Shedding a little light on Islamic finance

The forum was organised by the US-Qatar Business Council and the Arab Bankers Association of North America, in collaboration with the National Council for US Arab Relations.

The event featured five distinguished scholars and experts in the field of Islamic finance — Prof Frank Vogel, a senior fellow and head of Muslim World Law and Islamic Finance, Institution Quraysh for Law and Policy and Umar Moghul, partner at Murtha Cullina LLP and co-chair of the firm’s Islamic Finance and Investments Group.

Yusuf Talal de Lorenzo, Chief Shariah Officer at Shariah Capital, Aamir Rehman, managing director at Fajr Capital Limited and Ibrahim Warde, adjunct professor of International Business at the Fletcher School of Law and Diplomacy, Tufts University, were the others.

The discussions were moderated by Jean-Francois Seznec, visiting associate professor at Georgetown University’s Centre for Contemporary Arab Studies.

Regarding the question of sukuk in the Gulf, De Lorenzo said ownership is an important issue for Shariah scholars to understand. “Ownership is always a sticky subject and it is not always a failure of the Shariah advisers when ownership and sukuk is questioned,” he said.

De Lorenzo said one clear lesson “is the need for more and more diligence on the business side.” Asked whether sukuk is a sound investment, he said there are serious Shariah issues that need to be addressed. He added that sukuk need to have a viable trading market.

“We need to confront these issues. Sukuk are hybrids, some look like equity, others like debt. They need to be traded and exchanged, and unless everyone understands the rules there will be a lot of confusion in the marketplace and people will leave,” he added.

“It’s a rules-based business; people need to understand that, whether they’re in Hong Kong or Chicago, and the way to do this is through an exchange of information,” he said.

“Many of the high profile sukuk defaults have taken place as the result of poor business decisions, not Shariah,” he stressed.

He said the problem was that the “press picks up on a sukuk default and then blames it on Shariah. We need to explain it better.”

He said a new generation of sukuk coming to the market also needs to be closely examined.

“My feeling is that the issuers need to be more transparent to investors, and feel the same way about Shariah boards. We need to be careful about managing perceptions,” he said.

Saying that the Islamic financial sector is promising, he added, “but there are obvious problems, and we have begun examining the problems through several organisations.”

GUINEA: Japanese institutions are readying to raise millions of dollars in Islamic financing with much of this activity centered in or out of Kuala Lumpur. Nomura made two forays into the Islamic market in July with sukuk and a murabaha facility. Nomura Holdings, Inc appointed Kuwait Finance House (Malaysia) as the mandated lead arranger for its debut $100 million Sukuk Al Ijara — a two-year first US dollar denominated issue by a Japanese corporation out of Malaysia. According to Malaysian banking sources, Sumitomo Corporation, plans to go one step further by issuing the first yen-denominated Shariah-compliant paper in Japan. The paper will not be a classical sukuk because Japanese regulations and tax laws do not facilitate the issuance of sukuk currently, but may mirror an asset-backed Islamic bond type structure.

Views expressed by the author are his own and do not reflect the newspaper’s policy.