Sharia Law, presented in the Quranic versus, provides a body of moral codes by which Islamic persons must follow. In practicing nations, these codes are religious law and address standards ranging from crime and prayer to etiquette and economics.
As detailed by the Financial Times in May, the economic side of these sacred codes is what multi-cultural financial hubs (notably London) have their sights set on currently. Only one western nation has issued a bond that is in line with Sharia Law under the condition that no interest payments are involved: the UK.
To those with knowledge of the City, this comes as no surprise. London has not only represented itself as a financial capital along with New York, Hong Kong and Singapore, but it has notably served as a second home for Middle Eastern businessmen and their families - not to mention its hub status in the trading of petrol and metals.
Amid a world containing complex financial structures, contracts and lending vehicles, one would think that building a bond that adheres to Sharia Law would derive from an intricate financial innovation of sorts. As it turns out and as the Financial Times describes, ijara is a simple sale-and-leaseback structure. The 'precious metal middleman' format leaves London well positioned and it is no doubt that business will grow over the coming years.
But will London become a prime hub for this sort of financing or will the City give way to an emerging hub of the east? Will we see larger institutions take a lead here or will added scrutiny in the structures leave smaller, local institutions better positioned? Sharia scholars have voiced concerns and lenders and borrowers alike may be walking a fine line when faced with traditionalists. Will the next generation of borrowers and lenders reflect back on sharia as a former "obstacle" or will this moral hybrid remain the standard?
Feel free to answer any of the questions I've outlined or contribute your experiences when it comes to Islamic finance. For those who have lived in a country where Sharia Law is practiced, how would you analyze public opinion on the matter?
Be sure to check out this great Financial Times article on Islamic Finance:
Islamic finance: By the book http://www.ft.com/intl/cms/s/0/d7976706-d793-11e3-80e0-00144feabdc0.html
(Graph: The Economist)
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