KUALA LUMPUR (Jan 28): Sukuk issuance for the near term will remain stable despite current global economic uncertainties, as it is seen as a resilient financing instrument to weather through difficult times, according to Islamic Financial Services Board (IFSB) secretary-general Jaseem Ahmed.

This is because the issuance of the Islamic finance instrument is very much dependent on preconditions of a particular country, and not solely or directly correlated to current economic and market volatility, he said.

"Since 2008, after the global financial crisis, we have seen very strong growth rates… One factor is that across the globe, sovereigns and corporates are discovering that sukuk is a viable alternative source of financing, after it witnessed the decline in growth rates and demands in many of the major markets.

"The structural factors that are taking place are on the supply side, in that you are seeing policy makers alongside the private sectors developing longer-term framework to prepare the ground for multiple uses of Islamic finance," Jaseem told reporters at the IFSB industry engagement session here today.

He added that Malaysia is a major hub for Islamic finance as it has had many years to prepare for the necessary preconditions in order to issue sukuks.

"A country or corporation has to go through a fairly detailed range of measures or reforms, such as tax, regulatory and legal issues before it is able to be in a position to issue a sukuk. You must have domestic conditions that can allow it to take place.

"Hence, we have seen some firms or corporations originating from countries that do not have [the] regulatory framework, issuing sukuks out from Malaysia," Jaseem explained.

However, he added that while current concerns regarding global headwinds are not to be underestimated, many governments are recognising that it does help to have a diverse source of income.

"With the current global headwinds, it would not surprise me if some corporates or sovereigns think hard about what to do, given that the underlying issue is that financing sources are drying up for many kinds of international organisations.

"If governments have plans for expenditure which cannot be changed for the short or medium term, they may see the need to utilise Islamic finance," Jaseem noted.

In her opening remarks at the IFSB industry engagement session, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz acknowledged that the global Islamic financial system is operating at a more challenging time when new risks are becoming more complex.

"New risks with more profound systemic implications are emanating with the increasing forces of financial liberalisation, globalisation, technological advancement, intensified competition, financial innovation and the internationalisation of Islamic finance," Zeti said.

She added that these developments necessitate greater prudential regulation and supervisory oversight to ensure a resilient and sustainable financial system.