SME Bank to roll out maiden sustainability sukuk despite weak economy

IN its quest to ride on Malaysia post pandemic economic recovery over the medium term, the SME Bank as one Malaysia’s leading development financial institution (DFI) has decided to issue its maiden sustainability sukuk.

Amid current challenging market condition, the exercise will position the bank in the forefront by ensuring small medium enterprises (SMEs) are able to tap into the fund raised through the sustainability sukuk for their recovery needs, according to the bank’s group president/CEO Aria Putera Ismail.

“We will now be able to offer more innovative financing solutions for SMEs while continuing to intervene as a supportive partner to ensure their success in becoming the nation’s engine of growth that contributes positively to the GDP (gross domestic producr), creating employment and ultimately, positive spill over to society,” he told FocusM.

Aria Putera Ismail

Part of the bank’s Sukuk Wakalah Programme, the sustainability sukuk comprises medium term Islamic financial notes (IMTN) valued at up to RM3 bil which includes the Islamic commercial paper programme (ICP) up to RM1 bil with a combined limit in nominal value of up to RM3 bil.

For its first issuance, the SME Bank aims to issue a total of RM500 mil sustainability sukuk for a five-year period by end-July.

“In general, the proceeds will be utilised for the bank’s funding and working capital purposes,” explained Aria Putera. “Proceeds raised from the sustainability sukuk will be utilised to finance new and existing eligible Shariah-compliant eligible ESG (environment, social and governance) projects.”

This is the second sukuk programme for the SME Bank; the first was undertaken in 2012 when SME Bank issued a sukuk programme with government guarantee worth up to RM3 bil as well.

But the Sukuk Wakalah Programme is the maiden sustainability sukuk to be issued by a DFI in Malaysia and is also the SME Bank’s first non-government guarantee Sukuk Wakalah Programme.

It has been accorded AAA ratings by MARC and also Gold standard for its sustainability sukuk framework – its highest rating.

“Proceeds from sustainability sukuk will be utilised only to finance ESG-related projects, which directly will benefit society, the environment and the world at large,” Aria Putera pointed out.

According to the bank’s sustainability sukuk framework, the ESG-related projects consist of six green projects and four social projects.

Projects that fall under the green category comprised (i) renewable energy; (ii) energy efficiency; (iii) pollution prevention and control; (iv) clean transportation; (v) sustainable water and wastewater management; and (vi) green buildings which meet regional, national or internationally recognised standards or certifications.

As for the social projects, they must be related to (i) affordable basic infrastructure; (ii) access to essential services; (iii) employment generation including the potential effect of SME financing and microfinance; and (iv.) socioeconomic advancement and empowerment.

Addressing concerns over increase of impairment should economic uncertainties stemming from the COVID-19 health crisis does not improve come year end, Aria Putera said:

“SME Bank has been carefully managing its balance sheet and assets quality throughout this unprecedented period, and this has provided greater leeway for the bank to grow its business with sufficient cushion against potential risks and challenges that may lie ahead.

“The bank has strategies in place to manage the impact of MCO (movement control order) and shall strive our best to improve our gross impaired ratio in year 2021.

“This will be done through detailed combing exercise of our existing portfolio and proactively undertake restructuring and rescheduling (R&R) exercises on affected financing to address customers’ payment constraints posed by the challenging environment while at the same time carefully onboarding quality customers.” – July 15, 2021

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