realisingthepotenalof on1exchange)islamic)products dr...
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Realising the Poten.al of On-‐Exchange Islamic Products
Dr. Mustafa Kemal Yılmaz Execu&ve Vice President November 17th, 2015
Global Outlook to On-‐Exchange Islamic Finance Products
Experience of Turkey
Vision of Borsa İstanbul
2
Outline
17.11.2015
3
Global Outlook
17.11.2015
Global Assets of Islamic Finance (USD billion) Select Growth Indicators
Source: Reuters
Expected to reach $3 trillion by 2018
$1,476 billion
Islamic Banking
$295 billion
Sukuk
$76 billion
Islamic Funds
$21 billion
Takaful
GCC; 38%
MENA (excluding GCC); 35%
Asia; 22%
Sub-‐Saharan Africa; 1%
Others; 4%
Islamic Finance by Region
Source: TheCityUK esTmates based on IFSB Insdustry Stability Report 2015
Source: IFSB Industry Stability Report 2015
Capital Markets
4
Source: WB, OIC Exchange Forum Survey, WFE * classified by IMF ** based on GDP
17.11.2015
144.55 91.47
76.51 64.78
59.04 53.53 53.17 51.21
46.35 32.38 31.56 30.81
27.56 19.84
12.15 5.89
0 20 40 60 80 100 120 140 160
Malaysia Qatar Jordan
Saudi Arabia Bahrain Kuwait
UAE Morocco Indonesia Pakistan Turkey Oman Guinea
Lebanon Niger
Kazakhstan
Market Cap/GDP (End of 2014)
Source: Bloomberg
129%
56%
36%
91%
65%
46%
0%
20%
40%
60%
80%
100%
120%
140%
Developed Countries* Developing Countries* OIC Countries
Market Cap / GDP (End of 2014)
Weighted Average** Simple Average
Sukuk Issuances and LisWngs
5 17.11.2015
32.6 27.6 27.3
21.3 21.1
18.7 14.0 13.6
7.6 7.1 7.1 7.1
3.7
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0
Irish SE London SE
Bursa Malaysia Nasdaq Dubai Frankfurt SE Börse Berlin
Borsa İstanbul Singapore Exchange
Hong Kong SE Indonesia SE
Saudi SE Börse Stuigart
Karachi SE
Breakdown of Global Sukuk LisWngs by Stock Exchange LocaWon (USD Billion, end of 2014)
Not Listed 66%
Listed 34%
Global Sukuk LisWngs (2014)
Sukuk Outstanding Value (USD billion)
Sources: Bloomberg, KFH Research Source: Bloomberg, KFH Research
Source: IFSB Industry Stability Report 2015, Zawya
Islamic Funds Growing Slowly
6 17.11.2015
AUM of Global Islamic Funds Outstanding, Breakdown By Universe (2008 – 2014, USD billion)
Returns of Islamic Funds by Asset Type (3Q14)
Sources: IFSB Industry Stability Report 2015, Thomson Reuters Global Islamic Asset Management Outlook 2015
Survey: What type of funds vehicle would you prefer the most or expect to use in 2015 and 2016?
ETFs: A Niche Area for Growth
7 17.11.2015
Sources: IFSB Industry Stability Report 2015, Zawya, Bloomberg
• ETFs, index-‐tracking passive funds, manage $2.76 trillion in assets globally, up from $425 billion in 2005, and already account for about a quarter of all acTvity in the US stock market.
• Islamic ETF products are not yet in large supply; however, interest is picking up.
• As of the end of 2014, 27 Islamic ETFs around the world were valued at more than $6 billion, all below $100 million in asset value individually.
• 97% of the assets invested in precious metals, 3% in equiTes domiciled mostly in Ireland, Luxembourg, Malaysia and the US
VolaWlity of the Indices (30D)
Dow Jones Global Titans Index Dow Jones Sukuk Index Dow Jones Corporate Bonds Index Dow Jones Islamic Market Index
UnTl year 2023, one of the top prioriTes of the policy makers is to increase Islamic financial
market’s share from 5.1% → to 15%
Currently 4 private and 1 state owned parTcipaTon banks are operaTng in Turkey
2 more state owned parWcipaWon banks are on in the process of being launched
8
Structuring metal market and designing this market suitable to the Islamic finance
requirements will allow parTcipaTon banks to make their transacTons through Borsa İstanbul
Islamic Finance is Growing in Turkey
17.11.2015
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 50.00
%
USD
Billion
ParWcipaWon Banking Assets in Turkey
Total Asset Size Sectoral Share
2.2
4.2 5.6 3.1%
4.3%
5.4%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
-‐
1.0
2.0
3.0
4.0
5.0
6.0
2012 2013 2014
Sukuk Outstanding Value in ParWcipaWon Banks' Assets (TRY billion)
Sukuk Sukuk/Asset RaTo
CAGR of the banking industry in Turkey is 6.2% for the same period
Source: ParTcipaTon Banks AssociaTon of Turkey
9
RegulaWons in CollecWve Investment • ParTcipaTon Fund can invest in
• Lease cerTficates • ParTcipaTon bank deposits • Equity • Gold and other precious metals • Interest free money and capital market instruments
• 10% pormolio concentraTon limitaTon increased to 25% for lease cerTficates • Private Equity Funds, Real Estate Investment Funds, and Infrastructure REITS are exempt from taxes
• Recent amendments to the governing laws of the pension system added gold and sukuk into the spectrum of instruments that can be invested by pension funds.
• The rapid increase suggests a substanTal potenTal for growth. Total assets value of Turkish pension funds is US$ 15 billion.
New CollecWve Investment Instruments
Private Equity Funds
Real Estate Investment
Funds
ParWcipaWon Funds
Infrastructure REITs
42 75
189
282
429
537
0
100
200
300
400
500
600
Jun-‐12 Dec-‐12 Jun-‐13 Dec-‐13 Jun-‐14 Dec-‐14
AUM (U
SD m
illion)
Turkish Pension Funds Interest-‐free Assets Under Management
Islamic Finance is Growing in Turkey
17.11.2015
10
• By new Capital Market Law, all Sukuk types can be traded at Borsa İstanbul • Regulatory support: Tax exempWons
1) Special purpose vehicle (SPV) is exempt from corporate tax 2) Leasing CerTficates are exempt from stamp duty tax 3) 0% withholding tax for Sukuk issuances over 5 years maturity
IDB Sukuk trading has started at Borsa İstanbul: 6 different non-‐interest bearing notes (Sukuk) of U.S. $ 6,05 billion issued by IDB Trust Services Limited have started trading at Borsa Istanbul on November 28th, 2014.
Sukuk Issuances in Turkey
17.11.2015
1,624 2,235 2,235
4,969
500 750
2,300
4,067
5,840
0
4
8
12
16
20
24
28
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
2010 2011 2012 2013 2014 2015/9
TRY USD No of Issuances (Right Axis)
Sukuk Issuance in Turkey by Currency (USD million)
2012 2013 2014 2015/9
OTC 967.84 2788.95 2341.60 1554.47
BIST 35.00 669.68 1131.51 901.92
DAILY AVERAGE 0.57 2.67 4.53 4.31
BIST BIST
BIST BIST OTC
OTC OTC
OTC
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
71%
29%
All Sukuk Issuances by IDB
Traded at Borsa İstanbul
Other Sukuk
Source: Bloomberg
Total and Average Trading Values in Sukuk (TRY million)
11
ParWcipaWon Index (KATLM) ParWcipaWon 50 Index (KAT50)
ParWcipaWon Model Poriolio Index (KATMP)
S&P-‐OIC COMCEC 50 Shariah Index
DJIM Turkey
Indices
ETFs on CommodiWes
İstanbul Gold ETF İstanbul Silver ETF Kuveyt Turk Gold ETF Kuveyt Turk Silver ETF
ETFs
ParWcipaWon ETF
ETFs on Indices
Islamic Indices, ETFs, and Other Products
17.11.2015
Comparison of Index Returns
Risk Management Products
Base Load Electricity Futures, Steel Scrap
Futures
Precious Metals and Diamond Markets
Gold, Silver, PlaWnum, Palladium, Diamond, and Precious Stones
What Borsa İstanbul has done so far in Islamic Finance?
Main FuncWon
s of th
e Ce
nter
Research & Knowledge
Standard Serng & RegulaTon
InnovaTon
Main Areas of Interest
Global Islamic Finance Report
Global Islamic Finance Database
Islamic Banking
-‐ Monetary Policy
-‐ Systemic Stability
-‐ Risk Management
-‐ RegulaTon
-‐ Standards for the governance of Sharia Boards
-‐ Liquidity Management
-‐ CompilaTon of best pracTces
Islamic Capital Markets
-‐ RegulaTon of capital market acTviTes
-‐ Infrastructure finance – Sukuks
-‐ SecuriTzaTon of exisTng Islamic Finance pormolios,
-‐ Capital Market product development
Islamic Finance and Economic Development
-‐ Microfinance
-‐ Financial Inclusion
-‐ Financial Literacy
-‐ Capacity building and training
World Bank Global Islamic Finance Development Center (launched in October 2013)
12 17.11.2015
Research Program • Academic ArTcles • Policy Papers • Newsleier
Flagship Report • Annual flagship Islamic Finance Development Report
Seminar Series • G20 and Islamic Finance • SMEs and Islamic Finance • Annual Symposium on Islamic Finance
Community of PracWce • Knowledge partnerships • Social media outreach
Islamic Finance Inclusion Program • Islamic Micro and SME finance
Learning Center • Learning program for Islamic finance professionals, regulators and scholars • Capacity building
Food for Thought
13 17.11.2015
Harmonizing Capital Market RegulaWons to cross list exchange-‐traded products
Establishing a Gold Exchange among the OIC Member States
SupporWng the Entrepreneurship (Start-‐ups) and SMEs in Stock Exchanges (www.bistprivatemarket.com)
Increasing Training and Investor Awareness to sWmulate demand for on-‐exchange products