GROWING INTEREST IN INTEREST-FREE BONDS

The events of September 11 raised the profile of all things Islamic. And now every major financial institution is quickly forming its own Shari’ah-compliant department. Since 2001, the Islamic banking industry has boomed as more of the world’s 1.3 billion Muslims seek financial services that comply with Islamic law, which bans interest. Islamic finance, instead, pays a return derived from underlying physical assets. Seizing the opportunity, some 300 Islamic financial institutions are now spread among 75 countries compared with almost none 30 years ago, Kuwait’s Global Investment House (GIH) said recently in a report. Islamic financial services are gaining popularity that even conventional banks and financial institutions patronise. Gulf investors are also attracted by higher returns from Islamic finance over conventional banking, while Western investors are drawn to Islamic investment products as a way to diversify their portfolios, said the GIH report. One of the much sought-after Shari’ah-compliant financial instruments is the Islamic bond, or sukuk. Sukuk are attractive, as they bring a new source of funds at a favourable rate, as they adhere to Shari’ah law.