Japan enters Shariah-compliant corporate financing in Mideast

Bank of Tokyo-Mitsubishi UFJ (BTMU), through its newly established Dubai branch, has become the first Japanese lender to provide Shariah-compliant corporate financing through an overseas branch after respective regulations have been loosened by Japan’s Financial Services Agency last year.The bank said it is issuing a $200mn loan to a unit of Saudi Arabian national mining company Ma’aden, a Riyadh-based diversified mining firm active in gold-base metals mining and the infrastructure industry.BTMU, the banking arm of Japans giant finance conglomerate Mitsubishi UFJ Financial Group, launched an overseas branch in October last year in the Dubai International Financial Center with an Islamic window after receiving permission from the Dubai Financial Services Authority, a first for Japanese banks. The bank is currently preparing a number of Islamic products such as deposits, loans and trade finance solutions with an initial focus on commercial loans and trade finance services, leveraging its existing client base of government-related entities in the entire Gulf Cooperation Council (GCC) region, according to Shichito Tobari, BTMU’s Regional Head for the Middle East and General Manager of the Dubai branch.The bank is also taking part in Shariah-compliant syndicated loans, credit that is provided by a group of lenders and is administered by one or more commercial or investment banks known as lead arrangers. For such syndications, BTMU can provide between $50mn to $200mn in financing, said Tobari. In a next step by mid-2016, BMTU will expand its product offers to ijara and istisna. Ijara is a common Shariah-compliant sale and lease-back contract, while istisna is a manufacturing contract in which a price is paid for goods that are subsequently manufactured and delivered at a later date.Overall, the Mitsubishi UFJ Financial Group sees Islamic finance making up about 15% of its Middle East credit business over the next three years. The Islamic window in Dubai in the future also intends to offer Islamic finance solutions for new customers across the entire Europe, Middle East and Africa region, said Tobari.As per last year’s new regulations, Japanese banks had been allowed so far only to engage in Islamic finance through units explicitly incorporated overseas. But the Financial Services Agency loosened its rules last April to let them to use foreign branches as well.BMTU has been at the forefront of the Japan banking industry’s foray into Islamic finance. As early as in 2008, BTMU’s Malaysia unit set up its own in-house Shariah board, completed a number of Shariah-compliant financing deals in Malaysia and also ventured into Singapore, Brunei and Indonesia. In September last year, BTMU became the first Japanese commercial bank to issue sukuk via its Malaysia unit. Other Japanese mega-banks entering the Islamic finance stage in the Middle East are Sumitomo Mitsui Banking Cooperation (SMBC) which operates a conventional banking branch in the DIFC since 2007, as well as Mizuho Financial Group. Last year, SMBC started to offer Islamic financial products through its Malaysian subsidiary for which it set up an in-house Shariah advisory board in December, and Mizuho began offering Islamic loans in Malaysia in 2014. In March 2016, both banks, together with BTMU, participated in a syndicated Islamic loan facility, structured as murabaha and consisting of $1.4bn, as lead arrangers for Saudi Electricity Company. SMBC said it also has plans to open an Islamic window at its Dubai branch, while Mizuho will likely expand its London branch, the bank’s largest foothold in Europe, Middle East and Africa, by an Islamic finance arm to transform it into an operational hub for Islamic finance in the region, rather than using its Malaysia unit to do so.