Resident, non-resident persons, orgs eligible for sukuk investment

The finance ministry has issued guidelines on releasing sukuk (interest-free Shariah-based bonds) to meet infrastructure financing deficits.

Any resident or non-resident individual, or organisation, will be able to invest in Bangladeshi or foreign currency. Non-residents will be able to send back profits and proceeds from sales in foreign currency. Sukuk transactions will also take place on the secondary capital market.

The Finance Division, Monday, issued a notification on the sukuk issue and management which included these subjects.

The guideline says any resident or non-resident person or organisation will be considered eligible to purchase sukuk, but they must agree to accept the profit or loss.

Non-resident individuals and institutional investors can invest in any bank in the country through a non-resident foreign currency deposit account or a non-resident investor's money account.

Investors will not get any interest if they invest in sukuk; they will get profit. But this is a variable profit, meaning it can be higher or lower.

Sukuk is usually launched under a specific project. The proceeds from the project are distributed among sukuk investors as profit. Its face value is determined by the government.

Various Muslim countries – including Malaysia, Indonesia, Pakistan, Turkey, Iran, Kuwait, the United Arab Emirates (UAE), Saudi Arabia, and Qatar – have introduced sukuk.

In addition, Islamic bonds have been introduced in several non-Muslim countries, including the United Kingdom, Singapore and Hong Kong.

Finance Division officials said the share of Shariah-based banks in the country's banking system is about 25%, but there is no Shariah-compliant element to finance the government's deficits.

As a result, financial institutions are being deprived of the opportunity to invest in this sector, and the government is unable to use the funds of the institutions to finance deficits.

A Finance Division official said the government's interest expenditure will fall if the deficit is financed by sukuk. The long-term impact of government investment projects on the infrastructure sector is enormous, which cannot be expected through the private sector.

"To do this, deficit financing is coming from the conventional banking and financial systems. Islamic banks and financial institutions can also participate in this process," the official said.

The guideline signed by Finance Secretary Abdur Rouf Talukder said the Bangladesh Bank would form a Shariah advisory committee to supervise sukuk.

"It will consist of experts from the central bank and the Finance Division as well as Shariah, business and finance experts. It will give suggestions to determine the mode of investment in accordance with the Shariah guidelines to issue sukuk."  

As for sukuk's secondary trading, the guidelines state that both resident and non-resident investors can participate in secondary trading. A special purpose vehicle will be able to take necessary steps to list and trade sukuk within the country or on any international platform.

A special purpose vehicle is a subsidiary created by a parent company to isolate financial risk. Its legal status as a separate company makes its obligations secure even if its parent company goes bankrupt.