IslamicFinance.de

The local Malayesean small and medium enterprises (SMEs) are not fully utilising various solutions provided by Islamic banks despite credit availability. The Association of Islamic Banking and Financial Institutions Malaysia (AIBIM) took a survey in Kuala Lumpur and Selangor and about 10,000 SMEs received RM10 billion in funding.

Prime Minister Dr Mahathir Mohamad brought an idea of a gold dinar as an international reserve currency for Muslim countries in preference to the US dollar as the dollar was sometimes unstable. Nazari Ismail, a professor of economics at Universiti Malaya thinks, that the idea is not reliable, as countries as Saudi Arabia, Qatar, Pakistan and Indonesia would be not interested in the prime ministers proposal.

The International Islamic Liquidity Management Corporation (IILM) has announced on monday that Dr. Umar Aimhanosi Oseni is their new CEO. (IILM) is an international consortium that issues short-term Shariah-compliant financial instruments to facilitate cross-border liquidity management for institutions that offer Islamic financial services.

The BIMB Holdings Bhd group is set to finally unfold. BIMB announced a series of proposals that will ultimately see it transfer its listing status to its wholly-owned subsidiary Bank Islam Malaysia Bhd. In the first step, BIMB will undertake a private placement of new shares to raise RM800 million to fully settle outstanding sukuk held by Lembaga Tabung Haji (TH). BIMB had, December 2018, done an early partial redemption of RM609.9 million, helping reduce the outstanding amount.

At the ongoing Kuala Lumpur Summit 2019, leaders of the Muslim world have pressed for alternative currency for use in trade and seek independence from US Dollar. Turkish President Recep Tayyip Erdogan said Muslim countries should try to create new transaction systems. He added that Islamic finance needs to be part of the agenda just like in Malaysia. Meanwhile, Iran's President Hassan Rouhani was of the view that Muslim nations should come up with a new own cryptocurrency. Malaysia's Prime Minister Tun Dr Mahathir Mohamad also believes that a united cryptocurrency is needed for Muslim states, as a cryptocurrency can cut through bureaucratic and market fluctuations. He added that utilising cryptocurrency or national currency would help attain independence from over-reliance on the US dollar.

Qatar has taken the lead in reaching out to Malaysia and Turkey through which the country aims to be the dominant player in the global Shariah financial landscape. Under the proposed plan, Turkey would cover Islamic finance needs in Europe, Qatar would serve the greater Middle East and North Africa and Malaysia will continue to serve the Asian markets. The London Stock Exchange is currently a global venue for the issuance of sukuk, while Hong Kong and Luxembourg have also made inroads but Qatar believes the market should be led by Muslim countries. Qatar Financial Center (QFC) Authority CEO Yousuf Mohamed al-Jaida has a vision to cover the entire globe’s Islamic financial transactions between three financial centres, Doha, Istanbul and Malaysia, therefore he sees a need to share platforms and technology.

According to Malaysian Reinsurance CEO Zainudin Ishak, the Islamic finance industry as a whole is poised to benefit from the rapid growth of family takaful into a dominant position. The company aims to attain a sustainable long-term growth through the capability to write both family and general retakaful businesses. Malaysian Re has just signed a memorandum of understanding (MoU) with Pacific Life Re in Kuala Lumpur. The collaboration is expected to expand Malaysian Re’s access to international research and data through the usage of the underwriting technology powered by Pacific Life Re’s fully owned subsidiary, UnderwriteMe. Meanwhile, Pacific Life Re will provide support for MRRD’s family takaful business through its technical pricing, underwriting, product development, experienced analysis and global insights.

Ready to be taken to the next level, the burgeoning sector of Islamic finance is ready to take root in new regions through Turkey, Malaysia and Qatar. According to Yousuf Al-Jaida, CEO of the Qatar Financial Centre, Malaysia could act as a gateway for Islamic finance into Asia, with Turkey into Europe and Qatar the Middle East and Africa. He stressed that Malaysia was ready with its legal framework to facilitate the sector, while Qatar and Turkey need to step up and do more for the sector. Al-Jaida said these three countries could form a large platform to share experience, technology and knowledge. He is optimistic and sees a bright future, as Islamic finance is now growing at an even quicker pace than conventional finance.

The domestic capital market is expected to play a critical role in helping Malaysia meet the estimated RM45 billion required to finance its long-term sustainable development goals. Securities Commission Malaysia (SC) chairman Datuk Syed Zaid Syed Jaffar Albar said climate change poses physical and financial risks to companies. The change to more sustainable practices requires investments in new technologies and funding which carries risks with indeterminate outcomes. Malaysia alone is projected to require RM45 billion in the next five years. Therefore, the SC released the sustainable and responsible investment (SRI) roadmap to establish the country as a regional SRI centre. The roadmap identified 20 strategic recommendations based on the SC’s five i-Strategy: the widening of the range of SRI instruments, increasing the SRI investor base, building a strong SRI issuer base, instilling a strong internal government culture and designing information architecture.

The Malaysian government is currently looking into various avenues in Islamic finance which can be used to make houses more affordable. Deputy Finance Minister Datuk Amiruddin Hamzah said that one state in the northern region is currently conducting a waqf housing scheme for the people. He said this at the sidelines of the inaugural International Centre for Education in Islamic Finance (INCEIF). INCEIF president Datuk Azmi Omar said that there are a lot of waqf land that can be used to develop affordable housing. The cost to develop the houses can be lower, however, the houses will be under a long-term lease. On another matter, Amiruddin said that the digital banking framework is set to push the country forward in the digital banking landscape.

Indonesia's sharia financial committee hopes to quadruple the nation's sharia bank assets over the next five years. The comittee's executive director Ventje Rahardjo said that the goal was to reach Rp. 2 quadrillion (US$142.2 billion) in sharia bank assets by 2024. The committee plans to widen its coverage of Islamic finance to the Islamic economy in general. Therefore, the name of the committee will be changed to the National Committee for Sharia Economy (KNES) to better reflect its responsibility to oversee the development of the halal value chain. Ventje added that Indonesia and Malaysia would work together to create a regional halal standard. The committee also plans to digitize sharia financial services, including a digital zakat platform and a sharia-compliant e-wallet.

Malaysia-based International Islamic Liquidity Management Corporation (IILM) has reissued A-1 short term sukuk worth $600 million in two series. The reissuance came in the form of $300 million with 1-month tenor at a profit rate of 1.85% and $300 million with 3-month tenor at a profit rate of 1.91%. Primary dealers include Abu Dhabi Islamic Bank, First Abu Dhabi Bank, Barwa Bank, Boubyan Bank, Kuwait Finance House and Qatar Islamic Bank. The non-GCC banks that participated in the reissuance include Maybank Islamic, Standard Chartered Bank, Al Baraka Turk and CIMB Bank. The demand for the 1-month and 3-month Sukuk series reached a bid-to-cover ratio of 208%, and 255%, respectively.

According to Malaysian Deputy Prime Minister Datuk Seri Dr Wan Azizah Wan Ismail, action needs to be taken to make Islamic finance part of the halal ecosystem. She said it was reported that there seemed to be a disconnection between the halal industry and Islamic finance. Based on Bank Negara Malaysia (BNM)’s Financial Stability and Payment Systems Report 2017, Dr Wan Azizah said Islamic business financing continued to exhibit a strong growth of 12.5%. However, she pointed out that there was insufficient access to Islamic financing for the growth of small and medium enterprises (SMEs) in the halal sector. She said Malaysia could serve as a focal point for halal product trade intelligence by being the premier destination for halal trade exhibitions and commerce.

According to Fitch Ratings, Malaysia remains the main sukuk issuer this year besides countries from the Gulf Cooperation Council (GCC) region. The increase in Malaysia’s sukuk market is largely driven by Bank Negara Malaysia (BNM) and contributed by local currency corporate issuance. Notable corporate deals included energy service firm Serba Dinamik’s US$300 million (RM1.25 bilion) sukuk, the first dollar high-yield sukuk offering in the Asia-Pacific region. The Malaysian market shows how as the Shariah-compliant investor base grows, the cost of sukuk issuance becomes more competitive relative to conventional bonds. Fitch believes that global volumes normalised rather than declined last year after hitting record levels in 2017. Moving forward, Fitch believes macro-economic and geopolitical conditions will affect sukuk issuance. GCC debt markets are relatively developing but individual sovereign funding decisions can profoundly affect total supply.

On numerous fronts, Singapore outcompetes its regional rival Malaysia. But in terms of the sustainability of their capital markets, Malaysia trumps Singapore in responsible investing. Malaysian asset managers are more confident than their Singaporean counterparts that responsible investments will outperform regular investments. A recent Bloomberg study shows that 67% of Malaysia’s investment community believes that portfolios underpinned by environmental, social and governance (ESG) factors will perform as well as or better than regular investments. In Singapore it is 58%. The survey also found that a quarter of asset managers in Malaysia had developed their own internal ESG scoring models, compared with just 13% in Singapore. Large Malaysian asset owners are signatories to the UN Principles for Responsible Investment, whereas Singapore’s big investors are not.

Takaful Ikhlas and CIMB Islamic Bank are targeting to achieve RM168 million in gross contribution from their newly forged strategic bancatakaful partnership. The two groups expect the partnership to grow by 11% every year for the next five years. The partnership is aimed at providing general takaful solutions to the bank’s customers across retail, small and medium enterprises, as well as commercial segments. CIMB Islamic will leverage on Takaful Ikhlas' offerings, which, in turn, will leverage on CIMB Islamic’s distribution channels comprising the bank’s 250 branches nationwide, online platforms and call centres. Takaful Ikhlas CEO Eddy Azly Abidin said the demand for takaful products was growing and both organisations should work closer together to capitalise on this market’s potential.

According to Amanie Advisors CEO Suhaida Mahpot, the existing skepticism towards crypto in Islamic countries is not a pure rejection, but rather a consequence of uncertainty. Mahpot compared the existing situation of cryptocurrencies with Malaysia’s controversial types of investment known as Amanah Saham Bumiputera (ASB) and Amanah Saham Nasional (ASN). The perception of ASB has transformed over the years and it was decided to consider it as "harus" in 2012, which means that it is neither prohibited nor encouraged by the teachings of the faith. Both ASB and ASN investments were finally declared permissible for Muslims by the Selangor Fatwa Committee, the same regulatory authority that previously prohibited them. Mahpot argues that the same goes for digital currencies and financial institutions and scholars need more education about cryptocurrencies and their benefits.

Bank Islam Malaysia is the top domestic sukuk broker for the first half of the year (1H), after helping issue US$5.15 billion (RM21.21 billion) worth of sukuk in the market. Bank Islam’s market share of the sukuk issued accounted for 29.03% of the total ringgit-denominated sukuk issued in the 1H. The bank advised on 10 issues for the period. The second-largest issuer in the 1H is Maybank Investment Bank, which was ranked first last year for the same period after having helped issue US$4.1 billion of sukuk. Analysts expect the local sukuk market to remain active driven by capital raising by government and corporates for major construction works such as the East Coast Rail Link, Light Rail Transit Line 3 and Mass Rapid Transit Line 3 projects.

The Inland Revenue Board of Malaysia has released new guidance on restrictions to the deductibility of interest expenses. The rules are based on the recommendations of the OECD in Action 4 of its base erosion and profit shifting (BEPS) Action Plan. The rules are intended to prevent tax base erosion through the use of excessive interest expense deductions to reduce domestic tax. There are parts that have been customized based on domestic circumstances. The Malaysian rules cap allowable interest expense deductions at 20 percent of a taxpayer's income before interest, tax, depreciation, and amortization (EBITDA). Disallowed deductions for one year can be carried forward to the subsequent year.

Malaysian Industrial Development Finance (MIDF) remains tight-lipped about its negotiations with Al Rajhi Banking and Investment Corp (Al Rajhi Malaysia). Both banking groups announced on Jan 10 this year that Bank Negara Malaysia’s approval had been secured to commence talks on a potential merger. However, both parties failed to reach an agreement past the March deadline. The companies then requested for an extension and were given another three months, up to June 27 this year. A merger of the two banks would result in a combined banking group with RM13.17 billion in assets. The merger with Al Rajhi Malaysia will allow MIDF to become an Islamic financial institution as it currently does not have an Islamic banking licence. MIDF brought in RM76.86 million in revenue and RM12.11 million in net profit for 1Q19.