The United Arab Emirates was the world’s top issuer of Islamic bonds during the last seven years, contributing 36.2 percent of global sale value, Kuwait’s Global Investment House (GLOB.KW: Quote, Profile, Research) said in a report on Thursday.
Malaysia, which along with the Gulf is one of the world’s Islamic banking hubs, came second, contributing 32.1 percent of Islamic bonds by value, though Malaysia issued far more individual bonds, Global said.
The world’s largest Islamic bond or sukuk, worth $3.52 billion, was sold in 2006 by Dubai property developer Nakheel.
The Islamic banking industry has boomed as more of the world’s 1.3 billion Muslims seek financial services that comply with their beliefs, especially since Sept. 11 2001, Global said.
“As a result of the U.S. policy towards certain financial organisations and charitable foundations, the Muslim world has reacted by expanding the demand for more Islamic banking,” the investment house said in its report.
Gulf investors are also attracted by higher returns from Islamic over conventional banking, while Western investors are drawn to Islamic investment products as a way to diversify their portfolios, Global said.
There are now at least 300 Islamic financial institutions spread among 75 countries compared with almost none 30 years ago, Global said.
Management consultants McKinsey & Co in December predicted the assets held by Islamic banks would hit $1 trillion by 2010.
The main obstacles to the growth of the industry are a lack of awareness among Muslims of the products and services on offer, and a lack of standardisation of the laws governing Islamic banks, Global said.
“Unless there is a general consensus among the major players of Islamic banking on creating a universally accepted set of regulations that are clear to the masses … the popularity of this concept will become a lingering challenge.”
Islamic law bans interest and instead pays a return derived from underlying physical assets.