Keynote Address by Mr. Nik Mohamed Din Bin Nik Musa, at the IIFM Webinar On Publication Of 10th Anniversary Edition Of The Annual Sukuk Report 2021

4th August 2021

Keynote Address By

Mr Nik Mohamed Din Bin Nik Musa
Director-General, Labuan FSA

The global health crisis has caused significant change to everyone, be it to the economy, social, technology, and many more that none were spared. As we march into the new era, the numerous challenges and uncertainties ahead and what we have faced thus far, we would have to admit that we have all been caught offguard. However, let us not lose hope and give up but rather to keep on searching, for the AlMighty has promised us that for every hardship there will be ensuing ease, and there is bound to be opportunities and solutions to fill the gaps. Likewise, the Islamic finance development will continue to grow and flourish to meet global demands and beyond, reaching even to the underserved and unserved market segments.

Mr. Ijlal Ahmed Alvi, CEO of IIFM,

Distinguished Guests, Ladies and Gentlemen,

Assalaamu’alaykum Warahmatullahi Wabarakatuh and good afternoon or good morning to everyone around the globe.

1. I would like to thank IIFM for giving me the opportunity to deliver the keynote address for today’s auspicious event. It is a great honour for me to welcome you to this webinar, with an impressive line-up of speakers and panellist, who will be sharing their extensive knowledge and thoughts on sukuk and its development.

2. The pandemic has caused great hardship to all of us around the world. In order to build the social and economic resilience during this difficult times, various measures have been implemented. Demand for sustainable investment is on the rise driven by the environmental, social and governance-related (ESG) agenda. This has also become the prime focus for major economies’ governments and corporates alike to combat global warming and to transition into clean energy environment. The Global Sustainable Investment Alliance reported that total sustainable investments amounted to over 35 trillion dollars, far exceeding Islamic finance’s 2.4 trillion dollars.

3. Technological advancements have now become a necessity rather than an option for the global financial markets in order to be more broad-based and transformative. Countries across the globe have made a priority in ushering in digital innovations which ranged from digitisation of payments and cashless transaction, to permitting digital-related entities to operate side-by-side with their traditional-business peers within the same market. In the Islamic finance space, as at July this year, there are at least 243 Islamic fintech companies that offer Sharia-compliant financial products and services. The distinctive features that set the Islamic fintech from its counterpart are that it is more inclusive, transparent, ethical, fair to both contracting parties, and intrinsically embodies Shariah principles.

4. What does this all mean for Islamic finance? Therein lies the opportunity for sukuk market to make greater inroads in the ESG fund raising space. In fact, the ESG sukuk issuance had reached a record value of 4.6 billion dollars in 2020. Blockchain technology has an enormous potential to make the shariah-compliant financial instrument more efficient and less costly for retail sukuk issuance via smart structures. A further innovation is to explore the ‘crypto sukuk’ traded through blockchain platforms and to utilise the concept of waqf or Islamic endowment in Islamic instruments by diversifying the use of waqf assets for shariah compliant social infrastructure projects.

Ladies and gentlemen,

5. Sukuk has garnered investors’ attention due to its growth potential aside from providing strong risk-adjusted returns relative to other emerging market bonds, even in times of crisis. As reported by the global data provider Re fi ni tiv, the Sukuk issuance has gained momentum in the first half of 2021 as total issuance reached 100 billion dollar mark as compared to 88.7 billion dollars recorded last year. In fact, the total global sukuk issuance is expected to hit a new record level of around 180 billion dollars for this year. The top three jurisdictions with the highest sukuk issuers remained the same, namely, Malaysia, Indonesia and Saudi Arabia.

6. Over the years, Malaysia has been proactive in developing new regulations that integrate Islamic finance, ESG agenda and financial innovations together. This includes crowdfunding and peer-to-peer (P2P) finance, waqf-featured collective investments, the revised SRI Sukuk Framework, as well as Islamic Fund and Wealth Management Blueprint. Of the more recent is the Securities Commission’s launch of Navi Gate – a flagship capital market green financing series which was aimed at creating awareness on the funding avenues available for green businesses through equity crowdfunding and P2P financing.

7. As a midshore market, Labuan International Business and Financial Centre (Labuan IBFC) plays a complimentary role to Malaysia’s agenda on the development of Islamic capital market. Labuan IBFC offers a conducive environment for sukuk issuance with its well-developed legal, regulatory and Shariah compliant ecosystem. In tandem with fiscal incentives and a pool of Islamic finance talents, the Centre is a natural market of choice in the region for international sukuk structuring and distribution. Labuan FSA has issued a set of comprehensive business guides on sukuk which highlight the conducive and flexible requirements for fund raising funds via Labuan sukuk issuance that fully subscribes the requisite Shariah principles.

8. As we go on a broader horizon, a notable milestone for the Islamic capital market space is the recent publication of IIFM Perpetual Sukuk Al Mudarabah Tier 1 Standard Documentation Templates. The Sukuk Standard which is based on international Shariah best practices, provides robust documentation that can be adopted seamlessly across all jurisdictions.

9. Today marks the 10th year anniversary of the IIFM Sukuk Report publication. The flagship report was first launched in 2011, which aimed to track the growth and development of different Sukuk structures in various jurisdictions. After a decade’s passing, the report has indeed become an important reference as it not only serves as a useful source of information, but also creates deeper appreciation of the Sukuk market fundamentals and development through in-depth analysis of Sukuk issuances, key trends and other relevant issues.

10. Looking back across the passage of time, IIFM in its drive to develop the international Islamic financial market has played a significant role in facilitating Shariah harmonisation. This is evident through developing Shariah compliant standard financial contracts and product templates on Capital & Money Market, Corporate Finance as well as Trade Finance segments for the Islamic Financial Services Industry (IFSI). I urge the IIFM to continually play a greater role in ensuring the issuance of these Standards to secure greater confidence across various stakeholders. This is because IIFM provides a comprehensive set of widely accepted and legally sound financial documentation and product confirmations, resulting in significant cost savings, ease of execution, and greater transparency.

11. From the recent Fitch Ratings’ report, confidence on Islamic finance and awareness gaps still remain encouraging in developed Islamic finance market such as the GCC countries as well as Malaysia. Aside from the pivotal roles played by regulatory authorities in promoting the Islamic financial ecosystem, the use of innovative market solutions offered by fintech should be opportunised as one of the means to address these issues. On this note, standard-setting bodies such as IIFM could take up the advocating role to promote possible relevancy and applications of fintech solutions within Islamic finance context. With the right drive and promotion, it can be a game changer for Islamic finance to become more dynamic and accessible unbound by the traditional sense of geo-limitations across both Muslim and non-Muslim economies.

Ladies and Gentlemen,

12. Before I end, let me take this opportunity to congratulate IIFM secretariat for another successful work on the 10th IIFM Sukuk Report. My commendation also goes to the research team and the industry stakeholders for their tireless efforts in completing this project. I also take great honour to welcome the latest addition to IIFM’s Shariah Board, the distinguished Sheikh Dr. Mohamed Ali Elgari. Sheikh is well known for his great intellectual thoughts, vast knowledge and experience in Islamic jurisprudence. InsyaAllah with his participation into the collective wisdom of the Board, IIFM will have more means to hasten the Islamic finance advancement and attain greater harmonisation of Shariah interpretation globally.

13. With this, I wish to express my deepest appreciation to everyone present here today, and I look forward to the panel session ahead.

Thank you and Wassalaamu’alaykum Warahmatullahi Wabarakatuh

Mr Nik Mohamed Din Bin Nik Musa
Director-General, Labuan FSA
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