Finance ministry advised to conduct monthly sukuk auctions

KARACHI: Government should conduct monthly sukuk auctions to give shariah-compliant banks an opportunity to utilise their surplus liquidity, a former governor of the central bank said on Saturday.

“The ministry of finance should announce Ijara sukuk auction schedule on a monthly basis for the next quarter, showing its targeted amount to be raised through the Islamic papers,” Ishrat Husain, who is also chairman Institute of Business Administration (IBA) said, addressing a pre-event meet to two-day conference scheduled from March 19.

“The demand for sukuk is high, but its supply is low. Therefore, profit rate on sukuk is less than the conventional papers.”

Centre for Excellence in Islamic Finance and IBA are jointly hosting the conference, titled ‘World Islamic Finance Forum 2018’.

Islamic banking industry is facing dearth of shariah-compliant investment opportunities.

Islamic banks are struggling with excessive liquidity as they have no avenues to deploy their surplus funds in the absence of rupee-denominated sovereign Islamic bonds.

Liquidity management is increasingly becoming difficult for them due to infrequent issuance of sukuk caused by documentation, title of assets and taxation.

Government issued sukuk to raise money last time in June 2017.

It raised Rs866 billion funds through the sale of the government Ijara sukuk between September 2008 and March 2016.

Share of Islamic banking institutions in the domestic debt is less than four percent despite that Islamic banking industry is growing at 13 percent a year.

Government is used to issue auction calendars for the sale of its conventional debt securities, including market treasury bills and Pakistan Investment Bonds at the start of every month.

Husain advised Islamic financial institutions to explore new investment opportunities by reaching out to non-traditional sectors.

“Islamic banks have lots of opportunities to expand its range of services to the underserved sectors such as small and medium enterprises, agriculture, low-cost housing and microfinance,” he said.

“There is a high demand for Islamic mortgages in Pakistan. Islamic banks should further increase their share in diminishing musharka mode of financing.”

Irfan Siddiqui, president of Meezan Bank said share of Islamic banking industry could increase from 14 percent to 20 percent if the host of issues facing Islamic banks is solved.

“The industry is facing shortage of trained human resource,” he added.

“The World Islamic Finance Forum 2018 is expected to bring together researchers, academicians and practitioners for generating innovative ideas to expand Islamic finance growth through innovation, fin-tech and regulations.”

Farrukh Iqbal, dean and director of IBA said research papers and case studies to

be presented at the conference would be focused on areas crucial for the expansion of Islamic finance industry.

Around 50 speakers representing regulatory bodies, Islamic finance infrastructure institutions, Islamic banks/windows, asset management companies, advisory firms and Takaful players will be part of the event.

Overall, 17 global and 15 local institutions from Middle East would be represented by industry experts on the speaker panels at the conference.