Sovereign Islamic bond issued in HK generates wide response

"I hope that the sukuk issuance will catalyze the further growth of the market in Hong Kong by encouraging more issuers and investors to participate in our market," said John Tsang Chun-wah, financial secretary of Hong Kong.

The investor demand for sukuk is a testimony to investor confidence in the city's credit strengths and robust economic fundamentals, to participate in the Islamic financing field.

KFH Research said Hong Kong can be an ideal candidate to become a major Islamic finance hub, with its high liquidity, free economy, strong presence of foreign banks and simple tax system, coupled with its existing cooperation agreements with other centers of Islamic banking like Dubai and Malaysia.

"Islamic finance needs to be identified as a financial system with features which are not unique to Muslims only but beneficial to all people as an ethical banking system," said Jamaladeen Faleel, assistant professor in the College of Business at Jeddah-based Effat University in Saudi Arabia.

In June last year, Hong Kong's first Islamic investment fund was launched, operated by Malaysia-based RHB Asset Management. The fund was launched after an Islamic finance conference organized jointly by the HKMA and Bank Negara Malaysia, the country's central bank.

Malayan Banking Berhad (Maybank) and Hong Kong-based Bosera International have joined hands to market an Islamic fund in the Chinese mainland. The fund will be launched in the first quarter of 2015.

Bosera International, a wholly owned subsidiary of Shenzhen-based Bosera Asset Management, one of the country's largest asset managers, will promote the fund to retail clients, including an estimated 23 million Muslims in the Ningxia Hui autonomous region.

At present, the supply of Islamic financial products and services to the mainland is mostly in the form of capital market instruments traded through the Hong Kong financial market.

However, the China Banking Regulatory Commission is considering the creation of an Islamic banking framework and the first Islamic bank in the Chinese mainland. Meanwhile, Bank Muamalat Malaysia has already teamed up with China's Bank of Shizuishan to establish its first Islamic bank in Ningxia.

Until a few years ago, there was little Islamic finance activity in China. However, analysts are of the view that China's focus on building good trade relationships with Gulf nations is improving the prospects for Islamic finance.