President Joko Widodo and Prime Minister Mohd Najib Abdul Razak open the 12th World Islamic Economic Forum in Jakarta

The 12th WIEF aims to further explore the crucial role of micro, small and medium enterprises (MSMEs) in driving economic growth in economies around the world, in line with its theme this year, 'Decentralizing Growth, Empowering Future Business’.

Indonesian President Joko Widodo and Malaysian Prime Minister Najib Abdul Razak opened the 12th World Islamic Economic Forum (WIEF) that ran from the 2nd-4th August 2016. There were also five global leaders who attended the opening ceremony including: the president of the Republic Tajikistan, Emomali Rahmon; the president of the Republic of Guinea, Alpha Condé; the prime minister of Sri Lanka, Ranil Shriyan Wickremenshinghe; the deputy prime minister and minister of trade of the Kingdom of Jordan, Dr Jawad Al Anani; and the president of the IDB, Dr Ahmad Mohamed Ali.

The 12th WIEF focused on strengthening the decentralization of growth through the empowerment of MSMEs to ensure the improvement of standards and connectivity in the business world as well as better access to regional and global investors. SMEs should be digitized through the adaptation and utilization of ICT to facilitate their economic expansion and interaction with global economic players.

SMEs are the backbone of the Indonesian economy. About 99% of Indonesia’s businesses are SMEs with more than 98% dominated by micro companies. These businesses employ over 107.66 million Indonesians and contribute 60.6% to Indonesia’s GDP. These numbers are increasing with the emergence of the creative industry throughout the country. Decentralization of growth will therefore empower MSMEs by facilitating their larger participation in the mainstream economy which will ensure inclusive economic development, spur innovation and improve efficiency, giving enterprises the competitive edge to navigate through the ever-evolving business landscape.

In order to facilitate the growth and development of SMEs in Indonesia, the government recently issued several economic policy packages to stimulate inclusive economic growth. Some of them have a direct impact on the interests of SMEs, such as the simplification of permits for the establishment of SMEs and export licenses, increase in SME financing and special interest rate on export credit. Under the current policy of liberalization, 19 subsectors have been reserved for small-scale enterprises and cooperatives.

Mohd Najib Abdul Razak, the prime minister of Malaysia and the patron of the WIEF Foundation, in his keynote address said: “The 12th WIEF theme ‘Decentralizing Growth, Empowering Future Business’ is certainly apt, in the face of the challenges in world economy and political security as well as new developments brought on by events like the Brexit referendum and the consequences for Europe in the global economy.”

Najib pointed out that though Europe is still struggling to recover, the ASEAN economy is still robust with a 4.5% GDP growth while the Islamic economy almost doubled the 2014/2015 global rate, and that Muslim consumer spending is set to reach US$2.6 trillion in the year 2020. He added that Indonesia, a strong market in ASEAN, is a key growth engine for both ASEAN and the Islamic economy.

“The Islamic economy not only has the potential to drive national economic growth but also will help to restore the confidence of millions of people across the world who have been disillusioned and are seeking a better way of doing business. To do this, there is a need to create a more equal and sustainable world by rebalancing the economy with inclusive growth that must deliver broad-based improvements. Business approaches and economic growth models must be reformed. There must be more openness, more integration and better accountability by the public sector, the private sector and international institutions.”

Key issues that were discussed at the 12th WIEF include Sukuk for infrastructure financing, integration of Halal sectors and Islamic finance, expansion of the global Halal food industry, development of the global modest fashion industry, improving funding access for MSMEs, integrating MSMEs into the digitized trade, building more equity crowdfunding platforms, spurring innovation by linking start-ups to corporations, and inculcating the culture of design-thinking for business. In addition, the forum will also host sessions on creative industries, Islamic travel and Halal food markets that will also gain benefit from the fast-growing Islamic economy which is not limited to the Muslim world, but can be better grasped in partnership with the wider international community.

The 12th WIEF is organized by the WIEF Foundation and hosted by the Ministry of Finance, in collaboration with the State Secretariat and Ministry of Foreign Affairs, of the government of the Republic of Indonesia. This year’s forum will continue to build bridges through business by providing various networking platforms to delegates who wish to engage with potential business collaborators and investors, and to countries that intend to showcase trade opportunities and expand their business outreach. These platforms include complementary programs, exhibition, IdeaPad, business exchange, 12th WIEF Linked Up and business networking breakfast.

Approximately over 2,500 delegates from 69 countries and 152 prominent guests participated in this year’s forum, including seven world leaders, six ministers, about 51 forum speakers, 55 speakers at complementary programs, 15 presenters at Ideapad and 16 prominent business leaders who facilitated the business exchange event at the forum. An array of well-known speakers came from various countries, including Indonesia, Malaysia, Singapore, the US, the UK, Italy, Kenya, Ethiopia, Switzerland, the UAE, Sweden, South Africa, Spain and Australia.

Forum delegates also had the opportunity to participate in the Marketplace of Creative Arts (MOCAfest) from 3rd-4th August 2016, experiencing the dynamic relationships between business and the arts. This year’s MOCAfest focused on the creative artistic expressions from Indonesia’s vibrant and diverse cultural communities, highlighting the concept of ‘Unity in Diversity’ as encapsulated in Indonesia’s official motto of ‘Bhinneka Tunggal Ika’ to promote peace and prosperity across the globe.

IFN was a media partner for the WIEF.

Planting for the future?

Green is the new black – or so it seems as world players rush to the green bond market; and for all the hype the Islamic finance industry has generated as the ideal platform for green/SRI investments, we have yet to see a single green Sukuk issuance and activities from the Shariah compliant SRI side have been rather tepid. This week’s cover story attempts to find out why that’s the case.

We have an exciting array of reports this week including an exclusive look into African Development Bank’s latest Islamic finance initiatives, and insight into the expansion plans of an interesting Shariah compliant SME financier from Cameroon as well as the first instalment of our monthly global analysis which reviews major activities across the global Islamic markets over the past four weeks. 

We shine the Women in Islamic Finance spotlight on Ferzana Haq, an Islamic finance lawyer pushing for developments in Singapore and our correspondents bring you updates from South Korea, Brazil, Pakistan, Qatar, Sri Lanka, Kazakhstan and Malaysia. Our in-house analyses go in-depth into the Jordanian market and corporate Sukuk segment while IFN Columnist Mohammad Raafi Hossain shares with us his two cents on Islamic fintech. What’s happening in the Japanese Shariah financial market? The president of Japan Islamic Finance, Serdar Basara, tells us in his feature, while RHB Islamic contributes an interesting piece on Islamic banking and finance in Malaysia – are they complementing or cannibalizing the market?

As usual, we wish our readers an informative and interesting read.

Japan: Tax exemptions and measures to accelerate J-Sukuk

In this week’s country feature, SERDAR BASARA takes a look at Japan and the progress of Islamic finance in the Land of the Rising Sun. 

Macro environment
Macro impediments that affect the Japanese economy include the following: 

  • The failure of ‘Abenomics’, inflationary measures introduced by Prime Minister Shinzo Abe in late 2012 
  • The negative interest rates by Bank of Japan Governor Haruhiko Kuroda following ultra-level monetary easing and asset purchase programs
  • The strengthening and fluctuating yen following the Brexit vote
  • The postponement of a consumption tax increase due to sluggish business and household consumption
  • The decreasing and aging population without any serious immigrant strategy, and
  • The rapidly increasing tourism revenues with further potential from the Tokyo 2020 Olympics.

Abenomics has failed
A victory in the July 2016 Upper House elections does not mean Prime Minister Abe’s Liberal Democratic Party and its ally, New Komeito, are doing well in managing the economy. The general perception is that Abe’s inflationary monetary easing policies were not followed by the necessary structural reforms. During his election campaign, Abe claimed that “structural reforms are on the way”.  

However, the postponement of a consumption tax increase for the second time in just two years strongly damaged his credibility to execute courageous reforms. 

One of the main assumptions behind ‘Abenomics’ is that: “A weakened yen will boost the global demand for Japanese products. An increase in exports will save those struggling industries and help them become more profitable. Those profits will eventually be returned to the households in the form of pay raises.”

Although exports have increased, the outcome was record-high corporate profits. Wages, as well as private consumption, have not increased as expected. 

A sudden surge in the yen following the Brexit vote showed the fragility of the weakened yen. Japanese policymakers are now diligently analyzing possible scenarios if Donald Trump becomes the next US president considering his hostile remarks about Japan’s and China’s trade wars. Although Japan is not a fully export-dependent economy as it used to be, even a slightly decreasing trend might cause panic among the public and affect domestic spending significantly. 

Islamophobia may effect tourists from Islamic countries
Perhaps the most important economic success of Abe’s government is skyrocketing incoming tourist figures. Incoming visitor numbers have almost tripled in three years and are expected to exceed the 20 million threshold in 2016.

More than half of the incoming visitors are from the East Asian countries such as China, South Korea and Taiwan. Since those markets are already saturated for in terms of ‘Visit Japan’, the government is trying to reach other higher potential markets.

Indonesia and Malaysia are considered important sources of incoming visitors. The annual number of total visitors from these two countries exceeded 500,000 in 2015. There is potential for one million visitors even before the Tokyo 2020 Olympics. 

However, there is a threat of Islamophobia causing anti-Islamic public sentiments against these high-net-worth Islamic tourists. Islamic finance has also been affected by these prejudices.

J-Sukuk disappointment and the 3-year extension of tax exemptions
The Financial Services Agency (FSA) requested to change time-limited J-Sukuk (Sukuk issued in Japan for foreign Islamic investors)-related tax exemptions to permanent exemptions. The exemptions include the following:

  • Profit distribution received by non-resident individuals and foreign corporations, and 
  • Registration tax of trust assets repurchases.

The Japanese government’s purpose in setting these exemptions was to attract Islamic money to Japanese financial markets. The FSA admits that although private financial institutions have been trying to do the structuring, no J-Sukuk have been issued yet, due to market conditions and other reasons such as time-limited exemptions. Therefore, they asked for permanent tax exemptions. 

As a result, the aforementioned exemptions are extended for another three-year term starting from the 2016 fiscal year. 

How to increase J-Sukuk issuance
In my opinion, the following measures will accelerate J-Sukuk issuance:

  • The utilization of government-controlled assets, such as toll roads, for J-Sukuk funds 
  • The execution of pilot projects with central and municipal government initiatives, such as Tokyo 2020 Olympics-related projects, housing and touristic resort developments, and
  • Developing financing products for Muslim residents.

Japanese financial institutions do not want to associate themselves with the Islamic brand domestically. The main reason for that might be Islamophobia prejudices caused by recent political developments in some Islamic regions. Therefore, government initiatives like the aforementioned measures will help cope with the prejudices. 

After several successful deals, the Japanese public will realize the contribution of Islamic financial products to their economy and more financial institutions and corporations will prefer J-Sukuk for their financing needs.

Strong foundations for the future of Islamic finance in Japan
Increasing human capital is a sign of a brighter future for Islamic finance in Japan. Major Japanese financial banks, such as Mitsubishi-Tokyo UFJ and Sumitomo Mitsui, have already started their consumer and institutional Islamic finance operations in the Southeast Asian and Gulf markets. Also, non-banks such as Orix and Toyota Capital have started leasing and vehicle financing operations compliant with Shariah. So, Japanese practitioners will grow naturally.

In addition to this organic growth, academic cooperation, for example between Keio University and the International Center for Education in Islamic Finance, will reinforce strong foundations.

Serdar Basara is the president of Japan Islamic Finance. He can be contacted at basara@e-rirekisho.com.

Islamic banking and finance in Malaysia: Complementing or cannibalizing?

The Islamic banking and finance industry in Malaysia has been growing and has a wider presence in Malaysia based on the report released recently by Fitch Ratings. AHMAD MUKARRAMI and SYED MUHAMMAD NAJMI analyzes whether the existence and expansion of Islamic banking and finance is actually complementing or cannibalizing their conventional counterparts.

The 2016 Fitch report on Islamic banking and finance in Malaysia specifically analyzes the industry by comparing it with the domestic conventional banking system where it is evident that the Islamic banking and finance industry is thriving and performed better than its conventional counterpart. In summary, the report indicates that the demand for Islamic banking and finance products increased significantly over the years, in line with Bank Negara Malaysia’s target for the local Islamic banking industry to have a 40% market share in terms of total financing by 2020. 

Firstly, we take a look at how Islamic banking operates alongside their conventional counterparts in Malaysia. Though there is continuous support from the government and regulators in moving Islamic banks in Malaysia rapidly forward with regulations, incentives and efforts tailored accordingly, this does not mean that conventional banking is sidelined. It is important to take note that alongside the growth of the Islamic banking and finance industry, the conventional banking system still maintains their dominance in the overall banking system. 

Most of the Islamic banks in Malaysia are commonly subsidiaries of a conventional parent bank or belong to a group of companies. These Islamic banking subsidiaries were initially Islamic windows which were then converted into fully-fledged Islamic subsidiaries. By having a common parent on the conventional side, the banking operations are mostly being leveraged on the conventional infrastructure and resources which therefore translate into accelerated growth for Islamic subsidiaries.

A stand-alone Islamic bank compared to a subsidiary would need to have their own banking operations system and internal resources which would entail higher costs and maintenance. This is the advantage of being a subsidiary and the leveraging practice gives a better opportunity for Islamic banks to flourish and prosper. 

Therefore on this perspective, regardless of the revenue gained by both sides, the cumulative revenue ultimately goes back to the parent or group. This shows that the bank in general has nothing to lose if one subsidiary outperforms the other. Therefore, the relationship built would be viewed more as complementing rather than cannibalizing.

Customer segmentation
It is known that Islamic banking and finance products are alternatives to the conventional ones but this does not necessarily mean that all segments of the market are covered by the Islamic side. There are certain banking segments which are covered only by conventional banking, in particular those areas which involve non-Shariah compliant elements while some sectors such as the Takaful and Halal industries are covered mostly by Islamic banking and finance. This symbiotic relationship is considered as an added advantage to the banking group itself since the two sides (conventional and Islamic), if combined, would cover the whole banking system and encompass all banking segments. Another important overview to be observed is on the strategies applied by banks in promoting their Islamic banking and finance products where we can see various approaches have been taken: 

  • Some banks introduced the policy of ‘Islamic First’, where in the promotion of banking products either for Muslim customers or the general masses, Islamic banking and finance products will be prioritized, ie promoted first to the customers. 
  • Another strategy implemented is that for certain types of financing, only Islamic banking and finance products are offered with no alternative of conventional products and vice-versa. 

These strategies differ from one bank to another depending on the objectives set by them. This has actually invited some questions on the rapid growth of Islamic banking and finance, ie whether the demand for Islamic banking and finance is organic or not since customers seem to have been directed only to a single option. However, what matters are not the strategies applied because with the wide array of product choices, the ultimate decision rests with the customers. 

Product offering
Another aspect to be pondered is that currently, Islamic banking and finance products are considered as alternative products sharing many similarities with conventional ones. Therefore, from the perspective of customers, they may not be able to distinguish the differences between both products. 

Although the differences between the products can be explained (the structure, mechanism and specifications), it might make little to no sense to customers since the product’s objective is the same. In fact, the concern of customers would actually fall on the pricing of the products, services rendered to them and whether it is Shariah compliant (for those seeking Shariah compliant products).

This would be a great opportunity for the Islamic banking and finance industry to make Islamic banking and finance products unique and distinctive to the extent of having a separate market with products distinguishable from the conventional ones. With this, the issue of cannibalizing or complementing might not appear anymore. Since the catalyst for Islamic banking and finance is innovation and the industry aspires to be unique and distinctive, the road ahead might look different than now where we might see Islamic banking and finance in a different light altogether.

Therefore, whether Islamic banking and finance is complementing or cannibalizing might not matter, if the banking system works and fits the market since customers are wise enough to choose what is best and what suits them the most. In fact, with the existence of both sides of banking, the finance industry will become more vibrant. 

Complementing or cannibalizing
All in all, whether Islamic banking and finance complements or cannibalizes depends on which perspective it is being viewed. For a banking institution, they would expect the best outcome from both its Islamic and conventional sides and that translates into different approaches taken to promote both sides of banking. Customers, on the other hand, would expect competitive pricing and products that meet their objectives.  

Ahmad Mukarrami is the head of the Shariah Division and Syed Muhammad Najmi is an executive of the Shariah Advisory and Research Department at RHB Islamic Bank. They can be contacted at ahmad.mukarrami@rhbgroup.com and syed.najmi@rhbgroup.com respectively.

Flip the script

By Mohammad Raafi Hossain, a social entrepreneurship and ethical expert.

Today, fintech is known as a niche disruptive force that is experiencing phenomenal growth as users are starting to reap the rewards of fewer middlemen, lower costs and faster transactions in a wide array of financial services. From South America to Asia, hundreds of millions to tens of billions of dollars have been invested in thousands of fintech companies engaged in dozens of activities. It may just be known as fintech today, but tomorrow it will simply be called finance.

Fintech is here to stay and there are a number of reasons why this is the case. 

1) Democratization
Fintech allows consumers from every level of society to participate at all levels of finance. Whether being part of the unbanked population or being an accredited investor, there are fintech companies that are making life easier in a wide variety of applications and solutions. There is no segment of society that does not have the capability to utilize services in this space.

2) Disintermediation
Fintech companies have cut out middlemen, lowered fees and simplified financial processes. One no longer needs to directly engage with traditional financial services players such as banks and wire transfer companies. It’s now easier to directly connect with friends, family and clients and engage in financial services digitally. And as such, the days of exorbitant bank fees are coming to an end, as fintech companies are able to lower costs through branchless banking, efficient human capital and scalable technologies.

3) Customer experience
With the touch of a button, consumers are able to conduct an array of transactions around the world. Gone are the long-winded applications and the small fine print at the end of every receipt. Mobile applications are easy and intuitive for users from all walks of life to understand. Today, with the touch of a button, a high school student can invest in the stock market at no cost while a shoeshine boy in places like Somalia can receive digital payments for their services instantly.

4) Real time
The era of waiting days and weeks to finalize a transaction is in the past — it’s now instant. Payment transfers through apps like Venmo, Paypal and even Facebook Messenger are instant services. Even services like credit scoring to wealth management advice can be tailored and delivered within seconds. The sheer speed of financial services has created a hyper-connected and transparent financial services landscape like never before.

What does this mean for Islamic finance?
Islamic finance is a natural fit for fintech. Islamic finance and fintech’s ethical proposition has high levels of synergy. Fintech, with its principles of sharing risk, democratizing access to finance and equalizing opportunity, is aligned with the tenets of Islamic finance. 

Successful rollouts of Islamic fintech solutions will allow the Islamic finance industry to rapidly grow their customer base to the currently 700 million unbanked Muslims.

Fintech offers Islamic finance its first truly leapfrog opportunity to develop cutting-edge fintech solutions to take the industry forward to the digital age. 

With the growing profit pool of Islamic finance, there is an opportunity to allocate resources to develop next-generation, Islamic fintech solutions.

The IDB returns to Malaysia with longest-tenored ringgit Sukuk by supranational

The IDB in late June issued a RM350 million (US$86.31 million) Sukuk Wakalah facility at a 4.36% profit rate, marking a return to the ringgit Sukuk market after three years. NURUL ABD HALIM speaks to the IDB and also RHB Investment Bank on the production of the Sukuk and its challenges this time around.

The Sukuk facility was issued in the private market, and fully and equally subscribed by banks. Proceeds from the transaction, which is the longest-tenored ringgit Sukuk issuance by a supranational to date, will be utilized by the issuer to finance projects in Malaysia, which comprise highway projects and the construction of Shariah court buildings. 

The latest issuance is a stand-alone offering and also the IDB’s fourth Sukuk transaction denominated in Malaysian ringgit. Commenting on the structure employed for the transaction, the IDB said that the Wakalah structure was chosen as it seeks to mirror its global medium-term note program issuance structure as closely as possible; the structure is also familiar to its investors.

While the issuer managed to achieve a competitive pricing as expected from a ‘AAA’ issuer, several challenges were witnessed throughout its production: “Because of the timing requirements of the Sukuk issuance process, the underlying arrangements including official formalities, legal structuring and rating review had to be made in record time,” said the IDB. These are, however, offset by the support it received from the parties involved, particularly the Ministry of Finance and Bank Negara Malaysia, in charting a smooth course on the sale of this Sukuk.

Robert Huray, CEO of RHB Investment, one of the arrangers that participated and advised on the deal, noted that the top rating accorded on the eight-year paper contributed to the attractiveness of this issuance. “Local investors were attracted to subscribe to the Sukuk due to its credit rating of ‘AAAIS’, the IDB’s high credit standing and also its zero risk-weighted status.”

Established by the OIC in 1975, the IDB is a multilateral development bank with a membership of 57 countries. The bank has a US$25 billion trust certificates issuance program in place and also issued up to RM700 million (US$173.45 million)-worth of Sukuk under its RM1 billion (US$246.61 million) trust certificate issuance which had already matured.

RM350 million (US$86.31 million) Sukuk Wakalah

29th June 2016



Tadamun Services



Size of issue

RM350 million (US$86.31 million)

Mode of issue

Bought deal


Financing projects in Malaysia


Eight years

Issuance price


Profit rate





Ringgit Malaysia

Maturity date

28th June 2024

Lead manager(s), principal advisor(s) and bookrunner(s)

CIMB Investment, Maybank Investment, RHB Investment

Governing law

Malaysian law

Legal advisor(s)/counsel



Not listed

Underlying assets

IDB’s financing portfolio



Shariah advisor(s)

Shariah committees of the appointed banks




Tradable on OTC market

Investor breakdown

100% banks

100% Malaysian

Face value/minimum investment

RM1,000 (US$246.61) each or in multiples of RM1,000 thereof

Jordan: The next big player?

In its search for diversification, Jordan over the past year has stepped up its Islamic finance game with the government taking proactive measures to develop the industry amid on economy pressured by geopolitical instability. VINEETA TAN casts an eye on the progress.

Regulatory landscape
The Jordan Islamic Bank for Finance and Investment Act (Act No 13, 1978) was a special temporary Act enacted in 1979 allowing the provision of Shariah compliant financial products by Jordan Islamic Bank (JIB); the Act became permanent in 1985. Shariah banking, like conventional banking activities, are regulated by the Banking Law 2000. In 2012, legislation facilitating Sukuk issuance was issued. The Central Bank of Jordan (CBJ) in 2015 released the Corporate Governance for Islamic Banks Instructions No (61) of 2015 as part of its efforts to enhance transparency and accountability of financial institutions.

Banking and finance
There are four fully-fledged Shariah banks in Jordan: JIB (one of the oldest in the world), International Islamic Arab Bank (1998), Jordan Dubai Islamic Bank (JDIB, 2010) and Al Rajhi Bank (2011). Jordanian banks have performed relatively well in 2015 (net credit facilities were up 9.5% and balance deposits increased 7.7% year-on-year according to central bank figures) and while 2015 financial data for most Islamic banks are not yet available, JIB’s 2015 annual report shows that the bank has been growing in profitability, assets and branch network (see Table 1). Shariah banks have also been expanding their product suite, for example JDIB in April 2016 launched two new US dollar-denominated investment deposit certificates — the first for any Islamic bank in the Kingdom.

The Jordanian government and related entities continue to support the industry by pledging to use Shariah compliant instruments to support the Kingdom’s endowment projects and investment portfolio. In February, the Royal Jordanian Airlines raised US$275 million through an Islamic-conventional syndicated financing facility while the Governorate Development Fund in July 2015 partnered with the country’s Hajj Fund to roll out Shariah compliant financing products; this follows the government’s agreement with the International Islamic Trade Finance Corporation in the same month to fund the imports of basic goods and commodities through Islamic finance.

The Jordanian Sukuk market has been vibrant in 2016: since the first Sukuk offering by Al Rajhi Cement in 2011, the CBJ in May 2016 successfully tapped the Islamic capital markets raising JOD75 million (US$105.75 million) to cover the purchases of the National Electricity Power Company. The Murabahah facility was oversubscribed by 2.73 times and priced at 3.5%. 

Earlier in the same month, JDIB entered into an agreement with JordInvest to arrange the issuance of a JOD45 million (US$63.45 million) seven-year Sukuk facility on behalf of Al-Tajamaout for Touristic Projects. Proceeds from the Ijarah facility will be used by the real estate developer to settle an outstanding syndicated loan. 

The government has also mandated the Islamic Corporation for the Development of the Private Sector (ICD) as transaction technical support for its planned domestic Sukuk — the program would be facilitated by the Japan International Corporation Agency, under its agreement with the ICD to provide technical Sukuk assistance.

Islamic insurance is governed by regulations issued in 2011 by the Insurance Commission of Jordan (IC). In early 2014, one of the three Takaful operators in Jordan, Al Barakah Takaful, was liquidated by the IC following suspension a year earlier due to financial challenges leaving Islamic Insurance Company and First Insurance Company (FIC) as the only two providers of Shariah compliant insurance solutions. FIC in March 2016 completed its merger with Yarmouk Insurance Company; it acquired 76% in the latter for US$15 million while Islamic Insurance Company has plans to expand outside of Jordan this year. Both the firms are steadily increasing their assets (see Table 2).

Jordan is still wrestling with geopolitical issues (Syrian and Iraqi crises) which have disrupted trade routes and tourism activities; however, the Kingdom is showing signs of economic recovery. The World Bank forecasts real GDP to increase to 3% this year from 2.4% in 2015 as a result of continued fiscal consolidation. An improvement in the economy bodes well for Islamic finance which in the past year has seen tremendous support by the government. Nonetheless, the country will need to address many challenges including regional instability, high unemployment and an overreliance on foreign assistance.

Table 1: JIB’s financial performance in 2015




Change (%)

Number of branches and offices




Profit after tax

JOD48.7 million

JOD45.1 million


Total assets

JOD4.17 billion

JOD3.86 billion


Source: JIB’s 2015 annual report

Table 2: Financial performance of Jordanian Takaful operators


Islamic Insurance Company







Total profit

1.31 million


1.32 million

1.36 million

Total assets

37.21 million

33.64 million

51.41 million

40.96 million

Source: Respective operators’ 2015 annual reports

Corporate Sukuk — a healthy growth of issuance

DANIAL IDRAKI provides an overview of the developments in the corporate Sukuk space over the past one year, which saw a number of debut issuers.

Over the last 12 months, there have been a total of 63 deals involving corporate (including financial institution groups) Sukuk issuance globally in the private sector, with a total value of US$11.27 billion, a 15.34% growth from the previous year, data by Dealogic shows. Issuance in the corporate public sector over the same period, meanwhile, stood at US$4.23 billion, involving 20 deals. The bulk of the deals came from the key markets in Asia and the Middle East, with heavyweight corporate issuers such as Malaysia, Saudi Arabia and the UAE topping the list. In recent times, Iran has also been making strides in corporate Sukuk issuance, albeit on a smaller scale. 

Data by Dealogic further shows that over the past 12 months, the finance sector was the largest market segment commanding global Sukuk volume at 39%, followed by the government at 22%, transportation at 9%, construction and building at 7%, utility and energy at 6%, while others make up the remaining 17%. 

According to Fitch, Sukuk issuance from key markets in the first half of 2016 rose 11% compared with a year earlier, underlining its expectation for gradually increasing issuance over the long term as more countries create supportive legal frameworks. Sukuk as a proportion of total issuance in the GCC, Malaysia, Indonesia, Turkey and Pakistan were also slightly ahead over the same period a year ago, but could not maintain the first quarter’s strong market share due to the return of sovereign issuance of conventional bonds by GCC members in recent months. 

Total new sukuk issuance (with maturity of more than 18 months) in these key markets rose to US$21.74 billion in the first half of 2016 from US$19.54 billion in the first half of 2015. Issuance was evenly spread across the first half of the year, with US$11.07 billion in the first quarter and US$10.67 billion in the second quarter. Fitch expects that 2016 Sukuk issuance to at least match 2015 issuance of around US$32 billion.

MENA region
In Qatar, Ezdan Holding Group tapped the Islamic capital market for the first time in May with a successful US$500 million Wakalah Sukuk offering. The RegS Sukuk facility was priced at 333bps over midswaps, attracting an orderbook of up to US$837 million, or around 1.67 times, from 71 investors. The Sukuk utilized the Wakalah and commodity Murabahah structure and carries a yield of 4.38% annually. 

Over in Kuwait, Boubyan Bank in May 2016 successfully issued a US$250 million Sukuk facility to enhance its capital reserves. The maiden offering was the first fully Basel III-compliant Tier 1 Sukuk issuance from a Kuwaiti bank, and also the first out of Kuwait since 2007. 

In Turkey, Kuveyt Turk Participation Bank (a subsidiary of Kuwait Finance House) issued a TRY300 million (US$100.26 million) six-month Sukuk facility via a public offering in May, making it the largest lira-denominated Sukuk issued by a local bank. In early February 2016, the bank successfully issued a US$350 million Basel III-compliant Sukuk facility at a 7.9% profit rate to boost its Tier 1 capital.

Iran’s corporate Sukuk market has been gaining strong traction this year. Mobarakeh Steel Company, Iran’s largest steelmaker, recently raised IRR1 trillion (US$33.21 million) from the sale of Sukuk Murabahah which pays a 20% profit rate per annum at quarterly intervals. 

Meanwhile, the Iranian Mines and Mining Industries Development and Renovation Organization (IMIDRO), a state-owned holding company active in the mining sector, is planning to issue IRR4 trillion (US$132.82 million)-worth of Sukuk Musharakah for the production of titanium pigment and the development of a gold mine.

Sime Darby made its third comeback to the Sukuk market with a successful issuance of RM2.2 billion (US$542.54 million) perpetual Sukuk Wakalah at a yield of 5.65% in March this year, under its subordinated Sukuk program of up to RM3 billion (US$739.83 million). Axiata Group in March 2016 sold the third Sukuk under its US$1.5 billion multicurrency Sukuk issuance program. 

Worth US$500 million, the 10-year paper, by far its longest tenor, uses the Wakalah structure, with airtime vouchers identified as the underlying assets. Proceeds from the Sukuk will be channeled to purchase these assets in order for Axiata to fund the proposed acquisition of Ncell. 

Private placement
A number of corporates have increasingly raised funds via the private market in recent times. In Oman, Mohammed Al Barwani Holding issued a US$76 million Sukuk Wakalah facility by way of private placement in June, thus becoming the second corporate to issue Sukuk and the first to tap the domestic Islamic debt market pursuant to the newly-issued Sukuk regulation. 

Al Hilal Bank recently tapped the Sukuk market again by raising US$225 million from private investors after a three-year absence, in a move it says made it the first UAE institution to execute a Shariah compliant private debt placement. The offering is also the first senior unsecured US dollar Sukuk since 2013 by any Abu Dhabi entity. 

In May, Saudi conglomerate Al Bayan Holding Group raised US$50 million via a three-year Sukuk issuance, marking it as the first non-public entity in the Kingdom to close a US dollar Sukuk through a private placement.

PowerTalk: Ferzana Haq

While others are chasing big ticket transactions, Ferzana Haq is eyeing the underserved SME segment instead to develop Islamic finance in Singapore using her expertise built over the last decade in Europe, the Middle East and Asia. VINEETA TAN speaks to the lady passionate about bringing meaningful changes to the Singaporean Islamic finance landscape.

Born into a family of lawyers, educated in one of the world’s best law schools and launched her career at a Magic Circle legal firm – it is safe to say that Ferzana had all the makings to become a successful lawyer. Her pedigree aside however, it is perhaps the desire that Ferzana has in building a relationship of trust with her clients that sealed the deal in her choosing the legal profession. “They treat you as their trusted advisors, and not only in the area of Islamic finance or any commercial legal aspects for that matter – and that to me is extremely satisfying as a lawyer,” shared Ferzana. 

An Oxford University graduate (Bachelor of Arts degree in law and Master of Arts degree in jurisprudence), the Singaporean lass began her career at London’s Slaughter and May advising on corporate and commercial matters. It was not until she joined Clifford Chance (first in London, then seconded to Dubai) that she got her first taste of Islamic finance and came to appreciate the beauty of Shariah compliant finance; she continued specializing in debt capital markets and Islamic finance in her next stint at Norton Rose and is the Islamic finance specialist at her current firm, hslegal, where she has been a partner since 2014. 

hslegal is a boutique law firm set up by Ferzana’s family and was a dramatic change in environment for somebody who has shaped her career in international law firms.

“At that time, I had to take a step back to think about where I wanted my career to go: to continue at a big law firm or a small boutique firm,” said Ferzana. “But I’ve definitely made the right decision to move to a boutique firm as I now have more flexibility to develop this area of law and achieve more balance in my career. It has also brought me a lot closer to what’s going on in the Singaporean market, allowing me to pursue Islamic finance as an area of interest and actually strengthened my passion for it.”

From working on big Islamic capital market deals (including the Indonesian sovereign Sukuk), Ferzana has transitioned to working on smaller bespoke transactions, most of which are private financing. She is also engaged by other law firms (Singaporean and Malaysian) to provide Islamic finance support in the context of Singaporean law. 

“The issue with Singapore is that it has a small domestic Islamic finance market as most deals are cross-border in nature involving other countries, or originated from Malaysia and therefore not homegrown,” Ferzana explained. “That is why it is important to develop Singaporean law to become the governing law in these transactions to strengthen the domestic Islamic finance market.”

One way of ensuring that is by raising awareness – Ferzana has collaborated with others in the legal circle to create awareness on the opportunities of Islamic finance by conducting talks and seminars with others in the legal fraternity and other interested parties. Doing this on a voluntary basis, Ferzana is also considering establishing a focus group in the near future to spur Shariah financial activities in the city-state. The idea is to tap the bottom portion of the pyramid.

“Most Islamic finance activities have been focused on the large ticket segment involving large corporations such as MAS or Sabana REIT and deals worth hundreds of millions of dollars; and small businesses haven’t had opportunities to participate – I think this is where the opportunity lies,” said Ferzana. “Historically, markets have focused on big transactions with the hope that the effect will trickle down but this hasn’t happened in Singapore because these deals are perceived as too expensive and difficult; therefore we need to develop from the base of small businesses up.”

Ferzana understands that the work ahead to truly develop Islamic finance is monumental and time-consuming; however, she is also a dynamic individual who believes that success is a work in progress and has a strong desire to constantly move ahead. Unlike Malaysia, Singaporean regulators do not push the Shariah finance agenda and for real change to happen, policies need to be re-thought. But in Ferzana’s words, market practitioners need to keep the “momentum going”. 

“Even though the Islamic finance industry here is small but it is worth developing; I think it would be a real shame to let it diminish – we need to keep it going.”

Green Sukuk: Still on the starting blocks?

Green bonds are all the rage. The global green bond market topped US$35 billion in the first half of 2016 and countries from China to India to Australia are putting their money where their mouths are and taking concrete steps to issue  — with governments and development banks playing a leading role. But what has happened to the Islamic finance industry — last year hailed as the golden child of SRI expectations? Why have we, LAUREN MCAUGHTRY asks, not yet seen a surge of green Sukuk — and why all the early enthusiasm appears to have evaporated? 

A massive market
Climate bonds have long been a buzzword for the finance industry, but it looks as if they are finally catching on — and the market is gaining some serious momentum. The conventional sector has exploded in recent years — interest from both the public and private sectors has driven a ten-fold rise in green bond sales from US$3 billion in 2002 to US$36.6 billion in 2014, according to the UN. Over the last two years, growth has accelerated yet further, to reach a total issuance of US$41.8 billion in 2015 — and the pace is picking up. 

“With strong issuance already observable in the first two weeks or so of July… the global green bond market is poised to reach US$75 billion in total volume for the year and set a new record for the fifth consecutive year,” predicted Moody’s in a recent report. That’s already more than some estimates of total expected Sukuk issuance, and the growth is ongoing, with expectations exceeding even the latest estimates. The market is increasing quarter by quarter — with the first half of the year raising almost 90% more capital than the same period in 2015. 

“US$75 billion is a dramatic underestimate,” Sean Kidney, CEO of the Climate Bonds Initiative, told IFN. “We already have US$45 billion green bonds issued globally, and it will be closer to US$100 billion by the end of the year.”

Playing catch-up
So where is the Sukuk market in all of this? Last year we saw a surge of enthusiasm, with green Sukuk capturing the headlines at the World Islamic Economic Forum in November, announcements from the IDB about potential issuance, commitments from the UAE claiming they could be the first to offer a green energy Sukuk — and of course, the first tranche of the groundbreaking SRI Sukuk from Malaysia’s Khazanah, which won the IFN Deal of the Year in 2015. 

Yet after this initial flurry of enthusiasm, all seems to have gone quiet. Despite Malaysia announcing tax incentives for ‘ethical’ bonds and Sukuk in its latest Budget 2016, there has been no further issuance — and despite the ambitious renewable energy commitments from the GCC governments (the UAE alone has committed to producing 7% of its electricity from renewable sources by 2020), concrete projects to achieve this have been thin on the ground. The US$22 billion Masdar City, the flagship renewable project from the UAE claiming to be the world’s first carbon-neutral city, was originally scheduled for completion this year but that date has vanished into the distance. “The target end date is 2030 based on the level of investment,” Anthony Mallows, the director of planning and delivery at Masdar City, told Construction Week in July. 

Could this be a question of overall commitment rather than Islamic industry reticence, however? “There’s been very little conventional green issuance from geographies in which there is a concentration of Sukuk,” pointed out Andy Cairns, the managing director and global head of debt origination and distribution for the National Bank of Abu Dhabi (NBAD), speaking to IFN. “So perhaps it is less about green Sukuk gaining traction, and more about countries that are strong on Sukuk being less environmentally attuned than other countries.”

An urgent need
Yet energy needs are only increasing. According to a recent study from Frost & Sullivan, for example, Saudi Arabia will have to spend over US$100 billion in renewable energy projects over the next 25 years, as energy demand rises by 45% due to a growing population and increased industrial activity. “By 2020, Saudi projects alone will account for 70% of the total value of the GCC’s renewable energy projects,” said the report. With the cost of funding soaring, bank deposits shrinking and lending rates tightening due to the recent oil price pressure, where is this money going to come from? 

The obvious answer is Sukuk — but governments appear reluctant to tap that route so far, with the major fundraising activity this year choosing a conventional route to obtain quick and easy funding. Qatar raised US$9 billion through the conventional markets in May, while Saudi issued its first sovereign bonds in a decade last month. The current state of the economy and the continued pressures — especially on oil-producing nations — have made speed and simplicity the most attractive elements of capital-raising, while innovation and evolution appear to have fallen by the wayside. 

A long way to go
The trouble is, it takes effort to develop something new — and that focus has simply not been put into the Islamic market for green bonds, because everyone has had other things to think about. “The green bond market is catching on, but it takes a lot of work — and that work and those resources have not been invested into the Sukuk market yet,” agreed Kidney. “It’s frustrating that we have not seen the SRI Sukuk growth we expected. What I’m realizing is that markets really do need a lot of nurturing. We’ve been doing a lot of work around green bonds, but Sukuk need a lot more effort.” 

Given the current climate, this could be a long-term game, despite the lip service paid by enthusiastic supporters of the cause. “We need to build confidence back in the economy first,” warned Stuart Hutton, CFO of wealth management firm Simply Ethical. “Short-term we won’t see a spate of issuances, it’s a market for the long-term. Over the next decade working in this field, we should start to see some good quality institutions, as governments and corporates make some issuances on this basis. Once they’ve realized they can get some good investors in, the sector will grow.” 

A solid example
The conventional market has this year unequivocally demonstrated how emerging markets can benefit from the green bond revolution, with the world and his wife jumping on board. Although the US still dominates green bond issuance with 23% of the market as of June 2016, followed by the major development agencies including the World Bank (17%), emerging markets are realizing the benefits and making their presence felt. Last month, the Bank of China broke records with a US$3.03 billion green bond issuance in three currencies (euro, US dollar and renminbi), the largest international issuance of its kind so far. Also in July, the BRICS New Development Bank, a multilateral development bank founded by Brazil, Russia, India, China and South Africa, issued US$449 million in five-year renminbi-denominated bonds to support sustainable infrastructure and clean energy in member countries — and plans to issue a further US$1.5 billion over the next six months. 

India is another leader in the green bonds rush — with a US$200 billion state-spending drive to boost renewable energy supporting a surge of activity. The current administration has committed to sourcing 40% of its energy needs from sustainable sources by 2030, leading to a spate of issuance including the announcement last week from state-run Energy Efficiency Services of a plan to issue up to US$100 million in offshore green bonds. Kenya too has jumped on board, with the Nairobi Securities Exchange announcing the imminent launch of green bonds and carbon credits as it seeks to attract investors keen on sustainable development. Even Australia is on the bandwagon, with US$300 million-worth of green bonds issued by the Victoria state government last month to finance renewable energy. 

Corporate interest
But it is not just governments leading the charge. The conventional market has developed to a point where corporates are already seeing the benefits. In Europe, leading UK supermarket Sainsbury’s has taken a GBP200 million (US$264.3 million) ‘green loan’ to invest in carbon reduction while HSBC previously pledged US$1 billion for a portfolio of green and SRI bonds and Toyota has issued US$1.6 billion to invest in a cleaner range of cars. French renewables firm Akuo Energy in July raised EUR44 million (US$49.15 million) in green bonds to finance renewable energy plants — its second issuance after a debut in June 2015. India’s largest power producer, NTPC, has already appointed bankers for its first green bond issue while banks including Axis and Yes Bank are also joining the trend. In fact, S&P estimates that up to US$28 billion in green bonds this year could be issued by corporates. 

Driven by demand
So where is the appeal? Surely the challenge of green bonds lies in their higher price and increased complexity — just like the Sukuk market, it takes time to attract investors to a concept they are unfamiliar with. Not so, says Kidney. “We had investors at the UN Climate Summit [in December 2014] accounting for US$60 trillion, who signed statements to the assembled world leaders about the critical importance of climate change and confirming that they stood ready to invest, subject to opportunities that met their regulatory requirements,” he told to IFN. “This is a market that has been driven so far by investors, not issuers. Issuers will eventually join the party when they realize that.”

Much of this demand is being driven by institutional investors who are keen to diversify their risk and meet their long-term strategic goals. “This is not a bunch of hippy investors sitting in Brighton,” explained Kidney. “These are the mainstream investors, the big insurance funds, who are developing organization-wide strategies to try to address their long-term climate change obligations and meet their risk and yield requirements.” This includes central banks and sovereign wealth funds that already recognize the importance of the sector. Mark Carney, the governor of the Bank of England, confirmed in a speech earlier this year that climate-friendly bonds and infrastructure projects would be a priority for September’s G20 meeting in China. 

Positive pricing 
“These instruments can unite relatively short-term portfolio management strategies with long-term risk issues. And it will be no different with Sukuk,” said Kidney. “This is something that most bankers are not even aware of yet. They still think that there is a possibility that no one will buy it. But on the contrary — all the green bond markets, in every market, have been driven without preferential pricing. Everywhere I go, I meet investment banks who all say we won’t get investment pricing. And every time, the issuance is way oversubscribed and they are always surprised, because they don’t understand it. They don’t understand that investors are aware of the material risk to their long-term portfolios, and they are seeking instruments to help them hedge that risk. There is a real market out there. Yes, it is still a flat price market but it will get bigger. You get access to capital, then costs go down, and you get deeper levels of engagement and clients who bought early will stay loyal and buy again and again.” 

The appeal is obvious. According to Moody’s, 97% of green bonds issued so far this year were investment grade, with 43% carrying an ‘AAA’ rating. And while slightly below global benchmarks, overall returns have been positive: with gains of 1.7% for the second quarter and 4.3% for the first half (compared with 2.5% and 5.7% for the Bank of America Merrill Lynch Global Bond Index). The rating agency also noted that the difference in total return was likely due to the shorter weighted life of the average green bond. 

Existing issuers have already seen the benefits. “A year after our first green bond issue, we are very pleased to have confirmation that a growing number of investors have organized themselves to be able to participate in the financing of the green economy,” said Eric Scotto, the chairman of Akuo Energy. 

And due to the scarcity of supply for green bonds, the large pool of liquidity that exists is making the area very attractive for potential issuers. India’s Yes Bank for example, plans to issue by December this year. “India has a growing need to finance its renewable energy projects and green bonds can play a vital role in providing funds,” said Jaideep Iyer, the group president at Yes Bank, to Bloomberg last month. “Pricing on these notes will improve going forward as there are large funds available globally whose mandate is to invest in energy-efficient projects.”

All talk, no action
So we’ve seen the attraction — and we have seen the advantages. Why then, has the Islamic finance industry not yet taken advantage of this booming market? Excluding the admirable Khazanah issuance, which focused on funding education, the industry has not yet seen a truly green bond issuance, despite the Islamic Declaration on Global Climate Change published in August 2015 and calling for action from governments, corporates, investors and all Muslims around the world. The IDB has not yet stepped up, despite its commitment at the UN conference in Paris in 2015 — although it has already invested around US$2 billion in clean energy to date. The World Bank has not followed its 2014 IFFIm vaccine Sukuk with a green issuance and no corporates have yet taken the lead. 

“We had hoped the Malaysia government would step up, but there’s been nothing yet,” lamented Kidney. “We’ve [also] had a lot of conversations with the GCC and you would think that someone like ACWA would have done an issuance by now. But the truth is that capital is still very cheap, so the pressure to open up new markets is not high enough for anyone to make the first move. There is no sense of urgency.” But, he warns, this apathy could be detrimental. “It’s a missed opportunity for GCC market leaders — I think they are going to blow it. It will happen eventually, but right now people are taking the easy route.” 

Having said that, momentum has not come to a complete halt. The G20 Green Bonds paper to be published in September reportedly contains a page authored by Bank Negara Malaysia on promoting green Sukuk. There is a deal currently being explored in Southeast Asia that could come out in the next few months and lay the foundations for further issuance; and there are rumors that the Dubai Electricity and Water Authority could be planning a green Sukuk for later this year. In January, we saw a US$10 billion commitment from the NBAD toward sustainable financing, and the bank has continued working toward driving this goal forward. “We’ve been pushing green Sukuk quite aggressively: we did the first ever SRI Sukuk for IIFIm, we’ve been speaking to the World Bank to explore potential issuers and we had a modicum of traction,” said Cairns. “I think we will see a green Sukuk [facility] but it is a matter of when. Hopefully, within the next year or so.” 

Public push
At the moment, however, it is a story of opportunity, not delivery. “We have to get some pioneers into the race — and all markets start with government issuance,” urged Kidney. “We just need a few demonstration Sukuk — it’s as simple as that. As soon as you get a couple out in the market, everyone will want one. There are no regulatory issues, there’s no lack of deal flow — it just needs someone who wants to attract new investors enough to take the first step. We need to work with key potential issuers to tempt them over that threshold, which is what we expect to do over the next six months.” 

“We are at the tipping point. We have governments, central banks, investors and they all want to move this forward, but no one is quite brave enough to take that step,” agreed Hutton. “It is a case of the first person across the line — people are scared of failure and they want other people to make the mistakes. There’s a waiting game going on.” 

There’s certainly a market out there, but the problem remains size. Investors want a financial return as well as a social one, and while green bonds may have scaled up to the point where they are at parity, the Sukuk market remains limited, especially in the current economic environment. “There has to be a sizeable market and a scalability to make it efficient,” agreed Hutton. “Smaller markets mean the return is eroded. Governments will have to step in, and institutions will have to follow quickly.” 

Missing a trick
There is no doubt that the market will eventually tip over the edge — with US$60 trillion in waiting investment, how could it not? The question is whether the Islamic finance industry will be ready to benefit. Right now, the enthusiasm is there - but the first step has been a long time coming. “I’m very confident that there is a long-term market here. It is taking a long time to get the competence, but we can see the necessity being generated,” thinks Hutton. “Over the next five-10 years, we will see significant development.”

But this development will take commitment — which has not yet materialized. “The Islamic finance industry is missing a trick,” warned Kidney. “Sukuk are now a global instrument — look at your investor base. The industry will be left behind if it does not rise to the occasion and ride this wave.” 


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