The Annual Report of IRFC 2007-08 mentions
that IRFC mobilised "annual borrowing target of MOR includes Rs 3945 crore raised through taxable bonds, Rs 300 crore through term loans, Rs 350 crore
through assignment of lease receivables and the balance amount from internal generation.....The weighted average cost of pool of funds raised during 2007-08
was 9.33% pa, representing a spread tighter by 35bps in comparison to average spread commanded by AAA rated entities during the year".
It was during this time that there was excess liquidity in the Oil generating GCC states. Perhaps, it is time to take a look at the world of Islamic Finance
and explore avenues of financing by issuing Shariat compliant bonds called Sukuks.
Islamic Banking is growing at a rate of 10-15% per year and with signs of consistent future growth. Islamic banks have more than 300 institutions spread over
51 countries, plus an additional 250 mutual funds that comply with the Islamic principles. The relative stability of Islamic banking institutions in current
recession has gained attention.
Even L'Osservatore Romano, a daily newspaper in the Vatican regarded as the mouthpiece of the Pope, has endorsed the values of Shari'ah-compliant finance as a solution to the problems in the world of conventional, interest-based finance.
Since the launch of Islamic equity funds in the early 1990s, there has been the establishment of credible equity benchmarks by Dow Jones Islamic market index (Dow Jones Indexes pioneered Islamic investment indexing in 1999) and the FTSE Global Islamic Index Series.
The UK's first standalone
Shari'a-compliant bank opened its doors in 2004; many are following suit. The London Stock Exchange have also listed its sukuk, adding much-needed
depth and liquidity to the market. And the global banking giants are putting their weight behind Islamic
finance. (Deutsche Bank, Barclays Capital and BNP Paribas are already among the world's top five issuers of sukuk.)
Real Estate trust funds has been the traditional asset class for Islamic investors. Now that this asset class is in doldrums, the islamic investor is looking
for secured and safe returns that IRFC can easily provide. Raising Islamic finance in a beleaguered Real Estate market is an opportunity for IRFC to lower the
weighted average cost of capital.
Prashant Nikam
IRAS-96 batch
