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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 fi nd 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 slowdownNeil Miller, the global head of Islamic fi nance for Linklaters, confi rms that: “The issuance market has become much quieter over the last few weeks.” The reasons for this might be obvious - including the combined eff ect of recent turmoil in global bond markets aft er 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 eff ect 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with the last US dollar issuance placed by the IDB in May, and governments and state entities appear to have all but withdrawn from the market.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 bett er for at least another few months. “Like the conventional bond markets, the Sukuk market

has been aff ected 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 volatilityWhile 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 diff erentiated by a period of market volatility, principally driven by diff ering views on the expected pace of change in monetary policy in the US. “In addition to the eff ect 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 confi dence to meet with investors with new transaction proposals which are deemed to be priced fairly, and issuance volume should rise.”

US taperingHowever for now, a number of factors

continue to inhibit the market, the most signifi cant 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

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Volume 10 Issue 30IFN 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 fi rm 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 fi nance 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 eff orts to ensure the accuracy of the contents we do not hold out or represent that the respective opinions are accurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright remain with REDmoney.

DEALSDanaInfra Nasional to pay out profi ts on its retail Sukuk in mid-August

Tamweel to issue US$235 million Sukuk Ijarah in early August

Almarai Company appoints arrangers for hybrid Sukuk off ering

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 fi nancing from Riyad Bank

Zain Saudi’s outstanding US$2.3 billion Murabahah facility receives fi ve-year extension

NEWSMalaysia off ers boost to Japan’s Islamic fi nance eff orts

NAEEM Holding rolls out the fi rst 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 fi nance minister

Absa Islamic Banking restructures Shariah compliant cheque account

US bankruptcy court approves fi rst Shariah compliant debtor-in-possession fi nancing

Deputy prime minister of Turkey calls for bett er performance of participation banks

Maybank Islamic to expand across ASEAN nations

EXIM Bank looks to increase its Shariah fi nancing 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 fi nancial system

World’s tallest offi ce building to be part-funded in a Shariah compliant manner

The IDB approves US$137 million irrigation project in Azerbaij an

MCB Bank to open new branches across the country

iSfi n 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 off er Islamic products to Sri Lankan corporates

Qatar National Bank sets foot in Shanghai

Startup Village to benefi t from Shariah compliant fi nancing

Hamdan Bin Mohammed e-University partners with Open University of Catalonia to off er Islamic banking and fi nance 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 off set by lack of fi nancing for new projects

Industry and commerce minister reiterates government’s support for Bahrain investment initiatives

ABC Islamic Bank net profi t hits US$6 million in the fi rst half of 2013

Abu Dhabi Islamic Bank’s second quarter profi t grows to AED371.4 million (US$101.09 million)

Ahlibank’s net profi t up by 6% for the fi rst half

Emirate aims high with the launch of the Dubai Center for Excellence in Islamic Banking & Finance

Al Khaleej Takaful Group posts lower profi ts in the fi rst six months of 2013

Arab Bank’s profi t up 7.5% to reach US$387 million

Impressive 85% hike in half year profi ts for Barwa Bank

Commercial Bank of Dubai’s half year profi ts up by 2.3%

ASSET MANAGEMENTCIMB-Mapletree Management successfully closes the nation’s fi rst Islamic private real estate fund

Shariah compliant private retirement growth fund is Hwang Investment Management’s top performer

Azzad Asset Management discusses Islamic fi nance

opportunities with South African ambassador

Sedco Capital to distribute Islamic funds via private banks in Switzerland

TAKAFULMalaysian Deposit Insurance Corporation’s Takaful and insurance benefi ts 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 profi ts to certifi cate 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

RATINGSMARC downgrades KNM Capital’s Murabahah program and maintains its MARCWatch Negative status

Capital Intelligence reaffi rms rating on Sharjah Islamic Bank

Moody’s affi rms 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 aft er the summer holiday slowdown and the end of Ramadan. Mohieddine Kronfol, the chief investment offi cer of Franklin Templeton Investments, confi rms 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 benefi ciaries of capital outfl ows. “The recent acute sell-off in emerging market dollar debt in the second quarter of 2013 sheds light on these pent-up jitt ers, which are weighing down on market sentiment and which in turn is keeping Sukuk issuers at bay,” he explains.

Price premiumAnother reason for the general slowdown, suggests a source, is that there has actually been litt le 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 IIIJeroen Thij s, the chief risk offi cer at Bank Islam Malaysia, also points out that the Basel

III requirements have had a signifi cant 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 writt en 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 Thij s, 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 aheadMARC notes that Malaysia’s Sukuk

market has been somewhat aff ected 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 litt le 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 fi rst 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 backMost players still expect that the market will recover aft er 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

3.63.43.23.02.82.62.42.22.0

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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 fi rst quarter of 2014. With US$35 billion in GCC bonds and Sukuk maturing in 2014, the refi nancing 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 fi scal 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 signifi cant liquidity parked on the balance sheets of Islamic fi nancial 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 pipelineThis 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 confi rms a “reasonably healthy pipeline,” noting that: “We have more than half a dozen transactions at varying stages of progress. It is always diffi cult 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 offi ce of Eversheds, notes that for the Qatar market too: “There

are deals in the pipeline, with issuers ranging from fi nancial 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 signifi cant 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 confi rms.

Upcoming sectorsSukuk 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 offi ng,” he

explains.

Ng of RBS identifi es 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 marketsSaudi 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 specifi c slowdown here and the lack of Sukuk issuances is really part of a more general ‘wait and see’ att itude to both debt and equity capital markets

Halfway there: Sukuk so farContinued from page 3

continued...

Figure 2: Total ringgit Sukuk outstanding, 2005-13

450,000400,000350,000300,000250,000200,000150,000100,00050,000

02005 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 clarifi cation of their likely funding needs, before entering in the markets, through Islamic instruments or otherwise.”

Sovereign pushBut while these markets are making strides forward, other new entrants have a litt le 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 fi rst 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 fi rst 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 litt le 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 confi rms that: “We expect sovereigns, quasi-sovereigns and banks to tap the markets relatively soon.”

Banks drive forwardIn fact fi nancial institutions have been a driving force behind the Sukuk market this year. Specifi cally in terms of GCC deals (both conventional and Sukuk), issuance over the past 12 months has been very healthy as banks att empt to capitalize on the low interest rate environment. “One particularly interesting development in the same period was the emergence of fi rst 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 att empt 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 fi rst issued in February 2008. S&P confi rms 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 yearDespite 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 fi nish on a strong note. Although the year-to-date issuance fi gures 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 farContinued 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

DEALSProfit paymentMALAYSIA: DanaInfra Nasional has announced that it will be making the fi rst profi t 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 fi xed at 4% a year.

Upcoming SukukSAUDI 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 structureSAUDI 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 SukukQATAR: Masraf Al Rayan will be issuing a US$1 billion corporate Sukuk in August, as announced on the IdealRatings portal.

Sovereign SukukSENEGAL: 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 reaffi rmed 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 securedSAUDI ARABIA: International Methanol Company, an affi liate 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 fi ve years; with 25% of the fi nancing due in the fi nal two years of the extension period and the remaining 75% on the 31st

July 2018, according to a bourse fi ling. The new facility has an 18% deduction in profi t margin with the possibility of a further reduction in the future.

Malaysia offers boost to Japan’s Islamic finance effortsGLOBAL: 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 fi nance, and Najib commented that Malaysia is looking forward to receiving inward investment from Japanese enterprises, fi nancial institutions and investors to engage in Islamic fi nance-related activities. He also added that Malaysia would like to off er 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 benefi t 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 signifi cant 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 affi rmed that it will be rolling out more Islamic fi nancing 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

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7© 31st July 2013

NEWS

AFRICADebut indexEGYPT: Investment fi rm NAEEM Holding and IdealRatings have teamed up to establish the fi rst 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 fulfi l the criteria set by NAEEM’s Shariah board.

Shariah banking for all TANZANIA: Zulfi kar Chando, the head of BancABC Tanzania’s corporate services, has urged other banks in the East African country to off er Islamic banking products, while highlighting the signifi cance of Islamic fi nance to the republic’s economy.

Sukuk hangs in the balanceEGYPT: In his fi rst press conference, newly-appointed fi nance 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 improvementSOUTH 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 fi rst Shariah compliant product of its kind to be introduced globally.

AMERICASLegal breakthroughUS: The US bankruptcy court for the southern district of New York has recently approved the country’s fi rst Shariah compliant debtor-in-possession fi nancing and exit fi nancing package in Arcapita Bank’s bankruptcy cases. The court’s decision bears testament to the permissibility of Shariah compliant fi nancing in the US Bankruptcy Code as well as the adaptability of the US bankruptcy system to alternate forms of fi nancing.

ASIAHeightened concernsTURKEY: 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 fi gures are below our desires,” he said during an Islamic fi nance conference in the republic.

Regional expansionMALAYSIA: In line with the central bank’s ambitions to internationalize Islamic fi nance, Maybank Islamic intends to strengthen its presence in neighboring ASEAN countries aft er solidifying its position in Singapore and Indonesia, according to Muzaff ar Hisham, the bank’s CEO. Maybank Islamic currently has four million depositors with a deposit value of RM70 billion (US$21.86 billion).

Seeking improvementMALAYSIA: EXIM Bank (Export-Import Bank) of Malaysia intends to boost its Islamic fi nancing portfolio from its current 20% share to reach approximately 30% of its total fi nancing 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 fi nancing rate this year from the current 10%, due to improved fi nancial vigilance.

Special assistance schemeBANGLADESH: 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 signifi cant fi nancial 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 floodMALAYSIA: The Malaysian central bank, Bank Negara Malaysia, has intervened to absorb excess liquidity from the fi nancial 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 mannerUAE: 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 fi nancing 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 — fi ve years from the commencement of the project.

The DMCC was set up as a government initiative to facilitate the trade fl ow 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 fi rst half of this year alone — exceeding the entire total number of new registrations in 2011.

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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 approvedAZERBAIJ AN: 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 Azerbaij ani government’s next move would be to complete the development of the project.

Reaching the massesPAKISTAN: 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 diff erent cities across the country.

EUROPEEurope focusLIECHTENSTEIN: Islamic fi nance legal network iSfi n has partnered with business and tax law fi rm ILG, making the latt er its exclusive representative for Liechtenstein.

GLOBALDelayed takeoverGLOBAL: Due to ongoing negotiations since late 2012, Masraf Al Rayan has exceeded the previous deadline to extend a takeover off er 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 supportGLOBAL: The IDB has signed an agreement with the Yemeni government to provide up to US$18.3 million for the fi nancing 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 declineGLOBAL: 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 auctionGLOBAL: 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 fi rst tranche will be off ered to existing institutional investors at a 5-10% discount, followed by the second tranche in spring, also to institutional investors and the retail off ering to be debuted in summer 2014.

New territoryGLOBAL: Emirates NBD Capital intends to provide Sri Lankan banks with Islamic-structured fi nancing, as it looks to fi nd 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 footingGLOBAL: Qatar National Bank, which has an Islamic banking unit, has opened a representative offi ce 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

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Startup Village to benefit from Shariah compliant financingINDIA: 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 fi rst 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 aff orded 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 specifi c incentives or concessions from the government or regulator.

Cheraman Premium Fund I is the fi rst 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-upGLOBAL: Hamdan Bin Mohammed e-University entered into a cooperation agreement with the Open University of Catalonia for the development of customized Islamic banking and fi nance courses for the Spanish university.

MIDDLE EASTTailored servicesUAE: Abu Dhabi Islamic Bank has partnered with the Dubai Education Zone to provide customized banking services and products — including discounts to the latt er’s employees, while also designing Islamic banking educational courses for its working professionals.

Successful deploymentUAE: Al Hilal Bank has integrated ETHIX-Profi t Computation and Distribution Islamic banking system from International Turnkey Systems.

Mutual cooperationOMAN: 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 approvedOMAN: Shariah compliant Bank Nizwa has obtained an investment banking license aft er six months in operation, allowing the bank to manage funds and issue Islamic fi nancial instruments.

Lack of financing for new projectsUAE: 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 fi rst 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 fi nancing 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 fi nance.

Government backingBAHRAIN: 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 fi nd their footing four years on.

RESULTSABC Islamic BankBAHRAIN: ABC Islamic Bank reported a net profi t of US$6 million for the fi rst 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 fi rst 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 BankUAE: Abu Dhabi Islamic Bank has recorded a net profi t 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.

AhlibankOMAN: Ahlibank, which operates Al Hilal Islamic Banking, announced a 6% increase in net profi t for the fi rst 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 & FinanceUAE: 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 fi nance 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 fi nance, while on the community side, the center will aim to provide Islamic banking and fi nance 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 offi cials, the center represents an integral part of this plan which includes the creation of an arbitration center for dispute resolution in Islamic fi nance, as well as the creation of a Shariah council to oversee standards on Islamic fi nance.

The center’s advisory board consists of an impressive lineup of industry stalwarts, including Dr Yusuf DeLorenzo, the chief Shariah offi cer and board member at Shariah Capital; Professor Dr Syed Othman Al Habshi, the chief academic offi cer of INCEIF; Rodney Wilson, Emeritus Professor at Durham University UK & INCEIF; Neil Miller, the global head of Islamic fi nance at Linklaters; Dr Fahim Khan, the chairman of Riphah Center of Islamic Business; and Dr Khaled Al Fakih, the secretary-general of AAOIFI.

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10© 31st July 2013

NEWS

Al Khaleej Takaful GroupQATAR: Al Khaleej Takaful Group has registered a decrease in fi rst half net profi ts to QAR28.3 million (US$7.76 million) from QAR59 million (US$16.19 million) in the same period last year.

Arab BankJORDAN: Amman-based Arab Bank, which provides Islamic banking services, reported a 7.5% increase in profi ts to US$387 million for the fi rst 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 BankQATAR: Barwa Bank has witnessed an increase of 85% in half-year profi ts 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 DubaiUAE: Commercial Bank of Dubai, which operates Shariah compliant Att ij ari Al Islami, reported a 2.3% increase in net profi t to AED497 million (US$135.28 million) in the fi rst 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 HouseUAE: Independent fi nancial and investment fi rm Finance House recorded a consolidated net profi t of AED56.5 million (US$15.38 million) for the fi rst half of the year while its net interest income increased by 7.5% to AED64 million (US$17.42 million), compared to the fi rst six months of 2012. The company’s Islamic fi nancing 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 BankUAE: First Gulf Bank, which has an Islamic window, reported an increase

of 15% in profi ts to AED1.17 billion (US$318.45 million) in the second quarter of this year.

Jordan Islamic BankJORDAN: Jordan Islamic Bank recorded a profi t 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 KuwaitKUWAIT: National Bank of Kuwait registered a 6.4% year-on-year increase in net profi ts to US$450.3 million for the fi rst 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 RayanQATAR: 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 BankUAE: Mashreq Bank, the parent company of Mashreq Al Islami, announced a 40.1% rise in net profi t for the fi rst 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 profi ts.

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 fi nancing contracts as at the 30th June stood at AED149.09 million (US$40.58 million). Its net interest and Islamic fi nancing 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 profi ts to AED3.3 billion (US$898.21 million) from the fi rst 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.

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11© 31st July 2013

NEWS

Public BankMALAYSIA: 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.

ASSETMANAGEMENTInaugural closingMALAYSIA: 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 fi rst 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 doorsGLOBAL: 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 reachSAUDI ARABIA: With a plan to source two-thirds of its assets under management from outside Saudi Arabia within four to fi ve years in order to widen its client base outside traditional Islamic regions of the Middle East and Southeast Asia, investment fi rm 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 fi rm will be entering into two strategic agreements with established private banks by the end of the year, according to its CEO Hasan Al Jabri.

TAKAFULTakaful protectionMALAYSIA: Malaysian Deposit Insurance Corporation, also known as Perbadanan Insurans Deposit Malaysia (PIDM), has reported an increase of 9% in its Takaful and insurance benefi ts 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 willTURKEY: Subject to legislative endorsements, Al Baraka Turk has notifi ed 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 fi rms.

Profit distributionMALAYSIA: Almost 300,000 certifi cate 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 profi ts to 486,000 eligible participants.

Outsourcing serviceSAUDI ARABIA: Cooperative insurance operator Wataniya Insurance Company has engaged Shariyah Review Bureau to act as the fi rm’s Shariah advisor, whereby the latt er will oversee the Shariah compliance needs of the operator.

Turkish ventureGLOBAL: 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.

RATINGSNegative outlookMALAYSIA: KNM Capital’s RM300 million (US$94.15 million) Murabahah underwritt en 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 assignedUAE: Sharjah Islamic Bank’s fi nancial strength rating has been reaffi rmed 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 negativeEGYPT: Moody’s has affi rmed the government bond rating of Egypt at ‘Caa1’, with a negative outlook.

Weak ratingsMALAYSIA: 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 refl ect 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.

MOVESEmirates Islamic BankUAE: 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 fi nance, and was previously the global head of HSBC Amanah Commercial Banking.

12© 31st July 2013

SHARIAHPRONOUNCEMENT

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 fi nanced through various modes such as Ijarah, Murabahah or Musharakah. However, we shall discuss the Murabahah mode of fi nancing 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, aft er adding agreed profi t 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 sett lement 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 fi rst obtaining writt en confi rmation 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 fi rst payment to be made to his account with the conventional bank so that he can use it to sett le 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 sett le 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 HassanChairman of the DIB Shariah BoardManaging 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, fi led for Chapter 11 bankruptcy in March 2012 aft er 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 fi rm 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 fi nancing agreement with Fortress Credit, a New York-based investment management fi rm. Only

around 40% of this debtor-in-possession (DIP) package, which accrued profi t 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 fi nancing package to steer it out of bankruptcy. The replacement DIP facility is reportedly almost identical to the original Fortress structure, with an annual profi t rate of 8% in cash plus 1.75% payable in kind.

In fact Fortress also made Arcapita a loan off er of US$350 million, which the company decided to reject in favor of Goldman Sachs, despite claims by Fortress that its off er would fund Arcapita’s exit at a bett er 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 fi led 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 fi rm said in its fi ling. “Fortress’ proposal is objectively more favorable to the debtors in nearly every respect ... so it is unclear why both the debtors and the committ ee have lent their support to the Goldman Sachs proposal.”

In April this year Arcapita fi led a new restructuring plan aimed to steer it out of bankruptcy, including the sale of a number of portfolio investments and the sett ing up of new fi rms 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-fi ghting and scandal that have dogged the fi rm since its fi ling last year, it looks as though a way out of the woods might fi nally 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 eff ects. However, from an Islamic fi nance 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 off erings at a volume of US$17.8 billion against the latt er’s US$14.4 billion, as revealed by data from Dealogic for the past 12 months (rolling). The fi rst half slump in US dollar issuances in most domiciles, except the UAE, is att ributed 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 fi rst 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?

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14© 31st July 2013

IFN REPORTS

Azzad Asset Management is a Shariah compliant investment fi rm incorporated in the US where the American Muslim community represents more than US$200 billion in spending power. Last week, the fi rm 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 certifi cates issued for payment by international fi nancial institutions, foreign governments, and agencies of foreign governments in transactions tailored to the fund’s ethical investment guidelines.

South Africa has one fully-fl edged Islamic bank and four conventional banks that off er Islamic fi nancial products such as vehicle and asset fi nancing as well as pension funds. Azzad is reportedly in the initial stages of research for possible investments in profi t and loss sharing accounts at these banks, and similar to the fund’s investment schemes in Turkish banks, the fi rm is looking to diversify the Islamic banking portion of its Azzad Wise Capital Fund portfolio. According to Joshua Brockwell, the fi rm’s investment communications

director, in his conversation with the South African ambassador, he noted that the country has made signifi cant progress in Islamic fi nance in the recent years. The growth is mainly att ributed to the partnership between the local Muslim community and their business interests. Apart from South Africa, the fi rm has also visited several Islamic institutions in Indonesia with an eye to venture into microfi nancing 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 infl ux 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. Eff orts 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 att ributed to the slow recovery of the EU region which could result in fl uctuating 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 fi rst half of this year, on the back of a 12% growth in credit in the fi rst 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

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15© 31st July 2013

IFN RESEARCH REPORTLEBANON

Legal and regulatory: Lebanon has a highly regulated and streamlined banking sector. With its long-standing secrecy and fi duciary 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 att racted many foreign fi nancial 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 signifi cantly 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 fi nancing to the customers. Lebanese Islamic banks have developed a wide range of retail, corporate, SME, private banking and investment products. These product lines refl ect 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 fi nance industry in the country. An Islamic fi nance qualifi cation is off ered by École Supérieure des Aff aires (ESA) in collaboration with the Chartered Institute for Securities and Investment (CISI), London. Lebanese American University (LAU) has also formulated a fully-fl edged Islamic banking curriculum in its MBA program.

Opportunities: Lebanon’s close business ties with other regional Islamic fi nance markets such as Saudi Arabia and Bahrain could prove supportive in developing its domestic Islamic fi nance market. The partially dollarized economy can help att ract foreign investment, as is the case with conventional markets. Lebanese fi duciary and banking secrecy laws can also play a major role in att racting Islamic wealth and fund managers. There is also a strong demand

for Islamic fi nancial products from the Muslim population, which represents over 60% of the total population of the country.

Challenges: The laws and regulations supporting the Islamic fi nance 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 fi nance in the country.

A lack of awareness among the people with regard to Islamic fi nancial 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 fi nance industry in Lebanon. It has jointly organized the Beirut Islamic Financial Institutions Forum that brought together various stakeholders of the Islamic fi nance industry including the IDB, AAOIFI, central banks and other industry players.

Outlook: The Lebanese Islamic fi nancial industry is well positioned to play a major role in the Islamic fi nance industry in the Middle East. With abundant liquidity, cash resources and robust banking regulations it can leverage its position to consolidate its Islamic fi nance 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 fi nancial setback, with an estimated fall in growth from 6% to 2% and US$5 billion (22% of GDP), Lebanon has att empted to recover. The infl ux of large numbers of refugees from Syria due to the ongoing confl ict is also a matt er 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 fi nance hub.

Mediterranean catapultThis secular Middle Eastern country has the potential to become one of the most sought-aft er destinations for Islamic fi nance in the region, SYED SIDDIQ AHMED explores..

Chart 2: Islamic fi nance 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

128.27140

120

100

80

60

40

20

0

53.67 64.78

90.31

2009

2010

2011

2012

US$

mill

ion

Chart 1: Total assets of Blom Development Bank

16© 31st July 2013

One of the cornerstones of Islamic fi nance 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 fi nancial markets.

Turkey, which has been at the forefront in facilitating Shariah compliant business, last year enacted a new law on fi nancial leasing which gives benefi ts in terms of withholding tax, stamp tax and other duties for leasing transactions. The new law, besides spelling clarity in leasing transactions, also has specifi c incentives for cross-border aircraft vessels and related lease transactions.

With Shariah compliant leasing being off ered by an increasing number of fi nancial institutions in Sri Lanka, the Islamic leasing market is poised for further growth; due in part to the budgetary concessions and depreciation benefi ts aff orded to this sector.

The leasing industry in Sri Lanka is however dependent on short-term fi nancing 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 ineffi cient repossession procedures that aff ect 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 fi nancial institutions alike can have an indirect eff ect 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 Bitt amleek (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 fi nance available to the industry. In countries such as Malaysia and Indonesia where SMEs play a signifi cant role in the economy, and coupled with

governmental assistance to Islamic fi nance, Shariah compliant leasing holds much growth potential.

Here, Ijarah leasing remains one of most popular means of fi nancing for Islamic fi nancial 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 fi nance, asset management and Takaful.

IFN RESEARCH REPORTLEASING

Signifi cant 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 fi nancing 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 off ering Islamic leasing products in the country.

• Japanese Orix Group, which has a major presence in the leasing industry, off ers 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 fi nancing mainly to focus on SME fi nancing.

A new lease of lifeWith huge investments in infrastructure and construction lined up in the emerging markets there is litt le doubt that Islamic leasing will be one of the fastest-growing segments in the Islamic fi nance 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 fi nancial 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-fl edged 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 profi tability due to rising costs and operational ineffi ciencies.

A recent analysis by Ernst & Young (E&Y) indicates that Islamic banks have experienced a decline in profi tability 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 fi nancial 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 profitabilityAccording to ‘The Future of Islamic Banking’ report by AT Kearney, while there are a number of factors that contribute towards this struggle for profi tability, achieving operational effi ciency 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 profi t pool of Islamic banks by 25% by 2015. The eff ective use of modern, fl exible 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 soft ware systems with components covering business process modeling, compliance and risk management tools, and multi-channel delivery gateways that would enhance banks’ profi tability, performance and ability to innovate.

Winning in a highly promising industry In an att empt to meet the demands of a growing Islamic fi nancial sector, the industry needs to eff ectively implement conventional banks’ use of

IT in Islamic banking: Boom imminentTechnology developments are profoundly infl uencing the distribution of retail fi nancial services. Day aft er day, reformatt ed 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

221280 302 348

345

317 372391 426 429 457

2007

2008

2009

2010

2011

2012

800

600

400

200

0

2007

2008

2009

2010

2011

2012

163194 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 assetsInstitutions reporting assets

Number of conventional banks with Shariah windowsNumber 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

PakistanQatar

Malaysia

Qatar

Saudi Arabia

UAE

Bahrain

Bahrain

Kuwait

KuwaitJordan Jordan

Egypt

BangladeshIndonesiaTurkey

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)

Ave

rage

RO

E (2

008

– 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 fi nance and corporate strategy at First Global Academy: “The emerging and niche Islamic fi nance 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 signifi cantly, as well as manual workload, ineffi ciencies, transaction processing time and so on while enhancing customer satisfaction with sophisticated facilities,” he added.

In a recent fi nancial 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 effi ciency 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 cutt ing-edge soft ware 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 off ered 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 att ract additional interest in the system and to off er convenience to the various customers.

An interesting fi nding 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 magnifi ed. 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 fi nancial 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

Otherincome

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 playan increasing role in the interaction between bank and customervia 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 Committ ee’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 fi nancial landscape is being redrawn by the evolving international regulatory reforms, fi nancial 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 fl exible enough to support more sophisticated requests from regulators will benefi t both the bank and its customers.

Shariah compliance, IT modernization and product innovation top the industry’s priority listGrowth 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, fi nancial institutions are facing vastly diff erent market conditions and need to develop new sources of diff erentiation 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 diff erentiation for sustained competitive advantage. These ambitious yet realistic targets can only be achieved through partnering with a leading Islamic banking soft ware provider with the expertise to help them transform their business quickly, safely and cost eff ectively.

There are more than 35 global and regional information technology vendors that off er Islamic banking systems and services for banks and Islamic fi nancial institutions, but there is just one vendor out there that is truly Shariah compliant, certifi ed by a global standard-sett ing body AAOIFI.

The time has come for fi nancial 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 realneeds of your targetcustomers and keep

as possible

Partner with innovativecompanies to fuel creative channel design

Use champion challengertesting to improvechannel performance

Build online capabilities once, for use by allproducts and brandsservices, to understand full costs and operating implications

Instigate fasttrack approval& changes processes to

Develop jointsales & marketingstrategy optimizingsales capture

Reassure customerswith robust butsimple securitymeasures

Develop integratedchannel developmentplan with cost –

Mass market HNW SME

Retail marketing

Branches Contact centers RMs IntermediarieInternet Direct sales forces ATM/self Joint venture

Consumer productsand 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 & distributionmanagement

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 diffi culty faced by the arrangers was to ensure that the certifi cates would have the benefi t of a shared security with the SAR12 billion (US$3.19 billion) fi nancing 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 benefi t 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 Cliff ord Chance, although the fi nancing 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 certifi cate 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 fl exibility 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 cashfl ows 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, Cliff ord 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 suff er 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)

Cliff ord 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); Cliff ord Chance and Al-Jadaan & Partners (to the joint lead managers)

Listing Cleared and sett led through Tadawul.

Underlying Assets

The commodities

Rating No rating

Shariah Advisor(s)

BNP Paribas Shariah Supervisory Committ ee; 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 suff er 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 COUNTRYCORRESPONDENTS

IFN Country CorrespondentsAFGHANISTAN: Zulfi qar Ali Khanhead of Islamic banking division, fi nancial supervision department, Da Afghanistan BankAUSTRALIATalal Yassine, managing director, Crescent WealthBAHRAIN: Dr Hatim El-Tahirdirector, Islamic Finance Knowledge Centre, Deloitt e & ToucheBANGLADESH: Md Shamsuzzamanexecutive vice president, Islami Bank BangladeshBELGIUM: Prof Laurent Marliere CEO, ISFIN BERMUDA: Belaid A Jheengoordirector of asset management, PwCBRUNEI: James Chiew Siew Huasenior partner, Abrahams Davidson & CoCANADA: Jeff rey S Grahampartner, Borden Ladner GervaisCZECH REPUBLIC: JUDr Ivana Hrdlickova,judge, Judiciary, Appelate Court PardubiceEGYPT: Dr Walid Hegazymanaging partner, Hegazy & AssociatesFRANCE: Kader Merbouhco head of the Executive Master of the Islamic Finance,Paris-Dauphine UniversityHONG KONG & CHINA: Anthony ChanNew Line Capital Investment LimitedINDIA: H Jayeshfounder partner, Juris CorpINDONESIA: Farouk A Alwynichairman, Center for Islamic Studies in Finance, Economics, and DevelopmentIRAN: Majid PirehIslamic fi nance expert, SEOIRAQ: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & CoIRELAND: Ken OwensShariah funds assurance partner, PwC IrelandJAPAN: Serdar A. Basarapresident, Japan Islamic FinanceJORDAN: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & CoKOREA: Yong-Jae Changpartner, Lee & KoKUWAIT: Alex Salehpartner, Al Tamimi & CompanyLUXEMBOURG: Marc Theisenpartner, Theisen LawMALDIVES: Aishath Muneezahead of Islamic fi nance, Capital Market Development AuthorityMALTA: Reuben Butt igiegpresident, Malta Institute of ManagementMAURITIUS: Sameer K Tegallyassociate, Conyers Dill & PearmanMOROCCOMohamed Boulif, principal consultant, Al Maali Islamic Finance Training and Consultancy NEW ZEALAND: Dr Mustafa Faroukcounsel member for Islamic fi nancial institutions, FIANZNIGERIA: Auwalu AdoShariah auditor, Jaiz BankOMAN: Anthony Watsonsenior associate, Al Busaidy Mansoor Jamal & CoPAKISTAN: Bilal Rasuldirector (enforcement), SEC of PakistanPHILIPPINES: Rafael A Moralesmanaging partner, SyCip Salazar Hernandez & GatmaitanQATAR: Amjad Hussainpartner, K&L GatesRUSSIA: Roustam Vakhitovmanaging partner, International Tax AssociatesSAUDI ARABIA: Nabil Issapartner, King & SpaldingSENEGAL: Abdoulaye MbowIslamic fi nance advisor, Africa Islamic Finance CorporationSOUTH AFRICA: Amman MuhammadCEO, First National Bank — Islamic FinanceSINGAPORE: Yeo Wicopartner, Allen & GledhillSRI LANKA: Roshan Madewaladirector/CEO, Research Intelligence UnitSWITZERLAND: Khadra Abdullahiassociate of investment banking, Faisal Private Bank TANZANIA: Khalfan Abdallahhead of product development and Sharia compliance, Amana BankTHAILAND: Shah Fahad Yousufzai, vice-president and head of strategic marketing and product development, Islamic Bank of ThailandTUNISIA: Karim AmousManaging partner, SmartecoTURKEY: Ali Ceylanpartner, Baspinar & PartnersUAE: Moinuddin MalimCEO, Mashreq Al IslamiUK: Siraj Ibrahimcorporate fi nance manager, QIB UKUS: Joshua Brockwell, investment communications director, Azzad Asset Management YEMEN: Moneer Saifhead of Islamic banking, CAC BankIFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short country reports. For more information about becoming an IFN Correspondent please contact sasikala@redmoneygroup.com

TURKEY

By Ali Ceylan

Turkey has the objective of becoming an important player in the Islamic fi nance 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 fi nance instruments and participation banks is being amended to make them more favorable for the Islamic fi nance investor.

Although legal structure amendments have been made to promote Islamic fi nance, 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 fi gures are below our desires,” said the minister during an Islamic fi nance conference. Babaçan also stated that the private sector started Sukuk issuances following the sovereign Sukuk issuance by the treasury; and the tax diff erence 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 fi rm 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 Offi cial Gazett e dated the 7th June 2013 and numbered 28670. This communiqué introduced new lease certifi cates to the Turkish Islamic fi nancial 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

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22© 31st July 2013

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INDONESIA

By Farouk Abdullah Alwyni

The growth of Islamic fi nance 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 aft er Iran, Malaysia, and Saudi Arabia as a country that has the potential and is conducive for the development of Islamic fi nance. Taking into consideration some aspects aff ecting the GIFR index such as the number of Islamic banks, the number of non-bank Islamic fi nancial institutions, and the size of Islamic fi nance assets, Indonesia is projected to be ranked fi rst in the near future.

If we look at some fi gures relating to Islamic fi nance activities in Indonesia, that projection may be a quite reasonable projection. As seen in Table 1, all Islamic fi nance activities from Islamic banking, Islamic capital market, Islamic funds, and Islamic insurance have shown quite signifi cant 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 signifi cantly towards fostering the growth of Islamic fi nance in Indonesia, growing at an average 40% rate over the last fi ve 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 fi nance in turn will create the need for competent human resources. Like its other counterparts overseas, among the main challenges

faced by the Islamic fi nance industry in Indonesia is the issue of creating professionals competent in the Islamic fi nance. At the moment, most of the needs for Islamic fi nance industry are fulfi lled through the hiring of conventional fi nance professionals and recruiting young graduates through the Offi cer Development Program.

However, with the current growth pace experienced by the Islamic fi nance industry, it is estimated that there will be a shortage of around 20,000 Islamic professionals in the near future. While

hiring conventional fi nance professionals may meet the need of the Islamic fi nance 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 fi nance and economics, especially if the Islamic fi nance industry really wants to off er diff erentiation in off ering its products and services.

Creating genuine Islamic fi nance professionals will enable the Islamic fi nance 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 fi nance products are merely carbon copies of conventional products with diff erences 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 fi nance knowledge but also conversant with the application of Shariah in the fi nancial 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 fi nancial products and services off ered 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 fi nance fi gures

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 COUNTRYCORRESPONDENTS

BAHRAIN

By Dr Hatim El Tahir

Reflecting on recoveryA new report from the Central Bank of Bahrain (CBB) reveals that the Islamic banking industry in Bahrain has posted a healthy increase in profi ts of US$85.5 million for the fi rst quarter of 2013, compared with US$67.1 million during the corresponding period last year. The report also mentioned that the combined net profi ts of Bahrain's banks doubled to reach US$1.1 billion in the fi rst three months of this year, compared with US$427 million in cumulative profi ts during the same period in 2012.

Building on its role, driving growth and recovery, over the years the CBB has made strenuous eff orts to strengthen Bahrain's fi nancial 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 patt erns in the Islamic fi nancial industry. The new emerging M&A practice in this industry combined with the growth in profi tability 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 talkAs the momentum of consolidation continues, Islamic banks in Bahrain should focus on two main types of business strategy to sustain profi tability and growth. First, banks need to strengthen their customer relationship management capability and adopt customer strategies centered on building eff ective customer relationship management functions. The customer strategy should focus on designing tools and processes to help bank leadership and decision-makers bett er understand local market needs of Islamic fi nancing and investment services, and thus give

direction and guidance to create effi cient and yet customer-driven products and services. Bett er use of technology should also help banks identify service off ering 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 off er 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 profi tability.

Dr Hatim El Tahir is the director of the Islamic fi nance group at Islamic Finance Knowledge Center Leader, Deloitt e & Touche — Bahrain. He can be contacted at heltahir@deloitt e.com.

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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.

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IFN Sector CorrespondentsASSET MANAGEMENTSean Daykin, head of investment funds, Emirates NBD Asset Management CROSS-BORDER FINANCING:Fara Mohammad, senior lawyer and consultant in Islamic fi nanceDEBT CAPITAL MARKETS: Muhammad Shoaib Ibrahim, managing director & CEO, First Habib Modaraba LAW: Bishr Shiblaq, head of Dubai offi ce, Arendt & MedernachLEASING: Professor Dr Shahinaz Rashad, chairperson & CEO, Egyptian Leasing AssociationMICROFINANCE (ASIA):Dr Mahmood Ahmed, executive vice president and director training, Islami Bank Training and Research AcademyMICROFINANCE (AFRICA): Mansour Ndiaye, director of microfi nance, Assistance and Consulting for DevelopmentPRIVATE BANKING & WEALTH MANAGEMENTKhadra Abdullahi, associate, investment banking, Faisal Private BankPRIVATE EQUITY & VENTURE CAPITAL: Arshad Ahmed, partner, Elixir Capital

REAL ESTATE (EUROPE) Philip Churchill, founder partner, 90 North Real Estate PartnersREAL ESTATE (MIDDLE EAST): Yahya Abdulla, head of capital markets — Middle East, Cushman & Wakefi eldREGULATORY ISSUES (ASIA)Intan Syah Ichsan , chief operating offi cer, Samuel Aset ManajemenREGULATORY ISSUES (MIDDLE EAST): Mohammad Abdullah Malik Dewaya, head of Shariah compliance and audit, Maisarah Islamic Banking ServicesRETAIL BANKING: Ris Rizqullah, lecturer, Trisakti UniversityRISK MANAGEMENT: Abu Bakr Abdel Rahman, relationship manager, NBD-ADIBSECURITIES & SECURITIZATION: Nidhi Bothra, executive vice president, Vinod Kothari ConsultantsSTOCK BROKING & TRADING: Athif Shukri, research analyst, Adl CapitalSUKUK Marco Mauri, senior director of asset management, Alkhair Capital Saudi Arabia TAKAFUL & RE-TAKAFUL: Sutan Emir Hidayat, senior lecturer, University College of BahrainTREASURY PRODUCTS: Nafi th ALHersh Nazzal, certifi ed fi nancial & investment advisorTECHNOLOGY: Ali Shervani, country head, Fin8

IFN Correspondents are experts in their respective fi elds 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 eff ect 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 fi nancial 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 bett er 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 infl ation considerably below the Fed’s 2% infl ation 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 confi dence 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-off s during May and June, on the back of concerns over US Fed policy. In our view, these sell-off s 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

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MICROFINANCE (AFRICA)

By Mansour Ndiaye

In the West African Economic and Monetary Union zone, Senegal clearly acts as hub of Islamic fi nance. Recently an important sub-regional workshop, ASCODEV Expertise Microfi nance, reviewed the achievements and ongoing work in the fi eld of Islamic microfi nance. The workshop was att ended by the Project to Promote Microfi nance in Chad, and actors from Mauritania, Cote d'Ivoire and Togo. The money and credit management (DMC), the Directorate of Microfi nance (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, fi nancial institutions, government, etc.) to analyze the opportunities and constraints on the development of the sector of

Islamic microfi nance. Despite the fair advancement of the industry in Senegal, regulation is not yet developed and is holding back the development of Islamic microfi nance and Islamic fi nance 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 off ering Islamic fi nancing 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 microfi nance 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 fi nance institutions platform. This initiative is quite advanced and will certainly be the most important link to advance Islamic microfi nance in West Africa.

This meeting was att ended by more than 15 conventional microfi nance institutions (including two of the three major networks) and two microfi nance institutions operating in Islamic microfi nance. It was initiated by practitioners with the intention of moving towards innovative initiatives to develop the fi eld of Islamic fi nance. To this end, a combination of players in Islamic fi nance 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 microfi nance 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 refl ects the minimum amount of gain a PE fund must achieve for the benefi t of its investors before the fund manager (i.e., Mudarib) may enjoy a portion of profi ts.

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 bett er 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 att itude does Islamic PE have? Does the cupidity of desiring ever more profi t, 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 lift ed 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 eff orts 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 profi t greater than 5%. Sari once acquired almonds at a low price prior to a scarcity. During the scarcity, a broker called on Sari and off ered him a price amounting to a 100%. Rather than gouging the broker, Sari agreed to a lower price, satisfi ed with his target profi t 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 fi nance deals worth millions of dollars for refi nancing 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 fi nance conferences being held in the UAE year aft er 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 aft er 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 fi nance products and techniques have been established in the UAE, for example:

• Very recently, MasterCard introduced credit cards under Murabahah (cost plus fi nancing) 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 fi xed monthly fees irrespective of the usage.

• Similarly, a UAE bank is off ering a Takaful (insurance) product, which off ers breast cancer Takaful coverage.

This is a pioneering innovation which actually addresses the fi nancial needs associated with a common cause for death among women.

• In July 2013, a UAE bank deployed a Shariah compliant profi t computation and distribution Islamic banking system. This soft ware effi ciently and accurately facilitates real time calculation and distribution of profi t and losses across all transactions.

UAE banks are playing a vital role in extending the growth of Islamic fi nance 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.

ChallengesAlthough the UAE has the culture and heritage, it lacks the infrastructure to achieve its goal of becoming the global leader of Islamic fi nance. 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 diffi culty – the shortage of Islamic scholars and the defi ciency of professional institutions and colleges, which train and provide quality Islamic fi nance education for new scholars. The lack of such services makes carrying out Islamic fi nance business time-consuming and, at times, fi nancially ineffi cient.

Way forwardSheikh 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 fi nance 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 unifi ed governing Shariah board, which will encompass the formulation of common standards and regulations for Islamic fi nance 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, scientifi c 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 off ers – 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 & fi nance 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 fi nancial crisis which exposed some of the inherent weaknesses of conventional systems of fi nancing. With the slower economic growth and unsteady market conditions, investors are opting for stable, well-governed, fi nancial 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 fi nance.

27© 31st July 2013

COUNTRY FEATURE

The fi rst 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 specifi cally 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 fi nds a solution for its upcoming debt maturities in 2014 and 2016, which are estimated to be around US$48 billion. Markets are confi dent that Dubai can meet these payments.

Dubai and its government-related entities have been able to raise almost US$5 billion by mostly refi nancing 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 fl ow visibility is improved has seen pricing shaved off by 100% without going through refi nancing — 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 fi nding 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 fi nancial 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 fi ve-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 Committ ee 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 aff ecting the banking sector in all segments, including the Islamic sector. There are 10 active committ ees in the UBF, including an Islamic banking committ ee, that are addressing and engaging the CBUAE on matt ers sensitive to their segment. This is a healthy development. On the Islamic banking front, the Islamic banking committ ee, 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 fi nancing 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 specifi cally 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 cloudsThe 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

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28© 31st July 2013

SECTOR FEATURE

The Islamic fi nancial 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 off ering Islamic fi nancial 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 fi nancial institution or the relevant body in the jurisdiction in which it operates) has led to fi nancial eff ects (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 fi nance continues to att ract global att ention, 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 fi nancial institutions. A sound and eff ective Shariah governance framework is critically important to give confi dence to the general public about Shariah conformity of an institution’s operations and promoting an eff ective implementation of an enterprise risk management (ERM) framework at the institution.

Various forms of Shariah governance regimes Given the diff erent operating models in the industry, such as fully-fl edged

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 diff ering scope and extent of Shariah assurance opinions, diff ering 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 diff erent jurisdictions where Islamic fi nance fi rms have a presence. There are two noticeable cases. In the fi rst 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 ‘fi t 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 satisfi ed 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 fi nance industry in their jurisdiction. Each regime may have its merits and

weaknesses; but supervisory authorities have to select, aft er 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 effi ciently keeps up with the changing global Islamic fi nance landscape.

International guidance on Shariah governance – IFSB and AAOIFIConcerns 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 fi nancial 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 bett er 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, confi dentiality 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 fi nance, 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 diff erent types of Islamic fi nancial institutions operating in diff erent jurisdictions, IFSB-10 recognizes that there are various Shariah governance structures and models that have been adopted in diff erent jurisdictions where Islamic fi nancial institutions are present, suggesting no ‘single model’ or ‘one-size-fi ts-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 latt er 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, qualifi cation 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 governanceThe operations of Islamic fi nancial 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 fi nance 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 diff erently in various jurisdictions like Shariah advisory committ ee, 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 fi nance institutions have some form of Shariah body, not all supervisory authorities supervising these fi rms 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 diff erent areas including, among others, the size and duties of the boards, qualifi cations of board members, reporting structures, suspension and termination, confl ict 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 fi nancial institutions also change from one country to another.

Compliance with Shariah rules and principles is fundamental to the ongoing operation of an Islamic fi nancial institution. Achieving Shariah governance is the function of many organs within the fi rm 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 eff ective 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 fi rm’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 fi nance industry, it can be seen that the roles of Shariah scholars — who advise and supervise the Shariah compliance aspects of an Islamic

fi nancial 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 eff ectiveness of Shariah governance system within the jurisdiction. This refl ects that there is need for a number of scholars — who meet reasonable competencies and qualifi cations with regard to Shariah (in particular the sub-discipline of Fiqh Muamalat) and have the capability of understanding modern fi nance in order to advise and supervise Islamic institutions.

Moving forward Oft en, a lack of standardization is cited as a key reason for the obstruction of growth potential of Islamic fi nance. 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 fi nancial institution operates, the former is slightly easy as the respective supervisory authority can play a crucial role through issuing specifi c 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 committ ee or body which would be able to assist all IIFS and bring them in line with a uniform standard, refl ects 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 Chatt ha 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 qualifi cations get jobs? This has an eff ect on talent development in the Islamic fi nance industry, which brings about the question: Is talent development needed or not?

Whilst reports give various numbers by country of the qualifi ed 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 fi nance operations started as windows. The conventional products were ‘wrapped’ in an Islamic cover and off ered out. Inadvertently such a practice impacted the talent recruitment practice of an organization wherein the preference was for regular conventional fi nance qualifi cations.

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 fi nancial crises that forced organizations to make do with available talent resources, gives us the background of where talent development in the Islamic fi nance industry is at presently.

Whilst respective international fi nancial centers are att empting 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 assetTalent 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 fi nance industry, lining up the ducks that result in excellent talent can only be benefi cial.

A key fi rst step is to defi ne what talent is. A common defi nition, 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 bett er but must be allowed to, as well.

4. Ensuring identifi ed talent has progressively meaningful work and gains in infl uence. 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 qualifi cations.

There are dual benefi ts 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 fi nancial 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 benefi ts. From there it is just a short step to obtaining the required qualifi cations. So the academic institutions start benefi ting 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 off ering degree programs and diplomas in Islamic fi nance and banking. This is a good sign as it indicates that the growing global Islamic fi nance industry has a rising demand for competent and trained talent. JOY ABDULLAH looks at why, therefore, graduates are struggling to fi nd jobs aft er qualifying.

continued...

31© 31st July 2013

SPECIAL FEATURE

in diff erent fi nancial centers will bring together organizations and academia to work on enhancing specifi c areas of the existing academic content. This, in turn, will facilitate the generation of cross-border academic content which will benefi t talent all round by providing them the cross-jurisdiction knowledge they need. For a talent, this is a huge benefi t 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 diffi culty for Shariah specialists to understand the bott om-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 eff ective 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 bott om 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 benefi t of the organization.

2. Accept and implement a common global standard for qualifi cations — like other professional qualifi cations develop and implement a global standard for qualifi cations, 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 fi nance 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 eff ective 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

AlgiersBuenos Aires

CairoDhaka

EssenFreetownGaborone

HavanaIslamabadJerusalem

KabulLusaka

MinskNassauOttawa

Phnom PenhQuito

ReykjavikSarajevo

TripoliUlaanbaatar

VientianeWarsaw

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 MustafaSubscriptions DirectorMusfaizal.Mustafa@REDmoneyGroup.comTel: +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

JulJunMayAprMarFeb600

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 MorganManaging Director, REDmoney Group

Email: Andrew.Morgan@REDmoneygroup.comTel +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

Utilities2%Telecomunication Services

2%

Technology14%

Basis Materials15%

Non-CyclicalConsumer Goods Services

7%

Energy8%

Financials4%

Healthcare11%

Industrials22%

Consumer Goods Services15%

REDmoney Global Shariah

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

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

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

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

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

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

Eurekahedge Global Islamic Fund Index

Inde

x Va

lues

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 Tahaff uz 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 EurekahedgeTo list your fund or update your fund information: islamicfunds@eurekahedge.comFor further details on Eurekahedge: information@eurekahedge.com Tel: +65 6212 0900

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

Perc

enta

ge

Eurekahedge Islamic Fund Money Market Index over the last 5 years Eurekahedge Islamic Fund Global Money Market Index since Inception

Perc

enta

ge

98

99

100

101

102

103

104

105

106

107

108

Jul-0

8

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

020040060080010001200

02468

1012

1 2 3 4 5 6 11 12 1 2 654310987

2012 2013

US$mUS$bn

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

0100200300400500600

02468

1012141618

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 4Q3Q2Q2008 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 - Marafi q

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 MonthsIssuer 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 Consumer Cooperative Bank, RBS, National Bank of Abu Dhabi, 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 of Abu Dhabi, Dubai Islamic Bank, 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 - Marafi q

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 Dar Al-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 16.32 CIMB Group 5,092 40 14.23 Maybank Investment Bank 4,178 34 11.74 AmInvestment Bank 2,864 28 8.05 Standard Chartered Bank 2,488 20 7.06 RHB Capital 2,465 36 6.97 Deutsche Bank 2,095 5 5.98 Citigroup 1,157 5 3.29 Emirates NBD 859 7 2.410 National Bank of Abu Dhabi 797 7 2.211 Kuwait Finance House 709 4 2.012 Dubai Islamic Bank 682 4 1.913 Abu Dhabi Islamic Bank 532 3 1.514 Riyad Bank 500 1 1.414 Alinma Bank 500 1 1.414 Al-Bilad Bank 500 1 1.417 Hong Leong Financial Group 364 8 1.018 RBS 292 2 0.819 Lembaga Tabung Haji 284 4 0.820 KAF Investment Bank 271 1 0.821 QInvest 262 2 0.722 Kenanga Investment Bank 261 3 0.723 Qatar National Bank 233 1 0.724 Morgan Stanley 200 1 0.625 Saudi Hollandi Bank 187 1 0.526 Affi n Investment Bank 186 4 0.527 Al Hilal Bank 181 3 0.528 OCBC 166 5 0.529 Abu Dhabi Commercial Bank 166 1 0.530 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 Khalij i 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

TransportationChemicals

Utility & EnergyGovernment

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 4Q3Q2Q2008 2009 2010 2011 2012 2013

0100200300400500600

02468

1012141618

US$mUS$bnNon-US$ US$

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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 5.52 HSBC 609 4 4.93 Standard Chartered Bank 482 4 3.93 Emirates NBD 482 4 3.95 Abu Dhabi Commercial Bank 482 3 3.96 Samba Capital 454 3 3.67 Noor Islamic Bank 419 4 3.48 First Gulf Bank 394 6 3.29 SABB 384 2 3.19 Riyad Bank 384 2 3.19 Banque Saudi Fransi 384 2 3.112 Citigroup 368 2 3.013 Mashreqbank 342 4 2.714 Dubai Islamic Bank 305 2 2.415 Al Hilal Bank 261 3 2.116 Al-Rajhi Banking & Investment 252 2 2.017 National Bank of Abu Dhabi 232 3 1.918 Saudi National Commercial Bank 218 1 1.818 Saudi Investment Bank 218 1 1.818 JPMorgan 218 1 1.818 Bank Al-Jazira 218 1 1.818 Arab National Bank 218 1 1.818 Al-Bilad Bank 218 1 1.824 Islamic Development Bank 197 2 1.625 Industrial & Commercial Bank of China 196 1 1.625 Deutsche Bank 196 1 1.625 Commercial Bank of Kuwait 196 1 1.625 Commercial Bank of Dubai 196 1 1.629 Union National Bank 172 1 1.429 Sumitomo Mitsui Financial Group 172 1 1.429 SG Corporate & Investment Banking 172 1 1.429 Mitsubishi UFJ Financial Group 172 1 1.429 Export Development Canada 172 1 1.429 Credit Agricole 172 1 1.429 BNP Paribas 172 1 1.429 Arab Petroleum Investments 172 1 1.429 Al Khalij i Commercial Bank 172 1 1.4

Top Islamic Finance Related Loans Mandated Lead Arrangers12 Months

Bookrunner US$ (mln) No %1 HSBC 291 2 16.32 Abu Dhabi Islamic Bank 224 2 12.63 Samba Capital 191 1 10.74 QInvest 157 2 8.85 Standard Chartered Bank 139 2 7.85 Noor Islamic Bank 139 2 7.85 Emirates NBD 139 2 7.85 Arab Banking Corporation 139 2 7.89 DRB-HICOM 84 1 4.710 Bank Islam Brunei Darussalam 75 1 4.210 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 57.82 Saudi Arabia 3,089 3 24.73 Malaysia 985 2 7.94 Turkey 885 3 7.15 Singapore 207 1 1.76 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%2007200820092010

201120122013

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

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COMPANY INDEX

1MBD 6AAOIFI 9,15,16,19,28,29ABC Islamic Bank 9Absa Islamic Banking 7Abu Dhabi Islamic Bank 9,24Acibadem Sigorta 11ACR Capital Holdings 11AEON Credit 6Ahlibank 9Aircel 11Al Baraka Banking Group 3Al Baraka Turk 11Al Hilal Bank 9Al Hilal Islamic Banking 9Al Khaleej Takaful Group 10Albaraka 3,21Al-Jadaan & Partners Law Firm 20Allen & Overy 1,4Almarai 4Arab Bank 10Arab Banks Union 14Arcapita 13Arcapita Bank 7Ashurst 4AT Kearney 16Avicennia Capital 11Azzad Asset Management 11,14Baker & McKenzie 20BancABC Tanzania 7Bank Islam Malaysia 3Bank Negara Malaysia 7Bank Nizwa 9Bank of Tokyo Mitsubishi 6Banque Du Liban 15Barwa Bank 10Binariang GSM 11BLME 1Blom Development Bank 15BNP Paribas Investment Company 20Bond Pricing Agency Malaysia 3Boubyan Bank 10Capital Intelligence 11Central Bank of Bahrain 23Central Bank of UAE 27Cheraman Financial Services 8CIMB Aviva Assurance 11

CIMB Aviva Takaful 11CIMB Group CIMB-Mapletree Management 11CISI Cliff ord Chance 20Commercial Bank of Dubai 10DanaInfra Nasional 6Dar Al Sharia Legal & Financial Consultancy 12DMCC 7Dubai Center for Excellence in Islamic Banking & Finance 9,26Dubai Executive Council 9Durham University 9Emirates NBD Capital 8Ernst & Young 16,18ESA 15Eversheds 4EXIM Bank 7Finance House 10First Gulf Bank 10First Leasing Bank 16Fortress Credit 13Franklin Templeton Investments 3GATE 6Genting Plantations 6Goldman Sachs 13Gulf Installments 16Gulf International Bank Capital 20Hamdan Bin Mohammed e-University 9Hwang Investment Management 11ICIEC 7IDB 7,8,15IdealRatings 7IFSB 28,29iSfi n 8Islamic Bank of Britain 8ITFC 7Ithmaar Bank 16JBIC 6Jordan Islamic Bank 10Kenanga Research 11KFH Research 1,13Khazanah Nasional 11KNM Capital 11Lebanese American University 15Linklaters 1,9Lloyd’s Banking Group 8

Malaysia Islamic Financial Center 13Malaysian Deposit Insurance Corporation (PIDM) 11Mapletree Investments 11MARC 3,4Markaz 14Mashreq Al Islami Mashreq Bank 10,27Masraf Al Rayan 6,8,10Maxis Communications 11Maybank 6Maybank Islamic 7MCB Bank 8Moody’s 10,11NAEEM Holding 7National Bank of Abu Dhabi 5,10National Bank of Kuwait 10Nomura Holdings 6Novus Aviation Capital 16OCBC Bank 6Open University of Catalonia 9Orix Group 16Prudential BSN Takaful 11Public Bank 11PwC 18Qatar National Bank 8RAM Ratings 6RBS 3Riphah Center of Islamic Business 9S&P 5Saudi Binladin Group 20Saudi Electricity Company 24Securities and Exchange Board of India 8Sedco Capital 11Shanghai World Financial Center 8SHAPE Knowledge Services 4Sharjah Islamic Bank 11Shuaa Capital 16Tamweel 6Tamweel Funding 6Tokyo Corporation 6UAE Banks Federation 27US Federal Reserve 1Walkers 20Wataniya Insurance Company 11Zain Saudi 6

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