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The global Islamic capital
market has seen phenomenal growth but it is still open to challenges in
creating more liquidity and ensuring continuous supply of Islamic papers to
remain robust, according to Bank Negara Malaysia's governor Tan Sri Dr Zeti
Akhtar Aziz. Currently, the demand for sukuk exceeded supply with the global
sukuk market, denominated in international currencies, amounting to US$18
billion (US$1.00=RM3.45) and if domestic sukuk issuance is included, it has
now exceeded US$50 billion, Zeti said.
Although the size of the
market may seem modest by global standards, the sukuk market has been
registering an impressive average growth of 40 percent per annum, she said
in a keynote address at "The Sukuk Summit 2007" in London Wednesday.
"While much has been achieved, much remain to be done," Zeti said.
A vital ingredient for the development of capital markets, including the
Islamic capital market, is the creation of a secondary trading platform for
capital market instruments which will provide investors with the flexibility
in managing their liquidity requirements, she said.
In this respect, more needed to be done in terms of the creation of a
continuous supply of Islamic papers and instruments to promote the secondary
trading of instruments and add greater depth to the market, Zeti said.
"There also needs to be greater diversity in the type and maturity of the
sukuk in the market for Islamic financial institutions and portfolio
managers to manage their funds effectively," she said.
Another challenge to the growth of the market concerned pricing issues,
according to Zeti.
For the Islamic security to be efficiently priced and credible, further
initiatives needed to be undertaken to develop its own indicator, she said.
For example, if a sukuk is issued based on the Ijarah principle, and uses
the property as its underlying asset, the actual rate of rental may be
explored to be used to determine the rate of return on the instrument, she
suggested.
"It would then fluctuate depending on the demand and supply for that
property and give a true reflection of the price of the underlying asset,"
she added.
Of further importance was the attainment of the convergence of Syariah
principles and interpretation to ensure market confidence among investors
from different parts of the world, Zeti said.
Similarly for the global acceptance of Islamic finance, the harmonisation of
standards and practices was equally important, she noted.
Full support has to be accorded to the international standard-setting
organisations such as the Islamic Financial Services Board and the
Accounting and Auditing Organisation for Islamic Financial Institutions to
formulate appropriate standards that would strengthen the Islamic financial
system, she said.
"While there remains many challenges that need to be overcome, the overall
direction and potential of the global Islamic financial markets are
certainly well recognised," Zeti said.
Greater engagement and interface between the industry, scholars and
authorities will create greater awareness, understanding and appreciation of
the issues and the direction for its resolution, she said.
"This will provide an environment in which the full potential of Islamic
finance can be realised," she added.
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