Rise of the Eurosukuk market
ME PoV Summer 2015 issue
An alternative financing and investment platform
A new debt capital market instrument has emerged, the so-called “corporate sukuk” which has seen steady growth in several parts of the world including the Middle East, Asia, Europe and the United States. The key differentiating factor of this asset class is a different risk and return profile investment that may also possibly have uncorrelated features to conventional financial market yields or risks. Just in time it seems, as David Sproul, UK Chief Executive of Deloitte, said “the low growth environment of the past five years, coupled with levels of consumer and government debt, mean the big business has to take a lead in driving a new era of wealth creation in the UK.”
Concurrently to this growth in the sukuk market, increased insights into the development and need for ‘alternative financing’ are gaining prominence and importance for both governments and the private sectors. The significant increase in global sukuk issuance through market growth in several jurisdictions supports the notion that the sukuk is an alternative, as well as ethical investment asset class: investing in the real economy, with emphasis on social and environmental sustainability. It also features investment through equity-based and asset-backed structures.
Sukuk, as per the Islamic Financial Services Board (IFSB), can be defined as certificates, each of which represents the holder’s proportionate ownership in an undivided part of an underlying asset where the holder assumes all rights and obligations to such an asset.
The need for an industry-sponsored research to validate this proposition is well overdue. Industry think tanks and thought leaders are keen to dive deep into this emerging niche market that will arguably create other subsector opportunities in Europe and elsewhere in the world where there are mature and well-regulated debt capital markets.