Global Islamic bond issuance is expected to reach $175 billion in 2015, up from $110 in 2014, and is projected to hit $250 billion by 2020

Interview with Hani O. Baothman, Managing Director & CEO of Al Murjan Holding

Global Islamic bond issuance is expected to reach $175 billion in 2015, up from $110 in 2014, and is projected to hit $250 billion by 2020, according to a recent study.

The Islamic finance industry has evolved in the direction of complying with the conventional system. Islamic finance industry has to rethink its philosophy. The latest trend in the industry is the emergence of innovations from Islamic institutions that are derived from the principals of the Islamic finance philosophy, not from the motive of providing solutions or mimicking the conventional finance systems.

Out of the $24 billion of bonds issued within the GCC region in 2014, $5 billion was from organisations in Saudi Arabia. Companies issuing Sukuk included National Commercial Bank, Saudi Telecom Co. and Saudi Electricity Co.

An institution in Bahrain that is following the sukuk issuance has published a report which showed that Saudi issuance represented only 5% of the global issuances, a number which is lower than this number you mention.

This figure could be more accurate because Saudi blue chips still have access to funds from Saudi banks and they don’t have the motive to go into secondary markets or debt markets to issue sukuk.

The companies issuing sukuk had their limits closed with these banks and this is why they are now going into the debt markets. With the development of the mortgage industry, we are going to see a huge issuance of sukuk because banks cannot take 30 or 20-year loans on their balance sheets.

It is common sense for them to go to the sukuk market and this is what will drive a huge demand for Saudi sukuk issuance.

You mentioned 5%, what is your estimate for this percentage in the future vis-a-vis global issuance?

Currently only the mortgage market represents about 4% of Saudi GDP. The normal level for a country like Saudi Arabia would be 20% of GDP. That will take it to something like a trillion Saudi riyals of issuance.

Part of this will be financed by sukuks. These are big figures and the timeline for this development is short because it is a necessity. The mortgage industry cannot be launched without an active debt market.