Reuters – The Bahrain-based International Islamic Financial Market (IIFM) will develop its first standard contract template for sukuk (Islamic bonds), and aims to double the number of its standards as early as next year, its chief executive told Reuters.
A standard for leasing-based sukuk will be developed first by the IIFM, a non-profit industry body which creates specifications for Islamic finance contracts, to help harmonise industry practises, said chief executive Ijlal Ahmed Alvi.
“Our aim is to come up with more standards – that is the focus we are trying to push for. We have five standards now and we hope to double that for next year.”
The move comes after a consultation meeting in Dubai this week which identified a need for guidelines covering the ijara sukuk structure, a sharia-compliant sale and lease-back contract, as a priority.
Alvi said a working group would be established after the IIFM’s board meeting in May, and it would also study other common sukuk structures such as mudaraba, wakala and musharaka, as well as convertible and exchangeable sukuk.
Sukuk issuance globally reached $117bn last year from a total of 811 issues, of which 175 were based on the ijara structure, according to data from Zawya, a Thomson Reuters company.
The ijara sukuk standard could be ready by the end of this year at the earliest, although this would depend on the working group’s schedule, Alvi added.
The working group would include representatives from a wide range of Islamic banking institutions including the Jeddah-based Islamic Development Bank (IDB), as well as the International Monetary Fund, he added.
While ijara sukuk are popular among corporate issuers, the absence of standard documentation has spawned different versions which can limit their acceptability among Islamic investors. A general lack of uniformly accepted standards in Islamic finance has slowed global growth of the industry.
The new sukuk standard will seek to address a variety of issues including primary market issuance and the use of special purpose vehicles, Alvi said.
In the past two years, the IIFM has launched standard contract templates for Islamic interbank transactions and profit rate swaps.
It is currently working on standards for cross-currency swaps, foreign exchange forwards and collateralised murabaha, while also consulting on credit support arrangements in Islamic finance contracts, said Alvi.
The IIFM started operations in 2002, founded by the IDB and the central banks and monetary authorities of Bahrain, Brunei, Indonesia, Malaysia and Sudan. Additional members include the State Bank of Pakistan and the Dubai International Financial Centre.