Member-driven growth and innovation are crucial to any nascent industry, especially those seeking to stir up broader sectors.

Michael Grifferty

Michael Grifferty leads GBSA, the industry association representing the Arabian Gulf fixed income market. GBSA is composed of leading banks, law firms, issuers, ratings agencies, and service providers. Previously, Grifferty was an advisor for the US Treasury on sovereign debt and bond markets, advising countries across Europe, Middle East, and Africa.

What trends do you see in your membership base?
The core of our membership is composed of banks and investment banks active in the regional bond and sukuk market. They are the most significant contributors, and the number of them working with us continues to grow. The region is developing strong local players, such as First Abu Dhabi Bank, which has become a regional champion. We see similar banks in Bahrain and Kuwait that now lead transactions, adding value and thus competing with the global banks. A large portion of our work deals with regulatory matters. We have excellent relations with the regulators across different countries and with the relevant authorities and decision-makers. Legal firms are useful participants in our advocacy; they interact independently as well as through us, as we are a neutral forum.

What is your overview of the current regulatory framework concerning sukuks?
In the past few years, we have worked closely with the Emirates Securities and Commodities Authority (ESCA) on fundamental bond and sukuk regulations dealing with matters such as speeding up issuance processes, acquiring approvals, and managing different kinds of disclosure. Now, there are more nuanced regulations, and governments are becoming active participants. This leads to different regulatory questions on how to organize the market for government securities and relating that market to the capital market regulator, which deals primarily with equities and corporate sukuk. Furthermore, the role of Dubai's central bank needs to be defined in this relationship as it has a stake in the success of this market, as does the fiscal authority as an issuer. The diversity of the investors is still slightly lacking. There has been some forward motion, though not nearly enough diversification or development of the investor base. This space has to be filled so that the capital market reaches its potential.

Which areas currently exhibit the most potential for the sukuk market?
In more cases, the international use of sukuk was a one- or two-time occurrence, for example in Hong Kong, Luxembourg, and South Africa. These are all positive issuances, though they are mostly about establishing credentials. It is a powerful incentive to do the first sukuk. Indonesia is an interesting market that is developing locally as well as issuing sukuk internationally in large volumes. The issuances of sukuk in 2018 were strong. Health and education are growing sectors. In November 2018, we saw the first-ever sukuk by NMC Health. This is how regulation can help drive the sector in indirect ways, as health insurance was previously not required in UAE. The other story coming up is local currency. One reason for our existence is to promote local currency bond and sukuk markets. The UAE has not yet had local currency government issuance, though we could potentially see the federal government issuing securities. That would be supported by market infrastructure, which is being established with the central bank. This would help the latter improve its own monetary policy instruments. If the government issued medium- and longer-term securities, then the central bank could issue short-term securities.

Can you tell us about the development of green sukuks and how they are affecting the industry?
Indonesia had a green sukuk, and there have been issuances from Morocco as well. We have been talking about them for a long time. Green bonds, such as those issued by NBAD, was a great first step along the way to a green sukuk. The green bond market has grown grown explosively in recent years, offering a great opportunity for green sukuk. The green investor base is much bigger than the Islamic investor one. If one has a product that is green and sukuk, then it can truly grow the sukuk market, as well as do something consistent with its values. We look forward to further environment, social, and governance (ESG) investing. As a local organization, we want to promote the integration of ESG factors into investing. We are working with the UN principles for responsible investment (UNPRI) on raising awareness among regional investors. Our members are driving this, as they have the required expertise.