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SBP issues guidelines for Islamic bonds

Notifies criterion for Ijara Sukuks to be included in Musharaka Pool.

Ppi May 22, 2013

According to SBP rules, every Islamic bank is obligated to create a Musharaka pool consisting of financing blue chip companies on Islamic modes. PHOTO: FILE

KARACHI: The State Bank of Pakistan (SBP), on Wednesday, issued a circular to all Islamic banking institutions about the Islamic Export Refinance Scheme (IERS) and eligibility of Ijara Sukuk (Islamic bonds to be included in the Musharaka pool.

According to SBP rules, every Islamic bank is obligated to create a Musharaka pool consisting of financing blue chip companies on Islamic modes.

The Musharaka pool is supposed to have a minimum of ten companies with diversified lines of businesses to avoid concentration in sectors.

The circular listed the conditions that will make the Government of Pakistan Ijara Sukuk eligible to be included in the pool, created under the IERS.

The conditions said that the maximum limit for investment in the Ijara Sukuk by Islamic bank institutions in the pool will be 50% of their total share of financing in the Musharaka pool.

The value of Ijara Sukuk held cannot be counted for meeting the bank’s statutory liquidity ratio requirement – an amount that every bank is bound to maintain either in gold or government approved securities before providing credit to its customers.

In the scenario where the Government of Pakistan issued Ijara Sukuk are included in the Musharaka pool, they will be eligible to counted towards calculating the concentration limit on holding of Islamic bonds.

The Sukuk should also be appropriately reported in the appendix when the institutions release its statements under the heading ‘GoP Ijara Sukuk’. Moreover, it should also be verified or certified as over and above the liquidity requirement’s eligible limit by the Islamic banking institutions’ internal audit department.

According to the SBP instructions, the Islamic banking institutions are also required to maintain records of Sukuk issues and the amount it allocated to its respective Musharaka pool.

Published in The Express Tribune, May 23^rd, 2013.

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