Contact Financial Holding Issues its Second EGP2.5bn (US$159.22m) Mudaraba Sukuk as Egypt Gears up to Issue its Maiden Sovereign Sukuk

Cairo – Corporate Sukuk issuances from Egypt, hitherto absent from the market, continues to gain traction with the successful closure of Contact Financial Holding (CFH’s) second Sukuk issuance on 26 July 2021.

The EGP2.5 billion (US$159.22 million) Sukuk Mudaraba, with a tenor of 7 years, was issued through Sarwa Sukuk Company, a special purpose vehicle subsidiary of CFH, Egypt’s leading consumer and structured financial services provider. The Sukuk certificates, according to CFH, received a credit rating of A- by Middle East Ratings and Investors Service (MERIS). The proceeds will be used for further expansion of Contact Credit and its affiliate companies.

This issue is the second transaction which brings the total Sukuk issues of Contact Financial to EGP5 billion. In November 2020, Sarwa Capital (now CFH) similarly raised EG2.5bn through its maiden issue.

This latest Sukuk offering, stressed CFH, underlines the group’s strong financial position and its ability to diversify its funding sources to capture growth opportunities and solidifies its strategic position in developing innovative financing structures in the Egyptian debt capital market.

This transaction comes as a result of a combined effort from reputable banks, financial institutions and the Financial Regulatory Authority (FRA) which showed strong support during the process. Sarwa Sukuk Company was the first to obtain Sukuk license in Egypt by the Financial Regularity Authority (FRA) in July 2019.

The issue closed with strong demand from a wide range of investors reflecting the strong track record of Contact Financial in the debt market. Sarwa Promotion and Underwriting; a subsidiary of Contact Financial Holding, acted as lead manager and arranger on the transaction. Misr Capital acted as underwriters alongside Banque Misr. The issue was co-underwritten by Commercial International Bank and Ahli United Bank. Elite Consulting Group acted as the independent financial consultant on the transaction.

Ayman El Sawy, Group Chief Financial Officer, CFH, stressed that the company could tap the Sukuk market periodically in the future as part of a sources of funding diversification strategy.

The issuance coincided with the Egyptian House of Representatives giving final approval to the Draft Law Governing Sovereign Sukuk issuance in Egypt. The law was passed after approval by the Sharia’a Council of Al-Azhar University, the Financial Regulatory Authority (FRA), and other regulatory entities.

The government is seeking to introduce new financial instruments to diversify its sources of financing the budget deficit and investment, economic, and developmental projects. The Egyptian economy like in most countries has been badly affected by the economic and social impact of the COVID-19 pandemic.

“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.

PIA Braves COVID-disrupted Travel Market Conditions to Issue Maiden PKR5.7bn (US$34.63m) Musharaka Sukuk in July 2021

Karachi – It is a brave airline that goes to the market to raise funds given the great disruptions in the travel, hospitality and tourism sectors caused by the impact and uncertainty of the COVID-19 pandemic and its resurgent variants especially the Delta variant.

But state-owned Pakistan International Airlines (PIA) took the plunge and raised PK5.7 billion (US$34.36 million) through a maiden Sukuk issuance – PIA Sukuk-1 – in July 2021. The original intention was to issue a “Government of Pakistan guaranteed, SRL eligible, listed Sharia’a compliant Secured Sukuk of up to PKR20 billion inclusive of a green shoe option of PKR 5 billion through the book-building method.”

But given the above-mentioned market conditions, demand for the issuance despite the government guarantee and a “cut-off pricing of 1-month Karachi interbank offered rate (KIBOR) plus 100 basis points” was underwhelmed with investors remaining cautious about the prospects of an early rebound in the travel and tourism industry.

PIA had mandated Bank Islami in June as Advisor and Investment Agent to the transaction and together with National Bank of Pakistan and BIPL Securities as Joint Bookrunners.

The Sukuk certificates were issued by Pakistan International Airlines Corporation Limited on behalf of the obligor, the Government of Pakistan. The proceeds from the issuance, according to the offer document, will be used by the Issuer to meet its permanent working capital requirements and for settlement of part of existing conventional/ Islamic financing facilities.

The transaction structure, according to the offer document, is based on Diminishing Musharakah (sale & lease back) on identified underlying Musharakah Assets comprising of land, buildings and aircrafts in usable form owned by the Issuer. The Sukuk certificates were admitted for listing and trading at PSX (Pakistan Stock Exchange).

PIA Sukuk-1is the first corporate Sukuk of 2021, which is government-backed and can be counted towards the statutory liquidity requirement (SLR) of investing entities. As such, the promoters stress that the “SLR eligibility is an added benefit for scheduled banks, and this is first Public Sector SLR eligible issuance for the year 2021.

The book-building process was conducted for the issue size of Rs20bn, including the Greenshoe Option of Rs5bn on a private placement basis. However, the response from investors was underwhelming, which forced the Ministry of Finance and the PIA to limit the issue size to Rs5.7bn. Not surprisingly, issuance book building exercise attracted around 25 eligible investors who participated in the bidding process.

ICD Extends Latest €12m Line of Financing Facility to BNDE-Senegal to Supports SMEs Disrupted by COVID-19 Pandemic

Jeddah – The Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IsDB Group), extended a €12 million Sharia’a compliant Line of financing in July 2021 to Banque Nationale pour le Developpement Economique (BNDE)-Senegal to support SMEs in the country adversely affected by the COVID-19 pandemic.

The facility comes under ICD’s US$200 million COVID-19 Line of Financing Support Package to finance the private sector affected by the pandemic by leveraging on the expertise of the banking system of its member countries.

According to Ayman Sejiny, CEO of ICD, the line of financing facility will help with expanding BNDE’s product offerings through the provision of Sharia’a compliant financing in response to the growing demand for Islamic finance to support COVID-19 affected projects and industries.

“Continuous cooperation between ICD and BNDE-Senegal, a pioneer in SME banking,” explained Mr Sejiny, “will result in keeping businesses open and preserve jobs, which is in line with ICD’s commitments to help the Senegalese economy to overcome the adverse impact of the COVID-19 pandemic and strengthen financial inclusion.”

Similarly, Thierno SY, CEO of BNDE-Senegal, added that “through this partnership we are further committed to provide professional provision of wide spectrum of banking services which conform to the business needs of customers while promoting private entrepreneurship in Senegal. The line of finance will enable the bank to support several SMEs by financing projects in various vital sectors such as production, agriculture, construction, and transport.”

BNM Shariah Council Approves Methodology to Measure Qard Transactions Between Shareholders’ and Takaful Funds under MFRS 17 Insurance Contracts and MFRS 9 Financial Instruments Requirements

Kuala Lumpur – The Shariah Advisory Council (SAC) of Bank Negara Malaysia (BNM) at its 213th meeting in April 2021 ruled that the method to measure Qard (interest-free loan) transactions between the shareholders’ fund and the Takaful fund under MFRS 17 Insurance Contracts and MFRS 9 Financial Instruments requirements is allowed. The ruling became effective from 7 July 2021.

The rationale according to the ruling is because the total repayment of the Qard amount will not increase even if the time value of money (TVM) principle is applied in the measurement method. This ruling, said the SAC, is subject to comprehensive disclosure in the notes to the financial statements as follows:

i) The requirement for Takaful operator to provide Qard from shareholders’ fund in the event a deficit occurs in the Takaful fund;

ii) The nature of Qard contract, the Qard original amount that has been provided to the Takaful fund and the expected repayment period for the Qard upon availability of surplus in the Takaful fund; and

iii) Explanation on the accounting measurement in respect of TVM application to determine the present value and future value of Qard and the impact to the original amount of Qard and fair value adjustment required to achieve the original amount. The explanation should also cover the “rights of shareholders’ fund to receive the original Qard amount” and the “obligation of Takaful fund to repay the original Qard amount”, of which the amount remains unchanged throughout the Qard repayment period.

Malaysia’s Mortgage Securitiser Cagamas Berhad Sustains its Sukuk Issuance with RM300m ICP Offering in July 2021 to Fund Purchases of House Mortgages

Kuala Lumpur – Cagamas Berhad, the National Mortgage Corporation of Malaysia, one of the most prolific issuers of Sukuk, continued its Sukuk issuance programme in July 2021 with the issuance of RM300 million 3-month Islamic Commercial Papers (ICPs). The ICPs, says Cagamas, were issued under the Islamic Commodity Murabahah structure and proceeds from the issuance will be used to fund the purchase of Sharia’a compliant assets (Sharia’a compliant mortgages) from the financial system.

This issuance follows the RM200 million (US$48.18 million) 5-year Islamic Medium-Term Notes (IMTNs) issued on 15 June 2021, proceeds from which are being used for the Corporation’s working capital purposes.

“We are pleased with the conclusion of the Company’s latest issuance which saw continued interest in our short-term papers, ahead of Bank Negara Malaysia’s (BNM) Monetary Policy Committee meeting,” explained Cagamas President/Chief Executive Officer, Datuk Chung Chee Leong.

“On the global front, the outlook on growth remains uncertain, fuelled by the concerns that the economic recovery was showing signs of faltering amid a surge in COVID-19 cases driven by the emergence of new variants, further heightening fears of restriction imposition. Domestically, investors continue to remain cautious due to a lack of strong catalyst in the market, given the uncertainties surrounding the COVID-19 pandemic and its vaccination progress,” he added. According to Cagamas, the ICPs were priced at the corresponding 3-month Kuala Lumpur Interbank Offered Rate (KLIBOR) plus 5 basis points (bps), or equivalent to 1.99% based on KLIBOR fixing on the pricing date. The spread was 23 bps above the corresponding Malaysian Islamic Treasury Bills.

This in comparison to the RM200 million issuance in June which was concluded via private placement, registering a 48 basis points spread against the Malaysian Government Investment Issues.

Cagamas plays a major role in Sukuk origination and continues to be an innovator in the mortgage finance and securitisation market. The Cagamas papers, which will be redeemed at their full nominal value upon maturity, are unsecured obligations of the Company, ranking pari passu among themselves and with all other existing unsecured obligations of the Company. They will be listed and traded under the Scripless Securities Trading System of Bursa Malaysia.

Cagamas’ corporate bonds and Sukuk continue to be assigned the highest ratings of AAA and P1 by RAM Rating Services Berhad and AAA/AAAIS and MARC-1/MARC-1IS by Malaysian Rating Corporation Berhad, denoting its strong credit quality. Cagamas is also well regarded internationally and has been assigned local and foreign currency long-term issuer ratings of A3 by Moody’s Investors Service Inc. that are in line with Malaysian sovereign ratings.

The Cagamas model is well regarded by the World Bank as the most successful secondary mortgage liquidity facility. Cagamas is the second largest issuer of debt instruments after the Government of Malaysia and the largest issuer of AAA corporate bonds and Sukuk in the market. Since incorporation in 1986, Cagamas has cumulatively issued circa RM319.8 billion worth of corporate bonds and Sukuk.

IILM Continues Consecutive Monthly Short-Term Sukuk Issuance with US$1.1bn Three-Tranche Offering in July as 2021 Aggregate Tops US$8.11bn 

Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) continued its short-term Sukuk issuance calendar with its seventh monthly auction in July 2021 by reissuing a total of US$1.1 billion short-term Sukuk.

The transaction comes under IILM’s US$4.0 billion short-term issuance programme. The Corporation held an auction on 6 July 2021 for the three series of re-issuances, priced by the market as follows:

  1. US$400 million of 1-month tenor certificates at 0.27%
  2. US$500 million of 3-month tenor certificates at 0.30%
  3. US$200 million of 6-month tenor certificates at 0.36%

This follows the three-tranche issuance of short-term securities in June 2021 totalling US$900 million.

Dr Umar Oseni, Chief Executive Officer of IILM, commented: “We are pleased with the conclusion of today’s US$1.1 billion auction, just before the Eid al-Adha holidays. The competitive demand and strong appetite from investors for high quality Islamic short-term papers reflects a continued positive market trend at the start of the second half of the year.

“While the recent spike in COVID-19 infection rate globally due to the highly transmissible Delta variant has caused renewed lockdown in some countries, and the uncertain developments surrounding oil prices has kept markets on its toes, the IILM remains steadfast with our commitment and mandate to provide short-term liquidity instruments for the Sharia’a-compliant financial markets.”

The July Sukuk reissuance at the beginning of the third quarter of the year, said the IILM, witnessed strong demand from Primary Dealers and investors, mainly across the GCC markets as well as Asia, with an encouraging orderbook in excess of US$1.95 billion, representing an average oversubscription rate of 1.8 times.

Further to today’s reissuance, the IILM has achieved year-to-date cumulative issuances totaling US$8.11 billion through 21 Sukuk series. The IILM will continue to reissue its short-term liquidity instruments monthly as scheduled in its issuance calendar.

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 US$1.0 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 Oseni.

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.

Bank Consortium Led by Ajman Bank and Commercial Bank of Dubai Arranges US$350m Murabaha Syndication for the Government of Pakistan in July 2021

Dubai – A consortium of banks led by Ajman Bank and Commercial Bank of Dubai arranged a US$350 million Syndicated Murabaha Facility in July 2021 for the Government of Pakistan acting through the Ministry of Finance.

The transaction for which the two banks acted as Initial Mandated Lead Arrangers and Bookrunners was initially pitched at US$200 million but given the 75% over-subscription driven by strong demand from 12 local, regional and international investors, the syndication amount was upsized to US$350 million.

The facility, said the Pakistan MoF, “reaffirms investor confidence in Pakistan’s potential, supported by ongoing structural adjustments and continued investments in the physical infrastructure of the country.” 

The key participants and underwriters in the syndication included Gulf International Bank, The Arab Investment Company, Islamic Corporation for the Development of the Private Sector (ICD), United Arab Bank, Commercial Bank of Dubai, along with Ajman Bank.

According to Dr Bernd van Linder, CEO of Commercial Bank of Dubai, “this syndication is a prime example of our focus on providing financing solutions for cross-border counterparties, and will provide substantial benefits to both the issuer and the institutional investors.”

Turkish Treasury Raises US$368.38m Through US Dollar/TRY Lease Certificate Issuances and Issues Further Gold-backed Sukuk Ijarah in July 2021

Ankara – The Debt Office of the Turkish Treasury and Finance Ministry raised TRY1,143.74 million (US$135.45 million) through a TRY 2-year Fixed Rate Lease Certificate (Sukuk al Ijarah) issuance on 13 July 2021.

The Lease Certificate issuance was done through a direct sale auction on 13 July 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 2 years maturing on 12 July 2023 and was priced at a fixed rental rate of 9.04% over a 6-month rental payment period.

A day later, the Treasury held another auction on 14 July 2021 of US dollar FX-denominated Fixed Rate Lease Certificates (Sukuk al Ijarah) raising US$232.929 million in the process. The issuance has a tenor of 728 days maturing on 14 July 2023. The transaction was priced at a periodic rental rate of    1.75% over a 6-month rental payment period.

The Turkish Treasury is a proactive issuer of lease certificates as part of a wider universe of government fund-raising instruments which include bonds and Sukuk – leasing certificates/bonds, FX 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.”

The Treasury on 9 July 2021 also issued Gold-backed Lease Certificates (Sukuk Ijarah) with a tenor of 1092 days maturing on 5 July 2024 priced at a Lease Rate of 1.15% payable over the 6 Month lease period.

The amount of gold collected, according to the Treasury, amounted to 4,622,000.000 grams of gold (995/1000 purity) from institutional investors for issuance of an aggregate 4,622,000 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. In H1 2021, the Treasury conducted five such gold-backed lease certificate auctions in February, March, April, May and June 2021, collecting a total 67,429,765.000 grams of gold (1000/1000 purity) from institutional investors for issuance of an aggregate 67,429,765 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.

Source: Compiled by Mushtak Parker from data from the Debt Office Ministry of Treasury & Finance, Turkey   July 2021

Ex-Central Banker Dr Muhammed Sulaiman Al Jasser Appointed New President of the Islamic Development Bank (IsDB) Group

Jeddah – Dr Muhammed Sulaiman Al Jasser has been appointed as the new President of the Islamic Development Bank (IsDB) Group effective 1 August 2021. Sardor Umurzakov, current Chairman of the Board of Governors of the Islamic Development Bank (IsDB), and Deputy Prime Minister and Minister of Investment & Foreign Trade of Uzbekistan, confirmed the appointment in an announcement on 18 July 2021.

The tenure of Dr Al Jassar, who was nominated by Saudi Arabia, the largest equity subscriber to the Group, is for five years effective 1 August 2021, and was confirmed in a virtual meeting of the Board earlier in July. 

The Board thanked and expressed its profound appreciation of “the excellent services” provided by outgoing IsDB Group President Dr Bandar M. H. Hajjar for “the stellar success achieved by the Group under his tenure, uplifting its status among peer institutions and in global financial markets.”

Dr Al Jassar is an experienced central banker having served as a Deputy Governor of the Saudi Central Bank (SAMA) until his appointment as the new President of the IsDB Group.

Capital Market Authority of Oman Launches Draft Sukuk and Bonds Regulations for Public Consultation in July 2021

Muscat – The Capital Market Authority Oman (CMAO) launched Draft Sukuk and Bonds Regulations for public consultation on 11th July 2021 and invited public joint stock companies, audit firms, law firms, investors, academics, interested persons and the general public to provide feedback, comments, observations and input on the draft Regulations. 

“The draft regulations,” explained the CMAO, “is a response to the rapid legislative developments in the capital market since the issuance of the Commercial Companies Law in 2019 and the Regulation for Public Joint Stock Companies early this year.

“The aim is to enhance the readiness of the legal regime to cope with global economic developments and changes, further to the standardization of the rules of the Sukuk and bonds market to improve the efficiency of such debt instruments in moving the wheel of the national economy to contribute to furnishing the appropriate credit environment  to finance the development projects of the government and the private sector.”

The draft regulation also aims to regulate the issuance of bonds and Sukuk by adding a set of detailed clauses prepared by a specialized work team constituted by the CMAO for more resilience to ease the processes of issuance of bonds and Sukuk as financing instruments.

Industry Bodies and Policymakers Edge Closer in Developing Harmonised Sharia’a Compliant Repo Market for Global Islamic Finance Industry

Kuala Lumpur – The global Islamic finance industry took a step closer towards the establishment of a harmonised universal Sharia’a-compliant repo market for the short-term liquidity management requirements of Islamic financial institutions and Islamic Banking Windows when an international roundtable of prominent policymakers, Sharia’a scholars and market players agreed at end June 2021 to the urgent need to develop such a Sharia’a-compliant repo framework.

The virtual Roundtable organised by the Kuala Lumpur-based International Islamic Liquidity Management Corporation (IILM), the multilateral short-term liquidity management entity serving the global Islamic finance industry, was the first time such an event has been co-organised in collaboration with major international Islamic finance industry bodies such as the Islamic Development Bank (IsDB), the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the Islamic Financial Services Board (IFSB), IIFM and the International Shariah Research Academy (ISRA) for Islamic finance.

According to Professor Dr Muhamed Ali Elgari, the Chairman of the IILM Sharia’a Committee, “the repurchase agreement is one of the most effective tools for liquidity management. We believe it is possible to design a structure that meets Sharia’a requirements and at the same time deliver the same economic outcome. Creating an active repo market in which Islamic financial institutions can play a role, depends almost entirely on finding such solution. This Roundtable will go a long way in trying to contribute to this effort.”

The fact that the Roundtable was addressed by more than 20 prominent officials and market players from the main Islamic finance markets, including Bahrain, Kuwait, Malaysia, Nigeria, Qatar, Saudi Arabia, Turkey, United Arab Emirates, with additional participation from non-traditional markets such as the UK, suggests the outreach and urgency with which the industry is treating the issue.

Currently, central banks and monetary authorities in those markets where the Islamic finance industry is well or fairly established resort to issuing short-term Sukuk, Tawarruq facilities, Sharia’a compliant Government Securities, local currency and FX-denominated lease certificates, gold-back lease certificates, fixed rate lease certificates and some Sharia’a complaint repo-like or equivalent instruments.

These typically range from 1 month to one-year tenors, with very few overnight liquidity management facilities. The most prominent markets in this respect are Malaysia, Saudi Arabia, Indonesia, Bahrain, Turkey, Oman, Kuwait and Brunei, with Qatar, Bangladesh, Pakistan and the Maldives less frequent issuers.

The IILM Roundtable, not surpringly, focused specifically on three topics – the heightened need for Islamic repo facilities particularly given the COVID-19 pandemic; key implementation challenges faced by global Islamic banks; and Sharia’a rulings in relation to cross-border Islamic repo facilities, as well as legal and structuring challenges faced by the industry.

Dr Umar Oseni, CEO of IILM, explained that though there have been significant and pioneering efforts made by the IIFM, AAOIFI and the IFSB in relation to developing and harmonizing Islamic repo structures and documentation across jurisdictions, there was still room for enhancement to ensure that the Islamic repo framework represents a widely accepted cross-border Islamic liquidity tool to better serve the Islamic finance community.

Sheikh Abdulla Saoud Al-Thani, Chairman of the Governing Board of the IILM and Governor, Qatar Central Bank, put the challenge and importance of a Sharia’a-compliant repo market in context in his opening address to the Roundtable. “Though the global issuance of Sukuk has grown significantly over the last decade, reflecting increasing interest from sovereigns, multilateral institutions, and corporations from developed as well as emerging economies,” he explained, “the availability of Sharia’a-compliant short-term instruments remains a key issue for the development of Islamic finance industry.

“The need to create an Islamic repo to support the growth of Islamic finance is greater than ever. Basel III, as well as its equivalent IFSB, rules on HQLA (High Quality Liquid Assets) have made improving liquidity management a more pressing concern for Islamic banks. Therefore, designing a Sharia’a-compliant repo market along with the right instruments which are not only Sharia’a-compliant but also fulfil the various legal and regulatory requirements for liquidity purposes is an essential consideration.”

For IILM’s Dr Oseni, the timing and urgency of developing such a market could not be more important and opportune. The business case and rationale are implicit. “The pandemic,” he stressed, “should serve as a wake-up call and catalyst for progress in the development of Islamic financial markets globally. Liquidity stress due to the pandemic has clearly identified the need for an effective Islamic repo cross-border market to support Islamic banks’ short-term funding needs. The lack of harmonization and wide Sharia’a acceptance have prevented the development of a strong liquid Islamic repo market and thus denied many Islamic banks an additional source of liquidity outside their own jurisdictions.”

The objective is “that with further knowledge sharing and collaboration between industry stakeholders, particularly market practitioners and international Islamic finance institutions, innovative solutions that balance between market demand and Shari’ah requirements, could be originated to elevate Sharia’a-compliant repo structures to a truly global, cross-border liquidity management tool.”

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