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CAPITAL MARKETS

The linchpin of Islamic finance

A product without a market

Corporates in the Middle East are not just turning to the Islamic capital markets to finance their expansion strategies. The Shariah-compliant loan market is also thriving. The bank market remains the backbone of financing in the region. Although there are no figures on its size, Ahmed Abbas, chief executive of Liquidity Management Centre in Bahrain, reckons it’s about 10 times the size of the sukuk market.

Indeed one of the biggest challenges facing capital markets players, he says, is to try to transfer some of the bank lending business into sukuks.

The most common Islamic lending structure is known as murabaha, which, according to Merrill Lynch is an unconditional sales contract, where the buyer pays the seller a lump sum deferred to a later date or by installment with an agreed profit mark-up built in. The sale must involve a tangible object, must have a clearly stipulated term and the title must ultimately transfer from seller to buyer.

One of the most eye-catching murabaha facilities this year was arranged for Kuwait’s Mobile Telecommunications Company. In February, the company raised $750 million through a murabaha facility to help pay for its $3.36

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