Bigger prospect of sukuk

Despite the stupendous rise in terms of volume, the Islamic bond market is just like the tip of the iceberg in comparison to the overall global bond market. The development which has taken place so far has mainly been driven by economic and political factors. The so-called a war on terrorism in the aftermath of the September 11, 2001 attacks on the World Trade Centre has helped immensely to instill a sense of Islamic identity across the Muslim world, prompting many more to seek ways of expressing their religious convictions. Adding to this, further are the strengthening oil prices which have fueled an unprecedented economic boom in the Middle East.

To capitalize on the new-found interest among investors across the globe,issures are placing greater thrust now on innovation in an effort to cater to different classes of both buyers as well as investors. This has seen players-structuring and development of new products and services which are Shariah-compliant. For instance, experimental ideas are emerging in product and infrastructure finance, apart from sukuk. The most visible sign of this innovation is seen in retail products, such as Islamic mortgages. And the next focus for innovation in retail products will be the Islamic credit cards, or the creation of quasi overdraft facilities (based on a concept known as tawarruq). Experimental ideas are now also emerging in product and infrastructure finance, aside from sukuk. Private equity is showing intense interest too, as is the so-called diminishing musharaka (sharing) structure, which produces an effect akin to the amortization of a loan. However the field which is arguably attracting the most brainpower is derivatives and structures finance. But, concepts such as derivatives and hedge funds, for example, are considered particularly controversial, given the Qurans ban on gharar (speculation). Nevertheless, these criticisms are certainly not inhibiting the development of new ideas at present. On the contrary, most observers believe that product proliferation will further intensify this year.