IslamicFinance.de

According to research agency BMI, Malaysia has the potential to be a world leader in Islamic financial technology (fintech). The research firm said Malaysia’s Islamic banking sector was worth US$202 billion last year, while its Islamic loans also more than doubled to 30.2% the same year, compared to just 7.8% a decade ago. BMI noted Malaysia has a developed infrastructure, an increasingly affluent and tech-savvy population, and high mobile and broadband penetration rates coupled with fast internet speeds. The Memorandum of Understanding between MIMOS and the International Center for Education In Islamic Finance (INCEIF) has laid down the foundation for the development of Islamic fintech in Malaysia.

According to Moody's Investors Service, the growth of the Islamic finance sector will continue to outstrip that of conventional assets across core Islamic finance markets. Islamic banking penetration in the Gulf Cooperation Council (GCC) increased to 45% of the total banking market, as of September 2017 from 31% in 2008. Moody's Senior Analyst Nitish Bhojnagarwala, said the Islamic finance sector would be supported by governments, as well as by continued demand for Islamic products from individuals. Another growth factor will be Islamic insurers' penetration into Southeast Asia and North Africa. Sukuk issuances grew 17% in 2017 to $100 billion, driven largely by GCC sovereigns. A similar level of issuance is expected in 2018, although the recent recovery in oil prices could lower financing needs for some sovereigns. Corporate and asset-backed sukuk activity was muted in 2017 because of more attractive conventional market opportunities and Moody's expects the same for 2018.

The #Malaysian Ministry of International Trade and Industry (MITI) has approved funding totalling RM1.595 billion under the Shariah-compliant SME (Small and Medium Enterprises) Financing Scheme. Deputy Minister Datuk Ahmad Maslan said since the scheme was started in 2012, 1,181 applications had been received but only 971 applications had been approved. He added that the scheme would be administered by 13 participating Islamic banking institutions and the Federal government would bear 2.0% of the profit rate. The rebate is specifically to assist the SMEs which carry out business activities in all Shariah-compliant sectors. Ahmad said in Penang some RM112.6 million had been approved to-date to 76 SMEs which were Shariah-compliant.

A significant proportion of recent economic growth has relied on borrowed money, which stands today at 325% of global gross domestic product. Debt allows society to accelerate consumption, but the bill for these commitments will soon become unsustainable, as demographic changes make it more difficult to meet. Degradation of the environment results in future costs, too: either rehabilitation expenses or irreversible changes that affect living standards. Rather than reducing high borrowing levels, policy makers use financial engineering, such as quantitative easing and ultra-low or negative interest rates. A 2010 study found that European states have mortgaged themselves beyond their capacity to easily repay. Another 2010 study from the International Monetary Fund found that in the US the lifetime tax burden was positive for all ages, with the largest benefit accruing to those over age 50. But the figure for future generations is negative, meaning they will have to meet the obligations of their elders.

Perak’s Sultan Nazrin Muizzuddin Shah told Islamic financial scholars and ulama to “think futuristically” in order to be current with contemporary developments. He said they can act as “institutional game-changers” in helping Islamic finance grow, but must leave their “ivory towers” and become more involved in the industry. Sultan Nazrin added that no industry was immune to “social evolution”, making it necessary for these scholars to make the effort to produce relevant financial products. He also said that it was important to inform the public more on the role of Shariah advisors in finance as their endorsement of an institution meant that it complied with the Islamic beliefs.

The global Islamic finance assets are projected to grow to US$3.2 trillion (RM13.6 trillion) by 2020, says Thomson Reuters, the world’s leading provider of intelligent information for businesses and professionals.
Its Head of Islamic Finance, Mustafa Adil said Islamic finance was considered the most developed sector within the various pillars of the Islamic economy and its growth in the global industry was broadly measured by the value of Islamic finance assets.
As global acceptance of Islamic finance continues to grow, he said more corporates and non-Muslim sovereigns were announcing Islamic finance initiatives such as ethical finance or Shariah-compliant regulations, as well as sukuk issuances.

CIMB Group chairman Datuk Seri Nazir Razak has ordered an internal inquiry on a senior executive of its Islamic banking unit who yesterday accused US-based Wall Street Journal (WSJ) of being duped by doctored documents in its explosive money trail exposé on 1Malaysia Development Berhad (1MDB). Nazir disclosed the action in a late night post on his Instagram account, after news portal Malaysiakini reported CIMB Islamic Bank chief executive officer Badlisyah Abdul Ghani for his erroneous analysis on WSJ in his closed-circuit Facebook page. Badlisyah has admitted to making an error in his analysis of the WSJ documents, which the daily purports were based on an ongoing government investigation on 1MDB, adding that he has also corrected his initial Facebook post.

BIMB Holdings Bhd’s share price on Bursa Malaysia reacted well following announcement that its wholly-owned subsidiary, Bank Islam Malaysia Bhd aimed to increase the fund of two products under its Term Investment Account over the next six months. As at 10.26am today, the counter was four sen better at RM4.05 with 4,900 shares changing hands. Bank Islam is aiming for a RM2 billion fund for Waheed Investment Account (WIA Wakalah) and Special Investment Account (Mudarabah). Another account, the Al-Awfar Account, was also launched today. The bank also planned to maintain a RM2 billion fund size under its Transactional Investment Account.

Islamic finance aims to move into infrastructure, as governments and bankers plan a new organisation to handle deals and expand efforts to use sukuk for projects in majority-Muslim countries. An estimated US$800 billion (RM2.96 trillion) worth of infrastructure financing will be needed each year in Asia over the next decade. But so far, technical, legal and political issues have mostly confined sharia-compliant infrastructure deals to mid-sized ones with shorter tenors. Only a handful of project finance deals have been done. Governments are now trying to break the impasse. Indonesia, Turkey and the Islamic Development Bank said last month that they planned to launch an Islamic infrastructure bank, with Indonesia and Turkey pledging at least US$300 million each.

Hong Kong sold US$1 billion (RM3.6 billion) of Islamic bonds in its second sukuk issue since the city’s debut in 2014. The five-year debt was priced at 1.894 per cent, with orders amounting to US$2 billion, according to a government statement. The city sold the same amount and tenor in September at 2.005 per cent, which drew bids for US$4.7 billion. Those notes last yielded 2 per cent. The city sold its latest bonds at a spread of 35 basis points above similar-maturity US Treasuries. That compares with 23 basis points for its debut offering. Standard & Poor’s assigned a preliminary AAA credit rating to the deb, the same as the government.

Malaysia’s state-owned sovereign wealth fund is about to test appetite for the nation’s first socially responsible Islamic bonds and plans to issue such debt annually. Khazanah Nasional Bhd will start marketing as much as RM150 million (US$42 million) of the seven-year sukuk today, Chief Financial Officer Mohd Izani Ghani said. The offering will fund 20 schools in Malaysia, he said, adding that future sale options may include healthcare and affordable housing. The SRI sukuk will pay fixed, periodical profit rates throughout the bond’s term, with principal repayments linked to the individual school’s performance in terms of the quality of education provided, said Izani. Before maturity, the profit rate will be adjusted lower, he said. The “step-down yield” could be 100 basis points below the coupon rate.

Kuwait Finance House (KFH) is restructuring activities ahead of a planned divestment by its largest shareholder, the Kuwait Investment Authority (KIA). Last week, KFH said it had hired Credit Suisse to advise on its options, including the potential sale of a Malaysia unit launched in 2005 that serves as a hub for southeast Asia. KFH did not give further details. A shift away from Malaysia, where KFH holds a valuable licence but lacks scale, would help it focus on Kuveyt Turk, the largest Islamic bank in Turkey with over 500 branches. Kuveyt Turk, 62 per cent owned by KFH, is in expansion mode: It plans to launch Germany's first full-fledged Islamic bank in July as a gateway to Europe.

Maybank Islamic has launched its Shariah Centre of Excellence (SCOE), which focuses on research and education, talent development, thought leadership and community welfare. Its chief executive officer Muzaffar Hisham said the center was a virtual centre, which aimed to be a repository of Shariah knowledge and reference point on best practices for industry players, academic fraternities and the general public. The bank has collaborated with INCEIF, the Global University of Islamic Finance, including sponsoring the university’s auditorium and post-graduate students. Maybank Islamic has also rolled out other programmes under the SCOE initiative, including a public lecture series as well as Islamic finance publications.

CIMB Islamic Bank Bhd. plans to start offering microloans in Malaysia as it seeks new growth avenues after delaying plans to create a Shariah-compliant megabank. The Malaysian lender will offer a wide range of products including microsavings, microinsurance and advisory services. While acknowledging the risks, CIMB will put in place a framework to manage defaults. The lender’s microfinance business will develop in stages starting at the higher end. Keeping in mind that prospects for growth are good, the bank is looking to launch something subject to relevant approvals by this year.

Malaysia is ready and has the potential to become a mega takaful operator in the region given its strong track record, right capitalisation, capable expertise and broad knowledge of the industry, said Ernst & Young. Its global Islamic finance leader, Ashar Nazim, said the local takaful operators had the right ‘ingredients’ to build upon and grow beyond Malaysian borders into Asean region as well as into various parts of the world. Country managing partner and Islamic finance leader of Ernst & Young Malaysia, Datuk Rauf Rashid, said there was huge untapped market in the region that would translate into tremendous demand for takaful businesses.

The domestic Islamic finance asset is expected to continue posting double-digit growth at between 10 per cent to 15 per cent over the next five years, said the Association of Islamic Banking Institutions Malaysia (AIBIM). Products like takaful, will, consumer and corporate products are all maturing and with such maturity level, Islamic finance also grows, said its President Datuk Mohd Redza Shah Abdul Wahid after a briefing on the upcoming Global Islamic Finance Forum (GIFF 2014) here today. GIFF 2014 will be held from September 2 to 4, in Malaysia, discussing key issues in the development of Islamic finance industry. The association today revealed the domestic Islamic finance market share now stands at 24.2 per cent, estimated to be worth RM548 billion.

A blueprint being drawn up for Indonesia’s Islamic finance industry may include incentives to help revive the domestic market for sukuk. Indonesia’s financial services authority, Otoritas Jasa Keuangan (OJK), is preparing a five-year plan for the sector to help it expand. The document is expected to be ready for public consultation by year-end, and will address issues including a lack of scale in the industry, sector consolidation and the role of foreign ownership. The regulator is also exploring ways to revive a sukuk market, which has seen no corporate issuers so far this year. The reasons for the drop-off in activity are not clear, but may be related to higher costs involved in issuing sukuk, a lack of experience among arranging banks, or a lack of regulatory clarity.

Investors treat a company’s shares differently depending on the specific types of Islamic bond it issues and the reputation of the Islamic scholars who oversee the instruments, a study by the International Monetary Fund found. About a dozen types of sukuk are in use worldwide. The study found the ijara structure tended to draw a positive reaction from the stock market, with the shares of companies using that structure performing relatively well. By contrast, equity-based structures such as musharaka met a relatively negative reaction. The IMF also looked at other characteristics of sukuk such as their tenors and pricing, but did not find these factors to be statistically significant for the responses of equity market investors.

Standard Chartered Saadiq expects 2014 to be good for the Malaysian sukuk industry, driven by the strength of the economy. Chief Executive Officer and Global Head, Consumer Banking, Standard Chartered Saadiq, Wasim Saifi, said the bank is already in discussions with several customers in looking at setting up specific sukuk issuances. Despite expectations of a further hike in Malaysia’s key interest rate, he said it would not hold back issuances, as borrowers are unlikely to defer raising money even if the cost of doing so goes up. Malaysia’s Overnight Policy Rate (OPR) was raised by 25 basis points to 3.25 per cent on July 10, the first increase for the past three years.

Bank Islam Malaysia Bhd, is revising its base financing rate (BFR) to 6.85 per cent per annum from 6.6 per cent per annum effective tomorrow. Bank Islam in a statement today said the revision is in line with Bank Negara Malaysia’s recent move to increase the overnight policy rate (OPR) by 25 basis points to 3.25 per cent. The last revision in Bank Islam’s BFR was on May 16, 2011, when the rate was revised from 6.3 per cent to 6.6 per cent.