TOKYO, Aug 18: Japan is looking to become the first major industrialised nation to issue Islamic bonds in hopes of attracting money from oil-rich Muslim countries, a bank official said on Friday.Islamic financial practices ban the payment or receipt of interest or any transactions that include alcoholic beverages or gambling, which are banned by the Quran.
"The bank is studying the possible issuance of the bond with Malaysia," said Hiromi Inukai, a spokeswoman of the government-backed Japan Bank for International Cooperation (JBIC).
"The bank has had talks with the central bank of Malaysia with the intention to attract ample petro-dollars not only to Japan but also to the entire Asia," she told AFP.
She declined to give further details such as how much of the bond JBIC officials, with the support of the finance ministry, would place with Bank Negara Malaysia, the Malaysian central bank, and when.
Japanese news reports have said that the JBIC has formed an advisory board of Islamic legal scholars to study Islamic financial practices. Britain's Financial Times said the bond would be valued at 300 million to 500 million dollars and launched around January.
Japan would be the first Group of Seven nation to issue the Islamic bond, called "sukuk" bond on a national basis, although companies in the developed world have already done likewise.
Hideki Nukaya, a researcher at the Institute for International Monetary
Affairs, said JBIC's envisaged Islamic bond placement would help diversify funding sources for Japanese businesses.
"Japan and its companies could get a foot in the door and become more active players in Islamic financing by gradually making progress and learning the methods," Nukaya said.
"Once JBIC places the sukuk bond and learns the methods, Japanese companies would be able to have more options for financial resources when they need a bulk of money, not only through conventional but also through Islamic bond issuance," he said.
"But compared with conventional projects, Islamic banking requires more preparation, which the Japanese financial institutions are doing right now." Japanese companies will likely need to study up on religious regulations, such as rules on interest, as the country has a miniscule Muslim community.
Demand for Islamic financing is growing in countries with significant Muslim populations, particularly in the Middle East. Largely Muslim Malaysia is the current Asian leader in Islamic banking after introducing services in 1983.
To cement its leading position, the country is liberalising its Islamic financial system and promoting itself as a centre for education about Islamic finance.
Total worldwide assets of Islamic financial institutions exceed $250 billion and are growing 15 per cent annually, according to the International Monetary Fund.
In 2003, the Islamic Bank of Britain opened in London and last year Britain's fifth largest bank, Lloyds TSB, said it would introduce personal bank accounts compatible with Islamic law.--AFP