SWIFT Islamic Finance John Falk 12 th

SWIFT & Islamic Finance John Falk 12 th AMEDA Meeting, Libya - 30 Nov 2010

Islamic Finance What is it? It is NOT a competing ‘ism’ • Banking consistent with the principles of Islamic law (Sharia) • “Islamic Finance is not a competing ‘ism’, but simply finance subject to another regulatory authority. ” – Shaykh Yusuf De. Lorenzo, Sibos 2009 – Interest, or Riba, is prohibited – Investment in companies providing goods or services contrary to Sharia principles is forbidden (e. g. banks, alcohol, casinos, etc. ) – Emphasis on moral and ethical values in all dealings • Islamic banks operate in the same manner and marketplace as conventional banks • “The most common forms of investment for Muslim’s are equities, mutual funds and property. Surveys show that between 3, 000 and 4, 000 companies listed on exchanges…are acceptable by Islam. Investments in such assets by Muslim investors are made in the same manner as by Western investors. ” – A Muslim’s Guide to Investing & Personal Finance “Islamic finance is here to stay. Those who are not involved should get involved. ” Asif Raza, Managing Director, MENA, J. P. Morgan Sibos 2010 SWIFT & Islamic Finance : 12 th Ameda Meeting, Libya 30 Nov 2010

Market Size and Growth Sharia Compliant Assets (USD Billions) 2006 2008 2009 503. 1 822. 1 1, 000 (estimate) 15 – 20% 63% 22% since 1975 Forecasts suggest 2009 value could double by 2015 Source: The Banker magazine Islamic finance growth is attributed to strong growth in the GCC countries, emerging markets and economies of Asia, coupled with a rapidly growing population – Muslim’s are increasingly seeking Sharia compliant banking solutions – Non-Muslim’s are turning to Islamic banking as a form of ‘ethical banking’ – Non-Islamic banks are opening Islamic Windows SWIFT & Islamic Finance : 12 th Ameda Meeting, Libya 30 Nov 2010

Global Muslim Population and Growth Country / Region Asia-Pacific Muslim Population 2009 Muslim % of Total Population 2009 972 million 24. 1% Middle East / North Africa 315 million 91. 2% Sub-Saharan Africa 240 million 2009 % of World Muslim Population Americas Europe 2. 4% (North / South) 0. 3% Sub-Saharan Africa 15. 3% 30. 1% Europe 38 million 5. 2% Americas (North / South) 4. 5 million 1. 6 billion Asia-Pacific 61. 9% 0. 5% World Total Middle East / North Africa 20. 1% 22. 9% 2006 Population Growth Rates • Muslim population: 1. 8% • Global population: 1. 1% Source: October 2009 study by the Pew Research Center report of Mapping the Global Muslim Population SWIFT & Islamic Finance : 12 th Ameda Meeting, Libya 30 Nov 2010

SWIFT’s Islamic Finance Vision & Strategy Vision To cater to unique Islamic transactions in Islamic and Conventional banks, as well as conventional transactions within Islamic banks. Who Islamic banks + Conventional banks offering Islamic products What SWIFT can support the Islamic financial market in two ways: • Provide conventional banking services to Islamic banks • Develop new services catering to unique Islamic financial transactions When Ongoing: • Business as usual for conventional banking services • Murabaha message promotion • Exploration of further Islamic message requirements (MT 3 xx) underway Where Middle East and Malaysia (90% of market) How Community engagement: • Business as usual Account Management • Industry association engagement: AAOIFI, SCM and AIBIM • Sharia compliance endorsement from AAOIFI • Promote at Sibos, Regional Conferences, Industry Conferences SWIFT & Islamic Finance : 12 th Ameda Meeting, Libya 30 Nov 2010

SWIFT & Islamic Finance Today • 240 Islamic banks on SWIFT – 84% of Sharia assets – 44 million messages in 2009 • Use SWIFT for: Tomorrow • Re-use ISO standards to include Islamic products • First is Murabaha – Commodity based money market deposit – Payments – 60% of all Islamic financing – Foreign Exchange – Cat 5 messages with Rulebook – Securities – Funds – Trade Finance – Cash Management • “Interest” in some messages is an issue – exploring solutions • Need for Islamic derivatives message standard SWIFT and Islamic Finance is not new. We are simply building on the existing relationship, to bring standardisation and automation to Islamic financial products. SWIFT & Islamic Finance : 12 th Ameda Meeting, Libya 30 Nov 2010

Murabaha Flow Example Customer Bank Broker A Master Agreement Money Transfer (MT 202) Purchase Request (MT 502) Seller’s Offer (MT 502) Purchase Acceptance (MT 515) Notice of Sale (MT 515) Notice of Intent (MT 502) Purchase Acceptance (MT 509) Form of Offer (MT 515) Sale Acceptance (MT 509) Seller’s Request (MT 502) Purchaser Offer (MT 502) Seller’s Acceptance (MT 515) Deferred Money Transfer (MT 202) SWIFT & Islamic Finance : 12 th Ameda Meeting, Libya 30 Nov 2010 Broker B

AAOIFI Certificate – SWIFT Murabaha SWIFT & Islamic Finance : 12 th Ameda Meeting, Libya 30 Nov 2010

Going Forward Murabaha • Rulebook available – download from www. swift. com/Islamic. Finance • AAOIFI approved • Promote amongst Islamic users • Working with Partners to ensure automation (SWIFTReady Label for 2011) New Areas • Define requirements for: – FX, Money Market Deposit, Derivatives confirmations (Cat 3) – Corporate Actions, Sukuk settlement messaging (Cat 5) • Will obtain AAOIFI Sharia endorsement for each new initiative Community Engagement • One to one engagement with Islamic users • AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) • Conferences: Engage industry via attendance / speaking at Islamic Finance conferences • Establish an IMPG (Islamic Market Practice Group)? – Is there interest from AMEDA members? SWIFT & Islamic Finance : 12 th Ameda Meeting, Libya 30 Nov 2010

Thank you John Falk Director, Securities Market Infrastructures SWIFT Avenue Adele 1 B-1310 La Hulpe Belgium T D F M E W +32 2 655 31 11 +32 2 655 34 61 +32 2 655 37 52 +44 777 15 12 952 john. falk@swift. com www. swift. com SWIFT & Islamic Finance : 12 th Ameda Meeting, Libya 30 Nov 2010