Monday, June 01, 2009

(Late) Weekend Update

The Saudi government plans on starting a Fannie Mae-like institution to encourage the growth of sukuk and conventional bond markets. The counry is estimated to have a home ownership is 62% according to Ibrahim al-Assaf, the finance minister for the country, although some analysts estimate it at less than 1/2 this level. The development would provide a boost for Islamic banks by allowing them to remove assets from their balance sheet and also providing a large source of supply of sukuk to the market, which in turn could help provide Islamic banks with a better, more liquid investment to hold against short-term liabilities like deposits. However, the securitization into sukuk would have restrictions on the number of various types of Islamic mortgages. Although ijara mortgages are generally considered transferrable because they include ownership of an underlying assets, murabaha mortgages would not (except at par vale) because transfer represents the sale of cashflow from a loan, not an actual asset.

A Central Bank of Bahrain official, Abdul Rahman Al-Baker, executive director of financial supervision pointed out that as the industry crosses the $1.5 trillion mark (estimates of the size of the Islamic financial industry vary widely), it needs to broaden the customer base it addresses:
"In addition to adequate regulations there is a need for creating the necessary framework for investment instruments targeting small investors, medium size investors, as well as professional or high net-worth individuals, who would like to invest their funds in accordance with Shariah principles,"

HSBC Amanah is joining a growing number of companies launching sukuk funds with their HSBC Amanah Sukuk Fund that will be domiciled in Saudi Arabia. The fund is expected to hold about 12 to 14 companies' sukuk from the GCC region and have a 4-year maturity.

Banking officials in Iraq are looking at ways to encourage Islamic banks according to Central Bank advisor Mudher Kasim. The article describes the difficulty facing Islamic banks due to the regulation about banks investing in real estate and their mandatory capital reserves.

Advantage Consulting Company Managing Director Safa Abdul Rahman Al-Hashem provides a criticism of products that replicate conventional financial products.

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