Sukuk pronouncement, BBA judgement grab headlines in ’08

By Habhajan Singh
Two pronouncements — one a judgement by the Malaysian High Court and another a view expressed by a renowed international Shariah scholar — grabbed the headlines in the world of Islamic finance in 2008. These two milestones were selected by The Malaysian Reserve as the most significant events for the Islamic finance sector last year following feedback from industry players and the Islamic finance teaching fraternity.
In February, Sheikh Muhammad Taqi Usmani created a storm in the industry when he remarked that a good number of Islamic bonds, or sukuk, were not Shariah-compliant; while High Court judge Justice Datuk Abdul Wahab Patail, in a written judgment dated July 16, ruled that the application of the Al-Bai Bithaman Ajil (BBA) contracts in the Arab-Malaysian Finance Bhd vs Taman Ihsan Jaya cases were contrary to the Islamic Banking Act 1983 (IBA).
The ruling, which took local Islamic bankers by surprise, was first reported by The Malaysian Reserve on Sept 8. Taqi's sukuk pronouncement and the BBA judgment caught the attention of local Islamic finance players , with the latter resulting in a number of semina r s t o clarify the impact of the ruling.
Taqi, chairman of the Shariah Council of Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and a retired Pakistani Shariah judge, was reported to have said that some 85% of Gulf sukuks did not fully comply with Islamic laws.
The figure, coming from prominent contemporary Islamic jurist like Taqi, expectably caused a stir. It sent sukuk investors and originators into a tailspin, raising questions as to the value of the papers, which by end-2007 were worth up to US$30.8 billion (RM 99.47 billion), almost double the sales of the year before.
The size of the global sukuk market, including sukuk denominanted in local currencies, stood at approximately US$ 82 billion (RM262.72 billion) as at end-2007
Other significant events last year were:
• The establisment of the International Shariah Research Academy for Islamic Finance (ISRA) in March. Isra, headed by Shariah scholar and academician Dr Mohamad Akram Laldin as its executive director, was engineered by Bank Negara Malaysia to spearhead research in Shariah issues.
• Foreign banks fortifying their Islamic banking operations. Coming on stream were the Islamic units of global and regional banks including HSBC Amanah Malaysia Bhd, Standard Chartered Saadiq Bhd and Singaporeowned OCBC Bank floating OCBC Al-Amin Bank Bhd.