Treasury puts Islamic bond issue on ice

Traders check out the trading index during the Bell Ringing ceremony for KENGEN to trade at the NSE at the NSE's offices in Westlands,Nairobi. Photo/Elvis Ogina (Nairobi) July 6th,2016.

Kenya’s plan to issue its first Islamic bond, also known as Sukuk bond, may not happen in the current financial year after all.

National Treasury Cabinet Secretary Henry Rotich said despite President Uhuru Kenyatta assenting to the 2017/18 Finance Bill recently, paving way for the issuance of the debut bond, a lot more needs to be done before it is actualised.

“There are so many things involved in a Sukuk transaction, including identifying an asset to attach to it. So it really depends on how quickly we can put together the transaction documents,” said Mr Rotich at the launch of the  mobile-traded bond christened M-akiba at the Nairobi Securities Exchange.

The initial plan was to launch it around May, but with the 2016/17 financial year having elapsed, the CS said the legal adjustments that had been done only give the National Treasury room to start preparing for the transaction.

He said the Government may, therefore, have to depend on other forms of financing the budget such as sovereign bonds. Citing examples of South Africa and Nigeria, Mr Rotich said even with the relevant legal provisions in place, issuing a debut Sukuk bond may take up to three years.

“This is a debut bond. So, I won’t say it will happen in the 2017/18 budget. We will begin the process and if we are lucky to do it within one year, well and good,” he said.

The CS added that the National Treasury would remain committed to issuing the bond to deepen Islamic products in the market, even if it meant floating it in the 2018/19 financial year.

Plans for issuance of the bond have been in the works since 2014. An Islamic bond works by giving investors a share of the returns that are generated by the underlying asset, rather than guaranteeing them interest, which would infringe on Islamic law.

The issuance of the bond would see Kenya join Gambia, Senegal, Sudan and the United Kingdom that have issued the Islamic facility.