Is there a possibility of issuing a Shari’a compliant Diaspora bond (or Diaspora Sukuk) to attract investment from overseas Pakistanis?
Overseas Pakistanis comprise almost 3% of the country’s population, and either live as guest workers in the Gulf countries, or are permanently settled in the West, the Middle East and Far East Asia. These overseas Pakistanis with dual nationalities maintain very strong links with Pakistan, even after having lived in their adopted countries for decades. Such links include language, dress, sports and religion.Pakistaniyat has emerged as a lifestyle and not merely a nationality.
Pakistan is not the only country with such a strong bond with its overseas population. There are a number of other nations in the world which enjoy a similar kind of loyalty. The closest analogy to Pakistan is perhaps Israel, which is another country that came into being around a strong religious sentiment. India, although a secular country, is another example.
Both India and Israel have successfully issued Diaspora bonds in the past. Israel managed to raise US$32 billion and India raised US$11.3 billion. Israel’s Diaspora bonds programme is very old. It issued its first such bond in 1951 through Development Corporation of Israel (DCI) in support of the country’s very ambitious development agenda. The DCI was also registered with the Securities and Exchange Commission (SEC) in the USA allowing the investors to have liquidity. India’s Diaspora bonds programme, on the other hand, was managed by State Bank of India (SBI) through a series of bonds in 1991, 1998 and 2000. Its main objective was to support India’s balance of payments.
Apart from the success stories of India and Israel, there are also some cases of limited luck in raising capital using a Diaspora bond structure. Most notable are Ethiopia and Kenya. These countries failed to satisfactorily conclude their Diaspora bond primarily because of the track record of their previous oppressive regimes.
However, in Pakistan the conditions are fast improving. Following the successful transition of government after the recent general elections, it appears as if there is now the right environment for issuing a Diaspora Sukuk. The new government seems to be interested and actively involved in real economic activity, which should be helpful for raising capital from overseas Pakistanis. The new governor of Punjab, Chauhdary Muhammad Sarwar, who renounced his British nationality to assume his new role, can also play a lead role in raising capital from the British Pakistani Diaspora and Europe where he has acquaintances. The Pakistan-UK Chamber of Commerce and Industry, which is heavily influenced by the Sharif family, can also play a role in this respect.
The following steps could be taken to issue a Diaspora Sukuk for Pakistan:
A working committee should be set up with representatives from overseas Pakistanis communities around the world, Islamic finance experts, economists and policymakers. This working committee should be headed by Chauhdary Ghulam Sarwar, the new governor of Punjab.
The Diaspora Sukuk should be issued by a special purpose vehicle preferably based in the Dubai International Financial Centre (DIFC), and listed on NASDAQ Dubai. An international bank with strong presence in Pakistan should be appointed as a lead arranger, along with some Islamic banks that must include local as well as foreign Islamic banks.
Given the dwindling exchange rates of Pakistan rupee against major currencies, the proposed Diaspora Sukuk should be denominated in either the US dollar or in the British pound, to allay investors’ fears about depreciating values of their investments in Pakistan. The investors should receive regular and frequent returns on their investments in a foreign currency, with possibility of redemption of their investments at the end of the Sukuk period.
The best use of proceeds of the Diaspora Sukuk will be in long-term infrastructural projects in the energy sector, in addition to the commercial promotion of cultural areas that the Pakistani Diaspora feels strongly about. Part of the money can also be used to support the balance of payments.