Published 16 Dec,2020 via Business Daily – Over the years, the world has seen steady growth of the global Sukuk market.
Sukuk is defined as a certificate of equal value representing undivided shares in ownership of tangible assets and services. Sukuk is an instrument for raising capital, usually referred to as an Islamic bond, tradeable on the securities exchange.
The fundamental difference between a Sukuk and a conventional bond is that the latter represents a debt obligation owed by the issuer to the bondholder while Sukuk represents beneficial ownership in the underlying asset.
Sukuk can be issued by corporates or governments.
Islamic finance is a method of financing based on the principles of Islamic law (Shariah).
Sukuk can be used as an innovative instrument, especially for infrastructure development.
Some of the projects that can be financed through Sukuk are housing projects, hospitals, water sanitation plants, transport, sustainable and affordable energy. These are key sectors that need urgent resource allocation to help Kenya achieve its Vision 2030 goals.
For governments, Sukuk represents an important tool to fund budget deficits, infrastructure and mega projects.
Raising funds through Sukuk has become an integral part of Islamic finance and has been used to finance infrastructure development plans, particularly around the Gulf Cooperation Council and Malaysia.
The combination of a large Muslim population and a well-structured Islamic banking system has enabled these countries to issue Sukuk in a global market worth more than $100 billion a year.
In Africa, Morocco and Nigeria issued $105 million and $327 million of Sukuk, respectively in 2018. Morocco’s, an inaugural issuance, was 3.6 times oversubscribed.The Islamic finance industry in Kenya is considered relatively well developed and has potential for growth.However, Kenya is yet to have a Sukuk issuance in the capital markets despite the amendments through the Finance Act of 2017 that sought to include various definitions and Shariah-compliant products.To sustain the growth momentum of Islamic finance and reap full benefits of this innovative product, Kenya needs an enabling institutional and market infrastructure as well as a legislative, regulatory and tax environment supportive of Islamic products.It is time for the Kenyan capital markets to hasten the roll out of Sukuk as an asset class for investment.Sukuk would provide issuers with an alternative to syndicated loan financing and bonds, to finance capital expenditure and acquisitions.Similarly, Sukuk allows investors who may have previously over-relied on bank deposits and equity to access the capital markets. Sukuk issuance adds to the dynamism […]