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Growth and Development of the Sukuk Market in Europe

March 3, 2013

Despite a slow growth of the Sukuk (Islamic bonds) market in Europe, one can easily count few developments and trends that signal a growth in the contribution to the growth of the sukuk market in European continent, albeit a shy one.

In terms of sovereign sukuk issues, only the German Saxony Anhalt issued a 5-year sovereign sukuk back in 2004, which back then in time, gave hope that more European states will embark on selling sukuk. Since then, all we have heard is plans to sell sukuk by countries such as Ireland, United Kingdom, France and other governments. Needless to mention that the main reason behind selling Islamic debt by these governments is to raise funds from alternative sources, while the main hurdle remains mostly either an opposition from political parties to go “Islamic” and the unfriendliness of the regulatory and tax framework in these jurisdictions to adopt that type of instruments or financing.

However, and despite a slow progress of evolution of sovereign sukuk market in Europe, there are two things that show healthy growth on the other hand. One being the rise of some European stock exchanges as key listing exchanges for Sukuk such as London Stock Exchange which has the largest value and szie of sukuk listed globally. Similarly, and to a lesser extent Luxembourg and Irish stock markets. For some reasons, global sukuk issuers choose to list their sukuk on these stock exchanges and the friendliness, ease, transparency and facilities provided by these regulators cannot go unnoticed.

The second remarkable development is the rise and issuance of some corporate sukuk from Europe. Though very small in size, these corporate sukuk proved that many companies, especially shariah compliant ones, are interested in raising funds through Shairah compliant channels, and that investors who are thirsty for Shairah compliant investments are keen on investing in these tools. The most recent example was the Milestone Capital Sukuk sold by UK-based Gatehouse Bank and listed on Channel Island Stock Exchange. Last year, two companies from France sold sukuk while a year earlier in 2011, International Innovative Technologies, also based in UK, sold an international sukuk that was listed on Cayman Stock Exchange.

Rumors say that many sovereigns and companies showed interest in selling sukuk, whther domestically or internationally, and some of them – will choose Malaysia to sell their Islamic bonds – such as Ireland’s Electricity Supply Board (ESB).

Neighboring Turkey, now a European state, dared where others feared. Benifiting probably from higher Muslim population and more flexible or secular poltical regime, Turkey’s participation banks and the government started selling benchmark sukuk (benchmark sukuk is usually above $US500 billion) and now is considered one of the top sukuk issuers globally.

Third development would be that many regulators in Europe embarked on drafting new regulations that will help boost sukuk issuance or Islamic finance in general. I will blog on the regulatory efforts soon.

This is officially my first blog post on sukuk that will hopefully become a weekly or biweekly corner to cover an aspect of the niche industry and will cover both sukuk and Islamic Finance in general.

Stay tuned and stay safe.

Adnan Halawi



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