Monday, November 05, 2007

News on sukuk, the Islamic finance industry and government sukuk

The International Herald Tribune has an article about the fast growth of Islamic finance despite slowdowns in other areas of finance in the wake of the subprime mortgage (and mortgage-backed securities/CDOs) crisis. The article describes the potential future growth areas: financial services to high-net worth individuals (which has been a focus of the industry) and microfinance (which has not): "growth will come from providing services to high net worth Muslims and, at the opposite end of the wealth scale, to the many Muslims who do not have access to bank accounts. A form of microcredit that avoids interest payments is an obvious area."

The Boston Globe released a good article about the Islamic finance industry following the working paper from the IMF which compared a portfolio comprised of conventional bonds with one blended between conventional bonds and sukuk and found that the blended portfolio had a lower Value-at-Risk. I wrote a summary of the paper a few weeks back.

Issuers of sukuk in the GCC area are looking at expanding their roadshows to include the United States because it is the "deepest pool of funds". The focus of the article was Barclay's, which is involved in a number of sukuk issues. The approach likely to be used is private placements (under rule 144a), which are easier from a regulatory perspective than public sales.

The Japan Bank for International Cooperation (JBIC) is looking to be the first G-8 country to have a state-sponsored institution issue sukuk. JBIC is planning a $100 million issue denominated in Malaysian Ringgit. A sovereign sukuk being explored by the U.K. has seen its momentum slowed since Ed Balls moved to become Schools Secretary.

Banks offering Shari'ah-compliant products is expected to increase globally by 50% by 2009 according to the Global Banking Corp CEO Mark Hanson. Global Banking Corp is a newly-licensed Shari'ah-compliant investment bank in Bahrain.

An unspecified 'Gulf Arab government' is planning a sukuk issue. The sukuk is envisioned to become a benchmark for Shari'ah-compliant products. Currently, only a few governments in the GCC issue sukuk including Bahrain. The global market for sukuk accounted for $37.3 billion in new issuance in the first 3 quarters of 2007, 110.7% over the previous year according to the Islamic Finance Information Service (IFIS).

In another move forward for Islamic finance in Africa, the First Community Bank in Kenya, the first Shari'ah-compliant lender in the country, is planning to expand its branch networks across the country.

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