News Column

GCC sukuk industry shows massive growth potential

September 1, 2014

DUBAI



The Sukuk industry in the Gulf Co-operation Council (GCC) region is set to be one of the fastest growing segments of the Islamic finance industry with huge growth potential, particularly in Dubai, UAE, said a report. The Dubai Chamber of Commerce and Industry stated that sukuks will play an important role over the next decade in securing funds for the substantial line-up of new projects in the emirate. The observations in the report, based on UK Islamic Finance Secretariat (UKIFS) and Malaysia International Islamic Financial Centre (MIFC) data, are important in view of the 10th World Islamic Economy Forum, which will run from October 28 to 30. It is being organised by the Dubai Chamber and the WIEF Foundation. Abdul Rahman Saif Al Ghurair, chairman of Dubai Chamber, said: "Islamic economy has become increasingly relevant in the modern world, offering new hopes of revival for the fragile global economy. The forum in Dubai will put the spotlight on the massive opportunities available in various segments of this growing sector." "The Dubai Chamber research note highlights the sukuk market as one of the most attractive areas of Islamic finance that has attracted considerable interest from the business community worldwide. In addition, the sukuk market has remarkable growth avenues that can be effectively tapped to support the growing investment requirements in various sectors." While the GCC and Malaysia have emerged as the main hubs for sukuk issuance, the main issuers of the sukuk in the global market are sovereigns, followed by corporates and government related enterprises, said the report. Countries such as Tunisia, Mauritania, Senegal and Oman are set to be key markets for sukuks, it said. Sukuk issuance, however, is not limited to Islamic countries. This year, a number of high profile debut sovereign issuances are expected to take place in countries such as the UK, Ireland, and South Africa. Sovereign issuances by the UK are likely to spur interest in Europe for sovereign Sukuks as they provide access to the growing Islamic liquidity pool, the report said. The sukuk market currently, compared to the conventional bond market, is relatively small. Global financial assets are dominated by Islamic banking assets, which accounted for about 80 per cent of the total assets last year, while sukuks made up just 15 per cent of the market, it said. However, the sukuk bond issuance has significantly grown over the last decade. The report cited data from Rasameel Structural Finance, which showed that the issue of sukuk bonds has registered cumulative annual growth rate of about 47 per cent over the period between 2001 and 2013. The upward positive momentum is more pronounced from 2010 when the global sukuk market, having overcome the initial shock of the financial crisis, witnessed a very successful run. In 2012, it crossed the $100 billion mark with issues valued at about $137 billion, and last year, it surpassed $100 billion for the second consecutive year, despite slowing down 12 per cent compared to 2012 with issues worth $119.7 billion, the research noted.

The slowdown, which was evident during the first three quarters of last year, was mainly attributed to the Federal Reserve (Fed) announcement in May to cut-back on the US monthly stimulus programme.  However, with the Fed's aggressive bond-buying programme since January this year, sukuk issuance may again be impacted, it said. The reported also stated that despite the huge potential for growth and the increased diversity of sukuk products, the market not only requires more instruments but existing ones need to be refined as some sukuk structures are yet to gain wider acceptance. The market is also struggling with legal uncertainty over regulatory disparity in different countries, it added. - TradeArabia News Service

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Source: TradeArabia


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