Salehieh: Greater Amman Municipality Sukuk open new horizons for municipal financing

- Generalizing the Sukuk experience depends on evaluating its results and costs

The Cabinet's decision to approve the issuance of Islamic financing Sukuk by the Greater Amman Municipality, worth 400 million dinars, in the form of Ijarah Muntahia Bittamleek (lease ending in ownership), with an annual return of 5.5% for a period of five years, opens new horizons for diversifying municipal financing sources and enhancing the use of Islamic financing tools to support development projects.

Dr. Loay Salehieh, a professor at the School of Business at the German Jordanian University, told "Alrai" that the economic feasibility of the issuance is linked to the efficiency of utilizing its proceeds, the nature of the projects and assets associated with it, and the Municipality's ability to manage the resulting financial obligations in a way that enhances financial sustainability.

According to the Cabinet's decision, the issuance is the first of its kind in the Kingdom for public institutions and municipalities, providing an opportunity to evaluate the role of Islamic Sukuk in diversifying financing sources and expanding the investor base, provided that its cost is compared with other financing alternatives and the uses of its proceeds and the resulting obligations are determined.

Based on the value of the issuance and the announced annual return, the calculated return is about 22 million dinars annually, bringing the total nominal returns over five years to 110 million dinars, assuming the return is calculated on the full principal amount throughout the period. Thus, the total value of the principal and returns amounts to 510 million dinars, without calculating any other fees or costs, with the final cost remaining linked to the terms of the issuance and the mechanism for calculating the return and recovering the principal.

The development feasibility of the issuance depends on directing the funding towards well-studied projects that contribute to developing infrastructure and municipal services, improving asset management, and enhancing investment revenues, while taking into account that some projects achieve public service benefits that are not necessarily reflected in the form of direct revenues.

The success of the experience also requires the application of clear standards for governance and financial disclosure, monitoring the uses of funds, and evaluating the Municipality's ability to meet its obligations on time, in addition to managing the risks of rising project costs, delays in implementation, or the failure to achieve expected revenues.

The issuance constitutes an experience that can be utilized in the future to develop municipal financing tools; however, evaluating the possibility of generalizing it requires measuring its actual results and comparing its cost with the achieved benefits, while taking into account the differences in financial and administrative capabilities between municipalities. Its final impact remains linked to the efficiency of employing the funding and achieving a balance between developing municipal services and maintaining financial sustainability.