Islamic finance continues to thrive in Asia

SINGAPORE : The global Islamic bonds or sukuk issuance market for the first half of 2010 has doubled on-year to US$20 billion.

Sukuk volume in 2007 was about US$24 billion in the first half, a record year.

And industry watchers believe the sukuk volumes for the second half of this year will fare even better compared to the same period last year.

Islamic finance continues to thrive in Asia

Asia, they said, will be the main driver of growth.

More investors in Asia, observers said, are turning to Islamic finance as an additional source of funding. This is reflected in a growing number of new transactions.

One example is Khazanah Nasional’s landmark S$1.5 billion sukuk issue in Singapore last week. This makes them the largest foreign issuer in Singapore dollars to date.

Malaysia has been a big player in the Islamic finance industry because of its large domestic sukuk market.

Experts said it makes up nearly two-thirds of the global sukuks issued this year.

Using Islamic bonds to raise money in Indonesia is also gaining popularity because there is high demand for corporate borrowings.

But observers believe that Indonesia has more room to grow the sector.

Although a young player in the industry, many believe that Singapore is well positioned to benefit from more sukuk sales in Asia.

Hooman Sabeti-Rahmati, partner of Allen & Overy LLP said: “The key for Singapore is intermediation of transactions. This is where deals get done.

“And by making sure that the right human and institutional infrastructure exists here to do Islamic deals, Singapore can transition fairly naturally into a centre for doing these deals.”

Singapore’s central bank, the Monetary Authority of Singapore (MAS) said the sector has grown steadily in recent years with greater interest from high-quality borrowers and issuers such as IDB, Khazanah and Olam.

MAS added that it will continue to review its regulatory framework and work with industry participants and international bodies to further promote the development of Islamic finance in Singapore and the region.

But the sector in Singapore also faces challenges.

Tan Jeh Wuan, MD of Corporate Banking & Capital Markets, The Islamic Bank of Asia said: “I think as a relatively newcomer to this space, it is natural that the talent pool for Islamic finance is smaller compared to countries which are more well established. We need to step up on the training of the people.

“We noticed a couple of educational institutions in Singapore like the NTU and SMU which have put in place Islamic finance courses for people who want to further develop their knowledge in this field.”

The global Islamic finance sector is expected to cross the US$1 trillion mark in total assets this year.

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