Thomson Reuters announces findings of annual Sukuk perceptions and forecast study

Thomson Reuters released today (20 November) the findings of its second consecutive Sukuk Perceptions and Forecast Study conducted by Thomson Reuters and Zawya.

Thomson Reuters announces findings of annual Sukuk perceptions and forecast study

Thomson Reuters announces findings of annual Sukuk perceptions and forecast study

The study is based on a survey of Sukuk lead arrangers and investors, predominantly based in Islamic markets in MENA and South East Asia, conducted in August and September 2013. The primary empirical data gathered from the survey was subsequently developed to provide forward-looking analytics on the appetites and preferences of Sukuk investors for 2013 and beyond.

Russell Haworth, Managing Director, Middle East & North Africa, Thomson Reuters, said, “Studies such as this one continue to take stock of the challenges and issues affecting Sukuk by providing important and much-needed overview and analysis of the Sukuk global market. In order to increase issuance and liquidity of the Islamic capital market there is a need for practical studies that address its challenges, and that provide a clearer picture of its current and forecasted status.”

Overall, the study found that the potential demand and supply pipeline of Sukuk is expected to grow. Despite this increase, demand is still expected to outstrip supply substantially until 2014, when it is predicted supply will begin to outpace supply.


  • Total global outstanding Sukuk stands at $237 billion, with around $100 billion Sukuk issued in 2013, and are expected to grow to $749 billion by 2018
  • The Sukuk supply and demand gap is expected to reach its peak by 2014 amounting to $230 billion.
  • The gap is expected to then drop steadily as market issuance is predicted to reach $187 billion by 2018.
  • On the demand side, investors expect 50 percent of their portfolios to be allocated to Islamic finance investments, out of which 25 per cent to 35 per cent, would be allocated to Sukuk
  • MENA investors overwhelmingly prefer USD Sukuk
  • Investors view Oman as the most attractive emerging Islamic finance market for Sukuk investment while lead arrangers also expect that most Sukuk will be issued from the Sultanate.

The Annual Sukuk Perceptions and Forecast Study is part of Thomson Reuters’ new information solution catering to the growing need for better access to Islamic finance investments and markets, Zawya Islamic – a unique first of its kind solution for Islamic finance and Shariah-sensitive investors. Zawya Islamic will be an add-on to Zawya Markets – the leading Middle East and North Africa business information and investment opportunities solution.

Powered by data from Thomson Reuters and partnering with global Shariah and Islamic Finance market players, standard setters and authorities, Zawya Islamic makes Shariah-compliant investment, decision making and networking with the Islamic markets easier amalgamating:

Fatawa, standards, regulations, legal documentation and product guidance notes, intelligently connected with scholars and instruments;
Deep fundamental data on global Sukuk, Islamic funds, Islamic banks, financial institutions and Shariah-compliant equities;

Islamic finance news, research, indices, money market and benchmark rates;
The Islamic Finance Development Indicator and the Islamic Finance Gateway Community.
Dr. Sayd Farook, Global Head of Islamic Capital Markets for Thomson Reuters, said, “Although the Sukuk global market in 2013 has slowed down in terms of new issuance, we see positive signs in 2014.

We expect the appetite for Sukuk to increase in 2014 as cross-border Sukuk issuances continue to gainmomentum. Critically, we are seeing increased support from governments with a number of countries finalizing regulations to allow the issuance of Sukuk in their local markets. Countries such as Morocco, Nigeria, Oman, South Africa and Tunisia have also shown great interest in issuing sovereign Sukuk in 2014 to finance infrastructure projects.

“Despite the healthy outlook for 2014, several Sukuk market challenges remain unresolved.Deficiencies still persist in the areas of transparency, standardization, and liquidity in the secondary market due to limited trading mechanisms and the different treatment of certain Sukuk structures in different jurisdictions.”

“Noticeably, both sellers and buyers favour North African countries such as Tunisia, Libya, Morocco and Egypt to issue and invest in Sukuk. All these North African jurisdictions have signaled greater interest and support for Islamic finance post-Arab Spring, and are working to establish new frameworks and/or strengthen current structures for Islamic finance.”

Sponsored by Emirates NBD Bank, Barwa Bank and Azzad Asset Management, the Sukuk Perceptions and Forecast Study 2014 will be launched at the Global Islamic Economy Summit, organised by Thomson Reuters and the Dubai Chamber of Commerce & Industry, on 25th & 26th November 2013 in Dubai, United Arab Emirates. For more information and to register for the event, please visit

Johor Corp’s Sukuk Orders Said to Exceed Supply Three Times


Malaysia’s state-owned investment company, sold 3 billion ringgit ($948 million) of Islamic bonds that drew bids for more than three times the amount on offer, two people familiar with the matter said.
Johor Corp’s Sukuk Orders Said to Exceed Supply Three Times  It issued five-, seven- and 10-year notes at yields of 25-29 basis points over the government’s non-Shariah-compliant securities, said the people, who declined to be named as the information is private. The sale attracted 11 billion ringgit in orders, they said.

The offering is the first government-guaranteed Islamic bond this year and comes ahead of state-owned Danainfra Sdn.’s plan to sell 8 billion ringgit of similar notes later this month to fund the construction of a mass railway in Kuala Lumpur. Sukuk issuance by Malaysian companies rose 8 percent in 2012 to 15 billion ringgit from the same period last year, when sales reached a record 75.6 billion ringgit, according to data compiled by Bloomberg.

“For a 3 billion ringgit issue, the take-up is healthy and signals there’s still demand for low-risk bonds,” Michael Chang, who oversees $1 billion as head of fixed income at Kuala Lumpur-based MCIS Zurich Insurance Bhd., said in an interview today. “The spread against Malaysian government bonds is fairly decent considering prevailing market conditions.”

Johor Corp.’s vice-president of corporate services, said in an e-mail today that he would reply to Bloomberg questions later in the day.

Palm Oil Assets     

The 400 million ringgit portion due in 2017 was priced at 25 basis points more than similar-maturity government securities, the people said. The 800 million ringgit of seven-year debt was sold at a 28 basis-point premium, while the 1.8 billion ringgit of bonds maturing in 2022 were priced to yield 29 basis points more than government counterparts.

The underlying assets for Johor Corp.’s sukuk, or notes that pay returns to comply with Islam’s ban on interest, will be palm oil contracts and company shares, Kamaruzzaman Abu Kassim, the president and chief executive officer, told reporters on April 12.



Dubai’s Noor Islamic Bank Seeks Business In Singapore, Malaysia

Noor Islamic Bank, a lender controlled by Dubai’s government, said it’s seeking business in Singapore and Malaysia as it aims to benefit from growth in Southeast Asia.

Dubai’s Noor Islamic Bank Seeks Business In Singapore, Malaysia

“I’ll be interested in any transaction that comes up,”Hussain Al Qemzi”, chief executive officer of the United Arab Emirates-based lender, said in an interview in Singapore today. “Malaysia is the world’s biggest sukuk market. I understand companies are looking to finance infrastructure projects.”

Malaysia, which is aiming to become a global hub for Islamic finance, has a $444 billion program to build roads and power plants over the next 10 years. Sukuk, or Islamic bonds, pay asset returns to comply with the religion’s ban on interest.

Al Qemzi said yesterday at the World Islamic Banking Conference in Singapore that the European debt crisis offered Islamic lenders a “golden opportunity” to capture a bigger share of the world banking market.

Noor Islamic helped clients raise $2.1 billion of syndicated loans in Turkey in the past 18 months and it plans similar ventures in Southeast Asia, he said.

“We will be interested in helping Southeast Asian clients with Shariah-compliant business in the Middle,” Al Qemzi said.

Malaysian companies have sold 15 billion ringgit ($4.7 billion) of Islamic bonds in 2012, 8 percent more than the same period last year, according to data compiled by Bloomberg. Assets of Shariah-compliant banks are expected to reach $1.1 trillion this year from $826 billion in 2010, according to an estimate published by Ernst & Young.


Discussion on how to raise debt capital via Sukuk markets, taking place at Oman Islamic Banking and Finance Conference 2012

Sukuk or Islamic bonds enable organisations to raise capital in a Shariah compliant manner. The demand for sukuk was previously limited outside the GCC until few years ago and the year 2012 sees Oman as an emerging potential sukuk market among Thailand and the CIS countries. Since the concept of “Sukuk” is a fairly new phenomenon in Oman, Mr. Hussain Al-Yafai, Director, Debt Capital Markets MENA, Standard Chartered Bank, will provide us an in-depth view on raising debt capital via Sukuk markets, at the Oman Islamic Banking and Finance Conference 2012 taking place from 5th-6th June 2012 at the Grand Hyatt.

Discussion on how to raise debt capital via Sukuk markets, taking place at Oman Islamic Banking and Finance Conference 2012

Sukuk differs from conventional bonds (debt-based instruments that pay interest), as they are asset based and represent ownership by Sukuk holders in the underlying assets, allowing them to share income from the same. Sukuk issuances enable companies to tap a new source of funding thereby allowing them to diversify from traditional capital markets funding. The primary advantages of a Sukuk issuance to a conventional issuance are access to a wider base of investors which taps Islamic liquidity and a lower cost of funding. From an international viewpoint, some of the challenges faced by the industry include the lack of liquidity in the secondary market, differing views amongst Sharia’h scholars on acceptability of certain Sukuk structures and differences in legal, tax and regulatory frameworks across various jurisdictions.

The benefits and challenges of Sukuk will be covered by Mr. Al Yafai in greater detail at the Conference among other key topics, including the facilitation of the sukuk market by Omani Authorities, international and regional trends in the issuance of Sukuk, differences between Sukuk and conventional bonds from a credit point of view, possibility of more conventional issuers tapping Islamic Liquidity etc.

Mr. Al-Yafai’s role at Debt Capital Markets MENA, Standard Chartered Bank includes originating and executing a number of high profile transactions in the region which includes structured debt financing (i.e.- Sukuks, ABS, equity linked, structured and subordinated debt). His mandate entails the complete process, from deal origination to final execution including pricing, structuring, distribution, documentation, credit ratings, listing and public offer. He has successfully led and has been a part of the team that arranged landmark transactions such as the Govt. of Ras Al Khaimah’s AED 1 billion & USD 400m Sukuk, USD 500m Sukuk, First Gulf Bank’s USD 650m and USD 500m Sukuk, Emirates Islamic Bank’s USD 500m Sukuk, Tamweel’s USD 300m Sukuk and ADCB’s USD 500m Sukuk.


Tunisia Eyes Sukuk Share

TUNIS – Seeking to finance its budget deficit following last year’s uprising, Tunisia’s Islamist government is planning to issue the country’s first Islamic bonds (sukuk) this year.

“The Tunisian government is planning to issue an Islamic sovereign bond before the end of this year,” Adnan Ahmed Yousif, chief executive of Bahrain-based Al Baraka Banking Group, an Islamic banking conglomerate with operations across North Africa, told Reuters.

“They’re very serious about it and are now in talks with banks, said Yousif, who is also chairman of the Beirut-based Union of Arab Banks, an industry association.

“It will be Tunisia’s first sovereign sukuk.”

Sukuk, which conforms to Islam’s prohibition of usury, typically work as profit-sharing vehicles.

Firms that issue sukuk make payments to investors using profits from the underlying business, instead of paying interest.

The money, however, can’t be invested in alcohol, gambling, tobacco, weapons or pork.

Sukuk have often proved to be more stable than conventional bonds during the global financial crisis.

The sukuk market has reached $111.9 billion in the eight years to 2008, according to the International Islamic Financial Market.

Global sales of sukuk have reached $6.6bn in 2012, from $2bn a year earlier, according to data compiled by Bloomberg.

Islamic Hub

A sukuk issue could allow Tunisia to tap a pool of billions of dollars of Islamic investment funds in the wealthy Arab Gulf.

“I believe Tunisia has the potential to become the Islamic finance hub for Africa,” Yousif told Reuters.

“It’s working towards having all the requirements needed for that.

Tunisia’s government, led by the moderate Islamist Ennahda party, expects its budget deficit to rise to 6 percent of gross domestic product in 2012 from an estimated 4.5 percent for 2011 as it boosts spending to revitalize the economy after the ouster of president Zine Al-Abidine Ben Ali.

Before last year’s uprisings in North Africa, authoritarian governments restricted or refused to promote Islamic finance for political reasons.

In the wake of the regime changes, growth in the industry is expected to accelerate.

Egypt is reportedly preparing to raise about $2 billion through its first issue of sukuk this year.

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

Turkey to overcome secular qualms with Islamic bond

Turkey’s government plans its first-ever issue of Islamic bonds this year, overcoming sensitivities about Islamic finance in the secular republic as it seeks to tap a rich pool of investors flush with oil money.

A sovereign sukuk issue from an economy regarded as one of the most progressive and successful in the Muslim world would signal intent on Turkey’s part to play a bigger role in Islamic finance. The size of the global sukuk market is estimated at more than $100 billion.

“It will be like ringing a bell and attracting all the attention,” said Murat Cetinkaya, deputy chief executive for treasury at Kuveyt Turk, an Islamic bank that has been a trend-setter for corporate sukuk issues in Turkey.

“Other issuances will follow the sovereign and Turkey will be on the agenda in this market constantly…as a frequent issuer.”

Despite espousing Islamic values, Prime Minister Tayyip Erdogan’s government shied away from taking the plunge with a sukuk issue during its first decade in power, out of fear of giving ammunition to critics who accuse the ruling AK Party of seeking to roll back state secularism by stealth.

“For a few billion dollars of funding there could be negative results in domestic politics,” said a deputy chief executive at a leading Turkish bank, who declined to be named because of the political sensitivity of the subject.

In 2008, the Supreme Court came close to shutting down Erdogan’s AK Party after ruling it was a centre of Islamist activity. But since then, the government has won the upper hand over old foes in the military and judiciary.

Few Turks question the AK Party’s economic management, and having overseen a near tripling in per capita income, the party was re-elected for a third term in office last June.

Moreover, even borrowers outside the Islamic world have entered the sukuk market in the last few years, giving less reason for Turkey to hold back.

“Now the sukuk has become an instrument that even Germany and France are using,” the banker said. “And in domestic politics, Erdogan is much stronger.”

So there was hardly a murmur of dissent when Deputy Prime Minister Ali Babacan, who oversees the economy, announced last month that the government planned to issue a sovereign sukuk this year, using legislation already in place.

“Turkey could very easily issue a couple of billion dollars worth of sukuk. It will probably issue $500 million or $1 billion at first and see how it goes,” said Osman Akyuz, secretary general of the Participation Banks’ Association of Turkey.

“An issuance by the Treasury would provide depth to the instrument and it will be sold with confidence.”

Royal Bank of Scotland economist Timothy Ash, a Turkey watcher, was also upbeat. “The market is potentially big – guess the sovereign could easily raise several billion.”

Islamic finance bans the use of interest, so theoretically, investors in a sukuk acquire partial ownership of an asset and share in its returns rather than receiving a stream of coupon payments.

By any other name

Although the sukuk market is tiny compared to the trillions of dollars of conventional international bond issuance, sukuk have been a relatively stable source of funding during the global financial crisis because of their conservative Islamic investor base.

Because of secular sensitivities, Islamic banks are called “participation banks” in Turkey and sukuk are referred to as “participation certificates”.

The country has used Islamic finance methods since the late 1980s through private financial institutions that were recognized as participation banks in 2006. There are four participation banks now operating in Turkey: Albaraka Turk , Bank Asya, Kuveyt Turk and Turkiye Finans. Kuveyt Turk, a unit of Kuwait Finance House, issued the country’s first sukuk in 2010.

Last October, following legislative changes to accommodate sharia-compliant transactions, Kuveyt Turk issued another sukuk for $350 million, and the strong demand demonstrated Turkey’s potential to become a major fresh source of Islamic bonds for investors keen to diversify their portfolios.

Albaraka Turk, the Turkish unit of Bahrain’s Albaraka Banking Group, and Bank Asya have formulated plans for sukuk issues of as much as $500 million, but have so far held back because of weak market sentiment globally due to the European debt crisis.

Despite that, the Turkish economy’s buoyancy, which produced growth of over 8 percent last year, and high yields compared to other emerging markets have increased investor appetite for Turkish assets, including sovereign debt issues.

Possible prop for bridge project

Ratings agency Fitch said last month that plans by sovereign borrowers outside the Middle East and other largely Islamic regions to tap the sukuk market could meet pent-up demand from Islamic institutional investors and banks to diversify their bond holdings.

That is good news for Turkey as it needs backing for huge infrastructure projects, having run into difficulties due to an international financing crunch. The government was forced to cancel a tender in January for the North Marmara Motorway Project, which involves a highway looping north of Istanbul and includes construction of a third bridge across the Bosphorus strait dividing Turkey’s European and Asian sides.

In April, the government will launch a fresh tender, and some bankers see the sukuk market providing a possible solution to the financing problem.

“Turkey needs investments and the sovereign sukuk could be used for financing of some projects, especially the third Bosphorus Bridge and highway projects,” said Akyuz of the Participation Banks’ Association.

Not only could a sukuk be specifically designed for the project, according to Is Investment Strategist Ugur Kucuk, it would also pull in investors who want to avoid international capital market volatility.

“A sovereign sukuk issue which is indexed to revenues to one of the Bosphorus bridges, or to some highway revenues, could be both attractive for investors and for the Turkish Treasury doing its first issue,” said Kucuk.



Islamic banks 'need mergers to fill in West gap'

Small and medium-sized Islamic banks may need to merge if they want to become bigger regional players capable of filling the funding hole left by shrinking Western banks, the head of Islamic finance at Deutsche Bank, told Reuters.

‘There are mismatch challenges,’ Salah Jaidah said on the sidelines of the Euromoney Islamic finance summit in London.

‘Their size, their appetite for long term funding, their ability to finance at competitive pricing. I see this as a big challenge and not happening already now,’ he added.

Most Islamic banks in the Middle East and North African region hold less than $13 billion in assets. Conventional banks, by comparison, hold an average of $38 billion in assets, a report by Ernst and Young estimated.

In the past, said Jaidah, it was the international banks which led oil and gas development and infrastructure projects in the region because they had the balance sheet, pricing mechanisms and appetite for long term funding.

Whilst Islamic banks might not immediately be able to face the challenge, Jaidah believes that within time they will be able to reposition themselves.

‘They might raise capital, might have more competitive prices and ultimately there might be some mergers between small-to-medium sized banks who want to become bigger players regionally.’

The GCC region has over 100 Islamic banks, ranging from Al Rajhi Bank of Saudi Arabia with a $25 billion market cap to small unlisted lenders, a Deutsche Bank report published in November said.

Deutsche Bank selected a list of potential winners which included Al Rajhi – the world’s largest Islamic bank – and Alinma bank in Saudia Arabia, AMMB Holdings in Malaysia and Bank Mandiri in Indonesia.

The idea of a so-called Islamic ‘mega-bank’ has already been touted in the region by Bahrain-based Al Baraka banking group .

Islamic finance prohibits the lending of money for interest and other activities such as speculation that violate religious principles.

Deutsche Bank, which first established a presence in the UAE in 1999, says that despite the current global economic turmoil there are still opportunities within the industry.

‘With the changes taking place in Mena region and our eagerness to reposition ourselves as a lead player within the industry, I expect that the portion of profit and earnings will be lucrative and will grow year after year,’ said Jaidah.

He sees encouraging signs from Oman, home to around 3 million Muslims, where the central bank last year reversed its secular stance on finance, allowing Islamic banks and subsidiaries to establish themselves in the country.

There might also be new geographic openings in North Africa, following the upheaval in the region and countries such as Turkey where the government plans its first-ever issue of Islamic bonds this year.

Globally, Islamic bond issuance rose to $23.3 billion last year from $13.9 billion in 2010, according to Thomson Reuters data.

On the corporate front, Deutsche Bank, which has advised on deals including Saudi Aramco Total Refining and Petrochemical Company’s (Satorp) $1 billion sukuk also sees more non-Islamic corporates tapping Islamic finance.

Egypt Prepares to Sell $2 Billion Islamic Bonds – Scholar

DUBAI – The Egyptian government, seeking to head off a funding crisis, is preparing to raise about $2 billion through its first issue of Islamic bonds, an Islamic scholar familiar with its planning said on Tuesday.

“The Egyptian government is convinced that a foreign currency sukuk will fund the country’s development projects and can also bridge the gap in its currency reserves,” Sheikh Hussein Hamid Hassan told Reuters.

“The sukuk will be in dollars or euros or maybe a combination. It will be around $2 billion, issued in several tranches targeting mainly Egyptians living outside Egypt.”  Sheikh Hussein is one of the leading scholars in the Islamic finance industry, which is built around religious principles such as the avoidance of interest payments. Based in Dubai, he chairs a series of boards which evaluate Islamic financial instruments.

He is not an official adviser to the Egyptian government but has been discussing the possibility of a sukuk issue with it. Sheikh Hussein said he had proposed four structures for the sukuk and the government would choose one.

Asked when the debt might be issued, he said: “The date of issue is not final yet but Egypt is in urgent need of funding.”  Hit by declines in foreign investment and tourism, the Egyptian central bank’s foreign reserves fell $1.77 billion to $16.35 billion in January and are down by more than half since the uprising which ousted Hosni Mubarak in February last year.

That threatens a sharp slide in the value of Egypt’s currency. The government is also grappling with a large budget deficit that it is financing at high cost by issuing short-term Treasury bills to local banks at yields above 15 percent.

Last month Egypt said it was asking the International Monetary Fund for $3.2 billion in emergency loans; a deal could encourage other foreign donors to aid Cairo. But the IMF said it expected talks on an agreement to take two or three months.

Islamic finance was not encouraged under Mubarak’s secular government but it is expected to grow in Egypt after Islamist parties won well over half of the seats in parliamentary elections last month. The government has drafted legislation that would facilitate issues of sukuk.

Because they attract pools of conservative Islamic investment money, sukuk have often proved to be more stable than conventional bonds during the global financial crisis, and they might be an effective way to attract some of the savings of millions of Egyptians living abroad. They might also be bought by Islamic investment funds in the wealthy Arab Gulf

A Saudi Arabian newspaper, Asharq Al-Awsat, reported this week that Egypt’s finance ministry had asked National Bank of Egypt, the country’s largest bank, to study ways in which a sovereign sukuk could be issued in the near future. Marketing could start as soon as next week if the government approves, the newspaper said.

Kingdom gaining more clout in Islamic finance

As Islamic finance/banking industry is growing at a sky rocketing growth rate of 12 percent – 15 percent per annum, Kuala Lumpur, Dubai, Bahrain and London are chomping at the bit to become the center of the industry, which currently boasts some $1 trillion in assets.

For the moment, Dubai holds the title of Islamic banking hub – but it could soon lose ground, both to traditional competitors like Bahrain, Kuala Lumpur or London or newcomers on the scene like Singapore.

But the country that really laid the foundation and basic infrastructure of Islamic Finance and paid billions of dollars by establishing the prestigious institutes like IDB, ICD and ITFC etc. and spending billions of dollars over last several decades and deserves to be global hub of Islamic finance and banking is Saudi Arabia.

Saudi Arabia, the Gulf’s largest economy and a G20 country, is the strongest and well-deserved contender for the title and has an edge. Its financial clout and the development of the King Abdullah Economic City strengthens the case.

“The only impediment is that it may not be the easiest place to obtain banking licenses especially now, given the plight of the banking industry in Bahrain and Dubai, but Saudi Arabia has always been very cautious.

The Saudi Arabian Monetary Agency (SAMA) guides and supervises the financial sector – that already made Saudi Arabia the safest haven in the world amid the current debt storm.

It would be a shame to lose this lifetime opportunity in the presence of prestigious institute like IDB, ICD and ITFC being ideally based and headquartered in Jeddah.

These institutes have already produced scores of talented bankers (in Islamic finance) that are spread now in the entire region and beyond and serving the Islamic finance and banking industry.

But this achievement wouldn’t be easy without full government support. With a strike of a degree, this industry could create thousands of jobs for Saudi men and women.

Dubai, despite its liberal policy and religious tolerance, has benefited from government support in creating a regional Islamic finance hub due to a favorable regulatory environment and strong domestic ties to Islam and Shariah.

It has more listed sukuk, than anywhere else.

What’s more, Dubai is cosmopolitan and business-friendly enough to lure talent from far a field.

The industry is not just limited to providing jobs to bankers but a lot of other support industry also flourishes like law offices, Shariah-complaint insurance companies, leasing and mortgage companies etc.

In the absence of any competition from countries like Saudi Arabia, Dubai will continue to be a major driver for Islamic finance in the near term, as it attempts to recycle the region’s petroleum wealth into real estate, tourism, technology and other anchors of a truly diversified economy.

Dubai’s attractions are many. In addition to glitzy and modern shopping malls, it boasts numerous free zones that allows for 100 percent foreign ownership, 100 percent repatriation of capital and profits, exemption from corporate tax and no import duties.

But its central role in Islamic finance isn’t assured over the long haul.

The recent financial crises have severely dented Dubai’s reputation and its financial soundness.

The Islamic finance market, that was once a local affair, deeply rooted in the Gulf region only, is now spread in Far East and Europe and somewhat in the US while Africa still remains a virgin market, offering enormous potential and unlimited opportunities.

Appreciating the potential of this $ 1 trillion and growing industry (expected to reach $2 trillion by 2013), the British government had voiced its determination to issue a sukuk and asked its Finance Ministry to start working on necessary regulatory changes by next year while it issues licenses to Islamic banks.

It has to be noted that sukuk is a $30 billion global industry.

In recent years, Islamic finance has grown rapidly across the world, conservatively estimated at 12 percent a year.

Malaysia has been strong in the Far Eastern market for the past decade. But now, Asian countries – with tiny Muslim populations – are also looking to join this process.

Japan wants to be the first nation in the G-7 to issue a sovereign sukuk bond – that is, if Britain doesn’t get there first.

Among cities outside the Muslim world, London is the strongest Islamic finance center and it leads race to be Shariah capital.

London will give Malaysia and Dubai and the rest of the Islamic world a run for its money, as London has all the strengths of a traditional financial center, from a solid infrastructure to a qualified pool of prospective employees.

Singapore, also seeking to attract Islamic capital, has the same lures but to a lesser degree.

London is already enjoying some success as a focal point for international Shariah-compliant investors, with both corporations and countries listing sukuk bonds in Britain.

London is also benefiting from New York’s relative indifference to Islamic finance, which removes from the race a traditional long-standing rival for global capital because America’s financial capital or political leadership has a narrower appetite for Islamic assets than other centers.

So far New York investors have shown an interest in Shariah-compliant equities, but not in Islamic bonds or Takaful, (Islamic insurance).

Saudi Arabia deserves all credit for its tireless persuasion to make Islamic banking industry in the world.

Saudi Arabia’s task to introduce Islamic banks into conventional banking systems was challenging and tough. Islamic banking is steadily moving into an increasing number of conventional financial systems.

It is expanding not only in nations with majority Muslim populations, but also in other countries where Muslims are a minority, such as the United Kingdom or Japan.

Similarly, countries like India, the Kyrgyz Republic, and Syria have recently granted, or are considering granting, licenses for Islamic banking activities.

In fact, there are currently more than 300 Islamic financial institutions spread over 51 countries, plus well over 250 mutual funds that comply with Islamic principles.

This industry is currently experiencing growth rates of 22 percent per annum despite a tough investment climate – and this growth trend is expected to continue.

This golden opportunity shouldn’t be missed simply because of arrogance or ignorance and this country should get what it rightly deserves.

South Africa all set to introduce Islamic Bonds

Johannesburg: Plans by South Africa’s National Treasury to introduce Islamic bonds are gaining a strong support in the African country, amid expectations the move would help boost the state’s economy.

“I am sure this was at the request of those Middle Eastern countries because SA has a small Muslim population,” Kokkie Kooyman, head of Sanlam Investment Management told Fin24.

The National Treasury has announced plans to introduce Islamic bonds as part of efforts to get a share of the booming Islamic banking industry.

Other financial instruments planned by the Treasury include Mudarabah, a form of investment partnership between banks and businesses that shares the risk and losses.

There is also Murabah, a transaction in which the bank buys the asset then immediately sells it to the customer at a pre-agreed higher price payable by installments.

The Sharia-compliant Islamic finance is not new to South Africa with different banks and investment companies offering these products. Several banks as the First National Bank and ABSA bank offer Sharia-compliant services.

Kooyman said the Sharia-compliant offerings are worth pursuing because the end result or return is the same as that of conventional banks.“The returns are also not much different for ordinary investors,” he said.Islam forbids Muslims from usury, receiving or paying interest on loans.

Transactions by Islamic banks must be backed by real assets — not shady repackaged subprime mortgages and banks cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Sharia-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.Analysts opine that offering Islamic bonds will help South Africa lure investments from the Middle East and the Gulf region.

“If people that have been using Islamic banking have been happy all the time, let us have (more) of it,” Steve Meintjes, a senior banking analyst at Imara SP Reid, told Fin24.The banking expert said the introduction of more Islamic finance products into South Africa would enhance the economy.

“The SA economy needs more finance. Islamic banking will enhance the productive capacity of this economy,” Meintjes said.Tom Winterboer, a banking analyst at PwC, noted that Islamic finance products can be accessible to investors beyond the Muslim population.

“It must be a good thing to happen to South African investors. It is a different principle from the domestic finance we have come to know,” Winterboer said, adding, however, that it needed a different expertise.“But South African banks have this expertise.”

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.