A Dow Jones report published last week quoted Standard & Poor’s Financial Services as theorizing that the $700 billion global Islamic finance industry would “weather the financial crisis” and moreover would resume its growth on the support of “high demand for Shariah-compliant products, which are considered less risky than conventional debt.” While the global issuance of sukuk fell 35% to $5.3 billion in Q2 compared with last year, a 164% surge in volume in this year’s second quarter compared to the first signaled renewed and robust interest, according to analysts. In fact, Standard Chartered Bank’s CEO of Islamic banking predicts a primary market of “close to $10 billion” by year’s end. The biggest sukuk issuers YTD have been Malaysia and Indonesia, followed by Bahrain and Saudi Arabia, the largest Middle East economy.

Facilitating sukuk’s global growth will be certain legal changes (i.e., tax system overhauls) currently under advisement in countries such as France, Hong Kong, Kenya and Nigeria to assist the introduction of Islamic financial products, which includes not only sukuk but also Murabaha (cost-plus-financing), which is used primarily in commodity finance. According to French authorities, such “tax neutrality” laws will put Islamic products on equal footing with similar, more conventional products, and thus promote equitable tax treatment while boosting their commercial viability.

For example, under new law, a financier’s taxable profit from the deferment of payment granted to the purchaser under Murabaha would be spread evenly throughout the period during which payment is deferred. And in the case where said financier does not reside in France, but his customer is a French national, the profit in question would be exempt from the French withholding tax. And K.C. Chan, secretary for financial services and the Treasury, Hong Kong government, noted earlier this year that changes would be made such that Islamic-derived profits would be made exempt. Hitherto, Hong Kong didn’t impose tax on interest payments, but taxed profits earned, putting Islamic bonds at a disadvantage. Chan added that Hong Kong sees itself as a “gateway for Islamic finance to opportunities in mainland China and other countries in the region including Taiwan, Korea, Vietnam, Laos and Kampuchea.”