Swings and roundabouts

What goes up must come down. The global financial system is a piece of clockwork with a million moving parts; and while we are all cogs in the machine, the rate of revolutions will always change based on circumstance and situation. This week, we look at some of the biggest wheels in the Islamic finance world, and ask how the current economic and political challenges are affecting the outlook for the Sukuk market over the coming year. Will Malaysia's internal issues impact its position in the global industry, and how is the Middle East performing in comparison to its beleaguered Asian counterpart?

Our IFN reports this week explore a wide range of issues: from the rise of Islamic IPOs to Tamweel Africa. Our IFN Correspondents cover Qatar, Bahrain, real estate and leasing while we also have special reports on India and Bangladesh and features from ATA Plus and Tejara Capital on crowdfunding. Our in-house analyses this week look at Afghanistan and crowdfunding as well. 

The wheel keeps turning, the summer break is over, and activity is picking up as the world returns to work. I hope that this week's issue of IFN provides you with an invigorating escape as you get stuck back into the daily grind!

An Islamic ETF opportunity in the African region?

Several of the largest stock exchanges in sub-Saharan Africa have initiated discussions to cross-list new and existing exchange-traded funds (ETFs) in a move that is anticipated to deepen liquidity across the region and boost the popularity of ETFs as an investment instrument. VINEETA TAN takes a look at the development.

The cross-listing decision by the bourses of South Africa, Nigeria and Kenya will allow investors access to liquid company shares tracked by indexes such as the FTSE/JSE Top 40, the FTSE/NSE Kenya 15 Index and the MSCI/Nigeria.

“ETFs are one of the fastest-growing asset class categories in the world. By collaborating with Africa’s largest stock exchanges, we hope to spearhead this trend in Africa,” explained Donna Oosthuyse, the director for capital markets at the Johannesburg Stock Exchange. In addition to driving liquidity in home markets, cross-listing ETFs across these markets will also, according to Oosthuyse: “Provide extra visibility on the shares on that exchange to new investors who in all likelihood don’t yet trade on that market.”

As a collection of equities, commodities or bonds packaged in a fund, ETFs are an appealing instrument as they provide much-needed risk diversification across a wider range of exposure in a more cost-efficient manner. While popular in the conventional space, ETFs, however, do not feature as prominently in the Islamic landscape, although they are slowly gaining traction. Industry data shows that there are fewer than 30 Islamic ETFs worldwide with sub-Saharan Africa accounting for two: Absa Capital’s Shari’ah Top 40 Index ETF and Lotus Capital’s Lotus Halal ETF.

Comparing the three African exchanges involved, South Africa and Nigeria lead in terms of ETFs with both the countries housing one Shariah compliant ETF each while Kenya on the other hand, has made it a priority to launch ETFs this year as it seeks to bolster liquidity by broadening its investment product universe. Capital Markets Authority Kenya earlier in April agreed on an ETF roadmap with these funds to be listed on the Nairobi Securities Exchange.

Sovereign Sukuk: Predictions

Being rather quiet this week, the sovereign Sukuk market only saw regular issuances from the Central Bank of Bahrain and the government of Indonesia. As activities begin to pick up pace in the second half of the year, industry players have come up with their predictions of the sovereign Sukuk space. As usual, NABILAH ANNUAR keeps up with the latest developments in the sovereign arena. 

The monthly offering of the Bahraini government’s Sukuk Ijarah issued by the Central Bank of Bahrain (CBB) on the 11th August, has been oversubscribed by 105%, the bank noted in a statement. The issue received subscriptions worth BHD27 million (US$71.07 million) for the BHD26 million (US$68.44 million) issue, which carries a maturity of 182 days with an expected return of 1.31%.

On the same date, the government of Indonesia awarded IDR3.59 trillion (US$262.79 million) of its sovereign Sukuk securities which received total incoming bids of IDR11.82 trillion (US$845.13 million) at an auction through Bank Indonesia on the 11th August 2015. According to a statement on the Ministry of Finance’s website, the highest bid-to-cover-ratio was 7.83 for the SPN-S 05022016 series (new issuance).

Industry players and observers are expecting a hike in sovereign issuance in the second half of the year. “We’re expecting sovereign Sukuk [papers] to be issued by the Ivory Coast, Oman, Tunisia, Jordan and UAE and next year we’re expecting a number to be issued across the Middle East and Africa,” conveyed multinational law firm, Linklaters in a recent commentary. 

Jonathan Fried, a capital markets partner at the firm highlighted that different considerations such as oil price movements come into play in the Middle East. He explained that the volatile price of crude oil over the past year have inevitably had an impact on countries whose GDP is inevitably linked with the price of oil. The impact on budgets means that countries will look to diversify their funding platforms, and Shariah compliant debt capital markets is one option alongside, or even instead of, the conventional capital markets.

Gulf sovereigns may increase their issuance of Sukuk (Islamic bonds), in the second half of the year to offset deficits caused by the low oil price and to pay for stimulatory spending. Echoing Linklaters’s sentiments, Jamil Mufti, the portfolio manager at the Bank of London and The Middle East said that an uptick in issuance would boost what has been a slowdown in Sukuk issuance so far this year. 

“The initial read was that lower oil prices would lead to a cut in infrastructure spending and therefore lower borrowing requirements. Although infrastructure spending has stalled for new oil and gas-related projects, due to the prolonged nature of the oil price weakness, governments are trying to grow their tertiary industries to lessen their reliance on the sector.”

There is, however, an obvious dearth of European offerings. “As we advised on the UK and Luxembourg sovereign Sukuk issues, we understand that the participants on those transactions were satisfied with the economics of those deals. However, the strategic objective underpinning these deals were not simply to do with funding requirements, but rather the establishment of a benchmark in their respective jurisdictions; further issuance by these two countries, and others in Europe, will be driven primarily by these types of strategic objectives rather than funding need[s],” said Fried. 

Upcoming sovereign Sukuk



Expected date

Ivory Coast

XOF300 billion

Fourth quarter of 2015

Sindh Province

US$200 million



US$1 billion

Before Ramadan 2015





US$1.1 billion





Hong Kong

US$500 million to US$1 billion


Ningxia Hui Autonomous Region

US$1.5 billion





South Africa







XOF150 billion



US$500 million



JOD400 million








There is evidently a growing demand for Sukuk products across the GCC, and this is believed to assist in driving innovation in the Sukuk market to enable companies, from different sectors and with different assets available to underpin the Sukuk, to issue these products. The anticipated rise in Sukuk issuances this year bodes well for the industry but could lead to some short-term weakness to the issuing Sukuk curve as the supply is absorbed.

Company Focus: Crescent Wealth

Islamic finance and Australia may not be commonly paired together; however, the country proves that there are certain segments of its financial industry that are brimming with Islamic finance opportunities. This week, VINEETA TAN shines the spotlight on a burgeoning Shariah compliant wealth manager whose performance is a strong indicator of Islamic finance demand in the country.

Founded in 2007, Crescent Wealth has pioneered many initiatives in the Islamic fund management space of Australia including introducing the country’s first Shariah compliant cash management fund, the first research-based Islamic index for the Australian market and launching the first-ever Islamic superannuation fund in 2013.

With a growing portfolio of Shariah funds which has exposure in Australian and international equity markets as well as real estate, the asset manager is considered one of the fastest-growing super funds in the country as Crescent Wealth Super member numbers surged by 1,096% in 2013/14 from 2012/13. The fund manager’s phenomenal growth is largely attributed to its Islamic superannuation fund, which also happens to be the world’s first private Shariah compliant pension fund, and saw total members expanding by almost ten-fold between the financial years of 2014 and 2015. Just this week, the firm announced that its funds under management exceeded the US$100 million benchmark.

“Achieving the US$100 million benchmark is a significant validation of our business model and signals that we have the scale necessary to accelerate growth in Australia and abroad. It proves the depth of our market and cements Islamic finance as a significant segment of the sophisticated Australian financial services market,” said Talal Yassine, the managing director of Crescent Wealth.
While the firm is making headways in its home market, this Australian Islamic finance success story is also attracting global interest and has compelled the fund manager to look to international waters for further expansion. In response to that, Crescent Wealth anchored itself in Malaysia, with a new office in Kuala Lumpur using it as a springboard to foray into other Southeast Asian and Middle Eastern markets. “We’ve had significant interest from abroad and will continue our growth in the short to medium term with the firm continuing to reach out internationally,” confirmed Talal.

Islamic equities on the up as IPOs attract optimism

As trepidation gathers over US interest rates, political instability and weakening Asian currencies, investors are turning their attention from fixed income towards equity — and nowhere is this more clear than in the recent rash of interest in Islamic IPO activity. LAUREN MCAUGHTRY looks at the latest figures.  

Global IPO issuance reached record levels at the end of 2014, with the market relaxing a little in the first quarter of this year. In the second quarter, however, the pace picked up once again, with quarterly money raised increasing by 54% to US$65 billion and the number of IPOs up by 57% to 390 (compared to US$77 billion via 325 deals in the same period last year). IPO activity across both the GCC and Asia has been especially promising, showing signs of recovery both in quantity and volume especially in the second quarter. Asia Pacific was the leading region in terms of IPO activity over the last quarter, accounting for 55% (213) of the total number of deals and 42% (US$27.3 billion) of global money raised, according to the latest PwC data. 

Following this strong performance, Asia Pacific is now the leading region year-to-date, with 55% (351) of the number of global IPOs in the first half of the year and 38% (US$41.0 billion) of money raised. Although this is largely due to the recent IPO frenzy in China, Malaysia has seen its fair share of activity especially in the Islamic space. Earlier this year, ValueCap (part-owned by sovereign wealth fund Khazanah Nasional) announced plans to launch an Islamic exchange-traded fund with an IPO to raise up to RM500 million (US$123.3 million), while most recently on the 18th August, the Johor state investment arm announced plans to list its Islamic real estate investment trust Al-Salam on the main market of Bursa Malaysia on the 22nd September. 

In the GCC, five IPOs have been witnessed so far this year (first half of the year), raising a total of US$1.15 billion. Saudi Arabia has unsurprisingly been the most active market so far, with the Capital Markets Authority’s recent updates to IPO allocations driving investor interest and the Tadawul opening capturing headlines (see 21st July cover story ‘Stairway to Heaven’, Vol 12 Issue 29, for further details). The Kingdom accounted for 75% of total IPOs and 87% of total money raised in the second quarter of 2015, according to PwC, including offerings from Saudi Ground Services Company (the largest this year at US$751.9 million), Middle East Paper Company and Saudi Company for Hardware. The Muscat Securities Market also saw its first IPO this year thanks to Phoenix Power, owner of Oman’s largest power plant in operation, which raised US$146.2 million and saw significant interest from investors. Interestingly, despite the recent change in the UAE’s Commercial Companies Law allowing the minimum free float percentage to be reduced from 55% to 30%, which was in part designed to support the IPO market, this has not yet translated to increased new market issuance. 

The volume of IPOs in the GCC for the second quarter this year is nevertheless up 28% on the same period in 2014, despite fewer launches (four compared to seven) suggesting improved company valuations and a positive outlook for the regional equity markets. The wider MENA region also tells a positive story, with nine IPOs in the second quarter (compared to seven in 2014) raising over US$2.1 billion — a 92% increase over the same period last year. Egypt is the key success story in the region, with increasing political stability and improving economic conditions driving a growing confidence in the country. Notably, this year has also seen the first outbound IPO from the MENA region since the Gulf Marine Services IPO on the London Stock Exchange (LSE) in the first quarter last year, with Integrated Diagnostics Holdings and Edita Foods Industries both listing on the LSE in the second quarter of 2015. 

“Despite concerns over regional instability we saw several companies come to market this quarter that had been in the IPO pipeline. The amounts raised demonstrated that there is still equity investor appetite to invest in the right company. We would expect to see this trend continue once the market reopens after the summer period as other pipeline companies come to market, commented Steve Drake, the head of PwC’s capital markets and accounting advisory services team in the Middle East. “It is perhaps too early to predict how the opening of the KSA market to foreign investors will impact the number of IPOs, although we would expect the number to increase over time as foreign investors gain confidence in the KSA market.”

It may be too early to tell but there is no doubt that interest is rising — demonstrated by the growing number of new funds launching in the last few months. In the GCC, EFG-Hermes created an Islamic white label IPO fund in March this year in partnership with Muscat Capital which has already reached US$100 million in assets, and has another white label IPO fund which was due to launch this month. This illustrates a wider trend in the Saudi market, with around 10-15 new IPO funds launching in the last 12 months. “We have seen so many new IPO funds launch in the past few months that they are really crowding out the market,” noted Omar Bassel, the head of asset management at Saudi-based MASIC, to IFN. 

Yet last week’s announcement by Al Rajhi Capital of an Islamic Al Rajhi IPO fund, launched on the 16th August, suggests that the rush of interest shows no sign of slowing. With the bond markets shaky and economic conditions improving, the wheel continues to turn and investors’ flight to equity could see IPO activity increase as the year progresses.

Iran to strengthen OIC ties with Islamic finance

The Central Bank of Iran (CBI) is exploring measures to strengthen and build international banking relations especially through Islamic finance, as international players, including those of the OIC, gear up to tap business opportunities with one of the world’s largest oil producers. VINEETA TAN reports.

“Given the prevalent religious beliefs and the Muslims’ commitment to use those financial services which are Shariah compliant, it is crucial to pursue the development of the Islamic banking system in [OIC] member countries,” said Dr Akbar Komijani, the deputy governor of CBI, at a recent meeting of representatives from various Muslim countries and communities.

Akbar noted that the Iranian apex bank has introduced new products and reviewed existing procedures to cater to the evolving needs of Shariah-seeking investors. Some of these initiatives include: establishing a Shariah committee at the central bank level, laying the regulatory groundwork for Sukuk Ijarah and Istisnah to pave the way for such issuances and setting regulations governing Istisnah, Murabahah and Bai Dayn so as to boost the utilization of such contracts in banking operations, among others. 

“Participation papers to finance public enterprises and municipalities and the CBI participation papers as a monetary policy and liquidity management instrument are among the measures taken by CBI,” added Akbar.

Iran’s economy had taken a severe toll since it was slapped with sanctions, especially from 2011 onwards when inflation skyrocketed and recession deepened which saw investments flee and great volatility in the foreign exchange market. That being said however, the Islamic Republic has taken great strides to introduce macroeconomic stability through a slew of policies including proper liquidity management strategies. This has led to a significant reduction in inflation (from 45.1% in June 2013 to 14.2% in July 2015), a 3% economic growth in 2014 from -6.8% and -1.9% in 2012 and 2013 respectively as well as a spike in investment to 3.5% last year from a record low of -6.9% in 2013. 

The improving economic conditions are anticipated to endure as the effects of sanctions relief gradually unfold and Iran is keen to play a bigger role in enhancing the trade flows and mutual cooperation with the Islamic Ummah through an effective Shariah financial system. “Now that the world has recognized the potentials and capabilities of Islamic banking, it is the responsibility of Islamic countries to introduce Shariah compliant financial instruments and respond to the needs of the investors,” affirmed Akbar. CBI also recently reviewed regulations on the establishment of foreign banks in Iranian free trade zones to facilitate greater relationships with the global banking community.

Tamweel Africa: The driving force of Islamic finance in sub-Saharan Africa

Tamweel Africa Holding recently revealed plans to establish Islamic banks in Mali, Chad and Benin, among other markets. Already having operations in Senegal, Niger, Guinea and Mauritania under the ‘Banque Islamique’ brand, Tamweel has chartered its course for the rest of 2015 and the near future. Speaking to Babacar Ndoye, CEO of Tamweel Africa Holding, NABILAH ANNUAR has the exclusive.

Incorporated in June 2009, Tamweel Africa Holding (TAH) was established to promote Islamic finance in sub-Saharan Africa by managing Islamic banks aimed at financing SMEs. Contrary to common misconception, Tamweel Africa is not in any way related to the UAE’s Tamweel. TAH was initiated by the Islamic Corporation for the Development of the Private Sector (ICD) to pool the investment it made when it became the majority shareholder of the Islamic Bank of Senegal, the Islamic Bank of Niger and the Islamic Bank of Guinea. The ICD created TAH as a structure with legal ownership and management rights of the affiliates. Aiming at strengthening the technical expertise of the affiliates, enhancing their product offerings, and extending their international network, the ICD concurrently entered into a strategic partnership with Bank Asya, which acquired 40% of the shares of TAH. 

Based on three core businesses — retail, international and corporate banking, TAH’s presence has in fact given new prominence to Islamic finance within the West African region. “To augment the existing pace of growth and to lead the banks to a higher level, TAH has prepared [a] strategic plan focusing on initiatives necessary to improve public perception and [the] image of the Islamic banks while promoting them as [a] viable system to address the needs of the public,” said Ndoye. According to him, TAH has to a certain extent restructured the banks, strengthening their organization and increasing share capital to support, secure and optimize their operations. “To improve the banks’ business process reliability, TAH has deployed its data backup and recovery system, implemented a new IT system, with all banks operating using a common Shariah compliant banking software. The company plans to strengthen its market presence and stay ahead in an environment of heightened competition such as Mali, Benin, and Cote d’Ivoire, while tapping the vast opportunities available in the West African region.”

In collaboration with its shareholders, TAH plans to keep its focus on facilitating and catalyzing stable and distinct growth of the banks. In this regard, Ndoye revealed to IFN that: “TAH seeks to strengthen its role in countries where its affiliates are located; assist its affiliates to achieve, in reference to regional banking positions, the top five positions in each country; establish an extensive network of branches in each country while expanding its geographical presence; collaborate with international Islamic infrastructure institutions such as the IFSB, CIBAFI, AAOIFI, and IRTI to improve the policy, business environment and capacity building of TAH affiliates; standardize and harmonize the products and services offered by TAH affiliates; and conduct special and targeted awareness sessions to clarify misconceptions and promote Islamic financial products.” 

Five years since its establishment, TAH has achieved several milestones: it managed to set up one additional bank — Banque Islamique de Mauritanie; the number of bank branches increased eight times compared to 2009; total assets and credits quadrupled in five years while deposits multiplied by three over the same period; number of employees increased threefold; number of customers multiplied by six and its net income multiplied by three.

Global Sukuk struggles: MENA surge amid Malaysian woes?

Malaysia is struggling to maintain momentum amid political and economic chaos, while Middle East economies are surging forward and their capital markets are developing apace on the back of strong Sukuk demand. LAUREN MCAUGHTRY asks what we can expect from Islamic fixed income this year and, as the biggest contributor to the market, what impact the current Malaysian crisis could have on overall issuance… 

A country in crisis
Malaysia is in the midst of a highly public political crisis involving the highest levels of government and extending to all corners of the administration including the central bank and ministry of finance — and the turmoil has had an inevitable effect on the market which, coupled with a plummeting currency, volatile oil prices and a substantial contraction in private consumption following the introduction of a goods and services tax (GST) in April, has seen GDP growth slow from 5.6% in the first quarter to 4.9% in the second quarter and led to perilous predictions of economic failure.  

“The stock market has all but collapsed. Investors, especially foreign investors, are taking out their money to safer places abroad,” warned former Malaysian prime minister Dr Mahathir Mohamed in a recent blog post. “The government is short of funds. It has to cut budget allocations to all ministries. The introduction of the GST has only resulted in increasing the cost of living making the depreciation of the ringgit more acute.” The ringgit is currently at a 17-year low, down 23% year-to-date (according to Bloomberg figures) and sliding 3.8% against the US dollar just last week as foreign exchange reserves fell below US$100 billion for the first time since 2010 — leading to fears of capital controls or a currency peg (solutions that the country turned to during the 1998 crisis), although central bank governor Dr Zeti Akhtar Aziz has publicly ruled out these possibilities. “The government… will not be able to borrow. The country’s economy will collapse. And the people will suffer,” predicted Mahathir. 

Investor impact
While this may seem like an ominous prediction, the figures do not look promising. The stock market closed at its lowest since 2012 this week, while funds are flooding out of the country. Overseas investors reduced their sovereign and corporate debt holdings by 2.4% in July according to central bank data — including a 16% reduction in sovereign Sukuk, the largest in 10 months. Funds have also pulled US$3 billion out of the country’s equity market in 2015 so far, the highest level since 2008, the FTSE Bursa Malaysia KLCI Index of equities has fallen 16% from a high of 1,862.58 in April to 1,572.54 (as of the 17th August, see Figure 1) and the FTSE Bursa Malaysia EMAS Shariah Index is down 16.41% for the year to 11,199.21 (as of the 18th August). 

Faltering fixed income 
But it is the debt capital market that is causing real concern, with borrowing costs rising to record highs as investors flee the market. The benchmark 10-year Sukuk yield has topped 4.2% and analysts say it could break the record high of 4.44% (seen in December 2013) to reach the 4.5% barrier this year; as falling commodity prices, continued oil price problems, a Federal Reserve rate raise and a falling ringgit compound the political issues and scare investors away. 

Last month, rating agency Standard & Poor’s (S&P) issued a note warning of an impending correction in the global Sukuk market in 2015 after Bank Negara Malaysia (BNM), the central bank, stopped issuing short-term Sukuk this year. The agency subsequently revised its total Sukuk issuance forecast from US$100-115 billion to US$50-60 billion, half the original estimate. “In the first half of 2015, BNM’s pullback saw total Sukuk issuance drop by 42.5% compared with the same period a year earlier,” said Mohamed Damak, S&P’s global head of Islamic finance. Although the reason behind the reduction was concern from BNM that the Sukuk were being purchased by foreign banks rather than assisting domestic banks’ liquidity management, rather than any economic concern, the move has not helped the Sukuk situation given the current climate. “Excluding the BNM effect, the worldwide volume of Sukuk issuance performed in line with expectations, total issuance dropping by only 10.7%, confirming that the impact of falling oil prices on recurring government spending and investment projects in core markets (namely GCC countries and Malaysia) was limited in the first half of 2015,” noted S&P

Even if the central bank was offering short-term Sukuk however, there is doubt as to whether the former demand would be there. Last month, Malaysia attracted its weakest sovereign demand of the year at a RM3.5 billion (US$851.68 million) auction of 10-year Sukuk on the 30th July, with a 1.85 bid-to-cover ratio (the lowest since December 2014) and a yield of 4.105%. 

Middle East advantage?
So will these impediments translate into an advantage for the Middle East market? In stark contrast to the doom and gloom emanating from Asia, the GCC has seen a sustained success story in the Sukuk sector. While total issuance has fallen year-on-year (with total GCC Sukuk issuance declining by 26.45% to US$4.85 billion in the first half of 2015 from US$6.55 billion in the first half of 2014, according to the latest figures from the Kuwait Financial center (Markaz)), this was largely driven by a contraction in sovereign issuance, while the corporate market remains healthy. “There is an ever-growing demand for Sukuk products in the GCC, and this will continue to drive innovation in the Sukuk market to enable companies, from different sectors and with different assets available to underpin the Sukuk, to issue these products,” confirmed Jonathan Fried, a capital markets partner at Linklaters

Despite the sovereign slowdown, oil price pressure and dwindling foreign reserves are driving governments to diversify their funding platforms, with the Islamic debt capital market one obvious avenue through which to do so. “Issuers who need funding and plan to tap the global Sukuk market are likely to continue finding support given the lack of primary supply for this asset class,” agreed Mohamed Safri Shahul Hamid, the senior managing director and deputy CEO of CIMB Islamic, speaking to IFN. “Given that Asian sovereign issuers which have previously shared their intent to tap the Sukuk market in 2015 have already done so (Hong Kong and Indonesia), we expect the rest of the year to see supply predominantly from Middle Eastern issuers which still have funding requirements.” One of these is likely to be the US$1 billion Oman issuance, which IFN understands is expected imminently; as well as an anticipated UAE deal. Sovereign issuances from the wider Middle East region including Tunisia, Jordan and Turkey are also expected; as well as a spurt in African issuance from nations such as the Ivory Coast, Kenya, South Africa, Senegal and Niger. 

“We are unlikely to see similar levels of debut sovereign Sukuk issuance like we did in 2014, which in itself was a significant breakthough,” commented Anzal Mohammed, a partner with Allen & Overy in Dubai, to IFN. “Financial institutions will continue to dominate issuance volumes, including in the regulatory capital space, with more and more corporates and government-related entities considering Sukuk as a viable option to issuing conventional bonds.” 

“Total global US dollar-denominated Sukuk issuance through to the 30th June 2015 was US$7.75 billion, indicating a growth of 28% compared against the same period in 2014,” pointed out Rizwan Kanji, a partner with King & Spalding, to IFN. “Looking forward, we are seeing continued strong activity around the private placement Sukuk, which is likely to continue. We are also seeing increased activity around regulatory capital by financial institutions, and I believe these trends will continue for the rest of 2015 with a few senior unsecured issuances and increased activity by sovereigns in the GCC to mitigate the budgetary pressures as a result of continued low oil prices.”

On the corporate side, the UAE put in an especially strong showing in the second quarter, emerging as a key player for corporate bond and Sukuk issuance with multiple maiden issuances from the likes of Bank of Sharjah and Noor Bank, along with a US$750 million Sukuk from Dubai Islamic Bank. Issuances by UAE entities raised the largest amount in the GCC bonds and Sukuk market in the first half of 2015, representing 75.6% of the total (US$14.99 billion), according to Markaz, and were also the most active with 99 issuances.

Saudi Arabia also made its presence felt in the Sukuk market this year with a significant US$1.07 billion issuance from Riyad Bank and a US$400 million Sukuk from Saudi British Bank. And the sector is on the up as activity is expected to increase after the summer lull. “Companies are still looking for new financing or refinancing of existing arrangements and therefore we should expect to see issuers going to market from September once investors return from the summer break” said Steve Drake, the head of PwC’s capital markets and accounting advisory services team in the Middle East region.

Cautious corporate optimism 
Corporate activity is looking promising overall, and Malaysia is in fact no exception. Not everyone is as pessimistic as Mahathir, and players within the industry are keeping their heads high with hopes for the future as the market corrects and Malaysian strength in the market reasserts itself — especially on the corporate side. “While there is little doubt that the noise in the market surrounding Malaysia is likely to impact on sentiment for Malaysian issuers, we do expect demand to persist for sound corporate credits given the scarcity value for Malaysian-domiciled issuers,” confirmed Safri. “Islamic finance as a whole still observes a lack of high-quality assets given the growth in Islamic wealth, which should continue to provide good support for high-quality Sukuk issuances that are brought on to the market.”

Despite the current headwinds in the market there remains a stalwart pipeline that it is hoped will see Malaysia through the worst of the storm. “Despite the recent weaknesses in the Malaysian markets (currency, rates and equities), it is broadly believed that this is due to technicals rather than a fundamental shift in the macro landscape,” agreed Safri. “We expect and hope that things would normalize in the later part of the year, especially after the much-expected lift-off by the US Federal Reserve. On the domestic front, we continue to expect additional supply in the Sukuk pipeline and have several issuers already waiting on the sidelines while the market finds its feet.” 

These include not only domestic firms such as West Coast Expressway (which announced plans for a RM1 billion (US$243.34 million) Sukuk Murabahah program last month) and state electricity company Tenaga Nasional (which has plans to raise up to RM9.5 billion (US$2.31 billion) through a Sukuk issuance), but also several foreign firms such as Japanese car manufacturer Toyota and financial services firm AEON, both of whom are planning sizeable issuances this year. 

Other firms have been put off by the poor exchange rate and economic volatility however, and according to Bloomberg, sales in corporate Sukuk in Malaysia have fallen 34% in 2015 so far. Sarawak Energy, which had plans for a RM1 billion transaction in June, has delayed its issuance until the markets stabilize; and while state mortgage lender Cagamas still hopes to issue from its RM2.5 billion (US$608.35 million) program this year, foreign exchange volatility is impeding any US dollar issuance, its preferred option, the lender told Reuters this week. 

With the potential interest rate rise already priced into the market and domestic funds still cash-rich, the outlook is nevertheless not as gloomy as it sounds; and observers remain cautiously optimistic. “The domestic Sukuk market in Malaysia will be the largest domestic Sukuk market (by volume) for years to come,” Anzal explained. “In the cross-border space, it has always lagged behind the Middle East region and that is unlikely to change in the short-to-medium term. I don’t envisage a dramatic change despite the recent events.” Rizwan agrees. “In 2015, we have seen strong US dollar-denominated international Sukuk issuances out of Malaysia including PETRONAS and the Malaysian government. If the geopolitical situation in Malaysia is going to impact its Islamic finance status, this has not reflected in the issuing trends, as yet.”

A fragile outlook
Whether Malaysia recovers its footing remains to be seen, but either way the global Sukuk markets will continue to be buffeted by economic challenges, and this is likely to result in an uncertain outlook for the coming year.

 While the pipeline is positive as we emerge from the summer lull into the autumn’s activity, it is also likely that real activity will only return in the fourth quarter of the year, given the next Eid holidays landing in the third week of September. “It’s difficult to predict what 2016 will bring as the global capital markets are very much dependent on global economic and geopolitical events and decisions,” warned Anzal. “Foreign investors are conscious of the Greece situation and the more recent currency-related move by the Chinese government. The level of issuance in the fourth quarter of 2015 will be the litmus test in terms of impact.” For now, it really is simply a question of wait and see. 

EFG-Hermes launches second IPO fund

SAUDI ARABIA: On the 2nd August EFG-Hermes launched its second white label IPO fund in Saudi Arabia, the Nomw IPO Fund, in partnership with Nomw Capital. The fund has an initial size of around SAR30 million (US$7.99 million). “We expect the fund to grow significantly with the next IPO offering in Saudi anticipated in September,” Majed Kabbara, the head of asset management for EFG-Hermes Saudi Arabia, told IFN. 
The first white label fund from EFG-Hermes was launched in March 2015 in partnership with Muscat Capital, and is currently around SAR100 million (US$26.64 million) in size.

Shariah compliant crowdfunding

Crowdfund investing has been termed as the act of funding a project or a venture by raising amounts of money from a group of people, typically facilitated via crowdfunding platforms on the internet. These platforms too have made its mark in the Islamic finance space witnessing a growing number of Shariah compliant crowdfunding platforms across the globe. NABILAH ANNUAR provides an update of the latest developments in Islamic crowdfund investing.

Crowdfunding platforms bypass the banking system by providing investors with direct and quicker access to individuals and businesses needing funds. In most cases, investors take a direct risk in the venture to which they provide funding. This model of financing is deemed to be in compliance with Shariah principles. In the Islamic finance space, crowdfund investing is believed to have the capability to drive certain industry segments mainly: private equity, venture capital and microfinance. 

An interesting example that has seen tremendous growth is peer-to-peer (P2P) financing or crowdfunding. Although a few steps behind conventional platforms, it can now be observed that more crowdfunding platforms are using Islamic finance structures and adopting a Shariah compliant approach. 

The crowdfunding financing model is seen to be a perfect match for Islamic finance due to its community-based model. Crowdfunding can help the unbanked reach banked status. Thus, there will be an ideal situation where crowdfunding facilitates more deals to reach and receive funding from Islamic banks, and conversely, the backing from the banks significantly reduces risks for crowdfunding investors. 

Demonstrating exponential growth over the past few years, crowdfunding has developed a strong trend in Muslim markets. In Malaysia, Shariah crowdfunding platforms include: ‘Make the Pitch’, ‘myStartr’, ‘pitchIN’ and ‘Social Sharity’; in Indonesia it has: ‘BursaIde’, ‘Pantugan’ and ‘Wujudkan’; in Pakistan: ‘Seedout’; in the UAE: ‘Aflamnah’, ‘Eureeca’ and ‘Goodgate’; in Egypt: ‘Shekra’ and ‘Yomken’ and in Turkey: ‘Biayda’ and ‘FonlaBeni’. 

Other Shariah compliant platforms outside of the Muslim world are the US-based ‘LaunchGood’ and ‘HalalSky’ as well as the UK’s ‘HalalFunder’ and ‘CrowdCube’.

In the past year, the industry has seen another three companies joining the fray: in March 2014, the market participants welcomed Club Ethis, a structured community funding platform based in Singapore; in November 2014, peer-to-peer finance platform Beehive opened its doors to the UAE market; and most recently, San Francisco-incepted Blossom Finance (now based in Indonesia), an Islamic microfinance crowdfunding vehicle which utilizes Bitcoins in its business transactions.

Recent developments
At the beginning of the year, Alchemiya Media, an online television platform targeting Muslims, confirmed to IFN that its crowdfunding campaign on CrowdCube has been certified Shariah compliant by Mufti Barkatulla (Shariah advisor at Taqwaa Advisory and Shariah Investment Solutions as well as Al Rayan Bank among others) and Shaikh Haytham Tamim (Association of Shariah Scholars in Islamic Finance’s vice-president for Europe and the director and founder of Shariah Solutions). 

In April, global equity crowdfunding platform Eureeca informed IFN that it has recently received regulatory approval from the UK’s Financial Conduct Authority (FCA), highlighting that its systems and investor protection controls are of high standards and passed the rigorous scrutiny applied by the FCA

The approval will open up cross-continent investment opportunities as Eureeca will now be hosting UK-based early-stage businesses and SMEs, providing them the opportunity to raise capital from regional investors and benefit from their local expertise and contacts should they want to enter the Gulf and wider Middle East markets. Similarly, regional businesses will have the opportunity to raise capital from UK-based investors.
In the same month of April, the Securities Commission Malaysia (SC) extended an invitation to operators interested in establishing a Shariah compliant (or conventional) equity crowdfunding (ECF) platform to submit their application by last May. This invitation follows the SC’s introduction of requirements for the registration of ECF platforms in February.

Islamic crowdfunding platform Blossom Finance, which incorporates Bitcoins into their microfinancing business, in May confirmed with IFN that it will be making a pilot investment of up to US$100,000 into BMT Nusantara Condet (a branch of the BMT Nusantara group) to fund small to medium businesses in the Indonesian capital, an endeavor that seeks to reduce poverty in the country.

The continued prospects of a low-interest environment, improvements in technology and continually higher capital requirements for the banking sector provide the alternative finance market an opportunity to innovate and accelerate its growth. Major Islamic players are projected to enter the western and traditional Islamic markets either as stand-alone platforms or in joint ventures with established players. Particularly in the western financial markets, the lack of suitable investment products for Islamic investors provides a unique opportunity for such platforms to succeed. 

With a simple funding model, crowdfund investing would easily gain approval from Shariah scholars. Regulators in Asia and the Middle East are expected to catch up with developments of the alternative finance markets and consider the necessary regulatory changes in their home countries, allowing Islamic crowdfunding platforms to gain market acceptance in these respective economies.


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