The Capital Markets Authority (CMA) of Kenya has granted its approval for the issuance of the country’s inaugural Sukuk Bond, paving the way for Linzi Finco Trust to embark on a groundbreaking venture. The Sukuk Bond is aimed at raising KSh. 3 billion in capital, and the generated funds will be earmarked for the construction of 3,069 institutional housing units, in a bid to alleviate Kenya’s pressing housing crisis. Investors can expect an attractive internal return of 11.13% on this pioneering investment opportunity.
A Sukuk, often referred to as an Islamic financial certificate, functions in a manner analogous to conventional bonds within Western finance frameworks, albeit with strict adherence to Islamic religious law, known as Sharia. The fundamental distinction arises from the prohibition of interest-based transactions in Islamic finance, a concept that is commonplace in conventional bond markets. Consequently, in the issuance of a Sukuk, the issuer effectively offers a certificate to a group of investors and subsequently utilizes the capital raised to acquire an asset, wherein the investor group holds a direct, partial ownership stake. Additionally, the issuer enters into a contractual commitment to repurchase the Sukuk at a future date at its face value, ensuring compliance with Islamic financial principles.
The acute housing demand in Kenya stands at an estimated 250,000 units per year, a staggering figure that significantly outpaces the supply of merely 50,000 new houses annually. This discrepancy has resulted in an alarming 80% housing deficit, underscoring the urgency of addressing the housing shortage in the nation. To address this crisis, the Kenyan government has undertaken ambitious plans to facilitate the construction of 200,000 housing units each year, through collaborative efforts involving the national government, county authorities, and private sector stakeholders. In line with these efforts, several housing projects have been launched over the past three months, with a total of 7,800 units currently in the pipeline.
The approval of Kenya’s first Sukuk Bond by the CMA represents a crucial step towards not only addressing the housing deficit but also diversifying the financial instruments available in the Kenyan market. This innovative financial mechanism opens doors to both domestic and international investors who seek to align their investments with Sharia-compliant principles, while simultaneously contributing to the development of much-needed institutional housing units in the country.
As the nation grapples with its housing crisis, the introduction of the Sukuk Bond offers a beacon of hope, bringing together the principles of Islamic finance and the pressing need for housing solutions in Kenya’s burgeoning real estate sector. This landmark financial milestone is poised to make a profound impact on the nation’s housing landscape and investment opportunities.
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20th September, 2023
Delino Gayweh
Serrari Financial Analyst
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