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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
DinarStandard Business Strategies for the Muslim World
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