Sunday, March 23, 2008

Islamic finance goes to Japan, U.K. becoming the center of sukuk

A member of Bahrain's parliament, Jasim Ali, describes a recent presentation he made in Japan urging the country to enter the Islamic financial industry. During the presentation, he noted that the industry is growing rapidly, but is still facing challenges in meeting demand and ensuring that standards are applied consistently across the different countries in which Islamic finance is offered. Another Bahraini MP, Jassim Hussain, was also on the trip to Japan. Bahrain, which issues regular sovereign sukuk, is now the first country to have a sovereign sukuk listed on the London Stock Exchange. The U.K. will likely be the first G8 country to issue a sovereign sukuk.

A financial advisor in the GCC discusses the differences between conventional banking and Islamic banking. An Islamic banking advisor suggests that Islamic financial institutions should highlight the differences with conventional banking as an avenue to promote greater understanding of Islam. Islamic finance continues to grow in non-majority-Muslim countries like the U.K.

The Toronto Star profiles the Ansar Co-operative Housing Corporation, which provides Shari'ah-compliant home financing. Although the model they use has been successful, the cooperative model is limited by the amount of capital available to the cooperative, which is not able to access conventional financial markets or sell of the home financing like a conventional home finance companies (and many Islamic home finance companies in the U.S.) can.

The American Public Media show Marketplace, which recently ran a number of stories on Islamic finance, takes an interesting perspective on the recent controversy about the comments on ijara sukuk by Sheikh Taqi Usmani. The report compares the ratings agencies with Shari'ah scholars--both are paid by the organizations they regulate and both depend on their opinions--and suggest that losing Shari'ah-compliance could force a crisis if Islamic banks are forced to quickly divest non-compliant sukuk, which Sheikh Usmani estimate at 80% of GCC-based ijara sukuk. Unlike the subprime crisis, which was caused by doubts around the AAA ratings, the non-compliance of ijara sukuk are not likely to have as great an impact because there is much demand for them by Western financial institutions and hedge funds not limited by the requirement that their holdings are Shari'ah-compliant.

The chairman of Investment Dar explains how the subprime mortgage crisis could not happen in Islamic finance because of the prohibitions that make mortgage-backed securities not possible (the trading of debt at values other than par is not permitted in Islamic finance).

Asian Investor, a magazine connected with Business Week, sits down with the head of Malaysia's Securities Commission to discuss the growth in sukuk in Malaysia since the first one was issued by Shell in 1990.

Shari'ah-compliant insurance products, takaful has a large growth potential, particularly since it is much more infrequently used than other Shari'ah-compliant financial products.

Asma Hanif has a good introductory article on Islamic finance.

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