Economy, Business And Markets

Islamic Financial Instruments Gaining in Popularity

Analyst at Securities & Exchange Organization
Islamic Financial Instruments Gaining in Popularity
Islamic Financial Instruments Gaining in Popularity

The Eighth International Course on Islamic Capital Market opened in Tehran's Azadi Hotel on Tuesday with a keynote speech delivered by Iran's Minister of Economic Affairs and Finance Ali Tayyebnia.

Participants from 18 countries, including Germany, England, Pakistan, Malaysia, Greece, China, South Korea and Russia, attended the course to exchange ideas and discuss the latest developments in Islamic finance.

In his speech, Tayyebnia noted that with the removal of western sanctions against Iran over its nuclear program, the country is witnessing the Islamic financial instruments playing a more instrumental role in attracting foreign investors.

“The 2008 global crisis demonstrated the resilience of Islamic markets and that’s why Germany, England and the US are attaching great importance to issuance of Islamic securities,” he said.

“The total outstanding sukuk volume across different markets was recorded at $300 billion by the end of 2014 and the biggest issuers were the non-Muslim countries.”

He also referred to Iran's sixth five-year development plan and the role of the capital market in realizing the 8% economic growth projected for 2020.

“Previously banks were the major source of financing in Iran. However, the capital market has competently and steadily earned its position in providing funds for various businesses”, he said.

The minister noted that the government has opted to settle its debts by issuing Islamic instruments through the capital market to avoid increasing liquidity by making the central bank print new money and inject it into the limping economy–much to its detriment.

This policy, according to Tayyebnia, has been the backbone of the goal to reach a single-digit inflation of around 8% in the near future.

The first batch of governmental treasury sukuk matured and was successfully redeemed in late February to give reassurances to investors. After gaining the public trust, the government is planning to employ other forms of sukuk like Ijarah and Musharakah.

The government plans to issue 670 trillion rial ($19.3 billion at market exchange rate) worth of sukuk this year (started March 20, 2016), to repay its overdue debt to state contractors and banks estimated at 3.8 quadrillion rials ($109.7 billion), according to Deputy Economy Minister Mehdi Banani.

Last year, the administration sold 50 trillion rials ($1.4 billion) of sukuk to investors and used the proceeds to repay debt owed by the Energy Ministry and the Roads and Urban Development Ministry.

Tayyebnia referred to Islamic Treasury Bills as the most favored form of investment for foreigners as these are literally risk-free.

Following a welcome note by Mohamad Fetanat, the chairman of Securities and Exchange Organization of Iran, Gholamreza Mesbahi-Moqaddam, the head of Capital Market Sharia Board and a member of parliament, presented a short review of the latest resolutions of the Sharia board.

At the end, a memorandum of understanding was signed between Securities and Exchange Organization of Iran and Hellenic Capital Market Commission, while the Greek counterpart followed it up with several presentations about the overall structure of Iran's capital market.

The MoU is mainly focused on information and expertise exchange between Tehran and Athens.

The course will run until Wednesday.