AMMAN –– The Ministry of Finance (MoF) is planning to tap Islamic sukuks (bonds) in a bid to attract more capital to finance government projects.

Essa Saleh, the assistant secretary general and spokesperson of the MoF, told The Jordan Times on Monday that the plan seeks to encourage Islamic banks and financial institutions in Jordan to invest in sukuks as interest-bearing bonds are not permissible under Islamic investment principles.

Declining to set a specific date for starting such financing instruments, Saleh said the ministry is reviewing financial legislations, in cooperation with the International Monetary Fund, to issue sukuks, saying that once the project is ready, it will be presented to the iftaa department.

“Issuing a fatwa [religious edict] in this regard will attract companies dealing in Islamic finance to invest in such instruments,” the official noted.

Views of experts differed on the government plan as some said it will increase the government debt while others considered it as an important tool to raise money.

Banker Mefleh Aqel, ex-chairman of the former Industrial Development Bank which is now Jordan Dubai Islamic Bank, described the plan as a step in the right direction, saying Islamic finance has been untapped by the government due to legislative issues.

“It is important to open the market to Islamic bonds as Islamic banks in Jordan enjoy high liquidity,” he said, adding that large numbers of investors also seek Islamic finance for their projects.

However, Aqel warned of negative consequences if the government exaggerates issuance of Sukuks, stating that the volume of such bonds should be reasonable in terms of maturity and pricing.

“The most important feature for the government is to use the benchmark rate to encourage other borrowers to the market,” he remarked.

According to economist Yusuf Mansur, sukuk is another way of borrowing after the government exceeded its limit of loans from conventional banks.

“The government is going in the wrong direction as this step will only increase the internal debt,” he indicated.

Hani Khalili agreed, noting that internal debt, which is over JD5.5 billion, is increasing because government expenditure is also increasing on projects that do not generate revenues to pay back such debts.

The government should encourage banks to lend to the industrial sector instead of it (the government) borrowing from banks to finance unfeasible projects, he explained.

“It seems that the government has used all options with banks and now is going to resort to financial institutions that refuse to deal with traditional bonds,” he stated.

Aqel rejected Khalili’s point of view, saying the government has not used all lending outlets and that sukuks offer the diversification needed in the stock market.

Financial analyst Ali Tabbalat predicted the sukuk plan to be successful, saying Islamic bonds will stimulate the government fiscal plan by raising money to finance infrastructure projects.

Stating that the new financing instrument will increase the internal debt, Tabbalat said the government is going to borrow money and it is essential to open the Islamic bonds market at this time.

The analyst said Jordan can benefit from other countries’ experiences in this regard, particularly Dubai and Malaysia, saying that even some European countries are examining Islamic investment to tackle credit crunch.

By Omar Obeidat

© Jordan Times 2009