News Report: A new Islamic Product from UAE Iryani Nasrun Nor Effendy Shahrom

THE WORLD’S FIRST ISLAMIC SAVINGS BOND Launched date : 18th March 2006 1st Draw Date : 6th May 2006 Minimum deposit of AED100 (USD 27) Over 100 distribution outlet & internet A winning number will be picked monthly 16,318 prizes to be given away, 1st prize is 1million National Bond acts as Mudarib & fully authorize to decide on funds management Claims it is fully shariah compliance No guarantees but only possible returns based on winning number Targets the mass retail market especially labourers & maids Investment not decided yet but it will be in shares, bonds & others Mgt sees it as taking Islamic finance to another level If successful, would be replicated globally Prize Amount No. of Prizes AED 1,000,000 1 AED 100,000 2 AED 50,000 5 AED 10,000 10 AED 5,000 50 AED 1,000 250 AED 500 500 AED 250 1,000 AED 100 14,500 Total: 4,000,000 16,318

Quotes from the CEO, Nasser Hassan “We are accountable to our stock & bondholders” “We were inspired by the success of Premium Bonds in UK, Prize Bonds in Ireland and Bonus Bonds in New Zealand” “We are proud to engage Grey Worldwide of New York in Promotion & advertising” “We want to replicate this model globally thus taking Islamic finance to higher levels” Should also be accountable to Allah and within the shariah Should be inspired from Islamic Worldview & based from Quran & Sunnah Is it Western worldview or Islamic Worldview Do we really want a “winning number model” to spearhead Islamic finance ?

ISSUES Must also be accountable to Allah & ensure shariah compliance Cashflow to support monthly winning payout comes from depositors Distributes monthly winnings not from profits made Only 2 shariah members to come out with fatwa Similarity to the lucky draw / lottery inspired by the West The maqasid al shariah - creates a “hope” culture for a big win Uses influential position to restrict media coverage. Anxious to play down the issue on gambling, the authorities banned any media coverage to use the word lottery Promotional ideas comes from New York via Grey Worldwide Undisclosed asset allocation Issuer is a new private company & provides no disclosure on details of the offer, accounts, investment overview, mgmt etc. No prospectus. Lack of transparency / disclosures The hassle in redeeming the units Big fund needed to provide the luxurious gift every month

ISLAMIC ACCOUNTING IMPLICATION Objective of Islamic Accounting Islamic Accountability It requires NBC to ensure that every word and deed is in line with Islamic teachings 2. Falah and Maslaha Does National Bonds objective is to achieve falah in this world and hereafter? Does National Bonds serve the public interest? 3. Social Welfare Orientation In what way does it help the needy?

ACCOUNTING ISSUES Is Capital Adequacy Ratio determined, is it enough? Can the funds inflow match the funds outflow in the long run? Would there be funds mismatch, may need some time to liquidate investment If there is 16, 318 depositor, then all will be winners No profits yet in the first month conducted draw already with payouts of AED 4 million No financial statements, possible risk expose, asset allocation of funds, etc. In other words, financial information except for the “AED 1 million carrot”

CONCLUSION If it is successful globally, it could lead to a massive accumulation of Muslim’s wealth away from productive sectors Muslims would be seen as a hopeful society and channel most funds in the hope of striking it big Islamic Savings scheme would be associated with lottery A pure monetary objective derived from monthly deposit collection

Wallahu A’lam Sources www.nationalbonds.ae The Economist – 10th March 2006 Khaleej Times – 17th March 2006 Arabian Business Magazine – 12th March 2006 Gulf News – Gulf Research Center (www.grc.ae) – 28th Feb 2006 Asia Pacific Conference 1- Accounting In The New Millennium Wallahu A’lam