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Islamic Securitization Hindered by Uncertainty

There's some uncertainty in the application of the Shariah law in structuring securitization deals, which could hinder the market's growth. There was some heated discussion about this subject at Information Management Network's and European Securitization Forum's Global ABS conference in Cannes being held this week.

The growth of the Islamic securitization market faces serious roadblocks if the legal issues surrounding how to achieve a true sale is not clarified.

"The market is still caught in a debate on what constitutes a legal asset," said Iad Boustany, general manager at BSEC and a panelist at the gathering's Islamic finance session. "There is still uncertainty over what is lawful and compliant with the Shariah principal, most notable on this list is the tranching debate."

Nathalie Esnault, managing director at Calyon and a speaker at the same panel said that, until recently, the prospect of Islamic securitizations were limited by a lack of assets.

"The development of the GCC real estate market has helped this and at the same time the Investor base for this asset class has also grown," Esnault said.  Banks are increasingly realizing that the traditional asset-based market, or sukuks, don't provide the long term funding solutions that securitizations do. However, despite ample opportunity, the market has yet to really take off.

An industry source questions what incentives a non traditional issuer might have to issue and Islamic securitization. Sharia compliance in fact presents an added level of complexity on the rating agency level, the legal level and can often be time intensive. "These are serious issues that have not allowed the market to grow as it should have," Boustany said.

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