The market for Islamic bonds or Sukuk last week received a major boost when Treasury CS Henry Rotich indicated plans to debut issuance of Sukuk in the 2017/18 budget.
Rotich said the proposed amendment of Public Finance Management Act would pave way for issuance of sovereign Sukuks (Islamic bond) as an alternative source of financing to the country’s development projects, and a further proposal to issue regulations to facilitate development of Takaful Retirement Benefits Schemes in the country.
The proposals also calls for amendments of tax statutes which will provide equivalent tax treatment of the new financial products in Islamic finance with the conventional financial products.
Sukuk are bonds structured in such a way as to generate returns to investors without infringing on Islamic law —which prohibits riba or interest.
The financing model has recently emerged as a potential game-changer in the country’s financial sector following the success of Eurobond that raised more than $2billion (Sh207.3 billion) in June 2014.
Islamic financing arrangement has also become a major source of funding development expenditures not only in Gulf countries but also globally.
This financial arrangement is getting integrated within the global financial system and has the potential to boost prosperity and raise the standard of living of our people.
“Kenya intends to maximize its comparative advantage and position itself as a regional hub for Islamic finance products, in order to attract foreign direct investment I will therefore propose legislative amendments to the Capital Markets Act, the Cooperatives, Societies Act and Sacco Societies Act to facilitate for Sharia’h compliant finance products,” said Rotich in his budget statement.
Kenya has for many years relied on debts from Chinese firms to finance its infrastructure projects. The Standard and Poor report had in 2015 recommended that Kenya adjusts its tax regimes in order to encourage Sukuk issuance as well as engage local players conversant with Islamic financing, including Sharia-compliant banks and financial institutions.
According to 2015 figures, Kenya’s public finances loosened steadily over the past decade, and according to Fitch Ratings, the country’s long-term foreign and local currency Issuer Default Ratings (IDR) is currently ranked at ‘B+’ and ‘BB-’while the issue ratings on unsecured foreign currency bonds are rated at ‘B+.
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