The Treasury will push through Kenya’s first Sukuk bond in the coming financial year that will come with a raft of regulatory changes designed to make it easier to access Islamic financing.
The changes will see the Public Finance Management Act amended to allow the issuance of the bond, which has been in the works since 2014.
Treasury CS Henry Rotich said in the 2017/18 Budget Statement that the Capital Markets Act, the Co-operatives Societies Act and Sacco Societies Act are also lined up for ammendment.
“I intend to amend the Public Finance Management Act to provide for issuance of Sukuk bond (Islamic bond) as an alternative source of financing our development projects. I also intend to amend the tax statutes to provide for equivalent tax treatment of these new financial products with the conventional financial products,” said Mr Rotich.
“In addition, I shall shortly be issuing regulations to facilitate development of Takaful retirement benefits schemes in Kenya.”
The government plans to borrow up to Sh256 billion from external sources in the next fiscal year, to plug a budget deficit of Sh524 billion. The State has in the recent past taken up foreign loans in form of the Eurobond and syndicated loans from commercial lenders.
Kenya has been mulling over a Sukuk bond for the past two fiscal years, given its highly discounted nature, which would provide cheaper financing compared to commercial loans. The lack of the necessary regulatory framework has, however, delayed this option.
Islamic law prohibits interest, so Sukuk bonds offer investors a share in the returns generated by an underlying asset.
In the current fiscal year, Kenya has turned to syndicated loans to finance part of her budget deficit. These loans include the just signed $800 million loan from four international banks, and a similar $500 million facility taken from the African Export-Import bank (Afreximbank.)