need for global sukuk
TRANSCRIPT
Need for a global unified Sukuk market Key challenges & role of Islamic Financial Institutions
Ijlal A. Alvi
5th September 2007
2
Contents
1.1. Sukuk Overview & Present StateSukuk Overview & Present State
2.2. Future ProspectsFuture Prospects
�� new issuesnew issues
�� secondary marketsecondary market
3.3. Types of Sukuk (Islamic Bonds)Types of Sukuk (Islamic Bonds)
�� issuance in key jurisdictionsissuance in key jurisdictions
4.4. Key Issues & ChallengesKey Issues & Challenges
�� role of IFIrole of IFI’’s in Industry developments in Industry development
5.5. IIFM & its development initiativesIIFM & its development initiatives
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Global Sukuk Overview
Source: IIFM analysis, IFIS and various sources
Total Global Sukuk Issuance(Domestic & International Sukuk - Best Estimate including both
Sovereign & Corporate issues)
85,754
26,789
12,0345,717
9807807,211
336
31,908
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
120,000
2000 2001 2002 2003 2004 2005 2006 2007 Total
issuedYears
Million US$
4
Global Sukuk Overview
Year 2000 2001 2002 2003 2004 2005 2006 2007 Total Issued Total Outstanding
Bahrain 200 480 454 691 798 588 3212 1866
Kuwait 200 1010 735 1945 1945
Saudi Arabia 400 418 500 818 4350 6486 6458
Qatar 700 270 300 1270 1270
UAE 100 1165 950 8295 7950 18460 18360
Pakistan 600 134 165 899 899
Malaysia 336 680 761 4072 4949 8747 14785 17639 51969 50621
Indonesia 19 65 101 59 245 245
Brunei 513 80 593 377
Germany 123 123 123
UK 287 287 287
USA 166 166 166
Cayman Islands 100 100 100
Total 436 680 980 5717 7211 12034 26789 31908 85754 82716
Percentage Yearly
Increase 56% 44% 483% 26% 67% 123% 19%
Country-wise Breakdown
Source: IIFM analysis and various sources
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Global Sukuk Overview-Outstanding
Different Jurisdictions
Malaysia
UAE
PakistanKuwait
QatarOthers
Saudi Arabia
Bahrain
2%Others
1%Pakistan
2%Qatar
2%Kuwait
2%Bahrain
5%Saudi Arabia
23%UAE
63%Malaysia
Percentage of
Global
OutstandingCountry
Source: IIFM analysis and various sources
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Global Sukuk Overview
Future Issuance
Source: IIFM analysis and various sources
Bahrain 1950
Kuwait 3661
Saudi Arabia 3101
Qatar 975
UAE 32446
Pakistan 1468
Malaysia 5002
Indonesia 1378
Brunei 346
Japan 400
Oman 200
Sudan 330
China 200
UK(est) 500
Total 51957
Sukuk in the pipeline - expected to be issued 2007/08
19503318
2506975
32446
1435
5002
1378346 400 200 330 200 500
0
5000
10000
15000
20000
25000
30000
35000
Bahrain
Kuwait
Saud
i Arabia
Qatar
UAE
Pakistan
Malaysia
Indone
sia
Brun
ei
Japan
Oman
Sudan
China
UK
Country
USD Millions
7
Total International Sukuk
Issuance (Sovereign & Corporate)
250800 600
1350
3950
9130
1180 1000
2781
9923
8260
22386
4001021
0.00
5000.00
10000.00
15000.00
20000.00
25000.00
2000 2001 2002 2003 2004 2005 2006 2007 Total
Year
Size in Million US$
Sovereign Issued Corporate IssuedSource: IIFM analysis and
Various sources
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Total Domestic Sukuk Issuance
(Sovereign & Corporate)
Source: IIFM analysis and
various sources
479.35 106.501209.98 2134.00
3929.83
336 530 180
4137 4709
8545
1430616699
49443
0.00
10000.00
20000.00
30000.00
40000.00
50000.00
60000.00
2000 2001 2002 2003 2004 2005 2006 2007 Total
Year
Size in Million US$
Sovereign Issued Corporate Issued
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International Sukuk
(Sovereign & Corporate)
Projections� Current Int’l Sukuk Issued = USD32 billion
� Int’l Sukuk in the Pipeline = USD40 billion
� Mid year 2008 Outstanding Est. = USD70 billion
� Year 2010 estimates:� Conservative – USD125 billion
� Pessimistic – USD180 billion
� Optimistic – USD225 billion
� Reasoning:� GCC & other countries infrastructure projects
� New Sovereign issuers
� New Corporate issuers
� Real economic value and ethical aspect
� Industry’s improving view on global unification objective i.e. Standardization
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International SukukSecondary Market
Trading & Potential
� Sukuk market issuance direction towards critical mass
� Present international Sukuk trading range:
USD100 million - USD200 million per month
� Buy & hold strategy of IFI’s shifting towards trading
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Total Value of Islamic Corporate Bonds Issued and Rated by Instrument Type
As of December 2006
Murabahah
26.1%
Mudharabah
0.1%
Bai Bithaman Ajli
52.9%
Istisna
9.7%
Ijarah
1.9%
Qard Hassan
0.7%
Musyarakah
2.7%
Bai Inah
0.7%
Bai Al-Dayn
3.9%
Bai Bi Al-Taqsit
1.3%
Source: BNM/FAST,RAM,MARC,KFH
25 USD BILLION
Types of Sukuk (Islamic bonds)
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Types of Sukuk
(key jurisdictions)
U.A.E.
Islamic Exchangeable
Bond
14%
Short Term Ijara Sukuk
36%
Sukuk Wakal Bel
Istimar
0%Sukuk Al Musharakah
21%
Sukuk
13%
Sukuk Al Istisna and
Sukuk Al Ijara
1%Murabahah
15%
Sukuk Al Musharakah
Sukuk
Sukuk Al Istisna and
Sukuk Al Ijara
Murabahah
Islamic Exchangeable
Bond
Short Term Ijara
Sukuk
sukuk wakal bel
istimar
Source: IIFM analysis and various sources
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Types of Sukuk
(key jurisdictions)
Bahrain
Short Term Al
Salam Sukuk
23%
Sukuk Al
Musharakah
18%Sukuk
34%
Sukuk Al Istisna
and Sukuk Al Ijara
25%
Short Term Al Salam
Sukuk
Sukuk Al Musharakah
Sukuk
Sukuk Al Istisna and
Sukuk Al Ijara
Source: IIFM analysis and various sources
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Key Issues & Challenges
Unified Market
Key development contributors
� Jurisdictions & Regulators
� Islamic Financial Institutions
� Development institutions (AAOIFI, CIBAFI, IFSB, IIFM, IRTI & others)
Present innovation, growth driver
� Islamic Financial Institutions
Present state
� Bilateral or proprietary basis
� limited industry development mindset
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Key Issues & Challenges
Unified MarketWhat is required from IFI’s to achieve a global
unified Islamic Industrya) Involvement and Support to unification initiatives
b) Knowledge sharing on Legal, Shari’a, Operational and other non-commercial issues
c) Research & Data Collection (development initiatives)
d) Adoption of common global standards (mandatory + self regulation)
e) Transparency & Disclosure
f) Open mindedness towards standardization - will not effect innovation and growth
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Key Issues & Challenges
Unified Market
Identification and benchmarking of certain:
a) Products and Structures
b) Documentation
c) Industry common practices
→ alternative to conventional Repo
→ risk management alternatives
→ unified documents e.g. Murabaha
→ mature structures e.g. Sukuk Al Ijarah
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International Islamic Financial Market (IIFM)
IIFM is a non-profit international development
institution founded due to the collective efforts of
several regulatory bodies and Islamic Development
Bank (IDB), to take part in the development of
Islamic Capital and Money Market (ICMM)
IIFM’s primary focus lies in the advancement and
standardization of Islamic financial instrument
structures, contracts, product development and
recommendations for the enhancement of ICMM
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IIFM – benefits to the IFSI
� Market Body
� Wider Shari’a Acceptance
� Self Regulation
� Uniformity & Standardization
� Knowledge Sharing
� Systems Development
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IIFM Projects and Approach
� Initiatives in progress
- Islamic Hedging Master Agreement
- Treasury Murabaha Master Agreement
- Alternative to conventional Repo
� Initiatives under consideration
- Sukuk Primary Market
- Specific Research and Database
- Coordination in training for professionals
- Islamic Capital Market System
20
IIFM Projects and Approach
� Global Working Groups Structure
Industry driven – bringing IFI’s and other participants together to achieve
uniformity on
- Documentation
- Products
- Best practices
- Infrastructure and systems
� Existing IIFM Working Groups
- Islamic Finance Working Group (ISDA/IIFM)
- Documentary Convergence Working Group
- Islamic Repo Working Group (ICMA/IIFM)
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Conclusion
The objectives of IIFM and other development
institutions can be achieved through collective
efforts. The regulators, IFI’s and all related
organizations must work towards unification
while developing the local markets
Thank You
www.iifm.net
Disclaimer: The information herein has been obtained from sources believed to be reliable but cannot be guaranteed. The views or opinions expressed are subjected to change at any time. Neither the information nor any opinion expressed can be construed as a solicitation for the purchase or sale of any securities. International Islamic Financial Market disclaims liability in this respect.