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Saturday, 1 March 2008

Sukuk is the most prominent tool globally in financing governmental and corporate projects - says Al-Omar

Kuwait Finance House (KFH) General Manager Mohamed Sulaiman Al-Omar, stressed during a meeting in Dubai with the executive presidents the importance of sukuk as a legitimate financial product that replaces bonds.

In supporting development plans, and the expansion of governments and corporate in the coming period, in light of the great demand for Islamic financial products and services in general, and sukuk specifically. Sukuk worth $16bn are expected to be offered all over the world by the end of this year, and $225bn during the coming 3 years, while GCC countries need to finance projects worth $800bn during the coming 10 years. He demonstrated the development of Islamic banks in general and KFH specifically, including its leadership factors that are highlighted by innovative products and services that the bank offers, including sukuk.

Al-Omar expects that sukuk will become one of the official tools in the monetary policy, after the central banks started encouraging a suitable legitimate environment for its first or second issues, whether the sukuk belonged to government or regular corporate sukuk. Sukuk have firmly been rendered as a prominent financing tool that is backed up by real assets with low risks; thus, it is a tool that attracts investors, and a vital source that pumps money into projects and major expansions.

This is why sukuk are unique as a new method of financing, approved by corporate and governments, to gain money without minimizing their direct income. We see this goal clearly in the inclination of south East Asian countries and GCC countries to issue sukuk, in spite of their high income.
Secondary Market
Al-Omar added that the sukuk market will reach by the end of this year $24.5bn, and that KFH took the initiative to manage, organize, and issue sukuk worth $4bn for corporate and governments in the Gulf and the world. In its continuous leading role in Islamic financial transactions, KFH has recently established a corporate to work in the sukuk field, with a capital of KD100m. In addition to that, KFH is considering issuing sukuk through this corporate.
He clarified that the goal is to create an investment opportunity and trading in the secondary market for issuing sukuk. This paves the way to establishing a market for trading sukuk issued by Islamic financial corporate around the globe for the first time in its history, because the sukuk owners, whether corporate or individuals, cannot liquefy their sukuk and get a quick cash return through the exchange market by a fair evaluation; in addition to the desire of some individuals to acquire sukuk after the issuing process is over.
Thus, we will offer alternatives before the individuals who want to sell or acquire sukuk, which will offer more flexibility in the field of sukuk as a unique Islamic product. Regarding the global and Gulf rates of sukuk issuance, Al-Omar added,' the international sukuk market value has settled at $24.5bn (KFH share exceeds $4bn) by the end of 2007, with a 75% increase than last year. Offering sukuk worth $16bn in the global market by the end of this year is expected. The corporate and establishments in GCC countries issued corporate sukuk worth $6.3bn during the first half of 2007, compared to $9bn in 2006. It is expected that the amount of sukuk worldwide, whether governmental or corporate sukuk, will reach $70bn by the middle of this year, and $225bn by 2010. The rate of sukuk trading varies in the time being between $100-200m a month. Malaysia has around 36% of the issuance, and the exporters in the Gulf have more than 30%.'
Trillion dollars
Al-Omar tackled the present facts and the future of the Islamic banking industry. He said that there are more than 300 Islamic financial corporate in 75 countries. The average growth of the Islamic financial corporate in the last 10 years has reached more than 20% annually. The total managed assets reached 1 trillion dollars, and the Dow Jones indicator for the Islamic market reached more than 10 trillion dollars in more than 40 countries around the world. The average annual growth reached 28% since 2002. It is expected that the growth will exceed 3 trillion dollars in 2015.

The Concept of Partnership

Al-Omar stated that the Islamic finance system relies on real exchange of assets, and aims to develop societies, in addition to contributing in the growth domestic product. It relies on partnership in profits and risks. He expected that the Islamic financial corporate will absorb up to 50% of the financing needs of the GCC countries in 3-5 years.

Major Projects
Al-Omar explained the vital role played by KFH in financing major development projects in Kuwait, the Gulf, and around the globe; and how KFH managed to overcome the major obstacle that was hindering the abilities of the Islamic financial business in financing projects, in collaboration with traditional financing methods.
KFH started with Equate Petrochemical in Kuwait in offering new methods of finance. It also participated in financing the project in conjunction with traditional corporate, without compromising its Shariah principles, which led to the joint financing of one project for the first time. This served as a platform to launch the Islamic financial business into broader horizons that were unreachable before.

KFH expanded in financing projects in the GCC and the world, breaking the $4bn barrier. The projects were in the fields of communications, power, infrastructure, industrial investment, and other important fields that participate in achieving society development and the well-being of nations.

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