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Mobilizing Islamic Finance for Long-Term Investment...
Transcript of Mobilizing Islamic Finance for Long-Term Investment...
© 2015 Deloitte & Touche (M.E.)1
Mobilizing Islamic Finance for Long-Term Investment
Financing Create an Enabling Environment for Long
Term Islamic Financing
Hatim El-Tahir, PhD, FCIB, FCISI
Director, Islamic Finance Group
Deloitte & Touche (ME)
The Marmara Taksim, Istanbul, Turkey
18-19 November, 2015
© 2015 Deloitte & Touche (M.E.)2
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Creating incentives for Sukuk structures with long-term maturities
Recent regulatory developments in the industry
The impact of Basel III and tax concerns on Long-term Islamic Finance
Create an Enabling Environment for Long-Term Islamic Financing
The value proposition of Sukuk
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Focus on
Products
The increasing contribution of emerging markets to world economy – signify a careful
analysis of investment enablers
Government
Support
• Embrace innovative capital market instruments approach
emphasizing on local market and customer requirements
Market
Education
Regulatory
framework
• Communicate a market education strategy to stakeholders,
to build capabilities and competencies in the industry
• Empower corporate governance practices , legal system.
• Improve Trust Laws + Tax incentives + Land Registry
• Cultivating a Sharia compliance business .
• Secure the buy-in and commitment of government
leadership, to build enabling regulatory environment.
Incentives to Foster Long-Term Finance
Enablers and influences of Sukuk with long-term maturities
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Islamic Capital Market - Blue print
Key stakeholders & their impact
Sophisticated managers aware of
industry
Active engagement of
market participants
High ethical standards driving
client relationships
Financial
Intermediaries
InvestorsRegulators
Islamic
Capital
Markets
Investment practices based on
sound, proven Islamic financial
principles
Limiting speculative
investments
Appropriate Investment advice
Sharia’ Compliance
High levels of
transparency
Appropriate regulatory and
dispute settlement environment
Corporates, and
Issuers of Islamic
Securities
Good governance practices -
disclosure and transparency
Leadership and quality of
management
When thinking about Islamic capital markets, we identify 4 key stakeholders and their
impact upon the capital market….
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Range of instruments available?
State of their development? How well are they regulated?
E.g. listed equities, debt instruments, OTC and interbank markets, Islamic funds & collective
investment schemes...etc
Islamic Financial
Instruments
Infrastructure
Policy
Frameworks
Institutions and
Systems
How developed and sophisticated are the exchanges?
How well is technology employed (e.g. e-trading platforms)?
How efficient are regulatory reporting and oversight systems
What are the stated policy goals and objectives of the regulator?
How does the policy allocate decision rights and accountability across different players (e.g.
oversight, checks and balances...etc)?
What are the bodies / boards / committees, both permanent and ad hoc, that regulate and
manage the capital market?
How well do they work with each other? What is level of support they provide to Islamic finance
industry?
Islamic Capital Market - Blue print
Key stakeholders & their impact
Four broad categories that will drive incentives to long term financing instruments
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Regulatory & Standards Development Initiatives
Collaborative approach to best practices In
du
str
y S
tan
dard
sett
ers
IIFM• Master Collateralized
Murabahah
Agreement.
• Guidelines for Islamic
hedging and liquidity
management.
IILM• Successful rounds of Sukuk
issuances to stimulate
liquidity
• Emphasis on HQLAs
AAOIFI
• Discussed the revision of
Sukuk standards with leading
international Islamic finance
shareholders
• On-going revision and
development project for
Sharia’ Standard No. (17) on
Sukuk.
IFSB
• Guidance on
Quantitative Measures
for Liquidity Risk
Management Revised
(2015)
• Guidance on Key
Elements in The
Supervisory Review
Process of IIFS
(2014)
• Revised Capital
Adequacy Standard
for IIFS (2013)
Ind
ustr
y B
usin
ess S
up
po
rtExecutive Education
• INCEIF
• Banking
• Capital Market
• Wealth Management
Applied Research
• IFP - Harvard
• University of Durham
• Thomson Reuters
Professional development
• Chartered Institute for
Securities & Investments
(CISI)
• IFQ & Risk Management
Entry level• CIMA
Certificate in banking
and Takaful
National Regulatory Authorities
Banking
• Ownership transfer
• Land registry laws
• Double tax issues
• Basel III support
Capital Market
• Industry screening guidance
• SPVs and Trust laws
• Funds and FoFs
• Tax incentives
• Collective investment rules
Takaful InsuranceWealth Management
• Business Models
• Capital adequacy
• Solvency II-III
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Business Supporting Institutions (BSIs)
Accounting and
Auditing Organization
for Islamic Financial
Institutions (AAOIFI)
International
Liquidity
Management
Corporation (IILM)
Islamic Financial
Services Board
(IFSB)
International Islamic
Center for
Reconciliation and
Arbitration (IICRA)
International
Islamic Financial
Market (IIFM)
Islamic
International
Rating Agency
(IIRA)
International
Islamic Fiqh
Academy (IIFA)
National Regulatory Authorities (NRAs)
Keep a Pace with Regulatory Development
Collaborative approach to best practices
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Governance- Embracing good business conduct
- CG Business models
- Board oversight
Process- Sharia Audit Process & procedures
- Standardizations of documents & contracts
People- Have the right skilled people
- Outreach programs for community leaders
- Communicate awareness program goals to all stakeholders
Technology-IT systems used to analyze business
and market opportunities - Core banking systems
Treasury and investment systems
Keep a Pace with Regulatory Development
Strengthening capabilities
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Capital LeverageCredit &
MarketLiquidity
Basel III and its Impact on Long-term Financing
Emphasis on leverage & liquidity
Endorsement and enforcement of the essence of equity-based that IF advocates
Risk free
asset
Public
finance
Corporate
Sukuk
Harness
Corporate
Issuance
Helped IIFS design safe investment (perpetual sukuk) and
help meet capital adequacy & liquidity requirements
Address and fill gap in governments' budget deficit
Address and fill gap in governments' budget deficit
Provide a benchmark yield curve and international
issuances as an alternative funding sources
Created opportunities for long-term Sukuk issuances
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Taqa
General
Authority of
Civil Aviation
Saudi
Electricity
Global Sukuk
Co
DanaInfra
Sukuk
Malaysia
Airports
Holdings
Berhad
Syarikat
Prasarana
Year of
Issuance 2012 2012 2012 2013 2013 2013
Issue size RM3.5 billion US $4.56 billion US $4.56 billion US $ 300 million RM2.5 billion RM2 billion
Country UAE Saudi Arabia Saudi Arabia Malaysia Malaysia Malaysia
Structure
type Sukuk Murabahah
Sukuk
MurabahahSukuk Ijarah
Sukuk
Murabahah
Sukuk
MusharakahMTN Ijarah
Opportunities in the Infrastructure
Transport & renewable energy
Leading infrastructure Sukuk issues: 2012- 2013
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Abu Dhabi Islamic Bank
Tier 1
Dubai Islamic Bank Tier 1 Al Hilal Bank Tier 1
Issuer ADIB Capital Invest 1 Ltd. DIB Tier 1 Sukuk Ltd AHB Tier 1 Sukuk Limited
RatingsMoodys/S&P/Fitch: A2/—/A+ Moodys/S&P/Fitch:: Baa1/—
/AA (S&P) / A (Fitch)
Structure Sukuk Mudharabah Sukuk Mudharabah Sukuk Mudharabah
Issue Date 19 November 2012 20 March 2013 02 July 2014
Coupon rate 6.375% 6.25% 5.5%
Tenor 72 Months Perpetual Perpetual
Currency USD USD USD
Issue Size $1000,000,000 ($1 Billion) $1,000,000,000 ($1 Billion) USD 500 million
Stock Exchange London Stock Exchange Irish Stock Exchange ,
Nasdaq Dubai/DFMIrish Stock Exchange
Governing Law English law English law English law
Arrangers
Abu Dhabi Islamic Bank ,
HSBC , Morgan Stanley ,
National Bank of Abu Dhabi ,
Standard Chartered
Emirates NBD , HSBC ,
National Bank of Abu Dhabi ,
Standard Chartered
Al Hilal Bank , Citigroup ,
Emirates NBD , HSBC ,
National Bank of Abu Dhabi ,
Standard Chartered
Opportunities in the Banking Sector
Improve regulatory capital requirements
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