CAPE TOWN – As Islamic finance grows by leaps and bounds, South Africa National Treasury has invited banks to provide help in structuring the issuance of the government’s first Islamic bonds or Sukuk, in both local and international markets.
“There is a great interest in the Sukuk market,” Treasury Director-General Lungisa Fuzile said in a statement cited by SouthAfrica.info website on Wednesday, December 7.
According to the Treasury, the banking institutions were urged to provide advisory services and in the structuring and issuance of a government Islamic bond.
“This is the first step towards meeting the growing appetite for government backed Shari`ah compliant investments,” Fuzile added.
The successful bidder will also help in structuring, managing as well as coordinating the issuance of sukuk in South Africa for the first time.
Moreover, they will be responsible for obtaining relevant regulatory approvals, as well as securing a listing for the bond both locally and internationally.
The successful bidder will also have to market the bond to investors, indicate underwriting and market-making appetite, facilitate the book building process and provide any additional services required to successfully launch the bond.
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.
Companies that have issued Islamic bonds make payments to investors using profits from the underlying business, instead of paying interest.
The Sukuk market has reached $111.9 billion in the eight years to 2008, according to the International Islamic Financial Market.
Islam forbids Muslims from usury, receiving or paying interest on loans.
Transactions by Islamic banks must be backed by real assets — not shady repackaged subprime mortgages and banks 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.