85% government Sukuks for Islamic lenders, insurers

Shariah-compliant banks, non-bank financial institutions (NBFIs) and insurance companies would be entitled to buy 85% of the government Sukuks, the Bangladesh Bank said on Sunday.

Previously, the allocation quota was raised to 80% from 70%. 

According to the central bank's circular, 10% of the government issued Islamic securities would be reserved for Islamic branches and windows of conventional banks.

The remaining 5% units would be issued to other investors including individual investors, provident funds and deposit insurance, it added.

According to the circular, if investors under all the three categories oversubscribe for a government Sukuk, the unit allocation will be done on a pro-rata basis.

In other words, the oversubscription will result in a proportionate decline in the number of units the investors from one category applied for, from the number of units they wanted to buy.

On the other hand, if any one or two of the investor segments undersubscribed a government Sukuk and the other one or two bid for more than their quota, the unsold units will be allocated among the over subscribers on a pro-rata basis.

And, if all three segments remain undersubscribed, conventional banks, NBFIs, and insurers would be entitled to bid and they will enjoy pro-rata allocation.

The Bangladesh Bank raised Tk13,000 crore for two different projects in the recent years and has plans to continue as the burgeoning Islamic financial industry is in increasing need for the Shariah-compliant instruments.

Unlike traditional debt instruments, Sukuk lets investors own the subject asset bought out of their money until repayment and over the interim period, they earn rental income the user of the asset pays.

After full repayment, the underlying asset's ownership is transferred to the user who originated the Sukuk.

Trustee builds the bridge between the investors and originator.

Private sector entities also started to be financed by Sukuks.

In 2021, publicly traded Beximco Limited issued the first ever private sector Sukuk in the country and the Tk3,000 crore instrument was mostly subscribed by institutional investors.