The Future of Islamic Finance

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THE FUTURE OF ISLAMIC FINANCE

Ibrahim HassanChief Executive Officer


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Section 1 : Islamic finance overall growth forecast for 2011

Section 2 : Is the Islamic finance world now better prepared in

the event of a repeat Dubai default?

Section 3 : Which geographical areas offer best growthopportunities?

Section 4 : What it takes for Islamic finance to continue

register strong growth momentum

Contents of Presentation

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Section 1 :

Islamic finance overall growth forecast for 2011

(a) Snapshot of current global position

(b) Forecast growth of Islamic Finance in 2011

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MEN

3%

GC

43

Other Asi

3%

Malaysi

10%

Aust,

Europe

Americ

5%

Iran

36

Snapshot of current global position

USDB

illion

Source: The Banker, PricewaterhouseCoopers, MIFC

Share of global Shariah Compliant

Assets

Global Shariah-Compliant Assets

38

50

63

82

1,00

300400500600700800900

10001100

2006 2007 2008 2009 2010

48

628

0100200300400500600700

2 6 2 7

Global Islamic Finance Industry,

2010*

No of Countries No of Players

4


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Share of Islamic finance to global banking business

2009

USD

trillion

Global banking assets 94.4

Shariah-compliant assets 1

% Contribution 1.04%

2009

USD

trillion

Worldwide bondoutstanding

82.2

Islamic sukuk issued 0.1


2009USD

billion

Global insurance premium 4,300

Takaful premium 9


Source: Wikipedia, PricewaterhouseCoopers, MIFC

721

0

2 0

4 0

6 0

8 0

100

2000 2010*Islamic Bankin Bankin S stem

Malaysia : Islamic Banking

Contribution

3 90

2 0

4 0

6 0

8 0

100

2000 2010*Takaful Insurance & Takaful

Malaysia : Takaful Premium

Contribution

Pe

rcentage

Percentage

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Rank Country

1 Malaysia

2 UAE

3 Saudi Arabia

4 Indonesia

5 Bahrain

Sukuk market

Ran

k

Country

1 Malaysia2 Indonesia

3 UAE

4 Saudi Arabia

5 Kuwait

Equity market

Ran

k

Country

1 Iran2 Saudi Arabia

3 Malaysia

4 UAE

5 Kuwait

Islamic banking

Rank Country

1 Iran

2 Malaysia

3 UAE

4 Saudi Arabia

5 Bahrain

Takaful

Rank Country

1 Malaysia

2 Saudi Arabia

3 Kuwait

4 Caymanisland

5 Bahrain

Fund

management

Iran, GCC & Malaysia dominate global Islamic finance.

Source: PricewaterhouseCoopers, MIFC and Islamic Financial Information

Breakdown of Islamic finance business by country

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Forecast strong growth in the next 5 years (CAGR: 20% until 2015)

More countries expected to intensify Islamic finance offerings

Islamic banking (ie. retail, commercial and sukuk) will be the engine of growth Shariah-compliant assets to account approx. 2.5% of global banking assets

5-yr

CAGR

2010 -

2015

20%

Forecast growth of Shariah-compliant assets

Source: Maybank Islamic internal team

1 ,000 1 ,2001 ,440 1 ,728

2 ,0742 ,488

0

500

1,000

1,500

2,000

2,500

3,000

2010f 2011f 2012f 2013f 2014f 2015f

7

USD bil


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Islamic Funds by Sector, 2009

Projected Growth of Islamic Funds, 2010

to 2013USD billion

Islamic Funds by Country, 2009

5-yr CAGR

2010 -

2013

25%

Global Islamic funds(excluding Sukuk) isestimated of around

USD70 billion

Islamic funds: Fast growing and superior returns

Source: Eurekahedge, IFIS, PricewaterhouseCoopers, Maybank Islamic internal 9


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Forecast Takaful premium 2011

(USD15 billion)

Share of global Takaful assets,

2009

Takaful: Under-penetrated, small but fast growing

Source: The Banker, Salam Arabic Islamic Insurance, KFH Research, EY 10

Takaful to be marketed as an alternative form of savings and

investments in the life segmentOpportunitie

s

Challenges shortage of skilled professionals across all key functions -

underwriting, risk management, claims management and technology

deployment.Distressed asset values and challenging capital markets

Global market share < 1% and expected to grow 15% to 20%

annually for the next three years


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Section 2 :

Is the Islamic financial world now better

prepared in the event of a repeat Dubai default?

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Dubai default : A lesson to learn

Dubai

default

Issue

low productivity of real estate investments Poor corporate governance untested financial legal system lack of transparency

Cause

Entity

Impacts Biggest sovereign default sinceArgentina in 2001 Damaged countrys reputation

of economic competence Negative perceptions on IF

Dubai World, a government-owned real estate, ports and leisure industry

borrowed US$80 billion:Financial instruments(Bond, Sukuk, etc)

to fuel the Emiratess property boom(mega projects: the worlds tallest building, a giantindoor ski slope, man-made palm-tree islands, etc)

announced a six-month standstill onrepayments due to conglomerates debts

Liabilities US$59 billion andUS$99 billion total assets in 2008

shaking investor confidence across thePersian Gulf including major banks withexposures to Dubai World such as RBS,Citibank and HSBC

Financial panic to world marketUS, European, Asia market fell

Source: Bloomberg, www.moneyweek.com, www.newyorktimes.com


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Can Dubais default be avoided in future?

Underlying

economic activity

back to basic Islamic finance is basedon trade

Must have real, valid and physicaltransaction

Growth of Islamic financial assets willalways be proportionate to the growth of

economy Generate legitimate profits

Mutual sharing ofrisk

Conduct right amount of due diligence Ensure proper disclosure and

transparency Reduce risks associated with leveraging

and imprudent risk taking

Promotes prudent credit

extension through:


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Section 3 :

Which geographical areas offer

best growth opportunities ?

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Total Muslim

Population = 1.57

billion (2009)

Muslim-populated countries are natural markets

Source: Wikipedia-Pew Report, 2009 15


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Penetration of Islamic finance globally is still low

Source: PEMANDU, Maybank Islamic Internal Team 16


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Demand Drivers

Strong economic growth

High Muslim

concentration

Abundant liquidity

Strong government &

regulatory push

MENA/GCC and East Asia continues as core markets

Source: The Banker and Maybank Islamic Internal Team 17


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21.0% 25.0%Malaysia

8.3% 10.0%GCC &

MENA

31.2% 33.0%Asia Pacific

2009

2011

Forecast returns of Islamic funds

Growth forecast and demographics of core markets

Source: CIA World Factbook, PricewaterhouseCoopers, MIFC , Eurekahedge and Maybank Islamic

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Emerging Markets Global Financial Centres

Retail SMEs Commercial Wealth, equity and fund

management

Sukuk Corporate Commercial Treasury & Private Equity

Other potential markets that offer growth opportunities

SriLanka

Turkey

Bangladesh

Egypt

ChinaUAE Indonesia

Pakistan

Algeria

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Section 4 :

What it takes for Islamic finance to continue

register strong growth momentum

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4 key thrusts to push Islamic finance forward

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Continue building the supporting infrastructure

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> Putting in place a comprehensive international Islamic finance

architecture that includes Syariah governance, standards andcompliance

> Allow Islamic finance to be offered on window platform for marketsat nascent stage

> Promote liberalisation through issuance of new Islamic licenses tofoster a vibrant and competitive environment

> Increase availability of liquidity management tools in the Islamicspace

> Push for tax neutrality and provide incentives for specific growth

areas

> Build pool of talents and experts in Islamic finance includes providingease for employment of expatriates


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Increase diversity of offerings

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> Provide comprehensive Islamic offerings so that no leakages to

conventional

> Equity-participation as distinguishing factor from conventional movingaway from debt-financing instruments

> Develop sophisticated financial engineering products such as Islamicstructured products, Islamic derivatives and hedging, and IslamicETFs


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Harmonisation and mutual recognition of Shariah

differences

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> Islamic finance is done to facilitate and meet the financial needs of

consumers in a particular jurisdiction

> Greater appreciation and mutual recognition is critical to push globalIslamic finance agenda

> Perception is irrelevant stop debating how others are doing itacross the globe but focus on how to go about doing it in own

jurisdictions

> Standardisation will promote consistent interpretation, but is itnecessary?


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Humanising Islamic financial services

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> Ensure fair access to Islamic finance to all communities special

attention on the unbankable segments of society

> Meet present needs without compromising future obligations

> Provide customers with complete faith and trust when banking withIFIs

> Improve the lives of the communities by giving back to them Zakat

> Advocate a greener earth through promotion of financing and equity-participation in green technology


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Brief overview of Maybank Group

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Overview of Maybank Group


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Maybank Islamic is a leading Islamic finance provider globally

The first Malaysian conventional commercial bank tooffer Islamic financial services through windowconcept in 1993

Incorporated as a full-fledged Islamic bankingsubsidiary in 2008 to pledge its commitment on thepromotion and development of Islamic finance

Now the largest Islamic finance provider in the Asia-Pacific region with Shariah-compliant assets of overUSD13.6 billion as at June 2010

Ranked 18th among global Islamic financial institutions

Source: The Banker, Nov2009


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Thank You

Ibrahim Hassan,

CEO of Maybank Islamic and

Head, Global Islamic Banking of Maybank Group

Level 19th, Tower A

Dataran Maybank, Jalan Maarof

59000 Kuala Lumpur, Malaysia

Office : +603 2297 2151Fax : +603 2297 2002

Email : [email protected]

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The Future of Islamic Finance

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