KARACHI: The federal government has borrowed some Rs 5.5 billion through the auction for first ever 1-year tenure Ijarah Sukuk.
Recently, the Ministry of Finance announced the auction for first-ever 1-year tenure sovereign domestic Ijarah Sukuk and the first auction was held on Feb 16, conducted by State Bank of Pakistan (SBP). The Sukuk is also approved by the Shariah Advisory Committee of the SBP to ensure its adherence to Islamic law.
According to State Bank, overall received bids amounted to Rs 10.663 billion for the sale of Variable Rental Rate (VRR) Government of Pakistan Ijara Sukuk (GIS) 1-Year, GIS 3-Year and GIS 5-Year. This included Rs 10.622 billion worth bids for the sale of GIS 1-year, Rs 28.10 million for 3-year and Rs 13.5 million for 5-year Sukuk.
Cumulatively, the federal government raised Rs 5.801 billion against the sale of VRR Ijara Sukuk. Some Rs 5.515 billion were borrowed through the sale of GIS 1-year against the initial target Rs 30 billion set by the ministry of finance. Similarly, Rs 28.1 million were borrowed against the sale of 3-year and Rs 3 million of 5-year Ijara Sukuk. In addition, some Rs 255 million non-competitive bids were also accepted in the auction for GIS VRR.
Ijarah Sukuk transaction structure unveiled
The SBP also conducted an auction for the GIS Fixed Rental Rate (FRR), for which Rs 3 million bids were received for the sale of 1-year and 3-year GIFS FRR. However, only Rs 0.5 million were accepted against GIS 1-year. The return of the Sukuk is 17.5 p.a.
Ahmed Ali Siddique, Head of Shariah Compliance Meezan Bank, said for the first time Pakistan is offering a 1-year sovereign Ijarah Sukuk in the domestic market with 6-month rental payment and it will be another step towards conversion of government financing to Islamic modes and to provide the financial sector and investors an alternative avenue to invest in Shariah-compliant Sukuk of shorter tenure.
He said the Sukuk is being offered to all banks, mutual funds, pension funds, corporate sector and individual investors looking for Shariah compliant attractive returns. The Sukuk can also attract High Net worth local and international Shariah minded investors and also those who are looking to shift from interest based National Saving schemes offered by CDNS.
Ahmed hoped that the launch of one-year GIS can also provide the government an option to discontinue 12 months T-bills after the Federal Shariat Court decision for elimination of Riba from the financial sector and Finance Minister and SBP Governor announcement to shift to Islamic banking system in the next 5 years.