The Edge Markets

Muslim countries should tap into #green #sukuk market, says CIMB Islamic

According to CIMB Islamic Bank CEO Rafe Haneef, Muslim countries and customers with such affinity should tap into the green sukuk market, given the estimated US$45 trillion demand for such assets. He added that green sukuk, was very much part and parcel of shariah compliance, which should be halal and sustainable. In the context of global sukuk, the total size per year is about US$45 billion to US$50 billion, so green bonds are already five times the size of sukuk. RAM Rating Services deputy CEO Promod Dass said there was US$3 trillion worth of green investment needs in Asean from 2015 to 2030. Maybank Group global banking head Datuk Muzaffar Hisham opined Malaysia was in the right direction of participating in the green sukuk sector. He added that appetite for green investment was growing, the only question remaining was how to accelerate it.

First Shariah-compliant commodity ETF launched by Affin Hwang AM

Affin Hwang Asset Management (Affin Hwang AM) has launched its first Shariah-compliant exchange traded fund (ETF) with investment results that closely track the performance of gold prices. The new TradePlus Shariah Gold Tracker will invest a minimum of 95% of its net asset value in physical gold bars purchased from the London Bullion Market Association (LBMA). The remaining balance is invested in Islamic money market instruments and Islamic deposits for liquidity purposes. Affin Hwang AM managing director Teng Chee Wai said the fund provides an efficient entry point to gain exposure to gold by tracking the LBMA Gold Price AM index. Certified by advisory firm Amanie Advisors, each unit of the fund is physically-backed in a secure vault. Investors are provided with an option for physical redemption, for a minimum redemption unit block of 500,000 units, which is equivalent to an estimated 5kg of gold.

VBI to take Islamic finance to next level of growth

#Malaysia is introducing value-based intermediation (VBI) to take its Islamic finance industry to the next level of growth. As a first step, Maybank Islamic initiated the pilot launch of its rent-to-own (RTO) home scheme, called HouzKEY, targeted at properties priced under RM1 million. For now, the product is limited to the bank’s employees but should become available to the public early next year. The bank is aiming for a portfolio size of RM1 billion within the first year. According to experts, this is just the beginning of more RTO schemes to come as several other Islamic banks are expected to launch their own versions. BIMB Holdings group CEO Malkit Singh Maan says the bank is hoping to launch its RTO product for affordable homes in the first quarter of next year. Other VBI products that banks may offer in the future are green technology financing and green sukuk.

Islamic finance key to Sarawak's infrastructure growth, says RAM Ratings

According to RAM Rating Services, the infrastructure growth in Sarawak is expected to be mainly funded by Malaysia's vibrant sukuk market. This year sukuk has been the preferred funding route for Sarawak-based entities, with majority from the power sector. Issuers from the port, construction, property, manufacturing, plantation, oil and gas support services, financial services and telecommunication sectors have tapped into the sukuk market as well. RAM Ratings deputy CEO Promod Dass said Malaysia's sukuk market will remain a key funding avenue for the infrastructure development in Sarawak. He applauded the Malaysian government and Securities Commission for building a solid foundation for the sukuk market.

MBSB-AFB Islamic banking entity to start off with RM42 bil assets, says CEO

Malaysia Building Society Bhd (MBSB) is expected to start off its new banking entity in the second quarter of next year with RM42 billion in Islamic assets. The company has recently secured an Islamic banking licence by acquiring Asian Finance Bank (AFB) in a RM644.95 million deal. MBSB’s banking subsidiary will be the country’s second largest standalone Islamic lender after Bank Islam Malaysia, which had assets of RM54.25 billion as at June 30. After the merger MBSB will continue to be the listed holding entity, while AFB will be the wholly-owned subsidiary that runs the banking business. According to MBSB's CEO, Datuk Seri Ahmad Zaini Othman, the banking entity will have a similar composition, with 70% in retail banking and 30% in corporate banking. Also, it will solidify its presence in the property, housing and infrastructure segments.

HSBC hopes for more Islamic financing in Southeast Asia #rail #projects

HSBC Bank #Malaysia hopes to see a lot more Islamic financing instruments used in the development of the Southeast Asia railway network which connects China to the region. CEO Mukhtar Hussain said HSBC had a unique value proposition in this matter, being the first bank to issue sukuk in Malaysia. The railway network involves building more than 3,000 km of rail lines from China’s Yunnan province through Laos, Cambodia, Thailand, Malaysia, Singapore and Indonesia. It is one of China’s seven main transport routes under the Belt and Road Initiative (BRI). The project adopts a public-private partnership financing approach, one that puts the financing requirements efficiently to the private sector and therefore can relieve the pressure from the nations’ budget.

IBs want property lending rule scrapped

Investment banks (IBs) want Bank Negara Malaysia to withdraw the property lending guideline, which was introduced in 1997. It stipulates that a bank’s credit facilities should not exceed 20% of its total outstanding loan base. Compliance with this requirement is calculated on a quarterly basis. For IBs, the guideline mainly affects their underwriting business. They think the guideline is outdated, especially since there are already other macroprudential measures introduced by Bank Negara in recent years. The Malaysian Investment Banking Association (MIBA) had highlighted the issues affecting the industry to Bank Negara. It is understood that the central bank is currently reviewing the guideline.

Responsible Investing: Shariah-compliant #microfinance investment fund eyeing Asean opportunities

Investing in microfinance institutions (MFIs) has become increasingly popular in the last decade. According to a 2016 report, microfinance investment vehicles (MIVs) have seen capital inflows of US$1.1 billion per year since 2006. The market size at end-2015 was US$11 billion, a fivefold increase from US$2.1 billion in 2006. While MIVs usually target countries in Eastern Europe, Central Asia, Latin America and the Caribbean, the report points out that Asia has witnessed the largest growth in this respect. Matthew Martin, founder of microfinance investment fund Blossom Finance, points out that microfinance can better serve the needs of communities than the top-down, one-size-fits-all model of retail banking. The fund is currently limited to US accredited investors due to legal issues, but Martin hopes to open it up to other investors too. Blossom Finance only invests in shariah-compliant MFIs specifically focused on Indonesia.

Global #sukuk market to continue upward trajectory, says Islamic finance promotion agency

According to the Malaysian International Islamic Financial Centre (MIFC), the global sukuk market is set to continue its upward trajectory in 2017 as the fundamentals supporting their issuance remain intact. MIFC said global sukuk issuances stood at US$59.1 billion as of the first half of 2017 (1H17), an increase of 45.6% compared with 1H16. Malaysia continues to be the main driver in the Islamic capital markets, with the country commanding a 46.4% market share in sukuk issuance. As for outstanding sukuk, Malaysia's share stands at 52.6%. MIFC observed that Malaysia is the pioneer in the world's first green sukuk, as evident by the RM250 million of Islamic bond issued by Tadau Energy. Also, the regulator Securities Commission Malaysia is offering several incentives to attract green issuers including tax deduction on issuance costs, which is valid until the year of assessment 2020.

S&P Global Ratings: Global issuance of #sukuk to moderate in 2018 as Islamic finance moves into slower growth

S&P Global Ratings highlighted global issuance of sukuk in the first half of 2017 was good, but expects it to moderate in 2018. S&P head of Islamic finance Mohamed Damak said 2018 was less certain, as the large issuances of last year are not expected to repeat. Among some of the downside trends relating to Islamic finance includes subdued economic performance in Islamic finance core countries, primarily due to low oil prices. The long-standing debate about standardisation will continue to hinder the industry. S&P's report is entitled "Islamic Finance 2018: Slow Growth Is The New Normal" and the rating agency expects the industry to lose momentum in 2018. The contribution of Islamic finance has so far been limited by the industry's relatively small size and structure.

Going For Listing: Ihsan #Sukuk for a good cause

Ihsan Sukuk is Malaysia's first sustainable and responsible investment (SRI) sukuk for retail investors and is now listed on Bursa Malaysia. The RM100 million issuance is the second Sukuk Ihsan programme, the first having been a RM100 million tranche issued in 2015 only for institutional investors. While the minimum investment is RM1,000, the sovereign wealth fund also provided room for small-scale investors to start from as low as RM10 via two crowdfunding platforms ATAPLUS and pitchIN. The proceeds will be channelled into the Yayasan AMIR Trust Schools Programme aimed at improving access to quality education at government schools. The sukuk’s tenure is seven years and both the retail and non-retail sukuk holders will receive annual payments. The principal adviser and lead arranger is CIMB Investment Bank Bhd, while the joint lead managers are Maybank Investment Bank and RHB Investment Bank.

PNB mulls introduction of Islamic shares for Maybank

Permodalan Nasional Bhd (PNB) is studying a potential issuance of Islamic shares (i-shares) by Malayan Banking (Maybank). PNB group chairman Tan Sri Abdul Wahid Omar said currently about 25% of the Maybank group’s earnings come from the syariah-compliant businesses, and proposed that 20% of the group’s shares can be designated as i-shares. The move to list i-shares would provide an extra boost to the Malaysian Islamic capital market, said Abdul Wahid. He added that there are currently only two listed syariah-compliant financial institutions in Malaysia, BIMB Holdings and Syarikat Takaful Malaysia. If the plan goes through, it will create RM20 billion worth of new syariah-compliant instruments, which is three times bigger than BIMB’s market capitalisation. Abdul Wahid added that the group is looking at three asset classes for further investments overseas, namely public equities, private equities and real estate.

Khazanah announces RM5 million #sukuk IPO

Khazanah Nasional has announced its initial public offering of a seven-year wakalah sukuk by special purpose vehicle Ihsan Sukuk. The size of the sukuk is RM5 million, has a profit rate of 4.6% per year, and is rated AAA by RAM Rating Services. It is the third tranche of issuance under Khazanah’s RM1 billion Sustainable and Responsible Investment Sukuk programme. The two earlier tranches were used by Khazanah’s not-for-profit foundation, Yayasan Amir, to fund the rollout of its Trust Schools Programme in at least 20 schools. As of June 2017, the foundation’s Trust Schools Programme had been rolled out to 83 schools across 10 states.

#Fintech: First robo-adviser in Asia to offer shariah-compliant #investments

Robo-advisers are seen as a more transparent, convenient and low-cost alternative to human financial advisers. However, these platforms have limited options when it comes to shariah-compliant investments. To solve this problem, Malaysian Farringdon Group has recently launched its new robo-adviser called Algebra. According to CEO Stuart Yeomans, the company’s Virtual Mutual Fund Technology (VMFT) allows robo-advisory services for shariah-compliant investments to be offered at a lower price. Algebra can offer a wider range of investments and asset classes than other robo-advisory platforms. It adopts a smart beta strategy, which uses algorithms to derive its active equity portfolio before blending with fixed-income ETFs or sukuk funds. The shariah-compliant strategy used by the platform has been approved by Kuala Lumpur-based shariah advisory firm Amanie Advisors.

Cover Story: #Disrupting Islamic finance

For many years, the global Islamic finance has been seen as a laggard in digital innovation, but now Islamic finance players are catching up with their conventional peers. According to Zeeshan Uppal, co-founder of crowdfunding company Yielders, fintech has opened up opportunities for Islamic finance to catch up because it allows scalability, which is in line with shariah law. Ibrahim Mohammed, the founder of OneGram, says that blockchain technology can create digital banks or P2P lending platforms that adhere to Islamic principles, and many other asset classes can be made shariah-compliant. Umar Munshi, founder of EthisCrowd, finds the slow innovation in Islamic finance perplexing as there is an urgent need for financial inclusivity. He expects to see more players in the takafultech, crowdfunding and P2P financing, payment and remittance, and smart contract space next year. According to EY’s Banking in Emerging Markets GCC FinTech Play 2017 report, Fintech can propel Islamic banks into the mainstream space in 20 promising markets by 2021, up from five markets today, and effectively add 150 million new Islamic banking customers.

Maybank Islamic named Asia-Pacific's Islamic Bank of the Year 2017

Maybank Islamic was named the Islamic Bank of the Year 2017 in Asia-Pacific by The Banker. The bank also received recognition in the country awards category for Malaysia. The Banker noted that Tier 1 capital and total Shariah-compliant assets enjoyed notable growth, climbing by 12% and 16%, respectively. Maybank Islamic’s return on equity for the year was 15.4%, while its cost-to-income ratio was a respectable 36% and non-performing financing were just 0.8%. The bank’s steady growth pace in Singapore and Indonesia also contributed to its recognition as the best in Asia-Pacific. Maybank Islamic's CEO Datuk Mohamed Rafique Merican attributed the bank’s achievements to its employees and sound risk management practices. He said the bank intends to further enhance its global brand visibility, while also deepening its existing regional presence.

Maybank Islamic appoints Zainal Abidin as chairman

Maybank Islamic has announced the appointment of lawyer Zainal Abidin as its chairman. Zainal has been a director of Maybank Islamic since 2010 and previously served as chairman of Maybank Trustees. Prior to that, Zainal was a director of Malayan Banking (Maybank) from July 2009 to April 2014. Zainal, 63, is a practising corporate and commercial lawyer. As the founder and senior partner, Zainal established the firm Zainal Abidin in 1987.

TH confirms backing Badlisyah for Bank Islam, denies bad blood with board

Lembaga Tabung Haji (TH) has confirmed its support of deputy CEO Datuk Badlisyah Abdul Ghani to lead Bank Islam Malaysia following the retirement of the bank’s group managing director, Datuk Seri Zukri Samat. TH has a 52.5% stake in BIMB Holdings which wholly owns Bank Islam. Bank Islam’s board had already put forward its choice, Khairul Kamarudin, to Bank Negara and the decision now lies with the central bank. TH CEO Datuk Seri Johan Abdullah confirmed recommending Badlisyah to be appointed to lead Bank Islam. He added that the choice of leadership and succession is subject to nomination of the board of directors and approval by Bank Negara Malaysia. He said TH was never at odds with the board of directors.

MIDF Amanah to introduce new shariah #fund for high net worth investors

#Malaysian Industrial Development Finance (MIDF) Amanah will introduce a new Shariah Equity Wholesale Fund for high net worth investors with a target to raise RM100 million. The fund will have two special key features, the first being that the fund will have zero entry fee, which means no sales fee will be charged to investors. Secondly, the fund will pay zakat on behalf of its investors. MIDF Amanah Asset Management and Amanah International Finance have also transitioned into fully Shariah-compliant entities.
The equity portfolios under MIDF Amanah have seen an overall exceptional performance in the first quarter this year with gains ranging from 10% to a high of 15%. MIDF managing director Datuk Mohd Najib Abdullah said the conversion of the asset management arm into a Shariah-compliant entity will cater to the ever growing demand for Islamic finance products and services.

Solid growth in Islamic IAs expected to normalise

In #Malaysia Islamic investment accounts (IA) have grown at a strong pace since they were introduced in 2015. Bank Negara’s latest monthly banking statistics show that IAs have since grown to RM74.2 billion as at February this year, accounting for 13% of total liabilities within the Islamic banking system. According to Simon Chen, senior analyst at Moody’s Investors Service, by 2020 IAs will probably account for some 16% of the Islamic banking system’s total liabilities. An important feature of IAs is the sharing of risk between the bank and the account holder. For an investor, IAs are attractive because they offer much higher returns than a deposit account. But, unlike a deposit account, the principal amount in an IA is not guaranteed by Perbadanan Insurans Deposit Malaysia. According to Chen, a key issue that remains is whether the loss-sharing mechanism in IAs will be honoured by banks in case of actual losses. A significant loss to test the resilience of this regime has yet to occur.

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