x Abu Dhabi, UAEThursday 18 January 2018

Dubai aims to lead world in Islamic bond trade

Emirate's target is to be international hub for sukuk, the Sharia-compliant financial instruments that is already worth Dh1.5 trillion.

DUBAI // Dubai is aiming to lead the world in the multibillion-dollar market in Islamic bonds known as sukuk.

The emirate will take on the current market leaders Malaysia and London in a bold initiative announced yesterday by Sheikh Mohammed bin Rashid, the Prime Minister and Ruler of Dubai, at a ceremony on the trading floor of the Dubai Financial Market.

Sheikh Mohammed rang a handbell in a symbolic signal of the start of trading in the lucrative financial instruments, which are challenging conventional money-raising methods on global capital markets.

He said he wanted to "turn Dubai into an international hub of Islamic bonds" as the first step in the strategy, announced last month, to make the emirate a centre for the global Islamic economy.

Sukuk are financial instruments used by governments and corporations to raise capital.

They are structured in such a way that they generate returns for investors without infringing Islamic laws against charging financial interest on loans, and are also called sharia-compliant bonds.

Sheikh Mohammed said: "We follow international standards of Islamic economies and will be the world's number one centre for Islamic finance."

Financial experts estimate the global value of sukuk to be in the region of $400 billion (Dh1.47 trillion), a small but growing proportion of the bond market.

Some financiers argue that the worst effects of the 2008-09 financial crisis would have been avoided if western financial institutions had more sharia-compliant bonds in issue because they must be backed by tangible assets.

Essa Kazim, the chairman of Borse Dubai, which owns the emirate's financial markets, said: "We aim to entice local, regional and global institutions to raise funds via sukuk and to list and trade them on Dubai markets. The potential is enormous.

"There is a gap between demand for sukuk in the investment market and the supply. If the bonds that Dubai already issues were in sukuk rather than conventional, and were listed in Dubai, we'd already be the biggest hub."

He estimated that $9bn worth of sukuk were in issue in Dubai. London is the biggest market, with $27bn issued, followed by Malaysia with $23bn. Other big centres are Saudi Arabia, Ireland and Singapore.

"The government is fully behind the initiative, and that means a lot. It will encourage government and government-related companies, as well as the private sector, to consider sukuk in Dubai," Mr Kazim said.

Mr Kazim said Dubai was planning to set up a central sharia board to oversee Islamic financial products listed on the markets. Nasdaq Dubai is already planning a new trading platform for sukuk, to be introduced this year.

Hamed Ali, acting chief executive of Nasdaq Dubai, welcomed the initiative as "a strategic step forward". He said: "With regional capital markets recovering, we were already expecting a substantial increase in the value of sukuk listed in Dubai."

Sheikh Mohammed last month announced the intention to make Dubai a hub of the global Islamic economy, with ambitions to lead the world in investment, banking and products such as halal food and cosmetics.

Afaq Khan, chief executive of the Saadiq Islamic finance arm of Standard Chartered, said: "The need for improved infrastructure in Africa and the Arab Spring countries will create greater demand for capital raising in the future, including through use of the sukuk. Dubai is in a strong position to capitalise on this demand as a global capital markets hub."