The government will raise 15,000 crore taka by issuing Islamic bond sukuk to fund three ongoing development projects, officials say.
The Ministry of Finance initially selected the projects, which will be completed by 2023. Ministry documents show that project executing agencies were recently invited to review project plans for Islamic finance.
The projects are as follows: establishment of 329 schools and technical colleges in the upazilas, development of some private secondary schools and the development project of key urban infrastructures (2nd phase).
According to sources, the total cost of the projects has been estimated at Tk 34,500 crore, almost half of which will be financed by the Islamic bond.
The sukuk is a long-term financing instrument without traditional banking circuits. Against investments, sukuk investors are offered profits instead of fixed interest, which is forbidden in Islam.
To meet budgetary expenditures, the government depends on revenue collection, treasury bills and bonds, bank loans and savings certificates.
Officials said they are now seeking long-term financing for major projects through sukuk, as revenue collection has fallen short of expectations, while project costs are on the rise.
Islamic banks and other financial institutions can come for long-term investments through sukuk. In his FY23 budget speech, Finance Minister AHM Mustafa Kamal mentioned that the introduction of sukuk instrument has created huge opportunities for Shariah-based banks to participate in the government development process. .
At the start of the 2020-2021 financial year, the government issued Tk 8,000 crore sukuk bonds for a massive water supply project. The following year, further sukuk bonds to the tune of Tk 10,000 crore were issued, including Tk 5,000 crore of the amount invested in the government primary school development project.
The project to build 329 schools and technical colleges, which this time will use the highest Tk 10,000 of funds raised in sukuk, was approved by the Executive Committee of the National Economic Council (Ecnec) in January 2020.
The cost of the project has been estimated at Tk 20,525 crore as the government has to finance all the works from its own resources.
The project includes land acquisition, development, administration building, teachers’ dormitory, 200-bed student dormitory, shaheed minar, memorial, purchase of vehicles, machinery and teaching equipment and learning.
Project director Sayed Masum Ahmed Choudhury said the land acquisition process was ongoing. The authorities have already acquired land for five schools. Construction of an educational facility is underway.
“The land acquisition and construction of the remaining schools will begin gradually,” he told The Business Standard.
The government intends to finance one-third of the “some private secondary schools development project” through sukuk. The estimated cost of the project is Tk 10,649 crore as the government wants to raise Tk 3,500 crore through sukuk.
With the Department of Education Engineering as the executing agency, the project deadline is 2018-203.
Under the project, four-storey college buildings are being constructed in remote areas, six-storey college buildings in urban areas, and five-storey college buildings are being constructed, leaving the ground floor vacant in haor areas.
Until June 2021, the average progress of the project was 56%, with expenditure amounting to around Tk 6,000 crore.
In 2019, the government commissioned the “Important Urban Infrastructure Development Project (2nd Phase)” involving Tk 3,465 crore in 281 municipalities. The government wants to finance about half of the cost through sukuk.
The local government’s engineering department is implementing the project with a deadline of December 2023.