The rapid international expansion of Islamic finance reflects its ability to remain competitive and to increasingly meet the complex requirements of the global financial community.
With various countries now intensifying efforts to develop their respective Islamic financial capabilities, it is becoming increasingly vital to build deeper relationships between the key markets for Islamic finance and also between the leading industry players in each of these jurisdictions.
Central banks from seven Muslim countries yesterday launched a regulatory body to oversee the booming Islamic investment market. The Islamic Financial Services Board (IFSB) was inaugurated here by founding members Malaysia, Saudi Arabia, Indonesia, Iran, Kuwait, Pakistan, Sudan and the Islamic Development Bank.
Malaysia’s efforts to become a global hub for Islamic finance by offering tax breaks is driving a record rally in foreign-currency sukuk, and arrangers say interest is increasing among local issuers.
Standard Chartered Plc is in talks with about five companies to manage deals amounting to at least $1 billion, Leon Koay, the Kuala Lumpur-based head of global markets, said in a May 15 interview. The Bloomberg Malaysian Sukuk Ex-MYR Index, which includes notes of Khazanah National Bhd., is rising for a sixth quarter and has gained 9 percent since December 2010.
The full potential of Islamic finance could be realised if several challenges are to be addressed, according to World Bank managing director Dr Mahmoud Mohieldin.
The challenges that needed to be addressed include improving regulatory oversight, rebalancing tax treatment, strengthening insolvency framework, promoting standardisation, ensuring adequate liquidity and establishing sound risk-management practices.
With an estimated value of around $1.1trn in global assets, Islamic finance has maintained continuous growth against the backdrop of global economic turmoil across many of the conventional world markets. Yet while their inherent conservatism and overweight exposure to low risk investment has proven a strong point for Islamic-compliant financing of real estate, as safer investments have generally out-performed the market, the ongoing lag in Shari’a rules harmonisation is threatening to stifle their full potential in the Middle East and Islamic Asia, reflects Mark Faithfull.
Global Islamic insurance contributions surged 19 percent in 2010 to $8.3 billion helped by Saudi Arabia, the world’s biggest oil exporter, which made up more than half the industry, an Ernst & Young report said.
The six-nation Gulf Cooperation Council, which also includes the United Arab Emirates, Qatar, Bahrain, Oman and Kuwait, made $5.68 billion of Islamic insurance or takaful contributions in 2010, and South East Asia $2 billion, according to the World Takaful Report 2012 e-mailed today.
Malaysian and Indonesian pension funds, which have a combined $192 billion of assets, say plans to increase holdings of Islamic bonds are being hampered by a shortage of investment-grade sukuk.
Kuala Lumpur-based Employees Provident Fund and Kumpulan Wang Persaraan (Diperbadankan), Malaysia’s two biggest pension managers, and PT Jaminan Sosial Tenaga Kerja (JAMSOS), Indonesia’s largest retirement fund, say they want more Shariah-compliant debt in order to diversify portfolios that must hold investment- grade securities.
Growing trade in Islamic bonds in the Gulf region this year could be driven further by increased private sector interest in Sukuk on the back of strong activity by banks, the 51st ACI Financial Markets World Congress will be told in Dubai this weekend.
Nick Stadtmiller, Head of Fixed Income Research at Emirates NBD, said over $6 billion of Sukuk have been sold by GCC entities so far in 2012 compared to issuance of $7.3 billion for all in 2011, with the UAE’s Majid Al Futtaim Group paving the way for more private sector involvement in Islamic finance through its recent Sukuk sale.
Asia’s sovereigns have issued a slew of Sukuk in March; in a sure sign that government and government-related debt will continue to dominate the market this year.
Among sovereign and quasi-sovereign Sukuk that have been issued this year include a BN$100 million (US$79.29 million) short-term Sukuk Ijarah issuance from the Autoriti Monetari Brunei Darussalam, the monetary authority, on the 8th March. While remaining under the radar, this is the Brunei’s government 69th issuance of short-term Sukuk; amounting to BN$3.75 billion (US$2.97 billion)-worth of short-term Sukuk since April 2006.
Malaysia’s biggest Islamic insurers plan to expand in Indonesia, taking advantage of industry growth that’s almost three times the pace of their home market and increasing wealth in the world’s most-populous Muslim country.
Mayban Ageas, the nation’s largest insurer, is considering an acquisition in Indonesia, chief executive officer Hans De Cuyper said in a March 6 interview.
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