Islamic finance helps diversify investors

The growing Islamic finance market helps economies diversify their investor base, says Mohamed Damak, Director and Global Head of Islamic Finance at Standard & Poor's.

Damak told that recently there were new players in the market for sukuk -- securities similar to bonds -- which marked a “significant and growing interest” in Islamic finance.

“In 2014, we have seen sukuk issued by the U.K., sukuk issued by Luxemburg and South Africa,” Damak said. “Why are these issuers doing that?”

Damak argued that issuers outside Golf Cooperation Council and Asia chose to issue sukuk in order to attract investors from the Middle East and Asia, and therefore diversify their investor base.

For countries like the U.K., Damak said it was more about setting a benchmark for private sector issuers and encouraging them to see sukuk, which is expected to hit $115 billion in 2015, as a complimentary root of financing.

“We don’t think there is a competition between Islamic banking and conventional banking or that any model trying the take over the other. We think there is significant and growing interest in Islamic finance in several countries and that could be seen in recent sukuk transactions from non-traditional issuers,” Damak said.

Damak said two thirds of sukuk issuance was coming from Malaysia, which issued $50 billion worth of sukuk in 2014. But the Malaysian central bank has not issued any sukuk in 2015, which Damak said might result in a ”major slowdown of the sukuk market” if this trend continued.

Turkey contributes three percent of the total sukuk issuance, a rate that is growing with both the government and private financial institutions expressing more interest in the market, Damak said.

Sukuk is the Arabic name commonly used in reference to what is regarded as an Islamic equivalent of bonds. But unlike bonds, it accrues no interest and hands partial ownership of a property, earning proportional rent for the buyer, who also accepts vulnerability to the risks involved.

(World Bulletin / 02 April 2015)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com