Pakistan raised USD 1 billion loan through Sukuk bond, at a record 7.95% interest rate.

Key Points

• It is the cost that Pakistan has agreed to pay on an Islamic bond.
• Country has also agreed to pledge a portion of Lahore-Islamabad Motorway in return for highly-needed loan.
• It has also raised the loan for keeping official foreign exchange reserves at their levels ahead of some major foreign loans’ repayments.
• Prime Minister Imran Khan also went to international capital markets after consuming around USD 2 billion out of USD 3 billion, borrowed from Saudi Arabia. This consumption has brought down the gross official foreign exchange reserves to USD 17 billion, as of now.

Issuance of Sukuk bond in Pakistan

• Pakistan issued 7-year tenor asset-backed Sukuk bond to raise USD 1 billion at the interest rate of 7.95%.
• This rate is almost half percent higher than 10-year Eurobond, which was floated in April 2021.

Difference between Sukuk bond and Eurobond

The key difference between Islamic Sukuk and traditional Eurobond is that, Sukuk bond is backed by an asset which attracts less interest rate. However, government paid the interest rate on the asset-backed bond, which is higher than traditional tenor bond.

What is Sukuk bond?

Sukuk is the Arabic name for financial certificates. It is also referred to as “sharia compliant” bonds. Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) define Sukuk as “securities of equal denomination, which represents individual ownership interests in portfolio of eligible existing or future assets.” The Fiqh academy of OIC had legitimized the use of sukuk in 1988. Sukuk were developed as an alternative to conventional bonds, because conventional bonds are not considered permissible by many Muslims due to interest on it. Sukuk securities are structured in accordance with Sharia by paying profit, not interest.