Islamic bonds in developing countries

Published 16 Oct,2021 via The Financial Express - Sukuk or Islamic Bonds are a new investment product in Bangladesh for a variety of investors. A financial instrument controlled by Islamic Shariah law is known as a Sukuk. It differs from a traditional investment in that it does not pay interest (i.e.'Riba' in Arabic) and instead offers income in the form of a shared profit.

Islamic financing accounts for approximately 25 per cent of the total market. If Islamic bonds are effectively implemented and utilised, it will benefit the government and the economy in two ways: (a) when the private sector refuses to invest in infrastructure development, the government can generate funds and use them to improve infrastructure development; (b) to cover the yearly budget deficit, the government generally borrows from the banking system. As a result, the government exerts pressure on the financial system. In such a situation, the government can reduce the funding gap by borrowing directly from citizens via Islamic bonds.

The private sector can also borrow from citizens to invest in their businesses, including in various Shariah-compliant enterprises. In the light of this, the decision to introduce the Islamic bond is very positive. Professor Kabir Hasan, an internationally known and prominent Islamic Finance professor from the University of New Orleans, has for long advocated for this proposal. Here are the highlights of recent talk with Professor Kabair Hasan. [the talk was facilitated by Dr. Tonmoy Choudhury, Lecturer at Edith Cowan University]