Sukuk: A shariah-compliant sustainable financing framework

Over the last decade, Bangladesh has achieved remarkable economic progress. However, the country still remains heavily dependent on foreign loans and development assistance to finance large-scale infrastructure projects, expand communication networks, and implement public welfare mega projects. 

A significant portion of the national budget is spent annually on servicing interest payments on these loans, creating long-term pressure on economic self-reliance. In many cases, foreign assistance also comes with conditions that may affect national economic priorities and policy independence.

In this context, Sukuk — Shariah-based Islamic bonds — has emerged as a timely, sustainable, and participatory alternative financing mechanism for Bangladesh. Sukuk is not merely a financial instrument; it is also an effective platform that transforms the small savings of ordinary citizens into productive national investments. 

Through Sukuk, individuals, Islamic banks, and financial institutions can directly participate in infrastructure development and other productive sectors of the economy. This mechanism not only reduces dependency on foreign borrowing but also promotes inclusive growth through Shariah-compliant and halal investments.

The term Sukuk literally refers to certificates representing ownership or partnership in specific assets. Unlike conventional interest-based bonds, Sukuk investors are not creditors; rather, they are partial owners or partners in the underlying asset or project. Instead of earning fixed interest, investors receive returns generated from actual profits, rentals, or revenues earned by the project. Sukuk structures are generally based on Shariah-compliant contracts such as Mudarabah, Musharakah, and Ijarah, making them both ethically and financially acceptable.

At present, nearly one-fourth of Bangladesh's banking sector operates under Islamic Shariah principles. For years, Islamic banks faced challenges in managing excess liquidity due to the lack of suitable Shariah-compliant investment instruments. The introduction of Sukuk has created an effective avenue for channelling idle funds into productive sectors of the economy. As a result, liquidity management within Islamic banking has improved while also contributing positively to national economic development.

Bangladesh entered the Sukuk market in December 2020 through the issuance of its first Tk8,000 crore Ijarah Sukuk for a safe water supply project. Since then, Sukuk has been issued for projects in education, electricity, healthcare, and infrastructure development. To date, the Government of Bangladesh has raised approximately Tk42,400 crore through eight Sukuk issuances. A major portion of these funds has been invested in public welfare and infrastructure projects, marking a significant milestone for the country's Islamic finance sector.

Continuing this progress, the government has recently initiated the "8th Bangladesh Government Investment Sukuk (BGIS-8)" to finance the "Construction of Important Bridges on Rural Roads Project." Through this seven-year Ijarah Sukuk, the government aims to raise nearly Tk5,900 crore. Individual investors, along with Islamic banks and financial institutions, will be able to participate. The Sukuk offers a 10.4% rental return payable every six months, making it an attractive investment opportunity.

This Sukuk is not only an alternative financing source for the government but also a bridge between public investment aspirations and national infrastructure development goals. Rural bridge and road construction can generate multidimensional socio-economic benefits. A bridge does not merely connect two geographical points; it opens up opportunities for education, healthcare, agricultural marketing, employment generation, and financial inclusion.

Improved transportation systems will allow farmers to sell their products directly in markets, reducing dependence on middlemen and ensuring fair prices. Students and patients will benefit from safer and faster mobility. Furthermore, the expansion of Islamic banking branches and agent banking services in remote areas will become easier, enabling rural communities to access formal financial services. Infrastructure development will also encourage the growth of small and medium enterprises (SMEs), create employment opportunities, and increase women's participation in economic activities.

As Sukuk is backed by government guarantees, it is considered a highly secure investment instrument for banks and financial institutions. It can also play an important role in maintaining Statutory Liquidity Ratio (SLR) requirements. For general investors, Sukuk provides a reliable source of halal and interest-free income. However, some challenges remain. Since Sukuk investments are generally long-term in nature, liquidity concerns may arise. Although Sukuk can be traded in secondary markets, Bangladesh's secondary market is still underdeveloped, making early liquidation relatively difficult.

To fully utilise the potential of Sukuk, Bangladesh must address several critical challenges, including the absence of a strong legal framework, limited public awareness, weak secondary market infrastructure, and delays in project implementation. Many new investors also find the process of opening BO accounts and completing investment procedures relatively complex.

To make Sukuk more effective and popular, Bangladesh needs to develop a vibrant secondary market, provide tax incentives and policy support, introduce digital investment platforms, and increase nationwide public awareness. At the same time, a strong and independent Shariah Supervisory Board should ensure transparency and strict compliance with Islamic principles. Enhanced international connectivity and foreign participation could further strengthen the Sukuk market and position it as a major pillar of Bangladesh's financial system.

Sukuk is far more than a Shariah-compliant investment product; it is a powerful tool for sustainable development, financial inclusion, and economic self-reliance. By mobilising the small savings of ordinary citizens and channelling them into national infrastructure projects, Sukuk can play a transformative role in strengthening Bangladesh's future economic foundation. With proper policy support, transparency, and effective implementation, Sukuk has the potential to become one of the key drivers of Bangladesh's development in the years ahead.

Sketch: TBS

Md Khairul Hasan, CSAA, is an Islamic Banker and Financial Sector Analyst. Email: hasan.khairul@gmail.com 

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinions and views of The Business Standard.