Islamic finance continues to establish itself as an effective funding avenue in the mainstream global financial system, now regularly offering a significant and viable pool of liquidity for issuers and borrowers to meet their financing requirements. While Malaysia and the Gulf Cooperation Council (GCC) countries have driven the growth of Islamic finance, other countries are following suit as they adopt more comprehensive regulations to enhance their Islamic financial services such as the issuances of Islamic banking licenses.
“The acceptance of Islamic finance is gathering pace, with regulatory support in the issuance of Islamic securities like sukuk, for instance,” says one banker. “Regulations are pushing the development of Islamic finance, giving market participants a level playing field. Africa, for one, is a developing region for Islamic finance.”
Associated with this recent growth in Islamic finance is the ongoing launching of new asset classes and innovative structures that enable the issuers and borrowers to access the market. This was evident to the board of editors at The Asset as they reviewed and evaluated the different deals and products submitted to The Asset Triple A Islamic Finance Awards 2019.
Among the deals that stood out and defined the Islamic finance markets in the past 12 months was the 500-million-ringgit sukuk (US$120 million) for HSBC Amanah, which represented the world’s first United Nations Sustainable Development Goals (SDG) sukuk. Selected as the Islamic Deal of the Year, the landmark offering was the first ever benchmark sukuk issuance globally by a financial institution whose proceeds will be used to support eligible businesses and projects that are aligned with the UN SDGs. The print was also aligned with Bank Negara Malaysia’s value-based intermediation (VBI) initiative, shifting the focus of the Islamic finance industry to integrate environmental and social tenets into the banking activities.
Last year likewise saw the issuance of the first ever sovereign green sukuk by the Republic of Indonesia (RoI) amounting to US$1.25 billion. The five-year deal illustrated the country’s transition programme to reduce its reliance on hydrocarbon energy sources to power its economy. As a demonstration of such a commitment, the RoI returned to the market in January this year with its second green sukuk amounting to US$750 million with a tenor of 5.5 years.
Also gaining recognition out of Malaysia was the 222.30-million-ringgit green sukuk issued by Universiti Teknologi MARA through UiTM Solar Power. Voted as the Best SRI sukuk, this was the first green financing undertaken by a public institute of higher education in Malaysia. The success of this sukuk can serve as a template for other universities and entities in Malaysia and in the region to generate their own income through environmentally sustainable projects.
Another pioneering transaction was the 250-million-pound (US$317 million) Islamic residential mortgage-backed securities (RMBS) priced by Al Rayan Bank in the UK, which was chosen as the Best Structured Finance sukuk for EMEA. This was the first such deal out of this market and the inaugural public transaction by Al Rayan, which enabled the bank to access a new source of funding. The transaction securitized the home purchase plans originated by Al Rayan – thus opening up a new and innovative funding avenue for Islamic banks in the UK and the rest of the world.
Meanwhile, Malaysia’s national mortgage corporation Cagamas demonstrated the strength of its credit when it tapped the sukuk market amid the pervading uncertainty following the country’s general election on May 9 2018 that toppled the ruling coalition and ushered the first regime change in Malaysia’s history. The company printed a 1.5-billion-ringgit sukuk on May 17, becoming the first AAA-rated corporate issuer to arrange a sukuk through public offering post the general election. The deal, voted as the Best Local Currency sukuk, generated a strong investor demand, enabling Cagamas to upsize the issuance by an additional 500 million ringgit.
Another trend that characterizes the Islamic finance market is the increasing focus on digitalization as the Islamic banks attempt to keep pace with their conventional counterparts in terms of addressing their clients’ needs. “Whatever solution we offer to our conventional customers in the conventional platform, we try and have the Islamic solution at the same time,” a banker points out.
A banking product that exemplified this digital focus was HouzKEY, which was launched by Maybank Islamic Bank. It was the first such rent-to-own home ownership plan in Malaysia to be fully enabled on a digital platform – applications and submission of supporting documents in relation to this scheme are required to be made online.
In terms of Islamic issuers and Best islamic advisers, the RoI was selected as the Sovereign Issuer of the Year, while the quasi-sovereign honours went to Cagamas. Tenaga Nasional, the Malaysian electricity company, which was chosen as the Corporate Issuer of the Year, tapping the sukuk market twice in 2018 – a dual-tranche three-billion-ringgit sukuk in August and a US$750 million sukuk in October – the latter representing the first and largest US dollar corporate sukuk issuance from Asia since 2016. Affin Islamic Bank was the Islamic Issuer of the Year among the financial institutions for its combined 1.1-billion-ringgit additional tier-1 sukuk and tier-2 sukuk priced in October.
A leading Shariah-ESG investment management company, BIMB Investment Management, was voted as the ESG Asset Manager of the Year. It provides comprehensive Shariah-ESG investment solutions across multiple asset classes to both individual and corporate investors in Malaysia and in the region. HSBC, on the other hand, was picked as the Best Islamic Green Structuring Adviser, essaying this role in the two RoI sovereign green sukuk prints.
Other notable citations were that of the Islamic Financial Services Board as the Islamic Institution of the Year as it continues to fulfill its mandate as an international standard-setting organization that promotes and enhances the stability of the Islamic financial services industry. Maybank Islamic Bank retains the accolade as the Best Islamic Bank for Asia-Pacific, while the sukuk adviser honours went to Standard Chartered – Global, Maybank Investment Bank – Asia-Pacific and HSBC – Middle East.
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