Qatar has issued its debut sukuk and raised a bigger than expected $700 million, Bahrain is past the $1 billion mark in sukuk issues, and Lebanon is close to its first $200 million sukuk.
Why the excitement? Indeed, what is a sukuk? An Islamic bond - which is structured by bundling leasing transactions but behaves in practice like any highly-rated bond - is the short answer.
The reason for the excitement is rather longer. First, sukuks bring a new source of funds, generally at attractive rates. And secondly, they are vital to developing deeper and more liquid Islamic capital markets. For borrowing from an Islamic bank might not be possible but raising money through a sukuk can be done with due respect to Sharia Law.
The logical next step in this new bond market is the creation of a trading floor for sukuk issues. There have not been enough of them yet. At a MEED conference in Dubai one speaker predicted that the magic number was $10 billion to achieve critical mass for a trading floor, compared with total issues of around $2.5 billion today.
But it may not take long for sukuks to reach this level. For there is a great deal of surplus cash sitting in Islamic institutions waiting to be tapped by new financial instruments. Sukuks can allow this pot of gold to be unlocked.
At the Cityscape property conference in Dubai a week ago Emirates Financial Services Managing Director Suresh Kumar made a passionate call for the development of a regional corporate bond market to strengthen capital markets and build stability into the system. Sukuks are a valuable part of this vision.
The international banks have also been highly active in this market with HSBC, Citigroup, UBS and BNP Paribas all involved in sukuk issues in recent years. Indeed, it is a mark of how mainstream Islamic bonds have already become that these banks are often lead arrangers.
For the countries involved the progress of Islamic bonds means a new source of funds for vital infrastructure projects and a way to keep funds working for the benefit of the local economy.
