In both cases, the Islamic banking industry would be hurt. If a large Islamic bank failed, it could lead to questions about the solvency of other Islamic banks and make it harder for them to attract and retain deposits. This would force them to turn to other sources of capital which could be either more expensive or shorter-term, or both. The other alternative--an Islamic bank turning to a conventional lender of last resort--would raise questions about the bank's Shari'ah-compliance and also create questions about what other Islamic banks would do in a similar situation (with added confusion from the impact of different country's regulatory systems). For example, banks offering Islamic deposit products in the US are required to have those deposits FDIC insured (for banks) or NCUA insured (for credit unions). If the institution were to be seized by the regulators, would depositors have a choice about whether they wanted to avail of the non-Shari'ah-compliant deposit insurance?
The best time to determine what needs to be done in a future crisis is now, before a crisis starts. Once a crisis is in full swing, there will not be sufficient time to consider these potential pitfalls. This was demonstrated in the recent financial crisis. The cause of the crisis was not addressed; the focus was entirely upon preventing it from spiraling further out of control.
Malaysia's central bank, Bank Negara, has said that Islamic mortgage products offered using bai bithamin ajil (BBA), and murabaha must include language in the contracts that make the rebate (ibrar) mandatory. Previously, in a default followed by an asset sale (or a prepayment), the lender was entitely to the entire loan amount (cost plus profit) for the entire term of the mortgage. Most banks granted the rebate of what in a conventional mortgage would have been future accrued interest. However, when the rebate was not granted, it often led to court cases.
- Mushtak Parker criticizes the article about Islamic banking being 'a flop'. He places much of the blame for IBB's loss-making on the bank itself being undercapitalized and without an experienced Islamic banker running it. He also criticizes the product mix that was offered by the bank. In a different article, Mr. Parker describes the progress being made in Australia towards equal regulatory treatment for Islamic and conventional financial products.
- The UAE Ministry of Economy issued a law that regulates the takaful industry. It had been previously regulated under a law for conventional insurance companies.
- Sukuk prices are at their six-month highs following a number of sukuk restructurings, according to the Dow Jones Citigroup Sukuk Index. The yield on the Malaysian sovereign sukuk has fallen to 3.61%, a spread of 175 basis points over similar maturity US Treasuries.
- One of Nakheel's largest trade creditors Arabtec expects the inital payment by Nakheel soon with the remaining amount in a sukuk within a few months.
- Funds continue to flow into US-based socially responsible funds, including faith-based funds like the Amana Funds.
- Jordan is speeding up the issuance of a planned sukuk as its borrowing costs rise.
- Kuwait Finance House (Malaysia) set up an internal department to control non-performing financings, which were 6.72% in September 2009. It also defended its dismissal of one of the firms which rated it, RAM Ratings. KFH Malaysia's parent company is expected to post a higher profit in the second quarter compared to the first, which was 21.4% from the first quarter of 2009.
- Dubai-based Fajr Capital will invest in Bank Islam Brunei Darussalam (BIBD), an Islamic bank in Brunei.
- The Islamic Bank of Britain won a dispute in the World Intellectual Property Organization (WIPO) with a technology service company that had decide to auction the domain name used by the IBB.