26 AN INTRODUCTION TO ISLAMIC FINANCE
Islamic banks had considerable investments in the real-estate sector and
as result of the decline in property prices and values the market value of
assets has deteriorated. Second, Islamic banks tend to have geographical
and sectoral concentrations, which has exposed them to additional risk. It is
expected that because of prudent practices such as holding excessive liquid-
ity and adequate equity capital, Islamic banks will weather this storm and
will continue to grow their assets and deposits base.
Islamic capital markets which grew rapidly were also impacted by the
fi nancial crisis. This is evident from the drop in the issuance of Islamic bonds
(sukuk) in the post-crisis period. There were also several cases of legal dis-
putes concerning sukuk which sent negative signals in the market and put
downward pressure on demand. However, as legal issues were sorted out
in orderly fashion, the market has seen a rebound in demand. For example,
the sukuk issued by the IDB in 2010 was well received in the market and its
demand exceeded the amount offered.
Finally, in another positive move, several central banks signed an
agreement in October 2010 to establish a liquidity facility for Islamic fi nan-
cial institutions with the objective of providing liquidity-enhancing products
in the market and to offer liquidity through trading short-term fi nancial
instruments.
ENDNOTES
- For example, see Kuran (1995).
- Chapra (2000).
- The term (swt) is an abbreviation of subhana-wa-ta’ala, meaning “The Exalted
One.” - The verses emphasizing the principle of unity include: “And indeed this is my
straight path therefore follow it—and do not follow other ways because that
will lead to disunity amongst you” (6:153) “Grab hold of the rope of Allah
collectively and do not disunite” (3:103) “Cooperate with one another unto
righteousness and piety and do not cooperate with one another unto unrigh-
teousness and enmity” (5:2). - The abbreviation “pbuh” (“peace be upon him”) invokes the peace and bless-
ings of Allah (swt) on the Prophet, and is a sign of respect. - Qur’an 2:143.
- Khurshid (2009).
- Martin (2007).
- The IDB award for distinguished achievement in Islamic economics was awarded
to Dr. Mohsin Khan and Dr. Abbas Mirakhor. - Wilson (2007).
- Ibid.
- Oakley, David, ‘‘Capital Takes a Leading Role,’’ FT Report—Islamic Finance,
May 23, 2007, Financial Times (London, UK). - RedMoney 2007.