Premier on Islamic Finance

A new working paper from the IMF-The Economics of Islamic Finance and Securitization by Andreas Jobst;

Summary: Islamic lending transactions are governed by the precepts of the shariah, which bans interest and stipulates that income must be derived as return from entrepreneurial investment. Since Islamic finance is predicated on asset backing and specific credit participation in identified business risk, structuring shariah-compliant securitization seems straightforward. This paper explains the fundamental legal principles of Islamic finance, which includes the presentation of a valuation model that helps distil the essential economic characteristics of shariah-compliant synthetication of conventional finance. In addition to a brief review of the current state of market development, the examination of pertinent legal and economic implications of shariah compliance on the configuration of securitization transactions informs a discussion of the most salient benefits and drawbacks of Islamic securitization.

via FreeExchange

Related;
The Accounting and Auditing Organization for Islamic Financial Institutions (hereinafter referred to as AAOIFI) is an Islamic international autonomous non-profit making corporate body that prepares accounting, auditing, governance, ethics and Shari'a standards for Islamic financial institutions.

The Islamic Financial Services Board (IFSB) is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors.

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Islamic Bond Fatwas Surge on Million-Dollar Scholars ;

Just as Wall Street turned to Nobel Prize winner Myron Scholes in the 1980s to help make derivatives the fastest growing financial market, banks can't find enough scholars steeped in the teachings of Muhammad to accommodate the demand for new bonds that conform to Shariah law. Without men like Yaquby to bless the borrowings, none of the $70 billion of Islamic debt outstanding can be traded and companies would have been unable to sell any of the $17 billion new offerings last year, according to data compiled by Standard & Poor's and Bloomberg.

``The credibility of institutions comes from the stature of the Shariah boards they have,'' said Afaq Khan, head of Islamic banking at Standard Chartered Plc in Dubai, the world's second- biggest underwriter of Islamic bonds. ``Transactions can get shot down at the structuring stage if scholars don't allow them.'' ...

International banks, mostly in London, use the same scholars for religious rulings, or fatwas, said Rushdi Siddiqui, who runs Islamic indexes for Dow Jones & Co. in New York.

``Unfortunately people think we are overpaid but this isn't true,'' Yaquby, dressed in a traditional white ghutra headcloth and ankle-length dishdasha robe, said in an interview in Dubai last month. ``They don't look at what bankers and lawyers are being paid. Yet the CEO of an Islamic bank can't take a decision without the scholar.''

Yaquby said the biggest international banks pay scholars annual retainers of $20,000 to $50,000.

Mohamed Ma'sum Billah, a scholar in Selangor, Malaysia, sits on about 20 boards. Fees are as high as $100,000, up seven- fold from 2002, he said

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