The Islamic finance industry is expected to continue to enlarge and deepen its footprint in the next 11 months, an economist said.
RAM Rating Services Bhd Islamic ratings head Zakariya Othman said core markets like Malaysia and Gulf Cooperation Countries (GCC) would further build on their strong performances.
He added that while Malaysia and GCC would continue to dominate, organic growth was also expected to come from markets in Indonesia, Central Asia and Africa.
Speaking to Business Times recently, Zakariya said as traditional sources of funding started to dry up, diversification of financing sources was becoming vital.
“Sukuk market provides a valuable avenue to access the Asian and Middle East liquidity, especially from the new jurisdictions across Europe, the United States, Australia and Africa,” he said.
He, however, said there was a possibility that the new supply would not be met by equivalent demand, unlike in Malaysia, where demand always exceeded the supply.
Zakariya said Indonesia was expected to be a strong issuer this year following the upgrade of its sovereign credit rating above junk level by the International Credit Rating agencies.
“Investors have always a strong preference for investment grade issuance, and this provides Indonesia access to a wider investor base,” he said.
Increased sukuk issuance is also anticipated in Turkey, Saudi Arabia, Oman and Qatar due to some regulatory changes last year.
He said apart from growth in Islamic banking and capital market, RAM was also optimistic in the takaful industry.
"The takaful industry is expected to expand, particularly in the retail health and life sectors. The trend is likely to deepen in established and well regulated markets like Malaysia and Saudi Arabia."
On the local front, Malaysian companies are expected to issue more sukuk this year on the back of a number of infrastructure projects.
Last year, US$84.4 billion (RM254 billion) worth of sukuk were issued globally, an increase of 62 per cent from 2010 and was the highest ever recorded in modern finance.
Zakariya noted that by end of 2011, the global sukuk market stood at US$182 billion (RM547 billion). Malaysia issued 69 per cent of the total sukuk last year, followed by the GCC.
"It was a healthy year despite the unrest in the Middle East. This could be attributed to a large number of development projects in the pipeline, as evident by the huge amount of issuance from the government institutions," he said, noting that 66 per cent of the total global sukuk last year were issued by government institutions.
He said the interesting point last year was the continuing trend of GCC issuer tapping the Malaysian sukuk market, such as the Gulf Investment Corporation's RM3.5 billion sukuk wakalah bi istithmar programme, rated AAA/P1 by RAM Ratings.
Last year, the sukuk market welcomed four new currencies - the Yemeni riyal, Iranian riyal, Jordanian dinar and the Chinese yuan - and Khazanah Nasional Bhd's dimsum sukuk, and this, said Zakariya, started a trend of much greater exposure of Malaysian investors and issuers to the international sukuk market.
Sharing Zakariya's views, Guidance Financial Group managing director Dr Hasnita Hashim said with the recent volatility in the markets around the globe, investors were looking for new markets outside their regular investment market.
"Middle East investors are also getting more familiar with Asia as a potentially attractive market for investors," she said.
Alfalah Consulting - Kuala Lumpur: