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Thursday, 2 October 2008

Banking on Islamic bonds against mortgage crisis


1 Oct 2008

Dubai Bank plans to sell this year some $500 million in Islamic bonds as part of a programme for emission of $5 billion to finance a growth which can help it become a global source of Islamic loans by 2013.
In times of mortgage crises and global financial turmoils the investors are increasingly betting on Islamic finance.
Dubai Bank plans to sell this year some $500 million in Islamic bonds as part of a programme for emission of $5 billion to finance a growth which can help it become a global source of Islamic loans by 2013.
The unlisted bank, part of the Dubai Banking Group (DBG), could sell its first tranche in the next ''couple of months'', depending on the market conditions, chief executive Salaam al-Shaksy said in the past days, quoted by Arabian Business Online.
The Islamic bonds, or 'sukuk', are instruments of raising capital which have characteristics similar to those of a conventional bond, with the difference that, in order to comply with the Koran law, they are based only on real estate activities.
Actually the Sharia bans interest on loans (the 'riba') and speculation, as well as investments in non-socially responsible sectors. Moreover, Islamic finance is growing with skyrocketing rhythms (average 15% growth a year), with a development due to both the large availability of liquidity in the oil-producing countries and to the expansion of the economic base in the Muslim world.
Hence, the need of new ''ethical'' financial products, respecting the Koran, but looked upon with strong interest by the Western banks too.
That phenomenon has already spread in various Western countries where financial institutions inspired by the Koran and its precepts are created.
In its new emission the Islamic Dubai Bank chose Swiss UBS and Britain's Standard Chartered as pilot banks for the placement and has already received from the potential investors a good response for the sale of the 'sukuk', Al-Shaksy said.
The bonds will be listed on the London and Dubai Stock Exchanges. ''It is a historic milestone for Dubai Bank, therefore we are preparing to finance an aggressive growth plan, both towards the public and towards the companies, in the banking services compliant with the Sharia,'' Al-Shaksy said.
The chief executive also said that the first tranche would serve to finance part of the asset development of the bank. It is also considering the possibility of true Islamic loans in addition to the emission programme.
''The launch of the first tranche will depend on the market conditions, hopefully in the next two months, and it will probably be of some half a billion dollars,'' he added.
Conforming with the ban of Islam concerning the interest on loans, the 'sukuk' will remunerate the holders through the yields of parallel investments, such as renting real estate property.
Dubai Bank's decision to sell 'sukuk' comes in a moment in which the strong malaise which had hit the conventional markets can favour the further spreading of Islamic finance, which has so far been safe from the effects of the slowdown of the global economy.
Dubai Banking Group, part of Dubai Holding, owned by the sovereign of Dubai, holds a 40% stake in Bank Islam, the oldest and largest Islamic bank of Malaysia (it is Malaysia and the United Arab Emirates, respectively with 60% and 25% of the global emissions, that are the pivot countries of the Islamic bond market).
The group also holds 40% in ACR Retakaful Holdings, the world's largest reinsurance company.
Under the programme of banking acquisitions and partnerships in various countries (Indonesia, Senegal, Nigeria), according to Al-Shaksy it can become the world's largest Islamic financial services company by 2015. (ANSAmed).
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant/Speaker/Motivator : www.ahmad-sanusi-husain.com 
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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