Derivatives Dispute Divides Islamic Finance Market
REUTERS: KUALA LUMPUR - Islamic banks are struggling to develop hedging tools as religious differences cast doubt on the use of derivatives, exposing the industry to risks of increased volatility as markets deteriorate.

Strict rules on transparency and simpler deal structures saved sharia lenders from the worst of the current credit crisis, but their ability to survive future shocks is in question because they have few instruments to guard against wild swings in currency and interest rate movements.

"To the extent there are not enough sharia-compliant liquidity and risk management products, then clearly Islamic finance would be disadvantaged compared to conventional banks and would be less able to manage their liquidity risks," said Hussein Hassan, head of Islamic structuring at Deutsche Bank (DBKGn.DE).

The $1 trillion (694 billion pounds) industry bans banking structures that are vague or ambiguous to avoid exploitation -- a rule which some argue shuts out the use of common hedging instruments such as currency and interest rate swaps and futures contracts.

But as more markets embrace Islamic finance, and the need for risk protection increases, there are growing attempts to find sharia hedging tools. >>> By Liau Y-Sing | Thursday, February 5, 2009

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Bahraini Shares Down 1% as Banks Post Profits
GULF NEWS: Manama: The Bahrain All Share Index on Wednesday closed down 1.05 per cent as more financial institutions posted third-quarter profits and the prime minister highlighted the need to ensure the robustness of the financial system.

Bahrain Islamic Bank (BIsB) reported $85 million net profit at the end of the third quarter, an increase of 84 per cent over the $46 million during the same period of last year.

"Despite the prevailing global financial crisis due to the mortgage credit crisis in the US, the bank was able, through the application of the Sharia-compliance standards laid down by the Sharia Supervisory Board, to properly select its banking transactions to achieve positive results. In addition, the bank enjoys a high level of liquidity that would enable it to go forward with confident steps," chairman Khalid Abdullah Al Bassam said. Bahraini Shares Down 1% as Banks Post Profits >>> By Habib Toumi, Bahrain Bureau Chief | October 15, 2008

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