Posts Tagged ‘sukuk’


World Bank spends your money to promote sharia

November 22, 2012

The World Bank has agreed to collaborate with the Islamic Development Bank (IDB) “in the development of Islamic Finance,” according to the Arab News.

The Jeddah-based IDB, which Shariah Finance Watch describes as “the financial jihad wing of the Organization for Islamic Cooperation (the world’s foremost Islamic imperialist organization),” has a disturbing history and role in international finance that you can read about here.

The Global Muslim Brotherhood Daily Report has previously described the IDB’s role “in funding a project of a Ukrainian Brotherhood organization, in financing the projects related to the Islamic Society of North America (ISNA), and sponsoring a philanthropic conference held by an organization with Brotherhood ties. Another post noted that IDB representatives were in attendance at a Saudi charity seminar attended by Wael Julaidan, possibly the known founder and financier of Al Qaeda.”

Sounds like a great partner for peace and global economic prosperity, doesn’t it?  From the Arab News last month:

World Bank and IDB sign Islamic finance deal

The World Bank and Islamic Development Bank have signed a Memorandum of Understanding (MoU) to set out a framework for collaboration between the two parties and lend support to global, regional and country efforts in the development of Islamic Finance.

World Bank Managing Director Dr. Mahmoud Mohieldin and Islamic Development Bank Group President Dr. Ahmad Mohamed Ali signed the memorandum on behalf of their institutions with the common objectives of fostering, encouraging, and studying the expansion of Islamic finance globally.

The MoU adopts the following principles:

  • Knowledge sharing to identify and disseminate sound practices in the Islamic financial services industry.
  • Cross fertilization of ideas that would foster the development of Islamic finance that is critical for growth, efficiency and financial inclusion.
  • Encourage research and promote awareness of appropriate risk management framework for Islamic financial institutions in particular and the Islamic finance industry in general; and
  • Capacity building in the Islamic financial services industry with a view to fostering financial stability and promoting increased access to Islamic financial services in markets around the world.

World Bank Managing Director Dr. Mahmoud Mohieldin stressed the importance of the memorandum for increased capacity-building and knowledge-sharing between the two organizations.

“The MoU signed today between the IDB and WB will help us deepen our understanding of Islamic finance and build capacities to develop institutions and instruments to support sustainable inclusive growth and help societies to achieve their development goals with emphasis on poverty alleviation and shared prosperity,” he said.

“The signing of MoU between the World Bank and IDB aims to forge a strategic partnership between our two institutions in the area of Islamic finance to support inclusive growth, including greater access to finance for the poor, and financial stability in our mutual member countries,” said IDB President Dr. Ahmad Mohamed Ali.

“We expect to do this by expanding our knowledge base as well as our ability to support our member countries’ efforts to build resilient institutions and develop instruments to achieve greater financial inclusion and sustainable development,” he added.

The core tenant of Islamic finance is a system which promotes risk-sharing and the avoidance of interest and leverage.

Global Islamic Financial assets have increased significantly over the past three decades, crossing $ 1 trillion in 2010 and estimated to have exceeded $ 1.2 trillion in 2011, up from about $ 5 billion in the late 1980s.

Islamic finance could accounts for a substantial share of financial services in many countries in the coming years.

Through the MoU, the World Bank and Islamic Development Bank will explore Islamic Finance as a potential tool supporting the efforts of countries to reach their development goals.

The World Bank previously dallied with at least one sukuk (Islamic bonds) issuance in 2009, and declared Islamic finance to be a “priority area” last year.  The World Bank also co-hosts an annual conference with AAOIFI, a Bahrain-based standards setting board for sharia finance that is chaired by the notorious sharia law advocate, Taqi Usmani.

The World Bank is funded by member country contributions from taxpayers like you, and international investors and institutions that buy their bonds.


Hong Kong goes whole hog on halal

May 16, 2012

The Hong Kong seal of halal approval


Hong Kong is supposedly courting oil sheiks, princes, and Muslim bankers by selling halal foods.  Conveniently, the halal certifying agencies are making millions of dollars in the process to certify the halal compliance of Hong Kong restaurants and groceries.  Apologies for overlooking what Shariah Finance Watch had to say last month about the story:

We suppose that when you live under an atheist, communist system, it makes no difference to you whether the food is halal or haram. Add in a dash of capitalism and presto! You get a foothold for Shariah-compliance in a city-state with virtually no Muslim population. Such is the nature of the petrodollar driven Islamic imperialism…It’s a formula that has worked quite well in the largely Christian West, so it should not be shocking that it is working in the new capitalist, but still politically communist, China.

But Hong Kong’s flirtation with sharia doesn’t stop with halal foods.  Hong Kong is also exploring a major sukuk issuance and considering special tax preferences for sharia finance products.  Again from SFW:

…Hong Kong appears to be taking a major step backward in terms of capitalism by moving to embrace Shariah-Compliant Finance, a system that brazenly seeks to replace capitalism with a system governed by a barbaric, primitive doctrine.

Central to Hong Kong’s plan to embrace Shariah is a proposal to change the city-state’s tax laws to give preferential treatment to Sukuk (Islamic bonds). This is a tactic that we’ve seen crop up in other countries; readers may recall that South Korea rejected just such a proposal last year.

But Hong Kong is unlikely to reject accommodating Shariah in the financial world. The intoxicating allure of petrodollars in the hands of those who seek to spread Shariah around the globe is just too much to resist for some…

Consider these items with the video we posted recently showing a well-funded campaign to convert people on the streets of Hong Kong.

It stands to reason that there are heavily financed and very powerful forces at work behind the scenes in Hong Kong to create a “movement” toward halal food, sharia finance, and Islamic proselytization in, as SFW pointed out, a location with zero indigenous Muslim population.


Exposing the overpaid, incestuous sharia boards

April 30, 2012

An important article comes our way from the Spears Wealth Management Survey.  A few stunning quotations:

  • “The most in-demand shariah scholars are paid $2,000 a day”
  • “Some scholars charge around $1,000-$1,500 per hour of consultation — in addition to an annual bonus of between $10,000 and $20,000 per board seat”
  • “Remuneration for a fixed shariah board membership can exceed $200,000 a year plus fees”
  • “The top twenty shariah scholars in the world hold between fourteen and 85 board memberships each”
  • ‘The top ten scholars in the world make up 40 per cent of all board memberships”
  • The top five scholars “make up around 25 per cent of the entire boards across the globe”
  • “The top two scholars share 51 per cent of their board memberships”

Read it all.  As Shariah Finance Watch has pointed out for a long time, the sharia advisers are paid quite the pretty penny.  But this piece really puts that in black and white, and points many of the broader flaws of governance in the sharia finance industry.

One cannot read this and still believe mainstream media assertions that sharia finance is somehow more ethical and less risky than conventional finance.  Without even getting into the moral problems of anti-Semitism and jihadist sympathies of the sharia scholars, this sector—from a purely financial standpoint—is hopelessly marred by corruption, shakedowns, conflicts of interest, nepotism, and lack of oversight.  Investors must take note.

I believe this article by Sophie McBain was first published around Apr. 26:

Islamic Finance’s ‘Scholar Problem’: Why Are Shariah Scholars Paid So Much?

Dollars for Scholars

IT MAY BE an unusual career move, but becoming a shariah scholar for an Islamic bank is nice work if you can get it. A quick poll of bankers, lawyers and academics working in Islamic finance revealed unanimous agreement that shariah scholars — who approve every new Islamic banking transaction to certify its compliance to Islamic shariah law — are paid ‘a lot’, but few volunteered figures. Welcome to the opaque world of Islamic finance, and the fledgling industry’s ‘scholar problem’.

Among those who did give figures on shariah scholar salaries, there was considerable variation. Professor Rodney Wilson, a member of the Durham Centre for Islamic Economics and Finance, says that the most in-demand shariah scholars are paid $2,000 a day. Reuters has quoted an unnamed banker as saying that some scholars charge around $1,000-$1,500 per hour of consultation — in addition to an annual bonus of between $10,000 and $20,000 per board seat.

Dr Murat Ünal, CEO of Funds@Work, an investment consultancy and Islamic finance specialist, says that remuneration for a fixed shariah board membership can exceed $200,000 a year plus fees, while advising on a large transaction such as a sukuk (Islamic bond) can generate commission running into millions of dollars. If this still doesn’t sound generous enough, consider that Funds@Work’s pioneering research into shariah scholars and their networks has found that the top twenty shariah scholars in the world hold between fourteen and 85 board memberships each.

There’s a reason for the inconsistency of these accounts: shariah scholar payments don’t have to be made public. And while conventional bankers have found themselves the target of a forceful backlash against bonuses, the quieter but equally insistent voices calling for limits to the influence and payment of shariah scholars struggle to find a platform.

The concerns of those campaigning for changes to the current shariah scholar system are critical to a fast-growing industry, which has the potential to bring millions of Muslims into banking for the first time and which offers a thoughtful critique of mainstream finance. The Islamic finance industry is predicted by Deutsche Bank almost to double to $1.8 trillion by 2016, but its economic potential may never be fulfilled because of its serious governance problems, with power concentrated in a small, ageing and reticent elite.

Read the rest of this entry ?


Weekly word: wakala

December 7, 2011

Wakala is often defined as Islam’s version of power-of-attorney.

Brill said wakāla (or also wikāla), or “mandate, authorisation, is a contract (‘akd) by one contracting party, the muwakkil, commissions the other, the mandatory (wakīl) to perform some service for him.”*

In the context of sharia finance, one Muslim source elaborates:

Wakalah is a contract whereby somebody (principal) hires someone else to act on his behalf i.e. as his agent for a specific task. The agent is entitled to receive a predetermined fee irrespective of whether he is able to accomplish the assigned task to the satisfaction of the principal or not as long as he acts in a trustworthy manner. He would be liable to penalties only if it can be proved that he violated the terms of the trust or acted dishonestly.

In the case of a financial wakalah contract, clients give funds to the bank/company that serves as their investment manager. The bank/company charges a predetermined fee for its managerial services. Entire profit or loss is passed back to the fund providers after deducting such a fee.

This contract is used by some Islamic banks to manage funds on an off-balance sheet basis. The contract is more widely used by Islamic mutual funds and finance companies.

Wakala is used as the default model for takaful where a wakala fee is paid to the takaful administrator to oversee investments and payment of claims.  Wakala has been increasingly used as a structure of sukuk.

Unsurprisingly, “ethical” Islamic finance hits unsuspecting Muslim investors hard:  wakala fees are often very high and are not reduced even if the wakīl performs poorly.  Profits go back into the sharia finance industry, which keeps radical Islamist clerics on payrolls, to serve their ultimate purpose of destroying the Western financial system and secular rule of law.

* Brill, E.J., Encyclopedia of Islam, New Edition (Leiden:  E.J. Brill, 1996).


Concerns about popular sharia finance method

November 23, 2011

Weekly word:  Ijara

Ijara simply means “to give something for rent”.*  In practice, ijara financing often works as a lease-to-own agreement.

In real estate, ijara is frequently used as the basis for a mortgage with a premium rolled into the monthly rental/lease payment toward an eventual purchase of a house.  Ijara-based home loans can be distinguished from murabaha mortgages by the timing of the “sale.”  Murabaha may allow the sale and technical transfer of ownership once the borrower begins making payments, whereas under ijara the sale is made when the lessee makes final payment.

Ijara is widely accepted among Islamists because even they cannot deny the logic of paying on a lease to use an asset until the leesee is able to buy the asset outright.

Ijara critique

But if ijara is simply a lease, why bother having it at all?  In other words, Muslims could just take out a conventional lease, which is a popular method of financing car purchases in the U.S.  One senior member of a Pakistani web forum makes the following observation:

I am in possession of a Car Ijara Document from Meezan Bank which claims to have their Car lease interest free and Shariah Compliant certified by Maulana Taqqi Usmani. Some body [sic] please explain [to] me the difference between their Arabic sounding Ijarah and Car lease by other banks.

Meezan bank gives you [a] car for 20% security (another name for down payment) and gives you [a]  car on monthly rent almost comparable in amount to interest being charged by other banks (instead of instalments [sic] as rent is allowed in Islam). After 3-5 years, whenever the term completes, car is gifted to you while your security deposit is forfeited (or the car is sold to you at the security deposit price). Now someone please tell me, where do you pay rent and get guaranteed ownership of the property after a fixed tenure. There are few other obscure differences regarding ownership of car, status of monthly instalments [sic] etc etc but they are more of playing with words than having any real value.

This seems to me as a case of “Halala” of interest. Just play with words and use some arcane Arabic terminology like Mudaraba and Ijarah etc etc and viola, you are certified Shariah compliant. And you always get some maulvi to give a fatwa in your favour in exchange of some pay/ emolument. I wonder how much Maulana is being paid by the bank to be its Sharia advisor?

Money Jihad too wonders how much Taqi Usmani is being paid to bless off on sharia finance products.  In theory, one difference between ijara and a conventional lease is that ijara rents received by the bank aren’t invested in pork bellies or Anheuser-Busch stocks, and a portion of the bank revenues are diverted as zakat to be distributed as pro-sharia men Mr. Usmani see fit.

Investors start souring on ijara

Sukuk (Islamic bonds) are one of the largest asset classes among the sharia finance industry.  Sukuk can be structured using any of the methods that Money Jihad has defined over the last couple months—murabaha, mudarabah, musharaka, ijara, etc.—but ijara sukuk have become the most popular (partly because the aforementioned Mr. Usmani panned the alternatives).

Nevertheless, when Goldman Sachs recently announced its record and troubling $2 billion sukuk issue, it eschewed ijara for a murabaha—a structural choice that prompted surprise and speculation among Islamic finance analysts.  Goldman Sachs has committed a moral failure by endorsing such a massive foray into sharia finance, but their decision to base it on murabaha suggests that there are practical risks to ijara that have not yet been fully communicated to the public.

* Kettell, Brian B., Introduction to Islamic Banking and Finance (Chippenham:  John Wiley and Sons, 2011).


France & Credit Agricole plan sukuk issuance

January 14, 2011

The French government and the biggest French bank both have big plans for issuing Islamic bonds in 2011.  Happy New Year!

Last year, France developed new rules to sell sukuk, and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) blessed off on them.  In December, Thierry Dissaux, the chief executive of the French Deposits Guarantee Fund, announced that France would indeed follow through on the new rules with actual bond sales.  Thierry told the Khaleej Times that, “We still have to work on some issues for it but it’s a matter of weeks and then we will be ready in the beginning of 2011.”

Conseiller finance islamique de Bercy

Thierry Dissaux, CEO of the French Deposit Guarantee Fund

Bloomberg reports separately that the French bank Credit Agricole is “is working on two or three benchmark Islamic bonds from the six-member Gulf Cooperation Council and they will be sold before the end of the first quarter, Simon Eedle, global head of Islamic banking at the bank, said…”

Credit Agricole is also slated to be the lead issuer for a $1 billion sukuk issuance by Saudi Aramco in 2011.

Although they may not yet match the sukuk size planned for 2011 by Dubai World’s Nakheel PJSC ($3.2 billion), by the government of Thailand ($1.3 billion), or by the Dubai government itself ($1-1.5 billion), the growth of French involvement in sukuk markets is noteworthy.

Meanwhile, Pres. Barack Obama has announced that the U.S. has no stronger ally than France (h/t GoV) , even at a time when France has sacrificed only one-seventh the number of troops as wartime ally U.K. while fighting alongside the Americans in Afghanistan.


Weekly word: sukuk

December 22, 2010

Sukuk are commonly understood as Islamic bonds.  They have the same effect in theory—a steady stream of income for after an upfront investment—but they are craftily structured to give the appearance of compliance with Islamic law.  Here’s a definition from A Muslim’s Guide to Investing & Personal Finance:

Sukuk are asset-backed securities designed to provide a relatively fixed stream of investment income without violating the Islamic prohibition on interest. Instead of interest payments, sukuk investors receive a pass-through of income generated by the underlying assets. Sukuk are a Shariah-compliant tool for raising capital and may be structured around a variety of Islamic contracts.*

OK.  Sounds ethical right?  No—it sounds absurd.  There is nothing wrong with lending your money to another person or entity and receiving a dividend or interest payment for having lent it to them.  The basic reality is that money has value and time has value.  You should be allowed to get some compensation beyond the principal if you part with your money for a period of time for somebody else to use.  If I lend Sears $1,000 by buying a corporate bond from them, what on earth is wrong with Sears paying me a dividend until the bond matures?

But Islamic law doesn’t allow Muslims to accept basic realities about the value of money.  It pretends money and time have no value and that interest is as unwelcome as pond scum or asthma, which are riba’s Arabic synonyms.

Alyssa Lappen has addressed several other dangers endemic to sukuk in this article (h/t SFW).  Lappen notes that because of the high yields promised by sukuk salesmen, sukuk  would normally be classified in the U.S. financial system as junk bonds.  Moreover, asset-backed securities, not just paper securities, are highly prone to risk.  The underlying assets can be easily devalued.  Look at the housing meltdown which was also backed by assets—peoples’ homes. 

Islamic taxes like zakat and Islamic financial products like sukuk are part of an economic model that has resulted in glittering opulence for some Muslims and abject misery for most.  We import their economic philosophies at our own peril.

Outstanding coverage of sukuk is regularly available at Shariah Finance Watch.

Morris, Virginia, A Muslim’s Guide to Investing & Personal Finance (New York: Lightbulb Press, 2001).


Full steam ahead: Gulf petrochem loves sukuk

December 15, 2009

Despite its last minute bailout from Abu Dhabi, Dubai’s Islamic bond meltdown should cast the severest possible doubts on the viability of a sharia compliant financial model.  Instead, it’s full steam as Gulf petrochemical businesses turn to Islamic bonds, or sukuk, to finance their long-term capital projects.  This just in from Emirates Business:

The petrochemical industry in the Gulf will need to finance its high-capacity new projects through sukuk as other finance options become increasingly difficult to obtain, finance officials said.

The view comes close on the heels of an announcement of the region’s association of petrochemical producers – Gulf Petrochemicals and Chemicals Association (GPCA) – that the region will expand its petrochemical production capacity by 10 million tonnes the next year. The region’s total petrochemicals production capacity is currently pegged at 63 million tonnes. This will be almost doubled to 115 million tonnes by 2015, according to GPCA.

“Sukuk is the most viable among the financing alternatives for petrochemical projects in the region. That’s because options of long-term credit financing have dried up,” said Khalid Hamad, Executive Director (Banking Supervision) with the Central Bank of Bahrain.

Petrochemical industries – particularly the ones with federal support – in the Gulf have in the past resorted to issuing the Shariah-compliant Islamic bonds to finance costly projects. In 2006, Saudi petrochemical giant Saudi Basic Industries Corporation (Sabic) issued its first sukuk. In 2007, the petrochemicals giant issued another sukuk to finance its $11.60 billion (Dh42.6bn) acquisition of GE’s plastics business. Equate, the Kuwaiti petrochemicals major, was one of the first petrochemical companies in the Gulf to issue a sukuk.

The sukuk market in is currently valued at more than $100bn and it is projected to reach $150bn by 2010. In 2006, 80 sukuk issues raised $18.15bn globally, with a large share of this issuance occurring in the Gulf.

Hamad said he expects quasi-government and private companies in the region to issue Islamic bonds to finance their projects. “As we speak, it’s happening. Private companies are issuing sukuks,” he said.

“Issuing long-term bonds is difficult these days because of a lack of liquidity. Furthermore, banks are reluctant to lend for long term,” he said.

Abdulkarim Mubarak, Chief Financial Officer of Equate, said sukuks need to evolve as a viable financing option. “Most of the sukuks being issued are short-term debts and amount of money raised is not very high. We were one of the first petrochemical companies in the region to issue a sukuk. But then petrochemical companies need to look at other options as well because you cannot raise a very high amount through sukuks in the current scenario,” Mubarak said.

Notice that everything is becoming an excuse for more sukuk.  Tired of irresponsible lending practices?  Try sukuk, its advocates say.  Want to boost your banking sector?  Try sukuk.  Want to expand market share?  Try sukuk.  Trouble with obtaining capital?  Try sukuk.  Burned by sukuk?  Try even more sukuk.