gif World Islamic Finance Review
The Respectability Factor of DIFC
DIFC is a large part of the reason why Dubai’s Islamic finance mar- ket is taken seriously, and why it will hopefully continue to be taken seriously, despite the Nakheel scare. In large part due to the DIFC, the United Arab Emirates is the GCC region leader in terms of sukuk issuance by value, with a total of US$26.8 billion from 34 issuances between 2000 and 2008 compared with US$4.5 billion from 89 is- suances in Bahrain over the same period. As for last year, Dubai alone raised US$20 billion from the Abu Dhabi government and the UAE central bank. Furthermore, the long-awaited landmark US$100 million sukuk was listed on NASDAQ Dubai (as well as the Bahrain stock exchange). What is it about DIFC that makes listing sukuk ei- ther in or from it such an attractive option?
The key is DIFC’s supportive infrastructure, which features the ability to establish special purpose vehicles (SPVs) in the district, enabling market participants to act as both the issuer and trustee in sukuk transactions within the DIFC. With such a sukuk pedigree to celebrate, it is little wonder that, in December of last year, DIFC published a Guide to Issuing Sukuk.
Date Milestone
December 2005 DIFC Authority establishes the Islamic Finance Advisory Council to promote the development of Islamic Finance. The seven-member council comprises seasoned executives and decision-makers who provide expertise and insights into the Islamic Finance industry and
marketplace.
As the Centre’s accom- panying statement says, “The guide reflects the leading role that DIFC plays in global Islamic finance”. Other Islamic finance-related publica- tions from DIFC include Current Trends in Islamic Structured Finance and Capital Markets (Hesse/ Jobst/Sole, IMF, 2008). This document too, sings the praises of the sukuk market, admittedly also taking into account the market slump that had started to become appar- ent by the date of publi- cation.
July 2006 August 2006 October 2006 March 2007
Islamic International Rating Agency (IIRA), the region’s leading Islam- ic rating agency, establishes presence at DIFC.
MoU between DFSA and Securities Commission Malaysia which also announced the launch of the initiative to facilitate cross-border flows
of Islamic Finance between DIFC and Malaysia.
NASDAQ Dubai becomes the world’s largest exchange for Sukuk, with a total value of US$ 4.11 billion.
The Mutual Recognition Model was launched between the DFSA and SC Malaysia to facilitate the cross border flows of Islamic Finance be- tween DIFC and Malaysia. DFSA enters into a MoU with Bank Negara Malaysia to further develop Islamic Financial Markets. Cass Business
School begins delivering the world’s first new Executive MBA from the DIFC specialising in Islamic Finance and Energy.
April 2007 June 2007
DFSA receives award for Innovations in Islamic Finance, recognizing its contributions to transparency and innovation in Islamic Finance.
What it does get wildly wrong is the sukuk is- suance projection for 2010-US$150 billion-but this was somewhat of a consensus projection at the time of publica- tion and can therefore be overlooked in terms of judging the DIFC’s Is- lamic finance expertise. DIFC’s most comprehensive guide to Islamic finance is, unsurpris- ingly, “Islamic Finance in or from the DIFC”. Last updated in July 2009, the publication’s aim is to assist those parties from within the GCC region and outside in learning about Islamic finance. As DIFC itself says, “The publication provides a summary of the underlying concepts in Islamic finance and examines the issues facing the Is- lamic financial services industry, both in DIFC and beyond; now and in the future”.
March 2008 June 2008
54 GlobalIslamic Finance June 2010
DIFCA, through its investment arm, DIFC Investments, issues a US$ 1.25 billion Sukuk, the largest-rated and the largest Straight Sukuk to be launched out of the region. The total value of Sukuk listed on NASDAQ Dubai topped US$ 10.43 billion as of 18 June 2007, the highest in any exchange worldwide.
DFSA signs MoU with Bank Negara Malaysia in order to facilitate Is- lamic finance transactions between DIFC and Malaysia.
H.E. Dr Omar Bin Sulaiman, Governor of DIFC, receives international recognition for “Outstanding Contribution to the Development of Is- lamic Capital Markets” at the London Sukuk Summit Awards 2008.
It is not just the DIFC’s expertise on Islamic finance that helps the industry’s cause in Dubai, but also its ambition for it. DIFC has long stressed its desire to help Islamic finance become a more regulat- ed and clarified industry. In particular the DIFC Judicial Authority, a judicial court system set up to deal with matters concerning the DIFC, is keenly interested in seeing justice is done on all matters Islamic finance. And of course there is DIFC’s own dedicated regula- tory body Dubai Financial Services Authority (DFSA), which aims to ensure nothing but beneficial regulation of Islamic finance. The fact that the DFSA’s Islamic finance regulatory framework is particularly based on that of successful Islamic finance centres such as Lon- don, means the DFSA is respected worldwide as an Islamic finance regulator.
Below is a table detailing examples of DIFC’s commitment to the promotion of Islamic finance since the Centre’s inception in 2005, courtesy of DIFC’s own information:
Impact of the Na- kheel Crisis
In this media-driven world, it is of little sur- prise that Shuaa Capital expects “News flow about the Dubai debt story, and mainly the Dubai World’s debt restructuring, [to] be the main driver for stocks throughout 2010, especially during the first half of the year. This market nervousness will of course continue to be present within Dubai’s Islamic finance market, given that an Islamic fi- nance instrument was at the centre of the Nakheel crisis. Beyond the mid- point of this year, howev- er, Shuaa Capital expects creditors’ mood to have a positive effect on the mood of other finance players. “We expect that the outcome of [debt re- structuring] negotiations will not be too hostile to creditors. On that note, and taking into account the continued economic recovery (mainly driven by Abu Dhabi’s economy) we expect the UAE mar- kets to witness another positive year”. This can
only be good news for Dubai. In the immediate aftermath of the cri- sis, analysts voiced concerns that the media’s initial sense of drama would damage the financial reputation of the UAE, thus negatively impacting upon the nation’s economy. Given the now renewed sense of anticipation in terms of UAE economic recovery, it would seem that Dubai is off the hook and can expect its own economy to be- come more healthy, in the light of this improved investor sentiment. A word of warning, however-the Shuaa Capital report was brought out before it was revealed by the International Monetary Foundation
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