Edited by. Sohail Jaffer B E U R O M O N E Y B O O K S

Transcription

1 Edited by Sohail Jaffer B E U R O M O N E Y B O O K S

2 Lord Mayor's foreword - xvi Christian Sautter's foreword xviii Yves Mersch's foreword xx Editor's notes and acknowledgements xxi About the editor xxiv About the contributors xxv Part I: Islamic imvesfrmenf bcumkojugs gsobxai flremds 1 Innovation, globalisation and diversification: the key to success for Islamic investment banking 3 Sohail Jaffer Introduction 3 The strengths and resilience of the Islamic banking sector 3 Sukuk - a challenge to overcome for the sector 4 The future is bright 5 Compelling long-term prospects 7 2 Growth and development of Islamic capital market - the Malaysian experience 1 1 Zarinah Anwar Introduction 1 1 Origins in meeting community needs 1 1 Orderly growth 1 2 The critical role of the Shariah Advisory Council 13 Current Islamic capital market landscape in Malaysia 14 Pioneering the sukuk market 15 Broadening the range of listed Sfiar/a/i-compliant products 15 Building the base for Islamic fund management 17 Islamic structured products as a hedging instrument 1 8 Strong regulatory and facilitative tax frameworks are critical success factors 1 8 Human capital development 19 Conclusion 20

3 Overview of Sriariari-compliant investment banking: global challenges and opportunities post-global credit crunch 21 Saleh Jameel Malaikah Introduction 21 The impact of the credit crunch and beyond 21 Modernising the Shariah governance process 23 Islamic investment banking - innovate or stagnate 23 Private equity the mainstay of Islamic investments 24 The power of 'bricks and mortar' 25 The wealth management revolution beckons 26 Product development and corporate governance need of the time for Islamic banking 27 Takaful - the untapped financial services giant 27 Opportunities for GCC banks to expand beyond the regional frontiers 28 The Sukuk market and beyond 29 What more can international financial centres in the region like Dubai International Financial Centre (DIFC), Bahrain, Qatar and King Abdullah Financial District in Riyadh do to promote Islamic banking and finance? 31 Conclusion 32 Strategic choices for Islamic banks in service provision for home and overseas markets 33 Rodney Wilson Introduction 33 Extending the range of Islamic financial services 34 The capacity of Islamic banks 34 Strategic options for Islamic banks 36 Vertical or horizontal expansion 37 Al Rajhi Bank in Saudi Arabia 38 Al Rajhi Bank in Malaysia 41 Overseas expansion strategy of KFH 42 Dubai Islamic Bank 43 Qatar Islamic Bank (QIB) 44 Conclusion 45 London as an international centre for Islamic finance 47 Gillian Walmsley Introduction 47 A continued commitment to development 47 Recent developments 48 Islamic finance at the London Stock Exchange 49 Sukuk 50 Sfiar/afi-compliant exchange traded funds 50

4 A centre of excellence and specialist expertise 51 Looking to the future 52 Opportunities and challenges faced by Islamic banks in the UK 53 Aly Khorshid Global market for Islamic financial services 53 Srianan-compliant financial services 54 Shariah advisory board members 56 Roles of Shariah scholars 57 Government strategy for development of Islamic finance in the UK 58 Impact on investment decisions 59 Risk management and Islamic banking 59 Islamic finance offers several answers to risk management in banks 60 Sukuk and current UK legislation 62 Potential for Sukuk in the secondary market 63 Characteristics of secondary market Sukuk and the conventional debt market 63 Limited number of instruments within the Sukuk market 64 The path to liquidity in the secondary market 64 Treasury management of Islamic banking 64 Understanding of Shariah law creates challenge for standardisation 65 Future challenges 66 Growth and business development 67 What more must be done? 68 Government intervention has to protect the taxpayer 68 M&A opportunities in MENA and cross-border expansion of Islamic financial institutions in the wake of the global crisis 70 Alexander von Pock Introduction 70 M&A: drivers and risks 71 A look at the past 73 Effects of the crisis 74 Way forward 75 The outlook for Snar/'afi-compliant investments including alternatives post global crisis 78 Henry Chin Defining Shan'afi-compliant investment 80 Overview of different financial instruments and structures 81 Demand for Islamic finance 82 Sources of capital 84 Market potential for S/iar/'afi-compliant investments 85 VII

5 Capital mobility and allocation 85 The challenges of Islamic finance 87 The outlook for S/)ari'af)-compliant alternative investments 87 Part II: Islamic capital markets 9 The Malaysian sukuk market 93 Zainal Hasfi Hashim Rapid growth of the global sukuk market 93 Impressive growth of Malaysian sukuk industry 93 Key growth drivers underpinning strong sukuk development 95 Malaysia's leading edge as a global sukuk hub 97 Facilitative rules for issuance process 97 Well-defined Shariah governance framework 98 Competitive pricing 99 Innovative structures and human capital development 101 Incentives for investment activities 101 Comprehensive infrastructure Innovation in Sukuk structures 104 Moinuddin Malim Historical overview 104 Basic structures and issues 108 Structuring Sukuk 109 Rating and listing of Sukuk 1 15 The approach to structuring Sukuks Emerging market leader 1 20 Sukuk defaults 122 Conclusion 123 Appendix A 126 Appendix B The growth and development of Islamic capital markets following the global crisis 1 35 Farmida Bi Introduction 135 The growth of sukuk before the global financial crisis 1 35 AAOIFI statement 1 36 Global financial crisis 136 Primary and secondary sukuk markets 1 37 Sukuk defaults 1 37 Lack of transparency and untested restructuring 1 39 Signs of recovery 1 39 vin

6 Other positive signs 141 The future Islamic capital markets: the case for a more intelligent positioning in an evolving global industry 144 Ayman H. Abdel Khaleq Executive summary 144 Capital markets considerations applicable to Islamic capital markets products 144 Legal form of investment vehicles 145 Regulation of Islamic products and investor suitability requirements 145 Exchange suitability 146 Shari'a compliance certificates [Fatawa) 147 Nature and location of the assets 148 Enforcement and bankruptcy considerations 149 Tax 150 Conclusion Swaps - profit rate swap and cross currency swap 152 Kareem Hussaini and Wanda Regina The structure of global swap markets 152 Profit rate swap 152 Cross currency swap 158 An analysis of some pros and cons of the structures 160 Some challenges 161 Credit risk and swaps 162 Conclusion Shar/afi-compliant financial intermediation: a natural fit for investment banking 165 Zamir Iqbal Introduction 165 Financial intermediation in Islamic financial system 166 Sfian'afi-compliant intermediation and investment banking 167 Challenges for Sfiar/ah-compliant investment banking Islamic liquidity management 175 Majid Dawood The essence of liquidity 175 Definition 175 Introduction 176 Current options and current concerns 178 New and needed developments 1 81 The future 1 82 Conclusion 182 IX

7 Part III: Wealth management 16 Islamic investment post-financial crisis: opportunities and challenges Gul Khan Introduction An opportunity for Islamic finance Equity funds Other investments Sukuk Conclusion Buy side Shariah products 198 Omar Saleem Asghar 1 8 Recent buy side innovations in wealth management 206 Naveed Ahmad Introduction 206 Markets and investor segments 206 Product selection 208 Public equities 213 Conclusion Innovations in Sfiar/a/i-compliant mutual funds 219 Rejina Rahim Introduction 219 Innovation is not a strange concept in Islam 220 Shariah assets breakdown 221 Malaysia 223 Saudi Arabia 223 Customer profile surprises in Malaysia 226 Is Islamic asset management coming into the mainstream? 227 Can Sfior/ari-compliant mutual funds be a viable investment tool? 228 Issues plaguing Islamic asset management 229 Is the party over for Islamic finance? 233 Conclusion Attractiveness of Luxembourg for S/iar/a^-compliant investment funds and Sukuk 235 Pierre Weimerskirch An attractive segment 235 Increasing competition among countries and financial centres 237 How attractive is Luxembourg as a gateway for Sukuk and Islamic funds? 237 Looking to the future 243

8 21 Irish domiciled Snar/an-compliant investment funds 245 Brian Higgins and Emmet Quish Introduction 245 Ireland as a fund domicile 245 Key features of an Irish domiciled Sfiar/an-compliant fund 246 Irish fund legal structures 248 UCITS funds and compatibility with Shariah 250 Latest developments in UCITS product - UCITS IV 253 Non-UCITS Shanah-compliant investment funds 254 Conclusion Investor services to the Sfiar/an-compliant mutual funds industry 256 Richard Street A breadth of funds 257 Shariah funds structure 258 Prohibited businesses 258 Prohibited instruments and activities 259 Accounting-based screening 259 Maintaining a list of Snana/i-compliant companies 260 Dealing with a change in status 260 Income purification 260 Fund administration and custody 261 Support for international development Real estate Islamic funds: market analysis, opportunities and structuring techniques 265 Anass Patel Introduction 265 Real estate market overview and post-crisis trends 266 Are Islamic real estate funds the panacea in the long run? 272 Structuring active real estate funds and sfiar/a-compliant investments 277 Islamic REITs in a non-listed environment 284 Concluding remarks regarding the competitive landscape of Grand Paris Challenges and opportunities for the growth of Takaful 287 Tommy Trask Part IV: Mew trends and developments inn the international areima 25 The GCC sovereign wealth funds and voluntary governance 301 Zeinab Karake-Shalhoub Introduction 301 GCC SWFs 302 xi

9 Portfolios of GCC SWFs 303 SWFs and the Santiago Principles 305 Conclusion The role of sovereign wealth funds in promoting Islamic investment banking 31 1 Alberto Brugnoni 27 Improving the core under the Shariah overlay 318 Amin Rajan Before the credit crunch: After the credit crunch: Concluding remarks International centres promoting Islamic finance Ken Owens International centres - a little bit of background International centres enabling the growth of Islamic finance Human capital International tax issue for Islamic finance Regulating Shariah, audit and compliance Malaysia International Islamic Financial Centre Dubai International Financial Centre Bahrain Financial Harbour London - United Kingdom Paris - France Luxembourg International Financial Services Centre (IFSC) Dublin, Ireland Conclusion Islamic finance in international financial centres Natalie Schoon The role of international financial centres Global developments The role of regional financial centres Regional versus international, is one better than the other? The convergence of Islamic and sustainable finance: the revival of common sense Natacha Guerdat Introduction Sustainable finance Islamic finance More than ethical screening Supporting change Xll

10 Impact investing 354 Microfinance, convergence by objectives 355 Conclusion The role of the UK as an international centre for Islamic banking and finance 358 Mohammed Amin Introduction 358 Political stability 359 The English legal system 359 The UK tax system 360 Travel and the time zone 361 Professional resources and the network effect 361 Supportive UK government policy for Islamic finance 361 A successful approach to adapting the UK tax system for Islamic finance 362 Equality of regulatory treatment and an open licensing approach 366 Competition from other financial centres 367 Conclusion Potential for Islamic investment banking in France 369 Valery Fousse A completely new international situation 369 What drives the French situation? 370 What will have impact on a long term basis? 371 Where Islamic finance investment banks will potentially have a role 371 Where the competition is important and players are financially strong 372 France tries to preserve its competitiveness and attractiveness 373 A political move ahead to enhance France's financial market and open it to Islamic finance 375 A strong mathematical school 377 French banks do have strong expertise in Islamic finance but New entrants are welcomed but should be fathered 378 A vast potential of development for potential new entrants Islamic banking in Turkey: the Istanbul Financial Centre plans further expansion 380 Paul Wouters 34 Technology trends in Islamic investment banking - towards best of breed solutions 387 Bill Willison Xlll

11 Introduction 387 Technology investment drivers 388 Current technology 391 Future trends 394 Conclusion 395 Part V: Shariah, regulatory and supervisory framework 35 Islamic investment banking and European regulation 399 Tim Plews The current position 399 The scope of this chapter 399 Global financial turmoil 399 Islamic finance and the global financial turmoil 400 Islamic investment banking and the turmoil 400 EU regulatory policy-makers and Islamic investment banking 401 A growing profile within Europe 401 The EU's regulatory structure 401 A 'do-nothing' approach towards EU regulation? 402 The exceptional position of London and the UK 402 The rest of Europe is not standing still 403 Islam's political dynamic 403 Islamic investment banking: articulating its ethical proposition 403 Who should provide an education on Islamic finance? 404 What these institutions can do 404 The key points for communication to the European Commission 405 Islamic finance lacks a global regulator - does that matter? 405 So what should happen next? The role of Shari'ah boards and the evolution of underlying Shah'ah principles 407 Mohd Daud Bakar Introduction 407 Shari'ah board: is it a Shari'ah advisory or Shari'ah supervisory board? 408 Who is a Shari'ah board member? 410 What are the roles and duties of a Shari'ah board? 41 1 An overview of the evolution of some underlying principles in Islamic finance 41 2 Conclusion Rethinking the strategic significance of Shari'a supervision boards 416 Abdel-Maoula Chaar Introduction 416 xiv

12 Shari'a boards' interlocks effect on the Islamic financial field 417 The case study of the Lebanese Islamic banks 424 The institutionalisation effect of Shari'a boards 428 Conclusion The role of IIFM in the global expansion of Islamic capital and money market 433 //7a/ A. Alvi Islamic capital and money market 433 IIFM's profile and its contribution to ICMM 434 IIFM master agreements for treasury placement (MATP) 435 IIFM/ISDA Tahawwut master agreement (TMA) 435 Liquidity management in Islamic financial institutions (IFIs) 436 Exploring I'aadat Al Shira'a (repurchase) potential 436 Wakala master agreement 437 Sukuk 437 Promotion of ICMM 438 Conclusion 438 xv