A group that’s raised $4.5 billion for child vaccinations since its inception in 2006 plans to tap the Islamic debt market for the first time, kickstarting sales of ethical-based sukuk.
seeks to sell as much as $500 million of dollar-denominated Shariah-compliant notes, Michael Bennett, head of derivatives and structured finance at the World Bank’s treasury department, the intermediary for the sale, said in a Sept. 3 interview in Kuala Lumpur. IFFIM, a non-profit organization based in London, will sell the three-year vaccine bonds backed by commodities as early as this month, he said.
The World Bank pioneered issuing green and socially responsible bonds in 2008 and has sold $6.4 billion of the debt on its own behalf in the conventional market, according to its website. The IFFIM’s initiative coincides with the introduction of Malaysian regulations last month to promote offerings of such securities along Shariah guidelines to boost product options in the $2 trillion global industry.
“Socially responsible investing is already a buzzword in the conventional fixed-income space,” Badlisyah Abdul Ghani, chief executive officer of CIMB Islamic Bank Bhd., a unit of CIMB Group Holdings Bhd., said in a Sept. 5 phone interview in Kuala Lumpur. “It’s natural for the Islamic finance market to catch up.”
France DebutEthical or green sukuk aren’t governed by any industry standards and don’t need a separate endorsement from an Islamic scholar, Badlisyah said. As long as the funds raised are for socially responsible investments and don’t contravene Shariah principles they are seen as ethical, he said.
IFFIM, whose nine donors include the U.K. and France, will supply vaccines to some of the world’s poorest nations using the bond proceeds, Bennett said. The sukuk will be of the Murabaha type and are rated AA by Standard & Poor’s, the third-highest investment grade, he said. Standard Chartered Bank and National Bank of Abu Dhabi are the arrangers.
A Murabaha contract refers to a three-party arrangement, where a customer places an order with a financial institution to purchase goods from a supplier that are then sold to the client at a mark-up. The first green Islamic bonds were issued in 2012 by ’s Legendre Patrimoine and Anouar Hassoune Conseil and termed the ‘Orasis Green Sukuk.’ The debt was backed by renewable energy assets.
IFFIM has sold conventional bonds in Australian dollars, South African rand, Brazilian real and Turkish lira, as well as floating rate U.S. dollar notes, according to data compiled by Bloomberg. The 3.1 percent securities denominated in the Australian currency and maturing in July 2017 yielded 4.46 percent yesterday, up 19 basis points for the quarter.
Pledges from donor countries spread out over a number of years are used to repay IFFIM’s bonds, according to its website.
‘Growing Awareness’Malaysia and Dubai are leading the way in developing the green financing market in accordance with religious tenets, a June report on the International Islamic Financial Centre’s website shows. The Southeast Asian nation’s ethical initiatives come under three groups encompassing green technology financing, socially responsible investment sukuk, and environmental, social and governance.
The Dubai Supreme Council of Energy and the World Bank have joined hands to design a funding strategy for the sheikdom’s investment program using green bonds and sukuk, according to the MIFC’s 2014 report.
Shariah-compliant bonds fit well with the socially responsible theme because Islam emphasizes the need to preserve the environment, according to RAM Ratings Services Bhd., the bigger of Malaysia’s two credit assessors.
“Issuance of green sukuk is expected to rise as there is growing awareness of environmental preservation,” Zakariya Othman, head of Islamic ratings at RAM Ratings, said in a phone interview in Kuala Lumpur yesterday. “Malaysia can play a pivotal role given that it has established rules on such debt.”
More EffortWhile the Southeast Asian nation is well positioned as the world’s biggest sukuk market to lead the development, it needs to do more, CIMB’s Badlisyah said. The government and private sector should start a fund dedicated to buying ethical-based sukuk to encourage more issuance, he said.
Global sales of bonds that comply with Islam’s ban on interest increased 40 percent to $30.4 billion in 2014 from a year earlier, after reaching $43.1 billion last year and a record $46.5 billion in 2012, according to data compiled by Bloomberg. In Malaysia, offerings climbed 82 percent to 43.9 billion ringgit ($13.8 billion).
‘Stepping Stone’IFFIM funds immunization programs through Gavi, the Vaccine Alliance, which since it started in 2000 has helped prevent more than 6 million future deaths and protected 440 million children, the organization’s website shows. Gavi members include the World Health Organization, the World Bank and the Bill & Melinda Gates Foundation.
“The IFFIM sukuk will provide product diversification for Islamic funds,” Mohamed Azahari Kamil, chief executive officer at Asian Finance Bank Bhd. in Kuala Lumpur, said in a phone interview yesterday. “The development of socially responsible investments in the global arena also provides a stepping stone for Islamic issuers to come out with such structures.”