The value of the sukuk market has tripled since last summer, reaching 215 trillion rials ($6.95 billion), though the sum appears tiny when compared to the $250 billion in investment the Iranian government needs to implement its projects to boost the economy. Indeed, the sukuk industry may need more standardization; if not, it will remain relatively small. Yet, SEO chief Mohammad Fetanat told Al-Monitor he is confident that the market will boom in a few years.
Tehran-based foreign companies have already invested as much as $1 billion in the Iranian capital market, Fetanat said on the sidelines of the exhibition. But he did not specify how much market share the Islamic bonds — Murabaha, Musharakah and Ijarah — have grabbed. Rather, he noted that the supply side in the sukuk market has remained weak, pointing out that the market could otherwise rapidly grow.
“We have planned to diversify our financial instruments and expand the market to respond to the rising demand within the country,” Fetanat said, noting that low and negative bond yields in developed markets coupled with a relatively fixed currency rate in Iran have added to the Iranian bond market’s attractiveness. But domestic demand for sukuk is too little to help the government raise enough capital for the implementation of its numerous development projects.
Thus, the SEO has prepared to also reach out on global markets and attract new investors, Fetanat added. The problem is that Iranian financial law does not allow sukuk to be traded in foreign currencies — a major obstacle in the way of the industry’s development and a barrier that will be difficult to overcome in a matter of months.