vaccine sukuk

A World Bank blogger (Michael Bennet, ‘Vaccine Sukuks: Islamic securities deliver economic and social returns’ 29 October 2015) connects socially responsible investment (SRI, which seeks to serve social and environmental causes) with Islamic finance – in particular with the WBs’ International Finance Facility for Immunization (IFFIm): a programme to raise funds in international capital markets and to invest those funds in vaccinations in the least developed countries of the world. The WB has overseen two three-year issuances to date: in December 2014 (USD 500 m) and September 2015 (USD 200 m). The following sovereigns have invested: the United Kingdom, France, Italy, Norway, Australia, Spain, the Netherlands, Sweden, and South Africa.

From a public health and development perspective the value and cost-effectiveness of vaccination is not novel. However this mode of financing is innovative. Bennett favourably notes the similarities between these two sakk issues and asset backed structures:

‘While the financing structure of the Vaccine Sukuk shared certain similarities with that of an ABS, the credit risk borne by the investors was wholly that of IFFIm, the double-A rated obligor (one of the highest credit ratings possible), meaning that IFFIm would repay investors irrespective of the value of the underlying assets based on its own intrinsic financial strength.’

On a critical note in regard to this blog’s reporting and more fundamentally to the structure of these issues: from the standpoint of Islamic legal compliance this effective capital guarantee is problematic, in that investors were (or were believed to be) unwilling to accept the risk exposure that would be required for these two sakk to comport with contemporary Islamic finance standards (as set out in 2008 in the well known AAOIFI rejoinder to Muhammad Taqi Usmani’s 2007 intervention). As is widely known although not undisputed these standards would in effect characterise the certain re-payment to investors as a form of riba or usury — tantamount to interest.

Setting that significant compliance issue aside, however the ability to raise over USD700 m on orders of USD1 b in one year is an estimable accomplishment as is the oversubscription of each issuance as Bennet reports. As he concludes ‘This high level of demand from both traditional Sukuk investors and conventional investors, including those with a socially responsible investment focus, proves the convergence of Islamic finance and conventional sustainable investing is very possible.’

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