Mohammad Al Jasser, Governor of Saudi Arabian Central Bank, has said in an interview in Riyadh that Saudi Arabia will soon introduce its first mortgage law that will boost the real-estate industry and allow banks to diversify their portfolios. It will change the house financing and financial institutions role in the housing market in Saudi Arabia.

Saudi Arabian Central Bank Governor said:

It will be a qualitative jump in the way we finance housing in the country and in the way we use financial instruments that are linked to the housing market.

The Sharia-compliant legislation which has been discussed for the past two years will consist of five parts. It will define the terms of mortgages, how they are designed, how they are granted, how companies are licensed and how procedures will be enforced.

The legislation is on the way to the council of ministers before going to the Shura Council, the country’s consultative assembly, for final approval.

When asked if Saudi government has planned to issue longer maturity bonds, Al Jasser said that Hopefully, the mortgage law will ensure the production of sufficient sukuk and corporate bonds that will be held by banks in lieu of government bonds.

Islamic Sharia forbids interest payments. Hence Sukuk, or Islamic bonds that are asset-based securities are used to pay profit distributions to investors.