I found this to be an interesting read. I hope you get some value out of it
too. Are such bonds offered in Gambia? I know that at one time there was an
Islamic Bank run by Mr. Mamour Jagne and some associates. Anyhow, read on:

BambaLaye

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Unique Islamic treasury bond launched


Central banks in the Gulf states are bound to monitor closely the recent
launch and the subsequent market progress of the $500 million Malaysia
Global Sukook (Global Bond) by Bank Negara, the Malaysian central bank.
Not that Kuala Lumpur is short of cash and needed the money to finance a
budget, current account deficit or even this or that project. In fact,
Malaysia's total international reserves is currently in excess of $34
billion and inflation last year totaled a mere 1.4 percent, one of the
lowest in the world.

The Malaysia Global Sukook (MGS) is unique in that it is an Islamic
treasury bond, which means that it operates on Islamic interest-free
financial and investment principles, and is the largest such instrument
to be launched any where in the world. In fact, Bank Negara Governor Dr.
Zeti Akhtar Aziz recently confirmed to me that the purpose of the bond
is not to raise liquidity but to test the market acceptability and the
benchmark pricing for a global Islamic paper.

The Sukook (which in Arabic literally means a bond), was assigned a BBB
rating by Standard & Poor's, the international credit rating agency, and
has according to bankers in London, a tight pricing of between 85 to 95
basis points over LIBOR, which is the London Interbank Offered Rate, the
UK interest rate benchmark. Islamic finance, of course, does not have
its own benchmark. Only Malaysia has recently set a standard method of
calculating the rate of return for all Islamic financial transactions
and products offered in the country.

The fact that MGS was almost three times oversubscribed by international
banks means that there's appetite for such quality instruments. The S&P
and Moody's ratings which are more-or-less similar are more a reflection
of Malaysia country risk than the risk associated with the Sukooks or
any potential defaults thereof, is encouragingly strong. This means also
that the pricing was competitive and that Shariah-compliant securities
can hold their own in the international markets. In other words, the
global Islamic bond has finally arrived and has gained almost instant
international acceptability.

Gulf financial institutions subscribed 40 percent of the final
allocation. This is a very important and significant development,
because in the past Islamic and conventional banks have shied away from
Malaysian government and corporate Islamic issues. MGS is an Ijara
(leasing) Sukook. As such, the Shariah issue does not arise because
Sukook Al-Ijara (leasing bonds) are what is known in the financial
parlance as asset-backed securities, which are ideal Islamic financial
structures and therefore can be listed on a stock exchange and traded.

Indeed the MGS is listed on the Luxembourg Stock Exchange and will be
followed by another listing in October when the Dubai International
Financial Center goes live. The other encouraging indicator was that 20
percent of the Sukook were subscribed by banks in London; and the rest
by banks in Malaysia, South East Asia and North America.

Then why have we not seen any global Islamic bonds offered up till now?
The Malaysian's did their homework meticulously. They knew that Shariah
acceptance is important. That is why they opted for the Sukook Al-Ijara.
They held a number of roadshows in the US, Europe, in the Gulf
(including at the Islamic Development Bank in Jeddah), and in East Asia.
They got a feel for the appetite, the benchmark pricing, and tested the
market before the launch. And it has paid off handsomely.

The Islamic bond market in Malaysia is worth almost $20 billion - these
are domestic bonds comprising government issues such as Bank Negara
Negotiable Notes, Khazanah Bonds, Government Investment Issues, and
corporate issues ranging from Sukook Al-Ijara to private debt
securities. Of the total amount of corporate papers issued in Malaysia
in 2002, some 60 percent will be Islamic issues, because Malaysian
companies are raising Islamic finance to refinance their expensive
conventional debt and for working capital and expansion purposes.
Shariah scholars stress that at least the corporates are "purifying"
their current riba debt by switching to Islamic financing techniques. Of
course the acid test will be if they continue to do so should Islamic
papers lose some of their pricing competitiveness, which can happen
given the relevant market conditions.

Iran for the past few years mooted the launch of an Islamic eurobond,
but eventually opted for a conventional bond. Pakistan, despite the
rhetoric of its non-existent banking Islamization, firmly runs monetary
and fiscal policies on a riba (interest) basis even during the days of
the regimes of Gen. Ziaul Haq and Nawaz Sharif. Sudan with the help of
the International Monetary Fund launched two Ministry of Finance
Musharaka Participation Bonds a few years ago - one as a money
management tool for monetary policy and the other to raise liquidity to
finance infrastructure. These were listed on the Khartoum Stock Exchange
but did not attract any international or regional attention, because of
inter alia the country and political risks. In any case Sudan was still
on the US and EU sanctions list.

The Tehran Municipality has also issued Musharaka Participation
Certificates to raise funds for financing municipal projects.

In the Gulf, only the Bahrain Monetary Agency (BMA) earlier this year
issued a series of Bai Salaam Sukooks (these are debt-based papers with
zero coupon, which means that unlike the Malaysian ones, they cannot be
traded). But these were in mere $25 million tranches. The BMA has also
launched two Sukook Al-Ijaras - one a $70 million issue and the other a
$100 million issue, both of which were also oversubscribed by Gulf
banks.

One Saudi banker who attended the MGS roadshow in Jeddah said he was
impressed by the roadshow and the Sukook structure, which is underpinned
by a portfolio of prime real estate assets owned by the Malaysian
government. These assets are sold to a special purpose trust. The
Malaysian government then rents the assets from the trust to service the
rental income in lieu of interest, for the maturity period.

The banker also stressed that the Gulf and Muslim countries should
seriously start looking at diversifying their options at accessing
domestic and international finance to include Islamic bonds - through
both domestic and global ones.

The advantages are manifold. The Islamic bond market may not have the
depth of critical mass of players. But it is proving that it can be
world class, efficacious and competitive. It is also an ethical way of
financing and therefore could go a long way in tapping surplus liquidity
in the Gulf markets supposedly to have increasingly returned from the US
and Europe post 9/11.

Islamic bonds are also uniquely a product of our own culture and
religious tradition. And as long as they are well structured, rated,
marketed and competitively priced, there should no reason why more and
more central banks, especially the Saudi Arabian Monetary Agency (SAMA),
should not follow in the footsteps of their Malaysian counterpart. Such
instruments are now internationally acceptable and could help the Gulf
states and other Muslim countries with their needs for building and
renovating infrastructure.

Perhaps most importantly, if a handful of Muslim central banks or the
IDB should launch various types of Sukooks, they would instantly create
that depth for an Islamic International Money Market (IIMM), which has
been set up in Bahrain recently. Even Western institutions would then
rush to play the role of market makers. And the elusive secondary
trading of Islamic instruments would then get off to a firmer start.

It would be another modest triumph of faith-based finance over the power
of a currently beleaguered Western capital.

By Mushtak Parker
Arab News
Saudi Arabia's First English Language Daily
http://www.arabnews.com/

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