At the entrance of the Devon Bank in Chicago is a small pathway with a billboard that includes “Faith-Based Financing” as one of its options to direct customers toward Islamic alternatives for buying a home.
The Islamic financial system, which is based on the principle of interest-free transactions, risk-sharing partnerships and altruistic donations, is central to the financial practices of several million Muslims throughout the world
A proposal in Seattle meant to increase homeownership among Muslims by offering financing compliant with strict Islamic law -- known as Sharia -- is gaining ground in the latest test for local leaders trying to accommodate diverse religious beliefs.
"We will work to develop new tools for Muslims who are prevented from using conventional mortgage products due to their religious beliefs," Seattle Mayor Ed Murray said during a press conference July 13.
The Islamic Corporation for the Development of the Private Sector (ICD), the private sector arm of the Islamic Development Bank Group (IsDB), and the Small Enterprise Assistance Funds (SEAF), a US-based international financial institution mandated to promote economic development and positive local impact through investment in entrepreneurial activities in emerging markets, have signed a Memorandum of Understanding (MoU) to enter into a joint strategic collaboration. Separately, the ICD also signed an MoU with the Japan International Cooperation Agency (JICA) to set out a framework for collaboration in the development of the Islamic finance industry. In particular, ICD and JICA will cooperate in supporting the development of the Islamic money market and international capital market for the countries of common interest.
The International Monetary Fund has held its first consultation with an external advisory group of Islamic finance industry bodies, as regulators across the globe seek to address structural issues in the sector.
Islamic finance, with its core markets in the Middle East and southeast Asia, is under growing regulatory scrutiny as it takes a greater share of the banking sector in some Muslim-majority countries and makes inroads in Western markets.
U.S. banks will probably wait to see if issuing Shariah-compliant bonds is worth the trouble after it took Goldman Sachs Group Inc. three years to sell its debut sukuk.
Islamic finance in the U.S. is still underdeveloped, and misconceptions associated with it taint the industry, according to King & Spalding LLP, an adviser on Shariah transactions in the country for 35 years. HSBC Holdings Plc, the biggest underwriter of sukuk this year after Malaysia’s CIMB Group Holdings Bhd., says the need for tangible assets to structure deals, and the lack of legislation to address taxation issues, makes selling Islamic bonds a challenge.
A group that’s raised $4.5 billion for child vaccinations since its inception in 2006 plans to tap the Islamic debt market for the first time, kickstarting sales of ethical-based sukuk.
seeks to sell as much as $500 million of dollar-denominated Shariah-compliant notes, Michael Bennett, head of derivatives and structured finance at the World Bank’s treasury department, the intermediary for the sale, said in a Sept. 3 interview in Kuala Lumpur. IFFIM, a non-profit organization based in London, will sell the three-year vaccine bonds backed by commodities as early as this month, he said.
Goldman Sachs is reviving plans to raise at least $500 million (304 million pounds) with its first issue of Islamic bonds, a sign that Islamic finance is going mainstream as big conventional banks seek to tap Middle Eastern money.
The U.S. bank will meet investors in Qatar next Wednesday and the United Arab Emirates on the following day to discuss selling sukuk, a document from lead managers of the sale said on Thursday. The sukuk are expected to have a tenor of five years.
Debut of Islamic bonds from governments and companies seeking to cut financing costs will drive sukuk sales next year, with issuance probably rebounding to a record, HSBC Holdings Plc (HSBA) said.
Growth will be boosted as borrowers follow governments from Dubai to Malaysia, which are seeking to promote Shariah-compliant bonds and become centers for Islamic finance, said Mohammed Dawood, global head of sukuk financing at HSBC, the bank that managed the most sukuk sales in 2013. The London-based lender is also working to introduce new instruments to help the securities compete with conventional bonds, he said.
The big surge happening in the global Islamic finance sector is expected to benefit Dubai as it pitches to become a global Islamic financial hub, analysts said. “Global Islamic Finance is expected to maintain its rapid pace of growth, strengthening itself as a real alternative to conventional finance,” said Stuart Anderson, Managing Director & Regional Head, Middle East at Standard & Poor’s.
General Electric Co. became the first major U.S. company to sell an Islamic bond, paving the way for other Western firms to tap religiously minded investors in the Middle East and elsewhere.
On Thursday, the company's GE Capital unit sold a five-year, $500 million Islamic bond, orsukuk, and suggested more was to come.
"We intend to be regular issuers in the sukuk market and are heartened by the support we have seen in this first transaction," GE's senior vice president and treasurer, Kathy Cassidy, said.