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‘Islamic capital market needs more innovative products’

DUBAI - Islamic capital market currently suffers form dearth of sophisticated corporate finance products which has affected the overall depth and breadth of the market, according to Christian R. Mouchbahani, Director, The National Investor.

Speaking at the second Meed Capital Markets Conference in Dubai yesterday, Mouchbahani said: “Beyond government Sukuks, Islamic lending, equity and overnight funds, there is an overall lack of depth and breath of Islamic capital market products and solutions. However, this is changing and a slew of new Islamic transactions, structures and solutions are in the pipeline.”

The size of the market for Islamic finance products is estimated at $200 billion and is projected to grow more than 10 per cent per year. During the past few months a number of corporates and institutions have issued Islamic products in the market. “Islamic markets are clearly evolving. There are new announcements from Bahrain, Qatar, Malaysia and the UAE nearly everyday. Financial institutions and the local, regional and international market players are taking a pivotal role as they address corporate requirements for unique financial products,” he said.

The global Sukuk market currently stands at more than $3.5 billion that includes over $1 billion sovereign skulks issued by Bahrain Monetary Authority in six tranches, and other sovereign and corporate issues from Malaysia, Qatar, Saudi Arabia and the UAE.

At the corporate level the trend is catching up with the recent corporate issues such as $100 million Sukuk by Tabreed, $65 million by Emaar and the $750 million by DCA. “Tabreed was the first International Islamic Corporate Sukuk in the world and the first listing from an entity ever in the Gulf in Luxembourg. By creating groundbreaking financial products, the capital markets are given benchmarks and precedents that open up the gates for future issuers and companies.”

The relatively low number of issues had affected the overall liquidity in the market making the investors to hold on to their investments. With the growing number of corporate issues to be listed on the market, the Islamic bond market is headed for active secondary market operations.

The growing popularity of sukuk issues and other innovative Islamic financing has caught the attention of a number of corporates in the region. “There are more Islamic windows at conventional banks, Islamic funds, legal firms, accounting firms and international investment banks. This is helping to sustain growth."

The fast growing Islamic finance sector needs to urgently look into standardising the Islamic banking practices including, accounting, auditing reporting and the regulatory frame work to make it a global financial industry alternative. “In the future we hope to see all the market participants and regulators up to speed so that they facilitate the progress of the future developments of the market. This includes creating beyond a local and Islamic capital markets investors' culture to becoming an international standardized liquid market,” said Mouchbahani.