Originally posted on Twitter by The Wise Shilling
The Capital Markets Authority (CMA) has approved the issuance of the country’s first-ever Sukuk Bond by Linzi Finco Trust. The Sukuk targets raising KSh 3 Bn and proceeds from the bond will be used to develop over 3,000 institutional housing units. The Sukuk will offer an internal return of 11.13%.
Kenya faces a major housing shortage, with demand estimated at 250,000 housing units annually compared to 50,000 new units built at the same time. This leaves an 80% annual housing deficit. The government aims to provide 200,000 housing units yearly through partnerships between national and county governments and the private sector. Several projects with 7,800 units are underway after launches in the past three months.
The Sukuk bond presents an alternative funding source for affordable institutional housing. The bond will help reduce the housing shortage.
What is the Sukuk Bond?
Sukuk, also known as Islamic bonds, are financial instruments that comply with the Shari’ah principles. They are structured based on asset ownership and profit sharing. The bonds give you a portion of ownership in the underlying asset and, as such, give you a share of the profits.
Islam prohibits interest. So, unlike traditional bonds, which involve interest-based lending, Sukuk bondholders have a proportional stake in the underlying asset or business activity, generating returns through profits or asset sales.
Each Sukuk bond listing has a legal framework that ensures that Sukuk bondholders are protected and not treated as equity holders.
