Sukuk framework in the making in Bangladesh

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BANGLADESH: Taking heed of the central bank’s clarion call for it to play a more active role in developing the local Sukuk market, the Bangladesh Securities and Exchange Commission (BSEC) has engaged the Asian Development Bank (ADB) to craft regulations for Sukuk issuance.

This was confirmed by BSEC’s executive director Mohammad Saifur Rahman, as reported by the national news agency. Mohammad said the BSEC recently met with the finance ministry to discuss about Sukuk, which have been identified by the central bank as a key instrument in mobilizing funds for the private sector and government-related bodies to develop the country’s mega infrastructure projects.

A technical assistant for the project has been approved and the consultants of the project will begin preparing the regulatory framework. Once ready, Mohammad said BSEC will start introducing Sukuk. 

The government of Sheikh Hasina Wazed intends to turn the country into a middle-income nation through the Perspective Plan of Bangladesh 2010-21, which includes the construction of key infrastructure projects such as highways, metro rails, and liquefied natural gas terminals. However, Bangladesh faces an infrastructure financing gap of 5-6% of the country’s GDP or a shortfall of US$9-10 billion a year, according to ADB estimates.

Accommodating Sukuk would also allow financial institutions, including the National Credit and Commerce Bank, Dhaka Bank, Exim Bank and Al Arafa Islamic Bank, which have expressed intentions to tap the Islamic capital market, to raise a combined BDT13 billion (US$156.34 million). In December last year, Islami Bank Bangladesh also announced its decision to raise BDT7 billion (US$84.19 million) in Tier II capital through the issuance of a seven-year second Mudarabah redeemable non-convertible subordinated Sukuk.

Apart from short-term Sukuk offered by the central bank on a weekly basis to assist Islamic banks with their liquidity management needs, no corporates have issued Sukuk, due largely to the lack of an efficient regulatory infrastructure. 

Since January, Bangladesh Bank has sold one three-month Bangladesh Government Islami Investment Bond (BGIIB) worth BDT500 million (US$6.01 million) and 14 six-month BGIIBs amounting to a combined BDT43.04 billion (US$517.62 million).

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