Demand for sukuk poised to surge

Business Times, December 1 2005

By Roziana Hamsawi

THE demand for Islamic bonds, or sukuk, is expected to surge exponentially once the sukuk fund concept becomes more popular, says International Islamic Financial Market chief executive officer Ijlal Alvi.

He said the appetite for sukuk among reserve managers and non-bank financial institutions is increasing, as seen in all the sovereign sukuk issues, adding that more issuers are seeking to tap the sukuk market due to its tremendous growth potential.

Ijlal also said that sukuk can be developed into a money market instrument, used to create sukuk funds for retail distribution and play a major role in the development of Islamic interbank or short-term Islamic financial market.

He was presenting a paper, titled “Towards Global Standard For Islamic Sukuk Issuance and Trading”, on the second day of the Kuala Lumpur Islamic Finance Forum 2005 in Kuala Lumpur yesterday.

Ijlal said sukuk investments this year are expected to increase 35 per cent to about US$9 billion (US$1 = RM3.78) from US$6.7 billion in 2004.

It is estimated that by 2006 and 2008, US$12 billion-US$15 billion and US$30 billion of Sukuk would be outstanding respectively.

Ijlal said the key benefits of investing in sukuk instruments include competitive pricing and better risk profile. Sukuks are also tradeable and fill the existing need for syariah-compatible tradeable instruments.

However, investing in sukuk instruments is somewhat constrained by the absence of a critical mass, market makers and the limited awareness in the Western market.

Ijlal said the limited number of issuance currently restricts active trading of sukuk in the secondary market.

There is also the lack of regulatory support from key Islamic markets and the lack of initiative in developing a separate legal framework for sukuks via-a-vis conventional instruments.

Ijlal said another issue is the limited number of qualified personnel who are well versed in capital market issues, both from a syariah and commercial perspective.

There is also the issue of the small number of Islamic investment banks, which lack capability in structuring, originating or arranging capital market transactions, he added.

Reference: Demand for sukuk poised to surge

Islamic Capital &
Money Market
Unification
Read More