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MALAYSIA:
Institutional-sized businesses in Malaysia plan to replace 28.8% of their
conventional bank debt with Shariah compliant alternatives in the next 12
months, according to a groundbreaking study from specialist market
research firm East & Partners Asia (East) and REDmoney Group, the
parent company of Islamic Finance news.
The pioneering study also found that over the same period, Malaysian
institutions plan to replace 22.1% of their bond offerings with Shariah
compliant Sukuk products.
The first round of East’s bi-annual research program interviewed over 700
corporate borrowers and issuers in Malaysia and Indonesia in October,
with chief financial officers and corporate treasurers detailing the
current penetration of Shariah compliant products, with forecasts for the
next 12 months.
The research is part of East’s Asia Corporate Islamic Finance Markets
Program and it is the first ever demand-side research program regularly
monitoring and forecasting the Shariah compliant business banking markets
of Malaysia and Indonesia. It looks at product engagement by the private
sector, market share and wallet share among providers and also at
customer satisfaction levels, competitor by competitor for the delivery
of Shariah compliant products. It also details drivers for engagement,
and barriers.
The research found that, due to the support of Bank Negara Malaysia,
Shariah banking penetration among private sector companies in Malaysia
was significantly higher – as a percentage of assets and debt – than
Indonesia.
Institutional-sized businesses in Malaysia, for example, report that
Shariah compliant financings comprise 18.8% of their total loans,
equivalent to an average balance of US$1.33 billion. In Indonesia, in
comparison, the percentage is 7.8%, although the market average total
loan balance is US$1.89 billion. As a percentage of outstanding bonds,
Sukuk comprise 26.6% of outstanding bonds issued by Malaysian corporates.
In Indonesia Sukuk represent 7.2% of outstanding bonds.
The research shows that institutional-sized businesses are much more
engaged with Shariah compliant products than smaller corporate businesses
and SMEs, but these two segments also plan to significantly increase with
engagement in the next 12 months, particularly with debt products.
Darryl Ye, East’s senior analyst in Singapore, said major banks were
“racing to keep up” with the uptake of Shariah compliant products by
private sector businesses. “Even the Japanese and other non-regional
international banks are responding to what is now a major component of
the region’s banking landscape,” explained Ye. “Along with sovereign
Sukuk issuance, which drove over US$7 billion issued in September alone,
Shariah compliant finance has significant momentum in key Asian markets
and is here to stay.”
Lachlan Colquhoun, CEO of East, welcomed the inaugural research as a
significant contribution to coverage of the growing Shariah markets.
“This research is the first of its kind, and it is the first time that
the demand-side private sectors of Malaysia and Indonesia have been
interviewed with such rigor and detail,” noted Colquhoun. “It also shows
that while institutional-sized businesses are leading the way, the
corporate and SME segments are also deepening their engagement with
Shariah compliant products as education around these offerings starts to
reduce engagement barriers. Much work still needs to be done, however, in
mid-corporate and SME understanding of Islamic finance solutions and just
how they add to the enterprise’s overall debt funding.”
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