For a global company like GE, responsible citizenship often relies on understanding and respecting the nuances of a particular culture. In creating the corporate world’s first “sukuk,” or Islamic bond, GE was able to meet the unique social standards of investors in the Middle East — all while securing necessary funding in an important growth market.

Oil-rich entities in the region represented a largely untapped investor base for GE—but the company’s longstanding presence there made the prospect of new partnerships appealing. “We have been active in the Middle East for decades — whether through power generation or aircraft deals, or our partnership with Mubadala,” said Kathy Cassidy, vice president of Corporate Treasury at GE. “Investors there know and respect GE, and know we’re going to do the right things.”

However, reaching such investors posed a unique challenge: creating an investment vehicle that would comply with cultural requirements. Islamic law does not permit fixed-income or interest-bearing investments, since “making money off money” is forbidden. The solution took the form of a “sukuk,” the Arabic name for a financial certificate.

Unlike traditional bonds, a sukuk makes money through partial ownership of an asset, such as a business, project or product. “If GE could come up with a product — in this case, a security based on lease payments from our aircraft assets — we could construct the sukuk so that investors could get a percentage of the payments,” explained Cassidy.

With a strong order backlog in GE aircraft equipment, the GE team knew that an offering based on returns from aircraft debt would bring a reliable return for its Islamic investors. Banks and national governments had been issuing sukuks for some time, but GE became the first corporation to present such an offering, opening the market for other global entities to participate in Islamic financing.

“GE being the first corporate to offer a sukuk is significant in many ways,” said Cassidy. “It shows our commitment to capital market growth in the Middle East, the strong faith investors have in GE’s high-grade credit and assets, and a willingness to comply with and respect social standards of the regions where we do business.”

The offering has proven successful so far, winning the “Sukuk Deal of the Year” for 2009 from Islamic Finance News. According to the announcement, the deal “represents a major step forward for American corporates, showing that the Islamic capital market is free from politics.” Just as significantly, the sukuk offering further establishes GE’s commitment to respecting the cultural standards of a region and its people.