Tuesday, December 19, 2006

S&P Shariah Indices, GCC sukuk

S&P to create Shari'ah-compliant indices

"S&P launches shariah indices", Financial Times, December 19, 2006

Standard & Poor's Index Service announced the launch of three new indices based on existing indices, but screened to be Shari'ah-compliant. The indices will be called the S&P 500 Shariah Index, the S&P Europe 350 Shariah Index and the S&P Japan 500 Index. The article quotes Alka Banerjee, vice-president of S&P Index Services: “Potential growth in shariah-related investing around the world is enormous, but has been held back by a lack of globally accepted benchmarks and other tailored investment tools." I don't believe that the lack of a benchmark holds back Shari'ah-compliant investing. The industry has, as the article points out, been "fuelled by the oil-related boom in the Middle East", but that explanation misses much of the reason for Islamic finance. The industry is supposed to follow Qur'anic ideas about social justice, promoting equality by reducing exploitation, protecting the environment and reducing poverty, not engineering medieval contracts to look like conventional products with no concern for the social or environment impacts of how the products are used. Shari'ah scholars are vital for the industry, but not to rubber stamp financial institutions' financially engineered products to see if the form of the contracts fits with financial practices of 800 years ago. The scholars job is to decide whether financial products meet up with the values of Islam. Except for a couple major banks with Islamic windows, no Islamic financial institution has signed up to the Equator Principles, which provides a set of standards relating to the social & environment standards for financial institutions funding project finance.

GCC sukuk share of bond issues rising

"GCC bond sales 'may surge to $40bn'", Trade Arabia, December 19, 2006

GCC bond sales have increased significantly over 2005. Bond sales were $25 billion in 2006 compared to $10 billion in 2005 and only $4 billion in 2004. Islamic bonds (sukuk) make up 40 percent of the total bond sales in 2006 compared to 30 percent in 2005.

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