Islamic Banking Project- Vahid_1

Study on Islamic Banking 1.0

Introduction

Historical Background Implementation

2.0

What is Islamic Banking?

Why Islamic banking? The Basic principal Difference between Islamic banking and Conventional banking

3.0

Islamic Banking products/Financing Techniques

Mudarabah ( Profit Sharing) Murabahah ( Cost Plus) Musharakah ( Joint venture) Istisna Ijarah (Rent) Taqakul ( Insurance) Al-Wadiah (Safe Keeping) Sukuk (Islamic Bonds) Bai’Salam

4.0

Islamic Equity Fund

Basic Principle Equity fund Ijarah Fund

Commodity Fund Murabaha Fund Mixed Fund

5.0

HSBC Amanah Service on Islamic Banking

Bank Profile

6.0

Bibliography

Introduction Islamic banks appeared on the world scene as active players over two decades ago. But "many of the principles upon which Islamic banking is based have been commonly accepted all over the world, for centuries rather than decades". The basic principle of Islamic banking is the prohibition of Riba- (Usury - or interest). Since the mid 1970’s Islamic banks have been growing at a very fast rate. This banks were not only established in the countries were Islam is the major religion like Egypt, Syria , Jordan ,United Arab Emirates, Bahrain ,Kuwait Tunisia & Malaysia. But also in the United Kingdom, Denmark & Philippines where it is a minority religion. An International Islamic bank, The Islamic Development Bank, whose share holders are the members of the Organisation of Islamic Conference (OIC), acts as the sponsor of Islamic banking and finance in the wider Muslim world. This is in addition to the efforts made in the early 1980’s by Pakistan and Iran to transform the entire financial systems to interest- free (‘Islamic’) systems. The Islamic Banking institution is a new and constantly evolving concept. In relation to the Western way of banking, the Islamic Banking system is free of interest. One might wonder what the incentive to lend money would be. Others may not understand what benefits could be had by putting their savings into a bank account. While Muslims do not believe in charging or earning interest, they have developed a very complex alternative that is being implemented all over the eastern world. Started from just an idea, this new way of banking quickly spread through the Muslim countries, and has continued to expand all over Europe and Asia. Although the system is proving to the West that it can work, it is still trying to iron out some of the inefficiencies that it currently has. Once the system is more efficient, it will be better able to provide its members with a stock market that works in the same efficient way as it does here in the West. While a basic tenant of Islamic banking - the outlawing of Riba, a term that encompasses not only the concept of usury, but also that of interest - has seldom been recognised as applicable beyond the Islamic world, many of its guiding principles have. The majority of these principles are based on simple morality and common sense, which form the bases of many religions, including Islam.

1.1

Historical Background:

The idea of creating an Islamic banking program can be traced back to 1946. This is when the ideas formed that there was a need for "commercial banks [without] the evil of interest" (Gafoor, 4.1.1). This is also when the concept of Mudarabha1 (Profit Loss Sharing) was formed. Many theories were developed, and the involvement of numerous institutions and government groups resulted in the establishment of the first interest-free banks. Islamic Banking was established in 1975 with the development of the Islamic Development Bank, an inter-governmental bank, and the Dubai Islamic Bank. They wanted to rid the Islamic economy of riba. The need for the interest-free banks was in direct response to the excess cash that many Muslim’s earned following the oil-price hike of 1973 (Gafoor, A, 5). The banks were

established mostly for investing purposes, which could explain their weaknesses in the transaction aspects. The two of these areas need to be addressed separately, and by doing this they would have been better able to conceive a plan that would be more appropriate for their economy.

1.2

Implementation

In the ten years following the establishment of the first successful interest-free bank, over 50 other similar banking establishments have developed. Almost all of them are concentrated in Muslim countries with a few extending into Western Europe. For most of the countries, this change was made through private initiatives, while in Iran and Pakistan; it was made by government initiatives and covered all of the banks in the country. The implementation of this type of system was completed quite quickly. For example, in Iran and Pakistan, the initial idea of implementing the interest-free system began in 1981. In January, they took the first steps by starting the Profit Loss Sharing system for new deposits. By 1985 they formally transformed the system to be no-interest. This step only took six months. In July of 1985 banks could no longer accept interest bearing deposits, and all previous deposits were formally under the PLS system. It is obvious that the change was dramatic yet did not take long to implement.

What is Islamic Banking

2.1

Why Islamic banking?

Riba It means usury and is forbidden in Islamic economic jurisprudence. Riba refers to Excessive or exploitative charging of interest and also refers to the concept of Interest itself. The Qur'an states the following on Riba: 12. First, in Surah Ar-Rum, a Makkan Surah wherein the term riba finds mention in the following words:

"And whatever riba you give so that it may increase in the wealth of the people, it does not increase with Allah." [Ar-Rum 30:39] 13. The second verse is of Surah Al-Nisaa where the term riba is used in the context of sinful acts of the Jews in the following words:

"And because of their charging riba while they were prohibited from it." [An-Nisaa 4:161]

"O those who believe do not eat up riba doubled and redoubled." [Al-i-'Imran 3:130] 15. The following set of verses is found in the Surah Al-Baqarah in the following words:

"Those who take interest will not stand but as stands whom the demon has driven crazy by his touch. That is because they have said: 'Trading is but like riba'. And Allah has permitted trading and prohibited riba. So, whoever receives an advice from his Lord and stops, he is allowed what has passed, and his matter is up to Allah. And the ones who revert back, those are the people of Fire. There they remain for ever. Allah destroys riba and nourishes charities. And Allah does not like any sinful disbeliever. Surely those who believe and do good deeds, establish Salah and pay Zakah, have their reward with their Lord, and there is no fear for them, nor shall they grieve. O those who believe, fear Allah and give up what still remains of the riba if you are believers. But if you do not, then listen to the declaration of war from Allah and His Messenger. And if you repent, yours is your principal. Neither you wrong, nor be wronged. And if there be one in misery, then deferment till ease. And that you leave it as alms is far better for you, if you really know. And be fearful of a day when

you shall be returned to Allah, then everybody shall be paid, in full, what he has earned. And they shall not be wronged." [Al-Baqarah 2:275-281]

Riba in the Bible 37. This prohibition is still available in the Old Testament of the Bible. The following excerpts may be quoted with advantage: "Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of anything that is lent upon usury." [Deuteronomy 23:19] "Lord, who shall abide in thy tabernacle? Who shall dwell in thy holy hill? He that walketh uprightly, and worketh righteousness and speaketh the truth in his heart. He that putteth not out of his money to usury, nor taketh reward against the innocent." [Psalms 15:1, 2, 5] "He that by usury and unjust gain increaseth his substance, he shall gather it for him that will pity the poor." [Proverbs 28:8] "Then I consulted with myself, and I rebuked the nobles, and rules and said unto them, Ye exact usury, every one of his brother. And I set a great assembly against them." [Nehemiah 5:7] "He that hath not given forth upon usury, neither hath taken any increase, that hath withdrawn his hand from iniguity, hath executed true judgment between man and man, hath walked in my statues, and hath kept my judgments, to deal truly; he is just. He shall surely live, said the Lord God." [Ezekiel 18:8.9] "In thee have they taken gifts to shed blood; thou hast taken usury and increase, and though hast greedily gained of thy neighbours by extortion, and hast forgotten me, said the Lord God." [Ezekiel 22:12] 38. In these excerpts of the Bible the word usury is used in the sense of any amount claimed by the creditor over and above the principal advanced by him to the debtor. The word riba used in the Holy Qur'an carries the same meaning because the verse of Surah An-Nisaa explicitly mentions that riba was prohibited for the Jews also.

2.2

The Basic Principal

Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of Shariah, known as Fiqh al-Muamalat (Islamic rules on transactions). The basic principle of Islamic banking is the sharing of profit and loss and the prohibition of riba (usury). Amongst the common Islamic concepts used in Islamic banking are profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah). All Islamic Banks have three kinds of deposit accounts: current, savings, and investment. In the case of current accounts, the deposit is guaranteed. In terms of savings accounts, they can be dealt with in a number of ways. In some, the banks are allowed to use the depositor’s money but they are guaranteed to get the full

amount back from the bank. In others, it is thought of as more of an investment type account. The capital is not guaranteed, but the money is invested in low-risk securities, which could also provide a profit. For an investment account, deposits are accepted for a fixed or unlimited period of time. The investors in these types of cases agree in advance to share with the bank their profit or loss. Their capital is not guaranted. Islamic banking is restricted to Islamically acceptable deals, which exclude those involving alcohol, pork, gambling, etc. Thus ethical investing is the only acceptable form of investment, and moral purchasing is encouraged

2.3 Difference between Islamic banking and Conventional banking Lets first discuss about the Conventional banking. Conventional banking does not follow one pattern. In Anglo-Saxon countries, commercial banking dominates, while in Germany, Switzerland, the Netherlands, and Japan, universal banking is the rule. Naturally, then, a comparison between banking patterns becomes inevitable. Commercial banking is based on a pure financial intermediation model, whereby banks mainly borrow from savers and then lend to enterprises or individuals. They make their profit from the margin between the borrowing and lending rates of interest. They also provide banking services, like letters of credit and guarantees. A proportion of their profit comes from the low-cost funds that they obtain through demand deposits. Commercial banks are prohibited from trading and their shareholding is severely restricted to a small proportion of their net worth. Because of the fractional reserve system, they produce derivative deposits, which allow them to multiply their low-cost resources. The process of bank lending is, however, subject to some problems that can make it inefficient. Borrowers usually know more about their own operations than lenders. Acting as lenders, banks face this information asymmetry. Because borrowers are in a position to hold back information from banks, they can use the loans they obtain for purposes other than those specified in the loan agreement exposing banks to unknown risks. They can also misreport their cash flows or declare bankruptcy fraudulently. Such problems are known as moral hazard. The ability of banks to secure repayment depends a great deal on whether the loan is effectively used for its purpose to produce enough returns for debt servicing. Even at government level, several countries have borrowed billions of dollars, used them unproductively for other purposes and ended up with serious debt problems. Banks can ascertain the proper use of loans through monitoring but it is either discouraged by clients or is too costly and, hence, not commercially feasible. Hence, why the purpose for which the loan is given plays a minimal role in commercial banking. It is the credit rating of the borrower that plays a more important role. By contrast, universal banks are allowed to hold equity and also carry out operations like trading and insurance, which usually lie beyond the sphere of commercial banking. Universal banks are better equipped to deal with information asymmetry than their commercial counterparts. They finance their

business customers through a combination of shareholding and lending. Shareholding allows universal banks to sit on the boards of directors of their business customers, which enables them to monitor the use of their funds at a low cost. The reduction of the monitoring costs reduces business failures and adds efficiency to the banking system. Following the above logic, many economists have given their preference to universal banking, because of its being more efficient. Commercial banks are not allowed to trade, except within the narrow limits of their own net worth. As we have noticed, many Islamic finance modes involve trading. The same rule cannot, therefore, be applied to Islamic banks. It may be possible for Islamic banks to establish trading companies that finance the credit purchase of commodities as well as assets. Those companies would buy commodities and assets and sell them back to their customers on the basis of deferred payment. However, this involves equity participation. We may, therefore, say that Islamic banks are closer to the universal banking model. They are allowed to provide finance through a multitude of modes including the taking of equity. Islamic banks would benefit from this by using a combination of shareholding and other Islamic modes of finance. Even when they use trade-based, debt creating modes, the financing is closely linked to real sector activities. Credit worthiness remains relevant but the crucial role is played by the productivity/profitability of the project financed.

3.0

Islamic Bank Products/ Financing Techniques

There are many types of Islamic financing techniques with very specific requirements in for them to be legal under the Islamic Law. Some of them are discussed as below;

3.11 Mudarabah (Profit Sharing) Mudarabah is an arrangement or agreement between the bank, or a capital provider, and an entrepreneur, whereby the entrepreneur can mobilize the funds of the former for its business activity. The entrepreneur provides expertise, labor and management. Profits made are shared between the bank and the entrepreneur according to predetermined ratio. In case of loss, the bank loses the capital, while the entrepreneur loses his provision of labor. It is this financial risk, according to the Shariah, that justifies the bank's claim to part of the profit.[13] The profit-sharing continues until the loan is repaid. The bank is compensated for the time value of its money in the form of a floating rate that is pegged to the debtor's profits

3.12 Murabahah (Cost Plus) Murabaha (accurate transliteration murābaḥa, Arabic ‫ )ﻣﺮاﺑﺤ ﻪ‬is defined as a particular kind of sale, compliant with shariah, where the seller expressly mentions the cost he has incurred on the commodities to be sold and sells it to another person by adding some profit or mark-up thereon which is known to the buyer. As the requirement includes an 'honest declaration of cost', murabaha is one of three types of bayu-al-amanah ('fiduciary' sale)[Other two types of bayu-al-amanah are Tawliyah (sale at cost) and Wadiah (sale at specified loss)]. It is one of the most popular modes used by banks in Islamic countries to promote riba-free transactions. The ratio in which this instrument is being used varies from bank to bank. Typically Murabaha is used in asset financing, Property, Micro Finance as well as in import / export of commodities. [1] Use of the instrument of Murabaha is however restricted only to those cases where Mudarabah and Musharakah are not practicable. In reality there are risks associated with profit sharing, and banks are not guaranteed any income from these modes of financing. As a result, Murabaha with its fixed margin attached, offers lenders (ie the banks) with a more predictable income stream. There are, however practical guidelines in place which aim to ensure that the transaction between the bank and the customer is one based on trade and not merely

a financing transaction. For instance, it is a requirement that the bank takes constructive or actual possession of the good before selling to the customer. Whilst it can be justified to charge an additional margin to the customer to reflect the time

value of money in terms of actual payment not being received from the customer at time zero, any penalties for late payments can only be imposed if the bank agrees to purify this by donating this to charity. The accounting treatment of Murabaha and its disclosure and presentation in the financial statements also varies from bank to bank.

3.13

Musharaka ( Joint venture)

Musharakah is a relationship between two parties or more, of whom contribute capital to a business, and divide the net profit and loss pro rata. This is often used in investment projects, letters of credit, and the purchase or real estate or property. In the case of real estate or property, the bank assess an imputed rent and will share it as agreed in advance.[13] All providers of capital are entitled to participate in management, but not necessarily required to do so. The profit is distributed among the partners in pre-agreed ratios, while the loss is borne by each partner strictly in proportion to respective capital contributions. This concept is distinct from fixedincome investing

3.14

Istisna

Istisna is another form of Islamic financing. It is a form of sale where the transaction of buying and selling a commodity happens before the commodity comes into existence. A manufacturer agrees to manufacture a specific commodity for a specific purchaser by a specific, agreed upon date. The price must be a fixed price that is agreed upon by the manufacturer and the purchaser. Also, the specifications of the commodity must be agreed upon before production begins. “One of the main uses of istisna as financing is the house-purchasing sector. If a client has his or her own land and seeks financing for the construction of a house, the financer may undertake the 'contract' to construct the house on the basis of istisna. If the client has no land and wishes to also buy land, the financer may undertake to provide him a constructed house on a specified piece of land. It is not necessary for the financer to actually construct the house. A third-party istisna may be formed. The cost of the contract is fixed into the cost in calculating of the istisna. The financer is responsible for all specifications of the house or project and if there are any variations the financer is responsible for making the corrections in accordance with the istisna contract. As long as the parties are in agreement, payments may be fixed in whatever manner that the parties wish. Payments may in one lump sum or they may be made in installments. If the financer wishes, he or she may keep the title deeds for the house or property until the final payments are made as security for the payments.

3.15

Ijarah (Rent)

The second form of Islamic financing is ijarah literally meaning “to give something on rent”, according to www.islamiq.com. In terms of financing it is equivalent to the English term leasing. The rules of leasing are very much like the rules of sale because something of value is being transferred. The rules of leasing are also very equivalent to the rules of leasing in the United States. Advantages of Ijarah The following are the advantage of Ijarah to lessee: 1.

Ijarah conserves capital as it may provide 100% financing.

2.

Ijarah enables the Lessee to have the use of the equipment on payment of the first rental. This is important since it is the use (and not ownership) of the equipment that generates income.

3.

Ijarah arrangements are flexible because the terms and rental provision may be tailored to suit the needs of the Lessee. Therefore, it aids corporate planning and budgeting

4.

Ijarah is not borrowing and is therefore not required to be disclosed as a liability in the Balance Sheet of the Lessee. Being an "off-balance-sheet" financing, it is not included in the computation of gearing ratios imposed by bankers. The borrowing capacity of the Lessee is therefore not impaired when leasing is resorted to as a mean of financing.

5.

All payments of rentals are treated as payment of operating expenses and are therefore, fully tax-deductible. Leasing therefore offers tax-advantages to profit making concerns.

6.

There are many types of equipment, which become obsolete before the end of their actual economic life. This is particularly true in high technology equipment like computers. Thus the risk is passed onto the Lessor who will undoubtedly charge a premium into the lease rate to compensate for the risk. A Lessee may be willing to pay the said premium as an insurance against obsolescence.

7.

If the equipment use is for a relatively short period of time, it may be more profitable to lease than to buy.

8.

If the equipment is for short duration and the equipment has a very poor second hand value (resale value), leasing would be the best method for acquisition.

Ijarah Thumma Al Bai' (Hire Purchase) These are variations on a theme of purchase and lease back transactions. There are two contracts involved in this concept. The first contract, an Ijarah contract (leasing/renting), and the second contract, a Bai contract (purchase) are undertaken one after the other. For example, in a car financing facility, a customer enters into the first contract and leases the car from the owner (bank) at an agreed rental over a

specific period. When the lease period expires, the second contract comes into effect, which enables the customer to purchase the car at an agreed price. In effect, the bank sells the product to the debtor, at an above market-price profit margin, in return for agreeing to receive the payment over a period of time; the profit margin on the lease is equivalent to interest earned at a fixed rate of return. This type of transaction is particularly reminiscent of contractum trinius, a complicated legal trick used by European bankers and merchants during the Middle Ages, which involved combining three individually legal contracts in order to produce a transaction of an interest bearing loan (something that the Church made illegal). The combination of different contracts is also prohibited according to Shariah.

Ijarah-Wal-Iqtina A contract under which an Islamic bank provides equipment, building, or other assets to the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does not become an integral part of the lease contract to make it conditional. The rentals as well as the purchase price are fixed in such manner that the bank gets back its principal sum along with profit over the period of lease

3.6

Takaful ( Insurance)

Takaful comes from the Arabic root work ‘ Kafala’ means guarantee.. Taqaful is all about mutual protection and joint guarantee. Takaful is an alternative form of cover that a Muslim can avail himself against the risk of loss due to misfortunes. Takaful is based on the idea that what is uncertain with respect to an individual may cease to be uncertain with respect to a very large number of similar individuals. Insurance by combining the risks of many people enables each individual to enjoy the advantage provided by the law of large numbers. In modern business, one of the ways to reduce the risk of loss due to misfortunes is through insurance which spreads the risk among many people. The concept of insurance where resources are pooled to help the needy does not contradict Shariah. However, conventional insurance involves the elements of uncertainty (Al-gharar) in the contract of insurance, gambling (Al-maisir) as the consequences of the presence of uncertainty and interest (Al-riba) in the investment activities of the conventional insurance companies that contravene the rules of Shariah. It is generally accepted by Muslim jurists that the operation of conventional insurance does not conform to the rules and requirements of Shariah.

MAJOR DIFFERENCE b/w INSURANCE & TAKAFUL

Conventional Insurance 1. Commutative contract 2. Two parties. Insurer (company), Insured (Policy holders)

Takaful 1. Non – Commutative contract 2. Three parties company, policy holder, pool

3. The premium comes in the ownership of company. 4. Covering of risk is duty of company 5. There is only one contract i.e. commutative contract. 6. Only insurance company is insurer 7. Accounting Difference i.e. based on one contract 8. Surplus is not returned to policy holders totally or partially 9. Pool of Insurance company is not a legal identity

3. Takaful company does not become owner of premium 4. Covering of risk is duty of company. 5. There is a bunch of contracts. (Four contracts as described before) 6. Takaful company is not insurer but policy Holders are insurers & insured among themselves. 7. Accounting based on bunch of contracts 8. Surplus is returned to policy holders. 9. Pool of Takaful Company is a legal Identity 10. there are a different relations at different stages in Takaful

10. There is one relation in insurance.

TAKAFUL MODELS A. Mudaraba Model The surplus is shared between the participants with a takaful operator. The sharing of such profit (surplus) may be in a ratio 5:5 , 6:4 etc. as mutually agreed between the contracting parties. Generally, these risk sharing arrangements allow the takaful operator to share in the underwriting results from operations as well as the favourable performance returns on invested premiums. B. Wakala Mode Cooperative risk sharing occurs among participants where a takaful operator earns a fee for services (as a Wakeel or Agent) and does not participate or share in any underwriting results as these belong to participants as surplus or deficit. Under the Al- Wakala model, the operator may also charge a fund management fee and performance incentive fee. C. Wakala-Waqf Model The relationship of the participants and the operator is directly with the WAQF fund. The operator is the ‘Wakeel’ of the fund and the participants pay contribution to the WAQF fund by way of Tabarru. The contributions received would also be a part of this fund and he combined amount will be used for investment and the profits earned would again be deposited into the same fund which also eliminates the issue of Gharar. Losses to the participant are paid by the company from the same fund. Operational expenses that are incurred for providing Takaful services are also met from the same fund.

3.7

AL-Wadiah (Safekeeping)

Savings accounts in Islam are operated on an al-wadiah basis, meaning a safekeeping basis. The bank may pay its depositors a positive return periodically based on profits of the bank. These payments are legal in Islam since the payments are not predetermined and they are not a condition of lending. The depositors are allowed to withdraw money at anytime they please. Investment accounts are based on the mudarabha, or profit-sharing, principle. The deposits are term deposits, which means that there is a set date to maturity, and cannot be withdrawn before maturity. The rate of return can be positive or negative but in most cases they are positive and comparable to rates the conventional banks offer on their term deposits.

3.8

Sukuk ( Islamic Bonds)

Sukuk (Arabic: ‫ﺻ ﻜﻮك‬, plural of ‫ ﺻ ﻚ‬Sakk, "legal instrument, deed, check") is the Arabic name for a financial certificate but can be seen as an Islamic equivalent of bond. However, fixed income, interest bearing bonds are not permissible in Islam, hence Sukuk are securities that comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets. Conservative estimates by the Ten-Year Framework and Strategies suggest that over $700 billion of assets are managed according to Islamic investment principles.[1] Such principles form part of Shari'ah, which is often understood to be ‘Islamic Law’, but it is actually broader than this in that it also encompasses the general body of spiritual and moral obligations and duties in Islam. Sharia-compliant assets worldwide are worth an estimated $500 billion and have grown at more than 10 per cent per year over the past decade, placing Islamic finance in a global asset class all of its own. In the Gulf and Asia, Standard & Poor's estimates that 20 per cent of banking customers would now spontaneously choose an Islamic financial product over a conventional one with a similar risk-return profile. With its Arabic terminology and unusual prohibitions, Sukuk financing can be quite mystifying for the outsider. A good analogy is one of ethical or green investing. Here the universe of investable securities is limited by certain criteria based on moral and ethical considerations. Islamic Finance is also a subset of the global market and there is nothing that prevents the conventional investor from participating in the Islamic mark

3.9

Bai’salam

Islamic banks also use pre-paid goods, bai’salam, as a means to finance production. The delivery takes place at a future date from the time of the contract and it is at this time of the contract the price is paid. Normally, no sale can be take place unless the goods are in existence at the time of the bargain. Since, in bai’salam the date of delivery is defined and the goods are defined the sale can take place and be exception to this rule. Payment must be made in advance in order for this to be considered a legal sale. This is done because it allows the entrepreneur to sell his output to the bank at a price determined in advance. Banks use this form of financing normally in the agricultural market. They pay farmers in advance for a share of their crop, which the bank in turn will sell on the market. In the entrepreneurial sense, bai’salam is used when a manufacturer needs capital to manufacture a good. In return for providing the capital, the entrepreneur will receive

a reduced price on the goods being produced if he or she wishes to purchase them.

Basic Features And Conditions Of Salam 1. First of all, it is necessary for the validity of Salam that the buyer pays the price in full to the seller at the time of effecting the sale. It is necessary because in the absence of full payment by the buyer, it will be tantamount to sale of a debt against a debt, which is prohibited, as the basic wisdom behind the permissibility of salam is to fulfill the instant needs of the seller. If the price is not paid to him in full, the basic purpose of the transaction will be defeated. Therefore, all the Muslim jurists are unanimous on the point that full payment of the price is necessary in Salam. However, Imam Malik is of the view that the seller may give a concession of two or three days to the buyers, but this concession should not form part of the agreement. 2. Salam can be effected in those commodities only the quality and quantity of which can be specified exactly. The things whose quality or quantity is not determined by specification cannot be sold through the contract of salam. For example, precious stones cannot be sold on the basis of salam, because every piece of precious stones is normally different from the other either in its quality or in its size or weight and their exact specification is not generally possible. 3. Salam cannot be effected on a particular commodity or on a product of a particular field or farm. For example, if the seller undertakes to supply the wheat of a particular field, or the fruit of a particular tree, the salam will not be valid, because there is a possibility that the crop of that particular field or the fruit of that tree is destroyed before delivery, and, given such possibility, the delivery remains uncertain. The same rule is applicable to every commodity the supply of which is not certain. 4. It is necessary that the quality of the commodity (intended to be purchased through salam) is fully specified leaving no ambiguity which may lead to a dispute. All the possible details in this respect must be expressly mentioned. 5. It is also necessary that the quantity of the commodity is agreed upon in unequivocal terms. If the commodity is quantified in weights according to the usage of its traders, its weight must be determined, and if it is quantified through measures, its exact measure should be known. What is normally weighed cannot be quantified in measures and vice versa. 6. The exact date and place of delivery must be specified in the contract. 7. Salam cannot be effected in respect of things which must be delivered at spot. For example, if gold is purchased in exchange of silver, it is necessary, according to Shari'ah, that the delivery of both be simultaneous. Here, salam cannot work. Similarly, if wheat is bartered for barley, the simultaneous delivery of both is necessary for the validity of sale. Therefore the contract of salam in this case is not allowed.

3.10 Bai' al-Inah (Sale and Buy Back Agreement) The financier sells an asset to the customer on a deferred-payment basis, and then the asset is immediately repurchased by the financier for cash at a discount. The buying back agreement allows the bank to assume ownership over the asset in order to protect

against default without explicitly charging interest in the event of late payments or insolvency.

3.11 Bai' Bithaman Ajil (Deferred Payment Sale) This concept refers to the sale of goods on a deferred payment basis at a price, which includes a profit margin agreed to by both parties. This is similar to Murabahah, except that the debtor makes only a single installment on the maturity date of the loan. By the application of a discount rate, an Islamic bank can collect the market rate of interest.

3.12 Bai muajjal (Credit Sale) Literally bai muajjal means a credit sale. Technically, it is a financing technique adopted by Islamic banks that takes the form of murabaha muajjal. It is a contract in which the bank earns a profit margin on the purchase price and allows the buyer to pay the price of the commodity at a future date in a lump sum or in installments. It has to expressly mention cost of the commodity and the margin of profit is mutually agreed. The price fixed for the commodity in such a transaction can be the same as the spot price or higher or lower than the spot price.

4.0

Islamic Equity Fund

Basic principle: The term 'Islamic Investment Fund" in this chapter means a joint pool wherein the investors contribute their surplus money for the purpose of its investment to earn halal profits in strict conformity with the precepts of Islamic Shari‘ah. The subscribers of the Fund may receive a document certifying their subscription and entitling them to the pro-rata profits actually earned by the Fund. These documents may be called 'certificates', 'units'. 'shares' or may be given any other name, but their validity in terms of Shari‘ah, will always be subject to two basic conditions: Firstly, instead of a fixed return tied up with their face value, they must carry a pro-rata profit actually earned by the Fund. Therefore, neither the principal nor a rate of profit (tied up with the principal) can be guaranteed. The subscribers must enter into the fund with a clear understanding that the return on their subscription is tied up with the actual profit earned or loss suffered by the Fund. If the Fund earns huge profits, the return on their subscription will increase to that proportion. However, in case the Fund suffers loss, they will have to share it also, unless the loss is caused by the negligence or mismanagement, in which case the management, and not the Fund, will be liable to compensate it. Secondly, the amounts so pooled together must be invested in a business acceptable to Shari‘ah. It means that not only the channels of investment, but also the terms agreed with them must conform to the Islamic principles. Keeping these basic requisites in view, the Islamic Investment Funds may accommodate a variety of modes of investment which are discussed briefly in the following paragraphs

Equity Fund In an equity fund the amounts are invested in the shares of joint stock companies. The profits are mainly derived through the capital gains by purchasing the shares and selling them when their prices are increased. Profits are also earned through dividends distributed by the relevant companies. It is obvious that if the main business of a company is not lawful in terms of Shari‘ah, it is not allowed for an Islamic Fund to purchase, hold or sell its shares, because it will entail the direct involvement of the share holder in that prohibited business. Similarly the contemporary Shari‘ah experts are almost unanimous on the point that if all the transactions of a company are in full conformity with Shari‘ah, which includes that the company neither borrows money on interest nor keeps its surplus in an interest bearing account, its shares can be purchased, held and sold without any hindrance from the Shari‘ah side. But

evidently, such companies are very rare in the contemporary stock markets. Almost all the companies quoted in the present stock markets are in some way involved in an activity which violates the injunctions of Shari‘ah. Even if the main business of a company is halâl, its borrowings are based on interest'. On the other hand, they keep their surplus money in an interest bearing account or purchase interest-bearing bonds or securities. The case of such companies has been a matter of debate between the Shari‘ah experts in the present century. A group of the Shari‘ah experts is of the view that it is not allowed for a Muslim to deal in the shares of such a company, even if its main business is halâl. Their basic argument is that every share-holder of a company is a sharîk (partner) of the company, and every sharîk, according to the Islamic jurisprudence, is an agent for the other partners in the matters of the joint business. Therefore, the mere purchase of a share of a company embodies an authorization from the share-holder to the company to carry on its business in whatever manner the management deems fit. If it is known to the share-holder that the company is involved in an un-Islamic transaction, and still he holds the shares of that company, it means that he has authorized the management to proceed with that UN-Islamic transaction. In this case, he will not only be responsible for giving his consent to an UN-Islamic transaction, but that transaction will also be rightfully attributed to himself, because the management of the company is working under his tacit authorization. Moreover, when a company is financed on the basis of interest, its funds employed in the business are impure. Similarly, when the company receives interest on its deposits an impure element is necessarily included in its income which will be distributed to the share-holders through dividends. However, a large number of the present day scholars do not endorse this view. They argue that a joint stock company is basically different from a simple partnership. In partnership, all the policy decisions are taken through the consensus of all the partners, and each one of them has a veto power with regard to the policy of the business. Therefore, all the actions of a partnership are rightfully attributed to each partner. Conversely, the policy decisions in a joint stock company are taken by the majority. Being composed of a large number of share-holders, a company cannot give a veto power to each share-holder. The opinions of individual share-holders can be overruled by a majority decision. Therefore, each and every action taken by the company cannot be attributed to every share-holder in his individual capacity. If a share-holder raises an objection against a particular transaction in an Annual General Meeting, but his objection is overruled by the majority, it will not be fair to conclude that he has given his consent to that transaction in his individual capacity, especially when he intends to refrain from the income resulting from that transaction. Therefore, if a company is engaged in a halâl business, but also keeps its surplus money in an interest-bearing account, wherefrom a small incidental income of interest is received, it does not render all the business of the company unlawful. Now, if a person acquires the shares of such a company with clear intention that he will oppose this incidental transaction also, and will not use that proportion of the dividend for his own benefit, how can it be said

that he has approved the transaction of interest and how can that transaction be attributed to him? The other aspect of the dealings of such a company is that it sometimes borrows money from financial institutions. These borrowings are mostly based on interest. Here again the same principle is relevant. If a share-holder is not personally agreeable to such borrowings, but has been overruled by the majority, these borrowing transactions cannot be attributed to him. Moreover, even though according to the principles of Islamic jurisprudence, borrowing on interest is a grave and sinful act, for which the borrower is responsible in the Hereafter; but, this sinful act does not render the whole business of the borrower as harâm or impermissible. The borrowed amount being recognized as owned by the borrower, anything purchased in exchange for that money is not unlawful. Therefore, the responsibility of committing a sinful act of borrowing on interest rests with the person who willfully indulged in a transaction of interest, but this fact does render the whole business of a company as unlawful Conditions for investment in Shares In the light of the foregoing discussion, dealing in equity shares can be acceptable in Shari‘ah subject to the following conditions: 1. The main business of the company is not violative of Shari‘ah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shari‘ah, such as companies manufacturing, selling or offering liquors, pork, harâm meat, or involved in gambling, night club activities, pornography etc. 2. If the main business of the companies is halâl, like automobiles, textile, etc. but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the share holder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company. 3. If some income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the shareholder must be given in charity, and must not be retained by him. For example, if 5% of the whole income of a company has come out of interestbearing deposits, 5% of the dividend must be given in charity. 4. The shares of a company are negotiable only if the company owns some illiquid assets. If all the assets of a company are in liquid form, i.e. in the form of money they cannot be purchased or sold except at par value, because in this case the share represents money only and the money cannot be traded in except at par. What should be the exact proportion of illquid assets of a company for warranting the negotiability of its shares? The contemporary scholars have

different views about this question. Some scholars are of the view that the ratio of illiquid assets must be 51% in the least. They argue that if such assets are less than 50%, then most of the assets are in liquid form, and therefore, all its assets should be treated as liquid on the basis of the juristic principle:

The majority deserves to be treated as the whole of a thing. Some other scholars have opined that even if the illiquid asset of a company are 33%, its shares can be treated as negotiable. The third view is based on the Hanafi jurisprudence. The principle of the hanafi school is that whenever an asset is a combination of liquid and illiquid assets, it can be negotiable irrespective of the proportion of its liquid part. However, this principle is subject to two conditions: Firstly, the illiquid part of the combination must not be in ignore-able quantity. It means that it should be in a considerable proportion. Secondly, the price of the combination should be more than the value of the liquid amount contained therein. For example, if a share of 100 dollars represents 75 dollars, plus some fixed assets, the price of the share must be more than 75 dollars. In this case, if the price of the share is fixed as 105, it will mean that 75 dollars are in exchange of 75 dollars owned by the share and the balance of 30 dollars is in exchange of the fixed assets. Conversely, if the price of that share is fixed as 70 dollars, it will not be allowed, because the 75 dollars owned by the share are in this case against an amount which is less than 75. This kind of exchange falls within the definition of 'riba' and is not allowed. Similarly, if the price of the share, in the above example, is fixed as 75 dollars, it will not be permissible, because if we presume that 75 dollars of the price are against 75 dollars owned by the share, no part of the price can be attributed to the fixed assets owned by the share. Therefore, some part of the price (75 dollars) must be presumed to be in exchange of the fixed assets of the share. In this case, the remaining amount will not be adequate for being the price of 75 dollars. For this reason the transaction will not be valid. However, in practical terms, this is merely a theoretical possibility, because it is difficult to imagine a situation where the price of a share goes lower than its liquid assets. Subject to these conditions, the purchase and sale of shares is permissible in Shari‘ah. An Islamic Equity Fund can be established on this basis. The subscribers to the Fund will be treated in shari‘ah as partners inter se. All the subscription amounts will form a joint pool and will be invested in purchasing the shares of different companies. The profits can accrue either through dividends distributed by the relevant companies or through the appreciation in the prices of the shares. In the first case i.e. where the profits are earned through dividends, a certain proportion of the dividend, which corresponds to the proportion of interest earned by the company, must be given in charity. The contemporary Islamic Funds have termed this process as 'purification'.

The shari‘ah scholars have different views about whether the 'purification' is necessary where the profits are made through capital gains (i.e. by purchasing the shares at a lower price and selling them at a higher price). Some scholars are of the view that even in the case of capital gains, the process of 'purification' is necessary, because the market price of the share may reflect an element of interest included in the assets of the company. The other view is that no purification is required if the share is sold, even if it results in a capital gain. The reason is that no specific amount of the price can be allocated for the interest received by the company. It is obvious that if all the above requirements of the halâl shares are observed, then most of the assets of the company are halâl, and a very small proportion of its assets may have been created by the income of interest. This small proportion is not only unknown, but also ignore-able as compared to bulk of the assets of the company. Therefore, the price of the share, in fact, is against bulk of the assets, and not against such a small proportion. The whole price of the share therefore, may be taken as the price of the halâl assets only. Although this second view is not without force, yet the first view is more precautious and far from doubts. Particularly, it is more equitable in an openended equity fund, because if the purification is not carried out on the appreciation and a person redeems his unit of the Fund at a time when no dividend is received by it, no amount of purification will be deducted from its price, even though the price of the unit may have increased due to the appreciation in the prices of the shares held by the fund. Conversely, when a person redeems his unit after some dividends have been received in the fund and the amount of purification has been deducted therefrom, reducing the net asset value per unit, he will get a lesser price as compared to the first person. On the contrary, if purification is carried out both on dividends and on capital gains, all the unit-holders will be treated at par with regard to the deduction of the amounts of purification. Therefore, it is not only free from doubts but also more equitable for all the unit-holders to carry out purification in the capital gains also. This purification may be carried out on the basis of an average percentage of the interest earned by the companies included in the portfolio. The management of the fund may be carried out in two alternative ways. The managers of the Fund may act as mudâribs for the subscribers. In this case a certain percentage of the annual profit accrued to the Fund may be determined as the reward of the management, meaning thereby that the management will get its share only if the fund has earned some profit. If there is no profit in the fund, the management will deserve nothing. The share of the management will increase with the increase of profits. The second option for the management is to act as an agent for the subscribers. In this case, the management may be given a pre-agreed fee for its services. This fee may be fixed in lump sum or as a monthly or annual remuneration. According to the contemporary Shari‘ah scholars, the fee can also be based on a percentage of the net asset value of the fund. For example, it may be agreed that the management will get 2% or 3% of the net

asset value of the fund 1 at the end of every financial year. However, it is necessary in Shari‘ah to determine any one of the aforesaid methods before the launch of the fund. The practical way for this would be to disclose in the prospectus of the fund the basis on which the fees of the management will be paid. It is generally presumed that whoever subscribes to the fund agrees with the terms mentioned in the prospectus. Therefore, the manner of paying the management will be taken as agreed upon by all the subscribers.

Ijarah Fund Another type of Islamic Fund may be an ijârah fund. Ijârah means leasing the detailed rules of which have already been discussed in the third chapter of this book. In this fund the subscription amounts are used to purchase assets like real estate, motor vehicles or other equipment for the purpose of leasing them out to their ultimate users. The ownership of these assets remains with the Fund and the rentals are charged from the users. These rentals are the source of income for the fund which is distributed pro rata to the subscribers. Each subscriber is given a certificate to evidence his proportionate ownership in the leased assets and to ensure his entitlement to the pro rata share in the income. These certificates may preferably be called 'sukûk' -- a term recognized in the traditional Islamic jurisprudence. Since these sukûk represent the pro rata ownership of their holders in the tangible assets of the fund, and not the liquid amounts or debts, they are fully negotiable and can be sold and purchased in the secondary market. Anyone who purchases these sukûk replaces the sellers in the pro rata ownership of the relevant assets and all the rights and obligations of the original subscriber are passed on to him. The price of these sukûk will be determined on the basis of market forces, and are normally based on their profitability. However, it should be kept in mind that the contracts of leasing must conform to the principles of Shari‘ah which substantially differ from the terms and conditions used in the agreements of conventional financial leases. The points of difference are explained in detail in the third chapter of this book. However, some basic principles are summarized here: 1. The leased assets must have some usufruct, and the rental must be charged only from that point of time when the usufruct is handed over to the lessee. 2. The leased assets must be of a nature that their halâl (permissible) use is possible. 3. The lessor must undertake all the responsibilities consequent to the ownership of the assets. 4. The rental must be fixed and known to the parties right at the beginning of the contract. In this type of the fund the management should act as an agent of the

subscribers and should be paid a fee for its services. The management fee may be a fixed amount or a proportion of the rentals received. Most of the Muslim jurists are of the view that such a fund cannot be created on the basis of mudârabah, because mudârabah, according to them, is restricted to the sale of commodities and does not extend to the business of services and leases. However, in the Hanbali school, mudârabah can be effected in services and leases also. This view has been preferred by a number of contemporary scholars.

Commodity Fund Another possible type of Islamic Funds may be a commodity fund. In the fund of this type the subscription amounts are used in purchasing different commodities for the purpose of their resale. The profits generated by the sales are the income of the fund which is distributed pro rata among the subscribers. In order to make this fund acceptable to Shari‘ah, it is necessary that all the rules governing the transactions of sale are fully complied with . For example: 1. The commodity must be owned by the seller at the time of sale, because short sales in which a person sells a commodity before he owns it are not allowed in Shari‘ah. 2. Forward sales are not allowed except in the case of salam and istisnâ‘ (For their full details the previous chapter of this book may be consulted). 3. The commodities must be halâl. Therefore, it is not allowed to deal in wines, pork or other prohibited materials. 4. The seller must have physical or constructive possession over the commodity he wants to sell. (Constructive possession includes any act by which the risk of the commodity is passed on to the purchaser). 5. The price of the commodity must be fixed and known to the parties. Any price which is uncertain or is tied up with an uncertain event renders the sale invalid. In view of the above and similar other conditions, more fully described in the second chapter of this book, it may easily be understood that the transactions prevalent in the contemporary commodity markets, specially in the futures commodity markets do not comply with these conditions. Therefore, an Islamic Commodity Fund cannot enter into such transactions. However, if there are genuine commodity transactions observing all the requirements of Shari‘ah, including the above conditions, a commodity fund may well be established. The units of such a fund can also be traded in with the condition that the portfolio owns some commodities at all times.

Murabahah Fund

'Murabahah' is a specific kind of sale where the commodities are sold on a cost-plus basis. This kind of sale has been adopted by the contemporary Islamic banks and financial institutions as a mode of financing. They purchase the commodity for the benefit of their clients, then sell it to them on the basis of deferred payment at an agreed margin of profit added to the cost. If a fund is created to undertake this kind of sale, it should be a closed-end fund and its units cannot be negotiable in a secondary market. The reason is that in the case of murabahah, as undertaken by the present financial institutions, the commodities are sold to the clients immediately after their purchase from the original supplier, while the price being on deferred payment basis becomes a debt payable by the client. Therefore, the portfolio of murabahah does not own any tangible assets. It comprises either cash or the receivable debts, Therefore, the units of the fund represent either the money or the receivable debts, and both these things are not negotiable, as explained earlier. If they are exchanged for money, it must be at par value.

Bai‘-al-dain Here comes the question whether or not bai‘-al-dain is allowed in Sharî‘ah. Dain means 'debt' and Bai‘ means sale. Bai‘-al-dain, therefore, connotes the sale of debt. If a person has a debt receivable from a person and he wants to sell it at a discount, as normally happens in the bills of exchange, it is termed in Sharî‘ah as Bai‘-al-dain. The traditional Muslim jurists (fuqahâ’) are unanimous on the point that bai’al-dain with discount is not allowed in Shari‘ah. The overwhelming majority of the contemporary Muslim scholars are of the same view. However, some scholars of Malaysia have allowed this kind of sale. They normally refer to the ruling of Shâfi‘ite school wherein it is held that the sale of debt is allowed, but they did not pay attention to the fact that the Shâfi‘ite jurists have allowed it only in a case where a debt is sold at its par value. In fact, the prohibition of bai‘-al-dain is a logical consequence of the prohibition of 'riba' or interest. A 'debt' receivable in monetary terms corresponds to money, and every transaction where money is exchanged for the same denomination of money, the price must be at par value. Any increase or decrease from one side is tantamount to 'riba' and can never be allowed in Shari‘ah. Some scholars argue that the permissibility of bai‘-al-dain is restricted to a case where the debt is created through the sale of a commodity. In this case, they say, the debt represents the sold commodity and its sale may be taken as the sale of a commodity. The argument, however, is devoid of force. For, once the commodity is sold, its ownership is passed on to the purchaser and it is no longer owned by the seller. What the seller owns is nothing other than money. Therefore if he sells the debt, it is no more than the sale of money and it cannot be termed by any stretch of imagination as the sale of the commodity. That is why this view has not been accepted by the overwhelming majority of the contemporary scholars. The Islamic Fiqh Academy of Jeddah, which is the

largest representative body of the Shari‘ah scholars and has the representation of all the Muslim countries, including Malaysia, has approved the prohibition of bai’-al-dain unanimously without a single dissent.

Mixed Fund Another type of Islamic Fund may be of a nature where the subscription amounts are employed in different types of investments, like equities, leasing, commodities etc. This may be called a Mixed Islamic Fund. In this case if the tangible assets of the Fund are more than 51% while the liquidity and debts are less than 50% the units of the fund may be negotiable. However, if the proportion of liquidity and debts exceeds 50%, its units cannot be traded according to the majority of the contemporary scholars. In this case the Fund must be a closed-end Fund.

HSBC Amanah Case study

ABOUT HSBC AMANAH HSBC Amanah is the global Islamic banking division of the HSBC Group, and was established in 1998 with the aim of making HSBC the leading provider of Islamic banking worldwide. With more than a hundred professionals serving the Middle East, Asia Pacific, Europe and the Americas, HSBC Amanah represents the largest Islamic banking team of any international bank. The HSBC Group is one of the largest banking and financial services organisations in the world. With operations in twenty OIC member states, no international bank is more widely represented in the Muslim world than HSBC. Nor has any made a greater investment in Islamic banking. Headquartered in London, the Groups international network comprises about 10,000 offices with almost 110 million customers in 77 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. With a rich history of community banking and a commitment to meet the particular needs of our diverse customers, we are the world's local bank.

VISION HSBC has a rich tradition of community banking, and HSBC Amanah was established to serve the particular financial needs of Muslim communities. Our mission statement and corporate values reflect this vision. The HSBC Amanah mission statement: HSBC Amanah is committed to improving the lives of our customers worldwide by providing them with the highest quality Islamic banking solutions.

Shariah commitment Shariah commitment In developing HSBc products and services, are committed to the highest Shariah standards in the Islamic banking industry. Customer focus They constantly strive to address the needs and concerns of Their customers. Teamwork HSBC teamwork with HSBC colleagues around the world harnesses the knowledge and resources of HSBC Group for the benefit of customers.

Excellence HSBC are an organisation that demands and rewards excellence. Corporate citizenship HSBC maintain high ethical standards in their business relationships and invest in the future of communities.

Shariah supervision All HSBC Amanah products and transactions are developed in consultation with independent Shariah scholars and approved by them prior to distribution.

HSBC Amanah Shariah Committees HSBC Amanah operations are closely supervised by four Regional Shariah Committees (RSCs) in addition to a Central Shariah Committee (CSC). The CSC supervises HSBC Amanah businesses as well as operations in UAE, Qatar, UK, USA and Bangladesh. The CSC comprises of following well-known scholars: HSBC Amanah considers Shariah compliance of its business operations as its most important & strategic priority. This is reflected in its Corporate Values, "In developing our products and services, we are committed to the highest Shariah standards in the Islamic banking industry." In addition to Global Shariah Advisory Board and Regional Shariah Committees, HSBC Amanah employs a team of qualified professionals to ensure that the guidance and advice received from the Shariah Committees is implemented in letter and spirit.

HSBC Amanah Global Shariah Advisory Board The Global Shariah Advisory Board (GSAB) advises HSBC Amanah on research activities intended for further development of the Islamic finance industry. GSAB comprises of representative scholars from all Regional Shariah Committees (RSC) of HSBC Amanah in addition to other Shariah scholars of international standing. The presence of renowned scholars from various geographies at GSAB will provide an opportunity to achieve further harmonization of Shariah standards and practices of Islamic Finance Industry. The following independent Shariah scholars are currently members of GSAB.

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Sheikh Nizam Yaquby Sheikh Dr. Mohamed Ali Elgari Sheikh Dr. Muhammad Imran Ashraf Usmani

People Mansoor Shakil works in Dubai as Manager Shariah Compliance. He joined HSBC in July 2004 after graduating from Harvard Law School. Mansoor enjoys reading up on Islamic law and spending time with his new baby girl, Khadeejah. HSBC Amanah brings together the largest team of any international Islamic financial services provider. HSBC are widely recognised as a market leader in terms of global reach, innovative products and services and investment in industry building initiatives. With more than 100 people in eight countries, the HSBC Amanah family continues to grow.

Personal HSBC recognise that customers demand more choice and greater flexibility in their day-to-day banking. That´s why HSBC Amanah brings a range of Islamic personal banking services to selected markets that suit both your ethical preferences and personal circumstances. As HSBC Amanah grows, we continue to expand our range of services and the numbHSBC Amanah also comes with the network and resources of the worlds local bank. Worldwide, HSBC Group has almost 100 million personal customers served by 218,000 staff. You can get access to this global network through 835,000 ATM machines, 9,500 offices, internet banking services or over the phone.

Global Functions HSBC Amanah´s global functions are responsible for the following: •

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Central Onshore Banking comprises of Personal Financial Services, Commercial Bank and Takaful businesses. The Central Onshore Banking team provides strategic direction to the various Amanah geographies, and acts as a centre-of-excellence for product development, product management, provides structuring and Shariah guidance to HSBC Group entities for the development of HSBC Amanah onshore businesses. Asset Finance Advisory Group originates, structures and executes institutional transactions in liaison with CIBM structured finance units and specific corporate functions in HSBC. Wealth Management Group develops Islamic funds in a variety of asset classes for HSBC retail channels, HSBC Private Bank and Islamic institutional clients. Institutional Distribution distributes AFAG transactions and Wealth Management products to a dedicated Islamic institutional client base. Treasury and Risk Management looks after the treasury requirements of our institutional clients. Amanah Private Banking provides Islamic solutions for high-net-worth individuals globally.

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Amanah Central Team comprises Shariah Compliance, Marketing, HR, Strategy, and Finance functions.

HSBC Amanah has presence in nine countries: Bangladesh, Brunei, Indonesia, Malaysia, Saudi Arabia, Singapore, UAE, UK and USA. Please visit the relevant web sites or contact our regional representatives for more information. HSBC Amanah’s global functions are split between London, Dubai and New York. SERVICES OFFERED BY HSBC AMANAH SERVICE OFFRERD TO IMDIVIDUAL Amanah Current Account HSBC Amanah Current Account* is a relationship checking account available in AED, EURO, GBP and USD. It is designed to comply with Shariah (Islamic law) guidelines while also providing the regular convenience and security of a current account With a monthly minimum average balance of AED 5,000, EURO 3,000, GBP 3,000 or USD 3,000, it offers you: Free personalised cheque book to issue as many cheques as you need free of charge** Free HSBC Amanah Gold/Classic Charge Card(s) for the 1st year*** Free international ATM Card giving you instant access to your account at any time through an extensive local and global ATM network A separate monthly Amanah Account statement to help you keep track of your transactions Other account related services to facilitate your transaction needs such as Autopay, Standing Instructions, Third Party Funds Transfers, Phone Banking, Internet Banking etc. What makes HSBC Amanah Current Account a Shariah compliant product? HSBC has an international team of professionals with Islamic financial expertise dedicated to developing Shariah approved financial solutions for our customers. HSBC Amanah Current Account has also been developed in consultation with and approved by the HSBC Shariah Supervisory Committee. Funds deposited in this account are used only in a Shariah compliant manner as per the guidelines of HSBC Shariah Supervisory Committee.

Amanah Non Checking Account HSBC Amanah Non Checking Account is a Shariah compliant account available in AED, USD, GBP and EURO currencies that allows you the flexibility to bank with HSBC Amanah without the requirements of minimum salary or salary transfer to HSBC. HSBC Amanah Non Checking Account has been reviewed and approved by the HSBC Shariah Supervisory Committee. It offers you a free international ATM card with access to UAESWITCH ATMs, Phone Banking Service, Personal Internet Banking Service, separate monthly statements, Free HSBC Amanah Gold/Classic Charge Card(s) for the 1st year* and much more. Amanah Term Investment When it comes to taking care of your investments, you need a trusted partner like HSBC Amanah. We understand your values first, then give you services and products that meet the highest global standards, reflecting our concern for your investments, and our belief in your ambitions and goals. HSBC is committed to providing financial services tailored to meet customer requirements across the world. At HSBC we understand your need for investment products that are fully compliant with principles of Islamic Shariah. The result: an innovative investment product that recognizes your values and offers you the financial solutions you require. What is HSBC Amanah Term Investment? It is a Shariah-compliant short to medium-term investment solution that allows customers to earn returns in a Shariah-compliant manner. Your funds in this product will be invested in commodities (metals) which you will sell to the Bank on the basis of Murabaha contract - sale of assets at a cost plus stated profit Features & Benefits Shariah-compliant short to medium-term investment opportunity with HSBC Free HSBC Amanah Gold/Classic Charge Card(s) for the 1st year* Flexibility to invest in Arab Emirate Dirhams, US Dollars, Euros or Pounds Sterling currencies Minimum Investment Amount of AED 25,000 US Dollars 10,000, EURO or GBP 10,000 Competitive Murabaha profit rates

Option to automatically re-invest the investment amount and Murabaha profit for an additional term Option to avail a Shariah-compliant Amanah Current Account for your banking transactions HSBC Amanah Wealth Management When it comes to taking care of your needs, HSBC AMANAH recognise you may prefer to conduct your financial matters in a Shariah compliant manner, which can offer to you through HSBC Amanah, dedicated Islamic financial division. HSBC Amanah provides a full-suite of financial products, from simple accounts to sophisticated investment products, within the framework of Shariah, to serve all banking needs. HSBC Amanah Wealth Management is an integral component of Islamic banking proposition. When it comes to investments, HSBC Amanah Wealth Management offers unique combination - global reach and Shariah authenticity. On the one hand, HSBC professionals in New York, London, Riyadh and Dubai ensure that can access investment opportunities from around the world and are linked to some of the best-in-class investment managers. On the other hand, world-renowned Shariah scholars who constitute the HSBC Amanah Central Shariah Committee, guide us to achieve strict standards of Shariah compliance on all our products and services. Shariah compliant solutions to achieve a short-term gain or a long-term financial objective, capital growth or steady income, with HSBC Amanah Wealth Management can be assured of solutions that comply with high standards and most of all, customer value .

Amanah Premium Deposit Plus Security plus growth in a Shariah compliant manner Shariah compliant product that offers the potential to earn profits linked to the booming growth in emerging markets, in addition to offering principal protection? Then look no further than the Amanah Premium Deposit Plus. Since the mid 1990s, economic growth in global emerging markets has gained momentum, and every year since then, these emerging markets have posted record growth rates far exceeding growth in developed countries. This has led to fewer fiscal deficits, shrinking debt burdens, growing current account surpluses, and in the top countries, growing foreign exchange reserves. The most recent champions of this growth so far have been the BRIC countries (Brazil, Russia, India and China.)1 Structural economic reforms, globalisation and the growth in trade between countries are all key drivers of growth in emerging markets. In the last decade, China has experienced remarkable economic growth and is now the world's largest manufacturer

with abundant labour resources and large foreign exchange reserves. India is also abundant in labour and has prospered from outsourcing, IT, pharmaceuticals and the domestic rise of the consumer class. Brazil and Russia are rich in natural resources. Brazil has large amounts of iron ore, and is the largest supplier of soft commodities whilst Russia has 22% of the world’s gas reserves. In light of the above, the BRIC economies are undergoing rapid industrialisation, expansion of their middle classes, widespread economic reforms and infrastructure development. As a result, it is predicted that this growth will continue.1 The Amanah Premium Deposit Plus is a three year term deposit designed to offer: 100% Principal protection Final profit linked to any positive performance of a basket of equally weighted BRIC stocks, determined at the end of the three-year term. Any profit paid at the end of the three-year deposit term will be equal to a participation rate of 100% of the increased performance of the basket with a maximum end of term profit capped at 25%, multiplied by the principal deposit amount. The minimum deposit amount for the Amanah Premium Deposit Plus is AED 37,000 or USD 10,000. You cannot deposit any more money into your Amanah Premium Deposit Plus account once your application has been accepted. You can, however, hold more than one Amanah Premium Deposit Plus accounts should you wish to deposit further. Amanah Premium Deposit Plus has been approved by the HSBC Amanah Shariah Committee, an independent committee of Shariah experts of international repute. 1

HSBC 'Emerging Markets Primal Knowledge: After Goldilocks: is Humpty going to fall?' Feb 2008

Working

Term: Three-year term Basket of stocks: Equally weighted basket comprising global companies operating in the BRIC countries Benefits: Amanah Premium Deposit Plus will pay a profit equal to a participation rate of 100% of the increased performance of the basket of shares with a maximum end of term profit capped at 25%, multiplied by the principal deposit amount.

Minimum deposit: AED 37,000 or USD 10,000 Closing date: 23rd July, 2008 or earlier if fully subscribed. Accounts are issued on a first come, first served basis. No advance notice of closure will be given. Commencement date: 1st August, 2008 Early closure of offer: This offer may be withdrawn at any time before the closing date. Account maturity date: Third anniversary of the commencement date. The maturity date will be 25th July, 2011 and the final payment date is 1st Aug, 2011. Should this date fall on a holiday, the reading/maturity date will be taken as the next business day. Charges: An agency fee of up to 15% of the surrendered amount will be charged only in the case of early withdrawal. However, the agent may waive part or the full amount of the agency fee at its sole discretion. In addition, the agent may also deduct such costs it may have to incur as a result of making an early payment. These charges will be deducted from the surrendered amount. Withdrawals: If you want to withdraw your investment before the termination date, you need to write to your local HSBC Bank Middle East Limited branch. You should note that you may receive an amount less than your original deposit due to early withdrawal. Please refer to clause 3 & 4 of the Agency Letter for more information. Principal Protection: The Amanah Premium Deposit Plus is structured to return the initial principal plus any profit, only at maturity i.e. three years, and the initial deposit amount may not be returned in full if the deposit is encashed before maturity

Amanah Portfolios Shariah-compliant Amanah Portfolios offer you the flexibility to choose from three portfolios. You can invest in any one or a combination of two or three portfolios, spreading your investment amount to strike the balance that’s right for you. The Amanah Portfolios aim to provide you with long-term capital growth from a wide selection of investments, taken from among the best Shariah-compliant investment funds in the market. The Amanah Portfolios are issued and managed by the Saudi British Bank (SABB) which is an associate of the HSBC Group. Portfolio Options Amanah Defensive Portfolio This portfolio is designed for investors who want a low to medium risk portfolio which invests in Shariah compliant fixed income funds and some exposure to Shariah compliant equity funds.

Amanah Balanced Portfolio This portfolio is for investors looking for medium risk growth potential from their investments through a greater concentration of equity holdings and a substantial exposure to fixed income instruments to help balance the risk. Amanah Growth Portfolio This portfolio is primarily invested in equity funds. This provides investors the potential to earn higher returns than Amanah Balanced or Amanah Defensive Portfolio, in return for a greater degree of risk. Amanah Personal Finance Islamic Finance Based on its Shariah compliant mechanism, HSBC Amanah Personal Finance offers you an Islamic alternative to a conventional loan. Shariah-approved and certified by HSBC Amanah Shariah Committee

Liquidity to meet genuine need of finance for permissible use Extended Finance Payment Terms up to 96 months* Discounted Agency Service fees Competitive Murabaha profit rates Zero down payment on your finance HSBC Amanah Current Account with minimum balance waived

Amanah Personal Accident Takaful

Financial assurance in times of uncertainty Personal Accident Takaful is a Shariah compliant protection plan that provides you and your loved ones with compensation in the event of accidental death, disablement or injuries. Accidents can occur without warning, and you or your family impact on may be left to deal with a significant financial burden, in addition to your grief. HSBC Amanah’s new Personal Accident Takaful solution allows you to minimise the financial impact on your family should such an accident occur. This product is brought to you by Enaya, the regional Takaful solutions arm of AIG. This solution is created with the Shariah approved concept of Takaful. This product

and the associated processes have been approved by a Shariah Advisory Committee, a team of respected scholars with impeccable credentials and international repute. Why choose Amanah Personal Accident Takaful? In addition to reimbursing the medical expenses incurred as a result of an accident, you are also covered for accidental death and disability due to an accident. 24 hour world-wide protection, 365 days a year. Cover for you and your family without providing any medical evidence. Convenient payment of premiums by credit card. The table below is an example of monthly and annual contributions. A small price for peace of mind

Plan

Benefit (AED) Loss of Life due to an Accident*

Monthly Contribution (AED)

Annual Contribution (AED)

Medical Expenses due to Individual Family Individual Family an accident** (per claim)

Plan 1

100,000

5,000

15

29

175

339

Plan 2

250,000

12,500

38

72

444

842

Plan 3

500,000

25,000

76

144

889

1,685

Plan 4

1,000,000

50,000

154

293

1,802

3,428

advantage 24 hour worldwide protection, 365 days a year. Guaranteed acceptance for you, your spouse and children subject to meeting the age requirement. No medical examination required. Convenient payment of premium by credit card. Accepted by all European Union countries for Schengen Visa.

Can be used for multiple trips.

Travel Protection Plan Benefits and Premium Table Insured Event

Sum Insured

Emergency Medical Expenses (Accident and Sickness) Deductible: USD 100

USD 50,000

Emergency Medical Evacuation

USD 25,000

Flight Delay (Maximum per hour: USD 50, Excess 12 Hours)

USD 250

Death repatriation*

USD 5,000

Baggage Loss (Per bag: USD 250, per item: USD 50) USD 500 Baggage Delay (Per Hour: USD 25, Excess: 4 hours) AIG Assistance

Covered

Annual Premium

AED 239

Amanah Home Finance

Owning a home as a symbol of a solid foundation for your family does not need to be a distant goal any longer. It can become a reality with HSBC Amanah Home Finance. Shariah complaint, flexible and simple to arrange, our team of advisors will guide you through the entire process, from start to finish. This will provide you the peace of mind that comes with adherence to your principles, and the combination of the local experience and global resources that HSBC Amanah offers you. So whether your wish to obtain financing in order to buy a house, or financing against the value of your completed property, or transfer your existing home loan or finance (from another financial institution), HSBC Amanah Home Finance makes it all possible through the Shariah compliant Ijarah contract.

Islamic Home Finance Shariah approved and certified by the HSBC Amanah Shariah Committee (Maximum lease period of up to 25 years for Villas and Townhouses (subject to repayment before 65th birthday) You can apply on a single or joint basis Property age should be less than 10 years old

A discount in the Ijarah profit rate will be offered to customers transferring their salaries to the Bank Competitive Ijarah profit rates reviewed and updated only once in every six months (on 01Jan and 01Jul every year) Balance transfer from existing home finance provider at convenient terms Pre-approved HSBC Amanah Al Wafaa Gold Credit Card HSBC Amanah Current Account with minimum balance waived HSBC Premier or STATUS banking services based on the value of your home finance HSBC Amanah Al Wafaa Credit Cards

Enjoy benefits of HSBC Amanah Al Wafaa Gold Credit Cards – the 100% transparent Islamic Credit Card which combines Shariah Compliance with global acceptance and a multitude Al Wafaa, Shariah-compliant Credit Cards from HSBC Amanah. Your unique financial needs require a Shariah compliant credit card that combines sophisticated services with worldwide acceptance; Al Wafaa Credit Cards from HSBC Amanah offer you just that. Going shopping with your Al Wafaa Gold Credit Card does have its distinct advantages. It is accepted at over 32 million outlets worldwide. It also offers you a grace period of up to 50 days on repayment and cash advances of up to 60% of your credit limit. What's more, you also benefit from a host of unbeatable rewards and benefits.

COMMERICAL BANKING SERVICES Account Services Account and transaction services can be tailored to create practical, workable and, above all, cost effective solutions. We can also offer Accounts, which are in compliance with Shariah principles and approved by HSBC Amanah Shariah Committee. Our product range includes both conventional and Islamic Accounts: Corporate Current Account Call Deposit Account Fixed Deposit Account Amanah Current Account Amanah Term Investment Corporate Current Account Our local and foreign currency Corporate Current Account is a low-cost operating Account to satisfy all of your basic banking needs. Corporate Current Accounts are offered in UAE Dirhams and major foreign currencies. A minimum average balance of UAE Dirhams 20,000 or foreign currency equivalent is required.

Call Deposit Account A high yield Investment Account for corporate customers that permits electronic transfers/payments to be made with just one day prior notice. Call deposits are offered in UAE Dirhams and other major foreign currencies. Funds deposited attract interest on a daily basis at published rates. Prevailing interest rates are available on request. Deposit period is not fixed - withdrawal is subject to one-day notice. Interest is calculated on the daily cleared balance and credited every month. Minimum deposit is AED 50,000. If the balance falls below the minimum requirement, no interest will be accrued during that period.

Fixed Deposit Account A Fixed Deposit allows you to deposit your money for a set period of time thereby earning you a higher rate of interest. Deposit of funds can be for a pre-specified period at a fixed interest rate. Deposit periods range from one month to twelve months (1, 2, 3, 6, 9, 12 months). Customers may choose the maturity dates as required. Interest rate is fixed based on InterBank Money Market rates. Interest payment is done upon maturity. Automatic rollover facility upon maturity for the same period of deposit is available. Penalties will be charged for premature withdrawals Loans and Finance

With HSBC you'll get the right financing for your business, when and how you need it. We'll help you with financing for seasonality, growth, cash management, consolidation, international and domestic market expansion, acquisitions, receivables and any other financing that will help your business thrive. Overdrafts An overdraft can be a cost-effective way of borrowing money as and when you need it for short-term requirements. A convenient way to fund working capital Quick and easy to set up Pay interest only on the amount you borrow

Short Term Loans These can be made to ease working capital requirements for up to ninety days Bills Discounting These give customers short-term working capital finance by discounting accepted Bills of Exchange or Promissory Notes.

Tender Bonds (Bid Bonds) Tender bonds substantiate the financial standing of tendering parties and deter unsuitable tenderers.

Performance Bonds When principals are successful in their tenders for contracts, they will usually be required to provide Performance Bonds, often based on a percentage of the value of the contracts.

Maintenance Bonds (Retention Money Bonds) It is common practice for beneficiaries of bonds to withhold amounts from progress payments to meet the costs of any construction/performance deficiencies arising during a specified period (maintenance period) after completion to principals. Advance Payment Guarantees Civil engineering contracts sometimes include provisions which allow principals to receive advance payments from beneficiaries for purposes such as mobilising plants and equipment. Financial Guarantees These provide customers with the means of obtaining facilities, in whatever form from the beneficiaries of guarantees, who may, if the need arises, claim under such guarantees up to a maximum specific amount and within a set period of time Trade and Supply Chain HSBC, we have focused on international trade for many years and are able to offer an extensive range of trade-related services and other international services throughout the Middle East region as well as the globe. Our aim is to ensure that your import and export transactions are managed effortlessly and effectively, providing your business with the best possible opportunities to grow. As one of the largest Trade and Supply Chain organisations in the world, we provide operational expertise as well as trade specialists and technical consultants to support you wherever you do your business. We can help put you in control of your operations and assist you to streamline your trade processes with our advanced technology. offer Shariah compliant Import Finance solutions approved by HSBC Amanah Shariah Committee.

Factoring Services

HSBC offers Factoring Services in the UAE. Our Factoring team has the experience, resources and technical capabilities to support the needs of your business – from local to global. What is Factoring? Factoring combines sales-linked finance, bad debt protection, payment collection and transmission services that helps businesses to compete with ‘local suppliers’ on equal trading terms. Quite simply, if a business is trading with another business on open account credit terms, HSBC Factoring Services has the potential to help grow business sales, speed up cash flow, collect payment on invoices and, in selected cases, even protect business from the risk of bad debt. Benefits of Factoring to your business in the UAE Flexible finance enables you to accept new orders with confidence Available funds can help to give you greater buying power with your suppliers It helps you avoid the dangers of over-trading Your funding keeps pace with your sales – setting up new limits and reviewing those in place is now quicker and easier Based on sales invoices, additional fixed asset security is not normally required Protects your profits and cash flow against the ever-present trade credit dangers of bad debt (with pre-approved individual debtor limits It helps to release additional time and resources (from chasing and processing payments) enabling you to concentrate on your core business activities Our international factoring correspondents across the globe have country specific knowledge and can correspond with your buyers in their own language

Making and Receiving Payments Making and receiving payments is critical to your business, so it is essential to have a bank that can help you to maximize cash flow and manage information efficiently. HSBC can help with a range of options including simple day-to-day payments, electronic payments, and fast and secure international payments. Our advanced payments technology combined with our global network can help you manage your cash flow, control expenses and keep accurate records.

We have a variety of solutions for your domestic, international, bulk or automated payments, as well as convenient ways for your organization to receive payments. Cash Management Cash Management in the Middle delivers cost-effective solutions, end-to-end service and quality, combined with first class delivery to meet our customers needs. Our Cash management solutions cover four key areas: Account Management Transaction Management Liquidity Management Delivery Management HSBC Amanah Commercial Banking HSBC Amanah Commercial Banking is a key component of HSBC Amanah's Shariah compliant proposition with a suite of Islamic financial solutions tailored across the Commercial Banking spectrum of small and medium enterprises, middle market enterprises, large local/multinational corporates and state owned enterprises. Our objective is to ensure that our customers are offered products that comply with the highest standards of Islamic finance and are approved by HSBC Amanah Shariah committee. Amanah Current Account Require financial assistance to fulfil your business banking needs? Our Amanah Current Bank Account combines our global expertise with Shariah principles. Amanah Current Account is a relationship checking account offered to business entities. It is designed to comply with Shariah (Islamic Law) guidelines while also providing the regular convenience and security of a current account. The account can be opened in AED, USD, GBP and EURO currencies A monthly minimum average balance of AED 20,000 or equivalent in foreign currency A separate monthly Account statement

Amanah Term Investment When it comes to taking care of your investments, you need a trusted partner like HSBC Amanah because we place your values first and offer you services and products that meet the highest global standards. Amanah Term Investment is a Murabaha based Shariah-compliant short-to-medium term investment solution that allows you to earn returns with peace of mind. Main features Minimum investment amount of AED 50,000 or equivalent in foreign currency Varied investment periods and the option to automatically reinvest your investment and earn profit for an additional term Available AED, GBP, USD, EURO Amanah Import Finance Amanah Import Finance is a Shariah compliant solution to assist your import requirements of assets and merchandise. It is a Murabaha based product that caters to both sight and usance irrevocable DCs. Main features Pricing competitive with the market Various payment tenors Simple documentation and quick turn-around time Amanah Musataha At HSBC Amanah we, aspire to provide Shariah-compliant solutions to the construction sector. We understand your financing requirements and provide project finance according to your specific needs. Amanah Musataha covers various types of projects including residential and commercial. The product structure is flexible and consists of the following key benefits: Ownership of the land remains with you all the time Flexible pricing Flexible tenor Convenient lease rentals

Product structure Amanah Musataha is essentially based on the concept of 'sale and lease-back' of use of land . Under the UAE Civil Code, a Bank can purchase a "Musataha" right for vacant land from the landowner for a period of up to 49 years with a right to construct over the land. The Bank purchases the Musataha right from you but the title to the land remains with you. Depending on construction requirements, you receive the payments in either installments or upfront. The Bank leases the use of the land to you for an agreed period that you will use for constructing the project. You will have the option to pay rentals from the period the land is in use. Lease rentals are reviewed and fixed periodically. You promise to purchase the Musataha right from the Bank at an agreed price if an event of default occurs. The Bank will gift the Musataha right to you at the end of the lease period. Amanah Goods Murabaha Amanah Goods Murabaha is a Shariah compliant product that provides short-tomedium term financing for your working capital requirements and purchase of assets. It involves the Bank purchasing goods/asset at your request and selling the same to you at a sale price on deferred payment basis. It is a Shariah requirement that the breakup of cost and profit in the sale price is disclosed. This product is designed to support your needs of local purchase requirements. Examples include financing of: raw materials spare parts, machinery/ equipment finished goods and other trading stocks shares

Main features Competitive pricing with the market 1-6 month tenor for working capital finances Longer tenors for purchase of machinery Simple documentation and quick turn-around time

Various payment schemes You will be appointed as our agent to purchase the goods and negotiate the price and other specifications with your supplier Product structure We agree to appoint you as our agent to purchase domestic goods/ assets from time to time When you need to purchase goods from the supplier, please seek our approval before proceeding with the supplier When you attain constructive or actual possession of the goods, please fax us the copy of the invoice along with the Letter of Confirmation Based on the value of the purchase, we will prepare an Offer Letter for you, which you will sign and send to us offering to purchase the goods from us at a Murabaha price. We will sell the purchased goods/assets to you by accepting the offer and make the payment to the supplier/you You will pay us on the agreed payment date(s)

Employee Benefits Plan Features & Benefits Web based plan administration providing employers and employees with comprehensive reporting of plan data, including account summaries and statements, contribution tracking, beneficiary sets and fund performance. Additionally, employees can perform switching and redirection of contributions online. An exclusive and innovative investment program of best of breed funds from worldclass managers specifically designed for the Middle East. A bespoke discretionary portfolio management service is available for larger plans. Tailored insurance benefits to provide cover death in service benefits, critical illness, and medical expenses Leading edge administration technology World-class specialist investment programs Tailored insurance programs Secure provision of retirement funds within a corporate trust framework

Immediate incentives for employees to save for their long-term future Compliance with best governance practices Give employees a sense of corporate loyalty and reward Global Banking and Markets HSBC's position as a strategic financial adviser to many countries in the Gulf enabled a close understanding of the individual markets and enduring relationships to be formed. Today, as the most widely represented financial services organization in the Middle East, HSBC offers a full range of advisory, finance, risk management, treasury and capital markets, investment, custody and commercial banking services to large companies, institutions and governments. We are constantly capitalising on our global resources and expertise in order to anticipate our customer needs and provide them with innovative solutions that are relevant to continuity and growth. Institutional Banking The HSBC Group's Institutional Banking business is a worldwide function.. Global Relationship Managers for Financial Institutions are based regionally and act as the focal point for HSBC Group's wide range of financial resources. HSBC's Institutional Banking Team in the Middle East is based in Dubai and has representatives throughout the region to ensure that a consistently high level of service is delivered. Our core solutions include Payments and Cash Management Account Management Trade Services Global Markets Custody and Clearing Investment Banking

HSBC Securities Services offer a wide range of securities services to corporate and institutional clients including: Experienced and dedicated support Current news bulletins and market information Efficient settlement and transaction processing Extensive corporate actions information Full range of payments and cash management solutions Standardised as well as customised reports Top-rated custodian services HSBC has also acquired Bank of Bermuda and have realigned HSBC's securities services businesses (Custody and Clearing, Global Investor Services, Global Fund Services, Institutional Fund Services and Bank of Bermuda's Global Fund Services) under a common management structure known as HSBC Securities Services. HSBC Securities Services comprises four core businesses. These are: A corporate trust and loan agency business A global funds services and custody business A global alternative funds business The world-wide Custody and Clearing business with a presence throughout AsiaPacific, the Middle East, Latin America and Southern Europe

Awards As the leading industry player, numerous awards and accolades have been bestowed upon HSBC's Custody and Clearing business. They include: UAE Commended rating in UAE, Global Custodian's Review of Agent Banks 2006 Asia-Pacific/Middle East Best Sub-custodian in Asia for six consecutive years - 1999, 2000, 2001, 2002, 2003, 2004 & 2005, 'FinanceAsia'. Best Sub-custodian in 2006, AsianInvestor (award transferred from Finance Asia). Top-rated in the industry's leading survey, 'Global Custodian' Agent Bank Review Best Sub-custodian 1999, 2000, 2001, 2002, 2003,2004, 2005 & 2006 'The Asset' Best Sub-custodian in Asia and the Middle East 2004, 2005 & 2006, 'Global Finance' Best Sub-custodian in the world 2005 & 2006, 'Global Finance'

Investments HSBC Amanah offers you global investment solutions in accordance with Shariah principles. HSBC Wealth Management Group works closely with asset managers and distributors to deliver a growing range of product and service solutions through dedicated or embedded staff in New York, London, Saudi Arabia, Dubai, Malaysia and Indonesia. To date, it has structured over USD 2b of assets globally for institutional and private banking clients. Consider the breadth of services: • • • •

•

Liquidity products: Trading funds (returns comparable to savings accounts) and term commodity murabahas (comparable to money market term deposits). Income products: Real estate funds, sovereign and corporate sukuk Capital protected solutions: Amanah Principal Protected Fund (APPF) series Equity products: equity funds (Global Index Fund, Multi-Manager Funds, Saudi Equity Market Fund) and equity portfolios (discretionary managed portfolios, optimized index trackers) Advisory solutions: Real estate acquisition and finance, non-discretionary portfolio management, private equity and acquisition advisory, Shariah trust services

Working capital and term finance Raising finance for your business can require as much attention as running your business. When you turn to one source for all your financing needs, you´ll save time and money and enjoy financing that is targeted to your needs, both financial and religious. HSBC Amanah can help you with financing for seasonality, growth, cash management, consolidation, international and domestic market expansion, acquisitions, receivables and any other financing so that you can now thrive financially with the peace of mind that you are not in contravention of Shariah guidelines. The above financing can be based on the concept of tawarruq or Bai al Ina whereby an asset is sold to the customer on deferred payment basis. Depending on your requirements and capability, the payment for the asset can be structured as a bullet payment or through instalments. This allows you to meet your requirements for short term working capital finance as well as longer term financing.

Trade services The choice of a trade services provider is vital in a world where both speed and attention to detail are crucial. Not only can HSBC Amanah seamlessly combine local service excellence with global reach, it also understands your desire to finance your business through Shariah compliant means. HSBC make it our business to know your business, intimately and thoroughly so that you can thrive financially without compromising your beliefs and principles. HSBC Amanah Import Finance helps you conduct your trade business in accordance with Shariah guidelines. The service is based on the concept of murabaha and is designed to finance the import of halal goods. HSBC Amanah will purchase the goods and then sell them to you at a cost plus profit on deferred payment basis. You can pay us the sale price of the goods either in a lump sum or instalments

Asset finance HSBC Amanah offers a range of Shariah compliant asset finance products that can be individually tailored to meet your particular needs. HSBC finance a wide range of equipment types, including transportation and construction equipment, printing presses, materials handling equipment, machine tools, textile equipment, manufacturing and processing plant, telecommunication systems, computer packages, medical equipment and many others.

The financing for the assets can be done on a murabaha or ijara basis. Under the murabaha arrangement, HSBC Amanah will purchase the asset and sell it to you on a deferred payment basis. The price once fixed at the time of sale cannot change throughout the contract. We may also keep a mortgage on the asset as security for your payment obligations. Under the ijara contract, HSBC Amanah will own the asset requiring finance and lease it to you in exchange for monthly rentals. Once you have completely paid off the cost price of the asset over the lease term, the title of the asset will be transferred to you. This arrangement is particularly useful for structuring a floating rate financing facility.

Institutions As Islamic banking grows, the financial needs of the banks and non-banking financial institutions (NBFIs) affiliated with this industry also evolve. From its inception, HSBC Amanah has sought to work with Islamic banks in local markets to develop this industry as partners. As the global partner of choice, we are uniquely able to provide for a variety of institutional needs: syndication, asset management, treasury and risk management, transaction banking and corporate advisory. Institutional distribution Our institutional transactions and sukuk issues are distributed to a wide variety of Islamic banks, banking windows and NBFIs in a number of geographic markets. With the extensive HSBC Group network at our disposal, we are in a unique position to originate and structure transactions for clients across a range of differing risk and maturity profiles. Please contact our Dubai-based Institutional Distribution team for more information. Treasury HSBC Amanah has developed a range of Shariah compliant products comparable to those in the conventional treasury market. These include: • • • •

short-term murabaha programme based on the financing of commodity trades, including a facility to enhance returns based on FX risk long term murabaha structures offering enhanced returns based on credit risk products linked to physical Gold bullion; and market making in sukuk.

These products offer varying returns to investors depending on the underlying risk of the product. Please contact our London-based Treasury and Risk Management team for more information.

Risk management The growth and development of the Islamic banking industry has lead to an increased demand for financial risk management tools. HSBC Amanah has developed a basic suite of hedging structures for rate risk and FX risk. We are working on the next generation of hedging products to allow for more flexible risk management, and to focus on other risks such as the credit risk of corporate and retail portfolios. Please contact our London-based Treasury and Risk Management team for more information. Transaction banking HSBC Amanah offers a range of transaction banking services for Islamic banks through various Group offices. They include payments and cash management (including Shariah compliant clearing accounts and overnight commodity murabaha), LC confirmation and advising, custody and clearing, and wholesale banknotes. Please contact our Dubai-based Transaction Banking team for more information. Corporate advisory HSBC Amanah offers a developing range of corporate finance advisory capabilities. We specialize in Shariah compliant debt solutions, private placements, acquisitions and corporate restructuring.

Corporates Islamic institutional investors are emerging as an important funding source for crossborder financing and debt capital markets in the GCC, Asia Pacific and Europe. Corporate and sovereign issuers turn to HSBC Amanah for a broad range of institutional services. HSBC have a strong transaction record, and have been named Best International Provider of Islamic Financial Services (2004) and Best Islamic Wholesale Bank (2005) by Euromoney. To discuss your company´s particular needs, contact one of our regional offices or consult your HSBC relationship manager. Trade finance As one of the major players in international trade finance, HSBC Group is well positioned to meet the demands of investors for cross-border trade finance assets. In addition to our trade services for small to medium size businesses (see Business [4] section), we have the ability to arrange structured trade finance programmes through the securitisation of asset receivables from a selected group of Muslim majority countries. Please contact an HSBC Amanah representative for more information. Project finance Islamic project finance is becoming an increasingly popular option in the Muslim

world. With the Shariah structuring knowledge of HSBC Amanah and the resources and expertise of HSBCs Project and Export Finance division, we offer a unique combination to corporate issuers. Please contact an HSBC Amanah representative for more information. Structured finance HSBC Amanah is able to offer structured solutions in a variety of sectors, with a special focus on aviation, shipping and real estate. We have pioneered creditenhanced structures in the area of asset finance for markets in the developing world. Clients are offered exposure to assets in the Americas, Europe, North Africa, Asia Pacific and Middle East. Please contact an HSBC Amanah representative for more information. Capital markets With the introduction of sukuk instruments, corporate and sovereign issuers can raise Shariah compliant debt from Islamic and conventional institutional investors. HSBC Amanah is privileged to have played a key role in the growth of this sector. Since arranging the first international Sukuk issuance for the Government of Malaysia in 2002, we have brought a number of sovereigns and Corporates to a nascent transnational Islamic debt capital market. Please contact an HSBC Amanah representative for more information. Corporate advisory HSBC Amanah offers a developing range of corporate finance advisory capabilities. We specialize in Shariah compliant debt solutions, private placements, acquisitions and corporate restructuring.

Corporate accounts At HSBC Amanah, we constantly strive to offer Shariah compliant account services tailored to your business requirements. Our corporate accounts combine the global expertise and excellent service quality of HSBC with the guidelines set by our Shariah advisors HSBC current accounts for business customers are low-cost operating accounts designed to satisfy all of your basic business banking needs. While offering the convenience and security of a regular current account, they also provide the assurance that your funds will not be used to invest in non-Shariah compliant assets. Our term investment accounts represent a short to medium-term investment solution for businesses to earn returns through a murabaha contract. Your funds will be invested in commodities (metals), which you will sell to the bank in exchange for profit payable after a pre-determined investment period/tenor