KUALA LUMPUR, Aug 27 -- The issuance of Islamic bonds, commonly known as  Sukuk, is set to rise six per cent to around US$130 billion (US$1=RM4.20)  this year.

It would be a fourth consecutive annual increase amid increased activities in Saudi Arabia and Malaysia, Moody's Investors Service said in a report.

"Increased activity in Saudi Arabia and Malaysia helped drive strong issuance of US$87 billion in the first six months and this reduced funding needs," Vice President -Senior Credit Officer at Moody's,  Nitish Bhojnagarwala said.

 "We, therefore, expect second-half volumes to moderate to around US$43 billion, though Malaysia and the Gulf Cooperation Council (GCC) countries, particularly Saudi Arabia, will continue issuing regularly,” he said in a statement here, today.

Governments across the core Islamic finance markets, namely, Malaysia, Indonesia and GCC countries continue to adjust their funding mix, supporting long-term growth in sukuk volumes.

The change reflects these countries' cultural affinity with Islamic finance, and their governments' desire to promote Shariah-compliant banking. Rising demand for sukuk from domestic Islamic banks and central bank issuance in the core Islamic finance markets was also supportive.

Nitish said new entrants and green sukuk could also stimulate issuance.

Hence, Moody's expects some African sovereigns to enter the market, and Egypt set up a Shariah supervisory committee in April to oversee sukuk issuance.

While the green sukuk market is in its infancy, issuance is likely to accelerate as efforts to combat climate change gain traction, building on initial green sukuk transactions in Malaysia and Indonesia.

-- BERNAMA