Officials have stated that during the growing demand for the instrument, the Bangladesh Bank has decided to introduce a separate quota on Sukuk or Islamic bonds for the country’s Shariah-compliant or Islamic banks.
The central bank did not offer any quotas while holding its first auction, but the officials have stated it would introduce the quotas from the next auction which is scheduled to be held in June 2021. The decision came at a recent meeting of the central bank, but without setting any quota limit.
“We’ve decided to introduce a separate quota for the Islamic banks, but the volume or percentage is yet to be set,” said an official at the debt management department of BB.
The officials have stated that the department is expected to hold discussions in this regard with the divisions concerned soon. This drops a bigger hint that it could be between the range of 40-50 per cent for the Islamic banks or Islamic banking windows of the other banks. The rest of the bonds will be distributed among the individuals and other financial institutions.
Bangladesh Government Islamic Investment Sukuk’s inaugural auction was held in December 2020, introducing a new chapter in the country’s financial market. During the debut, Tk 40 billion (Tk 4000 crore) worth of Sukuk were issued. Banks and financial institutions were allowed to participate in the bidding. The denomination of each Sukuk was Tk 10,000 where any individual and institution can purchase it. The individuals can purchase through a banking channel and where they are required to open a separate account with the banks.
Similarly, with the bond, there is a 5 per cent tax on profit at source (annualized). The central bank had applied to the national board of revenue for reviewing it. The government is mobilizing the fund through the issuing of the bond to finance a safe water supply project across the entire nation. The Islamic bonds differ from the traditional ones, as there is a requirement for a project to raise funds from the Islamic people.
There are generally 3 parties involved in an Islamic Sukuk, the originator, special purpose vehicle (SPV) and the investors. The government is usually the originator of the Sukuk. Bangladesh Bank acts as an SPV to administer it. It also acts as the trustee to resolve any crisis between the investors and the government.
Investors will receive a profit at a rate of 4.69 per cent on their aggregate investment in the bond. The profits will be paid to investors on a semi-annual basis. The tenure of the bond is 5 years and the project duration is also 5 years.