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SME Bank’s Sukuk: Meeting demand for ethical products

Malaysia has added another feather to its Islamic sustainable finance cap as government-backed SME Bank made its sustainability Sukuk debut to overwhelming response, cementing the country’s global lead in the area.

Receiving more than triple its target of RM500 million (US$118.22 million), SME Bank’s sustainability Sukuk Wakalah program, which recorded a final order of RM1.78 billion (US$420.85 million), underscores the latent demand for ethical investments in Malaysia, which accounts for the most corporate socially responsible investing (SRI) Sukuk in the world at 16 offerings as at the start of 2021. The issuance consists of an Islamic medium-term note program worth up to RM3 billion (US$709.31 million) and an Islamic commercial paper program of up to RM1 billion (US$236.44 million), with a combined limit of up to RM3 billion in nominal value.

Without detailing the breakdown of investors, SME Bank Group President and CEO Aria Putera Ismail noted that the local offering was also subscribed by foreign asset managers and had a diverse mix of investors including financial institutions, fund management companies, insurers and government-linked companies. The paper, the first non-government guaranteed Sukuk for SME Bank, was priced at a 3.1% profit rate. Aria attributed the oversubscription to “awareness movements within and outside the country that continue to support a balanced and sustainable development”. Malaysian Rating Corporation awarded the issuance programs ‘AAA’ ratings and also a gold standard for the Sustainability Sukuk Framework.

“With the issuance of the sustainability Sukuk, the bank will now be able to offer more innovative financing solutions for SMEs and continue to play our countercyclical role to ensure their success and becoming the nation’s engine of growth that not only contributes positively to the GDP, creating employment but ultimately, a positive spillover to society and the environment,” Aria commented.

SME Bank, which falls under the Ministry of Entrepreneur Development and Cooperatives, is embarking on a multiphase environment, social and governance (ESG) strategy, with the first stage focusing on building awareness among SMEs through financing facilities. In the second phase, the bank will engage SMEs to educate businesses on utilizing the right financial instruments to meet their ESG needs as well as to apply and integrate ESG elements in their operations.
The offering comes amid greater commitment from the Malaysian financial community to align their financing activities with ESG principles. Maybank recently publicly committed RM50 billion (US$11.84 billion) in sustainable financing and confirmed it will be scaling up its green and sustainability Sukuk/bonds program.

SME Bank’s Sukuk
RM500 million (US$118.22 million)

24th July 2021
IssuerSME Bank
TypeSustainable Sukuk
Profit rate3.1%
Use of proceedsTo finance and/or refinance new or existing asset businesses and projects that promote sustainability
Sole principal advisor and lead arrangerRHB Investment Bank
Joint lead managersAmInvestment Bank; CIMB Investment Bank; Maybank Investment Bank; RHB Investment Bank
Underlying assetsD’Ouince Residences and D’Vervain Residences (development projects)
Rating‘AAA’ by Malaysian Rating Corporation

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