Monday, June 25, 2007

CSR, Indonesia and the GCC

A summit on corporate social responsibility (CSR)opens today in Dubai. The summit will focus on the lead provided by Western businesses as well as Islamic finance:
"The business case for CSR in the Middle East region is gaining momentum. Islamic finance is setting a good example and in many ways runs in parallel with socially responsible investing. Stakeholders now want to be associated with businesses that support a whole range of social or environmental benefits, which is still a challenge for regional corporate cultures to absorb."

Asia Times Online has a detailed description of the present and future of Islamic finance in Indonesia.

Dar Al Istithmar, a subsidiary of Deutsche Bank, has been absorbed by BMB Group to create BMB Islamic. Very little informationis available about BMB Group. Its holding company is an offshore company in Brunei.

The growth of the Islamic financial industry in the GCC has led to increased calls for the development of short-term Shari'ah-compliant financial products which companies can use for liquidity management. One way some firms do this is by wakala (e.g. Amlak Finance's $800 million, 360-day wakala), where investors give "cash with a lender who then uses it to buy qualifying financial assets. The investor gets a commission and a share of the profits generated by the funds."

Rushdi Siddiqui, global director of the Dow Jones Islamic Market Indexes, is in Malaysia discussing the necessary underpinnings of an Islamic exchange traded fund (ETF).

The Investment Dar and Airbus are considering a joint venture to provide Shari'ah-compliant financing for aircraft purchases.

Srei Infrastructure Finance Ltd. becomes the first Indian company to receive approval from the Reserve Bank of India to use Islamic financing over Rs. 200 crore (Rs. 2 billion; US$49 million). "[Sunil] Kanoria [Srei's director] was reluctant to share the details of the instrument, but said that the the cost of financing would be lower than any similar instrument in India. Industry sources said it might be similar to a quasi-equity bond."

"'Moving forward, TAQA will attempt to balance its Islamic and conventional borrowing,'," says Peter Barker Homek at an Islamic project finance conference. Islamic financing could capture GCC project finance market.

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