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Private equity is one of theconundrums of the Islamic financeindustry. On the surface it is the idealopportunity equity investmentsbased on participation, risk-sharingand profit partnerships. Yet for avariety of reasons the sector has not yetgarnered the atention, differentiationor innovation that it perhaps needs inorder to grow into a viable pillar despite its vast potential as a catalystto drive economic growth. As 2015demonstrates encouraging signs foremerging market activity, LAURENMCAUGHTRY looks at the currentlandscape.

Challenges to growthA primary issue is the absence of auniverse of dedicated Islamic privateequity funds, which many feel could bedue to a weighted focus on the Islamiccapital markets including Sukukand listed equities meaning that

institutional demand for privateequity has been limited, andthe industry has not necessarilyfocused on developing andmarketing products to the sameextent as in other areas while dueto the global financial headwindsof the last decade, products may notalways have returned as well asexpected. Sukuk has been thesuccess story, the flag bearer of

Islamic finance, agreed Mohamad SafriShahul Hamid, deputy CEO of CIMBIslamic. However, that does not mean itis the be-all and end-all of the industry.When we talk of Islamic banking orIslamic finance, the first thing we thinkand perceive is Sukuk, emphasizedMohamed Kamran Wajid, CEO ofEmirates NBD Capital, to IFN. But thefact is that Islamic finance is so muchmore than just Sukuk.

In order for us to reach the depths thatwe want globally, we need to minimizethe words finance and banking andemphasize the word investment in theIslamic finance and investment market,suggested Jawad Ali, the managingpartner of the Middle East offices ofKing & Spalding, to IFN. We need tofocus more on equity investment todeepen the market. We are all looking

for a projected return, so theindustry will always take a

cautionary approach. Theproblem is that with thenew banking regulations

that we haveglobally and in everyjurisdiction imposedon banks includingIslamic banks, the

environmentis necessarilyrestricted, so I

dont know how much growth we willactually see.

Risk averseOne issue is that banks are oftenreluctant to make high-risk investmentswith client funds in areas where theyare not necessarily experienced and unlike the major multinationalinstitutions, Shariah compliant banks

can often lack the necessary expertise toenter specific markets. Given the pastexperiences during the global crisis andthe lack of specialized sectoral resourceswithin, the banks generally shy awayfrom entering into private equityinvestments, explained Kamran. Theresponsibility of managing depositorsmoney is huge and there is enoughpotential in debt markets to deploy suchmoney for moderate returns from low-risk businesses.

Another challenge is often the

resistance by the entrepreneurs andfamily businesses to let go, separatemanagement from ownership and bemore transparent in their operationsand reporting standards. But there isalso blame on the investor side theydont understand the industries verywell, insisted Jawad. Even when theyrecruit a team to evaluate these deals,they tend to go for the generalist type,

continued on page 3

COVER STORY

The Worlds Leading Islamic Finance News Provider

Sukuk sector

regains groundas new trendsbegin to emerge

...9

ADIB charts its

course setinga precedent inthe emirate...10

1MDB unlikely

to disproportion-ately affectSukuk mar-ket...11

New rules to

bring in morebusiness forMalaysianIslamic banks...12

Private equity participation: New

movement for Islamic finance?

REAL-TIME ONLINE ISLAMICBANKING SOLUTION

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

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2 3rdJune 2015

IFN RAPIDS

Disclaimer: IFNinvites leading practitioners and academics to contribute short reports each week. Whilst we have used our bestendeavors and efforts to ensure the accuracy of the contents we do not hold out or represent that the respective opinions areaccurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright remain with REDmoney.

DEALSSP Setias SukukMusharakah program dueand payable on the 15thJune

Largest Islamic

microfinance group inIndonesia plans inauguralSukuk; expected first weekof June

Foreign currency Sukuk inthe cards for Cagamas, saysCEO

Khazanah Malaysiaplansto offer SRI Sukuk to retailmarket next year

Central Bank of Bahrainachieves oversubscription

of 166% on latest SukukSalam sale

Oman focusing on Waqf;issuing US$1 billionsovereign Sukuk beforeRamadan

Indonesia to sell Islamictreasury bills on the 3rdJune

Dubai Islamic Bankcompletes five-year US$750million Sukuk

Garuda Indonesiasells US

dollar corporate Sukuk; firstfor the Republic

Saudi British Bankcompletes privateplacement of its SAR1.5billion (US$399.87 million)Tier II Sukuk

Abu Dhabi Islamic Bank todecide on Tier 1 Sukuk andrights issue on the 21stJune

Saudi Binladin Grouptoraise up to SAR1 billion

(US$266.58 million) inSukuk

K-Electric issues Pakistanslargest listed corporateSukuk

Malaysian governmentsRM3 billion (US$818.98million) GII Murabahahtwice oversubscribed

TH Plantationsissues RM1billion (US$272.99 million)

Sukuk Murabahah toLembaga Tabung Haji

NASDAQ Dubai admitsIndonesian sovereignSukuk programs for trading

RA Holding fully

redeems Sukuk followingmonetization of multipleinvestments

Capital Market Authorityapproves The NationalShipping Company ofSaudi Arabias Sukuk

NEWSAlHuda CIBEsignsagreement with IslamicChamber of Commerce to

promote Islamic banking

IDB to launchrepresentative office inEgypt in the third quarter

Kenya-based NationalBank implements PathSolutionss iMAL Islamiccore banking system

Arcapitaexits USinvestment; exit proceedsreach US$2.5 billion overtwo years

Time is right for Malaysiato do more complex Sukuk,says Islamic bankingveteran

State Bank of Pakistancalling for tax amendmentsfor Shariah banks

Bank Aceheyes fully-fledged Islamic bank status;shareholders to vote onasset conversion

ASSETMANAGEMENTWaha Capitalto launchUS$500 million Islamicinfrastructure fund focusingon MENA and Turkey

RHB Islamic InternationalAsset Managementtargetsdeveloped markets withnew retail Shariah fund

Public Mutualdeclaresdistribution for Islamicfunds

TAKAFULAl Rajhi Bank Malaysia

forms bancaTakafulpartnership withAIAPUBLIC Takaful; rolls outmedical plan

RATINGSS&P affirms Oman at A-/A-2 with a stable outlook

Outlook for Malaysianbanking system stablealthough operatingenvironment deteriorating,

says Moodys

S&P downgradesHannover ReTakafulsoutlook to negativeas capital adequacydeteriorates

RAMmaintainsAl BayanHolding Companys Sukukrating at AA3(s)/Stable

MoodysupgradesQatar Islamic InsuranceCompanyby one notch to

reflect improved and solidcapitalization

MOVESBank DhofarnamesIssam Mohsin as head ofcompliance

Absa Islamic Bankingappoints Uwaiz Jassat asIslamic banking head

Commercial BankInternational hires head of

Islamic banking

Dr Fareed MohammedHadi resigns fromposition as chairmanof Shariah SupervisoryBoard of Al Hilal IslamicBanking Services; boardreconstituted

Former CEO of EXIMBanknow leads AlkhairInternational Islamic Bank

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

Keynote address:

Facilitating innovation in the Islamic capital

market....................... ....................... .............. 6

IFN Reports:

Asia a key focus f or indu stry leaders

Sukuk sector regains ground as new

trends begin to emerge ADIB char ts its

course in equity, credit and retail markets,

setting a precedent in the emirate IFN

Global Trendswatch 1MDB unlikely to

disproportionately affect Sukuk market

Company Focus: Bosna Bank International

New rules to bring in more business for

Mala ysia n I slamic bank s IFN Weekly Poll:

Is Islamic finance in the UAE becoming

overbanked? REDmoney launches IFN

Education; a facilitative medium for Islamic

finance educ atio n Sovereign Sukuk:

Regular Sukuk auctions and Omans debut

before Ramadan .................................... 8

IFN Analysis:

Saudi Arabia: Poised for greater growth............15

Private banking and wealth management in Islamic

finance.......................................................................... 16

Case Study:

Hong Kongs sophomore Sukuk first Wakalah paper

by a triple A sovereign............................................ 17

Shariah Pronounceme nt: ....................... 18IFN Country Correspondent:

Hong Kong; Australia; Kenya .................... 19

IFN Sector Correspondent:

Real Estate; Takaful & re-Takaful .............. 21

Special Report:

Key consideration in making third party

debt order for an Islamic banking account:

An overv iew of the posi tions in England and

Malaysia ....................................................23

Low mortgage rates and Islamic finance: How the

two work together ......................................... 25

Country Feature:

Luxembourg takes steps to strengthen Islamic

finance cooperation ........................................ 26

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

Deal Tracker .................... ....................... ...... 34

REDmoney Indexes ...................... .............. 35

Eurekahedge data ...................... ................. 37

Performance League Tables ..................... .. 39

Events Diary........................... ...................... 43

Company Index ...................... ..................... 44

Subscription Form ...................... ................. 44

Volume 12 Issue 22

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3 3rdJune 2015

COVER STORY

investment bankers and consultantswho can crunch numbers. But there isa lack of specificity they dont have

sector experts, and most of the PE dealsin the Middle East are being done bygeneralists at the moment.

Barriers to entryAnother argument frequently made isthat private equity is by nature largelycompliant anyway, making it difficult forIslamic firms to differentiate themselves.And there are some challenges forIslamic private equity that conventionaloperations do not face. Philip Dowset, apartner with Morgan, Lewis & Bockius,pointed out that: Islamic private

equity is generally more expensivethan conventional as more complicatedstructures can be required for investmentand any leveraging is generally moreexpensive. Also, Islamic PE fundshave limitations and restrictions thatsimilar conventional funds would nothave. Speaking to IFN, he noted thatsome trends he sees with his clients ona day-to-day basis are an increasingnervousness over traditional funds, and amove towards pledge funds and single-asset plays or funds with predeterminedinvestments or seed assets.

Asian opportunitiesWhile the Middle East is seeingincreased activity and the US haslong been a focus for private equityinvestment especially in real estate,Islamic investors are broadeningtheir outlook and seeking the nextopportunity. From a GCC investorperspective, the next growth markets areAsia, commented Kamran.

Alex Armstrong, the managing director

and head of financial institutions andstructured finance atQInvest, agreed. Wehave to look outsidethe US, Europe andthe GCC for growthopportunities, andAsia is certainlyvery interesting forus. QInvest enteredthe private equitysector around twoyears ago,although

it is takingcautioussteps

forward. We have a differentrisk profile and one of thereasons why we do it is todevelop a partnership withprivate equity partnersand sponsors for ourbigger financing business,explained Armstrong.Our main challenge isconvincing GPs thatwe operate on thesame principlesas conventionalinvestors, but use unfamiliar

documentation in order to subscribe. Itsan educational hurdle.

And in Asia, investors are facingadditional obstacles to investment.Three years ago when QInvest firstbrought their balance sheet to theregion, prospects were looking good.We had fantastic meetings withcompanies and were excited about thedepth of opportunity in the market,recalled Armstrong. However, thechallenge at that time was that the firmwas bringing expensive US dollars and

the market was too well-banked andlocal currency too cheap to need them.As a foreigner coming to a market,which is saying you have to pay 22, 23,24 x price to earnings multiples on entrypoint, it makes it difficult to understandif you are geting in at the right valueand its harder for you to assess growththan the local banks, who offer capitalthat is local currency denominated andpriced at a lower risk premium than

foreign investors capital, Armstrongexplained.

Our challenge as a foreigninvestor was: how do weget in at the right time, and

how do we manage the currencyrisk? Last year, we thought wewere geting in at an expensivetime so we decided to delay.We hope that was the rightdecision but to be honest therearent many companies [inAsia] that need dollar capital;

they can get cheaper financing inlocal currency and that is a

major hurdle to privateequity investment in theregion.

Positive stepsYet despite the headwinds across muchof the world, pockets of growth keeppositivity up and while Asia maybe struggling and the Islamic aspect ofthe industry faces challenges in termsof differentiation, overall emergingmarkets are producing encouragingresults. From a slump of 11% in 2013(down from a high of 20% the previousyear) the total percentage of globalfundraising accounted for by emergingmarkets rose back to 15% in 2014 (seeChart 1) and looks set to keep going this

year.

The GCC is a prime example of a regionwhere despite the lower oil prices andstrong dollar, private equity is movingapace. There is definitely capital inthe Middle East but at the same time,there are a lot of opportunities to deploythat capital in the Middle East itself,pointed out Kamran.

From around US$900 million raised innew money in 2012 and US$700 millionin 2013, the MENA Private EquityAssociation expects figures to bounce

Private equity participation: New movement for Islamic finance?Continued from page 1

continued on page 4

Chart 1: Emerging markets as a percentage of global private equity fundraising

Source: Developed Asia - Asia Private Equity Review, US - PitchBook,Western Europe - EVCA, EM - EMPEA

US$billion

N/A

500

400

300

200

100

0

EM

as%ofGlobalTotal

25%

20%

15%

10%

5%

0%2008 2009 2010 2011 2012 2013 2014 Q1 2015

13% 12%

17%20% 20%

11%

15%

Developed Asia (JANZ)

United States

Western Europe EM Fundraising as %of Global TotalEmerging Markets

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4 3rdJune 2015

COVER STORY

back in 2014 as new players enter whilebig names return to the field. EvenArcapita appears to be throwing its hat

back in the ring following its Chapter11 Bankruptcy: with rumors of a newinvestment fund of up to US$1 billion fornext year focusing on income-generatingreal estate investments includinga reported US$200 million deal for aproject on Abu Dhabis Saadiyat Islandand plans for three to four US-baseddeals in 2016.

In the last quarter of 2014, the Gulfsaw two of the biggest regional fundvehicles since the global financial crisis:the US$750 million GCC-focused GCEquity Partners Fund III from AbuDhabis Gulf Capital (bringing totalassets up to around US$3.5 billion), anda US$310 million MENA-focused fund(exceeding the US$300 million target for

NBK Capital Equity Partners Fund II)from National Bank of Kuwaits NBKCapital. Major player Investcorp, whichhas around US$11 billion undermanagement, has invested in 13countries across the US, Europeand MENA regions over thepast two months, with a dealaround every two months arecord pace for the firm.

Social servicesOf the top opportunities

currently drivingprivate equity, especiallyin the Gulf region,

social investments such as healthcare,education, assisted living and studenthousing are gaining ground. In

particular, the social infrastructuresector like hospitals and education arein demand as they offer investors acombined real estate and private equityinvestment in one, agreed Jawad.

In February of this year for example,Saudi-based Alkhabeer Capital acquireda majority stake in Eed Group, a SaudiArabian healthcare provider, through itsShariah compliant Alkhabeer HealthcarePrivate Equity Fund, launched atthe end of 2014 to take advantage oftargeted opportunities in the healthcare

sector. In Saudi Arabia, privatehealthcare providers account for 32%of the total market, providing plenty ofopportunities for private equity growthand M&A activity while the countrysbudget for health and social affairsexpanded to a reported SAR108 billion(US$28.7 billion) and new initiatives suchas health insurance programs are alsolikely to drive the sector forward.

International attractionInternational investors are also lookingtowards the Gulf with Gulf Capitalcommenting at the launch of its latestfund that 60% of capital came frominvestors in Europe, the US and Asia.Were seeing increasing activity from USand UK investors into the Middle East.Also, we are seeing funds start to lookat exiting and realizing investments assuch are approaching the end of their life,which is leading to increased activity,said Dowset.

Newer industry players are now movingin while regional firms are looking abroad

for collaboration. Abraaj Capital and TPGin April this year completed a Shariahcompliant debt investment in Saudi foodchain Kudu through a joint vehicle the

first entry into the region for theUS-based TPG. We are workingon a number of PE deals, andworked with our US officeon the recent merger of theDubai-based Olive Groupwith Constellis, Dowsetconfirmed to IFN. We also

continue to work with DubaiInternational Capital,

TVM Capital and STCVentures, among others,on a number of maters.

Looking outwardAnd while hotspots such as the UAEand Saudi Arabia are atractive,

regional Gulf firms are also turningtheir atention towards growing theiroutbound investment, raising capitalin the Middle East and deploying itacross global markets and upcominginvestment destinations such asAfrica, which saw overall GDP grow3.9% in 2014. Gulf Capital this monthannounced a US$25 million investmentin an Egyptian petrochemical firmmarking a spate of renewed privateequity interest in the country, whichis already now home to 11 privateequity firms (according to data from

the Emerging Markets Private EquityAssociation). Dubais Abraaj Capital,which manages over US$9 billion inassets, also recently raised over US$1.3billion for two Africa-focused privateequity funds. EFG Hermes, which holdsprivate equity assets of around US$800million, also sees considerable potentialin Egypt but is looking even furtherafield to Europe where last year itacquired 49% in French wind energyfirm EDPR France for US$208 million.

Working togetherBut some of the biggest opportunitieswill only occur when investmentfirms take a cross-border atitude andstart working together to encourageinternational equity investment. TheGCC is competing very well andkeeping a lot of new investment dollarsinvested in the region, specifically inSaudi and the UAE, said Jawad. [But]I would like to see it go towards Asiaand Africa there are a number ofopportunities in the pure private equitysector where healthy cash-needing

businesses can be invested in and thentaken back to the Middle East where theinvestors themselves reside.

Asia has a number of vibrant anddeveloping markets. However, for somereason Shariah compliant GCC capitalis not finding a home in these markets for example, high-potential countrieslike Indonesia need more investmentbut for whatever reason, the peoplewho are trying to atract the investmentand the people who have the capitalare not speaking the same language,

he suggested. GCC investors are

Private equity participation: New movement for Islamic finance?Continued from page 3

continued on page 5

Asia has

a number

of vibrant and

developing markets.

However, for some

reason Shariah

compliant GCC

capital is not

inding a home in

these

markets

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5 3rdJune 2015

COVER STORY

looking for new markets, and the smarttrading houses in Asia and Africa have

something to gain if they canstart learning how to speakthe same language and

atract the much neededcapital.

Growing upWhile challenges remain,the market is undoubtedlymaturing as sellers understandthe opportunities beter. Asfamily offices look to grow andbecome increasingly sophisticatedin terms of structure and governance,private equity sales offer an alternativeto IPOs and offer value beyond justcapital-raising, in terms of experience,

expertise and encouragement to expand.

However, in order to truly carve a nichefor itself in the mainstream market, theIslamic industry must focus on its ownstrengths rather than emulating theconventional channel. The investmentunit and the investors together shouldparticipate in the risk and share in thereward rather than focusing on astraightforward exchange of funds inexchange for a promised return.

There has to be participationin the risk that is the only

way that the Islamic industrycan compete or atract theatention of conventionalindustries, agreed Jawad.

You have to have businessesthat operate regionally or

globally on a Shariahcompliant basis, thatown assets and thatatract Islamic

investors and funders alike. At themoment we atract atention because weare playing the numbers game, citingthe impressive growth of Shariah

compliant assets which are mostly inthe form of deposits and financialinstruments. The growing childs noisehas to stop it is high time for theIslamic finance and investment industryto act like the young adult it hasbecome. We need to grow up and carveour own path which must bedistinctly different from theconventional banking and financemarket.

Private equity participation: New movement for Islamic finance?Continued from page 4

As family

ofices look togrow and become

increasingly

sophisticated in

terms of structure

and governance,

private equity sales

offer an alternativeto IPOs and offer

value beyond just

capital-

raising

SHARIAHPORTFOLIOSCRAFTED BYGLOBAL EXPERTS

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For many, investing is not only about preparing for a better future, but also staying

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scholars. Our experts manage a wide range of Shariah-compliant strategies such as

global, regional, and country-specific Shariah equities and Sukuk.

Learn more about our Shariah expertise at franklintempletonshariah.com

This document is for information only and does not constitute investment advice or a recommendation and was prepared without regard to the specic objectives, nancial

situation or needs of any particular person who may receive it. The value of investments and the income from them can go down as well as up and an investor may not getback the full amount that he invested. Past performance is not an indicator nor a guarantee of future performance.

2015 Franklin Templeton Investments. All rights reserved.

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6 3rdJune 2015

KEYNOTE ADDRESS

Keynote address by Dr Nik RamlahMahmood, deputy CEO of theSecurities Commission Malaysia (SC)at IFN Asia Forum 2015 on Tuesday, the

26thMay 2015.

1. Let me first thank IFN for inviting meto speak at this flagship IFN Forum2015. I am pleased to note that thisevent has over the years grown fromstrength to strength and is now a keyevent in the calendar of the globalIslamic financial services industry.

2. Typically, innovation in the globalcapital markets or the financialservices industry is driven by theindustry, by the forces of demand andsupply. The size of global financialassets which currently stands atUS$305 trillion and is more thanfour times the world GDP (US$75.6trillion) reflects the frenetic pace ofinnovation in the financial markets.Overall, these innovations haveresulted in the increasing variety anddiversity of products and servicesand more innovative distributionchannels, thus offering more choices,lower costs and beter returns forinvestors and issuers. This process

continues in the pursuit of theever-growing commercialization offinancial products and services.

3. Unlike in nascent or developingmarkets where regulators typicallyhave the legal mandate to facilitatemarket development, in developedmarkets, policymakers and regulatorsdo not need to provide a helpinghand to facilitate innovation. Thatis until and unless the innovationin the market causes harm to theinvestors, threatens the fair and

orderly operation of the marketor poses systemic risks. This iswhen regulators will take a moreinterventionist role in order to ensurethat the objectives and principles ofregulation are not compromised. Wehave seen many examples of this inmany parts of the world, especiallyafter the global financial crisis.

4. The same hands-offstance, however,cannot be adopted with respectto the Islamic financial servicesindustry and more specifically

the Islamic capital market (ICM).Policymakers and regulators, whetherin developed or developing markets,

have a significant, indeed crucial,

role in developing the market andfacilitating innovation. There areseveral reasons for this the obviousone being the fact that the ICM,unlike the conventional market, isstill in a state of relative infancy.Additionally, facilitating growthand innovation in the ICM ofteninvolves numerous complexities suchas regulatory, legal, tax and Shariahaspects that cannot be resolved justby the industry. It is fair to say that inMalaysia, the size of our ICM couldnot have reached RM1.64 trillion

(US$449.07 billion) as at the end ofApril 2015, without the government,regulators, the Shariah experts andothers working together with theindustry to facilitate innovation.

5. Over the last decade, the ICM haswitnessed numerous innovationswhether in the form of products,services or market infrastructure.However, many of these involvereplicating and adapting what isavailable in the conventional space tomake them Shariah compliant. While

such innovations have to a certaindegree served industry needs, thismay not be sustainable as marketdemand and expectations evolve.

6. To be sustainable, the appeal ofthe ICM cannot be based onlyon liquidity, competitive cost ofcapital or returns on investment.For instance, while currently Sukukrepresents an efficient means to tapcapital in several countries includingMalaysia, when it becomes cheaperto tap the conventional bond market,

issuers who are guided solely byconsiderations of costs and liquidityare likely to shift there. Similarly,

if Islamic funds are sold solely on

the basis of competitive returns, aperiod of lower returns could seeinvestors shift their investments toconventional funds.

7. To develop the ICM in a manner thatdifferentiates it from the conventionalmarket and put it on the path ofsustainability, many aspects ofinnovation must be pursued.

8. The first is innovation to keep pacewith the level of sophistication inthe global financial market. This is

intended to ensure the ICM remainsviable, relevant, competitive andcontinues to meet the demandsof issuers and investors. This isfinancial innovation which has seenthe introduction of many Shariahcompliant products serving diverseinvestors. Financial innovation isusually pursued by the industrywith litle if any need for facilitationor incentives as the innovatorsthemselves will reap the benefits fromtheir innovation. Recent examples ofsuch innovation include Basel IIIs

Tier-1 and Tier-2 compliant Sukuk.

9. As we are all aware, there has beengrowing calls for Islamic finance toembrace the true objectives of Shariah(Maqasid Shariah). The second aspectof innovation is therefore to ensurethat the ICM embraces and is builton the core values embedded in theMaqasid Shariah. ICM products andservices should therefore incorporatesustainable values towards theenvironment and society, ensuringfinancial products are financially

inclusive and incorporating

Facilitating innovation in the Islamic capital market

continued...

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KEYNOTE ADDRESS

environment, social and governanceprinciples. This includes making theICM accessible to a larger segment ofsociety especially those with limited

access to savings, investments andfinancial services. ICM productssuch as Islamic unit trusts andretail Sukuk can serve as a catalystto achieving financial inclusionby enabling greater retail investorparticipation. Additionally, SME andmicrofinancing should be facilitatedas SME financing remains a criticalchallenge in most markets.

10. Another aspect of innovation isthe need for Islamic finance to belinked to the real sector especially

through the wider use of risk-sharingstructures. Financing that is linked tothe real sector allows Islamic financeto be differentiated from conventionalfinance. More work needs to be doneso that risk-sharing structures can bemade more appealing to investors.Key stakeholders must take pro-active actions to incentivise risk-sharing structures.

11. The role of Shariah scholars andexperts in facilitating innovation inthe ICM is critical. Innovation in the

ICM cannot be achieved without theirstrong support and pronouncementswith respect to the application of theguiding principles in Fiqh Muamalatto financial products and services.Shariah advisors, experts andShariah research institutions all playa role in contributing to the Islamicfinancial industry. Shariah councils orcommitees and supporting researchinstitutions have often demonstratedtheir ability to proactively issuevarious guidance or research findingsfor the industry to pursue in terms ofnew product development.

12. The issuance of the innovative stapledsecurity REITs of KLCC PropertyHoldings is a fine example of how theShariah Advisory Council (SAC) ofthe SC has been most responsive inissuing the relevant Shariah rulingsto facilitate the introduction of theworlds first Islamic stapled security.In this case each component security,that is, the REITs units and ordinaryshares, must be Shariah compliant

based on the Guidelines for IslamicReal Estate Investment Trusts andequity screening methodology

respectively. Similarly, the SAC hasissued Shariah Parameters on IslamicExchange-Traded Fund (i-ETF) basedon gold and silver that provides

clarity, certainty and guidance tothe industry for the developmentof new products. We can expect theSAC to issue more of such Shariahparameters to facilitate innovation inthe ICM in the future.

13. To complement the work of ourSAC, the SC has been given thelegal mandate to develop the capitalmarket, facilitate innovation in theICM through the introduction offrameworks and regulations forproducts and services, and review

and amend existing regulations andlaws or the introduction of new ones.

14. One area where the SC had playeda prominent role in facilitatinginnovation is in the promotionof sustainable and responsibleinvestment (SRI). The CapitalMarket Masterplan 2 first identifiedthe importance of sustainabilityand recognized that the role of thecapital market can be expanded tosupport this agenda by providingmarket-based solutions that will

bring scale and financial discipline inmobilizing investments to companies,projects and products that promotesustainable development.

15. Pursuant to this, in August 2014the SC introduced the SRI SukukFramework within the SukukGuidelines to facilitate the financingof SRI initiatives. In coming out withthe framework, the SC had engagedvarious stakeholders at all levels,from the Ministry of Finance (onthe tax incentives) to other industrystakeholders including potentialissuers. Engagements throughroundtable discussions and industrydialogue were held in the course offormulating the framework.

16. But guidelines without actualissuance will not bring aboutinnovation in the ICM. It is thusmost heartening to note that earlierthis month Khazanah Nasional hasannounced a RM1 billion (US$273.82million) Sukuk Ihsan program as thefi

rst social impact Sukuk in Malaysia.Khazanah will use the proceeds tofund selected government schools

under the Trust Schools program,with clear key outcomes that arelinked to an SRI-based step-downyield mechanism with the sole aim of

enhancing the quality of government-run schools.

17. The Shariah compliance andgovernance aspects of the SRI SukukFramework were carefully craftedso as to ensure the universality of itsapplication. In this regard, the SACplayed a significant part in facilitatingand supporting Shariah innovation.The very fact that proceeds from theissuance of an SRI Sukuk can alsobe channeled towards developingWaqf assets reflects the foresight

and wisdom of the SAC in linkingSRI with a socially oriented agendabenefiting the society at large.

18. Another example of how the SC hasfacilitated innovation is in the fundmanagement industry. The ASEANCIS Framework for Cross-BorderOffering of Funds, an initiative ofthe ASEAN Capital Markets Forum,allows collective investment schemes(CIS) including Islamic CIS to bedistributed in three participatingcountries namely Malaysia, Singapore

and Thailand. The Islamic fundmanagement industry is expectedto greatly benefit from this byhaving access into new markets.The recent launch of the first Islamicequity fund under the framework- Maybank-Bosera Greater ChinaAsean Equity-i-Fund by MaybankAsset Management in partnershipwith Hong Kong-based Bosera AssetManagement is the first Islamicproduct offered under the frameworkand should be a precursor to moreinnovative cross-border offerings.We consider this a significantdevelopment in the ICM as it offerstremendous growth opportunitiesfor Malaysias capital market serviceproviders.

19. Innovation is key for the ICM tocontinue on its growth trajectory.Such innovation may involvefinancial, social or Shariah aspects butone thing is clear: all stakeholders,policymakers, regulators, Shariahexperts and the industry must work

together to facilitate the innovation.

Thank you.

Continued

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8 3rdJune 2015

IFN REPORTS

IFN Asia Forum 2015 held on the25th-26thMay in Kuala Lumpur wasa phenomenal success; serving asan avenue for thought-provoking

discussions on some of the industrysbiggest issues and opportunities.VINEETA TAN provides an overview ofthe two days.

IFN Issuers DayMarket players are strengthening theirfocus on Asia as the region is exhibitinggreater potential for Islamic financedriven by a stronger push for ethicalfinance by various governments inthe region against the backdrop ofrising living standards and a growing

population, said industry captains at IFNAsia Forum 2015 Issuers Day.

Held on the 25thMay at Kuala LumpurConvention Center, the two-day forumkicked offon a high note welcomingover 600 delegates to a stimulating arrayof discussions by an impressive line-up of speakers and panelists, invitinginsightful debates and conversations.However, despite the lucrative appealof Asia, there remains challenges tobe tackled including market liquiditymanagement concerns and the lack

of an enabling legal infrastructure insome jurisdictions. Another issue, ashighlighted by Jawad Ali, the managingpartner of King & Spaldings MiddleEast offices, is the lack of understandingbetween capital seekers and capitalproviders. For example in Indonesia,there is a need for investment but I thinkthat the people who are trying to atractthe investment and the people who havethe capital are not speaking the samelanguage. GCC investors are looking fornew markets; the smart trading housesin Asia and Africa have something togain if they can start speaking the samelanguage.

Among key areas for growth areinfrastructure and private equity.Professor Dr Rifaat Ahmed Abdel Karim,CEO of International Islamic LiquidityManagement Corporation, emphasizedin his opening keynote address thatIslamic finance players would be remissif they did not recognize the hugeinfrastructure needs of Asia and theopportunities they offer.

In terms of Sukuk, while the markethas been experiencing a slowdown,

atributed largely to the anticipationof increasing interest rates, issuersand regulators remain commited todeveloping the asset class with several

issuances in the pipeline. MalaysiasKhazanah Nasional, for example, islooking at expanding its SRI Sukukprogram the first issuance underthe Securities Commission MalaysiasSRI Sukuk Framework to the retailmarket next year, according to the chiefinvestment officer Mohd Izani Ghani;while Cagamas is planning to offerforeign currency Sukuk in the nearfuture, said CEO Chung Chee Leong.

While one cannot discuss the success

of Asias Islamicfi

nance story withoutmentioning torchbearer Malaysia, anemerging theme from the forum was thestronger presence by emerging markets,such as Japan and China, in the Islamicfinance space as they adopt ethicaland SRI finance in a bid to stabilize thefinancial system and push the Islamicfinance agenda to atract Muslim wealth.This diversification is most welcomed byindustry players as it signals a maturingmarket. Malaysias dominance inthis segment must be joined by othercountries in the near to medium-term,

said Mohamad Safri Shahul Hamid, thesenior managing director and deputyCEO of CIMB Islamic.

IFN Investors DayContinuing the strong momentum of thefirst day of IFN Asia Forum 2015, IFNAsia Investors Day gathered an upward550 delegates to an event-packed day atthe Kuala Lumpur Convention Centeron the 26thMay. Adding to the widerange of topics covered on the first day,the second day of the forum explored

various themes in the investment spaceincluding: asset management trends,Waqf, crowdfunding, Islamic treasuryproducts, cross-border activities andhuman capital development amongothers.

The event commenced with a keynoteaddress by Dr Nik Ramlah Mahmood,the deputy CEO of SecuritiesCommission Malaysia (SC), who broughtto atention the vital need to refocus theindustrys efforts towards creating risk-sharing structures to enhance the appeal

of Shariah finance among investors. DrNik emphasized that while innovation isa persistent theme of the Islamic capital

markets, however, the replication andadaptation of conventional instrumentsto fit the Shariah mould may not besustainable as market demand and

expectation evolve.

To that end, Dr Nik confirmed that theSC, which launched a joint publicationon Islamic Capital Markets: Principlesand Practices in collaboration withInternational Shariah ResearchAcademy for Islamic Finance during theforum, will be issuing further Shariahparameters to facilitate innovation anddevelopment in the industry.

Reasserting its lead and ambition as

the worlds leading Islamicfi

nancepower outside of the Muslim world,the UK will be strengthening bilateralties with Malaysia. Addressing theaudience, Alan Yarrow, the Rt Honthe Lord Mayor of the City of London,said that London will explore furtherShariah financial opportunities withthe Southeast Asian Islamic financepowerhouse, including in the area ofeducation and training.

Industry leaders are also optimistic thatthe Islamic wealth management sector

is poised for further growth over thenext five to ten years as the Asian regioncontinues to be home to rising affluenceon the back of increasing demand forShariah wealth management solutions.Given the current yield climate, thiswill spur interests in investment-linkedproduct and unit trusts, opined SyedAbdul Aziz Syed Kechik, CEO of OCBCAl-Amin Bank.

Another prevalent theme was theavenues Asian passporting funds could

open for the Islamic funds industry. TheASEAN Collective Investment Schemewas a particular focus and while theinfrastructure is most welcomed by theindustry, however, market players notedthat for the Islamic funds segment totruly capitalize on the ASEAN CIS, morecountries particularly Indonesia, willneed to come onboard. Gerald Ambrose,CEO of Aberdeen Islamic AssetManagement, suggested the Asia RegionFund Passport (expected in 2016), whichincludes more jurisdictions includingthe Philippines, as another option for

Islamic fund managers to reach a widerinvestor base.

Asia a key focus for industry leaders

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Sukuk saw a minor dip in 2013,accompanying the wider globalslowdown, but in 2014 issuanceresumed its 2013 levels and the sector

looks to continue its successful stormforward. LAUREN MCAUGHTRYspeaks to S&P DOW JONES INDICESfor an exclusive peak at key currenttrends for the sector.

In 2014 Sukuk issuance in the US dollarmarket reached US$14 billion, which ison a par with 2012, so we have picked upfrom the drop in 2013 when the globalmarkets slowed down somewhat,explained Michele Leung, the director offixed income indices at S&P Dow JonesIndices (S&PDJI). In terms of total Sukukperformance, year-to-date returns arearound 2% but looking at a one-yeartimeframe this increases to around 4.3%,which is very comparable to the Malaysianringgit market, which is also around 4.3%.

One notable trend is that the higher-yielding indices are currentlyoutperforming perhaps unsurprisingin todays market conditions (see Chart1). From 2013, what we see is that theAA and BBB Sukuk are outperforming.The BBB rolls around 6.13% and the AA

around 7.29% in a one-year time frame,commented Leung. However, it is worthnoting that the AA issuance is mainlydriven by Saudi Electric, which has beena very active issuer in the past few years.

Longer-maturity Sukuk have alsooutperformed, and by a significant margin suggested the increased popularity ofproject and infrastructure issuance anda higher tolerance from investors for alonger time frame (see Chart 2). If welook at just a one-year time frame, theindex rose 8.8%, pointed out Leung. The

short-term is not performing anywherenear as well as the long-term at themoment. To corroborate this trend, shenotes that new issuance is also movingtowards longer tenors: predominantly 10-year and 30-year.

Another key trend is regarding the countryof exposure. Usually Malaysia dominateslocal currency Sukuk, representing around56%, and in the US dollar space the GCCare the more active issuers. But so far thisyear, we see that Malaysia Sukuk hasoutnumbered GCC Sukuk in the US dollar

space, explained Leung. Major issuancespushing Malaysias global Sukuk portfoliohigher include the US$1.25 billion Petronas

Sukuk, and the Malaysian governmentsUS$2.5 billion issuance. So far thisyear, Malaysian US dollar exposure has

outpaced GCC dollar exposure which isa reversal of the traditional movement thatwe see.

In terms of country of risk however, 53%of total outstanding is now from the GCC(see Chart 3). The GCC has been a reallyhot item in the market, everyone is talkingabout how it is growing, confirmedMichele. In contrast, she notes that (outside

of Malaysia) it is taking some time forSukuk in Asia to develop. However:We are seeing some new collaborations,for example with Chinese investors,which should bring some interestingdevelopments in the next few years.

In terms of oil price and Sukukperformance, S&PDJI also ran correlationsbetween oil price and MENA Sukuk. In aone-year time frame the correlation wasfound to be only around 1% notmeaningful at all, pointed out Leung. Sopeople sometimes claim that oil prices are

affecting Sukuk performance but interms of total performance, there is verylitle impact.

Sukuk sector regains ground as new trends begin to emerge

Chart 1: Rating-based sub-indices Total return performance

12/3

1/2

013

1/3

1/2

014

2/2

8/2

014

3/3

1/2

014

4/3

0/2

014

5/3

1/2

104

6/3

0/2

014

7/3

1/2

014

8/3

1/2

014

9/3

0/2

014

10/3

1/2

014

11/3

0/2

014

12/3

1/2

014

1/3

1/2

015

2/2

8/2

015

3/3

1/2

015

113

111

109107

105

103

101

99

Source: S&PDJI as of the 19th

May 2015

Dow Jones Sukuk A Rated Total Return Index

Dow Jones Sukuk AAA Rated Total Return Index

Dow Jones Sukuk AA Rated Total Return Index

Dow Jones Sukuk BBB Rated Total Return Index

Chart 2: Maturity-based sub-indices Total return performance

12/31

/2013

1/31

/2014

2/28

/2014

3/31

/2014

4/30

/2014

5/31

/2104

6/30

/2014

7/31

/2014

8/31

/2014

9/30

/2014

10/31

/2014

11/30

/2014

12/31

/2014

1/31

/2015

2/28

/2015

3/31

/2015

4/30

/2015

11711511311110910710510310199

Source: S&PDJI as of the 19thMay 2015

Dow Jones Sukuk 1-3 Year Total Return Index

Dow Jones Sukuk 3-5 Year Total Return Index

Dow Jones Sukuk 7-10 Year Total Return Index

Chart 3: Country of risk by par amount

Source: S&PDJI as of the 19thMay 2015

UAE24%

Qatar13%

Saudi Arabia13%

Hong Kong2%

Indonesia10%

Malaysia10%

South Africa1%

Supra11%

Turkey11%

UK

1%

US1%

Bahrian3%

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Abu Dhabi Islamic Bank (ADIB)in a recent statement announced its

intentions to raise capital througha rights issue and a potential Tier-1Sukuk issuance. With strong financialresults for the year 2014 and the firstquarter of 2015, NABILAH ANNUARtakes a closer look at the banksexpansion plans.

Said to have experienced a period of highgrowth, ADIB reported 20.7% growthin net profit in 2014, with customerfinancing increasing 18.2% from theprevious year. For the first quarterof 2015, the bank witnessed a 10.1%increase in net profit, with net customerfinancing growing 13.3% to AED72.3billion (US$19.67 billion). Expecting thistrend to continue, ADIB has scheduled anextraordinary general meeting (EGM) atthe end of this month to vote on capital-raising proposals to fuel this growth.

ADIB has experienced a period ofstrong expansion and we expect thisgrowth trajectory to continue. In order tosupport our growth, the bank is lookingto raise additional capital and as such

we are now inviting our shareholders toparticipate in a rights issue. We are alsokeeping our various capital instrumentissuance programs up to date, should anopportunity present itself in the futureto raise alternative forms of capital,explained Tirad Al Mahmoud, groupCEO of the bank.

Keeping all its funding options open,ADIB seeks to explore possibilities in

both equity and debt capital markets.The proposed issue of 168 million newshares (fully underwriten), will bepriced at AED3 (82 US cents) per share,which represents a 40% discount tothe current share price and is expectedto raise AED504 million (US$137.18million) in share capital. Shareholderswill receive the right to buy 56 rights forevery 1,000 shares they own. Paving theway for the rights issue, shareholdersduring the EGM will be asked to voteon an amendment of ADIBs Articles

of Association to increase the banksauthorized share capital from AED3billion (US$816.54 million) to AED4billion (US$1.08 billion).

Supporting capital market developmentin the emirate, the rights issued byADIB will for the first time in the UAEbe traded on the Abu Dhabi SecuritiesExchange through approved brokers.As rights issues are relatively rare inthe country and options have not beentraded in the past, the transaction wouldraise the level of sophistication of the

local market for retail investors. Thisprocess is projected to be educationalfor many retail investors, encouragingcompanies to list on the UAE markets.It will further demonstrate that capital-raising through equity markets does notstop at an IPO stage, and that the UAE

exchanges can also be a platform forgrowth.

On the credit side, ADIB also proposedto increase the banks mandate forissuing Shariah compliant Tier-1 capitalinstruments from the existing approvedlimit of US$2 billion to US$3 billion.As part of a long-term capital-raisingprogram, shareholders during the EGMwill vote on the expansion of the bankscurrent Tier-1 Sukuk program. TheSukuk is expected to materialize later inthe year.

With a focus to expand its network acrossthe UAE, ADIBs wholesale bankingdivision plans to magnify financingsin the SME sector as well as large andemerging corporate segments, wheredemand for financing and ancillaryservices are seen to rapidly develop. Inretail banking, ADIB is currently movingto aggressively expand in the Dubaiexpatriate market, pioneering new levelsof digital banking in the UAE, whilegrowing its branch network.

As of the 31stMarch 2015, ADIBs capital

adequacy ratio under Basel II stood at14.74% (well above the 12% requirementset by the Central Bank of the UAE)compared to 15.71% a year earlier. Whileits capital base remains strong, the bankstill foresees that it requires additionalcapital to sustain its growth.

ADIB charts its course in equity, credit and retail markets,

setting a precedent in the emirate

Islamic Finance Qualification (IFQ)

23

rd

25

th

August 2015, Dubai

www.redmoneytraining.com

dubaicourse@redmoneygroup.com

Key Highlights:

Key Islamic Finance Principles

How Islamic and Conventional Finance Differ

Structuring Rules for Islamic Financial Products

Sukuk & Islamic Securitization

Islamic Asset & Fund Management

Takaful

Financial Statements for Islamic Banks

Corporate Governance for Islamic Finance

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Whats been going on in the world thisweek? LAUREN MCAUGHTRY bringsyou an update of the most significanteconomic, regional and global events,

issues and trends that have thepotential to affect the Islamic financeindustry.

Foreign investors flood into Chinawith over US$4 billion flowing inover the past week just as theShanghai market plummeted over6% yesterday.

Chinas falling stock marketcombined with a decline in the S&P500 and weakening oil prices make achoppy climate for European and USequity investors.

Brent Crude touches its lowest levelfor a month.

Japan story looking relativelypositive in comparison, with stockmarket up and unemployment at itslowest since the 1990s.

Could liquefied natural gas be thebig new energy story, as it is setto replace iron ore this year as thesecond most valuable commodityafter oil, with Goldman Sachspredicting it to reach US$120 billion?

Royal Bank of Scotland preparesto sell offshares as new UKgovernment makes clear indicationof desire to offload its 80% state-owned holding as quickly aspossible, even if that means makinga loss. Could this be an opportunityfor a foreign bank to gain a cheapfoothold in the UK market?

Israel nears a landmark deal todevelop massive US$6.5 billionLeviathan offshore gasfield, afterthe resignation of David Gilo, the

antitrust chief blocking the deal bydeclaring it a cartel, says the FT.

Ali al-Naimi, the Saudi oil minister,announced at a Paris conference thisweek that the Kingdom could phaseout fossil fuels as early as mid-century: I dont know when, in2040, 2050 or thereafter, and thusplans to become a global exporter insolar and wind energy, and exportelectricity instead of oil.

IFN Global Trendswatch

Deep in debt and controversies,Malaysias investment vehicle1Malaysia Development (1MDB) hasnot been able to escape public scrutinyand the considerations of internationalrating agencies. VINEETA TANexamines the possible collateraldamage the fund may incur to theworlds most sophisticated Islamicfinance market and Sukuk industry ingeneral.

Moodys Investors Service may revisitits positive outlook on Malaysias A3rating if the governments aid to debt-laden funding vehicle 1MDB affectsthe countrys deficit reduction exercise.[Government] support is probably

forthcoming; in fact support alreadyhas come in the form of a line of creditearlier this year. The question we areasking ourselves is: Will the magnitudeof support eventually derail the trend offiscal consolidation? If so, it may causeus to relook our outlook, said Christiande Guzman, the vice-president andsenior analyst for Moodys sovereignrisk group.

Speaking to reporters, de Guzmanhowever added that while contingentrisks from 1MDB and non-financialcorporate debt are a rating concern,Malaysias credit fundamentals are

resilient enough to weather a harsherglobal economic environment andmore significantly, 1MDB does not posea policy risk. From a fundamentalperspective, the 1MDB issue is notsystemic to public finances, the economyor the banking system. But it doeshave a disproportionally large effecton the political situation and publicsentiments, he explained.

As of March 2014, 1MDBs debt reachedRM41.9 billion (US$11.53 billion);of which US$1.25 billion was raisedthrough Sukuk which will maturein June. The state-owned investmentcompany previously planned whatwould have been the largest Sukukoffering of 2014, a program of up toRM8.4 billion (US$2.4 billion) butdecided to call it off.

On the potential impact of a possibledefault of the Islamic facility, KhalidHowladar, the global head for Islamicfinance at Moodys, opined that it is

unlikely for the Sukuk market to be hitdisproportionally as compared to theconventional segment.

It was recently revealed by theMalaysian second finance minister,Ahmad Husni Hanadzlah, that the firmwill offload all its energy assets viaEdra Energy and spin offTun RazakExchange and Bandar Malaysia asstand-alone companies, as part of astrategy to reduce its debt levels. 1MDBwill also be receiving a US$1 billionpayment from Abu Dhabis InternationalPetroleum Investment Company andits subsidiary Aabar Investment by the4thJune as part of a binding agreement,to be used to repay a US$975 million

syndicated loan ahead of maturity.

The investment vehicle has been miredin controversies with members of thepublic and political sphere questioningthe handling of public funds. This isfurther aggravated by the firms lack oftransparency. We certainly do notexpect this level of opacity from 1MDBespecially from a sovereign to which wehave assigned a rating of A3, said deGuzman who added that the ratingagency will be monitoring the situationclosely.

1MDB unlikely to disproportionately affect Sukuk market

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As Bosnia and Herzegovinas soleIslamic banking player, Bank BosnaInternational (BBI) has over the yearsadapted and created a model best

suited to further the Islamic financeproposition in an environment that isless than conducive. VINEETA TANrecently caught up with CEO AmerBukvic to bring you an exclusive peek atBBIs project pipeline and performance.

Exponential growthAlthough BBI only account for 3% of thecountrys total banking market share, theIslamic bank has achieved an averageannual growth of 25% for the last decade,reflecting the rising acceptance of Shariah

compliant products in the SoutheasternEuropean nation, despite its limitingregulatory landscape.

From the first time when this market[welcomed] a bank running its operationsaccording to Islamic principles, whichwas completely unknown to the marketthen, and even subjected to prejudicesagainst Islamic banks, we proudlyemphasize the fact that BBI clients todaycome from all ethnic and religiousgroups including Christians and Jews,said Bukvic.

International involvementWhile BBI has been busy on the homefront running various awarenesscampaigns and developing its business,the bank has also begun expandingits clout abroad. Equipped with itsexperience and expertise, BBI has beenengaged by the United Bank of Albaniato assist with management and therolling out of Islamic products withhopes to eventually establish a properShariah banking infrastructure in thecountry.

New asset classAside from assisting its Balkanneighbor, Bukvic revealed that the bank

is looking at expanding its portfolio toinclude Salam instruments as well asto launch a private equity fund. Theseplans are part of a wider strategy tocapitalize on the countrys agriculturalsector with the eventual goal of creatingan Agriculture Investment Corporationto support local agricultural producersand export activities. The future ofBosnia and Herzegovina lies in thedevelopment of agricultural potentialswhich is abundant in the region, saidBukvic.

Looking aheadHowever, despite the promising progress,Bukvic acknowledges that there is roomfor improvement and that the bank (aswell as aspiring Islamic finance players)face a multitude of challenges fromunaccommodating legal infrastructure tothe complex web of ethnic tensions.

As far as regulators are concerned,they have been supportive so far;however, they also need more technicalenhancements especially in the fields ofIslamic accounting, shared Bukvic.

Claiming that the Bosnian market isoverbanked, Bukvic believes that another

key growth driver for Islamicfi

nance isin the area of investment banking andTakaful which is currently absent fromthe jurisdiction.

Realistic and cautiously optimistic,Bukvic recognizes the challenging timesahead for Islamic finance in Bosnia andHerzegovina but he affirms that: Whilethe market in the country remainsturbulent, BBI will continue on its path asa stable partner to the local businesscommunity and catalyst for foreignpartnerships.

Company Focus: Bosna Bank International

As the deadline to reclassify bankingdeposits into either Islamic depositsor investment accounts approaches(mid-year), Malaysian Islamic banksare in the midst of rolling out theirre-engineered products as well as

introducing new solutions to meet therequirements of the Islamic FinancialServices Act 2013 (IFSA 2013). VINEETATAN takes a look at how MalaysianIslamic banks are coping amid concernsover potential loss of market shareduring this period of transition.

The countrys pioneering Shariahfinancier, Bank Islam Malaysia, isconfident that income streams would notbe negatively affected and is optimisticthat business would continue to growfollowing full implementation of the

regulation.

The bank this week expanded its suite

of products with three new investmentaccounts (Special Investment AccountMudarabah (SIA Mudarabah), WaheedInvestment Account Wakalah (WIAWakalah) and Al-Awfar Account),becoming the first player to roll out

products in compliance with IFSA 2013.Two out of the three (SIA Mudarabahand WIA Wakalah) are designed forcorporate customers as Bank Islam seeksto bolster its corporate line and reducedependency on its retail business. Chiefstrategy officer Hizamuddin Jamalludinconfirmed to the media that the bank islooking at diversifying its portfolio toboost its corporate financing assets andretail financing assets ratio to 30:70 fromthe current 24:76.

Admiting that the banks consumer

operations have consistentlyoutperformed its corporate businesswhich makes it challenging to

augment the construct of its portfolio,Hizamuddin said that Bank Islam iskeen to atract large corporates in orderto capitalize on the value chain or chainof vendors. He added that the bank istargeting a financing growth twice that

is projected of the wider industry on theback of the groups current balance sheet:15% against 7-8%.

Previously, Mudarabah and Wakalahproducts were considered as depositaccounts; however, the Malaysiangovernment is moving towardsenhancing the Shariah compliance of itsIslamic financial industry whichculminated in the IFSA 2013. Under thenew regulation, Mudarabah, Wakalahand Musharakah instruments will bedistinguished as investment products to

be backed by the banks portfolio ofassets, instead of the Malaysia DepositInsurance Corporation.

New rules to bring in more business for Malaysian Islamic

banks

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Said to be overbanked, the UAEbanking sector comprises 57 banks(23 are local banks and financialinstitutions; and 34 foreign banks),including eight Islamic banks. Withlocal banks also offering Shariahcompliant products, one cannot help butwonder if the Islamic banking space inthe country is in fact overcrowded. Thisweek IFN asks the hard question thathas been playing on everyones minds.NABILAH ANNUAR reports.

Contrary to popular belief, although theUAE itself is viewed as overbanked, theIslamic finance sector is not. The majorityof players (67%) believed that there isstill scope for more. Industry sourceshave suggested that Shariah compliantsector only commands 18% in terms ofbanking assets and 25% when Islamicwindows are included the figuresare considerably lesser than the likes ofMalaysia and Saudi Arabia.

According to local reports, the CentralBank of the UAE opined that thecountrys banking sector is in a strongposition and expected to perform wellthroughout 2015. With cash reservescalculated at AED311.1 billion (US$84.67billion) as of the first quarter of this year,

the banking sector is believed to possessa strong capital base. Heeding the centralbanks recommendations, financialinstitutions in the emirate managed inthe first quarter of 2015 to exceed 12%,with an 8% increase in Tier 1 capital inline with the central banks decision.

However, despite the healthy outlookand ample capacity in the UAEs Islamicfinance market, the Middle East itself isbeing viewed as overbanked and highlyliquid. The regions banking landscapehas been described to resemble Europesbanking industry 25 years ago a dense

banking market where the majority ofinstitutions seek to put their loans towork. As a consequence, it is harder todevelop client desire to enter the capitalmarkets when banks insistently offer tolend.

It is yet to be proven whether the Islamic

banking system would be adverselyaffected by its overbanked counterpart.No mater how resistant the sector isprojected to be, in the larger picture itwould at least experience spillover effectsof the situation.

IFN Weekly Poll: Is Islamic inance in the UAE

becoming overbanked?

33%

67%

Is Islamic nance in the UAE becoming overbanked?

Yes

No

It has been suggested that emergingmarkets would require approximately50,000 Islamic finance professionalsin the next few years to maintain theprogress of the global Islamic financesector. Acknowledging this call todevelop sustainable human capital forthe global Islamic financial servicesindustry, REDmoney has launched IFNEducation, a one-stop multi-facetedresource portal featuring a newsleter, acomprehensive and searchable almanacof all educational institutions offeringIslamic finance-based courses and

access to data otherwise unavailable.

Addressing the talent development

market at all angles, IFN Educationprovides industry stakeholders anavenue to keep informed of humancapital advancements. With an exclusivefocus on the talent development sector,IFN Education delivers a quarterlynewsleter (a sister publication toIFN) which tackles employment andeducational issues, provides a list ofuseful industry events and a dedicatednews section covering all the latestdevelopments in the market segment.

Scheduled to launch soon, the directory

which will be available on the IFNEducation website gives access to allIslamic finance-based courses available

worldwide, while the IFN EducationAlmanac provides an annual reportfeaturing data from the exclusivedatabase, reports on the industry, andinsights into the future developmentof the Islamic finance education sectorproviding detailed analysis on how themarket views the current industry andwhat they require moving forward.

Kindly visit www.islamicfinancenews.com for a softcopy of the publication.

REDmoney launches IFN Education; a facilitative medium for

Islamic inance education

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IFN REPORTS

Managing liquidity in their respectivecountries, Indonesia, Bahrain and

Malaysia have all successfullyconducted their regular Sukuk auctions.Oman on the other hand which ispushing the development of WaqfSukuk in the Sultanate, has confirmedduring the recent IFN Asia Forum thatit targets to debut its maiden Sukukbefore Ramadan. As usual, NABILAHANNUAR keeps abreast of the latestdevelopments in the sovereign Sukukarena.

Following Hong Kongs successfulissuance last week (see Case Study

on page 16), Oman has stepped upcementing its plans for its sovereignSukuk. Kemal Rizadi Arbi, advisor tothe Omani Capital Market Authorityconfirmed during the IFN Asia Forum2015 that the government is targetingto issue its proposed sovereign Sukukbefore Ramadan to the tune of US$1billion, with subsequent programsplanned.

According to local reports, authoritieshave agreed that the Sukuk auction willbe made through a private placement

process and marketed primarily toIslamic financial institutions, andsophisticated investors with a minimumsubscription amount of OMR500,000(US$1.29 million). As a means to addressthe Sultanates 2015 budget deficit, theSukuk is believed to adopt an Ijarahstructure with maturities of five or sevenyears and the underlying asset being aselected public project with a readilyavailable income stream of the rightproportions. Also in the Sukuk space,seeing major potential in Waqf assets,industry players are trying to push forthe development of Waqf Sukuk in theSultanate.

Moving to regular sovereign issuances,Sukuk recently auctioned by theIndonesian government via PerusahaanPenerbit SBSN Indonesia III have beenadmited to trading on the NASDAQDubai on the 31stMay. Accordingto an official statement, the eightfacilities amounted to US$6 billion. TheIndonesian finance ministry will on the3rdJune 2015 hold an Islamic treasury

bills auction, offering four facilities atan indicative target set at IDR2 trillion(US$151.2 million).

Across the sea, the Malaysiangovernment on the 29thMay issuedMurabahah government investment issueworth RM3 billion (US$813.79 million),receiving 264 bids amounting to RM6.26

billion (US$1.71 billion).

In Bahrain, the central bank last weekconcluded the Sukuk Al-Salam Islamic

auction worth BHD43 million (US$113.16million). Carrying a maturity of 91 days,the Sukuk (which began on the 27thMay2015 and matures on the 26thAugust2015) was oversubscribed by 166%, with

an expected return of 1.2%, compared to0.92% for the previous issue on the 22ndApril 2015.

Sovereign Sukuk: Regular Sukuk auctions and Omans debut

before Ramadan

Upcoming sovereign Sukuk

Country Amount Expected date

Oman US$1 billion Before Ramadan2015

Kazakhstan TBA 2016

Turkey TRY1.5 billion TBA

Bangladesh TBA TBA

Hong Kong US$500 million to US$1 billion TBA

Ningxia Hui Autonomous Region US$1.5 billion TBA

Indonesia TBA 2015

Ivory Coast XOF300 billion 2015-20

Kenya TBA 2016

South Africa TBA 2016

Senegal TBA TBA

Niger XOF150 billion TBA

Tunisia US$500 million 2015

Jordan JOD564 million 2015

UAE TBA 2015

Luxembourg TBA TBA

ISLAMIC TREASURY &RISK MANAGEMENT PRODUCTS

8th 10thSeptember 2015, KUALA LUMPUR

Course Highlights: Identify and manage risk in Islamic Treasury products

Comparative analysis of treasury and risk management products in

various jurisdictions

Application of various Islamic toolkits in the Islamic money markets

Manage foreign exchange instruments and associated rate risks

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15 3rdJune 2015

ANALYSIS

Legal and regulatoryTheoretically, all banking transactionsin Saudi Arabia are supposedly Shariahcompliant; this however is not the case.While the Kingdom practices Shariahlaw, its banking laws make no referenceto Islamic banking as the country adoptsa single regulatory framework for allbanks.

Shariah compliance supervisory restslargely on the shoulders of individual

Shariah boards of respective banks asthere is not a specific body at a nationallevel which oversees the Shariahcompliance of financial transactions andproducts; all banking maters, however,fall under the purview of the SaudiArabia Monetary Agency (SAMA) whichacts as the central bank. Whereas thenations capital markets are regulated bythe Capital Markets Authority (CMA).

Banking and inanceSaudi Arabia is the largest Shariah

banking market globally (after Iran),commanding 31.7% of the internationalmarket share. According to EYs WorldIslamic Banking Competitiveness Report2014-15, the Kingdoms Islamic bankingassets account for 48.9% of the totaldomestic banking segment in 2013. Thisfigure is projected to reach 70% by 2019,expanding Saudi Arabias global marketshare to over one-third at US$683billion. Over 2009-13, the Shariahbanking industry doubled in size andmore than half (54%) of all financingtransactions in the country in 2013 wereShariah compliant.

There are 12 licensed banks in SaudiArabia according to SAMA. Out of the12, four are fully-fledged Islamic banks:Al Rajhi, Aljazira, Alinma, Albilad;with the rest offering Shariah compliantproducts on a window basis. JadwaInvestment is another CMA-licensedIslamic investment bank. Despitedeclining profits, Al Rajhi remains thelargest Islamic bank in the world byassets at SAR298.71 billion (US$79.62

billion) as at the 30th

September 2014.National Commercial Bank (NCB) whichfloated the worlds second-largest IPO

in 2014 is commited to become fullyShariah compliant within five yearsfrom its IPO offering.

Islamic fundsSaudi Arabia has a deep funds industry,reflected by it being the largest funddomicile of the Arab world. The firstIslamic mutual fund was launched byNCB in 1987, which also rolled out thefirst Shariah compliant global equityfund. As at the 26thMay 2015, there are

182 mutual funds registered as Shariahcompliant on the Saudi Stock Exchange.Traditionally, funds in the Kingdomwere designed for the retail base in thepublic sphere; however, it has beenobserved that there is an increasing shifttowards privately placed funds due torelative ease in establishment.

SukukDespite the depth and breadth of theSaudi Islamic banking, funds andinsurance sectors, the countrys Shariah

debt capital segment lags behind. This isatributed to the competitive financingrates offered by cash-rich banks; thereare more demand for Islamic financingfacilities as compared to Sukuk. This,however, is expected to change as theSaudi market prepares to liberalize itsUS$568 billion stock market.

According to Aljazira Capital, a totalof US$15.2 billion-worth of Sukukwas issued out of Saudi Arabia in2013, marking a 36.4% increase on ayearly basis. Data from Gulf Bond andSukuk Association show that in 2014,

total Saudi Sukuk issuance reachedapproximately US$10.43 billion. So farin 2015, the IDB is the only Saudi entitywhich sold Sukuk, a US$1 billion USdollar facility.

TakafulRegulated by SAMA, the Islamicinsurance industry in Saudi Arabia isregulated by the Law on the Supervisionof Cooperative Insurance Company.Practicing a unique cooperative model,

the country is considered the worldslargest Takaful market, with 37 licensedinsurance and reinsurance companies,and 76 brokers as well as 76 insuranceagencies. At US$8.1 billion in premiumsin 2014, the Kingdom is not only thelargest insurance player in the GCC butalso the regions second-fastest growingmarket with an eight-year compoundannual growth rate of 20.3%, accordingto Moodys Investors Service.

However, despite the astounding

growth of the segment, Saudi Arabiaremains a severely underserved andhighly concentrated market. At 1.1%, theinsurance penetration level of theKingdom is the lowest as compared toregional peers. The industry is alsohighly skewed towards the medical andhealth insurance segment. However,Moodys is optimistic that the marketwould be more inclusive of otherproducts including life and non-lifeinsurance in the coming years buoyedby the increasing wealth of thepopulation and greater market

awareness.

IFN COUNTRY ANALYSISSAUDI ARABIA

Saudi Arabia: Poised for greater growthAs one of the worlds leading Islamic finance powerhouse, Saudi Arabia has a lot to offer especially with the openingof its stock market to qualified foreign investors this month. VINEETA TAN provides a snapshot of the KingdomsIslamic finance and banking industry.

Chart 1: Total Islamic banking assets of fully-edged Islamic banksin Saudi Arabia (in US dollar)

2008 2009 2010 2011 2012 2013

Amount

150 b

100 b

50 b

0 b

Source: Islamic Banking Intelligence

55.39 billion

71.24 billion

117.6 billion

63.09 billion

86.86 billion

107.58 billion

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16 3rdJune 2015

ANALYSIS

Private bankingThe private wealth landscape atributesits growth to be in parallel with marketbehavior. In recent years, one of themajor driving factors for private banksoperating in the Shariah compliant sceneis the strength of the Sukuk market.

Private banks make up a relativelysignificant portion of each Sukukoffering. This is demonstrated in NoorBanks US$500 million Sukuk where6% of the investors were private banks.Similarly, this response was also seenin Malaysias US$1.5 billion sovereignSukuk with 1% participation from thesebanks; and 4% in DIFC InvestmentssUS$700 million Sukuk. Testament tothe instrumental subscription of privatebanks in Sukuk issuances, DubaiIslamic Bank in its Tier 1 issuance lastyear ensured the inclusion of a 25%rebate in order to keep the private bankcommunity engaged.

On the retail and commercial side,several initiatives were announced byvarious financial institutions to developits private banking services. StandardChartered, the parent bank of StandardChartered Saadiq, stated that it plansto increase assets under managementin wealth management and privatebanking business by at least 10% in 2015.Bank of London and The Middle East,

the UKs largest Islamic bank, plansto launch Shariah compliant privatebanking services this year in partnershipwith Malaysias Bank Muamalat.

Islamic financier Kuwait Finance Houseintroduced the Visa Infinite, a debitcard exclusively for its private bankingclients. The Islamic Bank of Britain,following its rebranding to Al RayanBank, itemized that the GBP100 million(US$152.83 million) capital injectionby its parent, Masraf Al Rayan willbe utilized to enhance its capabilitiesand resources including widening itsproduct and service range to encompass

real estate finance, commercial anddevelopment finance and privatebanking for GCC clients.

Geographically, market observers seepotential in countries such as Bruneiwhere increasing service providers

could assist the country in gaining amajority share of its domestic financialsystem more effectively. As one of therichest countries in the world (GDPUS$48,000 per capita), the small oil-richnation of about 417,000 people presentsitself as a lucrative market for Islamicprivate banking services. Another isthe UAE where it was suggested thatthe emirate leverage on the historicand growing ties between the GCC andAfrica to position itself as a hub forbusiness meetings and private bankingbetween Africa and Asia. Many banks

are rapidly building their Africandivisions and assets under management and importantly, and in contrast toRussian assets, UAE intermediariesview African private capital inflows as alonger-term, more structural trend.

Wealth managementIn terms of wealth management over thepast eight months, Shariah compliantwealth management companies havedabbled in several new avenues inmanaging their investments. Viewed

as a potentially effective wealthmanagement instrument, Waqf holdssignificant prospects for large-scale socialdevelopment and poverty alleviation.

Officially tapping into this market, SaudiArabias Alkhabeer Capital seeks toprovide advisory services on structuringand managing Waqf assets, becoming thefirst Capital Market Authority-licensedentity in Saudi Arabia to be advisingon this segment. Targeting educationaland charitable organizations, familyoffices, high-net-worth individuals andphilanthropists, the company will offerservices in structuring Waqf entities,

enabling Waqfs to invest in all typesof assets without any geographicallimitation, under an independentportfolio, free of administrativecomplexities.

Another recently popular area among

wealth management operators is theeducation sector. Saudi Arabian Islamicprivate wealth management company,SEDCO Holding Group acquired a 50%stake in Mektebim Okullari, a companyoperating in the private educationsector in Turkey. Under a partnershipagreement SEDCO Holding Group owns50% of the companys shares and playsan active part in the companys ambitiousgrowth strategy in the region.

Over in Malaysia, Securities CommissionMalaysia is designing a blueprint for

the countrys Islamic fund and wealthmanagement industry, expected to beready by the end of 2015. The blueprintwill chart a medium and long-termstrategic direction for the industry on theback of the governments move to createa private pensions sector of around RM73billion (US$19.93 billion) by 2020.

Opening up the UKs Islamic wealthmanagement market, London CentralPortfolio launched the London CentralApartments II, a residential property

fund which represented a pioneeringstep forward for the Islamic wealthmanagement sector which is still in itsinfancy.

OutlookWith a constructive outlook on Islamicprivate banking and wealth management,industry players especially in the MiddleEast favor this promising growth. Wealthmanagers should maximize opportunitiesin equity markets and new asset classeswhile innovative efforts ought toencompass creation of products, service

level, and the structure of a privatebanking business.

IFN SECTOR ANALYSISPRIVATE BANKING & WEALTH MANAGEMENT

Private banking and wealth management in

Islamic inanceAn exclusive area of the industry, private banking and wealth management in Islamic finance has been suggested

to be an area that is in need of expansion. Catering to a specific group of clients, private banking and wealthmanagement involves protecting and growing assets in the present, providing specialized financing solutions,planning retirement and passing wealth on to future generations. Providing an overview of this market segment,NABILAH ANNUAR writes on recent developments across this niche area.

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CASE STUDY

Following its historical debut last year,

the Hong Kong Special AdministrativeRegion (HKSAR) once again, aheadof its peers, tapped the global Sukukmarket. Offered under the governmentbond program, the standalone US$1billion five-year paper was priced onthe 27thMay 2015 at the tight end ofthe initial price guidance at 35bps overfive-year US Treasuries, or 1.894%. Inan exclusive interview with the HongKong Monetary Authority (HKMA),NABILAH ANNUAR provides adetailed account of this notable

transaction.

Adopting a unique arrangement, thetransaction utilizes a Wakalah structurecomprising one-third tangible assets(selected units in an office building inHong Kong), and two-thirds Shariahcompliant commodities. Selection of theWakalah structure with a lower amountof tangible assets was to demonstratethe flexibility of the Hong Kong Sukukissuance platform to potential issuersfrom the private sector. The engineeringof the Sukuk achieved several milestones

in the Sukuk space. Hong Kong was thefirst sovereign Sukuk to utilize one-thirdtangible assets, and the issue was thefirst Wakalah Sukuk issued by a non-OICsovereign and the first to be offered by atriple A-rated sovereign.

Compared to its previous issue, theHKSARs debut Sukuk in 2014 wasbased on an Ijarah structure consistingof 100% tangible assets. In this structure,the tangible assets were one-third andtwo-thirds were Shariah compliant

commodities to be sold on a Murabahahbasis. In terms of profit rate, this currentoffering was priced at 1.894%, lower thanits debut Sukuk which was 2.005%.

The transaction demonstrates thatthe legal, regulatory and taxationframeworks in Hong Kong can wellaccommodate Sukuk issuance and pavethe way for local and internationalfundraisers to follow suit, said theHKMA. Proceeds from the issuance isto be credited to the Bond Fund (set uppursuant to resolution (Cap. 2S) passed

on the 8thJuly 2009 under Section 29 ofthe Public Finance Ordinance (Cap. 2))and then placed with the Exchange Fund.

Commenting on the challenges faced

during the issue, the HKMA conveyed:One challenge was to ensure that theWakalah structure was compatible withthe Inland Revenue and Stamp DutyLegislation (Alternative Bond Schemes)(Amendment) Ordinance 2013 so thatthe Sukuk benefited the tax neutralityprovisions therein.

Atracting interest from a diverse groupof both conventional and Islamic

investors, the Sukuk received ordersfrom 49 international institutionalinvestors where 42% was allocated to theMiddle East, 43% to Asia and 15% toEurope. According to the HKMA, thesuccess of both this issuance and itsmaiden offering last year demonstratesthe robustness and flexibility of theadministrative regions Islamic financecapabilities. The Sukuk issuance willserve to catalyze further growth of theSukuk market in Hong Kong and theGreater China region as well as atractingmore issuers and investors to participate

in the HKSARs Islamic financeplatform, affirmed the central bank.

Hong Kongs sophomore Sukuk irst Wakalah

paper by a triple A sovereign

The government of the Hong KongSpecial Administrative Region

US$1 billion Reg S five-yearWakalah Sukuk

US$1 billion

3rdJune 2015

Issuer Hong Kong Sukuk 2015

Obligor The government of theHong Kong SpecialAdministrative Regionof the Peoples Republicof China

Size of issue US$1 billion

Tenor Five years

Issuance priceand profit rate

US$1 billion: 1.894%

Payment Semi-annual

Currency US dollar

Maturity date 3rdJune 2020

Lead managers HSBC, StandardChartered, NationalBank of Abu Dhabi,CIMB

Co-managers BOCOM Hong KongBranch, Maybank, HongLeong Islamic Bank,NCB Capital

Bookrunners HSBC, StandardChartered, NationalBank of Abu Dhabi,CIMB

Governing law English/Hong Kong law

Legal advisors Allen & Overy (issuercounsel)Linklaters (arrangerscounsel)

Listing Hong Kong Stock

Exchange/BursaMalaysia (ExemptRegime)/NASDAQDubai

Underlying assets Selected units ingovernment-ownedbuildings and Shariahcompliant commodities

Rating AAA (S&P)/Aa1(Moodys)

Structure Wakalah

Investorbreakdown

By geography: Asia(43%), Middle East(42%), Europe (15%)By investor type: Banks

(74%), central bank/sovereign wealth funds(23%), others (3%)

The Sukuk

issuance will

serve to catalyze

further growth of

the Sukuk market in

Hong Kong and the

Greater China region

as well as attracting

more issuers

and investors to

participate in the

HKSARs Islamic

inance

platform

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SHARIAHPRONOUNCEMENT

Pronouncement:As per Shariah principles governing Mudarabah transactions, the Mudarabah profit can be distributed once it is realized andthe only way to realize the profit is the liquidation of the Mudarabah capital.

Such liquidation may either be actual by converting the Mudarabah assets into cash by way of sale to a third party, or on aconstructive basis by evaluation of the Mudarabah investment as per the current market price.

If the customer considers that it will be possible to liquidate the Mudarabah assets quarterly since the nature of theMudarabah project allows it, then the bank can agree with the customer in the Mudarabah agreement that the Mudarabahinvestment shall be liquidated for each quarter on the agreed liquidation date, and in case the starting Mudarabah capitalremains intact and the profit has been realized over and above the capital, the actual realized profit shall be distributedbetween the parties as per the agreed ratio and a new Mudarabah transaction shall take place based on the new Mudarabahagreement and by reinvesting the Mudarabah capital by the parties for the subsequent quarter.

However, if actual or constructive liquidation of the Mudarabah facility is not practically possible on each quarter, then theparties may agree on a periodic distribution of the Mudarabah profit on the basis of on account distribution, providedthat the parties believe the Mudarabah investment continues to remain profitable and there is adequate cash to allow suchdistribution.

It is important to note that the on account profit distribution must not be considered as the final profit distribution.Therefore, a final liquidation of the Mudarabah investment shall be required at the end of the Mudarabah term, and theamount which was distributed between the parties in advance on the on account basis shall be subject to adjustment thatcommensurate with the actual results of the Mudarabah investment.

As such, if it is ascertained that the Islamic bank or the customer was paid in excess of its share of pro fit, the bank or thecustomer shall be required to return the excess amount to the other party.

Dr Hussain Hamed HassanChairman of the DIB Shariah Board,Managing director, Dar Al Sharia Legal & Financial Consultancy, Dubai, UAE

Query:An Islamic bank has approved a Mudarabah facility for a customer whereby the customer will receive Mudarabah capital

from the bank for investment in Shariah compliant business activities and the realized profit shall be distributed between

the Islamic bank and the customer as per an agreed ratio.

The Mudarabah facility is approved for a period of one year; however, the Islamic bank would like to explore the possibility

of receiving the Mudarabah profit on a quarterly basis, rather than waiting for the maturity of the Mudarabah facility after a

year.

Shariah guidance is sought in this regard keeping in consideration that the customer has no objection to the banks desire.

This Fatwa is brought to you exclusively by IFN in collaboration with Dar Al Sharia Le