Professional Documents
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Vol. 8 Issue 10 March 2011 - Better Safe Than Sorry
Vol. 8 Issue 10 March 2011 - Better Safe Than Sorry
•
•NEWS
• Pharez Nigeria slams Islamic banking
• Islamic finance industry must
innovate products, says CEO of
Amanie Business Solutions
• Dubai Islamic Bank’s net profit fell to
US$219 million in 2010
• Al Ahli Bank of Kuwait records 36%
as inauspicious
• Sovereign bodies contribute to 77% hike in net profit to US$191 million
• Indonesia succeeds in meeting of global Sukuk issuances, says
• Qatar Islamic Bank plans to acquire
US$114 million Sukuk target Baitak Research
25% stake in Bank Asya
• Malaysian local banks may invite • Unicorn Investment Bank charts
foreign partners for Islamic
megabank licenses
US$229.5 million net loss in 2010
• Investment Corporation of Dubai
TAKAFUL
• Indonesia’s Takaful assets increases
• Emery Oleochemicals Group plans to acquires National Bonds Corporation by 47.6% in 2010
raise US$158.3 million via Sukuk • Dubai SME inks deal with Dubai • Amana Takaful announces rights
• Malaysia’s Academic Medical Centre International Financial Centre for issue to facilitate expansion strategy
considers Sukuk to raise up to SMEs
US$494 million • Labuan Financial Services Authority
• Sukuk can solve local companies’
allows Takaful operators to select
• Islamic Bank of Thailand to provide debt in Kuwait , says Liquidity
dual offices
US$16.5 million financing to Muslim Management House
garment industry • Emirates Islamic Bank offers • Takaful Indonesia seeks to
financing to SMEs reach US$12.5 million through
• BRI Syariah targets US$1 billion in
bancassurance system
financing this year • Dubai World to ink final agreement
with creditors • Neova Sigorta plans to penetrate into
• Bio-XCell finalizes US$82.2 million
• Arqaam Capital to help Indonesian Central Asia and Eastern Europe
Commodity Murabahah facility
banks find Gulf investors • Takaful growth in Southeast Asia is
• Indonesia’s Islamic banks to
contribute in government’s target of • Islamic financing faces difficulty in weaker than expected
expanding assets by 55% winning acceptance
• Qatar General Insurance &
• Philippines in talks with the IDB • Kuwait International Bank provides Reinsurance Company charts net
on deploying Al-Amanah Islamic US$90 million financing for mall profit of US$33 million in 2010
Investment Bank expansion
Infrastructure financing investment trust valued at over RM3 billion a GBP18.9 million (US$30.5 million) loss
(US$988 million) to meet the demand for in 2009, through a recovery strategy and
MALAYSIA: Public transport operator new Islamic finance products. prudent financial investments.
Syarikat Prasarana Negara is planning to
issue a RM5 billion (US$1.65 billion) Sukuk The REIT is expected to be listed in the Total operating income increased 34% to
in 2012 to finance a RM7 billion (US$2.3 second quarter of this year and will manage GBP40.4 million (US$65 million) spurred by
billion) light rail transit extension project. 33 properties located in three Asian revenue growth in the markets and corporate
countries including Australia and Hong Kong. banking divisions with a robust performance
Zulkifli Mohd Yusoff, group director of project from investment in the US Dollar Income
development, said the company earlier Reports list the investment banking arm of Fund.
raised RM2 billion (US$658 million) through CIMB Group as the principal advisor for the
Sukuk for this project. initial public offering and the involvement of Net fee income rose 112% to GBP974,693
Standard Chartered Bank. (US$1.6 billion). However, total assets
dropped to GBP712 million (US$1.15
Vital contributor Axis-REIT Managers have yet to confirm the billion).
INDONESIA: CIMB Niaga is expecting plans.
subsidiary CIMB Syariah to contribute to
5% of its total assets, said Arwin Rasyid, Leong Kit May, chief financial officer of Axis- Another Sukuk soon
president director of CIMB Niaga. REIT declined to comment further when
contacted by Islamic Finance news. TURKEY: Kuveyt Türk Participation
Bank, a subsidiary of Kuwait Finance
Arwin is optimistic that this target can House, will issue a US$500 million
be achieved as CIMB Niaga has adopted
the world banking strategy where Islamic
New Shariah products benchmark Sukuk by year-end, following
the success of the country’s first Sukuk
banking is offered with conventional INDIA: National Spot Exchange, based in issuance, according to Mohammad Al-
products, and not separately. Mumbai, is planning to market Islamic Omar, its chairman.
investment products in two weeks.
Through this strategy, although CIMB Syariah
Huge demand from Muslim investors (See IFN Report on page 11)
only has 33 branches, its Islamic products
are available in all CIMB Niaga’s branches, including Waqf boards, mosques, high net
he added. worth individuals and Shariah compliant
products traders, is set to increase volume Takeover offer rejected
by 15% to 20%, said Anjani Sinha, CEO and
UK: Fire and rescue services provider
Further expansion managing director.
AssetCo has rejected a takeover offer by
MALAYSIA: OCBC Bank Malaysia is targeting Islamic investment firm Arcapita, in spite of
Additionally, SBI Mutual Fund and UTI Asset
between 10% and 15% bottom and top line support for the proposal by John Shannon,
Management are looking to launch similar
growth for the financial year ending the 31st AssetCo’s CEO and largest shareholder.
products in the coming months.
December 2011, to be driven by the Islamic
banking, business, and consumer segments. According to AssetCo, the independent
Major role for Islamic finance directors considered the approach to be
Jeffrey Chew, director and CEO said the bank opportunistic and against the interests of
expects high double digit growth in Islamic KAZAKHSTAN: Kazakhstan plans to shareholders as the indicated price range
banking this year, and is planning to increase attract up to US$10 billion in Islamic included a lower offer than the current
the traction of Islamic subsidiary OCBC Al- finance in the next five to seven years, market price.
Amin in the areas of personal financing, said Arken Arystanov, chairman of the
mortgages and wealth management. state-administered body that oversees the
continued... promote small and medium sized enterprises He said the absence of Sukuk laws in Kuwait
(SMEs) in the UAE. also limits the options of companies who
develop new asset classes, including Shariah have held back from selling their debt and
compliant access to private equity, and real Abdul Basit Al Janahi, CEO of Dubai assets due to low prices or a lack of buyers.
estate products that have the ability to invest SME said the agreement will provide
in multiple global markets in one fund. an incentive package for SMEs, give However, he added that Kuwait has
them access to the DIFC and develop the suitable environment and financial
He also said the industry should roll-out partnerships for growth. resources for Sukuk issuances and noted the
investment fund platforms, improve on government’s current efforts to introduce a
its Shariah screening methodologies, and law for Sukuk.
develop innovative Sukuk structures. Needs legislation
KUWAIT: Sukuk can play a major role in
solving local companies’ debt crisis but
Financing for SMEs
US$6 billion Sukuk issuances the lack of legislation has hindered the UAE: Emirates Islamic Bank is planning to
GLOBAL: Sukuk worth US$6 billion were issuance of the Islamic debt papers, said offer financing to small and medium sized
issued last month, where 77% were issued Abdulnaser Al Subaih, chairman of Liquidity enterprises (SMEs) in the next three months,
by sovereign bodies, according to Baitak Management House. continued...
Research, a subsidiary of Kuwait Finance
House.
VISIT OUR WEBSITE: www.fleminggulf.com
MIDDLE EAST
First net loss 7th Annual Middle East
BAHRAIN: Unicorn Investment Bank has Project Finance Forum 2011
recorded an annual net loss for the first time,
of US$229.5 million for 2010, as compared
to a profit of US$2.2 million in 2009.
16th - 17th May 2011, Doha, Qatar.
Total income reached US$2.3 million, down SPEAKER & PANELISTS: REASONS TO ATTEND:
from US$96.5 million in 2009 due to the Farouk Soussa, Citi Group Thomas C. Barrett, European Benefit from landmark case studies of leading
Chief Economist, UAE Investment Bank, Director - New
lack of financial transactions, as a result Dr. Said A. Al-Shaikh
Products & Special Transactions
regional projects on the challenges of funding
and structuring projects in a dynamic
of the kingdom’s challenging financial National Commercial Bank
Department Directorate for Lending
Operations in Europe Luxembourg
environment
Chief Economist, KSA
environment. Christophe Mariot, BNP Paribas
Rajesh Ramanathan, APICORP Vice
President – GCC Business Group Project
Understand the upcoming developments that
will shape the regional Project Finance industry
Regional Head ECEP, Bahrain & Trade Finance Department KSA Benchmark your financing strategies against
Richard Palmer, Mubadala Rajit Nanda projects par excellence from across the region
Investment and other provisions hit US$53.9 Development Company ACWA Power Projects, CFO, UAE Discuss your ideas and concerns with industry
million, while fair value write-downs reached Advisor Structured Finance
& Capital Markets
James Finucane, Emirates Steel
Project Manager, UAE
thought leaders and experts from around the
world
US$118.6 million, due to a drop in the Bill Appleby, Citi Jean-Marc Mangiavellano
Evaluate the potential for alternative sources
Head of Infrastructure and Energy Natixis Dubai, Regional Head Project
earnings multiples used for valuation within Finance, EMEA, UK Finance, UAE
of finance, Public Private Partnerships &
Islamic Finance
Dr. Manar M. Al-Moneef
the private equity industry. Frank Beckers, Deutsche Bank
Saudi Arabian General Investment And much more…
Managing Director, UAE
Authority, Director General Health
Ghazali Inam, Arab Bank Care & Life Sciences Sector, KSA
Global Head Corporate Finance Alexandra Boleslawski, Crédit KEY TOPICS:
Full acquisition Bahrain
Ray Maurer, QNB Capital
Agricole Corporate and
Investment Bank, Managing Growth of Project Finance in
Managing Director, Qatar Director, Global Head of Power
the State of Qatar – Pursuing the
UAE: The Investment Corporation of Dubai Enrico Grino, QNB, Assistant
Structured Finance, France
Laughlan Waterston Qatar National Vision 2030 through
General Manager, Head of Structured
(ICD) has fully acquired National Bonds & Project Finance, Qatar
SMBC Europe Limited, Head of
Infrastructure & PPP, UK
Sustainable Development
Corporation (NBC) following the purchase of Peter Goodall, Crédit Agricole Jean-Francois Croft, Export
Structuring & Funding Projects
– Perspectives from Borrowers and
Corporate and Investment Bank Development Canada, Chief
a 50% stake in the Islamic savings scheme Head of PF EMEA, France Representative, Middle-East,UAE Lenders
company. Shamshad Akhtar, The World
Bank, Regional Vice President
Stefano Terranova, International
Power Plc, Head of Project Finance
Public Private Partnerships (PPP) –
Middle East and North Africa, US Middle East and Africa Benefiting from the combined expertise
of the Government
The ICD has also appointed Khalifa Al WHO SHOULD ATTEND?: & Private sectors
Daboos NBC’s chairman and named Saif This event will be bring together the key decision makers stimulating the Funding Projects through Islamic
Sulaiman Mohamed Al Yarabi, Abdulla Saeed project finance market from the following verticals:
Project sponsors and developers, Ministries & Regulatory Bodies, International
Finance
– Ensuring Sharia compliance in business
Majed Belyoahah, Ali Rashid Humaid Al and local financiers, Commercial & Investment Banks, Islamic Banks, Lawyers
Social Infrastructure – Growing role
& Consultants, Asset & Fund Management Companies, Insurance Companies,
Mazroei and Ghulam Moinuddin Malim as Contractors & Project Management Company, Executives from Power of Project Finance in the Health &
generation & transmission, Oil & Gas, Transport, Desalination, Water supply
the company’s new board members. and Waste water management, ECA & Multilateral agencies, Rating Agencies.
Education sectors
Delegate numbers increase each year, as the industry develops and this event grows in
stature. 1,811 attended in 2010 and we’re expecting an equally impressive audience
in 2010
Each day will include Key Note presentations and round table discussions
Our unique format of almost entirely round table discussions ensure unbiased and
educational debate
www.ifnforums.com
MOVES
www.islamicfinancenews.com
SECURITIES AND EXCHANGE department in London, effective on the 1st ABU DHABI COMMERCIAL
May.
COMMISSION OF PAKISTAN BANK
PAKISTAN: The government has appointed Fugard is currently head of asset finance and UAE: Mufaddal Khumri, head of Islamic
Mufti Munib ur Rehman as a member of co-head of transport and logistics sector. He banking division at Abu Dhabi Commercial
the religious board for Islamic financial focuses on aviation, shipping and Islamic Bank is leaving on the 17th March to help
institutions at the Securities and Exchange finance. National Bank of Ras Al-Khaimah establish
Commission of Pakistan. an Islamic branch.
Gwynne specializes in structured financing
involving aircraft, cable and telecoms
equipment and rolling stock.
Short one-day events – senior individuals don’t have the time to attend
lengthier events
Practitioner led, with some Shariah scholars providing the perfect mix
Islamic banking pays off but still challenging Turkey’s participation market
Bahrain’s Ithmaar Bank, which recently reported its first full set of Turkey has stayed on the borderline of the mainstream Islamic capital
financials as an Islamic retail and commercial bank, has improved its market for some time. It entered the Sukuk market in August 2010
results but still faces challenging market conditions. with Kuveyt Turk Participation Bank’s issuance of a three-year Sukuk
worth US$100 million.
The bank completed its conversion into an Islamic bank from a
conventional investment bank in April last year by fully integrating its The Turkish Sukuk market is poised to develop, following the national
Islamic subsidiary, Shamil Bank. The change was done to lower its risk assembly’s recent approval of the Finance Bill 2011 which contains
profile following losses from the Middle East real estate crisis. Ithmaar tax neutrality measures for Sukuk Ijarah. The announcement was
also appointed Mohammed Bucheerei as its new CEO to guide the immediately followed by Kuwait Finance House’s plans to issue a
bank’s transformation. US$500 million Sukuk by the year end via its Turkish unit.
A year on, Ithmaar’s moves seem to be paying off. In 2010, it reduced Industry players have a positive outlook for the Sukuk market. Cenk
its net loss to US$150.1 million from US$247.4 million in the previous Karacaoglu, vice president of financial institutions at Bank Asya
year as net provisions for impairment decreased to US$197.4 million expects major Sukuk issuances probably before the end of 2011. In
from US$206.9 million in 2009. In a statement accompanying its response to Islamic Finance news, Karacaoglu said he believes Sukuk
results, Prince Amr Mohammed Al Faisal, chairman of Ithmaar said a structures based on Ijarah and Murabahah receivables would be
significant portion of the impairment provisions were for its investment popular in the Turkish capital markets.
portfolios. The bank also posted a turnaround in net income to US$51.4
million in 2010 compared to a net loss of US$44 million a year earlier. Sovereign Sukuk, however, would depend on whether the current
regime stays after elections in June this year. If they do, a sovereign
With significant exposure to real estate losses in 2009, the bank has
Sukuk issuance may come as early as the end of 2011 or the first
since set about repairing its balance sheet. Although it received a
quarter of next year, said Karacaoglu.
lukewarm response to its US$200 million rights issue in March last
year, it did raise US$103 million and now has US$654 million in total
The Shariah compliant banking sector in Turkey accounted for 4%
equity. In 2009, it had seen 23% of its capital wiped out from 2008’s
of total banking assets in 2010. The potential for growth is huge for
balance of US$924 million. Ithmaar also increased its total assets last
the four existing participation banks in Turkey. According to Fahrettin
year, to US$6.7 billion from US$6.1 billion in 2009.
Yahsi, chairman of the Participation Banks Association of Turkey, asset
Despite its improved financial position, Ithmaar remains confronted growth of the participation banks is expected to be approximately 55%
with difficult credit and business conditions. However, Ithmaar is not in 2010.
alone. Other conventional and Islamic banks in Bahrain also had a
tough time following the recent financial crisis. Among them were This huge potential of participation banks is a major market for Sukuk.
Bahrain Islamic Bank, whose net loss widened to US$105.3 million in As Karacaoglu highlighted, the market for Sukuk exists mainly among
2010 from US$51.5 million in 2009, while Al Salam Bank saw its net participation banks and other local investors.
profit halve to US$19.4 million over the same period. Al Salam also
booked US$4 million in impairment provisions in 2010 compared to However, even with the huge potential, industry players are still taking
none in 2009. a cautious approach as more clarification on laws governing Sukuk are
needed, especially on taxation measures in Turkey.
In its latest report on the outlook for Bahrain’s banking system,
Moody’s Investors Service (Moody’s) maintained its negative view of
the sector due to continued weakness in Bahraini and regional real
estate and its impact on the rest of the economy. Moody’s negative RAM has US$653 million of foreign issuer
outlook for this sector assumes further deterioration in some aspects ratings in the pipeline
of Bahraini banks’ franchises and risk profiles. The rating agency’s
primary focus will be on possible further increases in non-performing
loans with banks’ significant construction and real estate exposures RAM Rating Services (RAM) could rate more than RM2 billion (US$653
being an area of particular concern. million) worth of foreign bond issuances in Malaysia this year with
most of the programs likely to be Sukuk, said Chong Kwee Siong, its
In its 2011 outlook for the GCC and Middle East banks, Fitch Ratings deputy CEO.
(Fitch) also voiced its concern over Bahraini banks’ exposure to the
real estate and construction sectors. It believes however overall non- Chong declined to give details of the debt papers to be rated but said
performing loans have peaked and impairment charges are likely to historically each foreign issuance in Malaysia has an average size of at
remain stable or decline this year. Fitch reported that this would have least RM1 billion (US$327 million).
a positive impact on banks’ profitability.
However, he said the number of foreign issuances in Malaysia this year
In addition to the difficult business environment, Bahrain like some of and whether they would be foreign-currency or ringgit-denominated,
its regional neighbors is experiencing unrest from protestors demand- would depend on credit conditions.
ing political, social and economic reforms. Moody’s has placed Bah-
rain’s sovereign ratings under review for possible downgrade, while RAM recently rated Gulf Investment Corporation’s RM3.5 billion
Fitch and Standard & Poor’s Rating Services have both lowered its (US$1.2 billion) Sukuk, giving it a long-term rating of ‘AAA’. The
ratings on the country. issuance was the first by a GCC issuer in Malaysia.
continued...
Meanwhile, Chong said although it is not easy to project the value of However, the very future of Islamic finance in the US is highly dependent
local Sukuk issuances in Malaysia this year, the market is expected on the development of its regulatory environment. As Kavilash Chawla,
to make up at least 50% of corporate bond issuances, which RAM a US based senior Islamic finance expert and practitioner highlighted
forecasts to be worth between RM55 billion (US$18 billion) and RM60 to Islamic Finance news, “The regulatory environment in the US needs
billion (US$19.6 billion). to continue to progress and develop significantly in order to become
more conducive to Islamic finance.”
“In the past, Sukuk issuances have also exceeded conventional
issuances,” he added. Despite this, Chawla feels that given the fallout of the global financial
crisis, and regulatory changes in the US, the current momentum
Chong said the growth of Malaysia’s Sukuk market is driven by towards creating an enabling regulatory environment in the US for
government support via the Malaysia International Islamic Financial Islamic finance is “minimal, at best”. He also added that for the
Centre and increasing global demand for Sukuk. sustained future of Islamic finance, the industry itself needs to develop
a more robust value proposition and more dynamic products specific
Malaysia’s Sukuk market has seen an increasing demand from foreign to US investors.
issuers, especially from the Middle East. Last year, in Malaysia the
National Bank of Abu Dhabi issued a US$160 million Sukuk and Dubai
has also proposed a sale of up to US$1.5 billion Sukuk this year.
Dubai’s road to recovery
While Dubai may well be on the recovery path, with the UAE economy
Islamic finance in the US – A love-hate affair expected to post a growth of 3.6% in 2010, and claims from Dubai’s
ruler, Sheikh Mohammed Rashid Al Maktoum that the emirate has
Last week we saw two contrasting announcements from the US, recovered from the global economic crisis, caution still prevails.
summarizing the seesaw development and love-hate relationship
between Islamic finance and the US legal system. Sheikh Ahmed Saeed Al Maktoum, chairman of Dubai’s supreme fiscal
committee and Dubai World, conveyed positive news last week. He
Recently, Atlanta based Shariah compliant fund manager MWM announced that Dubai World will sign the final deal for its US$25 billion
Ventures launched a technology fund to invest in early stage technology debt restructuring deal with its creditors this week. Dubai sent the
companies. In opposing news, the South Dakota state legislature said world’s financial industry reeling when the conglomerate announced
it is in the process of adopting several new bills that seek to limit in November 2009 that it sought a delay in repaying its debt, mainly
the applicability of Shariah law by its courts in connection with valid linked to its property unit Nakheel.
financial transactions.
Nakheel, the real estate arm of Dubai World, has also been battling
The news from South Dakota has raised a few concerns and is a legal with its financial situation and last week announced the offer of
setback which comes at a time when experts had actually started refunds to investors for its stalled Palm Jebel Ali development
building hope for the development of Islamic finance, following the project. The offer gives buyers the option of swapping their funds for
Michigan ruling in January this year. available inventory or receiving a refund. The announcement follows
plans for a US$1.63 billion Sukuk issuance by Nakheel in the first
The Michigan District Court had dismissed a case filed in March 2009 quarter of 2011, as announced in January by its chairman, Ali Rashid
against the US government, alleging insurance group AIG’s Shariah Lootah.
compliant business promoted religious doctrine. Then last month,
Kevin Parker, state senator from Brooklyn, introduced a bill to create The Sukuk is part of Nakheel’s own plans to restructure its US$10.5
an alternative Sukuk market in New York to attract a new class of billion debt. Under Nakheel’s restructuring plan, trade creditors were
international investors. offered 40% what they owed in cash and the remaining 60% through a
Sukuk with a 10% return. So far Nakheel has garnered an agreement
According to a legal expert in Washington, there is a marked difference from 95% of its creditors, the remaining 5% of whom are expected to
between the US states on the matter of promoting Islamic financial agree by the end of March.
products. Former speaker of the House of Representatives, Newt
Gingrich has been busy calling for a federal law to ensure Shariah laws Meanwhile, Drydocks World (DDW), the ship repair unit of Dubai World
and Islamic finance, are not recognized by any US court. The states of in Singapore announced that it expects to finalize its restructuring of
Oklahoma, Arizona and South Carolina have pursued bills to the same US$2.2 billion debt by the 30th April. Confusion recently arose over
effect. legal suits against DDW for non-payment of bills. Dubai World recently
denied that it is being sued in Singapore, stating that it resolved
It is no wonder that the US market has stayed on the periphery of the payment issues with suppliers there in February.
global Islamic finance boom. With a Muslim population of 7 million
people growing at 6% annually, financial institutions in the country With these recent developments, Dubai World and its subsidiaries are
have been flirting with the idea of Islamic finance, but this has not finally emerging out of the financial turmoil. This rings positive for the
led to a major upswing in the industry. Although Muslims represent emirate with bankers upbeat about the situation. Peter Sands, global
a small population segment, the high growth rate forms a lucrative, group CEO of Standard Chartered Bank said economic prospects for
untapped segment in the US. Currently, there is a large gap between Dubai and the UAE have improved significantly.
supply and demand of Islamic financial products. Furthermore, the
exploitation of the growth potential in the country has been stunted
owing to these varying regulatory and legal challenges.
The UK has been extensively covered in its leading role in Islamic Germany is another European country where Islamic finance is
finance in Europe, and to observe a different approach to maturing fast given the prevailing European context. In 2004, the
implementing Islamic financial services locally, the emerging pattern first EUR100 million (US$138.28 million) European Sukuk was issued
of Islamic finance in select continental European countries, France by Saxony-Anhalt. Major German banks, such as Deutsche Bank,
and Germany is valuable. Dresdner Bank and West-LB, Commerzbank, offer Islamic financial
services through regional offices in the Middle East, Southeast Asia
Both illustrate similarities to the British development of Islamic finance and London.
locally, and offer an insight into the emergence of Islamic finance
in Europe in a unique local manner, quite different to the sector Since 2010, the German financial authority, Bundesanstalt für
emergence in Britain. The core focus will be France which seems to Finanzdienstleistungaufsicht (BaFin), is allowing Kuveyt Türk Bank
follow a rather perplexing development pattern closely echoing its (KTB), to set up office in Germany. KTB is opening in 2011 in
political and cultural specificities. Mannheim. The Meridio AG Bank set up the Global Islamic Meridio Multi
Asset Fund, domiciled in Luxembourg. Various European monetary
In this respect, it is interesting to note that in August 2010 France authorities have publicized welcoming Islamic finance locally.
followed similar steps to the UK eight years ago. The UK abolished
double stamp duty for Islamic mortgages in 2003. The state of Victoria, Since the highly publicized 2007 address by France’s minister of the
Australia did so seven years ago in 2004. France, through its recent economy, Christine Lagarde, suggesting that France address and
set of fiscal instructions on Ijarah, Istisnah and Murabahah indicates welcome the opportunities offered by Islamic finance — Kuwait Finance
that there are tangible steps to provide tax incentives, or at least no House, IBB and Qatar Islamic Bank have yet to hear back positively on
penalties, to transactions based on these Islamic contracts. their application to set up French regional offices since 2008.
Based on the dynamics of the Islamic finance sector in the UK, plausible Major French conventional banks like Société Générale, BNP Paribas
developmental stages for Europe indicate that the emergence of the and Crédit Agricole, offer Islamic financial products outside of France.
Lasting from 2008 to 2009 in Reunion Island, an Islamic fund was
sector in each country begins with the setting up of international non-
set up by Société Générale through its subsidiary Banque Française
European Islamic banks from Southeast Asia and the Middle East.
Commerciale Océan Indien.
Clearly this is not the chronological case in France or Germany.
In 2009, Crédit Agricole Asset Management (CAAM) set up CAAM
But in the UK, this was closely followed by the development of
Islamic in 2009, and its first Islamic fund domiciled in Luxembourg,
Islamic windows or subsidiaries by conventional banks of UK origin in
Amundi Islamic, was set up in August 2010 following the merger of
overseas markets, essentially in the Middle East and Southeast Asia,
Société Générale Asset Management and CAAM.
which sought to services to customers sensitive to Shariah compliant
finance.
France’s August 2010 fiscal instructions for the Islamic commercial
contracts Murabahah, Ijarah and Istisnah indicate a will for these to
In Europe, these conventional financial institutions, which include now be at par with other modes of financing regarding tax issues.
European conventional banks in addition to the pioneering British
banks, are currently Islamic finance players in the financial markets In mid-2010, the BRED, a subsidiary of Banque Populaire et des
in London, and in the Islamic funds market in Luxembourg. The final Caisses d’Epargne (BPCE) offered a first Islamic home financing
developmental stage of the emergence of Islamic finance as duly product underpinned by the Murabahah contract. One more fiscal
noted in the UK is the establishment of European fully fledged Islamic instruction was issued, facilitating the issuance of Sukuk.
financial institutions, of local Islamic banks, a step which seems to be
followed by Germany but not by France. Additionally, key events organized by France to promote it as a
key location for Islamic finance include a recent event at Dubai
According to the British Financial Services Authority (FSA), there are International Financial Centre, in Dubai in December 2010. The Paris
records of Shariah compliant transactions in the London financial Europlace event, ‘The Dubai-Paris Partnership: Facing a Multi-polar
market dating back to the 1980s. In the UK, Islamic retail banking World’ featured key French private sector actors and institutional
offers date back to the 1990s through Middle Eastern and Southeast players, and sought to present Islamic finance opportunities in France
Asian banks. Conventional financial institutions of British origin, to Middle Eastern investors. This indicates a clear will by France to
including Citigroup, Barclays Bank, Standard Chartered Bank, HSBC reap the benefits of Islamic finance.
and Lloyds TSB, have Islamic financial products offered since the end
of the 1980s. A recent development gives rise to numerous questions, namely as to
how France is looking at developing Islamic finance. The Ministère du
Most remarkably in 2004, the FSA authorized the first British fully Logement (French ministry for housing), has authorized since January
fledged retail Islamic bank, the Islamic Bank of Britain (IBB). This was 2011 that clients have access to interest-free loans, closely equivalent
closely followed by two fully fledged Islamic investment banks, the to a Qard contract, for home financing. This could possibly indicate
European Islamic Investment Bank of Britain in 2006, and the Bank of that Islamic products in France have little chance to emerge at the
London and the Middle East in 2007. continued...
retail banking level in the manner observed in the GCC and Malaysia sensitive local context.
(Musharakah Mutanaqisah, and such), and in particular for house
financing which was the area in which local Muslims were most vocal. Islamic finance is today a reality for European markets. However,
regional and sectarian inequalities subsist and are linked to the
Following this move, it is reasonable to note that if Islamic finance secular social and cultural European background, as well as a fear of
emerges in France in a more tangible manner, the most likely area Islam, and in particular of the term ‘Islam’.
is through French conventional banks through interest free loans.
They have Islamic finance expertise and experience developed Spain as well as Italy have both expressed interest for Islamic finance.
through regional offices offering Islamic financial services expertise in It seems reasonable to express the view that Islamic finance is
metropolitan France. welcome in Europe as far as it is contained in the financial market
in order to reap petrodollars and that it remains discreet in doing so.
French conventional banks are all too aware of local cultural and
political sensitivities and are in a position to successfully navigate In fact, major European conventional banks offer Islamic financial
within the context. services overseas, in London and through Islamic funds in Luxembourg.
This means that the private sector is not against the idea as long as
The most visible stumbling blocks to the development of Islamic ‘image risk’ remains minor.
finance in France are linked to a fear of Islam and to socio-cultural and
political laicism. The law prohibiting wearing the burqa in France since The exceptional experience of the UK seems to be followed by other
September 2010 is a clear example of this. European countries. That could indicate that despite challenges,
Islamic finance will develop in a way that leads to a parallel
It seems likely that in France, Islamic finance will be developed through development of both conventional and Islamic markets in Europe, and
conventional financial institutions, and in a covert manner due to in particular in the Anglo Saxon part of Europe, as has happened in
‘image risk’, a risk local to France only, in associating their name to parts of Southeast Asia and the GCC.
the word ‘Islamic’ on the French market. As doing so for these very
banks is clearly not an issue outside the French market. Anne-Sophie Gintzburger
Email: asgintzburger@gmail.com
This indicates, just as the interest-free loan by the French ministry for Anne-Sophie is a doctoral candidate at the ENS (Ecole Nationale
housing, that it is likely that France will look at following the footsteps Supérieure).
of Turkey in naming this mode of financing ‘participative finance’, or
the footsteps of Morocco which authorized Islamic products under the Bochra Kammarti
label of ‘ethical finance’. Email: bochra.kammarti@gmail.com
Bochra Kammarti is a doctoral candidate at the EHESS (Ecole des
France is probably not going to use the label ‘Islamic’ which would hautes études en sciences socials) and the ENS.
make local bankers, and potentially customers, cringe due to the
Luxembourg is now recognized as one of the leading European — have thus increased their presence in key countries by taking part in
centers for Islamic finance. The country ranks first in Europe as a major industry events and organizing regular trade missions.
domicile for Shariah compliant investment funds, with 40 in all, and
its stock exchange is a European leader in Sukuk listings, totaling 16. Last month, a mission led by the Crown Prince of Luxembourg and the
minister of finance visited Abu Dhabi, Riyadh and Beirut. This autumn,
How has Luxembourg gone about positioning itself in Islamic finance? a mission will travel to Kuala Lumpur.
What are the main activities that have emerged here?
The role of the central bank
Pioneers The Central Bank of Luxembourg (BCL) has also become very active in
Islamic finance first appeared in Luxembourg in 1978 with the arrival Islamic finance. In 2009, it was the first central bank in the European
of Islamic Banking System International Holding, the first Islamic Union to join the IFSB (Islamic Financial Services Board), and in
finance institution in a western country. October 2010, it was a founding member of the IILM (International
Islamic Liquidity Management Corporation).
Five years later, the first Shariah compliant insurance company in
Europe was established in Luxembourg, and in 2002 Luxembourg Set up with 10 other central banks and two multilateral organizations,
was the first European stock exchange to list a Sukuk. But while these the IILM’s aim is to enhance the liquidity management of Islamic
first Islamic finance activities date back three decades, the pace has finance institutions and foster cross border investment flows. BCL is
picked up sharply in the past few years, reflecting the commitment the only European central bank to have joined the initiative, and BCL’s
of both the authorities and stakeholders in the financial sector to governor Yves Mersch was appointed deputy chairperson for the first
developing these activities in Luxembourg. year.
The turning point This year, the IFSB is organizing its 8th Summit from the 10th May until
In 2008, the government set up a task force to identify obstacles 13th May 2011 in Luxembourg, hosted by BCL.
to the development of Islamic finance and suggest ways to promote
its growth. This led to the research into assets eligible for Shariah These are just some of the initiatives the authorities have taken to
compliant UCITS funds, the development of best practice guidelines strengthen Luxembourg’s position in the field of Islamic finance. The
for financial services in this area and a review of the tax treatment private sector is also active, and most financial industry stakeholders
of Shariah compliant vehicles, all conducted by a dedicated working (auditors, law firms and custodian banks) have now set up dedicated
group within Association of the Luxembourg Fund Industry (ALFI), the Islamic finance teams.
representative body of the fund industry.
Two activities that have emerged in this area are the listing of Sukuk
The working group reported back favorably, noting that Luxembourg and Shariah compliant investment funds.
was able to offer a range of vehicles addressing the specific needs
of both investors and promoters interested in Shariah compliant Sukuk and Shariah compliant funds
investment with a limited need for specific additional legislation. A In 2002, the Luxembourg Stock Exchange was the first in Europe to
number of initiatives followed: enter the Sukuk market. Sixteen have now been listed, with issuers
from Malaysia, Pakistan, Saudi Arabia, the UAE and other countries.
1.Tax circulars
Luxembourg tax law is based on an economic approach that can Shariah compliant investment funds is another growth area and a
accommodate Islamic investments well. In January 2010, the natural development given Luxembourg’s strengths in conventional
Luxembourg tax administration published Circular LG-A no 55 investment funds — over the past 20 years, the Grand Duchy has
on Islamic finance, addressing the Luxembourg tax treatment of become Europe’s most popular domicile for UCITS funds and the
Murabahah contracts and Sukuk transactions. In June 2010, a circular leading centre for global fund distribution.
followed on the tax treatment of Murabahah and Ijarah contracts.
UCITS (Undertakings for Collective Investment in Transferable
2. Education Securities) are funds introduced in 1985 through a European directive.
A workforce with specialized skills is needed to attract Islamic finance Originally a retail product, they are now widely sold to the public as
business, and over the past two years both the Institut de Formation well as corporate and institutional investors. While domiciled in one
Bancaire Luxembourg (IFBL) — the banking industry’s training arm European country, a Europe “distribution passport” makes it easy to
— and the Luxembourg School of Finance have launched training sell them to investors from all other EU countries.
programs in this area. Private sector institutions have also introduced
training initiatives. Over the years, UCITS has become a strong global brand and funds are
now well accepted in many non-European jurisdictions. Luxembourg
3. Communication domiciled investment structures are distributed in more than 65
Having an adequate regulatory framework for Islamic finance business countries around the globe, with a particular focus on Europe, Asia,
is one thing; but people must know about it. Representative bodies in Latin America and the Middle East.
the financial sector — among them ALFI and Luxembourg for Finance continued...
A number of Shariah compliant funds have adopted the UCITS selected and the investor base targeted, most Shariah compliant funds
structure, which is well suited to the principles underlying Islamic launched in Luxembourg are structured either as UCITS or as SIF.
finance: since UCITS funds are primarily for retail investors, the main
concern is safety, and funds have rigorous investment policies that The list of fund promoters that have launched Shariah compliant
accommodate the prohibition of gharar (uncertainty). vehicles in Luxembourg shows that big international names in
conventional investment funds were quick to climb aboard. In most
UCITS funds are especially well adapted to Shariah compliant fund pro- cases, they already had a traditional range domiciled in Luxembourg
moters looking to target retail or institutional investors around the world. and simply added on a Shariah compliant fund.
In parallel, Luxembourg has developed a strong track record in More recently, smaller players from the Middle East have also started
alternative investment products and bespoke investment structures to set up funds in Luxembourg. They usually already operate funds
such as hedge funds and funds of hedge funds, private equity vehicles in their home countries for domestic investors, but have difficulties
and real estate funds. These can be set up under a variety of legal selling these in other countries. For them, Luxembourg’s international
forms and are subject to rules set out in Part II of the 2002 Law on reach has definite appeal. This is a new trend, but is set to intensify
undertakings for collective investment and in the Law of the 13th in the coming months with a number of projects now in the pipeline.
February 2007 relating to specialized investment funds (SIF).
In conclusion, Islamic finance in Luxembourg is still in its early
The introduction of SIFs three years ago paved the way for a new days. But with a regulatory and tax framework in place and a strong
generation of alternative investment funds targeting an international, commitment from both the authorities and the private sector to
qualified investor base. More than 1,000 SIF funds have already been develop these activities, there will certainly be more developments in
launched since this option was created. the near future.
Such strong growth confirms that the SIF framework is well adapted Pierre Oberlé
to the needs of sophisticated investors seeking closer supervision Business development manager
combined with flexibility in terms of structure, investment policies and Association of the Luxembourg Fund Industry (ALFI)
techniques. This structure is often used for Shariah compliant real Email: Pierre.OBERLE@ALFI.LU
estate and private equity funds. Pierre Oberlé takes care of Islamic finance at ALFI and is the coordina-
tor of the ALFI Islamic finance working group. He contributes to the
While the choice of regime will depend upon the investment strategy development of Luxembourg as a place for Shariah compliant funds.
x 50 online issues
Revolution brings renewal In this issue
Sukuk are detailed; Korea is on the verge of Eurekahedge Funds Tables .....................28
a make or break decision on allowing Islamic REDmoney Indexes ..................................29
While not immune to the recent political S&P Shariah Indexes ...............................30
protests, both Yemen and Oman stand in good much touted megabank is considered.
Dow Jones Shariah Indexes .................... 31
are concerned. Although the development In Meet the Head, we feature Najmul Hassan, Dealogic League Tables...........................32
CEO of Gulf African Bank, one of the banks Thomson Reuters League Tables ...........35 Featuring
Yemen has been a governmental priority for poised to enter the Ugandan market this
Events Diary...............................................38
a while, the country now needs an Islamic year, and Senai Desaru Expressway’s Islamic
medium term notes is detailed in our Company Index .........................................39
says a report by Tadhamon International Termsheet. Subscription Form ....................................39
A growing number of banks are embracing the potential of initiatives in Europe (namely the UK, France, Luxembourg and
Shariah compliant insurance (Takaful) by establishing partnerships Germany), such as an increasing number of events on Islamic finance
with Islamic insurance companies. Indeed, Takaful has gained organized in European countries as well as several governments
momentum in the MENA region and Southeast Asia. Furthermore, launching working groups focused on Shariah compliant finance and
there is a potential for an accelerated expansion of Takaful products amending the legal framework to comply with Shariah principles;
and services in a number of secular or Muslim minority countries. there remains a certain hesitancy to further develop and promote this
alternative insurance industry.
The industry has witnessed a gradual development of the distribution
of Islamic insurance via the bank channel (bancatakaful). Sales The reasons explaining this hesitancy may range from conventional
of Takaful products through this channel have multiplied between regulatory regimes to a lack of local Shariah compliant investment
insurers and banks, enhanced by the commitment of many countries opportunities, a shortage of Shariah scholars, a dearth of staff with
to issue guidelines to allow for banks to transact bancassurance/ adequate knowledge and practical experience of Takaful and limited
bancatakaful business. number of suitable distribution outlets.
Legislation is also often adapted as regards to cross ownership Within the Eurozone, attention has focused on the opportunities for
of banks and insurance companies as well as holding company Islamic financial services and a country that has shown its willingness
structures. The share of this distribution channel as a proportion of to integrate Shariah compliant finance into its wide array of expertise.
the total has strongly increased to almost double in the last few years Luxembourg is indeed very well positioned to develop this industry
like in Indonesia (doubled between 2005 and 2008) until reaching within Europe and beyond.
in some countries like Malaysia more than half of the market share
or in Tunisia where “the regulator reported in 2009 that 40% of life The Grand Duchy is a vibrant market in retail investment funds, hedge
insurance sales were produced by this method” and in Morocco where funds, real estate companies, private equity and venture capital
“more than 60% of new life and capitalization business is sold by vehicles as well as structured products. Luxembourg investment
bancassurance”. vehicles are appealing for many institutional investors including
sovereign wealth funds.
This competitive distribution channel has had a considerable impact in
the life insurance market as it enables easier access for the consumer The specific legal framework of the country enabled the creation of
to such life cycle products. It also represents a win-win model for regulated investment vehicles such as venture capital investment
banks and insurance companies: banks have access to customized company (SICAR), Specialized Investment Fund (SIF) and family wealth
protection and savings products, sales training by experienced management company (SPF). These legal structures are tailor made
professionals and it allows them to widen their range of products and for institutional and high net worth investors.
services for the relevant consumer segments, hence contributing to an
increase in their fee based income. Due to the European passport, Luxembourg has been able to position
itself as the world hub for global distribution of retail funds with 75%
On the other hand, insurance providers benefit from the reputation of all cross border funds being domiciled in Luxembourg. Practically,
of well established banks thus gaining a wider visibility. Mirroring this Luxembourg domiciled investment funds compliant with the UCITS
increasing trend in the Takaful insurance segment is the successful directive can be easily marketed across EU and are widely accepted
partnerships and joint ventures established between global insurance around the world.
brands and major banks such as HSBC and Allianz Takaful, Standard
Chartered Bank and Prudential, Maybank and Etiqa, CIMB and Aviva. Furthermore, Luxembourg is already familiar with Islamic finance.
Currently 38 Shariah compliant funds are domiciled in the country and
The Islamic insurance industry is estimated to be growing at an annual a new tax circular is now covering the tax treatment of the Murabahah
rate of 20% compared with a growth rate of below 10% for conventional contracts and Sukuk transaction. Indeed, the Luxembourg Stock
insurance. Nevertheless, the Ernst & Young Takaful report of 2010 Exchange was the first European stock exchange to enter the Islamic
revealed that global contributions grew by 29% in 2008, reaching bonds market. The country started listing Sukuk in 2002 and now has
US$5.3 billion. some 16 Islamic bonds with a global value estimated at EUR5.5 billion
(US$7.6 billion).
The same report projected the growth of Takaful by end 2010 to
US$8.9 billion and current unofficial figures note that the 2010 Additionally, the Banque Centrale du Luxembourg is the first non-
contributions exceeded the forecast. The alternative insurance model Islamic entity to become a member of the Malaysian based Islamic
seems thus benefiting of an increasing interest from mass affluent Financial Services Board and the government takes part in ALFI’s
and retail consumer segments globally. Working Group for Islamic Finance.
In secular countries, however, the adoption of Takaful has been a much Besides the offering of Sukuk, the Grand Duchy’s financial place is a
slower burn. Even if we have recently seen a number of encouraging continued...
leading cross border provider of insurance; offering the necessary channel and cross border access to Shariah compliant investments;
infrastructure and service platform to welcome Takaful operators this industry is poised for growth.
or to enable conventional insurers to sell Takaful to their customers
via Islamic windows or subsidiaries. Luxembourg’s insurance market Sohail Jaffer
counts 97 insurance companies and represented EUR12 billion Partner, head of international business development
(US$16.7 billion) premiums in 2008. Eighty nine percent of the life FWU International
sector’s activities were generated by cross border sales. E-mail: s.jaffer@fwugroup.com
Sohail Jaffer is a partner and head of international business
The country attracts indeed many international insurance brands development for “white label” bancassurance and investment
and most of them offer Takaful products in targeted markets such as services within the FWU Group. Jaffer has successfully originated,
Malaysia and the GCC. A major favorable factor for Takaful to flourish negotiated and won several major bank distribution deals in the
in Luxembourg is the unit-linked life insurance. GCC region, Pakistan and Malaysia. He has written extensively on
alternative investments and has edited several publications on hedge
Shariah compliant insurance products are similar to unit-linked funds, multi-manager strategies as well as six books in the Islamic
products: Takaful allows customers to combine protection cover finance range including retail banking, asset management, Takaful,
with return on Shariah compliant investments, notably in unit-linked wealth management, investment banking and Sukuk.
policies tied to dedicated funds, an instrument that is increasingly
used in wealth management. The specificity of those investments is
the ethical aspect.
Takaful companies cannot invest in funds from the alcohol industry as Opportunity…or Threat?
well as tobacco, weapons and gambling. This ethical and alternative
system is close to the socially responsible investment, thus it appeals
to both Muslim as well as non-Muslim customers. Shariah compliant
funds thus seem to have emerged as a viable alternative to the
conventional range of investments.
In Islam, money is not a commodity and cannot be traded for profits. power and rights to the agent to act on behalf of the principal as long
It is just a medium of exchange and it stores value. Money therefore as the principal is alive.
must be invested in projects and ventures for the generation of
activities for the benefit of mankind and in the process, for profit. Fundamental requirements for an Islamic PE/VC fund
There are two fundamental requirements for the establishment of an
This is precisely why Islamic finance praises and encourages the appli- Islamic PE/VC fund, namely:
cation of finance in the financing of real economic activities. The returns
should be earned by active involvement and participation in the busi- 1. The appointment of a Shariah advisor to provide continuous
ness risks of investment and not the returns on lending or financing. guidance in ensuring that the investment contract and the
instrument structure are in compliance with the Shariah at
Islamic banks would apply the same criteria in evaluating projects to all times; and
invest in, namely the entrepreneur’s ability and the profit potential of
the project. This is the reason why Murabahah (cost plus financing) as 2. The core activities of the investee companies must be Shariah
an Islamic transaction is considered less risky compared to Mudarabah compliant. Effectively, this means that the underlying assets
(profit sharing) and Musharakah (partnership). A true form of Islamic and investments of the fund must be permissible.
financing or investment structure should have that element of sharing
of profit and loss. Non permitted Shariah activities include:
(i) financial services based on interest (riba);
(ii) gaming/gambling (maysir);
“A true form of Islamic financing (iii) conventional insurance;
Specific considerations in Islamic VC/PE fund companies VC fund company shall be based on returns from investment
1. Structure of the fund, with no guaranteed profit return and there should
The documentation, financing and investment structure must also be a provision for reinvestment of profits into the Islamic
be Shariah compliant in that: PE/VC fund company.
(a) funds belonging to the Islamic PE/VC fund company must
be invested in a structure which is Shariah compliant. Challenges faced by Islamic PE and VC
Activities of the Islamic PE/VC fund company are based on As the market and market players are more familiar with the banking
tangible assets and are not speculative in nature (gharar). industry, plus the fact that typical Islamic financing transactions lead
(b) the constitution of the Islamic PE/VC fund company to the creation of indebtedness (for instance sale and purchase, sale
stipulates a prohibition on non-Shariah compliant activities. and lease back) compared to Islamic PE/VC the basis is profit and loss
(c) the activities of the directors and officers of the Islamic PE/ sharing and the sharing of risks, emphasis has been given towards the
VC fund company must be acceptable in nature and that their banking industry.
activities are conducted in a Shariah compliant manner.
Until the market and market players are familiar with and are willing
to venture into risk sharing, Islamic PE/VC will only be applicable to
“The creation of appropriate certain target groups like start up companies.
business structure or investment The establishment of legal and regulatory framework, or the appropriate
structure to make the Islamic guidelines to regulate the Islamic PE/VC industry are equally important
to enable the industry to gain momentum in a particular jurisdiction
PE/VC products better and lend certainty on issues arising out of Musharakah, Mudarabah
or Wakalah contracts.
understood and accepted The governments also need to play their role in supporting and backing
by market players is another the Islamic PE/VC industry in terms of incentives, tax exemptions, and
such, to enable the industry to make way into the mainstream economy.
important criterion to enable the
rapid growth of the industry” The creation of appropriate business structure or investment structure
to make the Islamic PE/VC products better understood and accepted
by market players is another important criterion to enable the rapid
2. Underlying Assets growth of the industry.
The underlying assets and investments of the fund must be
Shariah compliant. The Islamic PE/VC fund company funds Shortage of well trained and high caliber individuals, advisors and
must not invest in non-Shariah compliant counters or securities. management teams with expertise in investment strategies, legal
The assets must also be of good quality and the risk and reward documentation and who at the same time understand and appreciate
associated with such investment have been fully appraised. the Shariah requirements are also real challenges to the Islamic PE/
VC industry.
3. Islamic VC/PE fund documentation
Legal documentation for the setting up of an Islamic PE/VC Another challenge worth noting is for market players in the Islamic
fund company and fund management company shall take into PE/VC industry to innovate and develop new investment structures
account the earlier points, inter alia, the appointment and given the changing investment climate and circumstances without
powers of the Shariah advisor, the provision stipulating that compromising the requirement of the Shariah.
the fund be invested in line with criteria as specified by the
Shariah advisor, the provision specifying that the fund can only Ahmad Lutfi Abdull Mutalip
enter into transactions which are in compliance with Shariah Partner, global financial services and Islamic banking
principles and the provision for continuous audit to determine Azmi & Associates
whether the assets are Shariah compliant. Email: alam@azmilaw.com
Ahmad Lutfi Abdull Mutalip’s expertise ranges from Islamic banking
4. Profits of fund and Islamic private debt securities, Islamic product development,
There must be an express provision and understanding mergers and acquisitions to Islamic venture capital and private equity.
between the parties involved that any profit of the Islamic PE/
A comprehensive definition of Islamic banking and finance described to BI, total Islamic banking assets grew by 35 times; from IDR1.79
by the State Bank of Pakistan goes as follows: “Islamic banking has trillion (US$204 million) in 2000 to IDR66.089 trillion (US$7.5 billion)
been defined as banking in consonance with the ethos and value at the end of 2009.
system of Islam and governed, in addition to the conventional good
governance and risk management rules, by the principles laid down BI also reported that, in the past eight years, the industry’s average
by Islamic Shariah.” annual growth has been recorded at a rate of 53.32%. Between
periods of 2008-2009, the industry’s assets grew by an average rate
Islamic finance in more general terms is expected not to only avoid of 33.4% per year. This is well above a growth rate of 15% — 20%
interest based transactions, but to also avoid unethical practices, per year achieved by the Southeast Asian region’s Shariah banking
and to participate actively in achieving the goals and objectives of an industry within the same period.
Islamic society.
Furthermore, in 2008 to 2009 there was a positive indication in the
The emergence in Indonesia growth of the Shariah banking industry’s financing provision; average
With the regulation Act No 7/1992 elaborated in government decree annual growth of 22.8% was recorded. In its funds mobilization from
No 72/1992 concerning bank applying share base principle, the public side, 37.7% average annual growth was achieved.
Indonesian government has implicitly permitted Shariah banking
operation. The Act No 10/1998 was then issued as an amendment. Over the past five years, financing to deposit ratio (FDR) of the industry
reached 90%, implying that the industry has been actively supporting
Bank Muamalat was established in 1999 as the country’s first Islamic the real sector’s growth. From the profitability side, Shariah banking
bank. The industry grew by 85% in 2004 which triggered many recorded a high growth rate between the periods of 2008-2009 with
conventional banks to open a Shariah window. its return on equity of 25.22% per year.
Although the industry’s outlook is promising in general, the accomplish- Investors previously predicted a potential explosive growth in Indonesia
ments of the Indonesian Shariah banking industry still trails behind its based on the fact of a vast untapped banking potential and a large
neighbor Malaysia. In 2005, Malaysia recorded US$272 million in profit, Muslims population. It was then expected that Southeast Asia’s
and by the end of 2006, Malaysia seized a 12% market share of its total largest economy would soon be the next huge growth market for the
national banking assets. By the end of 2006, Indonesia only seized a US$1 trillion industry.
1.4% market share of its total national banking assets. Furthermore,
the industry showed rather slow growth by the end of 2009, seizing only Apparently, investors would have to be satisfied to settle with a slower
2.8% market share of its total national banking assets. rate of gains. This slow growth is assumed to be the result of the
implementation of several unwelcoming laws and regulations by the
From the retail side, in 2009, the total number of nationwide Shariah government, also a lack of clear industry standards, for example, no
banking accounts in Indonesia totals only 4.5 million. To compare, proper guidelines on Islamic securities for instance.
the total number of nationwide conventional banking accounts is
estimated to be 100 million. This shows Shariah banking accounts The combined elements of a general upbeat economic outlook,
hold a humble market share of less than 5%. high domestic interest rate, and the country’s firming currency
have also appealed many foreign investors to the country’s assets.
Unfortunately, Indonesia is facing disappointments in the case of
Shariah banking development
Sukuk. Several Sukuk sales and government issuances have shown
The Shariah banking industry in Indonesia has recorded an
encouraging growth rate since its first introduction in 1993. According continued...
discouraging results. Mohamad Safri Shahul Hamid, the deputy chief BI’s grand strategy to boost the industry’s growth will be focusing
executive at Malaysia’s MIDF Amanah Investment Bank, believes that on three major actions; increasing the efficiency of Islamic banking,
the regulators need to be more aggressive and active in opening up integrating Islamic banking into the Islamic financial industry, and
the market, initiating discussions and encouraging the introduction of conforming to global Islamic banking products.
various new products, especially retail and Sukuk.
BI believes that a recent revival of the Islamic religion in the country,
Tax issues were also considered as one major hurdle of the industry’s supported with by its grand strategy, will popularize various Shariah
growth. The double taxation system applied in several Shariah banking products; eventually resulting in concrete growth in the future.
transactions subjected the customers to pay additional tax. Although Based on the rising popularity of Shariah banking within the country,
the government has recently revised its tax regulation, the new BI predicts an increase in demand for Shariah financing, which will
regulation is viewed as ‘not retroactive’; and banks are still involved in offer a CAGR growth of more than 51% from 2008 to 2010.
a dispute with the directorate general of taxation.
Despite various challenges faced, the industry’s growth potential in
Public awareness is one of serious issues holding back its growth. The the country has apparently attracted foreign banks. HSBC launched its
need to educate Indonesian Muslims on Shariah finance is considered Shariah window called HSBC Amanah, which is now operating in the
crucial. The other challenge to overcome is the characteristic of country. Only recently, Malaysia entered the market in 2010 with CIMB
the Indonesian Muslim, which is less inclined to adhere to Islamic Niaga Syariah. It is also predicted that in the near future there will be
principles in many aspects including finance. Many analysts in more foreign banks from Malaysia and Bahrain entering the market by
Indonesia agree that although 80% to 85% of Indonesia’s population establishing its Shariah branches in Indonesia. This fact implies there
is Muslim, a significant portion of them practice a more moderate form is a massive potential market for growth within the country.
of Islam compared to Malaysia.
Drs Rizqullah, MBA
The World Bank argues that the industry’s growth is impeded by President director
the lack of regulation instruments to supervise and regulate the Bank BNI Syariah
industry, which is also lacking in appropriate framework, and low Email: rizqullah57@yahoo.com
public awareness and limited market coverage. From the operational Rizqullah has been involved in Islamic banking and economic
side, the industry’s growth seems to be held back by inefficiencies of activities since 2002. He was involved in several Islamic economic
institutional structures to support efficient operations, incapability to and banking organizations and is lecturing on Islamic economic and
comply with international financial standards, and harsh competition finance at several postgraduate programs with Trisakti University and
from conventional banks. Universitas Islam Negeri Jakarta.
BI support
The government through BI as the regulator is expected to facilitate the
structures on various issues related to the Shariah banking industry, liquidity
before the industry could be expected to leap for growth in the future. Could it Happen Again?
Only with the right support from regulators level, a more impressive
growth can be achieved. And if it did, would
To strengthen the Shariah banking network, BI issued in 2009 the
you be prepared?
regulation on the conversion of conventional banks to Shariah banks;
Regulation No 11/15/PBI/2009. The regulation came into force Don’t risk it…
on the 29th April 2009, with the aim to stimulate the conversion of
conventional banks to Shariah banks.
The regulators’ role in supporting the industry’s growth is vital. Liquidity Management for Islamic Banking
Mulya Siregar, then deputy director of BI, in his speech at a seminar 6th – 8th June
on Islamic Banking in 2009 claims that, without the full support
of government regulations, the growth would only be around 43%,
while with the support, it could grow by a maximum of 81% for asset Stress Testing & Reverse Stress
ownership. Testing for Islamic Banks
9th – 10th June
Prospects for growth KUALA LUMPUR
The Shariah banking market is predicted to grow at a compound
annual growth rate (CAGR) of around 52% from 2008 to 2010.
The reasons behind this are the large Muslim population, current
conditions of a relatively low penetration of Shariah banking, and the
improvements in regulatory framework. As an effort to support the www.islamicfinancetraining.com
industry’s development, BI issued a blueprint aimed at strengthening info@islamicfinancetraining.com
the industry by 2015.
The idea of a Muslim state on the territory of British India took shape • while Islamic bankers (or their shareholders) had no intention
in the 1930s and became reality in 1947. The search and quarrel for a to change the fundamentals of the financial system; they
distinct “Islamic” economic order started in the 1940s and continued made only efforts to change the underlying contracts to create
even after the adoption of the constitution of the “Islamic Republic of Shariah compliant functional equivalents for existing products
Pakistan” in 1956, since the institutions of the new state were rather of the established business community.
secular. Proponents of an Islamic order presented a concept that was
considered to be a “third way” between materialistic capitalism and Islamic economists did not challenge the legal permissibility of the
anti-religious communism. widely applied non-PLS modes of financing, but they pointed out that a
change of the legal form does not change the economic substance of
The concept of an Islamic economic order (in some variations by the system — it does not bring forth a more just financial system, and
different authors) was comprehensive and covered areas such as it does not broaden the entrepreneurial base to open new avenues for
consumer behaviour, public finance, money and banking, social socio-economic development.
solidarity and Zakat and such.
In spite of this critical attitude of Islamic economists, CEOs of Islamic
Islamic economists wanted to give guidance for a systems reform, and banks as well as politicians and central bankers persistently refer to
the literature was more prescriptive than analytic. Models often had a two of their propositions, namely —
utopian character, because they assumed the general adherence to • that Islamic banking links finance to the productive real
high moral standards and altruistic and social welfare oriented values. economy and
In a world populated by ‘ideal Muslims’, honesty and trust prevail while
principal agent or moral hazard problems do not exist. • Islamic finance is based on the principle of risk sharing.
In such a world, a financial system based on profit and loss sharing One does not have to dig deep to find out that both propositions are
(PLS) could function smoothly and ensure a fair distribution of risks claims rather than factual descriptions of Islamic finance today.
and rewards as well as overall financial stability. For those who were • To start with, in a fractional reserve system credit creation and
searching for an alternative economic system – to be neither capitalist leverage are always possible — and that implies the existence
nor socialist but Islamic — the so-called “two-tier Mudarabah” model of financial claims without an asset backing, such as a direct
was the core of a genuine Islamic financial order. link to the real economy.
The basic model was later refined and formalized, but one crucial • Next, by far the largest portion of Islamic banks’ financing
question was hardly ever addressed, namely how to get from the status is based on contracts with fixed costs/returns (Murabahah,
quo to the ideal new world. Obviously most Muslims did not behave Ijarah) and factually very limited if any risk for the bank, while
as assumed and secular ideas had taken root in Muslim societies. financing based on partnership contracts (Musharakah,
Islamic economics did not provide a theory of system transformation. Mudarabah) is the very rare exception.
Most Islamic economists left this problem to the state, and they • Then, investment in bubble prone markets with speculative
insisted that an Islamic economic order should be implemented in its price movements (such as real estate in the past or
totality and not only for specific sectors such as finance. commodities at present) does link finance to real assets — but
not to productive activities in the real economy.
Against this background it is understandable that, on the one hand,
Islamic economists had familiarized themselves with the activities of • Further, the combination of trade related contracts with
Islamic banks — established in the Arab world since the late 1970s — unilateral promises (Waad) led to recent ‘innovations’ —
only lately and with a lot of scepticism. approved as Shariah compliant by leading scholars that
replicate complex conventional products used by conventional
On the other hand, the practitioners of Islamic banking did not care financial institutions for speculative deals within the financial
much about the models of Islamic economists and made (for many sector (such as short selling of stocks or swaps of currencies
good reasons) extensive use of non-PLS modes of financing. The or returns).
conceptual reference group for Islamic bankers were not Islamic
economists but experts in Islamic law (Shariah scholars) who had to • Finally, in the ‘deposit business’ Mudarabah based investment
ensure the Shariah compliance of products and procedures. Only few accounts are conceptually exposed to a risk, but Islamic banks
Shariah scholars had strong links to Islamic economists (or even were have created a ‘deposit illusion’ because they treat them like
economists themselves). deposits: If actual investment returns fall short of expectations,
banks use investment risk and profit equalization reserves,
In a slightly oversimplification one may say — reduce their profit share, or transfer shareholders’ funds to
• that Islamic economists had argued in favour of a fundamentally ensure that the advertised ‘anticipated’ rates of return can be
different financial system (with different techniques and paid out.
products and in support of entrepreneurial activities outside
established circles), continued...
The Islamic finance industry seemingly moves more towards • Banks would be reduced to so-called “narrow banks”: They
conventional finance than towards the ideal of Islamic economists. accept and guarantee deposits only for transactional purposes
By this, the Islamic sector replicates many of those products and and keep funds received from the public in cash or highly liquid
techniques that are suspected to have caused or at least amplified central bank papers (= 100% reserve). There is a long tradition
the recent financial crisis. In addition to the commercial risks of of “100% money” reform proposals in conventional economics
conventional finance, the specific underlying contracts of Islamic (from Irving Fisher in the 1930s to “narrow banking” or “limited
finance add a further individual and systemic risk dimension. purpose banking” concepts today), and Islamic economists
had also taken up these ideas in the past (but more under the
Before the recent crisis, the readiness to think about fundamental perspective of monetary policy than banking system reform).
financial sector reforms was absent. But now, in academia and media
as well as in politics and the business community, the search for • Given the rather low returns for investment accounts, savers
and debate on systemic alternatives has reached an unprecedented would not suffer a financial loss but gain transparency and
intensity. The economic core of the PLS models of Islamic economics — the freedom to choose. This would greatly enhance the
financing only the productive real economy and sharing risks between effectiveness of market discipline in the financial industry.
financiers and entrepreneurs can serve as a guide for a systemic
reform, at least for the Islamic finance industry. • Regulators may like such a system because it eliminates
• Suppose investment account holders realize and accept that stability threats from liquidity squeezes and bank runs (due
they are no depositors but investors, that is, the nominal value to over leveraging, maturity mismatches and write-offs on
of their funds is not guaranteed. assets). Such problems will simply vanish because transaction
deposits are backed by 100% reserves and investment
• Once the deposit illusion is gone, investment account holders certificates do not carry a guaranteed nominal value.
will become risk sensitive and concerned about the use of
their funds. • Shareholders of financial institutions who earned – at least in
‘good times’ – profits much above the productivity growth of
• For the modest returns they have received in the past — roughly the real economy, may not like the new system at first sight.
equivalent to interest on conventional savings accounts or But once they realize that the high profits were mainly due to
term deposits, they will hardly be ready to accept high risks. highly leveraged and risky financial transactions and originate
Leverage boosted returns on equity only, not investment from a zero-sum game over time (unless the state bails out
account returns. failing banks and transforms the game into a positive sum for
the financial actors and negative-sum for the public), Muslim
• Most probably investment account holders want to learn about shareholders may wonder how all this could be Shariah
the risk profile of their investment and to make informed compliant in substance.
choices, what universal banking cannot provide.
• Even if disappointed shareholders would withdraw capital
But financial holding companies which have wide ranges of separate from the financial sector, this would not be a serious reform
mutual funds with different investment strategies and risk profiles obstacle because narrow banks and mutual funds can be run
(from very secure investments in sovereign Sukuk with low returns with minimal capital. They do not need equity as a risk buffer
over diversified portfolios of corporate and project financings to in order to meet depositors’ claims.
venture capital funds with high risks and chances for high returns)
could meet the demand of the risk aware savers. Islamic economics persistently reminded the Islamic finance industry
• Instead of ‘depositing’ money with a bank, savers will then of core principles which were well received and often quoted in public
purchase certificates of investment funds that are traded on but not implemented in practice.
an exchange.
A reform of the Islamic financial sector in line with core principles
• The trading ensures the liquidity of the certificates, but it of Islamic economics seems feasible and beneficial, and the socio-
does not guarantee a nominal value (which depends on the economic impact could be tremendous. This makes it worthwhile to
performance of the underlying portfolio). start an intensive debate on narrow banking in Islamic finance.
• In contrast to opaque banking practices, the saver will know Professor Dr Volker Nienhaus
in advance where his money is invested (in bubble prone Visiting professor
markets, speculative commodity transactions, the short selling ICMA Centre, Henley Business School, University of Reading
of stocks, sovereign Sukuk, manufacturing enterprises, and Email: vwn@gmx.net
such), and he has knowingly accepted the associated risk. Professor Dr Volker Nienhaus is also a visiting scholar at the University
of Malaya under the Securities Commission Islamic Capital Market
For conventional finance, a replacement of bank deposits by mutual program and member of the Governing Council of the International
funds looks revolutionary, but for Islamic banking it would be not much Centre for Education in Islamic Finance in Kuala Lumpur. He has
more than the consistent application of the concept of Mudarabah published numerous articles, essays and books on Islamic economics
based investment accounts and the adherence to Islamic finance and finance since the 1980s.
principles.
At a time where the European economies are still in distress, with the Eurozone’s GDP projected
at less than 1% for 2011, how can Islamic finance be an alternative source for revival?
The outlook for the European economies has improved in recent months and the European Commission is now
predicting growth in the Eurozone of 1.6% for 2011. Germany is the best performer with solid export growth driving
the economy forward by 2.4%, while the projection for France is 1.7%. The major weakness is in the smaller peripheral
Eurozone members, notably Greece, Ireland and Portugal.
Although the overall growth figure of 1.6% looks modest in comparison to China and India, as it is from a much higher base and seems
sustainable. The major threat to growth is higher oil prices as a result of the popular uprisings in the Middle East.
As Islamic finance plays a very limited role in Europe, and most of the activity is in the UK which is not a Eurozone member, it is unlikely to
provide much of an alternative to conventional finance. European banks continue to be risk averse which has a small negative effect on growth,
but investors from the Middle East may also now be more risk averse about investment in Europe, especially with the freezing of assets of the
Gadaffi, Mubarak and Ben Ali families.
More significantly, the assets of the Libyan sovereign wealth fund have also been blocked. Of course these asset holdings were not specifically
Shariah compliant, but given the uncertainties in the Middle East, and particularly in Bahrain, which is an important centre for Islamic finance,
investments in Europe are more likely to be liquidated than increased.
There are two ways for Islamic finance to help revive the economy of Europe. Firstly, governments should look to do more sovereign
Sukuk. This could be especially easy in Germany as they have experience with Saxony-Anholdt. Second is to pass laws that would
allow for the opening of Islamic banks that cater to the European Muslim population. This Muslim population in Europe is said to
be around 7%, and are mostly likely “unbanked”.
MONEM A SALAM: Director of Islamic investing and deputy portfolio manager, Saturna Capital
Poor economic growth discourages financial intermediation, whether conventional or Islamic in nature. So
to suggest that Islamic finance can help “cure” economic malaise could be misleading. In practice, regional
governments need to support business and consumer confidence so that the economic momentum begins
to churn at an incrementally higher rate. This may be difficult because of the size of the European market,
along with the global backdrop.
Where Islamic banks can play a meaningful role is to use the current downturn as a forum in which to raise awareness and education about their
competencies. This effort need not be a zero-sum game with the conventional institutions. Rather, Islamic banks can use the vacuum created
by this environment to build a franchise for their products and services, many of which are misunderstood by the marketplace. Especially at the
wholesale level, firms may be looking for financing options in ways that they have not explored in the past.
We argue that one of the constraints on Islamic finance in general is the absence of a large hinterland. We see an opportunity in Europe
for Shariah compliant institutions to be more forthright in their strategic planning, taking advantage of the current lull to develop new client
segments.
Pakistan as the world’s second largest Muslim population has lagged in development of an Islamic banking hub.
What may have been the reasons and what should the country do?
If you would like to air your views on the next Islamic Finance Forum Question, please email your response of between 50 and 300
words to Christina Morgan, Forum Editor, at: Christina.Morgan@REDmoneygroup.com before Monday, 28th March 2011.
Name: Mulya Effendi Siregar Further, we have created the blueprint for the development of Islamic
banking industry (2002-2015). Such programs have shown positive
Position: Director, Directorate of results.
Islamic Banking
What are the strengths of your business?
Company: Bank Indonesia (Central The high growth of the country’s Islamic banking industry is based
bank of Indonesia) on the robust performance of Shariah banks, contributing to
the development of the economy through financing SMEs which
Based: Jakarta dominates 95% of Islamic bank’s financing. Islamic banks mostly
finance the business, trading and construction sectors. The growth of
Islamic banks’ branches, the office channeling program which allows
Age: 54 customers to deposit money in any conventional bank and, various
Islamic products have illustrated the strength of this industry.
Nationality: Indonesian
Could you provide a brief journey of how you arrived What are the factors contributing to the success of
where you are today? your company?
The central bank particularly the directorate of Shariah banking works
I began my career with the Shariah banking research and regulation
with the National Sharia Board, Indonesian Accountant Association,
team of Bank Indonesia in April 1999 as a vice manager. The team
government, parliament, market players, academic and all related
was established with the Banking Act No 10/1998 which states that it
parties to develop the Islamic banking industry. The stability of the
is possible for a bank to operate based on Shariah principles. From a
Indonesian economy also allows the industry to grow.
small team of 10 people, it then became the Shariah banking bureau
in 2001. In 2002, I became the bureau’s head of Shariah research
development and regulation team. Later in 2003, the bureau became What are the obstacles faced in running your
the Sharia Banking Directorate. In 2006, the board of governors business today?
appointed me as the directorate’s head of Shariah banking research, The market share of the Islamic banking industry (3.3%) is still very
development and regulation bureau. I have been the director of the small compared to conventional. The industry also faces obstacles
directorate since June 2010. such as — limited human resources, limitation in the Islamic financial
market instruments, lack of Islamic banks and government funds.
What does your role involve? However, such obstacles are being mitigated through the active
The directorate of Islamic banking is the banking regulator for the involvement of the banking regulator, market players, academic and
industry. This directorate also supports the monetary management Islamic scholars.
directorate in preparing regulations for the Islamic money market. I am
involved in developing the blueprint for the Islamic banking industry Where do you see the Islamic finance industry in, say,
2002 – 2015. With the government’s cooperation and other related the next five years or so?
parties, we help build the Islamic capital market, Islamic multifinance
In the next five years, the industry would have exceeded 5% market
and non-banking Islamic financial institutions.
share. We have planned to achieve a double digit market share in 2015
to 2020. With the current performance of the Islamic banking industry,
What is your greatest achievement to date? such a market share would correlate with bigger contribution of the
From two Shariah banks and one Islamic window, we now have 11 industry to the economy. Moreover, the growing Islamic capital market
Islamic banks, 23 Islamic banking windows and 150 Islamic rural especially the Sukuk market will play a significant role. Currently, the
banks, with asset growth of 38% per year in the last five years. Shariah volume of the Indonesian government Sukuk since 2008 is INR44.4
banks have performed well with 96.4% financing to deposit ratio and trillion (US$4.44 billion) out of US$134 billion globally and there will
only 3.9% non-performing financing in the last five years. Further, be more issuances in the next five years.
the Islamic Banking Act and Sukuk Act of 2008 strengthen the legal
operations of the Islamic banking industry and foster the development Name one thing you would like to see change in the
of the Sukuk market. Indonesia has some advantages such as the world of Islamic finance.
world’s biggest Muslim population, Islamic banking operations with
We realize that Islamic finance is developed based on Shariah legality
no application of debatable Islamic contracts; and support from the
and tries to mimic conventional finance with certain modification to
government, Islamic scholars and public.
comply with Shariah principles. I hope Shariah finance develops based
on Shariah economic substance that may harmonize the financial and
Which of your products / services deliver the best real sectors. Shariah finance should introduce products to support real
results? sector development and create services and products which have a
Our products are in the form of banking regulation and supervision. multiplier effect on the economy. In other words, Islamic finance should
We have issued various banking regulations such as risk management not contribute to the bubble economy. This requires a paradigm shift
in Islamic banks, product developments, capital adequacy ratio, as based on Shariah economic substance. I realize that it is not easy as
well as including reference to the standards of the IFSB and AAOIFI. customers are not ready. Therefore, we should do it step by step
The Q&A was conducted with the directorate of Islamic financing, ministry of finance Indonesia:
1. Why did you use this particular Islamic structure? What other structures were considered?
We used this structure because it is well accepted by investors and gives fixed returns periodically. It is already approved by the National
Shariah Board (Sharia Approval number: B-036/DSN-MUI/I/2011 on the 31st January 2011). Ijarah sale and lease back were used in
the previous domestic retail Sukuk issuance (SR-001 and SR-002 series).
3. What were the challenges faced and how were they resolved?
The most challenging thing was the distribution of investors which were still concentrated in Jakarta and western Indonesia. The
Indonesian government and selling agents worked together to smooth the distribution of investors through socialization, pre-marketing
and marketing which were carried out in almost all major cities in the country. As a result of the SR-003 issuance, the government and
selling agents will be more focused on socialization and marketing efforts in the central and eastern regions of Indonesia. We are also
currently looking for other methods to increase the participation of investors in both regions.
140
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Index Values
110
100
90
80
70
Dec-99
Feb-00
Apr-00
Jun-00
Aug-00
Oct-00
Dec-00
Feb-01
Apr-01
Jun-01
Aug-01
Oct-01
Dec-01
Feb-02
Apr-02
Jun-02
Aug-02
Oct-02
Dec-02
Feb-03
Apr-03
Jun-03
Aug-03
Oct-03
Dec-03
Feb-04
Apr-04
Jun-04
Aug-04
Oct-04
Dec-04
Feb-05
Apr-05
Jun-05
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Feb-07
Apr-07
Jun-07
Aug-07
Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
Feb-09
Apr-09
Jun-09
Aug-09
Oct-09
Dec-09
Feb-10
Apr-10
Jun-10
Aug-10
Oct-10
Dec-10
Feb-11
YTD returns for ALL funds (as of the 15th March 2011)
FUND FUND MANAGER PERFORMANCE MEASURE FUND DOMICILE
1 BIMB BIMB UNIT Trust Management 18.59 Malaysia
2 ETFS Physical Silver ETFS Metal Securities 9.25 Jersey
3 ASBI Dana Al-Falah BIMB UNIT Trust Management 7.11 Malaysia
4 Al Madar US Index Fund Almadar Finance & Investment 7.01 Kuwait
5 iShares MSCI USA Islamic Barclays Global Investors Ireland 6.35 Germany
6 Al Rajhi European Equity Al Rajhi Bank 6.34 Saudi Arabia
7 iShares MSCI World Islamic Barclays Global Investors Ireland 5.45 Germany
8 ASBI Dana Al-Munsif BIMB UNIT Trust Management 5.44 Malaysia
9 Reliance Global Shariah Growth - USD I Reliance Asset Management (Malaysia) 5.34 Guernsey
10 Al Rajhi International Small Capitalisation Merrill Lynch Investment Managers 5.17 Saudi Arabia
* Eurekahedge Islamic Fund Index -1.37
Sharpe ratio for ALL funds (as of the 15th March 2011)
FUND FUND MANAGER PERFORMANCE MEASURE FUND DOMICILE
1 Meezan Tahaffuz Pension Fund - Money Market Sub Fund Al Meezan Investment Management 8.90 Pakistan
2 Atlas Pension Islamic Fund - Debt Sub Fund Atlas Asset Management 5.08 Pakistan
3 Meezan Tahaffuz Pension Fund - Debt Sub Fund Al Meezan Investment Management 4.19 Pakistan
4 Al Rajhi Commodity Mudarabah Fund - USD Al Rajhi Bank 3.45 Saudi Arabia
6 Reliance Global Shariah Growth Fund - USD I Reliance Asset Management (Malaysia) 3.32 Guernsey
8 AlAhli Saudi Riyal Trade Fund The National Commercial Bank 2.59 Saudi Arabia
9 AlAhli International Trade Fund The National Commercial Bank 2.58 Saudi Arabia
10 Al Rajhi Commodity Mudarabah Fund - SAR Al Rajhi Bank 2.38 Saudi Arabia
* Eurekahedge Islamic Fund Index 0.07
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REDmoney GLOBAL SHARIAH INDEX SERIES (All Cap) 6 Months REDmoney GLOBAL SHARIAH INDEX SERIES (Large Cap) 6 Months
REDmoney Asia ex. Japan All Cap REDmoney Global All Cap REDmoney Asia ex. Japan Large Cap REDmoney Global Large Cap
REDmoney Europe All Cap REDmoney MENA All Cap REDmoney Europe Large Cap REDmoney MENA Large Cap
REDmoney GCC All Cap REDmoney US All Cap REDmoney GCC Large Cap REDmoney US Large Cap
1000 950
900 850
800 750
700 650
600 550
500 450
8/10 9/10 10/10 11/10 12/10 1/11 2/11 3/11 8/10 9/10 10/10 11/10 12/10 1/11 2/11 3/11
REDmoney GLOBAL SHARIAH INDEX SERIES (Medium Cap) 6 Months REDmoney GLOBAL SHARIAH INDEX SERIES (Small Cap) 6 Months
REDmoney Asia ex. Japan Medium Cap REDmoney Global Medium Cap REDmoney Asia ex. Japan Small Cap REDmoney Global Small Cap
REDmoney Europe Medium Cap REDmoney MENA Medium Cap REDmoney Europe Small Cap REDmoney MENA Small Cap
REDmoney GCC Medium Cap REDmoney US Medium Cap REDmoney GCC Small Cap REDmoney US Small Cap
1300 1300
1100 1100
900 900
700 700
500 500
8/10 9/10 10/10 11/10 12/10 1/11 2/11 3/11 8/10 9/10 10/10 11/10 12/10 1/11 2/11 3/11
INDEX Last (US$) MTD (%) 3 Months (%) 6 Months (%) YTD (%) 1 Year (%) 2 Years (%)
REDmoney US Large Cap 916.18 -2.36 10.39 25.04 1.87 8.10 51.95
REDmoney Europe Large Cap 771.88 -3.36 11.90 20.70 -0.36 4.46 57.00
REDmoney Global Large Cap 835.32 -2.28 9.28 21.85 -0.24 10.10 63.61
REDmoney MENA Large Cap 590.47 5.22 -5.54 4.36 -5.07 8.76 53.28
REDmoney GCC Large Cap 601.26 5.69 -4.62 6.47 -4.86 12.00 64.03
REDmoney Asia ex. Japan Large Cap 800.74 -0.47 2.22 14.65 -4.05 15.57 87.79
INDEX Last (US$) MTD (%) 3 Months (%) 6 Months (%) YTD (%) 1 Year (%) 2 Years (%)
REDmoney US All Cap 967.98 -2.23 11.14 27.42 2.48 10.26 60.08
REDmoney MENA All Cap 602.04 4.04 -5.04 2.77 -4.86 4.32 44.48
REDmoney GCC All Cap 598.84 4.69 -4.64 3.82 -4.92 6.55 52.82
REDmoney Europe All Cap 797.60 -3.07 12.27 22.21 -0.00 7.21 64.90
REDmoney Global All Cap 887.38 -1.96 9.00 22.84 0.10 13.02 75.13
REDmoney Asia ex. Japan All Cap 899.00 -0.12 2.86 16.44 -2.32 19.79 107.16
REDmoney Global Shariah Index Series For further information regarding REDmoney Indexes contact:
Andrew Morgan Managing Director, REDmoney Group
Index Code Index Name 14-Mar-11 Feb-11 Jan-11 Dec-10 Nov-10 Oct-10 Sep-10
SPSHX S&P 500 Shariah 1145.042 1175.593 1143.662 1116.185 1055.305 1055.737 1012.387
SPSHEU S&P Europe 350 Shariah 1280.145 1332.904 1296.598 1284.601 1179.078 1243.62 1200.681
SPSHJU S&P Japan 500 Shariah 954.061 1129.41 1104.465 1104.726 1032.02 1015.125 997.313
1300
1180
1060
940
820
700
580 S&P Pan Asia Shariah
S&P GCC Composite
460
S&P Pan Arab Shariah
340 S&P BRIC Shariah
220
100
14/3/11 Feb-11 Jan-11 Dec-10 Nov-10 Oct-10 Sep-10
Index Code Index Name 14-Mar-11 Feb-11 Jan-11 Dec-10 Nov-10 Oct-10 Sep-10
SPSHAS S&P Pan Asia Shariah 1148.27 1133.3 1170.956 1162.323 1075.868 1077.471 1055.516
SPSHG S&P GCC Composite Shariah 708.436 685.834 728.593 753.965 721.171 720.021 711.722
SPSHPA S&P Pan Arab Shariah 119.567 116.293 122.54 127.698 122.361 122.657 121.1
SPSHBR S&P BRIC Shariah 1409.164 1390.791 1356.222 1338.497 1249.391 1266.724 1213.917
1200
1080
960
840
720
600
480
S&P Global Property Shariah
360
S&P Global Infrastructure Shariah
240
120
0
14/3/11 Feb-11 Jan-11 Dec-10 Nov-10 Oct-10 Sep-10
Index Code Index Name 14-Mar-11 Feb-11 Jan-11 Dec-10 Nov-10 Oct-10 Sep-10
SPSHGU S&P Global Property Shariah 717.396 715.72 743.73 746.209 719.266 747.598 737.706
SPSHIF S&P Global Infrastructure Shariah 88.872 89.602 89.978 91.68 87.253 88.875 86.53
DJIM World DJIM US DJIM Titans 100 DJIM Asia/Pacific Titans 25 DJIM Europe
20
15
PRICE RETURN (%)
10
-5
-10
1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year YTD
DJIM World -2.78 -2.99 -3.47 -2.63 2.18 14.57 12.03 0.72
DJIM Titans 100 -2.51 -3.2 -3.6 -2.84 2.08 12.91 7.09 1.02
DJIM Asia/Pacific Titans 25 -3.64 -2.94 -4.54 -3.76 -2.3 10.23 10.99 -4.3
DJIM Europe -4.11 -4.04 -2.86 -2.78 1.08 11.63 7.14 0.55
Component Float
INDEX Full Mean Median Largest Smallest Large Small
number adjusted
DJIM World 2464 17546.8 13789.66 5.6 1.1 415.41 0.007829 3.0124 0.000057
DJIM US 579 7437.58 7008.45 12.1 3.4 415.41 0.123095 5.9272 0.001756
DJIM Titans 100 100 7295.69 6506.8 65.07 44.75 415.41 13.371868 6.3842 0.205506
DJIM Asia/Pacific Titans 25 25 1130.45 744 29.76 26.38 75.12 13.371868 10.0975 1.797297
DJIM Europe 261 3308.03 2644.62 10.13 2.52 139.48 0.285326 5.2739 0.010789
DJIM GCC 114 195.41 83.06 0.73 0.28 9.24 0.024749 11.1266 0.029795
DJIM MENA 163 367.92 108.65 0.67 0.16 14.62 0.007829 13.455 0.007205
DJIM ASEAN 232 465.1 184.58 0.8 0.15 16.29 0.00232 8.8274 0.001257
3 Cagamas Malaysia Sukuk Domestic market 1,430,000,000 10 7.8 AmInvestment Bank, RBS, RHB
private placement; Capital, Al-Rajhi Banking & Investment,
Domestic market HSBC, CIMB Group, Maybank
public issue Investment Bank, Standard Chartered
Bank
4 Celcom Transmission (M) Malaysia Sukuk Domestic market 1,329,000,000 1 7.2 CIMB Group, Maybank Investment
public issue Bank
5 Senai Desaru Expressway Malaysia Sukuk Domestic market 1,275,000,000 2 7.0 Maybank Investment Bank
public issue
6 1Malaysia Sukuk Global Malaysia Sukuk Ijarah Euro market public 1,250,000,000 1 6.8 HSBC, Barclays Capital, CIMB Group
issue
7 GOVCO Holdings Malaysia Sukuk Murabahah Domestic market 985,000,000 1 5.4 HSBC, RHB Capital, CIMB Group
private placement
8 Pengurusan Air SPV Malaysia Sukuk Murabahah Domestic market 884,000,000 1 4.8 HSBC, CIMB Group
private placement
9 Malaysia Airports Capital Malaysia Sukuk Ijarah Domestic market 792,000,000 2 4.3 CIMB Group, Citigroup
public issue
10 Qatar Islamic Bank Qatar Sukuk Ijarah Euro market public 750,000,000 1 4.1 HSBC, Credit Suisse, QInvest
Sukuk Murabahah issue
10 Abu Dhabi Islamic Bank UAE Sukuk Musharakah Euro market public 750,000,000 1 4.1 Standard Chartered Bank, HSBC,
issue Barclays Capital
12 Islamic Development Bank Saudi Arabia Sukuk Euro market public 500,000,000 1 2.7 Standard Chartered Bank, HSBC, CIMB
issue Group, Citigroup
12 Emaar Sukuk UAE Sukuk Euro market public 500,000,000 1 2.7 Standard Chartered, HSBC, RBS
issue
14 Government of Ras Al UAE Legal issuer: RAK capital Euro market public 393,000,000 1 2.1 RBS, Citigroup
Khaimah issue
15 Pembinaan BLT Malaysia Sukuk Domestic market 360,000,000 1 2.0 Lembaga Tabung Haji, RHB Capital,
private placement CIMB Group, AmInvestment Bank, May-
bank Investment Bank
16 National Bank of Abu Dhabi UAE Sukuk Murabahah Foreign market 312,000,000 2 1.7 HSBC, Maybank Investment Bank, RBS
public issue
17 Projek Lebuhraya Utara Malaysia Sukuk Musharakah Domestic market 301,000,000 1 1.6 CIMB Group
Selatan private placement
18 Konsortium Lebuhraya Malaysia Sukuk Musharakah Domestic market 280,000,000 13 1.5 CIMB Group
Utara-Timur (KL) public issue
19 Padiberas Nasional Malaysia Sukuk Musharakah Domestic market 240,000,000 2 1.3 Standard Chartered, Bank Muamalat
public issue Malaysia
20 Trans Thai-Malaysia Sukuk Malaysia Sukuk Musharakah Domestic market 195,000,000 1 1.1 HSBC, CIMB Group
private placement
21 AmIslamic Bank Malaysia Sukuk Musharakah Domestic market 177,000,000 1 1.0 AmInvestment Bank
public issue
22 Maju Expressway Malaysia Sukuk Musharakah Domestic market 168,000,000 1 0.9 CIMB Group
public issue
23 Pelabuhan Tanjung Pelepas Malaysia Issued under issuer's Domestic market 167,000,000 1 0.9 RHB Capital, Maybank Investment
MYR1. public issue Bank
24 Putrajaya Holdings Malaysia Sukuk Musharakah Domestic market 161,000,000 1 0.9 CIMB Group, AmInvestment Bank, May-
public issue bank Investment Bank
25 Malaysia Debt Ventures Malaysia Sukuk Murabahah Domestic market 158,000,000 1 0.9 Lembaga Tabung Haji, RHB Capital,
public issue CIMB Group
26 Bank Pembangunan Malaysia Sukuk Murabahah Domestic market 153,000,000 1 0.8 HSBC, CIMB Group
Malaysia public issue
27 Boustead Holdings Malaysia Sukuk Domestic market 133,000,000 1 0.7 OCBC, Public Bank, Affin Investment
private placement Bank
28 Nomura Sukuk Japan Sukuk Ijarah Euro market public 100,000,000 1 0.6 KFH
issue
28 Kuveyt Turk Katilim Bankasi Kuwait Sukuk Murabahah Euro market public 100,000,000 1 0.6 KFH, Citigroup
issue
30 Gamuda Malaysia Sukuk Musharakah Domestic market 97,000,000 1 0.5 CIMB Group, AmInvestment Bank
Sukuk Murabahah private placement
Total 18,341,000,000 92 100
23rd Feb 2011 Cagamas Malaysia Sukuk Murabahah Domestic market public issue 132,000,000 CIMB Group, AmInvestment
Bank
8th Feb 2011 GOVCO Holdings Malaysia Sukuk Murabahah Domestic market private placement 985,000,000 HSBC, RHB Capital, CIMB
Group
2nd Feb 2011 Pembinaan BLT Malaysia Sukuk Domestic market private placement 360,000,000 Lembaga Tabung Haji,
RHB Capital, CIMB Group,
AmInvestment Bank,
Maybank Investment Bank
27th Jan 2011 Emaar Sukuk UAE Sukuk Euro market public issue 500,000,000 Standard Chartere, HSBC,
RBS
25th Jan 2011 Pengurusan Air SPV Malaysia Sukuk Murabahah Domestic market private placement 884,000,000 HSBC, CIMB Group
10th Jan 2011 Padiberas Nasional Malaysia Sukuk Murabahah Domestic market public issue 114,000,000 Standard Chartered, Bank
Muamalat Malaysia
29th Dec 2010 Senai Desaru Expressway Malaysia Sukuk Domestic market public issue 1,192,000,000 Maybank Investment Bank
14th Dec 2010 National Bank of Abu Dhabi UAE Sukuk Murabahah Foreign market public issue 159,000,000 HSBC, RBS, Maybank
Investment Bank
10th Dec 2010 Cagamas Malaysia Sukuk Murabahah Domestic market public issue 287,000,000 HSBC, CIMB Group
8th Dec 2010 Government of Ras Al UAE Sukuk Euro market public issue 400,000,000 RBS, Citigroup
Khaimah
3rd Dec 2010 Malaysia Airports Capital Malaysia Sukuk Murabahah Domestic market public issue 476,000,000 CIMB Group, Citigroup
29th Nov 2010 Boustead Holdings Malaysia Sukuk Domestic market private placement 133,000,000 OCBC, Public Bank, Affin
Investment Bank
5th Nov 2010 Trans Thai-Malaysia Sukuk Malaysia Sukuk Musharakah Domestic market private placement 195,000,000 HSBC, CIMB Group
28th Oct 2010 Abu Dhabi Islamic Bank UAE Sukuk Musharakah Euro market public issue 750,000,000 Standard Chartered Bank,
HSBC, Barclays Capital
20th Oct 2010 Islamic Development Bank Saudi Arabia Sukuk Euro market public issue 500,000,000 Standard Chartered, HSBC
CIMB Group, Citigroup
20th Oct 2010 Cagamas Malaysia Sukuk Murabahah Domestic market public issue 161,000,000 AmInvestment Bank
30th Sep 2010 Qatar Islamic Bank Qatar Sukuk Ijarah Euro market public issue 750,000,000 HSBC, Credit Suisse, QInvest
Sukuk Murabahah
21st Sep 2010 Putrajaya Holdings Malaysia Sukuk Musharakah Domestic market public issue 161,000,000 CIMB Group, AmInvestment
Bank, Maybank Investment
Bank
15th Sep 2010 AmIslamic Bank Malaysia Sukuk Musharakah Domestic market public issue 177,000,000 AmInvestment Bank
30th Aug 2010 Pelabuhan Tanjung Pelepas Malaysia Sukuk Domestic market public issue 167,000,000 RHB Capital, Maybank
Investment Bank
GLOBAL ISLAMIC BOND VOLUME BY MONTH GLOBAL ISLAMIC BOND VOLUME BY QUARTER
TOP 30 MANAGERS OF ISLAMIC BONDS 12 Months ISLAMIC BOND VOLUME BY CURRENCY US$ (BILLION)
9 Barclays Capital 667,000,000 2 3.6 ISLAMIC BOND VOLUME BY ISSUER NATION US$ (BILLION) - 12 Months
10 OCBC 530,000,000 3 2.9
19 Affin Investment Bank 44,000,000 1 0.2 GLOBAL ISLAMIC BOND VOLUME BY SECTOR - 12 Months
21 Kenanga Investment Bank 33,000,000 1 0.2
GLOBAL ISLAMIC BOND VOLUME - US$ ANALYSIS GLOBAL ISLAMIC LOANS - YEARS TO MATURITY (YTD Comparison)
SUKUK ISSUERS (12 months) MAR 2010 – MAR 2011 SUKUK ISSUERS (3 months) DEC 2010 - MAR 2011
3 Perusahaan Penerbit SBSN Indonesia 2,019,555,790 8 4.0 3 Pakistan, Islamic Republic of 988,910,951 2 6.4
(Government)
4 Pengurusan Air SPV 2,002,481,940 6 3.9
4 Govco Holdings 983,928,000 2 6.4
5 Senai-Desaru Expressway 1,821,445,920 42 3.6
5 Perusahaan Penerbit SBSN Indonesia 963,662,475 3 6.3
6 Pakistan, Islamic Republic of 1,594,481,152 3 3.1
(Government) 6 Pengurusan Air SPV 884,231,100 3 5.8
11= Qatar Islamic Bank 750,000,000 1 1.5 12 BMA International Sukuk 175,040,840 6 1.1
13 Danga Capital 621,408,000 1 1.2 13 National Bank of Abu Dhabi 163,212,000 1 1.1
14= IDB Trust Services 500,000,000 1 1.0 14 ESSO Malaysia 64,449,600 2 0.4
15 KNM Capital 64,094,745 6 0.4
14= Emaar Sukuk 500,000,000 1 1.0
16 Perbadanan Kemajuan Negeri 59,235,680 3 0.4
16 ESSO Malaysia 499,608,060 13 1.0
Selangor
17 RAK Capital 400,000,000 1 0.8
17 Goodway Integrated Industries 39,277,485 9 0.3
18 Khazanah Nasional 367,252,800 1 0.7
18 Hubline 36,069,155 3 0.2
19 Padiberas Nasional 364,357,251 4 0.7 19 TSH Sukuk Ijarah 32,827,450 2 0.2
20 Aman Sukuk 360,773,600 6 0.7 20 Toyota Capital Malaysia 32,797,600 1 0.2
Islamic Sukuk league tables reflect Shariah compliant bonds showing evidence of ownership of assets or their earnings. These results include
(but are not limited to) the following securities/assets: Sukuk Salam, Sukuk Mudarabah, Sukuk Ijarah, Sukuk Murabahah, Sukuk Istisna and
Sukuk Musharakah.
LOAN MANDATED LEAD ARRANGERS (12 Months) MAR 2010 – MAR 2011 LOAN BOOKRUNNERS (12(12 Months)
Months) MAR 2010 – MAR 2011
(12 Months)
19= Noor Islamic Bank 83,333,333 250,000,000 1 1.1 7 Qatari Diar Real Estate Qatar 300,000,000
SUKUK BY COUNTRY (12 Months) MAR 2010 – MAR 2011 LOANS BY COUNTRY (12 Months) MAR 2010 – MAR 2011
Country Volume Issued Volume Outstanding Country Volume (US$) Market Share (%)
SUKUK BY INDUSTRY (12 Months) MAR 2010 – MAR 2011 LOANS BY INDUSTRY (12 Months) MAR 2010 – MAR 2011
Industry Volume Issued Volume Outstanding Industry Volume (US$) Market Share(%)
18,000
16,000
Sukuk
14,000 Loan
12,000
10,000
8,000
6,000
4,000
2,000
0
1Q - '07 2Q - '07 3Q - '07 4Q - '07 1Q - '08 2Q - '08 3Q - '08 4Q - '08 1Q - '09 2Q - '09 3Q - '09 TD 4Q - '09 TD 1Q - '10 TD 2Q - '10 TD 3Q - '10 TD 4Q - '10 TD 1Q - '11 TD
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