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Last Update:
10 May, 2000
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Muslim World News On-line
Date of Publication: May 2000
BMA to issue two Islamic bonds
[posted on May 4, 2000]
By Indra Chand
MANAMA, Wednesday, May 3: The Bahrain Government is to issue two new
Islamic bonds for the first time. The Bai-Salem Suquq (BSS) and the Islamic
Development Suquq (IDS) are being developed by the Bahrain Monetary Agency
(BMA).
Theoretical issues concerning the bonds, which are like treasury bonds, are
being ironed out, says Faysal Islamic Bank of Bahrain*s (Faysal Bank)
president and chief executive officer, Nabil Nassief. The Faysal Bank is
part of a committee, which is researching and developing the pioneering
instruments. The committee, established by the BMA, is working under the
umbrella of the Jeddah-based Al Fiqh Academy.
"The Bahrain government is playing a leading role in developing the Islamic
banking industry," said Mr. Nassief. "The BSS and IDS will complete the
circle of the Islamic financial system in Bahrain." According to him, the
Treasury bond is the missing link for the Islamic financial industry.
"Liquidity management is very important for Islamic banks because we don*t
have inter-bank products," said Mr. Nassief, adding that the development
would be a major breakthrough for Islamic banks.
The IDS, a long-term investment instrument will be traded in the secondary
market, while the BSS will be a short-term non-tradable note. "The whole
concept behind the IDS is to have a high quality instrument that can be
traded and used for liquidity management," said Mr Nassief. "It is a
market-driven product, which is the first of its kind, as is the BSS."
Mr. Nassief praised the BMA for taking a leadership role in developing the
Islamic banking industry. It is hoped that the BSS will be issued this
month and the IDS in the near future. "We are putting the final touches to
the two bonds, especially the IDS, which is a more complicated instrument
and requires the reconciliation of several theoretical issues," said Mr.
Nassief.
A prerequisite, under Shari*ah principles, is to have a market maker for
the instrument, so a Bahrain financial firm will be appointed as a market
maker for the IDS. A market maker is similar to what a central bank is for
a country*s currency as it intervenes and buys or sells on its own account
if it considers it necessary, so that it keeps share prices at a certain
level.
The IDS is also aimed at mobilising savings from the public at large and
will provide an alternative to conventional treasury bonds. "It will
channel small investor participation in development projects," said Mr.
Nassief. The minimum investment will be US$10,000.
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