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Islamic Finance 2015: Views from Doha, Dubai and London
24 March 2015
Doha - Amjad HussainDubai - Natalie Boyd and Simon MabinLondon - Jonathan Lawrence and Jessica Gaddes
Welcome and introduction to Islamic finance at K&L Gates
1klgates.com
Doha
Qatar: Overview of market
• Population: 2.2 million (citizens: 350,000)
• Strong GDP Growth: 6.6% (2012 – CIA World Factbook)
• World's third largest natural gas reserves
• World's richest country per capita, ahead of Luxembourg and Singapore
• Hosting FIFA World Cup 2022
• Investing billions in building infrastructure (Lusail City, Qatar Integrated Rail Project, Hamad International Airport, Stadiums, Ras Laffan Industrial City)
Qatar: Banking sector overview
• Two regulatory regimes dealing with banking sector:• Qatar Central Bank – 18 licensed financial institutions • Qatar Financial Centre – 60+ licensed firms
• Robust asset growth - 11.6% in 2013
• Third largest banking sector in the GCC
• Strong net profit in 2013 and 2014
• Strong investment-grade ratings
• 6 Independent Islamic banks
Dubai
The United Arab Emirates: Overview of market
• Dubai is aiming to be capital of the global Islamic economy by 2016
• Islamic banking assets in the UAE exceed US$100bn
• Islamic banking expected to increase market share from 25% to 50% by 2020
• Local market comprises a mix of Islamic banks and conventional banks with Islamic windows
The United Arab Emirates: Regulatory framework• Securities & Commodities Authority and the UAE Central Bank
regulate the onshore market
• The Dubai International Financial Centre (offshore) is regulated by the Dubai Financial Services Authority
• 2012 - UAE Central Bank considers closing Islamic windows
• Federal Law concerning Islamic Banks, Financial Institutions and Investment Companies
• Regulatory framework expected to be consolidated
London
United Kingdom: Overview of market
• First seen in 1980s but key growth since 2000
• London aiming to be capital of the Islamic finance industry outside of Muslim world
• Islamic banking assets worth approximately USD$19 billion
• London Stock Exchange raised over US$38 billion through 53 sukuk issues
• Market comprises a mix of Islamic banks and conventional banks with Islamic windows
• UK market generally uses sukuk, murabaha and ijara structures
United Kingdom: Islamic Banking
• 6 Fully fledged Sharia Banks• Al Rayan Bank (formerly IBB/Islamic Bank of Britain)• Bank of London and The Middle East (BLME)• QIB.UK (formerly European Finance House) • Gatehouse Bank• European Islamic Investment Bank (EIIB)• Abu Dhabi Islamic Bank (representative office)
• Over 20 international banks offering Shariah products or services
HSBC Bank Saudi American Bank (UK) Ltd Qatar National Bank
Habib Bank Arab Bankers Association Arab African International Bank
National Bank of Pakistan Habibsons Bank Ltd Bahrain Middle East Bank
Riyad Bank Arab Banking Corp Dallah Al Baraka
United Kingdom: Development of Islamic Banking
Development of Islamic Financial Institutions in the UK - UK Excellence in Islamic Finance by gov.uk/ukti
Doha
Qatar: Regulatory framework: Qatar Central Bank Regime• Qatar Central Bank: established August 1993• 18 banks licensed; last license issued in 2009• 4 Islamic banks• 2011 QCB Circular:
• Separation of Islamic and conventional banking• Closure of Islamic finance windows of conventional banks
• New QCB Law (No. 13 of 2012): • Supreme financial regulator: control, regulatory responsibility and
supervisory power over all financial services providers in Qatar• Governor has leading function for QCB, QFCRA and QFMA• Financial Stability and Risk Control Committee established
Qatar: Regulatory framework: Islamic Banks licensed by QCB
Qatar Islamic Bank Qatar Islamic Bank founded in 1982.
Fully fledged Islamic bank with 30 branches, 160 ATM installations. Most well established.
Paid up capital of QAR 2.36 billion at the end of 2014.
Overseas affiliates include: QIB UK AFH in Lebanon, AFB in Malaysia, QIB Sudan.
Recently announced that its shareholders had approved the issuance of sukuk for up to QAR 5 billion ($1.37 billion) to boost its Tier 1 capital.
Upgraded from A to A+
Qatar International Islamic Bank (QIIB)Qatar International Islamic Bank was founded in 1991.
Historically a private banking offering but now diversifying.
It has 16 branches and offices around Qatar and some 75 ATMs across Qatar.
Paid up Capital of QAR 1.5 billion.
Looking to raise up to QAR 3 billion ($825 million) through a capital-boosting sukuk issue.
Qatar: Regulatory framework: Islamic Banks licensed by QCB
Masraf Al RayanMasraf Al Rayan was founded in 2006.
Fully fledged with focus on retail; wholesale and private banking.
Paid up capital of QAR 2.1 billion.
In 2008 established investment banking arm in QFC(Al Rayan Investment LLC)
Al Rayan Brokerage Company was established in 2011.
Recently announced it will be launching two debut funds, an ETF fund and a sukuk fund.
Barwa BankBarwa Bank was founded in 2009.
Fully fledged bank providing retail, corporate and commercial banking, business banking, private banking, real estate finance, structured finance, investments and asset management.
Paid up capital of QAR 3 billion.
Privately held. Looking to list on Qatar Stock Exchange soon.
In 2009 acquired investment bank, The First Investor.
In July 2010 acquired First Finance and First Leasing Company.
Actively involved in global sukuk and corporate finance transactions.
Qatar: Regulatory framework: Qatar Financial Centre (QFC)• Has its own rules and regulations – based on English law
• No geographical delineation – all on shore
• QFC license is valid in the State
• More attractive to foreign firms
• QFC Authority is offering incentives to develop Islamic and conventional:• Asset Management • Reinsurance• Captive Insurance
Qatar: Regulatory framework: Qatar Financial Centre (QFC)• Separation of Islamic and conventional banks – Category 5
• 2 independent banks licensed
• Qatar Finance and Business Academy: IF Training
• Mega Islamic Bank?
• Islamic Finance bridge between UK and Malaysia?
Qatar: Regulatory framework: Islamic Banks in the QFC
Qatar First Bank (QFB)Licensed by the QFCRA in April 2008.
Fully licensed Islamic bank. Investment banking focus.
Paid up capital of QAR 2 billion.
Wide shareholder base: financial institutions, prominent individuals, banks, pension funds and other strategic investors from the Gulf region.
Successful in cross border private equity transactions.
QInvest LLCLicensed by the QFCA in April 2007.
Main business divisions: Investment Banking, Principal Investments and Asset Management.
Paid up capital of US$ 750 million.
Shareholders include Qatar Islamic Bank.
Offices in Doha, Riyadh and Istanbul, as well as affiliates in India and the UK.
Successful in global sukuk and advisory mandates.
Qatar: Recent developments and trends
• Foreign Expansion• Diversification• Over-banked market• Better returns• Single borrower limits• Regulatory caps on profit• Likely to lead to further foreign expansion and M&A
Qatar: Recent developments and trends
• First Islamic Exchange Traded Fund (ETF)• Masraf Al Rayan: shareholder approval obtained• Largest Islamic ETF in the world
• FIFA World Cup 2022• $200bn spending
• Railway-metro: $60 billion• Highways, roads and a new airport: $28 billion • Port: $11 billion
• Islamic consortia: • The Golden Line: QAR3.65 billion (US$1 billion) syndicate
Dubai
The United Arab Emirates: Recent experience, deals and trends
• Recent sukuk listings and IPO of Shariah compliant REIT
• US$2.5bn theme park financing
• US$500m Garuda Airlines financing
• Derivatives
The United Arab Emirates: Requisites For Shariah Compliant Derivatives
• All financial instruments (including derivatives) must be free of the following:• Riba (usury)• RishwahI (corruption)• Maysir (gambling)• Gharar (unnecessary risk) • Jahl (ignorance)
The United Arab Emirates: Common Islamic Hedging Products
• Profit rate swaps (2007)
• Cross Currency Swaps
• Futures/Options
• Islamic repos
The United Arab Emirates: Challenges For Growth
• Investor demand pales in comparison with conventional derivatives market/varies significantly between jurisdictions
• Lack of progress of exchange traded market
• Conflicting views/opinions (fatwas) between Shariah scholars
• Limited standardisation of documentation - ISDA/IIFM Tahawwut Master Agreement (2010)
London
Development of Islamic Financial Institutions in the UK -UK Excellence in Islamic Finance by gov.uk/ukti
United Kingdom: Regulatory framework
United Kingdom: Sukuk market
• UK government Sovereign sukuk• Issued in June 2014• Raised £200 million• Matures 22 July 2019
• UK sukuk Market: an overview• US$38 billion through 53 sukuk issuances • Home to seven Shariah compliant exchange traded funds• UK Export Finance / Emirates airline sukuk
United Kingdom: Recent trends and opportunities
• Foreign investment into the UK• The Shard• Chelsea Barracks• Harrods • Olympic Village
• Infrastructure opportunities
• Islamic Insurance
United Kingdom: Case studies
• What we are seeing in the UK Islamic Finance Market
Conclusion
Islamic Finance is growing
Exciting time to be involved in the industryIndustry
K&L Gates is well placed in key jurisdictionsLocations
Cross border deals are more prevalentDeals
Opportunities are on the horizonOpportunities
Growth
Regulation of the Islamic industry is developingDevelopment
31klgates.com
Amjad HussainDoha
+(0) 974 4424 6119
Natalie BoydDubai
+(0) 971 4 427 2731
Simon MabinDubai
+(0) 971 4 427 2730
Jonathan LawrenceLondon
+44(0) 20 7360 8242
Jessica GaddesLondon
+44(0) 20 7360 8181
K&L Gates Contacts
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