Tara Uzra Dawood CEO, Dawood Capital Management Ltd. Pakistan An Investment Solution for Everyone! WITH ISLAMIC ALTERNATIVES APRIL 2012

OUTLINE 2 ISLAMIC FINANCE – GLOBAL MARKET PERSPECTIVE ISLAMIC MUTUAL FUNDS – IN PAKISTAN AVAILABLE AVENUES FOR ISLAMIC INVESTMENTS ISLAMIC FINANCE – FACT SHEETS ISLAMIC FINANCE IN PAKISTAN TAX SAVINGS – BETTER RETURNS CONCLUSION CHALLENGES TO ISLAMIC INDUSTRY RECOMMENDATIONS

3 Assets of the top 500 Islamic banks expanded 21.45% to total $1,087 billion in 2011, compared with $895 billion in 2010 Islamic finance has become a recognized and a specific segment of finance on its own with still-bright growth prospects, Also it is set to make further inroads in developed Western markets while Southeast Asian countries will likely fuel the Islamic finance advance in Asia in 2010 Standard & Poor's credit analyst Mohamed Damak “ “ ISLAMIC FINANCE Global Market Perspective Source: The Banker Top 500 Islamic Financial Institutions – The 2011 Survey Assets of the top 100 Islamic fund managers grew to US$58 billion in 2010, achieving a 7.6% growth Source: Ernst & Young’s Islamic Funds and Investments Report 2011

BASIC ISLAMIC FINANCE BUSINESS 4 Focus Pakistan ISLAMIC FINANCE INDUSTRY BANKS AMC’s INSURANCE Islamic BanksIslamic WindowIslamic AMC With Shariah Division Takaful With Shariah based products The very objective of the Shariah is to promote the welfare of the people, which lies in safeguarding their faith, their life, their intellect, their posterity and their wealth. Whatever ensures the safeguarding of these five serves public interest and is desirable. Al-Ghazali “ “

5 THE CURRENT MARKET SHARE ISLAMIC BANKS IS APPROX 8% IN 6 YEARS WITH A TARGET TO INCREASE 12X12 MARKET SHARE ISLAMIC FINANCE Focus Pakistan Source: The State Bank of Pakistan

6 5 full fledged Islamic commercial banks 12 conventional banks with Islamic banking windows 840 Plus Islamic banking branches Around $7 billion in deposits under management, representing approximately 8% market share. Islamic banking industry grew by 30% over the past six years. 15 Asset management companies offering Islamic Funds out of Takaful players in the market 52 Modaraba Companies ISLAMIC FINANCE INDUSTRY FACT SHEET Focus Pakistan

7 AVAILABLE ISLAMIC AVENUES FOCUS PAKISTAN When it comes to Islamic Investing, we have been exposed to various limitations, unlike conventional investing. Every investment must go through the screening process and validated by some expert to qualify for being Islamic. The popular avenues available in Pakistan are: A.STOCKS Stocks have remained better alternative for investors who have a long term perspective and can bear the short-medium term volatility in the stock returns. KMI-30 Index which is the Islamic stocks performance tracker has shown a stellar returns of 44% during the last 3 years as compared to the conventional KSE-100 Index of -19% (from CY09 to CY11). B.COMMODITIES Gold is considered to be the safest commodity to invest and its ISLAMIC. Gold prices were up by more 30% and 11% in 2010 and Prices initially rallied as Central Banks purchased gold to diversify their reserved amid rising concerns on the sustainability of the US Dollar as world’s reserve currency. However, still today gold is the better chioce of investment when it comes to commodity investments.

8 AVAILABLE ISLAMIC AVENUES FOCUS PAKISTAN C.FIXED INCOME It includes Islamic Banks and Financial Institutions deposits and various investment certificates. GoP has also issued its Islamic Fixed Income security “GoP Ijarah Sukuk” having varying levels of returns depending on the maturity profile. They are considered to be risk free income security. D.REAL ESTATE It is considered to be one of the most popular, long term and illiquid investment avenue. There is a chance of erosion in principal amount in time of need. An investor should plan carefully according to the time and need basis and be patience for a suitable time for investment and disinvestment. E.MUTUAL FUNDS Mutual Funds are the pool of investments of all options discussed. In all other options, an investor has to spent time to monitor investments personally. But in Mutual Funds, professional managers are there on their behalf. Beautiful thing of mutual funds is diversification in various investment avenues to mitigate risk for different investment profiles. Due to this feature, mutual funds are becoming popular to individual investing in various avenues. All flavors of Islamic mutual funds are available including money market, income, stock, hybrid and pensions. Real estate funds are yet to formularize and soon it will also be included in the basket.

Government of Pakistan established NITL which launched first Open End Equity Fund in Pakistan – NIT Government of Pakistan established ICP which launched series of Closed End Funds. Only in the Mid 90s, the sprouts of mutual funds is witnessed – More funds launched in private sector 2006 – Total number of AMCs are 30 managing 56 mutual funds 2007 – Launch of Dawood Islamic Fund (DIF). The First Islamic Asset Allocation fund in Pakistan – Total number of mutual funds – Total Industry Size of above PKR 288 billion as of December 31, – 24 operational asset management companies MUTUAL FUNDS Focus Pakistan

10 The asset under management were increased in mutual funds as compared to percentage of bank deposits every year. Shows a great potential in the Mutual Fund Industry of Pakistan. MUTUAL FUNDS Focus Pakistan

11 MARKET SHARE OF SHARIAH COMPLAINT MUTUAL FUNDS IS 17% WHICH IS PKR 44 BILLION Source: MUFAP December 31, 2011 ISLAMIC MUTUAL FUNDS Focus Pakistan

12 GROWH TREND OF ISLAMIC AUMs ISLAMIC MUTUAL FUNDS IN PAKISTAN

13 ISLAMIC MUTUAL FUNDS IN PAKISTAN Source: MUFAP December 31, 2011 CATEGORIZED VIEW OF ISLAMIC AUMs

14 TAX SAVINGS – BETTER RETURNS Pakistan is an emerging economy where mutual funds are now considered as a lucrative investment options. Besides other benefits being mentioned, one most important benefit an investor can obtain, is the tax rebate an investor can claim on his investment in mutual funds U/S 62 of the IT Ordinance It means “Riba free returns + Tax advantages”. According to Finance Bill 2011, an individual investor can claim up to PKR 100,000/- (salaried) and PKR 125,000/- (self-employed) in a tax year on investment of PKR 500,000/- or 15% of the taxable income, whichever is lower, subject to that an investment must be held for 3 years. FINANCE BILL 2011 Minimum Holding Period3 Years / 36 Months Maximum Ceiling for Tax CreditPKR 500,000/- or 15% of the taxable income whichever is lower

15 TAX SAVINGS – BETTER RETURNS Lets assume that Investors A and B both are under 20% of tax bracket and invests PKR 500,000/- in Islamic income fund providing an annual return of 11% per annum. Assume the time horizon of 3 years. Investor A availed the tax credit while Investor B did not. Working Example

Lack of diversified products range Understanding of investors’ need Public awareness at mass level about the industry Misconception that it is only for Muslims Un-stability of Stock Markets shake the confidence level of Investors Dearth of liquid debt instruments Protecting and maintaining the integrity and quality Ensuring performance Maintaining momentum to ensure viability Providing competitive returns Strong Shariah Compliance Sound Regulatory Framework 16 THE CHALLENGES ISLAMIC FINANCE INDUSTRY

Mitigating the Risk involved Inadequate Intellectual Capital Comforting & convincing with bad past investment experiences Budgetary constraints for Marketing activities. Low saving and Investment oriented society Information disclosure and transparency Choosing appropriate distribution network Right timing to launch funds In time after sale activities Role and Support of Regulators Misconception that it is only for Muslims 17 THE CHALLENGES MUTUAL FUND INDUSTRY

18 Cross-border Market integration Establishing affiliations with mutual funds associations in other countries and promote one-to-one contacts Team work for the growth of mutual fund industry Support in creating the Mass awareness and education about the industry Promoting healthy business practices and ethical code of conduct Establishing and Strengthening distribution network for Mutual Fund on the Association level Run mass awareness program especially about the misconceptions Media should play a more supportive and constructive role for awareness and disseminating information RECOMMENDATIONS

19 Islamic capital Market is on the verge to take off. The need is to have a sound and conducive framework for both Market and regulations Market participants including investors, Regulators, advisors and institutions have a pivotal role to play in this connection New Innovative products are increasing in the markets like Islamic Hedge Funds, Derivatives and SWAPS, which calls for the qualified and well trained workforce ANALYSIS & CONCLUSION

Thank You 20 Tara Uzra Dawood CEO, Dawood Capital Management Ltd. Pakistan