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Opinion

Time for the sukuk to seize its chance

With traditional debt markets still in disarray, it’s theoretically a good time for sukuks to foster issuance outside the Middle East and Asia.

Issuance of sukuk or Islamic bonds is growing impressively. In 2007, the market was twice its 2006 size. At about $6 billion each, the two largest sukuks of 2007 were almost twice the size of the biggest deal of 2006, which at the time was the largest Islamic bond ever. The sukuk market has increased more than tenfold since the beginning of the decade.

However, sukuk issuance has overwhelmingly been restricted to two hubs of the Islamic finance market: Malaysia and the six countries of the Gulf Cooperation Council. None of the 50 biggest sukuks of 2007 came from outside these two zones.

Participants in the Islamic finance market are excited about the prospect of the UK Treasury issuing a sukuk in 2008. They hope it will provide a flagship for others to follow. With such markets as central Asia, Pakistan and India also turning to Islamic finance more and more, they say the industry is becoming truly global.

The UK will not be the first developed-market issuer to raise money through a sukuk. In 2004, the German state of Saxony-Anhalt issued a sukuk worth €100 million ($123 million). Yet those who were expecting the deal to kick off a string of developed-market Islamic activity were disappointed.

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