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Emerging Islamic Housing Finance Markets Copy

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    UIB Overview

    The only full service Islamic investment bank in Gulf CooperationCouncil (GCC) Bahrain, KSA, Kuwait, Oman, UAE & Qatar

    Regulated by the central bank in Bahrain - Bahrain Monetary Agency

    (BMA)

    Paid Up Capital: USD120 million

    UIB recognizes the needs of under-served markets with pent-updemand for Islamic products

    Increasing global awareness of Islamic financing

    A solid business model with competitive products and services whichattract investors even from conventional markets

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    F ive Business Lines

    Unicorn offers diversified products across an integrated range of financial products and services

    Corporate

    Finance andCapitalMarkets

    PrivateEquity

    Mergers and

    Acquisitions

    Takaful(Insurance)

    Asset

    Management

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    Offices

    Unicorns Global Reach

    USA (Chicago)

    GCC- Bahrain (Corporate), Dubai and Kuwait (Planned: KSA)

    Asia-Pacific Malaysia (Kuala Lumpur)

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    W hy Islamic F inance?

    j Approximately 20% of the worlds population is Muslim

    Unicorn aims to focus itsoperations across a majority of these countries

    78 million US, UK, Germany, France & Turkey

    96 million GCC, Egypt & Jordan

    215 million Malaysia, Singapore & Indonesia

    414 million Bangladesh, Pakistan & India

    6 2 million Algeria & Morocco

    MuslimPopulation

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    Global Demand for Islamic Financial Products growing @ 17%annually

    Oil revenues to produce current account surplus of $ 4 00 Billion in2006 in ME & GCC

    Demand likely to be fueled to levels not seen before due toincreasing oil revenues

    ME & GCC economies to grow at 5.5% in 2006

    More than 300 Islamic Financial Institutions operating globally

    Islamic F inancial Markets

    General Observations

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    Key Objective

    Become a major player in developing the Islamic capitalmarkets through the growth of primary housing finance

    markets and filling the gap for fixed-income investmentinstruments via Sukuk (bond) issuances

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    Model

    Own and operate housing finance companies with strategic partners in Islamicmarkets offering world class mortgage origination, underwriting and servicingtechnology

    Islamic housing finance products and operations

    Utilize warehouse lines and bond issuances (Sukuks) as main source of funding

    Securitize and issue Sukuks (MBS) on a flow basis

    Develop GCC and other emerging Islamic capital marketsCorrespondent program to enforce origination, underwriting and servicing

    standards

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    Islamic Housing F inance - GCC and Beyond(Turkey, Jordan, Lebanon)

    Attractive demographics and population size

    Key reforms at the sovereign level relating to housing finance andcapital markets

    Stable political and legal/regulatory environments

    Growing middle class and consumer markets

    Decent sovereign ratings

    Mortgage to GDP Ratios much below the more developed mortgage markets

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    Uniquely Positioned to Build and Capture Islamic Primary/Secondary Housing F inance Markets

    A strategic alliance with UIB provides the following advantages :

    Renowned capabilities in developing Islamic structures/products

    Strong expertise in housing finance relating to the primary, as well as the secondarymarket

    Qualified staff with extensive Western experience

    Clear vision & strategy to become the major player in the Islamic housing financemarkets

    Willingness to form strategic alliances to gain from international and local expertise of respective partners

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    Demystifying Islamic Primary Mortgage Market Principles

    Making money from money is not Islamically acceptable Thus, Islam prohibits interestand usury (Riba )

    Key Islamic mortgage principle the financier must share in the risks and rewards relating to an underlying asset rather than receiving a fixed and guaranteed interestincome

    2 common Islamic mortgage structures:

    Ijara (akin to a finance lease ) a financer purchases an asset and leases it to a client through aleasing contract for a specified rent and term. The owner of the asset (the financier) bears all risksand rewards associated with ownership and sells it to the client upon payment of the last installment

    Mush araka (akin to a declining-balance mortgage ) an equity participation contract under which afinancier and its client contribute jointly to purchase a home (e.g. financier ( 80%) and client (20%).Ownership is distributed according to each party's share in the financing (co-ownership). The titledeed is held in the name of the financier and transferred to the clients name upon payment of the lastinstallment

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    Demystifying Islamic Secondary Mortgage Market Principles

    Islamic bond (certificate) is known as a Sukuk

    Key mortgage-backed Sukuk principle : the certificate must be asset and not just debtbased

    Must sell the underlying asset (i.e. real estate property) into the secondary market andnot just the receivables(i.e. transfer of risks and rewards in the real estate asset)

    Tradable mortgage-backed Sukuks are backed by i jara and m ush araka structures

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    Housing F inance and Bond Markets

    Housing Finance and bonds (MBS) are the backbone of any economy and capitalmarkets, respectively

    USD7 trillion of mortgages (residential/commercial) originated in the U.S.annually; whereas the U.S. corporate market stands at USD 4 trillion annually

    Approximately 40 industries linked to housing finance (e.g. insurance, appraisaland construction)

    Housing finance key to development of SME market

    MBS a key tool for the development of the bond markets (e.g. In 1 970, first U.S.MBS issuance; by 1 99 5 USD20 trillion of MBS)

    MBS allows for lower interest rates due to increased competition and long-termtenors

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    Source of F unding - Debt Capital Markets

    Trends in conventional Capital (Bond) Markets will berepeated in the Islamic (underdeveloped) financialmarkets.

    Conventional

    198 0s and 1 99 0s 2000 2006

    Islamic

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    Total MBS issuance

    $54 .2 $5 7 . 1$ 60.4 $777.

    $54 .

    $ 1 3 62. 1

    $ 1 83 7.

    $4 88 .3 $5 13 .2

    199 4 199 5 199 6 199 7 1998 1999 2000 200 1 2002

    2002 MBS market sh areUS$ billions

    Total MBS issuance $1, 838

    Total originations $2,526

    Total MBS outstanding $3 ,157

    Annual MBS issuance

    Source: Inside MBS and ABS, January 10, 200 3

    Evolution of U.S. Mortgage Securitization - Market Sizing

    73%of mortgageoriginations

    fundedthrough MBS

    U.S. Securitized Assets

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    Case Study: Kingdom of Saudi Arabia (KSA)

    Largest GCC market

    Total GDP : USD 400 billion

    Mortgage to GDP Ratio : 1.9%

    Demand for 300,000 housing units annually

    Housing finance potential : USD 45 billion annually(Est: 1/ 4 of the housing units are built and financed)

    Total Population : 22 million

    Growing middle class (Annual Income Level: USD1600 USD 3200)

    Baby Boomers - 65% of the Population under age 35

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    GCC Demographics

    erce age o op a io

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