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Islamic finance gaining popularity for development projects beyond GCC markets

Publication Date: 25 Feb 2019 - By ReachX Team By ReachX Team
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Macro Environmental, Social & Governance Multi Asset MENA Asia ex-China Financial Services

A growing number of organisations, beyond the Gulf Cooperation Council (GCC) finance hubs, are turning to Islamic Finance to raise funds for their infrastructure and development projects. 

According to S&P Global Ratings, the global issuance of Sharia-compliant foreign and local currency bonds is expected to reach as much as $115bn in 2019, with sukuk instruments proving to be particularly popular. 

Several African markets, and major Asian ones including Malaysia, Indonesia and Pakistan, are turning to Islamic finance for infrastructure projects. 

Zahid Aslam, Managing Director of Investment Banking at Dalma Capital Management Limited, says there are five main drivers for this significant upward trend for sukuk-issuance to continue this year and beyond.

“Firstly, lower oil prices – despite recent gains – have created a funding shortfall for many.

“Secondly, there is notable and mounting pressure on global liquidity.

“Thirdly, the US Federal Reserve’s ongoing plans to slowly raise interest rates, making borrowing more expensive.

“Fourthly, global regulation is enhancing and becoming more Islamic finance-friendly.

“Finally, general awareness outside the GCC of the uses and benefits of necessary solutions for sukuk issuers and investors are becoming ever-more understood and valued.”

Aslam added that sukuk-based solutions are establishing themselves as an increasingly attractive alternative for the funding of infrastructure and development projects. “For example, we are currently working with clients on a variety of ‘off the beaten path’ projects, including a refinery initiative in the CIS region and a scheme to help develop eco-tourism and sustainable farming in several African nations. We are also seeing interest from Malaysia, Indonesia and Pakistan.

“This is cemented by the fact that deals can be structured to be project based, not centred solely on the credit standing of the borrower. Numerous virtuous aspects of the nature of Sukuk will continue to bolster their prevalence in capital markets globally.”

 

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