Short-term Islamic bonds in six months

KARACHI: Director Islamic Banking Department of the State Bank of Pakistan (SBP) Saleem Ullah has said that the mechanism for short-term liquidity instruments for Islamic banks is being evolved and the launch of these bonds is expected in the next six months.

Speaking at a two-day workshop for journalists held at the SBP’s premises on Tuesday, the director said that short-term Islamic sukuk (bonds) will be launched in the money market in the next six months.

Currently, Islamic banks can only invest in three-year government ijara sukuk.

“In order to address the difficulties in managing liquidity, there is a need to introduce an alternative to short-tenure Treasury bill bonds in the money market for Islamic banks,” he said.

Saleem said that Pakistan has sound Islamic banking and a shariah compliance framework, in terms of prudential rules and regulations. And that the minimum capital requirements for the conventional and full-fledged Islamic banks are the same as for conventional banks.

“A nominal Rs50 million is required for opening Islamic banking branches of the conventional banks, while their capital adequacy ratio is presently calculated using the same Basel II framework,” he explained.

Earlier, experts on Islamic banking and finance agreed the Islamic banks can invest in government activities and projects much like conventional banks but there is a need to create an underlying asset.

President Bank Islami Hasan Aziz Bilgrami said Pakistan’s share in the total global Islamic banking and finance industry is the lowest at just two percent, while Malaysia enjoys the biggest share of 91 percent and the rest is held by Middle Eastern countries.

Another expert said that while the industry has been partially successful in eliminating riba from banking transactions, it needs to introduce diversified products for those segments of the society, which want Islamic investment and financing.