The better alternative

In addition to the equity market, the Islamic private debt securities (PDS), or bond market, is an integral part of the Islamic capital market. Thus in December of 1998 the Bank Negara Malaysia (BNM) issued the Guidelines on Participation in the Islamic Banking Scheme (IBS). Several Malaysian discount houses, notably ASDB, have begun to participate in the new scheme. There are three broad categories of Islamic PDS distinguished by the maturity of their notes: 1) Long term Islamic debt securities of more than five years based on the Islamic finance principle of al-bai bithaman agil (deferred payment sale), 2) Medium term notes of two to five years, 3) Short term commercial papers of one to 12 months based on murabaha (cost plus), bai al-dayn (debt trading), or ijara (leasing). There is a bright future for Islamic PDS; issuers are more assured of a high take up for their bonds because of the many depositors seeking shari'a-compatible investment instruments.