Abstract:

The growth of the Islamic banking and finance industry has developed a demand for innovative and more complex Islamic financing products to serve the needs of various banking customers, especially among corporate consumers, ranging between mid-corporate to large corporate firms. A mid-corporate and large corporate firm are defined by a minimum annual turnover of USD25 million and USD250 million, respectively. Corporate clients are important to commercial banks because they provide immense profit opportunities through their various financial needs. Islamic Syndicated Financing (ISF) has been increasing in demand among corporate customers. ISF is a financing technique involving joint participation by a group of Islamic financial institutions (Islamic banks) to allocate funds to consumers. ISF is typically recommended by the banks to cater to specific needs of corporate firms. ISF standard transaction includes a team of Islamic banks that produces the same set of documents while providing funding to a corporate client. The transaction could also extend under the same financing package to a group of clients. The structure of ISF was built based upon Islamic principles derived from several sources, primarily the Quran and the Sunnah. The academic research on the ISF topic is insufficient, such that even the factors driving its usage and market development have remained unexplained and yet to be empirically explored and tested. Much of the research on the development of syndicated bank financing is focused on the SL market in the U.S and European countries. There has yet to be a study documenting the development of the Islamic alternative to SL, which is ISF, even in an Islamic finance pioneer country such as Malaysia. Islamic Syndicated Financing has been plagued by several challenges since its inception and one of the main challenges has been the understanding and the permissibility of Islamic Syndicated Financing. Therefore, the objective of this paper is to understand the functionality of Islamic Syndicated Financing.