Emerging Islamic Housing Finance Markets

1. Emerging Islamic Housing Finance Markets “The Irreversible(?) Growth of Private Housing Finance”March 15, 2006

2. UIB Overview • The only full service Islamic investment bank in Gulf Cooperation Council (“GCC) – Bahrain, KSA, Kuwait, Oman, UAE & Qatar • Regulated by the central bank in Bahrain - Bahrain Monetary Agency (BMA) • Paid Up Capital: USD120 million • UIB recognizes the needs of under-served markets with pent-up demand for Islamic products • Increasing global awareness of Islamic financing • A solid business model with competitive products and services which attract investors even from conventional markets

3. Five Business Lines Unicorn offers diversified products across an integrated range of financial products and services CorporateFinance and Capital Markets Takaful (Insurance) Mergers and Acquisitions AssetManagement PrivateEquity

4. USA (Chicago) GCC- Bahrain (Corporate), Dubai and Kuwait (Planned: KSA) Offices Unicorn’s Global Reach Asia-Pacific – Malaysia (Kuala Lumpur)

5. 78 million US, UK, Germany, France & Turkey 96 million GCC, Egypt & Jordan 215 million Malaysia, Singapore & Indonesia 414 million Bangladesh, Pakistan & India 62 million Algeria & Morocco Why Islamic Finance? • Approximately 20% of the world’s population is Muslim Muslim Population Unicorn aims to focus its operations across a majority of these countries

6. Islamic Financial Markets General Observations • Global Demand for Islamic Financial Products growing @ 17% annually • Oil revenues to produce current account surplus of $400 Billion in 2006 in ME & GCC • Demand likely to be fueled to levels not seen before due to increasing oil revenues • ME & GCC economies to grow at 5.5% in 2006 • More than 300 Islamic Financial Institutions operating globally

7. Key Objective Become a major player in developing the Islamic capital markets through the growth of primary housing finance markets and filling the gap for fixed-income investment instruments via Sukuk (bond) issuances

8. Model Own and operate housing finance companies with strategic partners in Islamic markets offering world class mortgage origination, underwriting and servicing technology • Islamic housing finance products and operations Utilize warehouse lines and bond issuances (Sukuks) as main source of funding • Securitize and issue Sukuks (MBS) on a flow basis • Develop GCC and other emerging Islamic capital markets • Correspondent program to enforce origination, underwriting and servicing standards

9. Islamic Housing Finance - GCC and Beyond(Turkey, Jordan, Lebanon) • Attractive demographics and population size • Key reforms at the sovereign level relating to housing finance and capital markets • Stable political and legal/regulatory environments • Growing middle class and consumer markets • Decent sovereign ratings • Mortgage to GDP Ratios – much below the more developed mortgage markets

10. Uniquely Positioned to Build and Capture Islamic Primary/Secondary Housing Finance Markets • A strategic alliance with UIB provides the following advantages: • Renowned capabilities in developing Islamic structures/products • Strong expertise in housing finance relating to the primary, as well as the secondary market • Qualified staff with extensive Western experience • Clear vision & strategy to become the “major player” in the Islamic housing finance markets • Willingness to form strategic alliances to gain from international and local expertise of respective partners

11. Demystifying Islamic Primary Mortgage Market Principles • Making money from money is not Islamically acceptable – Thus, Islam prohibits interest and usury(“Riba”) • Key Islamic mortgage principle – the financier must share in the ‘risks and rewards’ relating to an underlying asset rather than receiving a fixed and guaranteed ‘interest’ income • 2 common Islamic mortgage structures: • Ijara (akin to a finance lease) a financer purchases an asset and leases it to a client through a leasing contract for a specified rent and term. The owner of the asset (the financier) bears all ‘risks and rewards’ associated with ownership and sells it to the client upon payment of the last installment • Musharaka (akin to a declining-balance mortgage) an equity participation contract under which a financier and its client contribute jointly to purchase a home (e.g. financier (80%) and client (20%). Ownership is distributed according to each party's share in the financing (co-ownership). The title deed is held in the name of the financier and transferred to the client’s name upon payment of the last installment

12. Demystifying Islamic Secondary Mortgage Market Principles • Islamic bond (certificate) is known as a ‘Sukuk’ • Key mortgage-backed Sukuk principle: the certificate must be asset and not just debt based • Must sell the underlying asset (i.e. real estate property) into the secondary market and not just the receivables (i.e. transfer of ‘risks and rewards’ in the real estate asset) • Tradable mortgage-backed Sukuks are backed by ijara and musharakastructures

13. Housing Finance and Bond Markets Housing Finance and bonds (MBS) are the backbone of any economy and capital markets, respectively • USD7 trillion of mortgages (residential/commercial) originated in the U.S. annually; whereas the U.S. corporate market stands at USD4 trillion annually • Approximately 40 industries linked to housing finance (e.g. insurance, appraisal and construction) • Housing finance key to development of SME market • MBS a key tool for the development of the bond markets (e.g. In 1970, first U.S. MBS issuance; by 1995 USD20 trillion of MBS) • MBS allows for lower interest rates due to increased competition and long-term tenors

14. Source of Funding - Debt Capital Markets Trends in conventional Capital (Bond) Markets will be repeated in the Islamic (underdeveloped) financial markets. Conventional Islamic 1980’s and 1990’s 2000 2006

15. U.S. Securitized Assets Evolution of U.S. Mortgage Securitization - Market Sizing • 2002 MBS market share • US$ billions • Total MBS issuance • Annual MBS issuance 73% of mortgage originations funded through MBS Source: Inside MBS and ABS, January 10, 2003

16. Case Study: Kingdom of Saudi Arabia (“KSA”) • Largest GCC market • Total GDP: USD400 billion • Mortgage to GDP Ratio: 1.9% • Demand for 300,000 housing units annually • Housing finance potential: USD45 billion annually (Est: 1/4 of the housing units are built and financed) • Total Population: 22 million • Growing middle class (Annual Income Level: USD1600 – USD3200) • Baby Boomers - 65% of the Population under age 35

17. GCC Demographics

18. KSA Gap Analysis

19. RMBS Issuance Housing Finance UIB’s KSA Experience • Engaged to set up a licensed housing finance institution for Kingdom Instalment Company out of KSA • Develop the strategy and business plan • Technical/equity partnerships • CEO and COO search • Interact with legal/regulatory authorities relating to housing finance reforms • Assist with the development of systems and policies and procedures • Unicorn arranging, structuring and placing the very first RMBS out of the GCC region (landmark transaction) • Rated by a recognized rating agency • Solid credit enhancement from the International Finance Corporation (IFC)