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“Why Islamic Finance?” by Daud Vicary Abdullah, President & Chief Executive Officer

“Why Islamic Finance?” by Daud Vicary Abdullah, President & Chief Executive Officer . Agenda . 2 . 111. What is Islamic Finance Why is it growing Good for business? EPL What you can do?. 1 . What is Islamic finance? . 1 . No conflict with Principle of Islam

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“Why Islamic Finance?” by Daud Vicary Abdullah, President & Chief Executive Officer

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  1. “Why Islamic Finance?” by DaudVicary Abdullah, President & Chief Executive Officer

  2. Agenda 2 111 What is Islamic Finance Why is it growing Good for business? EPL What you can do?

  3. 1 What is Islamic finance?

  4. 1 No conflict with Principle of Islam & Assertion of Religious Law Risk & profit sharing Real Economic Transactions & Asset Backed Ethical Value & Social Justice (Objectives of Shariah) Prohibited Activities & Elements Islamic Finance

  5. 2 Islamic Finance – Global Development & Progress of Islamic Finance

  6. 2 • • • • • • • • •

  7. 3 It is good for business!

  8. Alternative for Investors to mobilise capital effectively More Resilient in the current financial crisis Ethical values & Social Responsibility (Maqasid Al-Shariah) IF value proposition Backed by real economic transaction & underlying asset Risk management benefits 3

  9. 4 The Future

  10. 4 Education • Enhance Shariah expertise and Human Capital • Increase knowledge in Islamic Finance Encourage right and comprehensive understanding Provide sufficient cross-border Liquidity Perception Liquidity

  11. 5 The Future

  12. Thank You D Tube Follow us on -Twitter/INCEIF@inceif Check out university's corporate profile on - Linkedln/INCEIF See the latest INCEIF videos - Youtube/INCEIF201 1 Read the latest blogs on Islamic finance - www.inceiforg/blog Follow us on - Facebook/INCEIF Daud Vicary Abdullah President & Chief Executive Officer Tel: +603 7651 4141 Email: dvicary@inceif.orgWebsite: www.inceif.org 9-47 0:44! rCh L17 INCEIF 2014.

  13. Islamic Finance in the UK

  14. Introduction • Use established Islamic products • Ensure competitive terms with conventional finance • Comparable market documentation

  15. Products • Ijara (Lease equivalent) • Murabaha(Loan equivalent) Sukuk (Bond / Securitisation) • Well established across GCC and UK • Tax and accounting treatment understood

  16. UK Market Financing • Leasing • Finance and Operating Leases • Hire Purchase • Property Finance • Term Facilities • Development Facilities • ABL • Revolving Facilities for stock/receivables • Property Finance • Trade Finance • Commodity Finance • Letters of Credit • Acquisition Finance • Amortising Term Loans • Revolving Facilities • Bond Markets • Fixed rate fixed term • UK Gilt • Ring fenced asset funding

  17. Payment of purchase Price Rent (purchase price plus premium) FINANCIER CUSTOMER SUPPLIER Ijara Sale of Asset Lease of Asset • Lease contains virtually the same provisions as a conventional lease • Sharia’a requires ownership risk in leased asset to be retained by Lessor • Major maintenance – responsibility of Lessor • Loss or major damage i.e. insurable risks – responsibility of Lessor

  18. Ijara Documentation • Service Agreement – • Lessor appoints Lessee as agent to undertaken major maintenance, insurance etc on behalf of Lessor • Service Fee payable to Lessee for being agent and costs incurred but Lease has Additional Rent provision for an equal amount • Must be separate agreement to Lease – segregation of roles allowing termination of Service Agreement at any time whilst Lease continues • Termination Values – • Instead of NPV of future rental asset can be sold to Lessee at pre agreed prices depending on timeframe • Asset sold for that price whatever its condition of location – “as is where is”

  19. ISLAMIC BANK 1. Buy Metal (spot) BROKER 2. Payment (spot) Murabaha Structure 6. Deferred payment plus margin at maturity 3. Metal sold on deferred payment basis 4. Sells metal as agent on behalf of client • Purchase and Sale of Metals • Sharia’a finance requires each party to carry risk in the transaction • For Murabaha that is evidenced by the metal trade • Risk is associated with the risks of asset ownership i.e. the metals CLIENT THIRD PARTY 5. Payment Spot

  20. Murabaha Documentation • Familiar Provisions 80-90% • Purpose • Facility Limits • Conditions Precedent • Representations – capacity; authority, compliance etc. • Covenants – financial, negative pledges etc. • Events of Default – non payment, non performance, insolvency etc. • Security Documents – Virtually the same • Debenture • Legal Charges • Assignments 21

  21. MurabahaSharia’a Clauses • 1. Utilisation Mechanism • Utilisation Notice – date money required, cost price (nominal amount), promise to purchase metals • Offer Notice (from BLME) – offer to sell metals for the Deferred Sale Price for payment on the Deferred Payment Date: includes pricing economics – • Acceptance Notice – Accept the offer to purchase metals and in consequence accept the obligation to pay the Deferred Sale Price on the Deferred Payment Date • 2. Voluntary Early Repayment • The Deferred Sale Price is a debt due on a specified date – it is not an accrual. • Following receipt Bank makes a voluntary rebate of part of Deferred Sale Price • No formula for discounting, e.g. NPV as this equates to a recognition of “time value of money” which is prohibited under the Sharia’a

  22. MurabahaSharia’a Clauses • 3. Sharia’a Representation • “Borrower” will not challenge the transaction on the basis of it being non Sharia’a compliant • 4. Late Payment • Instead of Default Interest for late payment a Late Payment Charge can be levied calculated on basis of default rate, time and unpaid amount • But Bank can only retain direct costs of late receipt and any surplus amount collected as Late Payment Charge is donated to charity • No Interest Allowed • “The Parties recognise and agree that the principle of the payment of interest in relation to any Facility Document or otherwise is repugnant to Sharia‘a and accordingly, to the extent that any legal system would impose (whether by contract or by statute) any obligation to pay interest under this Agreement or any Facility Document, the Parties hereby irrevocably and unconditionally expressly waive and reject any entitlement to recover interest from each other.”

  23. Sukuk • “Bond Equivalent” • Ring fenced assets • However a number of different structures have been used: • Sukuk Al Ijara • Sukuk Al Musharaka • Sukuk Al Mudaraba • Sukuk Al Murabaha • Sukuk Al Salam • Sukuk Al Wakala 24

  24. Sukuk: YAAS • Yousef A. Al-Ghanim & Sons Co. (“YAAS”) is the largest company in the consumer electronics and furnishing in Kuwait with 65% market share • A leading player in the Kuwaiti consumer finance sector • Manage a large portfolio of >300 brands that include GM, BP, Hitachi Originator Capital Structure • Dual tranche issue with Class B subordination • Fully-funded default and liquidity reserves • Cash sweep of all receivables • 53,328 installment sale agreements - an average outstanding balance of KD 285.5 • Short-weighted average remaining term of the portfolio of 15.0 months • Strict eligibility criteria maintain portfolio quality during the revolving warehousing period Granular Portfolio Portfolio Performance • Historical marginal loss rates below 2.00% since Jan 2007 • The maximum monthly origination cumulative default rate since Jan 2007 is 1.96%

  25. Transaction Summary Transaction Overview • Issuance of two classes of fixed rate Certificates (Sukuk) backed by a portfolio of installment sale receivables • The installment sale are murabaha contracts granted to retail customers in Kuwait Delegate Trustee, Issuing / Paying & Calculation Agent, Cash Manager Lead Arranger Lead Manager Sole Asset Originator Placement Agent

  26. YAAS Warehouse ltd. (Warehouse Funder) Offshore SPV SukukCashflows Warehouse Funding Assignment of Receivables (Wakala Assets) Assignment of Receivables (Wakala Assets) Sukuk Proceeds Class A Certificates (Sukuk) YAAS Installments W.L.L. (Originator / Seller) YAAS SUKUK I ltd. (Issuer / Purchaser) Offshore Trust Sukuk Proceeds Installment Collections Installment Collections Obligors Class B Certificates (Sukuk) Principal & Profit

  27. Legal and Sharia’a MaplesFS Limited (Shareholder) Citibank (Delegate Trustee) MaplesFS Limited (Issuer Administrator) 100% ownership Class A Certificates (Sukuk) Master Supply & Operations Agreement Sub-Servicing Agreement Terms & Conditions of Global Certificate Agreement Investment Agency (Wakala) Agreement YAAS YAAS Installments (Originator / Seller) YAAS SUKUK I Ltd. (Issuer / Purchaser) Investment Agency (Wakala) Agreement Class B Certificates (Sukuk)

  28. Property Transactions • Acquisition and development facility for a warehouse conversion to 68 units • £17 million • December 2012 • Site development for research and business park in Cambridgeshire • £4 million • August 2012 • Development finance facility for student accommodation in Surrey • £9 million • June 2012

  29. Leasing Transactions • Finance lease facility for Marubeni – Komatsu equipment • Funding of a specialist vessel to install subsea power cables at offshore wind farms • Finance lease facility for marine containers • £5 million • £14 million • $7 million • February 2013 • June 2012 • December 2012

  30. Trade Finance Transactions • Funding line for specialist global commodity trade finance company • Letter of credit facility for UK corporate importer & wholesaler of garden leisure equipment • Promissory note facility for the export of Ford vehicles to the GCC $30 million $15 million $6 million • October 2012 • May 2012 • September 2012

  31. ABL Finance Transactions • Structured Borrowing Base style facility funding international multi-currency trade receivables, inventories held under tolling arrangements, commercial property and documentary credit issuance • Integrated facility comprising receivables financing facility, property facility, revolving stock facility and cash flow lend • Receivables and trade finance wholesale finance facility for working capital purposes £10 million August 2013 £12 million June 2012 £12 million January 2013 £12 million January 2013

  32. Acquisition Finance Transactions • Facility for the acquisition of Hunters Moor and for the rollout of further care homes. Equity provided by Sovereign Capital • Refinancing of working capital facility for MMC Ventures and FF&P Private Equity portfolio company • Management buyout and rollout facility. Equity provided by Connection Capital £7 million £9.25 million £3.25 million • August 2013 • February 2013 • June 2013

  33. Syndications / Shared Security • Syndicated facility for the acquisition of dry container boxes Facility for the acquisition of oil storage units • Revolving credit facility sharing security with existing M&G bond $17 million club deal $2 million BLME £120 million club deal £20 million BLME £20 million club deal £10 million BLME • December 2012 • February 2013 • July 2012

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