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Saturday, 7 February 2015

Next stop for Islamic finance… Africa?

The U.K. and Hong Kong opened their doors to Islamic finance with high-profile "sukuk" debuts in 2014, but in the coming year, African countries might create waves in the $100 billion-a-year debt market.
Sukuk issuance is a form of financing used by both Islamic governments and companies that is compliant with Islamic sharia law – which sees the generation of income from interest as usury. Sukuks are commonly likened to conventional bonds, but differ in that investors receive a share of an underlying asset, along with the commensurate cash flows and risk, rather than ownership of just a debt.
Credit rating agency Standard & Poor's sees total sukuk issuance across the world for 2015 at $100-$115 billion. For comparison, the global debt market stands at around $100 trillion in amounts outstanding.
Several countries in North and sub-Saharan African are already planning sukuk debuts for this year, including Tunisia, Egypt, Nigeria and Kenya. This follows first-time issues by South Africa and Senegal—as well as the U.K., Luxembourg and Hong Kong—in 2014.
"The Senegal issuance could open the market for Africa," Mohamed Damak, global head of Islamic finance at Standard & Poor's said on Wednesday at a news conference.
In Damak's opinion, sukuks provide a natural answer to African governments' need to remedy a lack of infrastructure in their countries, given that this type of issuance requires an underlying asset that could be a finance project.
(C.N.B.C / 04 Febuary 2015)
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SECP approves rules for sukuk issue

The Securities and Exchange Commission of Pakistan (SECP) has approved regulations for the issuance of sukuk (Islamic bond) in an effort to develop the Islamic capital market and to facilitate fund-raising through Shariah-compliant financial products.

A draft of Sukuk Regulations 2015 was earlier notified for seeking public comments.
According to the SECP, the Islamic capital market is considered an important segment of a developed and broad-based capital market. A developed Islamic capital market can play a vital role in economic growth of the country.
At present, sukuk is issued as an instrument of redeemable capital under Section 120 of the Companies Ordinance 1984 mainly through private placements.
Besides Section 120, no other specific regulatory framework existed for the structuring and issuance of sukuk. Therefore, it had become imperative to have a separate set of regulatory framework for the sukuk.
Major investors in sukuk include mutual funds, employee funds, commercial banks, both conventional and Islamic, and non-banking finance companies (NBFCs), which directly or indirectly hold public funds.
The regulations prescribe certain conditions to be met before the issuance of sukuk and the eligibility criteria for the issuers. In addition to the disclosure and reporting requirements, they also require appointment of a Shariah adviser and an investment agent.
The adviser will help in structuring of the sukuk, ensuring that it is structured according to the Shariah principles.
Market sources suggest that a substantial amount of funds is held by investors who are looking for investment in Shariah-compliant financial products. The SECP believes that the regulations will enhance investor confidence, which will help in the development of the sukuk market.

(The Express Tribune / 05 Febuary 2015)
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