Development in the Middle East, and the Gulf Cooperation Council countries in particular, is being fueled by the growth of Islamic finance.

Author: Darren Stubing

Growth in the years ahead is likely to be targeted toward small and medium- size enterprises throughout the region.

Dubai Islamic Bank plays a significant role in supporting corporate real estate developments, including the construction of commercial property and residential estates. DIB provides financing to contractors building electrical and mechanical infrastructure works across such sectors as oil, gas, power and water. DIB also has an 86.5% stake in Tamweel, a provider of regional real estate financing.

Sukuk issuance in the GCC served mainly to support sovereign funding and infrastructure plans. A $1.2 billion issue by Saudi Electricity will be used to improve power services in the kingdom. A newcomer to the GCC sukuk market is the Fawaz Alhokair Group, a major retail franchise owner in Saudi Arabia that issued $133.3 million for the purpose of funding its expansion plans, including over 400 new stores.

Some of the biggest Islamic financing deals in 2014 originated in the GCC, led by offerings in the aviation and real estate sectors. Emaar Malls Group secured $1.5 billion to repay an existing conventional loan. At the end of the year, Marafiq, a utility services provider to two industrial cities in Saudi Arabia, signed a $666 million deal to finance its existing utilities projects.

Marafiq arranged financing for over $1 billion for the Gold Line Metro rail project in Qatar. Emaar, the Economic City, signed a 1,250 million Saudi Arabian riyal ($333 million) murabaha agreement with Alinma Bank to develop the Haramain district in King Abdullah Economic City, with the loan guaranteed by mortgage lands within the city.

These deals should help bring other issuers to the market in 2015.

Key growth drivers for Islamic finance in the Middle East will remain infrastructure projects, commercial real estate transactions and, on the retail front, the rise of home financing, particularly in the large Saudi and UAE markets. Islamic finance firms will continue to innovate, introducing new products to a growing and deeper market.

Although Islamic financing continues to expand, there remains debate about the shariah-compliance of some products. Bai’ al ‘inah, in which there is a transaction of buying and selling between the customer and the financial institution, is one such Islamic finance product and is seen in Islamic mortgages and credit cards. There are differing opinions among Middle Eastern and South East Asian scholars on whether Bai’ al ‘inah is an acceptable financial practice. In Malaysia, the shariah scholars allowed it despite the fact that they agree that the majority of scholars globally prohibit the transaction due to its loan-type characteristic.

Comments


Sudhakar Kota | May 05, 2015 | Reply

It is an interesting article on Islamic finance and its growth. The article throws open a new area of research.

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