IIFM releases report on Shari'ah-compliant repurchase agreements (repos)

Conventional borrowers in the GCC are moving away from sukuk following the Dubai debt crisis. It is not said whether they are moving away from sukuk, which often have higher structuring costs, because of the structures or because the additional costs of structuring sukuk for issuers and a higher illiquidity premium makes it not cost competitive. Despite this there were 98 sukuk issued globally for $13.7 billion in the first half of 2010, up from $7.1 billion in the same period of 2009. S&P provided comments with their data release.

The IIFM released a paper on the possibilities for Islamic Repo transactions (I'aadat Al-Shira'a). You can download the paper from IIFM's website after going through the registration process. I hope to put up a post once I have a chance to read the document.

Other News

• Rushdi Siddiqui takes on the misguided "anti-Sharia" groups in the US who view Islamic finance as a threat.
  
• There is a video of my presentation at the UFANA conference in March in Toronto. It begins at about the 3:50 mark of this video and concludes at the beginning of this video.
  
• In a blog post on Monday I suggested that an article from Bloomberg describing falling yields on sukuk in the GCC was somewhat misleading and now Bloomberg's article that is similar to their earlier article is titled: "Persian Gulf Sukuk Yield Premium Widens on Fourth Default".
  
• Kazakhstan will issue a sukuk after cancelling a conventional bond sale.
  
• The American Prospect interviews Frank Vogel, who co-authored the book Islamic Law and Finance: Religion, Risk and Return with Samuel Hayes, both professors at Harvard University.
  
• A short video of a speech by the governor of Malaysia's central bank, Bank Negara, Zeti Akhtar Aziz.
  
• Khazanah Nasional is raising funds through 5- and 10-year sukuk to finance its bid for hospital operator Parkway Holdings Ltd.
  
• Indonesia's planned global sukuk will be smaller than the $650 million initially expected because the budget deficit is smaller than expected. An unnamed foreign bank is planning an Islamic banking service in Indonesia in the second half of 2010 according to the Head of Research, Development, and Sharia Banking Management of the central bank.
  
• Two Islamic banks in Pakistan became the first merger of two Islamic banks in the country. Emirates Global Islamic Bank and Al Baraka Islamic Bank will merge. The new bank will be called Al Baraka Bank (Pakistan) and will have combined assets of $582 million.
  

Nakheel to repay maturing sukuk on May 13, equity vs debt in Islamic finance

An unnamed government spokesman says that Nakheel's sukuk maturing on May 13th even if there is no formal debt agreement according to Bloomberg. Heiko Hesse and Andy Jobst of the IMF provide their own analysis of the Nakheel situation including what I believe is the first analysis of how the issue of Shari'ah-compliance might create issues with the resolution of the company's problems (as described by the conventional thinking about the proposed debt restructuring plan. I have aired my own views in the past on this blog, but unless a Shari'ah board were to weigh in the actual impact of requiring Shari'ah-compliance for a restructuring plan cannot be known.

Kuwait Finance House Malaysia has offered several real estate financing transactions using an equity-based (mudaraba or musharaka) model, while most other banks have not. Shari'ah scholar Aznan Hasan, who I had the pleasure of hearing speak at the recent UFANA conference in Toronto, is quoted in the article saying "Whether it is debt or equity that suits you better, it depends on commercial and business decisions, not syariah matters". I would tend to agree with Aznan Hasan on this, although I my own views on the use of equity versus debt in Islamic finance has gone back and forth during the time I have written this blog.

Other News

• There are concerns over the cash levels to fund coupons and principal repayment of the Villamar sukuk, although the issuer denies there is a cash crunch.
  
• Qatar First Investment Bank raises a number of important challenges facing the Islamic financial industry.
  
• Regardless of the outcome of the UK election, the government will likely continue to encourage Islamic finance by removing barriers that make Islamic finance more difficult and costly compared with conventional finance. The official position as described by the FSA has been 'no obstacles, no special favors'.
  
• A South African private equity firm plans to extend Islamic private equity funds towards black economic empowerment (BEE) projects.
  
• Zurich Financial Services plans to enter into the takaful markets in Saudi Arabia and Malaysia.
  
• Kuwait Finance House, the country's largest Islamic bank, saw its profits fall in the first quarter of 2010 compared to the same period last year. The profits for 2009 were down significantly from 2008.
  
• A writer describes Islamic finance as instructional to provide capital on attractive terms. However, while the article is interesting and the points well made, its description of the industry bears little resemblance to how Islamic finance works in practice.
  

Catching up after the UFANA 2010 conference

Apologies for the light blogging recently. I was speaking at the Usury-Free Association of North America conference in Toronto, Ontario. As the editor of the UFANA newsletter, I was very impressed with the conference and it was well organized and well attended. It was one of the more stimulating Islamic finance conferences I have attended. There will be more information, including all of the presentations with video available on the UFANA website shortly. It is an honor of mine to work with an organization working to promote Islamic and other usury-free financial services within North America and one of my most interesting conversations was with the Rev. Lindsay King who shared his interpretation of the Biblical verses in Deuteronomy that restrict interest-based lending by Christians and Jews. I look forward to continuing to work with UFANA as the organization builds on this recent conference.

Investment Executive newspaper provided a summary of the conference. One of the announcements at the conference was the launch of the pre-paid iFreedom MasterCard.

There are three news articles about the Dubai World and Nakheel situation:

• "Nakheel seen offering sukuk to trade creditors", Reuters
  
• "The Calculus Behind Dubai's Nakheel Repayment", Wall Street Journal
  
• "Dubai offers $9.5 billion for debt deal with no haircuts", The Gazette (Montreal, Canada)
  

News

• Rushdi Siddiqui has an editorial in Gulf News that is very much worth reading, "Upgrading to Islamic finance 2.0"
  
• Islamic banks in the UK launched a lobbying group with a part of their mission being to encourage the UK government to issue a sukuk.
  
• A Citi Private Bank report says that Western groups working in real estate should become more familiar with Islamic finance.
  
• Arab News has an article about the forthcoming ShariahShares ETF family being launched in the US.
  
• Ithmaar Bank is reorganizing as a retail Islamic bank.
  
• An advisor to the Bank of London and the Middle East says that regulators should encourage smaller Islamic banks to merge.
  
• Indonesia sold 620 billion rupiah ($68 million) in sukuk, which was below the target of 1 trillion rupiah. Despite the disappointing auctions so far, if the sukuk issuance continues to be as frequent as it has been recently, it could spur the development of secondary markets within the country.
  
• Bank Sarasin released a report on Islamic Wealth Management, which follows a report recently released by Yasaar Media.
  
• Qatar Islamic Bank is working on a joint-venture to offer Islamic financial services in France.
  
• Bahrain Saudi Bank is rebranding itself as Bahrain Saudi as it becomes a fully Shari'ah-compliant bank following its acquisition by Al Salam Bank.
  
• Dubai Financial Markets, which recently acquired NASDAQ Dubai, is planning to launch an Islamic index.
  
• Emirates NBD launched an Islamic money market fund.
  
• A Japanese financial services company signed a joint venture with the Ministry of Finance in Brunei to offer Islamic financial services including private equity.
  
• The Central Bank of Bahrain's Sukuk Al-Salam were oversubscribed by nearly 400%.
  
• The only Islamic bank in the Philippines is working with PetronBulilit Station to offer dealership opportunities for small businesses.
  
• Franklin Templeton recieved a license to offer Islamic funds in Malaysia.
  
• Kuwait Finance House-Malaysia is going to increase its investments in Malaysia.
  
• Friends Provident, a UK insurance company, may offer takaful in the Gulf.
  
• Pakistan is planning to offer Rs100 billion in sukuk in May.
  
• The Huffington Post blog has another article on Islamic finance.
  
• Yemeni banks should apply common standards to issue Islamic instruments according to a recent conference.
  
• Malaysia's sukuk markets are expected to be RM60 billion ($18.5 billion) in 2010, up about a quarter from last year according to RAM Ratings.
  
• Shari'ah Capital's DSAM fund of funds returned 41% last year using their arboon-based short-selling product, which remains controversial.