Financial Accounting Advisory Services

Financial Accounting Advisory Services A practical guide to Islamic finance October 2015

Agenda 1 A practical guide to Islamic finance 3 Islamic finance - a growing industry Opportunities Key operational challenges 4 5 6 2 3 4 5 6 How can EY help Training overview EY training services About EY Contacts 7 8 11 19 21 Page 2

A practical guide to Islamic finance Page 3

A practical guide to Islamic finance Islamic finance a growing industry Islamic banking is now one of the fastest growing segments of the financial marketplace, characterized by the robust macro outlook of core Islamic finance markets and increasing share of banking system assets. The global profit pool of Islamic banks is set to triple over the next five years, primarily from the growing wealth of the Middle East and the increasing concentration of emerging markets. Growth rate of assets year on year 2013 (in local currency) 5% Saudi Arabia 14% Malaysia UAE Kuwait Qatar Turkey (11%) Indonesia Bahrain Pakistan (1%) (2%) 1% 6% 7% 12% 5% 5% 16% 17% 12% 11% 21% 37% 85% (20%) 0% 20% 40% 60% 80% 100% Conventional Islamic Source: EY World Islamic Banking Competitiveness Report 2014 15, 2014. Compound annual growth rate (CAGR 2009 13) 17% 19% 11% 11% 26% 19% 43% 2% 22% Share of international participation banking assets (2013) GCC ASEAN South Asia Turkey and ROW 14% 12% 5% 33% 0% 20% 40% 60% 80% 100% Islamic Conventional Malaysia Drivers of growth The global Islamic population is projected to grow by 35% by 2030, which will significantly boost the demand for Islamic finance. The growth is underpinned by an increase in the demand for Shariah-compliant assets. There is increasing interest from non-muslims who are opting for ethical financial products. Markets such as the UK, Japan, Singapore, Hong Kong, Luxembourg, South Africa and Australia, which traditionally relied on conventional banking business, are shifting focus to tap the potential in Islamic finance. Source: EY analysis, pew research Page 4

Practical guide to Islamic finance Opportunities The Islamic banking industry is continually evolving, with institutions designing new and innovative methods for deployment of assets as well as for mobilization of funds. Banking penetration and Islamic assets market share Islamic banking market share 60% Saudi Arabia Kuwait 40% Bahrain Qatar 20% Bangladesh UAE Malaysia Pakistan Turkey Jordan Indonesia Egypt 0% 0% 50% 100% 150% 200% 250% Banking penetration Size of the circle depicts Islamic banking asset volumes Source:: 1. Standard & Poor s Rating Services, 25 September 2012 2. EY World Islamic Banking Competitiveness Report 2014 15, 2014 The Islamic banking industry has become mainstream in several markets and has made considerable progress in a number of emerging markets: Market share of the banking industry in Saudi Arabia, Kuwait and Bahrain is 48.9%, 44.6% and 27.7% respectively. The compound annual growth rate (CAGR) for 2009-2013 in Indonesia, Turkey and Pakistan was 43.5%, 18.7% and 22.0% respectively. Trends in the Islamic finance industry: Islamic finance industry has grown at an annual rate of 15% 20% over the past decade. 1 Qatar, Indonesia, Saudi Arabia, Malaysia, the UAE and Turkey (QISMUT) commanded 80% (US$625b) of international banking assets in 2013, and this is expected to reach US$1.8t by 2019. 2 Page 5

Practical guide to Islamic finance Islamic finance key operational challenges As Islamic finance evolves and grows, it is presented with considerable opportunities and challenges. This demands a fundamentally different approach by participants in order to succeed. Some of the key challenges faced by organizations include: An increased need for knowledge and training to meet the growing demand in the Islamic finance landscape, especially at senior management and middle management levels A lack of theoretical and practical awareness of Islamic finance services to enable the provision of better value propositions to the consumers A disconnect between Shariah fundamental concepts and product design, and its commercial and accounting aspects An organization s need to tap into opportunities from the growing Islamic finance market How can you address the knowledge and training challenge? Continuous education programs that will enable participants to: Enhance their skillset and allow them to reach their true potential Bring efficiency into business thereby improving profitability Page 6

Practical guide to Islamic finance How EY can help In order to overcome these challenges in the Islamic finance landscape, EY offers a three-day training workshop, delivering a practical guide to Islamic finance. This training will help participants gain valuable insight into the changing trends in the global Islamic finance industry. Objective of the workshop The workshop is intended primarily for two categories of participant: 1. Those who have limited knowledge of Islamic finance and aim to improve their theoretical as well as practical knowledge base 2. Those who are actively involved in day-to-day operational aspects of Islamic finance and wish to exchange their ideas and experiences with other participants This three-day workshop focuses on these key areas: Current trends and the outlook of Islamic finance Basic concepts of Islamic finance Understanding key Shariah principles Detailed study of various Islamic contracts, the key aspects and mechanics involved. Importance of Islamic finance structures Accounting issues primarily from an International Financial Reporting Standards (IFRS) perspective Governance standards, including the Islamic standards of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Page 7

Practical guide to Islamic finance Workshop overview Day 1 The following topics will be covered on day one of the workshop: An overview of Islamic finance History and evolution Current developments in the industry Future outlook Basic concepts and features Difference between conventional and Islamic finance Importance: The following topics will be covered on day two of the workshop: Islamic contracts Meaning Requirements Types of contract (6 contracts) Accounting treatment and mechanics Islamic finance structures Investments (FAS 25 and FAS 26) Fundamentals of Shariah Principles and holistic approach Objectives Misconceptions The Islamic finance industry is expected to reach US$2.7t by 2019 and has evolved to be an important component of the international financial system. The growth is underpinned by an increase in the demand for Shariah-compliant assets, which necessitates the need to understand Shariah laws. Day 2 Importance: Islamic finance contracts have been evolving throughout the development of Islamic civilization, based on the requirements of society. All contracts in Islamic finance are structured in the light of Shariah principles: hence the need to understand the Islamic contracts and the mechanics involved. Page 8

Practical guide to Islamic finance (continued) Workshop overview Day 3 The following topics will be covered on day three of the workshop: An overview of Sukuk Principles for Sukuk in Shariah Sukuk structure Zakat and charity Benefits, principles and methods of Zakat and charity Shariah standards Shariah considerations for products and services Hedging Hedging in Islamic finance Overview of various hedging activities Investment accounts Restricted and unrestricted investment accounts Profit distribution Governance and other standards Governance standards in the AAOIFI Corporate social responsibility External Shariah audit Importance: Sukuk, as an alternative to a conventional bond, has shown phenomenal growth in the past decade and is showing promising signs ahead. Identify the Shariah conditions for Zakat for both an individual and a company. Workshop helps to develop accounting and auditing thoughts relevant to Islamic financial institutions. There is a need to understand Islamic financial institutions standards to comply not only with the Shariah principles and domestic legal requirements but also with global standards. Page 9

Practical guide to Islamic finance Target Audience 1 Islamic finance institution practitioners from all levels and departments Employees of conventional banks who wish to learn the basics of Islamic banking or those who 2 deal with Islamic financial institutions Central bank employees, especially those who perform the auditing procedures on Islamic banks or 3 those who wish to understand the Islamic banking principles Students or graduates pursuing finance qualifications and require accreditation from an 4 international firm Capital markets institutions employees (e.g., brokers and Sukuk companies) and employees of 5 supervisory institutions Lawyers working for, or with, Shariah, financial or legal consultants, who serve Islamic financial 6 institutions Employees of financial auditing companies that audit and seal the Islamic financial companies 7 financial statements. Page 10

EY training services Page 11

EY training services EY and the Islamic finance industry 1 services EY is the first professional services organization to establish a dedicated team for clients in the growing Islamic finance industry, and is the only professional organization to offer Shariah auditing services. 2 The EY universe analysis covers 70 Islamic banks and 44 conventional banks across Islamic banking markets. Strong relationship with regulators EY has strong relationships with regulators in all centers of the Islamic financial services industry and clients ranging from start-ups to some of the world s best-known and largest global financial institutions. How EY training helps clients Reshape their business Improve their performance Sustain their future More service offerings Businessspecific training options Updated training programs Experienced trainers EY currently offers more services in more markets and more industry segments in the Islamic financial services industry than any other professional services organization. EY provides a range of business-specific training options for clients and business communities, to meet their specific needs, throughout Europe, the Middle East, India and Africa, drawn from a multidisciplinary team of trainers around the world. EY offers regularly updated training programs to reflect changing trends and guidance. Our experienced trainers have first-hand knowledge of the subject matter and provide practical, relevant and stimulating courses. Page 12

EY training services Our training services EY training is an integral part of EY, focussing exclusively on training services, with full-time staff and own resources. We bring the right subject matter resources from our global pool of professionals to any part of the world, delivering the right training to your people at the right time. All our training courses are practical, relevant and up to date, delivered by experienced presenters who provide interesting, stimulating and thought-provoking learning in innovative ways Our programs are developed and implemented by professionals who bring first-hand practical knowledge to your organization. Training programs are categorized as follows: Training programs General open-house training programs Sector-based training programs Customized or tailored training programs for individual clients Page 13

EY training services Benefits of this session This training session will be helpful to your organization, or your employees, in gaining a competitive edge in the evolving Islamic finance landscape. Personal attention EY is committed to help participants benefit from our knowledge and resources. Materials We develop bespoke materials and case studies to provide participants with a full range of reference support. Global insights Participants are introduced to the various issues faced by the Islamic finance industry. Delivery method Accreditation Classroom-based sessions, delivered by experienced facilitators, include practical examples and the opportunity for two-way communication in the form of group discussions. The participants will be awarded CPE or CPD credits per day, and a certificate of participation, which will add value to their professional career development, will be issued. What differentiates us from competitors? Our ability to design courses is complemented by our standard courses, which can be also tailored for your organization s needs. Our facilitators have a range of knowledge and experience in the subject matter across sectors and will provide hands-on practical knowledge of real-life situations. We lead the market in our reputation for key brand attributes, such as relationships, people, teams, technical knowledge, industry understanding, global integration, integrity and entrepreneurship. Page 14

EY training services Key components of customized training services Consultation Identify your organization s key business objectives. Define the required outcomes to help you achieve your goals. Undertake the training-needs analysis to help identify your key business issues in a training context and create a highly tailored solution. Developing customized solutions Our experienced trainers identify gaps using a range of skills-assessment tools. The program we develop will be tailored to your organization to have a measurable impact on operational performance. It will help your workforce to increase their effectiveness in areas central to its business. Key components Implementation and delivery Use case studies, group work, discussions and role-plays, to ensure that the course is stimulating on every level. Post-training support We offer continuous support, coaching and feedback, to help ensure that your people transfer new skills to their working environment. Follow-up sessions are available to focus on continuing improvement, and help ensure that the skills of the participant are consistently enhanced. Page 15

EY training services Our training methodology Our main strength is our own methodology that we have developed over the years and is successfully applied throughout all our training programs. Understanding that our course participants are busy professionals, we aim to reduce the number of course days to the minimum possible. We avoid spending long hours of lecturing and, instead, concentrate on practicing cases and real life examples. Customized elearning Individual action plans (to follow up and evaluate training results) Self-analysis questionnaires and learning instruments Our methodology Videos, video recording and playbacks Case studies, simulations and small projects To enhance individual and group interaction, and encourage learning on a regional basis, we have devised the following methods: Brief presentations by our subject matter experts and trainers One-to-one group discussions Group debriefs Individual and team exercises Page 16

EY training services EY credentials EY has a highly globally integrated, industry-focused team, sharing knowledge from around the world to deliver tailored services: Conducts training with clients in the Middle East and North Africa in many sectors, including banking, government, construction, oil and gas, and telecommunications Develops classroom training materials, in which we create extensive learning materials for professional qualification conducted by AAOIFI (CIPA) Publishes the World Islamic Banking Competitiveness Report, which provides in-depth analysis of the core Islamic banking markets Selected industry awards: Euromoney Islamic banking award 8th International Takaful Summit 2014 10th international Real Estate Finance Summit awards London World Islamic Banking Awards, Bahrain Page 17

EY training services Self-assessment Do you recognize these challenges in your company? Question How often do you feel the need to learn new skills and increase your knowledge to serve your clients better? Do you feel the need to keep yourself abreast of the latest developments and leading-edge tools and techniques? Do you feel a lack of operational and interpersonal skills among your employees while dealing with your clients? Do you see a resistance from your employees to move out of their comfort zone? Do you find the Islamic finance products confusing to deal with? Do you find your employees lacking in-depth knowledge while handling the various Islamic products? Do you have difficulty understanding Shariah standards and governance? Do you have a need to gain additional insight into the changing trends in the global Islamic banking industry? Self assessment Often Sometimes Never If your answer to the majority of the questions above is often or sometimes, then we have the right training program for your needs. Page 18

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Financial Accounting Advisory Services Contacts Nadeem Shafi Muzammil Kasbati Partner MENA Leader FAAS nadeem.shafi@kw.ey.com +965 2295 5303 Director Assurance muzammil.kasbati@bh.ey.com +973 1751 4729 Page 21

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