DIFC template for sukuk, Islamic banks in Africa

I am disappointed that it has taken this long, but the DIFC seems poised to provide a standardized template for sukuk based on the recent IFC sukuk. The work has been labeled the "Dubai docs" in reference to the role that the DIFC is playing in providing a standardized set of sukuk documents. Until now, each sukuk has been structured individually and there is no set of documents that creates a standardized offering document so the costs, estimated at $250,000, is borne by each issuer having to build an offering document without a standard reference contract. In other countries like Pakistan, the Central Bank offers standardized contracts for basic products like murabaha and the IIFM has issued a standardized murabaha contract, as well as one for derivatives (tahawwut) with the International Swaps and Derivatives Association (ISDA). I think this will be something that spurs similar documents elsewhere in the world that will reduce the cost of sukuk issuance and encourage new issuers who would have otherwise been deterred by the cost to enter the market. This will, in particular, bring smaller issuers into the market to provide a source for a sukuk yield curve that does not just include sovereign issuers nad high-grade corporate issuers. The more the sukuk market can develop and provide a separate yield curve for sukuk issuers, the more ti will open the market up to other new issuers. The more sukuk that are issued (and especially the diversity in issuer characteristics) will provide alternative investment opportunities to holders of sukuk, which will help the secondary market develop further.

Islamic banks starting in Sub-Saharan Africa face an image problem that they are only catering to Muslims. The Central Bank of Kenya is working on a framework to issue sukuk to attract capital from the Gulf states. The Central Bank governor gave a speech recently at a conference in Nairobi, Kenya along with other representatives of Islamic banks in Kenya and other parts of Africa. The Standard Bank Group is starting to provide Islamic banking products in Tanzania. In addition, recently National Bank of Commerce launched an Islamic banking service.

Other News

• Sukuk is still a niche market and the Nakheel sukuk resolution will not revive the market. Nakheel's 2010 sukuk maturing next week will not revive the market on its own. This is expected to occur even without a restructuring agreement for Dubai World's debts, which HSBC describes as "very fair".
  
• Standard & Poor's rated an Islamic fund, its first such rating. The fund is offered by European Finance House.
  
• Lebanon is not planning to offer a sovereign sukuk. Luxembourg, however, is considering offering a sovereign sukuk.
  
• Another article presents comments on the need for a systemic stability regulator for the Islamic financial industry.
  
• Al Baraka expects to complete the purchase of a stake in Bank Muamalat by the end of the year.
  
• Hawkamah and the American Bar Association organized a conference in Dubai on Islamic finance at the DIFC.
  
• Indonesia's ministry of finance plans to raise 1 trillion rupiah ($110.8 million) in sukuk on May 11. Several recent sukuk auctions have failed recently with investors demanding a higher yield than the ministry of finance is willing to pay.
  
• Several sukuk, including two Nakheel sukuk, have been suspended from NASDAQ Dubai for failure to file financial statements and annual reports.
  
• Cagamas and Al-Rajhi bank are cooperating to issue a sukuk recognized as being in compliance with Shari'ah globally.
  
• Malaysian firm MTD InfraPerdana issued a MYR100 million ($31.2 million sukuk).
  

DIFC economist urges GCC government sukuk; University Bank receives acknowledgement for Islamic home finance activity

The chief economist at the Dubai International Financial Center (DIFC) says that GCC governments should issue sukuk to raise funds instead of drawing down accumulated surpluses from times when oil prices were significantly higher. In addition to retaining these surpluses, it will contribute to increasing liquidity in sukuk secondary markets. As I have noted in a post on my other blog at Zawya, the sukuk market is highly illiquid and the prices at which sukuk are traded in that market are likely not indicative of the underlying performance of the companies which issued them. The head of the DIFC, Dr. Nasser Saidi, agrees: "I think this is a temporary phenomenon. I think the pricing is unrelated to the fundamentals".

The Central Bank of Bahrain (CBB) has expanded the types of collateral it will accept from banks for overnight loans to include ijara sukuk, although no Islamic banks had used the facility. I would imagine that there is considerable debate within the Shari'ah boards of Islamic banks in Bahrain about whether borrowing against sukuk is Shari'ah-compliant. The facility was launched near the end of last year.

University Bank, a bank in Michigan with an Shari'ah-compliant subsidiary, University Islamic Financial Corp, was acknowledged by the American Bankers Association, in part for its innovative Shari'ah-compliant home finance products.

"The selection committee lauded University Bank for its innovative programs such as home financings for Muslim customers. Muslims are much less likely to be homeowners on average due to religious prohibitions on the payment or receipt of interest. University Bank designed a program to meet these needs, which has so far resulted in over $50 million of financings for the purchase of homes by Muslim customers of the bank."

Other News

• There are more Shari'ah-compliant funds in Malaysia now than Saudi Arabia, but the funds are still smaller.
  
• The Dow Jones Islamic Market Indexes are 10 years old.
  
• Lebanon is considering a sovereign sukuk issue according to a Lebanese newspaper.
  
• Indonesia, which is planning on instituting a regular issue of sukuk to finance the country's large deficits and the maturity of these sukuk are expected to exceed 5 years.
  
• The Lord Mayor of London said he expects the UK to issue a sovereign sukuk "sooner rather than later" and this issue will be denominated in UK£;
  
• The new governor of Saudi Arabia's central bank, the Saudi Arabian Monetary Authority, said that companies should look to the sukuk market to raise funds.
  
• The IFSB announced new standards for sukuk and REITs.
  
• Kuwait Finance House (Malaysia) is considering acquisitions across Asia including in Japan and China.