Global Islamic bond issuance to touch $30b this year

A report on Islamic banking issued by Kuwait Finance House (KFH) has said global issuance of Islamic bonds will reach $30 billion this year, up from $20 billion in 2009.

According to the KFH report, the rising optimism over the health of the global economy as well the increasing popularity of Islamic banking products have propelled the global sukuk market. However, sukuk issuance is unlikely to breach the record $31 billion reached in 2007.

In 2008, the global sukuk tally was $14.1 billion. The report also says the value of the Sukuk market touched $100billion in 2009. According to Investopedia, sukuk is an Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia, Islamic religious law. Because the traditional Western interest paying bond structure is not permissible, the issuer of a sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value.

The sukuk issuance in the first half of the year amounted to $16.5 billion, compared to $7.6 billion in the first half of 2009.

Expectedly, growing interest for Islamic financial products in the Middle East and North Africa region has fuelled the rise in demand. Sukuk issuance in this region rose 235 per cent in the second quarter of the year over the same period in 2009. However, demand fell 24 percent in the Gulf region. Malaysia continued to dominate the global sukuk market, the report says, contributing to 60.5 per cent of total value of sukuk issued in the first half of 2010. Saudi Arabia and Indonesia came second with a contribution of 14.1 per cent each.

KFH report says the demand for sukuk will stay high in the short-to-medium-term as Gulf and Asian economies are in need of huge investment for financing development projects.

“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 says. The report says favorable factors like stimulus programmes and a focus on government spending will help boost sukuk issuance around the world.

This is true in the case of GCC countries as the governments in the region are focused on revving up spending on development projects.

source : the new nation

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