Thursday, September 16, 2010

Islamic Debt bond Market

Debt and interest on debt is strictly restricted in the Islamic countries. Free debt help is allowable without taking any interest ,or these can be treat as help to someone without intention to get interest from the lending person. As per Quran taking interest or paying interest on debt or loan is against the sariah law. So the bond investment is not popular among Muslim. Most of the petroleum exporting countries are investing there surplus amount in the US free debt help bonds and they not taken interest on the investing amount, these is beneficial for the US and also helpful for these country to protect their religious value. Sukuk which is plural form of sakk is come into existence to fulfill Muslim believe which is also a same thing as free debt help bond where there is no interest is calculated on invested amount of bond. There is no interest is calculated on the bond value.
Sukuk bond market demand continue rising after its arrival. The main reason behind the increase in the sukuk demand is devaluation of market value of the dollar and recession in US economy.
Most of the petroleum exporting country are investing there surplus in US bond market but after 2000 when the US dollar market value continue depreciated and the US economy faces lots of problem and there is continue rising of the US fiscal debt than there is a big problem arises for the OPEC investor and they think that they loss there reserve market value.
Euro would give another option to the investor, but euro unable to become the close competitor of the US dollar.
Islamic finance today is led predominantly by sukuk(plural of sak) bonds; sukuk is an Arabic word which means “certificates.” In its simplest form, sukuk are analogous to assets-backed securities which provide an investor ownership right of an investor ownership right of an assets. The most important criteria for the issuance of sukuk are the existence of the underlying assets on the balance sheet of the issuing entity, which distinguishes sukuk from conventional bonds. Unlike the conventional bond, which is a contract debt obligation entitling the holder to receive interest as well as principals on specified dates, a sukuk holder enjoys proportionate share in the revenues generated by the sukuk assets as in the proceeds of the realization of the underlying assets. Another distinguishing feature of a sukuk is that in cases where certificates represent a debt to the holder, such certificates will not be trade-able in the secondary market and instead is held till the maturity period or sold at par. Moreover, adherence to strict Shari’ah rule, which prohibits speculation, prevents Islamic investors from using conventional hedging tools such as interest rate swaps, forwards or options to offset fluctuations in interest rate and currencies. In last couple of years, the Islamic bond market has undergone huge expansion, partly boosted by the oil-driven financial liquidity in the Gulf and the rapidly growing number of Muslims seeking more religiously-sanctioned products. However, the western world too has begun several banks
Insurance and pension funds, particularly from Europe, entering the fray, with the aim to tap the boom in the Gulf economies led by soaring profits on the back of strong oil prices during the past five years.

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