The government has issued a set of guidelines on creating scope for the launch of Shariah-based bond Sukuk in the country for the first time.
Sukuk is the Arabic name for financial certificates, but commonly refers to the Islamic equivalent of bonds.
The finance ministry issued the guidelines titled ‘Bangladesh Government Investment Sukuk Guidelines, 2020’ on October 8 through a gazette notification.
On Wednesday, the Bangladesh Bank issued a circular in this regard to the chief executive officers and managing directors of banks.
BB general manager Rup Ratan Pine told New Age that the job of the central bank would be taking required measures in this regard so that the government could borrow fund by issuing Sukuk.
The central bank is working hard to launch Sukuk within the quickest possible time, he said, adding that the government through the BB would issue the investment instrument.
As per the guidelines, both resident and non-resident entities and individuals would be able to make investments in Sukuk.
Non-resident entity or individual will have to open non-resident foreign currency deposit account or non-resident investor’s taka account with the banks to make investments in Sukuk. The investments or the profits that would be generated against the investments in Sukuk can be repatriated.
However, the investors will have to give consent to take profit and loss both whichever would be generated against the investments.
Sukuk would be issued by the government at face value either through private placement or by auction.
Investment dealer bank and financial institutions would be able to participate in the auction of Sukuk. Individual and institutional investors will have to conduct all their investment-related procedure by the investment dealer, bank and financial institutions.
The settlements of the auctions of Sukuk would be completed in T+1, the immediate next day of the auction.
As per prospectus of a particular Sukuk, the SVP of the bond would have the authority to re-issue or shelf issue of Sukuk through auction or via private placement.
Profit against Sukuk would be disbursed on quarterly, half yearly or annual basis while the principal value would be paid on maturity.
About the investments strategy from Sukuk, the guidelines said that the central bank would form a Shariah advisory committee comprising individuals with adequate knowledge on Islamic trade laws, business and financial services.
The committee would be responsible to give ruling based on Shariah on the government’s proposal to issue Sukuk. The committee would also advise on setting mode of investments for the issuance of Sukuk.
Sukuk are structured in a way to generate returns to investors. They are issued and traded in compliance with the principles of Shariah, which prohibit ‘riba’ or interest.
When someone invests in Sukuk, his money is put into the assets of a project or investment in order to generate profit.
The Sukuk holders will receive a certificate from the issuer as evidence of ownership, and are entitled to receive periodic profit payments on the principal amount invested.
Upon maturity, the Sukuk holder will get back the principal amount of investment.
There are different types of Sukuk including musharakah, mudharabah, murabahah and al-wakalah.
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Banking