» Sukuk

Sukuk

According to KFH Research, MENA region portion of Sukuk issuances has expanded during 2012 especially in Saudi Arabia and the United Arab Emirates. Sovereign Sukuk momentum will continue due to the willingness of many countries to enter the market.

Sovereign Sukuk issuance has prevailed though corporate Sukuk issuances recorded high. Total issuances of Sovereign Sukuk reached the amount of 80.2 billion dollars which represents 36% increase in comparison with 2011 issuances.

Corporate Sukuk scored 36.5 billion dollars in 2012 compared to 14.5 billion dollars in 2011. Sukuk issuances during 2012 of 131.2 billion dollars are three times of the size of Sukuk primary market just before the 2008 world financial crisis.

Sukuk issuances by Regions

Asia Sukuk issuances continued its growth on annual basis up to 60.1% during 2012 representing 104.8 billion dollars. Meanwhile, issuances increased in MENA region on annual basis up to 34.4% representing 26.3 billion dollars

.
Saudi Arabia Sukuk issuances total is 10.5 billion dollars while the United Arab Emirates issuance total was 6.1 billion dollar.
Malaysia without doubt has the lion’s share of Sukuk issuances with 70.3 billion dollars representing 74.2% of market.

Sukuk in Egypt

Sukuk is one of the most promising Islamic financing tools. Last year, issuance of Sukuk increased by 54% and the return increased by 9.7% according to KFH Research. The same institution forecasts that issuance of Sukuk in 2013 will increase its growth by 20 – 30% driven by the momentum of previous year issuances which reached the amount of 131 billion dollars. Many countries are willing to participate in Sukuk market and Egypt is one of this countries.

What are the reasons that motivate the Egyptian ruling regime to look forward to Islamic finance instruments? What happens in the backstage while preparing the draft law of Sukuk issuance?
The Egyptian ruling regime headed by President Mohamed Morsy, the former Leader of Muslim Brotherhood, is influenced by the Muslim Brotherhood ideology. The current President’s economic program does not differ from the ex-President’s one except for allowing Islamic finance market to expand and use its instruments to pool money for investment.

Freedom and Justice Party “Al-Hurrya w Al-‘Adala”- the political branch of the Muslim Brotherhood- prepared the Sukuk law draft, which was exposed to sharp criticism as a continuation of the process of privatization and  sale of the state’s assets to foreign investors.  It does not protect the public assets from seizure or mortgage.

The Ministry of Finance when was headed by the Minister Dr. Momtaz Al-Saeid avoided the criticism directed to the Freedom and justice Party while preparing the draft law.
‘’The draft law will be submitted to the Shura Council next week and that it has avoided all criticisms directed to other drafts’’ said  Dr. Ahmad El-Nagar, the Advisor of the present Minister of Finance, to Al Youm Al Sabea Newspaper on 19th of February 2013.

He has previously mentioned that infrastructure projects will have the priority of being financed by Sukuk issuance such as wheat silos. He also stressed the importance of Sukuk to help the Egyptian economy grow, especially after the decline of the savings rate 12% as well as the decline of the investment rate 17%.

Growth Expectations
According to’’ Sukuk and Trends Overview’’, a presentation entitled Development prepared by Ijlal Ahmed Alvi for a Conference about the role of Sukuk on Friday, 18th May 2012, at Point Hotel Barbaros, Istanbul, the investors should expect growth:
New Entrants, Africa, Indonesia, Oman, Saudi
Soviet Block, North America, and Australia
Takaful & Pension Investors
Government Initiatives
Local Currencies to Expand Yield Curve and Reserve Benefit
Collateralized Funding
Repo Alternative
Innovation & Expansion of Asset Type (Local Currency Equity Linked, Real Asset Backed Sukuk).