Bahrain Islamic Investment to offer wider services
Manama | By Latheef Farook | 22/03/2001
Bahrain Islamic Investment Co, which is restructuring the management and operation, is developing wider services besides its existing consumer finance products, Chairman Abdul-Latiff Janahi said. BIIC plans to introduce services like Ijara, direct investment, asset management, health care, education financing and financial consulting. He said the new developments will commence by June, with a new location which will include, in addition to the company's principal office, a showroom for cars and another for electrical as well as electronic households appliances and other goods that are of interest to consumers. He said the new strategy to enhance the image of the company comes after Gulf Finance House (Bahrain) and Gulf Investment House (Kuwait), acquired controlling stake in the company. Since then new plans aimed at enhancing the marketing position of the company in the field of consumer finance were introduced in accordance with the principles of Islamic Sharia. Market studies had shown that customers are willing to use the Islamic way of financing, and the company is offering services like murabaha covering real estate, construction materials, cars, furniture and equipment and Islamic fund management.

 

Bahrain urges Islamic banks to merge, raise capital

Manama | Reuters | 06/06/2001

Bahrain, the Gulf's financial centre, yesterday urged Islamic banks to consolidate or increase their capital to help them compete with conventional banks on financing major projects. Naser Mohammed Al Belooshi, executive director of management services at the Bahrain Monetary Agency (BMA) - the Gulf Arab state's central bank - said capital limitations would continue to seriously compromise the ability of Islamic banks to finance major international projects. "Islamic banks will have to consolidate or otherwise substantially increase their capital structures to enhance their ability to provide project finance on the scale required," he told a banking seminar in Bahrain. Belooshi said the ability of Islamic banks and financial houses to compete with conventional banks was expected to diminish after recent global mergers. "If they (Islamic banks) do nothing they will become relatively smaller in the international marketplace and therein lie the twin dangers of marginalisation and further loss of competitiveness," Belooshi said. There are around 200 Islamic banks and financial houses globally, including 18 in Bahrain, that serve some 1.2 billion Muslims. Islamic banks do not pay or charge interest. They make money instead by using a system of profit sharing from returns on approved investments.

 

Islamic Finance: Use security for receipt of Murabaha proceeds

Dubai | By Sohail Zubairi | 03/02/2003

As the Murabaha financing generally dominates the balance sheet of an Islamic bank, thereby showing its popularity, it was expected that lots of readers would like to know more about it. I would therefore, devote this week's column to explain some more aspects on Murabaha, based on the feedback from readers. Why obtain securities against Murabaha financing? A reader has asked whether it is allowed under Sharia to obtain securities against Murabaha financing? The reply is in affirmative. However, following rules must be adhered to in this respect. 1. Murabaha transaction passes through different stages. In order to safeguard his interest, a seller may seek a security from buyer when Murabaha enters the final stage of delivering the goods on credit. 2. In a different situation, an Islamic bank could also obtain the security prior to the start of Murabaha process if the debt obligation on buyer was originally agreed to between the parties. This is suitable where the bank places a recurring (blanket) Murabaha line at a customer's disposal. 3. In the event that the sold commodity itself is given to the bank as security (e.g. mortgage over car or house) the purchaser should take physical or constructive delivery of the object and at the same time give it under bank's mortgage. This way the transaction of sale will stand distinguished from that of mortgage. The security could be a tangible asset, a third party guarantee, or any other medium acceptable to the bank under Sharia requirements. However, the sole purpose of obtaining the security should be to ensure the receipt of the Murabaha proceeds. If the customer defaults in timely settlement of Murabaha amount owing to some genuine reason, the Islamic bank is obliged to allow him reasonable time to arrange for payment. In this case, the bank could hold on to the security till the receipt of Murabaha proceeds and immediately thereafter it should be released to the customer. In the event of customer's failure to clear the Murabaha debt even after the lapse of reasonable time, an Islamic bank could proceed for executing the security through the channels available to it. Any excess received from the security proceeds over and above the Murabaha amount must be returned to the customer. Can an Islamic bank charge penalty on default? Another reader wants to know whether an Islamic bank is authorised to charge penalty to a def-aulter. Murabaha is a sale transaction, irrespective of the mode of payment, and the sale price is a settled issue. Hence, if a client defaults in payment on due date, the price cannot be increased. This restriction is sometimes exploited by deliberately delaying the payment because it is known that unlike a conventional bank, Islamic bank will not levy any penalty on the defaulted debt. To provide a deterrent to this undesirable practice, some scholars have agreed that an Islamic bank could penalise habitual defaulters. They say that the additional amount so charged should be the percentage of profit distributed by the bank to its depositors equivalent to the period of default. For example, if the default spreads up to three months, the bank could charge the profit percentage distributed on a three-month fixed deposit  on the defaulted debt as penalty. It needs to be emphasised that only the recurring defaulters may be penalised. First time defaulters and the ones who defaulted for the reasons beyond their control should be spared. Furthermore, an Islamic bank is not allowed to take such penalty amount into its profit but can use this purely for specific charitable purposes not associated with any religious activity (for example construction of roads, drilling wells, drainage, etc.) How to calculate the cost of Murabaha if two currencies are involved? This question relates to imports on the basis of deferred payment letters of credit whereby the goods are delivered to the customer on receipt but the payment to foreign supplier is scheduled to be effected after a period of time. What should be the calculation of the cost of goods under Murabaha if the foreign currency in which the goods were imported has fluctuated during this period? This is very important to understand since in Murabaha it is paramount to ascertain the exact cost of goods. This principle leads to another argument whether a Murabaha transaction should be based on the same currency in which the bank (acting as seller under a Murabaha transaction) had originally purchased the commodity from the foreign supplier so that the exact cost could be tracked down at all stages? We know that this may not always be possible. In order to meet with this situation, some Islamic banks have invented a condition in the Murabaha agreement that in case of adverse fluctuation in the currency of purchase, the client shall bear the additional cost whereas if the currency has varied favour-ably, he can retain the resultant benefit. According to some Sharia scholars, Murabaha based on this condition is not valid because it leads to uncertainty on the cost of goods at the time of eventual sale i.e. upon completion of the credit period when the foreign supplier is paid. In this situation, following options are open to an Islamic bank to chose from: A. The bank should only indulge in sight L/C transactions to avoid the cost uncertainty as the foreign supplier is paid in full even before effecting sale of goods to bank's customer, thereby complying fully with all Sharia requirements for Murabaha. In this case no question of fluctuation in currency rate will arise. The Murabaha cost will be determined on the basis of the market rate of the currency of import on the date of payment to the foreign supplier. B. In case of import on deferred payment letters of credit basis, the bank should determine the Murabaha cost in the currency of original purchase rather than in dirham so that the deferred Murabaha price is paid by the customer in foreign currency and not in dirham. In this case the bank will receive the amount of cost of goods in foreign currency from its customer upon completion of the credit period and will simply pass it on to the foreign supplier. The risk of fluctuation in the currency of import will therefore rest with the importer and the bank will remain compliant to Sharia requirements. C. All deferred payment transactions should be carried out on the basis of Musawama rather than Murabaha, whereby no reference is required to be made to the cost of goods and the ultimate price to bank's customer may include a safety margin to cover the anticipated fluctuation in the relative foreign currency rate. The author is the head of risk management at Dubai Islamic Bank.

 

Salam can be used as tool of pre-shipment finance

Dubai | By Sohail Zubairi | 24/02/2003

A colleague associated with trade finance of the bank asked whether Salam could be adopted by an Islamic bank as a vehicle for pre-shipment financing of the goods covered under an export letter of credit. Yes, Salam could be modified and improvised to serve as a tool of pre-shipment financing. The following procedure may provide broad guidelines in doing so: * Bank receives an export letter of credit (LC) in favour of its client, covering certain goods. * Client gives the letter of credit under bank's lien. Thus, allowing the bank to assume the role of seller to the foreign buyer. * To comply with the LC requirement, bank agrees to buy the goods from its client under a Salam contract and makes upfront payment to him. * Salam contract devised for this purpose should include specific delivery date and place. Delivery date should be reasonably ahead of the latest shipment date stated in the letter of credit. * As for the place, it should be the port of destination mentioned in the LC. Submission of in-order shipping documents (viz. bill of lading and certificate of origin) by the client may be deemed equivalent to the satisfactory delivery. * The agreed payment (pre-shipment finance) made by the bank to its client will be lower than the amount of the export LC, difference being bank's profit. For the purpose of understanding in light of last week's column, the contract entered into by the bank with client should be regarded as the master Salam contract whereas the LC can be considered as parallel Salam contract. It is advisable that an Islamic bank undertakes the following precautionary measures in extending pre-shipment finance to a client: A) The letter of credit (to be regarded as parallel Salam contract) must be irrevocable. B) Bank should extend the facility to its credible clients only who are highly likely to perform under the master Salam contract. This is to ensure fulfillment of bank's own obligations under the parallel Salam contract (LC). C) In order to facilitate smooth negotiation of export LC and the recovery of its finance with profit, bank should include submission of commercial invoice, packing list, bill of exchange, and the other documents listed in the LC, as a condition of the master Salam contract. D) Wherever possible, bank should also obtain third-party guarantee or any other suitable security to ensure recovery of its investment in the event of non-shipment by the client. It may be noted that in case of subsequent extension in the shipment date, the bank will not be in a position to alter the price it paid for the goods covered under the LC. While a foreign letter of credit can be assumed to be a parallel Salam contract for the above purpose, it may not be necessary that the documents utilised for negotiating the LC bear bank's name as principal seller. However, the opening bank should be advised of their LC having been surrendered by the beneficiary to the Islamic bank's lien. It will not only prevent fraudulent negotiation of the LC but will also serve the purpose of informing the opening bank of the Islamic bank's financing against it. Thus, an Islamic bank can promote Salam in the above manner as an effective tool of extending pre-shipment finance to clients without the need of receiving the physical possession of the goods as repayment. It will also eliminate the need to establish costly special cell to deal with purchase and re-sale of goods towards recovering an Islamic bank's investment and profit under Salam. Like Salam, Istisna is another transaction where the asset (subject of the agreement) could be sold before it comes into physical existence. However, under Istisna the asset is required to be developed or manufactured from the beginning. This condition stems from the literal meaning of the word Istisna, i.e. to manufacture or to develop. Istisna is a contract whereby a financier agrees to construct or develop an asset according to certain specifications at a determined price, which includes financier's profit during the course of construction or development. It is not necessary that the financier accomplishes the specified job himself. He may assign it to the others under a Wakala (agency) arrangement. A primary objective of the Istisna mode of financing is to stimulate developmental/manufacturing activities in an economy leading to creation of jobs. Istisna may include commercial or residential buildings, industries, roads, dams, aircraft, vessels, etc. In the Gulf, Islamic banks usually adopt Istisna for financing real-estate activities. However, of late, it has also been used for building large vessels and aircrafts in some high profile international deals. It is necessary under Istisna that the client undertakes to buy the completed asset from the bank under a separate Murabaha agreement. In order to avoid ambiguity, it is preferable that the terms of Murabaha agreement should be agreed upon between the parties even prior to financing under Istisna takes place. In case of construction, if the client owns the land, an Islamic bank may undertake to finance construction of the required building on the basis of Istisna contract entered into with the client which includes an undertaking to buy the asset from bank on completion. However, it does not mean that the absence of land with client may prevent the bank from undertaking Istisna financing. Bank can agree to finance construction of the building under Istisna over a plot of land selected by the client. In that case, the Istisna amount will include the cost of land and construction beside bank's profit for the construction period. Unlike Salam, in Istisna the bank does not release finance for developing the asset in advance. The financing remains tied up with the progress in developing the asset under an agreed upon mechanism whereby independent verification of progress is essential for payment. Due to bank's obvious lack of expertise in construction of buildings or any other asset for that matter, Sharia allows it to nominate the client as an agent responsible for satisfactory completion of the job. This is to eliminate any possibility of future argument as client knows best what it wants to build and for what purpose. If considered necessary, bank can hire the services of an independent surveyor to keep a close watch on the progress. Upon satisfactory completion of the asset, bank transfers the Istisna amount to the Murabaha account on the basis of client's undertaking to buy the asset. The agreed repayment of bank's finance under Murabaha starts after the client has taken over the possession of asset. To secure its finance, bank can take various measures such as mortgage on land on which the asset is being built, any other property or personal or third party guarantee. The author is the head of risk management at Dubai Islamic Bank.

 

BMA to deal in Islamic instruments

Manama | By Our Bahrain Bureau Chief | 20/03/2003

The Bahrain Monetary Agency will begin dealing in Islamically-structured commodity instruments, in a pioneering move by a central bank, an official said yesterday. Short-term commodity transactions have been structured in such a way to allow the BMA, Bahrain's central bank, to deal in commodity contracts through Islamic banks. The move is aimed at supporting the kingdom's growing Islamic banking industry, said Waleed Rashdan, executive director of banking operations at the central bank. "It is a new initiative which enables the BMA to place some liquidity with Islamic banks." The initiative is the product of between BMA and Shamil Bank of Bahrain.

 

Comment: UAE's Islamic banks prove their worth

| By K. Raveendran | 10/05/2003

Contrary to the general perception, Islamic banks in the UAE are in the forefront of technology initiatives and have outdone their commercial competitors in many aspects of product diversification and customer servicing. It is such aggressive moves on these counts that helped these banks, particularly Dubai Islamic Bank, notch up growth rates that match or exceed the best in the local banking sector. The bank's technology strategy has been based on the realisation that the rapidly changing dynamics of the new age economy require banks to respond with a high degree of agility. DIB, for instance, launched its Internet banking by the middle of last year and has a call centre running to take care of customer relations management. It's Al Islami Online Internet banking service is claimed to be one of the most advanced systems in the region. Al Islami Online offers DIB customers a large number of banking services such as balance enquiries on any of their accounts with the bank, the ability to download and analyse bank statements, transferring funds between accounts and the payment of utility bills online. DIB's other convenience banking initiatives include plans for the establishment of a network of mobile ATMs at government departments, hospitals, universities, supermarkets, shopping malls and cineplexes. The mobile ATMs could be rotated in step with the movement of people at a particular location and the time. For instance, a mobile ATM could be stationed at a government office during office hours and shifted to a shopping mall by the evening. The credit for UAE's first Arabic language SMS banking service has also been claimed by DIB. The service, with 36 unique features, allows the bank's customers to receive their account information any time, anywhere, with their mobile phones. The interactive service works at two levels — Update Service automatically sending SMS information to the mobile phone detailing account activity based on service criteria such as salary credit notification, inward remittance or returned cheque; and the Enquiry Service allowing customers to request account information any time, anywhere on their mobile phone. The Abu Dhabi Islamic Bank (ADIB) has also been investing in leading-edge technology to efficiently manage mission-critical information systems, and last year announced the completion of a Dh19 million core banking and disaster recovery technology plan. The project was designed to eliminate any single point of failure by providing full redundancy of the main banking systems in the head office and provide online replication of all transactions from the live system in the head office to the back-up system in Sharjah. With such a credible record on the technology front, the country's Islamic banks pursued even more ambitious product diversification strategies. Dubai Islamic Bank, for instance, launched the country's first long-term home finance programme, financing up to 80 per cent of the property value over 15 years with a competitive profit rate in the wake of property being sold in Emaar projects on free-hold basis. DIB followed this up with the formation of the subsidiary Global Real Estate Develop-ment Co to launch its own Al Seef Tower project in Dubai Marina, where over 50 per cent of the apartments were sold on the first day of the launch of sales. The bank initiated a series of innovative moves in consumer banking, where it saw the need for Islamic instruments to meet a rising demand and introduced several Sharia-compliant products. Recently it launched a Service Leasing Finance (Ijarah) banking product for financing services such as education, health, travel and tourism, in addition to leasing contracts for transportation and machines. Under the scheme, the bank is expecting to sign contracts with leading service providers such as schools, universities, educational institutions and hospitals to obtain special rates to ensure that customers secure finance that is in line with their payment capabilities. DIB's aggressive moves in the consumer banking market won it the award for 'the UAE's number one card issuer' by Visa International, in recognition for leadership and significant growth in terms of card numbers, transactions and cardholder expenditure volume as of end June, 2002. The bank also recently launched Al-Tanmyah Services Co, a new subsidiary to specialise in providing security, maintenance and labour services to its corporate customers. Both DIB and Abu Dhabi Islamic Bank have launched their own insurance companies to take advantage of the opportunities that exist in the Islamic insurance market. While DIB's insurance company known as Aman was launched with a Dh33 million IPO, the Abu Dhabi bank's Dh50 million company is expected to be launched in the second half of this year. The entry of these banks into Islamic insurance has already sent Takaful Islamic, an independent Islamic company floated through a pubic issue last year, packing for liquidation. Both DIB and ADIB also scored major corporate points by participating in mega financing deals. The two banks, for instance, joined Kuwait Finance House to provide a $250 million deal for the Shuweihat power project after International Power and CMS faced difficulty in bringing conventional financing. ADIB also participated in the recently awarded Umm Al Nar project of Abu Dhabi with a $250 million tranche. Similarly, ADIB joined National Bank of Abu Dhabi to underwrite a $120 million Islamic financing facility for the National Central Cooling Co (Tabreed) while DIB was involved in several financing deals, including one for the expansion of the Dubai World Trade Centre facilities. The two banks are now regular participants in major infrastructure financing deals. Meanwhile, Abu Dhabi Islamic Bank is readying a regional expansion plan to utilise the growth opportunities in GCC and Middle East markets such as Syria and Egypt. The bank feels that its innovative products and services along with the asset strength will help it effectively compete in the overseas markets. According to the bank's calculations, this could happen by 2005, which will help it aim for regional leadership in Islamic banking and insurance in the next five years. The author is a UAE-based journalist.

 

Joint listing of Islamic funds close to reality

Dubai | By Saifur Rahman, Staff Reporter | 05/07/2003

Joint listing of Islamic funds among the bourses of Muslim countries could become a reality in the near future, said officials here. The size of the global Islamic funds market is estimated to be around $100 billion and Malaysia is considered to have the largest Islamic capital market. The size of the disposable funds owned by high networth Arabs is estimated to exceed $11 trillion, according to experts. Despite having a solid investor base, the Middle East market, however, has not been explored by the Far Eastern bourses for attracting investment. Things, however, began to change after September 11, 2001. With changing circumstances in the global economy and politics, especially after the recent U.S. war on Iraq, Arabs have been repatriating their funds back home quietly. The U.S. government's new security measures under Homeland Security and other schemes are prompting Arab and Muslim investors to park their money in other safe and friendly markets. As a result, market analysts feel the Gulf's economy is going to remain buoyant with the extra liquidity repatriated from the U.S. and European markets. The size of the recently repatriated Arab capital from the Western markets is estimated to be above $150 billion, most of which is still available for investment. A portion of this is being invested in some fast growing real estate markets, including Dubai. This is also encouraging foreign companies to attract a slice of this capital. Investment of this capital in friendly markets could accelerate the pace of integration by bringing all the Islamic capital markets closer, said Badlisyah Abdul Ghani, head of Malaysia-based Commerce International Merchant Bankers. "We foresee the electronic linkage between stock markets of Islamic countries in the Far East and the Middle East," he said. "I believe the linkage is going to take place in the future. Recently, Labuan Stock Exchange of Malaysia signed an MoU with Bahrain Stock Exchange for dual listing of stocks. Bahraini investors now can subscribe to Malaysian Islamic funds, 'sukuk'. "We are also looking at the Dubai and Abu Dhabi Financial Markets to have the best penetration in the market. We had planned to penetrate this market two years later. The funds are coming here faster. "After the first Gulf War in 1990, about $50 billion was repatriated by Arabs from the U.S. market. After the recent war, our estimation is that between $100 and $150 billion has been repatriated by Arabs from the Western markets."

 

Islamic Development Bank launches bond issue worth $400m

Abu Dhabi | By A Staff Reporter | 03/08/2003

The Islamic Development Bank (IDB) has announced the successful launch of its debut capital markets' $400 million Islamic Sukuk issue. The issue was increased from the original targeted size of $300 million due to strong demand. As the first international Islamic capital markets bond issue by a non-sovereign and only the second such international Islamic issue, the transaction was priced to yield 3.738 per cent, equivalent to a margin of 16 basis points (bp) over the five-year mid-swap rate, at the tighter end of the indicated pricing range of 15-20 basis points. Citigroup acted as ratings advisor, sole bookrunner and lead manager on the transaction with Abu Dhabi Islamic Bank (Adib) and Kuwait Finance House (KFH) acting as co-lead managers. HSBC and Nomura International acted as arrangers. The inaugural issue was met with strong demand from the Middle East, Asia and Europe following a comprehensive roadshow conducted by the IDB management team in Saudi Arabia, Bahrain, the UAE, Malaysia, Switzerland and the UK. The transaction was well distributed with Central Banks, commercial banks, investment managers and Islamic institutions participating in this transaction. "This transaction signifies a paradigm shift in the way IDB funds itself and is a template for future capital raising exercises," said Muzafar Al Haj Muzafar, vice-president, IDB. "We are pleased with the response we have received from the market and hope to continue to broaden and deepen our relationships with our investors. "IDB has been a keen advocate and supporter of the development of the Islamic capital markets and views this issue as the benchmark for future issues by the IDB and other member countries of the bank," he added.

 

Islamic Finance: Agency plays key role in Istisna, Wakala financing

| By Sohail Zubairi, Special to Gulf News | 21/08/2003

The last two articles dealt with various agency roles in different Islamic financing structures. We discussed that in Murabaha (sale of an asset with disclosed profit) an Islamic bank appoints the customer as its agent in selecting the goods to be financed by it, in order to alleviate the risk of goods being declared unfit by the customer at the time of purchase. We also learnt that in Ijara (leasing of an asset to a customer) and Musharika (co-ownership in an asset with a customer) an Islamic bank appoints its customer as service agent to conduct major repair and maintenance besides keeping the asset properly insured. Continuing with our study of the agency role in various Islamic financing structures, today we will examine its implication under Istisna and Wakala. Istisna rules Istisna is a transaction where an asset can be sold before it comes into existence. However, the asset must be developed or manufactured from scratch. This condition portrays the literal meaning of the word 'Istisna', i.e. to manufacture or build. In other words, Istisna is a contract where an Islamic bank undertakes to manufacture or build an asset according to a certain pre-agreed specification and at a pre-fixed price. The bank releases finance in phases commensurate with the progress in developing the asset. Istisna may include any process of manufacturing, construction, assembling or packaging. Islamic banks commonly adopt Istisna for providing finance to construct a building, develop an industrial concern, build a vessel or an aircraft, among others. Do Islamic banks possess the necessary arrangement and expertise to carry out timely completion of any type of asset according to a pre-agreed specification and at a fixed price? Of course not, since it will require huge investment to maintain the necessary infrastructure and hire experts to accomplish the job, which is financially not viable. Furthermore, there will always be room for argument by the client that the completed asset does not fully conform to the agreed specification, thus leaving the bank exposed to the risk of refusal by the client to take delivery of the asset. An Islamic bank overcomes this gray area by appointing the client as its agent. The scope of such an agency includes manufacturing or building the required asset as per specification and delivering it to the bank upon completion, which will then sell it to the client. Since in reality it is the client who is going to acquire physical possession of the asset upon completion, he will obviously ensure full adherence to the required specification in building the asset. Under the agency agreement, if the agent (client) fails to comply with the required specification, he will be responsible to the principal (bank) for damages. As such, this built-in safety valve in Istisna financing adequately protects the bank from any risk of refusal by the client on the grounds that the asset has not been built according to his required specification. Wakala financing As evident from the name, financing under Wakala takes place when an Islamic bank nominates the client as its agent for investing funds to earn profits. The Islamic bank undertakes this type of financing on a select basis and most of the time as part of a package, mainly in order to meet a client's working capital requirements. The Wakala financing agreement contains clauses to state that the agent (client) will deploy funds into a specific business activity where he holds the necessary expertise and anticipates annual profitability in a certain percentage range (e.g. between 10–15 per cent). The client is also required to submit a realistic feasibility study projecting such return. The agent is required to deploy the principal's funds in a judicious manner and within the agreed parameters. In case of deviation, the agent will be held fully responsible for financial loss, if any, caused to the principal due to the agent's wilful misconduct, negligence or default. However, if the loss did not occur due to the agent's negligence, the principal will be required to bear the same in full. In the normal situation, the bank may agree to obtain part of the income and allow the agent (client) to retain the rest as an incentive for prudent deployment of funds. Agency Fee According to Sharia, it is necessary that the principal pay a certain amount as fee to the agent in compensation for his agreement to act as agent. An agency arrangement without provision of the fee cannot be considered irrevocable under Sharia, thus allowing an agent the right to terminate it at any time. Obviously a principal would not like to be in a situation where an agent can just walk away leaving his obligations unfulfilled and he cannot be held responsible for anything. Therefore, Islamic banks make it a point to insert a fee clause in an agency agreement in order to hold the agent responsible. As the agency fee is purely an expense on the bank's part and cannot be recovered from the client, banks keep the amount to a minimum. The writer is head of risk management at Dubai Islamic Bank

Emaar to float Dh184m Islamic five-year notes

Dubai | By A Staff Reporter | 25/10/2003

From left: Ebrahim H. Ebrahim, Alabbar and Al Meeza at the signing ceremony. Emaar Properties is set to launch its first-ever Islamic Ijara Sukuk facility worth Dh184 million ($50 million) to fund its expanding portfolio of new commercial and residential pro-jects in and around Dubai as well as the growing mortgage portfolio of its subsidiary, Amlak Finance. The five-year notes, to be issued on the Bahrain Stock Exchange, will have a variable rate of Ijarah return. Mohammed Ali Alabbar, chairman of Emaar Properties said: "The company is ideally placed to move forward with financing of this kind to improve cash-flow and optimise performance. "New projects, including Dubai Marina and The Meadows, are coming to market, and we are now pressing ahead with plans for commencement of the tallest sky-scraper in the world, Burj Dubai (Dubai Tower)." Hussain Al Meeza, chairman, Liquidity Management Centre, (LMC), said his company will be the arranger of the $50 million deal, which will have an average life of 4.9 years, while LMC Emaar Sukuk Co. (SPV) will act as issuer for Emaar's first tranche of Ijara Sukuk financing. "This is the first Islamic Sukuk to be arranged for a corporate regionally, which reflects the growing Islamic Sukuk market. We are delighted to have this opportunity to arrange this issue for such a prestigious corporate name like Emaar, the region's leading real estate development company," said Hussain Al Meeza.