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Islamic REITs were welcomed with open arms when they fi rst began to draw att ention a few years ago. The concept of a liquid and accessible method of investing into property on a Shariah compliant basis seemed the ideal vehicle for an Islamic investor. Yet almost a decade later and in reality, very few Islamic REITs have actually come to market and investors are demonstrating litt le interest. Given the popularity of property as an investment and the growing sophistication of the Islamic capital markets, what is holding this asset class back?

First things firstThe acronym ‘REIT’ is bandied about with casual insouciance across both the conventional and Islamic fi nancial industries. But what does an Islamic REIT actually entail?

An investment trust acquires shares in other companies to provide a collective investment. A real estate investment trust (REIT) acquires only real estate assets: which can be in the form of buying, managing, selling and leasing real estate; purchasing shares in listed property companies or investing in the debt securities of property companies. An Islamic REIT invests primarily in income-producing Shariah compliant real estate and property fi rms whose principle assets are Shariah compliant; although a portion of an Islamic REIT can also be invested in other Shariah compliant asset classes.

Normally traded through stock exchanges, REITs provide investors with a practical and eff ective way to access professionally-managed real estate and receive returns through capital appreciation

and annual distributions from investment income such as rental of assets.

Attractive advantagesREITs hold a number of appealing features which should make them irresistible to the risk averse, cash rich Islamic investor. For example, REITs in many countries benefi t from tax advantages as long as they pay out at least 90% of their taxable profi t to investors, and as rental (the primary investment income for a REIT) is fairly consistent, this makes them highly att ractive and unusually stable income-generating assets.

Bobby Tay, the co-founder and chief strategy offi cer of Singapore-based Sabana REIT, the world’s largest Shariah compliant REIT by assets, points out that: “REITs are a very liquid, very transparent instrument and well regulated to the benefi ts of investors. Most REITs pay 100% of their dividend to investors so as to enjoy tax incentives. Real estate funds in comparison are normally illiquid and redemptions are always diffi cult. Income is also not stable as they do not have to pay 100%.”

Power to the peopleREITs are open-ended with shares that are traded on the secondary market, making them highly liquid and relatively

easy to enter and leave. REITs also in theory provide a means for smaller

and retail investors to access the property market as well as a valuable diversifi cation tool in their portfolio, as a relatively small sum can purchase shares of a REIT

that may have holdings across a wide range of regions and property classes especially

Islamic REITs: The unsung journey

continued on page 3

17th April 2013

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Volume 10 Issue 15IFN Rapids .........................................................2

Islamic Finance news .........................................6

Column .............................................................12

Shariah Pronouncement .................................13

IFN Reports:

Gaining inroads into Iraq; Turkey’s biggest

state bank to launch Islamic banking window;

Off shore Islamic bank accused of contravening US

government OFAC sanctions ...........................14

Special Report:

IIBR — Pakistan’s hopeful local benchmark ........16

Case Study:

Saudi Fransi Sukuk prioritizes investors .......17

IFN Country Correspondents:

Maldives; Bahrain..................................... 18

IFN Sector Correspondents:

Leasing; Sukuk ..................................................20

Features:

Gulf property investors target US real estate .......22

Seven obstacles to retail Islamic fi nance growth

in the US ...........................................................24

Islamic structured products: A viable

alternative? .......................................................26

Takaful Feature:

Takaful outlook in Indonesia: The next 80 million

customers? .........................................................27

Forum ................................................................29

Deal Tracker .....................................................30

REDmoney Indexes ........................................31

Eurekahedge data ...........................................33

Performance League Tables ...........................35

Events Diary.....................................................39

Company Index ...............................................40

Subscription Form ...........................................40

2© 17th April 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.

DEALSAbu Dhabi Islamic Bank closes US$82.2 million syndicated deal for the Emirates National Factory for Plastic Industries

Z Capital Partners to raise US$100 million for Shariah compliant fund

Sharjah Islamic Bank issues US$500 million Sukuk

Almarai to acquire Jordanian food processing company

Dubai Investments to raise US$300 million through Sukuk

The IDB to act as main backer for Bangladeshi power plant project

Yorktown Partners and Kuwaiti investors acquires US$29.11 million property in the city of Bristol

Bank Negara Malaysia issued US$493.77 million Sukuk Murabahah on the 16th April

Government of Thailand to inject US$103.22 million into Islamic Bank of Thailand

Sun Life Financial and Khazanah Nasional acquire CIMB Aviva Takaful

National Shipping Company of Saudi Arabia considers Sukuk issuance for marine acquisition

Saudi Fransi Capital issues Sukuk Ijarah worth US$346.2 million

Saudi Arabian conglomerate Al Bayan Holding to issue US$328.6 million Sukuk via Malaysia-based SPV

International Islamic Liquidity Management Corporation’s US$2 billion Sukuk to be issued in the second quarter

Barwa Bank eyes Sukuk, IPO and rights issue in 2013

Saudi Capital Market Authority approves AlJazira Takaful Ta’awuni’s IPO

International Shariah Research Academy for Islamic Finance proposes regulatory recommendations

NEWSAl-Azhar Senior Scholars Authority approves Sukuk draft law

Central Bank of Egypt halts granting of Islamic banking licenses

Bank Al Muamelat Assahiha goes live with iMAL

Market can expect longer-term sovereign Sukuk issuances from Indonesia, says Ministry of Finance of Indonesia

Al Baraka Turk to add 20 banking branches a year, over the next four years

Profi t payment for KESAS’ Bai Bithaman Ajil paid on the 11th April

Capital Markets Board of Turkey looks to diversify country’s Sukuk structures

Italian governor urges a deeper understanding of Islamic fi nance

Malaysian investors encouraged to tap into Turkey’s Islamic fi nance industry

Qatar Financial Center Authority survey predicts good year for MENA equities

Deutsche Bank to advise ALAFCO on potential sale of global depositary receipts

IDB to set up country offi ce in Dhaka

Banque Misr to inject up to US$218.4 million for the restructuring of its 35 Islamic banking branches

Emaar Properties will not

write-down investments in Amlak Finance

Bank Albilad increases capital and adjusts share price

Qatar Islamic Bank off ers new Sukuk investment product

Saudi Basic Industries Corporation to purchase assets of US$1.33 billion Sukuk

Maalouf Ashford & Talbot opens new offi ce in Beirut

International Islamic Trade Finance Corporation to implement new core banking system

Al Rajhi Bank net profi ts up by 2% in the fi rst quarter of 2013

Bank Syariah Mandiri sees 46.3% growth in net profi t for 2012

Banque Saudi Fransi sees a 13.3% drop for the fi rst quarter

BNI Syariah sees 54% growth in profi ts

Boubyan Bank’s net profi t up by 25% in the fi rst quarter

Burj Bank’s post-tax profi ts down by 70.66% in 2012

Dar Al Arkan records an 18.8% dip in net profi ts in the fi rst quarter

Dubai Islamic Bank Pakistan records US$5.05 million in pre-tax profi ts for 2012

Dubai Islamic Bank’s net profi t rises by 17% in the fi rst quarter of 2013

Islamic Holding Group registers net profi t of US$579,072 in fi rst quarter of 2013

ASSET MANAGEMENTKerala State Industrial

Development Corporation to utilize Islamic fund for development projects

TAKAFUL Takaful Insurance of Africa to expand

Predominantly Christian southeast Nigeria embraces Takaful

Staff poaching anxieties escalate in the Takaful industry

Global family Takaful contributions to reach US$5.6 billion by 2016

Malaysian Takaful fi rms still hesitant to invest overseas

RATINGS RAM upgrades Borcos Shipping’s Sukuk Ijarah to ‘AA3’

Construction company Adhi Karya’s Sukuk Mudarabah rating affi rmed at ‘idA(sy)’

RAM downgrades FEC Cables’ Islamic facilities

Fitch affi rms Saudi Electricity Company’s Sukuk at ‘AA-‘

Fitch affi rms Jordan Islamic Bank at ‘BB-‘; with a stable outlook

RAM reaffi rms Sapura Kencana Petroleum’s Sukuk Mudarabah program at ‘AA3’

MOVESMalcolm McKinnon joins Alizz Islamic Bank as board member

Dubai International Financial Center appoints Nasser Al Nasser as a judicial offi cer

Shaikh Khalifa Zayed Al Nahyan to chair Abu Dhabi Investment Authority

3© 17th April 2013

COVER STORY

including the booming Asian and Gulf markets.

REITs also have a relatively low correlation to interest rates and equity and can be used as a useful infl ation hedge, as well as off ering high cash dividends relative to the market. In most jurisdictions no tax is levied on a REITs profi ts, meaning full dividends accrue to its shareholders who then pay tax at their personal rate, making it equally att ractive from a tax perspective. George Stewart Labrooy, CEO of Axis REIT, highlights that: “A REIT has low and defi ned level of retained earnings, low debt level defi ned by the regulators and strong cash fl ow from operations. In addition, REITs are governed by multiple layers of stakeholders - unitholders, managers, trustees and regulating authorities - ensuring that the interests of minority unitholders are protected.”

Limited range So with all these advantages, combined with the established and acknowledged popularity of real estate as a Shariah compliant investment, surely we should be seeing Islamic REITs springing up everywhere? The conventional market has certainly taken off - REITs currently

own approximately US$500 billion of commercial real estate assets, or 10-15% of total institutionally-owned commercial real estate, and according to the Ernst & Young 2012 REIT Report the average REIT has a market capitalization of between US$1-2 billion.

Yet somehow Islamic REITs have failed to jump on this bandwagon and capitalize on the seemingly obvious advantages.

Even in the most developed Islamic fi nance markets Shariah compliant REITs have been slow to take off . Malaysia, one of the world’s most advanced Islamic markets, still has only three Islamic REITs out of a total of 16. As of December 2012 the Al-‘Aqar KPF REIT (launched by KPJ Healthcare in August 2006 and the fi rst Islamic REIT in the world), the Al-Hadharah Boustead REIT (a plantation REIT launched in February 2007) and the Axis REIT (a commercial building REIT and the fi rst to launch on Bursa Malaysia in 2004, later converted to Islamic in December 2008) accounted for a combined market capitalization of RM3.7 billion (US$1.21 billion) out of a total of RM19.5 billion (US$6.41 billion), or around 19% of the market. And since the conversion of Axis in 2008 there have been no further listings.

Slow storyIn the Middle East the story is even more dismal. In 2009 the Central Bank of Dubai approved the fundraising of BHD30 million (US$79.6 million) by asset management fi rm Inovest to develop an Islamic REIT focusing on the acquisition of income-generating properties in the GCC with an estimated 8.5% return, using a buy and leaseback approach. And in November 2010 Dubai Islamic Bank joined forces with French fi rm Eiff el Management to develop the fi rst Islamic REIT in the UAE.

But progress has been slow, and few other REITs have emerged from the region despite the general upturn in property last year following the real estate bubble collapse in 2008. So what is holding it back? The US$490 million November 2010 IPO of Sabana REIT (which has a current market capitalization of around US$1.7 billion), saw Gulf investors take up

around 25%, suggesting that demand is certainly not lacking. The considerable investments being made into global real estate by Middle East investors (such as the vast sums poured into London property from Qatar) demonstrate that liquidity is not the issue.

And Labrooy confi rms that from a supplier perspective Islamic REITs are extremely att ractive: “We decided to make our stock available to Shariah funds as well so we could tap a much wider pool of investors than we currently had. It was a defensive measure in case the world’s fi nancial system imploded. The switch has proven a real blessing as we fi nd it much easier to raise capital through placements as there is a high demand for our paper.”

So what is holding investors back?

Regional biasOne reason could be a lack of universal regulations and standards, with some jurisdictions signifi cantly ahead of others in terms of REIT legislation. Unsurprisingly, Malaysia is at the head of the pack – in November 2005 the Securities Commission was the fi rst to issue guidelines for Islamic REITs and according to Bursa Malaysia, the country remains the only government to have established specifi c legislation. In addition, Malaysia has progressively introduced tax incentives to promote the capital market, meaning that Islamic REITs are largely exempt from income tax (as long as they distribute at least 90% of taxable income), stamp duty and property gains tax, as well as incurring zero tax moving costs; representing huge savings.

In comparison, the GCC has struggled to follow suit; hampered by its fragmented regulatory bodies and held back by the impact of the global fi nancial crisis on its once thriving property market which by 2011 had seen values in Dubai

fall over 60% from their 2008 peak. Although the Dubai International Financial Center (DIFC) did pass an Investment Trust Law and an Investment Trust and REITs Rules Instrument in 2006,

several subsequent att empts to raise REITs in the emirate failed, including

Islamic REITs: The unsung journeyContinued from page 1

continued...

Even in the most

developed Islamic finance markets Shariah compliant REITs have been slow to take off. Malaysia, one of the world’s most advanced Islamic markets, still has only three Islamic REITs out of a total of 16

4© 17th April 2013

COVER STORY

one by Nakheel. Some experts suggest that the poor performance of Islamic REITs in the region in fact stems from a positive source, however – that because regions such as Dubai already have such favorable tax regimes, the tax advantages of a REIT hold litt le att raction. According to one UAE banker: “With its tax-free environment, the Gulf actually does not provide much incentive to invest in a REIT, given the investment requirements.”

In addition, the regulation of REITs in the Middle East remains relatively complex, as it depends not only on national regulators but on the approval of Shariah scholars, and the majority of countries do not have a national Shariah Supervisory Board such as exists in Malaysia, making approval oft en a long and painful process. “It took us 18 months to set up Emirates REIT because of regulation issues,” said the director of Eiff el Holding, Mark Inch, at the time of launch.

Labrooy confi rms that: “In the MENA region there are no REIT regulations and so these products are not available. I don’t think there will be any new Islamic REIT listings unless there are new incentives or new regulations published in the region.”

Investor concernsBut other constraints also exist which may inhibit investment into Islamic REITs. For example, although the income generation may be appealing, the high profi t distributions and lower level of reinvestment can lead to a slower growth rate, which is less att ractive to investors. And REITs are not without risk. Dividend payments are not guaranteed and the lack of a developed secondary market makes them less liquid than they are oft en claimed to be. Labrooy agrees that: “The Islamic REITs tend to be thinly traded as they are a buy and hold option for many fund managers.”

Narrowing the fieldIn addition, Shariah restrictions can have a surprisingly signifi cant impact on the REIT’s investment performance. Tay comments that: “The main issue is the asset class, as hotels, commercial property and offi ce portfolios are

harder to certify Islamic due to their activities which may not be Shariah.” An Islamic REIT has less choice than a conventional one – it cannot take an unrestricted position on properties such as shopping malls, resort hotels (which may off er gambling and alcohol) or retail lots (which may house bars or non-Shariah compliant shops), for example – and these are oft en the most profi table rent producers.

Labrooy explains that: “It’s a stock issue. Demand for Islamic REITs has been high but the dearth of supply is a result of a lack of suitable Shariah compliant assets. Technically shopping malls, offi ces (of which conventional banks and insurance companies are the main tenants) and hotels (where alcohol is served and there is no separation of women and men) all do not qualify. The asset classes that qualify are healthcare, industrial and plantation and that narrows the fi eld considerably.”

Extra workAnd these restrictions simply add to what is in fact a highly complex structure which has far greater barriers to entry than you might expect. Although for investors a REIT off ers the advantage of being able to aff ordably access a diversifi ed property portfolio, it is

not as easy on the other side of the coin. Isam Salah, a senior fi nance

partner in King & Spalding’s New York and Dubai offi ces and the head of the fi rm’s Middle East & Islamic Finance Practice Group, points out that: “A REIT is

a complicated structure, and it takes a lot of eff ort to put one into place.”

Because a REIT is tax sensitive, it takes considerable knowledge and expertise set up as well as a signifi cant amount of ongoing guidance and advice to maintain it, which usually requires the retaining of expensive external legal and accounting teams. And there are serious consequences for failing to observe the rules.

Size mattersNotably, there are currently no Islamic REITs in the US, despite the US market holding over 72% of the world’s total REIT assets. This is largely due to the high barriers to entry in the market. Salah observes that: “We have talked to clients about whether it is possible to use a REIT structure, and what the advantages are compared to the amount of eff ort and expense. Once clients understand what goes into it, they realize that the transactions that they are doing are not of a suffi cient size to justify the transactional expense of sett ing up and maintaining a REIT. If someone is investing US$30/40/50 million in a couple of commercial buildings, it is just not a big enough investment to justify the cost of a REIT.”

Labrooy agrees that from a Malaysian perspective as well: “Many hospital and plantation groups do not see an advantage in sett ing up a REIT, as there is a lack of incentives to warrant the added layer of compliance (and cost) needed to qualify as an Islamic REIT.”

Perhaps the best way of developing the market would be to encourage institutions to enter, which have the size and expertise to handle their own legal and accounting requirements and would thus be able to maintain economies of scale allowing them to benefi t from the advantages without being swamped by the expenses. Salah comments that: “If you look at who is making these real estate investments it is family offi ces, small investment companies, high net worth individuals. You might have the occasional institution but they usually just do not have the expertise to set up a REIT and to maintain it on an ongoing basis. They have to turn to outside advisors and that’s when it gets expensive. They are not doing deals that are big enough

Islamic REITs: The unsung journeyContinued from page 3

continued...

Shariah restrictions

can have a surprisingly significant impact on the REIT’s investment performance

5© 17th April 2013

COVER STORY

and the tax advantages, while useful, are not so signifi cant to justify the expense.”

Comfort zoneHowever, while supply is an issue, neither can demand be taken for granted. Tay observes that: “Most Islamic investors prefer physical real estate and they do not understand much about REITs yet.” In fact, despite the myriad advantages of a REIT, its very structure can be what puts clients off . Investors are comfortable with closed-ended investment funds which have a limited life and a static range of physical property investments. In comparison, a REIT is by its very nature open-ended – it buys and disposes of properties on an ongoing basis, and that can make investors uncomfortable. Salah notes that: “Right now, we see the mentality being ‘no, I don’t want to know what properties you might buy in the future, I want to know what properties you have now. I want to know exactly what I am investing in.’ A REIT in comparison is a much more ambitious undertaking.”

Coming upHowever, despite the slow path to success the future for Islamic REITs is fi nally looking up. And in the Middle East there are also signs that the market may be picking up pace. In March last year Tecom Investments, a member of Dubai Holding, took up a 25% stake in Emirates REIT for AED170 million (US$46.28 million), suggesting that corporates may at last be developing an interest in Islamic real estate vehicles.

And in the biggest step forward for the industry so far, Malaysia this month saw the restructuring of KLCC Properties into the country’s fi rst Shariah compliant stapled REIT, with a market capitalization of RM12 billion (US$3.89 billion) making it one of the largest listed property groups in Asia and placing the asset class fi rmly on the global stage. The new REIT not only has a more sophisticated structure (a stapled REIT allows several separate entities to be stapled together and traded as one) but has been eagerly awaited by both conventional and Islamic investors alike as one of the most att ractive new stocks this year. Its massive size, with properties including the iconic Petronas Towers in Kuala Lumpur and a potential portfolio topping RM15.4 billion (US$5.06 billion) make it Malaysia’s largest overall REIT by market value with a portfolio size three times that of the current leader, Sunway.

It may have taken almost a decade, but it looks like there is fi nally hope that Islamic REITs could fi nally be starting to fulful their potential. — LM

Islamic REITs: The unsung journeyContinued from page 4

Demand for Islamic REITs

has been high but the dearth of supply is a result of a lack of suitable Shariah compliant assets

6© 17th April 2013

NEWS

DEALSADIB in plastic financing dealUAE: Abu Dhabi Islamic Bank (ADIB) completed an AED302 million (US$82.2 million) syndicated fi nancing deal for the Emirates National Factory for Plastic Industries on the 9th April. ADIB was the deal’s mandated lead arranger, sole bookrunner and investment and security agent, while Al Hilal Bank and Mashreq Al Islami acted as its mandated lead arrangers; and Abu Dhabi Commercial Bank, Ajman Bank and First Gulf Bank as the deal’s lead arrangers.

MEFIC–Z Capital collaborationGLOBAL: US-based Z Capital Partners intends to raise US$100 million to establish a Shariah compliant fund investing in distressed assets, with Saudi Arabian partner, MEFIC Capital. The MEFIC–Z Capital Special Situations Fund will be set up within the next few months and will target institutions as well as high net worth individuals in the Gulf, according to Bloomberg.

SIB SukukUAE: Sharjah Islamic Bank issued a US$500 million fi ve-year Sukuk on the 9th April at a profi t rate of 2.95% and a price guidance of 3.12%. Al Hilal Bank, HSBC, Liquidity Management House and Standard Chartered were the deal’s mandated lead arrangers.

DI to raise Sukuk fundsUAE: Dubai Investments has revealed plans to raise US$300 million via Sukuk with roadshows beginning in May, according to Reuters. Citigroup, Nomura Group and JPMorgan Chase & Co are the appointed arrangers for this deal.

IDB’s Bangladeshi financingGLOBAL: The IDB will provide the lion’s share of the funding for a project between the government of Bangladesh and China Chengda Engineering, for the construction of a power plant in Bhola.

Yorktown Partners acquires EE’s officeGLOBAL: New York-based private equity and venture capital fi rm, Yorktown Partners, recently completed a GBP19 million (US$29.11 million) Shariah compliant deal involving the acquisition

of mobile telecommunications provider Everything Everywhere’s offi ce in the city of Bristol, in the southwest of England. Legal fi rm Foot Anstey advised Yorktown Partners and its Kuwaiti investors on the transaction.

Almarai increases stake in TeebaSAUDI ARABIA: Dairy food company Almarai will acquire the remaining 25% stake in Jordanian food processing company, Teeba Investment for Developed Food Processing (Teeba). The JOD12 million (US$16.9 million) acquisition will be made through International Dairy & Juice (IDJ) — a joint venture between Almarai and PepsiCo — and will increase IDJ’s stake in Teeba from 75% to 100%.

BNM issues SukukMurabahahMALAYSIA: BNM Sukuk, an SPV of Bank Negara Malaysia (BNM), the central bank, is expected to issue a RM1.5 billion (US$493.77 million) Sukuk Murabahah on the 16th April with a maturity of three months, due on the 16th July.

Capital injection for iBankTHAILAND: Islamic Bank of Thailand (iBank) will receive up to THB3 billion (US$103.22 million) from the government for the purpose of increasing the bank’s capital. The fi rst phase of fi nancing will be carried out this year and is worth THB450 million (US$15.48 million); while the remaining THB2.55 billion (US$87.73 million) will be injected in 2014.

The funds will be used towards restructuring the bank’s non-performing fi nancing as well as general corporate purposes.

Joint acquisition between Sun Life and KhazanahGLOBAL: Canadian-based Sun Life Financial (Sun Life) and Malaysia’s sovereign fund, Khazanah Nasional (Khazanah), have successfully acquired CIMB Aviva Takaful and CIMB Aviva Assurance, aft er obtaining approval from both the Canadian and Malaysian regulatory authorities.

Sun Life and Khazanah acquired a 49% share from Aviva International Holdings and CIMB Group Holdings, whilst CIMB Group Holdings retains its 2% share in both companies.

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7© 17th April 2013

NEWS

DEAL TRACKER Full Deal Tracker on page 30ISSUER ISSUING

CURRENCYSIZE (US$) DATE

ANNOUNCEDAl Bayan Holding Group RM 328.26 million 16th April 2013

Barwa Bank TBA TBA 16th April 2013

International Islamic Liquidity Management Corporation

US$ 2 billion 15th April 2013

National Shipping Company of Saudi Arabia

TBA TBA 12th April 2013

Dubai Investments US$ 300 million 11th April 2013

Bahri plans debut SukukSAUDI ARABIA: National Shipping Company of Saudi Arabia (Bahri) is contemplating the issuance of a Sukuk for the refi nancing of its debt taken for the US$1.3 billion acquisition of Saudi Aramco’s crude carrier fl eet last year. JPMorgan Chase, Samba Financial Group and the investment arm of National Commercial Bank are expected to be involved in the refi nancing.

Sukuk from Saudi FransiSAUDI ARABIA: Saudi Fransi Capital, a subsidiary of Banque Saudi Fransi, has issued a SAR1.3 billion (US$346.2 million) Sukuk Ijarah maturing in 2015 through Saudi Binladin Group’s SPV, SBG Sukuk. The Sukuk was priced at 170bps over three months SAIBOR and has a maturity of 2.5 years with a call option. Al-Jadaan & Partners Law Firm and Cliff ord Chance were the lead managers and bookrunners for the deal.

Al Bayan SukukGLOBAL: Al Bayan Holding, a Saudi Arabia-based construction conglomerate, will issue up to RM1 billion (US$328.26 million) in Sukuk Wakalah via ABHC Sukuk, an SPV incorporated in Malaysia.

The papers have been assigned a long-term rating of ‘AA3(s)’ by RAM Ratings.

IILM Sukuk to be issued in Q2MALAYSIA: The fi rst tranche of Malaysia-based International Islamic Liquidity Management Corporation (IILM)’s dollar-denominated US$2 billion short-term Sukuk is expected to be issued in the second quarter of 2013. Global legal fi rm Freshfi elds Bruckhaus Deringer is the lead advisor to the upcoming issuance.

Barwa Bank keeping busyQATAR: Barwa Bank plans to secure a credit rating later this year followed by a potential Sukuk, according to Steve Troop, the bank’s CEO.

The bank is also looking to raise up to QAR2.05 billion (US$562.63 million) through two share sales including an IPO listing on the Doha Bourse and a rights issue to existing shareholders of up to 50 million shares at QAR20 (US$5.5) per share.

IPO approvedSAUDI ARABIA: Bank AlJazira’s Takaful arm, AlJazira Takaful Ta’awuni’s IPO of 10.5 million shares has been approved by the Saudi Capital Market Authority. The IPO represents 30% of the company’s SAR350 million (US$93.32 million) capital, with an off er price of SAR10 (US$2.67) per share, operating locally.

International Shariah Research Academy for Islamic Finance proposes regulatory recommendationsGLOBAL: The third annual ISRA-IRTI-Durham University strategic roundtable — a collaboration between International Shariah Research Academy for Islamic Finance (ISRA), Islamic Research and Training Institute (IRTI) and Durham University — saw discussions on risk management and risk sharing; resulting in regulatory, product and institutional recommendations for the industry.

On the regulatory front the roundtable — comprising of Shariah scholars, academicians and industry practitioners — discussed the promotion of equity-based fi nancing; calling for adjustments in current global legal, tax and regulatory frameworks to create a level playing fi eld for equity in relation to debt. The participants suggested an all-encompassing approach towards evaluating the impact of debt in society, as well as stricter monitoring by regulators on the extent and use of debt in Islamic fi nancial products.

There was also a call for the management of risk in equity-based fi nancing on the asset side, including the sharing of liabilities. The paper said: “The returns given on the liabilities side should commensurate with the risk-return profi le of the portfolio on the asset side.” Islamic banks were also encouraged to introduce special funds and restricted investment accounts in equity-based fi nancing to mitigate the need for higher capital, as well as the enhancement of their risk management infrastructure; including risk governance and risk management processes.

The declaration was endorsed and agreed upon by all participants at the roundtable, including Professor Dr Azmi Omar, the director general of IRTI; Associate Professor Dr Mohamad Akram Laldin, an executive director at ISRA; and Associate Professor Dr Asyraf Wajdi Dusuki, the head of research aff airs at ISRA.

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8© 17th April 2013

NEWS

AFRICALegislation approvedEGYPT: Al-Azhar Senior Scholars Authority has approved legislation allowing Egypt to issue Sukuk under the condition that several of its articles must be amended. The draft legislation was protested against by Al-Azhar when the law was approved by the parliament in March without fi rst consulting the scholars, as required by the constitution.

Granting of licenses on holdEGYPT: The Central Bank of Egypt (CBE) has suspended the issuance of Islamic banking licenses until possibly the end of 2013 due to market recession and low growth rates, according to Gamal Mohamed Negm, the sub-governor of the CBE. There are currently three Islamic banks and 11 Islamic banking windows in the country, which Gamal claims is suffi cient for now.

BMS goes live with iMALMAURITANIA: Bank Al Muamelat Assahiha (BMS) has successfully implemented the iMAL Islamic banking and investment system by Path Solutions.

ASIALonger-term Sukuk from IndonesiaINDONESIA: The republic’s director of Islamic fi nancing at the Ministry of Finance, Dahlan Siamat, has said that the market can expect longer-term sovereign issuances, of up to 30 years, from Indonesia “in a few months time”. He was speaking at the IFN Indonesia Forum 2013 held on the 15th-16th April.

New branches for Al Baraka TurkTURKEY: Al Baraka Turk will maintain its “steady expansion” by adding 20 new

banking branches a year over the next four years, according to the bank’s annual report.

KESAS’ profit paymentMALAYSIA: The profi t payment on toll concessionaire KESAS’ RM800 million (US$263.6 million) Bai Bithaman Ajil debt securities was due on the 11th April.

Turkey to diversify Sukuk structuresTURKEY: The Capital Markets Board of Turkey is currently working on new regulations to approve a wider range of Sukuk including Istisnah, Murabahah, Mudarabah, Musharakah and Wakalah, according to Reuters. The country is currently only utilizing the Sukuk Ijarah structure.

EUROPEItaly to embrace Islamic financeITALY: Governor Ignazio Visco stated in a seminar organized by the IFSB that the opportunity to att ract foreign capital to underpin economic progress makes it increasingly important for Italy to equip itself to interact with Islamic fi nancial systems.

GLOBALTurkey on the radarGLOBAL: Fresh investment opportunities have emerged in Turkey following the announcement by the government of the establishment of three new Islamic banks — Ziraat Bankasi, Turkiye Halk Bankasi and Garanti Bankasi. Muhammad Islami Onal, the economic counselor of Turkey in Malaysia, said: “With their background, knowledge, experience and pioneer

continued...

Qatar Financial Center Authority survey predicts good year for MENA equitiesGLOBAL: The Qatar Financial Center Authority (QFCA)’s annual survey on the Middle East and North Africa market, the ‘MENA Asset Management Barometer’, predicts 2013 to be a bullish year for equities in the GCC market; particularly in Saudi Arabia, Qatar and the UAE. According to the survey, equities are set to return between 10-15% this year, boosted by strong internal investment and consumption dynamics; outperforming the rest of the region.

The survey, which involved over 40 companies including Al Rajhi Capital, Bank of London and the Middle East, NCB Capital, Goldman Sachs, HSBC and SHUAA Capital, said that GCC equities are currently trading at an average 6% discount compared to other emerging markets; and that asset managers view this trend as an opportunity to improve liquidity and “inject fresh money into the market”. Asset managers in the region are also said to be planning to launch a batch of new equity, fi xed-income and Shariah compliant strategies this year to meet the growing demand from investors. Property funds and alternative products are also thought to be gaining popularity amongst MENA investors.

In terms of new products to be launched this year, equities rated the highest amongst asset managers at 47.4%; followed by Shariah compliant products at 42.1%; and fi xed income at 39.5%. Hedge funds and infrastructure funds ranked the lowest at 2.6% each.

Investor interest in Sukuk is also expected to increase this year, while public and private debt is growing in popularity amongst MENA investors as a preferred investment vehicle. And although the market is expected to see a spate of new equity-type product launches this year, fi xed-income products are expected to continue to dominate the 2013 investment space.

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9© 17th April 2013

NEWS

roles in Islamic banking and fi nance, the Malaysian investors are more than welcomed to get involved in the growing Islamic banking and fi nance market in Turkey.”

Possible sale by ALAFCOKUWAIT: Shariah compliant ALAFCO Aviation Lease and Finance Company (ALAFCO), a subsidiary of Kuwait Finance House, is said to have hired Deutsche Bank as its advisor on a possible sale of global depositary receipts in the UK.

IDB’s new office in BangladeshBANGLADESH: The president of the IDB, Dr Ahmad Mohamed Ali Al Madani, has announced that the bank will set up a country offi ce in Dhaka in the near future. He has assured cooperation in rural infrastructure development and power generation.

MIDDLE EASTAdditional funds for Banque MisrEGYPT: Banque Misr has announced plans to provide an additional EGP1.5 billion (US$218.4 million) for the restructuring of its 35 Islamic banking branches, according to Mohamed Abbas Fayed, the vice president of its board of directors. The bank has already injected EGP850 million (US$123.77 million) for this purpose.

No write-down for EmaarUAE: Dubai-based Emaar Properties (Emaar) has announced that it will not accept a write-down of its investments in Shariah compliant Amlak Finance and has affi rmed that Amlak’s fi nancial performance has improved since 2010, according to Mohamed Alabbar, the chairman of Emaar. Amlak is currently restructuring its US$1.9 billion debt and has not traded since November 2008 due to falling property prices in the emirate.

Capital increase for Bank AlbiladSAUDI ARABIA: Bank Albilad’s extraordinary general assembly, held on the 9th April, approved a capital increase

through bonus shares (one share for every three shares held) and adjusted its share closing price to SAR24.60 (US$6.55).

QIB’s new International Sukuk PortfolioQATAR: Qatar Islamic Bank (QIB) has introduced a new fl agship product, the International Sukuk Portfolio, investing primarily in the global Sukuk market, excluding Qatar. The product will be managed by QIB’s UK-based subsidiary, QIB-UK.

SABIC to buy assets of third SukukSAUDI ARABIA: Saudi Basic Industries Corporation (SABIC) has announced its intention to buy the assets of its third Sukuk, issued in May 2008, amounting to SAR5 billion (US$1.33 billion). The purchase will be done according to the terms and conditions of the Sukuk, and as a result, its trading is expected cease on the 15th April; while its Sukukholders will receive the amount due on the 15th May.

Lebanese presenceLEBANON: Law fi rm Maalouf Ashford & Talbot has announced the opening of its new offi ce in Beirut, Lebanon. The fi rm’s Beirut offi ce will be headed up by Camille Maalouf, an expert in corporate and fi nance law with over 15 years of experience.

ITFC signs with Path SolutionsSAUDI ARABIA: The International Islamic Trade Finance Corporation (ITFC), a member of the IDB, has signed an agreement with Path Solutions to implement a core banking system to enhance ITFC’s business management capabilities.

RESULTSAl Rajhi BankSAUDI ARABIA: Al Rajhi Bank recorded a 2% increase in net profi ts in the fi rst quarter of 2013 to SAR2.05 billion (US$546.57 million) from SAR2.01 billion (US$535.90 million) in the same period last year. Customer deposits also saw a 20.8% growth to SAR232 billion (US$61.86 billion) along with an 18% accretion of total assets amounting to SAR276 billion (US$73.59 billion).

continued...

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10© 17th April 2013

NEWS

Bank Syariah MandiriINDONESIA: Bank Syariah Mandiri has announced a 46.3% increase in net profi t to IDR806 billion (US$82.78 million) at the end of 2012 from the previous year. The bank’s net fi nancing revenue also registered a 24% growth to IDR4.7 trillion (US$482.7 million).

Banque Saudi FransiSAUDI ARABIA: Banque Saudi Fransi has announced a 13.3% dip in net income for its fi rst quarter to SAR684 million (US$182.15 million) from SAR789 million (US$210.11 million) in 2012 due to higher operating expenses. The total operating income amounted to SAR1.2 billion (US$319.56 million) compared to SAR1.22 billion (US$324.88 million) for the same period last year.

BNI SyariahINDONESIA: BNI Syariah, the Islamic arm of Bank Negara Indonesia, has recorded a 54% increase in profi t to IDR101.9 billion (US$10.47 million) in 2012. Its net fi nancing revenue saw a 20% accretion to IDR941 billion (US$96.64 million).

Boubyan BankKUWAIT: Boubyan Bank announced a 25% growth in net profi t to KWD3.1 million (US$10.86 million) in the fi rst quarter of 2013 from the same period in 2012, with earnings per share of 1.69 fi ls (5.92 US cents). The bank’s operating profi t registered at KWD7 million (US$24.53 million).

Burj BankPAKISTAN: Burj Bank has registered a 70.66% decline in post-tax profi ts in 2012 to PKR85 million (US$857,538) from PKR288.49 million (US$2.91 million) in 2011. However, the bank’s deposit base experienced a 77% growth to PKR36 billion (US$363.19 million) from PKR20 billion (US$201.77 million), while total assets grew by 70% to PKR47 billion (US$474.17 million) from PKR27.6 billion (US$278.44 million).

Dar Al ArkanSAUDI ARABIA: Real estate developer Dar Al Arkan has reported a drop of 18.8% in net profi ts for the fi rst quarter, from SAR292.6 million (US$78.01 million) in 2012 to SAR237.6 million (US$63.34 million) this year. The decline is

att ributed to lower non-operating income and an increase in operating expenses.

Dubai Islamic Bank PakistanPAKISTAN: Dubai Islamic Bank Pakistan registered a pre-tax profi t of PKR501 million (US$5.05 million) at the end of 2012, compared to PKR316.13 million (US$3.19 million) in 2011. Total deposits increased by 38% to PKR53.11 billion (US$535.81 million), while its asset base grew by 32% to PKR63.5 billion (US$640.63 million).

Dubai Islamic Bank UAE: Dubai Islamic Bank announced a net profi t of AED301.7 million (US$82.12 million) in the fi rst quarter of 2013 from AED258.5 million (US$70.36 million) in the same period last year, charting a 17% leap. The bank’s customer deposits registered at AED88.3 billion (US$24.06 billion) at the end of March 2013 against AED66.7 billion (US$18.16 billion) at the end of 2012.

Islamic Holding GroupQATAR: Islamic Holding Group announced a net profi t of QAR2.11 million (US$579,072) for the period ended the 31st March, against QAR1.94 million (US$532,417) for the same period in 2012.

Mubadala Development CompanyUAE: Sovereign investment fund Mubadala Development Company has reported a 12% increase in revenue to AED31.3 billion (US$8.52 billion) as of the 31st December 2012, from AED27.9 billion (US$7.59 billion) in 2011. The fund’s total assets grew to AED202.8 billion (US$55.2 billion) from AED177.1 billion (US$48.21 billion) in the year before.

TamweelUAE: Tamweel reported an increase of 13.5% in net profi ts for the fi rst quarter ended the 31st March, while its Islamic fi nancing assets dipped by AED244 million (US$66.43 million) to AED9.08 billion (US$2.47 billion).

SABBSAUDI ARABIA: SABB registered an 11% increase in net profi ts to SAR948 million (US$252.8 million) from SAR854

continued...

RATINGSBorcos Shipping upgradedMALAYSIA: Borcos Shipping’s RM160 million (US$52.5 million) Sukuk Ijarah has been upgraded by RAM from ‘A1’ to ‘AA3’, with a stable outlook.

RAM also reaffi rmed the rating of its RM125 million (US$41 million) bank-guaranteed Sukuk Ijarah medium-term notes and RM30 million (US$9.84 million) bank-guaranteed Bai’ Bithaman Ajil Islamic securities at ‘AAA(bg)’; both with a stable outlook.

Stable outlook for ADHIINDONESIA: PEFINDO has affi rmed construction company Adhi Karya (ADHI)’s shelf-registered Sukuk Mudarabah phase I/2012 and phase II/2013 at ‘idA(sy)’; both with a stable outlook.

Ratings downgradedMALAYSIA: RAM has downgraded two facilities issued by local electricity cable producer FEC Cables. The company’s enhanced long-term rating on its RM130 million (US$42.8 million) Islamic medium-term notes facility fell from ‘AA2(s)’ to ‘A2(s)’, while the enhanced short-term rating on its RM20 million (US$6.6 million) Islamic Murabahah underwritt en notes issuance facility was downgraded from‘P1(s)’ to ‘P2(s)’.

Affirmed and assignedSAUDI ARABIA: Fitch has affi rmed Saudi Electricity Company (SEC)’s Sukuk issuance at ‘AA-’. The ratings company has also assigned SEC’s new international Sukuk issues of US$1 billion maturing in 2023 and US$1 billion maturing in 2043 at a fi nal rating of ‘AA-‘.

Affirmed and revisedJORDAN: Fitch has affi rmed Jordan Islamic Bank (JIB)’s long-term issuer default rating (IDR) at ‘BB-‘ and revised its outlook to stable. JIB’s short-term IDR is also affi rmed at ‘B’.

SapuraKencana’s rating reaffirmedMALAYSIA: SapuraKencana Petroleum (SapuraKencana)’s RM700 million (US$229.78 million) SukukMudarabah program has been reaffi rmed at ‘AA3’ with a stable outlook by RAM.

11© 17th April 2013

NEWS

million (US$227.69 million) in the same period last year.

Saudi Hollandi BankSAUDI ARABIA: Saudi Hollandi Bank reported a growth of 19.4% in net profi ts to SAR346.3 million (US$92.33 million) from SAR290 million (US$77.32 million) in the same period last year.

ASSETMANAGEMENTIslamic fund for projectsINDIA: A partnership has been formed between Kochi-based Islamic fund Cheraman Financial Services (Cheraman) and the Kerala State Industrial Development Corporation (KSIDC), allowing the latt er to fund industrial developments projects. Proposed by KSIDC and initially dubbed as the Al Baraka fund, protests against Cheraman have been raised by the likes of Indian political party Janata, which questions the fund’s constitutional basis as Islamic banking is not currently allowed in the country under the Banking Regulation Act.

Cheraman has nonetheless received approval from the Securities and Exchange Board of India and is registered as a trust, according to a spokesperson.

TAKAFULTIA looks to diversifyKENYA: Takaful Insurance of Africa (TIA) is aiming to diversify its products through the launch of more branches for the establishment of a bett er standing in the region. The Shariah compliant insurer successfully acquired an operating license from the Retirement Benefi ts Authority to start a pension scheme and also gained approval from the Insurance Regulatory Authority to execute Family Takaful in pursuit of its expansion plans.

Takaful for allNIGERIA: Takaful is said to be widely embraced in the southeast region of Nigeria, which is predominantly Christian, as refl ected in its highest product subscription rate, according to

Babatunde Omosola, the vice-chairman of the Chartered Insurance Institute of Nigeria (CIIN)’s Oyo State chapter.

Legislation stirs concernMALAYSIA: Whilst anticipating the passing of the Islamic Financial Services Act by the parliament, the hiring and poaching of talent is expected to intensify amongst Takaful and insurance players. They will be required to split their life and general insurance activities under separate licenses, which may aff ect Takaful operators more than conventional insurers.

Mohamed Hassan Kamil, the group director of Takaful Malaysia, believes that the act will impact the retention of existing talent, thus resulting in staff pinching, competitive wages and a possible stagnation in productivity and effi ciency in the industry.

Family Takaful to outdo conventional insuranceGLOBAL: Worldwide Family Takaful contributions are expected to hit US$5.6 billion in 2016 from US$2.2 billion in 2011 according to the Global Family Takaful Report from Milliman Insight. The growth of Family Takaful has also outperformed the growth of conventional life insurance with a 32% compound annual growth rate accumulated over the past fi ve years with Malaysia and the GCC leading the pack.

Takaful operators hesitantMALAYSIA: Despite having lift ed the cap on foreign investments to encourage Malaysian Takaful operators to invest abroad, local Takaful fi rms are said to still be hesitant in doing so due to suggested lack of expertise and low risk appetite. The preference of local Takaful operators to focus primarily in Malaysia is also att ributed to high availability of Sukuk in Malaysia, according to Ahmad Rizlan Azman, CEO of Etiqa Takaful.

MOVESAlizz Islamic BankOMAN: Malcolm McKinnon, the deputy general counsel of Abu Dhabi’s International Petroleum Investment Company (IPIC), has joined Alizz Islamic Bank as a board member. McKinnon is an experienced legal counsel representing Aabar Investments, a subsidiary of IPIC.

DIFC CourtsUAE: Nasser Al Nasser has been appointed as a judicial offi cer by Dubai International Financial Center Courts (DIFC Courts).

Abu Dhabi Investment AuthorityUAE: Following an Emiri decree for the restructuring of the Abu Dhabi Investment Authority (ADIA), Shaikh Khalifa Zayed Al Nahyan has been chosen as its new board chairman.

Alizz Islamic BankOMAN: Alizz Islamic Bank has appointed a new Shariah Supervisory Board: comprising of Dr Mohammad Abdul Rahim Sultan Al Olama, Dr Osama Mohammed Saad Bahar and Nasser Yousef Nasser Al Azri.

Crescent WealthAUSTRALIA: Australia-based Shariah compliant wealth manager Crescent Wealth has appointed six new members to its Global Advisory Board, to include Dr Jamil Jaroudi, Spiro Pappas, Wadah Khantar, Toby O’Connor, Ian Buchanan and John Sandwick.

continued...

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12© 17th April 2013

COLUMN

By Daud Vicary Abdullah

Following on from my last two articles which can be identifi ed as ‘Winds of Change’ promotions, I am pleased to report that momentum and focus for change are building. As ever, I am optimistic that real change can happen. However, to do this, some fundamental rules of eff ective communication need to be applied if we are to make headway with audiences who just don’t know what they don’t know. For me, there are four golden rules of eff ective communication:

1. Know your audience.

2. Speak to their listening.

3. Less is more (or KISS).

4. Be prepared.

This technique appeared to work well recently in Doha at the IFSB/IRTI Roundtable on a re-assessment of the 10-year masterplan for the Islamic fi nancial services industry, in the light of the global fi nancial crisis. I was heartened by a sense of realism about the current state of the industry and a recognition that: “A continuation of the current paradigm may dictate a route for the industry that lacks some of the most important features and value propositions of Islamic fi nance”.

As discussed last month, the world is crying out for some alternatives to the current system of fi nance and there is a growing realization that the global

fi nancial crisis may well have been a blessing in disguise. We must therefore seize the moment and my presentation suggested that there were four key areas that needed some re-engineering in the 10-year framework.

1. More equity-based Islamic fi nance and risk sharing — this needs a regulatory process to support risk sharing as well as the need for Shariah scholars to develop new Fiqh to handle multilateral contracts.

2. Legal framework and monetary policies — Islamic fi nance needs to move towards compatibility with major legal systems and take a serious look at a two-tier system for retail and investment banking.

3. Micro fi nancing — Broaden the structure beyond banking to include venture capital, Waqf and such, so that social goals and risk sharing may be achieved.

4. Rebranding Islamic fi nance — Act in unison to change and correct misperceptions.

I shall be part of a team promoting a similar message at the IMF Spring Meeting, where we have an opportunity to develop a case for the role of Islamic fi nance in global economic development.

The winds of change are starting to blow. Make sure your sail is set!

As always, there is always much to do and not a moment to lose.

Daud speaks

Islamic finance needs

to move towards compatibility with major legal systems and take a serious look at a two-tier system for retail and investment banking

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13© 17th April 2013

SHARIAHPRONOUNCEMENT

Query:

Mr Z is the owner of 80% of a real estate property, along with Mr Y who owns 20% of the same property. Mr Z is willing to acquire the full share of Mr Y and become the 100% owner of the property. Mr. Y is willing to sell his part of the ownership to Mr Z at the current market price. Mr Z requires fi nance from an Islamic bank to be able to achieve his objective. Can the Islamic bank provide Shariah compliant fi nancing to Mr Z for this purpose? If so, what could be the mode of such fi nancing?

It is important to note that the property is already mortgaged to the bank against a fi nancing facility earlier extended by the bank to Mr Z who paid a 25% down payment at the time of acquiring his 80% share of the property three years ago when he acquired the bank’s fi nance for the balance amount . He has so far been regular in his payment of the Murabahah installments in the fi ve-year Murabahah tenor and shall sett le the additional fi nance in the remaining two years along with the current Murabahah.

Pronouncement:

There is no Shariah objection if the bank purchases undivided share in a property owned by one party, and sells it to the other party who is the owner of remaining undivided share in the same property. Hence, the bank may proceed to execute the transaction along the following lines:

a. The bank shall seek professional market valuation of the property in order to ascertain the value of 20% share of the property at which Mr Y is willing to sell his undivided ownership to Mr Z;

b. The bank may make a decision to either ask Mr Z to pay 25% down payment of the value of 20% ownership by Mr. Y, or to fi nance the full amount;

c. The bank shall obtain from Mr Z a ‘promise to purchase’ document. This is a unilateral promise given by the customer to the bank, binding itself for purchasing the subject matt er of the transaction once the bank has acquired the same from the seller. Such promise secures the bank before it proceeds to purchase the required good or property;

d. The bank will then enter into a direct purchase agreement with Mr Y for his 20% share in the property, thereby acquiring the title and possession of his share of the property as per Shariah requirements,and paying him the agreed price;

e. Immediately thereaft er, the bank shall enter into a Murabahah contract with Mr Z whereby the 20% share bought by the bank in the property will be sold to him at a price which will consist of the bank’s cost (net of any down payment made by Mr Z) and the agreed upon profi t.

The Murabahah contract must contain all the necessary details such as particulars and location of the property, mode of payment by Mr Z, securities off ered by him, etc. The valuation report must also be made an annexure of the Murabahah contract.

It is to be noted that the property is already mortgaged in bank’s favor to the extent of securing the existing Murabahah fi nancing allowed by the bank to Mr.Z. Therefore,the question arises whether the mortgage needs to be briefl y released to facilitate the bank purchasing 20% ownership and registering its name in the title deed which is thereaft er needed to be transferred to Mr Z upon signing the Murabahah contract. This will not be required since under Shariah, the 20% ownership will get transferred to the bank simply by entering into a purchase contract with Mr Y. Furthermore, the bank will hold such ownership for a brief period of time as it will be transferred to Mr Z as soon as the bank enters into the Murabahah contract with him which could be minutes aft er the bank purchases the 20% share of the property from Mr Y. However, the bank must ensure to enhance its level of mortgage to secure the new extent of the overall Murabahah fi nancing to Mr Z.

Dr Hussain Hamed HassanShariah scholar & managing directorDar Al Sharia Legal & Financial Consultancy

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.

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SHARIAH PRONOUNCEMENT

14© 17th April 2013

IFN REPORTS

A Gulf-based paper reported today that Al Baraka Islamic Bank, Bahrain, will be collaborating with the Iraqi Islamic Bank for Investment and Development (IIB) to launch an Iraq-focused food fund, to be marketed to foreign investors and regulated outside the country. According to reports, the fund has already elicited a positive response from European and Gulf investors, prompting a US$25 million increase in the fund’s size; to US$75 million from US$50 million.

According to the local daily, Al Baraka will act as the deal’s fund manager, while IIB will act as the issuer. The funds will be used to provide fi nancial support to an affi liate company of IIB which acts as a sugar stockpile supplier to the Ministry of Trade. The fund is due to be marketed via Al Baraka’s Algeria and Sudan subsidiaries.

Iraq, with its 31 million-strong Muslim population, is said to have a fl ourishing Islamic banking and fi nance market, with the number of fi nancial institutions providing Shariah compliant products growing over the last few years. Partner and the head of Al Tamimi & Co.’s Iraq and Jordan offi ces, Khaled Saqqaf, mentioned in Vol.10, issue 13 of Islamic Finance news that demand for Islamic banking products and services has soared among individual and institutional investors; particularly in the city of Erbil, the country’s fourth largest city. He also added that the permitt ed Shariah compliant banking activities in the country include: “Financing commercial and trade activities, both domestic and foreign, as well as contributing to projects for the development of agricultural, industrial, construction and housing sectors or any other projects with economic and social benefi ts.”

Gulf interest in Iraq is said to be increasing as political and trade relationships improve; particularly in the sectors of telecommunications, housing and development, and energy. UAE trade with Iraq reached US$5.1 billion in the fi rst half of 2012, while non-oil trade between the two reached US$6.8 billion in 2011; a 40% hike from the year before, according to Abdullah Ahmed Al Saleh, the UAE’s undersecretary of the Ministry of Foreign Trade.

Compared to its Gulf neighbors, many of which are ranked in the double digit range, Iraq is currently ranked at just 165 in terms of Ease of Doing Business, by the World Bank. Perhaps increasing cross-border investments between the highly rated and relatively stable Gulf states will provide a boost to the Iraqi Islamic fi nance market and encourage further foreign investment into the country. — NH

Gaining inroads into Iraq

The country’s largest government-backed bank, Ziraat Bankası, has announced its intentions to launch a fully-fl edged Islamic banking subsidiary and is currently seeking partnerships for the venture. However, the bank will maintain a majority stake in the establishment.

“Ziraat Bankası is working towards establishing a participation bank; we have set some people to work on this subject. This bank will be established as a separate bank,” said Hüseyin Aydın, its general manager.

The republic has as of late increased its att ention towards the growth of its Islamic, or participation banking, market. The government held its eighth Turkish-Arab Economic Forum earlier this month, which saw discussions on the potential of Sukuk as a funding vehicle for the country’s development projects. The Capital Markets Board of Turkey is also currently working on new regulations to approve a wider range of Sukuk; including Istisnah, Murabahah, Mudarabah, Musharakah and Wakalah.

Local construction and real estate conglomerate Agaoglu Group is also set

to issue the fi rst tranche of its US$2 billion Sukuk program – estimated at US$250 million – this month for the construction of the Istanbul Financial Center.

The four existing participation banks in Turkey, Albaraka Turk, Asya Katılım Bankası, Kuveyt Türk Katılım Bankası and Türkiye Finans Katılım Bankası, collectively saw an advance of 25% in total assets to TRY70.2 bilion (US$39.21 billion) in 2012, with net income increasing by 19% to TRY916 million (US$511.67 million) — signalling a bright future for the country’s participation banking industry. — LR

Turkey’s biggest state bank to launch Islamic banking window

Want to join IFN?Islamic Finance news is building its team and is now seeking budding journalists. So if you’d rather write the news than read it…drop us a line.

We’re currently open to applications from senior and junior journalists with excellent writing skills and a strong background in finance.

Please submit applications to Andrew.Morgan@REDmoneygroup.com

15© 17th April 2013

IFN REPORTS

A Labuan-based Islamic bank, the First Islamic Investment Bank (FIIB), has been placed under sanctions of the Offi ce of Foreign Assets Control (OFAC) of the US Treasury Department, which administers and enforces economic and trade sanctions based on US foreign policy and national security goals.

The sanctions, which are placed against “targeted foreign countries and regimes, terrorists, international narcotics traffi ckers and those engaged in activities related to the proliferation of weapons of mass destruction and other threats to national security”, were imposed on the Islamic bank and another Swiss-based company which were said to be part of a money laundering network involving the trade of Iranian crude oil worth billions of dollars.

However, in an interview with the BBC last month, Babak Zanjani, the Iranian tycoon and CEO of FIIB who was accused of exporting Iranian crude oil, told the news network that he was merely “buying low-quality fuel to sell to Malaysia” and was not engaged in

trading Iranian oil, in contravention of current global sanctions on Iran.

The Labuan-registered FIIB is a subsidiary of a Tajikistan-based bank, Azrish Bank. The bank was initially set up by Bank Muamalat Indonesia in March 2009, and subsequently acquired by Azrish Bank. Upon further inquiry, it was found that FIIB’s SWIFT account in the EU has been cancelled. When contacted by Islamic Finance news, a spokesperson from the bank confi rmed: “Our CEO, Babak Zanjani has been sanctioned as an individual by the US Treasury department, and therefore our bank at present is a dormant bank.”

All Labuan-based banks and fi nancial institutions are regulated by the Labuan Financial Services Authority (Labuan FSA), which is the statutory body responsible for the development and administration of the Labuan International Business and Financial Centre. It was established on the 15th February 1996 under the Labuan Financial Services Authority Act 1996.

Speaking to Islamic Finance news, a representative from Labuan FSA

confi rmed that the Authority has conducted the necessary due diligence and supervision earlier this year, before such allegations came to light. However, he said: “We had found no evidence to substantiate the claims. The bank is currently still in existence, but due to the sanctions, it is hard for them to conduct any business, especially with other banks.”

According to the source, Labuan FSA has full access to any bank or institution registered in Labuan and is able to monitor all incoming and outgoing fi nancial transactions. “All companies are obligated to comply in terms of disclosure.” He also added that Malaysian regulators are generally only concerned with sanctions imposed by the Malaysian government and have no direct obligation to comply with the US and EU sanctions lists. However, he said that Labuan FSA regularly refers to and checks these lists, including OFAC. “We generally do not approve any players on these lists. And if the case is taken to the United Nations, we will most defi nitely take the necessary action.” — NH

Offshore Islamic bank accused of contravening US government OFAC sanctions

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J A P A N12th June 2013

EGYPT5th September 2013

TURKEY3rd September 2013

BRUNEI28th November 2013

PAKISTAN27th August 2013

SRI LANKA29th August 2013

MOROCCO27th June 2013

16© 17th April 2013

SPECIAL REPORT

Islamic banking and fi nance growth has generated considerable interest in the fi nancial world in recent years. The concept of Islamic banking products and services has received encouraging responses from diff erent corners of the globe as more people discover its ideological dimensions and practical signifi cance. Given its ability to off er innovative fi nancial solutions for basic fi nancial needs in under-served markets, especially in the Muslim world, as well as meeting the complex fi nancial requirements of modern times; Islamic fi nance has emerged as a socially responsible and ethical banking model.

Since its inception, Islamic banks have been searching for an indigenous pricing benchmark that could be applied to Shariah compliant fi nancing transactions and is also refl ective of the Islamic banking liquidity situation. In the absence of an alternative benchmark, Islamic banks worldwide have been using benchmarks that are based on conventional interbank markets such as LIBOR, as a way to price the Islamic fi nancial transactions.

The use of these interest-linked benchmarks is permissible as they are used only as a pricing tool, but according to leading Shariah scholars it is a disliked method of pricing Islamic fi nancial transactions. Hence, the development of an alternative benchmark is a long-awaited desire of leading Islamic bankers, Shariah scholars and Islamic banking customers alike.

The Islamic Interbank Benchmark Rate (IIBR)The successful launch of an international Islamic benchmark from the platform of Thomson Reuters as an alternative to LIBOR last year, was a signifi cant mile stone in the development of the Islamic fi nancial system. IIBR off ers a rate that is contributed by and is indigenous to a global panel of Islamic banks and Islamic banking windows with fully segregated funds.

Islamic Benchmark Shariah CommitteeThe Shariah Committ ee is responsible for certifying the Shariah compliance of all aspects of the IIBR methodology. The Shariah Committ ee is comprised of independent Shariah scholars; two of whom must be on the AAOIFI Shariah Board and operate independently of the Islamic Benchmark Committ ee. The Shariah Commitee is chaired by Justice Muhammad Taqi Usmani.

Awareness and adoptionThe real challenge of IIBR is to become a popular benchmark for Islamic fi nancing transactions.

In the fi rst phase, it is very important to create mass awareness about IIBR as an alternative benchmark to LIBOR among all the key stakeholders including customers, non-contributing Islamic banks, regulators and Shariah scholars.

Secondly, all contributing players must aim to price at least 25% of their transactions using IIBR in 2013 and gradually shift towards the full adoption of IIBR in the next three years.

Learning from the global experienceWith the successful launch of IIBR in the global markets, hopes are now high for the launch of a local Islamic benchmark, IIOBOR (Islamic Interbank Off er Rate), in Pakistan, where the Islamic banking industry has now reached around 9% of the total banking sector and is enjoying unparalleled growth.

The industry, Shariah scholars and customers are demanding a separate Islamic benchmark for Islamic banks and eff orts must be made to expedite the launch of a separate Islamic banking benchmark in the country.

Key challenge in the Pakistani marketIn Pakistan the eff orts to launch a separate Islamic benchmark took hold in 2009 when major Islamic banks including Meezan Bank, Bank Islami, Al Baraka, Dubai Islamic and Burj Bank supported the idea of launching a separate benchmark in the country.

The eff orts were received positively by the central bank and last year in January the governor of the State Bank of Pakistan in a speech in Oman also termed it a key component of the Islamic banking strategy for Pakistan.

Now it is high time that all the Islamic banking players combine their eff orts and launch a separate benchmark during 2013. This eff ort would not only increase the credibility of Islamic banking in the country but also help Islamic banks to penetrate those segments that are still skeptical about Islamic banking because it uses conventional market benchmarks.

An Islamic benchmark would also pave the way for more structured products to be developed based on these rates, such as the government Ijarah Sukuk, which are currently yielding profi ts based on conventional benchmarks.

Obaid Usmani is an assistant manager of product development & Shariah compliance at Meezan Bank, and he can be contacted at obaid.usmani@meezanbank.com.

IIBR — Pakistan’s hopeful local benchmark The launch in 2012 of the Islamic Interbank Benchmark Rate was an important milestone for the Islamic fi nance industry in terms of pricing its own transactions. OBAID USMANI outlines the concept, discusses its signifi cance and explores how it could be applied to a specifi c Islamic benchmark for Pakistan to encourage the growth of the country’s Shariah compliant market.

Shariah Committ ee• Justice Muhammad Taqi Usmani

(Chairman)• Professor Dr Mohammad Abdul

Rahim Sultan al Olama• Shaykh Muddassir Siddiqui• Professor Dr Mohammed Daud Bakr• Shaykh Yusuf Talal DeLorenzo• Associate Professor Dr Akram Laldin

17© 17th April 2013

CASE STUDY

Saudi Binladin Group, the Saudi affi liate of Crédit Agricole Corporate and Investment Bank, issued a SAR1.3 billion (US$346.64 million) Sukuk Ijarah in April 2013. The Sukuk was priced at 170bps over three months over SAIBOR, with a call option, and a 2.5 year tenor.

Stuart Ure, a capital markets partner at Cliff ord Chance, one of the deal’s legal counsel, commented: “The structuring of this transaction entailed

a close collaboration over the past year with Saudi Fransi Capital and Saudi Binladin Group. We are delighted that the structure has accommodated the commercial objectives of Saudi Binladin Group, whilst providing investors with dual recourse to both corporate credit and real estate assets, which represents a further evolution of structuring in the market.”

According to the deal’s lawyers, the Sukuk structure was developed based upon Ijarah principles, however unlike classic Ijarah structures, investors will have the benefi t of dual recourse. At the heart of the structure is a prime land bank located in Jeddah, Saudi Arabia.

In addition to having recourse to Saudi Binladin Group as the obligor, investors will also have recourse to the land bank.

“This structuring borrows principles from covered bond technology and in addition to the dual recourse features, the structure was developed to provide Saudi Binladin Group with the ability to develop and sell the land during the life of the Sukuk in a manner that would not prejudice the interests of the investors,” said the deal’s lawyers. — NH

Saudi Binladin Group Sukuk prioritizes investors

Saudi Binladin

SAR1.3 billion

April 2013

Issuer Saudi Binladin Group

Tenor 2.5 years, with a call option

Pricing 170 basis points over three months SAIBOR

Structure Ijarah

Currency Saudi Riyal

Size SAR1.3 billion (US$346.64 million)

Issue Date April 2013

Maturity Date 2015

Legal Counsel Cliff ord Chance Al Jadaan & Partners Law FirmBaker & MckenzieWalkers

Arrangers and Dealers

Credit Agricole and Saudi Fransi Capital

The Sukuk structure

was developed based upon Ijarah principles, however unlike classic Ijarah structures, investors will have the benefit of dual recourse

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18© 17th April 2013

IFN COUNTRYCORRESPONDENTS

BAHRAIN

By Dr Hatim El-Tahir

With fi nancial regulatory reform continuing to dominate the news globally, many fi nancial institutions now realize that regulatory compliance is increasingly important to enhance the quality and fairness of fi nancial services products. Indeed, the new US tax regulation, the Foreign Account Tax Compliance Act (FATCA), is but one of the global regulations in play today. What may be less well recognized is the extent to which these regulations could impact specifi c sectors of the fi nancial space. This is particularly true for Islamic fi nance which has a fundamentally diff erent business model and fi nancial asset structuring process; and is supported and regulated by diff erent sets of policy and practice rule books around the world.

One aspect of regulatory change is that many institutions off ering Islamic fi nancial services are strategizing the function and governance of regulatory compliance to manage the diff erent sets of regulations imposed in the industry. The role of knowledge-sharing and communication is critical in this important practice area. As

envisioned, the new FATCA act would carry considerable implications for the industry and non-compliance with this regulation could result in signifi cant commercial and reputational risks and fi nancial penalties.

However, it is also important to keep compliance with this new act in context. Key industry associations and regulators should work together to develop an approach to raise awareness and educate industry participants about the impact of the act and its requirements on their operations and clients. In particular, Islamic fi nancial institutions should att empt to develop some form of project management offi ce (PMO) that captures the implementation strands:

• Establish PMO governance and oversight.

• Identify and educate key stakeholders.

• Develop awareness programs and communication.

• Identify key business and operations areas that are likely to be directly impacted: such as types of accounts, product and services, IT, processes and procedures.

• Develop implementation strategies emphasizing the commercial, fi nancial and legal challenges.

In addition, institutions should consistently look out for updates and new information from the US Tax authority, the Internal Revenue Service (IRS). They could also get direction from national regulatory authorities and be guided by these specifi cally, as appropriate, from the industry self-regulatory organizations.

As the details of the new act turn into specifi c regulatory requirements, there will be business and operational impact across the whole industry: not just banking, but also Takaful, funds, asset management and the private equity space.

Professional service fi rms can play a key role in supporting fi nancial institutions to comply with the new regulation and advise them on implementation plans. Most importantly, they musteducate market participants and practitioners about the myths of FACTA.

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

FATCA: How it impacts Islamic finance

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19© 17th April 2013

IFN COUNTRYCORRESPONDENTS

IFN Country CorrespondentsAFGHANISTAN: Zulfi qar Ali Khanhead of Islamic banking division, fi nancial supervision department, Da Afghanistan BankAFRICAAfzal Seedat, managing director, Islamic banking, Absa

AUSTRALIATalal 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 Chanpartner, Brandt Chan & Partners in association with SNR DentonINDIA: 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 Wico,partner, 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 BankTUNISIA: Karim AmousManaging partner, SmartecoTURKEY: Ali Ceylanpartner, Baspinar & PartnersUAE: Moinuddin MalimCEO, Mashreq Al IslamiUK: Siraj Ibrahimcorporate fi nance manager, QIB UKUS: Saeid Hamedanchi, CEO, ShariahSharesYEMEN: Moneer Saifhead of Islamic banking, CAC Bank

IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short country reports. For more information about becoming an IFN Correspondent please contact sasikala@redmoneygroup.com

MALDIVES

By Aishath Muneeza

Though the Maldives is a 100% Muslim country, the fi nancial system of the country is still based on conventional methods and laws. The formal initiative to develop an Islamic capital market in the country was initiated by the Capital Market Development Authority (CDMA) in 2011. But even before 2011, the IDB has been a key driving force behind establishing an Islamic bank in the Maldives.

The IDB has been showing the way through advice, technical and fi nancial assistance to develop a fully-fl edged Islamic fi nance industry in the tiny nation. One of these initiatives is the Sukuk Market Development Project, which began in December 2012 and was concluded successfully in March 2013. The main fi ndings of the report, along with the action plan submitt ed by the consultants quoted from the report, are as below:

(A) The passing of legislation to enable the creation of bankruptcy remote special purpose vehicles in the Maldives.

(B) The passing of legislation removing tax impediments to the issuance of Sukuk such as in respect of land tax and GST, and introducing tax incentives for the issuance and listing of Sukuk.

(C) The specifi cation of enforcement powers of the CMDA in the proposed Sukuk Regulations.

(D) The issuance of sovereign Sukuk by the government of the Maldives with varying maturities to create a pricing and documentation benchmark.

(E) The development by the CMDA of a dedicated website outlining the current regulatory framework and incentives for the issuance of Sukuk in the Maldives and containing sample documents.

(F) The publication by the CMDA of a white paper clarifying the status

and regulatory environment for Sukuk in the Maldives.

(G) The development by the CMDA of a standard Sukuk prospectus and standard underlying documents for Sukuk.

(H) Ascension by the Maldives to the New York Convention.

(I) The development by the Maldives Monetary Authority of facilities such as Islamic repos to enable greater liquidity in the local Sukuk market.

(J) Undertaking a market analysis in the Maldives amongst potential retail and institutional investors in relation to the appetite for equity and/or debt Sukuk, pricing and maturity profi les and currencies for Sukuk issuances.

Hopefully, the long-awaited Sukuk issued by the Housing Development Finance Corporation will prove the success of Sukuk in the Maldives.

Allied Insurance to start a Takaful windowAllied Insurance Company, the largest insurance company in the Maldives, established in 1985, announced at the ‘Malee Rey’ (fi nancial night) organized by the central bank of Maldives on the 19th March that it has received approval from the central bank to commence Takaful business.

The company has appointed an in-house Shariah Advisory Committ ee on which two local scholars and one Malaysian scholar sit. The members of this Shariah Advisory Committ ee are associate professor Dr Asyraf Wajdi Dusuki, Dr Ibrahim Zakariyya Moosa and Uza. Aishath Muneeza.

It is hoped that this development in the Maldives will help the country to create a fully-fl edged Islamic fi nance industry.

Aishath Muneeza is the head of Islamic fi nance at the Capital Market Development Authority. She can be contacted at muneeza@cmda.gov.mv.

Findings of the Sukuk market development project

20© 17th April 2013

IFN SECTORCORRESPONDENTS

SUKUK

By Marco Mauri

The beginning of the year has registered an active primary Sukuk market even if less buoyant than the previous year. During the fi rst quarter of 2013, 99 Sukuk have been issued for an amount of approximately US$15.6 billion, compared to 112 Sukuk worth approximately US$28 billion in the fi rst quarter of 2012 (excluding monetary policy tools and Sukuk with tenors of less than one year). Domestic issues represent 91% of the total number and 56% of the total value of Sukuk issued. The fi gures also confi rm the preference of Malaysian corporations to access the ringgit market via multiple tranches and of international Sukuk issuers to access the dollar market via large issuances.

Saudi Arabia led the market with the issuance of about US$4.7 billion followed by Malaysia (US$3.9 billion) and the UAE (US$3.8 billion). Even if Malaysia dominated in terms of the number of issuances (72 out of which 70 were domestic), Saudi Arabia registered the two most important transactions: Sadara Chemical Sukuk (SAR7.5 billion or US$2 billion), the largest ever Saudi Sukuk transaction; and Saudi Electricity Sukuk (with a 30-year tenor), the longest maturity ever issued by a Saudi issuer.

A marginal increase in the duration of Sukuk issued in 2013 has been noted, as well as the requirement of off ering more att ractive yields. Among fi nancial issuers, banks continue to off er hybrid Sukuk in order to strengthen their capital base. So far this year, we have already seen Turkish Bank Asya and Dubai Islamic Bank doing so.

Despite an active primary market, the performance of the secondary market has been subdued. The HSBC/Nasdaq Dubai increased by +0.97% year-to-date (as of the 9th April) vs +2.5% registered in the fi rst quarter of 2012. The overall credit spreads compression continued with the average spread declining from

244bps to 177bps, aft er having reached the lowest level in early January at 160bps.

Aft er few years of stellar double digit performance, it is now becoming more diffi cult to obtain yield enhancement from Sukuk portfolios unless the duration, risk appetite and unrated Sukuk exposure are increased. Life for Sukuk portfolio managers is becoming harder and 2013 may hold some surprises.

Marco Mauri is senior director – asset management at Alkhair Capital Saudi Arabia. He can be contacted at mmauri@alkhaircapital.com.sa.

Sukuk yields: Squeezed like lemons

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HSBC Sukuk Index Spread

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21© 17th April 2013

IFN SECTORCORRESPONDENTS

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 nance

DEBT CAPITAL MARKETS: Muhammad Shoaib Ibrahim, managing director & CEO, First Habib Modaraba

LAW: Bishr Shiblaq, head of Dubai offi ce, Arendt & Medernach

LEASING: Prof Dr Shahinaz Rashad, chairperson & CEO, Egyptian Leasing Association

MERGERS & ACQUISITIONS: Jamal Hij res, CEO, Cappinova Investment Bank

MICROFINANCE (ASIA):Dr Mahmood Ahmed, executive vice president and director training, Islami Bank Training and Research Academy

MICROFINANCE (AFRICA): Mansour Ndiaye, director of microfi nance, Assistance and Consulting for Development

PRIVATE BANKING & WEALTH MANAGEMENTKhadra Abdullahi, associate, investment banking, Faisal Private Bank

PRIVATE EQUITY & VENTURE CAPITAL: Arshad Ahmed, partner, Elixir Capital

REAL ESTATE (EUROPE) Philip Churchill, founder partner, 90 North Real Estate Partners

REAL ESTATE (MIDDLE EAST): Yahya Abdulla, head of capital markets — Middle East, Cushman & Wakefi eld

REGULATORY ISSUES: Mohammad Abdullah Malik Dewaya, head of Shariah compliance and audit, Maisarah Islamic Banking Services

RETAIL BANKING: Ris Rizqullah, lecturer, Trisakti University

RISK MANAGEMENT: Abu Bakr Abdel Rahman, relationship manager, NBD-ADIB

SECURITIES & SECURITIZATION: Nidhi Bothra, executive vice president, Vinod Kothari Consultants

STOCK BROKING & TRADING: Athif Shukri, research analyst, Adl Capital

SUKUK Marco Mauri, senior director of asset management, Alkhair Capital Saudi Arabia

TAKAFUL & RE-TAKAFUL: Sutan Emir Hidayat, senior lecturer, University College of Bahrain

TREASURY PRODUCTS: Nafi th ALHersh Nazzal, certifi ed fi nancial & investment advisor

TECHNOLOGY: 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

LEASING

By Professor Dr Shahinaz Rashad

Governments have traditionally fi nanced large infrastructure projects but now fi nd it increasingly diffi cult to fund large investments; and are turning to the private sector to fi nance infrastructure services using public-private partnerships (PPPs).

According to the Public Private Leasing Association, PPPs are: “A form of contract between the public sector and private sector, which requires new investments by the private contractor and which transfers key risks to the private sector (design, construction, operation), in which payments are made in exchange for performance, for the purpose of delivering a service traditionally provided by the public sector.”

By contracting with the private sector to undertake an infrastructure project and creating value for money, scarce government capital budgets can be directed to other priority social services.

PPPs in the MENA region include sectors such as petrochemicals, oil and gas, and power generation projects, which receive the majority of funding. Several examples of PPPs using Islamic fi nance include the IDB’s participation in the fi rst hydro-electric PPP in Pakistan.

In contrast, fi nancing in project fi nance transactions could be done through leasing or Ijarah-based structures. The Build-Lease-Operate-Transfer (BLOT) structure includes a fi nancing arrangement in which a developer designs and builds a project, sells it to the government, simultaneously leases it back to operate it, and transfers it to the government.

Examples of BLOT include the Philippines-based Metro Rail Transit Corporation (MRTC)'s moves to fi nance, build the Light Rail Train 3 (LRT3) in Manila and then lease the infrastructure to the government.

Some commercial banks are less willing to lend to PPPs. Thus, there is a growing

trend to seek new sources of liquidity using Islamic fi nance structures. Sukuk can provide innovative solutions to the fi nancing of PPPs. This solution could work for a government to raise funds through the issuance of Sukuk certifi cates against assets or a project and to make those funds available to the PPP project participants and eventually transfer the title to the private sector.

The Saudi Electricity Company (SEC) recently launched its Sukuk Ijarah through entering into an Ijarah agreement, whereby the issuer will invest proceeds from the certifi cates to purchase Shariah compliant Ijarah assets, which, it shall be leased back.

Professor Dr Shahinaz Rashad is the chairperson & CEO of Egyptian Leasing Association. She can be contacted at s.rashad@mta-egypt.com.

Introducing Islamic leasing structures into the public-private partnership world

By contracting with the

private sector to undertake an infrastructure project and creating value for money, scarce government capital budgets can be directed to other priority social services

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22© 17th April 2013

COUNTRY FEATURE

Increasing global interest According to a November 2012 survey conducted by Colliers International, major institutional and private investors representing a cross section of international property investors have indicated that the most desirable region for increased global real estate investment over the coming year is the US, followed by Asia and western Europe: in particular London, Paris and major cities in Germany.

Other trends emerging from this survey: The volume of investment will continue to grow in 2013 and core investment opportunities will become increasingly diffi cult to fi nd in key locations. Investors continue to pursue investment opportunities in cities that are believed to be safe markets, such as London, Paris, New York, Munich and Frankfurt, with London and New York consistently identifi ed as key investment areas. And while a stable income stream and maintenance of value continue to be important investment criteria, investors are likely to accept a greater level of risk in 2013.

In another survey taken of the nearly 200 members of the Association of Foreign Investors in Real Estate (AFIRE), the US again came out on top. Survey respondents ranked the US as being the most stable and secure real estate market and as providing the best opportunity for capital appreciation. Nearly 40% of the respondents said they were more optimistic now than they were one year ago about the US real estate market. An increase in portfolio size is expected by 81% of the respondents, with New York, Washington DC, Houston, San Francisco and Boston being the top cities. The leading property type for investment is multifamily, followed by industrial, retail, offi ce and hotel properties.

Renewed focusGulf investors have not let this trend pass them by. Gulf institutions that were active property investors in the US prior to the 2009-10 fi nancial crisis have returned and Gulf institutions

that are new to the US have made an appearance. Aft er a two-year hiatus in new investments, Gulf investment into the US property markets appeared to resume in late 2010. The pace quickened in 2011 and 2012, and the trend seems to be continuing into 2013 and beyond. Several factors underlie this renewed focus on the US.

First, as indicated in the Colliers and AFIRE surveys; the US is perceived to be the leading safe haven for property investments — an especially important consideration for Gulf investors that have seen the Arab Spring sweep across their region. While London continues to be a favorite destination for Gulf investors, economic uncertainty in the Eurozone as well as exchange rate risk has dampened enthusiasm for European property investments. Finally, Gulf investors perceive the US property market to have recovered from the fi nancial crisis and to be poised for capital appreciation.

Shariah compliant investment trend Apart from sovereign wealth funds that typically do not operate on a Shariah compliant basis, most Gulf investment in the US real estate during the past several years has been made in compliance with Shariah principles applicable to investment and fi nance. The continuing trend of Gulf institutions towards structuring their property investments in the US on a Shariah compliant basis is att ributable to steadily increasing demand from their clients (with whom these investments will be placed) for Shariah compliant investment product.

In addition, fi nancing structures developed for use in the US have been tested and have received wide acceptance from the US legal community and fi nancial institutions. These structures satisfy underwriting, regulatory and legal concerns, while allowing Gulf investors to obtain the same tax benefi ts derived from property investment that are available to conventional investors.

Shariah issues with tenants The primary concerns of an investor operating on a Shariah compliant basis are the property use and the fi nancing structure. Gulf investors operating on a Shariah compliant basis will not invest in properties with tenants who are engaged in prohibited activities or industries, such as conventional lending or insurance activities, the production or sale of alcoholic beverages, pork products or tobacco, or the production or distribution of pornographic materials.

Determining whether a tenant violates Shariah considerations is usually uncomplicated, but some tenants operating in a grey area require greater scrutiny, oft en with the participation of the Shariah advisors to the investor. For example, while conventional banks are generally not considered acceptable tenants, investors operating on a Shariah compliant basis can undertake a more in-depth examination of the activities of a bank at a property to determine Shariah compliance. Renting space to a bank branch that is engaged in making conventional loans would not be acceptable, but renting offi ces to the human resources department of a bank might be acceptable from a Shariah perspective.

Moreover, tenants engaged in limited non-compliant activities may also be acceptable, such as a supermarket that devotes a small portion of its shelf space (typically less than 5%) to beer and wine. Note that these considerations generally do not apply to the private activities of a tenant, such as, an apartment dweller having an alcoholic drink in his residence.

As a result of these considerations, the property types favored by Shariah compliant investors are multifamily, student accommodation, distribution/industrial, single tenant commercial and offi ce properties, government-leased properties, medical offi ce buildings and senior living facilities. Multi-tenant retail

Gulf property investors target US real estate Recent surveys of global property investors reveal a clear preference for real estate investments in the US over the coming 12 months. ISAM SALAH discusses the resurgent market and the potential it holds for Shariah compliant investment.

continued...

23© 17th April 2013

COUNTRY FEATURE

and offi ce properties are not as popular because of tenant activity issues, both of current tenants as well as future tenants.

Shariah compliant financingBanks in the US do not provide Shariah compliant fi nancing directly on a commercial basis because of regulatory restrictions. (Several banks and fi nancing companies in the US provide Shariah compliant fi nance at the retail level, primarily home mortgage fi nancing.)

Banks in the US do, however, provide conventional funding to ownership structures that in turn provide Shariah compliant fi nancing to companies owned by Gulf investors.

Income producing property in the US is generally fi nanced on a Shariah compliant basis using a master lease (Ijarah) fi nancing structure. In this structure, the property is held by an independent (typically) Delaware entity owned and operated by a corporate services company.

This borrower entity obtains conventional mortgage fi nancing from a bank or insurance company and in turn, master leases the property to a (typically) Delaware entity owned by the Gulf investors. This master lessee operates the property and acts as landlord in relation to the existing tenants of the property.

The master lease needs to be draft ed with the proper allocation of rights and responsibilities to comply with Shariah principles applicable to leasing arrangements and at the same time, must satisfy US tax and accounting requirements so that it is treated as a fi nance or capital lease. Rent paid by tenants is used by the master lessee to pay its rent obligations to the borrower and the borrower uses those rent payments to satisfy its debt service obligations to its lender.

The obligations of the master lessee to the borrower are secured by an assignment of leases and rents and a security interest in any other assets of the master lessee while the borrower secures its debt obligations to the lender with a mortgage on the property, an assignment of leases and rents (which would include its master lease with the master lessee) and a collateral assignment of the security it receives from the master lessee.

The lender providing the mortgage fi nancing ultimately receives the same security package as in a conventional mortgage fi nancing, although a portion of this collateral fl ows to the lender through the Shariah structure.

This structure works best for the Shariah compliant fi nancing of income producing properties and has been accepted by a broad range of lending institutions — major national banks and regional banks, fi nancial institutions that intend to securitize their mortgage loan or transfer the loan to Freddie Mac or Fannie Mae (government-sponsored federal mortgage enterprises), insurance companies and lenders that will have the repayment of the fi nancing insured by the US government.

Nevertheless, the structure does present a few issues that should be anticipated by the Gulf investor.

Financing issuesMortgage fi nancing in the US is on a limited recourse basis, meaning that the lender will look only to the property for repayment of the fi nancing. Most mortgage fi nancings, however, provide that recourse will not be limited to the property in certain situations, such as fraud, diversion of rental income, environmental problems and fi ling for bankruptcy.

Most lenders will require a creditworthy party other than the borrower to provide a guaranty of the losses arising from those events and depending on the event, a guaranty of the entire mortgage loan.

Shariah compliant investors are generally unwilling to sign documentation directly with a conventional lender, thereby making the issuance of a guaranty problematic. If the Gulf investor is undertaking its investment in a joint venture with a local property company, that property company could provide the required guaranty.

But if the Gulf investor is proceeding on its own, either it will need to make clear to prospective lenders at the outset, that a guaranty will not be provided, which may result in a lower LTV ratio or, if possible, create a guarantor with a net worth suffi cient for the lender.

If the property is leased to a single tenant, the lender will require a subordination, non-disturbance and att ornment agreement (SNDA) with the tenant so that it is assured that, in the event of a foreclosure, the tenant will recognize the purchaser in the foreclosure sale (which could be the lender) as its landlord and in return, the new owner of the property will abide by the tenant’s lease as long as the tenant is not in default.

The SNDA can be slightly more complicated in a Shariah compliant transaction because the master lessee (which is intended to operate on a Shariah compliant basis) should not enter into any direct agreement with the lender.

On occasion, this has necessitated two SNDAs — one between the tenant and the lender and a second between the tenant and the master lessee (the tenant’s direct landlord). These issues and other related issues can usually be resolved in a manner that addresses each party’s concerns, including the Shariah concerns of the Gulf investor.

ConclusionThe pace of foreign and Gulf investment in US real estate continues to pick up and Shariah compliant investors have been a signifi cant part of the capital fl ow coming from the Gulf into the US.

Over the past two years, investments have focused on multifamily, student accommodation, industrial/distribution facilities, single tenant commercial and offi ce properties and senior living facilities.

Mortgage fi nancing is readily available at historically low rates and Shariah compliant fi nancing structures have become widely accepted by the legal community and fi nancial institutions. All signs point to a continuation of this trend, with the main factor limiting investment being the stiff competition for att ractive properties.

Isam Salah is a senior fi nance partner in King & Spalding’s New York and Dubai offi ces and heads up the fi rm’s Middle East & Islamic Finance Practice Group. He can be contacted at isalah@kslaw.com.

Continued

24© 17th April 2013

COUNTRY FEATURE

On the 6th April 2013, the Islamic fi nance project of the Harvard University Law School held a panel on Islamic home fi nancing in the US. The keynote speaker at this program was Sheikh Yusuf Talal DeLorenzo. Myself and other industry professionals and academics participated in this program as a panel to respond to this keynote.

The premise behind Sheikh Yusuf’s remarks is that Islamic fi nance as an industry is most likely to grow as a result of growth in retail mortgages in particular. Buying a home is what gets people to invest in and build communities. The promotion of Islamic mortgages will serve as the foundation for further product development and thus stimulate industry growth.

Sheikh DeLorenzo sees seven obstacles to overcome in order to see needed growth of Islamic fi nance in the US:

1. Competitive pricing (Shariah compliant fi nancing must be priced in line with conventional fi nancing);

2. Competitive service (Islamic fi nancing providers must at least meet the level of service consumers

have come to expect from other fi nancial institutions);

3. Compliance with Shariah norms (if the product is sold as compliant, that compliance must be clear);

4. Need to overcome inertia (there must be adequate reasons to get a customer to leave existing relationships in favor of available Shariah compliant options, ideally beyond just religious compliance);

5. Need to overcome skepticism (distrust of start-up providers and products needs to be overcome);

6. Need to overcome doubt (products and providers must earn and maintain trust); and

7. Need to overcome fear (will what looks good now remain that way over the long term?)

What happens if providers do not survive?The obstacles presented are customer-focused obstacles. Some of these obstacles will be diffi cult to overcome, though the industry is making real progress in overcoming some. I would like to present a diff erent set of seven obstacles, but approached from an industry perspective. These are obstacles I see to the development of Shariah compliant residential home fi nance in the US from an industry perspective.

1. Accidental regulation Unlike some countries with purpose-built regulatory regimes, the US will accept Islamic fi nance to the extent that it fi ts into the law’s existing structures. Islamic fi nance as implemented is an intricate machine made of customized parts. Changing one part may very well throw other parts out of alignment. As existing regulatory structures designed for conventional fi nance are changed as a response to the global credit crisis in general, and the mortgage crisis in particular, there is a very real risk that much of today’s retail Islamic banking could be legislated into oblivion — by accident.

2. Culture mismatch A disproportionately large percentage

of Islamic fi nance customers are new immigrants or recent-generation immigrants and many bring to the home buying process ‘old country’ ways. Many of these customs are antithetical to US mortgage regulation, such as trying to haggle over fees and pricing. In the US, such issues are subject to rigid disclosure requirements and unprincipled variance from one transaction to the next can result in compliance problems, claims of discrimination and even government-imposed fi nes. Additionally, some customers come from areas where banks, in general, are not well trusted, where money is readily lent amongst family members and where cash may be hard to ‘source’ the way that secondary market home fi nance investors may require.

3. Fraud Although fraud is a word best not said aloud in polite company, it is the proper term to apply to some related cultural conduct that aff ects retail Islamic fi nance. Mortgage fraud in general is one of the more problematic crimes in the US; including sham transactions, infl ated appraisals and other crooked conduct that I will call ‘external’ fraud. One example of a somewhat diff erent external fraud that aff ected the whole Islamic fi nance industry in the US is Sunrise Equities. Sunrise Equities was a real estate developer that raised money from the Islamic community across the country to put into real estate development projects. As the real estate market collapsed, the venture turned into a Ponzi scheme which resulted in many devout Muslims losing substantial savings. Defrauded investors then blamed the Shariah board for having approved the investment structure and wondered how they could lose money in a Halal venture. Halal doesn’t mean guaranteed profi table. A Fatwa is not a warranty against later-occurring criminal behavior.

A perhaps more worrisome type of fraud is what I will call ‘internal’ fraud —

Seven obstacles to retail Islamic finance growth in the US As Islamic home fi nancing picks up pace in the US once more, DAVID LOUNDY explains that despite encouraging growth the industry still faces signifi cant challenges, and changes must be made if the retail sector is to succeed.

continued...

One man is responsible for

virtually all retail-level Islamic finance in the US. Most people in the Islamic finance industry have never heard of him and certainly never met him. His name is Bob

25© 17th April 2013

COUNTRY FEATURE

internal to the transaction. Ethics are, in part, culturally based. What is ethical is based on what society says is behavior the community is willing to tolerate. Offi cial doctrine may not match practice and matt ers of interpretation arise. For example, some customers would never lie to me, an individual, because that would clearly be wrong. On the other hand, they feel no concerns over sharing only selected information with (read: lying to) the government on their income tax returns. What the customer may consider no big deal, the government may consider a jailable off ense.

Even a misrepresentation such as whether the customer intends to live in the house or use the property as an investment may be considered fraud by a secondary market investor and may be grounds to force a ‘buy back’ on the initial mortgage originator resulting in large contingent liabilities or losses. A buy back is where an investor says to the originator that what the investor bought wasn’t what was promised and should never have been sold to the investor in the fi rst place and therefore, the originator must buy the fi nancing transaction back. Of course, such occurrences generally occur when a customer is in default. Fear of buy backs can keep some mortgage fi nanciers awake at night.

4. TaxationReal estate transactions in the US generally incur tax. These taxes are focused not at the federal level, not at the state level, but rather at the county level. This means a national residential mortgage business may touch several thousand taxing jurisdictions, which may not have standardized tax treatment. Even uniform laws may be given non-uniform interpretation. The taxes may be tailored towards conventional transactions so that Islamic transactions produce either multiple taxes or infl ated taxes. While the UK was able to change its stamp duty law to accommodate Islamic fi nance, in the US there is no single law to change, even should there be the political will to change it. In some cases, taxes can be maneuvered around by altering the transaction structure, however the more adjustments are made, the more risk there is of negatively aff ecting the transaction’s Shariah compliance. While tax problems are not always an issue, it is the case that there must be an individual county analysis

that makes geographic expansion of Islamic fi nance much more cumbersome than conventional fi nance.

5. Shariah shortfall The US is certainly no bett er than the rest of the world — good Islamic fi nance scholars are hard to fi nd. There may be Shariah scholars available, but not ones that have a good working knowledge of both fi nance and how it fi ts within Islam.

Those well-versed scholars that do exist are oft en too busy. Worse still, there are the new ‘wannabe’ Shariah scholars who do know both, but who do not know how to att ract clients and develop relationships and don’t understand why high powered-high paying clients are not beating down their doors to hire these newly-minted scholars. Some will grow into the job, some will not. In the meantime, it is hard to get timely answers in which you have confi dence.

6. No ‘bench depth’The Federal Deposit Insurance Association, one of the primary federal bank regulators, had just one ‘point person’ on Islamic fi nance. He died a few years ago. To the best of my knowledge, he has not been replaced. The most knowledgeable individual state regulator that I am aware of, left his job last month. There is no one stepping into these positions with the same level of knowledge. One man is responsible for virtually all retail-level Islamic fi nance in the US. Most people in the Islamic fi nance industry have never heard of him and certainly never met him. His

name is Bob. He is the lawyer who acts as the gatekeeper to the one investor that provides most of the liquidity for the entire industry segment. There are multiple single points of failure, any of which could substantially hamper industry growth. The number of people in the US that are truly knowledgeable of retail Islamic product design, regulation, and funding could comfortably fi t around my board table.

7. Limited investor interest Finally, for the retail Islamic fi nance industry in the US to expand, there must be investor interest. Investors tend not to be creative, risk taking, or interested in the novel. They certainly aren’t into uncertainty. If they can’t model the risk and the return, they are not interested.

There are other investments to choose from instead. Overseas investors generally do not understand regulated US markets. A number of interested parties have looked into opening an Islamic bank in the US, gott en a clear look at the process and changed their minds against trying. In the meantime, when off ered a faster track opportunity to reach the same result, they have not recognized the opportunity. This investor fear or lack of familiarity is why the available retail product set is as limited as it is and why it is primarily limited to ‘conforming’ ‘copycat’ products rather than unique products capable of a crossover appeal that would att ract non-Muslim users.

When I presented this list of concerns for the advancement of retail Islamic fi nance in the US, it was interpreted as profoundly negative. This was not my intent, though it is a potential conclusion. My intent was to sensitize people to the fact that the industry must continue to develop and must look out and advocate for its interests, or it is subject to potentially catastrophic loss. If you will excuse the mixture of cultures, just as Ebeneezer Scrooge is warned by the Ghost of Christmas Future in ‘A Christmas Carol’ by Charles Dickens of what is to befall if he does not change his ways; I am acting as the Ghost of Islamic Finance Industry Future, warning of where caution is warranted.

David Loundy is the chairman and CEO of Devon Bank in Chicago, where he also heads the religion-based fi nance program. He can be contacted at David@DevonBank.com.

Continued

A number of interested

parties have looked into opening an Islamic bank in the US, gotten a clear look at the process and changed their minds against trying

26© 17th April 2013

SECTOR FEATURE

Structured fi nance consists of the pooling of economic assets and the issuing of a prioritized capital structure of claims, known as tranches, against these collateralized pools. The purpose of structured fi nance is to help transfer risk and increase liquidity. However, since the unfolding of the sub-prime crisis, structured fi nance has come under sharp scrutiny on account of its role in the propagation of the economic fallout in the US mortgage crisis.

As a consequence, a major reassessment of risk took place, followed by a widespread retrenchment of mortgage exposures, and substantial liquidity injections by central banks to support inter-bank money markets. The subsequent implosion of banks’ balance sheets further exacerbated the transformation of the credit crisis into a more profound economic slowdown.

Aft er the erosion of market confi dence following the sub-prime crisis, unsett led investors have turned to Islamic fi nance. However, despite double digit growth rates and considerable demand for Shariah compliant products, development of Islamic structured products essentially depends on economic, regulatory and infrastructural conditions.

The Islamic structured fi nance market has witnessed many positive developments over the last couple of years thanks to the adoption of enabling capital market regulations, favorable macroeconomic environments and fi nancial innovation. Although the expansion of Islamic fi nance is taking place across a wide spectrum of fi nancial products, the most popular asset-backed securitization (ABS) structures in Islamic fi nance are Sukuk (Islamic bonds) which are either backed by sale and leasebacks, profi t and loss sharing or synthetic loans.

Amid weak reliance on capital market fi nancing in many Islamic countries, issuers of Sukuk are faced with several

critical economic barriers such as a) the ability to identify reference assets that are Shariah compliant and off er att ractive returns; and b) substitute standard structural features in conventional securitization structures with structures that are permissible in an Islamic context. Islamic issuers have started originating their own Shariah compliant portfolios due to the limited availability of eligible asset portfolios in the market.

Sukuk issuance has soared in recent years, reaching US$131 billion in 2012, a 54% increase from 2011, in response to a growing demand for alternative investments. However, the Sukuk market is still suff ering from illiquidity in the secondary market. Despite witnessing an impressive growth, the current level of Sukuk issuance by corporations and public sector entities still remains a small fraction of the global fi xed income markets.

Some of the issues facing Sukuk are investor diversifi cation together with origination and servicer risk due to a narrow asset supply and the fact that only a handful of large banks are behind the bulk of transactions completed by a small number of issuers.

In addition, the lack of information on securitized assets from private sources in many Sukuk structures and the dominance of buy-and-hold investments prevent effi cient information diff usion and price analysis. Another diversifi cation issue arises from poor asset diversity, due to the small range of available deal types and their maturity.

In general, Sukuk have long maturities, ranging from three to 10 years, and the lack of shorter-term maturities signifi cantly limits their use in the money markets. Although Islamic banks are the main buyers of Sukuk at the moment, they would defi nitely benefi t from products with shorter maturities and more diversifi ed portfolios.

Conclusion Islamic structured products have been acclaimed for a couple of years but now investors are starting to acknowledge these new solutions and are currently trading them as part of their investment portfolios. Despite the constraints imposed by the Shariah, creative solutions are being found to enlarge the palett e of fi nancial instruments available to investors. The market is not only growing in fi gures and liquidity but also in sophistication of product range.

As Islamic fi nance matures, and companies turn to capital market-based sources of fi nance, Islamic structured fi nance, such as Sukuk, will become essential for the competitiveness of corporations and banks alike. Since conventional securitization is basically absent in Islamic countries, considerable demand for Shariah-compliant investment assets provides an untapped market for structured fi nance as a means to advance capital market development. Islamic securitization also complements the batt ered ABS market as an alternative and more diversifi ed funding option that broadens the pricing spectrum and asset supply.

With more than US$2 trillion of credit demand projected to be unmet in the next three years as the conventional securitization market remains dysfunctional, the current market situation provides a window of opportunity for Islamic structured products. In spite of having been restricted by the credit crisis, the widespread economic downturn, and the decline in the real estate sector in the GCC, the Islamic structured fi nance market is expected to gain momentum again, largely due to past benefi t from high commodity prices, especially oil revenues in the GCC.

Khadra Abdullahi is an associate in investment banking at Faisal Private Bank. She can be contacted at khadra.abdullahi@faisalprivatebank.com.

Islamic structured products: A viable alternative? Even though the concept of asset backing is inherent to Islamic fi nance, structured credit transactions represent a very small portion of current Islamic fi nancial transactions and the asset class has been slow to develop. KHADRA ABDULLAHI looks at the current window of opportunity and explores how the sector is fi nally pulling ahead of the game.

27© 17th April 2013

TAKAFULFEATURE

Affordability growing as wealth increasesIndonesia’s economy is very robust. GDP grew by 6.2% and 6.5% in 2010 and 2011 respectively, and is forecast to be above 6% for at least the next few years. The fact that growth is largely driven by domestic consumption — averaging 65% of total GDP over the last few years — provides a welcome degree of insulation from external shocks. GDP per capita is increasing rapidly as well, leading to a rapidly growing middle class.

The country’s growth prospects are supported by growing levels of saving and investment. The ratio of investment to GDP has increased consistently over the past few years and now stands at 34%, making Indonesia number 23 in world ranking according to IMF.

Robust economic growth combined with increasing savings rates, and a growing middle class, augur well for the Family Takaful industry.

What demographic time bomb?It is well known that many countries are facing gloomy demographic scenarios. Ageing populations and increasing dependency ratios are putt ing more strain on societies and social security

systems — the so called ‘demographic time bomb’. Indonesia is one of the very few nations that buck this global trend.

According to the UN Population Database, Indonesia’s demographic profi le is very favorable with approximately 56% of the 238 million-strong population under 30 and only 5% above 65. The population is projected to age slowly and is forecast to be 263 million by 2025, with only 9% above the age of 65.

An underpenetrated marketBased on the latest Swiss Re Sigma report (No 3/2012) insurance penetration (measured as premiums as a percentage of GDP) for the Life sector in Indonesia was only 1.1% in 2011. From the same report, insurance density (measured as premiums per capita) stood at only US$40. The penetration rate for Family Takaful is almost negligible. Even by regional standards these rates are low and suggest that the market has some way to go before it can be considered mature.

“It’s going to be a bright, bright, sunshiny day!” I know that I am giving my age away by using part of the chorus from Johnny Nash’s 1972 hit song ‘I can see clearly

now’, but it does summarize nicely the view of the market potential held by most of Indonesia’s existing domestic and international players.

This view is also held by the increasing number of international insurers who are desperately looking for ways to enter the market. And who can fault this view? A growing and young population, economic growth, political stability, increased propensity to save, low penetration rates and the world’s biggest Muslim population — the stage seems to be well set for a sustained period of growth for the Family Takaful sector.

Everywhere you look there seems to be only opportunity! What can go wrong? Is there anything that can darken the skies over this sunshine outlook for Indonesia’s Family Takaful industry? The answer, unfortunately, is yes. Before elaborating on this I would like to spend a few moments outlining the state of the market as it is today. Understanding how the market in Indonesia has developed is key to understanding the risks and issues that could prevent the market from realizing its undoubted potential.

Family Takaful overviewCurrently most insurance companies that

Figure 1: GDP growth, GDP per capita, Investment Ratio

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6.3 6.0

4.6

6.2 6.5

2001

2002

2003

2004

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2006

2007

2008

2009

2010

2011

4,0003,5003,0002,5002,0001,5001,000

5000

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2002

2003

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2005

2006

2007

2008

2009

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20%

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Takaful outlook in Indonesia: The next 80 million customers? The Family Takaful market in Indonesia, like the conventional market, is experiencing rapid growth. However, penetration rates are still very low and the sector is still a long way from att aining critical mass. BERT PATERSON discusses the drivers behind this rapid growth and touches upon the obstacles that may prevent the Family Takaful market in Indonesia from fulfi lling its undoubted potential.

continued...

28© 17th April 2013

TAKAFUL FEATURE

sell Takaful have done so via an in-house Takaful unit rather than by sett ing up a stand-alone Takaful company.

According to data released by the Indonesian Insurance Association (AAJI), the market share of Takaful and re-Takaful as of the third quarter of 2012 was only 3.96%. Most Takaful operators have entered the market by adopting products that are based on their conventional equivalents. This is particularly true of the Family Takaful companies and units where unit-linked Takaful products dominate sales. For the Takaful units, Takaful products tend to mirror their conventional product strategy.

To date, there is also very litt le diff erentiation in the way Takaful is sold — agents oft en are licensed to sell both conventional and Takaful products and bancassurance via the Shariah compliant banks and banking units is nowhere near as well established as is the case for conventional bancassurance distribution.

Given this, it is not surprising that, rather than developing new and possibly more natural markets, the Family Takaful companies and units tend to target exactly the same market as the conventional companies such as. the top end of the socio-economic scale: the affl uent middle classes and above.

This lack of diff erentiation is, I believe, one of the reasons that the Family Takaful market lags way behind the conventional market in terms of penetration, development of distribution and product.

In general, awareness of the need for life insurance is very low in Indonesia. For Family Takaful awareness is even lower. Until the Takaful industry fi nds a way to diff erentiate itself in a meaningful way, eff orts to increase penetration rates and to educate potential customers on the need for and benefi ts of Takaful compared to conventional products and services will be hampered.

This is one of the clouds that have the potential to darken the skies over the bright future for Family Takaful in Indonesia. To mitigate this risk the industry needs to work closely together to educate Indonesians. We also need to partner with the regulator to create

an environment in which the industry can operate to bring fi nancial security to Indonesian families.

The role of the regulator2013 saw the foundation of the Financial Service Authority (Otoritas Jasa Keuangan or OJK) — a single centralized regulator for the whole banking and fi nancial services industry, to which

authority is gradually being transferred from the Capital Market Supervisory Authority (Bapepam LK) and Bank Indonesia. OJK has already formed a Shariah directorate; underlining the seriousness of the regulator, backed by the Indonesian government, in its intention to develop the Takaful sector via a tailor-made regulatory regime. This renewed intent follows a busy few years in which regulation has been implemented, governing areas such as fi nancial soundness and solvency, reporting and good corporate governance.

The roles and responsibilities of the Shariah Supervisory Board have also been clarifi ed and strengthened. Board members now need to pass a ‘Fit & Proper Test’ before being allowed to serve; board members are restricted to a maximum of two positions; and more onerous reporting standards are being applied.

There is also a draft Insurance Law before parliament. Once enacted, we expect the law to contain a provision requiring all Takaful units to convert to

full company status within a defi ned period — probably three or fi ve years. Compare this to the banks who, when a similar ‘spin-off ’ requirement was imposed in 2008, were given 15 years to convert; and you can get a sense for the government’s determination to develop the Takaful industry as quickly as possible!

The focus of the regulator and government to date has been on ensuring the fi nancial strength of industry players and supervisory and organizational matt ers. This has been welcomed as necessary by the industry. The next area of focus for the regulator should be on market conduct issues. Protecting the rights of customers will be key to building trust, awareness and acceptance. This is a key issue if the Indonesian Takaful industry is to achieve its full potential.

One inevitable consequence of the requirement to separate the Takaful units from their conventional parents is that it will exacerbate the existing war for talent. There is a serious shortage of skilled people in many key areas — particularly in actuarial, underwriting and risk management. The industry and regulator need to address skill shortages as a matt er of urgency.

The next 80 million customersEarlier in this article I mentioned that there was very litt le to diff erentiate Family Takaful from conventional life insurance. This is true for two key areas — product and distribution. As wealth increases and the middle classes expand the potential number of customers who can aff ord Family Takaful products will swell — maybe by as much as 80 million! If the industry is to reach this ‘next 80 million’ then a diff erent approach to distribution and product will be needed.

Bert Paterson is the country manager at Sun Life Financial Indonesia. He can be contacted at Bert.Paterson@sunlife.com.

Continued

There is a serious

shortage of skilled people in many key areas — particularly in actuarial, underwriting and risk management

To read the rest of this article,

please log on to

www.islamicfi nancenews.com

29© 17th April 2013

FORUM

A The Islamic fi nance opportunities in Africa are indeed enormous and

extremely att ractive. However, indications are that the GCC may come late to the game. Unless the perception of Africa as a risky, unstable market is changed, we are likely to see the West and Southeast Asia taking the lead here. Africa is THE frontier market. It has good assets/projects and off ers the best returns in the world. However, it is my opinion that the substance of Islamic fi nance (as opposed to the form) could very well fi nd expression in Africa. Knowing your partner is critical. Investors must consider investing in local currency. There is also the added benefi t of Islamic fi nance driving real infrastructural and other development that is critical to Africa. Lotus Capital is the arranger for a sub-sovereign local currency Sukuk in Nigeria in 2013. Will there be appetite from the GCC? We will see.

HAJARA ADEOLAManaging director/CEO, Lotus Capital

A Since the beginning of the fi nancial crisis, we have noticed that more

and more GCC investors have started to invest massively in Africa as well as other emergent markets as there is a higher potential of return compared to the traditional American and European countries. Indeed, certain African countries have been benefi ting from

important economic growth rates in the last years and such a trend is expected to be confi rmed in the years to come in consideration of their natural resources, their expanding middle-classes, etc.

The GCC investments are not limited to the Arabic and Muslim countries, but have been extended to other African countries. As such, the GCC isin competition with other countries which are trying to become leaders in the African markets like China.

I believe that the GCC will, however, focus more specifi cally on the African-Arab countries aff ected by the so-called the Arab Spring where there is a potential of profi ts in the short to medium-term.

SUFIAN BATAINEHManaging director, Dananeer

A Islamic fi nance remains in its infancy in Africa but there is

considerable potential. The elections of Islamist governments in Egypt and Tunisia have however, as yet, failed to live up to expectations as far as Islamic fi nance is concerned. Although the Shura Council in Egypt approved the issuance of Sukuk, President Morsi has been forced to refer the legislation to the Al-Azhar scholars under the new constitution. This is resulting in confusion and delay, which makes it unlikely that there will be any sovereign

Sukuk issuance in Egypt this year. In any case, given the poor state of Egypt’s fi nances, it is doubtful if Gulf investors will want to subscribe.

More Gulf interest is now focused on sub-Saharan Africa rather than the north. Gulf African Bank, part owned by Dubai based Islamic private equity company Istithmar, is steadily expanding its presence in Kenya, and is looking at opportunities in Uganda and Tanzania. The latt er already has two Islamic banks, Amana Bank and the Peoples Bank of Zanzibar. In Nigeria the second-largest African economy, Jaiz Bank, which operates according to Shariah, has opened branches in Abuja, Kaduma and Kano following the award of a banking license by the central bank. The Federal High Court of Nigeria has however challenged the approval given by Sanusi, the central bank governor. Although Jaiz Bank is entirely locally funded, Gulf investors are unlikely to commit any capital until the position is clarifi ed.

In conclusion it appears that for the present it is East Africa which is the focus of att ention by Gulf investors, but legal obstacles appear to be hindering the spread of Islamic fi nance in North and West Africa.

RODNEY WILSONEmeritus Professor, Durham University, UK; Visiting Professor, INCEIF

Q The enormous opportunities awaiting the Islamic finance sector within the

African region are not in question. But what role will the GCC play in its growth and development?

Next Forum Question:

In light of the recent allegations on the First Islamic Investment Bank (Vol 10 Issue 15) do you think there is a need for off shore centers to heighten their regulatory oversight and be more selective in terms of the companies that are allowed to be incorporated? If you would like to air your views on the next Forum Question, please email your response of between 50 and 300 words to Christina Morgan, forum editor, at: Christina.Morgan@REDmoneygroup.com before the 26th April 2013.

30© 17th April 2013

DEAL TRACKER

APRIL

Structuring Islamic Syndicated Transactions• 21-22 April, RIYADH

Collateralised Murabahah• 24 April, KUALA LUMPUR

MAY

Introduction to Islamic Finance and Sukuk• 4 May, JEDDAH

Islamic Treasury and Risk Management Products• 5-7 May, RIYADH

Shariah Audit and Compliance for Takaful Products• 9-10 May, KUALA LUMPUR

Islamic Trade Finance• 14-15 May, KUALA LUMPUR

Islamic Treasury Principles, Products and Operations• 16-17 May, KUALA LUMPUR

JUNE

Sukuk and Islamic Capital Markets • 2-4 June, RIYADH

Shariah Audit for Islamic Investments and Treasury Products and Operations• 6-7 June, KUALA LUMPUR

Developing Islamic Retail and Commer-cial Banking Products• 10-12 June, JAKARTA

Structuring Islamic Corporate Banking Solutions• 17-19 June, KUALA LUMPUR

Structuring and Shariah Issues for Islamic Funds and Asset Management• 20-21 June, KUALA LUMPUR

Islamic Finance Arbitration• 25 June, KUALA LUMPUR

Accounting and Reporting for Islamic Financial Products• 26-28 June, KUALA LUMPUR

www.REDmoneyTraining.com

ISSUER SIZE DATE ANNOUNCED

Al Bayan Holding Group RM1 billion 16th 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

Türkiye Finans Katılım Bankası TRY100 million 20th March 2013

Al Hilal Bank AED1.8 billion 19th March 2013

Saudi Electricity Company US$2 billion 18th March 2013

Sadara Basic Services Company TBA 18th March 2013

Shipping Company of Saudi Arabia TBA 18th March 2013

Dubai Islamic Bank US$1 billion 14th March 2013

Riyad Bank TBA 13th March 2013

Qatar International Islamic Bank US$2 billion 11th March 2013

Bank Asya US$300 million 11th March 2013

Bank Muamalat Indonesia IDR700 billion 5th March 2013

Agaoglu Group US$2 billion 4th March 2013

Exim Bank US$1 billion 26th February 2013

Investment Corporation of Dubai TBA 26th February 2013

Directorate of National Savings TBA 25th February 2013

Dubai Investments AED1 billion 18th February 2013

Barwa Bank TBA 18th February 2013

SGI-Mitabu AU$100 million 5th February 2013

Paramount Corporation TBA 31st January 2013

Ma'aden TBA 31st January 2013

Qatar sovereign QAR1 billion 31st January 2013

Saudi Aramco US$200 billion 31st January 2013

Egypt sovereign TBA 30th January 2013

TH Heavy Engineering RM70 million 25th January 2013

Bank Muamalat Indonesia IDR700 billion 21st January 2013

Teknologi Tenaga Perlis Consortium US$272.44 million 4th December 2012

Albaraka Türk Katılım Bankası US$200 million 19th November 2012

Dialog Axiata LKR51 billion 2nd November 2012

Malaysia sovereign RM5.3 billion 6th November 2012

Almarai Company SAR2.3 billion 6th November 2012

Sumberdaya Sewatama IDR1 trillion 24th October 2012

MNRB Holding RM150 million 16th October 2012

Banque Saudi Fransi SAR2.5 billion 15th October 2012

Edaran SWM RM1 billion 5th October 2012

International Islamic Liquidity Management Corporation

US$200 to 500 million 4th October 2012

31© 17th April 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

Apr-2013Mar-2013Feb-2013Jan-2013Dec-2012Nov-2012

All Cap Large Cap Medium Cap Small Cap

650

742

834

926

1018

1110

AprMarFebJanDecNov600

700

800

900

1000

1100

AprMarFebJanDecNov

All Cap Large Cap Medium Cap Small Cap

500

570

640

710

780

850

AprMarFebJanDecNov

All Cap Large Cap Medium Cap Small Cap

680

804

928

1052

1176

1300

AprMarFebJanDecNov

All Cap Large Cap Medium Cap Small Cap

500

570

640

710

780

850

AprMarFebJanDecNov

All Cap Large Cap Medium Cap Small Cap

800

1000

1200

1400

1600

1800

AprMarFebJanDecNov

All Cap Large Cap Medium Cap Small Cap

32© 17th April 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

640

780

920

1060

1200

AprMarFebJanDecNov 450

580

710

840

970

1100

AprMarFebJanDecNov

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

760

1020

1280

1540

1800

AprMarFebJanDecNov

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

700

900

1100

1300

1500

AprMarFebJanDecNov

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

33© 17th April 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 North America Islamic Fund Index

Inde

x Va

lues

Top 10 Monthly Returns for ALL Islamic Funds

Fund Fund Manager Performance Measure Fund Domicile

1 Amanah GCC Equity SABB 8.53 Saudi Arabia

2 Jadwa Saudi Equity Jadwa Investment 7.61 Saudi Arabia

3 Jadwa GCC Equity Jadwa Investment 7.18 Saudi Arabia

4 Jadwa Arab Markets Equity Jadwa Investment 6.90 Saudi Arabia

5 Al-Saff a Saudi Equity Trading Banque Saudi Fransi 5.60 Saudi Arabia

6 GCC Al-Raed Samba Financial Group 5.56 Saudi Arabia

7 ETFS Physical Palladium ETFS Metal Securities 5.50 Jersey

8 Amanah Saudi Industrial SABB 5.49 Saudi Arabia

9 Bakheet Saudi Trading Equity Bakheet Investment Group 5.23 Saudi Arabia

10 Al-Hadharah Boustead REIT MIMB Investment Bank 5.11 Malaysia

Eurekahedge Islamic Fund Index 1.13

Top 5 Islamic Money Markets Funds by 3 Months Returns

Fund Fund Manager Performance Measure Fund Domicile

1 Meezan Tahaff uz Pension - Money Market Sub Al Meezan Investment Management 1.69 Pakistan

2 Atlas Pension Islamic - Money Market Sub Atlas Asset Management 1.28 Pakistan

3 PB Islamic Cash Management Public Mutual 0.63 Malaysia

4 PB Islamic Cash Plus Public Mutual 0.63 Malaysia

5 Apex Dana Al Kanz Apex Investment Services 0.63 Malaysia

Eurekahedge Islamic Money Markets Fund Index 0.33

Based on 61.83% of funds which have reported March 2013 returns as at the 16th April 2013

Based on 67.57% of funds which have reported March 2013 returns as at the 16th April 2013

50

60

70

80

90

100

110

120

130

Dec

-99

Apr

-00

Aug

-00

Dec

-00

Apr

-01

Aug

-01

Dec

-01

Apr

-02

Aug

-02

Dec

-02

Apr

-03

Aug

-03

Dec

-03

Apr

-04

Aug

-04

Dec

-04

Apr

-05

Aug

-05

Dec

-05

Apr

-06

Aug

-06

Dec

-06

Apr

-07

Aug

-07

Dec

-07

Apr

-08

Aug

-08

Dec

-08

Apr

-09

Aug

-09

Dec

-09

Apr

-10

Aug

-10

Dec

-10

Apr

-11

Aug

-11

Dec

-11

Apr

-12

Aug

-12

Dec

-12

34© 17th April 2013

FUNDS TABLES

Top 10 Monthly Returns for Global Funds

Fund Fund Manager Performance Measure Fund Domicile

1 ETFS Physical Palladium ETFS Metal Securities 5.50 Jersey

2 AlAhli Healthcare Trading Equity The National Commercial Bank 5.08 Saudi Arabia

3 AmOasis Global Islamic Equity AmInvestment Management 4.44 Malaysia

4 Reliance Global Shariah Growth - USD I Reliance Asset Management (Malaysia) 3.14 Guernsey

5 AlAhli Small Cap Trading Equity The National Commercial Bank 2.51 Saudi Arabia

6 Al Shamekh Islamic Portfolio Riyad Bank 2.24 Saudi Arabia

7 Al-Mubarak Global Equity Arab National Bank 2.18 Saudi Arabia

8 EasyETF DJ Islamic Market Titans 100 BNP Paribas Investment Partners 1.88 France

9 HSBC Amanah Global Equity Index HSBC Amanah Central Shariah Committ ee

1.82 Saudi Arabia

10 Al Shuja'a Islamic Portfolio Riyad Bank 1.76 Saudi Arabia

Eurekahedge Global Islamic Fund Index 0.70

Top 5 Commodity Funds by 3 Months Returns

Fund Fund Manager Performance Measure Fund Domicile

1 ETFS Physical Palladium ETFS Metal Securities 10.43 Jersey

2 ETFS Physical Platinum ETFS Metal Securities 2.68 Jersey

3 CIMB Islamic Commodities Structured 2 CIMB-Principal Asset Management 0.69 Malaysia

4 ETFS Physical PM Basket ETFS Metal Securities -2.18 Jersey

5 ETFS Physical Gold ETFS Metal Securities -4.24 Jersey

Eurekahedge Islamic Commodity Fund Index (3.52)

Based on 78.57% of funds which have reported March 2013 returns as at the 16th April 2013

Based on 100% of funds which have reported March 2013 returns as at the 16th April 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 Money Market Index over the last 5 years Eurekahedge Islamic Money Market Index over the last 1 year

Perc

enta

ge

90.00

92.00

94.00

96.00

98.00

100.00

102.00

104.00

106.00

108.00

110.00

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12

Mar-13

98.50

99.00

99.50

100.00

100.50

101.00

101.50

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Jan-13

Feb-13

Mar-13

35© 17th April 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 4310987

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) Managers8th Apr 2013 SIB Sukuk Co III UAE Sukuk Euro market

public issue500 Standard Chartered Bank, HSBC, Kuwait

Finance House, Al Hilal Bank2nd Apr 2013 Sadara Chemical

CompanySaudi Arabia

Sukuk Musharakah Domestic market public issue

2,000 Deutsche Bank, Riyad Bank, Al-Bilad Bank, Alinma Bank

26th Mar 2013 Saudi Electricity Company

Saudi Arabia

Sukuk Euro market public issue

2,000 Deutsche Bank, HSBC

21st Mar 2013 Asya Sukuk Company

Turkey Sukuk Euro market public issue

250 HSBC, National Bank of Abu Dhabi, Emirates NBD, Bank of America Merrill Lynch

13th Mar 2013 DIB Tier 1 Sukuk UAE Sukuk Euro market public issue

1,000 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD

13th Mar 2013 Gamuda Malaysia Sukuk Musharakah and Sukuk Murabahah

Domestic market private placement

129 HSBC

12th Mar 2013 Medjool UAE Sukuk Wakalah Euro market public issue

1,000 Standard Chartered Bank, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD

6th Mar 2013 Khazanah Nasional Malaysia Sukuk Musharakah Domestic market private placement

322 CIMB Group, AmInvestment Bank

28th Feb 2013 Dubai Electricity & Water Authority

UAE Sukuk Ijarah Euro market public issue

1,000 Standard Chartered Bank, RBS, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD

28th Feb 2013 Aman Sukuk Malaysia Sukuk Musharakah Domestic market public issue

198 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank

27th Feb 2013 Turus Pesawat Malaysia Sukuk Murabahah Domestic market public issue

231 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank

21st Feb 2013 National Higher Education Fund

Malaysia Sukuk Domestic market public issue

388 RHB Capital, AmInvestment Bank

15th Feb 2013 TH Plantations Malaysia Sukuk Domestic market public issue

120 RHB Capital, Hong Leong Bank

31st Jan 2013 Cerah Sama Malaysia Sukuk Musharakah Domestic market public issue

136 Maybank Investment Bank

30th Jan 2013 DanaInfra Nasional Malaysia Sukuk Domestic market public issue

390 RHB Capital, Hong Leong Bank, CIMB Group, AmInvestment Bank, Maybank Investment Bank

29th Jan 2013 Teknologi Tenaga Perlis Consortium

Malaysia Sukuk Domestic market public issue

274 HSBC, CIMB Group, Affi n Investment Bank, Maybank Investment Bank

29th Jan 2013 Jati Cakerawala Malaysia Sukuk Domestic market public issue

177 HSBC, CIMB Group, Affi n Investment Bank, Maybank Investment Bank

23rd Jan 2013 Turus Pesawat Malaysia Sukuk Murabahah Domestic market public issue

393 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank

22nd Jan 2013 Sime Darby Global Malaysia Sukuk Ijarah Euro market public issue

800 Standard Chartered Bank, HSBC, Citigroup, Maybank Investment Bank

22nd Jan 2013 Dubai DOF Sukuk UAE Sukuk Euro market public issue

750 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD

36© 17th April 2013

LEAGUE TABLES

Top 30 Issuers of Global Sukuk 12 MonthsIssuer Nationality Instrument Market US$ (mln) Iss Managers

1 State of Qatar Qatar Sukuk Euro market public issue

4,000 8.6 Standard Chartered Bank, Deutsche Bank, HSBC, QInvest, Barwa Bank

2 Saudi Electricity Company

Saudi Arabia

Sukuk Euro market public issue

2,000 4.3 Deutsche Bank, HSBC

2 Dubai DOF Sukuk UAE Sukuk Euro market public issue

2,000 4.3 HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Citigroup, Standard Chartered Bank, Emirates NBD

4 Sadara Chemical Company

Saudi Arabia

Sukuk Musharakah

Domestic market public issue

2,000 4.3 Deutsche Bank, Riyad Bank, Al-Bilad Bank, Alinma Bank

5 Turus Pesawat Malaysia Sukuk Murabahah

Domestic market public issue

1,734 3.7 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank

6 Celcom Transmission (M)

Malaysia Sukuk Murabahah

Domestic market public issue

1,590 3.4 HSBC, CIMB Group, Maybank Investment Bank

7 Republic of Turkey Turkey Sukuk Euro market public issue

1,500 3.2 HSBC, Kuwait Finance House, Citigroup

8 National Higher Education Fund

Malaysia Sukuk Domestic market public issue

1,497 3.2 CIMB Group, Maybank Investment Bank, RHB Capital, AmInvestment Bank

9 Tanjung Bin Power Malaysia Sukuk Domestic market private placement

1,298 2.8 CIMB Group, Maybank Investment Bank

10 Malakoff Malaysia Sukuk Domestic market public issue

1,260 2.7 Maybank Investment Bank

11 Khazanah Nasional Malaysia Sukuk Domestic market private placement

1,247 2.7 Kenanga Investment Bank, DRB-HICOM, CIMB Group, AmInvestment Bank

12 DanaInfra Nasional Malaysia Sukuk Domestic market public issue

1,242 2.7 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank, Hong Leong Bank

13 Perusahaan Penerbit SBSN Indonesia III

Indonesia Sukuk Ijarah Euro market public issue

1,000 2.2 Standard Chartered Bank, Deutsche Bank, HSBC

13 Dubai Electricity & Water Authority

UAE Sukuk Ijarah Euro market public issue

1,000 2.2 Standard Chartered Bank, RBS, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD

13 DIB Tier 1 Sukuk UAE Sukuk Euro market public issue

1,000 2.2 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD

13 Abu Dhabi Islamic Bank

UAE Sukuk Euro market public issue

1,000 2.2 Standard Chartered Bank, Morgan Stanley, HSBC, National Bank of Abu Dhabi, Abu Dhabi Islamic Bank

17 Medjool UAE Sukuk Wakalah

Euro market public issue

993 2.1 Standard Chartered Bank, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD

18 Johor Corporation Malaysia Sukuk Domestic market public issue

939 2.0 CIMB Group, Affi n Investment Bank, AmInvestment Bank, Maybank Investment Bank

19 Malaysia Malaysia Sukuk Murabahah

Domestic market public issue

817 1.8 Maybank Investment Bank

20 Sime Darby Global Malaysia Sukuk Ijarah Euro market public issue

800 1.7 Standard Chartered Bank, HSBC, Citigroup, Maybank Investment Bank

20 IDB Trust Services Saudi Arabia

Sukuk Euro market public issue

800 1.7 Saudi National Commercial Bank, Standard Chartered Bank, BNP Paribas, HSBC, CIMB Group

22 Qatar Islamic Bank Qatar Sukuk Euro market public issue

750 1.6 Standard Chartered Bank, Deutsche Bank, HSBC, QInvest

22 BSF Sukuk Saudi Arabia

Sukuk Euro market public issue

750 1.6 Deutsche Bank, Citigroup, Credit Agricole

24 Qatar International Islamic Bank

Qatar Sukuk Euro market public issue

700 1.5 Standard Chartered Bank, HSBC, Qatar National Bank

25 Jafz Sukuk UAE Sukuk Euro market public issue

650 1.4 Standard Chartered Bank, Abu Dhabi Commercial Bank, National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD

26 Syarikat Prasarana Negara

Malaysia Sukuk Murabahah

Domestic market public issue

644 1.4 RHB Capital, Kenanga Investment Bank, CIMB Group

27 Malakoff Corporation

Malaysia Sukuk Domestic market private placement

577 1.2 Maybank Investment Bank

28 Golden Assets International Finance

Singapore Sukuk Domestic market public issue

571 1.2 RHB Capital

29 TASNEE Saudi Arabia

Sukuk Domestic market private placement

533 1.2 HSBC

30 SIB Sukuk Co III UAE Sukuk Euro market public issue

500 1.1 Standard Chartered Bank, HSBC, Kuwait Finance House, Al Hilal Bank

30 Emaar Sukuk UAE Sukuk Euro market public issue

500 1.1 Standard Chartered Bank, HSBC, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Emirates NBD, Noor Islamic Bank, Al Hilal Bank, Barwa Bank

30 EIB Sukuk UAE Sukuk Euro market public issue

500 1.1 Standard Chartered Bank, HSBC, Dubai Islamic Bank, Emirates NBD, Credit Agricole

30 DIB Sukuk UAE Sukuk Euro market public issue

500 1.1 Deutsche Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD

46,567 100

37© 17th April 2013

LEAGUE TABLES

Top Managers of Sukuk 12 Months

Manager US$ (mln) Iss %

1 Maybank Investment Bank 7,408 41 15.9

2 HSBC 7,071 34 15.2

3 CIMB Group 5,904 41 12.7

4 Standard Chartered Bank 3,532 23 7.6

5 Deutsche Bank 3,171 7 6.8

6 AmInvestment Bank 2,578 28 5.5

7 RHB Capital 2,470 36 5.3

8 Citigroup 1,688 7 3.6

9 Dubai Islamic Bank 1,350 9 2.9

10 National Bank of Abu Dhabi 1,159 8 2.5

11 Emirates NBD 1,100 9 2.4

12 QInvest 988 2 2.1

13 Barwa Bank 863 2 1.9

14 Kuwait Finance House 693 4 1.5

15 Abu Dhabi Islamic Bank 688 5 1.5

16 Riyad Bank 587 2 1.3

17 Hong Leong Bank 500 8 1.1

18 Alinma Bank 500 1 1.1

18 Al-Bilad Bank 500 1 1.1

20 Lembaga Tabung Haji 487 6 1.1

21 Kenanga Investment Bank 401 3 0.9

22 Affi n Investment Bank 396 4 0.9

23 Credit Agricole 350 2 0.8

24 Abu Dhabi Commercial Bank 258 2 0.6

25 Qatar National Bank 233 1 0.5

26 Morgan Stanley 200 1 0.4

27 Al Hilal Bank 188 2 0.4

28 Saudi Hollandi Bank 187 1 0.4

29 RBS 182 2 0.4

30 DRB-HICOM 169 5 0.4

Total 46,567 135 100

Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months

Legal Advisor US$ (million) No %1 Linklaters 684 2 20.8

2 Baker & McKenzie 417 2 12.7

3 Al-Jadaan & Partners Law Firm 386 1 11.7

3 Cliff ord Chance 386 1 11.7

3 Saudilegal 386 1 11.7

6 Law Offi ce of Hassan Mahassni 298 1 9.0

6 Norton Rose 298 1 9.0

6 White & Case 298 1 9.0

9 Hogan Lovells International 71 1 2.2

9 Pinsent Masons 71 1 2.2

Top Islamic Finance Related Project Finance Mandated Lead Arrangers 12 Months

Mandated Lead Arranger US$ (million) No %

1 HSBC Holdings 548 2 20.2

1 Public Investment Fund 548 2 20.2

3 Arab National Bank 398 1 14.7

4 Saudi Hollandi Bank 182 2 6.7

5 Al-Rajhi Banking & Investment 151 1 5.6

5 Alinma Bank 151 1 5.6

5 Bank Al-Jazira 151 1 5.6

5 Banque Saudi Fransi 151 1 5.6

5 Riyad Bank 151 1 5.6

5 Samba Financial Group 151 1 5.6

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

21.7

21.2

3.5

0.1

US dollar

Malaysian ringgit

Saudi riyal

Indonesian rupiah

Indonesia

20.6

1.4

1.8

5.5

7.0

8.8

0.6

Malaysia

Saudi Arabia

UAE

Turkey

Singapore

Qatar

Finance

TransportationChemicals

GovernmentUtility & Energy

Other

11%

16%

4%

26%17%

26%

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$

38© 17th April 2013

LEAGUE TABLES

Top Islamic Finance Related Loans Mandated Lead Arrangers Ranking 12 Months

Mandated Lead Arranger US$ (mln) No %

1 SABB 1,165 5 5.6

2 Arab National Bank 905 3 4.4

3 CIMB Group 842 3 4.1

4 Maybank Investment Bank 831 4 4.0

5 AmInvestment Bank 816 3 4.0

6 RHB Capital 794 2 3.9

7 Emirates NBD 791 7 3.8

8 Saudi National Commercial Bank 750 4 3.6

9 Standard Chartered Bank 718 9 3.5

10 Banque Saudi Fransi 713 4 3.5

11 Abu Dhabi Islamic Bank 691 9 3.4

12 Samba Capital 642 5 3.1

13 Dubai Islamic Bank 596 4 2.9

14 Noor Islamic Bank 587 7 2.9

15 HSBC 574 5 2.8

16 Al-Rajhi Banking & Investment 541 3 2.6

17 Citigroup 516 4 2.5

18 Riyad Bank 478 3 2.3

19 Credit Agricole 459 2 2.2

20 Mitsubishi UFJ Financial Group 382 2 1.9

21 National Bank of Abu Dhabi 366 4 1.8

22 Mashreqbank 362 6 1.8

23 Al Hilal Bank 351 6 1.7

24 Abu Dhabi Commercial Bank 291 2 1.4

25 Standard Bank 289 1 1.4

25 National Bank of Kuwait 289 1 1.4

25 Gulf Bank 289 1 1.4

25 DBS 289 1 1.4

29 Islamic Development Bank 271 4 1.3

30 First Gulf Bank 253 5 1.2

Top Islamic Finance Related Loans Mandated Lead Arrangers12 Months

Bookrunner US$ (mln) No %

1 Credit Agricole 867 1 11.9

1 Banque Saudi Fransi 867 1 11.9

1 Al-Rajhi Banking & Investment 867 1 11.9

4 QInvest 624 3 8.6

5 Abu Dhabi Islamic Bank 597 5 8.2

6 HSBC 412 3 5.7

7 Emirates NBD 408 4 5.6

8 Citigroup 367 3 5.1

9 Samba Capital 362 2 5.0

10 Standard Chartered Bank 311 5 4.3

Top Islamic Finance Related Loans by Country 12 Months

Nationality US$ (mln) No %1 Saudi Arabia 7,449 8 36.12 UAE 7,137 9 34.63 Malaysia 3,697 5 17.94 Turkey 904 4 4.45 Qatar 574 2 2.86 Sri Lanka 350 2 1.77 Singapore 207 1 1.08 Brunei Darussalam 170 1 0.89 Pakistan 90 4 0.410 Indonesia 60 2 0.3

Global Islamic Loans - Years to Maturity (YTD Comparison)

Are your deals listed here?If you feel that the information within these tables is inaccurate, you may contact the following directly: 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

Transportation

Government

Mining

Metal & Steel

Telecommunications

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

25th Jul 2012 Zain Saudi Saudi Arabia 2,600

11th Jun 2012 DanaInfra Nasional Malaysia 2,525

18th Dec 2012 Ma'aden Saudi Arabia 2,400

4th Jul 2012 Dubai Duty Free UAE 1,749

13th Jun 2012 JAFZA UAE 1,198

30th Jun 2012 TIBAH Saudi Arabia 1,193

25th Jun 2012 Bawabat Al Shamal Real Estate Company

Qatar 1,154

2nd Jun 2012 DIFC Investments UAE 862

9th Oct 2012 Turus Pesawat Malaysia 816

39© 17th April 2013

EVENTS DIARY

AUSTRALIAVictoria University, Melbourne

7th May 2013

Editor Nazneen HalimNazneen.Halim@REDmoneyGroup.com

Contributions Sasikala ThiagarajaEditor Sasikala@REDmoneyGroup.com

Managing Lauren McaughtryEditor Lauren.Mcaughtry@REDmoneyGroup.com

Assistant Lidiana RosliEditor Lidiana.Rosli@REDmoneyGroup.com

Journalist Nabilah AnnuarNabilah.Annuar@redmoneygroup.com

Editorial Vineeta TanExecutive vineeta.tan@redmoneygroup.com

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APRIL 2013

17th 3rd Annual Middle East Islamic Finance and Investment Conference (MEIFIC 2013)

Dubai, UAE Mega Events

MAY 2013

7th IFN Australia Roadshow Melbourne, Australia REDmoney Events

28th — 29th IFN Europe Forum London, UK REDmoney Events

27th — 28th 9th Annual World Islamic Funds and Financial Markets Conference (WIFFMC 2013)

Manama, Bahrain Mega Events

JUNE 2013

4th — 5th 4th Annual World Islamic Banking Conference: Asia Summit (WIBC Asia 2013)

Singapore Mega Events

12th IFN Japan Roadshow Tokyo, Japan REDmoney Events

12th - 13th Sukuk Summit London, UK ICG-Events

19th IFN Africa Forum Dubai, UAE REDmoney Events

25th IFN Hong Kong Roadshow Hong Kong REDmoney Events

27th IFN Morocco Roadshow Morocco REDmoney Events

JULY 2013

July 2013 Asia Islamic Finance Kuala Lumpur, Malaysia Fleming Gulf

AUGUST 2013

27th IFN Pakistan Roadshow Karachi, Pakistan REDmoney Events

29th IFN Sri Lanka Roadshow Colombo, Sri Lanka REDmoney Events

COMPANY INDEX

AAOIFI 16ABHC Sukuk 7Abu Dhabi Commercial Bank 6Abu Dhabi Investment Authority 11Abu Dhabi Islamic Bank 6Adhi Karya 10Agaoglu Group 14Ajman Bank 6Al Baraka Bank 16Al Baraka Islamic Bank 14Al Bayan Holding 7Al Hilal Bank 6Al Rajhi Bank 9Al Rajhi Capital 8Al Tamimi & Co 14ALAFCO 9Albaraka Turk 8, 14Alizz Islamic Bank 11AlJazira Takaful Ta’awuni 7Alkhair Capital 20Allied Insurance Company 19Almarai 6Amana Bank 29Amlak Finance 9Asya Katılım Bankası 14,20Aviva International Holdings 6Axis REIT 3Azrish Bank 15BAHRI 7Bank Al Muamelat Assahiha 88Bank Albilad 9Bank AlJazira 7Bank Indonesia 28Bank Islami 16Bank Muamalat Indonesia 15Bank Negara Malaysia 6Bank Syariah Mandiri 10Banque Misr 9Banque Saudi Fransi 7,10Barwa Bank 7BLME 8BNI Syariah 10Borcos Shipping 10Boubyan Bank 10Burj Bank 10,16Bursa Malaysia 3Capital Market Supervisory Authority (Indonesia) 28Capital Markets Board of Turkey 8,14CDMA (Maldives) 19Central Bank of Dubai 3Central Bank of Egypt 8Cheraman Financial Services 11CIIN Oyo State 11CIMB Aviva Assurance 6CIMB Aviva Takaful 6CIMB Group Holdings 6Citigroup 6Cliff ord Chance 17Colliers International 22Credit Agricole 17

Crescent Wealth 11Dananeer 29Dar Al Arkan 10Dar Al Sharia 13Deloitt e & Touche 18Deutsche Bank 9Devon Bank 25DIFC 3Doha Bourse 7Dubai Holding 5Dubai International Financial Center Courts 11Dubai Investments 6Dubai Islamic Bank 3,10,16,20Dubai Islamic Bank Pakistan 10Durham University 7Eiff el Management 3Emaar Properties 9Emirates National Factory for Plastic Industries 6Ernst & Young 3Etiqa Takaful 11Everything Everywhere 6Faisal Private Bank 26Fannie May 23FEC Cables 10FIIB 15First Gulf Bank 6Foot Anstey 6Fredie Mac 23Freshfi elds Bruckhaus Deringer 7Garanti Bankasi 8Goldman Sachs 8Gulf African Bank 29Harvard University 24Housing Development Finance Corporation (Maldives) 19HSBC 6,8IDB 6,9,19IILM 7IMF 12,27INCEIF 29Insurance Regulatory Authority of Kenya 11IPIC 11Iraqi Islamic Bank for Investment and Development 14IRTI 7Islamic Bank of Thailand 6Islamic Holding Group 10ISRA 7Istanbul Financial Center 14Istithmar 29ITFC 9Jaiz Bank 29Jordan Islamic Bank 10JPMorgan Chase & Co 6,7Kerala State Industrial Development Corporation 11KESAS 8Khazanah Nasional 6King & Spalding 4KLCC Properties 5KPJ Healthcare 3Kuveyt Türk Katılım Bankası 14Kuwait Finance House 9

Labuan FSA 15Labuan International Business and Financial Center 15Liquidity Management House 6Lotus Capital 29Maalouf Ashford & Talbot 9Maldives Monetary Authority 19Mashreq Al Islami 6Meezan Bank 16MEFIC Capital 6Milliman Insight 11MRTC 21Mubadala Development Company 10National Commercial Bank 7NCB Capital 8Nomura Group 6OFAC 15OJK (Indonesia) 28Path Solutions 8PEFINDO 10Peoples Bank of Zanzibar 29Qatar Financial Centre Authority 8Qatar Islamic Bank 9QIB-UK 99RAM 7,10Retirement Benefi ts Authority of Kenya 11Sabana REIT 1,3SABB 10Sadara Chemicals Sukuk 20Samba Financial Group 7Sapura Kencana Petroleum 10Saudi Aramco 7Saudi Basic Industries Corporation 9Saudi Binladin Group 7,17Saudi Electricity Company 10,21Saudi Electricity Sukuk 20Saudi Fransi Capital 7,17Saudi Hollandi Bank 11SBG Sukuk 7,17Securities Commission Malaysia 3Sharjah Islamic Bank 6SHUAA Capital 8Standard Chartered 6State Bank of Pakistan 16Sun Life Financial 6Sunlife Financial Indonesia 28Takaful Insurance of Africa 11Takaful Malaysia 11Tamweel 10Tecom Investments 5Teeba Investment for Developed Food Processing 6Thomson Reuters 16Türkiye Finans Katılım Bankası 14Turkiye Halk Bankasi 8United Nations 15US Treasury Department 15World Bank 14Yorktown Partners 6Z Capital Partners 6Ziraat Bankası 8,14

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