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ment at Kuala Lumpur-based Great Eastern Takaful Sdn. Bhd. The bank received its li- cense last year. “That’s hampering returns and too much exposure to equities can be very volatile for our funds,” he added. Taka- ful is based on the Koranic principle of mu- tual assistance, whereby policy holders con- tribute a sum of money to a common pool managed by the company.


The funds are used to pay for claims, and any excess is returned to customers. Ma- laysia’s Islamic insurance assets grew by 20 per cent on the previous year in the first seven months of 2010, according to central bank data. Bank Negara Malaysia issued four new Shariah- compliant life insurance licenses last year, bringing the number of takaful firms to 12.


Global takaful contributions increased 29 per cent on the previous year to an esti- mated US $5.3 billion in 2008, according to a report published in April 2010 by Ernst & Young LLP. Takaful contributions in the six- nation Gulf Cooperation Council rose by 31 per cent to an estimated US $3.7 billion in the same year, said the report.


“It’s a chicken and egg situation, if you have more long- dated sukuk then there are more assets for takaful operators to invest in,” said Rafe Haneef, managing director of glo- bal markets at HSBC Amanah, whose par- ent was the second-largest underwriter of Islamic bonds last year. “Growth in takaful and the sukuk industry will mutually enrich both sectors.”


Global sales of sukuk, which pay returns based on asset flows in order to comply with the religion’s ban on interest, fell by 15 per cent in 2010 to US $17.1 billion, according to data compiled by Bloomberg. Issuance reached a record US $31 billion in 2007.


Malaysia’s 10-year development plan will increase sales of longer-maturity debt, as companies will need to spread out their fi- nancing, according to RAM Rating Services Bhd., the biggest of the nation’s credit rat- ing firms. The government has identified US $444 billion of projects led by the private sector, including the building of an under- ground rail system, a nuclear power plant and the expansion of the road network.


“With more infrastructure projects, that’s going to accelerate the growth of long-term sukuk,” said Zakariya Othman, head of Is- lamic finance at RAM Rating. He was speak- ing from Kuala Lumpur.


The HSBC/NASDAQ Dubai US Dollar Sukuk Index shows that Shariah-compliant bonds returned 12.8 per cent last year, compared with 19.8 per cent the previous year. Debt in


10 Global Islamic Finance February 2011


emerging markets gained 12.2 per cent from 29.8 per cent in 2009, according to JPMor- gan Chase & Co.’s EMBI Global Diversified Index. The difference between the average yield for sukuk in developing nations and the rate offered by the London interbank has widened since the 31st of December by two basis points to 292, according to the HSBC/ NASDAQ Dubai US Dollar Sukuk Index. The spread narrowed by 178 basis points, or 1.78 percentage points, last year.


The yield on Malaysia’s 3.928 per cent su- kuk, due to mature in June 2015, declined three basis points to 2.87 per cent yester- day, according to prices from the Royal Bank of Scotland Group. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s widened two basis points to 336, Bloomberg data show.


Noor Takaful, the holding company of Noor Takaful General PJSC and Noor Takaful Fam- ily PJSC in Dubai, is talking with investment banks in the Persian Gulf with the aim of coming up with new products for the Islamic insurance industry, said Ahmed Aljanahi, the managing director.


“We are expecting the more well-established investment banks to come up with the right product for the medium to long- term to cater for the takaful industry worldwide, not just for the U.A.E.,” said Aljanahi. “That would take, I would say, four to five years.”


Istanbul Bourse Launches Index To Tap Is- lamic Finance


In an effort to tap into the growing area of Islamic banking, the Istanbul Stock Ex- change held a ceremony to launch a par- ticipation index. The index, which is com- prised of 30 companies, includes giants such as Türk Telekom, BIM, Enka Insaat, Ford Otosan and Petkim. Hüseyin Erkan, chairman of the bourse, says that the exchange may also establish sepa- rate indexes for groups such as holding com- panies. The Istanbul Stock Exchange, or ISE, held a ceremony on Thursday to launch a participation index made up of equities that adhere to the principles of Islamic lending.


The main reason behind the creation of the participation index is the capacity of- fer a special Islamic and domestic index “suited to the customer profile of participa- tion banks” which it will bring to the stock exchange, said exchange officials speaking at the ceremony.


Fahrettin Yahsi, chairman of Turkey’s Par- ticipation Banks Association, or TKBB, said that the participation index will be an impor- tant service to provide standardization in the sector, pointing to the rapid and steady


growth of Islamic banking in Turkey since 2004,. Yahsi is also the general manager of Albaraka Türk, which is majority-owned by the Albaraka Banking Group. The new index was established according to the “customer profile” of participation banks, Yahsi said, implying an approach to financial affairs that adheres to Islamic rules. “Such a serv- ice has never been offered before in Turkey,” he said.


The index includes companies which operate financial operations on a non-interest basis, as Islam forbids interest. It has also incor- porated various companies that do not pro- duce alcoholic drinks and are not involved in gambling, pork meat, tobacco products, tourism, entertainment, media, advertise- ments, weapons, interest on gold or foreign currency trade.


According to Avsar Sungurlu, deputy director of Bizim Securities, the participation index has become a necessity as the volume of interest-free investments, and the purchase and sale of securities compatible with par- ticipation banking principles, have surged- Companies which become part of the index must also be over a certain size, according to Sungurlu. Bizim Securities has taken on responsibility for updating the index by add- ing or removing companies if necessary.


ISE Chairman Hüseyin Erkan said that the bourse may also establish separate indexes for groups such as holding companies. “After this index, an Exchange Investment Fund will be established,” he said. Birlesik Magazalar, or BIM, a discount retail chain, is leading the new index, which comprises 30 companies.


Other companies in the index include Türk Telekom, Enka Insaat, Bank Asya, Emlak Konut Real Estate Investment Trust, Ford Otosan, Petkim, Koza Altin, Aygaz, Trakya Cam, Çimsa, Sinpas REIT, Dogus Otomo- tiv, Gübre Fabrikalari, Albaraka Türk, Türk Traktör, Bagfas, Mardin Çimento, Akçansa, Adana Çimento and Pinar Süt.


The trade sector makes up 21.3 per cent of the index, followed by communications which make up16.6 per cent. “We aim to be a domestic participation index. But at the same time we want foreign investors to ben- efit from this index,” Sungurlu said.


The index will be traded on the stock ex- change under the KATLM ticker. Bekir Boy- dak, board chairman of Bizim Securities, Ufuk Uyan, the general manager of Kuveyt Türk, and Cemil Özdemir, the general man- ager of Bank Asya, signed the protocol on the participation index during the ceremony. gif


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