In a recent interview, respected Islamic finance practitioner Daud Baker who serves on the Shariah Advisory Council at the Malaysian Central Bank, Bank Negara stated the global community is looking to Malaysia to lead in innovation.

Recent Sukuk Issue Used Innovative Structure

Citing the example of Malaysia’s recent Sovereign Sukuk issue which used an innovative structure under the Shariah principle of Wakala. The underlying assets for the offering comprised of 100% non-physical assets, namely, vouchers representing entitlement to a specified number of travel units and Shariah compliant shares.

The unique combination of underlying assets represented a major breakthrough in sovereign Sukuk, being the first time a sovereign has accessed the global Sukuk market without utilizing physical assets (such as land and buildings) or Commodity Murabaha. This innovative Sukuk structure paves the way for other sovereigns to follow and overcome traditional hurdles of issuers not having enough physical assets to securitize.

Mega Bank Mandate Questioned

During the interview Daud Baker was cautious on the prospects of an Islamic Mega Bank in Malaysia citing issues around higher capital, though added if any Islamic mega bank was to be cross border and a regional player then it would be of value to Malaysia.