Sajjad ChowdhryAssociate Editor, DinarStandard

Islamic Finance Strategy ForumToronto – May 25, 2007

Islamic Finance – A Global Appraisal

Agenda

• Industry Definition – Origins and Ideals

• A Breakdown of the Industry– Who are the key players, where are they, what do

they do?

• What’s Happening– A focus on innovation and current trends

• Industry Outlook

Agenda

• Industry Definition – Origins and Ideals

• A Breakdown of the Industry– Who are the key players, where are they, what do

they do?

• What’s Happening– A focus on innovation and current trends

• Industry Outlook

History of Islamic Finance

• Over 1400 years of development• Commerce flourished under Islamic commercial

law during Classical period• Development languished under impact of

Colonial regimes• Theoretical revival began in 1960s• Practical revival began in 1970s• Today - increasing rapid growth and

sophistication; affirmed as a viable industry

What makes Islamic Finance different?

• Revelational basis - God’s commands and the Prophet’s (s) example

• Prohibition of Riba• Regulation of Gharar• Risk Sharing• Encouragement of cooperation

• The Just Profit Motive– Ideals in earning the pleasure of Allah and the ability

to earn a profit while mobilizing resources for economic development

Agenda

• Industry Definition – Origins and Ideals

• A Breakdown of the Industry– Who are the key players, where are they, what do

they do?

• What’s Happening– A focus on innovation and current trends

• Industry Outlook

Global IF Market Size

Source: Bank for International Settlements, International Islamic Finance Forum

• Total Global Bank Assets - $27 trillion

• Islamic Finance Assets - $265 billion

• Growth of Islamic Finance per annum – 10-15%

• Total Number of Islamic Finance Institutions – over 270

Islamic Finance ‘Clusters’ … of Opportunities?

Muslim Population in each country/ region (millions)

150+ 100-150 50-100 10-50 5-10

.

.

..

.. ...

.

..

GDP Per capita (Color code)High Med Low

.

.

. Pakistan

India Bangladesh

Iran

Turkey

Europe

US

South America

Kazakhstan

Egypt

Copyright: DinarStandard 2006

Source: World Bank

Islamic Finance ‘Clusters’ … of Opportunities?

*Malaysia: $30 billion in Assets (largest market); 11.3% of total banking system; leads standardizationSingapore: Global Center of FinanceIndonesia: Largest Islamic Country but only 1.2% of total assets Islamic

*GCC: 40 Institutions with $50 billion in assets; Avg. 15% of total banking system – Potential to 50% of total banking system; Largest market Saudi Arabia just establishing Riyadh Financial Center

Source: GCC Islamic Financial Institution Report, AT Kearny IF Report, Bank Negara Malaysia Annual report

The industry’s comprehensive product offering

Investment Banking

• Capital Markets

• Project Finance

• Corporate and Structured Finance

• Underwriting

• Advisory

• Syndication

Personal Financial Services

• Home Finance

• Auto Finance

• Current and Saving Accounts

• Debit and Charge Cards

• Investment products

Corporate Treasury and Markets

• Liquidity Management

• Yield Management

• Structured Solutions

Commercial Banking

• Import/Export Finance

• Asset Finance

• Treasury

Source: HSBC Amanah

Global IF Leaders - Commercial Banks

Source: IFIS May 9, 2007

Islamic Banks Financials (Total Assets) USD$ '000

  Commercial Islamic Banks Country Total Assets

1 Al Rajhi Bank Saudi Arabia 28,056,937

2 ABC Islamic Bank Bahrain 22,440,691

3 Kuwait Finance House Kuwait 21,952,613

4 Dubai Islamic Bank UAE 17,547,846

5 AlBaraka Banking Group Bahrain 7,638,998

6 Bank Al Jazira Saudi Arabia 4,094,447

7 Bank Islam Malaysia Malaysia 3,969,483

8 Bank Muamalat Malaysia Malaysia 3,812,690

9 Qatar Islamic Bank Qatar 3,035,489

10 Sharjah Islamic Bank UAE 2,081,092

Global IF Leaders – Investment Banks

Source: IFIS May 9, 2007

Islamic Banks Financials (Total Assets) USD$ '000

  Islamic Investment Banks Country Total Assets

1 Investment Dar Kuwait 3,657,859

2 Arcapita Bahrain 2,707,707

3 Gulf Finance House Bahrain 1,500,884

4 CIMB Islamic Malaysia 1,261,109

5 The International Investor Kuwait 376,804

6 Gulf Investment House Kuwait 329,912

7 Unicorn Investment Bank Bahrain 293,300

Will the Financial Services Authority (FSA) UK experience in UK provide a framework for other European markets and beyond?

Banks with Capital Markets FocusBanks with Retail IF Operations

IF Activity in Europe

Focus on Retail IF Operations

IF Activity in North America

• Guidance• Shape• LaRiba• Devon• University Islamic• UM Financial• Ittihad• Amana Mutual

Funds• Salam Financial• Ansar Group

IF Activity in the GCC

• Retail Islamic Finance– Dubai Islamic Bank, Al Rajhi, ABC Islamic

• Rise of Specialty Finance in the UAE– Tamweel, Amlak– ENSeC

• Growth of Investment Banking – – Calyon, Morgan Stanley, Deutsche Bank

• Regulatory Infrastructure – DIFC and DME• Drivers – Customer demand, petro dollars, real estate

development and infrastructure projects

IF Activity in Pakistan

Year 2001

•Meezan Bank•Al Baraka •Meezan Bank

•Al Baraka•MCB•Alfalah•SCB•Bank AlHabib•Habib AG Zur.•Metropolitan•Bank of Khyber•Soneri Bank

2002 2003

•Meezan Bank•Al Baraka•MCB

•Meezan Bank•Al Baraka•MCB•Alfalah

2 10

2005

•Meezan Bank•Al Baraka•MCB•Alfalah•SCB•Bank AlHabib•Habib AG Zur.•Metropolitan•Bank of Khyber•Soneri Bank•HBL-Bank Islami•DIB•Emirates Int’l•First Dawood•NBP•ABN AMRO•Askari•PICCIC

2004

1143

• In 2001, the industry comprised of just two players

• In 2006, the industry comprised of 6 Full fledged Islamic

Banks and 12 Banks with IBDs

Source: Standard Chartered

IF Activity in Malaysia

2004 2005 2006

Assets $24.9 billion $29.5 billion $34 billion

Source: Bank Negara Malaysia, Financial Times

• Islamic Finance assets close to 13% of the total asset base

• $36 billion Islamic Corporate Bond market– Close to 48% of the total market

• About 70% of Islamic Finance customers are non-Muslim

Agenda

• Industry Definition – Origins and Ideals

• A Breakdown of the Industry– Who are the key players, where are they, what do

they do?

• What’s Happening– A focus on innovation and current trends

• Industry Outlook

Sukuk – Islamic “Bonds”

• Conventional bonds are Riba, and are forbidden

• But a transaction structured on an asset base is permitted

• A series of payments arising from an asset-based transaction may be traded at a market price

• This type of arrangement is referred to as Sukuk, sometimes called “Islamic bonds.”

Sukuk – Selected Issuance

Issuer  Issue Date Arranger(s) Issue Size (MM)

DIB Sukuk Company Feb-07Barclays Capital / Citigroup / Standard

Chartered Bank USD 750

DAAR International Sukuk Company Jan-07

ABC Islamic Bank / Arab National Bank / Standard Bank / Unicorn

Investment Bank USD 600ADIB Sukuk Company Dec-06 HSBC Amanah USD 800

Nakheel Sukuk Nov-06 Dubai Islamic Bank / Barclays Capital USD 3,520Sukuk Brunei Inc 4 Nov-06 HSBC Amanah USD 77

Sharjah Islamic Bank Sukuk Oct-06

HSBC Amanah / European Islamic Investment Bank / Kuwait Finance

House / Mushreqbank USD 225SABIC Sukuk Jul-06 HSBC Saudi Arabia Limited USD 800

Sukuk Brunei Inc 3 Jul-06 HSBC Amanah USD 127The Investment Dar Second Sukuk Jun-06 Unicorn Investment / WestLB USD 150

Aabar Sukuk Jun-06Deutsche Bank / Abu Dhabi

Commercial Bank USD 460Tabreed 06 Financing Corporation Sukuk Jun-06 HSBC / Dresdner Bank AG / CIMB USD 200

Sukuk Burnei Inc 2 (Govt) May-06 HSBC Amanah USD 95Sukuk Brunei Inc 1 (Govt) Mar-06 HSBC Amanah USD 92

WAPDA First sukuk Company Limited Jan-06Citi Group / Muslim Commercial Bank

/ Jahangir Siddiqui and Company USD 134

Source: Liquidity Management Centre

$-

$5

$10

$15

$20

$25

$30

2000 2001 2002 2003 2004 2005 2006

(Bil

lio

ns)

Sukuk – Issuance Growth

Source: Islamic Finance Information Service

Human Resources

• Increasing sophistication of Shari’ah scholars– Yet there remains a dearth of scholars in the industry

• Lack of Professional Accreditation and Training

• Emergence of Product Consultancies– Dar Al-Istithmar– Yasaar– SHAPE

Major Training Institutions

• Distance Learning– International Islamic University, Malaysia– Loughborough University, UK– IBF Netversity, India– Institute of Islamic Banking and Insurance, UK

• Dedicated In House Programs– Islamic Research & Training Institute, Islamic Development Bank– Bahrain Institute of Banking and Finance – Emirates Institute of Banking and Financial Studies– Center for Islamic Economics– Islamic Banking and Finance Inst. Of Malaysia– Institute of Islamic Banking and Insurance, UK

• Research and Academic Programs

Agenda

• Industry Definition – Origins and Ideals

• A Breakdown of the Industry– Who are the key players, where are they, what do

they do?

• What’s Happening– A focus on innovation and current trends

• Industry Outlook

Current Trends to Watch

• Opportunities– Cross border cooperation– Innovation– Smart marketing– Securitization

• Challenges– Need for Recognized Accreditation Programs– Standardization

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info@dinarstandard.com

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