World Bank Bond Issue highlighted problems of lack of Islamic financial harmonization

Arab Banks, Investors Frown on World Bank Bonds, World Bank Press Reviews, September 21, 2005


Note: Since this blog has only existed since September 2006, there will be some old news and some current news posted.

The World Bank's issue of Islamic bonds in September 2005 highlighted the divergent views on Shari'ah-compliance, particularly between Malaysia and the Gulf States. The former has taken a more open interpretation of the Qur'an and the Sunna in deciding whether products are Shari'ah-compliant than the Gulf states. As a result, many Arab banks and investors shunned the World Bank's recent issue, which was approved as Shari'ah-compliant in Malaysia (and issued denominated in Malaysian Ringgit). Because the World Bank's issue uses a complicated investment and does not represent sharing in the future profits of a tangible asset, many Gulf banks and investors believe that it represents riba, which Islam considers haram (not permitted). Because there is not a single regulatory regime for determining Shari'ah-compliance of different Islamic finance products, the globalization of Islamic finance is slowed.