The Islamic Debt Market for Sukuk Securities

The Islamic Debt Market for Sukuk Securities

The Theory and Practice of Profit Sharing Investment

Foundations of Islamic Finance series

Edited by Mohamed Ariff, Munawar Iqbal and Shamsher Mohamad

The relatively new sukuk (or Islamic debt securities) markets have grown to more than US $800 billion over the past decade, and continue to grow at a rate of around 20-30 per cent per year. Arguably the first of its kind, this path-breaking book provides a highly unique reference tool relating to key issues surrounding sukuk markets, which are found in 12 major financial centres, including Kuala Lumpur, London and Zurich.

Chapter 7: Regulation and Supervision of Sukuk Industry in Bahrain

Sat Paul Parashar

Subjects: economics and finance, financial economics and regulation, islamic economics and finance, money and banking


Sat Paul Parashar 7.1 INTRODUCTION This chapter provides an overview of the regulatory and supervisory environment as in the Kingdom of Bahrain in 2010 for the regulation and supervision of the sukuk industry. The most distinguishing characteristic of the regulation and supervision in Bahrain is that, except for additional requirements of shari’ah compliance, the regulation and supervision is the same as is applicable to conventional finance institutions, and on a par with international standards for debt securities. The financial services industry tends to be regulated all over the world. The reason for this is not hard to find. The financial sector serves as the most potent engine of economic and social development by letting the financial institutions undertake a money-multiplier function, transforming short-dated savings into long-term investments for economic activities that take a long time to create productive capacity for a given economy. It thus serves to transform maturities of short-term savings into long-term maturities of investments. The financial sector is permitted the highest leverage compared to any other industry. It may have a deposit to equity ratio of 20:1, meaning 5 per cent equity with 95 per cent total assets. Its total assets to equity ratio may be 15:1, meaning that the money multiplier is 6.67 times. Under Basel-II, the risk-weighted assets may be 12.5 times that of risk-capital: the minimum 8 per cent risk-capital requirement of Tier-1 equity and Tier-2 non-equity translates into 12.5 times risk-weighted assets to risk-capital, although under Basel III this will shrink...

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