Highlights in Fintech in Asia, Europe, the Middle East and Africa: Islamic Finance October 2020

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The FinTech Times highlights some of the key events and initiatives that happened in Asia, Europe, the Middle East and Africa in October with respect to Islamic Finance.

Shuaa Capital

Dubai investment banking and asset management firm Shuaa Capital has unveiled three Sharia-compliant funds and already secured $75 million of commitments. The three funds – Shuaa High Yield Sukuk Fund, Nujoom Aggressive Fund and Nujoom Balanced Fund – are part of Shuaa’s fund platform rolled out in Abu Dhabi’s international financial hub Abu Dhabi Global Market (ADGM).

The Islamic Corporation for the Development of the Private Sector, a multilateral development financial institution and the private sector arm of the Islamic Development Bank Group (IsDBG), announced a successful completion of the pricing of a five-year $600 million Sukuk issuance at MS + 140bps. This has been the largest Sukuk issuance by ICD (Rated A2 (stable) by Moody’s; A (negative) by Fitch Ratings) since inception and double the amount from its inaugural issuance in 2016 of $300 million, despite the institution’s absence from the capital markets over the last four years.

Tezos Blockchain receives Sharia Certification

Tezos Gulf was established to foster ecosystem development in the Gulf Cooperation Council (GCC) for the Tezos network, an open-source public blockchain for assets and applications. In accordance with that mission, Tezos Gulf has announced the assignment of Shariyah Review Bureau (SRB) as its Sharia Advisor.

Waleed Rassuli, Head of Tezos Gulf, says, “The engagement marks Tezos first step in promoting our open-source protocol to Islamic financial institutions in the GCC and South-Asia pacific region. We see potential for Islamic financial institutions seeking to explore blockchain-based options for digital securities issuers and who also wish to issue securities on a platform that is compatible with the Sharia compliance ecosystem. We hope our blockchain will foster a vibrant version of the digital asset-class which will move the Islamic industry forward.”

ZamZam Bank becomes Ethiopia’s first Islamic bank

ZamZam Bank from Ethiopia recently obtained a license from the country’s banking regulator to carry out Islamic banking activities in the country. With this license, ZamZam became the first officially recognised institution to specifically offer financial services and products that comply with Islamic law, according to local Ethiopian media.

S&P: Islamic Finance – Syndication Could Make Up For Sukuk’s Shortcomings

S&P published an article titled, ‘Islamic Finance: Syndication Could Make Up For Sukuk’s Shortcomings’, discussing how core Islamic countries in the GCC, Turkey, Malaysia and Indonesia are facing a major economic contraction in 2020 due to COVID-19 and lower oil prices.

Key important takeaways include: The sudden contraction of global economies has seen core Islamic countries meet rising expenditure through syndicated financing rather than sukuk issuance; Also, corporate entities have been using bank facilities mainly to stay afloat, since the majority have cut capital expenditure to adjust to the new economic reality; Finally, although Islamic syndication seem to be more accessible than sukuk issuance, it remains more complex than conventional syndicated deals.

October 2020 had various highlights in Islamic Finance across the world

October 2020 had various highlights in Islamic Finance across the world

October 2020 had various highlights in Islamic Finance across the world IMAGE SOURCE GETTY

Indonesia’s 3-way Islamic bank merger to build scale, raise competitiveness

Another article by S&P highlights Indonesia’s planned merger of three state-owned Islamic banks (PT Bank BRIsyariah Tbk, PT Bank Syariah Mandiri and PT Bank BNI Syariah) will create an entity with scale comparable with the biggest local lenders and may give a fillip to Sharia-compliant finance in the world’s biggest Muslim nation by population, analysts say. This was announced at a press conference on October 13.

Abu Dhabi Global Market Releases Sustainable Finance Report

Abu Dhabi Global Market (ADGM), in partnership with the UAE’s Ministry of Climate Change and Environment (MOCCAE) and with the support of leading authorities in the UAE, has published the State of Sustainable Finance Report. Amongst other subjects, the report also highlights Islamic Finance. The full report can be viewed on the ADGM website.

Central Bank of the UAE signs agreement with Dubai Islamic Economic Development Centre

The Central Bank of the UAE (CBUAE) signed a memorandum of understanding (MoU) with the Dubai Islamic Economy Development Centre (DIEDC) by reinforcing and expanding the Islamic banking sector reach, as well as advancing cooperation in areas of mutual interest. H.E. Saif Hadef Al Shamsi, Deputy Governor of the Central Bank of the UAE, and Abdulla Mohammed Al Awar, CEO of DIEDC, signed the agreement.

In addition to the cooperation in Islamic banking, CBUAE and DIEDC will collaborate by publishing joint research and exchange knowledge to enhance know-how. To add, both entities will jointly host international seminars, conferences and meetings, develop awareness projects, build technical capabilities and cooperate in fields that support Islamic finance’s development.

CBUAE and DIEDC will establish a joint team to follow up on the implementation of the MoU. The team is tasked with preparing regular update reports that will be shared with key decision makers across each entity. H.E. Saif Al Shamsi, Deputy Governor of the Central Bank of the UAE said, “The MoU reflects the Central Bank of the UAE’s commitment to strengthen strategic ties with various entities in the banking and financial sector, and unify efforts to ensure that plans and initiatives are aligned with the future directions of the country and to achieve the common goals.”

The International Islamic Financial Market (IIFM) publishes Ijarah Sukuk Standards

The International Islamic Financial Market (IIFM) announced the publication of its Sukuk Al Ijarah Standard Documentation Templates. The suite of standardised documentation consists of Template Prospectus, Sale and Purchase Agreement, Ijarah Agreement, Service Agency Agreement, Purchase Undertaking, Sale and Substitution Undertaking and Declaration of Trust.

The purpose of the Sukuk standard documentation templates is to provide the industry with a standardised set of documents addressing clauses that are challenged and are repetitive during the drafting of the Sukuk prospectus and related issuance documentation, while also standardising definitions and updating Sharia requirements.

IIFM is a standard-setting body focusing on standardisation of Sharia-compliant financial contracts and product templates relating to the Islamic Financial Services Industry (IFSI). IIFM is based in Bahrain and hosted by the Central Bank of Bahrain (CBB) and was established in 2002 as a neutral and non-profit infrastructure development institution, by the collective efforts of the CBB (formerly Bahrain Monetary Agency), Islamic Development Bank, Autoriti Monetari Brunei Darussalam (formerly Ministry of Finance Brunei Darussalam), Bank Indonesia, Bank Negara Malaysia (delegated to Labuan Financial Services Authority) and the Central Bank of Sudan.

Launch of UK’s first Islamic Finance undergraduate degree

Birmingham City University has announced the launch of the first Accounting and Islamic Finance undergraduate course in the UK – a niche of the finance industry set to grow exponentially in coming years.

The BSc (Hons) Accounting and Islamic Finance degree will see students study Islamic economics, whilst developing an understanding of corporate social responsibility in modules exploring how businesses are taking greater responsibility in helping to move towards a cleaner and more sustainable planet.

“The course is being launched at a very crucial time in our history,” explained course leader Shaista Mukadam. “With the current pandemic and economic challenges, there is an urgent need to rethink an alternative to the interest-based economy.”

UAE’s Export Federal credit company, Etihad Credit Insurance, launches ‘ECI Islamic’

Etihad Credit Insurance (ECI) has launched its Shariah-compliant export credit solutions under ECI Islamic in order to boost the country’s halal export industry and to cement its strong position as a global leader in the fast-growing Islamic economy.

The Federal export credit company has virtually introduced ECI Islamic at AIM Digital 2020. The launch of this Shariah-compliant product has made ECI one of the first sovereign export credit agencies in the Middle East to offer Shariah-compliant Export Credit Insurance and Guarantee Solutions.

The launch of ECI Islamic is in line with the vision and directives of His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, who highlighted the vital importance of the Islamic Economic system in offering a real opportunity for finding new ways to manage economic, commercial and financial growth. HH Sheikh Mohammed has pointed out that the adoption of the Islamic Economy can stimulate economic growth and create new opportunities and initiatives through collaborations between local, Islamic and international companies.

Massimo Falcioni, CEO of ECI, said, “Through our Shariah-compliant trade credit, finance, and investment solutions, ECI stays true to its mission of supporting the UAE’s non-oil sector and boosting the competitiveness of businesses in line with the vision of our wise leaders. These solutions will provide UAE businesses operating in halal trade with a competitive advantage in the international market.”

Islamic banks can help accelerate the UK’s fintech transformation

Al Rayan Bank, the UK’s oldest and largest Islamic bank, has announced that more than 20,000 of its customers are now using its digital banking services for their day-to-day banking. The bank’s mobile banking app was launched one year ago to provide customers with increased online security, with strong customer authentication measures to verify customers and validate their payments.

Dr Samir Alamad, leading Sharia compliance expert at Al Rayan Bank, is now calling for UK Islamic finance institutions to cater for changing customer demand. His argument is that accelerating digital transformation will help to fully embed Islamic finance within the UK’s banking ecosystem and in parallel boost the UK’s fintech hub status.

2020 Sukuk Volumes Resilient to Coronavirus Stress, according to Fitch Ratings

According to Fitch Ratings, the volumes of sukuk issuance in the full-year 2020 are expected to be similar to previous year levels, despite the unprecedented stress from COVID-19. As market conditions further recover, sukuk supply is expected to increase with a rise in funding needs.

Sovereigns are expected to remain the major contributors to overall sukuk volumes as they face widening fiscal deficits and high borrowing needs, caused by COVID-19-related economic disruptions and lower oil prices. The issuance from financial institutions and corporates is also set to increase as they face challenging business conditions by taking advantage of lower funding costs.

Sukuk issuance with a maturity of more than 18 months from the GCC region, Malaysia, Indonesia, Turkey and Pakistan reached $10.5 billion in quarter three 2020, which was 4.2% lower than the previous three months. The volume of outstanding Fitch-rated sukuk reached $116.2 billion at the end of quarter three 2020.

Sukuk issuances will continue to grow in 2020: Refinitiv

According to Refinitiv, Sukuk issuances will grow to $174 billion in 2020, an increase from $162 billion in 2019, as governments look to tap them to meet funding requirements post COVID-19. Refinitiv also highlighted that green sukuk, with $7.6 billion worth issued since 2017, is one of the fastest growing categories in the last four years. Indonesia is the largest issuer of green sukuk with 37 percent, followed by Saudi Arabia with 32 percent, the UAE with 16 percent and Malaysia with 15 percent.

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