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In the five key sectors of Islamic finance (Islamic banks, Sukuk, Takaful, fund management and Sharia-compliant corporate sectors), Saudi Arabia was historically known only for leading in countries where there was dual Islamic and conventional financing.
However, Al-Natoor said, this is now changing.
The Kingdom has started to lead the Sukuk market: “The Kingdom has previously made the largest Sukuk offering internationally; we expect this trend to continue.”
Saudi Arabia is also chasing the top spot in the fund management sector, where, along with Malaysia, it has the majority of fund managers dedicated to Islamic finance.
On Sukuk, fund management, Takaful and the wider Islamic financial world, Al-Natoor said that “one finds that Saudi Arabia is leading.”
One development that has contributed to Saudi Arabia’s prominence in Islamic finance is the ending of the gap between the GCC and Qatar.
The normalization of ties between the GCC bloc and Qatar, Al-Natoor explained, not only increased investor confidence in the region and removed a political risk, but also provided a material boost to the Sukuk market.
“With the end of the gap between the GCC and Qatar, we expect Qatar’s sovereign entities to slowly return to the larger Sukuk market,” Al-Natoor said.
He said the relatively shallow investor pool for Sukuks, compared to traditional bonds, means that, for Qatari entities, the importance of accessing the Saudi and Emirates markets is even more significant.
In addition to the favorable political conditions that have cemented the Saudi leadership in Islamic finance, its expertise in green and sustainable finance will also be critical in the future.
Saudi Arabia, Al-Natoor said, issued its first green Sukuk last year when Saudi Electric Company issued more than $ 1.3 billion in Shariah-compliant bonds to aid in the company’s green transition.
This pattern of markets shifting toward green Sukuk, Al-Natoor said, is one he expects to continue.
“What we saw in 2020 is a trend that we hope will continue: Issuers come with Sukuk and prioritize sustainability.”
Green financing, whether conventional or Islamic, is still in an early stage of adoption globally, Al-Natoor explained, but green Sukuks represent a smart way for issuers to attract more investors.
“As issuers are trying to broaden their investment bases, we’ve seen the combination of green and Islamic come to the fore. Whether in Saudi Arabia, the United Arab Emirates or in multilateral organizations such as the Islamic Development Bank, we expect this trend to continue. “
Fitch Ratings launched its Sukuk Global Outlook Dashboard earlier this month. Their report warned that some Sukuk issuers in the Middle East had affected their credit ratings due to the economic conditions of the pandemic and falling oil prices.
The report said: “In 2021, we expect the global supply of sukuk to accelerate as issuers look to roll over maturing debt, fund large budget needs, and as GCC investment constraints ease following normalization of relations. between Qatar and its neighbors. “
