‘No impact on major Islamic finance players’

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KUALA LUMPUR: Malaysia and the Gulf Cooperation Council (GCC) countries remain the leaders in the Islamic finance industry, despite the emergence of new participants vying to get a piece of the pie.

Bahrain Economic Development Board (EDB) chief economist Dr Jarmo Kotilaine said an established financial industry requires many component parts for its sustained development, and the Islamic finance architecture is much more developed and complete in the Gulf and Malaysia than any other part of the world.

“Other centres can support the global growth of Islamic finance but are unlikely to challenge the established role of Southeast Asia and the Gulf.

“Much of the new demand for Islamic finance products globally is likely to come from these dynamic emerging markets with significant infrastructure Investment needs,” he told Bernama in an email interview.

Total sukuk issuance exceeded US$100 billion (RM317 million) a year for three years in a row, which compares with a total of barely US$200 billion in the years up to 2010.

Of this, Malaysia was the most active market in 2013, covering 69% of the global sukuk issuance, followed by Saudi Arabia (14%) and the United Arab Emirates (8%).

Kotilaine attributed the high issuance of Islamic bonds to a growing range of companies taking the opportunity to seek liquidity at low cost and to diversify their funding solutions.

“Sovereign issuance remains an important part of the story, with over 40% of global issuance in 2013 made up of short-term ringgit sukuk issued by Bank Negara Malaysia, and this is needed for creating benchmarks,” he said.

Kotilaine said many financial centres are paying attention to the opportunity following the growing scale of Islamic finance.

He explained that the growing interest in Islamic finance globally reflects a desire to use products and structures anchored in time-honoured, tried and tested principles.

“Especially in the wake of the global financial crisis, one need not be a Muslim to appreciate the value of low leverage and limitations on speculation,” he said. —  Bernama

This article first appeared in The Edge Financial Daily, on September 5, 2014.