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India's Financial Tech to launch new bourse in Bahrain
Source: BI-ME , Author: BI-ME staff
Posted: Thu January 22, 2009 12:00 am
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BAHRAIN. Financial Technologies will launch a new bourse in Bahrain that will provide a secondary market for Islamic bonds, a company executive said.

The new exchange, called Bahrain Financial Exchange, has been licensed by the Gulf state's central bank and plans to start operations in the first quarter of next year, Financial Technologies Director Arshad Khan told Reuters.

Unlike conventional bonds the Islamic bond market, or sukuk, lacks a strong secondary market and most buyers hold the asset to maturity.

"This will be an opportunity to establish a secondary market where the transfer of ownership can keep happening, from buyer to seller," Khan, a director for business development in the Middle East and North Africa, said in an interview late on Thursday.

"When a Sukuk comes onto the market [today], banks will try to absorb it in their own portfolio, or sell it to their customers", he said.

The exchange will provide a trading platform for both Islamic and conventional products in equities, derivatives, commodities and currencies.

A strong secondary Sukuk market could attract other important institutional investors such as pension funds to the sukuk market, Khan said.

"In so far, Sukuk has gone to big financial players or high-end individuals, it has not gone to the retail market," he said.

Sukuk volumes dropped dramatically in 2008, hit by the global liquidity crunch. Total Sukuk issuance stood at US$14.9 billion, down 56% from 2007, according to ratings agency Standard & Poors.

Khan said he still sees fundamental demand for sukuk despite the current financial crisis. He said sovereign Sukuk issuers, in particular, would be a key driver in reviving the market.

Singapore on Monday announced its first Sukuk programme with a volume of US$134 million to promote the growth of Islamic finance in the Southeast Asian city-state.

Islamic banks cater to investors who want to avoid earning or paying interest.

"There's a lot of money being aggregated or collected in Bahrain, but because local investment [opportunities] don't exist, it goes out," he said.

Bahrain has established itself as a regional banking centre on the back of Saudi oil wealth that traditionally uses Bahraini banks to invest on international markets.

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