The Gulf can foster growth in Islamic bonds (sukuk) market by adopting regulations and going in for measures such as credit rating, say analysts.
Even as the GCC holds a lion's share in the global sukuk market, estimated at $130 billion (Dh477bn), it lags behind when it comes to regulations. And a model like the one followed by Malaysia can help it tap the massive potential that the segment holds, they said.
"The GCC market holds a significant share of global market when it comes to volume. But if we talk of a regulated market, the comfort levels of having prudent policy guidelines from regulators are still not there, whether it is related to type of issuances or ratings," said Moinuddin Malim, Head of Corporate and Investment Banking, Badr-Al-Islami. Mashreq.
Malaysia, with its proper regulatory measures and incentives, has managed to create a success story of its sukuk market and "investors from various countries such as Korea and Japan too are going there to issue sukuks".
"Rating for sukuks in Malaysia is mandatory. Besides, they have created a platform to quote sukuks on a daily basis so people would know the fair value of the instrument," said Dr Mohd Daud Bakar, Managing Director, Amanie Islamic Finance Learning Centre.
"The government in Malaysia has also incentivised issuances when it comes to the taxation aspect of it," he added. "From the day of issuance to redemption, everything is clear."
Credit enhancement structures in bond market can be used for sukuks as well and these should be studied, said the analysts.
The region should focus on tapping into the opportunities after the market downturn and learn from other successful markets, they added.
"Sukuk is important when it comes to overall financial market. The region, with its huge capital needs, but a small debt market needs to look into opportunities," said Kamal Mian, Head of Islamic Finance, Saudi Hollandi Bank.
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