Muslim Countries Eye Sukuk Issue to Boost Liquidity

Istanbul, Turkey | December 11, 2009 by D-8 Secretariat

D-8 member countries should focus more on developments in Islamic finance sector, such as Syari’ah Banking system, and Islamic Bonds, since they have grown to be a powerful tool in the financial world

Muslim countries are working on a inter-government sukuk issuance programme to improve liquidity of Islamic financial markets, an Iranian central bank official said on Tuesday.

Mahnaz Bahrami, the Iran central bank’s director of banking studiesand regulations said governments of Muslim countries would issue sukuk to each other which could transfer them to their financial institutions under the initiative.

“We are going to offer to have a mechanism to preserve short-term and long-term liquidity for Islamic banks,” Bahrami said on the sidelines of an Islamic banking conference.

Muslim countries such as Qatar, Sudan, Iran, Pakistan, Indonesia and Malaysia would issue the sukuk which would likely be denominated in the euro currency, she said.

The Islamic Finance Services Board, the Islamic Development Bank and Muslim countries are working on the programme, she said.

Analysts have said that the maturity mismatch on the balance sheet of Islamic banks is typically larger than at their conventional peers, as their funding mostly relies on short-term customer deposits due to the lack a long-term funding instruments.

Khalid Hamad, executive director for banking supervision at the Central Bank of Bahrain told the same conference that more sovereign sukuk issues were needed to deepen Islamic money markets.

“So far all of the Islamic banks are fairly new and they don’t have enough track record…, they need to get a rating and then they will be able to issue sukuk,” he said.

“But in the interim we need governments to help Islamic finance grow by issuing more regular sukuk,” he said.

D-8 Secretary General, Dipo Alam, says that the D-8 member countries should focus more on developments in this sector, such as Syari’ah Banking system, and Islamic Bonds, since they have grown to be a powerful tool in the financial world that even Western, non-Islamic banks are starting to eye for a share on this financial system and plans to assign London as the center for Syari’ah Banks, and Islamic Bonds.

“So we should be rolling up our sleeves, and start to work on this issue to keep pace with the world”, he says. D-8 has an approximately 900 million population with large moslem majority, and is supposed to be also a major actor in this Islamic financial system.

In October 2009, D-8 held the 2nd Meeting on Financial Infrastructure Development in Cairo, Egypt. The two-days event was focused on the theme of “Strategic Prospective View of Micro-Insurance in D-8 Countries.” Among the outcomes of the meeting was to establish the D-8 Working Group on Insurance and Takaful (D-8 WGIT), led by Egypt as the prime mover; to enhance cooperation between D-8 WGIT and other financial insurance institutions in order to improve D-8 Insurance Core Principles (ICPs) with short and long term aim to facilitate cooperation in developing insurance and Takaful in D-8 countries; and to propose project proposal in insurance and Takaful related fields i.e. remittance (migrant workers), agriculture, health, life, property and SME’s to international financial organization.

News Source: Al Watan Daily, D-8.

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