Friday, November 23, 2007

Shari'ah issues with 85% of Gulf sukuk, NY Times article, and others

A personal finance website in the U.K. analyzes the subprime crisis and compares it to the outcome possible using ethical (and Islamic) finance. The upside is that Islamic finance places restrictions on credit creation, but at the possible expense of limiting credit. The managing director of an ethical and Islamic finance company in Nigeria, Lotus Capital believes that West Africa is fertile ground for expansion of ethical and Islamic finance.

The Shari'ah board of Bahrain-based AAOIFI, the standards setting body for Islamic financial institutions (along with Malaysian-based IFSB) has put the Shari'ah-compliance of up to 85 percent of GCC region issued sukuk at risk by criticising the repurchase agreements included in them. Under the repurchase agreements, the issuer agrees to repurchase the sukuk at facee value upon maturity or default. According to Shari'ah board chairman Taqi Usmani, "risk is not shared and reward is not shared according to the actual venture proceeds". Prohibiting or limiting repurchase agreements would make sukuk "more of a profit sharing instrument ... from a debt-like instrument to equity, and that's a fundamental change of mindset for investors and issuers" according to Harris Ifran, a director at Deutsche Bank in Dubai. Meanwhile, the Consul General for Saudi Arabia in Hong Kong encourages the introduction of sukuk in Hong Kong to "catch up with the rest of global financial markets".

A spokesman at the UK Debt Management Office says that a U.K. government sukuk would enable the expansion of retail Islamic finance in the country.

The New York Times provides a well researched piece on Islamic finance, that unlike many other news stories digs a little deeper into Islamic finance beyond just the prohibition of interest and also describes the historical similarities between the Islamic prohibition of riba and Christian and Jewish (and Aristotelian) teachings.

The Korean central bank is studying ways to attract money from the Gulf by using Islamic finance. Despite having a long-standing requirement for banks to be Shari'ah-compliant, the first 'interest-free' bank recently opened in the country.

Two articles from Dinar Standard look at Islamic finance in the U.S. and Islamic private equity.

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