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Malaysia wins praise for green sukuk initiative

 | September 14, 2017

World Bank hopes more similar bonds will be issued by Malaysia and other countries, and that innovative green financing will become the norm, to ensure sustainable and inclusive growth.

Victoria-Kwakwa-malaysiaKUALA LUMPUR: The World Bank has praised Malaysia for financing sustainable, climate-resilient growth.

In a comment piece in the South China Morning Post, Victoria Kwakwa, World Bank regional vice-president for East Asia and Pacific, said Malaysia’s innovative “green sukuk” initiative would help close the gap for both infrastructure and green finance.

She noted that Malaysia was already a global leader in leveraging Islamic finance for infrastructure development, issuing more than 60% of the world’s infrastructure sukuk.

“Now, the country’s regulators are taking it one step further and using investments to achieve a public good.”

In July, Tadau Energy Sdn Bhd became the first entity in the world to issue a green sukuk. Called Green SRI Sukuk Tadau, the RM250 million Sustainable Responsible Investment, shariah-compliant bond holds a tenure of up to 16 years. It will finance a 50-megawatt solar power plant.

Kwakwa said the framework underlying this instrument was the result of collaboration between the Securities Commission of Malaysia, the Malaysian Central Bank and the World Bank Group.

“The ‘green sukuk’ is one of various corporate fixed-income securities of this type coming out of Malaysia. We hope that many similar issuances will follow, in Malaysia and other countries, and that innovative green financing becomes the norm, not the exception.

“This development would take us one step closer towards our goal of sustainable and inclusive growth.”

Kwakwa said income growth was not the sole aim of economic development and that equally important was a sense of progress for the entire community, and a confidence that prosperity was sustainable and shared equitably for the long term.

“Inclusive and sustainable development looks beyond growth in gross domestic product and can strengthen nations for generations. However, rising income inequality has impeded social mobility, increased social tensions, and undermined effective governance in many countries.”

She said the World bank was firmly committed to the twin goals of helping to reduce the number of people living in extreme poverty, and to promote shared prosperity, particularly among the bottom 40% of the population.

“Investments in infrastructure are essential for meeting both goals. Whether by connecting farmers to markets or by providing families with electricity and clean water, infrastructure investments can transform lives for the better. However, analysts estimate that developing countries will need to invest US$1.7 trillion annually in infrastructure just to maintain their rate of growth, while actual investment pledged each year falls far short, at closer to US$880 billion.”

To close this huge infrastructure gap, Kwakwa said, more options for investment financing were needed. The green sukuk is one of these.

“Islamic finance may just provide that extra helping hand to deliver more infrastructure to emerging markets and developing economies.”

She added: “Since 2008, we have issued US$10 billion in bonds through our green bond programme for climate-sensitive investments, which has brought greater transparency and clarity to issuers and investors by participating in the crafting of the ‘green bond principles’ (voluntary guidelines framing the issuance of green bonds) and by setting best market practice for reporting on the use of proceeds. New issuances in the global market are expected to exceed US$120 billion this year.”


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