Saturday, January 05, 2008

Missed articles: renewable energy, foreclosures and Islamic bank capital

During the past month, I have been quite busy finishing the paper that Mohammad Rahman, Dr. Ehsan Feroz and I have been invited to submit to the Harvard Islamic Finance Project's 8th Forum on Islamic Finance, being held in mid-April 2008 in Cambridge, MA. Our paper, "The Development and Implementation of Shari’ah-based Microfinance using the Grameen Group Financing Methodology," deals with the development of a murabaha- and mudaraba-based microfinance project we plan on testing within the next month in Sri Lanka. Being focused entirely on this, a few interesting articles have come out that I missed that I think are worthwhile enough to be mentioned, even a month later.

The Jeddah-based Islamic Development Bank issued a press release announcing the formation of a Clean Energy Fund. The fund part of the IsDB's efforts to provide funding to energy-related projects (commitments for which now total about $2.7 billion). This effort ties into a post I wrote about 2 months ago describing one of the first sukuk issued to fund a renewable energy project by Doha Bank. This is an issue where I think the social imperatives from Islamic finance and the sukuk financing mechanism can be linked together to fund often-capital intensive renewable energy projects. I will be writing an article in the next couple of months for the Business Islamica magazine about this subject.

The Wall Street Journal had two articles that I missed last month about Islamic finance. In the first, the Journal describes a troubled real estate investment in Connecticut, the financing for which was structured to be Shari'ah-compliant. After the project ran into trouble, the lower income renters who were supposed to be forced out to make way for conversion to high-cost condominiums decided they didn't like the idea, the investors were confronted with the difficulty of how to deal with a foreclosure when the financing is done in a Shari'ah-compliant manner. There hasn't been a resolution, but this issue presents one of the benefits of doing Islamic finance in a country with a highly developed and flexible legal system like the U.S. The resolution will force a re-think of the way the deals are structured in the future and prevent similar such dilemmas from occurring in the future.

The second Wall Street Journal article looks at the sukuk market, which was very rapidly growing in 2007, and projects that subordinated debt will play a large role in financing, particularly by Islamic banks looking for cheaper forms of financing to meet regulators' capital requirements.

No comments: