Gulf Arab Islamic banks eye slowing real estate

With their ban on interest, the Gulf Islamic banks that managed to avoid the types of debt which proved toxic for their conventional counterparts are now praying the global crisis will bypass their property holdings.

Islamic banks, which manage an estimated $1 trillion (576.5 billion pounds) worldwide, do not have the same flexibility as conventional banks in managing balance sheet risks, bankers say. For instance, they cannot reduce exposure to the real estate market by using derivatives.

So Islamic bankers watched last week's Cityscape real estate fair in Dubai with intense scrutiny. But even the unveiling of a planned km-high tower failed to allay their fears that a boom in Gulf Arab real estate may be grinding to a halt.

The fate of Islamic banks in the region is closely tied to the property markets as they are required to underpin transactions with physical assets due to the ban on interest, which is viewed as usury under Islamic law.

A Muslim's Guide to Investing and Personal Finance

NEW YORK, Oct. 15
Today Lightbulb Press released A Muslim's Guide to Investing and Personal Finance by Virginia B. Morris in association with Monem A. Salam. The guide was developed to meet the growing need by banks, brokerages, asset managers, insurance and home finance companies, and other financial services organizations to provide Shariah-compliant products for Muslim customers who want to live their financial lives in accordance with their beliefs.

"The guide is an invaluable reference for Muslims who need to invest and make personal finance decisions while adhering to the Shariah, or Islamic law - often a challenging endeavor," according to Salam, the Deputy Portfolio Manager for Saturna Capital and recipient of the "20 Rising Stars" award from Institutional Investor News.   

A Muslim's Guide to Investing and Personal Finance describes the newest, as well as more established, Shariah-acceptable investment products and specialized financial transactions that have been developed to help Muslims navigate the financial realities of the modern world, including investing for retirement, buying a home, paying for college, and maintaining a savings account, as well as insuring personal assets.

Islamic finance needs its own efficient price indicators

Sharia compliant assets have emerged as a viable alternative asset class as part of the strategy to diversify portfolios of investors.  The outperformance of a number of global Islamic indexes in the medium-to-long term should encourage investors to consider allocating a portion of their portfolios to Islamic investment vehicles. To conform to sharia requirements, Islamic products will have to avoid elements of riba (usury), gharar (ambiguity/uncertainty/ misinformation or deceit/fraud), maisir (gambling) and zulm (oppression), among others. Although the obligation to eliminate riba may result in complex structures for Islamic financial instruments, I believe the prohibition of other elements as mentioned above in Islamic contracts and in strict adherence to sharia rules and principles, should help assuage many investor concerns.

Whatever it is, a product structuring or innovation exercise should comply with sharia requirements in substance and in spirit.  In the absence of reference price indicators specific for Islamic finance, the Islamic financial services industry still relies heavily on interest rate-based benchmarks such as the London Interbank Offered Rates (LIBORs).  Without a viable sharia compliant alternative, the industry will still have to use these quoted market rates as a basis to price Islamic financial instruments and securities. As such, it's a fallacy to think that movements in global interest rates will not have any implications for Islamic securities although the impact may be limited to those that are pegged to observed interest rates, especially LIBORs.