Gulf sukuk growth needs stronger capital markets

Yavar Moini, senior advisor at Morgan Stanley, speaks during the Reuters Islamic Banking Summit in a Reuters office in Dubai, February 17, 2010.

DUBAI (Reuters) - The Gulf Arab region needs stronger capital markets in order for the sukuk bond industry to make progress, and current demand comes mainly from Southeast Asia, said Yavar Moini, senior advisor at Morgan Stanley.

"You desperately need domestic capital market development, if you look at the strength of the Islamic finance industry, it has really been driven by grassroots demand," said Yavar Moini at the Reuters Islamic Banking and Finance Summit.

"Given that the UAE and Dubai have had credit-related issues, Malaysia has become the driver for this industry, it is the frontrunner," said Moini, adding that Indonesia and Thailand are increasingly looking at sovereign issues.

For the Gulf markets, Moini expects it could take up to five years for a significant capital market to take root.

"You need strong domestic markets for support, I don't expect that that to happen over the next three years, maybe a maximum of five years," he said.

The sukuk industry in 2009 reached $25 billion and that level is to remain flat in 2010, Moini said.

(Reporting by Nicolas Parasie; Editing by Hans Peters)