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Islamic Finance
Explainer: How is the ESG sukuk market faring?

We speak with Bashar Al-Natoor, global head of Islamic finance at Fitch Ratings on sustainable issuances and its growth trajectory.

Sustainable or green issuances through sukuk across Gulf countries are higher compared to bonds. What is the primary reason for that?
Commonalities exist between Islamic finance and ESG principles due to built-in Shari’a filters.

In the GCC region, 40% of hard-currency ESG debt mix is in sukuk format, with the rest in bonds. The key reason why the sukuk format is prevalent in the regional ESG debt mix is to attract the larger Islamic investor base, mainly Islamic banks, that have a robust appetite for sukuk and can only invest in Sharia-compliant securities, along with tapping the international investor appetite for ESG products.
 

A significant portion of ESG sukuk globally is denominated in hard currency. What is the key reason for this?
Almost two-thirds (66.2%; $23.9 billion) of all outstanding ESG sukuk was in hard currency in 2023, mostly in US dollars.

ESG sukuk issuers seek to tap the international investors’ appetite, including from ESG sensitive investors. The sukuk format is often deployed to tap the local and regional investor appetite, many of which comes from Islamic banks. In general, the local-currency debt capital market in the GCC is not as deep compared to some of the other emerging market economies.

In the GCC region, there has not been a sovereign ESG-sukuk issuance to date, with most ESG debt led by financial institutions and corporates.

What are the three biggest challenges in the issuance of sustainable sukuk globally?
The outstanding ESG sukuk market has experienced notable yearly growth of 56.8% and reached $36.1 billion in 2023.

However, it still faces headwinds.

These include scarcity of sustainable projects or green assets which obstruct some sovereigns, banks, andBashar Al-Natoor, global head of Islamic finance at Fitch Ratings corporates from issuing ESG sukuk, and instead they may issue non-ESG sukuk or bonds.

The local ESG frameworks and taxonomy in many OIC countries are still underdeveloped.

There also remains a shortage of domestic ESG-focused investors and issuers in Muslim-majority countries.

Uncertainty also remains over any pricing advantage for issuers compared to non-ESG debt. The ESG debt market is vastly more developed in regions such as the US, Europe, and China.

How can these challenges be addressed? 
The ignition of ESG sukuk growth requires government initiatives, supportive regulations, increased awareness and adequate market infrastructure. In recent years, we have seen more initiatives to help boost ESG debt issuance.

In the UAE, the Higher Sharia Authority directed Islamic banks and windows to create separate sustainable businesses and activities within existing business lines that include sustainable sukuk issuances and financing.

In addition, the Dubai Financial Services Authority waived regulatory fees on ESG listings on Nasdaq Dubai for 2024.

A sustainable finance framework was unveiled in Oman, with plans to issue green, social and sustainable sukuk and bonds. The proceeds will be used to fund and refinance renewable energy projects, aiming to reduce dependency on fossil fuels and to attract ESG investors.

In Malaysia, the tax deduction given on the issuance cost of Sustainable and Responsible Investments sukuk has been extended to 2027.

Which five countries hold the highest share of ESG sukuk issuances? 
In 2023, ESG sukuk issuance totaled $10.5 billion (down 4.6% year-on-year), with issuance from the UAE most common at 41%, followed by Malaysia (28%), Saudi Arabia (21%), and Indonesia (10%).

Sukuk, rather than conventional bonds, are the preferred format for ESG-debt in many core Islamic finance markets.

During 2023, the five countries with the highest share of ESG sukuk, as a proportion of total outstanding ESG bonds and sukuk in hard currency, were Bahrain (100%), Indonesia (56%), Malaysia (52%), UAE (41%) and Saudi Arabia (37%).

Islamic Finance
Islamic finance wrap: CIMB Islamic, Petronas partner for Islamic commodity derivatives

Here's a roundup of key developments across the Islamic finance ecosystem during the first week of March

Editor's note: Islamic finance is stepping up the pace in Malaysia as two giants signed an agreement for Shariah-compliant commodity derivatives. 

UAE entities Bee'ah Group and Emirates Islamic partnered, too, to foster sustainable initiatives. 

 

Company News


Malaysia

An ECF site has launched a halal venture capital firm & accelerator

Ethis advances its mission of supporting halal enterprises by introducing HASAN, a venture capital accelerator initiative.

 

Umar Munshi, Ethis Group co-founder and HASAN managing partner, along with Mohamad Akhtaar bin Abdul Ghani, HASAN's head of accelerator and Investor Relations, elucidated on this development.  (Vulcan Post)

 

Oman

Alizz Islamic bank partners with Al Jabr MENA to nurture SMEs
Oman's Alizz Islamic Bank embarks on a year-long strategic partnership with Al Jabr MENA to foster SME growth through knowledge enrichment.

 

The formal signing of a memorandum of agreement  took place at Alizz Islamic Bank's Head Office in Wilayat Bawshar. (Zawya)

 

Malaysia

CIMB Islamic and Petronas sign agreement for Islamic commodity derivatives

CIMB Islamic Bank Bhd and Petronas have signed the inaugural Tahawwut Master Agreement (TMA) for Shariah-compliant commodity derivatives.

 

This agreement marks Petronas' entry into Shariah-compliant derivatives, positioning it as the first Malaysian corporation to utilize CIMB Islamic's instruments for Islamic energy commodity derivative trades. (The Star)

 

 

Event


Republic of Somaliland

African Islamic Finance Summit successfully concluded in Somaliland

The 11th African Islamic Finance Summit, organized by AlHuda Centre of Islamic Banking and Economics (CIBE) in collaboration with the Central Bank of Somaliland and the National Insurance Authority (NIA), took place on March 5, in Hargeisa, Somaliland.

 

The event garnered participation from industry leaders, scholars, and practitioners from Africa and beyond. (Zawya)

 

 

ESG Developments


UAE

BEEAH and Emirates Islamic sign landmark ESG Agreement

BEEAH Group and Emirates Islamic have forged a pioneering partnership in the UAE, focusing on sustainable initiatives.

 

This collaboration introduces an environmental, social, and governance (ESG) linked financing facility, emphasizing both entities' dedication to advancing environmental objectives.

 

The partnership aims to drive sustainable solutions across various sectors, including clean energy and waste management. (Emirates Islamic)

Islamic Finance
Qatar’s $1bn fund to prioritise tech growth 

Qatar Investment Authority (QIA) looks to launch the country’s first venture capital (VC) fund to invest more than $1 billion in regional and international VC funds. 

The ‘Fund of Funds’ program will aim to attract international VC funds and entrepreneurs to Qatar and the wider GCC region, bringing 'deep VC and start-up expertise', the sovereign wealth fund said in a statement.

The investment program will prioritise the tech sector, including fintech, edtech and the healthcare sector. 

“There is currently no dedicated pool of capital in Qatar for companies that are past seed funding and are ready for Series A to Series C funding rounds,” said QIA chief executive Mansoor Ebrahim Al-Mahmoud. 

“QIA is launching this program to help ensure that innovative businesses can readily access capital and support from VC funds, enabling them to scale operations and expand market presence in Qatar, across the GCC, and ultimately onto the international stage."

The fund will primarily invest indirectly via other VC funds. It will make targeted co-investments with participating funds, and will not invest in private equity, debt, or any other funds.

International, regional, and emerging local fund managers will be part of the program, as the initiative looks to accelerates the development of Qatar's VC landscape. 

Fund managers that wish to raise funds will need to show a commitment to Qatar and be set to play an active role in the GCC's VC and start-up ecosystem. 

Last August, Saudi Arabia's Crown Prince Mohammed bin Salman launched a $200 million fund to invest in local and international high-tech companies. The kingdom announced more than $9 billion worth of investments in its tech sector at the LEAP event held last February. 

Months later, Dubai Integrated Economic Zones Authority unveiled a $136 million (500 million dirhams) VC fund to finance technology startups to supports the objectives outlined in the Dubai Economic Agenda, D33.

Abu Dhabi sovereign fund Mubadala also announced last month that it will invest significant capital into artificial intelligence and space tech in 2024. 

Islamic Finance
Malaysia's Securities Commission opens applications for Oxford fellowship
Islamic Finance
Islamic finance wrap: Zain launches Shariah-compliant fintech app in Bahrain

Here's a roundup of key developments across the Islamic finance ecosystem during the first two weeks of February

Editor's note: Fintech seems to be the new flavour of the month. Zain Group launched a new Shariah-compliant fintech app in Bahrain, two Malaysian powerhouses have come together to introduce the country's first Islamic Banking as a Service offering, while a Saudi-based fintech has received Shariah certification for its real estate investment offerings. 

We, most certainly, aren't complaining. 

Company News


Philippines

First BSP-licensed Islamic bank opens in BARMM

The Bangko Sentral ng Pilipinas (BSP)-licensed Islamic Branch of Center for Agriculture and Rural Development (CARD) Bank, is now operational in Cotabato City, catering to Bangsamoro residents with Islamic financial products and services.

 

Lawyer Normina Datudacula, BSP's Islamic Banking Supervisory Group manager, highlighted this as a significant step in the Philippines' commitment to advancing the Islamic finance ecosystem following the enactment of Republic Act 11439.  (PIA)

 

Bahrain

Zain launches innovative fintech app 
Zain FinTech, the financial services arm of Zain Group, has introduced its a new app in Bahrain. 

 

Bede offers a Shariah-compliant mobile app for seamless consumer microfinance, providing quick approvals based on credit profiles. (The Fast Mode)

 

Saudi Arabia

IBDA real estate platform creates Sharia compliant investment opportunities
IBDA Real Estate platform, a Saudi-based fintech, has obtained Shari’a certification from Shariyah Review Bureau (SRB) for its real estate investment offerings.

 

CEO Waleed Albawardi highlights the platform's innovative features, enabling property owners to list their properties for sale or opt for unique usufruct right sales. (Zawya)

 

UAE

Money Maestro revolutionizes home financing with Shariah-compliant solutions

Money Maestro has introduced pioneering Shariah-compliant financing products tailored to meet the ethical and religious needs of customers.

 

Focused on Islamic home finance, the institution adheres strictly to Islamic law, prohibiting the payment or receipt of interest (Riba).

 

Employing structures like Murabaha, Ijara, and Musharakha, Money Maestro ensures financing solutions align with principles of fairness and equity. (Zawya)

 

Malaysia

New Islamic banking solution powered by 5G for MSMEs

Maybank Islamic Bhd and Telekom Malaysia Bhd (TM) join forces to introduce Malaysia's inaugural Islamic Banking as a Service (BaaS) solution empowered by 5G, unveiled as Go Niaga.

 

This collaborative effort targets consumers and micro, small, and medium enterprises (MSMEs), merging Maybank Islamic's wide-ranging financial services with TM's renowned Uni5G Postpaid Biz mobile packages.  (The Star)

 

 

Trade Developments


Uzbekistan

Trade financing agreement to boost Uzbekistan's private sector 

The International Islamic Trade Finance Corporation (ITFC) and Asia Alliance Bank have entered into a collaboration to enhance trade financing for Uzbekistan's private sector, especially its small and medium-sized enterprises (SMEs).

 

ITFC will provide a $10 million financing line to Asia Alliance Bank, focusing on addressing the trade finance requirements of private sector clients. (Zawya)

Islamic Finance
OIC markets key players in global Islamic fintech space 

Key Organisation of Islamic Cooperation (OIC) economies continue to dominate the global Islamic fintech space, with Southeast Asia and GCC regions emerging as strong regional centres for Islamic fintech activity, a recent report has revealed. 

Saudi Arabia, Iran, Malaysia, the UAE, Indonesia, and Kuwait have emerged as top six Islamic fintech markets by transaction volume and assets under management, accounting for 85% of the global market size, according to the Global Islamic Fintech (GIFT) Report 2023/24 launched on Thursday.  

Abdul Haseeb Basit, co-founder and principal at ethical digital finance advisory and investment firm Elipses and co-author of the GIFT 2023/24 report, said that diversification and consolidation being led by the mature players in the sector sets the precedent from where future growth may emerge. 

“Two dominating regional centres in SE Asia and MENA-GCC led by Malaysia and Saudi Arabia show that ecosystem support initiatives that increase conduciveness to Islamic fintech continue to bear fruit.”

The global Islamic fintech market is forecast to record $306 billion in transaction volumes by 2027, up from $138 billion in 2022/2023. The ecosystem currently consists of 417 such companies around the world. 

Countries like Indonesia, Malaysia, and the Saudi Arabia have emerged as hotspots, leveraging their supportive regulatory frameworks and strong Islamic finance ecosystems. 

The GIFT Index 2023/24, which is part of the report, lists Malaysia, Saudi Arabia, Indonesia, the UAE and the UK as the top five Islamic fintech conducive ecosystems in the world. 

The index ranks 64 OIC and non-OIC countries on their conduciveness to the Islamic fintech market and ecosystem in their jurisdictions. It uses 19 indicators across five categories – talent, regulation, infrastructure, Islamic fintech market and ecosystem, and capital.

Oman made it to the GIFT Index's top 10 countries for the first time. 

However, challenges remain that continue to stymie the sector’s growth.

The findings identified access to capital, consumer education, regulation, talent, and the complexity of geographic expansion as the sector’s biggest pain points. 

“As we navigate challenges such as regulatory complexity, it is the sector's innovative spirit and ethical foundation that excites us of its potential to lead meaningful change of financial inclusion and equity globally,” adds Rafi-uddin Shikoh, founder of DinarStandard.

The sector's ability to cater to a young, digitally native Muslim as well as an ethical, finance-conscious global demographic, is most exciting, he adds.  
 
The Global Islamic Fintech Report 2023/24 can be downloaded
here
 

Islamic Finance
Islamic finance wrap: AEON Bank receives nod to launch digital banking ops 

Here's a roundup of key developments across the Islamic finance ecosystem during the month of January

Editor's note: Digital has been the buzzword for some time now and the momentum refuses to dissipate, giving lenders across the world valid reason to cash in.

UAE's Emirates Islamic launched a Shariah-compliant trading platform via its app, AEON Bank became the first Malaysian Islamic digital lender to launch digital banking ops, while the Islamic Development Bank Institute initiated the development of a digital marketplace. 

 

Company News


UAE
Emirates Islamic launches digital wealth offering, equity trading on mobile app
Emirates Islamic has introduced a Shariah-compliant digital wealth and equity trading platform accessible through its EI+ mobile banking app.

This platform enables customers to efficiently manage their investments by engaging in Shariah-compliant equities trading in both local and international markets. (Ibis Intelligence)

Malaysia
Malaysia’s AEON Bank receives nod to launch digital banking operations 
AEON Bank Berhad has secured an approval from Bank Negara Malaysia and the Minister of Finance to commence its digital banking operations in Malaysia.

Formerly known as ACS Digital Berhad, the lender secured the bid for a digital banking license, making AEON Bank the first Islamic digital bank in Malaysia to gain approval under the new digital banking framework. (Fintech News)

Saudi Arabia
IsDB Institute begins developing digital marketplace
The Islamic Development Bank Institute (IsDBI) has initiated the development of the Islamic Finance Knowledge Pavilion Marketplace.

This digital marketplace will serve as a platform for validated solution providers, including institutions, consultants, and experts in Islamic finance and economic development. (Arab News)

Pakistan
First Islamic microfinance branch launched
Meezan Bank and SAFCO Microfinance Company Private Limited (SMCL) have inaugurated Pakistan's first Islamic microfinance branch in Hyderabad.

Branded as 'Yaqeen,' the branch will provide Shariah-compliant microfinance services to low-income and marginalized segments of society. This initiative aims to promote financial inclusion and social welfare in alignment with Islamic principles. (The News)

Oman
ahli Islamic launches Al Majd segment for upper mass customers
ahli Islamic, the Islamic banking window of ahlibank, has introduced its Al Majd segment targeting upper mass customers.

This specialized service segment offers a range of Sharia-compliant benefits, and as part of an exclusive launch offer, customers receive a one-time Hiba in the form of a 10% cashback on salaries. (Muscat Daily)

Saudi Arabia
Thara collaborates with Shariyah Review Bureau to ensure compliance
Saudi fintech Thara has achieved Shariah certification from Shariyah Review Bureau (SRB) for its crowdfunding financial services focusing on real estate development projects.

Thara's platform connects individual and institutional investors, providing them with investment opportunities in the real estate sector through Murabaha financing. (Zawya)

Singapore
Saudi's Sidra Capital launches Singapore-based company for cross-border investments
Saudi-based Shari’ah-compliant asset management firm Sidra Capital has launched its first Singapore-domiciled variable capital company, Sidra Asian Opportunities Investment I VCC (VCC).

Launched in November 2023, the VCC's investment strategy revolves around enabling cross-border commodity supply chains through fully funded irrevocable Letters of Credit (LC). (Yahoo Finance)

 

Trade Developments


Pakistan
Ahli Islamic signs landmark MoU with AAOIFI
Ahli Islamic has signed a Memorandum of Understanding (MoU) with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), to strengthen collaboration in capacity building.

The agreement aims to support the growth of the Islamic finance sector in Oman. The MoU was signed during the AAOIFI-IsDB 18th Annual Islamic Banking and Finance Conference. (Pakistan Observer)

 

Trade Developments


Kurdistan
Kurdistan International Islamic Bank adopts Azentio's iMAL software
Kuwait International Bank (KIB) has implemented the iMALTM solution, providing full compliance with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards.

The comprehensive solution covers various aspects of Islamic finance, including investments, deposits, treasury, and capital markets. It equips KIB to introduce new Sharia-compliant products rapidly. (The Paypers)

 

ESG Developments


Qatar
QIIB sets out a sustainable finance framework.
Qatar International Islamic Bank (QIIB) unveils its first sustainable finance framework, detailing principles for long and short-term environmental, social, and sustainability objectives.

The Doha-based bank aims to issue green, social, or sustainability-labelled sukuk and other financing products, adhering to the International Capital Market Association's green, social, and sustainability bond guidelines. (The Asset)

Malaysia
Bank Islam introduces Ihsan Sustainability Investment Account to deliver positive impact through social finance.
Bank Islam Malaysia Bhd launches the Ihsan Sustainability Investment Account (ISIA), aiming to generate positive social and environmental impact through social finance.

The ISIA is tailored for clients seeking stable short-term investments, providing a secure option amid uncertainties related to equities and fixed-income investments. (Malay Mail)


Events & Courses

Special Coverage

Global Islamic Fintech Report 2023/24

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The State of the Global Islamic Economy 2023/24 Report

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Global Islamic Fintech Report 2022

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State of the Global Islamic Economy 2022

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Food Security

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Women in the Islamic Economy

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COVID-19 and the Global Islamic Economy

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E-book: Impacts of the COVID-19 outbreak on Islamic finance in OIC countries

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State of the Global Islamic Economy 2020/21

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Global Islamic Fintech Report 2021

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