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2007 Review and 2008 Outlook Islamic Finance

2007 Review and 2008 Outlook Islamic Finance



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Published by lahem88
2007 Review and 2008 Outlook islamic finance,by moody's investors
2007 Review and 2008 Outlook islamic finance,by moody's investors

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Published by: lahem88 on Jul 17, 2008
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25 February 2008
Table of Contents
Summary: 2007 Review / 2008 Issuance Outlook
Country Analysis
GCC: More Than US$19 Billion in Sukuk Issuance in 2007, with UAE andSaudi Arabia Accounting for More Than 87% of Total
GCC Issuance Outlook
United Arab Emirates
Saudi Arabia
Asia-Pacific: Malaysia Continues to Lead in Global Ringgit Issuance
Asia-Pacific Issuance Outlook
Pakistan and Indonesia
New Markets: A Promising Prospect in 2008
Islamic Finance Asset Class Review / 2008 Issuance Outlook
Islamic Securitisation
Islamic Funds and Private Equity
Infrastructure and Project Finance
Islamic Banking
Islamic Real Estate Investment Trusts
Appendix 1: Islamic Finance Rated Transactions Closed in 2007
Appendix 2: Glossary of Islamic Finance Terms
Selected Research
International Structured Finance
Europe, Middle East, Africa & Asia-Pacific
Special Report
2007 Review and 2008 Outlook:
Islamic Finance: Sukuk Take Centre Stage, Other Shari’ah-Compliant Products GainPopularity as Demand Increases
Faisal HijaziAnalyst – Business DevelopmentMENA and Islamic Finance+44 20 7772 8770Faisal.Hijazi@moodys.comDominique Gribot-CarrozAssistant Vice President –Business Development+852 2916 1120Dominique.Gribot-Carroz@moodys.com
Middle East and Islamic FinanceAdditional Contacts
Khalid Howladar Vice President –
Senior Credit Officer Asset-Backed & Islamic Finance+9714 365 0284Khalid.Howladar@moodys.comPhilipp Lotter Vice President – Senior Credit Officer Corporate Finance Group+9714 365 0283Philipp.Lotter@moodys.comAnouar HassouneVice President – Senior Credit Officer Financial Institutions Group+33 1 5330 3340Anouar.Hassoune@moodys.comChristine KuoVice President-Senior AnalystFinancial Institutions Group+8862 2757 7125Christine.Kuo@moodys.com
Investor Liaison
New YorkBrett HemmerlingInvestor Liaison Specialist+1 212 553 4796
Client Service Desk
London: +44 20 7772 5454Paris: +33 1 5330 1074Madrid: +34 91 702 6616
2 Moody’s Investors Service 2007 Review and 2008 Outlook: Islamic Finance
Islamic finance makes up a small part of the world finance industry, estimated to beworth around US$700 billion
globally. However, it has grown by around 15% in each of the past three years, partly as a result of the increased wealth in Islamic countries drivenby high oil prices. This rapid growth shows no signs of slowing. Within a large segmentof Muslim societies and communities, the compliance of financial services with Shari’ahrules and principles is a primary concern for the users of these services. As such, effortsto enhance the access of Muslim communities and societies to financial services willhinge upon, among other factors, the compatibility of these services with Muslims’religious principles. While catering to such specific needs of society, Shari’ah-compliantfinancial services could appeal to other segments of the population so long as the qualityof these services is at least comparable to other alternatives. Islamic finance covers allfinancial activity that enables Muslims to invest while conforming with Islamic law, or Shari’ah. In practice, Islamic finance involves using traditional investment techniquesand structures that comply with Shari’ah to create arrangements that work in ways thatare comparable to modern conventional finance.
Over US$97 billion issued as global Sukuk 
An essential feature of an Islamic Shari’ah-complaint product is Shari’ah scholar approval, or fatwa. Hence, Islamic banks and conventional banks that invest some of their capital in Islamic finance through an Islamic finance "window" have a religiousboard or committee composed of Shari’ah scholars. The Shari’ah committee examinesproposed transactions and, in the case of Islamic banks, reviews the overall activitiesof the bank, for compliance with Shari’ah law.Sukuk (or Islamic bonds) are the fastest-growing segment of the Islamic finance market,which has seen phenomenal growth in the past six years. Global volume upto 2007reached US$97.3 billion,
with the majority coming from Malaysia and the Arabian Gulf.Even though certain regions such as Europe and Africa
did not produce any new issuesduring 2007, the expectations are high for 2008, including multi-jurisdiction issuances.However, the Sukuk issuance market in H2 2007 demonstrated that despite its faith-based nature, it is not immune from the global financial system. A number of issuershave delayed the issuance of their planned Sukuk, including Ithmar bank and AmlakFinance; both are planning to issue their sukuk when the market stabilise.
Record number of deals in 2007 
Moody’s has observed the following developments in Islamic Finance in EMEAand Asia-Pacific in 2007:
Overall Sukuk issuance volume increasedby 71% to US$32.65 billion compared to2006 (see Chart 1). The number of Sukuk transactions rose to 119 from 109 in2006, while the average deal size increased to US$269.8 million from US$175million.
Some 88 Sukuk deals were issued by corporates, compared to 31 deals issued bysovereigns (see Chart 2). This was influenced by buoyant government budgets,mainly in the Gulf Co-operation Council (GCC), over this period as fiscal and currentaccount surpluses widened. Moreover, since the 2006 equity market crisis,corporates have shifted their funding focus more into debt markets. This trendcontinued into 2007, albeit the equity markets recovered significantly during theyear.
Musharaka Sukuk consolidated its position as the size-dominant Sukuk structure,with US$12.9 billion of issuance, closely followed by Ijarah Sukuk with US$10.13billion issued. However, Ijarah structures were more frequently issued, with 54 dealscompared to 22 issued for Musharaka structures.
Islamic Financial Services Board estimate.
Source: Bloomberg.
With the exception of Sudan.
Sukuk review, based on Zawya.com, the Sukuk monitor.
2007 Review and 2008 Outlook: Islamic Finance Moody’s Investors Service 3
Tamweel Residential ABS CI (1) Ltd is the first GCC globally rated residential Islamic securitisation 
Moody's assigned definitive credit ratings, ranging from
, to notes issuedby Tamweel Residential ABS CI (1)
, with a total issue amount of US$220million. This is the first GCC residential Islamic securitisation rated investmentgrade. The assets are Ijarah lease receivables on residential properties located inDubai, United Arab Emirates (UAE). This is also the first securitisation originated byTamweel PJSC
, stable), one of the major and fastest-growing Shari’ah-compliant home financing lenders in the UAE.
Sudan was the first African country to issue a Sukuk in 2007, a US$130 milliontransaction to finance a cement project on the River Nile.
Takaful industry premiums reached nearly US$2.5 billion in 2007,
and areexpected to reach US$7.4 billion by 2015, representing a growing segment for Islamic investment opportunities. Nevertheless, Malaysia accounts for 90% of allTakaful customers worldwide. In the GCC, Saudi Arabia is recognised as the mostactive Takaful market.The Capital Market Authority (CMA) is opening up itsinsurance market with the issuance of 13 new licences, including five for Takafulcompanies.
The largest proportion of Sukuk was issued in the financial services sector,accounting for 31% of total volume, followed by real estate with 25% and power andutilities with 12%.
Local currency-denominated Sukuk demanded by investors 
Given the declining US dollar, many GCC issuers opted for local currency-denominated Sukuk, meeting the needs of investors. JAFZ Sukuk Ltd (JSL
; A1,
was the first AED-denominated Sukuk to be listed on the DubaiInternational Financial Exchange.
Demand for convertible Sukuk continued. High demand for these issuesdemonstrates that investors’ appetite for Sukuk with an equity potential upsideremains strong, given the recent gains in the equity market. The future of convertible Sukuk looks promising. A number of issues have come to the marketrecently, including Tamweel PJSC for US$300 million.
Growing Islamic real estate investment trusts issuance in Malaysia and the GCC 
In September 2007, Al-Aqar KPJ Healthcare Islamic real estate investment trust(IREIT) obtained approval from the Malaysian Securities Commission (SC) for theissuance of up to MYR300 million (US$86 million) as a Sukuk Ijarah programme,combining both Islamic medium-term notes (MTN) and Islamic commercial paper (CP). Moreover, in the GCC, Dubai Islamic Bank PJSC
, stable) issuedShari’ah-compliant four-year capital-protected global IREIT notes in early 2007,which will invest through several global IREITs in the US, European and Asian(mainly Japanese) real estate markets.
Musharaka Sukuk the biggest asset structure by volume 
Chart 1:
EMEA and Asia Pacific 2007 Sukuk Transactions (Volume & Number)
-2,0004,0006,0008,00010,00012,00014,000MusharakaIjarahModarabahMurabahaManfa'aIstisnaaAl Salam
   U   S   $   M   i   l   l   i  o  n
   I  s  s  u  e   N  o .
Size ( US$ Million)Issue No.
Moody’s estimate.

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