"The debt crisis in Dubai is about to test one of the fastest-growing areas in banking, Islamic finance, and put the city-state's opaque judicial system on trial, according to bankers and experts in finance. Many loans and bonds that comply with Shariah, or Islamic law, were issued in recent years by Dubai World [DW], the investment arm of Dubai, and other Persian Gulf companies as oil-rich Middle East nations increased spending, and the global credit crisis fed-debt investments in emerging markets. ... This is likely to create many legal issues for investors in [DW], which sent jitters through global markets, by seeking to delay payments on $59 billion in debt. ... Shariah-compliant investments prohibit lenders from earning interest, and effectively place lenders and borrowers into a form of partnership. Yet there are no consistent rules about who gets repaid first if a company defaults on such debt, said Zaher Barakat, a professor of Islamic finance at Cass Business School in London. ... 'No one has tested the legal system or the documentation,' a lawyer briefed on the situation said. ... In October, the British Treasury drew up rules that would soon allow Britain to issue Shariah-compliant government debt. The same month, the World Bank issued $100 million in Shariah-compliant bonds", Heather Timmons at the NYT, 1 December 2009: http://www.nytimes.com/2009/12/01/business/global/01islamic.html.
DW sukuks were a disaster waiting to happen, see my 3 July 2009 post: http://skepticaltexascpa.blogspot.com/2009/07/eichmann-moment.html. I can't imagine how a government could issue Sukuks unless they are paid from some specific tax.
4 comments:
Ha... I've seen some of the financial reporting from Dubai... all these sweaty palmed junior staffers of the creditor banks tasked by London to "follow" the workout...
They must look like a flock of vultures hanging around Dubai... debt jackals...
You wrote Saudi justice for the investment bankers, lawyers and CPAs who crafted these deals...
Yes... time to line them up and question why they brought such polluted methods into Shariah finance.
Interesting idea to fund them with a tax.
The problem is that Islamic law encourages contorted work-arounds to what should be routine financial transactions.
Islam prohibits riba, or interest, on loans. That prohibition ignores the fundamental reality of the time value of money.
The result of no interest? Complicated sukuk bonds, whacked out "takaful" insurance, and an opaque hawala money transfer system that helps cover the tracks of terrorists (like the Mumbai attackers)...
Sharia finance is the ORIGINAL vampire squid.
I like this blog and will be following it. This story about" Dubai" being in trouble came to light like almost 3 weeks ago, but only have not heard much on it anymore. The last I heard was some neighbors were bailing them out. Is this crisis resolved?
Dallas CPA:
What do you mean by resolved? Someone will lose billions here. Who does not appear to be determined yet.
IA
Post a Comment