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South Africa Introduces Islamic Bonds

Published: 28/02/2014 04:48:10 AM GMT
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CAPE TOWN – Taping into the thriving market, South Africa has announced plans to launch its first-ever Islamic bonds or Sukuk, in both local and international markets, in a bid to overcome the national debt. “Our first sukuk (Islamic) bond will be launched this year,” Finance Minister Pravin Gordhan told lawmakers while unveiling his a...(more)

CAPE TOWN – Taping into the thriving market, South Africa has announced plans to launch its first-ever Islamic bonds or Sukuk, in both local and international markets, in a bid to overcome the national debt.

“Our first sukuk (Islamic) bond will be launched this year,” Finance Minister Pravin Gordhan told lawmakers while unveiling his annual budget, Agence France Presse (AFP) reported on Wednesday, February 26.

“Options for introducing a sukuk retail savings bond are also being explored.”

Aiming to limit the risk that lenders may encounter in the African country, plans to issue Islamic bonds or Sukuk have been under discussion for more than two years.

Back in December 2013, South Africa National Treasury invited banks to provide help in structuring the issuance of the government’s first Islamic bonds.

The idea has gained a strong support amid expectations the move would help boost the state’s economy.

Announcing 2014 plans, the treasury has put a target to gain $1.5 billion/year in capital markets over the coming three years.

“It is only now a question of timing, when it is right and when we need the money, we will do it,” Treasury Director General, Lungisa Fuzile, told Reuters.

“We expect that we will probably do it before the end of this financial year, it may even be before the end of this year.”

The Shari`ah-compliant Islamic finance has successful history in South Africa with different banks and investment companies offering these products.

Several banks as the First National Bank and ABSA bank offer Shari`ah-compliant services.

By 2016, the debt in the African country is expected to account for 44.3% of the GDP.

The Global Islamic Finance Report has revealed that Shari` ah complaint debt has witnessed rapid progress over the past few years.

Like other forms of Islamic financing tools, sukuk do not receive or pay interest.

It typically operates through actual transactions such as profit-sharing or leasing.

Islam forbids Muslims from usury, receiving or paying interest on loans.

Islamic banks and finance institutions cannot receive or provide funds for anything involving alcohol, gambling, pornography, tobacco, weapons or pork.

Shari`ah-compliant financing deals resemble lease-to-own arrangements, layaway plans, joint purchase and sale agreements, or partnerships.

Investors have a right to know how their funds are being used, and the sector is overseen by dedicated supervisory boards as well as the usual national regulatory authorities.

The global market in Islamic investments is rapidly expanding, rising by 150 per cent since 2006 and expected to be worth £1.3 trillion in 2014.

Reproduced with permission from OnIslam.net - Read full article here

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