Service tackles sukukcompliance

Screening method aims to cut approval process involving such instruments

Anew screening method for sukuk ( Islamic bonds), developed in cooperationwith SaudiArabian financial institutions, aims to reduce the cumbersome approval process that these instruments often require.

Islamic finance is nowa $ 1.7 trillion ( Dh6.2 trillion) industry but its growth has exposed weaknesses, such as the lack of a clear consensus on what products are permissible; the Sharia boards of individual banks and investment firms can issue conflicting rulings.

San Francisco’s IdealRatings, which provides screening services to fund managers and compilers of indexes, said its product addressed compliance hurdles faced by sukuk investors contending with multiple structures and disparate opinions.

“Investors drift away from investing in sukuk primarily due to lack of transparency [ in] the acceptability or not of the structure deployed by the issuer,” the firm said.

The product reviews and categorises sukuk to allow Islamic banks to adhere to their own guidelines more efficiently, reducing the time and costs of due diligence in each deal. The service was developed over the past two years in consultation with Islamic financial institutions, in particular Saudi firms which are increasingly active in the sukuk market.

“Compiling, analysing and screening sukuk documentation is indeed an enormous effort. This new platform helps ease the process,” said Yasser Al Marshde, general manager of the Sharia group at Riyadhbased Alinma Bank, which helped to develop the service.

Other backers include Riyadhbased Jadwa Investment and Al Rajhi Capital.