NEWS in BRIEF

UNHCR’s Refugee Zakat Fund Exceeds US$38m in FH2019 as Islamic Philanthropic Finance Makes its Mark

Geneva – As another sign of the increasing synergy of Islamic social and philanthropic finance with the wider movement, the UNHCR’s Refugee Zakat Fund beat its US$26 million target for 2019, raising $38.15 million from contributions in the first half of the year alone.

According to the UNHCR, the funds raised from January through June assisted 648,476 internally displaced persons and refugees.

It is now revising up its 2019 target by 69.2 per cent to US$44 million, representing a 271.8 per cent increase from the US$11.87 million its Zakat programme raised in 2018. UNHCR expects the funds to help over 1 million beneficiaries.

Houssam Chahin, UNHCR Head of Private Sector Partnerships in the Middle East and North Africa region, said the funds raised are “a testament of the instrumental role that Islamic philanthropy can play in the humanitarian response to the displacement crisis globally.” 

The UN agency said in August that the Fund will demonstrate the impact it can have by leveraging its expanded footprint in Bangladesh, enhancing its contribution to linking Zakat with refugees via partnerships and thought leadership, and expanding the scope of Islamic philanthropy to include Sadaqah and Waqf.

The donor demography of the Zakat funds, according to UNHCR, shows that 93 per cent, or US$35.5 million, of the US$38.15 million raised up to June 30 came from large and private donors, chiefly from UAE, Saudi Arabia, Qatar, USA and Egypt.

$2.6 million was raised online, with $2.2 million received during Ramadan alone.

In the first half of 2019, $15.9 million of the Zakat funds raised were distributed as multi-purpose cash assistance to refugees across Yemen, Lebanon, Iraq, Egypt, Jordan, Mauritania and Bangladesh.

Yemen received the lion’s share of $13.5 million, followed by around $710,930 to Jordan and $603,780 to Lebanon. Around $522,530 was disbursed to benefit around 670,000 Rohingya refugees in Bangladesh, with distribution currently in progress, said UNHCR.

Cypark Ref Berhad Sets Up RM550m Islamic Medium Term Note Programme to lssue Tawarruq Sukuk to Part Finance Solar Photovoltaic Power Plant Projects in Malaysia

Kuala Lumpur – In the ESG/SRI space, Cypark Ref Berhad, a wholly-owned subsidiary of Cypark Resources Berhad has established a RM550 million Islamic Medium Term Notes (IMTN) Programme based on the Sharia’a principle of Murabahah (via a Tawarruq arrangement) under the sustainable and responsible investment (SRI) Sukuk Framework issued by the Securities Commission (SC), which was introduced in 2015 and amended in 2018.

Cypark Ref Berhad has appointed Maybank Investment Bank Berhad as the Principal Adviser, Lead Arranger and Lead Manager for the SRI Sukuk Murabahah Programme and subsequent Sukuk tranches.

The SRI Sukuk Murabahah Programme is to have a tenure of up to 22 years commencing from the date of the first Sukuk issuance.

The utilisation of the proceeds from the issuances under the SRI Sukuk Murabahah Programme, according to Cypark Ref Berhad, shall include, but not be limited to, the following:

  1. To part finance the costs and expenses associated with the design, engineering, procurement, construction and commissioning, ownership, operation and maintenance of 3 x 30MWAC solar photovoltaic power plant projects;

 

  1. To finance the profit payments of the SRI Sukuk Murabahah Programme during the construction period and to pre-fund the initial minimum required balance to be deposited into the Finance Service Reserve Account; and

 

  1. To defray any expenses incurred in relation to the SRI Sukuk Murabahah Programme.

IILM Re-issues US$1.05bn Sukuk in Three Tranches in August 2019

Kuala Lumpur – The International Islamic Liquidity Management Corporation (IILM) successfully re-issued A-1 short-term Sukuk in August 2019 amounting to US$1.05 billion in three tranches, comprising:

  1. US$250 million with a 1-month tenor at a profit rate of 2.25%;
  2. US$400 million with a 3-month tenor at a profit rate of 2.30%; and
  3. US$400 million with a 6-month tenor at a profit rate of 2.25%.

According to the IILM, the reissuance was well supported with demand across the three series of the IILM Sukuk reaching a bid to cover ratio of 234% for the 1-month tenor, 176% for the 3-month tenor and 145% for the 6-month tenor.

“The profit rates achieved were 2.25% for the 1-month, compared to the indicative pricing guidance range of 2.28%-2.34%; 2.30% for the 3-month, compared to the indicative pricing guidance range of 2.29%-2.35%; and 2.25% for the 6-month, compared to the indicative pricing guidance range of 2.18-2.24%,” explained IILM in a statement. The strong overall demand despite the Eid break, said the IILM, “is a testimony of the investors’ appetite for the IILM Sukūk.”

Purchases by Islamic Primary Dealers (PDs) in the primary auction amounted to 54%, 92% and 21% for the 1- month, 3-month and 6-month Sukuk respectively.

In terms of geographical distribution, the allocation of GCC-based PDs stood at 46%, 79% and 50% for the 1-month, 3-month and 6-month Sukuk respectively. Asia-based PDs were respectively allocated 20% and 13% of the 1-month and 3-month Sukuk. The PDs based in other jurisdictions were allocated 34%, 8% and 50% across the three tenors, respectively.

According to the IILM, the primary dealers that participated in the three 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.

Malaysian Sukuk Insurer Danajamin Guarantees Brecon Synergies’ Latest RM160m Education-linked Issuance

Cyberjaya – Danajamin Nasional Berhad, Malaysia’s state-owned Financial Guarantee Insurer, announced in August 2019 that it is guaranteeing up to RM160.0 million of the first issuance of RM200.0 million Islamic Medium Term Notes (IMTN) issued by Brecon Synergy Sdn Bhd (BSSB) under its IMTN Programme of up to RM450.0 million.

The Principal Adviser, Lead Arranger and Lead Manager of the IMTN Programme is Maybank Investment Bank Berhad. The transaction was advised by Zico Capital Sdn Bhd, a specialised, corporate finance and capital markets advisory firm licensed by the Securities Commission Malaysia.

Proceeds from the IMTN shall be utilised to part-finance the acquisition cost of King Henry VIII College located in Cyberjaya.

Mohamed Nazri Omar, Chief Executive Officer of Danajamin, said “We are proud to support another viable Malaysian company in raising its financing to grow and realise its full potential. This guarantee marks our support towards the education industry. We truly believe that the best sustainable future for decades to come, rests in the abilities and capabilities of our children. Through our guarantee, we hope to instil investor confidence and join Brecon Synergy Sdn Bhd in planting the seeds of tomorrow through their business objectives, as well as to contribute meaningfully to the nation’s society and economy.”

According to Datuk Benny Hoe, Group Managing Director of BBSB, “the principal activities of company are providing education services and other learning facilities for study and research. BSSB entered into collaboration agreement with 1541 Ltd, a subsidiary of Christ College Brecon (CCB) in the UK. King Henry VIII College in Cyberjaya is CCB’s first overseas sister-school and the school is built on its 478-year history, tradition and values, to ensure students develop a powerful sense of what they can achieve.”

The school has welcomed day students and boarders since September 2019 and has more than 400 students to-date coming from over 22 different countries. By September 2019, the school is expected to cater to more than 500 students.

To date, Danajamin’s guarantees have assisted 39 issuances, with a total guarantee size of RM10.7 billion. The total market impact of these deals, through risk-sharing collaboration with partner banks, stands at RM21.2 billion.

Moroccan Parliament Approves Takaful Law as Foreign Operators Line up to Get First Mover Advantage

Rabat – Morocco is the latest country to approve legislation facilitating Takaful, which local bankers stress is set to take off in the Kingdom. The Upper House of Moroccan parliament (The House of Councillors) in July 2019 approved a law governing Takaful, which professionals expect to give a much-needed boost to Islamic finance in the country.

Insurance companies will be able to launch Takaful subsidiaries as soon as the law is published in the Official Bulletin. Morocco is the most advanced country in North Africa to develop and promote Islamic finance (known as participatory banking). The South African financial services giant Sanlam is reportedly in the process of establishing Sanlam Takaful, a new Rabat-based subsidiary dedicated to Islamic insurance in Morocco, which would start operations subject to the necessary regulatory approvals.  Sanlam already has an insurance presence in the Kingdom following its acquisition last year of the local non-life insurer, Santam, and Saham Finance.

The Moroccan insurance code was amended in February 2019 to introduce Takaful activity. This legislation update helps to address some of the insurance problems which participatory banks face when financing their customers.

Morocco stands out of the North African states in facilitating participatory banking as part of its revised financial sector strategy and under its financial inclusion policy.  Two years ago the government also launched a ‘Roadmap for aligning the Moroccan financial sector with sustainable development’ to meet its stated commitments relating to the United Nations’ Sustainable Development Goals (SDGs). 

In 2017, the Bank Al-Maghreb, the Moroccan central bank, issued five new licenses to various parties to establish Islamic (participatory) banks in the country. The licenses were approved for CIH Bank in partnership with Qatar International Islamic Bank; BMCE Bank of Africa jointly with the Saudi/Bahraini group Dallah Al Baraka; Banque Centrale Populaire with the Saudi Group Guidance Capital (a financial firm specializing in real estate financing); Crédit Agricole du Maroc jointly with the Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IDB); and Attijariwafa Bank.

Previously, Bahrain-based Al Baraka Banking Group (ABG) and the Moroccan Bank for Foreign Commerce of Africa (BMCE Bank), one of Africa’s leading international banking groups, had launched a joint venture participation (Islamic) bank, BTI Bank (Bank al Tamweel wa Inma), headquartered in Casablanca. This followed the launch of Umnia Bank in 2017, which is a joint venture between the local CIH Bank and Qatar International Islamic Bank.

In addition, the Credit Institutions Committee also gave approval to Banque Marocaine du Commerce et de l’Industrie, Crédit du Maroc and Société Générale to sell participative banking products through specialised windows.

Industry experts such as Said Amaghdir, President of the Moroccan Association for Participatory Finance Professionals, stress that Takaful will equip Moroccan participatory banks to offer life (family) and general (fire, motor) Takaful either through bancassurance or standalone Takaful subsidiaries.

But for Takaful operators to thrive, said Amaghdir to Reuters, there is a need for access to capital markets, urging the bourse regulator to approve measures to enable Sharia-compliant investments for them.

“We need in Morocco a supreme financial services authority to ensure a better co-ordination between the different regulators: central bank, insurance regulator and bourse regulator to speed up processes,” he added.

International rating agency Fitch Ratings in a statement stressed that the approval of a law governing Takaful and the introduction of new types of financing products for the country’s Islamic banks, support Morocco’s efforts to form a cohesive Islamic finance regulatory framework.

“However, the absence of a developed Islamic finance infrastructure, especially with regard to funding, and the lack of public awareness will constrain the sector’s expansion over the medium term. We expect most participation banks to soon start offering financing through different types of sharia-compliant structures such as Mudarabah, Ijara and Istisna contracts. This should boost Islamic Bank financing growth, although deposit inflows will remain structurally constrained by an already high banking penetration rate in Morocco (70% of adults already hold a bank account). This means that high financing-to-deposits ratios (247% at end-April 2019) and strained liquidity conditions will remain,” added Fitch.

Morocco’s first Islamic banking licences were issued in 2017. Despite rapid growth (110% between June 2018 and April 2019), Islamic banking still accounted for less than 1% of the banking sector’s total loans at end-2018. Most Islamic banks have only provided mortgage and auto financing, mostly to retail customers in the form of ‘murabaha’ contracts, constraining financing opportunities. The new legislation on Takaful will support Islamic banks’ expansion into the corporate segment as it introduces Takaful products to insure banks and banking transactions, broadening banks’ product offerings.

Nevertheless, added Fitch, “we do not expect participation banks to take a significant market share from the well-established conventional banks in the medium term. Further growth is constrained by limited funding sources and the lack of public awareness and trust in Islamic financial services. Building greater consumer awareness and achieving trust will take time, in our view. Notably, when Islamic banking was introduced in other countries, such as Turkey and Indonesia, it saw early strong growth from a low base but then stalled at around 5%-6% of total lending in the banking system.”

According to Fitch, funding is a major challenge for participation banks, with competition for deposits set to remain strong. Banks have started to offer profit-sharing investment accounts, but such products remain underdeveloped. Reliance on parent funding and deposits from conventional peers in the form of sharia-compliant deposits (‘wakala bil istithmar’) will persist. These are more expensive but provide a much-needed additional source of liquidity.

Alternative sources of funding are limited and banks do not have access to funding from the central bank of Morocco or the domestic capital market. The Moroccan sovereign issued its maiden sovereign Sukuk, a 1 billion Dirham (MD1 billion) Sukuk Ijarah in October 2018 with a tenor of 5 years, but the framework under which participation banks can issue has yet to be developed. This further exacerbates participatory banks’ tight liquidity conditions.

The largest conventional banks in Morocco have opted to establish separate Islamic banking subsidiaries as opposed to Islamic windows. Attijariwafa Bank’s Islamic subsidiary Bank Assafa is the market leader with a market share of 53% by financing and 63% by deposits.

Fitch concludes that the Moroccan authorities’ increasing efforts to act as a driving force in stimulating Islamic finance are positive for growth, but the regulatory framework still lags behind other African countries. Neighbouring Tunisia already has a Sukuk framework in place and an Islamic bank issued the first Sukuk in June 2019.

ADIB UK Extends AED120m Islamic Facility to BLME for Iconic Property Acquisition as GCC Appetite for UK Real Estate Assets Seeks to Diversify Portfolio Risks

Abu Dhabi – Abu Dhabi Islamic Bank (ADIB) UK has provided financing for The Bank of London and the Middle East (BLME) to acquire an AED120 million (GBP26.95 million) Grade A office building in Edinburgh, leased to Centrica as their corporate headquarters in Scotland until 2035.

ADIB recently reported that Middle East investor appetite for UK commercial real estate assets is being driven by a desire to diversify portfolio risk, the weakened pound, attractive rental yields in the strong performing regional markets and long-term security of income. This, says ADIB UK, was clearly evidenced in this latest transaction with over ten investors bidding on the property with a prevalence of Middle East based investors.

Paul Maisfield, Head of UK Real Estate at ADIB UK, said: “This latest transaction is typical of demand we are seeing amongst our client base. Over the last 18 months, 70% of our financing transactions have comprised regional investments, including Aberdeen, Bristol, Coventry, Leeds & Manchester.  The availability of suitable products and the competitive nature of the market is the main challenge our clients are facing, so as well as providing financing we are assisting clients with the origination of investment opportunities via our network of agents in the UK.”

ICD Extends US$40m Murabaha Facility to Albaraka Turk to Support SME Growth in Turkey

Istanbul – The Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of Islamic Development Bank (IsDB) Group, has signed a Murabaha financing facility of US$40 Million with Albaraka Turk Participation Bank to support the growth and productivity of SMEs in Turkey.

According to Ayman Sejiny, CEO of ICD, supporting Islamic financial institutions and channeling Sharia’a-compliant financing facilities to private sector businesses, especially SMEs through partnership with local financial institutions, is one of the main pillars of the ICD’s strategy.

Meliksah Utku, CEO of Albaraka Turk, stressed that continued access to finance for Turkish SMEs is a critical success factor for balanced and sustainable economic growth in the long-run.  “The signing of this facility with an esteemed multilateral development institution partner such as the ICD is a testament to continued investor faith in the resiliency of Turkish SME businesses which represent such an integral part of our overall economy,” he added.

ICD Signs US$10m Wakalah Facility Agreement With the State Bank for Foreign Economic Affairs of Turkmenistan

Avaza – The Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank (IsDB) Group, signed a US$10 Million Line of Financing Agreement with the State Bank for Foreign Economic Affairs of Turkmenistan (SBFEAT) in August 2019.

The US$10 million Sharia’a – compliant Line of Financing facility based on the Wakala structure will be utilized by SBFEAT to provide financial support to the private sector in Turkmenistan, including SMEs, through Islamic modes of financing.

This financing is the first Sharia’a – compliant facility for SBFEAT, which will enable the SBFEAT to offer Shari’ah-compliant products along with other banking services.

Turkish Ferrochrome Producer, ETI Krom, Mandates Banks to Arrange Debut US$250m Sukuk

Istanbul – Eti Krom Inc., the largest chrome ore and ferrochrome producer in Turkey based in Maslak near Istanbul, has hired JPMorgan Chase & Co. to arrange investor meetings to raise US$250 million from a debut US dollar-denominated 5-year Sukuk issuance. According to Evren Ozturk, the Chief Financial Officer of Eti Krom, the proceeds from the Sukuk issuance will be used for capital expenditure and other working expenses. The company plans to expand its exports and business in the Middle East and North Africa region.

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