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Saudi
Arabia diplomat bats for Islamic bonds
22/11/2007
Islamic finance, which has been
approved as a profitable investment option
in global market, will immensely benefit
Hong Kong, Consul-General of Saudi Arabia
in Hong Kong Alaudeen A. Alaskary told China
Daily.
"As a well-established
international financial hub, it is about
time for Hong Kong to launch Islamic bonds
to catch up with the rest of global financial
markets," Alaskary said.
"And Hong Kong will
benefit a lot from the financial instrument,
for it has been approved to be easier to
handle, more profitable and more stable
than many other financial instruments,"
he said.
Shariah-compliant sovereign
and corporate Islamic structured financial
instruments, known as Sukuk or Islamic bonds,
are a form of commercial paper that provides
an investor with ownership in an underlying
asset. It is an asset-backed securities
that has a stable income and Shariah-compatible
trust certificates.
Because of the nature of
the securities, Sukuk has been developing
at a remarkable pace since its inception
three decades ago.
The number of Islamic financial
institutions worldwide has risen from one
in 1975 to more than 300 at the end of 2006
in more than 75 countries and regions, with
total assets estimated to exceed US$1 trillion.
In his policy address last
month, Chief Executive Donald Tsang called
for the development of an Islamic bond market
in Hong Kong to tap Islamic funds, which
is worth between US$700 billion and US$1
trillion and expected to grow at 15 percent
per year.
Financial Secretary John
Tsang also urged regulators to study how
to reconcile Muslim financial rules with
local laws to launch a market compatible
for Islamic bonds.
"Islamic finance is
an important element of the global financial
system," said the finance chief. "For
Hong Kong to be a major international financial
center - not just in the region, but globally
- Islamic finance must be among our portfolio
of products and services."
Alaskary said the Shariah-compliant
requirement will not make Sukuk less attractive
compared with other bonds.
"I think they are regulations
rather than restrictions. All bonds have
their rules, so is Sukuk," Alaskary
added.
Islamic finance is governed
by Islamic law, or Shariah, which bans the
collection of interest, trading in risk
and investing in gambling, pork, bars and
alcohol-related businesses. All are components
in virtually every global market.
While conventional bonds
are based on the legal relationship between
borrowers and lenders, Islamic bonds are
structured as business transactions. Instead
of issuing interest, they revolve around
rental payments and dividends.
Charles Li, a finance professor
at the City University of Hong Kong, said
Hong Kong authorities must be careful in
balancing local financial norms and Islamic
financial regulations.
"The government should
study whether our laws are in conflict with
Middle-East banking systems and laws,"
Li said.
Courtesy China Daily
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