So Far: The Journal of Strategic Thought in Islamic Finance (volume 1)

As a contributor to "So Far: The Journal of Strategic Thought in Islamic Finance", I might be biased in my opinion of the first issue, but I thought it presented a unique forum for in depth analysis of some of the current issues in Islamic finance. The first issue discussed whether sukuk have been discredited by the recent defaults and what can be done to restore their credibility in the future. I would recommend a read of the whole issue, which is available for free from Yasaar Media's website. Just go to the 'Products' page on the website to download the full issue as well as the other reports Yasaar Media has released, including the one on Islamic finance in North America which I had the honor of writing. I have presented a couple excerpts for the contributions below, but I would still recommend reading the full issue as the excerpts do not do the contributors' essays justice.

Raja Teh Maimunah Raja Abdul Aziz

"Investors and market observers alike were too quick to conclude the failure of Nakheel to meet its debt repayment as a failure of the instrument i.e. Sukuk whereas the frustration I suspect stems mainly from the fact that they all thought that the Nakheel Sukuk was guaranteed by the sovereign i.e. failsafe. The lesson learnt here is that a guarantee, if not explicit, cannot be relied upon."

Blake Goud

"With the rhetoric of Islamic finance focused on the sharing of risk and return, the move towards Ijarah Sukuk that replicated a conventional unsecured debt bet the house on the success of these Sukuk in a global financial maelstrom. When Nakheel‟s Sukuk was on the verge of defaulting, all eyes turned towards it and Islamic finance‟s image in the global mindset became intertwined with its success or failure."

Dr. Armen V. Papazian

"This short article proposed the concept of Space Value of Money as a universal parallel to the Islamic principle that prohibits interest, and seeks to incorporate real activity into its instruments and structures. Indeed, Islamic finance requires products and investments to have a space value of money, thus requiring a positive, real, and ethical contribution to society and economy."

"If an investment project is earning its return based on more than time and capital alone, i.e., it uses real assets and real people, then it has a Space value of money as well. In other words, it adds and impacts the physical environment and its inhabitants."

David Vicary (Daud Vicary Abdullah)

"Secondly, in the area of transparency Shari‟ah rulings. The industry needs to build a process whereby the way in which a Shari‟ah decision is reached is brought to the attention of the public in a transparent way. It is insufficient, in my view, to rely on a process whereby Shari‟ah scholars, no matter how eminent, are not obliged to declare the process of their thinking and how they have reached the conclusion they have reached. Implementation of such a process would do a great deal not only to provide education but to broaden the credibility of the decisions reached to the whole world, both Muslim and non-Muslim."

Paul McNamara

"My worry is that if, as the global financial crisis begins to recede and the Sukuk market begins to gather steam, we simply act like nothing happened then we are doomed to repeat past mistakes. We must learn from our past errors of judgement in order that we build a system that is most robust and healthy than that which prevailed in the past. The time to do that is now and the time for healthy debate is now also."

Yasaar Media report, Canadian sukuk, corporate sukuk market in the GCC

Yasaar Media released a report on Islamic investment banks recently. I am still reading the report and hope to have a post dedicated to it here and on my blog at Zawya.com. The report is available from Yasaar Media's website (pdf)

The second North American sukuk is expected to come from of Canadian company, Bear Mountain Resorts, by October. The sukuk will fund part of a resort community near Victoria, British Columbia and is expected to be about $380 million. The sukuk is being launched with the assistance of Siraj Capital whose CEO Ibrahim Mardam-Bey worked on the East Cameron sukuk which is now in bankruptcy while he was at Lebanese firm BSEC.

A new fund being offered by Dubai Islamic Bank provides investors with capital-protected returns based on a long-short strategy tracking the Rogers International Commodity Index Enhanced ex-Lean Hog, a commodity index. The structure of the transaction is not specified but seems like it is similar to a controversial product that used a total-return swap on an index and is likely to restart arguments about the products' desirability from a Shari'ah perspective that were raised by Sheikh Yusuf DeLorenzo.

Despite the many sovereign sukuk being issued by GCC governments, the corporate sukuk issuance market may remain largely frozen until 2010 according to Arab Banking Corporation managing director Naveed Khan. The delay between new sovereign issues and new corporate issues is expected to be caused by the higher pricing of the sovereign sukuk compared to where they were before the credit crisis.

Other News

• HBG Holdings will invest in companies listed on London's Alternative Investment Market (AIM) through a Cayman Islands-domiciled Shari'ah-compliant private equity fund. HBG Holdings' shareholders are primarily institutional and private investors from the Gulf region.
  
• One of the sukuk funds launched recently, Emirates Investment Services' Emirates Sukuk Fund No. 1, announced it had gained 8.5% in the first 3 months since inception.
  
• Investors in Saad Group's Golden Belt 1 Sukuk are forming a committee to represent them, according to Reuters.
  
• Malaysia is 'well positioned' to help Islamic finance in Europe according to Malaysia's ambassador to Brussels, Hussein Hanif.
  
• An article about Abu Dhabi National Energy (Taqa) includes the note that the planned sukuk from Ras al Khaimah may offer a coupon between 8% and 8.5%.
  
• In the Islamic finance industry, aggregate size numbers are always rather suspect because there is no centralized methodology on how it is calculated, but according to one article, the industry now has more than $1 trillion in assets.
  
• Despite attempts by the Japanese government to attract Islamic finance, it is having difficulties gaining steam and the Japan Bank for International Cooperation (JBIC) sukuk that has been planned for a while may be further delayed.
  
• Australian investment bank Macquarie is in Malaysia and may be considering issuing a sukuk.
  
• Islamic finance may provide benefits to Muslim and non-Muslim homeowners in Scotland, according to an article.