KUALA LUMPUR, Aug 15: Pakistan will issue its first local currency Sharia-compliant bond in September, a government official said on Friday, as the country seeks to build its fledging Islamic finance industry.

Ashfaque Hasan Khan, special secretary at the Finance Ministry, said the issue size had not been determined although it would be “substantially less” than the Rs20 billion ($269.5 million) some bankers had earlier expected.

“We have already completed all the paperwork and we hope to be in the market sometime in September,” Khan told Reuters by telephone.

“This is the first time we will be going to the market with a rupee-denominated local sukuk.” Standard Chartered Bank and Dubai Islamic Bank are handling the deal, he added.

The Pakistani authorities are trying to expand the Islamic banking industry, which only commands a small market share and is largely concentrated in large cities.

The share of Islamic banking in the total banking system was 3.2 per cent last year, according to central bank data.

Total assets of Islamic banks were about Rs135 billion while Islamic deposits and financings stood at 2.9 per cent and 2.4 per cent of market share, respectively.

Islamic banks must grow at least 40-50 per cent each year to be able to raise their share from 3.5 per cent to about 15 per cent of the total banking system, the central bank has estimated.

Mr Khan said the government had no immediate plans to sell global Islamic bonds.

“The spread has widened substantially because of both external and internal political developments,” he said. “This is not the right time for Pakistan to go to the international market.”

Pakistan had planned to issue bonds in the international market with an option for holders to exchange them for shares of the Oil and Gas Development Co Ltd.

The government raised $600 million through an Islamic bond in the international market in 2005.—Reuters