Halal financing is currently growing at a rate of 10-15% per year. It has been suggested that Halal financing is as common now in the UK as conventional finance and soon it may be as American as apple pie. CAMILLE PALDI surveys the Halal financing space.
Currently, there are approximately 500 Halal banks operating in 75 countries around the world. In terms of asset base, the share of the GCC Halal banks constitutes 70% of the global total. Halal banking assets in the GCC reached US$445 billion at the end of 2012. Non-Muslim countries are also tapping into the Sukuk market. For example, Germany issued US$123 million Sukuk Ijarah in 2004 and in 2006, in the US, East Cameron Gas, a Louisiana-based oil and gas company, issued US$167 million Sukuk Musharakah.
General Electric (GE) issued US$500 million Sukuk Ijarah in November 2009 and Goldman-Sachs in New York issued the same in September 2014. In 2014, Luxembourg was the first ‘AAA’-rated government to issue a euro-denominated Sukuk in a EUR200 million (US$213.88 million) five-year Halal bond. Also in 2014, the UK was the first Western nation to issue a GBP200 million (US$305.17 million) sovereign Sukuk, maturing on the 19th July 2019. In 2015, Australia’s SGI-Mitabu issued the first Halal finance offering by an Australian corporate, a AU$150 million (US$108.16 million) Sukuk in Labuan to fund its Indonesian 250 megawatt solar project.
Review of 2015
The first French Sukuk of US$6 million or EUR5.61 million was launched in 2011 in the French fast food sector. In 2012, two more Sukuk were issued in France for both individual and institutional investors.
The Seychelles and Ghana became the first countries in Africa to issue Halal bonds in 2006 and 2007. In 2013, Nigeria issued a US$62 million Sukuk. Senegal raised US$200 million through a Sukuk issuance in 2014. South Africa issued a US$500 million Sukuk in September 2014 which was more than four times subscribed, with an orderbook of US$2.2 billion. Even Gambia and Sudan have issued Sukuk, albeit, for small amounts and on a short-term basis.
The first Sukuk was issued in Japan by Aeon Credit Services in Malaysia in 2007. Next, in 2010, Nomura Investment Company issued Sukuk in US dollars. In 2012, Toyota Motor Corp sold US$88 million of Sukuk in two offers via its unit Toyota Capital Malaysia due for maturity in May 2015. In 2014, Bank of Tokyo-Mitsubishi UFJ (Malaysia) set up a US$500 million multicurrency Sukuk program and is also considering the world’s first yen-denominated Sukuk.
South Korea has taken steps toward entering the global Islamic finance market including tabling legislation, joining various Islamic financial regulatory bodies, preparing for Sukuk issuance and tapping into the London Murabahah Exchange. Several Korean companies including GS Caltex, Korean Air, Hyundai, Samsung and others are exploring the possibility of raising funds from the Sukuk market. South Korean ‘chaebols’ including Lucky Goldstar, Samsung, Korea Shipping and several others have accessed Islamic commodity Murabahah facilities structured through London.
The People’s Republic of China has been taking the steps necessary to facilitate Halal finance transactions in China and Hong Kong to prepare China for competition in the Sukuk, Halal funds and Islamic finance industries. As of January 2015, the government has approved plans to accelerate 300 infrastructure projects valued at US$1.1 trillion or CNY7.03 trillion. Since 2006, seven Sukuk with a value of US$5.8 billion have been listed on the Hong Kong Stock Exchange and there were also two renminbi-denominated Sukuk by Khazanah National and Axiata. Riding on the Sukuk momentum, after Hong Kong’s debut US$1 billion Sukuk, the government of Hong Kong announced another US$1 billion Sukuk offering. In addition, Ninxia Province plans a US$1.5 billion debut Sukuk sale in 2015/2016.
Preview of 2016
The Halal financing boom simply cannot sustain itself without a proper regulatory, accounting, financial reporting, and dispute resolution framework including an Islamic finance dispute resolution center and Islamic finance bankruptcy court. Banks across the industry use different accounting methods and reporting techniques and this leads to confusion, inconsistency, non-transparency, and possibly a misleading representation of the true financial health of the Islamic financial institution. The special nature of Halal banking requires tailored standards in order to promote full disclosure and transparency of the Islamic financial institution. It is recommended that the industry adopt the KFH (Bahrain) Public Disclosure Report as a template for financial reporting to be used industry-wide and that regulations including those for capital adequacy and accounting are tailored to and harmonized across the industry.
Halal financing is booming around the world and is an alternative source of financing. With proper regulation, financial reporting, and dispute resolution, Halal financing has a healthy and vibrant home alongside and in cooperation with the conventional banking system.
Camille Paldi is CEO of Franco-American Alliance for Islamic Finance. She can be contacted at [email protected].