malaysia inside islamic finance...

News Briefs………………………………. 1 • ABG posts US$27.3 million net profit • Oasis woos investors for Shariah compliant

products • Englotechs Islamic bond issue to fund

expansion plan • Syabas deal for largest water bond issue • Highway operator to issue Islamic debt

papers • DIB launches new private stock company • PKNS Islamic bond ratings reaffirmed • RAM monitoring BSA bond ratings • Islamic financiers to meet in Istanbul • Islamic hedging tools in Malaysia by

year-end • Islamic titans changed • Al Salam Bank launches auto-finance

programme • New schemes needed to utilize Middle

East wealth • Litrak’s long term ratings upgraded • RAM revised outlook for Mieco • World’s first convertible Islamic bond for

Khazanah • Islamic banking needs centralized system • Strong growth in Islamic banking for

OCBC Malaysia • ADIB launches boat financing product • Financial Software Systems support Islamic

money market instruments • IDB grants US$32 million to Iran Sector Report ………………………………. 8 Market Entry Strategies for New Entrants to Islamic Financial Services Sector Report …..…………………………. 10 Islamic Financial Products and Tax Considerations Doctoral Work …………………..…….….. 11 Part 3 Islamic Finance Forum ..………..…….. 13 Takaful News………………………..…….. 14 Sector Report …………………….....……. 16 Takaful vs. Conventional Insurance: Some issues Moves ………………..………..………….…. 19 Malaysian Islamic Bond Update …… 20 Islamic League Tables……………….… 21 Subscription Form………….…………… 24

Vol. 2, Issue 19 26th September 2005

Inside Islamic Finance News:

UAE (Dubai)

The company also made a presentation on Shariah compliant mortgages at the three-day conference and exhibition.

Tamweel, Dubai’s leading provider of home finance products and services, has show-cased its innovative array of products and services at Cityscape 2005 in Dubai.

Tamweel unveils products and services

MALAYSIA More Malaysian companies opt for Islamic bonds

An increasing number of Malaysian compa-nies are turning to Sukuk, or Islamic bonds, rather than conventional bonds, as their preferred source of financing. CIMB Islamic Head Badlisyah Abdul Ghani said that Islamic bonds accounted for 52% of the US$29.18 billion (RM110 billion) total outstanding corporate bonds in the market as at August this year. This is the first time ever that Islamic bonds have edged out conventional bonds in terms of total outstanding corporate bonds. Badlisyah Abdul Ghani attributed the increase in Islamic bonds issued to the Government’s promotion of the product over the years.

In another development, Malaysia an-nounced last week that it will encourage companies and funds to tap Islamic invest-ment opportunities overseas, including in the Middle East. This is part of the country’s plan to become an international hub for the US$30 billion (RM113.03billion) Islamic bond market.

The Securities Commission stated that 33 companies in Malaysia have sold US$3.4 billion (RM13 billion) of Islamic bonds so far this year, compared with US$2.42 million (RM9.1 billion) last year.

BAHRAIN IDB hails Bahrain push to groom businessmen

The Islamic Development Bank (IDB) has praised Bahrain’s model of training young business entrepreneurs, saying that all Is-lamic countries would be encouraged to copy the successful entrepreneurship devel-opment and enterprise creation programme. The Bahrain model is implemented at the Bahrain Business Incubator Centre (BBIC) in Hidd. The training of entrepreneurs is under-taken by the United Nations Industrial Devel-opment Organization (Unido) Investment & Technology Promotion Office, through its Arab Regional Centre for Entrepreneurship and Investment Training (ARCEIT).

The training involves four weeks of class-room sessions for Bahraini entrepreneurs, followed by business counselling and sup-port services to aid project implementa-tion. These include technology choice, international partnerships and help with applying for licences and bank loans.

ARCEIT has trained nearly 200 Bahraini entrepreneurs to date and is expanding its operations into other countries in the re-gion. It also offers the programme in Ku-wait and Jordan.

www.islamicfinancenews.com

26th September 2005 ©

NEWS BRIEFS

Dr Mohd Daud Bakar Chief Executive Officer International Institute of Islamic Finance Prof Dr Mohd Ma’sum Billah Associate Professor International Islamic University of Malaysia Ms Baljeet Kaur Grewal Chief Economist Aseambankers Berhad Dr Monzer Kahf Consultant/Trainer/Lecturer Private Practice

ISLAMIC FINANCE News Advisory Board: Mr David Vicary (Daud Abdullah) Managing Director Hong Leong Islamic Bank Prof Rodney Wilson Director University of Durham Dr Nordin Mohd Zain Executive Director Malaysia Accounting Standards Board Mr Sohail Zubairi Vice President & Head Shariah Coordination Dubai Islamic Bank

Mr Hussain Najadi Chairman & Chief Executive Officer AIAK Malaysia Sdn. Bhd. Mr Mohd Ridza bin Mohammed Abdullah Managing Partner Mohamed Ridza & Co Prof Bala Shamugam Director of Banking & Finance Monash University Malaysia Mr Muhammad Nejatullah Siddiqi Author, Scholar, Speaker, Trainer

FOR FULL BIOGRAPHIES , PLEASE REFER TO www.IslamicFinanceNews.com

BAHRAIN ABG posts US$27.3 mill ion net profit Albaraka Banking Group (ABG) posted a net profit of US$27.3 mil-lion for the first six months of 2005, with total assets standing at US$5.6 billion. The bank said its interim results with operating income grew by 28.7% to US$206 million, with all components registering in-creases. Operating expenses stood at US$161.2 million, reflecting a growth of 23.7%. The group also said that it plans to diversify its share-holder base through an initial public offering of its shares. It will list the shares on the Bahrain Stock Exchange and other regional stock exchanges.

SOUTH AFRICA Oasis woos investors for Shariah com-pliant products Oasis Group Holdings, the South African global Islamic fund man-agement group with a track record of chalking up above average returns on investment in its funds, is on the verge of partnering local institutions keen to invest in Shariah compliant equity prod-ucts worldwide.

Oasis’ Executive Chairman Mohamed Shaheen Ebrahim, who is also the Director of Oasis Global Management Company (Ireland) Ltd, said the group was currently talking with a pension fund, two banks and two Takaful institutions. In addition, he would not dis-count the possibility of setting up a physical presence in Malaysia.

GENERAL New rules for Islamic banks Islamic banks will be required to follow uniform capital standards and improve risk management systems under regulations that will be put in place by the end of the year. The Islamic Financial Services Board has drafted rules that will require Islamic banks to maintain a minimum capital adequacy ratio of 8%, according to its Secretary General, Rifaat Ahmed Abdel Karim. The Board hopes that many banks will adopt these standards by 2007. There are an estimated 270 Islamic banks worldwide, ac-cording to the Dubai-based International Islamic Finance Forum. Capital and risk management standards vary from country to coun-try, with some banks already having capital adequacy of 12%.

PAKISTAN Islamic banks deposits to reach US$13 bil l ion by 2014

Total deposits with Islamic banks in Pakistan will reach US$13 billion (Rs780 billion) by 2014, according to a recent report by Fer-guson Associates’ Islamic Banking Division. Director of Islamic Banking Azhar Nazim said Islamic banking in Pakistan is undergo-ing tremendous growth, a trend that is likely to accelerate with new Islamic and conventional banks entering the market. In five years’ time, Nazim commented, Pakistan’s Islamic banking industry will be bigger than the current Islamic banking market of Bahrain and Qatar combined. He believed that by 2014 Pakistan’s Islamic banking industry is likely to equal the current size of the UAE and Kuwait markets put together.



MALAYSIA Englotechs Islamic bond issue to fund expansion plan

Cotton glove maker Englotechs Holding Bhd has earmarked US$7.96 million (RM30 million), which represents 60% of what it plans to raise from an Islamic bond sale, for a capacity expansion programme. The company said last week that the amount was a portion of the US$13.27 million (RM50 million) Murabahah Me-dium-Term Notes programme that the company plans to issue by the end of the year. OSK Securities Bhd is acting as the principal adviser and lead ar-ranger for the issue.

NEWS BRIEFS

UAE (Shar jah) New HQ for Sharjah Islamic Bank Sharjah Islamic Bank has announced that it will embark on build-ing its new headquarters by 2007. The bank has signed contracts with Al Emaar Engineering and Al Amar Engineering and Contract-ing to construct the new headquarters on the Al Mamzar Corniche. The design of the 28-storey tower was developed by Fraser Nag Partnership to reflect the bank’s growth strategy.

MALAYSIA Syabas deal for largest water bond issue Puncak Niaga Holdings Bhd’s 70% subsidiary Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) recently made a deal for the issuance of Bai Bithaman Ajil Islamic debt securities. Syabas will issue US$795.86 million (RM3 billion) of Islamic securi-ties, and for the Al Kafalah performance bond facility of up to US$13.27 million (RM50 million). The US$795.86 million (RM3 billion) Islamic securities is the largest water bond issuance in Ma-laysia. Bank Islam Malaysia Bhd, Bumiputra-Commerce Bank Bhd, Com-merce International Merchant Bankers Bhd and HSBC Bank Malay-sia Bhd are the lead arrangers and joint lead managers for the Islamic securities.

MALAYSIA Highway operator to issue Islamic debt papers Malaysian highway operator Konsortium Lebuhraya Utara-Timur (Kuala Lumpur) Sdn Bhd, or Kesturi, is planning the sale of US$206.92 million (RM780 million) in redeemable secured Islamic bonds. The bonds, based on the Istisna’ principle, will be issued in nine tranches and have tenors of five to 13 years. Each tranche will range from US$13.27 million (RM50 million) to US$27.86 million (RM105 million). The lead arranger and lead manager of the issue is Commerce International Merchant Bankers Bhd, a unit of CIMB Bhd. Kesturi holds a 34-year concession from the government to design, build and operate an 18-km toll highway to link the north-east and north-west of Kuala Lumpur.



GENERAL Amlak CEO calls for more Sukuk Amlak Finance CEO Mohammed Al Hashimi has called for an in-crease in the number of Islamic debt papers issued. He believes that competitive pricing and increased awareness is necessary for the asset class to generate more interest among a wider section of investors. Participating in a panel discussion at the recent Islamic Fund World Conference in Dubai, Al Hashimi said that more Sukuk are needed as there is significant liquidity, particularly from institutional inves-tors, but a shortage of investment opportunities compared to con-ventional products. As a result, investors adopt a sit and hold ap-proach and the secondary market for Sukuk remains underdevel-oped, although there are opportunities for trading. In the same vein, Al Hashimi emphasized the need for a strong regulatory framework to support the growth of the asset class.

JORDAN GFH unveils Royal Vil lage component of US$1 bil l ion project Gulf Finance House (GFH), a leading Islamic investment bank and the driving force behind a number of landmark developments throughout the region, recently unveiled the masterplan for Royal Village in Jordan. Located 20 minutes from the centre of Amman, Royal Village will be developed over a site of 468,000 sq meters, comprising up to 400 villas and 600 apartments. Royal Village forms part of the Royal Metropolis property develop-ment and investment strategy being undertaken jointly by GFH and Kuwait Finance and Investment Company at an investment of US$1 billion.

UAE (Dubai) DIB launches new private stock company The Dubai Islamic Bank (DIB) has launched Al Burj Real Estate Ltd, a private stock company with US$2 billion capital. It is believed that the company will be one of the largest capitalized real estate firms in the Emirates. Al Burj Real Estate has already bought a major share of property at the heart of Dubai’s waterfront as part of its investment plan.

MALAYSIA PKNS Islamic bonds ratings reaffirmed Rating Agency Malaysia Bhd (RAM) has reaffirmed the ratings of Selangor state property developer Perbadanan Kemajuan Negeri Selangor (PKNS)’s Islamic bonds, citing its financial flexibility and performance. RAM has reaffirmed long and short-term ratings of A1 and P1 on the US$79.33 million (RM300 million) Murabahah Commercial Papers and Medium-Term Notes Programme, which matures in 2011, with a stable outlook. RAM also reaffirmed the short-term rating of P1 on PKNS’s US$105.77 million (RM400 million) Mura-bahah Commercial Papers Programme, which matures in 2008.

MALAYSIA RAM monitoring BSA bond ratings Rating Agency Malaysia Bhd (RAM) is concerned that BSA Interna-tional Bhd, a manufacturer of alloy wheels, has too much debt and it may change the ratings on its US$39.66 million (RM150 million) Islamic bond in consequence. The credit rating agency is monitoring the respective A3 and P2 ratings of BSA’s Murabahah Commercial Paper/Medium-Term Notes Programme, which mature in 2010, pending a further change in the ratings. The current ratings carry a negative outlook. BSA’s overall debt stands at US$66.1 million (RM250 million), which is about 43% higher than RAM’s expected US$46.28 million (RM175 million). The net gearing ratio – at 1.53 times – was al-most double that of a year earlier.

MALAYSIA SDEB plans US$386 bil l ion Islamic debt papers

Senai–Desaru Expressway Bhd (SDEB) recently announced that it will issue up to US$386 million (RM1.46 billion) in nominal value Islamic bonds to part finance the construction and operating costs of the new Senai–Pasir Gudang–Desaru Expressway. The proposed issuance has been accorded a preliminary long-term rating of AA3 by Rating Agency Malaysia Bhd. The lead arranger for the issue, Aseambankers Malaysia Bhd, said the tenure of the pro-posed issuance will be 18½ years from the date of first issuance. The maturity profile will range from six years to the end of the facil-ity tenure.

TURKEY Islamic financiers to meet in Istanbul The International Islamic Finance Forum (IIFF) will be held for the third time in Istanbul this year. The 8th IIFF, to be held on 26th–29th September 2005, is expected to be attended by about 400 aca-demics, consultants and representatives of Islamic finance organi-zations from across the globe.

MALAYSIA Islamic hedging tools in Malaysia by year-end

As part of its bid to become the hub for Islamic banking in Asia, Malaysia could have rules in place by the end of the year to allow hedging tools for those who invest in accordance with Islamic laws. Shariah prohibits conventional hedging techniques such as selling a commodity or financial instrument without owning it, just as it bars the use and payment of interest that it considers usury. As a result, many investors who follow Shariah laws see investing in Asian countries as risky because they are unable to protect them-selves against possible exchange rate or interest rate fluctuations.

SUKUK, ISLAMIC FUNDS & PRIVATE EQUITY INVESTING

5th - 7th December 2005, Singapore www.IslamicFinanceTraining.com



GENERAL Islamic titans changed Dow Jones Indexes recently announced component changes in the Dow Jones Islamic Market Titans 100 Index and its three sub-indexes as a result of the regular quarterly review of the Dow Jones Islamic Market Index. Nippon Telegraph & Telephone Corporation (Japan) will be deleted from the Dow Jones Islamic Market Titans 100 and its sub-index the Dow Jones Islamic Market Asia/Pacific Titans 25 and be re-placed by Rio Tinto Ltd (Australia). Sanofi-Aventis SA (France) will be deleted from the Dow Jones Is-lamic Market Titans 100 and its sub-index Dow Jones Islamic Mar-ket Europe Titans 25, to be replaced by Royal Dutch Shell Plc (UK). The Dow Jones Islamic Market Titans 100 comprises the Dow Jones Islamic Market US Titans 50, the Dow Jones Islamic Market Europe Titans 25 and the Dow Jones Islamic Market Asia/Pacific Titans 25.

UAE (Dubai) Tanmiyat invests US$2 bil l ion in Legends Dubailand project A leading Saudi Arabia-based business entity, Tanmiyat Investment Group (Tanmiyat), has acquired the full residential and commercial components of the Legends integrated theme park project in Du-bailand at an investment of US$2 billion. Living Legends and Trade Legends are two of the six salient com-ponents of Gulf Finance House’s Legends project in Dubailand. The project comprises an array of luxury villas and apartments which will be sold both at retail level and as land parcels to developers.

UAE Amlak rights issue opens Amlak Finance’s one-for-one rights issue opened on the 15th Sep-tember. The four banks chosen to receive the subscriptions are Abu Dhabi Islamic Bank, Sharjah Islamic Bank, Dubai Bank and Union National Bank. The new shares are being offered at par value of US$0.27 (Dh1) each with no premium. All investors are required to settle the full amount as one payment upon subscription to the rights issue. The issue, which closes on the 26th September, will increase Amlak’s capital from US$204.22 million (Dh750 million) to US$408.41 (Dh1.5 billion), thus supporting Amlak’s future business growth strategy.

MIDDLE EAST New schemes needed to uti l ize Middle East wealth New financial instruments are required to tap the growing wealth in the Gulf and channel it to fund development projects in less devel-oped Islamic countries. This was one of many issues raised at a workshop held to frame a long-term vision for the Islamic Develop-ment Bank (IDB). It was estimated that about US$360 billion of private wealth re-turned to the Middle East and the Gulf after the 9/11 attacks on New York and it was important that these reserves were used to fund trade and development in Islamic countries. Crude oil prices, which are now three times OPEC’s original esti-mates, have also helped in creating large investible surpluses in the oil producing countries of the Gulf. The IDB, set up in 1975, funds trade between its 55 member coun-tries, as well as development projects in infrastructure, communi-cations, transport and education. It also provides technical grants. It has lent nearly US$38 billion since it was founded. The bank lends an average of US$5 billion to US$7 billion a year to member states, but the demand for loans is far higher. A range of issues were discussed at the workshop in Dubai, includ-ing the rising production of natural gas in the region, the image of Islam, empowering women in Islamic countries and human re-sources development, including education and unemployment in Islamic countries. This workshop was the third of four that will frame a new vision for the bank to help it become more effective in meeting the chal-lenges presented by rapid globalization and the growth of informa-tion and communication technology. The fourth workshop will be held in Africa in October and the final vision document is expected to be ready by early next year.

SUDAN Al Salam Bank launches auto-f inance programme Al Salam Bank of Sudan has launched “Waseela”, said to be the most competitive auto-finance programme in Sudan. Sudanese people can access the programme at a pre-determined fixed profit rate of 8.5%. Waseela is designed to cover all types of new cars. In addition to the low rate of profit, Waseela also specifies a reasonably low first installment of around 10%–20%, depending upon various factors such as the cost of the car, the guarantee and the income. Waseela will provide a long installment plan that extends to 48 months.

MALAYSIA Litrak’s long-term ratings upgraded Ratings for highway concessionaire Lingkaran Trans Kota Sdn Bhd (Litrak)’s guaranteed serial bonds and Islamic debt securities of US$177.14 million (RM670 million) (combined) have been up-graded to AA2 from AA3 by Rating Agency Malaysia Bhd (RAM). The credit rating agency also upgraded Litrak’s US$39.14 million (RM148 million) Islamic debt securities and US$39.66 million (RM150 million) redeemable junior bonds from A1 to AA3, and its US$67.43 million (RM255 million) commercial papers from A1/P1 to AA3/P1. In addition, RAM has revised the outlook for the long-term ratings to stable from positive. Litrak is the toll concessionaire for the 40km Lebuhraya Damansara–Puchong, better known as the LDP.

MALAYSIA RAM revises outlook for Mieco Rating Agency Malaysia Bhd (RAM) has revised the rating outlook on Mieco Chipboard Bhd (Mieco)’s US$46.28 million (RM175 mil-lion) Al Murabahah Commercial Paper/Medium-Term Note Programme (MCP/MMTN) from stable to negative. The MCP/MMTN is currently rated at AA3/P1. RAM said the outlook has been altered in light of the deterioration in the group’s selling prices amid the increasingly competitive chipboard industry, as well as the rising cost of raw materials.



MALAYSIA World’s f irst convertible Islamic bond for Khazanah Khazanah Nasional Bhd plans this year to sell what could be the world’s first convertible Islamic bond, enhancing Malaysia’s bid to become a hub for Islamic finance. Khazanah, which owns stakes in some of Malaysia’s largest firms, wants to trim some of these holdings and sell the bonds by the end of the year. It hopes to raise at least US$500 million and possibly as much as US$1 billion. Rumours of an upcoming Khazanah Is-lamic convertible – which bankers believe would be the first of its kind – have circulated previously in Malaysian markets. However, the former expectation was that the issue would total only US$500 million.

PAKISTAN Islamic banking needs centralized system Pakistan’s Acting President Muhammedmian Soomro recently un-derlined the need for implementing Islamic banking through a com-prehensive, Shariah based, centralized system in the country. Addressing participants from 26 countries at the inaugural session of a two-day “First Pakistan Islamic Banking and Money Market Conference”, he said the Islamic banking system should be stream-lined in conjunction with modern market requirements and Shariah concepts.

MALAYSIA Strong growth in Islamic banking for OCBC Malaysia One of the country’s top two foreign banks in terms of Islamic banking, OCBC Bank (Malaysia) Bhd (OCBC) is making strong head-way in the sector, as demonstrated by its performance to date. OCBC’s Islamic banking division had disbursed US$237.99 million (RM900 million) in financing as at the end of the first quarter to the 31st March this year, holding US$423.14 million (RM1.6 billion) in assets and US$290.91 million (RM1.1 billion) in deposits. The bank said its Islamic banking loans have more than doubled. So far this year OCBC has completed three major Islamic Sukuk structures – for WCT Engineering Bhd (US$52.89 million (RM200 million)), an international property fund via local company Focal Quality Sdn Bhd (US$50.24 million (RM190 million)) and the Rim-bunan Hijau group (US$79.32 million (RM300 million)). OCBC Malaysia is a subsidiary of Oversea-China Banking Corpora-tion Ltd, Singapore’s smallest and oldest lender.

MALAYSIA Green l ight for Puncak Niaga’s Islamic bond issue Puncak Niaga Holdings Bhd’s plan to raise US$846.14 million (RM3.2 billion) in Islamic bonds has received approval from the Securities Commission. Puncak Niaga’s 70% subsidiary, Syarikat Bekalan Air Selangor Sdn Bhd (Syabas), will use money from the debt to repay its short-term financing facilities and to finance its operations and capital expenditure. Syabas wants to repay obligations of up to US$128.27 million (RM485 million) under the syndicated bridging finance facilities obtained from Bank Islam Malaysia Bhd, CIMB, HSBC Bank Malay-sia Bhd and Bumiputra-Commerce Bank Bhd. The balance will part finance the supply and distribution of treated water to consumers within the distribution area, including the pur-chase of treated water from the operators. The fund will also be used for the operation, maintenance, upgrading and development of the existing water distribution systems in the stipulated area.

UAE ADIB launches boat f inancing product Abu Dhabi Islamic Bank (ADIB) recently launched its latest product for boat finance called “Kawareb”, targeted at customers who are interested in buying their own boat in a Shariah compliant manner. According to the bank, Kawareb offers a competitive solution for financing a new boat with a limit of US$272,272 (Dh1 million). A down payment is not required and there is a monthly installment holiday of 60 days.

GENERAL Financial Software Systems support Islamic money market instruments

Buoyed by the growth of liquidity in Islamic countries and the sub-sequent high demand for Shariah compliant investment and fi-nancing vehicles, Financial Software Systems has added support for Islamic money market instruments to Spectrum, its industry-leading treasury application. In conformity with Islamic banking principles, Spectrum now sup-ports profit-sharing (Mudharabah) instruments, cost plus Muraba-hah) instruments and repurchase (Bai’ al-Inah) instruments. Sup-port for Islamic money market products extends from deal capture in Spectrum’s front office to producing general ledger accounting entries in the back office. Spectrum is a treasury system, providing straight-through process-ing for a wide range of financial instruments, including foreign ex-change, money markets, FX and interest rate derivatives, bonds, structured financial products and equities.

IRAN IDB to grant US$32 mill ion loan to Iran The Islamic Development Bank (IDB) will offer US$32 million for the construction of Zirdan Dam in Chabahar, Iran, once the bank’s Board of Directors has ratified the loan agreement. In addition to this loan, the IDB will allocate US$15 million to imple-ment Pir Sohrab’s (under pressure) network irrigation. Repayment for both these projects will be in 16 installments with minimum banking fees.

MALAYSIA RAM reaffirms ELITE’s AA3 rating Rating Agency Malaysia Bhd (RAM) has reaffirmed the long-term rating of AA3 for Expressway Lingkaran Tengah Sdn Bhd (ELITE)’s US$211.58 million (RM800 million) Al-Bai Bithaman Ajil Islamic Debt Facility. The outlook on the rating has also been revised from stable to positive. ELITE is the concessionaire for the 48km North–South Expressway Central Link, the Kuala Lumpur International Airport Expressway and the Putrajaya Link. RAM commented that the upward revision of the rating outlook was based on ELITE’s strong project econom-ics and strategic importance to the North–South Expressway.



QATAR Dolphin seals US$1 bil l ion gas transfer deal Dolphin Energy recently signed a US$1 billion Islamic financing agreement with 14 banks for its mega-project to develop and trans-fer gas from Qatar to the UAE. The deal is said to be the largest Shariah compliant oil and gas financing transaction to date. Dolphin has also appointed five banks with Shariah supervisory committees to lead the financing of a portion of the project. These banks are ABN Amro Bank, BNP Paribas, Citigroup, Dubai Islamic Bank and Gulf International Bank. Under the four-year facility, Dolphin will construct the part of the project relating to the transportation system on behalf of the Is-lamic investors, and enter into a forward lease agreement for the use of such assets. The gas project, expected to come on line at the end of 2006, involves the production and processing of natural gas from Qatar’s North Field and transportation of the dry gas by pipeline to the UAE. Dolphin is building a multi-billion dollar regional network to export the gas via a submerged pipeline from Qatar, home to the world’s third largest gas reserves, to Abu Dhabi, and then on to Dubai and Oman.

UAE (Dubai) Dubai Metro project to be f inanced with Islamic bank loans

Tabreed recently said that it would probably use different types of debt instruments to finance its Dubai Metro project. Earlier this month the company signed a contract with the Municipality of Du-bai for US$816.82 million (Dh3 billion) to provide the central cool-ing for Dubai Metro. Tabreed is considering Sukuk and long-term bank loans, specifically long-term Islamic bank loans, as financing solutions for the deal.

UAE (Dubai) Amlak to l ink with Al Fattan Properties

Amlak Finance PJSC (Amlak), one of the leading Islamic home fi-nance companies, has announced a strategic partnership with Al Fattan Properties to market, sell and finance the remaining apart-ments in the prestigious Al Fattan Marine Towers in Dubai Marina, to include other future developments. Located in the heart of Dubai Marina, the 51-storey Al Fattan Ma-rine Towers offers apartments equipped with high quality fittings and fixtures and unlimited views of the ocean, Dubai Marina and the Palm Jumeirah. In addition to its marketing and sales efforts, Amlak will also offer finance on the properties of up to 80% of the purchase price for up to 25 years.

BRUNEI Brunei’s Islamic banking set to grow The Islamic Bank of Brunei (IBB) and Islamic Development Bank of Brunei (IDBB) merger looks set to become a stronger entity, and is poised to play a role in Brunei’s Islamic banking scene. IBB Managing Director Mohd Roselan Mohd Daud said the merger would increase cost efficiency by eliminating duplications. It would also allow the bank to explore new areas of banking such as invest-ment banking, fund management, corporate advisory and invest-ment advisory services. Another key area is Islamic banking. He said the Islamic banking industry in Brunei was poised to grow, playing a significant nation-building role and simultaneously provid-ing more complete banking products and services to its retail customers.

UAE Demand for Emirates Islamic Bank’s property fund

Emirates Bank International, in conjunction with Emirates Islamic Bank and Belgravia Asset Management, has launched an Islamic Real Estate fund. The fund is available to institutional and individ-ual investors and will invest largely in physical real estate through-out the UAE. According to the bank, the fund has been met with strong demand both from national and international investors since its launch in June 2005, with assets growing to about US$100 million.

MALAYSIA Pilgrims Fund Board consider investing in REITs

The Pilgrims Fund Board (Lembaga Tabung Haji) plans to invest a portion of its US$557.21 million (RM2.1 billion) cash in Shariah compliant Real Estate Investment Trusts (REITs) as early as this year. The plan is part of the Board’s efforts to boost income for its almost 5 million depositors with a combined fund worth US$3.32 billion (RM12.5 billion). Out of the US$3.32 million (RM12.5 billion), US$1.43 billion (RM5.4 billion) is invested in equity (43.9%), US$742.83 million (RM2.8 billion) in fixed income (23.3%), US$447.49 million (RM1.8 billion) in property (15.2%) and US$557 million (RM2.1 billion) in cash (17.6%).

MALAYSIA

First Islamic f inance forum opens

The first Islamic finance forum opened in Kuwait last week, in line with the country’s ambition to become a regional centre for the Islamic banking and finance industry. Up to 60 or 70 companies in the country operate according to Islamic rules and are listed on the Kuwait share market.

KUWAIT Group Steel’s US$26.53 mill ion BaIDS fully redeemed

Rating Agency Malaysia Bhd (RAM) has received confirmation from the Facility Agent that Group Steel Corporation (M) Sdn Bhd fully redeemed its US$26.53 million (RM100 million) Al-Bai Bithaman Ajil Redeemable Guaranteed Bonds (BaIDS) on the 19th Septem-ber. This redemption means that RAM no longer has any rating obligation on the BaIDS, so the AAA (bg) rating no longer applies.



INDUSTRY REPORT

Magnet Approach The magnet approach involves “pulling” customers to gain market share. Primarily used by commercial banks, the magnet approach calls for gaining business by attracting existing banking business – resulting in a partial cannibalization of the market. Essentially a new Islamic commercial bank enters the market and customers are drawn away from their current conventional banking relationships and become Islamic banking customers. This is especially true on the liability side. This strategy has been used successfully by new players who have a first mover advantage such as Kuwait Finance House (KFH), estab-lished in Kuwait in 1977 and Dubai Islamic Bank (DIB), established in 1975 in the UAE. Being pioneer Islamic banks in their respective markets, the two commercial banks were able to pull customers from either existing conventional banks as well as from the non-bankable market (those customers who were not currently banking with anyone due to lack of Shariah compliant banking in their re-spective market). Thus a conversion effect took place in the market and customers were able to switch to an Islamic banking solution. KFH was able to gain market shares of 20% in its market while DIB has been experiencing unrivalled growth; both continue to be lead-ing Islamic banks in the GCC. The common precedent conditions in the above mentioned banks were:

♦ Untapped Islamic market – in order to gain dividends from the first mover advantage

♦ Real unfulfilled appetite – in order to gain substantial business

These main factors need to be in place for a magnet approach to be employed by a new entrant.

♦ Competitive product – to induce switching behavior ♦ Full product range – to gain customer loyalty over the long-

term Reality Check: Given the fact that there are few frontiers left where Islamic finance has not made an impact in the Islamic world, this type of strategy will be more difficult to execute as it relies on unsat-isfied demand. There are few countries that offer possibilities such as India, with a very large Muslim population and demand for Is-lamic products. Western countries, where a new local player could take advantage of large Muslim segments also offer opportunities. However, to be as successful as the first movers in the evolutionary days of Islamic finance would be a feat in today’s environment. Therefore, a Magnet strategy promoter should also consider having competitive products and a wide product range in order to induce switching behavior from customers.

Polarized Players Polarized Players are characterized by the fact that they offer spe-cialized Islamic financial products. They are not interested in being a total financial solution for one customer. They are experts in their field, and offer an Islamic financial product that will make up part of a customer’s portfolio. Hence, they gain incremental business and do not necessarily take market share of existing players. Examples of Polarized Players are Takaful firms offering specific Islamic insur-

Market Entry Strategies for New Entrants to Islamic Financial Services By Farah Khalid

This article will examine three different types of strategies employed by Islamic financial service pro-viders, and how their unique operating environment has provided the impetus for success. The aim of this article is to provide insight into how a new entrant must examine its internal and external environment in order to build a value proposition that provides both customization to the target segment as well as a mar-ket entry plan with future viability. In the global Islamic finance arena, the potential for Islamic finan-cial services can be described by the following illustration:

Islamically Motivated customers will, in a situation of a demand-supply gap, purchase Islamic products. However, they are a minor-ity segment and thus can not be relied upon solely for continuous viability of a new Islamic entrant. The Islamically Inclined segment is the largest customer segment and presents the highest opportu-nities for a new entrant. However, this segment is more difficult to attract, hence focused strategies need to be in place to gain a share of their wallet. The rest of this article will discuss three possi-ble market entry strategies that may be used to attract this size-able market segment. Considering that the majority of the customer segments in an Is-lamic financial market are apt customers for Islamic financial prod-ucts, new entrants need to consider what strategies exist and which markets they are most suited to.

The Islamically Motivated cus-tomer desires purely Islamic financial solu-tions and will not “bank” or “purchase” conventional financial prod-ucts. This is a minority cus-tomer segment.

The Islami-cally Indiffer-ent customer does not value an Islamic finan-cial product or offering. The customer will only purchase the Islamic one if it offers a real advan-tage over the conventional one.

Islamically Indifferent

Islamically Inclined

The Islamically Inclined cus-tomer, by virtue of being Muslim, would appreciate an Islamic financial offering. However, an exclusive Shariah compliant financial package is not required by the Islamically Inclined cus-tomer. Rather, a competi-tive and customized product is sought. If there is an Is-lamic product/solution that fulfills the requirements of the customer, he/she will be inclined to choose the Is-lamic product/solution over the conventional one. In-creasingly, this segment is growing in size due to inter-est shown by non-Muslims who value the ethical nature of Shariah compliant prod-ucts.

Majority of customers Majority of customers in Islamic marketsin Islamic markets

Minority Minority SegmentSegment

Minority Minority SegmentSegment

Islamically Motivated

Continued...



Note: The author is the Manager of the Islamic Financial Services Group in Ernst & Young, Bahrain

INDUSTRY REPORT (continued…) All have Islamic arms alongside their conventional business. They benefit from cross selling to existing customers as well as participat-ing in the Islamic financial industry and growing their franchise. Precedent conditions that would enable such a strategy include:

♦ A sophisticated customer market/segment – who understand the value that an existing player could bring and thus avail Islamic products being offered (where they have not chosen Islamic products by pure Islamic players)

♦ Developed market – where there is room for maneuvering by a large player into a new strategic market

Critical success factors that the large player would need to leverage to enter the Islamic financial market include the following:

♦ Established and trusted brand with performance history – to inspire Islamically Inclined customers to purchase Islamic products as well as to provide a platform to attract new cus-tomers

♦ Product structuring expertise – in order to “Islamicize” current offerings

♦ Financial strength – to gain market share in a market with existing Islamic players and perhaps higher barriers to entry

Reality Check: There are many regional conventional institutions as well as international brand names that have the potential to use the Shared-Field approach by leveraging their existing expertise, market presence, and operational functions to provide high value Islamic propositions in the face of competition from pure Islamic players. However, the decision to enter the Islamic financial industry is a strategic one, and ought to be motivated by the potential growth offered in the respective market and the ability the institution has to take advantage of those opportunities.

ance products, or Islamic investment managers such as Arcapita offering Islamic private equity, asset and real estate opportunities.

For a new entrant, the Polarized Player strategy will be most suc-cessful if the following critical success factors are in place:

♦ Product Expertise – a premium product will need to be provided to convince Islamically Inclined customers to purchase the Islamic

product ♦ Brand – to create customer confidence and gener-

ate market share In this scenario, precedent conditions are not as important and critical success factors. In a market with Islamically Inclined cus-tomers, this strategy has the potential to work effectively if the financial product is of premium quality.

Reality Check: There is ample room for Polarized Players to enter the market given ample liquidity and continuous appetite for supe-rior Islamic products. The caveat being, that the product must be equal or superior to that of similar conventional products both from a features perspective as well as a performance perspective. Shared Field Approach The Shared Field Approach is a strategy used by existing players who are new entrants to the Islamic financial market. The shared field in question is the marketplace, where the single financial player offers both conventional and Islamic products side-by-side to either the existing customer or new customers. It’s a complemen-tary dual methodology offered by the same institution. In effect, it is an entry into the Islamic financial arena by the institution to pursue future growth. By entering a new “market” (the Islamic market), the institution is diversifying its revenues and benefiting from incre-mental income as well as taking an opportunistic view, albeit long-term, of the Islamic financial market. This strategy has been successfully used by large banks such as HSBC, Citibank, and National Commercial Bank (in Saudi Arabia).



SECTOR REPORT

pursuant to a scheme of financing approved by the Central Bank or the Securities Commission, as a scheme which is in accordance with the principles of Shariah, where such disposal is strictly re-quired for the purpose of complying with those principles but which will not be required in any other schemes of financing.” Where the Shariah product has been confirmed and approved by the Securities Commission or the Central Bank, Section 2(8) of the ITA can be relied upon such that the disposals and lease of assets are ignored for tax purposes. Therefore, as long as the bank has secured approval for its Muraba-hah banking product from the Central Bank, the underlying pur-chase from the principal seller and the subsequent sale to its cus-tomers will be disregarded for income tax purposes. Instead, the transaction will be treated as a financing transaction for tax pur-poses. Approval from the Securities Commission is required if the Islamic financing transaction involves the issuance of Sukuk or bonds to the public. It should also be noted that Section 2(7) of the ITA provides that any reference in the ITA to interest shall - “....apply, mutatis mutandis to gains or profits received and ex-penses incurred, in lieu of interest, in transactions conducted in accordance with the principles of Shariah.” The above definition indicates that the normal provisions of the ITA would apply to:-

• gains or profits received and expenses incurred in lieu of interest,

• in transactions in accordance with the principles of Shariah. This effectively means that from a tax standpoint, although a financing transaction may be structured in accordance with the principles of Shariah, gains or profits arising there from in lieu of interest would be treated in the same manner as under a conventional financing system. As such, the profit or “interest” por-tion on the financing arrangement will be subject to tax in the same way as interest. Provided that the Central Bank approval is secured on the Muraba-hah arrangement, the above Murabahah banking product should be seen in substance as a financing arrangement. In this connection, the profit portion received by the bank is in lieu of “interest”, and will hence, be taxed as income accrued over the period for which the profit is applicable. From the perspective of the customer, if the entire arrangement is viewed as a financing transaction and hence, treated in the same manner as a conventional financing arrangement for tax purposes, Section 2(7) of the ITA would equally apply to the custom-ers, as the borrower of funds. The financing costs incurred by the customers under the transaction would be seen as expenses in lieu of “interest”. The deductibility of financing costs incurred by the customers would depend on the usage of funds and the nature of funding. Generally, financing costs are tax deductible where the funds are employed in the production of gross income or laid out on assets held for the production of gross income.

Note: The author is a Senior Executive Director, Tax Services, PricewaterhouseCoopers Malaysia

Islamic Financial Products & Tax Considerations By Jennifer Chang

The Islamic financial market is very active in Malaysia with companies issuing Shariah approved bonds thus providing alternative products in the capital market. The types of Islamic financial products offered in Ma-laysia have evolved through the years and various measures have been introduced, such as tax incen-tives, to help spur the growth of the Islamic financial market and the creation of innovative Shariah based financial products. In the past, bonds have mainly been issued under the concept of Al-Bai Bithaman Ajil (ABBA). Although widely accepted in Malaysia, such bond issuances have not quite been accepted by Middle East-ern Shariah scholars. The Government has provided a tax incentive in the form of tax deduction for the issuance costs of bonds where these have been issued based on the concept of Ijarah, Mudarabah, Musharakah or Istisna. This is to encourage issuers to issue bonds based on these concepts that are more widely accepted worldwide. Other than this tax incentive, other tax issues relating to the issu-ance of bonds would also have to be considered. For example, under the concept of Murabahah (credit sales) to finance the buying of numerous goods and products, the bank is required to buy and own the desired goods or services from the suppliers before these are sold to the customers at a pre-agreed profit margin.

The tax implications for the above transaction would depend on whether the entire arrangement is seen as a financing transaction or as a separate buy and sell of an asset. (a) Separate transaction basis If the arrangement is strictly seen separately as a buy and sale of an asset, the bank would be regarded as having bought the asset in the first instance and then re-selling that asset for profit. Under such circumstances, where the sales price of an asset sold ex-ceeds its purchase price, a trading gain will arise and be subject to tax at the current Malaysian corporate tax rate of 28%, normally upfront, as the assets essentially are regarded as “stock-in-trade” of the Bank. This is also applicable for situations when the Bank decides to purchases and subdivides land and subsequently devel-ops properties to sell to customers at a mark-up. (b) Financing transaction basis However, since the transaction will be done in an Islamic manner, Section 2(8) of the Malaysian Income Tax Act, 1967 (“ITA”) which provides that – “… any reference in this Act to the disposal of an asset or a lease shall exclude any disposal of an asset or lease by or to a person

2. Murabahah sale of desired goods at pre- agreed

profit margin

Customer

1. Sale of goods

3. Customer pays by cash or instalments

Bank Principal Seller



DOCTORAL WORK

There are currently twenty postgraduate students studying for research degrees at Durham University in the field of Islamic finance. The students come from the United Kingdom and many parts of the Muslim world including Saudi Arabia, Bahrain, Qatar, Kuwait, the United Arab Emirates, Libya, Jordan, Turkey and Malaysia. A previous article published in Islamic Finance News on the 11th July provided details of the work of two PhD students from Malaysia who successfully completed their theses in 2004 and four current students from Malaysia en-gaged in ongoing research. In the issue on the 15th August details were provided of doctoral research by five postgraduate students from the Gulf on Islamic banking and insurance. In this article information is provided on research in Islamic finance at the microeconomic level and work on monetary and macroeconomics pertaining to Muslim countries.

Research on Islamic small business finance and monetary and macroeconomic issues by postgraduate students at Durham

University, United Kingdom

Musharakah finance in Sudan, 2002 By Gaffar Abdalla Ahmed

kah. It was found that most Musharakah involved short term trading transactions that were of relatively low risk for the banks involved. Collateral was frequently sought for the financing, further lowering the risks for the banks, but to some extent contradicting the trust on which Musharakah financing is supposed to be based.

Sudan is unique as over 40 percent of Islamic finance is through Musharakah partnership contracts rather than Murabahah or Ijara, although the latter contracts are used. Semi structured interviews were conducted with managers from the major Islamic banks in the Sudan and their clients were surveyed on the usage of Mushara-

Small business finance in Jordan, 2003 By Heba Ajlouni

nesses and semi structured interviews with bank managers. Atti-tudes to Islamic as well as conventional finance are explored, as many of the small businesses included dealings with the Jordan Islamic Bank and the Arab Bank’s Islamic affiliate.

Jordan has a thriving small business community focusing on indus-try and services for the local market and that of its neighbour, Iraq. Despite the unsettled political and security situation in Iraq, exports from Jordan’s small businesses have increased, and hence their need for finance. The research involves a survey of small busi-

Management systems in Qatar banks, 2003 By Abdulaziz Al-Ghorairi

training programmes, and put management systems in place that are appropriate for the local business culture. The research aims to ascertain the extent to which this policy has succeeded.

This research covers both conventional and the two Islamic banks in Qatar. The banks are attempting to increase the proportion of local nationals on their staff, which has implications for manage-ment systems. Qatar has tried to increase the effectiveness of staff

SME finance in Saudi Arabia, 2004 By Mohammed Binzomah

affects their attitudes to Islamic participatory finance, as Mushara-kah and Mudarabah could result in unwelcome interference. Hence it can be argued that the concentration of the Saudi banks, includ-ing Islamic products, on short term debt finance reflects customer attitudes as much as bank policy.

Saudi Arabia has a substantial small and medium sized business sector, usually family owned, and focused on serving the local and wider GCC market. The banks provide debt finance, including Mura-bahah trading finance and Ijara leasing finance. Most equity fi-nance is provided by family and relatives, as the businesses are reluctant to seek external equity and lose family control. This

Potential for Islamic finance in Libya, 2004 By Amal Kumati

windows, and a locally owned dedicated Islamic bank could be licensed. Libya is trying to modernize its banking systems and provide a wider range of financial services, and the introduction of Islamic finance can be best seen as part of that process. Interviews will be conducted with bank managers and selected clients as part of the research, which is still at an early stage.

At present there is no Islamic bank in Libya’s state owned and con-trolled banking system, but as the economy has opened further to trade, some Libyans have expressed an interest in having Islamic financing facilities, mainly for imports. It is unlikely that existing Islamic banks will be allowed to enter the Libyan market, but some of the established banks in Libya may be permitted to open Islamic

Islamic finance for small businesses

Continued...



DOCTORAL WORK (continued…) Islamic finance in Turkey, 2005

By Basri Bora This work is at the planning stage, but the intention is to examine attitudes to Islamic finance by the local business community and

GCC monetary union, 2003 By Emilie Jane Rutledge

become the most significant currency in the Islamic world that could be widely used for payments and reserve purposes. The research involved semi structured interviews with Central Bank and Monetary Agency officials, as well as workshops and focus groups. Emilie Rutledge was based at the Gulf Research Centre in Dubai during the 2004-2005 academic year. Her research is sponsored by the United Kingdom Economic and Social Research Council.

The GCC countries have successfully completed a customs union agreement and now plan to have a common currency by 2010, modelled on the Euro. Monetary policy is in the process of being harmonized, and although all the exchange rates are fixed to the dollar in which oil prices are denominated, a move to joint floating against a trade weighted basket of currencies is becoming prob-able. If the GCC single currency is established on schedule, it will

Fiscal policy and economic planning in Oman, 2004 By Khalifa Al Fazari

Sukuk could provide a stream of financing, but the Omani govern-ment is reluctant to embark on this course, partly due to a lack of knowledge of Islamic finance. Oman has good economic prospects, but excessive reliance on government spending is inhibiting private sector development.

Oman has less oil and gas than the other GCC states apart from Bahrain, and the budget has been in deficit most years, given the limited local tax base and the demands on government spending. Inflation remains low, but fiscal management has not always been effective, and public sector debt is an issue. Islamic sovereign

Islamic Sukuk securit ies, 2005 By Qais Hamza

real rather than monetary benchmarks are explored. The prospects for new types of Sukuk based on Musharakah contracts are also examined.

This research is for an MA thesis that is now almost completed. Differences between Murabahah and Ijara Sukuk structures are examined, and the possibilities of determining returns in terms of

evaluate how successful the existing Islamic financial institutions have been in Turkey.

CONTACT INFORMATION Professor Rodney Wilson, Director of Postgraduate Studies

University of Durham, School of Government and International Affairs Email: [email protected]

Monetary and macroeconomic issues

presents

15th - 18th November 2005, KUALA LUMPUR

www.IslamicFinanceTraining.com

FOR MORE INFORMATION, contact; Andrew Tebbutt Tel: 603 2143 8100; Email: [email protected]

ISLAMIC FINANCIAL ENGINEERING & ADVANCED PRODUCTS



JAMES HUME Chief Executive Officer Omega Group Services

Islamic finance is actually much better known in the world's major financial centers than one might think - but quietly so. Much of the innovation and impetus for growth is coming from major conven-tional institutions in these countries, particularly in relation to the structuring, underwriting and financ-ing of large commercial deals involving project finance - a natural fit for Shariah compliant structures. However, at the retail level, Islamic finance has yet to make a material impact, not least due to reser-vations on the part of regulators and the heavy capital requirement that is incurred in setting up 'de novo' operations. Given the relative scarcity of assets physically located in the Islamic world suitable for structuring within Shariah compliant corporate offerings, a key milestone will be the Islamic structuring of assets located in countries such as Japan, USA and in Europe. Another key milestone will be acquaintance with and acceptance of Sukuk and other Islamic financings by conventional market makers as main-stream products rather than curious hybrids - rated by the leading western rating agencies on a strictly comparative basis. When these conditions are in place, product volumes will increase to levels that alert the major players to the potential financing and trading opportunities, a liquid secondary market will develop and tenors will become longer. These markets are absolutely essential to the growth and maturity of Islamic finance. Without the par-ticipation of the world's major financial centers, Islamic finance will remain in the financial backwaters, a bit player with little influence on the global economy - and that will be sad.

SOHAIL JAFFER Partner FWU Group

Clearly Islamic finance has evolved during the past few years and significant transactions have been originated, structured, transacted or listed in the major international financial centers. In particular London and New York have a growing attraction for Islamic banking and finance due to the presence there of the Middle East Financial Institutions, increasing product innovation and investor comfort with the business and regulatory environment. The establishment of the Islamic Bank of Britain in 2004 in the UK represents a significant milestone and is the first dedicated Islamic Bank in Europe. Plans are underway to establish an Islamic Invest-ment Bank and the first Takaful Company in the UK. Major Islamic real estate, leasing and asset backed securities transactions have emanated from New York. The World Bank and other leading in-ternational agencies based in the US are increasingly becoming involved in the world of Islamic Bank-ing and Finance. International Financial Institutions like HSBC, Citigroup, ABN AMRO, Deutsche Bank and others have established centers of product excellence dedicated to Islamic banking and finance. New investment structures include Shariah compliant Hedge Funds, Private Equity and Sukuk (asset backed securi-ties). The financial technology has been deployed effectively and centers like London, New York and Singapore have facilitated the migration of product innovation and crafting of creative wealth manage-ment solutions. The listing benefits, registration and the domiciliation of Islamic investment and finance products and tapping into the pools of creativity and quality financial engineering skills available in these prominent financial centers are key. Strategic cross border alliances and joint ventures are being formed. Manu-facturers are looking to expand their reach to new asset classes and distribution channels. This trend is gaining momentum and will expand the penetration into these hubs.

Islamic finance is yet relatively unknown in the world's leading financial centers. Firstly, how important are these markets to the future of the industry and secondly what will expedite the penetration into these hubs?

Next Forum Question

If you would like to air your views on the next Islamic Finance Forum Question, please email your response of between 100 and 300 words to Christina Morgan, Islamic Finance News Manager at: [email protected] before Wednesday 6th September. Or similarly if you would like to pose a future question for our readers and expert panel please forward your suggestions.

Are financial structures commonly used in Malaysia, such as Murabahah bonds and Bai Bithaman Ajil bonds sufficiently ac-ceptable to Middle Eastern investors? If not, do you think this has contributed to the lower than anticipated levels of invest-

ment in Malaysia by Middle Eastern funds, and if so what needs to change?



FOR FULL GLOSSARY OF ISLAMIC

FINANCE TERMS

Visit www.IslamicFinanceNews today!

NEWS BRIEFS MALAYSIA

Public Mutual launched its 24th fund – the Public Islamic Balanced Fund (PIBF) – on the 20th September and will provide up to US$26,535 (RM100,000) worth of free Takaful coverage to qualified unit holders. PIBF, which has an issue price of US$0.06 (RM0.25) a unit, aims to provide a steady income and capital growth over the medium to long-term, according to a Public Mutual statement on the 20th September. It invests using a balanced asset allocation approach, in which 40% to 60% of its net asset value is invested in Shariah approved equities, with the balance being invested in Islamic debt securities. PIBF has an approved fund size of 1 billion units, or US$66.34 million (RM250 million).

Free Takaful coverage for Public Mutual’s PIBF

PAKISTAN

The Pakistan government has issued “Takaful Rules 2005” for Shariah compliant insurance businesses. These rules provide for mu-tual financial aid and assistance to participants in the event of certain contingencies, where all the participants mutually agree to contribute to a common fund for this purpose. The rules introduce the Wakala (agency) operational model, where any surplus in the Takaful fund is distributed amongst the policyhold-ers. In addition, the Takaful operator may invest its funds in joint stock companies. The Takaful operator can also make its portfolio investments through various Shariah compliant mutual funds.

Takaful rules issued

MALAYSIA

ING Insurance Bhd announced last week that it wants to apply for a Takaful licence before the 31st October in order to tap into a bigger market. The insurance company is currently in talks with local parties for possible tie-ups to enter the Takaful business. It hopes to submit an application for the licence before the deadline. ING Insurance currently provides its clients with the option of investing money in an Islamic fund. However, this is not an official Takaful prod-uct because the insurer does not hold a licence.

ING keen to apply for Takaful l icence

Applications for the Central Bank’s four additional Islamic insurance licences will close on the 31st October, Deputy Governor Datuk Zamani Abdul Ghani said last week. The extra licences will double the number of licenced vendors of Takaful in the country. The Central Bank has awarded Islamic banking licences to foreign banks, including Al Rajhi Banking and Investment Corporation, a Saudi Arabia-based bank; a group led by Qatar Islamic Bank; and Ku-wait Investment House, the Persian Gulf’s largest Islamic investment firm. Islamic banks accounted for US$25.2 billion (RM95 billion), or 11%, of banking assets in Malaysia, according to Central Bank data. Taka-ful assets stood at US$1.33 billion (RM5 billion), or 6%, of assets in

MALAYSIA Bids for Takaful l icences to close end October

Solidarity recently announced the launch of an enhanced Takaful Protection Benefits scheme for their Savings and Investment SolidRe-tirement Plan. Solidarity’s existing SolidRetirement plan is Shariah compliant and provides national, expatriate and international inves-tors with a financial planning opportunity to save and invest their money to ensure the best for themselves and their family upon retire-ment. Solidarity Family Takaful has developed Takaful Protection Benefits, attached to each savings and investment plan, to enhance their exist-ing line of Takaful products. As an added benefit to Solidarity Family Takaful saving and investment plans, SolidRetirement includes Taka-ful protection benefits that include Takaful Protection for Critical Ill-ness and Takaful Protection on Death.

Dubai Islamic Insurance and Reinsurance Company (AMAN) recently announced that its International Haj/Umrah Takaful Passport is now available online for Haj and Umrah pilgrims throughout the world. Those undertaking the pilgrimage can obtain comprehensive details of the policy through AMAN’s website or the company’s advanced call centre. The policy covers accidents anywhere in the Kingdom of Saudi Arabia and first class private hospitals have been contracted by AMAN to pro-vide medical services in Jeddah, Mecca and Medina. The Shariah com-pliant policy offers compensation of up to US$13,333 (SR50,000) against accidental death or injury during Haj and Umrah.

GENERAL AMAN launches Haj/Umrah policy online

BAHRAIN Solidarity offers savings plan for retirement


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NEWS BRIEFS (continued…) UAE (Dubai)

Arab Insurance Group (Arig) have announced the creation of the first Shariah compliant reinsurance company in the MENA region – Takaful Re Ltd. The company said Takaful Re would be the strongest capital-ized company currently active in the field of Islamic reinsurance. Arig chose the Dubai International Financial Centre (DIFC) as the place of incorporation for the new company because of its excellent infrastructure, immaculate international reputation and a regulatory framework based on best practices in other leading financial centres in the world. Arig has teamed up with several major regional financial institutions in promoting Takaful Re. These include the inter-governmental Saudi-based Islamic Development Bank, UAE-based Dubai Investments, Emirates Industrial Bank, Emirates Funds (of the Emirates Bank Group), as well as Qatar Islamic Insurance Company and Wethaq Ta-kaful Insurance Company of Kuwait. Takaful Re will be established with an authorized capital of US$500 million and an issued and paid up capital of US$125 million.

Full steam ahead for maiden reinsurance company

MALAYSIA

Takaful Ikhlas Bhd hopes to roll out its first investment-linked Takaful plan by the end of this year, making it the second Takaful insurer to do so. Currently, Syarikat Takaful Malaysia Bhd is the only Takaful insurer offering investment-linked Takaful plans. Takaful Ikhlas will submit its application for the investment-linked Takaful plan to the Central Bank soon. The insurer also plans to launch its first group health insurance scheme later this month, hav-ing recently received approval from Bank Negara.

Takaful Ikhlas to offer investment-l inked plan

UAE (Dubai)

The Dubai-based Islamic Arab Insurance Company, the world’s largest Islamic insurance company, has announced that it will embark on a US$258.2 million expansion following its listing on the Dubai Financial Market last week. Chairman Sheikh Khaled Zayed Al Nehayan said the company’s future prospects are positive, adding that it has identified important sector-specific growth opportunities. The company expects to turn in profits of about US$16.3 million this year and US$24.5 million in 2006. The Islamic Arab Insurance Company, incorporated in 1979, raised its paid up capital to US$271.7 million in July through a public offering of 200 million shares, representing 20% of the total capital, which was oversubscribed by eight times. Lead manager for the share offering was SHUAA Capital. In another development, the company announced that it has secured the approval of the Saudi Arabian Monetary Agency to establish a Ta-kaful insurance firm in the Kingdom.

Newly l isted Islamic Arab Insurance Company to expand

THAILAND

Finansa Life Assurance has teamed up with the Bank for Agriculture and Agricultural Co-operatives (BAAC) to offer Takaful group insurance policies. Finansa Life has stated that the Insurance Department has approved the sale of the Takaful product. Finansa Life, formerly Nationwide Life Assurance, is also seeking Insurance Department approval for its Vari-san Islamic product, an ordinary life endowment policy with 20-year coverage and a minimum sum of US$2,439 (B100,000). The product divides the funds into two portions, one each for protection and invest-ment. BAAC has operated the Islamic Bank Fund since 1999, offering a wide range of products which meet Islamic principles – from investment in farming and livestock, housing, vehicles and land purchases to educa-tion. The Islamic Bank Fund is currently available at 82 branches in 30 provinces. Of the available branches, 50 offer Shariah compliant credit services.

New policies for Muslims

Syarikat Takaful Malaysia Bhd (Takaful Malaysia) recently said that it wants to have at least one Takaful operation in each of the 57 Organization of Islamic Conference (OIC) member states as part of its overseas expansion plan. Takaful Malaysia has already helped with the set up of Takaful operators in the seven OIC member states of Brunei, Bahrain, Bangla-desh, Indonesia, Qatar, Kuwait and Saudi Arabia.

MALAYSIA Takaful Malaysia targets all OIC countries

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to the benefits of the Islamic capital markets” There are a limited number of sponsorship packages available to those who recognize the tremendous opportunity to increase their visibility to their existing and prospective clients. This sponsorship package offers significant value to those institutions who seek to market their services directly to the decision-makers in this rapidly growing industry sector. Sponsorship offers you the chance to target your current and potential key clients for an entire year with the guarantee of locking out your competitors.

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Takaful vs conventional insurance : some issues

SECTOR REPORT

ISSUES TAKAFUL CONVENTIONAL INSURANCE

Accounts For general Takaful the account is known as al-Tabarru (PSA), which means donation. For life Takaful, there are two accounts namely, PA, which is treated in line with the principles of al-Mudarabah; while the other account is PSA, which is treated on the basis of al-Tabarru.

For general insurance, the paid-premium is credited into the account, which is generally known as the general insurance account. In a life insurance policy similarly, the collected pre-miums are credited into the account known as the life insurance account or fund.

Accounting Cash accounting is preferred generally. Several methods used, namely cash, accrual, defered and embedded values.

Benefits

Paid from the defined funds under joint indemnity borne by participants.

Paid from the funds legally owned by the company.

Bonus A Takaful contract specifies from the outset how the profits from Takaful investments are to be shared between the opera-tor and the participants. This shall be in accordance with the principle of al-Mudarabah, and the share could be in the ratio of 5:5 or 6:4 or 7:3 as agreed between the participant and the operator in the con-tract regardless of the amount of investment profit made dur-ing the year.

May offer bonus or profits in general terms only espe-cially with profit policies, that is, there is no exact specification with regards to the profit sharing in the contract. It may also decide to give or not to give a bonus for any particular year depending on the results of the investment returns. The rate of bonus itself can vary from year to year and is up to the discretion of the Board of Directors of the company.

Claims In a life Takaful policy, if the risk occurs, the beneficiary(s) shall have the right to claim the policy value from the PSA besides the accumulated entire amount from the PA. But if in this category of policy, the participant survives at the maturity of the policy, his/her claim shall be confined within the amount available in the PA.

In a life insurance policy where the risk occurs, the beneficiary(s) shall have the right to claim, the full amount named in the policy. But, if in case the risk does not occur, the insured shall have the right to claim the policy value at matur-ity together with the interest if any.

Contract The participants own the Takaful funds and are managed by the operator. Participants give up individual rights to gain col-lective rights over contribution and benefits.

Insurance is a buy-sale contract. In which policies are sold and the policyholders are the purchasers.

Company Company is better known as an operator, which acts as a trus-tee, manager and also entrepreneur.

Relationship between the company and the policy-holders is on a one to one basis.

Commission The agents shall be regarded part and parcel of the operator who shall be paid for their services only by the operator out of the shareholders’ fund. They shall in no situation, have the right to commission out of the collected premiums unless a full consent is obtained from the contributors.

The agents are to be paid commission out of the collected premiums.

Capacity The minimum age for a person to hold a Takaful certificate is 15 years (As justified by the majority Ulama’s views).

The minimum age for a person to buy a policy is 16 years, but an infant between the age of 10 and 16 may also have the right to have it subject to the writ-ten consent obtained from the respective guardian.

Disclosure Disclosure of material facts or matters need not necessarily include the past moral hazard of the subject matter of the policy.

Disclosure of material facts or matters includes both moral and physical hazards of the subject matter of the policy.

Damages There is no justification to award unlimited or unreasonable damages, but only justified one, and that is in reliance with the principles of Diyat, Daman, Taawun, and shared-responsibilities.

The Courts of Justice are in some cases empowered to award unlimited damages against the insurer.

Continued...


SECTOR REPORT (continued…)


Elements Takaful practices are free from the elements of riba and other un-Islamic elements, but is evolved around the elements of al-Mudarabah, al-Tabarru and other Shariah justified elements.

Insurance practices involve riba and some other ele-ments, which may not be justified by Shariah princi-ples.

Extra Risk Premiums

Generally, the premium rates imposed are fixed by the actuarial evaluation, and no one is discriminated by foreseeable extra risk. Hence, no one is required to pay extra premiums over the agreed one. However, if a particular policyholder poses undue strain on the mutual fund owing to his poor health, the policyholder may have to increase his proportion of Tabarru. This means the proportion of his PA would be lesser than it would generally have been.

Usually an extra premium is charged in addition to the normal amount against the policyholder where an ex-tra risk is deemed or higher than average mortality rates are foreseen. The extra risk is foreseen normally against the smok-ers and the people with highly dangerous and strenu-ous jobs, such as fire fighters, miners and so on.

Ex-gratia In life Takaful practices, the doctrine of ex-gratia may not be justified. However, alternatively the doctrine of al-Ihsan (benevolence) may be adopted on appreciation basis.

The doctrine of ex-gratia is adopted in insurance prac-tices on obligatory basis.

Foetus A foetus may also have the right to be insured in the respective mother’s name.

So far there is no provision providing insurance cover-age for the foetus.

Funds Funds belong to the participants on collective basis and man-aged by the operator for a legitimate consideration for the ser-vices rendered.

Funds belong to the company, though separation of assets is maintained between shareholders and policy-holders.

Forfeiture The paid-premiums of the participant can for no reason be for-feited, even for a breach of utmost good faith or any other of-fence or wrong committed by the participant.

The paid-premiums of the policyholder may sometimes be forfeited, especially for the breach of good faith.

Guarantees The operator does not give contractual guarantees. Joint indemnity between the participants is a prerequisite for participating in a Takaful scheme.

The company guarantees benefits, especially the death benefits etc.

Investments The funds shall be invested in any interest-free Shariah justified scheme. The entire procedure shall comply with the guidelines of the Shariah. Investment returns must not be driven by any unethical com-mercial activities.

The funds may also be invested in an interest-based scheme. The funds can also be invested in any scheme or project, which may not be supported by the Shariah discipline.

Insurable Interest

The right of one’s insurable interest is unlimited. It can be exercised on any person or property, but the benefits over the policy shall be distributed on the basis of principles of al-Faraid, al-Waqf, al-Hebah, al-Qard and al-Amanah.

The right of insurable interest in a life policy is vested only on certain designated persons.

Mechanisms The operational mechanisms shall be justified by the Shariah principles.

Operational mechanisms shall be in line with the man-made thoughts and customs.

NCB (No claims

bonus)

The NCB in a general (Motor Takaful) policy may be disbursed by cash or cheque to the participant soon after the policy pe-riod is matured.

The NCB in a general (Motor) policy is neither dis-bursed in cash nor cheque, but it is regarded as part and parcel for the premiums required for the renewal of the policy on a discounted basis.

Nature The entire operation aims at paving the way of brotherhood, solidarity and mutual co-operation.

The operation aims for a commercial gain on the basis of the principle of business.

Continued...



SECTOR REPORT (continued…)


Nomination The nominee in a life Takaful policy should not be treated as an absolute beneficiary, but a mere trustee or an executor who is under a responsibility to receive the benefits over the policy and distribute them among the right beneficiaries ac-cording to the principles of Faraid.

The nominee in a life policy is treated as an absolute beneficiary over the policy. No other person shall have the right to claim all or part of the benefits disbursed to that nominee.

Profits The proportion of the share of the profits is determined in the contract for as long as the policy is still in force, but the amount itself will depend on the investment performance or returns each year.

In a life insurance policy, it does not mean that the policy can freely choose to give the policyholders a share of profit at whatever amount they wish and whenever they like.

Premium Fixed minimum premium, which is the same for all partici-pants of all ages. This is because, the policies are taken out as a means of savings for the future rather than as a means to get compensation in the event of the death of the partici-pant, and the Takaful operators are not allowed to make prof-its from favourable mortality experience.

Premiums paid by the policyholder vary depending on the age when the policyholder first takes out his policy. The older the policyholder is, the higher the level of pre-mium would be and reflects the increasing mortality rate as age increases.

Regulations Regulations affecting Takaful are based on the Divine sanc-tion (Quran & Hadith). Secondary sources of Islamic Law.

Insurance law is based on the human thoughts and cul-tures.

Regulatory Frameworks

Shariah justified statutory provisions. Juristic opinions (Fatwa). Decisions of the Shariah supervisory bodies. Relevant Shariah based decided cases.

Statutes. Case laws/Judicial precedents. Legal literatures. Customs.

Suicide Under Takaful policy, the cause of death of the participant is immaterial. Hence, the beneficiary(s) shall have the right to claim legiti-mate benefits from the operator regardless of whether the death of the participant is caused by natural, suicide or being killed while committing a crime.

Under a life insurance policy, if it is proven that the policy-holder has committed suicide within first two (2) years of the policy with an intention of leaving benefits to his bene-ficiaries, no right of claim shall be entertained.

Surrender Value

All premiums paid to the PA would be refunded to the policy-holder. In addition to that, he would also receive a proportion of the profits made from investments on his paid-premiums. Nonetheless, the policyholder may be charged a small fee for withdrawing the policy.

Any policyholder who surrenders his policy before maturity, is entitled to get some compensation known as surrender value. This usually amounts to a sum lesser than the total premiums that he has paid to the company. For example; under an endowment insurance policy, the surrender value would be approximately equal to the fund built up from the premiums paid, less expenses and also the past benefits rendered.

Sales Distribution

Sales normally through salaried staff are preferred. Salaried staff could also be paid a share of the profits or a bonus out of the shareholders’ fund.

Sales on both commission and salaried basis.

Term of the Policy

All Takaful policies have a fixed and definite term or period of maturity for example 10, 15 or 20 years. The reason is to avoid uncertainty (gharar) in the contract period.

The term of the policy can vary. Some may have a definite time period such as temporary and endowment assurance policies, while others may have an indefinite period.

Note : The author is an Adviser and Consultant to several Companies and Institutions on Takaful, Re-Takaful, Insurance, Banking, Financial and IT regulations, Wealth & Asset Management, Islamic Bond Market, Islamic Capital Market, Islamic Money market and Gold Dinar. He is also the author of http//.www.islamic-insurance.com. He can be contacted at [email protected]




TAKAFUL MALAYSIA – Malaysia

ING VYSYA BANK – India

ISLAMIC FINANCE News Team

Published By: Suite A, Level 7 Menara Angkasa Raya Jalan Ampang

50450 Kuala Lumpur Malaysia Tel: +603 2143 8100 Fax: +603 2141 5033

DISCLAIMER Published every other Monday (25 issues per year) Individual Annual Subscription Rate: US$360 Group Wide Subscription Rate: US$1,450 A RedMoney Publication: RedMoney Sdn Bhd, Suite A, 7/F, Bangunan Angkasa Raya, Jalan Ampang, 50450, Kuala Lumpur, Malaysia. Tel: +603 2143 8100, Fax: +603 2141 5033 All rights reserved. No part of this publication may be reproduced, duplicated or copied by any means without the prior consent of the holder of the copy-right, requests for which should be addressed to the publisher. While every care is taken in the preparation of this publication, no responsibility can be accepted for any errors, however caused.

Editor Sreerema Banoo Tel: +603 2143 8100 [email protected] Sub-Editor Frances O’Sullivan Tel: +603 2143 8100 [email protected] Senior Writer Seelan Sakran Tel: +603 2143 8100 [email protected] Correspondents Kamal Bairamov Tel: +603 2143 8100 Shirene Shan Research Director Shih Yan-Ting Tel: +603 2143 8100 [email protected] Newsletter Manager Christina Morgan Tel: +603 2141 6025 [email protected] Subscriptions Manager Geraldine Chan Tel: +603 2141 6024 [email protected] Production Manager Jeya Jeevan Tel: +603 2143 8100 [email protected] Marketing Manager Zalina Zakaria Tel: +603 2141 6021 [email protected] Managing Director Andrew Tebbutt Tel: +603 2141 6022 Training [email protected] Managing Director Andrew Morgan Tel: +603 2141 6020 & Publisher [email protected]

ABN AMRO – Indonesia ABN AMRO has appointed Henk Mulder, Country Executive for its Indonesian operations. Mr Mulder returns to Jakarta where he was previously the bank's Deputy Country Manager between 1993 and 1995. Since joining the bank in 1982 he has held positions in Latin America, the Middle East, Asia and most recently Romania

BURSA MALAYSIA – Malaysia Bursa Malaysia Bhd, the country’s Stock Exchange, has appointed Omar Merican as its new Chief Operating Officer. He is responsible for the strategic and operational directions of the exchanges, clear-ing, settlement, depository, information services and group business development operating units. Mr Merican was Chief Executive Officer and founder of Merican & Partners Asset Management Sdn Bhd. Prior to this he was a vice president of Solomon Brothers Hong Kong Ltd, Head of Specialist Equity Derivative Sales at James Capel Asia, Hong Kong, and Head of UK Equity Derivative Research at James Capel & Co, London.

MOVES

Janak Desai has been appointed Country Head of Financial Markets at ING Vysya Bank, effective 1st November 2005, re-porting to Bart Hellemans, Managing Director and CEO. Mr Desai will be responsible for all financial markets activities including the sales and trading of foreign exchange, fixed in-come and derivative products, in addition to developing cus-tomized financial markets solutions for the banks clients and for expanding the bank's crossborder business.

Encik Md. Azmi Abu Bakar has been announced as the new Chief Executive Officer of Syarikat Takaful Malaysia. This follows the retirement of Dato’ Mohd Fadzli Yusof who officially retired on the 15th September. Mr Azmi steps up from the role of Chief Operating Officer and will assume the plan of having at least one Takaful operation in each Organization of Islamic Conference (OIC) Member States.

The recent announcement that Tom DuCharme is to relocate from Hong Kong to Singapore is the latest in the groups’ reor-ganization of its cash and trade management team. Mr DuCharme will become the Asia Pacific Regional Head of Cash and Trade Management for Deutsche Bank’s corporate customers. After 15 years with Citigroup Mr DuCharme will report to Reinhard-E. Uhl, Global Head of the Corporate Trans-action Banking business.

EMIRATES ISLAMIC BANK – UAE Faisal Aqil has been appointed General Manager of the Retail Banking Division of the Dubai based Emirates Islamic Bank. Mr Aqil has been with the Emirates Bank Group for the past 15 years. His last post was managing the Al Shaheen Club Priority Banking Business.

EMIRATES & SUDAN BANK – Sudan During the first general assembly of the Emirates and Sudan Bank, the General Board announced the appointment of Dr. Khirbash as the new Chairman. Additionally, Abd Al Rahman Al Owais, Aref Ahmed Kooheji, Mamoun Ahmad Maqi, Sultan Khalfan Al Ghaith, Dr. Moham-med Al Habib Al Jaraya, and Ahmed Darwish bin Dagher Al Marar, were all appointed as Board Members of the bank.

LLOYDS TSB – UAE (Dubai)

Steve Snowdon has been appointed Senior Manager and Katie Pattison-Hart as Senior Relationship Manager of the Lloyds TSB Commercial Banking Operations for the region. Mr Snowdon has been with the group for 17 years and was based in the UK most recently as a Senior Manager with Lloyds TSB's Network Directors Office Business Banking, M.I. & Project team. Ms Pattison-Hart has also relocated from London where she was a Partner Manager with a portfolio of over 120 cus-tomers.

DEUTSCHE BANK – Singapore



MALAYSIA ISLAMIC BOND UPDATE

MYR ISLAMIC DEBT YIELD CURVES

SPREAD VS GII (in b.p)

RINGGIT ISLAMIC DEBT MARKET : FORTNIGHTLY SNAPSHOT

For enquiries regarding the above information, please contact:

Tel: +603 7628 1758; Fax: +603 7620 8255 Email: [email protected]

AS AT 22nd Sept 2005

5-YEAR YTM Historical Charts (weekly closing, over last 6 months) YTM Curves

Key Benchmarks Trend (by volume) Rating This week close (%) 15/9/2005 (%) 8/9/2005 (%) 1/9/2005 (%)

Private Debt Securities PLUS PRIMARY BONDS SERIES 9 - 31.05.2011 AAA (RAM) 4.07 4.07 4.14 4.17

PLUS PRIMARY BONDS SERIES 1 AAA (RAM) 4.25 4.25 4.29 4.35

TTPC 0.000% 13.09.2016 AA3 (MARC) 5.60 5.60 5.80 5.75

ELITE 0.00000% 28.02.2012 AA3 (MARC) 4.54 4.54 4.63 4.63

ELITE 0.00000% 28.02.2014 AA3 (MARC) 4.80 4.80 4.93 4.93

PUTRAJAYA RM90.0 MIL 3.75% 17.04.2006 AAA ID (MARC) 2.96 2.96 2.89 2.89

Government Investment Instruments GII 1/2003 0.00000% 31.03.2008 3.12 3.13 3.12 3.14

GII 3/2004 0.00000% 29.10.2009 3.40 3.38 3.38 5.47

PROFIT-BASED GII 1/2005 16.03.2015 3.88 3.88 3.92 4.03

GII 2/2004 0.00000% 30.09.2011 3.60 3.60 3.65 3.73

GII 1/2002 0.00000% 02.12.2005 2.69 2.69 2.80 2.80

Quasi Government KHA2/03 1B 0-CP 5Y 18/09/2008 3.28 3.28 3.30 3.32

IFC 2.880% 13.12.2007 3.22 3.22 3.21 3.25

KHA1/01 700M 0-CP 5YR 20/3/2006 2.79 2.80 2.68 2.68

KHA1/03 1B 0-CP 5YR 18/6/08 3.18 3.20 3.21 3.21

KHA3/03 1B 0-CP 5Y 18/12/2008 3.34 3.47 3.34 3.37

SAC 7/2004 17.08.2006 3.00 2.95 2.95 2.95

TENURE

1-Year 2-Year 3-Year 5-Year 7-Year 10-Year

GII 2.74 3 3.19 3.36 3.59 3.89

Cagamas 0.24 0.29 0.33 0.32 0.33 0.34

Khazanah 0.09 0.1 0.09 0.19 0.19 0.21

AAA 0.35 0.35 0.52 0.65 0.74 1.19

AA1 0.39 0.5 0.77 0.8 0.91 1.29

A1 1.11 1.2 1.45 2.2 2.69 2.89



ISLAMIC LEAGUE TABLES

For all enquires regarding the above information, please contact: Catherine Chu Email: [email protected]; Phone: +852 2804 1223; Fax: +852 2529 4377

TOP 20 ISSUERS OF ISLAMIC DEBT SEPT 2004 - SEPT 2005 Issuer or Group Nationality Instrument Amt US$ m Iss. %Share Manager

1 Dubai Global Sukuk FZCO UAE Sovereign Islamic Bond 1,000 1 13.9 Citigroup, Dubai Islamic Bank, HSBC

2 Pakistan International Sukuk Co Ltd

Pakistan Sukuk-Al-Ijarah Sovereign Islamic Bond

600 1 8.3 Citigroup, HSBC

3 Wings FZCO UAE Islamic Sukuk-Al-Musharakah Issue

550 1 7.6 Dubai Islamic Bank, Standard Char-tered Bank, HSBC

4 Cagamas MBS Bhd Malaysia Asset-backed Sukuk Musharakah Islamic Bond

542 6 7.5 CIMB, HSBC, ABN AMRO, AmMer-chant Bank Bhd

5 Islamic Development Bank Saudi Arabia Islamic Bond 500 1 6.9 Deutsche Bank, HSBC

6 Sarawak Corporate Sukuk Inc Malaysia Sukuk-Al-Ijarah Sovereign Islamic Bond

350 1 4.9 UBS (London)

7 PLUS Expressways Bhd Malaysia Serial Bai Bithaman Ajil Islamic Securities

349 4 4.8 Commerce International Merchant Bankers Berhad

8 SAJ Holdings Sdn Bhd Malaysia Al-Bai Bithaman Ajil Islamic Debt Securities

337 2 4.7 Aseambankers Malaysia Bhd, Bank Islam Malaysia Bhd, Commerce Inter-national Merchant Bankers Bhd

9 Jimah Energy Ventures Sdn Bhd Malaysia Istisna' Islamic MTN Facility 245 10 3.4 AmMerchant Bank Bhd, RHB Sakura Merchant Bankers Bhd, Malaysian International Merchant Bankers Bhd, Bank Muamalat Malaysia Bhd

10 DRB-HICOM Bhd Malaysia Bai' Bithaman Ajil Islamic Debt Securities/Murabahah CP/MTN Facility

209 11 2.9 AmMerchant Bank Bhd, Malaysian International Merchant Bankers Bhd

11 Gold Sukuk dmcc UAE Islamic Sukuk-Al-Musharakah Issue

200 1 2.8 Standard Bank, Dubai Islamic Bank

11 International Bank for Reconstruction & Development - World Bank

Supranational Bai' Bithaman Ajil Islamic Debt Securities

200 1 2.8 ABN Amro Bank Bhd, Commerce International Merchant Bankers Bhd

13 Saudi Hollandi Bank Saudi Arabia Islamic Bond 187 1 2.6 ABN Amro, Saudi Hollandi Bank

14 Encorp Systembilt Sdn Bhd Malaysia Al-Bai' Bithaman Ajil Notes Issu-ance Facility

180 1 2.5 United Overseas Bank (Malaysia) Berhad

15 Musyarakah One Capital Bhd Malaysia Asset-Backed Sukuk Musharakah Issuance Programme

176 7 2.4 Commerce International Merchant Bankers Bhd

16 Special Power Vehicle Bhd Malaysia Bai' 'Inah Islamic MTN Facility 163 13 2.3 Malaysian International Merchant Bankers Bhd, AmMerchant Bank Bhd, RHB Sakura Merchant Bankers Bhd, Bank Muamalat Malaysia Bhd

17 Ranhill Power Bhd Malaysia Islamic MTN Programme 142 12 2.0 Aseambankers Malaysia Bhd

18 Antara Steel Mill Sdn Bhd Malaysia Al-Bai Bithaman Ajil Islamic Debt Securities

133 6 1.8 AmMerchant Bank Bhd

19 International Finance Corp - IFC Supranational Al-Bai Bithaman Ajil Islamic Debt Securities

132 1 1.8 Commerce International Merchant Bankers Bhd, HSBC Bank (Malaysia) Bhd

20 Cagamas Bhd Malaysia Bithaman Ajil Islamic Securities 105 4 1.5 Cagamas Bhd

Total of issues used in the table 7,213 208 100.0



Catherine Chu [email protected] +852 2804 1223

If you don’t release the information on the deals you have advised on then you can’t expect to have the information included!

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ISLAMIC LEAGUE TABLES TOP 20 ISSUERS OF ISLAMIC DEBT YEAR-TO-DATE Issuer or Group Nationality Instrument Amt US$ m Iss. %Share Manager

1 Pakistan International Sukuk Co Ltd

Pakistan Sukuk-Al-Ijarah Sovereign Is-lamic Bond

600 1 12.8 Citigroup, HSBC

2 Wings FZCO UAE Islamic Sukuk-Al-Musharakah Issue

550 1 11.7 Dubai Islamic Bank, Standard Chartered Bank, HSBC

3 Cagamas MBS Bhd Malaysia Sukuk Musharakah Islamic Bond

542 6 11.5 CIMB, HSBC, ABN AMRO, AmMerchant Bank Bhd

4 Islamic Development Bank Saudi Arabia Islamic Bond 500 1 10.6 Deutsche Bank, HSBC

5 PLUS Expressways Bhd Malaysia Serial Bai Bithaman Ajil Islamic Securities

349 4 7.4 Commerce International Merchant Bankers Berhad

6 Jimah Energy Ventures Sdn Bhd

Malaysia Istisna' Islamic MTN Facility 245 10 5.2 AmMerchant Bank Bhd, RHB Sakura Merchant Bankers Bhd, Malaysian International Merchant Bankers Bhd, Bank Muamalat Malaysia Bhd

7 DRB-HICOM Bhd Malaysia Bai' Bithaman Ajil Islamic Debt Securities

209 11 4.4 AmMerchant Bank Bhd, Malaysian International Merchant Bankers Bhd

8 Gold Sukuk dmcc UAE Islamic Sukuk-Al-Musharakah Issue

200 1 4.3 Standard Bank, Dubai Islamic Bank

8 International Bank for Reconstruction & Development - World Bank

Supranational Bai' Bithaman Ajil Islamic Debt Securities

200 1 4.3 ABN Amro Bank Bhd, Commerce International Merchant Bankers Bhd

10 Musyarakah One Capital Bhd Malaysia Asset-Backed Sukuk Mushara-kah Issuance Programme

176 7 3.8 Commerce International Merchant Bankers Bhd

11 Special Power Vehicle Bhd Malaysia Bai' 'Inah Islamic MTN Facility 163 13 3.5 Malaysian International Merchant Bankers Bhd, AmMerchant Bank Bhd, RHB Sakura Merchant Bankers Bhd, Bank Muamalat Malaysia Bhd

12 Ranhill Power Bhd Malaysia Islamic MTN Programme 142 12 3.0 Aseambankers Malaysia Bhd

13 Antara Steel Mill Sdn Bhd Malaysia Al-Bai Bithaman Ajil Islamic Debt Securities

133 6 2.8 AmMerchant Bank Bhd

14 Cagamas Bhd Malaysia Bithaman Ajil Islamic Securities 105 4 2.2 Cagamas Bhd

15 Konsortium Lapangan Terjaya Sdn Bhd

Malaysia Al-Bai Bithaman Ajil Islamic Debt Securities

101 9 2.2 Alliance Merchants Bank Bhd, United Overseas Bank (Malaysia) Bhd

16 Kingdom of Bahrain Bahrain Sukuk Al-Ijarah 80 1 1.7 Bahrain Monetary Agency

17 Bayu Padu Sdn Bhd Malaysia Istisna' Bond 66 8 1.4 United Overseas Bank (Malaysia) Bhd

18 Konsortium Lebuhraya Butterworth-Kulim Sdn Bhd

Malaysia Bai' Bithaman Ajil Islamic Debt Securities

66 25 1.4 Bank Muamalat Malaysia Bhd

19 Intelbest Sdn Bhd Malaysia Al-Bai Bithaman Ajil Islamic Debt Securities/Murabahah Underwritten Notes Issuance Facility

42 4 0.9 Abrar Discounts Bhd

20 ASSAR Chemical Sdn Bhd Malaysia Serial Sukuk Musharakah 40 8 0.8 RHB Sakura Merchant Bankers Bhd




ISLAMIC DEBT BY CURRENCY SEPT 2004 - SEPT 2005

ISLAMIC DEBT SEPT 2004 - SEPT 2005

ISLAMIC LEAGUE TABLES ISLAMIC DEBT YEAR-TO-DATE

ISLAMIC DEBT BY CURRENCY YEAR-TO-DATE

ISLAMIC DEBT BY COUNTRY SEPT 2004 - SEPT 2005 ISLAMIC DEBT BY COUNTRY YEAR-TO-DATE

Manager or Group Amt US$ m Iss. %Share

1 HSBC 1,004 9 21.4

2 Commerce International Merchant Bankers Bhd

897 18 19.1

3 AmMerchant Bank Bhd 373 49 7.9

4 Citigroup 300 1 6.4

5 Dubai Islamic Bank 283 2 6.0

6 Deutsche Bank 250 1 5.3

7 EON Bank Bhd 246 47 5.2

8 Standard Chartered Bank 192 2 4.1

9 Bank Muamalat Malaysia Bhd 168 48 3.6

10 Aseambankers Malaysia Bhd 142 12 3.0

11 RHB Bank Bhd 142 31 3.0

12 United Overseas Bank Ltd 117 17 2.5

13 Cagamas Bhd 105 4 2.2

14 ABN AMRO 100 1 2.1

14 Standard Bank Group Ltd 100 1 2.1

16 Bahrain Monetary Agency 80 1 1.7

17 Alliance Merchant Bank Bhd 51 9 1.1

18 Abrar Discount Bhd 42 4 0.9

19 PT Andalan Artha Advisindo 38 2 0.8

20 Oversea-Chinese Banking Corp Ltd 38 11 0.8


Manager or Group Amt US$ m Iss. %Share

1 HSBC 1,404 11 19.5

2 Commerce International Merchant Bankers Bhd

1,075 21 14.9

3 Citigroup 633 2 8.8

4 Dubai Islamic Bank 617 3 8.5

5 AmMerchant Bank Bhd 389 59 5.4

6 UBS 350 1 4.9

7 United Overseas Bank Ltd 297 18 4.1

8 Standard Chartered Bank 292 3 4.0

9 EON Bank Bhd 263 48 3.6

10 Aseambankers Malaysia Bhd 254 14 3.5

11 Deutsche Bank 250 1 3.5

12 ABN AMRO 193 2 2.7

13 Bank Muamalat Malaysia Bhd 177 49 2.4

14 RHB Bank Bhd 151 32 2.1

15 Bank Islam Malaysia Bhd 112 2 1.6

16 Cagamas Bhd 105 4 1.5

17 Standard Bank Group Ltd 100 1 1.4

18 Saudi Hollandi Bank 93 1 1.3

19 Abrar Discount Bhd 83 6 1.1

20 Bahrain Monetary Agency 80 1 1.1


Amt US$ m Iss. %Share

Malaysia 3,570 192 49.5

United Arab Emirates 1,750 3 24.3

Saudi Arabia 687 2 9.5

Pakistan 600 1 8.3

United States 332 2 4.6

United Kingdom 100 1 1.4

Indonesia 95 6 1.3

Bahrain 80 1 1.1

Total 7,213 208 100.0


Malaysia 2,505 163 53.3

United Arab Emirates 750 2 16.0

Pakistan 600 1 12.8

Saudi Arabia 500 1 10.6

United States 200 1 4.3

Bahrain 80 1 1.7

Indonesia 61 3 1.3

Total 4,696 172 100.0


Malaysian Ringgit 3,652 194 50.6

US Dollar 3,200 6 44.4

Saudi Arabian Riyal 187 1 2.6

Indonesian Rupiah 95 6 1.3

Bahraini Dinar 80 1 1.1

Total 7,213 208 100.0


Malaysian Ringgit 2,705 164 57.6

US Dollar 1,850 4 39.4

Bahraini Dinar 80 1 1.7

Indonesian Rupiah 61 3 1.3

Total 4,696 172 100.0


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