Talent Development in the Islamic Finance Industry--Is It Really Necessary? (pg30-31)
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Talent Development in the Islamic Finance Industry--Is It Really Necessary? (pg30-31)

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More and more educational institutions, around the world, are offering degree programs and diplomas in Islamic Finance and banking. This is a good sign as it indicates that the growing global Islamic ...

More and more educational institutions, around the world, are offering degree programs and diplomas in Islamic Finance and banking. This is a good sign as it indicates that the growing global Islamic finance industry has a rising demand for competent and trained talent. Why, therefore, are graduates struggling to find jobs after qualifying?
Is Talent Development needed or not?

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    Talent Development in the Islamic Finance Industry--Is It Really Necessary? (pg30-31) Talent Development in the Islamic Finance Industry--Is It Really Necessary? (pg30-31) Presentation Transcript

    • The World’s Leading Islamic Finance News Provider www.islamicfinancenews.com As we pass the midpoint of the year we seem stuck in the doldrums, with Sukuk issuance slowing right down amid a tense market girding itself up to face the impact of a withdrawal of US quantitative easing measures and a plethora of economic challenges. As the market drags itself through the lazy last days of the summer slowdown and Ramadan draws to a close, we talk to market leaders around the world to find out their opinions on the story so far, and what we can expect from the Sukuk sector in the second half of the year. Market slowdown Neil Miller, the global head of Islamic finance for Linklaters, confirms that: “The issuance market has become much quieter over the last few weeks.” The reasons for this might be obvious - including the combined effect of recent turmoil in global bond markets after the US federal reserve’s announcement that quantitative easing would be tapered down, in addition to the standard seasonal impact of summer, exaggerated by the effect of Ramadan – but they have no less impact for that. As of last week the market has gone seven consecutive weeks without an international issuance, with the last US dollar issuance placed by the IDB in May, and governments and state entities appear to have all but withdrawn from the market. Total issuances the week of the 23rd July were US$1.7 billion according to KFH Research – well below the year’s weekly average of US$2.2 billion, and bringing total issuance for 2013 to US$66 billion. In June the market slumped still further, recording the lowest monthly Sukuk issuance in 18 months. Anzal Mohammed, a partner at Allen & Overy, warns that we can’t expect much better for at least another few months. “Like the conventional bond markets, the Sukuk market has been affected by the volatility in the global capital markets since June and, with Ramadan and the summer, which is traditionally a quieter period for new issuance, we are unlikely to see new issuance until early September at the earliest assuming market conditions are conducive.” Market volatility While the current period of Ramadan has seen no deals being brought to market, Paul Bateman, the assistant director of Islamic capital markets at Bank of London and The Middle East (BLME), points out this is not unusual or unexpected, based upon previous market behavior. However, the run-up to this year’s Ramadan was differentiated by a period of market volatility, principally driven by differing views on the expected pace of change in monetary policy in the US. “In addition to the effect this had on the interest rate swap market, there was a re- pricing of credit risk which had previously appeared to exhibit credit spreads which had become too tight,” explains Bateman. “When volatility levels subside, debt issuers will have greater confidence to meet with investors with new transaction proposals which are deemed to be priced fairly, and issuance volume should rise.” US tapering However for now, a number of factors continue to inhibit the market, the most significant of which is of course the US withdrawal of quantitative easing, which has contributed to the tumbling yields which have spooked investors and sparked a Sukuk sell-off, resulting in heightened risk aversion and a nervous Halfway there: Sukuk so far continued on page 3 Powered by: IdealRatings® 31st July 2013 (All Cap) 954.59 900 925 950 975 1000 TMSSFTW 958.66 0.42% Volume 10 Issue 30 IFN Rapids .........................................................2 Islamic Finance news.........................................6 Shariah Pronouncement.................................12 IFN Reports: Arcapita continues its steps towards recovery; Global Sukuk market: Truly resilient?; Up to US$516 million in real estate projects slated for the GCC; US asset management firm sets sights on South Africa.............................................. 13 IFN Research Report: Mediterranean catapult............................. 15 A new lease of life...........................................16 Special Report: IT in Islamic banking: Boom imminent...... 17 Case study: Aerodome Sukuk protects investors with its bank facility............................................... 20 IFN Country Correspondents: Turkey; Indonesia; Bahrain ....................... 21 IFN Sector Correspondents: Asset Management; Microfinance (Africa); Private Equity & Venture Capital ............ 24 Features: UAE: Exciting growth opportunities................ 26 UAE: A silver lining in clearing clouds ............ 27 A regulatory perspective on Shariah governance. 28 Talent development in the Islamic finance industry — is it really necessary?................................ 30 Deal Tracker.....................................................32 REDmoney Indexes ........................................33 Eurekahedge data ...........................................35 Performance League Tables...........................37 Events Diary.....................................................41 Company Index...............................................42 Subscription Form...........................................42
    • 2© 31st July 2013 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 efforts 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. DEALS DanaInfra Nasional to pay out profits on its retail Sukuk in mid-August Tamweel to issue US$235 million Sukuk Ijarah in earlyAugust Almarai Company appoints arrangers for hybrid Sukuk offering Masraf Al Rayan to issue US$1 billion Sukuk in August Government of Senegal to debut sovereign Sukuk in August Genting Plantations to issue US$468.62 million Sukuk International Methanol Company secures US$86.64 million Islamic financing from Riyad Bank Zain Saudi’s outstanding US$2.3 billion Murabahah facility receives five-year extension NEWS Malaysia offers boost to Japan’s Islamic finance efforts NAEEM Holding rolls out the first real-time Shariah index for Egyptian stocks Head of BancABC’s corporate services encourages Tanzanian banks to adopt Islamic banking Sukuk’s role in the economy yet to be determined, says Egypt’s finance minister Absa Islamic Banking restructures Shariah compliant cheque account US bankruptcy court approves first Shariah compliant debtor-in- possession financing Deputy prime minister of Turkey calls for better performance of participation banks Maybank Islamic to expand across ASEAN nations EXIM Bank looks to increase its Shariah financing by 30% in the next two years The IDB incorporates Bangladesh into its Member Country Partnership Strategy program Bank Negara intervenes to absorb excess liquidity from the financial system World’s tallest office building to be part-funded in a Shariah compliant manner The IDB approves US$137 million irrigation project in Azerbaijan MCB Bank to open new branches across the country iSfin makes ILG its exclusive partner for Liechtenstein Masraf Al Rayan’s takeover deadline for the Islamic Bank of Britain extended to August The IDB lends support to Yemen and Sierra Leone Sukuk sales in the GCC falls 29% this year Qatar, Kuwait and Singapore eye stake in Lloyd’s Bank Emirates NBD Capital looks to offer Islamic products to Sri Lankan corporates Qatar National Bank sets foot in Shanghai Startup Village to benefit from Shariah compliant financing Hamdan Bin Mohammed e-University partners with Open University of Catalonia to offer Islamic banking and finance courses Abu Dhabi Islamic Bank provides Dubai Education Zone with exclusive products and services Al Hilal Bank implements Shariah compliant technology solution Bank Nizwa and Al Hilal Islamic Banking Services sign agreement towards enhancing Oman’s Islamic banking industry Bank Nizwa procures investment banking license Resurgence in Dubai’s property market offset by lack of financing for new projects Industry and commerce minister reiterates government’s support for Bahrain investment initiatives ABC Islamic Bank net profit hits US$6 million in the first half of 2013 Abu Dhabi Islamic Bank’s second quarter profit grows to AED371.4 million (US$101.09 million) Ahlibank’s net profit up by 6% for the first half Emirate aims high with the launch of the Dubai Center for Excellence in Islamic Banking & Finance Al Khaleej Takaful Group posts lower profits in the first six months of 2013 Arab Bank’s profit up 7.5% to reach US$387 million Impressive 85% hike in half year profits for Barwa Bank Commercial Bank of Dubai’s half year profits up by 2.3% ASSET MANAGEMENT CIMB-Mapletree Management successfully closes the nation’s first Islamic private real estate fund Shariah compliant private retirement growth fund is Hwang Investment Management’s top performer Azzad Asset Management discusses Islamic finance opportunities with South African ambassador Sedco Capital to distribute Islamic funds via private banks in Switzerland TAKAFUL Malaysian Deposit Insurance Corporation’s Takaful and insurance benefits protection funds accrue by 9% in 2012 Al Baraka Turk looks to establish an Islamic insurance company Prudential BSN Takaful distributes US$5.9 million in surplus profits to certificate holders Wataniya Insurance Company commissions Shariyah Review Bureau as Shariah advisor Malaysia’s Khazanah Nasional buys 90% stake in Turkey’s second-biggest health insurer RATINGS MARC downgrades KNM Capital’s Murabahah program and maintains its MARCWatch Negative status Capital Intelligence reaffirms rating on Sharjah Islamic Bank Moody’s affirms its ‘Caa1’ rating on Egypt’s government bond rating RAM downgrades Binariang GSM’s Sukuk program and places rating on negative watch’ MOVES Yakub Bobat appointed as head of corporate banking at Emirates Islamic Bank
    • 3© 31st July 2013 COVER STORY market. Speaking to Islamic Finance news, Malaysian Rating Corporation (MARC) notes that in its view the slowdown is primarily a result of the rising cost of funds, driven by the US scaling back bond purchases in view of the improved macroeconomic outlook. A source based in the Gulf suggests that the market may have overreacted to this, and we might be able to expect strong issuance once the market comes back in September after the summer holiday slowdown and the end of Ramadan. Mohieddine Kronfol, the chief investment officer of Franklin Templeton Investments, confirms that: “We expect by the time liquidity comes back, the market should have a more rational outlook for US federal reserve monetary policy and emerging markets economic growth.” However Malek Khodr Temsah, the vice-president of treasury and investments at Al Baraka Banking Group in Bahrain, warns that investors are not only concerned by the impact of US tapering, but are equally worried by the implications of these actions on emerging markets, which have been the primary beneficiaries of capital outflows. “The recent acute sell-off in emerging market dollar debt in the second quarter of 2013 sheds light on these pent-up jitters, which are weighing down on market sentiment and which in turn is keeping Sukuk issuers at bay,” he explains. Price premium Another reason for the general slowdown, suggests a source, is that there has actually been little need for issuers to tap the market. “With the premium between Sukuk and conventional eliminated, there is less incentive for non-Islamic issuers to tap the Islamic investors from a price perspective, and up until May, there has been no need to tap the Islamic investors either from a liquidity perspective, as you could raise as much as you wanted from the convention investors.” Basel III Jeroen Thijs, the chief risk officer at Bank Islam Malaysia, also points out that the Basel III requirements have had a significant impact. “At least in Malaysia, the enforcement of Basel III requirements, especially the mandatory write-off or conversion requirement, is holding the market back. Central banks are unwilling to specify the trigger levels at what point a Sukuk needs to be written down or converted into equity.” Another issue is that the exercise price of equity conversion cannot be set at the outset. This becomes even a bigger issue for banks that are not listed, as there is no trading benchmark for their equity. “All this will make issuance of Sukuk a lot more expensive given these added uncertainties,” predicts Thijs, warning that: “Also at the moment there are not enough Basel III compliant issues in the market that provide an adequate price benchmark.” However, given that banks will have to issue sooner or later, there is still the likelihood that market activity will pick up towards the end of the year. Malaysia moving ahead MARC notes that Malaysia’s Sukuk market has been somewhat affected with uncertainties surrounding the 13th general elections, and suggests that: “Slower growth in private investment in 2013 will also be another factor for the slowdown in bond issuance in Malaysia this year.” However, it must be noted that Malaysia’s Sukuk market has seen little slowdown compared with the rest of the world. According to Meor Amri bin Meor Ayob of the Bond Pricing Agency Malaysia, the market is “moving along nicely” with total Sukuk outstanding for the first half of 2013 (as at the 28th July) at RM492.6 billion (US$152.5 billion) – up from RM478.1 billion (US$148.2 billion) at the end of 2012 and an increase of 40% from 2011. Malek of Al Baraka also points out that: “Moreover, as industry-wide bodies between both regions gradually converge from a regulatory and Shariah point of view in light of increased coordination and cooperation, we do expect additional cross-border Sukuk sales such as GCC issuers looking to tap the depth and breadth of liquidity in the Malaysian ringgit Sukuk market.” Bouncing back Most players still expect that the market will recover after Ramadan. Miller predicts that: “We anticipate a pick up from September onwards,” while Ng Kit Ho, the head of debt capital markets in Malaysia for RBS, points out that the market as a whole has been slow, not just the Sukuk market. “We expect the market to rebound in line with the rest of global liquidity,” he notes. In fact Bateman believes that it is happening already. “Arguably, the US dollar Sukuk market has already rebounded strongly,” he suggests. Having peaked in May 2013 at a level of Halfway there: Sukuk so far Continued from page 1 continued... Figure 1: Evolution of Sukuk yields in the GCC January 2012 to mid-February 2013 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 2.0 (%) Jan25,2012 Feb25,2012 Mar25,2012 Apr25,2012 May25,2012 Jun25,2012 Jul25,2012 Aug25,2012 Sep25,2012 Oct25,2012 Nov25,2012 Dec25,2012 Jan25,2013 Sukuk yield
    • 4© 31st July 2013 COVER STORY 148.822, the HSBC/NASDAQ Dubai US Dollar Sukuk Index fell to a 10-month low of 142.144 in June 2013, before rebounding to a recent level of 146.212, suggesting that the market is already on its way back up. Malek is equally positive. “Sukuk issuance volumes will really start to pick up steam again in the first quarter of 2014. With US$35 billion in GCC bonds and Sukuk maturing in 2014, the refinancing needs of regional borrowers will ensure that the supply-side dynamics remain supportive of issuance.” Moreover, entering into 2014, the Sukuk market remains buoyed by sound fundamentals such as expansionary fiscal policies by GCC governments and massive infrastructure spending which will provide an impetus for state-linked borrowers to tap the Sukuk market and mobilize the significant liquidity parked on the balance sheets of Islamic financial institutions. However, Abradat Kamalpour, a partner at Ashurst in London, is less optimistic: “I think the market is at least a good six to 12 months away from starting to rebound... One issue is that a lot of the international banks (who take the lead on many deals) are restructuring themselves, and this inevitably leads to delays on transactions.” A healthy pipeline This might be true, but according to most market players the pipeline of deals coming to market is looking good, suggesting that all is not as black as it’s painted. Miller confirms a “reasonably healthy pipeline,” noting that: “We have more than half a dozen transactions at varying stages of progress. It is always difficult to predict the markets and unanticipated extraneous events are always a possibility; but that aside we think it ought to be quite easy for the taps to be turned on again once we get through summer and Ramadan.” Anzal of Allen & Overy agrees: “We are advising on a number of transactions which are in the execution phase and we expect the last quarter of this year to be particularly busy.” Ben Moylan, a partner in the Qatar office of Eversheds, notes that for the Qatar market too: “There are deals in the pipeline, with issuers ranging from financial institutions to large corporates, and we expect many of these to come to market in the coming quarters.” MARC is also optimistic on the future for the market, particularly in the Gulf region. “The long-term prospects of global Sukuk issuance remain promising as there is a significant amount of investment taking place in GCC countries over the next few years following government intentions to diversify their economies away from the oil and gas sector,” said a spokeperson to Islamic Finance news. Overall economic growth looks resilient in the GCC area and there are reportedly projects worth more than US$900 billion at various stages of development throughout the region, including several mega infrastructure projects that are being planned or executed, particularly in the real estate segment. “We believe that the implementation of these mega projects would revitalize bond issuances from these countries,” MARC confirms. Upcoming sectors Sukuk activity is also likely to continue in the Islamic institutional sector and Miller predicts that it may include further Tier 1 and Tier 2 issues. “We also anticipate more regional sovereign and GRE issuances which have of course been the staple for several years. We may also see the start of an interesting niche with some corporate hybrid issuances in the offing,” he explains. Ng of RBS identifies a number of other key areas to watch: “Some interesting deals in the pipeline include EXIM Malaysia, Genting Plantations, Turkish banks and corporates, Saudi Arabian banks and utility companies and Malaysian utility companies.” New markets Saudi Arabia is in fact causing considerable excitement in the market, as people believe that 2013-14 could be the year that its Sukuk sector really takes off. Adulkader Thomas, CEO of SHAPE Knowledge Services, highlights that: “Saudi Arabia is a key market to watch.” Malek agrees: “In light of the recent successful debut Sukuk by the Saudi Arabia dairy corporate, Almarai, we anticipate 2014 to be the year where Saudi corporates will increasingly emerge from the shadows and issue local-currency Sukuk.” Qatar is another promising market with impressively strong domestic growth and expanding domestic credit, which grew by almost 25% between 2011-12 on the back of robust public sector lending. S&P expects credit growth in Qatar to stay above 20% in 2013, pushing up the demand for funding by Qatari banks and, consequently, the level of debt capital market issuances. Moylan comments that: “As far as I am concerned, there is no Sukuk specific slowdown here and the lack of Sukuk issuances is really part of a more general ‘wait and see’ attitude to both debt and equity capital markets Halfway there: Sukuk so far Continued from page 3 continued... Figure 2: Total ringgit Sukuk outstanding, 2005-13 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 Islamic
    • 5© 31st July 2013 COVER STORY issues over recent months.” Qatar is embarking upon several major infrastructure projects over the coming years and it is accepted that banks in particular will need to undergo capital raising in one form or another in order to fund many of these projects, leading to an inevitable boost for the Sukuk market. Moylan however warns that: “As of now, not all of the contracts associated with the projects have not been awarded, and institutions seem to be awaiting the outcome of these awards and a consequent clarification of their likely funding needs, before entering in the markets, through Islamic instruments or otherwise.” Sovereign push But while these markets are making strides forward, other new entrants have a little more work to do. Ng points out that: “Some of the jurisdictions that have an interest in issuing Sukuk still have not or have only just harmonized their legal framework, e.g. Hong Kong. It will take time for a first mover to issue a benchmark and set up a curve. If these countries are interested and serious about issuing Sukuk, they will need to set a curve, which means that the sovereign or proxy to the sovereign needs to make the first issuance so that the rest can follow.” The coming year is also expected to see a lot of new markets arriving to tap the Sukuk sector. Malek notes that: “We’ve seen a plethora of new sovereigns either jump on the bandwagon and amend tax laws and regulatory frameworks to facilitate the issuance of Sukuk or indicate a keenness to make their jurisdictions more Sukuk-friendly. Oman, Tunisia, Morocco, Kazakhstan, and Nigeria are amongst a pool of governments that are expected to explore Sukuk issuance.” It is not just in new markets that sovereigns need to take a stand though. One other reason for the slowdown in Sukuk issuance has been the absence of governments and sovereigns from the market. Timucin Engen, an associate director of S&P in Dubai, notes that: “Looking at the breakdown of global issuance to date, there was a slowdown in the sovereign and quasi-sovereign issuance which drove the overall relatively lower issuance this year, whereas the corporate issuance (which also includes banks) was strong.” A Dubai-based source agrees that: “We need to see much more push from government and government-related entities to issue Islamic paper. We see that from Dubai, and we see it in Saudi Arabia - although Saudi is still very domestic. I think we will see bonds moving back towards US dollars as well, with very little local currency issuance, and in Saudi, a declining proportion.” However, the future looks positive and governments are hoped to move back into the market towards the end of the year. Kronfol confirms that: “We expect sovereigns, quasi-sovereigns and banks to tap the markets relatively soon.” Banks drive forward In fact financial institutions have been a driving force behind the Sukuk market this year. Specifically in terms of GCC deals (both conventional and Sukuk), issuance over the past 12 months has been very healthy as banks attempt to capitalize on the low interest rate environment. “One particularly interesting development in the same period was the emergence of first Tier I issuance structures in the GCC region by the banks,” notes Engen, “and these structures were in the form of Sukuk.” According to S&P, 45% of all GCC bank debt issued in 2012 was in the form of Sukuk, and last year GCC banks issued a total of US$6.7 billion in Sukuk - representing a year-on-year increase of 136%. Although long-term interest rates recently went up which could increase the cost of funding, this is likely to have a limited impact on bank activity as investors continue to search for higher yields, allowing bond and Sukuk issuers to secure long-term funds at relatively low cost. Institutional interest combined with rapid growth in the GCC banking sector is expected to continue pushing this growth forward, and banks will remain key players in the Sukuk market in the coming months as they attempt to replace more expensive issuances with lower cost Sukuk sources, retiring high- cost notes. For example, the National Bank of Abu Dhabi retired a certain portion of its Tier 2 notes in 2012, while in January this year the bank used its option to retire its AED2 billion subordinated convertible note first issued in February 2008. S&P confirms that: “Given the need to manage costs in an environment of limited revenue growth, UAE banks will likely maintain their focus on reducing funding costs. We believe this will keep fueling issuance in the Gulf.” A positive end to the year Despite all this positivity, until there is a clearer picture of where global economic growth is heading, investor appetite is likely to remain remain fragile. However, the supply-demand imbalance in the Sukuk market remains, and should provide something of a cushion from this global uncertainty and therefore will continue to underpin appetite from Sukuk investors. And there is still hope that 2013 will finish on a strong note. Although the year-to-date issuance figures are relatively lower than last year, S&P still expects to see a healthy level of issuance for the remaining period of 2013. Engen notes that: “We still expect the total issuance to reach over the US$100 billion mark this year. We do not see any change in the positive long-term drivers for the Sukuk market.” Halfway there: Sukuk so far Continued from page 4 Some interesting deals in the pipeline include EXIM Malaysia, Genting Plantations, Turkish banks and corporates, Saudi Arabian banks and utility companies and Malaysian utility companies
    • 6© 31st July 2013 NEWS DEALS Profit payment MALAYSIA: DanaInfra Nasional has announced that it will be making the first profit payment to investors of its retail Sukuk on the 13th August for the period from the 8th February to the 12th August. The rate is fixed at 4% a year. Upcoming Sukuk SAUDI ARABIA: Tamweel has announced its plans to issue a corporate Sukuk Ijarah worth US$235 million on the 1st August this year. The issuance will be made through its SPV, Tamweel Funding. Rare structure SAUDI ARABIA: Dairy company Almarai has selected the investment banking arm of Banque Saudi Fransi, BNP Paribas, HSBC Saudi Arabia and Standard Chartered to arrange the sale of its upcoming hybrid Sukuk, reported Reuters. Corporate Sukuk QATAR: Masraf Al Rayan will be issuing a US$1 billion corporate Sukuk in August, as announced on the IdealRatings portal. Sovereign Sukuk SENEGAL: The Republic of Senegal will be issuing a sovereign Sukuk domiciled in the country, amounting to US$200 million, on the 1st August, according to sources. Sukuk in the pipeline MALAYSIA: Palm oil producer Genting Plantations is planning to issue a 15-year Sukuk program worth RM1.5 billion (US$468.62 million) via its SPV Benih Restu, which has been rated ‘AA2(s)’ with a stable outlook by RAM Ratings. The rating agency also reaffirmed Genting Plantation’s long and short-term corporate credit ratings at ‘AA2/stable/ P1’. The deal will be advised by Maybank and OCBC Bank. Financing secured SAUDI ARABIA: International Methanol Company, an affiliate of Saudi International Petrochemical Company (Sipchem), has procured a SAR325 million (US$86.64 million) Islamic facility from Riyad Bank which will mature in 2023. Final extension? SAUDI ARABIA: Telecom operator Zain Saudi’s outstanding US$2.3 billion Murabahah facility, which was initially due in 2011, has been extended by five years; with 25% of the financing due in the final two years of the extension period and the remaining 75% on the 31st July 2018, according to a bourse filing. The new facility has an 18% deduction in profit margin with the possibility of a further reduction in the future. Malaysia offers boost to Japan’s Islamic finance efforts GLOBAL: Malaysian prime minister Najib Razak and the Japanese premier Shinzo Abe met in the political capital of Malaysia, Putrajaya, on the 25th July, to discuss their intentions to renew a bilateral swap agreement which expired in October 2007. Also on the agenda was the topic of Islamic finance, and Najib commented that Malaysia is looking forward to receiving inward investment from Japanese enterprises, financial institutions and investors to engage in Islamic finance-related activities. He also added that Malaysia would like to offer technical assistance to Japan in relation to this sector. On the sidelines of the event, Malaysian government investment arm 1MDB signed an agreement with the Japan Bank for International Cooperation (JBIC) to open opportunities for both countries to benefit from Samurai bonds under the Guarantee and Acquisition toward Tokyo market Enhancement (GATE) facility. JBIC has since 2006 expressed its intention to issue a Sukuk, but has yet to come to market. Speaking to Islamic Finance news, a Japan-based lawyer commented on the latest initiative between the two governments, saying: “Although we have not seen significant activities in the Islamic issuance market in Japan following the amendments to the laws on securitization, it is hoped that such initiatives will increase the chances of Japan issuing a Sukuk in the country. We have been considering this, and the Japanese government has been keen to accept Islamic money in Japan. The environment, following the amendments to the law, has already been primed for such issuances.” Although there have not been any domestic Islamic issuances within the Japanese market itself, several Japanese corporations have raised Sukuk outside of the country, including AEON Credit, Toyota Corporation and Nomura Holdings. The Bank of Tokyo Mitsubishi- UFJ’s Malaysian operations also recently affirmed that it will be rolling out more Islamic financing products in the coming year to satisfy rising demand from consumers and investors. DEAL TRACKER Full Deal Tracker on page 32 ISSUER ISSUING CURRENCY SIZE (US$) DATE ANNOUNCED Genting Plantations RM 465.31 million 26th July 2013 Republic of Senegal US$ 200 million 25th July 2013 Masraf Al Rayan US$ 1 billion 25th July 2013 Tamweel US$ 235 million 25th July 2013 Bank Asya TRY 519.23 million 23rd July 2013 Are you reading us on your iPad / iPhone?
    • 7© 31st July 2013 NEWS AFRICA Debut index EGYPT: Investment firm NAEEM Holding and IdealRatings have teamed up to establish the first real-time Shariah compliant index for Egyptian stocks, the NISE25. The index will comprise of the top 25 Shariah compliant stocks in the republic that fulfil the criteria set by NAEEM’s Shariah board. Shariah banking for all TANZANIA: Zulfikar Chando, the head of BancABC Tanzania’s corporate services, has urged other banks in the East African country to offer Islamic banking products, while highlighting the significance of Islamic finance to the republic’s economy. Sukuk hangs in the balance EGYPT: In his first press conference, newly-appointed finance minister Ahmed Galal revealed that US$9 billion in aid by Saudi Arabia, the UAE and Kuwait will be used to strengthen the republic’s foreign currency reserves while another US$3 billion will be used to procure strategic commodities. The minister also said that the role of Sukuk in the republic’s economy has yet to be determined. Product improvement SOUTH AFRICA: Absa Islamic Banking has revamped its Shariah compliant cheque account to include services which allow customers to recover some of their monthly bank fees. The bank’s Islamic cheque value bundle is the first Shariah compliant product of its kind to be introduced globally. AMERICAS Legal breakthrough US: The US bankruptcy court for the southern district of New York has recently approved the country’s first Shariah compliant debtor-in-possession financing and exit financing package in Arcapita Bank’s bankruptcy cases. The court’s decision bears testament to the permissibility of Shariah compliant financing in the US Bankruptcy Code as well as the adaptability of the US bankruptcy system to alternate forms of financing. ASIA Heightened concerns TURKEY: Ali Babaçan, the deputy prime minister of Turkey, has expressed concerns over the low market share of participation banks in Turkey. “The participation banks’ share in assets and funds is 5% and 6%, respectively. These figures are below our desires,” he said during an Islamic finance conference in the republic. Regional expansion MALAYSIA: In line with the central bank’s ambitions to internationalize Islamic finance, Maybank Islamic intends to strengthen its presence in neighboring ASEAN countries after solidifying its position in Singapore and Indonesia, according to Muzaffar Hisham, the bank’s CEO. Maybank Islamic currently has four million depositors with a deposit value of RM70 billion (US$21.86 billion). Seeking improvement MALAYSIA: EXIM Bank (Export-Import Bank) of Malaysia intends to boost its Islamic financing portfolio from its current 20% share to reach approximately 30% of its total financing disbursements by 2015, according to Adissadikin Ali, the bank’s managing director and CEO. He also said that the bank is anticipating a lower non-performing financing rate this year from the current 10%, due to improved financial vigilance. Special assistance scheme BANGLADESH: The IDB has decided to admit Bangladesh into its four-year Member Country Partnership Strategy program in September. Under the program, the IDB will provide significant financial assistance of up to US$17.6 billion for the country’s infrastructure, agriculture, education and import- export sector, through its subsidiaries including the International Islamic Trade Finance Corporation (ITFC) and the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC). Managing the flood MALAYSIA: The Malaysian central bank, Bank Negara Malaysia, has intervened to absorb excess liquidity from the financial system. The bank estimated liquidity as at the 29th July to stand at RM5.32 billion World’s tallest office building to be part-funded in a Shariah compliant manner UAE: Standing at an estimated 520 meters high, the upcoming commercial building project — which will involve the Dubai Multi Commodities Center (DMCC) — is expected to draw upon Shariah compliant funding as part of its financing package, said the chairman of the DMCC Ahmed Sulayem in a recent interview with a Gulf daily. The construction, which is estimated to cost US$1 billion, is expected to be completed by 2018 — five years from the commencement of the project. The DMCC was set up as a government initiative to facilitate the trade flow of commodities through Dubai, and runs the Jumeirah Lake Towers Free Zone, which is a free-zone commercial, residential and retail space available for leasing and sale. According to the DMCC chairman, since the center’s set- up in 2002, the value of gold traded has increased from US$6 billion in 2003 to reach US$70 billion in 2012 — making up 25% of the world’s physical gold trade. As at June 2013, there were 6,890 companies registered under the DMCC, with more than 1,200 signing up in the first half of this year alone — exceeding the entire total number of new registrations in 2011. continued... Want to join IFN? is building its team and is now seeking budding journalists. So if you’d rather write the news than read it… drop us a line. We’re currently open to applications from senior and junior journalists with excellent writing skills and a strong background in finance. Please submit applications to Andrew.Morgan@REDmoneygroup.com
    • 8© 31st July 2013 NEWS (US$1.65 billion) for Islamic funds. As part of its RM6 billion (US$1.86 billion) range maturity program, it will be announcing three Wadiah tenders worth RM900 million (US$280.31 million) for seven days, RM500 million (US$155.73 million) for 14 days and RM400 million (US$124.58 million) for 28 days. Financing approved AZERBAIJAN: The board of directors of the IDB has given its preliminary consent to commence the US$137 million agricultural irrigation project in the landlocked enclave of the Nakhchivan Autonomous Republic. The Azerbaijani government’s next move would be to complete the development of the project. Reaching the masses PAKISTAN: Speaking to a local daily Mujeeb Baig, the head of product development at Karachi-based MCB Bank, has revealed plans to enhance its Shariah banking network. The bank will be opening new branches and sub- branches in different cities across the country. EUROPE Europe focus LIECHTENSTEIN: Islamic finance legal network iSfin has partnered with business and tax law firm ILG, making the latter its exclusive representative for Liechtenstein. GLOBAL Delayed takeover GLOBAL: Due to ongoing negotiations since late 2012, Masraf Al Rayan has exceeded the previous deadline to extend a takeover offer to the Islamic Bank of Britain. As a result, the time limit for the buyout has been extended to the end of August this year. Socio-economic support GLOBAL: The IDB has signed an agreement with the Yemeni government to provide up to US$18.3 million for the financing of rural and industrial projects in Yemen. An amount of US$15 million will be allocated to develop several infrastructure projects in rural areas of Yemen, while another US$3.3 million will be given to the Deauville Partnership’s Transition Fund, to be invested in comprehensive research for the development of the Al-Hudaydah industrial area. The IDB has also pledged support towards development projects to be carried out by Sierra Leone’s Ministry of State for Finance and Economic Development, and National Commission for Social Action. Sukuk decline GLOBAL: According to data compiled by Bloomberg, the number of Sukuk auctions in the GCC has decreased by 29% in 2013 compared to 17% last year. The drop in the GCC, the newswire said, follows the US Federal Reserve’s action of scaling back on its quantitative easing program. British auction GLOBAL: Sovereign wealth funds from Qatar, Kuwait and Singapore are believed to be interested in acquiring a stake in Lloyd’s Banking Group. In the coming weeks, the UK government will be selling 39% of the bank’s holding, worth approximately GBP20 billion (US$30.75 billion), in three tranches. The first tranche will be offered to existing institutional investors at a 5-10% discount, followed by the second tranche in spring, also to institutional investors and the retail offering to be debuted in summer 2014. New territory GLOBAL: Emirates NBD Capital intends to provide Sri Lankan banks with Islamic-structured financing, as it looks to find its niche in the South Asian republic’s corporate sector, according to its CEO, Mohammad Wajid Kamran. He also highlighted the suitability of Sukuk to fund Sri Lanka’s upcoming infrastructure products. Eastern footing GLOBAL: Qatar National Bank, which has an Islamic banking unit, has opened a representative office in the Shanghai World Financial Center. The bank aims to extend intermediary services to Middle Eastern companies seeking to establish their business or investments in China while acting as a liaison for Chinese continued... continued... Startup Village to benefit from Shariah compliant financing INDIA: India’s answer to Silicon Valley, the Startup Village in Kerala, will receive INR150 million (US$2.53 million) from Cheraman Financial Services’Alternative Investment Fund. The fund, which received approval from the Securities and Exchange Board of India in April this year, targets Shariah compliant investments in the service and manufacturing sectors. The Startup Village is India’s first technology business incubator based on the model of public-private partnerships. The initiative is supported by the government of India, the Department of Science and Technology, Technopark Trivandrum and MobME Wireless. The village, which was launched early last year, aims to incubate 1,000 product start-ups over the next 10 years and will focus primarily on student start- ups from college campuses. It aims to provide a platform for start-ups to create breakthrough technologies for the global telecommunications industry. The incentives afforded to new companies include a three-year tax exemption from the government and funding of up to INR10 million (US$168,782), as well as subsidized fees for tax consultations, infrastructure and IP services. Cheraman Financial Services, which is also known as Al Barakah Financial Services, was established under an equity participation with the Kerala State Industrial Development Corporation and private investors; the majority of which are from the Gulf. As at the 22nd April 2013, the fund was listed under Category II of the Securities and Exchange Board of India which includes private equity funds, debt funds and funds of funds. According to the regulator’s website, funds registered under this category are not allowed any specific incentives or concessions from the government or regulator. Cheraman Premium Fund I is the first scheme from the company which aims to carry out private equity investments totaling INR250 million (US$4.21 million).
    • 9© 31st July 2013 NEWS companies looking to expand into the Middle East. University tie-up GLOBAL: Hamdan Bin Mohammed e-University entered into a cooperation agreement with the Open University of Catalonia for the development of customized Islamic banking and finance courses for the Spanish university. MIDDLE EAST Tailored services UAE: Abu Dhabi Islamic Bank has partnered with the Dubai Education Zone to provide customized banking services and products — including discounts to the latter’s employees, while also designing Islamic banking educational courses for its working professionals. Successful deployment UAE: Al Hilal Bank has integrated ETHIX-Profit Computation and Distribution Islamic banking system from International Turnkey Systems. Mutual cooperation OMAN: Shariah compliant Bank Nizwa and Ahlibank’s Al Hilal Islamic Banking Services have signed into a Wakalah agreement to facilitate the banks’ interbank placement. License approved OMAN: Shariah compliant Bank Nizwa has obtained an investment banking license after six months in operation, allowing the bank to manage funds and issue Islamic financial instruments. Lack of financing for new projects UAE: Improved sentiment in the UAE property market, which has been pegged to an overall improvement in the Dubai economy, and a return to the market by major developers, has spurred demand for residential property across Abu Dhabi, Dubai and Sharjah. In the first half of the year rental prices continued to grow at an upward trend, and while prices are not expected to fall due to strong demand, a lack of financing for new development projects is expected to stall growth to some extent. A recent report by property consultants Asteco expects the Dubai residential market to continue to see new project launches, recommencements of stalled projects and handovers. However, it said that although a number of previously stalled projects have recommenced construction, other developments have been put on hold due to lack of available finance. Government backing BAHRAIN: The minister for industry and commerce in Bahrain, Dr Hassan Fakhro, has said that the government will support all Bahraini investment initiatives undertaken in the kingdom and overseas in a bid to enhance its economy. Bahraini businesses were hit hard following the 2009 credit crisis and are still struggling to find their footing four years on. RESULTS ABC Islamic Bank BAHRAIN: ABC Islamic Bank reported a net profit of US$6 million for the first six months of 2013, recording an increase of 49% compared to the same period last year. The bank’s total operating income rose to US$8.3 million in the first half, compared to US$7.4 million in the corresponding period last year, while its operating expenses decreased to US$2.2 million compared to US$2.7 million in the same period last year. Abu Dhabi Islamic Bank UAE: Abu Dhabi Islamic Bank has recorded a net profit of AED371.4 million (US$101.09 million) in the second quarter compared to AED322.6 million (US$87.8 million) in the corresponding period last year. Ahlibank OMAN: Ahlibank, which operates Al Hilal Islamic Banking, announced a 6% increase in net profit for the first half of the year to OMR12.5 million (US$32.37 million) against OMR11.8 million (US$30.56 million) from the corresponding period last year; while its operating income grew by 7% to OMR24.3 million (US$62.93 million). The bank’s total assets stood at OMR1.3 billion (US$3.37 billion) as of the 30th June, marking a 23% accretion. Emirate aims high with the launch of the Dubai Center for Excellence in Islamic Banking & Finance UAE: The 24th July saw the launch of a groundbreaking initiative by Hamdan Bin Mohammed e-University (HBMeU), in line with the Dubai government’s aspirations of becoming the world’s leading Islamic economy. Sheikh Hamdan Mohammed Rashid Al Maktoum, the crown prince of Dubai and the chairman of the Dubai Executive Council and president of HBMeU, launched the Dubai Center for Excellence in Islamic Banking & Finance, which aims to support human capital development in the Islamic banking and finance sector in the emirate and on a global scale through the implementation of a comprehensive curriculum encompassing human capital development, research and community service. The research aspect of the center will include the advancement of the professional and theoretical foundation for Islamic banking and finance, while on the community side, the center will aim to provide Islamic banking and finance education to a wider audience within the Middle East and overseas. Adopting a four-tier approach in its academic system, the learning center seeks to enhance human capital development in stages subject to a learner’s commitment and competency level. The initiative is part of the Dubai government’s plan, unveiled in February this year, to become the world’s premier Islamic economy. According to officials, the center represents an integral part of this plan which includes the creation of an arbitration center for dispute resolution in Islamic finance, as well as the creation of a Shariah council to oversee standards on Islamic finance. The center’s advisory board consists of an impressive lineup of industry stalwarts, including Dr Yusuf DeLorenzo, the chief Shariah officer and board member at Shariah Capital; Professor Dr Syed Othman Al Habshi, the chief academic officer of INCEIF; Rodney Wilson, Emeritus Professor at Durham University UK & INCEIF; Neil Miller, the global head of Islamic finance at Linklaters; Dr Fahim Khan, the chairman of Riphah Center of Islamic Business; and Dr Khaled Al Fakih, the secretary-general of AAOIFI. continued...
    • 10© 31st July 2013 NEWS Al Khaleej Takaful Group QATAR: Al Khaleej Takaful Group has registered a decrease in first half net profits to QAR28.3 million (US$7.76 million) from QAR59 million (US$16.19 million) in the same period last year. Arab Bank JORDAN: Amman-based Arab Bank, which provides Islamic banking services, reported a 7.5% increase in profits to US$387 million for the first six months of 2013. The bank also foresees a double-digit growth this year based on the steady growth in its net operating income. Barwa Bank QATAR: Barwa Bank has witnessed an increase of 85% in half-year profits to QAR303.6 million (US$83.3 million), compared to QAR162.9 million (US$44.7 million) in the corresponding period last year. The bank saw a 10% increase in total assets to QAR27.8 billion (US$7.62 billion) while its earnings per share rose from QAR0.55 (US$0.15) to QAR1.01 (US$0.27). Commercial Bank of Dubai UAE: Commercial Bank of Dubai, which operates Shariah compliant Attijari Al Islami, reported a 2.3% increase in net profit to AED497 million (US$135.28 million) in the first half of the year from the same period in 2012; while its operating income grew by 4.6% to AED983 million (US$267.57 million). The bank’s total assets stood at AED42.4 billion (US$11.54 billion) as at the 30th June, marking a 7.7% growth from the corresponding period last year. Finance House UAE: Independent financial and investment firm Finance House recorded a consolidated net profit of AED56.5 million (US$15.38 million) for the first half of the year while its net interest income increased by 7.5% to AED64 million (US$17.42 million), compared to the first six months of 2012. The company’s Islamic financing and investing assets stood at AED100 million (US$27.22 million) as of the 30th June, marking a 54% growth against the corresponding period last year. First Gulf Bank UAE: First Gulf Bank, which has an Islamic window, reported an increase of 15% in profits to AED1.17 billion (US$318.45 million) in the second quarter of this year. Jordan Islamic Bank JORDAN: Jordan Islamic Bank recorded a profit of JOD14.7 million (US$20.68 million) in the second quarter, marking a 21% growth from the corresponding period last year. National Bank of Kuwait KUWAIT: National Bank of Kuwait registered a 6.4% year-on-year increase in net profits to US$450.3 million for the first six months of 2013 and a 25.3% growth in total assets totaling to US$62.8 billion as of the 30th June 2013. The bank’s operating income grew by 18.3%, due in part to the bank’s increased stake in Shariah compliant Boubyan Bank. Masraf Al Rayan QATAR: Masraf Al Rayan recorded a 13% accretion in net income for the three months ended the 30th June totaling to QAR421 million (US$115.6 million) from the last quarter. The bank’s shares reached QAR28.1 (US$7.7), marking a 1.3% increase on the 23rd July. The bank is Qatar’s largest Shariah compliant bank by market value. Mashreq Bank UAE: Mashreq Bank, the parent company of Mashreq Al Islami, announced a 40.1% rise in net profit for the first half of the year totaling to AED828 million (US$225.38 million) against the corresponding period in 2012 while second quarter earnings grew by 24.7% to AED402.6 million (US$109.59 million) from the same period last year. National Bank of Abu Dhabi’s second quarter profit up by 16% UAE: As the UAE’s real estate market sees a gradual recovery in average property prices in Abu Dhabi and Dubai, as well as an improvement in liquidity in the banking system, the National Bank of Abu Dhabi (NBAD) has recorded an increase of 16% in second quarter profits. The bank’s net income rose to AED1.21 billion (US$329.34 million) from AED1.05 billion (US$285.79 million) in the same period last year, while its net income from Islamic financing contracts as at the 30th June stood at AED149.09 million (US$40.58 million). Its net interest and Islamic financing income grew by 7.5% from the corresponding period last year to AED3.2 billion (US$870.99 million). NBAD also reported a 21.8% rise in operating profits to AED3.3 billion (US$898.21 million) from the first half of 2012, with a 3% growth in its Islamic banking business. With regards to its Egyptian operations, the bank, which is rated ‘Aa3’ by Moody’s, said that it will continue to closely monitor the situation in the republic, and does not anticipate any material impact to its overall business. Overall growth in the UAE is expected to dampen this year, mainly due to slower growth in hydrocarbon production. However, analysts at NBAD believe that this will be mitigated by increased non-oil activity in the region. Net loan to deposit ratios in the UAE are currently at their lowest levels of the last few years, contributing to improved liquidity, while lending growth, although so far modest, is seen to be picking up. KPMG has 218 subscribers to Islamic Finance news, and pays less than US$24 per subscription. IFN is for everyone, not just the CEOs Contact us now and see how we can help your entire team Call: +603 2162 7800 or Email: musfaizal.mustafa@redmoneygroup.comneyeygggrog upup.comm
    • 11© 31st July 2013 NEWS Public Bank MALAYSIA: According to Kenanga Research, Public Bank’s Islamic banking business saw a small increase of 1.3% quarter-on-quarter and a slight decline of 0.5% year-on-year. The bank’s total income, however, grew 6.5% in the second quarter compared to the corresponding period last year. ASSET MANAGEMENT Inaugural closing MALAYSIA: CIMB-Mapletree Management, a joint venture between Malaysia’s CIMB Group and Singapore- based Mapletree Investments, recently closed its Islamic private real estate fund, the CMREF 2 Shariah Fund, said to be the first of its kind in Malaysia. The Malaysia-domiciled fund has a size of approximately RM450 million (US$141.57 million) and invests in Shariah compliant core assets. Top of the table MALAYSIA: Hwang AIIMAN PRS Shariah Growth Fund, managed by Hwang Investment Management, has recorded a 19% growth to become the fund manager’s number one performing fund. The local Islamic private retirement scheme fund, along with Hwang Investment’s other three funds, declared a 2-4% interim income distribution for the nine-month period ended the 31st July. Opening doors GLOBAL: US-based Azzad Asset Management has approached the South African ambassador to the US to discuss potential Halal investment opportunities in the African republic, under the former’s Shariah compliant Azzad Wise Capital Fund. Widening reach SAUDI ARABIA: With a plan to source two-thirds of its assets under management from outside Saudi Arabia within four to five years in order to widen its client base outside traditional Islamic regions of the Middle East and Southeast Asia, investment firm Sedco Capital intends to register its Shariah compliant funds — which are also environmental, social and governance (ESG) compliant funds — in Switzerland and create distribution channels via private banks. The firm will be entering into two strategic agreements with established private banks by the end of the year, according to its CEO Hasan Al Jabri. TAKAFUL Takaful protection MALAYSIA: Malaysian Deposit Insurance Corporation, also known as Perbadanan Insurans Deposit Malaysia (PIDM), has reported an increase of 9% in its Takaful and insurance benefits protection funds to RM1.08 billion (US$339.75 million) from RM991.2 million (US$311.82 million) at the end of 2011. The fund proceeds are collected from levies paid by Takaful and insurance operators. Legislative will TURKEY: Subject to legislative endorsements, Al Baraka Turk has notified Turkish authorities of its intention to found an Islamic insurance company in the republic. Turkey currently lacks the legal basis for the formation of Takaful firms. Profit distribution MALAYSIA: Almost 300,000 certificate holders of Prudential BSN Takaful’s Ordinary Family Takaful Plan will receive a proportionate rate of the surplus from the plan’s Tabarru’ funds amounting to RM7.5 million (US$2.35 million). At the same time, the company will also distribute RM11.3 million (US$3.54 million) in investment profits to 486,000 eligible participants. Outsourcing service SAUDI ARABIA: Cooperative insurance operator Wataniya Insurance Company has engaged Shariyah Review Bureau to act as the firm’s Shariah advisor, whereby the latter will oversee the Shariah compliance needs of the operator. Turkish venture GLOBAL: Khazanah Nasional’s insurance arm, Avicennia Capital, has purchased a 90% stake in Acibadem Sigorta, Turkey’s second-largest health insurance provider. Avicenna Capital’s portfolio includes CIMB Aviva Takaful, CIMB Aviva Assurance and Singapore’s Takaful reinsurer, ACR Capital Holdings. RATINGS Negative outlook MALAYSIA: KNM Capital’s RM300 million (US$94.15 million) Murabahah underwritten notes issuance facility/ Islamic medium-term notes program has been downgraded by MARC to ‘MARC- 2ID/A-ID’ from ‘MARC-1ID/A+ID’ while its outlook remains on MARCWatch Negative. KNM Capital is the SPV of investment holding company KNM. Ratings assigned UAE: Sharjah Islamic Bank’s financial strength rating has been reaffirmed at ‘BBB+’ by Capital Intelligence while its long and short-term foreign currency ratings have been rated ‘A-’ and ‘A2’, respectively. All ratings carry a stable outlook. Egypt affirmed negative EGYPT: Moody’s has affirmed the government bond rating of Egypt at ‘Caa1’, with a negative outlook. Weak ratings MALAYSIA: Binariang GSM (BGSM)’s RM2 billion (US$622.92 million) Islamic commercial papers program, RM19 billion (US$5.92 billion) Islamic medium- term notes program and US$900 million junior Sukuk have been downgraded by RAM from ‘P1’, ‘AA3’ and ‘A2’, respectively, to ‘P2’, ‘A2’ and ‘BB1’. The downgrades reflect the weak performance of Aircel, a subsidiary of Maxis Communications, of which BGSM is the immediate holding company. The ratings have also been placed on negative watch. MOVES Emirates Islamic Bank UAE: Yakub Bobat has been appointed as the head of corporate banking at Emirates Islamic Bank. He brings with him 25 years of experience in both Islamic and conventional finance, and was previously the global head of HSBC Amanah Commercial Banking.
    • 12© 31st July 2013 SHARIAH PRONOUNCEMENT Query: A customer has approached an Islamic bank seeking finance to purchase a property which is mortgaged to a conventional bank against conventional loan payable by the owner of the property. Shariah guidance is sought on how the Islamic bank can finance the purchase of the mortgaged property for its customer. Pronouncement: The property may be financed through various modes such as Ijarah, Murabahah or Musharakah. However, we shall discuss the Murabahah mode of financing as a solution, whereby the bank will purchase the property from the existing owner and will sell the same to its customer on deferred price, after adding agreed profit to the cost. As explained in the query, the owner of the property is not in a position to pay the bank’s debt from his own sources to get the mortgage released so that he could sell it to the Islamic bank. The sale price of the property is higher than the outstanding mortgage amount. On the other hand, the conventional bank will not agree to release the mortgage before full settlement of its outstanding loan. In the above scenario, Shariah permits the Islamic bank to purchase the mortgaged property from the owner by entering into purchase agreement with him, subject to the seller first obtaining written confirmation from the conventional bank addressed to the Islamic bank that it will release the mortgage upon full payment of the outstanding mortgage amount. The seller will request the Islamic bank to disburse the sale proceeds in two parts: with the first payment to be made to his account with the conventional bank so that he can use it to settle his liability with the conventional bank, and the balance released to the seller by way of manager’s cheque. For avoidance of doubt, in the given scenario the Islamic bank will not pay to the mortgagee bank any interest- bearing loan payable by the seller. Rather it will simply pay part of the purchase price to the seller’s account with the conventional bank, which shall then be used by the conventional bank to settle the seller’s outstanding mortgage amount, while the balance purchase price of the property will be paid directly to the seller. Once the clear title and constructive possession has passed to the Islamic bank pursuant to the release of the mortgage by the conventional bank, the Islamic bank will sell the property to its customer on a Murabahah basis. The Islamic bank will have the right to get the property mortgaged to it until full payment of the Murabahah amount by the customer. Dr Hussain Hamed Hassan Chairman of the DIB Shariah Board Managing director, Dar Al Sharia Legal & Financial Consultancy Dubai, UAE This Fatwa is brought to you exclusively by IFN in collaboration with Dar Al Sharia Legal & Financial Consultancy-Dubai. The Fatwa appearing in this space are those which were obtained by Dar Al Sharia for their client institutions and depict issues faced. This Fatwa was compiled by Dr Muhiuddin Ghazi. www.daralsharia.com SHARIAH PRONOUNCEMENT
    • 13© 31st July 2013 IFN REPORTS Last week a New York bankruptcy judge approved the sale of 3PD, a subsidiary of the bankrupt Arcapita, to Atlanta-based XPO Logistics for a reported US$365 million, in its continued progress back from bankruptcy with a new multi-million loan package from Goldman Sachs. Arcapita, a leading Islamic investment company with widespread private equity holdings and investments in the US, filed for Chapter 11 bankruptcy in March 2012 after it failed to obtain the 100% lender consent it needed to restructure a US$1.1 billion syndicated facility set to mature the same month. At the start of its bankruptcy the firm had interests in 39 companies and US$7 billion in assets under management, with minority interests in 80% of its investments. However, it commenced proceedings with just US$120.1 million in available funds, which primarily went to fund existing deals in order to preserve its portfolio’s asset value. In order to complete its restructuring Arcapita entered into a US$150 million Murabahah financing agreement with Fortress Credit, a New York-based investment management firm. Only around 40% of this debtor-in-possession (DIP) package, which accrued profit at a rate equal to one-month LIBOR plus a 10% margin per year on the unpaid principal as well as a 3% upfront fee, was repaid; with an outstanding amount of around US$105 million maturing on the 14th June. In May this year, therefore, Arcapita negotiated a new US$150 million Murabahah bankruptcy loan with Goldman Sachs in order to meet its obligations to Fortress, along with a US$350 million exit financing package to steer it out of bankruptcy. The replacement DIP facility is reportedly almost identical to the original Fortress structure, with an annual profit rate of 8% in cash plus 1.75% payable in kind. In fact Fortress also made Arcapita a loan offer of US$350 million, which the company decided to reject in favor of Goldman Sachs, despite claims by Fortress that its offer would fund Arcapita’s exit at a better price, as well as excluding administrative fees. Fortress also would allow Arcapita keep up to US$30 million in sale proceeds in order to protect its portfolio investments, according to papers filed at the US Bankruptcy Court in New York. In comparison, Goldman Sachs’ loan was thought to be less generous, including placing restrictions on collateral sales, forcing Arcapita to rely heavily on lender funds and giving it less control. “Fortress’s initial disappointment regarding the debtors’ selection of GSI as exit lender soon gave way to confusion,” the firm said in its filing. “Fortress’ proposal is objectively more favorable to the debtors in nearly every respect ... so it is unclear why both the debtors and the committee have lent their support to the Goldman Sachs proposal.” In April this year Arcapita filed a new restructuring plan aimed to steer it out of bankruptcy, including the sale of a number of portfolio investments and the setting up of new firms to be managed by a Cayman Islands holding company. This most recent 3PD sale is the latest in a series of divestments which have been notable for their orderly pace and focus on maximizing the recovery of funds for Arcapita creditors and investors. Despite the in-fighting and scandal that have dogged the firm since its filing last year, it looks as though a way out of the woods might finally be in sight. — LM Arcapita continues its steps towards recovery This past year has seen a rather capricious international capital market due in part to optimistic economic growth prospects worldwide coupled with concerns over monetary policy in the US, which has inevitably caused cross-border effects. However, from an Islamic finance perspective, the global Sukuk market has been relatively shielded from such volatility with the continued momentum in issuances amounting to US$26.6 billion in the second quarter of 2013, according to a report released by the Malaysia International Islamic Financial Center (MIFC). In the primary market, three main players dominate the Sukuk issuance arena commanding a collective market share of 91% — Malaysia at US$18.4 billion, Saudi Arabia at US$4.5 billion and the UAE at US$1.4 billion, according to KFH Research. Issuances of Islamic bonds in the Southeast Asian nation have outperformed the previous year every month since January, with the exception of a considerable decline in June. Nonetheless, Malaysian ringgit issuances continue to outperform US dollar-denominated offerings at a volume of US$17.8 billion against the latter’s US$14.4 billion, as revealed by data from Dealogic for the past 12 months (rolling). The first half slump in US dollar issuances in most domiciles, except the UAE, is attributed to lower sovereign issuances. In the secondary market, Malaysia still accounts as the largest Sukuk market with a 60.4% share at US$148.2 billion in the first half of 2013 while global outstanding Sukuk stands at US$245.3 billion, marking a 7% accretion from the end of last year. While it may seem that the overall Islamic debt market is set for continued expansion, it is nonetheless anticipated that following its 25-month high in yields, which was in tandem with the rise in overall emerging market debt, Sukuk issuances will slow down in the coming months taking into account the US Federal Reserve’s move to scale down its quantitative easing program, according to MIFC. — VT Global Sukuk market: Truly resilient? Have you joined the leading Islamic finance Linked-In Group yet? Come and join thousands of other like-minded industry practitioners now.
    • 14© 31st July 2013 IFN REPORTS Azzad Asset Management is a Shariah compliant investment firm incorporated in the US where the American Muslim community represents more than US$200 billion in spending power. Last week, the firm approached Ebrahim Rasool, the South African ambassador to the US to discuss potential investments in republic through the Azzad Wise Capital Fund. The fund primarily invests in notes and certificates issued for payment by international financial institutions, foreign governments, and agencies of foreign governments in transactions tailored to the fund’s ethical investment guidelines. South Africa has one fully-fledged Islamic bank and four conventional banks that offer Islamic financial products such as vehicle and asset financing as well as pension funds. Azzad is reportedly in the initial stages of research for possible investments in profit and loss sharing accounts at these banks, and similar to the fund’s investment schemes in Turkish banks, the firm is looking to diversify the Islamic banking portion of its Azzad Wise Capital Fund portfolio. According to Joshua Brockwell, the firm’s investment communications director, in his conversation with the South African ambassador, he noted that the country has made significant progress in Islamic finance in the recent years. The growth is mainly attributed to the partnership between the local Muslim community and their business interests. Apart from South Africa, the firm has also visited several Islamic institutions in Indonesia with an eye to venture into microfinancing projects in rural areas of the republic. — NA US asset management firm sets sights on South Africa A recent report by the Kuwait Financial Center (Markaz) states that currently more than US$900 billion in construction projects are at various stages of development throughout the GCC, with real estate accounting for over half of that, with US$516 million in deals in the pipeline. The main contributing factor to this real estate boom is urbanization, an influx of expatriate labor and the relaxation of foreign ownership rules on GCC real estate. There has also been a shift in focus from high income groups to lower and middle income groups, while there are still many untapped opportunities in the public-private partnership projects avenue. It seems, through recent ongoing initiatives, that the GCC is striving — rather successfully — to diversify its economy away from the oil and gas sector. Efforts include increasing government surpluses, enhanced spending measures and higher budgetary allocations to infrastructure development, Markaz wrote. Despite the abundant opportunities in the construction sector, there are still lingering challenges within the GCC region, with lower growth forecasts attributed to the slow recovery of the EU region which could result in fluctuating oil prices on a global level. Luring in foreign investments could also be a challenge due to the weak regulatory environment in terms of dissemination and availability of information, shaky investor protection and poor enforcement of legal contracts. Stricter lending requirements that have been enforced by regulators in the GCC towards banks however have not put a dent on their balance sheets, with the chairman of the Arab Banks Union, Adnan Yousuf, expecting GCC banks to record an increase of 20-25% in net earnings for the first half of this year, on the back of a 12% growth in credit in the first quarter, to reach AED2.18 trillion (US$594 billion). Qatari banks ranked highest in terms of credit growth at 25%, followed by Saudi Arabian banks at 12.7%. — NH Up to US$516 million in real estate projects slated for the GCC th rd nd nd Register NOW to secure your FREE seat! www.redmoneyevents.com 25th November 201321st - 22nd October 2013 18th - 19th November 2013
    • 15© 31st July 2013 IFN RESEARCH REPORT LEBANON Legal and regulatory: Lebanon has a highly regulated and streamlined banking sector. With its long-standing secrecy and fiduciary laws, the country has witnessed tremendous growth in the banking sector. Laws relating to Islamic banking were introduced in 2004. The absence of controls on the movement of capital and foreign exchange has attracted many foreign financial institutions to Lebanon. Islamic banks in Lebanon can undertake all banking services and transactions including without limitation, forming companies and participating in projects, as well as acquiring real property for the purposes of investment projects. Banque Du Liban (BDL), the central bank, requires half of all Islamic banks’ assets be invested in Lebanon. They also must have a three-member Shariah consultative body to approve and monitor Shariah compliance. With the formation of the Capital Markets Authority, there is also a possibility of Sukuk and other Islamic liquidity management instruments being introduced which will in turn help develop the Islamic banking and Takaful industries. Business environment: Lebanon was a banking hub in the pre-civil war era. Even with the current challenging political scenario, it has managed to keep its economy on track. It has been successful in significantly reducing its debt-to-GDP ratio from 175.05% in 2007 to 139.5% in 2013. The human capital element is also well equipped to further promote the economy given the average adult literacy rate of more than 85%. Controls on the movement of capital and foreign exchange are fairly relaxed and the country follows a relatively laissez- faire economic model. Products and services: BDL has promulgated laws under various Shariah principles that allow investment and financing to the customers. Lebanese Islamic banks have developed a wide range of retail, corporate, SME, private banking and investment products. These product lines reflect the breadth in the already well-developed conventional banking market. Most products are based on the Murabahah model but Musharakah, Mudarabah and Ijarah models are also applied. Education and awareness: The Lebanese education sector has recognized the need for developing the human capital for the growing Islamic finance industry in the country. An Islamic finance qualification is offered by École Supérieure des Affaires (ESA) in collaboration with the Chartered Institute for Securities and Investment (CISI), London. Lebanese American University (LAU) has also formulated a fully-fledged Islamic banking curriculum in its MBA program. Opportunities: Lebanon’s close business ties with other regional Islamic finance markets such as Saudi Arabia and Bahrain could prove supportive in developing its domestic Islamic finance market. The partially dollarized economy can help attract foreign investment, as is the case with conventional markets. Lebanese fiduciary and banking secrecy laws can also play a major role in attracting Islamic wealth and fund managers. There is also a strong demand for Islamic financial products from the Muslim population, which represents over 60% of the total population of the country. Challenges: The laws and regulations supporting the Islamic finance regime need to be made more welcoming to allow more penetration and depth required by the players in the industry. BDL’s restriction on allowing Islamic window operations by conventional banks may hinder the growth of Islamic finance in the country. A lack of awareness among the people with regard to Islamic financial products and services is also a clear challenge. The call for of Shariah compliant liquidity management instruments also needs to be addressed. Initiatives: BDL has promulgated laws and issued various circulars to regulate the Islamic finance industry in Lebanon. It has jointly organized the Beirut Islamic Financial Institutions Forum that brought together various stakeholders of the Islamic finance industry including the IDB, AAOIFI, central banks and other industry players. Outlook: The Lebanese Islamic financial industry is well positioned to play a major role in the Islamic finance industry in the Middle East. With abundant liquidity, cash resources and robust banking regulations it can leverage its position to consolidate its Islamic finance infrastructure. The Islamic subsidiary of one of the largest banks in Lebanon, Blom Development Bank, saw growth of 42% as at December 2012 over the same period the previous year. Notwithstanding the political turmoil in 2006 which resulted in a huge financial setback, with an estimated fall in growth from 6% to 2% and US$5 billion (22% of GDP), Lebanon has attempted to recover. The influx of large numbers of refugees from Syria due to the ongoing conflict is also a matter of concern for the economy. However, with its strategic location Lebanon, which was once a banking hub, has all it takes to regain its past glory and become a regional Islamic finance hub. Mediterranean catapult This secular Middle Eastern country has the potential to become one of the most sought-after destinations for Islamic finance in the region, SYED SIDDIQ AHMED explores.. Chart 2: Islamic finance industry No. of Islamic banks 5 No. of Takaful operators 1 No. of Islamic funds 0 Islamic banking assets US$452 million* *estimated data for top three Islamic banks for 2013 128.27 140 120 100 80 60 40 20 0 53.67 64.78 90.31 2009 2010 2011 2012 US$million Chart 1: Total assets of Blom Development Bank
    • 16© 31st July 2013 One of the cornerstones of Islamic finance is the presence of assets in its transactions. Leasing provides just that, making it a readily adoptable proposition for Shariah compliant businesses. Market developments: While the global leasing market leaders are the US, China, Japan and several European countries, other Asian and MENA jurisdictions are yet to catch up to compete with these industry giants. In the list of 50 countries that top annual leasing volumes, only four countries appear that have Islamic financial markets. Turkey, which has been at the forefront in facilitating Shariah compliant business, last year enacted a new law on financial leasing which gives benefits in terms of withholding tax, stamp tax and other duties for leasing transactions. The new law, besides spelling clarity in leasing transactions, also has specific incentives for cross-border aircraft vessels and related lease transactions. With Shariah compliant leasing being offered by an increasing number of financial institutions in Sri Lanka, the Islamic leasing market is poised for further growth; due in part to the budgetary concessions and depreciation benefits afforded to this sector. The leasing industry in Sri Lanka is however dependent on short-term financing sources for funding its long- term obligations. This might raise an opportunity to make available medium to long-term Shariah compliant instruments for the industry to develop further. In the Islamic Republic of Iran, the leasing market has shown considerable growth: with the two largest sectors, transport and construction, accounting for 67% and 11% of new business, respectively. Although there are standalone leasing companies in the MENA region, the majority of leasing operations are carried out by banks and related entities. This is due to their easier access to funding, while standalone leasing companies have to rely on other less accessible sources of funds for their operations. There are also certain issues that need to be tackled such as inefficient repossession procedures that affect the quality of Islamic leasing portfolios and the income of the leasing companies at large. At present, there are an estimated 19 Islamic leasing companies in the Middle East. Regulations: The current international accounting standards for leasing, under the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), have issued an Exposure Draft (ED) calling for public comments on the proposed new accounting standards for leasing. The deadline for the comments is the 13th September 2013. It may be too early to conclude the repercussions but if these changes are made as explained in the ED, it may prove favorable to the real estate lessees but may not be so for the equipment counterparts. New regulatory standards under Basel III which impact conventional and Islamic financial institutions alike can have an indirect effect on the leasing market and may increase the cost of obtaining funding from bank-regulated entities and may reduce the volume of assets deployed by banks to the leasing industry. Consequently, there might be an opportunity for non-bank players when the banks increase their rates to reduce their exposure to leasing activities. AAOIFI standards require both operating Ijarah and Ijarah Muntahia Bittamleek (lease ending with ownership) to be treated similar to operating leases. AAOIFI has issued a standard (FAS 8) to regulate these transactions. Opportunities for players: Since leasing plays an important role in sustainable private-sector, small and medium-sized enterprises (SMEs) make substantial use of leasing to support, develop and make finance available to the industry. In countries such as Malaysia and Indonesia where SMEs play a significant role in the economy, and coupled with governmental assistance to Islamic finance, Shariah compliant leasing holds much growth potential. Here, Ijarah leasing remains one of most popular means of financing for Islamic financial institutions for automobiles, equipment and machinery among others; especially in Malaysia where SMEs account for more than 90% of all establishments in the manufacturing, services and agricultural sectors. The fact that leased assets require insurance means that the development of leasing industry should be concurrent with growth in the insurance and Takaful industries, both quantitatively and qualitatively. Overall the Islamic leasing industry holds great potential as it ties in closely with other growing markets such as trade finance, asset management and Takaful. IFN RESEARCH REPORT LEASING Significant deals: • Novus Aviation Capital, which has a Shariah compliant aircraft leasing business in its product range, held that more than US$5 billion worth of Shariah compliant leasing and financing transactions have taken place globally as of February this year. • Bahrain-based Ithmaar Bank in February 2013 merged with its associate First Leasing Bank to consolidate its position as one of the leading banks offering Islamic leasing products in the country. • Japanese Orix Group, which has a major presence in the leasing industry, offers Islamic leasing facilities through local collaborations in Sri Lanka and Pakistan. • Shuaa Capital set up a subsidiary, Gulf Installments, to provide Shariah compliant installment and lease financing mainly to focus on SME financing. A new lease of life With huge investments in infrastructure and construction lined up in the emerging markets there is little doubt that Islamic leasing will be one of the fastest-growing segments in the Islamic finance industry, SYED SIDDIQ AHMED discusses.
    • 17© 31st July 2013 SPECIAL REPORT Islamic banking is gaining momentum in traditional as well as in non- traditional markets and the industry is likely to maintain the current trajectory in the foreseeable future. In many regions, Islamic banking has evolved from being an emerging ethical niche market into being a part of the mainstream financial services landscape. According to a 2012 survey, there are more than 716 institutions across the world that are registered as Shariah compliant. Of these, 511 are fully-fledged and 205 operate Shariah compliant windows within a conventional institution or are partially separated from their conventional counterpart. While Islamic banks have managed to maintain good revenue levels in recent years, mostly due to a strong focus on retail banking, they have struggled with profitability due to rising costs and operational inefficiencies. A recent analysis by Ernst & Young (E&Y) indicates that Islamic banks have experienced a decline in profitability and their average return on equity (ROE) lags behind that of conventional banks by 20%. ROE for both Islamic and conventional banks has deteriorated since 2008 in the wake of the financial crisis, but this has dropped to 12% in 2011 for Islamic banks, compared with 15% for conventional banks. The return on assets (ROA) for Islamic banks dropped to 1.3% in 2011 from 1.7% in 2008, while it has risen for conventional banks to 1.7% in 2011 from 1.5% in 2008. Struggling for profitability According to ‘The Future of Islamic Banking’ report by AT Kearney, while there are a number of factors that contribute towards this struggle for profitability, achieving operational efficiency is a major problem. A more sophisticated leveraging of the Islamic banking potential — much of which has not yet been tapped — is required. E&Y’s report states that operating expenses are 50% higher for Islamic banks. The report shows that wide- ranging transformation programs could potentially increase the profit pool of Islamic banks by 25% by 2015. The effective use of modern, flexible technology is key to achieving this. To compete successfully in an industry known for its IT aptitude, Islamic banks are expected to make appropriate investments in best-in-class core banking software systems with components covering business process modeling, compliance and risk management tools, and multi-channel delivery gateways that would enhance banks’ profitability, performance and ability to innovate. Winning in a highly promising industry In an attempt to meet the demands of a growing Islamic financial sector, the industry needs to effectively implement conventional banks’ use of IT in Islamic banking: Boom imminent Technology developments are profoundly influencing the distribution of retail financial services. Day after day, reformatted branches and alternative channels such as online banking, mobile banking and social media are gaining widespread adoption. ROSIE KMEID discusses the current situation and looks at what we can expect for the future. continued... 400 1,000 800 600 400 200 0 221 280 302 348 345 317 372 391 426 429 457 2007 2008 2009 2010 2011 2012 800 600 400 200 0 2007 2008 2009 2010 2011 2012 163 194 191 199 205205 362 420 435 456 470 511 Source: the banker database.com/Maris strategies Figure 1: Institutions registered for Shariah compliant products Institutions reporting Shariah compliant assets Institutions reporting assets Number of conventional banks with Shariah windows Number of Shariah compliant institutions proportion of their overall income, lower range leverage and are behind the curve technology enablement Equity vs. ROE Islamic Conventional Indonesia Turkey Saudi Arabia UAE Malaysia Pakistan Qatar Malaysia Qatar Saudi Arabia UAE Bahrain Bahrain Kuwait Kuwait Jordan Jordan Egypt Bangladesh Indonesia Turkey Pakistan 25% 20% 15% 10% 5% 0% 0 5,000 10,000 15,000 20,000 25,000 30,000 35,00 40,000 Equity US$ million (2011) AverageROE(2008–11) Source: Company reports. Ernst & Young Analysis, EY Universe Figure 2: Average banking ROE/equity by country, 2011
    • 18© 31st July 2013 SPECIAL REPORT modern day technology. According to Muath Mubarak, the head of finance and corporate strategy at First Global Academy: “The emerging and niche Islamic finance market has to stay highly technology driven in order to maintain a competitive edge over others and deliver fast and quality customer service within Shariah parameters. “Advanced technology will reduce cost significantly, as well as manual workload, inefficiencies, transaction processing time and so on while enhancing customer satisfaction with sophisticated facilities,” he added. In a recent financial services survey conducted jointly by the CBI and PwC, the authors noted that technology can play a huge role in helping any organization to transform and modernize itself. The quest for operational efficiency and cost reduction becomes a key focal point for Islamic banks worldwide. Indeed, in line with the trend, IDC Financial Insights spoke about Islamic banks’ willingness to capitalize on technology innovations and adopt cutting-edge software to improve business agility and remain competitive, and to ensure proper risk management and regulatory compliance. Financial experts believe that the latest technological developments, if incorporated into Islamic banking, will be able to provide the convenience offered by conventional banking. For example, the development of internet and mobile banking has proved to be a dramatic shift in the way people conduct their banking needs in the conventional banking system. Thus, Islamic banks will have to incorporate these ideas into their product portfolio to attract additional interest in the system and to offer convenience to the various customers. An interesting finding of E&Y’s ‘Time for Bold Action’ survey, and one that may deserve further study, is that as banking becomes more reliant on technology, the implications of failure are magnified. E&Y explains that tinkering with existing systems or merging multiple legacy platforms will not satisfy increasingly vigilant regulators, and that approach is not likely to deliver what the financial institution needs. The multitude of Continued Source: Company reports. Ernst & Young Analysis, EY Universe higher for Islamic banks. For mid to smaller-sized banks, this proportion would be higher still Islamic banks Conventional banks 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% 2.9% 1.4% 1.3% 2.6% 1.4% 1% 2.7% 2.7% 2.9% -2.1% -1.8% -1.8% -0.3% -0.9% -0.8% 2007 2010 2011 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% 2.2% 1.8% 1.7% 1.4% 1.2% 1.1% 2.1% 2.4% 2.5% -0.8% -1% -1.2% -0.2% -0.7% -0.6% 2007 2010 2011 Other income Net income Operating Provisions Returns on assets E&Y World Islamic Banking Competitiveness Report 2012/13 Figure 3: ROA for Islamic and conventional banks, 2007-11 will need to become more data intensive. The quality and the level of risk assessment and the speed of delivery will prompt organization-wide change programs. collection, management and mining customer data. Although some security concerns remain, technology will play an increasing role in the interaction between bank and customer via multiple channels. Increasing importance of smartphones in Islamic banking markets can no longer be ignored. Technology to comply Technology to understand Technology to deliver Figure 4: Relevance of technology to Islamic banking continued... In an attempt to meet the demands of a growing Islamic financial sector, the industry needs to effectively implement conventional banks’ use of modern day technology
    • 19© 31st July 2013 SPECIAL REPORT new regulations is already placing considerable stress on banks’ data and reporting platforms. The Basel Committee’s recent guidance on data aggregation and reporting will require conventional and Islamic banks to fundamentally upgrade their capabilities in this area by early 2016. While the competitive financial landscape is being redrawn by the evolving international regulatory reforms, financial innovation continues at breathtaking pace. With much achievement behind it, the industry is now looking forward to a crucial and challenging stage in its development. Ensuring that new technology is flexible enough to support more sophisticated requests from regulators will benefit both the bank and its customers. Shariah compliance, IT modernization and product innovation top the industry’s priority list Growth over the past several years continues to generate optimism for the future of Islamic banking. The industry stands out on its own demonstrating remarkable development, expansion, and growing demand. Nonetheless, financial institutions are facing vastly different market conditions and need to develop new sources of differentiation to compete and remain successful in the long-run. Indeed, as a new industry predicated on originality and creativity, it must explore potential sources of differentiation for sustained competitive advantage. These ambitious yet realistic targets can only be achieved through partnering with a leading Islamic banking software provider with the expertise to help them transform their business quickly, safely and cost effectively. There are more than 35 global and regional information technology vendors that offer Islamic banking systems and services for banks and Islamic financial institutions, but there is just one vendor out there that is truly Shariah compliant, certified by a global standard-setting body AAOIFI. The time has come for financial institutions to consider strategic choices and address operational fundamentals and regulatory and Shariah compliance to capture untapped market opportunities and master the changing dynamics of the massive industry that is Islamic banking. Rosie Kmeid is the global head of corporate communications & marketing at PATH Solutions. She can be contacted at rmunim@ path-solutions.com Continued Optimizing the value of digital channels Understand the real needs of your target customers and keep as possible Partner with innovative companies to fuel creative channel design Use champion challenger testing to improve channel performance Build online capabilities once, for use by all products and brandsservices, to understand full costs and operating implications Instigate fast track approval & changes processes to Develop joint sales & marketing strategy optimizing sales capture Reassure customers with robust but simple security measures Develop integrated channel development plan with cost – Mass market HNW SME Retail marketing Branches Contact centers RMs Intermediarie Internet Direct sales forces ATM/self Joint venture Consumer products and propositions HNW products & prepositions SME products & prepositions Strategy & planning Change Operational Credit policy & risk Shariah support Prod service Customer servicing Technology Credit operation Payment HR Legal Risk & compliance Credit Key segment Marketing Sales & distribution management Customer & product management Divisional supports Group manufacturing Group supports Figure 5: Winning in a highly promising industry Tinkering with existing systems or merging multiple legacy platforms will not satisfy increasingly vigilant regulators, and that approach is not likely to deliver what the financial institution needs
    • 20© 31st July 2013 CASE STUDY Saudi Binladin Group recently issued a SAR1 billion (US$266.59 million) Sukuk Murabahah which was listed on the Tadawul via its SPV, SBG Sukuk. The issuance represents a phase of the company’s SAR12 billion (US$3.19 billion) program for the ongoing construction and development of the King Abdulaziz International Airport. Issued in Saudi riyals and backed by the commodities, the papers hold a short tenor of 364 days, due for maturity on the 9th July 2014. Based on a well-known structure to its investors in the Saudi market, the Murabahah structure constructed did not come without its challenges. The key difficulty faced by the arrangers was to ensure that the certificates would have the benefit of a shared security with the SAR12 billion (US$3.19 billion) financing provided. This feature serves as a unique facet of the deal as it is fairly rare for a Saudi Arabian issuance to have an exclusive benefit of a shared security with the bank facility. The commitment of the bank facility in comparison to the size of Sukuk issuance was resolved through inter-creditor arrangements. According to Stuart Ure, a partner at Clifford Chance, although the financing was readily procured, due to an upsize and a pre-approved draft inter-creditor arrangement, the papers needed to be commented on and negotiated to maintain adequate protection for the certificate holders. One of the arrangements to ensure the protection of the Sukukholders included sophisticated valuation mechanisms incorporated into the transaction documentation to ensure that the land cannot be sold at an undervalue. On the issuer’s side, the facility provides the Saudi Binladin Group with the flexibility of developing the prime land bank, to allow the group to develop and sell the land, which is the underlying asset of the Sukuk, throughout its lifetime. In comparison to the SAR1.3 billion (US$346.57 million) Sukuk Al Ijarah due 2015 the company previously issued, the primary cashflows from the papers are derived from lease rental payments. Unlike classic Ijarah structures, this structure is quasi-asset-backed, with Sukukholders having recourse to both the credit of the company as well as a prime landmark located in Jeddah. Payment for the Sukuk Murabahah is done through bank transfer and carries a return of 2.5% per annum. The lead managers and bookrunners are BNP Paribas Investment Company and Gulf International Bank Capital whilst the advisors are Walkers, Baker & McKenzie, Clifford Chance LLP and Al-Jadaan & Partners Law Firm. Governed by the laws of the Kingdom of Saudi Arabia, the Sukuk are in theory tradable but may suffer from lack of liquidity if traded. Nevertheless, the papers were indeed structured with comprehensive precision and creativity. — NA Aerodome Sukuk protects investors with its bank facility Summary of Terms and Conditions Issuer SBG Sukuk Obligor Saudi Binladin Group Limited (SBLG) Issuance Price SAR1 billion Purpose of issuance SAR12 billion of one of the phases of construction and development of the King Abdulaziz International Airport Trustee N/A Tenor 364 days Coupon rate / return 2.5 % per annum Payment Bank Transfer Currency Saudi riyals Maturity date 9th July 2014 Lead manager(s) BNP Paribas Investment Company KSA; Gulf International Bank Capital Principal advisor(s) Clifford Chance, Al- Jadaan & Partners, Bakers & McKenzie Bookrunner(s) BNP Paribas Investment Company KSA; Gulf International Bank Capital Governing Law Kingdom of Saudi Arabia Legal Advisor(s) / Counsel Walkers (to the Issuer); Baker & McKenzie Limited (to the obligor); Clifford Chance and Al- Jadaan & Partners (to the joint lead managers) Listing Cleared and settled through Tadawul. Underlying Assets The commodities Rating No rating Shariah Advisor(s) BNP Paribas Shariah Supervisory Committee; Gulf International Bank Global Shariah Supervisory Board Structure Issuance of Sukuk under the Shariah principle of Murabahah. Tradability The Sukuk are tradable, but in practice may suffer from a lack of liquidity. Investor breakdown Currently undetermined Face value / minimum investment SAR1 billion / SAR1 million The papers were structured with comprehensive precision and creativity
    • 21© 31st July 2013 IFN COUNTRY CORRESPONDENTS IFN Country Correspondents AFGHANISTAN: Zulfiqar Ali Khan head of Islamic banking division, financial supervision department, Da Afghanistan Bank AUSTRALIA Talal Yassine, managing director, Crescent Wealth BAHRAIN: Dr Hatim El-Tahir director, Islamic Finance Knowledge Centre, Deloitte & Touche BANGLADESH: Md Shamsuzzaman executive vice president, Islami Bank Bangladesh BELGIUM: Prof Laurent Marliere CEO, ISFIN BERMUDA: Belaid A Jheengoor director of asset management, PwC BRUNEI: James Chiew Siew Hua senior partner, Abrahams Davidson & Co CANADA: Jeffrey S Graham partner, Borden Ladner Gervais CZECH REPUBLIC: JUDr Ivana Hrdlickova, judge, Judiciary, Appelate Court Pardubice EGYPT: Dr Walid Hegazy managing partner, Hegazy & Associates FRANCE: Kader Merbouh co head of the Executive Master of the Islamic Finance, Paris-Dauphine University HONG KONG & CHINA: Anthony Chan New Line Capital Investment Limited INDIA: H Jayesh founder partner, Juris Corp INDONESIA: Farouk A Alwyni chairman, Center for Islamic Studies in Finance, Economics, and Development IRAN: Majid Pireh Islamic finance expert, SEO IRAQ: Khaled Saqqaf partner and head of Jordan & Iraq offices, Al Tamimi & Co IRELAND: Ken Owens Shariah funds assurance partner, PwC Ireland JAPAN: Serdar A. Basara president, Japan Islamic Finance JORDAN: Khaled Saqqaf partner and head of Jordan & Iraq offices, Al Tamimi & Co KOREA: Yong-Jae Chang partner, Lee & Ko KUWAIT: Alex Saleh partner, Al Tamimi & Company LUXEMBOURG: Marc Theisen partner, Theisen Law MALDIVES: Aishath Muneeza head of Islamic finance, Capital Market Development Authority MALTA: Reuben Buttigieg president, Malta Institute of Management MAURITIUS: Sameer K Tegally associate, Conyers Dill & Pearman MOROCCO Mohamed Boulif, principal consultant, Al Maali Islamic Finance Training and Consultancy NEW ZEALAND: Dr Mustafa Farouk counsel member for Islamic financial institutions, FIANZ NIGERIA: Auwalu Ado Shariah auditor, Jaiz Bank OMAN: Anthony Watson senior associate, Al Busaidy Mansoor Jamal & Co PAKISTAN: Bilal Rasul director (enforcement), SEC of Pakistan PHILIPPINES: Rafael A Morales managing partner, SyCip Salazar Hernandez & Gatmaitan QATAR: Amjad Hussain partner, K&L Gates RUSSIA: Roustam Vakhitov managing partner, International Tax Associates SAUDI ARABIA: Nabil Issa partner, King & Spalding SENEGAL: Abdoulaye Mbow Islamic finance advisor, Africa Islamic Finance Corporation SOUTH AFRICA: Amman Muhammad CEO, First National Bank — Islamic Finance SINGAPORE: Yeo Wico partner, Allen & Gledhill SRI LANKA: Roshan Madewala director/CEO, Research Intelligence Unit SWITZERLAND: Khadra Abdullahi associate of investment banking, Faisal Private Bank TANZANIA: Khalfan Abdallah head of product development and Sharia compliance, Amana Bank THAILAND: Shah Fahad Yousufzai, vice-president and head of strategic marketing and product development, Islamic Bank of Thailand TUNISIA: Karim Amous Managing partner, Smarteco TURKEY: Ali Ceylan partner, Baspinar & Partners UAE: Moinuddin Malim CEO, Mashreq Al Islami UK: Siraj Ibrahim corporate finance manager, QIB UK US: Joshua Brockwell, investment communications director, Azzad Asset Management YEMEN: Moneer Saif head of Islamic banking, CAC Bank IFN Correspondents are experts in their respective fields and are selected by Islamic Finance news to contribute designated short country reports. For more information about becoming an IFN Correspondent please contact sasikala@redmoneygroup.com TURKEY By Ali Ceylan Turkey has the objective of becoming an important player in the Islamic finance industry. As a result of this intention, the government has been promoting the private sector’s Sukuk issuances and participation banks’ activities in the Turkish market. The legal structure for Islamic finance instruments and participation banks is being amended to make them more favorable for the Islamic finance investor. Although legal structure amendments have been made to promote Islamic finance, the framework still does not meet requirements. Deputy prime minister Ali Babaçan recently stated that the participation banks’ 5% share in the market is below expectations. “The number of participation bank branches has reached 869, with 16,190 staff members. Their size of assets has increased to TRY81.5 billion (US$42.29 billion), as their funds provided real sector worth of TRY60 billion (US$31.13 billion). The participation banks’ share in assets is 5% and in funds it’s 6%. These figures are below our desires,” said the minister during an Islamic finance conference. Babaçan also stated that the private sector started Sukuk issuances following the sovereign Sukuk issuance by the treasury; and the tax difference between the conventional bonds and Sukuk was removed. During the above mentioned conference, Bahrain-based Albaraka CEO Adnan Ahmed Yousif stated that the bank is planning to establish an Islamic insurance company in Turkey. Additionally, Adnan stated that Turkey does not have a legal basis to incorporate an Islamic insurance company, however the firm has expressed its intention to the Turkish authorities. As part of the legislation changes concerning Sukuk, last month a new communiqué was published on the Official Gazette dated the 7th June 2013 and numbered 28670. This communiqué introduced new lease certificates to the Turkish Islamic financial market. It is expected that this kind of legislation change will continue and will be more frequent in the future. Ali Ceylan is a partner at Baspinar & Partners Law Firm. He can be contacted at ali.ceylan@baspinar.av.tr. Developing the Islamic finance market in Turkey — legislative updates Although legal structure amendments have been made to promote Islamic finance, the framework still does not meet requirements INCEIF is driven by and for the industry. Recognised as a knowledge leader in Islamic finance, INCEIF delves into critical spheres such as micro-finance, risk sharing and wealth management to benefit global organisations and communities. The Chartered Islamic Finance Professional (CIFP) equips students with in-depth knowledge, analytical tools and strategic perspectives to fast track their careers in the growing Islamic finance industry. To engage with us explore INCEIF at www.inceif.org Chartered Islamic Finance professional (CIFP) Why does it attract students from around the world?
    • 22© 31st July 2013 IFN COUNTRY CORRESPONDENTS INDONESIA By Farouk Abdullah Alwyni The growth of Islamic finance in Indonesia has been recognized as one of the fastest in the world. According to Global Islamic Finance Report (GIFR) 2011, Indonesian was ranked fourth after Iran, Malaysia, and Saudi Arabia as a country that has the potential and is conducive for the development of Islamic finance. Taking into consideration some aspects affecting the GIFR index such as the number of Islamic banks, the number of non-bank Islamic financial institutions, and the size of Islamic finance assets, Indonesia is projected to be ranked first in the near future. If we look at some figures relating to Islamic finance activities in Indonesia, that projection may be a quite reasonable projection. As seen in Table 1, all Islamic finance activities from Islamic banking, Islamic capital market, Islamic funds, and Islamic insurance have shown quite significant growth. The issuance of sovereign Sukuk here is the most remarkable one. Starting with less than half a billion dollars in 2008, the sovereign Sukuk issuance has grown over 25 times since then to stand at US$13.86 billion in 2012. Following the sovereign Sukuk, Islamic banking has also contributed significantly towards fostering the growth of Islamic finance in Indonesia, growing at an average 40% rate over the last five years, more than twice the growth of conventional banking. Although with much smaller nominal amounts, corporate Sukuk, Islamic mutual funds and Islamic insurance have all shown steady growth. The relatively slow growth of corporate Sukuk is due, to a large extent, to issues relating to special purpose vehicles (SPVs) and tax neutrality. These all need to be made more business friendly. Although starting with a very small base, Islamic mutual funds have in comparison grown relatively faster compared to corporate Sukuk and Islamic insurance. The growth of Islamic finance in turn will create the need for competent human resources. Like its other counterparts overseas, among the main challenges faced by the Islamic finance industry in Indonesia is the issue of creating professionals competent in the Islamic finance. At the moment, most of the needs for Islamic finance industry are fulfilled through the hiring of conventional finance professionals and recruiting young graduates through the Officer Development Program. However, with the current growth pace experienced by the Islamic finance industry, it is estimated that there will be a shortage of around 20,000 Islamic professionals in the near future. While hiring conventional finance professionals may meet the need of the Islamic finance industry in the short-term, it is very important that in the medium and long-term there is a drive to create more educational institutions specializing in Islamic finance and economics, especially if the Islamic finance industry really wants to offer differentiation in offering its products and services. Creating genuine Islamic finance professionals will enable the Islamic finance industry to be more innovative in its product development and at the same time, also address the issues raised by many observers — that most Islamic finance products are merely carbon copies of conventional products with differences only in name and agreement. Thus, it is very important to create synergy between the industry and educational institutions to develop human resources competent not only in the conventional finance knowledge but also conversant with the application of Shariah in the financial world. With the right combination, it is expected that the progressive spirit of Shariah in creating a more fair business environment and socio- economic justice could be translated into innovative financial products and services offered to society. Farouk Abdullah Alwyni is the chairman of the Center for Islamic Studies in Finance, Economics, and Development. He is also the CEO of Alwyni International Capital. He can be contacted at faalwyni@alwynicapital.co.id. The growth of Islamic finance and the challenge of human capital development in Indonesia Table 1: Indonesian Islamic finance figures 2008 2009 2010 2011 2012 Islamic banking assets (US$ billion) 5.12 6.82 10.03 14.90 19.97 Islamic banking human resources 11,752 15,443 20,264 27,660 31,578 Sovereign Sukuk (Issued cumulatively in US$ billion) 0.47 2.13 4.82 8.15 13.86 Corporate Sukuk (Issued cumulatively in US$ billion) 0.55 0.70 0.78 0.79 0.98 Islamic mutual funds (Net asset value in US$ billion) 0.18 0.46 0.52 0.56 0.81 Islamic life insurance (Premium in US$ billion) 0.21 0.26 0.31 0.41 N/A Islamic general insurance and re-insurance (Premium in US$ million) 49.7 52.0 66.8 95.1 N/A Source: Central Bank, Capital Market Supervisory Body, Alwyni (2013), and Thohuri (2013). Note: Using the average of US$1 = IDR10,000 across the years. With the current growth pace experienced by the Islamic finance industry, it is estimated that there will be a shortage of around 20,000 Islamic professionals in the near future
    • 23© 31st July 2013 IFN COUNTRY CORRESPONDENTS BAHRAIN By Dr Hatim El Tahir Reflecting on recovery A new report from the Central Bank of Bahrain (CBB) reveals that the Islamic banking industry in Bahrain has posted a healthy increase in profits of US$85.5 million for the first quarter of 2013, compared with US$67.1 million during the corresponding period last year. The report also mentioned that the combined net profits of Bahrain's banks doubled to reach US$1.1 billion in the first three months of this year, compared with US$427 million in cumulative profits during the same period in 2012. Building on its role, driving growth and recovery, over the years the CBB has made strenuous efforts to strengthen Bahrain's financial regulatory environment and adopt leading practices. Recent new regulatory measures included a set of new guidelines in risk management and Basel III capital requirements. In particular, the CBB has encouraged and spearheaded the recent wave of consolidation patterns in the Islamic financial industry. The new emerging M&A practice in this industry combined with the growth in profitability are seeking to help the relatively small industry to achieve bigger scale and size and gain the competitive edge that the Islamic banks in Bahrain lack. Walking the talk As the momentum of consolidation continues, Islamic banks in Bahrain should focus on two main types of business strategy to sustain profitability and growth. First, banks need to strengthen their customer relationship management capability and adopt customer strategies centered on building effective customer relationship management functions. The customer strategy should focus on designing tools and processes to help bank leadership and decision-makers better understand local market needs of Islamic financing and investment services, and thus give direction and guidance to create efficient and yet customer-driven products and services. Better use of technology should also help banks identify service offering gaps and distribution shortcomings. With a limited market of a population estimated at 1.2 million people, and over-banked industry, Bahrain is not likely to offer much room for expansion for Islamic banks, and the industry will continue to be challenged with constant competition from within and from counterpart conventional banks. However, what Islamic banks’ leaders can do is to emphasize the importance of adapting new business strategies, underscoring the need for customer research-driven product development to realize customer retention, business growth and profitability. Dr Hatim El Tahir is the director of the Islamic finance group at Islamic Finance Knowledge Center Leader, Deloitte & Touche — Bahrain. He can be contacted at heltahir@ deloitte.com. Banking on profitability 21st - 22nd October 2013 SUPPORTED BY LEAD PARTNERS MULTILATERAL STRATEGIC PARTNER ASSOCIATE PARTNERS LUNCHEON SPONSOR BADGES AND LANYARDS SPONSOR EXCLUSIVE EXCHANGE PARTNER DELEGATE PACK SPONSOR Asia is an emerging market where growth is hard to be ignored and the risks equally high. With the global financial community being unfamiliar with the business dealings within Asia and a perceived disparity in business cultures and norms has created some trepidation among investors looking to park their money in what seems to be the world’s most bustling region in terms of growth and issuer activity. Should Islamic finance successfully work in tandem with Asia’s growth story, there is no doubt that the market will eventually achieve what it has always sought – the elusive question of critical mass and secondary market deepening. REGISTER FREE NOW at www.REDmoneyevents.com EXECUTIVE PARTNERS
    • 24© 31st July 2013 IFN SECTOR CORRESPONDENTS IFN Sector Correspondents ASSET MANAGEMENT Sean Daykin, head of investment funds, Emirates NBD Asset Management CROSS-BORDER FINANCING: Fara Mohammad, senior lawyer and consultant in Islamic finance DEBT CAPITAL MARKETS: Muhammad Shoaib Ibrahim, managing director & CEO, First Habib Modaraba LAW: Bishr Shiblaq, head of Dubai office, Arendt & Medernach LEASING: Professor Dr Shahinaz Rashad, chairperson & CEO, Egyptian Leasing Association MICROFINANCE (ASIA): Dr Mahmood Ahmed, executive vice president and director training, Islami Bank Training and Research Academy MICROFINANCE (AFRICA): Mansour Ndiaye, director of microfinance, Assistance and Consulting for Development PRIVATE BANKING & WEALTH MANAGEMENT Khadra Abdullahi, associate, investment banking, Faisal Private Bank PRIVATE EQUITY & VENTURE CAPITAL: Arshad Ahmed, partner, Elixir Capital REAL ESTATE (EUROPE) Philip Churchill, founder partner, 90 North Real Estate Partners REAL ESTATE (MIDDLE EAST): Yahya Abdulla, head of capital markets — Middle East, Cushman & Wakefield REGULATORY ISSUES (ASIA) Intan Syah Ichsan , chief operating officer, Samuel Aset Manajemen REGULATORY ISSUES (MIDDLE EAST): Mohammad Abdullah Malik Dewaya, head of Shariah compliance and audit, Maisarah Islamic Banking Services RETAIL BANKING: Ris Rizqullah, lecturer, Trisakti University RISK MANAGEMENT: Abu Bakr Abdel Rahman, relationship manager, NBD- ADIB SECURITIES & SECURITIZATION: Nidhi Bothra, executive vice president, Vinod Kothari Consultants STOCK BROKING & TRADING: Athif Shukri, research analyst, Adl Capital SUKUK Marco Mauri, senior director of asset management, Alkhair Capital Saudi Arabia TAKAFUL & RE-TAKAFUL: Sutan Emir Hidayat, senior lecturer, University College of Bahrain TREASURY PRODUCTS: Nafith ALHersh Nazzal, certified financial & investment advisor TECHNOLOGY: Ali Shervani, country head, Fin8 IFN Correspondents are experts in their respective fields and are selected by Islamic Finance news to contribute designated short sector reports. For more information about becoming an IFN Correspondent, please contact sasikala@redmoneygroup.com ASSET MANAGEMENT By Sean Daykin A new expression made its way into the English language during June, the ‘tapertantrum’, to describe investor reactions to the US Federal Reserve (Fed)’s reduction of its stimulus or ‘tapering’ of its bond buy-back program. It resembled a tantrum, in that everything sold off, with US dollars the only asset class not to lose value in June. US government bonds sold off for another month, with 10-year bond yields reaching 2.6%, up more than 1% from levels seen in May before Fed chairman Ben Bernanke’s original comments about the possibility of reducing the stimulus. This had a knock-on effect on all safe haven assets, with UK and German government bonds selling off in sympathy. The Sukuk market globally saw considerable action as more risky credits and longer-dated safe bonds, as well as subordinated papers from financial institutions, sold off materially. Consequently, the HSBC/NASDAQ Dubai US Dollar Sukuk Index fell 2.8% in June 2013 and was down almost 5% since the middle of May. For example, the Abu Dhabi Islamic Bank Perpetual Sukuk and the long- dated Saudi Electricity Company (SEC) Sukuk both saw large falls in price as they are longer-dated instruments. Higher yielding bonds such as Bahrain Sovereign Sukuk or Jafza also dropped as investors became more risk averse and liquidity conditions worsened. Shorter- dated securities held up better as many of the holders are banks who tend to hold these securities until maturity. The quick and violent market moves in the past eight weeks look somewhat ahead of the Fed’s guidance and appear to be pricing a fairly aggressive reduction of quantitative easing, which, according to the Fed, is likely to occur at a measured pace. With unemployment still stubbornly high and the inflation considerably below the Fed’s 2% inflation target, it is unlikely that the Fed will notch up the policy rates meaningfully before 2015 or beyond. Commodities were also hit hard, with gold dropping under US$1,200 and down around 27% year-to-date. Economic data over the month was generally quite positive, with US housing, consumer confidence and unemployment statistics all showing improvement. Even European data showed that the rate of deterioration in their economies was slowing, although European equity markets performed poorly. Interest rates in China also saw a surge, with short-term rates rising over 10% before the Bank of China stepped in to ease liquidity. Chinese economic data continued to show an economy that is slowing, although not dramatically so. Risk assets, be they Islamic equities or Sukuk, have seen quite large sell-offs during May and June, on the back of concerns over US Fed policy. In our view, these sell-offs are a good opportunity to add to positions with economic growth likely to pick up in the second half of 2013 and globally central banks remaining very accommodative. Sean Daykin is the head of investment funds at Emirates NBD Asset Management. He can be contacted at seand@emiratesnbd.com. The global Sukuk sell-off Are there more than one of you in your company involved in Islamic Finance? Join our company-wide subscription todaySAVE 50%
    • 25© 31st July 2013 IFN SECTOR CORRESPONDENTS MICROFINANCE (AFRICA) By Mansour Ndiaye In the West African Economic and Monetary Union zone, Senegal clearly acts as hub of Islamic finance. Recently an important sub-regional workshop, ASCODEV Expertise Microfinance, reviewed the achievements and ongoing work in the field of Islamic microfinance. The workshop was attended by the Project to Promote Microfinance in Chad, and actors from Mauritania, Cote d'Ivoire and Togo. The money and credit management (DMC), the Directorate of Microfinance (DMF), the Directorate of regulation and supervision of MFIs (DRS/SFD), the BCEAO and various state projects also participated in the workshop. The purpose of the workshop was to bring together stakeholders (projects, regulators, financial institutions, government, etc.) to analyze the opportunities and constraints on the development of the sector of Islamic microfinance. Despite the fair advancement of the industry in Senegal, regulation is not yet developed and is holding back the development of Islamic microfinance and Islamic finance in general. A development project is underway and should be completed by December on a draft regulation to raise the sector's development. The players are granted perspectives of the development of the regulatory framework on the need to start the pilot phases such as working around MECIS (Mutual Savings and Islamic Credit Senegal) which was initiated in ASCODEV and the comforting initiative UM-PAMECAS (the second IMF network in Senagal which set up a department offering Islamic financing products) which was exhibited at the workshop. A preliminary study by ASCODEV whose results were presented at the workshop shows positive trends for the Islamic microfinance sector. To support this process, ASCODEV with CTI (Centre de traitement Informatique) have signed a consortium agreement to set up a computer to manage the operations of the Islamic finance institutions platform. This initiative is quite advanced and will certainly be the most important link to advance Islamic microfinance in West Africa. This meeting was attended by more than 15 conventional microfinance institutions (including two of the three major networks) and two microfinance institutions operating in Islamic microfinance. It was initiated by practitioners with the intention of moving towards innovative initiatives to develop the field of Islamic finance. To this end, a combination of players in Islamic finance has been initiated. It will certainly play a large role in advocating for the development of an inclusive sector. Mansour Ndiaye is the director of microfinance of Assistance and Consulting for Development. He can be contacted at mansour.ndiaye@gmail.com. PRIVATE EQUITY & VENTURE CAPITAL By Arshad Ahmed Conventionally among private equity (PE) partnerships one encounters two important rates: the hurdle rate and the target internal rate of return (IRR). The hurdle rate reflects the minimum amount of gain a PE fund must achieve for the benefit of its investors before the fund manager (i.e., Mudarib) may enjoy a portion of profits. Investors — at least when deciding whether to invest, and again when looking back to judge whether the investment was a good one — focus more on target IRR because IRR serves as a proxy for fund performance. Typical mid-market PE funds coming out of the Silicon Valley or New York might set a target IRR at 25%. When a fund underperforms with regards to this target, it would be reasonable to expect investors to be disappointed. This discontent will be there whether it is conventional PE or Islamic. However, what about the case where a fund outperforms — does better than hoped? A PE fund does well when its underlying portfolio investments do well — which happens when the enterprises the PE fund managers invest in and advise are able to expand markets, streamline costs, increase margins, and so on. When it comes to crushing the target IRR, what kind of attitude does Islamic PE have? Does the cupidity of desiring ever more profit, even well beyond an agreed-upon target, comport with Islamic tradition? Sari al-Saqati was a shopkeeper in Baghdad about a millennium ago. One day, a man came down from the mountain to pay Sari a visit. This visitor lifted aside the curtain as he entered Sari’s shop, and announced himself: “It is Sheikh so-and-so from Mount Lokam greets you.” Sari replied: “He dwells in the mountains, yet his efforts amount to nothing. A man ought to be able to live in the midst of the market, yet be so preoccupied with God that not for a single instant is he absent from God.” It is said that in his trades, Sari never sought a profit greater than 5%. Sari once acquired almonds at a low price prior to a scarcity. During the scarcity, a broker called on Sari and offered him a price amounting to a 100%. Rather than gouging the broker, Sari agreed to a lower price, satisfied with his target profit of 5%. Arshad Ahmed is a partner at Elixir Capital. He can be contacted at Arshad.Ahmed@ elixircap.com. Towards the establishment of a management platform for Islamic microfinance institutions in West Africa Rates, profits, and targets in Islamic PE/VC
    • 26© 31st July 2013 COUNTRY FEATURE Islamic banking has witnessed an upward trend, growing almost 50% faster than the overall banking sector in several core markets including the UAE. A number of banks in the country have arranged Islamic finance deals worth millions of dollars for refinancing transactions, syndicated lending, etc., which indicates the demand for Islamic retail and wholesale banking products. These will continue to remain strong, as the awareness of ethical investment grows with several world Islamic finance conferences being held in the UAE year after year. Based on market reports, the publicly listed Sukuk market alone was valued at approximately US$10 billion in 2012, making Dubai a key player in listed Sukuk issuances after world leaders Malaysia and London. The UAE has seen Sukuk issuances not only by banks but also by quasi-sovereign issuers growing considerably. This is evident from the US$2.75 billion Sukuk listings by the Dubai government, Emirates Airlines and Dubai Electricity and Water Authority on the NASDAQ Dubai and the Dubai Financial Market which took place this year. It is noteworthy that as of May 2013 London, a world leader, has not listed any Sukuk, which gives Dubai a lead in the sector. Innovative Islamic finance products and techniques have been established in the UAE, for example: • Very recently, MasterCard introduced credit cards under Murabahah (cost plus financing) and Wakalah (agency) contracts, which are structured in a strictly Shariah compliant manner following the principle of equity. Customers are required to pay service charges only upon usage of the card, unlike the common practice of paying fixed monthly fees irrespective of the usage. • Similarly, a UAE bank is offering a Takaful (insurance) product, which offers breast cancer Takaful coverage. This is a pioneering innovation which actually addresses the financial needs associated with a common cause for death among women. • In July 2013, a UAE bank deployed a Shariah compliant profit computation and distribution Islamic banking system. This software efficiently and accurately facilitates real time calculation and distribution of profit and losses across all transactions. UAE banks are playing a vital role in extending the growth of Islamic finance in various jurisdictions. A Wakalah agreement signed between a UAE and Omani Bank, following AAOIFI standards, helped build a platform for the Omani bank to engage with international Islamic banks for their interbank liquidity management. In Turkey, a UAE Bank has completed Islamic capital market mandates valued at over US$1.4 billion, positioning itself as the leading gulf bank executing Shariah compliant syndicated facilities in Turkey. Challenges Although the UAE has the culture and heritage, it lacks the infrastructure to achieve its goal of becoming the global leader of Islamic finance. The key deterrents are the lack of clear Shariah governance and diverse ideologies of Shariah scholars on similar subjects. Also, the dependency on Shariah scholars to sign off each new structure, transaction or product entails a requirement for more scholars. This develops another difficulty – the shortage of Islamic scholars and the deficiency of professional institutions and colleges, which train and provide quality Islamic finance education for new scholars. The lack of such services makes carrying out Islamic finance business time-consuming and, at times, financially inefficient. Way forward Sheikh Mohammed Rashid Al Maktoum, the UAE vice-president and prime minister, has an executive plan to transform Dubai into a center of Islamic economic activity and looks at producing radical initiatives which will correct anomalies and transform optimistically the methods and conduct of Islamic finance in the UAE. One of the features of this movement is enhancing issuance, listing and trading of Sukuk, which will in turn encourage institutions to issue Sukuk in place of conventional bonds. It also focuses on streamlining the issue of having a unified governing Shariah board, which will encompass the formulation of common standards and regulations for Islamic finance activities and will also put in place a process for conducting Islamic contract arbitration. The recent launch of the Dubai Center for Islamic Banking and Finance initiates academic programs on human resources development, scientific research and community service. While each emirate has Halal (Islamic law abiding) food compliance checks done at a municipal level, there are no general standards and regulations. Steps towards standardization for the Halal food, fashion and cosmetic industries have now been initiated. The Emirates Standardization and Metrology Authority is mandated to formulate Halal codes. This move aims at growing the trade of Halal food and products from US$3.6 billion in 2010 to US$8.4 billion in 2020. This vision, along with the competitive advantages that the UAE offers – such as 100% foreign ownership, tax exemption, capital repatriation, internationally accepted laws and regulations and given that most of the local and regional wealth arises from Shariah compliant avenues — places the UAE in an advantageous position over the rest of the world. Maymoona Talib is an associate in the banking & finance practice at Bin Shabib & Associates Advocates & Legal Consultants in Dubai. She can be contacted at maymoona. talib@bsa.ae. UAE: Exciting growth opportunities UAE has in the past seen a financial crisis which exposed some of the inherent weaknesses of conventional systems of financing. With the slower economic growth and unsteady market conditions, investors are opting for stable, well-governed, financial options which dole out high yielding returns. MAYMOONA TALIB looks at some of the most innovative solutions being explored by UAE banks that are helping to promote the growth of Islamic finance.
    • 27© 31st July 2013 COUNTRY FEATURE The first half year results of banks are coming in and it seems that most banks have done well compared to the previous year. This was at the back of lending done mostly in local currencies specifically for corporate customers with bigger deal tickets as foreign banks shied away and so did their cheap dollar lending books. The emerging trend of aggressive price reduction by Dubai borrowers based on the current economic uplift may be short-lived unless Dubai finds a solution for its upcoming debt maturities in 2014 and 2016, which are estimated to be around US$48 billion. Markets are confident that Dubai can meet these payments. Dubai and its government-related entities have been able to raise almost US$5 billion by mostly refinancing through existing banks at reasonably thinner margins based on an improved credit default swaps which has halved from 2012 levels and now is hovering around the range of 200-220bps. Transactions where cash flow visibility is improved has seen pricing shaved off by 100% without going through refinancing — as shown by the Road & Transport Authority’s securitization of Salik (toll gate) future receivables which was priced at a spread of 325bps back in 2010 and now stands at 225bps. Some borrowers are even trying to reduce the existing spreads to half – Emaar Properties’ funding of Dubai Mall was priced at a spread of 350bps and presently, the borrower is aggressively negotiating to reduce the spread to 175bps. With dollar lending coming back to the markets, domestic banks are finding their margins eroding, the impact of which will start appearing in the next 12 months. However, there are new projects being announced but the tricky part is how banks would structure them and avoid the pitfalls they have fallen into in the past. This needs to be balanced with Dubai’s liability toward Abu Dhabi. Most bankers assume that Abu Dhabi has an interest in preserving Dubai’s financial stability and expect all or most of the US$20 billion liability to be quietly rolled over for a further several years. The change of status from frontier markets to emerging markets by MSCI of UAE and Qatar has boosted the stock markets where both markets are expected to see some US$3 billion-worth of new direct investments coming in over a period of time of total global investments in the emerging market space. Both the UAE and Qatar have a 0.45% weight in the MSCI Emerging Market Index. This is well awaited news and a positive sentiment was already prevailing as the UAE securities markets were up more than 50% and have touched five-year record highs. This was only possible due to improvements made by UAE regulators and bourses with respect to delivery versus payment modes. The other noticeable improvement has been seen with the UAE Banks Federation (UBF), which has a new chairman: Abdul Aziz Al Ghurair, an ex-speaker for the Federation National Committee of the UAE, and CEO of Mashreq Bank. As most UAE banks are not actively engaging the Central Bank of UAE (CBUAE), the UBF acts as a primary regulator on proactively working on policies and regulations affecting the banking sector in all segments, including the Islamic sector. There are 10 active committees in the UBF, including an Islamic banking committee, that are addressing and engaging the CBUAE on matters sensitive to their segment. This is a healthy development. On the Islamic banking front, the Islamic banking committee, which consists of all Islamic banks and most Islamic windows of conventional banks, has also put up a proposal to set up a central Shariah governance and compliance unit within CBUAE. 2014-15 could be the year when a clear shift can be seen as pressure on bank financing with lower rates should give way to healthy IPO activities where even a few big government-owned entities may come to market. The silver lining for Dubai specifically could come towards the end of November when the World Expo 2020 will be decided. Until then, everyone is waiting with bated breath. Moinuddin Malim is the CEO of Mashreq Al Islami. He can be contacted at MoinuddinM@mashreqalislami.com. UAE: A silver lining in clearing clouds The UAE has seen a strong economic recovery, but upcoming maturing debt is raising concerns over its ability to continue the expansion. MOINUDDIN MALIM looks at the current economic situation and evaluates the prospects for the region’s banking sector. The emerging trend of aggressive price reduction by Dubai borrowers based on the current economic uplift may be short-lived unless Dubai finds a solution for its upcoming debt maturities in 2014 and 2016, which are estimated to be around US$48 billion I subscribe to Davide Barzilai Partner, Norton Rose IFN subscriber since 2006
    • 28© 31st July 2013 SECTOR FEATURE The Islamic financial services industry, with inclusive proposition, has been an alternative paradigm across jurisdictions, advancing from niche to critical mass. This tremendous growth has not been without challenges in the industry both at institution and supervisory level. Arguably, one of them is to preserve the integrity and credibility of the industry through Shariah compliance aspect — which is the reason for existence of the whole industry and the single most vital aspect within the institution offering Islamic financial services. In some recent cases, Shariah non-compliance risk (i.e. the risk that arises from a failure to comply with the Shariah rules and principles as determined by the Shariah board of the Islamic financial institution or the relevant body in the jurisdiction in which it operates) has led to financial effects (in the forms of penalty, compensation, additional capital-adds on) as well as reputational implications to the institution itself; consequently, labelling key questions on its Shariah governance process. As Islamic finance continues to attract global attention, the area of Shariah governance also becomes increasingly analyzed and scrutinized by stakeholders across the industry. It is noteworthy that a Shariah governance system which improves the credibility and integrity of Shariah scholars addresses not only governance concerns but also risk management issues within Islamic financial institutions. A sound and effective Shariah governance framework is critically important to give confidence to the general public about Shariah conformity of an institution’s operations and promoting an effective implementation of an enterprise risk management (ERM) framework at the institution. Various forms of Shariah governance regimes Given the different operating models in the industry, such as fully-fledged institutions versus Islamic windows versus subsidiaries of conventional banks; there is no universal adoption of industry guidance indicating no single accepted model of Shariah compliance. Accordingly due to the differing scope and extent of Shariah assurance opinions, differing methods of testing Shariah compliance (such as internal Shariah review versus internal audit versus Shariah board review) within Islamic institutions have complicated the governance process further. Various forms of Shariah governance regimes are adopted into different jurisdictions where Islamic finance firms have a presence. There are two noticeable cases. In the first case, some supervisory authorities (e.g. Malaysia, Sudan, Pakistan, Nigeria) have their own national Shariah panel that works together with them in issuing standardized Shariah rulings as well as aligning relevant policy and regulatory framework with the Shariah. These supervisory authorities then impose a requirement that each institution must have a certain minimum number of Shariah scholars — who must also meet certain ‘fit and proper’ criteria — similar to when banks are appointing their board of directors. In the second case, quite a number of supervisory authorities (e.g. Kuwait, Qatar, the UK, Hong Kong, Singapore) simply let the institutions decide on their own as to what kind of Shariah governance process they wish to adopt without regulatory intervention by the authorities. These supervisory authorities impose a requirement that they want to be satisfied by each institution that they at least have a reasonable Shariah governance system in place. It is important to comprehend that each of the Shariah governance regimes as alluded to above have been tailored by the respective supervisory authorities to suit market realities and the stage of development of the Islamic finance industry in their jurisdiction. Each regime may have its merits and weaknesses; but supervisory authorities have to select, after due consideration, which regime would best meet their needs. In this respect, they need to carry out progressive reviews to check whether the Shariah governance system efficiently keeps up with the changing global Islamic finance landscape. International guidance on Shariah governance – IFSB and AAOIFI Concerns over the roles and functions of the Shariah supervisory board have been a recurring theme in the industry, due to lack of standardization and consensus on international best practices. These apprehensions signify the importance and to a certain extent, most of them have been addressed by the IFSB standards. For instance, IFSB-1 (Risk management) and IFSB-2 (Capital adequacy) have clearly stated the need for Islamic financial institutions to establish appropriate policies and infrastructure in order to manage legal risk and Shariah non-compliance risk, which are considered part of the operational risks of the institution — thus implicitly indicating the need for a robust and reliable Shariah governance system to manage Shariah non-compliance risk. IFSB-3 indicates explicitly that the Shariah board is an integral part of the whole governance framework for institutions. Under IFSB-4 (Transparency and market discipline), a number of new disclosure requirements have been recommended with the aim of promoting better Shariah governance, while IFSB-5 (Supervisory review process) highlights the supervisory authorities’ role with regard to Shariah governance system. In particular, IFSB-10 addresses the components of a sound Shariah governance system, especially with regard to the competence, independence, confidentiality and consistency of Shariah supervisory boards. Given the Shariah governance needs and A regulatory perspective on Shariah governance Shariah governance lies at the heart of Islamic finance, and is one of its most important and yet controversial challenges. JAMSHAID ANWAR CHATTHA gives an analysis of the issue from a regulatory perspective and discusses the importance of standardization across the industry. continued...
    • 29© 31st July 2013 SECTOR FEATURE Continued requirements of different types of Islamic financial institutions operating in different jurisdictions, IFSB-10 recognizes that there are various Shariah governance structures and models that have been adopted in different jurisdictions where Islamic financial institutions are present, suggesting no ‘single model’ or ‘one-size- fits-all’ approach. Further, according to IFSB-10, at the institutional level, both an ex-ante and an ex-post aspects of Shariah governance has to be taken into consideration – the former is the process of issuing and interpreting Fatwas prior to their application in the operations of the institution, while the latter refers to the Shariah review process which is intended to ascertain whether the Fatwas have been thoroughly and correctly applied in those operations. Likewise, AAOIFI has also issued a governance standard for Shariah supervisory boards, covering aspects such as their appointment, composition, qualification and template Shariah report. However, the AAOIFI standards in particular have not adequately covered the ex-ante and ex-post functions of the SSB, nor have they provided any alternative solutions for consistency/ harmonization of Fatwa issues, which is crucial especially in jurisdictions without a national Shariah panel where such inconsistencies can easily create much confusion. Regulatory structures for the supervision of Shariah governance The operations of Islamic financial institutions demonstrate that they need to be regulated by a set of rules and regulations providing early warning signals of Shariah non-compliance risk and maintaining the trust of all stakeholders. In this respect, the supervision of Shariah rules and principles is a unique institutional building block of the Islamic finance industry. Islamic institutions operating in various jurisdictions have adopted a rigorous system of self-regulation in the form of Shariah supervision. The work of Shariah bodies (which are named differently in various jurisdictions like Shariah advisory committee, Shariah board, Shariah supervisory board, etc.) includes various supervisory elements that are needed to ensure the compatibility of the institution with Shariah rules and principles. Though in practice most Islamic finance institutions have some form of Shariah body, not all supervisory authorities supervising these firms have provided regulatory guidance on the formation and working of such bodies. The regulations of supervisory authorities regarding formation and working of Shariah supervisory boards cover different areas including, among others, the size and duties of the boards, qualifications of board members, reporting structures, suspension and termination, conflict of interest and board compliance reports. It should be noted that due to presence of national Shariah boards in some jurisdictions, the roles and functions of Shariah supervisory boards in Islamic financial institutions also change from one country to another. Compliance with Shariah rules and principles is fundamental to the ongoing operation of an Islamic financial institution. Achieving Shariah governance is the function of many organs within the firm such as risk and compliance, the Shariah supervisory board, external audit, internal audit and/or an internal Shariah review unit. Shariah governance issues should be looked at both at an institutional and supervisory level. For a robust regulatory and supervisory framework for effective Shariah governance, supervisory authorities should include it in their supervisory review process given the continued cross- border interconnectedness. For Islamic institutions, it is important to add that the board of directors holds the ultimate responsibility for ensuring full conformity of the firm’s operations with Shariah rules and principles. This is normally done by the board of directors through appointing a Shariah supervisory board with clear terms of reference. The senior management of the institution is held responsible for implementing the Shariah governance system. Yet, the quality of implementation of Shariah governance will depend on the risk culture of the institution and regular supervisory oversight of its operations. In line with the growth of the Islamic finance industry, it can be seen that the roles of Shariah scholars — who advise and supervise the Shariah compliance aspects of an Islamic financial institution’s operation – are becoming increasingly challenging and demanding. The implementation of Basel III (or its equivalent IFSB) framework — covering mainly capital and liquidity issues — places high importance on the effectiveness of Shariah governance system within the jurisdiction. This reflects that there is need for a number of scholars — who meet reasonable competencies and qualifications with regard to Shariah (in particular the sub- discipline of Fiqh Muamalat) and have the capability of understanding modern finance in order to advise and supervise Islamic institutions. Moving forward Often, a lack of standardization is cited as a key reason for the obstruction of growth potential of Islamic finance. This has resulted in calls for the standardization of the Shariah rules and principles with common guidelines across the industry. Standardization in this case can be achieved at both domestic and international level. Depending on the jurisdiction in which an Islamic financial institution operates, the former is slightly easy as the respective supervisory authority can play a crucial role through issuing specific guidelines on Shariah compliant contracts to be undertaken within the jurisdictions. This will allow more consistency on the use of standardized contracts, thus giving more certainty from legal and prudential perspective. On the other hand, a key issue is the cross-border standardization of common guidelines. In the absence of a structured platform for communication among the supervisory authorities, this issue seems to be challenging to be tackled in the short-run. In this respect, one of the suggestions made by the president of the IDB during the IFSB 10th Summit in May 2013, on having a globally accepted Shariah committee or body which would be able to assist all IIFS and bring them in line with a uniform standard, reflects the importance of this debate. The views expressed in this article are of the author and do not necessarily represent the views of the IFSB. Jamshaid Anwar Chattha is a Member of the Secretariat, Technical and Research, Islamic Financial Services Board (IFSB). He can be contacted at jamshaid@ifsb.org.
    • 30© 31st July 2013 SPECIAL FEATURE Is talent development needed or not? Given that the industry is in growth mode why can’t those undertaking industry qualifications get jobs? This has an effect on talent development in the Islamic finance industry, which brings about the question: Is talent development needed or not? Whilst reports give various numbers by country of the qualified talent requirement, the scenario on ground belies the fact that the industry organizations are doing anything concrete towards talent development. Studying the industry shows two clear trends: 1. Most Islamic finance operations started as windows. The conventional products were ‘wrapped’ in an Islamic cover and offered out. Inadvertently such a practice impacted the talent recruitment practice of an organization wherein the preference was for regular conventional finance qualifications. 2. The lack of industry and academia collaboration has resulted in slow development of professional standards and required practical educational content. These two trends, amidst the backdrop of the global financial crises that forced organizations to make do with available talent resources, gives us the background of where talent development in the Islamic finance industry is at presently. Whilst respective international financial centers are attempting to develop a formal talent development policy on their own initiative, the global industry is yet to take up this issue as a critical one. Talent is an asset Talent is the most crucial element in the success of an organization. Recruiting, engaging and managing the talent, career planning and developing employees into organizational leaders, all ensure the sustainable growth and success of an organization. For the Islamic finance industry, lining up the ducks that result in excellent talent can only be beneficial. A key first step is to define what talent is. A common definition, across the industry, would help in establishing parameters that would aid in developing a talent development policy, at an industry level, and aid in developing independent talent management strategies. Some key parameters to put in place would be: 1. Developing a clear set of competencies and a grid to score on, identifying areas of development. 2. Identifying talent based on these competencies. 3. Ensuring the organization has an environment that speaks to personal growth — people must not only want to get better but must be allowed to, as well. 4. Ensuring identified talent has progressively meaningful work and gains in influence. These are two critical success factors for talented staff in terms of retention and productivity. The second step would be the route of collaboration between industry organizations and academia and actively investing in this collaboration to obtain the desired quality of talent. As talent is a primary requirement of organizations in keeping their business running, the lead on this has to come from the organizations themselves. The way forward could be to collaborate with academic institutions for research requirements that are needed by organizations to grow their business. Thirdly, use the output of the research to develop case studies that can then become part of an academic program in order to provide a more experiential knowledge base for incoming talent. Lastly, a globally accepted set of competency standards needs to be in place as the guideposts to what is expected from the talent in terms of educational qualifications. There are dual benefits of having in place an industry-focused talent development policy. 1. Locally the organizations would be seeding in the competencies they seek in a talent, through the collaborations with academia. 2. The talent gains both knowledge and competencies that the industry organizations require to keep their business growing. At a country level, this would act as a stimulus for both the financial services and the education sector. As the collaborations are actioned, the talent recruited directly by the organizations will create a ‘word-of-mouth’ scenario through social media by talking about their jobs. This in turn will lead to potential talent looking at the industry and evaluating career benefits. From there it is just a short step to obtaining the required qualifications. So the academic institutions start benefiting as demand for their programs rises. The net result is that the industry gains by having a continuous pool of planned talent that has the competencies the industry wants. At an international level, centralized collaborations between industry bodies Talent development in the Islamic finance industry — is it really necessary? More and more educational institutions around the world are offering degree programs and diplomas in Islamic finance and banking. This is a good sign as it indicates that the growing global Islamic finance industry has a rising demand for competent and trained talent. JOY ABDULLAH looks at why, therefore, graduates are struggling to find jobs after qualifying. continued...
    • 31© 31st July 2013 SPECIAL FEATURE in different financial centers will bring together organizations and academia to work on enhancing specific areas of the existing academic content. This, in turn, will facilitate the generation of cross-border academic content which will benefit talent all round by providing them the cross-jurisdiction knowledge they need. For a talent, this is a huge benefit as he or she becomes a ‘true knowledge worker’ and is able to add value to an organization irrespective of the geographical market. Easier said than done? A common grouse from industry CEOs is on the issue of the difficulty for Shariah specialists to understand the bottom-line business pressures and for commercial specialists to understand that there are strict ethical principles to adhere to. This constant mode of internal challenge actually inhibits progress. So what can the global industry do in aiding organizations to resolve this issue, as a start towards having effective talent development strategies? 1. Co-create short training content that provides an overview for the respective teams — i.e. Shariah specialists get a business overview and see how their decisions impact a business’s bottom line, while commercial specialists get an overview of the key guidelines to ensure they can deliver a Shariah compliant product. Taking it one level down, at an organizational level, the team of commercial and Shariah specialists could perhaps be given joint business targets for achievement and joint rewards for achievement. This would bring about joint talent development in organizations and allow them to maximize the knowledge and competency of their talents for the benefit of the organization. 2. Accept and implement a common global standard for qualifications — like other professional qualifications develop and implement a global standard for qualifications, including short-term courses, which all educational institutions and educational service providers have to adhere to. This will bring about a rise in the quality of the talent as well as enable industry organizations to have a standard on which they can base their recruitment policies. The advantage the Islamic finance industry organizations have, vis-à- vis other industries, is that there are vast amounts of expertise from their conventional counterparts already available for use in rolling out effective talent development plans. But talent development will remain on the backbench unless and until organizations take it upon themselves to align their business goals, organizational values and talent competencies and approach the academia with what they need. The opinions expressed are personal point of views of the author and are not opinions from or on behalf of INCEIF. Joy Abdullah is the head of marketing & communication at INCEIF — The Global University of Islamic Finance. He can be contacted at joyabdullah@inceif.org. Talent development will remain on the backbench unless and until organizations take it upon themselves to align their business goals, organizational values and talent competencies and approach the academia with what they need Continued Not just cities Algiers Buenos Aires Cairo Dhaka Essen Freetown Gaborone Havana Islamabad Jerusalem Kabul Lusaka Minsk Nassau Ottawa Phnom Penh Quito Reykjavik Sarajevo Tripoli Ulaanbaatar Vientiane Warsaw X………….. Yaounde Zagreb We have subscribers in all of these cities Does anyone know anyone in Xangongo? Can you spot the odd one out in the above list? Contact us now for a free trial…… Musfaizal Mustafa Subscriptions Director Musfaizal.Mustafa@REDmoneyGroup.com Tel: +603 2162 7800 x 24
    • 32© 31st July 2013 DEAL TRACKER AUGUST Basel III and Credit Risk Management • 25 August, DUBAI Tawarruq Structure and Issues • 28-29 August, KUALA LUMPUR Risk Management Framework and Princi- ples for Islamic Finance • 29-30 August, KUALA LUMPUR SEPTEMBER Effective Sukuk Structuring • 3-4 September, KUALA LUMPUR Sukuk Instruments: Screening, Structur- ing and Shariah Issues • 3 September, ISTANBUL Sukuk Instruments: Screening, Structur- ing and Shariah Issues • 5 September, CAIRO Advanced Sukuk and Islamic Capital Markets • 8-10 September, DUBAI Structuring Essentials for Islamic Infra- structure and Project Financing • 10-11 September, KUALA LUMPUR Issues and Practices in Retakaful • 18 September, KUALA LUMPUR Structuring Islamic Syndicated Transac- tions • 29-30 September, DOHA OCTOBER Islamic Treasury and Risk Management Products • 7-9 October, KUALA LUMPUR Islamic Fund and Asset Management • 10-11 October, KUALA LUMPUR Accounting & Financial Reporting for Islamic Hedging Products • 28-30 October, KUALA LUMPUR Shariah Audit and Compliance in Islamic Banking • 31 October-01 November, KUALA LUMPUR www.REDmoneyTraining.com ISSUER SIZE DATE ANNOUNCED Genting Plantations RM1.5 billion 26th July 2013 Republic of Senegal US$200 million 25th July 2013 Masraf Al Rayan US$1 billion 25th July 2013 Tamweel US$235 million 25th July 2013 Bank Asya TRY1 billion 23rd July 2013 Osun State NGN10 billion 22nd July 2013 Syarikat Prasarana Negara RM4 billion 18th July 2013 Dubai Investments AED1.1 billion 16th July 2013 Tenaga Nasional RM2 billion 3rd July 2013 Sumatec US$100 million 24th June 2013 Al Baraka Bank Turkey US$450 million 21st June 2013 Al Baraka Bank Turkey US$200 million 21st June 2013 Perusahaan Listrik Negara IDR2.5 trillion 18th June 2013 General Authority for Civil Aviation US$4 billion 12th June 2013 Qatar Islamic Bank US$100 million 10th June 2013 Zain Saudi SAR2.25 billion 7th June 2013 VTB Bank US$1 billion 3rd June 2013 EXIM Bank US$1 billion 3rd June 2013 Al Baraka Islamic Bank US$200 million 20th May 2013 MMC Corporation RM470 million 15th May 2013 Egypt Government US$10–15 billion 14th May 2013 Puncak Niaga Holdings RM165 million 14th May 2013 Dubai Investments Company US$300 million 13th May 2013 Almarai US$500 million 9th May 2013 Saudi Basic Industries Cooperation (SABIC) SAR40 billion 8th May 2013 Batu Kawan TBA 7th May 2013 BNM Sukuk RM1 bilion 7th May 2013 BNM Sukuk RM1 billion 7th May 2013 Tilal Development Company OMR50 million 6th May 2013 Khazanah Nasional US$1 billion 25th April 2013 Dana Gas TBA 24th April 2013 Egyptian government EGP4.5 billion 24th April 2013 Transnet TBA 22nd April 2013 Petronas Dagangan RM2 billion 22nd April 2013 1MDB Global Investments US$3 billion 19th April Al Baraka Turk US$200 million 17th April 2013 Barwa Bank TBA 16th April 2013 International Islamic Liquidity Management Corporation US$2 billion 15th April 2013 National Shipping Company of Saudi Arabia TBA 12th April 2013 Dubai Investments US$300 million 11th April 2013 Qatar Central Bank QAR1 billion 4th April 2013 Moroccon government TBA 3rd April 2013 Tunisian government US$700 million 2nd April 2013 Dialog Axiata RM1.2 billion 2nd April 2013 Al-Aqar Capital RM1 billion 29th March 2013 PETRONAS Gas RM5 billion 29th March 2013 Pakistan Domestic Sukuk Company TBA 23rd March 2013 FWU Group TBA 22nd March 2013
    • 33© 24th July 2013 SHARIAH INDEXES SAMI Halal Food Participation (All Cap) 6 months 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 1300 1475 1650 1825 2000 Jul-2013Jun-2013May-2013Apr-2013Mar-2013Feb-2013 All Cap Large Cap Medium Cap Small Cap 650 760 870 980 1090 1200 JulJunMayAprMarFeb 600 700 800 900 1000 1100 JulJunMayAprMarFeb All Cap Large Cap Medium Cap Small Cap 500 580 660 740 820 900 JulJunMayAprMarFeb All Cap Large Cap Medium Cap Small Cap 680 804 928 1052 1176 1300 JulJunMayAprMarFeb All Cap Large Cap Medium Cap Small Cap 500 570 640 710 780 850 JulJunMayAprMarFeb All Cap Large Cap Medium Cap Small Cap 800 1020 1240 1460 1680 1900 JulJunMayAprMarFeb All Cap Large Cap Medium Cap Small Cap
    • 34© 24th July 2013 SHARIAH INDEXES For further information regarding REDmoney Indexes contact: Andrew Morgan Managing Director, REDmoney Group Email: Andrew.Morgan@REDmoneygroup.com Tel +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 Utilities 2%Telecomunication Services 2% Technology 14% Basis Materials 15% Non-Cyclical Consumer Goods Services 7% Energy 8% Financials 4% Healthcare 11% Industrials 22% Consumer Goods Services 15% 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 financial Shariah guidelines. The REDmoney Global Shariah Index Series powered by IdealRatings consists of a rich subset of global listed equities that adhere to clearly defined and transparent Shariah guidelines defined by Shariyah Review Bureau in Jeddah, Saudi Arabia. The REDmoney Shariah Indexes provides Islamic investors with an accurate and Shariah-specific equity performance benchmark with optimized compliance credibility due to the intensive research conducted to ensure that index constituents do not conflict with the defined 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 REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC REDmoney Global REDmoney MENA REDmoney US 500 642 784 926 1068 1210 JulJunMayAprMarFeb 450 590 730 870 1010 1150 JulJunMayAprMarFeb REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC REDmoney Global REDmoney MENA REDmoney US 500 780 1060 1340 1620 1900 JulJunMayAprMarFeb REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC REDmoney Global REDmoney MENA REDmoney US 500 740 980 1220 1460 1700 JulJunMayAprMarFeb REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC REDmoney Global REDmoney MENA REDmoney US
    • 35© 24th July 2013 FUNDS TABLES Comprehensive data from Eurekahedge will now feature the overall top 10 global and regional funds based on a specific duration (yield to date, annualized returns, monthly returns), Sharpe ratio as well as delve into specific asset classes in the global arena – equity, fixed income, money market, commodity, global investing (which would focus on funds investing with global mandate instead of a specific 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 five week rotational basis. Eurekahedge Global Islamic Fund Index IndexValues Top 10 Monthly Returns for Global Islamic Funds Fund Fund Manager Performance Measure Fund Domicile 1 Al Rajhi Commodity Mudarabah - USD Al Rajhi Bank 0.10 Saudi Arabia 2 Commodity Trading - SAR Riyad Bank 0.09 Saudi Arabia 3 SR International Trade Finance - (Al Sunbula) Samba Financial Group 0.07 Saudi Arabia 4 Jadwa Saudi Riyal Murabaha Jadwa Investment 0.07 Saudi Arabia 5 USD International Trade Finance - (Al Sunbula) Samba Financial Group 0.04 Saudi Arabia 6 Watani USD Money Market National Bank of Kuwait 0.03 Cayman Islands 7 Watani KD Money Market National Bank of Kuwait 0.03 Cayman Islands 8 Euro International Trade Finance - (Al Sunbula) Samba Financial Group -0.01 Saudi Arabia 9 Al Dar Fund of Funds ADAM -0.34 Kuwait 10 Al Hadi Islamic Portfolio Riyad Bank -0.49 Saudi Arabia Eurekahedge Global Islamic Fund Index (4.11) Top 10 Monthly Returns for ALL Islamic Funds Fund Fund Manager Performance Measure Fund Domicile 1 Al Dar Real Estate ADAM 3.00 Kuwait 2 Libra SyariahExtra Libra Invest 2.59 Malaysia 3 Al-Mubarak Pure Saudi Equity Arab National Bank 2.39 Saudi Arabia 4 Libra Amanah Saham Wanita (ASNITA) Libra Invest 1.95 Malaysia 5 United Islamic Income UBL Fund Managers 1.66 Pakistan 6 Shariah Benchmark Exchange Traded Scheme (Shariah BeES) Benchmark Asset Management 1.50 India 7 Meezan Islamic Income Al Meezan Investment Management 1.09 Pakistan 8 Al Hilal GCC Equity Al Hilal Bank 1.02 UAE 9 Al Qasr GCC Real Estate & Construction Equity Trading Banque Saudi Fransi 0.99 Saudi Arabia 10 Jadwa GCC Equity Fund Jadwa Investment 0.94 Saudi Arabia Eurekahedge Islamic Fund Index (2.41) Based on 96.49% of funds which have reported June 2013 returns as at the 29th July 2013 Based on 96.63% of funds which have reported June 2013 returns as at the 29th July 2013 60 70 80 90 100 110 120 Dec-99 Sep-01 May-03 Jan-05 Sep-06 Jun-08 Feb-10 Oct-11 Jun-13
    • 36© 24th July 2013 FUNDS TABLES Top 5 Islamic Commodity Funds by 3 Month Returns Fund Fund Manager Performance Measure Fund Domicile 1 ETFS Physical Platinum ETFS Metal Securities -16.54 Jersey 2 ETFS Physical Palladium ETFS Metal Securities -16.60 Jersey 3 ETFS Physical Gold ETFS Metal Securities -25.49 Jersey 4 ETFS Physical PM Basket ETFS Metal Securities -25.66 Jersey 5 AmPrecious Metals AmInvestment Management -34.85 Malaysia Eurekahedge Islamic Commodity Fund Index (27.11) Based on 75.50% of funds which have reported June 2013 returns as at the 29th July 2013 Top 10 Islamic Money Markets Funds by 3 Month Returns Fund Fund Manager Performance Measure Fund Domicile 1 Al Dar Money Market ADAM 2.13 Kuwait 2 Meezan Tahaffuz Pension - Money Market Sub Al Meezan Investment Management 1.53 Pakistan 3 TA Dana Optimix TA Investment Management 1.50 Malaysia 4 Atlas Pension Islamic - Money Market Sub Atlas Asset Management 1.44 Pakistan 5 MAAKL Al-Ma'mun MAAKL Mutual 0.70 Malaysia 6 Apex Dana Al Kanz Apex Investment Services 0.66 Malaysia 7 PB Islamic Cash Plus Public Mutual 0.65 Malaysia 8 Public Islamic Money Market Public Mutual 0.65 Malaysia 9 Kenanga Islamic Money Market Kenanga Investors 0.65 Malaysia 10 TA Islamic CashPlus TA Investment Management 0.64 Malaysia Eurekahedge Islamic Money Markets Fund Index (0.13) Based on 97.30% of funds which have reported June 2013 returns as at the 29th July 2013 Contact Eurekahedge To list your fund or update your fund information: islamicfunds@eurekahedge.com For further details on Eurekahedge: information@eurekahedge.com Tel: +65 6212 0900 Disclaimer Copyright Eurekahedge 2007, All Rights Reserved. You, the user, may freely use the data for internal purposes and may reproduce the index data provided that reference to Eurekahedge is provided in your dissemination and/or reproduction. The information is provided on an “as is” basis and you assume and will bear all risk or associated costs in its use, and neither Islamic Finance news, Eurekahedge nor its affiliates provide any express or implied warranty or representations as to originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for any purpose. Percentage Eurekahedge Islamic Fund Money Market Index over the last 5 years Eurekahedge Islamic Fund Global Money Market Index since Inception Percentage 98 99 100 101 102 103 104 105 106 107 108 Jul-08 Oct-09 Jan-11 Apr-12 Jun-13 100 105 110 115 120 125 130 135 Dec-99 May-03 Sep-06 Feb-10 Jun-13
    • 37© 24th July 2013 LEAGUE TABLES Global Sukuk Volume by Month Global Sukuk Volume by Quarter 0 200 400 600 800 1000 1200 0 2 4 6 8 10 12 1 2 3 4 5 6 11 12 1 2 654310987 2012 2013 US$mUS$bn Value (US$bn) Avg Size (US$m) 0 100 200 300 400 500 600 0 2 4 6 8 10 12 14 16 18 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 4Q3Q2Q 2008 2009 2010 2011 2012 2013 US$mUS$bn Value (US$bn) Avg Size (US$m) Most Recent Global Sukuk Priced Issuer Nationality Instrument Market US$ (mln) Managers 15th Jul 2013 National Higher Education Fund Malaysia Sukuk Murabahah Domestic market public issue 189 RHB Capital, AmInvestment Bank 28th Jun 2013 Kapar Energy Ventures Malaysia Sukuk Ijarah Domestic market public issue 628 AmInvestment Bank 25th Jun 2013 Pengurusan Air SPV Indonesia Sukuk Domestic market private placement 109 CIMB Group 21st Jun 2013 Tanjung Bin O&M Malaysia Sukuk Domestic market private placement 147 CIMB Group, Maybank Investment Bank 3rd Jun 2013 Pelabuhan Tanjung Pelepas Malaysia Sukuk Domestic market public issue 129 RHB Capital, Maybank Investment Bank 30th May 2013 Batu Kawan Malaysia Sukuk Musharakah Domestic market private placement 163 CIMB Group, Maybank Investment Bank 29th May 2013 IDB Trust Services Saudi Arabia Sukuk Wakalah Euro market public issue 1,000 Standard Chartered Bank, National Consumer Cooperative Bank, RBS, National Bank of Abu Dhabi, Natixis, CIMB Group, Credit Agricole, Barwa Bank 28th May 2013 Power & Water Utility Co for Jubail & Yabbu - Marafiq Saudi Arabia Sukuk Domestic market private placement 667 HSBC 23rd May 2013 First Resources (Indonesia) Indonesia Sukuk Domestic market public issue 199 RHB Capital 22nd May 2013 Cagamas Malaysia Sukuk Murabahah Domestic market public issue 166 RHB Capital, CIMB Group 21st May 2013 Dar Al-Arkan International Sukuk Saudi Arabia Sukuk Wakalah Euro market public issue 450 Goldman Sachs, Deutsche Bank, Masraf Al Rayan, Emirates NBD, QInvest, Bank Alkhair 14th May 2013 TNB Northern Energy Malaysia Sukuk Ijarah and Sukuk Wakalah Domestic market public issue 543 HSBC, KAF Investment Bank 29th Apr 2013 Albaraka Turk Katilim Bankasi Saudi Arabia Sukuk Murabahah Euro market public issue 200 BNP Paribas, Nomura, Emirates NBD, Al Hilal Bank, Barwa Bank 29th Apr 2013 Al-‘Aqar Capital Malaysia Sukuk Ijarah Domestic market private placement 124 Kuwait Finance House, AmInvestment Bank, Maybank Investment Bank 26th Apr 2013 Telekom Malaysia Malaysia Sukuk Domestic market public issue 132 AmInvestment Bank 24th Apr 2013 Turkiye Finans Katilim Bankasi Turkey Sukuk Euro market public issue 500 Saudi National Commercial Bank, HSBC, Citigroup, Noor Islamic Bank 24th Apr 2013 National Higher Education Fund Malaysia Sukuk Murabahah Domestic market public issue 164 RHB Capital, AmInvestment Bank 8th Apr 2013 SIB Sukuk Co III UAE Sukuk Euro market public issue 500 Standard Chartered Bank, HSBC, Kuwait Finance House, Al Hilal Bank 2nd Apr 2013 Sadara Chemical Company Saudi Arabia Sukuk Musharakah Domestic market public issue 2,000 Deutsche Bank, Riyad Bank, Al-Bilad Bank, Alinma Bank 26th Mar 2013 Saudi Electricity Global SUKUK Company 2 Saudi Arabia Sukuk Euro market public issue 2,000 Deutsche Bank, HSBC
    • 38© 24th July 2013 LEAGUE TABLES Top 30 Issuers of Global Sukuk 12 Months Issuer Nationality Instrument Market US$ (mln) Iss Managers 1 Saudi Electricity Global SUKUK Company 2 Saudi Arabia Sukuk Euro market public issue 2,000 5.6 Deutsche Bank, HSBC 2 Sadara Chemical Company Saudi Arabia Sukuk Musharakah Domestic market public issue 2,000 5.6 Deutsche Bank, Riyad Bank, Al-Bilad Bank, Alinma Bank 3 Turus Pesawat Malaysia Sukuk Murabahah Domestic market public issue 1,734 4.8 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank 4 Celcom Transmission (M) Malaysia Sukuk Murabahah Domestic market public issue 1,590 4.4 HSBC, CIMB Group, Maybank Investment Bank 5 Republic of Turkey Turkey Sukuk Euro market public issue 1,500 4.2 HSBC, Kuwait Finance House, Citigroup 6 Tanjung Bin Power Malaysia Sukuk Domestic market private placement 1,298 3.6 CIMB Group, Maybank Investment Bank 7 Khazanah Nasional Malaysia Sukuk Domestic market private placement 1,163 3.3 Kenanga Investment Bank, DRB-HICOM, CIMB Group, AmInvestment Bank 8 National Higher Education Fund Malaysia Sukuk Domestic market public issue 1,127 3.2 CIMB Group, Maybank Investment Bank, RHB Capital, AmInvestment Bank 9 Perusahaan Penerbit SBSN Indonesia III Indonesia Sukuk Ijarah Euro market public issue 1,000 2.8 Standard Chartered Bank, Deutsche Bank, HSBC 9 IDB Trust Services Saudi Arabia Sukuk Wakalah Euro market public issue 1,000 2.8 Standard Chartered Bank, National ConsumerCooperativeBank, RBS, National Bank ofAbuDhabi, Natixis, CIMB Group,Credit Agricole, Barwa Bank 9 Dubai Electricity & Water Authority UAE Sukuk Ijarah Euro market public issue 1,000 2.8 Standard Chartered Bank, RBS, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD 9 DIB Tier 1 Sukuk UAE Sukuk Euro market public issue 1,000 2.8 Standard Chartered Bank, HSBC, National Bank ofAbuDhabi, Dubai IslamicBank, Emirates NBD 9 Abu Dhabi Islamic Bank UAE Sukuk Euro market public issue 1,000 2.8 Standard Chartered Bank, Morgan Stanley, HSBC, National Bank of Abu Dhabi, Abu Dhabi Islamic Bank 14 Medjool UAE Sukuk Wakalah Euro market public issue 993 2.8 Standard Chartered Bank, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD 15 Sime Darby Global Malaysia Sukuk Ijarah Euro market public issue 800 2.2 Standard Chartered Bank, HSBC, Citigroup, Maybank Investment Bank 16 Qatar Islamic Bank Qatar Sukuk Euro market public issue 750 2.1 Standard Chartered Bank, Deutsche Bank, HSBC, QInvest 16 Dubai DOF Sukuk UAE Sukuk Euro market public issue 750 2.1 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD 18 Qatar International Islamic Bank Qatar Sukuk Euro market public issue 700 2.0 Standard Chartered Bank, HSBC, Qatar National Bank 19 Power & Water Utility Co for Jubail & Yabbu - Marafiq Saudi Arabia Sukuk Domestic market private placement 667 1.9 HSBC 20 Syarikat Prasarana Negara Malaysia Sukuk Murabahah Domestic market public issue 644 1.8 RHB Capital, Kenanga Investment Bank, CIMB Group 21 Kapar Energy Ventures Malaysia Sukuk Ijarah Domestic market public issue 581 1.6 AmInvestment Bank 22 Malakoff Corporation Malaysia Sukuk Domestic market private placement 577 1.6 Maybank Investment Bank 23 Golden Assets International Finance Singapore Sukuk Domestic market public issue 571 1.6 RHB Capital 24 TNB Northern Energy Malaysia Sukuk Ijarah and Sukuk Wakalah Domestic market public issue 543 1.5 HSBC, KAF Investment Bank 25 Turkiye Finans Katilim Bankasi Turkey Sukuk Euro market public issue 500 1.4 Saudi National Commercial Bank, HSBC, Citigroup, Noor Islamic Bank 25 SIB Sukuk Co III UAE Sukuk Euro market public issue 500 1.4 Standard Chartered Bank, HSBC, Kuwait Finance House, Al Hilal Bank 27 DanaInfra Nasional Malaysia Sukuk Murabahah Domestic market public issue 490 1.4 RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank, Hong Leong Financial Group 28 DarAl-Arkan International Sukuk Saudi Arabia Sukuk Wakalah Euro market public issue 448 1.3 Goldman Sachs, Deutsche Bank, Masraf Al Rayan, Emirates NBD, QInvest, Bank Alkhair 29 Savola Group Saudi Arabia Sukuk Domestic market private placement 400 1.1 HSBC 30 Saudi Hollandi Bank Saudi Arabia Sukuk Domestic market private placement 373 1.0 HSBC, Saudi Hollandi Bank 35,817 100
    • 39© 24th July 2013 LEAGUE TABLES Top Managers of Sukuk 12 Months Manager US$ (mln) Iss % 1 HSBC 5,851 28 16.3 2 CIMB Group 5,092 40 14.2 3 Maybank Investment Bank 4,178 34 11.7 4 AmInvestment Bank 2,864 28 8.0 5 Standard Chartered Bank 2,488 20 7.0 6 RHB Capital 2,465 36 6.9 7 Deutsche Bank 2,095 5 5.9 8 Citigroup 1,157 5 3.2 9 Emirates NBD 859 7 2.4 10 National Bank of Abu Dhabi 797 7 2.2 11 Kuwait Finance House 709 4 2.0 12 Dubai Islamic Bank 682 4 1.9 13 Abu Dhabi Islamic Bank 532 3 1.5 14 Riyad Bank 500 1 1.4 14 Alinma Bank 500 1 1.4 14 Al-Bilad Bank 500 1 1.4 17 Hong Leong Financial Group 364 8 1.0 18 RBS 292 2 0.8 19 Lembaga Tabung Haji 284 4 0.8 20 KAF Investment Bank 271 1 0.8 21 QInvest 262 2 0.7 22 Kenanga Investment Bank 261 3 0.7 23 Qatar National Bank 233 1 0.7 24 Morgan Stanley 200 1 0.6 25 Saudi Hollandi Bank 187 1 0.5 26 Affin Investment Bank 186 4 0.5 27 Al Hilal Bank 181 3 0.5 28 OCBC 166 5 0.5 29 Abu Dhabi Commercial Bank 166 1 0.5 30 Barwa Bank 165 2 0.5 Total 35,817 126 100 Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months Legal Advisor US$ (million) No % 1 Sullivan & Cromwell 2,241 1 50.0 1 White & Case 2,241 1 50.0 Top Islamic Finance Related Project Finance Mandated Lead Arrangers 12 Months Mandated Lead Arranger US$ (million) No % 1 ADCB Macquarie Corporate Finance 172 1 5.1 1 Al Khaliji Commercial Bank 172 1 5.1 1 Arab Petroleum Investments 172 1 5.1 1 BNP Paribas 172 1 5.1 1 Citigroup 172 1 5.1 1 Credit Agricole 172 1 5.1 1 Emirates NBD 172 1 5.1 1 First Gulf Bank 172 1 5.1 1 HSBC Holdings 172 1 5.1 1 KfW Bankengruppe 172 1 5.1 1 Mitsubishi UFJ Financial Group 172 1 5.1 1 National Bank of Abu Dhabi 172 1 5.1 1 Samba Financial Group 172 1 5.1 1 Societe Generale 172 1 5.1 1 Standard Chartered 172 1 5.1 1 Sumitomo Mitsui Financial Group 172 1 5.1 1 Union National Bank 172 1 5.1 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 17.8 14.4 3.4 0.1 US dollar Malaysian ringgit Saudi riyal Indonesian rupiah Indonesia 16.8 1.4 1.5 2.3 5.4 7.2 0.7 Malaysia UAE Saudi Arabia Qatar Singapore Turkey Finance Transportation Chemicals Utility & Energy Government Other 12% 14% 6% 28% 19% 21% 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 4Q3Q2Q 2008 2009 2010 2011 2012 2013 0 100 200 300 400 500 600 0 2 4 6 8 10 12 14 16 18 US$mUS$bn Non-US$ US$ HaveyoujoinedtheleadingIslamicfinanceLinked-InGroupyet? Come and join thousands of other like-minded industry practitioners now.
    • 40© 24th July 2013 LEAGUE TABLES Top Islamic Finance Related Loans Mandated Lead Arrangers Ranking 12 Months Mandated Lead Arranger US$ (mln) No % 1 Abu Dhabi Islamic Bank 682 7 5.5 2 HSBC 609 4 4.9 3 Standard Chartered Bank 482 4 3.9 3 Emirates NBD 482 4 3.9 5 Abu Dhabi Commercial Bank 482 3 3.9 6 Samba Capital 454 3 3.6 7 Noor Islamic Bank 419 4 3.4 8 First Gulf Bank 394 6 3.2 9 SABB 384 2 3.1 9 Riyad Bank 384 2 3.1 9 Banque Saudi Fransi 384 2 3.1 12 Citigroup 368 2 3.0 13 Mashreqbank 342 4 2.7 14 Dubai Islamic Bank 305 2 2.4 15 Al Hilal Bank 261 3 2.1 16 Al-Rajhi Banking & Investment 252 2 2.0 17 National Bank of Abu Dhabi 232 3 1.9 18 Saudi National Commercial Bank 218 1 1.8 18 Saudi Investment Bank 218 1 1.8 18 JPMorgan 218 1 1.8 18 Bank Al-Jazira 218 1 1.8 18 Arab National Bank 218 1 1.8 18 Al-Bilad Bank 218 1 1.8 24 Islamic Development Bank 197 2 1.6 25 Industrial & Commercial Bank of China 196 1 1.6 25 Deutsche Bank 196 1 1.6 25 Commercial Bank of Kuwait 196 1 1.6 25 Commercial Bank of Dubai 196 1 1.6 29 Union National Bank 172 1 1.4 29 Sumitomo Mitsui Financial Group 172 1 1.4 29 SG Corporate & Investment Banking 172 1 1.4 29 Mitsubishi UFJ Financial Group 172 1 1.4 29 Export Development Canada 172 1 1.4 29 Credit Agricole 172 1 1.4 29 BNP Paribas 172 1 1.4 29 Arab Petroleum Investments 172 1 1.4 29 Al Khaliji Commercial Bank 172 1 1.4 Top Islamic Finance Related Loans Mandated Lead Arrangers 12 Months Bookrunner US$ (mln) No % 1 HSBC 291 2 16.3 2 Abu Dhabi Islamic Bank 224 2 12.6 3 Samba Capital 191 1 10.7 4 QInvest 157 2 8.8 5 Standard Chartered Bank 139 2 7.8 5 Noor Islamic Bank 139 2 7.8 5 Emirates NBD 139 2 7.8 5 Arab Banking Corporation 139 2 7.8 9 DRB-HICOM 84 1 4.7 10 Bank Islam Brunei Darussalam 75 1 4.2 10 Al Hilal Bank 75 1 4.2 Top Islamic Finance Related Loans by Country 12 Months Nationality US$ (mln) No % 1 UAE 7,226 7 57.8 2 Saudi Arabia 3,089 3 24.7 3 Malaysia 985 2 7.9 4 Turkey 885 3 7.1 5 Singapore 207 1 1.7 6 Qatar 107 1 0.9 Are your deals listed here? If you feel that the information within these tables is inaccurate, you may contact the following directly: Mandy Leung (Media Relations) Email: mandy.leung@dealogic.com Tel: +852 2804 1223 Top Islamic Finance Related Loans by Sector 12 Months 0US$ bln 1 32 654 Mining Transportation Chemicals Finance Metal & Steel Global Islamic Loans - Years to Maturity (YTD Comparison) 0% 20% 40% 60% 80% 100% 2007 2008 2009 2010 2011 2012 2013 0-3yrs 3-5yrs 5-7yrs 7-10yrs 10+yrs Top Islamic Finance Related Loans Deal List 12 Months Credit Date Borrower Nationality US$ (mln) 28th Mar 2013 Emirates Aluminium UAE 3,400 10th Jun 2013 ICD UAE 2,550 18th Dec 2012 Ma'aden Saudi Arabia 2,400 9th Oct 2012 Turus Pesawat Malaysia 816 26th Mar 2013 GEMS Education UAE 545 28th Nov 2012 Sahara & Ma'aden Petrochemical Company Saudi Arabia 498 11th Sep 2012 Albaraka Turk Katilim Bankasi Turkey 452 2nd May 2013 Bank Asya Turkey 383 5th Jun 2013 Gulf Marine Services UAE 340 23rd Aug 2012 HSBC Institutional Trust Services (Singapore) Sabana Shari'ah Compliant Industrial Real Estate Industrial Trust - Sabana REIT Singapore 207
    • 41© 31st July 2013 EVENTS DIARY Editor Nazneen Halim Nazneen.Halim@REDmoneyGroup.com Contributions Sasikala Thiagaraja Editor Sasikala@REDmoneyGroup.com Managing Lauren Mcaughtry Editor Lauren.Mcaughtry@REDmoneyGroup.com Journalist Nabilah Annuar Nabilah.Annuar@REDmoneyGroup.com Editorial Vineeta Tan Executive Vineeta.Tan@REDmoneyGroup.com Contributing Ellina Badri Editor Ellina.Badri@REDmoneyGroup.com Global Markets Syed Siddiq Ahmed Analyst syed.siddiq@redmoneygroup.com Correspondents KamalBairamov,ShabbirKazmi,ShireneShan Forum Editor Christina Morgan Christina.Morgan@REDmoneyGroup.com Production Hasnani Aspari Manager Hasnani.Aspari@REDmoneyGroup.com Production Norzabidi Abdullah Editor Zabidi.Abdullah@REDmoneyGroup.com Graphic Eumir Shazwan Kamal Bahrin Designer Eumir.Shazwan@REDmoneyGroup.com Senior Production Mohamad Rozman Besiri Designer Rozman.Besiri@REDmoneyGroup.com Business Steve Stubbs Development Steve.Stubbs@REDmoneyGroup.com Manager Tel: +603 2162 7800 x 55 Vasileios Pappas (Dubai office) Vasileios.Pappas@REDmoneyGroup.com Tel: +971 4 427 3624 Subscriptions Musfaizal Mustafa Director Musfaizal.Mustafa@REDmoneyGroup.com Tel: +603 2162 7800 x 24 Subscriptions Ifran Tarmizi Manager Ifran.Tarmizi@REDmoneyGroup.com Tel: +603 2162 7800 x 63 Subscriptions Mithun N Gangolli (Dubai office) Accounts Manager Mithun.Gangolli@REDmoneyGroup.com Tel: +971 4 427 3638 Subscriptions Ratna Sari Ya’acob Executive Ratna.Yaacob@REDmoneyGroup.com Tel: +603 2162 7800 x 38 Admin & Support Nurazwa Rabuni Executive Nurazwa.Rabuni@REDmoneyGroup.com Tel: +603 2162 7800 x 68 Financial Faizah Hassan Controller Faizah.Hassan@REDmoneyGroup.com Deputy Publisher Geraldine Chan & Director Geraldine.Chan@REDmoneyGroup.com Managing Director Andrew Tebbutt Andrew.Tebbutt@REDmoneyGroup.com Managing Director Andrew Morgan & Publisher Andrew.Morgan@REDmoneyGroup.com Published By: MALAYSIA Suite 22-06, 22nd Floor Menara Tan & Tan 207, Jalan Tun Razak 50400 Kuala Lumpur, Malaysia Tel: +603 2162 7800 Fax: +603 2162 7810 UAE PO Box 126732, 3rd Floor, X2 Tower, Jumeirah Lake Tower (JLT), Jumeirah Bay, Dubai, UAE Tel: +971 4 427 36 23 Fax: +971 4 431 4614 DISCLAIMER All rights reserved. No part of this publication may be reproduced, duplicated or copied by any means without the prior consent of the holder of the copyright, requests for which should be addressed to the publisher. While every care is taken in the preparation of this publication, no responsibility can be accepted for any errors, however caused. AUGUST 2013 27th IFN Pakistan Roadshow Karachi, Pakistan REDmoney Events 29th IFN Sri Lanka Roadshow Colombo, Sri Lanka REDmoney Events SEPTEMBER 2013 3rd IFN Turkey Roadshow Istanbul, Turkey REDmoney Events 19th IFN Morocco Roadshow Casablanca, Morocco REDmoney Events 27th — 29th 1st Annual International Islamic Banking & Development Conference Maputo, Mozambique Consultants International OCTOBER 2013 2nd — 3rd Kazan Summit 2013 Kazan, Russia IBFD Foundation 6th 3rd Global Islamic Microfinance Forum Dubai, UAE Al Huda CIBE 9th — 10th 4th Annual World Islamic Retail Banking - WIRB Dubai, UAE Fleming Gulf 21st — 22nd IFN Asia Forum Kuala Lumpur, Malaysia REDmoney Events 22nd - 23rd The 4th International Cyber Economic Crimes Conference Kuala Lumpur, Malaysia Certified System Investigators NOVEMBER 2013 4th Islamic Finance: An Undiscovered Market in the United States Washington DC, US Malaysia U.S. Chamber of Commerce 7th IFN Hong Kong Roadshow Hong Kong REDmoney Events 18th — 19th IFN Saudi Arabia Forum Saudi Arabia REDmoney Events 20th — 21st IREF Summit London, UK ICG-Events 25th IFN Africa Forum Cairo, Egypt REDmoney Events 25th IFN Thailand Roadshow Bangkok, Thailand REDmoney Events 28th IFN Brunei Roadshow Brunei REDmoney Events DECEMBER 2013 16th — 18th Halal Middle East Sharjah, UAE Expo Centre Sharjah Issuers Day: 21st October 2013 Investors Day: 22nd October 2013 Kuala Lumpur Convention Centre FREE ONLINE REGISTRATION
    • COMPANY INDEX 1MBD 6 AAOIFI 9,15,16,19,28,29 ABC Islamic Bank 9 Absa Islamic Banking 7 Abu Dhabi Islamic Bank 9,24 Acibadem Sigorta 11 ACR Capital Holdings 11 AEON Credit 6 Ahlibank 9 Aircel 11 Al Baraka Banking Group 3 Al Baraka Turk 11 Al Hilal Bank 9 Al Hilal Islamic Banking 9 Al Khaleej Takaful Group 10 Albaraka 3,21 Al-Jadaan & Partners Law Firm 20 Allen & Overy 1,4 Almarai 4 Arab Bank 10 Arab Banks Union 14 Arcapita 13 Arcapita Bank 7 Ashurst 4 AT Kearney 16 Avicennia Capital 11 Azzad Asset Management 11,14 Baker & McKenzie 20 BancABC Tanzania 7 Bank Islam Malaysia 3 Bank Negara Malaysia 7 Bank Nizwa 9 Bank of Tokyo Mitsubishi 6 Banque Du Liban 15 Barwa Bank 10 Binariang GSM 11 BLME 1 Blom Development Bank 15 BNP Paribas Investment Company 20 Bond Pricing Agency Malaysia 3 Boubyan Bank 10 Capital Intelligence 11 Central Bank of Bahrain 23 Central Bank of UAE 27 Cheraman Financial Services 8 CIMB Aviva Assurance 11 CIMB Aviva Takaful 11 CIMB Group CIMB-Mapletree Management 11 CISI Clifford Chance 20 Commercial Bank of Dubai 10 DanaInfra Nasional 6 Dar Al Sharia Legal & Financial Consultancy 12 DMCC 7 Dubai Center for Excellence in Islamic Banking & Finance 9,26 Dubai Executive Council 9 Durham University 9 Emirates NBD Capital 8 Ernst & Young 16,18 ESA 15 Eversheds 4 EXIM Bank 7 Finance House 10 First Gulf Bank 10 First Leasing Bank 16 Fortress Credit 13 Franklin Templeton Investments 3 GATE 6 Genting Plantations 6 Goldman Sachs 13 Gulf Installments 16 Gulf International Bank Capital 20 Hamdan Bin Mohammed e-University 9 Hwang Investment Management 11 ICIEC 7 IDB 7,8,15 IdealRatings 7 IFSB 28,29 iSfin 8 Islamic Bank of Britain 8 ITFC 7 Ithmaar Bank 16 JBIC 6 Jordan Islamic Bank 10 Kenanga Research 11 KFH Research 1,13 Khazanah Nasional 11 KNM Capital 11 Lebanese American University 15 Linklaters 1,9 Lloyd’s Banking Group 8 Malaysia Islamic Financial Center 13 Malaysian Deposit Insurance Corporation (PIDM) 11 Mapletree Investments 11 MARC 3,4 Markaz 14 Mashreq Al Islami Mashreq Bank 10,27 Masraf Al Rayan 6,8,10 Maxis Communications 11 Maybank 6 Maybank Islamic 7 MCB Bank 8 Moody’s 10,11 NAEEM Holding 7 National Bank of Abu Dhabi 5,10 National Bank of Kuwait 10 Nomura Holdings 6 Novus Aviation Capital 16 OCBC Bank 6 Open University of Catalonia 9 Orix Group 16 Prudential BSN Takaful 11 Public Bank 11 PwC 18 Qatar National Bank 8 RAM Ratings 6 RBS 3 Riphah Center of Islamic Business 9 S&P 5 Saudi Binladin Group 20 Saudi Electricity Company 24 Securities and Exchange Board of India 8 Sedco Capital 11 Shanghai World Financial Center 8 SHAPE Knowledge Services 4 Sharjah Islamic Bank 11 Shuaa Capital 16 Tamweel 6 Tamweel Funding 6 Tokyo Corporation 6 UAE Banks Federation 27 US Federal Reserve 1 Walkers 20 Wataniya Insurance Company 11 Zain Saudi 6 INDIVIDUAL SUBSCRIPTION Yes! I would like to subscribe to: YOUR DETAILS Full Name: (First Name) (Surname) Company Name: Job Title: Address: Telephone: Fax:Work Email: Country:Postal/Zip: COMPANY WIDE SUBSCRIPTION (Max: 10 Individual Subscriptions) GROUP WIDE SUBSCRIPTION 1 Year: US$12,500 2 Years: US$22,050 TO INITIATE YOUR SUBSCRIPTION, RETURN FAX TO +603 2162 7810 The information you provide will be safeguarded by REDmoney, whose subsidiaries may use it to keep you informed of relevant products & services. Check Telegraphic Transfer (T/T) Please send your T/T advice with your subscription form to us either by post or fax. Payment can be made in US$ by: Each subscription will receive: news available every Wednesday Unlimited access to entire archived library All additional supplements, guides and reports How to subscribe: Tel: +603 2162 7800 Fax: +603 2162 7810 Tel: +971 4427 3600 Subs@IslamicFinanceNews.com 21/F, Menara Park, 12, Jalan Yap Kwan Seng 50450 Kuala Lumpur Malaysia PO Box 126732, 3/F, X2 Tower, Jumeirah Lake Tower (JLT), Jumeirah Bay, Dubai, UAE NE-IFN10/30