TUNIS – Seeking to finance its budget deficit following last year’s uprising, Tunisia’s Islamist government is planning to issue the country’s first Islamic bonds (sukuk) this year.
“The Tunisian government is planning to issue an Islamic sovereign bond before the end of this year,” Adnan Ahmed Yousif, chief executive of Bahrain-based Al Baraka Banking Group, an Islamic banking conglomerate with operations across North Africa, told Reuters.
“They’re very serious about it and are now in talks with banks, said Yousif, who is also chairman of the Beirut-based Union of Arab Banks, an industry association.
“It will be Tunisia’s first sovereign sukuk.”
Sukuk, which conforms to Islam’s prohibition of usury, typically work as profit-sharing vehicles.
Firms that issue sukuk make payments to investors using profits from the underlying business, instead of paying interest.
The money, however, can’t be invested in alcohol, gambling, tobacco, weapons or pork.
Sukuk have often proved to be more stable than conventional bonds during the global financial crisis.
The sukuk market has reached $111.9 billion in the eight years to 2008, according to the International Islamic Financial Market.
Global sales of sukuk have reached $6.6bn in 2012, from $2bn a year earlier, according to data compiled by Bloomberg.
A sukuk issue could allow Tunisia to tap a pool of billions of dollars of Islamic investment funds in the wealthy Arab Gulf.
“I believe Tunisia has the potential to become the Islamic finance hub for Africa,” Yousif told Reuters.
“It’s working towards having all the requirements needed for that.
Tunisia’s government, led by the moderate Islamist Ennahda party, expects its budget deficit to rise to 6 percent of gross domestic product in 2012 from an estimated 4.5 percent for 2011 as it boosts spending to revitalize the economy after the ouster of president Zine Al-Abidine Ben Ali.
Before last year’s uprisings in North Africa, authoritarian governments restricted or refused to promote Islamic finance for political reasons.
In the wake of the regime changes, growth in the industry is expected to accelerate.
Egypt is reportedly preparing to raise about $2 billion through its first issue of sukuk this year.
Starting almost three decades ago, the Islamic banking industry has made substantial growth and attracted the attention of investors and bankers across the world.
A long list of international institutions, including Citigroup, HSBC and Deutsche Bank, are going into the Islamic banking business.
Currently, there are nearly 300 Islamic banks and financial institutions worldwide whose assets are predicted to grow to $1 trillion by 2013.