Yemeni economists and officials are emphasizing the importance Islamic financial certificates, or sukuk, as an important tool for financing the nation's development.

The Central Bank of Yemen closed subscription to an Islamic sukuk issue that is part of its Salam program -- worth 50 billion Yemeni riyals ($234 million) -- in April.

That was the first Salam issue devoted to the purchase and sale of petroleum products. Subscription to the issue was restricted to Islamic commercial banks in Yemen.

The Central Bank introduced Islamic sukuk in Yemen in February 2011 and devoted the first issue, valued at four billion riyals ($18.7 million), to finance three road projects.

Kamal al-Rabie, director of Islamic bonds for the Central Bank, told Al-Shorfa that the Salam sukuk were issued to help the government raise funds to purchase consumer commodities for the public.

"We conducted a potential market return study and determined that the profit margin would range between 15% and 18%, which offered financial benefits for the government, commercial banks and the community through the provision of strategic commodities such as oil derivatives," he said.

Sukuk 'an important development tool'

Al-Rabie said sukuk are an important tool for development -- especially in terms of job creation -- through investment in infrastructure and production projects, which provides employment for a large percentage of unemployed citizens.

"When some governments find themselves unable to purchase strategic commodities, they often resort to printing money. This only serves to devalue the national currency against other currencies and creates enormous economic problems, including inflation," he said. "The sukuk were introduced to relieve the pressure on governments and open real areas of investment domestically in partnership with the private and public sectors."

He said the Central Bank intends to diversify its Islamic bonds issuance in the near future as part of the Ministry of Finance's investment programme.

Islamic sukuk are investment stocks in projects that are open to a variety of investors, including Islamic and commercial banks and citizens, said Dr. Farhan Hassan, an economics professor at Sanaa University and an adviser to the Saba Islamic Bank.

"The Central Bank restricted sukuk subscription to Islamic banks because commercial banks are able to buy treasury bills, which is an inflationary funding method whereby the government pays commercial banks a fixed interest rate of up to 22% for funds it uses to pay salaries and other government expenditures," Farhan said.

Farhan also said that sukuk were an important development tool because they fund infrastructure projects which benefit the economy.

Types of sukuk investment

Dr. Hamoud Abdullah Aqlan, an economics professor at Sanaa University, said investment in sukuk offers many advantages to Islamic banks, adding they are low-risk, high-return investments in contrast to investing the money outside the country where the risk is higher and the returns are lower.

Aqlan, an adviser to the Tadamon International Islamic Bank, said there are two types of sukuk investment. One type allows the government to buy commodities based on the Islamic financial system and implement strategic projects that all Islamic banks contribute to funding. The method is an alternative to obtaining loans from international financial institutions.

The second type of sukuk investment involves citizen participation, whereby Islamic banks open subscriptions to individual investors to finance large projects.

Aqlan said that this type of investment "is beneficial to the economy because it puts the labour force to work and leads to the creation of new services. In addition, opening subscription to citizens takes that money out of the speculation game."

Aqlan said investment in sukuk that supports implementation of public projects is an investment in the real economy and produces positive results for the individual and the community.