Islamic banking, blazing new trails in the Persian Gulf

Published: November 1, 2010

The profits from Islamic banking are skyrocketing in the Persian Gulf.

The last few months have seen a sudden upsurge in the Islamic loans market in the Persian Gulf countries.

Investors sold sukuk bonds (Shariah-compliant bonds) with lower debt ratings, in order to raise funds for issuing new, state-backed sukuk bonds.

Islamic finance has spread widely. Due to the huge returns from investing in Islamic bonds, or sukuk, more and more people are investing and utilising the proceeds to pay off debt relief services. The sale of Islamic bonds by banks in the Persian Gulf may rise up to $1.5 billion in the month of October; that will be highest ever recorded. This positive statistic is luring investors to invest in banks in this region that support Islamic finance.

It has been reported that a multilateral, Jeddah-based bank in the Persian Gulf has sold $500 million in sukuk bonds, setting new standards for Islamic financial investment. Abu Dhabi Islamic Bank in the UAE, which the second-largest among Islamic banks, is also expected to put up $1 billion of Islamic debt for sale. These offerings could fetch $2.5 billion this year from financial institutions.

Other banks in the Persian Gulf are also catching up. The sale of Islamic bonds from the six countries that constitutes the GCC (Gulf Cooperation Council) has increased since the agreement signed by Dubai World. It was agreed in this meeting that 99 per cent of creditors will amend the terms and conditions on borrowings, worth $24.9 billion and reduce the hazard of defaulting. This strengthened the appetite of investors in the region. With such financial changes, economic growth should step up to 4.1 per cent in the year 2010, up from 2 per cent in the previous year in the Middle East and North Africa.

The sale of Shariah-compliant bonds by the Gulf financial institutions and banks have also escalated 15.5 per cent in the year 2010. Islamic notes, which were sold by issuers, have returned to 12.2 per cent, within this same period.

Islamic debt in the developing financial market has increased as well. The average yield for Islamic bonds has maintained a consistent rate, which is attracting investors.

Those who are mired in debt can easily eliminate their debt burden by utilising the proceeds of Islamic bond investment in paying off debt relief services.

rose.anderson

Rose Anderson

A financial analyst who writes for the investment and finance market.

The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.

  • http://www.bizomer.com Saqib Omer Saeed

    It is indeed a great scenario. I think the mechanism of Sukkuk Ratings has to be strengthened for further progress in this industry. GCC, PG & MENA region have to work for a concrete regulatory framework for their Islamic Capital Markets that is even due. In addition Islamic Equity products have to be further worked out especially in the context of diminishing Musharka that can be another success myth in this regard. End of the day financial engineering process actually defines the success on any capital product and as Islamic Products have a lot of potential due to their solid transactional structure so it is always better to foster sound human resources that can have innovative ideas about capital structure of companies or projects that can be later dressed by Islamic Equity or Debt. Corporate or Business Risk Assessment has to taken as key that can be further optimized by the process of Islamic Capital. Totality is success! Thumbs up to the sector anyways!Recommend

  • Tyrone

    I didn’t read the article I’m sure it’s great but after 1971 isn’t it called the Arabian Gulf?

    I’m sure Arab states don’t call it the Persian Gulf in any maps, books etc.

    Modern Islamic banking apparently started from the UK. Recommend