Sunday, May 25, 2008

Sukuk to absorb excess liquidity, murabaha and musharaka

Sukuk could prove to be just the liquidity management tool GCC countries need to absorb surplus liquidity and help keep inflation low. However, since investing in sukuk creates spending and investment which would help to stoke inflation if they are just a way of recycling liquidity within the GCC, encouraging foreign governments and private companies to issue sukuk outside of the GCC could provide a way to absorb the liquidity without contributing to inflation and provide for badly needed funds for infrastructure projects.

Hong Kong companies may issue sukuk in the fourth quarter of 2008.

With the transfer from Tony Blair's government to one led by former Chancellor of the Exchequer Gordon Brown leaves questions about the government's continued support of the Islamic finance industry.

Is musharaka Shari'ah-based or merely Shari'ah-compliant? Although most people view musharaka as the most Shari'ah-based product available to Islamic banks there are a few who disagree including well-known Shari'ah scholar Sheikh Nizam Yaquby. When he spoke at the Islamic Finance World North America conference last week in New York City, he repeated something I have heard him say in other appearances (I apologize if I am misunderstanding his argument). He said that murabaha is just as acceptable as musharaka. In his recent appearance, he provided an interesting analysis of murabaha relating to the prohibition of riba arguing that although murabaha and riba are similar, one was allowed and the other was prohibited. Whether or not I one agrees with him, it is an interesting argument that has not been well articulated in the discussion about the Shari'ah-compliance of various Islamic financial products.

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