The UK and its European siblings are caught in the midst of a family row that could turn sour this week, if the island nation votes to leave the protection of the European Union and strike out alone. And as the number one foreign investment destination in Europe with over US$1 trillion in foreign direct investment (FDI) stock, net infl ows of US$72 billion and around US$185 billion in foreign property investment alone, the impact of the decision could aff ect a lot more than which passport line UK citizens stand in to go on holiday. LAUREN MCAUGHTRY takes a look at how the vote could impact the Islamic fi nancial climate in the UK — whichever way it swings.

With the polls currently neck and neck, the UK population is on the edge of its seat - there is no saying which way the referendum will go, or what its eff ects might be. The campaign has been characterized by bitt er in-fi ghting between camps along with highly emotive propaganda and a focus on immigration, sovereignty and border protection that does not bode well for the UK’s

global trade position should the Leave vote win the day on the 23rd June.

Yet as the third most popular FDI destination in the world (after the US and China) and with net FDI infl ows increasing by over 50% in 2015 (compared with a global decline of 11% and a 16% reduction for the wider EU), foreign investment is the lifeblood of the UK’s economy — so what will happen should isolationism triumph?

A relaxed approachFor Islamic institutions in the UK moving forward, one issue might be the question of passporting. At the moment, because Islamic institutions

are part of the EU, they can easily passport into other European

countries should they aspire to open branches or businesses elsewhere in the region. An exit from the EU could very well change that effi cient, swift process, meaning that passporting would

potentially have the most signifi cant impact for Islamic

banks.

In fact, most practitioners seem fairly equable about

the coming vote. “I don’t believe there’s a great deal that might directly impact the industry,” said Lawrence Oliver, a director and deputy CEO of Shariah compliant brokerage fi rm DDCAP. “There are discussions around the potential tax implications of a Brexit but it is uncertain as to what these might be. Until the result is known, there is no clear evidence either way.

“In terms of the impact of [a] Brexit on the fund management space, we will continue to work with off shore centers such as Dublin and Luxembourg that are within the EU, so in terms of asset management, custodial services and so on I don’t see that changing much either, whether we stay or go.”

And while the UK is gradually building up its Islamic banking industry, there is still only one fully-fl edged Shariah compliant retail bank in the country (Al Rayan) and domestic demand is negligible compared with the volume of inward Islamic investment into UK assets — with the majority of UK-based Islamic institutions focusing on real estate and asset management for international investors — making inward investment the big issue for a Brexit.

22nd June 2016 (Volume 13 Issue 25)

Powered by: IdealRatings®

(All Cap)

continued on page 3

COVER STORY

The World’s Leading Islamic Finance News Provider

The Big Brexit — what will happen to Islamic inance if the UK leaves the EU?

PARTNER WITH USPARTNER WITH USContact for more information: François-Xavier Chenhalls-Walker Email: francois.xavier@REDmoneygroup.com

Opening doors to new opportunities

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950

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1050

1100

TMSSFTW

986.29

0.01%986.03

GCC taking the conventional path instead of Shariah — why?...7

Pakistan emerges from the shadows ...8

An addition, not a replacement: The new ‘bolt on’ role of Islamic fi nance...9

ECAs looking to Islamic fi nance: A boon for Islamic cross-border transactions?...16

2© 22nd June 2016

IFN RAPIDS

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

DEALSCentral Bank of Bahrain’s Sukuk Ijarah oversubscribed by 131%

Indonesia raises IDR5.08 trillion (US$380.49 million) from sovereign Sukuk sale

Bank Albilad receives regulatory approval to issue subordinated Sukuk of up to SAR2 billion (US$533.1 million) via private placement

Saudi International Petrochemical Company completes early redemption of Sukuk Mudarabah

DanaInfra Nasional receives approvals for tax exemption on its retail Sukuk stocks

Sepangar Bay Power Corporation’s RM575 million (US$140.1 million) Sukuk Murabahah periodic payments due and payable next month

Arabian Aramco Total Services partially redeems Sukuk

SPRINT’s RM510 million (US$124.64 million) Islamic facility due and payable on the 29th June

Bank Sulselbar to raise IDR50 billion (US$3.75 million) through Sukuk

Engro Corporation to suspend trading of Sukuk program

Aeon Credit’s periodic distribution for RM400 million (US$97.52 million) Sukuk due and payable on the 30th June

Oman hires banks to arrange two dollar-denominated Sukuk issues

Antara Steel Mills’s RM300 million (US$73.42 million) Sukuk Mudarabah periodic distribution due and payable on the 28th June

IDB establishes RM400 million (US$97.46 million) ringgit Sukuk Wakalah program

Indonesian public-listed food company sets up IDR1.5 trillion (US$112.05 million) Sukuk program

NEWSSudanese parliament ratifi es KWD60 million (US$198.83 million) fi nancing from Kuwait amid debate on its Shariah compliance status

Algeria preparing to launch Islamic fi nancial services as part of wider banking reforms

Nigerian Stock Exchange to review indices; Islamic index expected to admit two new entries

Bank Indonesia cuts interest rate by 25bps to 6.5%

Regulator revokes Malaysia’s fi rst Shariah compliant airline’s license

Amana Bank launches Flexi Term Investment Account

Bank Negara Malaysia to adopt new methodology in US dollar/ringgit spot fi xing eff ective the 18th July

ASSET MANAGEMENTPakistan Stock Exchange approves listing of Al-Ameen Islamic Dedicated Equity Fund

Employees Provident Fund to open registration for Shariah retirement savings option in August 2016

Market maker Bahrain Liquidity Fund to invest in Shariah compliant equities, says SICO CEO

TAKAFULArabian Shield Cooperative Insurance Company mandates Shariyah Review Bureau to manage its Shariah advisory aff airs

RATINGSRAM reaffi rms HSBC Amanah Malaysia’s ‘AAA/Stable/P1’ ratings

Fitch affi rms ratings on fi ve Omani banks with negative outlooks

RAM reaffi rms ‘AA2/Stable’ rating on Tanjung Bin Power’s Sukuk Ijarah

Moody’s upgrades EIB Sukuk Company’s debt facilities; outlook revised to stable

MARC affi rms rating on Senai-Desaru Expressway’s Sukuk program

Emirates Retakaful secures ‘B++’ rating with a positive outlook

MOVESHumphrey Percy joins Kuwaiti European Holding Group as group CEO

Bank ABC appoints senior bankers to bolster growth plans; eyes international branch expansion

BankIslami Pakistan names Siraj Ahmed Dadabhoy as new director following the departure of Shabir Ahmed Randeree

Reserve Bank of India governor to step down in September

Former general counsel of Central Bank of Bahrain to launch dedicated Islamic fi nance legal consultancy

Al Madina Investment’s head of Islamic fi nance leaving role

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

IFN Reports:

• GCC taking the conventional path instead of

Shariah — why? • Pakistan emerges from the

shadows • An addition, not a replacement: The new

‘bolt on’ role of Islamic fi nance • ECAs looking to

Islamic fi nance: A boon for Islamic cross-border

transactions? • Foreign investors withdraw from

Malaysian debt capital market as uncertainties

from Brexit and US presidential elections loom •

Fund Focus: Saudi Arabia’s private education the

next growth area for Alkhabeer • Tough times for

Pakistan’s Modaraba sector • Pressure for growth

prompts merger talks between National Bank of Abu

Dhabi and First Gulf Bank • Saudi fi rms building

on Shariah robustness to capture investments •

Sovereign Sukuk: Lackluster week, but promising

outlook • ECAs looking to Islamic fi nance: A boon

for Islamic cross-border transactions? .............. 7

IFN Analysis:

Iraq: Opportunity in volatility ........................... 16

Education: A matt er of quality ..............................17

Case Study: Ezdan’s US$500 million Sukuk:

First by a Qatari corporate in 2016 ............... 18

Column:

The blunt end ............................................. 19

Country Correspondent:

India .......................................................... 20

Sector Correspondent:

Law & Regulations .................................... 21

Special Report:

How far Islamic fi nance and banking has progressed

in Turkey..................................................... 22

Country Feature:

When will Thailand jump onto the Islamic fi nance

bandwagon? ................................................ 23

Sector Feature:

A global perspective on Islamic economics and

fi nance education: Status and challenges ...........24

Islamic Finance news ................................... 25

Deal Tracker ................................................. 32

REDmoney Shariah Indexes ...................... 33

Eurekahedge Funds Tables ........................ 35

Dealogic League Tables .............................. 37

REDmoney Events ...................................... 41

Subscription Contact................................... 41

Volume 13 Issue 25

3© 22nd June 2016

COVER STORY

All about propertyThe UK has benefi ted from billions of dollars in Islamic real estate investment, both residential and commercial, over the last decade. Over 100,000 UK property titles are now registered to overseas companies, with more than 36,000 properties in London owned by off shore fi rms. Investors from the Middle East and Southeast Asia own huge chunks of the UK skyline, and in the last year HSBC Tower, the New Scotland Yard Site and the Savoy Hotel have all been swallowed by Gulf acquisition.

Of the US$4.5 billion allocated by GCC sovereign wealth funds to global real estate in the fourth quarter of 2014, over 80% was spent in Europe and over US$3 billion (67%) in London alone, according to data from global real estate fi rm Jones Lang LaSalle (JLL).

Property consultant Knight Frank confi rms that between 2011 and 2013, non-UK nationals accounted for 69% of prime central new building purchases in London, while in 2015 around 63% of residential property purchases over GBP10 million (US$14.35 million) were non-British. Last year, the number of Middle Eastern buyers rose from 11% to 16%, while property prices in London have also soared 10-15% over the last 12 months. “The Islamic investor has always liked bricks and mortar,” pointed out Naomi Heaton, CEO of London Central Portfolio. “Many don’t come here because we are an important fi nancial center, nor to trade with the

UK — they come here because they like London, and that is unlikely to change.”

Safe havenSo what is so appealing about UK property — and will demand really remain immune from a Brexit impact?

“The Middle Eastern investor has not been unduly worried about the impact of Brexit on the property market,” confi rmed Heaton. “When I talk to Middle Eastern investors, Brexit is certainly not at the top of their agenda. The Americans are worried and the Chinese are worried because they see the UK as the gateway to Europe. That is not the same situation for Islamic investors.”

Islamic investors like London because it is a tangible and robust market with a strong rental market that off ers a safe haven from global economic turbulence. The UK also off ers a strong legal system and true title to property, which is a distinct appeal for many emerging market investors. “Education is also important, especially when it comes to tenant profi le. Almost a third of our tenants now are the children of high net worth families around the world, including a lot of Middle Eastern families,” noted Heaton. “Central London has strong pull factors which won’t change in the event of a Brexit vote.”

Wait and seeThese are fi ghting words — but are they backed up by fi gures? In fact, investment volumes in the UK property market

have slowed signifi cantly in the run-up to the referendum.

Commercial property transactions across the UK fell 31% in the fi rst quarter compared to the fi rst quarter of 2015, and 11% in London. The residential sector has also seen an impact — sales in

Mayfair and the West End are down 50% this year compared with 2014

according

to a central London property agent. A recent report from the Royal Institute of Chartered Surveyors claimed that 80% of its members believe that uncertainty has held back investment fl ows, which, combined with high property values in the UK, could put the market in play for a potential price correction.

“Year to date, in the UK we have only seen around GBP20 billion (US$29.2 billion) in property deals — compared to about GBP70 billion (US$102.3 billion) for all of last year,” said Chris Combs, the managing director of Falconvest, a new alternative asset management fi rm focusing on property and private equity. “We are clearly not moving at the same pace as we were last year, and one of the major factors for this is Brexit.”

Ayman Khaleq, the managing partner of Morgan Lewis in Dubai, agreed that the Brexit decision could aff ect, and has already aff ected, which way deals fl ow. “There are some securitization deals involving UK assets we are working on, along with a number of structured transactions both Islamic and conventional, which are eff ectively put on hold due to uncertainty, he told IFN. “They could come back to life as early as next week if vote is to remain, but realistically we could see things drag on

The Big Brexit — what will happen to Islamic fi nance if the UK leaves the EU?Continued from page 1

continued on page 4

People are sharpening

their pencils and getting ready to launch transactions once the Brexit vote is resolved

If the UK leaves, there

could be some uncertainty in the market, sterling could drop in value so Islamic entrepreneurs could see an opportunity particularly in the real estate market

4© 22nd June 2016

COVER STORY

for another six months or so if the UK decides to leave.”

But that doesn’t mean that the market is not ready to spring into action once the dust sett les. Uncertainty can mean opportunity — and there is a lot of capital currently stacked up with nowhere to go. “We know from speaking to investors that people are sharpening their pencils and gett ing ready to launch transactions once the Brexit vote is resolved,” confi rmed Combs.

Brexit bounceEven if the vote is to leave, the subsequent impact could make assets cheaper for opportunistic overseas investors and result in a surge of activity — ironic for a campaign that has focused on the benefi ts of sovereignty and the exclusion of international infl uence. “If the UK leaves, there could be some uncertainty in the market, sterling could drop in value so Islamic entrepreneurs could see an opportunity particularly in the real estate market,” pointed out Ayman.

“A number of investors we are talking to already see it as a potential opportunity. There are investors who are hoping for a pricing dislocation, whether at the asset level or at a currency level, especially because many investors are dollar-based. People are ready to snap up deals should there be any short-term negative implication from a ‘leave’ vote,” Combs said.

Heaton agrees: “Sterling is very weak now, so for the Middle Eastern

investor with a dollar denominated currency, prices are looking a lot more reasonable. If we stay in, then some of this uncertainty will disappear and things will gradually get back to normal. If we vote out, the immediate impact is likely to be that sterling will weaken and interest rates cut to stabilize the economy. For any shrewd investor both those things would be a draw into the market.”

Even if a leave vote does cause the market to soften, that is just another opportunity. Smart investors will come in to snap up cheaper prices amid less competition. And given the high and consistent demand especially for central London property, there is always a line of investors waiting to pounce. “In prime central London, when buyers disappear and prices soften, sellers just don’t sell, so the impact is generally limited”, pointed out Heaton. “At some point the market

will harden again — probably more quickly if we vote to remain — but if we vote out we may fi nd prices hardening just as quickly as people grab the opportunity. Either way, I don’t think we will see any kind of collapse in the market.”

Deep impactBut not everyone is so positive, and deep concerns remain regarding the impact of a leave vote on the UK’s global position and trading agreements, which could result in years of protracted negotiations and a prolonged period of volatility which global traders will no doubt exploit.

Research from JLL suggests that over a third of international and domestic property fi rms anticipate job losses and offi ce closures in the event of a Brexit. “As a nation, we att ract investment and trade because of our culture of openness and transparency,” Guy Grainger, the

head of Europe, the Middle East and Asia for JLL, told the Telegraph last

week. “This fundamentally changes if we choose not to be a part of

the European Union.”

The Big Brexit — what will happen to Islamic fi nance if the UK leaves the EU?Continued from page 3

Brexit is a huge

consideration but it is not binary — there are other issues that have led to a cooling of inbound investment

continued on page 5

5© 22nd June 2016

COVER STORY

Death and taxesBut in fact, it is not just the referendum that is casting a shadow over the UK property market right now. “Brexit is a dark star that seems to absorb all energy right now, but there are other factors at play here,” commented Henry Thompson, ex-CEO of Gatehouse Bank and the managing director of Falconvest. “Brexit is a huge consideration but it is not binary — there are other issues that have led to a cooling of inbound investment.”

These include changes to the stamp duty regime, a focus on aggressive tax planning, increased scrutiny of investment structures, and new rules on buy-to-let properties. “There are a lot of issues that are more concerning for the Islamic investor than Brexit,” agreed Heaton. “The new tax regime in the UK is a much more gritt y problem than which way we vote. Some investors may not even be aware of the new taxes which are being introduced in 2017” warns Heaton.

In 2014, the UK chancellor announced major changes to capital gains tax for overseas investors buying residential property, in order to close a tax

loophole that treated foreign purchasers more favorably than UK landlords. From April 2015, foreign investors must pay tax of up to 28% on gains in value on residential property.

In addition, the threshold for the Annual Tax on Enveloped Dwellings, paid by overseas businesses on residential properties held for non-commercial purposes, has been lowered from GBP2 million (US$2.87 million) to GBP500,000 (US$717,635). And of course, the higher rates of stamp duty introduced in April 2016 have had a major impact on the buy-to-let market, with transactions up 33% in the fi rst quarter as buyers tried to beat the deadline.

EU advantage?Could this point to an advantage for other EU investment destinations at the expense of the UK — especially should voters decide to leave? In fact, most players think not. “If you look at the Middle Eastern and Southeast Asian institutions, are they dealing with the UK because we are part of the EU, or are they dealing with us because they want to work with UK entities?” asked Oliver. “I believe that the extensive daily dealings we see between overseas and UK institutions indicate that they want to work with the UK directly. I don’t believe that other EU countries would benefi t if the UK left the EU, unless there was a signifi cant downgrading of the UK’s credit rating as a result.”

Combs agrees, expecting a strong pick-up in the second half of the year. “The investors we are talking to are doing due diligence to get ready to deploy capital,” he told IFN. “On the other side, we

are hearing that a number of new sales plan to come

to the market later in the year as well. So we will see a pick up in deal volume

compared to what we’ve seen thus far, driven in part by more assets coming to market in addition to a renewal of interest from buyers after the referendum.”

But will it be enough? There are too many uncertainties to make it a normal trading year,” thinks

Heaton. “I doubt we will see any signifi cant growth — we’ve had too many surprises and people are holding back to take stock.”

A inal decisionBut whether gloomy or optimistic, up or down, with the UK vote looming the question remains — what impact will a Brexit have on Islamic investment in the UK? And the answer? Not a whole lot. Despite the multiple factors impacting inward investment, it looks as if for the time being, London’s role as the favorite location for Islamic investment remains safe.

“We are not particularly concerned about any direct impact on our business. I believe our clients will continue to want to trade with the UK, because it is the UK and off ers a market leading regulatory and legislative environment — not just because it is part of the EU,” emphasized Oliver. “The UK demonstrates a very strong appetite for promoting Islamic fi nance and will not need to change anything should a Brexit happen in order to ensure a continuation of that focus. Given the considerable amount of work that the UK authorities have undertaken over the past 15 years to ensure a level playing fi eld for its Islamic institutions and investors, I am certain that the UK’s prominent position in the Islamic fi nancial marketplace will be maintained regardless of the Brexit result.”

“If you go back historically through various administrations in the UK, the demand for investment into the UK has been consistently strong,” agreed Thompson. “There are cultural, historical and geographical reasons for that, and those reasons will still remain whichever way the vote goes.”

The Big Brexit — what will happen to Islamic fi nance if the UK leaves the EU?Continued from page 4

The UK demonstrates

a very strong appetite for promoting Islamic inance and will

not need to change anything should a Brexit happen in order to ensure a continuation of that focus

continued on page 6

6© 22nd June 2016

COVER STORY

“Even if people vote to leave nothing will happen quickly — if it happens at all,” pointed out Heaton. “Unlike the stocks which can be traded quickly, the impact on property in prime central London won’t be signifi cant and it certainly won’t be negative.”

And of course, while the issue is of paramount importance to the UK, for the rest of the world it is barely a blip. “Whether we are in or out of Europe is a rather parochial issue for most international investors,” she concluded.

IFN spoke to a UK government representative who informed us that due to the upcoming referendum, the administration is now in ‘purdah’ (a restriction on the activity of all civil servants before elections and referendums) and is therefore unable to issue any comment until after the results are counted.

IFN also reached out to Islamic banks including Al Rayan, Gatehouse and BLME, all of whom declined to comment on the upcoming referendum and its potential impact on the UK’s Islamic fi nance industry.

The Big Brexit — what will happen to Islamic fi nance if the UK leaves the EU?Continued from page 5

There are a lot of issues

that are more concerning for the Islamic investor than Brexit. The new tax regime in the UK is a much more gritty problem than which way we vote

IFN Pakistan Forum26th September 2016 Learning Resource Centre,The State Bank of Pakistan, Karachi

The Islamic banking industry in Pakistan has progressed considerably since its introduction to the South Asian

nation, with its share reaching almost 12% of the overall banking industry in terms of its asset size. The branch

network of Islamic banking is continuously expanding throughout the country at a rapid pace, and the strong

demand for Shariah compliant banking products is reflective of the State Bank of Pakistan(SBP)’s goal of having a

20% market share by 2020.

The SBP and the Securities and Exchange Commission of Pakistan have played key roles in driving the growth of

Islamic finance in the country by creating a facilitative environment. As a result, both the regulators’ initiatives over

the years have led to the stability and resilience of the Islamic finance industry, making it a worthy consideration to

the conventional finance and banking activities among investors and banking consumers.

With its population slowly but surely becoming aware of the competitive depth of Islamic finance, Pakistan remains

a vital market in the eyes of investors in the growing industry.

W: www.redmoneyevents.com | E: emerson.dinesh@redmoneygroup.com | T: 603 2162 7800 ext. 43 | Twitter : #IFNPakistan16

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7© 22nd June 2016

IFN REPORTS

GCC sovereigns are in aggressive borrowing mode, scrambling to the international (conventional) markets to fi ll up their depleting coff ers after the plunge in oil prices punched a hole into their reserves. But VINEETA TAN asks: why aren’t GCC governments taking the Muslim-friendly route to meet their budgetary needs despite positioning themselves as the bastions of Islamic fi nance?

Borrowing frenzyThe GCC bloc is desperate. For the fi rst time in years, these energy-dependent Arab nations are resorting to international debt to plug their widening defi cits, a move almost forced upon them as global oil prices continue to drag down their fi nances. Qatar printed US$9 billion-worth of euro borrowings (to overwhelming demand) last month — its fi rst in four years; Oman just this week raised US$2.5 billion in conventional bonds — its fi rst in 20 years; and Saudi may soon follow suit with a potential borrowing of up to US$15 billion in an unprecedented step for the oil giant.

Not forgett ing that the UAE tapped the eurobond market in April for the fi rst time since 2007, raising US$5 billion and Bahrain secured US$600 million in credit earlier in February while Kuwait is reportedly readying itself to enter the global bond market as well.

Yet, despite this borrowing frenzy, interestingly — aside from Oman — it appears that these sovereigns have not included global Sukuk into their funding strategy – not at least for 2016. Qatar was rumored to be mulling an international Sukuk sale in January — an off ering that would have added to its international sovereign Sukuk repertoire (it last issued Islamically in 2012); however, that did not materialize but instead the State fl ooded the markets with its behemoth US$9 billion eurobond, the largest bond off ering ever in the Middle East, which subsequently set the pricing tone for future issuers (such as Saudi Arabia who may need to sell at a premium to entice investors).

The fi rst reaction to this curious phenomenon would perhaps be to question the potential diff erence in pricing between conventional and Islamic debt: are governments selling conventional debts because it is cheaper to do so?

And with the oversaturation of Middle Eastern conventional debt potentially driving up the cost of borrowing, could this compel GCC sovereigns to turn to the Islamic markets instead? Experts think that in this respect, the cost of borrowing is secondary and that the preference of sovereigns to issue conventional bonds over Sukuk is more than a matt er of price tag.

“Going the Sukuk route would not have made a huge diff erence in pricing,” commented Khalid Howladar, the global head of Islamic fi nance at Moody’s Investors Service, speaking to IFN, and his sentiments were echoed by other market analysts approached by IFN. To Khalid, it is a matt er of liquidity.

Going for the right low“Sovereigns don’t want to pull liquidity out of the local banking market where most of the Islamic banks are based,” explained Khalid. Market practice has it that Sukuk are usually subscribed by regional banks, and if the Middle Eastern investor base is excluded, the remaining pool of Shariah-inclined investors is small. Therefore, in order to retain liquidity in the Middle East and to ensure funding targets are met, governments are looking beyond their borders into the international arena with a common befi tt ing instrument comfortable to a wider audience — conventional bonds.

Bashar Al Natoor, the global head of Islamic fi nance at Fitch Ratings, concurred, telling IFN that: “The decision to tap the bonds or the Sukuk market will depend on the targeted investors and also the sovereign’s Islamic fi nance strategy.” And in this case, where GCC governments are aggressively drawing down their foreign reserves, they want to capture investment fl ows from the US and Europe.

Taking the easier routeHowever, there is another dimension to this conventional-over-Islamic situation: the ease of issuing bonds. “The bond format is just easier and quicker,” Khalid pointed out. Dr Mohamed Damak, S&P’s director and global head of Islamic fi nance, could not agree more. “It all boils down to the process,” Dr Mohamed told IFN. “It is complex and time-consuming to issue Sukuk as compared to a conventional bond and the numbers year-to-date tell the story: growth of bond issuance in the GCC is +100% whereas for Sukuk, it is -27%.”

So it seems that the industry is still jostling with the ever-enduring issue of complex, tedious and lengthy Sukuk off ering processes which are putt ing issuers off the Islamic route and onto the conventional road. But to Dr Mohamed, there are signs the market is turning the corner. “The good news is that heavyweights of the industry are being more involved and conscious of the necessity to standardize, such as the IDB and AAOIFI who are working on a solution to bring standardization in Sukuk issuance.”

GCC taking the conventional path instead of Shariah — why?

Sovereigns don’t want to pull

liquidity out of the local banking market where most of the Islamic banks are based

8© 22nd June 2016

IFN REPORTS

The South Asian nation almost slipped off the radar of foreign investors after years of political turmoil and instability that gripped the country and stunted its growth, until its recent recovery in the fi nancial markets prompted Morgan Stanley Capital International (MSCI) to upgrade its status to ‘Emerging Markets’ from ‘Frontier Markets’. The latest development in Pakistan is already seeing massive reactions in the equities market and observers are expecting signifi cant foreign investment infl ows. DANIAL IDRAKI thinks that this certainly bodes well for Islamic funds in the country that have already been performing at an exceptional level.

Already considered as Asia’s best performing stock market this year, with the Pakistan Stock Exchange (PSX) benchmark KSE 100 Index gaining as much as 18.2% year-to-date (according to Wall Street Journal’s international stock indexes data), the overnight announcement of Pakistan’s upgrade and eventual entry into the popular MSCI Emerging Markets Index saw the index surge 2.78% or 1,042.12 points on the 15th June to close at its all-time high of 38,559.9. On the 17th June, it closed 217.04 points higher at 38,776.94. Pakistan was previously part of the popular index for 14 years, before being dropped by MSCI due to the temporary closure of the PSX as the investment climate worsened, with local and foreign investors locked in for several months.

Pakistan’s reclassifi cation to ‘Emerging Markets’ status speaks volume of the quality of improvement of its stock market since the dark days of 2008. Prior to MSCI’s announcement, the

country’s capital markets have already begun showing signs of progress in recent years, and this is exemplifi ed by the stellar performance of the country’s increasingly growing Islamic equity funds, which have given double-digit returns over the past one year.

The Al Meezan Mutual Fund, an open-ended Shariah compliant equity scheme, has given an average annualized return of 17% since its inception in 1995, while its 365-day absolute return stood at 13.8% as at the end of last week. The Al Ameen Shariah Stock Fund, for its part, has an absolute return of 14.64% over the past one year, while the Alfalah GHP Islamic Stock Fund gave investors a respectable return of 20.7%. Other Islamic funds, such as the NAFA Islamic Stock Fund by NBP Fullerton Asset Management, also managed a double-digit return over the same period at 14.06%, while PICIC Asset Management’s Islamic Stock Fund gave 12.37%.

While it is anyone’s guess if the Islamic funds will be able to continuously perform at the same steady levels of recent times, fund managers in the country can certainly expect busier trading days ahead, once foreign funds start fl owing into the stock market. A number of analysts have varying projections of possible infl ows to the PSX in the near future, with EFG Hermes Holding saying last month that around US$475 million could make its way by mid-2017, while JPMorgan in a recent note reckons that the stock

market could att ract approximately US$220 million.

During a webinar discussion on the MSCI Annual 2016 Market Classifi cation, in which the global index provider also decided to postpone the inclusion of China’s stocks in its EM Index, Sebastian Lieblich, the global head of index management research at MSCI, noted that the size of the Pakistani equity market has expanded over the last few years and market liquidity has improved.

“The reclassifi cation follows the great improvement in the accessibility of the Pakistani equity market, which has warranted our decision. Currently, the MSCI Pakistan Index has 16 constituents and a weight of 8.4% in the MSCI Frontier Markets Index, [while] the simulated MSCI Pakistan Index has nine constituents and a weight of 0.2% in ‘Emerging Markets’,” Lieblich confi rmed during the discussion.

Shortly after the reclassifi cation announcement, Mohammad Ishaq Dar, Pakistan’s federal minister for fi nance, hailed the inclusion “as historical and refl ective of the right direction of Pakistan’s economy”. With foreign investors relishing the fact that they are able to access and exit the market without any limitations, the onus is now on Islamic funds to ensure that they capitalize on the ‘historical’ feat and prove itself as a force to be reckoned with in the Shariah compliant investing universe.

Pakistan emerges from the shadows

Fund managers in the country

can certainly expect busier trading days ahead, once foreign funds start lowing into the stock market

9© 22nd June 2016

IFN REPORTS

Islamic fi nance is playing a progressively major role in both public and corporate fi nancing, as players realize its potential as a viable source of funding in the current low liquidity environment. But while in the past Islamic fi nance has been viewed (and promoted) as an alternative fi nancial system off ering a substitute for conventional practice, it is increasingly fi nding its footing as just another avenue of fi nance: enabling fi rms to expand their investor base, diversify their resources and access a larger pool of liquidity. The trend is certainly pushing the industry into the mainstream — but, asks LAUREN MCAUGHTRY, is it really progress?

Earlier this month, Dubai’s Union Properties became the latest corporate to successfully tap the Islamic market, raising a AED290 million (US$78.95 million) project fi nancing facility for a new development which included an Islamic tranche for an undisclosed amount. Last month, the Kuwait National Petroleum Company did the same, securing KWD1.2 billion (US$3.97 billion) in a mix of conventional and Islamic fi nancing to mark its debut on the Shariah market.

And the trend is not just restricted to the Middle East. In Pakistan earlier this year, the fi rst-ever transaction for the China-Pakistan Economic Corridor, a US$1.95 billion loan syndication signed off in January and fi nanced largely by Chinese banks, nevertheless included two Shariah compliant tranches worth around US$155 million in order to mop up excess liquidity from the country’s Islamic banks. In Malaysia, the Public Sector Home Financing Board this month announced its maiden RM25

billion (US$6.12 billion) Sukuk/bond program, comprising both Islamic and conventional tranches.

This may sound like nothing new — and indeed, it is not. But these recent deals are just the latest in a long line of companies that choose to augment their fi nancing options with Islamic fi nance, rather than replace them. While this brings undeniable benefi ts to the industry in terms of growth, publicity and range, it does beg the question as to how pure the Islamic principles behind these transactions can really be, if they are happy to sit side by side with a conventional format.

“There is plenty of business being done,” commented Lawrence Oliver, deputy CEO of UK brokerage DDCAP. “Liquidity is tight, but Islamic fi nance seems to be a market that people are looking at as an additional line of credit potential for institutions looking for fi nancing, rather than looking at it as a replacement or an alternative.”

The question is whether this actually matt ers. Should Islamic fi nance focus on growth and expansion to the exclusion of ethical principles? And in fact, does co-existence with conventional structures pose any kind of ethical dilemma at all? There is no Shariah standard to say that a company that utilizes conventional

fundraising cannot also tap the Islamic market, and nor should there be. Just because a corporate raises fi nancing in a Shariah compliant manner does not mean that the fi rm itself is Shariah compliant. But should it?

“One of the keys to the success of Islamic fi nance going forward is that while we sing the praises and promote the growth of Islamic fi nance, we must also tell customers not to view this as something to replace your current fi nancing lines,” suggested Oliver. “Instead, it should be viewed as a tool with which to enhance and grow your fi nancing by looking at both Islamic and conventional options side by side.”

This new trend is clearly having a positive impact on the development of the industry globally, as evidenced not only by the number of dual-tranche deals but by the increasing acceptance of Islamic structures — and the ever-growing number of column inches on the topic in mainstream media.

Perhaps the only way to grow is to adapt, and the only way to reach the big time is to compromise. Islamic fi nance may never replace the conventional industry, but it can act as both support and supplement — bringing value to the table through its own unique att ributes. Surely this can only be a good thing.

An addition, not a replacement: The new ‘bolt on’ role of Islamic inance

Perhaps the only way to

grow is to adapt, and the only way to reach the big time is to compromise

10© 22nd June 2016

IFN REPORTS

Foreign investors have been pulling out from the Malaysian bond and Sukuk market as global uncertainties and sluggish growth send jitt ers throughout the fi nancial landscape rocked by the muted expectation of a Fed rate hike, a new low normal for Brent crude prices, a potential Brexit and an unpredictable US presidential election. VINEETA TAN reports.

Following two consecutive months of net infl ows, the fl ow of foreign holdings of Malaysian debt papers reversed in May resulting in a RM3.4 billion (US$828.93 million) net outfl ow with foreign bond holdings totaling RM229.5 billion (US$55.95 billion), a 1.5% decline month-on-month, according to RAM Ratings. This exit is mainly driven by a fall in foreign-held Bank Negara Malaysia (BNM) securities and short-term sovereign securities.

“Heightened anticipation of a rate hike through most of May prompted foreign investors to rationalize their holdings of short-term securities, which in turn exerted further downward pressure on the ringgit, once again pushing the US dollar/ringgit exchange rate above 4.00 despite modest gain in oil prices,” explained the rating agency.

Offi cial data indicates that conventional issuance (Malaysian treasury bonds), which saw a 22.9% plunge in foreign investments, made up a majority of the outfl ow, while Malaysian Islamic

treasury bonds saw a smaller 1.9% downtrend. Foreign investment into Shariah compliant government investment issues (GII) increased 3.7% month-on-month, although this is a signifi cant drop from last month’s 25.6% monthly growth fi gures. Growth in overseas holdings of Islamic private debt securities (PDS) and quasi-government Shariah securities also moderated to 1.1% in May from 2.4% in April.

The overall general decline is also refl ected in the issuance of Islamic debt capital instruments, particularly in the government and BNM space. Year-to-date, Islamic GII gross issuance stood at RM20.5 billion (US$5 billion)in May 2016, lower than the RM28.7 billion (US$7 billion) recorded in the previous year, suggesting slightly tepid market activity; whereas the central bank has yet to make any Islamic securities issuance this year.

The picture is slightly brighter when it comes to corporate and quasi-government issuance. On a month-to-month and year-on-year basis, gross

Islamic issuance edged up: RM5 billion (US$1.22 billion) to RM5.6 billion (US$1.37 billion) on a monthly basis and RM22.4 billion (US$5.46 billion) to RM24.7 billion (US$6.02 billion) comparing 2015 and 2016 fi gures. It is also worth noting that the largest PDS off erings for May are Shariah compliant — a RM4.5 billion (US$1.1 billion) sale by DanaInfra Nasional, as part of its RM46 billion (US$11.21 billion) Sukuk program, and RM1.3 billion (US$316.94 million)-worth of short-term securities from Sunway Treasury Sukuk.

“We expect pockets of volatility — similar to what happened in May — to remain a dominant feature this year,” said RAM, which added: “It is, however, still too early to tell how the markets will react to a vote for the UK to leave the EU. Other potential drivers of volatility down the line include uncertainties over the outcome for the US presidential election and overall global economic prospects.”

Foreign investors withdraw from Malaysian debt capital market as uncertainties from Europe and the US

Table 1: Foreign investment trends in the Malaysian debt capital market(RM billion) April 2016 % change (month-on-month) May 2016 % change (month-on-month)Government securities 198.8 3.9 200.4 0.8Conventional

- MGS- MTB

178.4175.43

2.12.3-5.1

179.4177.12.3

0.50.9-22.9

Islamic- GII- MITB- SPK

20.4191.30

22.625.6-90

2119.71.30

3.43.7-1.90

BNM 19.2 -9.2 14.1 -26.4Conventional 19.2 -9.2 14.1 -26.4Islamic 0 0 0 0PDS & quasi sovereign 14.9 4.8 15 0.3Conventional 8.6 6.6 8.6 -0.2Islamic 6.3 2.4 6.4 1.1Total value of foreign holdings 232.9 2.7 229.5 -1.5Source: RAM Ratings using BNM data

It is still too early to tell how

the markets will react to a vote for the UK to leave the EU

11© 22nd June 2016

IFN REPORTS

While fi rms and industries across the GCC scramble to diversify away from relying on the oil and gas sector, asset management and investment fi rm Alkhabeer Capital has already put in motion plans to tap into the growth of one particular area — private education. It recently launched the Alkhabeer Education Private Equity Fund I, the fi rm’s fi rst education-focused product in its private equity investment portfolio. DANIAL IDRAKI writes that the fi rm is sett ing its eyes on the growing scale of private education in Saudi Arabia with its latest fund.

Providing investors with direct access to Saudi Arabia’s education market, the close-ended investment fund was off ered by way of private placement, and aims to generate returns by acquiring a controlling stake in Adwa’a Al Riyadh Education Company, a provider of primary, secondary and high school education in Riyadh. Adwa’a Al Riyadh is a privately owned provider of K-12 education in Riyadh that was established in 2001, and the company operates four campuses with a total capacity of 7,200 students located in the areas of Nahda, Khaleej, Ishpilia and Qadisiya.

“The education sector in Saudi Arabia is expected to see a sharp uptick. While an average of 43% of students in the GCC are enrolled in private schools, this number drops to 11% in Saudi Arabia, the lowest in the region. This number is unsustainable, considering Saudi Arabia’s population growth, the education sector’s underserved status and the government’s commitment to growing the sector,” according to an offi cial response from Alkhabeer to IFN.

“Therefore, it is highly likely that the number of students enrolled in private schools across the Kingdom will witness tremendous growth, which provides promising investment factors for the private education sector,” it added. Alkhabeer, however, declined to share the expected return from the newly established education fund, or its current size.

The fi rm, which invests in Shariah compliant public and private funds

and discretionary portfolios as well as specializing in Shariah compliant capital-raising and advisory services on mergers and acquisitions, noted that Saudi Arabia is the largest education market in the GCC as of 2015 and accounts for 72% of the total market, which is valued at US$44.1 billion.

“Furthermore, the Saudi government is aggressively investing in diversifying and growing its non-oil economy and has pledged US$51 billion in budget allocation for the education sector in 2016. This pledge, coupled with the fact that Saudi Arabia has the largest education market in the GCC, transforms private education to a highly robust market promising growing returns to our investors,” Alkhabeer affi rmed.

Education is, without a doubt, a driving factor for growth, competitiveness and stability for any country that wishes to progress further. Alkhabeer has strategically positioned itself in an environment that is undergoing a tectonic shift and moving away from traditionally relying on the oil economy.

According to a recent report by EY, Saudi Arabia’s investment in its human capital has doubled in the past fi ve years, and now accounts for around a quarter of total government spending, which is one of the highest levels in the world.

With the increasing focus on privatization by the government, education could very much prove to be the key for a new era in the Kingdom, both in terms of human capital development as well as investment returns. Alkhabeer, although merely vying for monetary returns with its latest education fund, stands as a witness to this exciting major shift in Saudi Arabia.

Fund Focus: Saudi Arabia’s private education the next growth area for Alkhabeer

IFN Country CorrespondentsAFGHANISTAN: Dr Alam Khan Hamdard president, Afghanistan Islamic Finance and Consulting Co AUSTRALIA : Dr George Mickhailsenior lecturer, School of Accounting, Economics and Finance, University of Wollongong, Australia BAHRAIN: Dr Hatim El-Tahirdirector of Islamic Finance Knowledge Center, Deloitt e & Touche BANGLADESH: Md Shamsuzzamandeputy managing director, Islami Bank BangladeshBELGIUM: Prof Laurent Marliere, CEO, ISFIN BERMUDA: Belaid A Jheengoordirector of asset management, PwC BRAZIL: Fábio Figueirapartner, Veirano AdvogadosBRUNEI: Dr Aimi Zulhazmi, Islamic fi nance consultant, Draznine Advisory CANADA: Jeff rey S Grahampartner, Borden Ladner Gervais CHINA: Abdullah Hanpartner, Al-Sadiq ConsultingEGYPT: Dr Walid Hegazymanaging partner, Hegazy & AssociatesFRANCE: Kader Merbouhco-head of the executive master of the Islamic fi nance, Paris-Dauphine UniversityHONG KONG: Amirali Bakirali Nasirchairman, The Law Society of Hong Kong working party on Islamic fi nanceINDIA: H Jayeshfounder partner, Juris CorpINDONESIA: Farouk A AlwyniCEO of Alwyni International Capital and the chairman of Centre for Islamic Studies in Finance Economics and Development IRAN: Majid PirehIslamic fi nance expert, Securities & Exchange Organization of Iran IRAQ: Khaled Saqqafpartner and head of Jordan & Iraq offi ces, Al Tamimi & Co ITALY: Stefano Padovani, partner and head of Banking & Finance, NCTM Studio Legale Associato JAPAN: Kaoru Haraguchifounding att orney, Haraguchi International Law Offi ceJORDAN: Nafi th Al Hersh Nazzal, Islamic banking specialist, certifi ed fi nancial and investment advisorKAZAKHSTAN: Timur Rustemov, deputy chairman, association for development of Islamic fi nanceKENYA: Mona K Doshi senior partner, Anjarwalla & Khanna AdvocatesKOREA: Yong-Jae Chang, partner, Lee & KoKUWAIT: Alex Saleh, partner, Al Tamimi & CoLEBANON: Johnny El Hachempartner – corporate, Bin Shabib & Associates LUXEMBOURG: Said Qaceme, senior manager of Advisory & Consulting, Deloitt e Tax & Consulting MALAYSIA: Ruslena Ramlihead, Islamic fi nance, RAM Rating ServicesMALDIVES: Aishath Muneezadeputy minister, Ministry of Islamic Aff airs, MaldivesMALTA: Reuben Butt igiegpresident, Malta Institute of ManagementMAURITIUS: Mohammad Akshar MaherallyDirector (taxation), International Financial Services MOROCCO: Ahmed Tahiri Joutimanaging consultant, Al Maali Consulting GroupNEW ZEALAND: Mohamed Nalartrustee and board member, Awqaf New ZealandNIGERIA: Auwalu Ado; Shariah auditor, Jaiz BankOMAN: Muhammad Abdullah DewayaIslamic fi nance scholarPAKISTAN: Muhammad Shoaib Ibrahimmanaging director & CEO, First Habib ModarabaPHILIPPINES: Rafael A Moralesmanaging partner, SyCip Salazar Hernandez & GatmaitanQATAR:Amjad Hussain partner, K&L GatesRUSSIA: Roustam Vakhitovmanaging partner, International Tax AssociatesSAUDI ARABIA: Nabil Issapartner, King & SpaldingSENEGAL: Abdoulaye MbowIslamic fi nance advisor, Africa Islamic Finance Corporation SOUTH AFRICA: Amman MuhammadCEO, First National Bank-Islamic FinanceSINGAPORE: Suhaimi Zainul-Abidin, advisor, 5PillarsSRI LANKA: Imruz Kamilhead of Islamic banking, Richard Pieris Arpico FinanceSWITZERLAND: Khadra Abdullahiassociate, Investment banking, Faisal Private BankSYRIA: Gabriel Oussi,general manager, Oussi Law FirmTANZANIA: Yassir Masoud head, Islamic banking, retail banking, National Bank of CommerceTURKEY: Ali Ceylanpartner, Baspinar & PartnersUAE: Rima Mradpartner, Bin Shabib & Associates UK: Fara Mohammaddirector of Islamic fi nance, Foot Anstey US: Joshua Brockwellinvestment communications director, Azzad Asset ManagementYEMEN: Moneer Saif; head of Islamic banking, CAC BankIFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short country reports. For more information about becoming an IFN Correspondent please contact sasikala.thiagaraja@redmoneygroup.com

12© 22nd June 2016

IFN REPORTS

Government-linked First National Bank Modaraba (FNBM) has been dealt with a two-notch rating downgrade as it continues to suff er from deteriorating asset quality which has been weighing heavily on the Islamic fi nancial institution’s fi nancial performance — a situation, VINEETA TAN writes, is all too familiar to the wider Modaraba community of Pakistan.

Slashing its ratings from ‘A/A-1’ to ‘BBB+/A-3’, JCR-VIS Credit Rating Company also assigned a negative outlook to FNBM’s ratings. “Over the last fi ve years, [the] equity base of FNBM has eroded signifi cantly on account of additional provisioning taken by FNBM due to increasing infection and [a] depleting fi nancing portfolio leading to higher losses,” explained the credit rating agency.

The soaring non-performing fi nancing and dwindling portfolio of the state-owned National Bank of Pakistan associate refl ects a broader worrying trend aff ecting the nation’s Modaraba sector. Almost half (13) of the 28 Modarabas in the country have failed to perform, the Securities and Exchange Commission of Pakistan (SECP) found in a recent review. “The issues being faced by the non-performing Modarabas are [the] presence of signifi cant non-earning and classifi ed

assets, lack of diversifi cation, liquidity issues, small capital base to compete and non-injection of fresh investment,” said the regulator who noted that these have posed major hurdles in the distribution of dividends to investors.

The regulator has pledged to undertake legal actions to protect the interest of certifi cate holders — including weeding out bad performers. In April, the SECP took over the administration of Unicap Modaraba after it was found that the previous administrator was not running the Modaraba in the best interest of investors. The regulator has also asked Modarabas to draw up new strategies and business plans to improve performance. In fact, FNBM, whose accumulated losses exceeded half of the

total amount subscribed by its certifi cate holders, have submitt ed a three-year business rejuvenation plan.

Modaraba (or Mudarabah as it is known within IFN pages) was the fi rst Shariah compliant business model introduced and regulated by the government in its eff orts to Islamize its economy and fi nancial sector in the 1980s. Despite having a head start over other Islamic business models, Modaraba companies account for a small portion of Shariah compliant non-banking assets in the country — 4.57% according to March 2016 fi gures by the SECP. The sector has been put through the mill in recent years following multiple fraud scandals which have shaken public confi dence.

Tough times for Pakistan’s Modaraba sector

Source: SECP

Mutual funds, 70.62%

Pension funds, 1.57%

AMCs/IAs, 4.25%

Investment banks, 1.44%Modarabas, 4.18%

Leasing companies, 5.56%

Discretionary/Non-discretionary portfolios, 12.34%

st

13© 22nd June 2016

IFN REPORTS

In what is a sign of tightening liquidity of banks in the UAE and declining growth in the wider Gulf region, two Abu Dhabi-based banks are considering a merger that would create the largest bank in the Middle East, and bolster their Islamic fi nance capabilities and reach. DANIAL IDRAKI writes.

On the backdrop of a sharp dip in energy prices and spending cutbacks by governments that have strained the Gulf economies, National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) confi rmed that the two entities have commenced discussions regarding the possibility of a merger. The banks each had formed a working group made up of senior executive management to “review the commercial potential along with any legal and structural aspects of a merger or combination” and provide their recommendations to the respective board of directors of each bank upon completion of a review. However, the banks noted that there is no certainty that the discussions will eventually lead to an amalgamation.

If combined, however, the new entity will have assets worth around AED627.4 billion (US$170.77 billion), based on fi gures from the fi rst quarter results of 2016 by the two banks. This would surpass the region’s current largest

bank by assets, Qatar National Bank, which had QAR550.25 billion (US$151.15 billion) at the end of the fi rst quarter. Both NBAD and FGB are closely tied to the Abu Dhabi government. NBAD is 69.9% owned by the Abu Dhabi Investment Council, while FGB is majority-controlled by members of the royal family of the Emirates.

A merger between the two would certainly increase its footprint in the Islamic fi nance universe. NBAD off ers Islamic banking products and services for private and business clients through its subsidiary, Abu Dhabi National Islamic Finance, and according to its 2015 annual report, its global retail and commercial business is prioritizing the enhancement of its Islamic banking off erings this year. FGB, meanwhile, off ers Islamic retail banking through its Siraj brand, which provides fi nancing in the form of Ijarah, Murabahah, commodity Murabahah as well as a Wakalah deposit, among others. In 2013, FGB acquired the full ownership of Aseel Islamic Finance, which caters to the needs of SMEs and mid-market businesses. According to the bank’s 2015 annual report, revenues from Aseel were up by 22% to AED197 million (US$53.62 million).

In the fi rst quarter this year, NBAD’s net interest income, including income from Islamic fi nancing, came in at

AED1.83 billion (US$498.1 million), while FGB’s fi gures were slightly lower at AED1.59 billion (US$432.77 million). A consolidation of the banks’ Islamic fi nancing activities would widen their target reach and position the new entity as a formidable player in the Islamic banking industry in the Gulf region.

A combination between NBAD and FGB would represent the UAE’s fi rst major banking merger since 2007, when National Bank of Dubai and Emirates Bank International combined to form Emirates NBD, becoming Dubai’s largest bank. The merger would also reduce the number of around 50 local and international banks currently operating in the Emirates, which serve a population of approximately 9 million, and could be the trigger point for more banking consolidation down the road, especially with declining asset quality and limited growth prospects.

NBAD is rated senior long/short term ‘AA-/A-1+’ by S&P, ‘Aa3/P1’ by Moody’s, ‘AA-/F1+’ by Fitch, and ‘AAA’ by RAM Ratings (RAM), while FGB carries an ‘A+’ long-term rating from Fitch, an ‘A2’ long-term deposit rating from Moody’s, an ‘A+’ long-term foreign currency rating from Capital Intelligence and a ‘AAA’ long-term fi nancial institution rating from RAM.

Pressure for growth prompts merger talks between National Bank of Abu Dhabi and First Gulf Bank

In spite of Saudi Arabia’s strong Shariah reputation and leading position in Islamic fi nance, VINEETA TAN observes that the Kingdom’s fi nancial community is still seeking ways to build the Shariah robustness of its off erings as a means to drive its commercial viability.

This month alone, several fi nancial fi rms have engaged external Shariah advisors to ensure their operations and product suite are in compliance with the teachings of Islam as they implement their expansion plans, underscoring the importance investors and the Saudi public at large are placing on Shariah compliance. One of these fi rms includes Gulf Investors Asset Management Company (GIAMCO). Although licensed as an Islamic investment company since 2012, the investment manager yesterday announced that it has engaged Bahrain’s Shariyah Review Bureau (SRB) to review

and certify its host of products and services as the fi rm looks to expand its portfolio from asset and wealth management to include business advisory and corporate fi nance.

“We have been able to draw on our regional expertise for formulating business strategies in providing corporate advisory transactions and capital restructuring with robust risk management solutions for our clients’ growing needs. Our ability to apply cross-market analysis to evaluate [the] relative value of our Islamic off erings is a tremendous asset to our clients,” commented acting CEO Mohammed Al Yafei, who added that hiring an external Shariah advisor will allow the fi rm to execute its vision to provide diversifi ed, high-quality Islamic investment solutions.GIAMCO joins Arabian Shield, a local insurance provider, in outsourcing the

management of its Shariah functions. Saudi Arabia practices a unique cooperative insurance model, instead of a pure Takaful mechanism, which raises meaningful diff erences including the fact that cooperative insurance companies are not required to invest in accordance with the principles of Shariah nor are they required to appoint a Shariah supervisory board. Arabian Shield’s decision to develop and streamline its Shariah operations by engaging a Shariah advisor (also SRB) is therefore signifi cant.

“To keep in touch with the changing fi nancial landscape while availing arising opportunities in the growing Islamic market, institutions need to spend resources to meet Shariah requirements,” noted Mansoor M Ahmed, the assistant general manager at SRB.

Saudi irms building on Shariah robustness to capture investments

14© 22nd June 2016

IFN REPORTS

The sovereign Sukuk space was relatively tepid this week, if not for a potential US$2.5 billion issuance by Oman in the near term, and the regular monthly issuances in Bahrain and Indonesia which are key markets. DANIAL IDRAKI brings you the latest updates.

OmanIn anticipation of the country’s next sovereign issuance, the government of Oman has mandated fi ve international banks to arrange the issuance of two dollar-denominated Sukuk — a US$1 billion fi ve-year facility and a US$1.5 billion 10-year issue — in a bid to plug the Sultanate’s budget defi cit, according to Reuters, quoting offi cials from the fi nance ministry. However, the pricing for the issuance or the names of the banks involved have yet to be confi rmed. This will be Oman’s fi rst issuance since the Capital Market Authority issued a new Sukuk regulation in April this year.

BahrainThe Central Bank of Bahrain (CBB)’s monthly issue of Sukuk Salam has been oversubscribed by 102%, according to

an announcement. Subscriptions worth BHD44 million (US$114.32 million) were received for the BHD43 million (US$111.72 million) issue, which has an expected return of 2.05%. The Sukuk facility carries a maturity of 91 days. The CBB’s short-term Sukuk Ijarah worth BHD26 million (US$68.48 million) was also oversubscribed by 131% a week earlier, with subscriptions worth BHD34 million (US$89.55 million) received. The issue, which carries a maturity of 182 days, has an expected return of 2.3%, compared with 2.25% for the previous issue on the 12th May. The latest Ijarah issue, which began on the 16th June and matures on the 15th December 2016, is the 130th of the CBB’s short-term Sukuk Ijarah series.

IndonesiaOver in Indonesia, the government managed to raise IDR5.08 trillion (US$380.49 million) from the sale of fi ve sovereign Sukuk securities (SPNS 01122016 and four others), after receiving total incoming bids of IDR6.9 trillion (US$516.81 million), according to an announcement by the Ministry of Finance.

Upcoming sovereign SukukCountry Amount Expected dateOman US$2.5 billion TBA Hong Kong TBA TBAEgypt TBA TBAIran IRR60 trillion 2016Nigeria TBA TBAJordan JOD175 million TBAPakistan PKR79.1 billion TBAEgypt TBA 2016Kazakhstan TBA 2016Kenya TBA 2016South Africa TBA 2016Bangladesh TBA TBAHong Kong US$500 million to US$1 billion TBANingxia Hui Autonomous Region US$1.5 billion TBASenegal TBA TBANiger XOF150 billion TBALuxembourg TBA TBATunisia US$500 million TBAUAE TBA TBAShandong Province CNY30 billion TBASindh Province US$200 million TBAKuwait KWD1 billion 2016Maldives TBA TBASri Lanka US$1 billion TBAGermany US$1 billion TBA

Sovereign Sukuk: Lackluster week, but promising outlook

IFN Sector CorrespondentsCROSS-BORDER FINANCINGFara Mohammad, director of Islamic fi nance, Foot Anstey

CAPITAL MARKETS : Suhail Ahmad, CEO, Hikmah Capital Corp

DERIVATIVESSuhaimi Zainul - Abidin, treasurer for Gulf-Asia Shariah Compliant Investment Association and advisor to 5PillarsGLOBAL ECONOMIC OUTLOOKTariq Alrifai, expert, Islamic investment products and market trends

LAW (EUROPE):Ayhan Baltaci, att orney at law, Bereket & Baltaci Law Firm

LAW (MIDDLE EAST) Bishr Shiblaq, head of Dubai offi ce, Arendt & Medernach LEASING : Youssef Aboul-Naja, Ijarah specialist, a supranational banking institution

MERGERS & ACQUISITIONS : Tushar Garg, associate, bulge bracket investment bank MICROFINANCE (ASIA):Dr Mahmood Ahmed, executive vice-president and director training, Islami Bank Training and Research AcademyMICROFINANCE (AFRICA): Mansour Ndiaye, director of microfi nance, Assistance and Consulting for Development

PRIVATE BANKING & WEALTH MANAGEMENT: Thomas Woods, product development, wealth management, The Islamic Bank of Asia

PRIVATE EQUITY & VENTURE CAPITAL : Arshad Ahmed, partner, Elixir Capital

PROJECT & INFRASTRUCTURE FINANCEAnthony Coleby, head of corporate commercial department, Said Al Shahry Law Offi ce (SASLO)

REAL ESTATEPhilip Churchill, founder partner, 90 North Real Estate Partners

REGULATORY ISSUES (ASIA)Intan Syah Ichsan , chief operating offi cer, Samuel Aset Manajemen

REGULATORY ISSUES (MIDDLE EAST): Mohammad Abdullah Malik Dewaya, head of Shariah compliance and audit, Maisarah Islamic Banking Services

RETAIL BANKING : Chowdhury Shahed Akbar, offi cer, Southeast Bank, Bangladesh.

RISK MANAGEMENT : Dr Ken Baldwin, CEO, Islamic Financial Analytics

SECURITIES & SECURITIZATION : Nidhi Bothra, executive vice-president, Vinod Kothari Consultants

STOCK BROKING & TRADING : Athif Shukri, research analyst, Adl Capital

STRUCTURED FINANCE:John Dewar, partner and head of Islamic fi nance, Milbank, Tweed, Hadley & McCloy

SUKUK Anthony Coleby, head of corporate commercial department, Said Al Shahry Law Offi ce (SASLO)

SYNDICATED FINANCEDamir Galiev, portfolio manager, AK BARS Bank

TAKAFUL & RE-TAKAFUL : Dr Sutan Emir Hidayat, assistant professor and academic advisor for Islamic fi nance, University College of Bahrain

TAKAFUL & RE-TAKAFUL (AFRICA):Uwaiz Jassat, acting head of Islamic banking, Absa Islamic Banking

TAKAFUL & RE-TAKAFUL (EUROPE): Ezzedine Ghlamallah, director, Solutions Insurance and Islamic Finance in France (SAAFI)

TRADE FINANCEAnthony Coleby, head of corporate commercial department, Said Al Shahry Law Offi ce (SASLO)

TREASURY PRODUCTS : Nafi th Al Hersh Nazzal, Islamic banking specialist, certifi ed fi nancial and investment advisor

IFN Correspondents are experts in their respective fi elds and are selected by Islamic Finance news to contribute designated short sector reports. For more information about becoming an IFN Correspondent, please contact sasikala.thiagaraja@redmoneygroup.com

15© 22nd June 2016

IFN REPORTS

Trade fi nance is an important tool for the import and export sectors. While Islamic banks may face some limitations in catering to the growing demand of trade fi nancing, there is a new kid on the block with expertise in this area that could help fi ll the gap. NURUL ABD HALIM looks at the role of export credit agencies (ECAs) in assisting Islamic fi nance.

Access to fi nance is crucial as it provides companies with much-needed liquidity to facilitate expansion, purchase assets and invest in cross-border projects. Usually secured by assets, fi nancing a trade makes a compelling case for Islamic fi nance. However, this area of fi nancing is not heavily tapped by Islamic banks due to their relatively small balance sheet size as well as various regulatory, taxation and standardization issues. Yet although trade fi nance is still dominated by conventional players who off er competitive rates and favorable tenors, there is an emerging trend that could tip the trade fi nance scales in the favor of the Shariah fi nance industry – ECAs supporting Islamic transactions.

The ABCs of ECAsAn ECA is a private or quasi-governmental institution that issues export fi nancing: usually in the forms of credits (fi nancial support), insurance and guarantees (pure cover) or both, depending on the mandate from its government. Some agencies may be state-sponsored while others can be private entities or a combination of both, but they share a common purpose: to intermediate between national governments and exporters.

Although their activities have generally remained outside the media spotlight, their substantial contributions to global trade cannot be ignored. According to industry data, new export and investment credit commitments made by members of the Berne Union (government-endorsed ECAs) and the Prague Club (of which the Islamic Corporation for the Insurance of Investment and Export Credit, or ICIEC, is a member) amounted to approximately US$2 trillion in 2015, with overall commitments representing over 10% of the world’s trade.

With the main objective of stimulating trade through the provision of credits and covers, ECAs must not be mistaken as rivals to banking institutions. It is worth noting that ECA involvement in fi nancing, especially in major infrastructure projects, either by underwriting or guaranteeing a portion of fi nance or via direct funding, is often seen by banking institutions as a prerequisite as this benefi ts lenders in terms of reduced risks of transactions as well as minimizing the cost of funding for borrowers.

Islamic opportunityWith an instrumental role and wide geographic presence (over 100 worldwide including in core Islamic fi nance markets), ECAs could provide a signifi cant boost to the Islamic fi nance industry. “A signifi cant number of the countries to which European and other exporters want to tap into now operate a fi nancial system which is wholly or substantially Shariah compliant, with borrowers based there, themselves increasingly wanting to raise their fi nance in a manner which is Shariah compliant,” said Neale Downes, a partner with Watson Farley & Williams, speaking to IFN. “ECAs wanting to participate in those fi nancings now need to bett er understand Islamic fi nance and the contracts and structures typically employed and also need to off er export fi nance solutions which are Shariah compliant.” Downes suggests that as most of ECA fi nancing relates to real goods and actual tangible assets, using Islamic fi nance methods such as Murabahah, Istisnah, Salam or Ijarah should be relatively straightforward.

In fact, increasing numbers of ECAs, especially those in non-traditional Islamic fi nance markets, are already moving into the Islamic space. In 2015, UK Export Finance became the world’s fi rst export credit agency to guarantee Sukuk, which were issued by Emirates

Airline to fi nance the acquisition of A380 aircraft – the largest-ever debt capital markets off ering in the aviation sector with an ECA guarantee. Back in 2008, Finland’s Finnvera became one of the fi rst western ECAs to cover export credit via a Shariah compliant structure of Murabahah to fi nance the supply of Wartasila Oy’s 50MW captive power plant to Al Qatrana in Jordan. In 2013, Finnvera together with Swedish Export Credit Guarantee Board guaranteed two Shariah compliant fi nancing facilities for Saudi Arabia’s Etihad Etisalat Company (Mobily) to fi nance deliveries of telecommunications equipment from Nokia Solutions. Ethiopian Airlines in 2014 closed a US$100 million 12-year Shariah compliant agreement with Bahrain-based Ibdar Bank and Export Development Canada for the leasing of four Bombardier Q400 NextGen planes. Most recently, the Italy’s SACE is studying the possible conversion of two of its basic conventional fi nance structures (buyer and supplier credits) to be Shariah compliant in response to demands from clients in the MENA region.

Interestingly, the IDB’s ICIEC is also looking at supporting the Islamic debt capital markets with a pioneering product: a Sukuk insurance instrument, for which ICIEC has secured preliminary approvals, CEO Oussama A Kaissi confi rmed with IFN.

However, some have argued that ECAs represent nothing more than export subsidies with doubtful macroeconomic benefi ts. “In light of some of the criticism of ECAs – notably that they can force buyers to put fi nancing cost ahead of quality and pricing and that they can distort markets through excess or false subsidies – ECAs will need to ensure that any fi nance they supply adheres not only to Shariah compliant form but also to Shariah compliant ideals,” cautioned Downes.

ECAs looking to Islamic inance: A boon for Islamic cross-border transactions?

16© 22nd June 2016

ANALYSISIFN COUNTRY ANALYSISIRAQ

Economic overview Iraq is in a tough economic predicament: on one hand, the country is reeling from the sharp deterioration of economic activities due to growing Islamic terrorism threats and on the other, the oil-dependent nation’s public fi nances are suff ering from the plunge in global oil prices. According to World Bank calculations, the drop in oil prices slashed oil export revenues by US$40 billion in 2015 and this, along with higher humanitarian and security-related spending, has driven the fi scal defi cit gap to 14.5% of GDP in 2015.

To plug Iraq’s widening defi cits, Prime Minister Haider Al Abadi has mobilized a series of measures to reform its fragile economy including revamping failing state-owned enterprises, removing bureaucratic inertia, reducing corruption and investing in needed infrastructure. These fi scal consolidation steps, according to the World Bank, managed to prevent the national budget defi cit from hitt ing 18.4% in 2015. The current account defi cit increased from 0.7%of GDP in 2014 to an estimated 6.6% in 2015, and poverty levels have escalated to 22.5%.

Yet despite the extremely challenging operating conditions, Iraq — like most frontier markets, if not more due to its natural resources — presents immense potential for investment gains; and the nation’s 97% Muslim majority and strong affi nity for Shariah makes the ‘B-/B’-rated (S&P) country a land ripe with Islamic fi nance opportunities.

Regulatory landscapeThe Republic may not have dedicated Islamic fi nance and banking laws yet; however, the Central Bank of Iraq (CBI) under Haider’s government is looking at providing the legal infrastructure needed to allow commercial banks and fi nancial institutions to tap this sector as it has identifi ed Islamic banking as a key pillar in its 2016-20 strategic plan to boost its economy by building a competition-driven free market economy. The focus of the strategy includes developing standards and reporting tools for Shariah compliant fi nancial transactions.

Presently, as with conventional banks, Islamic banks are regulated by the CBI and governed under the Iraq Banking Law of 2004, annexed to CPA Order No 56, which does not accommodate the uniqueness of Shariah banking. The government did, however, in 2011 issue new instructions addressing issues surrounding Islamic banks of the country, providing clear defi nitions for Islamic banks and outlining the scope of activities permissible to Islamic banks as well as a number of administrative kinks relating to the creation of Shariah boards and Shariah auditing departments.

Banking and inanceIraq’s economy is primarily cash-based with very litt le private lending, making the Republic’s banking system an almost fully-reserved one. There are over 50 banks in the country (including state banks, private banks and foreign outfi ts), out of which nine are fully-fl edged Islamic (an increase of one from 2015) and the number is projected to grow — two Shariah banks are under incorporation presently: state-backed Nahrin Islamic and Noor Islamic. At least three out of the 20 foreign banks present in Iraq off er Shariah products: Abu Dhabi Islamic Bank, Al Baraka and Bank Melli.

The continued expansion of the Islamic banking community despite the lack of an enabling regulatory framework is encouraging and the CBI’s fi ve-year Strategic Plan 2016-20 seems to promise greater sector development. Under the framework, the CBI not only intends to engineer an Islamic banking framework, but also develop an Islamic banking accounting system, develop standards

and reporting tools as well as roll out training programs to support its Islamic banking capital pool. A strong focus for the apex bank is also to support and encourage the long-term plans of Islamic banks to expand presence by launching new products.

Challenges and opportunitiesPolitical violence, corruption, bureaucratic bott lenecks and less-than-sophisticated IT infrastructure and incomprehensive regulations are some of the challenges the Islamic fi nance industry (as well as the wider investment segment) faces. However, some analysts are optimistic of the country’s potential.

The World Bank recognizes the country’s signifi cant economic prospects buoyed by its large natural resources, fertile agricultural land, a young and entrepreneurial population and a strategic and relatively stable location (so far) on major trade routes. In order to tap these opportunities, diversifi cation is key and this can be carried out through private sector development. In fact, the CBI’s fi ve-year strategy also aims to support the economy in diversifying away from oil and to tap into regional business opportunities by focusing on enhancing transparency, accountability and adopting international best practices as well as developing its human resources. The fact that the apex bank has made it a priority to establish a competitive and reliable Islamic banking industry as part of its goal to create a dynamic and progressive local fi nancial sector is a positive indication for the nation’s Shariah fi nance market.

Iraq: Opportunity in volatility Iraq may seem the unlikeliest place to invest in considering its tumultuous geopolitical conditions, yet some analysts are seeing pockets of lucrative investment opportunities in this Muslim nation. What about Islamic fi nance opportunities? VINEETA TAN takes a closer look.

17© 22nd June 2016

ANALYSISIFN SECTOR ANALYSISEDUCATION

IDBThe IDB has played a signifi cant role in developing knowledge of Islamic fi nance globally, as well as providing assistance in moving the general education agenda forward in member and non-member countries. In March, it approved US$176.5 million for the development of four higher education institutions in Indonesia, as well as US$475,000 in special assistance grants under the IDB Waqf Fund to support education and training projects for Muslim communities in the Democratic Republic of Congo, New Caledonia and the UK. Earlier in February, the bank also approved four grants totaling US$760,000 under the IDB Waqf Fund, which will contribute to education and health projects for Muslim communities in non-member countries in New Zealand, Burundi, Denmark and Ethiopia.

The bank said in September last year that it plans to invest US$98 million in the Bilingual Education Project in nine Nigerian states after receiving approval from its board and is awaiting the green light from the Nigerian authorities. In July last year, the bank committ ed around US$1.3 million as grants to support educational eff orts in Muslim communities in non-member countries, namely: Belgium, Burundi, the Turkish Republic of Northern Cyprus, Ethiopia, India and Rwanda.

IRTIThe Islamic Research and Training Institute, an affi liate of the IDB, recently signed MoUs with three Indonesian universities during the IDB’s 41st Annual Meeting in May to facilitate the joint conduct of research, training, seminars and conferences as well as other initiatives to promote scholarships in Islamic fi nance. The three universities are: Universitas Indonesia, Universitas Airlangga and Institut Pertanian Bogor.

PakistanIn Pakistan, the Institute of Business Administration (IBA) established the Center for Excellence in Islamic Finance at the IBA with the collaboration of

Meezan Bank in December last year. This center has been set up with the objective of bridging the gap between trained human resources and the industry’s growing requirements in the fi eld of Islamic fi nance, and aims to be a world-class center in producing resources for the Islamic fi nance industry.

MalaysiaOver in Malaysia, Bank Negara Malaysia recently began off ering scholarships to eligible Malaysians for postgraduate programs in Islamic fi nance at INCEIF. The scholarships provide fi nancial assistance toward the completion of the following degrees: Masters in Islamic Finance Practice (MIFP), Master of Science in Islamic Finance and PhD in Islamic Finance. Maybank has also launched a scholarship for the same MIFP program at INCEIF, highlighting the growing steps taken by fi nancial institutions in supporting the talent development agenda in Malaysia.

In August last year, the International Islamic College (IIC) signed an MoU with the Islamic Banking and Finance Institute Malaysia (IBFIM) for an academic collaboration, which aims to produce a pool of well-rounded Islamic fi nance graduates and provide an enhancement of teaching and learning opportunities

for students of the IIC, particularly in the area of Islamic fi nance, and to also open up new avenues for the IIC to venture into and establish education links for IBFIM.

UAEIn the UAE, the Institute of Corporate Governance, a subsidiary of the Dubai International Financial Center, entered into an agreement with the Department of Economic Development in July 2015 to collaborate in the creation of an Islamic Management and Governance Center in Dubai. The center aims to develop a broader Islamic economic and business ecosystem, in addition to providing training and education in Islamic governance.

QatarIn July 2015, the Qatar Finance and Business Academy (QFBA) and Dirassat Company for Research and Consulting in Islamic Banking signed an MoU on training and educational programs in Islamic fi nance. As per the agreement, the QFBA will run a full range of educational and training programs in Islamic fi nance systems, leadership skills and business management for a new generation of professionals and experts.

OutlookGlobally, there are approximately 420 institutions off ering courses in Islamic fi nance and over 113 universities off ering Islamic fi nance-related degrees, according to data by the Islamic Corporation for the Development of the Private Sector, with the UK, Malaysia and the UAE at the top of the list of providers. According to a recent report by the Malaysia International Islamic Financial Center, approximately one million Islamic fi nance professionals are needed by 2020. With the right knowledge input, providers of Islamic fi nance-related education will rightly be able to produce top-class talents and contribute to the growing requirements of the industry which will eventually become a formidable alternative to its conventional counterpart.

Education: A matter of qualityA key factor in driving the growth of Islamic fi nance is undoubtedly the education sector. The internationalization of the industry calls into att ention the need for highly skilled professionals, which can only be molded by the right type of education. DANIAL IDRAKI recaps on recent initiatives in the knowledge aspect of Shariah compliant fi nancing as a means to ensure the sustainable growth of the industry.

18© 15th June 2016

CASE STUDY

US$2 billion Trust certifi cate issuance program

US$500 million

18th May 2016

Issuer Ezdan Sukuk Company

Obligor Ezdan Holding Group

Size of issue US$500 million

Mode of issue Syndicated (bookrunning)public, Reg S issuance

Purpose General fi nancing purposes

Tenor Five years

Issuance price 99.45%

Profi t rate 4.38%

Payment Semi-annually

Currency US dollars

Maturity date 18th May 2021

Lead manager(s) and bookrunner(s)

Emirates NBD Capital, Abu Dhabi Islamic Bank, Barwa Bank, HSBC, Mashreq, QInvest

Governing law

English and Qatari

Legal advisor(s)/counsel(s)

Allen & Overy — to the obligorLinklaters — to the banks

Listing Irish Stock Exchange

Underlying assets

51% Wakalah assets, 49% commodity Murabahah

Rating Moody’s: ‘Ba1’ S&P: ‘BBB-‘

Shariah advisor(s)

HSBC

Structure Wakalah

Tradability Tradable

Investor breakdown

By region:Middle East: 68% Europe: 21% Asia: 11%

By type:Banks: 47%Fund managers: 27%Private banks: 19%Other institutional investors: 7%

Issued out of its US$2 billion trust certifi cate issuance program, Ezdan Holding Group tapped the Islamic capital market for the fi rst time with a successful US$500 million Wakalah Sukuk off ering. Lead manager Emirates NBD Capital (ENBD) explains to NURUL ABD HALIM how Ezdan’s inaugural Sukuk deal is signifi cant.

The RegS Sukuk facility was priced at 333bps over midswaps, att racting an orderbook of up to US$837 million, or around 1.67 times, from 71 investors. The Sukuk utilized the Wakalah and commodity Murabahah structure and carry a yield of 4.38% annually. The fi rst issuance under Ezdan’s US$2 billion Sukuk program, proceeds from the Sukuk will be used for general fi nancing purposes. The Qatari real estate developer previously tapped the Islamic syndicated fi nancing market in 2014 and 2015 with a combined value of US$1 billion.

“The coverage amount has almost doubled than the off ered [amount] in record time, which is an indication that Ezdan Holding Group is a trustworthy

and reliable entity in the world of fi nance,” noted Sheikh Dr Khalid Thani Abdullah Al Thani, the chairman of Ezdan. The company is looking to utilize Sukuk as one of the means to boost its strategy in reinforcing its investments domestically and globally over the next few years.

Due to a limited supply of corporate Sukuk from the GCC region, Ezdan’s inaugural Sukuk witnessed a strong demand from investors the Middle East (68%), Europe (21%) and Asia (11%), marking the reopening of the corporate Sukuk market in Qatar since 2013.

Apart from being the group’s debut transaction in the international capital market, the paper is also the largest real estate capital market transaction from Qatar, off ering investors the opportunity to get a hand on real estate-related Sukuk off erings in the Gulf.

The Sukuk issuance was not without challenges. “Given the issuer’s debut status in the bonds and Sukuk market, there was no outstanding curve to compare with the debut off ering,” said ENBD, adding that there was competing supply in the market at the same time vying for the att ention of fi xed income investors.

Other hurdles faced by the issuer included the split ratings assigned to the Sukuk (‘Ba1’ by Moody’s and ‘BBB-’ by S&P) and investors’ limited knowledge on Qatar’s real estate market. ENBD, however, said that these challenges were addressed during the extensive roadshows held across Asia, London and the Middle East with Ezdan explaining its solid credit story directly to investors.

Ezdan Holding Group, a Doha-based public shareholding company listed on the Qatar Stock Exchange, is one of the Gulf region’s largest real estate developers by market capitalization, a major market player in the domestic real estate market and a pioneer provider of a wide spectrum of residential and commercial housing units.

Ezdan’s US$500 million Sukuk: First by a Qatari corporate in 2016

The coverage amount has

almost doubled than the offered [amount] in record time, which is an indication that Ezdan Holding Group is a trustworthy and reliable entity in the world of inance

19© 22nd June 2016

COLUMN

By Mohammed Khnifer, an Islamic debt capital markets banker at a supranational banking institution as well as an AAOIFI-certifi ed Shariah advisor and auditor.

A novel way to pay debt should be seriously considered by governments whose cash fl ow has been impacted by the fall in oil prices. Many OIC countries have slowed payments to contractors and suppliers. One way to manage their public fi nancials is to use IOUs to pay outstanding bills with contractors and conserve cash.

An IOU is a document that acknowledges a debt owed. IOU is an abbreviation, in phonetic terms, of ‘I owe you’. Instead of holding IOUs until maturity, contractors tend to sell them to local banks below par value. In this case, you would be restructuring your debt but not your obligation. Things like

time, date, interest and the type of payment are not mandatory but may be implied.

Most importantly, these countries should not att ach any sort of interest to these IOU notes.

Selling at a discount Since the cash-strapped contractors are in dire need of liquidity (to pay for salaries), they would be prone to opt for a compromise. They would sell these IOU notes at a discount (2-5%) to local banks. This compromising situation creates an impression

where it looks as if the banks have bought the ‘zero-

coupon bonds’ from the government.

The bottom line • A state would not use IOU notes unless it is experiencing a full-blown liquidity crisis

and as a result it wants to restructure its debt. This

is the lesser of two evils as opposed to the delay of pay-ments to contractors which

will lead to bankruptcies and massive layoff s.

• Instead of borrowing with interest (ie loans and bonds), IOU notes would be ideal since they should not carry an interest.

@MKhnifer

Instead of borrowing

with interest (ie loans and bonds), IOU notes would be ideal since they should not carry an interest

The blunt end

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

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

REDmoney Ideal Ratings Indexes

20© 22nd June 2016

IFN COUNTRYCORRESPONDENT

INDIA

By H Jayesh and Aaheree Mukherjee

The Reserve Bank of India (RBI) has initiated steps to regulate the nascent and hitherto unregulated peer-to-peer (P2P) fi nancing businesses in India. The RBI has proposed registering P2P fi nancing platforms as non-banking fi nancial companies (NBFC). The banking regulator has published a discussion paper on P2P lending on the 28th April 2016 for public consultation. P2P platforms are an inviting opportunity for interest-free/Islamic fi nance-based models to seep into India.

P2P platforms provide investors with direct and quicker access to individuals and businesses needing funds. This model of fi nancing has been tested and found to be in compliance with Shariah principles in several jurisdictions. In the Islamic fi nance/interest-free banking space, P2P has the capability to drive certain industry segments, mainly: private equity, venture capital and microfi nance. The continued prospects of a low-interest environment, improvements in technology and continually higher capital requirements for the banking sector provide the alternative fi nance market an opportunity to innovate and accelerate its growth.

Particularly in India, the lack of suitable investment products for interest-free/Shariah compliant investments may provide a unique opportunity for such platforms to succeed. The P2P fi nancing

model is seen to be a perfect match for interest-free/Islamic fi nance due to its community-based model. Such models can help the unbanked reach banked status. Islamic fi nance/interest-free fi nance-based P2P models have seen a huge success in several non-Muslim dominated jurisdictions as well, such as LaunchGood in the US and CrowdCube in the UK.

Further, India is gett ing ready to become the next economic powerhouse where Islamic fi nance could set foot through a number of fi rst-time initiatives. As per latest reports, the Saudi Arabia-based IDB is proposing to launch its fi rst Indian operation in the country’s western state of Gujarat. The plan follows an agreement between India’s state-owned Export-Import Bank and the Islamic Corporation for the Development of the Private Sector, the private-sector arm of the IDB Group, which was signed as part of deals during Indian Prime Minister Narendra Modi’s trip to Saudi Arabia this April.

The IDB, which sees “att ractive growth opportunities” for Islamic fi nance in India, will be making use of its branch to be set up in Ahmedabad. It will have a credit line of US$100 million at its disposal to support entrepreneurial companies and SMEs to facilitate the export of goods and services from India to the 56 member countries of the IDB, most of which are located in the Middle East, North Africa, Southeast Asia and Central Asia.

Strictly speaking, the IDB’s initiative is not the fi rst to provide interest-free banking in India. The concept, though

not outspoken Islamic fi nance, is already being used on a small scale by NBFCs and cooperatives. The best known among them is Cheraman Financial Services in Kerala, a company cleared by the RBI in 2013 to provide interest-free or ethical fi nancing for infrastructure, services and manufacturing in the state. Since inception, it has funded start-up companies and infrastructure projects and set up a US$37.5 million private equity fund for ethical developments.

Meanwhile, the IDB does not have to wait for legal amendments to open it Islamic fi nance branch in Gujarat because it is proposed to be incorporated as an NBFC and not a bank. An NBFC does not fall under the jurisdiction of India’s Banking Regulation Act, 1949 and thus can off er Islamic fi nance services in a structured manner.

The developments over the last year suggest that the Indian market and the regulators appear to be warming up to the idea of Islamic banking and fi nance gradually. Islamic fi nance has immense potential and scope in India and there is a latent demand for products and services based on Shariah principles. We have reasons to believe that the RBI’s concern with regards to Islamic banking and fi nance being “inconsistent with the existing laws” will soon be addressed and bring about the necessary policy changes.

H Jayesh is the founder partner and Aaheree Mukherjee is an associate at Juris Corp. They can be contacted at jayesh.h@jclex.com and aaheree.mukherjee@jclex.com respectively.

Is Islamic inance inally seeping into the Indian market?

An NBFC does not fall under

the jurisdiction of India’s Banking Regulation Act, 1949 and thus can offer Islamic inance services in

a structured manner

21© 22nd June 2016

IFN SECTORCORRESPONDENT

LAW & REGULATIONS

By Bishr Shiblaq

Crowdfunding around the world is growing at a staggering pace, with double-digit growth in the US and Europe, and even triple-digit growth in Asia (Crowdfunding Insider 12/2015). It is surprising that, despite this enormous growth, Islamic crowdfunding is only in its infancy and starting to develop, although crowdfunding in itself embodies key elements of Shariah compliant fi nancing. The aim of crowdfunding is to raise funds for a specifi c project or business. It is either sustainable or entrepreneurial in nature and can either be based on a donation model, a fi nancing model or by acquiring an equity stake in the underlying business.

Such online fi nancing platforms are marketed platforms that match borrowers and fi nanciers to one another and have captured the recent att ention of many investors, as well as regulators. The platform does not act as a fi nancier in itself, but simply connects the diff erent borrowers and fi nanciers, acting as an agent per se. It provides the parties with the advantages of a lower cost base and a lack of regulatory capital requirements, as opposed to the traditional bank fi nancing.

The fi nanciers are divided into diff erent categories, mainly retail, corporate and institutional investors, who invest directly or indirectly through the wholesale funding market. Although peer-to-peer (P2P) lending was traditionally referred to as fi nancing between individuals only, it has now expanded to the marketplace as well, due to the growth of corporate and institutional fi nanciers using these fi nancing platforms.

So far there are only two platforms off ering Shariah compliant crowdfunding. One of them is UAE-based Beehive, the fi rst certifi ed Shariah compliant P2P crowdfunding platform in December 2015. Finance requests are processed on the basis of a commodity Murabahah structure, based on a platform operated by the Dubai Multi Commodities Center (DMCC), the DMCC Tradefl ow. Kapital Boost is the fi rst Shariah compliant P2P

fi nancing platform established in Asia and servicing investors in Singapore, Indonesia and Malaysia. It off ers the possibility to either use a Murabahah or Mudarabah crowdfunding structure.

The infancy of the Shariah compliant P2P market shows that the SME sector remains a neglected sector in Islamic fi nance. The lack of funding for SMEs is hampering the growth of many economies, whether in Europe or the Middle East. Conventional crowdfunding platforms such as Funding Circle in the UK, considered to be the fi rst P2P online fi nancing platform in Europe, and Eureeca in the UAE, are trying to close these gaps. For all of these, it is as easy as sett ing up an account online to become an investor and start investing.

The majority of the platforms will allow an individual to personally pick a company, project or individual they wish to invest into and lend their money to. Structurally, these arrangements, even in conventional crowdfunding transactions, have the typical elements expected in a Shariah compliant transaction. In Eureeca, you would take an equity stake in an off shore company and would receive dividend payments after a certain time period.

Most countries do not have a clear regulation with respect to crowdfunding and are using a mix of existing regulations. The EU is still lacking a harmonized approach, creating hurdles for cross-border crowdfunding, although the European Securities and Markets Authority has already issued an opinion and advice on the subject. Regulation and cross-border harmonization in this fi eld would certainly help the industry to develop faster.

One of the many risks which arise from investment-based crowdfunding is the size of the project, as the majority of the projects include the fi nancing of small companies which naturally carry a high failure rate. Such small companies usually do not list their issued securities and present a signifi cant risk for capital loss due to the lack of, or decreased, liquidity.

In April 2016, Europe saw the fi rst securitization backed by loans arranged by an online P2P lending platform. Fund Circle established an investment

company, giving investors access to a diversifi ed pool of loans originated by the Funding Circle marketplaces. This transaction opened up small business lending as a new asset class to a wider range of investors and was supported by the European Investment Fund in Luxembourg and the KfW Bank in Germany. In 2012, Synthesis P2P was established in Luxembourg as a SICAV-SIF, becoming the fi rst investment fund outside of the US to invest into P2P loans.

The investment into P2P transactions via securitizations and investment funds will be the next important chapter for this asset class. It remains to be seen when we will see the fi rst Shariah compliant securitization of a P2P fi nancing platform.

In times of lower oil prices and shrinking liquidity in oil-producing countries, this alternative channel of fi nancing the SME market is compelling, provided that the risks are balanced and the portfolio is structured in a way to align the interests of the investors and the originators of the P2P loans.

Bishr Shiblaq is the head of offi ce at Arendt & Medernach — Avocats. He can be contacted at bishr.shiblaq@arendt.com.

Growing the crowdfunding market and securitizing its assets

One of the many risks

which arise from investment-based crowdfunding is the size of the project, as the majority of the projects include the inancing of small

companies which naturally carry a high failure rate

22© 22nd June 2016

SPECIAL REPORT

TURKEY

By Ozlem Yetkin

These eff ective macroeconomic and structural policies helped to revive the Turkish economy following the global crisis: growth averaged 5.2% y-o-y in real terms in 2010-15, resulting in one of the best economic performances worldwide. The rebound was accompanied by strong job creation (up six million).

Alongside the solid macroeconomic fundamentals, this recovery can be explained by strong domestic demand amid favorable demographics and private sector dynamism. Hence, Turkey att racted a massive amount of foreign direct investment (up from US$19 billion in 2002 to around US$146 billion at the end of 2015). Moreover, the economy received large portfolio infl ows and other investment infl ows, which accelerated in the aftermath of accommodative monetary policies in developed economies.

The fi nancial sector has gone through signifi cant changes along with the country’s economic progress. After 2001, the industry has grown not only in size but also in sophistication thanks to the introduction of new fi nancial products, the derivatives market and associated prudential regulations. Yet the banks dominate the fi nancial system despite the diversity and relatively large number of non-bank fi nancial institutions. The Turkish banking industry has weathered the global fi nancial crisis remarkably well due to minimal currency mismatches, strong liquidity and deft policy responses.

Turkey’s banking sector assets amounted to TRY2.51 trillion (US$856 billion) at the end of March 2016, or 120% in terms of GDP. The robust stance of the domestic economy manifested itself in annual growth rates of loans. Loans completed in the fi rst three months of this year amounted to US$538 billion, up from US$264 billion six years

ago. All sectors benefi ted from easier credit standards, particularly consumers. Receivables from consumers rose by US$49 billion to US$110 billion in March 2016 despite the Central Bank of Turkey and the Banking Regulation and Supervision Agency introducing macroprudential measures to curb current account defi cits while enhancing the savings ratio.

Loans to SMEs also performed well, with the share of credits to SMEs rising 5pps to 26%. Total deposits rose by just over US$107 billion to US$453 billion, showing relatively weak growth compared with loans. As a result, the loan-to-deposit ratio increased to 120% as of the 31st March 2016. By contrast, this ratio had been 77% in December 2009. Consequently, the banking sector raised funds via unconventional sources, particularly debts to foreign banks. At the end of the fi rst quarter of 2016, the capital adequacy ratio was above 15%, while return on assets and return on equity ratios stood at 1.4% and 12% respectively.

The Turkish banking sector consists of deposit banks, development and investment banks and Islamic banks that operate according to profi t/loss sharing principles. As of March 2016, the number of banks operating in the Turkish fi nancial sector is 53, employing 216,532 highly educated employees at 12,276 branches. Out of these 53 banks in the Turkish banking sector, 34 are deposit banks, 13 are development and investment banks and six are Islamic banks, thus pointing to the dominance of deposit banking in the industry. The number of foreign-controlled banks is 25.

Islamic banks are called as participation banks in Turkey. The fi rst private participation bank was established in 1984. Up to 1996, the number of participation banks operating in Turkey rose to fi ve, one of which fi led for bankruptcy at the onset of the 2001 crisis. In 10 years up to 2014, the asset size of these banks climbed from TRY10 billion (US$3.41 billion) to TRY104

billion (US$35.51 billion), representing only 5.2% of total banking sector assets in Turkey.

This modest improvement motivated the government to establish two state-owned banks that run operations based on Shariah principles in 2015, with the aim of growing Islamic banks’ market share to 15% by 2023. Throughout this period, fi ve Islamic asset management companies were also formed, reaching only a limited market share compared with conventional peers.

After 2009, Turkish policymakers enacted many laws to fulfi ll its commitment. In 2011, the parliament passed legislation to promote Islamic fi nance and improve access to funding based on religious rules. In the same year, the fi rst participation index was launched by the Istanbul Stock Exchange. In September 2012, the government issued its fi rst Islamic bonds in order to expand the investor base and diversify fi nancial instruments. Since then. Sukuk issuances denominated in the US dollar have hit almost US$7 billion, making Turkey as a ‘country of domicile’.

Sukuk in circulation are denominated either in the Turkish lira, the Malaysian ringgit or the US dollar. The Turkish Treasury’s SPV, Hazine Mustesarligi Varlik Kiralama, is the issuer of 56% of all US dollar-denominated Sukuk. For the time being, apart from the Turkish Treasury, 10 fi nancial institutions have issued Sukuk. In addition, Borsa Istanbul works on a market that will provide short-term placement capability adherent to Islamic principles. As a fi nal note, to take advantage of the potential of Islamic fi nance in Turkey, Aktif Bank and the Islamic Corporation for the Development of the Private Sector (an arm of the IDB) will collaborate to establish the Mukafat Asset Management Company in 2016.

Ozlem Yetkin is the chief economist at Aktif Bank. She can be contacted at ozlem.yetkin@aktifb ank.com.tr.

How far Islamic inance and banking has progressed in TurkeyFollowing a severe crisis in 2000-01, Turkey has established a new economic framework, prioritizing fi scal discipline, targeting infl ation under a newly-independent central bank and restructuring banking system regulations. This macroeconomic environment brought about rapid growth (up 5.9% year-on-year (y-o-y) on average in real terms) with strong disinfl ation (down almost 35pps), solid fi scal primary surpluses (one of the few countries fulfi lling Maastricht criteria) and a strong reserve buildup until the onset of the global fi nancial crisis. OZLEM YETKIN writes.

23© 22nd June 2016

COUNTRY FEATURE

THAILAND

By Tuansaleena Kubaha

Islamic banking products fi rst appeared in Thailand in 1998 but only on a very limited scale, primarily to assist the fi nancial needs of the country’s Muslims. A few state banks off ered deposit products such as saving and investment accounts, but only at their fi ve southern border provinces branches. The second-largest commercial bank, Krung Thai Bank, followed this example with an Islamic branch concept when the Bank of Thailand (BOT), the central bank, introduced the ‘Interest Free Unit Scheme’ (later known as the Shariah Banking Services Scheme) which allowed existing commercial banks to off er Islamic banking products and services using their existing infrastructure and branches in 2002. However in 2008, the BOT updated the regulation to require that commercial banks interested in participating must separate their funds and accounting transactions from their conventional banking business to ensure that the Shariah banking activities would not be contaminated.

The Islamic Bank of Thailand (IBT), the fi rst fully-fl edged Islamic bank in Thailand, started its operations in 2003 and was regulated by the Ministry of Finance (MOF) under the Islamic Bank of Thailand Act 2002. In 2008, the bank recorded a profi t for the fi rst time since its inception, with its highest operating profi t of THB1,124 million (US$32 million) arriving in 2010.

A changing landscapeMuch has changed since then. More players have entered the Islamic fi nancial market and the scope of Islamic fi nance business has been expanded to Takaful insurance, asset management activities, Islamic index and the origination and issuance of the fi rst Sukuk.

In 2010, the IBT announced the issuance of a THB5 billion (US$142.2 million) Sukuk

for its Tier 2 capital increase - the fi rst Islamic issuance in Thailand. The Securities and Exchange Commission (SEC) subsequently developed and issued a set of Sukuk regulations under the Trust for Transactions in Capital Market Act (2007). This was followed by the introduction of the Revenue code in 2012 - a series of tax changes specifi cally designed to remove double income tax, value added tax, special business tax and stamp duty on Sukuk issuances. This was aimed at removing obstacles to the creation of the trust relating to Sukuk, and encouraging the development of Thailand’s capital market.

At the end of the IBT’s fi rst decade of operations, its performance was reversed when it declared losses of THB13.26 billion (US$377.1 million) in 2012 - the highest loss the bank had faced in its nine-year history. The reported losses were due mainly to over provisioning, when the bank placed extra allowances for a doubtful account of THB7 billion (US$199 million) in excess of the minimum allowance set by the BOT as stated in the qualifi ed opinion on its fi nancial statements. In 2014, the bank had again declared losses of THB9.5 billion (U$270.2 million) with huge provisions for non-performing fi nancings, which climbed to almost half of total fi nancings. As the regulator and the largest shareholder, the MOF directed the bank to focus on the immediate task of turning around its fi nancial health through recapitalization.

A tough struggleI believe this assignment is not likely to be easy to achieve in the short-term. While the current management is pursuing this goal, the government also needs to simultaneously accelerate its supporting infrastructure to develop the Islamic banking and fi nance sector in the country.

First of all, the government and regulators need to change their mindset that Islamic banking and fi nance is limited only to Muslims in the country. The emergence of the ASEAN Economic Community (AEC) will boost opportunities for the Islamic

banking and fi nance industry due to larger market therefore the regulators such as the MOF, the BOT and the SEC as well as the Offi ce of Insurance Commission should prepare a proper dual banking and fi nance system platform where Islamic banking and fi nance system operate in parallel with the conventional system to ensure the integrity of Islamic operations.

Second, the country needs an eff ective regulatory and supervisory framework. Similar to conventional system, Islamic banking and fi nance should have regulation and supervision, in areas such as liquidity, Shariah requirement and risk management to ensure soundness and stability.

Third, a series of specifi c tax and legislative changes are required in order to remove obstacles to Islamic banking transactions. This is one of the main problems that remains unchanged a decade after the establishment of the IBT. Any Murabahah or buy and sell transaction in Islamic banking products still incurs double stamp duty, special business tax, income tax and double transfer of the property fees. For Sukuk issuance, although the double taxation problem has been treated, the double transfer of the property fees remains unsolved and this is a longstanding issue waiting for the att ention of the Land Department. Islamic banking and fi nance needs the same tax footing as the conventional industry, therefore the tax legislation should accord neutrality in treatment between Islamic and conventional banking products.

Last but not the least, increased public awareness about Islamic banking and fi nance would lead to the development of further fi nancial infrastructure and provide support to the development of the Islamic banking sector – allowing it to develop services that are in accordance with Shariah principles.

Tuansaleena Kubaha is the senior vice-president of the Islamic Bank of Thailand. She can be contacted at Tuansaleena_Ku@ibank.co.th.

When will Thailand jump onto the Islamic inance bandwagon?

Thailand was an early pioneer for Islamic banking and fi nance among Muslim minorities in the ASEAN region, with an early introduction of Islamic products almost two decades ago. Yet the initial enthusiasm waned and the country has struggled to develop a robust and sustainable market – up till now. TUANSALEENA KUBAHA explores the latest developments for Southeast Asia’s second-largest economy in the context of the performance of its only Islamic bank.

24© 22nd June 2016

SECTOR FEATURE

EDUCATION

By Dr Sutan Emir Hidayat

For example, recently, the People’s Republic of China has declared its interest to join the industry as a strategy to strengthen its ties with Muslim countries. However, in order to sustain the signifi cant growth of the Islamic fi nancial industry, the development of human capital becomes the key succeeding factor. Many studies have found that there is a big gap of human capital in the industry. Surprisingly, despite a lack of talent within the industry, many Islamic fi nance qualifi cation holders face diffi culties in fi nding jobs within the Islamic fi nancial industry. These developments raise at least two questions related to IEF education: (1) What is the current status of IEF

education globally? (2) What are the challenges faced by

Islamic fi nance qualifi cation providers worldwide that need to be tackled in order to solve the issue of human capital within the industry?

This article att empts to provide the answers to the two questions according to supporting literature and the opinions of Islamic fi nance educators from all over the world who participated at the Islamic Economics and Finance Education Symposium held on the 23rd March 2015 at the Qatar Faculty of Islamic Studies, Hamad Bin Khalifa University, Doha, Qatar.

The global perspective on the status of IEF education reveals that the status of countries regarding Islamic fi nance education can be divided into three categories namely: (1) countries where IEF education is already well established; (2) countries where IEF education is growing and; (3) countries where IEF education has potential.

The Islamic fi nance educators who att ended the symposium classify IEF education in Bahrain, Egypt, Indonesia, Malaysia, Qatar and Saudi Arabia as well

established; IEF education in India as growing; and IEF education in Algeria, Kazakhstan, Morocco, Oman, Spain and Tunisia as having potential. The aforementioned classifi cation was made based on several criteria such as the number of IEF qualifi cation providers and the number of research publications.

However, it is important to note that even though IEF education is classifi ed into the three categories, there are common challenges faced by IEF qualifi cation providers all over the world. Among the areas identifi ed as lacking are:(1) A standard curriculum for IEF

education(2) Course materials(3) Relevant market skills(4) Funding(5) Research quality, and(6) Human resources or a suffi cient

number of qualifi ed Islamic fi nance educators.

In addition, for countries in the third category – those that are growing and has potential – additional challenges exist as follows:(1) A lack of available jobs for IEF

graduates (2) A lack of demand for IEF education,

and (3) IEF is still not a recognized business. Regarding the lack of a standard

curriculum, it is important for all IEF qualifi cation providers to coordinate and off er a standardized international qualifi cation that exists globally which is equivalent to the standards of, say for example, a CFA (chartered fi nancial analyst) qualifi cation. For course materials, more joint eff orts among leading universities in IEF education are needed to produce more IEF textbooks especially at the advanced level.

As for relevant market skills, intensive collaborations between industry practitioners and IEF qualifi cation providers through two-way communication must take place to ensure

the IEF programs produce market-matched graduates. In addition, necessary skills such as soft skills must be incorporated in the academic curriculum and should be a part of the program’s intended learning outcomes.

Regarding the lack of funding, the cash Waqf model of the Central Bank of Bahrain can be used as a good reference to establish similar schemes in other countries whereas joint publications and research forums and competitions fully sponsored by international bodies such as the IDB and the Islamic Research and Training Institute (an affi liate of the IDB Group) are good ways to att ract bett er quality research within the Islamic fi nancial industry. As for the issue of a lack of qualifi ed Islamic fi nance educators, certifi cation for IEF educators issued by an internationally recognized professional body will ensure only qualifi ed educators are involved in IEF education. In addition, training modules for trainers are encouraged especially to be given by senior educators to junior educators.

Challenges faced by countries categorized as ‘growing and has potential’ can be tackled through collaborative eff orts involving countries where IEF education is well established to learn from their experience in developing the Islamic fi nancial industry and its education infrastructure.

In order to move forward, IEF stakeholders should work together to address all the challenges. By addressing the identifi ed challenges, IEF education will be enhanced globally and IEF qualifi cation providers will be able to produce qualifi ed graduates equipped with the proper IEF knowledge and skills needed by the market. In the long run, this will ensure the sustainability of the industry.

Dr Sutan Emir Hidayat is the head of the Business Administration and Humanities Department at the University College of Bahrain. He can be contacted at sutan@ucb.edu.bh.

A global perspective on Islamic economics and inance education: Status and challenges

Since the establishment of the fi rst Islamic fi nancial institution in the 1960s, Islamic economics and fi nance (IEF) has been growing remarkably. For example, during 2006-13, the Islamic fi nancial industry grew at the compound annual growth rate of 16%. This growth is still expected to continue in the years to come since more and more countries are interested to join the industry. DR SUTAN EMIR HIDAYAT explores.

25© 22nd June 2016

NEWS

DEALSCBB’s Sukuk Ijarah oversubscribedBAHRAIN: The monthly issue of the Central Bank of Bahrain (CBB)’s short-term Sukuk Ijarah worth BHD26 million (US$68.48 million) has been oversubscribed by 131%, with subscriptions worth BHD34 million (US$89.55 million) received. The issue, which carries a maturity of 182 days, has an expected return of 2.3%, compared with 2.25% for the previous issue on the 12th May, according to an announcement by the CBB. The latest issue, which began on the 16th June and matures on the 15th December 2016 is the 130th of the CBB’s short-term Sukuk Ijarah series.

Concurrently, the CBB’s monthly issue of Sukuk Salam has been oversubscribed by 102%, according to a statement. Subscriptions worth BHD44 million (US$114.32 million) were received for the BHD43 million (US$111.72 million) issue, which carries a maturity of 91 days. The expected return on the issue, which begins on the 22nd June and matures on the 21st September 2016, is 2.05%.

Indonesia raises funds from Sukuk saleINDONESIA: The government of Indonesia managed to raise IDR5.08 trillion (US$380.49 million) from the sale of fi ve sovereign Sukuk securities (SPNS 01122016 and four others), after receiving total incoming bids of IDR6.9 trillion (US$516.81 million), according to an announcement on the Ministry of Finance’s website.

Bank Albilad’s Sukuk issue approvedSAUDI ARABIA: Bank Albilad has received approval from the Saudi

Arabian Monetary Agency to issue up to SAR2 billion (US$533.1 million) in subordinated Sukuk by way of a private placement in the local market, according to a bourse fi ling. The facility will carry a tenor of 10 years with the bank having the right to call the Sukuk at the end of the fi fth year. The bank intends to support its capital base and the growth of its assets base through the issuance of the Sukuk, subject to approvals from relevant regulatory authorities.

Sipchem redeems Sukuk MudarabahSAUDI ARABIA: Saudi International Petrochemical Company (Sipchem) has on the 15th June completed the early redemption of its Sukuk Mudarabah with an aggregate amount of SAR1.8 billion (US$479.78 million) maturing on the 6th July, according to an announcement to Tadawul. The Sukuk facility was issued in 2011.

Separately, Sipchem has completed the private placement of a SAR1 billion (US$266.53 million) fi ve-year Sukuk priced at 235bps over the six-month SAIBOR, according to a bourse fi ling. The proceeds will be utilized for general corporate purposes, including the repayment of fi nancial obligations. The issuance was managed by Riyad Capital and NCB Capital.

DanaInfra gets approvals for Sukuk tax exemptionMALAYSIA: DanaInfra Nasional announced in separate fi lings to Bursa Malaysia that it has received approvals for tax exemption on two of its retail Sukuk stocks from the Ministry of Finance. According to DanaInfra, for the stock code 0400GB, the approval for the exemption of income tax on coupon payment was secured on the 22nd November 2013 and the approval

for the exemption of stamp duty payable on contract notes executed upon trading of DanaInfra Retail Sukuk on Bursa Malaysia Securities was secured on the 6th December 2013. The income tax exemption is eff ective for a 15-year period starting from 2013 until 2027.

DanaInfra also said that for the stock code 0400GA, it had on the 27th December 2012 obtained the approval for the exemption of income tax on coupon payment on contract notes executed upon trading of DanaInfra Retail Sukuk on Bursa Malaysia Securities. The income tax exemption is eff ective for a 10-year period starting from 2013 until 2022.

SBPC’s Sukuk Murabahah due and payable in JulyMALAYSIA: The redemption and periodic profi t payments of Sepangar Bay Power Corporation (SBPC)’s Sukuk Murabahah of up to RM575 million (US$140.1 million) in nominal value will be due and payable next month with payment for Series 2 due and payable on the 1st July, and payment for the Sukuk facility’s Series 3 to 12 due and payable on the 4th July, according to a fi ling with Bank Negara Malaysia.

Arabian Aramco partially redeems SukukSAUDI ARABIA: Arabian Aramco Total Services Company has partially redeemed its AATSC Sukuk scheduled every six months on the 20th June, making a fi xed distribution payment of SAR103.87 million (US$27.69 million), representing 2.77% of the aggregate face amount of the Sukuk facility, according to an announcement to Tadawul. It added that with the redemption, the face amount of each AATSC certifi cate stood at SAR90,320 (US$24,074), while the aggregate face amount is SAR3.39 billion (US$903.61 million).

DEAL TRACKER Full Deal Tracker on page 31EXPECTED DATE COMPANY'S NAME SIZE STRUCTURE ANNOUNCEMENT DATE

TBA Bank Sulsebar IDR50 billion Sukuk Mudarabah 20th June 2016

TBA Government of Oman US$2.5 billion Sukuk 20th June 2016

Second quarter of 2016

Bank Albilad up to SAR2 billion Sukuk 20th June 2016

TBA Tiga Pilar Sejahtera Food IDR1.5 trillion Sukuk 17th June 2016

TBA Islamic Development Bank RM400 million Sukuk 17th June 2016

26© 22nd June 2016

NEWS

SPRINT’s BaIDs due on the 29th JuneMALAYSIA: The redemption of Sistem Penyuraian Trafi k KL Barat (SPRINT)’s RM510 million (US$124.64 million) secondary Bai Bithaman Ajil Sukuk (BaIDs) will be due and payable on the 29th June, its facility agent United Overseas Bank (Malaysia) noted in a fi ling with Bank Negara Malaysia.

Indonesian bank plans SukukINDONESIA: Bank Sulselbar is planning to raise IDR50 billion (US$3.75 million) through Sukuk. The Sukuk Mudarabah program has been assigned an ‘idA+(sy)’ rating by PEFINDO, according to a statement. Bookbuilding for the off ering, which commenced on the 15th June, ended on the 21st June.

Engro to suspend trading of SukukPAKISTAN: The trading of Engro Corporation’s Sukuk-1 will be suspended from the 24th June until the 10th July as the fi rm has confi rmed that the book closure dates for the facility have been set for the period from the 27th June to the 10th July for the entitlement of the fourth profi t

payment. According to a bourse fi ling, trading for the Sukuk will resume on the 11th July.

Aeon Credit’s Sukuk due and payable on the 30th JuneMALAYSIA: The periodic distribution for Aeon Credit Service (M)’s RM400 million (US$97.52 million) Series 1 perpetual Sukuk, based on the principles of Musharakah and Musawwamah, will be due and payable on the 30th June 2016, according to a fi ling on Bank Negara Malaysia’s website.

Oman to issue two SukukOMAN: The government of Oman has mandated fi ve international banks to arrange the issuance of two dollar-denominated Sukuk — a US$1 billion fi ve-year facility and a US$1.5 billion 10-year issue — in a bid to plug the Sultanate’s budget defi cit, according to Reuters.

Antara Steel Mills’s Sukuk due and payableMALAYSIA: The redemption for the Sukuk amount due and the periodic distributions of Antara Steel Mills’s

RM300 million (US$73.42 million) Sukuk Mudarabah (stock code PI110025) will be due and payable on the 28th June, according to a fi ling with Bank Negara Malaysia. The periodic distributions for stock codes PJ110026 and PK110027 will be due and payable on the 29th June.

IDB to issue Sukuk WakalahGLOBAL: IFN understands that the IDB will be issuing a Sukuk Wakalah facility of up to RM400 million (US$97.46 million) “soon”. The proposed program has been assigned a preliminary rating of ‘AAAIS’ by MARC. The outlook on the ratings is stable. The IDB in 2008 established a local currency RM1 billion (US$243.64 million) 10-year Islamic medium-term note program.

TPSF plans SukukINDONESIA: Public-listed food company Tiga Pilar Sejahtera Food (TPSF) will raise IDR1.5 trillion (US$112.05 million) through Sukuk this year. According to credit rating agency PEFINDO, the Ijarah facility has been assigned an ‘idA’ rating. PEFINDO also affi rmed the company’s IDR300 billion (US$22.41 million) Sukuk Ijarah issued in 2013 at ‘idA(sy)’.

AFRICAParliament approves inancing for Blue Nile

SUDAN: The parliament of Sudan has ratifi ed a fi nancing agreement worth KWD60 million (US$198.83 million) from Kuwait to fi nance irrigation projects of the Roseires Dam in the Blue Nile state following an intense debate on whether or not the loan complies with Shariah law. According to the Sudan Tribune, a joint report by the parliamentary subcommitt ee on legislation, justice and human rights, the subcommitt ee of fi nance and economic planning and subcommitt ee on agriculture, animal resources and forests has revealed that

the loan would be repaid within 19 years with an annual premium of KWD1.5 million (US$4.97 million).

Algeria preparing to launch Islamic inancial servicesALGERIA: Algeria is preparing to launch Islamic fi nancial services as part of wider reforms aimed at modernizing the country’s underdeveloped banking sector, as well as seeking new ways to raise funds after a sharp fall in energy earnings, Reuters reported. Boulem Djebbar, the head of the state-run Banks and Financial Institutions Association, was quoted as saying that a legal framework would need to be fi nalized before giving the greenlight to state

banks, and that a commission has been set up to speed up the process.

NSE to review indicesNIGERIA: The Nigerian Stock Exchange (NSE) will be reviewing seven indices on the exchange which includes the NSE Lotus Islamic Index, according to a statement. The Islamic index will likely see the entrance of Total Nigeria and Forte Oil, while Lafarge Africa and Chemical and Allied Products are expected to leave the index. The NSE noted that the list of the actual incoming and outgoing companies will be announced on the 24th June and will be eff ective the 1st July.

ASIABank Indonesia cuts interest rate INDONESIA: Bank Indonesia has revised the country’s policy rate by 25bps lower to 6.5%, while also lowering its deposit and fi nancing rates to 4.5%

and 7% respectively, according to an announcement.

Rayani Air no longer operationalMALAYSIA: The Malaysian Aviation Commission (MAVCOM) announced in a statement that it has revoked Rayani

Air’s Air Service Licence (ASL) and that the Shariah compliant airline can no longer operate as a commercial airline with eff ect from the 13th June. MAVCOM found Rayani Air to have breached conditions of its ASL and also lacks the fi nancial and management capacity to continue operating as a commercial airline. Rayani Air is liable to refund

27© 22nd June 2016

NEWS

its customers who have yet to travel on purchased tickets, failing which it could face civil lawsuits.

Amana Bank launches new productSRI LANKA: Sri Lanka’s Shariah compliant Amana Bank has launched the Flexi Term Investment Account, allowing customers the fl exibility of depositing additional funds to grow their term deposit balance beyond the initial investment, according to a press release. Customers can deposit cash, fund transfers or foreign remitt ances to the new fl exi account, and monitor the growth of their investments through quarterly statements and the bank’s internet banking facility.

BNM to adopt new methodology MALAYSIA: Bank Negara Malaysia (BNM), in collaboration with the Financial Markets Association of Malaysia, will be adopting a new methodology in the US dollar/ringgit spot fi xing that is based on market transaction data, eff ective from the 18th July 2016, according to a statement. The reference rate will be known as ‘Kuala Lumpur USD/MYR Reference Rate’, and is computed based on the weighted

average volume of the interbank US dollar/ringgit spot rate transacted by the domestic fi nancial institutions between 8 am to 3 pm, and will be published daily at 3.30 pm.

ARBM launches debit card with Takaful coverageMALAYSIA: Al Rajhi Bank Malaysia (ARBM) has rolled out a new globally accepted Visa debit card known as the Rafahia Debit Card-i that is bundled with worldwide Takaful protection of up to RM1 million (US$244,738) for 12 months, according to a press statement.

NBP to expand Islamic banking network PAKISTAN: Within 18 months, the National Bank of Pakistan (NBP) had set up 110 Shariah compliant bank branches in the country, said Saima Rahim, the bank’s regional head of Islamic banking as reported by Business Recorder. As part of its eff orts to promote Islamic banking, the NBP is also planning to expand its branches to 175 within the next year.

Meezan Bank signs tripartite agreementPAKISTAN: Meezan Bank and Karandaaz Pakistan have signed a corporate partnership agreement with

Millat Tractors to off er fi nancing to small and mid-sized automotive part vendors, as part of a US$50 million corporate vendor and distributor fi nance program launched by Karandaaz Pakistan and Meezan Bank, according to a press statement.

BTN’s Shariah business unit growsINDONESIA: The fi nancing provided by Bank Tabungan Negara (BTN)’s Shariah business unit has grown by 37.8% over the last three years, the bank’s president director, Maryono, was quoted by Kontan.co.id as saying. He added that in comparison, the growth of mortgages off ered by BTN nationally stood at only 16.88%.

Sukuk lead bonds in MalaysiaMALAYSIA: For the fi rst quarter of 2016, Shariah compliant securities accounted for RM33.1 billion (US$8.1 billion) or 53% of government, quasi-government and corporate debt issues, according to RAM Ratings. The rating agency noted in a statement that it expects RM100-120 billion (US$24.47-29.37 billion) of gross issuance for the domestic Sukuk market in 2016. As at the 31st March 2016, approximately 51% of the RM28.5 billion (US$6.98 billion)-worth of government securities were Shariah compliant.

EUROPETurkey to lift barriers on Islamic productsTURKEY: The government of Turkey is looking to introduce new regulations to the existing tax scheme in a bid to boost the infl ow of Islamic capital to its shores as part of a series of proposed measures to be presented to the parliament in the coming days, according to national news carrier Anadolu Agency. Deputy Prime Minister Nurett in Canikli was quoted as saying that there will be adjustments to corporate tax law, value-added tax, stamp tax and fees in this context.

Russian Islamic bank to issue more cardsRUSSIA: Partner Banking Center, Russia’s fi rst Islamic fi nancial institution based in the Republic of Tatarstan, will issue over 1,000 cards by the end of the year which provide all services of the Visa payment system but without the accrual of interest, according to TASS

Russian News Agency quoting Albert Shagivaleev, the manager of the Kazan-based institution. Partner Banking Center has issued over 100 cards in the fi rst two months of operations and has since seen growing interest in the product, Shagivaleev added.

Creditors of Bank Asya face two outcomesTURKEY: The creditors of Bank Asya are facing two main outcomes, either a transfer of ownership to a successful bidder, or liquidation and its banking license withdrawn, Moody’s noted in its latest report titled ‘Asya Katilim Bankasi A.S.: Sale Process Will End Uncertainty, But Creditors Face a Binary Outcome’. The bidding process for Bank Asya, with a 23rd June deadline, will end uncertainty over the future of the bank, and in the event of a winning bid by a new owner committ ed to recapitalizing the bank, the rating agency expects a rapid recovery in its credit profi le. However, Moody’s noted that the likelihood of such an outcome is impossible to assess given

the limited information about potential interest from bidders.

Buyout deadline for Bank Asya extended TURKEY: Four Saudi banks could be contenders for the 51% stake of Bank Asya’s preferred stocks, currently owned by The Savings Deposit Insurance Fund (TMSF), according to Daily Sabah. The TMSF has extended the submission deadline of the required documents for the preliminary qualifi cation for bids in the sale of 183.6 million shares of the 360 million preference shares and the decision was reportedly made for a Saudi bank which could be one of the following: Alinma Bank, Bank Albilad, Al Rajhi Bank and Bank AlJazira. The one-week extension of the deadline is from the 10th June to the 17th June. Bidding will commence with the public announcement of the off ers submitt ed on the 24th June, and depending on the number of the participants, the process will continue with a public auction or simply through bargaining.

28© 22nd June 2016

NEWS

New AAOIFI membersTURKEY: Turkey’s Banking Regulation and Supervision Agency (BRSA) and Ziraat Bankasi have offi cially joined AAOIFI as institutional members, confi rmed a statement. AAOIFI and BRSA have also agreed to develop professional and technical cooperation between the two institutions. In its most recent visit to Turkey, AAOIFI with the Turkish Participation Association of Banks explored the possibility of translating AAOIFI standards to the Turkish language as well as other means to foster cooperation in the training and building capacities of Turkish professionals.

Three banks leading the way in Russia RUSSIA: Vnesheconombank, Sberbank and Tatfondbank are all expected to release new Islamic fi nance products and services after signing agreements with the IDB last month, according to Reuters. Sberbank aims to raise between US$200 million and US$300 million for a client this year via Islamic fi nance while Vnesheconombank has identifi ed structures it can use to support export-import deals and project fi nancing with a pilot transaction of around US$100 million planned for later this year. Tatfondbank has opened a participation

banking center in Kazan which it aims to develop further with support from the IDB.

Beyond the three banks, there is growing interest from around 20 other fi nancial institutions in Russia including the Islamic Business and Finance Development Fund (IBFD) which is working with asset managers to introduce Islamic mutual funds that would channel money into Russian companies, including those in Halal industries such as food preparation. The IBFD is aiming to launch a fund by the end of this year.

GLOBALQatar Charity to establish Islamic center in FranceGLOBAL: As part of its ‘Ghaith’ initiative, Qatar Charity hopes to establish the largest Islamic center in Europe which will be located in Milos in northeast France and is expected to benefi t 150,000 Muslims in France, Switz erland and Germany, according to a press release.

The Al Noor center is also expected to provide Waqf facilities and is to be

constructed using sustainable and eco-friendly processes. The project will cost EUR27 million (US$30.3 million), and to date, more than 55% of the construction has been completed, with the remaining value being EUR16.8 million (US$18.86 million) which Qatar Charity is hoping to raise through a number of initiatives.

The center has been supported by the local French authorities; the parliament of Milos City; the province of Alsace and the State of Qatar through the Ministry of Awqaf and Islamic Aff airs and its Public Administration of Awqaf Department.

Boyner inks Murabahah inancing deal

GLOBAL: Turkish textile company Boyner Perakende ve Tekstil Yatirimlari has entered into Murabahah and term facility agreements amounting to US$90 million with local and regional fi nanciers namely Qatar Islamic Bank, Barwa Bank, Turkiye Finans Katilim Bankasi, Al Khaliji and Fibabanka, according to a statement. The transaction was advised by Paksoy and Latham & Watkins with the lead arranger being QInvest.

MIDDLE EASTAl Yusr expands product suiteOMAN: The Shariah Supervisory Board of Oman Arab Bank’s Al Yusr Islamic Banking has approved a Mudarabah deposit account and agreed to develop a diminishing Musharakah multipurpose fi nance instrument, Al Yusr confi rmed in a statement.

Al Rayan launches new productQATAR: The Ministry of Economy and Commerce has collaborated with Al Rayan Bank to launch a loyalty card, called the Iktisadi card, which does not charge interest or fees in accordance with Shariah law, according to a press release. Cardholders can collect loyalty points through purchases at shopping malls and then exchange these points for either up to QAR1,000 (US$274.4) in cash per month or redeem Ooredoo Nojoom points and airline tickets to over 300

destinations around the world as well as miles from Qatar Airways. The card also provides access to more than 850 airport lounges around the world.

Iran plans inancial center on Qeshm IslandIRAN: Iran is planning to set up a fi nancial center on Qeshm Island as a gateway for foreign banks and institutions to enter the Republic’s main market, Bloomberg reported. Farhad Taghizadeh-Hesary, a senior advisor to Qeshm Investment and Development Co, was quoted as saying that Chinese and Russian banks have expressed interest in representative offi ces on the island, while one of Japan’s largest banks is also negotiating to establish a presence, although he declined to identify any of the fi nancial institutions. Qeshm Island is located in the Strait of Hormuz, approximately 1,382 kilometers south of Tehran. Iran’s fi nancial system is operated in a Shariah compliant manner.

Ajman Bank completes capital-raising exerciseUAE: Ajman Bank has raised AED675 million (US$183.73 million) through a rights issue, oversubscribed by 195%, of which AED500 million (US$136.1 million) was raised against the issuance of 500 million new ordinary shares and AED175 million (US$47.63 million) represented share premium. In a statement, the bank noted that its issued share capital, following the rights issue, has increased to AED1.62 billion (US$440.96 million). Ajman intends to use the proceeds from the capital-raising exercise to strengthen its capital base, comply with the Central Bank of the UAE’s capital adequacy requirements, meet business needs of its customers and generate cash fl ows.

NBAD and FGB discuss mergerUAE: National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB), according to Bloomberg, are in

29© 22nd June 2016

NEWS

preliminary stages of discussions exploring a potential merger. An amalgamation of the banks, both of which off er Islamic banking services, would create the region’s largest bank with assets of about US$170 billion.

Saudi Arabia’s transformation program credit positive SAUDI ARABIA: The approval by the Saudi Arabian cabinet of the country’s National Transformation Program is credit positive for the sovereign and banks as it off ers a credible path to achieving fi scal and economic diversifi cations away from oil, Moody’s said in a recent report.

Bank Nizwa provides dedicated accountsOMAN: Bank Nizwa announced in a press release that it is off ering people the opportunity to pay their Zakat and Sadaqah payments through two dedicated accounts as part of its ongoing collaboration with the Ministry of Awqaf and Religious Aff airs. This payment method is open to the general public including those without accounts at Bank Nizwa. The bank also provides a Zakat

calculator feature online while payments can be made using a standing order, ATMs/CCDMs or through the bank’s website and mobile channels.

CMA publishes amended draft rules SAUDI ARABIA: The Capital Market Authority (CMA) has published an amended draft of the Rules for Qualifi ed Foreign Financial Institutions Investment in Listed Securities, which refl ects international best practice, to allow relevant parties to provide their comments and observations for a period of 30 days, according to a bourse fi ling. The CMA added that all feedback should be submitt ed no later than the 18th July, before it issues the fi nal rules.

Ithmaar appoints Bahrain Bourse as share registrarBAHRAIN: Ithmaar Bank recently assigned Bahrain Bourse as a share registrar for the shares of the Islamic retail bank, according to a bourse fi ling. The agreement will see the bourse providing Ithmaar Bank with a number of services including maintaining a record of the share register that holds the

shares in electronic form and updating the data of the registry resulting from dealing on the company’s shares. In addition, the bourse will also provide the bank with online services that include real-time shareholding confi rmations with the percentage of investors’ holdings, key persons’ dealings, investors’ account statements and other periodical reports.

KFH-Bahrain holds stake in Deerat projectBAHRAIN: KFH-Bahrain held a groundbreaking ceremony for the new Deerat Al Oyoun housing project, which is part of the Mazaya program and of which KFH-Bahrain is a key shareholder. The Deerat Al Oyoun community will comprise 3,100 residential units built on a land area of 1.2 million square meters on the south side of Diyar Al Muharraq as per the agreement signed by the Kingdom of Bahrain represented by the Ministry of Housing and Dyar Almuharraq of a value over US$730 million. The anticipated date for the project’s completion is end of 2017, according to a press release.

ASSETMANAGEMENTIslamic equity fundPAKISTAN: The Pakistan Stock Exchange (PSX) has approved the formal listing and quotation of the units of the Al-Ameen Islamic Dedicated Equity Fund, an open-ended mutual fund, on the exchange eff ective the 15th June, according to a statement.

EPF to open registration for Simpanan ShariahMALAYSIA: The Employees Provident Fund (EPF) announced in a statement that its new retirement savings option, Simpanan Shariah, will be open for registration to members on the 8th August 2016 on a fi rst-come, fi rst-served basis. The EPF has allocated an initial fund size of RM100 billion (US$24.58 billion) and is targeting to grow its investment in Shariah assets by at least RM25 billion (US$6.15 billion) a year on average, or

in tandem with the total asset growth to maintain a minimum 45% of Shariah assets. The dividend rate for Simpanan Shariah, to be launched in 2017, will be based on the portfolio performance of Shariah compliant investments and will not have any guaranteed minimum dividend.

BLF to deepen Islamic capital marketsBAHRAIN: The US$100 million Bahrain Liquidity Fund (BLF), launched recently by the Securities and Investment Company (SICO) in collaboration with other market participants, will be used to invest in Shariah compliant and conventional equity instruments listed on the Bahrain Bourse, Najla M Al Shirawi, CEO of SICO, told IFN. The SICO-managed fund will act as a market maker providing two-way quotes on most of the listed stocks with a reasonable spread to allow investors to actively trade their stocks. “The Bahrain Liquidity Fund will provide liquidity on Shariah compliant equity instruments traded on the Bahrain

Bourse,” said Najla. This initiative follows other recent developments in Bahrain to deepen both its Islamic and conventional capital markets including the introduction of the Bahrain Islamic Index, the introduction of rules for REITs and the off ering of Bahraini government bonds and treasury bills.

TAKAFULArabian Shield and SRB collaborateGLOBAL: Arabian Shield Cooperative Insurance Company, a Shariah compliant general and medical insurance provider in Saudi Arabia, has assigned the Shariyah Review Bureau (SRB) to ensure that it meets its Shariah compliance requirements of sett ing up the Shariah board, managing ongoing supervision and administering certifi cation and Shariah audits, according to a press release.

30© 22nd June 2016

NEWS

RATINGSRAM reaf irms HSBC Amanah MalaysiaMALAYSIA: RAM has reaffi rmed the ‘AAA/Stable/P1’ fi nancial institution ratings on HSBC Amanah Malaysia, as well as the ‘AAA/Stable’ rating on the bank’s RM3 billion (US$733.18 million) multicurrency Sukuk program (2012/2032), according to a statement.

Fitch af irms Omani banks’ ratingsOMAN: Fitch has affi rmed Bank Muscat’s long-term issuer default rating (IDR) at ‘BBB+’ and the long-term IDRs of National Bank of Oman, Bank Dhofar, Bank Sohar and Ahli Bank at ‘BBB’. The outlooks on these IDRs have been revised to negative from stable following a review of Fitch’s assessment of Oman’s ability to support domestic banks. The fi ve banks off er Islamic banking services on a window basis. Fitch has also downgraded HSBC Bank Oman’s long-term IDR from ‘A+’ to ‘A’ with a negative outlook.

TBP’s Sukuk rating reaf irmed by RAMMALAYSIA: RAM has reaffi rmed the ‘AA2/Stable’ rating on Tanjung Bin Power (TBP)’s Sukuk Ijarah program of up to RM4.5 billion (US$1.1 billion) in nominal value (2012/2029), according to a statement. RAM noted that the rating refl ects TBP’s strong debt-coverage levels owing to robust cash fl ow generation and a well-matched debt repayment profi le, and is also supported by the favorable terms of its power purchase agreement with Tenaga Nasional, its sole off -taker.

Emirates NBD’s ratings upgraded by Moody’sUAE: Moody’s has upgraded Dubai-based Emirates NBD’s long-term deposit and senior unsecured ratings to ‘A3’ from ‘Baa1’, with a stable outlook, according to a statement. The rating agency also upgraded the bank’s counterparty risk assessment to ‘A2(cr)/P-1(cr)’ from ‘A3(cr)/P-2(cr), following the one-notch upgrade of its baseline credit assessment to ‘ba1’ from ‘ba2’. Concurrently, Moody’s also affi rmed the bank’s ‘Prime-2’ short-term deposit ratings and upgraded EIB Sukuk Company’s senior unsecured medium-term notes to ‘(P)A3’ from ‘(P)Baa1’ and senior unsecured foreign currency to ‘A3/Stable’ from

‘Baa1/Positive’. Outlook on EIB Sukuk Company was revised to stable from positive.

MARC af irms rating on SDEB’s SukukMALAYSIA: MARC has affi rmed the‘BBB-IS’ rating on Senai-Desaru Expressway (SDEB)’s RM1.89 billion (US$460.52 million) Islamic medium-term note (restructured Sukuk) program with a stable outlook. According to a press release, the rating incorporates the improving traffi c volume on the expressway and the accommodative payment structure under the program which allow SDEB to improve its cash fl ow coverages.

Emirates Retakaful’s ratings af irmedUAE: Emirates Retakaful’s ‘B++’ fi nancial strength rating and ‘bbb+’ issuer credit rating have been affi rmed with a positive outlook by AM Best. The rating agency in a statement noted that the ratings refl ect the re-insurer’s strong risk-adjusted capitalization and stable, yet modest technical performance. An off sett ing rating factor is the fi rm’s limited business profi le which has been aff ected by intense competition and the prevailing softening of the global reinsurance market.

Emaar Sukuk’s facilities upgradedUAE: The rating on Emaar Properties’s senior unsecured US$2 billion trust certifi cate program established under Emaar Sukuk has been upgraded to ‘(P)Baa3’ from ‘(P)Ba1’ by Moody’s which concurrently enhanced the ratings on two US$500 million senior unsecured Sukuk issued under the program from ‘Ba1’ to ‘Baa3’. According to a statement, the ratings, which are aligned with the real estate developer’s ‘Baa3’ long-term issuer rating, carry a stable outlook.

PPLN Sukuk ratedINDONESIA: State-backed electricity producer Perusahaan Listrik Negara (PPLN)’s IDR200 billion (US$14.94 million) Sukuk Ijarah facility has been assigned a ‘idAAA(sy)’ rating by PEFINDO. The paper, according to a statement, will mature on the 21st June.

Sewatama’s Sukuk rating af irmedINDONESIA: The rating on power solutions provider Sumberdaya Sewatama’s IDR200 billion (US$14.94 million) Sukuk Ijarah maturing in

2017 has been affi rmed at ‘idA(sy) by PEFINDO.

AIB’s ‘BB’ rating af irmedBAHRAIN: Capital Intelligence has affi rmed the ‘BB’ fi nancial strength rating of Al Baraka Islamic Bank (AIB), a member of Al Baraka Banking Group, with a stable outlook, according to a statement. The rating is supported by AIB’s strong ownership, comfortable liquidity arising from customer deposit funding and improvements in the capital adequacy ratio and fi nancing asset quality.

MARC af irms Grand Sepadu (NK)’s SukukMALAYSIA: MARC has affi rmed its ‘AA-IS’ rating on Grand Sepadu (NK)’s issuance of a RM210 million (US$51.4 million) Sukuk Murabahah facility, according to a press release. Grand Sepadu is the concessionaire of the New North Klang Straits Bypass (NNKSB) expressway until 2032. The outlook on the rating is stable. The rating takes into consideration the concessionaire’s adequate cash fl ow coverages, resilient traffi c performance on the expressway, NNKSB’s higher capacity as compared with alternative routes and Grand Sepadu’s moderately leveraged capital structure.

Africa Re’s ratings upgradedGLOBAL: AM Best has upgraded the fi nancial strength rating of African Reinsurance Corporation (Africa Re) from ‘A-’ to ‘A’ and the issuer credit rating from ‘a-’ to ‘a’ according to a press release. The outlook for each rating has been revised from positive to stable. Africa Re operates a re-Takaful subsidiary in Cairo. Ratings are refl ective of Africa Re’s excellent risk-adjusted capitalization, consistently strong operating performance and robust market position in the increasingly competitive African reinsurance sector, given political and economic instability in the region.

Join the most active Islamic finance focused group on

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31© 22nd June 2016

NEWS

MOVESKuwaiti European Holding GroupUK: Humphrey Percy, the founder and previously CEO of Shariah compliant Bank of London and The Middle East, has taken the helm at Kuwaiti European Holding Group as its group CEO, IFN has learned.

Bank ABC plans branch expansionBAHRAIN: Bank ABC, which operates Bank ABC Islamic, has made several key appointments to support its growth plans: Christopher Willmot joins as the group head of treasury and fi nancial markets, replacing John Eldredge; Paul Howard is the new group chief credit and risk offi cer, assisted by Stephen Thomson as the group chief credit offi cer; and Rajat Sapra will be helming the bank’s overall capital market business, according to a press release.

Concurrently, the bank has also announced plans to expand its international footprint by seeking regulatory approval to open branches in the Dubai International Financial Center and in Singapore as part of its

international wholesale banking client strategy and linking MENA to Asian markets.

BankIslami PakistanPAKISTAN: BankIslami Pakistan has appointed Siraj Ahmed Dadabhoy as a director, replacing Shabir Ahmed Randeree whose directorship with the bank had ceased eff ective the 7th June, confi rmed a bourse fi ling.

Reserve Bank of IndiaINDIA: Reserve Bank of India governor Dr Raghuram G Rajan, a strong Islamic fi nance advocate, has announced that he will be stepping down from his role at the central bank on the 4th September to return to academia, according to a press release.

GATEWAY GLOBAL: Ashley Freeman, an Islamic fi nance lawyer previously att ached to Cliff ord Chance and the Central Bank of Bahrain, will be heading GATEWAY, an upcoming legal consultancy dedicated to Islamic fi nance and the ethical economy, Freeman informed IFN. The new setup is expected to launch the fi rst working day after Eid al Fitr this year with presence in London, Bahrain, Kuala Lumpur,

Istanbul and Cairo as well as outposts in Switz erland and East Africa. Dr Hurriyah El Islamy, the former group co-head of Shariah and governance at CIMB Islamic, will also join the upcoming outfi t.

Al Madina InvestmentOMAN: Mohsin Shaik Sehu Mohamed, the director and head of Islamic fi nance of Al Madina Investment, will be leaving his role this week, IFN has learned.

Zurich Insurance GroupGLOBAL: Switz erland-based Zurich Insurance Group, which is inching closer toward entering one of the world’s largest Takaful markets, has reshaped its group with a new leadership structure eff ective on the 1st July 2016, according to a press release. To be led by Mario Greco as group CEO, the Zurich Executive Committ ee will consist of the following members: Urban Angehrn as chief investment offi cer, Jeff Daily as CEO of Farmers, Mike Foley as CEO of North America, George Quinn as CFO, Cecilia Reyes as chief risk offi cer, Gary Shaughnessy as CEO of EMEA (Europe, Middle East and Africa) and Kristof Terryn as COO which is a newly-created role.

Shariah non-compliance risk has been defined as ‘The risk that arises from the bank’s failure to comply with the Shariah rules and principles determined by the relevant Shariah regulatory councils.’(IFSB). This timely one day course sets out Shariah compliance and governance requirements under Malaysian law. It also discusses the role of compliance and Shariah compliance functions, as well as specifically the obligations, procedures, disclosure and reporting requirements and rectification options in the case of Shariah non-compliance.

HIGHLIGHTS• Shariah Compliance and Governance Requirements within an IFI• Regulatory Issues of Shariah Governance and Shariah Non-Compliance Reporting• Procedures, Obligations and Responsibilities of Shariah Non Compliance Reporting (SNC)• Rectification Options in the Situation of SNC

W: www.redmoneyevents.com | E: emerson.dinesh@redmoneygroup.com | T: 603 2162 7800 ext. 43

16th August 2016DoubleTree Hotel, Kuala Lumpur

SHARIAH NON-COMPLIANCESHARIAH NON-COMPLIANCERISK MANAGEMENT & REPORTINGRISK MANAGEMENT & REPORTINGFOR ISLAMIC BANKING & FINANCEFOR ISLAMIC BANKING & FINANCE

SHARIAH NON-COMPLIANCERISK MANAGEMENT & REPORTINGFOR ISLAMIC BANKING & FINANCE

Prof. Dr. Mohamad Akram LaldinExecutive Director, International ShariahResearch Academy for Islamic Finance(ISRA)

Panel Speakers:

Associate Professor Dr Rusni HassanMember,Shariah Advisory Council,Bank Negara Malaysia and Deputy Dean, IIUM Institute of Islamic Banking and Finance

Ahmad 'Arif Bin Mohd ArshadHead,Group Shariah Business Compliance,Group Risk, Compliance & CreditManagement, RHB Islamic

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RM 2,150PRICE:

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Developments in the Basel global bank capital and regulatory framework are significant and ongoing, and are focused on the overhaul of the standardized approaches for a multitude of risk exposure capital requirements.

Other initiatives include the ongoing evolution of the Basel III framework, with a specific focus on the Basel Committee on Banking Supervision’s restructuring of the standardized approaches for calculation of regulatory capital requirements. The 2016 finalization of the Basel Fundamental Review of the Trading Book change processes will culminate in a new market risk capital framework (effective 2018) with the issuance of the new Basel Market.

These and other developments are covered in detail in this timely, one-day seminar delivered by leading risk management experts. Also covered in detail will be the impact, scope and requirements of the Basel Pillar 2 ICAAP (Internal Capital Adequacy Assessment Process) as well as BCBS 239 Basel lll reporting requirements under Basel lll – which some observers have described as a very significant regulatory burden for Asian banks.

W: www.redmoneyevents.com | E: emerson.dinesh@redmoneygroup.com | T: 603 2162 7800 ext. 43

25th July 2016 DoubleTree Hotel, Kuala Lumpur

LATEST DEVELOPMENTS INRISK MANAGEMENT & BASEL IIIRISK MANAGEMENT & BASEL IIIFOR FINANCIAL INSTITUTIONSFOR FINANCIAL INSTITUTIONS

LATEST DEVELOPMENTS INRISK MANAGEMENT & BASEL IIIFOR FINANCIAL INSTITUTIONS

Panel Speakers:

Douglas Bongartz-RenaudFormer Global Head of Currency,Derivatives and Global Head of Rate, Derivatives and Structured Products, ABN AMRO

Eckart KoernerExecutive Director,Financial Risk Management Services,PwC

Sophia LeeCo-Head,Financial Institutions Ratings,RAM Rating Services

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32© 22ndJune 2016

DEAL TRACKER

Expected date Company's name Size Structure Announcement DateTBA Bank Sulsebar IDR50 billion Sukuk Mudarabah 20th June 2016

TBA Government of Oman US$2.5 billion Sukuk 20th June 2016

Second quarter of 2016 Bank Albilad up to SAR2 billion Sukuk 20th June 2016

TBA Tiga Pilar Sejahtera Food IDR1.5 trillion Sukuk 17th June 2016

TBA Islamic Development Bank RM400 million Sukuk 17th June 2016

Jul-16 Public Sector Home Financing Board

RM25 billion Sukuk/Bonds 13th June 2016

TBA Almarai Company TBA Sukuk 10th June 2016

By the end of 2017 Ministry of Housing Saudi Arabia

TBA Sukuk 9th June 2016

TBA Mahan Air IRR5 trillion Sukuk Ijarah 8th June 2016

TBA Government of Pakistan PKR79.1 billion Sukuk 7th June 2016

TBA The Philippines TBA Sukuk 6th June 2016

Jun-16 Pengurusan Air SPV RM1.4 billion Sukuk 3rd June 2016

TBA Ekovest RM3.64 billion Sukuk Wakalah 2nd June 2016

TBA GFH Financial Group US$150 million Sukuk 2nd June 2016

July 2016 MB Holding Co US$150 million Sukuk 31st May 2016

TBA Government of Sri Lanka US$1 billion Sukuk 27th May 2016

TBA Saudi Aramco TBA Sukuk 26th May 2016

TBA Al-Tajamaout for Touristic Projects

JOD45 million Sukuk Ijarah 24th May 2016

Third quarter of 2016 Government of Nigeria TBA Sukuk 23rd May 2016

TBA Societe Generale RM1 billion Sukuk 23rd May 2016

TBA Bank Muamalat Malaysia RM1 billion Sukuk Murabahah 23rd May 2016

TBA Bank Rakyat Malaysia RM5 billion Sukuk Murabahah 20th May 2016

TBA Government of Germany TBA Sukuk 18th May 2016

TBA Aktif Bank TRY100 million Sukuk 9th May 2016

By 2017 Republic of Maldives TBA Sukuk 29th April 2016

Third quarter of 2016 Saudia up to SAR5 billion Sukuk 26th April 2016

TBA Neelum Jhelum Hydropower Company

PKR100 billion Sukuk 25th April 2016

By 2017 BRI Syariah TBA Sukuk 21st April 2016

TBA PRAN Foods BDT1 billion Sukuk 11th April 2016

TBA Government of Kuwait KWD2 billion Sukuk 5th April 2016

Fourth quarter of 2016 Bank Syariah Mandiri IDR1 trillion Sukuk 5th April 2016

TBA Qatar International Islamic Bank QAR1 billion Sukuk 31st March 2016

2016-17 Sarana Multigriya Finansial IDR200 billion Sukuk 4th March 2016

TBA Kuveyt Turk TRY1.85 billion Sukuk 1st March 2016

TBA Ziraat Bank (Participation Unit) TRY1.5 billion Sukuk 1st March 2016

TBA Hong Kong TBA Sukuk 1st March 2016

TBA Cahya Mata Sarawak RM1 billion Sukuk Ijarah 22nd February 2016

TBA Saudi Electricity Company US$2.5 billion Sukuk 16th February 2016

2016 Kuwait Finance House TBA Sukuk 1st February 2016

TBA Oman Telecommunications US$130 million Sukuk 28th January 2016

March-April 2016 Government of Qatar TBA Sukuk 26th January 2016

2017 Government of Kenya TBA Sukuk 26th January 2016

TBA Tenaga Nasional US$3 billion Sukuk 8th January 2016

TBA Toprak Mahsulleri Ofi si up to TRY600 million Sukuk 7th January 2016

First quarter of 2016 Government of Egypt TBA Sukuk 7th December 2015

TBA Samalaju Industrial Port up to RM950 million Sukuk Murabahah 27th November 2015

33© 22nd June 2016

REDMONEY SHARIAH INDEXES

SAMI Halal Food Participation (All Cap) 6 months

REDmoney Asia ex. Japan 6 Months REDmoney Europe 6 Months

REDmoney GCC 6 Months REDmoney Global 6 Months

REDmoney MENA 6 Months REDmoney US 6 Months

1550

1690

1830

1970

2110

2250

Jun-2016May-2016Apr-2016Mar-2016Feb-2016Jan-2016

All Cap Large Cap Medium Cap Small Cap

450

860

1270

1680

2090

2500

JunMayAprMarFebJan700

800

900

1000

1100

1200

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

450

620

790

960

1130

1300

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

680

984

1288

1592

1896

2200

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

400

550

700

850

1000

1150

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

800

1090

1380

1670

1960

2250

JunMayAprMarFebJan

All Cap Large Cap Medium Cap Small Cap

34© 22nd June 2016

REDMONEY SHARIAH INDEXES

For further information regarding REDmoney Indexes contact:

Andrew MorganManaging Director, REDmoney Group

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

RED

REDmoney Global Shariah Index Series

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

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

Utilities2%Telecomunication Services

2%

Technology14%

Basis Materials15%

Non-CyclicalConsumer Goods Services

7%

Energy8%

Financials4%

Healthcare11%

Industrials22%

Consumer Goods Services15%

REDmoney Global Shariah

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

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

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

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

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

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

450

640

830

1020

1210

1400

JunMayAprMarFebJan 400

570

740

910

1080

1250

JunMayAprMarFebJan

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

850

1200

1550

1900

2250

JunMayAprMarFebJan

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

500

890

1280

1670

2060

2450

JunMayAprMarFebJan

REDmoney Asia ex. Japan REDmoney Europe REDmoney GCC

REDmoney Global REDmoney MENA REDmoney US

35© 22nd June 2016

EUREKAHEDGE FUNDS TABLES

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

Eurekahedge North America Islamic Fund Index

Inde

x Va

lues

Based on 64.95% of funds which have reported May 2016 returns as at 21st June 2016

Based on 57.14% of funds which have reported May 2016 returns as at the 21st June 2016

Top 10 Monthly Returns for Islamic Global Funds

Fund Fund Manager Performance Measure Fund Domicile

1 CIMB Islamic Greater China Equity CIMB-Principal Asset Management 6.64 Malaysia

2 AmOasis Global Islamic Equity AmInvestment Management 3.84 Malaysia

3 WSF Global Equity - USD I Cogent Asset Management 1.25 Guernsey

4 HSBC Amanah Global Equity Index - AD HSBC Amanah Central Shariah Committ ee 1.20 Luxembourg

5 Pacifi c Dana Dividen Pacifi c Mutual Fund 0.78 Malaysia

6 BLME Sharia'a Umbrella SICAV-SIF Global Sukuk - Class A USD

Bank of London and The Middle East 0.32 Luxembourg

7 Jadwa Global Sukuk Jadwa Investment 0.20 Saudi Arabia

8 Al Rajhi Global Equity UBS 0.19 Saudi Arabia

9 Al Rajhi Commodity Mudarabah - USD Al Rajhi Bank 0.15 Saudi Arabia

10 Watani KD Money Market National Bank of Kuwait 0.06 Cayman Islands

Eurekahedge Islamic Fund Index 0.07

Top 10 Monthly Returns for ALL Islamic Funds

Fund Fund Manager Performance Measure Fund Domicile

1 Eastspring Investments Dinasti Equity Eastspring Investments 6.98 Malaysia

2 CIMB Islamic Greater China Equity CIMB-Principal Asset Management 6.64 Malaysia

3 Kuwait Investment Kuwait Investment Company 6.30 Kuwait

4 Public China Itt ikal Public Mutual 6.19 Malaysia

5 PB Islamic Asia Strategic Sector Public Mutual 5.69 Malaysia

6 Public Asia Itt ikal Public Mutual 4.99 Malaysia

7 CIMB Islamic Asia Pacifi c Equity - MYR UOB Asset Management 4.91 Malaysia

8 Manulife Investment Shariah Asia-Pacifi c MAAKL Mutual 4.79 Malaysia

9 PB Islamic Asia Equity Public Mutual 4.79 Malaysia

10 Public Islamic Asia Dividend Public Mutual 4.74 Malaysia

Eurekahedge Islamic Fund Index 0.05

5060708090

100110120130140150160170

Dec

-99

May

-01

Sep-

02

Feb-

04

Jun-

05

Oct

-06

Mar

-08

Jul-0

9

Nov

-10

Apr

-12

Aug

-13

Dec

-14

May

-16

36© 22nd June 2016

EUREKAHEDGE FUNDS TABLES

Taking into account funds that have at least 12 months of returns as at the 21st June 2016Based on 67.35% of funds which have reported May 2016 returns as at 21st June 2016

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

DisclaimerCopyright Eurekahedge 2016, All Rights Reserved. You, the user, may freely use the data for internal purposes and may reproduce the index data provided that reference to Eurekahedge is provided in your dissemination and/or reproduction. The information is provided on an “as is” basis and you assume and will bear all risk or associated costs in its use, and neither Islamic Finance news, Eurekahedge nor its affi liates provide any express or implied warranty or representations as to originality, accuracy, completeness, timeliness, non-infringement, merchantability and fi tness for any purpose.

Eurekahedge Islamic Fund Equity Index over the last 5 years Eurekahedge Islamic Fund Equity Index over the last 1 year

Perc

enta

ge

Perc

enta

ge

Top 10 Islamic Fund Equity by 3 Months Returns

Fund Fund Manager Performance Measure Fund Domicile

1 Meezan Islamic Al Meezan Investment Management 16.46 Pakistan

2 Al Meezan Mutual Al Meezan Investment Management 16.42 Pakistan

3 Meezan Tahaff uz Pension - Equity Sub Al Meezan Investment Management 15.32 Pakistan

4 Atlas Islamic Stock Atlas Asset Management 14.51 Pakistan

5 Atlas Pension Islamic - Equity Sub Atlas Asset Management 14.23 Pakistan

6 Osool & Bakheet Saudi Trading Equity Bakheet Investment Group 13.67 Saudi Arabia

7 Al Rajhi Petrochemical and Cement Equity Al Rajhi Bank 10.64 Saudi Arabia

8 The Iman Allied Asset Advisors 10.07 US

9 Amana Growth Saturna Capital 8.61 US

10 iShares MSCI World Islamic UCITS ETF BlackRock Advisors (UK) 8.51 Ireland

Eurekahedge Islamic Fund Index 4.23

Top 10 Islamic Fund Globally Investing by 3 Months Returns

Fund Fund Manager Performance Measure Fund Domicile

1 Deutsche Noor Precious Metals Securities - Class A DWS Noor Islamic Funds 18.98 Ireland

2 iShares MSCI World Islamic UCITS ETF BlackRock Advisors (UK) 8.51 Ireland

3 AmPrecious Metals AmInvestment Management 8.49 Malaysia

4 WSF Global Equity - USD I Cogent Asset Management 7.99 Guernsey

5 HSBC Amanah Global Equity Index - AD HSBC Amanah Central Shariah Committ ee 6.90 Luxembourg

6 Al Rajhi Global Equity UBS 6.64 Saudi Arabia

7 CIMB Islamic Greater China Equity CIMB-Principal Asset Management 6.41 Malaysia

8 Emirates Islamic Global Balanced - Class A USD Emirates NBD Asset Management 5.60 Jersey

9 BLME Sharia'a Umbrella SICAV-SIF Global Sukuk - Class A USD

Bank of London and The Middle East 2.44 Luxembourg

10 AmOasis Global Islamic Equity AmInvestment Management 1.67 Malaysia

Eurekahedge Islamic Fund Index 5.57

Based on 57.14% of funds which have reported May 2016 returns as at the 21st June 2016

65758595

105115125135145155

May

-11

Oct

-11

Mar

-12

Aug

-12

Jan-

13

Jun-

13

Nov

-13

Apr

-14

Sep-

14

Feb-

15

Jul-1

5

Dec

-15

May

-16

65

75

85

95

105

115

125

May

-15

Jun-

15

Jul-1

5

Aug

-15

Sep-

15

Oct

-15

Nov

-15

Dec

-15

Jan-

16

Feb-

16

Mar

-16

Apr

-16

May

-16

37© 22nd June 2016

DEALOGIC LEAGUE TABLES

Global Sukuk Volume by Month Global Sukuk Volume by Quarter

0250500750100012501500

012345

876

5 11 121098764321 54321

20162015

US$mUS$bn

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

0100200300400500600

02468

1012141618

US$mUS$bn Value (US$bn) Avg Size (US$m)

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 4Q3Q2Q1Q 2Q1Q4Q3Q2Q1Q4Q3Q2Q2011 2012 2013 2014 2015 2016

Most Recent Global Sukuk

Priced Issuer Nationality Instrument Market US$ (mln) Managers2nd Jun 2016 Hazine Mustesarligi

Varlik Kiralama Anonim Sirketi

Turkey Sukuk Euro market public issue

1,000 Standard Chartered Bank, HSBC, Emirates NBD

2nd Jun 2016 Pengurusan Air SPV Malaysia Sukuk Domestic market public issue

350 CIMB Group, AmInvestment Bank

31st May 2016 Al Hilal Bank UAE Sukuk Euro market private placement

225 National Bank of Abu Dhabi

30th May 2016 GovCo Holdings Malaysia Sukuk Domestic market public issue

306 HSBC, RHB Capital, CIMB Group

24th May 2016 Noor Bank UAE Sukuk Euro market public issue

500 Standard Chartered Bank, First Gulf Bank, Dubai Islamic Bank, Sharjah Islamic Bank, Citigroup, Emirates NBD, Noor Bank

24th May 2016 DP World UAE Sukuk Euro market public issue

1,200 JPMorgan, Deutsche Bank, HSBC, National Bank of Abu Dhabi, First Gulf Bank, Barclays, Dubai Islamic Bank, SG Corporate & Investment Banking, Citigroup, Emirates NBD

23rd May 2016 EI Sukuk UAE Sukuk Euro market public issue

750 Standard Chartered Bank, HSBC, Arab Banking Corporation, Maybank, Dubai Islamic Bank, Emirates NBD, Al Hilal Bank, Noor Bank

17th May 2016 Cagamas Malaysia Sukuk Domestic market public issue

104 CIMB Group

11th May 2016 Ezdan Holding Group

Qatar Sukuk Euro market public issue

500 Mashreqbank, HSBC, Abu Dhabi Islamic Bank, Emirates NBD, Barwa Bank

11th May 2016 UEM Sunrise Malaysia Sukuk Domestic market public issue

123 Maybank, CIMB Group

10th May 2016 Boubyan Bank Kuwait Sukuk Euro market public issue

250 Standard Chartered Bank, HSBC, Kuwait Finance House, National Bank of Kuwait, Dubai Islamic Bank, Emirates NBD

28th Apr 2016 Perdana Petroleum Malaysia Sukuk Domestic market public issue

162 UOB

26th Apr 2016 Barwa Bank Qatar Sukuk Euro market private placement

125 National Bank of Abu Dhabi

25th Apr 2016 MEX II Malaysia Sukuk Domestic market public issue

333 CIMB Group

21st Apr 2016 DanaInfra Nasional Malaysia Sukuk Domestic market public issue

1,164 RHB Capital, Maybank, CIMB Group, Hong Leong Financial Group, AmInvestment Bank

20th Apr 2016 Malaysia Sukuk Global

Malaysia Sukuk Euro market public issue

1,500 JPMorgan, HSBC, Maybank, CIMB Group

18th Apr 2016 Kuala Lumpur Kepong

Malaysia Sukuk Domestic market public issue

128 Maybank, CIMB Group

15th Apr 2016 Sarawak Energy Malaysia Sukuk Domestic market public issue

387 RHB Capital, AmInvestment Bank

6th Apr 2016 Hilal Services Saudi Arabia

Sukuk Euro market public issue

300 Mizuho, Standard Chartered Bank, HSBC, Arab Banking, National Bank of Kuwait, First Gulf Bank, Dubai Islamic Bank, SG Corporate & Investment Banking, CIMB Group, Emirates NBD, Warba Bank, Noor Bank

4th Apr 2016 Putrajaya Holdings Malaysia Sukuk Domestic market public issue

137 Maybank, CIMB Group, AmInvestment Bank

38© 22nd June 2016

DEALOGIC LEAGUE TABLES

Top 30 Issuers of Global Sukuk 12 MonthsIssuer Nationality Instrument Market US$

(mln)Iss(%)

Managers

1 Perusahaan Penerbit SBSN Indonesia III

Indonesia Sukuk Euro market public issue

2,500 7.6 Standard Chartered Bank, Deutsche Bank, Dubai Islamic Bank, CIMB Group, Citigroup

2 Jimah East Power Malaysia Sukuk Domestic market public issue

2,100 6.3 HSBC, Maybank, CIMB Group

3 DanaInfra Nasional Malaysia Sukuk Domestic market public issue

1,891 5.7 HSBC, RHB Capital, Maybank, CIMB Group, AmInvestment Bank, Hong Leong Financial Group

4 IDB Trust Services Saudi Arabia

Sukuk Euro market public issue

1,836 5.5 Natixis, Standard Chartered Bank, JPMorgan, National Bank of Kuwait, Gulf International Bank, Natixis, CIMB Group, Emirates NBD

5 Malaysia Sukuk Global

Malaysia Sukuk Euro market public issue

1,500 4.5 JPMorgan, HSBC, Maybank, CIMB Group

6 DP World UAE Sukuk Euro market public issue

1,200 3.6 JPMorgan, Deutsche Bank, HSBC, National Bank of Abu Dhabi, First Gulf Bank, Barclays, Dubai Islamic Bank, SG Corporate & Investment Banking, Citigroup, Emirates NBD

7 Prasarana Malaysia Malaysia Sukuk Domestic market public issue

1,192 3.6 RHB Capital, Maybank, Kenanga Investment Bank, CIMB Group, AmInvestment Bank

8 Pengurusan Air SPV Malaysia Sukuk Domestic market public issue

1,111 3.4 Maybank, Bank Islam Malaysia, CIMB Group, RHB Capital, AmInvestment Bank

9 Danga Capital Malaysia Sukuk Domestic market public issue

1,110 3.4 RHB Capital, AmInvestment Bank, Standard Chartered Bank, DBS, CIMB Group

10 Hazine Mustesarligi Varlik Kiralama Anonim Sirketi

Turkey Sukuk Euro market public issue

1,000 3.0 Standard Chartered Bank, HSBC, Emirates NBD, HSBC

10 Axiata SPV2 Malaysia Sukuk Euro market public issue

1,000 3.0 Deutsche Bank, CIMB Group, HSBC, Maybank, Bank Mandiri (Persero)

12 Sarawak Energy Malaysia Sukuk Domestic market public issue

774 2.3 RHB Capital, Kenanga Investment Bank, AmInvestment Bank

13 Qatar Islamic Bank Qatar Sukuk Euro market public issue

750 2.3 Standard Chartered Bank, HSBC, Citigroup, QInvest, Barwa Bank, Noor Bank

13 EI Sukuk UAE Sukuk Euro market public issue

750 2.3 Standard Chartered Bank, HSBC, Arab Banking, Maybank, Dubai Islamic Bank, Emirates NBD, Al Hilal Bank, Noor Bank

15 Sultanate of Oman Oman Sukuk Euro market public issue

649 2.0 Bank Muscat

16 Rantau Abang Capital

Malaysia Sukuk Domestic market public issue

595 1.8 CIMB Group, AmInvestment Bank, RHB Capital

17 Sime Darby Malaysia Sukuk Domestic market public issue

535 1.6 Maybank

18 Arab National Bank Saudi Arabia

Sukuk Domestic market public issue

533 1.6 JPMorgan, Deutsche Bank, HSBC, Arab National Bank

19 Noor Bank UAE Sukuk Euro market public issue

500 1.5 Standard Chartered Bank, First Gulf Bank, Dubai Islamic Bank, Sharjah Islamic Bank, Citigroup, Emirates NBD, Noor Bank

19 Emirate of Sharjah UAE Sukuk Euro market public issue

500 1.5 Bank of Sharjah, HSBC, Barclays, Dubai Islamic Bank, Sharjah Islamic Bank, Commerzbank Group

19 Dubai Islamic Bank UAE Sukuk Euro market public issue

500 1.5 Standard Chartered Bank, HSBC, Arab Banking Corporation, National Bank of Abu Dhabi, Dubai Islamic Bank, Sharjah Islamic Bank, Emirates NBD

19 Arab Petroleum Investments

Saudi Arabia

Sukuk Euro market public issue

500 1.5 Saudi National Commercial Bank, Standard Chartered Bank, Goldman Sachs, First Gulf Bank, Emirates NBD, Noor Bank

23 Hilal Services Saudi Arabia

Sukuk Euro market private placement

500 1.5 Standard Chartered Bank, Mizuho, HSBC, Arab Banking Corporation, National Bank of Kuwait, First Gulf Bank, Dubai Islamic Bank, SG Corporate & Investment Banking, CIMB Group, Emirates NBD, Warba Bank, Noor Bank

24 Majid Al Futt aim Properties

UAE Sukuk Euro market public issue

499 1.5 Standard Chartered Bank, HSBC, National Bank of Abu Dhabi, Dubai Islamic Bank, Abu Dhabi Islamic Bank

25 Ezdan Holding Group

Qatar Sukuk Euro market public issue

497 1.5 Mashreqbank, HSBC, Abu Dhabi Islamic Bank, Emirates NBD, Barwa Bank

26 Cagamas Malaysia Sukuk Domestic market public issue

439 1.3 CIMB Group, Maybank

27 Almarai Saudi Arabia

Sukuk Domestic market public issue

427 1.3 HSBC, Samba Capital

28 Kuala Lumpur Kepong

Malaysia Sukuk Domestic market public issue

417 1.3 Maybank, CIMB Group

29 Putrajaya Holdings Malaysia Sukuk Domestic market public issue

375 1.1 Maybank, CIMB Group, AmInvestment Bank

30 Malaysia Airlines Malaysia Sukuk Domestic market public issue

374 1.1 CIMB Group

Total 33,133 100

39© 22nd June 2016

DEALOGIC LEAGUE TABLES

Top Managers of Sukuk 12 Months

Manager US$ (mln) Iss %

1 CIMB Group 5,296 36 16.0

2 Maybank 4,214 28 12.7

3 RHB Capital 3,133 29 9.5

4 HSBC 2,995 21 9.0

5 Standard Chartered Bank 2,678 19 8.1

6 AmInvestment Bank 1,956 20 5.9

7 Emirates NBD 1,440 14 4.4

8 Dubai Islamic Bank 1,195 12 3.6

9 Deutsche Bank 1,170 5 3.5

10 National Bank of Abu Dhabi 956 8 2.9

11 JPMorgan 843 4 2.5

12 Citigroup 816 4 2.5

13 Bank Muscat 649 1 2.0

14 Natixis 551 2 1.7

15 Noor Bank 468 7 1.4

16 Kenanga Investment Bank 390 9 1.2

17 Hong Leong Financial Group 312 2 0.9

18 National Bank of Kuwait 311 3 0.9

19 First Gulf Bank 300 4 0.9

20 Barwa Bank 260 3 0.8

21 DBS 253 2 0.8

22 Abu Dhabi Islamic Bank 243 3 0.7

23 Sharjah Islamic Bank 226 3 0.7

24 Gulf International Bank 214 1 0.7

25 Samba Capital 213 1 0.6

26 QInvest 204 3 0.6

27 Barclays 203 2 0.6

28 Arab Banking Corporation 180 3 0.5

29 SG Corporate & Investment Banking 145 2 0.4

30 UOB 139 1 0.4

Total 33,133 116 100

Top Islamic Finance Related Project Financing Legal Advisors Ranking 12 Months

Legal Advisor US$ (million) No %1 Allen & Overy 1,532 1 15.61 Latham & Watkins 1,532 1 15.63 Adnan Sundra & Low 1,361 1 13.83 Zaid Ibrahim & Co 1,361 1 13.85 Cliff ord Chance 758 1 7.75 White & Case 758 1 7.77 Salans FMC SNR Denton Group 650 1 6.68 Anjarwalla Collins & Haidermota 172 2 1.78 Haidermota & Co 172 2 1.78 Lincolns Law Chamber 172 2 1.78 Linklaters 172 2 1.78 Mohsin Tayebaly & Co 172 2 1.78 Pinsent Masons 172 2 1.7

Top Islamic Finance Related Project Finance Mandated Lead Arrangers 12 Months

Mandated Lead Arranger US$ (million) No %1 China Development Bank 821 2 9.3

2 National Commercial Bank 711 4 8.1

3 Banque Saudi Fransi 675 4 7.7

4 Samba Capital & Investment Management

670 4 7.6

5 HSBC 593 3 6.7

6 Mitsubishi UFJ Financial Group 474 3 5.4

7 Sumitomo Mitsui Financial Group 474 3 5.4

8 First Gulf Bank 414 4 4.7

9 Aga Khan Fund for Economic Development

354 2 4.0

10 Export Development Canada 299 2 3.4

Sukuk Volume by Currency US$ (billion) 12 Months

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

Global Sukuk Volume by Sector 12 Months

Global Sukuk Volume - US$ Analysis

16.8

14.1

2.0

0.6

Malaysian ringgit

US dollar

Saudi riyal

Omani rial

Turkey

17.5

1.3

1.6

2.5

4.1

4.3

0.8

Malaysia

Saudi Arabia

UAE

Qatar

Kuwait

Indonesia

Finance

Construction/BuildingUtility & Energy

GovernmentTransportation

Other

8%

9%

6% 40%

17%

20%

0100200300400500600

02468

1012141618

US$mUS$bnNon-US$ US$

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 4Q3Q2Q1Q 2Q1Q4Q3Q2Q1Q4Q3Q2Q2011 2012 2013 2014 2015 2016

40© 22nd June 2016

DEALOGIC LEAGUE TABLES

Top Islamic Finance Related Financing Mandated Lead Arrangers Ranking 12 Months

Mandated Lead Arranger US$ (mln) No %1 Abu Dhabi Islamic Bank 993 9 6.42 First Gulf Bank 867 12 5.63 Saudi National Commercial Bank 838 6 5.44 Samba Capital 813 6 5.35 Mashreqbank 736 9 4.86 Banque Saudi Fransi 731 4 4.77 China Development Bank 621 1 4.08 HSBC 581 6 3.89 Emirates NBD 517 7 3.310 SABB 502 3 3.211 Dubai Islamic Bank 474 8 3.112 Abu Dhabi Commercial Bank 437 6 2.813 Noor Bank 396 6 2.614 Maybank 338 1 2.214 CIMB Group 338 1 2.216 Al Hilal Bank 307 3 2.017 AKFED 292 2 1.918 Bank Albilad 292 2 1.919 National Bank of Abu Dhabi 251 3 1.620 Kuwait Finance House 248 3 1.621 Arab Banking Corporation 238 4 1.522 Riyad Bank 229 1 1.522 Al Rajhi Capital 229 1 1.524 Sumitomo Mitsui Financial Group 175 1 1.124 SG Corporate & Investment Banking 175 1 1.124 Mizuho 175 1 1.124 Mitsubishi UFJ Financial Group 175 1 1.128 European Bank for Reconstruction &

Development170 1 1.1

29 Gulf International Bank 165 2 1.129 Ahli United Bank 165 2 1.129 Mizuho 175 1 1.0

Top Islamic Finance Related Financing Mandated Lead Arrangers12 Months

Bookrunner US$ (mln) No %1 Mashreqbank 1,575 5 19.7

2 Abu Dhabi Islamic Bank 1,328 5 16.6

3 Noor Bank 656 3 8.2

4 Maybank 338 1 4.2

4 CIMB Group 338 1 4.2

6 Abu Dhabi Commercial Bank 327 1 4.1

7 Arab Banking Corporation 277 4 3.5

8 Saudi National Commercial Bank 267 1 3.3

8 SABB 267 1 3.3

8 Samba Capital 267 1 3.3

Top Islamic Finance Related Financing by Country 12 Months

Nationality US$ (mln) No %1 Saudi Arabia 4,789 4 30.92 UAE 4,351 15 28.13 Pakistan 1,613 3 10.44 Turkey 818 4 5.35 Qatar 700 2 4.56 Malaysia 676 1 4.47 Bahrain 570 1 3.78 Jordan 550 2 3.69 Egypt 370 2 2.410 India 368 1 2.4

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

Top Islamic Finance Related Financing by Sector 12 Months

0US$ bln 1 32 87654

Finance

Transportation

Real Estate/Property

Utility & Energy

Oil & Gas

Global Islamic Financing - Years to Maturity (YTD Comparison)

0% 20% 40% 60% 80% 100%200820092010201120122013

20152014

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

Top Islamic Finance Related Financing Deal List 12 Months

Credit Date Borrower Nationality US$ (mln)15th Apr 2016 Yanbu Aramco Sinopec

Refi ningSaudi Arabia 4,700

24th Jun 2015 Jazan Gas Projects Saudi Arabia 1,790

9th Mar 2016 Dhuruma Electricity Saudi Arabia 1,138

21st Dec 2015 Engro Powergen Pakistan 851

28th Jul 2015 GEMS Education UAE 817

16th Aug 2015 ACWA Power International

Saudi Arabia 769

11th Dec 2015 Cititower Malaysia 751

25th Jun 2015 Tecnimont SpA Italy 650

29th Nov 2015 Gulf Marine Services UAE 620

1st Mar 2016 National Oil & Gas Authority

Bahrain 570

41© 22nd June 2016

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