by ASILA JALIL / pic by BERNAMA
THE changes in yields of sukuk should be independent of the movements in the conventional interest rates due to the difference in product and market fundamentals.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid (picture) said there is a positive correlation between the US Treasury yields and Malaysian government bond, the Government Investment Issue (GII), over the past years.
He said this is a concern because Islamic finance has a lot to offer to society.
He noted that the coefficient correlation between the US Treasury Yields and GII stands at 57% for the three-year tenure, 73% for the five-year tenure and 80% for the 10-year tenure.
“By the way they behave, it is as if they are being dictated by the conventional kind of interest-rate environment. These are the things which I think require some form of paradigm shift.
“The elements of Islamic finance should be the key determinant in the movement of the sukuk yields rather than it being dictated by the conventional economy like the US Federal Reserve,” Mohd Afzanizam said in the virtual Malaysian Rating Corp Bhd Malaysian Bond and Sukuk Conference 2021 yesterday.
The economist said sukuk should be priced differently as the structure and trend over time shows the growth of the Islamic bond market has been substantial.
He said sukuk can be a catalyst to narrow the prevalent income gap in the country to ensure sukuk and the whole Islamic finance could bring more equitable economic growth.
Mohd Afzanizam said the emergence of Sustainable Development Goals and environmental, social and governance criteria suggest there are “serious flaws” in the capitalistic economy.
“Although we continue to see economic growth, income inequality continues to widen. There are issues present with respect to the economic setting and this is where I think Islamic finance in general and sukuk can be key catalysts in terms of narrowing the income gap and push the economy to prosper more sustainably going forward,” he said.
Sinegy Technologies (M) Sdn Bhd research and compliance officer John Sidoli said sukuk is not yet fully integrated into the blockchain space due to the intricacies in its requirements.
He said there is a growing retail presence for Islamic financial technology (fintech) products in Malaysia, but there has not been a solution for sukuk for now.
“The deals can be so intricate and different with sukuk, given the Shariah requirements. There is no standardised boilerplate like in traditional bond deals in terms of structuring.
“It is no surprise that we are seeing traditional bonds being tied to the blockchain, but there is a gap in the sukuk market, until we get sukuk deals on the blockchain as well,” he said at the webinar.
He added that Malaysia’s fintech space is retail-focused due to everything being application-based and basically meets consumers’ needs.
“Malaysia has got a plethora of various apple and fintech solutions for retail customers. That is a trend we will see going forward,” he said.
Amanie Group founder and executive chairman Datuk Dr Mohd Daud Bakar said blockchain is the “most conservative” technology compared to big data or nanotechnology.
He disagrees with the notion that integrating sukuk into blockchain is intricate because that can be done easily.
“The question in Malaysia is why can’t one of the issuers or investment banks start off because blockchain is a very simple technology,” he said.