Complying with the requirements for issuance of SRI sukuk: the case of Khazanah’s Sukuk Ihsan

Abstract

PurposeThe purpose of this study is to provide a critical review on how the Khazanah’s Sukuk Ihsan was structured in compliance with the requirements for issuance of Sustainable and Responsible Investment (SRI) sukuk set by the Securities Commission (SC) Malaysia. Design/methodology/approachTo explain the structures and features of the Sukuk Ihsan, this study extracted important information from the sukuk’s Principle Terms and Conditions and Information Memorandum and presented them in a simple and easy-to-understand way. Next, this study refers to Part D: Requirement for Issuance, Offering or Invitation to Subscribe or Purchase Sustainable and Responsible Investment Sukuk of the SC’s Guidelines on Sukuk (revised edition: 28 August 2014) to assess the compliance of the sukuk in terms of eligibility of SRI sukuk issuer and SRI projects, use of proceeds, reporting and disclosure and independent assessment on SRI programmes. In addition, this study then compares the requirements stated in the SC’s SRI Sukuk Framework with the International Capital Market Association’s Green Bond Principles (GBP) and the USA’s Social Impact Bond (SIB) Act 2014. FindingsThe present study finds that the definition of eligible SRI sukuk issuer in the Guidelines on Sukuk seems to be more stringent compared to the one provided in the GBP and the US’ SIB Act. Nevertheless, the SRI Sukuk Framework provides a more comprehensive yet precise list of eligible SRI projects, covering both environmental and social aspects, compared to the GBP (which only focuses on broad categories of environmental projects) and also the USA’s SIB Act (explicitly outlines 13 social projects which are aligned with the US Federal Government’s agenda in tackling social illnesses). Indeed, the main difference between the eligible SRI sukuk projects and its conventional counterparts lies in its compliance to Shariah principles. It is also observed that a significant emphasis has been given on SRI legislations in ensuring proper reporting and disclosure provided to the SRI sukuk stakeholders together with critical evaluation on the impacts of SRI programmes provided by an independent assessor. Practical implicationsThis paper contributes towards enriching the literature on the Islamic capital market, particularly on the integration between sukuk and social impacts investing. This paper was intended to highlight the important requirements in issuing SRI sukuk to various stakeholders of the Islamic capital market. Originality/valueThe authors hope to shed some lights on the unique features and structural applications of SRI sukuk and its importance in becoming an effective instrument to raise funds for social agenda of a country by providing a real and practical example.

Socially responsible investment sukuk (Islamic bond) development in Malaysia

“…The SRI sukuk issuer receives capital from a group of investors and the sukuk holder collects intermittent reimbursements, similar to that of regular sukuk. Following terms and conditions, SRI sukuk holders may choose to change their investment into monetary contributions at any time (Noordin et al, 2018).…”

Does Sukuk market development promote economic growth?

“…Islamic finance model is responsible for values as "sustainable, ethical, social and ecological", and these values make the model so different from conventional finance model (Khan et al, 2017, p. 311). In addition, it is thought that Islamic finance model can provide social justice in a society through its profit-sharing approach (Noordin et al, 2018). Although Islamic banking system was born in Muslim countries, this alternative banking system has been seen in Non-Muslim countries for a long time (Usai, 2017).…”

Socially responsible investment (SRI) Sukuk as a financing alternative for post COVID-19 development project

“…The second issuance included a retail portion of 5m. According to Noordin et al (2018), the first Sukuk Ihsan is fully subscribed, and the second issue is oversubscribed, with almost 29% subscribers than the expected unit of 50,000.…”