KARACHI: State-owned National Savings
Organisation geared up its efforts to revive a platform to enable small
investors to invest in asset-based shariah-compliant Ijara sukuk, officials
said.
The officials said the
structure, including its price, size and tenure, of the retail Ijara sukuk is
yet to be decided. That who would be the issuer is even unclear, they added.
A source said the work
for issuing the product is at conceptual stage. “Once, the bond market
assessment, consultation with stakeholders and other requirements get
completed, the National Savings will engage shariah advisor, legal experts,
government agencies and fund managers to structure the retail paper,” said the
source.
An official said
structuring retail sukuk is very different than floating institutional sukuk.
“The biggest challenge is to get the Islamic sukuk structured for the retail
investors and that’s what the top management of National Savings is working on
currently.”
A source, who is close
to the development, told The News that retail sukuk is not under consideration
of the government. “However, there’s a considerable demand for this
product and National Savings is exploring the possibilities of structuring it to
begin with and then decide on its other features,” said the
source.
Bankers said the
incumbent government is also considering to issuing retail bonds to lure small
savers. However, this proposal is pending because of the government’s current
strategy to borrow from the banking system to meet its spending requirement
rather than diversifying saving instruments and alternative sources of
financing deficit.
The State Bank of
Pakistan (SBP) data showed the government issued a total of 18 domestic sukuk
between 2008 and 2016, targeting mainly institutional investors, like banks to
meet budget requirements. The government raised Rs668.6 billion from
these papers. Alone last year, it secured Rs196.6 billion through issuing two
sukuks.
The government also
raised an amount of Rs232.09 billion from the savings schemes during 2015/16
against the inflows of Rs337.05 billion in 2014/15.
“Recently, the SBP
also suggested the government to introduce Ijara sukuk for retail investors as
it’s a big avenue for investment for our overwhelmingly people who don’t want
to indulge in interest-based transactions, which are clearly prohibited in
Islam,” a head of treasury at Islamic bank said.
“Ijara sukuk requires
documents and underlying tangible assets to back the full transaction amount
and that precondition can’t be easy for the government [issuer] to fulfill.”
Sources said currently
the government is not in a mood to identify assets against retail Ijara
sukuk.
“We are trying to
convince the government that retail sukuk widens the appeal of Islamic
finance,” an official said on condition of anonymity. “It’s a right time to tap
shariah-compliant buyer for debt by issuing retail bonds.”
Officials said retail
investors may be eager to participate in domestic sukuk market by investing
small saving instruments issued by the government. “In a low interest rates
scenario, the returns on Islamic retail products could be far better than
conventional savings alternatives,” said a banker.
Market observers said
in comparison to other countries, Pakistan has a relatively very small
percentage of banking population – 16 percent. “This means that around 84
percent of the population in Pakistan doesn’t use banking channels for their
transactions and therefore their wealth remains unaccounted for,” said an
expert.
Besides, the experts
added that National Savings Organisation failed to mobilise deposits from the
savers despite offering higher return on different saving products.
Investors put more
cash holdings into alternative investment channels, including equity market,
gold and real estate since interest rates are at decades-low.
National savings, as
percent of gross domestic product, remained stagnant at 14 percent for the last
two years.
The savings inflows
dropped to $78.723 billion in July-Oct 2016/17 from $105.83 billion during the
same period of last fiscal year.
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