Dubai has overtaken rival financial centres to become the world’s leading hub for the multi-billion dollar trade in Islamic bonds, new figures show.
The figures put the value of Islamic bonds – known as sukuk – that are listed on Dubai exchanges at US$36.7 billion, ahead of nearest rival Malaysia, with $26.6bn, for the first time. Ireland and the UK come next, each on $25bn.
Sukuk pay investors a fixed rate of return over a set time, but comply with Sharia principles of investment probity and regulation.
Leadership in global sukuk was one of the main targets set by Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, in his 2013 initiative to make the emirate the capital of the Islamic economy.
Hamed Ali, chief executive of the Nasdaq Dubai exchange, said: “We’re very pleased to have reached this target. It shows the attractions of Dubai in the financial world. We have achieved one objective, but now let us move on to achieve the others.”
Most of the sukuk are listed on Nasdaq Dubai, with a smaller amount on the Dubai Financial Market.
The figures were compiled by Nasdaq Dubai and verified by information group Thomson Reuters.
Mr Ali also unveiled plans for new Islamic financial products to enhance Dubai’s sukuk business. It still lags behind other centres in actual trading of sukuk, notably London.
“One way to increase trading is to get retail investors interested in sukuk. They have been deterred so far by the fact that minimum transaction sizes are comparatively large – between $100,000 and $200,000 – but we plan to reduce that. We want to open it up to individuals,” Mr Ali said.
The aim is to attract smaller investors, rather than big financial institutions, onto the Nasdaq Dubai trading platform, which has the advantage of being more transparent and, potentially, with lower commission rates.
A surge in sukuk listings in 2014 was behind Dubai’s move into the top global slot. Many of these were listings by UAE government related entities, which comprise 56 per cent of the total, but there were also significant new listings by regional and international issuers.
Some 22 per cent of the sukuk listed in Dubai are from Saudi issuers, while Indonesians comprise 16 per cent. “We have been very proactive in Indonesia,” Mr Ali said.
One big foreign listing in 2014 was a $1bn sukuk issued by the government of Hong Kong.
“Our leadership in sukuk listing shows Dubai has the right set-up, the right regulation and the right market,” Mr Ali said.
Malaysia has significantly reduced the amount of sukuk it lists in recent months.
A survey by the American ratings group Standard & Poor’s forecast new sukuk issues this year would still be around $60bn worth, though well down on previous years.
Mr Ali also identified other banking instruments as potential areas of expansion in Islamic finance, like “repos” – a contract banks use to ease liquidity through – which has so far been dominated by Southeast Asian markets and Bahrain.
Follow The National’s Business section on Twitter