Thursday, April 05, 2007

Describing Islamic finance, Islamic CDs, sukuk and Saba IB joins IFC

Good description of Islamic finance

Often, news sources use simplistic language to describe Islamic finance which leaves those unfamiliar with the field with an incorrect impression that Muslims are forbidden from making profit because the phrase "Islam forbids interest" is used without explanation. However, the article about TSB Lloyd's new Shari'ah-compliant business account describes Islamic finance in a much clearer way:
"Muslims are thus also permitted to profit from financing businesses, but they must take equity risk in the manner of a stockholder, rather than have a guaranteed return, as is the case with bank accounts and traditional bonds."

This description provides unfamiliar readers with a clearer explanation closer to the Quranic verse "They say 'Trading is only like riba,' whereas Allah has permitted trading and forbidden riba" [2:275]

Other news

The Central Bank of the UAE plans on creating an Islamic CD to manage short term liquidity. The issue of liquidity is one of the most challenging issues facing Islamic banks. Their deposits are short-term and most investment opportunities that are Shari'ah-compliant are long-term and very illiquid. Malaysia has created an Islamic interbank money market (IIMM), but many scholars in the Middle East do not consider it Shari'ah-compliant.

Islamic bonds (sukuk) could provide a significant future opportunity for London according to the director of Islamic finance advisory at KPMG, Darshan Bijur.

Saba Islamic Bank joins International Finance Corporation becoming the first bank in Yemen to do so

1 comment:

ilanit said...

A lot of time is spent on the alpha versus beta debate but little consideration is given to another equally important but often ignored greek letter - rho or the sensitivity to changes in interest rates. Some San Diego business investors fund strategies have negative rho, that is depend on interest rates staying low. Ironically pension funds have positive rho as rising rates permit them to use a higher number to discount future liabilities. That can be a pyrrhic victory because on the asset side of the balance sheet their portfolios of stocks and bonds tend to fall in such times. It therefore makes sense for investors to diversify with OTHER strategies that tend to perform well in a RISING interest rate environment.