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Murabahah-based GII
By Maybank IB Research
September 2013

A new milestone. The Islamic finance industry has been growing rapidly in Malaysia with the enactment of the Islamic Banking Act 1983 and the establishment of the country’s first Islamic Bank, Bank Islam Malaysia Bhd. Since 1983, various efforts and incentives have been introduced by authorities to create a conducive environment that fosters the development and transformation of the domestic Islamic finance industry into one of the most developed Islamic finance markets in the world. In 1983, the first Islamic government debt, known as Government Investment Certificate (GIC) was introduced under the concept of Qard al-Hasan to facilitate the Islamic bank’s operation and liquidity management. GIC was replaced by the Government Investment Issues (GII) in 2001, an instrument that is based on the Bai Al-Inah principle, to address the non-tradability issue of GIC. In July 2013, the govvy market saw the debut of Murabahah-based GII, setting a new milestone in Malaysia’s sovereign sukuk segment. We understand that, going forward, all GII issuances will be based on the Murabahah concept rather than Bai Al-Inah, which is not accepted by the Middle Eastern investors as the principle is viewed similar to riba- based financing that is prohibited in Islamic Finance.

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