Pakistan Issues Islamic Bonds

Pakistan has issued USD 1 billion from international debt markets by issuing five-year dollar-denominated Islamic bonds.

Pakistan received nearly USD 2.4 billion in total offers from foreign investors. The five-year bond has been issued at a profit rate of 5.5 per cent.

Pakistan has decided to raise the fresh debt to buffer the reserves ahead of some major loan repayments during the second half of this fiscal year.

The government went to raise debt ten days after the expiry of three-year USD 6.2 billion International Monetary Fund (IMF) programme.

Islamic Bonds:

Islamic bonds are also known as Sukuks.

Sukuk is the Arabic name for financial certificates, but commonly referred to as “sharia compliant” bonds.

Sukuk are defined by the AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) as “securities of equal denomination representing individual ownership interests in a portfolio of eligible existing or future assets.”

The Fiqh academy of the OIC legitimized the use of sukuk in February 1988.

Since fixed-income, interest-bearing bonds are not permissible in Sharia or Islamic law, Sukuk securities are structured to comply by not paying interest. This is generally done by involving a tangible asset in the investment. For example, by giving partial ownership of a property built by the investment company to the bond owners who collect the profit as rent, which is allowed under Islamic law. Upon expiration of the Sukuk, the rent payments cease.