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GCC financial regulators encouraged to promote use of sukuk to fund infrastructure

Out-Law News | 13 Apr 2016 | 10:45 am | 1 min. read

The regulators of financial markets in the Gulf Cooperation Council (GCC) region must improve the regulatory framework of their sukuk market, in order to better support the use of the products to fund infrastructure projects, a World Bank expert has told Gulf News.

The value of sukuk being issued in the GCC has been falling, but there is still opportunity in the market, Zamir Iqbal, lead financial sector specialist at the World Bank, told Gulf News.

"There’s an opportunity in [the GCC’s sukuk markets] because of the huge infrastructure financing, but I think they need to develop the infrastructure and to have a proper legal and tax environment for the structuring of the sukuk and the SPV (Special Purpose Vehicle) laws. Once you have these done, there’s already excess liquidity in the market, and banks, especially after Basel III, are looking for high-quality, highly-rated sukuk, so I think the opportunities are many," Iqbal told Gulf News at an industry event.

"I think the big question is whether governments in the GCC and Mena (Middle East and North Africa) region will continue with their development projects or not. There’s a big need for infrastructure financing, so if [the governments] continue, they’re going to need money and they can use sukuk for that," he told the news site.

The International Monetary Fund said in November that the GCC region was suffering from a lack of availability of Sharia'a compliant financial instruments, or tradable assets, leading to excess liquidity and to an uneven playing field for Islamic banks.

In July last year, the World Bank signed a Memorandum of Understanding (MoU) with the General Council for Islamic Banks and Financial Institutions (CIBAFI) to help the global development of Islamic finance.