|code: 243331||Date: 2011/05/25||source: Global Islamic Finance Magazine|
Islamic finance A Tool for International Trade
Islamic products and services for the corporate segment have also evolved over time. Basic account services have given way to the need for more complex solutions. Historically, a small range of Islamic financing, investment, cash management and treasury solutions limited the ability of a corporate treasury to mitigate foreign exchange, rate, funding, payment, commodity price and business protection risk in a Sharia-compliant manner.
Inevitably, this gave rise to a high degree of business risk. Over time, the Islamic finance industry has witnessed development of product suites to meet the corporate segments' financial needs. The evolution of Islamic finance can be broadly summarised with the development of basic personal and corporate account services, financing, trade and investment products over the past two decades. More recently, there has been considerable product development in the investment banking and takaful (Islamic insurance) areas. Islamic finance offerings today are on a par with their conventional equivalents.
Today, the Islamic finance industry can cater to complex corporate requirements such as debt capital markets, equity and derivatives. These increasingly sophisticated products are normally structured using the Islamic financing building blocks: Murabaha, Mudaraba, Musharaka and Ijara.
Islamic finance has a full spectrum of well-developed financing solutions covering short-term simple finance through to medium and long-term complex, syndicated finance, project-based finance, export fin-ance, and Islamic debt and equity capital markets.
The introduction in recent years of Islamic treasury hedging solutions has enabled institutions to hedge currency and exchange rate risks and to take advantage of yield enhancement through Islamic structured investment products.
The launch in March 2010 of the International Islamic Financial Market and the International Swaps and Derivatives Association Tahawwut (Hedging) Master Agreement was a major breakthrough in Islamic risk management, with the introduction of the first globally standardised framework document for privately negotiated Islamic hedging products.
Islamic products such as trade Murabaha (a sale with deferred payment) are widely used to finance purchase of goods and raw materials. Musharaka and commodity Murabaha (based on the sale of a specific commodity) are used to accommodate short-term working capital financing requirements to address liquidity mismatches between incoming funds (collections) and outgoing funds (payments) in a company's operation.
Islamic solutions for medium and long-term financing are becoming more mainstream in the industry, in the form of financing and sukuk (Islamic bonds).
Governments and companies are increasingly looking towards Islamic capital markets to meet their financing requirements. Figures vary for the total value of sukuk issuance in 2010; according to Dealogic, global sukuk issuance reached $23.3 billion in 2010, an 11 per cent decline from 2009 but up 23 per cent from 2008.
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