Possibility For Asset Management to Offer Sukuk Fractional Investing In Malaysia

Globally, fractional investing in the stock market is not new but the concept is still very new in the fixed income market. WiseAlpha is an example of a licensed platform in the UK that offers fractional investing in the bond market and the BondbloX Bond Exchange (BBX), regulated as a recognized market operator by the Monetary Authority of Singapore. The BBX enables investors to conduct electronic bond trading of fractional bonds (BondbloX) via partner banks and brokers.

In Malaysia previously, a normal one lot of Sukuk is worth RM5 million (US$1.2 million) and the minimum odd lot at RM250,000 (US$60,089.7). In an effort to democratize the fixed income market in Malaysia, the Securities Commission Malaysia (SC) had launched the seasoned framework in 2018 to facilitate retail Sukuk participation where investors can buy Sukuk for as low as RM1,000 (US$240.36) in nominal value. A further requirement for the Sukuk to be considered ‘seasoned’ is that it must have been issued for 12 months in the primary market and rated with a minimum ‘A’ rating. However, based on the guideline, there may be a requirement for the firms to apply for a Capital Markets and Services License for dealing in securities. Further requirements of the guideline are available here.

Malaysia is the biggest issuer of Sukuk in the world and there is a variety of options in the local market without going overseas. Asset management companies should take advantage of this guideline and participate in offering fractional Sukuk to their clients. As fixed-income funds normally have a limited variety of issuances due to a large lot size to invest, offering fractional Sukuk will allow investors to create a more comprehensive fixed income portfolio. 

Moreover, there will surely be demand from fund management companies with smaller assets under management looking to purchase fixed-income assets without locking too much money in one lot of Sukuk. 

Furthermore, offering fractional Sukuk investment can provide asset management firms with new revenue streams. For example, purchasing a RM5 million Sukuk facility and reselling it in smaller portions for a higher premium allows them to profit from margin upfront and transaction fees for every buy and sell. 

Additionally, by acting as a market maker and facilitating the sale of season Sukuk, asset management firms can attract the attention of high-net-worth investors seeking to purchase Sukuk directly without going through their private bankers. This will provide the firms with an opportunity to cross-sell their fund to prospective investors.

In summary, the demand from the market has led the regulator to liberalize the fixed income market by lowering the minimal lot for Sukuk investors. It is now up to the market player to take advantage of this framework to create a new source of income. In the era of fintech development, firms that do not evolve and adapt will be left behind. “Change almost never fails because it is too early, it is always failing because it is too late.” — Seth Godin.
 

	Dr Mohamad Zabidi Ahmad is the industry distinguished research fellow at the Institute of Sustainable Growth and Urban Development (ISGUD), Universiti Utara Malaysia. He can be contacted [email protected].
	Ahmad Al Izham Izadin is the senior manager of bonds and Sukuk, research and business development at BIX Malaysia.He can be contacted at [email protected]

Source: Sector Feature on Institutional Islamic Asset Management published in IFN Volume 18 Issue 42 dated the 20th October 2021

This article was first published in IFN Volume 18 Issue 42 dated the 20th October 2021.


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