Risk Management - Islamic Hedging Solutions
As Islamic institutions meet customer demands and develop global strategies, it is increasingly important that they access a range of hedging solutions. This article examines recent developments in this area, restrictions on future growth, and ways that these can be overcome.The Islamic finance sector is growing at a rapid rate throughout the world. Having begun with basic trade-related products, it is now expanding into almost all areas of banking and finance. Over the years, the sector has continued to attract a growing number of service-providers, whether offering a comprehensive range of Shariah-compliant (Islamic law) products or focused on specialist areas such as private equity, real estate, sukuks (Islamic bonds) or structured finance.
The sector is now going through a transition phase in which service providers are moving into a more advanced stage of product development. In the early days, these were structured to meet basic requirements. Now, there is a move towards more sophisticated products to cater to investment and capital-raising requirements, including project finance, hedging products and investment funds covering diverse asset classes, from the likes of equities to shipping and aviation funds.
How Will the Credit Crisis Affect Treasury Career Prospects?
Financial institutions are holding a large volume of securities of falling and doubtful value, and which imply large losses for them. Further losses are possible from having insured asset values through credit default swaps and other derivative instruments. Trading is not so transparent in the over-the-counter (OTC) markets and there is also massive speculation.
Even if a bank knows that its own balance sheet is intact, it cannot be sure that its counterparty is clear of 'toxic' debt, or in some way exposed to a third party with problems. In this environment of distrust and capital shortage, standard macroeconomic policy instruments can be blunted and a strategy that relies mainly on liquidity provision by central banks, while essential, will not suffice.
What More Must Be Done?
There are five key areas where governments could intervene in ways that would boost economies around the world:
Read more: How Will the Credit Crisis Affect Treasury Career Prospects?
Understanding and Supporting Islamic Finance
Understanding and Supporting Islamic Finance:
Product Differentiation and International Standards
John B. Taylor
Under Secretary of the Treasury for International Affairs
Keynote Address at the Forum on Islamic Finance
Harvard University, May 8, 2004 -- I thank the Islamic Finance Project for inviting me and for, once again, leading efforts to organize this excellent conference. I would also extend a warm welcome to all of you here. I know you will enjoy hearing from my esteemed colleague, Dr. Ahmad Mohamed Ali from the Islamic Development Bank. Harvard University continues its fine tradition of providing a strong platform to generate critical thinking to inform academics and policymakers on Islamic finance through its series of Islamic Finance Forums and through the Islamic Finance Project here at Harvard LawSchool.
Is 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.
