Nasdaq Dubai needs to attract retail investors to invest in sukuk (Islamic bonds), says Hamed Ali, CEO of the stock exchange.
Talking to MEED, he says there is an opportunity at the exchange for issuers to list dual-tranche sukuk, with one tranche in lower denominations that could attract retail investors and one with larger denominations for institutional investors.
Retail investors are individual investors that sell and buy securities on their own account rather than for a company.
It is a growing sector, says Ali. [There is a] need to focus on introducing sharia-compliant products to cater to new investor segments such as retail. We need to think of ways of opening up the sukuk market for retail investors.
Dubai is positioning itself as a hub for Islamic finance and Ali wants Nasdaq Dubai to become the leading venue for sukuk listings both regionally and internationally.
A total of $22.2bn-worth of sukuk are currently listed in Dubai, with $17.5bn of those listed on Nasdaq Dubai. Dubai is the third-largest venue globally for sukuk listings.
The exchange has already listed almost a third more sukuk this year to date, compared with the total volume in 2013, with $8.2bn listed so far in 2014 and $6.1bn listed in 2013.
Ali is optimistic about the continued growth of sukuk for the second half of 2014. The year is by no means over. Globally, there is big demand for sukuk and we think issuance will continue to grow both in value, territories and jurisdictions, he says.
Nasdaq Dubai is aiming to attract more issuers from outside the UAE. Saudi firm Dar al-Arkan Real Estate Company listed three sukuk totalling AED4.2bn ($1.2bn) from its Islamic bond programme on the exchange at the end of May.
Dar al-Arkan is the second non-UAE company to list Islamic bonds on the exchange, following the example of fellow Saudi institution Islamic Development Bank, which listed its sukuk in February and March this year.
Ali is also overseeing the broadening of the capabilities of the exchange.
A pilot fixed-income trading platform for bonds and sukuk has been launched, offering investors an alternative to traditional over-the-counter (OTC) trading.
The product launch comes ahead of an expected crackdown on OTC transactions by regulators in the coming years.
The pilot scheme is up and running with nine members connected. But we are taking gradual steps. Over time, we will see the importance and how key the fixed income trading platform will become, especially if regulators globally move to limit OTC transactions due to the risks associated with such transactions, says Ali.
Nasdaq Dubai has also developed other Islamic finance-related products, having launched a new platform for the trading of murabaha or asset-backed types of sharia-compliant securities.
The platform was launched in April in conjunction with Emirates Islamic Bank and offers Islamic lenders a means of managing their short-term funding through murabaha. Such structures involve one financial institution acquiring goods and another bank buying it at an agreed increased price.
The scheme offers clients of the banks in the retail and corporate sector an alternative way to obtain sharia-compliant financing from lenders in a way that reduces price risk associated with other funding products. Banks are able to provide funding through the buying and selling of asset-backed certificates.
Emirates Islamic Bank concluded more than AED2bn-worth of transactions during the pilot stage of the project. Sharjah Islamic Bank joined the platform in May and Ali confirms that the exchange is in talks with other lenders keen to join the scheme.
The platform could rival the London Metal Exchange (LME), which many Islamic banks previously turned to as a market by using commodities traded on the exchange as the assets supporting their transactions.
The challenge banks had with the commodity structure is that in certain cases, certain sharia boards were not comfortable that the commodity structure was entirely sharia-compliant. The second issue was the time zone. The time difference with London allows us in Dubai to be more accessible and closer to the banks, says Ali.
Currently, the majority of the transactions processed so far on the Nasdaq Dubai platform are backed by real estate assets rather than commodities.