SME Bank, a Malaysian agency under the Ministry of Entrepreneur Development and Cooperatives, will become the first development financial institution ( DFI ) in the country to issue sustainability sukuk following the launch of its 3 billion ringgit ( US$714.30 million ) sukuk wakala programme to meet its funding and working capital requirements.

In an announcement on July 5, Minister of Entrepreneur Development and Cooperatives Wan Junaidi bin Tuanku Jaafar describes the sustainability sukuk issuance as timely during this time of crisis as he cites the need to find a balance between doing business for profit and fulfilling environmental, social and governance ( ESG ) obligations. “SME Bank’s effort to be part of the global trend is a smart move to secure a strong financial imprint in the country’s financial landscape for now and in the future,” he says.

He adds: “There will come a time when ESG will be the norm and our SMEs should be ready and willing to adopt its principles in their daily operations. The government, banks and relevant stakeholders who have the capacity to invoke change should take the lead and push for continuous transformation by the SMEs.”

SME Bank president and CEO Aria Putera Ismail says the proceeds from the sustainability sukuk offering will be earmarked to finance projects that directly support 11 of the 17 United Nations Sustainable Development Goals ( SDGs ).

The 11 SDGs are aligned with the green and social project categories recognized by the Asean Sustainability Bond Standards, Asean Social Bond Standards and Asean Green Bond Standards issued by the Asean Capital Market Forum. The 11 categories are likewise aligned with the Sustainability Bond Guidelines ( SBG ), Green Bond Principles ( GBP ) and Social Bond Principles ( SBP ) issued by the International Capital Market Association ( ICMA ) and follow the standard guidelines from the Sustainable and Responsible Investment Sukuk Framework issued by the Securities Commission Malaysia.

Ismail says the green project categories target six initial key sectors – energy, manufacturing, transport, building, waste and water. These sectors have been identified by the Green Technology Master Plan to facilitate green growth in Malaysia. “With the issuance of the sustainability sukuk, SME Bank is in the right position to promote and educate the importance of incorporating ESG in business operations to all SMEs,” he adds.

SME Bank’s sustainability agenda is also in line with Bank Negara Malaysia’s performance measurement framework, which underscores the importance for DFIs to incorporate additionalities as part of their business operations to promote greater development outcomes and strengthen their accountability as public institutions.

RHB Investment Bank is the sole principal adviser and sole lead arranger of the sustainability sukuk programme, as well as a joint lead manager along with AmInvestment Bank, CIMB Investment Bank and Maybank Investment Bank.

Since its establishment in 2005, SME Bank has so far approved over 35 billion ringgit worth of financing to more than 19,000 customers, majority of whom are the underserved and unserved SMEs.

The Malaysian Rating Corporation ( MARC ) is the external reviewer of SME Bank’s sustainability sukuk framework and is also the second party opinion provider.