Prospectusfeeds.nasdaqdubai.com/resources/2008/3/11/1557120f-c949... · 2008-03-11 · A copy of this Prospectus, which has been prepared in accordance with the Bahrain Monetary Agency’s

Prospectus

The Directors of ABG whose names appear herein, accept responsibility, both jointly andseverally, for the information contained in this Prospectus. To the best of theknowledge and belief of the Directors (who have taken all reasonable care to ensuresuch is the case) this Prospectus complies with the Law and information contained inthis Prospectus is in accordance with the facts and does not omit anything likely tomake this Prospectus or any statement herein misleading or deceptive.

Director’s Name Director’s Position Director’s SignatureSheikh Saleh Abdullah Kamel Chairman and Non-executive

Member of the Board

Mr. Abdulla Ammar Al Saudi Non-executive Member of the Board and Vice Chairman

Mr. Abdullah Saleh Kamel Member of the Board and Chairman of the Board’s executive committee

Mr. Saleh Mohamed Al-Yousef Independent Non-executive Member of the Board and Chairman of the audit committee

Mr. Adnan Ahmed Yousif Chief Executive Officer and Member of the Board

Dr. Anwar Ibrahim Independent Non-executive Member of the Board

Mr. Mahmoud Jameel Hassoubah Member of the Board

Mr. Abdul Elah A. Sabbahi Member of the Board

Board of Directors responsibility statement

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A copy of this Prospectus, which has been prepared in accordance with the Bahrain Monetary Agency’s DisclosureStandards ODG/407/03, has been delivered to the Bahrain Monetary Agency and the Bahrain Stock Exchange for registration.The Bahrain Stock Exchange and the Bahrain Monetary Agency assume no responsibility for the contents of this Prospectusand shall not have any liability to any person for damage or loss resulting from reliance on any statements or informationcontained herein or for the performance of any obligations of the Albaraka Banking Group B.S.C.

Application has been made to both the Bahrain Monetary Agency and the Dubai Financial Services Authority (in respect of the DubaiInternational Financial Exchange) for all of the Shares of Albaraka Banking Group B.S.C. to be admitted to trading on both the BahrainStock Exchange and the Dubai International Financial Exchange.

The Offer is not intended for, and the Shares are not being offered, distributed, sold, transferred or delivered, directly or indirectly, to,or for the account or benefit of, any person in the Dubai International Financial Center and the Offer to such person will not constitutean offer in accordance with the Dubai Financial Services Authority Offered Securities Rules. This Prospectus is not intended fordistribution to any person in the Dubai International Financial Center and any such person that receives a copy of this Prospectusshould not act or rely on this Prospectus and should ignore the same.

Prospective investors should read the entire Prospectus and in particular, section 11, “Risk Factors” when considering an investmentin the Group.

This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy Shares to any person in any jurisdiction towhom or in which such offer or solicitation is unlawful. The Shares have not been, and will not be, registered under the United StatesSecurities Act of 1933 as amended (the “Securities Act”), or under the applicable securities laws of Canada, Australia or Japan orunder any other securities laws and, subject to certain exceptions, may not be offered or sold, directly or indirectly, within the UnitedStates, Canada, Australia or Japan or to any resident of the United States, Canada, Australia or Japan. The Shares are being offeredin the United States only to qualified institutional buyers (“QIBs”) (as defined in Rule 144A under the Securities Act (“Rule 144A”))pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and are beingoffered outside the United States in accordance with Regulation S of the Securities Act (“Regulation S”). Each purchaser of Sharesoffered hereby pursuant to Regulation S or an exemption under the Securities Act, in making a purchase will be deemed to havemade certain acknowledgements, representations and agreements as set out in section 17, “Terms and Conditions of the Offer”.

This Prospectus is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investmentprofessionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”)or (iii) high net worth entities and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of theOrder (all such persons together being referred to as “Relevant Persons”). The Shares are only available to Relevant Persons, and noinvitation or offer to subscribe, purchase or otherwise acquire Shares will be engaged in with anyone who is not a Relevant Person.Any person who is not a Relevant Person shall not act or rely on this Prospectus or any of its contents.

The contents of this Prospectus are not to be construed as legal, financial or tax advice. Each prospective Applicant should consulthis, her or its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice.

In addition to appointing GIB as Lead Manager and Financial Advisor, the Company has appointed a team of legal and financialadvisors (including Norton Rose as Lead Legal Advisor) to carry out the financial due diligence and legal due diligence of the Group.

Investors should rely only on the information in this Prospectus. No person has been authorised to give any information or make anyrepresentations other than as contained in this Prospectus and, if given or made, such information or representations must not berelied on as having been authorised by the Founders, the Board, the Company or any of the Selling Shareholders. Neither the deliveryof this Prospectus nor any purchase made under this Prospectus shall, under any circumstances, create any implication that there hasbeen no change in the affairs of the Group since, or that the information contained herein is correct as of any time subsequent to, thedate of this Prospectus.

The distribution of this Prospectus in jurisdictions other than the United Kingdom and the United States of America may also berestricted by law and therefore persons into whose possession this Prospectus comes should inform themselves about and observeany such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any suchjurisdictions. The Offer and the distribution of this Prospectus are subject to the restrictions set out in section 17, “Terms andConditions of the Offer”.

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Important Notice

Forward-looking StatementsThis Prospectus includes statements that are, or may be deemed to be, “forward-looking statements”. These forward-lookingstatements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “plans”,“anticipates”, “targets”, “aims”, “continues”, “expects”, “intends”, “may”, “will”, “would” or “should” or, in each case, their negative orother variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. Theyappear in a number of places throughout this Prospectus and include statements regarding the Group’s intentions, beliefs or currentexpectations concerning, among other things, the Group’s results of operations, financial condition, liquidity, prospects, growth,strategies and the industries in which the Group operates.

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Anumber of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, the factors set out in section 11, “Risk Factors”, which should be read in conjunctionwith the other cautionary statements that are included in this Prospectus.

Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this Prospectusreflect the Group’s current view with respect to future events and are subject to risks relating to future events and other risks, uncertaintiesand assumptions relating to the Group’s operations, results of operations, growth, strategy and liquidity. Investors should specificallyconsider the factors identified in this Prospectus which could cause actual results to differ before making an investment decision.

Unless otherwise indicated all references in this document to “Bahraini Dinar” or “BD” are to the lawful currency of the Kingdom ofBahrain and references to “US$”, “$” or “US Dollars” are to the lawful currency of the United States of America.

The financial statements included in this Prospectus have been prepared in accordance with the Islamic Accounting Standards issuedby the AAOIFI and for matters not covered by AAOIFI, in accordance with the IFRS. AAOIFI was established on 27 March 1991 withthe purpose of developing and issuing accounting and auditing standards for Islamic financial institutions. In accordance with therequirements of the Bahrain Monetary Agency, all Islamic banks licenced in Bahrain are required to report in accordance with FinancialAccounting Standards issued by AAOIFI and where AAOIFI standards do not cover a particular item, the relevant IFRS. In order tocomply with the requirements of the Bahrain Monetary Agency, ABG prepares its annual financial statements in accordance withAAOIFI and IFRS (for matters not covered by the Islamic Accounting Standards issued by AAOIFI).

Certain terms used in this Prospectus, including all capitalised terms and certain technical and other items, are defined or explained insection 1, “Definitions and Glossary of Technical Terms”.

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Important Noticecontinued

ABG, the Lead Manager, and the Receiving Banks reserve the absolute right to require further verification of the identity of eachApplicant or that of any beneficial owner upon whose behalf an Applicant applies for Shares pursuant to the Offer. The Applicant willprovide satisfactory evidence of identity and if so required the source of funds within a reasonable time period determined by ABG or aReceiving Bank. Pending the provision of such evidence, an application to subscribe for Shares will be postponed. If the Applicant failsto provide satisfactory evidence within the time specified, or if the Applicant provides evidence but ABG or the relevant Receiving Bank isnot satisfied therewith, the application may be rejected in full in which event any money received by way of application will be returnedto the Applicant by the relevant Receiving Bank at the Applicant’s risk and expense and without accounting for any profit derived fromsuch funds.

ABG and the Receiving Banks will comply with Bahrain’s Legislative Decree No.(4) of 2001 with respect to Prohibition and Combatingof Money Laundering and the various Ministerial Orders issued thereunder including, but not limited to, Ministerial Order No. 7/2001and Ministerial Order No. 23/2002 with respect to Institutions ‘Obligations Concerning the Prohibition and Combating of MoneyLaundering and Ministerial Order No.(1) of 2004 with respect to Directives Relating to the Prevention and Prohibition of MoneyLaundering at the BSE. ABG and the Receiving Banks will also comply with international anti-money laundering requirements existingfrom time to time. Under the above domestic or international requirements, ABG and or one or more Receiving Banks may be obligedto report certain information to governmental or regulatory agencies and all Applicants consent to such disclosure.

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Investor Identification and Anti Money Laundering

IssuerAlbaraka Banking Group B.S.C.Albaraka Tower, P.O. Box 1882, Manama, Kingdom of Bahrain

Lead Manager, Financial Adviser andSponsorGulf International Bank B.S.C.Al-Dowali Building, 3 Palace Avenue,P.O. Box 1017, Manama, Kingdom of Bahrain

Legal Advisors to the IssuerNorton RoseUnitag House,Government Avenue,Manama, Kingdom of Bahrain

Norton Rose8th Floor, Emirates Towers,P.O. Box 103747, Dubai, United Arab Emirates

Legal Advisors to the Issuer on matters ofBahrain LawAl Mahmood & Zu’biBab Al Bahrain Building,150 Government Road,Manama, Kingdom of Bahrain

Lead Receiving Bank Standard Chartered BankP.O. Box 29,Manama, Kingdom of Bahrain

Receiving BanksAbu Dhabi Commercial Bank PJSCAhli United Bank B.S.C.AlBaraka Islamic Bank B.S.C. (EC)Bahrain Islamic Bank B.S.C.Bank of Bahrain & Kuwait B.S.C.Commercial Bank of Qatar Q.S.C.Emirates Bank International PJSC Emirates Financial Services PSC Emirates Islamic Bank PJSC First Gulf Bank, Mashreq Bank PJSC National Bank of Bahrain B.S.C. National Bank of Oman S.A.O.C.

Please refer to Appendix for the address details of the above Receiving Banks.

Underwriters

Gulf International Bank B.S.C.(c)Al-Dowali Building, 3 Palace AvenueP. O. Box 1017, Manama, Kingdom of Bahrain

Emirates Bank GroupBeniyas Road, P. O. Box 2923, Deira, Dubai, UAE

National Bank of Bahrain B.S.C.Diplomatic Area Branch, Ground Floor,Building 170, Road No. 1703,Diplomatic Area 317,Manama, Kingdom of Bahrain

Bahrain Islamic Bank B.S.C.Al Salam Tower,P.O. Box 5240, Diplomatic Area, Manama, Kingdom of Bahrain

Auditors and Reporting AccountantsErnst & Young14th Floor, The Tower,Sheraton Commercial Complex,Government Road, P.O. Box 140,Manama, Kingdom of Bahrain

RegistrarKPMG Fakhro, BahrainP.O. Box 710, Manama, Kingdom of Bahrain

Parties Involved

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Contents

1 Definitions and Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101.2 Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

2 Resolutions and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

3 Time Table of the Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

4 Summary of the Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

5 Information about ABG and the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165.2 Letter from the Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .175.3 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .195.4 Core Management Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .225.5 ABG Functional Organisation Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .255.6 Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .265.7 Shari’a Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .275.8 ABG Organisational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .305.9 Definitions of ABG Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

6 Information on each Group Company and group-wide Initiatives . . . . . . . . . . . . . . . . . . . . .326.1 Information on each Group Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .326.2 Group-wide Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

7 Islamic Financial Markets Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .497.1 Market Snapshot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .497.2 Current Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .497.3 Growth Dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .497.4 Future Opportunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

8 The Group’s Financial Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .508.1 Letter from Reporting Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .518.2 Audited Financial Statements 2003 to 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .528.3 Financial Discussion for the years 2003 to 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74

9 The Group’s Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .769.1 Consolidated Financial Statements – 31 December 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .779.2 Subsidiaries not audited by Ernst & Young – details of Audit Firms as at 31 December 2005 . . . . . . . . . . . . . . . . . . . . .108

10 Dividend Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .109

11 Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11011.1 General Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11011.2 Risks relating to the Group’s business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11111.3 Legal and Regulatory Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114

12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11612.1 Albaraka Bank Lebanon (“ABBL”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11612.2 Banque Al Baraka d’Algérie (“BABD”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11612.3 Albaraka Türk Participation Bank (“ABTPB”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11612.4 The Egyptian Saudi Finance Bank S.A.E (“ESFB”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11612.5 Bank Et-Tamweel Al-Tunisi Al-Saudi (“B.E.S.T.”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11712.6 Albaraka Bank Sudan (“ABBS”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117

Contents

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13 Details of the Private Sale and Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11813.1 The Shares - Pre IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11813.2 Founders Trading Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11813.3 The Private Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11813.4 The Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118

14 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119

15 Dual Listing of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12015.1 All Applicants must have a CSD Account with the BSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12015.2 Applicants wishing to hold Shares on the DIFX must have a DIFX custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12015.3 Trading of shares on the BSE and the DIFX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120

16 Introduction to the BSE and the DIFX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12116.1 The Bahrain Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12116.2 The Dubai International Financial Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122

17 Terms and Conditions of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123

18 How to Apply for Shares through the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12518.1 The Application Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12518.2 Calculation of Subscription Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12618.3 Allotments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12718.4 Dispatch of Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12718.5 Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127

19 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128

20 Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12920.1 Summary of ABG’s Memorandum and Articles of Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12920.2 Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13320.3 Trading Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13320.4 No Material Change in accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13320.5 Borrowing Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13320.6 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13320.7 Underwriting of the Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13320.8 Financial Assistance to Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13320.9 Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

21 Documents Available for Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .134

APPENDIX – receiving banks and approved branches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .135

9

1.1 Definitions“AAOIFI” means Accounting and Auditing Organisation for Islamic Financial Institutions;

“ABG” or “Company” or “Issuer” means the Albaraka Banking Group B.S.C.;

“Allotment Announcement Date” means Wednesday, 5 July 2006;

“Allotment Date” means Monday, 3 July 2006;

“Accepted Applicant” means an Eligible Investor who applies for Shares through the Offer and whose application is accepted in wholeor in part;

“Applicant” means a person who applies for Shares through the Offer;

“Approved Branch” means a branch of a Receiving Bank at which applications for Offered Shares can be made, details of which areset out in the Appendix to this Prospectus, further details of which may be advised through public advertisement;

“Articles of Association” means the Company’s Articles of Association;

“Bank Charges” means transfer charges, cashier charges or cheque fees;

“BMA” means the Bahrain Monetary Agency;

“Board” means the Board of Directors of the Group, the details of which are set out in section 5, “Information about the Group”;

“BSE” means the Bahrain Stock Exchange;

“CDS Account” or “CSD Account” means the depositary account in which Shares are placed for trading on either the BSE or the DIFX,as the context may require;

“CMSD” means the BMA’s Capital Markets Supervision Directorate;

“Closing Date” means Thursday, 15 June 2006, which is the last day upon which Subscription Application Forms for the OfferedShares pursuant to the Offer will be received by the Receiving Banks;

“Core Management Team” means the senior management of the Company as set out in section 5, “Information about ABG and theGroup” and as amended from time to time by the Board with reference to the nomination committee;

“DIFC” means the Dubai International Financial Centre;

“DIFX” means the Dubai International Financial Exchange;

“Director” means a member of the Board or any of them as the context may require;

“Dispatch of Refunds Date” means Monday, 17 July 2006;

“DFSA” means the Dubai Financial Services Authority;

“Eligible Investor” means a person of any nationality over the age of 21 years, or a person of any nationality under the age of 21years whose guardian applies for Shares on their behalf;

“Founders” means Sheikh Saleh Abdullah Kamel and/or Dallah Al Baraka Holding Company E.C., as the context may require;

“GIB” means Gulf International Bank B.S.C.(c);

“Group”, “Group Company” and “Unit” means the Albaraka Banking Group B.S.C. and/or one or more of the subsidiaries of theAlbaraka Banking Group B.S.C., as the context may require;

“IFRS” means International Financial Reporting Standards;

“Independent Non-executive Directors” means those of the Non-executive Directors that are independent of the management whilealso being free from any business or other relationship that could interfere with the exercise of their independent judgement,Mr. SalehMohamed Al-Yousef and Dr. Anwar Ibrahim are currently Independent Non-executive Directors;

“Individual” means an Applicant that is a real person;

“Institution” means an Applicant that is a not a real person, but rather is some other form of legal person such as an incorporated body;

“Investor Fee” means the fee payable by Applicants to the BSE to open a BSE CSD Account;

“Investor Number” means an investor’s BSE CSD Account number;

“Issue Fees” means US$0.05 per Offered Share;

“IPO” or “Initial Public Offering“ or “Offer” means the initial public offering of Shares pursuant to the terms and conditions set out inthis Prospectus and the Subscription Application Form;

“Law” means the Bahrain Commercial Companies Law issued by Decree law No. (21) for the year 2001;

1 Definitions and Glossary of Technical Terms

10

“Offer Period” means the period starting on the Opening Date and ending on the Closing Date (inclusive), during which SubscriptionApplication Forms and Subscription Funds for Offered Shares pursuant to the Offer will be received by the Receiving Banks;

“Offer Price” means US$3.08 per Offered Share, which is inclusive of an Issue Fee of US$0.05 per Offered Share;

“Offered Shares” means all of the Shares offered to the public pursuant to the IPO;

“Opening Date” means Saturday, 27 May 2006, which is the first day upon which Subscription Application Forms for Offered Sharespursuant to the Offer will be received by Receiving Banks;

“New Shares” means newly created Shares that are issued to Applicants pursuant to the Offer, not including any Shares currentlyowned by the Selling Shareholders;

“New Shareholders” means those Shareholders who apply for and are allocated Offered Shares pursuant to the IPO;

“Non-executive Directors” means those Directors that have no administrative or management responsibilities in the Company, thecurrent Non-Executive Directors of the Company are Sheikh Saleh Abdullah Kamel, Mr. Saleh Mohamed Al-Yousef, Dr. Anwar Ibrahimand Mr. Abdulla Ammar Al Saudi (note that Mr. Saleh Mohamed Al-Yousef and Dr. Anwar Ibrahim are both Independent Non-executive Directors);

“Private Sale” means the pre-IPO sale of Shares from the Founders to Strategic Investors;

“Private Sale Shares” means those shares sold to Strategic Investors prior to the IPO, that are not offered to the public through the Offer;

“Prospectus” means this document;

“Receiving Banks” means those Receiving Banks that are listed in the Appendix;

“Selling Shareholders” means Sheikh Saleh Abdullah Kamel and Dallah Al Baraka Holding Company E.C.;

“Shareholders” means the holders of Shares;

“Shares” means Shares in the capital of the Company each with a nominal value of US$1.00;

“Strategic Investors” means the strategic investors who have agreed to purchase Shares through the Private Sale;

“Subscription Application Form” means the form that is available at Receiving Banks during the Offering Period, and whichApplicants must complete and submit to an Approved Branch, together with their Subscription Funds;

“Subscription Funds” means the amount calculated in accordance with the formula set out at section 18, “How to apply for Sharesthrough the IPO”; and

“Terms and Conditions” means the Terms and Conditions set out in section 17, “Terms and Conditions of the Offer” and/orappended to the Subscription Application Form, as the context may require.

1.2 Glossary of Technical Terms

“Diminishing Musharaka” means a contract by way of joint ownership of an asset by two parties whereby one party undertakes topurchase the other party’s share progressively;

“Fatwa” means a religious ruling issued by a Shari’a Supervisory Board opining on a particular transaction or matter that is intended to be in conformity with the Islamic Shari’a;

“Ijara Muntahia Bittamleek” means a contract for the leasing of a specified asset on terms whereby at the end of the lease period,the lessee acquires ownership of the asset (through a separate sale undertaking);

“Istisna’a” means a contract for works between the customer and his bank;

“Mudarib” means a manager of an account or agent acting on behalf of certain investors;

“Mudaraba” means a contract where investors (the rabb al-maals) provide capital (on a restricted or unrestricted basis) for investmentto the Mudarib;

“Murabaha” means the purchase by a bank of an asset at cost price and resale to the customer with a mark-up on a deferredpayment basis;

“Musharaka” means a form of Islamic joint venture;

“Shari’a” and “Shariah” means the laws of Islam derived from the Quran and the sayings, practice and traditions of the ProphetMohammed, peace be upon him;

“Sukuk” means a certificate of investment based on a securitised Islamic lease; and

“Zakah” means the compulsory tax payable by every Muslim in accordance with the principles of the Shari'a.

11

1. The Extraordinary General Assembly of ABG decided, during its 4th meeting held on 16 November 2005, to approve the conversionof Al Baraka Banking Group B.S.C.(c) from a closed shareholding company into a public shareholding company, and to list itsshares on the Bahrain Stock Exchange and on regional and global markets.

2. Al Baraka Banking Group B.S.C.(c) submitted an application to the Ministry of Industry and Commerce seeking approval of itsconversion into a public shareholding company and the Ministry approved this application in pursuance of the Council of Minister'sapproval dated 8 January 2006. No objection was received to the conversion of the Company to an open joint stock companywithin the time allowed for such objections and final approval for the completion of the conversion process was granted by thedecision of the Minister of Industry and Commerce No. (49) Issued on 15 April 2006.

3. The Issuer has obtained a no objection letter from the CMSD dated 4 May 2006 stating that it has no objection to the use of thisProspectus in relation to the Offer.

4. The Issuer has obtained a no objection letter from the DFSA addressed to the DIFX dated 2 May 2006, stating that the DFSA hasno objection to the admission of the Shares to the DIFX.

5. Application has been made to the BSE and the DIFX to list the Shares. Trading of the Shares on the BSE and the DIFX willcommence as soon as practicable following the Closing Date. An announcement will be made by each of the BSE and the DIFXconfirming the date that trading of Shares will commence.

2 Resolutions and Approvals

12

Opening Date Saturday, 27 May 2006

Closing Date Thursday, 15 June 2006

Allotment Date Monday, 3 July 2006

Allotment Announcement Date Wednesday, 5 July 2006

Dispatch of Refunds Date Monday, 17 July 2006

Commencement of Trading Trading of the Shares on the BSE and the DIFX will commence assoon as practicable following the Closing Date. An announcementwill be made by each of the BSE and the DIFX confirming the datethat trading of Shares will commence.

13

3 Time Table of the Offering

The IssuerAlbaraka Banking Group B.S.C., a Bahraini joint stock companyincorporated on 27 June 2002 with Commercial RegistrationNumber 48915 and holding BMA Operating Licence NumberOBU/060.

Offer Price The Offered Shares will be offered at an Offer Price of US$3.08per Offered Share.

Issue FeeThe Offer Price is inclusive of an Issue Fee of US$0.05 perOffered Share.

Nominal ValueThe nominal value per Share is US$1.00.

Share PremiumThe share premium for each of the Offered Shares (which is theOffer Price, less the Issue Fee and less the nominal value perOffered Share) is US$2.03 per Offered Share.

Number of Shares in the Offer188,908,587 Offered Shares comprising of: (i) 68,908,587 Sharesbeing Offered by the Selling Shareholders; and (ii) 120,000,000New Shares. The Offer Price is US$3.08 per Offered Share,which is inclusive of an Issue Fee of US$0.05 per Offered Share.The nominal value of each Offered Share is US$1 per OfferedShare. The resulting share premium to be paid to the Company inrelation to each of the New Shares is US$2.03 per New Share.

Authorised share capitalUS$1,500,000,000, which is made up of 1,500,000,000 Shareseach with a nominal value of US$1.00.

Issued and paid up share capital before the OfferThe issued and paid up share capital of ABG before the Offer isUS$510,000,000.

Issued and paid up share capital after the OfferThe issued and paid up share capital of ABG after the Offer isexpected to be US$630,000,000.

Rights of Offered SharesThe Company has one class of Share, and all Shares (includingOffer Shares) carry equal rights and obligations.

The Shares are indivisible but two or more persons may jointlyhold title to one or several Shares provided that they shall berepresented in relation to the Shares by one person. Joint ownersof Shares shall be jointly responsible for liabilities arising fromsuch ownership.

EligibilityApplicants of all nationalities over the age of 21 are eligible tosubscribe to the Offer. Applicants under the age of 21 shouldmake their application through their legal guardian.

Opening DateSaturday, 27 May 2006 (at the commencement of normal banking hours)

Closing DateThursday, 15 June 2006 (at the cessation of normal banking hours)

Allotment DateMonday, 3 July 2006

Allotment Announcement DateWednesday, 5 July 2006

dispatch of refunds DateMonday, 17 July 2006

Offer PeriodThe Offer Period opens on Saturday, 27 May 2006 and closes onThursday, 15 June 2006 inclusive.

Minimum SubscriptionIndividual Applicants must apply for a minimum of 1500 Shares,and in multiples of 100 Shares thereafter.

Institutional Applicants must apply for more than 3000 Shares,and in multiples of 100 Shares thereafter.

Allotment BASISIf the total number of Shares applied for exceeds the number ofOffered Shares, ABG shall, in consultation with the Lead Managerand the Bahrain Monetary Agency, establish an allotment basis. Itis currently intended that the allotment basis will be as follows:

1) Tranche A will consist of 38,000,000 Offered Shares(approximately 20% of the Offered Shares) which will beallocated to Individual Applicants pro-rata to the number ofOffered Shares they have applied for, up to a maximum of3000 Shares per Individual Applicant;

2) Tranche B will consist of the remaining 150,908,587 OfferedShares (approximately 80% of the Offered Shares), togetherwith all Tranche A Shares that have not been allocatedthrough Tranche A. Tranche B Shares will be alloted toInstitutional Applicants, pro-rata to the number of OfferedShares that they have applied for, and Individual Applicants,pro rata to the number of Shares they have applied for andnot been allotted under Tranche A;

3) The basis of allotment will be published in newspaperspublished in the Kingdom of Bahrain, and certain otherregional newspapers in the GCC as determined by ABG. Thedecision of ABG on the basis of allotment and on eachindividual allotment shall be final;

4) Applicants under the age of 21 should make their applicationsthrough their legal guardian;

5) Allotment of the Shares is expected to be completed on theAllotment Announcement Date; and

6) No Shares shall be distributed pursuant to this Prospectus atany date falling 12 months after the date of this Prospectus.

DisPAtch of Refunds to ApplicantsFollowing the allotment of the Offered Shares, each ReceivingBank shall distribute Allotment Letters to those Applicants whoapplied for Offered Shares through their respective ApprovedBranches, informing them of their respective allotments of OfferedShares pursuant to the IPO.

In the event that an application is rejected in whole or in part or ifthe Offer does not proceed, the Subscription Funds or thebalance thereof will be returned to the Applicant in the currencyin which they were initially remitted by the Applicant to therelevant Approved Branch, at the risk and cost of the Applicantand without accounting for profit.

14

4 Summary of the Offering

Allotment Letters and any refunds due will be dispatched, ormade available for collection, by no later than the DispatchRefunds Date.

Commencement of Trading on the Bahrain Stock Exchange and the DubaiInternational Financial ExchangeTrading of Shares on the BSE and the DIFX will commence assoon as practicable following the Closing Date. An announcementwill be made by each of the DIFX and the BSE confirming thedate that trading of Shares will commence.

Founders Trading Restrictions The Founders have agreed that they will not, during the 12 monthperiod following the Allotment Date, sell, contract to sell, grantany option or right to purchase, or otherwise transfer or disposeof, directly or indirectly, any of the Shares held by them followingthe IPO.

Strategic Investor’s Trading RestrictionsThe Strategic Investors have agreed (under the terms of thecontract pursuant to which each of them has purchased Sharesin the Company) that they will not, during the 6 month periodfollowing the Allotment Date, sell, contract to sell, grant anyoption or right to purchase, or otherwise transfer or dispose of,directly or indirectly, any Shares purchased by them pursuant tothe Private Sale.

Founders and Principal ShareholdersOn the Closing Date, Sheikh Saleh Abdullah Kamel will own a28.24% interest in the Group (177,940,367 Shares) and theDallah Al Baraka Holding Company E.C. (Bahrain) will own a23.11% interest in the Group (145,587,574 Shares).99.9% of theshares in the Dallah Al Baraka Holding Company E.C. are ownedby Sheikh Saleh Abdullah Kamel (either directly or indirectly).

Rank of Offered Shares The Offered Shares will rank pari passu in all respects with allother Shares of ABG.

DividendsThe Founders have agreed to waive any claims to dividends inrespect of Offered Shares sold through the IPO.

All Shareholders will be eligible to receive dividends declared forthe financial year ending 31 December 2006, in full.

Use of ProceedsThe net proceeds from the Offer will be used for the expansion ofthe existing and proposed Islamic banking business of the Group(particularly in Asia, Europe, Africa and the Middle East), toprovide additional capital for the purposes of expansion and forgeneral corporate purposes.

RisksThere are certain risks relating to an investment in the Group.These risks are described in section 11, “Risk Factors” whichshould be considered carefully by all Applicants prior to making adecision to invest in the Shares.

Subscription Application FormsSubscription Application Forms can be obtained at the ApprovedBranches of the Receiving Banks. For a list of details concerningthe Approved Branches refer to the Appendix to this Prospectus.

Payment of subscription fundsApplicants must remit to the Approved Branch their clearedSubscription Funds (which includes the Issue Fees) together withany applicable Investor Fee, net of any Bank Charges at the timeof submitting their application. If for any reason the instrument bywhich they have paid their Subscription Funds is returned, orinsufficient Subscription Funds are received, or cleared funds arenot available within 2 days after the Closing Date, the applicationmay be rejected in whole or in part.

Applicants who apply for Shares at a Receiving Bank in the UAEor in Bahrain are entitled to apply only in the local currency(Bahraini Dinar, or UAE Dirhams).

Applicants who apply for Shares at a Receiving Bank in Oman orin Qatar are entitled to apply only in United States Dollars.

Applicants may make payments as follows:a) by way of internal transfer from an account held with the

relevant Receiving Bank; b) by way of Manager's Cheque / Demand Draft (to be drawn in

the currency of the country in which the relevant ReceivingBank is located); or

c) by way of telegraphic transfer (Payment instructions to clearlymention the related Subscription Application form numberand the amount of funds that are payable, net of any BankCharges). Telegraphic transfers can only be made in UnitedStates Dollars and can only be made for amounts greaterthan US$100,000.

Cash deposits or personal cheques will not be accepted.

Underwriting Arrangements The Underwriters have, subject to customary terms andconditions included in underwriting agreements entered into withABG (which include, without limitation, terms and conditionsrelating to market conditions), agreed to underwrite the issue ofapproximately 73 million New Shares offered to the publicpursuant to the Offer.

Listing of the Shares on the BSE and the DIFXApplication has been made to the BSE and the DIFX for the listingand admission to trading of the Shares. All Applicants arerequired to have a CSD Account open with the BSE. Applicantswho do not have a CSD Account open with the BSE will berequired to apply to open a CSD Account with the BSE throughthe completion of the relevant section of their SubscriptionApplication Form. Initially, all Shares will be held in Applicants’BSE CSD Accounts.

15

5.1 Introduction Albaraka Banking Group B.S.C was incorporated in Bahrain on 27 June 2002 pursuant to the Bahrain Commercial Companies Law, withCommercial Registration number 48915. ABG was initially incorporated as a closed Bahrain joint stock company with two shareholders.On 16 November 2005 a resolution was passed at an Extraordinary General Meeting of ABG to authorise the conversion of ABG to aBahrain public joint stock company in order to allow for Shares to be made available to the public and to permit the listing of theShares on the BSE and the DIFX. ABG’s head office is located at Albaraka Tower, P.O. Box 1882, Manama, Kingdom of Bahrain.

ABG has an authorised share capital of US$1,500,000,000 (one and one half billion United States Dollars) divided into 1,500,000,000(one and one half billion) Shares, each with a nominal value of US$1.00. ABG is 55% owned by Sheikh Saleh Abdullah Kamel and45% owned by Dallah Al Baraka Holding Company E.C., Bahrain. ABG operates under a banking licence granted to it by the BMA,Licence Number OBU/060 dated 6 January 1998. ABG holds interests in ten geographically diverse subsidiaries incorporated inAlgeria, Bahrain, Egypt, Jordan, Lebanon, Pakistan, South Africa, Sudan, Tunisia and Turkey.

The ownership structure of the Group is set out in section 5.8, “ABG Organisational Structure”.

The creation of the Group arose from the need, identified through the vision of Sheikh Saleh Kamel, for a truly international Islamicbanking service worldwide. Through the consolidation of the 10 Units in the Group, an entity has been created that is establishing aname for itself in the Arab and Islamic banking world.

As noted in further detail in section 7, “Islamic Financial Markets Summary”, Islamic finance, as an industry, is still expanding. ABGmanagement estimate that the total assets held by Shari’a-compliant structures is approximately US$300 billion. In order to takeadvantage of the opportunities this situation presents, each Unit offers a wide range of Shari’a-compliant products. Further details onthe nature of these products, and the particular products offered by each Unit, are set out in section 6.2, “Group-wide Initiatives”.

The joining of the ten constituent banks under a single holding company has not only created a group whose financial strength isgreater than the sum of its parts, but has ideally placed it to take advantage of this growth in the industry and to expand to meet thechallenges of that growth. ABG sees its mandate as the creation of an Islamic banking conglomerate that will provide its customersworldwide with a growing array of products and services in conformity with the principles of the Shari’a.

Further details of each Unit are set out in section 6 “Information about the Group”. Although the Group structure chart sets out detailsof the subsidiaries of each Unit, none of these entities carries on any significant function.

ABG’s function is to oversee the smooth running of each of the Units. In addition, ABG will consolidate the Group’s operations in Bahrainby rationalising the activities of ABG and Bahrain based Units to effect operational and business synergies. The success of a diversegroup of companies such as the Group is measured by how well it coordinates and controls its business and operation strategies.

ABG has implemented Group-wide strategic plans to define the Group’s business and operational direction. ABG expects to achieveits strategy by increasing cross border business through active intra-Group coordination, diversification and innovation in the range ofproducts offered to customers, strengthening of corporate governance across the Group, further tightening of anti-money launderingcontrols, and upgrading IT systems. It is ABG’s function to co-ordinate these strategies across the Units, and to ensure that thesestrategies are implemented.

5 Information about the Group

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5.2 Letter from the ChairmanGrace to Allah whose blessings and good deeds are accomplished, and the prayers and peace of Allah be upon our Prophet,and upon all his descendents and companions.

Dear Investor

Peace and the mercy of Allah be upon you.

On behalf of the Board of Directors of ABG I am pleased to attach our Prospectus detailing the proposed sale of new and existingshares in the capital of ABG.

As is outlined more fully in the Prospectus, the mission of ABG is to become a leading Islamic banking group with a truly internationalpresence – offering retail, commercial, investment banking and treasury services strictly in accordance with the principles of Shari’a. Inorder to achieve this goal, the Board of Directors has developed a three stage strategy. The first step of this strategy – being theconsolidation of our existing businesses – has already been achieved through the establishment of an integrated business comprisingten subsidiaries located in 10 countries, and with a total of 184 branches in Algeria, Bahrain, Egypt, Jordan, Lebanon, Pakistan,Sudan, South Africa, Tunisia and Turkey.

However, we still have ambitious plans to grow the business in both new products and markets, and the implementation of the nextstages of our three stage strategy will require both significant financial commitment, and international support. To this end, we believethat the proposed Initial Public Offering of Shares on the Bahrain Stock Exchange and the Dubai International Financial Exchange willact as a catalyst for the injection of capital and the further establishment of our Group identity.

Steps to SuccessThe second stage in the fulfilment of our strategic plan is to complete successfully the IPO of ABG. This will enhance the strength ofour profile, capital structure and professional resources and will prepare the Group for the challenges of the third, and arguably mostimportant stage of our development strategy – that in which we shall deploy the new capital raised through our IPO to leverage off ourmarket leader position in key jurisdictions, cement the consolidated Group and expand into new markets.

Already an innovator in the region in terms of creating an integrated Islamic bank, introducing international standards of corporategovernance and in approaching new products and markets, we expect to achieve our strategies by:

• increasing cross border business through active intra-group co-ordination, diversification and innovation in the range of productsoffered to our customers;

• strengthening of corporate governance across ABG; • further strengthening of our anti-money laundering practices; • improving IT systems; and • funding research into the development of innovative Islamic financial products,

– all of which are more fully explained in the Prospectus.

Business Integration and Co-ordinationABG recognises that a major measure of the success of any multi-national organisation is by reference to how well it monitors andcontrols the strategies of its different business units, and how it is able to create a concerted focus for implementing its businessinitiatives. With this in mind, it has been a priority of ABG to implement a system of financial consolidation and control throughout all itsbusiness units, thereby creating a major consolidated banking group which embodies a single identity, yet which still retains thelocalised, and varied cultural understanding which makes each of the country businesses a leader in its own market. The furtherdevelopment and introduction of new IT, corporate governance, anti-money laundering and compliance systems will see the continueddevelopment of this integrated and co-ordinated business.

Creation of a single groupPreviously comprising an informal group of separate independent banks operating in 10 different countries, ABG has since 2003consolidated all its operations under the umbrella of ABG. ABG will also consolidate its operations in Bahrain by rationalising theactivities of the Group’s Bahrain based operations to effect operations and business synergies. From the point of view of undertakingour IPO, this process has, importantly, meant the successful consolidation of our financial statements for the years 2003, 2004 and2005. We have also conformed our financial accounting policies to Islamic Accounting Standards (as issued by the AAOIFI) andIFRS.In this way, we believe that ABG is able to create one of the leading international Islamic financial groups - creating a singleidentity through the implementation of broad policy initiatives (incorporating strategic plans to define business and operationaldirection) at a Group level, yet retaining a decentralised decision making capability at subsidiary, operational level.

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The separate operating units of ABG are each managed locally by their respective boards (which involve many of the leading bankersin local markets), with ultimate reporting to ABG’s Board of Directors. Functional control over all operating units is achieved throughthe introduction of standardised ABG Group policies – developed, implemented and administered by the Core Management Team,which comprises the Group’s Chief Executive Officer (Mr. Adnan Ahmed Yousif), the Deputy General Manager and the Group’s GlobalHeads of Department. Some of the major activities to be undertaken by the Core Management Team, in addition to its existingactivities, include:

• financial control;• internal audit;• risk management;• operations and administration;• credit; • treasury;• marketing;• information technology; and• research and development.

Annual performance targets are set at Group level through a management plan, with each operating unit of the Group being set a returnon investment target of 12% to be achieved by the end of the current year (it is intended to raise this to 15% in the subsequent 3 years).Such financial targets have been of fundamental importance to us in considering our intention to undertake the IPO – it being our strongconviction that, as a public company, our businesses should perform in a manner which seeks to reward the shareholders of ABG fortheir belief, and investment, in the Group.

Dual ListingAs I have explained above, it is our belief that the IPO is the platform on which ABG can launch its diversification and expansion.Reflecting our position as one of the leading regional financial institutions, with extensive international strategic growth plans, we havesought to widen our potential investor base by undertaking dual listings on the Bahrain Stock Exchange and Dubai InternationalFinancial Exchange. This will allow, we believe, the maximum flexibility in terms of trading for investors, while accessing the widestpossible regional investor base for the Group.

Post-IPO ExpansionAssuming successful completion of the IPO, ABG intends to embark on an expansion programme. It is our intention to allocate asignificant amount of the proceeds of the IPO towards expanding and developing the capital base of existing and future operatingunits and to undertake an expansion of our business into those countries and regions, such as the GCC, Europe, Africa and the FarEast, where we believe opportunities exist for the growth of Islamic banking.

ConclusionIn addition to outlining our own investment plans and growth strategy, the Prospectus highlights the opportunities which we believeexist more generally in the Islamic banking market worldwide. This market is currently undergoing a period of significant growth, whichin turn has given rise to more substantial liquidity levels than previously seen. Market values are at all time highs – achieving considerableshareholder value – and although there can be no guarantee that such values can be maintained (nor, indeed, that they will continueto rise), we believe that the strong business knowledge, ethos and values of ABG (combining as they do an international vision withlocal understanding and cultural awareness) will, on the back of a successful IPO, enable us to fulfil our mission of becoming a leadingIslamic bank with a global presence.

Yours sincerely

Sheikh Saleh Abdullah Kamel

Any decision by any potential investor to buy the Shares should be based on a consideration of the Prospectus in full and not on thebasis of this letter alone.

5 Information about the Group continued

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5.3 Board of Directors5.3.1 Role of the Board of DirectorsThe Board of Directors is responsible for the Group’s overall management. In particular, the Board is responsible for approving theGroup’s overall business strategy, monitoring its operations and taking critical business decisions. In line with international best practice,the Board of Directors has instituted corporate governance measures to ensure that the interests of the Shareholders are protected,including the appointment of Non-executive Directors and Independent Non-executive Directors in March 2006 to bring an independentview to the Board. The Group shall ensure that it complies with the requirements of the BMA and the DFSA with regard to any corporategovernance requirements, including the appointment of further independent non-executive directors and non-executive directors.

5.3.2 Board CompositionThe Company is administered by a Board of not less than 5 (five) and not more than 11 (eleven) Directors to be appointed and/or electedrespectively in accordance with the provisions of the Articles of Association. The number of Directors may be varied as describedbelow and subject to the provisions of the Law. The Shareholders may in an Ordinary General Meeting determine that the number ofDirectors exceed 11 in order to allow for additional expert or independent non-executive directors to be appointed as AppointedDirectors (as defined below). There is no age limit for the retirement of Directors.

Shareholder’s are entitled to appoint one Director for each 10% of the Shares owned by them (“Appointed Directors”). Shareholdersforfeit their right to vote for Elected Directors (as defined below) to the extent of the percentage or percentages of Shares used toappoint Appointed Director(s). If a Shareholder still holds a percentage that is not enough to make him eligible to appoint anotherAppointed Director, that Shareholder may use such percentage in voting with the other Shareholders who have the right to electElected Directors in accordance with the provisions of the Articles of Association.

The Ordinary General Meeting shall elect the remainder of the Board (the “Elected Directors”) by secret ballot, subject to the provisionsof the Articles of Association described above with respect to eligibility for voting. Elected Directors shall be selected from a list ofqualified nominees presented to the Chairman of the Board of Directors before the date of the Ordinary General Meeting at whichelections are scheduled to take place and after obtaining the approval of the Bahrain Monetary Agency in respect of suchnominations.

Members of the Board of Directors shall hold office for a three year renewable term. A corporate person who has appointed one ormore Appointed Directors may replace them by others at any time. An Elected Director may be re-elected upon the expiry of his termof office, and this shall be considered to be a new nomination which requires satisfaction by such member of all the terms and conditionsrequired to be satisfied by a nominee. The term of office for Directors may be extended by a resolution of the Bahrain Ministry ofIndustry and Commerce for a period not exceeding six months at the request of the Board in certain exceptional circumstances.

5.3.3 The Current Board of DirectorsThe Board currently consists of 8 Directors, four of whom are Non-executive Directors (two of these Non-executive Directors areIndependent Non-executive Directors. The posts of Chairman and Chief Executive Officer are held by different Directors and each hasseparate, clearly defined responsibilities. The Directors’ professional qualifications and brief C.V.s are set out below. The address andcontact details of each of the Directors is set out below.

Name Address FaxSheikh Saleh Abdullah Kamel Chairman and Non-executive Dallah AlBaraka Holding Co.

Member of the Board Dallah TowerPalestine RoadJeddah 21411Kingdom of Saudi Arabia +9662 6712809

Mr. Abdullah Ammar Al Saudi Non-executive Member of the Board Executive Chairmanand Vice Chairman ASA Consultants W.L.L.

P O Box 11544ManamaKingdom of Bahrain +973 17537040

Mr. Abdullah Saleh Kamel Member of the Board and Chairman President & Chief Executive Officerof the Board’s executive committee Dallah AlBaraka Holding Co.

Dallah TowerPalestine RoadJeddah 21411Kingdom of Saudi Arabia +9662 6717056

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Name Address FaxMr. Saleh Mohamed Al-Yousef Independent Non-executive P.O.Box 38108

Member of the Board and Chairman Al Dahiyah 72252of the audit committee Kuwait +965 2462011

Mr. Adnan Ahmed Yousif Chief Executive Officer Chief Executive Officerand Member of the Board Albaraka Banking Group B.S.C.

P.O.Box 1882ManamaKingdom of Bahrain +973 17530147

Dr. Anwar Ibrahim Independent Non-executive PresidentMember of the Board Anwar Ibrahim Consulting Associates, LLC

585 Grove Street, Suite 135HerndonVA 20170United States of America +1703 4645163

Mr. Mahmoud Jameel Hassoubah Member of the Board Senior Vice PresidentDallah AlBaraka Holding Co.Dallah TowerPalestine RoadJeddah 21411Kingdom of Saudi Arabia +9662 6170976

Mr. Abdul Elah A. Sabbahi Member of the Board Chief Financial OfficerDallah AlBaraka Holding Co.Dallah TowerPalestine RoadJeddah 21411Kingdom of Saudi Arabia +9662 6171197

Sheikh Saleh Abdullah Kamel Chairman and Non-executive DirectorB Com., Riyadh University, Saudi Arabia.Nationality: Saudi Arabian Age: 65

Chairman of Dallah Al Baraka Holding Company E.C., Jeddah, Saudi Arabia. Chairman of Egyptian Saudi Finance Bank, Egypt;Albaraka Bank Lebanon; Arab Media Company, Saudi Arabia; and Arab Radio & Television, Cayman Islands; Vice-Chairman of ArabAgricultural Investment Co., Bahrain; Member of the Board of Sunnyland Co., Cyprus. Chairman of General Council for Islamic Banksand Financial Institutions; President of Islamic Chamber of Commerce, Saudi Arabia. Founding Member of Faisal Islamic Bank, Sudanand Egypt; Saudi Livestock Trade & Transport Co.; National Saudi Shipping Co., and Saudi Arabian Public Transport Co. Sheikh Kamelalso retains active memberships of a host of social and educational organisations in a number of Arab countries as well as the U.K.,Germany, Switzerland and the U.S.A. He has delivered a great number of papers and lectures on Islamic economics, finance, bankingregulation, development and social philosophy and has established Islamic economic research centres in Saudi Arabia and Egypt.Sheikh Kamel has been the recipient of several international awards, ranging from Gulf Businessman Award in 1993 to Islamic Bankerof the Year from Islamic Development Bank in both 1995 and 1996.

Mr. Abdulla Ammar Al Saudi Vice Chairman and Non-executive Director Diploma in Commerce (1957)Nationality: Libyan Age: 69

Central Bank of Libya (1958 – 1972), Founding Chairman & General Manager, Libyan Arab Foreign Bank, Libya (1972 – 1980);Founding Chairman, UBAE Arab Italian Bank, Italy (1972 – 1982); Founding Chairman Banco Arabe Espanol, Spain (1975 – 1995);Director, FIAT S.p.A. Italy (1977 – 1982); Deputy Chairman, Founding President & Chief Executive, Arab Banking Corporation, Bahrain


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(1980 – 1994); Founding Chairman of Arab Financial Services (E.C.), Bahrain (1982 – 1994); Chairman, Banco Atlantico S.A., Spain(1984 – 1994). In addition to these he has lead top executive positions on several different financial institutions.

Currently Executive Chairman, ASA Consultants W.L.L. Bahrain (since 1994); Managing Director, Capital Investment Holding Co. B.S.C.Bahrain (since 1997); Director, The Housing Bank for Trade & Finance, Jordan (since 1997); Advisor, Credit Libanais, Lebanon (since 1997).

Mr. Saudi was honoured with various awards from: King of Spain (1977), President of Italy (1977), President of the Republic of Tunis(1993). He was awarded with “The Most Innovative Banker of the Year” by International Herald Tribune & European ManagementForum (1980); Award of “The Banker of the Year 1981” was given to him by the Board of Editors of Institutional Investor (1981);“Banking Achievement Award for Distinguished Life-time Achievements & Pioneering Contributions to Banking” award was given tohim by the Arab Bankers Association of North America (1991); Award of “The Banker of the Arab World” was granted to him by Unionof Arab Bankers in Vienna (1994).

Mr. Abdullah Saleh Kamel Director B. A. in Economics, University of California, USA.Nationality: Saudi Arabian Age: 40

President & Chief Executive Officer, Dallah Al Baraka Holding Company E.C. since 1995. Chairman of Halawani Bros. and AseerCompany, and Vice-Chairman of Bank Al-Jazira, Saudi Arabia. Member of the Board of Saudi Research & Marketing Group, JeddahChamber of Commerce, Young Presidents’ Organization and Kamel Provident Fund. Mr. Kamel’s experience has covered real estateinvestment and property management, trading and various executive positions in the Dallah Al Baraka Holding Company E.C. over thepast 15 years.

Mr. Saleh Mohamed Al-Yousef Independent Non-executive DirectorB.Com in Accounting, Kuwait UniversityNationality: Kuwaiti Age: 56

Ex-Chairman and Managing Director of the Industrial Bank of Kuwait (K.S.C.); Director of Gulf Invest. Mr. Al-Yousef has extensiveexperience in the banking industry, having been Chairman and Managing Director of the Industrial Bank of Kuwait (K.S.C.) from 1988to 2005. Prior to that, Mr. Al-Yousef held a number of executive positions with IBK and the Central Bank of Kuwait. Mr. Al-Yousef hasalso served on the boards of directors of a large number of financial institutions, including Gulf Bank, Kuwait, Arab Banking Corporation(B.S.C.) and Ahli United Bank B.S.C., both of Bahrain, and was Chairman of ABC Islamic Bank (E.C.), Bahrain.

Mr. Adnan Ahmed Yousif Chief Executive Officer and Director M.B.A. in Business Administration, Hull University, U.K. Nationality: Bahraini Age: 51

Chairman of Banque Albaraka D’Algerie; Albaraka Turk Participation Bank; Albaraka Bank Ltd., South Africa and European IslamicInvestment Bank, U.K. Mr. Yousif also holds directorships in Al Tawfeeq Company for Investment Funds Ltd., Cayman Islands and inseveral ABG subsidiaries. Following a distinguished career with Arab Banking Corporation (B.S.C.), culminating in his appointment tothe Board of that bank, Mr. Yousif served as Chief Executive Officer and board member of Bahrain Islamic Bank for two years prior tojoining the Board of ABG in 2004. He brings with him more than 30 years’ experience as a senior international banker. Mr. Yousif wasthe recipient of the Islamic Banker of the Year Award at the World Islamic Banking Conference in December 2004.

Dr. Anwar Ibrahim Independent Non-executive Director University of MalayaNationality: Malaysian Age: 59

Dr. Ibrahim has served as the Education Minister, Finance Minister and deputy Prime Minister of Malaysia. He is currently the visitingprofessor at the Centre for Muslim-Christian Understanding at Georgetown University in Washington D.C.

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Mr. Mahmoud Jameel Hassoubah DirectorDiploma in Engineering, Lamar College, Colorado, U.S.A. Nationality: Saudi Arabian Age: 63

First Deputy President, Dallah Al Baraka Holding Company E.C., Jeddah, Saudi Arabia. Chairman of Albaraka Islamic Bank, Bahrain;Jordan Islamic Bank; Al Amin Bank, Bahrain; Dallah Al Baraka Malaysia and Islamic Trading Company, Bahrain. Vice-Chairman ofEgyptian Saudi Finance Bank, Egypt; Cayman Islands and Jeddah Science and Technology Center. Mr. Hassoubah’s past experienceincludes several years in management roles in Saudi Airlines, followed by over 20 years in executive and Board positions with theDallah Al Baraka Holding Company E.C.

Mr. Abdul Elah A. Sabbahi DirectorB.Sc. in Economics & Management, King Abdulaziz University, Saudi Arabia. Nationality: Saudi Arabian Age: 53

Chief Financial Officer, Dallah Al Baraka Holding Company E.C., Assistant to the Chairman for Fund Management. Chairman of BankEt-Tamweel Al-Saudi Al-Tunisi (B.E.S.T.), Tunisia and of Arab Leasing International Finance, Saudi Arabia. Member of the Boards ofDallah Al Baraka Holding Company E.C., Bahrain; Algerian Saudi Leasing Ltd.; Dallah Al Baraka (UK) Ltd., London; Al Amin InvestmentCo., Jordan and United Albanian Bank, Albania. Mr. Sabbahi has over 25 years’ experience in international banking, the last 15 withthe Dallah Al Baraka Holding Company E.C. in Saudi Arabia.

5.3.4 Directors InterestsEach of the following Directors currently owns, or has a beneficial interest in the following Shares (either directly or indirectly):

Sheikh Saleh Abdullah Kamel (Chairman) 509,999,500 SharesMr. Abdullah Saleh Kamel (Member of the Board) 100 SharesMr. Adnan Ahmed Yousif (Chief Executive Officer and Member of the Board) 100 SharesMr. Mahmoud Jameel Hassoubah (Member of the Board) 100 SharesMr. Abdul Elah A. Sabbahi (Member of the Board) 100 Shares

It is anticipated that Sheikh Saleh Abdullah Kamel will have a direct or indirect beneficial interest in 323,527,441 Shares (51.35% of theShares) after the IPO.

5.4 Core Management TeamThe role of the Core Canagement Team is to effect consolidation and control over the entire Group. This is achieved through developinga system whereby centralised strategic decisions are made at the ABG level and subsequently filtered down to the Units. This systemensures the implementation of Group-wide polices and affects synergies of operations across the Group. The Core ManagementTeam consists of the positions outlined below. A functional organisation chart is set out in section 5.5, “ABG Functional OrganisationChart”. As noted in section 5.3.2, “Board Composition”, ABG has no age limit for the retirement of directors.

5.4.1 Chief Executive OfficerMr. Adnan Ahmed Yousif Chief Executive Officer and Member of the Board M.B.A. in Business Administration, Hull University, U.K.Nationality: Bahraini Age: 51

Following a distinguished career with Arab Banking Corporation (B.S.C.), culminating in his appointment to its Board, Mr. Yousif servedas Chief Executive Officer and board member of Bahrain Islamic Bank for two years prior to joining the Board of ABG in 2004, and hasmore than 30 years’ experience as a senior international banker.

The role of the Chief Executive Officer is to design, develop and implement a strategic business plan for the growth of the Group in themost cost effective and time efficient manner and to act as a motivational figure for its employees and providing support to the othermembers of the Core Management Team.


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5.4.2 Deputy General Manager (currently acting as Deputy to the CEO)Mr. Othman Ahmed SuliemanDeputy General Manager B.Sc. (Honours) in Economics, University of Khartoum, Sudan.Nationality: Sudanese Age: 65

Chairman of Albaraka Bank Sudan; member of the board of Al Wafaa Muritanien Islamic Bank, Mauritania; Jordan Islamic Bank; DallahAl Baraka Europe; Albaraka Bank South Africa; Egyptian Saudi Finance Bank, Egypt and Albaraka Islamic Bank, Bahrain. Mr Suliemanis also a member of the Committee on Corporate Governance at the Islamic Financial Services Board.

Mr. Sulieman’s career with ABG began in 1988 following more than 22 years in banking in Sudan, crowned by his appointment asChairman of the Board and General Manager of El Nilein Bank. From 1988 he has served the Dallah Al Baraka Holding Company E.C.,based in Jeddah, representing its interests worldwide. In the final 7 years prior to his appointment to ABG in 2002 he was responsiblefor all the group’s banking interests in Africa, in addition to lending his considerable experience on the boards of group banks in Asia andEurope and of the parent company. Mr. Sulieman is responsible for Group Coordination & Planning in ABG, in addition to his overallexecutive responsibilities.

The role of the Deputy General Manger is to oversee the day-to-day running of the Group and to develop strategic business plans withother members of the Core Management Team.

5.4.3 Global Heads of DepartmentMr. K. Krishnamoorthy Head of Financial Control ACA – Associate of the Institute of Chartered Accountants of India; B.Com., Osmania University, India. Nationality: Indian Age: 53

Mr. Krishnamoorthy has over 25 years of experience in financial and management reporting, corporate and structured finance, credit,strategic planning, project management, equity research and fund management and administration and has worked both in the MiddleEast and in North America. After spending several years in the accountancy field in India and Bahrain, Mr. Krishnamoorthy joined ArabBanking Corporation (B.S.C.)’s investment banking subsidiary, where he served for 12 years before moving to the parent bank’s TreasuryDepartment to manage its mutual fund investment portfolio, and later to head the Treasury Mid-Office and play an instrumental role inimplementing new front office and management information systems. After 2 years as a partner in a regional investment bank in theGulf, and a further period heading the worldwide banking solutions business of a major Canadian IT solutions company in Toronto, in2004 Mr. Krishnamoorthy took up his position at ABG, where his primary responsibilities cover group financial control and strategicplanning, the introduction of Group policies and methodologies and integration of management information systems, in addition to hisother formal duties.

The role of the Head of Financial Control is to manage the financial risks of the Group’s business. Other duties include beingresponsible for financial and strategic planning of the ABG Group and communicating the financial performance and forecasts to theCore Management Team.

Mr. Majeed H. Alawi Head of Internal Audit FCCA – Fellow of The Chartered Association of Certified Accountants, U.K. Nationality: Bahraini Age: 51

Mr. Alawi began his career at Banque Nationale de Paris, Bahrain branch, in 1981, moving to Arab Banking Corporation (B.S.C.)’sInternal Audit Department in 1988, where he covered the audits of Head Office and branches as well as most of the bank’s overseassubsidiaries. During his 12-year tenure with ABC he was also involved in several due diligence pre-acquisition special assignments forthe bank. Mr. Alawi has been with ABG since 2000, joining the Group when it was still under formation in order to ensure the establishmentof an effective Group audit function prior to the transfer of ownership and control of the constituent banks to ABG.

The role of the Head of Internal Audit is to act as an independent consulting individual whose tasks include providing objective reviewsand adding value through improving the Group’s operations. Furthermore, assisting the Group to accomplish its objectives ofenhancing a systematic and disciplined approach in evaluating and improving the effectiveness of its consolidated polices includingrisk management, control, and corporate governance.

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Dr Ahmad Mohyedeen Ahmad PhD in Islamic Economics, Umul Qura University, Makkah, Saudi Arabia; Masters in Fiqh Al Muamalat (Islamic jurisprudence onmatters of contract/dealings), Umul Qura University; Baccalaureate in Economics, Amdarman Islamic UniversityNationality: Sudanese Age: 56 years

Head of Research and Development, Albaraka Banking Group. Member of the Legislative Shari’a Committee, Albaraka Banking Group.Member of the Shari’a supervisory board of the Egyptian Saudi Finance Bank. Member of the Shari’a board of RHB Malaysia, Advisorto International Islamic Fiqh. Advisor to the Office of the Chairman of the Al Baraka Group and Supervisor of the Library at Al BarakaGroup. Previously a member of the Board of Directors and the Executive Committee of Al Tawfeeq and Al Ameen companies. SheikhAhmad has organised, been involved in and supervised various conferences, training courses and seminars. He has designed andorganised the economic Fatwa (Islamic rulings) computer programme. Sheikh Ahmad has worked on various research papers andpublications covering Islamic economics and Fatawa. He is accredited with several publications on Islamic financial products andIslamic economics.

5.4.4 New appointments to be madeAs part of its strategy of implementing international best practices in its operations and in anticipation of the IPO, ABG intends to makea number of key appointments as soon as practicable following the IPO. Details of these key appointments to be made are set out below.

Head of Legal Affairs – the role of the Head of Legal Affairs is to define and direct the Group-wide legal policies of the Groupincluding, the standardisation of all legal procedures and documentation, compliance with Shari’a law, coordination with the Shari’aBoard and the formulation of a Group-wide insurance risk policy.

Head of Risk Management – the role of the Head of Risk Management is to formulate and monitor Group-wide policies for credit,market, operations and risks. Other tasks include defining the framework for risk measurement, coordinating the implementation ofBasel II, introducing software which measures risk, monitoring the Group’s compliance with risk measurement standards, andproviding the other members of the Core Management Team with reports on the risk adjusted return on capital.

Head of Global Marketing – the role of the Head of Global Marketing is to coordinate the Group’s global marketing efforts which playa critical role in ensuring the success of cross-border transactions, large syndications and project and other financings. Duties willinclude establishing relationships with world-wide correspondent banks, coordinating the launch of innovative financial products, andassisting with developing a positive corporate image of the Group.

Head of Credit – the role of the Head of Credit is to introduce a consistent Group credit policy and develop a uniform credit scoringand evaluation system and a financing pricing model which quantifies the various risks. Duties also include monitoring the graded levelof credit approvals instituted across the Group focusing in particular on large intra-Group syndications and monitoring the granularitycontrol (defined in Basel II as the control of credit exposures across a group to related parties that have a potential for cross default)throughout the Group to limit the credit and market risk.

Head of Treasury – the role of the Head of Treasury is to assist in developing vehicles of liquidity, to provide treasury managementservices and to manage Group-wide assets and liabilities. Other duties include developing policies for liquidity, management ofstrategic investments, developing treasury product innovations and contributing to the research and development of financial productsoffered by the Group.

Head of Information Technology – the role of the Head of IT is to develop and implement a Group-wide strategy for IT and to continuallyupgrade and streamline the systems utilised within the Group and to ensure that such systems are compatible with one another.

Head of Operations and Administration – the role of the Head of Operations and Administration is to implement common Group-wide systems of operations and administration.


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5.5 ABG Functional Organisation Chart

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R&DOperations and

AdministrationCredit ITLegal MarketingTreasury

Risk

Management

Financial

Control

Basel II SteeringCommittee

IT SteeringCommittee

Internal Audit

Audit CommitteeBoard of DirectorsBoard Executive Committee

Nomination Committee

Remuneration Committee

Risk Committee

Executive Management Committee

Chief Executive Officer

Deputy General Manager(Currently acting as Deputy to the CEO)

5.6 Corporate GovernanceABG is committed to following internationally established principles of good corporate governance and appointed the Non-executive Directors in March 2006 in furtherance of this policy. Each of the Non-executive Directors are considered by the Board to beindependent of management and free from any business or other relationship that could materially interfere with the exercise of theirindependent judgment.

ABG is one of the first regionally established banks to be served by non-executive directors. The appointment of the Non-executiveDirectors is designed to increase stakeholders’ confidence in anticipation of the IPO and to strengthen the independent control,monitoring and evaluation of the Group’s business practices.

The posts of Chairman and Chief Executive Officer are held by different Directors and each has separate, clearly defined responsibilities.

ABG is ready, where practicable, to enter into a dialogue with institutional shareholders based on a mutual understanding ofobjectives. ABG is also committed to the principle of effective communication with investors, for example, by the constructive use ofannual general meetings of Shareholders.

The Board has overall responsibility for controlling ABG, making decisions relating to the ABG's strategic direction, and measuringprogress towards these goals. In order to ensure it has effective control over the ABG's activities, the Board has established an auditcommittee and is currently taking steps to establish a remuneration committee and a nomination committee, each with formallydelegated duties and responsibilities.

5.6.1 Board Executive CommitteeABG has put in place an executive committee chaired by Mr. Abdullah Saleh Kamel (who is a Director of ABG). The other membersare Mr. Adnan Ahmed Yousif and Mr. Abdul Elah A. Sabbahi. ABG is in the process of determining the precise scope of the executivecommittee’s role. It is expected that the Board of Directors shall delegate certain of its day to day functions to the executivecommittee, including certain financial, administrative and credit matters.

5.6.2 Nomination CommitteeABG is currently putting in place a nomination committee. This process is expected to be finalised prior to the end of 2006. Thenomination committee shall meet as required and shall make recommendations to the Board on new appointments to the Board andtop executive positions within ABG.

5.6.3 Remuneration CommitteeABG is currently putting in place a remuneration committee. This process is expected to be finalised prior to the end of 2006. Theremuneration committee shall meet at least once a year and shall consider all material elements of remuneration policy, theremuneration and incentivisation of the Board and the Core Management Team and all other ABG employees and shall makerecommendations to the Board on the framework for executive remuneration and its costs. No Director will be involved in setting hisown remuneration package.

5.6.4 Audit CommitteeAn audit committee has been formed and is chaired by Mr. Saleh Al-Yousef. Dr. Anwar Ibrahim has been recently nominated to theaudit committee and his appointment will be confirmed at the next Board of Directors meeting. Other members will be inducted in duecourse. The audit committee plans to meet formally at least 4 times a year and external auditors shall attend at least one meetingannually.

The external auditors shall have unrestricted access to the audit committee and its chairman. The audit committee shall consider allmatters relating to financial control and reporting, internal and external audits, the scope and results of the audits, regulatory complianceand risk management. The audit committee shall also monitor the independence of the external auditors and their remuneration.

The audit committee shall undertake the role of the insiders committee until such time as a separate insiders committee is established.

5.6.5 Risk ManagementABG is committed to complying with internationally established principles and policies in relation to risk management. In order to helpit to do this, ABG intends to appoint a global head of risk management, the anticipated duties of whom are set out at section 11,“Risk Management”. The Board has established a Basel II Steering Committee and a Head Office IT Steering Committee, each withformally delegated duties and responsibilities. ABG has also taken measures to ensure anti-money laundering compliance Group-wide.


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5.6.6 Basel II Steering CommitteeA Basel II Steering Committee has been set up by ABG to review the Group’s state of readiness for Basel II, from the perspective of theIslamic Financial Services Board. Basel II represents recommendations from bank supervisors and central bankers from the 13 countriesmaking up the Basel Committee on Banking Supervision to revise the international standards for measuring the adequacy of a bank’scapital. The Basel II Steering Committee is chaired by the Head of Financial Control and will be co-chaired by the Head of RiskManagement once he has been recruited. ABG aims to ensure that the Group is compliant with the Basel II recommendations byOctober 2008.

5.6.7 Head Office IT Steering CommitteeABG has established a Head Office IT Steering Committee (“ITSC”), which is chaired by the Deputy General Manager. The ITSC hasdeveloped a Business Intelligence Roadmap for implementing a web-based financial consolidation application and a corporateperformance measurement methodology using some key performance indicators to set performance benchmarks for each Unit andmonitor them on a continuous basis. The Roadmap will be further enhanced to include elements of exposure management across theGroup, including elements of risk management reporting, thus setting the stage for Basel II compliance.

The Committee will later re-evaluate the IT strategy for the Group as a whole to effect synergies in information and operation management.

5.6.8 Anti-Money Laundering The Group is required to comply with the BMA anti-money laundering regulations. ABG has appointed external consultants BDO JawadHabib (Bahrain) to assess and evaluate the Group’s existing anti-money laundering procedures. Upon conclusion of this exercise BDOJawad Habib (Bahrain) will produce for the Group a comprehensive document setting out procedures to be adopted at the Group levelin relation to its ongoing commitment to international best practice in this area. Furthermore, the Group is in the process of appointinga professional firm to conduct an annual review of the Group’s anti-money laundering procedures in accordance with the requirementsof the BMA.

5.6.9 Risk CommitteeThe Board of Directors is in the process of establishing a risk committee to be chaired by the Head of Risk Management once he hasbeen recruited. The role of the risk committee will be to oversee the risk management policies of the Group, including reviewing riskreports, identifying material risks and approving risk limits.

5.6.10 Employee IncentivesThe Directors believe that employee share ownership plays an integral part in recruiting, motivating and retaining talented employees.Due to differences in regional tax structures and the ownership structure of the Group, it is not considered desirable to establish aGroup-wide share plan. Alternatively, the Group is considering establishing employee share option plans for each Group Company,where practicable. An All-Employee Share Purchase Plan (the “ESPP”) is under consideration for employees of the Company. Dependingon the outcome of the Company’s deliberations, Bahrain-based employees of other Group Companies may also be entitled toparticipate in the ESPP, which will save other Bahrain domiciled Group Companies the cost of establishing their own independentemployee share schemes. In addition, the Company is considering the establishment of a Management Incentive Plan (the “MIP”) forthe Core Management Team and the Chief Executive Officers and General Managers of each Group Company. Neither the ESPP northe MIP will dilute Shareholders’ interests as all Shares used will be acquired by a special purpose vehicle on market, funded by theCompany (and no new Shares may be issued for the purposes of the ESPP or the MIP without prior Shareholder approval).

The Group seeks to keep its policy on employee incentives under review in order to ensure that staff are adequately incentivised.

5.7 Shari’a Supervisory Board5.7.1 The Role of the Shari’a Supervisory BoardThe Articles of Association require the Group to appoint a Shari’a Supervisory Board comprising of between three and five eminentIslamic scholars knowledgeable in Shari’a compliant financial products. In addition, each Group Company has its own Shari’asupervisory board. The Group’s Shari’a Supervisory Board role is to ensure that the investments and banking activities of the Groupand each Group Company are at all times consistent and compliant with the principles of Shari’a. The Shari’a Supervisory Board wasconstituted on 15 December 2002.

All members of the Shari’a Supervisory Board are eminent Islamic Shari’a scholars.

5.7.2 Approval of the IPO by the Shari’a Supervisory BoardThe Shari’a Supervisory Board has considered the IPO, and all transactions relating to the IPO, and granted its approval on 31 March 2006.

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5.7.3 Shari’a Supervisory Board Report regarding the IPOAlbaraka Banking Group

In the Name of Allah, the Beneficent, the Merciful

Report by the Unified Shari’a Supervisory Board (the “SSB”) on The Prospectus For thePrivate Sale and Initial Public Offering (the “IPO”) by Albaraka Banking Group (“ABG”)

Praise be to Allah, the Lord of the Worlds, and peace and blessings be upon our Prophet, and on his scion and companions,

To: Shareholders of ABG

The following matters were discussed during the extraordinary meeting of the Unified SSB:

1. The contents of the Prospectus for the IPO in ABG.2. An agreement to hold, on a trust basis, with one of the banks, the proceeds received from the subscribers for a specific period

until the allotment procedures are completed.3. An agreement with the subscription underwriters.4. The Employee Share Purchase Plan (the “ESPP”) of ABG’s employees and the executives of ABG’s Units, including in the

prospectus.

The SSB reviewed the Prospectus, the agreements listed under (2) and (3) above, and the details of the proposed ESPP for ABG’semployees and executives of ABG’s Units, listed under (4) above. The SSB received full replies, explanations and clarifications fromABG’s management to all the questions and queries raised by it.

OpinionThe SSB believes that the Prospectus, agreements and the ESPP are not in conflict with the principles and provisions of IslamicShari’a, and accordingly the SSB believes that the Prospectus, the Private Sale, the IPO, the agreements and the ESPP are all incompliance with the principles of Islamic Shari’a.

Issued today, Friday 2 Rabi'e Al Awwal, 1427 Hejra, corresponding to 31 March 2006.

Unified Shari’a Supervisory Board:

Sheikh Dr. Abdul Sattar Abu Ghuddah Sheikh Dr. Abdul Latif Al MahmoodChairman Member

Dr. Ahmed Mohyedeen Dr. Ezzedine KhojaMember Member

Sheikh Abdulla ManneaMember


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5.7.4 The Members of the Group’s Shari’aSupervisory Board Sheikh Dr Abdul Sattar Abdul Kareem Abu Ghuddah ChairmanPhD in Shari’a (comparative jurisprudence) and Masters in theScience of Hadeeth (Narrations), Al Azhar University; Degree inShari’a and degree in Law, University of Damascus.Nationality: Saudi Arabian Age: 65 years

Shari’a consultant for the Group since 1991. General Secretary ofthe Legislative Committee of the Al Baraka Group and of the AlTawfeek Company. Member and expert in the Islamic Fiqh Groupsince its inception, Saudi Arabia. Member of the InternationalLegislative Committee on Zakat and of various Shari’asupervisory boards in banks and trade, insurance and investmentcompanies. Member in various committees for the developmentof academic syllabuses, books and projects. Sheikh AbuGhuddah has taught Fiqh and Usul Al Fiqh (the origins of Islamicjurisprudence) in various institutions and has reviewed variouspublications and articles including those published by the Ministryof Awqaf, Kuwait and the Group. Sheikh Abu Ghuddah haspresented and taken part in television and radio programmes invarious countries on matters of Fiqh and has been involved inseminars, workshops and conferences internationally. He hasconducted research on matters such as Zakat, economics andaccountancy and has been involved in the compilation and reviewof Islamic rulings in respect of the banking sector, in associationwith the Al Baraka Group publication.

Sheikh Dr. Abdul Latif Mahmood Al Mahmood MemberPhD in Fiqh (Islamic jurisprudence) and Shari’a, ZaytoonaUniversity; Masters in Fiqh Al Muqarin (comparative jurisprudence)- Al Azhar University; Diploma in Education, Ain Shams UniversityNationality: Bahraini Age: 60 years

Chairman of the Department of Islamic Studies and the ArabicLanguage since 2001, Bahrain University. Professor in IslamicStudies, Bahrain University since 1985. Member of the Shari’asupervisory board at various institutions including the BahrainIslamic Bank, Al Takaful and the Arab Islamic BankingAssociation in Bahrain and London. Founding member of theIslamic Association in Bahrain and vice president and member ofthe Office of Islamic Dawa in Bahrain. Member of the Board ofTrustees of the Home for the Care of Parents, Bahrain. Sheikh AlMahmood has been involved in various conferences and seminarson Fiqh, economics, social, and other matters. He has variousresearch papers and publications and has been involved in thecreation of various textbooks on Islamic education for the Ministryof Development and Education in Bahrain. His teachings coverTafseer (exegesis) of the Quran, Usul, Fiqh and recommendations.

Dr Ahmad Mohyedeen Ahmad MemberPhD in Islamic Economics, Umul Qura University, Makkah, SaudiArabia; Masters in Fiqh Al Muamalat (Islamic jurisprudence onmatters of contract/dealings), Umul Qura University;Baccalaureate in Economics, Amdarman Islamic UniversityNationality: Sudanese Age: 56 years

Head of the Department of Research and Development, AlbarakaBanking Group. Member of the Legislative Shari’a Committee,Albaraka Banking Group. Member of the Shari’a supervisoryboard of the Egyptian Saudi Finance Bank. Member of theShari’a board of RHB Malaysia, Advisor to International IslamicFiqh. Advisor to the Office of the Chairman of the Al BarakaGroup and Supervisor of the Library at Al Baraka Group.Previously a member of the Board of Directors and the ExecutiveCommittee of Al Tawfeeq and Al Ameen companies. SheikhAhmad has organised, been involved in and supervised variousconferences, training courses and seminars. He has designedand organised the economic Fatwa (Islamic rulings) computerprogramme. Sheikh Ahmad has worked on various researchpapers and publications covering Islamic economics and Fatawa.He is accredited with several publications on Islamic financialproducts and Islamic economics.

Sheikh Abdulla bin Sulaiman bin Mohammad Al Mannea MemberMasters in Fiqh and Economics, College of Finance in matters of Fiqh in Saudi ArabiaNationality: Saudi Arabian Age: 76 years

Member of the Legislative Fatwa Committee and of the Committeeof the Grand Scholars. Member of the International Islamic Fiqh.Previously the Chief Justice of the Supreme Court i Makkah, SaudiArabia. Member of Shari’a legislative organisations for variousIslamic Financial Institutions.

Dr Ezzedine bin Mohammad Khoja MemberPhD in Islamic Shari’a Nationality: Tunisian Age: 48 years

Secretary General of the General Council for Islamic Banks andFinancial Institutions. Member of the Board of Trustees andExecutive committee at the International Islamic Centre forConciliation and Arbitration. Member of the Shari’a StandardsCommittee at the AAOIFI. Coordinator and member of theSharia's supervisory board at several Islamic Financial Institutions.Sheikh Khoja is a regular lecturer at several Islamic banking eventsand has delivered and designed training courses on Islamicbanking. He has published various textbooks and publicationsand is involved in preparing and presenting televisionprogrammes.

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5.8 ABG Organisational Structure


30

AAB99.9%

AIB78.3%

BABD (2*)

44.1%

AIB-P(Branch)

DAB99.9%

ABPL100%

ATIS70%

ESFC70%

ABBS87.8%

ABBL (4*)

96.3%B.E.S.T (5*)

78.4%ESFB (6*)

46.6%ABTPB (7*)

67.8%ABBL-S (3*)

22.5%

AOSC 94.3%

ARTC90%

ASRE95%

SKFI100%

FACT99.8%

ABIC80%

ABFC99%

JIB (1*)

53.7%

ABG

Notes

(1*) JIB has a 0.5% legal share in Albaraka Islamic Bank(2*) The effective beneficial and legal shareholding of ABG in BABD is 53.3% taking into account for the fact that B.E.S.T. has a 11.8%

shareholding (see note 5* below) (3*) Currently Albaraka Development and Investment Corporation (“ABID”) holds a 22.4% legal shareholding in ABBL-S. An application has

been made to the Registrar of Banks (South African Reserve Bank) to transfer the 22.4% legal shareholding in ABBL-S to ABG. ABBL-Sis awaiting regulatory approval for such transfer

(4*) ABG has recently injected US$16.5m into ABBL. It is expected that ABG’s legal shareholding in ABBL will be 96.3% following finalisation of the relavent legal formalities

(5*) B.E.S.T. has a 11.8% beneficial shareholding in BABD held in the name of ABG(6*) ABG has a 27.1% beneficial shareholding in ESFB (held on behalf of Dallah Al Baraka by ABG). It is proposed that this beneficial

interest will be sold to ABG in the near future bringing ABG’s legal shareholding in ESFB to 73.7%(7*) The authorised share capital of ABTPB has recently been increased and ABTPB is awaiting approval from the Banking Regulation and

Supervision Agency and the Trade Registry

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5.9 Definitions of ABG Units

Unit’s country of ABG s shareholding Definitions ABG Units incorporation in Unit

“JIB” Jordan Islamic Bank Jordan 53.7%(1*)

“AAB” Al-Amin Bank Bahrain 99.9%“AIB” Albaraka Islamic Bank Bahrain 78.3%

“AIB-P” Albaraka Islamic Bank Pakistan (Branch office)“BABD” Banque Albaraka D’Algerie Algeria 44.1%(2*)

“ABBS” Albaraka Bank Sudan Sudan 87.8%“ABBL-S” Albaraka Bank Limited South Africa 22.5%(3*)

“ABBL” Albaraka Bank Lebanon Lebanon 96.3%(4*)

“BEST” Bank Et-Tamweel Al-Tunisi A-Saudi Tunisia 78.4%(5*)

“ESFB” The Egyptian Saudi Finance Bank Egypt 46.6%(6*)

“ABTPB” Albaraka Türk Participation Bank Turkey 67.8%(7*)

Note: units are displayed in Arabic alphabetical order

Definitions of JIB’s Subsidiaries

Subsidiaries country JIB’s shareholdingDefinitions JIB’s Subsidiaries of incorporation in Subsidiary

“AOSC” Al-Omariya School Company Jordan 94.3%“ARTC” Al-Rizq Trading Company Jordan 90%“ASRE” Al-Samaha Real Estate Company Jordan 95%“FACT” Future Applied Computer Technology Company Jordan 99.8%“SKFI” Sanabl Al Khair for Financial Investment Jordan 100%

Definition of BABD’s Subsidiary

Subsidiaries country BABD’s shareholdingDefinitions BABD’s Subsidiaries of incorporation in Subsidiary

“DAB” Dar Albaraka Algeria 99.9%

Definitions of ABBS’s Subsidiaries

Subsidiaries country ABBS’s shareholdingDefinitions ABBS’s Subsidiaries of incorporation in Subsidiary

“ABFC” Albaraka Financial Company Sudan 99%“ABIC” Albaraka Insurance Company Sudan 80%

Definition of ABBL-S’s Subsidiary

Subsidiaries country ABBL-S’s shareholdingDefinitions ABBL-S’s Subsidiaries of incorporation in Subsidiary

“ABPL” Albaraka Properties (PTY) Ltd South Africa 100%

Definition of ABBL’s Subsidiary

Subsidiaries country ABBL’s shareholdingDefinitions ABBL’s Subsidiaries of incorporation in Subsidiary

“ATIS” Al-Amman Takaful Insurance SAL Lebanon 70%

Definition of ESFB’s Subsidiary

Subsidiaries country ESFB’s shareholdingDefinitions ESFB’s Subsidiaries of incorporation in Subsidiary

“ESFC” Egyptian Saudi Funding Company for Real Estate Investment Egypt 70%

6 Information on each Group Company & group-wide Initiatives

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6.1 Information on each Group CompanyThe following brief reviews of each Group Company, their respective backgrounds and recent performance, are intended to assist thereader in gaining a more thorough understanding of the Group. All figures are stated in the US dollar equivalents of the audited localcurrency-based balance sheets and profit & loss accounts, prepared in accordance with the Islamic Accounting Standards issued bythe AAOIFI and for matters not covered by AAOIFI, in accordance with the International Financial Reporting Standards, and withoutadjustment for consolidation purposes. Each Unit is managed by its respective board of directors, whose reporting lines are ultimatelyto ABG, but whose decision-making is decentralised within an overall strategic direction.

The Group is currently considering making ABG a business unit which would undertake banking activities in addition to the areas ofbusiness already undertaken by ABG. In addition, ABG would carry out head office functions.

6.1.1 Jordan Islamic Bank for Finance & Investment (Jordan) (“JIB”)Jordan Islamic Bank was established in 1978 as Jordan’s first Islamic bank. JIB currently has a network of 64 branch offices, a brokerageoffice at the Amman Stock Exchange and a service office at its bonded warehouse, served by a total staff of 1,457. Its 56 ATMs arelinked to the Jordan national payment network (JONET) of 540 machines maintained by all Jordanian banks and to the worldwide VisaInternational network. It is the 3rd largest bank in Jordan by total assets and total deposits held, despite the fact that it cannot extendto its customers the full range of facilities permitted by the banking regulations, as many of these fail to conform to the principles of theShari’a. JIB’s extensive product range includes murabaha, diminishing musharaka, mudaraba, Ijara Muntahia Bittamleek, instalmentsale and Istisna’a contracts, as well as investments in Islamic Sukuks and property development for on-sale or lease to its customers.It maintains full electronic linkage between all its branches and head office, and offers a full range of services to its customers includingcredit/charge card issuance, e-banking, speed cash and MoneyGram transfer services. With a steady track record since inception, JIBhas paid dividends in bonus shares equivalent to approximately 104% of the bank’s capital, in addition to cash dividends of 34% ofthe bank’s capital, over the past 10 years.

In 2005 Jordan’s GDP grew by an estimated 7.7%, similar to 2004’s rate. Growth was driven mainly by the manufacturing, transportand communications, trade, restaurants and hotels, finance, real estate and business services sectors, which between them contributedmore than 5% of the growth rate. Reflecting investors’ continued confidence, the reference share index of the Amman Stock Exchangeincreased by 85% over the year, while the value of traded shares reached JD12.5 billion compared with JD3.8 billion in 2004. As atmid-year, the Central Bank’s foreign currency reserves had reached US$5 billion, equivalent to more than 7 months’ imports, whileJordan’s external debt was reduced to under 60% of GDP compared with over 65% as at the end of 2004. Maintaining its policy ofpegging the Jordanian Dinar to the US dollar, the Central Bank increased interest rates in line with those of US and other internationalmarkets. Annual inflation stood at a reasonable 3.4% in November 2005.

JIB took full advantage of this positive economic environment, expanding its total assets by 14% to US$1.9 billion, through increasesin its liquid assets (16% increase to US$941 million) and murabaha sales receivables (34% to US$620 million), as well as Ijara MuntahiaBittamleek facilities (which expanded by 3.5 times to US$14 million), offset mainly by reduced non-trading investments. This expansionwas funded by a 23% increase in customers’ accounts, which reached US$495 million, and a 9% increase in unrestricted investmentaccounts to US$1.1 billion.

The increase in business turnover led to a 47% increase to US$74.8 million in income from jointly financed sales and investments sothat, after accounting for the return paid out to unrestricted investment account holders (less the bank’s Mudarib share, up 24% atUS$25.6 million), JIB’s net revenues from this source were US$42.5 million, 106% higher than the previous year. Including Mudaribshare from managing restricted investment accounts, and 54% higher revenues from banking services, fees and commissions, its total operating income rose sharply to US$63.7 million, 87% above 2004’s figure. Higher operating expenses of US$36.0 million(2004: US$27.6 million), due in part to infrastructure investment, reduced the operating profit to US$27.7 million, neverthelessrepresenting an increase over 2004 by a factor of 4.3 times. After taxation the net profit was US$18.5 million, four times the 2004result therefore representing an excellent year for the bank.

For 2006, JIB anticipates continuing to build its asset base, chiefly through murabaha financings, Ijara Muntahia Bittamleek activitiesand its investment portfolios (Muqarada bonds). Meanwhile, in view of the growth of its brokerage business since the opening of itsdedicated brokerage office in 2000, it has decided to transfer this business to a separate brokerage company. It also plans toimplement its new Smart Card service in the coming year.

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US$ 000 2003 2004 2005

Operating Income 36,054 34,071 63,689Net Income 4,700 4,619 18,458Financing and Investment Assets 669,130 772,537 869,779Total Assets 1,407,028 1,625,703 1,858,337Customer Deposits 1,243,265 1,445,236 1,697,316Total Liabilities, including URIA 1,326,659 1,543,565 1,760,412Paid up capital 56,417 56,417 56,417Total Equity 80,370 82,138 97,925

JOD 2003 2004 2005

Paid up capital 40,000,000 40,000,000 40,000,000

RegulationsAll banking and financial activities of whatever nature are regulated by the Central Bank of Jordan (“CBJ”), the Jordanian Banking Law,the Jordanian Companies Law and the Jordanian Securities Law.

JIB must also comply with the detailed regulations which relate to Islamic finance as stated in the Jordanian Banking Law.

In order to operate, banks in Jordan must hold: a certificate of incorporation issued by the Controller of Companies; and a bankinglicense issued by the CBJ, both of which JIB holds. JIB complies with all such banking regulations.

Minimum capital requirementPursuant to Jordanian Banking Law the CBJ determines the minimum capital requirement for banks in Jordan. As stated in the CBJ’sinstructions (10/12386 dated 20 August 2003) the minimum capital requirement for JIB is JOD40,000,000 (approx. US$56,688,539).JIB complies with this minimum capital requirement. Its paid up capital is JOD40,000,000.

Corporate governanceThe committees which report to the Board of Directors of JIB are the following: the audit committee; the executive committee; theShari’a board committee; the assets and receivables committee; the risk management committee; JIB’s securities portfolio committee;the quality control committee; the procurement committee; the central head office marketing committee; the branches marketingcommittee and the head office and branch investment and finance committees.

6.1.2 Albaraka Türk Participation Bank (Turkey) (“ABTPB”) ABTPB was incorporated in 1984 and granted its Special Finance House licence by the Central Bank in January 1985, permitting it tocollect and utilise funds on an interest-free basis. At the end of 2005 it had a network of 43 branches, having expanded by a further 7branches in the last year. Every branch maintains an ATM for customer use. Its total workforce of 909 staff has also grown in line withnetwork expansion, in addition to the recent establishment of a marketing department. Of the 52 banks and special finance housesoperating in Turkey, ABTPB ranks 24th in total assets, 19th in total deposits and 20th in terms of net profits, in every case representinga further improvement over 2004. It is also placed 3rd in terms of total funds collected of all non-interest finance institutions in Turkey,and 1st with respect to funds collected on both a per employee and a per branch basis among all Turkish participation banks.

Turkey’s GDP growth rate rose in 2005 to an estimated 5.8% following a strong performance in the last quarter. Growth was led by arise in exports – the driving force behind the economy’s growth over the last two years – and recovery of the real estate and constructionsectors, partly offset by lower overall manufacturing growth. The government’s implementation – albeit with some delay – of the three-year IMF standby agreement signed in May 2005, which envisages a tightening fiscal policy, state bank restructuring and privatisation,appears to be helping to lower inflation as well as improving the public finances and generally boosting growth. The current accountdeficit, however, continued to be a key area of concern, as although capital inflows into the country have helped to finance the deficitin the short run and keep depreciation of the Turkish lira at bay, this has been at the price of reduced exports due to price differentials.Unemployment, which remains stubbornly at around 10%, is also a continuing cause of concern, as is the heavy associated socialsecurity cost. Nevertheless, there are hopes that the anticipated fall in the lira, a projected pick-up in domestic demand and improvedexport performance will together work towards reducing the current account deficit from the current estimated 6.5% of GDP to under5% by 2006-7. It is also hoped that by openly announcing inflation targets this will help to boost confidence and may even prove to beself-fulfilling over time – inflation rates of 5-6.5% for 2006 have therefore been published. Meanwhile, progress on the EU accessionnegotiations, which opened in October 2005, will also have an inevitable impact on confidence.

In these uncertain conditions, ABTPB has resolved to focus equally on prudent cost management as on growth, seeking to maintaincredit quality and avoid weak credit allocation. The ratio of its net receivables under legal follow-up to total funds utilised, for example,has steadily fallen and now equals a healthy 0.5%. The bank has targeted the export and import trade as a means of enhancing revenues.

6 Information on each Group Company & group-wide Initiativescontinued

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In 2005 ABTPB’s total assets rose by 35% to US$1.46 billion, represented mainly by growth of 50% in murabaha sales receivablesand 26% in liquid assets. Its liabilities including unrestricted investment accounts likewise increased by 35%, to US$1.3 billion, reflectinggrowth of 43% in customers’ current and other accounts and 32% in unrestricted investment accounts. This portfolio expansion led toan increase in income from jointly financed sales and investments of 16% to US$120.5 million which, after accounting to unrestrictedinvestment account holders for their share, resulted in a 106% increase to US$40.6 million in the bank’s net revenues from this source.However, lower revenues from the bank’s own sales and investments and from banking services, fees and commissions led to anoverall 12% fall in operating income to US$153.8 million. However, lower depreciation and amortisation and other charges, whichmore than compensated for increased staff costs, led to a 14% reduction in operating expenses at US$123.8 million and consequentlythe net operating income was only 2% below that of 2004, at US$30.0 million. Following a US$7 million taxation credit, less a monetaryloss due to adjustment for hyperinflation, the bank reported a net profit of US$32 million, 22% up on 2004.

ABTPB’s 2006 targets include achieving a substantial increase in both local currency funds dollar and euro funds collected, as well asincreasing its revenues from banking services and fees and commissions. It also plans to open a further 10 branches and increase itspoint of sale terminal network.

US$ 000 2003 2004 2005

Operating Income 124,099 174,445 153,847Net Income 29,236 26,339 32,037Financing and Investment Assets 688,159 811,558 1,116,792Total Assets 851,167 1,080,670 1,457,078Customer Deposits 688,912 955,660 1,280,200Total Liabilities, including URIA 711,638 979,428 1,327,009Paid up Capital 121,095 148,478 93,472Total Equity 139,529 101,242 130,069

TRY 2003 2004 2005

Paid up capital 88,000,000 100,000,000 125,000,000

RegulationsAll banking and financial activities in Turkey of whatever nature are regulated by the Banking Regulation and Supervision Authority(“BRSA”) pursuant to the Banks Act No. 5411.

The relevant Turkish laws which banks operating in Turkey must follow are the Banks Act No. 5411 and subsequent legislationincluding the Regulation on the Establishment and Operations of the Special Finance Houses pursuant to the Banks Act No. 4389.Pursuant to a recent amendment to the Banks Act, the wording “special finance houses” has changed to “participation banks”.Accordingly, the special finance houses that are currently operating in Turkey are changing their trade names so as to include thewording “participation bank”.

Islamic finance law has no application in Turkey with respect to operations and activities of banks.

In order to operate as a bank in Turkey the following approvals need to be obtained (i) the requisite approvals from the BRSA; and (ii)the registration with the Turkish Trade Registry.

ABTPB holds all approvals issued by the BRSA and is registered with the Turkish Trade Registry and complies with all such bankingregulations.

Minimum capital requirementPursuant to the Banks Act No.5411 the minimum capital requirement for banks including participation banks in Turkey must be TRY30,000,000 (approx. US$23,000,000). ABTPB complies with this minimum capital requirement. ABTPB’s paid up capital isTRY125,000,000 (approx. US$93,970,000).

Corporate governanceThe committees which report to the board of directors of ABTPB are the following: the executive committee; the credit committee; theaudit committee; the risk follow-up committee; and the price quotation committee and senior risk committee.

ABTPB, complies with the provisions of the Banks Act No. 5411 with respect to corporate governance.

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6.1.3 The Egyptian Saudi Finance Bank (Egypt) (“ESFB”) The Egyptian Saudi Finance Bank was incorporated in March 1980. It is listed on the Cairo Stock Exchange. ESFB currently maintainsa network of 15 branches, in addition to several money changing bureaux in hotels and other strategically located sites. The bank isone of Egypt’s smallest banks, with less than 1% of total assets and deposits in the market, ranking 26th and 24th respectively bythese measures. It currently employs 604 personnel and its network includes the only women’s branch in Egypt, in addition to a unitdedicated to customers with special needs.

Egypt has traditionally had a large structural trade deficit, but a services and current account surplus. The trade deficit reachedUS$9.3 billion in 2004 as imports as well as exports (which continue to be dominated by oil but increasingly less so) both rosestrongly, to US$21.6 billion and US$12.4 billion respectively. This deficit was offset by surpluses derived from services – particularlytourism and Suez receipts – and inward remittances from overseas workers and other transfers, leading to a current account surplusequivalent to 3.8% of GDP, down from 5.2% of GDP in 2003 but nevertheless an improvement over earlier years. Annual GDP growthaveraged 3% over the period 2001-2005 but has strengthened somewhat since 2004. An economically liberal cabinet has begunintroducing a programme of economic reform, including privatisation measures and plans for cuts in customs duties and income andcorporate taxes. Steps are being taken to strengthen banks’ capital through mandatory minimum paid-up capital requirements – withthose banks unable to comply being merged into stronger institutions – as well as to address the problem of delinquent loans byexpediting settlement or restructuring. Confidence in the economy has therefore continued to grow, evidenced by inter alia thestrongly increased stock exchange turnover during 2005.

In an ebullient economic environment, ESFB was able once again to increase its business turnover, achieving a 39% increase in totalassets. This expansion was reflected in increases of 71% in both murabaha receivables, which stood at US$440 million at the end ofthe year, and mudaraba receivables (US$22 million) and a 69% increase in non-trading investments to US$379 million. Likewise,liabilities including unrestricted investment accounts rose by 33% to an aggregate US$927 million, the greatest expansion being in theunrestricted investment accounts. The income statement bore out this increased activity, as income from jointly financed sales andinvestments rose by 84% to US$67 million. The bank distributed all of this income to the unrestricted investment account holders,retaining only its share as Mudarib of US$11.4 million. After adding increased revenues from banking services, fees and commissions,ESFB was therefore able to report a 23% increase in total operating income, to US$19.8 million. Operating expenses increased by anoverall 8% to US$16.3 million, as increased staff costs were only partially offset by a reduced provision requirement, leaving a netoperating income after Zakah of US$3.4 million, comparing favourably with 2004’s US$1.1 million.

Among the most significant events of 2005 for ESFB was the mid-year increase in its paid-up capital to LE500 million (US$87.1million), providing future growth capability. The bank also took a number of steps aimed at improving both its organisational andmanagerial processes and its marketing profile. Among these initiatives was the formation of a banking risk department to beresponsible for ongoing regulatory compliance and the implementation of Basel II requirements. The new department will be overseenby a senior management banking risk committee tasked specifically with improving corporate monitoring and internal controls. On theliabilities side of the balance sheet, ESFB launched two new innovative 3-year term deposit schemes, denominated in local currencyand euro, featuring profit paid in advance to the investor.

Looking ahead, having fully extended the first tranche of funds available under a new financing service for small enterprises in cooperationwith the Social Development Fund – a scheme introduced in 2004 – ESFB will commence offering a second tranche from the beginningof 2006. It is also progressing with its comprehensive restructuring of its IT infrastructure, designed around a centralised system linkingall branches and incorporating the upgrading or renewal of all its existing networks, systems and equipment, and is preparing tointroduce telephone, mobile and Internet banking services to its customers. As it completes the preparatory work involved in expandingthe branch network by 3 new offices (to be located at Dekki, Nasr City and Sharm El Sheikh City) and setting up a network-wide ATMservice, ESFB is also preparing for the launch of its first Islamic investment fund.

US$ 000 2003 2004 2005

Operating Income 16,262 16,180 19,840Net Income 184 1,092 3,418Financing and Investment Assets 281,821 494,460 840,494Total Assets 548,389 737,325 1,021,436Customer Deposits 491,275 634,488 883,594Total Liabilities, including URIA 520,803 699,107 927,035Paid up capital 68,361 68,361 87,148Total Equity 27,586 38,218 94,401

EGP 2003 2004 2005

Paid up capital 149,999,997 149,999,997 499,999,997

RegulationsAll banking and financial activities in Egypt of whatever nature are regulated by the Central Bank of Egypt (the “CBE”).

The relevant Egyptian laws which banks operating in Egypt must follow are Law no. 88 of 2003 relating to the Central Bank Law andthe Banking & Currency Sectors; and the Executive Regulations issued by Presidential Decree no. 101 of 2004.

To operate in Egypt banks must be registered with the CBE. Other permits may be required from the Capital Market Authority toperform banking activities relating to capital markets (i.e. the creation of investment funds). ESFB is registered with the CBE.

Minimum capital requirementPursuant to the Banking Law No. 88 of 2003 the minimum capital requirement for banks in Egypt is EGP500,000,000 (approx.US$87,712,681). Currently, ESFB’s paid up capital is EGP499,999,997. ESFB are taking steps to increase its paid up capital so thatthey comply with the minimum capital requirement of EGP500,000,000.

Corporate governanceThe committees which report to the board of directors of ESFB are the following: the audit committee; the executive committee; thehigh management committee; the credit committee; the branches committee; the hiring committee and the Zakah Fund committee(donation committee).

In addition to these committees, the bank has another 15 internal committees. These include: the credit limits for local banks in Egyptianpounds committee; the real estate inspection and evaluation committee; the credit cards committee; the employees' complaintscommittee; the credit and investment policies committee; the management of assets and liabilities committee; the employment valuationcommittee; the executive management committee; the employment affairs committee; the banking services naming and valuationcommittee; the foreign exchange and use of foreign currencies committee; the debit card committee; and the banking risks committee.

6.1.4 Banque Albaraka D’Algerie S.P.A. (Algeria) (“BABD”)Banque Albaraka D’Algerie was formed in 1991 and is the only commercial bank in Algeria operating according to the principles of theShari’a. It has 11 branches operating throughout Algeria maintained by 461 staff. In terms of total assets and total deposits it is the 8thlargest bank in Algeria (the 2nd largest among the private sector banks), but by total financings it ranks 1st among the private sector.

The Algerian economy continued its strong rate of growth in 2005, with an estimated 7.1% rise in GDP, compared with an averagegrowth rate over the five year period 2000-2004 of 4.6% p.a. Foreign exchange reserves rose to US$55 billion, up from US$43 billionat the end of 2004 and equal to an astonishing 3 years’ imports. Total exports, aided by the oil price rises of the last two years, increasedby 31% to US$42 billion, while imports rose by only 6% to US$20 billion. Foreign debt fell, both in absolute terms (it now stands atUS$17 billion) and as a percentage of GDP (under 19%), as did domestic debt, on both counts. The government’s economic policies,reflecting its commitment to reducing unemployment – estimated at 15% of the registered work force, but possibly in actuality still ashigh as 24% of all those seeking work – through investment-driven growth, has resulted in massive expenditure on labour-intensivehousing, road and water projects. At the same time, its encouragement of foreign investment through gradual liberalisation of selectedsectors of the economy has led to a surge in external funds into the country, attracted particularly to the telecommunications, powerand water sectors. Forecasts are therefore for Algeria’s fiscal, trade and current account balances to remain strongly healthy over thenext few years.

The privatisation at the end of the year of three commercial banks, a housing bank and an agricultural bank maintained themomentum of change in the banking sector. Upcoming reforms, including new minimum capital requirements for banks and enhancedinternal controls, combined with the development of an electronic clearing and payment system, are also important elements of thedrive towards modernisation of the country’s banking system.

In 2005, BABD’s total assets rose by 4% to US$530 million, led by growth of 29% to US$311 million in its murabaha sales receivablesand a small increase in the Ijarah Muntahia Bittamleek portfolio offset by reductions in cash, bank and Central Bank balances,investments in associates and other assets. Total liabilities including unrestricted investment accounts increased by an overall 3% toUS$482 million. The total income from jointly financed sales and investments grew by 16% to US$27.6 million which, after accountingfor the share due to the unrestricted investment account holders, left a balance of US$20.0 million being the bank’s share including itsshare as Mudarib, 22% above the result for 2004. Including revenues from banking services, fees and commissions and otheroperating income, the bank’s total operating income was US$31.8 million, 8% above that of the previous year. Operating expenses, atUS$24.2 million, were 11% up on 2004. This resulted in a net income of US$9.3 million after a taxation charge of 2.9 million.

6 Information on each Group Company & Group-wide Initiativescontinued

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In 2006 BABD intends to expand its network by five new sale points and commence the construction of its new headquarters buildingin Algeria. On the marketing side, it plans to add Ijara real estate financing to its growing product range.

US$ 000 2003 2004 2005

Operating Income 24,194 29,442 31,788Net Income 3,449 4,331 9,306Financing and Investment Assets 282,534 264,533 334,213Total Assets 429,485 507,123 529,939Customer Deposits 354,057 421,635 432,384Total Liabilities, including URIA 396,052 467,612 481,784Paid up Capital 6,886 6,886 6,886Total Equity 33,433 39,511 48,155

DZD 2003 2004 2005

Paid up capital 500,000,000 500,000,000 500,000,000

* During February 2006 the paid up capital increased to DZD2,500,000,000

RegulationsAll banking and financial activities in Algeria of whatever nature are regulated by the central bank of Algeria known as the Banqued’Algérie (the “CBA”).

There is no Islamic finance law that is applicable in Algeria and there is no institution which regulates banks providing Islamic financial products.

The main law which Algerian banks must follow is the Ordinance n°03-11 which relates to currency and credit and addresses regulationsincluding: local currency; banking operations; authorizations and approvals; control of banks; and exchange controls.

This Ordinance is complemented by 80 regulations which include bank management, exchange control and currency regulations.Such regulations are themselves complemented and implemented by notes and instructions.

In order to operate, banks in Algeria must obtain prior approval from the CBA pursuant to Regulation n° 93-01 of 3 January 1993 asmodified by Regulation n°2000-02 of 2 April 2000. BABD has obtained such approval and complies with all such banking regulations.

Minimum capital requirementPursuant to Regulation n°04-01 of 4 March 2004, the minimum capital requirement for banks operating in Algeria is DZD2,500,000,000(approx. US$35,247,697). BABD complies with this minimum capital requirement. BABD’s paid up capital is DZD2,500,000,000).

Corporate governanceBABD has a Shari’a Board Committee consisting of one member. BABD does not have any other committees which report to theBoard of Directors.

6.1.5 Albaraka Islamic Bank B.S.C. (E.C.) (Bahrain) (“AIB”) Albaraka Islamic Bank began as an offshore investment bank in 1984 under the name of Albaraka Islamic Investment Bank B.S.C.(E.C.). In 1991 it spread its operations to Pakistan when it was granted a licence to operate there by the State Bank of Pakistan. Itchanged its name to the present form after being granted an additional, commercial banking, licence in December 1998 by the BahrainMonetary Agency. AIB currently has 10 branches in Pakistan, located in the major centres of Lahore (3), Karachi (3), Islamabad,Faisalabad, Rawalpindi and Multan, and two in Bahrain. The year 2005 was one of significant expansion for the bank, as 4 brancheswere added to the Pakistan network while one additional commercial branch was opened in Bahrain. AIB’s Pakistan activities constitute35% of its total operations as represented by its financing and investment portfolios, while its Bahrain business exposure constitutesabout 23% of the total, with the balance spread among the rest of the Middle East – primarily the other GCC states – and Europe.Pakistan’s economic performance therefore has the most significant bearing on AIB’s own performance and is therefore reviewedbelow. For a review of the Bahrain economy please refer to the section under AAB below.

Pakistan’s economy experienced yet another year of strong growth in fiscal 2004/5 and it appears likely to have met economists’forecast of 8.4% GDP growth – a 20-year record. The expansion was led by an upsurge in agricultural output, which achieved itshighest growth for a decade, but the industrial, construction and services sectors also produced robust performances. However, highoil prices, strong domestic demand and shortages of some commodities also resulted in a leap in the rate of inflation to over 9% and

6 Information on each Group Company & GROUP-WIDE Initiativescontinued

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an increase in both the fiscal deficit and the trade deficit, with the current account flipping over into deficit after three years in surplus.Notwithstanding strong fundamentals, there are concerns that both the inflation rate and the trade and current account deficits willworsen over the next two years.

In line with the general increase in business activity, AIB’s total assets increased by 13% over the year to US$511 million. This wasmainly reflected in a 35% increase in liquid assets to US$141 million and a 7% increase in murabaha sales receivables to US$274 million,but there were also significant increases in the mudaraba and Ijara Muntahia Bittamleek portfolios. The bank’s liabilities includingunrestricted investment accounts likewise grew, by an aggregate 14%, of which the largest constituent was the unrestricted investmentaccounts at US$375 million, which grew by 19%. The portfolio expansion led to an increase in income of 40% from jointly financedsales and 62% from jointly financed investments. After distributing the unrestricted investment holders’ share, amounting to US$15.0million – a 90% increase over 2004’s distributions – the bank earned (including its share as Mudarib) a net US$14.1 million from thissource. It also increased its income from its own sales and investments by an overall 192% to reach US$9.3 million. Total operatingincome was therefore 47% higher at US$27.0 million. Its operating expenses however increased by 37% to US$23.6 million, mainlydue to a 48% increase in depreciation charges and 17% higher staff costs as a consequence of the establishment of new branchesand the need to maintain competitive salaries. AIB nevertheless returned a net operating income which, at US$3.4 million, was 183%up on 2004 and after taxation produced a net profit of US$2.7 million, compared with 2004’s US$0.5 million.

AIB’s 2006 aims are to open a further six branches in Pakistan and two more in Bahrain. Its marketing focus in Pakistan will be onconsumer financing and stock market operations, both of which have yielded considerable profit in recent years, while in Bahrain it willcontinue to concentrate on servicing medium-sized enterprises. In the meantime, it is progressing with plans to set up a separatePakistan-based consumer finance division, which will be responsible for devising and launching new products into the market, andalso intends to offer its customers Internet banking services and ATM facilities – ATM services are already available in Bahrain andhave been linked into the national ATM Switch network there.

Having completed the necessary preliminaries in 2005, AIB also anticipates finalising the conversion of the Pakistan unit into a localbank during 2006, which will entail conversion of the capital held locally – currently denominated in dollars – into Pakistan Rupees anddoubling the amount of capital held in accordance with local requirements. Following these steps, AIB hopes to obtain a listing of thenew entity on the Pakistan stock exchange, offering a portion of the share capital to the public. Its plans for Basel II implementation by2007 are meanwhile also progressing well.

US$ 000 2003 2004 2005

Operating Income 15,903 18,405 27,030Net Income 1,104 531 2,687Financing and Investment Assets 303,720 333,471 357,656Total Assets 405,113 453,819 511,328Customer Deposits 336,949 383,623 436,187Total Liabilities, including URIA 345,238 392,981 448,966Paid up Capital (AIB) 50,000 50,000 50,000Paid up Capital (AIB-P)* N/A N/A N/ATotal Equity 59,875 60,838 62,362

* AIB-P is a branch of AIB. As such, AIB-P does not have equity capital of its own. AIB-P has capital resources equal to PKR 2,000,000,000 as of 31December 2005.

Bahrain regulations (AIB)All banking and financial activities in Bahrain of whatever nature are regulated by the Bahrain Monetary Agency (the “BMA”) established byDecree Law No. 23/1973 (the Bahrain Monetary Agency Law). The BMA exercises the functions of central bank and financial regulator.

The BMA issues (under the current regime, which is under review) a number of different classes of licences including an Investment BankLicence (Islamic Principles). AIB holds such a licence (Licence No. IBL/010 dated 30 September 1983). AIB also holds a commercialbanking licence.

AIB is obliged to comply with the provisions of the Law with regard to its corporate structure.

In addition to the statutory provisions with which banks must comply, there are detailed regulations set out in the BMA Rulebook,Volume 2 (Islamic Banks), which gives the regulations as to Business and Market Conduct, Financial Crimes, BMA ReportingRequirements, Licensing and Authorisation Requirements, Capital Adequacy Credit Risk Management and Enforcement and Redress.

AIB requires two consents in order to operate: (i) the BMA licence referred to above; and (ii) the commercial registration at theCommercial Register, a department of the Ministry of Industry and Commerce, both of which AIB holds. AIB complies with all suchbanking regulations.

Bahrain minimum capital requirement (AIB)Pursuant to BMA Licensing Standard Conditions the minimum capital requirement of an Investment Bank (Islamic Principles) operatingin Bahrain is US$10,000,000 but appropriate levels are agreed with the BMA as considered suitable on a case by case basis. AIBcomplies with this minimum capital requirement. AIB’s paid up capital is US$50,000,000.

Bahrain corporate governance (AIB)The committees which report to the board of directors of AIB are the following: the audit committee, the executive committee and theShari’a board.

Pakistan regulations (AIB-P)State Bank of Pakistan (the central bank), (the “SBP”) regulates the banking sector in Pakistan under the provisions of the State Bankof Pakistan Act, 1956 (the “SBP Act”), and the Banking Companies Ordinance, 1962 (the “BCO”). SBP is also responsible for the monetarypolicy and credit system in Pakistan. The main legislation dealing with the banking sector in Pakistan is the BCO which lays down theregulatory framework for banking in Pakistan. SBP ensures the compliance by the banks operating in Pakistan with the provisions ofthe SBP Act, the BCO, the Foreign Exchange Regulation Act, 1947, and the Prudential Regulations of SBP. A bank operating in Pakistanmust hold a valid banking license issued by the SBP. Similarly, before opening of each new branch by a banking company, priorpermission of SBP is required.

As of 2003, the SBP has been encouraging Islamic finance in Pakistan whereunder it is permitting in the country: (i) full-fledged Islamicbanks; (ii) Islamic banking subsidiaries of existing commercial banks; and (iii) stand-alone Islamic banking branches of existingcommercial banks.

AIB-P complies with all such banking regulations, as well as the instructions issued by the SBP regarding the operation of Islamic banks.

Pakistan minimum capital requirement (AIB-P)Pursuant to SBP BSD Circular Number 12 of 25 August 2004, the minimum capital requirement for the year ending 31 December2005 is PKR2,000,000,000 (approx. US$33,429,192). AIB-P’s capital resources are PKR2,000,000,000. The SBP has recently issuedBSD Circular Number 6 of 28 October 2005, where the minimum capital requirement has been increased to PKR3,000,000,000(approx. US$50,143,787) for the year ending 31 December 2006. By 2009, the minimum capital requirement will be PKR6,000,000,000.However, there is an exemption to the new minimum capital requirement set by the SBP for foreign banks operating branches inPakistan whose parent company has a minimum paid up capital of US$100,000,000 (net of losses) and a capital adequacy ratio of9%. AIB-P has not decided yet if they will comply with this new capital requirement or opt for the foreign bank branch exemption.

Pakistan corporate governance (AIB-P)The legal status of AIB-P is that of a branch. Consequently, the Pakistani Code of Corporate Governance, which applies only to listedcompanies, does not apply to operations of AIB-P. However, AIB-P voluntarily applies to this code of best practices in relation tocorporate governance.

The committees which report to the board of directors of AIB are the following: the regional credit committee; the regionalmanagement committee; the asset and liability committee; the information technology committee; the assets disposal committee; theHR recruitment committee; the RO management committee; the compliance committee; the business continuity steering committeeand the Basel II working group committee.

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6.1.6 Al Amin Bank (E.C.) (Bahrain) (“AAB”)AAB Bank commenced business in 1987 as Al-Amin Co. for Securities & Investment Funds (E.C.), but assumed its present name in2001 under an Islamic investment banking licence granted by the Bahrain Monetary Agency. It now has a staff of 32 specialistsworking from its Manama office which, during the year under report, was responsible for 72 issues valued at US$470 million, 117%higher than 2004’s record.

In 2005 the Bahrain economy continued the pattern of recent years, recording strong GDP growth, estimated at a minimum of 5.5%.Although all sectors exhibited growth, the retail & wholesale trade, monetary projects, oil & mining and real estate & services sectorswere the major contributors. The growth was also partly driven by the record value of government tenders awarded over the past 2-3years. Total Foreign Direct Investment in Bahrain reached an estimated US$21 billion in 2005 and is projected to run at US$4.2-6.2billion per annum over the next few years. Aiming to preserve the momentum of progress thus achieved so far, the government isdevoting significant effort and resources into the ongoing development of regulations and systems designed to reassure and encourageforeign investors, including the privatisation of a number of public projects and the creation of an appropriate, internationally respected,regulatory environment in support of the banking industry.

AAB took full advantage of the opportunities provided by its home country’s economic performance during the year, increasing its totalassets by 21% to US$328 million. The bank was particularly successful in expanding its mudaraba financing portfolio, by 23% to US$162million, and its murabaha sales receivables, which grew by 59% to US$38 million. Although its Ijara Muntahia Bittamleek portfolio balancewas lower at the close of the year, this was more than compensated by a 42% increase in Ijara receivables as well as a 30% increasein investments in associates. The expansion was in turn funded by an 11% increase in total liabilities including unrestricted investmentaccounts to US$173 million. As a result income from jointly financed sales and investments was up by 21% over 2004, at US$23.7million and, after an increase of 70% to US$6.5 million in the net share paid to unrestricted investment account holders after deductionof its share as Mudarib, AAB reported a 9% increase in its share of income from this source, at US$17.3 million. To this was addedincome of US$39.6 million from the bank’s own investments which, together with other operating income and commissions, produceda total operating income of US$57.3 million, more than doubling the previous year’s figure. After deducting increased operating expensesof US$16.9 million, reflecting in part additional depreciation and staff costs, the net operating income was US$40.4 million, comparingvery favourably with 2004’s result of US$15.3 million.

AAB’s goals for 2006 include managing an even greater number of issues than it handled in 2005, aiming to exceed US$200 million invalue. It will also continue the process, begun in 2005, of upgrading its data systems and IT hardware, also implementing both Anti-Money Laundering and Basel II-related systems.

US$ 000 2003 2004 2005


RegulationsAll banking and financial activities in Bahrain of whatever nature are regulated by the Bahrain Monetary Agency (the “BMA”) established byDecree Law No. 23/1973 (the Bahrain Monetary Agency Law). The BMA exercises the functions of central bank and financial regulator.

The BMA issues (under the current regime, which is under review) a number of different classes of licences including an InvestmentBank Licence (Islamic Principles). AAB holds such a licence (Licence No. IBL/042 dated 19 May 2001).

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AAB is obliged to comply with the provisions of the Law with regard to its corporate structure.

In addition to the statutory provisions with which banks must comply, there are detailed regulations set out in the BMA Rulebook,Volume 2 (Islamic Banks), which gives the regulations as to Business and Market Conduct, Financial Crimes, BMA ReportingRequirements, Licensing and Authorisation Requirements, Capital Adequacy Credit Risk Management and Enforcement and Redress.

AAB requires two consents in order to operate: (i) the BMA licence referred to above; and (ii) the commercial registration at theCommercial Register, a department of the Ministry of Industry and Commerce, both of which AAB holds. AAB complies with all suchbanking regulations.

Minimum capital requirementPursuant to BMA Licensing Standard Conditions the minimum capital requirement of an Investment Bank (Islamic Principles) operatingin Bahrain is US$10,000,000 but appropriate levels are agreed with the BMA as considered suitable on a case by case basis. AABcomplies with this minimum capital requirement. AAB’s paid up capital is US$60,000,000.

Corporate governanceThe committees which report to the board of directors of AAB are the following: the audit committee; the executive committee; themanagement committee; the credit committee; the issue committee; and the Shari’a board.

6.1.7 Albaraka Bank Sudan (Sudan) (“ABBS”)Albaraka Bank Sudan was established in 1984 and currently has a network of 23 branches and employs 685 staff. At the end of 2004it was ranked 11th of all Sudanese banks in terms of total assets and 12th in total deposits, but 7th in terms of net profit. ABBS wasacquired by the Company in January 2005.

Sudan is one of the world’s least developed countries, with a GDP of only US$23 billion or US$572 per capita. However, the discoveryof oil and its subsequent development – current output is 401,300 barrels per day with proved reserves of 1.6 billion barrels andnatural gas reserves estimated at 99 billion cubic metres – has had a beneficial effect on the economy, reducing oil imports from 13%of total imports in 1999 to zero in 2005, and contributing to a balance of trade surplus estimated at US$1.96 billion (fob basis) lastyear and a reduction in the current account deficit to US$0.658 million. It has also permitted the government a degree of flexibility inthe management of the economy, enabling it to implement IMF economic reforms and to embark on a programme of limited privatisationand development of the services sector. However, although agricultural productivity has improved, helping to reduce imports offoodstuffs, imports of machinery and heavy equipment have risen in line with infrastructure development and economic expansion.

Sudan’s economy grew by an estimated 8.6% in 2005, with the agricultural (43%), services (30%) and industrial (27%) sectors beingthe main contributors. Following the peace agreement in South Sudan and an improvement in Sudan’s international risk ratings, theinvestment environment also improved, permitting the country to borrow some US$1.3 billion in the year despite a total external debtof US$18.15 billion or 80% of GDP. Inflation has, however, been increasing gradually over the last three years, reaching 10% in 2005.

2005 was a successful year for Albaraka Bank Sudan. The bank reported an 81% increase in its total assets to US$207 million, mainlyreflecting growth of 49% in liquid assets to US$54 million and 52% in murabaha sales receivables to US$41 million, with significantgrowth also recorded in the musharaka financings and non-trading investments portfolios. This was matched by a 93% increase inliabilities including unrestricted investment accounts, the latter expanding from US$3.0 million in 2004 to a remarkable US$30.4 millionover the year. The increased business resulted in a 31% increase in income from jointly financed sales and investments which, afteraccounting to the unrestricted account holders for their share (which itself was 136% higher at over US$1.1 million), produced a returnto the bank from this source of US$8.8 million, 24% higher than the previous year. To this was added increased revenues frombanking services, fees and commissions to reach a total operating income of US$15.7 million. However, after higher operatingexpenses of US$10.9 million, 44% higher than in 2004, taxation and Zakah, ABBS ended the year with US$4.3 million net profit, still ahealthy 4% up on 2004.

ABBS recently replaced its IT systems with a comprehensive banking system which centralises much of the processing tasks of thebank whilst enabling its customers to avail themselves of most services via a single delivery point, simultaneously shortening handlingprocesses and saving customer time. In the coming year it hopes to link its ATMs and sales points with the national system that isbeing created by the Bank of Sudan. It also aims to increase market share despite the impending competition anticipated from theentry of four new banking operations into the market, by expanding both its branch network by three branches and its overall portfolio.


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US$ 000 2003 2004 2005


SD 2003 2004 2005

Paid up capital 544,518,277 1,365,527,150 4,065,812,725

RegulationsAll banking (including Islamic finance) and financial activities in Sudan of whatever nature are regulated by the Bank of Sudan togetherwith the Board of the Stock Exchange and the Commercial Register of Companies.

Key regulations which banks operating in Sudan must follow include: the Law of the Regulation of Banking Activity 2003, theCompanies Act 1925, the Khartoum Stock Exchange Act 1994, the Law on the Sale of Bank Collateral 1990, the Foreign ExchangeAct 1998, the Encouragement of Investment Act 2003, the Foreign Exchange Act and the Bankruptcy Laws.

In order to operate, banks in Sudan must obtain a Registration of Certification from the Registrar of Companies and the approval ofthe Bank of Sudan. ABBS has obtained all approvals and complies with all such banking regulations.

Minimum capital requirementThe Bank of Sudan requires that banks have a minimum share capital of Sudanese Dinars 3,000,000,000 (approx. US$14,091,123)..According to a circular issued by the Bank of Sudan, banks will be required to increase their share capital to SD 6,000,000,000(approx. US$28,182,245). No time frame has been specified for this increase. Currently ABBS complies with this minimum capitalrequirement. ABBS’s paid up capital is SD4,065,812,725 (approx. US$19,097,289).

Corporate governanceThe committees which report to the Board of Directors of ABBS are the executive committee, the audit committee, human resourcesdevelopment committee and the Shari’a board committee.

6.1.8 Bank Et-Tamweel Al-Tunisi Al-Saudi (Tunisia) (“B.E.S.T.”)B.E.S.T. was incorporated in Tunisia in 1983 as a joint stock company with an offshore banking licence. In 1985, pursuant to anamendment to the relevant legislation, the bank was permitted to conduct onshore banking business in local currency with Tunisianresidents up to a ceiling of 1% of the total deposits of all the commercial banks. Within Tunisia, B.E.S.T. provides finance in respect ofthe limited range of economic areas permitted to it, which includes the agricultural, industrial, tourism, and export industries. The bankcurrently has 6 branches serviced by 117 employees. In terms of relative size, it now holds some 15% of the Tunisian Offshore BanksSector’s total assets and about 29% of its total deposits. B.E.S.T. is 78.4% owned by the Albaraka Banking Group.

On the whole the Tunisian economy did well in 2005 despite the country being a non-oil producer, as it largely managed to overcomethe negative impact of the major increase in energy prices during the year. Although its cost of imports increased by 7.5%, its exportsand foreign currency receipts from the tourism sector both grew by around 12%. These factors, supported by strong inwardinvestment and increased remittance transfers from Tunisians working abroad, produced a 17% increase in foreign currency reserves,equal to 4 months’ import cover compared with 3.5 months’ cover in 2004, and a GDP growth rate of 5%. With the Central Bankmaintaining interest rates around the 5% level, the rate of inflation was reduced to 2% from 4% a year earlier.

Reflecting its renewed focus on improving portfolio returns, total assets at B.E.S.T. increased by only 2% in 2005, mostly representedby liquid assets as the bank concentrated on quality control and income maximisation. This emphasis was duly rewarded, as it wasable to report an 18% increase to US$7.9 million in income from jointly financed sales and investments, of which the bank’s shareincluding its share as Mudarib, after distribution to unrestricted investment account holders, was US$5.0 million – a gain of 40% over2004. Its total operating income was consequently 19% higher at US$8.6 million. After operating expenses, marginally higher than theprevious year at US$4.7 million, and a taxation refund, B.E.S.T. returned a net profit of US$4.0 million, 51% up on 2004.

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2005’s performance testifies to the success of the bank’s efforts in collection of past due debts and careful monitoring of existingexposure within a framework of cautious expansion. Over the last two years, B.E.S.T. has created several new internal unitsaddressing risk control, marketing and organisation, and implemented a comprehensive new credit policy. Its aims for 2006 includeadding a further branch to its network, upgrading its IT systems to international standards and expanding its Internet facilities to enableits customers to access its full service range. It will meanwhile continue to build on its cautious expansionary policy.

US$ 000 2003 2004 2005


RegulationsAll banking and financial activities in Tunisia of whatever nature are regulated by the Central Bank of Tunisia (the “CBT”).

The establishment and operations of banks in Tunisia is regulated by law N 2001-65 of 10 July 2001.

In order to offer Islamic financial products banks must obtain the approval of the CBT pursuant to the CBT n° 33579. B.E.S.T. holdssuch approval and complies with all such banking regulations.

Minimum capital requirementPursuant to law n°2001-65 dated 10 July 2001, the minimum capital requirement for banks operating in Tunisia is TND10,000,000(approx. US$7,432,734). B.E.S.T. complies with this minimum capital requirement. Its paid up capital is US$50,000,000.

Corporate governanceThe committees which report to the board of directors of B.E.S.T. are the following: the committee of internal audit and inspection; the committee of management control and budgetary follow-up; the committee of organization and data processing; the committee of transactions; the legal committee; the treasury committee; the marketing committee and the committee for administrative affairs.

6.1.9 Albaraka Bank Limited (South Africa) (“ABBL-S”) Albaraka Bank Limited was established in 1989 and its activities are directed mainly at the 2% of Muslims in the population of SouthAfrica. Until recently it was the only bank providing Islamic facilities – mainly murabaha and musharaka finance – in South Africa,however a number of other banks are now beginning to offer competing products. Its Durban head office and four branches inDurban, Johannesburg, Pretoria and Cape Town employ 150 staff between them. ABBL-S’s main activities are the collection ofdeposits and the provision of trade-related, asset-based or motor vehicle and property purchase financial facilities.

The South African rand remained strong in 2005, driven by high gold prices and strong inward investment flows. This inevitably putpressure on trade performance, however, as imports increased over the year to US$53 billion while exports only rose to US$51 billion,resulting in a US$2 billion trade deficit. Partly as a result of this, the current account deficit increased from 3.3% to 4.1% of GDP.Nevertheless GDP growth, which has averaged 3.4% over 2001-2005, continued to reflect the underlying strength of the economyunder the government’s growth and investment-driven policies, while inflation remains under control and within the Central Bank’starget range of 3-6%, as evidenced by its decision in December to leave the repurchase rate untouched at 7%.

Due to inherent restrictions placed on its activities by capital adequacy requirements of the Central Bank, which are currently beingaddressed, ABBL-S’s energies were largely focused in 2005 on improving its corporate governance processes and procedures,formulating a strategy for increasing its share capital and readying itself for Basel II implementation. After 2004’s major expansion(when the bank’s total assets exceeded ZAR 1 billion for the first time) it allowed its asset base to increase by only some 5% toUS$187 million in 2005, with a commensurately minimal increase in its total liabilities. Within the total asset increase, however, ABBL-S’s murabaha receivables portfolio was expanded moderately by 12% to US$117 million. This increased facility turnover was howeversufficient to enable the bank to increase its income from both its jointly financed sales and investments by 23% overall so that, afteraccounting to its unrestricted investment account holders for their share net of its own share as Mudarib, its share of revenues from thissource was likewise increased by 23%, to US$6.0 million. After inclusion of revenues from banking services, fees and commissions, a19% increase in operating income to US$7.1 million was recorded. Operating expenses were 13% higher at US$5.5 million, leaving anet operating income of US$1.6 million, 48% higher than 2004. After taxation, the net profit was US$1.2 million, 50% higher than2004, a creditable result.


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During the year ABBL-S fully implemented its new retail systems. Centralisation of the database has facilitated extraction and utilisationof data for both control and management purposes and permitted inter-branch enquiries as well as customer access to retail servicesfrom any branch of the bank. A number of front-end systems are now being integrated, for completion early in 2006, while additionalprojects such as credit scoring and statement automation are in the planning stage. Meanwhile, progress towards Basel IIimplementation proceeds apace.

US$ 000 2003 2004 2005

Operating Income 5,018 5,912 7,057Net Income 411 773 1,163Earning Assets 82,976 147,744 159,336Total Assets 129,700 177,792 186,542Customer Deposits 113,125 155,607 158,815Total Liabilities, including URIA 120,931 164,700 167,815Paid up Capital 5,979 9,314 14,079Total Equity 8,769 13,092 18,727

ZAR 2003 2004 2005

Paid up capital 40,850,000 53,400,000 86,710,000

RegulationsThe South African Reserve Bank (the “SARB") is responsible for bank regulation and supervision in South Africa. It issues banking licencesto banking institutions and monitors their activities in terms of the Banks Act 94 of 1990 (the "Banks Act"). The Banks Act regulatesthe registration of banks, the inspection powers of the Registrar of Banks, shareholding in banks, the functioning of banks, aspects ofthe conduct of the business of a bank and certain prudential requirements of banks. ABBL-S holds the necessary certificate of finalregistration as a bank as well as its annual business licence for the year ending December 2005 to conduct the business of a bank.

The Minister of Finance has wide powers to make regulations in terms of the Banks Act relating to any matter required or permitted tobe prescribed by regulation, including any regulation which the Minister may deem necessary or expedient better to achieve theobjects and purposes of the Banks Act.

Further legislation applicable to ABBL-S is the Prevention of Organised Crime Act, 121 of 1998, which introduces measures to combatorganised crime and money laundering; the Financial Intelligence Centre Act, 38 of 2001, which sets out the responsibilities ofaccountable institutions to identify and report suspicious clients or transactions to the relevant authorities; and the Protection ofConstitutional Democracy Against Terrorist and Related Activities Act, 33 of 2004, which prohibits the dealing with or facilitatingtransactions in connection with property which a person knows or reasonably ought to have known has been acquired or used tocommit an offence such as a terrorist activity. ABBL-S complies with all such banking regulations and approvals.

Minimum capital requirementPursuant to the Banks Act and the regulations under the Banks Act the minimum capital requirement which ABBL-S must maintain isZAR106,794,000 (approx. US$17,191,426). As at 31 January 2006, ABBL-S minimum capital requirement was ZAR86,710,000(approx. US$13,958,355). ABBL-S is currently awaiting regulatory approval from SARB for the transfer of shares held by AlbarakaInvestment and Development Company to ABG. Once approval is granted, ABG will be injecting a further ZAR48,453,990 (approx.US$7,800,000) into ABBL-S, resulting in the capital paid up exceeding the required ZAR106,794,000.

Corporate governanceThe committees which report to the board of directors of ABBL-S are the following: the credit committee; the directors' affairs committee;the audit committee; the remuneration committee; and the risk committee.

One of the key achievements of ABBL-S in 2004 was the implementation of a revised corporate governance model to conform withthe King Report on Corporate Governance for South Africa 2002 ("King II"). The aim of King II is to promote the highest standards ofcorporate governance in South Africa and has been recognised by major investors and institutions as containing the best governanceprincipals of listed companies in emerging economies.

On 26 June 2004 the Basel Committee on Banking Supervision issued The International Convergence of Capital Measurement andCapital Standards, known as Basel II. Pursuant to circular 20/2004 issued by the SARB on 14 December 2004, the implementationdate in South Africa for Basel II is 1 January 2008. SARB will assist banks in their implementation of Basel II. ABBL-S has establisheda Basel II Steering Committee to oversee and monitor the implementation process and a Basel II Task Team to implement Basel II.

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6.1.10 Albaraka Bank Lebanon S.A.L. (Lebanon) (“ABBL”) Although ABBL was formed in 1992 the absence, prior to 2004, of appropriate laws and regulations to govern the practice of Islamicbanking in Lebanon has meant that it has had to conduct Islamic banking activities whilst being regulated in a conventional manner.ABBL has therefore largely concentrated on the management of unrestricted investment accounts and the provision of retail bankingservices to small businesses and the general public. ABBL has 110 employees and maintains a total of 5 branches in Lebanon,including its main branch plus a second in Beirut and one each in Tripoli, Sidon and Shtura.

In 2005 the Lebanese economy’s real GDP growth was estimated at zero, bringing to an abrupt halt the hitherto positive growth trendthat had reached 5% in 2004. Nevertheless, the economy had exhibited much of its traditional strengths with a speedy return toconfidence following the upheaval caused by the assassination of President Hariri, with the banking system withstanding the temporarycash withdrawals and maintaining good levels of capitalisation and liquidity throughout. The system also benefited from a significantinflow of funds from the Gulf Arab states, reflecting the liquidity surpluses built up in the GCC states in particular, following the oilprices increases of 2004-2005. In addition, the tourism industry still registered an increase in visitors and foreign exchange earnings.Finally, important economic indicators such as cement shipments, building permits and export/import figures all showed noticeableincreases, while the Beirut Stock Exchange also demonstrated the inherent confidence of investors with a rise in the share index.

Notwithstanding the restrictions placed on ABBL’s activities by virtue of its Islamic orientation, the bank’s total assets increased by15% to $122 million, represented mostly by liquid assets, which rose by 32%, and non-trading investments, which expanded by 83%over the year. It funded this increase in assets by attracting additional deposits from customers, which rose by 40% to $19.0 million,and investments in its unrestricted investment accounts, which were 5% up on the year. Despite reporting a lower balance ofmurabaha sales receivables as at the end of the year, the turnover of this portfolio was such that the total income from jointly financedsales and investments rose by 71% over 2004 to reach $2.8 million. Unfortunately, the bank suffered a net loss of just under $1.0million after distributing the unrestricted investment account holders’ share of the profit, in view of losses on its own part of theportfolio, so that even after accounting for other revenues from banking services, fees and commissions totalling $3.1 million, totaloperating income was down 48% on 2004 at only $2.3 million. Although operating expenses at $5.5 million were 23% lower than2004 this was insufficient to produce an improvement in its performance and consequently ABBL ended the year with a net loss of$3.2 million, compared with a loss of $2.7 million in 2004.

In 2005 the bank underwent a restructuring, reorganising its activities under sector heads, each with responsibility for a number ofdepartments. Two new departments were created to be responsible for Banking Risks and Banking Compliance, in addition to anAudit Committee and a number of senior management committees, overseeing Finance and Investment, Asset Management, Marketingand Development, IT and Anti-Money Laundering policies and procedures. The Internal Audit and Financial Control Department, nowindependent of executive management and reporting to the Audit Committee, was also strengthened. A specialist IT security companywas contracted to implement the bank’s IT security in coordination with the regulatory authorities at the Central Bank.

All these activities are destined to refocus the bank, which intends to implement in 2006 its earlier plan to increase its paid up capitalto the minimum level of $20 million required under the new legislation permitting the establishment of Islamic Banks and to apply for alicence from the Central Bank of Lebanon to carry on Islamic banking activities.

US$ 000 2003 2004 2005

Operating Income 6,278 4,461 2,303Net Income 624 (2,732) (3,222)Financing and Investment Assets 59,631 43,381 41,123Total Assets 99,862 106,081 122,035Customer Deposits 76,429 87,233 96,365Total Liabilities, including URIA 90,825 99,921 104,059Paid up Capital 7,960 7,960 7,960Total Equity 9,037 6,160 17,976

LBP 2003 2004 2005

Paid up capital 12,000,000,000 12,000,000,000 12,000,000,000

RegulationsAll banking and financial activities in Lebanon of whatever nature are regulated by the Central Bank of Lebanon (the “CBL”) and theBanking Control Commission (the “BCC”).

The establishment and operations of Islamic banks in Lebanon is governed by Law N° 575 dated 11 February 2004 (the “Law No.575”), CBL Basic Decision N° 8828 dated 26 August 2004 and CBL Basic Decision N° 8829 dated 26 August 2004 (“Decision 8829”).

Furthermore, in matters that are not specifically stipulated for by the Law No. 575 and relevant CBL Decisions, Islamic banks shallcomply with the regulations that apply to commercial banks, in as much as those provisions do not conflict with the principles ofIslamic banking. Lebanese laws and regulations applicable in general to banks in Lebanon include the Code of Commerce, the Codeof Money and Credit, the Banking Secrecy Law and the Code of Obligations and Contracts.

As regards to Islamic banking products, CBL Basic Decision No. 8870 dated 20 October 2004 regulates Murabaha operations, CBLBasic Decision No. 8954 dated 19 January 2005 regulates Musharaka and Musahama operations, CBL Basic Decision No. 9041dated 1 June 2005 regulates Islamic Mutual Investment Funds, CBL Basic Decision No. 9042 dated 1 June 2005 regulates Ijaraoperations, CBL Basic Decision No. 9207 dated 10 December 2005 regulates Sulm operations and Central Bank Basic Decision No.9208 dated 10 December 2005 regulates Istisna’a operations. Islamic banks which operate in Lebanon obtain a license from the CBLas provided for under CBL Decision 8829. ABBL complies with all such banking regulations.

Minimum capital requirementPursuant to Central Bank Basic Decision No. 8829 dated 26 August 2004 the minimum capital requirement for banks in Lebanon isLBP150,000,000,000 (approx. US$100,000,000). In certain situations the CBL may set the minimum capital requirement of aLebanese bank to LBP30,000,000,000 (approx. US$20,000,000) providing certain conditions are met.

On the 23 January 2006 the Governor of the CBL gave his approval for ABBL to have a minimum capital requirement ofLBP30,000,000,000 (approx. US$20,000,000). ABBL is currently in the process of increasing its paid up capital fromLBP12,000,000,000 (approx. US$8,346,084) to LBP30,000,000,000 (approx. US$20,000,000).

Corporate governanceThe committees which report to the board of directors of ABBL are the following: the asset and liability management committee;information technology committee; the audit committee; the Investment and financing committee; the executive investment andfinancing committee; the anti-money laundering committee; the human resources development committee; the provisions reviewcommittee; and the employee salaries and benefits committee.

6.2 group-wide Initiatives6.2.1 Financial PerformanceABG's management has put in place various measures that will help monitor and control the activities of the Group Companies. A comprehensive financial consolidation procedure has been implemented and is working effectively – all Units submit their financials in a format that is compatible with AAOIFI and IFRS. These are consolidated every quarter and a consolidated set of financials isproduced. In addition, all Units submit on a monthly basis a return to the Company providing details of the financial performance,which consist of approved budgets, variances and other business related initiatives.

ABG will shortly be implementing a Corporate Performance Management (“CPM”) system, whereby financial and operational data willbe collected from Units through a web-based mechanism, pursuant to which Key Performance Indicators (“KPI”) can be extracted andmeasured against performance targets agreed with the Units as part of their approved budgets. Under the system each member ofthe Core Management Team will be provided with key macro statistics, financial and operational, relevant to that team member’sareas of responsibility, while middle management will have access to the information relevant to their responsibilities, for analysis andad hoc enquiry. Further enhancements will lead to Group exposure monitoring and management capability within global limits, andcentralised risk management reporting for Basel II and regulatory compliance purposes.


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47

6.2.2 Product DevelopmentMost of the Units are retail Islamic Banks, offering retail financial services products to the general public through a network ofbranches. The Units operate in a number of regulatory and legal environments that vary to a greater or lesser degree in the extent towhich they are conducive to the provision of Islamic banking services in general, and to the provision of specific Islamic bankingfacilities and products.

Many of the Units enjoy first mover advantage in their home jurisdictions. Group Companies will, through co-operative initiatives drivenfrom the ABG level, be able to share expertise and product technology which will assist in further entrenching their first moveradvantage in their home jurisdictions.

Islamic Finance is evolving and products are constantly being developed that are leading the industry towards the goal of being able toeffectively provide solutions with the same benefits as conventional financings, at similar costs and within similar time frames. We haveset out below a brief description of some of the products offered by the Group, as well as a table indicating which Units offer whichproducts. The continuing growth of the Islamic finance industry has led to Islamic banks and financial institutions using establishedfinancing modes (which are compliant with the Shari’a) to service the requirements of their growing customer base. Brief details ofsome of the most common Islamic financing techniques are provided below. Please note that the summaries provided below areintended only to provide a general outline of the most common Islamic finance structures. They should not be regarded as acomprehensive statement of Islamic finance practice.

Murabaha The bank purchases and takes title to the necessary equipment or goods from a third party. Depending on structural and accounting(balance sheet) requirements, it will do so either directly or through an agent and may use its own funds or those of its investors. Thebank then sells on the equipment or goods to its customer at cost plus a reasonable profit (both of which are known to the customer).

Mudaraba The bank (as beneficial owner or rab al maal) provides all the capital required by its customer for a specific project in return for a fixedshare (i.e. x%) of the net profit of the enterprise (it is not permissible to stipulate an actual sum, such as $5,000, as the bank's entitlement).The customer (as managing trustee or mudarib) provides his know-how and managerial skills in return for a fixed share of the net profit.

The modaraba contract is also used between the financing banks in what are loosely termed “syndicated” Islamic transactions Istisna'a

Istisna’aIstisna'a, is the advance funding of manufacturing, industrial development or major equipment construction whereby the manufacturingor construction costs are met by the bank which acquires title to the asset on completion. Having acquired title, the bank transfers it tothe customer for a price payable by instalments over a fixed period. It appears that title can be transferred either at the beginning or theend of the deferred payment period, depending on what other security than title to the asset may be on offer and the implications forthe bank of asset ownership.

Musharaka This differs from the mudaraba principally in that the customer puts up part of the equity. The contract will set out the proportions inwhich profits and losses are to be shared – normally this will be in direct proportion to the respective capital contributions of theparticipants.


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IjaraThis encompasses the leasing of machinery, equipment, buildings and other capital assets. The bank (or a subsidiary) will purchasethe asset in question and lease it to the ultimate customer for an agreed rental.

Ijara Muntahia Bittamleek (also called Ijara wa Iqtina)This is a leasing structure coupled with a right available to the lessee to purchase the asset at the end of the lease period.

SalamSalam is a sale whereby the seller undertakes to supply some specific goods to the buyer at a future date in exchange for anadvanced price fully paid on a spot basis.

The following table indicates the types of Islamic finance product offered by each Unit.

Ijara & IjaraMuntahia Fund

Subsidiary Murabaha Mudaraba Musharaka Bittamleek Investments Istisna’a Salam Management

Jordan Islamic Bank for Finance & Investment (Jordan) √ √ √ √ √

Albaraka Türk Participation Bank (Turkey) √ √ √

The Egyptian Saudi Finance Bank (Egypt) √ √ √ √

Banque Albaraka D’Algerie S.P.A. (Algeria) √ √ √ √

Albaraka Islamic Bank (E.C.) (Bahrain) √ √ √ √ √ √ √

Al Amin Bank (E.C.) (Bahrain) √ √ √ √

Albaraka Bank Sudan (Sudan) √ √ √ √ √ √

Bank Et-Tamweel Al-Tunisi Al-Saudi (Tunisia) √ √ √ √

Albaraka Bank Limited (South Africa) √ √ √

Albaraka Bank Lebanon S.A.L. (Lebanon) √ √ √ √ √

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7 Islamic Financial Markets Summary

This section represents the views of ABG management.

7.1 Market SnapshotFrom the inception of Islamic banking in Egypt in the 1960’s, global Islamic banking has now grown to incorporate over 235 financialinstitutions worldwide. ABG management estimate that the total assets held by Shari’a-compliant structures is approximately US$300billion. The majority of those assets are held in the Middle East and Asia, but there is a growing trend seeing selected European andNorth American institutions involved in this emerging market, with each institution rushing to service the 1.2 billion Muslims worldwide.

7.2 Current TrendsAs an industry, Islamic finance is still expanding. Asian and Middle Eastern banking licences for financial institutions are still very muchsought after. Kuwait and Malaysia have granted 6 new licences between them in the past year. Islamic banking is evolving in the Westin the same manner as it did in the Muslim countries over the past decade. Conventional western financiers such as HSBC, LloydsTSB and UBS have all been attracted to the market, setting up their own Islamic banking operations or subsidiaries. Such interest hasarisen off the back of enhanced recovery and performance from global banking as a whole, as well as solely Islamic banking advances.These include the pace at which new Shari’a-compliant products are being brought to the market, and the willingness of borrowers touse Sukuk as a way of generating funds. Governments in Muslim countries are aiding this process by reviewing the regulations onbanks and allowing hybrid entities to enter the market and explore the many financial opportunities outside of their ordinary business.

7.3 Growth DynamicsAn example of the expansion can be seen in the recent Dubai Ports World Sukuk issue. Dubai Ports Customs and Freezone Corporationraised US$3.5 billion, with the issue only initially intended to raise US$2.5 billion. This was due in part to the fact that the issue wasoversubscribed heavily, to the tune of US$11.5 billion. It is not simply the Sukuk market where there is a huge interest. The IPO of theIslamic bank Al Salam (Bahrain) which raised US$111.4 million, closed on the 19 February 2006 over 63 times oversubscribed.

ABG management expect this growth to continue. The US$300 billion of Islamic-owned assets is predicted to increase toapproximately US$1 trillion by 2010, with deposits with Islamic institutions to total US$850 billion (assuming a growth rate of 20% perannum). At this rate, the market share of Islamic financial institutions may be as high as 10% of the overall global banking industry by2026 (assuming a growth rate of 20% for Islamic finance assets and a rate of 10% for global banking assets).

7.4 Future OpportunitiesGrowth at such a rate gives rise to vast financial opportunities. More Islamic institutions mean more products and more choice forconsumers. Petro-dollars in the Middle East especially are contributing to a substantial increase in demand by Islamic investors forShari’a-compliant products, as they attempt to expand and diversify their portfolios.

With the growing amount of capital under Islamic management, the development of Islamic financing techniques and the developmentof infrastructure in the Muslim world, it is clear that there are ever-increasing opportunities for the use of Islamic financial products.With an appreciation of the relevant principals of the Shari’a and the ability to address concerns of conventional lenders, borrowersand project sponsors are now demonstrating that it is possible to successfully combine conventional and Islamic finance. As a result,the Islamic finance market is moving from an emerging sector to a significant element of the global banking industry as a whole.

8 The Group’s Financial Summary

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8.1 Letter from reporting accountants

29 March 2006

Albaraka Banking Group B.S.C PO Box 1882 ManamaKingdom of Bahrain

Dear Sir

AGREED-UPON PROCEDURES RELATING TO ISSUANCE OF PROSPECTUS

We have performed the procedures agreed with you and enumerated below with respect to providing information necessary to beincluded in the prospectus for the purpose of the Initial Public Offering of Albaraka Banking Group B.S.C as required by the BahrainMonetary Agency (BMA) and Dubai International Financial Exchange (DIFX). The agreed-upon procedures have been performedpursuant to Group management responsibility to disclose financial information for the years ended 31 December 2005, 2004 and 2003.

Our engagement was undertaken in accordance with the International Standard on Auditing applicable to agreed-upon proceduresengagements 4400.The procedures were performed solely to assist you in presenting the information in the prospectus, and aresummarized as follows:

1. We have obtained the attached extracted balance sheet, income statement together with their notes for the years ended 31December 2005, 2004 and 2003 and agreed them to the audited financial statements for the years ended 31 December 2005,2004 and 2003.

We report our finding below:

a) With respect to item 1, we found the extracted financial information to be in agreement with the audited financial statements forthe years ended 31 December 2005, 2004 and 2003.

Since the above procedure does not constitute an audit in accordance with the International Standards on Auditing or a review madein accordance with International Standard on Review Engagements, we do not express any audit or review assurance on the pastthree year’s information. Had we performed additional procedures or had we performed an audit in accordance with the InternationalStandards on Auditing or a review made in accordance with International Standard on Review Engagements, other matters might havecome to our attention that would have been reported to you.

Our report is solely for the purpose set forth in the second paragraph of this report. This report should not be used for any other purpose.

Yours faithfullyManama, Kingdom of Bahrain

The Group’s Financial Summary

P. O. Box 140 Phone 17 53 54 5514th Floor, The Tower Fax: 17 53 54 05Bahrain Commercial Complex [email protected] www.ey.com/meKingdom of Bahrain C. R. No. : 6700

8 The Group’s Financial Summarycontinued

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8.2 Audited Financial Statements 2003 to 2005

AUDITED CONSOLIDATED BALANCE SHEET

2005 2004 2003US$ 000 US$ 000 US$ 000

ASSETSCash and balances with banks 1,844,633 1,626,512 1,307,889 Sales receivables 2,955,463 2,188,935 1,741,727 Mudaraba financing 167,235 156,398 84,778 Musharaka financing 73,692 70,385 44,114 Investment properties 44,010 46,279 43,092 Ijarah Muntahia Bittamleek 170,467 172,159 159,438 Investment in associates 125,208 115,380 95,743 Investments 585,014 401,927 305,251 Ijarah receivables 20,279 14,584 23,407 Fixed assets 115,355 111,873 99,721 Other assets 174,987 152,287 211,318

Total assets 6,276,343 5,056,719 4,116,478

LIABILITIES, UNRESTRICTED INVESTMENT ACCOUNTS AND EQUITY

LIABILITIESCustomer current and other accounts 1,185,592 910,558 736,457 Due to banks 111,432 37,530 42,289 Other liabilities 216,816 209,644 166,337

1,513,840 1,157,732 945,083

UNRESTRICTED INVESTMENT ACCOUNTS 3,995,370 3,333,059 2,680,874

EQUITYShare capital 387,998 325,307 325,307 Reserves 49,810 39,635 23,456 Retained earnings 111,526 57,091 24,490 Proposed dividends 17,000 – –

Equity attributable to the shareholders of the parent 566,334 422,033 373,253 Minority interest 200,799 143,895 117,268

Total equity 767,133 565,928 490,521

Total liabilities, unrestricted investment accounts and equity 6,276,343 5,056,719 4,116,478

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AUDITED CONSOLIDATED STATEMENT OF INCOME

2005 2004 2003US$ 000 US$ 000 US$ 000

IncomeJoint income from sales receivable 254,987 151,652 154,263 Net income from jointly financed contracts and investments 117,930 99,693 93,328

372,917 251,345 247,591

Gross return on unrestricted investment accounts (305,964) (199,571) (185,590)Group's share as a Mudarib 92,783 41,784 40,859

Return on unrestricted investment accounts (213,181) (157,787) (144,731)

GROUP’S SHARE OF INCOME 159,736 93,558 102,860

Mudarib share for managing restricted investment accounts 5,970 2,846 2,186 Net income from self financed contracts and investments 133,001 151,774 90,355 Other fees and commission income 71,553 45,806 34,147 Other operating income 22,946 30,836 34,226

TOTAL OPERATING INCOME 393,206 324,820 263,774

Staff expenses 74,364 52,723 45,180 Depreciation and amortisation 110,291 145,385 91,833 Operating expenses 62,068 41,443 42,454 Provisions 32,230 20,976 52,959

TOTAL EXPENSES 278,953 260,527 232,426

NET INCOME FOR THE YEAR BEFORE MONETARY LOSS AND TAXATION 114,253 64,293 31,348

Monetary gain (loss) on a subsidiary (4,987) (4,204) 9,710 Taxation (6,380) (6,022) 1,847

NET INCOME FOR THE YEAR 102,886 54,067 42,905

Attributable to:Equity holders of the parent 79,372 36,845 27,285 Minority interest 23,514 17,222 15,620

102,886 54,067 42,905


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Cash and balances with banks

2005 2004 2003US$ 000 US$ 000 US$ 000

Balances with central banks* 1,156,742 1,031,680 54,422 Balances with other banks 587,048 506,327 793,413 Cash 90,874 66,098 382,955 Others 9,969 22,407 77,099

1,844,633 1,626,512 1,307,889

* Includes restricted amounts US$ 354 million (2004: US$ 283 million, 2003: US$ 21.6 million)

Sales receivables

2005 2004 2003

Self Jointly Self Jointly Self Jointlyfinanced financed Total financed financed Total financed financed Total

US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

International commodities murabahas – 278,650 278,650 67 324,768 324,835 98,341 1,189,538 1,287,879Other murabahas 122,554 2,867,814 2,990,368 69,609 2,056,040 2,125,649 103,865 555,318 659,183

Gross sales receivables 122,554 3,146,464 3,269,018 69,676 2,380,808 2,450,484 202,206 1,744,856 1,947,062Provisions (1,872) (151,835) (153,707) (7,090) (121,048) (128,138) (13,363) (114,505) (127,868)

120,682 2,994,629 3,115,311 62,586 2,259,760 2,322,346 188,843 1,630,351 1,819,194Deferred profits (624) (159,224) (159,848) (891) (132,520) (133,411) (16,294) (61,173) (77,467)

Net sales receivables 120,058 2,835,405 2,955,463 61,695 2,127,240 2,188,935 172,549 1,569,178 1,741,727

Sales receivables, which are non-performing as of 31 December 2005, amounted to US$ 271.4 million (2004: US$ 189.3million,2003: US$ 139.5 million).

The Group considers the promise made in the murabaha (sales receivable) to the purchase order as obligatory.

Mudaraba financing

2005 2004 2003



Gross amount 9,693 158,185 167,878 2,300 154,989 157,289 1,978 84,829 86,807Provisions – (643) (643) – (891) (891) (630) (1,399) (2,029)

9,693 157,542 167,235 2,300 154,098 156,398 1,348 83,430 84,778

Mudaraba financing, which are non-performing as of 31 December 2005, amounted to Nil (2004: US$ 1.1 million, 2003: US$ 2.3 million)

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Musharaka financing

2005 2004 2003



Gross amount 3,706 71,088 74,794 4,480 66,840 71,320 26,262 18,135 44,397Provisions (115) (987) (1,102) (115) (820) (935) (264) (19) (283)

3,591 70,101 73,692 4,365 66,020 70,385 25,998 18,116 44,114

Musharaka financing, which are non performing as of 31 December 2005, amounted to US$ 0.5 million (2004: US$ 1.1 million, 2003: US$ 1.0 million).

Investment properties

2005 2004 2003



Cost 1,203 38,556 39,759 1,492 44,650 46,142 1,547 39,170 40,717Accumulated fair value adjustments – 4,251 4,251 137 – 137 (260) 2,635 2,375

1,203 42,807 44,010 1,629 44,650 46,279 1,287 41,805 43,092

The movement is as follows:

2005 2004 2003US$ 000 US$ 000 US$ 000

At Beginning of the period 46,279 43,092 –Change in fair values of investment properties 4,114 52 2,375Acquisition net of disposal (6,383) 3,135 (461)Other adjustments 41,178

44,010 46,279 43,092

Investment properties at 31 December consist of the following:

2005 2004 2003



Land 305 12,277 12,582 – 19,296 19,296 – 15,693 15,693Buildings 1,078 30,350 31,428 1,629 25,354 26,983 1,287 26,112 27,399

1,383 42,627 44,010 1,629 44,650 46,279 1,287 41,805 43,092


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Ijarah Muntahia Bittamleek

2005 2004 2003



Cost:Opening balance 7,412 224,439 231,851 7,205 347,964 355,169 – – – Acquisition through subsidiaries – – – – – – 11,011 207,685 218,696 Additions 10,235 99,720 109,955 207 110,783 110,990 1,194 156,581 157,775Disposals (533) (68,530) (69,063) – (234,308) (234,308) (5,000) (16,302) (21,302)

Closing balance 17,114 255,629 272,743 7,412 224,439 231,851 7,205 347,964 355,169

Accumulated depreciation:Opening balance 4,007 55,685 59,692 2,641 193,090 195,731 – – –Acquisition through subsidiaries – – – – – – 2,917 125,378 128,295Additions 4,714 90,742 95,456 1,366 131,657 133,023 2,691 79,089 81,780Disposals – (52,872) (52,872) – (269,062) (269,062) (2,967) (11,377) (14,344)

Closing balance 8,721 93,555 102,276 4,007 55,685 59,692 2,641 193,090 195,731

Net book value:At 31 December 8,393 162,074 170,467 3,405 168,754 172,159 4,564 154,874 159,438

2005 2004 2003

Properties Equipment Others Total Properties Equipment Others Total Properties Equipment Others TotalUS$ 000 US$ 000 US$ 000 US$ 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000

Cost:At beginning of the period 77,127 144,686 10,038 231,851 79,349 269,034 6,786 355,169 – – – –

Foreign exchange transactions – – – – – 32,752 – 32,752 – – – –

Acquisition through subsidaries – – – – – – – – 68,360 141,293 9,043 218,696

Additions 33,842 70,662 5,451 109,955 36,640 71,037 3,313 110,990 21,311 135,754 710 157,775

Disposals (38,626) (29,191) (1,246) (69,063) (38,862) (228,137) (61) (267,060) (10,322) (8,013) (2,967) (21,302)

At 31 December 72,343 186,157 14,243 272,743 77,127 144,686 10,038 231,851 79,349 269,034 6,786 355,169

Depreciation:At beginning of the period 31,535 26,251 1,906 59,692 43,248 151,344 1,139 195,731 – – – –

Acquisition through subsidaries – – – – – – – – 26,876 99,381 2,038 128,295

Provided during the period 20,504 73,417 1,535 95,456 21,684 110,562 777 133,023 21,823 57,889 2,068 81,780

Disposals (26,458) (26,374) (40) (52,872) (33,397) (235,655) (10) (269,062) (5,451) (5,926) (2,967) (14,344)

At 31 December 25,581 73,294 3,401 102,276 31,535 26,251 1,906 59,692 43,248 151,344 1,139 195,731

Net book value:At 31 December 46,762 112,863 10,842 170,467 45,592 118,435 8,132 172,159 36,101 117,690 5,647 159,438

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Investment in associatesInvestments in associates comprise the following:

2005

Carrying value Ownership % Country of Self Jointly Market2005 2005 incorporation financed financed Total Value

US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Quoted Real EstateReal Estate Investment Company 3,007 25.0 Jordan – 3,007 3,007 4,972

Investment BankingAlAmin Investment Company 6,493 32.2 Jordan – 6,493 6,493 16,824

InsuranceIslamic Insurance Company 2,291 35.3 Jordan – 2,291 2,291 5,713

OthersJordan Centre for International Trade Company 2,361 40.8 Jordan – 2,361 2,361 3,013

14,152 – 14,152 14,152 30,522

UnquotedReal EstateBaraka Development Immobile 924 20.0 Algeria 924 – 924 Egyptian Saudi Finance Real Estate 435 40.0 Egypt – 435 435

LeasingBEST Lease 2,130 34.8 Tunis 2,130 – 2,130

Investment BankingAlTawfeek Company for Investment Funds Limited 92,520 13.6 Cayman Islands 92,520 – 92,520

InsuranceBEST Reinsurance 15,047 21.8 Tunis 15,047 – 15,047

111,056 110,621 435 111,056

Total investment in associates 125,208 110,621 14,587 125,208


58

Investment in associates continued

2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

QuotedReal EstateReal Estate Investment Company 5,618 46.7 Jordan – 5,618 5,618 5,825




Jordanian Pharmacy Manufacturing Company Limited 8,084 21.3 Jordan – 8,084 8,084 16,348

25,630 – 25,630 25,630 40,471




InsuranceBEST Reinsurance 13,798 21.8 Tunis 13,798 – 13,798 AlBaraka AlAmane Assurance Algeria 1,508 20.0 Algeria 1,508 – 1,508

OthersCemedene Trading (Proprietary) Limited 162 50.0 South Africa – 162 162

89,750 89,178 572 89,750


59

Investment in associates continued

2003


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

QuotedReal EstateReal Estate Investment Company 4,540 48 Jordan – 4,540 4,540 8,094

Investment BankingAlAmin Investment Company 9,271 45 Jordan – 9,271 9,271 11,200

InsuranceIslamic Insurance Company 2,376 35 Jordan – 2,376 2,376 4,182

OthersJordan Centre for International Trade Company 1,273 40 Jordan – 1,273 1,273 3,795

17,460 – 17,460 17,460 27,271

UnquotedReal EstateBaraka Development Immobile 689 20 Algeria 689 – 689 Egyptian Saudi Finance Real Estate 406 40 Egypt 49 357 406

LeasingBEST Lease 2,096 35 Tunis 2,096 – 2,096

Investment BankingAlTawfeek Company for Investment Funds Limited 53,573 13 Cayman Islands 53,573 – 53,573

InsuranceBEST Reinsurance 11,617 22 Tunis 11,617 – 11,617 AlBaraka AlAmane Assurance Algeria 1,508 20 Algeria 1,508 – 1,508 Socite Inter Bancaire De Formation 187 10 Algeria 187 – 187

OthersCemedene Trading (Proprietary) Limited 124 50 South Africa 124 – 124 Jordanian Pharmacy Manufacturing Company Limited 8,083 28 Jordan – 8,083 8,083

78,283 69,843 8,440 78,283


Al Tawfeek Company for Investment Funds Limited has been accounted for under equity method as the Group exercises significantinfluence over it. The significant influence is demonstrated through its 100% ownership of Al-Amin Bank which owns 13.6% of AlTwafeeq Company for Investment Funds Limited. The management of Al-Amin believes that, in view of common shareholders anddirectors of Al-Amin Bank E.C., it exercises significant influence over Al Tawafeeq Company for Investment Funds Limited. CemedeneTrading (Proprietary) Limited has not been consolidated as the Group does not have the ability to exercise control.


60

Investmentsi) Trading securities

2005 2004 2003



Quoted equities 1,606 1,065 2,671 – 1,250 1,250 220 26,049 26,269

Non-trading investmentsii) Available for sale investments

2005 2004 2003



Quoted investmentsManaged funds 2,766 19,157 21,923 2,074 6,062 8,136 4,934 4,916 9,850Sukook – – – – – – – 3,824 3,824Equities 4,459 49,558 54,017 4,785 192,861 197,646 8,318 200,651 208,969

7,225 68,715 75,940 6,859 198,923 205,782 13,252 209,391 222,643

Unquoted investments at costManaged funds – 15,447 15,447 – 1,000 1,000 – – – Equities 31,049 27,102 58,151 939 47,503 48,442 36,160 5,738 41,898

31,049 42,549 73,598 939 48,503 49,442 36,160 5,738 41,898

Provisions (4,846) (1,089) (5,935) (5,004) (1,313) (6,317) (1,564) (4,142) (5,706)

33,428 110,175 143,603 2,794 246,113 248,907 47,848 210,987 258,835

iii) Held to maturity investments

2005 2004 2003



Investments at cost Sukook and similar items 11,193 427,547 438,740 9,530 142,240 151,770 1,240 18,907 20,147

11,193 427,547 438,740 9,530 142,240 151,770 1,240 18,907 20,147

Total investments 46,227 538,787 585,014 12,324 389,603 401,927 49,308 255,943 305,251

61

Ijarah receivables

2005 2004 2003



Gross amount 5,498 15,865 21,363 6,165 9,600 15,765 4,886 19,644 24,530 Provisions (1,043) (41) (1,084) (1,163) (18) 1,181) (1,123) – (1,123)

4,455 15,824 20,279 5,002 9,582 14,584 3,763 19,644 23,407

Ijarah receivables, which are non-performing as of 31 December 2005, amounted to US$ nil (2004: US$ 0.224 million, 2003: Nil).


62

Fixed assets

2005

OfficeLand and furniture and

buildings equipment Vehicles Others TotalUS$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Cost:At Beginning of the period 102,792 59,942 6,844 13,738 183,316Acquisition through subsidiary 11,679 2,306 505 – 14,490 Revaluation – – – – –Additions 5,195 9,251 1,349 1,121 16,916 Disposals (11,523) (502) (333) (504) (12,862)Transfers/others 8,646 2,128 (1,648) (7,008) 2,118 At 31 December 116,789 73,125 6,717 7,347 203,978

Depreciation:At Beginning of the period 23,021 41,635 4,236 2,551 71,443 Acquisition through subsidiary 44 904 259 – 1,207 Provided during the year 5,072 7,134 873 719 13,798 Disposals (1,062) (284) (289) – (1,635)Transfers/others 1,382 2,661 (863) 630 3,810 At 31 December 28,457 52,050 4,216 3,900 88,623

Net book values:At 31 December 88,332 21,075 2,501 3,447 115,355

2004

OfficeLand and furniture and LEASED

buildings equipment Vehicles buildings Others TotalUS$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Cost:At Beginning of the period 87,639 60,051 5,919 10,748 1,888 166,245 Acquisition through subsidiary – – – – – – Revaluation – – – – – – Additions 6,598 5,244 1,204 853 2,394 16,293 Disposals (1,586) (6,168) (279) (7) (344) (8,384)Transfers/others 10,141 815 – (10,013) 8,219 9,162 At 31 December 102,792 59,942 6,844 1,581 12,157 183,316

Depreciation:At Beginning of the period 17,566 42,550 4,018 1,797 593 66,524 Acquisition through subsidiary – – – – – –Provided during the year 4,670 5,080 665 347 524 11,286 Disposals (148) (6,195) (456) – (162) (6,961)Transfers/others 933 200 9 (784) 236 594 At 31 December 23,021 41,635 4,236 1,360 1,191 71,443

Net book values:At 31 December 79,771 18,307 2,608 221 10,966 111,873

63

Fixed assets continued

2003

OfficeLand and furniture and LEASED

buildings equipment Vehicles buildings Others TotalUS$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Cost:At Beginning of the period – 258 – – – 258 Acquisition through subsidiary 71,007 55,477 5,733 8,525 1,030 141,772 Revaluation 19,268 – – – – 19,268 Additions 1,698 4,622 993 2,223 858 10,394 Disposals (4,334) (306) (807) – – (5,447)Transfers/others –At 31 December 87,639 60,051 5,919 10,748 1,888 166,245

Depreciation:At Beginning of the period – 55 – – – 55 Acquisition through subsidiary 14,716 37,291 3,652 1,443 542 57,644 Provided during the period 2,856 5,356 831 354 51 9,448 Disposals (6) (152) (465) – – (623)Transfers/others –At 31 December 17,566 42,550 4,018 1,797 593 66,524

Net book values:At 31 December 70,073 17,501 1,901 8,951 1,295 99,721


64

Other assets

2005 2004 2003US$ 000 US$ 000 US$ 000

Goodwill * 40,000 40,000 40,000Bills receivable 39,821 43,698 17,805Collateral pending sale 26,098 22,919 24,872Receivables 16,280 10,542 8,040Deferred tax 10,792 1,604 –Good Faith Qard Fund 8,622 6,725 7,126Istisna financing 6,585 2,156 7,193Salam financing 37 – 68,462Others 29,817 28,226 44,001

Total 178,052 155,870 217,499Provisions (3,065) (3,583) (6,181)

174,987 152,287 211,318

* It has been allocated to Albaraka Türk Participation Bank as a cash generating unit as management views the whole Bank as one unit.

Other liabilities

2005 2004 2003US$ 000 US$ 000 US$ 000

Cash margins 45,425 68,642 52,534Bills payable 73,537 43,926 40,494Payables 24,949 13,460 –Other provisions 13,497 19,026 7,959Current and deferred taxation 15,508 6,737 9,850Accrued expenses 15,044 13,628 8,584Charity fund 2,553 1,768 5,636Others 26,303 42,457 41,280

216,816 209,644 166,337

UNRESTRICTED INVESTMENT ACCOUNTS

2005 2004 2003US$ 000 US$ 000 US$ 000

Unrestricted investment accounts 3,986,725 3,330,200 2,667,908Profit equalisation and investment risk reserve 1,270 169 11,368Cumulative changes in fair value attributable to unrestricted investment accounts 7,375 2,690 1,598

3,995,370 3,333,059 2,680,874

Movement in profit equalization and investment risk reserve

2005 2004 2003US$ 000 US$ 000 US$ 000

Balance at beginning of the period 169 11,368 –Acquisition through subsidiaries – – 43,716Amount apportioned from income allocable to unrestricted investment account holders 1,101 (11,199) (12,521)

1,270 169 31,195Adjustment relating to murabaha revenue in Jordan Islamic Bank – – (19,827)

Balance at 31 December 1,270 169 11,368

65

Equity

2005 2004 2003US$ 000 US$ 000 US$ 000

Share capital

Authorised 1,500,000,000 ordinary shares of US$ 1 each 1,500,000 1,500,000 1,500,000

Issued and fully paid 61,346,609 ordinary shares of US$ 1 each issued against cash 61,347 20,000 20,000(2004: 20,000,000, 2003: 20,000,000)

326,651,416 ordinary shares of US$ 1 each issued in kind* 326,651 305,307 305,307(2004: 305,307,211, 2003:305,307,211)

387,998 325,307 325,307

*The increase during in 2005 is due to the following:

The acquistion of Albaraka Bank Sudan through the issue of shares at an amount of US$ 17.58 million.

Also the Bank increased its share capital in Egyptian Saudi Finance Bank through the issue of shares at an amount of US$ 3.76 million.

Statutory reserveIn accordance with the Bahrain Commercial Companies Law and the Bank's articles of association, 10% of the net income for theperiod is transferred to the statutory reserve until such time as the reserve reaches 50% of the Bank's paid-up share capital.

Cumulative changes in fair values This represents the net unrealised gains on available-for-sale investments.

Foreign currency reserveThe foreign currency reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

Investment properties fair value reservesThis represents the net unrealised gain on revaluation of investment properties. This reserve is transferred to the consolidatedstatement of income upon sale of the investment properties.

Other reservesOther reserves mainly consist of general banking risk reserves maintained by the subsidiaries in accordance with local regulations.


66

Net income from jointly financed contracts and investments

27 June 2002to 31 Dec

2005 2004 2003US$ 000 US$ 000 US$ 000

Income from sales contracts 268,942 170,979 169,410 Income from Ijarah Muntahia Bittamleek 109,095 131,111 136,039 Income from investments 54,031 61,552 10,804 Income from associates 43,489 20,022 5,832Income from mudaraba financing 11,020 7,928 2,259Income from musharaka 5,849 3,698 3,406Income from investment properties 1,544 77 99Income from trading securities 1,031 5,603 7,996Others 10,917 2,149 2,101

505,918 403,119 337,946

Net income from jointly financed contracts and investments 372,917 251,345 247,591Net income from self financed contracts and investments 133,001 151,774 90,355

505,918 403,119 337,946

Return on unrestricted investment accountsBank's share as a Mudarib is determined at the level of each subsidiary and is based on the terms and conditions of the related agreements.

Other fees and commission income


2005 2004 2003US$ 000 US$ 000 US$ 000

Fees and commissions 51,261 29,757 21,069Letters of credit 14,443 12,725 10,545Guarantees 4,129 2,449 1,879Acceptances 1,720 875 654

71,553 45,806 34,147

Other operating income


2005 2004 2003US$ 000 US$ 000 US$ 000

Foreign exchange gain 5,420 10,435 18,780Gain on sale of fixed assets 4,266 4,581 –Others 13,260 15,820 15,446

22,946 30,836 34,226

Depreciation and amortisation


2005 2004 2003US$ 000 US$ 000 US$ 000

Ijarah Muntahia Bittamleek 95,456 133,023 81,780Fixed assets 13,798 11,286 9,448Amortisation 1,037 1,076 605

110,291 145,385 91,833

67

Operating expenses


2005 2004 2003US$ 000 US$ 000 US$ 000

General and administration 46,046 34,912 35,900 Business 11,668 3,516 3,753Premises 4,354 3,015 2,801

62,068 41,443 42,454

Provisions

Sales Mudaraba Musharaka Ijarah Other Otherreceivables financing financing Investments receivables assets provisions Total

2005 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Provisions at beginning of the year 128,138 891 940 6,317 1,181 3,578 19,026 160,071Acquisition through subsidiary 1,447 – 442 – – 253 – 2,142

Charged during the year 42,453 – 21 268 609 2,577 6,601 52,529Written back during the year (13,039) (248) (495) (21) (705) (4,627) (1,164) (20,299)

29,414 (248) (474) 247 (96) (2,050) 5,437 32,230

158,999 643 908 6,564 1,085 1,781 24,463 194,443Written off during the year (5,292) – – (629) – – (10,966) (16,887)Other adjustments – – 194 – (1) 1,284 – 1,477

Provisions at end of the year 153,707 643 1,102 5,935 1,084 3,065 13,497 179,033



Provisions at beginning of the year 127,868 2,029 283 5,706 1,123 8,360 7,959 153,328Adjustments/Reclass 12,060 – – 4,980 – (4,855) – 12,185

Charged during the year 20,438 – 236 366 58 169 31,627 52,894Written back during the year (26,889) (203) – (4,735) – (91) – (31,918)

(6,451) (203) 236 (4,369) 58 78 31,627 20,976

133,477 1,826 519 6,317 1,181 3,583 39,586 186,489Written off during the year (5,339) (935) (224) – – – (20,560) (27,058)Other adjustments – – 640 – – – – 640

Provisions at end of the year 128,138 891 935 6,317 1,181 3,583 19,026 160,071



Acquisition through subsidiaries 98,793 2,109 230 6,516 1,123 3,688 – 112,459

Charged during the period 71,581 – 85 120 – 4,969 11,496 88,251 Written back during the period (33,875) (80) – (930) – (297) (110) (35,292)

37,706 (80) 85 (810) – 4,672 11,386 52,959

136,499 2,029 315 5,706 1,123 8,360 11,386 165,418Written off during the period (2,325) – (15) – – – – (2,340)Other adjustments (6,306) – (17) – – – (3,427) (9,750)

Provision at end of the period 127,868 2,029 283 5,706 1,123 8,360 7,959 153,328


68

CASH AND CASH EQUIVALENTS

2005 2004 2003US$ 000 US$ 000 US$ 000

Balances with central banks excluding mandatory reserve 802,677 748,251 54,422 Balances with other banks 587,048 506,327 771,906 Cash in hand 90,874 66,098 306,379 Others 9,969 22,407 647,185

1,490,568 1,343,083 1,779,892

RELATED PARTY TRANSACTIONSRelated parties comprise major shareholders, directors of the Group, close members of their families, entities owned or controlled bythem and companies affiliated by virtue of shareholding in common with that of the Group.

The income and expenses in respect of related parties are as follows:

2005 2004 2003US$ 000 US$ 000 US$ 000

Net income from self financed financing and investments 39,474 13,663 123 Income from sales receivable 8,632 1,296 2,380 Return on unrestricted investments 335 215 164 Net income from jointly financed contracts and investments 166 11,909 1,009 Other operating income 3 – 20 Operating expenses – – 250

The significant balances with related parties at 31 December were as follows:

2005 2004 2003US$ 000 US$ 000 US$ 000

Assets:Mudaraba financing 128,261 85,416 64,826 Investment in associates 96,767 76,116 95,743 Sales receivable 10,273 17,246 35,384 Ijarah Muntahia Bittamleek 11,629 9,141 3,851 Cash and balances with banks 28 855 4,802

Liabilities:Customer current and other accounts 7,087 1,130 693 Other liabilities 446 1,880 26,800

Unrestricted investment accounts 24,196 25,973 –

All related party exposures are performing and are free of any provision for possible credit losses.

Dallah Albaraka Holding Company E.C., a major shareholder of the Group, invested in the shareholding of Egyptian Saudi FinanceBank, through a capital injection of US$ 23.39 million in exchange of 19.33 million ordinary shares at par. These shares are held in thename of the bank for the beneficial interest and risk of Dallah AlBaraka Holding Company E.C.

In addition the Group acquired Al Baraka Bank Sudan from the major shareholder of the Bank on 1 January 2005.

69

CREDIT RELATED COMMITMENTS

2005 2004 2003US$ 000 US$ 000 US$ 000

Letters of credit 255,414 97,394 102,145 Guarantees 232,116 128,607 123,629 Acceptances 38,372 32,150 32,901 Others 31,890 239,357 381,897

557,792 497,508 640,572

CONCENTRATIONS Concentrations arise when a number of counter parties are engaged in similar business activities, or activities in the same geographicregion, or have similar economic features that would cause their ability to meet contractual obligations to be similarly

The distribution of assets, liabilities, and off-balance sheet items by geographic region was as follows:

2005 2004 2003

Unrestricted Restricted Unrestricted Restricted Unrestricted Restrictedinvestment investment investment investment investment investment

Assets Liabilities accounts accounts Assets Liabilities accounts accounts Assets Liabilities accounts accountsUS$ 000 US$ 000 US$ 000 US$ 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000

Geographic region:Domestic (Bahrain) 301,566 10,361 89,694 215,641 274,689 23,334 165,438 22,413 310,590 57,316 42,063 14,205

Other Middle East 3,135,486 777,474 2,275,034 146,544 2,400,605 631,828 1,857,795 277,833 707,708 251,060 753,607 24,164

Europe 1,628,020 295,179 1,025,237 41,011 1,293,593 199,563 732,853 11,501 909,842 252,326 524,289 30,121

Asia 263,836 54,894 164,095 – 198,009 62,090 124,582 – 1,430,921 251,618 1,077,914 259,067

Africa 897,085 373,486 441,251 1,083 693,418 239,788 393,021 – 685,186 130,231 282,947 5,331

Others 50,350 2,446 59 2,312 196,405 1,129 59,370 2,340 72,231 2,532 54 2,366

6,276,343 1,513,840 3,995,370 406,591 5,056,719 1,157,732 3,333,059 314,087 4,116,478 945,083 2,680,874 335,254

The distribution of operating income, net operating income and net income by geographic region was as follows:

2005 2004 2003

Net income Net income Net incomeattributable attributable attributable

Total Net to the Total Net to the Total Net to theoperating operating holders of operating operating holders of operating operating holders of

income income the parent income income the parent income income the parent USD 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000

Geographic region:Domestic (Bahrain) 72,648 17,607 8,527 20,506 6,071 5,969 3,054 1,049 864Other Middle East 84,926 34,355 27,723 75,965 16,656 11,629 81,221 15,868 9,727Europe 153,617 32,319 23,523 178,403 16,500 12,165 153,643 18,587 17,227Asia 15,624 5,525 4,822 8,184 3,084 2,416 5,917 2,617 1,748Africa 66,225 24,281 14,611 37,367 18,387 4,475 29,361 (20) (2,386)Others 166 166 166 191 191 191 288 2,957 105

393,206 114,253 79,372 320,616 60,889 36,845 273,484 41,058 27,285


70

CURRENCY RISKThe Group had the following significant net exposures denominated in foreign currencies as of 31 December:

2005 2004 2003US$ 000 US$ 000 US$ 000

equivalent equivalent equivalentlong (short)long (short)long (short)

Jordanian Dinar 136,815 (107,893) (40,954)Turkish Lira 53,287 (8,491) (13,649)Egyptian Pound 33,001 (50,285) (14,968)Sudanese Dinar 20,520 – – Bahraini Dinar 19,423 17,818 9,281Algerian Dinar 18,417 – (1,399)Lebanese Pound 15,919 (7,084) 3,233 Saudi Riyal 4,071 8,737 25,400 Pound Sterling 715 3,045 2,025Tunisia Dinar 138 1,676 86,074 Euro (1,016) 16,769 (7,158)Others 3,119 – (981)

71

LIQUIDITY RISKLiquidity risk is the risk that the Group will be unable to meet its liabilities when they fall due. To limit this risk, management hasarranged diversified funding sources, manages assets with liquidity in mind, and monitors liquidity on regular basis.

The table below summarises the maturity profile of the bank’s assets and liabilities based on contractual repayment arrangements.The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheetdate to the contractual maturity date and do not take account of the effective maturities as indicated by the Group’s deposit retentionhistory and the availability of bank lines.

2005

Up to 1 to 3 3 to 6 6 months 1 to 3 Over1 Month months months to 1 year years 3 years TotalUSD 000 USD 000 USD 000 USD 000 USD 000 USD 000 USD 000

ASSETSCash and balances with banks 1,669,446 54,317 62,173 25,094 103 33,500 1,844,633Sales receivable 471,451 524,763 474,536 494,682 683,463 306,568 2,955,463Mudaraba financing 4,781 56,039 23,409 29,362 30,658 22,986 167,235Musharaka financing 6,027 7,604 9,944 9,822 22,864 17,431 73,692Investment properties – – – – – 44,010 44,010Ijarah Muntahia Bitamleek 6,860 13,559 16,056 32,562 82,177 19,253 170,467Investment in associates – – – – – 125,208 125,208Investments 136,588 161,353 60,217 108,567 90,050 28,239 585,014Ijarah receivables 5,855 3,897 685 4,201 3,876 1,765 20,279Fixed assets 21,912 – 655 – – 92,788 115,355Other assets 85,287 11,333 3,278 4,432 24,479 46,178 174,987

Total assets 2,408,207 832,865 650,953 708,722 937,670 737,926 6,276,343

LIABILITIESCustomer current and other accounts 924,020 100,903 152,076 8,593 – – 1,185,592 Due to banks 85,705 14,765 10,959 – – 3 111,432 Other liabilities 84,247 12,459 37,136 19,904 57,713 5,357 216,816

Total Liabilities 1,093,972 128,127 200,171 28,497 57,713 5,360 1,513,840

Unrestricted investment accounts 2,036,265 657,780 534,576 312,103 365,669 88,977 3,995,370

Total liabilities and unrestricted investment accounts 3,130,237 785,907 734,747 340,600 423,382 94,337 5,509,210

Net liquidity gap (722,030) 46,958 (83,794) 368,122 514,288 643,589 767,133


72

LIQUIDITY RISK continued

2004


ASSETSCash and balances with banks 1,432,896 160,506 1,500 1,214 3,688 26,708 1,626,512Sales receivable 289,938 337,165 353,179 383,648 489,018 335,987 2,188,935Mudaraba financing 2,952 65,152 20 1,803 71,908 14,563 156,398Musharaka financing 13,774 5,828 5,887 7,358 25,658 11,880 70,385Investment properties – – – – – 46,279 46,279Ijarah Muntahia Bittamleek 24,021 16,042 23,833 16,576 63,653 28,034 172,159Investment in associates 1,012 – – 40,097 – 74,271 115,380Investments 12,508 16,932 73,806 70,582 82,416 145,683 401,927Ijarah receivables 1,426 8,662 1,199 2,209 276 812 14,584Fixed assets 6,913 – – – – 104,960 111,873Other assets 78,338 1,619 37,013 966 23,877 10,474 152,287

Total assets 1,863,778 611,906 496,437 524,453 760,494 799,651 5,056,719

LIABILITIESCustomer current and other accounts 884,647 5,784 – 20,127 – – 910,558 Due to banks – 15,214 22,316 – – – 37,530 Other liabilities 50,302 26,036 59,836 15,885 15,587 41,998 209,644

Total Liabilities 934,949 47,034 82,152 36,012 15,587 41,998 1,157,732



Net liquidity gap (479,018) (164,103) 85,321 (40,226) 466,772 697,182 565,928

73

LIQUIDITY RISK continued

2003


ASSETSCash and balances with banks 1,236,120 50,262 – 103 4,640 16,764 1,307,889Sales receivable 316,559 176,951 234,626 195,389 197,136 621,066 1,741,727Mudaraba financing 4,167 1,000 4,707 1,624 61,807 11,473 84,778Musharaka financing – – – – 5,340 38,774 44,114Investment properties – – – – – 43,092 43,092Ijarah Muntahia Bittamleek – 80 4,264 2,627 138,365 14,102 159,438Investment in associates – – – – – 95,743 95,743Investments 59,279 4,619 3,939 93,802 28,217 115,395 305,251Ijarah receivables 1,433 188 7,121 11,951 2,032 682 23,407Fixed assets – – – – – 99,721 99,721Other assets 45,468 23,969 40,680 8,225 31,353 61,623 211,318

Total assets 1,663,026 257,069 295,337 313,721 468,890 1,118,435 4,116,478

LIABILITIEsCustomer current and other accounts 677,643 33,502 – 25,312 – – 736,457Due to banks 15,659 15,701 10,929 – – – 42,289Other liabilities 41,717 10,672 52,522 21,832 8,000 31,594 166,337

Total Liabilities 735,019 59,875 63,451 47,144 8,000 31,594 945,083

Unrestricted investment accounts 439,959 805,809 301,700 606,727 318,599 208,080 2,680,874


Net liquidity gap 488,048 (608,615) (69,814) (340,150) 142,291 878,761 490,521

COMPARATIVESCorresponding figures for 2004 and 2003 have been reclassified in order to conform with the presentation for the year 2005. Suchreclassifications do not affect previously reported net profit, equity and cash flows.

8.3 Financial Discussion for the years 2003 to 2005

8.3.1 Income StatementABG’s first consolidated financial statements covered the period from 27 June 2002 to 31 December 2003. References in this reviewto ‘2002-3’ or ‘2003’ are to the consolidated financial statements covering that period or ending on 31 December 2003, as applicable.Results extracted from the consolidated statement of income for that period are not therefore directly comparable with those of lateryears and are provided solely for information purposes.

In 2005, ABG’s net income for the year increased to $79.4 million from $36.8 million in 2004.

Total operating income was 21% higher than in 2004, at $393.2 million (2004: $324.8 million; 2002-3: $273.5 million). Of thecategories constituting total operating income, joint income from sales receivable and net income from jointly financed contracts andinvestments together totalled $372.9 million (2004: $251.3 million; 2002-3: $247.6 million). After deducting the gross return paid out toinvestors on unrestricted investment accounts, which was higher than 2004 at $306.0 million (2004: $199.6 million; 2002-3: $185.6million), but including the Group’s share as Mudarib – also higher than the previous year at $92.8 million (2004: $41.8 million; 2002-3:$40.9 million) – the Group’s share of income from investment accounts increased to $159.7 million (2004: $93.6 million; 2002-3:$102.9 million).

Fee and commission income at $71.6 million (2004: $45.8 million; 2002-3: $34.1 million) and Mudarib’s share for managingrestricted investment accounts, at $6.0 million (2004: $2.8 million; 2002-3: $2.2 million) were also higher than for the previousyear. However, net income from self financed contracts and investments fell somewhat in 2005, to $133.0 million (2004: $151.8million; 2002-3: $90.4 million), as did other operating income at $22.9 million (2004: $30.8 million; 2002-3: $34.2 million). Therewas also a slight increase in the monetary loss on translation from local currencies, amounting to $5.0 million (2004: $4.2 million;2002-3: $9.7 million gain).

Operating expenses rose by 7% to $279.0 million (2004: $260.5 million; 2002-3: $232.4 million) and comprised staff expenses of$74.4 million (2004: $52.7 million; 2002-3: $45.2 million), depreciation and amortisation $110.3 million (2004: $145.4 million; 2002-3:$91.8 million), operating expenses $62.1 million (2004: $41.4 million; 2002-3: $40.8 million) and provisions $32.2 million (2004: $21.0million; 2002-3: $53.0 million). Net income before taxation and minority interest, amounting to $109.3 million (2004: $60.1 million;2002-3: $41.1 million), was therefore 82% above 2004’s. After taxation amounting to $6.4 million (2004: $6.0 million; 2002-3: $1.8million recovery) and minority interest in subsidiaries of $23.5 million (2004: $17.2 million; 2002-3: $15.6 million), as stated above thenet income for the year was $79.4 million (2004: $36.8 million; 2002-3: $27.3 million), which was 115% higher than that for 2004.

8.3.2 Sources and Uses of FundsOn 31 December 2005, cash and bank balances, trading securities and non-trading investments totalled $2.430 billion (2004: $2.028billion; 2003: $1.613 billion) or 38.7% (2004: 40.1%; 2003: 39.2%) of total assets and 44.1% (2004: 45.2%; 2003: 44.5%) of totalliabilities and unrestricted investment accounts. Non-trading investments (made up of 24.7% available for sale investments and 75.3%held to maturity investments) stood at $582 million (2004: $401 million; 2003: $279 million) whereas trading securities amounted to $3million (2004: $1 million; 2003: $26 million) and cash and balances with banks totalled $1.845 billion (2004: $1.627 billion; 2003:$1.308 billion). Sales receivables stood at $2.955 billion (2004: $2.189 billion; 2003: $1.742 billion); Mudaraba financings were $167million (2004: $156 million; 2003: $85 million); Musharaka financings were $74 million (2004: $70 million; 2003: $44 million);investment properties were $44 million (2004: $46 million; 2003: $43 million); Ijarah Muntahia Bittamleek totalled $170 million (2004:$172 million; 2003: $159 million); investment in associates were $125 million (2004: $115 million; 2003: $96 million) and Ijarareceivables were $20 million (2004: $15 million; 2003: $23 million). Investments in premises and other assets, aggregating $290 million


74

(2004: $264 million; 2003: $243 million), made up the remainder of the total assets.

These assets were funded by customer current and other accounts amounting to $1.186 billion at the end of 2005 (2004: $911million; 2003: $736 million); deposits from banks of $111 million (2004: $38 million; 2003: $42 million) and other liabilities of $217million (2004: $210 million; 2003: $166 million); in addition to unrestricted investment accounts amounting to $3.995 billion (2004:$3.333 billion; 2003: $2.681 billion) and shareholders’ equity of $566 million (2004: $422 million; 2003: $373 million).

ABG’s total assets at the end of 2005 amounted to $6.276 billion (2004: $5.057 billion; 2003: $4.116 billion). Average assets were$5.667 billion (2004: $4.587 billion; 2003: $4.116 billion) while average liabilities, excluding shareholders' equity, amounted to $5.172billion (2004: $4.189 billion; 2003: $3.743 billion).

8.3.3 Restricted InvestmentsAt the end of 2005, the Group’s Restricted Investments stood at $407 million (2004: $314 million; 2003: $335 million).

8.3.4 Geographical Distribution of the Balance SheetIn 2005, the Group's total assets were distributed as follows: Middle East 54.8%; Europe 25.9%; Africa 14.3%; Asia 4.2%; Others0.8%. Its liabilities were distributed as follows: Middle East 52.0%; Africa 24.7%; Europe 19.5%; Asia 3.6%; Others 0.2%. Thedistribution of unrestricted investment accounts was as follows: Middle East 59.2%; Europe 25.7%; Africa 11.0%; Asia 4.1%; Others0.0%. The distribution of restricted investment accounts was: Middle East 89.1%; Europe 10.1%; Others 0.8%.

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9 The Group’s Consolidated Financial Statements

77

9.1 The Group’s Cons9.1 Consolidated Financial Statements – 31 december 2005

AUDITORS’ REPORT TO THE SHAREHOLDERS OF ALBARAKA BANKING GROUP B.S.C. (c)

We have audited the accompanying consolidated balance sheet of Albaraka Banking Group B.S.C. (c) the "Bank" and its subsidiariesthe "Group" as of 31 December 2005, and the related consolidated statements of income, cash flows, changes in equity, changes inrestricted investment accounts, sources and uses of charity fund and sources and uses of good faith qard fund for the year then ended.These consolidated financial statements and the Bank's undertaking to operate in accordance with Islamic Shari'a rules and principlesare the responsibility of the Bank's Board of Directors. Our responsibility is to express an opinion on these consolidated financialstatements based on our audit. We did not audit the financial statements of certain subsidiaries, which statements reflect total assets ofUS$ 2.8 billion (2004: US$ 3.2 billion) and total net income attributable to equity holders of the parent of US$ 15 million (2004: US$ 9million). Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion is based solelyon the report of other auditors.

We conducted our audit in accordance with both the Auditing Standards for Islamic Financial Institutions and the International Standardson Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidatedfinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, the consolidated financial statements present fairly, in all materialrespects, the consolidated financial position of the Group as of 31 December 2005, and results of its operations and its cash flows forthe year then ended in accordance with the Financial Accounting Standards issued by the Accounting and Auditing Organization forIslamic Financial Institutions and the Shari'a rules and principles as determined by the Shari'a Supervisory Board of the Bank.

We confirm that, in our opinion, proper accounting records have been kept by the Bank and the consolidated financial statements, andthe contents of the Report of the Board of Directors relating to these consolidated financial statements, are in agreement therewith. Wefurther report, to the best of our knowledge and belief, that no violations of the Bahrain Commercial Companies Law, nor of the BahrainMonetary Agency Law, nor of the memorandum and articles of association of the Bank have occurred during the financial year ended31 December 2005 that might have had a material adverse effect on the business of the Bank or on its consolidated financial positionand that the Bank has complied with the terms of its banking licence. We obtained all the information and explanations which we requiredfor the purpose of our audit.

6 March 2006Manama, Kingdom of Bahrain

9 The Group’s Consolidated Financial Statements continued

78

CONSOLIDATED BALANCE SHEET31 December 2005

2005 2004Notes US$ 000 US$ 000

ASSETSCash and balances with banks 3 1,844,633 1,626,512 Sales receivables 4 2,955,463 2,188,935 Mudaraba financing 5 167,235 156,398 Musharaka financing 6 73,692 70,385 Investment properties 7 44,010 46,279 Ijarah Muntahia Bittamleek 8 170,467 172,159 Investment in associates 9 125,208 115,380 Investments 10 585,014 401,927 Ijarah receivables 11 20,279 14,584 Fixed assets 12 115,355 111,873 Other assets 13 174,987 152,287

Total assets 6,276,343 5,056,719

LIABILITIES, UNRESTRICTED INVESTMENT ACCOUNTS AND EQUITY

LIABILITIESCustomer current and other accounts 1,185,592 910,558 Due to banks 111,432 37,530 Other liabilities 14 216,816 209,644

1,513,840 1,157,732

UNRESTRICTED INVESTMENT ACCOUNTS 15 3,995,370 3,333,059

EQUITY 16Share capital 387,998 325,307Reserves 49,810 39,635Retained earnings 111,526 57,091Proposed dividends 17,000 –

Equity attributable to the shareholders of the parent 566,334 422,033Minority interest 200,799 143,895

Total equity 767,133 565,928

Total liabilities, unrestricted investment accounts and equity 6,276,343 5,056,719

Saleh Abdullah Kamel Adnan Ahmed YousifChairman Member of the Board and Chief Executive Officer

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CONSOLIDATED STATEMENT OF INCOMEYear Ended 31 December 2005

2005 2004Notes US$ 000 US$ 000

IncomeJoint income from sales receivable 254,987 151,652 Net income from jointly financed contracts and investments 117,930 99,693

17 372,917 251,345

Gross return on unrestricted investment accounts 18 (305,964) (199,571)Group's share as a Mudarib 18 92,783 41,784

Return on unrestricted investment accounts (213,181) (157,787)

GROUP S SHARE OF INCOME 159,736 93,558 Mudarib share for managing restricted investment accounts 5,970 2,846 Net income from self financed contracts and investments 17 133,001 151,774 Other fees and commission income 19 71,553 45,806 Other operating income 20 22,946 30,836

TOTAL OPERATING INCOME 393,206 324,820

Staff expenses 74,364 52,723 Depreciation and amortisation 21 110,291 145,385 Operating expenses 22 62,068 41,443 Provisions 23 32,230 20,976

TOTAL EXPENSES 278,953 260,527

NET INCOME FOR THE YEAR BEFORE MONETARY LOSS AND TAXATION 114,253 64,293

Monetary loss on a subsidiary (4,987) (4,204)Taxation (6,380) (6,022)

NET INCOME FOR THE YEAR 102,886 54,067

Attributable to:Equity shareholders of the parent 79,372 36,845 Minority interest 23,514 17,222

102,886 54,067


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CONSOLIDATED STATEMENT OF CASH FLOWSYear Ended 31 December 2005

2005 2004Notes US$ 000 US$ 000

OPERATING ACTIVITIESNet income for the year attributable to equity shareholders of the parent 79,372 36,845 Adjustments for non-cash items:Depreciation and amortisation 21 110,291 145,385 Gain on sale of fixed assets 20 (4,266) (4,581)Provisions 23 32,230 20,976 Share in profits of associated companies (43,489) (20,022)

Operating profit before changes in operating assets and liabilities 174,138 178,603

Net changes in operating assets and liabilities:Reserves with central banks (70,636) (755,432)Sales receivables (769,180) (440,757)Mudaraba financing (10,589) (71,417)Musharaka financing 2,867 (26,507)Investment properties 6,383 (3,146)Ijarah Muntahia Bittamleek (93,764) (145,744)Ijarah receivable (5,599) 8,765 Other assets (8,481) 57,877 Customer current and other accounts 207,811 174,101 Due to banks and financial institutions 73,402 (4,759)Other liabilities (17,884) 13,157

Net cash used in operating activities (511,532) (1,015,259)

INVESTING ACTIVITIESAcquisition of a subsidiary, net of cash acquired 35 36,343 – Net purchase of investments (162,320) (86,138)Net disposal (purchase) of fixed assets 269 (18,857)Dividend received from associate 21,911 – Proceeds from sale of investment in associates 11,750 385

Net cash used in investing activities (92,047) (104,610)

FINANCING ACTIVITIESProceeds from issue of share capital 41,347 – Increase in unrestricted investment accounts 652,286 652,185 Net changes in minority interest 54,933 26,627

Net cash from financing activities 748,566 678,812

Foreign currency translation adjustments 2,498 4,248

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 147,485 (436,809)Cash and cash equivalents at beginning of the year 1,343,083 1,779,892

CASH AND CASH EQUIVALENTS AT 31 DECEMBER 24 1,490,568 1,343,083

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITYYear Ended 31 December 2005

Attributable to equity holders of the parent

Cumulative Investmentchanges in Foreign Properties

Share Statutory fair values currency fair value Other Retained Proposed Minority Totalcapital reserve reserve reserve reserve reserves earnings dividends Total interest equity

US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Balance at 1 January 2004 325,307 2,729 1,777 16,772 66 2,112 24,121 – 372,884 117,167 490,051 Net movement in cumulativechange in fair value – – 6,169 – 41 – – – 6,210 686 6,896

Foreign currency translation – – – 4,248 – – – – 4,248 1,232 5,480 Net income for the year – – – – – – 36,845 – 36,845 17,222 54,067 Transfer to statutory reserve – 3,685 – – – – (3,685) – – – –Other reserves – – – – – 2,036 (190) – 1,846 1,859 3,705 Net movement in minority interest – – – – – – – – – 5,729 5,729

Balance at 1 January 2005 325,307 6,414 7,946 21,020 107 4,148 57,091 – 422,033 143,895 565,928 Share capital issued for cash 41,347 – – – – – – – 41,347 – 41,347 Share capital issued in kind 21,344 – – – – – – – 21,344 – 21,344 Acquisition of a subsidiary (note 35) – – – – – – – – – 2,815 2,815 Net movement in cumulativechange in fair value – – 1,422 – (107) – – – 1,315 (738) 577

Net movement in other reserves – – – – – (1,575) – – (1,575) (106) (1,681)Foreign currency translation – – – 2,498 – – – – 2,498 (1,438) 1,060 Net income for the year – – – – – – 79,372 – 79,372 23,514 102,886 Transfer to statutory reserve – 7,937 – – – – (7,937) – – – – Proposed dividends – – – – – – (17,000) 17,000 – – – Dividends received from subsidiaries – – – – – – – – – (4,757) (4,757)Net movement in minority interest – – – – – – – – – 37,614 37,614

Balance at 31 December 2005 387,998 14,351 9,368 23,518 – 2,573 111,526 17,000 566,334 200,799 767,133

Note: Net movement in minority interest includes the effect of changes in capital of subsidiaries.

The attached notes 1 to 38 form part of these consolidated financial statements


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CONSOLIDATED STATEMENT OF CHANGES IN RESTRICTED INVESTMENT ACCOUNTS Year Ended 31 December 2005

Sales Mudaraba Musharaka Investmentreceivable financing financing Properties Others Total

US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Balance at 1 January 2004 253,057 1,500 14,162 24,616 41,919 335,254 Deposits 59,082 4,046 6,814 22,795 140,427 233,164 Withdrawals (118,007) – – (27,370) (117,938) (263,315)Income net of expenses 6,132 11 – 379 5,308 11,830 Mudarib's share (1,385) (3) (15) (115) (1,328) (2,846)

Balance at 31 December 2004 198,879 5,554 20,961 20,305 68,388 314,087 Deposits 287,304 – 2,732 3,234 250,992 544,262 Withdrawals (259,023) (4,145) (20,961) (14,932) (193,110) (492,171)Income net of expenses 23,661 104 – 4,012 18,606 46,383 Mudarib's share (1,975) (13) – (326) (3,656) (5,970)

Balance at 31December 2005 248,846 1,500 2,732 12,293 141,220 406,591

Restricted investment accountsRestricted investment accounts represent funds received by the Group from third parties for investment in specified products asdirected by the investment account holders. These assets are managed in a fiduciary capacity and the Group has no entitlement tothese assets. Clients bear all of the risks and earn all of the rewards on these investments.

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CONSOLIDATED STATEMENT OF SOURCES AND USES OF CHARITY FUNDYear Ended 31 December 2005

2005 2004Notes US$ 000 US$ 000

Sources of charity fund:Contribution by the Group 2,603 1,755 Others 415 –

Total sources 3,018 1,755

Uses of charity fundCharitable contributions 1,352 1,229 Others 881 394

Total uses 2,233 1,623

Net increase of sources over uses 785 132 Balance of charity fund at beginning of the year 1,768 1,636

Balance of charity fund at end of the year 14 2,553 1,768



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CONSOLIDATED STATEMENT OF SOURCES AND USES OF GOOD FAITH QARD FUND Year Ended 31 December 2005

2005 2004Notes US$ 000 US$ 000

Sources of Qard fundContribution by the Group 13,389 8,761 Others 587 2,935

Total Sources 13,976 11,696

Uses of Qard fundMarriage 739 594 Medical treatment 482 440 Education 2,108 1,855 Advances to staff 1,390 1,071 Settlement of current accounts 5,637 4,610 Others 3,620 3,126

Total uses 13,976 11,696

Balance of Good Faith Qard fund at beginning of the year 6,725 7,126 Advances granted during the year 13,976 11,696 Advances settled during the year (12,079) (12,097)

Balance of Good Faith Qard fund at end of the year 13 8,622 6,725


Notes to the consolidated financial statements 31 december 2005

1 ACTIVITIESAlbaraka Banking Group B.S.C. (c) (the "Bank") is a joint stock company incorporated in the Kingdom of Bahrain on 27 June 2002,under Commercial Registration (CR) number 48915. The address of the Bank's registered office is P.O. Box 1882, Diplomatic Area,Manama, Kingdom of Bahrain.

The Bank operates in Bahrain under an offshore banking licence issued by the Bahrain Monetary Agency and is engaged in Islamicinvestment banking activities.

The Bank and its subsidiaries (the "Group") is engaged in international and commercial banking, financing, treasury and investmentactivities in the Middle East and North African region. The Bank is supervised and regulated by the Bahrain Monetary Agency. As of 31December 2005, the total number of employees employed by the Group was 4,846 (2004: 3,844).

One of the subsidiaries included in the consolidated financial statements is in the legal process of being transferred to the Bank (Seenote 2b). Accordingly, assets and liabilities of these subsidiaries are reflected based on the effective ownership of Sheikh SalehAbdullah Kamel (Chairman of the Bank and the Group) and his family members including nominees and agents, as trustees on behalfof the Bank.

The Bank is owned by Sheikh Saleh A. Kamel and Dallah Albaraka Holding Company E.C., a company incorporated in the Kingdom ofBahrain in the ratio of 55% (2004: 55%) and 45% (2004: 45%) respectively. Sheikh Saleh Abdullah Kamel and his family are effectivelythe ultimate shareholders of Dallah Albaraka Holding Company E.C.

2 SIGNIFICANT ACCOUNTING POLICIESThe significant accounting policies adopted in the preparation of the consolidated financial statements are set out below:

a. Basis of preparationThe consolidated financial statements are prepared under the historical cost convention as modified for the measurement at fair valueof investments, investment properties and fixed assets.

The consolidated financial statements are prepared in accordance with the Financial Accounting Standards issued by the Accountingand Auditing Organisation for Islamic Financial Institutions (the "AAOIFI"), the Shari’a rules and principles as determined by the Shari’aSupervisory Board of the Group and the Bahrain Commercial Companies Law. For matters which are not covered by AAOIFIstandards, the Group uses the International Financial Reporting Standards (the "IFRSs").

The accounting policies adopted are consistent with those of the previous financial year except that the Group has adopted certainIFRSs which became effective for financial years beginning on or after 1 January 2005 as follows:

IFRS 3 has been adopted for business combinations for which the agreement date is on or after 31 March 2004. The first transactionto which the new standard has been applied is the acquisition of Albaraka Bank Sudan on 1 January 2005. There is no materialimpact of the new Standard on the accounting of that transaction. After initial recognition, IFRS 3 requires goodwill acquired in abusiness combination to be carried at cost less any accumulated impairment losses. IFRS 3 prohibits amortisation of goodwill,consequently no amortisation is charged in 2005. Under IAS 36 "Impairment of Assets" (revised), effective 1 January 2005, impairmentreviews are required annually, or more frequently if there are indications that goodwill might be impaired.

b. Basis of consolidationThe consolidated financial statements comprise the financial statements of Albaraka Banking Group and its subsidiaries. The financialstatements of the subsidiaries are prepared for the same reporting year as the Bank, using consistent accounting policies.

All material intra-group balances, transactions, income and expenses are eliminated on consolidation.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to beconsolidated until the date that control ceases.

Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity. Minority interestsconsist of the amount of those interests at the date of the original business combination and the minorities share of changes in equitysince the date of combination. Losses applicable to the minority in excess of the minority's interest in the subsidiary's equity areallocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make anadditional investment to cover the losses.

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86

Notes to the consolidated financial statements 31 december 2005 continued

2 SIGNIFICANT ACCOUNTING POLICIES continuedb. Basis of consolidation continuedThe acquisition of Albaraka Bank Sudan on 1 January 2005 has been accounted for using the purchase method of accounting. Thepurchase method of accounting involves allocating the cost of the business combination to the fair value of the assets acquired andliabilities and contingent liabilities assumed at the date of acquisition. Accordingly, the consolidated financial statements include theresults of Albaraka Bank Sudan for the twelve-month period from its acquisition on 1 January 2005.

The following are the principal subsidiaries of the Bank, which are consolidated in these financial statements:

Year of Country of Bank Ownership incorporation incorporation

Held directly by the BankBanque Albaraka D’Algerie 50.0% 1991 AlgeriaAlbaraka Islamic Bank 78.3% 1984 BahrainBeit Et-Tamweel Al-Tunisi Al-Saudi 78.4% 1983 TunisiaEgyptian Saudi Finance Bank 46.6% 1980 EgyptAlbaraka Bank Lebanon 81.8% 1991 LebanonJordan Islamic Bank 53.7% 1978 JordanAl Amin Bank 100.0% 1987 BahrainAlbaraka Türk Participation Bank ** 67.7% 1985 TurkeyAlbaraka Bank Limited * 22.5% 1989 South AfricaAlbaraka Bank Sudan 87.8% 1984 Sudan

* At present, this bank is legally owned by Sheikh Saleh A. Kamal (Chairman of the Group) and certain family members (including nominees and agents), astrustees on behalf of the Bank. The actual transfer will take place once the regulatory and other formalities relating to the acquisition have beencompleted. The Group will increase its shareholding to 50% after such regulatory approvals are met. ** Formerly AlBaraka Turkish Finance House.

Banque Albaraka D' Algerie, Egyptian Saudi Finance Bank and Albaraka Bank Limited South Africa have been consolidated as theBank exercises control over the power to govern the financial and operating policies so as to obtain benefits from their activities.Sheikh Saleh Abdullah Kamel is the chairman of the Board of Directors of Egyptian Saudi Finance Bank along with other four membersrepresenting Albaraka Banking Group. The Chief Executive Officer of the Bank is the Chairman of Albaraka Bank Limited and BanqueAlbaraka D'Algerie.

effective Year of Country of company Ownership incorporation incorporation

Held through subsidiariesAl- Rizq Trading Company ** 48.3% 1994 JordanAl-Omariya School Company** 50.6% 1987 JordanAl-Samaha Real Estate Company** 51.0% 1998 JordanFuture Applied Computer Technology Company** 53.6% 1998 JordanDar AlBaraka 50.0% 2003 AlgeriaAman Takaful Insurance 57.2% 2002 LebanonAlBaraka Properties (Pty) Ltd. 22.5% 1991 South Africa

** Owned indirectly through Jordan Islamic Bank.

Dar AlBaraka, Aman Takaful Insurance and AlBaraka Properties (Pty) Ltd. are indirectly owned through Banque Albaraka D’Algerie,Albaraka Bank Lebanon and AlBaraka Bank Limited respectively.

c. Cash and cash equivalentsCash and cash equivalents comprise cash in hand and balances with banks maturing with an original maturity of ninety days or less.


2 SIGNIFICANT ACCOUNTING POLICIES continuedd. Sales receivablesSales receivable consist mainly of sales transaction agreements, murabaha and international commodities stated net of deferred profitsand provisions for impairment.

Sales receivable which are jointly owned by the Bank and the unrestricted investment accounts holders are classified under thecaption "jointly financed" in the consolidated financial statements. Sales receivables which are financed solely by the Bank areclassified under "self financed".

e. Mudaraba financingMudaraba financing is stated at cost less provision for impairment.

f. Musharaka financingMusharaka financing (in which the partner’s share in capital remains constant) is accounted for at cost less provision for impairment.

g. Investment propertiesAll properties held for rental or for capital appreciation purposes, or both, are classified as investment properties. These are initiallyrecognised at cost and subsequently re-measured at fair value with the resulting unrealised gains or losses being recognised in theconsolidated statement of changes in equity under investment properties fair value reserves. Unrealised losses are recognised in equityto the extent of the available balance, taking into consideration between the portion related to owners' equity and the portion relatedto the equity of unrestricted investment account holders. In case cumulative losses exceed the available balance under equity, theexcess is recognised in the consolidated statement of income under unrealised re-measurement losses on investments.

h. Ijarah Muntahia BittamleekIjarah Muntahia Bittamleek are accounted for at cost and are depreciated according to the Group’s depreciation policy for fixed assetsor lease term, whichever is lower.

i. Investment in associatesThe Group's investment in its associates is accounted for under the equity method of accounting. An associate is an entity in whichthe Group has significant influences and which is neither a subsidiary nor a joint venture. Under the equity method, the investment inthe associate is carried in the balance sheet at cost plus post-acquisition changes in the Group's share of net assets of the associate.Goodwill relating to an associate is included in the carrying amount of the investment and in accordance with IFRS 3, is not amortised.After application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss withrespect to the Group's net investment in the associate. Where there has been a change recognised directly in the equity of theassociate, the Group recognises its share of any changes and discloses this, when applicable, in the consolidated statement ofchanges in equity.

The Group's share of income or loss arising from the operation of the associated companies is included in the consolidated statementof income.

j. InvestmentsTrading securitiesThese are initially recognised at cost and subsequently re-measured at fair value. All related realised and unrealised gains or losses areincluded in the consolidated income statement.

Non-trading investmentsThese are classified as follows:• Held-to-maturity• Available-for-sale

All investments are initially recognised at cost, being the fair value of the consideration given including acquisition costs.

Held-to-maturityInvestments which have fixed or determinable payments, the Group has both the intent and ability to hold to maturity are classified asheld-to-maturity. Such investments are carried at amortised cost, less provision for impairment in value. Amortised cost is calculatedby taking into account any premium or discount on acquisition. Any gain or loss on such investment is recognised in the consolidatedincome statement, when the investment is de-recognised or impaired.

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2 SIGNIFICANT ACCOUNTING POLICIES continuedj. Investments continuedAvailable-for-saleSubsequent to acquisition available for sale investments are re-measured at fair value. The cumulative gain on fair values (net of anylosses) is reflected proportionately in owners' equity and unrestricted investment accounts. Cumulative losses are reflected in theconsolidated statement of income.

In case there are unrealised losses that have been recognised in the consolidated statement of income in a previous financial period,the unrealised gains related to the current period are recognised to the extent of previous losses recognised in the consolidatedstatement of income. Any excess of such gains over such prior period losses is added to the cumulative changes in fair value in theconsolidated statement of changes in equity.

k. Fixed assetsFixed assets are initially recognised at cost and subsequently re-measured at fair value. The cost of additions and major improvementsare capitalised; maintenance and repairs are charged to the consolidated income statement as incurred. Gains or losses on disposalare reflected in other operating income. Depreciation is provided on the straight-line basis over the estimated useful lives of the assetsother than freehold land, which is deemed to have an indefinite life.

The calculation of depreciation is on the following basis:

Buildings 30 yearsOffice furniture and equipment 4 - 10 yearsVehicles 3 yearsLeased buildings 4 - 10 yearsOthers 4 - 5 years

l. Unrestricted investment accountsAll unrestricted investment accounts are carried at cost plus accrued profit and related reserves. Profit equalisation reserves andinvestment risk reserves are made at a subsidiary level. Profit equalisation reserves are amounts appropriated by the Group out of theMudaraba income, before allocating the mudarib share, in order to maintain a certain level of return on investments for investmentaccount holders and to increase owners' equity. Investment risk reserves are amounts appropriated by the Group out of the income ofinvestment account holders, after allocating the mudarib share, in order to cater against future losses for investment account holdersand is included under unrestricted investment account holders.

m. TaxationThere is no tax on corporate income in the Kingdom of Bahrain. Taxation on foreign operations is provided in accordance with thefiscal regulations of the respective countries in which the subsidiaries operate. The Group accounts for its share of associates profitafter accounting for corporate taxation. Deferred income tax is provided using the liability method on temporary differences at thebalance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

n. Fair valuesFor investments actively traded in organised financial markets, fair value is determined by reference to quoted market bid prices.

For investment where there is no quoted market price, a reasonable estimate of the fair value is determined by reference to the currentmarket value of another instrument, which is substantially the same or is based on the assessment of future cash flows. The cashequivalent values are determined by the Group at current profit rates for contracts with similar term and risk characteristics.

For sales receivable the fair value is determined at a subsidiary level at the end of the financial period at their cash equivalent value.

For land and buildings the fair value is determined every five years based on independent external valuation.

The fair values of other financial assets and liabilities on the balance sheet approximate their carrying values.

o. Shari a supervisory boardThe Group's business activities are subject to the supervision of a Shari'a supervisory board consisting of five members appointed bythe general assembly.


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2 SIGNIFICANT ACCOUNTING POLICIES continuedp. ZakahThe responsibility of payment of zakah is on individual shareholders of the Bank, its unrestricted investment account holders and otheraccount holders except for few subsidiaries where the responsibility of payment of zakah is on the individual subsidiary as a single entity.

q. Earnings prohibited by Shari’aThe Group is committed to avoid recognising any income generated from non-Islamic source. Accordingly, all non-Islamic income iscredited to a charity account where the Group uses these funds for various social welfare activities. The movements in these funds isshown in statement of sources and uses of charity fund.

r. Revenue recognitionSales receivableProfit from sales receivable is recognised when the income is both contractually determinable and quantifiable at the commencementof the transaction. Such income is recognised on time-apportioned basis over the period of the transaction. Where the income from acontract is not contractually determinable or quantifiable, it is recognised when the realisation is reasonably certain or when actuallyrealised. Income that is 90 days or more overdue is excluded from income.

Mudaraba financingIncome on mudaraba financing is recognised on distribution by the mudarib, whereas any losses are charged to income on theirdeclaration by the mudarib.

Musharaka financingIncome is recognised on the due dates of the instalments or when received in case of sale musharaka. Income that is 90 days ormore overdue is excluded from income.

Fee incomeFee and commission income on letters of credit and letters of guarantee issued are recognised as income in full when the transactionis initiated.

Ijarah Muntahia BittamleekIncome from Ijarah Muntahia Bittamleek is recognised on a time-apportioned basis over the Ijarah term.

Other incomeOther income on investments is recognised when the right to receive payment is established.

Bank’s share as a MudaribThe Group’s share of profit as a Mudarib for managing unrestricted investment accounts is based on the terms and conditions ofrelated mudarib agreements.

Bank’s share of restricted investmentThe Group shares profit for managing restricted investment accounts based on the terms and conditions of related contracts.

s. Return on unrestricted investment accountsUnrestricted investment accounts holders’ share of income is calculated based on the income generated from joint investmentaccounts and after deducting other expenses. Other expenses include all expenses incurred by the Group including specificprovisions. The Group's share is deducted before distributing such income.

The Group deducts an amount in excess of the profit to be distributed to unrestricted investment accounts after taking intoconsideration the mudarib share of income.

Investment that are jointly owned by the Group and the unrestricted investment accounts holders are classified under the caption "jointlyfinanced" in the consolidated financial statements. Investments that are financed solely by the Group are classified under "self financed".

89


2 SIGNIFICANT ACCOUNTING POLICIES continuedt. Impairment and un-collectability of financial assetsAn assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset ora group of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined andany impairment loss, based on the assessment by the Group of the value to it of estimated cash equivalent value, is recognised in theconsolidated income statement. Specific provisions are created to reduce all impaired financial contracts to their realisable cash equivalentvalue. Financial assets are written off only in circumstances where effectively all possible means of recovery have been exhausted.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an eventoccurring after the impairment value was recognised, the previously recognised impairment loss is reversed. Any subsequent reversalof an impairment loss is recognised in the consolidated income statement.

Also, the Group maintains general provisions to reflect a potential loss that may occur as a result of currently unidentifiable risks inrelation to receivables, financings or investment assets. The amount reflects estimated losses affecting these assets attributable toevents that have already occurred at the date of the financial statements, and not estimated losses attributable to future events.

u. Trade and settlement date accountingAll “regular way” purchases and sales of financial assets are recognised on the trade date, i.e. the date that the bank commits topurchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assetswithin the time frame generally established by regulation or convention in the market place.

v. Foreign exchange contractsForeign exchange contracts are not permissible under the Islamic Shari'a and therefore are not used in the ordinary course of theGroup business. However, due to central bank's requirements in some countries, certain branches of the Group's subsidiaries arerequired to enter into these contracts with central banks against foreign currencies surrendered. Income, if any, generated from suchtransactions is credited to a charity account.

w. OffsettingFinancial assets and financial liabilities are only offset and the net amount reported in the balance sheet when there is a legallyenforceable right to set off the recognised amounts and the Group intends to either settle on a net basis, or to realise the asset andsettle the liability simultaneously.

x. Employees end of service benefitsThe Group provides for end of service benefits to its employees. Entitlement to these benefits is based upon the employees' length of service and the completion of a minimum service period. The expected costs of these benefits are accrued for over the period of employment.

y. ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) arising from a past event and the costs tosettle the obligation are both probable and able to be reliably measured.

z. Foreign currenciesForeign currency transactions at the entity levelTransactions in foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All differences aretaken to income statement at the entity level.

Foreign currency translationsAs at the reporting date, the assets and liabilities of foreign currencies are translated into the presentation currency of the Bank (US$)at the rate of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchangerates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. Ondisposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation isrecognised in the consolidated income statement.

aa. Monetary lossThese represent the purchasing power loss from the application of hyperinflationary accounting standard by a subsidiary (AlbarakaTürk Participation Bank ) for differences between monetary assets and monetary liabilities. IAS 29 requires that financial statementsprepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date.


90

91


2 SIGNIFICANT ACCOUNTING POLICIES continuedbb. JudgmentsClassification of investmentsManagement decides on acquisition of an investment whether it should be classified as trading, held to maturity or available for sale.

cc. Use of estimates in preparation of the consolidated financial statementsThe preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reportedamounts of financial assets and liabilities at the date of the financial statements. The use of estimates is used primarily to the determinationof provisions for sales receivable, mudaraba financing, musharaka financing, non-trading investments, ijarah receivable and other assets.

dd. GoodwillGoodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combinationover the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition,goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or morefrequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairmenttesting, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generatingunits, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whetherother assets or liabilities of the Group are assigned to those units or groups of units. Impairment is determined by assessing therecoverable amount of the cash-generating unit (group of cash-generating units), to which the goodwill relates. Where the recoverableamount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

ee.Collateral pending saleThe Group occasionally acquires real estate in settlement of certain financing facilities. Such real estate is stated at the lower of the netrealisable value of the related financing facilities and the current fair value of such assets. Gains or losses on disposal, and revaluationlosses, are recognised in the consolidated income statement.

3 CASH AND BALANCES WITH BANKS

2005 2004US$ 000 US$ 000

Balances with central banks* 1,156,742 1,031,680 Balances with other banks 587,048 506,327 Cash 90,874 66,098 Others 9,969 22,407

1,844,633 1,626,512

* Includes restricted amounts US$ 354 million (2004: US$ 283 million)

4 SALES RECEIVABLES

2005 2004

Self Jointly Self Jointlyfinanced financed Total financed financed Total

US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

International commodities murabahas – 278,650 278,650 67 324,768 324,835 Other murabahas 122,554 2,867,814 2,990,368 69,609 2,056,040 2,125,649

Gross sales receivables 122,554 3,146,464 3,269,018 69,676 2,380,808 2,450,484 Provisions (note 23) (1,872) (151,835) (153,707) (7,090) (121,048) (128,138)

120,682 2,994,629 3,115,311 62,586 2,259,760 2,322,346 Deferred profits (624) (159,224) (159,848) (891) (132,520) (133,411)

Net sales receivables 120,058 2,835,405 2,955,463 61,695 2,127,240 2,188,935

Sales receivables, which are non-performing as of 31 December 2005, amounted to US$ 271.4 million (2004: US$ 189.3 million).

The Group considers the promise made in the murabaha (sales receivable) to the purchase order as obligatory.


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5 MUDARABA FINANCING

2005 2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Gross amount 9,693 158,185 167,878 2,300 154,989 157,289 Provisions (note 23) – (643) (643) – (891) (891)

9,693 157,542 167,235 2,300 154,098 156,398

Mudaraba financing, which are non-performing as of 31 December 2005, amounted to Nil (2004: US$ 1.1 million).

6 MUSHARAKA FINANCING

2005 2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Gross amount 3,706 71,088 74,794 4,480 66,840 71,320 Provisions (note 23) (115) (987) (1,102) (115) (820) (935)

3,591 70,101 73,692 4,365 66,020 70,385

Musharaka financing, which are non performing as of 31 December 2005, amounted to US$ 0.5 million (2004: US$ 1.1 million).

7 INVESTMENT PROPERTIES

2005 2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Cost 1,203 38,556 39,759 1,492 44,650 46,142 Accumulated fair value adjustments – 4,251 4,251 137 – 137

1,203 42,807 44,010 1,629 44,650 46,279

The movement is as follows:

2005 2004US$ 000 US$ 000

At 1 January 46,279 43,092 Change in fair values of investment properties 4,114 52 Acquisition net of disposal (6,383) 3,135

44,010 46,279

Investment properties at 31 December consist of the following:

2005 2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Land 305 12,277 12,582 – 19,296 19,296 Buildings 1,078 30,350 31,428 1,629 25,354 26,983

1,383 42,627 44,010 1,629 44,650 46,279

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8 IJARAH MUNTAHIA BITTAMLEEK

2005 2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Cost:Opening balance 7,412 224,439 231,851 7,205 347,964 355,169 Additions 10,235 99,720 109,955 207 110,783 110,990 Disposals (533) (68,530) (69,063) – (234,308) (234,308)

Closing balance 17,114 255,629 272,743 7,412 224,439 231,851

Accumulated depreciation:Opening balance 4,007 55,685 59,692 2,641 193,090 195,731 Additions 4,714 90,742 95,456 1,366 131,657 133,023 Disposals – (52,872) (52,872) – (269,062) (269,062)

Closing balance 8,721 93,555 102,276 4,007 55,685 59,692

Net book value:At 31 December 8,393 162,074 170,467 3,405 168,754 172,159

Properties Equipment Others 2005US$ 000 US$ 000 US$ 000 US$ 000

Cost:At 1 January 77,127 144,686 10,038 231,851 Additions 33,842 70,662 5,451 109,955 Disposals (38,626) (29,191) (1,246) (69,063)

At 31 December 72,343 186,157 14,243 272,743

Depreciation:At 1 January 31,535 26,251 1,906 59,692 Provided during the year 20,504 73,417 1,535 95,456 Disposals (26,458) (26,374) (40) (52,872)

At 31 December 25,581 73,294 3,401 102,276

Net book value:At 31 December 46,762 112,863 10,842 170,467


94


9 INVESTMENT IN ASSOCIATESInvestments in associates comprise the following:

2005

Carrying value Ownership Self Jointly Market2005 % Country of financed financed Total Value

US$ 000 2005 incorporation US$ 000 US$ 000 US$ 000 US$ 000





14,152 – 14,152 14,152 30,522




InsuranceBEST Reinsurance 15,047 21.8 Tunis 15,047 – 15,047

111,056 110,621 435 111,056


Al Tawfeek Company for Investment Funds Limited has been accounted for under equity method as the Group exercises significant influence over it.The significant influence is demonstrated through its 100% ownership of Al-Amin Bank which owns 13.6% of Al Twafeeq Company for InvestmentFunds Limited. The management of Al-Amin believes that, in view of common shareholders and directors of Al-Amin Bank E.C., it exercises significantinfluence over Al Tawafeeq Company for Investment Funds Limited.

95


9 INVESTMENT IN ASSOCIATES continued

2004

Carrying value Ownership Self Jointly Market2004 % Country of financed financed Total Value

US$ 000 2004 incorporation US$ 000 US$ 000 US$ 000 US$ 000





Jordanian Pharmacy Manufacturing Company Limited 8,084 21.3 Jordan – 8,084 8,084 16,348

25,630 – 25,630 25,630 40,471




InsuranceBEST Reinsurance 13,798 21.8 Tunis 13,798 – 13,798 AlBaraka AlAmane Assurance Algeria 1,508 20.0 Algeria 1,508 – 1,508

OthersCemedene Trading (Proprietary) Limited 162 50.0 South Africa – 162 162

89,750 89,178 572 89,750


Cemedene Trading (Proprietary) Limited has not been consolidated as the Group does not have the ability to exercise control.


96


10 INVESTMENTSi) Trading securities

2005 2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Quoted equities 1,606 1,065 2,671 – 1,250 1,250

Non-trading investmentsii) Available for sale investments

2005 2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Quoted investmentsManaged funds 2,766 19,157 21,923 2,074 6,062 8,136 Equities 4,459 49,558 54,017 4,785 192,861 197,646

7,225 68,715 75,940 6,859 198,923 205,782

Unquoted investments at costManaged funds – 15,447 15,447 – 1,000 1,000 Equities 31,049 27,102 58,151 939 47,503 48,442

31,049 42,549 73,598 939 48,503 49,442

Provisions (note 23) (4,846) (1,089) (5,935) (5,004) (1,313) (6,317)

33,428 110,175 143,603 2,794 246,113 248,907

iii) Held to maturity investments

2005 2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Investments at cost Sukook and similar items 11,193 427,547 438,740 9,530 142,240 151,770

11,193 427,547 438,740 9,530 142,240 151,770

Total investments 46,227 538,787 585,014 12,324 389,603 401,927

11 IJARAH RECEIVABLES

2005 2004


US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Gross amount 5,498 15,865 21,363 6,165 9,600 15,765 Provisions (note 23) (1,043) (41) (1,084) (1,163) (18) (1,181)

4,455 15,824 20,279 5,002 9,582 14,584

Ijarah receivables, which are non-performing as of 31 December 2005, amounted to US$ nil (2004: US$ 0.224 million).

97


12 FIXED ASSETS

Officefurniture

Land and andbuildings equipment Vehicles Others Total

US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Cost:At 1 January 2005 102,792 59,942 6,844 13,738 183,316 Acquisition through subsidiary (note 35) 11,679 2,306 505 – 14,490 Additions 5,195 9,251 1,349 1,121 16,916 Disposals (11,523) (502) (333) (504) (12,862)Transfers/others 8,646 2,128 (1,648) (7,008) 2,118

At 31 December 2005 116,789 73,125 6,717 7,347 203,978

Depreciation:At 1 January 2005 23,021 41,635 4,236 2,551 71,443 Acquisition through subsidiary (note 35) 44 904 259 – 1,207 Provided during the year 5,072 7,134 873 719 13,798 Disposals (1,062) (284) (289) – (1,635)Transfers/others 1,382 2,661 (863) 630 3,810

At 31 December 2005 28,457 52,050 4,216 3,900 88,623

Net book values:At 31 December 2005 88,332 21,075 2,501 3,447 115,355

At 31 December 2004 79,771 18,307 2,608 11,187 111,873

13 OTHER ASSETS

2005 2004US$ 000 US$ 000

Goodwill * 40,000 40,000 Bills receivable 39,821 43,698 Collateral pending sale 26,098 22,919 Receivables 16,280 10,542 Deferred tax 10,792 1,604 Good Faith Qard Fund 8,622 6,725 Istisna financing 6,585 2,156 Others 29,854 28,226

Total 178,052 155,870 Provisions (note 23) (3,065) (3,583)

174,987 152,287

* It has been allocated to Albaraka Türk Participation Bank as a cash generating unit as management views the whole Bank as one unit.


98


14 OTHER LIABILITIES

2005 2004US$ 000 US$ 000

Cash margins 45,425 68,642 Bills payable 73,537 43,926 Payables 24,949 13,460 Other provisions (note 23) 13,497 19,026 Current and deferred taxation 15,508 6,737 Accrued expenses 15,044 13,628 Charity fund 2,553 1,768 Others 26,303 42,457

216,816 209,644

15 UNRESTRICTED INVESTMENT ACCOUNTS

2005 2004US$ 000 US$ 000

Unrestricted investment accounts 3,986,725 3,330,200 Profit equalisation and investment risk reserve (note 15.1) 1,270 169Cumulative changes in fair value attributable to unrestricted investment accounts 7,375 2,690

3,995,370 3,333,059

15.1Movement in profit equalization and investment risk reserve

2005 2004US$ 000 US$ 000

Balance at 1 January 169 11,368 Amount apportioned from income allocable to unrestricted investment account holders 1,101 (11,199)

Balance at 31 December 1,270 169

16 EQUITY

2005 2004US$ 000 US$ 000

Share capitalAuthorised 1,500,000,000 ordinary shares of US$ 1 each 1,500,000 1,500,000

Issued and fully paid 61,346,609 ordinary shares of US$ 1 each issued against cash (2004: 20,000,000) 61,347 20,000 326,651,416 ordinary shares of US$ 1 each issued in kind* (2004: 305,307,211) 326,651 305,307

387,998 325,307

*The increase during the year is due to the following:

The acquistion of Albaraka bank Sudan through the issue of shares at an amount of US$ 17.58 million.

Also the Bank increased its share capital in Egyptian Saudi Finance Bank through the issue of shares at an amount of US$ 3.76 million.

99


16 EQUITY continuedStatutory reserveIn accordance with the Bahrain Commercial Companies Law and the Bank's articles of association, 10% of the net income for theperiod is transferred to the statutory reserve until such time as the reserve reaches 50% of the Bank's paid-up share capital.

Cumulative changes in fair values This represents the net unrealised gains on available-for-sale investments.

Foreign currency reserveThe foreign currency reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

Investment properties fair value reservesThis represents the net unrealised gain on revaluation of investment properties. This reserve is transferred to the consolidatedstatement of income upon sale of the investment properties.

Other reservesOther reserves mainly consist of general banking risk reserves maintained by the subsidiaries in accordance with local regulations.

17 NET INCOME FROM JOINTLY AND SELF FINANCED CONTRACTS AND INVESTMENTS

2005 2004US$ 000 US$ 000

Income from sales contracts 268,942 170,979 Ijarah Muntahia Bittamleek 109,095 131,111 Income from investments 54,031 61,552 Income from associates 43,489 20,022 Mudaraba financing 11,020 7,928 Income from Musharaka 5,849 3,698 Income from investment properties 1,544 77 Trading securities 1,031 5,603 Others 10,917 2,149

505,918 403,119

Net income from jointly financed contracts and investments 372,917 251,345 Net income from self financed contracts and investments 133,001 151,774

505,918 403,119

18 RETURN ON UNRESTRICTED INVESTMENT ACCOUNTSBank's share as a Mudarib is determined at the level of each subsidiary and is based on the terms and conditions of the related agreements.

19 OTHER FEES AND COMMISSION INCOME

2005 2004US$ 000 US$ 000

Fees and commissions 51,261 29,757 Letters of credit 14,443 12,725 Guarantees 4,129 2,449 Acceptances 1,720 875

71,553 45,806


100


20 OTHER OPERATING INCOME

2005 2004US$ 000 US$ 000

Foreign exchange gain 5,420 10,435 Gain on sale of fixed assets 4,266 4,581 Others 13,260 15,820

22,946 30,836

21 DEPRECIATION AND AMORTISATION

2005 2004US$ 000 US$ 000

Ijarah Muntahia Bittamleek (note 8) 95,456 133,023 Fixed assets (note 12) 13,798 11,286Amortisation 1,037 1,076

110,291 145,385

22 OPERATING EXPENSES

2005 2004US$ 000 US$ 000

General and administration 46,046 34,912 Business 11,668 3,516 Premises 4,354 3,015

62,068 41,443

23 PROVISIONS



Provisions at beginning of the year 128,138 891 940 6,317 1,181 3,578 19,026 160,071 Acquisition through subsidiary (note 35) 1,447 – 442 – – 253 – 2,142

Charged during the year 42,453 – 21 268 609 2,577 6,601 52,529 Written back during the year (13,039) (248) (495) (21) (705) (4,627) (1,164) (20,299)

29,414 (248) (474) 247 (96) (2,050) 5,437 32,230

158,999 643 908 6,564 1,085 1,781 24,463 194,443Written off during the year (5,292) – – (629) – – (10,966) (16,887)Other adjustments – – 194 – (1) 1,284 – 1,477

Provisions at end of the year 153,707 643 1,102 5,935 1,084 3,065 13,497 179,033

Notes 4 5 6 10 11 13 14

101


23 PROVISIONS continued



Provisions at beginning of the year 139,928 2,029 283 10,686 1,123 3,505 7,959 165,513

Charged during the year 20,438 – 236 366 58 169 31,627 52,894 Written back during the year (26,889) (203) – (4,735) – (91) – (31,918)

(6,451) (203) 236 (4,369) 58 78 31,627 20,976

133,477 1,826 519 6,317 1,181 3,583 39,586 186,489 Written off during the year (5,339) (935) (224) – – – (20,560) (27,058)Other adjustments – – 640 – – – – 640

Provisions at end of the year 128,138 891 935 6,317 1,181 3,583 19,026 160,071

Notes 4 5 6 10 11 13 14

24 CASH AND CASH EQUIVALENTS

2005 2004US$ 000 US$ 000

Balances with central banks excluding mandatory reserve 802,677 748,251 Balances with other banks 587,048 506,327 Cash in hand 90,874 66,098 Others 9,969 22,407

1,490,568 1,343,083

25 RELATED PARTY TRANSACTIONSRelated parties comprise major shareholders, directors of the Group, close members of their families, entities owned or controlled bythem and companies affiliated by virtue of shareholding in common with that of the Group. The income and expenses in respect ofrelated parties are as follows:

2005 2004US$ 000 US$ 000

Net income from self financed financing and investments 39,474 13,663 Income from sales receivable 8,632 1,296 Return on unrestricted investments 335 215 Net income from jointly financed contracts and investments 166 11,909 Other operating income 3 –

The significant balances with related parties at 31 December were as follows:

2005 2004US$ 000 US$ 000

Assets:Mudaraba financing 128,261 85,416 Investment in associates 96,767 76,116 Sales receivable 10,273 17,246 Ijarah Muntahia Bittamleek 11,629 9,141 Cash and balances with banks 28 855

Liabilities:Customer current and other accounts 7,087 1,130 Other liabilities 446 1,880 Unrestricted investment accounts 24,196 25,973


102


25 RELATED PARTY TRANSACTIONS continuedAll related party exposures are performing and are free of any provision for possible credit losses.

Dallah Albaraka Holding Company E.C., a major shareholder of the Group, invested in the shareholding of Egyptian Saudi FinanceBank, through a capital injection of US$ 23.39 million in exchange of 19.33 million ordinary shares at par. These shares are held in thename of the Bank for the beneficial interest and risk of Dallah AlBaraka Holding Company E.C.

In addition the Group acquired Al Baraka Bank Sudan from the major shareholder of the Bank on 1 January 2005 (note 35).

26 CREDIT RELATED COMMITMENTS

2005 2004US$ 000 US$ 000

Letters of credit 255,414 97,394 Guarantees 232,116 128,607 Acceptances 38,372 32,150 Others 31,890 239,357

557,792 497,508

27 CREDIT RISK AND CONCENTRATION OF ASSETS, LIABILITIES AND OFF BALANCE SHEET ITEMSCredit risk is the risk that one party to a financial contract will fail to discharge an obligation and causes the other party to incur afinancial loss. The Group controls credit risk by monitoring credit exposures, and continually assessing the creditworthiness ofcounterparties. Financing contracts are mostly secured by the personal guarantees of the counterparty and in certain cases mortgageof the object.

Type of credit riskFinancing contracts mainly comprise sales receivables, mudaraba financing and musharaka financing.

Sales receivablesThe Group finances these transactions through buying a commodity which represents the object of the murabaha and then resells thiscommodity to the murabeh (beneficiary) at a profit. The sale price (cost plus the profit margin) is repaid in installments by themurabaha over the agreed period. The transactions are secured at times by the object of the murabaha (in case of real estate finance)and other times by a total collateral package securing the facilities given to the client.

Mudaraba financingThe Group enters into mudaraba contracts by investing in funds operated by other banks and financial institutions for a definite periodof time.

Musharaka financingAn agreement between the Group and a customer to contribute to a certain investment enterprise, whether existing or new, or theownership of a certain property either permanently or according to a diminishing arrangement ending up with the acquisition by thecustomer of the full ownership. The profit is shared as per the agreement set between both parties while the loss is shared inproportion to their shares of capital or the enterprise.

103


28 CONCENTRATIONS Concentrations arise when a number of counter parties are engaged in similar business activities, or activities in the same geographicregion, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected bychanges in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Group's performance todevelopments affecting a particular geographic location.

The distribution of assets, liabilities, and off-balance sheet items by geographic region was as follows:

2005 2004

Unrestricted Restricted Unrestricted Restrictedinvestment investment investment investment

Assets Liabilities accounts accounts Assets Liabilities accounts accountsUS$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Geographic region:Domestic (Bahrain) 301,566 10,361 89,694 215,641 274,689 23,334 165,438 22,413 Other Middle East 3,135,486 777,474 2,275,034 146,544 2,400,605 631,828 1,857,795 277,833 Europe 1,628,020 295,179 1,025,237 41,011 1,293,593 199,563 732,853 11,501 Asia 263,836 54,894 164,095 – 198,009 62,090 124,582 – Africa 897,085 373,486 441,251 1,083 693,418 239,788 393,021 – Others 50,350 2,446 59 2,312 196,405 1,129 59,370 2,340

6,276,343 1,513,840 3,995,370 406,591 5,056,719 1,157,732 3,333,059 314,087

The distribution of operating income, net operating income and net income by geographic region was as follows:

2005 2004

Net income Net incomeattributable attributable

Total Net to the Total Net to theoperating operating holders of operating operating holders of

income income the parent income income the parentUS$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

Geographic region:Domestic (Bahrain) 72,648 17,607 8,527 20,506 6,071 5,969 Other Middle East 84,926 34,355 27,723 75,965 16,656 11,629 Europe 153,617 32,319 23,523 178,403 16,500 12,165 Asia 15,624 5,525 4,822 8,184 3,084 2,416 Africa 66,225 24,281 14,611 37,367 18,387 4,475 Others 166 166 166 191 191 191

393,206 114,253 79,372 320,616 60,889 36,845


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29 MARKET RISKMarket risk arises from fluctuations in profit rates, foreign exchange rates and equity prices. The respective management of thesubsidiaries have set limits on the level of risk that may be accepted. This is monitored by the local management of the Group entities.

30 PROFIT RATE RISKThe Group has minimal risk to changes in profit share arising from the possibility that changes in profit shares will affect the value ofthe financial instruments that mature or reprice in a given period.

This is due to the fact that the majority of funding is by investment account holders. The return payable to investment account holdersis based on the principle of the Mudaraba contract by which the investment account holders agree to share the profit or loss made.

31 CURRENCY RISKThe Group had the following significant net exposures denominated in foreign currencies as of 31 December:

2005 2004US$ 000 US$ 000

equivalent equivalent

long (short) long (short)

Jordanian Dinar 136,815 (107,893)Turkish Lira 53,287 (8,491)Egyptian Pound 33,001 (50,285)Sudanese Dinar 20,520 – Bahraini Dinar 19,423 17,818 Algerian Dinar 18,417 – Lebanese Pound 15,919 (7,084)Saudi Riyal 4,071 8,737 Pound Sterling 715 3,045 Tunisia Dinar 138 1,676 Euro (1,016) 16,769 Others 3,119 –

32 LIQUIDITY RISKLiquidity risk is the risk that the Group will be unable to meet its liabilities when they fall due. To limit this risk, management hasarranged diversified funding sources, manages assets with liquidity in mind, and monitors liquidity on regular basis.

The table below summarises the maturity profile of the bank’s assets and liabilities based on contractual repayment arrangements.The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheetdate to the contractual maturity date and do not take account of the effective maturities as indicated by the Group's deposit retentionhistory and the availability of bank lines.

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32 LIQUIDITY RISK continuedThe maturity profile of the assets and liabilities at 31 December 2005 was as follows:

Up to 1 to 3 3 to 6 6 months 1 to 3 Over1 Month months months to 1 year years 3 years Total

US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

ASSETSCash and balances with banks 1,669,446 54,317 62,173 25,094 103 33,500 1,844,633 Sales receivable 471,451 524,763 474,536 494,682 683,463 306,568 2,955,463 Mudaraba financing 4,781 56,039 23,409 29,362 30,658 22,986 167,235 Musharaka financing 6,027 7,604 9,944 9,822 22,864 17,431 73,692 Investment properties – – – – – 44,010 44,010 Ijarah Muntahia Bittamleek 6,860 13,559 16,056 32,562 82,177 19,253 170,467 Investment in associates – – – – – 125,208 125,208 Investments 136,588 161,353 60,217 108,567 90,050 28,239 585,014 Ijarah receivables 5,855 3,897 685 4,201 3,876 1,765 20,279 Fixed assets 21,912 – 655 – – 92,788 115,355 Other assets 85,287 11,333 3,278 4,432 24,479 46,178 174,987

Total assets 2,408,207 832,865 650,953 708,722 937,670 737,926 6,276,343

LIABILITIESCustomer current and other accounts 924,020 100,903 152,076 8,593 – – 1,185,592 Due to banks 85,705 14,765 10,959 – – 3 111,432 Other liabilities 84,247 12,459 37,136 19,904 57,713 5,357 216,816

Total Liabilities 1,093,972 128,127 200,171 28,497 57,713 5,360 1,513,840


Total liabilities and unrestrictedinvestment accounts 3,130,237 785,907 734,747 340,600 423,382 94,337 5,509,210

Net liquidity gap (722,030) 46,958 (83,794) 368,122 514,288 643,589 767,133


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32 LIQUIDITY RISK continuedThe maturity profile of the assets and liabilities at 31 December 2004 was as follows:

Up to 1 to 3 3 to 6 6 months 1 to 3 Over1 Month months months to 1 year years 3 years Total

US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 US$ 000

ASSETSCash and balances with banks 1,432,896 160,506 1,500 1,214 3,688 26,708 1,626,512 Sales receivable 289,938 337,165 353,179 383,648 489,018 335,987 2,188,935 Mudaraba financing 2,952 65,152 20 1,803 71,908 14,563 156,398 Musharaka financing 13,774 5,828 5,887 7,358 25,658 11,880 70,385 Investment properties – – – – – 46,279 46,279 Ijarah Muntahia Bittamleek 24,021 16,042 23,833 16,576 63,653 28,034 172,159 Investment in associates 1,012 – – 40,097 – 74,271 115,380 Investments 12,508 16,932 73,806 70,582 82,416 145,683 401,927 Ijarah receivables 1,426 8,662 1,199 2,209 276 812 14,584 Fixed assets 6,913 – – – – 104,960 111,873 Other assets 78,338 1,619 37,013 966 23,877 10,474 152,287

Total assets 1,863,778 611,906 496,437 524,453 760,494 799,651 5,056,719

LIABILITIESCustomer current and other accounts 884,647 5,784 – 20,127 – – 910,558 Due to banks – 15,214 22,316 – – – 37,530 Other liabilities 50,302 26,036 59,836 15,885 15,587 41,998 209,644

Total Liabilities 934,949 47,034 82,152 36,012 15,587 41,998 1,157,732



Net liquidity gap (479,018) (164,103) 85,321 (40,226) 466,772 697,182 565,928

33 EQUITY PRICE RISKEquity price risk arises from the change in fair values of equity investments. The Group manages this risk through diversification ofinvestments in terms of geographical distribution and industry concentration.

34 FAIR VALUE OF FINANCIAL INSTRUMENTSFair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’slength transaction. Consequently, differences can arise between carrying values and fair value estimates.

Included under non trading investments are unquoted available for sale investments amount to US$ 73.6 million (2004: US$ 49.4million) which are carried at cost due to lack of other reliable methods for arriving at a reliable fair value for these investments.

The fair values of other on-balance sheet financial instruments are not significantly different from the carrying values included in thefinancial statement.

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35 BUSINESS COMBINATIONAcquisition of Albaraka Bank-SudanOn 1 January 2005, the Group acquired 86.2 % of the voting shares of Albaraka Bank-Sudan (from a related party at the fair value ofnet assets), an unlisted company based in Khartoum specialising in providing islamic products.

The fair value of the identifiable assets and liabilities of Albaraka Bank-Sudan as at the date of acquisition were:

Recognisedon acquisition

US$ 000

AssetsCash and balances with Central Bank and other banks 36,343 Sales receivable 26,762 Investments 20,300 Fixed assets 13,283 Other assets 13,206 Musharaka financing 5,700

115,594

LiabilitiesCustomers' current and other accounts 67,223 Other liabilities 21,700 Unrestricted investment accounts 5,774 Due to banks and financial institutions 500

95,197

Fair value of net assets for 100% shares 20,397

The Group's share for 86.20% 17,584

US$ 000

Cash inflow on acquisition:Net cash acquired with the subsidiary 36,343 Cash paid –

Net cash inflow 36,343

The total cost of the combination was US$ 17,583,786 for 86.2% of the voting and comprised an issue of equity instruments. TheGroup issued 17,583,786 ordinary shares with par value of US$ 1 each.

US$ 000

Cost:Shares issued, at fair value 17,584

From the date of acquisition, Albaraka Bank Sudan has contributed US$ 3.2 million to the net income of the Group.

36 SOCIAL RESPONSIBILITYThe Group discharges its social responsibilities through donations to charitable causes and organisations.

37 COMPARATIVESCorresponding figures for 2004 have been reclassified in order to conform with the presentation for the current year. Suchreclassifications do not affect previously reported net profit, equity and cash flows.

38 SUBSEQUENT EVENTThe Bank is planning to convert Albaraka Banking Group to a public joint stock company to be followed by an IPO. In its extraordinarygeneral meeting held on 16 November 2005 the General Assembly approved the conversion. The Bank intends to capitalise all of itsreserves and retained earnings by way of a bonus issue prior to the IPO.

9.2 Subsidiaries not audited by Ernst & Young – details of Audit Firms as at 31 December 2005

AlgeriaMr. Mohammed Samir Hadj AliResidence Chaabani – Val d’HydraAlger, Algeria

JordanEbrahim Abbasi & Partners, PO Box 925111, Amman, Jordan

South AfricaKPMG IncP O Box 1496, Durban, 4000, South Africa

LebanonDeloitte & ToucheP O Box 4068, Beirut, Lebanon

SudanAbdul-Latif, Al-Tayeb & Co. (KPMG)Building of Alkhourtoom Insurance Company limited, AlGomhorya RoadP.O.Box 731, Khartoom – Sudan


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The Company’s Articles of Association provide for all Shareholders to rank pari passu in relation to, inter alia, dividends anddistributions. Holders of Shares will be entitled to all dividends and other distributions declared by the Board, in proportion to thenumber of Shares they hold.

The Founders have agreed to waive any claims to dividends in respect of Offered Shares sold through the IPO. Accepted Applicantswill be eligible to receive dividends declared for the financial year ending 31 December 2006, in full.

Dividends may be paid by the Company out of profits earned during the year or from the retained earnings. However, pursuant to theLaw, the Company is required to allocate 10% of net profits to the legal reserve prior to the distribution of dividends. Such transfers tothe legal reserve can be discontinued when such reserve equals 50% of the paid-up capital. The legal reserve shall not normally bedistributed to Shareholders, but may be used to ensure a distribution of dividends to Shareholders not exceeding 5% of the paid-upcapital in the years in which the Company’s profits do not allow payment of dividends of this percentage.

To safeguard against currency fluctuations, the Board considers it prudent to allocate amounts out of any given years’ profit tocurrency reserves. This policy will be reviewed by the Board on an annual basis based on its assessment of the currency risk. Thesereserves may be available for distribution to the Shareholders in the future at the discretion of the Board.

The Company intends to make dividend payments, either in the form of cash or in any other manner to the Shareholders on a yearlybasis, but makes no assurances that any dividend will actually be paid nor any assurances as to the amount that will be paid in anygiven year. The bank's future dividend policy will depend on a number of factors including maximizing shareholder value, operatingresults, financial condition, capital and cash requirements, general business and economic conditions, investment opportunities andreinvestment needs, business prospects and the effect of such dividends on the Group's legal, contractual and regulatory restrictionsregarding the payments of dividends.

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10 Dividend Policy

Before investing in Shares, prospective investors should carefully consider all the information contained in this Prospectus, includingthe risks set out below. Such risks could have an adverse effect on the Group’s business and may affect the financial performance ofthe Group. In such case, an investor could lose all or part of his investment. Additional risks not currently known may also have anadverse effect on the Group’s business, and the information set out below does not purport to be an exhaustive summary of the risksaffecting, or which may affect, the Group.

As this Prospectus contains forward-looking statements, it should be considered that actual results and the timing of certain eventscould differ materially from those projected in such forward-looking statements due to a number of factors, including those set forthbelow and elsewhere in this Prospectus.

Investors should consider carefully whether investment in the Shares is suitable for them in light of the information in this Prospectusand their personal circumstances. See also ‘‘Important Information’’.

11.1 General Risks11.1.1 Risks relating to the political, economic and social environment of the countriesin which the Group operatesEmerging markets, including certain of those in which the Group operates or is seeking to operate, are generally subject to greaterrisks than in more developed markets – where there is likely to exist greater stability and settled practices in relation to the manner andenvironment in which businesses operate. Typically, such emerging market risks will include political, social and economic risks orvarying degrees – all or any one of which can have a material adverse effect on the business of the Group.

The majority of the Group’s operations are conducted, and the majority of the Group’s assets are located, in Africa and the MiddleEast. Specifically, Group Companies provide Islamic finance services and products in Bahrain, Jordan, Turkey, Egypt, Algeria, Tunisia,South Africa, Lebanon, Pakistan and Sudan, and there are plans to extend the Group’s business to numerous new markets – some ofwhich are considered to be emerging markets by the international investment community. Some of such countries (and other countriesin which the Group may in the future conduct operations) have in the past experienced periods of political and economic instability allof which serve to undermine business confidence, and which can adversely affect the performance of the Units operating in suchjurisdictions or, indeed, the Group’s performance in general.

Specific examples of country risks which may have a material adverse impact on the Group’s business, operating results, cash flowsand financial condition, may include:

• General country or regional political, social or economic instability;• Acts of warfare, terrorism or civil unrest;• Specific government intervention in business operations – e.g. protectionism for, or subsidising competing businesses; and • Undue regulatory interference or change (which may result in difficulties in obtaining new permits and consents for the Group’s

operations or renewing existing ones).

Further, any unexpected changes in the political, social, economic or other conditions in jurisdictions of neighbouring countries in whichthe Group has operations may have a material adverse effect on the investments that the Group has made or may make in the future,which may in turn have a material adverse effect on the Group’s business, financial condition and the results of the Group’s operations.

As regards infrastructure risk, businesses operating in certain countries in which the Group operates may face significant problemsrelating to lack or poor conditions of physical infrastructure – including in transportation, electricity generation and transmission, andcommunication systems – the poor operation of which can adversely affect a company’s ability to conduct and grow its businessproperly and effectively.

Generally, investment in companies carrying on business in emerging markets similar to some of those in which the Group conductsits business is only suitable for sophisticated investors who fully appreciate the significance of the risks involved. Accordingly, allinvestors are urged to consult with their own legal and financial advisors before making an investment in the Shares, and investorsshould exercise particular care in evaluating the risks involved and must consider those risks in deciding whether an investment in theShares is appropriate.

11 Risk Factors

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11.1.2 Failure by Group Companies or their employees to comply with worldwide laws andregulations could result in liabilities and could have a material adverse effect on theGroup’s business.Group Companies are subject to, or seek to comply with, laws and regulations with worldwide application (including, without limitation,regulations promulgated by the United Nations (the “UN”), the European Union (the “EU”) and the Organization for Economic Co-operation and Development (the “OECD”), which govern and/or affect where and how the Group’s business may be conducted.Further, the Group’s Shareholders, financiers, suppliers or other entities with which the Group and the Group’s operating companiesconduct business (including shareholders of the Group’s operating companies) may be subject to or seek to comply with such lawsand regulations.

Non-compliance with current or future applicable laws and regulations could result in criminal liability on the account of the GroupCompanies and/or their directors, the imposition of significant fines, as well as negative publicity and reputational damage. In addition,the Group cannot predict what effect subsequent changes in laws or regulations may have on the Group’s business.

Any of the foregoing could have a material adverse effect on the Group’s business, financial condition or the results of operations.

11.2 Risks relating to the Group’s business11.2.1 The growth of the Group’s business is dependent upon the continued developmentof the Islamic banking industryInvestor perception in relation to the Shares and securities relating to retail Islamic banking in general may change in response to anumber of events and factors including recent announcements of new banks and services by competitors of the Group or GroupCompanies and the general market perception of companies in the same sector and the market for the Shares and their perceivedvalue may fluctuate or decline accordingly.

11.2.2 The growth of the Islamic banking industry may be constrained by the failure ofsecondary liquidity markets to develop at a fast enough paceLiquidity has historically been a critical issue for banks which operate under Shari’a principles, and there has been only a smallsecondary market to enable such institutions to manage their liquidity. This risk has been mitigated to some extent by the increasedopenness by European central banks toward new Islamic financial products. Assets of such Islamic banks are generally not assaleable as those of conventional banks in the secondary market. In addition, the inter-bank market is thinner than for conventionalbanks, and such institutions have been less able to invest in fixed income instruments for the purpose of managing treasury. Theestablishment of the International Islamic Financial market in Bahrain in 2002 has sought to create and standardise financialinstruments to meet the liquidity needs of Islamic institutions internationally, while the Group’s dual listing in Bahrain and Dubai isintended to provide increased liquidity. However, there can be no assurance given that such measures will provide sufficient liquidity toenable sustained growth of the Islamic Banking industry.

Further potential financing risk relates to a maturity mismatching – in essence, banks operating on Shari’a principles are keen todevelop longer term financing transactions (e.g. in the field of project finance), while their funding profile remains mainly short term(relying on customer deposits – which can be withdrawn at any time).

Finally, the management of certain financial risks is more difficult for Shari’a based institutions due to the limited number of risk-management tools available to them.

11.2.3 The Group’s operations in Jordan and Turkey account for a significant part of itsconsolidated revenues and net income.Although the Group is seeking to diversify its product base and extend its geographic footprint, it should be noted that a significantportion of the Group’s existing operating revenues and net income has historically been derived from its businesses in Jordan andTurkey, and that these markets are likely to continue to account for a large portion of the Group’s business in the future. If revenues ornet income derived from either of these markets declines, and if the Group is not able to generate revenues or net income of acomparable size from the other markets in which it operates or is seeking to operate, the dependence of the Group on a significantproportion of its consolidated revenues and income may have a material adverse effect on the Group’s business, financial conditionand results in the future.

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11.2.4 Significant competition in markets in which the Group operates may have amaterial adverse effect on its business, financial condition and results.Although many Group Companies are leading providers of retail Islamic banking services in their home jurisdiction, each GroupCompany faces increasing competition in its home jurisdiction, both directly and indirectly. Such increases in competition may have anadverse effect on the performance of the Group, reducing revenues, margins and profitability.

The Group’s market position will depend on the effectiveness of its marketing initiatives and its ability to anticipate and respond tovarious factors affecting the industry, including new products and services, pricing strategies by competitors, shifts in consumerpreferences and changes in economic, political and social conditions in the countries in which the Group operates.

There can be no assurances that each Group Company will be able to compete effectively with current or future competitors, nor thatthe increasingly competitive pressures faced by each Group Company from such business will not have a material adverse effect onthe Group’s future performance.

11.2.5 The Group may not realise the benefits it expects from its investments and may faceunforeseen delays and costs in developing new products and services – both of whichmay adversely impact its business.The Group has made significant investments in purchasing interests in the Group Companies, and in developing and sustaining therange (and consistency) of services and products offered by the Group. The Group intends to make significant further investmentsfollowing the Initial Public Offering. However, commercial acceptance by consumers of new services offered may not occur at the rateor level expected, and the Group may not be able to successfully adapt its new services to meet consumers’ demand effectively andeconomically, thus impairing the return from such investments. The Group’s failure to achieve commercial acceptance for its services,or to provide them on a cost-effective basis, could result in additional capital expenditure or a reduction in profitability.

11.2.6 Rapid growth and expansion may stretch operational and managerial resourcesand control systems at both Group and operating unit level.While the Group believes that it has a highly capable management team and strong operational and managerial resources and controlsystems, there remains a risk that the rapid development and establishment of Islamic Finance businesses in the Group’s target newmarkets may raise unanticipated operational or control issues. Particular issues may arise through establishment or acquisition of newbusinesses (the acquisition of which in particular may require significant management time and resource in achieving effectiveintegration of business, systems and personnel), and the operating complexity of the Group’s business (and the responsibilities of theCore Management Team) will increase significantly in consequence of such growth

Such expansion will also require the Group to maintain close co-ordination among its logistical, technical, accounting, finance,marketing and sales personnel, and the Group’s success will depend, to a large part, on its ability to continue to attract, retain andmotivate qualified personnel (competition for such personnel with relevant expertise in the Group’s target (and existing) markets isintense due to relative scarcity of qualified individuals). The Group’s possible All Employee Share Purchase Plan (see section 5.6.10,“Employee Incentives”) currently under consideration is intended to incentivise such employees, although there is no assurance thatsuch plan will ensure the retention of suitably qualified staff.

Effective internal controls are necessary for the Group to produce reliable, accurate and consolidated financial reports, and areessential in the prevention of fraud. The Group has taken (and continues to take) significant measures to ensure compliance. However,should the Group fails to achieve and maintain effective internal controls over financial reporting as its businesses grow, there is a riskthat the Group’s performance (and investor confidence in the Group) could be adversely affected.

11.2.7 Each Group Company is a regulated entity, and regulatory issues experienced in acountry in which a Group Company operates may affect the regulatory status of otherGroup Companies.Each Group Company undertakes activities in its home jurisdiction under regulation by that jurisdiction’s central bank and/or financialregulator. Suspension, cancellation or other action taken in respect of a banking licence or other regulatory issues encountered by aGroup Company in one jurisdiction may impact upon the regulatory status of other Group Companies in other jurisdictions or theGroup as a whole.

11 Risk Factors continued

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11.2.8 As a holding company, ABG is reliant on the ability of the Group Companies to generateand pay profits and remit dividends to ABG in order to effect a return to shareholders.ABG is currently a holding company and has no significant operations of its own, its operations being conducted directly or indirectlythrough Group Companies. Should profits from the Group Companies decline, or should the Group Companies (or any of them) beunable to remit profits or management fees to ABG in the manner currently carried on, ABG’s consolidated profits and cash flows maybe materially adversely affected – with consequential adverse effect for the Shareholders of ABG.

11.2.9 Exchange controls affecting certain of the Group’s operating companies andcurrency fluctuations may restrict the companies’ ability to convert or transfercurrencies, which could adversely affect the Group’s ability to receive profits or effectpayments to finance the Group’s investments.Certain jurisdictions in which the Group operate or may seek to operate have instituted or may seek to institute exchange controlpolicies which limit or restrict a company’s ability to convert earnings into other currencies or to remit sums in respect of managementfees or dividends in internationally accepted funds to the Group. Similarly, the Group may experience difficulties in funding operatingbusinesses in certain jurisdictions in consequence of such exchange controls. Such restrictions on the ability of the Group’s operatingcompanies to convert or transfer currencies could have a material adverse effect on the Group’s business, financial condition andresults. Additionally, currency fluctuations in the countries where the Group is operating can be significant and may impact the Group’snet worth and operations.

11.2.10 The Group’s business and growth prospects may be disrupted if the Group loses theservices of certain key personnel or if the Group is not able to identify and employexpert personnel in the markets in which the Group operate.The Group’s success will depend, in part, on the continued service of the Group’s key executives and employees and the Group’sability to continue to attract, retain and motivate qualified personnel.

If one or more of the Group’s key personnel the Group are unable or unwilling to continue in their present positions, or if they joined acompetitor or formed a competing company, the Group may not be able to replace them easily or quickly and the Group’s businessmay in consequence be significantly disrupted – with adverse effect on the Group’s financial condition and results. The Group mayalso experience difficulties in transferring existing personnel to certain of the countries in which the Group operate or in attracting newqualified personnel for employment in such countries, which could have a similar effect on financial condition and results.

The Group is not insured against the detrimental effects to the Group’s business resulting from the loss or dismissal of the Group’skey personnel, and the Group provides no assurance that it will be able to attract and retain the key personnel which it anticipates itwill need to achieve the Group’s business objectives. If the Group is unable to (i) retain key personnel, or (ii) attract new qualifiedpersonnel to support the growth of the Group’s business, or if the Group is required to offer significantly higher compensation toattract and retain key personnel, the Group could experience a material adverse effect on its business, financial condition and results.

11.2.11 Rapid technological changes may increase competition and render technologies,products or services used or offered by the Group obsolete.The Islamic Finance industry is characterised by rapid increases in the diversity and sophistication of the technologies and servicesoffered. As a result, the Group may face increasing competition from technologies, services and products currently being developed,or which may be developed in the future, by both its existing competitors and new market entrants. The development and regulatoryacceptance of new technologies involves time, substantial cost and risks. The Group cannot accurately predict how emerging andfuture technological changes will affect its operations or the competitiveness of its products and services.

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11.2.12 The Group’s ability to deliver services may be interrupted due to a systems failure orshutdown in its networks.The banking and finance industry is increasingly dependant on information technology, and notwithstanding the Group’s significantand planned investment in IT systems and products, its networks may be vulnerable to damage or interruptions in operations. Anysuch failure could adversely affect the quality of services provided and damage the Group’s ability to attract and retain customers,which could consequentially have a material adverse effect on the Group’s business, financial condition and the results.

11.2.13 The Group could be exposed to significant risks if its insurance coverage provedto be inadequate.While the Group maintains insurance against standard risks, such as fire or accidental damage, the terms of its insurance covergenerally are less comprehensive, and provide for lower levels of compensation, than might be expected in more developed markets.There can be no assurance that the proceeds available from its insurance policies will be sufficient to protect the Group from allpossible loss or damage resulting from any insured events.

Further, certain of the Group’s operations are conducted in jurisdictions which are subject to political, social, economic and marketrisks. Damages arising as a result of such risks are not usually covered by insurance policies, in consequence of which insurancecoverage may prove to be inadequate, thereby causing a material adverse effect on the Group’s business, operating results should aninsurable event occur.

11.2.14 Inflation could increase the Group’s costs and decrease the Group’s operating margins.The economies of certain countries in which the Group operates have from time to time experienced high rates of inflation. The Groupincurs most of the Group’s operating expenses in local currency in the countries in which the Group operates. As a result, the Grouptends to experience increases in certain of the Group’s local currency costs which are sensitive to rises in the general price levels,including salaries and rents, in countries with high inflation rates. The Group may not, however, be able to maintain the prices theGroup charges for the Group’s products and services at levels that will preserve the Group’s operating margins, due to competitivepressures, regulatory requirements or other reasons.

11.3 Legal and Regulatory Risks11.3.1 Weaknesses and uncertainties relating to the legal and regulatory systems incertain of the countries in which the Group operates may create an uncertain andhigher-risk environment for investment and business activities.As indicated above, a number of the countries in which the Group operates or in which it may operate in the future remain in variousstages of transition – both financially and from a legal and regulatory perspective. Although in some cases many laws and regulationshave been liberalised and modernised, in some cases the procedural safeguards of the legal and regulatory regimes remains in a stateof development, with the consequence that laws and regulations (often conflicting with previous laws or regulations) may be appliedinconsistently. Such inconsistent interpretation or lack of clarity and certainty could affect the Group’s ability, inter alia, to enforce theGroup’s rights under the Group’s loan agreements, licenses, contracts or the like or to defend the Group against claims by others,and could have a material adverse effect on the Group’s business, financial condition and the results.

11.3.2 government action may have a material adverse effect on the Group’s business. Governmental authorities in certain countries in which the Group operates or may seek to operate may have a high degree ofdiscretion and, at times, act selectively or arbitrarily, without hearing or prior notice. Further, governments in such jurisdictions mayhave the power, by regulation or government act, to interfere in certain circumstances with the performance of a company’s business.Such governmental actions could include the denial or withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutionsand civil actions – any of which could have a material adverse effect on the Group’s business, financial condition and results.

11 Risk Factors continued

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11.3.3 Tax systems in countries in which the Group operates are uncertain and various taxlaws are subject to differing interpretations.Tax systems in certain of the countries in which the Group operates are frequently characterised by regular changes in tax regulations– in consequence of which certain tax regulations may either not be subject to firmly established interpretations, or be subject tofrequently changing interpretation by the tax authorities. Such uncertainty may make tax planning difficult for the Group and theGroup’s operating companies, with consequential material adverse effect on the Group’s results and financial condition.

11.3.4 Because there has been no prior market for the Shares or public trading in theShares, the offering may result in an inactive or illiquid market for the Shares, withsignificant volatility in price.Prior to the Offering, there has been no public market for the Shares. The Offer Price of the Shares may not be indicative of prices thatwill later prevail in the trading markets. Investors may not be able to resell the Shares at or above the Offer Price. The Group hasapplied to the BSE and the DIFX for the Shares to be admitted for listing purposes on both such exchanges – a process which hasnot previously been undertaken in the Gulf Region.

There is no guarantee that market makers will make a market for the Shares on the BSE and the DIFX. The DIFX is a newlyestablished financial exchange which commenced operation on September 26, 2005, and there has previously been no dual listingwith Bahrain. As a result, the regulatory framework and its functionality and efficiency for trading the Shares has been untested todate. An active public market in Shares may not develop or be sustained after the offering.

11.3.5 Fluctuations in the securities markets may result in volatility in the price of Shares.International securities markets have from time to time experienced significant price and volume fluctuations which are not related tothe operating performance of particular companies. There is no assurance given that such fluctuations may not affect the Dubai andBahraini markets in the future.

11.3.6 Information regarding the Group’s competitors has not been verified, nor has theGroup independently verified official data from government agencies.The Group has derived substantially all of the information contained in this Prospectus concerning the Group’s competitors from publiclyavailable information, including data made available by the World Bank, the Economist Intelligence Unit (EIU) and in some cases, officialdata of governments or other authorities of countries in which the Group operates. Data published by third party sources with respectto these countries or governments of these countries may be substantially less complete or researched than data relating to countrieselsewhere. In addition, such data may be inconsistent with data the Group may use to calculate the Group’s operating data.

Any data presented or discussion of matters relating to countries in which the Group operates in this Prospectus is, therefore, subjectto uncertainty due to concerns about the completeness or reliability of available public information.

11.3.7 The incorporation term of The Egyptian Saudi Finance Bank (“ESFB”) has expired.ESFB was incorporated on the 28 April 1980. Its term of incorporation was for a period of 25 years. ESFB is undergoing the normalprocedures to extend its term of incorporation. There is a risk that if ESFB does not extend its term of incorporation, any of itsshareholders or creditors may ask for its liquidation. Additionally, the Central Bank of Egypt may revoke ESFB’s license to operate ifESFB fails to extend its term of incorporation.

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A summary of material litigation, both current and threatened, that could have a significant impact on ABG’s position and on the price,or value, of the Shares is set out below.

For the purposes of this Prospectus, material litigation means the current and/or threatened litigation which could potentially exposeABG and its Group Companies to a loss greater than US$1,000,000. The sum of US$1,000,000 represents 0.1% of ABG’s equity.

ABG management believe (based on the audited financial statements) that all Group Companies have made adequate provisions inrespect of all material outstanding litigation.

12.1 Albaraka Bank Lebanon (“ABBL”)ABBL’s has issued two claims against Youssef Ikhwan S.A.R.L (“YIS”) for the sum of LBP1,859,850,584.48 (approx. US$1,239,000)and US$1,052,726.61 in relation to outstanding debts owed by YIS to ABBL.

The first claim relates to a Musharaka agreement entered into between ABBL and YIS on 24 January 2000. The second claim relatesto a Musharaka agreement entered into between ABBL and YIS on 18 February 2000.

To the effect of settling YIS’s outstanding debt, Mr. Imad Youssef, in his personal capacity and in his capacity as an authorisedsignatory of YIS, drew five cheques without provisions for the amounts owed to ABBL at the time, pursuant to which ABBL filed acriminal complaint against YIS and Mr. Youssef before the Beirut General Prosecutor’s Office on 28 July 2001.

On 18 November 2003 a judgment was awarded by the Beirut Sole Criminal Judge against Mr Youssef and YIS, sentencing Mr Youssefto three years of imprisonment and a fine of LBP4,000,000 (approx. US$2,792), while YIS was fined LBP1,000,000 (approx. US$698),and they were jointly held liable for the payment of US$1,447,800 in addition to LBP50,000,000 (approx. US$34,911) in damages.

12.2 Banque Al Baraka d’Algérie (“BABD”) BABD has issued a claim against Société ALFARM in the Tribunal of Oran for the sum of AD 103,814,360 (approx. US$ 1,433,075) inrespect of an outstanding sum owed to BABD.

The Tribunal of Oran has awarded a judgement against Société ALFARM and seized shares held by Société ALFARM in other companies.BABD is awaiting for the Tribunal of Oran to return sums owed to it from the Tribunal’s sale of shares previously held by Société ALFARM.

The Ministry of Agriculture of Algeria has issued a claim against BABD in the Administrative Chamber of the Court of Algeria for thereimbursement of the sum of AD120,000,000 (approx. US$1,656,505) in respect of BABD’s operation/management of the real estateproperties owned by the Ministry of Agriculture.

12.3 Albaraka Türk Participation Bank (“ABTPB”)Yurtsever Deri Sanayi Turizm Ticaret Limited Sirketi (“YTTL”) has issued a claim in the Izmir 4th Commercial Court of First Instanceagainst ABTPB for US$2,930,000 in respect of a letter of credit issued by ABTPB concerning a transaction for the sale of goods. YTTL claims that it has fulfilled all payment requirements pursuant to the letter of credit and ABTPB has failed to deliver the goods.YTTL has claimed for: (i) the reimbursement of the sum of US$ 2,930,000 (YTL 3,999,450); (ii) the restitution of the guaranteesgranted; and (iii) an interim injunction on all ABTPB’s properties.

The defence of ABTPB against this claim includes: (i) that the court has no jurisdiction to hear the claim; (ii) the format of the claim isincorrect; and (iii) ABTPB has no liability and all liabilities regarding the sale of goods should be borne by YTTL.

12.4 The Egyptian Saudi Finance Bank S.A.E (“ESFB”)ESFB has issued a claim against the National Bank of Egypt and others No. 815 of 2001 in the North Cairo, Court of First Instance.The claim is for the payment of EGP46,000,000 (approx. US$8,156,506) by the National Bank of Egypt and others.

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12 Litigation

12.5 Bank Et-Tamweel Al-Tunisi Al-Saudi (“B.E.S.T.”)There are two substantial ongoing cases. The first case involves Mr Fadhel Doulati claim against B.E.S.T. for the sum ofTND1,378,307.309 (approx. US$1,021,157). The second case involves B.E.S.T.’s claim against Tunisie Golf for the sum ofTND2,109,816.963 (approx. US$1,563,116) and US$3,500,841.

Mr Fadhel Doulati has issued a criminal claim in the Criminal Court of Tunis against B.E.S.T. accusing it of fraud. B.E.S.T. states thatMr Fadhel Doulati did not make a payment in relation to his existing financing facility whereas Mr Fadhel Doulati claims that he didmake such payment. The defense of B.E.S.T. is that all operations carried out by it are in conformity with the terms and conditionsagreed with Mr Fadhel Doulati.

B.E.S.T. brought a claim in the civil court of Tunis against Tunisie Golf for failing to make a payment in relation to Tunisie Golf’s existingfinancing facility. However, since Tunisie Golf is subject to a bankruptcy proceeding, B.E.S.T. has now applied to the Civil Court ofTunis to obtain its payment of damages together with the other creditors of Tunisie Golf.

12.6 Albaraka Bank Sudan (“ABBS”)There are two substantial claims against ABBS in the Khartoum Commercial Court of Sudan by Al Badri Omer Elais and Mustufa YahiaAlhusseing for the sum of SDD350,000,000 (approx. US$1,582,905) and SDD2,308,870,027 (approx. US$10,442,063) respectively.

Al Badri Omer Elais claims that ABBS did not have his authority to issue guarantees and financing facilities to certain persons. In itsdefence ABBS states that it did have such authority and that Al Badri Omer Elais had himself consented to its actions. The KhartoumCommercial Court awarded Al Badri Omer Elais damages in the sum of SD90,000,000 (approx. US$418,566). ABBS appealed to the Court of Appeal of Sudan who confirmed the earlier judgement. ABBS has now appealed to the High Court of Sudan and awaitsits judgement.

Mustufa Yahia Alhusseing claims that he deposited the sum of SDP750,000 (approx. US$331) into an account at ABBS in 1991.ABBS denies that Mustafa Yahia Alhusseing ever deposited this amount and Mustafa subsequently issued a criminal claim againstABBS which was dismissed by the criminal court of Sudan. Mustafa has re-issued his claim against ABBS in the Civil Court of Sudanand is claiming damages for the sum of SDD2,308,870,027, his argument being that his initial deposit of SDP750,000 would havegrown to this size if ABBS had not misappropriated his initial deposit. The defence of ABBS is the following: (i) Mustafa neverdeposited the sum of SDP750,000 with ABBS; (ii) it is not possible for the sum of SDP750,000 to grow into SDD2,308,870,027 duringthe course of 15 years; and (iii) the case is time barred in accordance with Sudanese law.

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13.1 The Shares – Pre IPO ABG has an authorised share capital of US$1,500,000,000 (one and one half billion United States Dollars) divided into 1,500,000,000(one and one half billion) Shares, each with a nominal value of US$1. ABG is 55% owned by Sheikh Saleh Abdullah Kamel and 45%owned by Dallah Al Baraka Holding Company E.C., Bahrain. The Shares are the only shares issued by ABG and all Shares carry equalrights, which are described at section 20.1.2. A total number of 188,908,587 Shares will be offered to investors through the InitialPublic Offering.

13.2 founders trading restrictionsThe Founders have agreed that they will not, during the 12 month period following the Allotment Date, sell, contract to sell, grant anyoption or right to purchase, or otherwise transfer or dispose of, directly or indirectly, any of the Shares held by them following the IPO.

13.3 The Private SaleThe Selling Shareholders have agreed to sell Shares to Strategic Investors that have indicated that they will offer a long termcommitment to ABG. It is intended that 117,563,472 pre-sold Private Sale Shares shall be allotted to the Strategic Investors on theAllotment Announcement Date on a discounted basis.The Strategic Investors will not be permitted to sell the Shares for a period of 6months following the Allotment Date.

13.4 The Initial Public OfferingThe total number of Shares being offered to the public pursuant to the IPO is 188,908,587, representing 29.99% of the capital of ABG.

The Offered Shares are being offered at an Offer Price of US$3.08 per Offered Share, which is inclusive of an Issue Fee of US$0.05 per Offered Share. 68,908,587 Offered Shares are being offered by the Selling Shareholders, and 120,000,000 Offered Shares will beNew Shares.

All Offered Shares will, on issue to Applicants, rank pari passu with all other Shares in ABG (including the Private Sale Shares),including the right to receive, in full, dividends and other distributions thereafter declared, made or paid in respect of the Shares.The following table sets forth the names of the persons who, directly or indirectly, have an interest notifiable under the DisclosureStandards of the BMA and the laws of the DIFC in the share capital of ABG, together with the amount of such interest, prior to thePrivate Sale and the Initial Public Offering, and following the Private Sale and Initial Public Offering.

Shares held pre Private Sale and IPO Shares held post Private Sale and IPO

Sheikh Saleh Abdullah Kamel* 280,500,000 (55%) 177,940,367 (28.24%)Dallah Al Baraka Holding Company E.C. 229,500,000 (45%) 145,587,574 (23.11%)Strategic Investors – 117,563,472 (18.66%)Individual and Institutional Accepted Applicants (and /or Underwriters) – 188,908,587 (29.99%)

Total 510,000,000 (100%) 630,000,000 (100%)

* This includes 500 shares held on his behalf by third parties in order to meet regulatory requirements.

13 Details of the Private Sale and Initial Public Offering

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The Offer consists of 188,908,587 Offered Shares comprising of: (i) 68,908,587 Shares being Offered by the Selling Shareholders; and(ii) 120,000,000 New Shares. The Offer Price is US$3.08 per Offered Share which is inclusive of an Issue Fee of US$0.05. The nominalvalue of each Share being Offered is US$1 per share. The resulting share premium to be paid to the Company in relation to the NewShares is US$2.03 per New Share.

Assuming the Offer is fully subscribed, the gross proceeds of the Initial Public Offering will be approximately US$582 million (includingIssue Fees) of which approximately US$370 million (including Issue Fees) will be in consideration of the offer of New Shares and will befor the account of ABG. Commissions and expenses related to the Offer are expected to be approximately US$30 million. In order topartially cover the costs of commissions and expenses, an Issue Fee of US$0.05 per Offered Share will be charged to Applicants, andis included in the Offer Price. The Issue Fee shall be for the account of the Company.

It is ABG’s intention to allocate a significant amount of its net proceeds from the IPO towards expanding and developing the capitalbase of existing and future operating Units. By injecting capital into ABG’s existing Units, those Units will be able to use that additionalfinancial capacity to take advantage of opportunities for expansion that arise in the markets in which they operate. Apart from thelinear expansion of the business, the additional finance available will allow ABG to develop innovative Islamic financial products whichwould give ABG a leading edge in its markets.

ABG intends to take advantage of the increasing interest in Islamic financial products that can be found in many markets, including theGCC, the Far East and parts of Europe. It is clear that there are ever-increasing opportunities for the use of Islamic financial productsin these regions. By using part of its net proceeds from the IPO to capitalise on this opportunity, ABG will be able to position itself as aleader in its chosen markets.

ABG intends to allocate US$115 million from its net proceeds from the IPO towards increasing the share capital of its existing Units,and US$228 million from its net proceeds from the IPO to ABG’s expansion plans in Europe, the Middle East, Africa and Asia.

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14 Use of Proceeds

15.1 All Applicants must have a CSD Account with the BSEAll Applicants are required to have a CSD Account open with the BSE. Applicants who do not have a CSD Account open with theBSE will be required to apply to open a CSD Account with the BSE through the completion of the relevant section of theirSubscription Application Form.

Initially, all Shares will be held in Applicants’ BSE CSD Accounts.

15.2 Applicants wishing to hold Shares on the DIFX must have a DIFX custodianAccepted Applicants who wish to transfer their Shares to, and trade their Shares on, the DIFX must first have the necessaryarrangements in place with a custodian at the DIFX. An up to date guide to investing on the DIFX can be found on the DIFX website:

http://www.difx.ae/investing/

15.3 trading of shares on the bse and the difx The BSE and the DIFX are in discussions to finalise the process by which Shares will be held and transferred between the twoexchanges.

15 dual Listing of Shares

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16.1 The Bahrain Stock Exchange The Bahrain Stock Exchange was established in Bahrain pursuant to Amiri Decree No. 4 of 1987. The BSE officially commencedoperations on 17th June 1989.

The BSE is administrated by a board chaired by the Governor of the Bahrain Monetary Agency (The Central Bank), and also including2 members representing the BMA, 2 members representing local banks, 2 members representing the Chamber of Commerce and 2members representing local brokerage firms.

The board of directors formulates the general policies and the strategy of the BSE.

The BSE is governed by the Internal Regulations issued by the Minister of Commerce and Agriculture pursuant to ResolutionNo.13/1988. The Internal Regulations govern administration and membership of the BSE and the rules governing listing and trading ofsecurities, including clearing, settlement of trades and the operation of the central depositary system. Further information is availableon the BSE website, www.bahrainstock.com.

16.1.1 General Description of the settlement of securities listed on the BSEIn Bahrain investors should open a CSD Account and a trading account with one of the brokerage firms. The broker is an authorisedparty licensed to conduct share transactions and will execute the buy and sell orders on behalf of the investor. In order to buy sharesin Bahrain investors must draft a cheque in favour of their broker in respect of the value of shares which they wish to buy and theBrokers commission in the settlement bank to avoid any delay or failure.

In order to sell shares in Bahrain, investors must already hold shares in their CSD Account. The broker enters the investor's orders(sell/buy) in the BSE's automated trading system. These orders are matched electronically throughout the trading system without anyhuman intervention.

The day on which the shares are bought/sold is known as T-day. The broker is under an obligation to provide the investor with aconfirmation statement for all transactions the broker has conducted on behalf of the investor on the same day. On T+2 by 0930am,both brokers (buyer & seller) should finalise all their obligations on their transaction. The CSD has an obligation to send a statement ofaccount (stating all investor's transactions) every six months, to all the depositors in the system.

16.1.2 Capital Markets Supervision DirectorateBy Decree No. 21/2002 the BMA was empowered with broad authority to regulate the securities market in Bahrain. The BMAestablished the CMSD with the mandate of supervising and regulating Bahrain’s capital markets. The CMSD’s primary objective is tomaintain a transparent, fair and orderly market by upholding and enforcing international standards and protecting investors, therebyupholding Bahrain’s integrity and reputation as a financial hub.

The CMSD has the responsibility for the primary and secondary markets in Bahrain. Furthermore, the CMSD regulates and supervisesall applications for the listing of securities and any other instruments offered to the general public ensuring that applications fulfil alllegal requirements. The CMSD also enforces international disclosure standards in order to enhance the transparency of the Bahrainmarket and supervises the BSE, the clearing system, the settlement system, the depository and custodial systems, brokerage firmsand market makers.

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16 Introduction to the BSE and the DIFX

16.2 The Dubai International Financial ExchangeThe DIFX is a securities exchange located in the DIFC, a financial free zone in the Emirate of Dubai in the United Arab Emirates. TheDIFX commenced operation on 26 September 2005. The DIFX was incorporated as a limited liability company under the DIFCCompanies Law No. 2 (the “Companies Law”), on September 2004 and it is a wholly-owned subsidiary of the DIFC Authority.

The DIFX has published two sets of rules, the Business Rules, which also include the Clearing and Settlement Rules, and the ListingRules. The Clearing and Settlement Rules, govern procedures, responsibilities and fees regarding clearing and settlement of securitiesand products traded on the DIFX. The remaining Business Rules govern membership of the DIFX, including eligibility requirements forfinancial institutions, categories of membership, rights and obligations of members and the process for membership applications. TheListing Rules govern the listing of equity and other securities on the DIFX, covering such areas as eligibility of issuers for listing, thelisting application process, continuing obligations following a listing and sanctions for non-compliance with the Listing Rules.

The DIFX is governed by its board of 15 directors, which includes the Chief Executive Officer and Chief Operating Officer, and threecommittees: the Audit and Risk Management Committee, the Market Oversight Committee and the Nomination and RemunerationCommittee, each governed by formal charters and comprised of independent directors. The Audit and Risk Management Committeeis responsible for the independent and objective oversight of internal control and risk management, internal compliance, governanceissues, financial reporting, auditors (both external and internal) and financial controls. The Market Oversight Committee is responsiblefor the independent oversight of the Markets Authority function which includes the departments of Listings, Surveillance andRegulatory Compliance. The Market Oversight Committee also supervises the regulatory functions, including compliance with theRules of the exchange, members’ conduct of business and the clearing and settlement function. The Nomination and RemunerationCommittee is responsible for recommending new members to the board of directors, succession planning for the board of directorsand senior management, evaluating the performance of the board directors and senior executive officers of the exchange anddetermining the remuneration of directors and senior executive officers and employee benefit structures.

16.2.1 General description of the settlement of securities listed on DIFXTrading of Shares will take place through the trading system of the DIFX. The ownership of the listed Shares will be evidenced byholdings of its Shareholders in accounts held at the DIFX CSD. Investors may hold Shares listed on the DIFX either in their ownaccounts opened with the CSD or through custodian omnibus accounts. Clearing and settlement of trades on DIFX can be done only byauthorised Clearing Members (“CM”), either by a broker or a custodian. Each CM must hold a Securities Account on the CSD and aCash Account with any designated settlement bank for settlement purposes. Similarly, a custodian needs to hold a CSD OmnibusAccount and a Cash Account with any settlement bank for settlement of off-exchange trades. Settlement of securities trading on DIFXis governed by the DIFX Business Rules.

16.2.2 The Dubai International Financial Centre The Dubai International Financial Centre has an independent legal system which was established in 2004. Companies operating in theDIFC are subject to the Companies Law. Financial activities in the DIFC are governed by the DIFC Regulatory Law No. 1 of 2004 (the“Regulatory Law”) which also establishes and governs the operation of the DFSA, an agency of the government of the Emirate of Dubaithat acts as the independent financial regulator in the DIFC. Legislation, rules and regulations governing companies incorporated in theDIFC and financial activities in the DIFC are available on the website of the DFSA at ‘‘www.dfsa.ae’’.

16 Introduction to the BSE and the DIFXcontinued

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In the case of a joint application, references to “you” in these Terms and Conditions of the Offer are to each of you, and your liability isjoint and several.

No person receiving a copy of this Prospectus or the Subscription Application Form in any territory, may treat the same as constitutingan invitation to him to acquire, subscribe for or purchase Offered Shares unless such an acquisition, subscription or purchasecomplies with any registration or other legal requirements in the relevant territory.

By completing and delivering a Subscription Application Form, you, as the Applicant (and, if you sign the Subscription ApplicationForm on behalf of somebody else or a corporation, that person or corporation, except as referred to in paragraph 18 below):

Reliance on Prospectus Only1. confirm that, in making your application, neither you nor any person on whose behalf you are applying are relying on any

information or representation in relation to ABG other than the information contained in the Prospectus and, accordingly, you agreethat no person responsible solely or jointly for the Prospectus or any part thereof or involved in the preparation thereof shall haveany liability for any information other than the information contained in the Prospectus;

2. agree that none of ABG’s financial or legal advisors will treat you as their customer by virtue of your application being accepted orowe you any duties or responsibilities concerning the price of the Offered Shares or the suitability for you of the Offered Shares orbe responsible to you for providing the protections afforded to their customers;

3. agree that, having had the opportunity to read the Prospectus, you shall be deemed to have had notice of all information andrepresentations concerning ABG and the Offered Shares contained herein;

Capacity and compliance with laws4. represent and warrant that you have the legal capacity and authority and are permitted by applicable law to execute and deliver

the Subscription Application Form;5. represent and warrant that you have such knowledge and experience in financial and business matters that you are capable of

evaluating the merits and risks of acquiring Offered Shares;6. warrant that, if you are an individual, you are over the age of 21 and have the legal capacity to complete the Subscription

Application Form. Applicants under the age of 21 should make their applications through their legal guardian;7. represent and warrant that all consents required to be obtained and all legal requirements necessary to be complied with or

observed in order for the Subscription Application Form and the allotment and issuance of Offered Shares to you to be lawful andvalid under the laws of any jurisdiction to which you are subject have been obtained, complied with and observed;

Acceptance of Applications8. agree to subscribe for the number of Offered Shares specified in the Subscription Application Form (or such lesser number for

which your application is accepted) on the terms of and subject to the Prospectus, these Terms and Conditions, and subject tothe Memorandum and Articles of Association of ABG;

9. understand that ABG and its advisors reserve the right to reject in whole or part, or to scale down or limit, any application. ABGmay treat applications as valid and binding even if not made in all respects in accordance with the prescribed instructions andthese Terms and Conditions. If any application is not accepted in full the Subscription Funds or, as the case may be, the balancethereof, will be returned in the currency in which they were paid at the Applicant’s risk and without deduction or profit;

10. agree that, in consideration of ABG agreeing to process your application, your application cannot be revoked after it is submittedto a Receiving Bank;

Money Laundering11. consent to the passing on of any information about you to any relevant regulatory authorities by ABG or the Receiving Banks or

their delegates;12. acknowledge that due to money laundering requirements operating within their respective jurisdictions, ABG and/or the Receiving

Banks and/or one of their respective advisors may require further identification of the Applicant(s) and source of funds beforeapplications for Offered Shares can be processed and you hold ABG, the Receiving Banks and their respective advisors harmlessand indemnified against any loss arising from the failure to process your application for Offered Shares, if such information as hasbeen required from you has not been provided within the allotted time to the satisfaction of the party requesting such information;

13. understand and agree that any funds to be returned to you will be returned in the currency in which they were paid at your risk andwithout deduction (apart from Bank Charges) or profit, unless ABG agrees otherwise and agree that any definitive document of titleand any monies returnable to you may be retained pending clearance of your remittance and the completion of any verification ofidentity and/or source of funds required by ABG and/or the Receiving Banks and/or one of their respective advisors;

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17 Terms and Conditions of the Offer

Continuing Obligations14. will repeat these undertakings, representations and warranties to ABG the Receiving Banks and their respective advisors on such

future occasions as ABG and/or the Receiving Banks and/or one of their respective advisors may request, and will provide onrequest such certificates, documents or other evidence as ABG and/or the Receiving Banks and/or one of their respective advisorsmay reasonably require to substantiate such undertakings, representations and warranties;

15. will notify ABG immediately if you become aware that any of these undertakings, representations and warranties are no longeraccurate and complete in all respects, and agree immediately to tender to ABG for redemption a sufficient number of Shares toallow the undertaking, representation or warranty to be made;

16. understand that if any of the representations, warranties, or undertakings given by you in this Subscription Application Form areuntrue, ABG in its sole discretion may require a retroactive redemption of all or part of your Shares;

Indemnity17. agree to indemnify and hold harmless ABG, the Receiving Banks and their respective advisors, their affiliates and each other

person, if any, who controls or is controlled by any thereof, against any and all loss, liability, claim, damage and expensewhatsoever (including, but not limited to, any and all expenses and costs (including attorneys’ fees) reasonably incurred ininvestigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of orbased on:

i) any false representation or warranty or breach or failure by you to comply with any covenant or agreement made by you pursuantto this Prospectus, the Subscription Application Form, or in any other document furnished by you to any of the foregoing inconnection with the Offer; or

ii) any actions for securities laws violations instituted against you which is resolved by judgment against you;

Capacity18. warrant that, if you sign the Subscription Application Form on behalf of somebody else or on behalf of a corporation, you have due

authority to do so on behalf of that other person or corporation, and such person or corporation will also be bound accordinglyand will be deemed also to have given the confirmations, warranties, undertakings and authorities contained herein and undertaketo enclose your duly certified and notarised power of attorney, and a copy of the same, together with all other documents requiredto be submitted with your Subscription Application Form (see section 18.1, “The Application Procedure”);

Multiple Applications19. represent and warrant that this is the only Subscription Application Form that you have submitted in relation to the Offer, or that

has been submitted on your behalf; and

Entire Agreement20. understand that this Prospectus and the Subscription Application Form and all related terms, conditions and covenants shall be

binding upon and inure to the benefit of ABG, the Receiving Banks and their respective advisors and their respective, successors,permitted assigns, executors, administrators and heirs, provided that, except as specifically contemplated herein, neither thisProspectus nor the Subscription Application Form nor any of the rights, interests or obligations arising pursuant hereto or theretoshall be assigned or delegated by you without the prior written consent of ABG. This Prospectus and the Subscription ApplicationForm set forth the entire agreement and understanding between the parties as to the subject matter hereof and supersede all priorand contemporaneous discussions, agreements, understandings among them as to the subject matter hereof.

17 Subscription Terms and Conditions of the Offercontinued

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This Prospectus and the Subscription Application Forms are available from Approved Branches of Receiving Banks during the Offer Period.The Receiving Banks and the Approved Branches at which applications can be made are set out in the Appendix to this Prospectus.

18.1 The Application ProcedureApplicants can apply for Shares at Approved Branches during the Offer Period.

Individual Applicants must apply for a minimum of 1500 Shares, and in multiples of 100 Shares thereafter. Institutional Applicants mustapply for a minimum of 3000 Shares, and in multiples of 100 Shares thereafter.Applicants can only apply once, and Applicants whosubmit 2 or more Subscription Application Forms may have their Subscription Application Forms rejected.

Applicants wishing to apply for Offered Shares at an Approved Branch must complete the following steps during the Offer Period inorder for their Subscription Application Form to be considered:

Step One – Completion of the Subscription Application FormThe Applicant must complete a Subscription Application Form (in Arabic or English), including details of his BSE Investor Number.Applicants who do not have a BSE Investor Number are required to apply for a BSE CSD Account by completing section 2E of theSubscription Application Form and paying their Investor Fee together with their Subscription Funds.

Step Two – Submission of completed Subscription Application Form along with therequired documentation stated belowApplication by IndividualsIndividual Applicants of all nationalities over the age of 21 are eligible to subscribe to the Offer. Applicants under the age of 21 shouldmake their applications through their legal guardians. Such Individual Applicants must submit the following together with a completedSubscription Application Form:

(i) The original and a copy of the Individual's valid Passport or valid international travel document;(ii) The original and a copy of a valid form of photographic identification issued by a Government entity in the Individual’s country of

residence (e.g. CPR / Khulasat al Kayd / Driving licence);(iii) Proof of address in case the Subscription Funds are in excess of US$15,000 (or equivalent in local currency). Such proof can be in

the form of a copy of a utility bill, copy of a telephone bill, or any other document issued by an official body including but notlimited to, bank statements, tenancy agreements, or a record of a home visit by any bank official;

(iv) If an Individual Applicant has an existing account with the BSE, proof of such an account is required (e.g. proof may be in the formof an investor card, BSE statement or any other supporting document issued by the BSE); and

(v) In case the signatory is different from the subscriber, a duly-certified and notorised power of attorney or satisfactory evidence thatthe signatory is the guardian of the Applicant, if applicable, and a copy of the same is required.

Application by InstitutionsInstitutional Applicants must submit the following:

(i) A copy of the Institution's valid commercial registration certificate (CR) or a copy of the certificate of incorporation (for UAEinstitutions a valid trade licence is required);

(ii) The original and a copy of the valid Passport or valid international travel document of the person(s) signing on behalf of theInstitution;

(iii) The original and a copy of a valid form of photographic identification (issued by a Government entity in the country of residence) ofthe person(s) signing on behalf of the Institution (e.g. CPR / Khulasat al Kayd / Driving licence); and

(iv) the original and a copy of the document authorising the person(s), whose signature(s) appears on the Subscription ApplicationForm to subscribe on behalf of the Institution.

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18 How to Apply for Shares through the IPO

Step Three – Payment for Subscription FundsApplicants must remit to the Approved Branch their cleared Subscription Funds (which includes the Issue Fees) together with anyapplicable Investor Fee, net of any Bank Charges at the time of submitting their application. If for any reason the instrument by whichthey have paid their Subscription Funds is returned, or insufficient Subscription Funds are received, or cleared funds are not availablewithin 2 days after the Closing Date, the application may be rejected in whole or in part.

Applicants who apply for Shares at a Receiving Bank in the UAE or in Bahrain are entitled to apply only in the local currency (BahrainiDinar, or UAE Dirhams).

Applicants who apply for Shares at a Receiving Bank in Oman or in Qatar are entitled to apply only in United States Dollars.

Applicants may make payments as follows:a) by way of internal transfer from an account held with the relevant Receiving Bank; b) by way of Manager's Cheque / Demand Draft (to be drawn in the currency of the country in which the relevant Receiving Bank is

located); orc) by way of telegraphic transfer (Payment instructions to clearly mention the related Subscription Application form number and the

amount of funds that are payable, net of any Bank Charges). Telegraphic transfers can only be made in United States Dollars andcan only be made for amounts greater than US$100,000.

Cash deposits or personal cheques will not be accepted.

18.2 Calculation of subscription fundsApplicants applying in United States Dollars can calculate their Subscription Funds payable using the following formula:

Number of Offered Shares applied for Multiplied By US$3.08

Applicants applying in Bahraini Dinar can calculate their Subscription Funds payable using the following formula:

Number of Offered Shares applied for Multiplied By BD1.164

Applicants applying in UAE Dirhams can calculate their Subscription Funds payable using the following formula:

Number of Offered Shares applied for Multiplied By AED11.313

18 How to Apply for Shares through the IPOcontinued

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18.3 Allotments An application for Shares may be accepted or rejected in whole or in part at the discretion of ABG.

In deciding whether to accept or reject an application, ABG may consider:(a) The Applicant’s eligibility to apply for Shares pursuant to the Offer; (b) Whether Subscription Funds have been paid in full before the Closing Date; and(c) Whether the Subscription Application Form is incomplete or inaccurate as to any detail or the required identification documents are

not attached with the Subscription Application Form or are not provided within requested timeframes.

If the total number of Shares applied for exceeds the number of Offered Shares, the Lead Manager shall, in consultation with ABG andthe Bahrain Monetary Agency, establish an allotment basis. It is currently intended that the allotment basis will be as follows:(a) Tranche A will consist of 38,000,000 Offered Shares (approximately 20% of the Offered Shares) which will be allocated to

Individual Applicants pro-rata to the number of Offered Shares they have applied for, up to a maximum of 3000 Shares perIndividual Applicant.

(b) Tranche B will consist of the remaining 150,908,587 Offered Shares (approximately 80% of the Offered Shares), together with allTranche A Shares that have not been allocated through Tranche A. Tranche B Shares will be allocated to Institutional Applicants,pro-rata to the number of Offered Shares that they have applied for, and Individual Applicants, pro rata to the number of Sharesthey have applied for and not been allotted under Tranche A.

(c) The basis of allotment will be published in newspapers published in the Kingdom of Bahrain, and certain other regional newspapersin the GCC as determined by ABG. The decision of ABG on the basis of allotment and on each individual allotment shall be final.

(d) Applicants under the age of 21 should make their applications through their legal guardian.(e) Allotment of the Shares is expected to be completed on the Allotment Announcement Date. (f) No Shares shall be distributed pursuant to this Prospectus at any date falling 12 months after the date of this Prospectus.

18.4 Dispatch of Refunds Following the allotment of the Offered Shares, each Receiving Bank shall distribute Allotment Letters to those Applicants who appliedfor Offered Shares through its respective Approved Branches, informing them of their respective allotments of Offered Shares pursuantto the IPO.

In the event that an application is rejected in whole or in part or if the Offer does not proceed, the Subscription Funds or the balancethereof will be returned to the Applicant in the currency in which they were initially remitted by the Applicant to the relevant ReceivingBank, at the risk and cost of the Applicant and without accounting for profit.

All Applicants authorise and instruct Albaraka Banking Group and the Receiving Banks to send the Allotment Notice and refundcheque (if any) by mail to the Applicant’s address as illustrated in the Subscription Application Form, or alternatively, to nominate alocation from which refund cheques (if any) can be collected. Where payments have been made by way of internal transfer from anaccount held with the relevant Receiving Bank, refunds may be returned directly to the account from which the funds originated.

Allotment Letters and any refunds due will be dispatched, or made available for collection, by no later than the Dispatch of Refunds Date.

18.5 Application of ProceedsAssuming the Offer is fully subscribed, the proceeds of the Offer will be distributed as follows:(a) a total of US$369,600,000 will be distributed to ABG for each of the first 120,000,000 Offered Shares (being the New Shares) that

are allotted to Accepted Applicants, regardless of the currency in which the applications were made, less any deductible fees; (b) a total of US$208,793,019 will be distributed to the Selling Shareholders, and US$3,445,429 will be distributed to ABG, for each of

the remaining Offered Shares that are allotted to Accepted Applicants, regardless of the currency in which the applications weremade, less any deductible fees;

(c) an amount equal to the aggregate of the Subscription Funds received from each Applicant in respect of Offered Shares for whichthat Applicant’s application has been unsuccessful shall be returned to each Applicant;

(d) Investor Fees paid by Applicants who are allotted no Shares will be returned to such Applicants; and (e) the Investor Fees paid by Accepted Applicants will be forwarded to the BSE.

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19 APPLICABLE LAWSubject to the principles of the Glorious Shari’ah, this Prospectus and the Subscription Application Form shall be governed by and construedin accordance with Bahrain Law and Applicants and Accepted Applicants submit to the non-exclusive jurisdiction of the Bahrain courts.

19 APPLICABLE LAW

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20.1 Summary of ABG’s Memorandum and Articles of AssociationSet out below is a summary of selected material information concerning the Shares and selected provisions of the Articles ofAssociation of ABG. This summary does not purport to be complete.

20.1.1 Memorandum of AssociationThe Memorandum of Association of ABG provides that ABG’s principal objects are, inter alia, to carry on the business of Shari’acompliant banking in all of ABG’s aspects, including but not limited to, the transaction of all financial, monetary and other businesscommonly carried on by Islamic banks and financial institutions.

20.1.2 Articles of AssociationSharesThe Shares shall be nominal and negotiable. The Shares shall be indivisible but one or more persons may jointly hold title to one orseveral shares provided that they shall be represented in relation to ABG by one person. Joint owners of a share or shares shall bejointly responsible for liabilities arising from such ownership.

Shareholders rightsShares confer on Shareholders equal rights and create on them equal obligations. The holding of a share in ABG inevitably implies theShareholder’s acceptance of ABG’s Memorandum and Articles of Association and the resolutions passed at General Meetings in alawful manner.

Eligible Shareholders and Treasury StockABG may buy its own shares in accordance with the rules specified by a resolution of the Minister of Industry & Commerce of Bahrain.Shares and temporary share certificates may be traded on the Bahrain Stock Exchange. Non-Bahraini nationals shall have the right toown and deal in ABG shares pursuant to a resolution of the Minister of Industry & Commerce of Bahrain.

Dealings with ABG sharesShares and temporary certificates may be mortgaged, endorsed and disposed of in any manner the Shareholders choose. A creditormortgagee’s rank shall be established as of the date of entry of the mortgage in ABG’s share register. A creditor mortgagee shall havethe right to receive dividends and exercise the rights accruing to the shares, unless otherwise agreed in the mortgage deed.

Alteration of share capitalIncrease of authorised and issued share capitalABG’s authorised share capital may be increased by resolution at an Extraordinary General Meeting on the recommendation of theBoard of Directors after notifying the Ministry of Industry & Commerce and the Bahrain Monetary Agency.

ABG’s issued share capital may be increased within the limits of the authorised share capital by a resolution at an Ordinary GeneralMeeting. New share capital may not be issued until all existing issued share capital is fully paid up. It is permitted to issue share capitalat a premium if a resolution is passed at an Extraordinary General Meeting.

Priority to subscribe to newly issued Shares shall be given to existing Shareholders.

A subscription prospectus shall be prepared if newly issued shares are offered for public subscription. The prospectus shall be signedby the Chairman of the Board of Directors of ABG and the Auditors of ABG who shall jointly be responsible for the accuracy of thedetails stated therein.

Reduction of authorised and issued share capitalABG may reduce its share capital if the share capital is in excess of its needs or if ABG has suffered loss. If ABG wishes to reduce itspaid up share capital, it must obtain prior approval from the Bahrain Monetary Agency and the Ministry of Industry & Commerce. Aresolution at an Extraordinary General Meeting must be passed in order to reduce the share capital.

Issued share capital may be reduced by either reducing the nominal value of the share, or cancelling a number of shares equal to theamount of the decided reduction.

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20 Additional Information

Consolidation of ABG SharesABG, with the prior approval of the Bahrain Monetary Agency, the Ministry of Industry & Commerce and the affected Shareholders,may consolidate all or any of its shares into shares of a larger nominal value by means of a reverse stock split. In connection with suchconsolidation, ABG may exchange existing share certificates with new share certificates representing the consolidated shares.

If, as a result of consolidation a Shareholder becomes entitled to a fraction of a share, the Directors of ABG shall aggregate all suchfractions and sell them for the benefit of such Shareholders pro rata.

Board of DirectorsBoard CompositionABG shall be administered by a Board of Directors consisting of no less than 5 (five) and no more than 11 (eleven) Directors.

The Board of Directors may appoint a Chief Executive Officer, and specify his duties and powers. The Chief Executive Officer shallhave the right to sign for and on behalf of ABG severally or jointly as the Board of Directors may resolve.

Electing DirectorsShareholder’s are entitled to appoint one Director for each 10% of the Shares owned by them (“Appointed Directors”). Shareholdersforfeit their right to vote for Elected Directors to the extent of the percentage or percentages of Shares used to appoint AppointedDirector(s). If a Shareholder still holds a percentage that is not enough to make him eligible for appointment of another AppointedDirector, that Shareholder may use such percentage in voting with the other Shareholders who have the right to elect elected Directorsin accordance with the provisions of the Articles of Association.

The Ordinary General Meeting shall elect the remainder of the Board (“Elected Directors”) by secret ballot, subject to the provisions ofthe Articles of Association described above with respect to eligibility for voting. Elected Directors shall be selected from a list of qualifiednominees presented to the Chairman of the Board of Directors before the date of the Ordinary General Meeting at which elections arescheduled to take place and after obtaining the approval of the Bahrain Monetary Agency in respect of such nominations.

Members of the Board of Directors shall hold office for a three year renewable term. A corporate person who has appointed one or moreAppointed Directors may replace them by others at any time. An Elected Director may be re-elected upon the expiry of his term ofoffice, and this shall be considered to be a new nomination which requires satisfaction by such member of all the terms and conditionsrequired to be satisfied by nominee. The term of office for Directors may be extended by a resolution of the Bahrain Minister ofIndustry and Commerce for a period not exceeding six months at the request of the Board of Directors.

Directors sharesDirectors shall be assigned shares as security for guaranteeing the proper performance of their duties. Each Director shall not beentitled to make any disposition of such shares until the end of his term.

If the shares held by each Director is not deposited within 30 days of his election to the Board of Directors he shall forfeit his positionas Director.

Removal of Directors A Director will be removed from office if he: was appointed or elected contrary to the provisions of the Articles of Association of ABGor the laws of Bahrain; fails to satisfy the minimum qualifying conditions of holding the position of Director pursuant to the laws ofBahrain; misuses his position as Director in carrying on business that is competitive to or causes actual damage to ABG’s business;fails to attend three consecutive Board Meetings; resigns or withdraws from his Directorship; and if he occupies any other office inABG for which he would receive remuneration other than that which the Board of Directors may decide.

Termination of Directors positionShareholders may request the termination of a Director from his position by submitting a request to the Board of Directors subject tosuch requesting Shareholder holding not less than 10% of the issued Shares in ABG.

20 Additional Informationcontinued

130

Powers of the Board of DirectorsThe Board of Directors may exercise all powers necessary for the operation of ABG in conformity with its Memorandum and Articles ofAssociation and the laws of Bahrain.

Attendance quorum and voting quorum at Board meetings The Board of Directors shall meet at the summons of its Chairman or his Deputy or if requested to do so by at least two Directors. Ameeting of the Board of Directors shall be valid if attended by not less than half of its Directors.

Resolutions of the Board of Directors shall be passed by a simple majority vote of the Directors present in person or by proxy. In caseof deadlock, the Chairman shall have a casting vote. Any member to whom a proposed resolution is sent, wherever he is located, andwho fails to respond within three working days following the date on which the proposed resolution is sent to him, shall be consideredto have approved the resolution.

The Board of Directors shall meet at least four times in every financial year.

The Executive CommitteeThe Board of Directors shall form an Executive Committee which shall perform the day to day management of ABG. The ExecutiveCommittee shall consist of a fixed number of Directors and two reserve Directors who shall hold their offices for a term of three yearsrenewable for one or more similar further terms.

Annual ReportThe Board of Directors shall prepare at the end of each financial year an annual report on the activities of ABG. The annual report willbe prepared within three months of each financial year end.

Personal interests of DirectorsThe laws of Bahrain shall apply to any personal interests that the Directors and/or Managers of ABG hold in respect of ABG’sbusiness and contracts.

Financing offered to the DirectorsABG may, subject to the applicable laws of Bahrain and its Memorandum and Articles of Association, offer its Directors financingservices on the same terms as those offered to ABG’s customers.

Remuneration of DirectorsThe remuneration of the members of the Board of Directors shall be resolved at an Ordinary General Meeting. The total agreedremuneration shall not exceed 10% of the net profits of ABG in any one financial year.

Directors’ remuneration is set at Ordinary General Meetings. As Directors are prima facie required to be Shareholders, some Directorsmay be able to influence their remuneration by voting at Ordinary General Meetings of the Company. However, those Directors haveagreed not to vote on any matter dealing with their remuneration. The Remuneration Committee will be responsible for recommendingDirectors’ remuneration, as well as the level of their participation in any management incentive plan. No Directors are currentlyreceiving remuneration for acting in their capacity as Directors.

Voting rights of Shareholders at an Ordinary General MeetingVoting at the Ordinary General Meeting shall be by a show of hands or any manner approved at the meeting. Voting shall be by secretballot if: the resolution concerns the election or dismissal of a Director; filing an action against a Director; the Chairman of the Board ora number of Shareholders representing at least one tenth of the number of votes present at the Ordinary General Meeting requestvoting by secret ballot.

Resolutions passed at an Ordinary General Meeting shall be valid, if passed by a majority of Shareholders present at the meeting.

In the event of deadlock, the Chairman shall have the casting vote.

131

Voting rights of shareholders at an Extraordinary General MeetingVoting at the Extraordinary General Meeting shall be by show of hands or in a manner approved at the meeting. Resolutions passed atan Extraordinary General Meeting shall be valid if passed by a two thirds majority of Shareholders present at the meeting. If the resolutionrelates to: the increase or reduction of share capital in ABG; the extension of the term of ABG; and/or the dissolution or merger ofABG, such a resolution shall only be valid if passed by 75% of all the Shareholders of ABG.

Shari’a Supervisory CommitteeA Shari’a Supervisory Committee shall be appointed comprising of between three and five eminent Islamic scholars knowledgeable inShari’a compliant financial products. The Shari’a Supervisory Committee shall ensure that the investments and banking activities ofABG and its Units are at all times compliant with the provisions of Shari’a.

Distributions of ABG’s net profitsThe annual net profits of ABG will be distributed as follows:(a) 10% of the net profits shall be set aside for the statutory reserve of ABG. Once the statutory reserve reaches a level where its

value is 50% or more of the issued share capital these contributions may cease. If the statutory reserve falls below 50% of theissued share capital, the contributions shall be resumed;

(b) At the proposal of the Board of Directors, it may be resolved at an Ordinary General Meeting to allocate a percentage of the netprofits to the voluntary reserve account;

(c) At the discretion of the Board of Directors, dividends of not less than 5% of the issued share capital of ABG, may be distributed to Shareholders;

(d) No more than 10% of the balance of net profits remaining shall be allocated for remuneration of the Directors of ABG; and(e) At the discretion of the Board of Directors, the balance of the net profits may be distributed as dividend payments to Shareholders

pro rata; carried over to the following financial year; utilised in building up contingency reserves; and/or utilised in building up areserve fund for extraordinary depreciation.

20 Additional Informationcontinued

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20.2 Working capitalIn the opinion of the Board of Directors, having made due and careful enquiry and taking into account ABG’s bank facilities and netproceeds of the Offer receivable by ABG, the working capital available to ABG is sufficient for its present requirements, being twelvemonths from the date of admission to trading.

20.3 Trading PositionIn the opinion of the Board of Directors, having made due and careful enquiry and taking into account the ABG’s trading activities andthe markets in which each Group Company operates, that there are no matters not disclosed in this Prospectus that would materiallyaffect ABG’s financial or trading position or trading prospects over the next 12 months.

20.4 No Material Change in accountsThe Board of Directors is not aware of any material change in the audited accounts of ABG since 31 December 2005, the date onwhich the last audited accounts were prepared for the Group.

20.5 Borrowing PowersThe Articles of Association grant the Board of Directors wide powers to borrow funds and to issue Sukuk to raise funds. These powersmay be changed by a resolution to amend the Articles of Association of ABG passed at an Extraordinary General Meeting of ABG.

20.6 Fees and ExpensesThe fees and expenses associated with the Offer amount to approximately US$30.0 million. Fees and expenses associated with theoffer include (without limitation) fees and/or expenses of financial advisors, legal advisors, receiving banks, reporting accountants,registrars, media advisors and stock exchanges.

20.7 Underwriting of the OfferThe Underwriters have, subject to customary terms and conditions included in underwriting agreements entered into with ABG (whichinclude, without limitation, terms and conditions relating to market conditions), agreed to underwrite the issue of approximately 73million of the New Shares offered to the public pursuant to the Offer.

20.8 Financial Assistance to DirectorsNo financial assistance has been given to any Director.

20.9 TaxationAs of the date of this Prospectus, there is no tax payable to any authority in the Kingdom of Bahrain by any person receiving or payingdividends, whether resident or otherwise.

ABG has not taken into consideration the impact of any future tax laws in the Kingdom of Bahrain and furthermore, ABG has nottaken into consideration the tax laws which Applicants from jurisdictions other than the Kingdom of Bahrain may be liable for. All Applicants should consult their own advisors on the taxation and exchange controls implications of their acquiring, holding ordisposing of Shares under the laws of any jurisdictions in which they are or may be liable to taxation.

133

The following documents are available for inspection at the Dubai and Bahrain offices of the Company’s legal adviser, Norton Rose,during the Offer Period:

1) Certificate of Incorporation of ABG;2) Memorandum and Articles of Association of ABG; 3) Founders Resolutions of ABG; 4) Registrar Agreement;5) Underwriting Agreements; and6) Agreements with Receiving Banks.

21 Documents Available for Inspection

134

1 Bahrain1.1 Standard CharteredBankEast Rifa'a, Building 204, Sh. Ali Bin Khalifa Avenue, East Rifa'a 903, Bahrain +973 17 771 744

Manama Main Branch, Building No. 180, GovernmentAvenue, Manama 315, Bahrain +973 17223 636

Diplomatic Area, Buidling 499,Road 1706, Manama 317, Bahrain +973 17 526 209

Muharraq, Shop No. 1136 -A /1136-B, Buidling 120, Road 1535,Block 215, Bahrain+973 17 343 388

Budaiya, Shop 8 & 9, Najibi Centre,Building No. 3, Saar Avenue, Saar515, Bahrain +973 17 690088

1.2 AlBaraka Islamic Bankb.s.c.Manama (Diplomatic Area), Building238, Road 1704, Manama, Block317, Bahrain+973 17535300

East Riffa (Bukowarah Road),Building 1023, Road 1315, EastRiffa, Block 913, Bahrain+973 17768600

1.3 Ahli United Bankb.s.c.Isa Town Mall Branch, Shop 29-30-31-33, Building 1012,Baghdad Street - Isa Town, Bahrain+973 17 781 222

Exhibition Avenue Branch,Showroom no 68, Building 393,Road 1805, Manama 318, Bahrain+973 17 534 458

Riffa Branch, Bank 122, Road 319,East Riffa 903, Bahrain+973 17 778 807

Muharraq Branch, Building 1195,Road 10, Avenue 1535, Muharraq 215, Bahrain+973 17 345 992

Zinj Branch, Street No. 332,Avenue Zinj, Bahrain+973 17740022

Sitra Branch, Building No. 128,Majlis Al Taawon Avenue, Block606, Sitra, Bahrain+973 17736622

Central Manama Branch, Car ParkBuilding, Government Avenue,Bahrain+973 17221700

1.4 Bank of Bahrain &Kuwait b.s.c. Main Branch, BBK Building,Ground Floor, 43 GovernmentAvenue, P.O. Box 597, Manama, Bahrain +973 17207400

Exhibition Road Branch, ExhibitionRoad, Manama, Bahrain+973 17294180

East Riffa, Sheikh Ali Bin KhalifaAvenue, Bahrain+973 17771878

Budaiya Branch, Budaiya Highway, Bahrain +973 17591634

West Riffa Branch, SheikhMohammed Avenue, Bahrain +973 17660547

Muharraq Branch, Sheikh SalmanRoad, Bahrain +973 17322947

Isa Town Branch, Isa Town Mall, Bahrain+973 17686626

1.5 National Bank ofBahrain b.s.c.Diplomatic Area Branch, Ground Floor, Building 170, Road No. 1703, Diplomatic Area317, Manama, Bahrain+973 17537466

East Riffa Branch, Bldg. 75, Sh. Ali Bin Khalifa Avenue, East Riffa Block 904, Bahrain+973 17775284

Isa Town Branch, P.O. Box 3378,Road 1012, Isa Town 810 Bahrain+973 17689555

Jidahfs Branch, Shop 902, BudaiyaHighway, Jidhafs 422, Bahrain+973 17552257

Palace Avenue Branch, Al HadiCentre, Bldg. 245, Palace Avenue,Manama 321, Bahrain+973-17294191

Salmaniya Branch, SalmaniyaMedical Centre Campus, Bldg. 30,Road 322, Salmaniya 328, Bahrain+973 17250777

Main Branch, Government Avenue,Manama, Bahrain+973 17228800

1.6 Bahrain Islamic Bankb.s.c.Al Salam Tower, Bldg 722, Road1708, Block 317, Diplomatic Area,Bahrain+973 17546111

Muharraq, Shop No.1229, Bldg1146, Avenue No.10, Block 215,Muharraq, Bahrain+973 17342796

Gudaibiya, Shop No.6-8, Bldg 268,Road 339, Block 308, AlQudaibiah, Bahrain+973 17245446

Riffa, Shop No.106, Road 82,Block 901, East Riffa, Bahrain+973 17778362

Hamad Town, Bldg 3565, Road366, Block 1203, Souq Waqef,Hamad Town, Bahrain+973 17418111

Jid Hafs, Shop No.745/745A, Road 80, Block 421, Jidhafs, Bahrain+973 17553983

Sitra, Bldg 310, Road 1, Block 608, Wadian, Bahrain+973 17458008

2 Oman2.1 Standard CharteredBankStandard Chartered Bank, Al HoorBuilding, Bair Al Falaj Street, Nextto Sheraton Oman, P.O.Box 2353,RUWI, Postal Code: 112, Oman+968 27703999

2.2 National Bank ofOman s.a.o.c.Muscat Region (North)Main Branch C.B.D. Area, P.O. Box752, Ruwi, P.C. 112, Oman+968 24778350

Qurum, P.O. Box 2928, Ruwi, P.C.112, Oman+968 24562615

Muscat Region (South)Seeb Town, P. O. Box 574, Seeb, P.C. 121, Oman+968 24423511

Al Khuwair, P.O. Box 393, Al Khuwair, P.C. 113, Oman+968 24486481

Ghoubrah R/A, P.O. Box 3909,Ruwi, P.C. 112, Oman+968 24491062

Dhakliya & Dhahira RegionNizwa, P. O. Box 100, Nizwa, P.C. 611, Oman+968 25410072

Buraimi, P.O. Box 9, Buraimi, P.C. 512, Oman+968 25653037

Batinah RegionSohar, P. O. Box 65, Sohar, P.C. 311, Oman+968 26840234

Al-Khaboura, P. O. Box 4, Al-Khaboura, P.C. 326, Oman+968 26805155

Dhofar RegionSalalah Main Branch, P. O. Box 197, Salalah, P.C. 211, Oman+968 23291601

Sharqiya RegionSur, P. O. Box 55, Sur, P.C. 411, Oman +968 25540246

135

Appendix – Receiving Banks and Approved Branches

3 Qatar3.1 Standard CharteredBankStandard Chartered Bank,Abdullah Bin Jassim Street, PO BOX 29, Doha, Qatar+974 4658555

D-Ring Road Branch,PO BOX 29, Doha, Qatar+974 4658555

3.2 Commercial Bank ofQatar q.s.c.Airport Branch, P.O. Box 3280, C-Ring Road, Qatar+974 449 0185

West Bay BranchQatar Insurance BuildingQatar+974 483 1575

HAK Building BranchPO Box 3232 Grand Hamad Street+974 449 0000

4 United Arab Emirates4.1 Standard CharteredBankDragonMart Branch, Location Dragonmart, Post Box 999,Al Awir Road, Dubai, UAE+971 43687910

DIC Dubai Internet City, Post Box 103669, Building # 6, Dubai, UAE+971 43914560

Hamdan Street Branch, Sheikh Hamdan Street, Post Box 240, Al Fardan Tower,Abu Dhabi, UAE+971 26777400

Sharjah Branch - Al Boorj Avenue,Post Box 5, Sharjah, UAE+971 6 5687788

4.2 First Gulf BankAlkhubairah Branch - Abu Dhabi,1st Zayed Street, Khalidya Area,Abu Dhabi City, P.O. Box, 6316,Abu Dhabi, UAE+971 26816666

Salam Branch - Abu Dhabi, P.O. Box : 6316, Al Wahda Tower,Al Salam Street, Abu Dhabi, UAE+971 26444617

Down Town Branch – Ajman, P.O. Box 414, Al Ittihad Street, Ajman, UAE+971 67457000

Al Ain Branch - Al Ain, P.O. Box: 18781, Khalifa Street, Al Ain, UAE+971 37666687

Dubai Branch, P.O. Box 52053, Al Yamamah Tower,Near PortSaeed,Deira, Dubai, UAE+971 42941234

Al Buhairah Branch, Sharjah,Saeed Al Ghafli Building, Al Buhairah Corniche, P.O. Box 31400 Sharjah, UAE+9716 5565665

Fujairah Branch, Fujairah, Abdul Rahman Kayed Building,Hamad Bin Abdullah Road, P.O. Box 2966, Fujairah, UAE+971 92225777

4.3 Emirates FinancialServices pscEmirates Financial Services PSC,P.O.Box 2336, Dubai, UAE+971 4343 6060

4.4 Emirates IslamicBank pjscAl Gurg Tower 2, Riggat Al Buteen,P. O. Box 6564, Dubai, UAE+971 42131680

Al Riqqa Branch, Al Riqqa Street,P.O. Box 6564, Dubai, UAE+971 42248442

Al Dhiyafah Road Branch, Dhiyafa Street, P.O. Box 6564, Dubai, UAE+971 43985478

Bur Dubai Branch, Khalid Bin Walid Road, P.O. Box 6564, Dubai, UAE+971 43597888

Sharjah Branch, Al Arooba, Bank Street, P. O. Box 5169, Sharjah, UAE+971 65686166

Umm Al Quwain Branch, King Faisal Road, P. O. Box 315,Umm Al Quwain, UAE+971 7656050

Ras Al Khaimah Branch, Oman Street, Al Nakheel, P. O. 5198, Ras Al Khaimah, UAE+971 72221366

Abu Dhabi Branch, Sheikh Rashid Bin Saeed AlMaktoum Street, P.O. Box 46077, Abu Dhabi, UAE+971 24464000

Al Ain Branch, Salahuddin Ayoobi Street, P.O. Box 15095, Al Ain, UAE+971 37642885

Fujairah Branch, Sheikh Hamad Bin Abdulla Street,P.O. Box 1472, Fujairah, UAE+971 92223423

Khalidiya Branch, 26th Street,Khalidiya, P.O.Box 108330, Abu Dhabi, UAE+971 26679000

Jabel Ali Branch, BankingComplex, JAFZA Main Gate, Jabel Ali, P.O. Box 6564, Dubai, UAE+971 48811133

Ajman Branch, Sh.Khalifa Bin Zayed Road, P.O. Box 6688, Ajman, UAE+971 67464000

4.5 Emirates BankInternational pjscDubai Main BranchBeniyas Road, P O Box 2923,Dubai, UAE+ 971 4316 0316

Al Souk, Al Falah Road, P.O. Box 11954, Dubai, UAE+ 971 4316 0316

Al Maktoum, Al Maktoum Road, P.O. Box 52088, Dubai, UAE+ 971 4316 0316

Beniyas Square, Beniyas Square,P.O. Box 2923, Dubai, UAE+ 971 4316 0316

Al Karama, Hermitage Building,Next to General Post Office,Zabeel Road, Al Karama, P.O. Box 2923, Dubai, UAE+ 971 4316 0316

Al Karama Shopping Complex,Karama Shopping Complex, P.O. Box 2923, Dubai, UAE+ 971 4316 0316

Al Ramoul Branch, P.O. Box33115, Dubai, UAE+ 971 4316 0316

Al Satwa, Al Satwa Main Road,P.O. Box 2923, Dubai, UAE+ 971 4316 0316

Jumeirah, Al Wasl Road, P.O. Box 11909, Dubai, UAE+ 971 4316 0316

Al Qiyadah, Al Ittihad Road, P.O. Box 2923, Dubai, UAE+ 971 4316 0316

Galleria, The Galleria Shopping Mall,P.O. Box 2923, Dubai, UAE+ 971 4316 0316

Bander Taleb, Old Baladiya Road,P.O. Box 2923, Dubai, UAE+ 971 4316 0316

AL Quoz Branch, Showroom No.1,Umm Suqeim Building, Near 3rd Interchange, P.O. Box 11909, Dubai, UAE+ 971 4316 0316

Mankhool, Nashwan Building, Next to EPPCO Station, Mankhool Road, UAEP.O. Box 2923 , Dubai+971 4316 0316

Tower Branch, The Tower, Sheikh Zayed Road, P.O. Box 2923, Dubai, UAE+971 4316 0316

Appendix – Receiving Banks and Approved Branchescontinued

136