Critical Assessment of Mudharabah.

The origin of mudharabah is neither ordered nor recommended, neither by Allah nor by
Rasul Allah (SAW). It was a mode of partnership undertaken since a long time (pre-
Islamic era) and was practised by Muhammad (B.P) whereas Khadijah provided him
with merchandices for sale. He gained very much profits from his business. Such a
practice of business was termed by jurists as mudharabah. The root meaning of
mudharabah is an idiomitic expression in Arabic “ dharaba fi al-ardhi” = “safara” ,
meaning “ he journeyed” as the trader sold the merchandices by making journey. It is
undeniably as the best example that ever made by Muhammad, but however, to re-aplly
it in the modern business context, it may be either halal or haram against the shari’ah.
There are many postulates to found on fiqhi judgements such as “ the judgment is
according to the reason, its existence and its absence “. A fiqhi judgement is hence
related to a question : What is the reason of applying mudharabah is halal or Islamic or
shari’ah-compliant? If the reason found factually in the practice field evidences that
mudharabah is mis-undertaken, even it is exploited for deception. And deception is
haram, hence, mudharabah is haram. On the contrary, if both parties mutually trusts each
other and mudharabah-based business is profitable and the merchandise is halal ,
mudharabah is then halal. Thus, the effectiveness of mudharabah is very relative
according to factual reasons. Hopely, no one say :” Mudharabah is Islamic, to reject it is
against the law of God” This is mu’amalah , not ‘aqidah. (Note : Islam is a
comprehensive religion covering inherently ‘aqidah, shari’ah and akhlaq’ (belief , laws
and ethics). So, it is Islamic if your reject mudharabah as a pratical mode of your
transaction. Islamic or un-Islamic is judgement according to reasons surrounding it.

002
Royal Bank of Scotland sees big growth opportunities in Islamic investment banking,
expecting asset growth rates to remain 15-20 percent annually and profitability levels to
increase, a leading executive said.

Navid Goraya, RBS' global head of Islamic banking, said margins have increased as
financing costs have fallen, putting the Islamic sector on a solid footing this year.

"Profitability has not been hurt," he told a conference on Monday. "You could see
profitability go up."

In the six countries of the Gulf Cooperation Council - the world's biggest market for
Islamic financial services - asset growth will remain at 15-20 percent annually, despite
the global wealth destruction caused by the financial crisis, he said.

As a result, demand remains strong for wholesale banking services that comply with
Sharia code, Goraya said. "There is demand for those who are gearing up," he said.

Demand from the world's 1.3 billion Muslims for investments that comply with their
beliefs has soared, and assets that comply with Islamic law are estimated at between $700
million and $1 trillion.
The Islamic sector will be hit by the same economic downturn that has burdened
conventional banking, with many expected to suffer impairments due to a slumping
property market, Goraya said, although many Islamic banks have sidestepped massive
losses due to their conservative nature.

"The Islamic banking industry or sector will continue growing at its previous pace if not
even faster," he said.

RBS will target four areas in its Islamic strategy, he said: debt capital markets, equity
capital markets, corporate finance and risk management, and structured products and
investment, which includes private equity.
MANAMA - The infant Islamic management industry lacks a large enough range of
products and distribution channels to increase to challenge its conventional peers in
catering to Muslim wealth, experts said.

The nascent $1 trillion Islamic finance industry is walking a fine line between replicating
conventional products and establishing its own genuine products that adhere to Islam's
prohibition of interest.

Asset management is seen as a sector where the industry could easily create products
according to its own set of values, but it has not yet established the range of products to
compete with conventional asset management.

There were some 750 Islamic mutual funds with less than $50 billion under management
as of the first quarter of 2009, a fraction of global asset management, and there are only
14 funds larger than $500 million, according to a report published by Ernst & Young this
year.

"The demand is there, but we need products, products, products," said John Sandwick, an
Islamic asset management consultant.

"Pension funds are coming up in the Middle East," he said, adding that the nascent but
strongly growing Islamic insurance industry, or takaful, particularly in Saudi Arabia, will
also give a boost.

Experts said that it has been a weakness of Islamic fund products to focus on equities and
real estate, not offering the comprehensive asset diversification of conventional funds that
typically allocate a large portion to fixed-income investments.

"There is still a gap in terms of plain vanilla products," said Mark Smyth, managing
director at consultancy Failaka.

Saudi Arabia and Malaysia are the only two Muslim markets with strong retail banking.
Smyth said Islamic fund managers were caught between catering to the contested
Malaysian retail market with very low margins and creating off-shore funds to target Gulf
Arab institutional investors.

But these, including the multi-billion sovereign wealth funds managing the region's oil
wealth, are almost exclusively investing in conventional products, he said.

"To attract liquidity without existing clients is very difficult," he said. "It's very difficult
for Islamic funds to get it off the ground, and they're all saying it's distribution."

Islamic asset managers are prohibited from investing in companies that are highly
leveraged and in certain sectors, such as financials, alcohol and gambling.

SUKUK INJECTION

A bigger Islamic asset management industry would give a much needed money injection
to the market for sukuk, or Islamic bonds, a key product of the industry.

Issuance fell by more than half to $14.9 billion last year, Standard & Poor's has said, and
issuance in the Gulf Arab region this year has entirely hinged on issuance from
governments and state-affiliated institutions.

This in turn would provide asset managers the much needed fixed-income component, for
which they have in so far used short-term money market instruments such as murabaha.

Only a handful of sukuk funds exist today, Failaka's Smyth said.

"There is this wall between the products and the money that needs to be torn down," said
Silke Bernard, a Luxembourg-based lawyer specialising in funds at law firm Linklaters
said.

She said Islamic funds lacked access to the large distribution platforms used by asset
managers and that Islamic funds often lacked the required minimum size of typically
$100 million and a track record of several years required by large asset managers.
Islamic bonds rally in third quarter
Oct 04, 2009 at 19:57
View count (50) | | | |
Sukuk mkt to hit $16 bln in 2009

DUBAI - Global issuance of sukuk, or Islamic bonds, staged a rally in the third quarter
with the volume of issuance up 15% on the previous quarter in the latest sign that
confidence is returning to capital markets.

Data from Zawya.com's Sukuk Monitor shows the value of global Islamic bonds in the
third quarter rose to $6.2 billion, up 82% from $3.4 billion a year earlier.
Investors are putting more faith in the sukuk market, seen as a more stable platform to
raise capital, as the financial crisis eases and global market conditions improve rapidly,
bankers say.

"Debt issuance in general was very strong in the third quarter," said Abdulkader Hussein,
chief executive of Mashreq Capital. "High quality issuers were still the focus and
institutions like Petronas and IDB issued sukuks. The improving sentiment on Dubai and
the Nakheel sukuk in particular also made investors feel more comfortable with the
Islamic debt market."

Sentiment over the $3.5 billion sukuk due in December by Nakheel, a unit of
government-owned Dubai World, has improved in recent weeks after Dubai's ruler and
Prime Minister of the United Arab Emirates Sheik Mohammed bin Rashid Al Maktoum
said the emirate can meet its debt obligations, estimated at as much as $80 billion.

Both conventional and Islamic deals were successfully placed, as investors became more
comfortable with the economic environment and put cash and equity to work.

Total global sukuk issuance stood at $13.5 billion at the end of September, data from
Zawya's Sukuk Monitor shows. That's close to the total global market for primary Islamic
bonds in 2008, which raised $15.2 billion, according to Zawya.com.

Mukhtar Hussain, global chief executive officer of HSBC Amanah told Zawya Dow
Jones in a recent interview that the volume of Islamic bonds issued globally this year
could hit $15 billion as the financial crisis eases and global market conditions improve
rapidly.

Sukuk comply with Islam's ban on interest and are backed by physical assets from which
returns are derived and paid to bondholders instead.

European and Asian investors are increasingly buying into Middle East Islamic bonds in
a bid to diversify their portfolios into a market showing greater signs of recovery,
according to Mark Waters, BNP Paribas's head of debt capital markets in the Middle
East.

In the third quarter, more than $1.8 billion worth of sukuk were sold by power and
utilities companies worldwide followed by $1.5 billion from oil and gas.

Primary sukuk issued out of the Middle East and North Africa region accounted for 59%
of total volume of global sukuk this quarter.

Saudi Arabia topped the list of countries of origin, enjoying 44% of the total volume,
followed by Malaysia at 38% and Bahrain 8.5%, according to Zawya data..
Saudi Electricity Company sold in July $1.867 billion worth of Islamic bonds and Islamic
Development Bank sold $850 million sukuk.

HSBC Bank Middle East was the top lead arranger, followed by Samba Capital.