This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on Feb 22 - 28, 2016.

I hope that it is not too late to wish the readers of The Edge a Happy New Year 2016! A new year usually means a fresh start and that is what I am hoping for.

In the sukuk market, there was a lot of optimism for 2015. Some quarters even predicted that the total sukuk issuance for the year would reach US$145 billion. However, the total sukuk issuance for last year fell short of 2014’s US$43.5 billion. 

The major factors that contributed to this include the significant fall of crude oil prices, the decline of commodity prices and, of course, the lower value of the ringgit. Malaysia, being the largest sukuk market in the world, reported a considerable decline in sukuk issuances as both issuers and investors wanted to avoid an uncertain market.

Instead of dwelling on the negative, let us focus on the positive. All is not lost. As the saying goes, there is a silver lining in every cloud. So, I am happy to share that the sukuk market continued to be the hallowed ground for innovation and I am very proud to note a few first-of-its-kind issuances that took place in 2015.

First, let us take a look at Khazanah Nasional’s Socially Responsible Investment (SRI) sukuk issuance. The first ringgit issuance of its kind the world, the RM100 million sukuk was fully subscribed. The proceeds from the sukuk will be used by one of Khazanah’s not-for-profit units to run the Trust Schools Programme, an initiative with the objective of improving the quality of education in government schools. 

Khazanah pushed the boundaries of sukuk innovation by including the SRI feature that will compel sukuk investors to take a reduction of 80 basis points in the last two years of the sukuk’s tenure should the Trust Schools Programme meet its objectives by the fifth year. 

This is the reverse of the SRI bonds that are currently in the market, where investors start with a lower yield and are rewarded with further yield if the project achieves success. It was a bold move indeed and paid off handsomely when investors continued to buy into the sukuk despite a potential decrease in yield.

Khazanah’s efforts have proved that there are shariah-compliant investors out there with a specific SRI remit. My hope is that this issuance will serve as an eye opener for more shariah investors to allocate some of their assets in shariah-compliant instruments that also serve as an SRI conduit into meaningful programmes that are meant to benefit society.

Another notable issuance in 2015 was the International Finance Facility for Immunisation Company’s (IFFIm) successful second sukuk. 

IFFIm raises money from the capital market on behalf of GAVI — a global vaccine alliance whose mission is to help developing countries introduce potentially life-saving vaccines and strengthen health systems.

IFFIm tested the sukuk market in 2014 by issuing a US$500 million paper, which was well received. Last year, it issued its second sukuk — a US$200 million paper — and again, the market responded positively. The success of both issuances proves that there is a real convergence between shariah-compliant and socially responsible investing. 

In addition, IFFIm’s sukuk have paved the way for many green and socially responsible fund managers to invest in sukuk for the first time. In both cases, the innovative offerings led to the creation and affirmation of a new asset class in Islamic finance. 

To have Islamic finance appeal to a larger audience has always been the goal of many practitioners in the market, but to see it come true has truly been a privilege. Hopefully, the players in the sukuk market will take their cue from these issuances and create more exciting structures that will not only benefit investors but society as a whole. 

Onwards and upwards in 2016!

Baiza has 16 years of experience in various sectors of the Islamic finance industry, particularly in research and development. He is currently with Maybank Asset Management Group. The views expressed here are his own.

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