Singapore Sets Up Islamic Investment

Wall Street Journal:Singapore moved a step closer to becoming an Islamic financial center as its central bank established a program to issue the first-ever Singapore-dollar-denominated sovereign sukuk.

The 200 million Singapore dollar (US$134.3 million) facility makes the Monetary Authority of Singapore the first central bank from a non-Muslim majority jurisdiction to create a local-currency sukuk issuance program.

The sukuk -- a Shariah-compliant equivalent of Singapore government securities -- is based on the concept of Ijarah, or the sale and leaseback of real-estate assets. This is the most widely used and accepted structure for sukuk issuance ...CONTINUNE READING

Malaysia sharia bank plans funds, sees demand

Reuters - Malaysian Islamic lender Asian Finance Bank will set up aviation and property funds with over 1.5 billion ringgit ($420 million), aiming to capitalise on demand for alternative assets amid the global financial crisis.

As financial markets skid under growing fears of a global recession, some Islamic banks are ploughing on with expansion and fund-raising plans, reflecting a belief that the industry is relatively resilient to the meltdown.

Asian Finance, which is backed by Middle Eastern shareholders, is planning a Gulf aviation fund which could be denominated in the euro or dirham currency, Asian Finance chief executive Mohamed Azahari Kamil said in an interview.It was too early to state the fund's size although it would probably be above 1 billion ringgit, he said, adding that the bank is working on the fund with some Gulf airport operators.

"Aviation has always been the growth sector, particularly in the GCC (Gulf Cooperation Council) because we believe there is a lot of potential in terms of transportation business," Azahari said."Because of the scarcity of liquidity, we need also to look at the possibility of doing a fund which is maybe non-US dollar denominated."Asian sharia banks are aggressively wooing Middle East investors who want their money to be invested according to Islamic principles.

Asian Finance had said on Thursday it would distribute a 1 billion ringgit Islamic fund aimed at allowing Gulf investors to invest in companies in the ASEAN region.
This follows a plan by the Singapore unit of Kuwait Finance House, Kuwait's largest lender by market value, to raise $600 million in Islamic funds next year to buy ships, stakes in private firms and properties in Asia.Azahari said Asian Finance is also working with two companies to create a 500 million ringgit fund to develop properties around Kuala Lumpur.The ringgit-denominated fund is expected to be launched in the first half of 2009, he said.

COMING STORM?

Azahari said he expected demand for Islamic products to hold up as the global financial crisis drives investors into the safe haven of Islamic banking.
"In this very difficult financial meltdown, the conventional system has shown to the public that it has failed," Azahari said."It has failed not only because of corporate governance or transparency but it has failed because of the structure where there is no equitable distribution of wealth between the bank and the customers."

The $1 trillion Islamic finance industry is widely seen as the banking world's conservative alternative, as it forbids speculative activity and excessive risk and demands that partners share the profits and losses of a venture.
But some industry experts have warned that Islamic banks would not escape the fallout hurting conventional markets because property and commodity prices are falling as global economic activity slows down.

Property and commodity underpin many Islamic deals due to the sharia's demand for all transactions to involve a specific asset to avoid purely speculative activity.
Several Islamic bond cancellations and poor earnings by some big Gulf banks have highlighted that the industry is not immune to the troubles in financial markets.
But Azahari was upbeat about prospects for the industry.

"We believe we are quite insulated because our strategy in Islamic banking has always been on the partnership concept, on the win-win situation for both the bank and its partners," he said."Islamic funding has always been about medium to long term so generally this is a cycle which everybody has to go through."

Qatar Islamic Bank and its associates have a 70 percent share in Asian Finance. RUSD Investment Bank Inc of Saudi Arabia has 20 percent and Global Investment House of Kuwait has 10 percent.

Gulf banks launch three Islamic investment firms

Reuters - Three Gulf Arab banks will launch a specialised bank to finance infrastructure projects, an agriculture firm and a hospitality fund as rapid growth in the Middle East and North Africa lures billions in new investment.
The consortium aims to set up three new Islamic financial institutions with total starting capital of $2.8 billion and authorisation to raise up to $10 billion to invest in roads, sewage treatment, farms, schools and the hospitality industry.

The ambitious plans, the latest in a string of multi-billion-dollar projects, come as a five-fold rise in oil prices since 2002 fuels breakneck growth in the energy exporting nations of the Gulf, Middle East and North Africa.

Project leader Gulf Finance House, the Bahraini Islamic investment bank, said it would launch a specialised investment bank called InfraCapital to tap an expected $545 billion in projects in the world's biggest oil-exporting region. "These are megasized projects with long gestation periods and it requires specialised institutions that can invest large amounts of capital and can syndicate and can manage complexity," Mehran Jamsheer, Gulf Finance House deputy chief executive, told Reuters by telephone Wednesday.

Bahrain's Ithmaar Bank and Abu Dhabi Investment House are equal shareholders in the venture, which will seek to raise $1.5 billion in equity capital through private placements with institutions and rich people.

The Gulf financial sector is widely viewed as too fragmented to handle the massive financing needs required by the rapidly growing region, with consolidation expected to accelerate or risk letting big Western banks win much of the business.
The Gulf consortium would also set up a $1 billion agricultural investment firm, authorised to raise up to $3 billion and focusing on food production, livestock and biofuels, and a $300 million hospitality fund authorised to raise up to $1 billion to invest in hotels and apartment complexes.

The three firms could have collective authorised capital of up to $10 billion, the companies said.The announcement comes one month after a Gulf consortium including Gulf Finance said it would set up a $5 billion steelmaking firm to meet soaring construction demand in the region.

Gulf Arab oil producers are putting the investment windfall revenues from rising oil prices into developing infrastructure, real estate and industry to diversify their economies away from a reliance on oil exports.
The size of the six Gulf economies, including Saudi Arabia and the United Arab Emirates, will surge past $1 trillion this year on high oil prices, a Reuters poll showed last month.

In May, Gulf Finance, which is also building energy operations in places like Libya, said it would start a $2 billion cement company.Islamic companies comply with sharia law which bans, among other things, the payment or receipt of interest.

Steady stream of investment from GCC

MALAYSIA is expected to continue attracting investors from the Gulf Cooperation Council (GCC) countries in the long term, according to SHAPE Financial Corp president and chief executive officer Abdulkader S. Thomas.

“Generally, there is a comfort level with Malaysia as a destination. People (Gulf investors) are hearing the right things from those who have been to Malaysia,” he told StarBiz.

“Broadly speaking, it is an attractive market and it will continue to be attractive to Gulf investors. This is not expected to change anytime soon.”

Kuwait-based Abdulkader cited Kuwait Finance House, Al-Rajhi Bank and Asian Finance Bank as examples of positive stories of “institutional transplant” from GCC countries, which consist of Saudi Arabia, Bahrain, Qatar, Kuwait, Oman and the United Arab Emirates, into Malaysia.

The country's robust Islamic capital markets (ICM) also serve as an attraction to Gulf investors as the markets in the GCC tend to be fragmented with a lack of integrated regulations and integrated understanding of syariah.

“If we go down the list of Gulf states, there has been a reluctance to embrace the Islamic markets as something that they need to have a proper plan for in terms of regulations, credentials and governance.

“Gulf regulators have realised that this is the largest growing financial sector under their regulation and they are looking for answers,” Abdulkader said.

He noted that the degree of fragmentation in the GCC market also meant that the GCC was reliant on at least one international/global bank being a participant of their distribution and underwriting syndicate.

“These banks are in trouble right now, under pressure from regulators to do less business, while some are capital impaired in a significant way.

“This will cause more Gulf issuers to look at underwriting, issuing and distributing with the help of Malaysian institutions. It is a huge opportunity right now,” he said.

Abdulkader – a consultant to the US and international financial community in matters relating to syariah compliant financial structuring – added that the types of errors made in the US subprime crisis was also causing many people to re-examine the Islamic proposition to see if it was a better option and this would help to drive some of the growth opportunities in the area.

Securities Commission project director (ICM Development Project) Wan Abdul Rahim Kamil Wan Mohamed Ali noted that an area to focus on was non-ringgit structures.

“We have a swap market where the ringgit is becoming more acceptable today and there is the availability of swap arrangements that do not make ringgit instruments inferior to non-ringgit ones.

“I believe there will be more funds coming in from the GCC along this angle,” he said.

In addition, Malaysia's integrated ICM, guided by a national syariah board, Securities Commission and Bank Negara, is conducive for product development.

“Things are actually invented in Malaysia and adopted in the Gulf,” Abdulkader said, adding that GCC countries were also employing the country's Islamic finance expertise.

Gulf investors are said to favour real estate, takaful, pension funds, exchange traded funds, Islamic real estate investment trusts, sukuks and hedge funds, among other things.

“It depends on the sophistication of the investors, but products should be developed according to the needs and wants of the market,” Abdulkader said.

For example, he sees securitised micro finance becoming an issue for some parts of Asia due to the large groups of people who are excluded from credit and the lack of an efficient means to refinance the funding.

“That will be an area that will be explored in the Islamic and conventional space,” he said.

On competition, Abdulkader said it was difficult to overtake Malaysia, which has educational resources, a large base of experienced people and a well-developed regulatory scheme.

“It has an installed knowledge base that is difficult to overcome in a short time.

“I think other sectors/markets are likely to be complementary or sector-oriented as opposed to comprehensively competitive.

“We are so small in the business that all everyone can do is grow the business for everyone else right now,” he said.

However, Abdulkader stressed that to remain competitive, Malaysia needed to continue to educate its human resources.

Wan Abdul Rahim noted that Malaysia had “come a long way” and established a framework to cater for all the needs in the ICM.

“The Capital Sector Masterplan will end soon and we have fulfilled all the conditions. We are looking at what else needs to be done.

“I think we are heading towards the direction of western markets which are more market driven rather than regulatory,” he said.

First Global to capture 50% of Islamic investments base in 2009

By Sachini Weerawadena

With the Global Sukuk (Islamic Bonds) Market expected to reach USD 200 billion by 2010, First Global Investments hopes to develop a fully fledged Islamic Bank and the first ever Sri Lankan Sukuk is expected to capture 50% of the Islamic Investments base in 2009.

First Global Investments is currently working to secure mandates to raise USD 300 Million through issuance of Sukuk.

“With the large amount of available liquidity in the Middle East as long as oil prices keep rising, there is immense growth potential” said Founder and Managing Director of First Global Investments, Mr. Ikram Thowfeek adding that the objective is to bring FDI in to Sri Lanka through Islamic Banking. “This fact has to be taken very seriously by the government and the regulators” he said.

The Managing Director explained that considering the current state of the world financial market the impact of petrol prices is huge and said “lets have another channel to bring money back – oil money can be brought back to Sri Lanka and it is open to everyone, not confined to a particular ethnic group or religious community but for the entire mankind”.

Mr. Thowfeek said “To ignore the will power to enter into this multi trillion dollar Islamic finance industry due to narrow minded thinking would be a mistake.”

Member of the Shariah Supervisory Board, Dr. Burhan Arbouna explained that Sukuk is a growing result of innovation of Islamic Banking, adding that in the Middle East “when they see they have lots of liquidity and no place to invest money in finance roots, the Sukuk is a tool created by Islamic Banking instruments based on assets to spread risk….for example, Bahrain has issued a number of Sukuks and the moment it is issued it is oversubscribed. In brief Sukuk is a liquidity management tool”.

Mr. Thowfeek while replying to a question raised, explained that the Sukuk to be issued will be up to Rs.1 Billion, open for review with a portfolio extending up to 3 years or 5 years, with returns of 18% to 20%. He further explained that building credibility is the key differentiation for any player providing Islamic financial services and commencing June 30, 2008 they hoped to raise capital up to USD 10 Million in two phases, USD 5 Million each.

First Global Investments Senior Vice President, Mr. Abdul Carder speaking at the Inaugural Investor Forum 2008 stated that First Global Investment is “purely to offer an alternative banking experience… according to Shariah Law”. “Momentum for Islamic Banking and finance is picking up in Sri Lanka and is estimated to be growing by 20% per annum.”

First Global Investments Chairman of the Shariah Board, Sheikh Esam Ishaq explained that Islamic banking is in accordance with the principles and feelings of Islam and said he was confident that “all will sooner rather than later witness alternatives of substantive rather than cosmetic differences of services, content and quality.”

He pointed out that it was “not confined to any culture, only encompassed day to day Islamic teachings and values in all of its facets” and added that these features would “fulfill and complement each other, the realm of finance was based on justice, mercy and kindness.”

Islamic Banking is largely untapped and “many are unaware of what it is about…growth potentials are enormous and opportunities are largely untapped due to lack of understanding” said Mr. Thowfeek. “The industry is growing, in the last 33 years only 20% of the market potential has been tapped in to – the entire 80% is open”, he said, adding that “unlike conventional banking, the entire transaction is looked at from moral and ethical boundaries to safeguard the very fabric of society – Islamic banks are not charitable institutions…”

Explaining why they had chosen the present time, Mr. Thowfeek explained that, “There can be ups and downs in any country, but we have to chip in to build – when has it been a good time for the last 15 years?” he questioned.

“All organizations are now picking up to have an arm of Islam banking……there is a demand and most conventional banks have been converted in the middle east” adding that “out of the top 10 global banks, 6 banks are involved to capitalize – for non-Muslims it makes commercial sense and the potential is very high.” He added that countries such as Thailand, London, Singapore, Hong Kong, India were all expanding Islamic finance institutions and therefore “no government, no regulator, no global or local financial institution can ignore the potential of Islamic banking”.

How To Make Money In The Middle East

You don't need a kingdom to invest like a sheik. The Arabian Peninsula may be known for its arid deserts, but it's also home to a fertile oasis of economic growth. The six Gulf Cooperation Council (GCC) countries-- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE)--channel their oil wealth into homeland economies and mammoth infrastructure projects. Grabbing a piece of regional trends in banking, construction and telecommunications could give your portfolio a boost.

How To Make Money In The Middle East

In the last five years, gross domestic product in GCC countries has risen an average of 7%, according to Koon Chow, senior emerging markets strategist at Barclays Capital in London. In 2008, GCC countries should post 6% growth--a modest slowdown but much better than estimated global growth rates of 3.7%, as measured by purchasing power parity.

Including GCC interests in your portfolio adds a protective layer of diversification. Economists say Middle Eastern economies are decoupling from the U.S. because so much of their growth is focused internally. That means they're protected from America's economic slowdown, since domestically focused industries won't be damaged by softness in U.S. demand. Meanwhile, oil revenues reinvested into local economies should help keep out Western credit-crisis woes.

Citigroup Middle East and Africa equity strategist Andrew Howell pegs the region's correlation to world markets at about 40%, which means the GCC is unlikely to follow U.S. equities' downward trend. Other emerging markets have a 90% correlation, making GCC investments a better bet.

Poorer but still fast-growing countries in the Middle East, like Egypt, are a valuable part of any region-wide investment strategy. T. Rowe Price's Africa and Middle East fund has 27.7% invested in the United Arab Emirates, 20% in Egypt, 17.1% in Qatar and 12.6% in Oman. Smaller holdings include equities from South Africa, Bahrain, Jordan, Lebanon and Nigeria.

The fund is up 3.29% in the year-to-date, much better than its S&P-linked equity Index 500, which is down 7.28%. You can buy into the actively managed equity fund with just $2,500 to get sizable exposure to the region.

Construction, real estate, telecommunications, banking and finance are some of the fastest-growing industries in the region. Local investors support these industries by directing oil wealth into domestic share markets, which desensitizes them to negative global trends. This makes GCC equities more appealing and likely to deliver above-average returns, says Barclay's Koon Chow.

But outside of certain free zones, accessing Middle Eastern equities is no easy task. Markets like the UAE and Qatar limit foreign ownership of local companies to 49%, and Saudi Arabia's equities remain closed to foreign ownership. HSBC global emerging market equities analyst Alex Tarver warns that U.S. investors may find these new markets less transparent and efficient than what they're used to, and would do well to employ expert analysis before they put their money on the line.

These stumbling blocks have led to the creation of Middle East North Africa funds, many of which add risk and subtract reward. MENA funds tend to be heavily weighted toward North African equities, which are easier to access than Middle East stocks but boast less promising economic performance. To avoid disappointment, Morgan Stanley Chief Investment Strategist David Darst suggests checking country allocations to ensure balanced exposure to both regions before adding a fund to your shopping list.

"You'd want to know it is 'X' amount Morocco and 'X' amount Egypt, which are not the same as Abu Dhabi and Saudi and Dubai," says Darst.

If you really want to invest like a local, you may want to explore the world of Islamic finance through Sharia-compliant funds. These mutual funds pick their investments in accordance with the religious rules that make up Sharia law, eschewing investments in industries deemed unethical, including gambling, alcohol and pornography. They also stay out of much of the financial sector, which is considered too close to gambling--a quirk that has kept them protected from the West's recent subprime lending crisis. (See "Managed By God.")

The region has also embraced sukuks, or Sharia-compliant bonds. Since interest is forbidden under Sharia law, companies enter sale-and-leaseback arrangements with trusts that issue certificates called sukuks. Convertible sukuks take the Islamic principle of shared risk to heart by converting into shares if the company goes public, and buyers of convertible sukuks may find themselves first in line for a company's initial public offering. The instruments may seem opaque, but many sukuk issues are now listed on the London Stock Exchange, making access and acceptance easier.

If you're looking for low risk and solid returns, steer clear of local currencies like the Saudi riyal or the Dubai durham. Many of the region's currencies are pegged to the dollar, an arrangement blamed for overheating local economies and importing inflation, which is as high as 11% in the UAE and 14% in Qatar. Analysts argue that revaluation is in order, a stance that received a boost last May when Kuwait de-pegged its dinar from the dollar, shifting to a floating basket exchange system. The move has been a boon for Kuwait's economy, says HSBC's Tarver, and the dinar has appreciated 3.5% against the dollar.

If another Middle East country were to revalue or float its currency, assets denominated in that currency would automatically appreciate against the dollar. Market speculation is that Qatar and Saudi Arabia might be likely to make the move. But Barclay's Chow warns that even though the economic case for revaluation may be strong, investors shouldn't expect it to happen soon.

Can Islamic Investment and Banking Appeal to Non-Muslims?

Islamic Finance News
Almost three decades ago, the concept of Islamic finance was considered wishful thinking. Today, more than 400 Islamic financial institutions are operating worldwide and managing funds of about US$1.3 trillion.

The bases of these Islamic financial institutions are global and their markets are growing aggressively. It attracts Muslim investors, especially those from the Middle East, as well as non-Muslims and is growing aggressively. But can ethically-based banking compete with the global debt-based system, which has been around for more than 400 years?

Some commentators consider judgments on the potential of Islamic banking to be premature as it is an industry that is still in its infancy, while others consider Islamic financial practice to be the answer to problems created by the conventional debt-based money system.

Which group is right? Could both be right? And how realistic are Islamic bankers’ dreams of penetrating non-Muslim markets as a global alternative to conventional finance?

Essence of Islamic finance

At the risk of oversimplifying, the essence of Islamic finance is that all parties engage in trade without any use of riba (interest). The Shariah rules governing the prohibition of riba are well known to most, and the values underpinning the rules are righteousness, benevolence and fair profit. Muslims and non-Muslims share these values, with most people wanting to govern their personal and business affairs in accordance with basic, yet extremely important, ethics.

While the majority of conventional bankers will of course conduct their business in a principled manner, the nature of the interest-based money system is nonetheless at odds with the Shariah.

Conventional finance models treat money as a commodity; the global foreign exchange markets see billions of dollars traded every day, but the majority of these trades are speculative and often underpinned by complex derivative structures. In reality, these trades are “virtual” trades and nothing more.

In contrast, the Shariah prohibits the trading of money as a commodity for several different reasons. First, money is considered not to have any intrinsic value. Second, whereas commodities can be of different qualities, the same cannot be said of money.

Third, units of money of the same denomination cannot be identified in any given transaction; i.e. the US$100 bill shown at the time of negotiating a sale need not necessarily be the same US$100 bill used to complete the transaction. In simple terms, the Shariah distinguishes between money and commodities because the intended use of money is to act as a measure of value rather than to be the subject matter of a trade.

Debt begets debt

Goldsmiths of medieval Europe first employed the concept of creating money out of money. Through their simple system of lending gold, the goldsmiths realized that they had the ability to lend more than they actually had. Their lending was therefore increased in the form of gold deposit receipts. It is this basic principle that has been followed over the years and, as we see now, has evolved into the modern debt-based money system.

Analysis of various economic data shows that the volume of coins and notes issued by some governments as debt-free money is much lower than the money actually in circulation, the balance being “virtual” money created in the form of loans advanced by institutions. In short, the debt-based money system creates money in parallel to an equivalent quantity of debt with interest.

The problem is that the impact of a debt-based money system has been devastating. The World Bank’s global finance development report shows that total debt continues to rise. Despite ever-increasing payments, the debt obligations of some countries far outstrip their total income, meaning that citizens of all religions and ethics suffer economically under their national debt burden.

The list of shocking statistics in respect of debt and interest payments is long and well documented, yet relatively few alternative solutions have been offered and, often, the best creditors can come up with is to restructure repayments or to waive portions of state debt in times of crisis.

The Shariah principles governing financial transactions, on the other hand, promote an equity-based and asset backed financial system by abolishing the concept of money production and by prohibiting riba on the advancement of money.

Islamic finance is built on the principles of exchange, rather than creditworthiness and the ability to repay loans. This means that a system based on Islamic principles will neither punish people who need access to capital for not having it already, nor allow them to take on the burden of debt.

Conventional economists and writers have already recognized the benefits of some of the principles that the Islamic system of finance follows. One of them is John Tomlinson, chairman of the Oxford Research and Development Corporation Limited, which explores the use of equity instruments and the development of equity markets for areas of finance currently served by debt.

In his book Honest Money, the Oxford-based economist presents strong arguments for the conversion of the current system to an equity-based one. In building his case for a change in the system, Tomlinson cites reasons that are similar to the principles present in the rationale employed for prohibiting riba, not least of which is the value of focusing on real as opposed to theoretical assets.

Of course, while Islamic banking could make excellent sense as the foundation of a new money system, the conventional debt-based system is deeply entrenched in every sphere of life, and an overhaul would take many years and require substantive reviews of legal, accounting and regulatory structures.

That said, if Islamic banks and institutions continue their aggressive growth and development of innovative and competitive products, it will be difficult for the wider non-Muslim audience to ignore the benefits of such a system.

It may be too late to entirely replace the debt system, but on the face of it, there is no reason the Islamic system cannot be offered in parallel and promoted as the preferred system. Non-Muslims who are fed up with punitive interest payments — and who are attracted to a system that imposes ethical practices on business leaders — might well be the first to sign up for such services.

If the Shariah principles employed by Islamic banks have allowed them to be profitable, — and, more recently, to achieve double-digit growth figures — then the argument for expanding the net of Islamic banking is a compelling one.

Growing sector

On the investor front, market studies have repeatedly shown that given the option to invest in Shariah products with competitive performance, Muslims prefer to do so. As the Shariah sector moves forward, advancing financial education for investors and improving product distribution will stimulate a response from the retail sector.

Today, the institutional market and the ultra high net worth in numerous family offices already deploy assets according to the Shariah, many in the real estate and private placement market.

A breakout opportunity for the Islamic asset management business is possible, particularly after 2007, which is considered a “stage-setting” year for many financial institutions in both the capital markets and asset management businesses.

General market consensus suggests growth rates of between 15% and 20%. International finance consultant Celent feels the global market could average 38% over 2007-10, with greater momentum in 2009.

Equity fund assets are expected to jump from US$15.5 billion to US$53.8 billion by 2010, not including the vast amount that will make its way to private placements in alternative investments by institutions and family offices.

More financial firms implementing investment programs, growing awareness of investment options and cash-rich investors are the drivers of this growth. The Shariah compliant industry is formalizing its infrastructure and building up assets quickly. It will become a significant and profitable component of the financial services industry globally.

Dr Aly Khorshid is an Islamic finance scholar and Shariah consultant with Elite Horizon Economic Consultant, based in the UK.

Britain blazes a trail for Islamic investments

LONDON, England (CNN) -- Known for its support of Sharia-compliant banking, the British government is continuing to make legislative changes to level the playing field for Islamic instruments. One of the most revolutionary has been the foundations the Chancellor laid in the latest budget for "sukuk" or Islamic bonds.

This would be the first time a Western country has raised money by issuing Sharia-compliant investment certificates in the Middle East. These certificates make similar payments to investors as conventional bonds but are not interest-based.

"Sukuk" are the most high-profile financial instruments in the Sharia-compliant world, having grown from almost nothing five years ago to a market of $70 billion in outstanding issues today.

Currently more money flows through London in the most commonly used instrument, "murabaha" -- a Sharia version of the conventional money and syndicated loan markets where banks lend and borrow to meet their short and medium-term financial needs.

In addition to these instruments, a handful of Sharia-compliant hedge funds and platforms have been established, despite the tight Koranic restrictions on their activities.

Investors are barred from selling something they do not own, undermining "shorting," the cornerstone of the hedge fund industry, and cannot earn interest.

Despite these constraints, Barclays Capital (the investment banking division of the UK bank) has teamed up with U.S.-based Sharia adviser, Sharia Capital, listed on London's AIM market, to develop the Al-Safi Trust.

It is a groundbreaking independent investment platform for Islamic finance, according to Richard Ho, head of fund-linked derivatives

This would be the first time a Western country has raised money by issuing Sharia-compliant investment certificates in the Middle East. These certificates make similar payments to investors as conventional bonds but are not interest-based.

"Sukuk" are the most high-profile financial instruments in the Sharia-compliant world, having grown from almost nothing five years ago to a market of $70 billion in outstanding issues today.

Currently more money flows through London in the most commonly used instrument, "murabaha" -- a Sharia version of the conventional money and syndicated loan markets where banks lend and borrow to meet their short and medium-term financial needs.

In addition to these instruments, a handful of Sharia-compliant hedge funds and platforms have been established, despite the tight Koranic restrictions on their activities.

Investors are barred from selling something they do not own, undermining "shorting," the cornerstone of the hedge fund industry, and cannot earn interest.

Despite these constraints, Barclays Capital (the investment banking division of the UK bank) has teamed up with U.S.-based Sharia adviser, Sharia Capital, listed on London's AIM market, to develop the Al-Safi Trust.

It is a groundbreaking independent investment platform for Islamic finance, according to Richard Ho, head of fund-linked derivatives.


"This is the first platform of its kind for alternative investing. It is the first one which goes right back to basics with the aim of making -- in the short-term Sharia -- and more generally ethical investing a scaleable reality," Ho told CNN.

Al-Safi has reworked the traditional investment platform infrastructure to make it compliant from the ground up.

The aim has been to create a Sharia-compliant tool that can be used by investment specialists -- those people who are very good at earning investment returns but less good at interpreting how to invest in compliance with Islamic principles.

By teaming up with Sharia Capital, Al-Safi aims to provide a platform that is constantly monitored for compliance by a Sharia board. It's a complex issue. Unlike the rule of law, Sharia is open to interpretation: for example, what might be acceptable in Kuwait might not be under Saudi Arabia's much stricter terms.

"With our Sharia advisor, we have ensured the robustness of the fund platform to facilitate efficient due diligence by both managers and investors," Ho continued.

Ho hopes the platform will smooth the investing process for both managers and investors. "Managers that use the platform don't need to know that much about Sharia compliance framework and process. You start with an approved investment universe and a well-defined strategy implementation process from which you can build a Sharia-compliant fund easily," he explained. The fund launches publicly in a few.

Islamic finance manages over $500b assets

Bahrain Tribune - Islamic banking, with 15 to 20% growth a year, has emerged as one of the vital pillars of the global economic system. Islamic financial institutions (IFIs) are operating in over 75 countries, managing between $500 billion and $1 trillion assets, an economist and member of Bahrain's Parliament Dr Jassim Hussain said.

In Japan to present a paper on Islamic banking, the MP urged Japan, being one of the top industrialised economies, to join the global trend by adopting the Islamic banking model as an alternative and safe banking and financial system. He made a presentation at the Japan Institute for International Affairs dealing with Islamic banking opportunities in Bahrain.

The audience included professionals from diverse fields such as academics, investors and news agencies. The economist said that IFIs work under strict Shariah guidelines and are based on the basic principle that the money earns return once used in productive or real investment.

He said: "Islamic banking prohibits a guaranteed, predetermined rate of return, making the entire cycle from investment to returns more transparent and open, unlike the conventional way of baking where depositors get a sense of a certain level of returns at the time of deposit.

Islamic finance encourages risk sharing, promotes entrepreneurship, a connect based in creating a welfare state with equal opportunities for everyone and not for a select group of people in each society who holds wealth.

On the socio-economic level as to how investment can play a positive role in building a robust system, Shari'a prohibits investment in some activities such as gambling and liquor. "At the start of the year, some 300 IFIs are operating in 75 countries, managing some $500 billion, and there is a projection to reach a $1 trillion in the next few years.

Talking about Bahrain's experience, Dr Hussain said Bahrain Islamic Bank was set up 30 years ago - the first ever Islamic commercial bank was opened in 1975 in the United Arab Emirates - and this institution has set a benchmark for other new entities aspiring to become leading Islamic banks.

Total assets of Bahrain-based IFIs (retail and wholesale) 10 years ago amounted to $1.4 billion, increasing to $1.9 billion six years ago, still to $ 8 billion three years ago and $16.4 billion last year.

However, figures do not fully capture full activities of Bahrain-based Islamic institutions (Gulf Finance House's investments in different countries like $1 billion plus the Jordan Gate project).

As of last January, Bahrain boasted some 26 banks plus two special ones dealing primarily with property. Local, conventional banks offer dedicated branches (Ahli United Bank) offering al Hilal Islamic Banking Services since last October which has a separate Shariah board.

Mostly wholesale (investment), a few commercial global banks provide Shari'a-compliant products (window) like Citi and HSBC. Islamic banking products include murabaha (trade with a markup or cost plus financing) accounts for three-quarters of the Islamic financial activities, mudaraba (profit sharing), general investments, accounts for 10 per cent of Islamic financial activities, musharaka (equity participation), like joint ventures in ijara (leasing), salam (deferred payment or delivery of goods), sukuk (Islamic bonds) and now credit cards.

The concept of Islamic banking credit cards (with a one-time charge plus fee per transaction) was launched six years ago by Shamil Bank of Bahrain, yet no major breakthrough was experienced but the product is there all the same.