Case Study: MIGA and Islamic Finance

Doraleh Container Terminal Case Study
World Bank Group

Multilateral Investment Guarantee Agency

Djibouti, April 2008

Abstract: "Increased liquidity in Islamic financial markets, spurred by oil revenues in the Gulf region, is creating a growing demand for deals structured using Islamic finance. In order to satisfy this demand, traditional business tools need to be adapted to meet the relatively unique and complex needs of Islamic finance. In 2007, Multilateral Investment Guarantee Agency (MIGA) was tapped to provide political risk insurance for a critical project in Djibouti that was being funded through an Islamic financing structure. The main challenge faced by the agency was that the project's Islamic financing structure had payment obligations spread out across numerous agreements, while MIGA's guarantee coverage for third party lenders normally considers such obligations under a single loan agreement. MIGA structured its guarantee in a way that addressed the key risks that concerned the project financiers, while meeting the strict requirements governing the Islamic structure. This resulted in the agency's first-ever guarantee coverage of an investment supported by an Islamic financing structure. The Doraleh Container Terminal project involves the development, design, construction, management, operation, and maintenance of a new container port terminal in the city of Doraleh, Republic of Djibouti."

Case Study: MIGA and Islamic Finance

Finance and Growth: The Role of Islamic Contracts

Finance and Growth: The Role of Islamic Contracts
Ismail, Abdul Ghafar and Tohirin, Achmad (2009)
Centre for Research in Islamic Economics and Finance
School of Economics, Universiti Kebangsaan Malaysia,
Centre for Islamic Economics Development and Studies
(P3EI) Faculty of Economics, Islamic University of Indonesia

Abstract: "Although, Islamic law has been in existence for more than fourteen hundred years, but its implementation have been subjected to the willingness of the rulers in the passage of history and civilization. Although, the study on financial contracts has been extensively reviewed, the role of Islamic contracts is not highlighted, except those in the historical institutional and contract theory literatures. The study that link finance and growth takes many dimensions. One of the dimensions is law and finance view. In the beginning, the studies that link the former only look at the finance variables and economic variables. Further development analyses the relationship at the system level, i.e. discussion whether bank-based vs. market-based matters on growth. Islamic finance comes up with its distinctive contracts and products of profit-loss sharing. It may give different character and notion in the financial system in particular and in the economic system in general. This paper is aimed at discussing Islamic laws which are relevant to finance. Most importantly the aspect of contracts as foundation for the distinctive Islamic financial products, i.e. the one resembling profit-loss sharing nature containing cooperative spirit, will be analysed to establish a strong connection with financial stability as pre-requisite to achieve the economic growth."

Finance and Growth: The Role of Islamic Contracts

Islamic Financial Services Industry Development : Ten-Year Framework and Strategies

Islamic Financial Services Industry Development : Ten-Year Framework and Strategies

IRTI, IFSB

2007

Abstract: "This document presents an overview of the past, present and expected future of the Islamic Financial Services Industry (IFSI). It addresses the challenges and opportunities of the various segments of IFSI. The strategic objectives and proposed initiatives are also outlined. Finally, the document states the recommendations covering the broad strategies and initiatives to be undertaken for developing the various components of IFSI. "

Islamic Financial Services Industry Development : Ten-Year Framework and Strategies

Insurance in Emerging Markets: Overview and Prospects for Islamic Insurance

This is a useful analysis of the Takaful industry as seen from a macro perspective, providing a fairly comprehensive review of industry with an emphasis on quantification of the market size and prospective growth.

Insurance in Emerging Markets: Overview and Prospects for Islamic Insurance
Swiss Re
2008

Insurance in Emerging Markets: Overview and Prospects for Islamic Insurance

World Business: Islamic Recovery

Some of the industry voices sharing their thoughts on the role of Islamic finance in the aftermath of the financial crisis. Over the past few months we have heard from many promoters as well as detractors, nevertheless it seems that balanced and objective views are increasingly harder to find.

Source: World Business

World Business: Islamic Recovery

Reshaping the Islamic Finance Industry Applying the Lessons Learnt from the Global Financial Crisis

Reshaping the Islamic Finance Industry Applying the Lessons Learnt from the Global Financial Crisis
Rafe Haneef, Research Fellow, ISRA & Edib Smolo, Researcher, ISRA
ISRA Research Paper (No. 11/2010)

"In the last 27 years, the world has witnessed more than 124 distinct financial crises. The financial meltdown caused by the current global financial crisis brought the financial world to its knees. This paper aims to discuss how the Islamic finance industry can reshape itself by learning lessons from the global financial crisis. To achieve this aim, the paper first identifies the lessons that can be learnt from the crisis including risk transfer & imprudent credit growth, failure of risk management, liquidity and leverage, lax regulation and opaque disclosure. The paper then suggests how the economic agents’ behavior and responsibilities could be reshaped by highlighting the sellers’ standard of care and regulatory responsibility. The paper concludes that the global financial crisis revealed the weaknesses of the global financial architecture on one side and provided an opportunity for Islamic finance to show its inherent strengths and qualities on the other. To facilitate this, the paper offers some possible Shari‘ah-based solutions that can help the financial world avoid similar crises in the future."

Reshaping the Islamic Finance Industry Applying the Lessons Learnt from the Global Financial Crisis

CW: The Determinants of Sin Stock Returns: Evidence on the European Market

The Determinants of Sin Stock Returns: Evidence on the European Market
Julie M. Salaber
November 2007

CW: The Determinants of Sin Stock Returns: Evidence on the European Market

Determinants of Islamic Bank Profitability

Determinants of Islamic Bank Profitability

by Professor Sudin Haron

KLBS - Working Paper Series 002

March 2004

Determinants of Islamic Bank Profitability

CW: The Cost of Socially Responsible Portfolios: Testing for Mean-Variance Spanning

The Cost of Socially Responsible Portfolios: Testing for Mean-Variance Spanning
Rients Galema, Auke Plantinga, Bert Scholtens
February 2009

CW: The Cost of Socially Responsible Portfolios: Testing for Mean-Variance Spanning

Analysis of Short-Term Asset Concentration in Islamic Banking

Analysis of Short-Term Asset Concentration in Islamic Banking
Abbas Mirakhor
International Monetary Fund (IMF)
October 1987

Abstract: In general the process of implementation of Islamic banking in the Islamic Republic of Iran and Pakistan appears to be proceeding with relative success. However, number of problems have surfaced during the transition period, among which is a tendency for short-term assets to dominate commercial bank portfolios. The negative effects on capital formation is one result of this portfolio behavior. The cause of this behavior is a set of regulations constraining profit-sharing activities of commercial banks. It is shown here that such regulations rather than reducing the risks of bankruptcies in the banking system may well increase them.

Analysis of Short-Term Asset Concentration in Islamic Banking

Opalesque Islamic Finance Intelligence - Fifth Issue

It has been quite impossible to escape the recent headlines emanating out of Dubai and specifically relating to Nakheel - to the point that one would have been tempted to avoid the topic altogether. We emphasize the need to take a forward-looking perspective for this the fifth edition of OIFI. We explore the broader implications of Nakheel as it relates to the future of sukuk specifically and to the Islamic financial marketplace as a whole within our editorial section.

Fortunately OIFI does not coordinate content with irrational exhuberance (or market 'standstills' for that matter), we remain focused on providing coverage of a wide range of topics - all very timely and relevant in their own right. Our Featured Resource section revisits various opinion pieces on ethics and Islamic finance, with a further segway into social responsibility and responsible investing.

In our Featured Structure section, Nikan explores various Shariah compliant short-selling solutions that have been developed over the past few years (and complemented by further analysis of each one). This review is further complemented by our Fund Manager Interview as we converse with Tocqueville's John Hathaway, who oversees one of the very first Islamic hedge funds.

Khalil continues his Lex Islamicus column with a specific look at contractual complexity and this is further complemented by our Industry Snapshot, where Hdeel Abdelhady from DLA Piper provides a critical analysis of some of the most noteworthy court cases involving Islamic law in recent years. Just as legal precedent is relevant and necessary, so is the need for developing the future talent in the industry as we hear from Fuwad Beg, of Yasaar Human Capital, exploring this theme in detail in our Opinion Column.

Once again we welcome your comments & suggestions, and a reminder that you can check the free online archive of Opalesque Islamic Finance Briefing (our daily news summary) which provides a historical data bank of industry news and articles, as well as the back issues of OIFI.

Download Opalesque Islamic Finance Intelligence here

Opalesque Islamic Finance Intelligence - Fifth Issue

CW: The Cost of Socially Responsible Investing

The Cost of Socially Responsible Investing
Tim Adler
May 2008

CW: The Cost of Socially Responsible Investing

Islamic Banking Theories, Practices and Insights for Nigeria

Islamic Banking Theories, Practices and Insights for Nigeria
Toni Uhomoibhi Aburime
Deakin University

Abstract: The broad aim of this paper is to introduce knowledge of Islamic banking theories and practices to banking and finance scholars and practitioners in Nigeria, as well as draw some useful insights on Islamic banking in Nigeria. Prohibition of interest, low consumer lending, profit and loss sharing and high real sector investing are primary characteristics of Islamic banks. Islamic banks operate the three conventional deposit accounts. They also engage in investment financing, trade financing, lending, and other financial services. Differences between Islamic and conventional banks lie in prohibition of interest, emphasis on Islamic principles of morality, emphasis on collateral, certainty of deposits and returns, liquidity risk and solvency risk; while similarities between Islamic and conventional banks lie in profit-making objective and nature of banking services. Though there is a dearth of Islamic banks in Nigeria, Islamic banking has become a fast growing concept. The emergence of full-fledged Islamic banks in Nigeria should be expected in the near future.

Islamic Banking Theories, Practices and Insights for Nigeria

LinkedIn Discussions - Highlights of 2009

Looking back at 2009 we thought useful to highlight some of the most heated discussions and lengthy debates which we have had over the year within our Linkedin group.

Here we have picked some of the most extensive and interesting discussions which are worth a review:

Shariah Compliant Structures:

- Murabaha Contracts - Shariah Compliance Revisited

- The use of LIBOR as a Benchmark by Islamic Banks

- Should you be able to pay for a promise (Wa'd)?

- Islamic Alternatives to LIBOR

- The Malaysian Islamic Bonds Model

Industry-related Issues:

- Why Islamic Finance Prohibits Short-selling...

- Islamic Finance, English Law and UK Courts

- The Employment of Shariah Scholars by Businessmen

- The role of Derivatives in Creating the Financial Crisis

- Does Islamic Finance Need a Voice?

LinkedIn Discussions - Highlights of 2009

CW: Socially Responsible Investors and Their Advisors

Socially Responsible Investors and Their Advisors
Meir Statman
November 2007

CW: Socially Responsible Investors and Their Advisors

CW: Socially Responsible Investments: Methodology, Risk Exposure and Performance

Socially Responsible Investments: Methodology, Risk Exposure and Performance
Jenke Ter Horst, Chendi Zhang, Luc Renneboog
June 2007

CW: Socially Responsible Investments: Methodology, Risk Exposure and Performance

Can Bursa Malaysia’s Suq al-Sila’ (Commodity Murabahah House) Resolve the Controversy over Tawarruq?

Can Bursa Malaysia’s Suq al-Sila’ (Commodity Murabahah House) Resolve the Controversy over Tawarruq?
Assoc. Prof. Dr. Asyraf Wajdi Dusuki, Head of Research Affairs Department, ISRA
ISRA Research Paper (No. 10/2010)

"In 2009, Bursa Malaysia launched a new trading platform called Suq al-Sila’ or Commodity Murabahah House. It was introduced to facilitate certain Islamic financial transactions, particularly commodity murabahah based on tawarruq. This platform is claimed to provide genuine commodity transactions where possession and delivery of the commodity can take place without any hindrance, as opposed to the controversial widespread form of tawarruq that uses platforms like the London Metal Exchange (LME). This paper discusses the practice of tawarruq using Bursa Malaysia’s Commodity Murabahah House. In particular the paper comprehensively examines the debates over tawarruq which eventually lead to the OIC Fiqh Academy’s declaration that organized tawarruq is impermissible. This paper concludes that despite the criticisms and some unresolved Shari‘ah matters entangling the practice of tawarruq, the effort made by Bursa Malaysia to introduce a platform such as Commodity Murabahah House is commendable. Furthermore, since the nature of modern organized tawarruq may not strictly comply with Shari‘ah principles, the reasons behind using this facility should be carefully taken into consideration, especially situations of real urgency and cases of need."

Can Bursa Malaysia’s Suq al-Sila’ (Commodity Murabahah House) Resolve the Controversy over Tawarruq?

Financial Stability: The Significance and Distinctiveness of Islamic Banking in Malaysia

Financial Stability: The Significance and Distinctiveness of Islamic Banking in Malaysia

Ewa Karwowski

University of London - Levy Economics Institute Working Paper

January 2009

Abstract: "This paper explores the significance of Islamic banking in Malaysia for stability in the country's economy as a whole. Neither conventional theory nor Islamic economics puts forward a systematic explanation of financial intermediation; consequently, neither is capable of identifying destabilizing elements in the system. Instead, a flow-of-funds approach similar to Minsky's own is applied to the (post-) modern consumption-led) business cycle and financial (and asset) market.

Malaysia's structural current account surplus contributes to the overcapitalization of domestic firms. This in turn finances a financial (as opposed to an industrial), consumption-led (instead of investment-led) business cycle, where banking favors destabilizing asset price inflation. Islamic banks operating interdependently with conventional ones contribute to economic destabilization channeling surplus funds from the corporate to the household sector."

Financial Stability: The Significance and Distinctiveness of Islamic Banking in Malaysia

The New Mainstream: Islamic Private Equity and Competitiveness

Is Islamic private equity under-rated or over-sold? Untapped or ill-deployed? There is very little data available on the viability, success (or for that matter failure) of current and previous efforts in this space. While advertorial in nature, this piece suggests a variety of opportunities are available due to three key factors: Demand, Means and Support. However it suggests that in order to activate this there are four challenges faced by the industry: Standardization, Engineering, Education and Human Capital.

The New Mainstream: Islamic Private Equity and Competitiveness
Seera Investment Bank
November 2008

The New Mainstream: Islamic Private Equity and Competitiveness

CW: Socially Responsible Investments in Germany, Switzerland and the United States : An Analysis of Investment Funds and Indices

Socially Responsible Investments in Germany, Switzerland and the United States : An Analysis of Investment Funds and Indices
Michael Schroder
September 2003

CW: Socially Responsible Investments in Germany, Switzerland and the United States : An Analysis of Investment Funds and Indices

Adopting and Measuring Customer Service Quality in Islamic Banks

Adopting and Measuring Customer Service Quality in Islamic Banks: A Case Study of Bank Islam Malaysia Berhad

by Shahril Shafie, Dr Wan Nursofiza Wan Azmi and Professor Sudin Haron

KLBS - Working Paper Series 001

2004

Adopting and Measuring Customer Service Quality in Islamic Banks

3rd IFSB Public Lecture on Financial Policy and Stability

3rd IFSB Public Lecture on Financial Policy and Stability

In conjunction with the 15th Meeting of its Council, the Islamic Financial Services Board (IFSB) is organising its 3rd Public Lecture on Financial Policy and Stability on 23 November 2009 in Kuala Lumpur, Malaysia. Bank Negara Malayia (BNM) is kindly hosting both the Meeting of the Council and the Public Lecture.

Mr. Paul Koster, Chief Executive of Dubai Financial Services Authority, and Mr. Jean Pierre Sabourin, Chief Executive Officer, Malaysia Deposit Insurance Corporation will speak in the Public Lecture, which is scheduled to be held at 1:30pm – 5.15pm.

You can view the downloadable programme at the IFSB website. Should you wish to attend the both the Public Lecture and the High Level Conference, or either one of these events, please fill up the online registration form, or email/fax in your details to the IFSB Secretariat.

For more information contact:
Ms. Puteri Bahrun
Email: puteri@ifsb.org
Tel: + 603 2698 4248 ext: 114

3rd IFSB Public Lecture on Financial Policy and Stability

Islamic Finance - Podcasts & Webcasts

Here we feature a collection of educational multimedia materials (both video webcasts as well as audio podcasts) offered by the CFA Institute. This provides an opportunity to learn about various concepts of Islamic finance, topics include structuring sukuk, corporate governance, and the role of standard setting bodies in Islamic finance (this is also complemented by various introductory pieces as well). The list of experts includes Professor Rodney Wilson, Shaykh Yusuf Talal DeLorenzo, Rushdi Siddiqui, Professor Simon Archer, Professor Rifaat Karim, Richard de Belder, and Mohammed Amin (among others).

This list will expand in the near future as they plan to add new webcasts periodically. Similarly we plan to highlight much more multimedia content in the near future.

These webcasts are available for free but a registration is required for non-members of CFA Institute (creating an account to login will be created instantly).

With thanks to Usman Hayat for his assistance with the materials.

Islamic Finance - Podcasts & Webcasts

DFSA - Enhancing Clarity and Accessibility of Islamic Finance Rules

Consultation Paper No. 66 Enhancing Clarity and Accessibility of Islamic Finance Rules

The DFSA is proposing to restructure the rules relating to Islamic finance to better promote the visibility and accessibility of the DFSA's regulatory regime (as it applies to Islamic financial activities conducted within the DIFC).

Comments and feedback can be sent to (note deadline is December 4th):
Dhammika Amukotuwa
Associate Director, Policy and Legal Services, DFSA
Email: DAmukotuwa@dfsa.ae

The relevant files are as follows:
Consultation Paper in PDF Format
Appendix 1 — Proposed New IFR Module
Appendix 2 — Sample of a Virtual Handbook

DFSA - Enhancing Clarity and Accessibility of Islamic Finance Rules

The Future of Takaful: Potholes in the Streets of Gold?

The Future of Takaful: Potholes in the Streets of Gold

by Peter Hodgins and Caroline Jaffer

Clyde & Co

August 2009

The Future of Takaful: Potholes in the Streets of Gold?

CW: Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios

Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios
Bernell K. Stone, John B. Guerard, Jr., Mustafa N. Gultekin, Greg Adams
June 2001

CW: Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios

Islamic Banks and Wealth Creation

Islamic Banks and Wealth Creation
Prof. Dr. Abdul Ghafar Ismail
ISRA Research Paper (No. 9/2010)

"This paper aims to examine how Islamic banks create wealth: how customers as depositors invest their money through the banks; how the banks invest the funds at their disposal; and how economic agents such as individuals, firms and government use these funds. It also examines how this money generates profit, which is then distributed to Islamic banks and depositors, and hence preserves and develops the wealth (mal) of economic agents. It also raises the larger question of whether Islamic banks contribute to the well-being of society by focusing on return to depositors and to shareholders."

Islamic Banks and Wealth Creation

CW: Socially Responsible Investing in the Global Market: The Performance of US and European Funds

Socially Responsible Investing in the Global Market: The Performance of US and European Funds
Maria Ceu Cortez, Florinda Silva, Nelson Areal
February 2009

CW: Socially Responsible Investing in the Global Market: The Performance of US and European Funds

Opalesque Islamic Finance Intelligence - Fourth Issue

We are back after a month filled with journey (the OIFI team has been travelling of late: Malaysia, Jordan, UK, UAE and more to come) and correspondingly our fourth installment incorporates content from all corners of the globe. We begin by exploring the potential synergies available across the industry (and whether it is in need of a catalyst to spur further growth and collaboration) in our editorial piece.

Complementing this is our Featured Resource section which outlines a variety of country and regulatory perspectives on Islamic finance, exhibiting how approaches can differ widely from one country to another. While some of it is positioning, they are testament to the importance being placed on Islamic banking and how regulators are hard at work trying to address and incorporate it into their existing financial architecture.

Nevertheless this is not just a case of mere talk--what is transpiring beyond the boardrooms of IFIs is in fact very energetic discourse that is gradually developing into a tangible initiative. There is great expectation that this can take the shape of an industry-wide effort (resilient to commercial interests) and one which we look forward to reporting in the near future. Indeed we explore the roots of this initiative in our Discussion Board as we borrow the topic from our online forum: 'Does Islamic Finance Need a Voice'.

In this edition OIFI dives deep into multiple asset classes: The Featured Structure section tackles Islamic REITs and the apparent underutilization of liquid real estate products. Khalil Khoury of KIPCO Asset Management Co. provides his perspective on the investable universe of Shariah compliant products in the Allocator Interview section. We further investigate what might be in store for indexation products in our Fund Manager Interview, as we converse with Saeid Hamedanchi of Florentez Investment Management. To round it out, our Industry Snapshot profiles the latest research undertaken on Islamic equity funds, as we hear from the team of Andreas Hoepner, Hussain Rammal and Michael Rezec.

Further expanding on his Lex Islamicus column, Khalil tackles arbitration and enforcement in Islamic contracts - with particular relevance on the revitalized sukuk market. On the other hand, Nikan surveys the various currents of thought on existentialism in Islamic finance under the Opinion Column - with a compendium of views that are not only contrary to the mainstream but possibly test the resolve of Islamic Bankers. But what doesn't kill us makes us stronger.

As always, we welcome your comments & suggestions (you can also feedback directly to the authors), and we remind our registered readers that you have free access to the entire archive of Opalesque Islamic Finance Intelligence (including back issues) and Opalesque Islamic Finance Briefing (our daily news summary), an ever-growing historical data bank of industry news and articles.

Download Opalesque Islamic Finance Intelligence here

Opalesque Islamic Finance Intelligence - Fourth Issue

CW: Socially Responsible Investing and Management Style of Mutual Funds in the Euronext Stock Markets

Socially Responsible Investing and Management Style of Mutual Funds in the Euronext Stock Markets
Auke Plantinga, Bert Scholtens
May 2001

CW: Socially Responsible Investing and Management Style of Mutual Funds in the Euronext Stock Markets

New LinkedIn Subgroups

As our Linkedin group has continuously expanded (well over 2,700 members and more than 200 relevant discussions) we have launched smaller subgroups to allow for more focused interaction between like-minded members (we recognize Linkedin requires registration but it is free and very useful in many other respects). We now have four subgroups that cater to the following themes:

• Islamic Finance - Accounting & Auditing
• Islamic Finance - Careers & Education
• Islamic Finance - Funds & Asset Management
• Islamic Finance - Takaful & Pensions
• Islamic Finance - Research & Reports

New LinkedIn Subgroups

Takaful: Concepts & Practise

Takaful: Concepts & Practise

Thursday 29 October, 2009

Islamic Banking & Finance Network - Hong Kong

Fee & Registration required

(RSVP by 23rd October)

Featured Speaker: Hussain Ahmad, Consulting Actuary, Towers Perrin

Hussain Ahmad, a qualified actuary in the insurance consulting business of Towers Perrin, covers conventional insurance, Takaful, and financial risks for firms across Asia and the U.S. His extensive experience includes conducting M&A due diligence for the general and life insurance sectors, analyses of market entry strategies and start-ups, as well as advising institutional clients on Takaful concepts and their implications on valuation. Prior to Towers Perrin, he worked with Pakistan’s Securities and Exchange Commission on Takaful Rules and other regulations. Hussain is a Fellow of the Casualty Actuarial Society (FCAS) and earned a Master of Finance from Hong Kong University and a B.Sc. from Drake University in the US. He is a regular contributor to industry publications and a noted speaker at leading industry events (and a member of our Linkedin forum).

Takaful: Concepts & Practise

Islamic finance: a recent history with France, a longstanding history with its banks

This paper from the Reims Management School provides a wide overview of the "breakthroughs, challenges and opportunities" faced by the Islamic finance industry in France. It delves into a historical review and an overview of French institutions already involved in Islamic financial transactions. Most importantly it delves into various current issues such as the Fiscal & Legal adjustments being sought. With thanks to the author for providing the paper.

Islamic finance: a recent history with France, a longstanding history with its banks
Ghassen Bouslama, PhD.
Professor of Finance, Reims Management School
July 2009

For our francophone readers: La finance Islamique: une recente histoire avec la France, une longue histoire aves ses banques

Islamic finance: a recent history with France, a longstanding history with its banks

Critical Appraisal of Shari'ah Issues on Ownership in Asset-based Sukuk as Implemented in The Islamic Debt Market

Critical Appraisal of Shari'ah Issues on Ownership in Asset-based Sukuk as Implemented in The Islamic Debt Market
Assoc. Prof. Dr. Asyraf Wajdi Dusuki, Head of Research Affairs Department, ISRA & Shabnam Mokhtar, Researcher, ISRA
ISRA Research Paper (No. 8/2010)

"Sukuk comprise one of the fastest-growing segments of the Islamic debt capital market. This paper aims to shed light on Shari‘ah issues that arise in asset-based sukuk structures and operations. It first discusses the concept of sukuk and delineates the difference between asset-based and asset-backed sukuk. It then discusses Shari‘ah issues with regards to ownership (qabd). From the analysis of case studies conducted, three major issues were identified in the operation of asset-based sukuk. They are sukuk-holders’ interest in the underlying assets, restrictions on asset disposal, and due diligence regarding sukuk assets. The paper concludes that restriction of the right of disposal poses a serious doubt whether asset-based sukuk structures truly comply with Shari‘ah principles. Furthermore, the coupling of this restriction of disposal with the purchase undertaking at par effectively turns sukuk into a debt instrument. Hence the paper suggests that there is a need to move towards asset-backed sukuk that clearly fulfils the Shari‘ah requirement. Nonetheless the paper recognizes that the current legal framework impedes the issuance of asset-backed sukuk. Instead of making overnight changes to the sukuk market, the paper highlights the need for all stakeholders to come together and thoroughly discuss measures needed for a transition to an improved market."

Critical Appraisal of Shari'ah Issues on Ownership in Asset-based Sukuk as Implemented in The Islamic Debt Market

Islamic Mutual Funds' Financial Performance and Investment Style

This particular study scrutinizes the performance of Islamic funds with much more comprehensive data of the existing universe of investment products and at the same time delving deeper into the implications of the data. While some of the conclusions would have been voiced within the industry, this study provides much more solid evidence to support/substantiate them.

Islamic Mutual Funds' Financial Performance and Investment Style: Evidence from 20 Countries
Andreas G. F. Hoepner (1), Hussain G. Rammal (2) & Michael Rezec (1)
(1) School of Management, University of St. Andrews, UK
(2) International Graduate School of Business, University of South Australia, Australia

September 2009

Abstract: "We contribute to the investment literature by pursuing the first sophisticated, large scale analysis of a strongly growing mutual fund type: Islamic funds. Despite hundreds of Islamic funds exist the few previous studies investigate the financial performance of less than 60 and the investment style of 6 funds. Based on unique data access, we analyse the financial performance and investment style of 262 Islamic equity funds from twenty countries. We develop a (conditional) three level Carhart model to simultaneously control for their exposure to different national, regional and global equity markets and investment styles. Our findings are fourfold. First, Islamic funds from eight (mainly western) nations significantly underperform their international equity market benchmarks, while funds from only three nations do the opposite. Second, Islamic funds generally prefer small stocks but have no preference for other investment styles. Third, Islamic funds from the Gulf Cooperation Council (GCC) or Malaysia neither significantly underperform nor clearly prefer small stocks. These three findings have some theoretical appeal, as Islamic funds’ investment universe is limited to Shari’ah law compliant companies, which are more likely small and present in economies with a higher density of Muslims. Fourth, we find some evidence that Islamic equity funds exhibit a hedging function, as their investment universe is limited to low debt/equity ratio stocks."

With thanks to Andreas Hoepner for providing the paper.

Islamic Mutual Funds' Financial Performance and Investment Style

CW: Measuring The Performance Of Ethical Mutual Funds: A DEA Approach

Measuring The Performance Of Ethical Mutual Funds: A DEA Approach
Antonella Basso, Stefania Funari
January 2002

CW: Measuring The Performance Of Ethical Mutual Funds: A DEA Approach

Islamic Finance: What leaders do differently

This piece is far more concerned with branding and positioning of Islamic banks in the context of competing side by side with conventional institutions. Not surprisingly items such as product innovation and 'quick' Shariah approval process are prime considerations, among other things. The question remains - does the need to compete vis-a-vis conventional players makes IFIs drift away from their original business model, instruments, and practices??

Islamic Finance: What leaders do differently
Lessons learned from Islamic financial institutions in the GCC

Dr. Helmut Schulte-Croonenberg and Alexander von Pock

A. T. Kearney

Islamic Finance: What leaders do differently

The Question of an Islamic Futures Market

This short piece is a followup on our previous posting on Islamic futures contracts, in this case we have an argument comparing/contrasting salam with istisna. The author goes on to highlight in the discussion whether there is a "need for a more up-to-date ijtihad to develop an Islamic futures market capable of capturing the merits of modern future markets and avoiding their demerits."

The Question of an Islamic Futures Market
(Apologies, original link is broken!)
Seif I. Tag El-Din
Markfield Institute of Higher Education, Leicester
IIUM Journal of Economics and Management 12, no.1

The Question of an Islamic Futures Market

Does Islamic Finance Need a Voice?

We have been developing this discussion within our Linkedin forum, and would like to seek feedback and suggestions from everyone in this regard (not just from members of Linkedin but from the industry at large).

Does Islamic Finance Need a Voice?
An industry association?
A lobby group?
A vehicle to aggregate efforts and derive change?
A repository of frustration that nobody listens to?
A pat-in-the-back flag-waving exercise?

Clearly much to discuss - in particular a base agenda - but certainly there is a need for some sort of communication channel with the industry as a whole. Your ideas and comments are welcome.

Does Islamic Finance Need a Voice?

Do Islamic Banks Have Greater Market Power?

Time and again we hear about how Islamic banking has proven to be on par with conventional banking (whether that is good is another discussion!), here we profile a recent paper that provides a similar conclusion although it uses a far more technical (and substantiated) approach.

Do Islamic Banks Have Greater Market Power?

Laurent Weill

Laboratoire de Recherche en Gestion (LARGE) (Management Research Laboratory)

Université de Strasbourg

February 2009

Abstract: "The aim of this paper is to investigate whether Islamic banks have greater market power than conventional banks. Indeed Islamic banks may benefit from a captive clientele, owing to religious principles, which would be charged greater prices. To measure market power, we compute Lerner indices on a sample of banks from 17 countries in which Islamic and conventional banks coexist over the period 2000-2007. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks. When including control variables, regression of Lerner indices even suggests that Islamic banks have a lower market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are not less competitive than conventional banks. The lower market power of Islamic banks can be explained by their different norms and their different incentives."

Do Islamic Banks Have Greater Market Power?