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Malaysia’s Innovative ‘People’s’ Sukuk Prihatin Aims to Connect Citizens Contribution to COVID-19 Economic Recovery

It is unusual for a sovereign issuer to issue debt papers in the name of patriotism and nationalism. But then the COVID-19 pandemic has unleashed unusual circumstances and demands on governments the world over.

In Malaysia in August 2020, Prime Minister Tan Sri Muhyiddin Yassin and Finance Minister Tengku Zafrul Abdul Aziz finally launched the much anticipated RM500 million Sukuk Prihatin – a ‘People’s Sukuk’ (from the people to the people) – in the presence of Malaysian monarch Sultan Abdullah Ri’ayatuddin.

“Sukuk Prihatin is a gateway for the Rakyat [people] to unite together and join the Government in supporting the nation’s economic recovery, through Government-issued Islamic securities. Sukuk Prihatin will carry nationalistic and patriotic elements to rally fellow Malaysians to participate in rebuilding the economy and the nation while enduring the COVID-19 crisis,” maintained Finance Minister Tengku Zafrul Abdul Aziz at the launch.

The Sharia’a-compliant Sukuk, added the Minister, “is launched in response to requests by various parties to contribute towards the country’s recovery efforts. To that end, the Government decided that the Sukuk issuance is a transparent and appropriate instrument in response to those requests.”

This Sukuk is one of the initiatives under the government’s National Economic Recovery Plan (PENJANA) launched by Prime Minister Muhyiddin Yassin in June and which is based on the Government’s 6R strategy, which features 6 stages, namely (1) Resolve; (2) Resilience; (3) Restart; (4) Recovery; (5) Revitalize and (6) Reform.  The proceeds of this Sukuk will be used for “Recovery” initiatives, under the fourth stage.

PENJANA is one of three Government economic stimulus packages, the other two being PRIHATIN and PRIHATIN SME Plus – cumulatively valued at RM295 billion, introduced as a COVID-19 mitigation to protect the nation, support and revitalise businesses and strengthen the economy. These packages also include the Government’s direct fiscal injection of RM45 billion.

The innovative features of the Sukuk is also in line with the stated policy of the Securities Commission Malaysia (SC) to democratize the Islamic Capital Market (ICM) by facilitating access to such instruments to all sections of society – from corporates to retail investors. The issuance is thus targeted at Malaysians who are 18 years old and above.

Sukuk Prihatin, which has an initial size of RM500 million but which may be upsized, is structured as a Commodity Murabaha (via Tawarruq) Sukuk with a tenor of 2 years maturing on 22 September 2022. The minimum subscription is RM500 but there is no maximum limit. The Sukuk Prihatin will be allocated on a first-come first-served basis.

Certificate holders may redeem the Sukuk Prihatin at nominal value only on the stated maturity date. There is also a philanthropic element in that Sukuk holders can opt at the maturity date to donate the principal amount to any Government COVID-19 Mitigation Trust Account. This contribution will be eligible for tax exemption.

As an added incentive all profit from the Sukuk is tax exempted, albeit this special tax treatment is applicable only for the EligibleBuyer/Applicant and not for any intermediaries. The certificates carry a “competitive” 2% profit rate per annum fixed throughout the tenure, paid to certificate holders on a quarterly basis, with the first profit payment on 22 December 2020. The Sukuk is guaranteed by the Ministry of Finance, which stresses the issue is ideal for investors who are seeking portfolio diversification for their investments.

Finance Minister Tengku Zafrul Abdul Aziz also emphasized that “this is the first issuance of a Sukuk by the Government that can be fully subscribed or invested through digital banking platforms, utilising JomPAY and DuitNow facilities, which are accessible via mobile banking platforms of 27 participating banks in Malaysia. Maybank is the primary distribution bank for this Sukuk.”

The proceeds from this Sukuk will be channelled to the Kumpulan Wang COVID-19 to finance measures announced in the economic stimulus packages and recovery plan to address the COVID-19 crisis.

Examples of the initiatives/programmes as announced in the economic stimulus packages and recovery post COVID-19 include:

  1. medical expenditure related to COVID-19 disease, including supporting research grants for infectious diseases;
  2. for financing/grants for microenterprises, particularly women entrepreneurs; and
  3. to enhance connectivity to rural schools, which will also act as hubs to connect nearby villages.

According to the Ministry of Finance, the key benefits of Sukuk Prihatin are:

  • The profit payment amount and the principal amount under this Sukuk Prihatin is a direct obligation of the Government as the Issuer
  • It provides investors an opportunity to diversify their investment portfolio
  • It offers fixed quarterly profit payment amount
  • The Sukuk Prihatin is an approved Sharia’a-compliant investment, and
  • It offers special tax treatment accorded to certain eligible Sukuk holders.

Tan Sri Muhyiddin Yassin in his tenure as Deputy Prime Minister was a prime mover behind the launch of the world’s first Sustainable and Responsible Investment (SRI) Sukuk worth RM100 million in 2015. That SRI Sukuk was issued by Khazanah Nasional, the sovereign wealth fund of Malaysia, and was linked to education enabling support services especially in rural schools.

According to the latest annual report of the Securities Commission, in 2019 the size of the overall capital market totaled RM3,202.11 billion, of which the ICM accounted for RM2,035.59 billion or 63.57%. At end January 2020, the size of the ICM held firm at RM2,001.77 billion or 63.46% of the overall capital market. The resilience of the ICM is underlined by its steady growth trajectory over the last few years from RM1,133.83 billion (or 59.19% market share) in 2017 to RM1,036.52 billion (or 60.55% of market share) in 2018 to its 2019 growth.

Malaysia has an active local sovereign Sukuk and bond issuance Programme for reserve, liquidity management and interbank money market transactions – both Shariah-compliant and conventional. These comprise mainly Malaysian Government Securities (MGS), Malaysian Government Investment Issues (MGII) and Mudarabah Certificates. It would be revealing to see what portion of the RM35 billion the government seeks to raise locally would indeed be through Shariah-compliant issuances.

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