This is Part 2 of my thread on Shariah compliance.
PNB’s Shariah management team conducts Shariah analysis on companies and fund structures, before it is taken to the SAC for further deliberation and validation. The process is robust. It undergoes several layers of analysis before approval is obtained.
Analysis is not limited to just Shariah compliance of stocks/sukuk, but also the entire eco-system of the portfolio, from the account that cash sits in, operational process right up to settlement.
Whilst this is somewhat clear cut for Malaysian investments, it becomes slightly challenging for overseas investments, due to the lack of Shariah multi-currency cash accounts to ensure the entire process is compliant.
It took us a while before we had an account custom made for us to enable us to invest internationally. These were some of the infrastructure challenges that had to be addressed before we could invest internationally.
From my past experience managing a Shariah investment firm, the lack of Shariah trustees and cash/debt management products internationally holds back the industry from reaching its full potential.
Whilst front line product development is important, we must not forget the back and middle office services, who must keep up as well if we are to create a sustainable industry.
This is something I would like to see Malaysian banks develop. Creating a niche that is also a nice recurring fee income business.
As mentioned in my earlier postings, while the Securities Commission (SC) classifies which securities in Malaysia are Shariah-compliant, a company’s in-house Shariah panel determines whether an investment portfolio is Shariah-compliant or not.
On the Maybank question, it is permissible for PNB to invest in Maybank based on the exceptional rule (Rukhsah) or Siyasah Shar'iyyah due to the following: -
1) By being the single largest shareholder in Maybank, PNB has control of Maybank Islamic Berhad. Under PNB’s watch, Maybank Islamic was able to introduce Islamic first policy, becoming the fifth largest Islamic bank in the world with an asset size 3x bigger than Bank Islam.
2) The lack of Shariah compliant stocks in Malaysia. Currently, only 3 financial services companies are Shariah compliant (BIMB Holdings Bhd, Bursa Malaysia Bhd, Syarikat Takaful Malaysia Berhad).
The market size for these 3 companies is RM14.9 billion, which is only 4.3% of the overall size of the financial services sector in Malaysia (RM349 billion).
3) The banking eco-system in the country. Due to branch sharing model, despite having many Islamic banks in Malaysia, the majority of them are not listed. After taking all this into consideration, SAC ruled that PNB’s investment in Maybank is permissible.
PNB has continued to engage stakeholders, enabling us to play our role in development of the Shariah industry. Apart from major events in the Islamic finance industry, PNB has a Maqasid Al-Syariah awareness programme, which is our Shariah investment literacy programme.
It aims to educate stakeholders on PNB’s Maqasid screening process and provide assurances on the Shariah status of ASNB’s UTFs. We had 18 roadshows in 2019.
Due to Covid-19 we decided to halt events for this year. We will reactivate it in the future once this global pandemic subsides.
