Vol 8 Issue 17

4th May 2011

The Worlds Global Islamic Finance News Provider

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Strength in diversity
The rapid yet steady growth of the global Islamic nance industry has given rise to a relatively small number of specialists whose expertise may even be traced as far back as the history of modern Islamic nance itself. These specialists, who themselves possess different depths of experience, levels of understanding, and Shariah perspectives, are as distinct as Islamic nance is complex and diverse. These are the specialists who generously their share with Islamic Finance news expert opinions, personal experiences and achievements such that the industry may excel further, via reportage or industry insight on a myriad of topics that we bring to you week after week. For instance, Ajmal Bhatty, president and CEO of Tokio Marine Middle East, believes that the real meaning and function of Takaful is yet to be fully understood by the industry, despite the number of Takaful operators and the industrys corresponding growth trajectory. Bhatty calls for more understanding between Shariah advisors and Takaful operators with the help of mathematical explanations of risk models. Dr M Hisham Jabr, associate professor of nance at An-najah National University, takes us inside the machinations of two of Palestines foremost Takaful operators, AlMultazem for Insurance and Investment and Al-Takaful Al Fhilastinia for Insurance. His report details their goals, product offerings and even balance sheet and income statement. In a similar manner, Dr Alam Khan Hamdard, chief of Islamic banking at Kabul Bank gives us a thorough look at Afghanistans Islamic nance industry, its history and development, characteristics, challenges, and achievements to date. Australia is given the same overview approach by Glenn Woolley and Gaurav Gupta of Intrinsic Investment Management. Their report gives the Islamic investor things to consider when investing in Australia such as what to expect, who to contact, legal scenario, and potential investment returns. They do recommend the 10 most appealing industries to invest in Down Under. In terms of Shariah compliance, Abdul Samad, Shariah advisor at the Bank of Khyber, advocates in his report the State Bank of Pakistans system of internal Shariah audit, which looks at the inception of a product, structuring of rules, Shariah principles and documentation. Nidhi Bothra of Vinod Kothari Consultants, is of the view that Sukuk, although enjoying a resurgence so far in 2011, still suffers from ambiguity in its understanding and structural form. While there may not be any problems in interpretation in cases where Shariah law is the ultimate legal authority, in countries with mixed legal systems, issues of interpreting Islamic structures along with non-Islamic laws may be signicant. The report raises no less than eight areas from where this ambiguity stems, and looks in detail at the various types of Sukuk available and currently in the market. Not to be outdone are our IFN reports, in which we cover South Africas Standard Banks decision to opt out of Islamic investment banking, the outlook for structured Islamic products in Malaysia, and UAE banks exposure to property is it a good thing?

In this issue
IFN Rapid ..................................................... 2 Islamic Finance News ................................ 3 Takaful News ............................................... 8 Ratings News .............................................. 8 Moves ........................................................... 8 IFN Reports: Standard Bank Group moves out of Islamic investment banking ................. 9 UAE banks still weighed down by real estate ........................................................ 9 Islamic structured nance in Malaysia ............................................. 10 Articles: Australia as an Islamic Investment Destination .............................................11 Islamic Insurance in Palestine ............13 Takaful The Mathematics of Cooperation ............................................15 Dow Jones Islamic Market Indexes in April: Growth is Beautiful or is it?.... 17 Shipping and Logistics Industries Being Halal in Luxembourg?............................... 19 Practical Aspects of Islamic Banking in Afghanistan ............................................ 21 The Understanding of Sukuk ...............23 Scope of Shariah Compliance in Islamic Banking ....................................................... 26 Meet the Head ..........................................29
Matthew Stutsel, Partner and chair of Islamic nance working group at Freehills

Termsheet ..................................................30
Al Rajhi Cement-Jordan US$120 million Sukuk

Deal Tracker .............................................. 31 Eurekahedge Funds Tables .....................32 REDmoney Indexes ..................................33 S&P Shariah Indexes ...............................34 Dow Jones Shariah Indexes ....................35 Dealogic League Tables...........................36 Thomson Reuters League Tables ...........39 FTSE Shariah Indexes ..............................42 Events Diary...............................................43 Company Index .........................................44 Subscription Form ....................................44

A round-up of all this weeks news

www.islamicnancenews.com Sudan issues US$286 million Sukuk Bermuda Monetary Authority releases guidance notes for Islamic investment funds Al Rajhi Bank unveils new investment product Gema Padu raises US$34 million via four-year Sukuk issuance Indonesia raises US$58 million via Sukuk auction State Bank of Pakistan to increase SLR to 19% of total demand liabilities Malaysias Islamic nance industry has room to advance corporate governance practices Bank Negara Malaysia sold US$1.20 billion government Sukuk Public Mutuals Islamic funds make double digit growth for 2011 Sabana REIT reaches US$15.73 million for distributable income in rst quarter of 2011 CIMB Islamic completes issuance for US$84 million Sukuk program Sberbank seeks National Bank of Kazakhstans approval to offer Islamic nancial services Gatehouse Bank completes acquisition of US$89 million RollsRoyce manufacturing facility in Scotland VTB Bank and Gazprombank seek to issue Sukuk in Russia this year Islamic nance industry needs to return to roots Kuwait Finance House unveils new banking cards to replace current credit, prepaid and ATM cards Mawarid Finance sets up Islamic nance consultancy, IFS Emirates Islamic Bank chalks US$5.45 million net loss in rst quarter of 2011

IFN RAPID
Sharjah Islamic Bank plans to issue US$300 million ve-year Sukuk by mid-May

NEWS

United National Bank charts 20% increase in rst quarter net prot First Bahrain Real Estate Development Company settles US$1.50 billion Islamic project nancing facility to Kuwait Finance House-Bahrain Kuwait Finance House plans to expand healthcare services in the GCC Abu Dhabi Islamic Banks rst quarter net prot rises 3.40% Central Bank of Bahrain lists Sukuk Ijarah on Bahrain bourse Abu Dhabi Commercial Bank achieves net prot of US$158.72 million in rst quarter Nakheel stops sale of new properties to focus on consolidation Sharjah Islamic Bank unveils share purchase scheme HSBC, StanChart, BNP Paribas and Deutsche Bank to arrange the IDBs investor meetings ANB Invest closes Shariah compliant Al-Mubarak Diyar Jeddah Real-Estate Fund Two former executives of Dubai Islamic Bank sentenced to 10 years jail Central Bank of the UAE introduces new banking regulations Commercial Bank of Dubais net prot for the rst quarter up by 22% Ithmaar Bank to expand Islamic retail and commercial network Boubyan Bank launches open-ended money market fund Dubai Islamic Bank achieves 11% rise in rst quarter net prot Qatar Islamic Bank unveils new investment product StanChart offers special services for Nakheel creditors Ezdan Real Estate Companys net prot for rst quarter drops 49%

Takaful Ikhlas targets US$302 million in premium collection for 2012

TAKAFUL RATINGS

MARC assigns AAAIS (bg) and AAAIS (fg) to Ranhill Powers Sukuk Musharakah MARC assigns a rating of AA+ IS to Westports Malaysias US$6.8 million Sukuk Musharakah MARC downgrades Dawamas Junior Sukuk to D from CIS RAM reafrms Padiberas Nasionals Islamic papers at AA3 and P1 JCR-VIS upgrades entity ratings of Dawood Islamic Bank from BBB+/A-3 to A-/A-2

Withers Worldwide appoints Glen Roberts as partner based in New York The Islamic Bank Of Asia appoints Toby OConnor as CEO Mawarid Finance appoints Rehab Lootah as managing director for its new subsidiary, IFS

MOVES

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Disclaimer: Islamic Finance news invites leading practitioners and academics to contribute short reports each week. Whilst we have used our best endeavors and efforts 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.

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RM170 million (US$57 million) seven-year Islamic medium-term notes program. This Islamic bond represents Danajamins rst nancial guarantee to a non-public listed company and Gema Padus maiden foray into the Sukuk market.

AFRICA
US$286 million Sukuk
SUDAN: Sudan has issued a SDG765 million (US$286 million) Sukuk. The Sukuk issuance has an expected return of between 14% and 15% and will be offered through to the 10th May, according to the Sudan Financial Services Company. Sudan Financial Services Company issued the Sukuk on behalf of the central bank, Bank of Sudan.

specically on the Investment Funds Act 2006. The notes contain guidance on Islamic funds, including required disclosures, notication of material changes, and responsibilities of Shariah supervisory boards.

ASIA
New investment product
MALAYSIA: Al Rajhi Bank has launched a new investment product, Al Rajhi Gold-i, to meet the rising demand for gold among investors. Al Rajhi Gold-i also comes with Takaful protection.

Indonesias Sukuk scenario

INDONESIA: The nance ministry has raised IDR500 billion (US$58 million), in line with its target, via a Sukuk auction to help cover this years state budget decit. As at the 26th April, it sold IDR14.60 trillion (US$1.69 billion) worth of bonds and T-bills including Sukuk, out of the IDR41.23 trillion (US$4.77 billion) it is aiming for in the second quarter of 2011. It raised a higher-than-targeted IDR42.75 trillion (US$4.94 billion) worth of debt papers in the rst quarter of this year. Meanwhile, the nance ministry has postponed the issuance of a US$1 billion global Sukuk to the second half of this year. continued...

AMERICAS
Guidance for Islamic funds
BERMUDA: The Bermuda Monetary Authority has published its guidance notes entitled Islamic Collective Investment Schemes Guidance Notes to facilitate the establishment of Islamic investment funds. The notes are aimed at providing legal guidance to the islands funds regulations,

US$34 million from Sukuk

MALAYSIA: Property development rm Gema Padu has raised RM100 million (US$34 million) via a four-year Sukuk issuance. The Sukuk, which was guaranteed by Danajamin Nasional, was issued under a

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lion (US$15.73 million) for its distributable income in the rst quarter ended on the 31st March, surpassing a forecasted SG$18.92 million (US$15 million). Gross revenue hit SG$24.10 million (US$19.64 million) comprising rental income from its property tenants, while total assets under management stood at SG$850.70 million (US$693 million).

continued...
The issuance was initially scheduled for the rst half. The ministry is also likely to cancel this years Samurai bond issuance following Japans recent earthquake.

the direction to be a global leader in Islamic nancial services, including transparency, corporate governance, risk management, accountability, press freedom, human rights, democratic rights and legal governance. He added that the Islamic nance industry has more room to progress in corporate governance practices.

SLR raised for Islamic banks

PAKISTAN: The central bank, State Bank of Pakistan has announced its decision to raise its statutory liquidity requirement (SLR) by 5% for local Islamic banks to 19% of total demand liabilities, including time deposits with tenors of less than a year. The increase will be effective from the 3rd June. However, the SLR will not be applicable for time liabilities including time deposits with a one year tenor. The central bank added that all assets of the governments Sukuk Ijarah will be fully counted under this new requirement, and assets of the public sector Islamic bonds accounted for up to 7% of total time and demand liabilities.

US$1.20 billion Sukuk sold

MALAYSIA: The central bank, Bank Negara Malaysia has sold a RM3.50 billion (US$1.20 billion) government Sukuk, via auction and private placement. The Sukuk, which will mature in 2021, was sold at an average yield of 4.17%, while its bid-to-cover ratio was 3.03 times. Proceeds from the issuance will be used to fund the governments infrastructure expenditures.

US$84 million Sukuk issuance

MALAYSIA: CIMB Islamic has completed the issuance of a 10-year RM250 million (US$84 million) Tier 2 Junior Sukuk program based on the Musharakah principle. The Sukuk was priced at 4.20% per annum and can be redeemed from the fth year onwards. Malaysia Rating Corporation assigned a AA+ rating for the Islamic bond. CIMB was the sole lead arranger for the Sukuk.

Solid returns
MALAYSIA: Public Mutuals Shariah compliant funds generated double digit growth in the nancial year ended the 30th April 2011. Public Islamic Dividend Fund posted a oneyear return of 18.57% while Public Islamic Asia Dividend Fund gained 11.02%.

Eyeing new terrain

KAZAKHSTAN: Russian based Sberbank has sought permission from the central bank, National Bank of Kazakhstan to offer Islamic nancial services in Kazakhstan. Sberbank is discussing with the central bank on the required amendments to Kazakhstans nancial regulations to enable the provision of Shariah compliant nancial services by commercial banks. Presently, Kazakhstans nancial laws do not allow the countrys commercial banks to offer Islamic nancial services as a separate activity.

Space to grow
MALAYSIA: The country can become a global platform for the industry, as its comprehensive regulatory and governance framework caters to the unique characteristics of Islamic nance with stronger standards, and is seen as a global benchmark, said Daud Vicary Abdullah, global Islamic nance leader of Deloitte. Daud Vicary also urged Malaysia to incorporate and practise skills that will set

Exceeding expectations
SINGAPORE: Sabana Shariah Compliant Industrial Real Estate Investment Trust (Sabana REIT) has reached SG$19.30 mil-

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Islamic nance product development for corporate and individuals and support in relation to marketing and promotions. The company also offers fatwa and Shariah board advisory services.

EUROPE
Purchase completed
UK: Gatehouse Bank has completed the acquisition of a Rolls-Royce manufacturing and logistics facility in Glasgow, Scotland worth GBP52.70 million (US$89 million) via a leasing agreement. The agreement has a minimum xed annual rental uplift of 1.40% and will deliver an annual cash yield of 8% or GBP4.80 million (US$8 million) over three years.

gained 1.90% in April. The BloombergAIBIM-Bursa Malaysia Sovereign Shariah Index, which tracks the most traded ringgitdenominated government Sukuk, rose 30 basis points. Yields for global Sukuk declined for the second straight month, by 47 basis points to 4.19% on the 29th April, the lowest level since June 2005, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index. The index also showed spreads between emerging market Sukuk and the London interbank offered rate narrowed 22 basis points (bps) to 242 bps on the 29th April. Returns on Dubais 6.396% Sukuk maturing in November 2014 fell 51 bps to a record low of 5.02% from the beginning of the month to the 29th April. The spread between Dubai and Malaysias Sukuk narrowed 32 bps to 2.40% during the same period. Meanwhile, yields on DP Worlds 6.25% Sukuk due July 2017 fell 89 bps to 5.60% and Petronas 4.25% Sukuk maturing in August 2014 declined 20 bps to 2.50%. Asset managers AmanahRaya Investment Management and Emirates NBD Asset Management have said soaring oil prices may lead investors from the Middle East to channel their funds into emerging market Sukuk. Crude oil prices have surged 22% this year and in April rose to the highest in more than two years.

Loss of US$5.45 million

UAE: Emirates Islamic Bank posted a net loss of AED20 million (US$5.45 million) for the rst quarter of 2011, as compared to a net prot of AED66.60 million (US$18 million) in the same period last year. Total income dropped 7.60% to AED353 million (US$96 million). Expenses rose 4.45% to AED105.40 million (US$29 million), while allowances for impairment climbed 44% to AED108.50 million (US$30 million). (See IFN Report on page 9)

Set for Sukuk

RUSSIA: Two Russian banks, VTB Bank and Gazprombank are planning to issue Sukuk this year to attract Middle Eastern investments. VTB Bank is aiming to raise US$200 million from a Sukuk issuance, while Gazprombank is considering issuing a dollar-denominated Islamic bond ranging from US$100 million to US$200 million. Gazprombank is in discussion with 10 Moscow based rms to arrange for the issuance.

Prot rises 20%

UAE: United National Bank reported a 20% increase in its rst quarter net prot to AED456.40 million (US$124.30 million). Total revenues grew to AED1.16 billion (US$316 million) against AED1.07 billion (US$291 million) in 2010. However, impairment losses on nancial assets reached AED69.85 million (US$19 million), as compared to AED379.24 million (US$103 million) in the same period last year.

GLOBAL
Back to basics
GLOBAL: The Islamic nance industry needs to return to its roots of risk sharing in an effort to gain further growth, said Mukhtar Hussain, global CEO of HSBC Amanah. Mukhtar said this will create more opportunities for the industry, especially in the areas of Sukuk project nancing and Islamic real estate investment trusts (REITs). He added that despite being in a nascent status, Sukuk project nancing and REITs have ample opportunities to develop, following their compatibility with Islamic nance values, to build a stable future by investing in the real economy.

MIDDLE EAST
New banking cards
KUWAIT: Kuwait Finance House has launched new banking cards, which will replace its current credit, prepaid and ATM cards. The cards are equipped with a smart microchip, cardholder authentication and anti-fraud protocol to safeguard online card payment transactions.

Financing repaid
BAHRAIN: First Bahrain Real Estate Development Company has repaid in full a three-year US$1.50 billion Islamic project nancing facility to Kuwait Finance HouseBahrain. The nancing, obtained in May 2008, was used to develop a US$25 million warehousing and logistics facility at Bahrain Investment Wharf.

One-stop advisory
UAE: Mawarid Finance has launched IFS, a subsidiary offering one-stop consultancy services for third party Islamic banking and Takaful, based in Dubai. IFS can assist conventional banks convert their products and services to become Shariah compliant. It will also advise on

Drop in Sukuk yield

GLOBAL: Global Sukuk yields fell to a six-year low last month, as high oil prices attracted investors to securities in oil exporting countries. According to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, Islamic bonds worldwide

Healthcare ventures
KUWAIT: Kuwait Finance House (KFH) is seeking to broaden its investment

continued...

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The duration of the fund is three and a half years with an option to extend for another year. Its minimum initial subscription was SAR10,000 (US$2,666.42) and offers investors a medium-to-high level of risk. The fund will invest in a piece of real estate northeast of Jeddah where it will acquire and nance the development of residential and commercial properties targeted at the middle income class. The project will then be sold after completion.

continued...
base in the healthcare service sector by expanding in domestic and GCC markets. KFHs Gulf expansion will focus specically in Saudi Arabia, Qatar and Oman, according to Abdul Nasser Al-Sabeeh, its assistant general manager of investment sector. Abdul Nasser attributed this decision to the ability of these markets in meeting the investment requirements of the bank and their investment opportunities in the industry.

income went up 22% to AED484 million (US$132 million).

Consolidation mode
UAE: Nakheel which is in the midst of restructuring its US$10.90 billion debt, has stopped selling new properties as it focuses on consolidating its real estate development projects. It restarted work on short-term projects towards the end of last year and is reconsidering all other projects. In February this year, Nakheel offered to swap home buyers purchases of uncompleted properties for projects closer to completion. It also gave its customers the option of waiting ve years for a refund on the properties. The company has been in negotiations with trade creditors and banks to repay its debt and is expected to complete its restructuring by the end of the rst half.

Final judgment
UAE: A Dubai court has sentenced two former Dubai Islamic Bank (DIB) executives and four businessmen to 10 years in jail and imposed a collective ne of AED1.80 billion (US$490 million), the amount they were accused of embezzling from DIB. The executives and the businessmen were charged with misappropriating DIBs funds, illegal proteering, inicting intentional loss to the government, forging unofcial documents and using them to gain unlawful prots.

Prot increased by 3.40%

UAE: Abu Dhabi Islamic Banks rst quarter net prot increased by 3.40% to AED303.20 million (US$8.25 million). Net revenue grew 23.50% to AED813.80 million (US$222 million), while total assets went up 8.20% to AED71.40 billion (US$19 billion). Operating prot rose 24.10% to AED490.30 million (US$135 million). (See IFN Report on page 9)

New share purchase scheme

UAE: Sharjah Islamic Bank has launched a share purchase scheme called Shares Murabaha. The scheme will enable investors to sell shares via Murabahah without the need for pledges.

New regulations
UAE: The Central Bank of the UAE has introduced new retail nancing regulations, for conventional and Islamic banks. Under the new laws, customers are not allowed to secure car and personal nancing exceeding 20 times their monthly salary. For credit card applications, only customers with an annual salary of AED60, 000 (US$16,000) will be considered. Jasem Al Beloushi, head of retail banking at Sharjah Islamic Bank said consumer rights will be protected under the new regulations, as they will not be saddled with extra nancing which they are unable to repay.

Sukuk Ijarah listed

BAHRAIN: The Central Bank of Bahrain (CBB) has listed a BHD200 million (US$531 million) Sukuk Ijarah on the Bahrain bourse. This Sukuk listing brings the current number of conventional and Islamic bonds trading on the bourse to 13. In addition, the CBBs monthly issue of Sukuk Al-Salam was oversubscribed by 438%. The expected return on the BHD12 million issuance (US$32 million), which began on the 27th April and matures on the 27th July, is 1.15%.

Meeting arrangers
SAUDI ARABIA: The Islamic Development Bank has appointed four banks to arrange for investor meetings in Asia, the Middle East and Europe. The banks are HSBC, Standard Chartered Bank, BNP Paribas and Deutsche Bank.

Islamic fund closed

SAUDI ARABIA: ANB Invest, an investment arm of Arab National Bank has closed subscriptions to its Shariah compliant AlMubarak Diyar Jeddah Real-Estate fund after raising the required amount of SAR351 million (US$93.59 million). Gary Littlejohn, CEO of ANB Invest said some subscription applications had to be turned down due to excess demand but did not specify the amount of the additional take up. The offer period was from the 19th February 2011 through to the 4th April 2011.

Gainful quarter
UAE: Commercial Bank of Dubai recorded a 22% increase in net prot after provisions to AED263 million (US$72 million) in the rst quarter of 2011. Total assets climbed AED2.30 billion (US$626 million) to reach AED40.80 billion (US$11 billion), while shareholders equity grew 5% to AED5.80 billion (US$1.60 billion) Deposit base went up 5.40% to AED30.80 billion (US$8.38 billion).

More than double prot

UAE: Abu Dhabi Commercial Banks rst quarter net prot has risen to AED583 million (US$158.72 million) compared with AED225 million (US$61.26 million) in the same period last year. Islamic nancing income grew 6% to AED926 million (US$252 million), while non-interest

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Aggressive business plans

BAHRAIN: Ithmaar Bank will push ahead with its aggressive business expansion of the banks Islamic retail and commercial network, improvement in delivery channels and introduction of new products and services. Following its transformation from an investment bank into a retail bank, Ithmaar has rolled out a series of new bank offerings, including special promotional rates for car and personal nancing. We will continue to expand our business network, said Ithmaar Bank CEO Mohammed A Rahman Bucheerei, adding that the bank will also expand its operations in the GCC.

The monthly plan has a minimum subscription of QAR2,000 (US$549) per month and carries a two, ve and eight year maturity period. The one-off scheme has a minimum investment of QAR40,000 (US$11,000) and requires customers to make a single lump sum payment.

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Custody services for Sukuk

UAE: Standard Chartered Bank (StanChart) has announced it is offering special services and terms to clients who are scheduled to receive Sukuk as part of Nakheels creditors settlement program. As part of the offer, the bank will provide custody account opening assistance, documentation services and subsidized tariff. The bank is a custodian for Abu Dhabi Securities Exchange, Dubai Financial Market and NASDAQ Dubai. StanChart is also the sole clearing bank for NASDAQ Dubai and the settlement bank for NASDAQ Dubai and Dubai Financial Market.

New Islamic fund

KUWAIT: Boubyan Bank has launched an open-ended Kuwaiti dinar-denominated money market fund. The fund will invest in Islamic short and medium-term instruments such as Wakalah with local banks. It comes with a minimum subscription of KWD30,000 (US$109,310), while its subsequent monthly purchase is at KWD1,000 (US$3,645).

Prot slides 49%

QATAR: Ezdan Real Estate Company reported a 49% drop in its rst quarter net prot to QAR36.80 million (US$10 million), following Islamic nancing cost and higher operating expenses. Operating expenses climbed 61% to QAR22.24 million (US$6.10 million), while operating prot rose by 61% to QAR100.29 million (US$28 million).

Progress in prot
UAE: Dubai Islamic Bank reported an 11% increase in its rst quarter net prot to AED222 million (US$60 million), ended on the 31st March 2011. Total assets climbed 11% to AED100.40 billion (US$28 billion), while customer deposits went up 15% to AED72.90 billion (US$20 billion). Capital adequacy ratio stood at 17.50%.

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Islamic bond soon

UAE: Sharjah Islamic Bank is planning to issue a US$300 million ve-year Sukuk by mid-May to nance its expansion projects. The bank will conduct roadshows in the rst half of this month to attract potential investors for the Sukuk, where Standard Chartered Bank and HSBC are the arrangers. The Sukuk is part of the banks approved bond program worth AED1.83 billion (US$500 million). The bank already has a Sukuk worth AED826 million (US$225 million) due this October.

New investment product

QATAR: Qatar Islamic Bank has launched its new investment plan, Themar that will allow clients to invest in the global Sukuk market and Islamic nancial institutions stocks. The product comes with two modes of subscription, which are based on monthly and one-off investment.

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(Bernas) RM750 million (US$250 million) Islamic commercial papers at AA3 and P1, respectively. The long-term rating carries a stable outlook. The ratings were attributed to Bernas role in the local rice industry.

TAKAFUL ASIA
High target for 2012
MALAYSIA: Takaful Ikhlas is optimistic on obtaining RM900 million (US$302 million) in its premium collection for the nancial year ending on the 31st March 2012. The amount will enable Takaful Ikhlas to maintain its position as one of the top three Takaful players in Malaysia. To reach this target, the Takaful operator seeks to raise 70% in premiums from Family Takaful, and the remaining 30% from General Takaful.

RATINGS ASIA
Solid kick-off
MALAYSIA: Malaysian Rating Corporation has assigned ratings of AAAIS (bg) and AAAIS (fg)to Ranhill Powers RM800 million (US$267 million) Sukuk Musharakah facility. The outlook for both ratings is stable. The Islamic bond will be issued in two tranches, where the rst RM300 million (US$100 million) Sukuk tranche will be guaranteed by Maybank Islamic, while the second RM500 million (US$167 million) will be guaranteed by Danajamin Nasional. The Sukuk ratings are based on the guarantees by Maybank Islamic and Danajamin Nasional.

Strength to strength
PAKISTAN: JCR-VIS Credit Rating Company has upgraded the entity ratings of Dawood Islamic Bank from BBB+/A-3 to A-/A-2 with a stable outlook. The shareholding pattern of Dawood Islamic Bank is expected to undergo changes, following the PKR1.80 billion (US$21 million) rights issued, which is scheduled to take place on the 30th June, 2011. Unicorn Investment Bank and The Islamic Corporation for Development of the Private Sector will be the banks two major shareholders.

EW

Section Sponsor

Sound standing

MOVES
WITHERS WORLDWIDE
US: Glen Roberts, an Islamic nance expert has been appointed as partner at law rm Withers Worldwide and will be based in New York.

MALAYSIA: Malaysian Ratings Corporation has assigned a rating of AA+ IS to Westports Malaysias Sukuk Musharakah program of up to RM2 billion (US$671 million). The rating outlook is stable. The assigned rating is based on Westports position in Malaysia as one of two main container terminal operators with a 60% market share and its robust cash ow.

MIDDLE EAST
Firm position
UAE: Fitch Ratings has assigned a long-term foreign currency default rating (IDR) of BBB+ with a stable outlook, shortterm IDR F2, individual rating C/D, support rating 2 and support rating oor BBB+ to Sharjah Islamic Bank. The long- and short-term IDRs and support rating are based on support from the emirate of Sharjah and the UAE government, while the individual rating is based on the banks strong capitalization, adequate liquidity and moderate operating earnings.

THE ISLAMIC BANK OF ASIA

SINGAPORE: The Islamic Bank of Asia has appointed Toby OConnor as its new CEO. OConnor was previously the head of MENA sovereign wealth funds and nancial sponsor group for investment banking at JP Morgan.

Thumbs down
MALAYSIA: Malaysian Rating Corporation (MARC) has downgraded Dawamas RM20 million (US$6.8 million) Junior Sukuk to D from CIS, following a missed prot payment last month. MARC has stopped monitoring the Junior Sukuks rating, effective on the 27th April.

IFS
UAE: Mawarid Finance has appointed Rehab Lootah as managing director for its new subsidiary, IFS. Rehab is also the chief of business development and sales at Mawarid.

The Sukuk is part of Dawamas RM140 million (US$6.8 million) Sukuk Musharakah medium-term notes program.

Grades maintained
MALAYSIA: RAM Rating Services has reafrmed long- and short-term ratings of Padiberas Nasionals

EW

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Standard Bank Group moves out of Islamic investment banking

South Africas Standard Bank Group (Standard Bank) has shut down its Islamic investment banking business in line with a groupwide downsizing it undertook last year to buffer the effects of the slower global economy. Islamic Finance news understands that Standard Bank dismissed three senior members, two of whom were based in Dubai, and were key to growing its Islamic investment banking business. There is now one person left who is not well versed in Islamic nance. The bank seems to have taken the view that Islamic investment banking is not a core business, but I believe they made the wrong decision in letting the Shariah compliant investment banking team go. They will miss out on a lot of deals, said a source familiar with the banking group to Islamic Finance news. The move was part of the banks measures to tackle shrinking revenues, which according to its recently released 2010 annual report, was due to the slow economic recovery, low interest rates, weak credit demand and muted client activity. Prot in 2010 was 2.5% lower year-on-year to ZAR10.77 billion (US$1.64 billion), as income from banking activities fell 6.49% to ZAR50.75 billion (US$7.72 billion). In his report to shareholders, Fred Phaswana, chairman of Standard Bank said as a result of continued pressure on revenue, the banking group focused on cutting costs during the year. This involved delaying and downsizing IT projects, signicantly reducing marketing and sponsorship expenses plus decreasing travel and conference costs. It also included retrenching 1,948 permanent and temporary employees. Under the rationalization, 1,641 personnel comprising mainly senior staff at its head ofces in Johannesburg and London, and 307 permanent employees in Argentina were retrenched. The bank warned staff in October 2010 that it was looking at slashing the jobs in Johannesburg and London before the nal axe came in November. The retrenchments in Argentina were part of a restructuring undertaken earlier in the year. Its cost cutting measures will remain a key theme this year, in addition to refocusing its global business back to its African home market and selected emerging markets, namely China and Brazil. The group is currently present in 17 African countries and 13 other markets in Asia, Europe, the Americas and the Middle East. Where feasible, we will relocate roles to less expensive jurisdictions and will continue to improve the efciency of our operation structures. We no longer have ambitions to buy or build additional domestic businesses in markets outside of Africa. However, we will connect other selected emerging markets to Africa and to each other, applying our sector expertise, particularly in natural resources, globally, said Jacko Maree, group chief executive at Standard Bank. The bank added that it is open to selling its operations in Turkey and Argentina if presented with suitable offers. Last month, it sold its 36.40% stake in Russian brokerage Troika Dialog. However, an industry observer believes Standard Banks strategy is too narrow. He said, They could have retained at least one of the Islamic investment banking team, not necessarily to actively look for deals but to at least have the expertise on hand if any came up.

The team is also understood to have been eyeing deals in Kazakhstan and the GCC in November last year but could not follow through given the timeframe of Standard Banks reorganization. It appears Standard Banks decision to scale back on its Shariah compliant investment banking could present a loss of opportunities, given its existing capabilities in conventional investment banking and also due to its position as Africas largest bank with ZAR1.34 trillion (US$202.25 billion) in assets at the end of 2010. Furthermore, the banking group is 20% owned by the Industrial and Commercial Bank of China, opening up opportunities for it to funnel Chinese investments into Africa and other markets. It closed two notable deals last year, one of which it acted as sole nancial advisor to the State Grid Corporation of Chinas US$1.80 billion acquisition of seven power transmission companies in Brazil in December, one of the largest investments made by a Chinese company in Brazil. Standard Bank also joint lead managed a US$2 billion bond issuance for the National Treasury of South Africa. This was the single largest bond offering ever raised in South Africa, in a deal that was proposed to the Treasury and executed within 48 hours. With such expertise, it seems Standard Bank could have been in a position to participate in potential Islamic deals had it retained its Shariah compliant team. The good news, however, is that the banking group seems to remain committed to its retail Islamic banking franchise, launched last May in Tanzania. It is also said to be looking at offering Islamic banking products in Uganda, Kenya and Nigeria. The approval of Nigerias central bank for retail Islamic banking could provide the green light for Standard Bank to start operating a Shariah compliant business there, said an Islamic nance industry expert.

UAE banks still weighed down by real estate

Banks in the UAE reported a mixed set of results in the rst quarter ended the 31st March 2011, showing they are still recovering from the recent nancial crisis. Whether they recorded prots or losses, the banks had one factor in common their income remains weighed down from exposure to property investments in the Middle East. Abu Dhabi Islamic Bank (ADIB) and Emirates Islamic Bank (EIB) are among banks which rely on income from real estate investments and their nancial results show the drawbacks from this. With some in the market believing the UAE real estate prices have yet to bottom out, these banks may need to rethink their investment strategies to ensure their exposure to property does not negatively impact their bottom lines. According to its recent report on UAE real estate, Rasmala Investment Bank said property prices could drop as much as 30% more in the next two years. This paints a risky way forward for banks which fail to diversify their investments, especially given the recent Middle East property crisis. In the rst three months of this year, ADIB recorded a small 3.37% yearon-year increase in net prot to AED303.22 million (US$82.55 million) due to strong core banking operations. Its results were however held

continued...

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back by shrinking income from investment and development properties, which fell to AED625,000 (US$170,147) from AED1.29 million (US$351,183) and to AED2.82 million (US$767,702) from AED21.83 million (US$5.94 million) respectively. The lower prot from development properties was due to 87.36% less gains on sales of the assets to AED4.57 million (US$1.24 million). According to its nancial statements, ADIB had investment property assets amounting to AED194.86 million (US$53.05 million) and development properties worth AED1.05 billion (US$285.85 million) in the rst quarter of this year. Although this constituted less than 2% of the banks AED71.45 billion (US$19.45 billion) total assets, income from the properties contributed more than 30% to its total income in the three months to the 31st March 2011. In addition to its direct investments into real estate, ADIB counts Burooj Properties as a 100% subsidiary. Burooj Properties develops and manages real estate in the UAE and Egypt and also offers property advisory services. In the rst quarter of this year, Burooj posted a loss of AED37.80 million (US$10.29 million) and booked AED8.60 million (US$2.34 million) in impairments which was consolidated into ADIBs accounts. Burooj is expected to sustain further losses this year. Meanwhile, Emirates Islamic Bank (EIB), the Shariah compliant subsidiary of Emirates NBD, is another bank with ties to the Middle East real estate. EIBs investment properties and investment properties under development made up 4.20% of its total assets of AED30.98 million (US$8.43 million) in the rst quarter of this year. However, property related income only contributed to 1.10% of its total income of AED353.06 million (US$96.12 million). On top of this, the bank reported lower income all around in the rst three months of 2011, contributing to a loss of AED20.07 million (US$5.46 million). Furthermore, depreciation expenses of its investment properties almost doubled year-on-year to AED6.27 million (US$1.71 million) in the rst quarter of 2011. EIB also booked AED10.50 million (US$2.86 million) in impairments on its investment properties under development, compared to none in the rst quarter of 2010. Also following the trend of UAE banks exposure to property, EIB owns 40% of Ithmar Real Estate Development Company (Ithmar) whose principal activity is real estate holding and trusts. Ithmar is privately held and has not published its nancial results, while EIB has also not disclosed the companys protability. While it is true investing activities of Islamic banks are constrained by a lack of Shariah compliant assets, there are still opportunities for good returns from investments other than real estate. This is illustrated by ADIBs income from investments in other assets, which more than doubled to AED23.64 million (US$6.44 million) in the rst quarter. The income includes AED13.01 million (US$3.54 million) from Sukuk. Monem Salam, director of Islamic investing and deputy portfolio manager at Saturna Capital, told Islamic Finance news that apart from real estate, equity provides a good option for Shariah compliant investments, and for some, possibly commodities. We however prefer commodity stocks over the physical metal itself. US based Saturna Capital manages three Islamic equity mutual funds and multiple private portfolios. Its primary investment universe is in global equity with some Sukuk investments. In the area of equity, we

do not see a limited availability of investments. In fact from a global list of stocks, we have a universe of approximately 800 companies that qualify, said Monem. It is clear the UAEs Islamic banks have other opportunities for Shariah compliant investing. With nowhere for the Middle East property prices to go but down in the short- to medium-term, banks like ADIB and EIB should consider reducing their exposure to real estate before their bottom lines are dragged along with it.

Islamic structured nance in Malaysia

Islamic structured nance has plenty of room to grow in Malaysia but a lackluster market stands in the way of its expansion. The sector is also hampered by a shortage of Shariah compliant assets which can be used for securitization. The structured nance market in Malaysia is dominated by asset backed securities (ABS), although weak investor appetite for the facilities following the recent nancial crisis has resulted in muted deal ow. Data from Bank Negara Malaysia, the central bank, showed the amount outstanding for Islamic ABS as at the 3rd May was RM5.12 billion (US$1.72 billion) from ve issuers. Last year saw nine new structured nance issuances amounting to RM1.37 billion (US$460.58 million), eight of which were ABS and one commercial mortgage backed security offering. None of them however were listed as Shariah compliant securities. Islamic securities make up around 30% to 40% of the local assetbacked securities (ABS) market and there is still a lot of scope for growth, Siew Suet Ming, head of structured nance ratings at RAM Rating Services (RAM) told Islamic Finance news. However, she added, The challenge for structuring Islamic securities is the lack of Shariah compliant assets available. On top of this, there is a general negative sentiment towards structured nance products mainly due to the role such securities played in the recent global nancial crisis. Another senior ofcial from a local rating agency told Islamic Finance news that his rm is in the process of rating one Islamic structured nance facility although he declined to provide details. The securities are expected to be issued by a Malaysian company in the middle of this year. Both ratings experts said the domestic structured nance market saw some recovery last year but activity still remains slow. Siew also said while structured nance offers a viable solution for nancing, the market will likely to stay accessible only to issuers which investors are comfortable with. This can be seen from the steep pricing of the securities, where spreads between ABS and corporate bonds have reached as high as 450 basis points Pricing has yet to narrow sufciently to make ABS competitive against other alternative forms of nancing, added Siew.

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Australia as an Islamic Investment Destination

By Glenn Woolley and Gaurav Gupta
The Australian economy has been widely reported as the envy of the developed world. Australia has earned a deserved reputation as a safe place to invest in because of its sound nancial system, prudential legal and regulatory framework, strong economy and stable political and business environment. Its sophisticated nancial sector, highly skilled and multilingual workforce, and strategic location close to Asian growth economies, made it the best performing developed economy through global nancial crises. Australia has one of the largest pools of funds under management in the world, of which more than US$1.4 trillion are pension funds. By value, the Australian Securities Exchange (ASX) is the worlds eighth largest securities exchange. transactions. For example, removal of double stamp duty charges on property purchases and recognizing the principle of prot sharing and allowing Islamic contracts to avoid terms like interest. In addition, Victoria also offers educational services in Islamic nance overcoming one of the skill shortages in this eld. La Trobe University was the rst Australian university to offer a Masters in Islamic Finance and Banking. Victoria also has a well established nancial service sector providing Islamic nance products and services such as Intrinsic Investment Management, MCCA and Kuwait Finance House. The Victorian government is spreading awareness, supporting investment and trade by sponsoring key events including the Islamic Finance news conference in Melbourne and hosting major inbound delegations. It has presence in many major Islamic nancial markets.

Australia has one of the largest pools of funds under management in the world, of which more than US$1.40 trillion are pension funds
Government initiatives to implement Islamic nance
Wanting to capitalize on the boom in Islamic investing and nance, the Australian federal government instigated a review into the potential to attract Islamic capital into Australia. Known as the Johnson Report, it concluded that Australia is well positioned to grow into a global Islamic nancial hub. However, the report noted that there existed regulatory barriers and taxes associated with transfer of assets that were inhibiting the development of Islamic nance and investment. The report also recommended that Australia make changes to taxation and other laws to ensure no obstacles, but no special treatment, for Islamic nance and investment. That is, it recommended a level playing eld. In response, it was announced that the Board of Taxation would undertake a review to ensure wherever possible, the expansion of Islamic nancial products should not be hindered. This review has now been completed and it is hoped that there might be an announcement on the legislative changes and their timing at the Islamic Finance news. conference in Melbourne this May.

Things to consider
By investing in Australia, you will be subject to the benets and protections of its systems of law, regulations and its high standards of business ethics. The legal system Australias legal system is based on the British common law legal system. Courts are operated at the federal and state level and this may add a level of complexity to your business investments. Moreover, Australians are used to a system of enforceable contracts, precedents for which are usually well established. Because Shariah law can be highly subject to individual interpretation and as legal precedents are not binding in Islamic jurisdictions, it is unlikely that Australian business partners will be willing to accept the resolution of contract disputes by foreign courts or the judgements of a Shariah board or scholar. Complying with laws and regulations There are a number of federal and state laws and regulations that must be complied with and depending on the areas you wish to invest in, these may add to the complexity, cost and time. The impact on most investment ventures will not be onerous. However, business activities causing an environmental impact, (for example chemicals, rening, utilities, waste management, toll roads, timber milling) will be subject to environmental red tape. Corporate governance Corporate governance standards and audit standards are high. Unlike the US, there is a strong preference for the separation of the roles of chairman and managing director, as well as for a majority of directors to be independent. Related party transactions are generally frowned upon. The environmental, social and governance movement has traction among many institutional investors (for example pension funds) and this can sometimes be a little restricting. continued...

The state of Victoria is leading the way

With Australias largest Muslim population, it is no surprise that the State of Victoria has led the way for many years in encouraging Islamic capital nance and investing in Australia. The Victorian government has enacted special arrangements regarding equitable state tax and legal treatment of Islamic nancial

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Australia as an Islamic Investment Destination (continued)

Investment returns Because Australia is a relatively low risk and safe investment destination, in general, investment returns, particularly for real property, while still attractive, are lower than those sometimes found in third world and developing nations, most of which have high geopolitical risks. using conventional investment and nancial terms and later, introduce Islamic investing and nance concepts.

Who to see
A good place to start is to make contact with the business/institutional divisions of ANZ Bank, Commonwealth Bank, National Bank and Westpac. They dominate the business banking market and have signicant investment banking operations as well. Macquarie Bank is the biggest Australian investment bank. There are also many global banks with signicant banking operations or large business/investment banking branches in Australia. Some of these banks are already well established in Islamic banking and investment for example HSBC. If you are interested in private equity then contact the Australian Private Equity and Venture Capital Association which has over 260 members operating in a wide range of industries. Real estate investors should contact Ken Atchison for property advice. If you are interested in a managed Australian equity portfolio please contact Intrinsic Investment Management or Crescent Investments Australasia.

How to go about it
If you decide to investigate the possibility of investing in Australia, how do you go about it? Probably the easiest starting point is to contact your local Austrade or Invest in Victoria ofce. Austrade has more than 100 ofces globally in over 50 countries. The state of Victoria has ofces in 12 locations. They can provide high level guidance, put you in touch with appropriate companies, advisors and provide contact details for industry bodies as well as organize relevant introductions. The Australia Trade Commission has produced an excellent guide to investing, establishing and expanding a business in Australia. It tells you just about everything and costs you nothing. You can also email or call Intrinsic Investment Management and we will help.

The simplest and cheapest way to invest in the Australian economy is through a listed Australian equity share portfolio
What to expect when you visit
While Australia is a very multicultural community, English is by far the dominant language and the universal one used in business. You will need to have a good command of spoken English. Melbourne and Sydney dominate Australian capital markets. The major banks and investment funds and advisers are located in these cities.

Where to invest
The simplest and cheapest way to invest in the Australian economy is through a listed Australian equity share portfolio. Of course, investing in the share market may not suit everyone. On a 10-year view these are the Australian industries we consider likely to produce better than average returns for the Islamic investor: 1. Energy 2. Food production 3. Healthcare and aged care 4. Mining and mining services 5. Infrastructure 6. Real property

Going to invest
Help is available. There is competition for foreign investment capital among Australian states. It is worth checking out what support is available in each. Victoria had been the undisputed leader in encouraging Islamic trade, nance and investment and should be your rst port of call. State websites are worth checking for support. Glenn Woolley Managing director Intrinsic Investment Management Email: gw@intrinsic.net.au Glenn Woolley established Australias rst Australian equities Shariah portfolio, Intrinsic Crescent Ethical in October 2005. He is a passionate proponent of Islamic investment in Australia. Gaurav Gupta Investment analyst Intrinsic Investment Management Email: gg@intrinsic.net.au Gaurav Gupta is responsible for the screening of listed Australian shares suitable for Intrinsics Crescent Ethical portfolio. He has recently completed a Master of Islamic Finance from La Trobe University in Melbourne.

KISS- Keep it simple and straightforward

Knowledge of the principles of Islamic nance and investment among the general business community is almost non-existent. There is some understanding at senior levels in banking and agricultural exporters, but this is not widespread. So at the rst meeting or two, it is probably more benecial to you if you explain in conventional terms, what you want to do. Keep it simple and straightforward. That way you will quickly nd out if you are wasting your time or not. If you nd that there is something worth pursuing, then gradually introduce your Islamic nancial structuring requirements. If you start talking about riba, Mudarabah, Musharakah, Murabahah and Ijarah you will witness the eyes of your Australian counterpart glaze over and he will gently side under the table to the oor. Do not let this deter you. Australian capital markets and businesses are very competitive and you will nd most are keen to explore business opportunities with you. However, if you want to make it happen, talk

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SECTOR REPORT

Islamic Insurance in Palestine

By Dr M Hisham Jabr
Islamic insurance in Palestine is a new phenomenon that started in 2007 with two Islamic Insurance licensed companies Al-Multazem for Insurance and Investment and Al-Takaful Al Fhilastinia for Insurance. Al-Multazem for Insurance and Investment was established in Gaza, with three branches, and started operations on the 17th February 2008 with a capital of US$8.50 million as a shareholding company, with the following vision: To conduct all insurance and investment activities according to Shariah Implement the cooperative insurance in Palestine Assurance of the cooperation among the insured The investment of the funds in development areas according to Shariah To distribute annual prot generated among shareholders and policy holders Investment should be according to: I. II. III. IV. Musharakah principle (participation) Mudarabah Participation in the capital of development projects Decreasing participation which ends with full ownership to the participants V. Financing a project owned by another party, and use the proceeds until a certain period of time, then the project will be owned at the end of the period to the owner The company is engaged with Islamic reinsurance companies for the purpose of limiting exposure to losses, and stabilizing earnings, and protecting the capital. The company has a Shariah commission. There is a difference between the owners equity and the insured funds. The company has participated in the community through several workshops and cooperation, for instance the workshop on Islamic insurance with Palestinian Auditors and Accountants Association on the 8th March 2011. The company cooperates with Gaza Islamic University in conducting strategic research, marketing studies, and training students. Al-Takaful Al Fhilastinia for Insurance was established on the 11th March 2007 as a shareholding company with an authorized capital of US$8.50 million, 75% of which is a paid up capital. It started operations on the 17th February 2008 with the following objectives: a. The completion of the Islamic economic Takaful (cooperation) circle in Palestine, alongside Islamic banks. b. The creation of the cooperation spirit among the insured (policy holders). c. Provide all insurance services according to Shariah. d. Find an alternative for conventional insurance which will help those who do not want to be clients of traditional insurance companies nd an Islamic alternative to protect their properties from loss. The company operates according to Shariah principles, assured by the Shariah jurisdiction commission which consists of three people. This commission veries all insurance policies, companies accounts, investments and reinsurance Takaful treaties of the company from an Islamic perspective. The company provides the following types of insurance: Automobile Takaful insurance Marine and air and transportation insurance Fire insurance Theft insurance Engineering insurance Bonding insurance Personal accidents insurance Liability insurance

The company has 17 insurance agents in the West Bank of Palestine. Its main ofce is in Ramallah with another four branches.

The Shariah jurisdiction commission which consists of three people veries all insurance policies, companies accounts, reinsurance Takaful treaties from an Islamic perspective
Companys accounts
The company has two types of accounts: 1. Shareholders account which is represented by the capital of the company. 2. Insurance policy holders which consist of the insurance premiums. The company uses this account to pay for the losses incurred as a result of risk insured. This assures the concept of Al-Takaful cooperation.

Prot distribution
The company achieves justice between shareholders and policy holders through dividends which is done as follows: a) Dividends to shareholders which comes from the following sources: The return from investing the capital after deducting the expenses of investing.

continued...

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Islamic Insurance in Palestine (continued)

Their share from the surplus from the premiums, as shareholders is considered as Mudarib by the capital. A specied percentage of the policy holders premiums to be determined in advance, a return for the effort made by the company to administer the insurance transactions, and the shareholders incur all the administrative expenses. b) Return for the insurance policy holders which consist of: The insurance surplus resulted from all insurance transactions. Their share from revenues of the premium surplus as owners of capital. Revenue accrued to them from reinsurance treaties, to be distributed to policy holders according to a formula determined by the Shariah jurisdiction commission and the board of directors of the company. The companys investments are in the following elds: Mudarabah nancing. Musharakah (participation in capital) which takes one or all of the following forms: 1) Continuous Musharakah: the company enters as one of the participants in establishment of projects and companies. 2) Decreasing Musharakah on the following basis: Decreasing Musharakah results in ownership to the partner. Musharakah for a certain period: The company nances wholly or partially a project for a certain period of time, after which the project will be liquidated and each will get his share of the residual prot.

Balance sheet and income statement

1. Required capital for all types of risk such as assets risk, obligations risks, reinsurance risks, life insurance risks reached US$2,127,421 by the end of September 2010, while the available capital of the company (owners equity) reached US$6,407,083. That is, the adequacy ratio = the available capital (owners equity) required capital is about three times which is very good. 2. The companys total assets reached about US$12.40 million by the end of September 2010, of which about US$9 million are current assets which means that the company has a good liquidity ratio. 3. The company has made a prot in spite of the fact that it is very new. Net income reached US$543,307 by the end of September 2010, compared with a net income of US$337, 962 by the end of December 2009. 4. Return on equity was 8.50% by the end of September 2010, while it was about 6% by the end of 2009. This means that the companys income growth rate is very high. 5. Return on investment was about 4.40% in 2010, while it was 3.50% in 2009. Dr M Hisham Jabr Associate professor of nance An-najah National University Email: hjabr90@yahoo.com Dr Hisham Jabr has authored numerous books and articles on Islamic nance.

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SECTOR REPORT

Takaful The Mathematics of Cooperation

By Ajmal Bhatty
Cooperation is a binding force of nature. Just as cells work together to produce the valuable nutrients of life, so do humans work together like cells in the body of humanity. Cooperation brings strength to society and community and enables us to go through life against its rigors both natural and manmade. We have recently seen such resilience in the Japanese, who have risen up to the challenges of the recent disaster in March. They have achieved this through empathy and care for each other as a community. Insurance companies in Japan, including Tokio Marine, have not only paid the claims promptly, but have physically helped people by providing the necessary provisions for their rehabilitation. Cooperation is indeed the very essence of Takaful, of risk sharing. It works at the cost of self interest. You give up a little to gain collective strength which brings greater reward for the cooperating group and cooperating community and society. This equally applies to businesses where if these are run with social conscience it is for the collective benet of the community and society at large, the very essence of Islamic nance. not know or cannot see other customers with whom he or she is participating. However, there is mathematics behind this that brings condence into the cooperative concepts an element of tangibility that what we are agreeing to today in terms of protecting each other will work in the future. This is based on the empirical evidence of the law of large numbers, which works if it is managed and controlled in certain ways. The current understanding revolves around the issues of Shariah compliance, of conventional nance as haram, and of the lure of surplus sharing as labels and words and not deeds and action. There appears to be this great halo within which the ideals are talked about in the boardrooms and grand gatherings of countless Takaful conferences. The real meaning of Takaful has not been getting across to customers. Equally, despite so many established Takaful companies, the Takaful industry remains a niche even in markets where Islamic nance is considerable. The models on which the industry is operating have certain gaps when it comes to managing underwriting risks as well as business risks effectively. The concepts of cooperation (risk sharing and Qard) are ne on a juristic basis but as experience unfolds over time pockets of constriction are highlighted, for example the extent of reserving needed for insured events that may or may not happen in future. The source of such reserves is the contribution itself donated by participants that includes the Wakalah fee to cover business expenses as well as a margin towards return on capital for the shareholders. The question is what is the right way of deciding how large should the Wakalah fee be, and for how long can the remainder of aggregate contributions continue to be put aside as reserves before some of it can be distributed back to eligible donors as a reward for risk sharing. This happens over time as donors join and leave in a continuous ux. If a surplus is distributed it may not necessarily go back to the ones who had contributed towards it as they may have left the scheme. Where the risk is priced or underwritten incorrectly or reserved insufciently (and the chances of this happening in General Takaful are much more than in Family Takaful) then claims can exceed the available reserves, creating decits that must be supported through Qard (benevolent loan) by shareholders, out of their capital. In practice we see imposition of arbitrary limits on Wakalah fees, on Mudarabah share of investment returns and on performance incentive fees (if allowed). The arbitrariness of these limits creates nancial imbalances and impedes the ability of Takaful companies to take on new business with different risks. These are not juristic matters, but technical matters that beg the question of applying mathematical models in assessing long term impact on the durability of business of Takaful within each company. Each company ends up with its unique risk prole driven by the types of risks it is writing and creating specic burden of Qard on shareholders. How can this burden be minimized? At what level can Wakalah fees continued...

The participants and shareholders are two pieces of string intertwined to make Takaful work. One cannot exist without the other
The participants and shareholders are two pieces of string intertwined to make Takaful work. One cannot exist without the other. Takaful is not proprietary nor is it mutual, but it is both. The cooperative principles therefore must embrace both as one body of cooperation, as this system brings prosperity to society and the environment through channelling wealth and capital, with social conscience and responsibility, in fairness for the risk undertaken and shared. The concepts are designed to provide just reward, encouraging the distribution of wealth through savings and insurance protection based on equity, justice and fair play. The cooperative principles help to enlarge the system as a caring and transparent system, for the welfare of society, free from exploitation. The sum total of wealth owing through this system is directed to generate economic activity in businesses that are both socially responsible and eco-friendly, avoid social ills that can otherwise arise from the creation of money from money, and link deposits and investments to real underlying assets for a sustainable Takaful proposition. Takaful participation is intangible, a nancial protection against physical mishap that may or may not happen. The Takaful concept of cooperation is also intangible as a customer seeking to protect his home against nancial ruin due to re, ood or other accident does

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SECTOR REPORT

Takaful The Mathematics of Cooperation (continued)

adequately service the business expense? The level of fees need to be commensurate with the degree of maturity of business, whether it is a new company or an old established company within the constraints of the price at which new business can be written. What is a fair balance in xing the percentage of investment returns and underwriting returns to satisfy the concept of risk and reward within the principles of cooperation (risk sharing)? Are we clear in establishing the impact of risk, where it is located, either with participants or shared with shareholders, of how the applicable models enable us (or dont) to manage Qard due to excessive impact of risk within the principles of risk sharing. When such decits are recurring or become irrecoverable, the impact of risk ends up with the shareholders. Is this workable within the larger picture of building a sustainable and durable Takaful business, managed on commercial basis? These are fundamental issues where more understanding is needed between Shariah advisors and Takaful operators with the help of mathematical explanation of risk models that can highlight the impact of risk on reserves and Qard. sharing recognize the shareholders support without which the impact of risk remains unwieldy. 2. The shareholders role to be the lender of last resort can be recognized (hopefully) within the juristic realm as an obligation as this is about the technical nature of the business within the overall juristic parameters and ts in well with the regulatory requirements of capital backing. 3. The Wakalah fees are geared towards only the expenses for running the business, pushing down maximum limits within which the Wakeel must charge these fees to pay for expenses. If a Wakeel is running a high expense bill then that reects his mismanagement more than anything else. Any returns to the shareholders are de-linked from the Wakeels management fees (that come from xed and known amounts paid by the participants as contributions) and linked more to variable source of surplus / decit of business in the spirit of risk and reward going hand in hand. There are different considerations for a re-Takaful company where Wakalah fees could be a source for not just the expenses but a margin for irrecoverable Qard. Qard can become irrecoverable where a participant Takaful company runs a decit and is eventually unable to transact business. The re-Takaful company will not have any recourse to recover this Qard as other participating Takaful companies may resist to share this burden. 4. It enables the Wakeel to compete better in the market due to the facility of risk based capital available from the shareholders. 5. The performance incentive fee for the shareholders is seen as a just reward for the risk taken by them. Mathematical solutions need to be brought into the juristic realms of Shariah compliance to remove the current arbitrary approach to xing fees and returns, be it to the operator, customer or shareholder. The future growth and success of Takaful is very much dependent on this, the mathematics of cooperation, in nding solutions to the issues highlighted in this paper. Ajmal Bhatty President & CEO Tokio Marine Middle East Email: ajmalbhatty@tm-mena.com Ajmal Bhatty has supported the Takaful industrys development and promotion for more than 20 years, and has served as global head of Takaful at HSBC, CEO of Takaful International Bahrain and in senior positions at Arab Insurance Group Bahrain and the Old Mutual in the UK. He is a member of the IFSB Working Group on setting standards in risk management for Takaful companies and a member of Actuaries Without Borders.

Qard can become irrecoverable where a participant Takaful company runs a decit and is eventually unable to transact business
Martin Nowak and Roger Higheld said in Super Cooperators, Mathematics is characterized by order, internal consistency and abstract relationships but its meaning is constant for everyone. It cannot mean different things to different people as mathematical explanation is objective and complete with universal logic and universal rules. Beyond the dimensions of space and time, mathematics inhabits a nonmaterial realm, one that is eternal, unchanging and ever true. If the level of fees and reserving is kept within the realms of mathematics for nding best t, built on mutual cooperative principles embracing not just the participants but also the shareholders as one big cooperating community, then many of the inequities disappear, resulting in the following: 1. The interests of participants and shareholders are aligned without upsetting the core values of Takaful (avoiding and minimizing gharar, maysir and riba). The principles of risk

Next Forum Question Does the Islamic nance industry need to innovate more to encourage further growth? Which sectors would require more attention than others?
If you would like to air your views on the next Islamic Finance Forum Question, please email your response of between 50 and 300 words to Christina Morgan, Forum Editor, at: Christina.Morgan@REDmoneygroup.com before Monday, 9th May 2011.

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MARKET REPORT

Dow Jones Islamic Market Indexes in April: Growth is Beautiful or is it?

By Grard Al-Fil
A number of Dow Jones Islamic Market (DJIM) Indexes posted gains in April. After diving 10.17% in the rst quarter of 2011, the DJIM Kuwait Index rebounded, registering a gain of 7.04% to 963.52 (as of the close of trading on the 26th April). In a nation with nearly 95% of its federal budget tied to oil revenues, rising oil prices drove the Gulf states stock market higher. The resignation of Kuwaits old and unpopular Cabinet also helped. Kuwait was followed (on a percentage basis) by the DJIM Hong Kong Index, up 6.50% to 1,655.53; and the DJIM Philippines Index, up 5.90% to 1,855.26. Only a few DJIM indexes lost value in April. As in March, the DJIM Japan Index (down 1.39% to 1,093.42) and the DJIM Sri Lanka Index (down 0.53% to 2,364.55) were the poorest performing indexes. Meanwhile, the DJIM Pakistan Index, after advancing 10.57% in the rst quarter, dipped on prot-taking and closed 0.34% lower in April to 15,450.25. As a direct comparison, the bellwether Dow Jones Industrial Average (DJIA), which measures the performance of 30 US blue chips, closed the month up 2.24% to 12,595.37 its highest level since June 2008. Strong US corporate earnings as well as a number of key hiring announcements at companies including McDonalds and Citigroup, lifted the US market. Among the non-Islamic, or conventional Dow Jones composites, the Dow Jones Turkey TSM Index posted the largest advance, gaining 7.74% to 1,499.83. Meanwhile, the Dow Jones Japan Index, down 2.61% to 84.51, underperformed its Islamic counterpart as the nation continues to suffer from the epic earthquake and tsunami that hit Japan on the 11th March 2011.
Asia: Performance of DJIM versus conventional DJ Indexes Dow Jones Islamic Market Indexes Index Names DJIM Asia/Pacic Index DJIM China Offshore Index DJIM Hong Kong Index DJIM India Index DJIM Indonesia Index DJIM Japan Index DJIM Malaysia Index Dow Jones-JS Pakistan Islamic Index DJIM Philippines Index DJIM Singapore Index DJIM South Korea Index DJIM Amana Sri Lanka Index DJIM Taiwan Index DJIM Thailand Index Index Close 26th April 2011 1571.91 3862.99 1655.53 1957.58 1555.85 1093.42 1789.26 15450.25 1855.26 1384.80 1096.75 2364.55 5518.24 1971.75 MTD 2011 MTD 2011 2.62% 5.43% 6.50% 0.62% 3.97% -1.39% -0.19% -0.34% 5.90% 5.04% 3.95% -0.53% 5.07% 3.42% 1.65% 2.95% 4.74% 2.07% 3.64% -2.61% 0.78% 0.72% 6.24% 4.34% 5.02% 0.93% 4.53% 5.92% Conventional Dow Jones Indexes Index Close 26th April 2011 142.57 4636.82 496.89 2040.31 227.68 84.51 267.06 663.28 269.28 337.77 329.19 3066.23 189.78 162.53 Index Names DJ Asia/Pacic Index DJ China Offshore 50 Index DJ Hong Kong Index DJ India Total Stock Market Index DJ Indonesia Index DJ Japan Index DJ Malaysia Index DJ Pakistan Total Stock Market Index DJ Philippines Index DJ Singapore Index DJ South Korea Index DJ Sri Lanka Index DJ Taiwan Index DJ Thailand Index

The DJIM Index series measures the stock performance of rms that use rule-based pass screens for Islamic law or Shariah compliance. Companies engaged in the following businesses are excluded as nonIslamic or haram: alcohol, tobacco, pork-related products, weapons and entertainment. Conventional banks and insurers are also excluded, because they generate prots by charging interest (riba) which is forbidden under Shariah. The DJIM Financials Index, up 2.87% in April to 1,877.10, tracks the performance of Islamic banks and Shariah compliant insurance rms, known as Takaful operators. According to an industry report by Ernst and Young, the global Takaful industry will reach US$12 billion in 2012, and, with the entire Islamic nance industry estimated at US$1 trillion, the relatively small Takaful sector is the most dynamic Islamic nance sub-segment, growing at 25% per year. Examples for Takaful components which are part of the DJIM Financials Index are Saudi Arabias Malath Cooperative Insurance & Reinsurance Co and Solidarity Saudi Takaful Co. Despite the mostly buoyant climate in the equity markets, regional political risks remain high. The conict in Libya has yet to be solved, ongoing civil unrest in Syria and Pakistan and recent military clashes at the Thai-Cambodia border are helping to fuel the oil price rally and ination fears. The uncertainty is also mirrored in rising gold prices. Gold is the only means of payment which has no liability attached to it and therefore considered a safe asset during times of crises. Islamic nance considers precious metals as acceptable or halal. On the 25th April, the price for the yellow metal rose to an all-time high, while silver hit a

continued...

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MARKET REPORT

Dow Jones Islamic Market Indexes in April: Growth is Beautiful or is it? (continued)

April 2011 Islamic Markets Measure Preliminary Report

Based on the close of trading on the 26th April, the global Dow Jones Islamic Market Titans 100 Index, which measures the performance of 100 of the leading Shariah compliant stocks globally, gained 2.99% month-to-date, closing at 2397.07. In comparison, the Dow Jones Global Titans 50 Index, which measures the 50 biggest companies worldwide, posted a gain of 2.46%, closing at 189.49. The Dow Jones Islamic Market Asia/Pacic Titans 25 Index, which measures the performance of 25 of the leading Shariah compliant stocks in the Asia/Pacic region, increased 2.26%, closing at 2212.68. The Dow Jones Asian Titans 50 Index, in comparison, posted a gain of 0.57%, closing at 142.81. Measuring Europe, the Dow Jones Islamic Market Europe Titans 25 Index, which measures the performance of the 25 of the leading Shariah compliant stocks in Europe, closed at 2366.93, a gain of 4.92%, while the conventional Dow Jones Europe Index gained 5.06%, closing at 300.77. Measuring the performance of 50 of the largest Shariah compliant US stocks, the Dow Jones Islamic Market US Titans 50 Index increased, closing at 2427.06. It represents a gain of 2.34%. The US bluechip Dow Jones Industrial Average increased 2.24%, closing at 12595.37. The Dow Jones Islamic Market Turkey Index closed at 4035.58, a performance gain of 4.00% month-to-date, while the Dow Jones Turkey Total Stock Market Index closed at 1499.83, a gain of 7.74%. Measuring the performance of Shariah compliant stocks of ve of the GCC member states, the Dow Jones Islamic Market GCC Index closed at 1327.93, a gain of 3.46%. The conventional Dow Jones GCC Index was up 4.16%, closing at 1509.55.

Other markets and asset classes

In April, the Dow Jones Islamic Market BRIC Equal Weighted Index decreased 0.13%. It had a closing value of 2348.72. By comparison, the Dow Jones BRIC 50 Index closed at 687.78, a gain of 0.87% month-to-date. The Dow Jones Citigroup Sukuk Index, which measures the performance of global bonds complying with Islamic investment guidelines, increased 0.27%, closing at 127.92. The Dow Jones Islamic Market Sustainability Index, which measures sustainable practice business of companies respecting the Shariah laws, increased 3.79%, closing at 2648.57. The conventional Dow Jones Sustainability Index increased 3.85% with a closing value of 1138.12.

Middle East and GCC regions Dow Jones Islamic Market Indexes versus conventional Dow Jones Indexes
In April, the Dow Jones DFM Titans 10 Index, measuring the 10 largest and most liquid stocks listed on the Dubai Financial Market, closed at 2151.83. It is a gain of 2.62% month-to-date. The Dow Jones Islamic Market Kuwait Index posted a gain of 7.04%, closing at 963.52. Its conventional counterpart index, the Dow Jones Kuwait Composite Index, was up, closing at 238.03. It represents a gain of 2.95%. 31-year high. As a result, the DJIM Basic Materials Index soared 5.19% to 2,735.76, the largest gain among the DJIM sector indexes. But there is a ip-side: as prices for golden rings and necklaces skyrocket, jewelry traders in Dubai, complain about plummeting revenues. The Islamic nance industry should increase its focus on planning and sustainability, and to a lesser degree on high growth rates, said Fares Mourad, managing director and head of Islamic nance at Zurich based Swiss private bank, Bank Sarasin. Money must be managed in a style to pave way for future generations without putting social stability or the environment at risk. Islamic nancial planning is largely neglected by the Islamic banking industry. It requires a detailed process as well as structures and products to ensure Muslim investors are fully compliant with Shariah law. When presenting Sarasins second Islamic Wealth Management Report on the 18th April in Dubai, Mourad identied a number of blank

Global April 2011 Industries winners and losers

All DJIM Industry Indexes were up for the month of April. The three best performing Dow Jones Islamic Market Industry Indexes were Basic Materials, Technology and Utilities with performances of 5.19%, 4.58% and 3.63%, respectively. The three narrowest gains were Dow Jones Islamic Market Telecommunications, Dow Jones Islamic Market Industrials and Dow Jones Islamic Market Health Care indexes with performances of 2.16%, 1.08% and 0.22%, respectively.

elds in Islamic nance: What does Shariah say to carbon certicate trading? How does Shariah judge nuclear energy? These are questions the industry has yet to address. However, merging the principles of Shariah with the idea of sustainability is not new; in January 2006, the DJIM Sustainability Index (up 3.79% in April to 2,648.57) was launched. This composite tracks stocks traded globally that, in addition to passing Shariah screens, are determined to be leaders in sustainable business elds such as waste management or renewable energies. Grard Al-Fil Financial journalist/Middle East correspondent Email: all27@msn.com Grard is a nancial journalist who reports from the UAE, Kuwait, Bahrain, Qatar, Oman, Turkey, Iran and China. He holds a post graduate diploma from the Institute of Islamic Banking and Insurance in London.

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MARKET REPORT

Shipping and Logistics Industries Being Halal in Luxembourg?

By Cedric Raths
Islam is the fastest growing religion in the world, estimated to have 1.6 billion followers in 2010, and 2.2 billion in 2030 as per the projections by Pew Research Center in January 2011. In Europe, the Muslim community represents 6% of the population in 2010 (44.1 million people) and it should represent 8% in 2030 (58.2 million people). The term halal is applied to various aspects of the Muslim community life. Halal is used to describe anything lawful under Islam, in contrast to haram which is anything forbidden. As per The International Halal Integrity Alliance, halal food must be clean and pure and made in accordance with the Islamic guidelines. As per the World Banks Logistics Performance 2010 Index, Luxembourg ranks fth compared to 154 other countries whereas it ranked only 23rd in 2007. The airport of Luxembourg is now the fth largest air freight platform in Europe and the national air freight carrier, Cargolux, has a world market share of 4%.

Islamic nance
Despite being a non-Muslim country, Luxembourg has a long lasting experience in Islamic nance. In 1978, Luxembourg was the rst western country that hosted an Islamic nance institution. In 1983, the rst Shariah compliant insurance company in Europe was established in Luxembourg and in 2002 Luxembourg was the rst European stock exchange to list a Sukuk. The Luxembourg Central Bank became the rst non-Muslim organization member of the Islamic Financial Services Board (IFSB) in 2009. In 2010, the Luxembourg Tax Authorities released two circulars clarifying the tax treatment applicable to instruments of Islamic nance in terms of income tax and indirect tax, followed in January 2011 by the Luxembourg Supervisory Authority of the Financial Sector issuing a statement which claries certain rules applicable to Sukuk. In May 2011, Luxembourg will be the rst European country to host the annual summit of the IFSB. It is thus hardly surprising that halal and its implications on the maritime, logistics and nance sectors have gained increased attention in Luxembourg. Becoming an important Islamic nance hub, Luxembourg would indeed be the perfect domicile for companies nancing halal, logistics and maritime businesses in a Shariah compliant way. The eet of a maritime group could be nanced by using a Luxembourg securitization vehicle (SPV) which would issue Sukuk, equivalent to the bonds in the conventional debt securities. The SPV acquires the vessels, the underlying assets, upon which Sukuk certicates are issued and subscribed by investors. A logistics group willing to set up a Luxembourg company dedicated to the transport of halal goods could approach an investor (for example an Islamic bank) to nance its activity. They could, for example, enter into a Mudarabah agreement which is a prot and loss sharing partnership. The investor would act as Rab al maal and the logistics group would act as the Mudarib. Prots generated by the business would be shared between the investor and the logistics group according to a ratio xed in the Mudarabah agreement.

The market size

According to the same source, the entire halal industry is estimated to be worth US$2.3 trillion and includes food and beverage, pharmaceuticals, cosmetics and personal care, excluding banking. The halal food industry alone was expected to reach US$662 billion in 2010. Ultimately, the development of halal logistics is quite similar to the one we know in Islamic banking, both have to respect the principles of the Shariah. With such potential in the halal world, the logistics industry is waking up. When one knows that logistics operations usually cost around 10% of the total revenue, it is not surprising that logistics companies are keen to grab a piece of this growing market.

With such potential in the halal world, the logistics industry is waking up
Shipping and logistics
The Commission for Maritime Affairs (Commissariat aux Affaires Maritimes, CAM the Luxembourg supervising authority) celebrated its 20th anniversary in 2010. In 1990, Luxembourg introduced the Maritime Act to create the maritime public registry and to create the CAM which is under the responsibility of the ministry of economy and foreign trade since 2004. Luxembourg is one of the largest inland registries in the world, with more than 200 registered commercial vessels reaching 1 million gross tons. In 2008, in Luxembourg, the Cluster for Logistics and the Maritime Cluster were founded in order to enhance and strengthen Luxembourg as a major intercontinental logistics hub in Europe and as a major land-locked maritime jurisdiction. With its central position and direct air, hinterland waterways, highway and railway links, Luxembourg has become one of the European major distribution hubs for an impressive variety of goods and products.

Interest for halal in Europe

For the time being, we see a growing interest for halal products in Europe. The Muslim consumers are ready to pay more for products guaranteed as halal from their production to their distribution. The airport of Lige (Belgium), being in Europe the eighth biggest freight airport, aspires to become an halal logistics hub within two years. continued...

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MARKET REPORT

Shipping and Logistics industries Being Halal in Luxembourg? (continued)

The port of Marseilles-Fos (France), being in the top 40 of the biggest ports, will host the third World Halal Forum Europe. The port aspires to become a halal logistics hub to attract the trafc of halal products from Malaysia, China and Brazil and then to dispatch these goods to the Middle East and North Africa. Since the 1980s, the Swiss group Nestl has produced halal certied products and is the leading manufacturer of halal industrial food. In 2008, the halal products represented 5% of Nestls annual sales, whereas 20% of Nestls factories have a halal certication. The French supermarket group Carrefour has launched its own halal brand and the fast food restaurant Quick has opened halal restaurants in France. such), packaging, labeling, warehousing and storage, and transport, all funded via Shariah compliant nance instruments.

Luxembourgs potential
Being an important logistics hub, Luxembourg should therefore not miss the halal train to place its logistics industry within the top tier segment. This move might trigger a new surge for Luxembourg corporate and nance products, giving an additional impetus to the Luxembourg nance, logistics and maritime sectors. By its attractive legal and tax frameworks, its impressive list of double tax treaties signed and the European lowest VAT rate, Luxembourg is an ideal place to domicile several entities of an international logistics group. A maritime group would nance and hold its vessels eet through Luxembourg maritime companies. A logistics group that invests in research and development could place their intellectual property rights in a Luxembourg company which will then grant licenses to the other group companies. Functions like, for example, cash management, nance, management of halal certications could be coordinated, managed and centralized via a Luxembourg company. By centralizing its nance and corporate functions through Luxembourg, a logistics and maritime group could realize economies of scale, improve its internal organization and benet of tax efciencies. Cedric Raths Accredited Maritime Manager Email: cedric.raths@reference.lu Cedric has 14 years experience in the Corporate & Trust Services industry in Luxembourg. He is specialized in providing services to a variety of clients like private equity funds, Islamic nance, maritime companies, venture capital funds, real estate funds, investment funds, securitization vehicles and private holding companies.

Halal from A to Z
During a whole supply chain process, it is important that the product remains halal from the sourcing to the distribution. A brand owner is responsible of his products halal integrity. It should be noted that the majority of halal products are produced in non-Muslim countries and their industries and that subsequently these products have to be transported to their nal place of distribution, mostly in Muslim countries. At every stage of a supply chain process, the main principle to be respected is the segregation of halal and non-halal goods. A crucial stage is the storage and warehousing. The goods spend a lot of time at this stage and are manipulated several times which makes it sensitive to cross-contamination. Even if the Muslim community is relatively small (more than 10,000 Muslims) in Luxembourg, the country could play an important role in a Shariah compliant supply chain. The industries from Luxembourg could be involved in several steps of a halal compliant process: at sourcing (ingredients, additives and other components), production (agricultural product, pharmaceuticals and

MODERN FINANCIAL TECHNIQUES FOR ISLAMIC BANKING & FINANCE

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FOCUS

Practical Aspects of Islamic Banking in Afghanistan

By Dr Alam Khan Hamdard
Islamic banking was introduced in Afghanistan between 2008 and 2009. The rst draft banking law was prepared by Da Afghanistan Bank (Central Bank of Afghanistan) which established the Islamic banking section that operates under the Shariah Council consisting of religious scholars from Afghanistan and other countries. The nal draft of the Islamic banking law is in progress and will soon obtain parliamentary approval. It is estimated that up to US$33 billion are in circulation in the Afghanistan economy while more than US$4.20 billion is deposited in 17 banks and branches of national international banks. Kabul Bank has total deposits of US$850 million among these banks. Besides conventional banking, Kabul Bank has an Islamic banking section which began operations in February 2010. The bank has extended Islamic banking through its Islamic banking windows operations in all its branches in the country.

Challenges
There are many challenges in Afghanistans Islamic banking sector which include the following: 1. Lack of public awareness about banking 2. Lack of legislation and regulatory framework 3. Lack of knowledge and human capacity 4. Inadequate investment capital 5. Lack of Shariah consensus among Ulamas and scholars 6. Lack of Shariah compliant technology and techniques 7. Lack of Shariah scholars understanding of Islamic principles

Shariah compliancy
Fortunately most of the banks offering Islamic banking services and products in Afghanistan have Shariah boards to play basic roles in promoting Islamic banking and adherence to Shariah principles. Shariah boards are the basic requirement for sound and prudent Islamic banking. Islamic banking accounts are open under the following principles Mudarabah, Musharakah, Wadiah, Qard Hasan and others. Current accounts are under Wadiah and Qard Hasan, while investment accounts are under Mudarabah and Musharakah. The preferred principles for investment accounts are Mudarabah and Islamic banks generally open investment accounts under Mudarabah. Kabul Bank uses Mudarabah or Musharakah for investment accounts, Murabahah for long-term housing nance and sometimes uses Bai Mawjal for house nancing with 15-year installments. Mudarabah seems to be risky in Afghanistan because of its nature and the countrys situation. In Mudarabah, the nancier Rab al maal pays 100% capital while the working partner (Mudarib) does not contribute in nancing but uses his or her own time and skills. Also, banks do use AAOIFI standards to organize Islamic banking services and products which are helpful to ensure Shariah compliance in practice.

The current Islamic banking scenario

Currently, there are no fully edged Islamic banks in Afghanistan. Islamic banking is provided by conventional banks in Afghanistan. Most of them provide liability side products for deposits while investment side products are on the lowest level. The only reason for the underdevelopment of Islamic investment in Afghanistan is the lack of Islamic law and regulations. It is expected that the Islamic banking law in the country will tentatively be approved in September 2011. There are some parties interested to apply for full Islamic bank licences. To date, ve conventional banks are licensed to offer Islamic banking windows in Afghanistan: 1. Kabul Bank 2. Bank Mille Afghan 3. Afghan United Bank 4. Maiwand Bank 5. Ghazanfar Bank Kabul Bank is the largest bank offering Islamic banking services through its 123 branches in all 34 provinces of Afghanistan. Total deposits in the countrys Islamic banking industry reached up to US$70 million during the last two years. Generally all these banks offer liability products under Mudarabah, Musharakah, Qard Hassan and Wadiah. Kabul Bank has a Shariah board to advise on the Shariah compliancy of its products while there are Shariah advisors are on the board of the rest of the banks offering Islamic products. All these banks have a limited number of investment products under Musharakah, Mudarabah and Ijarah structures. There are more than 10,000 Islamic banking customers in all ve banks. About 99% of Afghans are Muslims and the majority of them do not use banks due to the involvement of interest. Out of the 30 million Afghans, only 1.8 million use banking. Ulamas and religious scholars have been very cooperative in preaching and promoting Islamic banking in Afghanistan. Ghazanfar Bank, Maiwand Bank, Kabul Bank, Alfalah Bank, Bank Millie Afghan and Afghan United Bank were among the rst banks which obtained Islamic banking licences in the country. Currently all these banks offer Islamic banking products and services including project nancing, equity nancing and house nancing.

Trade nancing
Trade nancing is a booming part of Islamic investments in Afghanistan where the majority of banks use Murabahah for trade nancing as well as Musharakah. Afghanistan depends on imported goods, and a lot of banks nance trade and commerce using the mentioned principles. Generally traders use Murabahah and Bai Mowajal to trade in Afghanistan. This is called Ograie, meaning credit based sale with weekly repayment of installment. Because of familiarity with this principle which is already in practice, Afghan traders do like to use this principle for trade nancing. Shariah compliant letters of credit (L/C) have been used for trade nancing using the principles of Musharakah, Mudarabah and Murabahah.

Housing nance
Murabahah has been the best principle for house nancing, car nancing and trade nancing. Ijarah is also under consideration for home nancing. In Murabahah the bank buys or prepares to buy the house rst and then sells it to the customer. Some banks use Murabahah by disclosing continued... 4th May 2011

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Practical Aspects of Islamic Banking in Afghanistan (continued)

the cost and prot margin while the rest use Bai Mowajal to sell after a 5% to 10% down payment is settled in the beginning with a tenor of three to 15 years. Kabul Bank has started with the 15 year schedule. Kabul Bank, Azizi Bank and Bank Millie have already started long-term home nancing. Kabul Bank is the only bank in Afghanistan that offers the longest mortgage tenor which is 15 years. Diminishing Musharakah is best for project and equity nancing to nance business establishments. Ijarah can be used for machineries and equipment nancing while Istisnah is for contract nancing like manufacturing by order or construction of house on the land owned by customer and other such projects. Under Islamic agricultural nancing, Bai Salam is used for agriculture and horticulture nancing, Muzaraah for agricultural farming and Musaqah for land irrigation nancing.

Consumer banking
Consumer banking is the most favorable in Afghanistan. There is a lot of trust from the public in consumer nancing. Up to now a few banks have introduced car nancing schemes under Murabahah and Ijarah Sum Bai (hire purchase) principles of Islamic banking.

Hindering factors
1. 2. 3. 4. 5. 6. 7. Lack of Islamic banking law Lack of regulations Lack of Shariah compliant technical support Lack of public knowledge and awareness Poor human capacity in banks and nancial institutions Lack of Fiqh councils Lack of consensus among Ulamas

Construction nancing
The construction industry is one of the largest sectors in the Afghan economy and billions of US dollars have been invested in this sector. Islamic banks use Musharakah and Mudarabah to nance the construction projects in Afghanistan. Meanwhile, banks also do use Istisnah for construction of residential and commercial buildings and complexes.

Capacity building
Lack of human capacity is the most challenging factor which hinders the promotion of Islamic banking in Afghanistan. Lack of capacity building has been the most challenging part for all banks offering Islamic banking in Afghanistan. Almost every bank faces this challenge and little work has been done so far to solve this problem. Kabul Bank has its own training centers in its main ofce and regional ofces all over Afghanistan. Within 2010 and the rst quarter of 2011, we have so far trained up to 400 staff members of Kabul Bank on the operational side, particularly on account opening and customer care. The central bank is also involved in capacity building efforts and it recently established Afghanistan Institute of Banking and Finance which also contributes in capacity building for conventional and Islamic banks.

Industry nancing
Afghanistan is poor in the industrial sector because of its specic conditions and current political situation. However there are some industries and more are emerging. Islamic Banks use Ijara sumal Bai (hire purchase) to nance the machineries and equipments needed for industries. Agricultural and food processing have been the most favorable projects in Afghanistan. Characteristics of Islamic banking in Afghanistan More transparency Asset-backed banking Justice in prot and loss sharing More control on funds Islamic banking triggers more activities as well as more contributions from investors and working partners Low levels of risk in Islamic banking and investment Unavailability of Takaful Lack of technology for instance core banking Lack of decision makers attention and support Lack of capital investment

Islamic insurance
One of the largest challenges for Islamic banking in Afghanistan is the non- existence of Takaful. The investment side of Islamic banking needs insurance crucially. Every investment project in Islamic banking needs insurance and conventional insurance cannot be used. There has been some effort to introduce Islamic insurance in Afghanistan. I am in touch with the ministry of nance of Afghanistan and am pushing for the introduction of Takaful. But still there is a lot to be done to launch Takaful. But there have been growing interest from decision makers regarding Takaful. There is also tremendous market demand for Islamic insurance, because the majority of businesses and industries do not want to use conventional insurance due to riba (interest) gharar, and maisir. With the growing demand of Takaful in Afghanistan, there are opportunities for Takaful companies to establish Islamic insurance companies in Afghanistan. Dr Alam Khan Hamdard Chief of Islamic banking Kabul Bank Email: alamhm@kabulbank.af Dr Alam Khan Hamdard has been involved in Islamic nance and banking via drafting policies and procedures and training at Maiwand Bank, establishing and monitoring nationwide Islamic banking operations at Kabul Bank, and drafting Islamic banking laws and regulations with Da Afghanistan Bank.

Islamic banking in investment

Islamic banking and nance is more efcient in investment nancing. For investment nancing in Afghanistan, Musharakah is used for equity nancing, and project nancing, while for trade nancing Murabahah and Bai Mowjal are used. Mudarabah is very rarely used in nancing in Afghanistan. For home nance, Murabahah and Ijara wa Etina are used for nancing by banks. Car nancing is very well known now in among banks and many people are obtaining cars through the Islamic mode nancing instead of conventional. Now banks are using Istisnah for nancing the construction of residential and commercial complexes in Afghanistan. Afghanistan is an emerging economy and there have been hundreds of new businesses launched by Afghans in Kabul and other cities. There is a growing need for nancing these business establishments.

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The Understanding of Sukuk

By Nidhi Bothra
The tenets of Islam as also observed in other religions like Christianity and Judaism ensure that the common man should not be subjected to injustice. Shariah, a guide to the Holy Quran and Sunnah laid down the spiritual and moral obligations in Islam and is a legal system based on the Islamic principles of jurisprudence (Fiqh) which guides the public and private aspects of the lives of those following Islam. Shariah considers money for the purpose of creating assets or trading in assets, and as not an asset in itself. Shariah also forbids the generation of money from money or trading in indebtedness (riba). In countries with a majority Muslim population, traditional debt markets cannot ourish as conventional bonds represent interest based funding. Hence Sukuk have become a popular means of nancing as these are nancial certicates that comply with Islamic laws. Sukuk have characteristics similar to conventional bonds but are certicates of ownership of assets while bonds represent debt. Sukuk are identical to conventional bonds, with regard to the distribution of prots from their enterprises at xed percentages based on interest rates (LIBOR). However, in order to differentiate it from conventional bonds, the issuance contract would state that the actual prots exceeding the percentage prescribed would be paid entirely to the partner in the organization for effective management of the business.

Ambiguity in understanding Sukuk

1. Shariah is not a stringent set of laws but is guided by the consensus and the sayings of the Prophet Muhammad. The law is open to subjectivity as is dependent on Fiqh (jurisprudence), the inferences drawn by scholars as result of the debates, reasoning and inferences drawn from Shariah principles. Hence there remains ambiguity as to whether the Sukuk issued are compliant with Shariah laws or not and this may lead to variations in banking and nancial practices across the industry. 2. While Islamic laws try to structure Sukuk issuances differently from conventional bonds, most Sukuk are sold with a repurchase agreement, wherein the borrower will pay back the face value at maturity, mirroring the structure of a conventional bond. 3. There is no standard practice followed globally. The implications for Islamic nancial institutions and securitizations are that the selling of debts or receivables for anything other than at par is not permissible. However in case of some of the existing Sukuk, some Shariah boards have accepted that, as long as such receivables are a small portion of the overall income ows, their presence is acceptable. 4. Another consideration is that late payment penalties cannot be charged. This means that the Sukuk structures allow for delayed payment or redemption, without requiring it to compensate investors. 5. Further there is prohibition of uncertainty or gharar, whereby uncertainty in contractual terms and existence of an underlying asset in a contract makes derivatives contracts difcult in existence. 6. The concept of Maslahah or public benet, denotes that, if something is overwhelmingly in the public good, it may yet be transacted, which makes any and every Sukuk permissible for issuance. 7. While Shariah is acknowledged as one source of law, it is not the law enforced in the courts. In any commercial dispute that falls before any commercial court with Shariah courts, there could be conicts in interpretation and most Shariah courts may not even have understanding of these complex structures. 8. The principles of nance are not standard but subjective. The Shariah board to which a particular document or structure of

Hence, Islamic nance has a new breed of nancial certicates or the Islamic equivalent of bonds which are Shariah compliant but are actually old wine in a new bottle
Sukuk is an Arabic word for Islamic bond. Sukuk began in Malaysia in 1990 with the small issuance of RM120 million (US$30 million) from a subsidiary of Shell Malaysia to East Cameron Gas. From the rst Sukuk to have originated in the US to the global marine terminal operator DP World, the rst issuer to issue both conventional and Islamic bonds and rst ever convertible instrument in the Islamic nance market to airline Sukuk, ship nance Sukuk and so on. Today Sukuk have found acceptance in non-Islamic countries as well and are viewed as alternative nancial instruments. Hence, Islamic nance has a new breed of nancial certicates or the Islamic equivalent of bonds which are Shariah compliant but are actually old wine in a new bottle. They are very close to conventional bonds, but validated by Islamic laws. Though Sukuk have gained acceptance in global nancial markets there still remains a lot of ambiguity on their understanding and structural form. Sukuk are different from conventional bonds in their purpose. The basic concept behind issuing Sukuk is that Sukukholders get a share in the prots or revenues of enterprises. However, in the case of conventional bonds, holders of such certicates are no more than lenders, the certicates are an acknowledgement of debt; and their earnings come from the interest on their investment. Sukuk represents ownership shares in assets that bring prots or revenues, whereas bonds are acknowledgement of interest bearing debt by the issuer.

continued...

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The Understanding of Sukuk (continued)

nance is submitted decides upon the permissibility of prots or compliance of the Islamic law in the particular transaction. The risk here is that where a particular Shariah board may approve a structure another may reject it. These and many more such grappling issues cause ambiguity in understanding of Sukuk. asset to the special purpose vehicle (SPV), which leases it back to the nancier and receives periodic rentals on the leased property. The SPV then issues Sukuk to investors and holds the asset in the trust form for the investors.

The Shariah board prohibits any uncertainty in a contract; derivatives thus do not come under the ambit of Islamic nance and are prohibited
Types of Sukuk
The essence of Sukuk lies in the concept of securitization. Some of the structures are as mentioned below:

Istisnah The structure is the same as an Ijarah contract, only there is income from projects or future projects that are contracted. However the principles of gharar prohibit one from selling what one does not own. So the contract of Istisnah is made where a party undertakes to produce something under certain specication at an agreed price and date of delivery. So a nancier may undertake a project and sell it on receipt of installments agreed. Musharakah In the Musharakah contract each party contributes to the capital in its own capacity and obtains management rights to the venture in proportion to their contribution. In case of loss each party loses only to the extent of capital contribution so the liability is capped.
The steps involved in the arrangement are: a. The corporate enters into a Musharakah arrangement with the SPV where the corporate supplies the assets to the arrangement. b. The SPV pays for the arrangement from the proceeds received from the investors (by issuing Sukuk). c. Here the Musharakah Sukukholders become the owners of the equity so transferred to the SPV (to the extent of their investment). These Sukuk are negotiable instruments and can be traded in the secondary market. d. The corporate acts as a servicer to the arrangement and gets a servicing fee at a pre-determined rate. The prots so received by the SPV are distributed among the Sukukholders. e. At the end the corporate repurchases the shares held by SPV in the Musharakah.

Murabahah Murabahah contracts are contracts where one party

provides credit to the other with an agreement to return the money back at a future date for a pre-determined price which is higher than the spot price. The differences between the money lent and received money is not considered interest but is the deferred price for the credit extended. For instance, if an entrepreneur needs nance to buy machinery; he would approach a bank or nancial institution to do so. The bank will then buy the machinery for say US$20,000. The entrepreneur may enter into a contract with the bank to purchase that machinery after six months for US$25,000. This is considered as the deferred sale price and is the crux of the Murabahah contract. The prots are upfront so it is the preferred method of nancing as well. Some scholars are of the view that this sort of a structure should be avoided as it is closely linked to the interest bearing transaction structure. Here, the concept of true sale is important for the transaction to qualify as a Shariah compliant transaction but there are certain limitations to the transaction. The sale is ctitious or momentary, as the asset moves into the buyers books to be immediately disposed off and short dated trades are not permissible.

Mudarabah It is a partnership contract whereby one party is the

capital supplier and the other party, the entrepreneur, will manage the investment and services it with an agreement to proportionately share prots at a mutually agreed ratio. However this structure has a unique feature which makes it different from an investment contract the investor does not participate in the capital investment. The Mudarabah agreement can be oral or written. For such a structure to work there should be a third party guarantee or mortgage of some property. Sukuk is the generic name for all bonds issued that are Shariah compliant. However over time, Sukuk is used as a renancing tool whether it is in case of sale and lease back transactions, assignment of receivables, infusing working capital into a venture and so on. The Shariah board prohibits any uncertainty in a contract; derivatives thus do not come under the ambit of Islamic nance and are prohibited. In a sale and leaseback transaction structure, for example, the lessee grants a put option to the SPV, requiring the lessee to purchase the assets for a purchase consideration upon the occurrence of default. The termination purchase consideration is set to be the value of the asset plus prot/return of the next rental payment. continued...

Ijarah In an Ijarah obligation, the nancier (mujir) will give on lease, the asset, whether land or equipment, and the rentals (ujrah) from the property would ow into the nancier in usufruct to the capital supplied. After the expiry of the lease period the lessee (mustajir) can exercise the option of purchasing the land or equipment. The rentals received can be of two types xed rate Ijarah contracts and oating rate Ijarah contracts. In case of xed rate rentals the rent is xed to the agreed rate and remains constant throughout the lease period.
Whereas in case of a oating rate rental, the nancial institutions may peg the rentals to a benchmark such as the ination rate or a cross reference to the LIBOR or sign a parallel non-Islamic lease agreement signed at the same time. In an Ijarah structure the nancier sells the

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The Understanding of Sukuk (continued)

Qualication of such Ijarah contracts with put options and interest earning in the name of prots, as Shariah compliant put several questions on the interpretation and qualication norms of such Islamic structures. The substance of Shariah compliant contracts is that the usufruct of the asset with the lessee should be shared by the lessor, but is charging of interest on default in the name of prots Shariah compliant? Countries where Shariah is the ultimate legal authority, compliances of each and every transaction with the Shariah law is mandatory. Whereas in countries where there is a judicial mix of Islamic and nonIslamic laws, applicability of Shariah laws along with the laws of the land are a signicant issue. Further, most Islamic nancial institutions operate in an environment where the legislative framework consists of mixed jurisdictions and mixed legal systems. In cases where the Shariah law is the ultimate legal authority, there may not be problems of interpretation. However in countries with mixed legal systems, issues of interpreting Islamic structures along with non-Islamic laws may be signicant. The UK nancial institutions have designed Islamic mortgage nancing in an effort to tap investors from the Islamic community. Standard & Poors Ratings Services (S&P) has created a Shariah version of their indexes like the S&P 500, S&P Europe 500 and so on, informing the investors of the existence of these products but also emphasizing on their growth. Though countries like the UK, Pakistan and Malaysia have been amending their laws to accommodate the Islamic perspective in alternative nancial instruments into the markets but lack of standardization is a deterrent in the growth of this instrument. Most of which is attributable to the exibility or poor understanding of the Islamic laws and several interpretations aired on this issue. Nidhi Bothra Vice president Vinod Kothari Consultants Email: nidhi@vinodkothari.com Nidhi Bothra has written, lectured and published on advanced nancial topics such as Islamic nance, securitization, affordable housing, leasing, micronance and carbon trading.

Further, most Islamic nancial institutions operate in an environment where the legislative framework consists of mixed jurisdictions and mixed legal systems
Conclusion
The value of Sukuk issued worldwide during 2009 rebounded to US$23.3 billion, up from a paltry US$14.9 billion the year before, short of the record value of US$34.3 billion seen in 2007. Most of the issuance of Islamic bonds during 2009 was from governments, and government related entities and it seemed like the private sector had not gained back the condence. From a simple vanilla type transaction Sukuk to complex and innovative structured Sukuk have emerged indicating the huge appetite of investors and interests of nancial institutions globally despite the ambiguity that remains.

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Scope of Shariah Compliance in Islamic Banking

By Abdul Samad
The main attraction for the establishment of an Islamic bank is to safeguard the Muslims from indulging in non-Shariah compliant transactions. Shariah compliance is the backbone of Islamic banking and nance and it gives legitimacy to the practices of Islamic banking and nance. The absence of Shariah compliance would render an Islamic bank no different from other nancial institutions. This would not only affect the condence of the public in Islamic banking and nance but might also expose Islamic banking and nance to duciary and reputational risks. To build the publics condence, it becomes essential for proper check and balance mechanisms to be in place in Islamic nancial institutions (IFIs) to assure the organizations activities are in line with Islamic principles, and to protect the condence and faith of the stakeholders. Recognizing this importance, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) provided standards on Shariah supervisory boards, Shariah reviews and internal Shariah reviews under its Governance Standard (AAOIFI, 1999). As described by AAOIFI, the main purpose of Shariah reviews for IFIs is to make certain that all the activities are truly Shariah compliant as reected in the fatwas, rulings and guidelines issued by the Shariah supervisory board. AAOIFI had also laid out that the Shariah review must be performed with specialized and qualied prociency and due care including appropriate stafng and supervision, devotion to the code of conduct of accountants and auditors, having the required knowledge, skills and disciplines and also continuous training and education. Principle 3.1 of the IFSB Guiding Principles on Corporate Governance states that an appropriate mechanism must be created to ensure compliance with Shariah. Similarly, Principle 7.1 of the IFSB Guiding Principles on Risk Management states that IFIs shall have in place adequate systems and controls, including a Shariah board/advisor to ensure compliance with Shariah. The State Bank of Pakistan (SBP) has also introduced a system of internal Shariah audit, to ensure the goals and objectives of Shariah compliance are achieved. In Pakistan, the current ongoing process of Shariah compliance looks at three aspects the inception and conceptualization of an Islamic product, the structuring of rules and principles as according to Shariah, and documentation procedures. To ensure the above, SBP requires the following: Every IFI is required to appoint a qualied Shariah advisor Every IFI is required to appoint a Shariah audit and Shariah compliance department/unit. However, regulations and standards might not work without an effective check and balance system. Presently on-site or off-site supervisory guidelines are not enough to judge and evaluate the functions of Islamic banks and IFIs from the Shariah point of view. One structure cannot become Shariah compliant on the basis of approval of the Shariah board or Shariah advisor until it is properly implemented. Therefore we need work on the following points for appropriate and actual assessment of Islamic banking and IFIs. The SBP circular on the t and proper criteria for Shariah advisors is focused on training and qualication in the principles of Shariah with some familiarity with the banking sector. This requirement can mean that if the Shariah advisor has met only the minimum standards specied, then their knowledge of banking and nance may be signicantly lower than other staff working in the Islamic nancial institutions.

Understanding the application of Shariah rules in the banking and nance industry is an area that Shariah advisors need to be trained in
This may lead to potential disagreements when bank staff are trying to introduce new Islamic products. Part of the product approval process requires clearance from Shariah advisors. The lack of knowledge about Shariah principles by the bank staff and lack of banking and nance knowledge by Shariah advisors can delay the approval process and lead to disagreements between bank staff and Shariah advisors. The training of advisors in religious education is no longer sufcient in the commercial world. Understanding the application of Shariah rules in the banking and nance industry is an area that Shariah advisors need to be trained in. The Islamic nance sector needs to address these concerns to ensure that the system remains viable in the long run and does not compromise on issues related to transparency and quality of Shariah supervision. Unfortunately, the industry has lagged behind in setting up appropriate institutions that would help bridge this educational and training gap. There are a number of steps that the industry and governments of Muslim countries can take to address the shortage of qualied advisors, and if implemented, would help overcome some of the issues related to the lack of trained and qualied Shariah advisors, and help improve the quality of Shariah supervision. The nancial institutions and governments can jointly invest in the establishment of further training institutions. These institutions would not only help train the students in religious education, but with the involvement of nancial institutions, the students would also be trained in the eld of Islamic banking and nance. The AAOIFI regulation of a minimum of three Shariah advisors serving on the Shariah supervisory board (SSB) should also be implemented in Pakistan. The regulation however should also require that at least one member of the SSB be a junior advicontinued...

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Scope of Shariah Compliance in Islamic Banking (continued)

sor. This requirement would give junior Shariah advisors the opportunity to work with experienced advisors and would act as a means of getting on the job training for the junior staff. criteria of independence must be applied with the greatest rigor. The absence of independence will mar the assurance given by the Shariah reviewer and ultimately the Shariah committee report. Therefore the Shariah reviewer should have direct access to the audit committee without having to go through the management structure as this can impede and affect their report. To further ensure independence as prescribed by the SBP, similar to the chief internal auditor whom employment and appraisal is made by the audit committee, the head of the Shariah audit unit should be engaged, terminated, promoted and evaluated by the audit committee as well. 5. External audit is an important part of the banking framework as it not only reduces the cost of information exchange between managers and shareholders but also provides a signaling mechanism to the markets that the information which the management provides is reliable. In Islamic banking investment account holders demand for halal prots where they totally depend upon managements information. Therefore external audit is necessary to assure that the activities of the organizations are in line with the Islamic principles to protect the condence and faith of the stakeholders. That is why the regulator shall make external audit compulsory for IFIs. 6. It is a challenge for the authorities to establish equilibrium between effective monitoring and enabling growth targets of the industry. The growth and development of the Islamic nancial sector in the global market raises a variety of questions that are related to public interest with respect to the jurisdictions in which they operate. Therefore it is also undeniably a necessity to chalk out a favorable rating framework with suitable guidelines for evaluating the overall performance of Islamic banks and nancial institutions. Current on-site or off-site supervisory guidelines are not enough to judge and evaluate the functions of Islamic banks and Islamic nancial institutions from the Shariah point of view. Therefore, it is necessary to develop a systematic rating framework for the Islamic banks and nancial institutions to help the regulator to take follow up measures to ensure Shariah compatibility and public condence towards the Islamic banking system.

Unfortunately, this global task of Islamic banking lies mostly in the hands of people believing that both systems are similar
Shariah compliance audit framework and programs
Shariah compliance audit framework and audit programs for IFI products will be able to mitigate Shariah non-compliance risk. But the shortage of guidelines, proper trained manpower, standardization of products and due care is making today Islamic banking doubtful. Therefore the regulator is required to work on the following points: 1. The absence of recognized guidelines and Shariah auditing standards is a major problem facing the current Shariah auditing framework. Most Islamic banks use the conventional framework of auditing because of the non-availability of a Shariah auditing framework even as all of them believe that Shariah auditing framework is different from the conventional framework. AAOIFI and IFSB are both involved in addressing these issues. AAOIFI had provided standards on Shariah review and internal Shariah review under its governance standards. However, those are not mandatory although auditors are required professionally to follow these standards. Therefore, keeping in view the importance of this issue, the regulator should formulate detailed guidelines on this, or adopt AAOIFI standards on Shariah review and internal Shariah review as a guideline. 2. The selection of one practice over another in different institutions to get favorable decisions according to the circumstances is also making the job of Shariah auditors more difcult. Institutions are also keeping auditors investigations limited until the ruling of the Shariah advisor. These also affect the objective of a Shariah audit as they are to give assurance on the Shariah compliance of the bank. Therefore the regulators shall focus on the standardization of the practices of Islamic banking and nance institutions. 3. Shariah auditors are expected to reect their responsibility and accountability not only to the management and stakeholders, but more importantly to God. This will promote the foundations for building public condence and assurance that the IFIs are Shariah compliant in all of their activities. Shariah auditors should have good Shariah knowledge. Therefore the regulators should x a t and proper test for the head of their internal Shariah audit unit. 4. Shariah auditors are required to be independent enough to give opinions on the positions of IFIs in terms of being Shariah compliant in all aspects. In situations where the responsibility and social signicance of the audit are at their greatest, the

Product development
Product development is the most important management facet of any nancial institution. This is especially true of IFIs, since the Islamic nance industry is new and therefore behind in product assembly. It is still in the development stages, which requires more products that combine the objectives of Shariah and customer requirements, in addition to the ability to compete in a market that is dominated by its rivals. But unfortunately, this global task of Islamic banking lies mostly in the hands of people believing that both systems are similar. They say banking is banking, so they create the same type of products that they do for the conventional markets. They then contact a Shariah scholar for a fatwa, and if unsuccessful, they will contact other scholars, until they obtain the required Shariah compliance certicate. In this way these people function like in conventional banking, operating in a much more competitive environment seeking to boost continued...

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Scope of Shariah Compliance in Islamic Banking (continued)

their performance and protability only. But in Islamic banking, unlike conventional banking, they must do so in a way that is in compliance with Shariah. Therefore: Product development should be done by these people, reecting their responsibility and accountability not only to the management and stakeholders, but more important to God, and they should have a strong background in Islamic banking. That product shall be approved by the Shariah committee/ Shariah advisor. To close the door of where some products are deemed Shariah compliant in one market and not in another, a central Shariah board shall be constituted. All Islamic banking products shall be approved by the central Shariah board. The regulator shall also make the management responsible for the following: a. To identify and refer any Shariah issues to the Shariah committee/Shariah advisor for decisions, views and opinions. The management shall provide the necessary information and disclosures to the Shariah committee/Shariah advisor in a true and fair manner, and shall be transparent on any areas that need clarication by the Shariah committee to enable the Shariah committee to discharge its duties effectively. b. To observe and implement Shariah decisions and rulings made by the Shariah committee/Shariah advisory respectively. c. To allocate adequate resources and manpower to support the Shariah governance that is commensurate with the size, complexity and nature of the IFIs business. The infrastructure and resources provided shall include among others budget allocation, reference and research materials, trainings and development, and such. d. To inculcate a Shariah compliant culture within the organization. A Shariah compliant culture refers to the compliance of the IFI to Shariah principles in its overall business operations. For example, the management should consistently remind the frontline staff on the importance of Shariah and its impact to the IFI if Shariah practices are not observed, and to always place Shariah as the overarching requirement in the formulation of any procedure and activity. In addition, every staff is expected to be conversant on the IFIs Islamic products, the underlying Shariah concepts and the similarities and differences with conventional concepts. Abdul Samad Shariah advisor The Bank of Khyber Email: qazisamad@yahoo.com Abdul Samad is the in-house Shariah advisor at The Bank of Khyber and a member of the Islamic economic consul of Rafah International University.

Free to attend, although all delegates will be screened before qualifying Focusing on markets which are developing in the Islamic finance world Particular focus on that market with international participation Standard format ensuring everyone knows exactly what to expect from each event Plenary sessions no sales pitches Short one-day events senior individuals dont have the time to attend lengthier events Targeting between 125 and 250 for each event Cooperation and participation from local regulators Practitioner led, with some Shariah scholars providing the perfect mix Conclusions will be delivered at the end of each event Issuers and investors will be in attendance not just the intermediaries

Register to secure your FREE seat now!

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MEET THE HEAD

Islamic Finance news talks to leading players in the industry

Name: Position: Matthew Stutsel Partner and chair of Islamic nance working group
some time after the main transaction had completed. If we had been involved in structuring the whole transaction we would have suggested a very different approach and enabled the client to reach their goal at a signicantly lower cost.

What are the strengths of your business?

So much of what we see in Islamic nance is product driven, forcing commercial deals into well recognized transaction structures. One of our strengths is looking at the commercial outcome a client seeks and then working to achieve that outcome, driven by the solution not the structure. That can require more involvement from Shariah scholars, but we think it gives clients a better result by more truly reecting the nature of their deal.

Company: Freehills Based: Age: Sydney 41

Nationality: Australian
Could you provide a brief journey of how you arrived where you are today?
I started as a graduate with the rm in 1994 and was made a partner in 2001. Having worked for a few clients investing from the UAE, a colleague and I travelled to London and Dubai in 2008 to learn more about the development of Islamic nance. Bringing that home, I started chairing a working group of those interested in promoting Islamic nance in Australia.

What are the factors contributing to the success of your company?

Technical excellence; the collegiality of working in small teams to serve clients; client success as a measure of our own success; being prepared to think outside the square for new solutions. Without doubt the close relationship with our associated tax practice, Greenwoods & Freehills, is a critical factor and differentiates us from other Australian law rms. After all, it is no good coming up with a brilliant structure if the tax impact removes the commercial benet.

What does your role involve?

As a partner in our nancial services team, I do a lot of work with property and infrastructure funds, and inbound foreign investment, that includes developing the most effective structures. For Islamic funds, that means helping them get the right nancing structures. My background specializing in state taxes, and having worked very closely with our tax team, is ideally suited to that role. As chair of the Islamic nance working group, I help facilitate the sharing of knowledge about Islamic nance, coordinate work on deals, speak to clients and make submissions to the government. I also act as a liaison with key friends of the rm working in Islamic nance, here and offshore.

What are the obstacles faced in running your business today?

Government over-regulation affects our clients business, and our own. The pace and volume of change imposes huge costs on clients and keeps us chasing the latest updates on various issues. Trying to keep on top of these changes and considering their impact on clients is hard work. So does the competition for scarce talent legal services are more than technical knowledge, they involve undertaking the commercial drivers and human factors of a clients business. It is not good enough to recruit the brightest recruits we have to nd the best.

Where do you see the Islamic nance industry in, say, the next ve years or so?
Islamic nance will continue to grow in Australia. Ultimately the lobbying efforts we are involved in will result in appropriate legislative change. Australian funds will see strong inows from the UAE and Southeast Asia pursuing the stability and transparency of the Australian nancial system as well as the benets of global investment diversication.

What is your greatest achievement to date?

From a professional perspective, I am very proud of a number of leading deals on which I have worked. But I think my greatest professional achievement is actually the relationships I have with so many of my clients. Enjoying the people you work with makes it so much easier to push yourself.

Which of your products / services deliver the best results?

Our clients get the best results when they involve us in planning their transaction. Too often clients think lawyers are there just to implement the structure. But with our knowledge and experience we can often help clients achieve a better outcome by applying a holistic approach. One recent frustration was to be asked by a client to assist with nance

Name one thing you would like to see change in the world of Islamic nance.
I think some people are still completely ignorant of Islam and the underpinnings of Islamic nance. Is there reason to promote competitive neutrality with conventional western nance, or should we consider concessional treatment given the overt social nature of many of its restrictions? Healthy debate would strengthen the industry and its opportunities.

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TERMSHEET

SUMMARY OF TERMS & CONDITIONS

Obligor/Issuer Tenor Return Al Rajhi Cement-Jordan/Al Rajhi Cement Sukuk Company Seven years Weighted average prime lending rate for banks in Jordan + 0.5% per annum 14 consecutive semi-annual payments 20th February 2018 Capital Investment & Brokerage/ Jordan Al Tamimi & Co (Kuwait) and Al Tamimi & Co (Jordan) as the transaction and Jordanian law legal counsel to the lead manager Walker SPV Jordan /Cayman Islands Financing the obligors capital requirements as well as business activities Cement production Sheikh Mohamed Younes Al-Bayrakdar in consultation with the Ifta Board of Jordan Sukuk Al Ijara Mountahia Bittamlik Tradable

Sukuk Al Ijara Mountahia Bittamlik JOD85 million (US$120 million)

Payment dates Maturity date Bookrunners Legal advisors Trustee Governing law Purpose of issuance

Main lead managers Capital Investment & Brokerage/ Jordan

1st March 2011

Principal activities Shariah advisor Structure Tradability

The Q&A was conducted with Alex Saleh, partner and head of ofce and Riza Ismail, senior associate of Al Tamimi & Co (Kuwait): 1. Why did you use this particular Islamic structure? What other structures were considered? The Ijarah structure seemed to be the most viable. It is simple, relatively uncontroversial and has been accepted globally by investors and scholars alike. Sukuk Musharakah and Mudarabah were also considered, however, AAOIFI ruling prohibits purchase undertakings to be based on exercise price which is calculated by reference to the face value of the Sukuk at the maturity date or upon the earlier dissolution of a Sukuk in Musharakah and Mudarabah structures. The obligor owned sufcient unencumbered and Shariah compliant assets in the form of equipment and machineries, and with Ijarah these can be used as the underlying assets to be leased out to generate rentals and formed the basis of the periodic payments to Sukukholders. 2. What will this capital be used for? The net proceeds of the Sukuk issuance were used by the trustee to fund the purchase of the Sukuk assets from the obligor. The obligor in turn utilized part of the proceeds as a recapitalization to pay down part of the partners current account, while the remaining amount was utilized to nance remaining payments to contractors, as well as additional capital expenditures and working capital requirements. 3. What were the challenges faced and how were they resolved? First, this Sukuk issue is the rst ever in Jordan, and the Islamic capital market in Jordan is still in its early stages. More effort and time was spent in understanding the local capital market regulatory framework, guiding and explaining the structure, processes and documentation involved in the issuance of a Sukuk Ijarah. Second is the issue surrounding collateralization. Jordanian law prohibits a person from transferring title to real estate properties it owns for a period of ve years from the registration date unless the approval of the Jordanian ministry of nance, upon the recommendation of the director general of the Department of Lands and Survey is obtained. Part of the assets mortgaged is plots of lands, and as such, can neither be executed nor enforced until such time as the period stated above expires. To address this issue, the obligor has submitted an application at the Department of Lands and Survey to obtain approval to dispose of the plots of land, execute or enforce any security mortgages at any time before the expiry of the period stated above. Third is the cross collateralization issue. The assets collateralized were Jordanian assets and these had to be packaged as collaterals against a Sukuk issuance regulated by the Cayman Islands. As a result, two separate sets of documents were constructed, governed by Cayman Islands laws and by Jordanian laws respectively. 4. Geographically speaking, where did the investors come from? All the investors are operating banks in Jordan. 5. Was this deal rated? If not, explain why. There was no requirement for rating imposed by the Jordanian regulatory authority. In addition, the creditworthiness of the obligor is already known to the investors.

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DEAL TRACKER
Islamic Finance news

Advisory Board:
Keeping you abreast of the worlds upcoming Shariah compliant deals

Another Islamic Finance news exclusive

SIZE US$500 million RM300 million US$200 million US$200 million US$1 billion US$300 million RM2 billion RM800 million TBA TBA US$250 million to US$300 million TBA US$1 billion US$500 million TBA US$200 million IDR1 trillion US$1 billion TBA US$500 million RM5 billion RM250 million RM1.5 billion US$500 million EUR2 billion TBA PKR3 billion AED3.5 billion GBP60 million US$250 million KWD92 million US$500 million US$500 million US$1 billion LKR750 million TRL100 million

Mr Daud Abdullah (David Vicary)

Global Leader Global Islamic Finance Group, Deloitte

ISSUER Jordan nance ministry Esso Malaysia Gazprombank VTB Bank Indonesia nance ministry Sharjah Islamic Bank Westport Malaysia Ranhill Power Tamweel Mazaya Qatar Noor Islamic Bank Abu Dhabi Islamic Bank Liquidity Management House for Investment Malaysian government Indonesia nance ministry Tatarstan Bank Muamalat Indonesia Masraf Al Rayan First Gulf Bank Kazakhstan Prasarana Negara Malaysia Bio-Xcell Malaysia Academic Medical Center Malaysia Kuwait Finance House-Turkey Ministry of oil, Iran Qatar International Islamic Bank Engro Corporation, Pakistan Aldar Properties Gatehouse Bank Islamic Bank of Thailand First Investment Company Central Bank of Yemen Qatar International Islamic Bank Dana Gas Amana Takaful Bizim Securities, Turkey

INSTRUMENT Sukuk Islamic Commercial Paper Sukuk Sukuk Global Sukuk Sukuk Sukuk Musharakah Sukuk Musharakah Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sovereign Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk Sukuk

Prof Dr Mohd Masum Billah

Group Executive Chairman Middle Eastern Business World Group of Companies

Dr Humayon Dar
Chief Executive Ofcer BMB Islamic

Mr Badlisyah Abdul Ghani

Chief Executive Ofcer CIMB Islamic

Ms Baljeet Kaur Grewal

Managing Director/Vice Chairman Head, Global Research KFH Research Limited

Mr Sohail Jaffer
Partner International Business Development FWU International

Dr Monzer Kahf
Consultant/Trainer/Lecturer Private Practice

Mr Mohamed Ridza Abdullah

Managing Partner Mohamed Ridza & Co

Prof Bala Shanmugam

Director of Banking & Finance Taylors University Malaysia

Mr Muhammad Nejatullah Siddiqi

Author, Scholar, Speaker, Trainer

Mr Rushdi Siddiqui
Head of Islamic Finance Thomson Reuters

Mr Dawood Taylor
Regional Senior Executive-Middle East Prudential PLC

Mr Abdulkader Thomas
President & CEO SHAPE Financial Corp

Mr Paul Wouters
Partner Bener Law

Prof Rodney Wilson

Director of Postgraduate Studies Durham University

Mr Sohail Zubairi
Chief Executive Ofcer Dar Al Sharia Legal & Financial Consultancy

For more details and the full list of deals visit

www.islamicnancenews.com
Page 31

4th May 2011

www.islamicnancenews.com

ISLAMIC FUNDS TABLES

Top 10 Islamic Funds by Key Performance Statistics

140

130

120

Index Values

110

100

90

80

70

60

Dec-99 Mar-00

Mar-01

Mar-02

Mar-03 Jun-03

Dec-03 Mar-04

Mar-05

Mar-06 Jun-06

Dec-06 Mar-07

Mar-08

Mar-09 Jun-09

Mar-10 Jun-10

Monthly returns for Developed Markets funds (as of the 3rd May 2011)
FUND
1 2 3 4 5 6 7 8 9 10 ETFS Physical Silver Jadwa Aggressive Allocation Rasmala Islamic MENA Equity Opportunity Class A ETFS Physical PM Basket Al Shamekh Islamic Portfolio Jadwa Balanced Allocation Pacic Dana Dividen AlManarah High Growth Portfolio AlAhli Global Real Estate Mashreq Al-Islami Income * Eurekahedge Developed Markets Islamic Fund Index

FUND MANAGER
ETFS Metal Securities Jadwa Investment Rasmala CBD Asset Management ETFS Metal Securities Riyad Bank Jadwa Investment Pacic Mutual Fund The National Commercial Bank The National Commercial Bank Mashreq Capital (DIFC)

PERFORMANCE MEASURE
13.03 6.42 5.78 4.24 3.70 3.05 2.52 2.33 2.28 2.25 0.72

FUND DOMICILE
Jersey Saudi Arabia Cayman Islands Jersey Saudi Arabia Saudi Arabia Malaysia Saudi Arabia Saudi Arabia UAE

Monthly returns for Emerging Markets funds (as of the 3rd May 2011)
FUND 1 2 3 4 5 6 7 8 9 10
FALCOM Saudi Equity Al Qasr GCC Real Estate & Construction Equity Trading Al Rajhi Local Shares JS Islamic HSBC Amanah Saudi Equity Segregated Portfolio Amanah Saudi Equity Saudi Equity - (Al Raed) Al-Saffa Saudi Equity Trading Riyad Equity 2 Jadwa Saudi Equity * Eurekahedge Emerging Markets Islamic Fund Index

FUND MANAGER
FALCOM Financial Services Banque Saudi Fransi Al Rajhi Bank JS Investments HSBC Amanah Central Shariah Committee SABB Samba Banque Saudi Fransi Riyad Bank Jadwa Investment

PERFORMANCE MEASURE
13.32 13.22 10.78 10.77 10.65 10.65 10.11 10.08 10.08 10.05 2.83

FUND DOMICILE
Saudi Arabia Saudi Arabia Saudi Arabia Pakistan Cayman Islands Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia

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

Disclaimer
Copyright 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 afliates provide any express or implied warranty or representations as to originality, accuracy, completeness, timeliness, non-infringement, merchantability and tness for any purpose.

Page 32

4th May 2011

Dec-10 Mar-11

Jun-00

Sep-00 Dec-00

Jun-01

Sep-01 Dec-01

Dec-02

Sep-04 Dec-04

Dec-05

Sep-07 Dec-07

Dec-08

Dec-09

Jun-02 Sep-02

Jun-04

Jun-05 Sep-05

Jun-07

Jun-08 Sep-08

Sep-03

Sep-06

Sep-09

Sep-10

RED
REDmoney GLOBAL SHARIAH INDEX SERIES (All Cap)
REDmoney Asia ex. Japan All Cap REDmoney Europe All Cap REDmoney GCC All Cap 1050 940 830 720 610 500 10/10

www.islamicnancenews.com

DATA
6 Months

6 Months

REDmoney GLOBAL SHARIAH INDEX SERIES (Large Cap)

REDmoney Asia ex. Japan Large Cap REDmoney Europe Large Cap REDmoney GCC Large Cap 1000 890 780 670 560 450 10/10

REDmoney Global All Cap REDmoney MENA All Cap REDmoney US All Cap

REDmoney Global Large Cap REDmoney MENA Large Cap REDmoney US Large Cap

11/10

12/10

1/11

2/11

3/11

4/11

5/11

11/10

12/10

1/11

2/11

3/11

4/11

5/11

REDmoney GLOBAL SHARIAH INDEX SERIES (Medium Cap)

REDmoney Asia ex. Japan Medium Cap REDmoney Europe Medium Cap REDmoney GCC Medium Cap 1400

6 Months

REDmoney GLOBAL SHARIAH INDEX SERIES (Small Cap)

REDmoney Asia ex. Japan Small Cap REDmoney Europe Small Cap REDmoney GCC Small Cap 1400

6 Months

REDmoney Global Medium Cap REDmoney MENA Medium Cap REDmoney US Medium Cap

REDmoney Global Small Cap REDmoney MENA Small Cap REDmoney US Small Cap

1175

1175

950

950

725

725

500 10/10

11/10

12/10

1/11

2/11

3/11

4/11

5/11

500 10/10

11/10

12/10

1/11

2/11

3/11

4/11

5/11

INDEX REDmoney US Large Cap REDmoney Europe Large Cap REDmoney Global Large Cap REDmoney MENA Large Cap REDmoney GCC Large Cap REDmoney Asia ex. Japan Large Cap INDEX REDmoney US All Cap REDmoney MENA All Cap REDmoney GCC All Cap REDmoney Europe All Cap REDmoney Global All Cap REDmoney Asia ex. Japan All Cap

Last (US$) 970.81 861.04 890.45 597.77 607.50 857.59 Last (US$) 1,027.80 619.28 618.60 889.84 945.57 941.44

MTD (%) -0.00 -0.02 -0.07 -0.41 -0.45 0.01 MTD (%) 0.00 -0.32 -0.36 -0.02 -0.00 0.00

3 Months (%) 4.06 10.37 5.06 0.83 0.45 6.20 3 Months (%) 5.02 1.64 1.71 9.10 6.45 6.30

6 Months (%) 13.59 12.92 11.25 1.23 3.62 4.77 6 Months (%) 15.65 1.35 3.56 13.94 11.73 3.34

YTD (%) 7.95 11.14 5.34 -3.90 -3.87 2.75 YTD (%) 8.81 -2.27 -1.78 11.15 6.66 2.29

1 Year (%) 15.07 19.05 16.45 4.67 8.69 16.60 1 Year (%) 17.45 0.73 4.18 21.65 18.78 19.13

2 Years (%) 47.78 53.55 52.75 21.81 27.29 61.58 2 Years (%) 55.32 18.16 22.62 60.14 62.03 74.91

REDmoney Global Shariah Index Series

For further information regarding REDmoney Indexes contact: Andrew Morgan Managing Director, REDmoney Group Andrew.Morgan@REDmoneyGroup.com +603 2162 7800

RED

IdealRatings

Page 33

4th May 2011

SHARIAH INDEXES
www.islamicnancenews.com

S&P Shariah Indices Price Index Levels

1500 1430 1360 1290 1220 1150 1080 1010 940 870 800 2/5/11 S&P 500 Shariah S&P Europe 350 Shariah S&P Japan 500 Shariah

Apr-11

Mar-11

Feb-11

Jan-11

Dec-10

Nov-10

Index Code SPSHX SPSHEU SPSHJU

1600 1450 1300 1150 1000 850 700 550 400 250 100 2/5/11

Index Name S&P 500 Shariah S&P Europe 350 Shariah S&P Japan 500 Shariah

2-May-11
1213.841 1431.096 1092.321

Apr-11
1217.162 1425.03 1075.327

Mar-11
1174.819 1329.256 1065.75

Feb-11
1175.593 1332.904 1129.41

Jan-11
1143.662 1296.598 1104.465

Dec-10
1116.185 1284.601 1104.726

Nov-10
1055.305 1179.078 1032.02

S&P Pan Asia Shariah S&P GCC Composite S&P Pan Arab Shariah S&P BRIC Shariah

Apr-11

Mar-11

Feb-11

Jan-11

Dec-10

Nov-10

Index Code SPSHAS SPSHG SPSHPA SPSHBR

1200 1080 960 840 720 600 480 360 240 120 0 2/5/11

Index Name S&P Pan Asia Shariah S&P GCC Composite Shariah S&P Pan Arab Shariah S&P BRIC Shariah

2-May-11 1242.826 742.097 124.599 1485.821

Apr-11 1233.309 742.627 124.411 1488.656

Mar-11 1202.539 728.296 122.631 1472.686

Feb-11 1133.3 685.834 116.293 1390.791

Jan-11 1170.956 728.593 122.54 1356.222

Dec-10 1162.323 753.965 127.698 1338.497

Nov-10 1075.868 721.171 122.361 1249.391

S&P Global Property Shariah S&P Global Infrastructure Shariah

Apr-11

Mar-11

Feb-11

Jan-11

Dec-10

Nov-10

Index Code SPSHGU SPSHIF

Index Name S&P Global Property Shariah S&P Global Infrastructure Shariah

2-May-11 759.713 90.701

Apr-11 758.4 90.154

Mar-11 745.793 89.633

Feb-11 715.72 89.602

Jan-11 743.73 89.978

Dec-10 746.209 91.68

Nov-10 719.266 87.253

The S&P Shariah Indices. Creating opportunity for Islamic investors.

To learn more, contact index_services@standardandpoors.com.
Page 34 4th May 2011

www.islamicnancenews.com

SHARIAH INDEXES

Data as of the 2nd May 2011

PERFORMANCE OF DJ INDEXES
e p o ruE MIJD
YTD

25

20

PRICE RETURN (%)

15

10

0 1 Week 2 Week 3 Week 1 Month 3 Month 6 Month 1 Year

INDEX DJIM World DJIM US DJIM Titans 100 DJIM Asia/Pacic Titans 25 DJIM Europe

1 Week 1.81 1.82 2.52 2.8 3.22

2 Week 5.27 4.6 5.81 4.8 9.27

3 Week 2.64 3.2 3.37 3.85 4.24

1 Month 3.31 2.67 4.2 5.22 6.69

3 Month 5.44 5.06 4.39 2.68 8.31

6 Month 14.21 15.53 12.56 13.08 14.77

*all performance is cumulative, based on price return and US$

DESCRIPTIVE STATISTICS Market Capitalization (US$ billion) Component Weight (%)

INDEX DJIM World DJIM US DJIM Titans 100 DJIM Asia/Pacic Titans 25 DJIM Europe DJIM GCC DJIM MENA DJIM ASEAN

Component number 2518 581 100 25 267 111 160 239

Full 19002.61 7785.22 7823.1 1223.19 3756.47 194.9 384.38 517.58

Float adjusted 14964.04 7374.46 7021.33 849.65 3018.52 84.37 110.29 202.54

Mean 5.94 12.69 70.21 33.99 11.31 0.76 0.69 0.85

Median 1.19 3.73 47.85 29.84 2.66 0.3 0.16 0.16

Largest 438.55 438.55 435.14 90.15 163.55 9.6 15.24 17.88

Smallest 0.007712 0.148138 13.075752 13.075752 0.274251 0.014395 0.007712 0.002094

For more information, please visit www.djislamicmarkets.com or contact Anthony Yeung Regional Director Hong Kong, China, Taiwan, Korea, Japan, Australia & New Zealand Tel: +852 2831 2580 Anthony.yeung@dowjones.com Ariff Sultan Business Development Director Malaysia, Singapore, Indonesia, India, Thailand, Pakistan, Sri Lanka & Bangladesh Tel: +65 6415 4262 ariff.sultan@dowjones.com Tariq al-Rifai Director Islamic Market Indexes Tel: +971 4374 8045 tariq.alrifai@dowjones.com

Page 35

5 2 sna tiT ci ficaP /ais A MIJD

0 01 sna tiT MIJD

SU MIJD

dl r oW MIJD

1 Year 18.95 17.8 15.14 19.06 23.11

YTD 8.41 9.31 8.63 4.11 12.5

Large 2.9307 5.9469 6.1974 10.6105 5.4181 11.383 13.8201 8.8258

Small 0.000052 0.002009 0.186229 1.538949 0.009086 0.017062 0.006992 0.001034

4th May 2011

www.islamicnancenews.com
TOP 30 ISSUERS OF ISLAMIC BONDS Issuer 1 2 3 4 Saudi Electricity Pengurusan Air SPV Celcom Transmission (M) Cagamas Nationality Saudi Arabia Malaysia Malaysia Malaysia Instrument Sukuk Sukuk Murabahah Sukuk Sukuk Market Domestic market public issue Domestic market private placement Domestic market public issue Domestic market private placement; Domestic market public issue Domestic market public issue Euro market public issue Foreign market private placement Domestic market private placement Domestic market public issue Euro market public issue Euro market public issue Euro market public issue Euro market public issue Euro market public issue Domestic market public issue Foreign market public issue Domestic market private placement Domestic market public issue Domestic market private placement Domestic market public issue Domestic market private placement Domestic market public issue Domestic market public issue Domestic market public issue Domestic market private placement Domestic market public issue Domestic market public issue Domestic market private placement Euro market public issue Euro market public issue

ISLAMIC LEAGUE TABLES

12 Months Amt US$ 1,866,000,000 1,550,000,000 1,329,000,000 1,289,000,000 Iss 1 3 1 16 % 10.1 8.4 7.2 7.0 Managers HSBC, Samba Capital HSBC, CIMB Group CIMB Group, Maybank Investment Bank AmInvestment Bank, RBS, RHB Capital, Al-Rajhi Banking & Investment, HSBC, CIMB Group, Maybank Investment Bank, Standard Chartered Bank, Cagamas Maybank Investment Bank HSBC, Barclays Capital, CIMB Group OCBC, DBS, CIMB Group HSBC, RHB Capital, CIMB Group CIMB Group, Citigroup HSBC, Credit Suisse, QInvest Standard Chartered Bank, HSBC, Barclays Capital Standard Chartered Bank, HSBC, CIMB Group, Citigroup Standard Chartered Bank, HSBC, RBS RBS, Citigroup Lembaga Tabung Haji, RHB Capital, CIMB Group, AmInvestment Bank, Maybank Investment Bank HSBC, Maybank Investment Bank CIMB Group CIMB Group JPMorgan, HSBC Standard Chartered, Bank Muamalat Malaysia HSBC, CIMB Group AmInvestment Bank CIMB Group RHB Capital Bhd, Maybank Investment Bank OCBC, Public Bank Bhd, Afn Investment Bank CIMB Group, AmInvestment Bank, Maybank Investment Bank Lembaga Tabung Haji, RHB Capital, CIMB Group Maybank Investment Bank KFH KFH, Citigroup

5 6 7 8 9 10 10 12 12 14 15

Senai Desaru Expressway 1Malaysia Sukuk Global Danga Capital GovCo Holdings Malaysia Airports Capital Qatar Islamic Bank Abu Dhabi Islamic Bank Islamic Development Bank Emaar Sukuk Government of Ras Al Khaimah Aman Sukuk

Malaysia Malaysia Malaysia Malaysia Malaysia Qatar UAE Saudi Arabia UAE UAE Malaysia

Sukuk Sukuk Ijarah Sukuk Wakalah Sukuk Murabahah Sukuk Ijarah Sukuk Ijarah, Sukuk Murabahah Sukuk Musharakah Sukuk. Sukuk Sukuk Sukuk Musharakah

1,275,000,000 1,250,000,000 1,089,000,000 985,000,000 792,000,000 750,000,000 750,000,000 500,000,000 500,000,000 393,000,000 361,000,000

2 1 1 1 2 1 1 1 1 1 1

6.9 6.8 5.9 5.4 4.3 4.1 4.1 2.7 2.7 2.1 2.0

16 17 18 19 20 21 22 23 24 25 26 27 28 29 29

National Bank of Abu Dhabi Projek Lebuhraya Utara Selatan Konsortium Lebuhraya Utara-Timur Bank Aljazira Padiberas Nasional Trans Thai-Malaysia Sukuk AmIslamic Bank Maju Expressway Pelabuhan Tanjung Pelepas Boustead Holdings Putrajaya Holdings Malaysia Debt Ventures Westports Malaysia Nomura Sukuk Kuveyt Turk Katilim Bankasi Total

UAE Malaysia Malaysia Saudi Arabia Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Japan Kuwait

Sukuk Murabahah Musharakah Sukuk Musharakah Sukuk Mudarabah Sukuku Musharakah Sukuk Musharakah Sukuk Musharakah Sukuk Musharakah Sukuk Sukuk Sukuk Musharakah Sukuk Murabahah Sukuk Sukuk Ijarah Debut Turkish Murabahah sukuk issue.

312,000,000 301,000,000 280,000,000 267,000,000 240,000,000 195,000,000 177,000,000 168,000,000 167,000,000 163,000,000 161,000,000 158,000,000 150 100 100 18,419,000,000

2 1 13 1 2 1 1 1 1 2 1 1 1 1 1 96

1.7 1.6 1.5 1.5 1.3 1.1 1.0 0.9 0.9 0.9 0.9 0.9 0.8 0.5 0.5 100

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www.islamicnancenews.com
20 MOST RECENT GLOBAL ISLAMIC BONDS
Priced 28th Apr 2011 28th Apr 2011 21st Apr 2011 29th Mar 2011 23rd Feb 2011 8th Feb 2011 28th Jan 2011 Issuer Pengurusan Air SPV Westports Malaysia Pengurusan Air SPV Bank Aljazira Cagamas GovCo Holdings Aman Sukuk Nationality Malaysia Malaysia Malaysia Saudi Arabia Malaysia Malaysia Malaysia Instrument Sukuk Sukuk Sukuk Sukuk Mudarabah Sukuk Murabahah Sukuk Murabahah Sukuk Market

ISLAMIC LEAGUE TABLES

Value US$ Managers 335,000,000 150,000,000 332,000,000 267,000,000 132,000,000 985,000,000 361,000,000 CIMB Group Maybank Investment Bank HSBC, CIMB Group JPMorgan, HSBC CIMB Group, AmInvestment Bank HSBC, RHB Capital, CIMB Group Lembaga Tabung Haji, RHB Capital Bhd, CIMB Group, AmInvestment Bank, Maybank Investment Bank Standard Chartered, HSBC, RBS HSBC, CIMB Group Standard Chartered, Bank Muamalat Malaysia Maybank Investment Bank HSBC, RBS, Maybank Investment Bank HSBC, CIMB Group RBS, Citigroup CIMB Group, Citigroup OCBC, Public Bank , Afn Investment Bank HSBC, CIMB Group Standard Chartered, HSBC, Barclays Capital Standard Chartered Bank, HSBC, CIMB Group, Citigroup AmInvestment Bank

Domestic market public issue Domestic market private placement Domestic market public issue Domestic market private placement Domestic market public issue Domestic market private placement Domestic market public issue

27th Jan 2011 25th Jan 2011 10th Jan 2011 29th Dec 2010 14th Dec 2010 10th Dec 2010 8th Dec 2010 3rd Dec 2010 29th Nov 2010 5th Nov 2010 28th Oct 2010 20th Oct 2010 20th Oct 2010

Emaar Sukuk Pengurusan Air SPV Padiberas Nasional Senai Desaru Expressway National Bank of Abu Dhabi Cagamas Government of Ras Al Khaimah Malaysia Airports Boustead Holdings Trans Thai-Malaysia Sukuk Abu Dhabi Islamic Bank Islamic Development Bank Cagamas

UAE Malaysia Malaysia Malaysia UAE Malaysia UAE Malaysia Malaysia Malaysia UAE Saudi Arabia Malaysia

Sukuk Sukuk Sukuk Issued under issuer's MYR3. Murabahah Islamic bond. Sukuk Murabahah Legal issuer: RAK capital Sukuk Murabahah Sukuk Sukuk Musharakah Sukuk Musharakah Sukuk Sukuk

Euro market public issue Domestic market public issue Domestic market public issue Domestic market public issue Foreign market public issue Domestic market public issue Euro market public issue Domestic market public issue Domestic market private placement Domestic market private placement Euro market public issue Euro market public issue Domestic market public issue

500,000,000 884,000,000 114,000,000 1,192,000,000 159,000,000 287,000,000 400,000,000 476,000,000 133,000,000 195,000,000 750,000,000 500,000,000 161,000,000

GLOBAL ISLAMIC BOND VOLUME BY MONTH

GLOBAL ISLAMIC BOND VOLUME BY QUARTER

Page 37

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www.islamicnancenews.com
TOP 30 MANAGERS OF ISLAMIC BONDS Manager 1 2 3 4 5 6 7 8 9 10 11 12 13 13 15 16 17 18 19 20 21 22 23 24 25 25 25 28 29 30 CIMB Group HSBC Maybank Investment Bank Samba Capital AmInvestment Bank Citigroup Standard Chartered Bank Barclays Capital RHB Capital RBS OCBC DBS QInvest LLC Credit Suisse Bank Muamalat Malaysia Afn Investment Bank KFH JPMorgan Lembaga Tabung Haji Al-Rajhi Banking & Investment EON Bank Public Bank Kenanga Investment Bank Trimegah Securities Bank Mandiri (Persero) (Persero) Danareksa Malaysian Industrial Development Finance Cagamas Indo Premier Securities OSK Total Amt US$ 4,723,000,000 3,601,000,000 2,572,000,000 933,000,000 898,000,000 767,000,000 685,000,000 667,000,000 658,000,000 522,000,000 424,000,000 363,000,000 250,000,000 250,000,000 168,000,000 165,000,000 150,000,000 133,000,000 131,000,000 122,000,000 46,000,000 44,000,000 33,000,000 18,000,000 18,000,000 18,000,000 17,000,000 15,000,000 11,000,000 9,000,000 18,419,000,000 Iss 43 16 22 1 10 5 7 2 6 4 3 1 1 1 3 3 2 1 3 2 2 1 1 1 1 1 3 7 1 2 96 12 Months % 25.6 19.6 14.0 5.1 4.9 4.2 3.7 3.6 3.6 2.8 2.3 2.0 1.4 1.4 0.9 0.9 0.8 0.7 0.7 0.7

ISLAMIC LEAGUE TABLES

ISLAMIC BOND VOLUME BY CURRENCY US$ (BILLION)

Malaysian ringgit

10.7

US dollar

4.3

Saudi riyal

2.1

Singapore dollar

1.1

Indonesian rupiah

0.1

ISLAMIC BOND VOLUME BY ISSUER NATION US$ (BILLION) - 12 Months

Malaysia

12.8

Saudi Arabia

2.6

UAE

2.0

Qatar

0.8

Japan

0.1

GLOBAL ISLAMIC BOND VOLUME BY SECTOR - 12 Months

0.3 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 100
20% 13% 11% 8% 16% 32% Government Finance Utility & Energy Telecommunication Construction/Building Other %

GLOBAL ISLAMIC BOND VOLUME - US$ ANALYSIS

GLOBAL ISLAMIC LOANS - YEARS TO MATURITY (YTD Comparison)

Page 38

4th May 2011

www.islamicnancenews.com
ALL DATA AS OF THE 25th APRIL 2011 SUKUK MANAGERS
Manager 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Malaysia (Government) CIMB Malayan Banking HSBC Banking Group RHB Banking Group Malaysian Industrial Development Finance AMMB Holding Barclays Bank Standard Chartered Bank Bukhary Capital Citigroup Cagamas Kuwait Finance House EON Capital Indonesia (Government) OSK Holdings RBS Nomura Afn Holdings Samba Financial Group

LEAGUE TABLES
(3 months) FEB 2011 - MAY 2011
Issues 26 21 9 11 4 2 4 15 38 6 3 8 1 1 1 1 1 1 1 1 1 Market Share % 56.1 14.6 10.3 3.7 3.0 1.9 1.5 1.4 1.4 0.6 0.6 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 Manager Commitment (in US$) 6,239,750,350 1,627,437,589 1,147,119,295 411,692,914 336,203,810 208,308,245 166,566,315 158,749,660 151,740,378 63,289,212 61,449,189 49,271,646 41,641,579 41,641,579 41,641,579 41,641,579 41,641,579 41,641,579 41,641,579 41,641,579 41,641,579

(12 months)

MAY 2010 MAY 2011

Issues 118 96 113 28 24 189 58 2 7 6 4 14 2 52 6 19 2 1 13 1 Market Share % 60.6 13.8 6.8 4.5 2.3 1.7 1.4 1.2 1.1 0.9 0.8 0.7 0.4 0.4 0.4 0.3 0.3 0.3 0.3 0.3

SUKUK MANAGERS
Manager 1 2 3 4 5 6 7 8 9 10 11 12= 12= 12= 12= 12= 12= 12= 12= 12= 12= Malaysia (Government) CIMB HSBC Banking Group Malayan Banking RHB Banking Group Standard Chartered Bank Indonesia (Government) AMMB Holdings

Manager Commitment (in US$) 28,153,492,150 6,404,975,058 3,163,297,343 2,102,965,368 1,048,496,650 802,203,774 644,248,430 566,666,667 510,255,375 405,562,190 349,974,912 338,611,473 200,000,000 190,042,757 172,097,265 162,189,420 159,113,250 150,000,000 145,657,085 133,333,333

Malaysian Industrial Development Finance OSK Holdings OCBC Bank EON Capital Andalan Artha Advisindo Sekuritas Bank Permata Trimegah Securities Ciptadana Sekuritas Citigroup Danareksa Sekuritas Kresna Graha Sekurindo Sucorinvest Central Gani Mega Capital Indonesia

SUKUK ISSUERS
Issuer 1 2 3 4 5 6 7 8 9 10 11= 11= 13 14= 14= 16 17 18 19 20 BNM Sukuk Malaysia (Government) Pengurusan Air SPV

(12 months)

MAY 2010 MAY 2011

Issues 101 17 7 6 42 3 4 16 2 15 1 1 1 1 1 11 1 14 4 6
Market Share %

SUKUK ISSUERS
Issuer 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 BNM Sukuk Pengurusan Air SPV

(3 months)
Issuer Commitment (in US$) 6,239,750,350 1,221,670,100 1,194,342,475 983,928,000 555,696,307 530,454,000 500,000,000 360,773,600 330,557,000 175,037,860 134,975,600 83,486,500 59,196,780 50,091,900 46,549,460 46,328,540 42,744,160 39,711,140 36,402,830 33,743,900

FEB 2011 - MAY 2011 Issues 26 5 4 2 1 1 1 6 1 6 1 1 5 1 3 2 3 9 3 1 Market Share % 48.0 9.4 9.2 7.6 4.3 4.1 3.8 2.8 2.5 1.3 1.0 0.6 0.5 0.4 0.4 0.4 0.3 0.3 0.3 0.3

Issuer Commitment (in US$)

24,982,135,850 3,257,968,300 2,203,840,470 2,002,481,940 1,821,445,920 1,594,481,152 1,342,937,400 1,282,571,730 983,928,000 891,903,659 750,000,000 750,000,000 530,454,000 500,000,000 500,000,000 406,077,360 400,000,000 397,851,900 364,357,251 360,773,600

48.9 6.4 4.3 3.9 3.6 3.1 2.6 2.5 1.9 1.7 1.5 1.5 1.0 1.0 1.0 0.8 0.8 0.8 0.7 0.7

Perusahaan Penerbit SBSN Indonesia Govco Holdings Pakistan, Islamic Republic of (Government) Cantral Bank of Bahrain Emaar Sukuk Aman Sukuk Maybank Islamic BMA International Sukuk Malakoff Corporation CIMB Islamic KNM Capital Telekom Malaysia Bank Indonesia Perbadanan Kemajuan Negeri Selangor TSH Sukuk Ijarah Goodway Integrated Industries Hubline 1 Warisan

Perusahaan Penerbit SBSN Indonesia Senai-Desaru Expressway Pakistan, Islamic Republic of (Government) Celcom Transmission (M) Cagamas Govco Holdings Bank Indonesia ADIB Sukuk Qatar Islamic Bank Cantral Bank of Bahrain IDB Trust Services Emaar Sukuk BMA International Sukuk ESSO Malaysia RAK Capital Padiberas Nasional Aman Sukuk

Islamic Sukuk league tables reect Shariah compliant bonds showing evidence of ownership of assets or their earnings. These results include (but are not limited to) the following securities/assets: Sukuk Salam, Sukuk Mudarabah, Sukuk Ijarah, Sukuk Murabahah, Sukuk Istisna and Sukuk Musharakah.

For more information please contact: Aimee Webster Telephone: +1-646-223-6816

Email: aimee.webster@thomsonreuters.com

Page 39

4th May 2011

www.islamicnancenews.com
ALL DATA AS OF THE 25th APRIL 2011
LOAN MANDATED LEAD ARRANGERS

LEAGUE TABLES
(12 Months) (12 Months)
Pro Rata (US$) 1,099,879,984 APR 2010 MAR 2011 Full Credit (US$) 1,099,879,984 Market Deals Share % 1 40.0

(12 Months) (12 Months)

MAY 2010 MAY 2011 Market Share % 16.9 8.5 8.5

LOAN BOOKRUNNERS
Lender

Lender 1 2= 2= 4 5 Alinma Bank Credit Agricole CIB Samba HSBC National Commercial Bank Abu Dhabi Islamic Bank Arab Bank Saudi Hollandi Bank Citigroup

Pro Rata (US$) 1,350,573,846 675,997,446 675,997,446 644,583,333 631,193,862

Full Credit (US$) 2,792,101,042 4,064,828,226 4,064,828,226 4,237,000,000 3,975,221,058

Deals 3 3 3 4 3

Alinma Bank Abu Dhabi Islamic Bank WestLB

378,177,137

378,177,137

13.7

3 8.1 4 7.9 5 6 561,678,136 745,179,136 3 7.0 6 544,583,333 499,583,333 307,853,550 3,937,000,000 3,712,000,000 307,853,550 3 2 2 6.8 7= 8 9 6.2 7= 3.9 7= 10 11 WestLB Standard Chartered Al Hilal Bank Noor Islamic Bank Arab Banking Corporation Saudi Investment Bank Islamic Development Bank Riyad Bank Bank Al-Jazira Al Rajhi Banking & Investment Masraf Al Rayan Royal Bank of Scotland National Bank of Abu Dhabi BNP Paribas Gulf International Bank Abu Dhabi Commercial Bank Deutsche Bank Mubadala GE Capital Development Bank of Singapore 295,000,000 196,548,146 475,000,000 739,859,250 4 3 3.7 10= 2.5 10= 183,500,999 159,548,146 159,548,146 119,083,333 119,083,333 119,083,333 119,083,333 119,083,333 100,000,000 100,000,000 76,214,813 367,001,999 554,859,250 554,859,250 1,429,000,000 1,429,000,000 1,429,000,000 1,429,000,000 1,429,000,000 300,000,000 300,000,000 304,859,250 1 2 2 1 1 1 1 1 1 1 1 2.3 2.0 2.0 1.5 1.5 1.5 1.5 1.5 1.3 1.3 1.0 1 2 3 4 5 6 7 8 20= 22 9 10 11 12 13 37,000,000 37,000,000 37,000,000 37,000,000 185,000,000 185,000,000 185,000,000 185,000,000 1 1 1 1 0.5 14 0.5 15 25= 25= 0.5 0.5 16 17

325,000,000

475,000,000

11.8

Citigroup

307,853,550

307,853,550

11.2

Standard Chartered Deutsche Bank Arab Banking Corporation National Bank of Abu Dhabi Noor Islamic Bank HSBC BNP Paribas

168,714,813 92,500,000 76,214,813 76,214,813

489,859,250 185,000,000 304,859,250 304,859,250

2 1 1 1

6.1 3.4 2.8 2.8

76,214,813 75,000,000 75,000,000

304,859,250 225,000,000 225,000,000

1 1 1

2.8 2.7 2.7

12 13= 13= 15= 15= 15= 15= 15= 20=

ISLAMIC LOANS RAISED

Borrower Maraq Jubail 2 Arabian Centres Riyadh IPP Emirates Steel Industries Majid Al Futtaim Bank Asya Qatari Diar Real Estate Turkiye Finans Katilim Bankasi Albaraka Turk Katilim Bankasi Ras Al Khaiman Ceramics GMMOS Emirates Trading Agency Gulf Finance House Emirates National Factory for Plastic Bukhatir Adopen Plastik ve Insaat

(12 Months)
Country Saudi Arabia Saudi Arabia Saudi Arabia Saudi Arabia UAE UAE Turkey Qatar Turkey Turkey UAE UAE UAE Bahrain UAE UAE Turkey

MAY 2010 MAY 2011

Islamic Loan Amount (US$) 2,283,000,000 1,429,000,000 1,099,879,984 616,049,284 367,001,999 310,109,178 304,859,250 300,000,000 294,853,550 250,000,000 225,000,000 185,000,000 100,000,000 100,000,000 68,067,959 50,000,000 13,000,000

23= 23= 25= 25=

45,000,000 45,000,000

225,000,000 225,000,000

1 1

0.6 0.

Page 40

4th May 2011

www.islamicnancenews.com
ALL DATA AS OF THE 25th APRIL 2011 SUKUK BY COUNTRY
Country Malaysia Indonesia Eurobond Pakistan Bahrain US Singapore Saudi Arabia Cayman Islands UAE Jersey

LEAGUE TABLES
(12 Months)
Volume (US$) 5,427,929,268

(12 Months)
Volume Issued 42,754,446,217 3,147,236,496 3,000,000,000 1,594,481,152 960,133,140 125,000,000 74,243,950 -

APR 2010 MAR 2011

Volume Outstanding 20,891,874,062 2,711,113,324 3,000,000,000 1,594,481,152 785,054,860 125,000,000 74,243,950 -

LOANS BY COUNTRY
Country Saudi Arabia

APR 2010 MAR 2011

Market Share (%) 67.9

UAE

1,305,179,136

16.3

Turkey

862,712,800

10.8

Qatar

300,000,000

3.8

Bahrain

100,000,000

1.3

SUKUK BY INDUSTRY
Industry Other nancial Sovereign Agency Banks Manufacturing Telephone Transportation Energy company Consumer goods Electric power Service company Gas distribution

(12 Months)
Volume Issued 36,342,185,708 6,230,022,903 2,373,255,740 1,670,467,950 1,668,543,930 1,393,029,300 556,868,460 470,503,495 364,357,251 351,966,600 234,339,618 -

APR 2010 MAR 2011

Volume Outstanding 15,822,661,076 5,793,899,731 2,309,489,690 1,670,467,950 968,661,067 1,393,029,300 447,614,205 32,771,280 364,357,251 190,285,100 188,530,698 -

LOANS BY INDUSTRY
Industry Construction Oil and gas Retail & supermarkets Financial services Utilities Manufacturing Services Real estate Chemicals & plastics

(12 Months)
Volume (US$) 2,608,000,000 1,614,000,000 1,099,879,984 999,712,800 616,049,284 367,001,999 310,109,178 300,000,000 81,067,959

APR 2010 MAR 2011

Market Share(%) 32.6 20.2 13.8 12.5 7.7 4.6 3.9 3.8 1.0

GLOBAL ISLAMIC VOLUME SUKUK/LOANS (US$ IN MILLIONS)

18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1Q - '07 2Q - '07 3Q - '07 4Q - '07 1Q - '08 2Q - '08 3Q - '08 4Q - '08 1Q - '09 2Q - '09 3Q - '09 4Q - '09 1Q - '10 2Q - '10 3Q - '10 4Q - '10 1Q - '11

Sukuk Loan

2Q - '11 TD

For more information please contact:

Aimee Webster Telephone: +1-646-223-6816 Email: aimee.webster@thomsonreuters.com

Page 41

4th May 2011

SHARIAH INDEXES
www.islamicnancenews.com

FTSE Shariah Global Equity Index Series

The FTSE Shariah All-World Index in April nished the month in positive territory, up 4%, with Developed markets outperforming Emerging Markets by 2.8% over the period. The best performing region in April was Developed Europe, with a performance of 7.5%, followed by North America with a performance of 3.4%. Belgium/Lux was the best performing country with a performance of 17.3%, with Poland being the second best performing country nishing the month on 12.7%. Both Israel and Peru were the worst performers in April with a performance of -4.4% and -3.5%, respectively. Index FTSE SHARIAH GLOBAL EQUITY INDEX SERIES FTSE Shariah All World Index FTSE Shariah ASEAN Index FTSE Shariah Asia Pacic ex Japan Index FTSE Shariah Asia Pacic Index FTSE Shariah Dev Asia Pacic ex Japan Index FTSE Shariah Developed Asia Pacic Index FTSE Shariah Developed Europe Index FTSE Shariah Developed ex Japan Index FTSE Shariah Developed ex US Index FTSE Shariah Developed Index FTSE Shariah Emerging Index FTSE Shariah Europe Index FTSE Shariah Eurozone Index FTSE Shariah Japan 100 Index FTSE Shariah Latin America Index FTSE Shariah Middle East & Africa Index FTSE Shariah Multinational 150 Index FTSE Shariah North America Index FTSE Shariah USA Index FTSE BURSA MALAYSIA INDEX SERIES FTSE Bursa Malaysia EMAS Shariah Index FTSE Bursa Malaysia Hijrah Shariah Index FTSE DIFX SHARIAH INDEX SERIES FTSE DIFX Qatar 10 Shariah Index FTSE DIFX Kuwait 15 Shariah Index FTSE SGX SHARIAH INDEX SERIES FTSE SGX Asia Shariah 100 Index FTSE SET INDEX SERIES FTSE SET Shariah Index FTSE TWSE TAIWAN INDEX SERIES FTSE TWSE Taiwan Shariah Index 61 6.60 -1.46 15.29 2.83 23.93 18.37 53.35 70 6.62 20.27 15.48 11.03 55.95 40.37 126.61 100 2.85 1.53 12.77 2.55 15.34 -0.14 13.59 10 15 6.69 7.72 11.06 -1.02 26.19 0.70 11.69 -2.54 27.69 12.63 2.65 -44.55 280 30 1.29 0.40 4.57 4.60 10.61 9.40 7.05 6.67 25.48 22.37 53.81 40.55 135.33 152.90 1370 66 425 667 171 413 224 734 685 976 394 263 118 100 58 48 154 334 291 4.04 3.72 3.77 2.81 4.60 2.84 7.47 4.70 5.13 4.39 1.60 7.11 8.35 0.33 -1.68 2.29 5.14 3.35 3.64 7.69 8.20 6.98 3.78 9.60 3.76 11.28 8.84 7.86 7.89 6.25 11.47 12.83 -1.84 2.00 11.83 8.27 7.64 7.92 16.70 8.92 13.71 12.15 18.98 13.94 18.67 18.29 16.81 17.48 11.37 19.60 19.74 8.62 5.78 11.14 18.05 18.17 18.16 9.26 5.68 5.92 3.45 8.86 3.85 14.46 11.07 9.67 9.96 4.46 14.84 17.68 -0.87 0.31 1.01 10.57 9.86 10.26 20.98 23.16 23.51 17.08 27.28 16.44 27.13 22.75 22.57 21.26 19.12 27.40 27.94 7.38 9.16 20.00 21.71 20.24 19.99 6.74 12.81 12.85 4.99 16.69 3.73 2.26 8.98 3.21 7.58 1.51 0.97 -5.63 -9.76 -4.76 8.64 8.50 12.10 12.58 33.62 90.79 76.69 28.58 102.45 18.34 35.00 37.60 31.62 31.56 49.81 33.30 30.04 -10.45 73.76 43.89 38.43 33.54 31.56 No. of constituents Performance based on percentage (%) 1 Month 3 Months 6 Months Year-to-Date 1 Year 3 Years 5 Years

Source: FTSE Group, total return data in USD as at 29 April 2011

For further information visit www.ftse.com, email info@ftse.com or call your local FTSE ofce:
Beijing +8610 6515 9265 Boston +1 888 747 FTSE(3873) Frankfurt +49 (0) 69 1568 5144 Hong Kong +852 2230 5800 London +44 (0) 20 7866 1810 Madrid +3491 411 3787 New York +1 800 747 FTSE(3873) Paris +33 (0) 1 5376 8288 San Francisco +1 888 747 FTSE(3783) Sydney +61 9293 2866 Tokyo +81 3 3581 2811

2009 FTSE International Limited (FTSE) . All rights reserved. FTSE, FT-SE and Footsie are trade marks jointly owned by the London Stock Exchange Plc and The Financial Times Limited and are used by FTSE under licence. All-World, All-Share and All-Small and FTSE4Good are trade marks of FTSE. Rights in each index vest in FTSE, the London Stock Exchange Plc, the Financial Times Limited and/or FTSEs relevant partners. Neither FTSE, the London Stock Exchange Plc, the Financial Times Limited nor FTSEs relevant partners makes any warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the indexes and/or the gure at which the said index stands at any particular time on any particular day or otherwise. Each Index is compiled and calculated by FTSE and/or its relevant partners. However, neither FTSE nor the London Stock Exchange Plc nor the Financial Times Limited nor FTSEs relevant partners shall be liable (whether in negligence or otherwise) to any person for any error in any index and neither FTSE nor the London Stock Exchange Plc nor the Financial Times Limited nor FTSEs relevant partners shall be under any obligation to advise any person of any error therein.

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Company Index
Company
AAOIFI

Page

Company

Page

Company

Page

21, 26, 27 Abu Dhabi Commercial Bank 6 Abu Dhabi Islamic Bank 6, 10 Accredited Maritime Manager 20 Afghan United Bank 21 Al Baraka Banking Group 30 Al Rajhi Bank 30 Al Rajhi Cement Sukuk Company 30 Al Rajhi Cement-Jordan 30 Al Tamimi & Co (Jordan) 30 Al Tamimi & Co (Kuwait) 30 Alfalah Bank 21 Al-Multazem for Insurance and Investment 13 Al-Takaful Al Fhilastinia for Insurance 13 AmanahRaya Investment Management 5 ANB Invest 6 An-najah National University 14 ANZ Bank 12 Arab National Bank 6 Australia Trade Commission 12 Australian Private Equity and Venture Capital Association 12 Azizi Bank 22 Bahrain Bourse 6 Bahrain Investment Wharf 5 Bank Mille Afghan 21 Bank Negara Malaysia 4 Bank of Sudan 3 Bermuda Monetary Authority 3 BNP Paribas 6 Board of Taxation 11 Boubyan Bank 5 Burooj Properties 10 Capital Investment & Brokerage 30 Central Bank of Bahrain 6 Central Bank of the UAE 6 CIMB 4 CIMB Islamic 4 Cluster for Logistics 19 Commercial Bank of Dubai 6 Commission for Maritime Affairs 19 Crescent Investments Australasia 12

Da Afghanistan Bank 21 Danajamin Nasional 3, 8 Dawama 8 Dawood Islamic Bank 8 Deloitte 4 Deutsche Bank 6 Dubai Islamic Bank 5, 6 East Cameron Gas 23 Emirates Islamic Bank 5, 10 Emirates NBD 10 Emirates NBD Asset Management 5 Ezdan Real Estate Company 7 First Bahrain Real Estate Development Company 5 Fitch 8 Freehills 29 Gatehouse Bank 5 Gaza Islamic University 13 Gazprombank 5 Gema Padu 3 Ghanzanfar Bank 21 Greenhill & Freehills 29 HSBC 6, 7 HSBC Amanah 5 IFS 5 Industrial and Commercial Bank of China 9 Intrinsic Investment Management 11, 12 Islamic Development Bank 6 Islamic Financial Services Board 26, 27 Ithmaar Bank 5 Ithmar Real Estate Development Company 10 JCR-VIS Credit Rating Company 8 Kabul Bank 21, 22 Kuwait Finance House 5, 11 Kuwait Finance House-Bahrain 5 Luxembourg Supervisory Authority of the Financial Sector 19 Luxembourg Tax Authorities 19 Macquarie Bank 12 Maiwand Bank 21 MARC 8 Maritime Cluster 19 Mawarid Finance 5 Maybank Islamic 8

MCCA 11 Nakheel 6 NASDAQ Dubai 6 National Bank 12 National Bank of Kazakhstan 4 Padiberas Nasional 8 Palestinian Auditors and Accountants Association 13 Pew Research Center 19 Public Mutual 4 RAM 8 Ranhill Power 8 Rolls-Royce 5 S&P 25 Sabana REIT 4 Saturna Capital 10 Sberbank 4 Sharjah Islamic Bank 6, 7, 8 Shell Malaysia 23 Standard Bank Group 9 Standard Chartered Bank 6, 7 State Bank of Pakistan 4, 26 State Grid Corporation of China 9 Sudan Financial Services Company 3 Takaful Ikhlas 8 The Bank of Khyber 28 The Islamic Bank of Asia 8 The Islamic Corporation for Development of the Private Sector 8 Tokio Marine 15 Tokio Marine Middle East 19 Unicorn Investment Bank 8 United National Bank 5 Vinod Kothari Consultants 25 VTB Bank 5 Walker SPV 30 Westpac 12 Westports Malaysia 8 Withers Worldwide 8

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