This year has already proven to be one of the best on record in terms of sukuk issuance, with USD 85.8 billion sold during the first eight months, up from USD 75.1 billion during the same period last year, according to data compiled by Thomson Reuters Zawya Islamic.
But more importantly, 2014 witnessed the launch of debut sovereign sukuk by five countries, four of which do not have a predominantly Muslim population. This signals the end of an era when only Muslim countries utilized Islamic finance to raise funds and when non-Muslim countries viewed Islamic financing with suspicion.
Source: www.pewforum.org/2011/01/27/table-muslim-population-by-country/
Although Germany' Saxony Anhalt sold a EUR 100 million sukuk in 2004, the UK's recent sovereign sukuk issuance is considered the first sukuk by a non-Muslim and European country. The issue was as important to the Islamic finance industry as London is to financial markets.
While the GBP 200 million (USD 334 million) UK sukuk was perceived as a one-off, symbolic gesture by the UK government, it nevertheless helped accelerate the adoption of sukuk by other non-Muslim and Western states. Luxembourg and Hong Kong have been working for several years on amending their laws and taxation systems to enact Islamic finance legislation, but it was only after the UK launched its sukuk, that they both finally hit the market.
In Luxembourg, the sale of sukuk will crown the efforts of the small state to become an Islamic finance hub. The Luxembourg Stock Exchange was the first to list a sukuk in 2002. Several of the existing Islamic and shariah- compliant funds are domiciled in Luxembourg.
Hong Kong, on the other hand, is home to the highest concentration of banking institutions in the world with over 71 of the largest 100 international banks operating there. It also supports the largest concentration of fund managers in Asia with more than 290 fund management companies. Hong Kong, which serves as the gateway to mainland China, is the first non-Muslim Asian state to issue sukuk.
As for South Africa, the imminent sale of its sukuk will be the first by a non-Muslim African state. Only Gambia, Sudan, Nigeria's Osun and Senegal had issued sukuk so far. These issuances will allow the continent to attract funds from oil-rich Gulf Arab states seeking shariah-compliant investments.
Senegal has concluded the sale of CFA 100 billion (USD 200 million) sukuk, the proceeds of which would be used to finance economic and social development projects.
Islamic institutions are supporting development of the Islamic finance industry by assisting countries seeking to issue sukuk. The Islamic Corporation for the Development of the Private Sector (ICD) advised the Senegal government and co-arranged the sukuk, and is also helping Tunisia to structure its long-awaited debut sovereign sukuk.
These sovereign issues will help corporations in those countries to tap Islamic capital markets.
Countries that have been regular issuers of sukuk need to consider further steps to innovate and develop the industry in their jurisdictions in order to face growing competition from rising Islamic hubs and new industry players.
Adnan Halawi is Product Manager, Zawya Islamic - Thomson Reuters and can be reached at adnan.halawi@thomsonreuters.com
Join Adnan in the Zawya Islamic Community for active discussions on the recent developments in the Sukuk industry with industry professionals.
Zawya 2014
