Investing in energy diversification in ASEAN and reconstruction in the GCC requires market infrastructure that can deliver trusted capital, noted Mariam Khan an Economist at OMFIF in an OMFIF commentary.
According to Khan, innovations in digital finance can provide a mechanism to meet this need when paired with traditional capital market instruments such as sukuk.
"Already tested by the private sector, tokenised sukuk can offer a potential means for countries to mobilise capital for reconstruction and recovery, while simultaneously fostering deeper, more resilient local capital markets over the longer term," she noted in the commentary.
Khan suggested that with maturity, tokenisation can enhance the sukuk market." "Tokenisation is often used to fractionalise larger instruments, lowering the minimum denomination and thus enabling broader access. There is also a community, though fairly small at present, that may be inclined to buy securities available on a Blockchain but not through traditional markets," she said.
Her longterm vision is that smart contracts can automate the lifecycle processes of the instruments, making them cheaper and easier to issue. Tokenised sukuk designed to be interoperable with existing markets might well end up enhancing liquidity, while a post-trade settlement system could be more efficient than traditional systems.
Khan's predictions are influenced by how sukuk are now an investment-grade asset class in their own right, with a wide international investor base, particularly in GCC and ASEAN economies.
"In times of geopolitical stress, sukuk markets have remained resilient," she pointed out.
But regulation and standardisation will be challenges, Khan added. "Financial architecture matters as much as the instrument and the investor," she said.