News in Brief

IsDB Approves US$180.27m in Financing for SAPZ Agri-Industrial Project in Nigeria and the FEED Study for the Proposed Nigeria-Morocco Gas Pipeline

Jeddah – The Islamic Development Bank (IsDB) approved US$180.27 million in financing for two major projects in Nigeria in December 2021.

The financing comes under the US$1.6 billion of funding for new development projects in 19 member countries approved by the Board of Executive Directors of the Islamic Development Bank (IsDB) in its 343rd meeting on 18th December 2021 in Jeddah. The meeting was chaired by Dr. Muhammad Al Jasser, President of the IsDB.

The financing comprises a US$150.52 million instalment Sale facility for the ‘IsDB Support for Special Agro-Industrial Processing Zone (SAPZ) Project’ in addition to US$29.75 million financing for the Nigeria segment of the ‘Front End Engineering Design (FEED) Phase II Study’ Project for the proposed Nigeria-Morocco Gas Pipeline.

“Once operational,” explained Dr Al Jasser, “the SAPZ Project would enable producers, processors, and the entire agricultural value chain in Nigeria, to become more functional and profitable. The project is expected to increase household income for the beneficiaries, create 185,000 new jobs, and enhance food security by increasing the yields of key crops. It also supports a larger Programme of the Government led by African Development Bank (AfDB) for an inclusive and sustainable agro-industrial development to enhance the competitiveness of the agriculture sector.”

On the other hand, the development objective of the FEED Phase II Study Project (Nigeria segment) is to prepare for the construction works of the gas pipeline and improve its bankability to attract potential international sponsors from the private sector. As per the agreement between the Governments of Morocco and Nigeria, both countries will equally share the overall project cost which is estimated at US$90.1 million.

According to the IsDB, it is supporting the Moroccan contribution and participating in the financing of the project for an amount of US$15.45 million. For the Nigerian contribution, the IsDB has approved the financing of US$29.75 million which will bring the contribution of the Bank to 50% of the total cost of the FEED study of the Nigeria-Morocco Gas Pipeline.

ISDA and IIFM Launch IBOR Fallback Definitions Booklet for Islamic Hedging Transactions

Bahrain – The International Islamic Financial Market (IIFM) and the International Swaps and Derivatives Association (ISDA) jointly launched the ISDA/IIFM IBOR Fallback Definitions Booklet for Islamic Hedging Transactions in December 2021, which will enable firms that transact under relevant documentation to agree to robust contractual fallbacks for certain key interbank offered rates (IBORs).

IIFM and ISDA have also published an ISDA/IIFM Sharia’a Compliant Bilateral Amendment Agreement template to enable institutions to agree with their counterparties to incorporate the fallbacks for existing Islamic hedges.   

Publication of the two documents follows an announcement by the UK Financial Conduct Authority on 5 March 2021 that 30 LIBOR settings will cease or become non-representative on 31 December 2021. A further five US dollar LIBOR tenors will continue to be published on a representative basis until mid-2023.

The ISDA/IIFM IBOR Fallback Definitions Booklet is based on the fallbacks published by ISDA in October 2020, designed to ensure derivatives referenced to certain key IBORs automatically switch to an adjusted risk-free rate if an IBOR ceases to exist or, in the case of LIBOR, is deemed non-representative.

The ISDA/IIFM IBOR Fallback Definitions have been developed for Islamic hedging transactions under the ISDA/IIFM Tahawwut Master Agreement and cover US dollar, euro, sterling, yen and Singapore dollar currencies. The documents were developed by the IIFM Hedging Work Stream and approval was obtained on the Bilateral Amendment Agreement from the IIFM Sharia’a Board who also considered the IBOR Fallback Definitions for informational and reference purposes only.

International law firm, Dentons, the external legal counsel to the project, have also briefed the involved parties to assist the users in implementing the documents. Yusuf Battiwala, Partner at Dentons agreed that “the publication of the ISDA/IIFM IBOR Fallback Definitions Booklet and the Bilateral Amendment Agreement is very timely and provides the market with a standardised solution to address the transition from IBORs to RFRs.”

According to Khalid Hamad Al Hamad, Chairman of IIFM, “the long-standing collaboration between IIFM and ISDA has been instrumental in providing required standardization for the Islamic hedging segment. Undoubtedly, today’s publication of the IBOR Bilateral Amendment Agreement and IBOR Fallback Definitions Booklet is another landmark achievement for the IIFM and the entire industry.”

Scott O’Malia, ISDA’s Chief Executive, similarly concurred that “having robust contractual fallbacks in place will provide certainty following the cessation or non-representativeness of LIBOR or the cessation of certain other IBORs and will avoid the market disruption that could otherwise occur.”

Ijlal Ahmed Alvi, Chief Executive Officer of IIFM, emphasised that the publication of the Bilateral Amendment Agreement and the reference IBOR Fallback Booklet will ensure that the Islamic hedging segment is up to speed with this major regulatory driven global benchmark rates transformation and will allow for smooth transition to new risk-free rates across all jurisdictions.

ICIEC Provides US$40m Credit Insurance Cover for Non-Payment Sovereign Risk to ING Bank for Financing Facility to Turkmenistan for Purchase of Komatsu Nachinery from Japan

 Jeddah – The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), the export credit and investment insurance agency of the Islamic Development Bank (IsDB) Group, provided US$40 million insurance cover in December 2021 to ING Bank (Tokyo Branch) for a financing facility to Turkmenistan for the purchase of Komatsu machinery from Japan for the development of the country’s agriculture sector.

The insurance cover to mitigate non-payment risk, comes under ICIEC’s Non-Honoring of Sovereign Financial Obligations Policy (NHSFO). The 7-year cover was extended to the Government of Turkmenistan through the State Bank for Foreign Economic Affairs (TFEB).

Agriculture is a significant economic sector in Turkmenistan contributing 11.7% of GDP in 2019 and employing 40% of the workforce. However, only 4% of the total land area is cultivated. Turkmenistan has been severely impacted by the global Covid-19 pandemic. Over the last few years climate change and the adverse environmental challenges of irrigation in a desert environment has similarly affected the country’s agricultural sector.

Turkmenistan used to be the world’s 10th largest cotton producer. In recent years cotton exports have fallen dramatically partly due to water shortages and outdated irrigation methods and technology. Cotton cultivation also required a large amount of water to be diverted from the Amu Darya River, which resulted in polluting fertilizer effluent flowing into the river and causing environmental damage. Other challenges include difficulties in producing enough livestock feed and heavy bureaucracy due to central planning. In 2019, the Government also decided to halt exports of raw cotton in favour of exporting textiles and ready-made garments.

The development impact of the facility and cover, says ICIEC, is wide-ranging. It includes:

  • Reducing Turkmenistan’s exposure to volatile commodity prices, diversifying the economy and exports, stabilizing import substitution and balance of payments;
  • Improving food self-sufficiency and the efficiency of the agriculture sector by providing the latest irrigation technology thus increasing yields; and
  • Promoting the rational use of water resources and the provision of clean water.

“Since Turkmenistan joined ICIEC as a Member Country in 2019,” stressed Mr Oussama Kaissi, CEO of ICIEC, “the Corporation has been growing its presence in the country, seeking opportunities to promote FDI and expand its exports. ICIEC stands ready to support Turkmenistan by mitigating political and commercial risk for trade and investment through the provision of its Shariah compliant insurance solutions for banks, corporates, ECAs, and other insurers. We prioritize support for projects that contribute to Turkmenistan’s strategic development goals especially in support of the country’s transport and agricultural sectors.”

Beximco BDT30bn Green Sukuk Al-Istisna Finally Completes Subscription in December 2021 with 70 Percent Uptake from Banks

 Dhaka – Bangladesh Export Import Company Limited, the flagship entity of the Beximco Group, one of the largest business conglomerates in Bangladesh, finally completed the subscription to the company’s TK3,000 crore Sukuk Al Istisna offering on 21 December 2021.

The subscriptions of the Beximco Green Sukuk Al Istisna – the first-ever asset-backed securities by a private sector entity in Bangladesh – have been completed, according to City Bank Capital Resources Ltd and Agrani Equity and Investment Ltd the joint Issue Managers of the transaction.

The 5-year Sukuk certificates were issued by a special purpose vehicle Beximco Green Sukuk Trust on behalf of the Obligor, Beximco Limited, on 31 August 2021. But it has taken several months for the offer to close.

According to the Issue Managers, 70% of the subscription was taken up by the banking industry, about 2% by individual investors, 1% by existing shareholders and the remaining 27% by corporates and mutual funds.

The Sukuk is priced at a Base Rate of 9% plus a Profit Margin Rate to be paid semi-annually. The issuance type is Secured Convertible or Redeemable Asset-backed Green Sukuk. Some BDT15 billion or 50% of the Sukuk certificates were distributed on a private placement basis; 25% or BDT7.5 billion to existing shareholders and the remaining 25% to the general public through the Dhaka Stock Exchange.  

Investors can convert their Sukuk to Beximco shares over its five-year tenure, but are limited to a maximum of 20% of the total in a year. The proceeds from the Sukuk will be used to support the operations of Teesta Solar Limited (TSL), Korotoa Solar Limited (KSL) and Beximco Limited (Textile Division).

The issuance has a a credit enhancement comprising Assignment Agreements of Future Receivables of TSL and KSL, a Sinking Fund and Corporate Guarantee from Beximco, Deposit of Electricity Tariff Payments to the SPV Account; and Takaful/Insurance in the case of a Total Loss Event.

Malaysia’s Mortgage Securitiser Cagamas Berhad Launches Alternative Financial Retirement Solution as its Aggregate Volume of Sukuk and Bond Issuances Reach RM19.2bn in 2021

Kuala Lumpur – Cagamas Berhad, the National Mortgage Corporation of Malaysia, one of the most prolific issuers of Sukuk, launched a RM100-million Market-First Financing Scheme for Retirees (Skim Saraan Bercagar (SSB) on 14 December 2021 to help the elderly fund their retirement.

The solution allows retirees aged 55 and above, to borrow against the value of their fully paid homes and convert it into a steady monthly cash payout throughout their lifetime to supplement their retirement funds.

Speaking at the launch, the Malaysian Finance Minister Tengku Zafrul Tengku Abdul Aziz stressed that “as more Malaysians retire in the future, we must recognise the importance of our retirees and their contribution to a productive economy. In this context, the Ministry of Finance is looking to develop the right policies and structural reforms in the future to ensure the independence of the ageing population, and to create a more inclusive society. As such, the Social Protection Council (MySPC) has been reactivated and is actively looking at various options for a comprehensive and integrated social security policy.”

He added, “We must realise that a healthy ageing population can participate in, and contribute to the nation’s sustainable and productive growth. To that end, the Skim Saraan Bercagar is part of the country’s broader efforts to provide a robust retirement plan that will allow senior citizens to continue leading a productive life in their golden years.”

The scheme, which has the collaboration of the Employees Provident Fund (EPF), the state pension fund, and the Credit Counselling and Debt Management Agency (AKPK), offers both Sharia’a compliant and conventional options to retirees. Tengku Zafrul has also announced a 2-year exemption of stamp duty on the transaction documents executed by the parties involved to reduce the financial burden to potential applicants.

Cagamas Chairman, Dato’ Bakarudin Ishak, formerly Head of Islamic Banking and Takaful at Bank Negara Malaysia, stressed that “SSB represents Cagamas’ continuous efforts to address financial gaps in the marketplace. This comprehensive and integrated solution focuses on retirees who might be affected due to a lack of savings and aims to help them maintain their standard of living.

“We expect SSB to be a competitive alternative financial retirement solution. Early planning for retirement can help address many financial challenges when one retires. We are aware that retirement financial management will become more significant as 15% of the country’s population, by 2030, will be senior citizens aged 60 and above, as reported by the Department of Statistics Malaysia.”

Cagamas concluded 2021 with 33 Sukuk and conventional bond issuances with an aggregate volume totalling RM19.2 billion, 65% higher than the preceding year. This marks a strong ending to an eventful year as the Company records the highest issuance since the past two decades ago,” said Datuk Chung Chee Leong, President/Chief Executive Officer of Cagamas.

Cagamas closed issuances in November 2021comprising RM345 million 3-month Islamic Commercial Papers (ICPs), RM400 million 3-month Commercial Papers (CCPs), RM100 million multi-tenured ASEAN Sustainability, RM380 million multi-tenured Conventional Medium Term Notes, RM1.6 billion multi-tenured Islamic Medium Term Notes (IMTNs) as well as US$268 million 1- & 2-year Fixed Rate Euro Medium Term Notes (EMTN) through its wholly-owned subsidiary, Cagamas Global Plc. As such, the total Sukuk component was RM1.945 billion.

“It has been an eventful year, following how challenging 2020 was for the local and global markets. We are hopeful that 2022 will be a better year as the world charts for economic recovery amid the recent emergence of the Omicron variant, which may pose a downside risk to the strength of recovery. Cagamas remains vigilant during this period and continues to remain committed towards fulfilling its mandate as a financial between the capital market and the Malaysian housing sector,” added Datuk Chung.

All Proceeds from Cagamas issuances are used to fund the purchase of eligible sustainability assets, housing finance loans and Islamic home financing from the financial system.

Cagamas plays a major role in Sukuk origination and continues to be an innovator in the mortgage finance and securitisation market. The Cagamas papers are 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 RM320.4 billion worth of corporate bonds and Sukuk

IILM Continues Twelfth Consecutive Monthly Short-Term Sukuk Issuance with an US$1.1bn Three-Tranche Offering in December 2021 as Aggregate Issuance Volume for the Year Tops US$14.12bn

 Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) concluded its short-term Sukuk issuance programme for 2021 when it successfully completed the auction for the reissuance of an aggregate US$1.1 billion short-term “A-1” rated Sukuk across three different tenors of one, three, and six-month on 7 December 2021.

This was the 12th consecutive monthly issuance/reissuance by the IILM and follows the US$1.31 billion issuance in November 2021.

All the above transactions come under IILM’s US$4.0 billion short-term issuance programme. The Corporation held an auction on 7 December 2021 for the three series of re-issuances totalling US$1.1 billion, priced by the market as follows:

  1. US$450 million of 1-month tenor certificates at 0.17%
  2. US$450 million of 3-month tenor certificates at 0.26%
  3. US$200 million of 6-month tenor certificates at 0.36%

In its final auction for 2021, the IILM’s Sukuk reissuance witnessed a competitive tender among Islamic Primary Dealers and investors across the GCC markets as well as Asia, with a strong orderbook in excess of US$1.94 billion, representing an average oversubscription rate of 1.76 times.

Dr Umar Oseni, Chief Executive Officer of the IILM, stressed that “as the year draws to a close and with December’s successful issuance, the IILM has achieved year-to-date cumulative issuances totalling US$14.12 billion across 36 US dollar-denominated short-term Sukuk series, which is the highest to date since our inaugural issuance in 2013 and a significant milestone in the organisation’s history. Furthermore, the IILM’s Sukuk issuances during the year up to November accounts for 26% of total global US dollar Sukuk issuances. 2021 also marks for the first time since inception a full year that the IILM offers 1-month, 3-month, and 6-month tenors on a consistent monthly basis.”

According to Oseni, 2021 was an outstanding year for the Corporation despite the global market uncertainties. The IILM was ranked as the top US dollar-denominated Sukuk issuer in the first half of 2021 by global data provider Refinitiv, with the highest monthly issuance size reaching US$1.4 billion in March. The lowest profit rates for the three main tenors of IILM Sukuk recorded were 0.17% for 1-month, 0.25% for 3-month and 0.35% for 6-month, reflecting the competitiveness of the IILM Sukuk in the market. The October auction also witnessed the highest order book of over US$800 million for the 1-month issuance, reflecting the high interest on the shorter tenor from investors.

“Liquidity management has never been as important as it is now, especially considering the Covid-19 pandemic and its mutating variants that have threatened market stability and global recovery. In ensuring that financial institutions offering Islamic financial services are able to manage their liquidity effectively and efficiently, the IILM will continue to provide highly rated liquidity instruments backed by sovereign and sovereign-linked assets,” he added.

The IILM has issued a total of US$75.54 billion across 161 short-term Sukuk issuances over the last eight years, reflecting the organisation’s ability to provide high quality Sharia’a compliant instruments and reliable offerings to Primary Dealers and investors, as well as offering stability to the global Islamic liquidity market.

On a year-on-year comparison, the IILM achieved a higher average monthly issuance size in 2021 with an 18% increase in the offering size to address the growing demand for short-term Sukuk from investors. Despite the challenging market conditions, says Oseni, the IILM credit spread remained stable and at a low level of 17.1basis points (bps) on average above LIBOR in 2021, while maintaining a high average of bid-to-cover ratio of 162% since the beginning of the year. This reflects the market’s recognition of the IILM Sukuk as a high credit quality liquidity instrument.

The secondary market trading also recorded a surge in volume traded compared to last year, on the back of excessive internal credit line of the investors. The total volume traded in the IILM Sukuk certificates reached US$1.4 billion through 135 trades between Primary Dealers and end-investors throughout the year.

Looking ahead into the new year, emphasised Oseni, “the IILM will focus on developing its programme with new features and potentially addressing the demand for other tenors depending on market conditions. The IILM looks forward to attracting new investors to diversify its investor base and thus enhancing the liquidity for the IILM Sukuk on the secondary market.”

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.

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.

Saudi Real Estate Refinance Company Successfully Closes its Latest SAR2bn Sukuk Issuance in December 20231 with Robust Local Investor Demand for the Certificates

Riyadh – The Saudi corporate Sukuk market continued its momentum till the end of 2021 with Saudi Real Estate Refinance Company (SRC) successfully closing its latest offering – a SAR2 billion Sukuk issued on 13 December 2021.

The Sukuk has a tenor of 10 years maturing on 12 December 2031 and was issued at a fixed profit rate of 3.04% per annum payable semi-annually. The issue was marketed to eligible Saudi institutional investors and demand for the certificates was robust, with the transaction oversubscribed 2.5 times.

According to Fabrice Susini, CEO of SRC, “the very positive reception in the market for our Sukuk demonstrates strong confidence in the Saudi housing market and economy, and robust investor support for our business model as home ownership continues to increase. The funding raised will enable us to expand our relationships with home finance lenders, as Saudi Arabia moves closer to its target of achieving 70% home ownership among Saudi nationals by 2030. Our latest Sukuk issuance also adds further depth to the Saudi fixed income market in line with the goals of the Financial Sector Development Program (FSDP) as part of Vision 2030.”

SRC maintains that the new funding raised will enable mortgage originators to provide lower mortgage rates and support the housing market, making borrowing more accessible to buyers. It will also support lenders in the housing market, with the aim to further expand home ownership by making it more affordable.

HSBC Saudi Arabia acted as the lead coordinator for the transaction and together with AlJazira Capital, Al Rajhi Capital, HSBC Saudi Arabia, Riyad Capital, Saudi Fransi Capital, and SNB Capital were the mandated joint lead managers.

SRC is wholly owned by the Saudi sovereign wealth fund, the Public Investment Fund (PIF), and was established in 2017 with the objectives of supporting the national agenda of increasing home ownership amongst Saudi citizens, promoting the development of the housing finance market in the Kingdom, and by acting as a catalyst for accessible and affordable home financing solutions.

The company is a frequent issuer of Sukuk and a dedicated Sharia’a compliant mortgage finance and securitisation company. SRC last issued a Sukuk in March 2021 – a two-tranche SAR4 billion (US$1.967 billion) long-term Sukuk which had tenors of 7 and 10 years and distributed through a private placement.

This latest Sukuk is SRC’s fourth offering in local currency, and the second to be guaranteed by the Saudi finance ministry. SRC Sukuk issuance plans include an international offering denominated in U.S. dollars under the right market conditions.

SRC’s latest Sukuk was issued under its SAR10 billion Sukuk Programme established earlier this year, under which SRC has the ability to issue sovereign-guaranteed instruments targeting local investors. Its first Sukuk offerings under the programme were issued in March 2021.

The company’s refinancing activities for lenders helps develop an active secondary home financing market in the Kingdom which supports the efficiency and stability of the primary housing market.

The aim of SRC primarily is also to develop a robust secondary Sharia’a compliant mortgage market, which in recent years has gained traction in Malaysia, the most advanced market led by Cagamas, the Malaysian Housing Finance Corporation; in Saudi Arabia, and more recently in Bahrain, Pakistan and even the UK, where Sukuk has been issued to securitise Islamic mortgages.

IsDB Approves US$252.5m of Financing for Pakistan in Support of its Green Agenda in the Energy Sector and Ongoing Covid Mitigation Strategy

Jeddah – The Islamic Development Bank (IsDB) approved US$252.5 million for financing on 20 December 2021 in support the country’s green agenda in the energy sector as well as the ongoing efforts to counter the adverse impacts of the COVID-19 pandemic.

The financing includes a US$180 million IsDB contribution to the construction of the strategic Mohmand Dam and Hydropower Project in Pakistan’s Khyber- Pakhtunkhwa (KP) Province. Once completed, Mohmand Dam will be the 5th  highest Concrete-Face- Rock-Filled Dam (CFRFD) in the world and will add 800 MW to the country’s installed hydropower capacity. It will also provide sustainable clean potable water to 2 million residents in Peshawar city while boosting food security through vital support for irrigation and agricultural activities on 6,773 ha of new farmlands.

IsDB President Dr. Muhammad Al Jasser stressed that the IsDB takes pride “in working alongside our partners from the Arab Coordination Group as well as other partners to see this great green project launched in due time.”

To date, Pakistan’s Energy sector has received the largest share of IsDB Group development interventions by absorbing 68.4% (about US$9.3 billion) of the Group’s investments.

The IsDB also approved US$72.5 million of funding to support Pakistan’s nationwide vaccination efforts in the face of the ongoing COVID-19 pandemic. Under this approval, the country’s “IVAC COVID-19 Vaccine Support Project” – also co-funded by the World Bank and the Asian Development Bank – will receive US$70 million from IsDB as well as US$ 2.5 million from IsDB’s Islamic Solidarity Fund for Development (ISFD).

The funding will contribute to the Pakistan’s Government’s efforts to vaccinate 70% of the population eligible for vaccination aged 18 years and above, including health care and frontline workers and other priority groups.

This financing also comes in the framework of the second track (R2) of IsDB Group’s US$4.56 billion Strategic Preparedness and Response Programme (SPRP), specifically designed to support member countries with their health and economic recovery programs against the COVID-19 pandemic.

ITFC Signs US$150m Framework Agreement with Turkmenistan to Support Import of Essential Commodities and Local SMEs Involved in the Agricultural and Textile Sectors

Jeddah – The International Islamic Trade Finance Corporation (ITFC), the trade fund of the Islamic Development Bank (IsDB) Group, signed a 3-year US$150 million agreement with the Ministry of Finance of Turkmenistan on 24 December 2021. The agreement follows Turkmenistan’s recent accession to ITFC membership.

The Agreement will focus on supporting the import of essential commodities, the development of Turkmenistan’s agricultural and textile sectors, and providing access to the country’s private sector, particularly the small-and-medium-sized enterprises. It will also support the country’s national economic and development goals especially trade promotion, trade capacity building and technical cooperation.

According to Eng. Hani Saleh Sonbol, Chief Executive Officer of ITFC, “the Corporation remains firmly committed to supporting the socio-economic

development of our member countries and this Framework Agreement is a step in that direction. Our support will span over several priority sectors of the Turkmenistan economy with particular focus on post- COVID-19 pandemic recovery, trade capacity building, and Lines of Financing for SMEs.”

The Chairman of the Board of the State Bank for Foreign Economic Affairs of Turkmenistan, Tahimberdi Jepbarov, stressed that the “development of trade and economic relations on the national and global levels, as well as supporting the private sector are among high priorities for Turkmenistan and we see membership of the ITFC as a good platform to enhance inter and intra-regional trade activity and to enable our private sector to grow at a faster pace.”

ITFC’s parent, the IsDB similarly approved a US$90.15 million Instalment Sale facility on 18 December 2021 for The Maritime Transport Development Project in Turkmenistan which includes the construction of three vessels at the state-owned Balkan Shipyard, situated in Turkmenbashi Sea Port – the largest port in the country.

The total cost of the project is estimated at US$150.25 million. IsDB`s contribution to the project comes in two operations. US$90 million will be extended through Instalment Sale and US$0.15 million shall come through the Bank’s Reverse Linkage grant for sharing of expertise and knowledge.

The IsDB financing is expected to cover around 60% of the total project cost, 30% of which – US$ 45 million – will be financed by the OPEC Fund while the remaining amount of US$15 million will be covered by the Government of Turkmenistan.

The project aims to enhance the capacity and efficiency of maritime transport operations through Turkmenbashi port on the Caspian Sea which is the part of the Europe-Caucasus-Asia transport corridor.

It will also create job opportunities, particularly for young graduates and is expected to contribute to environmental protection through new technology engines.

State Bank of Pakistan Introduces Sharia’a Compliant Liquidity Facilities for Islamic Banking Institutions

Karachi – The State Bank of Pakistan (SBP), the central bank, introduced a Sharia’a Compliant Standing Ceiling Facility and Open Market Operations (injections) for Islamic Banking Institutions (IBIs) on 20 December 2021.

The move is in line with the State Bank’s strategic plan to improve Liquidity Management Framework for the local Islamic banking industry and enhance the effectiveness of monetary policy implementation.

“As the size of the Islamic banking industry is increasing, the SBP recognizes the need to introduce Sharia’a compliant liquidity facilities for IBIs. With a view to bring IBIs at par vis- à-vis their conventional counterparts in terms of liquidity management avenues, and to enhance SBP’s tools for managing market’s liquidity as part of its monetary policy objective, SBP has introduced the two aforementioned facilities,” said the central bank in a statement.  

The structure and broad features of the facilities are:

  1. The Sharia’a Compliant Standing Ceiling Facility is a Mudarabah based Financing Facility (MFF) whereby SBP will provide financing to IBIs on an overnight basis against Sharia’a compliant collateral. IBIs shall place the funds received from SBP in a special pool consisting of high quality assets. The MFF will be offered at an ‘Expected Rate’ – equivalent to conventional overnight reverse repo rate – based on a Profit-Sharing Ratio agreed between the SBP and IBI at the onset of the transaction.
  2. The Sharia’a Compliant Open Market Operations (Injections), which is also based on the Mudarabah mode of financing, and will currently be available for ‘injection’ i.e. provision of liquidity purposes only. Similar to conventional OMOs, SBP will be conducting Sharia’a Compliant OMOs (Injections) based on market liquidity conditions through a multiple price competitive bidding process for tenors as announced by SBP from time to time, against collateral.

Once the expected rate of return is finalized through a competitive bidding process, the funds provided by SBP shall be invested in a pool of high quality assets by the respective IBI. SBP and IBI shall agree a Profit-Sharing ratio at the onset of the transaction.

The Islamic banking industry in Pakistan has become a systemically important component of the banking industry, registering remarkable growth over the last two decades. Currently there are 5 full-fledged Islamic banks and 17 conventional banks operating with standalone Islamic banking branches offering a wide array of Sharia’a compliant financial solutions. At the end of June 2021, the market share of the Islamic banking industry assets and deposits in the overall banking sector stood at 17% and 18.7% respectively and the branch network of Islamic banking institutions comprised over 3,583 branches and 1,562 windows.

“The Introduction of aforesaid liquidity facilities,” explained the SBP, “will bring the Islamic banking industry at par with their conventional counterparts and enable them to effectively manage their short-term liquidity. This would strengthen financial intermediation by IBIs and enable them to offer better returns and rates to their customers on deposits and loans. Further, introduction of proposed facilities will also strengthen monetary policy transmission mechanism and enhance the effectiveness of monetary policy implementation by SBP to achieve the ultimate objective of price stability.”

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