Thursday, July 09, 2009

Islamic finance in Australia, U.K.; sukuk issuance in the GCC; the problems of default in sukuk markets

The Assistant Treasurer of Australia gave a speech (text of speech) at the opening of an Islamic banking & finance seminar at Latrobe University. The text of the speech, which includes a review of the industry in Australia. The Muslim Community Co-operative (Australia) Ltd. (MCCA) hopes to receive a banking license to convert to become the first Islamic bank in the country within the next three years. It is currently licensed as a non-bank financial institution. Regardless, the Assistant Treasurer beliees that there will be an Islamic bank in Australia within five years.

The UK treasury minister responsible for Islamic finance policy, Sarah McCarthy-Fry, said in a speech at the Sukuk Summit that the UK Treasury's decision not to issue a sukuk "in no way reflects a diminished government commitment to Islamic finance in the UK. I hope that other progress, including the measures announced in the recent Finance Bill (2009), will pave the way for the Islamic finance industry to grow".

The Emirate of Ras Al Khaimah is marketing the second part of its $2 billion sukuk. The Islamic Development Bank could increase its $500 million bond which is part of a five-year plan to issue $6 billion in sukuk.

Up to 5-8% of all sukuk could be at risk of default, according to industry experts, particularly those financing real estate projects and which are not backed by any sovereign or quasi-sovereign company. Also, Malaysian Central Bank governor Zeti Akhtar Aziz does not see any systemic implications of the default of the Saad Group sukuk.

In addition to GCC-based Istikhlaf, there are several groups considering launching a mega-Islamic financial institution with more than $1 billion in paid up capital in Malaysia according to Bank Negara, the Malaysian Central Bank.

There is an interesting article from Reuters that describes the tension between the Shari'ah restrictions and pressure from institutions seeking the highest return for their investors. The article also notes that this desire for profits as well as some compensation from company management is paid to scholars as 'incentive' payments stoking fears of conflict of interest, particularly for scholars who sit on many institutions' Shari'ah boards.

Other News
  • The National has a good article on the development of takaful, and in particular the recent growth in re-takaful.
  • Moody's revises its JAFZ sukuk rating to reflect a greater degree of inter-dependence with Dubai world than originally indicated in the original assumptions.
  • HSBC Holdings head of capital markets for the MENA region, Rajiv Shukla, says that the Saudi Electric Company sukuk could mark a turning point in the sukuk market because "There is a solid pipeline of potential issues, and we should see more in the second half of this year".
  • There is a summary of the sukuk market and its potential that is fairly comprehensive.
  • Another Islamic fixed income fund is launced, this one by Badr Al-Islami and Mashreqbank.
  • Noor Islamic Bank converted the UAE government deposit into Tier II capital to improve its balance sheet and raise its capital adequacy ratio.

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