Islamic bankig is not new to Chase Manhattan Bank not to its two predecessor banks, Chemical Bank and Chase Manhattan NA. It's true that its efforts in interest free financing were low profile, and conducted out of seperate pockets of the institution as tailor-made solutions to specific Islamic client needs.

But the merger consumated, the new Chase management team have come to focus on Islamic banking, among other initiatives, to determine the strategic initiatives of the bank. This includes evaluating the lines of business which hold most future potential, and to which additional human and financial resources need to be committed for continuing business growth.

Given the current size of the Islamic institutional market, Chase's close and cordial relations with the overwhelming majority of the Islamic financial institutions both in the Middle East and Asia, and the number of rapidly emerging Muslim economies, it was natural for the Bank to examine its strategic direction, and stramline its forays into Islamic Banking.

Chase recently held an internal conference of all existing, and prospective participants in origination, structuring and distribution of Islamic products and trasactions bankwide. This was to draw upon common experiences and draw upon existing documentation, structure, and product initiatives already in motion. A direct outcome of the conference was the official designation of a dedicated Islamic banking team located in Bahrain, and further product development and delivery from dedicated personnel at Chase Frankfurt. Additional resources are being provided  on transactional basis by Chase London, as well as other parts of the netwrok as required.

One of the most recent Chase initiatives in Islamic banking field, namely the Chase Manhattan Leasing Liquidity Program (CML), was developed in response to clients need gor Halal overnight and other short term investment periods. By these mans, excess liquidity may be invested without resort to Riba (interest) based interbank deposits which are commonly utilised by the conventional banking system.

The CML was developed by Chase Frankfurt based on origination capacity of its sister company Chase Chase Manhattan Leasing Gmbh, a wholly owned subsidiary of the Chase Manhattan Corporation, and the largest foriegn bank-owned leasing company in Germany. The Chase leasing company's Ijara (leasing) and Ijara Wa Iktinaa (lease/hire purchase) portfolio has been carefully screened to ensure compliance with Shariah requirements whereby no element of Haram or Raiba (suspicion of haram) is involved neither with the type of equipment being leased nor with the underlying lessees.

Accordingly, Ijara of equipment intended for meat  processing plants, gambling and gaming establishments, and armaments financing are areas in which Chase Manhattan Leasing is not involved - be it for accounting of the CML or the general pool of leasing assets generated for self retention. The CML is typically modelled around a short to medium term protfolio, covering EDP (electronic data processing) equipment, printing machinery, and gas station equipment and similar. Full payout leases are targeted to mitigate equity erosion through exposure to inherent residual risks.

Consequently, auto and aircraft leases have generally been avoided to eliminate portfolio quality dilution due to market risk fluctuations. Furthermore, while Chase Leasing is involved in the full range of leasing transactions, inclusing lease recievable financing, vendor and direct leasing, only direct leasing transactions are earmarked for CML. This ensures the purity of the portfolio.

While Chase Leasing has a unique capacity to generate German-based leased assets, it is also actively involved in sourcing high quality cross border leases for the CML. The minimum risk grades of individual leases are generally BBB, while the overall grading of the CML is closer to A+. This is due to the diversity in the numbers and types of equipment under lease, as well as the large population of related lessees.

The overall capcity of eligible assets for CML pool is approximately $250m, but this can be expanded as necessary based on additional leasing capacity of the Chase Leasing Group in New York. Investment in the CML, is predominantly US dollar based, in line with the client needs. Bit it is structured to accommadate multi-currency requirements including Deutsche Mark and Sterling, if individual investors so request. This accords with both the German and other cross border natures of the underlying pooled assets intended for the CML.

Furthermore, the integrity of the CML pool is maintained. Any shortfall in Islamic investor capability will be remedied through the shrinkage of the pool and the removal of the assets, rather than commingling of Riba funding resurces to finance a static predetermined pool size.

Expected return on the CML investement will vary over time in line with market performance, and more specifically the type of investment to which individual investors have subscribed. The CML offer two distinct versions of participation: the risk adjusted version, or hedged version where the investor mat request a buyback option from Chase Frankfurt covering absorption of commercial and/or political risk arising from the invested portfolio.

In the case of the risk adjusted version, the CML return will genrally be calculated as a derivative formula of the inherent risk grading ogf the financed lessees or obligors for the intended period of the investment. In the hedged version, expected investor returns will be stripped of credit risk margin and will more closely mirror market returns associated with interbank deposits.

Furthermore, the CML has been devised with the flexibility ot accommadate investor's specific tailor-made requests. Certain investors may elect to particip[ate in a specific cut of the CML pool of assets on a direct Musharaka basis. In such cases, peformance of individual rental streams for earmarked asstes will be directly allocated to an investor protfolio for a preagreed period. Thus, return on investment will not follow that of the general CML pool, but only that of the earmarked investor protfolio of unhedged assets.

Investment procedures in the CML have been significantly simplified. Investors recieve periodic listings from Chase Leasing rgarding the assets content of the CML pool. Investors opting for the unhedged and/or Musharaka versions of CML investments, will be furnished with more detailed information on the financial performance of the underlying lessees.

On completing the formalities, the the investor will contact the Treasury unit of Chase Frankfurt. This in turn, will provide quotations of expected returns for the intended period of investment. Exchange of confirmations and execution of investment and funds will then occur to account of the CML pool. At maturity the investment amoutnb plus the return will be disposed of as per investor instructions; in the absence of such instructions, this sum will be reinvested for a period similar to that of the initial investment.

Lat but not least, Shariah compliance is recognised as a central issue to all participants concerned. There has been a major due diligence exercise on part of Chase frankfirt in the development of the CML in line with all known and ractised criteria. Chase has solicited Shariah opinions on both the product development and the final review stage. However, Chase has not sought to ratify the CML product through a formal Shariah Board of its own. This is due to diverse population of Islamic investors, as represented by their individual investors unique requirements. In preference to formal CML product ratification by its own Shariah Board, Chase has opted to respond, clarify and adopt recommendations required by the Shariah Boards f the different instituions with which it deals. This is the preferred route to ensure investor confidence in the integrity of the Islamic product offerings developed by Chase for this market.