Tuesday, 27 August 2013


The Central Bank of Nigeria (CBN) and a consortium of central banks from Asia, the Middle East and Africa have taken the first step towards developing a cross-border market in Islamic financial instruments by issuing a $490 million sukuk.
The three-month Islamic bonds, denominated in the United States dollars was issued by the Malaysia-based International Islamic Liquidity Management Corporation (IILM). Its debut issue was fully subscribed, the IILM said in a statement on Monday.
Reuters listed current shareholders of the IILM to include central banks of Indonesia, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Turkey and the United Arab Emirates, as well as the Jeddah-based Islamic Development Bank. Iran is a member of the IILM but not a shareholder
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 $3 billion.
The sukuk, priced at 30 basis points over the London Interbank Offered Rate (LIBOR), 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.
These primary dealers would be responsible for selling the sukuk on to other Islamic banks and institutions in an effort to create an active market in the instruments. Sukuk are backed by assets which generate returns for investors. The IILM previously said its sukuk would be backed by sovereign assets from member countries, but it has not revealed more information about them.

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