Standard Chartered Plc will arrange two benchmark-sized Islamic bonds by June and is eyeing Africa for expansion, the bank's Islamic operations chief said on April 19. Standard Chartered Islamic operations head Afaq Khan also told Reuters the firm would launch options contracts that comply with Islamic law by June.
"We will be arranging two sukuk issues in the Middle East in the second quarter...They will be benchmark size," Khan told Reuters in an interview, referring to Islamic bonds, or sukuk. He declined to give further details.
Benchmark size generally means $500 million or more.
Sukuk are typically backed by physical assets that pay a dividend or rent to bondholders rather than interest. Islamic law, or sharia, bans charging interest and investing in certain businesses, such as those trading in alcohol, pork and gambling. Standard Chartered has Islamic operations, recently branded "Saadiq", in the Gulf, Pakistan, Malaysia and Indonesia, and has been studying plans to use its experience to offer Islamic services in Africa.
"The next step would be Africa. We are studying it. We have a big operation in Nigeria, it's a market we understand," Khan said, adding no timeline had been set.
The majority of Africa's Muslims are in the north, west and east of the continent. The estimated combined population of predominantly Muslim Egypt, Algeria, Morocco and Tunisia alone is 157.7 million people, according to the CIA World Factbook.
Standard Chartered will soon offer sharia-compliant options contracts, a hedging instrument that could be of great interest to Islamic banks, Khan said. "It's a very significant development in Islamic banking, and will allow Islamic banks to reduce the risk to their balance sheet," he said.
Many Islamic banks are relatively small, and so cannot take on the long-term risk involved in financing the Middle East's mushrooming infrastructure projects, or provide long-term fixed rate mortgages without hedging products, analysts say.
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