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Sunday, December 10, 2023

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Malaysia’s Budget 2024; biodiversity Sukuk in the works

The Malaysian federal government is looking to issue a RM1 billion (US$209.87 million) biodiversity Sukuk facility, Anwar Ibrahim, the prime minister and finance minister of Malaysia, announced at the tabling of the 2024 national budget. The facility is one of several budget announcements impacting the Islamic sustainable finance space.

Islamic capital markets

According to Anwar, the biodiversity Sukuk will contribute to the replanting of degraded forests, which will be generating carbon credits.

“This replanting initiative will be undertaken in collaboration with interested state governments and will potentially benefit from some of the carbon credits generated,” Anwar shared in the budget announcement.

With the biodiversity Sukuk intersecting the Islamic capital market space and the fledgling Shariah compliant voluntary carbon market (VCM) effort championed by Bursa Malaysia’s Bursa Carbon Market, Abdul Wahid Omar, the chairman of Bursa Malaysia, commended the new budget for its allocations for sustainability with the ecological fiscal transfer for biodiversity conservation funding increased to RM200 million (US$41.97 million) from its RM150 million (US$31.48 million) allocation in 2023.

“We are also encouraged by the government’s support for the development of VCM with [an] additional tax deduction of up to RM300,000 (US$62,959.5) for measurement, reporting and verification expenses related to carbon credit project development,” Abdul Wahid, who is also the chairman of the World Wide Fund for Nature Malaysia and the MySDG Fund, remarked.

Also in the sustainable Sukuk space, the 2024 budget extended the tax exemption to fund management companies that manage SRI funds as well as tax deductions on the cost of issuing SRI Sukuk until the assessment year of 2027.

The incentives for the issuance cost of SRI Sukuk mirrors the 2023 budget, both the finalized budget following the change of government and the initial 2023 budget, which included a tax deduction for the issuance cost of SRI-linked Sukuk for a five-year period.

According to the chairman of the Securities Commission Malaysia (SC), Awang Adek Hussin, the tax incentives will encourage growth in the segment and strengthen the role of the capital market in facilitating businesses and investors to participate in sustainable financing and investment.

Islamic banking

On the banking front, the budget announced that Bank Negara Malaysia and Islamic financial institutions are also advancing an impactful investment pilot program through a broader investment account.

The broader investment account will combine elements of risk-sharing between investors in SDG-based investments and social investments with part of the profits channeled toward social development including financing education for the poor.

Furthering the i-TEKAD Islamic social finance initiative launched in 2020, the new budget included the allocation of RM25 million (US$5.25 million) in additional funds to match grants with financial institutions. According to the government, the program has benefited nearly 4,000 microentrepreneurs since its inception.

Waqf development

Waqf development has been the Achilles heel in Malaysia’s otherwise vibrant Islamic finance ecosystem. In July this year, the SC held a high-level roundtable to discuss the development of the space through the Islamic capital market. Concurrently, it also announced the issuance of the second edition of its Waqf book.

The new budget has reaffirmed the MADANI government’s commitment to Waqf development with the allocation of RM100 million (US$20.97 million) to the Malaysia Co-Investment Fund for a three-year period which, among others, will contribute to State Islamic Religious Councils’ initiatives to develop Waqf assets for health, education and agriculture-based enterprises.

The government also upsized its previous RM200 million allocation announced in April this year to redevelop Waqf lands in the state of Penang through soft loans. The government has increased the funding to RM500 million (US$104.93 million) for 2024 to bring the Waqf land development project nationwide.

Notably, Anwar announced the commitment to establish ‘Wakaf MADANI’ in the 2023 budget. The previously announced initiative was expected to comprise assets in excess of RM1 billion comprising land, mosques, buildings, health and education facilities.

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