Friday, February 20, 2009

DIFC economist urges GCC government sukuk; University Bank receives acknowledgement for Islamic home finance activity

The chief economist at the Dubai International Financial Center (DIFC) says that GCC governments should issue sukuk to raise funds instead of drawing down accumulated surpluses from times when oil prices were significantly higher. In addition to retaining these surpluses, it will contribute to increasing liquidity in sukuk secondary markets. As I have noted in a post on my other blog at Zawya, the sukuk market is highly illiquid and the prices at which sukuk are traded in that market are likely not indicative of the underlying performance of the companies which issued them. The head of the DIFC, Dr. Nasser Saidi, agrees: "I think this is a temporary phenomenon. I think the pricing is unrelated to the fundamentals".

The Central Bank of Bahrain (CBB) has expanded the types of collateral it will accept from banks for overnight loans to include ijara sukuk, although no Islamic banks had used the facility. I would imagine that there is considerable debate within the Shari'ah boards of Islamic banks in Bahrain about whether borrowing against sukuk is Shari'ah-compliant. The facility was launched near the end of last year.

University Bank, a bank in Michigan with an Shari'ah-compliant subsidiary, University Islamic Financial Corp, was acknowledged by the American Bankers Association, in part for its innovative Shari'ah-compliant home finance products.
"The selection committee lauded University Bank for its innovative programs such as home financings for Muslim customers. Muslims are much less likely to be homeowners on average due to religious prohibitions on the payment or receipt of interest. University Bank designed a program to meet these needs, which has so far resulted in over $50 million of financings for the purchase of homes by Muslim customers of the bank."

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