Sunday, September 13, 2009

Entering the 4th year of this blog

I began writing this blog exactly three years ago in September 2006 and it has led to a lot of interesting discussions with other people throughout the Islamic financial industry. The landscape of the Islamic financial industry has changed signficantly since 2006 and has gone from being a rapidly growing industry in a positive economic climate to becoming a more established, but still rapidly growing industry that has now survived its first great test with the credit crisis that originated in the United States market for subprime mortgages which spread into a global economic crisis.

The economic recession has placed significant strain on some institutions within the Islamic financial industry and a few have defaulted on their sukuk, but overall the industry has held up rather well. The conservative lending practices and large liquidity buffers that most Islamic banks have has left them standing even as other banks throughout the world have not survived. The industry has not been immune to the crisis, but has for the most part made it through.

Although the Islamic financial industry in its current form is about 35 years old, this is not the first crisis it has weathered, but the tremendous growth, in particular since 2000 means that this is a much larger industry today than it was even a decade ago. The success in surviving one of the most global downturns intact suggests that Islamic finance has staying power and can continue to grow larger and more mature and continue to emerge from the shadows of being considered just a 'niche' industry.

For a glance back at what was being discussed when I began writing this blog, I went and found a few quotes from posts in September 2006.

September 14, 2006: "Dubai International Finance Centre (DIFC) has begun planning to become marketmakers in the sukuk (Islamic bond) market. Currently, there is little in the way of a secondary market for these instruments, so they are illiquid and held until maturity. The DIFC predicts that with sukuk issuance expanding from US$ 13 billion today to US$100 billion in five years, there will be an expansion in secondary markets for sukuk.

September 17, 2006: "Nadim Fattaleh, regional director at Boeing Capital Corporation (BCC), among industry experts, predicts that sukuk (Islamic bonds) backed by aircraft could become a large market. The aircraft would be purchased using investors' funds and then leased to airlines for use (ijara if the asset remains owned by the original purchaser or ijara wa iktina if the lease ends with the transfer of the property to the lessee). "

September 20, 2006: "The offered musharaka sukuk [for The Investment Dar] is the first of its kind to have a put and call options that let the buyer exit at year three with the same provision for the seller. The sukuk has been approved by the Shari'ah boards of both Unicorn Investment Bank and Investment Dar. "

September 21, 2006: "The Texas-based oil company East Cameron Partners made the first U.S. originated sukuk issue with their US$165.67 million issue. The issue was handled by Merrill Lynch and the Beiruit, Lebanon-based company Bemo Securitisation (BSEC), which provides Shari'ah-compliant securitization to SMEs."

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