A well-established Islamic finance infrastructure coupled with depth of intellectual capital make Bahrain an ideal platform for Sharia-compliant market funding, a top banking official said.

According to Central Bank of Bahrain executive director for banking supervision and International Islamic Financial Market (IIFM) chairman Khalid Hamad, the kingdom is well-placed to meet strong investment demand from other parts of the world for Middle East-related Islamic financial products and vice-versa.

Hamad was speaking during a seminar hosted by Al Baraka Banking Group at the Sheraton Hotel yesterday (November 6), reported the Gulf Daily News, our sister publication.

Jointly organised by the IIFM, a Bahrain-based international standard-setting body, and Saudi Arabia's Islamic Research and Training Institute of Islamic Development Bank Group, the seminar focused on sukuk restructuring.

"Despite the global financial crisis and European sovereign debt problems, Islamic capital and money markets have shown resilience over the past few years," Hamad said.

"Global sukuk issuance exceeded $137 billion last year and continues to grow with the market deepening not hindered by the challenging financial landscape."

Hamad said such discussions would go towards enabling sukuk standardisation, thus allowing for sukuk defaults and restructuring to be handled properly.

"Given the Sharia requirements, restructuring sukuk often involves the originator setting up a special purpose vehicle for the purpose of issuing sukuk and multiple transfers of underlying assets between the originator and the issuer in order to generate profits.

"Hence, it is crucial for fund raisers and investors to be aware of Islamic capital market instruments and understand their structures and operations as such complex structures are not required for conventional bonds," he added.

Al Baraka Banking Group president and chief executive Adnan Yousif said there is a need for the IIFM and other organisations to set up a committee or taskforce on the implementation of all standards and guiding principles issued so far, in a way that is close to the Basel resolution in terms of enforceability.

"As we head towards the second decade of growth, I strongly recommend empowering research and development abilities at the industry as well as the institutions' level, to tackle issues such as high market risk, moral hazard, and adverse selection.

"I believe these are the main obstacles that prevent the profit and loss sharing principle from taking shape," he added.

IIFM chief executive Ijlal Alvi said that the objective of the consultative seminar was to explore possible ways of reducing risk of sukuk default and making the findings of the seminar as a basis in the IIFM effort to develop a comprehensive standard document on sukuk issuances across the globe. – TradeArabia News Service