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Rainbow bright

Saudi arabia contributed more than 14 per cent to the total value of sukuk issued globally in the first half of 2010, while the international Islamic bond market is expected to reach $30 billion this year, according to a report prepared by the Kuwait Finance House, or KFH, Research Limited.

The report said that the total sukuk issued globally during the first half of this year was valued at $16.5 billion, an increase of 116.3 per cent from $7.6 billion during the corresponding period in 2009. It said sukuk market is set to maintain its vitality during 2010 on the back of the recovery in global economic activity, record low interest rates, continued sovereign fund-raising to support economic growth as well as a revival of private sector projects.

Approximately 79.7 per cent of fund-raisers were sovereign and quasi-sovereign entities during the first half of 2010.

Power and utilities sector trailed behind at 11.5 per cent of total sukuk issues, while financial services sector stood at 3.4 per cent, driven by continued infrastructure spending and fund raising activities by financial institutions worldwide.

According to the report, “More sovereign and corporate issuers are anticipated in 2010, which include potential debuts from Japan, Thailand, Turkey, the UK and Russia.” Malaysia continued to dominate the global sukuk market, contributing 60.5 per cent of the total value of sukuk issued in first half of 2010.

It said that in term of currencies, ringgit-denominated sukuk deals topped at 53.4 per cent, followed by US dollar deals at 10.3 per cent and Qatari riyal issues at 8.3 per cent. It added that sovereign sukuk issuances in the first half of 2010 were expected to help revive the global sukuk market as they provided the necessary benchmark pricing for the private sector to gauge investor appetite this year.

According to the KFH report the sukuk market has grown to approximately $100 billion and contributed towards 12 per cent of total global Islamic finance assets in 2009.

“The sukuk market has come out of the worst of the financial crisis and its prospects remain high. In 2009, global sukuk issuances rebounded by 58.8 per cent year on year to $24.65 billion, compared to the $15.46 billion raised in 2008,” it said.

“Sovereign and similar funds played a prominent role in the rehabilitation of the sukuk market after hitting 79.7 per cent of the funding period,” it added.

The report said government allocations for development projects during 2010 and beyond have spurred the demand for sukuk, brightening the long-term prospects for the Islamic bond market.

Shariah-compliant products, government support for Islamic finance, huge investment and financing requirements in the Gulf Cooperation Council and Asia, as well as issuers’ desire to tap investors from the Middle East and Muslim Asia, have remained key factors in driving the demand for sukuk.

“With a healthy array of sukuk in the pipeline, the market is attracting interest from an increasing number of issuers in Muslim and non-Muslim countries alike,” the report said.

GUINEA: Bank Negara Malaysia, or BNM, the central bank, has published the draft of its latest Shariah parametre — “Draft of Shariah Parameter Reference 4: Musharakah contract (SPR4)” — the general aim of which is to provide a standard guidance on applying respective Shariah contracts in Islamic finance.

Bank Negara has already issued consultative concept papers for Ijarah (SPRC 2) and Murabahah (SPRC 1) in July and August 2009. In fact, in December 2009, BNM published its latest draft concept paper — “A Shariah Parametre Reference 3 (SPRC 3)” — on the Mudarabah contract. This paper was sent to various market players in the Islamic finance industry for feedback.

This follows the publishing in October 2009 of “Concept Paper — Guidelines on Takaful Operational Framework,” which outlines the parametres governing the operational processes of Takaful business.

BNM is also finalising work on the development, consultation and launching of further Shariah parametres on Istisna (construction financing) and Wadiah (current accounts), whose primary aim is to promote the harmonisation of Islamic finance market practices in Malaysia.

Views expressed by the author are his own and do not reflect the newspaper’s policy.