Top Sukuk arranger seeks South Asia partners as momentum shifts

[KUALA LUMPUR] The world's biggest Islamic bond arranger plans to venture into South Asia as it seeks to capture more business beyond its traditional base in Malaysia.

CIMB Islamic Bank is exploring opportunities in retail and corporate Shariah-compliant services in Bangladesh, India, Sri Lanka and Pakistan, and will form joint operations with local partners after 2018, Chief Executive Officer Rafe Haneef said in an interview. The bank's home market currently contributes 90 per cent to its revenue, he said in Kuala Lumpur.

South Asia is largely uncharted territory in the US$2 trillion Islamic finance industry, despite having some of Asia's largest Muslim populations. Pakistan is the only regular issuer of Islamic bonds.

Past efforts by India to introduce Shariah- compliant regulations have met with opposition from lawmakers, Sri Lanka's plans have stalled and Bangladesh has yet to conclude its debut global sukuk sale after announcing an intention last September.

"The momentum will have to be beyond Asean," said Mr Rafe, the former CEO of HSBC Amanah Malaysia. "Frontier markets give a huge upside on profitability. There is huge potential in these markets."

INDIA'S COMMITMENT

A committee from the Reserve Bank of India recommended in December that branches of commercial lenders should be allowed to open booths offering interest-free loans and demand deposits. That's the second time such a proposal has been made.

A panel of experts headed by Raghuram Rajan, who will be RBI chief until September, suggested in 2008 that India should introduce Islamic banking. Attempts to amend legislation for sukuk have also failed amid opposition from Hindu nationalists.

The country does have two Shariah equity funds run by Taurus Asset Management Company and Tata Asset Management. Cheraman Financial Services Ltd. began offering services including leasing and private equity in 2013.

Sri Lanka's government announced in 2010 that it would grant Islamic financial transactions equal tax treatment, paving the way for a sukuk offering, although there hasn't been any progress.

While Bangladesh has issued about US$15 million of local-currency Shariah-compliant bonds, Islami Bank Bangladesh is the only company to have sold such debt.

"Islamic finance is still a complex industry and these countries still have a relative gap in human capital and the technical expertise necessary for development of the sector," said Khalid Howladar, the global head of Islamic finance at Moody's Investors Service in Dubai.

"Long-term prospects are strong for Bangladesh and Pakistan given the Muslim-majority population and the increasing religious sensitivities of the population."

BLOOMBERG