Thursday, January 18, 2007

Malaysian government sukuk, Indonesian Shari'ah-compliant finance law, Islamic Develoment Bank loans

Islamic Development Bank announces loans

On January 15th, the Islamic Development Bank, the multilateral bank representing countries within the Organization of the Islamic Conference, announced the receipients of loans from its Development and Technical Assistance fund, as well as loans and grants from its Waqf Fund.

Indonesian law on Shari'ah-compliant financial institutions

The Indonesian House of Representatives is planning to pass a law allowing and regulating Shari'ah-compliant financial institutions. The law will allow Islamic banking and finance to begin to operate within the largest Muslim-majority country where Islamic finance is significantly underdeveloped compared to the Gulf Region and Southeast Asian countries like Malaysia.

Third foreign-owned Islamic bank opens in Malaysia

The Asian Finance Bank opens in Malaysia, becoming the third foreign-owned Islamic bank to begin operating in Malaysia. Gulf Times reports that Qatar Islamic Bank (QIB) has a 20% stake in the Asian Finance Bank. The two other foreign owned Islamic banks are Kuwait Finance House and Saudi-owned Al Rahji Banking and Investment.

Malaysia contemplates issuing U.S. Dollar-denominated Islamic debt

The Malaysian government announced plans to issue a U.S. Dollar-denominated Islamic government bond upon the maturity of US$600 million, 5-year Islamic bond issued in 2002. The new bond would be structured to appeal to Gulf Region investors who tend to follow stricter interpretations of Shari'ah-compliance and will be exchangeable for shares in companies owned by the government's investment holding arm Khazanah Nasional Bhd. The bonds will be structured using ijara, a leasing transaction, or musharaka, a partnership arrangement. In an ijara-based sukuk, the issuer sells government property to a special purpose vehicle funded by the sukuk issue, which then leases back the property to the government and transfers the rent payments to the holders of the sukuk. At the maturity date, the SPV re-sells the property to the government. In a musharaka transaction, the arrangement is less clear, but I believe it would be structured as follows. The government would sell the property to an SPV, which is funded by issuing sukuk. The government pays rent to sukuk holders plus a share of the value of the property owned by the SPV, thus buying back the property over the length of the sukuk issue.


Ratings Agency Malaysia (RAM) received the second-best ranking for Islamic Ratings Agencies. The first place Islamic rating agency was Islamic International Rating Agency (IIRA).

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