Jordan plans debut Sukuk

LONDON, Apr 06, 2009 (Arab News - McClatchy-Tribune Information Services via COMTEX) -- JDJIF | Quote | Chart | News | PowerRating -- Jordan has been a pioneer and one of the earliest supporters of the development of the contemporary Islamic finance movement. The Central Bank of Jordan licensed Jordan Islamic Bank (JIB), now a member of the AlBaraka Banking Group, as early as 1978 just a couple of years after the establishment of the Islamic Development Bank and Dubai Islamic Bank in 1975. Since then Arab International Islamic Bank, which is a subsidiary of Arab Bank, one of the largest banking groups in the Middle East, has also been licensed. But the Jordanian market has been very insular. Umayya Toukan, governor of the Central Bank of Jordan, discusses the prospects for Islamic banking, both in Jordan and in general and the possibility of Jordan issuing a sovereign Sukuk. Has the credit crunch and the global financial crisis given the Islamic finance sector the opportunity that it should innovate and show the world that it has a better alternative system of financial management to offer?

The Islamic finance system has proven to be much more reliable. It is growing annually at 10-15 percent. By definition, it is a better system as far as risk management is concerned. I believe Islamic banking will become more and more popular after this global crisis.

Do you have plans to liberalize the Jordanian financial market and give licenses to more local and international Islamic banks? In the past you have even refused to give local banks permission to set up Islamic windows.

At the moment we have two Islamic banks operating in Jordan -- The Jordan Islamic Bank and the Arab International Islamic Bank, which is a subsidiary of Arab Bank, one of the largest banking groups in the Middle East. We have just licensed Al-Rajhi Bank of Saudi Arabia to operate in Jordan. Dubai Islamic Bank has also bought the Industrial Development Bank of Jordan and both are in the process of converting it into an Islamic bank. So really now we have four Islamic banks operating in Jordan.

Is this a conscious aggressive policy now to open up the market or a cautious one to allow the step-by-step development of the Islamic finance market?

It is very much the latter. Banks are not like real economy businesses such as a steel factory. They take deposits and we as regulators have to be extremely careful about this. And you have seen what has happened in the banking sector (especially in the US, UK and Europe).

Does Jordan have ambitions of playing the role of gateway to the Mashreq countries such as Iraq, Syria, Palestine in Islamic finance and investment, just as Malaysia is also seen as a gateway to South and East Asia in this respect?

Yes, we hope so. We are trying to build a very healthy banking system in line with international banking standards as far as risk management, governance and compliance are concerned. We cannot afford to have banking problems and failures in our jurisdiction. Besides, we now have a total of 25 banks operating in Jordan, including the four Islamic banks. There are indicators whether you are overbanked or under-banked. Jordan according to these criteria has about the right number of banks. Our policy at the central bank is to consolidate the system. This means larger banking institutions with more capital adequacy and more resources to invest in the new financial architecture world. This means you have to have the new anti-money laundering laws and other compliance regulations; risk management and stress testing measures -- so many new requirements. To implement all these new measures you have to have the investment sources to do so, and only the larger banks can do this.

One of the impacts of the credit crunch has been a drying up of the global Sukuk market. We are seeing green shoots of revival in recent weeks with Indonesia and Singapore issuing sovereign Sukuk facilities. Turkey is also set to follow suit. Is Jordan planning to issue a debut sovereign Sukuk?

Yes, we are considering issuing a Sukuk. But as you know it would be the Ministry of Finance that would be the issuer, and the central bank would be the financial adviser and manager to the issuance.

Has the central bank done any study of a potential Sukuk issuance in the wholesale Jordanian or international market and have you concluded a consultation on this in Jordan?

Yes, we have but other events unfortunately have interrupted this process. In my personal opinion Jordan should have already issued a debut sovereign Sukuk. I believe we will issue a sovereign Sukuk.

Is this a possibility during 2009?

Yes, definitely. But, it is not the best time currently to issue bonds or Sukuk because of market conditions.

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