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UAE Country report: Dubai Continues Its Ambitious Growth Path

The first two months of 2014 witnessed a number of announcements relating to the Islamic finance economy which further reflected the commitment of the government of Dubai to follow the path it has set to establish Dubai as a hub for Islamic finance.

Among the major news issued earlier this week, the Dubai Multi Commodities Center Authority (DMCC) announced a partnership with an international brokerage firm to promote a Shariah compliant commodity Murabahah mechanism.

DMCC is one of the largest and fastest growing free zones in Dubai. DMCC was established in 2002 as a commodity free zone tailored to provide a regulated trade environment for foreign enterprises and investors.

Under the new structure, DMCC will offer an efficient method of trading Murabahah products that are structured in a similar format to conventional structures where a fi nancial institution acquires an asset and resells it to the buyer at an agreed price. The agreed price includes the original price paid in addition to a mark-up or profit for the seller.

DMCC’s name in promoting Murabahah products will open a new market for this type of product and will support its growth and distribution among the commodities trading community.

On another note, the Sukuk market in the UAE is receiving a lot of interest. Dubai Investment Park (a subsidiary of Dubai Investments, a public joint stock company in Dubai) issued in February US$300 million-worth of Islamic bonds which were more than 12 times oversubscribed. This proved the seriousness and commitment of Sukuk investor demand in Dubai.

We are yet to see more innovative and sophisticated products being promoted or traded through Shariah compliant structures, however this will need more time. The UAE Islamic finance market is still developing. In addition to banking, Takaful will also play a major part in promoting this sector. The financial performance of Takaful operators is expected to improve this year and a number of Takaful operators are deliberating on the possibility of introducing new competitive Takaful products to the market.

In a recent trip to Dubai, the Lord Mayor of London focused on the growing importance of Islamic financial services in the UK and the Arabian Gulf and the prospective use of Islamic financial as a way to finance upcoming infrastructure projects.

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Published: March 2014
Publication: Islamic Finance News
Title: Country report - UAE: Dubai continues its ambitious growth path
Practice: Corporate and M&A,Banking & Finance
Authors: Rima Mrad
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