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KIB Signs US$150m Bilateral Murabaha Facility Agreement with EQUATE Petrochemical Company 

Kuwait City – Kuwait International Bank (KIB), formerly the Kuwait Real Estate Bank, signed a US$150 million bilateral Murabaha financing agreement with EQUATE Petrochemical Company in early July 2020. The facility, which has a tenor of 3 years, according to KIB, will be used to partially refinance an existing facility previously extended by a consortium of banks for business expansion. The facility, said KIB, is well structured to suit the liquidity requirements of EQUATE.

Raed Bukhamseen, Vice Chairman and CEO of KIB, stressed that KIB was “delighted to have structured and arranged this Islamic facility for EQUATE, a major global player in the petrochemical sector. We look forward to continue supporting the company’s growth, which is underpinned by its strong business model, management team and shareholders. This transaction supports the diversification of the Bank’s financing portfolio. This transaction also underscores KIB capability of leading, arranging and accommodating large ticket transactions on a bilateral basis which has now become easier following the successful closing of our perpetual Sukuk issuance last year, which further strengthened the Bank’s capital ratios.”

Taiba Investments and ADVANCED Secure US$762m in Murabaha Financing Facilities in July 2020

Riyadh – Murabaha financing facilities continued to be a feature of corporate financing in Saudi Arabia in July 2020. The local Taiba Investments Company (TIC) signed a SAR1.357 billion (US$361.8 million) Murabaha financing agreement with Al Bilad Bank. TIC, listed on the Saudi Stock Exchange with interests in real estate and property investment and development, said in a statement that the financing period is 14 years and will be used for balance sheet and business consolidation purposes.

Similarly, Advanced Petrochemical Company (ADVANCED) signed a SAR1.5 billion (US$400 million) Murabaha facility agreement with a consortium of Saudi banks including Riyad Bank (the Investment Agent), SAMBA Financial Group and Al Rajhi Bank. The facility has a tenor of five and half years maturing on 31 December 2025. The facility is backed by promissory notes provided by ADVANCED and the utilisation of the funds will be based on actual drawdowns in line with financing requirements.

ITFC Launches US$50m Waqf-based Fund to Support Trade Development in Member Countries to Mitigate COVID-19 Impact 

Jeddah – The International Islamic Trade Finance Corporation (ITFC), the trade fund of the Islamic Development Bank (IsDB) Group, launched a new Trade Development Fund (TDFD) in July 2020 with an initial capital of US$50 million to support trade development projects in member countries of the Organisation of Islamic Cooperation (OIC) and Muslim communities in non-member countries.

The Fund is based on a Waqf (trust endowment) structure, which from a Sharia’a perspective means endowed assets and restrictions on their use and disposal. 

The Fund, according to ITFC, will utilize investment returns for grants or concessional financing linked to the design and delivery of trade activities, raising awareness or knowledge sharing of trade-related issues and technical assistance. The TDFD assets will be invested in Sharia’a-compliant investments, with 50% of returns allocated for operational purposes and the other 50% going towards the principal to increase the fund. This operating model will enable the fund to grow over time as a sustainable funding platform.

The fund has so far extended support to address the needs of member countries to fight the socio-economic effects of COVID-19, particularly with regards to the provision of food and essential medical supplies. “The ITFC Trade Development Fund,” maintains CEO Hani Salem Sonbol, “will enable us to go even further in providing charitable resources for the onward funding of trade related initiatives and interventions to promote and develop trade within and between OIC member countries and also reach out to Muslim communities in non-OIC member countries, enhancing import-export trade activity across the Muslim world.”

In addition to the reinvestment of returns into the fund, future capital will also come from contributions by ITFC and member countries, institutions, and contributions from individuals in member and non-member countries.

BNM Adopts Policy Document on Electronic Know-Your-Customer (e-KYC) Requirements to Facilitate Greater Digital Offerings in Financial Services

Kuala Lumpur – Bank Negara Malaysia (BNM) issued a policy document on Electronic Know-Your-Customer (e-KYC) in July 2020 aimed at accelerating and streamlining practices of industry players in their adoption of e-KYC technology, the online process of identifying and verifying individual customers.

The adoption of e-KYC technology by the industry, stressed the central bank, is in line with the its efforts to facilitate greater digital offerings of financial services. This is expected to pave the way for greater innovation in the financial sector, including end-to-end offering of digital financial services for customers. The document defines “electronic Know-Your-Customer (e-KYC)” as establishing business relationships and conducting customer due diligence (CDD)1 by way of electronic means, including online and mobile channels.

“e-KYC enables the digital on-boarding of customers to occur anytime and anywhere. With implementation of e-KYC, a majority of customers no longer need to visit the physical premises of a financial service provider to open an account. In addition to increased customer convenience, the digital on-boarding of customers enabled by e-KYC also lowers cost for both users and providers. This can also help increase competition in the financial sector over the long term,” added BNM.

The policy document seeks to promote the safe and secure application of e-KYC technology in the financial sector by clarifying desirable outcomes in the use of e-KYC and sets out best practices, as well as parameters to ensure security and integrity of the on-boarding process for customers.

It forms part of a series of measures adopted by the Bank in ensuring that regulatory requirements support the country’s agenda on digital economy. The provisions of the document became effective on 1 July 2020.

Bank Negara maintains that the digitalisation of identification and verification processes is an important enabler to increase the convenience and reach, as well as lower the costs of financial services. A key aspect of digitalisation entails the delivery of end-to-end financial solutions through online and mobile channels, supported by the adoption of financial technology.

However, if this process is not effectively managed, it can become a source of risk to a financial institution and can undermine the integrity of financial transactions. The Bank expects the outcome of e-KYC technology adoption in the financial sector to include uncompromised accuracy in customer identification and verification, along with an ongoing assessment of the robustness of the technology application.

The policy document sets out the minimum requirements and standards that an authorised financial institution must observe in implementing e-KYC for the identification and verification of individuals. The requirements are aimed at: 

(i) enabling safe and secure application of e-KYC technology in the financial sector;

(ii) facilitating the Bank’s continued ability to carry out effective supervisory oversight over financial institutions; and

(iii) ensuring effective Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) control measures. 

Sustainable Investor Demand Marks IILM’s Two Auctions Totaling US$1.5bn of Short-term Sukuk in July 2020

Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) successfully concluded two auctions in July 2020 by issuing short-term A-1 rated Sukuk for a total amount of US$1,500 million.

On 6 July the IILM re-issued US$1.01 billion of short-term A-1 rated Sukuk in three series of 1-month, 3-month and 6-month tenor. The three issuances were priced by the market as follows: i) US$360 million of 1-month tenor at 0.27%; ii) US$400 million of 3-month tenor at 0.43%; and iii) US$250 million of 6-month tenor at 0.55%, respectively. The final pricing, says the IILM, fell within the indicative pricing guidance across the tenors demonstrating the strong interest from both Primary Dealers and end-investors.

The tender resulted in significant demand from Middle Eastern, Asian and African investors, with an orderbook that closed in excess of US$1.3 billion, representing an oversubscription rate of 1.38 times.

On 21 July, the IILM issued US$490 million short-term A-1 rated Sukuk of 6-month tenor. The auction was conducted to fund the acquisition of a new asset worth US$490 million. The new 6-month  Sukuk and was priced at 0.60%, with an orderbook reaching US$537 million.

“Today’s issuance of US$490 million marks the inclusion of a new high credit quality asset, increasing the IILM’s asset pool from US$2.51 billion to US$3 billion, the maximum programme capacity. The IILM would like to thank its Primary Dealers for their continuous support in subscribing and distributing the Sukuk to investors. The IILM will continue to fulfill its mandate to provide sufficient supply of high quality Shariah-compliant instruments to cater to the market demand and the liquidity needs of institutions offering Islamic financial services,” explained IILM CEO, Dr. Umar Oseni.

With the US$490 million issuance, the total IILM Sukuk outstanding is US$3 billion with a Sharia’a tradability ratio of 71% tangible assets. The IILM Short-term Sukūk programme is rated “A-1” by S&P.

The IILM added that the Corporation has entered the second half of its issuance calendar for 2020 with July’s auctions. It has issued a cumulative amount of US$6.41 billion year-to-date which accounts for over 25% of the Global US dollar-denominated Sukuk issued year-to-date. “The success of IILM’s Sukuk issuances is a testament to the confidence investors place in the Sukuk’s robust fundamentals,” added Dr Oseni.

According to the IILM, the primary dealers that participated in the two auctions conducted under the competitive bidding of the Bloomberg AUPD Platform included Abu Dhabi Islamic Bank; Al Baraka Turk Participation Bank; Barwa Bank; Boubyan Bank; CIMB Islamic Bank Berhad; First Abu Dhabi Bank; Kuwait Finance House; Macquarie Bank; Maybank Islamic Berhad; Qatar Islamic Bank; and Standard Chartered Bank. The allocation was dominated by GCC-based institutions. 

Malaysia’s Employees Provident Fund (EPF) Outsources the Investment Management of RM132.41 billion to External Fund Managers in 2019

Kuala Lumpur – The importance of pension funds as drivers of the asset management industry could not be better illustrated by the investment strategy of the Employees Provident Fund (EPF), Malaysia’s largest and oldest public pension fund. EPF announced in June 2020 that a total of RM132.41 billion had been outsourced to external fund managers as at 31 December 2019, an increase of 12.63 per cent compared with RM117.56 billion at the end of 2018. This allocation, invested across both equity and fixed income instruments, represented 14.12 per cent of the EPF’s total investment assets.

“Given the size of the EPF’s portfolio,” stressed EPF Chairman, Tan Sri Ahmad Badri Mohd Zahir, “which came up to RM924.75 billion in overall investment assets by the end of 2019, we are continuing to engage external fund managers to invest a portion of our funds with the aim of further optimising returns and as part of efforts to diversify and enhance the performance of our assets. The EPF is very grateful to all our fund managers, both external and our own homegrown talent, whose diligence and commitment has helped ensure the sustained performance of the funds which we have entrusted to their care.”

The EPF has two pension plan options – Simpanan Konvensional and the Sharia’a compliant Simpanan Shariah. For the financial year ended 2019, the EPF delivered a dividend rate of 5.45% with a payout amounting to RM41.68 billion for Simpanan Konvensional, while Simpanan Shariah saw a dividend rate of 5.00% with a payout amounting to RM4.14 billion. Under its investment strategy, some 40% of EPF assets are earmarked for investing under Sharia’a principles.

“As we navigate market uncertainties in executing EPF’s investment strategies, we must manage our expectations for the near-term, as the COVID-19 pandemic has entirely reshaped the way the world operates. However, the fund will continue to strive to maintain stable and consistent returns over the long-term within tolerable risk limits, as well as to preserve and enhance the value of the capital from members’ savings. We are confident that the external fund managers we have selected will help us achieve this,” explained Tan Sri Ahmad Badri. 

CBB Launches Foreign Investors Service to Coincide with its Latest US$332m Sukuk Ijarah Offering 

Manama – In July, Bahrain Bourse announced that Bahraini and non-Bahraini investors can directly subscribe through the primary market of the Bourse in the BHD125 million (US$331.48 million) Sukuk Ijarah that has been issued by the CBB on behalf of the government of Bahrain by executing their orders through registered brokers at Bahrain Bourse. The Government of Bahrain directly guarantees the Sukuk certificates.

The initiative became effective on 6 July 2020, after which investors were able to trade the Sukuk on the secondary market at the Bourse following the listing of the Sukuk certificates. The BHD125 million Sukuk Ijarah, which has a 6-year tenor, was issued on 15 July and oversubscribed by 199%, attracting subscriptions worth BHD248.8 million (US$659.78 million). The annual fixed return on these securities is 4.50% and will be paid bi-annually in January and July every year throughout the period of this issue.

The CBB also issued its regular BDH26 million (US$68.95 million) monthly issue of short-term Sukuk Ijarah, which carries a maturity of 182 days and was oversubscribed by 465%, attracting subscriptions worth BHD120.845 million. The expected return on the issue, which matures on 7th January 2021, is 2.58%.

BNM SAC Issues Another Landmark Ruling on Permissibility of Electronic Money (e-Money) under Sharia’a Principles

Kuala Lumpur – In another landmark ruling, the Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) has issued a ruling pursuant to Section 52 of the Central Bank of Malaysia Act 2009, that electronic money (e-Money) is a permissible payment instrument under Sharia’a, provided that the e-Money has to be structured based on appropriate Sharia’a contract(s) to preserve the rights and obligations of the contracting parties.

This precedes the ruling of the SAC of the Securities Commission Malaysia in July “that in principle, it is permissible to invest and trade in digital currencies and tokens on registered digital asset exchanges.”

The e-Money ruling was discussed and approved by the SAC earlier this year and came into effect on 19 May 2020.  One of the applicable Shariah contracts for e-Money, according to the Ruling, is the agency contract (Wakalah), whereby the approved issuer acts as an agent to make payment on behalf of the user (wakil bi ad-daf`i) to the merchant. Therefore, the funds received from the user shall be placed in a Sharia’a compliant trust account or a dedicated deposit account as required pursuant to section 137 of the Islamic Financial Services Act 2013 (IFSA).

An approved issuer is required to comply with the Guideline on Electronic Money issued by BNM dated 31 July 2008 (including revisions from time to time). This includes, amongst others, the requirement on utilisation of the funds for investment purpose and any return generated belongs to the approved issuer, subject to the condition set forth in the Guideline.

In this regard, the funds may be construed as a form of loan (qard) from the user to the approved issuer. Since the approved issuer acts merely as an agent to facilitate payment on behalf of the user to the merchant, it is the user’s responsibility to ensure that the e-Money is used for Sharia’a compliant transactions.

The SAC justified its ruling on the basis that technological advancement has paved the way for digital development to enable seamless and efficient way to do commercial transactions. “In this regard, Qarar Majma` Fiqh al-Islami allows commercial transactions to be concluded through modern communication tools or devices given that technology, as a means of transaction, is neutral and is permissible to use. This is in line with the following fiqh legal maxim: “The original state (of thing) is permissible.”

The ruling, reminded the SAC, serves as guidance for any approved issuer that intends to offer Sharia’a compliant e-money. Approved issuers are encouraged to educate their users on the essence of the Sharia’a compliant e-money product to avoid misunderstanding of the Shariah ruling.

State Bank of Pakistan Issues New Operating Instructions for Islamic Banking Windows to Expand Their Scope of Operations in Product Offerings and Financial Inclusion 

Karachi – In an effort to leverage the significant potential of Islamic Banking Windows (IBWs) of conventional banks in the country and in enhancing the share and outreach of Sharia’a compliant financial services and increase financial inclusion, the State Bank of Pakistan (SBP) issued revised instructions for banks in July 2020 to expand the scope of operations of IBWs.

The instructions contained in the IBD Circular No. 02 of 2020 sent by the SBP Director of the Islamic Banking Department, Ghulam Muhammad, and addressed to the Presidents/CEOs of the banks, allows IBWs to offer all types of Sharia’a compliant financing products including Sukuk offerings. IBWs can now offer all types of financing products to their customers including corporates, SMEs, agriculture entities, housing, and retail customers. However, this facility is subject to the condition that respective IBW branches shall be converted into full-fledged Islamic banking branches within a period of three years.

All conventional banks already having IBWs are also required to submit their duly approved ‘IBWs Policy’ to SBP’s Islamic Banking Department within three months of issuance of this circular on 29 July 2020.

Banks operating IBWs are also required to submit quarterly data on their operations.

The new instructions supersede previous SBP instructions and became effective on 31 July 2020. 

With 1,400 IBWs of 11 banks currently operational in the country, their potential to improve access to finance will increase significantly. Further, it will contribute towards enhancing the Government’s financial inclusion policy through the provision of Sharia’a compliant financing facilities to a vast majority of the population.

The revised instructions also incorporate different amendments or additions to existing regulations and include policy formulation on IBWs, submission of annual IBWs expansion plan, physical setup & display requirements for IBWs, opening & closure of IBWs, their fee structure, and revisions in reporting requirements.

According to the SBP, the new policy measure will contribute towards achieving the targets set under National Financial Inclusion Strategy for Islamic Banking, which envisages attaining a share of 25% percent in total assets and deposits of the banking industry and 30% share in total branch network of the industry by the end of 2023.

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