L2 Intro To ICM

ISLAMIC CAPITAL MARKETS
INFRASTRUCTURE
Facilitator
Izzat Syazwan Bin Mustafa Kamal
CIFP 2014
INTRODUCTION
ISLAMIC FINANCE GLOBAL

DEVELOPMENT
IB1006 LC1 ICM INFRASTRUCTURE ARK 13
Economic growth and demographics of Asian regions

Global Islamic Finance to grow to around US$1.6 trillion by 2012,
from US$1 trillion in 2009 Oliver Wyman as cited by Reuters, April
2009
Average annual GDP

Growth forecast 2010-2014
6% - 10%
3% - 6%
China
1.3 bln people
26.8 mln Muslims
GDP : US$4.6 trl
South Asia
1.6 bln people
459.9 mln Muslims
GDP: US$ 1.5 trl
Middle East
202.1 mln people
185.8 mln Muslims
GDP: US$1.8 trl
0% - 3%
N/A
East Asia (exclude
China)
224.3 mln people
1.9 mln Muslims
GDP US$ 6.3 trl
2 Hours
Malaysia
4 Hours 6 Hours
8 Hours
South East Asia

592.5 mln people
246.7 mln Muslims
GDP: US$1.5 trl
Malaysia at the centre of large Muslim nations and

high growth Asian markets

Source : IMF World Economic Outlook Database, CIA World Factbook and EIU ViewsWire
INTRODUCTION
1. DEVELOPMENT OF ISLAMIC CAPITAL
MARKETS
Islamic Finance growing at approximately at
15%-20% p.a. the fastest growing sector in

the global finance
Presence at more than 75 countries with
300 over financial institutions

Sukuk market has increased at an average
annual growth rate of 40% with size is more

than USD82 Billion(Year 2007)
INTRODUCTION
As May 2008-October 2009, recorded at
USD750 Billion (source: Harvard Islamic Finance

Forum)
Islamic assets are to hit USD 1.4 Trillion by 2010
(Source: Zawya.com)
There are more than 350 Islamic funds in the
current world financial markets

Covering Arab world, Asia, Europe and North
America
Global Sukuk Issues: 2010/2011

In 2010, Malaysia remains the largest issuer of Sukuk
(77.7%) followed by Indonesia (6%) and Saudi Arabia
(5.8%)
In 2010, a large proportion of Sukuk issuance were made
by government institutions (71.3%), followed by Financial
services (10.4%) and Power & Utilities (5.2%)
Source: Zawya
Today there are more than 600 Islamic financial
institutions that operate in more than 75 countries. The
sukuk market, is fast becoming an important platform for
international fund raising and investment activities that
are generating increased cross-border flows.
Global Sukuk Issues: 2010/2011

From an outstanding amount of USD33
billion in 2006, the sukuk market has
expanded to USD180 billion by the end of
2011, of which 66 per cent originated from
Asia. The region is also leading a growing
trend for multi-currency sukuk issuances,
attracting global investors to participate in
this market. (Sources : BNM Governor Tan
Seri Dr Zeti Akhtar Aziz, MIFC Malaysia)
Malaysias
Malaysias
experience
experience
1990
(RM125m)
Key Milestones
1st RM corporate sukuk
2001
(USD150m)
Worlds 1st global corporate sukuk
2002
(USD600m)
Worlds 1st global sovereign sukuk Ijarah
2006
(USD750m)
Worlds 1st exchangeable sukuk
2006
Launch of 1st Global Sukuk Index Dow
ijarah
uthrie Group
Jones Citigroup Sukuk Index

2007
(USD4.8b)
Binariang GSM, worlds largest sukuk
2007
(USD125b)
1st Japanese-owned company issuing
issuance
sukuk
Ranking in Global Islamic Finance, 2009-By Country

Sukuk Market
Equity Market
Fund Management
Rank
Countries
Rank
Countries
Rank
Countries
Malaysia
Malaysia
Malaysia
UAE
Indonesia
Saudi Arabia
Saudi
Arabia
UAE
Kuwait
Saudi
Arabia
Cayman
Islands
Kuwait
Bahrain
Indonesia
Bahrain
Takaful
Islamic Banking
Rank
Countries
Rank
Countries
Iran
Iran
Malaysia
UAE
Saudi
Arabia
Saudi
Arabia
Malaysia
UAE
Bahrain
Kuwait
5
Source : Various sources
Global Sukuk Issuance 2000 to 2009
10
Global Sukuk Issuance 2000 to 2009 in

US $ Billions
Sources: Standard & Poors, Zawya
11
Institutions from other countries that have issued sukuk in Malaysia

Issuer
Obligor
country
Sector
Amount
(RM billion)
ADCB Finance
(Cayman)
Limited
UAE
Banking, financial &

credit
intermediation
3.5
Asian Development
Bank
Philippines
Development finance
institution
4.2
First Resources
Limited
Singapore
Cultivation of oil
palms, milling and
refining operations
Golden Asset
International
Finance Limited
Indonesia
Cultivation of oil
palms, milling and
refining operations
IDB Trust Services

Limited
Saudi
Arabia

credit intermediation
Dubai Department
of Finance
UAE
Government sector
0.5
Source: Securities Commission Malaysia (SC), Islamic finance information

service (IFIS)ARK 13
IB1006 LC1 ICM INFRASTRUCTURE
12

Issuer
Obligor
country
Sector
Amount
(RM billion)
International Bank
of
Reconstruction and
Development
(World Bank)
United
States

0.76
Korea Development
Bank
Republic of
Korea

3.5
National
Agricultural
Cooperative
Federation
Republic of
Korea
Banking, agriculture
3.3
The Export-Import
Bank of
Korea
Republic of
Korea

Woori Bank
Republic of
Korea


13

Issuer
Obligor
country
Sector
Amount
(RM billion)
Abu Dhabi National

Energy
Company (Taqa)
UAE
Energy
3.5
Gulf Investment
Corporation
Kuwait

credit
intermediation
4.5
National Bank of
Abu Dhabi
UAE

International
Finance
Corporation (IFC)
United
States

0.5
Tadamun Services
Berhad
Saudi
Arabia


14
15
LATEST SUKUK ISSUANCE IN MALAYSIA

Recently three foreign institutions raising funds in the ringgit
market.
1. Bahrain-based Gulf International Bank (GIB) launched
its debut RM3.5 billion (USD1.11 billion) Sukuk AlWakalah medium-term note (MTN) program at the end of
May 2012 in Malaysia.
The Program, which was jointly lead managed by CIMB
Investment Bank Berhad and Standard Chartered Saadiq
Berhad, was rated AA1 by the Malaysian rating agency,
RAM Ratings. Its ultimate major shareholder - the
government of Saudi Arabia - which indirectly owns 97
per cent of the bank.
16

2. Another GCC originator, Kuwait-based Gulf Investment
Corporation (GIC) has mandated AmInvestment Bank as
lead manager for its two-tranche RM325m (USD103.2m)
sukuk - comprising a 10-year RM170m (USD54m)
issuance and a 15-year RM155m (USD 49.2m) issuance.
GIC also appointed AmIslamic Bank as the transaction
agent to facilitate commodity trading on the Bursa Suq Al
Sila commodity Murabahah trading platform on Bursa
Malaysia.
This latest issuance is under GIC's existing 20-year
RM3.5bil (USD1.1bil) Sukuk Wakala bi Istithmar medium
term notes.
17

3. Another foreign issuer which is finalizing its debut
sukuk in the Malaysian market is the Development
Bank of Kazakhstan (DBK), which are 100 per cent
owned by the Government of Kazakhstan.
DBK is working with HSBC and Royal Bank of
Scotland (RBS) to manage the ringgit-denominated
issuance which will be part of a proposed RM1.5
billion Islamic Medium Term Notes (MTN) Program
and which is effectively a quasi-sovereign offering.
18
MALAYSIA Airlines (MAS)

MALAYSIA Airlines (MAS) has
issued RM2.5 billion sukuk,
the first tranche of the
airlines, RM1 billion was
issued to Kumpulan Wang
Persaraan (KWAP) to help
shore up MAS capital base.
MAS had also been obtained for the remaining
RM1.5 billion, with the subscriber to be
announced in due course
19
MALAYSIA Airlines (MAS)

The RM2.5 billion sukuk is a hybrid equity capital
structure whereby the bulk of the issue size, if not
all, would be recognized as equity capital in MAS
balance sheet and thus improve its gearing.
Not guaranteed by the government, the sukuk is
believed to be the worlds first for a corporate
issuer and also for an airline.
For the first 10 years, the profit rate payable on the
sukuk is fixed at 6.9 per cent per year, payable
twice a year.
(Statement by MAS CEO Ahmad Jauhari Yahya,
June 2012)
20
Market In The Economic

System
21
Markets in the economic System

Flow of payment
Production of
goods & services
Producing units
(primarily
businesses and
government)
Consumption of
goods & services
Financial Markets
Consuming Units
(flow of financial
claims)
(primarily
households)
Productive
services
Productive
services
Flow of income
Flow of payment
Product
Markets
Factors
Markets
Flow of income
22

Market created in the economy due to
demand and supply of goods and services.
In order to fulfill or satisfy their wants and
needs people require to consume for
products and services they are needed.
This situation will encourage other people
to produce the goods and to provide
required services.
The process finally promotes productions/
industrializations and trade activities.
23

These activities are then creating various
types of businesses and job opportunities,
and require capital to finance their activities.
The economic units who require funds known
as deficit income units.
There will be a surplus income units who
have a surplus funds to be invested.
The financial market then created in the
economic system to facilitate the above
requirements and activities.
24
FLOW OF FUNDS THROUGH THE FINANCIAL SYSTEM
Fund required by deficit income units

can be obtained through;
Indirect finance through financial
intermediaries such as bank,
takaful/insurance, venture capital
and unit trust
Direct finance via the financial
market such as sukuk and
equity/stock
25
FUNCTION OF FINANCIAL MARKET/SYSTEM

1. Saving functions
2. Wealth function storing wealth/ preserve value
3. Liquidity function
4. Credit function
5. Payment function
6. Risk protection function
CLASSSIFICATION OF FINANCIAL MARKET
1.Islamic Money Market
2.Islamic Capital Market
26

Overall Economy
Overall Economy
Real Sector
Real Sector
Surplus units
Surplus units
Households
Households
Corporate
Corporate
Government
Government
Foreign
Foreign
Investor
Investor
Indirect Financing
Indirect Financing
Banking System &
Banking
System &
other
Financial
other Financial
Intermediaries
Intermediaries
Capital
Capital
Markets
Markets
Real Sector
Real Sector
Deficits units
Deficits units
Households
Households
Corporate
Corporate
Government
Government
Foreign
Foreign
Investor
Investor
Direct
Direct
Financing
Financing
27
ISLAMIC CAPITAL
MARKET
28
Capital Markets
Definition:
Capital markets are financial markets
where long term (more than 1 year)
financial assets are traded.
Capital Market facilitates the transfer of
investible funds from economic agents in
financial surplus to those requiring fund.
They are includes individuals, companies,
governments local authorities,
multinational organizations and others.
29
29
Capital Market Regulatory Framework Malaysia

MOF
Ministry of Finance
SC
Securities
Commission
BNM
Bank Negara Malaysia
Bonds/PD
S
Bursa Malaysia
Insurance
Other Financial
Institutions
Derivatives
RAM S
Equities
MARC
Equity
Market
Banks
Derivatives
Market
Banking / Insurance Sector
Bond Market
30
EXISTANCE OF FINANCIAL MARKET

OBJECTIVE
Money Market
Primary Market
1. Initial issue financial

assets
Short Term 1 year <

(debt securities)
Capital Market
Secondary Market
2. Purchase financial
assets
Medium& Long Term

1 year >
(equity shares)
31
ISLAMIC CAPITAL MARKET

Definition: Capital markets are financial markets
where long term (more than 1 year) financial

assets are traded.
Components capital markets:
Debt market;
Equity market;
Derivative market.
Levels of Capital markets:
A primary market is where a security is first
offered to the investors;
once the security is issued, all the subsequent
transactions take place in the secondary market
32
CAPITAL MARKET
Debt Market Raise large fund
Direct from investors
Cheaper rate
Equity Market
Raise fund through
IPO
Trading of shares
Primary Market
Derivative market
Trading fin. Derivatives
Options and futures
contracts
Secondary Market
Economic Functions
1. Providing liquidity provides means for investors to sell financial assets -convert debt
and equity into cash or convert wealth (cash) into investment
2. Providing good governance risk pooling or risk sharing.
3. Indicators of economic performance - strong relationship between indicators of financial
development and economic performance in the real sector.
4. Providing information, monitoring and control mechanism for decision making process
enabling a flat form for takeover and removal of inefficient managers
33
ICM PRODUCTS
Shariah
Compliant
Stock
Islamic
Structured
Products
SUKUK
Islamic Unit
Trust
ICM
PRODUCTS
Islamic Real Estate

Investment Trust
(IREIT)
Islamic
Exchange
Traded Funds
Islamic
derivatives
34
SERVICES PROVIDED BY ICM

Islamic Stock
Broking
Commodity
Trading Flat form
SERVICES
Corporate Finance/
Advisory
Islamic Fund
Management
35
STOCK EXCHANGES OF THE ISLAMIC

WORLD
1. TADAWUL (SAUDI ARABIA)
2. BURSA MALAYSIA
3. THE ISTANBUL STOCK EXCHANGE
4. THE INDONESIAN STOCK EXCHANGE (IDX) or
Bursa Efek Indonesia (BEI)
5. THE QATAR EXCHANGE
6. KUWAIT STOCK EXCHANGE
7. THE EGYPTIAN STOCK EXCHANGE
8. TEHRAN STOCK EXCHANGE (IRAN)
9. KARACHI STOCK EXCHANGE(PAKISTAN)
10.MUSCAT STOCK MARKET (OMAN)
36
REVIES QUESTION
1.Explain what is financial market and

capital market.
2.What is the components and
functions of capital market in economic
development of a country
37
CASE STUDY
Mr. Abdullah El Mubarak is a very experience Branch Manager of a Conventional
Bank in Malaysia. He have some knowledge and understanding on Islamic Bank
which was gathered from materials on IBF such as advertisement, reading
materials and from his social interaction with his friends, among others were
Islamic Bankers. He agreed that Islamic Banking is just an alternative especially
for Muslim who like to practice their believe, nothing more than that. Both
systems are the same in providing banking services to the customers. To him,
cost and bottom line is more important in doing banking business as a basis of
choice by customers.
On Islamic Capital Market, he have his own opinion that it is not important for
Islamic Bank. It was duplicating the existing the Capital Market and any initiative
to established ICM was consider wasting of time and money. The existing
Capital can be used to transacts any capital market instruments regardless
of conventional or Islamic Instruments.
Do you agree on the above Mr. Abdullahs opinion discuss your reasons and
arguments.
38
END Q & A
Thank You Wassalam

39

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ISLAMIC CAPITAL MARKETS

ISLAMIC FINANCE GLOBAL

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

Economic growth and demographics of Asian regions

Average annual GDP

South East Asia

Malaysia at the centre of large Muslim nations and

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

15%-20% p.a. the fastest growing sector in

300 over financial institutions

annual growth rate of 40% with size is more

USD750 Billion (source: Harvard Islamic Finance

Islamic assets are to hit USD 1.4 Trillion by 2010

current world financial markets

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

Global Sukuk Issues: 2010/2011

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

Global Sukuk Issues: 2010/2011

Worlds 1st global corporate sukuk

Worlds 1st global sovereign sukuk Ijarah

Worlds 1st exchangeable sukuk

Launch of 1st Global Sukuk Index Dow

Jones Citigroup Sukuk Index

Binariang GSM, worlds largest sukuk

1st Japanese-owned company issuing

Ranking in Global Islamic Finance, 2009-By Country

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

Global Sukuk Issuance 2000 to 2009

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

Global Sukuk Issuance 2000 to 2009 in

Sources: Standard & Poors, Zawya

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

Institutions from other countries that have issued sukuk in Malaysia

Banking, financial &

IDB Trust Services

Banking, financial &

Source: Securities Commission Malaysia (SC), Islamic finance information

Institutions from other countries that have issued sukuk in Malaysia

Banking, financial &

Banking, financial &

Banking, financial &

Banking, financial &

Source: Securities Commission Malaysia (SC), Islamic finance information

Institutions from other countries that have issued sukuk in Malaysia

Abu Dhabi National

Banking, financial &

Banking, financial &

Banking, financial &

Banking, financial &

Source: Securities Commission Malaysia (SC), Islamic finance information

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

LATEST SUKUK ISSUANCE IN MALAYSIA

LATEST SUKUK ISSUANCE IN MALAYSIA

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

LATEST SUKUK ISSUANCE IN MALAYSIA

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

MALAYSIA Airlines (MAS)

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

MALAYSIA Airlines (MAS)

Market In The Economic

IB1006 LC1 ICM INFRASTRUCTURE ARK 13

Markets in the economic System