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Today's article is about Islamic finance. To some of you, including me, it's strange topic which we didn't think about before. However, due to the size of the fund which muslims deal with, the western finance world began to keep attention on it.

To understand the article, we have to know about the basic Islam rules about finance. According to the rule of Islam, the muslims can't take the benefit of interest. So the called it 'sharia', islamic religious law. Actually, it's not a law but a way for muslims to live including banking and economics.

Sukuk is the name of islamic bond which sharia permit muslims to deal with. Moreover, there are sharia-compliant hedge funds also.

The size of Islamic assets is estimated to from 700 billion dollars to 4 trillion dollars. It's really big opportunity for finance companies. So even Korean finance companies like 한국투자증권, hire islamic law professionals, so called scholars to deal with sharia-compliant products.

So let's look at the way of sukuk earn the profit without interest. The basic rule of sharia is ban about speculation and interest. So in the case of sharia-compliant mortgages are typically strucutred that lender have to buy the property and then lease it to the borrower. The price should be the one that combines a rental charge and a capital payment. When the mortage term ended, if the price of property has been fully repaid, the house is transferred to the borrower.

And sharia regulate that muslims don't invest the corporations gamble, porno industry, alchol, porks, and etc. So sharia-compliant hedge funds don't deal with the stocks like those ones.

As shown in the graph, the sukuk market has enjoyed years of rapid growth. The bigger the size of sukuk and sharia-compliant funds is, the more the risk of islamic fiance is.

Firstly, there is no international standard about sharia. It depends on each country and scholars' committee.

Secondly, the shortage of scholars who can deal with sharia-compliant fiance products like sukuks. This role demands a knowledge of Islamic law and western finance, as well as fluency in Arabic and English. To develop the Islamic finance, much more scholars should be nurtured.

Thirdly, due to the regulation about the speculation, Islamic finance products should be based on  tangible assets like building or land. But, the suppy of asset in the middle-east is very limited. That's the 3rd problem.

Also, there could be the liquidity problem because sukuk deal with long-term mortgage bond.

Finally, the 2 different pressure on the Islamic Finance. On the one hand, Islamic bankers worried that narrow sharia standards is stopping the growth of Islamic economies. However, on the other hand, some blamed that Islamic finance products are just designed to evade strict sharia. Of course, scholars earn much money for their services, after all.

To us, sukuk is recognized as one of the good source of new growth. Some people said that Islamic finance is the last blue ocean for world finance.

Even though the western finance is suffered for credit crunch which seemed to be caused that everyone handle the risk to others, sharia-compliant fund, moreover, prefer risk-taking. It is interesting that this weakness became one of the strengths in the 21st century.

Topic #1. Please explain about Islamic finance as you understand. What's your opinion about 'sharia'?

Topic #2. Do you think that it's possible to live both with islamic rules and with profit?

Topic #3. Is it a big opportunity for Korean finance company, if we can use Islamic asset? How can?