Reports surfaced this past week that Kuwait’s Mobile Telecommunications Co. (Zain)–the leading African and Middle Eastern mobile operator–is close to rescheduling a $2.5 billion two-year “murabaha” loan agreement on behalf of its subsidiary, Zain Saudi Arabia, that it signed in 2007 in order to finance the development of its infrastructure and the expansion of its subscribers’ base.  Commitments will likely come from Saudi Arabia’s Al-Rajhi Bank and Banque Saudi Fransi, as well as France’s Calyon.

Under murabaha, a intermediary financier buys a property or commodity and sells it to the buyer at a higher price (retaining free and clear title/ownership until the loan is paid in full), thus complying with Islam’s ban on interest.  The theory under murabaha is that the transaction is not an interest-bearing loan, which is considered “riba” (excess).  To prevent riba, the intermediary cannot be compensated above the agreed

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Al-Rajhi Bank, the largest Gulf Arab bank, has fallen 70% so far this year. The concern is that last years record profitablity will suffer the same fate as happened to its net profit in December 2006. At that time the bank had a run of negative results on the back of a 2006 regional stock market crash which slashed its brokerage and fund management revenue.br /br /Although the bank continues to develop its investment and banking side, unfortunately(market rumours are that) its subsidiary, Bakheet Financial Services, boosted lending when interest rates were low and there were record oil receipts. In other words, they may face the same problem again.