KUALA LUMPUR: Tax incentives under the 2016 Budget to promote Sustainable and Responsible Investment (SRI) Sukuk are timely as interest in these instruments are on the rise.
The budget proposes that tax deduction be given for five years on issuance costs of SRI Sukuk.
These Islamic bonds refer to financing of projects aimed at preserving the environment and natural resources; conserving energy; promoting the use of renewable energy; reducing greenhouse gas emissions; or improving the quality of life for society.
“The initiative is a good start as interest in sustainable and responsible investing is on the rise. I hope this could be the boost it needs to encourage investors and issuers to pursue sustainability and responsibility in business,” Hong Leong Islamic Bank Bhd (HLIB) chief executive officer Raja Teh Maimunah told Business Times.
Maybank Islamic Bhd CEO Datuk Muzaffar Hisham, meanwhile, said the SRI Sukuk initiative is in line with the Maybank Group’s direction.
“SRI Sukuk is one area we are very interested to pursue as it fits our humanising financial services agenda,” he said.
“We are committed to doing this as we want to bridge the gap between corporates and the public, especially the less privileged ones. We want to increase the efficiency in managing and raising funds for social responsible investments. This tax cut on SRI Sukuk issuances can be the push factor for corporates to participate in it.”
He noted that SRI Sukuk can also be the avenue for financial inclusion which has been strongly championed by the Islamic finance industry as a whole.
Malaysia has been at the forefront of innovation in Islamic finance and has issued a total of RM444 billion-worth of Sukuk as of the end of 2014.
The government had originally introduced the concept of SRI Sukuk in 2013. The only issuance to date was by sovereign wealth fund Khazanah Nasional Bhd, which sold RM100 million of SRI Sukuk in May this year, out of an existing RM1 billion programme.
“There has been relatively lukewarm response from the corporate sector for the SRI Sukuk since its introduction in 2013 as to undertake such projects tend to carry a higher risk profile for success. The key to SRI Sukuk success is the attractiveness of the project returns itself,” said RHB Islamic Bhd CEO and managing director Ibrahim Hassan in an email response to Business Times.
He said any project has to first be attractive to investors. The next stage will then be to choose the best funding option, and this is where the incentives for SRI Sukuk could make it a cost-effective option.