Islamic commodity trading a hot niche for investors

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Ableace Raakin’s managing director Azzizi bin Mohammad Ghazi (right) and co-director Azaraie bin Mohammad Ghazi

Ableace Raakin Sdn Bhd is the first company in the world to use palm oil and its derivatives as an asset base for commodity murabahah transactions. Murabahah is a Shariah-compliant sale and purchase procedure based on profit-sharing trade. The company is now eyeing the GCC market to promote its products and services. Inside Investor caught up with Ableace Raakin’s managing director Azzizi bin Mohammad Ghazi and co-director Azaraie bin Mohammad Ghazi for an exclusive interview.

Q: What is Ableace Raakin’s main business? Can you recap the history of your establishment?

A: Ableace Raakin was founded in 2006 and started operations in January 2007. It was an idea of four friends who came together to respond to the Malaysian government’s initiative to promote Islamic finance. Ableace’s main business focus is to provide underlying assets for commodity murabahah and tawarruq structured products (tawarruq is a reverse murabahah method where a financial institution buys an asset and immediately sells it to a customer on a deferred payment basis. The customer then sells the same asset to a third party for immediate delivery and payment). These are banking products, which are based on exchange traded commodities palm oil, cocoa, and rubber. In fact, we are the first company in Malaysia to provide this service. We facilitated the world’s first commodity murabahah transaction with Kuwait Finance House (Malaysia) Berhad, using palm oil and its derivatives as underlying assets. Palm oil became the main commodity because our partners, Mahayudin bin Salleh and Azaraie bin Mohammad Ghazi were originally from the palm oil industry, whereas myself (Azzizi bin Mohammad Ghazi) and Syed Nizam bin Syed Jalaludin were from the banking industry. Most of our clients are financial institutions, but we also work with corporate and private equity firms. In 2009, the company started to expand its business to the Middle East. We currently have clients in Bahrain and Dubai. In fact, the company’s business focus is now on Qatar, the UAE, Saudi Arabia, and Kuwait. Apart from this, we also have international clients from Singapore (Maybank Singapore), Mauritius (Century Banking Corporation Limited), and Indonesia.

Q: What are the main services offered to your clients?

A: The company started with liquidity management and subsequently we diversified into other banking products based on the tawarruq concept such as loans, deposits, trade finance, and fixed income. We also provide consultations to our clients on managing their products in accordance with Shariah guidelines. We have been actively supporting the Malaysian government in issuing sukuks in the market. Some notable deals include the RM2 billion Merdeka Savings Bond issued by Bank Negara Malaysia in 2008 and 2009, and the RM5 billion Sukuk Simpanan Rakyat 2009 issued by Treasury of Malaysia. We also assisted Maybank Singapore to introduce its first retail Islamic deposit based on the murabahah concept, which was the first of its kind in Singapore.

Q: What were the challenges encountered when implementing this type of Islamic based financial structure?

A:  We assist our clients in their pricings. In order for them to launch their products, we have to offer a reasonable price. Well, the pricing changes accordingly and it all depends on our clients. Many factors have to be taken into account, such as environment, target market, etc. We also have to refer to the existing conventional financial structure here, but in the GCC it is a different scenario, so their pricing might be different from what we have here.  Additionally, consumers tend to compare the prices between conventional and non-conventional products, especially when there are additional costs. The situation gets worse when there are two products in Islamic finance offered, murabahah and mudarabah. For example, banks started to introduce the mudarabah concept in 2007 and this financial structure became popular because there were zero costs. Thus, when a new Islamic financial structure comes up, the market becomes competitive. Apart from this, Shariah-compliant products, such as those in the GCC versus those in Malaysia are different. This is because they have to comply with different sets of Shariah rules, which vary accordingly. Basically, the lack of a standardised interpretation poses challenges to the implementations of the products.

Q: What are the initiatives offered by the government for promoting these kinds of commodity transactions?

A: The government started to push this since 2006. In fact, Bank Negara Malaysia and the central banks of Indonesia, Iran, Luxemburg, and the UAE, as well as the Islamic Development Bank and the Islamic Corporation for the Development of the Private Sector have collaboratively established the International Islamic Liquidity Management Corporation to assist institutions, which are offering Islamic financial services by addressing their liquidity management.

Q: What is your advice for foreign investors from Islamic countries who would like to invest into the financial sector in Malaysia?

A: Business interests should be matching. It is important for the growth of our businesses that we understand each other. It helps a lot and it will prevent us from thinking negatively. For example, we do not want one party thinking that the other is taking advantage. We hope that there will be more dialogues to ensure better understanding of the market.

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Reading Time: 3 minutes

Ableace Raakin’s managing director Azzizi bin Mohammad Ghazi (right) and co-director Azaraie bin Mohammad Ghazi

Ableace Raakin Sdn Bhd is the first company in the world to use palm oil and its derivatives as an asset base for commodity murabahah transactions. Murabahah is a Shariah-compliant sale and purchase procedure based on profit-sharing trade. The company is now eyeing the GCC market to promote its products and services. Inside Investor caught up with Ableace Raakin’s managing director Azzizi bin Mohammad Ghazi and co-director Azaraie bin Mohammad Ghazi for an exclusive interview.

Reading Time: 3 minutes

Ableace Raakin’s managing director Azzizi bin Mohammad Ghazi (right) and co-director Azaraie bin Mohammad Ghazi

Ableace Raakin Sdn Bhd is the first company in the world to use palm oil and its derivatives as an asset base for commodity murabahah transactions. Murabahah is a Shariah-compliant sale and purchase procedure based on profit-sharing trade. The company is now eyeing the GCC market to promote its products and services. Inside Investor caught up with Ableace Raakin’s managing director Azzizi bin Mohammad Ghazi and co-director Azaraie bin Mohammad Ghazi for an exclusive interview.

Q: What is Ableace Raakin’s main business? Can you recap the history of your establishment?

A: Ableace Raakin was founded in 2006 and started operations in January 2007. It was an idea of four friends who came together to respond to the Malaysian government’s initiative to promote Islamic finance. Ableace’s main business focus is to provide underlying assets for commodity murabahah and tawarruq structured products (tawarruq is a reverse murabahah method where a financial institution buys an asset and immediately sells it to a customer on a deferred payment basis. The customer then sells the same asset to a third party for immediate delivery and payment). These are banking products, which are based on exchange traded commodities palm oil, cocoa, and rubber. In fact, we are the first company in Malaysia to provide this service. We facilitated the world’s first commodity murabahah transaction with Kuwait Finance House (Malaysia) Berhad, using palm oil and its derivatives as underlying assets. Palm oil became the main commodity because our partners, Mahayudin bin Salleh and Azaraie bin Mohammad Ghazi were originally from the palm oil industry, whereas myself (Azzizi bin Mohammad Ghazi) and Syed Nizam bin Syed Jalaludin were from the banking industry. Most of our clients are financial institutions, but we also work with corporate and private equity firms. In 2009, the company started to expand its business to the Middle East. We currently have clients in Bahrain and Dubai. In fact, the company’s business focus is now on Qatar, the UAE, Saudi Arabia, and Kuwait. Apart from this, we also have international clients from Singapore (Maybank Singapore), Mauritius (Century Banking Corporation Limited), and Indonesia.

Q: What are the main services offered to your clients?

A: The company started with liquidity management and subsequently we diversified into other banking products based on the tawarruq concept such as loans, deposits, trade finance, and fixed income. We also provide consultations to our clients on managing their products in accordance with Shariah guidelines. We have been actively supporting the Malaysian government in issuing sukuks in the market. Some notable deals include the RM2 billion Merdeka Savings Bond issued by Bank Negara Malaysia in 2008 and 2009, and the RM5 billion Sukuk Simpanan Rakyat 2009 issued by Treasury of Malaysia. We also assisted Maybank Singapore to introduce its first retail Islamic deposit based on the murabahah concept, which was the first of its kind in Singapore.

Q: What were the challenges encountered when implementing this type of Islamic based financial structure?

A:  We assist our clients in their pricings. In order for them to launch their products, we have to offer a reasonable price. Well, the pricing changes accordingly and it all depends on our clients. Many factors have to be taken into account, such as environment, target market, etc. We also have to refer to the existing conventional financial structure here, but in the GCC it is a different scenario, so their pricing might be different from what we have here.  Additionally, consumers tend to compare the prices between conventional and non-conventional products, especially when there are additional costs. The situation gets worse when there are two products in Islamic finance offered, murabahah and mudarabah. For example, banks started to introduce the mudarabah concept in 2007 and this financial structure became popular because there were zero costs. Thus, when a new Islamic financial structure comes up, the market becomes competitive. Apart from this, Shariah-compliant products, such as those in the GCC versus those in Malaysia are different. This is because they have to comply with different sets of Shariah rules, which vary accordingly. Basically, the lack of a standardised interpretation poses challenges to the implementations of the products.

Q: What are the initiatives offered by the government for promoting these kinds of commodity transactions?

A: The government started to push this since 2006. In fact, Bank Negara Malaysia and the central banks of Indonesia, Iran, Luxemburg, and the UAE, as well as the Islamic Development Bank and the Islamic Corporation for the Development of the Private Sector have collaboratively established the International Islamic Liquidity Management Corporation to assist institutions, which are offering Islamic financial services by addressing their liquidity management.

Q: What is your advice for foreign investors from Islamic countries who would like to invest into the financial sector in Malaysia?

A: Business interests should be matching. It is important for the growth of our businesses that we understand each other. It helps a lot and it will prevent us from thinking negatively. For example, we do not want one party thinking that the other is taking advantage. We hope that there will be more dialogues to ensure better understanding of the market.

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