Islamic bonds issuance climbed 20 percent annually to $175 billion, hitting a new record in 2020 driven by demand in the Middle East and Asia (MEA) region as the market remains attractive to issuers and investors, despite the pandemic, the International Islamic Financial Market (IIFM) said.
According to the global standard-setting body of the Islamic Financial Services Industry (IFSI), the longer tenor Sukuk issuances by sovereigns and financial institutions, along with an increase in short-term Sukuk issuances, drove last year’s record growth.
Over 90 percent of the $648 billion Sukuk outstanding globally were issued by Malaysia, Saudi Arabia, Indonesia, the UAE and Bahrain, while the market share of Pakistan, Oman, Nigeria, Egypt and regions such as Africa is increasing. About $98.4 billion in Sukuk, with an issue size of $100 million or above and with the tenor of over a year, is set to mature in 2021 and 2022.
“Although the effects of the unprecedented situation caused by the COVID-19 pandemic continued during the year, the impact of pandemic was confined and limited to a few corporate issuers and overall sukuk remained an attractive instrument and the positive growth trajectory continued during the first half of 2021.”
The American credit rating agency S&P Global Ratings in its July report stated that global Sukuk issuance is set to increase 11 percent to as much as $155 billion this year, driven by low-interest rates and abundant liquidity. A continued economic recovery, accelerated vaccination campaigns and oil prices of about $65 a barrel this year will also support growth in Sukuk issuance, the rating agency said.
A global economic recovery, fiscal and monetary easing, as well as liquidity injected by major governments and central banks globally, are expected to drive the post-pandemic growth of Islamic finance assets, Alpen Capital and Alpen Asset Advisers said in June.
There is a growing need to address the challenges that arise with the development of any financial instruments. These should be tackled by creating greater transparency and standardization in financial documentation and practices, Mr. Al Hamad said.
Standardization brings the required unification, efficiency and transparency needed for the advancement of the Sukuk market. It is also important that the industry stakeholders provide support for continued innovation in the Sukuk market particularly in the areas of Environment, Social & Governance (ESG) goals, fintech and Waqf-focused Sukuk, Mr. Ijlal Alvi, chief executive of the IIFM, said.
ESG-centered financial instruments will play a vital role in a sustainable and green post-COVID-19 recovery, Mr. Zamir Iqbal, chief financial officer at Islamic Development Bank (IsDB), said. “This will offer attractive opportunities for Sukuk issuers to cater to growing demand,” he added.
The issuance of more debut Sukuk and successful refinancing of maturing Sukuk are among the indications that the strong demand for Islamic bond issuances will continue in 2021, the IIFM said.