Trade Finance Corporation (ITFC) is expected to visit the country this month to study its economic situation before providing more fi nancing facilities.

ITFC, which is a member of the IDB group, provided US$40 million to State Trading Organization and US$35.5 million to the Maldives Transport and Contracting Company in 2010.

Explanation needed INDIA: The central bank, Reserve Bank of India, has ordered Alternative Investments and Credits to explain the basis of its ‘participative fi nancing’ deals.

According to the regulator, the company is not complying with the fair practices code which requires the fi nancier to provide the terms and conditions of funding.

Alternative Investments and Credits is a non-banking fi nancing company which is involved in Islamic fi nance.

Eyeing IndonesiaMALAYSIA: Kuwait Finance House (Malaysia) is keen on expanding in Indonesia to tap into the Islamic banking opportunities, despite potential changes in rules pertaining to foreign shareholding in Indonesian banks.

Jamelah Jamaluddin, its CEO, said KFH-Malaysia would prefer to apply for a new Islamic banking license, while adding that the bank is also actively looking at some potential acquisitions, including conventional and Islamic banks.

The group is already active in Indonesia, focusing mainly on investment and corporate banking.

US$8.3 billion financing INDONESIA: Intan Baruprana Finance has obtained an IDR75 billion (US$8.3 billion) fi nancing from Bank BNI Syariah to fund the expansion of its heavy machine fi nancing business.

The money will also be used to fi nance supporting machines such as electricity generators, trucks, tug boats, and barges, as well as transportation and other equipments.

EUROPEGulf investors head for TurkeyTURKEY: Gulf investors are looking to set up participation banks in Turkey and are already in discussions to enter the market, according to Fahrett in Yahşi, the chairman of the Turkish Association of Participation Banks and the head of Albaraka Türk Participation Bank.

Fahrett in added that Adabank, which was recently acquired by Gulf Finance House subsidiary G Capital, could become Turkey’s fi ft h participation bank.

Albaraka Türk raises fundsTURKEY: Albaraka Türk Katılım Bankasi has raised US$350 million for its domestic expansion activities via a dual-currency syndicated Murabahah fi nancing facility.

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The facility is the largest structured Murabahah syndicated fi nancing raised by a Turkish fi nancial institution and carries a profi t rate of 150 basis points pa.

Initially launched at US$150 million, the facility was oversubscribed to close at $350 million with participation from 25 banks globally.

ABC Islamic Bank, Emirates NBD Bank, Noor Islamic Bank and Standard Chartered Bank served as the initial mandated lead arrangers and bookrunners.

GLOBALMeeting the need for Islamic expertiseGLOBAL: AAOIFI is helping universities start courses in Islamic fi nance and has been speaking with a few universities to introduce the programs, according to Khairul Nizam, its deputy secretary general

Khairul added that the industry will need 15% more personnel over the next fi ve years and another 25% in ten years.

Mixed reviews on global fundsGLOBAL: Assets under management of global Islamic funds have increased by 7.6% to US$58 billion in 2010, according to the annual Ernst & Young Islamic Funds & Investments Report released this week.

The report highlighted that the increase in assets was att ributed to market performance and new money infl ows into equities. 23 new Islamic funds were launched while 46 were liquidated in the same period.

However, Ashar Nazim, the Islamic fi nancial services leader at Ernst & Young, said that global Islamic funds may have trouble boosting their assets in 2011 and 2012 due to the “increasing likelihood of sovereign debt crisis in Europe and a double dip recession in the US”.

He added that the top three risks for Islamic fund managers were investors’ risk aversion, the global economic scenario and the aft ermath of the Arab Spring. Ernst & Young also predicted that Gulf investors will add more than US$70 billion to Islamic funds by 2013.

Call for internationalizationGLOBAL: Islamic fi nance needs to support investments in the real economy in order to internationalize the industry as it is currently too localized and fragmented, according to Yakub Bobat, the global head of HSBC Amanah Commercial Banking.

He said that there should be more consolidation between countries through the innovation and standardization of Shariah compliant products and institutional architecture, such as liquidity management.

Software update GLOBAL: Oracle has released an update of its Basel II application, Oracle Financial Services Basel II, which supports the capital adequacy compliance requirements set by the Islamic Financial Services Board (IFSB) in multiple jurisdictions.

The application covers the IFSB regulations on computation and disclosure, said Oracle.

Time to shift gearsGLOBAL: The international economy should move towards alternative systems such as Islamic fi nance to avoid instability such as the European debt crisis, said Seyed Shamseddin Hosseini, the economic and fi nance minister of Iran, at an International Monetary Fund meeting in Washington DC last week.

Seyed added that the current architecture of the world’s economy creates unavoidable periodical instabilities due to inconsistency between the fi nancial and the real sectors.

MIDDLE EASTSupport for government firmsUAE: Dubai will support government entities and their related enterprises amid concerns that current market conditions could dampen prospects for refi nancing debt, according to Mohammed Al Shaibani, the director general of the Dubai ruler’s court.

He also said that the government does not expect DIFC Investments and Jebel Ali Free Zone, which have a US$1.25 billion and an AED7.5 billion (US$2 billion) Sukuk due in June and

continued...

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The tectonic plates have shifted, albeit metaphorically. Nations in the Middle East and North Africa are caught up in a whirlwind of revolution moving across the region, and the world waits to witness the full impact of the political crisis. If the domino theory has its way, the global economy will bear the brunt of this catastrophe even before it has completely healed from the wounds of the

However distasteful, this might be a good moment to pay heed to the adage that behind every crisis lies great opportunity. At least that is how NBD-Abu Dhabi Islamic Bank (Egypt) chooses to look at things in its report. The bank asserts that the best time

in post revolution Egypt, particularly in the light of the political will that comes with a new regime.

Not far from the political unrest lies Syria which has made incremental steps to

However, there are many opportunities for improvement in Syria as put forward in a report by The Scandinavia University, including injecting new blood into Islamic

While not immune to the recent political protests, both Yemen and Oman stand in good

are concerned. Although the development

Yemen has been a governmental priority for a while, the country now needs an Islamic

says a report by Tadhamon International

Islamic Bank. And in Oman, while not explicit in its laws for facilitating Islamic banking

of law precludes the need for separate

BankMuscat’s report.

Ever intertwined with the fate of the Middle East economies is the US, where opportunities for Shariah syndicated

institutions expand their knowledge and

opportunities to originate and participate in

One strategic approach which may help the US market is to concentrate on the high net worth individual market as suggested by ADCB Meethaq. Their report proposes that the HNW market be given top priority, so focus is kept on best of breed Islamic banking offerings. This will in turn ensure that quality service is the key strategy for growth.

In our IFN reports, Uganda, Nigeria and Ethiopia are steadily harnessing the potential

Sukuk are detailed; Korea is on the verge of a make or break decision on allowing Islamic

much touted megabank is considered.

In Meet the Head, we feature Najmul Hassan, CEO of Gulf African Bank, one of the banks poised to enter the Ugandan market this year, and Senai Desaru Expressway’s Islamic

ruo ni deliated si seton mret muidemTermsheet.

Vol 8 Issue 7 23rd February 2011

T h e W o r l d ’ s G l o b a l I s l a m i c F i n a n c e N e w s P r o v i d e r

In this issue

IFN Rapid ..................................................... 2

Islamic Finance News ................................ 3

Takaful News ............................................... 7

Moves ........................................................... 7

Ratings News .............................................. 8

IFN Reports:Islamic megabank fails to retain interest ..................................................... 9

South Korean Sukuk in limbo .............. 9

Thailand Sukuk market opens up ..... 10

New African entrants in Islamic banking ...................................................10

Global Sukuk sales may top 2007 record .....................................................11

Articles:Islamic Finance and the Legal Framework in Oman ...................................................12

............14

Syndication of Islamic Finance in the US Financial Market .....................................16

Islamic Finance Features In Syria..........18

Islamic Finance in the New Egypt .........20

Islamic Finance: Opportunities for Growth and Innovation ........................................22

Meet the Head ..........................................25Najmul Hassan, CEO of Gulf African Bank

Termsheet ..................................................26Senai Desaru Expressway US$1.83 billion Sukuk

Deal Tracker .............................................. 27

Eurekahedge Funds Tables .....................28

REDmoney Indexes ..................................29

S&P Shariah Indexes ...............................30

Dow Jones Shariah Indexes .................... 31

Dealogic League Tables ...........................32

Thomson Reuters League Tables ...........35

Events Diary...............................................38

Company Index .........................................39

Subscription Form ....................................39

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November 2012, respectively, to have trouble in refi nancing the papers.

Nakheel defends Sukuk assetsUAE: Nakheel has slammed foreign media reports doubting the real value of land assets backing its recently issued AED3.8 billion (US$1 billion) Sukuk to creditors.

Ali Rashid Lootah, its chairman, said that such news will only hurt the investors as they are not based on facts and real investment value.

Ali also said that the company’s assets have been evaluated by international parties and have been accepted by Ernst & Young auditors and all of the developer’s fi nancial and commercial creditors.

Nakheel’s Sukuk was earlier reported to have been mainly backed by unreclaimed seabed, casting doubt on the availability of recourse in the event of a default.

The assets are said to comprise a 350 million square foot strip of waterfront and a 1.3 billion square foot piece of partially submerged land that is to form part of a man-made island, of which only 10% has been reclaimed.

Sukuk advisors namedBAHRAIN: The kingdom has appointed BNP Paribas, Citigroup and Standard Chartered Bank to advise on its US$1 billion Sukuk issuance next month.

According to Rasheed Mohammed Al Maraj, the governor of the Central Bank of Bahrain, proceeds from the Sukuk issuance will be used to fi nance the kingdom’s budget defi cit.

US$2.7 billion refinancingSAUDI ARABIA: Telecommunications company Etihad Etisalat (Mobily) is reportedly seeking SAR10 billion (US$2.7 billion) in fi nancing from international banks to refi nance its existing debt.

The deal will represent the company’s largest syndicated fi nancing transaction since June 2007, when it signed a SAR10.78 billion (US$2.9 billion) Islamic debt fi nancing. The fi rm last accessed the market in December 2010, raising SAR1.2 billion (US$319.9 million) via a Murabahah facility which has a 12-month

tenor and an option to extend for another six months.

Mobily is expected to secure approvals for the transaction, which is being advised by Samba Financial Group by the end of next month. The majority of the fi nancing is expected to have a fi ve-year tenor.

Sukuk oversubscribed againBAHRAIN: The Central Bank of Bahrain’s BHD20 million (US$53 million) monthly issuance of Sukuk Ijarah has been oversubscribed by 242.5%. The Sukuk, which will be issued on the 22nd September 2011 and will mature on the 22nd March 2012, is expected to return 0.82%.

Refinancing deal inkedUAE: Port & Free Zone World, the holding company of DP World, has reportedly signed a US$850 million refi nancing deal to replace a US$1.15 billion facility which matures this month.

The existing facility was signed by 15 banks and is almost evenly split between conventional and Islamic tranches.

EIB in government tie-upUAE: Emirates Islamic Bank (EIB) and the government of Sharjah will work together to provide grants and fi nancing for all public housing projects in a move to address concerns on aff ordable housing.

Development in the worksUAE: Al Hilal Bank has commenced the development of its fl agship commercial development on Sowwah Island in Abu Dhabi, comprising an offi ce and retail-space tower.

According to Ahmed Ateeq Al Maz-rouei, the chairman of Al Hilal Bank, the bank’s future commercial developments will mirror the standards of its fl agship tower.

Listing on the cardsOMAN: Bank Nizwa and Al Izz International Bank are expected to issue shares to the public by the end of this year and list on the Muscat Securities Market, which will enable them to start their Islamic banking operations in 2012.

continued... RATINGSThumbs downPAKISTAN: PACRA has downgraded the long-term ratings on Maple Leaf Cement Factory’s PKR8 billion (US$91.2 million) Sukuk to ‘D’ from ‘BB’.

Strong foundationsUAE: CI has affi rmed Rakbank’s long- and short-term foreign currency ratings at ‘A-’ and ‘A2’ respectively. The ratings have a stable outlook.

Positive improvementQATAR: Moody’s has upgraded the outlook of Masraf Al Rayan’s ‘A3’ long-term issuer rating to positive from stable.

Good kick-offMALAYSIA: RAM has assigned an ‘A1’ rating to AmIslamic Bank’s proposed RM2 billion (US$627 million) subordinated Sukuk Musharakah program. The long-term rating carries a stable outlook.

Concurrently, the ratings of the bank’s RM3 billion (US$940 million) senior Sukuk Musharakah program and RM400 million (US$125 million) subordinated Sukuk Musharakah program have also been reaffi rmed at a respective ‘AA3’ and ‘A1’.

Firm supportUAE: Fitch has affi rmed National Bank of Umm Al-Qaiwain’s long-term issuer default rating at ‘BBB+’. The rating has a stable outlook.

continued...


NEWS

Hamood Sangour al Zadjali, the executive president of the Central Bank of Oman, said that the two new banks are taking shape and will likely take three to four months to be established.

Nakheel attracts NBCUAE: National Bonds Corporation (NBC) may invest in Nakheel’s AED3.8 billion (US$1.03 billion) Sukuk due to the papers’ lucrative returns, said Mohammed Qasim Al Ali, its CEO.

He noted that papers issued by corporates in the UAE, including Nakheel, are currently providing good yields.

Court to resolve Tamweel casesUAE: Sheikh Mohammed Rashid Al Maktoum, the ruler of Dubai, has issued a decree authorizing the Dubai Real Estate Court to rule on cases related to Islamic mortgage fi rm Tamweel and its subsidiaries.

The court replaces the judicial panel established in 2009 to adjudicate disputes related to Tamweel and another Islamic mortgage company, Amlak Finance.

QInvest business commencesSAUDI ARABIA: QInvest Saudi Arabia, a subsidiary of Qatar-based Islamic investment bank QInvest, has commenced operations in the kingdom.

The entity, which has an initial capital of SAR50 million (US$13 million), offers management, arrangement, advisory and custody services for corporate, institutional and high net worth clients.

Possible Sukuk issuancesBAHRAIN: Albaraka Banking Group might sell around US$500 million in Sukuk by the end of the year, according to Adnan Ahmed Yousif, its CEO.

He elaborated that US$200 million of the Sukuk might be sold in November through its Turkey-based subsidiary, Albaraka Türk Katılım Bankasi, which is currently hiring banks to manage the sale.

Adnan added that the group is also planning to acquire small conventional banks in Indonesia to turn into Islamic banks.

New gold vending machineUAE: Al Hilal Bank has launched a gold dispensing machine at its Financial Mall branch in Abu Dhabi.

The machine sells gold bars and coins at prices that are updated every 10 minutes to match current market rate.

Early pricing for SukukSAUDI ARABIA: Saudi Aramco and Total have set the initial price guidance for their upcoming SAR3.75 billion (US$1 billion) Islamic bond at a six-month SAIBOR rate plus 95-105 basis points.

The price was published on its lead manager, Deutsche Securities Saudi Arabia’s website. The fi nal pricing is expected to take place on the 28th

September.

LCP’s third Shariah compliant fundUK: Asset management fi rm London Central Portfolio (LCP) has launched the Prime Residential London Fund, its third Shariah compliant property fund.

The Jersey-based fund is listed on the Channel Islands Stock Exchange and aims to tap demand from wealthy Muslims for properties in London.

MOVESGATEHOUSE BANKUK: Gatehouse Bank has promoted Jamie Munday to the post of vice president, asset manager.

DOW JONES INDEXESSINGAPORE: Dow Jones Indexes has appointed Edward Lim as its director for business development for South Asia, based in Singapore.

EMIRATES ISLAMIC BANKUAE: Emirates Islamic Bank (EIB) has appointed Jamal Ghalaita as its new CEO, replacing Ebrahim Fayez Al Shamsi, who has resigned.

ASHURSTUAE: Legal fi rm Ashurst has appointed Alistair Holland as the new managing partner for its offi ce in Abu Dhabi.

S&PUAE: S&P has appointed Stuart Anderson as its regional manager for the Middle East, based at its regional offi ce at the Dubai International Financial Center.

AMANA TAKAFUL MALDIVESMALDIVES: Hassan Ali Manik, the director of Amana Takaful (Maldives), has resigned due to business and personal commitments. The fi rm has yet to name a replacement.

MASHREQBANKUAE: Mashreqbank has appointed Karim Mahmoud as its CEO of Abu Dhabi and Al Ain.

GULF AFRICAN BANKKENYA: Gulf African Bank has appointed Asad Aziz Ahmed as its new CEO, replacing Najmul Hassan. Asad was previously the managing director and head of Middle East at the fi nancial advisory fi rm, Alvarez and Marsal.

THE ROYAL BANK OF SCOTLANDUK: The Royal Bank of Scotland has appointed Mark Webster as the head of FX Sales for EMEA as well as the global head of fi nancial institutions FX sales. Webster was previously the head of sales EMEA at the Bank of America’s Global Currency Group.

Coming up...Volume 8 Issue 39 – 5th October 2011

Meet the Head Wan Azman Wan Mamat, CEO, AIA AFG Takaful

FeaturesIndonesia: Synergy of Islamic banking fi nance and small and medium enterprises: By Any Setianingrum, director at Professional Sharia Consulting and Islamic economist for science, business and public fi nance.

Intellectual property protection for Islamic fi nance products: By Dino Wilkinson, lawyer in the communications, media and technology team at Norton Rose (Middle East) based in Abu Dhabi.

Shariah risk: Measuring and treatment: By Hassan Yusuf, operational risk manager at Masraf Al Rayan.

continued...


IFN REPORTS

The groundbreaking yuan-denominated Sukuk hotly anticipated to be issued by Malaysian sovereign wealth fund Khazanah Nasional could still see the light of day in the near future, although much will depend on market conditions.

“We will be looking at the markets this week before we decide when to price the papers. Everyone is still trying to do this as soon as they can, but things seem to be changing by the hour,” a source told Islamic Finance news.

Investors are keen on the issuance, dubbed the “dim sum Sukuk”, despite the facility’s uncharted territory, with potential buyers having “no issues” with the unprecedented structure due to Khazanah’s good credit profi le, said the source. He added that the issuance will likely be taken up by investors already familiar with Khazanah’s previous off erings, which include a Singapore dollar-denominated Sukuk issued last year.

It emerged on the 23rd September that the fund had been advised to postpone its latest planned issuance, just a day aft er the papers were expected to be priced, as markets routed due to the Eurozone’s

debt woes and increasing concerns over the global economy.

Khazanah has remained tightlipped on the sale, which is expected to be between CNY300 million (US$46.9 million) and CNY500 million (US$78.3 million) in size and have a tenor of between three and fi ve years.

While small, the planned issuance is signifi cant as it would make up the fi rst ever Chinese currency-denominated Sukuk in the market, in an off ering said to be Khazanah’s move to test the waters for such a sale. BOC International, CIMB and the Royal Bank of Scotland are joint bookrunners of the Sukuk, with CIMB Islamic acting as Shariah advisor.

A roadshow for the issuance was held in Hong Kong and Singapore on the 19th and the 20th September, with its orderbook reportedly already oversubscribed by 1.5 times. Khazanah is said to be eyeing a return of around 2% for the Sukuk.

Khazanah last issued a foreign currency Sukuk in August 2010, when it sold a SG$1.5 billion (US$1.2 billion) issuance in Singapore. The issuance was priced at 2.615% for a fi ve-year tranche and

3.725% for a 10-year tranche and was oversubscribed 4.3 times by investors including fi nancial institutions, asset management fi rms, statutory bodies and insurance companies from Brunei, Hong Kong, Europe, Singapore and Malaysia.

Meanwhile, although Khazanah’s planned Sukuk has caused a stir in the market due to its novelty, it is unclear whether the sale will pave the way for a fl urry of similar issuances. Despite current investor appetite for Chinese assets, demand for Shariah compliant Chinese assets remains questionable.

“Frankly speaking, we do not see a big market in Hong Kong for Sukuk, since the Muslim population is relatively very small. Besides, Sukuk is basically quite illiquid in the secondary market, therefore may not be an att ractive investment vehicle for the investors.

“The government in Hong Kong has also not been promoting Islamic fi nance like they were a few years ago. Even though there might be some Islamic activities in the market, these are deemed to be running in a very low profi le and relatively small size,” commented a fund manager in Hong Kong when contacted by Islamic Finance news. — EB

Market conditions weigh on Khazanah’s dim sum Sukuk

In February last year, the Kuwait Parliament passed Law No.7 of 2010 for the establishment of the fi rst ever Capital Markets Authority (CMA) in the country. The CMA, a public independent authority, was formed to regulate all securities-type activities within the Kuwaiti market and the Kuwait Stock Exchange, in a bid to create a more organized, competitive and transparent market. Previously, all capital market activity in the country was regulated by the Central Bank of Kuwait’s Capital Market Committ ee.

According to an offi cial document released on the CMA, the Authority’s aims are: to organize the activities of securities in a fair, competitive and transparent manner; to educate the public regarding the activities of securities, benefi ts, risks and undertakings related to such investments; to provide protection to the dealers in securities; to diminish patt ern risks

foreseen in securities; to apply a policy of total disclosure and to guarantee abidance by laws and regulations related to securities. The CMA is managed by the Authority Board of Commissioners, whose jurisdiction also includes sett ing private rules, regulations and procedures “required by the activity of each person operating by virtue of the provisions of the Islamic Shariah”.

A Dubai-based lawyer explained the role of the CMA to Islamic Finance news. “The Capital Markets Authority is a new regulator for all securities-type activities. Under the new capital markets law they have a lot of power to issue regulations on various aspects of capital markets or security regulations, and that can encompass investment funds as well,” he said, referring to Global Investment House (GIH)’s recent announcement that all of its Kuwait-based funds are compliant with the CMA’s requirements for investment funds.

Ismail Odeh, the vice president of regulatory compliance at GIH, stated: “We have successfully applied CMA’s requirements relating to the investment funds within the set timeframe, and we are currently implementing the plan we set to ensure that Global fully complies with all the CMA’s regulations. As soon as the CMA law was issued, Global started intensive workshops to implement the integrated plan covering all the company’s departments in order to ensure compliance with all CMA requirements.”

The investment funds that are now fully compliant with the CMA’s requirements are the Al-Durra Islamic Fund, Global 10 Large Cap Index Fund, Global Islamic Fund, Global Bond Fund, Global Al-Ma’moun Fund, Global Local Fund and Global KD Money Market Fund. According to the institution, a fi ve-

Kuwaiti funds CMA-ready

Continued


IFN REPORTS

member board of directors, consisting of three members from the company and two independent members, was elected for each fund.

The unit holders also approved the appointment of a custodian and fi nancial auditor for each fund in addition to the Shariah supervisory committ ee for the Islamic funds.

Hossam Abdullah, a partner at Kuwait-based law fi rm ASAR Legal, spoke exclusively to Islamic Finance news regarding the new provisions relating to investment funds under the CMA law. “The new changes are more restrictive and hence negatively impact the creation and sale of funds. However, the new rules are meant to enhance the regulations of these funds and its regulatory supervision thereof.”

He outlined the changes pertinent to investment funds, including mutual funds, stating: “Under Article 303, mutual fund units shall be off ered through public placement if they do not meet the conditions for private placement specifi ed; which include the Government of the State of Kuwait, the Central Bank of Kuwait, the Exchange and any other fi nancial markets recognised by the Authority, licensed persons operating for their own account, investment companies operating for their own account; or any other persons approved by the Authority in this regard.”

According to Hossam, the law, which places restrictions on investment funds, stipulates that these funds may not own more than 10% of a publicly traded company, or invest more than 10% of the fund in one company.

He also revealed that such funds must invest at least 75% of their capital to achieve their principal investment aims, and may not carry out activities such as granting credit, purchasing any securities issued by the company managing the fund or any of its subsidiary partners; except within the confi nes of the regulations approved by the CMA, or purchase securities for which the fund manager is the lead manager or sales agent; unless approved by the CMA.

Initially slated for November 2010, the CMA extended the period for investment companies to comply with guidelines for investment ratios in a single stock by six months. According to a statement by the CMA, the delay was att ributed to economic concerns and issues with the Kuwait Stock Exchange. — NH

Continued

17th to 19th October 2011, Kuala Lumpur Convention Centre

An IFN Asia 2011 updateThe IFN Asia Forum 2011 is drawing closer. Only a few weeks away, the three-day event on the 17th to the 19th October is set to bring the industry’s most infl uential movers and shakers together.

Jaseem Ahmed, a highly experienced industry player and newly appointed secretary general of the Islamic Financial Services Board (IFSB) will be delivering the keynote address on the 17th October, to offi ciate the event. Prior to his appointment to the IFSB, Jaseem served as the director, fi nancial sector, public management and trade, Southeast Asia department of the Asian Development Bank, and has immeasurable experience in the banking and non-banking fi nancial sectors, and was previously responsible for the institution’s supervisory and regulatory capacities. He has also been a member of the IFSB high level task force on liquidity management, the group which proposed the establishment of the International Islamic Liquidity Management Corporation in Malaysia.

Among the new speakers confi rmed for the event are: Tim Dillon, the commissioner of the state government of Victoria; Professor Dr Syed Othman Alhabshi, a Shariah scholar; Sau-Ngan Wong, the senior counsel at The World Bank; Etsuaki Yoshida, the director/head of Middle East & Africa, Japan Bank for International Corporation and Christopher Aylward, the managing partner at SNR Denton.

The event, which is supported by the Malaysia International Islamic Financial Center (MIFC) and Luxembourg for Finance among others, also features Standard & Poor’s Ratings Services and KPMG as new sponsors. KPMG is also the luncheon sponsor for the event’s Issuer’s Day on the 17th October. Thomson Reuters, the world’s leading newswire and data provider will also be covering the event as its new media partner.


IFN REPORTS

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According to Professor Dr Abbas Mirakhor, the chair of Islamic fi nance at the Global University of Islamic Finance (INCEIF), there will be a paradigm shift in the future drivers of the global economy, led by the increasingly dynamic emerging market economies. It is these emergent market economies that will represent new growth poles in the global economy by 2025.

A World Bank report entitled ‘Global Development Horizons 2011’ recently provided the fi rst analytic conceptualization of why these emerging multipolar systems exist. This has also led to speculation on what is truly driving current global economic growth, as well as a realization that these growth centers will diff er from current economic centers of power.

It is to be assumed that the growth of the world economy will be driven not by the advanced industrialized economies but by emerging markets, referring to their ability to add to GDP growth and not their total size.

A large proportion of this growth is being led by the corporate sector of these emerging markets, particularly in regard to cross-border trade. These emerging market corporates have also become important borrowers in the international system and as such it is likely that they will set about creating a shift towards a multi-currency system.

The result of these trends is that we are beginning to see a steady shift away from the current unipolar world. Twenty nine countries have had a sustained growth rate in excess of 7% for over 25 years: by 2050 this number is set to increase even further. From now until 2050 will be ‘the decades of Asia,’ and aft er 2050 these

growth drivers are predicted to shift to Africa.

There are huge benefi ts from multipolarity, not least of which is the mitigation of idiosyncratic shocks from a unipolar model, which is increasingly relevant given the recent credit crisis originating from the US and ongoing Eurozone debt crisis.

Multipolarity off ers signifi cant opportunities for emerging markets to bypass this unipolar system completely, allowing them to trade directly with each other. It also removes their economies from certain levels of risk, helping to mitigate uncoordinated policies originating from economic powers having a detrimental impact on economy, such as the current exposure to short-term fl ows.

In terms of economic crisis, a unipolar model serves as a dead weight on the world economy. We are now in a position where the market driver of world growth, the US, has a serious problem and cannot achieve a consensus on how to solve inherent economic problems present within the world economy, creating a polar divergence.

It may be that we are heading towards another debt crisis and we still haven’t addressed the systemic issues present in the current fi nancial system, leaving the door open to an alternative.

So where does Islamic fi nance fi t into this picture? According to Abbas: “Islamic fi nance can contribute to this emergence of an alternative system, and Malaysia has the potential to become a global fi nancial growth center.”

This is a stand-out proposition and due to the unique model that Malaysia has

followed, it is also in a position to enjoy fi rst mover advantage. The country has sought to create an alternative economy based on a rational, well thought out and gradual process; not simply based on ideology. Abbas explains that: “The key to the success of this model is to allow other countries to leverage off of the Malaysian model and allow the alternative model to expand.”

So, what can Malaysia do to accelerate the growth of its fi nancial model? The new economic model, under which Islamic fi nance has been placed, is an integral part of the Malaysian economy and enjoys signifi cant government support. Malaysia’s ultimate economic goal is to bring Malaysia out of its current middle income status and Islamic fi nance can off er that opportunity.

Islamic fi nance off ers Malaysia an opportunity to move beyond the export-driven strategies of its Asian peers. By harnessing Islamic fi nance it has the opportunity to harness a shift towards greater total factor productivity, by merging input streams for greater gain. This will also create greater fi nancial inclusion for the population at large as they are able to participate in the growth prospects of the country as a whole, becoming an active participant and not simply at the receiving end of economic development.

The global economy is under stress and there are major imbalances in the world. The current fi nancial model is based on interest-bearing debt fi nancing and has not been helpful for the emergence of a just and balanced world economy. Abbas sums up by stating that: “There has to be an alternative, Islamic fi nance provides a powerful alternative and Malaysia as an agent of change, can lead.” — SW

Islamic finance in a multipolar world


IFN REPORTS

EGYPT

By Dr Walid Hegazy, IFN Correspondent

Despite the current political turmoil, the post-revolution Egyptian Islamic fi nance market continues to witness positive developments. Société Arabe Internationale De-Banque (SAIB) has lately joined the Egyptian Islamic fi nance sector.

Additionally, SAIB is establishing its headquarters in Cairo, Egypt. The bank’s board has decided to issue two newly developed fi nancial instruments in the Egyptian market. SAIB has obtained the required approvals for the issuance of the new Sukuk, with variable return.

The bank also launched a new category of Islamic credit cards known as El-Tayseer. Although El-Tayseer cards are very similar to conventional cards, they have two noticeable limitations: they neither allow cash withdrawal transactions nor transactions involving the purchase of gold or silver. SAIB has announced that it plans to focus on a number of areas including real estate, fi nance and microfi nance.

In other recent developments, Dubai-based Islamic fi nance consultancy fi rm Amanie Advisors is to set up a new subsidiary in Cairo. Amanie aims to capitalize on the considerable business potential in Egypt and North Africa by advising bankers and fund managers

on the principles of Islamic fi nance. According to Amanie, about US$52 billion is invested in Shariah compliant investment funds on a global basis. Furthermore, it is worth noting that Amanie and the law fi rms of Hegazy & Associates and Sarie El-Dien & Associates will be organizing the fi rst International Shariah Investment Convention, which represents the sponsors’ own initiative to promote Islamic fi nance in Egypt and the MENA region. The convention is expected to take place within the next few months.

Dr Walid Hegazy is the managing partner of law fi rm Hegazy & Associates in association with Crowell & Moring. He can be contacted at [email protected].

Positive developments in Egypt despite turmoil

HONG KONG & CHINA

By Anthony Chan, IFN Correspondent

Mainland China, one of the fastest growing economies globally with a GDP valued at US$5.87 trillion, should soon present a welcome basic platform to permit Shariah compliant funds to invest in the country.

China already has extensive needs for investment in infrastructure and public utilities such as hospitals and schools and other areas, which can be leveraged by Shariah compliant funds.

Even real estate, which is the target of legislation aiming to cool the market, should provide a healthy return for Shariah compliant funds if the restrictive rules for investment in this sector are complied with.

For a Shariah compliant fund, investment portfolios would normally need to be restructured to be Shariah compliant in China.

With proper advice on the legal, tax, regulatory and accounting regimes of the Chinese market, foreign investors should not be unduly concerned about the repatriation of invested capital and the renminbi currency controls in China, as overseas sums that are properly structured within applicable law to enter China for investment should be able to be repatriated subsequently.

Moreover, some equity interest is usually taken under a fund, and the use of interest-bearing leverage can be a hurdle to Islamic investors, because of the prohibitions on interest.

One of the methods is to impose an investment restriction on the fund to make only equity investments (as opposed to debt investments) since ownership of a share in a company is considered to be a proportionate share in the ownership of the underlying assets and business of the company.

Funds can also be structured in a Mudarabah form (profi t sharing), whereby the investor contributes the capital and the other party undertakes the work, akin to an asset manager of a company.

The profi ts are shared with the mudarib (manager) and the rab al maal (investor), but the investor will bear the losses.

The investors can set the limits of the mudarib’s activities and the investors are only liable to the extent of their investment, even if the losses exceed the assets of the business.

If Shariah funds are used as an investment in China, this could ultimately yield some handsome returns on account of the typically higher returns that are expected for projects within mainland China.

Investors through a Shariah compliant fund can mitigate their risk by raising such fund (in China or in the Middle East) for investment in projects both in China as well as Chinese enterprises overseas such as back in the Middle East.

One model structure is for the overseas fund sponsor to fi nd a Chinese partner to raise funds in Asia or China, while the rest of the funds are raised by the fund sponsor in, say, its home jurisdiction or the Middle East. This type of matching fund should work quite well in principle.

The ratio between the money invested by a Chinese investor as against money invested by the Shariah compliant fund should be agreed fi rst, and this ratio should provide some measure of confi dence to an Islamic investor that a partner who knows the Chinese landscape is putt ing substantial money into the fund.

Another investment strategy is to use Shariah compliant funds for the many infrastructure works and natural resources and other Shariah compliant projects that are being undertaken by or invested in by Chinese enterprises in the Middle East or in more developed jurisdictions like the US and Europe.

Potential for Shariah compliant funds for Chinese projects

Continued


IFN REPORTS

The ability of Shariah compliant funds to participate in these projects will depend on the investment strategies of the fund as well as the anticipated return of the particular project in the context of its risk profi le.

Chinese enterprises such as engineering or construction houses active in the Middle East are increasingly pressured to take equity in the project companies and share the risks and rewards as not merely engineering procurement and construction (EPC) contractors but as owners. A Shariah compliant fund usually involves a structured form of fi nancing and the Chinese legal system welcomes such fi nancing to take place with its fl exible regulatory system.

Overseas special purpose vehicles are oft en used for ultimate ownership of assets in order to provide some sort of comfort in controlling the assets.

Although China is still in its infancy stage in terms of fund development and regulations, this could be advantageous. On the other hand, regulation of funds in Hong Kong and other off shore centers may be more developed.

The private equity market in China grew at a rate of 40% per year from 2003 to 2008 and achieved a value of US$9 billion. Last year, China-focused funds accounted for more than 9% of global fundraising, according to Thomson Reuters.

It is expected that foreign funds will continue to inject cash into the country to facilitate growth; thus there is no reason why Shariah compliant funds cannot be raised and grow in China too.

In terms of the regulatory aspect of Shariah compliant funds, there could be challenges when selecting which scholars should be included in the Shariah advisory board.

The selection should be done in accordance to the type and investment strategy of the fund, and the ability to interpret and accept the intricacies of doing business in China would appear benefi cial.

Apart from facilitating funds formation and sourcing of Islamic investors, the Shariah advisory board also screens investee projects to ensure compliance. Such compliance oft en involves more development and time costs than with conventional funds.

Nevertheless, in operating a Shariah compliant fund, a fund manager would encounter the same hurdles as if he was operating a conventional off shore fund.

Anthony Chan is a partner at Brandt Chan & Partners in association with SNR Denton. He can be contacted at [email protected].

KUWAIT

By Alex Saleh, IFN Correspondent

Islamic fi nance in Kuwait dates back to 1977 when the fi rst Islamic bank, Kuwait Finance House, was established, operating for 16 years in an environment where specifi c laws governing Islamic banking were lacking. Later, Law No. 30 of 2003 (Law No. 30), a special section on Islamic banks, was added to Law No. 32 of 1968, regarding currency and the organization of banking business (Banking Law), coming into force in 2003.

The Central Bank of Kuwait (CBK) has been involved in the regulation of Islamic fi nance since the early 1990’s, when several Islamic investment companies were established under its supervision.

The CBK legislation enabled the CBK to bring Islamic banking, which had not been regulated for 16 years, into its supervisory fold. It has also allowed more Islamic banks to be established.

The growth of Islamic fi nance following the enactment of Law No. 30 increased rapidly, evidenced by the number of new Islamic banks being established

following the introduction of the law. Such banks included Islamic banks which were converted from existing conventional banks.

Comparatively, there has only been one new conventional bank established in Kuwait since 2003. Currently, there are fi ve fully fl edged local Islamic banks

in Kuwait, the same number as local conventional banks.

These banks are Kuwait Finance House, Boubyan Bank, Kuwait International Bank, Ahli United Bank and Warba Bank. Warba Bank is the latest Islamic bank to be established in Kuwait.

Saudi Arabia’s Al Rajhi Bank, one of the biggest Islamic banks in the Gulf, opened its doors in Kuwait in 2009 and operates in Kuwait as a branch of a foreign bank.

Not included in the number of local Islamic banks is the National Bank of Kuwait (NBK). NBK has access to both conventional and Islamic fi nance and is the only bank in Kuwait off ering both facilities to customers, following the acquisition of a 47% stake in Boubyan Bank.

Kuwait International Bank (KIB, formerly known as Kuwait Real Estate Bank) and Ahli United Bank (AUB, previously as Bank of Kuwait and Middle East) both made the transition from the conventional to the Islamic mode of business.

Brief history of Islamic banking in Kuwait

The total capital

of the five local Islamic banks is approximately KWD645 million (US$2.4 billion): around 42% of the total capital of the banking sector in Kuwait

Continued

Continued


IFN REPORTS

Formerly specialized in real estate fi nance, KIB expanded its restrictive license and gained permission from the CBK to operate as an Islamic bank in July 2007.

The commitment by KIB to the business of Islamic fi nance became evident when it became the fi rst Islamic bank in the Middle East to provide Islamic instrument and Murabahah profi t rates on Bloomberg. AUB, the fi rst bank established in Kuwait, began operating as an Islamic Bank in April 2010.

The total capital of the fi ve local Islamic banks is approximately KWD645 million (US$2.4 billion): around 42% of the total capital of the banking sector in Kuwait.

While the domestic demand for Islamic banking services has increased, so has the number of Islamic fi nance providers. Law No. 30 became an important piece of legislation, as it provided the required legal framework for establishing prudent regulatory and supervisory policies and controls for Islamic banks in Kuwait. It has also opened the door for potential

new entrants into domestic Islamic banking.

There is a potential for more banks in the Gulf region to convert to Islamic fi nance to respond to the rising demand for Shariah compliant products and to avoid the heavy investment required to launch new banks.

Alex Saleh is a partner at Al Tamimi & Company and he can be contacted at [email protected].

MALAYSIA

By Nik Norishky Thani, IFN Correspondent

Continuing our segment, we examine Malaysia’s Economic Transformation Program (ETP) and its potential for further advancement in Islamic fi nance, particularly in Malaysia. A quick recap: the ETP comprises 12 National Key Economic Areas to drive Malaysia’s competitive advantage and six Strategic Reform Initiatives (SRI) that focus on increasing Malaysia’s global competitiveness. Specifi cally, the International Standards and Liberalization SRIs seek to liberalize services, implement standards and introduce Competition Law.

According to Malaysian government statistics, Malaysia has 6,260 standards, of which 3,759 (60%) are aligned with international standards but only 328 (5%) have been made mandatory. Standards improve market effi ciency and, overall, standards defi ne an industry. In the Islamic fi nance industry, developing standards is a work in progress that is being tackled at various levels. The AAOIFI for example has 85 standards covering diff erent issues such as accounting, auditing, governance, ethics and products plus 18 more that are in development. Institutions such as IFSB and IIFM, and various regulators have also produced standards to regulate Islamic fi nance and will continue to do so.

However as in the Malaysian example, how many of these available standards

are actually made mandatory? We still have some way to go in utilizing these standards to achieve industry effi ciency. Although it is widely accepted that a majority of Shariah interpretations and applications are similar and could therefore be ripe for standardization, this does not necessarily translate into a unifi ed set of procedures, documentation and products. In 2008 for example it was reported that the JBIC proposed Sukuk was held up due to confusion over the permissibility of the Murabahah structure. Notwithstanding the various standards available on both Sukuk and the Murabahah contract, an acceptable time to market was not achieved. For standards to have a lasting impact in Islamic fi nance, a rationalization process need to take place between the standard sett ing bodies of the industry, the regulators and the market players to determine which standards ought to be mandatory for market players to adopt. It would not benefi t our industry to produce a corpus of standards but off er litt le by way of its utility, particularly in cross-border transactions.

Malaysia’s Competition Law is expected to be implemented by 2012. The idea of having such law in Malaysia has been around for at least 10 years and its impending implementation signals that Malaysia’s economy is reaching a level of maturity. While the law itself would be useful in regulating against anti-competitive behavior such as abuse of dominant position or disallowing mergers that would kill off market competition, it is also the improvement

in understanding competition as an economic principle that will benefi t our industry players. For example market dominance in itself is not illegal, but anti-competitive behavior arising from market dominance would be illegal.

The substantive element of competition law is analogous with the objective of Islamic fi nance in promoting social justice in an economy. In a market that comprises Shariah compliant businesses of varying size and resources, competition law would help ensure the Islamic fi nance industry remains competitive in delivering its services. The safeguard would not just be between the Islamic fi nance market players but would encompass all areas of the fi nancial market. It will be an important factor as the Malaysian Competition Law may regard a subsidiary and its parent company as a single enterprise if the subsidiary does not have real autonomy over its business decisions.

The views and opinions expressed in this article are those of the author and do not necessarily refl ect the offi cial policy or position of Permodalan Nasional Berhad.

Nik Norishky Thani is the head of special projects (Islamic), offi ce of the president, and the group chief executive at Permodalan Nasional Berhad. He can be contacted at [email protected].

Malaysia’s Economic Transformation Program and Islamic finance (part 2)

Continued


INSIDER

On the 14th September, Insider reported on Deutsche Bank’s lagging Islamic business, noting that a number of the bank’s Islamic structuring team in Dubai had left for UBS. It has now been confi rmed that Hussein Hassan, the former head of Islamic fi nance and structuring in the Middle East and North Africa global markets at Deutsche Bank, has joined UBS as the managing director, global head of Islamic fi nance and head of MENA securities structuring; nurturing anticipation that the bank could be eyeing a renewed commitment to its Shariah compliant services.

With Deutsche Bank’s loss clearly becoming UBS’s gain, even as the Swiss banking giant reels from a US$2.3 billion loss as a result of an unauthorized trading incident and amid a realignment of its overall operations, could this be an opportune time for UBS to strengthen its Islamic business?

Islamic banking revival?Hussein, who was appointed to UBS the week of the 12th September, headed Deutsche Bank’s Islamic division for two years. Prior to that, he was the head of Islamic structuring for the German bank. A Kenyan of Yemeni origin, he studied Shariah law in Yemen and holds a doctorate of philosophy in law from University of Oxford. He has also taught law at Oxford (Mansfi eld College) and was a fellow in Islamic law at the Oxford Center for Islamic Studies.

The move could breathe new life into UBS’s Islamic business, which has been relatively quiet in the past few years. It has not closed a Sukuk deal since 2009 when it acted as bookrunner, along with a slew of other banks, for a US$1.93 billion Sukuk issuance for the government of Dubai, according to data from Dealogic.

Prior to that, it was bookrunner with HSBC and Maybank Investment Bank for a US$300 million Sukuk transaction for MBB Sukuk in Malaysia, undertaken in 2007. The only other Islamic bond off ering in which UBS was involved was the bank’s fi rst, comprising a US$350 million issuance by Sarawak Corporate Sukuk, also Malaysian.

With the bank’s new Islamic hires clearly showing that it remains committ ed to its Islamic banking platform, could it also

signal that the bank is preparing to renew its presence in the Islamic investment banking space?

Shariah’s opportunity to shineUBS rogue trading troubles, which have so far been capped by the departure of group CEO Oswald Grübel, who resigned on the 24th September in a bid to assume responsibility for the incident, come on the heels of a new strategy unveiled during the group’s second quarter 2011 results announcement in July.

The refreshed plans include a target to eliminate up to CHF2 billion (US$2.2 billion)-worth of expenditure in the next two to three years, while remaining committ ed to investing in growth areas; and are aimed at adapting to the current diffi cult operating environment, which saw the group recording a net profi t of just CHF1 billion (US$1.1 billion) in the second quarter of 2011 compared to twice as much a year earlier and CHF1.81 billion (US$2 billion) in the fi rst quarter.

The banking group is also in the midst of shrinking its investment banking business in response to slower client activity and the fi nancial industry’s new landscape following the recent global meltdown.

UBS maintains that the new strategy remains intact despite its current woes. In a statement announcing Grübel’s departure and the appointment of Sergio Ermott i as interim group CEO, it said that: “The board of directors has asked the group executive board to accelerate the implementation of the investment bank’s client-centric strategy, concentrating on advisory, capital markets and client fl ow and solutions businesses. This strategy is consistent with the industry’s changing capital requirements and will lead to a reduction in complexity.”

This was reiterated by Kaspar Villiger, the chairman of UBS, who noted that in the future, its investment bank will be less complex, carry less risk and use less capital to produce reliable returns and contribute more optimally to the group’s overall objectives.

It doesn’t take much to see that a more

active Islamic banking arm would fi t in well with UBS’s att empts to rebalance its overall business. However, it cannot be denied that the group has more pressing matt ers at hand and the shaping of more focused objectives for its Shariah compliant business will likely take a backseat to its current crisis. Nonetheless, this seems to be as good a time as any to build up its Islamic business and could present an ideal solution for UBS’s search for new and less risky growth opportunities.

Industry veteranUBS was one of the fi rst western banks to off er a complete range of Islamic banking services, from asset management to investment banking. In 2002 it established Noriba Bank, its dedicated Islamic banking arm, in Bahrain, at a time when the Islamic businesses of other western banks were shutt ing down, rescaling or being off ered within a niche.

In 2006, Noriba was fully integrated into UBS’s overall operations to take advantage of the banking group’s global wealth management and business banking, global asset management and investment banking capabilities.

“Experience has shown that the business opportunities for Noriba are concentrated mainly in the creation and distribution of Shariah compliant products. Clients have sought to receive these products from UBS itself rather than from the separately branded unit. For this reason, as well as the fact that UBS can bett er meet these client needs via its integrated business model, the integration of Noriba into its single brand makes business sense,” said UBS in a statement when announcing the move.

With a formidable balance sheet comprising CHF1.24 billion (US$1.4 billion) of total assets as at the 30th June 2011, UBS is well positioned to take on sizeable Islamic investment banking deals.

However, with the banking group now roiled by its unauthorized trading woes, its long-standing Islamic banking operations may again slip down its list of priorities amid the disarray, although a renewed focus on its Shariah compliant business could provide the breath of fresh air the Swiss giant needs to revive its slowing business. — EB

UBS crisis: An opportunity to rekindle Islamic business?


FEATURE

Off shore jurisdictions off er many advantages to fund managers. First, they have no restrictions on the type of investments made, such as short positions, leveraging or exotic instruments, giving great freedom to the manager to decide on the fund’s strategy.

Secondly, they enable the fund to be exempt from tax on income or capital gains and allow for the creation of feeder funds in jurisdictions that suit investors. Finally, most of them are tried and tested domiciles with high quality infrastructure and professional services available to funds.

Moreover, off shore centers play a key role in the fi nancial services industry, promoting tax competition, greater transparency and information exchange globally, while smaller centers help improve capital market effi ciency, liquidity, investment and job creation locally.

However, following the fi nancial crisis, the uncertainty stemming from all the new regulation coming in, and the development of more regulated onshore alternatives like Luxembourg and Ireland which has widened the choice of domiciles, a number of managers have re-domiciled funds onshore.

According to a recent KPMG and RBC Dexia report, ‘Alternative options: Hedge fund re-domiciliation trends in evolving markets’, 24% of hedge funds interviewed had already re-domiciled to an EU onshore center by February 2011, and an additional 27% were considering a similar move.

The main reasons for this were the restrictions on EU institutional investors for investing off shore, the possibility of replicating strategies in an onshore UCITS framework, and the possibility given by onshore centers to off er more liquid, transparent and diversifi ed hedge funds to investors.

For those who had not yet moved, their decision depended mainly on the uncertainty arising from the Alternative

Investment Fund Managers (AIFM) Directive.

Indeed, fund managers cannot escape from the increase in fi nancial regulatory supervision occurring around the world, whether it is the EU AIFM Directive or the US Dodd-Frank or Foreign Account Tax Compliance Acts.

At this point it seems that the Dodd-Frank Act will have minimal impact on off shore funds, since most of the provisions relevant to those in fact apply to US managers. Therefore we do not expect off shore centers to be impacted by the Act.

The EU’s AIFM Directive raises more questions, in terms of the requirements to market off shore funds to EU clients. Non-EU funds will have the opportunity to benefi t from the Directive’s passporting scheme from 2015, but there are some arduous stipulations, in that the funds’ country of origin must have, for example, a cooperation agreement and tax treaty established with the EU jurisdiction where the fund is to be marketed.

Widespread concerns remain about the practicalities of this rule, and there are fears that this increasing complexity will make off shore funds think twice about marketing their funds in Europe.

The Foreign Account Tax Compliance

Act (FATCA) is also likely to have a signifi cant impact on off shore fi nancial centers as well as onshore, since the implications of its compliance and reporting requirements are wide-ranging.

Under FATCA, non-US fi nancial institutions and non-US non-fi nancial entities (respectively referred to in the Act as foreign fi nancial institutions [FFIs] and non-fi nancial foreign entities [NFFEs]) that fail to identify and disclose their US account holders and investors will be subject to a 30% withholding tax on certain types of payments.

Payments of interest and dividends, gross proceeds from sales and many royalties and rents will be subject to withholding if an institution is noncompliant. FFIs and NFFEs can avoid withholding only by complying with the disclosure requirements. As such, FATCA will have far-reaching repercussions.

Compliance with FATCA will require institutions to follow due diligence procedures and to eff ect withholding on “recalcitrant accounts,” which in turn will likely require institutions to implement new systems, procedures, and processes and to automate them as much as possible within the next 18 months.

For off shore centers, this will also mean reviewing their legal framework to make sure that funds domiciled in their jurisdictions are able to comply with FATCA, and not restricted, for example by local secrecy or non-disclosure laws.

Notwithstanding the above regulatory complexities, with investors and assets continuing to pour into the alternative investment space, competition among hedge fund managers to att ract clients will only intensify, and targeting the off shore segment will enable them to expand their pool of potential investors.

Indeed, the KPMG and RBC Dexia report shows that 49% of hedge fund managers are still satisfi ed to remain off shore.

Off shore-domiciled funds traditionally

Offshore centers for Islamic finance KAUSHIQ KODITHODIKA explores the relative advantages of both off - and onshore domiciles for Islamic fi nance investments, particularly in terms of the increasing regulation of the global fi nancial industry.

Continued

Compliance with FATCA

will require institutions to follow due diligence procedures and to effect withholding on ‘recalcitrant accounts’


FEATURE

cater mainly for institutional and high net worth clients who are professional investors and don’t need the reassurance of prescriptive regulation; and off shore funds who are not considering a move onshore cite the lack of investor appetite for EU-based funds as their main reason for their staying off shore.

And while the fi nancial crisis has increased focus on due diligence, many investors consider suffi cient the current regulatory framework and level of transparency of off shore funds.

To cater for retail demand and increased interest in some regulated products like UCITS, some fund managers have launched onshore funds in parallel to their off shore operations. There is scope indeed for both types of jurisdictions, and off shore domiciles still present clear advantages for a number of funds and strategies.

So which locations really stand out? As clients become more demanding and regulation more stringent, competition is rife between domiciles. A few centers are traditional leaders, such as the Cayman Islands, Singapore, Ireland or Malta but, particularly with the growing importance of emerging markets, several other jurisdictions are starting to take center-stage.

Tax incentives are important, but the most proactive domiciles are training their workforce, streamlining immigration processes and ensuring their framework is in line with industry best practices and fund managers’ requirements. Several of them are moreover focusing on developing as Islamic fi nance hubs, among which Bahrain, Dubai, Mauritius, Malaysia and Singapore are particularly dynamic.

BahrainBahrain is a regional leader for off shore institutions, with over 2,700 registered off shore funds to date according to the Central Bank of Bahrain’s fi nancial sector fact sheet on its website. It off ers a highly favorable tax environment, a stable situation, no restrictions on repatriation of capital, profi ts or dividends, an excellent communications infrastructure and well educated workforce.

For a number of years, Bahrain has also

been making eff orts to become a leading Islamic fi nance center, such as by being home to the Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI). As a result of these initiatives, Bahrain currently has the largest concentration of on- and off shore Islamic fi nancial institutions in the Middle East.

Dubai International Financial CenterDubai is already one of the most important fund centers in the Middle East, and last year, the Dubai International Financial Center (DIFC) announced regulatory changes aimed at making it much easier for both local and foreign managers to market and domicile funds in Dubai. These changes bring the DIFC in line with other leading fi nancial hubs and therefore mark an important step in its development.

MauritiusMauritius is aiming to become the jurisdiction of choice for African and Indian funds, and in the last fi ve years it has made important investments to make its fi nancial infrastructure and regulation more att ractive. It has started reaping the profi ts of its investments over the last few years.

Its fi nancial services industry has enjoyed one of the fastest growth rates in Africa, and Mauritius is now a leading regional center for off shore fund structuring and administration.

In particular, Mauritius has clear ambitions to att ract Islamic funds. The Bank of Mauritius is a full member

of the IFSB and a founding member of the International Islamic Liquidity Management Corporation, and the 2007 Finance Act facilitates the sett ing up of Islamic fi nancial services. Mauritius is already the domicile of a number of Shariah compliant global funds and is drawing increasing interest for Shariah trust-based Sukuk.

Malaysia – Labuan IOFCMalaysia is one of the world’s premier Islamic fi nancial centers, and the Labuan International Off shore Financial Center (IOFC) complements this market on the off shore side, as well as in the issuance, listing and trading of foreign currency-denominated Islamic fi nancial instruments.

It also plays a major role in strengthening ties between Malaysia and other Islamic fi nancial centers to further expand the global reach of Islamic banking and fi nance.

SingaporeSingapore is one of the leading global off shore centers for conventional fi nance, and has been making signifi cant eff orts to develop its Islamic fi nancial services industry. Islamic funds can benefi t from the favorable legal framework put in place, in addition to Singapore’s pre-existing infrastructure, qualifi ed workforce and the advantages it off ers as one of the world’s largest fi nancial hubs.

As a matt er of fact, earlier this year, the Monetary Authority of Singapore announced that Singapore would issue new income tax regulations for Islamic fi nance to provide greater tax clarity and additional details on the income tax treatment of some prescribed Islamic fi nancing arrangements including partnership arrangements, project fi nance and interbank fund placements.

Singapore is committ ed to becoming a global center for Islamic fi nance, and as such strives to ensure equally advantageous regulation and taxes for Islamic and conventional fi nancial products.

Kaushiq Kodithodika is the regional sales director of MENA at Advent Soft ware. He can be contacted at [email protected].

Continued

Mauritius is aiming

to become the jurisdiction of choice for African and Indian funds


FEATURE

At a time when global fi nancial markets have begun to look perilously like those encountered in 2008, interest in Islamic fi nance investment has continued to grow. Affl uent investors in both Islamic and western countries are looking to Islamic investments as they att empt to gain exposure to the fast-growing economies in the Gulf and Southeast Asia. Demand is also being driven by pressure on sovereign wealth funds and government pension funds in the GCC and Southeast Asian regions to include a Shariah compliant mix within their portfolio allocations.

Furthermore, as the industry grows there is also an emerging shift in investor preference away from traditional Islamic asset classes like equities and real estate in favor of alternatives such as ETFs and hedge funds, which entail more complicated regulation.

The strong growth in the industry off ers a number of opportunities for investors and many jurisdictions are promoting their intent to welcome Islamic investment schemes to register on their shores. But for any investor, choosing a jurisdiction can be a complex and diffi cult decision.

And although the growth in the Islamic fi nance industry has led to improvements, there are still many jurisdictions where the existing regulations and tax laws are ill-adapted to Islamic fi nance. Warm words of

welcome may not always translate into accommodating policies.

Choosing a jurisdiction can be diffi cult, but there are some signifi cant areas where an investor can safely assess the suitability and safety of the jurisdiction for their funds. Some of the factors that an investor should consider are:

Regulation, legislation and tax effi ciencyFavorable consideration should be taken when a jurisdiction undertakes specifi c legislation/regulation to clarify and protect the treatment of Islamic funds.

For example, in Bermuda, the country’s regulatory authority, the Bermuda Monetary Authority (BMA) recently published its Guidance Notes on Islamic Collective Investment Schemes (Guidance Notes), strengthening Bermuda’s case as a favorable domicile for the establishment of Islamic collective investment schemes (Islamic investment funds).

This enhances and clarifi es its position as one of the world’s leading jurisdictions for the asset management industry and highlights the government’s receptive att itude to new entrants to the market. The competitive advantages that make Bermuda a fi rst choice for conventional fund managers and promoters also apply to Islamic investment funds. Jeremy Cox, CEO of the BMA, said in a statement: “By issuing the Guidance Notes we are helping the market take advantage of this potential business opportunity for Bermuda, while ensuring the sector remains appropriately regulated.”

To facilitate the management of cross-border investment fl ows, it is vital to have tax effi cient global fund platforms in a reputable jurisdiction. Bermuda’s tax effi ciencies not only create an opportunity for the establishment of global fund platforms, but are advantageous to locally-based asset management and advisory functions, enhancing the fund managers’ ability to

att ract capital on a global basis, including cash-rich investors from the growing emerging markets.

Bermuda as a center of excellence for the alternative fund industry can assist in the development of innovative Shariah compliant alternative investment funds. Islamic investment funds, including Sukuk funds, can be listed on the Bermuda Stock Exchange, and umbrella funds can be created as segregated account companies.

BMA’s Guidance Notes The BMA’s Guidance Notes are principle-based and non-discriminatory (providing a level playing fi eld with conventional funds); hence adding to Bermuda’s competitive advantages by off ering fl exibility to Islamic investment fund promoters who can confi dently structure, manage and administer such funds in Bermuda, bringing innovative investment products such as Sukuk funds and ETFs to the global market.

Bermuda’s certainty of the law and its tax neutrality off er the advantages of eff ective tax structuring and speed to market for these innovative products and structures.

There are no impediments to authorizing Islamic investment funds in Bermuda under the current framework. The Guidance Notes provide clarity on a number of issues which such funds may need to consider in complying with the existing regulatory framework, such as required disclosures, notifi cation of material changes, and the role and responsibilities of the Shariah Supervisory Board, an independent governance body, to ensure such fund products conform to Islamic fi nancial principles.

Regular dialogue between Bermuda’s international business community and the government encourages regulations that are innovative, while preserving the highest standards of conduct. The

Choosing an Islamic investment jurisdiction: Bermuda as a primary case study Bermuda’s tax neutrality and favorable yet robust regulations make it an ideal location for Islamic fi nance investment. CHERYL PACKWOOD and BELAID A JHEENGOOR explore the advantages of the jurisdiction.

Continued

There are no impediments to

authorizing Islamic investment funds in Bermuda under the current framework


FEATURE

regulatory framework is purposeful, but not obtrusive.

This approach to regulation accommodates a variety of structures for both hedge and private equity products, and for asset managers themselves, including exempted companies, partnerships, unit trusts, and segregated account companies.

Bermuda legislation is robust, but fl exible to accommodate Islamic investment funds, and such funds are viewed under the growing, broader umbrella of socially-responsible investing. The same principles and requirements under the Investment Fund Act apply to Islamic investment funds. Islamic private equity, venture capital, real estate, and global infrastructure funds are typically structured as exempted limited partnerships.

Bermuda’s limited partnership structure accommodates both the Mudarabah (such as partnership between investment manager and investor) and Musharakah (such as partnership profi t and loss sharing) structures. The Bermuda Partnership Act does not att empt to regulate the aff airs of a partnership to any great extent.

The specifi c Islamic fi nancial principles requirements and restrictions can easily be incorporated into an investment fund’s off ering memorandum/prospectus or partnership agreement. Bermuda structures are also suitable parallel vehicles.

Human capitalHaving the right people, with the right expertise in Islamic fi nance, is vital not only in regulation, but in the ability of a jurisdiction to support international investors. Any fund manager needs the support of analysts, lawyers, accountants and a large number of other back room personnel in order to operate. So there is a clear advantage in operating where these services can be readily provided by experts with a strong grounding in the industry.

The Islamic fi nance industry is evolving rapidly and the range of investors and product that can be invested in is expanding. Private investors, family wealth, corporate, private equity, asset managers including exempted

companies, partnerships, unit trusts, and segregated account companies — the long list of parties that are active in Islamic fi nance refl ects the need for a highly qualifi ed support system in the jurisdiction.

A suitable jurisdiction must provide Islamic investors with top quality support in all of the professional arenas necessary to maintain the quality and stability of the fund. Professionals who are relocating seek out jurisdictions with political and economic stability; an avowedly business-friendly government that understands the importance of a well-regulated international business sector; a safe environment; easy access to other countries, usually favouring North America and London; tax effi ciencies; deep pools of talent; and regular visits by high-caliber investors, professionals and business leaders.

On the talent front, Bermuda has an extraordinary concentration of intellectual capital, with administrators, lawyers, audit and tax professionals and independent directors that are highly skilled, well educated and industry focused.

Bermuda’s professionals have a history of dealing with international structures and complex products, and their experience working with emerging markets can provide a high level of customized service, a requisite for alternative fund managers and their products.

Bermuda’s deep pools of intellectual resources and its trusted regulatory framework have contributed to its emergence as a domicile fi t for purpose. To help get the most out of its talent, Bermuda also has a pool

of internationally experienced non-executive directors that can provide ‘mind’ and management, evidence of substance of activities, and independent and objective oversight.

Bermuda maintains a signifi cant number of administration fi rms with skill sets spanning the hedge and private equity markets, in addition to family offi ces.

These fi rms service Bermuda-domiciled entities, as well as entities domiciled in other jurisdictions. Bermuda is emerging as a strong choice for private equity houses as these teams look to provide options and opportunities for their business and their people; in addition, it still remains a jurisdiction strong in servicing the hedge fund industry, with boutique administrators providing highly customized, personal service in well-controlled environment.

Islamic investment fund managers and sponsors will benefi t from the presence in Bermuda of world-class asset management fi rms. Asset managers choose Bermuda for their key operations because it off ers one of the world’s highest standards of living and provides an effi cient tax structure, both on a corporate and personal level.

Bermuda-exempted entities are provided a period of tax assurance to March 2035, under the Exempted Undertakings Tax Protection Amendment Act 2011, such that certain taxes, including sales, income and capital gains related taxes, would not (if introduced) be imposed on these entities.

Bermuda’s geographic location (two hours fl ying time from New York and seven hours from London) positions the island as a fi nancial hub with convenient access to global capital.

The regulatory environment promotes innovation and fl exibility at the appropriate level of oversight. The tax regime is effi cient and benefi cial for both corporations and individuals. And the government is committ ed to the growth and expansion of the asset management industry.

For all of the above reasons, Bermuda has become a recognized and sophisticated jurisdiction for asset managers and a

Continued

The Bermuda Partnership

Act does not attempt to regulate the affairs of a partnership to any great extent


FEATURE

servicing center for many off shore funds, including Islamic investment funds.

This presents profi table opportunities for fund sponsors and investment managers to expand globally using Bermuda as a platform to develop a globally recognized Islamic asset management brand.

There are many ways in which the requirements of Shariah compliant investors diff er from those of other investors. But there are many requirements in common.

So Islamic investors will also benefi t from jurisdictions with expertise in conventional asset management, that enable access to major markets, whether through favorable geography or international treaties, and which provide low-tax or tax-neutral environments which enable businesses to keep more of the money that they earn.

The range of options open to Islamic

investors as to where they domicile themselves has grown from a mere handful just a few years ago, to dozens today.

With that growth comes an increasing amount of choice and a greater ability

to fi t your jurisdiction to the market you wish to reach.

And, while it can lead to some confusion over which jurisdictions can truly off er what investors need, the principles above should enable investors to make these decisions with confi dence.

Regulation and legislation that ensures that Islamic fi nance does not incur unnecessary burdens and costs and that it is appropriately regulated to ensure stability, the human capital necessary to support the industry and a jurisdiction with an investment-friendly outlook — if investors are able to satisfy these requirements, they will be excellently placed to benefi t from the expansion in the Islamic fi nance industry.

Cheryl Packwood is the CEO of Business Bermuda and Belaid A Jheengoor is a director in the asset management practice at PwC Bermuda. They can be contacted at [email protected] and [email protected] respectively.

Continued

Bermuda has become

a recognized and sophisticated jurisdiction for many offshore funds, including Islamic investment funds


FEATURE

Islamic fi nance is a familiar buzz word in the fi nancial markets and has been in the spotlight since the recent global fi nancial crisis. This niche market segment is growing at a high rate, and creating history in the fi nancial world.

On the other hand, this steady and speedy growth has led to demand for various Shariah compliant instruments by Shariah and ethically conscious investors (Muslims and non-Muslims) as per their preferences. This thrust is inspiring the birth of some innovative and creative investment products within the purview of Shariah and with the endorsement of Shariah scholars.

Islamic capital marketsThe Islamic capital market is defi ned as a market where Shariah compliant securities are traded (buyers and sellers meet) as per Islamic rules and regulations. This market includes Shariah compliant stock/shares or Sukuk and other market instruments. The capital market is used by organizations in order to raise funds through the primary market or secondary market.

Primary markets and secondary marketsPrimary markets are where company shares are issued directly to the public by the issuer, while the secondary market is where the shares are subsequently traded between the buyers and sellers in the fi nancial market.

Primary market activity is usually in

the form of IPOs. Investors purchase fi nancial market instruments such as shares, bonds, trust funds, private equity, mutual funds, exchange funds and hedge funds in order to maximize their returns on investment through the permitt ed methods.

These fi nancial markets have evolved over period of time and modern technologies now allow an investor to trade or take an economic decision by observing the (share) price movements. These markets have been highly regulated to protect the investors.

However, we do understand that people have been using loopholes of the underlying system in order to speculate, which is completely prohibited in Islam.

Shariah compliant investors always seek

additional objectives to conventional investors, such as additional Shariah compliant objectives and behavioral ethics. This requires a separate need for an Islamic capital market.

The Islamic capital markets fi rst emerged in the 1990s. The additional layer of Shariah is the core of any economic decision-making for Shariah conscious investors, along with the ROI (return on investment), safety/security of the investment, etc.

Share screening methodologyThis requires additional Shariah and ethical dimensions to be visible when buying or selling any shares of companies. In order to fi lter these companies’ shares, a mechanism was

New hope dawns in the pearl of Asia Sri Lanka stands a good chance of establishing itself in the global Islamic fi nance market due to its eff ective government policies, Shariah compliance framework, and a comprehensive Islamic capital market. MUATH MUBARAK delves further.

Continued

Primary markets are

where company shares are issued directly to the public by the issuer

Stage 1 (Industry screen/core business activity screen)

(Qualitive parameters) The underlying business activity (of the holding subsidiary company) should be free from the followings:

Conventional insuranceAlcohol & pork

Gambling & speculationPornography

Weapons/arms productionHotel (casinos)

Stage 2 (Financial screening)

-

Debt/total market capitalization = <33%Cash & Equity/total market capitalization=<33%

Account receivable/total assets <45%Revenue from prohibited activities/revenues<5%

(Note: There are four globally accepted ‘white listed’ indices. The ratios and the screening stages may di er somewhat between di erent indices but o erall they all adopt the same methodology as e plained abo e .


FEATURE

implemented called the share screening methodology in the early 1990s. Furthermore, in 2005 Qatar and Malaysia took initiatives to introduce Islamic brokerage houses.

There several att empts and plans were drawn up, and these Islamic fi rms are oft en more committ ed and service-oriented compared to conventional brokerage houses. In order to att ract investors, the shares require purifi cation or ‘white listing’ before they can catch the interest of Shariah compliant investors to park their funds.

This purifi cation can be done mainly through two stages: namely industry screening (qualitative parameters) and fi nancial screening (quantitative parameters) as per the AAOIFI Shariah Standard No. 21. The preceding diagram explains the whole process of the screening methodology.

Colombo Stock ExchangeMany developed countries have more than one stock exchange, based on the size of their economy and the number of companies listed, but Sri Lanka has only one: the Colombo Stock Exchange (CSE).

This was established in 1985 and has a fully owned subsidiary, Central Depository Systems, which is responsible for all electronic records of the listed companies. The CSE market segments include a debt market, equity market, derivative market and funds market.

The CSE has been recognized as one of the most advanced stock exchanges in South Asia since the war era came to an end and the focus in Sri Lanka shift ed to economic development. The estimated GDP growth rate of the country for 2011 is approximately 8%.

The end of three decades of civil war gave hope to the Sri Lankans in many ways. The two digit infl ation rate narrowed down to one digit during 2010, the exchange rate appreciated, interest rates fell to one digit, yields on government bonds and treasury bills rose, and the government launched aggressive campaigns to promote tourism, infrastructure and agriculture and many more initiatives.

This led many companies to launch IPOs

early this year and according to some analysts, around 20 companies are in the pipeline for IPOs before end of 2011.

Currently more than 250 companies have already been listed in the CSE. This is a very small exchange when compared to other regions but the current economic development has given new hope to Sri Lankans.

Currently the Sri Lankan economy is poised to take off with astonishing growth, which is witnessing approved numbers increase in stock broking companies and growing numbers of local listed companies.

Furthermore the daily turnover of the CSE is now touching nearly LKR2 trillion (US$18 million). There are 27 stock brokerage companies operating in the CSE and most of them are now off ering online trading along the lines of other developed nations.

In addition, there are a few institutions which are heavily involved in white listing Sri Lankan companies, making available Shariah compliant shares for trading.

As per the market analysts, there are more than 140 white listed companies in the CSE, in various sectors including food and beverages, chemicals, agricultural, health care, IT, manufacturing, trading, telecommunication and plantation.

The deprived Sri Lankan Shariah investors and other ethically concerned parties were also happy to see the fi rst

fully fl edged Islamic bank in the country. It took more than a decade to achieve the launch of Sri Lanka’s fi rst commercial Islamic bank, however, due to various inherent issues within the country’s system.

Likewise there have been eff orts to develop the Islamic capital market in Sri Lanka since this market segment has not been treated well as per the expectation of investors.

However, the established market players have now jumped into the market to grab the fi rst mover advantage over others by introducing white listed shares.

Market players are also realizing the potential of exploring other instruments in addition to equity; and are looking at creating Shariah compliant funds and unit trusts in order to provide the Sri Lankan community with more viable Shariah compliant opportunities.

All these positive moves show us the strong appetite for Islamic fi nance investment opportunities in Sri Lanka. Even the players who look at Islamic fi nance simply as an alternative fi nance system are realizing that if they follow the same methodology in selecting the shares for trading, it will be benefi cial for everyone.

ConclusionWell articulated and eff ective government policies; an appropriate Shariah compliance framework; effi cient, eff ective and market-based regulatory, tax and legal frameworks; accelerated institutional infrastructure set up; and comprehensive Islamic capital market product and services off erings in the market will drive this young local niche market segment.

This is the new hope dawning in the hearts of Sri Lankans, especially Shariah-conscious investors, based on the end of the civil war and the proactive initiatives of the government towards the economic development of the country.

Muath Mubarak is the director of studies and corporate strategy at First Global Knowledge Center, Sri Lanka and he can be contacted at [email protected] or muath@fi rstglobalgroup.com.

Continued

The CSE has been

recognized as one of the most advanced stock exchanges in South Asia since the war era came to an end


Islamic InvestorCover Story

The year 2011 marked a signifi cant chapter for the Islamic retail funds industry in the US, as the 25th anniversary of the launch of the country’s fi rst Shariah compliant fund – Amana Income Fund. The fund’s net asset value (NAV) was miniscule during the early years, hardly creating a ripple in the global Islamic funds industry, and in 2003, the total assets under management for both the Amana Income Fund and the Amana Growth Fund stood at just US$40 million. However, the Income Fund has since grown to become the world’s second largest fund.

Saturna Capital, which also off ers conventional funds, has two other Shariah compliant retail funds – the Amana Growth Fund, the largest global Shariah compliant fund, and its latest off ering: the Amana Developing World Fund.

Since the launch of the Amana fund, other forms of Shariah compliant products have made their way into the US market. In the 1990s institutions such as LARIBA Finance, Guidance Residential, Devon Bank, University Bank, Ameen Housing and several local cooperatives in diff erent part of the US began off ering home fi nancing to Muslims in the country. In 1999, Dow Jones launched its Dow Jones Islamic Market Indexes; the fi rst indexes that measured the global universe of investable equities with a Shariah compliant screening. It currently has more than 100 indexes.

However, despite this, Shariah compliant mutual funds have seen very litt le development in the US. There

are currently seven known Shariah compliant funds, aside from the three Amana funds. Investors in general have also not been very receptive towards Shariah compliant exchange traded funds (ETFs), which, unlike their conventional counterparts, have grown into a US$1 trillion market since they were fi rst introduced in the US in the early 1990s.

On the 19th October last year, US investment company Javelin Investment Management ceased trading of what was believed to be the country’s fi rst Islamic US ETF – the JETS Dow Jones Islamic Market International Index Fund - aft er launching it on the 1st July 2009. According to the company, the fund had failed to att ract the anticipated level of investor interest. Brint Frith, the president and founder of Javelin, said at the time that Shariah-based investing has a promising future with seven million Muslims in the country but was struggling to reach the target investors through the marketing channels used by conventional ETFs.

Javelin is not the only company facing an uphill batt le. Eff orts by another investment company to launch a second Shariah compliant ETF have also been

dampened by the lack of seed money since announcing its intention in 2009.

According to the CIA World Factbook, Muslims make up only 0.6% of the 313.23 million population of the US, as at the 31st of July 2011. As imitation is the best form of fl att ery, funds managers in the US can perhaps take a leaf from Amana’s books by following the methods and processes that have brought it success. Nicolas Kaiser, the chairman and director of Saturna Capital, who is also Amana’s portfolio manager, is quoted as saying that Amana’s Islamic mandates impose a high level of discipline on the company’s investment process, which is appreciated by its clients, a majority of whom are non-Muslim. “It’s a very systematic and deliberate process, to ensure that each one of our investments not only meets or exceeds multiple criteria, but continues to do so throughout its holding period,” he said.

Uncle Sam’s Islamic funds

Vol 8 Issue 38

Prudential Al-Wara Asset Management Berhad (PRU Al-Wara') is the Islamic asset management business of Prudential Corporation Asia. Established in 2009 and headquartered in Malaysia, PRU Al-Wara' is responsible for managing Shariah compliant assets on behalf of retail and institutional investors, as well as onshore and offshore institutional mandates.

Visit www.prudentialfunds.com.my for more information.

nt nd

ah d o

comffs

In this issue...

Feature:Building a unique wealth management business .26

Fund Focus: Global GCC Islamic Fund ......................................29

Funds Tables .......................................................30

Fund Inception date AUM (US$) as at the 30th June unless stated otherwise

Amana Growth 3rd February1994 2.15 billion

Amana Income 23rd June 1986 1.39 billion

Amana Developing World 28th September 2009 16.06 million

Azzad Ethical Mid Cap December 2000 13.81 million (as at the 31st August 2011)

Wise Capital 1st April 2010 26.93 million

Iman June 2000 31.2 million (as at the 31st August 2011)

Care May 2005 30 millionSource: Companies’ websites and Eurekahedge


ISLAMIC INVESTORFEATURE

The essence of wealth management (WM) is the ability to off er clients a clear roadmap towards steadily growing their fi nancial wealth to achieve their dreams for themselves, their families and the communities and causes dear to them.

This article off ers a roadmap towards building and delivering a successful WM proposition to clients, growing market share, and generating profi table growth on a sustained basis that is not dependent on the capricious nature of the fi nancial markets. The roadmap is equally applicable to a start-up or an established business that needs to grow at a rapid pace.

Islamic WM (IWM) is a fi ner version of conventional WM, where the standards of off erings are overtly linked to certain ethical and moral principles embedded in the Shariah law. This resonates well with the affl uent (investable wealth of US$100,000 to US1 million) and high net worth clients (investable wealth of over US$1 million) in these uncertain times.

Shariah law encompasses the principles of ethical banking that are especially in vogue today in the western world. It means off ering fi nancial services that are based on the moral principles of what is right for the client, the community and the environment.

It adds another critical requirement of an ordained level of fairness to all fi nancial transactions. The litmus test of a true Islamic off ering by any fi nancial institution is that it must benefi t the client.

Only then should it be viewed for profi tability by the bank. The principles of mutual benefi t and transparency are paramount. The famous principle adopted by Merrill Lynch in the 80’s of ‘client interest must come fi rst’ rings true in IWM. Sadly, as we well know, Wall Street failed this test again in the sub-prime crisis of 2008-09, led by Goldman Sachs. It was doing God’s work, according to its CEO, when it was shorting securities that it was

packaging and selling to its clients.

The market crises have moved from Black Swan - infrequent, extreme events that cannot be predicted - to White Swan - frequent events that have shaken western capitalist foundations, causing losses to clients’ portfolios designed for long-term wealth protection/growth to fund education and retirement plans.

The macro environment has negatively aff ected the trust clients have for their banks and relationship managers (RMs). Private investors have become cautious and are concerned about the adequacy and safety of their wealth, retirement pool and generational transfer of wealth.

The roadmap….In the Middle East, most local and regional banks have demonstrated a renewed focus on building/growing their WM businesses and many are using external consultants to formulate the ‘what and how’ of WM.

Even the global institutions are focused on WM, as private wealth continues to grow and clients demand bett er service and solutions. Islamic WM is relatively new and the Islamic-focused banks are investing in WM as well. Here you will fi nd a roadmap for building/growing a successful WM off ering, with or without the help of consultants.

Clients are looking for trusted advice by trusted advisors. They have four distinct objectives in building and managing wealth: wealth creation, preservation, growth and transfer. A wealth manager’s job is primarily to balance these objectives, customized to each client’s profi le.

To meet the above client needs, the unique client off ering is built on fi ve drivers of wealth management. These are Products, Research, Infrastructure, Sales, and Marketing (PRISM).

Product PlatformClient wealth is comprised of four distinct buckets:

1) Client assets: Sacred (deposits), safe (investments), and speculative (trading FX, equities etc).

2) Client liabilities: Short-term (cards) and long-term (car, home mortgage).

3) Client protection: Insurance, life, and health for family protection.

4) Client legal architecture: Trust, estate, and generational planning for tax effi ciency and confi dentiality.

Based on the above needs, best in class, rational architecture must be the guiding principle.

Investment products fall into three broad buckets:

1) Vanilla products like deposits/money market funds and ETFs/ mutual funds;

2) Customized products like private portfolio management solutions and alternative products (generally illiquid); and

3) Structured products, private equity and hedge funds.

Special focus should be on products that capture geographic, sector, and demographic mega trends like emerging markets/Asia, clean energy/

Building a unique wealth management businessMALIK SARWAR shares a proven method of building a sustainable wealth management franchise, based on best practices in Asia, US and the Middle East.

Continued

Shariah law encompasses

the principles of ethical banking that are especially in vogue today in the western world



commodities and women power/youth bulge. These have a high probability of success in the long term.

Create product solutions for various client buckets based on wealth segments, risk profi les, sophistication level and styles. Combine them with advice and guidance to make the process truly unique for each client.

Islamic investment product development is at a nascent stage. Malaysia and GCC countries are leading the product development across all asset classes, with some global asset managers increasingly focusing on this growth area as well.

Research Advice and Guidance This is arguably the most nebulous yet the most important of the drivers. Clients value quality advice that is relevant to them.

Create and enhance the research advisory proposition. Monthly market reports on economies, equities, fi xed income/Sukuk, commodities and currencies should be blended with the asset allocation recommendations for the fi ve asset classes of risk.

These range from aggressive (return on principal) to conservative (return of principal), with the aggressive proportion going down in steps. Most clients tend to be in the balanced category, becoming less aggressive in volatile and diffi cult market conditions as well as with the passing of time.

The reports must be sent to the clients – and target prospects – with simple one page scripts that the RMs can use with the clients in their conversations. In addition, a more strategic quarterly or six-month view report is most helpful to convince the clients that their bank is truly focused on research to help them navigate the perennially changing world events.

Infrastructure This drives eff ective client engagement as well as corporate governance. The client engagement requires O&T to build the tools of easy execution, a combined view of client positions and activities, and a consolidated statement for clients showing recommended

and actual asset allocation. When the middle and back offi ce professionals work as one with the front offi ce, the client experience becomes superior.

Renewed emphasis on corporate governance necessitates that HR, fi nance, legal, compliance, and O&T departments become true partners to the business. A group representing all of the above ensures seamless execution of the initiatives.

Sales and Distribution The most important real estate in the world is the four feet of space between the client and the RM. It is the client experience of sales and service quality, primarily with the RM and with the bank staff , that determines who wins the hearts and wallets/purses of the target clients. The internal sales and service competency must be built to world class standards.

The key to consistently succeeding in sales and service is dependent on the following:

− Recruit quality RMs/specialists and certify them in fi nancial advisory skills within three months of joining.

− Train the RMs on consultative sales & service skills (CSS). Focus is on the daily activity discipline, identifying key clients/prospects, developing programs to engage them on a disciplined and proactive basis, measuring results vs. plan, and instituting ongoing management coaching to enhance performance.

− Code R-E-D (reassure, educate, deepen) – train RMs in diffi cult

markets to proactively call clients for updates and advice. Nothing surprises the clients more than being called by their ‘fi nancial doctor’ for a fi nancial health update when the markets are down and volatile.

− All aforementioned cutt ing edge training programs must be delivered and reinforced through TTT (train the trainers). This is the only sure way of embedding the consultative sales excellence within the bank’s DNA, thus enhancing client experience.

Marketing: Growing clients and brand The external competency of client management is the art and science of acquiring, deepening and retaining (ADR) clients. This is the essence of growing business footprint, market share and profi tability. Targeted micro-marketing programs decked against each objective alongside metrics to measure results are the key to success.

Acquisition is best done through a program of key client referrals and events like conferences and high-end client events.

Deepening is achieved by fi rst servicing the clients well and then meeting their needs. This is the low hanging fruit as the clients are already in the bank. Proven techniques like ‘Fill in the Gap’ help identify the product and services used by the top 30 clients per RM and the gap in usage with the bank.

Once identifi ed, these clients can be approached to re-evaluate their needs and off ered recommendations to increase share of wallet. Numerous surveys over the years across the globe show the same results.

Clients say they don’t hear from their RMs frequently enough. So a systematic calling/meeting program, part of the sales management process, always delivers immediate results. Retention programs revolve around gett ing every member of senior management to ‘adopt’ a branch/territory and call on key clients, especially in challenging market conditions.

Continued

Continued

The external competency of

client management is the art and science of acquiring, deepening and retaining (ADR) clients



Subscription Package Benefits

email: [email protected] for more information or call +603 2162 7800 today

Client Experience: All the above services are delivered through the 4-step fi nancial planning process, embedded in the fi nancial planning tool:

− Needs analysis of objective and risk appetite, determined through a set of questions.

− Recommended asset allocation and verifi cation of the expected risk/return with the client.

− Recommended product off ering selected from a quality menu of rational architecture products, based on liquidity, yield/expected return, risk, and simplicity. This is delivered by off ering quality advice and guidance, linking the macro environment opportunities with the client profi le.

− Quarterly review/rebalance of portfolio to incorporate any change in client situation and the markets.

The fi nal step – Operationalize the program:

− For a start-up WM business, it is critical to start in a systematic manner, using the PRISM approach.

− For an established WM business, it is important to conduct diagnostics to determine level of eff ectiveness against global best practices. Virtually all banks have product, sales and marketing programs and initiatives. However the degree of eff ectiveness varies widely. Those that have formally adopted a disciplined and

integrated process have demonstrated greater success than their peers who have opted for a piecemeal approach.

The diagnostics:

− First, create simple metrics for evaluating the key drivers of PRISM, on a scale of 1 to 5. 1 stands for minimal and 5 stands for global best practice applicable to the market.

− Second, poll key clients and prospects to comprehensively understand client needs.

− Third, determine the target markets for maximum impact of the diff erentiated off ering.

− Finally, launch the pilot in a region or country, evaluate results, modify, and initiate the comprehensive launch.

The above methodology has been applied by various banks in emerging as well as developed markets and has invariably resulted in growth of AUMs, clients, and market share. Historically, best practices have originated in the Western markets, especially the US and UK.

Over the years, Asia has taken the best from the west and added a layer of Asian innovation and relationship handling resulting in emerging markets best practices. The Middle East has the unique opportunity to learn from both east and west and adapt it to the strong culture of trust and relationships.

The future belongs to those banks that adopt the PRISM process eff ectively, resulting in a superior client experience. When a client feels the “wow” factor with a bank, he/she makes it their primary bank and increases wallet share.

Remember, the luxury hotel chain Ritz Carlton has a client satisfaction rate of over 80%. Banks are typically in the 20-40% range. This program will allow them to move the needle in the right direction, both for their clients and for their own profi tability.

Malik Sarwar is a recognized wealth management franchise builder, with extensive experience in starting and building WM businesses in Asia, US and the Middle East. He has worked in senior roles at Merrill Lynch, Citibank, Permal and ADIB. Malik is a frequent speaker at fi nancial industry conferences. He can be reached at [email protected].

Continued

When a client feels the “wow”

factor with a bank, he/she makes it their primary bank and increases wallet share


ISLAMIC INVESTORFUND FOCUS

*FUND PORTFOLIO COMPOSITION

Financial 24.8%Materials 21%Telecom 16.5%Industrials 9%Real Estate 5.6%Energy 3.5%Consumer 6.4%Cash 13.1

What led to this fund being launched?Global Investment House continually re-examines the market and identifi es key areas where it can off er new investment vehicles. The GCC Islamic Fund off ers the clients an opportunity to get exposure to one of the fastest growing asset classes. Also by off ering this fund, we were able to access a greater pool of clients who are only mandated to invest in Islamic instrument in addition to increasing the diversity of our products.

Why has this particular region / asset class been chosen?On the back of rising interest from clients for a Shariah mandate and the fact that the MENA region is one of the most exciting emerging markets.

What are the key factors that drive the fund’s performance?The fund continually seeks outperformance by following a disciplined investment process which is based on a bott om-up stock selection methodology along with a macroeconomic overlay to identify growth opportunity throughout the GCC region. The investment decisions are based on in-depth research undertaken by an experienced team to ascertain alpha opportunities. The investment process goes hand in hand with a prudent risk management framework.

Who are your investors?The majority of the fund’s investors are retail investors, mainly from the Middle East.

What specifi c risks does the fund take into consideration? And why?The fund seeks to minimize risk by means of diversifi cation, in addition

to the monitoring of tail risk, which in the last few years has proven to be more frequent and more severe than previously believed.

What are the sectors you are heavily invested in and why?The fund is heavily invested in the Financial and Material sectors. These sectors provide exposure to the largest and most liquid industries in the region within the Islamic space.

What are the sectors you have recently exited and why?We have recently reduced exposure to Financial and Telecom sectors. We have trimmed exposure to banks as we believe the reversal in the interest rate cycle will further be delayed which doesn’t augur well for banks. We have exited some telecom picks based on valuations.

What is the market outlook for this fund?Our medium-term outlook for the region continues to remain cautious due to lackluster global economic data and sovereign debt risks in Europe.

However, our strategic outlook for the region remains positive on the back of strong underlying fundamentals – strong GDP growth, expansionary budgets and favorable demographics.

Has your strategy for this fund changed since inception, and if so how?The fund strategy has not changed since inception. The Global Islamic Fund aims to achieve long-term returns and capital appreciation by investing in a portfolio of Shariah compliant companies as per predefi ned Shariah criteria set forth in the GCC markets.

Global GCC Islamic Fund The fund aims to maximize returns through investing in a portfolio of Shariah compliant companies as per the predefi ned Shariah criteria set forth in the GCC markets. Asset allocation takes into consideration the market cap weightings of Shariah compliant companies in each country while anticipating changing market conditions.

FACT SHEET

Fund manager Global Investment House

Trustee HSBC Bank Middle East

Shariah advisors

Al Mashoorah & Al Rayah International Consulting & Training Company

Benchmark (Index)

S&P GCC Islamic Index

Domicile Bahrain

Inception date July 2007

Fund characteristics *(as of the 19th August 2011)

Fund Type OpenFund SizeUS$9 millionNAV per shareUS$78.7 Minimum / Subsequent InvestmentUS$10,000/US$5,000Management Fee1.75% p.a

COMPARISON CHART

*Note: We have changed the benchmark to S&P GCC Islamic Index on Sept 30, 2010 Jun-07 Apr-08 Feb-09 Dec-09 Oct-10 Aug-11

150125100

755025

0Global GCC Islamic Fund MSCI/S&P GCC Islamic Index

*PERFORMANCE SUMMARYTotal returns Global GCC

Islamic Fund

S&P GCC Islamic Index

1 year 1.7% -3.1%

YTD 9.5% -14.1%

Since inception

-21.3% -38.1%


FUNDS TABLES

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

Eurekahedge Middle East/Africa Islamic Fund Index

Top 10 Monthly returns for Middle East/Africa funds

Fund Fund Manager Performance Measure Fund Domicile

1 Pak Oman Advantage Islamic Income Pak Oman Asset Management 1.24 Pakistan

2 Al-Hilal Islamic Kuwait Investment Company 0.51 Jersey

3 Markaz Real Estate Kuwait Financial Centre 0.44 Kuwait

4 AlAhli US Dollar Sukuk and Murabaha NCB Capital Company 0.19 Saudi Arabia

5 Element Islamic Equity Element Investment Managers 0.18 South Africa

6 Solidarity Leasing Solidarity Funds Company 0.15 Bahrain

7 Al Dar Real Estate ADAM 0.08 Kuwait

8 AlAhli Euro Murabahat The National Commercial Bank 0.05 Saudi Arabia

9 Al Yusr Saudi Riyal Morabaha Saudi Hollandi Bank 0.04 Saudi Arabia

10 Al-Mubarak SAR Trade Arab National Bank 0.03 Saudi Arabia

* Eurekahedge Middle East/Africa Islamic Fund Index -3.35

Top 10 Monthly returns for Asia Pacifi c funds

Fund Fund Manager Performance Measure Fund Domicile

1 ING i-Enhanced Cash ING Funds 2.56 Malaysia

2 Avenue AsnitaBond Avenue Invest 1.28 Malaysia

3 United Islamic Income UBL Fund Managers 1.08 Pakistan

4 Meezan Islamic Income Al Meezan Investment Management 1.07 Pakistan

5 PB Islamic Bond Public Mutual 1.03 Malaysia

6 Meezan Tahaff uz Pension - Money Market Sub

Al Meezan Investment Management 0.98 Pakistan

7 Meezan Tahaff uz Pension - Debt Sub Al Meezan Investment Management 0.96 Pakistan

8 Atlas Islamic Income Atlas Asset Management 0.95 Pakistan

9 Atlas Pension Islamic Fund - Debt Sub Atlas Asset Management 0.93 Pakistan

10 AMB Dana Arif Amanah Mutual 0.87 Malaysia

*Eurekahedge Asia Pacifi c Islamic Fund Index -5.35

Inde

x Va

lues

* Based on 96.25% of funds which have reported August 2011 returns as at 27th September-2011

* Based on 98.94% of funds which have reported August 2011 returns as at 27th September 2011

90

110

130

150

170

190

210

230

250

270

Dec

-99

May

-00

Oct

-00

Mar

-01

Aug

-01

Jan-

02

Jun-

02

Nov

-02

Apr

-03

Sep-

03

Feb-

04

Jul-0

4

Dec

-04

May

-05

Oct

-05

Mar

-06

Aug

-06

Jan-

07

Jun-

07

Nov

-07

Apr

-08

Sep-

08

Feb-

09

Jul-0

9

Dec

-09

May

-10

Oct

-10

Mar

-11

Aug

-11


FUNDS TABLES

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

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

Top 10 Fund of Funds by 3 Month Returns

Fund Fund Manager 3-Month Return (%) Fund Domicile

1 Jadwa Conservative Allocation Jadwa Investment -1.00 Saudi Arabia

2 Al Dar Fund of Funds ADAM -1.64 Kuwait3 Al Yusr Aman Multi Asset Saudi Hollandi Bank -1.68 Saudi Arabia4 Al Rajhi Multi Asset Balanced Al Rajhi Bank -1.97 Saudi Arabia5 AlManarah Conservative Growth Portfolio The National Commercial Bank -3.03 Saudi Arabia

6 Jadwa Balanced Allocation Jadwa Investment -5.62 Saudi Arabia

7 Al Yusr Mizan Multi Asset Saudi Hollandi Bank -5.92 Saudi Arabia8 Al-Mubarak Balanced Arab National Bank -6.08 Saudi Arabia9 Al Rajhi Multi Asset Growth Al Rajhi Bank -6.44 Saudi Arabia

10 AlManarah Medium Growth Portfolio The National Commercial Bank -6.74 Saudi Arabia

Top 5 Real Estate Funds by 3 Month Returns

Fund Fund Manager Annualized Sortino Ratio Fund Domicile

1 Solidarity International Real Estate Solidarity Funds Company 2.66 Bahrain

2 Solidarity European Real Estate Solidarity Funds Company 1.96 Bahrain3 Markaz Real Estate Kuwait Financial Centre 1.08 Kuwait4 Al Dar Real Estate ADAM 0.93 Kuwait5 Islamic Certifi cate on Real Estate Capital Protected

Dynamic BasketABN AMRO Bank -0.04 Not disclosed

* Based on 100.00% of funds which have reported August 2011 returns as at 27th September-2011

* Based on 100.00% of funds which have reported August 2011 returns as at 27th September 2011

Perc

enta

ge

Perc

enta

ge

Eurekahedge Islamic Fund Balanced Index over the last 5 years Eurekahedge Islamic Fund Balanced Index over the last 1 year

85

90

95

100

105

110

115

120

125

130

Aug-06

Nov-06

Feb-07M

ay-07A

ug-07N

ov-07Feb-08M

ay-08A

ug-08N

ov-08Feb-09M

ay-09A

ug-09N

ov-09Feb-10M

ay-10A

ug-10N

ov-10Feb-11M

ay-11A

ug-11

99

100

101

102

103

104

105

106

107

108

109

Aug-10

Sep-10

Oct-10

Nov-10

Dec-10

Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11


TakafulCover story

The Takaful industry is currently suff ering from a lack of experienced and well-trained personnel, which industry leaders are heralding as one of the biggest potential hindrances to growth.

These industry leaders have stated that there simply are not enough senior staff available to fi ll the positions on off er. What happens to an industry where a lack of qualifi ed personnel could signifi cantly impede the stellar growth rates currently present in the Takaful space?

Azim Mithani, CEO of PruBSN Takaful, says that: “Human capital remains the largest constraint on the Takaful business,” and that this has been further compounded due to the historic growth rates present in the industry and the number of new licenses being off ered.

Mithani goes on to explain that: “In order to staff these operations, you need a lot of people, this staffi ng needs to take place from top to bott om and fi nding these people is a real challenge. You have to be very focused on who you want to bring in and how you go about bringing those people in.”

This lack of experienced personnel has also resulted in a bidding war for top talent and, going forward, salary escalation is something that operators are becoming increasingly aware of. “There is tremendous demand for certain people in the market and there is a danger that this could get out of control,” says Mithani.

The overall outlook for the Takaful industry is however not as bleak as it seems, as total staff numbers have more than doubled at many of the Malaysian Takaful providers, in line with growth expectations. What Mithani has seen is that Takaful operators have been increasingly leaning on their sister organizations, particularly in terms of back offi ce staffi ng.

This has meant that they are able to leverage off of their parent fi rms for their basic infrastructure capabilities and focus on hiring specifi c talent necessary under a Shariah compliant operation. However, people are going to remain the key issue, particularly those with specifi c technical knowledge such as Shariah and product knowledge.

Shahril Azuar Jimin, the chief sales offi cer at Etiqa Takaful, has already stated that: “The Malaysian Takaful industry needs more skilled human capital and professionals to increase penetration rates in the country.” He goes on to add that: “Malaysia is currently facing a lack of professionals in technical areas such as product development, actuary and investment and this is having a negative eff ect on the Takaful industry.”

All Takaful operators require all of its people to understand the Shariah principles of their business and those that are involved in distribution, product governance and particularly customer service are those who must have an adequate level of understanding of the Shariah in order to help address some of the business problems that they have to face.

Malaysia’s emphasis on developing numerous world class Islamic fi nancial education institutions has placed the country into a league of its own. Its experience in training and managing human capital for the Islamic fi nance and Takaful industries has been tantamount to its success in off ering Islamic fi nance as a viable alternative system. As such, developing human capital is central for Malaysia’s future growth potential.

According to Mithani however, while these educational institutions are helping to increase the talent pool, these are generally only producing junior level staff . Senior people are in short supply and are essential to further business prospects. “It’s all about a top to bott om approach: creating a good talent pipeline is essential and we can easily absorb a number of graduates into this pipeline. It is fully trained experienced workers that are the greatest problem.”

Mithani sums up by saying that: “It will be a few years before we are seeing the trained talent breaking through the organization. However that is going to be a key point that will drive the industry forward for the next 10 years. – SB

www.takaful-ikhlas.com.my

For more information, please call 03-2723 9999

28th September 2011

Brought to you by

Maintaining a talent pipeline

In this issue...News ..... ..............................................................33

Feature:Islamic insurance: Identifying a clear need for consumer education...... ........................................34


TAKAFUL NEWS

Takaful alliance BAHRAIN: Allianz Takaful has entered into a partnership with insurer MedGulf (Bahrain) to further develop the companies’ insurance platforms in Bahrain and Qatar.

The alliance will see Allianz Takaful transferring 75% of its Takaful business to MedGulf, while still continuing to sell its Takaful products in Bahrain and life and health schemes in Qatar.

Takaful on the cardsKENYA: UAP Insurance, a general and life insurer, is reportedly planning to launch a range of General Takaful products in October.

According to James Muguiyi, its managing director, the products will cover individual and business Takaful. He also said that the fi rm will not establish a new subsidiary for its Takaful business, although this may be considered at a later date.

Potential for Life Takaful MALAYSIA: The ING Dashboard survey has revealed that 84% of Malaysian

middle-income earners do not own a Life Takaful product.

The survey also showed that those who own Family Takaful have signed up for hospital and surgical, term life, critical illness and personal accident plans. Sixty two percent of the respondents also agreed that Family Takaful is not just for Muslims.

The ING Dashboard survey measures and tracks the sentiment and behavior of mass affl uent investors in 12 Asia Pacifi c markets: Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand. The survey, conducted in June 2011, involved online interviews with over 2,300 middle-income customers aged 25 and above.

MAA Holdings refocusing on TakafulMALAYSIA: MAA Holdings (MAAH) has approved the sale of Malaysian Assurance Alliance and its other units to Zurich Insurance for RM344 million (US$108 million), according to Ya’acob Abdullah, the executive chairman of MAAH.

The bulk of the sale’s proceeds will be used to grow its Takaful and unit trust businesses, which will drive the group’s profi ts going forward, said Ya’acob.

Takaful considerationINDIA: The Life Insurance Corporation of India is considering an entry into the Takaful sector, said D K Mehrotra, its chairman.

The fi rm, which operates LIC Interna-tional in Bahrain, also remains committ ed to the Bahrain market and is looking to further expand its business there.

Under one roofMALAYSIA: The Persatuan Insurans Am Malaysia, the Life Insurance Association of Malaysia, and Malaysian Takaful Association have entered into an agreement to establish the Joint Insurance-Takaful Council (JITC).

The formation of the JITC will pave the way for a unifi ed approach in ensuring consistency in rules, regulations and guidelines across the general insurance, life insurance and Takaful industries as well as to resolve inter-sector complaints or disputes amicably.

Our short, comprehensive programs will equip you with detailed knowledge of Islamic finance and products, allowing you to confidently participate in this growing area.

For more details, please contact us

Tel: +603 2162 7800 Fax: +603 2162 [email protected] www.miftraining.com


TAKAFUL NEWSFEATURE

In 2011, Swiss Re commissioned a survey on risk appetite and insurance in 11 markets in the Asia Pacifi c region. The survey gauged consumers’ att itudes towards various risk aspects, and looked into both their insurance needs and buying behaviors. The target group was people between 20 and 40 years old (from the generations X and Y), as these are the future consumers to whom the insurance industry owes its future.

This survey was also conducted in Malaysia and Indonesia, the two biggest Takaful markets in Southeast Asia, with contributions of over US$1 billion and US$350 million respectively in 2010. Therefore some questions, specifi c to Takaful products and services, were included for Muslims from these two countries participating in the survey.

Takaful-specifi c survey fi ndingsIn both markets, only a small portion of the respondents have bought Islamic insurance products, with Malaysia showing a higher ownership rate than Indonesia (16% versus 1%). An overwhelming majority of respondents (Malaysia: 70%, Indonesia: 95%) either do not know about, or have limited knowledge of, these products.

Interestingly, despite the low penetration rates and levels of understanding, a large majority of respondents in both markets perceive Islamic insurance products positively. Overall, 70% of the respondents believe that purchasing

Islamic insurance products will benefi t them in the future, and 65% believe that these products are more transparent and ethical than conventional insurance products.

In addition, while 49% of the respondents say it does not matt er whether they buy an Islamic insurance or a conventional insurance product, 20% disagree.

Let us look at the survey results in more detail.

Lack of knowledge: Discovering a need to provide consumer educationThe Takaful ownership rates of 16% in Malaysia and 1% in Indonesia correspond with the latest market share fi gures for both countries (such as Malaysia: 7% for General Takaful and 16% for Family Takaful; Indonesia: 3%).

It is striking to see that 95% of Muslim respondents in Indonesia have either limited or no knowledge of Islamic insurance. Surprisingly in Malaysia, where Takaful has been established for over 20 years, only 30% of the respondents have a good knowledge of Islamic insurance or own Takaful products.

This indicates a clear need for consumer education, as there is good growth potential simply through increasing people’s awareness of Islamic insurance in both countries.

Purchase of Islamic insurance is seen as benefi cial: Providing a strong foundation for good growth

Islamic insurance: Identifying a clear need for consumer educationMARCEL OMAR PAPP discusses the recent Swiss Re survey on risk appetite and insurance, and its discoveries and implications for the Takaful market in Malaysia and Indonesia.

Continued

The survey found Takaful

ownership rates of 16% in Malaysia and 1% in Indonesia

Awareness of Islamic insurance products (in %)

Malaysia

Indonesia

I have bought Islamic insuranceI have good understandingI am aware but have limited knowledgedI am not aware of it

0% 20% 40% 60% 80% 100%

Perceptions towards Islamic insurance products (Malaysia and Indonesia, in %)

I believe that Islamic insurance products are more transparent and ethical than conventional insurance products.

insurance product or a conventional insurance products.

I believe that purchasing Islamic insurance

0% 20% 40% 60% 80% 100%


TAKAFUL NEWSFEATURE

Potential growth is underscored by the fact that the majority of respondents in both countries (Malaysia: 82%; Indonesia: 59%) believe that purchasing Takaful products will benefi t them in the future. This positive att itude towards Islamic insurance products is a good basis for potential growth in Malaysia and Indonesia.

Takaful products are deemed as more ethical and transparent: Reinforcing inherent advantage compared to conventional insuranceThe foundation for potential growth is further strengthened by the fact that Takaful insurance appears to have a bett er image than conventional insurance. Despite having a limited knowledge of Islamic insurance, the majority in Malaysia (75%) and Indonesia (56%) still believe that Takaful insurance products are more ethical and transparent than conventional insurance products.

Takaful operators should take advantage of this positive perception, and market these benefi ts more aggressively. At the same time, this can be a challenge for companies that sell both Takaful and conventional products, as they may not want competition between the two.

Furthermore, the Takaful industry will need to take care to perform according to these perceived expectations, both on a company as well as on an industry level.

Buying behavior not necessarily in line with perceived advantages of TakafulIt is interesting to see that despite the perceived advantages of Takaful highlighted in the previous two sections, more than 40% of the Muslim respondents do not care whether they buy a conventional insurance or Takaful product.

One reason for this could be a lack of knowledge. Other considerations, such as product suitability, value for money and the fi nancial soundness and reputation of insurers, can play an important role in the decision-making process of consumers.

ConclusionThe perceived benefi ts and advantages, compared to conventional insurance off erings, put the Takaful industry in

a good position to grow its business further, and to maintain its past fi ve-year growth rates of over 20%.

However, in order to achieve Takaful’s full potential, further consumer education is of paramount importance. Working to increase awareness of Islamic insurance should not only be the task of individual operators, but also of the whole industry. The Takaful associations of Malaysia (MTA) and Indonesia should be the major drivers in the promotion of Islamic insurance. For instance, they could organize high-profi le media campaigns on behalf of the entire industry, like creating television advertisements and hiring celebrities to endorse Takaful products.

According to the survey, turning to agents is still the preferred channel to conclude transactions. Therefore, it is necessary to ensure that agents are well trained, and in a position to explain the advantages of Takaful products to potential customers. In Malaysia, the internet is oft en used as a source of fi nancial information. Takaful operators will have to improve their corporate websites to take advantage of this, as many websites currently provide rudimentary information only. Social media also plays an increasingly important role, especially for Generation-Y consumers, whom the Takaful industry has to cater to.

In Indonesia, television is the most preferred channel for gett ing fi nancial information. Therefore, the Takaful industry should use this medium more actively.

The Takaful industry should also be more aggressive in promoting the value proposition of off ering ethical and transparent products, as this is aligned to the demands of Takaful’s target consumers of 20 to 40 year olds.

According to the survey, the buying decision is based on product suitability, value for money, and the fi nancial soundness and reputation of insurers.

Hence, the most important criteria is that the product off ered matches consumer needs. In both countries, the majority of respondents are worried about not being able to pay their medical expenses and about gett ing seriously ill. Many do not have suffi cient medical or health insurance. This is obviously an area where Takaful operators should get more involved.

Another risk highlighted by the report is the underestimation of life expectancy by the respondents, particularly in Malaysia. The Takaful industry can play a key role in raising public awareness of longevity risks and the importance of personal fi nancial planning at early age, bearing in mind the lack of ‘safety nets’ (for example, government-sponsored social protection) and changes in family structures, especially in urban areas. Suitable products and services for tackling these challenges can be off ered. With price being the biggest barrier for insurance purchases, and fi nancial soundness and security being the most important criteria for choosing an insurance company, Takaful operators will also have to ensure that their products off er value for money, and are considered fi nancially sound and secure.

SummaryThe Takaful industry in Malaysia and Indonesia is poised for further growth, given its positive image among the Muslim population. However, in order to take full advantage of potential opportunities, there is a need for intensive consumer education and innovative products to meet urgent customer needs, such as medical or health insurance and personal fi nancial planning for retirement. Marcel Omar Papp is the director and head of Swiss Re Retakaful in Malaysia. He can be contacted at [email protected].

Continued

40% of the Muslim

respondents do not care whether they buy a conventional insurance or Takaful product


FORUM

A Besides the prohibition on trading stocks that are haram, there is one

major diff erence between conventional and Islamic stock broking and trading. Due to the fact that the underlying has to be owned, short selling is not permissible in Islamic fi nance.

Although short selling is oft en used as a speculation technique, it is also used as a market making tool. In order to ‘make a market’, brokers will quote both buy and sell prices.

Oft en they hold the actual stock, but this is not necessarily always the case, particularly when it concerns less liquid segments or at times of high trading volumes. An interesting comparison can be made with the Sukuk market, which is highly illiquid, and prices are not always available.

Oft en, only the large conventional players will be able to provide both a buy and a sell price since they are not restricted by short selling rules to the same extent.

Although short selling is not necessarily something to be condoned, there might be situations in which it will assist the development of the market.

DR NATALIE SCHOONFormabb

A Most brokerage fi rms provide execution-only services and as a

consequence simply act on instructions from their clients. In these cases it is the

clients who need to learn about Shariah compliance, not the brokers. Brokerage fi rms which provide advice to their clients however have to be knowledgeable about which investments are acceptable and unacceptable from an Islamic perspective.

Unfortunately apart from in Malaysia there are few brokers who understand Islamic fi nance. Brokerage fi rms do not have Shariah boards, and those banks who perform brokerage functions rarely consult their Shariah boards about the issues involved, even wholly Islamic banks. Clearly there is an advisory service gap. This can only be fi lled once clients start to be more discerning about where they seek advice and when leading brokers providing advisory services start becoming interested in Islamic fi nance.

PROFESSOR RODNEY WILSON Director of postgraduate studies, Durham University

A People forget that brokerage and trading is driven by institutional

investors. Retail plays a role, of course, but only a minor role in most economies. Brokers and traders need clients who themselves are asset managers with full discretionary mandates over large sums of client investment money.

In large and small economies worldwide, these institutional investors are insurance companies, pension funds, endowments, corporations,

family offi ces and mutual funds.

Together these entities place buy and sell orders with their brokers and oversee trillions of dollars annually in trading volume. But where are the institutional investors in the Islamic space?

Since everyone has been so overly focused on private equity and real estate projects in the last decade, it seems that Islamic asset management is an orphan child. Really it is puzzling.

Where else in the world does private equity equal mutual funds in total size? This is what we have in Islamic banking, a highly skewed preference for illiquid, long-term and very risky investments that in the long-run proved to be highly inappropriate for investors.

What Islamic brokerage and trading needs is an abundance of Islamic asset managers, collecting and aggregating the long-term savings of households, endowments, pensions, insurance assets, family offi ces and general economic savings.

It is sad that even now it appears more resources are given to illiquid, high-risk investing than the type of asset management the Muslim world really needs. Let us hope this situation reverses itself and that we get bona fi de Islamic asset managers up and running quickly.

JOHN SANDWICKIslamic Wealth & Asset Management, Geneva, Switzerland

Next Forum Question:

In what areas of Islamic fi nance can and should Brunei look at to further develop the local industry?

If you would like to air your views on the next Forum Question, please email your response of between 50 and 300 words to Christina Morgan, forum editor, at: [email protected] before Friday the 7th October 2011.

What are the barriers to the growth of Islamic stock broking and trading and how can these be improved?


MEET THE HEAD

Shahzad Siddiqui,CEO, Shahzad Siddiqui Professional Corporation

Shahzad Siddiqui is a Toronto-based lawyer practising corporate law, litigation and real estate with a niche in Islamic fi nance. He is a graduate of Osgoode Hall Law School. Siddiqui is also the author of several publications including ‘Shariah Compliant Private Equity: a Primer for the Executive’ and co-author of ‘Islamic Wills, Trusts and Estates: Planning for this World and the Next’.

Could you provide a brief journey of how you arrived where you are today?I started on this journey while I was teaching international business transactions at a law school in southwest China in 2004. I presented two lectures on Islamic fi nance and am now happy to see that this form of fi nance is gaining a foothold in the Ningxia province in the northern part of the country.

I subsequently assisted a Chinese company establish an offi ce in Pakistan. Upon returning to Canada, I embarked on a broad-based legal practice and ended up advising the Islamic Foundation of Toronto (one of the largest mosque and school complexes in Canada), the Chinese Muslim Association of Canada, private equity shops, mortgage providers and the Islamic wealth management teams of major fi nancial entities.

What does your role involve?Primarily structuring and advising on possible Shariah solutions within a system that is not designed to accommodate Shariah principles. That is not because the business community here is anti-Shariah, but more because of the fi ber of the system, which is interest-based.

What is your greatest achievement to date?Aft er giving a three-day seminar on

private equity in Kuala Lumpur, I returned to Toronto to assist in the unwinding of a fi xed income product that had been improperly characterized as a Musharakah partnership. While I am usually more interested in ‘building up’ than ‘breaking down’, this project was necessary to preserve the relative purity of the Islamic fi nance experiment in Canada.

Which of your products/services deliver the best results?At this point, it is Islamic wills, trusts and estate planning. There is a great need for this in the global Muslim community, especially in the western context. My short-term goal, before gett ing into long-term projects like Sukuk, would be to ensure that every Muslim in the Greater Toronto area who wants an Islamic will is able to get one at an aff ordable price.

What are the strengths of your business?One of the strengths of this business is capturing a niche market in a virgin territory. As of today, there are very few fi rms in Canada with Shariah capability.

A Shariah advisory fi rm started in the city this year and it represents a synergy rather than a competition. A wealth management company has also started, and has designed proprietary soft ware to screen Shariah compliant stocks according to strict economic metrics. Potential mortgage providers are in discussions with major builders

and banks. As more companies come onstream into the Toronto market, there will be a much greater scope for our business.

What are the factors contributing to the success of your company?Muslims continue to migrate to Canada in large numbers. When they arrive, the fi rst thing they usually do is purchase a home, with Islamic home fi nancing or otherwise.

Once they have purchased a home, they usually look at writing their will, especially if they have young children. Then, if they do not fi nd work at a company, they start their own business. We get them from the ground up, and have seen some astounding success stories come through the fi rm.

What are the obstacles faced in running your business today?The relatively small size of both our companies: the law fi rm and the fi nance arm. Our law fi rm focuses on Shariah compliant corporates, real estate, estate planning, endowment work and complex litigation. The fi nance arm, Broadwater Capital, is a start-up, and has much greater promise than the law fi rm as far as Islamic fi nance is concerned.

While ‘small is beautiful’ and allows one to be nimble, there are obstacles to gett ing retained by a sovereign or a large public corporation, if you are not backed by a major fi rm with several hundred employees. While we have excellent support staff , they are primarily involved in the non-Islamic aspects of the business.

Where do you see the Islamic fi nance industry in the next fi ve years or so?I see a growing divide between those in the industry mimicking conventional products and those engaged in the true lett er and spirit of Islamic fi nance.

Name one thing you would like to see change in the world of Islamic fi nance.An increase in private equity and venture capital. This can be done by fi rms that are generating huge amounts of cashfl ow from the ‘compromised’ side of the business, and injecting it towards the Islamic side.


CASE STUDY

Bahrain-based Sakana Holistic Housing Solutions (Sakana), the Islamic mortgage fi nance provider, recently entered into a commodity Murabahah fi nancing facility with Khaleeji Commercial Bank (KHCB) for BHD4 million (US$10.6 million) over four years. The funding facility was provided by KHCB towards the working capital requirements of Sakana. This funding arrangement represents the fi rst medium-term fi nancing Sakana has established since commencement of its operations.

Commenting on the deal Reyadh Sater, the chairman of Sakana, said that he was “delighted to have KHCB’s continued support of Sakana’s funding requirements,” with whom they have been in partnership since early 2008. Sater went on to say that this latest medium-term facility “demonstrates KHCB’s confi dence in Sakana’s business model despite diffi cult economic conditions and in particular tough market conditions for the real estate sector”.

Ebrahim Hussain Ebrahim, CEO and board member of KHCB, commented that: “Sakana is an innovator in mortgage fi nance,” and this fi nancing deal underscores KHCB’s willingness to continue to be a partner in supporting the growth of a leading local Islamic mortgage fi nance provider as well as the kingdom’s mortgage fi nance market as a whole.

R Lakshmanan, CEO of Sakana, said that: “This facility will address the asset-liability mismatch of Sakana.” Lakshmanan further added that: “The post-fi nancial and economic crisis market conditions have been extremely tough, particularly for companies operating in the real estate sector,” and went on to mention that despite this, Sakana still managed to conclude this round of funding.

Sakana Holistic Housing Solutions commenced operations in December 2006 as a dedicated mortgage fi nance provider in Bahrain, off ering a comprehensive range of Shariah compliant mortgage

products in the kingdom. Sakana’s holistic approach has paved the way for signifi cant changes in the kingdom’s mortgage market by making Islamic fi nance easier to understand and more widely accepted, as well as making it available to an ever-wider group of customers.

The company demonstrated signifi cant growth since inception and has broadened its holistic focus by adding property consulting and property development to its portfolio. Sakana has a paid-up capital of BHD20 million (US$53.06 million), and is fully regulated by the Central Bank of Bahrain.

Sakana started as a 50:50 joint venture between BBK and Shamil Bank. In early 2010 Capinnova Investment Bank, the Shariah compliant investment banking arm and fully owned subsidiary of BBK, acquired a 50% stake in Sakana from BBK. Further, Shamil Bank was merged with its parent Ithmaar Bank during 2010 and accordingly Ithmaar Bank became a 50% stakeholder.

Sakana provides mortgage fi nancing to Bahraini citizens, resident expatriates and non-resident customers for a variety of purposes including land purchase, home construction and purchasing, equity release and re-mortgaging facilities.

Sakana and Khaleeji Commercial Bank in US$10.6 million medium-term financing deal

The real estate sector is

currently in a state of flux as there has been a low appetite for investment in real estate and as such transactions have been extremely low

Sakana and Khaleeji Commercial Bank medium-term financing

US$10.6 million

Amount BHD4 million (US$10.6 million)

Tenor Four years

Facility arranger Khaleeji Commercial Bank

Type of facility Commodity Murabahah

Purpose of issuance

Working capital requirements of Sakana

Sakana also notes that approximately 40% of their customers are non-Muslim.

According to Lakshmanan, the real estate sector is currently in a state of fl ux as “there has been a low appetite for investment in real estate and as such transactions have been extremely low”. Certain developers have taken the initiative to address the aff ordable housing segment, where there is currently a sizeable demand for low and middle income housing and which Lakshmanan believes “will be an area for growth”.

The reason for this is that supply is skewed towards the luxury segment of the market. Bahrainis (like other GCC nationals) prefer villas instead of apartments. Due to the limited availability of land, going vertical and building apartments is the preferred solution to address the housing problem. – SW


DEAL TRACKER

ISSUER SIZE DATE ANNOUNCED

Albaraka Turk Katilim Bankasi US$200 million 25th September 2011

AmIslamic Bank RM2 billion 23rd September 2011

Emery Oleochemicals RM480 million 17th September 2011

KLCC Property RM880 million 15th September 2011

Tenaga Nasional RM5 billion 15th September 2011

Khazanah Nasional RMB500 million 14th September 2011

Bank Negara Malaysia RM1 billion 6th September 2011

Indonesian fi nance ministry US$1 billion 6th September 2011

Bank Syariah Mandiri IDR450 million 25th August 2011

Aref Investment Group TBA 24th August 2011

Kuala Lumpur Kepong Berhad RM300 million 22nd August 2011

Aramco US$1 billion 21st August 2011

Nakheel AED4.8 billion 10th August 2011

Chemical Company of Malaysia RM120 million 5th August 2011

Hub Power Company PKR2 billion 2nd August 2011

KNM Group RM1.5 billion 28th July 2011

Petronas Gas RM1.2 billion 25th July 2011

Government of Abu Dhabi TBA 21st July 2011

Gulf International Bank, Bahrain US$1 billion 21st July 2011

ACWA Power International US$300 million 9th July 2011

Al Hilal Bank TBA 7th July 2011

Egypt TBA 2nd July 2011

Islamic Bank of Thailand US$150 million 29th June 2011

Islamic Bank of Thailand THB5 billion 29th June 2011

Kenchana Petroleum RM700 million 16th June 2011

Kenchana Petroleum RM350 million 16th June 2011

BRI Syariah TBA 15th June 2011

Government of Palestine US$50 million 6th June 2011

Bank Muamalat Malaysia and Tael Partners US$100 million 1st June 2011

Adventa RM150 million 26th May 2011

National Bank of Abu Dhabi TBA 30th May 2011

Perusahaan Listrik Negara US$2 billion 27th May 2011

Jasa Marga, Indonesia TBA 13th May 2011

Government of Malaysia TBA 12th May 2011

Qatar Islamic Bank TBA 12th May 2011

Islamic Development Bank TBA 12th May 2011

Bank Muamalat Indonesia US$100 million 10th May 2011

Bank Muamalat Indonesia IDR1.5 trillion 9th May 2011

Al Baraka Banking Group US$300 million 4th May 2011

Jordan fi nance ministry US$500 million 4th May 2011

Gazprombank US$200 million 4th May 2011

VTB Bank US$200 million 4th May 2011

Esso Malaysia RM300 million 3rd May 2011

Indonesia fi nance ministry US$1 billion 3rd May 2011

Tamweel TBA 21st April 2011

Mazaya Qatar TBA 14th April 2011

Liquidity Management House for Investment US$1 billion 12th April 2011

IFN CorrespondentsAFGHANISTAN: Dr Alam Khan Hamdardchief of Islamic banking, Kabul BankAUSTRALIA: David Woodpartner, Mallesons Stephen JaquesBANGLADESH: Md Shamsuzzamanexecutive vice president, Islami Bank Bangladesh BRUNEI: James Chiew Siew Huasenior partner, Abrahams Davidson & CoCANADA: Jeff rey S. Grahampartner, Borden Ladner GervaisEGYPT: Dr Walid Hegazymanaging partner, Hegazy & AssociatesFRANCE: Antoine Saillonhead of Islamic fi nance, Paris EuroplaceHONG KONG & CHINA: Anthony Chanpartner, Brandt Chan & Partners in association with SNR DentonINDIA: Keyur Shahpartner, KPMGINDONESIA: Rizqullahpresident director, BNI SyariahIRAN: Majid PirehIslamic fi nance expert, SEOIRAQ: Hadeel Hassansenior associate, Al Tamimi & CoIRELAND: Ken OwensShariah funds assurance partner, PwC IrelandJAPAN: Serdar A. Basarapresident, Japan Islamic FinanceKAZAKHSTAN: Timur Alimarea manager, Al Hilal BankKOREA: Yong-Jae Changpartner, Lee & KoKUWAIT: Alex Salehpartner, Al Tamimi & CompanyLEBANON: Mohamad Bakkarmanaging partner, Bakkar Advocates & Legal ConsultantsLUXEMBOURG: Marc Theisenpartner, Theisen LawMALAYSIA: Nik Norishky Thanihead special projects (Islamic), PNBMAURITIUS: Sameer K Tegallyassociate, Conyers Dill & PearmanNEW ZEALAND: Dr Mustafa Faroukcounsel member for Islamic fi nancial institutions, FIANZOMAN: Anthony Watsonsenior associate, Al Busaidy Mansoor Jamal & CoPAKISTAN: Bilal Rasuldirector (enforcement), SEC of PakistanQATAR: Amjad Hussainpartner & head, banking & Islamic fi nance, EvershedsRUSSIA: Dr Adalet DjabievCEO, Al Shams CapitalSAUDI ARABIA: Nabil Issapartner, King & SpaldingSINGAPORE: Andrew Whiteassociate professor, Singapore Management UniversitySRI LANKA: Roshan Madewaladirector/CEO, Research Intelligence UnitSWITZERLAND: Khadra Abdullahiassociate of investment banking, Faisal Private Bank TURKEY: Cenk Karacaogluvice president of fi nancial institutions division, Bank AsyaUAE: Neil D Millerglobal head of Islamic fi nance, KPMGUK: Dr Natalie SchoonFormabbYEMEN: Moneer Saifhead of Islamic banking, CAC Bank

IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short country reports

For more information about becoming an IFN Correspondent please contact [email protected]


SHARIAH INDEXES

SAMI Halal Food Participation (All Cap) 6 months

500

725

950

1175

1400

Sep-2011Aug-2011July-2011June-2011May-2011Apr-2011Mar-2011

REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months

REDmoney GCC 6 Months REDmoney Global 6 Months

REDmoney MENA 6 Months REDmoney US 6 Months

All Cap Large Cap Medium Cap Small Cap

700

810

920

1030

1140

1250

SepAugJulyJuneMayAprMar600

700

800

900

1000

1100

SepAugJulyJuneMayAprMar


500

540

580

620

660

700



680

784

888

992

1096

1200



500

540

580

620

660

700



800

950

1100

1250

1400

1550




SHARIAH INDEXES

For further information regarding REDmoney Indexes contact:

Andrew MorganManaging Director, REDmoney Group

Email: [email protected] +603 2162 7800

RED

REDmoney Global Shariah Index Series

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

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

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

610

720

830

940

1050

SepAugJulyJuneMayAprMar 450

560

670

780

890

1000




500

710

920

1130

1340

1550




500

690

880

1070

1260

1450




Utilities2%Telecomunication Services

2%

Technology14%

Basis Materials15%

Non-CyclicalConsumer Goods Services

7%

Energy8%

Financials4%

Healthcare11%

Industrials22%

Consumer Goods Services15%

REDmoney Global Shariah

Equities are considered eligible for inclusion into the REDmoney Global Shariah Index Series only if they pass a series of market related guidelines related to minimum market capitalization and liquidity as well as country restrictions.

Once the index eligible universe is determined the underlying constituents are screened using a set of business and fi nancial Shariah guidelines.

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

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

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


LEAGUE TABLES

Most Recent Global Sukuk

Priced Issuer Nationality Instrument Market US$ (mln) Managers14th Sep 2011 MISC Malaysia Sukuk Murabahah Domestic market

public issue263 HSBC, CIMB Group,

AmInvestment Bank

13th Sep 2011 Telekom Malaysia Malaysia Sukuk Domestic market public issue

101 CIMB Group, AmInvestment Bank, Maybank Investment Bank

5th Aug 2011 Kencana Petroleum Malaysia Sukuk Domestic market private placement

167 AmInvestment Bank

26th Jul 2011 Syarikat Prasarana Negara

Malaysia Sukuk Ijarah Domestic market public issue

667 CIMB Group, Maybank Investment Bank

26th Jul 2011 First Gulf Bank UAE Sukuk Euro market public issue

650 Standard Chartered, HSBC, Citigroup

21st Jul 2011 Gulf Investment Corporation

Kuwait Sukuk Domestic market public issue


21st Jul 2011 Besraya (M) Malaysia Sukuk Mudarabah Domestic market public issue


6th Jul 2011 Cagamas Malaysia Sukuk Domestic market public issue

206 CIMB Group, Maybank Investment Bank

28th Jun 2011 Wakala Global Sukuk Malaysia Sukuk Wakalah Euro market public issue

2,000 HSBC, CIMB Group, Citigroup, Maybank Investment Bank

17th Jun 2011 Pengurusan Air SPV Malaysia Sukuk Murabahah Domestic market private placement

1,910 CIMB Group, Maybank Investment Bank

16th Jun 2011 Ranhill Powertron II Malaysia Sukuk Domestic market public issue

228 Maybank Investment Bank

14th Jun 2011 Sarawak Energy Malaysia Sukuk Domestic market public issue

988 RHB Capital, AmInvestment Bank

13th Jun 2011 Saudi International Petrochemical

Saudi Arabia Sukuk Domestic market public issue

480 Deutsche Bank, Riyad Bank

8th Jun 2011 Bank Muamalat Malaysia

Malaysia Sukuk Domestic market private placement

133 DRB-HICOM, Maybank Investment Bank

2nd Jun 2011 Ranhill Power Malaysia Sukuk Domestic market private placement

266 Maybank Investment Bank

26th May 2011 Putrajaya Holdings Malaysia Sukuk Musharakah Domestic market private placement

229 CIMB Group, AmInvestment Bank, Maybank Investment Bank

26th May 2011 HSBC Bank Middle East

UK Sukuk Euro market public issue

500 HSBC

18th May 2011 Islamic Development Bank

Saudi Arabia Sukuk Euro market public issue

750 Standard Chartered, Deutsche Bank, BNP Paribas, HSBC

18th May 2011 Sharjah Islamic Bank UAE Sukuk Euro market public issue

400 Standard Chartered, HSBC

28th Apr 2011 Pengurusan Air SPV Malaysia Sukuk Murabahah Domestic market private placement

335 CIMB Group

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

01 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9

2010 2011

US$ bn

0100200300

400500600700

US$ mValue (US$ bn) Avg Size (US$ m)

123456

7

0123456789

10

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2006 2007 2008 2009 2010 2011

US$ bn

050100150200250300350400

US$ mValue (US$ bn) Avg Size (US$ m)


LEAGUE TABLES

Top 30 Issuers of Global Sukuk 12 Months

Issuer Nationality Instrument Market US$ (mln) Iss Managers1 Pengurusan Air SPV Malaysia Sukuk Murabahah Domestic market

private placement3,460 4 HSBC, CIMB Group, Maybank

Investment Bank2 Wakala Global Sukuk Malaysia Sukuk Wakalah Euro market public

issue2,000 1 HSBC, CIMB Group, Citigroup,

Maybank Investment Bank 3 Senai Desaru Expressway Malaysia Sukuk Domestic market

public issue1,275 2 Maybank Investment Bank

4 Islamic Development Bank Saudi Arabia Sukuk Euro market public issue

1,250 2 Standard Chartered, HSBC, CIMB Group, Citigroup, Deutsche Bank, BNP Paribas

5 Sarawak Energy Malaysia Sukuk Domestic market public issue

988 1 RHB Capital, AmInvestment Bank

6 GovCo Holdings Malaysia Sukuk Murabahah Domestic market private placement

985 1 HSBC, RHB Capital, CIMB Group

7 Cagamas Malaysia Sukuk Murabahah Domestic market private placement

825 14 AmInvestment Bank, RHB Capital, Al-Rajhi Banking & Investment Corporation, HSBC, CIMB Group, Maybank Investment Bank

8 Qatar Islamic Bank Qatar Sukuk Ijarah,Sukuk Murabahah

Euro market public issue

750 1 HSBC, Credit Suisse, QInvest LLC

8 Abu Dhabi Islamic Bank UAE Sukuk Musharakah Euro market public issue

750 1 Standard Chartered, HSBC, Barclays Capital

10 Syarikat Prasarana Negara Malaysia Sukuk Ijarah Domestic market public issue

667 1 CIMB Group, Maybank Investment Bank

11 First Gulf Bank UAE Sukuk Euro market public issue

650 1 Standard Chartered, HSBC, Citigroup

12 HSBC Bank Middle East UK Sukuk Euro market public issue

500 1 HSBC

12 Emaar Sukuk UAE Sukuk issue. Euro market public issue

500 1 Standard Chartered, HSBC, RBS

14 Saudi International Petrochemical

Saudi Arabia Sukuk Domestic market public issue

480 1 Deutsche Bank, Riyad Bank

15 Malaysia Airports Capital Malaysia Sukuk Murabahah Domestic market public issue

476 1 CIMB Group, Citigroup

16 Sharjah Islamic Bank UAE Sukuk Euro market public issue

400 1 Standard Chartered, HSBC

17 Government of Ras Al Khaimah

UAE Sukuk Euro market public issue

393 1 RBS, Citigroup

18 Aman Sukuk Malaysia Sukuk Musharakah Domestic market public issue

361 1 Lembaga Tabung Haji, RHB Capi-tal, CIMB Group, AmInvestment Bank, Maybank Investment Bank

19 MISC Malaysia Sukuk Murabahah Domestic market public issue

344 2 HSBC, CIMB Group, AmInvestment Bank

20 Maybank Islamic Malaysia Sukuk Musharakah Domestic market private placement

330 1 Maybank Investment Bank

21 Konsortium Lebuhraya Utara-Timur

Malaysia Sukuk Musharakah Domestic market public issue

280 13 CIMB Group

22 Bank Aljazira Saudi Arabia Sukuk Mudarabah Domestic market private placement

267 1 JPMorgan, HSBC

23 Ranhill Power Malaysia Sukuk Domestic market private placement


24 Gulf Investment Corporation

Kuwait Sukuk Domestic market public issue

250 1 AmInvestment Bank

25 Besraya (M) Malaysia Sukuk Mudarabah Domestic market public issue

233 1 AmInvestment Bank

26 Putrajaya Holdings Malaysia Sukuk Musharakah Domestic market private placement

229 1 CIMB Group, AmInvestment Bank, Maybank Investment Bank

27 Ranhill Powertron II Malaysia Sukuk Domestic market public issue


28 Telekom Malaysia Malaysia Sukuk Domestic market public issue

200 2 CIMB Group, AmInvestment Bank, Maybank Investment Bank

29 Trans Thai-Malaysia Sukuk Malaysia Sukuk Musharakah Domestic market private placement

195 1 HSBC, CIMB Group

30 Boustead Holdings Malaysia Sukuk Domestic market private placement

193 3 OCBC, Public Bank, Affi n Investment Bank

Total 21,358 100


LEAGUE TABLES

Top Managers of Sukuk 12 Months

Manager US$ (mln) Iss %

1 Maybank Investment Bank 4,885 26 22.9

2 CIMB Group 4,378 45 20.5

3 HSBC 3,842 18 18.0

4 AmInvestment Bank 1,948 27 9.1

5 Citigroup 1,306 6 6.1

6 Standard Chartered Bank 1,203 7 5.6

7 RHB Capital 995 5 4.7

8 Deutsche Bank 427 2 2.0

9 RBS 416 3 2.0

10 QInvest 250 1 1.2

10 Credit Suisse 250 1 1.2

10 Barclays Capital 250 1 1.2

13 Riyad Bank 240 1 1.1

14 BNP Paribas 188 1 0.9

15 OCBC 157 5 0.7

16 Affi n Investment Bank 155 4 0.7

17 JPMorgan 133 1 0.6

18 DRB-HICOM 123 2 0.6

19 Lembaga Tabung Haji 78 2 0.4

20 Public Bank 68 4 0.3

21 Hong Leong Bank Bhd 40 2 0.2

22 Al-Rajhi Banking & Investment 16 1 0.1

23 Mitsubishi UFJ Financial Group 6 2 0.0

24 OSK 3 1 0.0

Total 21,358 100 100.0

Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months

Legal Advisor US$ (million) No %

1 Al-Jadaan & Partners Law Firm 2,509 2 32.6

1 Baker & McKenzie 2,509 2 32.6

1 Cliff ord Chance 2,509 2 32.6

4 Al Tamimi & Co 57 1 0.7

4 DLA Piper 57 1 0.7

4 Norton Rose 57 1 0.7

Top Islamic Finance Related Project Finance Mandated Lead Arrangers 12 Months

Mandated Lead Arranger US$ (million) No %

1 Banque Saudi Fransi 701 3 24.9

2 Riyad Bank 224 2 8.0

3 HSBC Holdings 207 2 7.4


4 Saudi Hollandi Bank 169 1 6.0

6 Bank Al-Jazira 166 2 5.9

6 Public Investment Fund 166 2 5.9

8 Standard Chartered 119 1 4.2

9 Alinma Bank 110 1 3.9

9 Arab National Bank 110 1 3.9

9 Samba Financial Group 110 1 3.9

Sukuk Volume by Currency US$ (billion) 12 Months

Sukuk Volume by Issuer Nation US$ (billion) 12 Months

Global Sukuk Volume by Sector 12 Months

Global Sukuk Volume - US$ Analysis

0123456789

10

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q

2006 2007 2008 2009 2010 2011

US$ bn US$ Non-US$

13.3

7.2

0.7

0.1

US dollar

Malaysian ringgit

Saudi riyal

Singapore dollar

Singapore

14.9

0.30.5

0.8

2.0

2.9

0.1

0.0

Malaysia

UAE

Saudi Arabia

Qatar

UK

US

Kuwait

Finance

GovernmentConstruction/BuildingTransportation

Utility & Energy

Other

10 %

16%

6% 34%

10%

24%


LEAGUE TABLES

Top Islamic Finance Related Loans Mandated Lead Arrangers Ranking 12 Months

Mandated Lead Arranger US$ (mln) No %

1 HSBC 1,060 6 12.8

2 Maybank Investment Bank 824 5 9.9

3 Samba Capital 640 3 7.7

4 AmInvestment Bank 471 3 5.7

5 Saudi National Commercial Bank 462 2 5.6

5 Banque Saudi Fransi 462 2 5.6

7 Citigroup 385 4 4.6

8 Abu Dhabi Islamic Bank 378 2 4.6

9 Standard Chartered Bank 303 4 3.7

10 RBS 233 1 2.8

11 CIMB Group 232 3 2.8

12 BNP Paribas 209 4 2.5

13 WestLB 170 3 2.1

14 RHB Capital 164 1 2.0

14 Lembaga Tabung Haji 164 1 2.0

16 Deutsche Bank 150 1 1.8

17 OCBC 131 2 1.6

17 DBS 131 2 1.6

19 Riyad Bank 129 1 1.6

19 Bank Al-Jazira 129 1 1.6

21 UOB 116 1 1.4

22 Bank of China 93 1 1.1

23 Arab Banking Corporation 76 2 0.9

24 Saudi Hollandi Bank 74 1 0.9

24 Export Development Canada 74 1 0.9

24 Emirates NBD 74 1 0.9

24 Arab Petroleum Investments 74 1 0.9

24 Arab National Bank 74 1 0.9

24 Alinma Bank 74 1 0.9


Top Islamic Finance Related Loans Mandated Lead Arrangers12 Months

Bookrunner US$ (mln) No %

1 Samba Capital 1,566 2 18.9

2 Citigroup 444 4 5.4

3 Abu Dhabi Islamic Bank 378 2 4.6

4 HSBC 308 2 3.7

5 Maybank Investment Bank 237 1 2.9

6 RBS 233 1 2.87 WestLB 125 2 1.5

8 Standard Chartered 105 1 1.3

9 BNP Paribas 98 2 1.210 Bank of China 93 1 1.1

Top Islamic Finance Related Loans Deal List 12 Months

Credit Date Borrower Nationality US$ (mln)

30th Nov 2010 Saudi Arabian Mining - Ma'aden Saudi Arabia 1,913

13th Dec 2010 Saudi Electricity Saudi Arabia 1,333

18th Jul 2011 Pembinaan BLT Malaysia 822

17th May 2011 Emaar Properties UAE 699

29th Oct 2010 Parkway Holdings Singapore 578

23rd May 2011 Natrindo Telepon Seluler Indonesia 450

16th Nov 2010 Jambatan Kedua Malaysia 383

14th Dec 2010 Majid Al Futt aim Properties UAE 310

4th Apr 2011 Bank Asya Turkey 306

16th Mar 2011 Turkiye Finans Katilim Bankasi Turkey 296

Top Islamic Finance Related Loans by Country 12 Months

Nationality US$ (mln) No %1 Saudi Arabia 2,924 3 35.22 Malaysia 1,777 5 21.43 UAE 1,627 7 19.64 Singapore 655 2 7.95 Turkey 644 4 7.86 Indonesia 450 1 5.4

7 China 93 1 1.18 Kuwait 87 1 1.1

9 Bahrain 45 1 0.5

Top Islamic Finance Related Loans by Sector 12 Months

Global Islamic Loans - Years to Maturity (YTD Comparison)

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

0US$ bln 1 2 3

Construction/Building

Real Estate/Property

Mining

Finance

Utility & Energy

0% 20% 40% 60% 80% 100%2005200620072008

200920102011

0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs


EVENTS DIARY

23rd – 25th November 2011 Asian Finance Forum Bali, Indonesia (Asian Institute of Finance)

30th November 2011IFN Roadshow BruneiBrunei (REDmoney events)

6th December 2011IFN Country Briefi ngs: Indonesia Jakarta (REDmoney events)

6th – 7th December 20113rd Annual SE Asian Institutional Investment Forum Kuala Lumpur (Asian Investor)

11th – 12th December 20111st Annual Project Finance and Trade Finance Summit Dubai, UAE (Global Islamic Finance Magazine)

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10th – 11th OctoberInternational Summit on Islamic Corporate Finance Abu Dhabi (MegaEvents)

17th – 19th October 2011IFN Asia ForumKuala Lumpur (REDmoney events)

18th – 20th October 2011 3rd Annual World Islamic Retail BankingDubai (Fleming Gulf)

20th October 2011Indonesia Trade & Commodity Finance ConferenceJakarta (Exporta)

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24th – 27th October 2011Islamic Investment and Finance Forum 2011Istanbul (IIR Middle East)

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8th November 2011IFN Country Briefi ngs: Canada Toronto (REDmoney events)

9th – 10th November 2011Credit Risk AsiaKuala Lumpur (Fleming Gulf)

10th November 2011IFN Country Briefi ngs: USA New York (REDmoney events)

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21st – 23rd November 2011The World Islamic BankingConference Bahrain (MegaEvents)

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COMPANY INDEX

AAOIFI 8, 16ABC Islamic Bank 7Abu Dhabi IsIamic Bank 28Adabank 8Advent Soft ware 19Agrobank 6Ahli United Bank 15, 16Al Hilal Bank 9, 10Al Izz International Bank 9Al Mashoorah & Al Rayah International Consulting and Training Company 29Al Rajhi Bank 15Al Tamimi & Company 16Albaraka Banking Group 10Albaraka Türk Katılım Bankasi 7, 10Allianz Takaful 33Al-Nibras 2 5Alternative Investment Fund Managers 18Alternative Investments and Credits 7Amana Takaful (Maldives) 10Amanie Advisors 14Ameen Housing 25AmIslamic Bank 9Amlak Finance 10ASAR Legal 12Ashurst 10Bank Indonesia 5Bank Islam Malaysia 7Bank Mega Syariah 5Bank Mellat Iran 1, 3, 4Bank Muamalat Malaysia 7Bank Negara Indonesia 5Bank Nizwa 9Bank of Mauritius 19Bank Refah 3Bank Saderat 1, 3Bank Sepah 4Bank Syariah Mandiri 5Bank Tejarat 3Bermuda Monetary Authority 20Bloomberg 16BNI Syariah 5, 7BNP Paribas 9BOC International 11Bond Pricing Agency Malaysia 6Boubyan Bank 15Brandt Chan & Partners 15Broadwater Capital 37Business Bermuda 22Capital Markets Authority 11, 12Central Bank of Bahrain 9, 19, 38Central Bank of Kuwait 11, 12, 15Central Bank of Oman 6, 10Channel Islands Stock Exchange 10Chinese Muslim Association of Canada 37CI 9CIMB 11CIMB Islamic 5, 11CIMB Niaga Syariah 5Citibank 3Citigroup 9Colombo Stock Exchange 24Credit Agricole 4Crowell & Moring 14Deloitt e 6

Deutsche Bank 4, 17Deutsche Securities Saudi Arabia 10Devon Bank 25DIFC Investments 9Dow Jones Indexes 10, 25DP World 9Dubai International Financial Centre 19Durham University 36Emirates Islamic Bank 7, 9Emirates NBD Bank 7Ernst & Young 8, 9Etihad Etisalat 9Etiqa Takaful 32Fidelity Life Assurance 5First Global Knowledge Center 24Fitch 9Formabb 36G Capital 8Gatehouse Bank 10Global Capital & Development 5Global Investment House 29Goldman Sachs 1, 3Guidance Residential 25Gulf African Bank 10Gulf Finance House 8Hegazy & Associates 14HSBC 17HSBC Bank Middle East 29IDB 1, 5, 6IFSB 8, 16, 19IMF 1, 8INCIEF 13ING 33Intan Baruprana Finance 7Interactive Data Corporation 6International Bank of Azerbaĳ an 6International Islamic Liquidity Management Corporation 19Iskandar Investment 5Iskandar Malaysia 5Islamic Foundation of Toronto 37Islamic Trade Finance Corporation 7Javelin 25Jebel Ali Free Zone 9Joint Insurance-Takaful Council 33Khaleeji Commercial Bank 38Khazanah Nasional 6, 11KPMG 18Kuwait Finance House 15Kuwait Finance House (Labuan) 5Kuwait Finance House (Malaysia) 7Kuwait International Bank 15, 16Kuwait Stock Exchange 11, 12Labuan International Off shore Financial Centre 19Labuan Off shore Financial Services Authority 4LARIBA Finance 25LIC International 33Life Insurance Association of Malaysia 33Life Insurance Corporation of India 33London Central Portfolio 10MAA Holdings 33Malaysian Assurance Alliance 33Malaysian Takaful Association 33Maple Leaf Cement Factory 9Mashreqbank 10

Masraf Al Rayan 9Maybank Investment Bank 17MBB Sukuk 17MedGulf (Bahrain) 33Medini Central 5Medini Development 5Medini Iskandar Malaysia 5Merrill Lynch 28Monetary Authority of Singapore 19Moody’s 9Muscat Securities Market 9Nakheel 9National Bank of Ethiopia 5National Bank of Kuwait 15National Bank of Umm Al-Qaiwain 9National Bonds Corporation 10Noor Islamic Bank 7Noriba Bank 17Oracle 8Oxford Center for Islamic Studies 17PACRA 9Permal 28Permodelan Nasional Berhad 16Persatuan Insurans Am Malaysia 33Petronas 4Port & Free Zone World 9PruBSN Takaful 32PwC 22QInvest 10Rakbank 9RAM 6, 9RBC Dexia 18Reserve Bank of India 7S&P 10Sakana Holistic Housing Solutions 38Samba Financial Group 9Sarie El-Dien & Associates 14Saturna Capital 25Saudi Aramco 10Securities and Exchange Organization 3Shahzad Siddiqui Professional Corporation 37SNR Denton 15Société Arabe Internationale De-Banque 14Standard Chartered Bank 7, 9State Bank of Pakistan 6State Trading Organization 7Swiss Re 34Swiss Re Retakaful 35Tamweel 10Tehran Stock Exchange 1, 3The Royal Bank of Scotland 10, 11Total 10Turkish Association of Participation Banks 7UAP Insurance 33UBS 17Unicorn Investment Bank 4University Bank 25Warba Bank 15World Bank 13ZamZam International Bank 5Zimbabwe Stock Exchange 5Zurich Insurance 33

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