Global Finance selects the winners in a fast-growing area of finance that combines investing according to the tenets of Islamic law with modern financial products and systems.
Islamic finance is a system of ethical investing that is becoming increasingly popular around the world in the wake of the US subprime mortgage crisis. Using the ancient guiding principles of Islamic law, of which the prohibition of interest is just one, shariah scholars oversee the entire process. The types of products offered by Islamic financial institutions are catching on, not only with Muslims but also with a broad range of customers and investors who see them as a fairer and safer way of doing business than is available in the conventional banking system.
The market for Islamic bonds, or sukuk, is growing at a rate of about 35% a year and will reach the $200 billion milestone by 2010, according to Moody’s Investors Service. The New York-based global ratings agency says Islamic finance is estimated to be worth about $700 billion globally, of which sukuk are the fastest growing segment of the market. Meanwhile, the profitable retail segment is expected to grow for demographic reasons alone.
In recognition of the fast growth of Islamic financing, Global Finance is introducing its first annual World’s Best Islamic Financial Institutions Awards. After extensive consultations with bankers, corporate finance executives and analysts throughout the world, the editors of Global Finance selected the best institutions in 28 countries and regions, as well as in six overall categories. In choosing the winners, we considered factors that range from the quantitative objective to the informed subjective. Amid nominally objective criteria were growth in assets, profitability, geographic reach, strategic relationships, new business development and innovation in products. Subjective criteria included opinions of analysts, banking consultants and others involved in the industry.
Financial centers around the world are competing with those in the Middle East and Southeast Asia for a piece of this growing pie. While the Islamic financing industry remains largely intermediated by financial institutions, there are signs that the capital markets are getting ready to play a bigger role.
BEST SUKUK BANK — Kuwait Finance House
Kuwait Finance House, the leading Islamic financial lender in Kuwait, as well as the country’s biggest bank by market value, formed a separately capitalized subsidiary this year to trade sukuk, the fastest-growing Islamic financial instrument. Sukuk are backed by real assets with low risks and appeal to a growing range of issuers and investors. With more than 30 years’ experience in Islamic finance, KFH is promoting the globalization of the sukuk market. It arranges syndicated sukuk with international banks on behalf of companies and governments. Last year KFH was co-arranger and co-manager of a $1 billion sukuk for Dar Al-Arkan Real Estate Development, based in Saudi Arabia. Previously, KFH was co-manager of a $750 million global sukuk issue for the government of Qatar and co-underwriter of a $400 million sukuk for the Islamic Development Bank. KFH is doing business in Southeast Asia through its KFH-Malaysia subsidiary. It also plans to expand in Africa and the Middle East. It already has subsidiaries in Turkey and Bahrain and has applied for a license to set up a Saudi bank with capital of $134 million.
• Mohammed Sulaiman Al-Omar, general manager
BEST ISLAMIC RETAIL BANK — Dubai Islamic Bank
Dubai Islamic Bank (DIB) was formed in 1975 as the world’s first full-fledged Islamic bank and now has 48 branches in the United Arab Emirates. The bank’s first-quarter 2008 earnings rose 32% from the same period a year earlier to $151 million, thanks in part to a continuing boom in Dubai’s real estate sector. DIB, a Dubai-government affiliate, offers a range of credit and debit cards, as well as profit-sharing savings accounts that consistently deliver higher returns than conventional savings accounts. The bank also offers auto and home finance, as well as personal finance products. Its retail banking services to individuals and small businesses account for 41% of its revenue. DIB was one of four managers to work on DP World’s record $5 billion initial public offering in November 2007. Meanwhile, DIB has created the world’s first shariah-compliant legal and financial consulting firm. It provides financial structuring, legal documentation and new-product development services to the Islamic finance industry. The bank also introduced the first escrow trust account service designed specifically for real estate developers. DIB provides retail, corporate and investment banking in the UAE and internationally through 23 subsidiaries and nine joint ventures.
• Khaled Al Kamda, group managing director and CEO
BEST ISLAMIC INVESTMENT BANK — Unicorn Investment Bank
Unicorn Investment Bank, founded in Bahrain in 2004, says it aims to build a brand that is globally recognized. Unicorn has an international presence in the United States, Malaysia, the United Arab Emirates, Turkey and Pakistan. It has created a fund to make strategic acquisitions in the largely fragmented Islamic finance industry. The bank plans to acquire conventional financial institutions and convert them to shariah-compliant institutions, as well as to purchase existing Islamic financial institutions that are not performing up to their potential or that lack sufficient capital. Unicorn’s earnings rose 82% last year to $122 million on a diverse mix of operating income. The bank’s main lines of business are capital markets, private equity, corporate finance, asset management, mergers and acquisitions, and treasury. In September 2007 it established a regional takaful company, T’azur, funded by institutional investors in Kuwait, Qatar, Bahrain and Saudi Arabia. It offers life, health and business insurance lines. In December Unicorn completed two private equity investments in California’s Silicon Valley.
• Majid Al-Sayed Bader Al-Refai, managing director and CEO
BEST TAKAFUL PROVIDER — Solidarity Group
Bahrain-based Solidarity Group was established in 2003 through the consolidation of takaful insurance companies in Luxembourg and Saudi Arabia with a Bahamas-based company also operating in Saudi Arabia. Its main shareholders are Ithmaar Bank, which is a Bahrain-based investment bank, and the Pension Fund Commission of Bahrain. Qatar Islamic Bank holds a 9.25% stake in Solidarity. One of the largest takaful companies in the world, Solidarity provides protection against a wide range of risks using shariah-compliant products that it intends to offer globally. It is opening up new markets through joint ventures in Malaysia, Jordan, Oman and Saudi Arabia. The company will soon begin operations in the United Arab Emirates and Egypt.
• Sameer Al Wazzan, CEO
BEST ASSET MANAGEMENT COMPANY — Saudi British Bank (SABB)
The Saudi British Bank (SABB) is a 40% indirectly held associate of HSBC. In conjunction with its joint venture investment bank, HSBC Saudi Arabia, it offers a wide range of financial services, including a global equity index fund that tracks the Dow Jones Islamic Market Titans 100 index, and three Islamic portfolio funds for defensive, balanced and growth-oriented portfolios. The Amanah Saudi Industrial Fund provides investors an exposure to the Saudi economy, which is largely driven by the petrochemical industry. The GCC Equity Fund invests in companies listed on various markets in the six member nations of the Gulf Cooperation Council. SABB has converted 33 of its 74 branches to dedicated Islamic banking branches, and additional conversions are planned. SABB offers a commodity investment account that is an Islamic alternative to conventional time deposits.
• John Coverdale, managing director
BEST SHARIAH-COMPLIANT INDEX PROVIDER — Dow Jones Indexes
Dow Jones Indexes introduced the first-ever Islamic market indexes in 1999. It now offers more than 70 such indexes, the widest range of shariah-compliant indexes in the world. In April Dow Jones Indexes opened an office in Dubai to promote and support its conventional as well as Islamic products. The New York-based company plans to use its Dubai office as a base for developing new licensing opportunities for its indexes in the Middle East and North Africa region. An independent shariah supervisory board advises it on matters related to the compliance of companies eligible to be included in its indexes. In addition to global, regional and country Islamic indexes, Dow Jones offers industry and market-capitalization-based indexes. More than $5 billion in assets are currently benchmarked to the Dow Jones Islamic Market indexes.
• Michael A. Petronella, president
GULF COOPERATION COUNCIL (GCC) — Samba Financial Group
Samba Financial Group, one of the largest banks in the GCC region, houses a dedicated Islamic banking division (IBD) that replicates all of its major conventional banking products. The Riyadh-based bank began implementing Islamic banking in 1997, when it created a unit to develop shariah-compliant finance and investment products for the corporate bank. An independent shariah supervisory board regularly reviews the IBD’s products and transactions to ensure they are compliant with Islamic law. Samba was the first bank to introduce Islamic credit cards. Islamic products are offered throughout the branch network, which includes nine dedicated Islamic banking branches. Samba introduced a shariah-compliant treasury structure in 2005, and it offers Islamic interest rate and currency swaps. Last year it introduced the first open-ended Islamic real estate fund. Samba’s significant balance sheet enables it to support the large financing transactions that are becoming increasingly common in the GCC.
• Eisa M. Al-Eisa, managing director and CEO
NON-GCC MIDDLE EAST/NORTH AFRICA — Islamic International Arab Bank
Islamic International Arab Bank (IIAB) is a subsidiary of Arab Bank, one of the largest financial institutions in the Middle East, with assets of more than $40 billion and more than 400 branches in 30 countries. IIAB implemented a new banking platform across its entire network this year. Established in 1998 as a public company in Jordan, IIAB offers an extensive range of shariah-compliant services to individuals and corporations. Arab Bank, through its subsidiary Arab Bank Fund Managers (Guernsey), listed nine investment funds on the Channel Islands Stock Exchange in April. The funds, structured within protected shell companies, include two shariah-compliant funds sponsored by IIAB.
• Ghassan Bundakji, general manager
ASIA — CIMB Islamic
CIMB Islamic is the Islamic banking arm of CIMB Banking, Malaysia’s second-largest financial services group and Southeast Asia’s largest investment bank. It provides Islamic commercial and investment banking services through 233 branches in Malaysia. CIMB Islamic also has offices in Brunei and Bahrain, and its shariah-compliant services are accessible from Hong Kong, Indonesia, Singapore and Britain. CIMB-Principal Asset Management, jointly owned with Principal Financial of the United States, structures and distributes a range of funds. In January it launched the CIMB Islamic Global Equity Fund, and it recently introduced an Islamic money market fund and an Asian infrastructure fund.
• Badlisyah Abdul Ghani, executive director and CEO
EUROPE — Deutsche Bank
Deutsche Bank is a leader in the development of structured Islamic financing products. In 2005 it completed the first-ever principal-protected commodities transaction compliant with Islamic law. The transaction with Abu Dhabi Commercial Bank allowed investors to benefit from a rise in the prices for platinum, aluminum and crude oil. Last year the bank launched a series of Islamic funds through its global mutual funds arm, DWS Investments. In October 2007 it closed an Islamic profit rate collar structure with Dubai Islamic Bank for more than $500 million in notional value, the largest such structure done in the Islamic markets. Deutsche Bank was a founding member of the Dubai International Financial Exchange and the first to list products when the DIFX opened in September 2005.
• Josef Ackermann, chairman
ALGERIA — Banque Albaraka d’Algéria
Banque Albaraka d’Algéria, a subsidiary of Bahrain-based Albaraka Banking, has a network of 17 branches in Algeria operated according to the principles of shariah. It plans to open 33 new branches in the next five years. The bank’s earnings rose 34% in 2007, and total assets increased by 35% to $846 million. The return on average shareholder equity was more than 24%.
• Mohammed Seddik Hafid, managing director and general manager
BAHRAIN — ABC Islamic Bank
ABC Islamic Bank, a subsidiary of Arab Banking Corporation, offers Islamic banking services to companies, financial institutions and individuals. The bank’s earnings rose 99% in the first quarter of 2008 from the same period a year earlier to $6.8 million. Fee income increased by 123%, while operating expenses rose by 29%, as the bank hired additional staff to develop its fast-growing business lines.
• Naveed Khan, managing director
BANGLADESH — Islami Bank Bangladesh
Islami Bank Bangladesh, the first Islamic bank established in South Asia, celebrated its 25th anniversary in March. With 188 branches, it is the largest commercial bank in the country and oversees a large non-governmental organization (NGO). The Islami Bank Foundation operates hospitals, rehabilitation centers and a medical school and supports numerous educational and humanitarian projects throughout Bangladesh, the third-largest Muslim nation.
• M. Fariduddin Ahmad, executive president
BRUNEI — Islamic Bank of Brunei
Islamic Bank of Brunei (IBB) merged with Islamic Development Bank of Brunei in 2006 to promote shariah-compliant banking in this small, oil-rich nation on the island of Borneo. The country is eager to become an Islamic banking center and is about to introduce new laws to invigorate the sector. The only other Islamic bank currently active in Brunei is Tabung Amanah Islam Brunei (TAIB), which was the country’s first bank to conduct all of its operations in a shariah-compliant manner.
• Mohd Roselan bin Mohd Daud, managing director
EGYPT — Faisal Islamic Bank of Egypt
Faisal Islamic Bank of Egypt was founded in 1976 by Saudi prince Muhammad Al-Faisal Al-Saud and Sheikh Saleh Abdullah Kamel. The latter went on to establish the Al Baraka Group, the holding company for numerous trading, industrial, real estate, media and Islamic financial businesses. Faisal Islamic Bank has collaborated with Commercial International Bank to offer a shariah-compliant mutual fund. Banks in Egypt require special licenses to offer Islamic banking services, and these licenses are difficult to obtain. Faisal Islamic administers more than 500,000 investment accounts.
• Prince Muhammad Al-Faisal Al-Saud, chairman
FRANCE — BNP Paribas
BNP Paribas established its Islamic finance division, BNP Paribas Najmah, in Bahrain in 2003. The French bank has been active in the industry since 1985, when it was one of the first institutions to structure murabaha notes based on cost-plus-markup financing. Last year BNP Paribas introduced the first shariah-compliant exchange-traded fund based on a global index, the Dow Jones Islamic Market Titans 100 Total Return. The bank launched one of the first Islamic global equity funds, the Caravan Fund, in 1996. In 2007 BNP Paribas was a mandated lead arranger for a syndicated Islamic ship finance facility for the National Shipping Company of Saudi Arabia to purchase six large crude carriers.
• Baudouin Prot, CEO
GERMANY — Deutsche Bank
Deutsche Bank is one of the leading investment banks in the Middle East, where it has applied its skills at creating new structured products to Islamic finance. The bank expects to see growing demand for shariah-compliant hedge funds. It recently won approval to establish a dedicated Islamic banking subsidiary in Malaysia. Last year it created capital-protected notes linked to a hedge-fund index that were distributed by Dubai Islamic Bank. Dar Al Istithmar, a joint venture between Deutsche Bank, Russell Wood and Oxford Islamic Finance, provides shariah advice to institutions offering Islamic financial services.
• Josef Ackermann, chairman
INDIA — Kotak Mahindra
Kotak Mahindra, one of India’s largest financial conglomerates, has paved the way for Middle Eastern and other foreign investors to enter India’s equity markets through shariah-compliant offshore funds. The firm’s UK subsidiary was the first Indian institution to set up operations at the Dubai International Financial Center. Kotak Mahindra (International) has had a branch in Dubai for more than a decade. Despite its large Muslim population, India has been slow to introduce Islamic banking services, which are mainly limited to the cooperative sector.
• Uday Kotak, executive vice chairman and managing director
INDONESIA — Bank Syariah Mandiri
Bank Syariah Mandiri, a subsidiary of state-owned Bank Mandiri, is the largest Islamic financial institution in Indonesia. Its earnings rose 76% in 2007 to $12.7 million. While the Islamic financing industry in Indonesia is still small, it is growing rapidly. Mandiri Sekuritas, another subsidiary of Bank Mandiri, was the leading underwriter of domestic shariah-compliant bond issues last year.
• Yuslam Fauzi, president director
IRAN — Bank Saderat Iran
Iran has the world’s largest Islamic banking sector by assets. The country’s entire banking system operates according to Islamic law. Bank Saderat Iran is one of the country’s largest banks, with $28 billion of assets and 3,400 branches. It is also the most international of Iran’s banks and is active in trade and project financing. Bank Saderat Iran is one of five state banks that the government wants to privatize as part of a plan to reduce state ownership.
• Hamid Borhani, chairman and managing director
JORDAN — Islamic International Arab Bank
Islamic International Arab Bank (IIAB) is a subsidiary of Arab Bank, one of the largest financial institutions in the Middle East. IIAB introduced two shariah-compliant funds this year that were listed on the Channel Islands Stock Exchange. Amman-based IIAB began operations in 1998 and has grown rapidly. It completed the installation of a new system-wide banking platform this year that will enable it to reach even more clients with its wide range of Islamic banking products.
• Ghassan Bundakji, general manager
KAZAKHSTAN — BTA Bank
BTA Bank, one of the largest banks in Kazakhstan, was the first to introduce Islamic financing in the country. Last year it signed a mutual cooperation agreement with Dubai-based Emirates Bank to promote shariah-compliant banking and financial products in Kazakhstan and the Commonwealth of Independent States (CIS). The banks are considering the possibility of establishing a joint financial institution specializing in Islamic banking in the region. BTA Bank plans to borrow up to $400 million in international markets this year through securitizations and an Islamic bond issue. The sukuk is expected to be for between $100 million and $150 million.
• Roman Solodchenko, chairman
KUWAIT — Kuwait Finance House
Established in 1977, Kuwait Finance House is that country’s biggest Islamic lender. KFH achieved a 43% increase in profit for shareholders in the first quarter of 2008. In addition to its plans to expand in foreign markets, the bank intends to open six new branches in Kuwait this year, increasing its domestic network to 50 branches. During the first quarter, KFH introduced an investment deposit, al-kawthar, which provides monthly returns. It also introduced mobile banking offices that will travel to various locations on a weekly schedule. Moreover, it created a subsidiary to specialize in sukuk and created a portfolio to deal in commodities using the al-Salam system of payment against future delivery.
• Mohammed Sulaiman Al-Omar, general manager
LEBANON — Arab Finance House
Arab Finance House is a joint venture of Qatar Islamic Bank, Bahrain-based Gulf Finance House and other investors. It was established in 2003 as the first full-fledged Islamic bank in Lebanon. The bank now has four branches and plans to open an additional three branches this year. Its initial capital of $60 million was later increased to $100 million. Arab Finance House offers retail and corporate banking services.
• Mohamad Abdul Latif Al Manaa, chairman and general manager
MALAYSIA — CIMB Islamic Bank
CIMB Islamic Bank began as the Islamic financial boutique of CIMB Banking and became a universal Islamic bank following CIMB’s merger with Commerce Tijari in 2005. It has more than 100 Islamic investment bankers and specialists in shariah-compliant finance and is the leading underwriter of domestic sukuk. CIMB Islamic offers investment banking, consumer banking and asset management products and services. Last year CIMB launched Malaysia’s first private banking service based on shariah principles. It cited growing demand for Islamic wealth management products, including sukuk, equity-linked notes and structured products.
• Badlisyah Abdul Ghani, executive director and CEO
PAKISTAN — Meezan Bank
Meezan Bank, the largest Islamic bank in Pakistan, has 100 branches in 31 cities and a 40% market share in shariah-compliant banking in the country. Its 2007 earnings rose 59% on a similar rise in revenue, thanks in part to an aggressive branch expansion. Meezan Bank plans to open an additional 50 branches by the end of 2008. It offers a full range of corporate, retail and asset management services. Its debit card is accepted at more than 3,000 retail outlets in Pakistan.
• Irfan Siddiqui, president and CEO
QATAR — Qatar Islamic Bank
Qatar Islamic Bank (QIB) posted a 69% increase in its first-quarter 2008 profit to a record $125 million. The economy of Qatar, the world’s largest exporter of liquefied natural gas, is continuing to boom. QIB’s European subsidiary, the European Finance House, opened in London this year and will provide shariah-compliant financial services to corporate clients, primarily in the United Kingdom and continental Europe, as well as clients in the GCC region. In Qatar, QIB has a 57% share of the Islamic banking market. It aims to become a leading global provider of Islamic financing through aggressive international expansion and the development of new products.
• Salah Jaidah, CEO
SAUDI ARABIA — Samba Financial Group
Samba Financial Group’s Islamic banking division (IBD) is one of the largest Islamic banking units of any conventional bank. Samba offers both asset-based and liability-based Islamic retail and investment products. It was the first bank to introduce Islamic credit cards. The Bayt Al Khair program offers a variety of mortgage finance products. In 2007 a new product was introduced to finance the construction of customized homes, in addition to the financing of land and completed villas. Islamic auto finance and personal finance products are also offered, as well as investment accounts and Islamic funds. The bank offers a market-linked product for medium-term investments with capital protection. The IBD works with the bank’s relationship and product teams to originate, structure and distribute large capital market transactions.
• Eisa M. Al-Eisa, managing director and CEO
SINGAPORE — Islamic Bank of Asia
Islamic Bank of Asia (IB Asia) is a joint venture between DBS, which has a majority share, and 34 investors from the GCC countries. The bank began operations in May 2007 and already has been involved in a number of major transactions in the Gulf and Asia, including a $600 million syndicated revolving murabaha, or cost-plus financing facility, for Qatar-based Barwa Real Estate. IB Asia offers commercial banking, corporate finance, capital market and private banking services.
• Vince Cook, CEO
SUDAN — Al Salam Bank
Al Salam Bank, which opened in May 2005, is one of the biggest banks listed on the Khartoum Stock Market. Founded by a group of Sudanese and GCC investors, it was the first bank in Sudan to set up a fund dedicated to real estate investments. All banks in Sudan comply with Islamic law. Last year Al Salam Bank opened a regional hub in Bahrain, after operating in the country since April 2006. It plans to expand into other regional markets, including Syria.
• Hussein Mohamed Salim Almeeza, vice chairman and managing director
TURKEY — Türkiye Finans
Saudi Arabia-based National Commercial Bank (NCB) purchased a 60% stake in Türkiye Finans in April for $1.08 billion, while the Turkish bank’s shareholders, Ülker Group and Boydak Group, retained a 20% interest each. NCB says it plans to expand the Turkish bank aggressively by opening new branches and hiring new employees. Türkiye Finans, already the largest shariah-compliant financial institution in the country, has approximately a 30% share of Turkey’s Islamic banking market.
• Yunus Nacar, general manager
UNITED ARAB EMIRATES — Dubai Islamic Bank
Dubai Islamic Bank (DIB) opened four new branches in the first quarter, bringing its domestic branch network to 48. The bank recently announced that it was in talks with Dubai International Capital, another state-backed firm, to create a new Islamic bank in Jordan. Meanwhile, the assets of DIB’s Pakistan subsidiary, which opened in 2005, rose 152% in 2007. DIB also has units in Egypt, the Cayman Islands, Ireland, Sudan, Lebanon, the Bahamas, Bosnia and Bahrain. Since its formation in 1975, DIB has been involved in numerous groundbreaking transactions. Last year the World Bank’s Multilateral Guarantee Agency provided its first-ever guarantee for shariah-compliant project financing to back investments in a new container facility in Djibouti for which DIB is one of the lead financing banks.
• Khaled Al Kamda, group managing director and CEO
UNITED KINGDOM — HSBC Amanah
HSBC created the HSBC Amanah division in 1998 with the aim of making the global bank the leading provider of shariah-compliant banking products and services worldwide. A global shariah board and regional shariah committees advise HSBC Amanah on matters of Islamic law. In February 2008 HSBC incorporated its Islamic banking subsidiary in Malaysia as a full-fledged Islamic bank with a universal banking license. HSBC Amanah Malaysia is HSBC’s first Islamic bank. HSBC Bank Malaysia has been offering Islamic financial services since 1994. HSBC Amanah’s $1.7 billion Global Properties Income Fund is the largest Islamic real estate fund.
• Mukhtar Hussain, global CEO
UNITED STATES — Shariah Capital
New Canaan, Connecticut-based Shariah Capital creates shariah-compliant products and platforms and advises financial institutions and investment firms on products directed to Islamic investors. It has teamed with London-based Barclays Capital to launch Al Safi Trust, which will enable investors to access hedge funds without violating Islamic principles. Last year Shariah Capital was granted a license to operate in the Dubai International Financial Center. The US firm recently formed a joint venture with the Dubai Multi Commodities Center (DMCC) to develop and manage a range of shariah-compliant investment products focused on commodities. The DMCC and the World Gold Council have formed a partnership to list Dubai Gold Shares on the Dubai International Financial Exchange. Shariah Capital will be the shariah adviser for the exchange-traded gold product.
• Eric Meyer, president, CEO and executive chairman