Wednesday, June 24, 2009

Islamic finance development in the US, Islamic debt trading, GCC wants to develop local debt markets

New global regulations on financial markets in the wake of the financial crisis--particularly those surrounding the securitization markets--could adversely affect the Islamic financial insdustry. In other U.S. news, Russell Investments is launching its own Islamic indexes with its fund partner Jadwa Investments.

U.S. real estate financing company W.P. Carey believes there is a 50% chance it will be able to launch an Islamic fund to purchase real estate. The idea dates back to 1997 when it planned to launch a Shari'ah-compliant fund, but abandoned the launch because of lack of attractive investments. The initial fund was focused on U.S. based property but the new one will probably have an international focus. The company specializes in sale and lease-back transactions which make it an attractive type of business in which to use Islamic finance.

A lawyer, Megat Hzaini Hassan, writes for Reuters about the permissibility of diifferent types of debt sales in the context of securitization of portfolios of different types of Islamic financial products. Apart from Malaysia, where debt sales (bay al'dayn) is more likely to be viewed as Shari'ah-compliant, the general sense is that if the majority of the assets being securitized are ijara (rather than murabaha), then debt re-sale is permissible because the ijara provides the financier with ownership of the underlying assets, rather than just a future stream of cash flows.

The recent wave of sovereign bond and sukuk issues in the GCC are part of a strategy to create a yield curve, encourage the development of more liquid secondary markets and increase corporate issuance following a steep drop-off in new issues as a result of the credit crisis. Out of the $750 million CBB sukuk 55% of the investors were from the region and there was enough demand for the entire issue to be subscribed by GCC-based investors.

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