Thomson Reuters launches the world's first Islamic Interbank Benchmark Rate (IIBR)

Thomson Reuters launches the world's first Islamic Interbank Benchmark Rate (IIBR)

This is a welcome development for the Islamic Finance industry:


'Thomson Reuters today launched the world's first Islamic finance benchmark rate, designed to provide an objective and dedicated indicator for the average expected return on Shariah-compliant short-term interbank funding: The Islamic Interbank Benchmark Rate (IIBR).'

Further details in the official press release.

Thomson Reuters launches the world's first Islamic Interbank Benchmark Rate (IIBR)

Samples of Islamic Finance Contracts

Samples of Islamic Finance Contracts
By Monzer Kahf

"The purpose of providing sample contracts of Islamic Financing is to show how these contracts are formulated and how the Islamic Financing principles are reflected in legal terms."

Samples of Islamic Finance Contracts

Financial Guarantee as an Innovation Tool in Islamic Project Finance

Financial Guarantee as an Innovation Tool in Islamic Project Finance
By M. Kabir Hassan & Issouf Soumaré

Abstract: "This paper proposes a model to study the arrangement of Islamic project finance with the participation of the government as a provider of loan guarantees. The owner-shareholders (musharaka certificate holders) initiate a project and raise funds by issuing Islamic profit-loss sharing mudaraba certificates. The government intervenes in providing financial guarantees in order to enhance the creditworthiness and increase the mudaraba capital capacity of the project. Our work raises several policy implications related to the structuring of Islamic project finance and the participation of both government and multilateral public agencies such as the Islamic Development Bank. It provides a unifying framework for the improvement of access to funds for Islamic projects and gives a rationale for government intervention in the arrangement of these projects."

Financial Guarantee as an Innovation Tool in Islamic Project Finance

Development of Islamic Banking with Reference to UAE

Development of Islamic Banking with Reference to UAE
Fayaz Ahamed
June 2010

Abstract: Banks play an important and active role in the economic development of a country. The global financial system (GFS) is a financial system consisting of institutions and regulators that act on the international level, as opposed to those that act on a national or regional level. Islamic banking is a classical concept. Islamic banking system has emerged as a competitive and a possible substitute for the conventional banking system during the last three decades. Islamic Banking is no longer limited to specialized institutions and has expanded both geographically and in product richness, with structured credit finance receiving most of the attention. Greater importance of the General Council for Islamic Banking and Finance Institutions (GCIBFI), the Islamic Financial Service Board (IFSB), the Islamic International Rating Agency (IIRA) and the Accounting and Auditing Organization of Islamic Finance Institutions (AAOIFI), will add consistency in accordance to Islamic laws [shariah] interpretations by religious boards and the primacy of bankable governing law as a matter of form remain essential to further growth of Islamic banking.


Islamic banking transactions are governed by the codes of the shariah, which prohibits interest and regulates that income, must be resulting as return from capitalist investment. This present study analyses the Islamic banking operations currently practiced in Global banking system. This paper explains the fundamental legal principles of Islamic Banking, which includes a brief review of the current state of Islamic banking development and provides the analysis of Islamic Banks with their acquired results. The paper suggests a Global organization that would allow Islamic banks to develop in compliance with its Islamic laws [shariah] principles.

Development of Islamic Banking with Reference to UAE

Report Card of Islamic Indices

Report Card of Islamic Indices
By Rushdi Siddiqui
Business Times
July 2011

"Islamic equity indices, 1.0, became a global ‘instrument’ in 1999, with the launch of the Dow Jones Islamic Market Index (DJIM). But, what progress, if any, has been made in the last 11 years on Islamic indexing?"


Read more: Report card of Islamic indices

Report Card of Islamic Indices

Islamic Bond Issuance - What Sovereign Debt Managers Need to Know

Islamic Bond Issuance - What Sovereign Debt Managers Need to Know
Prepared by Andreas Jobst, Peter Kunzel, Paul Mills, and Amadou Sy
IMF Policy Discussion Paper
Monetary and Capital Markets Department
July 2008

Abstract: "Recent years have witnessed a surge in the issuance of Islamic capital market securities (sukuk) by corporates and public sector entities amid growing demand for alternative investments. As the sukuk market continues to develop, new challenges and opportunities for sovereign debt managers and capital market development arise. This paper reviews the key developments in the sukuk market and informs the debate about challenges and opportunities going forward."


Alternate link (SSRN)

Islamic Bond Issuance - What Sovereign Debt Managers Need to Know

Financial Guarantee as Innovation Tool in Islamic Project Finance

Financial Guarantee as Innovation Tool in Islamic Project Finance
Issouf Soumaré, Laval University
Kabir M. Hassan, University of New Orleans
February 2006

Abstract: "This paper proposes a model to study the arrangement of Islamic project finance with the participation of the government as provider of loan guarantees. The entrepreneur (musharakah) initiates a project and raises funds by issuing Islamic profit sharing debt instruments (mudarabah). The government intervenes in providing financial guarantees in order to enhance the creditworthiness and increase the debt capacity of the project. Our work raises several policy implications related to the structuring of Islamic project finance and the participation of both government and multilateral public agencies such as the Islamic Development Bank. It provides a unifying framework for the improvement of access to funds for Islamic projects and gives a rationale for the government intervention in the arrangement of those projects."

Financial Guarantee as Innovation Tool in Islamic Project Finance

Are Islamic Investment Certificates Special? Evidence on the Post-Announcement Performance of Sukuk Issues

Are Islamic Investment Certificates Special? Evidence on the Post-Announcement Performance of Sukuk Issues
Christophe J. Godlewski, University of Strasbourg, LaRGE Research Center; EM Strasbourg Business School
Rima Turk Ariss, Lebanese American University
Laurent Weill, Université Robert Schuman Strasbourg III; University of Strasbourg - LaRGE Research Center (Laboratoire de Recherche en Gestion et Economie)
April 2010

Abstract: "The last decade has witnessed rapid expansion of Islamic financial instruments, notably with the proliferation of Islamic investment certificates called Sukuk. Sukuk generally represent the Islamic financial instrument equivalent to conventional bonds. We evaluate the economic differences between these financing techniques and appraise the implications on the future expansion of Sukuk. We use a market-based approach to investigate whether investors react differently to the announcements of issues of Sukuk and conventional bonds. We find that the stock market is neutral to the announcement of conventional bonds, but we observe a significant negative stock market reaction to the announcement of Sukuk. We explain this different stock market reaction using the adverse selection mechanism, which favors Sukuk issuance by lower-quality debtor companies. Unlike arguments presented in prior literature, our results support the view that differences exist between Sukuk and conventional bonds because the market is able to distinguish among these securities."

Are Islamic Investment Certificates Special? Evidence on the Post-Announcement Performance of Sukuk Issues

The Economics of Islamic Finance and Securitization

The Economics of Islamic Finance and Securitization
Andreas A. Jobst
International Monetary Fund (IMF) - Monetary and Capital Markets Department (MCM)
Journal of Structured Finance, Vol. 13, No. 1
February 2007

Abstract: Islamic lending transactions are governed by the precepts of the shariah, which bans interest and stipulates that income must be derived as return from entrepreneurial investment. Since Islamic finance is predicated on asset backing and specific credit participation in identified business risk, structuring shariah-compliant securitization seems straightforward. This paper explains the fundamental legal principles of Islamic finance, which includes the presentation of a valuation model that helps distil the essential economic characteristics of shariah-compliant synthetication of conventional finance. In addition to a brief review of the current state of market development, the examination of pertinent legal and economic implications of shariah compliance on the configuration of securitization transactions informs a discussion of the most salient benefits and drawbacks of Islamic securitization.

The Economics of Islamic Finance and Securitization

ISRA Journal - Volume 2

ISRA International Journal of Islamic Finance
Volume 2, Issue 2
December 2010

Volume 2 of the ISRA journal is now available online, you can find the table of contents here and download individual articles directly from their site, these include:

Academic Articles:

Juristic Analysis of the Profit Distribution Method
New Musharakah Model in Managing Islamic Investment
An Overview of Shari'ah Issues Regarding the Application of the Islamic Letter of Credit Practice in Malaysia
Case Studies of the Practice of Nomination and Hibah by Malaysian Takaful Operators
An Empirical Investigation into SMEs’ Perceptions of Credit Guarantee Corporation (CGC) Malaysia Berhad: A Case Study of the Islamic Guarantee Scheme in Malaysia

Practitioner's Articles:

Islamic Liquidity Management – The Malaysian Experience

Research Notes:

Shari'ah Parameters of Hiyal in Islamic Finance
Analytical Study of the Interaction Between Fatawa, Shari'ah Rulings, Resolutions and Conventional Laws in Contemporary Islamic Finance in Malaysia with Cross Reference to the Practices in Saudi Arabia, Pakistan and the Sudan
Capital Requirements and Banking Behaviour for Islamic Banks

ISRA Journal - Volume 2

When Sukuk Default - Asset Priority of Certificate-holders vis a vis Creditors

When Sukuk Default - Asset Priority of Certificate-holders vis a vis Creditors
Opalesque Islamic Finance Intelligence
By Mohammed Khnifer (MSc,MBA,CIFP)


The research explains how lawyers can structure sukuk that can save certificate-holders from the repercussions of what comes after default. That is Asset Protection of Certificate-holders vis a vis Creditors.

When Sukuk Default - Asset Priority of Certificate-holders vis a vis Creditors

Hedging in Islamic Finance

Hedging in Islamic Finance

IRTI Occasional Papers

Sami Ibrahim Al-Suwailem

2006

Abstract: "The last decade witnessed an increasing trend in markets’ volatilities and financial crises. During the same period, derivatives, the most common instruments for hedging, have been growing at an exponential rate. Apparently, derivatives did not help stabilize markets and attenuate financial crises. This is not difficult to explain, since derivatives are also the main instruments for speculation. More than 97% of derivatives users are speculators, while less than 3% are hedgers. The challenge therefore is to search for instruments that allow for productive risk management without harmful speculation. This is the theme of Islamic finance that the paper explores. Based on Shari’ah rules of gharar, the paper therefore suggests several instruments for managing and hedging risks associated with Islamic modes of finance."

Hedging in Islamic Finance

Managing Prudentially the Shariah compliance risk - Organized Tawarruq as an example

Managing Prudentially the Shariah compliance risk - Organized Tawarruq as an example
Opalesque Islamic Finance Intelligence
By Mohammed Khnifer (MSc,MBA,CIFP)


A novel research that deals with Maslaha (public interest) and the Permissibility of Organized Tawarruq. It also shed light on the Shariah Governance issue and the Shariah Risk. It is a “must” read for any Shariah Risk officer.

Managing Prudentially the Shariah compliance risk - Organized Tawarruq as an example

Opalesque Islamic Finance Intelligence XIV

Welcome to the fourteenth edition of OIFI (download PDF version), our last edition for the year, and as we look back at 2010 we sincerely thank everyone that has supported us along the way. The industry itself has much to look forward to in the coming years and this is the recurring theme for this edition. Our Editorial Section tackles the evolving role of AAOIFI as it pertains to governance and regulation of Shariah scholars. Our Featured Resource is a compilation of some the most noteworthy discussions from our online forum.

Mohammed Khnifer takes on our Featured Structure section with an extensive analysis on the implementation of Islamic deposit insurance, with particular attention given to Malaysia's IDI framework. This is promptly followed by Lex Islamicus where ISRA'a Hakimah Yaacob provides a fresh approach to the standardisation debate, including novel references to international conventions for the harmonisation of private law and coordination of civil and commercial matters.

The Industry Snapshot welcomes back Mobasher Zein as he continues his analysis of an Islamic commodity-backed currency with further attention given to the monetary framework that would be required to make this happen. Last but certainly not least Toby Birch shares his views on our Opinion Column with regards to the underserved retail market in Islamic finance and what are some of the obstacles that need to be addressed in coming years.

Always glad to hear from our readers and welcoming all comments & suggestions and please remember that you can visit our online archive (see reference link) for access to our ever-growing databank of Opalesque Islamic Finance Briefing as well as all of the back issues of Opalesque Islamic Finance Intelligence.

Download the complete issue of Opalesque Islamic Finance Intelligence here.

Alternatively you can read each article separately in the OIFI Archive:
Editor’s Note: AAOIFI's Perestroika
Featured Resource: Linkedin Discussions - Highlights of 2010
Featured Structure: Towards a Universal Islamic Deposit Insurance System
Lex Islamicus: Standardisation v Harmonisation: Towards Recognition?
Industry Snapshot: Islamic Dinar Revisited
Opinion Column: Ready for Retail?

Opalesque Islamic Finance Intelligence XIV

Islamic Project Finance in The Kingdom of Saudi Arabia

Islamic Project Finance in The Kingdom of Saudi Arabia
Craig Nethercott and Mohammed Al Sheikh – White & Case llp
Hissam Kamal and Sheikha Al Sudairy – HSBC Saudi Arabia Limited
July 2006

"...there was a common scepticism as to whether the products applied in Qatar, Oman and elsewhere in the Gulf could be used in Saudi Arabia. The full spectrum of Islamic financing products is commonly utilised in Saudi Arabia (mostly in retail banking), but never before had an Islamic financing product been used in a multi-sourced financing."

Islamic Project Finance in The Kingdom of Saudi Arabia

Sukuk Focus - RAM

Sukuk Focus
Malaysian Islamic Capital Market: An intelligent positioning in an evolving industry

RAM Holdings
November 2010

In this issue:

Metamorphosis of the Malaysian Islamic Capital Market
Wakalah-Based Sukuk via Commodity Murabahah - the Latest Innovation
Market Statistics

Please note a free registration is required to access the document.

Sukuk Focus - RAM

Islamic Finance and Structured Commodity Finance Techniques

Islamic Finance and Structured Commodity Finance Techniques: Where The Twain Can Meet

UNCTAD secretariat
May 2006

"This study discusses Islamic trade and project financing techniques, and draws parallels with conventional finance. It is hoped that the discussion will inspire conventional bankers to incorporate Islamic financing structures into their credit packages, and Islamic bankers to adopt some of the innovations of structured finance to expand their lending and investment possibilities."

Islamic Finance and Structured Commodity Finance Techniques

Shariah Opinion (Fatwa) On Istisna', Contracting & Salam

Shariah Opinion (Fatwa) On Istisna', Contracting & Salam
Compiled & classified by: Dr. Ahmed Mohieddin Ahmed
Reviewed by: Dr.Abdul Sattar Abu Ghuddah
Al Baraka Center for Islamic Economics

Shariah Opinion (Fatwa) On Istisna', Contracting & Salam

Opalesque Islamic Finance Intelligence XIII

Welcome to the thirteenth edition of OIFI (download PDF version), we hear from various parts of the world and this reflects how the industry has been growing and evolving over time. So many efforts and initiatives might seem local or market-specific but they are all contributing their grain of sand to the dissemination of Isamic finance globally. The Editorial Section discusses Islamophobia and how it affects the Islamic finance industry. Our Featured Resource is a compilation of material relating to Islamic microfinance, this includes various industry reports, empirical studies and some discussions on possible models as well.

The Featured Structure section is a continuation of Nikan's previous discussion on Istijrar, as he focuses on the sale at market price which highlights the need to understand price uncertainty and how it is viewed by Scholars. We also welcome Monem Salam of Saturna Capital in our Fund Manager Interview as he shares some insights into the history of their Amana funds.

Furthermore, the Industry Snapshot contains an in-depth analysis of stock screening, as Mehdi Popotte explores the mechanisms behind it and some of the issues that arise when establishing an equity screening solution. Joy Abdullah shares his views on how Islamic finance can expand its appeal to a wider market in the Opinion Column, with some revealing insights and suggestions.

As always, we are keen to hear your comments & suggestions and remember that you can visit our online archive (see reference link) for access to our ever-growing databank of Opalesque Islamic Finance Briefing as well as all of the back issues of Opalesque Islamic Finance Intelligence.

Download the complete issue of Opalesque Islamic Finance Intelligence here.

Alternatively you can read each article separately in the OIFI Archive:
Editor’s Note: Islam Süss
Featured Resource: Islamic Microfinance
Featured Structure: Istijrar Revisited - Bay' bi Sir' al Suq
Fund Manager Interview: Monem A. Salam, Director of Islamic Investing, Saturna Capital
Industry Snapshot: Opening the Black Box of Shariah Stock Screening
Opinion Column: Islamic Finance - Niche or Ubiquitous

Opalesque Islamic Finance Intelligence XIII

Incentive Compatible Contracts: The Islamic View

Incentive Compatible Contracts: The Islamic View (A Discussion Paper)
Issam Tlemsani
Robin Matthews
Kingston Business School
2001

Abstract: "The twentieth century has witnessed resurgence in the observance of fundamental Islamic practices around the world. The Islaimization of the financial sectors of many Muslims countries was a natural consequence of this resurgence, and the degree of Islamization varied dramatically across countries with Muslims populations. The Islamic Republic of Iran and Pakistan are at one extreme, where the entire financial sector has been made officially Islamic according to their central banks. Malaysia, Saudi Arabia, and some other Arabs countries have developed a hybrid financial system where Islamic banks coexist with regular financial institutions, and the monetary authorities of those countries regulate both types of financial institutions. This increase in the practice of Islamic banking transformed Islamic economics from a sub-field of Islamic jurisprudence and comparatives systems into one which interacts positively with mainstream economics theory. In this paper we present a basic theoretical understanding of the concept of Riba/interest, the key principle of Islamic banking. We explore the basic principles of Islamic banking, the tools of interest free banking and how Islamic banking can be implemented in a hyper-competitive environment."

Incentive Compatible Contracts: The Islamic View