With nearly 190 million people, Pakistan is the sixth-largest populated nation in the world. It is therefore not surprising to find Pakistanis spread globally. The Pakistani diaspora, comprising almost 3% of the country’s population, are serving as guest workers with the largest concentration in the Gulf countries. A significant number of them are permanently settled in the Western hemisphere, the Middle East and Far East Asia. Many Malaysian and Saudi families, for example, trace their origins to different parts of Pakistan. In case of Malaysia, Pakistani men travelling to islands of Malaya married local women and settled therein adopting a new ethnic identity. Most Saudi families with Pakistani backgrounds lost their national identity owing to the strong local religious influence and the dominance of the Arabic language.
Unlike the families with Pakistani connections in Malaysia and Saudi Arabia, the permanently settled overseas Pakistanis (PSOPs) in the West have maintained very strong links with their country of origin, even after having lived in their adopted countries for decades. There are a number of factors determining the underlying loyalty amongst PSOPs, which include: (1) Language (Urdu), (2) Dress (i.e., shalwar kamees/kurta), (3) Sports (e.g., now cricket, and hockey in the past), and (4) Religion (Islam).
Pakistan is not the only country with such a strong bond with its diaspora. There are a number of other nations in the world, which enjoy a similar kind of loyalty and affinity. However, 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. India and Israel have successfully issued Diaspora bonds in the past. This article explores the possibility of issuing a Shari’a-compliant Diaspora bond (or Diaspora Sukuk) to attract investments from overseas Pakistanis, particularly the PSOPs.
Following the successful transition of government after the recent general elections, it appears as if there is now a conducive and enabling environment for issuing a Diaspora Sukuk. The government of Punjab has just announced an energy fund as part of its efforts to solve the ongoing energy crisis in the country. There are numerous other sectors that require investment from railway to aviation, dams and roads/motorways, health, and education.
There are some cases of limited success in raising capital using a Diaspora bond structure. One notable example is Ethiopia, which failed to satisfactorily conclude its Diaspora bond primarily because of poor economic planning of its previous oppressive regimes. Political conditions, however, are fast improving in the case of Pakistan. The new government seems to be interested and actively involved in bringing back zeal and zest in real economic activity, which should be helpful for raising capital from overseas Pakistanis. It should study the two successful cases of Diaspora bonds, namely Israel and India, who raised US$32 billion and US$11.3 billion, respectively.. There is a need to study the Sukuk model more closely, as it can be considered something similar to a Diaspora bond in its nature and scope. While a Diaspora bond in general is used for raising money from the expatriate population of a country, Sukuk have been primarily used to attract investments from those having affinity with the Islamic faith.
Israel’s Diaspora bonds programme is very old. It issued its first such bond in 1951 through the 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 USA, allowing investors to have liquidity, as the bonds were easily traded on the stock exchange. India’s Diaspora bonds programme, on the other hand, was managed by the State Bank of India (SBI) through a series of issuances in 1991, 1998 and 2000. Its main objective was to support India’s balance of payments.
The following steps could be taken to issue a Diaspora Sukuk for Pakistan:
1. A working committee should be set up comprising of prominent members of PSOP communities around the world, bankers and Islamic finance experts, regulators, economists and policymakers. This working committee should be headed by a renowned and respectable personality in Islamic banking and finance.
2. The Diaspora Sukuk should be issued by a Special Purpose Vehicle (SPV) preferably domiciled in Dubai International Financial Centre (DIFC), and listed on NASDAQ Dubai. Alternatively, it can be domiciled in Kuala Lumpur, to list the Sukuk on Bursa Malaysia.
3. An international bank with a 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.
4. Given the dwindling exchange rates of the Pakistan rupee against major currencies such as the US dollar, the proposed Diaspora Sukuk should be denominated in either the
US dollar or in the British pound, to give comfort to the investors who feel nervous about thedepreciating values of their investments in Pakistan.
5. Through a Shari’a-compliant currency hedging mechanism, the capital raised in foreign currency should be deployed in Pakistan in different projects of national significance.
6. 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 the proceeds from the Diaspora Sukuk will be in long-term infrastructural projects in the energy sector, in addition to the commercial promotion of the four aforementioned cultural areas that determine loyalty of the Pakistani Diaspora. Part of the money can also be used for balance of payments support.
