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 =========================================================================== 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/ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ To unsubscribe/subscribe or view archives of postings, go to the Gambia-L Web interface at: http://maelstrom.stjohns.edu/archives/gambia-l.html To contact the List Management, please send an e-mail to: [log in to unmask] ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~