The past few days have brought fresh signals that Islamic bond issuance might be about to begin in several new countries. But that news has been trumpeted before, only for the deals to prove no-shows.
The coming weeks will determine whether this time is different. National Australia Bank is thought to be readying a benchmark international sukuk, perhaps sold in Australian dollars. Meanwhile, the state-owned Development Bank of Kazakhstan has plans for a $500m sukuk programme.
This week the Central Bank of Yemen has issued its first sukuk for over a year and it plans to return with another domestic deal in the next few months.
These are small steps. The sukuk market is perennially told that such and such a country is gearing up for an Islamic finance breakthrough, only to be left to sit and wonder what became of it. South Africa and Nigeria are recent examples, while Australia and Kazakhstan have been flagged as hot new entrants for some time.
But broadening the range of countries involved is much needed if Islamic finance is to provide a truly international alternative to conventional funding.
There’s no doubt that overall sukuk issuance is taking off at a rate of knots. A record $36bn was recorded by EuroWeek’s Islamic Finance Information Service in the first quarter of 2012, compared to $94bn for the whole of last year.
But strip out the United Arab Emirates, Saudi Arabia and Malaysia and claims for an Islamic market would be all but non-existent – with only $1bn or so this year from issuers outside these areas. Ringgit sukuk alone has accounted for over 76% of first quarter issuance and more than 71% of last year’s total.
In fact, one flaw in the present optimism about Islamic finance is that issuance in 2012 has actually been less geographically diverse than last year.
Indonesian issuers have revisited the market, but there has been little to speak of from Pakistan, Iran or Qatar.
Turkey is clearly a young story that is taking shape, but it has yet to deliver the big headline issues that the market has predicted with such optimism.
Perhaps the establishment of Islamic national benchmarks in places like Turkey and South Africa will be the story of Q2. Perhaps we will even see a big European entrant such as France, Luxembourg or Ireland.
But for now there is an awful lot of hope pinned on Malaysian and Saudi Arabia infrastructure projects and energy deals. And while the Malaysian market is thriving, Saudi Arabian issuance can be intermittent, with most of the flow domestic.
If sukuk is to become a really global capital market, it’s time for those who care about the market to step up initiatives to widen its appeal and diversify its scope.