Islamic banks have an incentive to issue perpetual sukuk with Basel III in the offing, a leading Islamic finance scholar has said.
According to Shaikh Nizam Yaquby, perpetual bonds/sukuk are classified as tier 1 capital under the new norms.
"Due to their attractive features (low rate of interest, non-dilutive, no redemption, etc) they have been popular amongst issuers."
Shaikh Nizam was speaking during the third Sharia scholar session organised by Waqf Fund, a Bahrain-based special fund to support Islamic finance training, education and research.
Shaikh Nizam said the concept of perpetual or no redemption bonds is very old in the conventional financial industry - dating back to 1700s when the UK government introduced them.
From a Sharia compliance perspective, Shaikh Nizam hailed the financial innovation as a welcome development for Islamic banks, large corporates and governments interested to finance infrastructure projects.
This is because of risk participation and no purchase undertaking (which has been criticised by scholars as a questionable practice).
He also identified some common concerns about the structure of perpetual Sukuk but concluded that those can be easily addressed.
More than 25 Sharia resources from 13 Bahrain-based Islamic financial institutions attended the session, which was held at the Central Bank of Bahrain premises.
(Trade Arabia / 16 Oct 2013)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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