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03/17/2010

Islamic Finance: A Student's Review of the New NYSSA Course


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Michael McMillen’s recent course on Islamic Finance was more than just an introduction to this niche market of structured finance—it was a colorful exploration of Islamic history and culture, which included a memorable overview of the anatomy of camels. Despite the lack of industry news coverage in the U.S. as compared to Europe and Asia Pacific, I was amazed to learn that there have been hundreds of Islamic financings done in the U.S. In fact, as McMillen pointed out, the U.S. is the easiest place in the world to structure such transactions and while it is still a niche market, demand for these products continues to grow.

The substantive law, the Shariah, is a very old (1,400 years) and very sophisticated legal system that covers essentially every type of financing imaginable. Unlike conventional banking practices, Shariah law prohibits interest-based financings. As a result, an array of structures has been developed to facilitate compliant financings, ones that capture risk sharing between counterparties as opposed to risk transfer.

While the structural aspects of Islamic loans or leases may differ from conventional methods, from an investor’s perspective, there are more commonalities than differences in Islamic and ethical investment schemes. For example, both prohibit investments in sectors such as alcohol, tobacco and gambling, which are believed to harm people or the environment.

The ethical principles underpinning Islamic finance offer an attractive alternative to conventional investments especially in light of the global economic crisis. For anyone interested in learning more about Islamic law, structures or investment opportunities, I would strongly encourage you to attend one of McMillen’s future courses. Eloquent, informative and easy to follow, he is sure to give you a return on your investment. 

–Caroline M. Owen, CFA

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