24th June 2015 (Volume 12 Issue 25)

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Trade fi nance — sleeping giant, unsung hero or simply a solid foundation for fi nancial activity? Despite a decline in commodity prices and overall sluggish global trade growth, Islamic trade fi nance is booming — with new markets, new players and new products expanding its horizons and impressing its investors. LAUREN MCAUGHTRY gives a rundown of recent activity.

The world in numbersInternational trade has seen slow growth since the fi nancial crisis and the previous year was one of the worst on record. Global trade grew by just 2.8% in 2014, not only signifi cantly less than the 4.7% originally forecasted by the World Trade Organization (WTO) but even lower than the reduced outlook of 3.1% it predicted last September, marking the third year in a row that trade grew by less than 3%. According to an April announcement, growth will remain restricted over the next few years, rising to just 3.3% in 2015 and 4% the year after — a far cry from the 5.1% annual average growth since 1990. “Trade growth has been disappointing in recent years, due largely to prolonged sluggish growth in GDP following the fi nancial crisis,” said WTO director-general Roberto Azevêdo. “Looking forward we expect trade to continue its slow

recovery but with economic growth still fragile and continued geopolitical tensions, this trend could easily be undermined.

Factors contributing to this slow growth include not only slow GDP growth in emerging economies and uneven recovery across the developed world, but rising geopolitical tensions and exchange rate fl uctuations (including a strong appreciation of the US dollar against other currencies). Weak trade fl ows in natural resource exporting regions such as central Asia, Africa and MENA (which fell by 5.9%, 7.6% and 3.9% respectively in 2014) due to lower commodity prices and declining oil prices (which fell by 47% in the last six months of the year) impacted export revenues and import demand. However, in resource importing countries the same factors boosted incomes and imports. “Prices have continued to fall since then, suggesting excess supply, insuffi cient demand, or both,” according to the latest note from the WTO. “Whether this turns out to be

a positive or a negative development on balance for world trade in 2015 remains to be seen.”

Yet although declining commodity prices may aff ect how much fi nancing people want — IFN conversations with market players suggest that there is litt le diffi culty in fi nding new customers for fi nancing — especially across the OIC.

OIC concernsThe pace of recovery since the fi nancial crisis may have lagged overall, but developing economies have seen more positive growth than their developed counterparts: 3.3% growth in exports compared to 1.5%, according to the most recent fi gures from COMCEC in

its ‘Annual Report on Trade between the OIC Member States 2014-15’.

Imports of developed economies also declined by 0.2% while developing and CIS economies grew by 4.4%.

In OIC countries, the news is even more positive. Since

the implementation of the 10-Year Program of Action by OIC

institutions a decade ago, the total global trade

continued on page 3

COVER STORY

The World’s Leading Islamic Finance News Provider

Western philanthropy enters Islamic arena...7

Regulatory reform and fi scal defi cit to spur sovereign and corporate Sukuk in Saudi Arabia...8

Malaysian Sukuk market — uncertain times ahead...9

Sovereign Sukuk: Welcoming a new player...10

Trade finance: A double-edged sword

REAL-TIME ONLINE ISLAMIC BANKING SOLUTION

www. e i g e r t r a d i n g . c om

2© 24th June 2015

IFN RAPIDS

Disclaimer: IFN 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.

DEALSCentral Bank of Bahrain issues its regular short-term Sukuk Ijarah worth BHD26 million (US$68.49 million)

Jordanian government to launch sovereign Sukuk soon

Toyota Capital Malaysia seeking to tap Islamic debt capital markets again; proposing mixed program worth RM2.5 billion (US$666.21 million)

Maxis to establish RM5 billion (US$1.33 billion) 30-year Sukuk Murabahah program

1Malaysia Development reveals Cabinet approval for its RM5 billion (US$1.33 billion) Sukuk issuance

Indonesian government receives IDR4.47 trillion (US$334.8 million) in incoming bids at latest Sukuk auction; awards IDR2.69 trillion (US$201.48 million)

Sepangar Bay Power Corporation to make Sukuk payment on the 3rd July

Hijrah Pertama to make periodic distribution on RM2.92 billion (US$785.83 million) Sukuk at the end of the month

Platinum Password to make early partial redemption/cancellation of RM34.29 million (US$9.17 million) Bai Bithaman Ajil Islamic debt securities

Sarawak Power Generation to make profi t payment for its Sukuk Musharakah on the 26th June

International Finance Corporation mulls over Sukuk off ering in September

Arabian Aramco Total Services Company

announces the partial redemption of AATSC Sukuk

Maxis sells fi rst series of its Sukuk Murabahah program

NEWSUganda approves amendments to fi nance law; allows Islamic banking

Islamic megabank in Indonesia may materialize next year

Meezan Bank inaugurates online account opening facility

SME Bank on track to becoming a fully-fl edged Islamic bank; targets 90% in Islamic fi nancing portfolio by end of 2015

Hong Leong Islamic Bank introduces two new Tawarruq-based products

RAM Ratings unveils new rating criteria and methodology

Indonesia’s Financial Services Authority plans to increase Islamic banking penetration by easing restrictions on foreign investors

ASSET MANAGEMENTAmanah Mutual launches new Shariah compliant retail fund

Bahrain Bourse approves trading guidelines on real estate investment trusts

National Bank of Abu Dhabi declares 2.22% dividend for Sukuk Income Fund

TAKAFULAlinma obtains SAMA’s fi nal conditional approval

for protection and savings products

Prudential BSN Takaful and Bank Simpanan Nasional roll out new investment-linked Family Takaful plan

Bank Muamalat Indonesia forms bancassurance partnership with Manulife Indonesia; launches new joint product

Takaful International Company and Copart Bahrain sign MoU for the regulation of the sale of damaged cars through an auction

RATINGSTBP’s Sukuk rating reaffi rmed

Omani banks rated

CIMB Islamic’s ratings revised

AlB obtains ‘BB’ rating

HSBC Amanah’s ratings reaffi rmed

Fitch affi rms Kuwait’s ratings

Moody’s assigns counterparty risk assessments to Saudi banks

Jordan’s sovereign ratings affi rmed

No changes to Turkiye Finans’s ratings

MOVESIslami Bank Bangladesh elects new chairman and vice-chairmen

Osman Celik takes over leadership of Turkiye Finans

Ayman Boodai steps down as CEO of The Securities House

IFN Rapids ................................................... ..2

IFN Reports:

• Western philanthropy enters Islamic arena

• Regulatory reform and fiscal deficit to

spur sovereign and corporate Sukuk in Saudi

Arabia • Long-term Sukuk the new flavor

• IFN Global Trendswatch • Malaysian

Sukuk market — uncertain times ahead •

Sovereign Sukuk: Welcoming a new player

• IFSB focusing on microTakaful to promote

financial inclusion • IFN Weekly Poll: In

regards to asset management, there are

computer programs that can enact portfolio

calculations in real time. Once the criteria

and tolerance levels are set and approved, do

these funds really need an ongoing Shariah

board? .................................................. 7

IFN Analysis:

Sudan: Solid contender ........................................12

Private equity and venture capital in Islamic

fi nance ........................................................ 13

Case Study:

Garuda Airlines Sukuk: First unrated US dollar

Sukuk from an Asia Pacifi c issuer ......................15

IFN Country Correspondent:

Iran; New Zealand; Pakistan; Brunei .................. 16

Special Report:

Corporate Waqf as a vehicle for Islamic microfi nance

— a proposal worth att ention..............................19

Investment opportunities in Italy: Shariah

compliant minibonds?.................................... 21

Economic eff ect versus the legal eff ect blessings of

Ijarah .............................................................. 23

Country Feature:

Islamic fi nance in Korea: Is it diff erent this

time? .......................................................... 24

Sector Feature:

Technology and the Islamic banking and fi nance

industry.......................................................... 25

Arcapita on a selling spree ............................. 26

Islamic Finance news ................................... 27

Deal Tracker ................................................. 32

REDmoney Indexes .................................... 33

Eurekahedge data ....................................... 35

Performance League Tables ....................... 37

Events Diary................................................. 41

Company Index ........................................... 42

Subscription Form ....................................... 42

Volume 12 Issue 25

3© 24th June 2015

COVER STORY

from OIC member states has grown 136% from US$2.66 trillion in 2005 to US$4.18 trillion in 2013. Among member nations themselves, intra-OIC trade has also increased by 186% — from US$271.45 billion in 2005 to US$776.13 billion in 2013.

Old FaithfulA number of long-standing institutions have driven this sustained growth: not least of which is COMCEC, through its Consultative Group for Enhancing intra-OIC Trade. Between February 2009 and September 2014 the Group completed around 1,012 projects of which 72% were fully implemented for the benefi t of the

OIC countries in the fi elds of capacity building, trade facilitation, trade promotion, trade fi nancing, exports credit insurance and guarantee and the development of strategic products.

In addition earlier this year Bahrain, Kuwait and Morocco joined the Trade Preferential System among Member

States of the OIC (TPS-OIC, a system based on three agreements: the Framework Agreement, the Protocol on Preferential Tariff Scheme and the Rules of Origin) — fi nally making up the required number of countries needed to sign and ratify all three agreements and leading to the convening of the OIC

Trade fi nance: A double-edged swordContinued from page 1

continued on page 4

Prices have continued

to fall since then, suggesting excess supply, insuf icient demand, or both

Table 1: Evolution of the OIC member states’ trade between 2005 and 2013 (US$ billion and in %)

2006 2007 2008 2009 2010 2011 2012 2013 Evolution 2012/2013

Evolution 2005/2013

World exports

980.73 1,190.46 1,395.31 1,891.14 1,329.35 1,680.77 2,122.48 2.261.77 2.215.79 -2.03% 126%

Intra-OIC exports

134.34 162.45 200.0 265.38 207.93 257.71 325.41 362.10 379.15 4.71% 182%

Share 13.70% 13.65% 14.35% 14.03% 15.64% 15.33% 15.33% 16.01% 17.11% 6.88% 25%

World imports

795.38 948.86 1164.98 1489.6 1329.7 15.01.35 1757.68 1864.54 1968.29 5.58% 147%

Intra OIC-imports

137.11 170.91 220.4 285.65 218.83 281.29 356.17 389.58 396.98 1.90% 190%

Share 17.24% 18.01% 18.92% 19.18% 16.46% 18.74% 20.26% 20.90% 20.17% -3.49% 17%

Global volume of world trade

1776.11 2139.32 2560.29 3380.74 2659.05 3182.12 3880.16 4126.01 4184.08 1.41% 136%

Intra-OIC trade volume

271.45 333.36 420.6 551.03 426.76 539 681.58 751.68 776.13 3.25% 186%

Net intra-OIC trade

135.73 166.68 210.30 275.52 213.38 269.50 340.79 375.84 388.07 3.25% 186%

Share of intra-OIC trade

15.47% 15.83% 16.63% 16.60% 16.05% 17.03% 17.80% 18.45% 18.64% 1.03% 20.49%

Sources: DOTS IMF October 2014 and ITC,UNCTAD, WITS October 2014

Chart 1: Growth in volume of world merchandise trade and real GDP, 2007-16P

Average tradegrowth 1990-2014

Average GDPgrowth 1990-2014

Figures for 2015 and 2016 are projections. trade refers to the average of exports andimports.Sources: WTO secretariat for trade and consensus estimates for real GDP at market exchange rates; World Trade Organization

15

10

5

0

-5

-10

-152007 2008 2009 2010 2011 2012 2013 2014 2015P 2016P

World trade volume (avg.exports and imports)World real GDP at marketexchange rates

(Annual % change)

4© 24th June 2015

COVER STORY

Trade Negotiating Secretariat earlier this year and the circulation of the concessions list among the participating states.

The Islamic Trade Finance Corporation (ITFC) is another landmark institution supporting OIC trade: and in 2013 the agency approved an aggregate of US$333 million in facilities for supplying agricultural inputs, staples food and export fi nancing in Burkina Faso, Cameroon, Gambia, Mali, Nigeria, Senegal, Togo and Zimbabwe. The ITFC also approved 19 operations for agricultural sector, amounting to US$566 million, slightly higher than the previous year. In the fi rst eight months of 2014, ITFC agricultural sector operations had an aggregate fi nancing amount of US$386 million, while the group has also continued to support member states for supply of other strategic commodities, such as polyethylene, polypropylene and oil. In the SME sector, the ITFC extended lines of fi nancing and two-step Murabahah fi nancing to local banks who in turn extended this to local SMEs for specifi c trade fi nance deals: and from US$125 million in 2013 this grew to US$385 million in the fi rst eight months of 2014. Overall, the facility approvals by the ITFC have doubled from US$2.5 billion in 2008 to US$5.1 billion in 2014, while over the last seven years the volume of ITFC trade fi nancing approvals has reached US$25 billion.

New marketsThe Gulf and Asia are the major players in trade fi nance, with signifi cant opportunities especially in Asia leading to a surge of activity. The business as a whole accounts for around US$8 trillion, according to some estimates — with about US$2 trillion of that in Asia, making it a massive and growing market. “The trade fl ow routes are returning to much bett er levels than in the past few months. We expect activity from summer crops coming strong with lots of activity and focus for us around the Black Sea and Mediterranean

businesses,” confi rmed Francois Dott a, CEO of EFA Group, speaking to IFN.

However, new markets are also att racting att ention. ITFC CEO Dr Waleed Al-Wohaib recently confi rmed that following the inauguration of the IDB’s Istanbul Gateway Offi ce, the agency plans to increase its annual trade fi nancing volumes in Turkey by US$700 million within three years. Current ITFC products trading in favor of Turkish corporations and bank amount to around US$1.65 billion, while Dr Waleed added that its portfolio has also grown from US$50 million to US$445 million, boosted by signifi cant input from the state-owned Turkish Eximbank, which received around US$200 million from

the ITFC in 2014 in the form of two-step Murabahah. Over in Egypt,

president Abdel Fatt ah Al-Sisi in May this year also issued a decree to approve an agreement between the Ministry of International

Cooperation and the ITFC, to provide the fi nance to import basic commodities to Egypt, such as butane gas, diesel, petroleum products, wheat and food commodities.

Trade fi nance: A double-edged swordContinued from page 3

continued on page 5

Table 2: Global trade from OIC member states, 2013

US$ billion

% of global trade

from OIC countries

1 UAE 516.1 12.3

2 Saudi Arabia 509.2 12.2

3 Malaysia 434.8 10.4

4 Turkey 403.5 9.6

5 Indonesia 369.2 8.8

6 Iran 170.4 4.1

7 Qatar 164.2 3.9

8 Nigeria 160 3.8

9 Iraq 134.4 3.2

10 Kuwait 126.6 3

Total 71.3

Total OIC trade as % of global trade 2013

11.34

Source: COMCEC

A DIGITAL ECONOMY

In June last year, the ITFC and the Global Coalition for Effi cient Logistics (GCEL) executed a historic MoU aimed at capitalizing on the US$109 trillion B2B global market by enhancing trade effi ciency and encouraging the expansion of trade fi nance throughout OIC countries.

The 18-month global HumaWealth Program is designed to improve technology throughout the sector, delivering a new era of integrated e-commerce, e-fi nance, e-insurance and e-logistics to achieve new levels of trade effi ciency. It plans to reduce annual trade costs by US$1.3 trillion (including US$75 billion for the OIC), increase trade by US$1.2 trillion, provide a US$6 trillion services market opportunity and create a US$1 trillion SME fund: in total generating around 100 million jobs.

The MOU followed the release of the KSA Trade Effi ciency Assessment, conducted by GCEL in cooperation with the CSC, Saudi Ministry of Commerce and Industry, Saudi Customs, League of Arab States, Islamic Center for Development of Trade, ITFC, Nielsen Company and Frost & Sullivan, which illustrated the urgent demand for a digital economy ecosystem to make trade more effi cient and transparent and to facilitate the global integration of fi nancial services to the trade pipeline.

Similar assessments were conducted in Indonesia, India and Malaysia, with results suggesting that 80% of trade participants have no systems and 88% would want a digital economy platform. “The trade effi ciency assessment fi ndings revealed that the banking sector ranked last in terms of integration among all the trade pipeline participants, scoring an average of 0.9 out of fi ve, (fi ve being what today’s technology makes possible),” said Dr Waleed. “We must continuously seek innovative ways to improve trade effi ciency and increase the trade fi nance market: this is the foundation of our MoU with GCEL”.

Source: Islamic Development Bank

5© 24th June 2015

COVER STORY

New opportunitiesIt is not just new markets, but new players that are moving into this space. In Indonesia, a country long targeted by foreign players for its natural resources and Islamic fi nance opportunities, the ITFC has joined with local players to boost the sector. In January 2015, Bank Danamon Indonesia, the sixth-biggest lender by assets, partnered with the ITFC through its Islamic banking window Danamon Syariah to disburse US$200 million in domestic Islamic trade fi nancing. “This is the fi rst time the ITFC has collaborated in Shariah joint trade fi nancing with an Indonesian bank, and it is with great pride that Danamon was appointed by the ITFC as its agent to arrange the fi nancing for customers as well as provide trade fi nance services and trade collateral management,” said Henry Ho, the president director of Bank Danamon Indonesia, during the signing of the agreement.

The two institutions hope to achieve up to US$1 billion in Islamic trade fi nancing by 2020, targeting sectors

including local food and agricultural business as well as building up exports. Last year, Danamon Syariah disbursed around US$24 million in Islamic trade fi nancing, accounting for around 3% of its total trade fi nancing activity. This year, trade product management head Margaret Tjahjono has identifi ed a target of 20% growth in overall trade fi nance to US$961.54 billion, driven by growth in the Shariah component (without which conventional growth is expected to be just 10%). “For Shariah banks, trade fi nancing can be a strategy in increasing the banks’ revenue amid the limited number of alternative Shariah instruments, especially with the increase in foreign exchange liquidity from Hajj funds,” said Mulya Siregar, the deputy commissioner in charge of monitoring banks at the Indonesian Financial Services Authority, OJK, to a local news source.

In the Gulf, another player making waves is Abu Dhabi-based FGB, which has seen its Shariah compliant assets

Trade fi nance: A double-edged swordContinued from page 4

For Shariah banks, trade

inancing can be a strategy in increasing the banks’ revenue amid the limited number of alternative Shariah instruments, especially with the increase in foreign exchange liquidity from Hajj funds

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continued on page 6

6© 24th June 2015

COVER STORY

grow by 80% since 2013 and which is seeing its Islamic trade fi nance activity surge as GCC governments continue their strong spending on infrastructure and projects in the face of falling oil prices, and banks seek to diversify into other sources of income. “Trade fi nance is very much a growing segment for banks in the UAE, whether conventional or Islamic, but Islamic trade fi nance is becoming more and more popular with clients in the UAE,” said Shamzani Hussain, the global head of Islamic banking at FGB’s wholesale banking group, told The National last week. “Most of these companies are companies that import materials from outside, companies that have clients outside the UAE.”

Pulling backOpportunities are opening up for other players, especially non-banking fi nancial institutions such as fund managers seeking to enter the sector. The volatile global economy and relatively low margins have led many banks to take a “wait-and-see” att itude, according to Tjahjono. The banks are under pressure to pull back, and while the majority of SMEs may hold multiple banking lines, a preference for diversifi cation is leading new players to set up non-banking lines: such as the trade fi nance funds launched in recent years from players including Asiya Investments and EIIB-Rasmala.

The key here is a happy medium. Several funds have set up in the space but it continues to be largely dominated by bank fi nancing and this is unlikely to change. For the funds serving the sector, the opportunities lie at the lower end of the business: with companies achieving a US$200 million to US$1 billion turnover which may be too small to att ract big-ticket bank deals but whose needs are too large to be satisfi ed by commercial lines of credit. A positive outlookOn both sides, activity is on the up. “Competition increases by the day as the sector is in need of fi nance, which capital providers have now understood

and equipped themselves to serve this need,” confi rmed Dott a. “Growth factors will come from diversifi cation from conventional fi nance and also the willingness for some businesses to only connect to this type of fi nancing. Some companies have geared their organizations to be fully compliant with the Shariah principles, fi nance being a key element of any business.”

However, he warned that the biggest challenges to the sector were awareness, product off ering, cost and implementation burden.

Trade fi nance: A double-edged swordContinued from page 5

Growth factors

will come from diversi ication from conventional inance and also

the willingness for some businesses to only connect to this type of inancing

Table 3: Approvals since inception (amount in US$ million)

2008 2009 2010 2011 2012 2013 2014

Comoros - - - - - - 20

Djibouti - - - - - - 30

Egypt 100 150 368 356 765 491 955

Jordan 0.5 - 10 - - 338 200

Kuwait 107 87 - 30 - - 100

Lebanon 7 - - - - - -

Mauritania 43 - 15 65.9 18.9 100 65

Morocco 270 100 174 254 327.5 430 485

Palestine - - - - - - 1

Saudi Arabia

335 180 30 17 30 40 72

Sudan 50 - - 76.1 - - -

Syria - - 5 32 - - -

Tunisia 29 - - - - - 320

UAE - 7 147 82.5 20 10 11

Source: ITFC

941.5

524

749

913.4

1,161.4

1,409

2,259

2008

2009

2010

2011

2012

2013

20140 500 1,000 1,500 2,000 2,500

Chart 2: Total approval (Amount in US$ million)

Source: ITFC

7© 24th June 2015

IFN REPORTS

With the news that billionaire philanthropist Bill Gates has donated US$100 million to a new social welfare fund in partnership with the IDB, the media spotlight once again shines on poverty and disease rife in many Islamic nations. Yet the encouraging trend of philanthropic donations not only from the Muslim world but increasingly from western and global participants suggests that cooperation and collaboration could be the key to solving this vicious cycle. LAUREN MCAUGHTRY looks at the patt ern of giving.

A total of 465 million people in OIC member countries were considered as ‘multidimensional poor’ in 2014, accounting for 29% of the global total, according to a report on ‘Measurement of Poverty in OIC Member Countries 2015’ from COMCEC. “Progress in eradicating poverty remained highly uneven across the OIC member countries,” confi rmed the report. “Incidence of poverty, both in monetary and multidimensional terms, remained very high especially in low and lower middle income OIC countries located in sub-Saharan Africa and South Asia regions.”

And while international humanitarian assistance has reached record levels (US$22 billion as of 2013), there is much more to be done — especially by the Islamic world itself. For example, Islamic microfi nance initiatives account for just 1% of the total US$1 billion global microfi nancing industry.

Zakat is of course a key component of Muslim philanthropy, and according to a recent report from Global Humanitarian Assistance (GHA), between 23-57% of global Zakat currently collected is used for humanitarian assistance. Given the absence of concrete data however, it is diffi cult to ascertain the value of these donations. GHA estimates that the total volume must be in the tens of billions: with data collected from Indonesia, Malaysia, Qatar, Saudi Arabia and Yemen (which together make up around 17% of the world’s estimated Muslim population) indicating that in these countries alone, at least US$5.7 billion is currently collected in Zakat each year.

But what about philanthropy beyond Zakat? There have been a number of initiatives in the Muslim world to

encourage a trend that is already well-established in the wider social landscape. In 2010, Tariq Cheema set up the World Congress of Muslim Philanthropists (WCMP), a global network of affl uent individuals, grant-making foundations, and socially responsible corporations, established to advance eff ective and accountable giving. “Over a fi ve-year period, we have been successful in building an international network of donors,” said Tariq in a recent speech at Georgetown University. “These are primarily high-net-worth individuals, foundations and corporations. The goal is to help them move from the earlier giving patt erns to giving that is smart, vigilant, and transparent, with benchmarks, giving that will yield a social dividend.”

Other funds do exist, including Two Point Five, Socially Yours — and the Hasanah Fund, a multi-giving donor circle launched by the WCMP in 2011 to develop and implement sustainable programs to combat global hunger, poverty and bad governance, with the aim of mobilizing US$100 million by 2016. “The Hasanah Fund clearly demonstrates the enduring commitment of Muslim philanthropists to the social and economic uplift of the poorest people, irrespective of their race and religion,” said Dr Sheikha Aisha Faleh Al-Thani, the chair of WCMP.

However, these initiatives have gained litt le global traction or recognition, while the numbers involved are often small. This month however, philanthropy in the Islamic world shot into the media spotlight this month with the announcement by the Bill and Melinda Gates Foundation (the Foundation) of a partnership with the IDB to set up a US$2.5 billion fund to alleviate poverty and fi ght disease in OIC countries. The program was offi cially launched with a US$500 million grant facility (The Lives & Livelihoods Fund) through which the coalition plans to support poverty-focused programs in primary healthcare, disease control, smallholder agriculture and basic rural infrastructure over fi ve years across IDB member countries.

The initial US$500 million fund, seeded by US$100 million each from the IDB (through its Islamic Solidarity Fund for Development) and the Foundation,

will be supported by a further US$2 billion from the IDB to scale up support, according to IDB chairman Dr Ahmad Mohamed Ali. Dr Ahmad and Gates also called on donors to contribute the additional US$300 million needed to seed the fund, which hopes to commence operations in early 2016. “We now have a once-in-a-lifetime opportunity to improve the quality of life for each of the nearly two billion people living in the bank’s member countries,” said Gates at the launch on the 15th June. “It is an honor to join you in this historic eff ort.”

The Gates are no strangers to investment in the OIC — or to partnership with the IDB, and this new step is just the latest in a long line of support. In March this year, the IDB approved a funding partnership with the Foundation to invest over US$718 million in roads, power generation, sanitation and agriculture in a number of IDB member countries including Benin, Brunei, Cote d’Ivoire, Kenya, Turkey, South Africa, Sudan, Uganda, Uzbekistan and Yemen. In 2012, the Foundation also partnered with the IDB to “combat communicable disease and food insecurity in low-income countries” through an MoU establishing a fi ve-year framework of collaboration on agricultural development, malaria prevention and polio eradication in Pakistan, Afghanistan and Nigeria.

With this latest initiative garnering headlines across the globe, perhaps the move will propel philanthropy forward across the Islamic world: inspiring further involvement from Muslim and non-Muslim investors alike. After all, poverty is a global issue — and must be att acked from a united front.

Western philanthropy enters Islamic arena

8© 24th June 2015

IFN REPORTS

Projected to experience a budget defi cit greater than its estimations this year, the Saudi Arabia government is expected to return to the debt capital market, encouraging growth in the country’s corporate Sukuk sector. NABILAH ANNUAR examines the potential impetuses the Kingdom’s economic landscape that could fi nally drive up its Islamic bond volumes.

The recent decline in oil prices and rising government expenditure on increased welfare spending has generated expectations that Saudi Arabia may issue domestic sovereign debt this year for the fi rst time since 2007. According to industry reports, the Kingdom is estimated to witness a budget defi cit of between 17-20% of its GDP in 2015. Foreign reserves in May dropped US$36 billion to US$708 billion over the preceding couple of months (a 5% fall and the fastest rate on record). Although still having a cushion of substantial external reserves, analysts expect that the rising fi scal gap could warrant domestic borrowings as they do not anticipate any sharp pullback in government spending.

“Much of this debt would probably be long term and would be bought by the

country’s banks, which would consume some of the plentiful liquidity that has helped make bank lending the primary source of funding for Saudi corporates,” conveyed Fitch in a recent statement. Even without sovereign issuance, lower oil prices may aff ect banks’ lending appetite, which could reduce the cost diff erence between loans and Sukuk or bonds for issuers. “We believe corporates will largely maintain their capex programs and some funding for these plans may therefore move to the Sukuk market.”

Sharing Fitch‘s sentiments, economists at the IMF (according to Gulf News) also opined that the government will likely bridge its widening fi scal gap by resorting to domestic borrowing in the near future. Saudi corporates are seen to be more inclined to issue Sukuk than

bonds due to the wider local investor base for Sukuk and because some are restricted to Shariah compliant borrowing by their own rules. This view is supported by the absence of conventional corporate bond issues in Saudi Arabia since 2013, while Sukuk issuance was US$7.8 billion in 2014.

Another factor that is likely to spur Saudi Arabia’s Sukuk volume in the medium term is the Capital Market Authority’s plan to reform the corporate debt market, including measures to make regulatory approval of debt products easier. While litt le detail is available, the authority has reportedly said it will announce an initiative by the end of the year.

Nevertheless, a sharp recovery in oil prices is foreseen to reduce the impetus for Sukuk issuance by reducing the potential for sovereign debt issuance. The probability of the Saudi government resorting to debt to plug the signifi cant fi scal shortfalls provides a boost to the country’s Sukuk market; with foreign investment access to securities listed on the Tadawul, market players are optimistic that it would serve as a catalyst for Sukuk trading in the country’s secondary market.

Regulatory reform and iscal de icit to spur sovereign and corporate Sukuk in Saudi Arabia

Short and medium-term Sukuk may have long been favored by market players; however, VINEETA TAN notes that recent trends are showing a gradual shift towards longer-term papers, in line with the rise of infrastructure projects and indicative of the growing tolerance from investors for longer time frames.

Traditionally issued within the three and seven-year time frame, newer issuers are, however, leaning towards longer maturities, more notably in the 10-year and 30-year range. Last week alone, two entities in Malaysia revealed their respective 30-year Sukuk plans: oil and gas service provider SapuraKencana Petroleum and communication services provider Maxis (issued) — decisions likely to be motivated by the government’s successful dual-tranche (10-year and 30-year) US dollar Sukuk

earlier in April. It is also noteworthy that the Malaysian central bank has ceased off ering short-term Islamic papers since the beginning of the year as the system is fl ush with liquidity.

And this gravitation in preference is also apparent among other sovereigns. For example, neighboring Indonesia followed closely on Malaysia’s heels with a 10-year US$2 billion off ering in May; while relatively young player Turkey also brought to market its maiden long-term decade-long Sukuk six months ago — all of which are anticipated to pave the way for corporates to tap longer-term Sukuk opportunities.

This unfolding development demonstrates the deepening and maturing of the Sukuk landscape as it facilitates the creation of a new

benchmark curve for the respective jurisdictions; and equally as signifi cant, puts to rest any market concerns over the longevity of Sukuk and investment returns. In fact, data from S&P Dow Jones Indices showed that long-term papers are outperforming the short-term (See IFN Report Vol 12 Issue 22: ‘Sukuk sector regains ground as new trends begin to emerge’).

As nations across borders enter into a period of strong infrastructure growth and with the IDB continuing to put infrastructure fi nancing high on its agenda evident by its engagement with the Asian Infrastructure Investment Bank and its own proposed Islamic Investment Infrastructure Bank, we can expect a spike in demand for longer-term funding and with that, a fl ush in opportunities for Sukuk.

Long-term Sukuk the new lavor

9© 24th June 2015

IFN REPORTS

What’s going on in the world this week? LAUREN MCAUGHTRY brings you a selection of important, relevant or downright interesting economic, global and regional events, issues and trends that have the potential to aff ect the Islamic fi nance industry.

� EU calls crisis talks as Greece bailout discussions in Luxembourg fail to reach any agreement. What impact will this have on the beleaguered Union — and if Greece is really ejected from the EU, what precedent will that set?

� Leader of the Catholic world, Pope Francis, att acks business leaders and global corporations for failing to tackle climate change. “The idea of infi nite or unlimited growth, which proves so att ractive to economists, fi nanciers and experts in technology . . . is based on the lie that there is an infi nite supply of the earth’s goods, and this leads to the planet being squeezed dry beyond every limit,” he wrote recently. “There is a need to seek other ways of understanding the economy and progress.” The att ack follows

a number of high-profi le rejections of fossil fuel investment, including from banks such as Barclays and institutions such as the UK’s Church of England Investment Fund.

� Ali Al-Naimi, the oil minister of Saudi Arabia, suggested that the Kingdom could phase out the use of fossil fuels by 2050. “In Saudi Arabia, we recognize that eventually, one of these days, we are not going to need fossil fuels. I don’t know when, in 2040, 2050 or thereafter,” he announced at a conference in Paris. Instead, the Kingdom plans to become a global power in alternative energy. Could it really be possible, as Citigroup predicted in 2012, that Saudi Arabia has the potential to become a net oil importer by 2030?

� US stocks reach record high after Federal Reserve meeting emphasizes that rates will only be raised “gradually” with the fi rst hike only expected in September. However, the US dollar fell to a one-month low.

� Hong Kong rejects a Beijing reform package, leaving the future of the

former British colony in jeopardy. What impact will this deterioration in relations between Hong Kong and China have on the burgeoning Islamic fi nance market in the island nation?

� The World Bank warns that developing nations including China face a “structural slowdown” which could last years — while high-income countries are resuming their role as drivers of global economic growth. The bank added that while most developing economies are expected to handle the anticipated Federal Reserve rate hikes, they remain “an important risk”.

� The 2015 asset management survey from Invesco suggests that over a third of Middle East sovereign wealth funds expect new funding to decrease, primarily as a result of the falling oil prices. Sensitivity about future withdrawals is also on the up. Approximately 62% of regional funds expect to liquidate assets to fund fi scal defi cits if oil prices fall below US$40 per barrel for two consecutive years, reported the FT.

IFN Global Trendswatch

Intensifying uncertainties weighing on market sentiments this year has led RAM Ratings to downward revise their previous forecast for Malaysian gross private debt securities (PDS) issuance (Islamic and conventional) from RM85-95 billion (US$22.65-25.32 billion) to RM75-85 billion (US$19.99-22.65 billion) — refl ecting a weaker investment atmosphere. VINEETA TAN explores the environment.

A major driving force for the more conservative fi gures is the lingering uncertainty surrounding the US Federal Reserve’s quantitative easing tapering plan which continues to squeeze global liquidity. Kristina Fong, the head of research at RAM, explained to IFN that this — coupled with capricious international oil prices — resulted in a signifi cant withdrawal of foreign investors from the Malaysian market since the beginning of the year. “With no clear direction from the Fed — as to how

much and when they’d be implementing the plan – both investors and issuers are playing it safe and assuming a wait and see approach,” added Fong.

Year-to-date PDS issuance tumbled 14.2% year-on-year to RM32.1 billion (US$8.55 billion) despite a pickup in sales to RM9.5 billion (US$2.53 billion) in May as compared to RM7.8 billion (US$2.08 billion) the month before. According to data from Bond Pricing Agency Malaysia, gross Islamic PDS off erings in May 2015 dropped to RM14.7 billion (US$3.92 billion) from RM20.3 billion (US$5.41 billion) registered in May 2014. This declining trend also emerged within the Islamic paper-dominated quasi-sovereign space which fell 22.6% year-on-year (on a year-to-date basis). Government securities issuance, however, fared bett er: as at the end of May, sovereign issuances were up 10.4% to RM52.2 billion (US$13.91 billion), with the majority (58.9%)

of long-term facilities being Shariah compliant. For 2015 (as at the 31st May), the ratio of Islamic and conventional government securities tendered is 56:44.

While RAM believes that market players for the next six months would be more circumspect in terms of timing of potential debt issues and investing as their decisions are likely to be overshadowed by downside domestic and external risks, the rating agency notes that local investors and monetary conditions should remain supportive of the debt capital market. “The expected volatility of the equity market may compel investors to switch to safer assets such as fi xed income securities,” opined the agency.

Malaysian Sukuk market — uncertain times ahead

10© 24th June 2015

IFN REPORTS

One of the main highlights of this week was the Jordanian government’s commitment to its inaugural Sukuk having set a time frame for the issuance. Other than that, the sovereign Sukuk space also saw regular issuances from Bahrain and Indonesia. As usual, NABILAH ANNUAR keeps updated with the developments in this niche area.

From the idea that was incepted back in 2013, the Jordanian government last week revealed that it expects to launch its fi rst sovereign Sukuk to fi nance real estate projects. Quoting fi nance minister Umayya Toukan, local daily Jordan Times reported that informed sources have indicated that the Sukuk may be issued in the coming weeks and could raise around JOD400 million (US$562.36 million). The government’s debut off ering is also expected to encourage more corporate Sukuk issuance in the future. Jordanian authorities have engaged the Islamic Corporation for the Development of the Private Sector for the proposed issuance.

Capital Intelligence (CI) has in a recent statement affi rmed Jordan’s long-term foreign currency rating of ‘BB-’ and its

long-term local currency rating of ‘BB’. At the same time, CI also affi rmed Jordan’s short-term foreign and local currency ratings of ‘B’. The outlook is affi rmed stable for both of Jordan’s foreign and local currency ratings. CI’s affi rmation of

the country’s ratings takes into account the recent improvement in the country’s capacity to absorb economic shocks in view of the decline in international oil prices and the progressive increase in foreign exchange reserves.

Over in Bahrain, the central bank conducted two types of its regular issuances last week: Sukuk Ijarah and Sukuk Salam. The Central Bank of Bahrain (CBB) on the 17th June announced that its monthly issue of the short-term Sukuk Ijarah has been oversubscribed by 193%. Subscriptions worth BHD50.1 million (US$131.97 million) were received for the BHD26 million (US$68.49 million) issue, which carries a maturity of 182 days. The expected return on the issue, which began on the 18th June 2015 and matures on the 17th December 2015, is 1.25%. Subsequently on the 22nd June 2015, it issued Sukuk Al-Salam worth BHD43 million (US$113.31 million) which was oversubscribed by 276%. Carrying a maturity of 91 days, the expected return on the issue, which begins on the 24th June 2015 and matures on the 23rd September 2015, is 1.2% equivalent to 1.2% for the previous issue on the 27th May 2015.

Moving to Indonesia, the government of Indonesia received approximately IDR4.47 trillion (US$334.8 million) in bids for its Sukuk auction on the 16th June. The fi nance ministry confi rmed in a statement that a total of IDR2.69 trillion (US$201.48 million) was awarded.

Sovereign Sukuk: Welcoming a new playerUpcoming sovereign SukukCountry Amount Expected dateSindh Province US$200 million TBAOman US$1 billion Before Ramadan

2015Kazakhstan TBA 2016Turkey TRY1.5 billion TBABangladesh TBA TBAHong Kong US$500 million to US$1 billion TBANingxia Hui Autonomous Region US$1.5 billion TBAIvory Coast XOF300 billion 2015-20Kenya TBA 2016South Africa TBA 2016Senegal TBA TBANiger XOF150 billion TBATunisia US$500 million 2015Jordan JOD400 million 2015UAE TBA 2015Luxembourg TBA TBA

11© 24th June 2015

IFN REPORTS

The IFSB is evaluating current Islamic microinsurance frameworks across diff erent markets as it seeks to bolster the sector through an enhanced revision to such regulatory infrastructure. VINEETA TAN reports.

Despite being touted as a high-potential Islamic instrument for social inclusion, especially when 25% of the global Muslim population are living on less than US$1.25 per day, microTakaful has struggled to gain traction in many nations due to the limiting factors of the present operating landscape.

“Regulators and supervisors in jurisdictions where Takaful providers off er their services have relatively litt le experience or empirical data to support their role in creating a conducive environment for the microTakaful market that could work eff ectively for the lower income segments,” explained the IFSB in a statement.

This has prompted the global standard-sett ing body to release a joint paper in collaboration with the International Association of Insurance Supervisors (IAIS) addressing regulatory impediments to the Islamic microinsurance segment.

The exposure draft notes that despite bearing similar features to Takaful products, microTakaful solutions are faced with various unique supervisory challenges. Among critical issues highlighted include requirements of separation of funds; solvency and capital adequacy frameworks; an investment framework and Shariah compliance. Education, consumer protection, licensing requirements and the supervisory review process are also covered by the joint paper.

Looking to delineate current practices and product structures as well as challenges with the end goal of enhancing fi nancial inclusion through the Islamic insurance sector via the provision of sound guidance, the IFSB and IAIS are seeking public feedback on their joint initiative until the 6th August.

IFSB focusing on microTakaful to promote inancial inclusion

Harnessing sustainability of a global Islamic finance marketplace

REGISTER FREE NOW atwww.REDmoneyevents.com

The inaugural IFN Issuers Forum, a one-day forum taking place in Dubai will bring together the industry’s

leading issuers, arrangers and financial intermediaries to discuss innovation in transactions, asset classes

and Shariah rules.

The forum will bring the industry’s elite to address current trends in Shariah compliant capital raising,

analyze the key features of global landmark deals and recognize highly successful transactions in the

global Islamic debt capital markets.

Issuers Forum13th September 2015The Ritz-Carlton, Dubai International Financial Centre (DIFC)

MULTILATERAL STRATEGIC PARTNER ASSOCIATE PARTNERS

LEAD LAW PARTNER

HUMAN CAPITAL PARTNEREXECUTIVE PARTNERS LANYARDS SPONSOR

LEAD MEDIA PARTNER STRATEGIC MEDIA PARTNERS MEDIA PARTNERS

12© 24th June 2015

IFN REPORTS

Touching the asset management space this week, IFN asks the industry the signifi cance and true necessity of an Islamic Shariah board in fund management. With the poll results leaning towards the conservative side, NABILAH ANNUAR explores if having both — a designated software and a Shariah board — is a redundancy.

Most probably a fact that many are aware of, the existence of a Shariah board is generally a mandatory requirement for an Islamic fi nancial institution in order to ensure product compliance. The role of the board also involves the reviewing and overseeing of all potential new product off erings and to adjudicate individual cases referred to it. The poll results this week as mentioned portrayed a cautious and conservative view as a majority of 83% voted in favor of the requisite of an ongoing Shariah board in Islamic fund management.

Speaking on condition of anonymity, a Malaysia-based international Islamic fund manager told IFN: “Computer programs should be used to automate the Shariah compliant screening of equities. It is easy to determine Shariah compliance on fi nancial ratios with computer programs. However, on the business screens, they can only go so far, and some has to be done manually. In our era of new technologies and scientifi c discovery, Shariah scholars do need to play a role in giving advice as to whether a new discovery is acceptable or not.” In the same breath, another fund manager based in the Middle East who also chose to comment anonymously opined: “I would vote yes as I believe an ongoing Shariah board is required as an ongoing audit is required for all funds.”

According to the ‘Guidelines On Islamic Fund Management’ issued by

the Securities Commission Malaysia (SC), one of the industry’s largest asset management center, the Islamic fund manager must appoint an individual or a corporation as an independent Shariah advisor to: 1) advise on all aspects of Islamic fund management business in accordance with Shariah; 2) provide Shariah expertise and guidance on all matt ers, particularly in documentation, structuring and investment instruments, and ensure compliance with relevant SC regulations and/or standards, including resolutions issued by the Shariah Advisory Council; 3) review reports of compliance offi cers of the Islamic fund manager or an investment transaction report to ensure that investment activities are Shariah compliant; and 4) provide a writt en opinion or periodic report to confi rm and certify whether the Islamic fund management business has been managed or administered in accordance with Shariah.

For investment in securities traded on a recognized stock exchange, an Islamic fund manager should only invest in securities endorsed by the Shariah advisor of the recognized stock

exchange or by an international Shariah standard-sett ing body.

As the demand for Shariah compliant fi nancial services grow, particularly at a faster rate than conventional banking, the board plays a vital role in helping to develop new procedures and products to position the institution to adapt to industry trends and customers’ expectations. In ensuring the conformity of the institution’s off erings, boards typically include acknowledged experts, such as contemporary Islamic scholars. It is therefore common for such scholars to sit on the Shariah boards of multiple institutions given that they play a crucial and instrumental part in the functionality of an Islamic fi nancial institution.

Although developed software are able to enact portfolio calculations in real time, there is a clear consensus that an ongoing Shariah board is a necessity in Islamic fund management to cater to peculiar needs, among others, of a particular product that is likely unsolvable by computer programs.

IFN Weekly Poll: In regards to asset management, there are computer programs that can enact portfolio calculations in real time. Once the criteria and tolerance levels are set and approved, do these funds really need an ongoing Shariah board?

17%

83%

In regards to asset management, there are computer programs that can enact portfoliocalculations in real time. Once the criteria and tolerance levels are set and approved, do these funds really need an ongoing Shariah board?

Yes

No

13© 24th June 2015

ANALYSIS

Legal and regulatorySudan’s fi nancial system became fully Shariah compliant in the early 1990s under the leadership of president Omar Al-Bashir, following unsuccessful eff orts for conversion in the 1980s. In 1992, the High Shariah Supervisory Board was established to oversee the implementations of the reforms and Shariah compliance of the fi nancial industry. It also serves as an appeal body for the Republic’s Shariah banks, central bank and banking customers.

A new clause was added to the Republic’s legislation in 1998 stating that the growth of the national economy will be directed by the state to prevent monopoly, usury, fraud and to ensure national self-suffi ciency.

Banking and inanceThere are 34 banks operating in Sudan, according to the central bank — which is a founding member of the IFSB. While the number is relatively high, the 37.96 million people of Sudan remain largely unbanked which prompted the Bank of Sudan to create the Microfi nance Unit in 2007 to push for microfi nancing on a larger scale in the country. In 2008, the regulator issued a circular requiring banks to allocate 12% of their fi nancing portfolio to microfi nancing entities. According to Consultative Group to Assist the Poor, 12 Sudanese banks have introduced dedicated Islamic microfi nance windows while 10 stand-alone microfi nance institutions have come to market.

The country’s largest Islamic private bank, Bank of Khartoum, was reported

to have applied for a wholesale banking branch in Bahrain and is expected to secure the license in 2015.

According to latest data by the central bank (November 2014), total banking assets (liabilities) for the country reached SDG90.47 billion (US$15.08 billion) while banking deposits stood at SDG53.35 billion (US$8.89 billion) and banks’ fi nance at SDG42.84 billion (US$7.14 billion).

TakafulIslamic insurance was introduced in Sudan by Faisal Islamic Bank (Sudan) which in 1978 established the Islamic Insurance Company — the world’s fi rst Takaful operator. Several other banks followed suit including AlBaraka Bank, Islamic Cooperative Development Bank and Sudanese Islamic Bank.

The Decree of the Minister of Finance No 219 in 1992 required all insurance operators to convert their operations to be in compliance with Shariah, in tandem with the country’s banking system. To date, there are at least 15 Takaful operators in Sudan with fi ve of them off ering microTakaful products.

Capital marketSudan was one of the earlier African players, alongside Gambia, to tap the Sukuk market. The country in 2003 established a special committ ee to address the topic of Sukuk and issues Islamic debts four times a year. The country has explored two types of Sukuk to date: Ijarah and Musharakah. Challenges and opportunitiesSudan has demonstrated great political will in adopting and developing the Islamic fi nance proposition; and its fully Shariah compliant fi nancial system coupled with underbanked population represents vast opportunities for the industry to fl ourish. Retail segments aside, the Republic’s Islamic capital markets is also poised for growth as the government seeks to diversify its funding sources and generate revenue beyond its oil industry.

IFN COUNTRY ANALYSISSUDAN

Sudan: Solid contender Like Iran, Sudan is a rarity in the sense that it has a fully-fl edged Shariah compliant fi nancial and banking system. With the country looking to bolster non-oil income and foreign investors fl ocking to the region for investment opportunities — the Islamic fi nance prospects for the country looks bright. VINEETA TAN provides a snapshot of Sudan’s fi nancial market.

Table 1: Trading in investment funds (Sukuk)

Certifi cates No of shares Dealing value (000s SDG)

Percentage (%) No of contracts

2nd Global Investment Fund

3,705 37.2 38.8 9

Govt Investment Sukuk 17

585 58.8 16.2 5

Total 4,290 96.0 100.0 14

Chart 2: The yield curve on government investment Sukuk 2014

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Yield 1.7 3.3 5.0 6.7 8.3 10 11 13 15 16 18 20

25%

20%

15%

10%

5%

0%1.7% 3.3%

5%

6.7%8.3%

10%11.7% 13.3%

15%16.7% 18.3%

20%

Chart 1: Assets of Sudanese Islamic banks

2008 2009 2010 2011 2012 2013

Am

ount

200 b

150 b

100 b

50 b

0 b

Source: Islamic Banking Intelligence using data from 13 banks

14© 24th June 2015

ANALYSIS

Private equityJumping on the aviation fi nancing bandwagon, Bahrain’s Ibdar Bank is currently in talks with regional carriers in Africa and the GCC wishing to expand their fl eet for potential collaborations. The initiative is part of Ibdar Bank’s strategy to enter the aircraft leasing space as they seek to develop att ractive new products within this market segment for investors. Aljazira Capital, Saudi Arabia’s biggest brokerage house, is exploring other investment areas within the investment banking and PE arenas, in eff orts to diversify its income streams as domestic competition increases due to foreign access to the Tadawul.

Over in Bosnia, Bank Bosna International is looking at expanding its portfolio to include Salam instruments as well as to launch a PE fund, as part of a wider strategy to capitalize on the country’s agricultural sector.

In Indonesia, the country’s Pertamina Pension Fund has agreed to establish a joint venture PE fi rm with the IDB to support the fi nancing of infrastructure and other projects in Indonesia. Japan’s SBI Holdings recently established an Islamic PE fund through its Kuala Lumpur offi ce. Similarly Inspire, a Japanese investment company, also established an Islamic PE fund with the Malaysian sovereign wealth fund, Permodalan Nasional, jointly with Japanese regional banks.

Venture capitalMalaysia’s RHB Islamic in March signed a collaboration agreement with VC solutions provider Malaysian Technology Development Corporation through which the Islamic bank will become the custodian of a RM150 million (US$40.37 million) fund entrusted by the government via Unit Peneraju Agenda Bumiputera.

Expected to raise at least RM300 million (US$80.74 million), the fund will be placed in the bank’s commodity Murabahah deposit-i account.

Bahrain’s Waqf Fund in a recent event highlighted the importance of VC as an industry that needs to be further developed in Bahrain and the GCC not only because of the fi nancial returns but also due to the economic and social benefi ts such as job opportunities. More research is said to be needed to ascertain the Shariah legitimacy of certain tools and structures used by VC companies such as preference shares, drag-along and tag-along rights, etc. Retail Islamic banks are also warned to carefully think before participating in VC as the high-risk nature of the business may not be in line with the unsophisticated retail money they are entrusted with.

One of the many concerns of SMEs is suffi cient funding to facilitate growth and expansion. Following the implementation of Basel III, companies are fi nding it diffi cult to obtain fi nancing as the Basel III rules limit a bank’s ability to fund long-term projects. The recently announced Bahrain Investment Market, an initiative by Bahrain Bourse, is believed to be a good platform to facilitate exit avenues for SMEs.

ChallengesChallenges faced in Islamic PE and VC are said to be two-fold. The fi rst aspect remains with the nomenclature of Islamic fi nance — its defi nition and application. It is not enough just simply taking an existing fi nancial structure such as a leveraged buyout and turning it into a structure that is economically almost identical (using diff erent terminology such as instead of it being leveraged through a loan, it is leveraged through a

Murabahah but ultimately, it has the same economic outcome); it has to be something more substantive than that. The second aspect is on substance. It has been suggested that Shariah compliant or alternative PE and VC fi rms should look for global issues that can be solved through investments such as sustainable and responsible investments; and environmental, social and governance investments that could have a benefi cial result for the long term.

Another challenge is said to be the deal time. Deals get more complicated and dragged out due to a greater emphasis on due diligence, increased regulatory hurdles such as anti-competition laws, and also the increasing need to resolve all manner of compliance risks. Among the factors that have been identifi ed as preventing VC funding include the diffi culty of identifying the right investment targets as well as the overall lack of transparency.

OpportunitiesUntapped opportunities that have been mentioned lie in South Asian markets such as Indonesia, Malaysia, Bangladesh, Pakistan and Turkey, among others. The areas that bear great potential are: food and water security, logistics, healthcare and waste management. Many of these untapped areas are expected to present opportunities in the short term and continue to fl ourish in the long run. The energy, mining, utilities and chemicals sectors appear to interest many PE fi rms, whereas VC fi rms continue to focus on consumer services and information technology. The sustainability of Islamic PE and VC fi rms will depend on the global and target market economies, particularly the success and ease of both fundraising (including access to Islamic debt) and deal exits.

IFN SECTOR ANALYSISPRIVATE EQUITY & VENTURE CAPITAL

Private equity and venture capital in Islamic inance

Private equity (PE) and venture capital (VC) in the Shariah compliant space have always been welcomed in the industry as Islamic fi nance encourages the fi nancing of real economic activities. The common structures used in PE and VC deals are typically based on the principles of Mudarabah, Musharakah and Wakalah. Gradually gaining traction, transactions in this market segment are taking place across Muslim-majority countries usually involving start-ups and SMEs. NABILAH ANNUAR catches up on the transactions and developments that have transpired over the last few months.

15© 24th June 2015

CASE STUDY

Garuda Indonesia on the 27th May 2015 successfully priced a US$500 million fi ve-year Sukuk off ering. On the back of positive response from investors, Garuda launched the transaction at a price guidance of 6.25%. The orderbooks quickly built to US$1.9 billion allowing tightening of the guidance and fi nal coupon at 5.95%. Speaking to Lim Say Cheong, the executive vice-president of Al Hilal Bank’s investment banking group, one of the lead managers and bookrunners for the deal, NABILAH ANNUAR provides a detailed account of the transaction.

Following a comprehensive global roadshow conducted in Abu Dhabi, Dubai, Singapore, Hong Kong, Zurich and London, the Sukuk adopted a Wakalah structure (with available travel kilometers as an underlying asset similar to Emirates Airlines’s and FlyDubai’s Sukuk) correlating to investors’ and scholars’ familiarity with the format.

Using an orphan-based SPV, Garuda Indonesia Global Sukuk as the issuer,

Garuda’s off ering was done without any government or fi nancial institution guarantee, making it the fi rst Asia Pacifi c national fl ag carrier to successfully issue a US dollar benchmark bond on a stand-alone basis since Qantas Airways’s US dollar bond off ering in April 2006. As this is the fi rst non-sovereign US dollar Sukuk out of Indonesia, issuance is believed to pave the way for other Indonesian state-owned enterprises and corporates to tap this market.

Apart from that, the deal is also: the fi rst unrated US dollar Sukuk from an Asia Pacifi c issuer, the fi rst US dollar Sukuk transaction from an Asia Pacifi c airline; the fi rst US dollar Sukuk Wakalah from an Asia Pacifi c corporate, the fi rst senior Sukuk by Indonesian Airlines and the fi rst US dollar Sukuk by an Indonesian corporate in 2015.

Proceeds raised from the auction will be used for Garuda’s Shariah compliant general corporate purposes, including the repayment of certain existing Islamic fi nancing arrangements. Commenting on the challenges faced in the process of the issuance, Lim said: “The unrated nature of the Sukuk was challenging for some investors; however, after hearing the credit story of the issuer and strong ownership, investors placed large orders in this transaction.” According to him, the deal was not rated as airline Sukuk in general have not been rated and this followed previous precedents.

By geography, 56% of the deal was allocated to the Middle East, followed by 32% to Asia and the remaining 12% to investors in Europe. By investor type, banks and agencies took the bulk of the off ering at 52% while private banks and corporates as well as fund managers were allocated 29% and 19% respectively.

“[Garuda’s off ering is a] further testament to the Sukuk market and the growing investor familiarity with airline Sukuk. Furthermore, post the government issuance, this is positive for other corporates from Indonesia [that are] considering an issuance,” elucidated Lim, highlighting the signifi cance of Garuda’s deal to the international Islamic fi nance landscape.

Garuda Airlines Sukuk: First unrated US dollar Sukuk from an Asia Paci ic issuer

Garuda Indonesia US$500 million fi ve-year Sukuk Wakalah

US$500 million

27th May 2015

Issuer Garuda Indonesia Global Sukuk

Obligor Garuda Indonesia (Persero)

Size of issue US$500 millionMode of issue Senior unsecuredPurpose General fundingTenor Five years Issuance price and profi t rate

5.95%

Payment BulletCurrency US dollarMaturity date 3rd June 2020Lead managers and bookrunners

Al Hilal Bank, Dubai Islamic Bank, National Bank of Abu Dhabi, Australia and New Zealand Banking Group, Deutsche Bank, Emirates NBD, First Gulf Bank, Malayan Banking, Noor Bank, QInvest, Standard Chartered and Warba Bank

Governing law Indonesian and English law

Legal advisors Allen and Overy, Cliff ord Chance

Listing Singapore Stock Exchange

Underlying assets Available travel kilometers (ATKM)

Structure Sukuk WakalahTradability YesInvestor breakdown

Banks/agencies: 52%Private banks/corporates: 29%Fund managers: 19%

Face value/minimum investment

Minimum of US$200,000

[Garuda’s offering is a]

further testament to the Sukuk market and the growing investor familiarity with airline Sukuk. Furthermore, post the government issuance, this is positive for other corporates from Indonesia [that are] considering an issuance

16© 24th June 2015

IFN COUNTRYCORRESPONDENTS

IFN Country CorrespondentsAFGHANISTAN: Dr Alam Khan Hamdard president, Afghanistan Islamic Finance and Consulting Co AUSTRALIA : Chaaban Omran,Principal, Crescent Professional ServicesBAHRAIN: Dr Hatim El-Tahirdirector of Islamic Finance Knowledge Center, Deloitt e & Touche BANGLADESH: Md Shamsuzzamanexecutive vice president, Islami Bank BangladeshBELGIUM: Prof Laurent MarliereCEO, ISFIN BERMUDA: Belaid A Jheengoordirector of asset management, PwC BRAZIL: Fábio Figueira, partner, Veirano AdvogadosBRUNEI: Dr Aimi Zulhazmi, Islamic fi nance consultant, Draznine Advisory CANADA: Jeff rey S Grahampartner, Borden Ladner Gervais EGYPT: Dr Walid Hegazymanaging partner, Hegazy & AssociatesFRANCE: Kader Merbouhco head of the executive master of the Islamic fi nance, Paris-Dauphine UniversityHONG KONG: Amirali Bakirali NasirChairman, The Law Society of Hong Kong working party on Islamic fi nanceINDIA: H Jayeshfounder partner, Juris CorpINDONESIA: Farouk A AlwyniCEO of Alwyni International Capital and the chairman of Centre for Islamic Studies in Finance Economics and Development IRAN: Majid PirehIslamic fi nance expert, Securities & Exchange Organization of Iran IRAQ: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & Co ITALY: Stefano Padovanipartner and head of Banking & Finance, NCTM Studio Legale Associato JAPAN: Kaoru Haraguchifounding att orney, Haraguchi International Law Offi ceKENYA: Mona K Doshi, senior partner, Anjarwalla & Khanna AdvocatesKOREA: Yong-Jae Changpartner, Lee & KoKUWAIT: Alex Salehpartner, Al Tamimi & CoLEBANON: Johnny El Hachempartner – corporate, Bin Shabib & Associates LUXEMBOURG: Said Qacemesenior manager of Advisory & Consulting, Deloitt e Tax & Consulting MALAYSIA: Abdullah Abdul Rahmanpartner, Cheang & Ariff MALDIVES: Aishath Muneezadeputy minister, Ministry of Islamic Aff airs, MaldivesMALTA: Reuben Butt igiegpresident, Malta Institute of ManagementMAURITIUS: Sameer K Tegallyassociate, Conyers Dill & PearmanMOROCCO: Ahmed Tahiri Joutimanaging consultant, Al Maali Consulting GroupNEW ZEALAND: Mohamed Nalartrustee and board member, Awqaf New ZealandNIGERIA: Auwalu Ado; Shariah auditor, Jaiz BankOMAN: Riza Ismail; senior associate, Trowers & HamlinsPAKISTAN: Muhammad Shoaib Ibrahimmanaging director & CEO, First Habib ModarabaPHILIPPINES: Rafael A Moralesmanaging partner, SyCip Salazar Hernandez & GatmaitanQATAR:Amjad Hussain partner, K&L GatesRUSSIA: Roustam Vakhitovmanaging partner, International Tax AssociatesSAUDI ARABIA: Nabil Issapartner, King & SpaldingSENEGAL: Abdoulaye MbowIslamic fi nance advisor, Africa Islamic Finance Corporation SOUTH AFRICA: Amman MuhammadCEO, First National Bank-Islamic FinanceSINGAPORE: Suhaimi Zainul-Abidin, advisor, 5PillarsSRI LANKA: Imruz Kamilhead of Islamic banking, Richard Pieris Arpico FinanceSWITZERLAND: Khadra Abdullahiassociate, Investment banking, Faisal Private BankSYRIA: Gabriel Oussi,general manager, Oussi Law FirmTANZANIA: Khalfan Abdullahihead of product development and Shariah compliance, Amana BankTURKEY: Ali Ceylanpartner, Baspinar & PartnersUAE: Rima Mradpartner, Bin Shabib & Associates UK: Fara Mohammaddirector of Islamic fi nance, Foot Anstey US: Joshua Brockwellinvestment communications director, Azzad Asset ManagementYEMEN: Moneer Saif; head of Islamic banking, CAC BankIFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short country reports. For more information about becoming an IFN Correspondent please contact sasikala.thiagaraja@redmoneygroup.com

IRAN

By Majid Pireh

Common in many conventional exchanges, a futures contract is a contract through which the seller undertakes to sell, on a given date, a certain quantity of a specifi c underlying asset at an already-agreed price and, likewise, the other party thereto undertakes to buy such an underlying asset with the described specifi cations.

In order to avoid a breach of contract, both parties shall undertake in an express condition to deposit with the clearing house an amount of money as a margin and further pledge to adjust such funds depending on changes in the futures prices.

In view of the growing importance of futures contracts, the Iranian capital market is fi rmly determined to launch such contracts in a Shariah compliant model and promote the grounds for their development. Since the Iranian capital market is based on the Islamic tenets, the futures contract has become locked in barriers from the viewpoint of Islamic jurisprudence. In reality, the key challenges ahead from the canonical perspective include:

• a Kali-to-Kali sale (a contract made for delivery of price and commodities on a future date), and

• fi ctitious transactions.

Without a doubt, discussions on the Islamic futures contract during the course of various gatherings insightfully prompted a pioneering eff ort led by the Shariah board of the Securities and Exchange Organization (SEO) in which the fi nancial analysts, experts, and economists resourcefully and profoundly delved into this subject and their viewpoints were ultimately encapsulated in this central theme: "The commitment to buy versus the commitment to sell."

The Shariah board of the SEO emphasized that the value of a traded futures contract should follow a rational ratio to real assets available in the real part of the economy. As for the importance of supervision of the futures market, the SEO should do its best to avoid any bubble in the derivatives

market which is common in conventional derivatives markets in the world. To that end, the SEO controls the volume of promised assets in a futures contract so that it does not exceed its ability to deliver the promised underlying asset. By this, the SEO aims to avoid superfi cial transactions in the market. This is based on the Shariah board’s viewpoint that a superfi cial sale is not a correct transaction in Islam.

After nine meetings by the Shariah scholars in the board, fi nally a resolution was issued in January 2008 and gold coin futures contracts started trading in January 2009 as an accepted contract by hedgers and speculators in the Iranian capital market.

As the market went ahead, there were some demands for other underlying assets in futures contracts and equity indexes were among them. However, the Shariah board did not permit the launch of index futures in the Iranian capital market, the reason being that indexes were not something deliverable and therefore they were not considered as sold commodities in Bai (Islamic sale).

This interpretation resulted in the creation of portfolio futures instead of index futures, including the portfolio of equities. This portfolio is deliverable and follows what the Shariah board resolved previously.

After three meetings by the Shariah board of the SEO, fi nally portfolio futures received a Shariah compliance license in May 2015 and this may be followed by a Shariah compatible portfolio futures contract in the Iranian capital market in the future.

Majid Pireh is an Islamic fi nance senior expert at the Securities and Exchange Organization (SEO) of Iran. He can be contacted at m.pireh@seo.ir.

Equity portfolio futures in Iran

17© 24th June 2015

IFN SECTORCORRESPONDENTS

IFN COUNTRYCORRESPONDENTS

NEW ZEALAND

By Mohamed Nalar

The KiwiSaver scheme is a New Zealand voluntary long-term and work-based savings initiative which came into operation in July 2007 and comes with a range of membership benefi ts. The main purpose of the KiwiSaver fund is for retirement savings, but younger participants can also use it to save a deposit for their fi rst home.

The NZ$1,000 (US$697.58) kick-start payment was a tax-free government contribution made to all KiwiSaver members who joined when the scheme was introduced. At the time, the kick-

start payment was the planned big incentive to join.

KiwiSaver has been incredible in terms of take-up to date. As fi nance minister Bill English pointed out, 2.5 million New Zealanders have KiwiSaver accounts and have claimed the kick-start payment. As part of the Budget 2015 announcement, the NZ$1,000 kick-start contribution that the government makes to new KiwiSaver members’ accounts has been removed. Those who joined KiwiSaver before 2 pm on the 21st May 2015 will get the kick-start contribution.

The Amanah KiwiSaver fund is a Shariah compliant investment scheme which was introduced recently targeting Muslim

investors. The Muslim community’s participation in the KiwiSaver scheme has been limited and there are no other Shariah compliant investment vehicles in New Zealand. However, this latest development aff ects all New Zealanders who wish to join the KiwiSaver fund in the future and does not disadvantage only the Muslim community or the Amanah fund; everyone operating in this sector are equally aff ected by this change. As for new members who wish to join now, they have really missed the boat on the NZ$1,000 incentive payment.

Mohamed Nalar is a trustee and board member of Awqaf New Zealand. He can be contacted at m.nalar@actrix.co.nz.

Removal of the government KiwiSaver NZ$1,000 (US$697.58) contribution

PAKISTAN

By Muhammad Shoaib Ibrahim

The fi rst Shariah compliant REIT fund has been successfully launched in Pakistan by Arif Habib Group, a very famous and strong group in Pakistan. The REIT fund is called the Dolmen City REIT Fund (DCR fund). Dolmen Group and Arif Habib Group are equal partners in the REIT management company. The size of the DCR fund is PKR22.24 billion (US$216.12 million) comprising 2.22 billion units of PKR10 (10 US cents) each. Both groups have already subscribed to 75% of the issue size and the remaining 25% was recently off ered for subscription for an IPO.

The bookbuilding portion of the IPO has recently been completed and was oversubscribed. Against the off er of PKR4.17 billion (US$40.52 million), the bookrunner received bids of PKR7.14 billion (US$69.38 million). The fund off ers an att ractive dividend yield and is expected to grow in the coming years through the increase of rent on REIT property in accordance with the terms of escalation built into the relevant tenancy agreements.

REITs are operating in over 40 countries around the world, allowing smaller

investors to participate in lucrative real estate investment collectively. Legislation on REITs in Pakistan was introduced through the REIT regulations a few years back with subsequent amendments to make REITs safe for investors and practical for property owners and developers. Arif Habib Group and Dolmen Group have fi nally stepped forward to introduce REITs in Pakistan’s market. The Dolmen City REIT is a Shariah compliant, perpetual, and rental REIT scheme. The REIT assets comprise of the Dolmen Mall and Harbor Front which are regarded as among the fi nest commercial real estate in Karachi, Pakistan. Dolmen Mall is home to top local and international brands while the Harbor Front (commercial tower) is a state-of-the-art offi ce building, having top local and multinational companies as tenants.

The REIT management company of the DCR fund stated that the fund is not only the fi rst Shariah compliant REIT fund in Pakistan but it is also the fi rst REIT fund in the subcontinent as well. Being a Shariah compliant instrument, it att racts largely those investors who are looking for opportunities to invest in Islamic instruments. This strong feature gives the instrument a wider market access. The return is estimated at 9.5% for the fi rst year and the average rate of return

for the issue is expected to increase up to 14% in the fi fth year. This low-risk but high-yielding product is an att ractive investment opportunity in the present low interest rate regime prevailing in Pakistan’s fi nancial market.

The high success of the said REIT model has set a positive direction for the future growth of REIT funds in Pakistan’s market. This would not only encourage savings and broader investment prospects for small investors but also improve the quality of real estate in Pakistan.

Muhammad Shoaib Ibrahim is CEO and the managing director of First Habib Modaraba. He can be contacted at shoaib@habibmodaraba.com.

First Islamic property fund launched in Pakistan

The Dolmen City REIT is a

Shariah compliant, perpetual, and rental REIT scheme

18© 24th June 2015

IFN COUNTRYCORRESPONDENTS

BRUNEI

By Dr Aimi Zulhazmi Abdul Rashid

Bank Islam Brunei Darussalam (BIBD), the fl agship of Islamic banking in Brunei, has announced its international banking aspirations with the opening of its representative offi ce in Singapore in May 2015. According to BIBD’s managing director, Javed Ahmad, the Singapore branch will be offi cially launched after the month of Ramadan. He further elaborated that the opening of the Singapore offi ce will set the tone for BIBD’s global expansion strategy, adding that the bank has plans to open two more international offi ces in the near future. BIBD was ranked 14th by the Asian Banker in the Asia Pacifi c 500 Strongest Banks By Balance Sheet list in 2014.

Islamic banking continues to make signifi cant impact in the oil-rich country. According to fi gures from the central bank, Autoriti Monetari Brunei Darussalam (AMBD), Islamic banking assets grew by 16.5% in the fourth quarter of 2014 compared to the same period in 2013. This growth contributed to the 41% market share of Islamic banking in terms of total assets of the overall fi nancial and banking industry in Brunei. This augurs well for the government’s target of reaching 50% for Islamic banking by the year 2020.

On public debt securities (PDS), AMBD continues with its 119th issuance of short-term Sukuk Ijarah of BND100 million (US$73.83 million). With this issuance, the Bruneian government has thus issued over BND8.73 billion (US$6.45 billion)-worth of short-term Sukuk Ijarah securities since the maiden off ering on the 6th April 2006 and the total holdings of the Bruneian government’s Sukuk outstanding until the 11th June 2015 stood at BND600 million (US$443.01 million).

The government is also planning to issue long-term Sukuk in the “very near future”; currently the short-term Sukuk issuances are only for a year or less. The issuances are also limited to the seven domestic commercial banks. It is expected the longer tenure Sukuk will widen the eligible list of buyers beyond the domestic banks. A plan is also underway to develop the Bruneian capital market with the launching of a securities exchange in 2017. This will help Brunei to diversify its economy away from a total reliance on the oil and gas industry.

Dr Aimi Zulhazmi is an Islamic fi nance consultant via his own Draznine Advisory and an associate professor in the Islamic fi nance department of UniKL Business School. He can be contacted at draz9.advisory@gmail.com.

Islamic banking moving ahead in Brunei IFN Sector CorrespondentsCROSS-BORDER FINANCINGFara Mohammad, Director Of Islamic Finance, Foot Anstey

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

DERIVATIVESSuhaimi Zainul - Abidin, treasurer for Gulf-Asia Shariah Compliant Investment Association and advisor to 5Pillars

GLOBAL ECONOMIC OUTLOOKTariq Alrifai, expert, Islamic investment products and market trends

LAW (EUROPE):Ayhan Baltaci, att orney at law, Bereket & Baltaci Law Firm

LAW (MIDDLE EAST) Bishr Shiblaq, head of Dubai offi ce, Arendt & Medernach LEASING : Prof Shahinaz Rashad Abdellatif, executive director, Financial Services Institute, Egyptian Financial Supervisory Authority.

MERGERS & ACQUISITIONS Jamal Hijres, CEO, Cappinova Investment Bank

MICROFINANCE (ASIA):Dr Mahmood Ahmed, executive vice president and director training, Islami Bank Training and Research AcademyMICROFINANCE (AFRICA): Mansour Ndiaye, director of microfi nance, Assistance and Consulting for DevelopmentPRIVATE BANKING & WEALTH MANAGEMENT: Thomas Woods, product development, wealth management, The Islamic Bank of Asia

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

PROJECT & INFRASTRUCTURE FINANCEAnthony Coleby, head of corporate commercial department, Said Al Shahry Law Offi ce (SASLO) REAL ESTATEPhilip Churchill, founder partner, 90 North Real Estate PartnersREAL ESTATE (MIDDLE EAST): Yahya Abdulla, head of capital markets — Middle East, Cushman & Wakefi eldREGULATORY ISSUES (ASIA)Intan Syah Ichsan , chief operating offi cer, Samuel Aset ManajemenREGULATORY ISSUES (MIDDLE EAST): Mohammad Abdullah Malik Dewaya, head of Shariah compliance and audit, Maisarah Islamic Banking ServicesRETAIL BANKING : Chowdhury Shahed Akbar, Offi cer, Southeast Bank, Bangladesh.RISK MANAGEMENT : Hylmun Izhar, economist, Islamic Research and Training Institute, Islamic Development Bank CountrySECURITIES & SECURITIZATION : Nidhi Bothra, executive vice president, Vinod Kothari Consultants

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

STRUCTURED FINANCE:John Dewar, partner and head of Islamic fi nance, Milbank, Tweed, Hadley & McCloySUKUK Anthony Coleby, head of corporate commercial department, Said Al Shahry Law Offi ce (SASLO) SYNDICATED FINANCEElina Khayrullina, investor relations manager, AK BARS BankTAKAFUL & RE-TAKAFUL : Dr Sutan Emir Hidayat, assistant professor and academic advisor for Islamic fi nance, University College of BahrainTAKAFUL & RE-TAKAFUL (AFRICA):Uwaiz Jassat, acting head of Islamic banking, Absa Islamic BankingTAKAFUL & RE-TAKAFUL (EUROPE): Ezzedine Ghlamallah, director, Solutions Insurance and Islamic Finance in France (SAAFI)TRADE FINANCEAnthony Coleby, head of corporate commercial department, Said Al Shahry Law Offi ce (SASLO)TREASURY PRODUCTS : Nafi th ALHersh Nazzal, certifi ed fi nancial & investment advisor

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.thiagaraja@redmoneygroup.com

It is expected the longer

tenure Sukuk will widen the eligible list of buyers beyond the domestic banks. A plan is also underway to develop the Bruneian capital market with the launching of a securities exchange in 2017

19© 24th June 2015

SPECIAL REPORT

CORPORATE WAQF

By Dr Magda Ismail Abdel Mohsin

Later on after the 1970s, millions of people from diff erent countries, including Muslim countries, were accessing services from formal and semi-formal microfi nance institutions (MFIs). All of a sudden, it has become a vast global industry involving a large number of governments, fi nancial institutions and non-governmental organizations (NGOs) aiming to eradicate global poverty.

However, all these schemes fi nance with interest which is prohibited in Islam. Even in Muslim countries almost all microfi nance programs fi nance through interest including the Grameen Bank of Bangladesh which starts by fi nancing with a low interest rate and ends up with a high interest rate which disadvantages the borrowers more than helping them.

This is one of the reasons which discourages almost all Islamic banks from being engaged in any microfi nance programs since on one hand, they will be criticized if they fi nance with interest and on the other, they do not want to fi nance with zero interest and face any risks since they are profi t-oriented institutions.

The recent establishment of corporate Waqf through corporate charities shows great success in Muslim and Muslim-minority countries which encourages the author to propose a corporate Waqf for Islamic microfi nance which can be established under the central bank and involves corporate charities from all banks, Islamic and conventional, in terms of their CSR.

In this case, banks will be involved indirectly in fi nancing the unbanked, the poor and the needy with zero interest and at the same time the banks will not face any risks.

Overview of corporate Waqf Historically speaking, Waqf is a fi nancial charitable institution established by withholding one’s property, immovable or movable, to eternally spend its revenue on fulfi lling the various services needed in Muslim society, including fi nancing with zero interest, depending on the choice and condition set by the founder. The recent establishment of corporate Waqf in Turkey, India, Pakistan, Bangladesh and Malaysia opens the door for more categories of founders, individuals, corporations, institutions, companies and organizations to create Waqf for the benefi t of the public.

Establishment of CW-IMF through CSR The term corporate social responsibility

emerged in the 1960s and 1970s as referring to high-ranking management engaging in corporate charities. According to the defi nition given by the World Bank: “Corporate social responsibility is the continuous commitment of owners of commercial activities to behave ethically in contributing to the economic development while improving the quality of life of the workforce, their families, the local community and their society at large”.

Currently, almost all banks, including Islamic banks, are giving part of their profi ts to charities as CSR. Since fi nancing the unbanked population is part of improving the quality of life of the workforce and their families, all banks can channel their CSR to the proposed

Corporate Waqf as a vehicle for Islamic micro inance — a proposal worth attentionEver since the 1970s, microfi nance has become one of the schemes for poverty eradication and economic redevelopment strategies around the world. The main objective of this microfi nance scheme is to eradicate poverty through fi nancing the unemployed or low-income individuals or groups who are usually outside the formal banking system. In this article, DR MAGDA ISMAIL A MOHSIN proposes the establishment of a corporate Waqf for Islamic microfi nance (CW-IMF) through corporate social responsibility (CSR).

Islamic bank A

Islamic bank B

Islamic bank nConventional banks

Organizations

Institutions

Managementteam10%

el nancingdeviceSFD 10%

Corporate Waqf forIslamic micro nance

CW-IMF

Acts as a trustee

To manage the accumulatedWaqf funds from CSR

Investment of CSRaccording to Shariah

ro t generated

Bene ciaries Islamic micro nance0% to nance the poor and need through

ard asan ith zero interest

Unbanked oor and need

20© 24th June 2015

SPECIAL REPORT

CW-IMF and hence indirectly they can finance the unbanked, the poor and the needy with zero interest and without any risks. The proposed model of CW-IMF is defined as follows:

“Corporate Waqf for Islamic microfinance is the confinement of the corporate social responsibility by the banks (Islamic and conventional) and the dedication of its usufruct in perpetuity to finance the unbanked, poor and needy to improve the quality of their lives and their families.”

Modus operandi of CW-IMFFollowing the establishment of corporate Waqf in Turkey, India, Pakistan, Bangladesh and Malaysia, the founder for this proposed Islamic microfinance can be the central bank as explained below:• The central bank is the main founder

that can establish CW-IMF as the trustee.

• Donors/contributors for this Islamic microfinance model can be Islamic banks, conventional banks or any other institutions or corporations that can channel their CSR on an annual basis to the said trustee.

• CW-IMF in its role as a trustee collects the accumulated CSR funds from the different donors and invests it according to Shariah.

• Profits generated from investment can be channeled to beneficiaries in the following manner:i. 80% for Islamic microfinance

through Qard Hasan and zero interest. (Note that even though this portion can be given directly to the poor and needy since they are the beneficiaries, however, the main objective of this Islamic microfinance model is to help these categories of people to be active members in society and running their own small business, hence eradicating their poverty).

ii. 10% to cover administration expenses.

iii. 10% to be added to the main fund as a self-finance device in order to ensure the perpetuity element of this program.

Conclusion This study presents a corporate Waqf model where it engages indirectly the banks, Islamic and conventional, in financing the unbanked people with zero

interest and without exposing banks to any risks. The beauty of this microfinance model encourages Islamic as well as

conventional banks to channel part of their profits as CSR in financing indirectly the poor and the needy with zero interest and hence making them active members in society. The implementation of this corporate Waqf model will ensure perpetual financing for the poor and needy, creating jobs for them and improving their quality of life and hence eradicating their poverty. A model worthy of attention from policymakers and industry players.

Dr Magda Ismail Abdel Mohsin is currently an associate professor at the International Center for Education in Islamic Finance (INCEIF) - The Global University of Islamic Finance in Malaysia. She can be contacted at magda@inceif.org.

Continued

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21© 24th June 2015

SPECIAL REPORT

SHARIAH MINIBONDS

By Stefano Padovani

The reform process started with the law Decree No. 83/2012 and law Decree No. 179/2012 (‘Decreti Sviluppo’ or ‘Development’ Decree) and continued with the subsequent law Decree No. 145/2013 (‘Destinazione Italia’ Decree) and law Decree No. 91/2014 (‘Decreto Competitività’) and it is considered to have had a strong impact on the Italian economy, which is largely based on SMEs. Indeed, the number of Italian SMEs with a turnover of between fi ve and 250 million (which are the companies that could be actually interested to access the debt capital market) is estimated to be approximately 35,000.

The overall eff ect of the enacted legislation is a relaxation of the legal and tax restrictions on the issuance of bonds and similar securities, popularly known as minibonds, by unlisted companies, including SMEs. Minibonds is not a technical term, but it has become the term of reference to identify such securities.

The fi rst step of the reform was the amendment of Article 2412 of the Italian Civil Code, which removed the quantitative limits generally established for bond issues by non-listed companies (i.e. twice the share capital and reserves) if they:i. are intended for listing in regulated

markets or in multilateral trading facilities, or

ii. entitle the holder to purchase or subscribe shares.

The second step of the reform consisted of amendments of the taxation applied to minibonds for both underwriters and issuers.

As to the underwriters, issuers are not required to apply 26% withholding

tax on interest and other income from bonds, similar securities, and commercial paper traded on regulated markets or multilateral trading systems of EU member states and are European Economic Area states-issued, as is applied for banks and joint-stock companies with shares traded on the same markets.

The same applies to interest and other income from bonds, similar securities, and commercial paper held by (i) one or more qualifi ed investors in accordance with Article 100 of Legislative Decree 24th February 1998 n. 58 (TUF), (ii) undertakings for collective investment, established in Italy or in a member state of the EU, whose assets are invested in excess of 50% in such securities and the shares of which are held exclusively by

qualifi ed investors in accordance with Article 100 of TUF, and (iii) companies for the securitization of receivables (provided by Law 30th April 1999, n. 130) issuing securities held by the above qualifi ed investors and whose assets are invested in excess of 50% in such bonds, similar securities or commercial paper.

As to the issuers, the reform has introduced a relaxation of limitations on the deductibility of interest for corporate tax purposes for (a) unlisted companies as long as securities are traded on a regulated market or multilateral trading facility, and (b) unlisted companies whose securities are not traded on a regulated market or multilateral trading facility as long as the same are held by certain qualifi ed investors. Fees, costs and expenses for the issuing of traded minibonds are also deductible by the issuing company.

Lastly, for the purposes of indirect taxes, the legislator extended the — now optional — application of the 0.25% substitute tax, an advantageous regime which is in place of the indirect taxes (registration tax, stamp duty and mortgage tax) normally applied to secured loans, to include minibonds.

In terms of time frames, the issuance of minibonds requires an average of three

Investment opportunities in Italy: Shariah compliant minibonds?Italy, as with many other countries in the western world, is facing a deep economic and fi nancial crisis, which has aff ected the loan market and the ability of businesses to obtain bank fi nancing. With the aim to facilitate access by SMEs — which do not qualify as microenterprises pursuant to the defi nition of the EU recommendation No. 361/2003, in general, companies with a turnover in excess of US$2 million and more than 10 employees — and unlisted companies to the debt capital market as an alternative method of funding to banking fi nance, a package of reforms has been put in place. STEFANO PADOVANI delves further.

The overall effect of the

enacted legislation is a relaxation of the legal and tax restrictions on the issuance of bonds and similar securities, popularly known as minibonds, by unlisted companies, including SMEs

22© 24th June 2015

SPECIAL REPORT

to four months. The main steps of the issuance are:i. a preliminary feasibility analysisii. a structuring of the issue with specifi c

regard to the terms and conditions of the bonds (e.g. duration, amount, applicable interest rate, etc), and

iii. a search for potential investors.

Minibonds issued by SMEs may then be listed on the ExtraMOT Pro (the Italian stock exchange market segment), which is a dedicated market exclusively intended for qualifi ed investors.

For the bonds to be listed on the Extra MOT Pro segment, the issuer must fulfi l a number of obligations and satisfy certain conditions. In particular, it must:i. have published the fi nancial

statements of the last two years, the last of which are audited, and

ii. publish a prospectus (according to European regulations 809/2004) or, alternatively, an admission document stating inter alia (i) the persons in charge; (ii) information on the issuer (e.g. the issuer’s history, a description of main activities, etc.); (iii) fi nancial information on the issuer’s assets and liabilities, fi nancial position and profi ts and losses; (iv) risk factors, and (v) other relevant information.

After the entry into force of the reform, a number of dedicated closed-end investment funds reserved to professional investors as defi ned by Article 100 of TUF, such as bank foundations, pension funds, social security funds and insurance companies, have been set up with the purpose of subscribing to minibonds. Such funds may combine a number of issues of diff erent SMEs in a single portfolio, thus removing the dimensional problem and the risk of a single issue.

The reform has also introduced specifi c provisions relating to the possibility of issuing profi t-participating bonds, containing a participation clause which allows the return of the bond to be linked to the profi t of the issuer. Such bonds must have a maturity of at least three years and contain a fi xed income component in addition to the profi t-related component. The variability of the return does not apply to the right to the principal reimbursement of the subscriber of the notes. In essence, the remuneration of such bonds is composed

of a:i. fi xed part: a fi xed interest rate which

must be greater or equal to the offi cial reference rate, i.e. the rate which is applied by the European Central Bank to the loans provided to banks, and a

ii. variable part: a certain percentage of the annual profi t of the issuer.

The variable part cannot be changed during the life of the bond and shall be paid within 30 days from the approval of the issuer’s annual fi nancial statement.

It is important to note that, should the issuer of the bond carry out a Shariah compliant business and the regulation of such a bond contains the aforementioned participation clause, it is maintained that such a bond would also be Shariah compliant. Indeed, the asset would provide a return based on a risk-sharing principle rather than on interest.

Profi t-participating minibonds may be very att ractive from a tax point of view. In fact, participating bonds are, as a general rule, subject to Article 109, paragraph 9 of the Italian Tax Code (ITC) which provides for the non-deductibility of the remuneration of the securities, with reference to the portion arising from participation in the economic performance of the issuing company.

However, deviating from Article 109, paragraph 9 ITC, the reform has provided that companies issuing minibonds may deduct from their taxable income this variable component. In particular, Article 32, paragraph 24 of the Decree provides that the latt er is subject to a specifi c reserve, it represents a cost

and it is deducted from the income of the fi scal year of competence.

In this regard, Circular No.4/E dated the 6th March 2013 (the Circular) issued by the Italian tax authority, underlines that the new regulation also represents a deviation from Article 107 of the ITC, which prohibits the introduction of reserves diff erent from those expressly provided by the ITC. The reason is that the new regulation recognizes that the variable part of the remuneration is a cost of the fi scal year when the income arises.

A major issue that the Circular does not address, however, is whether the variable portion of the remuneration of the bonds — in addition to being fi scally relevant — may qualify as an interest expense and, accordingly, be subject to limits of deduction set out by Article 96 of the ITC. This represents a delicate issue and it is hoped that a clarifi cation by the Italian tax authority may be issued.

Notably, the aforementioned tax regime is applicable to participating bonds — issued by unlisted companies — which fulfi ll the following conditions: (i) have a maturity date not shorter than 36 months; (ii) include — in addition to the participatory clause — a subordination clause (i.e. which postpones the repayment after repayment of all other unsubordinated creditors); (ii) the remuneration, in addition to the variable portion, includes a fi xed part not lower than the offi cial reference rate; (iii) there is a limitation to distribute the share capital in excess of the amounts of the dividends arising from the profi ts of the year; and (iv) must be subscribed by qualifi ed investors — as defi ned under Article 100 of the TUF — which do not hold more than 2% of the capital/assets of the issuing company.

Therefore, the Italian minibonds market could be very att ractive for investors looking at Shariah compliant assets issued by Italian SMEs as an alternative form of investment to sovereign or large corporate bonds and dedicated funds could be developed.

Stefano Padovani is a partner and the head of banking and fi nance at NCTM Studio Legale Associato. He can be contacted at stefano.padovani@nctm.it.

Continued

The new regulation

recognizes that the variable part of the remuneration is a cost of the iscal year when the income arises

23© 24th June 2015

SPECIAL REPORT

ISLAMIC FINANCE

By Hussain Kureshi

Recently, there was a case involving a home fi nancing product based upon Ijarah Muntahiyyah Bi Tamleek. Without going into the basics, this involves an Islamic bank purchasing a property from a seller and then leasing it out to a client. The termination of the lease agreement upon maturity leads to the property’s ownership being transferred to the client. If the property under question is under construction, the fi nancial product involves two lease agreements: an Ijarah Mawsufuma Bi Zima (forward lease) and Bi Tamleek. Thus, when the property is under construction, the Islamic bank will purchase using the contract of Istisnah and will lease the usufruct of the yet to be constructed property to the client using a forward lease contract. When the property is constructed, the Islamic bank will then execute a sale using a normal sale purchase agreement and subsequently lease out the completed property for a period of 25 years or so.

Clients are often unaware that the sale purchase agreement is signed between the bank and the developer (in the case of a new property). Ownership rights and risks reside with the bank in question. Thus, the client (who is accustomed to conventional borrowing, and judging the transaction on the basis of economic impact) is unaware that no modifi cations to the property can be made to the property without the consent of the lessor (ie the bank) and the property cannot be subleased without the consent of the bank as well. In fact, the client can theoretically bill the bank for substantial repairs as well. However, along with ownership rights come risks.

In the event that the developer fails to perform and deliver the property on time, it is the bank that is liable to make good the losses, not the client. In the case of a conventional loan, or a structure

based upon Bai Bithaman Ajil with Inah, the client would be liable to the bank for all payments as the former is based upon a contract of loan, and the latt er on the basis of a contract of sale, where either the ownership of money or an asset is transferred from one party to another. In a contract of lease, there is only a sale of usufruct and not an asset. In the event where a developer defaults, it is the bank that is the aff ected party, as the bank is the buyer. The bank would be involved in litigation with the developer in order to be compensated. The bank would then have to off er the lessee an alternative property. In such a case, the bank would absorb the risk of non-performance on the part of the developer.

However, do not forget that banks, including Islamic banks, are averse to risks and certainly not in the business of protecting their clients from loss. To circumvent the potential of incurring such losses and to save money on such things as transfer fees, stamp duties and sales tax, Islamic banks have the property transferred to the name of the client at the contract inception, when in fact the client is only a lessee and the bank is the true owner. As if this is not enough, and to keep lawyers happily involved, according to the contracts, the bank is the owner, thus the bank has ‘benefi cial ownership’, whereas in reality or in substance, ‘benefi cial ownership’ lies with the client.

Yet in more surprising circumstances, at times, clients fail to transfer the property to their own names due to technical situations. Clients may face issues with land registration bodies when drawings submitt ed by developers do not match the dimensions held by the authorities, or due to some oversight by the client or delay in transferring the title from the developer’s name to the client’s name. In this period of confusion, and transition, it may just happen that the developer may fi le for bankruptcy and enter into liquidation proceedings. Liquidators may choose to sell all assets of the developer,

which at the time may include any units still in the developer’s name. Thus in fact, if any client has failed to transfer the property to his or her name, it is likely that they will lose the unit in auction proceedings.

Needless to say, the question that arises is: who owns the property? Islamic fi nancial institutions (IFIs) have made every eff ort to avoid ownership risks, and Shariah scholars have shamefully sold their souls to help them fi nd a legal exit from taking such risks.

In essence, Shariah compliant fi nancial products are diff erent in their legal eff ect if not their economic eff ect. Products based upon Ijarah and diminishing Musharakah, do in fact require Islamic banks to take ownership risks in assets along with customers. This however, does make the operations of Islamic banks riskier, requiring great capital charges on these risky assets and thus the asset will either end up being more expensive or it will off er a lower return on equity. Customers should consider paying more for the protection off ered by sharing ownership risks with IFIs if IFIs do, in substance and form, accept this risk.

Hussain Kureshi is CEO of Millenia Global Research House. He can be contacted at husseinkureshi@gmail.com.

Economic effect versus the legal effect blessings of IjarahThe critics of Islamic fi nance have focused on the economic eff ect of Shariah compliant fi nancial transactions and not the legal eff ect of the transactions. This may be due to the misleading name of ‘Islamic fi nance’, after all, mathematics is mathematics whether Islamic or not, and fi nance is all about math. If the focus were more on the legal aspects of fi nancial transactions, then HUSSAIN KURESHI believes the critics would have less to say.

24© 24th June 2015

COUNTRY FEATURE

KOREA

By Kwang Suk Park

In September 2009, the Ministry of Finance and Strategy prepared a draft for amendment of the Special Tax Treatment Control Act (STTCA), containing provisions which would neutralize the existing unfavorable tax treatment of Sukuk transactions, and submitt ed it to the National Assembly for approval. But unfortunately, the National Assembly’s Strategy and Finance Committ ee failed to pass legislation that would exempt a tax on Sukuk.

Notwithstanding the failure of previous att empts to revise tax law, Korea still has a strong interest in the introduction of Islamic fi nance in order to diversify foreign investment and to maintain stable and long-term capital. Actually the Bank of Korea, a central bank of Korea, joined the IFSB as an associate member in March 2014, and has vigorously participated in various activities of the IFSB.

Islamic fi nance in Korea may only be on sort of a limited scale since Islamic fi nance has a short history but it has been developing recently. Islamic fi nance can be considered as a complement in providing fi nancial stability, therefore it should be sought out more actively. And it should also be accompanied by an in-depth analysis of the tax system and the fi nancial supervisory, competitive or complementary relations with traditional fi nancial products following the introduction of Islamic fi nancial instruments in Korea.

The government of Korea has put more emphasis on the so-called ‘creative economy’ since the inauguration of the current president. In short, the phrase represents an economic policy based on the belief that, in order to sustain the economic growth of Korea, more creative and fresh ideas should be sought by the overall economic participants.

If the Korean government succeeds in introducing Islamic fi nance in the future, fi nancial institutions may obtain stable funding with the diversifi cation of overseas funding sources which are currently concentrated on fi nancial institutions from the US, Japan and Europe. And companies awarded social overhead capital facilities or large-sized projects in Islamic countries are also able to source for fi nancing through the issuance of Sukuk.

It is well known that Malaysia, Dubai and the UK are racing to be the hub of Islamic fi nance and competition is heating up. Malaysia has consistently emerged as one of the leading destinations in Islamic fi nance. Dubai is also one of the leading players in Islamic fi nance around the world.

To keep up with the global trend in Islamic fi nance, Korean policymakers, fi nancial institutions and companies should pay more att ention to Islamic fi nance. And it is strongly recommended that they participate in training programs to get in-depth knowledge and to

enhance the human network with Islamic fi nance experts such as the central banks of Islamic countries, INCEIF, and so on. By doing this, Korea might be able to keep up with the growth trend of global Islamic fi nance and use it as a foundation to introduce Islamic fi nance in Korea.

Certainly, eff orts to tap into Islamic fi nance by the Korean government have quite a long history. Even before the global fi nancial crisis, in the context of a highly volatile globalized economic ecosystem, the government of Korea appreciated a number of advantages of Islamic fi nance, including the intrinsic systemic stability, low connectedness with western economies, as well as the ample liquidity of oil-producing countries, among others. But recently there have not been much discussions going on regarding Islamic fi nance in Korea.

At this moment, it is diffi cult to say when the amendment of the STTCA will actually take place. However, if the internalization of Islamic fi nance gets accelerated and the size of Islamic fi nance assets increases in the future, there is a huge possibility for Islamic fi nance to expand in Korea. Moreover, the current president has a somewhat positive and favorable att itude toward Islamic fi nance than the previous president. So, if the STTCA is on the table again, will it be any diff erent from what happened in 2009 this time? Let’s hope so.

Kwang Suk Park is the head of the risk management team in the reserve management strategy division of The Bank of Korea in Seoul. He is a PhD candidate in Islamic fi nance and can be contacted at yoyokspark@gmail.com.

Islamic inance in Korea: Is it different this time?Islamic fi nance has been growing rapidly over the past decade as it broadens its investor base across the world. In terms of Islamic fi nance, Korea has been a latecomer in East Asia. But following the stated ambitions of adjacent countries such as Japan, Hong Kong and even China that are trying to establish themselves as a hub of Islamic fi nance in the region, Korea has also been trying to introduce Islamic fi nance to get diversifi cation of funding resources which rely heavily on the US, Japan and Europe, etc. KWANG SUK PARK writes.

If the internalization

of Islamic inance gets accelerated and the size of Islamic inance assets increases in the future, there is a huge possibility for Islamic inance to expand in Korea

25© 24th June 2015

SECTOR FEATURE

ISLAMIC BANKING AND FINANCE

By Abrar Hussain

In some ways, that rhetorical question is easy to answer. With few exceptions, the IBF industry has not been among the leaders in the mobile banking space. Most IBF institutions have instead given much more focus to the development of fi nancial products (such as Sukuk off erings for institutional investors) than to bringing mobile banking services to the poor. This is a mistake both morally and economically.

Although the idea of morality being applied to fi nance may seem a hippy pipe dream to the modern observer, the idea of treating economics as its own special area of social science is a fairly modern construct. Neither Islamic nor Christian civilizations thought of economics as its own isolated area but simply as the way humans interacted with each other, ie ethics. In fact, the Quran, Bible, and Torah all talk about taxes, inheritance, the excessive aggregation of wealth and numerous other economic topics all in the context of ethics. Economics, at least according to these books, cannot be understood without morality.

This is not the way we understand economics to be now. Economics has strived to become an almost scientifi c discipline devoid of morality in the same way that physics is devoid of morality. The constant stream of economic indicators, public market data, federal bank data and related economic information give economics a veneer of numeric certainty and the complex formulas that are used to correlate some of these bits of information give it an aura of mathematical and scientifi c precision. In such a construct, how can there be room for morality and ethics?

The practice of usury (Riba), for instance,

has been expressly forbidden not only in Islam, but in Christianity, numerous other religions and, in fact, by the Roman empire. This is a moral restriction, yet in the IBF industry’s discussions of Riba, the morality of lending to a specifi c borrower is often not discussed. The industry instead focuses our att ention on the minutiae of how we can modify the form of conventional fi nancial products to make them more religiously compliant. Rarely is there a discussion of whom the products will be given to or how the fi nancial obligations contained in these products will aff ect the borrowers. This is the equivalent of trying to tailor a suit for a client without taking the client’s measurements. If a borrower cannot realistically hope to pay back the loan and does not understand the severity of the fi nancial consequences, regardless of the structure of the documents, is this not a Ribawi transaction?

While the IBF industry is preoccupied in its fi gurative sandbox, technology may provide the solutions that have, so far, been elusive. Mobile banking and peer-to-peer lending are transforming the fi nancial industry. According to the 2014 State of the Industry Report published by the Groupe Speciale Mobile Association (GSMA), the number of registered mobile money accounts globally grew to reach just under 300 million and over US$6.2 billion has gone into the mobile banking system in 2014 alone.

Additionally, lending is also being done online, for example, by Lending Club and OnDeck, companies that are already lending online to individuals and small businesses. Another company, Kabbage, is upping the ante by using big data analytics to quickly assess risk that each individual borrower poses without needing a third-party credit rating by analyzing the borrower’s bank statements – and these assessments

have proven more accurate than FICO scores, an American credit rating agency’s scoring system, in assessing risk. Kabbage can approve loans within seven minutes and the funds are deposited into the borrower’s account in 24 hours. These three companies alone have already loaned over US$2 billion to their customers.

More importantly, money can be made by bringing these services to the poor. As noted in the same GSMA report, the average size of mobile money transactions in 2014 ranged from US$20 to over US$240 (excluding mobile top-ups). These are transactions that are being done in some of the poorest areas of sub-Saharan Africa, Latin America and Asia.

It is hoped that the coming of mobile banking and the use of big data analytics can bring the world’s poor into the global fi nancial system and provide the opportunities that everyone else has been taking advantage of for decades. Perhaps this will fi nally address the problem that William Gibson so eloquently stated: “[T]he future is already here – it’s just not evenly distributed.”

Abrar Hussain is a co-founder and the managing director of Elixir Capital and an adjunct professor at the University of California Berkeley. He can be contacted at abrar.hussain@elixircap.com.

Technology and the Islamic banking and inance industryIn the author’s previous article about mobile fi nance and its applicability to Muslim markets, it was pointed out that over a billion people (the majority of whom are Muslims) do not have bank accounts and are invisible in the modern world of fi nance. Consequently, they have largely been left behind by the internet revolution. The recent, broad dissemination of mobile phones has the potential to bring a huge portion of the world’s poor into the world of global fi nance by giving them access to mobile banking. That article concluded with the question of how the contemporary Islamic banking and fi nance (IBF) industry will seek to address this market. This week, ABRAR HUSSAIN looks at the possible answer.

26© 24th June 2015

SECTOR FEATURE

PRIVATE EQUITY AND VENTURE CAPITAL

By Suhail Ahmad

The US senior care portfolio sold by Arcapita represented over 16 facilities and approximately 4,000 residential units located across the US. This is one of the largest dispositions of a stand-alone continuing care retirement homes portfolio in North America. The portfolio was sold to NorthStar Healthcare Income, a real estate investment trust, for a transaction value of approximately US$640 million. The majority of the facilities are full-service communities that off er a mix of independent living, assisted living, Alzheimer’s care and skilled nursing care.

Arcapita’s chief investment offi cer, Martin Tan, was clear in highlighting the company’s satisfaction with the transaction stating: “Over the past seven years, senior housing in the United States has outperformed other property types. Demand continues to be driven by a number of factors, including an aging baby boomer population, an increasing recognition of the value provided by premium communities and the broader housing market recovery. Although the US real estate market experienced a period of diffi culty following the global economic crisis, Arcapita’s investment and post-acquisition team pursued a number of successful strategic and operational initiatives. As a result of these initiatives, the portfolio maintained strong occupancy levels and net operating income grew by 41% from 2010 to 2014.”

The successful closing of the senior care portfolio does not necessarily indicate an exit of Arcapita from the US senior living sector as Atif A. Abdulmalik, Arcapita’s CEO, commented in the company’s press release: “Arcapita will continue to pursue opportunities in the senior living sector in the US and (the) sector continues to benefi t from favorable long-term fundamentals.”

The sale of the senior care properties represents a series of positive and notable exits for Arcapita since the beginning of the year with approximately US$3 billion in exit proceeds. In January, the company made its largest exit selling its 50% stake in Lusail Golf Development to Barwa Real Estate Company. Lusail owns the development rights to a 3.66 million square meters plot of land north of Doha, Qatar. The total value of the plot was approximately US$1.4 billion.

In February this year, Arcapita sold PODS Holding for over US$1 billion to Canadian Ontario Teachers’ Pension Plan. PODS is a leading provider of portable storage and moving solutions for residential and business customers in North America and one of the most recognizable brands in the storage and moving industries, with a market coverage of nearly 250 million people. The company pioneered the portable moving and storage industry and today operates in over 150 locations, both corporate and franchise-owned, in the US, Canada, Australia and the UK.

Thereafter at the end of March, Arcapita announced the sale of Freightliner Group, an international rail freight operator, to Genesee & Wyoming, a US-based international owner and operator of short line and regional freight railroads. Consideration for 100% of the shares was approximately US$800 million and the assumption of liabilities.

The sale of Freigthliner Group was the successful exit of a seven-year investment by Arcapita. Since Arcapita’s acquisition of Freightliner in 2008, the company has grown its revenues by 87% and EBITDA by approximately 70%, despite the slow European economic recovery following the global fi nancial crisis. Headquartered in London and with over 2,500 employees, Freightliner is a leading UK rail logistics company, moving containers and heavy goods between ports and inland distribution hubs.

With offi ces in Bahrain, Atlanta, London and Singapore, Arcapita’s management team has completed over 70 transactions with a total value of approximately US$30 billion to date. However, the recent fl urry of asset sales may signal Arcapita’s concern with high valuations and the fragile state of the global economy and stutt ering stock markets.

Suhail Ahmad is the CEO of Hikmah Capital Corp. He can be contacted at suhail.ahmad@hikmahcapital.com.

Arcapita on a selling spreeEarlier this month Arcapita, a wholly-owned investment management fi rm of Bahrain-based Arcapita Bank, announced the sale of its US real estate portfolio of senior care communities. The sale comes on the heels of several large dispositions this year. Arcapita serves an exclusive group of investors from the GCC region and Southeast Asia and is one of the few global private equity and alternative investment management fi rms which comply with Shariah principles. SUHAIL AHMAD explores.

Arcapita will continue

to pursue opportunities in the senior living sector in the US and (the) sector continues to bene it from favorable long-term fundamentals

27© 24th June 2015

NEWS

DEALSCBB’s Sukuk oversubscribedBAHRAIN: The Central Bank of Bahrain (CBB) in a press release announced that its monthly issue of the short-term Sukuk Ijarah has been oversubscribed by 193%. Subscriptions worth BHD50.1 million (US$131.97 million) were received for the BHD26 million (US$68.49 million) issue, which carries a maturity of 182 days. The expected return on the issue, which began on the 18th June 2015 and matures on the 17th December 2015, is 1.25%. The Sukuk are issued by the CBB on behalf of the government of the Kingdom of Bahrain.

Separately, the bank’s most recent Sukuk Salam off ering was also oversubscribed by 276%. The bank said in a statement that the BHD43 million (US$113.27 million) paper carries an expected return of 1.2% and will mature on the 23rd September 2015.

Jordanian sovereign Sukuk to debut soonJORDAN: Jordan is expected to launch its fi rst sovereign Sukuk to fi nance real estate projects, according to the Jordan Times, quoting fi nance minister Umayya Toukan. The daily also reported that informed sources indicated that the Sukuk may be issued in the coming weeks and could raise around JOD400 million (US$562.36 million). Tapping the Sukuk market by the government is also expected to encourage more corporate Sukuk issuance in the future.

Toyota Capital proposes Islamic debtMALAYSIA: Toyota Capital Malaysia has proposed to establish an Islamic and conventional commercial paper and medium-term note program with a combined limit of up to RM2.5 billion (US$666.21 million) in nominal value. The proposed facility, according to a press release, has been assigned ratings of ‘AAA(s)/Stable/P1(s)’ by RAM Ratings.

Cabinet approved Sukuk issuance by 1MDB MALAYSIA: 1Malaysia Development (1MDB), formerly the state-owned entity Terengganu Investment Authority, has revealed that a Cabinet paper was prepared and approved for its RM5 billion (US$1.33 billion) Sukuk issuance

and denied claims that it was “hijacked”, according to a press release. The 30-year Sukuk was underwritt en by AmBank. The fi rm is currently under probe for alleged misuse of the fund.

Overwhelming response for Indonesian SukukINDONESIA: The government of Indonesia received approximately IDR4.47 trillion (US$334.8 million) in bids for its latest Sukuk auction on the 16th June. The fi nance ministry confi rmed in a statement that a total of IDR2.69 trillion (US$201.48 million) was awarded.

Sepangar Bay to make Sukuk paymentMALAYSIA: Sepangar Bay Power Corporation will make the redemption and periodic profi t payment for its RM575 million (US$154.74 million) Sukuk Murabahah on the 3rd July 2015, according to an announcement on Bank Negara Malaysia’s website.

Hijrah Pertama to disburse pro itsMALAYSIA: The periodic distribution on Hijrah Pertama’s RM2.92 billion (US$785.83 million) in aggregate nominal value Sukuk Ijarah is due on the 30th June. The periodic distribution rate is set at 4.87% per year, according to a bourse fi ling.

Platinum Password redeems Sukuk MALAYSIA: Talam Transform has announced on Bank Negara Malaysia’s website that Platinum Password will make an early partial redemption/cancellation of the principal amount of the Bai Bithaman Ajil Islamic debt securities of RM34.29 million (US$9.17 million) of the outstanding RM87.38 million (US$23.37 million) on the 22nd June 2015.

SPG’s Sukuk paymentMALAYSIA: Sarawak Power Generation (SPG) in an announcement on Bank Negara Malaysia’s website will make the semi-annual profi t payment for its RM215 million (US$57.49 million) nominal value Sukuk Musharakah program on the 26th June 2015 for the following stock codes: VO062342, VO062343, VR062348, VS062350, VS062351, VM070750 and VM070751.

IFC mulls over Sukuk offeringGLOBAL: The International Finance Corporation (IFC) is considering a Sukuk issuance, subject to market conditions in September, reported GlobalCapital. The proposed issuance will be the IFC’s third after a US$100 million sale in 2009 and a RM500 million (US$134 million) off ering in 2004.

Maxis issues irst series of Sukuk MurabahahMALAYSIA: Maxis has, according to an announcement on Bursa Malaysia’s website, issued the fi rst series of its unrated 30-year RM5 billion (US$1.33 billion) Sukuk Murabahah program. Amounting to RM840 million (US$225.05 million) in nominal value, the Islamic medium-term notes carry a tenor of 10 years via a Tawarruq arrangement.

NCB secures Sukuk transactionSAUDI ARABIA: The National Commercial Bank (NCB) has announced on Tadawul’s website its successful completion of a SAR1 billion (US$266.53 million) subordinated Tier 1 Sukuk issuance through a private placement off er. All required approvals for the issuance have been obtained from the regulatory authorities. JPMorgan Saudi Arabia and NCB Capital Company acted as the joint lead managers.

Aramco’s partial redemption of AATSC SukukSAUDI ARABIA: Arabian Aramco Total Services Company (AATSC) has made the partial redemption of AATSC Sukuk on the 21st June 2015, according to an announcement on Tadawul’s website. A fi xed distribution payment of SAR89.99 million (US$23.98 million) was made and approved by the Capital Market Authority in accordance with the prospectus dated the 10th September 2011.

BNM halts Sukuk issuanceMALAYSIA: Bank Negara Malaysia (BNM) has stopped issuing short-term Sukuk due to suffi cient liquidity in the country’s Islamic capital market since January, according to The National quoting an unnamed spokesperson. Data from S&P showed issuance plunged to US$33.7 billion in the fi rst fi ve months of this year, down from US$50.5 billion in the same period last year.

28© 24th June 2015

NEWS

AFRICASUganda makes way for Islamic bankingUGANDA: Uganda has approved the Financial Institutions (Amendment) Bill

2015 which allows Islamic and agency banking to operate in the republic. According to news portal AllAfrica, the bill will be published in the gazett e and presented to the parliament for debate and enactment by the minister of fi nance, planning and economic development.

ASIAIndonesian Islamic megabank on the cardsINDONESIA: The government of Indonesia plans to set up an Islamic megabank which could materialize next year, according to Bloomberg quoting Gatot Trihargo, the deputy minister for government-run enterprises. The plan involves merging state-owned banks (Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia and Bank Tabungan Negara) with paid-up capital of more than IDR15 trillion (US$1.1 billion) as well as considering to convert existing commercial banks into Shariah compliant ones. This is expected to result in a multiplying of Islamic banks’ share of total banking assets to 20% by 2018.

Meezan Bank launches online account opening facilityPAKISTAN: Meezan Bank has debuted its online account opening application for customers, according to a statement on its website. The initiative will enable customers to reduce hassle and save time through digital processing and is intended to att ract a new generation of customers. To date, Meezan Bank is the fi rst to off er the facility.

SME Bank’s 90% target getting closerMALAYSIA: Small Medium Enterprise Development Bank Malaysia (SME

Bank) is gett ing closer to achieving its 90% target in Islamic fi nancing portfolio by December this year, according to Bernama. The bank’s current Islamic fi nancing portfolio is at 86.5%, inching the bank nearer into becoming a fully-fl edged Shariah development fi nance institution.

HLISB launches new productsMALAYSIA: Hong Leong Islamic Bank (HLISB) has launched two new Tawarruq accounts: Current Account-i and Savings Account-i. The bank said in a statement that both the products are principal-guaranteed deposit products and comply with the Islamic Financial Services Act 2013.

RAM introduces new rating approachesMALAYSIA: RAM Ratings has announced in separate statements that it has updated its rating criteria for non-operating bank-holding companies, along with a group rating methodology for banks, and also developed a new Basel III rating criteria for banks and bank-holding companies. The new approaches will guide the fi rm in determining the starting point for the issue rating of the security and correspond with regulatory requirements in Malaysia.

New framework for PakistanPAKISTAN: The State Bank of Pakistan will launch a fi nalized Shariah compliance framework for Islamic

banking and Shariah capital markets on the 1st July, according to Khaleej Times.

OJK eases restrictions on foreign investorsINDONESIA: The Financial Services Authority (OJK) plans to ease restrictions on foreign investors to drive Shariah penetration to over 5% in the Indonesian banking system, according to The Jakarta Post. Several measures have been taken which include the removal of the requirement that obliges a foreign investor to merge with at least two banks. Foreign banks can now purchase only one bank if the existing commercial bank converts into an Islamic bank. The investors must also commit to injecting funds into the acquired banks to boost their capital to at least IDR5 trillion (US$375.5 million) in order to expand their business.

King & Spalding in TokyoJAPAN: Legal fi rm King & Spalding will be opening a new offi ce in Tokyo later this year to serve the Japanese and Korean markets. The fi rm confi rmed with IFN in a statement that four Ashurst partners will join the fi rm in establishing the new offi ce.

DEAL TRACKER Full Deal Tracker on page 32

EXPECTED DATE COMPANY’S NAME SIZE STRUCTURE ANNOUNCEMENT DATE

TBA 1Malaysia Development RM5 billion Sukuk 18th June 2015

TBA Maxis RM5 billion Sukuk Murabahah

18th June 2015

TBA Toyota Capital Malaysia TBA Sukuk 17th June 2015

TBA Jordanian government JOD400 million Sukuk 17th June 2015TBA SapuraKencana Petroleum RM7 billion Sukuk

Murabahah16th June 2015

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29© 24th June 2015

NEWS

EUROPEAl Rayan Bank launches 36-month FTDUK: Al Rayan Bank, formerly the Islamic Bank of Britain (IBB), in a press release

announced the launch of a new 36-month fi xed term deposit (FTD) account with an expected profi t rate of 2.6%. The FTD is open to anyone above the age of 16 with an initial deposit of GBP1,000 (US$1,586.6). Profi t can be paid quarterly or at maturity. The bank estimates that

this product will att ract people of all faiths based on the fact that 83% of all its FTD savings customers who joined last year were non-Muslims.

GLOBALICD secures US$300 million Murabahah facilityGLOBAL: The Islamic Corporation for the Development of the Private Sector (ICD) has secured a 13-month US$300 million Islamic Murabahah fi nancing facility from Dubai Islamic Bank, First Gulf Bank, Mizuho Bank Malaysia and Mizuho Bank Nederland, according to a

press release. The facility is led by Dubai Islamic as the sole coordinator and also the mandated lead arranger along with First Gulf Bank, Mizuho Bank Malaysia and Mizuho Bank Nederland.

Al Baraka planning new Islamic bank in MoroccoGLOBAL: Bahrain-based Al Baraka Banking Group plans to launch an Islamic bank in Morocco in 2016 which

will be equally owned by Al Baraka and Banque marocaine du commerce extérieur. According to Zawya quoting the bank’s CEO Adnan Ahmed Yousif, the bank will commence operation early next year after receiving approval from the country’s central bank. The bank is also looking into expansion into East Africa due to a similar banking system with the Gulf region and is exploring opportunities in Kenya.

MIDDLE EASTNew logo for Gulf FinanceUAE: Gulf Finance Corporation, which off ers Shariah compliant SME fi nancing facilities, has unveiled a new brand logo. David Hunt, CEO of the SHUAA Capital subsidiary, said in a statement that the new logo refl ects its transformation into a leading regional SME fi nancing company.

Bank Nizwa to empower SME sectorOMAN: Bank Nizwa has signed an MoU with the Public Authority for Small and Medium Enterprises Development to support the growth of the SME sector. The Islamic bank said in a statement that it plans to off er customized Shariah compliant SME products and services

by September, including SME current accounts and commercial vehicle fi nancing.

Banque Misr opens new branch EGYPT: Banque Misr, the fi rst public bank that established Islamic banking branches, has opened a new branch in Alexandria, according to Daily News Egypt. The Islamic bank, which goes by the name of Kenana, has 35 branches distributed across Egypt.

Shuaa Securities now DMA-accredited UAE: Shuaa Securities, which off ers Shariah compliant fi nancial services, has been accredited by Dubai Financial Market to provide Direct Market Access

(DMA) for global brokers. The exchange confi rmed in a statement that the number of DMA service providers now stands at 12. DMA-accredited brokerage companies are allowed to mandate a global broker to use its DMA access point to directly trade on the market.

KFH launches donation serviceKUWAIT: Kuwait Finance House (KFH) has, according to a press release, launched a fi rst-of-its-kind ‘Fitr alms and feed the fasting’ donation service on its ATMs in collaboration with Zakat House, allowing clients to easily donate money starting from KWD1 (US$3.31) to KWD30 (US$99.21). This donation service is a culmination of the KFH Ramadan program.

ASSETMANAGEMENTAMB introduces new Islamic fundMALAYSIA: Amanah Mutual (AMB) has introduced a new Shariah compliant fund, the AMB Shariah Value Plus Fund, confi rmed AMB to IFN. The open-ended fund is open to retail and institutional investors with an initial off er price of 50 Malaysian sen (13 US cents) per unit. The off er period is from the 21st June to the 6th

July 2015 with the minimum investment amount capped at RM500 (US$133.24) for retail investors and RM1 million (US$266,485) for institutional investors.

Bahrain approves REIT trading frameworkBAHRAIN: The Bahrain Bourse confi rmed in a statement that it has approved the Trading Guidelines of Real Estate Investment Trusts, following the board’s approval on the Listing Guidelines of REITs in April 2015. Decided during a meeting on the 15th June, approvals were also granted for

the Trading Guidelines of Treasury Bill Issues (issued by the Central Bank of Bahrain) and the bourse’s Information Technology Security Policy.

NBAD delivers dividend for Sukuk fundUAE: National Bank of Abu Dhabi (NBAD) Sukuk Income Fund generated a total income of US$673,894.69, translating to 2.22% of the net asset value as at the 28th May 2015. According to a press release, this fi gure includes the intended dividend payment of 11 US cents per unit.

30© 24th June 2015

NEWS

RESULTSBLMEUK: Bank of London and The Middle East (BLME) registered an 83% year-

on-year decrease in net profi t for the fi rst quarter of 2015 to GBP400,000 (US$634,196). According to the unaudited results released by the Islamic bank, total assets for the period were up 9% to GBP1.3 billion (US$2.06 billion).

TAKAFULSAMA gives conditional approval to Alinma’s productsSAUDI ARABIA: Alinma Tokio Marine Co announced on Tadawul’s website that it has obtained a fi nal conditional approval from the Saudi Arabian Monetary Agency (SAMA) for its protection and savings products which include among others the Shariah compliant Istithmar, Zawaaj and Taaleem programs.

Bank Muamalat and Manulife collaborateINDONESIA: Bank Muamalat Indonesia is partnering with Manulife

Indonesia on a long-term bancassurance agreement and have launched their joint product, Zafi rah, according to the Jakarta Post. Through this partnership, Bank Muamalat’s customers can access Manulife Indonesia’s series of Shariah compliant insurance products, which comprise life coverage and unit link insurance, through retail networks across Indonesia and also telemarketing.

TIC signs MoU with Copart BahrainBAHRAIN: Takaful International Company (TIC) and Copart Bahrain have signed an MoU on the regulation of the sale of damaged vehicles from traffi c accidents through an auction, according to a press release. This agreement will

provide a fair and transparent sales review of the applicant’s bids in the auction process and will guarantee professional independence in the implementation of the sales operation.

New product by PruBSN and BSNMALAYSIA: Prudential BSN Takaful (PruBSN) and Bank Simpanan Nasional (BSN) have introduced a new investment-linked Family Takaful scheme, known as the Giro Takaful Premier plan. The operator said in a media statement that the plan is designed to provide life protection, investment and savings.

Islamic FinanceQualification (IFQ)

23rd – 25th August 2015, Dubai

www.redmoneytraining.comdubaicourse@redmoneygroup.com

Key Highlights:• Key Islamic Finance Principles• How Islamic and Conventional

Finance Differ• Structuring Rules for Islamic

Financial Products• Sukuk & Islamic Securitization

• Islamic Asset & Fund Management

• Takaful• Financial Statements for Islamic

Banks• Corporate Governance for

Islamic Finance

31© 24th June 2015

NEWS

RATINGSTBP’s Sukuk rating reaf irmedMALAYSIA: Tanjung Bin Power (TBP)’s Sukuk Ijarah program of up to RM4.5 billion (US$1.2 billion) in nominal value has been reaffi rmed at ‘AA2/Stable’ by RAM. The rating agency said in a statement that the rating is predicated on the power producer’s solid business profi le backed by the favorable terms of its power purchase agreement with Tenaga Nasional.

Omani banks ratedOMAN: Fitch in a statement has affi rmed six Omani banks’ long-term issuer default ratings (IDR) and upgraded two of the banks’ viability ratings (VR), with a stable outlook on all banks. Five of the banks have their IDRs based on support from the Omani sovereign: Bank Muscat (BM) at ‘A-’ and National Bank of Oman (NBO), Bank Dhofar, Bank Sohar and Ahli Bank (ABO) at ‘BBB+’. The IDR for the remaining bank HSBC Bank Oman (HBON) was affi rmed at ‘A+’, based on support from its ultimate parent, HSBC Holdings (‘AA-/Stable’).

Concurrently, Fitch has upgraded Bank Sohar’s VR to ‘bb+’ from ‘bb’, and HBON’s VR to ‘bbb-’ from ‘bb+’. Fitch also affi rmed BM’s VR at ‘bbb’, NBO’s and ABO’s VR at ‘bbb-’ and Bank Dhofar’s VR at ‘bb+’.

CIMB Islamic’s ratings revisedMALAYSIA: Moody’s in statement has reviewed nine Malaysian fi nancial institutions including CIMB Islamic Bank. The agency affi rmed the ‘A3’ foreign currency deposit and issuer ratings of CIMB Islamic. Moody’s also downgraded the bank’s local currency deposit rating to ‘A3’ from ‘A1’, due to the revised government support assumptions for all banks in the country. The rating outlook is positive. Concurrently, the fi rm

also upgraded CIMB Islamic’s baseline credit assessment to ‘baa2’ from ‘ba1’.

AlB obtains ‘BB’ ratingBAHRAIN: Capital Intelligence (CI) in a statement on its website has affi rmed Al Baraka Islamic Bank (AIB)’s fi nancial strength rating at ‘BB’, with a stable outlook, supported by its strong ownership, comfortable liquidity premised on customer deposit funding, and the improvement in the capital adequacy ratio. In view of the negative outlook CI assigned to the Kingdom’s sovereign ratings in April 2015, and the resultant downward pressure it places on the ratings of all the banks in the system, a negative outlook has been appended to AIB’s foreign currency ratings.

HSBC Amanah’s ratings reaf irmedMALAYSIA: RAM in a statement has reaffi rmed the ‘AAA/Stable/P1’ fi nancial institution ratings of HSBC Amanah Malaysia, as well as the ‘AAA/Stable’ rating of the bank’s RM3 billion (US$807.36 million) multi-currency Sukuk program (2012/2032). The ratings are premised on the bank’s strategic role as the Islamic banking arm of HSBC Bank Malaysia (rated ‘AAA/Stable/P1’ by RAM), as well as the integration of its operating model with that of its parent.

Moody’s assigns counterparty risk assessments to Saudi banksSAUDI ARABIA: Moody’s in a statement assigned counterparty risk assessments (CR assessments) to 11 Saudi Arabian banks.

It has assigned CR assessments of ‘Aa3(cr)’ to Al Rajhi Bank, Arab National Bank, Banque Saudi Fransi, Riyad Bank, National Commercial Bank, Samba Financial Group, Saudi British Bank and

Saudi Hollandi Bank; ‘A1(cr)’ to Bank AlBilad and Saudi Investment Bank; and ‘A2(cr)’ to Bank Al-Jazira. Concurrently, ‘Prime-1(cr) ‘short-term CR assessments have been assigned to all 11 banks.

At the same time, Moody’s affi rmed the ‘A3’ foreign currency subordinated debt rating and ‘(P)A3’ subordinated medium-term note program rating of Arab National Bank and, for its own business reasons, withdrawn the stable outlook on the subordinated debt instrument..

Fitch af irms Kuwait’s ratings KUWAIT: Fitch in a statement has affi rmed Kuwait’s long-term foreign and local currency issuer default ratings (IDR) at ‘AA’, with a stable outlook. The country ceiling has been affi rmed at ‘AA+’ and the short-term foreign currency IDR at ‘F1+’..

Jordan’s sovereign ratings af irmedJORDAN: Capital Intelligence (CI) in a statement has affi rmed Jordan’s long-term foreign currency rating of ‘BB-’ and its long-term local currency rating of ‘BB’. At the same time, CI also affi rmed Jordan’s short-term foreign and local currency ratings of ‘B’. The outlook is stable for both of Jordan’s foreign and local currency ratings.

No changes to Turkiye Finans’s ratingsTURKEY: The unexpected departure of Turkiye Finans Katilim Bankasi’s previous CEO, Derya Gurerk, will not have any material negative eff ect on the participation bank’s operations, opined RAM. The rating agency said in a statement that the bank’s major shareholder, National Commercial Bank, will continue to strongly support the Turkish bank which is rated ‘AA3/P1’ with a stable outlook.

MOVESTurkiye FinansTURKEY: Osman Celik has been named as the acting CEO of Turkiye Finans following the departure of Derya Gurerk. The participation bank affi rmed to IFN that Derya’s resignation had nothing to do with the news linking him to alleged corruption.

Islami Bank BangladeshBANGLADESH: Islami Bank Bangladesh, according to an announcement on the bank’s website, on the 13th June 2015 elected Mustafa Anwar as the chairman of the bank as well as Yousif Abdullah Al-Rajhi and Professor NRM Borhan Uddin as the vice-chairmen.

The Securities HouseKUWAIT: The CEO of Shariah compliant investment fi rm The Securities House, Ayman Boodai, is stepping down and would be replaced by Fahed Boodai, the current chairman of the UK-based Islamic lender Gatehouse Bank, according to Reuters.

32© 24th June 2015

DEAL TRACKER

Expected date Company's name Size Structure Announcement DateTBA 1Malaysia Development RM5 billion Sukuk 18th June 2015

TBA Maxis RM5 billion Sukuk Murabahah 18th June 2015

TBA Toyota Capital Malaysia TBA Sukuk 17th June 2015

TBA Jordanian government JOD400 million Sukuk 17th June 2015

TBA SapuraKencana Petroleum RM7 billion Sukuk Murabahah 16th June 2015

TBA Drake & Scull International US$150-200 million Sukuk 11th June 2015

By 2017 KT Bank EUR100 million Sukuk 11th June 2015

After June 2015 Othaim Real Estate and Investment Company

TBA Sukuk 10th June 2015

TBA Grand Sepadu RM210 million Sukuk Murabahah 5th June 2015

TBA Saudi Binladin Group SAR1 billion Sukuk 29th May 2015

TBA Abu Dhabi Islamic Bank US$3 billion Sukuk 29th May 2015

Before Ramadan 2015 (18th June 2015)

Government of Oman US$1 billion Sukuk 26th May 2015

First week of June 2015 Perhimpunan BMT Indonesia US$200 million Sukuk 26th May 2015

26th May 2015 Government of Indonesia IDR10 trillion Sukuk 22nd May 2015

TBA Masraf Al Rayan TBA Sukuk 14th May 2015

TBA AEON Credit RM1 billion Sukuk Murabahah 13th May 2015

TBA Bank OCBC NISP TBA Sukuk 13th May 2015

TBA Government of Oman OMR200 million Sukuk 11th May 2015

TBA Najran Cement Company TBA Sukuk 8th May 2015

2nd quarter 2015 National Shipping Company of Saudi Arabia

SAR3.9 billion Sukuk 7th May 2015

TBA Riyad Bank SAR4 billion Sukuk 6th May 2015

Jun-15 Adira Dinamika Multi Finance IDR500 billion Sukuk 6th May 2015

2015/2016 fi scal year Government of Egypt TBA Sukuk 5th May 2015

2015 Government of Ivory Coast XOF300 billion Sukuk 24th April 2015

2016 Government of Kazakhstan TBA Sukuk 9th April 2015

TBA CIMB Group Holdings RM1 billion Sukuk 9th April 2015

TBA Taliworks Corporation RM210 million Sukuk Murabahah 8th April 2015

TBA Government of Senegal TBA Sukuk 6th April 2015

TBA Oman Telecommunications TBA Sukuk 23rd March 2015

TBA Zorlu Energy TRY100 million Sukuk 20th March 2015

TBA Turkiye Finans RM2.05 billion Sukuk 20th March 2015

TBA Government of Jordan JOD400-500 million Sukuk 20th March 2015

TBA Bank Muscat OMR500 million Sukuk 20th March 2015

24th March 2015 Government of Indonesia IDR2 trillion Sukuk 18th March 2015

Apr-15 Masraf Al Rayan TBA Sukuk 17th March 2015

As early as April 2015 Government of UAE TBA Green energy Sukuk 12th March 2015

Before June 2015 BNI Syariah IDR500-750 billion Sukuk 10th march 2015

TBA Treet Corporation PKR539.51 million Sukuk 9th March 2015

2015 Government of Hong Kong US$500 million-1 billion Sukuk 9th March 2015

End of March National Shipping Company of Saudi Arabia

SAR3.9 billion Sukuk 5th March 2015

TBA Sharjah Islamic Bank TBA Sukuk 4th March 2015

TBA Tulip Maple US$750 million Sukuk 4th March 2015

TBA Khazanah Nasional RM1 billion Sukuk 27th February 2015

2015 Gulf Finance House US$230 million Sukuk 26th February 2015

2015 Garuda Indonesia US$500 million Sukuk 25th February 2015

TBA IDB TBA Sukuk 25th February 2015

TBA Qatar Islamic Bank QAR5 billion Sukuk 23rd February 2015

33© 24th June 2015

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

1700

1780

1860

1940

2020

2100

Jun-2015May-2015Apr-2015Mar-2015Feb-2015Jan-2015

All Cap Large Cap Medium Cap Small Cap

650

1020

1390

1760

2130

2500

JunMayAprMarFebJan800

880

960

1040

1120

1200

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

500

660

820

980

1140

1300

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

680

984

1288

1592

1896

2200

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

500

630

760

890

1020

1150

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

800

1090

1380

1670

1960

2250

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

34© 24th June 2015

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

550

720

890

1060

1230

1400

JunMayAprMarFebJan 450

620

790

960

1130

1300

JunMayAprMarFebJan

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

850

1200

1550

1900

2250

JunMayAprMarFebJan

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

890

1280

1670

2060

2450

JunMayAprMarFebJan

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

35© 24th June 2015

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

Taking into account funds that have at least 12 months of returns as at the 22nd June 2015

Based on 60.79% of funds which have reported May 2015 returns as at the 22nd June 2015

Top 10 Yield-to-Date Returns for ALL Islamic Funds

Fund Fund Manager Performance Measure Fund Domicile

1 Jadwa Saudi Equity Jadwa Investment 26.57 Saudi Arabia

2 Jadwa GCC Equity Jadwa Investment 24.11 Saudi Arabia

3 Jadwa Arab Markets Equity Jadwa Investment 23.39 Saudi Arabia

4 CIMB Islamic Greater China Equity CIMB-Principal Asset Management 18.94 Malaysia

5 Al Rajhi Petrochemical and Cement Equity Al Rajhi Bank 17.15 Saudi Arabia

6 Osool & Bakheet Saudi Trading Equity Bakheet Investment Group 15.19 Saudi Arabia

7 Al-Ameen Shariah Stock UBL Fund Managers 13.59 Pakistan

8 Al Rajhi GCC Equity Al Rajhi Bank 12.93 Saudi Arabia

9 Public Islamic Asia Tactical Allocation (PIATAF) Public Mutual 12.07 Malaysia

10 Public Asia Itt ikal Public Mutual 11.78 Malaysia

Eurekahedge Islamic Fund Index 3.38

Top 10 Sharpe Ratio for ALL Funds since Inception

Fund Fund Manager Performance Measure Fund Domicile

1 Public Islamic Money Market Public Mutual 20.82 Malaysia

2 PB Islamic Cash Management Public Mutual 18.69 Malaysia

3 Boubyan KWD Money Market Boubyan Bank 15.95 Cayman Islands

4 PB Islamic Cash Plus Public Mutual 11.81 Malaysia

5 Boubyan USD Liquidity Boubyan Capital Investment Company 10.75 Kuwait

6 Asia Islamic Trade Finance Ltd Asiya Assessment Management (Cayman) 9.16 Cayman Islands

7 Atlas Pension Islamic - Debt Sub Atlas Asset Management 6.71 Pakistan

8 Al Rajhi Commodity Mudarabah - USD Al Rajhi Bank 6.55 Saudi Arabia

9 CIMB Islamic Money Market CIMB-Principal Asset Management 5.58 Malaysia

10 Emirates Islamic Money Market Limited Institutional Share Class I USD

Emirates NBD Asset Management 4.38 Jersey

Eurekahedge Islamic Fund Index (0.87)

55

65

75

85

95

105

115

125

135

145

155

Dec

-99

Apr

-01

Jul-0

2

Nov

-03

Feb-

05

Jun-

06

Sep-

07

Dec

-08

Apr

-10

Jul-1

1

Nov

-12

Feb-

14

May

-15

36© 24th June 2015

FUNDS TABLES

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.

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

Perc

enta

ge

Perc

enta

ge

Based on 70.59% of funds which have reported May 2015 returns as at the 22nd June 2015

Based on 63.81% of funds which have reported May 2015 returns as at the 22nd June 2015

Top 10 Islamic Equity Funds by 3 Months Returns

Fund Fund Manager Performance Measure Fund Domicile

1 Jadwa Arab Markets Equity Jadwa Investment 14.49 Saudi Arabia

2 Al Rajhi Petrochemical and Cement Equity Al Rajhi Bank 14.04 Saudi Arabia

3 Jadwa GCC Equity Jadwa Investment 13.81 Saudi Arabia

4 Jadwa Saudi Equity Jadwa Investment 13.26 Saudi Arabia

5 Al Rajhi GCC Equity Al Rajhi Bank 10.09 Saudi Arabia

6 Al Rajhi Local Shares Al Rajhi Bank 9.91 Saudi Arabia

7 NBAD Islamic MENA Growth National Bank of Abu Dhabi 7.63 UAE

8 Osool & Bakheet Saudi Trading Equity Bakheet Investment Group 6.95 Saudi Arabia

9 PB Islamic Asia Equity Public Mutual 4.34 Malaysia

10 Public Asia Itt ikal Public Mutual 4.19 Malaysia

Eurekahedge Islamic Fund Index (1.25)

Top 10 Globally Investing Islamic Funds by 3 Months Returns

Fund Fund Manager Performance Measure Fund Domicile

1 CIMB Islamic Greater China Equity CIMB-Principal Asset Management 10.19 Malaysia

2 QInvest JOHCM Sharia'a J O Hambro Capital Management 4.17 Cayman Islands

3 EFH Islamic Financial Institution USD QInvest 2.59 Luxembourg

4 WSF Global Equity - USD I Cogent Asset Management 2.15 Guernsey

5 Al Rajhi Global Equity UBS 1.86 Saudi Arabia

6 AmOasis Global Islamic Equity AmInvestment Management 1.83 Malaysia

7 BLME Sharia'a Umbrella SICAV-SIF Global Sukuk - Class A USD

Bank of London and The Middle East 1.26 Luxembourg

8 QInvest Sukuk QInvest 0.98 Cayman Islands

9 Mashreq Al-Islami Income Mashreq Capital (DIFC) 0.74 UAE

10 DJ Islamic Market Titans 100 Theam Easy UCITS ETF - USD

BNP Paribas Investment Partners 0.32 France

Eurekahedge Islamic Fund Index (0.41)

90

100

110

120

130

140

150

160

Jan-

10

Jul-1

0

Dec

-10

May

-11

Nov

-11

Apr

-12

Sep-

12

Mar

-13

Aug

-13

Jan-

14

Jul-1

4

Dec

-14

May

-15

9596979899

100101102103104105

May

-14

Jun-

14

Jul-1

4

Aug

-14

Sep-

14

Oct

-14

Nov

-14

Dec

-14

Jan-

15

Feb-

15

Mar

-15

Apr

-15

May

-15

37© 24th June 2015

LEAGUE TABLES

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

0250500750100012501500

02468

1012

5 12111098764321

2014

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 4Q3Q2Q1Q4Q3Q2Q2010 2011 2012 2013 2014

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

Most Recent Global Sukuk

Priced Issuer Nationality Instrument Market US$ (mln) Managers4th Jun 2015 Pengurusan Air

SPVMalaysia Sukuk Domestic market

public issue163 Maybank

28th May 2015 Hong Kong Sukuk 2015

Hong Kong Sukuk Euro market public issue

1,000 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, CIMB Group

27th May 2015 Garuda Indonesia Global Sukuk

Indonesia Sukuk Euro market public issue

500 Standard Chartered Bank, Deutsche Bank, ANZ, National Bank of Abu Dhabi, First Gulf Bank, Maybank, Emirates NBD, Al Hilal Bank, QInvest, Warba Bank, Noor Bank

25th May 2015 Benih Restu Malaysia Sukuk Domestic market public issue

278 OCBC, RHB Capital, Maybank, CIMB Group

22nd May 2015 Jana Kapital Malaysia Sukuk Domestic market public issue

419 RHB Capital

22nd May 2015 Malaysia Building Society

Malaysia Sukuk Domestic market public issue

250 RHB Capital

21st May 2015 Perusahaan Penerbit SBSN Indonesia III

Indonesia Sukuk Euro market public issue

2,000 JPMorgan, HSBC, Dubai Islamic Bank, CIMB Group

18th May 2015 Dubai Islamic Bank

UAE Sukuk Euro market public issue

750 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, First Gulf Bank, Maybank, Dubai Islamic Bank

18th May 2015 THP Suria Mekar Malaysia Sukuk Domestic market public issue

280 RHB Capital

15th May 2015 Jambatan Kedua Malaysia Sukuk Domestic market public issue

560 RHB Capital, Maybank, Kenanga Investment Bank, AmInvestment Bank

21st Apr 2015 Noor Bank UAE Sukuk Euro market public issue

500 Standard Chartered Bank, Dubai Islamic Bank, South Indian Bank, Citigroup, Emirates NBD, Al Hilal Bank, QInvest, Barwa Bank

17th Apr 2015 Aman Sukuk Malaysia Sukuk Domestic market public issue

140 RHB Capital, CIMB Group, AmInvestment Bank

8th Apr 2015 Malaysia Sovereign Sukuk

Malaysia Sukuk Euro market public issue

1,500 Standard Chartered Bank, HSBC, CIMB Group

6th Apr 2015 Point Zone (M) Malaysia Sukuk Domestic market public issue

219 Maybank, CIMB Group, Hong Leong Financial Group, Affi n Investment Bank, AmInvestment Bank

25th Mar 2015 Khadrawy UAE Sukuk Euro market public issue

913 Standard Chartered Bank, JPMorgan, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD

25th Mar 2015 Danga Capital Malaysia Sukuk Domestic market public issue

547 RHB Capital, CIMB Group

24th Mar 2015 Government of Ras Al Khaimah

UAE Sukuk Euro market public issue

1,000 JPMorgan, National Bank of Abu Dhabi, Citigroup, Al Hilal Bank

23rd Mar 2015 DanaInfra Nasional

Malaysia Sukuk Domestic market public issue

943 RHB Capital, Maybank, CIMB Group, Affi n Investment Bank, AmInvestment Bank

20th Mar 2015 Mah Sing Group Malaysia Sukuk Domestic market public issue

146 Maybank, CIMB Group

20th Mar 2015 HSBC Amanah Malaysia

United Kingdom

Sukuk Domestic market public issue

203 HSBC, Maybank, Hong Leong Financial Group

38© 24th June 2015

LEAGUE TABLES

Top 30 Issuers of Global Sukuk 12 MonthsIssuer Nationality Instrument Market US$

(mln)Iss(%)

Managers

1 Perusahaan Penerbit SBSN Indonesia III

Indonesia Sukuk Euro market public issue

3,500 8.7 Standard Chartered Bank, HSBC, CIMB Group, Emirates NBD, JPMorgan, Dubai Islamic Bank

2 IDB Trust Services Saudi Arabia

Sukuk Euro market public issue

2,881 7.2 Standard Chartered Bank, Deutsche Bank, HSBC, National Bank of Abu Dhabi, First Gulf Bank, Maybank, Gulf International Bank, Natixis, CIMB Group, Saudi National Commercial Bank, RHB Capital, Dubai Islamic Bank

3 DanaInfra Nasional Malaysia Sukuk Domestic market public issue

2,479 6.2 Standard Chartered Bank, RHB Capital, Maybank, CIMB Group, AmInvestment Bank, Affi n Investment Bank, Bank Islam Malaysia

4 Dubai Islamic Bank UAE Sukuk Euro market public issue

1,750 4.4 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Sharjah Islamic Bank, Emirates NBD, Al Hilal Bank, Noor Bank, First Gulf Bank, Maybank

5 Malaysia Sovereign Sukuk

Malaysia Sukuk Euro market public issue

1,500 3.7 Standard Chartered Bank, HSBC, CIMB Group

6 Petronas Global Sukuk

Malaysia Sukuk Euro market public issue

1,250 3.1 JPMorgan, Deutsche Bank, Morgan Stanley, HSBC, Maybank, Mitsubishi UFJ Financial Group, CIMB Group, Citigroup, Bank of America Merrill Lynch

7 Islamic Republic of Pakistan

Pakistan Sukuk Euro market public issue

1,000 2.5 Standard Chartered Bank, Deutsche Bank, Dubai Islamic Bank, Citigroup

7 Hong Kong Sukuk 2015

Hong Kong

Sukuk Euro market public issue

1,000 2.5 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, CIMB Group

7 Hong Kong Sukuk 2014

Hong Kong

Sukuk Euro market public issue

1,000 2.5 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, CIMB Group

7 Hazine Mustesarligi Varlik Kiralama Anonim Sirketi

Turkey Sukuk Euro market public issue

1,000 2.5 HSBC, CIMB Group, Citigroup

7 Government of Ras Al Khaimah

UAE Sukuk Euro market public issue

1,000 2.5 JPMorgan, National Bank of Abu Dhabi, Citigroup, Al Hilal Bank

12 Danga Capital Malaysia Sukuk Domestic market public issue

992 2.5 RHB Capital, CIMB Group

13 Bank Pembangunan Malaysia

Malaysia Sukuk Domestic market public issue

948 2.4 HSBC, CIMB Group

14 Khadrawy UAE Sukuk Euro market public issue

913 2.3 Standard Chartered Bank, JPMorgan, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Citigroup, Emirates NBD

15 Sharjah Sukuk UAE Sukuk Euro market public issue

750 1.9 Standard Chartered Bank, HSBC, Kuwait Finance House, National Bank of Abu Dhabi, Sharjah Islamic Bank

16 National Higher Education Fund

Malaysia Sukuk Domestic market public issue

743 1.9 Maybank, CIMB Group

17 Dubai International Financial Centre

UAE Sukuk Euro market public issue

700 1.7 Standard Chartered Bank, Dubai Islamic Bank, Emirates NBD, Noor Bank

18 Mumtalakat Sukuk Holding

Bahrain Sukuk Euro market public issue

594 1.5 Standard Chartered Bank, Deutsche Bank, BNP Paribas, Mitsubishi UFJ Financial Group

19 Jambatan Kedua Malaysia Sukuk Domestic market public issue

560 1.4 RHB Capital, Maybank, Kenanga Investment Bank, AmInvestment Bank

20 Prasarana Malaysia Malaysia Sukuk Domestic market public issue

541 1.4 RHB Capital, Kenanga Investment Bank, CIMB Group, Affi n Investment Bank, AmInvestment Bank

21 Sharjah Islamic Bank

UAE Sukuk Euro market public issue

500 1.2 Standard Chartered Bank, HSBC, Kuwait Finance House, Dubai Islamic Bank, Abu Dhabi Islamic Bank, Emirates NBD, Al Hilal Bank, Noor Bank

21 Republic of South Africa

South Africa

Sukuk Euro market public issue

500 1.2 BNP Paribas, Standard Bank, Kuwait Finance House

21 Noor Bank UAE Sukuk Euro market public issue

500 1.2 Standard Chartered Bank, Dubai Islamic Bank, South Indian Bank, Citigroup, Emirates NBD, Al Hilal Bank, QInvest, Barwa Bank

21 JANY Sukuk US Sukuk Euro market public issue

500 1.2 Saudi National Commercial Bank, Goldman Sachs, National Bank of Abu Dhabi, Abu Dhabi Islamic Bank, Emirates NBD, QInvest

21 IFFIm Sukuk United Kingdom

Sukuk Euro market public issue

500 1.2 Saudi National Commercial Bank, Standard Chartered Bank, National Bank of Abu Dhabi, CIMB Group, Barwa Bank

21 Flydubai UAE Sukuk Euro market public issue

500 1.2 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Emirates NBD, Credit Agricole, Noor Bank

21 Al Hilal Bank UAE Sukuk Euro market public issue

500 1.2 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Citigroup, Emirates NBD, Al Hilal Bank

28 Garuda Indonesia Global Sukuk

Indonesia Sukuk Euro market public issue

496 1.2 Standard Chartered Bank, Deutsche Bank, ANZ, National Bank of Abu Dhabi, First Gulf Bank, Maybank, Emirates NBD, Al Hilal Bank, QInvest, Warba Bank, Noor Bank

29 Rantau Abang Capital

Malaysia Sukuk Domestic market public issue

476 1.2 RHB Capital, Maybank, Bank Islam Malaysia, CIMB Group

30 Bumi Armada Capital Malaysia

Malaysia Sukuk Domestic market public issue

474 1.2 RHB Capital, Maybank, CIMB Group, AmInvestment Bank

40,189 100

39© 24th June 2015

LEAGUE TABLES

Top Managers of Sukuk 12 Months

Manager US$ (mln) Iss %

1 CIMB Group 6,547 57 16.3

2 HSBC 4,629 28 11.5

3 RHB Capital 4,145 47 10.3

4 Standard Chartered Bank 3,737 26 9.3

5 Maybank 3,398 37 8.5

6 AmInvestment Bank 2,088 27 5.2

7 National Bank of Abu Dhabi 1,992 15 5.0

8 Dubai Islamic Bank 1,597 10 4.0

9 Emirates NBD 1,285 11 3.2

10 Citigroup 1,232 7 3.1

11 JPMorgan 1,003 4 2.5

12 Deutsche Bank 749 5 1.9

13 Natixis 658 3 1.6

14 Al Hilal Bank 628 6 1.6

15 Kenanga Investment Bank 570 9 1.4

16 Affi n Investment Bank 517 8 1.3

17 Noor Bank 479 5 1.2

18 BNP Paribas 462 4 1.2

19 Kuwait Finance House 407 4 1.0

20 First Gulf Bank 337 3 0.8

21 Hong Leong Financial Group 332 8 0.8

22 Saudi National Commercial Bank 294 3 0.7

23 Bank Islam Malaysia 291 3 0.7

24 Mitsubishi UFJ Financial Group 287 2 0.7

25 QInvest 278 4 0.7

26 Gulf International Bank 278 2 0.7

27 Sharjah Islamic Bank 275 2 0.7

28 Abu Dhabi Islamic Bank 260 3 0.7

29 Barwa Bank 230 3 0.6

30 Standard Bank 167 1 0.4

Total 40,189 137 100.0

Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months

Legal Advisor US$ (million) No %1 Allen & Overy 6,439 6 27.8

2 Salans FMC SNR Denton Group 3,334 2 14.4

3 Baker & McKenzie 3,109 3 13.4

4 Milbank Tweed Hadley & McCloy 2,704 1 11.7

4 White & Case 2,704 1 11.7

6 Linklaters 1,631 2 7.0

7 Cliff ord Chance 1,380 3 6.0

8 Chadbourne & Parke 660 1 2.8

9 Norton Rose Fulbright 354 1 1.5

9 Pekin & Pekin 354 1 1.5

Top Islamic Finance Related Project Finance Mandated Lead Arrangers 12 Months

Mandated Lead Arranger US$ (million) No %1 National Commercial Bank 2,822 4 21.72 Sumitomo Mitsui Financial Group 1,606 3 12.43 HSBC 1,036 4 8.04 Riyad Bank 755 3 5.85 Samba Capital & Investment

Management689 4 5.3

6 Al Rajhi Capital 576 4 4.47 Mitsubishi UFJ Financial Group 529 3 4.17 Mizuho Financial Group 529 3 4.19 Banque Saudi Fransi 517 3 4.010 Alinma Bank 310 2 2.4

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

22.9

15.9

0.6

0.3

Malaysian ringgit

US dollar

Euro

Other

Hong Kong

17.5

1.8

2.0

3.1

4.3

7.1

1.2

Malaysia

Indonesia

UAE

Turkey

United Kingdom

Saudi Arabia

Finance

Construction/BuildingOil & Gas

GovernmentTransportation

Other

4%

8%

3%

44%

10%

31%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 4Q3Q2Q1Q4Q3Q2Q2009 2010 2011 2012 2013 2014

0100200300400500600

02468

1012141618

US$mUS$bnNon-US$ US$

40© 24th June 2015

LEAGUE TABLES

Top Islamic Finance Related Financing Mandated Lead Arrangers Ranking 12 Months

Mandated Lead Arranger US$ (mln) No %1 Samba Capital 1,258 5 7.72 Banque Saudi Fransi 1,077 5 6.63 Abu Dhabi Islamic Bank 1,047 5 6.44 HSBC 1,012 9 6.25 National Bank of Abu Dhabi 898 6 5.56 Saudi National Commercial Bank 816 4 5.06 Riyad Bank 816 4 5.08 First Gulf Bank 758 10 4.79 Alinma Bank 710 3 4.410 Standard Chartered Bank 577 7 3.511 Abu Dhabi Commercial Bank 561 4 3.412 Emirates NBD 443 7 2.713 Dubai Islamic Bank 325 4 2.014 RHB Capital 322 3 2.015 Sumitomo Mitsui Financial Group 314 3 1.916 Al Rajhi Capital 310 2 1.917 Mashreqbank 300 3 1.818 Arab Banking Corporation 279 4 1.719 ING 269 2 1.720 Barwa Bank 250 4 1.521 Maybank 247 2 1.521 AmInvestment Bank 247 2 1.523 Union National Bank 230 4 1.424 Commercial Bank of Dubai 222 2 1.425 UOB 215 1 1.325 CIMB Group 215 1 1.327 Al Hilal Bank 191 2 1.228 Citigroup 180 3 1.129 Saudi Investment Bank 171 1 1.130 SABB 160 1 1.0

Top Islamic Finance Related Financing Mandated Lead Arrangers12 Months

Bookrunner US$ (mln) No %1 Maybank 2,239 1 25.2

2 Samba Capital 1,327 1 14.9

3 Abu Dhabi Islamic Bank 845 3 9.5

4 Saudi National Commercial Bank 666 1 7.5

4 Riyad Bank 666 1 7.5

4 Alinma Bank 666 1 7.5

7 Emirates NBD 302 4 3.4

8 Noor Bank 225 2 2.5

9 Dubai Islamic Bank 176 2 2.0

10 HSBC 161 1 1.8

10 Citigroup 161 1 1.8

Top Islamic Finance Related Financing by Country 12 Months

Nationality US$ (mln) No %1 Saudi Arabia 7,104 7 43.62 UAE 4,016 12 24.63 Malaysia 2,411 3 14.84 Turkey 1,594 3 9.85 Qatar 500 1 3.16 India 272 1 1.77 Kuwait 261 1 1.68 Indonesia 90 1 0.69 Oman 55 1 0.3

Are your deals listed here?If you feel that the information within these tables is inaccurate, you may contact the following directly: Shireen Farhana (Media Relations) Email: shireen.farhana@dealogic.com Tel: +852 2804 1223

Top Islamic Finance Related Financing by Sector 12 Months

0US$ bln 1 32 654

Machinery

Mining

Professional Services

Oil & Gas

Finance

Global Islamic Financing - Years to Maturity (YTD Comparison)

0% 20% 40% 60% 80% 100%2008200920102011

201220132014

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

Top Islamic Finance Related Financing Deal List 12 Months

Credit Date Borrower Nationality US$ (mln)

30th Mar 2015 Saudi Aramco Saudi Arabia 9,999

16th Mar 2015 Rabigh Refi ning & Petrochemical

Saudi Arabia 2,870

30th Jun 2014 Ma'aden Waad al-Shamal Phosphate

Saudi Arabia 2,350

15th Jan 2015 SapuraKencana TMC Malaysia 2,239

19th Nov 2014 Saudi BinLaden Group Saudi Arabia 1,327

8th Sep 2014 Atlantis The Palm UAE 1,100

10th Mar 2015 Port & Free Zone World UAE 1,100

17th Apr 2015 Turkiye Vakifl ar Bankasi Turkey 1,021

22nd Mar 2015 Arab Petroleum Investments

Saudi Arabia 950

24th Dec 2014 National Central Cooling UAE 706

41© 24th June 2015

EVENTS DIARY

SEPTEMBER 2015

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17th – 18th Africa Islamic Finance Forum Abidjan, Cote d’Ivoire

OCTOBER 2015

5th IFN Kuwait Forum Kuwait City

27th IFN Egypt Forum Cairo, Egypt

NOVEMBER 2015

17th IFN Turkey Forum Istanbul, Turkey

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MAY 2016

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COMPANY INDEX

1MDB 27Al Baraka Banking Group 29Al Hilal Bank 15Al Rajhi Bank 31Al Rayan Bank 29AlBaraka Bank 13AlBaraka Islamic Bank 31Alinma Tokio Marine Co 30Aljazira Capital 14Allen and Overy 15Amanah KiwiSaver 17Amanah Mutual 29AmBank 27Arab National Bank 31Arabian Aramco Total Services Company 27Arcapita 26Arif Habib Group 17Asian Infrastructure Investment Bank 8Asiya Investments 6Australia and New Zealand Banking Group 15Autoriti Monetari Brunei Darussalam 18Awqaf New Zealand 17Bahrain Bourse 29Bank AlBilad 31Bank Al-Jazira 31Bank Bosna International 14Bank Danamon Indonesia 5Bank Dhosar 31Bank Islam Brunei Darussalam 18Bank Mandiri 28Bank Muamalat Indonesia 30Bank Muscat 31Bank Negara Indonesia 28Bank Negara Malaysia 27Bank Nizwa 29Bank of Khartoum 13Bank of Korea 24Bank of Sudan 13Bank Rakyat Indonesia 28Bank Saudi Fransi 31Bank Simpanan Nasional 30Bank Sohar 31Bank Tabungan Negara 28Banque marocaine du commerce extérieur 29Banque Misr 29Barwa Real Estate Company 26Bill and Melinda Gates Foundation 7BLME 30Bond Pricing Agency Malaysia 9Bursa Malaysia 27Capital Intelligence 10,31Capital Market Authority 8Central Bank of Bahrain 10,27,29CIMB Islamic Bank 31Citigroup 9Cliff ord Chance 15COMCEC 1,3,7Consultative Group to Assist the Poor 13Copart Bahrain 30CSC 4

Danamon Syariah 5Deutsche Bank 15Dolmen Group 17Draznine Advisory 18Dubai Financial Market 29Dubai Islamic Bank 15,29EFA Group 4EIIB-Rasmala 6Elixir Capital 25Emirates Airlines 15Emirates NBD 15Faisal Islamic Bank 13FGB 5,6First Gulf Bank 15,29First Habib Modaraba 17Fitch 8FlyDubai 15Freightliner Group 26Frost & Sullivan 4Garuda Indonesia 15Gatehouse Bank 31Georgetown University 7Global Coalition for Effi cient Logistics 4Global Humanitarian Assistance 7Grameen Bank of Bangladesh 19Groupe Speciale Mobile Association 25Gulf Finance Corporation 29Hijrah Pertama 27Hikmah Capital Corp 26Hong Leong Islamic Bank 28HSBC Amanah Malaysia 31HSBC Holdings 31HSBC Oman 31Ibdar Bank 14IDB 4,7,8,14IFSB 11,13IMF 8INCEIF 20,24Indonesian Financial Services Authority 5,28International Association of Insurance Supervisor 11International Finance Corporation 27Invesco 9Islami Bank Bangladesh 31Islamic Bank of Britain 29Islamic Cooperative Development Bank 13Islamic Corperation for the Development of the Private Sector 4,10,29Islamic Insurance Company 13Islamic Solidarity Fund for Development 7Islamic Trade Finance Corporation 4JP Morgan Saudi Arabia 27Kabbage 25King & Spalding 28Kuwait Finance House 29Lending Club 25Malayan Banking 15Malaysian Technology Development Corporation 14Manulife Indonesia 30

Meezan Bank 28Millenia Global Research House 23Mizuho Bank Malaysia 29Mizuho Bank Nederland 29Moody’s 31National Bank of Abu Dhabi 15,29National Bank of Oman 31National Commercial Bank 27,31NCB Capital Company 27NCTM Studio Legale Associato 22Nielsen Company 4Noor Bank 15NorthStar Healthcare Income 26OnDeck 25Permodalan Nasional 14Pertamina Pension Fund 14Prudential BSN Takaful 30Qantas Airways 15QInvest 15RAM Ratings 14,27,28,31RHB Islamic 9Riyadh Bank 31S&P 27S&P Dow Jones Indices 8Samba Financial Group 31SapuraKencana Petroleum 8Sarawak Power Generation 27Saudi Arabian Monetary Agency 30Saudi British Bank 31Saudi Hollandi Bank 31Saudi Investment Bank 31SBI Holdings 14Securities and Exchange Organization (Iran) 16Securities Commission Malaysia 12Sepangar Bay Power Corporation 27SHUAA Capital 29SHUAA Securities 29SICO 25Singapore Stock Exchange 15SME Bank 28Standard Chartered 15State Bank of Pakistan 28Sudanese Islamic Bank 13Tadawul 14Takaful International Company 30Talam Transform 27Tanjung Bin Power 31Tenaga Nasional 31Terengganu Investment Authority 27The Securities House 31Toyota Capital Malaysia 27Turkish Eximbank 4Turkiye Finans 31UniKL Business School 18Unit Peneraju Agenda Bumiputera 14University of California Berkeley 25US Federal Reserve 9Warba Bank 15World Bank 9,19World Trade Organization 1

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