Govt offers railway land as collateral in Sukuk deal to raise more loans
The government has secured Rs109 billion from Islamic (Shariah-compliant) banks by offering partnership rights in railway land under a fresh Ijarah Sukuk arrangement. Simultaneously, it borrowed another Rs409 billion through conventional treasury bill auctions, bringing the total borrowing to Rs518 billion—part of efforts to bridge the ongoing budget deficit.
Railway Land Used in Latest Sukuk Issuance
According to banking sources, the latest Ijarah Sukuk bonds were backed by
railway land. Previously, similar bonds were issued against high-value
government assets such as airports in Islamabad, Lahore, Karachi, and Gwadar,
the Makran Coastal Highway, motorways, highways, and the Pakistan Sports
Complex. Since 2020, Pakistan has issued over Rs8 trillion in Ijarah Sukuk to
meet its financing needs.
Read More Pakistani
government seeks Rs8.5 trillion in loans from banks to address budget shortfall
Why the Government Borrows from Banks
The government frequently turns to both conventional and Islamic banks to
cover fiscal shortfalls. This includes borrowing via short-term Market Treasury
Bills (MTBs) and long-term Pakistan Investment Bonds on the conventional side,
and Ijarah Sukuk for Shariah-compliant financing.
Key Differences Between Treasury Bills and Ijarah Sukuk
While both instruments serve the same purpose—raising funds—they differ in
structure. Treasury bills are interest-based instruments where banks lend money
in exchange for a fixed return. In contrast, Ijarah Sukuk involve asset-backed
transactions where Islamic banks gain joint ownership in a government asset and
earn pre-agreed rental income from its use.
Jawad Tahseen, Senior Vice President and Unit Head of Shariah Compliance at
Meezan Bank, explained that unlike treasury bills, Sukuk represent actual
ownership. As a result, the government cannot sell the underlying asset but is
allowed to outsource or sublease its operations.
Read More Government
borrowed 377% more from banks in first seven months of current fiscal
Rise of Islamic Financing in Pakistan
Ahmad Ali Siddiqui, Senior Executive Vice President and Group Head of
Shariah Compliance at Meezan Bank, noted that the issuance of Ijarah Sukuk is
on the rise. A major factor behind this trend is the Federal Shariat Court’s
directive mandating a fully interest-free banking system in Pakistan by 2028.
This legal mandate is pushing the government to increasingly rely on
Shariah-compliant instruments like Sukuk.
Source: Hamari Web