| March 2
March 2 Growth of sharia-compliant investment
funds in Pakistan is helping fuel demand for sukuk, or Islamic
bonds, giving local firms new funding options while
strengthening the case for Islamic pensions in other
Strong demand for Islamic funds, and in turn sukuk, could
encourage other countries trying to deepen their Islamic capital
markets, in particular in the Gulf region where private pensions
Pakistan's Islamic banks lag their conventional peers,
holding around 13 percent of total deposits, while Islamic
mutual funds and private pensions have a far greater market
Islamic mutual funds held 242.7 billion rupees ($2.3
billion) in assets as of December, or 37 percent of the total,
official statistics show.
Almost two-thirds of assets in the country's voluntary
pension system (VPS) are now managed under Islamic principles.
All 10 VPS managers offer Islamic pension products, worth a
combined 14.5 billion rupees, or 63 percent of total VPS assets
with the largest VPS product being sharia-compliant.
Attractive yields, tax exemptions and greater flexibility in
choosing external managers have made VPS products popular, which
in turn adds to demand for sukuk, said Abdullah Ghaffar, head of
investment banking at Al Baraka Bank Pakistan.
"Mutual funds, both fixed income as well as equity funds,
have become big time investors in existing and new sukuk issues
taking place because of the huge assets under management under
Two recent sukuk transactions from manufacturing companies
attracted significant interest from such investment funds, while
equity funds are also becoming active in initial public
offerings, Ghaffar added.
Reforms from Pakistan's capital market regulator have also
helped equity-like financing vehicles, known as modarabas, to
grow their combined assets above 41 billion rupees.
Islamic funds screen their portfolios according to religious
guidelines such as bans on tobacco, alcohol and gambling,
similar to socially responsible funds in Western markets.
They must also adhere to Islam's ban on interest payments,
which confines them to sukuk for their fixed-income investments,
a relatively small market where demand has traditionally
Tax changes have also helped sukuk issuance. In September,
Pakistan's Federal Board of Revenue granted sukuk similar tax
treatment to conventional bonds.
This has attracted a wide range of issuers: Byco Oil
Pakistan Limited raised 3.12 billion rupees via sukuk using a
credit gurantee and Ghani Gases raised 1.3 billion
rupees via a privately-placed sukuk last month.
In December, Fatima Fertilizer Company mandated
banks to raise 10.5 billion rupees through a lease-based sukuk.
Pakistan GasPort Consortium Limited plans to raise 8.6
billion rupees via seven-year sukuk to finance the construction
of the country's second LNG import terminal.
($1 = 104.6000 Pakistani rupees)
(Editing by Jacqueline Wong)