Global issuance of Islamic bonds will take another year to reach pre-crisis levels as new markets in Europe and Asia have yet to make up for the slump in the Gulf, said advisory firm Deloitte's head of Islamic Finance.

Underwritten issuance of Islamic bonds, or sukuk, reached $14.3 billion last year, according to Thomson Reuters estimates, well below the $20-30 billion in annual issuance before the financial crisis.

Malaysia, the industry's biggest market, held up well in 2010 but issuance in the Gulf Arab region has been hurt by some sukuk defaults and investor confidence has yet to return.

'I think it's going to be another year or so before (sukuk issuance) gets back to pre-crisis levels,' said Daud Vicary Abdullah.

He said that new markets will help a comeback in sukuk issuance, as governments in Brazil, Australia, Western Europe and Central Asia are considering issuing sukuk to tap the Muslim wealth pool and nurture their own Islamic financial industries. He said that American re-insurers are considering entering Islamic re-insurance business, or re-takaful, which would also increase demand for Islamic bonds.

The crisis popped a Gulf real estate bubble in 2008, severely hitting regional investors and pushing the region's business hub Dubai to the brink of default.

Investors are still holding back their funds as the full extent of the damage took long to surface due to a lack of strong and transparent regulations in the region. 'This market is always much more sensitive to economic ups and downs...there is still some ground to make up and people are sort of nervous about what they have seen in Dubai,' said Abdullah.

The Gulf saw a modest revival in sukuk issuances in the last quarter of 2010, but market experts fear it could be a fragile recovery with investors fearful of any more bad news. Sukuk issuance has also been hurt by a debate about the compliance of some of its structures with Islamic law.-TradeArabia News Service