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Banking

Islamic issues gain in global appeal

The Shariah-compliant debt market has grown rapidly, with interest from issuers and investors outside as well as inside the Muslim world. The next development is likely to be more corporate issues using Islamic structures.

Islamic finance deals 2003-2004

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ISLAMIC BANKING HAS had a groundbreaking year, particularly in the market for medium-term and long-term Shariah-compliant bonds. Islamic finance specialists believe the market for these instruments, categorized as sukuk, is now set for further rapid expansion as investors and borrowers worldwide start to understand its appeal.

The most significant recent transaction was the e100 million issue in July for the German state of Saxony-Anhalt, the first for a European borrower to be Islamically structured. But of almost equal importance have been the $250 million transaction for Bahrain's central bank, the Bahrain Monetary Agency (BMA), in June and the $750 million deal for Dubai's Department of Civil Aviation in August.

Bankers believe that in the next few months more sovereign and multilateral borrowers will raise money using the sukuk structure, which offers liquid asset-backed instruments, and that the next big challenge is to persuade private-sector borrowers from the Middle East and Europe to follow suit.

"The sukuk market has now developed a lot of momentum," says Iqbal Khan, chief executive of HSBC Amanah, HSBC's Islamic finance division. "At first it was seen as experimental, then as a novelty, but it is now moving towards maturity.

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