Govt introduces Islamic certificates

Non-resident and resident Pakistanis can invest in foreign currencies and rupee-denominations

The cash-strapped government has introduced the much-awaited Shariah-compliant regulations to enable resident and non-resident Pakistanis to extend financing in foreign currencies to the country mainly to stabilise and build up the foreign exchange reserves.

The non-resident Pakistanis, who have an account at a local bank under the recently launched Roshan Digital Account (RDA) initiative, and resident Pakistanis, who have declared assets abroad with the Federal Board of Revenue (FBR), are eligible to invest in the three-month to five-year long Shariah-compliant saving certificates - Islamic Naya Pakistan Certificates (INPCs) - both in foreign currencies (mainly in US dollar) and local rupee-denominations.

“We (the eight banks, which are offering Roshan Digital Accounts) are determined to formally launch the Islamic saving certificates in foreign and local currencies for resident and non-resident Pakistanis within 10 days,” Meezan Bank Head of Product Development and Shariah Compliance Ahmed Ali Siddiqui told The Express Tribune after the government introduced INPCs regulations earlier this week.

For this purpose, the eight banks would establish two Shariah-compliant assets (Mudaraba pools) worth $20 million and Rs5 billion. Later on, resident and non-resident Pakistanis would become part of the assets by investing in the saving certificates and the banks would quit, while receipts from Pakistanis would only be provided to the federal government, according to the regulations.

The investing Pakistanis can pull out investment at any time after a period of one-month investment in the saving certificates of the tenures ranging from three-month to five-year. This means that they can sell the certificates prematurely and withdraw the investment to their foreign accounts.

“They will be offered a return on investment at the rate close to the attractive ones being offered on conventional Naya Pakistan Certificates (NPCs),” Siddiqui said. On the investment in foreign currencies in NPC, the government is offering annualised return of 5.5% on three-month certificate, 6% on six-month certificate, 6.5% on 12-month, 6.75% on three-year and 7% on five-year saving certificate, it was learnt.

In local rupee-term, the government is offering annualised return of 9.5% on three-month certificate, 10% on six-month certificate, 10.5% on 12-month, 10.75% on three-year and 11% on five-year saving certificate.

Siddiqui said his bank alone had opened over 4,000 accounts under RDA initiative till date and he expects thousands more in the weeks and months to come. “INPCs would attract huge investment because Shariah-compliant was in demand since long but there was dearth in the market.”

The initial investment worth $20 million and Rs5 billion by the agent banks is required to ensure that the pools have Shariah-compliant earning assets before receipt of investments in INPCs, according to the regulations.

The SPV (special purpose vehicle) shall use these funds to provide financing to the federal government through sale and lease back of identified assets in US dollar for US dollar pool and in Pakistani rupee for Pakistani rupee pool.

Published in The Express Tribune, October 9^th, 2020.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.