A landmark announcement by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of UAE and Ruler of Dubai, to turn the emirate into a global centre for sukuk (Islamic bonds) is expected to trigger a boom in sukuk issue in the region’s commercial and investment hub.
Reacting to the initiative, the latest in a series of aggressive economic overtures by Sheikh Mohammed, local officials and analysts described it as a major step towards achieving the ultimate goal of turning Dubai into a world Islamic economic capital. One official said the sukuk initiative would also give a strong push to the UAE economy, the second largest in the Arab world after Saudi Arabia.
“Sheikh Mohammed’s initiative is a significant and major step that asserts Dubai’s leading position on the regional and global financial services map,” said Abdul Rahman Al Saleh, director general of the Department of Finance in Dubai.
“Dubai has already achieved an advanced position in this field and its bond issuances have received positive responses that have surpassed all our expectations even during the most difficult economic conditions…I expect a sharp increase in demand for sukuk in Dubai in the coming period as credible investment instruments.”
Another official said Sheikh Mohammed’s move is “very important” on the grounds it will attract liquidity to the local market.
“The more liquidity we have, the better our economy performs…there is no doubt this initiative is carefully studied move and I believe it will give a push to the local market,” said Younus Khouri, undersecretary of the Ministry of Finance.
“This announcement about sukuk is the main pillar and the nucleus of Sheikh Mohammed’s initiative to turn Dubai into a global Islamic economic capital,” said Abdullah al Turaifi, executive president of the Securities and Commodities Authority.
His figures showed the UAE is already a world leader in sukuk issuance, with a value of around $20 billion in 2012, nearly eight per cent of the world’s total sukuk issues.
Around $nine billion worth of those sukuk are listed on Dubai’s stock market but nearly $7.5 billion of sukuk issued in the emirate are not listed, he said.
“This means that more sukuk will be soon listed in Dubai and this will push the emirate ahead in its sukuk ranking so it will compete for the first global position with London and Malaysia…I believe that Dubai’s market already has the investment environment and infrastructure that allows it to list much more sukuk successfully,” he said.
In a paper presented to a conference in Abu Dhabi on Wednesday, Dubai Financial Market chief executive Issa Kazem said the UAE has remained the largest sukuk base in MENA over the past years, with a cumulative value of around $42 billion (Dh155 billion) during 1996-2012. It was followed by Saudi Arabia with nearly $25 billion (Dh92 billion) and Qatar, with about $16 billion (Dh59 billion)
“Indicators point that the UAE could become a world leader in sukuk issuance to replace Malaysia,” he said, adding that sukuk accounts for nearly a fifth of Dubai’s bond issue.
He said the UAE, reacting to Sheikh Mohammed’s initiative to turn Dubai into a Shariah-compliant economic centre, would create a federal body for legislation and supervision with the aim of controlling the sukuk issue process.
“This will be done according to international standards…this is needed to ensure the success of the sukuk initiative , which will open the door for the issuance of different types of sukuk listings and involve promotions in regional and global markets.”
Bankers also hailed Sheikh Mohammed’s initiative and one said it reflected His Highness’s vision of the importance of Islamic economy.
“This initiative shows that Sheikh Mohammed attaches great importance to the Islamic economy at this stage and illustrates the position of the UAE in general and Dubai in particular as a key financial centre in the Middle East,” said Mohammed Berro, CEO of the Abu Dhabi-based Al Hilal Bank, one of the largest Islamic banks in the UAE.
“I believe that this initiative will give a strong push to the UAE banking sector in general and the sukuk issuance process in particular…there is no doubt that Dubai possesses all the resources for rapid development and change…I think the emirate is the most suitable place for developing the Islamic banking industry.”
“This initiative extends the successful policies of Dubai,” said Faisal Akeel, deputy CEO of the Emirates Islamic Bank. “It is a pivotal and vital step towards turning Dubai into the capital of the world’s Islamic economy…these rapid successive steps will give a strong boost to the sukuk industry and we, as an Islamic bank, believe this initiative by Sheikh Mohammed will benefit all sectors in Dubai and the UAE.”