The country witnessed an unprecedented sale of Ijarah Sukuk, accumulating Rs371 billion (over $1.29 billion). This remarkable sale marked the most substantial single auction issuance of Islamic bonds since the inception of the Sukuk program in 2008. The substantial demand primarily emanated from local Islamic banks. Although the government aimed to secure Rs240 billion, the overwhelming response led to bids worth over Rs508 billion ($1.77 billion).
Interestingly, while Sukuks equivalent to Rs371 billion were issued across five denominations, all proposals against the five-year fixed-rate category were declined. The rental rates of these Sukuks ranged from 18.49% to 23.62% per annum.
Shifting Towards an Interest-Free Banking Model
The Sukuk issuance’s core asset was the Islamabad Expressway, where an Ijarah Sale and Lease Back transaction was executed. With the approval from the State Bank of Pakistan’s Shariah Advisory Committee, key banks such as Meezan Bank Limited, Dubai Islamic Bank Pakistan Limited, and Bank Alfalah Limited directed the transaction.
Ahmed Ali Siddiqui from Meezan Bank emphasized the government’s preference for Sukuk over interest-based borrowings. Such a shift supports the economy, promotes financial inclusion, fortifies the Islamic banking sector, and aligns with the Federal Shariat Court’s mandate to eliminate interest from the economy. With Islamic banks observing robust asset growth, there’s a surge in demand for local currency sukuk. The State Bank of Pakistan (SBP) aims for Islamic banking to comprise 35% of the market by 2025, a significant jump from the current 20%.
