It is common knowledge that the healthcare sector is one of the largest economic sectors in the world and is constantly expanding over time. However, the cost of this expansion is a concern to many, especially to those who are unable to afford keeping up with the continuous rising costs of medicine, medicinal treatment and medical equipment. The question that then arises is: how can Islamic finance assist in this ever-growing expansion?
Review of 2020
One of the ways it can contribute is through Waqf. A Waqf is defined under Islamic law as “an inalienable religious endowment normally in the form of land or property, the income of which is used for charitable purposes”. It is held in perpetuity, often by a charitable trust, and cannot be sold, inherited or donated. The founder of a Waqf can define who or what will benefit from the endowment. Waqf is an important Islamic aspect, supporting both social welfare and economic development objectives for society and one of the benefits include the building and upkeep of healthcare services and facilities.
An example where Waqf is used for healthcare purposes is where the Johor Corporation (JCorp) in Malaysia made a Waqf donation in the form of shares in three of its subsidiaries. The dividends from these shares support healthcare establishments under several of its corporate responsibility initiatives on behalf of JCorp, namely the Waqaf An-Nur Hospital and chains of Waqaf An-Nur clinics. JCorp quotes that its main objective is to provide healthcare treatments at nominal charges to the general public, without looking at other factors such as ethnicity and/or religion.
One hope is for this initiative to be replicated by other corporate charitable foundations. Any said replication of this would be beneficial for the healthcare industry and for all members of society. In order for Waqf-based healthcare institutions in Malaysia to be well implemented, successful and sustained, it requires not only cooperation from various parties including the government, private sector and civil society, but also a transparency system that directs the administration of these funds. The Waqf sector can be further developed through supportive legislation and policy initiatives by Muslim governments around the world, which should further coordinate an action plan in order to better make use of available Waqf resources.
Very recently, Securities Commission Malaysia (SC) launched the Waqf-Featured Fund Framework. This new framework aims to facilitate the offering of Islamic funds with Waqf features to enable the growth of the Islamic social finance segment. The SC said the new framework will broaden the range of innovative Islamic capital market products and provide the public access to Islamic funds that allocate whole or part of the fund’s returns toward socially impactful activities via Waqf.
Another area where Islamic finance contributes to the expansion of the healthcare sector is via the issuance of Sukuk. Sukuk are ethical finance products to support sustainable, responsible and impactful investments and they are now the fastest-growing element in Islamic finance. In 2019, the IFSB stated that Sukuk have had an annual compound growth rate of up to 30.6% in the last 15 years.
With the ongoing struggle to discover a vaccine for the COVID-19 pandemic, Gavi, the Vaccine Alliance (GAVI) has mentioned that there are more than 100 candidates working on a vaccine and some have entered clinical trials. The Coalition for Epidemic Preparedness Innovations estimates that US$2 billion is required for the mass production and deployment of vaccines currently engineered by a few candidates.
The International Finance Facility for Immunization (IFFIm) is an international organization that finances child immunization and strengthens health systems related to it in some of the poorest countries of the world through GAVI. In 2014, IFFIm issued what it called ‘Vaccine Sukuk’ for a facility worth around US$500 million, the largest debut Sukuk ever issued by a supranational entity. This Vaccine Sukuk brought the concept of socially responsible investing to the Sukuk market. Through its success, an additional Vaccine Sukuk facility worth US$200 million and a private placement issuance worth US$50 million were entered into in 2015 and 2019 respectively. IFFIm had successfully raised more than US$6 billion in the capital market in collaboration with GAVI, with support from countries such as the UK, France and Australia. Such a collaboration had successfully brought Islamic finance and socially responsible investment funds together, when previously they were two distinct markets.
Preview of 2021
Where a national budget is unable to fully support the need for vaccine production and distribution, alternative financing would be key in ensuring that no further burden is placed on a country’s economy. The issuance of something such as the Vaccine Sukuk is very much one of the solutions to procure the said vaccines. There seems to be a sufficient time frame to formulate a Vaccine Sukuk facility until a COVID-19 vaccine is officially available.
As time progresses, we bear witness to how Islamic finance contributes to the development and expansion of the global healthcare sector. In 2017, KPJ Healthcare issued RM800 million (US$195.52 million)-worth of Sukuk notes as part of its RM1.5 billion (US$366.59 million) Sukuk program. The company aimed to use the proceeds raised from the Sukuk notes for Shariah compliant purposes including to refinance or partially refinance its existing outstanding facilities. The refinance includes a bridging loan facility and advances to the company to finance the working capital requirements of the KPJ Group’s healthcare and healthcare-related businesses.
In addition to this, Sinmah Capital in 2019 marked its venture into the healthcare space as it set out to build Malaysia’s first full service integrated public–private university hospital. In order to raise its captital expenditure, Sinmah planned on issuing a Sukuk program to raise up to RM500 million (US$122.2 million). Very recently in September 2020, Bank Islam Malaysia had additionally announced its target to provide RM1 billion (US$244.4 million) in financing to healthcare professionals in the year ahead through collaborations with healthcare associations in a bid to provide total banking solutions to complement the needs of the healthcare associations.
New forms of financing are also being explored such as Islamic equity investments. An example would be Sun Life Malaysia Takaful and its Islamic equity fund which aims to achieve consistent capital appreciation over a medium to long term by investing in equities and other approved investments, which harmonize with Islamic philosophy and laws. Currently, almost 14% of its fund worth RM21.26 million (US$5.2 million) is being allocated to the healthcare sector.
With the ongoing COVID-19 pandemic, it offers Islamic finance an opportunity for a more integrated and transformative growth with a higher degree of standardization, stronger focus on the industry’s social role and meaningful adoption of financial technology (fintech). As we observe how Islamic finance continues to evolve in contributing to the healthcare sector, coordination between different stakeholders is key to the industry leveraging these opportunities for sustainable growth and expansion.
Mohamed Ridza is the managing partner of Mohamed Ridza & Co. He also sits on the board of several public companies involved in Islamic banking and finance, healthcare, technology and real estate. He can be contacted at [email protected]