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Strictly Private & Confidential

Asian Regional Public Debt Management Forum


3-5 November 2009
Accessing Islamic Finance

Mohamed Iqbal Mohamed Iqbal


Head of Treasury and International Business
Kuwait Finance House (Malaysia) Berhad
Contents
ƒIntroduction

ƒEvolution of the Global Islamic Finance & Capital Markets

ƒOverview of Malaysian Sukuk Market

ƒRecent developments in Malaysian Sukuk Market

ƒOvercoming barriers to liquidity; Securitization, Sukuk,


Promoting issuance

ƒLandmark Sovereign Sukuk

ƒRecommendations for Way Forward


Introduction
Islamic Banking and Finance

•Demand for Islamic banking and finance services has already created
waves in global markets, as demonstrated by the boom in Islamic finance

•Although it remains a niche market—there are currently some 300


Islamic banks and investment firms operating in more than 75 countries,
managing almost USD 1 trillion worth of funds
Evolution of the Global Islamic Finance & Capital Markets
•The Islamic banking and finance industry is undergoing remarkable growth
•Since the 1970’s, Islamic finance has followed in the wake of innovations in
the global financial services industry

Product timeline:

Source: Stella Cox and Lawrence Oliver


Page 4
Evolution of the Global Islamic Finance & Capital Markets

• Islamic Capital Market


• The use of sukuks as a fund raising tool has become increasingly
popular in recent years both for governments and companies

• Stemmed from the dramatic growth in Islamic banking as a result of


large inflows of liquidity, primarily oil revenues, into the Islamic world
and a greater demand among businesses and individuals to conduct
their finances in a Shariah complaint way

• Shariah compliant assets now total about USD 700 billion with growth
in excess of 10% annually during the past decade (S&P).
Evolution of the Global Islamic Finance & Capital Markets
• Islamic Capital Market
• In 2009 up to 30 September there has been 102 deals closed totaling
USD 13.3billion
• May 2009 saw the highest sukuk issuance of 16 deals valued at
USD 2.98billion
Sukuk Issuance by Country in 2008
Evolution of the Global Islamic Finance & Capital Markets
• Islamic Capital Market
• In 2008, corporates accounted for more than 85% of sukuk issuance
Evolution of the Global Islamic Finance & Capital Markets

• Islamic Capital Market


• By region, MENA accounted for 59% of sukuk issued globally as at 3Q09, dominated by
Saudi Arabia (44.1%). The remaining 41% of sukuk issues came from other regions led
by Malaysia (38%)
• For the first eight months of 2009, a total of 96 sukuks came to market, out of which 66
deals where sold by governments. Malaysia and Saudi Arabia topped the list of issuers,
followed by Indonesia and Bahrain (source: Zawya).
Evolution of the Global Islamic Finance & Capital Markets

• Islamic Capital Market

• Sukuk issuance is not limited to Islamic countries and there have been
issues from institutions in Singapore, Sri Lanka, Canada, Thailand, the
UK and US.
• Recently, the second largest bank in Russia, VTB, indicated that it is
considering issuing a sukuk.
• Increasingly more countries are now taking steps to amend their
regulations to facilitate the issuance of sukuks including Japan,
Germany, Hong Kong, South Korea, France and even Luxembourg.
Overview of Malaysian Sukuk Market
• Malaysia’s efforts to develop Islamic banking began more than four decades ago

• The Islamic finance industry was started with the establishment of the Pilgrim’s Fund Board
(Lembaga Urusan Tabung Haji) in 1962.

• The Malaysian model has in fact become a blueprint for many countries developing their
own Islamic capital markets in the Gulf Cooperation Council (GCC) and in non-Islamic
jurisdictions

• Malaysia’s Islamic capital market was given a boost by the 10-year Capital Markets Master
plan launched in 2001.One of its objectives is to establish Malaysia as an international
Islamic capital market centre

• In the pursuit of these objectives, four key strategies have been identified, namely: to
facilitate the development of a wide range of competitive products and related services; to
create a viable market for the effective mobilization of Islamic funds; to ensure appropriate
and comprehensive accounting, tax and regulatory framework; to enhance the value
recognition of the Malaysian Islamic capital market internationally.
Overview of Malaysian Sukuk Market
Government Investment Issues ( GII) and Malaysian Government Securities yield curves
(spread over 11 months)
(source :BPAM)
Recent developments in Malaysian Sukuk Market
Notable Sukuk Issuances
Malaysia has firmly entrenched itself as a pioneer in sukuk origination having registered many industry “firsts” in
recent years.
Petroliam Nasional Bhd's (Petronas) landmark issuance of US$3.0 billion bond and US$1.5 billion sukuk with
the designation of "Emas “ –attracted huge demand from investors worldwide-an order book amounting to nearly
USD 20billion.
The following are among other notable sukuk issuances in Malaysia:
source:MIFC
Overcoming barriers to liquidity;
Securitization, Sukuk, Promoting issuance

•Sukuk are securitised assets, hence the need for an underlying tangible asset
based transaction either in ownership or via a master lease.

•A properly structured sukuk limits the financing to the value of the underlying
assets.

•A transparent investment proposition that spells out full details

•Curbs speculation, debt issued over debt, and over leveraging on debts

• Allows the borrowers time for restructuring their debts as it backed by real
assets

•Better managed debt exposure as it dictates a limit on amount of debt that can
be issued.
Landmark Sovereign /Supranational Sukuk’2009

•Indonesia Sovereign Sukuk-under Perusahaan Penerbitan SBSN


–USD 650 million

•Central Bank of Bahrain- USD 750million

•RAK Capital-USD 400 million

•TDIC Sukuk-Abu Dhabi –USD 1billion

•IDB Trust Services-USD 850million

•Hilal Sukuk Co. by World Bank –USD 100 million


Landmark Sovereign Sukuk

source:IIFM
Recommendations for Way Forward
•Regulatory environment
-Supporting innovation in Islamic finance

•Investor diversity and education

•Liquidity and secondary market

•Well developed primary market

•Listing-to provide transparency


-Labuan International Financial Exchange (LFX)
-Luxembourg Stock Exchange
-London Stock Exchange
-Hong Kong Stock Exchange
-Nasdaq Dubai
-Dubai International Financial Exchange (DIFX)
Thank you