In one of Dizzee Rascal's earliest records, the award-winning, London-born urban music artist told his listeners to 'Fix Up, Look Sharp'. Dizzee set out his stall and warned all the other British rappers and MCs that they should up their game, or lose out to his new sound. Eight years down the line and Dizzee is still a household name and a force in the urban music industry, when all of his contemporaries from 2003 have shuffled off into obscurity.
Ditto Malaysia, which set out its stall last week with the issue of a dual tranche, dollar-denominated $2bn Wakala Sukuk (see page 3) by the government. This issue builds on previous sovereign Sukuk issued last year and in 2002, which are slowly creating a Malaysian Sukuk yield curve. The Wakala Sukuk is the first of its kind, but follows in the footsteps of a virgin 2002 $600m Sukuk al'Ijarah and its successor in 2010, another Ijarah-structured Sukuk of $1.25bn. The latest issue is jointly lead managed by the Maybank Group and CIMB, who with HSBC and Citi are also joint bookrunners.
However, this issue also acts to warn the rest of the Islamic finance industry to 'Fix Up, Look Sharp' as Malaysia is pulling away from that other center of Islamic finance, the GCC states and backing up its words with its own money.
The GCC states do talk at length about their primacy in terms of Islamic finance - Bahrain is still the home of significant Islamic finance organizations like AAOIFI, CIBAFI, IIFM and the IIRA and the power-broking Islamic Development Bank is based in Jeddah, Saudi Arabia. However, none of them, including Saudi Arabia, has ever issued sovereign Sukuk and the various domiciles, despite often trying to show a publically united front, are forever sniping at one another to win a few pennies off their neighbors here and there.
While the IDB ostensibly tries to drive policy by issuing statements and codes of conduct, it is the government of Malaysia, through is proactive partner Bank Negara Malaysia, which is acting to take the concept of Islamic finance out of the classroom, away from the boardroom and committees and onto the high street and into people's homes. And it's doing this by creating the liquidity that in turn develops a secondary market that puts the petrol in the engine that will drive the market forward. With this liquidity the market can trade openly which in turn will encourage issuers further down the food chain, like corporations, to issue Sukuk. These can then be used by Takaful firms and retail banks to create and offer new products in greater volume that can compete toe-to-toe with conventional financial products at the retail and mass-market level.
Greater liquidity will also help develop the microfinance sector and pour capital into small- and medium-sized businesses in developing (and developed) markets. This will hopefully pull families and individuals out of poverty in developing countries and act as a band-aid for SMEs in the developed world that have been starved of capital since the credit crunch of 2008.
The GCC states shouldn't need prompting, as there is insatiable demand for sovereign issue in the Middle East - a fact demonstrated by the investor demand for the five-year $1.2bn tranche of the Malaysian Sukuk, that saw 175 orders totaling $5bn. Middle East investors, bereft of similar sovereign offerings in their own market took 43% of the tranche, with local Malaysian institutions taking up 26%.
Perhaps the GCC doesn't see the issue of sovereign Sukuk as a way to build up its critical mass in terms of Islamic finance. Instead of building from a top down perspective, maybe the Gulf nations want to build from the bottom-up and encourage the private sector to raise funds in a Shari'ah compliant manner. However Malaysia is doing where the Gulf is thinking and actions so very often speak louder than words. Malaysia is tapping into a reservoir of demand at a time when debt is a dirty world, and its success in raising $2bn so quickly and having had orders of more than $9bn speak volumes for the direction and leadership position the country is taking.
© The Islamic Globe 2011
