Managing Financial Risks: Sukuk in the Dominant Malaysian Financial Landscape
Student name: Omid Anwari
Student number: s0934127
Study name: MA Politics, Society and Economics of Asia
Course name: Economic development in Southeast Asia
Supervisors: Pr. D. Henley and Dr. T. Lindblad
Academic year: 2012-2013
Contents
Introduction 3
Islamic finance and its basic fundamentals 4
Malaysia: A Leading Islamic Finance Jurisdiction 6
Sukuk 9
Sukuk vs. Conventional Bonds 12
Malaysian Sukuk Market 14
Conclusion 20
Bibliography 21
Introduction
Financial activities concerning Islamic finance (in line with the principles of the Shari’ah) have grown significantly in recent years, the Islamic finance sector shows a growth of 15% a year.[1] Worldwide, there were 300 Islamic financial entities operating in 2006 with total assets counting over $300 billion and assets under management (AuM) counting $400 billion. Islamic financial products are also establishing a foothold in Europe. The market for sukuk (Islamic financial securities), worth $100 billion, seems promising.[2] In 2004, Germany issued the first European-based sukuk. It has even been mentioned that Islamic finance could have decreased the impact of the credit crunch. However, the exact impact is unknown and certainly a point of discussion and research. What we do know is that the Dow Jones Islamic Finance Index decreased 2.74% in September 2008, while other financial indexes decreased with 20% over the same period.[3] Besides, regardless of whether the Islamic finance market is affected by the credit crunch or not, a clear consequence of the credit crunch is that Western investors are not ready to invest easily anymore. Meanwhile, in the Arabic countries there is much (oil) wealth and there are enough investors who are looking for investment opportunities. However, they are often looking for Shari’ah compliant products. Hence, the issuance of sukuk seems to be an ideal way to attract investments from the Middle-East and Southeast
Student number: s0934127
Study name: MA Politics, Society and Economics of Asia
Course name: Economic development in Southeast Asia
Supervisors: Pr. D. Henley and Dr. T. Lindblad
Academic year: 2012-2013
Contents
Introduction 3
Islamic finance and its basic fundamentals 4
Malaysia: A Leading Islamic Finance Jurisdiction 6
Sukuk 9
Sukuk vs. Conventional Bonds 12
Malaysian Sukuk Market 14
Conclusion 20
Bibliography 21
Introduction
Financial activities concerning Islamic finance (in line with the principles of the Shari’ah) have grown significantly in recent years, the Islamic finance sector shows a growth of 15% a year.[1] Worldwide, there were 300 Islamic financial entities operating in 2006 with total assets counting over $300 billion and assets under management (AuM) counting $400 billion. Islamic financial products are also establishing a foothold in Europe. The market for sukuk (Islamic financial securities), worth $100 billion, seems promising.[2] In 2004, Germany issued the first European-based sukuk. It has even been mentioned that Islamic finance could have decreased the impact of the credit crunch. However, the exact impact is unknown and certainly a point of discussion and research. What we do know is that the Dow Jones Islamic Finance Index decreased 2.74% in September 2008, while other financial indexes decreased with 20% over the same period.[3] Besides, regardless of whether the Islamic finance market is affected by the credit crunch or not, a clear consequence of the credit crunch is that Western investors are not ready to invest easily anymore. Meanwhile, in the Arabic countries there is much (oil) wealth and there are enough investors who are looking for investment opportunities. However, they are often looking for Shari’ah compliant products. Hence, the issuance of sukuk seems to be an ideal way to attract investments from the Middle-East and Southeast
Bibliography: Ang, J.B., Financial Development and Economic Growth in Malaysia, Routledge, New York, 2009 Ibrahim, R., Malaysian dominance in the issuance of Sukuk tradable & liquid Market, Bashayer, Vienna, Austria, 2012 Bank Negara Malaysia, Shari’ah Resolution in Islamic Finance, 2nd edition, 2010 Dar al-Istithmar, Sukuk: An introduction to the Underlying Principles and Structure, 2006 Hashimoto, H., The Finance in the capital market and credit rating in Malaysia, Centre for China and Asian Studies, Nihon University College of Economics, Tokyo, Islamic Financial Services Industry Development: ten-year framework and strategies, 2007 Jobst, A.A., The Economics of Islamic Finance and Securitization, IMF working paper, 2007 M M.Z.M. Zin et al., The Implementation of Sukuk in Islamic Finance, in IPEDR, volume 10, IACSIT press, Singapore, 2011 M M.T. Usmani, An introduction to Islamic Finance, Kluwer Law International, The Hague, 2nd editions, 2008 Malaysia: Bond Market Guide N.J. Adam and A. Thomas, Islamic Bonds: your Guide to Issuing, structuring and Investing in Sukuk , Euromoney Books, London, 2004 Salah, O., Islamic Finance: Structuring Sukuk in the Netherlands, Wolf Legal Publishers, Nijmegen, volume 1, 2010 S.T. Faroukhi and B.M. Nafi. ed., Islamic thought in the twentieth century, I.B. Tauris, London/New York, 2004 Sukuk Guidelines, Security Commission Malaysia, August 2011 Vendaros, A.M. ed., Current Issues in Islamic Banking and Finance: Resilience and Stability in the present System, World Scientific Publishing Co., Singapore, 2010 ----------------------- [3] N.E. Muller and C.P. Hooft, Islamitische bank is veiliger’, Financieel Dagblad, 10 oktober 2008 [4] Jobst, A.A., The Economics of Islamic Finance and Securitization, IMF working paper, 2007, pp [5] R. Wilson in S.T. Faroukhi and B.M. Nafi ed., Islamic thought in the twentieth century, I.B. Tauris, London/New York, 2004, pp. 210 [6] M [7] The most often-quoted sources on the subject are Siddiqi (1980), Ariff (1982) and Mirakhor (1986). [12] quoted from: Salah, O., Islamic Finance: Structuring Sukuk in the Netherlands, pp. 18 [13] CIA World fact book, 2011-2012 [15] Ang, J.B., Financial Development and Economic Growth in Malaysia, Routledge, New York, 2009, pp. 41-44 [16] Background Notes on Malaysia found at www.state.gov. [35] S.Cakir and Faezeh Raei, Sukuk vs. Eurobonds: Is there a difference in Value-at-Risk?, IMF working paper, October 2007 By contrast Moody’s Investors Service, 2008 speaks of $39 billion by mid-2007 and $90 billion by end-2007 sukuk issuances globally [40] Dar al-Istithmar, Sukuk: An introduction to the Underlying Principles and Structure, 2006, pp.7 (http://www.assaif.org/Sectors/Capital-Markets-Sukuk/Sukuk-Principles-and-Structures#/6) [41] M.T