Malaysia’s commitment to develop the country into a world-class regional hub for Sustainable and Responsible Investment (SRI) took an important step forward on 25 November 2019 in Kuala Lumpur when The Securities Commission Malaysia (SC), the securities regulator, launched the Sustainable and Responsible Investment (SRI) Roadmap for the Malaysian Capital Market.
Malaysian Finance Minister Lim Guan Eng, speaking at the launch, said the roadmap would provide clarity for the capital market industry in mobilising private investments to fund Malaysia’s development and environmental commitments, and aims to create a facilitative SRI ecosystem and chart the role of the capital market in driving Malaysia’s sustainable development.
Under the five-year roadmap, the SC would be guided by five overarching strategies (5 i-Strategy) to holistically develop a facilitative SRI ecosystem in the Malaysian capital market.
The five strategies are widening the range of SRI instruments; increasing the SRI investor base; building a strong SRI issuer base; instilling a strong internal governance culture; and designing an information architecture in the SRI ecosystem. Under the 5 i-Strategy, 20 recommendations were identified to drive the development of a facilitative and vibrant SRI ecosystem for Malaysia.
“The issuance of the SC’s SRI Sukuk Framework back in 2014 has been essential in facilitating funding for green, social and sustainable projects that will eventually benefit the environment and broader society. The government would like to see more issuance of SRI sukuk to finance these projects. We urge more institutional investors to allocate their investments for SRI,” added Guan Eng.
Datuk Syed Zaid Albar, Chairman of the SC, is keen to accelerate SRI’s growth domestically and regionally. In this respect he sees the SRI Roadmap’s strategies and recommendations as pivotal in achieving this growth. “Sustainability is an important global agenda given the need to address real issues on the ground that are affecting society, such as the eradication of poverty, providing access to education and healthcare, and addressing climate change,” he said.
According to the SC, it is estimated that in the next ten years, the world needs about US$5 to US$7 trillion every year to fund the United Nation’s Sustainable Development Goals (SDGs), while in Malaysia it is projected that in the next five years the market will require RM45 billion to finance the country’s long-term development goals.
Datuk Syed believes that “the capital market can play a critical role to address this gap especially in the green, social and sustainable sectors.” Towards this end, one of the immediate initiatives to be rolled out under the SRI Roadmap is a revision of the SC’s SRI Sukuk Framework, which was concurrently released with the Roadmap.
The revised SRI Sukuk Framework has expanded the list of eligible SRI projects, enhanced disclosure and reporting requirements, and clarified the role of external reviewers. The SC also released a booklet to guide stakeholders and members of the public on the key features of the revised framework.
By the end of October this year, according to the SC, there have been 10 SRI Sukuk with total issuances amounting to RM4.3 billion in the Malaysian market. These include the world’s first green SRI Sukuk to finance a renewable energy project, and an issuance of social Sukuk to fund the development of trust schools.
The SC recognises that currently the bulk of SRI project financing revolves around renewable energy projects. “We would certainly encourage more variety and innovative structures leveraging on the abundant resources Malaysia and the region have to offer,” said Datuk Syed.
Under the Roadmap, the SC plans to work more closely with industry and public-listed companies to improve corporate sustainability practices, including green practices and sustainability disclosures.
RFI Foundation Launches “Responsible Finance – Ethical & Islamic Finance: Meeting the Global Agenda” Report
In Jakarta on 14 November 2019 at the IFSB Summit, the RFI Foundation launched the “Responsible Finance – Ethical & Islamic Finance: Meeting the Global Agenda Report” which investigates similarities between ethical and Islamic finance and provides recommendations to build upon the shared principles which link the two forms of responsible finance.
The Report also outlines important lessons to avoid a repeat of the global financial crisis of 2008 by focusing on forms of financial intermediations that can promote economic, social and environmental sustainability that are strongly anchored to the real economy.
The report provides several potential areas of cooperation including:
- i) Building greater awareness on the potential role of these forms of finance;
- ii) Leveraging on greater use of financial technology; and
iii) Incorporating a more structured approach to build a culture of ethics and trust in financial system.
According to Dr. Zeti Akhtar Aziz, Chairperson of the RFI Foundation’s Council of Advisors and former Governor of Bank Negara Malaysia, who launched the Report, “a framework of cooperation for responsible finance outlined in this Report can support better articulation of the stated intent of both forms of responsible finance. The Report enables a more comprehensive approach to assess the impact of finance and the potential for these forms of finance to contribute to solutions for several of the challenges facing the global economy.”
The report is available for download at www.rfi-foundation.org
Fintech Developments in the GCC
In FinTech developments in November, Bahrain-based Al Salam Bank has partnered with China-based MSA Capital to launch Al Salam-MSA Bahrain Fund I, (MEC Ventures), a US$50 million venture capital fund which will target investment opportunities that put innovative Chinese technologies and business models to work within the MENA region.
MEC Ventures will be the first privately funded and led venture to unify Chinese and Middle Eastern capital and technology markets. According to Al Salam Bank, the Fund will spearhead capital and technology flow & cooperation between the two regions while capitalizing on best practices pioneered in the Chinese tech-industry. Investments by MEC Ventures will cover multiple sectors, including ecommerce, FinTech and an array of technology ecosystem enablers like big data, artificial intelligence and cloud computing as well as logistics and networking systems, leveraging MSA’s proven expertise in the Chinese technology industry.
In Dubai, Wethaq claimed in a statement that it has “launched the first pilot Sukuk on its securities market infrastructure for the Islamic capital market under the supervision of the Dubai Financial Services Authority.” The local Al Ghurair Investments LLC (AGI) acted as the issuer, advised by Mashreqbank PSC acting as lead arranger, R3 as protocol provider, and the Dubai Islamic Economy Development Centre as mentor.
This pilot issuance, said Wethaq, demonstrated how Sukuk issuances can become more accessible with the application of financial technology to the issuance process which is, at present, manual, non-standardised and fragmented. “Wethaq consolidates and automates the agency and infrastructure services required in the entire lifecycle of Sukuk product while enabling transaction participants and their service providers to interact more efficiently through digitized workflows,” explained a Wethaq official to Salam Gateway.
Similarly, Malaysia’s PayHalal, the Shariah-compliant payment gateway of Souqa Fintech Bhd, signed an agreement with Brunei-based Multipro Resources Bhd (MRSB), whereby PayHalal will provide the necessary Shariah-compliant e-commerce platforms for MRSB and its group of companies to operate their diverse investments. These include Halal ventures in the supply chain facilitation, certifications and compliances, financial services, online and offline trade hubs and marketing, as well as marts and convenience stores.