Opportunities in Islamic securitisation in Bangladesh
Mohammad Sabed Sarwar
In the 20th century, getting more success and establishing a strong position of Islamic finance against conventional banking was just a dream but in today's Muslim world that dream has, at least partly come true.
Questions were raised if it was possible to develop an Islamic financial system different from the conventional one? Now it has been proved that even without conventional banking system, Islamic finance has been able to make a strong platform.
Islamic financing still holds a well-built potential in the market with an estimated size of USD 1.6 trillion (tn) by 2012 from around USD 1.0tn at the end of 2009 and 74 per cent of the Islamic financing company gained a widespread attention due to the different period of financial crisis and their structured products. Islamic financing continued to gain both in fame and size especially in the financing area as most of the Muslim population avoids conventional banking since this does not comply with their beliefs.
Based on Zawya's research in 2009, it is indicated that one half of the Muslim population worldwide is willing to use Islamic financing services, if given the right proposition and this will require the Islamic bankers to focus on product innovation, having aggressive growth strategies to expand into unexplored geographies.
China and France are showing some positive indications that they are changing their regulatory structure to accommodate Islamic Financing and interests are also increasing from non-Islamic investors who wish to gain exposure to diverse but high-quality assets.
On the capital market side, Sukuk (Islamic Bond) market is gaining a grip and the first seven months of 2010 alone almost touched full year levels of 2009 for Sukuk (Islamic Bond) issuances. Borrowers realized the needs to diversity their funding beyond bank loan which turned out positive to the Sukuk (Islamic Bond) market due to the tight lending norms during the crisis.
Most of Bangladesh's road and rail networks were implemented about 150 years ago and the survival of such assets are coming to the end of their utilized economic life. Replacement or reconstruction of such assets will be an important part in the Bangladesh economic context for its future growth. Special funds are needed for the development of Bangladesh that will cover transport, Asian transport corridors, energy streams and other regional infrastructure.
Due to the size of the investments, government finance is not always capable of providing the needed funding support to these projects. The government of Bangladesh needs to take action according to the strategic importance of its assets and also their interests in issues such as maintaining securities and environmental safety.
A new law for private-public partnership (PPP) which could be a popular way to fund infrastructure projects has been enacted by the government of Bangladesh (GoB). However there are more projects than the available fund can help. For such projects, the government, corporate bodies or any other public or private companies in Bangladesh can explore the possibilities for attracting the resources of Shariah-compliant investments.
Islamic project and infrastructure finance are largely influenced by national policy priorities; any current uncertainties over global economic growth do not have any effect on it. One example is Saudi Arabia which has many infrastructure projects; even if the oil price falls; all such projects will see forward movements.
Developments relating to Asia infrastructure depend on regional rather than worldwide situation. To attain the rate of progress in excess of the world average which is not impossible, Indonesia looks forward to Islamic finance to help retain its stable position with a predictable flow of infrastructure projects. At the same time, Malaysia is doing the same - trying to depend more on financing through Islamic Bonds.
An increased investment in infrastructure is a normal trend during the period of economic prosperity and when the economic cycle turns, the situation may become different. Funding is one of the major causes for increased uncertainty about most public sector projects. Because of this problem, many projects have to be put on hold. Both infrastructure finance and its related sector are the fundamental issue for operationalisation of many projects which are linked with economic progress and socio-economic benefit that are highly well matched with the Shariah. Therefore, the Islamic mode of finance envisages good projects requiring ample liquidity support, proper selection of places for getting funds and appropriate choice of about the mood of such finance for the purpose.
In order to complete the new development projects and the needed overhauling of some existing ones in the Bangladesh economy, substantial amount of investment will be needed. There is an opportunity here for selecting strategic investors, considering the involvement of the government and the length and size of the projects. Since the existing Bangladesh legislation already allows some tax benefits and provides a scope for sound structuring of such investment, Islamic finance has the potential to play a significant role in the process. The Bangladesh Bank is reported to have taken an initiative to amend the existing rules and regulations for Islamic Bond market. Islamic finance has already succeeded to demonstrate its considerable success in the international financial markets.
This has enhanced global awareness about it, especially in Muslim countries. Such finance is now available in over 60 countries. Market leader, Malaysia, has been joined by major financial centres like those of London, Hong Kong and Singapore for issuing Sukuk and/or other Islamic financial products.
The writer is a PhD. candidate, registered with the Multimedia University, Malaysia. He can be reached at email: jabed83@yahoo.com
Opportunities in Islamic securitisation in Bangladesh
Mohammad Sabed Sarwar
In the 20th century, getting more success and establishing a strong position of Islamic finance against conventional banking was just a dream but in today's Muslim world that dream has, at least partly come true.
Questions were raised if it was possible to develop an Islamic financial system different from the conventional one? Now it has been proved that even without conventional banking system, Islamic finance has been able to make a strong platform.
Islamic financing still holds a well-built potential in the market with an estimated size of USD 1.6 trillion (tn) by 2012 from around USD 1.0tn at the end of 2009 and 74 per cent of the Islamic financing company gained a widespread attention due to the different period of financial crisis and their structured products. Islamic financing continued to gain both in fame and size especially in the financing area as most of the Muslim population avoids conventional banking since this does not comply with their beliefs.
Based on Zawya's research in 2009, it is indicated that one half of the Muslim population worldwide is willing to use Islamic financing services, if given the right proposition and this will require the Islamic bankers to focus on product innovation, having aggressive growth strategies to expand into unexplored geographies.
China and France are showing some positive indications that they are changing their regulatory structure to accommodate Islamic Financing and interests are also increasing from non-Islamic investors who wish to gain exposure to diverse but high-quality assets.
On the capital market side, Sukuk (Islamic Bond) market is gaining a grip and the first seven months of 2010 alone almost touched full year levels of 2009 for Sukuk (Islamic Bond) issuances. Borrowers realized the needs to diversity their funding beyond bank loan which turned out positive to the Sukuk (Islamic Bond) market due to the tight lending norms during the crisis.
Most of Bangladesh's road and rail networks were implemented about 150 years ago and the survival of such assets are coming to the end of their utilized economic life. Replacement or reconstruction of such assets will be an important part in the Bangladesh economic context for its future growth. Special funds are needed for the development of Bangladesh that will cover transport, Asian transport corridors, energy streams and other regional infrastructure.
Due to the size of the investments, government finance is not always capable of providing the needed funding support to these projects. The government of Bangladesh needs to take action according to the strategic importance of its assets and also their interests in issues such as maintaining securities and environmental safety.
A new law for private-public partnership (PPP) which could be a popular way to fund infrastructure projects has been enacted by the government of Bangladesh (GoB). However there are more projects than the available fund can help. For such projects, the government, corporate bodies or any other public or private companies in Bangladesh can explore the possibilities for attracting the resources of Shariah-compliant investments.
Islamic project and infrastructure finance are largely influenced by national policy priorities; any current uncertainties over global economic growth do not have any effect on it. One example is Saudi Arabia which has many infrastructure projects; even if the oil price falls; all such projects will see forward movements.
Developments relating to Asia infrastructure depend on regional rather than worldwide situation. To attain the rate of progress in excess of the world average which is not impossible, Indonesia looks forward to Islamic finance to help retain its stable position with a predictable flow of infrastructure projects. At the same time, Malaysia is doing the same - trying to depend more on financing through Islamic Bonds.
An increased investment in infrastructure is a normal trend during the period of economic prosperity and when the economic cycle turns, the situation may become different. Funding is one of the major causes for increased uncertainty about most public sector projects. Because of this problem, many projects have to be put on hold. Both infrastructure finance and its related sector are the fundamental issue for operationalisation of many projects which are linked with economic progress and socio-economic benefit that are highly well matched with the Shariah. Therefore, the Islamic mode of finance envisages good projects requiring ample liquidity support, proper selection of places for getting funds and appropriate choice of about the mood of such finance for the purpose.
In order to complete the new development projects and the needed overhauling of some existing ones in the Bangladesh economy, substantial amount of investment will be needed. There is an opportunity here for selecting strategic investors, considering the involvement of the government and the length and size of the projects. Since the existing Bangladesh legislation already allows some tax benefits and provides a scope for sound structuring of such investment, Islamic finance has the potential to play a significant role in the process. The Bangladesh Bank is reported to have taken an initiative to amend the existing rules and regulations for Islamic Bond market. Islamic finance has already succeeded to demonstrate its considerable success in the international financial markets.
This has enhanced global awareness about it, especially in Muslim countries. Such finance is now available in over 60 countries. Market leader, Malaysia, has been joined by major financial centres like those of London, Hong Kong and Singapore for issuing Sukuk and/or other Islamic financial products.
The writer is a PhD. candidate, registered with the Multimedia University, Malaysia. He can be reached at email: jabed83@yahoo.com
Opportunities in Islamic securitisation in Bangladesh
