Last year the three sides signed a strategic partnership agreement to launch a second Islamic bank in Kazakhstan. At a recent meeting the three parties finalized a short-list of possible technical partners to conduct the feasibility study. The aim is to set up a joint-venture company with Amanah Raya owning 55 percent of the equity, DBK 40 percent and Fattah Finance the remaining 5 percent, which would then apply for the banking license.
Kazakhstan has one other Islamic bank, Al-Hilal Bank, which was established in 2009 by investors from Abu Dhabi. It started operations in March 2010. Prior to that Albaraka launched the first Islamic financial institution in Almaty almost a decade ago, which was eventually taken over by Lariba from the US and which was eventually closed down.
It is revealing that it is an institution such as Amanah Raya, instead of an established commercial or investment bank or even Lembaga Tabung Haji (the Malaysian Pilgrims Management Fund) that is leading the initiative. This especially given the fact the agreement also calls for cooperation between the parties to launch a Haj Fund for Kazakhstan.
Amanah Raya Berhad is Malaysia's premier trustee company, which provides both conventional and Islamic trust, legacy management and will services. It was established as the Department of Public Trustee and Official Administrator on May 1, 1921 and incorporated as a trustee company on May 29, 1995 under the name Amanah Raya Berhad. It is wholly state-owned with 99.99 percent held by the Minister of Finance Inc. and 0.01 percent by the Federal Commissioner of Lands. As such its main objective is to provide the above services to Malaysians from all backgrounds and economic classes at affordable fees and preempt problems related to inheritance and probate.
Investing in the CIS countries can be very risky. Malaysian corporates have in the past lost huge investments in countries such as Uzbekistan, Kazakhstan and Turkmenistan partly due to the lack of proper due diligence, or entering into politically-driven investments especially for government-linked companies (GLCs) the lack of a developed financial services regulatory and legal framework.
With the help of the Islamic Development Bank (IDB) and its affiliates, including the Islamic Corporation for the Development of the Private Sector (ICD) and other industry professional bodies, the enabling regulatory and legal environment in the CIS and many other developing member countries of the IDB is slowly changing albeit there is still much work to be done. Some countries, such as Kazakhstan and Azerbaijan, have been more proactive than others in this regard.
It is no secret that as part of Malaysia’s overall Islamic finance policy framework the government of Prime Minister Mohd Najib Tun Abdul Razak is encouraging local financial institutions and GLCs to widen their investment strategies to include cross-border investments for portfolio diversification purposes and to achieve better returns.
Perhaps the most wide-ranging of the government measures relating to Islamic finance came in Prime Minister Najib’s Budget 2011 Speech. The budget, said Najib, emphasizes the transformation of Malaysia into a developed and high-income economy with inclusive and sustainable development spearheaded by the private sector. A number of strategic high-impact projects are expected to involve both conventional and Islamic financing and investment.
To this end, GLICs will be allowed to increase investment in overseas markets to explore opportunities for better returns. For example, the Employees Provident Fund’s (EPF) will increase its investment overseas from the current 7 percent to 20 percent of the total assets managed, including in Islamic instruments such as sukuk.
Indeed, the increased cooperation between Malaysian Islamic financial institutions, GLCs and SWFs with partners from abroad is a priority for the Malaysian government. Malaysian Finance Minister II, Ahmad Husni Hanadzlah last year urged Malaysian Islamic financial institutions to widen their reach to leverage opportunities both at home and abroad to take the sector to the next level.
He urged institutions including banks, asset management companies and non-banking financial institutions such as Lembaga Tabung Haji (the Malaysian Pilgrims’ Management Fund) to expand by cooperating with partners abroad.
“The financial services industry,” explained Minister Husni, “is one of our 12 national key economic areas and is a critical pillar in our thrust forward. Yes, we have done very well in the sukuk market but we now have to seriously develop our capacity in other products and services that would command greater premiums not only within the domestic market but also across the seas. In this context, the expansion of a Shariah-compliant asset management industry would give impact and add value across the financial services sector. The asset management industry can directly support as well as complement a number of sectors, including the Takaful industry, private equity, mutual funds, private wealth management, trust and Wakaf.”
Amanah Raya is also active in Tatarstan, Russia, and in December 2010 signed an agreement with the Tatarstan government, the local IFC Linova and Kuwait Finance House Malaysia (KFH Malaysia) whereby the parties would cooperate in facilitating the issuance of the debut sovereign sukuk of Tatarstan, work on the feasibility study on the sukuk origination.
The study, which will be conducted by Amanah Raya Investment Bank, a subsidiary of Amanah Raya Berhad Group (the Malaysian government owned trust administration and inheritance legacy company), KFH Malaysia and IFC Linova, will consider a range of issues including potential asset pools to be securitized in Tatarstan; the type of sukuk structure to be used; the possibility of a sukuk program as opposed to a single transaction; tax neutrality and enabling legislation on trusts and special purpose vehicles, etc.
Amanah Raya is also a promoter and investor in the the first Halal industrial park in Russia, called Baltach, which was launched in Kazan the capital of Tatarstan in November 2010 and which forms part of the larger Kazan Halal Hub. The park will house small and medium-sized enterprises involved in the halal business industry.
