Kuala Lumpur: The Islamic scholars have called for stricter supervision of Islamic bonds (Sukuk) proceeds as the Goldman Sachs Group has announced a debut of an Islamic debt of $2 billion (AED 7.34 billion).
The move by the Goldman Sachs Group has alerted the Islamic finance advisors as to monitor and implement the financial policies tightly and strictly.
According to prospectus of October 18 by Goldman Sachs Group, the proceeds would be used for general corporate purposes and financing needs.
The members of the Malaysian central bank's Shariah Advisory Council, Rusni Hassan and Mohammad Akram Laldin, have urged the Non-Islamic banks to make their investment plans without ambiguity. On the other hand, they also urged the approvers to thoroughly study the plans before approving them.
It is to remember here that Islamic Shariah strictly prohibits raising money for businesses by earning interest or getting involved in alcohol and gambling businesses.
When Goldman's spokesman in New York, Michael DuVally, was contacted for the comments on the move by his company, he declined. However, the London-based adviser for the program, Dar Al Estithmar Ltd, commented that it is awaiting instructions on whether more information on the sukuk will be released.
Rusni stated, "Supervision activities need to be tightened and strengthened, not only by the Shariah advisers, but by all parties involved in the sukuk issuance, on how sukuk proceeds are used."
In Malaysia and Indonesia, capital-market regulators need the use of sukuk proceeds to conform to Shariah but this is not the requirement in the Arabian Gulf countries.
Mohammad Akram Laldin said that scholars in the Middle East certify that proceeds from Islamic bonds must be utilized in approved purposes; however, there is no central board in the region which can monitor the utilization of proceeds.
“Sometimes there is a disconnection between the issuer and the Shariah board,” he said while adding that, “There is no real, rigorous monitoring that's being done.”
Vice-President of Treasury and Investment at Al Baraka Banking Group BSC in Manama, Bahrain, Malek Khodr Temsah, commented, "What the Goldman debate achieves is, in fact, a re-enforcement of the perception that the Achilles' heel of the sukuk market remains the lack of a standard-setting and rule-enforcing cross-border regulatory body that would call the shots in such situations."
According to a safe estimation, the sales of Islamic bonds (Sukuk) have been more than doubled this year and touching the heights of $13 billion across the globe.
There are reports that for making the most of the opportunity, National Australia Bank Ltd and Saudi Arabia's Banque Saudi Fransi are going to sell Islamic securities as they want to tap an industry whose assets are likely to be almost triple by 2015.
The Chief Executive of Kuala Lumpur-based, CIMB Islamic Bank Bhd, Badlisyah Abdul Gani, claimed that as an alternative source of funding, many Non-Islamic banks are willing to sell Shariah-compliant debt.
CIMB itself is negotiating with several such financial institutions in the region of Asia-Pacific that are considering issuing sukuk, he added.
Abdul Gani observed, "Our condition to them is that they must affirm and represent they are going to sell sukuk to finance Shariah-compliant activities."
"Many of them may not have a specific Islamic window established or standalone Islamic subsidiaries but they do have activities which are by nature already compliant such as the leasing business," he concluded.
