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Halal Financial Services – HLLF.

PK

Stock Symbol: HLLF.PK Investment Thesis:

Stock Price: (12/8/05) We are covering Halal Financial Services Inc. (HLLF.PK)
$0.20
with a price target of $0.70 by end of Q2 2006 and $1.50
52 Week range: by end of Q3 2007 with a further strong future growth
$0.21 - $0.55
opportunity. As the company’s product basis expands
Shares Outstanding: they will strategically position themselves as the “Gate
100,560,000
Keeper” for the niche market of Halal financial products
Restricted Shares: catering Muslims and non Muslims in UK. The market is
60,000,000
set to multiply the coming years.
Free Shares:
40,560,000 Key Points:

In DTC system: ▪ First dedicated Intermediary on the Islamic retail side


16,000,000 with a branch network strategy
▪ First mover advantage in this niche – established since
Paid up capital: October 2003
$1,200,000 ▪ Financial intermediaries originating 68% of the
Mortgage business in UK
Market capital: ▪ Outstanding Mortgages of Muslims USD 26.6 bn
$20.1million ▪ Experienced Management Team with ethnic access
▪ Price valuation based only on two product lines – others
will be available in the next 2 years and are likely to
boost the business
▪ Current Islamic financial products are just started and in
front of a phenomenal growth – HLLF.PK will benefit

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Table of Contents

1 Company Description................................................................................................. 3
2 Business Overview..................................................................................................... 3
3 Business Strategy ...................................................................................................... 3
4 Management Team.................................................................................................... 4
4.1 Management .................................................................................................... 4
4.2 Advisory Board ................................................................................................. 4
5 Industry Overview ..................................................................................................... 5
5.1 UK Muslim Population........................................................................................ 5
5.2 UK market for financial products ........................................................................ 7
5.3 UK Market Players in the niche for Islamic financial products ............................... 8
5.3.2 Shari'a Compliant Commercial Finance Providers ............................................. 9
5.3.3 Takaful (Islamic Insurance) Providers ............................................................. 9
5.3.4 Islamic Funds...............................................................................................10
5.3.5 Islamic Pensions market in the UK.................................................................10
5.3.6 Pure Islamic Banks and “Window” operations.................................................10
5.3.7 Other Intermediaries ....................................................................................10
6 Product Overview and Perspectives ...........................................................................12
6.1 Islamic Mortgages............................................................................................12
6.2 Commercial Finance .........................................................................................13
6.3 Takaful............................................................................................................13
6.4 Other Products ................................................................................................14
6.4.1 Funds ..........................................................................................................14
6.4.2 Pensions ......................................................................................................14
6.4.3 Credit/Debit Cards........................................................................................14
7 Valuation .................................................................................................................15
8 Disclaimer ................................................................................................................17

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1 Company Description

Halal Financial Services, Inc. operates as financial intermediary in the market niche catering
for, but not limited to Muslims. The company focuses predominantly in the UK for the
moment being, registered in Delaware, USA with its Head Office in Glasgow, United
Kingdom. The company intends to become the leading intermediary in the UK Islamic /
Ethical financial market space by Q3 2007. The company will use a mixture of the internet,
call centres and a branch network to achieve this objective. As Islamic financial products are
in the early stage in UK, the company through its webportal HalalMortagages.com is offering
initially mortgage products. Other financial products like alternative insurances, investment
vehicles, child trust funds and commercial finance will certainly follow upon avalaibility. The
total UK Islamic mortgage market was according to Datamonitor worth GBP 164 mn in 2004
with a CAGR of 68.1 % since 2000, while stating that the market for refinancing mortgages
is virtually untapped by yet. This report also does not cover the emerging financial products
which have or are scheduled to enter into the market.

2 Business Overview
A financial intermediary holds a key position in the market for financial retail products in
most western markets for two reasons: Firstly clients seeking advise on different products
from different providers; an intermediary offers a higher transparency for them. Secondly
European clients are not self motivated buyers of financial products, they need to be
motivated, reminded and “captured” with a strict and professional customer relationship
management. Banks are typically not as successful in matching these needs as
intermediaries are.

Halal Financial Services operates currently with a web based approach supported by a call
center. Prior to the expansion planned including a branch network they already achieved an
award for excellence by HSBC Amanah, one of the leading market players and referred a
mortgage volume of in excess of USD 60 mn during a period of 9 months.

3 Business Strategy
Halal Financial Services Inc. works as independent financial advisor. Since beginning in
September 2004 to August 2005, with limited resources, little marketing and only via the
web portal they have achieved a referred book value of in excess of USD 60mn for their
lender panel. This represents a market share already of nearly 10 % for that period roughly
estimated based on total market figures and estimations of Datamonitor .
1

Post IPO on the NASDAQ pink sheet (HLLF.PK) the company is initially funded with further
commitments according to milestones enabling them to establish its branch roll out and
enhance the call center at its headquarters.

By following a branch strategy Halal Financial Services becomes more than just an Internet /
call center player and can be looked at as a specialized broker with a clear identified market
niche.

1
Datamonitor repot 2005 – Islamic Mortgages ‘A market yet untapped’
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Being the first pan-UK independent financial intermediary for Shariah compliant products
serving with future branches in London, Birmingham, Luton, Manchester and Bradford the
company has a first-mover advantage and could apply elaborated marketing techniques and
strategies to capture the leading market share.

The key product in the UK market is currently the Islamic Mortgages – starting with it,
returns are already achieved at the current stage. Looking the UK market for conventional
mortgages we see a dominant role of brokers, which are responsible for originating 68 % of
the business to the lenders, according to Wholesale Access research paper “Mortgage
Brokers 2004”.

Serving the same target group with additional compliant products and becoming over time
the financial planner for the clients enables Halal Financial Services to increase their
profitability and competitiveness compared to single direct selling players which provide
primarily their own products only, such as the Islamic Bank of Britain (IBB.L).

4 Management Team

The high-quality management structure that has been employed in the company
demonstrates the culture and leadership that will be required to grow the business. The
senior management have ensured that there is an independent advisory board to ensure that
there is accountability and that milestones / targets are achieved. Currently there are two
advisors, however it is planned to increase this to five over time with company growth. The
company has collectively over 40 years in retail banking and 10 years in Islamic Finance with
over 30 years in project management.

4.1 Management

Tariq Mahmood – Founder - Chief Executive Officer


Zahid Mahmood – Founder - Chief Operating Officer (BA, MSc, Pg Dip)
Robert Hilsinger – Chief Financial Officer
Nabeel Shaikh – Corporate Business (B.Sc & M.A., Pgd)

4.2 Advisory Board

Tariq Shaikh
JB Ameet Khambhaita

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5 Industry Overview

5.1 UK Muslim Population

According to the Office for National Statistics the Muslim population of England & Wales is
1.54 mn and of Scotland about 40,000, which makes a total of 1.6 mn. The Guardian and
The Financial Times2 put the same figure at 1.8 mn which equals 3 % of the UK population.
Figures generated by an analysis commissioned by the Muslim Council of Britain in 2001 –
four years ago – came to the conclusion of 1.7 mn Muslims and 340.000 households.
Considering the growth rates based on higher number of marriages and newborns, the
higher figures reported are used to analyze the market for the purpose of this study: 1.8 mn
Muslims, and an estimation about the number households being 350.000 while expecting
that number to be higher in reality.

The situation of wealth versus poverty correlates with the ethnic background in UK:
Differences can be seen in regard to the employment figures:

Source: http://www.statistics.gov.uk/cci/nugget.asp?id=462 , viewed 2005-08-04

The unemployment rate is greatest for the Muslim minorities with Bangladeshi and Pakistani
background while other ethnics are better off.

2
http://www.mcb.org.uk/links/leftmenu1.php
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The ethnic differences remain regarding the sources of income:

Source: http://www.statistics.gov.uk/cci/nugget.asp?id=274, viewed 2005-08-05, data 2000/01

Basically it shows that Pakistani/Bangladeshi which stands for the majority of Muslims in UK
receive their income equally from wages and self-employed income, while all other ethnics
are dominantly employees.

Wealth is mainly created by income. A main hurdle to acquire wealth is the high number of
below average income as shown by official statistics:

It indicates that the income level is most disadvantaged for the Pakistani/Bangladeshi
community.

Summarizing these findings it has to be stated that the ethnic group of Pakistanis and
Bangladeshis which are dominating the Muslim community are characterized by lower
income, higher unemployment and higher self-employment. However given these statistics
do not take into account the spending and social habits of these communities it would be

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analyzing the financial position out of context. Immigrants are typically made to have a
better savings discipline.

5.2 UK market for financial products

Looking into the percentages of households by type of saving and ethnic group in the Family
Resource Survey 2003-2004 shows similar level for current accounts with Pakistani and
Bangladeshi families but significant lower levels in regard to stocks and shares (8 % versus
22 % of all households). Even bigger is the difference in regard to bonds (23 % all
households versus 2 % Pakistani/Bangladeshi households). This could partly be explained
with lower income levels but more importantly it shows that non-Shariah compliant products
like bonds are almost excluded from the saving habits.

Beyond the differences regarding saving habits the results are still impressive: The Financial
Services Authority figured the savings of UK Muslims at roughly USD 1.78 bn. Further half a
million Muslim visitors are estimated to have spending about USD 106,800 mn, which could
lead to additional business for financial services. Last not least: “Datamonitor estimates that
there are about 5,400 high net worth Muslims in the UK, with potential liquid assets of USD
6.408bn.”3

The key to evaluate this market lies in the figures of homeownership. The otherwise
disadvantaged ethnic group of Pakistanis and Bangladeshis achieved a homeownership rate
of 68 % compared to the average of 70 % according to the Family Resources Survey.
Considering the number of 350,000 Muslim households a significant amount of wealth is
already established despite low income and unemployment.

Still outstanding is consumer or commercial lending. The first lender operating with direct
sales currently is the Islamic Bank of Britain. The finance for cars, weddings, furniture and
travel is likely to be an attractive market segment to be seen in the next three years, given
that the majority of the UK Muslim population is under 30 years of age. Regarding
commercial lending two banks are going to provide these services and considering
cooperating with Intermediaries.

Precise data on the saving habits are also still missing for the UK market. Even with the
considerable low income circumstances there is more and more a need for Shariah compliant
saving vehicles, such as fund or family takaful (life insurances). We strongly believe that UK
Muslims will build these assets following their achievements in the sector of homeownership.

Clearly from the data researched one of the key elements in a successful entry to market for
Islamic finance is education. A study survey by Loughborough University undertaken by
Humayoun Dar showed that 83 % of the people surveyed expressed doubts about Shariah
compliance of the products, not of the concept. This is a clear and typical task of a
salesperson, to create the understanding of the products and how they are clearly distinct
from conventional finance. Financial products in the UK are explained and marketed to the
customer. Halal Financial Services has to date been successful in this by employing a call
center management with multi-lingual staff who also have an ethnic & cultural understanding
of the customers.

3
http://212.58.226.40/1/hi/business/1794485.stm , viewed 2005-08-08
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5.3 UK Market Players in the niche for Islamic financial products

An Intermediary’s role is depending on a sufficient number of product providers. Therefore it


is crucial to oversee the current stage of this development and the future direction of it:

5.3.1.1 Halal Mortgage Lenders

Ahli Bank
Formerly known as United Bank of Kuwait (UBK), Ahli Bank offers Manzil Home Finance, a
Shari'a compliant mortgage product made available in the UK for almost ten years.

Ahli Bank does not have a wide presence in the high street and as a result is unable to
effectively market the product to a large enough population – currently Ahli Bank has one
central head office-branch located in London.

The bank's main strategy for its Shari'a compliant mortgage distribution has been through
the financial intermediary market – ‘Mortgage-Financial Advisers’.

United National Bank


United National Bank (UNB) was officially the second lender in the UK to offer Shari'a
compliant mortgages (one week before HSBC launched their ‘Amanah’ home finance
product).

United National Bank has a limited branch presence in the UK – although offering Islamic
mortgage products, the bank's principal strategy is the expansion of its retail banking
operations to cover facilities such as international money transfer, current and saving
accounts.

HSBC Amanah
In July 2003, HSBC launched the globally established Shari'a compliant finance ‘Amanah’
brand in the UK. The products include the Amanah Bank Account and Amanah Home
Finance.

HSBC Amanah targets Muslim homebuyer market through key established HSBC branches in
areas of dense Muslim population.

HSBC as a mortgage provider in general does not offer its conventional mortgage products
through the intermediary market – from outset the decision was taken that Amanah Home
Finance would also be distributed solely through HSBC.

Several months into the launch of Amanah Home Finance, Amanah division heads
established the limitations in product distribution by excluding financial intermediaries. The
then head of Amanah UK ‘Noaman Hasan’ successfully agreed with HSBC’s group strategy to
implement a third party intermediary strategy (TPI), allowing for business to be generated
through financial intermediaries. This arrangement has become a core strategy for ‘HSBC
Amanah’ and has been effective since around September 2004.

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AL Buraq
ABC Bank launch Al Buraq – a Halal financial services division of Arab Banking Corporation in
August 2004. The objective was to offer UK Muslims a menu of Shari'a compliant financial
products, commencing with Islamic mortgages.

Al Buraq does not have a wide presence in the high street and would not be able to
effectively distribute its products if it weren’t for its strategic alliance-partnership strategy.

From the outset Al Buraq has an objective to distribute its Shari'a compliant financial product
offering through both retail banking and financial intermediary channels. This has seen the
likes of ‘Lloyds TSB’ white-labeling the ‘Al Buraq’ Islamic mortgage product and distributing it
through key established Lloyds TSB branches in areas of dense Muslim population.

According to Halal Financial Services Inc. the management is aware of and has had
discussions with a number of additional ‘High Street’ lenders that are in various stages of
development and delivery of Shari'a compliant residential mortgages.

5.3.2 Shari'a Compliant Commercial Finance Providers

Amaar Finance
In January 2005, Bank of Ireland (BOI) nationally launched ‘Amaar’ Islamic commercial
finance division after several years of low key piloting of Shari'a compliant commercial
finance.

Amaar finance made available as a ‘Murabaha’ Shari'a compliant financial product, to solely
finance purchase of residential or commercial investment properties aimed at the increasing
high net worth Muslim market.

BOI aims to distribute the products through both intermediary and direct banking channels.

ABT Finance
End of 2004 saw the launch of ABT Finance by Natwest Royal Bank of Scotland (NRBS). The
bank has been developing models over the past two years and has finally decided to make
available a Shari'a compliant funding package aimed at commercial borrowers.

NRBS aims to distribute through both intermediary and direct banking channels.
In addition, Halal Financial Services is aware of and has had discussions with a number of
additional ‘Niche’ commercial lenders that are in various stages of development and delivery
of Shari'a Compliant commercial finance products.

5.3.3 Takaful (Islamic Insurance) Providers

Currently there are no publicly available ‘Takaful’ insurance providers in the UK. However,
Halal Financial Services Inc. is in discussions with HSBC Amanah which launched a ‘Takaful’
range of insurance products mid July 2005. The FSA has also received applications from
other companies desiring to set up Islamic Insurance firms in the UK. Publicly announced is
Solidarity, a leading takaful provider based in Bahrain – their market entry could be expected
for 2006.

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5.3.4 Islamic Funds

There are only but a few Islamic Mutual Funds for investment purposes avalaible and
regulated by the Authorities in UK: Among them is the Parsoli Islamic Equity Fund and most
recently the Children’s Mutual Fund to be started in September. Mutual Funds could be an
additional source of income. Further the Beacon 1 Limited Partnership is offered by
Integrated Property Investments Ltd as a compliant real estate fund.

5.3.5 Islamic Pensions market in the UK

The pensions market in Europe is at a point of unprecedented change, primarily due to aging
populations. The result will create exciting new opportunities for competitors. Winners will be
those that react to these changes fastest. The UK is by far the largest private pensions
market in Western Europe by assets.

At present, strict observance of Islamic law may prevent practicing Muslims from investing in
company pension schemes as most of these schemes invest the proceeds in funds which are
non-Shari'a compliant i.e. equities of companies which are involved in prohibited activities
such as interest income, alcohol and pork production, casinos etc.

So far, HSBC Amanah has launched its Muslim pension fund early this year. The government
has announced its desire to promote saving among the Muslim population in the UK. The
predominantly Muslim Pakistani and Bangladeshi communities currently draw only four per
cent of their income from pensions, the lowest of any ethnic group in the UK.

Also Parsoli had plans to make their fund vehicles eligible for the pension fund market.

5.3.6 Pure Islamic Banks and “Window” operations

September 2004 witnessed the launch of Islamic Bank of Britain (IBB.L), UK’s first Shari'a
compliant bank. With the first branch established in London, IBB will follow a branch roll out
program focusing on areas of dense Muslim population.

Currently IBB offers a range of Shari'a compliant products including Islamic savings bank
accounts and Shari'a compliant financing. It is expected that IBB will shortly launch its
Shari'a compliant mortgage product by end of the year 2005.

Lloyd’s Bank as major market force in the conventional sector introduced a Shariah
compliant current account. Other conventional players may follow in this direction. Also it is
likely that other investors will follow the example of the Islamic Bank of Britain and create a
competing entity by 2006/2007.

5.3.7 Other Intermediaries

During the Internet hype two portals were existing targeting also the UK Muslim community:
Islamiq and iHilal. Islamiq were unsuccessful and have subsequently stopped trading. iHilal
changed its focus and became focused towards asset management rather than serving
directly retail clients via Web. The pure internet model and the typical cash burn rates at this

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given time led to the failure of these business models. Financial services remain very much a
face to face selling issue.

Islamicmortgages.com is running a web based only approach to receive lead contacts and to
refer to Halal Mortgage providers. The rather low visibility limits their impact compared to
the business strategy of Halal Financial Services Inc. which includes a branch network in the
most important Muslim areas in UK. We could not identify for this competitor a dedicated
ethnic marketing approach.

There have also been some moves by conventional Intermediaries to provide Halal
mortgages to the public. This will enviably capture a market share based on their former
client relationships. Nevertheless, as this is an emerging market and there is an element of
intellectual property involved then it is anticipated that the average Muslim will deal with
dedicated providers, which are also better versed to explain the open questions regarding
the compliance and more customer focused of e.g. the Islamic Mortagage.

During the research there was a company called 1st Ethical Ltd that currently offers tax
planning services with trusts for high net worth individual Muslims. Interestingly this
company has built up a customer base through education and have won numerous awards
for business growth including shell live wire fastest growth company 2003. This
demonstrates the demand within the community for Shariah compliant financial products and
demonstrated the strength of a face to face approach of an Intermediary. However unlike
Halal Financial Services they do not cater the mass retail market.

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6 Product Overview and Perspectives
To evaluate the value and prospects of Halal Financial Services Inc. it is important to analyse
the product lines and the respective market and potential market share.

6.1 Islamic Mortgages

The UK mortgage market is driven by four groups: The market for new homeowners, the
market for refinancing an existing mortgage, the market for buy to let financing and the non-
resident buyers.

Recent monthly statistics of new mortgage advances were around USD 35.6 bn a month.
Considering the lower income and employment rates the market for Shariah compliant
mortgage products should stand at a maximum of 3 %, the percentage of the population.
This indicates USD 1.068 bn as monthly potential mortgage book value or USD 12.816 bn
p.a.

Remortaging holds a share of 44 % in 2004 for the conventional sector; this number is
expected to be larger in future for the Islamic Mortgage market because of the additional
religious reason to shift from conventional to Islamic. Currently this segment under performs
according to market experts. However, we expect that with stronger sales activities and
consumer knowledge the typical range for the UK market will soon be reached.

Another approach to estimate the total potential book value is to multiply the number of
house owners with mortgages with the average outstanding mortgage value. 68 % of
Pakistanis are house owners, 47 % bought the home with a mortgage. The number of
households from the 350,000 with an outstanding mortgage is calculated at 164,500. This
multiplied with an average mortgage of USD 160,200 leads to a total outstanding mortgage
value of USD 26.6 bn.

We need to look at the annual volume to evaluate the market for an Intermediary as this is
generating the commissions while for banks the whole size of outstanding mortgages is the
correct figure as they benefit from the financing costs on an annual basis.

Datamonitor in its 2005 Islamic Mortgage study evaluated the gross advances in 2004 at
USD 291.2 mn showing a CAGR of 68.1 % per year; these figure is still driven by new
homebuyers which are among the 30-35 % being renter previously; most notably it means
that the current market is driven by those among the Muslim segment which are most
affected by lower income and unemployment, which again shows a strong impetus towards
homeownership.

The way from the current market size of USD 291.2 mn towards approaching USD 12.8 bn,
will need a strong market growth. To figure out the future development and its impact on
Halal Financial Services from the macro perspective is rather difficult. Growth and market
share could be based on estimations, only.

To analyze the potential for Halal Financial Services Inc we have therefore chosen the micro
perspective; the man hours and capacity of call center and branches as discussed in
interviews with the management and internal documents of the company which we had
reviewed.

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The financial intermediary industry is driven by a strict marketing controlling offering a good
ground laying for calculation of the achievable business as the sales mechanics will not
dramatically differ from the experience of the conventional industry.

Halal Financial Services aims to open beside its Glasgow headquarter and call centre
branches in London, Birmingham, Bradford, Manchester and Luton. In 2006 every two to
three months one branch is to be rolled out. Each branch will be capable to handle intially 40
cases a month and the following years a higher number. A branch consists of 4 salespersons,
which therefore needs to close initially 10 cases per month each. Effectively this means that
every second day one mortgage will be achieved. Based on experiences on the conventional
sector these internal assumptions are conservative figures considering the professional mix
of radio and TV spots on top of the web presence and community access of the individual
sales person itself.

Nevertheless these arithmetics summing up to 1895 cases in 2006, 3700 cases in 2007 and
5065 cases in 2008 according to internal projections, which are multiplied with the average
mortgage size (200.000 USD) being a substantial mortgage book of USD 379 mn for 2006
and growing to USD 740 mn in 2007 and finally to USD 1 bn in 2008.

Compared to the current market size and the projections of Datamonitor these figures are
ambitious but still inline with the broader macro analysis of the Muslim community. We
believe that a properly managed sales team is able to achieve these figures being also the
first mover with a strong branding approach.

The Datamonitor report does not cover the other financial products that Halal Financial
Services intends to ‘drag and drop’ into its distribution network. Coupled with future
partnerships and franchising models Halal Financial Services targets are realistic.

6.2 Commercial Finance

ABT Finance aims to offer commercial finance for Muslim clients as well as Amaar Finance.
We did not add these earning potential for the evaluation of the company and considering
these as a conservative discount for the value. Considering the large number of self-
employed Muslims in UK it can lead to a substantial driver for returns.

6.3 Takaful

Takaful is the Shariah compliant alternative to a conventional insurance. Basically it works


similar to a cooperative insurance. HSBC Amanah launched their takaful program Mid of July
2005, foreign players like Solidarity Bahrain announced their market entry which may
happen during 2006. Life and Annuities in the conventional sector summed up to an annual
premium income in 2003 of about GBP 29 bn according to the Association of British Insurers.
3 % of this sum alone reaches GBP 870 mn, even discounting the lower income and
unemployment rates there will remain a tremendous market opportunity.

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Halal Financial Services is currently in talks with HSBC on developing a relationship with
them on their products and with other 3rd parties to distribute their Takaful product through
the web portal www.halalinsurances.com

6.4 Other Products

6.4.1 Funds

Mutual Funds are not widely distributed among Muslim communities according to the Family
Resources Survey 2003/2004. We could not identify the reasoning why the preference for
this saving vehicle is that low. Looking primarily for the company value of Halal Financial
Services Inc we excluded this product line from the valuation process. Although products are
already available and could be additionally distributed.

6.4.2 Pensions

With the HSBC Life Amanah Pension Fund Halal Financial Services gets another instrument
to generate returns for it in a widely underserved market. Pensions as source of income are
among Muslims by far the lowest; also the UK government seeks to encourage savings
among the Muslim population. As soon other providers enter this market the advantage of
being an independent financial adviser is growing.

6.4.3 Credit/Debit Cards

UK is a very strong market for credit cards in the conventional sector. Although there a
number of Islamic Credit Card providers in Muslim countries in the Gulf and Malaysia, there
is currently no offer for that in UK. The Islamic Bank of Britain will likely change this. The
major point is the acceptance to have an Islamic finance facility which can hardly be
differentiated and communicated what the true difference is about. However, the debit card
system alone generates reasonable fees for the issuer. Making a rough estimation the card
market would be 1.8 mn population multiplied by 50 % adults x 50 % card penetration * 1.5
cards per person = 675,000 cards multiplied with annual spendings of USD 3560 it leads to
spending of USD 2.4 bn, the typical fee for the issuer is 1 % equals USD 24.03 mn. A
sufficient niche to be catered even without the benefits of financing costs.

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7 Valuation
The valuation takes into consideration

▪ Management and strategy


▪ Performance and returns
▪ Financial position
▪ Outlook and prospects

The basis for the price targets are the two main product lines for the foreseeable future
which ignores the other above mentioned opportunities as well as future expansion to other
areas and countries.

The company started listing at the NASDAQ beginning of June 2005, however the business
itself has been established since September 2004. Although major achievements could be
proved for the first months of operation the valuation is based on future projections of the
company and opinions of the future market development of the analyst.

The expected income stream of Halal Financial Services Inc. is (all figures are in USD)

If we are looking at price earning ratios of growth companies we can take a valuation from
there, as the following table shows:

The earnings per share are derived from the company forecast in the mortgage and takaful
business range only, if this figures are achieved which is backed by the number of sales
forces in the future branches, then the above earnings per share would be achieved.

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Taking into account a price earning ratio of growth companies of above 25 we achieved a
target price which is likely to be volatile as the business of financial intermediaries is
seasonal. Nevertheless the growth of the company will over time increase the company value
significantly; in a mature status price earning ratios should be lower than after showing the
initial results but still justify a substantial increase of stock market price. We therefore
assume a decreasing PE Ratio to average means.

Summarizing the potentials and strengths of the business model Halal Financial Services Inc.
will most likely be a – if not – the leading Intermediary in the UK by 2006/2007. As first
mover we expect them to hold the prime position with a significant market share. Being the
“Gate Keeper” to the Muslim client, the business model could be upgraded with white label
products, or even self initiated Islamic financial products including a fully licensed bank at a
future state or some element of a joint venture with an existing Islamic Banks in the market
at that time.

The major risk factor for this evaluation is the achievement of the expected number of
mortgage cases and starting with 2006 a similar achievement for the takaful market.

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8 Disclaimer
Sources: Power Point Slides, Excel Forecasts provided by the company, discussions with
management, other statistical resources referenced above.

Company Info: Halal Financial Services Inc. 82 – 84 Niddrie Road, Glasgow, G42 8PU, UK

Analyst: Michael Saleh Gassner, born 1969, is specialized consultant on Islamic Finance and
finalised his studies in business administration at the University of Siegen. He worked as
banker and independent financial advisor. He writes frequently about Islamic Finance related
issues in leading industry magazines and is the founding editor of the industry's newsletter
"IslamicFinance.de - Executive News". Also he speaks frequently on conferences, among
those is the 6th Harvard Forum on Islamic Finance 2004 and the Arab Banking Summit 2005.
He is member of the International Bankers Forum. Languages: German, English, Arabic,
French.

Opinions, information or ratings contained in this report are suggested solely for
information purposes by the analyst. The information used and statement of fact made have
been obtained from sources considered reliable but neither guarantee nor representation is
made as to the completeness or accuracy. Such information and the opinions expressed are
subject to change without notice. This report is not intended as an offering or a solication of
an offer to buy or sell the securities mentioned or discussed. The analyst does not apply
“recommendations” to any reports or the companies covered. He may at any given time buy,
sell, or trade these securities during the term of the contract. Any usage of the word
“recommendation,” if any is to be defined as “rating” only.

Halal Financial Services Analyst Report - 17 –


© 2005 Michael Gassner Consultancy