Islamic Securitization After the Subprime Crisis

Abstract

Islamic securitization in the form of sukuk has grown into a notable segment of global structured finance over the last three years. This article surveys the unique structural features of the sukuk market and assesses the potential of conflicts of interest that became apparent in the U.S. subprime mortgage crisis to contaminate the integrity of the securitization process if conducted in compliance with Shari’ah principles. This examination also considers recent regulatory changes to the definition of sukuk and current policy considerations of alternative forms of capital-market-based refinancing techniques, such as covered mortgage bonds, and the way they relate to Islamic securitization. The article concludes with a brief outlook on future challenges and developments in the sukuk market.

TOPICS: Developed, exchanges/markets/clearinghouses