|
The growing role of Islamic
finance in mobilising and channelling funds to productive investment
activities across borders contributes to more efficient allocation of funds
across borders and facilitates international trade and investment. Greater
diversification of risks also contributes towards promoting international
financial stability. The more recent developments in Islamic finance is the
growing significance of the sukuk market to become an increasingly important
component of the Islamic financial system. Five major trends are having a
significant bearing on the future development of the global sukuk market.
Firstly, the bond market is
now becoming key to meeting the funding requirements for both the public and
private sectors in emerging market economies. This is particularly the case
for the Middle East and Asia, which are among the fastest growing regions in
the global economy. This includes financial needs of the private sector
following the privatisation and implementation of infrastructure projects.
The development of the Islamic Bond Market, the Sukuk Market will provide
opportunities for the corporate sector, the government agencies,
multinational corporations and multinational development institutions to
raise funds through the issuance of sukuk to meet their financing
requirements. The sukuk market also serves as an important platform,
complementing the conventional bond market, in enhancing the effectiveness
and efficiency for the mobilisation and allocation of funds within the
domestic financial system, as well as in the international financial system.
Secondly, while there has been growing interest in the issuance of sukuks by
corporations, sovereigns and multinational corporations, the demand for
sukuks significantly exceeds the supply. Today, the global sukuk market,
denominated in international currencies, is estimated to exceed USD50
billion. Although the size of the market is modest by global standards, the
sukuk market is experiencing remarkable growth, increasing at an average
rate of growth of forty per cent per annum.
The significant demand for sukuks have been spurred by the high levels of
surplus savings and reserves in Asia and in the Middle East. This has been
reinforced by increased liquidity in the international financial system in
search of higher returns and greater diversification of risk. Since the
issuance of the first sovereign global Islamic sukuk by the Government of
Malaysia in 2002, there has been a series of other issues by the governments
of United Arab Emirates, Qatar, Bahrain and Pakistan. An increased number of
multilateral agencies have also issued sukuks to finance development
projects. In addition, both government agencies and the corporate sector
have considered the sukuk market as an attractive instrument of financing.
Thirdly, there is a great number of global players such as investment banks,
Islamic banks and securities firms that are involved in the issuance of
sukuk in the international financial markets. A large number of Western
banks are also providing Islamic financial services taking advantage of the
opportunities and to provide customised products and services to their
customers.
Fourthly, the established international financial centres have also shown
interests to have an active role in promoting the development of the sukuk
market including enacting the appropriate legislative provisions. These
developments would augur well for the development of the sukuk market.
Finally, the regulatory and supervisory paradigm continues to evolve.
Indeed, the recent decade had witnessed significant global shifts in the
approach to regulation and supervision across many countries. In addition,
the harmonisation of standards and practices is also important. The
establishment of the international standard setting organizations such as
the Islamic Financial Services Board (IFSB) and the Accounting and Auditing
Organisation for Islamic Financial Institutions (AAOIFI), to formulate
appropriate prudential and accounting standards that would not only
facilitate the process of harmonisation but also contribute to the
strengthening of the Islamic financial system. The IFSB has already
formulated the prudential treatment for sukuk investment by the Islamic
financial institutions as stipulated in the Capital Adequacy Standards.
|
