Imagine that your bank’s bad loans totalled 15% of its balance sheet. What conclusion would you draw? The bank lacks credit control, customers are dishonest, rates are exorbitant, or the market is plagued by all three problems and more. Yet this is the reported case in Iran today [1]. As a result, the Central Bank is looking into the formation of a “bad bank” asset management company to absorb the troubled transactions. In doing so, I encourage Iran to adapt their path.The bad bank process may be structured with three very different objectives, but rarely is it struc...

I wonder what people are thinking. On January 29th, The Daily Mail screamed “Revealed: The government buildings sold off by the Treasury as part of the secret Islamic bond scheme and now operated under Sharia law”. The article has important errors and raises equally important questions.Foremost, the scheme was not secret. It was highly publicised and debated.The Daily Mail is really worked up about the restriction on alcohol in the buildings. I wonder if the actual indenture puts the buildings under “Shariah law”. Or, is this a case of common landlord tenant co...

Over the last decade the Turkish economy has been one of the most vibrant economies in the world, more than doubling its GDP to over US$ 800 billion. This internationalisation has been mainly led by record levels of foreign direct investment (FDI), averaging around US$ 12 billion per year.With geopolitical tensions continuing to dominate its eastern borders, and lingering economic stagnation in the west, the economy will face a number of challenges in 2016. However the country’s resilient private sector is targeting greater levels of FDI to support economic growth.“Turke...

Saudi Aramco Total Refining and Petrochemical Company (SATORP), in Jubail on the east coast of Saudi Arabia.In a recent interview with the Economist, Saudi Deputy Crown Prince and head of the Supreme Council of Aramco Mohammad bin Salman noted that the government was considering a partial privatization of the state oil company, with a decision to be made in the next few months.While this may at first appear to be another move to plug the budget deficit as low oil prices persist, analyzing the shifting structure of the Saudi economy and society point to slightly dif...

Financial institutions have a largely untapped market in Indonesia’s “digitally enabled but unbanked” population. Providers with digital capabilities are particularly well placed to facilitate transactions, capitalising on the Indonesian government’s drive to promote its domestic Sharia’h-compliant capital market.This alert will bring to your attention the significant measures the Indonesian government has taken to provide the regulatory environment necessary to germinate and stabilise their Islamic finance market including: branchless banking;promoting S...

Hydrocarbon-rich countries have two reconcilable challenges. In the current low price environment, their budgets are under pressure. Typically, these countries control hydrocarbon ownership and distribution.One of the most underused contracts in Islamic finance is the salam contract. This allows a commodity producer to agree on a price, quality and quantity of a commodity, and a future delivery date. The buyer pays on spot. The producer delivers at a future date.My recommendation is that hydrocarbon producing countries seeking to address their budget deficits, issue sukuk al salam. The bas...

Yangon, Myanmar - Islamic finance expanding into non-OIC countries. Image courtesy of Shutterstock.If anyone attended the recent Deloitte-IRTI/IDB workshop, I owe you an apology. I know, I was ranting. I’m slightly concerned it’s kind of my thing nowadays. I think the angry young man is still somewhere within, even if disguised by middle age. Is this what I am reduced to in the late ‘asr of my career? The only madman in the room. A repetitive impotent diatribe against the hijackers of an industry I care deeply about.Maybe you care. In fact, it’s more than likel...

Chances of an upside shock to oil prices are growing. Image courtesy of Shutterstock.After years of being too high, oil forecasts now appear too low. As supply rolls over we could see prices back at $100, with decade-high geopolitical risks shocking it higher.Spot, or immediate, prices are hard to model as demand is not linearly elastic, but dependent on hundreds of variables. Historical correlations also become irrelevant when sharp moves occur.Oil due for delivery in three to five years is easier to gauge. This should approximate the marginal cost of production for a given level of fut...

This insight aims to highlight new rules governing the Islamic finance sector in Indonesia and the enhanced role of the National Shariah Board, to set out the current state of the market including opportunities for foreign investment and to trace the roots of the industry in the country with the world’s largest Muslim population.New stress test rules for Islamic financial institutionsOn 19 November 2014, the Indonesian Financial Services Authority (OJK) issued new rules regarding the development of Islamic finance in the country. This followed an August 2014 initiative to encourage...

Solar Sukuk shows the way forward in alternative financing solutions. Image courtesy of Shutterstock.This article was originally published on 17 March 2015 by Rebecca Clow and Jonathan Lawrence, on K&L Gate Publications. SGI-Mitabu, a joint venture of two Australian solar companies, The Solar Guys International and Mitabu Australia, has revived its plans to fund its Indonesian 250 megawatt solar project with Islamic compliant funding. The solar project will require up to AUD550 million of financing. Commencing in July 2015, the first phase of the project w...