On a recent sunny day, Eric Swats, a fund manager at Rasmala Investments, sat under a parasol at a restaurant on the terrace of the Dubai International Finance Center, talking up his new $25 million Rasmala Global Sukuk Fund.
Mr. Swats hopes it will tap into fast-growing demand from Middle Eastern and Asian investors for sukuk, securities that comply with Islamic law. “The market for conservative and well-managed” Islamic finance products is “underserved and underdeveloped,” he said over a lunch of salad and fruit juice.
Dar Al Istithmar, the advisor to Goldman Sachs' planned $2 billion sukuk programme, said it had finished obtaining the approval of Islamic scholars for the issue and that the next move was up to Goldman.
"The ball is in their court," Geert Bossuyt, chief executive of Dar, told Reuters on Wednesday, adding that the programme had been approved by 10 scholars, which was more than enough, and that the structure of the sukuk had been debated sufficiently.
Abu Dhabi Islamic Bank (ADIB)’s Shariah scholars deemed potential sukuk offerings under Goldman Sachs Group Inc. (GS)’s $2 billion Islamic bond program as non-compliant with Shariah, Al-Eqtisadiah reported.
The scholars made the ruling because proceeds from the sukuk sale may be used in non-Islamic transactions, and the program, which is based on a so-called commodity murabaha structure, is listed on a stock exchange, Riyadh-based Al- Eqtisadiah said on its website, citing an unidentified person.
An advisor to Goldman Sachs has defended the U.S. bank's $2 billion Islamic bond programme against criticism it may contravene religious principles, in a controversy that could affect Western banks' ability to enter the Islamic debt market.
In October, Goldman registered the sukuk programme with the Irish Stock Exchange. It set up a Cayman Islands-registered special purpose vehicle, Global Sukuk Co Ltd, to issue a sukuk based on murabaha, a cost-plus-profit arrangement which complies with Islamic law.
Goldman Sachs Group Inc., the fifth biggest U.S. bank by assets, has become entangled in a debate about how Shariah compliant its $2 billion Islamic bond program is, which may diminish the allure of Islamic debt.
Goldman Sachs' sukuk program, blessed by eight of the world's top scholars, is criticized by some Islamic advisers for not ensuring the debt will be traded at par value as mandated by Islamic law. Advisers including Riyadh-based Mohammed Khnifer of Edcomm Group Banker's Academy in New York and Dubai-based Harris Irfan at Cordoba Capital have also said it's unclear on how Goldman will use the funds it raises.
The insolvency of an Islamic mortgage lender in Canada may hinder the growth of sharia-compliant finance in North America, where the industry has struggled to gain traction in the absence of a supportive regulatory framework.
UM Financial Inc was ordered into receivership in October, leaving about $32 million worth of mortgages in the hands of Toronto's legal system. Accounting and business advisory firm Grant Thornton was appointed receiver by the Ontario Superior Court of Justice.
Chicago native Mariam Khan never considered Islamic banking until her husband moved the family to Dubai in 2007. But the 36-year-old housewife is a believer now as the Western debt crisis deepens. Her husband opened a family account with HSBC Amanah, the Islamic arm of international bank HSBC.
"When I look at the damage that an interest-based system has done to the U.S. and Europe, I can see why God forbids riba (interest) in Islam," she said. "I'm not particularly conservative as a Muslim but I definitely feel safer within Islamic banking."
Brooklyn State Senator Kevin Parker announced a bill today to create an alternative bond market that would be permissible under Islamic law by creating alternatives to the traditional interest-based bonds.
Many Islamic societies use the alternative structure, known as "sukuk," since Islamic law prevents the securing of interest-bearing bonds. Parker argues that opening up New York to sukuk would open the state's bond market to a new kind of international investor.
Lawyers said a U.S. court decision to dismiss a case alleging AIG's sharia-compliant businesses promoted religious doctrine, will boost confidence in the industry and lift sales of Islamic products in the longer term. A Michigan district court rejected on Friday a claim filed by Marine veteran Kevin Murray in 2009 that the U.S. government violated the constitution by allowing funds from insurer American International Group's $40 billion bailout to be used to fund its Islamic insurance businesses.
American Finance House Lariba and Guidance Residential LLC have become the biggest providers of Islamic financial services to the 7 million Muslims in the U.S., a market Citigroup Inc. and HSBC Holdings Plc aren’t developing.
Home loans that comply with the religion’s ban on interest rose to about $2.5 billion last year, from $2 billion in 2006, Yahia Abdul-Rahman, founder of Lariba in Pasadena, California, said in an interview this month. Reston, Virginia-based Guidance had provided more than $2 billion as of October, according to an e-mail from the company on Oct. 6.
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