The central bank on Monday invited tenders for the sale of five-year Islamic bonds worth Rs100 billion against three highways in the country.

State Bank of Pakistan invited the tenders for the sale of Government of Pakistan Ijara Sukuk (GIS) to raise Rs25 billion on fixed rental rate (FRR) and Rs75 billion on variable rental rate (VRR). The auction date for both – FRR and VRR – is October 26, 2021, while the settlement date is October 29, 2021.

SBP announced that the bids for both tenders could be rejected without assigning any reason. The auction of FRR and VRR was part of the government’s strategy to raise funds from the Islamic banking sector, in addition to raising funds for budgetary support from the conventional banking sector through Pakistan Investment Bonds (PIBs) and Treasury Bills (TBs).

Financial sector analysts believed that the auction of the five-year Ijara Sukuk to raise Rs100 billion was the beginning of such auctions. They forecast that more such tenders would be invited in the coming days, as the government would rely on both conventional and Islamic modes to raise much-needed liquidity for its budgetary support.

Analyst Sana Toufiq at Arif Habib Securities said, “Presently, the Islamic banking sector possesses around Rs3.8 trillion deposits, which is 19 percent of the almost Rs20 trillion total banking deposits of the banking sector.”

She pointed out that more auctions of Ijara Sukuk would be coming in the months ahead to increase liquidity for budgetary support. The government set Rs1.2 trillion targets for raising funds from the Islamic banking sector through the issuance of Ijara Sukuk in the budget of the current financial year. “Islamic banks have been pressing the SBP to issue Ijara Sukuk to deploy the huge deposits under their belt. The Islamic banking sector can participate in the auction of government papers through Ijara Sukuk,” she added.

Analyst Yousaf Saeed at Darson Securities said the government needs the funds to support its budgetary need. “Although, the amount of Rs100 billion to be raised through latest auction is not a big amount; however the number would go up in the months ahead.”

The raising of funds through Ijara Sukuk is an asset-based model of raising financing. The government has planned to raise the Islamic bond against three highways for a period of five years. According to details, these highways include M-3 (Lahore – Abdul Hakeem), M-5 (Punjab Portion), and M-5 (Sindh Portion).

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