The current challenge is to speedily develop the primary sukuk market : Ashar Nazim

 

KARACHI : "Pakistan's fast growing Islamic banks are ideally positioned to invest up to 300 billion rupees in infrastructure and mortgage financing over the next five years," according to a new research published by 'Islamic Capital', a Karachi based advisory firm.

Islamic banking industry is set to grow at a phenomenal speed over the next 3-5 years that will generate sizeable deposits and excess liquidity with Islamic banks. This liquidity needs to be managed efficiently if Islamic banks want to remain competitive. To manage this liquidity, more Islamic banks are turning towards investing in sukuks.

"Sukuks are short-term, tradable instruments usually backed by tangible assets and are considered ideal to fund longer term projects such as infrastructure and mortgages. The global sukuk industry has grown from just under $1 billion in 2001, to more than $40 billion by 2006. Many emerging markets, including the Gulf countries are turning towards Shariah-compliant sukuk investments to finance their economic growth."

However, Pakistan's policy makers need to provide direction and act decisively to ensure that this opportunity is not lost by the country.

"The current challenge is to speedily develop the primary sukuk market, For this you need specialised financial institutions to take on this task on a priority basis said Ashar Nazim. Managing Director of 'Islamic Capital'.

In the absence of specialised institutions for sukuk development, it is likely that the newly available Islamic finds will end up in non-optimal use or will be channeled to other less-priority sectors through ad-hoc products and instruments.

"Failure to quickly develop the sukuk market will result in foregone profitability for Islamic banks, while also compromising the credibility of the overall Islamic banking system" says the report.

Currently, Wapda sukuk is one of the very few Islamically structured bonds available to financial institutions in Pakistan. Given the dearth of sukuk instruments, there is minimal in the market, A few more sukuk issues are expected to hit the market in coming months.

In developing the sukuk industry, it is unrealistic to expect that individual efforts by different banks will be sufficient to cater to the rising demand of the industry. In the Middle East, Bahrain set up the Liquidity Management Center (LMC) and recently announced plans for a $200 million Sukuk House, LMC was promoted by the Central Bank of Bahrain and Islamic Development Bank that have also shown interest in assisting Pakistan set up a similar institution.

In Dubai, the Dubai International Financial Exchange has emerged as the leading stock exchange for international sukuk listing.

The new funds that have begun accumulating with Islamic banks in Pakistan--some 600 billion rupees forecasted over the next five years--cannot be ignored. Of this, almost half the funds will be looking for liquid investments, and through sukuk investment structures, should he able to cater to the country's infrastructure and housing finance needs

 

 
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