T h e Wo r l d ’ s G l o b a l I s l a m i c F i n a n c e N e ws P rov i d e r

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Cover Story

As we launch into a new year, with all the hopes and resolutions that this brings, Islamic Finance news looks at what we can expect over the next 12 months. Talking to senior industry fi gures, we have put together a forecast of the key regions, asset classes, issues and events that look set to infl uence the global Islamic fi nance industry going forward.

Positive performanceThe Islamic fi nance industry showed strong resilience in 2011, and looks set to continue this performance into the new year. Islamic assets continued their rapid growth in the face of challenging economic conditions, and are reported to have exceeded the US$1 trillion mark. According to Paul-Henri Pruvost of Standard & Poor’s: “There is no denying the industry fared bett er [in 2011], and we expect it to continue enlarging and deepening its footprint, by geography and products, benefi ting from increasing regulations.” In addition, high oil prices and record government expenditure in the GCC region have helped buff er the Islamic fi nance industry against the economic slowdown, while 2011 saw record Sukuk issuance from Malaysia and a growing market from other jurisdictions, lending strength to the Islamic capital markets.

Regional promiseAccording to Samirah Mensah of Standard & Poor’s: “Growth was mainly driven by the healthy Southeast Asian territories, and by expanding banking intermediation in largely virgin territories such as sub-Saharan Africa – Nigeria, South Africa, and other West African countries.”

Going forward, the core markets are likely to continue building on their strong performance, but several new territories

also look promising. Samer Hij azi, a director at KPMG fi nancial services, predicts that: “I expect organic growth to come from markets such as Indonesia, central Asia and Africa, although the core markets of the GCC, Malaysia and the UK will continue to dominate. I also expect some interesting and positive developments in Islamic fi nance in North Africa in the wake of the Arab Spring.”

The election of Islamist polipital parties in North Africa is likely to be a key driver for the growth of Islamic banking in the region, although some industry experts believe that 2012 may be too soon for these developments to seriously infl uence the industry. Yavar Moini, the head of Islamic fi nance at Morgan Stanley, believes however that Egypt will be a key driver for this region. “If Egpyt is able to successfully establish the infrastructure and an eff ective model to promote the Islamic fi nance industry, then I think it is only a matt er of time before the Libyas and the Tunisias of the world follow suit. I think the Arab Spring will give the industry momentum.”

The Gulf is also likely to be a center of increasing importance in 2012. Khalid Howladar, the regional team leader

11th January 2012

Islamic finance: The view for 2012

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Volume 9 Issue 1

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

Islamic Finance News .......................................6

IFN Reports: South Africa serious about Sukuk;

Reading between the lines ..................................12

Columns: Money fl ows to where it is treated best.

Invest in Islamic private wealth management ...13

Insider: Third time lucky for EIIB? .................15

Features:

The growth of Islamic banking in Bangladesh 16

India: Time to open the fl oodgates ...................17

Basel III and Islamic fi nance: What lies ahead? .... 19

Infrastructure fi nancing: Transactional structuring

from a Sukuk issuance perspective .......................22

Islamic fi nance in Thailand: Prospects and

challenges ...........................................................24

Islamic Investor

Challenging times persist ..................................26

News ................................................................27

Funds Tables ....................................................28

Takaful News

Takaful in Bangladesh: Is there a future? ..........30

News .................................................................32

Forum ................................................................33

Meet the Head:

Ghassan Marrouche, general manager, Takaful

Emarat — Insurance .........................................34

Deal Tracker .....................................................35

REDmoney Indexes ........................................36

Performance League Tables ...........................38

Events Diary.....................................................42

Company Index ...............................................43

Subscription Form ...........................................43

RED

Proceed with caution

Editor’s Note

A new year has been ushered in but for all intents and purposes, the beginning of 2012 looks a lot like the end of 2011. Nonetheless, decisions must be made and a myriad of factors remain to be taken into consideration in planning strategies for the year ahead.

continued on page 5

2© 11th January 2012

IFN RAPIDS

Disclaimer: Islamic Finance news invites leading practitioners and academics to contribute short reports each week. Whilst we have used our best endeavors and eff orts to ensure the accuracy of the contents we do not hold out or represent that the respective opinions are accurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright remain with REDmoney.

NEWSSudan launches Sukuk with 20% return

Tunis Financial Harbour commences pre-qualifi cation process for prospective contractors, says GFH

Islamic banks must be vigilant with gold pawn broking business, says Indonesia’s central bank

Bangladesh Petroleum Corporation to obtain US$2 billion-worth of fi nancing from the IDB to purchase oil

Indonesia to conduct 11 auctions of rupiah-denominated conventional and Islamic bonds in the fi rst quarter of 2012

Pakistan International Airlines Corporation concludes US$100 million Islamic fi nancing

Emirates Islamic Bank has reportedly set an initial pricing of 350 basis points over midswaps for its fi ve-year benchmark Sukuk

IDB gives nod to roll over Pakistan’s US$576 million debt for two years

Sindh Enterprise Development Fund to consider Islamic fi nancing for projects

Watershed quarter in store for Sukuk sales from PLUS Expressways’ record issuance

Projek Lebuhraya Usahasama to sell US$9.67 billion Sukuk on the 12th January

Indonesia’s central bank says no to gold pawn broking for three Islamic banks

New land acquisition law in Indonesia will open doors to sovereign debt rating upgrade, says Moody’s

Bank Muamalat Indonesia plans to sell subordinated and

global Islamic bonds in the fi rst half of 2012

Debut sovereign Sukuk will boost Islamic fi nance in Africa but legislation needed

Indonesia’s central bank to issue new law on mortgage products for Islamic banks at the end of January 2012

Five Pakistan banks in US$53 million syndicated Islamic fi nancing for Dawood Hercules Fertilizers

EIIB to take up strategic stake in Rasmala Holdings

Albaraka Türk Katılım Bankası re-looks US$200 million Sukuk sale

MENA IPOs down in 2011 as fi rms choose Sukuk to raise funds, says Ernst & Young

Att ractive pricing may infl uence banks to refi nance rather than repay debt this year

Value of Sukuk from Arab region up 33% quarter-on-quarter in the third quarter of 2011, says Arab Monetary Fund

Aldar Properties repays US$1.18 billion convertible Sukuk on time

Yield for Dana Gas Sukuk reaches record high on repayment worries

Al Khalij Commercial Bank shuts down Islamic branch

Nakheel seeks to issue second tranche of US$1.03 billion Sukuk in the fi rst half of 2012

Property sale brings US$96 million profi t for Saudi Kuwait Finance House

Majid Al Futt aim Holding mandates four banks for US$1 billion debut Sukuk

No guarantee for guaranteed papers?

Barwa Bank concludes

US$467 million rights issue

Dar Al Arkan announces US$6.78 million periodic coupon distribution for Sukuk II holders

QIB in project fi nancing deal with taxi operator

Bank Albilad fourth quarter 2011 profi t soars to US$28.53 million

KFH announces new fi ve-year plan

StanChart unveils new account opening facility in the UAE

Bank Sohar must prepare for the introduction of Islamic banking

General Authority for Civil Aviation commences Sukuk issuance for Sultan Abdulaziz International Airport in Jeddah

Issue of an absent central Shariah banking supervisory body in the UAE questioned

ISLAMICINVESTOROIC to unveil Shariah compliant stock index

New laws vital to Makkah and Madinah real estate sector growth, says Alpha1Estates International

Capital Market Development Authority opens application to fi rms seeking to provide Islamic securities

TAKAFULAmBank Group and UK’s Friends Life Group commence Family Takaful business

Kleos developing specialized health Takaful

Takaful International Company appoints Bahrain

Bourse as share registrar

Takaful Ikhlas appointed main Takaful operator for Pahang state government offi cers

RATINGSFitch assigns EIB Sukuk Company’s US dollar fi xed-rate senior unsecured trust certifi cates ‘A+ (exp)’ rating

MARC withdraws ‘A+ID(cg)’ rating on KMCOB Capital’s US$201 million Murabahah medium-term notes program

BBN Development fully redeems US$27 million Murabahah commercial papers/medium-term notes program

S&P affi rms Riyad Bank’s ‘A+/A-1’ rating

Fitch affi rms Al Ahli Bank of Kuwait’s ‘A-’ long-term issuer default rating

MOVESChristopher Aylward joins law fi rm Baker Bott s as partner in Middle East practice

Abdullah Ali Al Hamli steps down as independent board member of Gulf Finance House

Amjad Hussain resigns as partner from Eversheds (Qatar offi ce)

Arab Banking Corporation reshuffl es management team for ABC International Bank

Securities Commission Malaysia names three new executive directors

Mohammad Ali Taskhiri joins IDB’s Shariah board

RHB Banking Group names Kellee Kam Chee Khiong as group managing director

3© 11th January 2012

COVER STORY

and senior credit offi cer for Moody’s Investor Services in the GCC, notes that: “In the context of global stresses and increasing risk aversion from investors, we have seen from the volume of [Sukuk] issuance in this year that the Islamic investor base in the Gulf was an important community and less marginal than prior years.”

New jurisdictions for SukukAn increasing number of regions – both Islamic and non-Islamic – are showing interest in the Islamic capital market. South Africa has already announced its intent of launching an inaugural Sukuk, and if this is successful it will hopefully have the eff ect of boosting issuance across other regions in Africa, including Nigeria (which is also showing strong intent), Libya, and Tunisia.

Moini predicts that following its upgrade to investment grade status, Indonesia will be another strong issuer. The key, he explains, is the investment grade rating. The Gulf investor base is bank-driven, and has a strong preference for investment grade issuance. The upgrade is therefore vitally important in terms of Indonesia’s ability to access a wider investor base across the Middle East.

Moini also believes that Turkey is likely to see increased issuance, particularly following the announced intentions of both Al Baraka Turkey and Bank Asya. “Potentially, even some of the conventional banks in Turkey might look at tapping the Islamic market, although the structuring for a conventional bank is obviously trickier. You might see municipalities in Turkey coming forward as well.”

In addition, Saudi Arabia looks set to raise its profi le in the capital market. Moini explains that: “Saudi Arabia is thinking about starting a domestic

Sukuk issuance market to establish a yield curve

to enable a domestic market to take root, potentially on the same grounds as

the ringgit market. One would expect that given the developed corporate and private sector in

the kingdom, this will potentially be a strong spur to greater corporate issuance.” However, he qualifi es that: “In Saudi I would expect that the issuance would primarily be in local currency, given the deep pool of local liquidity.”

Moini also warns that the industry should not grow complacent on the back of the record Sukuk performance of last year. “Sukuk issuance has really been bolstered by the ringgit market, so the revivial that we have seen is really because the domestic issuance market in Malaysia is so vibrant. But if you look US$ issuance, that hasn’t yet come back to pre-crisis levels. And that’s really the key, because what we want is for Sukuk issuance to be global, rather than being overly reliant on any one market. We need to look at the levels of US$ issuance as an indicator for truly global deals, and I think that this year will surpass what we saw last year.”

Demand and diversityAs traditional sources of fi nancing dry up, diversifi cation of funding sources is becoming vital and the Sukuk market provides a valuable avenue to access Middle East and Asian liquidity. There is therefore likely to be a considerable increase in the supply of Sukuk in 2012, especially from new jurisdictions across Europe, the US, Australia, and Africa. However, the key issue is whether this new supply will be met by equivalent demand. The Sukuk investor base up till now has been relatively one dimensional in its make up, and regional in outlook in the GCC. Moini points out that: “The only jurisdictions to date which have suceeded in this market are Malaysia, Indonesia to some extent, and Turkey, where there are obviously social and cultural linkages [with Middle East investors]. But as new potential issuers look to tap this market, will we have the demand base for it?”

The Sukuk investor base is primarily bank-driven, especially in the Gulf where banks account for almost 90% of demand.

Islamic fi nance: The view for 2012 Continued from page 1

continued...

CLOSING BELLMiddle East investment to continue MALAYSIA: Maybank Investment Bank (Maybank IB) will continue to invest in the Middle East to tap deals from the region and to deepen its expertise in Islamic fi nance, according to Tengku Zafrul Tengku Abdul Aziz, its CEO.

Maybank IB has a presence in the Middle East via its investment in Anfaal Capital, an Islamic investment bank.

Al Baraka Bank (Pakistan) sets up OneView ContactPAKISTAN: Al Baraka Bank (Pakistan) has installed the OneView Contact center solution by ZRG to enhance the effi ciency of its services

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4© 11th January 2012

COVER STORY

In addition, several European banks are beginning to deleverage and divest from the Gulf region, selling their asset portfolios and loan books, meaning that regional liquidity is already engaged in taking up these assets. “If you continue to rely on a bank investor base, then that investor base is going to be exhausted,” warns Moini. Investor diversifi cation is therefore crucial if the Sukuk market is to continue its expansion. Potential investors could include more Sukuk funds, Takaful companies, central banks allocating to Sukuk as well as their typical fi xed income allocations and government agencies developing Sukuk portfolios. “By having a more diverse seam of Sukuk investors, we will be able to encourage Sukuk catered to the increased potential supply from outside the core regions,” he explains.

In addition the overall issuer profi le is changing. There is increasing interest in Islamic fi nance due to the dysfunction in conventional markets, and this is likely to continue into 2012. Financial institutions and corporates that have typically relied on bank fi nancing, fi nding that this is no longer readily available, are trying to diversify into Sukuk issuance to tap new pools of liquidity. Moini notes that: “We are seeing queries everywhere from Australia to the US… So you might start

seeing issuers which are diff erent from the typical sovereign or sovereign-related issuers.”

Standardization remains keyThe industry still faces considerable

challenges, including an urgent need for education to improve and

deepen the available talent pool, and global regulatory consistency to encourage cross-border

dealing. Pruvost warns that: “It is important to keep in mind that despite its tremendous past growth and prospects,

the Islamic fi nance industry – and notably its banking component – remains fairly small compared to the conventional industry.” However, he remains cautiously optimistic for the future: “The industry may nevertheless expand with time, as hurdles such as a bett er standardization of Shariah compliant insruments, a greater liquidity, and more innovative instruments – are overcome.”

Hij azi concurs that standardization is a vital issue for the industry going forward. “The lack of global standardization in the Islamic fi nance industry around what exactly constitutes true or acceptable Sharia’a compliance is likely to remain a particular issue for Islamic fi nancial institutions. There is oft en a wealth of guidance and practice around this but some, not necessarily absolute, standardization of practice around this area would help the industry while still allowing for institutions to comply with particular local market requirements or expectations.”

Howladar is positive on the regulatory outlook for 2012, however, highlighting

Islamic fi nance: The view for 2012Continued from page 3

There is increasing

interest in Islamic finance due to the dysfunction in conventional markets, and this is likely to continue into 2012

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5© 11th January 2012

COVER STORY

Editor’s Note

A new year has been ushered in but for all intents and purposes, the beginning of 2012 looks a lot like the end of 2011. Nonetheless, decisions must be made and a myriad of factors remain to be taken into consideration in planning strategies for the year ahead.

Among the crucial issues – or thorns in the side, depending how you look at it – for banks since the last fi nancial crisis has been Basel III and its impact on the industry. This week, Mike Kennedy of the Bank of London and The Middle East discusses the impact of the new regulations on Islamic banks.

Our fi rst full issue of 2012 also looks at the growth of Islamic banking in Bangladesh in an article by Dr Mahmood Ahmed from the Islami Bank Training and Research Academy in Bangladesh; and the prospects and challenges for Islamic fi nance in Thailand in a feature by Ruengrit Pooprasert and Anaknong Chaiyasri of ZICOlaw (Thailand).

Mark Lim, a partner of Baker & McKenzie International’s Malaysian member fi rm, Wong & Partners, writes on infrastructure Sukuk structuring, while Yahya Abdulla of Cushman & Wakefi eld analyzes the outlook for Islamic fi nance in India.

Our Takaful feature considers the future for Islamic insurance in Bangladesh in an article by Kazi Md Mortuza Ali of Prime Islami Life Insurance.

This week, Insider looks at the European Islamic Investment Bank-Rasmala Holdings deal; and our IFN reports cover the growth of Islamic fi nance in South Africa and Saudi Arabia’s 2012 budget, while our cover story takes you on a journey through what 2012 might hold for the industry.

We would like to take this opportunity to wish you a Happy New Year and a fruitful year ahead.

Proceed with caution

several encouraging developments over the past year. “Regulatory progress in 2011 will provide the boost to the industry. Oman Central Bank has started issuing Islamic banking licenses which has seen regional banks convert to start new Islamic windows in the market. Qatar during the year passed a regulation for segregating Islamic banks, with conventional banks providing support for Islamic banking in Qatar. And the IFSB continues to provide new guidelines for Islamic fi nancial institutions.”

No industry is an islandDespite the advantages the industry has achieved through its diff erentiaton from the conventional sector, it is nonetheless dangerous to isolate ourselves too much from the global fi nancial services industry as a whole. The Islamic fi nance industry does not operate in a vacuum, and while it has to a great extent remained resilient to or even benefi ted from the challenges facing the conventional sector, it must be wary of segmenting itself too much. “The Islamic fi nance industry remains a subset of the global fi nancial services industry,” Hij azi reminds us, “and as such, faces similar challenges to conventional fi nancial institutions in the current environment. It is at a stage now where it needs to adapt to the current climate and consolidate to ensure it is well placed to meet the

capital and liquidity demands which are facing the entire industry.”

Going forwardFollowing on from 2011, the Islamic fi nance industry is likely to continue to benefi t from the global fi nancial crisis, and from the economic challenges being faced by the more developed conventional markets in the US and Europe. As conventional banking struggles with tightening liquidity, rising debt levels and encroaching recession, the industry has every opportunity of benefi ting rather than suff ering. Howladar notes that: “With EU de-leveraging and European banks

pulling out of the Middle East, this will create opportunities for the local banking industry including local Islamic institutions in the region.” In addition, the high liquidity levels in the Gulf and Southeast Asia and the continuing growth and performance of the Sukuk market off er a valuable source of funding diversifi cation as traditional sources dry up, while following the Arab Spring the industry can expect greater interest not only from conventional markets but from new Islamic territories keen to establish their Islamic banking credentials.

Although the retail banking and capital markets are currently the key drivers of the global Islamic fi nance industry, Mensah also notes that Standard & Poor’s is optimistic regarding the Takaful industry in 2012. “We expect the industry to expand further, particularly in retail, health, and life sectors, in a context of increased competition in the global insurance industry. This trend is likely to deepen, particularly in Malaysia and Saudi Arabia where the regulation is well-developed.”

However, Hij azi injects a word of warning: “The wholesale markets are still quite volatile, with a lot of participants quite apprehensive about what 2012 will bring.” Despite the strong prospects for growth, 2012 is by no means a sure bet yet. — LM

Islamic fi nance: The view for 2012Continued from page 4

The wholesale markets are

still quite volatile, with a lot of participants quite apprehensive about what 2012 will bring

6© 11th January 2012

NEWS

AFRICARaising funds via Sukuk SUDAN: The government has launched a Sukuk off ering an annual return of 20% in order to raise funds for public coff ers, according to the country’s debt agency, Sudan Financial Services Company.

The agency, which sells the Sukuk on behalf of the Central Bank of Sudan, said that the Sukuk will be off ered until the 25th January 2012. However, it did not provide any other details of the issuance.

Sudan, which is faced with a severe economic crisis, sells Sukuk domestically as its main source of funding as it is denied access to international markets following a US trade embargo imposed in 1997.

Tender process starts for TFHTUNISIA: The Tunis Financial Harbour (TFH), an initiative launched by Gulf Finance House (GFH) and the Tunisian government, has begun the pre-qualifi cation process for prospective contractors, said GFH.

This follows an announcement by the Tunisian government to allocate TND50 million (US$32.9 million) for the completion of infrastructure works for the fi nancial harbour.

Hisham Alrayes, the chief investment offi cer at GFH said that GFH is also eyeing further injections of investment into the project.

ASIACaution on goldINDONESIA: The central bank, Bank Indonesia (BI), will prepare further rules on gold pawnbroking following the spread of the business among the country’s Islamic banks and on concerns of the impact of volatile gold prices.

Although allowed, the authority previously warned that the business should be restricted; with the new rules aimed at clarifying existing regulations on gold pawnbroking.

IDB funds oil importsBANGLADESH: Bangladesh Petroleum Corporation (BPC), a state-owned oil importer and distributor, will receive

US$2 billion-worth of fi nancing from the IDB this year to enable the company to import oil from the international market, said Md Abubakar Siddique, the chairman of BPC.

Md Abubakar added that BPC will receive US$300 million as its fi rst installment from the IDB.

He also explained that the IDB provides fi nancing to Bangladesh worth US$1 billion annually. However, the BPC requested the IDB to double the funds as oil imports rose in 2010.

BPC expects to import over 6.7 million tons of fuel oil this year, sharply up from 4.8 million tons in 2011.

Busy start for IndonesiaINDONESIA: The fi nance ministry’s debt management offi ce plans to hold 11 auctions of rupiah-denominated conventional and Islamic bonds in the fi rst quarter of this year.

The planned sales follow the government’s plan to raise local currency debt sales to IDR53.5 trillion (US$5.87 billion) in the fi rst quarter of this year, or 12% from the previous corresponding period.

However, it has not set the size for each sale, with the indicative size of a bond sale usually determined a few days before an auction date.

US$100 million financing completedPAKISTAN: Pakistan International Airlines Corporation (PIA) has closed a three-year US$100 million Islamic fi nancing facility, which will be used for general corporate purposes.

This transaction is secured by PIA’s ticket sales generated in the UAE and from general sales agents; aggregated through the International Air Transport Association’s billing and sett lement plan.

Abu Dhabi Islamic Bank, Al Hilal Bank, Citibank and United Bank were mandated lead arrangers and joint bookrunners for the facility, while Kuwait’s Warba Bank also joined as lead arranger.

Cliff ord Chance and Haidermota & Co acted as legal counsel to the arrangers, while PIA was represented by Mandviwalla & Zafar.

Attractive pricing expected for EIBUAE: Emirates Islamic Bank (EIB), a unit of Emirates NBD (ENBD), has reportedly set an initial pricing in the area of 350 basis points over midswaps for its fi ve-year benchmark-sized Sukuk, according to its lead managers.

Books for the deal, which is guaranteed by ENBD, have been opened with pricing to take place in the second week of January.

Citigroup, Emirates NBD Capital, HSBC Holdings, National Bank of Abu Dhabi, Standard Chartered and The Royal Bank of Scotland are the lead managers for the transaction, for which investor meetings were arranged in Malaysia on the 5th

January, followed by Singapore and Abu Dhabi, before concluding in the UK on the 10th January.

EIB’s impending issuance follows news in December 2011 that ENBD decided to shelve its own plans for a fi ve-year Sukuk.

Malek Khodr Temsah, the assistant vice-president of treasury and investment at Albaraka Banking Group, commented that EIB’s Sukuk will likely att ract investors with a yield as low as 4%, with the bank possibly able to achieve pricing similar to banks in Abu Dhabi, given ENBD’s strategic importance to the UAE and “the inevitable implicitness of an Abu Dhabi backstop.”

“Our tentative expectation for the Sukuk’s initial price guidance is in the area of 4% and 4.25%,” he said.

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7© 11th January 2012

NEWS

IDB gives Pakistan breathing roomPAKISTAN: The IDB has agreed to roll over US$576 million-worth of debt owed by Pakistan for two years as the country struggles with its budget defi cit following the halt of aid from the US and other international creditors.

The entire facility, amounting to US$654 million, was initially due in December 2011 and will now be paid back over the next two years. It was used by Pakistan to fi nance its imports.

Mulling alternativesPAKISTAN: Sindh Enterprise Development Fund (SEDF) will consider Islamic fi nancing as well as other modes of fi nancing in approving applications and projects, according to Mohammad Zubair Motiwala, its chairman.

SEDF was established by the provincial government of Sindh to extend credit and technical assistance to entrepreneurs.

Encouraging Sukuk sales MALAYSIA: A record RM30.6 billion (US$9.8 billion) corporate Sukuk sale from local highway operator PLUS Expressways and planned off erings to follow are expected to bring Islamic bond sales to their best quarter ever in the fi rst three months of this year.

The highway operator’s off ering exceeded the US$7.3 billion-worth of Sukuk issued globally in the last quarter of 2011.

Badlisyah Abdul Ghani, the CEO of CIMB Islamic, noted that relatively low yields and strong demand will ensure the pipeline for Sukuk remains healthy this year, especially in Malaysia.

World’s largest Sukuk to debut MALAYSIA: Projek Lebuhraya Usahasama (PLUS) will issue a RM30.6 billion (US$9.67 billion) Sukuk on the 12th January.

The issuance will represent the largest global Sukuk and Malaysia’s single largest bond issuance to-date.

Proceeds from the issuance will be utilized to part fi nance the purchase

of assets, liabilities, businesses, undertakings and rights of fi ve toll concessions in Malaysia. The proceeds will also be used to fund capital expenditure, working capital and other general funding requirements.

CIMB Investment Bank is the fi nancial advisor, sole principal advisor, sole lead arranger and joint lead manager for the transaction, while AmInvestment Bank, Maybank and RHB Investment Bank are also joint lead managers.

Disappointing news for trioINDONESIA: The central bank, Bank Indonesia, has denied OCBC NISP Syariah, BII Syariah and Bank Permata Syariah’s applications to conduct gold pawnbroking, submitt ed at the end of last year.

The central bank said that gold pawnbroking is not productive and does not have any connection to economic activities in the society.

Window of opportunityINDONESIA: New land acquisition regulations aimed at speeding up infrastructure projects will improve the country’s chance of a debt rating upgrade, says Moody’s.

Lawmakers approved the bill on the 16th December 2011. The legislation, which will become law once it is signed by Susilo Bambang Yudhoyono, the country’s president, will enable Indonesia to accelerate road, port and airport projects that have been delayed due to land disputes.

Recent developments, including the approval of the land acquisition bill, represent “potential rating triggers”, said Christian de Guzman, a Singapore-based assistance vice-president at Moody’s.

Moody’s lift ed Indonesia’s rating to ‘Ba1’ in January 2011.

Double issuancesINDONESIA: Bank Muamalat Indonesia (BMI) is planning to issue a subordinated Sukuk worth IDR800 billion (US$87 million) and a global Sukuk worth US$50 million in the fi rst half of this year to strengthen its capital adequacy ratio, said Arviyan Arifi n, its president director.

continued...

Legislation key for debut sovereign SukukSOUTH AFRICA: The government is expected to walk the walk with its plan to issue the country’s debut sovereign Sukuk, but it will need to prepare the appropriate ground rules for Islamic bonds to ensure a successful issuance.

“The key thing is to create the right legislative framework for both an issue for the republic, but also one which — to use the phrase coined by the UK Treasury in respect of its own plans — is ‘instantly replicable’ and capable of use by the (South Africa’s) state-owned entities. I assume eff orts will focus on an Ijarah structure,” commented David Testa, the managing director of fi nancial consultancy fi rm David Testa Consultancy.

In a response to Islamic Finance news, Testa, who has worked as an Islamic fi nance consultant for South Africa’s Standard Bank and was also previously CEO of UK’s Gatehouse Bank, said that apart from diversifying government funding, the prospective sovereign Sukuk is also seen as a means to set a precedent for other South African entities keen to raise funds from new sources.

“Several state-owned entities such as (energy and chemicals company) Sasol and (electricity producer) Eskom Holdings have already been approached by leading Islamic institutions pitching them the idea of Sukuk issues. The precedent of a sovereign benchmark issue (together with relevant legislation amendments) will help develop those ideas,” he said.

Meanwhile, the country’s planned sovereign Sukuk is also seen as key in promoting the growth of Islamic fi nance in Africa. “I have thought for some time that Africa is now the most exciting prospect for Islamic fi nance generally. With South Africa now joining the party, it is clear that the prospects for Islamic fi nance across the whole of the African continent are very bright,” said Testa.

8© 11th January 2012

NEWS

According to Arviyan, BMI has made preparations for the upcoming Sukuk issuances, including: auditing its December 2011 fi nancial report; appointing the underwriters for the transaction; and submitt ing a proposal on the Sukuk issuances to the country’s capital market supervisory agency, Bapepam.

The Sukuk will also be based on information from the bank’s audited fi nancial report for December 2011. According to Bapepam, the use of the fi nancial report is valid for six months. Hence, the Sukuk issuances must take place by June this year.

Arviyan also said that BMI is still in the process of hiring underwriters and has yet to reach a fi nal decision on the appointment.

Regulating mortgages INDONESIA: The central bank, Bank Indonesia, will issue regulations for mortgage products of Islamic banks at the end of this month, said Mulya Siregar, its director of Islamic banking.

Mulya said that the new laws contain a restriction on fi nancing-to-value ratio to not exceed 80%, while adding that the maximum amount of fi nancing per customer is still to be explored further.

Refinancing debt PAKISTAN: Meezan Bank, Allied Bank, United Bank, AlBaraka Bank, BankIslami and Burj Bank have participated in a PKR4.8 billion (US$53 million) fi ve-year syndicated fi nancing facility for Dawood Hercules Fertilizers.

The target return for the facility, which will be utilized to repay the principle on Dawood’s PKR7.7 billion (US$85 million) Sukuk maturing this year, was set at a variable rate of the six-month Karachi interbank off ered rate plus 1.1%.

Meezan Bank, which served as fi nancial advisor and lead arranger for the syndicated fi nancing, is also one of the largest holders of Dawood’s Sukuk, of which two tranches amounting to PKR2.5 billion (US$27.69 million) each remains outstanding and due on the 18th March and the 18th September, respectively.

EUROPEEIIB lands Rasmala UK: European Islamic Investment Bank (EIIB) will invest US$16 million over 12 months in Rasmala Holdings through a fi nancing facility convertible into 35% of Rasmala’s enlarged shares; and acquire a further 7.4% from Ali Al Shihabi, Rasmala’s chairman.

Rasmala, which has offi ces in the UAE, Saudi Arabia, Oman and Egypt, specializes in asset management, investment banking, brokerage and research.

For more on this story, see this week’s Insider.

Reconsidering Sukuk TURKEY: Albaraka Türk Katılım Bankası is reportedly reconsidering the issuance of a US$200 million Sukuk following plans to delay the sale in December 2011.

Albaraka Türk could re-announce the transaction by the end of January, if market conditions are suitable.

The Sukuk was originally scheduled to be issued in the third week of December 2011. However, it was delayed following a mismatch between the bank and investors’ expectations on yields and despite strong demand for the papers from Asian and GCC investors.

GLOBALSukuk over IPOGLOBAL: Capital markets in the MENA region raised US$893.9 million via initial public off erings in 2011, a drop of nearly 70% from 2010, as fi rms moved to the Islamic debt market to raise funds, according to Ernst & Young (E&Y).

“Low investor interest continued in the MENA region as companies chose Islamic funding, such as Sukuk, which saw a record year as the preferred route for fundraising,” said Phil Gandier, the MENA head of Transaction Advisory Services at E&Y.

He added that investor and issuer concerns regarding the volatility of capital markets are likely to continue into the fi rst quarter of this year; although the market could pick up with the

continued...

UAE banks in good market to refinance this year UAE: Banks in the UAE may opt to refi nance more than US$3 billion-worth of bonds due this year should pricing remain at current levels as they seek to extend the average maturity of their debt, analysts said.

According to market data, bonds and Sukuk maturing this year from banks in the emirates amount to US$3.49 billion.

Raj Madha, an analyst at Rasmala Investment Bank, was quoted as saying that the amount due is “a lot”, especially to mature at the same time. However, recent Sukuk sales show that “deals can be done at the right price even in the current diffi cult international environment,” he said. This, in turn, could lead banks to choose to roll over the debt and extend maturities.

Samer Mardini, the vice-president of fi xed income and Islamic fi nance products at SJS Markets in Dubai, noted that the current price for bond sales in the UAE market is between 3-4%, suggesting that banks will not pay more than that to come to market this year.

Meanwhile, speaking to Islamic Finance news, a Dubai-based analyst also said that the outlook for profi tability of banks in the Middle East, especially the UAE, remains mixed. “We expected a sharp improvement in provisioning but most banks guided negatively on provisioning in the second half of 2011, showing not as big an improvement as originally thought,” he noted.

He added that the market still needs to see the end of the “restructuring story” on UAE debt. Apart from that, banks in the region have not shown much momentum for growth, although this may pick up in the second half of this year.

continued...

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improvement of economic conditions and investor sentiment.

Bouncing backGLOBAL: The value of Sukuk issued in the Arab region rose by 33% quarter-on-quarter to nearly US$3.19 billion in the third quarter of 2011, amounting to 12 issuances, according to data from the Abu Dhabi-based Arab Monetary Fund (AMF).

However, the value in the third quarter remained sharply below Sukuk sales in the fi rst quarter of 2011, where 13 Sukuk worth nearly US$10.67 billion were issued.

In a report, the Arab League-affi liated AMF also said that political unrest in the region left the Sukuk market largely unaff ected, although it had put pressure on foreign capital infl ow and IPOs.

MIDDLE EASTPrompt payment UAE: Aldar Properties has repaid a US$1.18 billion convertible Sukuk due on the 10th November 2011 on time, according to a statement to the Abu Dhabi Securities Exchange (ADX).

Aldar, which received a US$4.6 billion lifeline from the Abu Dhabi government in the last week of December, clarifi ed the redemption of the Sukuk certifi cates aft er a request from the ADX, where it is listed.

The Sukuk was arranged as an exchangeable Islamic bond by Barclays Capital, Credit Suisse and the National Bank of Abu Dhabi at a conversion price of AED5.69 (US$1.55).

Meanwhile, the developer has also seen a rally in the price of its Sukuk maturing in June 2013 following the Abu Dhabi government intervention, rising to an eight-month high of 0.8% in the last week of December.

Dana Gas Sukuk yields hitUAE: Dana Gas saw the yield on its US$1 billion Sukuk due in October this year reach a record on the 5th January aft er the company failed to provide details on how it plans to repay the debt following a board meeting.

The yield on the 7.5% notes jumped 504 basis points to 45.4%.

Atul Gharde, a Hong Kong-based analyst at SJS Markets, a fi nancial services company specializing in fi xed income securities, said that an announcement from Dana Gas’ management on the Sukuk refi nancing had been expected following its board meeting.

However, he added that times are diffi cult for the company as it continues to be negatively impacted by political tensions in Egypt and Iraq, where it produces most of its output.

Abiding by the rule QATAR: Al Khalij Commercial Bank has closed its Islamic branch following the order from the central bank for conventional banks to shut down their Islamic windows by the end of 2011.

Nakheel’s second tranche on trackUAE: Nakheel is looking to issue the second tranche of its AED3.8 billion (US$1.03 billion) Sukuk in the fi rst half of this year to sett le contractor claims, said Ali Rashid Lootah, its chairman.

The issuance is expected to amount to AED1 billion (US$272 million). The fi rst tranche of the Sukuk was issued in August 2011.

Ali added that the developer has so far successfully negotiated AED1 billion-worth of contractor claims, although he did not provide details on the amount and value of claims still pending.

Profitable exit SAUDI ARABIA: Saudi Kuwait Finance House has reported a SAR360 million (US$96 million) profi t from the SAR1.5 billion (US$400 million) sale of a real estate project in the kingdom.

It said that the profi t will be refl ected in its fi rst quarter results. However, it did not disclose other details of the transaction.

Four banks hiredUAE: Local shopping mall developer Majid Al Futt aim (MAF) Holding has appointed Abu Dhabi Islamic Bank, Dubai Islamic Bank, HSBC and Standard Chartered to establish its fi rst Islamic

continued...

continued... No guarantee for guaranteed papers?GLOBAL: Guaranteed bonds appear to be the way forward this year; thanks to the volatile market and the need for fi nancing from lower-rated issuers, but such papers may still fail to guarantee a successful issuance.

In the Shariah compliant space, Tamweel and Emirates Islamic Bank have both set up guaranteed Sukuk programs, backed by their respective shareholders, Dubai Islamic Bank and Emirates NBD.

“We’ve seen several Sukuk with guarantees in recent months; the issuers were typically those with low stand-alone ratings,” commented Mahin Dissanayake, the director of Middle East fi nancial institutions ratings at Fitch Ratings. However, he added that guaranteed programs do not necessarily mean a successful issuance: “It really depends on the issuer and market conditions.”

In response to Islamic Finance news, he also noted that the recent fl ood of Sukuk issuance has been driven by very strong demand for Sukuk assets, especially from the Middle East and Asian Islamic banks that are highly liquid and facing limited lending opportunities and few Shariah compliant investments.

“Pricing is however a problem, as issuers are having to pay a risk premium due to volatile global conditions,” he said.

Meanwhile, on the prospects for Sukuk issuances from the Middle East this year, he said that Fitch expects Islamic bond sales to “increase signifi cantly” in 2012, due to the slow market for issuances in the last three years. “Banks (both conventional and Islamic issuers) are facing refi nancing of existing debt and are seeking longer-term funding as loan tenors increase (especially in project fi nancing),” he said.

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NEWS

bond issuance program worth US$1 billion, according to the prospectus issued by MAF.

MAF has been held back from completing a conventional bond off ering since June last year due to unfavorable market conditions and is said to have set up its maiden Sukuk program to have the option to tap Islamic liquidity and demand for Shariah compliant assets.

Rights issue completedQATAR: Barwa Bank, which acquired the Islamic retail banking operations of the International Bank of Qatar last year, has completed a QAR1.7 billion (US$467 million) rights issue aimed at fi nancing the bank’s expansion.

The off ering, which opened on the 6th December, saw 109.1 million new shares off ered to existing shareholders and att racted bids of QAR1.9 billion (US$522 million).

Following the rights issue, Barwa Bank’s issued capital will increase to QAR3 billion (US$824 million) from QAR1.9 billion, while its authorized capital will rise to QAR6 billion (US$1.65 billion) from QAR2.5 billion (US$687 million).

Periodic coupon paidSAUDI ARABIA: Dar Al-Arkan Real Estate Development Company has announced a periodic coupon distribution amounting to US$6.78 million for its Sukuk maturing this year.

The payment is based on a three-month Libor of 0.4%, with a profi t margin of 2.25%.

Financing for taxisQATAR: Qatar Islamic Bank has announced a project fi nancing agreement with Al Million Services Trading and Contracting Co to fund the purchase and operation of 500 new taxis.

The facility will be implemented based on the Istisnah, Murabahah and Wakalah fi nancing modes.

Soaring profitsSAUDI ARABIA: Bank Albilad has reported a net profi t of SAR107 million (US$28.53 million) for the fourth quarter ended the 31st December 2011, from

SAR4.5 million (US$1.2 million) a year earlier.

The increase was att ributed to the bank’s growth in net income from investing and fi nancing, which rose 14% year-on-year to SAR183 million (US$48.8 million).

Total income from operations amounted to SAR393 million (US$104.8 million).

Refocusing effortsKUWAIT: Kuwait Finance House (KFH) has announced a new fi ve-year strategy that will see the group focus on improving banking performance in Kuwait, streamlining its investment portfolio and increasing coordination across its international banking subsidiaries.

The strategies include: focusing on strengthening sales and service to target customers, enhancing KFH’s investment business by increasing control, optimizing returns and bett er managing risk across the bank’s multiple investment subsidiaries, leveraging its international presence more eff ectively and generating synergies across its banking operations in Malaysia, Turkey and Bahrain.

The plan also includes boosting its internal capabilities in several key areas such as treasury, risk management, human resources and IT.

New banking facility UAE: Standard Chartered has launched a new facility which enables existing customers to open Islamic and conventional savings and fi xed deposit accounts through its online banking platform, Straight2Bank.

Gearing up for new challengesOMAN: Bank Sohar will need to focus on developing its loan book and prepare itself for the arrival of Islamic banking in the country this year, although the bank’s unaudited results for 2011 showed profi ts grew 42% over 2010 levels, according to analysts.

Net profi t climbed to OMR14.5 million (US$38 million) for 2011 from OMR10.22 million (US$27 million) a year earlier, with the operating income rising 22.6% to

continued...

continued...

RATINGSFine start UAE: Fitch has assigned EIB Sukuk Company’s US dollar fi xed-rate senior unsecured trust certifi cates an expected rating of ‘A+ (exp)’.

Rating withdrawnMALAYSIA: MARC has withdrawn its rating of ‘A+ID(cg)’ on KMCOB Capital’s RM630 million (US$201 million) Murabahah medium-term notes program with immediate eff ect.

Sukuk redeemedMALAYSIA: RAM has withdrawn its ‘AA3(bg)/P1(bg)’ on BBN Development’s RM86 million (US$27 million) bank-guaranteed Murabahah commercial papers/medium-term notes program (2004/2011). This follows the full redemption of the Islamic debt facility by BBN Development.

High ranking SAUDI ARABIA: S&P has affi rmed Riyad Bank’s ‘A+/A-1’ rating with a stable outlook.

Sturdy positionKUWAIT: Fitch has affi rmed Al Ahli Bank of Kuwait’s long-term issuer default rating (IDR) at ‘A-’ and viability rating (VR) at ‘bb+’. The outlook on the long-term IDR is stable.

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11© 11th January 2012

NEWS

OMR43.2 million (US$112 million) over the same period.

“Islamic banking is going to be a major game changer in 2012. Ahlibank, National Bank of Oman and Bank Muscat appear to be bett er placed in rolling out service compared to other banks, and we will see if Bank Sohar can catch up,” commented Anil Kumar, the vice-president of research for Fincorp, a local investment banking company.

Airport Sukuk debutsSAUDI ARABIA: The General Authority for Civil Aviation (GACA) has commenced issuing its Sukuk to fund the development of the King Abdulaziz International Airport in Jeddah, which is estimated to cost SAR27.11 billion (US$7.2 billion).

The fi rst tranche of the Sukuk was issued on the 10th January and will be followed by other issues, said GACA. The Sukuk will have the full backing of the fi nance ministry and the kingdom’s central bank, the Saudi Arabian Monetary Agency.

However, GACA did not disclose the size of the Sukuk.

Absence of central Shariah banking supervisory body questioned UAE: The issue of the absence of a central Shariah banking supervisory body in the UAE has been brought to the fore again with Obaid Humaid Al Tayyer, the emirates’ minister of fi nance, questioned at the Federal National Council (FNC) level on the failure to set up such an authority.

Ali Eissa Al Nuaimi, an appointed member for the emirate of Ajman at the FNC, the federal authority of the UAE, sent the fi nance minister a question on why a law issued in 1985 for the establishment of a legal commissioning body to supervise Islamic banks has yet to be implemented.

According to Article (5) of the UAE’s Federal Law no.(6) of 1985, governing Islamic banks, fi nancial institutions and investment companies: “A higher Shariah authority shall be formed by a cabinet decision, incorporating

Shariah, legal and banking personnel to undertake higher supervision over Islamic banks, fi nancial institutions and investment companies to ensure legitimacy of their transactions according to the provisions of Islamic Shariah law, and also to off er opinion on matt ers which these agencies may come across while conducting their activities. The opinion of the said higher authority shall be binding on the said agencies. This authority shall be att ached to the Ministry of Justice and Islamic Aff airs.”

Ali Eissa was quoted as saying that: “The number of Islamic banks in the country through past years has continued to increase. We want to know what has happened to this law and the procedures that will be taken concerning it.”

Unlike other thriving markets for Islamic fi nance such as Bahrain and Malaysia, whose central banks have established a national Shariah board and a Shariah advisory council, respectively, the central bank of the UAE has not set up a body of its own to govern the emirates’ Islamic banking sector.

Scholars have long called for the creation of a central Shariah board; in an eff ort to create neutrality, transparency and standardization.

It now remains to be seen what steps will be taken to address the absence of such a board in the UAE.

continued... MOVESBAKER BOTTSUAE: Christopher Aylward, a project and Islamic fi nance lawyer, has joined legal fi rm Baker Bott s as a partner in the fi rm’s Middle East practice, confi rming a report by Islamic Finance news in Volume 8, Issue 49 on the 8th December. Aylward will be based in Dubai.

GULF FINANCE HOUSEBAHRAIN: Abdullah Ali Al Hamli has resigned as an independent board member of Gulf Finance House.

EVERSHEDSQATAR: Islamic Finance news has learnt that Amjad Hussain has resigned from Eversheds, where he was a partner at the fi rm’s Qatar offi ce

ABC INTERNATIONAL BANKUK: Bahrain-based Arab Banking Corporation has announced key changes in the top management team of its European subsidiary, ABC International Bank (ABCIB) in London.

William Playle has been appointed as the new CEO of ABC International Bank following the retirement of Nofal Barbar. Playle was previously the deputy CEO of the bank. Additionally, Paul Jennings and Alexander Ashton were named joint deputy CEOs of ABCIB.

SECURITIES COMMISSION MALAYSIAMALAYSIA: Securities Commission Malaysia (SC) has appointed Nik Mohd Hasyudeen Yusoff and Foo Lee Mei as executive directors to its management committ ee. They will also continue as executive chairman of the audit oversight board and general counsel of the SC, respectively. The SC has also named Shamsufl an Shamsuddin as the executive director of compliance and examination.

IDBSAUDI ARABIA: Mohammad Ali Taskhiri has been appointed as a member of the IDB’s Shariah board.

RHB BANKING GROUPMALAYSIA: RHB Banking Group has appointed Kellee Kam Chee Khiong as its group managing director. He is also the managing director of RHB Capital.

Coming up...Volume 9 Issue 2 — 18th January 2012

Meet the HeadNik Joharris Nik Ahmad, CEO of Century Banking Corporation, Mauritius.

FeaturesIslamic fi nancing in Pakistan; By Sani Mehmood, head of marketing and business development, Karachi Stock Exchange.

Treasury in Islamic banking – challenges and opportunities; By Biswajit Dasgupta, head of treasury and trading, Invest AD.

Future of Islamic fi nance in Egypt; By Mahmoud Fawzy Zaky, investment analyst, foreign investment and corporate fi nance, Faisal Islamic Bank of Egypt.

12© 11th January 2012

IFN REPORTS

In his speech introducing the Taxation Laws Amendment Bills on the 17th November last year, Pravin Gordhan, the fi nance minister of South Africa, revealed that the government is planning to incorporate legislation in 2012 to allow for the issuance of Sukuk to “encourage new forms of foreign investment” in a bid to reduce their reliance on European investors.

Although the issuance itself is expected to be months away, results for the bidding to advise the government on the structuring and issuance of its debut Sukuk will be revealed on the 20th of this month. According to an insider: “The exact date of the issuance currently hinges on the South African National Treasury and whether or not they intend to fast-track the process.”

Affi rming the government’s intention to issue Sukuk, a South African-based banker said: “The republic is serious about the Sukuk, and a request for fi nancing proposal (RFP) has been sent out by the treasury to several leading banks; who have responded by forming teams to follow up on this matt er, including the structuring aspect of the Sukuk. This would indicate a serious intention, which would only be defl ected should structural obstacles arise, or if market conditions prevent

an appropriately priced issue.” Despite this, the government still has much legwork ahead, as the republic is currently devoid of any regulatory and tax allowances to create a level playing fi eld for domestic and international Sukuk issuances.

In a press release by the National Treasury, the successful bidder for the RFP would be required to assist the treasury with structuring, managing and coordinating issuance activities, take an advisory role, draft ing the required contracts, providing issuance timelines, assisting the treasury in obtaining

the relevant regulatory approvals, obtaining listings on both the domestic and international front, marketing, underwriting, book-building, and any other activities directly related to the Sukuk issuance.

Industry pundits are not entirely optimistic on the performance of the South African economy as a whole for 2012, with budget defi cits expected to reach ZAR20 billion (US$245.3 million) or 0.4% of the country’s GDP — larger than the government’s initial forecast. GDP growth is also expected to teeter at 2.8%; not the 3.4% previously predicted by the government. In terms of borrowing, the republic has historically not been heavily reliant on international funding; with only US$1-1.5 billion expected to come from outside sources with the remaining US$30 billion for its 2011/2012 public sector fi nancing to be raised locally.

South Africa is currently in the process of introducing legislation to facilitate Islamic retail fi nancing products, similar to Nigeria. With a 45% Muslim population and home to 28 Islamic Development Bank member countries, the African continent is set to be a force to be reckoned with in terms of Islamic fi nance, should the proper regulations and tax laws be implemented and followed through. — NH

South Africa serious about Sukuk

The bifurcation between the desire for Islamic fi nance in Saudi Arabia and eff orts put in place to allow for its eff ective practice in the kingdom is slowly being breached. In this year’s budget, Sukuk and Islamic mortgages have taken center stage; with various agencies launching initiatives to boost the presence of Islamic fi nance in the real economy.

According to reports, sectors such as SME fi nancing, mortgage and housing fi nance, and project as well as infrastructure fi nancing in particular are expected to utilize Islamic fi nancing instruments despite the current lack of specifi c regulations and policies governing this arena. The General Authority of Civil Aviation for instance, has commenced issuing Sukuk to fund the upcoming US$7.2 billion Jeddah Airport Project; at the same time, the

Capital Market Authority has pledged to “develop and diversify investment channels in the capital markets via the off ering of securities” whilst supporting Sukuk issuances by government-linked companies such as Saudi Basic Industries and more recently, Saudi Aramco.

The approval of the Saudi Mortgage Law in April last year has also fuelled the kingdom’s housing and real estate market, with the government having earmarked the construction of 500,000 new housing units over the next 10 years worth SAR250 billion (US$66.66 billion). In terms of SME fi nancing, the Islamic Corporation for the Development of the Private Sector revealed that it is utilizing its Ijarah companies to facilitate fi nancing directly to SMEs and via the creation of SME investment funds. The corporation is also set to establish the fi rst Shariah compliant SME Investment Fund in Saudi Arabia worth an estimated SAR1 billion (US$266.65 million).

The kingdom’s total expenditure for 2012 is currently projected at US$184 billion, while total revenues is expected to reach US$187.2 billion— based on a modest oil price of US$74 per barrel. — NH

Reading between the lines

South Africa is currently

in the process of introducing legislation to facilitate Islamic retail financing products, similar to Nigeria

The approval of the Saudi

Mortgage Law in April last year has also fuelled the kingdom’s housing and real estate market

13© 11th January 2012

COLUMN

By Shan Saeed

Financial market challenges in 2011The year started with media reports that investors lost US$6.3 trillion in wealth last year. I think that this is an underestimate. In fact investors lost US$17 trillion of their wealth in 2011. Imagine the headwinds investors faced in 2011: sovereign debt issues in Portugal, Ireland, Italy, Greece and Spain (PIIGS); the US rating being downgraded on the 2nd August; under-capitalized banks, Dexia going bust; Swiss and Japanese government currency intervention on the 3rd August and the 31st October respectively; bailing out of western countries; bond/IPO launches in Chinese yuan; gold prices touching US$1923/oz on the 6th September; Japanese nuclear reactor leakages; the Arab uprising; quantitative easing by the US to create asset bubbles in China; oil prices going up; and last but not least a batt le for rare earth.

Once the Romans started creating coins out of thin air, it took 200 years for the denarius to lose 95% of its purchasing power. But look at this. It has taken the US about 80 years to do

to the dollar what the Romans did

to their own money in 200 years. Now,

compared to gold, the dollar lost 98% of its value since 1913. The devaluation

of currency happens again

and again throughout history.

But in fact, what most Americans don’t know is that the money-printing trend has been gaining momentum

in the US since December 2008.

Aft er staying relatively steady

through 2006 and 2007, the Federal Reserve kicked the printers into an overdrive in late 2008. And they haven’t slowed since. Investors only need to look at the prices of everyday items to know what the direct impact of this printing policy has been: • Oil is up 30% in the past two years• Gas is up 45%• Coff ee is up 85%• Cott on is up 90%…

And then there are the precious metals, which have appreciated by more than 400% in the last 10 years.

Global economic outlook for 2012: Bumpier than the last three yearsMarket and systematic risk will remain very high in 2012. Trade war, currency dumping, protectionist policies, the Europe/PIIGS currency issue, the UK going into recession, social unrest in advanced economies, a USA-China trade war, China’s emergence as global economic powerhouse, Russian and

Chinese economic integration, gold prices making records and an upcoming food crisis will be critical issues in the global market. I would touch upon the last challenge of 2011. Rare earth is the new economic batt le fi eld.

Breaking news for the champion investorsOne of the world’s largest rare earth producers was just stripped of its ability to export rare earths over “environmental concerns.” The company is called Bao-tou Steel. It produces about half of the world’s rare earth supply, and was just excluded from the Chinese Ministry of Commerce’s list of 11 approved export-ers for 2012. Baotou is the world’s largest producer and has the highest quota for export and production. It is unimagina-ble for the industry if it loses its quota because of environmental concerns. China also just imposed a rare earth export quota of 30,184 tons in 2011, down marginally from 30,258 in 2010.

Money flows to where it is treated best. Invest in Islamic private wealth management

continued...

Some comparisons for investors to consider.

100%90%80%70%60%50%40%30%20%10%

00 80

Years

THE ROMANS TOOK200 YEARS

TO DESTROYTHEIR MONEY...

Valu

e in

Gol

d

200

100%90%80%70%60%50%40%30%20%10%

00 80

Years

THE ROMANS TOOK200 YEARS

TO DESTROYTHEIR MONEY...

THE US HASDESTROYED THEDOLLAR IN JUST

80 YEARSValu

e in

Gol

d

200

Sources: Financial Times, Economist, Economic history.

14© 11th January 2012

COLUMN

While not signifi cant, the fact that global supplies might choke off is enough to raise American eyebrows. The US depart-ment of energy recently warned that rare earth supplies are facing some of their most critical supply levels. If things don’t improve, many of the greatest technolog-ical advancements could start disappear-ing from store shelves. Tack computers, TVs, high-tech gadgets, batt eries, electric motors, energy-reducing light bulbs, medical devices, and cell phones all re-quire rare earths in their manufacturing.

PwC is sounding the alarm on the sup-ply shortage, which will seriously impact the auto, chemical, and renewable energy industries. According to a survey of execu-tives from 69 manufacturing companies released by PwC, 14 of the 17 rare earth metals that include cerium, dysprosium, fl uorspar and beryllium are set to become even scarcer within the next fi ve years. Demand for rare earth metals is currently expected to outstrip supply by 30-50,000 tons in 2012. This shortage is likely to result in a decline in production rate of devices and products such as mobile-phones, TVs, military equipment and wind turbines that require rare earth metal made components. And with new technologies emerging, rare earth demand will only increase. Global demand for rare earths has already increased 50% over the last decade — and is forecast to keep rising.

By 2015 there will be more than 1.3 mil-lion electric cars on the road and China will be the market leader.

Islamic private wealth man-agement in 2012 — a profi t-able avenue Investors can control their fi nancial desti-nies by making strategic valued invest-ment for wealth protection. Investors can still turn the market volatility and turbulence in their favor while banking on Islamic wealth management for their wealth protection and peace of mind. One of the fi nancial rules I live by is this: “Money fl ows to where it is treated best.” What that means is, over time, fi nancial markets, companies and countries that off er investors the best and safest gains will always att ract the most capital. Islamic wealth management provides the answer.

Years of bailouts, manipulated currencies

and artifi cially low interest rates have all had added up to produce enormous economic consequences. The economic crisis is like a cancer. And if you just wait and think that this will go away, it’s going to be too late.

I think most investors will be lucky if they still have 50% of their money in fi ve years’ time. Investors need to have diversifi cation — some real estate in the countryside, some gold and some agri-culture. In equities in general investors will not lose it all — unless they put it all in one company and it goes bankrupt. What I would say to every smart investor is to be prepared. Preparation is the key to benefi t from Islamic wealth manage-ment for value protection of funds. Where to invest in Islamic private wealth management 2012? Get excited about the new year.

1. Dividend-paying stocks Investors should consider parking

their strategic valued funds in dividend-paying stocks globally the Islamic way. The Islamic way permits investors to take a position in the equity market where returns are not fi xed and elements of loss and profi t are surely present. There are so many stocks in the equity market whose dividend yields are higher as cash fl ow, market demand and consumer confi dence in the company grows, making it a dearer stocks for investors. Some of the best stocks to take position in include Johnson & Johnson and GSK, while technology stocks like Apple, Oracle and EMC will continue to lead the market share and Coke, McDonalds, Adidas, P&G, Nestle, General Mills and Nike are also among the best stock picks for 2012. Following are the growth sectors for strategic valued investment globally:

I) Oil & gas II) Health care III) Telecom IV) Personal care V) Household goods

2. Royal currencies: Gold and silver All savvy rich investors have done

insurance of their wealth by buying gold and silver. These are the royal currencies in times of economic turbulence and uncertainty when market risk is very high. These metals

have no counterparty risk att ached. Gold was trading at US$257/oz in 2001 and trades at US$$1570/oz, making an increase of 510%, while silver has jumped 625% in the last 10 years.

Would any investors want to lose such huge profi t and appreciation in their asset allocation portfolio? In my opinion, not a single investor wants to miss out on these opportunities. These trophy asset investments, paying more than 500% gain in the last 10 years, are almost unbelievable for the investor to imagine in these risky markets.

3. Become a farmer Commodity guru Jim Rogers once

said that fund managers should be acting like farm managers. I could not understand the logic behind the state-ment until I saw the rise in agriculture prices. Governments throughout the world are clamoring for ‘ag-fl ation’ and procuring food items in advance in order to avoid a food crisis. The World Bank and the Asian Develop-ment Bank have issued a warning to many countries about imminent food crises in various regions around the world in their annual reports in 2008, 2009, 2010 and 2011. The big-gest driver contributing to the rise in agriculture prices is changing weather patt erns. Smart investors have already invested in agri-commodities like wheat, sugar, corn, soybean, rice, cot-ton to benefi t from the rise in prices of these commodities. Average prices have jumped from 27% to 87% in the last three years. Owning a farm land is a very good option for valued invest-ment.

It is going to be a great year for investors who want to make smart moves as they navigate through treacherous times to achieve sustainable profi ts, healthy asset allocation and above all to invest in real tangible assets for wealth generation. Here’s to a happy, healthy, and profi table 2012.

Shaan Saeed is a fi nancial economist and commodity expert with 12 years of fi nancial market experience. He graduated from the University of Chicago, Booth School of Business, US. He can be contacted at saeedshan@gmail.com.

Continued

15© 11th January 2012

INSIDER

Try as it might, it seems that the European Islamic Investment Bank (EIIB) has yet to fi nd a successful formula for achieving a stable business. Having seen its fi nancial performance go downhill following the last fi nancial crisis and having reported losses since 2007, the bank has also gone through two CEOs in as many years as it retreated into restructuring mode.

In its latest move, the UK-based bank has now announced an investment in Rasmala Holdings, an investment bank with operations in Egypt and the GCC. The investment follows EIIB’s decision taken last year to focus on business in the Middle East via its Bahrain offi ce: only to announce in October a halving of its headcount and the closure of the Bahrain operations.

The moving and shaking at EIIB has coincided with the entry of its new controlling shareholder, Dubai-based private equity fi rm HBG Holdings, which began buying up a 13% stake in the UK-based bank in the middle of last year. Expectations on HBG’s capabilities in managing EIIB have been mixed, amid questions over the fi rm’s intentions for the Shariah compliant investment bank and on the back of reports of tension between EIIB’s previous management and HBG (See Insider, Volume 8, Issue 39 of Islamic Finance news).

In yet another test of HBG’s plans, Islamic Finance news has learnt of market talk that EIIB has only just hired management consultants to consider the options for Rasmala’s business. “You would think that this would have been done before it (EIIB) decided to take up a stake in Rasmala,” commented an industry source.

As at press time, EIIB was unable to respond to queries from Islamic Finance news.

Meanwhile, Rasmala has faced its own share of ups and downs due to slowing business in the Middle East, and has itself undergone restructuring. With two strikes already to its name, can EIIB and Rasmala help prop each other up to make this new initiative third time lucky for EIIB?

Behind the scenesEIIB’s entry into Rasmala involves a US$16 million investment to be

completed over a 12-month period. The investment is pursuant to a fi nancing facility convertible into newly issued shares of Rasmala, representing 35% of Rasmala’s enlarged share capital.

Rasmala has also issued a majority of its management shares to EIIB, allowing the UK bank to lead the management of Rasmala; where the management shareholders are aff orded the right to appoint the majority of directors to Rasmala’s board. In addition, EIIB has acquired 7.4% of Rasmala’s existing share capital from Ali al Shihabi, the chairman of Rasmala.

The investment is seen as much as a shot in the arm for Rasmala as for EIIB. In May last year, Rasmala announced the closure of its UAE retail brokerage due to fl agging business, opting to focus on its institutional brokerage business instead.

Islamic Finance news has also learnt that the general reaction from Rasmala employees to EIIB’s entry has been that of relief. “It’s been a long time coming,” said a source, who noted that news of EIIB’s possible involvement in Rasmala emerged on the Dubai-based bank’s grapevine “a while back”. He added that: “It’s a relief that it has happened,” putt ing some uncertainty regarding Rasmala’s fate to rest.

Questions remainDespite EIIB’s emergence in Rasmala providing a slightly clearer picture for its stakeholders, the most pressing questions regarding the intentions of EIIB and ultimately, HBG, for Rasmala remain.

At the crux of the matt er is whether EIIB will convert Rasmala, which has some Islamic business, into a fully Shariah compliant entity. As a Shariah compliant investment bank itself, this eventuality appears to be a logical goal for EIIB. However, the understanding is that this will not be required as long as EIIB’s shareholding in Rasmala does not exceed a pre-determined amount.

Another concern is whether HBG remains committ ed to growing the EIIB group’s business or if it is holding out for a profi table exit in the future, given its core business as a private equity fi rm. In addition, HBG’s capabilities in turning around struggling businesses have also been speculated on.

“There are several types of private equity fi rms; some are positioned to reap returns from turning around underperforming assets. HBG appears to be aligned with this objective, although it is unclear whether EIIB’s investment is aimed at increasing its presence in the Middle East or growing Rasmala in Europe.

“However, it’s a tough market in Dubai. Increasing market share is not going to make much of a diff erence (in responding to a fl agging business),” commented a market player.

Striking out in DubaiWhat is clear from EIIB’s latest move is that it is determined to make it in the Middle East; and is in line with its eff orts to re-focus its business to the GCC. Zulfi Caar Hydari, its CEO, commented when announcing the investment that: “The GCC is growing in importance as an economic and trading hub, as its overall GDP is expected to reach US$2 trillion in less than 10 years.

“Our goal as a public company (listed on the London Stock Exchange) is to give international investors exposure via a London-quoted vehicle to this fast growing region, which provides nearly one quarter of the world’s oil supplies.”

He added that EIIB’s experience in international capital markets and asset management, coupled with Rasmala’s strong regional franchise, makes the partnership well placed to seize current opportunities in the GCC.

The acquisition may also not be EIIB’s last in the Middle East. In the statement announcing its investment in Rasmala, EIIB disclosed that it will continue to participate, albeit selectively, in consolidation opportunities in the region’s fi nancial services sector: through organic growth, joint ventures and acquisitions.

It is still early days in the EIIB-Rasmala deal, however, and only time will tell whether the bank has fi nally found the secret to success or if its decision to move into Dubai will lead it to strike out once more. — EB

Third time lucky for EIIB?

16© 11th January 2012

FEATURE

The Islamic banking system was introduced in Bangladesh in March 1983 with the establishment of Islami Bank Bangladesh. In the 2010 fi nancial year, out of 47 banks in Bangladesh, seven private commercial banks were operating as fully-fl edged Islamic banks and 21 branches of the 10 conventional banks were involved in Islamic banking.

The Islamic banking industry in Bangladesh has shown strong growth since its inception in 1983 to December 2009 in tandem with the growth of the economy, as refl ected by the increased market share of the Islamic banking industry in terms of assets, fi nancing and deposits of the total banking system.

Growth of Islamic finance Central bank data shows that deposits of the Islamic banking industry grew by 21% in June 2008. This was higher than the 15% growth of the conventional banking sector in the same period. The fi ve-year (2006-2010) growth of the Islamic banking sector in Bangladesh is shown in Chart 1.

Chart 1 shows that the Islamic banking industry’s deposits, worth BDT532.6 billion (US$6.3 billion), accounted for 29.7% of the total deposits of all private commercial banks and 17.5% of the total banking system as at the end of December 2009.

Total investments of Islamic banks and Islamic banking branches of conventional banks stood at BDT492.9 billion (US$5.9 billion) at end of December 2009. This was 33.2% of total investments of all private commercial banks and 20.2% of total investments of the total banking system. Hence the use of Shariah compliant fi nancial products has had a continuous positive impact on the growth of Bangladesh’s Islamic banking industry.

ConclusionShariah compliant fi nancial products have a risk sharing policy which suggests assessing the capacity, productivity and business risks of the investment client of the bank. This helps to decrease the rate of business failure and increases overall economic well-being for achieving the millennium development goals.

The protection mechanism of deposits

(safety-net) is the essence of banking but it has made the use of Mudarabah and Musharakah products unpopular in the asset side of Islamic banking, although these are the real and ideal products of Islamic fi nancing. Islamic banks are not ‘fi nancial intermediaries’ so they do not maintain ‘debtor-creditor relationships’ like conventional banks. This unique nature of Islamic banks provides an in-built-mechanism for risk minimization for the industry. This has had an impact on the growth of Islamic banks in Bangladesh.

The views expressed here are those of the author himself and do not necessarily refl ect the views of the organization in which he is currently employed.

Dr Mahmood Ahmed is the executive vice-president and director training at Islami Bank Training and Research Academy, Bangladesh. He can be contacted at mahmood_ibtra@yahoo.com.

The growth of Islamic banking in Bangladesh DR MAHMOOD AHMED refl ects on the accomplishments of the Islamic banking industry in Bangladesh since its introduction into the country in 1983.

Chart 1: Growth of the Islamic banking sector in Bangladesh (2006 — 2010)

7.2

6

4.8

3.6

2.4

1.2

0

In Billion (US$)

Year

Deposits Investments

Notes:

Table 1: Comparative positions of the Islamic banking sector (as of end December 2009) Particulars Islamic banks Islamic banking

branches Islamic banking sector

Private commercial banks1

All banks2

1 2 3 4=2+3 5 6

1. Number of banks 7 9 16 30 47

2. Number of branches 501 20 521 2285 (22.8) 7095 (7.3)3. Number of accounts * (in thousands) 5916 - - 14045 (42.1) 33508 (13.4)

4. Number of employees 15943 1013 16956 n.a n.a

5. Deposits US$5.6 billion US$7.4 million US$6 billion (US$21 billion) [US$356 million]

US$36 billion [US$210 million]

6. Investments (Credits) US$ 5.4 billion US$442 million US$5.9 billion US$17 billion [US$398 million]

US$2.9 trillion [US$240 million]

7. Investment deposit ratio 1.0 0.6 0.9 0.8 0.7 8. Liquidity: excess (+)/ Shortfall (-) @ US$405 million - - 1.6 trillion [US$294

million]US$4 trillion [US$120 million]

Notes: 1 Figures in the parentheses in column 5 indicate share of percentage of the Islamic banking sector to all private banks; 2 Figures in the parentheses in column 6 indicate share of percentage of the Islamic banking sector to all banks; * Figures as of end December 2009; @ Conventional banks which have Islamic banking branches do not maintain SLR individually. The Head Offi ces of the respective banks maintain combined SLR and liquidity position. n.a = not available Sources: Research Department, Statistics Department and Banking Regulation & Policy Department, Bangladesh Bank and Central Accounts Departments of all Islamic banks and conventional banks having the Islamic banking branches mentioned in BB, Annual Report 2009-10, p.48.

17© 11th January 2012

FEATURE

As global markets remain in turmoil, it is the emerging economies which remain relatively less aff ected by this economic slowdown. Though these countries tend to be more vulnerable to infl ation and hence subject to monetary tightening measures such as increased interest rates; foreign investors have started to consider the comparatively stable Asian economies as an alternative and in some cases, superior investment destination.

India’s economy expanded by more than 8% last year due to strong export performance and buoyant domestic demand. A population base of more than 1.2 billion people (which includes 150 million Muslims) has meant that much of this growth is driven domestically — and the forecast for 2012 is also promising.

Challenges Despite this remarkable growth rate and the signifi cant captive Muslim population, India has lagged in the development of a domestic Islamic fi nance market. There are a variety of reasons behind this, including unfavorable regulations (e.g. the existence of double stamp duty for Shariah compliant real estate transactions) and a lack of awareness within the Indian public as to the benefi ts and potential of Islamic fi nance.

However, Indian stakeholders can learn from the experiences of other countries which have taken up Islamic

fi nance, both in terms of the marketing of Islamic fi nance as an alternative form of doing business (as opposed to a purely religious development) and perhaps with regards to the re-branding of the segment, for example as ethical or ‘participation’ banking (as it is known in Turkey).

Following on from this and due to the very nature of the asset class, it is likely that the fi rst high-profi le transactions which are structured according to Shariah would be within the real estate segment. India’s emerging realty asset classes off er a sound ground for att racting signifi cant global and domestic investments in the current economic climate — much of which can incorporate some form of Islamic fi nance.

Growth in India’s property market is clearly apparent from the 79% increase in investment volumes between 2009 (US$2,590 million) and 2010 (US$4,636 million). India’s real estate sector is expected to reach a market size of US$180 billion by 2020. However, capital is still limited and the Reserve Bank of India looks set to continue its policy of increasing the key rate in an eff ort to combat infl ation.

Offi ce and retail yields soft ened to

10% and 13.5%, while industrial yields remained stable at 12% in 2010. The forecast is for yields to remain stable in the coming year.

The retail and industrial segments have been most impacted as a result of the global crisis with yields increasing to more than 12%. The substantial move in pricing could be viewed as an opportunity to capitalize on two exciting asset classes which are at diff erent stages of India’s modernization/development process. Whilst the retail segment has seen a dramatic increase in both quantity and quality of assets over the past few years, there is still much potential for improvement – this potential is amplifi ed when considering the logistics segment.

Offi ce yields have remained relatively steady, recovering to pre-crisis levels. Following a slowdown in 2009, the market has recently shown signs of recovery, with offi ce take-up increasing. Indeed, the potential (and challenges) of ensuring suffi cient shopping malls, logistics and offi ce space for a population of greater than 1 billion people are clear.

Though the Indian and Chinese populations are relatively similar, India’s

India: Time to open the floodgates Despite the remarkable growth rate and the signifi cant Muslim population, India has lagged in the development of a domestic Islamic fi nance market. YAHYA ABDULLA explains.

continued...

The retail and industrial

segments have been most impacted as a result of the global crisis with yields increasing to more than 12%

Headline Prime Yields

14%

13%

12%

11%

10%

9%

8%

2006 2007 2008 2009 2010

18© 11th January 2012

FEATURE

land mass is merely one third the size of China’s and hence suff ers from almost three times the population density. Given the size and diversity of the market, the country can be segmented into a variety of geographic markets each with their own specifi c characteristics.

Related to the point above, India’s real estate sector is currently witnessing the emergence of new segments and sub-segments with specifi c needs catered towards the burgeoning population, e.g. the growing space needs for education, healthcare, serviced apartments in the hospitality segment and senior citizens housing in the residential segment. Amusement parks and sports facilities are the other emergent realty segments,

albeit at a very nascent stage in India at present.

OpportunitiesWith regards to Islamic fi nancial institutions starting to capitalize on the Indian real estate opportunities, in the fi rst instance, it will probably be foreign players who will start to be more active in India. In this context, the Indian government has started to make positive moves towards regulatory changes that would promote Islamic fi nance.

There is also news of a new Shariah compliant fi nancial institution being established and most importantly supported by the southern state of Kerala – whether this can develop into a fully-fl edged Islamic bank we will see in time.Another concept which has started to

gain some traction within India is the development of a government-backed Shariah compliant investment scheme to fund the hajj pilgrimage, similar to the Tabung Haji fund of Malaysia (considered to be a very active investor within Malaysia). Depending on the bankability of the Indian Muslim population, the success of such a scheme could mark the fi rst steps towards introducing Islamic fi nancial institutions into the market.

Again, it is worth noting that countries with smaller Muslim populations are already taking steps towards developing Islamic fi nance domestically. Australia and South Africa (who both have marginal Muslim populations) plan to amend laws to ensure products are taxed fairly with regards to specifi c Islamic structures.

ConclusionDespite the positive outlook for India and particularly the real estate segment, one still feels that the massive potential of this market is yet to be tapped. The challenges faced include inadequate (but rapidly improving) infrastructure, strict/complex bureaucracy (which has historically detracted investors from entering the market). However, the world’s largest democracy is now well positioned within the context of the global fi nancial crisis to open its doors to foreign investors both conventional and Islamic.

Yahya Abdulla is a senior surveyor of EMEA Capital Markets at Cushman & Wakefi eld and is the Bahrain Chair for the London School of Economics Global Real Estate Group. He can be contacted at Yahya.Abdulla@eur.cushwake.com.

Another concept which

has started to gain some traction within India is the development of a government-backed Shariah compliant investment scheme to fund the hajj pilgrimage

Continued

Key drawbacks

Key a rac i ns

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19© 11th January 2012

FEATURE

The profound impact of the global fi nancial crisis prompted G20 leaders to seek an agreement on a set of international rules designed to improve both the quantity and quality of bank capital, and to discourage excessive leverage.

It is recognized that these rules should be phased in as the global economic situation improves. These new rules will become enshrined in the national legislation and subsequently codifi ed in the issuance of a set of new international regulatory and capital adequacy standards — Basel III. The aim is to have Basel III fully implemented by 2019 with signifi cant changes to the liquidity, capital adequacy and governance of all fi nancial institutions.

A signifi cant question highlights the road ahead for many banks: “What position would banks have been in if Basel III was applicable in 2009?” The answer is shocking — banks would have been EUR577 billion (US$746 billion) short of capital and EUR1.73 trillion (US$2.23 trillion) short of liquid assets.

Origins and causes of the financial crisisBasel II was a necessary and material refi nement of the original accord but with the benefi t of hindsight it was lacking in some key areas. However, it would be wrong to apportion too much of the blame to regulatory shortcomings. The business models and behavior of some market participants, along with a lack of robust corporate governance, had a material impact.

These factors combined to allow a signifi cant number of fi nancial institutions to build up excessive and leveraged risk concentrations in the years preceding the fi nancial crisis. These banks were not adequately assessing, pricing or stressing these risks. Neither were they compensating for the inherent risks they were exposed too. There were also instances of failures by rating agencies and credit insurance providers in assessing and enhancing the credit worthiness of asset-backed securities and synthetic structures, many

of which had limited social or economic benefi t.

How Basel III seeks to achieve greater market stability Basel III should be seen as a series of key and phased enhancements that address the shortcomings in Basel II but which fi t into framework of the current regime. The key elements include:-

Capital adequacy: There must be more capital, and more high quality capital, in the banking system. Fundamentally, all Tier 1 capital must be fully eff ective at absorbing losses and Tier 2 capital must be far more loss absorbent to remain in the capital structure.

Liquidity: Strengthened liquidity disciplines that examine the robustness of a bank’s funding profi le and adequacy of liquid asset reserves through the use of extreme stress tests.

Leverage ratio: A back-stop measure to control banks unduly increasing their absolute leverage and level of model risk while retaining a high capital ratio.

Counterparty credit risk: Implementation of a capital charge based on a stress test volatility assessment

of counterparty pre-sett lement risks emanating from over-the-counter derivative contracts.

Ahead of these measures, the Basel Committ ee for Banking Supervision (BCBS) has already taken steps to require banks to calculate a stressed value at risk over a year-long observation period. The BCBS estimates that market risk capital requirements will increase by some three to four times their current levels for internationally active banks.

Basel III and international accounting standards Separately, the Basel Committ ee is working with the International Accounting Standards Board (IASB) to ensure that regulatory and accounting standards are adequately aligned for example longer term general provisioning to reduce procyclicality risk.

The BCBS has also announced higher global minimum capital standard with the minimum common equity requirement being increased from 2% to 4.5% by the 1st January 2015 at the latest. In parallel, the BCBS is introducing stricter regulatory deductions (e.g. for minority interests) and tighter Tier 1 criteria for capital instruments which are not common equity. Furthermore, the structure of Tier 2 capital is to be simplifi ed and Tier 3 capital is to be phased out.

In addition to these minimum capital requirements, two common equity-based capital buff ers will be introduced — a capital conservation buff er equivalent to 2.5% of risk weighted assets and a countercyclical buff er of an additional 0% to 2.5% of risk weighted assets.

The eff ect of these measures will be to increase the common equity (Tier 1) component of bank capital from 2% to 7% of risk weighted assets. Additionally, national regulators will have the right to require banks to maintain a countercyclical buff er that can be grown in periods of prosperity and released in an economic downturn.

Basel III and Islamic finance: What lies ahead? Basel III is unlikely to materially change the existing challenges faced by Islamic banks. However it is expected to dominate the agenda of many conventional fi nancial institutions. MIKE KENNEDY discusses.

continued...

Basel III should be

seen as a series of key and phased enhancements that address the shortcomings in Basel II but which fit into framework of the current regime

20© 11th January 2012

FEATURE

Looking at these measures as a whole, the increase in minimum capital standards is designed to provide adequate loss absorbency resources in normal market and operating conditions, whereas the capital conservation buff er and countercyclical buff er look to limit systemic and procyclicality risks over the longer term.

The BCBS is looking to implement the leverage ratio during a preliminary period commencing in January 2013. It will be a requirement for banks to operate under a minimum Tier 1 leverage ratio of 3% where the latt er is measured against the total non-weighted assets and off -balance sheet exposures of a bank.

New liquidity standards The impact of the new liquidity standards must not be underestimated. Under Basel II a relatively small part of the accord was dedicated to the liability and liquidity aspects of banks’ balance sheets. Basel III includes two new standards — a liquidity coverage ratio (LCR) requiring banks to hold suffi cient liquidity to deal with severe market shocks and a net stable funding ratio (NSFR) that deals with the adequacy of bank’s longer term and structural funding profi les.

In the European arena, oft en a benchmark for global regulation, parliamentary bodies are embracing key Basel III principles but are requesting much more preparatory work be undertaken before the new standards are transposed into law.

The challenge for regulators and governments will be to calibrate these new measures and time their implementation such that global economic recovery is not put at risk. It is hoped that this will result in increased levels of tangible economic and socially responsible banking business. For example, the role of conventional and Islamic banking in facilitating economically crucial trade fi nance business must not be put at risk by overzealous regulation that could stifl e overall economic growth.

The era of cheap money seems to be over for both banks and their customers. There is shift back towards more traditional and tangible customer

banking. The additional capital and liquidity costs borne by banks will undoubtedly lead to higher borrowing costs for customers and institutions and returns on equity are likely to reduce.

Ahead of implementation, much preparation and agreement, both at national and international levels, needs to take place.

How might Islamic finance be impacted? Islamic banks were not immune to the fi nancial crisis, and a good number have unsurprisingly been exposed to frenzied expansion and excessive risk concentrations, notably in the real estate sector. Along with the still fragmented structure of Islamic fi nance and the relative lack of liquidity instruments, such issues remain at the forefront of the challenges faced.

In assessing the impact of Basel III, this analysis looks at the issues surrounding Shariah compliant banks only. Islamic windows have been excluded due to their use of conventional liquidity and risk management instruments.

At a macro level, and compared to their conventional counterparts, Islamic banks tend to be small, and with limited cross-border dependencies and international networks. Notwithstanding the continued growth in Shariah compliant banking, these institutions, with a small number of exceptions, are unlikely to become the dominant fi nancial institutions in their country of

domicile. Using this narrow defi nition and applying the BCBS guidelines that systemically important fi nancial institutions (SIFIs) are banks with assets in excess of US$100 billion, it can be concluded that Islamic banks are unlikely to pose meaningful levels of systemic risk.

Looking at the critical matt er of capital adequacy as defi ned by Basel III, fi nancial institutions must have more and higher quality Tier 1 capital which includes common equity and certain minority interests, as well as deferred tax assets. Tier 1 capital must be fully eff ective at absorbing losses and Tier 2 capital which includes undisclosed reserves, revaluation reserves, general provisions, hybrid instruments and subordinated term debt must absorb more losses in order to protect capital. Tier 2 capital, which is additional to minimum capital requirements, is needed to address systemic and procyclicality risks.

The fi rst point to note is that the capital structures of the signifi cant majority of Shariah compliant banks are dominated by Tier 1 capital in common equity form, oft en in excess of 80% of capital resources. In addition, most have capital adequacy ratios noticeably higher than those seen in the conventional banking sector. The reasons for this can be explained by a combination of complexities and Shariah prohibitions in raising alternative and lower quality forms of capital which result in:

• The lack of Islamic subordinated debt.

• The lack of hybrid and callable capital structures due to the prohibition of gharar (conditionality and uncertainty).

• The lack of meaningful levels of preference shares, even in Shariah jurisdictions that permit this form of capital.

As a consequence of these factors, the capital structures and above average capital ratios of Shariah fi nancial institutions put them in a favorable position relative to many of their conventional counterparts.

Continued

Liquidity is, however, one

area where both conventional and Islamic banks are likely to be impacted to a meaningful extent by Basel III

continued...

21© 11th January 2012

FEATURE

Continued

In comparative and competitive terms, the capital adequacy positions of Islamic banks will also benefi t from:

• The modest role of trading book businesses as Shariah principles prohibit short selling and impose strict limitations on the use of derivatives. Consequently, Shariah fi nancial institutions will be negligibly impacted by the higher capital charges for such operations.

• The modest and very limited use of derivatives and securitized structures by Islamic banks will result in such institutions not being adversely impacted by the additional capital charges that are being applied to address the inherent risks in such products (e.g. transactions collateralized by their own or by related party shares).

• The lack of leverage and contingent risks, including the restrictions applicable to margin-based businesses, auger well for Islamic banks in so far as the new leverage ratio is unlikely to have anything more than a very modest impact.

Liquidity is however one area where both conventional and Islamic banks are likely to be impacted to a meaningful extent by Basel III, albeit in diff erent ways. Firstly, in most jurisdictions there remains a dearth of liquid Islamic instruments.

Despite progress in the deepening of Islamic liquidity markets, notably the in-creased Sukuk issuance by the ‘AAA’ rated IDB, there is a lack of eligible liquidity instruments and central bank facilities.

However, these limitations are off set by the relative lack of contingent and

leveraged liquidity risk; a generally low reliance on interbank funding; and for many banks, including BLME strong depositor loyalty.

ConclusionBasel III is unlikely to materially change the existing challenges faced by Islamic banks. It is, however, expected to dominate the agenda of many conventional fi nancial institutions, particularly more speculative and leveraged banks. As a result, the stronger and bett er managed Islamic banks will see Basel III as an opportunity prosper and strengthen their competitive positions. Many conventional banks may not have this chance.

Mike Kennedy is the head of risk management at Bank of London and The Middle East and he can be contacted at mike.kennedy@blme.com.

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22© 11th January 2012

FEATURE

In recent times, particularly in Malaysia, large infrastructure constructions have been fi nanced through the issuance of Sukuk. Although many diff erent structures have been adopted, there are similarities in the fundamental features of most of these structures.

In a typical infrastructure fi nancing, the common feature in almost every deal will be the existence of a sponsor who has a project. The sponsor is sourcing funding to construct the infrastructure; and a construction contract will exist between the sponsor and a third party contractor.

The following transaction structure sets out a step by step illustration on how the existence of a construction contract between the sponsor and a third party contractor can be used to create the underlying transaction for the issuance of Sukuk.

As a point of illustration, the issuer in Diagram 1 is a special purpose vehicle/company set up by the sponsor to be the issuer of the Sukuk. Depending on local legislation requirements, the issuer

can be set up either as an ‘orphaned’ company (i.e. shareholding in the issuer to be held in trust by trustees for the benefi t of selected charitable organizations) or the shares are held directly in the name of the sponsor and the issuer becomes a subsidiary of the sponsor. Whichever is the most appropriate option will depend largely on the sponsor’s commercial requirements, accounting treatments and also tax treatments in the relevant jurisdictions concerned.

The diagram also demonstrates the existence of common features of infrastructure fi nancing — the existence of a project owned by the sponsor that requires funding which will enable the sponsor to pay the third party contractor under the construction contract.

Step (1) This step involves the Issuer issuing

Sukuk which may be subscribed by investors interested in participating in the infrastructure project. The Sukuk, once issued, represents the subscribing investors’ (Sukukholders) undivided interest in the infrastructure (Asset) which the Issuer will commission the sponsor to construct.

In consideration of the issuer successfully issuing the Sukuk to the Sukukholders, the Sukukholders

will remit/transfer the subscription proceeds for the subscription of the Sukuk to the Issuer.

Step (2) In step (1) above, it was mentioned

that the issuer will commission the sponsor to construct the asset. Based on the transactional structure illustrated above, this commissioning will be undertaken through the Issuer entering into an Istisnah contract with the Sponsor. An Istisnah contract is a construction and procurement contract for the commissioned manufacture of a specifi c asset.

Under the terms of the Istisnah contract, the issuer will commission the sponsor to construct and deliver the asset to the issuer by a specifi ed date and at an agreed contract price which will be paid by the issuer to the sponsor in advance. The contract price to be agreed between the issuer and the sponsor for such commissioning will be such price equivalent to the proceeds received by the Issuer from the Sukukholders for the subscription of the Sukuk issued in step (1) above.

Premised on the foregoing terms in the Istisnah contract, upon the

Infrastructure financing: Transactional structuring from a Sukuk issuance perspective MARK LIM provides a simple demonstration of how a structure can be adopted for the issuance of Sukuk using the basic components or fundamental features of an infrastructure project.

continued...

Contractor Sponsor

Issuer

Investors

Construction Contract

5 3 4

2

4(a)

1

$

$ $

2(a)

Transaction structure

Upon the issuer’s receipt

of the periodic lease rental payments, the Issuer shall remit/distribute such proceeds as periodic distribution to the Sukukholders in accordance with the terms of the Sukuk.

23© 11th January 2012

FEATURE

Issuer’s receipt of the proceeds for the subscription of the Sukuk issued, the Issuer will remit/transfer such proceeds to the Sponsor as fulfi llment of its obligations under the Istisnah contract to pay the contract price in advance.

Step (2)(a) Upon the sponsor’s receipt of the

Istisnah contract price, as illustrated in Step (2)(a), it is envisaged that the sponsor will use such proceeds received to pay the contractor in accordance with the terms of the construction contract.

With the illustration provided in Step (1), (2) and (2)(a) above, the fi rst part of the infrastructure fi nancing structure would have been achieved, that is, the sponsor would have achieved its objective to secure funding for the construction of the asset and all that is left would be to complete the construction and accept delivery of the asset.

Let us now look at the second part of the structure which addresses the Sukukholders’ objective: i.e. the mechanisms put into place to address the Sukukholders’ interest in the investment in the Sukuk/asset.

Step (3) Like any other investors investing

in a project/asset, the Sukukholders’ primary interest in subscribing to the Sukuk would be to receive a return for the investments made. Step (3) sets out the mechanics put in place to ensure the Sukukholders are able to meet such objectives.

In Step (3), the issuer will enter into an Ijarah contract with the Sponsor relating to the leasing of the constructed asset to the Sponsor. The leasing of the asset by the issuer to the sponsor creates an obligation for the sponsor to pay periodic rentals to the Issuer.

In most cases, although the construction of the asset may not be completed, the obligation to pay lease rental will commence shortly aft er the execution of the Ijarah contract.

To enable this to happen, the Ijarah contract between the issuer and the sponsor will have to adopt the

concept of a forward lease contract. It is essential for the Ijarah contract

to be structured as a forward lease contract so that periodic distributions can also be made to the Sukukholders during the construction period of the asset. This leads us to Steps (4) and (5) of the transaction structure.

Step (4) In accordance with the terms of

the Ijarah contract which will be structured on a forward lease basis, periodic lease rentals will be made by the sponsor to the issuer during the construction period of the asset and over a period of pre-agreed timeframe aft er the construction of the asset is completed.

Timing and regularity of such lease rental payment will need to coincide with the payment obligations of the issuer to the Sukukholders under the terms of the Sukuk because the lease rental payments are the funding source of the periodic distributions agreed to be made by the Issuer to the Sukukholders.

Step (4)(a) Upon the issuer’s receipt of the

periodic lease rental payments, the Issuer shall remit/distribute such proceeds as periodic distribution to the Sukukholders in accordance with the terms of the Sukuk.

Step (5) Based on the descriptions set out

above, although the principal objectives of the Sponsor procuring funding for the construction of the asset and the Sukukholders gett ing their returns from the investments in the Asset have been addressed, one outstanding issue remains and that is the ownership of the asset.

As it stands, if the transaction structure completes at Step(4)/(4)(a) above, the ownership of the asset will remain with the Issuer. This may not be ideal in the case where the Issuer is an ‘orphaned’ company or where the sponsor’s intention of having the special purpose company as a subsidiary is to facilitate the issuance of the Sukuk.

This fi nal leg of the transaction is necessary to ensure the sponsor has the right to impose upon the Issuer to transfer the ownership of the asset back to the sponsor on the fi nal maturity date of the Sukuk.

Premised on the above step by step description and sequence of events, it is understandable why in recent times, particularly in Malaysia, Sukuk issuances have become such a popular choice in facilitating infrastructure fi nancing for large infrastructures, namely power plants, toll roads, social infrastructure such as schools, hospitals and utilities. In general terms, as long as there is a construction contract to facilitate the construction of the subject matt er, it will be possible to consider using the Istisnah-Ijarah structure to facilitate the issuance of Sukuk.

This article is for information purposes only. The contents do not constitute legal advice and should not be regarded as a substitute for detailed advice in individual cases. The application of Shariah principles and Shariah structures diff er in various jurisdictions and you are encouraged to seek Shariah advisor’s views before implementing any form of Shariah compliant structures. No decision to act or not to act in a particular way should be taken merely on the basis of this article, and detailed legal advice should always be sought at the earliest possible moment.

Mark Lim is a partner of Wong & Partners, the Malaysian member fi rm of Baker & McKenzie International, a Swiss Verein. He can be contacted at mark.lim@wongpartners.com.

Continued

In most cases, although the

construction of the asset may not be completed, the obligation to pay lease rental will commence shortly after the execution of the Ijarah contract

24© 11th January 2012

FEATURE

Islamic fi nance is common in Islamic countries like Malaysia, Indonesia and the Middle East, yet it is new ground for others. Saudi Arabia is the largest Islamic banking player in the world in terms of fund volume and possesses the world’s largest Islamic fi nancial institution. Meanwhile, the Malaysian Islamic capital market has exceeded RM1 trillion (US$327 billion) and spread its infl uence across the Southeast Asia region including Thailand.

In Thailand and in most countries where Muslims are a minority, Islamic fi nance may not sound so familiar. Under the Shariah, other than the obvious forbidden transactions such as gambling or trading of alcohol, pork-based products and pornographic materials, transactions based on excessive uncertainty (gharar) are also not permissible. The need to adhere to strict requirements of the Shariah poses quite a daunting challenge to originators seeking to raise funds in the capital market from Islamic investors thus proving it is not an easy market to penetrate.

It is diffi cult to pinpoint when exactly Islamic fi nance started to gain increasing popularity in Thailand. Broadly speaking, when Thais look at the Islamic world, we do not usually pay much att ention to its fi nancial sector. This is a shame because the size of the Islamic fi nancial market is estimated to be maximum around US$1.2 trillion and continues to grow expeditiously. Like everything else on the planet, when something reaches its peak, it loses interest and excitement and we begin to explore new opportunities. This might have been the case as far as conventional and Islamic fi nance is concerned; aft er we have thoroughly explored what we already have, we tend to turn our eyes to look at and envy our neighbors.

Islamic financeIn Thailand, where approximately 6% of the total population is Muslim, Islamic fi nance is relatively new, although Thai Muslims have been searching for Shariah compliant fi nancial services. The Islamic

Bank of Thailand Act was passed only in 2002. One year later, The Islamic Bank of Thailand was founded.

The Islamic Bank of Thailand bought Shariah compliant fi nancial services from Krungthai Bank and now autonomously operates a full fi nancial business under Islamic laws. It off ers numerous fi nancial products including deposit, fi nancing, cash management and trade fi nance facilities. These products are off ered to both Islamic and non-Islamic customers. The bank was initiated to serve the need of Muslims mainly in the three southern provinces of Thailand (Narathiwat, Patt ani and Yala) and has now successfully expanded to have many branches throughout the country.

The Thai central bank, Bank of Thailand, also plays a big part in strengthening Islamic banking in Thailand. In 2008, the Bank of Thailand issued notifi cation relating to the permission for commercial banks to conduct Shariah banking services. This supports qualifi ed commercial banks to operate Shariah banking services and adds more convenience for customers, Muslims and non-Muslims alike.

As commercial insurance is strictly prohibited for Muslims because it contains uncertainty, gambling and interest elements, Muangthai Insurance Public Company, an insurance company in Thailand, also off ers Takaful under the name of Muangthai Takaful.

Development of Shariah financeOther than commercial banks and Takaful operators, investment banks have also seen signifi cant developments over the years. The capital market for Islamic investors is emerging and enlarging extensively. The main reason behind this is because escalating oil prices are causing tremendous income to oil producers in the predominantly Muslim Middle East. High oil prices have generated abundant petro-dollars which enable them to accumulate massive

assets from all over the world. They then desire to invest in other products that are more profi table than bank deposits and Takaful. Despite their huge investing power in terms of funds availability, Shariah compliant investment instruments are very limited. Under such a strict religious restriction, their investment alternatives are minimized and oft en lead to merely deposits or investment in real estate.

Like other businessmen, Islamic investors look for ways to invest their assets with decent returns, yet of course, in compliance with the Shariah. When there is demand, there will be supply. In order to meet prosperous Islamic investors’ needs, fi nancial institutions are required to come up with new products that are in line with the Islamic rules. This is when the Islamic capital market fl ourishes.

Unlike in regular capital markets, debt instruments cannot be traded under the Shariah, thus, Islamic investors cannot buy mainstream debt securities. Consequently, Islamic capital market instruments are based on securitization. Thus in the Islamic fi nancial world, Sukuk is the term you will immediately come across.

Sukuk Sukuk literally means ‘certifi cate’ but technically it refers to Islamic equivalent

Islamic finance in Thailand: Prospects and challenges RUENGRIT POOPRASERT and ANAKNONG CHAIYASRI provide an overview of the Islamic fi nance industry in Thailand, which they believe has a bright future.

continued...

The Thai central bank,

Bank of Thailand, also plays a big part in strengthening Islamic banking in Thailand

25© 11th January 2012

FEATURE

of a bond. As common as it is in neighboring countries like Malaysia and Indonesia, Sukuk is still considered fresh and exotic in Thailand.

Basically, Sukuk is a transferable certifi cate representing the undivided ownership of the Sukukholders over the underlying Sukuk assets, for which the Sukukholders are entitled to receive compensation from such Sukuk being leased out during the tenure of the Sukuk.

The diff erence between Sukuk and customary debt securities can be identifi ed without much diffi culty. A crucial distinction from western bonds is that compensation from Sukuk will be in the forms of rental, profi t payment or other benefi ts, but never interest. While there must be Shariah compliant contracts or transactions supporting the issuance of Sukuk, normal debt securities are free from this requirement.

Another essential matt er is that the objective of the business investment from funds raised by Sukuk must be in compliance with Islamic norms. For instance, investment in any business involved with alcohol is not allowed. Contrary to some ignorant thoughts, all investors are welcome to invest in Sukuk, including non-Muslims.

Sukuk is viewed as an innovative fi nancial instrument for Shariah-inclined investors seeking opportunities within the rapid development of Thailand’s investment fi eld, and is key to opening up access to Thai companies that hope to tap the funds of wealthy Islamic

investors. The outlook for Sukuk remains positive as this ongoing trend has arrived in Thailand and is recognized by the Securities and Exchange Commission.

Market forces have encouraged the Securities and Exchange Commission to invite Sukuk into the Thai capital market. This dream fi nally came true in 2010, when the Thai cabinet approved the amendment of the ministerial regulations concerning the approval on undertaking securities business.

This amendment covers the category of Sukuk and supports the issuance of Sukuk in the form of trust certifi cates. Later on, the Securities and Exchange Commission passed a notifi cation relating to the regulations for becoming a trustee in Sukuk transactions.

At the very beginning of 2011, the Capital Market Supervisory Board under the Securities and Exchange Commission released provisions on issuance for sale of Sukuk and disclosure of information. Newly issued Sukuk can be off ered for sale publicly or by private placement or to investors in a foreign countries. This has shed some light on Islamic fi nance in Thailand and broadened approaches for investment.

Sukuk will be a new type of fi nancial product in Thailand and the trade of trust certifi cates will be expanded which adds more access to investors. Thailand has been preparing to launch its fi rst sovereign domestic Islamic bond but for the time being it is still waiting for the approval criteria from the Securities and Exchange Commission.

Recent developments in Islamic fi nance includes the approval of new tax measures and fees in order to support the development of the Thai capital market. In May 2011, the Cabinet approved the draft royal decree issued by virtue of the Revenue Code as proposed by the ministry of fi nance.

The essence of the approval was to exempt income tax, value added tax, specifi c business tax and stamp duty for the originator or obligor, trustee and Sukukholder of transactions relating to Sukuk. This provides a promising signal that investors may have a chance to invest in Sukuk issued in Thailand in the near future.

ChallengesWith the cooperation of the public and private sector, so far there has been positive progress in the improvement of Islamic fi nance in Thailand over the years. However, a lack of knowledge and expertise of Islamic banking and fi nance remains a factor that slows down the rate of progress.

In order to truly understand the nature of Islamic fi nance, there needs to be a deep comprehension of Shariah. The shortage of higher education and training in this fi eld may cause hindrance to the development of Islamic fi nance in the country.

OpportunitiesAs noted by a renowned writer, Sarinee Achvanuntakul, there are several subtle advantages of Islamic fi nance that are occasionally overlooked. One is that Islamic fi nance completely relies on the Shariah. The relationship between the creditor and debtor under the Islamic fi nance system entails mutual benefi ts with an inherent risk sharing and co-investing feature. Both parties have more similar views towards their management than those in conventional fi nance.

They also have to uphold the strict moral and ethical code of their religion. Therefore, with such a strict compliance requirement, the chance that a creditor will be cheated is minimal. Another indirect gain derived from the combination of conventional fi nance and Islamic fi nance is that it connects the western world and Islamic world together. It also creates a good understanding among diff erent races, religions and cultures.

ConclusionThailand has embraced this new way of banking and fi nance. We are still at the beginning but it seems certain that Islamic fi nance has a long and bright way to go in this country. With collective assistance from every sector, we can strive to push this new sector towards fulfi lling its true potential.

Ruengrit Pooprasert and Anaknong Chaiyasri are a partner and associate at ZICOlaw (Thailand), respectively, and they can be contacted at ruengrit.pooprasert@zicolaw.com and anaknong.chaiyasri@zicolaw.com.

Continued

Market forces have

encouraged the Securities and Exchange Commission to invite Sukuk into the Thai capital market

26© 11th January 2012

Islamic InvestorCover Story

The year has started off with less than encouraging news on the global economy, which has been predicted by one analyst to see a slowdown from 3% in 2011 to 2.5% in 2012. Even the International Monetary Fund (IMF) is looking to revise its forecast for the year from its initial 4% growth.

While Asia remains at the forefront of the investment space, the ongoing Eurozone debt crisis has obviously had sapped inves-tor confi dence in the euro region. Analysts believe that recovery could be severely undermined if Italy’s debt woes worsen. Any hope of an imminent recovery has been dampened following a recent report detailing an internal IMF memo that stated that the organization was losing confi dence in Greece’s ability to clean up its public fi nances and work off its mountain of debt.

However, HSBC Global Asset Manage-ment believes that a silver lining exists in the dark clouds that loom over this uncertain period, particularly for those with a long-term perspective. It points out that many companies are in solid fi nancial shape, and are applying auster-ity measures that are likely to reduce the probability of a default and instead provide a positive outlook for corporate bonds, especially at the high-yield end of the spectrum, and in Asia where funda-mentals are relatively stronger.

HSBC Global Asset Management further states that equities markets in emerging economies will continue to remain att ractive due to stronger fundamentals than in developed markets. The fi rm highlights the interesting fact that equities are currently trading at very att ractive levels relative to history.

In the world of Islamic funds, Saudi Ara-bia is leading the way in terms of returns, particularly in the month of December. According to the latest fi gures by Eureka-hedge (as seen in Chart 1), nine of the top 10 funds in terms of monthly returns were equity funds domiciled in the kingdom. The only non-Saudi domiciled fund was from Malaysia’s AmItt ikal.

One reason for strong performance of these funds could perhaps be the backing of strong oil prices over recent months. Also on the 26th December 2011 Saudi Arabia posted a surplus of SAR306 billion (US$81.6 billion), with revenues reaching SAR1.11 trillion (US$296 billion) — double the forecast fi gure of SAR540 billion (US$144 billion). This is likely to further boost the performance of funds in all asset classes in Saudi Arabia in the coming months.

Another asset class predicted to perform well this year is fi xed income. This is because Sukuk issuances look set to hover around the US$50-60 billion range as Malaysia and Saudi Arabia continue to dominate this space. Jarmo Kotilaine, the chief economist at National Commercial Bank (NCB), Saudi Arabia’s largest bank,

said that funds raised through Sukuk in the GCC rose to nearly US$17 billion in the fi rst nine months of 2011 with corporate issuances making up around 87% or US$$14.6 billion of total issuance.

Malaysia looks to retain its lead in the Sukuk market in terms of volume, as it begins the year with the pending RM$30.6 billion (US$9.68 billion) issuance by Projek Lebuhraya Utara-Selatan (PLUS), a wholly-owned subsidiary of PLUS Expressways Berhad, the major provider of expressway operation services in the country.

Islamic funds, particularly in the equities sector, are set to face some challenges this year but along with adversities, opportunities also abound during this volatile time. Asset management companies are well placed to create further awareness of the benefi ts of investing in Islamic funds for conventional investors looking for safe havens. — RW

Challenging times persist

Vol 9 Issue 1

Prudential Al-Wara Asset Management Berhad (PRU Al-Wara') is the Islamic asset management business of Prudential Corporation Asia. Established in 2009 and headquartered in Malaysia, PRU Al-Wara' is responsible for managing Shariah compliant assets on behalf of retail and institutional investors, as well as onshore and offshore institutional mandates.

Visit www.prudentialfunds.com.my for more information.

nt nd

ah d o

comffs

In this issue...

News .................................................................... ..x

Chart 1: Latest Monthly Returns (Top 10) — Dec 2011 Al Qasr GCC Real Estate & Construction Equity Trading Fund 9.10AlAhli Saudi Mid Cap Equity Fund 8.08AlAhli Saudi Trading Equity Fund 7.56Jadwa Saudi Equity Fund 7.47Al-Saff a Saudi Equity Trading Fund 6.92Al-Mubarak Pure Saudi Equity Fund 6.91Amanah Saudi Equity Fund 6.78AmItt ikal 6.72

Jadwa GCC Equity Fund 6.46Jadwa Arab Markets Equity Fund 6.31Source: Eurekahedge

27© 11th January 2012

ISLAMIC INVESTORNEWS

Shariah investing in the OICGLOBAL: The Organization of Islamic Cooperation (OIC) will launch its Shariah compliant stock index later this year, said Ekmeleddin Ihsanoglu, its secretary general.

He explained that the new index will encourage investment in OIC member countries.

Rules needed for growthSAUDI ARABIA: New regulatory, immigration, business and fi nance legislation is crucial for the real estate sector in Makkah and Madinah to

achieve its true potential, according to Islamic real estate advisory fi rm Alpha1Estates International.

According to Malik Al-Alawi, the chairman of Alpha1Estates, real estate investments in Makkah and Madinah account for 40% of total real estate investments in the kingdom, standing at over US$120 billion over the next decade.

“Introducing these new laws will not only allow the sector to develop to world-class standards, but also generate unprecedented revenue for the kingdom and its citizens,” Malik added.

Opening up Islamic securities marketMALDIVES: The Capital Market Development Authority (CMDA) has opened applications to companies wishing to provide Shariah compliant securities.

CMDA will screen fi rms to ensure that their operations and transactions are made in alignment with Shariah principles. It added that its board of directors will license the companies upon consultation with the Capital Market Shariah advisory committ ee.

Islamic Finance news Awards Dinner

Congratulating the Industry’s Finest

KUALA LUMPUR15th February 2012

DUBAI29th February 2012

Book Your Table Today

For more information, please contact Geraldine Chan at geraldine.chan@redmoneygroup.com or call +603 2162 7808

28© 11th January 2012

FUNDS TABLES

Comprehensive data from Eurekahedge will now feature the overall top 10 global and regional funds based on a specifi c duration (yield to date, annualized returns, monthly returns), Sharpe ratio as well as delve into specifi c asset classes in the global arena – equity, fi xed income, money market, commodity, global investing (which would focus on funds investing with global mandate instead of a specifi c country or geographical region), fund of funds, real estate as well as the Sortino ratio. Each table covering the duration, region, asset class and ratio will be featured on a fi ve week rotational basis.

Eurekahedge Middle East/Africa Islamic Fund Index

Top 10 Monthly returns for Middle East/Africa funds

Fund Fund Manager Performance Measure Fund Domicile

1 Al Qasr GCC Real Estate & Construction Equity Trading

Banque Saudi Fransi 9.10 Saudi Arabia

2 AlAhli Saudi Mid Cap Equity NCB Capital Company 8.08 Saudi Arabia

3 AlAhli Saudi Trading Equity The National Commercial Bank 7.56 Saudi Arabia

4 Jadwa Saudi Equity Jadwa Investment 7.47 Saudi Arabia

5 Al-Saff a Saudi Equity Trading Banque Saudi Fransi 6.92 Saudi Arabia

6 Al-Mubarak Pure Saudi Equity Arab National Bank 6.91 Saudi Arabia

7 Amanah Saudi Equity SABB 6.78 Saudi Arabia

8 Jadwa GCC Equity Jadwa Investment 6.46 Saudi Arabia

9 Jadwa Arab Markets Equity Jadwa Investment 6.31 Saudi Arabia

10 Bakheet Saudi Trading Equity Bakheet Investment Group 6.30 Saudi Arabia

Eurekahedge Middle East/Africa Islamic Fund Index 2.19

Top 10 Monthly returns for Asia Pacifi c funds

Fund Fund Manager Performance Measure Fund Domicile

1 AmItt ikal AmInvestment Management 6.72 Malaysia

2 AmIslamic Growth AmInvestment Management 6.29 Malaysia

3 Affi n Islamic Equity Affi n Fund Management 6.03 Malaysia

4 Public Islamic Select Enterprises Public Mutual 5.58 Malaysia

5 RHB Islamic Growth RHB Investment Management 5.27 Malaysia

6 BIMB i-Growth BIMB UNIT Trust Management 5.19 Malaysia

7 InterPac Dana Safi Inter-Pacifi c Asset Management 5.03 Malaysia

8 Prudential Dana Al-Ilham (PRUdana al-ilham) Prudential Fund Management 4.97 Malaysia

9 Public Islamic Sector Select Public Mutual 4.97 Malaysia

10 Public Islamic Select Treasures Public Mutual 4.92 Malaysia

Eurekahedge Asia Pacifi c Islamic Fund Index 1.29

Inde

x Va

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Based on 58.97% of funds which have reported December 2011 returns as at 10th January 2012

Based on 61.62% of funds which have reported December 2011 returns as at 10th January 2012

90

110

130

150

170

190

210

230

250

270

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29© 11th January 2012

FUNDS TABLES

Contact EurekahedgeTo list your fund or update your fund information: islamicfunds@eurekahedge.comFor further details on Eurekahedge: information@eurekahedge.com Tel: +65 6212 0900

DisclaimerCopyright Eurekahedge 2007, All Rights Reserved. You, the user, may freely use the data for internal purposes and may reproduce the index data provided that reference to Eurekahedge is provided in your dissemination and/or reproduction. The information is provided on an “as is” basis and you assume and will bear all risk or associated costs in its use, and neither Islamic Finance news, Eurekahedge nor its affi liates provide any express or implied warranty or representations as to originality, accuracy, completeness, timeliness, non-infringement, merchantability and fi tness for any purpose.

Based on 63.56% of funds which have reported Decemebr 2011 returns as at 10th January 2012 Based on reporting funds with at least 12 months of returns till December 2011 as at 10th January 2012

Based on 71.88% of funds which have reported December 2011 returns as at 10th January 2012

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Eurekahedge Islamic Fund Fixed Income Index over the last 5 years Eurekahedge Islamic Fund Fixed Income Index over the last 1 year

Top 10 Return for Islamic Fixed Income Funds by 3 months

Fund Fund Manager 3-Month Return (%) Fund Domicile

1 Mega Dana Obligasi Syariah Mega Capital Indonesia 2.98 Indonesia

2 AMB Dana Arif Amanah Mutual 2.53 Malaysia

3 PB Islamic Bond Public Mutual 2.00 Malaysia

4 CIMB Islamic Enhanced Sukuk CIMB-Principal Asset Management 1.88 Malaysia

5 Meezan Tahaff uz Pension Fund - Debt Sub Al Meezan Investment Management 1.83 Pakistan

6 Public Islamic Enhanced Bond Public Mutual 1.66 Malaysia

7 Public Islamic Bond Public Mutual 1.49 Malaysia

8 AmBon Islam AmInvestment Management 1.44 Malaysia

9 CIMB Islamic Sukuk CIMB-Principal Asset Management 1.41 Malaysia

10 Public Islamic Select Bond Public Mutual 1.35 Malaysia

Eurekahedge Islamic Fund Fixed Income Index 0.30

Top 10 Annualized Sortino Ratio for ALL Islamic funds

Fund Fund Manager Annualized SortinoRatio Fund Domicile

1 Meezan Tahaff uz Pension - Debt Sub Al Meezan Investment Management 12.59 Pakistan

2 Atlas Pension Islamic - Debt Sub Atlas Asset Management 12.06 Pakistan

3 Commodity Trading - SAR Riyad Bank 8.90 Saudi Arabia

4 Public Islamic Bond Public Mutual 3.51 Malaysia

5 PB Islamic Bond Public Mutual 3.48 Malaysia

6 Public Islamic Select Enterprises Public Mutual 2.57 Malaysia

7 Public Islamic Select Bond Public Mutual 2.47 Malaysia

8 Atlas Pension Islamic- Money Market Sub Atlas Asset Management 2.37 Pakistan

9 Global Sukuk Plus QIB (UK) 1.73 Luxembourg

10 Oasis Crescent Balanced Stable Fund of Funds Oasis Crescent Management Company 1.73 South Africa

Eurekahedge Islamic Fund Index 0.03

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102

102.5

103

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Jan-11

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

30© 11th January 2012

Takaful

Cover story

Takaful was introduced in Bangladesh to meet the demands of the people, of which 85% are Muslims. Today, the Takaful industry in Bangladesh has emerged as one of the fastest growing industries within the insurance sector since its introduction in 1999. From a total asset of BDT1.7 billion (US$20.6 million) in 2004, it grew to BDT23.8 billion (US$288.5 million) in 2010, constituting 11% of total assets of the insurance sector.

Total premiums have increased from BDT1.4 billion (US$16.9 million) in 2004 to BDT10.6 billion (US$128.5 million) in 2010, constituting 15% of total premiums of the insurance sector.

From only one non-Life Takaful operator

in 1999, the existing six fully-fl edged Takaful operators and 13 window operations of conventional insurers now off er a wide range of life and non-life Takaful products matching with those available in conventional insurance. With the progress achieved so far, the Takaful industry will be well positioned to become an increasingly important component of the Islamic fi nancial system in Bangladesh.

Takaful players in the market showed much dynamism and resilience during the last six years (2004-2010) as evidenced by the enhanced ability to compete, sustain growth and profi tability.

Combined with reinforced institutional capabilities, the foundations are well in place for the industry to strengthen its competitive positioning and evolve in the face of highly challenging

fi nancial environment. Key performance indicators of the Takaful industry in Bangladesh can be seen in Table A below.

In an environment of greater competition and changing dynamics in the domestic Takaful industry, the forward momentum in terms of growth in premiums, especially in Family Takaful, has been outstanding.

The Takaful industry has in general made signifi cant progress in broadening and deepening its product mix in the market to meet the diverse needs of customers. The Takaful industry has also deployed a more focused business strategy to increase market penetration.

It appears that the Takaful industry has emerged as a viable sector within the prism of broader fi nancial services. Leveraging on these fundamentals,

www.takaful-ikhlas.com.my

For more information, please call 03-2723 9999

11th January 2012

Brought to you by

Takaful in Bangladesh: Is there a future?KAZI MD MORTUZA ALI believes that Takaful operators and regulators in Bangladesh need to play a more eff ective and prudent role to ensure fi nancial management of assets and funds.

Table A: Statement of paid-up capital, assets and premium (Figures in million US$)

Takaful operators Year of establishment

Share capital

Assets Premium2004 2010 2004 2010

LIFEFareast Islami Life Insurance 2000 3.3 13 175.3 9 78.1Prime Islami Life Insurance 2000 1.8 1.6 44 2.1 20.9Padma Islami life Insurance 2000 1 1.7 31.7 2.72 23.88

Sub total: 6.1 16.3 251 13.8 122.88NON LIFEIslami Insurance Bangladesh 1999 2 1.74 14.72 1.5 3.57Islami Comercial Insurance Co 2000 0.8 1.28 11.58 0.97 2.08Takaful Islami Insurance 2001 2.3 1.5 14.94 0.54 2.72

Sub total: 5.1 4.52 41.24 3.01 8.37Grand Total 11.2 20.82 292.24 16.81 131.25In the stock

market, Islamic insurance companies are under an obligation to invest funds with Shariah compliant companies

31© 11th January 2012

TAKAFUL NEWSFEATURE

the Takaful industry can be expected to play its important role with greater signifi cance, both as a viable provider of fi nancial security and risk transfer mechanism for the general public, businesses, as well as an important institutional investor in the economy.

Currently, eff orts are being made to increase public awareness of Takaful. This is of particular importance to the Takaful industry as the market penetration of the total population is still very low. Despite the impressive growth of the Takaful industry in Bangladesh, it

has faced a few challenges.

ChallengesIslamic life insurance companies are facing diffi culties as they are required to follow the conventional insurance acts, rules and regulations.

The present government is keen to frame its policies in line with secular principles and is not likely to consider the proposed Takaful Act. As a result, Takaful operators cannot operate in the same level playing fi eld.

For example, the Insurance Act provides for a 30% compulsory investment in government securities and bonds. While the government securities (interest-based) provide interest from 8-10% depending on the period, the Islami Investment Bond (BGIB) issued by the

central bank provides profi t to Islamic insurance companies of between 3-4% only. Investment returns of Islamic insurance companies thus became 60-75% less than their competitors in the conventional insurance space due to the compulsory investment portfolio.

Furthermore, in the stock market, Is-lamic insurance companies are under an obligation to invest funds with Shariah compliant companies.

Shariah compliant companies are not plentiful, which restricts the investments within a limited circle and forcing them to receive lower rate of returns. But the biggest problem is the regulatory requirement to invest 30% of investable funds with government securities and bonds.

The funds, which are invested in Shariah compliant Islamic bonds, are reinvested by the central bank to Islamic banks in the country, who hold excess cash liquidity and seldom need to buy Islamic bonds.

Therefore, the major portion of the funds of BGIB remains idle without investment. Hence, this poses a disadvantage for the Islamic insurance companies.

To address this issue, immediate steps need to be taken. Regulators must fi nd ways to enlarge the investment areas of 30% compulsory investable funds.

This could perhaps be done by way of investing in Mudarabah term deposits with Shariah compliant banks, purchasing Islamic unit funds and trading in Shariah compliant shares in the capital market, etc.

In addition, profi t-bearing public private joint investments, the issuance of profi t-bearing development bonds and Sukuk all need to be considered.

Neither the regulatory body nor the central bank have yet taken any tangible initiative to address these issues. Alternatively, the government could allow Takaful companies to invest only when Islamic bonds and funds can be utilized properly.

Under the present situation, it is necessary that the Central Shariah Council for Islamic Banks and the Central Shariah Council for Islamic Insurance put forward their joint cause with the regulatory body, the central bank and

the ministry of fi nance in order that the Takaful operators can play a more eff ective role in the insurance sector.

The Insurance Act 2010 provides for the appointment of Shariah consultants for proper functioning of the Insurance Development and Regulatory Authority. The government formed the fi ve member board for the regulatory body with eff ect from January 2011, although the Act was passed in March 2010. Typical bureaucratic slow process, coupled with doldrums prevailing in the political environment, are causing much delay in making the new law eff ective and thus to frame appropriate rules and regulations for both the insurance and Takaful Industry.

A strong Shariah framework will defi nitely enhance consumer confi dence and will provide Takaful operators greater fl exibility and the opportunity to be innovative within the boundaries of Shariah.

A proposed Shariah framework should allow the operators to follow any of the prevailing operational models and combination of the models based on the Shariah concepts of Wakalah, Mudarabah, etc. The rules of investments for Takaful should allow operators to adhere to the principles of Islam as well as to operate on a level playing fi eld.

ConclusionGood performance, bett er growth and the viability of Takaful is now an established fact, be it in Bangladesh, Malaysia, Saudi Arabia, the UAE, Bahrain, Oman, Qatar or Kuwait. Therefore, to ensure its long-term viability, Takaful operators and the regulators in respective countries need to play a more eff ective and prudent role to ensure fi nancial management of assets and funds. Solvency regulation for Takaful is a necessity.

In general, Takaful operators have suff ered greater capital losses in comparison to their conventional counterparts. The building up of suffi cient capital resources within the Takaful fund is imperative to achieve long-term viability. Regulators in these countries need to formulate specifi c regulations for Takaful operation, minimum capital requirements and solvency.

Kazi Md Mortuza Ali is a managing director at Prime Islami Life Insurance. He can be contacted at mortuzaalimd@yahoo.com.

A strong Shariah

framework will definitely enhance consumer confidence and will provide Takaful operators greater flexibility and the opportunity to be innovative within the boundaries of Shariah

32© 11th January 2012

TAKAFUL NEWS

AmTakaful kicks off operationsMALAYSIA: AmBank Group’s joint venture with the UK’s Friends Life Group, AmFamily Takaful, commenced operations on the 9th January.

Azman Hashim, chairman of AmBank Group and AmTakaful, said that the market penetration rate for Family Takaful business in Malaysia is relatively low and remains largely untapped, therefore presenting a huge business opportunity.

The newly set-up fi rm will be led by Wan Zamri Wan Zain as CEO.

New product in the pipelineKUWAIT: Kleos, a local healthcare development company, is developing a specialized health Takaful scheme, according to Dr Mussaad Al-Rozouki, its CEO.

Kleos is a healthcare development company that connects high net worth and institutional investors with lucrative healthcare assets and opportunities in the MENA region.

Bahrain Bourse is share registrar for TIC BAHRAIN: Bahrain Bourse and Takaful International Company (TIC) have signed an agreement to assign the exchange as a share registrar for TIC’s shares.

Takaful Ikhlas in state government dealMALAYSIA: Takaful Ikhlas and Koperasi Pegawai-Pegawai Kerajaan Pahang (KPKP), a co-operative for civil servants of the state of Pahang, have signed an MoU appointing and recognizing Takaful Ikhlas as the main operator providing Takaful services to all Pahang state government offi cers. Under the agreement, Takaful Ikhlas and KPKP will cooperate in marketing the Takaful Ikhlas Flexi EB plan to government offi cers in Pahang. Syed Moheeb Syed Kamarulzaman, the president and CEO of Takaful Ikhlas, said that the Takaful fi rm aims to achieve contributions amounting to RM1.8 million (US$574,000) for the 2012/2013 fi nancial year via this collaboration.

For more information, please visitwww.redmoneyevents.com

2012

16th — 17th April 2012

3rd — 4th June 2012

22nd — 23rd October 2012

5th — 6th November 2012

33© 11th January 2012

FORUM

A There are a couple of points that stand out:

1) In the context of global stresses and increasing risk aversion from investors, we have seen from the volume of issuance in this year that the Islamic investor base in the Gulf was an important community and less marginal than prior years.

2) Looking forward I think there will be an increased growth, with some from non-Islamic nations. In particular I hope to see the IILM become active is issuing short-term paper much needed by the Islamic fi nancial institutions. Finally I hope for more transparency and harmonization amongst Sukuk, with more genuine

asset-backed certifi cates and increased investor clarity that ‘asset-based’ is the same as ‘unsecured’.

KHALID F HOWLADARSenior credit offi cer, asset-backed and Sukuk fi nance, Moody’s Middle East

A Last year saw a continuing expansion of Islamic fi nance with

assets rising to over US$1 trillion. High oil prices and record government expenditure in the GCC helped the industry which was largely immune from the economic slowdown in Europe. Much of the growth was in Islamic retail banking. Investment banking involving Shariah compliant asset management and Sukuk issuance fared less well. There

was record Sukuk issuance in Malaysia, but elsewhere much of the new issuance was simply to refi nance maturing Sukuk.

2012 will probably be a continuation of 2011 with a modest recovery in the US partly compensating for Europe’s negative global impact. Higher oil prices, one of the drivers of Islamic fi nancial activity, will be dependent on continuing economic growth in China. The election of Islamist political parties in North Africa is potentially benefi cial for Islamic fi nance, but 2012 is too soon for the impact of these developments to be apparent.

PROFESSOR RODNEY WILSONDirector of postgraduate studies, Durham University

Next Forum Question:

What is the outlook for the Islamic debt capital market this year, given the prevailing Euro crisis and global economic landscape?

If you would like to air your views on the next Forum Question, please email your response of between 50 and 300 words to Christina Morgan, forum editor, at: Christina.Morgan@REDmoneygroup.com before the 20th January 2012.

What were the key developments in the Islamic finance industry in 2011? What major issues were raised and what lessons we can learn from them? What is in store for the industry in 2012?

Current Updates and Crucial Issues in Islamic Finance

Shariah Review and Audit for Islamic Banking — 18th January 2012, Kuala LumpurLegal and Shariah Issues in Islamic Banking — 22nd February 2012, Kuala LumpurSukuk – Structuring, Documentation and Liability Management — 21st March 2012, Dubai

briefings

For more information on these briefi ngs please visit www.islamicfi nancebriefi ngs.com

34© 11th January 2012

MEET THE HEAD

Ghassan Marrouche, general manager, Takaful Emarat — Insurance Ghassan Marrouche joined Takaful Emarat with over 25 years of experience in the insurance industry. With a Masters in Public Administration from the University of Southern California, Ghassan has an extensive background in product development, marketing, sales, and management.

Could you provide a brief journey of how you arrived where you are today? I started my career in the GCC region with ALICO in Saudi Arabia as an accident and health manager for the kingdom. Five years later, I was promoted to run the life insurance business for ALICO Jeddah, Saudi Arabia. I then moved to Arab Insurance Group (Bahrain) (ARIG) where I occupied many roles including that of regional manager — business development and training for all the territories where ARIG operates, in addition to being responsible for the life, medical and accident and health lines. In 2001 I moved to Oman and was appointed as the general manager of Oman United Medical & Life Insurance Company.

I moved to the UAE in February 2011 as the general manager of Takaful Emarat.

What does your role involve? As general manager, I ensure that the company’s strategies are being implemented and are on schedule; enhance the company’s profi tability and reliability and ensure that the company is in full compliance with the laws of the land, its regulators and responsible bodies.

What is your greatest achievement to date? During my career as a general manager, I have been successful in improving the operations of the companies I have worked for and increasing overall profi tability. With regards to Takaful Emarat my most signifi cant achievements

have been building a solid infrastructure for the company and implementing new systems; launching life and medical individual plans; enhancing our Group Life and medical off ering and establishing the right image for the company in the industry, all in a period of less than 10 months. I would also like to recognize the eff orts of my team of managers and all our employees in helping me reach these goals.

Which of your products/services deliver the best results?As Takaful Emarat was set up as the UAE’s fi rst dedicated life and health Takaful provider, we deal with the two most important aspects of human life — fi nancial protection and health. Both lines of our business are equally important and necessary to ensure a peaceful and carefree life.

What are the strengths of your business?Our company is founded on the concept of Takaful, which is the core strength of our business. The recent economic downturn has proved that commercial viability is not the only critical factor for business success.

In addition our strategic partners are extremely valuable to us and are also one of our major strengths. Our local UAE- based partner, Al-Buhaira National Insurance Company, provides us with local insights into the market dynamics

based on their 30 years of expertise in the UAE. Our European partner, UNIQA Group Austria, brings us their international expertise, state-of-the-art information technology and quality assurance systems.

What are the factors contributing to the success of your company? As the UAE’s fi rst dedicated life and health Takaful provider, Takaful Emarat off ers a comprehensive range of life and health Takaful insurance products to individuals and corporations. Our product off ering is strongly supported by ‘A’ rated reinsurance arrangements. Our experienced and renowned Shariah board also contributes to the success of our company and is a source of credibility in the community in which we operate.

What are the obstacles faced in running your business today?One of our major challenges is raising awareness about Takaful in the market. Currently, awareness of Takaful as an Islamic model of insurance is very low. In addition, overall insurance penetration in the UAE is also very low — an indication that insurance is not a priority for individuals unless it is made mandatory through government regulations. There is also a shortage of Shariah scholars and Takaful experts.

Where do you see the Islamic fi nance industry in the next fi ve years? Islamic fi nance is establishing itself as an important component in the growth of the UAE economy and we see the Islamic fi nance industry leading the re-emergence of economic stability in the region. Islamic banks and insurance companies have experienced rapid growth in recent years and we see this trend continuing as there is signifi cant potential for product development and service enhancement in the industry.

Name one thing you would like to see change in the world of Islamic fi nance.Regulations and regulators have to play a vital role in strengthening the Islamic fi nance industry. We would like to see workable and fl exible procedures and transparent compliance guidelines become the industry norm.

35© 11th January 2012

DEAL TRACKER

ISSUER SIZE DATE ANNOUNCED

Bank Muamalat Indonesia IDR1.25 trillion 9th January 2012

Indonesian fi nance ministry TBA 5th January 2012

Sudan TBA 3rd January 2012

Malaysian Airline System and Air Asia RM12 billion 23rd December 2011

Emery Oleochemicals Group US$151 million 20th December 2011

Sarawak Energy RM1.5 billion 13th December 2011

Saudi Arabia TBA 13th December 2011

General Authority of Civil Aviation US$7.2 billion 11th December 2011

South Africa TBA 6th December 2011

KMCOB Capital RM343.1 million 5th December 2011

Emirates NBD TBA 29th November 2011

Solum Asset Management TBA 27th November 2011

Indonesian fi nance ministry TBA 24th November 2011

Albaraka Turk Katilim Bankasi US$200 million 21st November 2011

Majid Al Futt aim US$500 million 21st November 2011

Bank Syariah Mandiri IDR500 billion 18th November 2011

UEM Group & EPF RM33 billion 17th November 2011

PLUS Expressways RM30 billion 16th November 2011

Abu Dhabi Islamic Bank US$500 million 9th November 2011

Emirates Airline TBA 8th November 2011

Poh Kong Holdings RM150 million 1st November 2011

DRB Hicom RM1.8 billion 1st November 2011

Sabah Credit Corporation RM1 billion 28th October 2011

Credit Agricole TBA 27th October 2011

Anih Berhad RM2.5 billion 24th October 2011

Axis Real estate Investment Trust RM300 million 24th October 2011

Finance ministry of Pakistan TBA 20th October 2011

Goldman Sachs US$2 billion 19th October 2011

Almaraj, Saudi Arabia TBA 16th October 2011

Mydin RM350 million 13th October 2011

Barwa Bank TBA 11th October 2011

Mashreq Al Islami TBA 10th October 2011

Dow Chemical Company & Saudi Arabian Oil Company

TBA 9th October 2011

National Iranian Oil Company TBA 1st October 2011

Qatar International Islamic Bank TBA 28th September 2011

Tamweel US$300-US$500 million 27th September 2011

Emery Oleochemicals RM480 million 17th September 2011

KLCC Property RM880 million 15th September 2011

Bank Negara Malaysia RM1 billion 6th September 2011

Bank Syariah Mandiri IDR450 million 25th August 2011

Aref Investment Group TBA 24th August 2011

Kuala Lumpur Kepong Berhad RM300 million 22nd August 2011

Nakheel AED4.8 billion 10th August 2011

Chemical Company of Malaysia RM120 million 5th August 2011

Hub Power Company PKR2 billion 2nd August 2011

KNM Group RM1.5 billion 28th July 2011

Petronas Gas RM1.2 billion 25th July 2011

IFN CorrespondentsAFGHANISTAN: Dr Alam Hamdard Khandeputy chief of Islamic banking, Bank Mille AfghanAUSTRALIA: David Woodpartner, Mallesons Stephen JaquesBAHRAIN: Dr Hatim El-Tahirdirector, Islamic Finance Knowledge Centre, Deloitt e & ToucheBANGLADESH: Md Shamsuzzamanexecutive vice president, Islami Bank Bangladesh BRUNEI: James Chiew Siew Huasenior partner, Abrahams Davidson & CoCANADA: Jeff rey S Grahampartner, Borden Ladner GervaisEGYPT: Dr Walid Hegazymanaging partner, Hegazy & AssociatesFRANCE: Antoine Saillonhead of Islamic fi nance, Paris EuroplaceHONG KONG & CHINA: Anthony Chanpartner, Brandt Chan & Partners in association with SNR DentonINDIA: Keyur Shahpartner, KPMGINDONESIA: Rizqullahpresident director, BNI SyariahIRAN: Majid PirehIslamic fi nance expert, SEOIRAQ: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & CoIRELAND: Ken OwensShariah funds assurance partner, PwC IrelandJAPAN: Serdar A. Basarapresident, Japan Islamic FinanceJORDAN: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & CoKAZAKHSTAN: Timur Alimarea manager, Al Hilal BankKOREA: Yong-Jae Changpartner, Lee & KoKUWAIT: Alex Salehpartner, Al Tamimi & CompanyLUXEMBOURG: Marc Theisenpartner, Theisen LawMALAYSIA: Nik Norishky Thanihead special projects (Islamic), PNBMAURITIUS: Sameer K Tegallyassociate, Conyers Dill & PearmanNEW ZEALAND: Dr Mustafa Faroukcounsel member for Islamic fi nancial institutions, FIANZOMAN: Anthony Watsonsenior associate, Al Busaidy Mansoor Jamal & CoPAKISTAN: Bilal Rasuldirector (enforcement), SEC of PakistanQATAR: Amjad Hussainpartner & head, banking & Islamic fi nance, EvershedsSAUDI ARABIA: Nabil Issapartner, King & SpaldingSRI LANKA: Roshan Madewaladirector/CEO, Research Intelligence UnitSWITZERLAND: Khadra Abdullahiassociate of investment banking, Faisal Private Bank UAE: Neil D Millerglobal head of Islamic fi nance, KPMGUK: Dr Natalie SchoonFormabbYEMEN: Moneer Saifhead of Islamic banking, CAC Bank

IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short country reports

For more information about becoming an IFN Correspondent please contact sasikala@redmoneygroup.com

36© 11th January 2012

SHARIAH INDEXES

SAMI Halal Food Participation (All Cap) 6 months

1300

1475

1650

1825

2000

Jan-2012Dec-2011Nov-2011Oct-2011Sep-2011Aug-2011July-2011June-2011

REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months

REDmoney GCC 6 Months REDmoney Global 6 Months

REDmoney MENA 6 Months REDmoney US 6 Months

All Cap Large Cap Medium Cap Small Cap

650

770

890

1010

1130

1250

JanDecNovOctSepAugJulyJune600

700

800

900

1000

1100

JanDecNovOctSepAugJulyJune

All Cap Large Cap Medium Cap Small Cap

500

540

580

620

660

700

JanDecNovOctSepAugJulyJune

All Cap Large Cap Medium Cap Small Cap

680

784

888

992

1096

1200

JanDecNovOctSepAugJulyJune

All Cap Large Cap Medium Cap Small Cap

500

540

580

620

660

700

JanDecNovOctSepAugJulyJune

All Cap Large Cap Medium Cap Small Cap

800

970

1140

1310

1480

1650

JanDecNovOctSepAugJulyJune

All Cap Large Cap Medium Cap Small Cap

37© 11th January 2012

SHARIAH INDEXES

For further information regarding REDmoney Indexes contact:

Andrew MorganManaging Director, REDmoney Group

Email: Andrew.Morgan@REDmoneygroup.comTel +603 2162 7800

RED

REDmoney Global Shariah Index Series

REDmoney Global Shariah Index Series (All Cap) 6 Months REDmoney Global Shariah Index Series (Large Cap) 6 Months

REDmoney Global Shariah Index Series (Medium Cap) 6 Months REDmoney Global Shariah Index Series (Small Cap) 6 Months

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

610

720

830

940

1050

JanDecNovOctSepAugJulyJune 450

560

670

780

890

1000

JanDecNovOctSepAugJulyJune

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

730

960

1190

1420

1650

JanDecNovOctSepAugJulyJune

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

690

880

1070

1260

1450

JanDecNovOctSepAugJulyJune

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

Utilities2%Telecomunication Services

2%

Technology14%

Basis Materials15%

Non-CyclicalConsumer Goods Services

7%

Energy8%

Financials4%

Healthcare11%

Industrials22%

Consumer Goods Services15%

REDmoney Global Shariah

Equities are considered eligible for inclusion into the REDmoney Global Shariah Index Series only if they pass a series of market related guidelines related to minimum market capitalization and liquidity as well as country restrictions.

Once the index eligible universe is determined the underlying constituents are screened using a set of business and fi nancial Shariah guidelines.

The REDmoney Global Shariah Index Series powered by IdealRatings consists of a rich subset of global listed equities that adhere to clearly defi ned and transparent Shariah guidelines defi ned by Shariyah Review Bureau in Jeddah, Saudi Arabia.

The REDmoney Shariah Indexes provides Islamic investors with an accurate and Shariah-specifi c equity performance benchmark with optimized compliance credibility due to the intensive research conducted to ensure that index constituents do not confl ict with the defi ned Shariah requirements.

IdealRatings™ is the leading provider of Shariah investment decision support tools to investors globally, including asset managers, brokers, index providers, and banks to empower them to develop, manage and monitor Shariah investment products and Shariah compliant funds. IdealRatings is headquartered in San Francisco, California. For more information about IdealRatings visit: www.idealratings.com

38© 11th January 2012

LEAGUE TABLES

Most Recent Global Sukuk

Priced Issuer Nationality Instrument Market US$ (mln) Managers16th Dec 2011 Projek Lebuhraya

UsahasamaMalaysia Sukuk Domestic market

private placement6,155 RHB Capital, CIMB

Group, AmInvestment Bank, Maybank Invest-ment Bank

5th Dec 2011 Gulf International Bank

Bahrain Sukuk Euro market private placement

300 JPMorgan

28th Nov 2011 DRB-HICOM Malaysia Sukuk Domestic market private placement

132 Maybank Investment Bank

24th Nov 2011 ANIH Malaysia Sukuk Domestic market private placement

786 CIMB Group, Maybank Investment Bank

22nd Nov 2011 ADIB Sukuk UAE Sukuk Euro market public issue

500 Standard Chartered, No-mura, HSBC, National Bank of Abu Dhabi, Abu Dhabi Islamic Bank, Citigroup

16th Nov 2011 Kingdom of Bahrain Bahrain Sukuk Euro market public issue

750 Standard Chartered, BNP Paribas, Citigroup

16th Nov 2011 Abu Dhabi Commercial Bank

UAE Sukuk Euro market public issue

500 Standard Chartered, JPMorgan, Abu Dhabi Commercial Bank, Bank of America Merrill Lynch

14th Nov 2011 Perusahaan Penerbit SBSN Indonesia II

Indonesia Sukuk Euro market public issue

1,000 Standard Chartered, HSBC, Citigroup

2nd Nov 2011 Pengurusan Air SPV Malaysia Sukuk Domestic market private placement

139 CIMB Group

25th Oct 2011 Manjung Island Energy

Malaysia Sukuk Domestic market public issue

1,545 Lembaga Tabung Haji, CIMB Group

20th Oct 2011 Kuveyt Turk Katilim Bankasi

Turkey Sukuk Euro market public issue

350 Standard Chartered, HSBC, KFH, Abu Dhabi Islamic Bank, Commerz-bank Group

13th Oct 2011 Aman Sukuk Malaysia Sukuk Domestic market public issue

371 Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Invest-ment Bank

5th Oct 2011 Midciti Resources Malaysia Sukuk Domestic market public issue

274 CIMB Group, Maybank Investment Bank

23rd Sep 2011 AmIslamic Bank Malaysia Sukuk Domestic market public issue

190 Public Bank, AmInvestment Bank

14th Sep 2011 MISC Malaysia Sukuk Domestic market public issue

263 HSBC, CIMB Group, AmInvestment Bank

13th Sep 2011 Telekom Malaysia Malaysia Sukuk Domestic market public issue

101 CIMB Group, AmInvest-ment Bank, Maybank Investment Bank

5th Aug 2011 Kencana Petroleum Malaysia Sukuk Domestic market private placement

167 AmInvestment Bank

26th Jul 2011 Syarikat Prasarana Negara

Malaysia Sukuk Domestic market public issue

667 CIMB Group, Maybank Investment Bank

26th Jul 2011 First Gulf Bank UAE Sukuk Euro market public issue

650 Standard Chartered, HSBC, Citigroup

21st Jul 2011 Gulf Investment Kuwait Sukuk Domestic market public issue

250 AmInvestment Bank

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

01 2 3 4 5 6 7 8 9 10 11 12

2011

US$ bn

0100200300

400500600700

US$ mValue (US$ bn) Avg Size (US$ m)

123456

7

0

2

4

6

8

10

12

14

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2006 2007 2008 2009 2010 2011

US$ bn

050

100150

200

250

300350

400450500

US$ mValue (US$ bn) Avg Size (US$ m)

39© 11th January 2012

LEAGUE TABLES

Top 30 Issuers of Global Sukuk 12 Months

Issuer Nationality Instrument Market US$ (mln) Iss Managers1 Projek Lebuhraya

Usahasama Malaysia Sukuk Domestic market

private placement6,155 1 RHB Capital, CIMB Group,

AmInvestment Bank, Maybank Investment Bank

2 Pengurusan Air SPV Malaysia Sukuk Murabahah Domestic market private placement

3,272 4 HSBC, CIMB Group, Maybank Investment Bank

3 Wakala Global Sukuk Malaysia Sukuk Euro market public issue

2,000 1 HSBC, CIMB Group, Citigroup, Maybank Investment Bank

4 Manjung Island Energy Malaysia Sukuk Ijarah Domestic market public issue

1,545 1 Lembaga Tabung Haji, CIMB Group

5 Perusahaan Penerbit SBSN Indonesia II

Indonesia Sukuk Ijarah Euro market public issue

1,000 1 Standard Chartered, HSBC, Citigroup

6 Sarawak Energy Malaysia Sukuk Domestic market public issue

988 1 RHB Capital, AmInvestment Bank

7 GovCo Holdings Malaysia Sukuk Murabahah Domestic market private placement

985 1 HSBC, RHB Capital, CIMB Group

8 ANIH Malaysia Sukuk Domestic market private placement

786 1 CIMB Group, Maybank Investment Bank

9 Kingdom of Bahrain Bahrain Sukuk Euro market public issue

750 1 Standard Chartered, BNP Paribas, Citigroup

9 Islamic Development Bank Saudi Arabia Sukuk Euro market public issue

750 1 Standard Chartered, Deutsche Bank, BNP Paribas, HSBC

11 Aman Sukuk Malaysia Sukuk Domestic market public issue

732 2 Lembaga Tabung Haji, RHB Capi-tal, CIMB Group, AmInvestment Bank, Maybank Investment Bank

12 Syarikat Prasarana Negara Malaysia Sukuk Ijarah Domestic market public issue

667 1 CIMB Group, Maybank Invest-ment Bank

13 First Gulf Bank UAE Sukuk Wakalah Euro market public issue

650 1 Standard Chartered, HSBC, Citigroup

14 HSBC Bank Middle East UK Sukuk Euro market public issue

500 1 HSBC

14 Emaar Sukuk UAE Sukuk Euro market public issue

500 1 Standard Chartered, HSBC, RBS

14 Abu Dhabi Commercial Bank

UAE Sukuk Euro market public issue

500 1 Standard Chartered, JPMorgan, Abu Dhabi Commercial Bank, Bank of America Merrill Lynch

14 ADIB Sukuk UAE Sukuk Euro market public issue

500 1 Standard Chartered, Nomura, HSBC, National Bank of Abu Dhabi, Abu Dhabi Islamic Bank PJSC, Citigroup

18 Saudi International Petrochemical

Saudi Arabia Sukuk Domestic market public issue

480 1 Deutsche Bank, Riyad Bank

19 Sharjah Islamic Bank UAE Sukuk Euro market public issue

400 1 Standard Chartered, HSBC

20 Cagamas Malaysia Sukuk Murabahah Domestic market public issue

397 10 CIMB Group, AmInvestment Bank, Maybank Investment Bank

21 Kuveyt Turk Katilim Bankasi

Turkey Sukuk Euro market public issue

350 1 Standard Chartered, HSBC, KFH, Abu Dhabi Islamic Bank, Com-merzbank Group

22 Maybank Islamic Malaysia Sukuk Musharakah Domestic market private placement

330 1 Maybank Investment Bank

23 Gulf International Bank Bahrain Sukuk Euro market private placement

300 1 JPMorgan

24 Midciti Resources Malaysia Sukuk Domestic market public issue

274 1 CIMB Group, Maybank Investment Bank

25 Bank Aljazira Saudi Arabia Sukuk Mudarabah Domestic market private placement

267 1 JPMorgan, HSBC

26 Ranhill Power Malaysia Sukuk Domestic market private placement

266 1 Maybank Investment Bank

27 Telekom Malaysia Malaysia Sukuk Domestic market public issue

263 3 CIMB Group, AmInvestment Bank, Maybank Investment Bank

28 MISC Malaysia Sukuk Murabahah Domestic market public issue

263 1 HSBC, CIMB Group, AmInvestment Bank

29 Gulf Investment Kuwait Sukuk Domestic market public issue

250 1 AmInvestment Bank

30 Ranhill Powertron II Malaysia Sukuk Domestic market public issue

234 2 Maybank Investment Bank

Total 29,158 99

40© 11th January 2012

LEAGUE TABLES

Top Managers of Sukuk 12 Months

Manager US$ (mln) Iss %

1 CIMB Group 6,720 33 23.1

2 Maybank Investment Bank 5,812 30 19.9

3 HSBC 3,415 14 11.7

4 AmInvestment Bank 3,413 27 11.7

5 RHB Capital 2,488 15 8.5

6 Standard Chartered Bank 1,689 10 5.8

7 Citigroup 1,383 5 4.7

8 Lembaga Tabung Haji 919 3 3.2

9 JPMorgan 558 3 1.9

10 BNP Paribas 438 2 1.5

11 Deutsche Bank 427 2 1.5

12 Riyad Bank 240 1 0.8

13 OCBC 168 6 0.6

14 RBS 167 1 0.6

15 Abu Dhabi Islamic Bank 153 2 0.5

16 Hong Leong Bank 141 4 0.5

17 Affi n Investment Bank 136 4 0.5

18 Bank of America Merrill Lynch 125 1 0.4

18 Abu Dhabi Commercial Bank 125 1 0.4

20 DRB-HICOM 123 2 0.4

21 Public Bank 118 4 0.4

22 KFH 109 2 0.4

23 Nomura 83 1 0.3

23 National Bank of Abu Dhabi 83 1 0.3

25 Commerzbank Group 70 1 0.2

26 Malaysian Industrial Development Finance 40 1 0.1

27 OSK 13 2 0.0

28 Mitsubishi UFJ Financial Group 1 1 0.0

Total 29,158 99 100.0

Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months

Legal Advisor US$ (million) No %

1 Allen & Overy 4,198 2 23.9

2 Skadden Arps Slate Meagher & Flom 3,281 1 18.7

2 White & Case 3,281 1 18.74 Al-Jadaan & Partners Law Firm 1,200 1 6.8

4 Baker & McKenzie 1,200 1 6.8

4 Cliff ord Chance 1,200 1 6.8

Top Islamic Finance Related Project Finance Mandated Lead Arrangers 12 Months

Mandated Lead Arranger US$ (million) No %

1 Banque Saudi Fransi 921 3 9.2

2 HSBC Holdings 771 3 7.7

3 Samba Financial Group 592 4 5.9

4 Public Investment Fund 463 2 4.6

5 Arab National Bank 463 2 4.6

6 Sumitomo Mitsui Financial Group 404 2 4.0

7 KfW Bankengruppe 369 2 3.7

8 Mitsubishi UFJ Financial Group 360 1 3.6

9 Australia & New Zealand Banking Group Ltd 289 1 2.9

9 Mizuho Financial Group 289 1 2.9

Sukuk Volume by Currency US$ (billion) 12 Months

Sukuk Volume by Issuer Nation US$ (billion) 12 Months

Global Sukuk Volume by Sector 12 Months

Global Sukuk Volume - US$ Analysis

0

2

4

6

8

10

12

14

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 4Q1Q 2Q 3Q

2006 2007 2008 2009 2010 2011

US$ bn US$ Non-US$

20.2

8.2

0.7

0.0

US dollar

Malaysian ringgit

Saudi riyal

Singapore dollar

UK

21.9

0.51.0

1.1

1.5

2.6

0.4

Malaysia

UAE

Saudi Arabia

Indonesia

Turkey

Bahrain

Construction

Utility & Energy

TransportationGovernment

Finance

Other

17%

22%

7% 23%9%

22%

41© 11th January 2012

LEAGUE TABLES

Top Islamic Finance Related Loans Mandated Lead Arrangers Ranking 12 Months

Mandated Lead Arranger US$ (mln) No %

1 HSBC 826 5 11.42 Citigroup 501 8 6.9

3 Samba Capital 472 3 6.5

4 Standard Chartered Bank 368 7 5.15 CIMB Group 304 3 4.26 Noor Islamic Bank 297 3 4.1

7 Barwa Bank 266 2 3.78 RBS 233 1 3.29 Saudi National Commercial Bank 219 1 3.0

9 Banque Saudi Fransi 219 1 3.0

9 Arab National Bank 219 1 3.0

12 Qatar Islamic Bank 213 1 2.9

12 Qatar International Islamic Bank 213 1 2.9

12 Masraf Al Rayan 213 1 2.9

15 Deutsche Bank 204 2 2.816 Arab Banking Corporation 172 4 2.417 Abu Dhabi Islamic Bank 171 4 2.418 RHB Capital 164 1 2.318 Maybank Investment Bank 164 1 2.318 Lembaga Tabung Haji 164 1 2.318 AmInvestment Bank 164 1 2.322 Emirates NBD 160 3 2.223 Bank of America Merrill Lynch 126 3 1.724 Bank of China 93 1 1.325 OCBC 88 1 1.226 WestLB 70 2 1.0

27 Bank Al-Jazira 68 1 0.9

27 Alinma Bank 68 1 0.9

27 Al-Rajhi Banking & Investment 68 1 0.9

30 National Bank of Abu Dhabi 61 1 0.8

30 Commerzbank Group 61 1 0.8

Top Islamic Finance Related Loans Mandated Lead Arrangers12 Months

Bookrunner US$ (mln) No %1 Citigroup 618 8 8.52 HSBC 305 2 4.23 Samba Capital 233 1 3.23 RBS 233 1 3.25 Abu Dhabi Islamic Bank 219 4 3.0

6 Standard Chartered Bank 165 3 2.37 Emirates NBD 122 2 1.7

8 Bank of China 93 1 1.3

9 National Bank of Kuwait 87 1 1.210 Dubai Islamic Bank 72 1 1.010 Deutsche Bank 72 1 1.0

Top Islamic Finance Related Loans Deal List 12 Months

Credit Date Borrower Nationality US$ (mln)

13th Dec 2011 Barzan Gas Qatar 5,442

2nd Dec 2011 Hajr for Electricity Production

Saudi Arabia 1,981

15th Oct 2011 Maaden Bauxite & Alumina

Saudi Arabia 929

15th Sep 2011 Dubai Ports World UAE 850

18th Jul 2011 Pembinaan BLT Malaysia 822

23rd Jun 2011 Salik One Spc UAE 800

31st Mar 2011 National Central Cooling

UAE 757

17th May 2011 Emaar Properties UAE 699

23rd May 2011 Natrindo Telepon Seluler

Indonesia 450

22nd Sep 2011 Albaraka Turk Turkey 344

Top Islamic Finance Related Loans by Country 12 Months

Nationality US$ (mln) No %1 UAE 1,756 8 24.32 Saudi Arabia 1,511 3 20.93 Malaysia 1,190 3 16.44 Turkey 998 6 13.85 Qatar 850 1 11.76 Indonesia 501 3 6.97 Pakistan 150 3 2.18 China 93 1 1.39 Kuwait 87 1 1.2

10 Russian Federation 60 1 0.8

Top Islamic Finance Related Loans by Sector 12 Months

Global Islamic Loans - Years to Maturity (YTD Comparison)

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

0US$ bln 1 2 3

Real Estate/Property

Construction/Building

Oil & Gas

Utility & Energy

Finance

0% 20% 40% 60% 80% 100%2005200620072008

200920102011

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

42© 11th January 2012

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COMPANY INDEX

Company PageABC International Bank 11Abu Dhabi Islamic Bank 6, 10Abu Dhabi Securities Exchange 9Ahlibank 11Al Ahli Bank of Kuwait 10Al Hilal Bank 6Al Khalij Commercial Bank 9Al Million Services Trading and Contracting Co 10Albaraka Bank 8AlBaraka Banking Group 6Albaraka Türk Katılım Bankası 3, 8Al-Buhaira National Insurance Company 34Aldar Properties 9ALICO 34Allied Bank 8Alpha1Estates International 27AmBank Group 32AmFamily Takaful 32AmInvestment Bank 7Arab Insurance Group (Bahrain) 34Arab League 9Arab Monetary Fund 9Asian Development Bank 12Bahrain Bourse 32Baker & McKenzie International 23Baker Bott s 11Bangladesh Petroleum Corporation 6Bank Albilad 10Bank Asya 3Bank Indonesia 6, 7, 8Bank Muamalat Indonesia 7, 8Bank Muscat 11Bank of Thailand 24Bank Permata Syariah 7Bank Sohar 10,11BankIslami 8Bapepam 8Barclays Capital 9Barwa Bank 10BBN Development 10BII Syariah 7BLME 19Burj Bank 8Capital Market Authority 12Capital Market Development Authority 27Central Bank of Oman 5Central Bank of Sudan 6CIMB Investment Bank 7CIMB Islamic 7Citibank 6Citigroup 6

Cliff ord Chance 6Credit Suisse 9Cushman & Wakefi eld 21Dana Gas 9Dar Al-Arkan Real Estate Development Company 10David Testa Consultancy 7Dawood Hercules Fertilizers 8Dubai Islamic Bank 9, 10Durham University 33EIIB Sukuk Company 10Emirates Islamic Bank 6Emirates NBD 6, 9Emirates NBD Capital 6Ernst & Young 8Eurekahedge 26European Islamic Investment Bank 8, 15Eversheds 11Fareast Life Takaful 30Fincorp 11Fitch 9, 10Friends Life Group 32Gatehouse Bank 7General Authority for Civil Aviation 11, 12Gulf Finance House 6, 11Haidermota & Co 6HBG Holdings 15HSBC 10HSBC Global Asset Management 26HSBC Holdings 6ICD 12IDB 6, 7, 11, 12, 19IMF 26International Accounting Standards Board 17International Bank of Qatar 10Islami Bank Bangladesh 16Islami Commercial Insurance Co 30Islami Insurance Bangladesh 30Islamic Bank of Thailand 24Islamic Research and Training Institute 11Kleos 32KMCOB Capital 10Koperasi Pegawai-Pegawai Kerajaan Pahang 32KPMG 1Krung Thai Bank 24Kuwait Finance House 10London Stock Exchange 15Majid Al Futt aim Holding 9Mandviwalla & Zafar 7MARC 10Maybank 7Meezan Bank 8Moody’s 3, 7, 33

Morgan Stanley 1Muangthai Insurance Public Company 24Muangthai Takaful 24Nakheel 9National Bank of Abu Dhabi 9National Bank of Oman 11National Commercial Bank 26OCBC NISP Syariah 7OIC 27Oman United Medical & Life Insurance Company 34Padma Islami Life Insurance 30Pakistan International Airlines Corporation 6PLUS Expressways 7, 26Prime Islami Life Insurance 30, 31Projek Lebuhraya Usahasama 7, 26PwC 14Qatar Islamic Bank 10RAM 10Rasmala Holdings 8RHB Banking Group 11RHB Investment Bank 7Riyad Bank 10S&P 1, 5Saudi Arabian Monetary Agency 11Saudi Aramco 12Saudi Basic Industries 12Saudi Kuwait Finance House 9Securities and Exchange Commission 25Securities Commission Malaysia 11Sindh Enterprise Development Fund 7SJS Markets 8, 9Standard Bank 7Standard Chartered 10Sudan Financial Services Company 6Tabung Haji 21Takaful Emarat 34Takaful Ikhlas 32Takaful International Company 32Tamweel 9The Royal Bank of Scotland 6UNIQA Group Austria 34United Bank 6, 8University of Chicago 14Warba Bank 6Wong & Partners 23World Bank 14ZICOlaw (Thailand) 25

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