Islamic finance bodies have trillion-dollar potential – Moody’s

ISLAMIC financial bodies, which adhere to religious proscriptions against interest, have a market potential of at least US$5 trillion ($5.43 trillion), Moody’s Investors Service said.

But Moody’s added that such institutions needed to develop their own derivative instruments, avoiding conventional derivative practices, if they wanted to retain their popularity among Moslem investors.

It said Islamic financial institutions had total assets in 2009, despite a gloomy international economic environment, of $US950 billion ($1.03 trillion).

But it estimated that the sector’s potential was “worth at least at least $US5.0 trillion ($5.43 trillion) and the industry is continuing to expand globally.”

Islamic banking has been left relatively unscathed by the global financial crisis, largely because of rules forbidding engagement in the kind of risky business that sank mainstream institutions like Lehman Brothers.

Islamic Shariah law bars the payment and collection of interest, which is seen as a form of gambling.

Islamic finance also operates on the principle of risk-sharing between the issuing bank and the buyer of a financial product, making it a less risky alternative to some conventional banking instruments.

Moody’s Vice President and Senior Credit Officer Anwar Hassoune said that Islamic financial bodies now wanted to use derivative instruments to hedge against risk and to improve monitoring practices.

“However they are keen to do so in a Sharia-compliant manner, rather than imitating conventional derivative instruments, in order to avoid losing their special status as Sharia-compliant banks, which makes them very attractive to a large population of Muslims.

“For this reason a new innovation phase in the industry is critical.”

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Islamic bond market to hit $200bn

imagesby Amy Glass 

The Islamic bond market will hit $200 billion by 2010, and is predicted to grow by up to 35% this year, ratings agency Moody’s Investor Service said in a report on Tuesday.


UAE banking outlook negative – Moody’s

Moody’s said growth in the market was being driven by the Gulf’s oil wealth and sovereign debt sales, reported UAE daily Emirates Business 24-7.

Faisal Hijazi, author of the report, said the Islamic finance market has experienced annual growth of 15% for the past three years, with Islamic bonds, or sukuk, the fastest growing market segment.

“This year, overall sukuk issuance should continue to increase by approximately 30% to 35% per annum. Sovereign sukuk is likely to gain popularity, with new issuance of sukuk out of Japan, Thailand and the UK,” Hijazi said.

About $97 billion of sukuk have been sold to date, the report said, without specifying how much of that debt has matured.

Moody’s said a total of 50 sukuk transactions came to the market from the Gulf last year, with 28 in Bahrain, 12 in the UAE, five in Saudi Arabia, four in Kuwait and one in Qatar, exceeding $19 billion in issuance.

Three UAE sukuk, amounting to more than $1 billion each, were issued by JSL, DP World Sukuk and Dubai Investments.

The ratings agency said the UAE Islamic finance market experienced a record year of growth in sukuk transactions, with 12 transactions coming to the market last year compared to seven in 2006. Volume issuance of UAE sukuk rose by nearly 27% to reach $11.1 billion.

Islamic finance is estimated to be worth around $700 billion globally. At the end of 2007, global volumes had reached $97.3 billion, with the majority coming from Malaysia and the Gulf.




source : arabianbusiness