Mobilizing Islamic Finance for Long-Term Investment...

© 2015 Deloitte & Touche (M.E.)1

Mobilizing Islamic Finance for Long-Term Investment

Financing Create an Enabling Environment for Long

Term Islamic Financing

Hatim El-Tahir, PhD, FCIB, FCISI

Director, Islamic Finance Group

Deloitte & Touche (ME)

The Marmara Taksim, Istanbul, Turkey

18-19 November, 2015


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2

3

Creating incentives for Sukuk structures with long-term maturities

Recent regulatory developments in the industry

The impact of Basel III and tax concerns on Long-term Islamic Finance

Create an Enabling Environment for Long-Term Islamic Financing

The value proposition of Sukuk

Setting the Context

Incentives – fostering long-term finance


Focus on

Products

The increasing contribution of emerging markets to world economy – signify a careful

analysis of investment enablers

Government

Support

• Embrace innovative capital market instruments approach

emphasizing on local market and customer requirements

Market

Education

Regulatory

framework

• Communicate a market education strategy to stakeholders,

to build capabilities and competencies in the industry

• Empower corporate governance practices , legal system.

• Improve Trust Laws + Tax incentives + Land Registry

• Cultivating a Sharia compliance business .

• Secure the buy-in and commitment of government

leadership, to build enabling regulatory environment.

Incentives to Foster Long-Term Finance

Enablers and influences of Sukuk with long-term maturities


Islamic Capital Market - Blue print

Key stakeholders & their impact

Sophisticated managers aware of

industry

Active engagement of

market participants

High ethical standards driving

client relationships

Financial

Intermediaries

InvestorsRegulators

Islamic

Capital

Markets

Investment practices based on

sound, proven Islamic financial

principles

Limiting speculative

investments

Appropriate Investment advice

Sharia’ Compliance

High levels of

transparency

Appropriate regulatory and

dispute settlement environment

Corporates, and

Issuers of Islamic

Securities

Good governance practices -

disclosure and transparency

Leadership and quality of

management

When thinking about Islamic capital markets, we identify 4 key stakeholders and their

impact upon the capital market….


Range of instruments available?

State of their development? How well are they regulated?

E.g. listed equities, debt instruments, OTC and interbank markets, Islamic funds & collective

investment schemes...etc

Islamic Financial

Instruments

Infrastructure

Policy

Frameworks

Institutions and

Systems

How developed and sophisticated are the exchanges?

How well is technology employed (e.g. e-trading platforms)?

How efficient are regulatory reporting and oversight systems

What are the stated policy goals and objectives of the regulator?

How does the policy allocate decision rights and accountability across different players (e.g.

oversight, checks and balances...etc)?

What are the bodies / boards / committees, both permanent and ad hoc, that regulate and

manage the capital market?

How well do they work with each other? What is level of support they provide to Islamic finance

industry?

Islamic Capital Market - Blue print

Key stakeholders & their impact

Four broad categories that will drive incentives to long term financing instruments

Recent Regulatory Development

Best practices initiatives


Regulatory & Standards Development Initiatives

Collaborative approach to best practices In

du

str

y S

tan

dard

sett

ers

IIFM• Master Collateralized

Murabahah

Agreement.

• Guidelines for Islamic

hedging and liquidity

management.

IILM• Successful rounds of Sukuk

issuances to stimulate

liquidity

• Emphasis on HQLAs

AAOIFI

• Discussed the revision of

Sukuk standards with leading

international Islamic finance

shareholders

• On-going revision and

development project for

Sharia’ Standard No. (17) on

Sukuk.

IFSB

• Guidance on

Quantitative Measures

for Liquidity Risk

Management Revised

(2015)

• Guidance on Key

Elements in The

Supervisory Review

Process of IIFS

(2014)

• Revised Capital

Adequacy Standard

for IIFS (2013)

Ind

ustr

y B

usin

ess S

up

po

rtExecutive Education

• INCEIF

• Banking

• Capital Market

• Wealth Management

Applied Research

• IFP - Harvard

• University of Durham

• Thomson Reuters

Professional development

• Chartered Institute for

Securities & Investments

(CISI)

• IFQ & Risk Management

Entry level• CIMA

Certificate in banking

and Takaful

National Regulatory Authorities

Banking

• Ownership transfer

• Land registry laws

• Double tax issues

• Basel III support

Capital Market

• Industry screening guidance

• SPVs and Trust laws

• Funds and FoFs

• Tax incentives

• Collective investment rules

Takaful InsuranceWealth Management

• Business Models

• Capital adequacy

• Solvency II-III


Business Supporting Institutions (BSIs)

Accounting and

Auditing Organization

for Islamic Financial

Institutions (AAOIFI)

International

Liquidity

Management

Corporation (IILM)

Islamic Financial

Services Board

(IFSB)

International Islamic

Center for

Reconciliation and

Arbitration (IICRA)

International

Islamic Financial

Market (IIFM)

Islamic

International

Rating Agency

(IIRA)

International

Islamic Fiqh

Academy (IIFA)

National Regulatory Authorities (NRAs)

Keep a Pace with Regulatory Development

Collaborative approach to best practices


Governance- Embracing good business conduct

- CG Business models

- Board oversight

Process- Sharia Audit Process & procedures

- Standardizations of documents & contracts

People- Have the right skilled people

- Outreach programs for community leaders

- Communicate awareness program goals to all stakeholders

Technology-IT systems used to analyze business

and market opportunities - Core banking systems

Treasury and investment systems

Keep a Pace with Regulatory Development

Strengthening capabilities

The Impact of Basel III

On Islamic Finance


Capital LeverageCredit &

MarketLiquidity

Basel III and its Impact on Long-term Financing

Emphasis on leverage & liquidity

Endorsement and enforcement of the essence of equity-based that IF advocates

Risk free

asset

Public

finance

Corporate

Sukuk

Harness

Corporate

Issuance

Helped IIFS design safe investment (perpetual sukuk) and

help meet capital adequacy & liquidity requirements

Address and fill gap in governments' budget deficit

Address and fill gap in governments' budget deficit

Provide a benchmark yield curve and international

issuances as an alternative funding sources

Created opportunities for long-term Sukuk issuances


Taqa

General

Authority of

Civil Aviation

Saudi

Electricity

Global Sukuk

Co

DanaInfra

Sukuk

Malaysia

Airports

Holdings

Berhad

Syarikat

Prasarana

Year of

Issuance 2012 2012 2012 2013 2013 2013

Issue size RM3.5 billion US $4.56 billion US $4.56 billion US $ 300 million RM2.5 billion RM2 billion

Country UAE Saudi Arabia Saudi Arabia Malaysia Malaysia Malaysia

Structure

type Sukuk Murabahah

Sukuk

MurabahahSukuk Ijarah

Sukuk

Murabahah

Sukuk

MusharakahMTN Ijarah

Opportunities in the Infrastructure

Transport & renewable energy

Leading infrastructure Sukuk issues: 2012- 2013


Abu Dhabi Islamic Bank

Tier 1

Dubai Islamic Bank Tier 1 Al Hilal Bank Tier 1

Issuer ADIB Capital Invest 1 Ltd. DIB Tier 1 Sukuk Ltd AHB Tier 1 Sukuk Limited

RatingsMoodys/S&P/Fitch: A2/—/A+ Moodys/S&P/Fitch:: Baa1/—

/AA (S&P) / A (Fitch)

Structure Sukuk Mudharabah Sukuk Mudharabah Sukuk Mudharabah

Issue Date 19 November 2012 20 March 2013 02 July 2014

Coupon rate 6.375% 6.25% 5.5%

Tenor 72 Months Perpetual Perpetual

Currency USD USD USD

Issue Size $1000,000,000 ($1 Billion) $1,000,000,000 ($1 Billion) USD 500 million

Stock Exchange London Stock Exchange Irish Stock Exchange ,

Nasdaq Dubai/DFMIrish Stock Exchange

Governing Law English law English law English law

Arrangers

Abu Dhabi Islamic Bank ,

HSBC , Morgan Stanley ,

National Bank of Abu Dhabi ,

Standard Chartered

Emirates NBD , HSBC ,


Standard Chartered

Al Hilal Bank , Citigroup ,

Emirates NBD , HSBC ,


Standard Chartered

Opportunities in the Banking Sector

Improve regulatory capital requirements


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