THE ARAB MONETARY FUND, IN COOPERATION WITH THE ISLAMIC DEVELOPMENT BANK, IS ORGANIZING THE "SUKUK ISSUANCES AND STRUCTURE" SESSION IN ABU DHABI, UNITED ARAB EMIRATES

What happens when financial markets are confronted with cultural values? Funding structures that conform to Islamic law are at the forefront of an evolution aimed at integrating cultural values ​​into the globalized economy. Currently, sukuk - Islamic capital market products - are at the heart of this trend.
 
In October 2011, a major bank announced the launch of a sukuk in order to raise capital in the Islamic financial market. In the world of finance, this sharia-compliant show (Islamic law) by a renowned western bank has caused a real earthquake. Two aspects attracted particular attention: the $ 2 billion volume and the launch date, in the midst of the financial crisis. This sukuk could represent the definitive breakthrough of Islamic finance at the international level and open up a welcome financing outlook for troubled financial institutions in the current market environment.
 
 
Islamic finance reconciles financial activities and sharia. Founded on different legal bases, especially on the Qur'an and the Sunnah, sharia serves as a guideline for all Muslims. A sacred book of Islam, the Koran transmits, according to the Muslim faith, the words revealed by God to the Prophet Muhammad. The sunna, meanwhile, describes the lifestyle of the prophet, considered the example to be followed by every Muslim. Muhammad having been a merchant at a certain period of his life, the Qur'an and the Sunnah contain many counsels and prescriptions concerning the behavior to be adopted in economic matters. The central principle of this code is the prohibition of riba, that is, interest or usury. Therefore, the prime condition of any Islamic financing operation is to give up the interest.
 
This prohibition, however, is not limited to Islamic finance. Most monotheistic religions have, at one time or another, been suspicious of transactions with interest. Thus, in ancient times, the collection of interest was considered a sin by Jews and Christians. Religious conventions then took several centuries to develop sufficiently for financial activities with interest to be socially accepted. In the history of Judaism, this process was especially simplified by the fact that loans with interests to non-Jews were allowed, and that Christians then entrusted the Jews with the management of their finances. For the Christians, on the other hand, the interests remained proscribed until the end of the Middle Ages. Afterwards, the change of mentality that took place in the Christian community was based mainly on fundamental reflections on the market value of money. The critical position with regard to interests remains nevertheless anchored to this day in certain national legislations. In the United States, for example, the maximum rate allowed for lending operations is defined in the "usury statutes", the laws on usury.
 
The prohibition of interest is not the only characteristic that distinguishes Islamic finance from the traditional financial sector. The requirements also apply to risk, speculation and games of chance, and distinguish between "good" and "bad" sectors of activity. The rules on risk and speculation aim to promote the sustainable growth of local economies. The origins of this ban on gambling-related businesses date back to pre-Islamic mecca, where these popular games focused on agricultural products. Some players grew rich, while others went into massive debt. The Prophet Muhammad, who was keen on social cohesion in Islamic society, set himself against such practices,
 
Islamic finance is also known for its negative selection principle. Since the emergence of the sector, Muslim scholars have divided industries into compliant and non-Islamic branches. Today, the Dow Jones Islamic Market Index, the most famous benchmark for Islamic stocks, defines as incompatible with Islam the following sectors: the manufacture of alcohol, tobacco and pork products , traditional financial services, the entertainment industry as well as the arms industry. In addition, heavily indebted companies are excluded from the index, with religious scholars favoring equity over debt.
 
In the middle of the twentieth century, Egyptian intellectuals spread the idea of ​​taking into account the principles of sharia to structure financial transactions. At the time, the Middle East is anything but a prosperous region. Consequently, the first experiments in Islamic finance do not attract much interest at the supraregional level. In the 1970s, when the concept of sharia-compliant financial transactions was resumed, the situation changed: the oil crisis gave this region of the world immense wealth.
 
Since then, a whole series of financial institutions in the Middle East and Southeast Asia have been studying the development of an Islamic form of economic action. The main precursors of this movement are the Gulf States' banks, supported to a large extent by the Islamic Development Bank founded in 1973. In the 1980s, Islamic financial services were increasingly successful in South-East Asia. In this region, financial institutions are moving more and more towards small investors, in contrast to the Middle East markets, which focus mainly on wealthy private banking clients and private equity businesses.
Yet until the end of the twentieth century, Islamic finance offers only relatively limited opportunities. Since direct interest remains prohibited, clients can only invest their money in equities and must forego a full range of banking services. This situation only changes after the year 2000, when Islamic financial institutions begin to invest more in research and development. In the wake of this reorientation, the Islamic capital market is growing, the demand for Islamic mortgage loans is increasing and sharia-compliant credit cards are being issued. At the end of the 2000s, Islamic market players finally benefited from a sector of Islamic financial services in their own right. During the first decade of the new millennium,
 
The term "sukuk" - often translated as "Islamic obligations" - is the plural of the Arabic word "sakk", which means "official document". Etymologically, it has the same origin as the English word "check" and refers to the old tradition of establishing an official document to certify debts. The word "sukuk", ie several "checks", is therefore used to designate the first attempts to create Islamic products on the capital markets. Gradually, sukuk are gaining popularity: from less than 50 between 2002 and 2005, their number increases to 398 in 2010.
 
This rise has several reasons. First of all, it is due to the improvement of transparency regarding the way in which sukuk are structured. In order to avoid the interest normally generated on traditional capital market products, sukuk are generally based on extremely complex legal and cash flow structures. After suffering some failures, the Islamic finance market put the sukuk framework conditions into a battery of tests and optimized them.

Stefan Leins , March 29, 2012 (Next-Finance)