JEDDAH — In spite of the recent credit crunch and widespread global economic slowdown, the prospects for growth in Islamic securities markets are likely to be positive, said Abdul Rahman Al Baker, Executive Director of Financial Institutions Supervision, Central Bank of Bahrain, in his address before the Annual World Islamic Funds and Capital Markets Conference held at Gulf Hotel, Manama, Bahrain Sunday.
In his remarks on the "Regulatory Initiatives to Strengthen and Enable Growth in the Islamic Funds & Investments Industry 2012", he said "this positive trend can be attributed to the rapid expansion and increasing sophistication of the GCC financial markets, as well as the geographical spread of Islamic securities products and services that record remarkable growth in Europe, Asia Pacific countries, North Africa and the energy rich Central Asian states."
Islamic financial products represent a class of investment which appeals to those looking for socially responsible or ethical investments, as these products comply with strict Shariah rules that have religious as well as ethical underpinnings. It is estimated that investors globally hold more than $1.5 trillion in Shariah-compliant assets. These include equities that are in line with Islamic principles, sukuk and Islamic funds, he said in his opening remarks.
In order to further enhance the growth of the Islamic investment industry and create deep and vibrant Islamic capital markets, Al Baker said legal and several factors need to be taken into consideration.
First, there is a need to build a system that would be able to facilitate effective and efficient capital and trading flows.
This requires further development of an Islamic financial system which has the entire required infrastructure that includes Islamic financial institutions ranging from banking, takaful, capital market, fund and wealth management entities Shariah framework; and then a financial system that has a comprehensive range of Islamic financial products and services.
Currently, there are more than 500 funds globally that comply with Islamic principles, of which one third of these funds were launched during the past seven years.
Sukuk is another Islamic financial instrument that shows a significant growth during the past five years. It was estimated that the global Sukuk market exceed$200 billion as of the end of the first quarter of this year.
Moreover, he said this year saw a revival in the global sukuk markets due mainly to gradual recovery of global economy and investors’ sentiment which drives the demand for sukuk. "It is clear that sukuk issuance in the first quarter of 2012 exceeded all expectations reaching a record $43 billion globally. This is almost double the average amount of sukuk issued in any given quarter in the past year, and represents half the total amounts of sukuk issued throughout 2011," Al Baker noted.
In Bahrain, he said, the mutual funds industry is one of the fastest growing segments of the overall financial sector.
With around $9 billion in assets under management, through more than 2,700 funds, the industry has been growing at an annual average of about 15 percent in recent years, he added.
Overall, there are 100 Islamic funds incorporated and registered in Bahrain with total assets of $1.7 billion as of March 2012.
The CBB, through its enabling legislation, promotes the development of new products for investors in both Islamic and traditional finance, while at the same time providing credible regulation in both areas, Al Baker pointed out.
(Saudi Gazette.Com.Sa / 14 June 2012)
Alfalah Consulting - Kuala Lumpur:
Islamic Investment Malaysia: