Guidance launches innovative Islamic securities program to Middle East

The Fund will hold securities that are backed by Shariah-compliant real estate finance assets. The securities will be issued and guaranteed by the Federal Home Loan Mortgage Corporation ("Freddie Mac").

A first-rate issuer, a superior credit rating, and deep liquidity characterize the new securities held by Guidance. Most important, these securities introduce to the Islamic capital markets both investment instruments that currently trade in the U.S. mortgage-backed securities market and the benefits of those instruments.

"Freddie Mac mortgage-backed securities not only provide an efficient way to enhance returns with limited volatility, they also benefit from a favorable treatment in terms of capital adequacy requirements," said Dr. Hasnita Hashim, a Managing Director of Guidance Financial Group, who is visiting the region. "We hope that introducing such assets would contribute to efficiency in the Islamic banking sector."

In order to originate the assets that back the Freddie Mac securities, Guidance has worked with Freddie Mac to create a Shariah-compliant home financing product. This product is available across the United States to Guidance's retail customer base through a soundly designed distribution process. To date, Guidance has originated over US $200 million of mortgage assets under this program.

Fixed income investments form an overwhelming majority of bank assets. Among those investments, residential mortgages are a preferred investment, constituting 58 percent of the fixed income investments of U.S. banks in 2003. The mortgage backed securities market is the largest component of the US dollar fixed-income market. In 2003, the average daily trading volume of the mortgage backed securities market was $207 billion.

Because Islamic banks, insurance companies, and other investors previously had been unable to take full advantage of the markets for mortgage backed securities and other quality fixed-income assets, they have had to cope with greater volatility and higher exposure to illiquidity to achieve the same returns as other institutions. The Guidance Fixed Income Fund addresses these concerns by holding securities that are backed by Shariah-compliant financial assets and that enjoy Freddie Mac's guarantee of the amount and timing of payments.

"By working together, Freddie Mac and Guidance are providing an unprecedented opportunity for Islamic investors to take advantage of a new, innovative investment vehicle," said Dave Stevens, Freddie Mac Senior Vice President of Single-Family Lending. "We are delighted to join with Guidance to further our company's mission to expand homeownership opportunities for all of America's families by creating this premier investment for more of the world's investors."

"We hope that Freddie Mac's participation in the Islamic capital market would induce other prime issuers of fixed-income securities to be involved as well," said Dr. Mohamad Hammour, Executive Chairman of Guidance Financial Group. "Such developments would greatly benefit Islamic investors by enriching the range and quality of fixed-income assets they have access to."