[MANILA] The Asian Development Bank (ADB) is stepping up efforts to assist member countries to use Islamic finance in areas such as infrastructure financing, ranging from technical assistance to providing credit guarantees, an ADB official said.
The Manila-based development lender sees Islamic finance, a sector which now holds systemic importance in countries such as Pakistan and Bangladesh, as complementing its objectives to boost financial inclusion and promote financial stability.
Sharia-compliant instruments such as sukuk, or Islamic bonds, have gained prominence as funding tools for a wide range of countries over the last year, a trend which the ADB is keen to extend to several of its 67 member countries.
"Sukuk issuances by Hong Kong and the UK have allowed our member countries to look at sukuk in a very different way," said Ashraf Mohammed, Assistant General Counsel and Practice Leader of Islamic Finance at the ADB.
ADB had considered making an issuance of its own, but the focus is now on supporting member states' use of sukuk for their public debt financing, mirroring a move by the G20 which placed sukuk in its annual agenda last month. "ADB is currently providing technical assistance to a number of member countries in this area (sukuk for debt financing) and we could see developments in the next few months." ADB is also preparing a US$2 million technical assistance (TA) programme to help five central and west Asian countries to develop their regulatory framework and strengthen their ability to deal with Islamic finance supervision.
The programme is exclusively focused on Islamic finance and could be approved in September, Mr Mohammed said. "The TA will also address financial literacy, specifically Islamic finance literacy. There is a focus on legal aspects and regulations, but we also have to look at consumer awareness." AAA-rated ADB is also considering partial guarantees to boost the credit rating of sukuk from sovereign issuers, which would help ensure better pricing, he added.
Such guarantees are gaining traction in Islamic finance, with recent deals from Britain's export credit agency and Export Development Canada.