By Meridian – Posted on 27 May 2008
This week in my adventures I came across something most interesting that piqued my curiosity. What I speak of is Shariah Finance or Islamic Finance. Next time you gas up the SUV I think you will understand me when I say there is a lot of money sloshing around in Middle Eastern countries. But not all holders of capital in these nations are going to be quick to throw it at investment opportunities in North America. You see some holders of capital in these nations adhere to Shariah Finance Law which is very strict. For example, a North American mining company seeking debt financing from an adherent to Shariah Law would be out of luck as according to the tenets of said law, earning interest(riba)on investment capital is forbidden. Wealth can only be generated through legitimate trade and investment in hard assets. Hence this mining company would have to do an equity financing in order to raise its needed capital to build its mine. Interestingly enough, a convertible bond under Shariah is recognized as equity, hence this mining firms could issue convertible bonds to raise its capital.
The whole notion of Shariah Finance is relatively new, but it is gaining traction fast. With North American credit markets verging on dysfunctional paranoia at times, resource sector firms with hard assets seeking to raise capital would be well advised to start doing some due diligence on the tenets of Shariah Finance Law. The world is changing fast. Go with the flow and get with the times or else prepare to be relegated to the history books…..