According to panellists speaking at the Finnovasia 2017 Conference, Shariah contracts' greater regulatory complexity can be eased by fintech solutions. Raja Teh Maimunah, CEO of Aminvestment Bank in Kuala Lumpur, stressed that the complex nature of Sharia instruments requires bankers take a different approach. Raja and her bank had wanted to digitise their banking transaction processes by introducing a new type of contract for current and savings accounts. It was eventually addressed with a fintech solution developed by one of her staff. Dato’ Yasmin Mahmood, CEO of Malaysia Digital Economy Corporation, pointed out that the growth of Malaysia’s digital economy currently stands at 17.8% of the country’s total GDP of $296.3 billion, and is expected to meet or exceed the 18.2% target set by the government for 2020.
It’s only a matter of time before the first green sukuk comes to market. Speakers at a White & Case event last week explained that there’s nothing stopping issuers from drafting a shariah-compliant sukuk save for a lack of top-down support. In 2016, the climate-aligned bond market grew by 16% to $694 billion, $118 billion worth of which are labelled green. The global sukuk market, which has slowed in recent years, saw $40.3 billion worth of deals issued in the same timeframe. Climate-aligned finance is a fast-growing market that’s open to innovation. Sheikh Bilal Khan, co-chairman at Dome Advisory said green issues are not as spoken about in the Islamic finance industry as they should be. There’s nothing in the Qu’ran forbidding them, in fact it stresses our responsibility to the environment.
The central benefit of sukuk is that they give issuers access to a far broader range of investors than a conventional bond can. Their reliance on real, tangible assets and their principle of sharing risk makes them valuable for any smart risk management investment portfolio. While there exists thriving markets for them in the Middle East and southeast Asian Muslim countries, an absence of Western governments is marked. Aside from a few symbolic issues by governments in the UK, South Africa, Hong Kong and Luxembourg, domestic markets have been slow to develop.
JP Morgan's plans to include sukuk in its major bond indices from October will be a boon for the market. Sukuk is commonplace in the Middle East and Southeast Asia. But only a handful of western governments have issued one, with the UK in particular making headlines in 2014. This month's poll is asking readers exactly what's holding back the global sukuk market.
Pakistan's $1 billion sukuk offering was its first shariah-compliant deal since 2005. It signals that Muslim-majority countries will actively rely on Islamic finance markets for at least part of their fundraising going forward. The sovereign's five-year sukuk closely follows its $2 billion souvereign bond sold in April - its first foray into the foreign debt markets after a seven-year hiatus. But investors have anticipated a sukuk due to its strong domestic Islamic finance market. It demonstrates that the global Islamic finance markets have developed to the point that Muslim-majority countries can rely on it for their annual fundraising plans.
Saudi Electricity Company (SEC) has issued the world's first international 30-year sukuk. The benchmark $2 billion deal is SEC's first sukuk offered to US and other international investors. More tan six-and-a-half times oversubscribed, the sukuk evidences strong international demand for longer-dated Islamic instruments. Although the debut bond has opened new vistas for Islamic finance, the number of companies eligible to take advantage of the precedent is unclear. In the short term, it is likely that only quasi-souvereigns will suceed in securing longer tenors.
Axiata launched a multi-currency sukuk programme followed closely by a dim sum sukuk issue. This is seen as a new level of flexibility for underlying assets in an individual deal. In September, an issue of RMB 1 billion ($158.7 million) was launched which is so far the largest RMB-denominated dim sum sukuk. For the programme itself $1.5 million were designated.
The Association of Islamic Scholars (ASAS) in Kuala Lumpur plans to start a shariah board accreditation process. The move fill follow a points-based system, where the points are earned by Islamic scholars who participate in training cources offered by regulatory bodies. Shariah scholars will be required to sign a voluntary code of ethics and take a corresponding test. The scholars, however believe that this move is bound to fail. It is possible that Islamic finance advisors will not accept the notion of being accredited since the majority of them offer theit services without it.