A consortium of central banks from Asia, the Middle East and Africa has taken a first step towards developing a cross-border market in Islamic financial instruments by issuing a $490m sukuk.
Reuters reports that the three-month Islamic bonds, denominated in United States dollars, were issued by the Malaysia-based International Islamic Liquidity Management Corp. Its debut issue was fully subscribed, the IILM said in a statement on Monday.
Islamic finance, which obeys religious principles such as a ban on interest payments, has grown rapidly since the global financial crisis and is now estimated to have well over $1 trillion of assets around the world.
But its expansion has been limited by a shortage of highly liquid, investment-grade financial instruments which Islamic banks can trade to manage their short-term funding needs.
The IILM, founded by the central banks in 2010, aims to address that weakness by issuing sukuk which banks can trade across borders. The IILM sukuk received a high A-1 credit rating from Standard & Poor’s, and the IILM has said it plans to increase its issuance eventually to as much as $3bn.
The sukuk, priced at 30 basis points over the London Interbank Offered Rate, was auctioned off to seven institutions from around the world: Kuwait Finance House, Europe’s KBL Private Bankers, Malayan Banking Bhd (Maybank), National Bank of Abu Dhabi, Qatar National Bank, Standard Chartered Bank and AlBaraka Turk , which is the Turkish unit of Bahrain’s AlBaraka Banking Group.