Khalid Hamad, executive director at the Central Bank of Bahrain and chairman of the IIFM board, said all concerned parties have been consulted to prepare a master agreement paving the way for a shift from the asset-based to asset-backed sukuk, or Islamic bond structure.

Hamad was talking to reporters on the sidelines of workshops held at the pre-conference day of the 17th World Islamic Banking Conference 2010 (WIBC 2010), which opens on Tuesday.

Hamad, who opened the workshop on hedging and liquidity management in Islamic finance, said that the master agreement on the new form of sukuk was a result of a heated debate in the industry, which sometimes also criticized the asset-based form of sukuk.

“We are working on these agreements and hopefully be able to conclude them in due course,” he said.

Describing the IIFM as a pivotal organization for the industry, he said it principally helps the industry in capital and money markets. “The IIFM develops the documents which mitigate the risks both on legal and operational sides in addition to reducing the time and legal costs,” he explained.

IIFM is the global standardization body for the Islamic capital and money market segment of the IFSI. Its primary focus lies in the standardization of Islamic products, documentation and related processes. IIFM was founded with the collective efforts of Central Bank of Bahrain, Bank Indonesia, Central Bank of Sudan, Labuan Financial Services Authority (Malaysia), Ministry of Finance (Brunei Darussalam) and Islamic Development Bank (a multilateral institution based in Saudi Arabia).

Besides the founding members, IIFM is supported by its permanent members, namely State Bank of Pakistan and Dubai International Financial Center Authority.

“The sukuk market is witnessing a surge in activities in all major markets and in 2011 is likely to be a year of stabilization,” Hamad said, talking about the market outlook.

“So far, the sukuk market has moved in the right direction this year and prospects are likely to be bright next year.”

In another workshop, an official of the Malaysian Rating Corporation Agency said that with an outstanding size of $216 billion as of June 2010, the Malaysian ringgit (MYR) bond market has been growing remarkably over the last 10 years.

“Bond evolution in Malaysia measured relative to GDP, (and) the MYR bond market is actually the second biggest market in Asia Ex Japan. Its relative size is indicative of its importance as a viable financing vehicle in the economy,” Mohammed Razian Mohammed, CEO of MARC, told participants of the ratings workshop.

In his paper, he highlighted the role of credit rating agencies (CRAs) and bond market evolution in Malaysia led by the Islamic International Rating Agency. He also underlined the importance of rating agencies in enhancing the scope of bonds and other financial instruments.