Islamic finance is the fastest-growing segment of the global financial system and sales of Islamic bonds may rise 24 percent to $25 billion this year, CIMB Group Holdings Bhd., the top underwriter last year, said on Feb. 3. Islamic law, or Shariah, bans the payment of interest and stipulates agreements be based on the transfer of goods or services.
Sales of Islamic bonds, or sukuk, are reviewed and approved by a board of Shariah law scholars at banks and companies. Without globally accepted standards, issuers rely on rulings by these Shariah scholars to be able to sell products to devout Muslims.
The IIFM is advised by a panel that includes Sheikh Nizam Yaquby, who serves on the Islamic boards of banks including Citigroup Inc. and HSBC Holdings Plc, and Mohammed Daud Bakar, who advises firms such as BNP Paribas, according to its Web site and data compiled by Bloomberg.
“We need to move towards cross-jurisdictional standardization in order to facilitate growth of the industry,” Yavar Moini, senior advisor of global capital markets at Morgan Stanley said in an interview in Dubai on March 30. “We all know how sukuk holders should be treated theoretically, but it needs to be worked out and demonstrated so that it’s not just a legal document.”
In May, Kuwait-based Investment Dar Co. missed a payment on a $100 million Islamic bond, triggering concern about restructuring laws for such securities. The company, which owns half of luxury carmaker Aston Martin Lagonda Ltd. in Banbury, U.K., is still awaiting investor approval for a debt restructuring plan it presented in December.
There hasn’t been any “restructuring” of Islamic bonds so far, Morgan Stanley’s Moini said.
The IIFM was founded by the central banks of countries including Bahrain, Malaysia and Indonesia and the Saudi Arabia- based Islamic Development Bank.