MUFG sees a bright future for Islamic financing

The Japanese megabank has closed its first Sharia-compliant financing with a $35 million facility for a large solar project in Malaysia. And it sees more opportunities ahead.

MUFG’s Malaysian subsidiary closed a M$144 million ($35 million) Shariah-compliant project financing facility for Tenaga Nasional Berhad’s (TNB) new large-scale solar (LSS) plant on January 10.

This marks the first time a Japanese bank has provided project financing via a Shariah-compliant, Malaysian ringgit-denominated instrument, according to a MUFG press release.

“We are honoured to be given the opportunity by TNB to play a role in developing Malaysia’s second largest solar plant,” said Takuma Matsuyama, chief executive officer of MUFG Bank Malaysia. 

The facility will include Ijarah, commodity Murabahah financing and the Islamic bank guarantee, with a tenure of 20 years, MUFG told FinanceAsia.

These three instruments have been employed as both asset acquisition and cash financing are required at the same time.

Ijarah financing is an alternative to typical project financing or term financing for the purpose of asset acquisition, similar to lease financing.

Commodity Murabahah financing replicates short-term money-market deposits, taken out on fixed terms and short tenures, and medium-term syndicated loans. 

An Islamic bank guarantee is a guarantee issued by the bank whereby it undertakes to pay the beneficiary an agreed sum (principal) if the customer (the applicant of the bank guarantee) fails or defaults in fulfilling their obligations under the terms and conditions of the contact or agreement with the beneficiary.

And MUFG is confident that the use of Shariah-compliant financial instruments will continue to grow in the near future in Malaysia.

“Furthermore, with the 2019 budget announced by the government i.e. the M$2 billion fund for green technology financing scheme and the M$926 million to build and upgrade roads and bridges and other development expenditures, we see more requirement for Shariah-compliant financing," MUFG said.

TNB’s first LSS project in Kuala Langat, Selangor, became operational in October and has a current generation capacity of 50 megawatts (MW).

Located in the northwest of Peninsular Malaysia, the second plant will have a generation capacity of 30MW and is scheduled to become operational by the end of 2020, according to TNB.

Which fits nicely with the Ministry of Energy, Science, Technology, Environment and Climate Change target of 20% of the country's electricity to be generated from renewable sources by 2030, an increase from the current 2%. 

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