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Green Sukuk

Published: 06/03/2012 05:19:43 PM GMT
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CAIRO - Expanding Shari`ah-compliant investments into climate adaption projects, a working group has been established to channel Islamic bonds (sukuk) into green energy projects in the Middle East and North Africa. "There are a significant and growing number of projects, for example in renewable energy in the Middle East, that are ideally suited to sukuk investors,” Aaron Bielenberg of the Clean Energy Business Council (CEBC) said, the PV Magazine reported on Tuesday, March 6.

"This group will help investors more easily identify Shari`ah-compliant, clean energy investment opportunities."

The new group was formed by Climate Bonds Initiative, the Clean Energy Business Council (CEBC) of the Middle East and North Africa, and the Gulf Bond and Sukuk Association.

The group aims to stem up new ideas about green energy projects that are complaint with Islamic principles.Introducing those opportunities to potential investors, the projects would include climate change investments and photovoltaic projects.

Working with the CEBC, which represents the private sector involved in the clean energy industry across the Middle East, the initiative aims to channel its market expertise to develop best practices and promote the issuance of sukuk.

"We're looking closely at a couple of prospective bond issuances," says initiative chairman and co-founder Sean Kidney.

Sukuk, which conforms to Islam's prohibition of usury, typically work as profit-sharing vehicles.

Firms that issue sukuk make payments to investors using profits from the underlying business, instead of paying interest.

The money, however, can't be invested in alcohol, gambling, tobacco, weapons or pork.

Promising Market

Coping with an urgent need to finance renewable energy and climate adaption projects in the region, green sukuk were expected to attract major funds.

"Green sukuk is ideally suited for the financing of many of these investments," Nick Silver of the Climate Bonds Initiative said.

Nasser Saidi, CEBC chairman, agrees.

"If you look at current projects across the region, and if a fraction of those were to be financed with green sukuks, then you're talking about $10 to $15 billion," he said.

"The time is right for a green sukuk."

Sukuk have often proved to be more stable than conventional bonds during the global financial crisis.

The sukuk market has reached $111.9 billion in the eight years to 2008, according to the International Islamic Financial Market.

Global sales of sukuk have reached $6.6bn in 2012, from $2bn a year earlier, according to data compiled by Bloomberg.

Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.

A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.

Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.

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