Dubai, Asharq Al-Awsat—Gulf countries will be the engine driving the growth of the global sukuk market, according to a report released on Monday by the Dubai Chamber of Commerce and Industry.
The report, which is based on data from the UK Islamic Finance Secretariat (UKIFS) and the Malaysia International Islamic Financial Center (MIFC), expected sukuk, or Islamic bonds, to “play an important role over the next decade in securing funds for [a] substantial line-up of new projects” in Gulf Cooperation Council (GCC) countries, particularly in Dubai.
The Gulf emirate has already emerged as one of the major centers for sukuk issuance, the report said, which globally are set to reach a total value of 16 billion US dollars by the end of the year, according to PricewaterhouseCoopers.
The GCC and Malaysia are the traditional hubs for the issuance of sukuk and, more generally, account for the lion’s share of the entire global Islamic finance industry, estimated at 1.4–1.7 trillion US dollars.
But the report sees other countries also playing major roles in the spread of the asset class, with emerging Islamic finance markets such as Tunisia, Mauritania, Senegal and Oman having the potential to become major sukuk hubs in the future, it said.
But as of this year, Islamic countries are no longer the only issuers of sukuk. The report expected the popularity of the asset class to gain momentum following the UK’s issue of its first sovereign sukuk in June, when it became the first country outside the Islamic world to issue an Islamic bond.
It will now be followed by South Africa, which on Thursday announced plans to issue its own sukuk, and almost certainly Luxembourg and Hong Kong, both of which have already hired a number of banks to advise on potential issues.
The report also expected the global sukuk industry to be one of the fastest-growing in the global Islamic finance sector. The Dubai Chamber’s chairman, Abdul Rahman Al-Ghurair, called the sukuk market “one of the most attractive areas of Islamic finance that has attracted considerable interest from the business community worldwide.”
Citing data from Rasameel Structural Finance, the report said sukuk issues had registered a cumulative annual growth rate of about 47 percent over 2001–2013. Performance since the global financial crisis of 2007–2008 had been positive, the report said, with the sukuk market crossing the 100-billion-dollar threshold in 2012, following this up with 119.7 billion dollars’ worth of issues in 2013 despite a slowdown from the 137 billion dollars of sukuk issued the previous year.
The global sukuk market was dominated by sovereign sukuks, the report said, followed by corporate and government-related sukuks.
Islamic bonds or sukuk form an alternative to regular bonds that pay out interest, which is forbidden under Islamic Shari’a law. Sukuk are secured against an underlying asset from which their returns are generated, thus eschewing the need to earn money on interest.