SINGAPORE: Islamic capital instruments or Sukuk have been gaining prominence in the global financial market.
More than US$11 billion worth of Islamic bonds (Sukuk) was issued in January 2013 alone, according to the 3rd Edition Sukuk report by the International Islamic Financial Market.
The momentum is set to continue, leading to more financial centres eyeing a slice of the Islamic financial pie, say experts.
They add that the growth potential for Islamic finance in Singapore is still strong.
Sukuk or Islamic bond issuances totalled US$137 billion in 2012, up from US$92b in 2011.
This is just one part of the entire Islamic finance market, which has assets of about US$1.3 trillion to date with instruments varying from Sukuk, Takaful to other equities.
And this market is set to grow at an annual rate of 25%, according to Bank Indonesia's deputy governor, Halim Alamsyah.
Yet there is still a gap to fill in the Islamic capital market.
Mr Ng Nam Sin, Assistant Managing Director (Development) at the Monetary Authority of Singapore, said: "The increased volume of issuance is still insufficient to meet the huge demand for: one, Islamic assets for investments and two: Islamic financial institutions to manage their liabilities.
"Within the Islamic capital market, there is also a need to broaden the range of Islamic capital market products available to address various investments and financing needs."
This is a gap that has not gone unnoticed by potential entrants.
Gatehouse Bank's Chief Representative (Malaysia) and Senior Advisor to the Board,
Mr Richard Thomas, said: "Practitioners talk a lot about Indonesia. A lot of excitement there.
"They talk about what's happening in Central Asia and Central Europe, the markets in South America.
"Brazil has always had an interest in Islamic finance and it has been looking at what it can do in terms of trade. For them, that would be a trade financing market.
"Canadians are also very interested. It's a universal opportunity. New Zealand is launching the first New Zealand domicile Islamic equity fund, global fund.
"There are no markets closed to Islamic finance. The most exciting ones are the ones that bring product to the market first."
Ijlal Ahmed Alvi, CEO of International Islamic Financial Market, said: "Turkey and others are now issuing at the sovereign level, which we hope (will happen in) Singapore.
"We have seen now in GCC (Gulf Cooperation Council). GCC corporates are now issuing, and you have large-cap corporates issuing Sukuk, mid-sized and small-cap Sukuk are also being issued, which is also a good development."
According to Ernst & Young's Global Islamic Banking Center, Islamic trade finance could provide new opportunities and become the preferred choice for emerging rapid growth markets (RGMs) such as Turkey, Indonesia, Malaysia, Qatar, Saudi Arabia and the UAE.
As the growth in Islamic finance continues, standard documentation has also been introduced to harmonise practices across the globe.
At the 4th Annual World Islamic Banking conference on Monday, the International Islamic Financial Market published documentation to be used in the Islamic inter-bank market between financial institutions in order to manage their liquidity requirements.
Some markets like Singapore already have an edge in that respect with the right infrastructure.
Ijlal Ahmed Alvi, CEO of International Islamic Financial Market, said: "Singapore has good regulations already in place. In our work, also, for our standard documentation, we require that.
"I hope Singapore looks into it and start using it. That's one way for Singapore to remain...a hub...so that other jurisdictions, if they can't work because of the law and if the regulatory framework is not there, then naturally they will look to Singapore. So it can maintain its hub position, which it has for conventional (banking)."
Gatehouse Bank's Mr Richard Thomas said: "The development of Islamic financial market in London, Dubai and Malaysia is a natural development of natural requirements and Singapore should be looking at its natural advantages and develop an Islamic platform around those advantages."
The global Sukuk market is set to see double-digit growth this year.
Experts say Singapore's strong regulatory environment and the depth and diversity of its capital markets will enable it to capture a bigger slice of the Islamic financing market.
(Channel News Asia / 03 Jun 2013)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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