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Sajjad Chowdhry Associate Editor, DinarStandard

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  • 1. Sajjad Chowdhry Associate Editor, DinarStandard Islamic Finance Strategy Forum Toronto – May 25, 2007 Islamic Finance – A Global Appraisal
  • 2. Agenda • Industry Definition – Origins and Ideals • A Breakdown of the Industry – Who are the key players, where are they, what do they do? • What’s Happening – A focus on innovation and current trends • Industry Outlook
  • 3. Agenda • Industry Definition – Origins and Ideals • A Breakdown of the Industry – Who are the key players, where are they, what do they do? • What’s Happening – A focus on innovation and current trends • Industry Outlook
  • 4. History of Islamic Finance • Over 1400 years of development • Commerce flourished under Islamic commercial law during Classical period • Development languished under impact of Colonial regimes • Theoretical revival began in 1960s • Practical revival began in 1970s • Today - increasing rapid growth and sophistication; affirmed as a viable industry
  • 5. What makes Islamic Finance different? • Revelational basis - God’s commands and the Prophet’s (s) example • Prohibition of Riba • Regulation of Gharar • Risk Sharing • Encouragement of cooperation • The Just Profit Motive – Ideals in earning the pleasure of Allah and the ability to earn a profit while mobilizing resources for economic development
  • 6. Agenda • Industry Definition – Origins and Ideals • A Breakdown of the Industry – Who are the key players, where are they, what do they do? • What’s Happening – A focus on innovation and current trends • Industry Outlook
  • 7. Global IF Market Size Source: Bank for International Settlements, International Islamic Finance Forum • Total Global Bank Assets - $27 trillion • Islamic Finance Assets - $265 billion • Growth of Islamic Finance per annum – 10-15% • Total Number of Islamic Finance Institutions – over 270
  • 8. Islamic Finance ‘Clusters’ … of Opportunities? Muslim Population in each country/ region (millions) 150+ 100-150 50-100 10-50 5-10 . . . . . . .. . . . . GDP Per capita (Color code) High Med Low . . . Pakistan India Bangladesh Iran Turkey Europe US South America Kazakhstan Egypt Copyright: DinarStandard 2006 Source: World Bank
  • 9. Islamic Finance ‘Clusters’ … of Opportunities? *Malaysia: $30 billion in Assets (largest market); 11.3% of total banking system; leads standardization Singapore: Global Center of Finance Indonesia: Largest Islamic Country but only 1.2% of total assets Islamic *GCC: 40 Institutions with $50 billion in assets; Avg. 15% of total banking system – Potential to 50% of total banking system; Largest market Saudi Arabia just establishing Riyadh Financial Center Source: GCC Islamic Financial Institution Report, AT Kearny IF Report, Bank Negara Malaysia Annual report
  • 10. The industry’s comprehensive product offering Investment Banking • Capital Markets • Project Finance • Corporate and Structured Finance • Underwriting • Advisory • Syndication Personal Financial Services • Home Finance • Auto Finance • Current and Saving Accounts • Debit and Charge Cards • Investment products Corporate Treasury and Markets • Liquidity Management • Yield Management • Structured Solutions Commercial Banking • Import/Export Finance • Asset Finance • Treasury Source: HSBC Amanah
  • 11. Global IF Leaders - Commercial Banks Source: IFIS May 9, 2007 Islamic Banks Financials (Total Assets) USD$ '000 Commercial Islamic Banks Country Total Assets 1 Al Rajhi Bank Saudi Arabia 28,056,937 2 ABC Islamic Bank Bahrain 22,440,691 3 Kuwait Finance House Kuwait 21,952,613 4 Dubai Islamic Bank UAE 17,547,846 5 AlBaraka Banking Group Bahrain 7,638,998 6 Bank Al Jazira Saudi Arabia 4,094,447 7 Bank Islam Malaysia Malaysia 3,969,483 8 Bank Muamalat Malaysia Malaysia 3,812,690 9 Qatar Islamic Bank Qatar 3,035,489 10 Sharjah Islamic Bank UAE 2,081,092
  • 12. Global IF Leaders – Investment Banks Source: IFIS May 9, 2007 Islamic Banks Financials (Total Assets) USD$ '000 Islamic Investment Banks Country Total Assets 1 Investment Dar Kuwait 3,657,859 2 Arcapita Bahrain 2,707,707 3 Gulf Finance House Bahrain 1,500,884 4 CIMB Islamic Malaysia 1,261,109 5 The International Investor Kuwait 376,804 6 Gulf Investment House Kuwait 329,912 7 Unicorn Investment Bank Bahrain 293,300
  • 13. Will the Financial Services Authority (FSA) UK experience in UK provide a framework for other European markets and beyond? Banks with Capital Markets FocusBanks with Retail IF Operations IF Activity in Europe
  • 14. Focus on Retail IF Operations IF Activity in North America • Guidance • Shape • LaRiba • Devon • University Islamic • UM Financial • Ittihad • Amana Mutual Funds • Salam Financial • Ansar Group
  • 15. IF Activity in the GCC • Retail Islamic Finance – Dubai Islamic Bank, Al Rajhi, ABC Islamic • Rise of Specialty Finance in the UAE – Tamweel, Amlak – ENSeC • Growth of Investment Banking – – Calyon, Morgan Stanley, Deutsche Bank • Regulatory Infrastructure – DIFC and DME • Drivers – Customer demand, petro dollars, real estate development and infrastructure projects
  • 16. IF Activity in Pakistan Year 2001 •Meezan Bank •Al Baraka •Meezan Bank •Al Baraka •MCB •Alfalah •SCB •Bank AlHabib •Habib AG Zur. •Metropolitan •Bank of Khyber •Soneri Bank 2002 2003 •Meezan Bank •Al Baraka •MCB •Meezan Bank •Al Baraka •MCB •Alfalah 2 10 2005 •Meezan Bank •Al Baraka •MCB •Alfalah •SCB •Bank AlHabib •Habib AG Zur. •Metropolitan •Bank of Khyber •Soneri Bank •HBL -Bank Islami •DIB •Emirates Int’l •First Dawood •NBP •ABN AMRO •Askari •PICCIC 2004 1143 • In 2001, the industry comprised of just two players • In 2006, the industry comprised of 6 Full fledged Islamic Banks and 12 Banks with IBDs Source: Standard Chartered
  • 17. IF Activity in Malaysia 2004 2005 2006 Assets $24.9 billion $29.5 billion $34 billion Source: Bank Negara Malaysia, Financial Times • Islamic Finance assets close to 13% of the total asset base • $36 billion Islamic Corporate Bond market – Close to 48% of the total market • About 70% of Islamic Finance customers are non- Muslim
  • 18. Agenda • Industry Definition – Origins and Ideals • A Breakdown of the Industry – Who are the key players, where are they, what do they do? • What’s Happening – A focus on innovation and current trends • Industry Outlook
  • 19. Sukuk – Islamic “Bonds” • Conventional bonds are Riba, and are forbidden • But a transaction structured on an asset base is permitted • A series of payments arising from an asset- based transaction may be traded at a market price • This type of arrangement is referred to as Sukuk, sometimes called “Islamic bonds.”
  • 20. Sukuk – Selected Issuance Issuer   Issue Date  Arranger(s) Issue Size (MM) DIB Sukuk Company Feb-07 Barclays Capital / Citigroup / Standard Chartered Bank USD 750 DAAR International Sukuk Company Jan-07 ABC Islamic Bank / Arab National Bank / Standard Bank / Unicorn Investment Bank USD 600 ADIB Sukuk Company Dec-06 HSBC Amanah USD 800 Nakheel Sukuk Nov-06 Dubai Islamic Bank / Barclays Capital USD 3,520 Sukuk Brunei Inc 4 Nov-06 HSBC Amanah USD 77 Sharjah Islamic Bank Sukuk  Oct-06 HSBC Amanah / European Islamic Investment Bank / Kuwait Finance House / Mushreqbank USD 225 SABIC Sukuk Jul-06 HSBC Saudi Arabia Limited USD 800 Sukuk Brunei Inc 3 Jul-06 HSBC Amanah USD 127 The Investment Dar Second Sukuk  Jun-06 Unicorn Investment / WestLB USD 150 Aabar Sukuk Jun-06 Deutsche Bank / Abu Dhabi Commercial Bank USD 460 Tabreed 06 Financing Corporation Sukuk Jun-06 HSBC / Dresdner Bank AG / CIMB USD 200 Sukuk Burnei Inc 2 (Govt) May-06 HSBC Amanah USD 95 Sukuk Brunei Inc 1 (Govt) Mar-06 HSBC Amanah USD 92 WAPDA First sukuk Company Limited  Jan-06 Citi Group / Muslim Commercial Bank / Jahangir Siddiqui and Company USD 134 Source: Liquidity Management Centre
  • 21. $- $5 $10 $15 $20 $25 $30 2000 2001 2002 2003 2004 2005 2006 (Billions) Sukuk – Issuance Growth Source: Islamic Finance Information Service
  • 22. Human Resources • Increasing sophistication of Shari’ah scholars – Yet there remains a dearth of scholars in the industry • Lack of Professional Accreditation and Training • Emergence of Product Consultancies – Dar Al-Istithmar – Yasaar – SHAPE
  • 23. Major Training Institutions • Distance Learning – International Islamic University, Malaysia – Loughborough University, UK – IBF Netversity, India – Institute of Islamic Banking and Insurance, UK • Dedicated In House Programs – Islamic Research & Training Institute, Islamic Development Bank – Bahrain Institute of Banking and Finance – Emirates Institute of Banking and Financial Studies – Center for Islamic Economics – Islamic Banking and Finance Inst. Of Malaysia – Institute of Islamic Banking and Insurance, UK • Research and Academic Programs
  • 24. Agenda • Industry Definition – Origins and Ideals • A Breakdown of the Industry – Who are the key players, where are they, what do they do? • What’s Happening – A focus on innovation and current trends • Industry Outlook
  • 25. Current Trends to Watch • Opportunities – Cross border cooperation – Innovation – Smart marketing – Securitization • Challenges – Need for Recognized Accreditation Programs – Standardization
  • 26. DinarStandard Business Strategies for the Muslim World 206 Bloomfield Street, Suite 6 Hoboken, NJ 07030 info@dinarstandard.com Thank You