2003Warren Edwardes interviewed by
Adrienne Roberts of the Financial Times for a feature on Islamic
Whilst there have been a number of Islamic
Sukooks (Islamic Bonds) issuedrecently, most of
the paper is bought to hold rather than trade. Thus
liquidity is a problem both for on sale and price determination and mark
tomarket is difficult. This is a result of a
combination of two factors. Thereis a shortage of
quality paper issued into the market and also the view insome quarters that the trading of debt is not Shari'ah compliant. A
way tomeet the Islamic restrictions on debt
selling I believe would be to useNovation rather
than selling. Thus there would be a cancellation of the oldagreement and establishment of a new agreement between the parties.
TheNovation could be included as part of the
There is a also a problem in terms of the lack of Islamically compliantshort-term liquidity instruments. The Sukooks even if they were
traded andliquid are medium to long term. They are
thus not price stable. And the
current shortage of credit lines to Middle Eastern institutions has led toan increase in short terms cash holdings but the lack of suitableinstruments creates a liquidity trap.
In terms of Asset / Liability Management there is a hedging problem forinstitutions that lend long term at fixed yield through Ijaras and
financethrough short term and therefore variable
yield accounts. There is thus a
pressing need for Islamic derivatives to address this gap problem. But
mostderivatives are deemed to be Haram or not
Shari'ah compliant on the groundsof being gambling.
Perhaps "Financial Takaful (insurance)" would be a betterbanner to address this problem and a number of institutions believe
theyhave much needed solutions to this problem.
Warren Edwardes is CEO of Delphi
Risk Management, the London-based financial product creativity,
communication and control consultancy.
Warren was previously on the board
of Charterhouse Bank and has worked in the treasury divisions
of Barclays Bank, British Gas and Midland Bank. He first researched
into what were later to be called "derivatives" in 1975
and was part of the team that executed one of the world's first
currency swaps in 1981. Since then he has devised and transacted
numerous structures that form part of the history of derivatives.
Warren can be contacted via
Warren Edwardes <note spelling of edwardes> is author of best seller "Key
financial instruments: understanding and innovating in the world of
derivatives" which includes an appendix on Islamic Banking. see
are the Innovation, Communication & Risk Management arms of Delphi Risk
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