Putting faith into finance

Published: 23 June 2008

Reflecting the growing wealth and influence of the Islamic world, an increasing number of Muslims today look for investment opportunities that adhere to the principles of their faith.

HSBC has operated in the Middle East for over a century, and understands the needs of the local communities. Along with our extensive experience in the region, our Islamic financial services are overseen by a Shariah Supervisory Committee, who ensure our products and services are developed in accordance with Shariah or Islamic Law.

HSBC Amanah was established in 1998, in response to the rising interest in Shariah-compliant financial solutions. As interest in Islamic financial services has grown, Amanah has expanded its operations to Bahrain, Bangladesh, Brunei, Indonesia, Malaysia, Qatar, Saudi Arabia, Singapore, the United Arab Emirates, the United States and United Kingdom.

Islamic law does not require that the buyer or seller of a product be Muslim, or that its other services also be Islamic.

Nabeel Shoaib, Global Head of HSBC Amanah, said the provision of Islamic financial services reflects HSBC's responsiveness to customer needs. "We are the world's local bank, which simply means that we can fulfil our customers' needs across geographies. At HSBC Amanah, we provide Islamic products to serve a genuine financial need among Muslims. Of course, our Islamic products are available for Muslims and non-Muslims alike."

Emerging fortunes

Liquidity surpluses in the countries of the Gulf region have brought about a surge in demand for Islamic as well as conventional assets. This demand has been identified by Islamic and mainstream institutions that now provide Shariah-compliant Islamic financing for the world's 1.5 billion Muslims.

The Islamic financial industry is a young, growth industry with an estimated USD700 billion of funds under management globally. It is evolving and expanding geographically at an estimated 15-20 per cent a year with more than 250 Islamic financial institutions globally. With over two-thirds of global Islamic assets in the Gulf region, Islamic financing in these emerging markets is ready to take off.

Through the years, the HSBC Group and HSBC Amanah have gained invaluable knowledge and expertise in Islamic banking. Nabeel said the key differentiators for HSBC Amanah are its strong brand and a reputation for innovation. "We are always working towards improving the quality of our product propositions, which includes enhancing customer experience through increased levels of education of our sales force and setting up of an efficient technology platform that can facilitate Shariah-based financial solutions."

Nabeel noted that HSBC Amanah was recently named the best international Islamic bank by Euromoney.

"We see our long-term local presence, our global reach, and the depth of our services for clients from as many as 20 countries and beyond as key strengths. Above all, we aim to be the trusted adviser to our clients, which means that we have to work with them first to truly understand their needs and to then deliver the most appropriate solutions. This way we have built, and will continue to build, long-standing partnerships with our clients which endure across regions and across generations."

Nabeel Shoaib, Global Head of HSBC Amanah

Amanah acted as initial mandated lead arranger and joint bookrunner on a USD175 million three-year Syndicated Commodity Murabaha Facility for A'Ayan Leasing and Investment Company. Murabaha is an agreement under which the bank invests in a commodity which the client then buys from the bank at a higher price in instalments, thereby effectively obtaining credit without paying interest.

The facility was launched at USD150 million and was subsequently oversubscribed in syndication. The syndicate was formed from a geographically wide range of lenders from Asia, Europe and the Middle East.

HSBC Saudi Arabia Limited acted as joint lead manager and bookrunner for Saudi Basic Industries Corporation's (SABIC) third sukuk issuance (SAR5 billion or USD1.3 billion). HSBC Saudi Arabia also acted as sukukholders' agent while the Saudi British Bank (SABB) acted as a payments administrator, and SABB Amanah as the Shariah-coordinator.

This is the first sukuk in Saudi Arabia to be rated at the time of issuance and was rated level to issuer rating. It was also the first public sukuk in the Kingdom to allow investors to subscribe with as little as a minimum of SAR10,000 (USD2, 667). More than half of the allocated orders went to retail investors, attracting new/first-time investors into fixed-income capital market offerings in the Kingdom.

Ajman IPO reflects global interest

Recently, HSBC acted as sole financial adviser and lead manager in connection with the AED1 billion pre-IPO private placement and subsequent IPO of Ajman Bank PJSC, a newly established Islamic bank in the United Arab Emirates. The IPO included two tranches: AED450 million targeting local investors; and AED100 million targeting regional and international investors. This was the first Islamic banking IPO in the UAE in the last five years and the IPO was 85  times oversubscribed, reflecting the strong regional and international investor interest in the Islamic banking sector.

Ajman bank will provide a complete range of Islamic banking products and services and is expected to start operation by end-2008.

Broadening world interest

In most Muslim countries, Islamic banking is outgrowing conventional banking, and these centres will account for the core of Amanah's business for the foreseeable future.

"The main geographic region of growth within the Islamic finance industry is the Middle East, and we will continue to focus heavily  on this region. Malaysia is another country where we continue to do very well, so this market will remain on our radar," said Nabeel.

However, as understanding of the principles of Islamic finance principles spread beyond the Islamic world, the financial industry should not underestimate the sector's potential. "Even non-Muslim countries have started to open up for Islamic banking, which can only be promising for the industry," added Nabeel.