Govt raises Tk5,000cr with Sukuk bonds to develop school infrastructure

The government has raised a fund of Tk5,000 crore with shariah-based "Sukuk" bonds for infrastructure development of primary schools.

To this end, the Bangladesh Bank on Wednesday arranged an auction, in which 31 banks and three individual investors placed bids worth Tk23,304 crore against the targeted amount.

The auction committee of the central bank raised funds proportionately from the bidders.

Sukuk is an Islamic financial certificate, similar to a treasury bond, that generates returns in compliance with Islamic principles.

In December last year, the government for the first time raised Tk4,000 crore in Islamic bonds for a development project amid the Covid-19 pandemic when it was struggling to collect revenues from a stagnant economy.

Banks and individuals at the time placed 39 bids worth Tk15,153 crore.

On Wednesday, the government raised Tk3,000 crore from 9 Islamic banks against their placed bids worth Tk21,000 crore, while it received Tk526 crore from 16 conventional banks with Islami branches or windows, against their offered Tk1,254 crore, and Tk789 crore from 6 state-run banks against Tk1,050 crore offered.

The government accepted all the bids from four individuals, worth Tk26 lakh.

All of the investors will get 4.65% profits (called rental yield), on their investment  in the shariah-based five-year bonds. 

According to the bond documents, the raised amount will be used in a Tk9,123 crore project titled "Required Development of Primary Schools" that was taken up in 2016.

The government has already spent around Tk510 crore for the development project until November this year, while it expects to spend some Tk500 crore more by next year. The spent amount will be realised from the raised funds, the documents read.  

Meanwhile, analysts believe Sukuk bonds will gain popularity in Bangladesh in the coming days.

"Investors showed interest in the government-issued Sukuk bonds as it guarantees safe and good returns. The profit in the bond is higher than other instruments, which was another reason," said Salehuddin Ahmed, a former governor of Bangladesh Bank.

The bond was widely popular in different Islamic countries across the globe, particularly in Middle Eastern countries, for its compliance with Shariah principles.