IslamicFinance.de

Malaysia's efforts to create a market for ethical Islamic bonds are the latest in a series of government-led initiatives to develop Islamic finance, but further expansion will require a greater buy-in from a sometimes reluctant private sector. In May, sovereign wealth fund Khazanah Nasional launched the country's first sustainable and responsible investment (SRI) sukuk, nearly two years after the format was first announced by the government. Last year, $74.9 billion worth of sukuk were issued out of Malaysia but only $13.5 billion came from corporate issuers. There is little sign of this changing soon.

The Malaysian government plans to roll out a new sharia-compliant investment platform next year. The government is backing the Investment Account Platform (IAP) with an initial start-up fund of 150 million ringgit ($45 million), intending that the IAP will serve as a central marketplace to finance small and medium-sized businesses. Under the scheme, announced as part of the 2015 budget, Islamic banks would vet businesses seeking funds, provide a secondary market for investors and in some cases underwrite the equity transactions. With elements of crowd funding and microfinancing, the IAP is expected to raise the profile of Islamic banks as investment houses.

Turkish participation bank Kuveyt Turk plans to issue sukuk in Malaysia aiming to raise as much as 2 billion ringgit ($625.3 million), its first foray into the Southeast Asian Islamic debt capital market. Kuveyt Turk, 62 percent owned by Kuwait Finance House , will sell the sukuk to qualified investors through its asset-leasing company, KT Kira Sertifikalari Varlik Kiralama. No timeframe was given for the deal. In July, Turkiye Finans became the first Turkish lender to issue ringgit-denominated sukuk in Malaysia when it raised 800 million ringgit ($252.2 million) from a 3 billion ringgit programme it set up in June. Moreover, in June, Bank of Tokyo-Mitsubishi UFJ set up a $500 million multi-currency sukuk programme in Malaysia.

The current annual growth rate for Indonesia’s Islamic finance market is 16.5 percent, down from 24.2 percent in 2013, and 49.2 percent in 2011. A large part of this decline can be attributed to the most recognisable instrument of Islamic finance, sukuk. The OJK is now preparing a new blueprint due at the end of the year to expand Islamic finance in Southeast Asia’s biggest economy. It says the new blueprint may include additional benefits to current fee and tax incentives to revive the domestic sukuk market, and also said it was considering extending the beneficial issuance fee for sukuk to issuance of sharia-compliant securities. The document will also address issues in Islamic finance including lack of economies of scale, consolidation opportunities, and the role of foreign ownership.

Dubai Islamic Bank (DIB) will purchase a 25 percent stake in Indonesian Islamic lender Bank Panin Syariah. Under the agreement, DIB will jointly manage and operate Bank Panin Syariah along with parent Bank Pan Indonesia, which will remain a controlling shareholder. No purchase price was given for the deal, which will be subject to regulatory approval. The investment will involve DIB accumulating around a 25 percent stake in Bank Panin Syariah in the initial phase, with a view to subsequently increasing its shareholding in the bank to 40 percent. Bank Panin Syariah has a network of 10 branches and held assets worth 4.3 trillion rupiah ($376.8 million) at March 31.

Maybank Islamic Bhd, a unit of Malaysia's Malayan Banking Bhd, has raised 1.5 billion ringgit ($458.65 million) with its first Basel III-compliant Islamic bond. The sukuk has a tenure of 10 years and was priced at 4.75 percent. It was oversubscribed by 2.9 times and increased in size from an initial plan for one billion ringgit. It is the first issuance under a 10 billion ringgit subordinated sukuk programme announced by the bank in March.

Companies selling takaful in Indonesia are boosting agent numbers and product ranges ahead of a new rule that will require them to be run independently. Indonesia is so far dominated by takaful "windows" which allow insurers to offer Islamic and conventional products side by side. However, a new law requiring takaful firms to be spun off into stand-alone businesses is expected this year. Operating costs are expected to triple when the takaful business is spun off. Takaful firms have also begun to explore new streams of revenue in market segments that remain relatively untapped, like savings products for pilgrimages to Mecca. Moreover, agents are branching out into Indonesia's rural areas, moving beyond markets already crowded with conventional players.

Indonesia raised 1.5 trillion rupiah ($155.11 million) at its first sukuk auction of the year on Feb. 5. 6-month Shariah T-bills, as well as project-based 5- and 24-year sukuk were sold to finance the country's budget deficit. According to the Finance Ministry's debt office, the targeted amount was reached.