THE FUTURE OF ISLAMIC FINANCE

Ibrahim Hassan Chief Executive Officer

Contents of Presentation

Section 1 : Section 2 :

Islamic finance overall growth forecast for 2011 Is the Islamic finance world now better prepared in the event of a repeat Dubai default? Which geographical areas offer best growth opportunities? What it takes for Islamic finance to continue register strong growth momentum

Section 3 :

Section 4 :

Section 1 :
Islamic finance overall growth forecast for 2011
(a) Snapshot of current global position (b) Forecast growth of Islamic Finance in 2011

Snapshot of current global position

Global Shariah-Compliant Assets
1100 1000

1,000 822 639 500 386

2006 2007 2008 2009 2010

USD Billion

900 800 700 600 500 400 300

Share of global Shariah Compliant Assets MENA

3%
700 600

Global Islamic Finance Industry, 2010*

628

GCC 43%

Iran 36%

500 400 300

Other Asia Malaysia 10% 3%

Source: The Banker, PricewaterhouseCoopers, MIFC

Aust, Europe & America 5%

200 100 0

48
No of Countries
2 0 0 6

No of Players
2 0 0 7

Share of Islamic finance to global banking business

USD trillion
Percentage

2009 Global banking assets Shariah-compliant assets % Contribution

100 80 60 40

Malaysia : Islamic Banking Contribution

94.4 1 1.04%

21
20

7
2000 2010*

2009 Worldwide bond outstanding Islamic sukuk issued % Contribution

USD trillion 82.2 0.1 0.12%

Percentage

Islamic Banking

Banking System

100 80

Malaysia : Takaful Premium Contribution

2009 Global insurance premium Takaful premium % Contribution

USD billion 4,300 9 0.21%

60 40 20 0

3
Takaful
2000

9
2010*

Insurance & Takaful

Source: Wikipedia, PricewaterhouseCoopers, MIFC

Breakdown of Islamic finance business by country

Iran, GCC & Malaysia dominate global Islamic finance.

Islamic banking
Ran k 1 2 3 4 5 Country Iran Saudi Arabia Malaysia UAE Kuwait

Sukuk market
Rank 1 2 3 4 5 Country Malaysia UAE Saudi Arabia Indonesia Bahrain

Equity market
Ran k 1 2 3 4 5 Country Malaysia Indonesia UAE Saudi Arabia Kuwait

Fund management Rank Country

1 2 3 4 5 Malaysia Saudi Arabia Kuwait Cayman island Bahrain

Takaful
Rank 1 2 3 4 5 Country Iran Malaysia UAE Saudi Arabia Bahrain

Source: PricewaterhouseCoopers, MIFC and Islamic Financial Information System (IFIS)

Forecast growth of Shariah-compliant assets

Forecast strong growth in the next 5 years (CAGR: 20% until 2015) More countries expected to intensify Islamic finance offerings Islamic banking (ie. retail, commercial and sukuk) will be the engine of growth Shariah-compliant assets to account approx. 2.5% of global banking assets
USD bil

3,000 2,500 2,000 1,500 1,000 500 0 2010f 2011f 2012f 2013f 2014f

2,488 2,074 1,200 1,440 1,728

5-yr CAGR 2010 2015

1,000

20%

2015f

Source: Maybank Islamic internal team

Sukuk: Continues rapid developments globally

USD bil

Total Sukuk Issuance (2005 2010*)

5-yr CAGR 2005 - 2010

Global Sukuk Outstanding by Region, 2010

74%

Projected New Sukuk Issuance (2011*)

USD bil

33%

Forecast Growth Distrribution by Region, 2011

-14.3

Source: Standards & Poor, Zawya, IFIS, Maybank Islamic internal team

Islamic funds: Fast growing and superior returns

Islamic Funds by Sector, 2009 Islamic Funds by Country, 2009

Global Islamic funds (excluding Sukuk) is estimated of around

USD70 billion

Projected Growth of Islamic Funds, 2010 to 2013 USD billion

5-yr CAGR 2010 2013

25%

Source: Eurekahedge, IFIS, PricewaterhouseCoopers, Maybank Islamic internal team

Takaful: Under-penetrated, small but fast growing

Share of global Takaful assets, 2009 Forecast Takaful premium 2011 (USD15 billion)

Opportunitie s

Takaful to be marketed as an alternative form of savings and investments in the life segment Global market share < 1% and expected to grow 15% to 20% annually for the next three years shortage of skilled professionals across all key functions underwriting, risk management, claims management and technology deployment. Distressed asset values and challenging capital markets
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Challenges

Source: The Banker, Salam Arabic Islamic Insurance, KFH Research, EY

Section 2 :
Is the Islamic financial world now better prepared in the event of a repeat Dubai default?

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Dubai default : A lesson to learn

Dubai default
Entity Dubai World, a government-owned real estate, ports and leisure industry

Cause

borrowed US$80 billion :Financial instruments (Bond, Sukuk, etc)

to fuel the Emiratess property boom (mega projects: the worlds tallest building, a giant indoor ski slope, man-made palm-tree islands, etc) low productivity of real estate investments Poor corporate governance untested financial legal system lack of transparency

Issue

Liabilities US$59 billion and US$99 billion total assets in 2008

announced a six-month standstill on repayments due to conglomerates debts Biggest sovereign default since Argentina in 2001 Damaged countrys reputation of economic competence Negative perceptions on IF
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Impacts

shaking investor confidence across the Persian Gulf including major banks with exposures to Dubai World such as RBS, Citibank and HSBC Financial panic to world market US, European, Asia market fell

Source: Bloomberg, www.moneyweek.com, www.newyorktimes.com

Can Dubais default be avoided in future?

Promotes prudent credit extension through:

Underlying economic activity back to basic Islamic finance is based on trade Must have real, valid and physical transaction Growth of Islamic financial assets will always be proportionate to the growth of economy Generate legitimate profits

Mutual sharing of risk Conduct right amount of due diligence Ensure proper disclosure and transparency Reduce risks associated with leveraging and imprudent risk taking

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Section 3 :
Which geographical areas offer best growth opportunities ?

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Muslim-populated countries are natural markets

Total Muslim Population = 1.57 billion (2009)

Source: Wikipedia-Pew Report, 2009

15

Penetration of Islamic finance globally is still low

Source: PEMANDU, Maybank Islamic Internal Team

16

MENA/GCC and East Asia continues as core markets

Demand Drivers Strong economic growth High Muslim concentration Abundant liquidity Strong government & regulatory push

Source: The Banker and Maybank Islamic Internal Team

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Growth forecast and demographics of core markets

Forecast returns of Islamic funds

2011 2009
21.0% Malaysia 25.0% 33.0% 10.0%

31.2% Asia Pacific 8.3% GCC & MENA

Source: CIA World Factbook, PricewaterhouseCoopers, MIFC , Eurekahedge and Maybank Islamic Internal Team

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Other potential markets that offer growth opportunities

Emerging Markets

Global Financial Centres

Egypt

Turkey

Algeria

Bangladesh

Sri Lanka

Pakistan

UAE

China

Indonesia

Retail SMEs Commercial Wealth, equity and fund management

Sukuk Corporate Commercial Treasury & Private Equity

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Section 4 :
What it takes for Islamic finance to continue register strong growth momentum

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4 key thrusts to push Islamic finance forward

21

Continue building the supporting infrastructure

> Putting in place a comprehensive international Islamic finance architecture that includes Syariah governance, standards and compliance > Allow Islamic finance to be offered on window platform for markets at nascent stage > Promote liberalisation through issuance of new Islamic licenses to foster a vibrant and competitive environment > Increase availability of liquidity management tools in the Islamic space > Push for tax neutrality and provide incentives for specific growth areas > Build pool of talents and experts in Islamic finance includes providing ease for employment of expatriates
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Increase diversity of offerings

> Provide comprehensive Islamic offerings so that no leakages to conventional > Equity-participation as distinguishing factor from conventional moving away from debt-financing instruments > Develop sophisticated financial engineering products such as Islamic structured products, Islamic derivatives and hedging, and Islamic ETFs

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Harmonisation and mutual recognition of Shariah differences

> Islamic finance is done to facilitate and meet the financial needs of consumers in a particular jurisdiction > Greater appreciation and mutual recognition is critical to push global Islamic finance agenda > Perception is irrelevant stop debating how others are doing it across the globe but focus on how to go about doing it in own jurisdictions > Standardisation will promote consistent interpretation, but is it necessary?

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Humanising Islamic financial services

> Ensure fair access to Islamic finance to all communities special attention on the unbankable segments of society > Meet present needs without compromising future obligations > Provide customers with complete faith and trust when banking with IFIs > Improve the lives of the communities by giving back to them Zakat > Advocate a greener earth through promotion of financing and equityparticipation in green technology

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Brief overview of Maybank Group

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Overview of Maybank Group

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Maybank Islamic is a leading Islamic finance provider globally

The first Malaysian conventional commercial bank to offer Islamic financial services through window concept in 1993 Incorporated as a full-fledged Islamic banking subsidiary in 2008 to pledge its commitment on the promotion and development of Islamic finance Now the largest Islamic finance provider in the AsiaPacific region with Shariah-compliant assets of over USD13.6 billion as at June 2010 Ranked 18th among global Islamic financial institutions

Source: The Banker, Nov2009

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Thank You
Ibrahim Hassan, CEO of Maybank Islamic and Head, Global Islamic Banking of Maybank Group Level 19th, Tower A Dataran Maybank, Jalan Maarof 59000 Kuala Lumpur, Malaysia Office : +603 2297 2151 Fax : +603 2297 2002 Email : ibrahim@maybank.com.my

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