KUWAIT FINANCE HOUSE

By

Hamad Abdul Aziz

Introduction

• Kuwait Finance House (KFH) is a public shareholding company incorporated in Kuwait, engaged principally in providing banking services

• Financial service institutions, especially banks, have never been in a more sweeping era of change.

Introduction

• Corporate Performance

• Kuwait Finance House-Bahrain is one of the leading providers of Islamic commercial and investment banking services.

• Established in January 2002 as a wholly owned subsidiary of Kuwait Finance House-Kuwait, an industry leader for more than 25 years with total assets over USD $15 BLN

Introduction

• Strategic Posture

• Due to their significant experience at year 2004, KFH is looking to continue elevating in the same manner followed.

• The main aspect they are going to focus on is to leverage their assets including their strengthened financial position, strong investment pipeline and growing recognition as an industry leader

Corporate Governance

• KFH Board Members & Management Together plays a major role & Participate in bringing up suggestions & planning the strategic directions

• Since KFH Bahrain was established early 2002 most of the management were hired from other institutions bringing with that their respectable management skills & experience.

• However the bank hasn't established a systematic approach to strategic management yet, as they are in the process of having one

Corporate Governance

• Mission

• KFH mission is to take the Islamic banking and finance to new heights through an unwavering focus on innovation and the desire to deliver excellence in everything they do including the development and offering of a broad and integrated range of products and services that are in perfect harmony with Shari’a principles

Strategies & Policies

• Strategy

• The overall strategy of KFH-Bahrain is to stimulate the market by developing and or participating in investment projects that develop the local region, with a particular emphasis on Bahrain,

• whilst simultaneously providing compelling opportunities and returns for its investors and shareholders

Strategies & Policies

• Policies

• Under the guiding principle of Shariah law, the goal of trade and enterprise within an Islamic-based society is the sharing of wealth and prosperity within the community through morally acceptable business activities. Likewise, Shariah law dictates that risk in trade and business should also be shared

Strategies & Policies

• Corporate structure

• The purpose of the Corporate Responsibility and Governance Committee is to oversee the Company's corporate governance structure, recommend individuals to the Board for nomination as members of the Board and its committees,

• lead the Board in its periodic review of Board performance and oversee the Company's activities in the areas of environmental and social responsibility.

Bank governance

• In line with the bank’s strategy, KFH-Bahrain has developed a sound and comprehensive corporate governance and risk management framework in accordance with Basel II and the CB Brule book KFH-Bahrain is committed to adopting the highest international standard and global best practices in corporate

governance

Risk management

• Towards building an enterprise wide risk management framework in 2009, the bank took steps to develop risk

management guidelines and monitoring framework for its key subsidiaries. The bank is enforcing these guidelines through its

investment managers. In achieving an optimum balance between risk and return, the bank this year has established an internal capital adequacy assessment program (ICAAP) which quantifies the economic capital standard for the key risks that

bank is exposed to including credit risk , investment risk, market risk, liquidity risk, strategic risk , reputation risk , operational risk ,

and concentration risk.

Treasury

• Strong liquidity management and capital adequacy for the bank were targeted throughout the challenging year of 2009 by the Treasury department (internally responsible for the assets & liabilities management and the interbank activities framework). The development of services in the fields of liquidity management, long term investment funds and asset-backed securities, intended for financial institutions as well as corporate and institutional investors are also a mission for the department

Products / Services

• KFH-Bahrain’s consumer banking and finance services combine a broad range of innovative products and services with exceptional customer care.

• Their products and financing facilities are developed with the aim of providing for the long- term needs of customers and those of the local market, which continue to increase.

Products / Services

• Service enhancements that provide customers with greater access to information and funds – whether it be locally or worldwide – or through the launch of never before seen products such as KFH-Bahrain’s Ijara card, the world’s first Islamic financing card that allows cardholders to acquire durable goods on a lease-to-own basis.

• Consumer financing provisions available from KFH-Bahrain are also available in areas such as:

– Home financing

– Auto financing

– Personal financing

Types of consumer banking :

Type of consumer

banking Features

1. Current Account Current Account offers various flexible payment methods to allow customers to distribute money directly to others, and is useful for individuals, companies or institutions. You can open this account with an amount not less than 100 Bahraini Dinars, whereby the account balance is considered as a charitable loan “Qard Hassan” that doesnt yield or accrue any profits or losses and we are obliged to pay this amount

immediately upon your request.

2. Investment Savings Account

This account can be opened for an individual, companies or institutions with an amount not less than 20 Bahraini Dinars. It provides you with savings and investments in line with Islamic Shari’a principles whereby profits on ivestments are distributed on the basis of unrestricted mudarabah.

3. Unrestricted

Investment Accounts One of the most popular types of accounts at KFH is the “Unrestricted Investment Account”. This account, known as a “URIA”, is based on the principle of Mudaraba where you (as rab al mal) entrust your funds with KFH (as Mudarib) who will invest on your behalf. We invest URIA funds with the bank’s own money -

making the bank and its customers “partners” 4. Electronic Account This account is a non profitable account and can be opened for an

individual, companies or institutions. It can be used for payment of the variety of Islamic Shari’a compliant finance services we have to

offer.

5. Ijara card the world’s first Islamic financing card that allows cardholders to

acquire durable goods on a lease-to-own basis.

6. Islamic credit card The KFH-Bahrain’s first chipped Islamic credit card offers ultimate security and a host of benefits. KFH-Bahrain’s Islamic credit card works similar to conventional credit cards; however, it is Shari’a compliant (no interest, no hidden cost). The card is based on Ujrah or service charge, which is an annual fee that is payable on a monthly basis.

7. Real Estate

Financing Utilizing the concept of Ijara “Lease to own” KFH-Bahrain has introduced a 25-year home financing scheme, 13 years longer than the existing home financing scheme available through Murabaha. KFH-Bahrain offers customers the convenience and flexibility of paying for their houses or lands through easy instalments over an agreed upon time frame that can be extended for a maximum period of up to twenty years.

8. Auto financing KFH-Bahrain offers customers Sharia’a compliant auto financing through Murabaha and Musawama. Committed to helping our customers stay on the move, KFH-Bahrain provides both individuals and corporate customers with the right auto-financing options when buying either a new or used vehicle.

9. Personal financing Customers can benefit from an extensive choice of Murabaha financing for a wide range of goods and commodities. they are able to provide competitive profit margins and flexible payment programmes enabling payment to be made in installments over a variable period of time depending upon the value of the goods or commodities being financed

10. Student Financing KFH Bahrain’s Student Finance is designed to encourage and facilitate entry into higher education by financing tuition fees for undergraduate as well as graduate students in Bahrain undertaking studies at universities accredited by the Ministry of Education. Student Financing may also be extended to students undertaking studies at international universities on a case by case basis

Types of Corporate banking :

Type of corporate

banking Features

1. Ijara and Ijara wa

Iqtina Ijara simply means a leasing or employment contract. There are two types of Ijara, the first being a contract of renting, hiring or leasing. The second is Ijara Wa Iqtina, which is also called Ijara Muntahiya Bitamleek, which is leasing with an undertaking from the Leasor to sell the equipment or the facility at the end of the rental term or to provide the leased property as a gift to the Lessee provided the Lessee pays the entire

required rental within the specified period.

2. Istisna Istisna’a is a sales transaction where a commodity is sold before it comes into existence. For example this mode of financing may be used for home financing where the client owns land and seeks financing for the construction of a house, the financier can provide him with a constructed

house on a specified piece of land.

3. Murabaha Murabaha is a sale whereby the bank purchases a commodity on the order of a client and then sells it to the client on a cost plus profit basis. The cost incurred by the bank for the commodity and the intended profit rate is pre-agreed by the client.

4.salam Salam is a sales transaction where a commodity, usually horticultural or agricultural goods, is sold before it comes into existence. The price of the

commodity must be paid in advance to make the transaction valid.

5. Musharaka Musharaka literally means sharing. In Islamic finance Musharaka means a joint enterprise, (partnership), in which all partners share the profit according to a specific ratio. Loss is shared according to

the ratio of the capital contribution each partner invested.

6. Mudharaba Mudharaba is a partnership where one partner gives money to another for investing in a commercial enterprise while the other utilizes his or her business skills. The profits generated are shared in a ratio by mutual agreement. But the loss, if any, is borne only by the owner of the capital, in which case the entrepreneur gets nothing

for his labour.

7. Riba Alfadl Riba Al-Fadl means the excess which is taken in exchange of specific homogenous commodities, such as selling gold with another

gold, whereby one has more weight than the other.

8. Riba Alnasiah Riba Al-Nasiah, or deferred usury, is related to extension of the repayment period for additional payment of money. It is also called Riba Jahiliyyah which was a pre-Islam form of usury and the worst

of its kind.

Financials

• Projects on which KFH-Bahrain advises and provides financing range in scope and value and encompass both private sector and public sector ventures.

• In line with KFH-Bahrain’s mission to support growth in the local and regional markets, the corporate finance team closely evaluates compelling opportunities and noteworthy projects and, ultimately, rewards initiative and ingenuity with backing.

Financials

• Direct deposits from customers for the year increased from BD 59.9 million in 2008 to BD 73.5 million in 2009. Similarly, deposits from banks and other financial institutions also increased dramatically, Net Income for the year 2009 it decreased than the net income in 2008 from 35.7 to BD6.1 Million. Total Assets increase from BD 1285 million in 2008 year to BD 1373 million at yearend 2009. Other measures further demonstrate the

growing financial and operational strength of KFH-Bahrain.

The End