Opportunities in Kenya for Islamic Infrastructure Investment.

1. Much has been made of the US$26
trillion Asian infrastructure gap, and
how Islamic finance could step in to
fill this space. But there is another
enormous infrastructure opportunity
in the developing world — one that has
captured far fewer headlines. Africa has
an infrastructure gap of up to US$108
billion per year, and with relatively
immature capital markets and high
levels of public debt, private sector
involvement and overseas investment
are urgently needed. So how can Islamic
finance help? This week, LAUREN
MCAUGHTRY explores one of the
less obvious investment opportunities
on the African continent — the
predominantly Christian Kenya.
Widely perceived as the financial,
communication and transportation
hub for Central and East Africa,
Kenya plays a pivotal role in the
region’s economic development.
One of the fastest-growing
economies in sub-Saharan
Africa, Kenyan GDP growth
hit 5.8% in 2016 and, despite a
lull of 4.8% growth in 2017 due
to drought, election controversy
and sluggish private sector
growth, 2018 is
expected to see
that number
rebound back to
5.5% (according to the latest World Bank
figures).
With this optimistic forecast, why the
urgent need for external financing? The
question is complex— but Islamic finance
could form part of the answer.
Infrastructure gap
New estimates from the African
Development Bank (AFDB) suggest
that the continent requires US$130-170
billion a year to finance its infrastructure
needs — with a current funding gap in
the range of US$68-108 billion. To meet
this need, the bank suggests that African
countries must attract private capital
to accelerate the building of critical
infrastructure, and involve institutional
investors through legislative reforms and
new financial instruments.
In April 2018, the World
Bank highlighted that
Kenya in particular faces a
“significant infrastructure
deficit” estimated at US$2.1
billion annually, with
sustained expenditures of
around US$4 billion per
year required to meet its
infrastructure needs.
Yet with US$49
billion of public
debt to service
(currently standing at 57% of GDP,
substantially higher than the 40%
ceiling recommended by the IMF for
developing countries), the government
has limited public resources to meet this
requirement, while the weak currency
is making repayments to external debt
(which makes up more than half of
government borrowing) more and more
difficult.
This is already constraining growth and
development. In April 2018, Kenya’s
biggest infrastructure project in the last
50 years, a US$3.5 billion 473 kilometer
intercity expressway, was delayed by US-
based construction giant Bechtel Group
amid concerns over high government
debt. Earlier this year, Central Bank
Governor Dr Patrick Njoroge urged
the government to consider “non-
debt-creating” methods of financing
infrastructure projects because there is
“less and less headroom for additional
borrowing, given the currency concerns,
and that room is narrowing”.
Private sector participation
The country urgently needs to mobilize
the private sector to finance its
infrastructure needs. The World Bank
estimates that increasing infrastructure
financing could improve Kenya’s per
capita growth rate by three percentage
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COVER STORY
The World’s Leading Islamic Finance News Provider
1100
1150
1200
1250
1300
TMSSFTW
1,198.42
1,212.62
1.17%
Malaysia eyes
mass market
with new
rules for retail
Sukuk...6
South Africa
to roll out
new AI-
based Islamic
investment
platform...7
The
Maldives
plans deep
regulatory
changes to
boost Islamic
finance...8
PODCAST: Islamic
investor hunts for
opportunities in
blockchain, AI and
robotics as tech
appetite in Muslim
world grows...9
26th
September 2018 (Volume 15 Issue 39)
continued on page 3
Kenya: A new horizon for Islamic
infrastructure investment?

2. 2©
26th
September 2018
IFN RAPIDS
Disclaimer: IFN invites leading practitioners and academics to contribute short reports each week. Whilst we have used our best
endeavors and efforts to ensure the accuracy of the contents we do not hold out or represent that the respective opinions are
accurate and therefore shall not be held responsible for any inaccuracies. Contents and copyright remain with REDmoney.
IFN Rapids ................................................... ..2
IFN Reports:
• Togo intends to become ICD’s 55th
member
country • Malaysia eyes mass market with new
rules for retail Sukuk • South Africa to roll out
new AI-based Islamic investment platform • The
Maldives plans deep regulatory changes to boost
Islamic finance • PODCAST: Islamic investor
hunts for opportunities in blockchain, AI and
robotics as tech appetite in Muslim world grows
• Malaysia’s way forward for Islamic finance
• Company Focus: Zarai Taraqiati Bank •
Sovereign Sukuk: Morocco finally issuing maiden
Sukuk? ........................................................... 6
IFN Analyses:
The US: Led by fintech................................... 12
Accounting and tax: Gulf states start
implementing VAT........................................ 13
Case Study:
Al Hilal Bank’s Sukuk: Ending a five-year
hiatus......................................................... 14
Back To Basics:
Roles of AAOIFI and IFSB in the functioning of
Islamic banks.................................................. 15
Shariah Standard:
Unilateral and bilateral promise.................... 17
Column: Words of wisdom
Governance of Islamic banks.......................... 18
IFN Country Correspondents:
Russia; Morocco; Qatar; the UK; Oman; Brazil19
IFN Sector Correspondents:
Islamic Leasing; Real Estate .......................... 22
Special Reports:
Crowdfunding and the evolution of Islamic
finance............................................................ 24
New markets and challenges in Islamic banking
for Russia ....................................................... 26
Country Feature:
Recent Islamic finance developments in the Ivory
Coast .............................................................. 28
Sector Feature:
Is it possible to accurately outsmart criminals and
be efficient?..................................................... 29
News ............................................................. 30
Deal Tracker................................................. 38
REDmoney Shariah Indexes...................... 39
Eurekahedge Funds Tables........................ 41
Dealogic League Tables.............................. 43
REDmoney Events ...................................... 47
Subscription Contact................................... 47
Volume 15 Issue 39
DEALS
Bina Darulaman floats
30-day Islamic commercial
paper
DP World to issue Sukuk
for US$1 billion with a 10-
year tenor
Emaar Properties
reportedly hires three banks
to arrange sale of perpetual
Sukuk
Indonesian Ministry
of Finance auctions six
Shariah securities
Central Bank of Kuwait
issues Shariah and
conventional securities
worth KWD160 million
(US$526.94 million)
Morocco to debut sovereign
Sukuk in the first week of
October
Padideh Shimi Gharn
obtains Securities and
Exchange Organization
of Iran’s nod for Sukuk
issuance
Sabah Credit Corporation
auctions three-year Islamic
medium-term note
Investree to distribute
Indonesia’s upcoming retail
Sukuk issuance
Maalem Financing
Company plans to issue
Sukuk
NEWS
IDB supports Community
Development Emergency
Scheme
Institut SIMON Finance et
Management International
launches Master’s degree in
Islamic finance
Azerbaijan and IDB discuss
development of their
collaboration
Investcorp closes first
private equity investment
in China
IDB and Uzbekistan sign
partnership worth US$1.3
billion
National movement needed
to spur Islamic finance, says
deputy governor of Bank
Indonesia
Former Malaysian prime
minister pleads not guilty
to four counts of corruption
Pos Malaysia accepts
commodity Murabahah
term financing
Indonesian Shariah
economic masterplan
expected to be completed
by end of this year
Bank BJB Syariah
inks agreement with
Aneka Tambang’s Unit
Bisnis Pengolahan dan
Pemurniaan Logam Mulia
Bank Syariah Bukopin
likely to postpone
divestment of shares to
investors until after the
presidential elections next
year
National Accountability
Bureau works on
Mudarabah/Musharakah
cases
AlBaraka Turk to launch
digital-only Islamic banking
service in Germany
Central African Economic
and Monetary Community
looks for support from IDB
ASSET
MANAGEMENT
Emirates REIT included
in FTSE EPRA/NAREIT
Global Index and all
associated indices
TAKAFUL
Saudi Indian Cooperative
Insurance Company
receives Saudi Arabian
Monetary Authority’s nod
for capital hike
Alizz Islamic Bank signs
MoU with Takaful Oman
Capital Market Authority
highlights suspicious
trading activities
Central Insurance of Iran
considering divesting
shares of Iran Insurance
Company in line with
expanding private sector
Trading of Mediterranean
and Gulf Insurance and
Reinsurance Company’s
right issues ends
RATINGS
PEFINDO downgrades
rating on Sumberdaya
Sewatama’s Sukuk Ijarah
paper
MOVES
International Islamic
Liquidity Management
Corporation appoints Dr
Umar A Oseni as new
acting CEO
Arab National Bank’s
board of directors accepts
appointment of Ziyad
Anwar Abdel Rahman
Akrouk as board member
Bank Muscat appoints
Jeyaretna Sunderlal George
as member of the board
of directors representing
Oman National Investment
Corporation
Central Bank of Oman
approves appointment of V
V Suresh Kumar as acting
CEO of Taageer Finance
Company
KPMG Lower Gulf names
Nader Haffar as CEO of
UAE and Oman operations;
Vijay Malhotra to continue
as chairman
MCB Bank appoints new
CFO
Investcorp appoints
Michael Fallon as member
of international advisory
board

3. 3©
26th
September 2018
COVER STORY
points, and over the past six years has
provided US$90 million in funding to
foster private sector participation in
infrastructure investments. In 2012, the
International Development Association
(IDA, an arm of the World Bank) loaned
the government US$40 million to help
establish a public-private partnership
(PPP) law and a committee to manage
projects in line with regulations. The
loan helped create a robust, multi-
sector pipeline of 69 PPPs that could be
financed by the private sector, while a
second loan of US$50 million in 2017 is
now supporting the development of local
PPPs and providing a project facilitation
fund to finance viability gaps, making
projects more attractive to private
investors.
An estimated US$10.4 billion in private
investments has already been committed,
while the PPP committee is now moving
to attract financing from local pension
funds and insurance companies, develop
the capital market and encourage local
currency financing.
Domestic restrictions
So far so good. But there are a few
hiccups that are preventing the local
private sector from capturing this
opportunity.
First, Kenyan banks are only allowed
to lend a maximum of 25% of their core
capital to a single borrower, which
can often cut them out of financing the
larger infrastructure projects. “Given the
considerable financial outlays involved
in infrastructure projects, commercial
banks would need to enhance their
capital base to participate in PPPs while
remaining compliant with regulatory
requirements”, noted Dr Njoroge. While
this could potentially be solved by a
syndicated financing approach, there is a
further issue.
In September 2016, Kenya capped
commercial lending rates at four
percentage points above the central
bank’s benchmark rate — ostensibly in
an effort to limit the cost of private sector
borrowing. In fact, the policy has had the
opposite effect. In the four years to 2017,
the private sector’s impact on growth fell
to -0.7% of GDP, compared with 1.3% in
the four years to 2013, according to the
World Bank.
“The idea was that by capping
interest rates, people would be able to
borrow at a cheaper rate. Practically,
however, what that meant is that the
banks just aren’t lending money to the
private sector,” explained Jean-Pierre
Labuschagne, Deloitte’s Nairobi-based
Africa lead for infrastructure and capital
projects. “Whether intended or not,
the consequence has instead been that
the banks are borrowing government
bonds. So instead of reducing the cost
of borrowing for the private sector, the
interest rate cap has in fact created a
very cheap source of funding for the
government instead.”
Overseas
investment
The combination of a
weak currency (poised to
depreciate further after
IMF support expired
in September), limited
bank lending capabilities
and a capital market
crowded out by the public
sector has left capital-raisers
with limited options — and
opened up the field to
foreign investors. As of
November 2016, Kenya was one of the
top three countries in Africa in terms of
the number of projects funded by foreign
direct investment (FDI), according to
the latest research from the Institute of
Certified Public Accountants of Kenya.
In 2017, FDI into the country soared by
71% to US$672 million, according to the
United Nations Conference on Trade and
Development – in stark contrast to a 22%
decline in FDI to Africa overall and a 23%
global drop — boosted predominantly
by attractive tax incentives and strong
domestic demand.
Islamic opportunity
What does this mean for the Islamic
finance market? In short, a compelling
opportunity.
“The problem that Kenya is facing at the
moment is that the government’s ability
to borrow is reaching its maximum. But
there is a lot of space left for private
sector financing, and I think that Islamic
financing could have the potential to
unlock that,” confirmed Labuschagne.
“We haven’t yet seen any significant
announcements of an Islamic financing
tranche in the infrastructure space, but
that is not to say that the opportunity is
not there.”
But it is likely to take overseas players
to translate that opportunity into reality,
as Islamic banks in Kenya simply do not
have the capability to take on substantial
projects yet. “I think it would require
an offshore bank to push forward a
significant Islamic investment into a
large-scale project,” said Labuschagne.
“I don’t think the local banks have the
capacity that is needed to push Islamic
financing into infrastructure investment
on the scale that is currently needed.
There is certainly a willingness to
be involved, but I would not see
the domestic Islamic banks as a
primary driver.”
Luckily, Gulf investors are
already getting in on the act.
Although in the past the
Middle East has tended to look
toward Asia for investment,
traditionally associating Africa
with weak governance,
instability, corruption and
currency risk, that is
continued on page 4
Kenya: A new horizon for Islamic infrastructure investment?
Continued from page 1
The problem
that Kenya
is facing at the
moment is that the
government’s ability
to borrow is reaching
its maximum. But
there is a lot of space
left for private sector
inancing, and I
think that Islamic
inancing could have
the potential
to unlock that

4. 4©
26th
September 2018
COVER STORY
continued on page 5
now changing as economies establish
and improve market regulation — while
rising production costs in Asia are
adding to the incentive. Dubai-based
mall operator and regular Sukuk issuer
Majid Al Futtaim in 2016 bought the
Kenyan franchise of French supermarket
chain Carrefour and has since launched
six new stores, while in 2015 Dubai-
based Shariah compliant asset manager
Investbridge Capital partnered with
Kenyan investment manager Centrum
(the largest listed investment manager
in East Africa) and global education
network SABIS to build a chain of 20
international schools in Kenya and
neighboring countries. In 2017, Dubai
Islamic Bank (DIB) began operations
in Kenya, and the Dubai Chamber
of Commerce recently opened up an
office in Nairobi. Kenya has received
investment funds exceeding US$244
million from GCC wealth funds
including the Arab Bank for Economic
Development in Africa, the Saudi Fund
for Development, the Abu Dhabi Fund
for Development and the Kuwait Fund
for Arab Economic Development; while
in September 2018 Bahrain’s third-largest
Islamic bank, Al Baraka Banking Group,
announced plans to expand operations
into Kenya as it seeks to claim a piece
of the fast-growing Shariah compliant
banking market in East Africa. The
International Finance Corporation has
also provided support to Bahrain’s Al
Salam Bank and Oman’s Bank Muscat to
enter the market through Gulf African
Bank, as part of its remit to support the
expansion of Islamic banks outside the
MENA region.
Market support
Kenya has made a robust effort
to instigate a supportive
environment for Islamic
finance, and is determined
to lift its Islamic Finance
Country Index score to
15 by the end of 2023
(up from 2.85 in 2017) as
part of its 10-year Capital
Markets Master Plan. The
government established a
Project Management Office
in 2016 with the goal of
developing an
institutional,
policy and
regulatory
framework
and a National Shariah Governance
Framework, along with new proposals
for tax equality, and in December 2016
joined the IFSB. However, little has
happened since. The government was
expected to pass amendments to the
Finance Bill 2017 to facilitate the issuance
of Islamic finance products by the third
quarter of 2017, but no news has since
emerged. “What we need to see is a
stand-alone ‘Islamic Finance Act’ in
Kenya, which would regulate the Islamic
finance sector, and establish a national
Shariah board/council for Islamic finance
product approval,” urged Mohamed
Ebrahim, CEO of Ace Financial Advisory
in Nairobi.
Home to three fully-fledged Islamic
banks (DIB, First Community Bank and
Gulf African Bank) and five Islamic
windows, along with numerous Takaful
providers and at least three Islamic
pension funds, the country has made
its ambitions as an Islamic finance hub
clear – but with religious tensions, a
Christian majority and only a 6% Muslim
population, the domestic retail industry
looks to be somewhat curtailed.
Sukuk strength
The same is not true, however, of the
potential in the Sukuk market — a sector
that Kenya’s Capital Markets Authority
has already identified as a key priority. In
recent years, the regulator has amended
the Capital Markets Act to facilitate
Shariah compliant capital market
products and the Income Tax Act to
provide for equivalent tax treatment, as
well as exempting Sukuk from payment
of stamp duty and amending the Public
Finance Management Act to allow for
government investment in Sukuk. The
long-awaited sovereign Sukuk may
not yet have materialized, but in its
latest report on growth prospects
for Islamic finance in African
countries, Moody’s Investors
Service identified Kenya as having
considerable growth potential for
Sukuk, noting that the country
“recently implemented banking,
legal and regulatory frameworks to
spur growth in the Islamic banking
sector”.
Although Africa currently
accounts for just 0.5%
of global issuance, since
2014 the continent has
seen around US$2.3 billion in Sukuk
and Moody’s forecasts at least KES100
billion (US$983.49 million) of further
issuance over the next 18 months.
“Despite some structural constraints,
we expect growth in Sukuk issuance to
be driven by increasing financing needs
(especially for infrastructure projects),
global investors’ growing comfort with
the relatively complex legal structure of
Islamic instruments and the desire within
Africa for stronger investment links with
fast-growing economies in the Gulf and
Asia that have large Muslim populations
with large pools of available capital,”
said Akin Majekodunmi, a vice-president
and senior credit officer at Moody’s.
As one of the higher-rated African
nations (‘B2’ by Moody’s), Kenya is
in a good position to take advantage
of this potential. A sovereign debt
market reform plan was approved by
the National Treasury in March 2016 in
partnership with the Central Bank of
Kenya: A new horizon for Islamic infrastructure investment?
Continued from page 3
I don’t
think the
local banks have
the capacity that
is needed to push
Islamic inancing
into infrastructure
investment on
the scale that is
currently needed.
There is certainly
a willingness to be
involved, but I would
not see the domestic
Islamic banks as a
primary
driver

5. 5©
26th
September 2018
COVER STORY
Kenya and the Capital Market Authority
to improve primary issuance and the
transparency and efficiency of secondary
markets, and a sovereign issuance would
go a long way toward providing an
appropriate reference pricing point for
infrastructure assets.
“There is a huge potential for corporate
Sukuk, especially for agri-businesses
(farms and processors) and real estate
developers (low/medium cost housing
and industrial/commercial parks
for SMEs,” said Mohamed. “In fact,
securitization could be executed in
Nairobi to raise funds for businesses
across the East and Central African
region — Kenya has the potential to
unify the East African Community,
especially given its aspiration to become
an international financial center.”
Chinese competition
But is Islamic finance too late to the
party? There is another major economic
power that has set its sights on Kenya
as a gateway to the wider East African
region — and China has already
cemented its position as one of the
key investors into the country. As of
March 2018, China accounted for a
massive 72% of Kenya’s total bilateral
debt — eight times more than its next
biggest lending partner (France) and up
15% from 2016, according to Treasury
figures as published by Kenyan news
source Business Daily. Overall, China
accounts for 21% of Kenya’s external
debt (including development agency
debt), with an estimated KES534.1 billion
(US$5.25 billion) currently outstanding,
primarily in the infrastructure space.
Perhaps there is still room for maneuver
by collaboration. In May 2018, Kenya
became the newest country to join
the China-led Asian Infrastructure
Investment Bank (AIIB), a highly liquid
and well-funded agency seeking to
compete with the World Bank in the
multilateral development space, in a
move that is expected to open a new
channel for cheaper financing of the
country’s huge spending needs.
Although at first glance the move
looks to consolidate Chinese power in
Kenya even further, it also opens up a
new avenue for Islamic financing. In
June 2018, the AIIB signed a historic
agreement with leading Islamic
development agency the IDB to establish
a framework for strategic cooperation,
including “actively seeking to co-finance
projects in common areas of operations”.
“We are delighted to strengthen our
partnership with [the] AIIB,” said IDB
Group President Dr Bandar Hajjar. “We
have a number of common member
countries in Asia and also in Africa
and a significant overlap in sectors and
financing activities.” Although Kenya
is not currently a member of the IDB,
the bank has executed a number of
projects in the country — including
three construction projects in 2018 —
suggesting that collaboration could
certainly be on the cards.
An unlikely savior
But concerns over Kenya’s high level
of indebtedness to China are already
pushing players to look elsewhere for
funding opportunities. Between 2018-
21, Kenya is set to pay an estimated
KES122 billion (US$1.2 billion) in interest
on Chinese loans — the equivalent of
one-and-a-half-year’s national healthcare
spending, suggesting that debt
repayment is becoming unsustainable.
In this scenario, PPP development and
capital market fundraising (as discussed
previously) gain increasing importance.
It is becoming clear that neither Kenya’s
traditional reliance on multilateral
development agency support nor its
debt-ridden new relationship with China
are sustainable in the long run. To
support its pressing infrastructure needs
— and wean itself away from unhealthily
high sovereign debt levels — the country
urgently needs a third option. Could
Islamic finance — interest-free, ethical,
large-scale and liquid — be the savior
that Kenya is searching for?
Kenya: A new horizon for Islamic infrastructure investment?
Continued from page 4
What we need
to see is a
stand-alone ‘Islamic
Finance Act’ in Kenya,
which would regulate
the Islamic inance
sector, and establish
a national Shariah
board/council for
Islamic inance
product
approval

6. 6©
26th
September 2018
IFN REPORTS
Seeking new ways to support the
development of its private sector, Togo
intends to join the Islamic Corporation
for the Development of the Private
Sector (ICD), and by doing so expects
to open the floodgates to Shariah
financing. MARC ROUSSOT has more.
During a cabinet meeting, the
government adopted a draft law, which
if voted by the parliament, will allow
Togo to become the ICD’s 55th
member
country and the 27th
African nation* of
the organization, leaving Liberia as the
only West African state still not in it.
The adoption of the bill will “enable the
private sector to benefit from various
opportunities and assets offered by this
institution, especially in the sectors of
agriculture, fishery, infrastructures,
technology, power supply, education,
health, real estate, trade and finance,”
according to a press release.
Through its financing mechanisms,
including Islamic funds supporting
African SMEs, and its regional Shariah
compliant leasing company for West
Africa, the ICD could contribute in
bridging Togo’s MSME financing gap
amounting to US$389.96 million and
representing 9.74% of the country’s GDP,
according to the SME Finance Forum’s
data.
In recent years, Togo has benefited
from the ICD’s expertise and financing
activities, including when it issued
a debut Sukuk facility in 2016 worth
XOF150 billion (US$268.59 million), in
which the private sector arm of the IDB
played the role of lead arranger. Last
year, the ICD provided a EUR40 million
(US$46.98 million) line of financing to
Oragroup, the parent company of Togo-
based Orabank, with the proceeds being
utilized to fund West African SMEs.
In 2017, the ICD approved five projects
in sub-Saharan countries worth US$96.3
million, representing more than 10%
of the US$930.8 million approved to
support a total of 44 projects.
Another major milestone achieved last
year by the ICD in Africa was the
provision of a US$100 million line of
financing to Afreximbank for the
provision of Shariah compliant financing
to SMEs.
*The ICD’s African member countries are
Algeria, Benin, Burkina Faso, Cameroon,
Chad, Comoros, the Ivory Coast, Djibouti,
Egypt, Gabon, Gambia, Guinea, Guinea
Bissau, Libya, Mali, Mauritania, Morocco,
Mozambique, Niger, Nigeria, Senegal, Sierra
Leone, Somalia, Sudan, Tunisia and Uganda.
Togo intends to become ICD’s 55th
member country
Over the next few weeks, retail
investors in Malaysia will have access
to a greater variety of Sukuk while
qualified issuers of Islamic bonds
targeting the mass market will no
longer be required to lodge a prospectus
with the regulator as part of a series
of liberalization reforms to attract
retail participation in the domestic
Shariah capital market. VINEETA TAN
explores.
Starting the 11th
October, retail investors
would be allowed to gain exposure in
existing corporate Sukuk (and bonds)
which, until then, have been reserved for
sophisticated investors in the over-the-
counter market.
Under a new seasoning framework by
the Securities Commission Malaysia
(SC), corporate Sukuk which have been
in the market for at least 12 months and
hold a minimum credit rating of ‘A’,
among other requirements, can be made
available to retail investors.
“The range of corporate bonds and
Sukuk that can be offered to retail
investors has also been expanded beyond
plain vanilla bonds,” said the SC of
its updated guidelines on corporate
Sukuk and bonds issuance. Among
those included in the investable Sukuk
universe are sustainable and responsible
investment (SRI) Sukuk. However, retail
investors are still restricted to longer-
term (above one year) local currency
rated Sukuk.
As far as the issuance process is
concerned, the mechanism will be eased
for qualified issuers — those who have
issued or guaranteed bonds of at least
RM500 million (US$120.68 million) in the
past five years. Qualified issuers will not
be required to make disclosures through
a prospectus, only a product highlight
sheet, whereas for SRI Sukuk issuers,
it is mandatory for them to engage an
independent expert to evaluate the
eligibility of the underlying projects in
compliance with the SRI framework and
for the report to be made available to the
public.
These measures are expected to cement
the position of Malaysia in the global
Sukuk sphere; while the Islamic finance
giant originates more Sukuk than any
other markets in the world, its Sukuk
market has largely been characterized by
institutional investment. The third-
largest bond market in Asia (relative to
GDP) has ramped up efforts in recent
years to broaden the investor base to
include the mass market. Last November,
the regulator established the Bond and
Sukuk Information Exchange Malaysia to
centralize and ease the dissemination of
information on Sukuk and bonds to assist
retail investors in making informed
investment decisions.
Malaysia eyes mass market with new rules for retail Sukuk

7. 7©
26th
September 2018
IFN REPORTS
Despite a recent uptake in the global
Islamic fintech sector, the African
region is lagging behind many Asian
and European countries. But an Islamic
investment platform may just be
the answer to kick-start the sector in
the rainbow nation. DURGAHYENI
MOHGANA SELVAM delves deeper.
Ismail Ibrahim Desai, CEO of Global
Islamic Financial Services Firm (GIFS)
and the Shariah advisor for various
organizations, in an exclusive to IFN,
explains that the platform, named
Shariah Investment Board, is being built
by GIFS using artificial intelligence (AI).
The platform will serve as a one-stop
center for investments focusing on
individual investors across South Africa.
In short, via the platform, investors
will be able to access latest data and
recommendations on companies and
stocks.
“Our immediate target is millennials.
They are increasingly looking for
alternatives online, where they can find
information instantly,” Ismail says.
The nation’s fintech industry has seen
tremendous growth in recent years. In
EY’s report on fintech adoption, South
Africa did particularly well among
countries in 2017, recording an adoption
rate of 35%, which is two percentage
points greater than the global average of
33%. It came in ninth among 21 nations.
The country is expected to reach an
adoption rate of 71% in the next few
years, significantly higher than the
global average and ranked third among
the markets surveyed.
But despite a strong and progressive
outlook, the country’s Shariah compliant
fintech industry is stagnant. The IFN
Islamic Fintech Landscape, which tracks
developments in the said sector in 24
nations, shows no activity in South
Africa across 11 verticals. In fact, only
Egypt, Nigeria and Kenya seem to have
sporadic Shariah fintech activity in the
entire African continent.
Despite this, Ismail believes that the
platform will change the game. “There
is a renewed focus on innovation in the
South African Islamic finance industry.
Fintech will be the main market in the
global Shariah finance sector in the next
five to 10 years. With this platform, we
can stay ahead of the current,” says
Ismail.
Starting out with individual investors,
the platform will be available to banks
and asset management companies in the
future. A test launch is anticipated as
early as next month, and an official
launch is expected in February or March
next year.
South Africa to roll out new AI-based Islamic investment
platform
Our
immediate
target is
millennials. They
are increasingly
looking for
alternatives online,
where they can
ind information
instantly

8. 8©
26th
September 2018
IFN REPORTS
The Maldives’s basic Islamic
finance regulatory landscape will
be dramatically transformed within
five years as the Maldives Monetary
Authority (MMA) plans to introduce
new Shariah governance rules and a
liquidity management framework as
part of its Strategic Plan 2018-22. MARC
ROUSSOT has more.
The MMA has embarked on a five-year
journey to develop and introduce new
structural regulations with the aim of
creating an enabling policy environment
to boost the development of Islamic
finance in the Muslim country where
the Islamic banking market share was
recorded at only 4.3% in 2016, according
to IFSB data.
“We will be looking at existing
legislative, regulatory, supervisory,
prudential and reporting frameworks
with a view to remove any
inconsistencies, improve transparency
and disclosures. Furthermore, we are also
looking at issues such as on-site and off-
site supervision, accounting standards
and taxation,” shares Ahmed Naseer, the
governor of the MMA.
Concretely, in its Strategic Plan 2018-22
published in July, the apex bank shared
its intention to establish a comprehensive
Shariah compliance framework. The new
document will help strengthen existing
ad-hoc requirements and compile them
into one single framework that would
clearly specify the roles of each organ
of governance including the Shariah
Council of the MMA, board of directors,
executive management, Shariah
committee, internal Shariah compliance
function and Shariah audit.
“Currently, we do not have a Shariah
governance framework as such. What
we have are a loose collection of ad-
hoc Shariah requirements that licensed
institutions are required to follow. The
key requirement is for institutions to
have a Shariah committee to advise them
on Shariah issues and for them to have an
in-house Shariah compliance officer. We
do not have any detailed requirements
relating to either the Shariah committee
or the Shariah compliance officer. It is
more or less up to the institutions,” says
Ahmed who indicates that AAOIFI’s
Shariah standards could be fully
adopted.
The MMA also intends to tackle liquidity
management issues faced by Islamic
financial institutions through the
development of a comprehensive liquidity
management framework including the
mechanisms and the types of short-term
liquidity management instruments.
The MMA is already issuing Mudarabah
and Murabahah certificates on a regular
basis but those tools used for liquidity
management purposes are primarily
fiscal instruments designed to raise
financing for state-owned enterprises.
As a result, their issuance frequencies
and amounts depend on the financing
needs of state-owned enterprises and the
Ministry of Finance and Treasury.
“With the proposed liquidity
management framework, what we
hope to achieve is to provide industry
players a mechanism whereby they can
avail [themselves] of multiple liquidity
management options. These would
include the existing instruments as well
as additional instruments that would
provide more flexibility in tenor as well
as investment amounts. Our vision is
to see the establishment of a sort of
localized money market which would
cater to all the liquidity management
needs of local Islamic financial
institutions,” explains Ahmed.
Given that it is the first time in the
history of the country that the central
bank has brought Islamic finance to its
main agenda in a direct manner, Aishath
Muneeza, the chairman of the Maldives
Center for Islamic Finance, welcomes
the MMA’s plan but regrets that key
topics on Takaful, fintech, awareness and
education, as well as innovation, are not
addressed.
“At the moment, we do not have a
Takaful legislation, although Takaful was
the first form of Islamic finance that was
adopted in the country in 2003. A
comprehensive legal framework is also
required to develop a non-banking
financial sector dealing with Islamic
finance. Fintech is another area I wanted
to see in the strategic plan as the
integration of fintech mechanisms and
blockchain technology is important and
the MMA should lead on this. There is
also a need to increase the number of
innovative products offered in the
market. Up until now, there is no Islamic
credit card offered in the country and
there is only a limited range of products
available in the market,” Aishath says.
IFN contacted Maldives Islamic Bank and the
Bank of Maldives for comments but has yet to
receive an answer.
The Maldives plans deep regulatory changes to boost Islamic
inance
With the
proposed
liquidity
management
framework, what
we hope to achieve
is to provide
industry players
a mechanism
whereby they can
avail [themselves]
of multiple liquidity
management
options

9. 9©
26th
September 2018
IFN REPORTS
Gulf Islamic Investments (GII), which
manages about US$500 million in
technology assets, is on the lookout for
more opportunities beyond enterprise
software to expand its tech portfolio as
Muslim investors show an increasing
appetite for the technology sector, the
investment manager tells VINEETA
TAN.
“Shariah compliant investors are eager
to tap into technology investments
especially in the last four to five years.
A lot of investors have been approached
by tech funds but these are not always
structured in a Shariah compliant way,
hence, new Islamic tech funds are often
oversubscribed,” explains Mohammad
Al Hassan, co-CEO and the co-founder
of GII.
“If you look at most investors in the
GCC who deal with Islamic investments,
they are big users of technology, and
they understand technology as a space,”
echoes Pankaj Gupta, GII’s co-CEO and
co-founder.
About one-third of GII’s US$1.5 billion
in assets under management are in
the technology sector. A significant
proportion of the portfolio comprises
investments in mature tech companies
at the pre-IPO stage which are already
generating steady and recurring income
of between US$50-100 million. However,
the firm also has a fund — the GII Tech
Fund — which gains exposure in early-
stage companies at Series A and Series B
funding levels.
Mainly invested in software technology,
GII has identified new verticals of
interest: blockchain technology, robotics,
artificial intelligence (AI), the internet of
things, machine learning, wearables and
virtual reality.
“For us, it is not only about the
technology; the promoters behind the
technology, their experience, growth
strategy and robust business
management model are also very
important,” says Gupta, who added that
companies with an aggressive expansion
strategy are often preferred. “Not only
will we be bringing investments into the
technology sector, but we will also be
bringing tech innovation to the GCC.”
This is an excerpt of an interview with the
co-CEOs and co-founders of Gulf Islamic
Investments. For the full conversation on
technology investment trends among Muslim
investors, log on to IFN Podcasts.
PODCAST: Islamic investor hunts for opportunities in blockchain,
AI and robotics as tech appetite in Muslim world grows
DOWNLOADNOW
LATESTPODCAST
Growing appetite for tech investments
Pankaj Gupta and Mohammed Al Hassan
Co-CEOs and co-founders of Gulf Islamic Investments
If you look at
most investors
in the GCC who
deal with Islamic
investments, they
are big users of
technology, and
they understand
technology
as a space

10. 10©
26th
September 2018
IFN REPORTS
The growth of Islamic finance in
Malaysia has been a remarkable
success story, with this sector having
transformed from several niche
products to fully-fledged banks within
a few short decades. The market
share of Islamic banking assets in
Malaysia leapt to a high of 28% in 2016
from 7.1% in 2010 but this has since
plateaued, signaling the need to explore
opportunities to boost growth and
reinvent its strategies to capture the
market. VINEETA TAN writes.
One dramatic shift observed in the
Malaysian market is the move by Islamic
financial institutions toward value-based
financing as a new growth driver — in
line with the global trend of impact-
driven, value-based and sustainable
banking and investment. Pundits
view this Malaysian phenomenon as
a natural progression from traditional
Shariah compliant banking toward a
more dynamic and wholesome value
proposition.
Ethical values aside, there is also
commercial value to be gained from
such a strategy: research by the Global
Alliance of Banking on Values has shown
that banks which serve the real economy
consistently deliver better and more
stable financial returns than those shown
by the largest banks in the world.
The move has gained significant
momentum in recent years as regulators
across the world, especially among
developing nations, recognize the merits
of value-based banking. In Malaysia in
particular, Bank Negara Malaysia led the
way with its Value-Based Intermediation
(VBI) Strategic Paper in 2017, an initiative
to harness the full potential of Islamic
finance and to cement Malaysia at the
forefront of Islamic banking leadership
globally.
The overarching objective of VBI is
to strengthen the roles and impact of
Islamic banking institutions toward
a sustainable financial ecosystem by
incorporating holistic business practices,
conduct and offerings that have a
positive and sustainable impact on the
economy, community and environment.
“VBI reflects the true essence of Islamic
finance. VBI principles such as fairness
and social responsibility are very much
aligned to Shariah principles. So, it’s
quite natural for Islamic financial
institutions to take the lead,” said Rafe
Haneef, the organizing chairman of
the Global Islamic Finance Forum 2018
(GIFF2018) and CEO of CIMB Islamic
Bank. “Beyond providing great financial
products and services, VBI requires
financial institutions to balance different
stakeholders’ interest and play an active
role in shaping a more sustainable
future and creating a positive impact on
communities and the environment.”
The focus on VBI has seen impactful
offerings such as ‘rent-to-own’ house
financing and favorable financing rates
for purchasing green-certified homes
and hybrid cars being introduced in
Malaysia. The Malaysian central bank
is due to introduce the VBI initiative
scorecard at GIFF2018 next month
where VBI will be a central theme
guiding conversations on integrating
sustainability into finance, technological
disruption and driving systemic change,
among others. The scorecard will
evaluate financial institutions based on
qualitative and quantitative metrics on a
variety of value-based areas.
Organized by the Association of Islamic
Banking and Financial Institutions
Malaysia, GIFF2018 speakers include Dr
Adnan Chilwan, group CEO, Dubai
Islamic Bank; Dr Sheikh Nizam Yaquby,
member of the ISRA Council of Scholars;
Chris Skinner, CEO of the Finanser;
Omar Selim, CEO of Arabesque Asset
Management; Dr Ioannis Ioannou,
associate professor of strategy and
entrepreneurship, London Business
School; and Dr Simon Lord, chief
sustainability officer, Sime Darby
Group.
Malaysia’s way forward for Islamic inance
Pakistan’s agricultural bank Zarai
Taraqiati Bank, which secured a license
in July to offer two unique Shariah
compliant financing products, expects to
launch its Islamic window by the end of
the year.
Finalizing some red tape to meet the
State Bank Pakistan’s requirements
and putting the final touches to the
development of its in-house core banking
software, Zarai Taraqiati Bank’s Islamic
window should be up and running as
early as the end of October.
Operating 489 branches in the entire
country, the bank, which focuses on
supporting small farmers’ needs, plans
to convert 150 of them within five years
to offer two unique Islamic financing
products for the purchase of inputs and
the acquisition of machineries, as well as
Takaful solutions.
The structure of these two financing
products, close to Salam and Ijarah
mechanisms, reduces some of the risks
inherent in agriculture finance, explains
Amir Islam, the head of the Islamic Banking
Department at Zarai Taraqiati Bank.
“There are Islamic products like
Murabahah, Ijarah and Salam that
are available for input financing and
development financing but these are
risky products in agriculture finance. If
you use Murabahah for the purchase of
seeds or fertilizer with the farmer due to
pay after cultivation of the crop, there is
a high risk that unforeseen events such
as rainfalls for instance [will] impact
negatively the harvest resulting in the
impossibility for the farmer to pay back,”
Amir says.
Zarai Taraqiati Bank expects to break
even in one and a half years and plans to
make profit amounting to about PKR20-
25 million (US$161,536-201,921) after two
years of operation and PKR500 million
(US$4.04 million) after five years.
Formerly known as the Agricultural
Development Bank of Pakistan, Zarai
Taraqiati Bank has been eyeing the
launch of an Islamic window since 2011
but the lack of talent considerably slowed
down the process.
Company Focus: Zarai Taraqiati Bank

11. 11©
26th
September 2018
IFN REPORTS
After falling behind four times on its
maiden Sukuk auction schedule, the
Kingdom will reportedly issue its debut
Shariah securities in the first week of
October. MARC ROUSSOT writes.
Morocco
Morocco’s debut paper, which will
follow the Ijarah structure with real
estate assets owned by the government
as the underlying assets, will be worth
around MAD1 billion (US$106.33
million). Rents will be used to pay a
coupon rate to investors.
Kuwait
The Central Bank of Kuwait issued three-
month conventional bonds and related
Tawarruq facilities for the total amount
of KWD160 million (US$526.94 million).
The offerings, which received KWD2.07
billion (US$6.82 billion) in bids, carry a
profit rate of 2.5%.
Malaysia
A total of RM74.12 billion (US$17.93
billion)-worth of Shariah securities have
been issued by Bank Negara Malaysia
over the past seven days.
Indonesia
The Indonesian Ministry of Finance
raised IDR4.9 trillion (US$329.19 million)
from the sale of six Shariah securities for
which it received bids worth IDR8.22
trillion (US$552.23 million).
Brunei
For the first time this year, Autoriti
Monetari Brunei Darussalam issued
Sukuk Ijarah worth BN$15 million
(US$10.97 million) with a 364-day tenor.
Such papers sold by Brunei’s apex bank
on a monthly basis are usually worth
BN$100 million (US$73.26 million) or
BN$50 million (US$36.63 million) with a
91-day tenor.
Bangladesh
Bangladesh Bank auctioned a six-
month Bangladesh Government Islami
Investment Bond worth BDT345 million
(US$4.08 million). The facility received
two bids. On average, Bangladesh Bank
will receive six bids for its six-month
issuances worth on average BDT3.5
billion (US$41.36 million).
Turkey
In order to increase the domestic savings,
broaden the investor base and diversify
the borrowing instruments, the Turkish
Treasury is due to privately place 728-
day fixed rent rate lease certificates
amounting to TRY1.7 billion (US$273.36
million) on the 26th
September 2018. The
papers carry a 12.2% periodic rent rate.
Gambia
The Central Bank of Gambia (CBG) on
the 26th
September 2018 is expecting to
sell three-month, six-month and one-year
Sukuk Salam instruments for GMD20
million (US$408,041) each.
Gambia’s apex bank also separately sold
three-month and six-month Sukuk Salam
papers for GMD40 million (US$816,081)
each and a one-year Sukuk Salam facility
for GMD90 million (US$1.84 million). All
three papers were undersubscribed.
Sovereign Sukuk: Morocco inally issuing maiden Sukuk?
Upcoming sovereign Sukuk
Country Amount Expected issuance date Date of announcement
Turkey Lease certificates
• TRY1.7 billion
• TRY1.3 billion
• 26th
September
• 20th
November
25th
September 2018
Morocco Through four Sukuk worth
MAD1-2 billion each
• 1st
issuance: About MAD1
billion
2018
• First week of October
19th
September 2018
Egypt Dollar or euro-denominated
Sukuk
Fiscal year 2018-19 (starting the 1st
July
2018)
28th
June 2018
Ghana Up to US$2.5 billion (Sukuk,
Samurai and Panda bonds)
TBA 6th
April 2018
Sudan About US$1 billion 2018 6th
April 2018
Pakistan • US$3 billion (from Sukuk and
eurobonds)
• PKR100 million
• Fiscal year 2019 (starting the 1st
October)
• TBA
• 16th
April 2018
• 20th
March 2018
South Africa TBA (domestic) Fiscal year of 2018-19 (starting the 1st
April) 6th
March 2018
The Maldives MVR100 million TBA 19th
February 2018
Oman TBA (international) TBA 9th
February 2018
Iran IRR596 trillion (over multiple
programs)
• IRR20 trillion
Throughout the fiscal year of 2018-19
• TBA
5th
February 2018
• 19th
March 2018
Kuwait TBA (conventional bond which
may include an Islamic tranche)
TBA 31st
January 2018
Nigeria TBA TBA 26th
January 2018

12. 12©
26th
September 2018
ANALYSIS
IFN COUNTRY ANALYSIS
THE US
Regulatory landscape
The US still lags behind in terms of a
dedicated Islamic finance regulation, but
its existing laws are accommodative of
certain Shariah compliant structures, if
not all. Similar to conventional financial
activities, Islamic finance is governed
under established regulations set forth by
the country’s various financial regulatory
bodies such as the Federal Reserve,
the Office of the Comptroller of the
Currency, the Federal Deposit Insurance
Corporation, state banking authorities,
the Internal Revenue Service and the
Securities Exchange Commission.
Banking and inance
The Shariah banking and finance
industry of the US is largely
nascent against the backdrop of the
aforementioned lack of regulation. Some
of the most prominent Islamic financial
services providers include Lariba
Finance House, Devon Bank, Guidance
Financial, Saturna Capital, University
Bank’s University Islamic Financial and
Azzad Asset Management, among others.
Abraham’s River, a financial institution
based in Chicago providing religiously
acceptable investment options, was
certified as Shariah compliant in 2016.
Fintech
While the Islamic banking and finance
market remains small in the US, the
Shariah fintech scene on the other hand
is seeing strong activities. According to
the IFN Islamic Fintech Landscape, the
US took up 7% of the total number of
start-ups serving the Muslim market as
of July 2018, landing itself in the top five
nations with the most number of start-up
companies. The US houses 12 companies
across 11 verticals listed under the IFN
Islamic Fintech Landscape, with Islamic
personal finance management, trading
and investment dominating the US
Shariah compliant fintech community
with a total of four companies.
Last year, a new investment and savings
start-up was launched in September
to facilitate Muslims in the US to
fulfill their Hajj obligations based on
Malaysia’s Lembaga Tabung Haji model.
Wahed Invest, an Islamic robo-advisor
established in the second half of 2016,
secured US$5 million in seed capital
and launched its services to US retail
investors last year. The firm also began
testing its technology in Bahrain earlier
in January, and rolled out two new
Islamic tracking funds earlier this month.
UAE-based Islamic fintech company
Codebase Technologies also collaborated
this month with US-based Accuant to roll
out Digibanc Identity, a digital identity
and e-know-your-customer solution.
Real estate
Real estate forms the majority of Shariah
compliant activities in the US. Mortgage
financing is especially in demand among
Muslims and international investors are
keen to channel investments into US
property.
In August 2017, Brennan Investment, a
US-based real estate investment firm, and
a client of Arch Street Capital Advisors, a
US-based real estate investment advisory
firm, partnered to form a Shariah
compliant joint venture to acquire, own
and manage a substantial portfolio of
industrial properties throughout the
US. The new joint venture that has
already purchased nearly 900,000 square
feet of industrial real estate in Dallas,
Charlotte and Green Bay will focus on
acquiring individual industrial assets in
major markets in the US that are critical
facilities to tenants and leased on a long-
term basis.
Residential mortgage aside, corporates
were also involved, particularly Soho
Properties which in May 2016 confirmed
that it secured US$219 million in Shariah
compliant funding for the construction
of its Tribeca condominium tower at
45 Park Place in Manhattan, expected
to be completed this year. Apart from
traditional Islamic finance providers,
Shariah compliant real estate financing
needs are also attracting alternative
providers such as crowdfunding
platforms like HalalSky based in Texas.
Sukuk
It is understood that a significant portion
of Islamic deals in the US are private
placements. The first corporate Sukuk
issuance was made in 2006 by East
Cameron Partners for US$166 million,
and was backed by oil and gas assets that
did not materialize and resulted in the
firm filing for bankruptcy in 2008.
GE Capital (the financial arm of General
Electric) followed suit with a US$500
million Sukuk Ijarah facility backed by
aircraft leases. In 2014, Goldman Sachs
issued its much-talked about US$500
million Islamic debt, the first for the US
investment bank, or for any conventional
US bank for that matter.
In April, University Bank issued
a privately-placed Sukuk facility,
believed to be the country’s first Shariah
compliant debt transaction to be
structured and governed under US laws.
Shariah compliant funds
The US Islamic fund market is small but
fast-growing. The earliest Islamic fund
in the country came from the Amana
Mutual Funds family — the Amana
Growth Fund was launched in 1984, with
the Amana Income Fund following in
1994 and the Amana Developing World
Fund in 2009. Other players in the area
of Shariah compliant mutual funds in
the US are Azzad Asset Management,
which was established in 1997, and the
Azzad Ethical Fund which was launched
in 2000.
Allied Asset Advisors offers a mutual
fund, the Imam Fund, which was
launched in 2000. The Dow Jones Islamic
Index, which lists the aforementioned
funds, was launched in 1999. The US is
also home to an Islamic exchange-traded
fund, the Falah Russell-IdealRatings US
Large Cap ETF, launched in 2014.
Last year, the Islamic Corporation for the
Development of the Private Sector and
Saturna, the Malaysian unit of
Washington-based Saturna Capital
Corporation, established an open-ended
ESG fund which is expected to raise
US$100 million in the first three years
after launch.
The US: Led by intech
The US, despite being one of the most formidable powers of the world, has little to showcase in the global Islamic
finance and banking sector. Nevertheless, its Islamic fintech asset class is flourishing and providing competition to
strong contenders like Malaysia and the UK.

13. 13©
26th
September 2018
ANALYSIS
AAOIFI
A total of 26 accounting standards have
been published by AAOIFI and are
currently in effect but the international
standard-setting body is expected
to come up with new and revised
standards in the next few months as it
is currently working on five accounting
standards, namely FAS 3 Murabahah
and Murabahah to the Purchase Orderer;
FAS 8 Ijarah and Ijarah Muntahiya Bil
Tamleek; Combination of Financial
Accounting Standards on Islamic
Insurance; Sukuk accounting; and Waad
accounting.
Over the past 12 months, AAOIFI has
also issued four standards and four
accounting standard exposure drafts.
GCC member states
Since the beginning of the year, Saudi
Arabia and the UAE have introduced a
5% VAT rate as part of a plan mandating
all six GCC member states to enact the
levy. Qatar will introduce the tax during
the second half of the year, Bahrain in
October this year, Oman in 2019 and
Kuwait in 2021. Prior to the launch of
the tax, market players expressed their
concerns and called for tax neutrality
or equality rules with conventional
transactions as the tax could dramatically
affect Islamic banks, Sukuk issuances,
Takaful and Shariah compliant fund
managers, among others.
In the end, the introduction of the VAT in
the UAE and Saudi Arabia was relatively
smooth with the release by the UAE of
a VAT framework exempting financial
services from VAT obligations and
specifically exempting Islamic finance
facilities with profit rates from paying
the tax. In Saudi Arabia, the tax regime
exempts margin-based services and
applies the VAT only to fee-based services.
Saudi Arabia
The introduction of a new accounting
method to the long-term investments of
banks by the General Authority of Zakat
and Tax created worry among financiers
early this year as 11 of the Kingdom’s
12 listed banks were requested to pay
additional Zakat claims estimated at
around SAR9.8 billion (US$2.61 billion).
However, in March, in an attempt
to avoid any damage to his push to
diversify the economy, Crown Prince
Mohammed Salman directed the Saudi
government to resolve the disputes with
the banks. It is unclear how the disputes
were resolved.
Iran
A few measures with regards to taxation
were taken over the past 12 months in
Iran including the creation of a task force
to pave the way for banks to standardize
their financial statements and tackle
current issues and problems they are
dealing with.
Taxes have also been lowered on equity
sales by 80% to 0.1% in order to further
attract funds to the Iranian stock market.
Algeria
Algeria will tweak its legal framework
to avoid double taxation issues,
Abderrahmane Raouya, the Algerian
minister of finance, said in October
last year. The progress of this project is
unclear.
Kenya
The Islamic Finance Project Management
Office of Kenya proposed in May 2018
same tax on Islamic finance products
with conventional offerings to boost
the attractiveness of Shariah compliant
products.
The Philippines
An important step was achieved in the
Philippines toward the development
of Islamic banking when a committee
of the House of Representatives of the
Philippines approved in February a tax
neutrality provision in a bill seeking to
establish a regulatory framework for
the Islamic banking industry. The bill is
aimed at achieving tax neutrality for the
industry vis-à-vis conventional banks.
Malaysia
Islamic banking institutions set the rate
of the GST at 0% starting from the 1st
June
2018, compared to the 6% implemented
since April 2015. The bill to repeal
the GST has since been passed by the
parliament and the GST is now replaced
by the sales and services tax.
Pakistan
The Federation of Pakistan Chambers
of Commerce and Industry (FPCCI)
proposed a few measures including
to increase the tax rebate for Shariah
compliant manufacturing firms to
support growth in the industry.
The apex trade body recommended
introducing a gradual approach of
allowing a 2% tax rebate to those listed
manufacturing companies which convert
20% of their conventional financing
into Islamic financing and 20% of their
non-compliant investments into Islamic
investments.
The FPCCI also proposed to enhance the
tax rebate to 3% for those manufacturing
companies which achieve 0%
conventional financing and 0% non-
compliant investments.
Also, in April, the government
announced considering a tax cut of
30% in the Finance Bill of 2018/19
to encourage the listing of Shariah
compliant companies on the stock
exchange.
UK
Islamic financial firms are reportedly
lobbying the UK government to revise
existing regulations to ensure tax parity
in areas such as mortgage refinancing as
they compete head-on with their
conventional peers. The Chartered
Institute of Taxation presented a
submission to authorities on the matter.
Accounting and tax: Gulf states start
implementing VAT
The year has been marked by many accounting and tax changes with the introduction of the value-added
tax (VAT) in several Gulf states, the removal of the goods and services tax (GST) in Malaysia, as well as the
introduction of a new accounting method by the General Authority of Zakat and Tax of Saudi Arabia. MARC
ROUSSOT brings you the most important developments.
IFN SECTOR ANALYSIS
ACCOUNTING AND TAX

14. 14©
26th
September 2018
CASE STUDY
Al Hilal Bank’s Sukuk
US$500 million
12th
September 2018
Issuer AHB Sukuk Company
Obligor Al Hilal Bank
Size of issue US$500 million
Mode of issue Regulation S, senior,
unsecured
Tenor Five years
Issuance price 99.61%
Profit rate 4.38%
Payment Annually
Currency US dollars
Maturity date 19th
September 2023
Joint lead
managers and
bookrunners
Al Hilal Bank, Dubai
Islamic Bank, Emirates
NBD Capital, First Abu
Dhabi Bank, HSBC,
JPMorgan, Nomura,
Standard Chartered
Bank
Governing law English law and UAE
law
Listing Euronext Dublin
Rating Moody’s Investors
Service: ‘A2’
Fitch Ratings: ‘A+’
Structure Mudarabah and
Wakalah
Face value/
minimum
investment
US$200,000 and
integral multiples of
US$1,000 in excess
thereof
Recent times in the UAE have seen a
spike in corporate Sukuk issuances.
One such paper to hit the market is Al
Hilal Bank’s US$500 million five-year
senior Sukuk facility. The issuance
was floated as a ‘drawdown’ under the
bank’s US$2.5 billion trust certificate
issuance program which is listed on the
Irish Stock Exchange. DURGAHYENI
MOHGANA SELVAM has the details.
“The Sukuk structure was a Wakalah/
Mudarabah, similar to the structure
used for the bank’s debut issuance in
2013,” according to David William
Whitcroft, the senior managing director-
head of treasury of Al Hilal Bank. The
structure was fixed from the start of
the arranging process with no other
principles considered, one of the deal’s
bookrunners, who wished to remain
anonymous, tells IFN. The paper hit the
market after a five-month drought in the
UAE’s senior public Sukuk market, with
the last being from Noor Bank in April.
Al Hilal’s Sukuk also marked the bank’s
return to the senior Sukuk market since
the last facility in 2013.
Investor meetings were held in various
locations around the globe, including
in London, Hong Kong, Singapore and
Kuala Lumpur prior to the issuance.
The initial price guidance for the five-
year paper was fixed at MS+165bps,
and was later tightened to MS+148bps
due to high demand. “There has been
a lack of supply from the Middle East
since May 2018 which created a good
demand backdrop,” the anonymous bank
explains. Whitcroft added to this, saying
that: “Investors reacted very positively to
the bank’s strong credit rating and 100%
government ownership through the Abu
Dhabi Investment Council.”
The main challenge in issuing the paper
was the tight competition from fellow
Sukuk issuers at that time. “When Al
Hilal was pricing its deal, Abu Dhabi
Islamic Bank [ADIB] was pricing a Tier
1 Sukuk and the government of Saudi
Arabia was pricing a 10-year Sukuk. We
continually engaged investors in order
to have them focus on the issuance and
this paid off allowing us to successfully
price the issuance,” the arranging
bank expounds. Another hurdle was
timing. “Emerging market issuance was
extremely light over the summer period.
Potential issuance from September
onwards was viewed to be heavy. We
needed to ensure that we timed our
issuance at an opportune and ideal
window in the market, and to be ahead
of other issuers,” Whitcroft explains.
The orderbook for Al Hilal’s issuance
was recorded at US$1.4 billion, with
demand from over 70 investors. The
investor base was diversified
geographically, with a 25% allocation to
Europe, 20% to Asia and 55% to the
Middle East.
Al Hilal Bank’s Sukuk: Ending a ive-year hiatus
Investors
reacted
very positively to
the bank’s strong
credit rating and
100% government
ownership through
the Abu Dhabi
Investment
Council

15. 15©
26th
September 2018
BACK TO BASICS
Sohail Zubairi is the projects advisor
with the Dubai Islamic Economy
Development Centre. He can be contacted at
sazubairi1979@gmail.com.
After having learned the stable
parameters based on which Islamic
financing transactions take place, and
appreciating the multifarious layers
of Shariah and corporate governance
an Islamic bank is required to comply
with, today we shall conclude our
discussion on Shariah governance by
discussing the two standard-setting
bodies viz. AAOIFI and the IFSB.
At times, people get confused about
the roles of these two distinct bodies
by viewing them as competitors in the
sense that both are busy churning out
standards on Islamic finance, one meant
for Gulf countries and the other aimed
at the Malaysian market. This is because
AAOIFI is based in Bahrain whereas
the IFSB operates from Malaysia. This
is a completely erroneous perception as
readers will know from the following.
AAOIFI
As per its own website, AAOIFI,
established in 1991 and based in
Bahrain, is the leading international
not-for-profit organization primarily
responsible for the development and
issuance of standards for the global
Islamic finance industry.
It has so far issued a total of 100
standards in the areas of Shariah,
accounting and auditing for use in
Islamic financing transactions. It is
supported by a number of institutional
members, including central banks
and regulatory authorities, Islamic
commercial banks and financial
institutions, accounting and auditing
firms and legal firms from over
45 countries. Its standards are
currently followed by all the leading
Islamic financial institutions across
the world and have introduced a
progressive degree of harmonization of
international Islamic finance practices.
AAOIFI also has fellowship programs:
certified Shariah advisor and auditor
and certified Islamic professional
accountant.
The AAOIFI Shariah Standards provide
parametrization for carrying out any
Islamic financing transaction either
based on sale or investment contracts.
Over the period of a quarter of a
century, the AAOIFI Shariah standards
have assumed an undisputed global
benchmark position for the Islamic
finance industry.
Although by nature the AAOIFI
Shariah Standards are optional, several
jurisdictions have made it mandatory
for Islamic banks and financial
institutions to adopt them in their day-
to-day functioning. These countries
include Bahrain, Jordan, the Kyrgyz
Republic, Mauritius, Oman, Pakistan
and Sudan.
Recently, the newly constituted Higher
Shariah Authority of the UAE set a
deadline of 2020 for licensed Islamic
banks and financial institutions to
conform to the AAOIFI Shariah
Standards.
In parallel, AAOIFI has also issued
accounting standards; however, these
have not assumed similar recognition
as the AAOIFI Shariah Standards and a
majority of Islamic banks and financial
institutions follow the International
Financial Reporting Standards (IFRS)
when publishing their annual audited
results.
Some of the IFRS provisions do not
reconcile with the state of affairs at
Islamic financial institutions owing to
their business model being divergent
compared with conventional financial
institutions. However, this situation
may continue until such time that the
AAOIFI Accounting Standards gain
wider international acceptability.
IFSB
The IFSB, based in Kuala Lumpur,
was officially inaugurated on the 3rd
November 2002 and started operations
on the 10th
March 2003. It serves as an
international standard-setting body of
regulatory and supervisory agencies
that have a vested interest in ensuring
the soundness and stability of the
Islamic financial services industry,
which is defined broadly to include
banking, capital markets and insurance.
In advancing this mission, the IFSB
promotes the development of a prudent
and transparent Islamic financial
services industry through introducing
new standards, or adapting existing
international standards consistent with
Shariah principles, and recommending
them for adoption. To this end, the
work of the IFSB complements that
of the Basel Committee on Banking
Supervision, the International
Organization of Securities Commissions
and the International Association of
Insurance Supervisors.
Roles of AAOIFI and IFSB in the functioning of
Islamic banks
The work
of the IFSB
complements
that of the Basel
Committee on
Banking Supervision,
the International
Organization
of Securities
Commissions and
the International
Association of
Insurance
Supervisors

16. 16©
26th
September 2018
BACK TO BASICS
5th
October 2018
SGX Centre, Singapore
Boasting one of the world’s most sophisticated financial markets rooted
in transparency and a sound legal framework, and bolstered by a
pro-business, stable and open economy, Singapore has all the
hallmarks of a potentially successful global Islamic financial market.
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The need to set up the IFSB was felt 11
years after the establishment of AAOIFI
due to the broader recognition by the
Islamic finance industry that the Basel
Committee standards on banking
supervision cannot be applied ‘as is’ on
Islamic banks. Readers may be aware
that the Basel Committee on Banking
Supervision is an international committee
formed to develop standards for banking
regulation. It is made up of central
bankers from 27 countries and the EU.
The IFSB’s corporate governance
framework for Islamic financial
institutions, mainly commercial
Islamic banks and excluding Takaful
or Islamic insurance, is categorized
into the following core areas which
are conspicuously diverse from the
scope of the AAOIFI Shariah Standards
discussed previously:
A. General governance approach of
Islamic financial institutions
B. Rights of investment account holders
C. Compliance with Islamic Shariah
rules and principles, and
D. Transparency of financial reporting in
respect of investment accounts.
It is hoped that readers will have
understood the difference between
AAOIFI and the IFSB vis-à-vis their
functions and roles in supporting the
overall Islamic financial industry.
Moreover, the three articles on Shariah
governance, including this one, will
have provided a clearer picture as to the
water-tight governance model prevalent
in Islamic financial institutions.
While the AAOIFI Shariah and
Accounting Standards are available for
further reading at a cost, the IFSB’s
standards are available for free
download from www.ifsb.org.
The views and opinions expressed in this
article are those of the author and do not
necessarily reflect the opinions of the
Dubai Islamic Economy Development
Centre, nor the official policy or position
of the government of the UAE or any of
its entities. The purpose of this article
is not to hurt any religious sentiments
either consciously or even unwittingly.
Next Week: Start of a new
subject on Islamic financing and
investment contracts.

17. 17©
26th
September 2018
SHARIAH STANDARD
This AAOIFI Shariah Standard summary series is brought to you exclusively by IFN in collaboration with Dar Al Sharia. The intention
of this is to provide the reader with an initial understanding of the standards and this does not purport to be complete or is intended to
replace the standard itself. It is also highlighted that the reader should not rely on the below for any Shariah guidance purposes.
The next standard in the weekly series shall be Shariah Standard No 50 – Irrigation Partnership (Musaqat).
About
Name of the standard: Unilateral and bilateral promise
Standard number: 49
Standard Issuance sate: 4th
January 2013
Sections: Seven sections, Sections 2 to 6 provide core rules of the standard
Purpose
The purpose of the standard is to explain the concepts of unilateral and bilateral promises (or undertakings), their types and
enforceability. Further, the standard discusses rules applicable to promises and contemporary applications in the activities of
Islamic financial institutions.
Scope
The scope of the standard includes the following aspects of unilateral and bilateral promises:
a) Definition of unilateral and bilateral promises.
b) Types of promises.
c) Applicable Shariah rules.
d) Permissible applications.
e) Impermissible applications.
Summary
A unilateral promise/undertaking is one of the key parts of Islamic finance products and transactions. A promise is a
commitment whereby the issuing party undertakes to act in the future, while the other party, ie the holder, has the option to
avail itself of the promise by choosing to exercise the right.
Islamic financial institutions required Shariah guidance on the nature and acceptability of promises to adopt them to common
transactions in Islamic financial activities. This standard provides the necessary guidance and explains the types of promises and
their acceptability and enforceability as per Shariah.
Some of the applications of the standard in banking and finance transactions
Part of products developed under Ijarah and Murabahah structures.
Derivatives, swaps and foreign exchange transactions.
Highlights
Nature of promises It is permissible to promise to perform an action or a financial transaction. From a classical
perspective, the fulfillment of a promise is only a religious obligation which may not be legally
binding. However, the contemporary position of scholars, particularly on financial transactions, has
developed to make it legally enforceable as the promisor causes the promisee to incur a liability as a
result of the promise.
General Shariah rules a) Two or more unilateral promises between the same parties must not be organized in such a way
which may lead to a forward sale.
b) Any promise in a sale contract made by the buyer or the seller that results in a repurchase contract
(Inah) is prohibited by Shariah.
c) When a promise is made to enter into a contract in the future, such a contract is not effected
automatically. The contract must be executed at the relevant time by an exchange of offer and
acceptance.
d) A legally binding promise is enforceable only against the promisor; the promissee may demand
performance from the promisor or waive it.
www.daralsharia.ae

18. 18©
26th
September 2018
COLUMN
Islamic
banks face
a challenge in
their asset liability
management when
the market cost of
funds rises, because
of their inability
to re lect this rise
in their returns on
assets in the
short term
Professor Rifaat Ahmed Abdel Karim is the
visiting professor of the ICMA Centre at the
Henley Business School of the University of
Reading in the UK. He can be contacted at
rifaatahmed@gmail.com.
Islamic banks are established to provide
an alternative banking service to those
who wish to adhere to their Islamic
faith in their financial dealings, as well
as to others who are attracted by the
products that these banks provide. To
provide assurance to those who wish to
adhere to their faith, Islamic banks have
established an organ of governance
generally known as a Shariah board,
which presents a report addressed to
all stakeholders that is included in the
bank’s annual financial statements. In
the report, the Shariah board provides
an opinion as to whether the Islamic
bank has complied in its transactions
with the rules and principles of Shariah
and in particular with those of the
Fiqh Al Muamalat (Islamic commercial
jurisprudence).
In Islamic banks, the
appointment and powers
of the Shariah board tend
to differ. Some banks
appoint their Shariah
board as a committee
while others appoint
them as a board.
In some banks, Shariah
boards are appointed
by the general assembly,
while in others they
are appointed by the
management.
Some Shariah boards
have the power to
liquidate the Islamic
bank (eg Faisal
Islamic Bank in
Bahrain), while other
Shariah boards (eg
Faisal Islamic Bank
in Sudan) insist that
the word ‘supervisory’
should be included in
the title of their Shariah
board.
The other feature, which is
different from non-Islamic banks
and is frequently used on the
funding side, is the so-called
profit-sharing investment account (PSIA).
The contract most commonly used is
the Mudarabah, a form of partnership
‘between work and capital’ with the
Islamic bank providing the work as the
managing partner and the providers of
funds as sleeping partners.
The Mudarabah contract would not allow
PSIA holders, being sleeping
partners, to have a say either
in the appointment of the
management of the bank
or its Shariah board.
Neither would this
contract allow holders
of PSIA to interfere in
the management of
the bank.
This contract
typically allows
providers of funds
to withdraw their
funds at short notice.
Commodity Murabahah-
based funding, which
is defined by the IFSB
as a Murabahah-based
purchase and sale
transaction, is also to
be found to a significant
extent in Islamic
banks, such as those in
Malaysia.
Hence, Islamic banks face
a challenge in their asset
liability management when
the market cost of funds
rises, because of their inability
to reflect this rise in their returns
on assets in the short term.
This exposure to the ‘rate of
return risk’ (similar to the ‘interest rate
risk’ in the banking book) may prevent
Islamic banks from paying returns to
their providers of funds that meet market
expectations and thus further exposes
them to the so-called ‘withdrawal risk’,
ie the risk of the providers of funds
withdrawing their funds to place them
elsewhere.
Perhaps this ability of holders of
unrestricted PSIAs to withdraw their
funds at short notice is some
compensation for their lack of
governance rights, similar to those
accorded to equity investors, they might
be expected to have. The IFSB addressed
this issue in its IFSB-3 standard.
Governance of Islamic banks
COLUMN
WORDS OF WISDOM

19. 19©
26th
September 2018
IFN SECTOR
CORRESPONDENT
IFN COUNTRY
CORRESPONDENT
IFN Country Correspondents
AFGHANISTAN: Manezha Sukhanyar
former head of Islamic banking, Maiwand Bank
ALGERIA: Dr Ahmed Tahiri Jouti
COO, Al Maali Consultancy Group
AUSTRALIA: Christopher Aylward
partner, Finance and Major Transactions, Madison Marcus
Law Firm
BAHRAIN: Dr Hatim El-Tahir
director of Islamic Finance Knowledge Center, Deloitte &
Touche
BANGLADESH: Md Shamsuzzaman
additional managing director, head of operations wing,
Islami Bank Bangladesh
BRAZIL: Fábio Amaral Figueira
partner, Veirano Advogados
CANADA: Rehan Huda
managing director, Amana Canada Holdings
EGYPT: Dr Walid Hegazy
managing partner, Hegazy & Associates
GERMANY: Ahmet Kudsi Arslan
CEO, KT Bank
HONG KONG: Wilson Yeung
member, The Taxation Institute of Hong Kong
INDIA: Ali M Shervani
partner, Consigliori Consultants
INDONESIA: Irwan Abdalloh
head of Islamic Capital Market, Indonesia Stock Exchange
IRAN: Majid Pireh
head of Islamic finance group at the Securities and
Exchange Organization of Iran
ITALY: Stefano Padovani
partner & head of banking and finance, NCTM Studio
Legale Associato
IVORY COAST: Abbas Cherif
head of Islamic finance, An Nour Consulting
JAPAN: Dr Etsuaki Yoshida
project associate professor, Kyoto University
KENYA: Mohamed Abdi
Shariah manager Islamic Banking- Barclays Kenya
KAZAKHSTAN: Shaimerden Chikanayev
partner, Grata Law Firm
KUWAIT: Issam Al Tawari
managing partner, Newbury Economic Consultancy
KYRGYZSTAN: Daniyar Mamyrov
CEO, Kompanion Islamic Microfinance
MALAYSIA: Ruslena Ramli
head, Islamic finance, RAM Rating
MALDIVES: Aishath Muneeza
chairman, Maldives Center for Islamic Finance
MALTA: Reuben Buttigieg
president, Malta Institute of Management
MOROCCO: Dr Ahmed Tahiri Jouti
COO, Al Maali Consultancy Group
NIGERIA: Hajara Adeola
managing director and CEO, Lotus Capital
OFFSHORE CENTERS: Manuela Belmontes
partner, Maples & Calder (Dubai)
OMAN: Dhana Pillai
head of real estate, tax and project finance,Al Hashmi Law Firm
PAKISTAN: Muhammad Shoaib Ibrahim
managing director & CEO, First Habib Modaraba
PHILIPPINES: Rafael A Morales
managing partner, Morales & Lumagui
QATAR: Amjad Hussain
partner, K&L Gates
RUSSIA: Dr Ilyas Zaripov
member, Partnership Banking Working Group, Central
Bank of the Russian Federation
SAUDI ARABIA: Nabil Issa
partner, King & Spalding
SENEGAL: Abdoulaye Lam
president & CEO, Global Islamic Finance & Transactions
SRI LANKA: Suresh R I Perera
principal, Tax & Regulatory, KPMG
TUNISIA: Mohamed Araar
General directorate of External Financing and Settlements,
deputy director of Private Financing and International
Relations Department, Central Bank of Tunisia
UAE: Anita Yadav
senior director, head of fixed income research, Emirates
NBD
UK: Suhail Ahmad
founder of the Financial Network and partner, Gateway
Islamic Advisory
IFN Correspondents are experts in their respective fields and
are selected by Islamic Finance news to contribute designated
short country reports. For more information about becoming
an IFN Correspondent please contact sasikala.thiagaraja@
redmoneygroup.com
RUSSIA
By Dr Ilyas Zaripov
Sberbank continues to develop its
Islamic finance activities with its current
project, PayZakat, an Islamic fintech
project that aims to raise the effectiveness
of wealth distribution in the Muslim
world. PayZakat is an effective platform
to attract and invest compulsory and
voluntary charity contributions. It secured
RUB5 million (US$75,170.3)-worth of
investments at the initial stage. Payers can
make calculations of payments (Zakat,
Zakat Al Fitr and Zakat Al Adha) using
special instruments like chatbots on
social networks.
PayZakat’s first charity partner was
the Foundation for the Preservation
and Restoration of Cultural, Historical
and Architectural Heritage Sites in
Ufa, Russia. Their first joint project is
financing the construction of the Ar-
Rahim mosque in Ufa.
The Higher School of Economics in
Moscow partnered with Sberbank to
create a joint corporate accelerator that
aims to organize and fund start-ups
and SMEs in the area of education,
e-medicine, e-commerce, fintech, leisure,
new technologies, business services and
other areas of the digital business.
Sberbank received more than 575
applications from potential participants
in the first stage. In the second stage,
managers from selected companies will
take part in studying and analyzing the
market environment with the assistance
of prominent businessmen.
The enterprises that show the best
results with proven effectiveness and
profitability will move to the final stage
where six winners will be chosen to sign
financing contracts with Sberbank.
The first Halal hotel, The Silk Way in St
Petersburg, started its operations two
years ago, providing Muslim customers
a Shariah compliant means to stay and
pray as well as a restaurant, swimming
pool, gym and other facilities.
The number of customers has increased
three times after receiving from the
Council of Muftis of Russia a rating of
‘three moons’ (an analogue of the ‘stars’
rating).
The first Halal sports club opened on the
24th
September 2016 at the multipurpose
Muslim cultural, educational and leisure
center in Moscow which celebrated its
second anniversary by disclosing its
financial results.
The sports club is now offering fully-
fledged Islamic sports services for
Muslims, including fitness, swimming
and training separately for men and
women. The number of customers
has increased from 30 in 2016 to 3,600,
which shows great demand for Halal
sport centers especially for women. The
income of the sports club grew 2.5 times
while net profit increased 180%.
The multipurpose Muslim cultural,
educational and leisure center in Moscow
is a platform where visitors can attend
business seminars; lectures on Islam and
the Islamic law; an Arabic course and
courses of foreign languages; and
thematic classes on the history of
prophets and Islam in Russia.
Dr Ilyas Zaripov is a member of the
Participating Banking Working Group of the
Central Bank of the Russian Federation and
the head of the Islamic Finance Educational
Program of the Plekhanov Russian
University of Economics. He can be contacted
at iliyas888@yandex.ru.
Sberbank of Russia starts new Islamic
inance project

20. 20©
26th
September 2018
IFN COUNTRY
CORRESPONDENT
MOROCCO
Dr Ahmed Tahiri Jouti
The centralized approach of the
Moroccan Islamic finance experience
constitutes its real specificity. Indeed,
the Higher Council of Ulemas, which is
the central Shariah board in Morocco,
approves all the contracts used by
Islamic banks. One year after their
launch in Morocco, only three financing
products are available which are all
based on the Murabahah formula in
addition to current accounts.
The launch of Islamic banks in Morocco
showed that there is a significant
appetite for financing products while the
migration of deposits remains limited.
This is due to three main factors:
1. The absence of investment accounts
significantly limited the migration
of deposits to Islamic banks. There
are people who have savings
accounts and term deposit accounts
in conventional banks and who
are refusing to accept interest.
Nevertheless, they are still waiting
for investment accounts to have a
Shariah compliant account. This
consumer behavior requires rapid
feedback to attract more deposits.
2. The absence of a comprehensive
offer for businesses also reduces
the migration effect. In the absence
of services and financing products
adapted to the needs of businesses,
they would not deal with Islamic
banks.
3. The communication campaigns of
Islamic banks are focused more
on financing products especially
Murabahah and ignore deposit
products. Thus, most of those who
are moving to Islamic banks are those
who receive Murabahah financing.
All these factors combined constitute
a real threat to the liquidity of Islamic
banks. In this context, Bank Assafa, the
market leader, submitted a refinancing
contract based on the Wakalah
mechanism in order to get adequate
financing when needed. The contract
submitted is an MoU between two
parties. The first party is committed to
provide financing every time the Islamic
bank (the second party) requests for
it. The MoU defines the total amount
of financing to be provided by the first
party. The Higher Council of Ulemas
approved the contract which is ready for
use by all the other Islamic banks.
The Wakalah contract is a temporary
solution which will provide the
necessary funding for the activity of
Islamic banks and will be replaced
gradually by investment accounts,
Islamic money market instruments and
Sukuk issuances.
Dr Ahmed Tahiri Jouti is COO of Al Maali
Consulting Group. He can be contacted at
a.tahiri@almaaligroup.com.
Liquidity risk of Islamic banks in Morocco: What is new?
QATAR
By Amjad Hussain
As summer comes to an end in Qatar,
it is encouraging to see that there has
been an uptick in activity over the last
few weeks in the local market. This
sets a good foundation for the autumn
months, typically a busy season in Doha
as decision-makers return from summer
leave.
From a macro perspective, the Qatari
banking sector has reported a 3.5%
growth in credit year-on-year last July.
Deposits from non-residents and the
private sector grew 6.1% and 2.2%
month-on-month respectively. This
shows a return in confidence to the local
market and is likely to increase going
forward.
The Central Bank of Qatar signed a
currency swap agreement in late August
with the Central Bank of Turkey with a
limit of US$3 billion. This is part of the
support package that Qatar is providing
to Turkey in view of the difficult time
that the Turkish lira is facing currently.
The IFSB’s data shows that Qatari Islamic
banks are growing despite the Gulf crisis.
Qatar Islamic Bank, Masraf Al Rayan,
QIIB and Barwa Bank held a combined
QAR358.6 billion (US$97.98 billion) in
assets in the first quarter of this year, an
8.8% increase from a year earlier.
Listed companies on the Qatar Stock
Exchange have disclosed their financial
results for the six-month period ended
the 30th
June 2018. The combined net
profit of all companies as of the 30th
June
amounted to QAR21 billion (US$5.74
billion) versus QAR20 billion (US$5.46
billion) for the same period in 2017, an
increase of 5%.
It was nice to see that QInvest, a leading
private investment group and one of the
region’s most prominent Islamic financial
institutions, was named Best Investment
Bank in Qatar at the Euromoney Middle
East Awards for Excellence.
QInvest is expected to unveil new
products targeting local investment
opportunities in Qatar across sectors
including healthcare, industrials,
education and agriculture.
The much-talked-about proposed merger
between Islamic bank Barwa Bank and
conventional bank International Bank
of Qatar to create a leading Shariah
compliant financial institution has
recently been confirmed.
The combined entity would have total
assets of QAR80 billion (US$21.86
billion). The deal is pending approval
from each bank’s shareholders and
regulators. If successful, the enlarged
entity would have a 6% share of Qatar’s
overall banking market.
In summary, the Qatari banking market
generally seems to be showing strong
positive growth and this is being
reflected in the liquidity and general
outlook for local Islamic banks.
Amjad Hussain is a partner at K&L Gates.
He can be contacted at Amjad.Hussain@
klgates.com.
Steady summer in Qatar

21. 21©
26th
September 2018
IFN SECTOR
CORRESPONDENT
IFN COUNTRY
CORRESPONDENT
UK
By Suhail Ahmad
Over 400 Islamic finance professionals,
including distinguished guests and
global leaders from government,
banking and professional services,
converged on Mansion House in
London on the 5th
September for IFN
UK Islamic Finance Week. There were
subsequent real estate and financial
technology events held to provide in-
depth discussions and insights on these
key segments of the Islamic finance
industry.
The event highlighted key developments
in the UK market as well as global
developments with key discussions
on the impact of Brexit, incorporating
environmental and social responsibility
into Islamic finance products and Sukuk
issuances, among other topics.
The same week, the Blockchain
World Forum was also held in
London bringing together blockchain
technology investors, entrepreneurs and
business leaders to discuss the impact
of declining cryptocurrency prices
and technology innovations. Several
Muslim entrepreneurs also exhibited
and presented at the event, including
Tykn co-founder Khalid Maliki from the
Netherlands showcasing the company’s
blockchain technology solution for
NGOs and governments to help manage
humanitarian aid distribution.
UK Islamic fintech property investment
platform Yielders announced the
successful closing of a pre-series A
funding round. The exact terms and the
amount of the funding were not
disclosed but it was reportedly backed by
Peach Ventures and Greenshores Capital
as well as number of private investors.
The funding comes at the same time the
company announced the completion of
regulator authorization in the
Netherlands, Norway and Luxembourg.
Additionally, the company also
appointed Abdul Haseeb Basit as the
company’s chairman.
Suhail Ahmad is CEO of Advisory Direct.
He can be contacted at suhail@advisorydirect.
co.uk.
London hosts industry leaders; Yielders closes funding round
OMAN
By Dhana Pillai
Islamic banks in Oman have recorded
a robust year-on-year growth in assets
of over 14%, surging to OMR4.1 billion
(US$10.62 billion) from OMR3.56
billion (US$9.22 billion) a year ago
while total financing stood at OMR3.32
billion (US$8.6 billion) at the end of
June 2018 compared with OMR2.75
billion (US$7.13 billion) a year ago,
registering a growth of more than 20%,
according to the quarterly bulletin
report released by the Central Bank
of Oman. Total deposits showed a
growth of 18.42% with OMR3.15 billion
(US$8.16 billion) in June this year from
OMR2.66 billion (US$6.89 billion) in
the same month of the previous year.
Meethaq’s receivables at the end of
five years of its formation stood at
OMR1.06 billion (US$2.75 billion) in June,
registering an increase of 16.1% from the
previous year. According to Meethaq, it
has extended a diminishing Musharakah
facility to Sebacic Oman to set up the
world’s largest plant for sebacic acid.
It also supported a OMR50 million
(US$129.56 million) project financing to
A’ Namaa Poultry to set up the biggest
poultry project in Oman, fulfilling
the scope of the Tanfeedh program.
Hydrocarbon Finder E&P (HCF) signed
an Islamic project financing facility for
the development of oil and gas fields
in Block 7 of Oman operated by HCF
while Muscat National Development
and Investment Co signed term finance
agreements with a total value of OMR16
million (US$41.46 million) for an upscale
three-star hotel in Muscat and a crew
reporting terminal at the airport.
Under its OMR100 million (US$259.11
million) program, Meethaq has the
mandate to issue Sukuk in various
tranches from time to time to fund its
growth plans and expansion of Islamic
banking services across the Sultanate.
Its maiden OMR25 million (US$64.78
million) issuance was oversubscribed
and was increased to OMR44.6 million
(US$115.56 million). The issue has an
indicative profit rate of 5% per annum
with a tenor of five years.
Following the announcement of merger
talks between Oman Arab Bank and
Alizz Islamic Bank, which would
create a merged entity with total assets
of OMR2.63 billion (US$6.81 billion),
National Bank of Oman and Bank Dhofar
also announced a potential merger which
would create a merged entity four times
the size of that of the potential merger
between Oman Arab Bank and Alizz
Islamic Bank.
The audited financial statements for
2017 revealed an increase of 1.89% in
total investments of Takaful companies
compared with 2016. Total investments
of Takaful companies were OMR35.5
million (US$91.98 million) in 2017
compared with OMR34.84 million
(US$90.27 million) in 2016. It is worth
noting that Takaful represented about
6.11% of the total investments of
insurance companies up to the end of
2017.
Total proceeds from the investments of
Takaful companies increased by 21.6%
at 4.67% of the total proceeds from the
investments of insurance companies.
Takaful insurance premiums increased
by 9% to OMR45.76 million (US$118.57
million). Takaful comprises 10% of the
gross direct premiums in 2017 and 19%
of total paid indemnities.
Returns on investment for the year 2017,
however, remained low for Takaful
companies due to an increase in claims.
The Capital Market Authority of Oman
is the regulatory body for insurance
companies in Oman.
Dhana Pillai is the head of real estate, tax
and project finance at Al Hashmi Law Firm
(Oman). She can be contacted at dhana.
pillai@ohlaw.net.
Central Bank of Oman releases quarterly bulletin report on
Islamic banks

22. 22©
26th
September 2018
IFN COUNTRY/SECTOR
CORRESPONDENT
BRAZIL
By Fabio Amaral Figueira
The IDB is actively involved in two
South American countries: Suriname
and Guyana. South America is
composed of countries which are former
Spanish colonies, except for Brazil, a
former Portuguese colony. Until the
1960s, there were the so-called three
Guyanas: the British Guyana (currently
Guyana), the Dutch Guyana (currently
Suriname) and the French Guyana
(which is still a French département).
Suriname has about 600,000 inhabitants
and its Muslim population is
approximately 14%. The population of
Guyana is approximately 800,000 and
among them 7% are Muslims.
The IDB in its efforts to have a significant
presence in all continents is evaluating
the possibility of opening a regional
headquarters in Suriname at a later
date. Suriname is making an effort to
include itself in the Islamic economy
and Trustbank Amanah will be adapting
itself for such an inclusion. Guyana has
applied for a US$20 million financing
from the IDB, which has since been
approved, to fund the upgrading project
of Guyana Power and Light. The IDB also
has a presence in other countries in South
America like Venezuela, Argentina and
Brazil in projects related to education.
Islamic school projects are fast expanding
in the city of Sao Paulo and the city
of Florianopolis in the state of Santa
Catarina. A Brazilian Arabic school for
the Islamic Cultural Center in the city of
Foz do Iguacu in the state of Parana is
under construction. In Foz do Iguacu, the
Muslim presence is evident despite being
the smallest minority in the city.
According to a 2010 census, Brazil only
has approximately 36,000 people in its
population who are Muslims. However,
some Muslim organizations believe that
the Muslim population corresponds to
approximately 1.5 million people.
Brazil is still in need of foreign
investments to boost its growth and
development in Islamic finance
economically. Collaborative efforts
between the IDB and Brazil could fulfill
Brazil’s aim to make Islamic finance a
reality. The IDB can assist in reviewing
Brazil’s laws and regulations in order to
accommodate Islamic finance. Brazil can
also explore other paths related to Islamic
finance rather than just being a relevant
exporter of Halal food.
Fabio Amaral Figueira is a partner at Veirano
Advogados. He can be contacted at fabio.
figueira@veirano.com.br.
Brazil: The IDB and South America
ISLAMIC LEASING
By Shoeb Sharieff
As oil prices start to creep upward
again, Saudi Arabia’s Islamic leasing
and banking sector is showing
some improvement. Bankers from
Saudi Arabia that participated in the
Corporate Restructuring Summit in
Dubai this month also noted that
several banking reforms have helped
the Islamic leasing and banking sector
via a three-pronged approach.
According to Thompson Reuters, some
of the policy reform measures that were
helpful included the easing of restrictions
on home ownership which certainly
carries a strong connection with Islamic
leasing. To improve the atmosphere for
small to medium businesses, banks have
been using Islamic leasing as a vehicle to
free up capital. Even the Saudi officials
highlighted the easing of capital market
restrictions.
New York-based Wahed Invest has
launched a number of Shariah compliant
funds under its fintech platform for the
underserved Muslim finance market
across the globe. Wahed Invest’s
mission is to introduce technological
advancements and Islamic leasing
fintech products into the Islamic finance
industry. This effort is part of a wider
push in Islamic financing by bringing
technology into Shariah compliant
products.
FinTech Hive is considered to be one
of the largest Islamic leasing financial
technology companies in the entire
MESA region that incorporates South
Asia and Middle East countries.
FinTech Hive announced that it would
be partnering with the large US firm
Accenture on their accelerator program
earlier this year where Shariah compliant
financial products and Islamic leasing are
centerpieces.
Out of more than 300 applications for
this program, only 22, mostly start-up
companies, were selected to go to the
next stage. The program is designed to
make sure that the accelerator positions
itself among the most credible and
reputable hubs in the world for Islamic
leasing and other financial products.
This move helps to spread Islamic leasing
more widely because the accelerator
start-ups are able to take advantage of
Accenture’s connections in Hong Kong,
London and New York. It is important
that innovative start-up companies also
have an Islamic leasing element in them
by combining the latest innovations like
fintech which will enable them to diffuse
these Shariah compliant products
quicker.
Shoeb M Sharieff is the president and CEO of
Ijara Community Development Corp. He can
be contacted at shoeb@ijaracdc.com.
Islamic leasing market picking up steam with partnerships and
start-ups