Innovation rules
SUPPLEMENT - MIDDLE EAST - September 01, 2008
One of the key rules of Islamic law is the prohibition on charging interest (riba) on money that is lent. Traditional capital market instruments, such as bonds, commercial paper and medium-term notes all have a fundamental interest-and-principal component. This may appear to make Islamic capital market instruments a contradiction in terms but, thanks to the concept of the ijara sukuk, it is possible to overcome the problems associated with the prohibition on charging interest. The ijara sukuk has become more common as a result of recent discussions by shariah scholars on the compliance of other sukuk structures with the shariah. However, this approach does not suit all and there is still the need for other innovative structures to allow greater freedom for issuers and investors looking towards the market. Such innovative structures will have to meet the requirements of the shariah in order to have success in the market.
The...
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