Newswrap: Islamic finance

$17.6 million raised for fintech in Pakistan’s largest-ever seed round; ESG-linked sukuk on growth trajectory; Pakistan makes payment on Sharjah Islamic Bank sukuk; Oman’s Islamic banking sector reports double-digit growth.

$17.6 million raised for fintech in Pakistan’s largest-ever seed round

Islamabad-based fintech Dbank raised $17.6 million in Pakistan’s largest seed round, reported Bloomberg. The funding round was co-led by Sequoia Capital Southeast Asia and Kleiner Perkins, with Askari Bank Ltd, Brazil’s Nubank, and Rayn also involved. Pakistan has the world’s third largest unbanked population, which the fintech hopes to target and then expand to other Muslim-majority countries. “Pakistan has a fast-growing middle class with increasingly sophisticated banking needs. This signals a unique opportunity to build a large, customer-centric bank for millions of people,” Sequoia Southeast Asia’s Vice President, Johan Surani, is quoted as saying. Start-up financing is burgeoning in the Islamic Republic, the world’s fifth most populated country, attracting $350 million last year.

ESG-linked sukuk on growth trajectory

Environmental, social and governance (ESG)-linked sukuk is likely to persist as a key issuance theme in core Islamic finance jurisdictions amid government initiatives that promote sustainability and economic diversification, along with rising investor demand and awareness, says Fitch Ratings. Fitch rates more than 80% of the hard-currency ESG-linked sukuk market; while 10.4% of all Fitch-rated sukuk is ESG-linked, the segment’s growth potential remains high.

“Commonalities exist between Islamic finance and ESG principles due to built-in sharia filters, but there are differences,” said Bashar Al-Natoor, Global Head of Islamic Finance at Fitch. “Islamic finance does not relate only to the use of proceeds, but Islamic products also have to be structured in a way that complies with sharia. The global ESG-linked sukuk market has flourished in recent years, and we expect growth to continue in the medium term.”

Outstanding ESG-linked sukuk expanded by 11.2% quarter on quarter in Q2 2022, reaching $19.3 billion. About $4.3 billion of ESG-linked sukuk was issued in the first half of 2022, wrote Fitch in report Global ESG Sukuk Market.

Key challenges in core Islamic finance markets include a complex issuance process, regulatory constraints as well as a shortage of domestic ESG-focused investors and issuers. Sukuk must also comply with sharia.

ESG-related issues, such as water scarcity, climate change and governance reform, are key issues in a number of Organisation of Islamic Cooperation (OIC) countries. For example, five out of six countries in the Gulf Cooperation Council region rank in the top-10 globally when it comes to extreme temperature and drought.

Pakistan makes payment on Sharjah Islamic Bank sukuk

Pakistan is going through an economic crisis, seeking $6 billion from the IMF. Despite its financial woes, with a deficit of around $10 billion, the Islamic Republic has signalled it will not default on its external debt of $24 billion and has kept up with its bond repayments. Bloomberg reported that the Sharjah Islamic Bank received a schedule coupon of around $40 million on 31 July for its holding of a $1 billion sukuk issued in January. The State Bank of Pakistan confirmed the development to Bloomberg, saying “Pakistan’s sukuk coupon payment has been executed and all debt repayments during this week are on track, including the one due on August 3”.

Oman’s Islamic banking sector reports double-digit growth

Oman’s Islamic banking sector asset base grew by 13.6% in 2021, to RO5.9 billion ($15.34 billion), according to the central bank’s Financial Stability Report 2021, reported the Oman Observer. The Sultanate has two Islamic banks and five Islamic banking windows, which account for 15.2% of the overall banking sector’s assets. Profitability was three times higher last year on 2020, when there was a drop in activity due to the COVID-19 pandemic.