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GII on Murabahah concept
GII based on Murabahah contract is essentially a certificate of indebtedness arising from a deferred mark-up sale transaction of an asset, such as commodity (mainly crude palm oil), which complies with Shariah principles. Primary issuances are conducted through competitive auction via the Principal Dealer network while secondary trading remains under the Bay Al-Dayn concept.

Over the years, many initiatives were taken to develop the government sukuk market; improving liquidity via conducting reopening to enlarge individual issuance sizes, increased frequency and size of each issuance, lengthening of maturities and supporting secondary market liquidity via the principal dealer network. This migration to a more widely acceptable concept of Murabahah is part of the ongoing initiatives and is expected to broaden the investor base and deepen the sukuk market. “This much-awaited product is another milestone in the standardisation and harmonisation of the Islamic finance industry across the globe. The issuance of GII under Murabahah is greatly welcomed by the market. The initiative is consistent with BNM’s support and innovative approach to meeting market requirements. The product is based on globally accepted Islamic concepts, thus greater participation from domestic and international investors is anticipated,” said Norashikin Mohd Kassim, Head of Treasury, Bank Islam.

The inaugural issuance of RM4 billion on 22nd July was oversubscribed by 2.92 times, the highest bid-to-cover year-to-date. The weighted average successful yield at the point of issuance was 3.389%, similar to the 3-year MGS which was trading around 3.396%. The issuance was widely supported by principal dealers, both conventional and Islamic. Post-auction, the GII rallied 5.6 bps amidst RM1.7 billion worth of trades. “The inaugural issuance of Murabahah based GII is timely as it potentially will attract participation not only from the Malaysia-based Islamic foreign financial institutions, but also Middle East investors who are looking for Shariah-compliant sovereign risk asset in the emerging market. This will create a greater depth and active sukuk market, besides providing opportunities for more Shariah-compliant FX and hedging transactions to be taken place in the near future,” commented Aria Putera Ismail, Islamic Global Markets Director, Maybank Islamic.

(based on Murabahah concept)

  1. Investor will appoint BNM as their agent to buy the commodities.
  2. BNM as the commodity agent will buy the commodities e.g Crude Palm Oil.
  3. Upon completion of purchase, BNM as an agent to the Investor will sell the commodities to Government at mark-up price to be paid on deferred payment date. Profit from sale will be paid periodically such as semi-annual basis, representing the coupon on GII.
  4. GII will be issued to evidence the indebtedness. Profit portion is paid to investors on periodical basis. On maturity (i.e. deferred payment date), Government will make payment, representing the principal amount and final profit, and GII will be redeemed.
  5. Government will appoint BNM as their agent to sell the commodities at cost to raise the required funding.
  6. BNM as the commodity agent will sell the commodities and remit the cash to Government.