Revised Sukuk allotment quota allows conventional banks to join auctions

The central bank of Bangladesh has revised the Sukuk allotment quota to pave the way for conventional banks to participate in the auctions.
Conventional banks will now be permitted to take part in the auctions without any quota allocation.
The debt management department of the Bangladesh Bank (BB) issued a circular on this matter on Sunday.
It is believed that this move comes as a result of the liquidity stress experienced by Islamic banks, creating a new avenue of opportunity for their conventional counterparts.
"Actually, conventional banks will have access to these Shariah-based securities if the auction remains undersubscribed," an official familiar with the development said.
However, branches or windows of conventional banks will still maintain a quota for Sukuk, which is set at 10 per cent. Currently, these banks hold around 11 per cent stake in Islamic bonds.
According to the BB circular, priority for investing in Shariah-compliant bonds or Sukuk will be given to Shariah-based Islamic banks, non-banking financial institutions (FIs) and insurance companies.
This group will now have an 85 per cent quota, marking a 15 per cent increase from the previous allocation.
On the other hand, individual investors, provident funds and the deposit insurance sector will have a 5.0 per cent quota for the government's Islamic fixed-income instruments.
Those interested in investing in Shariah-compliant bonds, as well as all provident funds and the central bank's insurance department, will be eligible to invest in the Sukuk.
The circular said the auction will be conducted on a 'pro-rata basis', ensuring that Sukuk securities are distributed proportionately among participants.
Insiders at the central bank told the FE that this move is intended to provide conventional banks, financial institutions and insurers with opportunities.
"The conventional banks, financial institutions, and insurers should participate in the auction. They will get the fixed-income securities when the bids will remain undersubscribed," said one official.
Similar to a treasury bond, Sukuk is an Islamic financial certificate structured to generate returns in compliance with Islamic finance principles.
The government has raised a total of Tk 180 billion from Bangladesh government investment Sukuk. Profits are paid on a half-yearly basis.

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