MANAMA, 17 July 2005 — The Bahrain-based International Islamic Financial Market (IIFM) plans to help set up a secondary market for Islamic bonds, that could be worth $10 billion by 2006, and help unify Shariah financial standards, its new head said on Thursday.
IIFM’s chief executive officer, Ijlal Ahmed Alvi, said merging Islamic financial standards and creating an inter-bank market between Islamic banks were needed steps toward a regulated Islamic banking market.
Regional financial hub Bahrain joined Malaysia, Indonesia, Sudan and the Islamic Development Bank (IDB) in 2001 to set up the IIFM to help boost Islamic banking and provide guidelines for more than 200 Islamic banks and finance houses. The body’s membership, including observers, has since grown to 24 institutions from the Far East, the Gulf Arab region, Pakistan, Bangladesh, and Europe. Alvi, who took up his post in April, told Reuters, that IIFM was studying ways to develop a secondary market for Sukuk, or Islamic bonds, to encourage their trading and make them globally accepted. He said he expected this market to grow to $10 billion by 2006 from $6.7 billion at end-2004.
“Now there is not enough supply of Islamic Sukuk. We will look how to facilitate a secondary market. We can play the role of the independent regulator, explore possibilities (of more issues), and create links between banks,” Alvi said. He said the IIFM plans to set up a database for issuance and trading of the secondary market which could help oversee the market and provide transparency. “Our aim is also to unite the Shariah boards in the three regions of Africa, the Gulf, and East Asian Muslim countries, but this cannot be achieved in the short term,” Alvi said. “We are trying to have a wide Shariah standard. There is talk between us, the IDB and other parties.”
Economists say different approaches to Islamic principles has delayed the development of unified Islamic banking products, and limited the scope of an inter-bank market between Islamic institutions.