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CIMB Group Holdings expects sovereigns to issue 'green' Islamic bonds for the first time this year. CEO Rafe Haneef said about 3 to 5 sovereign sukuk issues are exptected to come to market this year and some of them will be green issuances. Corporates are also eyeing green sukuk issuances. Green bonds are a growing category of fixed-income securities, raising capital for projects with environmental benefits. Rafe says more and more investors are allocating funds for socially responsible investments (SRI) and Islamic bond issuers could benefit from that. He expects the total number of Islamic bond issuances this year to be slightly higher than last year, driven mainly by infrastructure bonds in Southeast Asia. He expects some new issuers to enter the sukuk market, saying state-owned enterprises from the United Arab Emirates and Qatar were possibilities.

At 37 years old, Arsalaan Ahmed is the youngest chief executive in the Malaysian Islamic finance industry. As CEO of HSBC Amanah Malaysia, his vision is to change the industry’s narrative on Islamic finance. So far, the narrative has focused a lot on the technicalities of products and services. Arsalaan says these discussions should be focused on the principles of social justice and create a positive impact on society. He plans to allow retail investors to invest directly in sukuk. Currently, individual sukuk requires an initial investment of RM500,000. By lowering the initial investment amount, investors with sufficient knowledge of the market could invest directly. Arsalaan says 2018 is a good time to democratise sukuk because of China’s One Belt, One Road (OBOR) initiative, which aims to improve the infrastructure of land and maritime routes. According to HSBC, the initiative involves US$4 trillion worth of investments and 900 planned projects.

Great Eastern Takaful has appointed Shahrul Azlan Shahriman as its new Chief Executive Officer (CEO). Shahrul Azlan was the Chief Distribution Officer in Prudential BSN Takaful, with local and international experience in multichannel distribution. Great Eastern Takaful Chairman, Datuk Kamaruddin Taib said Shahrul Azlan was the best person to steer the company given his vast experience and established track record. He added that in Malaysia there was tremendous potential for Great Eastern Takaful to serve the underinsured and fast-growing Islamic insurance market in the country.

Environmental, social and corporate governance (ESG) and sustainable investing (SI) are central topics for policymakers, institutional investors and corporates. According to a 2017 study by BNP Paribas, 46% of asset owners plan to have 50% or more of their investments in funds that incorporate ESG or responsible investing. Investors are increasingly investing based on the ESG profiles of the investee companies and using green, sustainable bonds (52%). Asia-Pacific investors are leapfrogging their regional counterparts. Despite the positive developments, there is still much work to do and challenges to overcome. A lack of robust ESG data is the biggest issue for asset owners and asset managers. The biggest reason why ESG is not part of investment decision-making today is a lack of clarity over how to define it. In November 2017, the European Investment Bank and the China Green Finance Committee presented a project to facilitate the establishment of a common language in green finance.

i-VCAP Management is expecting US$50 million (RM198 million) to be subscribed upon its initial subscription period via an initial public offering on Feb 9. The MyETF-US50 will be the first US dollar-denominated Syariah-compliant security to be listed on Bursa Malaysia. i-VCAP CEO Khairi Shahrin Arief Baki said ETFs are one of the fastest growing investment products in the world. The MyETF-US50 is aimed at providing investment results that closely correspond to the performance of the benchmark index, the Dow Jones Islamic market US Titans 50. According to i-VCAP chairman Tuan Haji Rosli Abdullah, the MyETF-US50 enables investors to access the US equity market in US dollars, marking a new chapter in the Malaysian capital market.

Saudi Telecom Co (STC) has obtained a 1.51 billion ringgit (US$378.5 million) Islamic loan through its Malaysian subsidiary. The company will use the Islamic loan to refinance existing debt originally used to acquire a stake in Malaysian mobile-phone firm Maxis. STC Malaysia Holdings hired Bank of Tokyo-Mitsubishi UFJ (Malaysia), HSBC Amanah Malaysia and Standard Chartered Bank Saadiq to arrange the deal. The syndicated financing uses a sharia-compliant structure known as commodity murabaha. Bank of Tokyo-Mitsubishi UFJ (Malaysia) will act as the investment agent to manage the cash flows of the facility and to execute the commodity murabaha transactions.

Malaysian Rating Corporation (MARC) has assigned a preliminary rating of AAA with a stable outlook to CIMB Islamic Bank's proposed RM10 billion senior Sukuk Wakalah Programme. MARC said the sukuk wakalah would provide an additional platform to raise liquidity for the bank should it need to strengthen its funding base. The rating agency added that the bank would be able to utilise its existing Basel III Tier-2 Junior Sukuk Programme to support its capital position when required. CIMB Islamic’s existing sukuk issuances, rated and affirmed by MARC with a stable outlook are as follows: an RM5 billion Tier 2 Junior Sukuk programme at AA+IS and its RM2 billion Tier 2 Junior Sukuk programme at AA+IS.

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.

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.

#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.

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.

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 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.

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.

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.

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 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.

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.

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 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.