Latest from GIFC

Tuesday, 19 February 2019

Sukuk issuance will spur Islamic finance industry

19 February 2019 (Standard Digital)

The Islamic finance (IF) industry in Kenya is considered relatively well developed. It ranks ahead of many African peers in terms of vibrancy and the potential for further growth.

With the growing number of the IF industry players locally, which include banks, insurance firms, cooperative societies and pension funds, the industry will boost Nairobi as the IF hub in the region.
However, there are still a number of issues that need to be addressed to sustain its growth momentum and for us to realise its full potential.
This includes the development of an enabling institutional and market-related infrastructure, the legal, regulatory, tax and human capacity matters that require special attention to overcome the barriers to the growth of the industry.
Lack of Shariah-compliant liquidity management options also continue to limit the performance of the industry and it’s time to scale up the industry through the issuance of Sovereign Sukuk.
Sukuk is considered to be one of the most innovative capital markets instruments that the Sovereign entities embrace in their bid to bolster their efforts to develop financial hubs, meet financing needs, diversify investor base and achieve financial inclusion.
Investor base
The issuance of Sukuk helps address liquidity management and balance sheet restructuring for the market players. The UK, Luxemburg, and Singapore have integrated Islamic finance in their financial systems to enable them to diversify their investor base and enhance their global competitiveness as financial hubs.
Sukuk is plural for ‘’Sakk’’ is considered an innovative and dynamic Shariah-compliant bond with features and benefits similar to conventional bonds. Accounting and Auditing Organisation for Islamic Financial Institutions defines Sukuk as ‘’certificates of equal value representing undivided shares in ownership of tangible assets, usufruct and services or in the ownership of the assets of a particular project or special investment activity’’.
It is appreciated that Sukuk strengthens the connection between the real sector and the financial sector of the economy on the basis of the underlying assets on which the funding is structured to generate returns for the bondholders.
The need to have a Special Purpose Vehicle (SPV) set up to serve as an intermediary in the issuance process must be conformed to as a standard practice. This means that governments cannot directly issue Sukuk without an SPV.
States keen on the issuance of sovereign Sukuk ought to have the necessary legal infrastructure in place for the establishment of the SPV.
Public assets
The administrative and operational aspects relating to the defined class of public assets in the execution of underlying transactions as well as the management of the SPV should be anchored in legal, regulatory and policy frameworks.
Different jurisdictions have so far issued Sovereign Sukuk. This is through innovative approaches that take into account their national values and cultural as well as religious sensitivities.
For example, the UK became the first western government to issue a sovereign Sukuk on the basis of provisions that recognise ‘alternative finance arrangements’ put in the Finance Act of 2008. This Act was complemented by the passing of the “Government Alternative Finance Arrangements Regulations” in 2014 which made provisions to support the establishment of SPV as the intermediary company for Sukuk issuance.
The involvement of SPV in the Sukuk transactions serves the interest of stakeholders in the employment of the assets that generate the required cash flow and also ensures compliance with the Shariah principles.
It also helps in safeguarding public interests and assets by facilitating the integrity of the transaction and compliance with contractual obligations as well as land laws that restrict financial transactions and other related engagements with private entities.
Kenya can leverage the partnership with the World Bank and other developments partners to boost our capacity to issue a sovereign Sukuk sooner than later.

by Jaafar Abdulkadir
-The writer is the Managing Director, Aqeel Consultancy Ltd

Source: Standard Digital (19 February 2019)

No comments:

Upcoming Events on Islamic Finance, Wealth Management, Business, Management, Motivational Alfalah Consulting, KL-Malaysia:


Register Online . Register Today

Islamic Financial Planning & Wealth Management by Ahmad Sanusi Husain