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Sukuk Market Overview &

Structural Trends

IIFM Industry Seminar on

Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual World Islamic Banking Conference

Sunday, 9th December 2012, Awal Ballroom, Gulf Hotel, Kingdom of Bahrain

Ijlal Ahmed Alvi Chief Executive Officer

IIFM

What is International Islamic Financial Market (IIFM) ?

IIFM is the international Islamic financial market’s organization focused on the Islamic Capital & Money Market segment of the Islamic Financial Services Industry. Its primary focus lies in the standardization of Islamic financial products, documentation and related processes at the global level.

IIFM was founded with the collective efforts of the Islamic Development Bank, Autoriti Monetari Brunei Darussalam, Bank Indonesia, Central Bank of Bahrain, Central Bank of Sudan and the Labuan Financial Services Authority (Malaysia) as a neutral and non-profit organization.

Besides the founding members, IIFM is supported by its permanent member State Bank of Pakistan as well as by a number of regional and international financial institutions and other market participants as its members.

The main strength of IIFM is pooling of expertise from banks, legal, accounting and other market participants who work together under the guidance of Shari’ah scholars

1 IIFM Industry Seminar on Islamic Capital Market, Liquidity Management & Risk Mitigation Instruments Morning Pre-Conference Day Session, 19th Annual WIBC, 9th December 2012, Gulf Hotel, Kingdom of Bahrain

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What IIFM provides to the Industry?

Addressing the standardization needs of the industry & creating awareness

Providing universal platform to market participants through “Global Working

Groups” for the development of Islamic Capital & Money Market

Shari’ah harmonization in documentation, products and processes


Recent Sukuk Trends

Islamic Institutions Sukuk issuance to support capital base

Abu Dhabi Islamic Bank, UAE

Saudi Hollandi Bank, KSA

Sovereign Benchmark Sukuk

Turkey Government Sukuk

Indonesian Government Sukuk

UAE, Qatar, Saudi Arabia (Corporates)

Fixed Profit Rate & Lower Pricing

Longer Tenors including Perpetual


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Why The Market Need Sukuk

Allows banks to manage its Liquidity and Balance Sheet more Effectively

Offers Alternative Investment with Floating or Fixed Returns

Offers Investors with a Choice of Varied Risk & Maturity

Gives rise to Tradable Asset and provides Liquidity to the Market


Why The Market Need Sukuk

Assist Growth in the Takaful Market

Allow for a Balanced Portfolio

Ensure Prudent Borrowing

Facilitate Islamic M & A Activities

Provides an Asset that can be used for Reserve requirement and for Central Bank Money Market intervention


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Hybrid (2,087) 3% Exchangeable (6,190) 9%

Ijarah (32,734) 47%

Mudarabah (6,675) 10%

Murabahah (817) 1%

Musharakah (10,832) 15%

Salam (1,958) 3%

Wakalah (8,090) 12%

Source: IIFM Sukuk Database


Hybrid (2,550) 1%

Exchangeable (408) 0%

Ijarah (66,693) 20%

Istisna'a (3,651) 1%

Investment / Al Istithmar (9,284) 3%

Mudarabah (10,847) 3%

Murabahah (138,644) 42%

Musharakah (61,749) 19%

Salam (2,563) 1%

Wakalah (3,621) 1%

Bai' At-Tawarruq (49) 0%

Bai' Bithaman Ajil (BBA) (27,912) 8% Bai' Inah

(1,958) 1%



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Law Amendment to Issue Sukuk

Tax neutrality measures for Sukuk Income Tax Law, Corporate Tax Law,

VAT Law, Stamp Duty Law Ability to Sell State Asset

Setting up of SPV

Trust Law


What is Required for the Development & Success of the Sukuk Market

Sovereign and Quasi-Sovereign

Implicit versus explicit guarantee

Sizeable Issuance

2012 record year

Quality Corporate issuer

Market Makers


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Corporate (138,591)

42%

Quasi-Sovereign

(14,725) 4%

Sovereign (176,615)

54%

Domestic Sukuk

Corporate (39,044)

56%

Quasi-Sovereign

(7,527) 11%

Sovereign (22,811)

33%

International Sukuk



Future Prospects

We have only begun to tap the potential that exists in the global Sukuk market

Islamic banks are becoming prominent Sukuk issuers to support their balance sheet

Project finance Sukuk

Asset-backed Sukuk

Mortgage-backed Sukuk

Convertible/Exchangeable Sukuk

Use of Islamic Hedging products


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Future Prospects: Final Remarks

It is clear that the Sukuk supply side is becoming quite robust. The challenge for Islamic financial institutions is to develop the following four strategic areas:

Develop Trading Capabilities

Sell down to private and retail investors

Development of Sukuk & Balanced Fund

Liquidity Financing capabilities


1,172 1,371 6,410 8,140

12,180

29,992

48,929

18,752 25,571

47,081

92,403

107,310

0

20,000

40,000

60,000

80,000

100,000

120,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q3 2012 Source: IIFM Sukuk Database


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Breakdown of Global Sukuk Issuances – By Region Jan 2001 – Q3 2012 (All Amounts in USD Millions)

Africa (13,408) 3%

Asia, 287230, 72%

Europe (394) 0%

GCC (97,437) 25%

USA (767) 0% Central Asia and

Eastern Europe (77) 0%



Bahrain, (11,959) 3% Brunei Darussalam,

(3,688) 1%

Gambia (66) 0%

Germany(123) 0%

Indonesia, (13,607) 3%

Japan (131) 0%

Jordan, 119, 0%

Kazakhstan, 77, 0%

Kuwait (2,458) 1%

Malaysia (259,056) 65%

Pakistan (6,645) 2%

Qatar(15,783) 4%

Saudi Arabia (26,922) 7%

Singapore (380) 0%

Sudan (13,344) 3%

Turkey (2855) 1%

UAE (40,808) 10%

UK(271) 0% USA (767) 0%

Yemen (253) 0%



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Emirati Dirhams (AED)

2%

Bahraini Dinars (BHD)

1% Bruneian Dollars (BND)

1%

Chinese Yuan Renminbi (CNY)

0%

Euros (EUR)

0%

British Pounds (GBP)

0%

Gambian Dalasi (GMD)

0%

Indonesian Rupiah (IDR) 3%

Jordanian Dinars (JOD)

0%

Kuwaiti Dinars (KWD)

0% Malaysian Ringgit (MYR)

63%

Pakistani Rupees (PKR)

2%

Qatari Riyals (QAR)

2%

Saudi Riyals (SAR)

4%

Sudanese Pounds (SDG) 3.66%

Singapore Dollars (SGD)

0%

Turkey Lira (TRY) 0% United States Dollars

(USD) 17%

Yemeni Riyals (YER)

0%



Breakdown of Global Sukuk Issuances – By Maturities Jan 2001 – Q3 2012 (All Amounts in USD Millions)

Less than 1 year (141,238) 35%

2 to 5 years (114,699) 29%

6 to 10 years (82,875) 21%

11 to 15 years (23,253) 6%

16 to 20 years (18,200) 5%

21 to 25 years (5,503)1%

26 to 30 years (7,135) 2%

31 to 40 years (5,822) 1%

41 to 50 years (586) 0%



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Use of Sukuk as Collateral

International Sukuk

Domestic Sukuk


Shukaran Wassalamu ‘Alaikum

[email protected]

www.iifm.net

+973 17 500 161

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