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U.S. companies doing business globally, particularly in countries with large Muslim populations, are turning to Islamic finance as an alternative source of funding for everything from trade finance to equipment leasing.

In searching for new investment products, Islamic banks and their shari'a boards have found a natural fit with project finance. In project finance, the success of your loan is tied in with the success of the project, as opposed to a conventional loan, where the success of the venture is nearly irrelevant. Islamic finance principles call for exactly this -the sharing of risks as well as rewards. While Islamic finance meshes well with project finance, industry watchers don't expect projects costing more than $200 million to be financed by Islamic funds alone.

The rapidly developing Islamic banking sector was stunned by the recent revelation that one of its oldest and most respected commercial institutions, Dubai Islamic Bank, had run into what was described officially as 'financial difficulties'. The number of entities in the sector is growing rapidly. There are now more than 200 Islamic banks. In addition, some multinational financial institutions, including Citibank and Arab Banking Corporation, are setting up subsidiaries or specialist divisions.

An independent power project in Pakistan, the Hub River Project, was partially Islamically-financed. The project cost approximately $1.8 billion. A sizeable amount of that cost was covered through Islamic channels. Al-Rahhi (the largest Islamic bank) provided near $100 million.

Takaful ta'awani (Islamic life insurance) programmes are virtually non-existent outside S.E. Asia. Bank Al-Jazira, a leading Islamic banking group from Saudi Arabia has recently introduced

Takaful and retakaful are not understood or utilized as well as they should be. There is a great potential for growth in the

Takaful is the

After conducting an extensive tour of the Islamic financial institutions of various foreign countries, a Pakistani delegation suggested that Pakistan follow the example of Malaysia, Egypt and Saudi Arabia. In following that example, Pakistan would be adopting a dual and parallel banking system -comprised of both Islamic and conventional banks. The delegation suggested this after considering a number of weaknesses impeding Pakistan's current banking system.

Three of the leading Pakistani modarabas are aiming to come up with Islamic term finance certificates by the end of 2002. Managers of modarabas say there is a desperate need for TFC's to raise money as borrowing funds from banks is becoming more and more unfeasible. Islamic TFC's would be a profit and loss sharing debt instrument. The sharing of profit and loss would be based on an agreed upon ratio decided at the beginning of the TFC transaction. The profit garnered will be paid on a six-monthly basis and shall be a provisional or on-account payment, irrespectve of profit or loss.