giving back to society & waqf development - Bank Islam Malaysia

“GIVING BACK TO SOCIETY & WAQF DEVELOPMENT” Dato’ Wan Ismail Wan Yusoh General Manager, Strategic Relations

STRICTLY PRIVATE & CONFIDENTIAL

BANK ISLAM
Malaysia is synonymous with Islamic finance, and Bank Islam, as the pioneer of Islamic banking in the country, has been at the forefront in promoting the industry domestically and abroad. Bank Islam has become the symbol of Islamic banking in Malaysia.
Since its inception in 1983, Bank Islam has continued to contribute to the infrastructural and institutional development of an advanced Islamic financial system and helped build Malaysia’s strong global reputation for the Islamic financial services industry (“IFSI”). We have also produced numerous leaders and specialists in the industry. This has helped developed Bank Islam into a well-established and universally recognized brand.
As the flag-bearer of the country’s Islamic financial services industry, our vision is to be “The Global Leader in Islamic Banking”.
Today, Bank Islam boasts a comprehensive list of more than 50 innovative and sophisticated Islamic banking products and services, a vast growing network of 115 branches and more than 900 self-service terminals nationwide.
The Bank has spiraled its growth, presence and repute upwards since its early years. From the seed capital of RM80 million initially, Bank Islam’s shareholder fund swelled to RM2.5 billion as at Dec 2010, a testament to its successful long-run growth plan. Page 1

CORPORATE STRUCTURE

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OUR SHAREHOLDERS
Lembaga Tabung Haji (18.5%) Lembaga Tabung Haji (Pilgrim Fund Board) (TH) is a Government Linked Investment Company (GLIC) holds 51.5% and 18.5% of BIMB Holdings Bhd and Bank Islam respectively. It was established mainly to assist Muslims in saving gradually for the purpose of pilgrimage. TH’s vision is to function as the pillar of economy for the community and provide excellent hajj management services. TH is highly determined to make each business and investment venture a roaring success domestically and abroad. It has also made an impressive mark in its asset management as well as in facilitating various Islamic investment instruments such as sukuk/bonds, corporate notes, Government Investment Certificates, Mudharabah Bank Account and Bill of Acceptance.


BIMB Holdings Bhd (51%) BIMB Holdings Bhd (BHB) is an investment holding company which operates along Islamic principles. BHB was incorporated in Malaysia on 20 March 1997 and was listed on the Main Board of Kuala Lumpur Stock Exchange (now Bursa Malaysia) on 16 September in the same year. The core subsidiaries of BHB are pioneers of various Islamic financial services in the region, namely Bank Islam Malaysia Berhad, Syarikat Takaful Malaysia Bhd, BIMB Securities Sdn Bhd, etc.


Dubai Financial Group LLC(30.5%) Dubai Financial Group is primarily an investment company focusing on banking and financial services. Headquartered in Dubai, Dubai Financial Group either directly or through its subsidiary companies, has active investment interests in conventional and Islamic financing in UAE, GCC, Pakistan and Malaysia. Dubai Financial Group is a subsidiary of Dubai Group.

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GOVERNANCE STRUCTURE

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SHARIAH GOVERNANCE FRAMEWORK

SHARIAH AS OVERARCHING PRINCIPLE IN BANK ISLAM

SHARIAH SUPERVISORY COUNCIL (SSC) • Oversight accountability on Shariah matters.

BOARD RISK COMMITTEE

BOARD OF DIRECTORS (Overall oversight on Shariah governance structure & Shariah compliance)

AUDIT & EXAMINATION COMMITTEE (AEC)

MANAGEMENT • Ensure execution of business & operations are in accordance with Shariah principles. • Provide necessary resources, infrastructure, enablers to the SSC.

Shariah Review Function: Review business operation on regular basis to ensure Shariah compliance.

Shariah Risk Management Control Function: Identify, measure, monitor, report & control Shariah non-compliance risk

Shariah Research Function: (under Product Development) Conduct in-depth Shariah research prior to submission to Shariah Committee. Page 5

Shariah Audit Function: Provide independent assessment & objective assurance designed to value add & improve Bank Islam adherence to Shariah

BRANCH NETWORK – JUNE 2011

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SSTs NETWORK – BY LOCATION & TYPE

ATM – 30

CDM – 14

CQM – 8

SP - 5

ATM – 8

CDM – 4

CQM – 1

SP - 1

ATM – 46

CDM – 17

CQM – 9

SP - 7

ATM -137

CDM – 48

CQM – 25

SP - 10

ATM – 57

CDM- 28

CQM – 13

SP - 8

ATM – 45

CDM –26

CQM – 10

SP - 4

ATM – 27

CDM – 11

CQM – 5

SP -2

ATM – Automated Teller Machine CDM – Cash Deposit Machine CQM – Cheque Deposit Machine SP – Statement Printer

ATM – 54

CDM – 30

CQM – 10

SP – 4 ATM – 40

CDM – 16

CQM – 7

SP - 1

ATM – 29

CDM – 14

CQM – 5

SP - 2

ATM – 22

CDM – 9

CQM – 2

SP - 1

ATM – 53

CDM – 26

CQM – 13

SP -4

ATM – 26

CDM – 11

CQM – 6

SP -1

By Type Branches IPTA/IPTS Shopping Centres Corporate Offices Others TH Branches Petrol Stations TOTAL

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ATM 244 106 86 54 52 24 34 600

CDM 183 17 13 20 12 23 2 270

ATM – 26

CDM – 16

CQM – 7

SP -4

CQM 95 4 6 11 5 0 0 121

SP 45 5 2 1 1 0 0 54

TOTAL 567 132 107 86 70 47 36 1,045

CORE BUSINESS ACTIVITIES

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CONSUMER OFFERINGS

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NOTABLE TRANSACTIONS RM2.2 billion BaIDS

RM1.0 billion Istisna’

RM1.50 billion Al-Ijarah Muntahiyah Bit-Tamlik

RM570 million BaIDS

USD150 million Sukuk Al Ijarah

KL International Airport Bhd Sole Lead Arranger

Projekt Usahasama Transit Aliran Ringan Joint Arranger & Shariah Adviser

Kumpulan Guthrie Berhad Structuring & Shariah Adviser

Encorp Systembilt Sdn Bhd Co-Arranger & Shariah Adviser

First Global Sukuk Inc Sole Lead Arranger

First Istisna’

First Sukuk Ijarah

First Syndicated Ijarah

RM2.01 billion BaIDS

USD600 million Sukuk Al Ijarah

RM1.28 billion BaIDS

RM5.6 billion Istisna’ Notes

Sistem Lingkaran Lebuhraya Kajang Sdn Bhd Co-Arranger & Shariah Adviser

Malaysia Global Sukuk Inc Co Arranger

SAJ Holdings Sdn Bhd Joint Lead Arranger/ Lead Manager & Shariah Adviser

SKS Power Sdn Bhd Joint Lead Arranger & Shariah Adviser

RM752.2 million Mudharabah Sukuk

Manfaat Tetap Sdn Bhd Shariah Adviser

RM500 million Bank Guaranteed Sukuk Ijarah

Aras Sejagat Sdn Bhd Joint Lead Arranger & Joint Lead Manager

RM4.0 billion Sukuk Musyarakah

Akarmas Sdn Bhd Conditional Take-Over Offer on PK Resources Berhad’s Shares Principal Adviser

First Commercial Bank as Advisor Page 10

Plus SPV Berhad Joint Book Runner

RM200 million BBA CPs & RM3.0 billion BBA MTNs

Syarikat Bekalan Air Selangor Sdn Bhd Joint Lead Arranger & Shariah Advisor RM1.5 billion Islamic Medium Term Notes Program

Malaysia Debt Ventures Berhad Joint Lead Manager

TREASURY CAPABILITIES

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CORPORATE DEVELOPMENT 2011
Winning Notable Awards  The Brandlaurette Awards 2010-2011 – Best Brands in Financial Services (Islamic Banking Category)

 “The Wireless Solution Award” for Financial Services Industry

 “Malaysia Service to care Award” by Dr. Phillip Kotler – “The Marketing Guru”

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CORPORATE DEVELOPMENT 2011…cont
Winning Notable Awards  Reader’s Digest Trusted Brand Awards 2011 – Platinum Award for Islamic Banking Services

 Innovation Award 2011 by JAKIM & Ministry of Science Technology & Innovation

 Acknowledgement for the development of “UPustaka” by Ministry of Information, Communication & Culture

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MICRO FINANCE “SERVED THE UNDERSERVED”

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ISLAMIC PAWN BROKING
People say diamonds are women’s best friends. In reality, gold jewelry is their true friend. Because gold can be exchanged for cash instantly and redeemed back after a certain period.
Gold jewelry may function as:  A form of savings given its relative price stability and appreciating trends in general  A collateral whenever cash is needed
The conventional pawn broking system is popular for quick cash borrowings mostly among petty traders and low-income earners in rural areas.
The downside of conventional pawn broking services - high interest charges, lack of transparency and unfair practices.
For the benefit of the Muslim society, an alternative pawning system or AR-RAHN was introduced which has received encouraging response.

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MARKET VIABILITY & SUSTAINABILITY
A dichotomy exists - the lower income earners are not entertained by financial institutions even though they form the largest group of income earners.
Huge number of small traders within our society throughout the country.
The fund/capital needs of small traders depend on the nature of business they operate, starting from a very small capital outlay up to even several thousands of RM. Therefore, the Ar-Rahn scheme would be a source of capital for their business start-up or expansion.
The difficulty faced by small traders to obtain micro credit from financial institutions is largely due to:  Collateral issue  Generally, they do not have a large possession of assets and banks do not accept gold in their usual daily practice.  Guarantee issue  Banks would usually ask for guarantors who are hard to get. On the contrary, the gold pawned in the Ar-Rahn scheme is itself a form of guarantee.  Criteria of Qualification  To approve a financing, a bank usually asks for a list of information about the business. The Ar-Rahn sheme only needs basic information and what are the items to be pawned. Page 16

APPLICATION OF SHARIAH PRINCIPLES
Some of the Islamic concepts that can be applied:  Loan (Qard)  It is a loan agreement between a lender and a borrower.  The lender is forbidden to ask for extra payment but the borrower is encouraged to give a token of appreciation.  Trustworthiness (Wadiah Yad-Amanah)  The borrower is required to produce a returnable collateral to ensure repayment of the loan.  The borrower will entrust the lender to look after his/her belongings during the loan period. If something happens to the collateral item but not due to the lender’s negligence, the lender is not required to replace the item.  The fee for safekeeping (Al-Ujr)  The lender is allowed to charge a reasonable fee for keeping the pawned items safe and in good condition.  Safekeeping with guarantee (Wadiah Yadhomanah)  The lender will be responsible to replace the missing or stolen items to the owner if he/she fails to comply with the agreement. Page 17

WAQF DEVELOPMENT

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GOVERNMENT INITIATIVES  Government had increased budget allocated from RM256.5 million (9th Malaysia Plan;RMK9) to RM1.9 billion (10th Malaysia Plan; RMK10).  Budget for RMK10 and year 2011 RMK10 : RM72.76 million ~ USD24 million 2011 : RM58.20 million ~ USD19.4 million  On going projects; P.Pinang Perak Negeri Sembilan Melaka Terengganu

– Medium Cost Apartment in Sg. Nibong – Hotel Wakaf in Taiping – Hotel Wakaf & Baitul Hilal in Port Dickson – Hotel Wakaf in Tg. Kling – Hotel Wakaf in Kuala Terengganu – Student Hostel in Besut

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PRIVATE SECTOR INVOLVEMENTS Menara Waqaf

• LTH leased 1.21 acre land from MAIWP for 25 years with a total leased rental of RM56.6 million • LTH appointed THT to develop a 34 storey premium office • Development cost was fully funded by LTH • LTH leased the building to Bank Islam (upon completion of the building) • LTH expected to recover its development cost in 10 years • Upon completion, the value is estimated to escalate from RM34 million to RM200 million

- Located at Jalan Perak, KL

• At the end of 25 years, LTH will hand over the land together with the building to MAIWP

- project commenced in July 2007 - Completed by Oct 2010

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DEVELOPMENT APPROACH

1 2

Fund Providers

2

JV

7 3

MAIN

5

Third Parties

6

1

3 5

4

7

Waqaf Land

Project

1. Bank Islam arranges to raise funds 2. Fund Provider and 3rd Party enter into JV arrangement (depending on the nature of the project). MAIN may be a partner. 3. MAIN consents the land to be developed. JV may lease the Waqaf land from MAIN. 4. The JV develops the land – undertakes the project. 5. JV, if it under lease, pays lease rental to MAIN. 6. Upon completion of project, it generates revenue to JV – may be by way of sublease. 7. JV periodically pays profit sharing to partners & eventually pays off. 8. JV returns the leased (developed) land to MAIN & JV may be dissolved. Once the land is developed, the value and revenue generated from such asset will be much higher Page 21

DEVELOPMENT APPROACH – DIRECT INVOLVEMENT

MAIN 3

Waqaf Land

1

3 2

Fund Providers

Project

1. Bank Islam arranges to raise funds 2. Fund Provider funds the project 3. MAIN permits the land to be developed The program requires a developer / PMC to manage – mainly to assess the viability, coordinate the project execution and monitor the progress of the project Page 22

FUNDING & POTENTIAL INCENTIVES
Funding for the development of Waqaf lands may come from:    

Cash Waqaf - Deposit Sukuk Financing – trade working capital Partnership - Musharakah Require Government incentives (Special Scheme)

• Tax deduction – on cash Waqaf • Government guarantee - on sukuk, financing and Musharakah equity/financing • Government funds at discounted rate – on financing and Musharakah equity/financing Page 23

CASH WAQF 6

1

Overseeing Committee

5

3a

Cash Waqaf (Deposits) 3

SSC Bank Islam

2 2a

Public

4 7

JV/Project 1. 2. 2a 3. 3a 4. 5.

Bank Islam arranges to raise the deposits under Wakalah contract & it becomes Administrator. Public contribute to the deposits under Waqaf contract. Contributor is given acknowledgment (to apply tax incentive from LHDN). The deposit used to fund Waqaf development project. Idle funds invested in Bank Islam under Mudharabah & Wadiah and may pay some returns. If it is a commercial project, the funds may receive some form of returns. Overseeing committee is appointed to oversee the uses of Cash Deposits – members should be nonBank Islam employee such as representatives from JAWHAR, MAIN, JAKIM, Consumer Association etc 6. SSC Bank Islam will monitor the Bank & the deposits to make sure Shariah compliance. 7. The project should eventually benefit public - depending on the its nature. Page 24

FINANCING APPROACH

MAIN

8

DEVELOPER

1

3

10

1

Residential & Commercial Properties

2

7

6

LESSEE

5

4 9

Bank Islam

Typical Process Flow 1. MAIN appointed Developer enter into Joint Venture Agreement (Musharakah), where: a) MAIN as an administrator & land owner to provide capital in the form of the land b) Developer to be appointed by MAIN to provides cash (development cost) and expertise to develop the land 2. Developer develops the land with residential and commercial properties. 3. The properties handed over to MAIN 4. MAIN leases out (Ijarah) the properties to lessee for specific period 5. Bank Islam provides personal financing Tawarruq to lessee to settle lease pay rental amount to MAIN 6. Lessee pays the lease to MAIN (lump sum) 7. Lessee enjoys the benefit of occupying the properties (usufruct) 8. MAIN and Developer shares return from the project based on agreed Profit Sharing Ratio (PSR) 9. Lessee pays personal financing Tawarruq to Bank Islam (deferred) 10. At the end of lease period,, the land and properties to be reverted back to MAIN as Lessor

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PARTNERSHIP (MUSHARAKAH (MUSHARAKAH))

Bank Islam

Typical Process Flow 1. Bank Islam sets up an SPV. 2. SPV enter into Ground Lease Agreement with MAIN for spesific period 3. SPV appoints Contractors 4. Contractor constructs a commercial property 5. The contractor hands over the completed property to SPV 6. SPV leases out the completed property to anchor tenant 7. SPV receives rental from anchor tenant 8. SPV pays the ground lease to MAIN 9. Upon completion of Ground Lease period, the land and property and will be handed over to MAIN (as Hibah) 10. MAIN leases the property to Anchor Tenant

INVESTOR

1

MAIN

2

6

ANCHOR TENANT

SPV 7

8

3

5

Contractor

5

4

COMMERCIAL PROPERTY 9 10

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CORPORATE RESPONSIBILITY

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CORPORATE RESPONSIBILITY (“CR”)
Bank Islam has always been committed towards undertaking responsible corporate practices that empower our stakeholders, especially the communities we operate in, and which promote the development of Islamic banking.
As we continue to advocate integrity in our business undertakings and endeavor to make a positive economic, social and environmental impact via our business activities, Bank Islam continues to bring into play pragmatic CR initiatives aimed at:-

INSPIRING WORKPLACE

ENRICHING MARKETPLACE

ELEVATING COMMUNITIES

SUSTAINING ENVIRONMENT Page 28

ZAKAT CONTRIBUTIONS
In 2009 a total of RM8.9 million in zakat was contributed to a variety of causes, projects and events. And in 2010 a total of RM11.8 million was given out where the beneficiaries included State zakat authorities, mosque, Islamic institution and religious schools, nongovernmental organization, the less fortunate and needy homes through various charitable activities.

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INSPIRING WORKPLACE
Bank Islam does not neglect the welfare of its employees. In line with the Bank’s aspiration to be “the employer of choice”, efforts and commitment to create a dynamic and progressive work culture in the Bank has substantially boosted the quality and work-life balance of its employees.
Bank Islam is committed to undertaking numerous career and talent enrichment initiatives.

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WORK--LIFE BALANCE WORK

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ELEVATING COMMUNITIES
Since Bank Islam’s establishment in 1983, we have always been committed to elevating communities. We strongly believe in giving back to the community and continue to undertake numerous activities to fulfill this commitment.
The Bank shows its heart in building and rehabilitating homes for marginalized Malaysian, especially in building and rehabilitating homes for marginalized Malaysian, especially the old and handicapped. Progressing by phases, the project has already touches the lives in Kelantan and Terengganu in previous years. Currently the Bank focuses on needy families in the State of Kedah – in particular the districts of Pokok Sena, Yan, Baling and Kulim. Recently 12 new homes were built for Rumah Cahaya Sungai Tengas in Kulim.

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ENRICHING MARKETPLACE
As the nation’s pioneer Islamic bank, we continue to play a pivotal role in promoting the development of Islamic banking sector. The Bank continues to undertake impactful marketplace activities through sustainable business practices and increasing public awareness of Shariah-based products and services, further enhancing long-term relationships with our stakeholders.

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PINTAR PROGRAM
Bank Islam had been actively involved in “Promoting Intelligence, Nurturing Talent and Advocating Responsibility” (‘PINTAR’), an initiative to help improve childrens’ educational level across the nation, specially targeted to low-income families.
PINTAR Program is also a platform to enhance students’ knowledge and awareness of Islamic banking and the teaching of Islam with regards to ‘riba’ or usury.
The Bank has initiated programme such as “World of Innovation and Creativity” to helped promote and enhance exploratory learning and creative thinking among students from these adopted schools. The Bank also collaborated with NST’a NIE in carrying out a recycling awareness programme with the 13 adopted schools through the “Our Planet, We Decide!” workshop

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SUSTAINING ENVIRONMENT
Bank Islam continues to play an active role in preserving the environment to help sustain and improve the environment towards a greener tomorrow.

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CONTRIBUTING TO ISLAMIC BANKING SECTOR
As part of our efforts to increase the depth and breadth of the industry and fast track its growth, Bank Islam play host to local and international delegations interested to learn from Bank Islam’s experience.

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‫@ًا‬Bْ D ُ E ً Fْ Hِ J َ

‫َم‬EL َ Mْ ‫وَا‬

Disclaimer: This presentation material has been prepared by Bank Islam Malaysia Berhad (the Bank”) for information purposes only and does not purport to contain all the information that may be required to evaluate the Bank or its financial position. No representation or warranty, express r implied, is given by or on behalf of the Bank as to the accuracy of the information or opinions contained in this presentation. The presentation does not constitute or form part of an offer, solicitation or invitation of any offer, to buy or subscribe for any securities , nor should it or any part of it form the basis of, or be relied in any connection with, any contract, investment decision or commitment whatsoever. The Bank does not accept any liability whatsoever for any loss howsoever arising from any use of this presentation or their contents or otherwise arising in connection therewith. BANK ISLAM MALAYSIA BERHAD 11th Floor, Wisma Bank Islam Jalan Dungun, Bukit Damansara 50490 Kuala Lumpur Tel: 603 2088 8222

Hizamuddin Jamalluddin AGM, Strategic Planning Contact: 603 2088 8077 Email: [email protected]

www.bankislam.com.my

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Ahmad Mudahir AGM, Product Development Contact: 603 2088 8070 Email: [email protected]