Why interest in new Islamic bond is rising

Dar es Salaam. Investor appetite for Sukuk, a type of bond, is growing in Tanzania, with experts attributing the trend to the bond’s less volatility, attraction of high returns, profit sharing and huge untapped potential, The Citizen can explain.

Sukuk, which normally can be issued by governments or corporates in a bid to raise money from investors for a period of time, is a sharia-compliant bond-like instrument which is part and parcel of Islamic financing system.

The current value of Sukuk, all of which is issued by Imaan Finance Limited over a span of a year, stands at Sh12.72 billion.

Imaan Finance chief executive officer Faiz Arab told The Citizen early this week that so far they had issued four bonds.

In what can be deduced as being high investor appetite, three of the four bonds recorded over subscription, with the remaining recording a full subscription.

The maiden issue of Sukuk worth Sh2 billion with a green shoe option of Sh1billion was over-subscribed to reach Sh2.72 billion in August last year.

The second issue of Sukuk of Sh1.5 billion with a green shoe option of Sh500 million was over-subscribed to a tune of Sh2 billion in December 2021.

The third issue of Sh3 billion held in April 2022, was fully subscribed to the tune of Sh3 billion.

The fourth issue of Sh5 billion with a green shoe of Sh2 billion was oversubscribed to a tune of Sh5.32 billion.

Mr Arab said their top subscribers for the Sukuk are The Peoples Bank of Zanzibar, CRDB Bank, NMB Bank, KCB Bank Tanzania, I&M Bank, NBC and Exim Bank.

He added that Imaan Finance also had subscribers from insurance firms, corporate companies and individual investors.

All Sukuks (bonds), according to him, are private placements.

He revealed his company’s plans for the fifth issuance of Sukuk in the last quarter of 2022.

“The market response for the Sukuks issued by Imaan Finance Limited has been very positive and we hope to see more Sukuks in the Tanzanian markets in the near future,” noted Mr Arab.

“We expect a positive trend in Islamic finance in Tanzania as the market is growing with new players such as Takaful (Islamic Insurance) in the insurance industry.

“Sukuks being a completely new asset class in Tanzania, we believe Imaan Finance Limited has set a trend and we envisage more Sukuk in the Tanzania market in the near future,” said Mr Arab.

Going by official data, global Sukuk issuance is set to hit $185 billion in 2022 and projected to reach $257 billion by 2027, with the data suggesting that the market is there for Tanzanian investors to tap.

The chief executive officer with the Fimco Limited, a Financial Investment Management Company, Mr Ivan Tarimo, said oversubscription of Imaan’s Sukuk was proof that investor interest in the product was gaining momentum quickly.

He linked the trend to the availability of the product and regulatory regime that promotes development of products such as Sukuk.

“A single company attracting nearly Sh13 billion in a space of only one year is not a joke, the trend is very promising. The future is looking bright,” said Mr Tarimo.

His sentiments were echoed by Capital Market and Securities Authority’s (CMSA) Public Relation manager Charles Shirima.

He said the increasing demand for Sukuk is something positive to the market.

While investors, he explained, got a new investment avenue, the insurer got an opportunity to raise funds for financing their projects.

Some of those interested in Sukuk, he said, were those who were shunning conventional bonds which require insurers to give interest rates to buyers.

Unlike conventional bonds, Sukuk do not require the insurer to give out an interest rate, but rather share profit.

“With the current trend, the future is attractive for issuance of new products including Sukuk,” he hinted.

“One of the banks operating in Tanzania is at an advanced stage to issue corporate Sukuk this year,” he revealed.

Mr Shirima pointed out that it is not only Sukuk that had a potential to grow.

Some new conventional products, which include environmental and social impact financial products such as green bonds, blue bonds and gender bonds, had also potential to grow.