The Islamic funding has traditionally been dominated by Muslim countries in the Middle East and Southeast Asia. Now the rest of the world looks at it. Backed by perceived ease of market conditions and an improving regulatory framework, the issuance of Islamic debt by non-Muslim countries is expected to reach a three-year peak in 2017.
The Islamic financial products comply with Shariah or Islamic law and are based on the principles of risk and profit sharing. The norms prohibit interest on loans and do not allow funding of alcohol, pork, pornography or gambling activities.
The value of Islamic government bonds, sukuk, issued outside the Middle East and Southeast Asia by non-Muslim countries reached 2.25 billion USD for the period from January to November. By comparison, the volume in 2016 was 2 billion USD, and in 2015 was 1 billion USD.
The metamorphosis of Islamic finances from the niche of global banking to a growing source of funding for the rest of the world is supported by the large list of investors, selling sukuk bonds in recent years. The Singapore government was one of the first non-Muslim participants on this market, followed by the UK, Luxembourg and Hong Kong, which issued their first sukuk bonds in 2014. Some African countries such as South Africa, Nigeria and Ivory Coast made legal and tax changes to facilitate the delivery of sukuk bonds.
The companies are also not lagging behind, as Goldman Sachs and General Electric also sell Islamic bonds over the past few years. The Chinese issuers like Country Garden and Beijing Enterprises Water Group also issued Islamic bonds through their Malaysian subsidiaries in 2015 and 2017 respectively. The companies use this revenue to finance projects in Southeast Asian countries.
According to experts and economists the global financial crisis is driving governments and companies to diversify their funding opportunities. The Islamic funding is perceived as a more stable alternative to the conventional banking system and therefore attracts investors who are still being persecuted by the global bond and equity markets crisis when the US housing bubble bursts.
In addition, the asset class also attracts investors’ attention by using a more ethical approach to managing their money.