NEWHORIZON

IIBI NEWS
NEWHORIZON October–December 2010
discussed these issues and the
solutions.
Richard T de Belder, Partner and
Head of Islamic Finance at
Denton Wilde Spate – an
international law firm,
examined the Tamweel, Sun
Finance (Sorouh), Aldar,
Tabreed and Purple Island
Sukuk deals. He pointed out
that in practice very few sukuk
are asset backed, where
investors’ returns are based on
income generated from the
underlying assets; the
overwhelming majority of the
sukuk deals are asset based,
where investors rely on the
purchase undertaking by the
originator, instead of the
performance of the underlying
asset for return and repayment
of the initial investments.
Mian Muhammad Nazir, Senior
Vice President at Dar Al Shari’ah,
a legal and financial consultancy
organisation, which is a
subsidiary of the Dubai Islamic
Bank, discussed the innovations
in Islamic capital market
instruments. He highlighted that
sale, lease or investment are three
basic structures that are used
either standalone or in
combination with other
structures in developing Islamic
financial instruments. He pointed
out that the choice of a
particular structure in developing
an Islamic financial product
depends on many factors such as
commercial and legal
considerations as well as
taxation issues. He explained the
key risks inherent in Islamic
capital market instruments and
elaborated the risk management
techniques. He also discussed the
subordination process in Islamic
finance transactions and the use
of guarantees and collateral in
the subordination process. He
discussed the process for
restructuring of sukuk
transactions, which is one of the
key areas of debate in the
contemporary Islamic finance
industry as many sukuk deals are
in the process of restructuring.
He rounded out his presentation
with a discussion about
structuring Islamic swap
contracts and elaborated Islamic
swap models based on
murabaha and wa’d (promise).
He included an analysis of the
various types of swap contracts,
which are being offered in the
market and examined the
challenges and issues in
structuring such contracts.
Dr Dar returned to the podium
to discuss mechanisms for the
structuring of Islamic option
contracts and examined the
Islamic call and put option
contracts based on the concept
of arbun and wa’d. (Arbun is a
non-refundable down payment
for attaining the right to buy
certain goods at a certain price
in future.)
Clive Lang, Chief Risk Officer
at Peak Partners SA looked at
the conventional option
contracts, their structures and
applications and the formulae
used to determine premiums. He
described how Islamic options
may be priced while keeping in
view all the requirements of
Shari’ah compliance.
In the final session, a group
discussion led by Dr Dar took
place about a structured
approach to Islamic financial
innovation. This interactive
group discussion drew on the
formal presentations to debate
practical considerations such as
client requirements, choice of
structures and the
competitiveness of products.
Mohammed Amin, Islamic
Finance Consultant and a
member of the IIBI Editorial
Advisory Panel for NewHorizon
delivered the closing address.
He emphasised the importance
of financial knowledge and
skills for Islamic finance
practitioners if they are
effectively to meet clients’
requirements. At the end of the
workshop, he presented
certificates to the participants.
The Institute’s 5th Annual
three-day residential workshop
on structuring innovative
Islamic financial productswill be
held at the University of
Cambridge’s Clare College from
22-24 July 2011. For more
information, please contact
Mohammad Shafique at +44
(0)207 245 0404 or by email
m.shafique@islamic-banking.
com
36 IIBI www.newhorizon-islamicbanking.com