emerging islamic housing finance markets copy
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UIB Overview
The only full service Islamic investment bank in Gulf CooperationCouncil (GCC) Bahrain, KSA, Kuwait, Oman, UAE & Qatar
Regulated by the central bank in Bahrain - Bahrain Monetary Agency
(BMA)
Paid Up Capital: USD120 million
UIB recognizes the needs of under-served markets with pent-updemand for Islamic products
Increasing global awareness of Islamic financing
A solid business model with competitive products and services whichattract investors even from conventional markets
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F ive Business Lines
Unicorn offers diversified products across an integrated range of financial products and services
Corporate
Finance andCapitalMarkets
PrivateEquity
Mergers and
Acquisitions
Takaful(Insurance)
Asset
Management
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Offices
Unicorns Global Reach
USA (Chicago)
GCC- Bahrain (Corporate), Dubai and Kuwait (Planned: KSA)
Asia-Pacific Malaysia (Kuala Lumpur)
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W hy Islamic F inance?
j Approximately 20% of the worlds population is Muslim
Unicorn aims to focus itsoperations across a majority of these countries
78 million US, UK, Germany, France & Turkey
96 million GCC, Egypt & Jordan
215 million Malaysia, Singapore & Indonesia
414 million Bangladesh, Pakistan & India
6 2 million Algeria & Morocco
MuslimPopulation
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Global Demand for Islamic Financial Products growing @ 17%annually
Oil revenues to produce current account surplus of $ 4 00 Billion in2006 in ME & GCC
Demand likely to be fueled to levels not seen before due toincreasing oil revenues
ME & GCC economies to grow at 5.5% in 2006
More than 300 Islamic Financial Institutions operating globally
Islamic F inancial Markets
General Observations
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Key Objective
Become a major player in developing the Islamic capitalmarkets through the growth of primary housing finance
markets and filling the gap for fixed-income investmentinstruments via Sukuk (bond) issuances
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Model
Own and operate housing finance companies with strategic partners in Islamicmarkets offering world class mortgage origination, underwriting and servicingtechnology
Islamic housing finance products and operations
Utilize warehouse lines and bond issuances (Sukuks) as main source of funding
Securitize and issue Sukuks (MBS) on a flow basis
Develop GCC and other emerging Islamic capital marketsCorrespondent program to enforce origination, underwriting and servicing
standards
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Islamic Housing F inance - GCC and Beyond(Turkey, Jordan, Lebanon)
Attractive demographics and population size
Key reforms at the sovereign level relating to housing finance andcapital markets
Stable political and legal/regulatory environments
Growing middle class and consumer markets
Decent sovereign ratings
Mortgage to GDP Ratios much below the more developed mortgage markets
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Uniquely Positioned to Build and Capture Islamic Primary/Secondary Housing F inance Markets
A strategic alliance with UIB provides the following advantages :
Renowned capabilities in developing Islamic structures/products
Strong expertise in housing finance relating to the primary, as well as the secondarymarket
Qualified staff with extensive Western experience
Clear vision & strategy to become the major player in the Islamic housing financemarkets
Willingness to form strategic alliances to gain from international and local expertise of respective partners
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Demystifying Islamic Primary Mortgage Market Principles
Making money from money is not Islamically acceptable Thus, Islam prohibits interestand usury (Riba )
Key Islamic mortgage principle the financier must share in the risks and rewards relating to an underlying asset rather than receiving a fixed and guaranteed interestincome
2 common Islamic mortgage structures:
Ijara (akin to a finance lease ) a financer purchases an asset and leases it to a client through aleasing contract for a specified rent and term. The owner of the asset (the financier) bears all risksand rewards associated with ownership and sells it to the client upon payment of the last installment
Mush araka (akin to a declining-balance mortgage ) an equity participation contract under which afinancier and its client contribute jointly to purchase a home (e.g. financier ( 80%) and client (20%).Ownership is distributed according to each party's share in the financing (co-ownership). The titledeed is held in the name of the financier and transferred to the clients name upon payment of the lastinstallment
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Demystifying Islamic Secondary Mortgage Market Principles
Islamic bond (certificate) is known as a Sukuk
Key mortgage-backed Sukuk principle : the certificate must be asset and not just debtbased
Must sell the underlying asset (i.e. real estate property) into the secondary market andnot just the receivables(i.e. transfer of risks and rewards in the real estate asset)
Tradable mortgage-backed Sukuks are backed by i jara and m ush araka structures
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Housing F inance and Bond Markets
Housing Finance and bonds (MBS) are the backbone of any economy and capitalmarkets, respectively
USD7 trillion of mortgages (residential/commercial) originated in the U.S.annually; whereas the U.S. corporate market stands at USD 4 trillion annually
Approximately 40 industries linked to housing finance (e.g. insurance, appraisaland construction)
Housing finance key to development of SME market
MBS a key tool for the development of the bond markets (e.g. In 1 970, first U.S.MBS issuance; by 1 99 5 USD20 trillion of MBS)
MBS allows for lower interest rates due to increased competition and long-termtenors
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Source of F unding - Debt Capital Markets
Trends in conventional Capital (Bond) Markets will berepeated in the Islamic (underdeveloped) financialmarkets.
Conventional
198 0s and 1 99 0s 2000 2006
Islamic
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Total MBS issuance
$54 .2 $5 7 . 1$ 60.4 $777.
$54 .
$ 1 3 62. 1
$ 1 83 7.
$4 88 .3 $5 13 .2
199 4 199 5 199 6 199 7 1998 1999 2000 200 1 2002
2002 MBS market sh areUS$ billions
Total MBS issuance $1, 838
Total originations $2,526
Total MBS outstanding $3 ,157
Annual MBS issuance
Source: Inside MBS and ABS, January 10, 200 3
Evolution of U.S. Mortgage Securitization - Market Sizing
73%of mortgageoriginations
fundedthrough MBS
U.S. Securitized Assets
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Case Study: Kingdom of Saudi Arabia (KSA)
Largest GCC market
Total GDP : USD 400 billion
Mortgage to GDP Ratio : 1.9%
Demand for 300,000 housing units annually
Housing finance potential : USD 45 billion annually(Est: 1/ 4 of the housing units are built and financed)
Total Population : 22 million
Growing middle class (Annual Income Level: USD1600 USD 3200)
Baby Boomers - 65% of the Population under age 35
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GCC Demographics
erce age o op a io
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