Hefty interest payments on growing debts prompt the government to go for fundraising with Sukuk worth Tk 50 billion to supplement traditional bonds that are getting costlier by the day for high yields, sources say.
Interest rates on conventional bonds have gone high amid growing government borrowing with this sort of alternation instruments with dependence on bank borrowings lessened. As such, the government now plans to borrow higher amounts of money by issuing an Islamic bond nicknamed Sukuk to cut down interest spending, officials said.
The ministry of finance (MoF) now plans to take up to Tk 50 billion from Sukuk bond in the new fiscal year though the budget has set a target of obtaining Tk 20 billion from this source.
At a recent meeting Finance Division officials noted that presently there are Islamic-window branches of conventional banks, shariah-based financial institutions and insurance companies, and people who are not interested to receive interest on bank deposits are increasingly showing interest in investing in Sukuk.
On June 5 this year, a Sukuk auction received bids five times the notified bates on offer, the officials said.
In December last year, a meeting of the Cash and Debt Management Committee (CDMC), headed by the finance secretary, was apprised that the conventional banks, financial institutions, and insurance companies had been given permission to participate in Sukuk auctions.
And also it was decided that "if the shariah-based banks and financial institutions were found unable to subscribe to the auctioned amount of Sukuk bond, the sum will be allocated in favour of conventional banks and financial institutions".
"As such, a meeting of the CDMC on June 27 decided to borrow higher amounts with Sukuk to take the advantage of its low yield rate," says one official.
Also, the meeting decided to revisit the quota for Sukuk subscription taking into consideration the financial condition of Islamic banks and the subscription interest of conventional banks, sources said.
The government has gone for issuing Sukuk bonds since December 2020 in line with the Bangladesh Government Investment Sukuk Guidelines 2020. So far, some Tk 190 billion worth of Sukuk bonds have been issued under four projects, finance ministry data show.
The first Sukuk bond was issued on December 28, 2020 to raise funds for implementing a safe-water-supply project. A number of private-sector conglomerates, including Beximco Group and Pran-RFL, also raised funds through issuing Sukuk.
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