The global Islamic finance sector hit a milestone in 2022, with total sharia-compliant assets growing by 9.4% to pass the $3tn mark, according to S&P Global Ratings. Broadly similar growth is anticipated in 2023/24, thanks to solid growth among Islamic banks in the Gulf Co-operation Council (GCC) and a healthy sukuk market.
The Middle East continues to underpin growth in the global Islamic banking sector, with GCC countries responsible for 92% of the growth in sharia-compliant banking assets for the year, according to S&P. Saudi behemoths Al Rajhi Bank and Saudi National Bank posted strong gains in 2022 on the back of the country’s booming mortgage market and funding for projects linked to the Vision 2030 economic development programme. Yet the year was especially notable for Kuwait Finance House’s acquisition of Bahrain’s Ahli United Bank, which saw the former’s sharia-compliant asset base increase by 70%, making it the third-largest Islamic lender worldwide.
But while the headline numbers provide a snapshot of the industry’s overall health, they can never do justice to the impressive levels of innovation displayed by the world’s Islamic banks in a range of very different contexts, including developing market contexts in Asia-Pacific, the richer economies of the GCC and non-majority Muslim societies.
For this reason, The Banker’s Islamic Banking Awards are taking a more granular approach in 2023, in a bid to celebrate innovation across individual sharia-compliant banking activities at both the retail and corporate levels, while also recognising the best Islamic banks on a regional and global level as selected by an international panel of judges.
For the first time, these awards celebrate excellence and innovation in retail banking, including in sub-categories of sharia-compliant card, mortgage and saving products. Such awards recognise excellence by banks across very varied geographies, including sharia-compliant products that have found favour with non-Muslim consumers.
As with their conventional finance counterparts, such services are almost entirely being delivered via online and mobile channels, as recognised by the Excellence in Islamic Digital Banking award. Such innovation extends beyond retail channels and bank-end operations into sharia-compliant corporate banking, trade and supply chain financing.
Sukuk issuance continues to be one of the key drivers of the growth of Islamic finance worldwide, second only to Islamic banking assets. While S&P forecasts issuance volumes to diminish in 2023, new issuances during the year are likely to exceed maturing sukuk. Structures continue to develop and innovate for Islamic financings in core and non-core markets, as recognised by awards for sukuk and murabaha innovation.
A key area of this innovation is within the environmental, social and governance (ESG) space, given the important crossover between the growing ethical and sustainable concerns within conventional finance, and the precepts underpinning Islamic finance.
With ESG concerns becoming a more prominent feature of global banking and finance in recent years, increased attention is being paid to the overlap of such standards with those set out in Islamic financing. One of this year’s most hotly contested prizes was the Innovation in Islamic ESG award, with entries highlighting impressive advances across the spectrum, from innovative funding structures to ethically and environmentally themed products for retail investors.
Global and Asia-Pacific Islamic Bank of the Year
Winner: Meezan Bank
Meezan Bank is the first Pakistani lender to win The Banker’s Islamic Bank of the Year award, in recognition of the lender’s all-round strong performance in the midst of challenging economic conditions, leading the way in one of the world’s fastest growing Islamic finance markets.
After several years in the shadow of Malaysia and Bangladesh, Pakistan — home to the world’s second-largest Muslim population after Indonesia — is now home to one of the world’s fastest growing Islamic finance markets, with banking assets growing by around 40% a year in local currency terms.
While the government’s aim of making the country’s entire banking system sharia-compliant by 2027 looks unlikely to succeed — particularly given the deterioration of the country’s economy over the past 12 months — Islamic banking is surging in the country, with sharia-compliant assets rising from 17% to 20% of total banking assets in the year to September 2022.
The judges were impressed by Meezan’s strong financial performance in 2022; the bank reported a 31% rise in Islamic financing and related assets, and a 59% rise in profit after tax, with return on equity clocking in at 44.6%. The non-performing loan ratio improved from 1.9% to 1.3% during the year, despite the worsening economic conditions in the country.
Despite its digital successes, Meezan continues to expand its branch network
Fee, commission and other income grew by 43% to Rs14.6bn ($52m), led by an increase in debit cards, trade and branch banking related income. Deposits grew by 14% to Rs1.66tn during 2022 — compared with a 7% rise across the banking sector as a whole — including a 23% increase in current accounts.
The judges also noted Meezan’s product launch schedule over the past year, with several services launched that would not look out of place in more developed banking markets.
The bank was particularly active on the digital front. New services including Wisaaq (the country’s first digital supply chain financing platform), Meezan Digital Account (enabling customers to open accounts online without branch visits), and the bank’s merchant acquiring business helped secure Meezan The Banker’s Excellence in Islamic Digital Banking award for 2023, which also recognises the bank’s strong performance of its Roshan Digital Account business.
Despite the bank’s digital successes, Meezan continues to expand its physical branch network, with 62 new branches opened across the country during 2022.
Beyond its financial and digital success, the judges also commended Meezan for its widespread commitment to sustainability across multiple areas, including green energy financing, affordable housing, improved financial literacy and reducing the gender gap in access to finance.
The bank is one of the most active in Pakistan in supporting the State Bank of Pakistan’s Islamic Finance Facility for Renewable Energy scheme, having secured renewable energy mandates worth $272m for solar and wind projects with a combined capacity of more than 200 megawatts.
Meezan is working with the Pakistan Mortgage Refinance Company (PMRC) to support and promote affordable Islamic housing finance. The PMRC is providing concessional funds to the bank via a musharakah agreement, enabling it to provide sharia-compliant options to lower-income customers looking to acquire property. As of December 31, the bank had financed 1393 housing units worth more than Rs6.6bn as part of the Mera Pakistan Mera Ghar low-cost financing scheme.
Under the female inclusion initiative of the State Bank of Pakistan, Meezan is also providing housing finance at preferential rates to female customers. More than 200 female customers have taken advantage of the bank’s Easy Home financing scheme, which has provided facilities worth more than Rs1.2bn. Other initiatives targeting female customers include the bank’s Women First — Car Ijarah product for vehicle financing.
During 2022, the bank enhanced its outreach into rural areas via its ‘Kissan Baithak’ programme, involving workshops on financial literacy, education about Islamic banking and better agriculture farm management techniques. The programme delivered 31 sessions to 2418 farmers during the year.
Islamic Retail Bank of the Year
Winner: CIMB Islamic
Banks in Malaysia have been world leaders for many years when it comes to the development of sharia-compliant products and services for retail banking customers. In an increasingly developed sector, the country’s lenders have been obliged to keep innovating to retain a competitive edge, working with and competing against a rising number of Islamic fintechs.
In an extremely competitive category, CIMB Islamic — the country’s second-largest sharia-compliant lender — has been crowned as 2023’s Islamic Retail Bank of the Year, in recognition of its strength in digital innovation, product development and sustainability offerings.
A highlight for the year on the digital front was CIMB’s Auto Dealer app, launched for Islamic and conventional finance customers in July 2022. The app is the first of its kind to be offered by a Malaysian bank, and enables automotive loan and financing approvals within one minute of the full submission of required documents. Using the app, car dealers nationwide in Malaysia can submit financing applications anytime and anywhere, with a real-time submission tracking feature that updates dealers on the status at every stage of the process.
A highlight for the year on the digital front was CIMB’s Auto Dealer app
After achieving success in both Malaysia and its wider Asia-Pacific footprint via its CIMB Clicks app over the past 15 years, the bank took a major step forward in 2022 with the launch of its new Octo app in August, marking the next phase of its digital-led banking experience. Supported by a new tech stack and operational infrastructure, the app offers increased security and customisation capabilities, including reminders for bills and other transactions, card controls and activations, and educational user guides.
At the same time, the bank strengthened its security features, moving from SMS transaction authorisation code (TACs) to SecureTAC authorisation for transactions of RM100 ($22.2) and above, and implementing a self-service ‘kill switch’ feature in its Octo Clicks apps, enabling customers to immediately freeze their online banking ID in-app — the first time the feature has been offered in Malaysia.
CIMB Islamic’s other recent digital innovations include the launch of Google Wallet in November. The bank ran a cashback campaign in the first three months of the service’s launch offering, offering RM10 cashback on one contactless purchase over RM100 per month, made with CIMB Bank Mastercard credit card via Google Pay.
Beyond the digital realm, CIMB Islamic remains a dominant player when it comes to sharia-compliant investment accounts in Malaysia, with a 42% share of the country’s consumer term investment account-i market.
CIMB Islamic continued to develop its range of sharia-compliant wealth management offerings via a series of new product launches in 2022. The bank launched Manulife Sharia Global Reit, an Islamic unit trust fund, enabling customers to invest in sharia-compliant real estate investment trusts globally, with a view to providing regular income and capital appreciation.
The bank also launched its callable Islamic fixed rate (CIFR) product in July 2022. CIFRs are deposit certificates that are linked to various investment themes where investors have the preference of depositing their capital for a pre-agreed tenor. CIFR provides potential profits while limiting the risk of the principal/capital invested.
On the sustainable front, CIMB Islamic continues to achieve success via its EcoSave Savings Account, launched more than a decade ago. Account acquisitions for the product grew by 28% in 2022, thanks to initiatives including the launch of a new microsite platform hosting links to the green financing projects backed by the product, and increased visibility on both traditional media and social media channels during 2022. The bank onboarded two new partners to the scheme and disbursed more than RM1.9m to green projects in 2022.
Islamic Bank of the Year — Middle East
Winner: Qatar Islamic Bank
Despite the dynamism displayed by sharia-compliant lenders in Asia-Pacific, the Middle East remains the dominant geographic bloc within the Islamic finance world, thanks in particular to the mega-lenders of Saudi Arabia and the United Arab Emirates.
Yet it is Qatar Islamic Bank (QIB), the region’s fifth-largest lender by sharia-compliant assets, that receives this year’s Islamic Bank of the Year award for the Middle East, its second consecutive regional award, in recognition of innovation within both the digital realm and the savings space, in addition to the strides forward it has taken as regards its sustainability strategy.
QIB was the first Islamic lender to launch operations in Qatar in 1982. While its sharia-compliant asset base dipped by 5% in 2022, QIB remains the country’s largest Islamic lender, second only in size to Qatar National Bank, and recorded the best return-on-capital and cost-to-income ratios for the country over the past year. After nudging up in 2021, non-performing loans improved from 1.8% to 1.5%.
The bank continues to notch up impressive achievements within its digital product offering. Perhaps the highlight of the year was the April 2022 launch of the country’s first digital credit card, available via the QIB Mobile app. To celebrate the offering, QIB offered customers 10,000 bonus Absher reward points upon using the new card for the first time, with cashback offers of between QR500 ($137) and QR2000 for online purchases during the first three months of the product’s launch.
In 2022, QIB saw a 20% increase in total transactions carried out via its app
QIB also upgraded its mobile app with features including its Easy Payment Plan, enabling cardholders to convert transactions into easy instalments, offering increased financial flexibility, and offered Google Pay and Samsung Wallet to its customers from August and November respectively. The bank also upgraded the look and structure of its QIB Corporate app for business customers, allowing users to verify and authorise transactions according to the set and agreed role by the authorised person in charge.
In 2022, QIB saw a 20% increase in the number of users of QIB Mobile, with a 48% rise in total transactions carried out via the app. For key retail products, such as personal financing and credit cards, digital sales via the app contributed more than 50% of total sales volume.
Branch transactions meanwhile have fallen by 44% since the beginning of 2020. Yet the bank remains committed to maintaining its branch network, opening branches in the Place Vendome mall in September and the QatarEnergy district in the West Bay area of Doha in October.
On the product front, the bank launched its Flexi Certificate of Deposits (Flexi CD) offering in March 2022, enabling customers to make partial withdrawals from the initial amount deposited, and to continue to earn profit on the remaining amount. The product is issued as an investment mudaraba product, allowing retail customers to collect profits by the end of each quarter and to make early and partial redemptions during the tenor of their Flexi CD.
Another first of its kind product that QIB launched to meet customers’ demands and offer them more flexibility was the Growing Deposit, a recurring, unique deposit account that enables customers to place an amount of their choice each month and save money with ease. Growing Deposit, launched in November 2022, gives more flexibility to deposit holders as they can choose to place a fixed amount each month for a period ranging from two to 10 years in Qatari riyals and/or US dollars.
QIB’s plans towards improving its environmental, social and governance (ESG) credentials continued throughout 2022, with the publication of its second annual sustainability report in accordance with Global Reporting Initiative standards. The bank’s ESG risk rating, assessed by Sustainalytics, improved by 10.1 points in 2022, and its ESG score in the corporate sustainability assessment undertaken by S&P Global went up by 16 points.
In September, QIB signed an agreement with Qatari start-up Loop Mobility, the country’s first e-scooter provider sharing app, to encourage the public to use eco-friendly alternatives to personal cars outside of the country’s summer months.
Islamic Bank of the Year — International
Winner: HSBC
Now in its seventh decade and despite early universalist aspirations, the modern Islamic finance industry remains a largely parochial phenomenon.
While Islam itself has long been a global faith, sharia-compliant financing remains almost exclusively a Middle Eastern and Asia-Pacific phenomenon.
The Banker’s 2022 Top Islamic Financial Institutions rankings confirmed that the lenders in the two regions account for 97% of total sharia-compliant assets worldwide. Europe, the next largest market, accounts for 1.8% of the total asset base, largely thanks to activity in Turkey, home to the world’s eighth largest Muslim population.
Now, 11 years on from the closure of its Amanah Islamic retail window in the UK, HSBC is this year’s winner of the Islamic Bank of the Year award in the international category. The bank historically has been one of the key institutions in the spread of Islamic financing beyond the sector’s heartlands, with several notable examples recorded during the review period.
HSBC’s credentials in the international Islamic financing space are long established; in 2002 the bank was the sole bookrunner on the government of Malaysia’s $600m five-year sukuk, one of the first global sovereign sukuk issuances.
Yet, it was a series of issuances in 2014 that truly sealed HSBC’s Islamic financing reputation on the international stage beyond Malaysia and the Gulf.
HSBC acted as joint global manager and book runner for Egypt’s $1.5bn three-year sukuk, its first ever Islamic debt issuance
The year saw the bank act as sole structure advisor, joint lead manager (JLM) and bookrunner for the UK government’s five-year £200m sukuk, the first sovereign sukuk issued outside the Islamic world; JLM and bookrunner for the Hong Kong government’s $1bn five-year sukuk; and JLM and joint structure advisor for the €200m five-year sukuk issued by the Grand Duchy of Luxembourg.
While past performance is not indicative of future performance, the judges noted three key international financings during the review period that helped the bank secure its international crown for 2023.
The first transaction was a $3bn sukuk issuance by Turkey in February 2022, the country’s largest single sukuk issuance to date and the largest sukuk issuance outside the Gulf Co-operation Council, with HSBC acting as joint lead manager and bookrunner. Despite financial turmoil in the country, the order book for the issuance hit nearly $11bn, attracting more than 200 regional and international investors. Around two-thirds of the certificates were bought by Middle Eastern investors, with US offshore accounts, UK, European and Asian investors also participating.
In February 2023, HSBC also acted as JLM and bookrunner for Egypt’s $1.5bn three-year sukuk, its first ever Islamic debt issuance. Once again, the order was four times oversubscribed, with strong demand from Middle Eastern investors in particular, despite the significant financial uncertainty in the country since the value of the Egyptian pound collapsed last year.
The issuance was the first salvo of the country’s newly established $5bn sukuk programme, with its yield roughly in line with that of the country’s conventional bonds with similar maturities.
HSBC’s participation in the Turkish and Egyptian issuances is significant in that the two countries are seen by S&P as leading issuers outside of the core markets of Asia-Pacific and the Middle East in the year to come.
Thirdly, HSBC acted as joint global coordinator and book runner in February 2023 for a $1.5bn, first-of-its-kind project sukuk issuance by TMS Issuer Sarl (which in turn forms part of a $4.5bn issuance together with BlackRock-subsidiary GreenSaif Pipelines Bidco Sarl) for the refinancing of the bridge facility entered into in connection with GreenSaif’s acquisition of a minority stake in Aramco Gas Pipelines. The landmark structure used a proportion of GreenSaif’s shares in Aramco Gas Pipelines as the underlying asset in a wakala-murabaha structure.
Most innovative Islamic card product
Winner: Dukhan Bank
Amid strong international competition, The Banker’s award for the most innovative Islamic card product for 2023 goes to Qatar’s Dukhan Bank, in recognition of its pioneering digital prepaid card launch.
Last year was a landmark one for Qatar, which became the first Arab state to host the Fifa World Cup in November and December, attracting record numbers of global visitors to the country.
In a bid to capitalise on the opportunities offered by the event, Dukhan Bank, the country’s third-largest Islamic lender, launched a series of prepaid cards in June 2022, marketed to both Qatari residents and visitors to the country.
Dukhan Bank launched a series of prepaid cards in June 2022, marketed to both Qatari residents and visitors to the country
The judges were particularly impressed by the rollout of digital prepaid cards, with Dukhan becoming the first Qatari member of Mastercard’s Digital First programme. Participation in the scheme enabled the bank to roll out Mastercard digital prepaid cards within a comparatively short time frame via its existing Dukhan Mobile app, with an easy and quick application process.
“Our customers expect the most advanced banking technology in the market, and introducing this innovative technology adds to Dukhan Bank’s range of advanced payment solutions, which offer an unprecedented digital banking experience,” says Talal Ahmed Al-Khaja, Dukhan’s chief marketing and communications officer.
Membership of Mastercard’s programme has also enabled Dukhan to issue numberless physical cards, providing protection from theft of personal and financial information, for in-store payments. The bank’s card offerings for the past year also included a limited-edition Fifa World Cup Visa prepaid card offering 5% cashback on spending until the end of the year.
The digital prepaid card launch was one of a series of significant digital upgrades offered by Dukhan in 2022. Services launched during the year included direct remittances to India, new private banking features, and the launch of the Dukhan Pay platform, enabling contactless payments with Apple, Fitbit and Garmin Pay. The bank was also among the first in the country to offer payment services via Google Pay and Samsung Pay in August and November, respectively.
Most innovative Islamic savings product
Winner: Al Rayan Bank
The Banker received several impressive case studies for this year’s award for Most Innovative Islamic Savings Product, including offerings centred on sustainable investments, as well as accounts targeted at women, children, parents and other segments.
Amid strong competition, this year’s award goes to the UK’s Al Rayan Bank, in recognition of the lender’s successful strategy shift towards the deposits market, which has seen it gain ground among both Muslim and non-Muslim customers.
The oldest and largest fully licensed Islamic bank in the UK, Al Rayan changed strategy in 2022, shuttering its last physical branch in August and shifting its focus to areas including commercial real estate, premium banking and fixed deposits. Al Rayan has subsequently carved out a healthy niche as a digital player, with more than 40,000 customers making 280,000 payments via its digital banking app.
More than 40,000 customers made 280,000 payments via Al Rayan Bank’s app
The bank found success in 2022 with its Everyday Saver 3 (EDS3) account, launched in July, which has grown to become its most popular savings product. An instant-access account that offered market-leading rates at the time of launch, EDS3 has attracted more than 10,000 customers, with the majority joining the bank for the first time.
The success of EDS3 is representative of a new approach taken by Al Rayan and other UK’s lenders, whereby products are marketed to ethically minded investors across the faith spectrum, as well as Muslim customers.
“When devising savings products, we know that consumers are increasingly looking for an ethical, responsible way to save,” the bank told The Banker in a statement.
“We initially set out to enable British Muslims to access all the benefits of a savings account without compromising their faith, but our ethical proposition has meant our savings products appeal to customers of all faiths and none.”
Most innovative Islamic mortgage product
Winner: Maybank Islamic
Malaysia’s Maybank Islamic has been one of the most successful and innovative sharia-compliant lenders for several years, across multiple verticals ranging from investment banking to retail banking products.
The bank is the recipient of the 2023 award for Most Innovative Islamic Mortgage Product in recognition of its Home2U home financing scheme, the first digital product of its kind to be offered within an integrated banking app.
Launched in March 2022, Home2U offers financing of up to 105% for first-time buyers, with the bank looking to attract those that had delayed home purchases during the Covid-19 pandemic. Developed in-house, the service is capable of providing funding approval within 10 seconds of completing an application.
Launched in March 2022, Maybank Islamic’s Home2U offers financing of up to 105% for first-time buyers
Maybank Islamic granted RM841m ($188.5m) worth of approved Islamic mortgage financing to 2841 applicants via Home2U by end-December.
Home2U builds on the ongoing success of Maybank Islamic’s pioneering Houzkey mortgage suite. First launched in 2018, the product is a sharia-compliant offering based on the sharia contract of Ijarah Muntahiyah Bi Tamlik, a lease contract that ends with ownership via sale, available for Malaysian citizens who are first-time buyers or upgraders.
Designed to help homebuyers overcome cash flow issues, the solution applies the matching concept in structuring and customer’s obligations, based on the natural progression of the customer’s current and future financial standing.
No down payment is required, with only a three-month refundable deposit needed, with finance equivalent to 100% of the property value plus up to 5% of related costs provided by the bank. Funding is available for completed and under construction properties in selected developments in seven Malaysian states.
Now in its sixth year, the solution has helped more than 5700 Malaysians own a home via 175 property projects from 58 partner developers, with an estimated sale and purchase agreement value of RM3.5bn.
Excellence in Islamic digital banking award
Winner: Meezan Bank
In a competitive category with impressive entries from around the world, Meezan receives 2023’s Excellence in Islamic Digital Banking award for several strong digital product launches.
Of particular note is Wisaaq, the bank’s end-to-end digital supply chain financing solution, which first launched in conjunction with Coca-Cola Beverages Pakistan (CCBPL) in October. Developed in collaboration with local Islamic fintech Haball, Wisaaq connects distributors, vendors, banks and corporates, enabling clients to benefit from improved cash flow efficiencies, while distributors benefit from early payment of their invoices, without the need for collateral and at competitive rates. The solution offers digital onboarding, disbursements and payment mechanism in a 100% sharia-compliant manner.
The venture will enable Meezan to further support small and medium-sized enterprises (SMEs) in the country by ensuring financial efficiency and supply chain stability, particularly with CCBPL’s SME distributors.
Meezan also launched its bank-acquiring business in January 2022, rolling out smart and conventional point-of-sale (POS) terminals that enable payments via Visa, Mastercard, Union Pay and PayPak cards. During the year, the bank processed transactions worth Rs22.2bn ($79m) via over 11,000 POS terminals, distributed across 254 cities across the country, the largest geographic reach of its kind.
The bank also launched an e-commerce payment gateway enabling Visa and Mastercard holders to make payments via the websites of Meezan Bank merchants. The gateway was developed in-house, powered by BPC’s Smartis and in-house solution and SmartVista Integration Platform.
Meezan is the leading bank in Pakistan in terms of digital transaction volumes, according to a survey by 1Link, with e-commerce transactions increasing by 74% year-on-year in 2022. The bank also ranks first in terms of funds transfers and bill payments, as per 1Link’s monthly ranking reports.
Nearly 1.4 million customers — equivalent to 63% of the bank’s active customer base — are using the Meezan mobile banking app for their day-to-day banking needs, performing more than 166 million financial transactions amounting to over Rs6tn during 2022.
Other innovations from the past year include the launch of the bank’s digital hajj portal, the first of its kind in the country, which allows prospective pilgrims to submit their hajj application data and make payments online. The bank also has launched WhatsApp banking, enabling customers to perform transactions via the messaging platform and access services including statements and tax certificates.
Alongside its new innovations, Meezan has built up a dominant market share in the Roshan Digital Account (RDA) space. The State Bank of Pakistan launched the RDA initiative in September 2020 in collaboration with the country’s commercial banks as a means of enabling Pakistani expats to access banking services in the country via online channels.
In the two years since RDA’s launch, Meezan attracted around $1.4bn worth of inflows from more than 83,000 accounts, out of a total of $5.6bn for the banking sector as a whole, opening more than 29,000 accounts in 2022 alone.
Most innovative sukuk
Winner: Emirates Islamic
While higher oil prices have put a damper on issuances in key markets such as Malaysia and the Gulf Co-operation Council, the global sukuk market is forecast to continue to grow and develop in 2023 and beyond, spurred by fundraising by importers such as Turkey, Pakistan and Indonesia, as well as initiatives by oil exporters to diversify income streams.
Of particular note in the past 12 months has been efforts by the UAE to develop the local currency debt market via a series of issuances, offering investors the opportunity to invest in dirham-denominated securities, while developing a dirham yield curve.
Following the launch of the initiative in April 2022, Emirates Islamic, a subsidiary of Dubai’s largest bank Emirates NBD, in February became the first dirham-denominated sukuk to be priced relative to the UAE federal government’s treasuries, earning it the award for Most Innovative Sukuk for 2023.
On February 7, Emirates Islamic announced a mandate for a potential three-year fixed rate dirham-denominated RegS senior unsecured sukuk offering. After a day of investor work, based on advice from the bank group, Emirates Islamic decided to launch the transaction on February 8 at an initial price guidance of 5.25%, on the back of strong letters of intent and a positive market backdrop.
The transaction garnered interest from some very high-quality accounts, leading to a well-diversified order book that reflected an oversubscription of 2.6 times, a noteworthy figure for the inaugural dirham-denominated sukuk issuance.
The strength of the orderbook allowed Emirates Islamic to price an AED1bn ($270m) deal (double the size of the expected base size of approximately AED500m), at a 5.05%, marking a 20 basis point price compression from the initial price guidance.
“The strong demand for the sukuk reflects the healthy appetite among sharia-compliant investors for a dirham-denominated issue,” notes Emirates Islamic’s deputy CEO Mohammad Kamran Wajid.
Most innovative Murabaha
Winner: HSBC
HSBC is the winner of The Banker’s 2023 award for Most Innovative Murabaha transaction for its role in Ahli United Bank’s (AUB) landmark $1.1bn sustainability linked murabaha financing transaction in July 2022, the first-ever syndicated financing facility of its kind in the financial services space globally.
The dual tranche facility consisted of one tranche representing a traditional commodity murabaha structure, with the other tranche complying with sharia principles specified by Bahrain-based Islamic finance standards body, the Accounting and Auditing Organisation for Islamic Financial Institutions.
The transaction was well-received by the market, as evidenced by an oversubscription of around 60%
The transaction was well-received by the market, as evidenced by an oversubscription of around 60% on the initial launch amount. On the back of strong investor demand the facility was upsized from an initially contemplated size of $700m to $1.1bn.
HSBC acted as the sole coordinator, investment agent and initial mandated lead arranger for the facility, alongside Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, First Abu Dhabi Bank (FAB), Gulf International Bank, Kuwait Finance House, Kuwait International Bank, MUFG Bank, Société Générale, Saudi British Bank and Warba Bank as mandated lead arrangers.
Under the facilities, AUB committed to a set of key performance indicators (KPIs) that reflect priority sustainability focus areas for the Bahrain-based lender. As sustainability coordinator (together with FAB), HSBC supported AUB through the process of establishing a robust set of KPIs that align with the bank’s wider sustainability strategy.
Through this global first-of-its-kind transaction, HSBC supported AUB in its efforts to commit to sustainability by introducing financial incentives to the margin linked to robust annual targets for the following KPIs: green financing; social housing financing (provided through the Bahraini government’s Mazaya housing scheme); and enhancing environmental, social and governance processes.
Innovation in Islamic ESG Award
Winner: HSBC
With environmental, social and governance (ESG) concerns becoming a more prominent feature of global banking and finance in recent years, increased attention is being paid to the overlap of such standards with those set out in Islamic financing.
While the differences between the two disciplines — such as the role of sharia scholars and the prohibitions on certain instruments and assets — should not be ignored, increased commonalities are emerging across the financial services spectrum. Established Islamic financing structures such as murabahas and sukuk are increasingly being used for explicitly ESG-related transactions, while sharia-compliant retail products are also starting to be marketed to customers of all faiths looking for more ethical options.
The Banker received several strong entries for this year’s Innovation in Islamic ESG award, demonstrating the credentials of Islamic banks around the world, including impressive case studies of achievements in investment banking, governance, corporate social responsibility, and retail and corporate banking products. HSBC, this year’s winner, is recognised primarily for its innovation and leading position within the sustainable finance space in both Asia-Pacific and the Middle East, Islamic finance’s two major heartlands, together with significant governance initiatives within its Malaysian operations in particular.
In September 2022, HSBC Amanah, the bank’s sharia-compliant Malaysian subsidiary, announced the launch of its Triple Bottom Line framework, as part of its journey towards sustainability. The framework’s launch takes its inspiration from the central bank’s value-based intermediation initiative, launched in 2018, which seeks to transform the observation of Islamic principles in finance in the country from beyond mere sharia-compliance into practices that deliver positive community and environmental outcomes.
Also on the governance level, HSBC Amanah was the first bank to issue a Task Force on Climate-related Financial Disclosures report in 2021 and issued a second report in 2022, ahead of a mandatory deadline set for 2024.
HSBC acted as joint global coordinator and joint sustainability structuring agent for the world’s first ever ESG AT1 sukuk
HSBC Amanah led and executed several significant transactions over the review period. In April 2022, the bank introduced its first Islamic financing facility for the real estate sector, based on the Loan Market Association’s social loan principles. The Rm136m ($30.5) facility for Jayyid Land — a joint venture property development company between Platinum Victory and Jakel Group — will finance the development of more than 2000 affordable residential apartments, under the government’s ‘Residensi Wilayah Keluarga’ housing programme.
In July, the bank arranged a new line of sustainable financing for Ikano Centres, to help the mall operator sustainably develop its regional retail hub in Johor, comprising Toppen Shopping Centre and Ikea Tebrau. The proceeds from the refinancing facility will contribute to ongoing projects that will support Ikano Centres as it accelerates its sustainability progress. The company is focused on enabling healthy and sustainable living by tackling its climate footprint together with tenants and customers, while creating a positive impact for people in its communities.
Another Asian highlight was the development of a sharia-compliant supplier financing programme in collaboration with asset management and infrastructure solutions provider UEM Edgenta Berhad, designed to provide greater access to financing without collateral for Malaysia’s small and medium-sized enterprise sector.
In addition to its sustainability credentials in Malaysia and the wider Association of Southeast Asian Nations region, HSBC remains a dominant player in the Middle East’s sukuk market, and has worked with regulatory bodies overseeing Islamic products to help deliver new innovations in the market, particularly the inclusion of ESG elements in financings.
Of particular note was a $1.265bn dual-tranche sustainability commodity murabaha facility for Saudi Arabia’s Al Rajhi Bank, for which HSBC acted as joint coordinator, bookrunner, sustainability financing coordinator and global and investment agent. The transaction, signed in September, marked the first time an Islamic financial institution in the Europe, Middle East and Africa region had closed a use of proceeds Islamic sustainability financing, and was the largest Islamic sustainable financing to a financial institution globally as of the signing date.
Also in Saudi Arabia — the world’s largest Islamic banking market by assets — HSBC acted as joint global coordinator and joint sustainability structuring agent for Riyad Bank’s $750m sustainability additional Tier 1 sukuk, the world’s first ever ESG AT1 sukuk.
Islamic finance icon award
Winner: Adnan Chilwan, Group CEO, Dubai Islamic Bank
Dubai is one of the most important global hubs for Islamic finance, by virtue of both its strong international standing within the financial services sector as a whole, and a series of initiatives from authorities in the emirate to encourage the growth of the local sharia-compliant finance sector.
Dubai Islamic Bank (DIB) is the undisputed leader in the sector, both in the emirate and the wider UAE, with only three larger Islamic banks by assets (Al Rajhi Bank, Saudi National Bank and Kuwait Finance House) in the region at the end of 2022.
Much of DIB’s extraordinary growth has come under the stewardship of Adnan Chilwan, who has served as CEO for the past 10 years. For his role in making the bank a national and international Islamic finance champion, Mr Chilwan is the recipient of The Banker’s inaugural Islamic Finance Icon award.
After working for a series of both conventional and Islamic banks in the UAE, Mr Chilwan’s career at DIB began in 2008, when he was appointed chief of consumer banking, being promoted to deputy CEO two years later. As group CEO since 2013, he has worked to expand the global appeal of Islamic banking and finance internationally in several forums within the UAE and international forums.
With subsidiaries established in Jordan and in Pakistan before his tenure began, Mr Chilwan oversaw the bank’s expansion into Indonesia — the world’s most populous Muslim-majority nation — in 2014, followed by Kenya in 2017. Speaking to Bloomberg in January, he stressed the importance of increasing the contribution of the bank’s international operations to its bottom line, from both existing operations and acquisition opportunities.
[DIB is on] an incredible journey to transform the bank into a leading sustainable financial institution
After making little secret of its plans to enter Turkey — home to the world’s eighth-largest Muslim population — the bank in May 2023 disclosed that its board had agreed to a 25% stake in what it described as “a new digital banking group” in the country, subject to the relevant regulatory approvals.
Perhaps the most significant acquisition overseen during Mr Chilwan’s tenure, however, came closer to home in 2020, when DIB acquired local rival Noor via a share swap, bolstering the bank’s asset base to make it one of the largest banks in the UAE wider region.
DIB is the fourth-largest in the UAE overall and the second-largest in Dubai behind Emirates NBD. In 2022, DIB recorded a 26% rise in net profits, with net financing and sukuk investments increasing by 5%. The bank recorded the highest return on assets and lowest cost-to-income ratio for any of the country’s five largest banks.
In June 2022, it became the first Islamic bank to go live with the Arab Monetary Fund’s Buna system, a regional cross-border payment platform for the Arab region, that enables financial institutions and central banks to send and receive cross-border multi-currency payments in a safe, cost-effective, risk-controlled and transparent manner.
The past year also saw the bank launch its sustainable finance framework, followed by an inaugural $750m sustainable sukuk issuance in November, with the issue 2.3 times oversubscribed.
“The above two firsts for DIB and the region showcase the beginning of an incredible journey to transform the bank into a leading sustainable financial institution aligned to our ambition of owning the environmental, social and governance space,” Mr Chilwan said in a January statement.
Given the success of the November sukuk, the bank launched a follow up issuance of a further $1bn sustainable sukuk in February, with an even larger order book.
