Hello. I have to read two article and post discussion and two replies of student

finance discussion question and need the explanation and answer to help me learn.

Read the attached two articles, “Is Islamic finance at tipping point?” and “Islamic banking rises on oil wealth, drawing non-Muslims”.
Discuss the following questions.
What are unique features of “SUKUK” compared to other asset-back securities? How does the “SUKUK” have an effect on the Islamic domestic economy?
What do you think of the impact of Islam banking on US economy and value of US dollars?
What do you think of the impact of Islam banking on global financial markets?
Requirements: Answer the question + reply of two of the student
Islamie bankingrises on oil wealth, drawing non-Muslims – The New … http://www.nytimes.com/2007/1 1/22/business/worldbusiness/22iht-is…©be Neiu Aork Eimes———INCLUDING—————–BEST ACTOR JEFF BRIDGESPRINTER-FRIENDLY FORMAT PONSDRED EYKUALA LUMPUR — Rising oil wealth is lifting Islamic banking – which adheres to the laws of the Koran and its prohibition against charging interest – into the financial mainstream.Big banks, including Citigroup, HSBC and Deutsche Bank, as well as financial capitals like London, Tokyo and Hong Kong, are all going into the Islamic banking business. An estimated 300 Islamic financial institutions hold at least $500 billion in assets, an amount that is increasing more than 10 percent a year.In addition to Islamic loans, there are Islamic bonds, Islamic credit cards and even Islamic derivatives. Loans and bonds that conform to the Koran are already available in the United States. And Britain, Japan and Thailand are contemplating issuing Islamic bonds of their own.”This is an industry on its way from a niche industry to becoming a truly global industry,” said Khawaja Mohammad Salman Younis, the managing director for operations in Malaysia for Kuwait Finance House, the world’s second-largest Islamic bank, after Al-Rajhi Bank. “In the next three to five years you’ll see Islamic banks coming out in Australia, China, Japan and other parts of the world.”In Islamic banking, financiers are required to share borrowers’ risks, meaning that depositors are treated more like shareholders, earning a portion of profits. Financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.The stampede into Islamic finance is mostly an effort to tap an estimated $1.5 trillion of funds sloshing around the Middle East, largely from higher oil prices. Although a lot of this oil money was parked in the United States, Britain and Switzerland before Sept. 11, 2001, bankers say many wealthy Arabs are investing closer to home, in part to avoid the hassle of increased scrutiny.At the same time, many Middle Eastern investors are eager to capitalize on Asia’s breakneck growth.By some estimates, as much as $800 billion of Arab money has moved from the United States and Europe to other regions. Those investments have helped ignite an economic revival throughout the Muslim world at a time of increasing religious conservatism among Islam’s 1.61of53/3/2010 3:47 PM
Islamie banking rises on oil wealth, drawing non-Muslims – The New …http://www.nytimes.eom/2007/l l/22/business/worldbusiness/22iht-is…billion faithful.A result is expanding demand for financial services that adhere to Islamic law, or Shariah.”The middle class have the luxury of making these Islamic versus non-Islamic decisions,” saidNordin Abdullah, who runs KasehDia, a firm in Kuala Lumpur that advises companies on how ¡to comply with Shariah. “They’re educated and have money.” JLast year, Saudi Arabia’s largest lender, National Commercial Bank, overhauled its entire |retail business to make it Shariah-compliant. Tunisia and Morocco authorized their first |Islamic banks this year.And while the biggest Islamic banks are in the wealthy Gulf states, the most attractive potential markets are in Turkey and North Africa and among European Muslims. Indonesia, the most populous Muslim nation, with more than 190 million Muslims, is the mother lode.Malaysia, a predominantly Muslim nation with a secular government and a fast-growing, export-driven economy, has emerged as a center for the industry’s development. Here, even non-Muslims are taking advantage of a growing range of Islamic products offering competitive returns.For instance, David Ong-Yeoh, a public relations executive tired of fretting over the rising interest rate on his adjustable rate mortgage, refinanced to a 30-year fixed loan from an Islamic financial institution. Now, he pays regular installments that include a predetermined profit margin for the bank.”The terms are better than on conventional loans,” said Ong-Yeoh, 41.Islamic finance also avoids other prohibited practices. Shariah-compliant bankers cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.Proponents of Islamic banking say these are limits any socially conscious investor can support, Muslim or not. They also envision wider appeal for Islamic banking’s ban on interest, which stems from the Koran’s prohibition against usury. jThis is a view that has a long religious and historical tradition.Interest is repeatedly condemned in the Bible. Aristotle denounced it, the Romans limited it, and the early Christian church prohibited it.I:Western theologians eventually distinguished interest from usury, and it was reintroduced to2 of 53/3/2010 3:47 PM
Islamic banking rises on oil wealth, drawing non-Muslims – The New … http://www.nytimes.com/2007/11/22/business/worldbusiness/22iht-is…Christians and Muslims around the time of the Renaissance.But when Britain took advantage of Egypt’s mounting foreign debt in 1875 to buy Egypt’s stake in the Suez Canal and occupy the country, it generated a backlash against traditional banking in the Muslim world. The belief that all interest charges are unjust now underpins Islamic finance.”It’s about respecting the interests of the different parties, avoiding taking advantage of any situation of any counterparty and putting in place fair treatment,” said Rasheed Mohammed al-Maraj, governor of the central bank of Bahrain.Hoarding is frowned upon in the Koran, so savings earn no return unless put to productive use.”Money should be used for creating better value in the country or the economy,” Maraj said.”Money cannot generate money.”Nor can Islamic banks simply trade money.”In the Islamic finance model, the banks are supposed to mobilize funds through a fund management concept,” said Rafe Haneef, head of Islamic banking in Asia for Citigroup.Indeed, Islamic banking is supposed to function more like private equity firms than conventional banking. “Private equity is an Islamic concept,” Haneef said.Industry proponents say this risk-sharing requirement helps reduce the kind of abuses that led to the subprime mortgage mess in the United States. Scholars consider it un-Islamic to overload a customer with debt or invest in a company with excessive debt.But this approach has inherent problems. Because Islamic financial transactions must have an underlying asset, Islamic bankers tend to have high exposure to real estate and construction projects.Hedging that exposure is difficult; though Islamic derivatives exist, scholars differ on whether they are permissible under the Koran.”There’s a general acceptance that risk needs to be managed and therefore some form of financial instrument needs to be developed,” said Zeti Akhtar Aziz, governor of Malaysia’s central bank. But “in Islamic finance, you can’t have such securities,” she added. “We need to be able to look at some of the issues that revolve around this.”Industry skeptics also say the difference between Islamic financial products and their3 of 53/3/2010 3:47 PM
Islamic banking rises on oil wealth, drawing non-Muslims – The New … http://www.nytimes.com/2007/ll/22/business/worldbusiness/22iht-is…conventional counterparts is purely semantic. And most Muslims, they say, are not averse to accepting interest.To ensure that they are strictly Shariah-compliant, Islamic financial institutions rely on their own boards of Shariah scholars to approve every product. Shariah scholars are rare, and those with financial understanding even rarer, so many scholars sit on several boards, earning up to $100,000 in retainers.”If they’re complaining there is a shortage, what are they doing to solve this problem?” asked Sheik Nizam Yaquby, a scholar based in Bahrain who sits on the boards of Citigroup, AIG and HSBC, among others. Shariah scholars, he noted, still earn less than accountants or corporate lawyers.As part of longstanding efforts to develop the industry, Malaysia has created scholarships and training programs. Ungku Abdul Aziz, the father of the central banker, established the first modern Islamic financial institution, Tabung Haji, in 1962 to help poor Malays finance pilgrimages to Mecca and to mobilize rural savings.Later, the Malaysian government set up Islamic banks as part of a reformist platform to promote national development and blunt the appeal of fundamentalist Islamic political rivals.In early 2001, the government began offering tax incentives aimed at converting at least a fifth of the nation’s assets to Islamic finance by 2010. (They now make up roughly 12 percent.) With China siphoning away some economic opportunities from Malaysia, Islamic finance has become part of a broader effort to lure tourism, trade and investment from the Middle East.”We are trying to position ourselves as being acceptable to the Middle East, to petrodollars,” said Wong Fook-Wah, chief executive of RAM Rating Services in Kuala Lumpur. “Hopefully they’ll fund economic growth in Malaysia.”But as the price of oil has rebounded, Islamic finance has boomed elsewhere.Clearly, faith is not the only thing driving the market. At Kuwait Finance House’s Malaysian unit, Younis said, 40 percent of its depositors and 60 percent of its borrowers are non-Muslims.E-lene Kee, a Buddhist corporate lawyer here who advises clients to use Islamic loans to finance construction projects, described his view this way: “We look at these things just like Apple or Berkshire Hathaway.”Ong-Yeoh, the public relations executive, said he felt the same way: “It’s just taking advantage4 of 53/3/2010 3:47 PM
Islamic banking rises on oil wealtb, drawing non-Muslims – The New … http://www.nytimes.eom/2007/l l/22/business/worldbusiness/22iht-is…of the system.”After taking out an Islamic loan for his home, he took another for his car.5 of 53/3/2010 3:47 PM
QQtOrèssana Kl deN reeAUTHonTYready for businessÀIs Islamic finance at tipping point?Shari’a-compliant banking is fast moving from niche to mainstream, says Christopher Watts. But while continuing growth seems certain, challenges remain.In January this year when the UAE’s Sharjah Electricity and Water Authority (SEWA) needed cash to construct a power generation and desalination plant in the town of Hamriyah, it was Islamic finance that provided the answer: The utility raised USD 350 m by issuing its first ever sukuk – asset-backed bonds that comply with Shari’a, the Islamic legal code that prohibits interest.By no means is SEWA alone in venturing into the Islamic capital markets. Corporate sukuk issuance leapt from USD 0.4 billion in 2000 to USD 24.5 billion in 2006, according to International Islamic Financial Market (IIFM), an industry association. Growth topped 122% in 2006 alone. “Islamic finance is no longer a niche market,” says David Pace, CFO of Bahrain-based Unicorn Investment Bank (UIB), a Shari’a-compliant house. “It is increasingly a mainstream component of the global banking system.”To be sure, while the world’s first Islamic bank was founded back in 1975, it is only in the last five years or so that Islamic finance has surged. Sniffing opportunity, conventional banks are now scrambling to set up Shari’a-compliant operations; and there has been a flurry of all-lslamic start-ups, from full-service investment banks to specialist advisory firms. Products have moved beyond lending, insurance and investment funds to include sukuk, hedge funds, currency swaps, and more.Despite this boom – largely concentrated in the Middle East and South-East Asia – it’s plain the Islamic finance industry still lacks global scale. Professor Rodney Wilson of the Institute for Middle Eastern and Islamic studies at Durham University in the UK estimates Islamic banking assets speak for less than 0.5% of the world’s total. And worldwide sukuk debt outstanding amounts to perhaps USD 100 billion – just 0.1% of the global bond market.Still, the signs point to a continuing surge in Islamic finance. Take economic growth: The Middle East and Asia are the two fastest-growing areas of the world. Kuwait Finance House expects 2007 GDP to rise 6.1% in the GCC and 6.2% in South-East Asia – in contrast to 2.4% in the EU and 2.2% in the US. Oil revenues lie behind the boom in the GCC; and in South-East Asia it is “the financial rigour adopted in the wake of the Asian currency crises,” according to Douglas Clark Johnson, CEO of Calyx Financial, an alternative investment adviser based in New York.Continuing growth in the GCC states and South-East Asia is fast creating a prosperous middle class among the regions’ combined 410 m-strong Muslim population. As the ranks of the regions’ newly well-off snap up credit to buy homes and cars, and invest in savings and retirement plans, demand for Shari’a-compliant retail financial services is set to accelerate. Behind such consumer products is a need for Islamic institutional finance too.
Consider, too, the vast cash-flows into the GCC region and South-East Asia: The IMF expects Indonesia and Malaysia alone to record a cumulative current account surplus of USD 132 billion for the five-year period to end-2008, in contrast to a deficit of USD 32 billion for the same period a decade earlier. And in the GCC, the surplus should reach USD 680 billion, versus a prior deficit of USD 8 billion.Buoyed by this cash, regional governments are planning ambitious infrastructure programmes: Indonesia alone expects USD 110 billion of expenditure in the five years to end-2010; and consulting firm McKinsey estimates the GCC will invest USD 200 billion in the same period. Much of this spending is already being financed by sukuk- and the volume is set to balloon: Following its successful sukuk issue, SEWA hopes to raise another USD 2.7 billion. And in neighbouring Dubai, the electricity and water authority is eyeing a debut sukuk issue, with plans to raise USD 2.5 billion.With ever-stronger foundations in the Middle East and Asia, Islamic finance is now starting to take hold in London, too. The UK’s first standalone Shari’a-compliant bank opened its doors in 2004; two others have followed; another is on the way. (All are backed by Middle Eastern institutions.) And in April this year the London Stock Exchange listed its maiden sukuk, adding much-needed depth and liquidity to the market. Another milestone is in sight: the UK government is mulling its first sovereign sukuk issue, perhaps as soon as early-2008.But challenges remain. If Islamic finance is to move deeper into mainstream global finance, the industry needs to improve transparency and foster credibility by harmonising standards and practices. Not least, Shari’a interpretation varies between regions and even institutions. Regulatory oversight need to be sharpened as well. These measures – and others – could be critical in broadening the appeal of Islamic finance and bridging the gap between Islamic and conventional financial systems.The Islamic finance industry needs to work on innovation, too. Shari’s-compliant products can be more complex than conventional ones because every transaction is backed a non-financial trade. Many instruments are still lacking, including corporate treasury and derivatives products. As UlB’s Pace points out: “We [in the industry] need to change our perception of R&D, and view it as a core ingredient of success.” But at the same time, innovation is hampered by the limited number of Islamic scholars able to vet financial products for Shari’a compliance.For certain, industry practitioners are making progress. Earlier this year the International Capital Market Association and the IIFM agreed to develop standard contracts and common best practice for secondary trading of sukuk and other Islamic instruments. And it may help, too, that global banking giants are putting their weight behind Islamic finance. (Deutsche Bank, Barclays Capital and BNP Paribas are already among the world’s top five issuers of sukuk.)The question whether Islamic finance has reached critical mass remains open, of course. But Johnson of Calyx Financial is optimistic: “The tipping point may already have arrived,” he ventures. Even if Johnson is wrong in his optimism, it seems unlikely history will prove him to have been very far wide of the mark.

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