In a transparent effort to attract deposits from Muslims and non-Muslims alike, the Islamic Bank of Britain is offering Islamic bonds, or sukuk, with a claimed yield of 4.5% over 24 months.
These are described as, by far, the best rates in Britain on short-term bonds.
There is an old saying in the investment world: if it looks too good to be true, then it probably is.
It appears to apply in this case.
Interest is forbidden in Shariah Finance, so even quoting a yield is bogus to begin with. Sukuk don’t “yield” anything. They are constructed by a convoluted arrangement of profit- and risk-sharing with nothing to do with yields–except that the Shariah financiers closely watch the conventional bond market so that they know what to promise.
But, unlike a conventional debenture, there is nothing guaranteed about the interest rate advertised by the Islamic Bank of Britain on these Islamic bonds. That’s because Islamic bonds really have little resemblance to what the rest of the world understands the term “bond” to be.
This does not prevent the Shariah Finance promoters from throwing around these terms and figures in clearly misleading ways which, at least in the United States, would create a compliance nightmare. Moreover, it should be pointed out that Islamic bonds have had an alarming default rate globally.
Meanwhile, the Shariah Financiers continue to refer to Shariah-Compliant Finance as “ethical investing.” HOGWASH!
What is really a shame is that the financial press lets them get away with it, as evidenced by this lousy piece of reporting, which reads more like an advertisement than a news article: