Final Case OWFF$6013$ Islamic Financial Market, Instrument and Institutions

$$Profit With Principles: Al$-$Zouq Financing Dilemma$$

Al$-$Zouq Foods, a mid$-$sized company based in Malaysia, specializes in producing halal food products that meet stringent Shariah standards. Since its inception in $2005,$ Al$-$Zouq Foods has built a strong reputation for quality and compliance, establishing itself as a trusted brand in both domestic and international markets. The company$$s product line includes processed meats, ready$-$to$-$eat meals, and packaged food items, catering to the dietary needs of Muslim consumers worldwide. This case study explores Al$-$Zouq Foods' expansion plans and the potential future market growth driven by increasing global demand for halal products.

Company$$s Background

Al$-$Zouq Foods was founded with the mission to provide high$-$quality, halal$-$certified food products to meet the dietary needs of Muslims. Over the years, the company has developed a diverse product portfolio and established a strong distribution network across Malaysia and beyond. With a commitment to quality and Shariah compliance, Al$-$Zouq Foods has earned several certifications and awards, enhancing its brand credibility and customer loyalty. These awards include:

$$ The Halal Excellence Award for consistently maintaining high standards of Halal certification.

$$ The Best Shariah$-$Compliant Product Award for their innovative range of products adhering to Islamic principles.

$$ The Malaysian Food Industry Excellence Award for outstanding contributions to the local food industry.

$$ The Customer Loyalty Award for exceptional customer service and retention.

$$ The Green Manufacturing Award for their efforts in sustainable and environmentally friendly production practices.

Ali Rahman, the CFO of Al$-$Zouq Foods, is a seasoned finance professional with a strong background in Islamic finance. Ali is committed to ensuring that the company's financing methods are fully compliant with Shariah principles. He believes that the choice of financial instrument should not only meet the company's funding needs but also align with its ethical values and long$-$term strategic goals.

Rashid Khalid, a member of the Board of Directors, is a pragmatic businessman focused on maximizing shareholder value. Rashid is open to using Islamic finance but is primarily concerned with the cost and flexibility of the financing options. He is skeptical about the complexities involved in Islamic financing.

lnvestment Portfolio of Al$-$Zouq Foods

Al$-$Zouq Foods allocated a portion of its funds to the Islamic money market, utilizing instruments such as Murabaha and Mudharabah Investment. These instruments provided the company with liquidity management solutions while ensuring adherence to Islamic principles. In addition to money market instruments, Al$-$Zouq Foods invested in the Islamic capital market to secure long$-$term growth and returns through Sukuk and Islamic Equity.

Ali Rahman and Rashid Khalid meet with Sara Binti Zain, a financing manager at Al$-$ Fehran Bank to discuss potential financing options for the expansion of Al$-$Zouq Foods. Sara presents several Shariah$-$compliant financing solutions that Islamic Bank Ar Fehran offers.

Financing Options:

$$ Tawarruq Financing

$$ Mudarabah Financing

$$ Ijarah Financing

Sara offers Al$-$Zouq Foods a second option for financing the expansion capital: the issuance of Sukuk. With a $5\%$ coupon rate, Sara thinks they can raise RM$20$ million in Islamic debt through their partner investment bank, Ar Nour Investment Bank. Here, Al$-$Zouq Foods will lease its current manufacturing facilities and equipment to investors under the terms of the Sukuk for a predetermined amount of time. The lease payments will be semi$-$annual and based on an annual coupon rate of $5\%$ for the investors.

Competitor: Halal Pure Foods

Halal Pure Foods is a significant competitor to Al$-$Zouq Foods in the halal industry. Established in $2015,$ Halal Pure Foods specializes in producing a wide range of halal$-$certified food products, including ready$-$to$-$eat meals, frozen foods, and halal snacks. The company is committed to maintaining the highest standards of Shariah compliance and quality.

To finance its business operations and expansion plans, Halal Pure Foods utilizes Sukuk as a primary financial instrument. In $2022,$ Halal Pure Foods successfully issued RM$50$ million worth of Sukuk, partnering with Al Nour Investment Bank to facilitate this process. The Sukuk issuance was structured to align with Shariah principles, offering semi$-$annual lease payments based on a $4\mathrm{.}5\%$ coupon rate.

Market Growth Potential

The global halal food market is experiencing significant growth due to rising awareness and demand among Muslim and non$-$Muslim consumers for halal$-$certified products. This market expansion presents substantial opportunities for Al$-$Zouq Foods to increase its market share.

The global halal food market is valued at over USD $346\mathrm{.}7$ bi