IslamicFinance.de

The increase in emerging market debt to more than $900 billion in outstandings according to the International Monetary Fund (IMF) heightens the importance of sovereign debt restructuring. This concern affects not only holders of sovereign debt but also investors in corporate, financial, and structured debt. Too Little, Too Late is a collection of 15 papers on current sovereign debt–restructuring challenges and alternative approaches to resolving them. For investment analysts, the book is a valuable source of systematic analysis, insights, and data on a complex problem. The authors maintain that the only durable solution will be a multinational framework that brings lenders and borrowers together by focusing on mutually beneficial incentives.

The idea of privatizing Saudi Aramco, the national hydrocarbons giant in Saudi Arabia, appears to have re-kindled the privatization fire in the Middle East. While the announcement of what could theoretically be the largest initial public offering (IPO) ever envisaged startled even seasoned market observers, its modalities and timeline remain unclear. Indeed, privatization was not on the agenda of regional governments until a few months ago, when the fiscal situation of some Gulf Cooperation Council (GCC) countries started to deteriorate due to falling oil prices. The last few years have witnessed a virtual halt in privatization activity across the Arab world due to bad experiences with previous experiments and the perception of corruption and insider dealings.

Dr. Bronwyn King, an oncologist, persuaded 34 Australian superannuation funds to divest from tobacco manufacturers. Tobacco stands alone when compared to all other industries or products. Firstly, there is no safe level of exposure. When used as intended, tobacco will have contributed to the early death of two out of three smokers. Secondly, the scale of the negative impact of tobacco is profound, causing an estimated six million deaths per year globally. Thirdly, positive influence of the industry through professional engagement is futile. The eventual outcome from King's initiative Tobacco Free Portfolios is for the finance sector to have a tobacco free investment mandate.

One of the foremost critics of the Islamic finance industry, Mahmoud Amin El-Gamal, a professor of economics at Rice University in the United States, considers modern Islamic finance to be “Shari’a arbitrage” wherein what is prohibited in conventional finance becomes permissible when deemed “Shari’a compliant” despite having similar, if not the same, economic substance. Duke University economist Timur Kuran claims that Islamic banking is based on an operational principle [of profit and loss sharing] that is simply unfeasible. There are lots of other views and opinions on Islamic finance. Those who consider it a failure point to its tendency to favor legal form over economic substance and the lack of substantive differentiation from conventional finance.

Collaboration between Islamic finance and the forms of finance generally referred to as sustainable and responsible investing (SRI) has not ocurred although they share some obvious similarities in their objectives, methods and claims. Both seem to trigger similar expectations among their proponents of being ethically different from conventional finance. And both are relatively small and growing segments. The lack of collaboration has several reasons, like different countries of concentration, perception and reputational concerns, cultural barriers, lack of initiative by industry leaders, and simply insufficient understanding of each other. Bringing the two sides together is an opportunity waiting to be taken up by the leaders from the two sides.

Zaheeruddin Khalid, director of portfolio management at Saudi-based Jadwa Investment, said that the mutual funds market is dominated by asset managers backed by commercial Banks. However, in the segregated accounts market, Jadwa Investment is one of the major players along with the big five. He moreover explained that Shariah-compliant products investing in Saudi Arabia have generally had performance similar to the conventional products. Shariah-compliant versions of most conventional products are available in the Saudi market. Most innovations are taking place in the private investment product side instead of the public products (mutual funds) because of higher demand for the former, he added.