Latest from GIFC

Wednesday, 31 December 2008

NASDAQ To Launch Islamic Versions Of Indexes

NASDAQ OMX Indexes is about to break into the already crowded field of index providers targeting Islamic investors.
Versions of the flagship NASDAQ 100 Index and NASDAQ Biotechnology Index are to be launched in the first quarter 2009.
Dow Jones, MSCI, FTSE Group and financial services firms including HSBC and Citigroup have long lists of stock indexes, and to a more limited extent bond indexes, refashioned for the Islamic world.
Currently, there are six exchange-traded funds globally tracking Islamic indexes, according to Chicago-based data researcher Failaka.
Three are from Barclays Global Investors' European iShares ETF family based in London. The iShares track the MSCI Emerging Market Islamic, USA Islamic, and World Islamic equity indexes. BNP Paribas has an ETF based on the Dow Jones Islamic Titans Index, while Daiwa Securities launched an ETF based on a FTSE Shari'ah Japan 100 Japanese equity index.
As an exchange which a growing profile in the Middle East, NASDAQ has an immediate beachhead for its first Islamic indexes, in contrast to the stand-alone index providers.
NASDAQ recently rebranded the Dubai International Financial Exchange as NASDAQ Dubai, after purchasing a one-third stake in the exchange earlier in the year (see story here).
What's more, Dubai is the largest market in the world for structured products linked to Islamic law, according to Failaka.
Dubai is the largest part of an Islamic investing universe estimated at as much as $700 million globally. There are industry projections that it will grow to as much as $1 trillion in the next few years.
There has been a good deal of recent activity related to the Islamic indexes also.
Dow Jones recently released its first Islamic index for Southeast Asian equities, or the ASEAN counties (see story here).
Meanwhile, MSCI recently added both emerging market and frontier market Shari'ah compliant indexes (see story here).
NASDAQ expects that the indexes will serve as the basis for products from both local Gulf players and international asset managers, said John Jacobs, chief marketing officer at NASDAQ.
While the Dubai market may be the most obvious market in which to introduce the planned Islamic versions of the NASDAQ 100 and NASDAQ Biotechnology indexes, NASDAQ expects the indexes to be popular in Southeast Asia also.
"The most populace part of the Muslim world is Southeast Asia, and lots of firms want to bring out Shari'ah-compliant index products there too," Jacobs said.
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Tuesday, 30 December 2008

Islamic banking stands on a high set of principles and a towering market potential


A few financial conglomerates from Japan have expressed interest to work with Aseambankers Malaysia Bhd in developing Islamic capital market products

A few financial conglomerates from Japan have expressed interest to work with Aseambankers Malaysia Bhd in developing Islamic capital market products, its chief executive officer Mohammed Rashdan Mohammed Yusof said.
Without naming the conglomerates because of confidentiality requirements, he said that they were seeking two-way cooperation with Aseambankers.

While Aseambankers plans to enhance the sukuk market in Japan, the conglomerates, through the Malaysia International Islamic Finance Centre (MIFC), are keen to invest in the region.

"We are seriously looking into this (Japanese) market," Mohammed Rashdan said in an interview with Business Times in Kuala Lumpur.

He did not specify when the deals would be sealed since "the global financial market is still highly volatile and stressed (so) that even the most optimistic of these investors would really want to pick the best time".

According to Mohammed Rashdan, Islamic finance has attracted interest not only in Japan but also South Korea of late, partly because of the general collapse of the conventional financial system across the world.

He pointed out that Islamic finance does not encourage excessive leverage or use of derivatives and is viewed as safe in terms of having underlying asset values backing the financial instruments.

"There is ample global liquidity resident in the Gulf. Greater participation from Japanese and Korean institutions will attract that liquidity into this region, and we hope to be right there in that playing field," he said.

Apart from this, Aseambankers is also working on "a significant mandate" with a party from Saudi Arabia, despite the challenges posed by the current financial crisis.

The Malayan Banking Bhd (Maybank) group's key outpost in the Gulf is in Bahrain. It is also looking at other potential locations, especially Saudi Arabia and the United Arab Emirates, specifically Abu Dhabi.

"Through Bahrain we have done several smaller mandates in the Gulf, but the one we are working on now is significant," Mohamed Rashdan said, without elaborating.

He also said that Maybank's recent completion of its acquisition of Bank Internasional Indonesia (BII) would provide Aseambankers an opportunity to expand its reach. Aseambankers is Maybank's investment banking arm.

"There is great potential there, especially Islamic banking opportunities which are still nascent.

"Furthermore, Aseambankers can leverage on the BII platform to launch investment banking and brokerage services in Indonesia," Mohamed Rashdan said.

Aseambankers is also looking at setting up key offices in Singapore and Hong Kong, he added.

(Business Times)

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Sunday, 28 December 2008

Happy Islamic New Year (1st Muharram-1430 Hijrah)

I wish all Muslim readers, a very happy, prosperous and peaceful Islamic New Year (1st Muharram 1430 Hijrah).

Let's make self assessment and reflection (muhasabah) on past one year we lived through in order to improve ourselves in the coming years. Tomorrow should be better than today and next year should be better than this year...continuous improvement is required on all Muslims.

Let's live on the true spirit of Hijrah and Jihad....

The 1st Muharram 1430 (known as Maal Hijrah/Awal Muharram in Malaysia) falls on 29 December 2008.

Peace to all...Salam!

Halal Banking Revolution goes from strength to strength - Islamic finance still active as the credit crunch deepens

The last month has seen a further deterioration in the UK economy, with a deepening recession, banking bail-outs and big-name retailers going bust. However, one sector of the market still active is Islamic Finance which is now both cheaper and more accessible. Most recently, alburaq, the UK's most innovative Islamic 'mortgage' provider, has responded to interest-rate cuts by improving its range of Shari'ah-compliant Home Purchase Plans.

'Our new product range means our new customers now have products priced from the equivalent of 5.49% on their home finance,' explains Keith Leach, Head of alburaq. He continues: 'The new year could bring even lower rates for our customers. If rates continue to fall as predicted, from March 09 many of our customers could be paying a rate equivalent to 4.5% or less.

In addition to the improving prices, there are plenty of other advantages for those choosing alburaq's Islamic alternative. Recently, banks have been criticised for varying margins; imposing collar rates and reducing the range of mortgage products they offer.

'Collar rates' have made the headlines recently as many mortgage holders have discovered to their cost that their mortgage payments will not fall inline with the general drop in rates.

alburaq works very differently, as Leach explains: 'When applying for a mortgage, the public would be well-advised to study carefully what margin will be applied, for how long it is guaranteed and whether there is a ‘collar' rate. One of the distinguishing features of our products is that we fix our margins so these are clearly known from the outset and we don't have a ‘collar' on our rates. In addition, we don't tie-in our customers for when we offer incentives, like fees assisted or cashback offers. We also allow unlimited overpayments, which isn't always available with other Islamic or conventional mortgages.'

Leach continues: 'Unlike many of the UK banks, we continue to offer a full range of products and we are still offering buy-to-let finance - which has almost disappeared from the conventional market.'

Full details and terms for alburaq's Shari'ah-compliant products are available by visiting or by calling (freephone) 0800 587 88 66.

About alburaq

alburaq is the UK's most innovative provider of Shari'ah-compliant Islamic Home Finance, and has launched a wide range of products for the Halaal Mortgage market.

Alburaq is a brand name belonging to ABC International Bank plc (a subsidiary of the Arab Banking Corporation), a major Middle-Eastern banking group in which government agencies of Kuwait, Abu Dhabi and Libya have significant share-holdings. ABC was founded in 1980, and is headquartered in Manama, Bahrain. The Group has a well-established international network including offices in Paris, Milan, Frankfurt, London and of course the Arab world. ABC Group is one of the largest banks in the Arab world, with assets totalling approximately US$33 Billion (December 2007).

Islamic banking is a faith-based system of financial management, which derives its principles from the Shari'ah - Islamic ethics derived from three sources:

• The Holy Qur'an
• The Hadith (sayings of the Prophet Muhammad) and
• The Sunnah (practices and traditions of the Prophet Muhammad)

For Muslims, giving or receiving interest (known as 'Riba' in Arabic), is strictly forbidden. All of alburaq's products are free of from Riba, and operate in accordance with Shari'ah principles. Prior to launch, all alburaq products are reviewed by a Shari'ah Supervisory Committee (SSC), composed of respected Islamic scholars. Products are only launched once their structure and associated contracts have been approved by the SSC.
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Saturday, 27 December 2008

Bank Of Tokyo-Mitsubishi UFJ (Malaysia) To Promote Islamic Finance

KUALA LUMPUR, Dec 26 (Bernama) -- Bank of Tokyo-Mitsubishi UFJ (Malaysia) Bhd (BTMU) has embarked on an initiative to take a leadership role in promoting Islamic financing to its clientele across the globe.

It aims to not only attract such transactions to Malaysia but also to pro-actively participate in the transactions originating from the Middle East and other region.

In a statement here Friday, the bank said the move follows the introduction of the Malaysian International Islamic Financial Centre (MIFC), and in support of Bank Negara Malaysia's initiative to enhance Malaysia's position as a centre of origination, distribution and trading of Islamic financial instruments.

"In line with our aim to be the first Japanese bank to aggressively promote Islamic finance, our initiative is supported fully by the Bank of Tokyo-Mitsubishi UFJ Ltd, and the parent bank and head office in Tokyo has also established a high-level standing committee to promote Islamic banking and further support all Islamic financing activities of the group," the bank said.

In February 2008, the bank received BNM's approval to set up the International Currency Business Unit (ICBU) within Bank of Tokyo-Mitsubishi UFJ Malaysia.

It then established the Islamic Banking Department in April 2008, followed by the historic appointment of Shariah Committee by a Japanese bank.

BTMU said with the continued growth of importance and acceptance of Islamic finance it wanted to encourage more of this business to originate from Malaysia.

"It is said that there is approximately US$700 to US$1,000 billion of funds within the Islamic finance system, growing at around 10 to 15 percent annually.

In the Gulf and Asia, Standard & Poor estimates that 20 per cent of banking customers would now spontaneously choose an Islamic financial product over a conventional one with a similar risk-return profile," BTMU said.

The Islamic financial market's growth in importance has also attracted some of the largest capital markets in the world such as London and Singapore to develop financial services and products to capture this market.

In addition, ambitious plans have been announced to make London the western capital of Islamic finance as the government announced tax relief for sukuk in March 2007.

Other financial centres such as Hong Kong has also joined the bandwagon.

The bank said Malaysia has progressed significantly in the development of Islamic financial services, especially in terms of the size of investments and an increase in the number of Islamic financial institutions.

In meeting the needs of the growing Islamic financial services, BTMU has taken the leadership role in attracting deals to Malaysia and actively participating in the Islamic financing transactions originating from the Middle East and other regions.

Towards this, it established the ICBU which can play an active role both as a booking office and as an arranger for Islamic financing activities.

The bank's ICBU will facilitate the potential participation of the bank in large deals originating from various parts of the world.

With the increasing number of players from Malaysia, the MIFC (Malaysia International Islamic Financial Centre) will attract more banks to set up their respective hub in Malaysia not only to enjoy the incentives provided but also to participate in the ever-increasing size of the Islamic financing opportunities.

The bank's financial products, vetted for its documentation and implementation by the Shariah committee, will be at par with all global Islamic financing products.

Among the reasons for the BTMU's move to embark on Islamic financing business include the huge opportunities in the sector, especially funds originating from the Middle East, and the vast opportunities emerging in Malaysia's new regional growth corridors.

Thursday, 25 December 2008

Islamic banks 'largely insulated' from financial crisis

ISLAMIC banks have largely dodged the financial crisis, thanks to their low exposure to toxic assets like sub-prime loans, and may rebound faster than other sectors once the global outlook strengthens.

That is the view of two key players in the sector here, who both see strong growth ahead.

Mr Vince Cook, chief executive of The Islamic Bank of Asia (IB Asia), a Singapore-based unit of DBS Group Holdings, told The Straits Times: 'While we're not immune...we're also not seeing any of the Islamic banks having the problems you're seeing at some of the bigger investment or conventional banks.

'So I think the recovery may come quicker for Islamic banks.'

Mr Syed Abdul Aziz Syed Kechik, chief executive of OCBC Al-Amin Bank, agreed: 'Islamic banks may bounce back faster once the global outlook strengthens as they are ultimately designed to safeguard themselves from over-exposure to risks associated with excessive leveraging and imprudent risk-taking.'

Mr Cook said IB Asia has also avoided the flagging property sector in Gulf states like Dubai, unlike some other Islamic banks.

'We're in a fortunate position where we're still young enough not to have entered into that particular piece of the market,' he said.

IB Asia was launched last May to help DBS tap into capital flows and investments between the Middle East and Asia - two regions which Mr Cook believes will remain the fastest growing regions despite the ongoing crisis.

OCBC Al-Amin Bank started as a full-fledged Islamic bank in Malaysia on Dec 1 after operating under OCBC's Malaysian subsidiary for the past 13 years.

Islamic banking, which follows syariah or Islamic law, forbids payment of interest, speculation or investment in businesses such as gambling and alcohol.

The ban on interest earnings and the lack of Islamic structured products shielded such banks from assets like the sub-prime loans that have caused such havoc at many conventional banks.

'We expect the international economic environment to remain challenging in 2009, even for Islamic banking,' said Mr Abdul Aziz.

'Still, it is noteworthy that Islamic finance continued to demonstrate its evolution and strong growth over 2008 as most banks had significantly lower or no exposure to toxic assets (like) sub-prime loans.'

Mr Cook echoed the point: 'The Islamic sector was not caught directly by sub-prime; the principals of syariah would not have allowed us to participate in that type of product.'

He also feels that the man in the street might take a fresh look at Islamic banking after the woes encountered at conventional banks.

He said IB Asia is considering introducing simpler syariah-compliant structured products that will differ from conventional ones.

'But we want to wait till the dust settles from the fallout from the conventional side before launching anything,' said Mr Cook.

He added that IB Asia could offer syariah-compliant products for heartlanders through POSB, another DBS vehicle.

'I can think of no technical impediment; but we definitely have received enquiries and there is a level of interest.'

Mr Cook said IB Asia could extend its reach to markets such as Hong Kong, Taiwan and even China, without making additional investment thanks to the reach of DBS' Asian franchise.

'There are a couple of things in the wealth management and consumer finance side which we can do jointly with DBS and in a number of countries as well,' he said.

OCBC is also looking to enhance its Islamic banking presence beyond Malaysia and Singapore.

'While most of OCBC's existing engagement within the region has centred on conventional banking, many customers have shown keen interest to explore opportunities in Islamic banking,' said Mr Abdul Aziz.

'With OCBC Al-Amin Bank, we will continue to enhance our position in the market through the promotion of various Islamic finance products....We are also looking at widening our product range through innovations, especially in the area of treasury and structured products.'
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Islamic banking to be a $4 trillion industry

DOHA: Islamic banking is tipped to be a $4tr global phenomenon over the next five years, says an in-house magazine of the Qatar Islamic Bank (QIB) quoting the international ratings agency Standard & Poor’s. In its maiden issue entitled ‘Al Masraf’ (which QIB is known as in Arabic), the periodical said Islamic banking is a worldwide phenomenon spread across over 75 Muslim and non-Muslim countries.
A growing number of international financial centres are beginning to offer Shariah-compliant financial products and services, including London and Singapore.
The GCC region has taken a lead in global Islamic banking. The Qatari government, especially, is a strong supporter of Shariah-based finance, Islamic banking, which is regulated by the Qatar Central Bank (QCB), the country’s banking regulatory authority.
The worldwide Muslim population of 1.5 billion will continue to fuel global demand for Islamic banking services and products. It has been over three decades since Islamic banks first appeared as active players, and today Islamic banking and finance has become a force to reckon with.
Sukuk, or Islamic bonds, is one of the fastest growing segments of Islamic banking along with mutual funds. Qatar was one of the first Islamic countries to issue an international sukuk in 2003.
Today, the global sukuk market stands at a staggering $82bn. The International Monetary Fund (IMF) estimates the market to reach $150bn over the next three years. The ever-increasing demand for financing infrastructure development and other mega projects in the private sector will continue to be major driver of demand for sukuk.
The Islamic asset and wealth management market, which includes mutual funds, has also shown significant growth. This is especially so following the development of innovative Islamic investment fund structures, which today comprise around 250 Shariah-compliant mutual funds with an estimated $300bn in assets.
Another notable achievement in Islamic banking has been the establishment of benchmark indices, such as the Dow Jones Islamic market index which covers more than $10 trillion in market capitalization in around 40 countries.

(The Peninsula)

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France: crisis widens appeal of Islamic finance

PARIS (AP) — France is becoming the latest country to woo Islamic banks, which avoided much of the damage from the subprime mortgage crisis by following strict principles laid out in the Quran — as the global financial crisis broadens the appeal of Islamic finance.
French Finance Minister Christine Lagarde has promised to make adjustments to the regulatory and legal arsenal to enable Paris to become a major marketplace in Islamic finance.
At a recent forum in Paris, she said Western financiers could learn a thing or two from the Islamic world as global leaders try to establish "new principles for the international financial system, based on transparency, responsibility and, I would like to add, moderation."
"In this sense, Islamic finance is calling out to us," she said.
Finance that complies with Shariah, or Islamic law, accounts for around $700 billion of assets and is growing at 10 to 30 percent a year, according to Moody's Investors Service.
That's grabbing the attention of governments eager to oil their liquidity-strapped economies with money and deposits from the Islamic world. Islamic finance is concentrated in the Persian Gulf and Muslim parts of Asia such as Indonesia and Malaysia but is spreading into North Africa and Europe.
Islamic banking does not have the scale to replace Western-style finance, but in these cash-strapped times it is seen as offering another alternative for raising money.
London has attracted the largest pool of Shariah-compliant assets in the West and desire to compete with Britain's ailing financial center is motivating Paris to get in on the act. The country has some 5 million Muslims, but does not offer Islamic-based retail banking, and the country's secular traditions may present an obstacle to a French version of the Islamic Bank of Britain.
Moody's ratings agency noted in a November report that Islamic financiers will need to quell fears that France's official religious neutrality could be put at risk.
But more people are seeing business reasons to attract Islamic funds. A report by economics professors Olivier Pastre and Elyes Jouini claims that France could attract up to euro100 billion ($136.9 billion) from Islamic financial institutions.
"We want to make sure that Paris is in a position to be able to welcome this money to finance the French economy," said Gilles Saint Marc, a Paris-based lawyer who is advising an Islamic institution which plans to make a formal application to start investment banking activities in France.
Anouar Hassoune, a senior credit officer at Moody's France and co-author of the book 'Islamic Finance a la francaise," said that Islamic institutions could initially focus on investing in property and Shariah-compliant businesses, and within three to five years they might also offer retail services. He mentioned Kuwait Finance House and Al-Baraka Islamic Bank as possibilities.
A November report by Moody's shows that Islamic banks have been fairly resilient. No Islamic financial institution has acknowledged investing in Bernard Madoff's $50 billion Ponzi scheme, and Saleh Al Tayar, Secretary General of the Franco-Arab Chamber of Commerce, said the $4.9 billion hit taken by Societe Generale SA from what it calls unauthorized trading by Jerome Kerviel couldn't have happened in an Islamic institution.
"If global banking practices were based on Islamic practices then we wouldn't be seeing the kind of crisis we are living through now," he said.
Islamic financial institutions work on a philosophy of prohibiting transactions considered immoral and promoting greater social justice by sharing risk and reward. Investing in casinos, pornography, arm dealers or anything to do with pork is out: long-term investments in projects considered to benefit society are in.
Interest payments, short selling and contracts considered excessively risky are also prohibited. That rules out some of the products that got Western finance into so much trouble such as subprime mortgages, collateralized debt obligations or credit default swaps.
Muslim scholars versed also in the arcane rules of finance have approved instruments that parallel many non-Islamic financial products from loans to insurance to bonds.
Sukuks are the equivalent of bonds, but instead of selling a debt, the issuer sells a portion of an asset which the buyer is allowed to rent.
"Islamic finance does demonstrate good banking behavior that has been perhaps lost over the last 10 years or so," said Neil Miller, head of Islamic finance at Norton Rose and an adviser to the British government.
"Islamic banking is saying we are close to our clients and we're only going to do genuine transactions where we can see the asset, we understand the asset, we can make an assessment of that asset: whether it's financing a ship or an aircraft they will go and have a look at the business. It's giving guidance as to what banking should be."
Hassoune says that conventional banks can be as ethical as an Islamic bank but competition and shareholder demands have encouraged excessive risk taking.
"I don't think conventional banks are dirty, bad, money obsessed," he said. But "they are pushed to make unreasonable profits."

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Wednesday, 24 December 2008

GlobalPro Consulting to organise The Global Sukuk Conference (GSC2009) in January '09

The Global Sukuk Conference 2009 will be held on 19-20 January 2009 at the Grand Millennium Hotel Kuala Lumpur, Malaysia.

Organised by GlobalPro Consulting, this 2-day conference has been specifically designed to explore the opportunities, latest trends and developments, providing an in-depth concept and practical aspects of sukuk (Islamic bond) and other Islamic investment banking services.

Major players such as corporate bankers, treasury, investment bankers, fund managers, financial controllers and individuals will learn from prominent speakers with different wide spectrum of expertise. This conference will definitely give benefit and enhance understanding and insight to the delegates of the distinct features of sukuk and investment banking.

Topics to be discussed include overview on sukuk, shariah principles on sukuk, sukuk: towards viable secondary market, Islamic investment banking: new producr development and innovation, Islamic investment banking: challenges and opportunities, sukuk credit ratings and legal framework of sukuk and some current issues.

The conference will feature a panel of distinguished local and international speakers, moderators and panelists ranging from top industry leaders, regulators to renowned scholars.

Some of the speakers include Mr Zairulnizad Shahrim (Associate Director, Islamic Markets, AmInvestment Bank Berhad), Mr Mohamed Ariff Tun Dr Ismail (Vice President, Aseambankers), Mr Alhami Mohd Abdan (Head, Islamic Finance, Investment Banking, OCBC Bank Malaysia Berhad) and Mr Mohamad Illiayas Seyed Ibrahim (Senior Partner, Illiayas (Advocates & Solicitors).

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Tuesday, 23 December 2008

Shariah compliant green fund launched

An environmental and Shariah-compliant fund has been launched by Da Vinci Invest of Zurich Green. Known as the Falcon Fund, it will invest in the carbon markets and forestry.

The carbon markets are steadily growing and are characterised by recurring inefficiencies, enabling a range of arbitrage strategies.

The fund will work closely with advisors to use halal (permissible under Islamic laws) trading strategies. It will concentrate on the more vanilla structures and strategies.

The fund will actively trade the carbon markets on a short-term basis and invest in forestry for the long term. Da Vinci Invest expects this strategy provide consistent value growth, diversification and an environmental benefit. Rainforest Invest, Forest Finance and Miller Forest will source opportunities in Panama, Costa Rica and Paraguay.

Only land formerly used for agricultural will be planted. No rainforest will be cut to farm the plantations. The Da Vinci Green Falcon Fund will charge a 2% management fee and a 20% incentive fee.

Da Vinci Invest, incorporated in 2004 as a UK company, is based in Zug. Da Vinci Invest's multi-strategy platform includes Volatility Arbitrage, long/short gamma strategies, gamma scalping and automated arbitrage trading. The portfolio is primarily delta neutral and hedged against rising or falling markets.

Da Vinci Invest employs different trading strategies to benefit from various forms of anomalies in the volatility of several underlying products. Spread trading accounts for 70% of our trading strategy (pairs trading and volatility spreads where the implied volatility of an option is inconsistent with its historical volatility or recent implied volatility). Its proprietary statistical models and automated trading robots monitor global markets and exploit situations where unexpected events push derivative prices unreasonably high or low.

(Hedge fund Review)

towards excellence>>

Takaful in the USA and the crazy lawsuit

Have you heard about crazy lawsuits in the US for example:

Sued after getting stuck on the house he was robbing

In October 1998, A Terrence Dickson of Bristol Pennsylvania was exiting a house he finished robbing by way of the garage. He was not able to get the garage door to go up, because the automatic door opener was malfunctioning. He couldn't re- enter the house because the door connecting the house and garage locked when he pulled it shut. The family was on vacation, so Mr. Dickson found himself locked in the garage for eight days. He subsisted on a case of Pepsi he found, and a large bag of dry dog food. This upset Mr. Dickson, so he sued the homeowner's insurance claiming the situation caused him undue mental anguish. The jury agreed to the tune of half a million dollars and change.

10 years later we hear about this equally crazy lawsuit (the story below is extracted from FoxNews):

The U.S. government's bailout of the American International Group is helping promote Shariah law, a lawsuit filed in federal court in Michigan alleges.
The suit — brought with the support of the Thomas More Law Center, a non-profit law firm that promotes conservative Christian values — claims that making U.S. taxpayers comply with Shariah, the Islamic legal framework based on the Koran, is unconstitutional.
This month, AIG announced that it would offer Shariah-compliant homeowner insurance policies, known as takaful, to U.S. customers through one of its subsidiaries. To be Shariah compliant, companies cannot earn interest and must agree to send a percentage of their revenue to Islamic charitable groups.
The lawsuit — by Iraq war veteran Kevin Murray, on behalf of U.S. taxpayers, against Treasury Secretary Henry Paulson and the Federal Reserve — claims that by subsidizing AIG, the federal government is conveying "...a message of endorsement and promotion of Shariah-based Islam ... and [a] message of disfavor of and hostility toward Christianity and Judaism."
In September, the U.S. Treasury and Federal Reserve took a nearly 80-percent stake in AIG when it injected $150 billion to help prop up the troubled company.

"The suit is aimed at persuading the U.S. government it is unconstitutional to engage in the promotion of a faith," Frank Gaffney of the Center for Security Policy told FOX News. "In this case, Islam, and its practices, which include among many other things, Shariah."
While takaful insurance is more common in Europe and Southeast Asia, it is relatively unknown in the U.S. The Ernst and Young professional services firm earlier this year called takaful insurance a growth industry, in part because it is perceived as more stable than conventional insurance, which allows for elements of speculation, interest and gambling.
Gaffney, who opposes Shariah, said the federal lawsuit sheds light on a problem that is under the radar. "There's also a host of other aspects of Shariah that are now beginning to be adopted or accommodated in our country. We think far from being frivolous or innocuous or innocent, these represent a form of, what I think [is] best described as stealth Jihad."
A constitutional law expert who reviewed the court documents for FOX News said he questioned whether the case will ever get to trial.
"The plaintiff is going to have a very hard time in showing they have standing under the establishment clause," said Robert Tuttle, who specializes in religion, law and the establishment clause of the Constitution at George Washington University. The establishment clause, part of the First Amendment, prohibits the establishment of a national faith.
"The question is whether the government has funded religion, not whether the religion is good or bad that the government has funded. Then the next question is whether the government is responsible for what AIG has done."
While the case raises interesting legal questions about the use of federal bailout money, Tuttle adds: "I can't imagine any court saying, under existing law, that the government will be responsible for what AIG does. And I think there's an interesting law professor question there."
Neither AIG nor the Treasury Department would comment on pending litigation, though a spokesman for AIG told FOX News that takaful insurance has been available in non-U.S. markets since 2006, and AIG has never had any problems.

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Germany: Fertile Grounds for Islamic Banking

The German economy is considered the strongest in the Eurozone [15-country bloc that uses the Euro currency] and the level of German exports surpassed China for the fifth year running in 2007, achieving a record export of €969 billion. Its imports amounted to €770 billion, giving Germany a trade surplus of €198 billion. According to the German Foreign Ministry, the Eurozone is Germany’s number one economic partner, and Eurozone imports and exports constitute two-thirds of German trade figures.
Germany managed to acquire this position thanks to its geographical location at the heart of Europe allowing it to attract international companies. Berlin was awarded the title of ‘City of the Future’ in 2006/07 by the fDi [Foreign Direct Investment] magazine affiliated to the Financial Times Group. The award is given annually to the European region or city that offers the best opportunities for foreign investment. Germany is also renowned for the number of its scientific research centres that encourage creativity and innovation. Companies with distinctive brand-names such as Daimler-Benz, BMW, and Siemens invest €250 million into scientific research and development on an annual basis. Due to this cooperation between economic activity and scientific research, Berlin ranked second in the European Innovation Index. The city is also renowned for its social stability and rule of law.
According to the 2007 census, the number of Muslims in Germany amounts to 3.4 million, and constitutes 4.1% of the German population of 82 million. This makes Islam the second largest religion in Germany, after Christianity, and Germany has recently demonstrated its responsiveness to the Islamic faith with an average of one man and one woman converting to Islam per week.
Germany went down in Islamic banking history as the first European country to issue sovereign Sukuk when in 2004 the German federal state of Saxony-Anhalt issued Islamic Sukuk worth €100 million. Islamic financial services had begun even before that in Germany with Commerzbank launching the Al Saqur investment fund targeting the Gulf region. However, this fund was later closed after its assets declined from an initial €40 million in 2000 to just €4 million in 2005. The largest private bank still active in this area is Deutsche Bank, which offers five Shariah-compliant mutual funds in Dubai, although they are not German-market orientated.
In addition to this, some insurance companies also offer Islamic Takaful insurance services outside of Germany. The Hannover Re Group is considered the first European insurance company to offer full Takaful insurance to Islamic Takaful insurance companies. Therefore, we can see that all the Islamic financial services offered by German financial companies target foreign markets, especially the Gulf States and Malaysia. This leaves the Muslim community in Germany, which owns a high capacity of savings, lacking Islamic financial institutions offering services like Islamic banking and Islamic insurance.
Due to Germany’s geographical location and its economic potential, Islamic financial institutions, which will develop in Germany without doubt, will serve both the German Muslim community, as well as the Muslim community of the entire Eurozone, the population of which is estimated at 18 million.
As a result of the global financial crisis, perhaps the world has become more open-minded towards an Islamic financial system.
Perhaps now is the time for Islamic financial institutions and Muslim investors to make their move.

(Asharq Alawsat)
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Monday, 22 December 2008

Islamic banks unscathed by global crisis: Al-Aboodi

JEDDAH: Islamic banks are the least affected by the current global financial crisis triggered by subprime tsunami in the United States, the CEO & general manager of Islamic Corporation for the Development of the Private Sector (ICD) said.

In an exclusive interview with Arab News, Khaled Al-Aboodi said, “Islamic banks are Shariah-compliant and Shariah does not allow them to invest in subprime products as compared to conventional banks.”

Al-Aboodi, who began his career with the Saudi Ministry of Economy and Finance in 1982, became ICD chief in 2007. Talking about the recent banking crisis, he said you must have seen that most conventional banks worldwide were in trouble because they don’t deal with Shariah products. “Islamic banks are very strict in their policies which are monitored closely by Shariah boards at various stages,” Al-Aboodi said.

He said ICD is in the process of setting up an asset management firm in the Kingdom, which will be named Ewaan Capital and will deal with Shariah-compliant mortgage financing. ICD has applied for a license from the Capital Market Authority (CMA) and already had initial discussions with the Saudi Arabian Monetary Agency (SAMA), the Kingdom’s central bank.

ICD, an Islamic Development Bank (IDB) affiliate, applies Islamic modes of financing in operations that include installment sales, leasing, Mudaraba, Murabaha and equity participation, Al-Aboodi said. The authorized capital of ICD is $1 billion. ICD’s shareholders are the IDB (50 percent), Islamic member countries (30 percent) and five financial institutions from member countries (20 percent).

He said the mandate of ICD is to support economic development of its 48 member countries through provision of finance to projects promoting private sector as a vehicle for economic growth and prosperity. The projects financed by ICD are selected on the basis of their contribution to economic development taking into account factors such as creation of employment opportunities and contribution to exports.

ICD also accepts co-financing for its projects and advises governments and private sector groups on policies to encourage the establishment, expansion and modernization of private enterprises, development of capital markets, improvement in management practices and for enhancing the role of market economy, he added.

In 2007-08, the market for ICD evolved further and investment diversified into new markets. Bangladesh became a new member of the ICD as a beneficiary country and financing of projects in the country increased from $5.3 million to $6 million.

Despite global economic slowdown and negative impact of a tightening financial market, ICD achieved its targets. Al-Aboodi said this year ICD approved $340 million in financing which is a 6 percent increase compared to last year. Since its founding in 2001, ICD has approved projects worth $1.2 billion, he said.

“The global financial crisis is creating some kind of uncertainty but we will try to meet demands from the private sector and we expect same growth next year,” he added. “So far none of ICD projects is affected by the global crisis,” Al-Aboodi said after visiting various countries and taking the first hand information of the ongoing ICD projects. Al-Aboodi recently visited Azerbaijan, Kazakhstan, Uzbekistan, Russia, Turkey and Bosnia where ICD has financed private sector projects. In Azerbaijan, ICD has established Caspian International Investment Company (CIIC), which has started operations after reaching the projected capital of $70 million.

He added, “The first Islamic investment company was set up after identifying investment opportunities offered by the developing Azerbaijan economy - the fastest growing economy in the world.” Al-Aboodi, who also participated in “”, the first international investment forum, held in Astana, Kazakhstan, in October, signed memorandums of understanding (MoUs) with Kazagro national holding company and Food and Agriculture Organization (FAO) to explore Kazakhstan’s agricultural potential and establish contacts with Kazakh entrepreneurs.

He said ICD also organized a half-day seminar in June for knowledge sharing and information dissemination among IDB member countries on the challenges and solutions for public-private participation (PPP) in the social sectors such as health, education and other related fields. ICD, which was recently admitted as an associate member to the Islamic Financial Services Board (IFSB), had signed a $12.5 million Ijara (lease) agreement with Arab Malaysian Vegetable Oil Products Company Ltd., to set up the first palm oil-based vegetable oil refining and downstream processing plant in Yanbu. The project would produce cooking oil and have an annual production capacity of 90,000 metric tons. It will also produce non-hydrogenated downstream products such as vegetable ghee, fats, shortening and margarine. The project plans to export up to 90 percent of its production while the rest will be sold in the Saudi market.

He said ICD has a big presence in Africa also. It has signed a line of finance agreements with the Arab Bank for Economic Development in Africa (BADEA) to finance private sector projects in its African member countries. ICD has also been involved in charitable exercises for the last few years. Recently, ICD had given away 700 free school bags to the children of needy families and orphans in cooperation with Al-Irshad Charitable Society, Tripoli, Lebanon.

“This initiative came as ICD’s Solidarity Fund strategy to serve needy communities within IDB member countries by providing assistance in different fields and various ways,” Al-Aboodi added.

(Arab News)

Sunday, 21 December 2008

Italy's Muslims 'waiting' for Maltese Shariah-compliant banking

Italy's one million Muslims could be among the first customers of a Shariah-compliant finance structure in Malta as they wait for the island to give them the opportunity to invest, finance projects and create wealth, Malta Institute of Management chairman Reuben Buttigieg believes.
Mr Buttigieg says an Islamic finance structure for Italy is under discussion but there is a long way to go for the necessary legislative changes to be in place. One of the reasons, he points out, is the structure of the Berlusconi government.
"There are some 70,000 Arab holding companies in Italy and some one million Muslims," Mr Buttigieg says. "Companies seem to resort to banks in the Middle East to obtain Shariah-compliant finance. Malta is 90 kilometres away and an EU member. It would be much more efficient for them to use the available funds in Malta or to invest excessive cash here. Islamic finance in euro is also something that seems to be lacking, while it is available in sterling and dollar. There is substantial cost-saving on this aspect alone.
"If the government wants to attract a massive inflow of investment it should issue Sukuk (asset-backed trust certificates) itself, and then the entire Muslim world would be looking at Malta, particularly people in European countries with no investment opportunities. We are not the first in Europe, and that is positive because we can learn from others' experience. Being among the first is, however, crucial."
In late November, Mr Buttigieg relayed this message to the 100-odd participants at a second seminar on Islamic finance organised jointly by the MIM, the Malta Union of Bank Employees and the Malta Employers' Association.
The event aimed to dispel misconceptions on Islamic finance and to raise awareness among financial services professionals and lawyers who "need to do their homework if they want to attract business to Malta".
Islamic banking is the world's fastest growing sector in world finance. There are over 300 Islamic financial institutions in over 70 countries.
Mr Buttigieg, who is managing director of Erremme Business Advisors, insists the financial services and business community should be well prepared to face this challenge as soon as the government gives it the green light.
"There can be opportunities for both employers and employees in other industries if Islamic finance is introduced in Malta," Mr Buttigieg points out. "The MEA recognised this from the start and is encouraging employers to investigate further. The association wants to ensure that it presents more and more opportunities to its members. From a social policy aspect, the MEA and the government will have to address certain issues. So the seminar is only a first step.
"The MEA recently organised a breakfast meeting on family-friendly measures, an issue at the heart of Islamic finance given its social principles. The same goes for the MUBE, whose members must have the necessary training. The MIM views Islamic finance as an opportunity for professional managers who want to steer their firms into this lucrative market."
Europe's experience with Islamic finance has been positive so far, both in the UK and also in a region in Germany, and Mr Buttigieg believes Malta, through its financial regime structure and strategic location, can also target North African markets, and Libya in particular.
Libya's financial sector is less robust than Malta's - Mr Buttigieg points out that Muslims there have no opportunity to use their money in a Shariah-compliant manner. Many North African countries are in the same situation.
In Malta, the members of the 3,000-strong Muslim community who use our retail banks have to donate any income they derive as it would be considered usury and not Shariah-compliant.
Overseas, HSBC has an Islamic 'window', HSBC Ammanah. Malta's banks may set up similar operations, but Malta could lure European and Middle Eastern banks to operate here.
Tax planning opportunities also await. Mr Buttigieg says they would differ from country to country and according to the type of operation.
"There are various structures that could be used in Islamic finance which depend very much on the product," he explains. "Today there are Islamic finance institutions that are setting up in the Cayman Islands to try to tap into Libya and benefit from the tax legislation.
"Malta can offer that advantage too, with even more added value to it. Our legislation on trusts is also a tool we can use with respect to Islamic finance structures. However, it depends on the jurisdiction we are addressing. It is also an opportunity for our government to enter into more double taxation agreements with Arab countries."
Islamic finance has sailed through the economic crisis as ethical operations and the underlying assets behind all Islamic finance transactions means the structure is more resistant.
"It does not mean Islamic finance institutions will not be affected by a recession," Mr Buttigieg warns. "In a recession, even underlying assets will be affected. For example, if property prices continue to fall, then Islamic funds investing in property will be affected too."
This resistance has made Islamic finance more attractive to non-Muslims, especially in the UK. Maltese customers could use Islamic finance.
Mr Buttigieg explains: "The fundamentals of the main religions in the world are similar. Most religions are against usury, for example, and there are other social issues. Certain structures in Islamic finance are not new to Malta.
"The foundation of APS Bank is similar to what is called a 'donation contract' in Takaful (Islamic insurance). Islamic finance is a different system of doing finance. It focuses on ethics, on avoiding uncertainty and investing according to specific rules."
Realistically, how far is Malta from introducing fully-fledged Islamic banking and finance, insurance, and bonds?
"If Malta wants to head that way, we could have the three main branches of Islamic finance in the span of a year," Mr Buttigieg replies.
"There obviously needs to be the will and the political commitment. The good news is that the two political parties have expressed themselves in favour of enabling Islamic finance. Finance Minister Tonio Fenech has also spoken positively about the issue.
"The Malta Financial Services Authority has issued the first consultation document to which the industry has given its feedback.
"It is expected that two other consultation documents will be issued next year regarding Takaful and Sukuk. After that, it very much depends on the MFSA and government to ensure we do not miss this golden boat."
(Times of Malta)
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The coming of age of Islamic structured products in Malaysia

Malaysia’s structured products market is benefiting from the development of a liquid Islamic capital market.

Islamic finance is coming of age. Today, for the first time, Islamic structurers in Malaysia and the Middle East are starting to create new financial products and infrastructure from scratch – developments that do not simply wrap their conventional counterparts in a Shar’iah structure but which are Islamic from start to finish.

Already this year, in its effort to develop a wholesale Islamic capital market, Malaysia’s Syariah Advisory Council has approved a Shar’iah-compliant commodity exchange and it has also given the go-ahead for securities borrowing and lending, which will support the creation and redemption of Islamic exchange-traded funds, or ETFs. The first Islamic ETF was launched in January this year.

A broad universe of Shar’iah-compliant underlyings is particularly significant for the structured products market, and most of all for equities structurers. Shar’iah-compliant underlyings often have no volatility market, which makes it difficult for providers to manage their risks, and they are typically illiquid, expensive and difficult to access.

Fixed-income structurers have an easier time of it. The increasing popularity of Islamic bonds has given them more to work with and, in fact, sukuk issuance is now starting to spread outside the Islamic world as borrowers learn to appreciate their value as a way to access new markets. A German state recently issued a sukuk and the UK is also considering one.

But the conventional structured products market in Asia is overwhelmingly dominated by equity and this is where the greatest development in Islamic products is focused.

It has taken a long time to get to this stage. Norfadelizan Abdul Rahman, the head of product development at Bursa Malaysia, describes the evolution of Islamic finance this way: adoption, conversion and, today, genuine architecture. “In the past, most Shar’iah product innovations were focused on adoptions – the study of conventional products and their Shar’iah justifications for use in the Islamic space,” he said at a recent forum on Shar’iah structured products in Kuala Lumpur.

The adoption phase led to the approval in Malaysia of warrants, crude palm oil futures and preference shares, starting in the mid-1990s. This process also allowed 85% of all companies listed on the stock exchange to be approved as Islamic stocks.

The next level of development involved taking conventional products that were not suitable under Shar’iah law and coming up with ways of converting or replicating them. Back in 1998, Islamic financiers created Shar’iah-compliant stock index futures and, more recently, Islamic real estate investment trusts and ETFs.

The global economic slowdown has affected Islamic markets as well, but Malaysian investors in general have not shared the bad experiences of structured product investors in Hong Kong and Singapore.

“Malaysia is protected in a sense, given the regulatory structure,” says Angeline Ong, head of structured products at Citi in Malaysia. “Malaysia has been sheltered from cases like the Lehman minibonds and so on – most of our products are quite conservative in nature and principal-protected by banks in Malaysia.”

However, some investors in equity and commodity products are expecting zero returns, so they are experiencing something of what the clients in Singapore and Hong Kong are going through, but to a much lesser extent.

Malaysian investors buy structured products in a variety of forms. Direct investment in derivatives-based products has only been allowed since 2005 and is still restricted to rich investors. The minimum investment size is either M$250,000 ($70,300) or M$100,000, though the lower figure is only for so-called qualified high-net-worth individuals.

“The first generation of Malaysian structured products will mature in the first half of next year, so it will be interesting to see the final performance of such products and how this will impact the market and investor sentiments,” says Aida Mastura, head of investor sales at Citi Malaysia.

Regular investors cannot buy structured products directly. Instead, they must buy them through structured deposits, which have a minimum investment amount of M$100,000, or through funds, which have been allowed to invest in structured products only since May 2006.

Structured deposits, which the securities commission prefers to call floating-rate negotiable instruments of deposit, are the biggest part of the market by far, making up about two-thirds of the total.

Risk sharing

Islamic structures are sometimes criticised as mere financial jiggery pokery – a clever dodge that lets Muslim investors achieve the exact same results as conventional investors. There are certainly some structures and products in the market that deserve such criticism, but Ahmad Chaudry, an Islamic finance specialist at Royal Bank of Scotland, argues that Islamic finance techniques can also offer very different solutions to conventional finance, which can appeal to Muslims and non-Muslims alike.

Islamic mortgages are a good example, he says. With a regular home loan, the would-be homeowner borrows money from a bank, invests it in a property and pays back the loan over time, plus interest. “The only circumstance under which the bank cares about the value of your property is if you default,” says Chaudry. “In Islamic finance, the bank buys the property with you – you share the risk.”

In this type of Islamic mortgage, the investor might buy 10% of the property, while the bank buys the rest. The investor reclaims equity stakes from the bank over time and also pays rent on the bank’s stake. Most important, the investor buys this equity at the prevailing market values, which means the bank is taking risk on changes in the value of the property over time. “This is something we don’t see in conventional finance,” says Chaudry. “The sharing of risk is something that is extremely central to Islamic finance.”

There are of course some contradictions that still vex conservative Islamic scholars and non-Muslim sceptics alike. If risk-sharing really is at the centre of Islamic finance, we might expect Islamic financial institutions to act more like venture capital firms than banks. But they do not – and for good (though not Islamic) reason. A banking system built on equity investing would be far too unstable, and so in practice, Islamic banks end up taking a very similar degree of risk as Western banks.

One of the key techniques to achieving this is the practice of benchmarking. In the mortgage Chaudry describes, for example, there is no Shar’iah-compliant way of determining the rent to be paid so it is simply benchmarked to interest rates, which is apparently acceptable to the Islamic scholars who sign off on these structures.

These sleights of hand are particularly important for creating halal equity structures because Shar’iah rules specify that the profit earned in a transaction must be agreed by both parties at the outset. This is clearly impossible in a product linked to the returns from an equity underlying, so Islamic structurers have come up with two techniques to solve the problem.

The first is an agreement known as a murabahah – or two agreements, to beaccurate. In a typical one-year trade, the first agreement runs for 364 days, in which the bank promises to pay back the investor’s money at par. Then, if the underlying index has appreciated during that time, the bank enters into a one-day agreement, promising to pay the investor the value of the index rise during those 364 days. This is the most common structure in Malaysian equity-linked products.

In the Middle East, Islamic structurers often rely on a form of benchmarking that is wrapped in an agreement called a wa’ad, whereby the bank promises to buy a portfolio of Shar’iah-compliant equities from the investor, plus a profit that is benchmarked to a conventional call option.

Even though these structures look very similar to their conventional cousins, they still present unique challenges for structurers. Shar’iah-compliant products are more expensive because there are more fees built into the structure – such as the cost of the extra legal work and the cost of getting scholarly sign-offs – and bid-offer spreads are much bigger on Shar’iah-compliant underlyings.

But one of the biggest problems is volatility. “You find with Islamic stocks that volatility is quite high, which means that to offer products with an Islamic underlying I need to be able to manage my risk,” says Chaudry. “But there is no volatility market.”

RBS’s solution is to manage the underlying at a fixed level of volatility by adjusting the exposure to it – for example, the investor is 100% exposed to the underlying when it is trading at the target volatility level and reduces his exposure when it is higher.

As the products and techniques on offer are becoming more sophisticated, so too are Malaysia’s investors, but, even so, the structured product market is still in its infancy. The country’s savings rate is 36% of its gross national product and even higher in the Islamic market.

“Islamic banks have too much cash and not enough assets to buy into,” says Lee Kok Kwan, head of treasury at CIMB. “There is always a lot of liquidity on the deposit side.”

This is one of the principal motivations for Malaysia to develop its Islamic capital market – to provide a way for all these deposits sitting in Islamic banks to find a productive use in the economy. The creation of new Islamic underlyings and a greater diversity of products should certainly help in that effort.

This story was first published in the November issue of FinanceAsia magazine.

Saturday, 20 December 2008

The future of Islamic finance after credit crunch

The current crisis provides Islamic finance with a rare opportunity to reinvent itself and to appeal not just to the 1.5 billion Muslims in the world but the rest of humanity too, which is suffering as a whole from the collapse of free market capitalism and for whom the pain is likely to intensify next year, as the effects of the financial crisis are fully felt in the real economy in the form of higher costs and fewer jobs.
Islamic finance needs to focus less on complying with each rule and more on reflecting the principles which underlie those rules so that transactions are no longer Sharia-compliant but are Sharia-based.
The AAOIFI statement on sukuk issued in February 2008 (which stated that purchase undertakings, where the exercise price was fixed at issuance, were not Sharia-compliant for sukuk based on musharaka, mudaraba and wakala structures) reflected the frustration of scholars at the manipulation of Sharia rules by clever bankers and lawyers wanting to create products that did not reflect the underlying principles of Islamic finance but that do fit into a model that is easily understood by conventional investors who thus far have tended to be the main investors in sukuk.
This may change as Islamic investors are attracted by the more predictable returns offered by sukuk in an attempt to diversify their asset pool from the more volatile property and equity markets.
In the current climate there seems to be a widespread revulsion against excessive speculation, the trading of risk and the payment of large bonuses for short term gains that are believed to have been amongst the causes of the current financial crisis.
If Islamic finance is seen in its true guise as a form of ethical financing, of interest to all rather than only as a faith-based activity of interest to the Muslim population, it is likely to find favour with a different type of conventional investor who would be potentially willing to consider different types of risk-reward stuctures.
The non-Islamic world's increasing interest in understanding Islamic finance is likely to continue as cash-strapped companies look to the Gulf as a possible source of funding and begin to explore Sharia-compliant structures for the first time.
Their governments are responding by following the UK model to create a level playing field through removing tax and regulatory obstacles.
Non-Muslim majority countries in Europe, such as the United Kingdom, France and Italy are ensuring that their legal systems create a level playing field for Sharia-compliant structures.
In Asia, Singapore and Hong Kong are vying to be the hub for Islamic finance, despite Malaysia's traditional dominance.
Even if the hoped for liquidity does not materialise for many of these companies and their advisers, their research into Islamic finance as a source of possible funding will be valuable in consolidating the position of Islamic finance as a form of finance available to all.
This process could help to realise the 'New Silk Road' of financial flows linking Asia and the Middle East that Dr Zeti Akhtar Aziz, Governor of Bank Negara Malaysia (the central bank), has discussed.
Tougher business conditions and a reduced deal flow next year will also give market participants an opportunity to respond to the demands of the market for increased harmonisation of Islamic principles, products, documentation and processes both markets and across markets.
This process has already started with the launch of the IIFM/ISDA Commodity Murabaha form and with the creation of working groups to consider how best to structure sukuk in order to address AAOIFI's concerns.
It is possible to argue that the market reaction to the AAOIFI statement on sukuk has demonstrated the importance of AAOIFI as an institution to the Islamic financial markets and so the need for a central decision making body is also being addressed in response to the current crisis.
The next year is likely to be a milestone in the development of Islamic finance since it will address its first global crisis and is likely to respond by consolidating its principles and procedures, developed in the very short time period that it has formed part of the global financial industry.
Islamic finance is a very young industry despite relying on principles established 1,400 years ago. It was only used in the West in the 1970s when Sharia-compliant trades were carried out on the London Metal Exchange.
The pace of innovation that Islamic finance has shown in the last four years demonstrates that it is a fast learner and that it is likely to respond to the challenges of 2009 by emerging as a stronger and larger part of the global finance industry.
l Farmida Bi, a partner at Norton Rose LLP, has specialised in capital markets transactions for over 15 years and has advised on English and New York law debt and equity capital markets transactions (including Islamic finance and securitisations), emerging markets, regulatory issues, structured finance and mergers and acquisitions.
She acts for a broad range of the leading financial institutions and for both sovereign and corporate issuers.
Farmida is an expert in Islamic capital markets and has advised the arrangers on a number of the leading transactions, including the Tamweel securitisation, recognised as the first Islamic true securitisation, and on the PCFC Sukuk issue to fund Dubai World's purchase of P&O. Farmida qualified as solicitor in 1992 and as a New York attorney in 1999.
Norton Rose LLP is an international legal practice with offices worldwide. Its Bahrain office was established in 1979 at the request of the Bahrain Monetary Agency - now called the Central Bank of Bahrain.
by Farmida Bi

(Gulf Weekly)
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