Sukuk, a sharia-compliant bond-like instrument used in Islamic finance, can play a great role in financing infrastructure projects in Bangladesh.
It has been identified by the central bank as a key instrument in mobilising funds for the private sector and government-related bodies to develop the country's mega infrastructure projects.
The Islamic banks, to mention, have excess liquidity for lesser options to invest for sharia compliance. Sukuk can open a new horizon of investment under sharia finance.
Although Bangladesh is preparing to launch its first Sukuk bond this year, it needs to formulate a comprehensive legal and regulatory framework for getting optimum benefit from the instrument.
There should be a market ready and trust-buildingwork among the people for Sukuk before launching the product and the regulator should work on that.
The market share of Islamic banks in Bangladesh is 35 per cent and it is expanding. Neither the government can borrow much from Islamic banks nor the banks can participate in the government's development agenda due to sharia constraints.
After consultations with the sharia experts and Islamic bankers, the government is now close to making a deal on this. As a result, the first Sukuk bond will be launched by this December.
A delegation comprising representatives from finance ministry, central bank, securities exchange commission and sharia board will visit Malaysia soon for hands-on knowledge on the bond.
There is no denying the fact that Islamic finance is gaining popularity in both Muslim-majority and Muslim-minority countries attracting all faiths. The Sukuk market can play a pivotal role in facilitating the country's economic growth.
The central bank has already drafted the Sukuk policy and sent it to the ministry for gazette notification. Experts say it is an ideal time to launch Sukuk in the Bangladesh market.
But there is an undefined fear about the instrument for lack of knowledge in the product. The people should acquire more knowledge about the product before launching it in the market.
Sukuk has already become a significant liquidity management tool in the Islamic finance market. The global capital market has recognised Sukuk as an important alternative to asset management.
Analysts say Sukuk is not simply a bond, it is a bond which has asset at the back end. They say the world finance market has a lot to learn from Islamic banks in Bangladesh.
It has been observed that the country does not have adequate regulatory framework for Islamic finance, except the banking rules and recent Sukuk rules of the Bangladesh Securities and Exchange Commission (BSEC).
Numerous infrastructural projects have been financed through Sukuk in many countries, including Malaysia and some African countries. Sukuk has proven its resilience during the recent turbulence in global capital market.
Bangladesh needs an investment of about Tk. 300 billion for infrastructural development. The country can utilise the Islamic financial instruments to raise fund for various infrastructural projects.
Since the beginning of 2000, Sukuk has become an important Islamic financial instrument for raising funds or long-term project financing. It may be mentioned that Sukuk is not limited to Muslim majority countries only.
Many non-Muslim countries have adopted the financial instrument, considering its sustainability and inner sense of fairness.
The capital market in Bangladesh is not doing well. This is right time to introduce Sukuk in local capital market.
Since mismatch between long-term lending and short-term deposit has created havoc in Bangladesh's banking sector, Sukuk can help create some balance in the capital market and remove mismatch in the banking sector.
With estimated assets worth $31 billion, market research on Islamic finance has positioned Bangladesh as 17th among 131 countries. The Islamic banks, despite not having a diverse range of products to offer, hold about 24 per cent of the total asset of the local banking sector.
Exploring some of the financial products like Sukuk, which are widely prevalent in the market, is crucial for Bangladesh now. It has been proved that the Islamic financial instruments can create an environment of justice for all parties involved.
szkhanfe@gmail.com