The government has planned to raise funds worth Rs. 100 billion through the auction of Government Ijara Sukuk against three famous highways for a period of five years.
The highways are the M-1 (Islamabad—Peshawar), the M-4 (Pindi Bhattian—Faisalabad Motorway), and the E-35 (Hassanabdal–Mansehra).
The government puts the highways against the auction to raise funds for a period of time to allow it to generate money from Islamic banks by selling them as collateral, which is different from the conventional banking system (borrowing from banks against fixed markup).
Valuation of the assets is to be carried out by two Pakistan Banks Association (PBA) approved independent evaluators, and the lower of the two valuations will be accepted as the sale price of these assets.
Banks will acquire these assets against a value and will recover the amount through the rental values of the highways through a stipulated period of time. The exercise is internationally recognized and practiced by many countries under the mode of Islamic banking.
The auction of Sukuk is being done for the first time in the financial year, mainly to raise funds for the budgetary expenses and capital for the development project. The auction is scheduled to take place on 30 September, and various Islamic banks and the Islamic divisions of commercial banks will participate in it.
The government is likely to continue the auction of Sukuk in the current financial year as per its plan to raise funds of nearly Rs. 1.8 trillion. It had saved around Rs. 80 billion in the last financial year by raising funds through Sukuk as against borrowing money from treasury bills, etc.
Islamic banks will invest in Sukuk to make profit margins that will be distributed among the investors and depositors.
Industry experts said that Islamic banking will reap the benefits of the regular auction of Sukuk in terms of profit margins, and financial inclusion in the economy can also be achieved.
They added that the process will also pave the way towards the achievement of the State Bank of Pakistan’s plan to enhance the share of Islamic banking by 30 percent of the overall banking sector until 2025.
