Kuveyt Turk Boosts Lease Financing Portfolio to TL6.5bn in Q1 2021 as Prospects for Sector Increases Following Agreement with Leading Industrial Group
Istanbul – In an effort to further boost its lease finance business in Turkey, Kuveyt Turk Participation Bank, a subsidiary of Kuwait Finance House, signed agreements in May 2021 with MST Satış Pazarlama, ELS Lift, Sanko Makine Pazarlama and Asko İş ve Tarım Makinaları, which are affiliated with Asko Group, one of the leading industrial companies of Turkey, to provide leasing finance services to them.
Kuveyt Turk, Turkey’s largest participation (Islamic) bank in terms of assets, has seen its leasing finance portfolio increasing steadily over the last few years, totalling TL2.7 billion at end 2019 to over TL5 billion at end 2020. At the end of Q1 2021, according to Kuveyt Türk, it’s leasing finance portfolio has exceeded TL6.5 billion.
As part of the leasing agreement with the above companies, Kuveyt Türk brings buyers and sellers together “by providing financing support to the contracted companies in the financing of the products they manufacture and sell at favourable profit rates according to their cash flows.” In this way Kuveyt Turk believes it is contributing to financing the real economy and the industrial development of the country.
A strong feature of Kuveyt Turk’s leasing finance is a long-term and flexible repayment plan suitable for cash flow management. Kuveyt Türk’s Executive Vice President Retail and Business Banking Abdurrahman Delipoyraz explained that the bank “attaches great importance to supporting the economy of the country by supporting businesses. In this context, we provide many advantages to businesses with the leasing services we offer. The dividend part of the rental paid may be written as expense by the tenant for the rental period. In addition, with the advantage of VAT, the cost of the funding is more attractive than other financing methods.”
The Asko Group of companies have many years of experience and investments in the construction and agricultural machinery sector in Turkey. According to Özalp Kibar, a Board Member of Asko Group, “the leasing agreement with Kuveyt Türk Participation Bank with advantageous pricing and flexible payment options will make a positive contribution to our customers’ procurement and cash flow processes. Our group also distributes many of the top global brands of agricultural machinery and inputs in the world. We care that our customers have access to cost-efficient financing for their cash flows for the machines they purchase from our group companies.”
Indonesian Government Raises IDR10.75 Trillion (US$754.2 million) Through Two Rupiah-denominated Sukuk Auctions in May 2021 as Aggregate Funds Raised in January-May 2021 Totals IDR99.02 Trillion
Jakarta – The Government of Indonesia continues to consolidate its role as one of the most proactive repeat issuers of sovereign domestic Sukuk in the market through two auctions during the month of May 2021.
The Department of Islamic Financing at the Directorate General of Budget Financing and Risk Management, Ministry of Finance of Indonesia, in fact raised a total IDR10.75 trillion (US$754.2 million) in May 2021, with an aggregate total raised for the first five months in 2021 amounting to IDR99.02 trillion.
The Government of Indonesia is a prolific issuer of domestic Sukuk and demand from local institutional investors is robust. The total bids for the May auctions amounted to IDR20.66 trillion.
The May 2021 issuances comprised two auctions of Sovereign Shariah Securities (SSS) or Sukuk Negara through the auction system of Bank of Indonesia and one transaction through a private placement.
The auction held on 4 May 2021 of Sovereign Shariah Securities raised IDR10 trillion comprising six tranches with tenors of 6 months, 2 years, 4.5 years, 13 years, 16 years and 25 years. The tranches were priced at a coupon rate at discount, 6.5%, 6.125%, 6.375%, 6.1% and 7.75% respectively. Total incoming bids for the auction amounted to IDR19.9057 trillion.
The auction held on 11 May 2021 of Sovereign Shariah Securities or Tradable Sukuk Negara PBS 026 and PBS 003 raised IDR750 billion through two tranches. The transaction was done through a private placement. The first tranche was for IDR500 billion and was priced at a yield of 5.3% and a fixed coupon rate 6.625% per annum. The second tranche was for IDR250 billion and was priced at a yield of 5.75% and a fixed coupon rate of 6% per annum.
Securities Commission Malaysia and UN Capital Development Fund Launch FIKRA Islamic Fintech Accelerator Programme Focusing on Malaysian Islamic Capital Market
Kuala Lumpur – The Securities Commission Malaysia (SC) and the United Nations Capital Development Fund (UNCDF), through its Centre for Financial Health, launched an innovation programme in May 2021 to develop a vibrant Islamic Fintech innovation ecosystem in Malaysia’s Islamic capital market (ICM).
The programme, known as the FIKRA Islamic Fintech Accelerator Programme (FIKRA), came live on 25 May with its inaugural initiative, the first accelerator focusing on fintech for the ICM in Malaysia.
FIKRA, according to the SC, “aims to identify and scale relevant and innovative Islamic Fintech solutions that can help address three main challenge areas, namely, new ICM offerings, accessibility and social finance integration.”
SC Chairman, Datuk Syed Zaid Albar, stressed that “Islamic Fintech in the Malaysian capital market is still at a nascent stage, but there is great potential for exponential growth with the right ecosystem. The accelerator and future initiatives under FIKRA will advance the development of Islamic Fintech while creating an ecosystem that nurtures talent, funds innovation, commercialises ideas and solutions, and creates jobs and opportunities.”
FIKRA is designed to turn ideas into real-life solutions taking innovators through the entire value chain from ideation, solutions validation, prototype building, creating a fundraising pitch deck, and to preparing applicants for an effective pitching to potential investors.
Fintech start-ups who participate in FIKRA’s first accelerator initiative will benefit from regulatory guidance, the programme’s mentorship and social networks.
The methodologies used for the programme are developed by UNCDF based on their prior experience running innovation challenges through their Financial Innovation Lab (FinLab) and now scaled to address finance related initiatives under the Centre for Financial Health.
“To achieve Sustainable Development Goals (SDGs), it is important to ensure that product offerings focus on building financial resilience and security for the people we serve,” said Preeti Sinha, Executive Secretary for UNCDF. “As we look to broaden market participation, FIKRA can be an avenue for innovators to cultivate their solutions that can potentially provide a much-needed and timely boost for the Malaysian ICM.”
Participants also have the opportunity to work closely with FIKRA’s industry partners such as Bank Islam Malaysia, Gobi Partners, Kenanga Investment Bank, and Permodalan Nasional Berhad.
IsDB Launches US$850m COVID-19 Vaccine Access Facility Ecosystem
Jeddah – The Islamic Development Bank (IsDB) Group launched in May 2021 a US$850 million ‘IsDB COVID-19 Vaccine Access Facility (IVAC)’.
IsDB President Dr Bandar Hajjar revealed in a virtual meeting in May 2021 with the Heads of Multilateral Development Banks (MDBs), chaired by Jin Liquin, the President of the Asian Infrastructure Investment Bank (AIIB), that IVAC is based on a comprehensive approach inclusive of vaccine development, manufacturing, procuring, and delivery to end beneficiaries.
“We would be happy to align with MDBs in all aspects including country programming and delivery. If we could ensure COVID-19 vaccine equitable access to all people through COVAX programme, this will support our Member Countries to make real progress as some economies are entering sever recessions,” underlined Dr Hajjar.
Dr. Hajjar stressed the importance of building a unifying vision amongst MDBs to help Member countries ‘exit from the current pandemic’ and in the meantime ‘prepare for possible pandemics in the future.’
“Last year, we, showed unity in supporting the poorest countries and, now, if we want to see economies restored and restarted, we need to show eagerness to work together to provide vaccines as a key step to help these countries exit and recover from the pandemic and this is key if we want our Member Countries to have their economies restarted and livelihoods of the people to be restored again,” the IsDB president elaborated.
On future pandemic preparedness, Dr. Hajjar stressed that “this of course, goes beyond vaccine distribution to vaccine manufacturing and even vaccine development.”
Egypt Prepares to Issue Maiden Sovereign Sukuk After Senate Approves New Sukuk Law
Cairo – Following the approval by Parliament and the Senate of a new Sovereign Sukuk Law in May 2021, Egypt is set to issue its debut sovereign Sukuk .
Egyptian Minister of Finance Mohammed Maait confirmed to the local media that the country is preparing to issue its first Sukuk, albeit the country’s debt management institutional structure is still gearing up to accommodate this new fund-raising instrument and asset class.
The timing of the issuance will not be imminent given that laws relating to transferring state assets to special purpose vehicles to handle the issuance of Sukuk certificates are still in the process of being developed. The aim of the Egyptian government is to diversify its sources of funding universe and its investor base. The Egyptian economy like in most countries has been badly affected by the economic and social impact of the COVID-19 pandemic. The Minister did not specify whether the debut issuance would be in local currency or in US dollar.
“Egypt entering the Sukuk market has been on the horizon for a while,” explains Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings in Dubai. “Sovereigns typically issue sukuk because they either want to develop the Islamic finance market or because they have a significant Islamic banking sector and want to ensure banks have access to short and long-term debt or to attract the wider Islamic investor. With Egypt, the intention is clearly to unlock the potential of Islamic finance and to further diversify its funding sources.
This, added Al Natoor, is another step towards diversification of funding after last year’s issue of green bond and becoming the first sovereign issuer from the Middle East and North Africa to issue a green bond. “Once a sovereign issues and develops a yield curve and a benchmark, this might open the door to other non-sovereign issuers in the country and Sukuk might become an option,” he stressed.
IILM Continues Consecutive Monthly Short-Term Sukuk Issuance with US$1.1bn Three-Tranche Offering in May as 2021 Aggregate Tops US$6.1bn
Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) continued its short-term Sukuk issuance calendar with its fifth monthly auction in May 2021. The auction raised US$1.1 billion through the issuance of short-term Sukuk across three different tenors.
The transaction comes under IILM’s US$4.0 billion short-term issuance programme. The Corporation held an auction on 4 May 2021 for the three series of issuances, priced by the market as follows:
- US$400 million of 1-month tenor certificates at 0.30%
- US$400 million of 3-month tenor certificates at 0.35%
- US$310 million of 6-month tenor certificates at 0.42%
This follows the three-tranche issuance of short-term securities in April 2021 totalling US$1.1 billion. This brings the total cumulative Sukuk issued by the IILM in the first five months of 2021 to US$6.1 billion.
“The start of the second quarter,” said Dr Umar Oseni, Chief Executive Officer of IILM, “has seen improved investor sentiment on the back of a more optimistic outlook for 2021 based on revised growth rates. High bid-to-cover ratios demonstrate sustained demand for the IILM’s short-term Ṣukuk amidst increase in supply of long-term Ṣukuk since the beginning of April. The IILM will continue to reissue its short-term Ṣukuk monthly as scheduled in its issuance calendar.”
The competitive tender resulted in significant interest from GCC and Asia-based Primary Dealers as well as other jurisdictions, with a strong final orderbook in excess of US$1.63 billion, representing an average oversubscription rate of 1.48 times.
The IILM is a regular issuer of short-term Sukuk across varying tenors and amounts to cater to the liquidity needs of institutions offering Islamic financial services. “Based on our indicative issuance calendar, the IILM envisages issuing in excess of USD1.0 billion short-term Sukuk for nearly every month in 2021. As we look towards 2021 with headwinds including uneven economic recovery, renewed lockdowns and rising debt burdens from government policy responses, we stand ready to collaborate with our shareholders, Primary Dealers, investors and industry partners towards fostering a resilient and sound Islamic liquidity management ecosystem.” added Dr Umar.
The IILM’s short-term Sukuk programme is rated “A-1” by S&P with current outstanding issuance size amounting to US$3.51 billion. According to the IILM, the primary dealers that participated in the auction 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.
Fitch Ratings Report Projects Buoyant Growth of Islamic Banking Sector in Oman over next Two Years
Muscat – Oman’s Islamic banking sector growth is likely to continue apace in 2021-2022 following strong momentum in 2020 despite the impact of the COVID-19 pandemic and lower oil prices. Fitch Ratings in its latest report on Oman’s Islamic finance sector, stressed that Sharia’a compliant financing in Oman grew by 9.5% in 2020, compared with the conventional banks’ loan growth of 2.1%.
The growth is driven by demand for Islamic products, support from conventional banks offering Islamic products through their Islamic windows, and regulations supportive of Islamic finance. The demand encouragingly is also driven by young adults and expatriates.
However, the market share of Islamic banking and Islamic windows remains relatively low, albeit increasing to 14.3% at end-2020 (end-2019:13.6%), with total assets of OMR5.1 billion (US$13.5 billion). This, according to Fitch Ratings, is high considering that Oman was the last Gulf Cooperation Council (GCC) country to introduce Islamic banking in 2013.
In contrast, Islamic banking has been present in Indonesia and Turkey for more than two decades but market shares there are below 8%.
Omani Islamic banks are adequately capitalised with reasonable profitability and asset quality indicators, reflecting conservative regulation and relatively low-risk business models. “But payment holidays and flexibility allowing banks not to classify financing as impaired when payments are deferred mask underlying asset quality. We expect the weakening operating environment to pressure profitability and asset quality in 2021-2022, particularly in the real estate, construction and manufacturing sectors,” said Fitch.
However, the sector’s growth potential is high given Oman’s Muslim-majority demographics and low banking penetration. Only 56% of the adult population had a bank account in 2016, with 14% of adults citing religious reasons for not having an account, according to the World Bank.
Islamic banking penetration is likely to increase through training and awareness campaigns, new products and the greater use of Fintech to target customers. Challenges for the sector include limited short-term Sharia’a compliant investment options to place excess liquidity, a relatively low capital base and low customer awareness of Islamic products. Similarly, short-term Sharia’a compliant investment options are limited due to regulations preventing Islamic banks and Islamic windows from placing funds with conventional banks or parent banks, and the regulatory ban on ‘Tawarruq’ products, which in other Islamic finance jurisdictions are typically used for interbank funding and personal financing.
These factors, says Bashar Al Natoor, Global Head of Islamic Finance at Fitch Ratings, constrain profitability. Islamic banks can, however, receive money from conventional banks and parent banks, provided the underlying contract is Sharia’a compliant.
Currently Islamic banks are at a disadvantage in terms of access to short-term liquidity management options. For there are no Islamic repo facilities with the central bank, which is problematic during tight liquidity conditions, but Islamic windows have the benefit of largely fungible capital and liquidity from their conventional parent banks.
The Central Bank of Oman (CBO), according to Fitch, is working on offering Islamic liquidity management through remunerative deposit accounts and a standing liquidity facility, and by acting as lender of last resort. It is also working to expand domestic-currency Sukuk issuance, which should increase Sharia’a compliant options for Islamic banks and help them to manage their liquidity. Domestic Sukuk (mainly sovereign) issuance currently represents about 22% of total listed bond and sukuk issuance in Oman.
Omani Islamic banks, observed Fitch, have smaller capital bases than their conventional peers, hindering their ability to participate in large government financing projects. Government and public enterprise projects represented only 4.6% of the financing mix of Islamic banks and windows at end-2020, compared with 15% for conventional banks.
“Under Oman’s Islamic Banking Regulatory Framework, any losses on ‘mudaraba’- and ‘musharaka’-based profit-sharing investment accounts (PSIAs) are borne by the account holders, although we have not seen cases of PSIAs bearing losses in practice. In future, PSIA losses will be covered by a Sharia’a compliant version of the Bank Deposits Insurance Scheme, currently under development” added the report.
Turkish Treasury Raises €365.548m Through FX Denominated Lease Certificate Issuance and Issues Further Gold-backed Sukuk Ijarah in May 2021
Ankara – The Debt Office of the Turkish Treasury and Finance Ministry raised €365.548 million through FX (EURO) Denominated Lease Certificate issuance (Sukuk Al Ijarah) through a direct sale auction on 26 May 2021. The auction was conducted by the Central Bank of Turkey via AS (Auction System under Central Bank Payment Systems). The issuance has a tenor of 1092 days maturing on 24 May 2024 and was priced at a fixed rental rate of 1.50% payable over a 6-month rental payment period.
The Turkish Treasury is a proactive issuer of lease certificates (Sukuk Al-Ijarah) as part of a wider universe of government fund-raising instruments which include bonds and Sukuk – leasing certificates/bonds, FC denominated issuances and gold-backed certificates/bonds. The usual mantra of the Turkish Treasury when announcing these auctions is “In order to increase the domestic savings, broaden the investor base and diversify the borrowing instruments, TRY denominated fixed rent rate lease certificates will be issue to the banks through direct sale method.”
In fact, the Treasury held two auctions of lease certificates during April 2021. Apart from the above auction, the Treasury on 18 May 2021 issued Gold-backed Lease Certificates (Sukuk Ijarah) with a tenor of 364 days maturing on 20 May 2022 priced at a Lease Rate of 0.75% payable over the 6 Month lease period.
The amount of gold collected, according to the Treasury, amounted to 4,462,575.000 grams of gold (995/1000 purity) from institutional investors for issuance of an aggregate 4,462,575 gold lease certificates (at a nominal value).
The direct sale auction of its latest Gold-backed Lease Certificates (Sukuk Ijarah) offering was conducted by the Central Bank of Turkey via AS (Auction System under Central Bank Payment Systems). In 2020, the Treasury conducted six such gold-backed lease certificate auctions in January, March, April, May, July and October 2020 collecting a total 51,105,190.000 grams of gold (1000/1000 purity) from institutional investors for issuance of an aggregate 51,105,190 gold lease certificates (at a nominal value).
All the lease certificates were issued by Hazine Mustesarligi Varlik Kiralama A.S., a special purpose vehicle wholly-owned by the Ministry of Treasury & Finance, the obligor. The Ministry of Treasury & Finance issues these gold-backed lease certificates “to diversify borrowing instruments, broaden the investor base and bring the idle gold into the economy.”
According to Turkish Finance Minister Lütfi Elvan “citizens are provided with a safe investment tool for gold savings. With the gold bond and gold-denominated lease certificate issuance through five banks, our citizens will win themselves and contribute to the economy.” Investors will be paid TL-denominated returns on a semi-annual basis indexed to the gold price. On maturity, according to the Treasury, investors may request the principal payment as 1 kilogram of gold bar (produced by refineries) or Republic Gold Quarter Coins printed by the Turkish State Mint.
TURKISH TREASURY GOLD-BACKED LEASE CERTIFICATES
(SUKUK AL IJARAH) ISSUANCES January-May 2021
COLLECTED GOLD 995/1000 GRAMS
NUMBER OF GOLD LEASE CERTIFICATES ISSUED
LEASE RATE (TERM)
SOURCE: Compiled by Mushtak Parker from data from the Debt Office Ministry of Treasury & Finance, Turkey May 2021
Note: The amount of Gold Lease Certificates issued is taken as 1000 for 1 gram collected gold from the issuances to individual investors and 1 for 1 gram collected gold from the issuances to institutional investors
TURKISH TREASURY FX DENOMINATED LEASE CERTIFICATES
(SUKUK AL IJARAH) ISSUANCES JAN-MAY 2021
Volume (TRY millions)
Rental Payment Period
1092 Days years
Source: Compiled by Mushtak Parker from data from the Debt Office Ministry of Treasury & Finance, Turkey May 2021
BNM Rolls Out First Cohort of Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF) Sectoral Guides
Kuala Lumpur – Bank Negara Malaysia (BNM) has published the first cohort of Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF) Sectoral Guides in May 2021. The Guides have been developed with the industry via the VBI Community of Practitioners (CoP), focusing on palm oil, renewable energy and energy efficiency.
The Sectoral Guides provide sectoral-based guidance on implementing impact-based risk assessments.
Broadly, the Sectoral Guides aim to: I) Outline the environmental, social and governance (ESG) risk considerations in specific economic subsectors/industries and activities; ii) Assist financing and investment decisions by financial institutions; and iii) Facilitate the practical implementation Value-based Intermediation (VBI) strategies and measures pursued by the Joint Committee on Climate Change (JC3). The goals for the VBIAF for the palm oil sector is to “limit the nation’s total oil palm cultivated areas to 6.5 million hectares by 2023”; for the renewable energy sector is to “achieve 31% Renewable Energy capacity mix by 2025”; and for energy efficiency “to save 52,233 GWh between 2016 – 2025.”
The sectoral guides also provide guidance to financial institutions in developing and implementing impact-based risk management for key ESG risks and risk transmission.
UNCHR Raises Just Under US$50m from Zakat and Sadaqah as Agencies Target Increased Islamic Philanthropic Contributions in 2021
Geneva – Another success story of monetising Islamic philanthropic funds on a global level is the case of The United Nations Refugee Agency (UNHCR), which is targeting 10% of all Islamic philanthropy contributions to it to come from outside the Middle East in 2021.
The UNHCR’s Refugee Zakat Fund, that launched in 2019, reported a 12.5% increase in donations to US$48.58 million in 2020, and another US$12.92 million were collected as Sadaqah. According to UNHCR, around 3% came from donors outside the Middle East and North Africa.
Refugees and displcaed persons in Niger, Pakistan, Bangladesh, India, Yemen, Jordan, Lebanon, Egypt, Mauritania and Iraq – all OIC member countries except India, benefited from UNHCR’s aid and development programmes.
UNHCR is this year targeting donors from Malaysia, Indonesia, Singapore, Australia, USA, Canada, UK, Nigeria, Kenya and South Africa.
To its credit UNHCR has established a dedicated Global Islamic Philanthropy Strategy and has boosted its institutional and human capital capacity in leading this strategy which includes leveraging and educating people about tax mitigation for charitable donations in many of the jurisdictions.
Zakat is proving to be s useful contributor to the funding mix of UNHCR covering some 20% of its expenditure in 2020.
Zakat and Sadaqah are two Islamic philanthropic instruments which are under used partly because of the poor management of such institutions in many countries. The potential for Zakat runs into billions of dollars. The other unique Islamic philanthropic institution is Waqf (endowment trusts) which could prove even more useful for agencies such as UNHCR as a potential fund-raising conduit.