This is a total misconception. There is no difficulty in generating sizeable Shariah compliant assets. The misconception generally arose from industry players not appreciating the real demand for Shariah compliant assets that exists in the market. All the biggest bond deals in Malaysia are Sukuk or Islamic bonds because more people can buy Sukuk as compared to conventional “riba”-based bonds. Another case study can be taken from the experience of selling structured products in Malaysia. Conventional riba-based structured products were considered popular and marketable in Malaysia, but nobody thought there was demand for a Shariah compliant equivalent. When such a product was introduced to the retail market in Malaysia for the first time, it broke the all-time sales record for any structured product and oversold the conventional version by two to three times the size. The demand for Shariah compliant assets is bigger because these products can attract a wider investor base, comprising Muslim and non-Muslim investors. Islamic or Shariah compliant assets of whatever size can be worked out easily if there is determination and commitment on the part of financial institutions to bring them to market. Regulators also need to play a role to facilitate them. Everything in this world is Shariah compliant unless there is a specific provision that says otherwise. What everyone must note is that very few things in life are non-compliant with Shariah. So the misconception of difficulty in markets outside of Malaysia must be made right for the good of the industry.
BADLISYAH ABDUL GHANI
The substantial liquidity in the GCC states as a result of high oil prices has resulted in a worldwide search by investors there for Shariah compliant assets that can provide an attractive return. The depreciation of the dollar has made US-based assets relatively less attractive, hence much of the focus is on Europe and Asia. Shariah compliant investors, and indeed their advisors, are often less knowledgeable about continental European and Asian markets, although they are learning fast. Nevertheless, the knowledge gap has been a constraint. There has also been a desire to diversify asset classes, and not rely excessively on more risky equity investments. Sukuk are the obvious class, but although Sukuk are increasing, many are ringitt denominated, which is not attractive to Gulf investors. Most of the rest are US dollar denominated. Expect to see more euro and sterling denominated Sukuk in the future, as this would really interest GCC investors. A Treasury committee in London is studying the issues, and sterling denominated Sukuk are likely next year. In the longer term it is euro and sterling corporate Sukuk that can grow the market, providing an excellent opportunity for Shariah compliant investors. PROFESSOR RODNEY WILSON Director of Postgraduate Studies, Durham University
The region is actually rich in assets that could form the basis for true, asset-backed Sukuk. For example property (residential and commercial) is a natural asset for Sukuk. Indeed this week we saw the first international securitizations, an office tower in the UAE and a pool of residential Ijarah leases. The first was conventional (but could have been done Islamically) and the second was Islamic. As Islamic securitization takes off it will make a sizable contribution to Islamic capital markets. KHALID HOWLADAR Vice President of Middle Eastern & Islamic Structured Finance, Moody’s Investors Service
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