Sindh can float Sukuk to bridge budget gap
It can pledge province’s roads as security to attract investors
For the issuance of Sukuk (Islamic bonds), separate rules need to be framed first. PHOTO: REUTERS/EXPRESS
KARACHI:
As a student of MS Islamic Banking at IBA-CEIF, an idea struck the mind while preparing a project report on Islamic capital market.
Provincial governments can issue an Islamic financial instrument in local currency to the general public by keeping roads as security.
Profit on the instrument will be paid out of the motor vehicle tax collection and the raised funds could be utilised to bridge budgetary gaps including but not limited to the public sector development programme like infrastructure development, expansion of roads, overhead bridges, underpasses, etc in various cities of Sindh. This will clear the way for quick commute within a city and between cities.
Pakistan can become hub of Islamic finance, say experts
For the issuance of Sukuk (Islamic bonds), separate rules need to be framed first. If any provincial government floats Sukuk, it will be the first time a province will be raising Islamic mode of financing. This is a Shariah-compliant alternative to savings certificates and will fetch investments from those investors who want to pour money into Shariah-compliant instruments.
In order to push ahead with the bond float, the provincial government should first create a special purpose vehicle (SPV) that requires the formulation of separate rules.
Islamic Banking: IDB to launch $2.5b benchmark Sukuk
Assets such as roads, which are owned by the provincial government, should be sold to the SPV, which will issue Sukuk to the general public for fund raising. The SPV will then transfer these funds, raised against the security of roads, to the provincial government.
The collection of motor vehicle tax will be used to pay periodic returns/profit to retail investors. The provincial government will utilise the raised funds to meet its budgetary deficit.
After maturity of Sukuk, the SPV will sell the roads to the provincial government and will give back the money received to the investors. This structure can be repeated again and again.
Despite promises, Pakistan unlikely to get heavy funding by June
Budget estimates of the government of Sindh for FY19 show that the government expects a revenue flow of Rs923.184 billion and expenditures of around Rs1,117.149 billion, suggesting a fiscal deficit of Rs174.9 billion. In the revenues, the motor vehicle tax is expected to contribute Rs8 billion in FY19 compared to the revised estimate of Rs6.95 billion for FY18.
Motor vehicle tax is levied under the Sindh Motor Vehicle Taxation Act 1958 and Motor Vehicle Rules 1959. At present, there are approximately 2.6 million registered vehicles in Sindh and the number is increasing day by day.
The writer is currently pursuing his graduate degree at the Institute of Business Administration, Karachi
Published in The Express Tribune, May 28th, 2018.
As a student of MS Islamic Banking at IBA-CEIF, an idea struck the mind while preparing a project report on Islamic capital market.
Provincial governments can issue an Islamic financial instrument in local currency to the general public by keeping roads as security.
Profit on the instrument will be paid out of the motor vehicle tax collection and the raised funds could be utilised to bridge budgetary gaps including but not limited to the public sector development programme like infrastructure development, expansion of roads, overhead bridges, underpasses, etc in various cities of Sindh. This will clear the way for quick commute within a city and between cities.
Pakistan can become hub of Islamic finance, say experts
For the issuance of Sukuk (Islamic bonds), separate rules need to be framed first. If any provincial government floats Sukuk, it will be the first time a province will be raising Islamic mode of financing. This is a Shariah-compliant alternative to savings certificates and will fetch investments from those investors who want to pour money into Shariah-compliant instruments.
In order to push ahead with the bond float, the provincial government should first create a special purpose vehicle (SPV) that requires the formulation of separate rules.
Islamic Banking: IDB to launch $2.5b benchmark Sukuk
Assets such as roads, which are owned by the provincial government, should be sold to the SPV, which will issue Sukuk to the general public for fund raising. The SPV will then transfer these funds, raised against the security of roads, to the provincial government.
The collection of motor vehicle tax will be used to pay periodic returns/profit to retail investors. The provincial government will utilise the raised funds to meet its budgetary deficit.
After maturity of Sukuk, the SPV will sell the roads to the provincial government and will give back the money received to the investors. This structure can be repeated again and again.
Despite promises, Pakistan unlikely to get heavy funding by June
Budget estimates of the government of Sindh for FY19 show that the government expects a revenue flow of Rs923.184 billion and expenditures of around Rs1,117.149 billion, suggesting a fiscal deficit of Rs174.9 billion. In the revenues, the motor vehicle tax is expected to contribute Rs8 billion in FY19 compared to the revised estimate of Rs6.95 billion for FY18.
Motor vehicle tax is levied under the Sindh Motor Vehicle Taxation Act 1958 and Motor Vehicle Rules 1959. At present, there are approximately 2.6 million registered vehicles in Sindh and the number is increasing day by day.
The writer is currently pursuing his graduate degree at the Institute of Business Administration, Karachi
Published in The Express Tribune, May 28th, 2018.