Asia is a pivotal part of both the global economy and the Islamic financial system. The region continues to deliver strong growth, and projected to reach 5.5% in 2017 and 5.4% in 2018 . Asia and the Pacific accounted for 40.9% of global gross domestic product at purchasing power parity in 2016, up from 29.4% in 2000 . The region is also a key region contributing to Islamic finance growth globally. As at end 2016, the region’s Islamic financial assets amounted to approximately USD425.5 billion, equalling 22.5% of Shariah-compliant financial assets worldwide. Asia is not only the region with largest in the world in population and size, but also ranked first in both high net worth individual (HNWI) population and wealth, and is on target to surpass US$40 trillion in HNWI wealth by 2025 . The region’s economic potential – income levels, access to both regional and global markets and potential of infrastructure developments – presents an unprecedented growth opportunity for Islamic finance in the region. Between 2010 and 2020, Asia needs to invest approximately $8 trillion in overall national infrastructure. In addition, Asia needs to spend approximately $290 billion on specific regional infrastructure projects in transport and energy that are in the pipeline .
Asia is the largest to both sukuk and Islamic funds industry. Many of leading Islamic finance initiatives also originate from Asian countries. At present, the Islamic financial assets in Asia is dominated by Islamic banking and Sukuk sectors. Islamic asset management industry in Asia is also gaining prominence, accounting for 35.3% of global total Islamic assets under management (AuM). The takaful industry remains a nascent industry in Asia, accounts for less than 1.0% of regional Islamic financial assets.
Sukuk market in Asia
Asia has established a strong presence in sukuk segment. The collective size of sukuk market in Asia has reached USD253.0 billion as at December 2017, with a market share of 62.3% of total global sukuk outstanding, ahead of GCC (USD137.5 billion, 34.2% global share) and other regions (USD17.4 billion, 4.1% global share). For many years, Asia continues to be the most active region for sukuk issuance, with a growing number of jurisdictions coming on board while the existing key players ramping up their sukuk issuances. In 2017, Asia’s sukuk issuance registered at USD52.3 billion, a share of 52.6% of global sukuk issuance.
There was a series of significant developments that shaped Asian sukuk market in 2017. In sovereign space, the market witnessed the US dollar sovereign sukuk issuances from Hong Kong, Indonesia and Pakistan. For Hong Kong, the USD denominated sovereign issuance amounting to USD1 billion in February 2017 marked another milestone in its domestic sukuk market by extending its yield curve to 10-year, setting an important new benchmark for potential sukuk issuers in Hong Kong market. Meanwhile for Indonesia, the USD denominated sovereign sukuk issued in March 2017 was the first dual-tranche USD offering by the republic and was the largest USD transaction in Asia at the time of issuance. Both issuances received exceptional interest from various types of investors across geographies. In December 2017, the market also witnessed the issuance of five-year USD denominated sovereign sukuk by Pakistan amounting USD1.0 billion. The sukuk sale received high interest and made subscription of USD2.3 billion, which was nearly five times of the target amount .
Another significant development in the Asian sukuk market was the emergence of Shariah compliant renewable energy financing or ‘green sukuk’. In July 2017, Malaysia marked a milestone in both green financing and global sukuk arena with the inaugural issuance of world’s first green SRI sukuk by Tadau Energy Sdn Bhd. This was followed by Quantum Solar Park (Malaysia) Sdn Bhd in August 2017. The two green sukuk issuances were the result of a collaboration between Securities Commission Malaysia, Bank Negara Malaysia and the World Bank Group in an effort to develop an ecosystem to facilitate the growth of green sukuk. Meanwhile, at regional level, the ASEAN Capital Markets Forum (ACMF), comprising capital market regulators from the ten-member Association of Southeast Asian Nations (ASEAN), has launched green bond standards as part of its plan to grow the region’s green bond market in November 2017. Again, Malaysia continues to affirm its leadership, as Permodalan Malaysia Bhd, a government-linked investment company, became the first issuer to adopt this ASEAN Green Bond Standards. On Asia’s regulatory development in relation to sukuk, Pakistan has made a positive strides. There has been a concerted push by regulatory authorities in Pakistan in the last few years to promote the Islamic finance industry and recently, the Securities and Exchange Commission of Pakistan (SECP) announced that it was relaxing regulations for Sukuk issuance in order to develop the Shariah-compliant market. The SECP amended the 2015 Issue of Sukuk Regulations to facilitate the issuers, reduce the cost of issue and ease the regulatory burden.