The nascent global market in Islamic bonds has passed a milestone with the first scheduled launch by a Japanese company of instruments that accord with Islamic law.

The Malaysian subsidiary of Aeon Credit Japan, part of the Aeon retail group, on Monday said it would launch up to M$400m ($114m) in notes that conform to Shariah law.

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The bonds, to be issued within the next month, will range from short-term commercial paper to medium-term notes of up to five years.

If other companies from the world’s second-largest economy follow in Aeon’s footsteps, they will be tapping into a large pool of unexploited liquidity that has been growing due to the high oil revenues of some Islamic countries.

Many Muslim investors are reluctant to buy conventional bonds because Shariah law forbids the direct lending of money at interest.

The bonds are the first attempt by Aeon Credit’s Malaysian arm to tap into the local Malaysian market for its funding needs rather than relying on its Japanese parent. They will be aimed at institutional investors.

The company is open-minded about how much of the M$400m in bonds will be Shariah-compliant and how much will be in conventional instruments. It will respond to investor demand.

The Islamic bonds will be based on the principle of musharakah, under which the buyers of the bond technically become partners rather than lenders in the conventional sense.

Cynics might say that in practice the bonds offer a return that can be likened to an interest rate.

The issue is lead-managed by Bank of Tokyo-Mitsubishi UFJ (Malaysia) and local investment banks Aseambankers Malaysia and CIMB.