Egypt’s senate has approved, in principle, a draft law submitted by the government to issue the Sovereign Sukuk Law.

Several senators praised the bill, stressing that it brings unconventional investments, complies with Islamic law, and preserves the state's right to ownership of assets and the rights of investors.

The law is set to regulate the issuance of sovereign bonds in compliance with the Islamic Sharia principles.

A report prepared by the Senate's Financial, Economic and Investment Affairs Committee and the Constitutional and Legislative Affairs Committee highlighted that the 24-article bill, approved by the cabinet last November, aims to contribute to improving the state's financial performance.

It also aims to achieve short and long-term objectives of covering the budget deficit.

"This comes through cutting the debt servicing bill, creating new tools for covering the budget deficit, diversifying sources of finance, and stimulating demand on government-issued financial securities," the report highlighted.

The sovereign sukuk draft law is part of the finance ministry’s plan to diversify its base of investors who want to invest in governmental financial securities, especially that the draft law will be issued in line with the principles of Islamic Sharia.

According to the report, investments in sukuk generated as much as $2.7 trillion in recent years, while highlighting Egypt’s non-existent earnings in regards to the investment tool.

It continued with “…there is no reason for not tapping this investment tool as long as the economic environment is friendly and as long as it can serve the state's economic objectives”.

The report also noted that the sovereign sukuk, as a financing instrument, is likely to enjoy a large degree of acceptance in the today’s global financial markets.

“The sovereign bonds (Sukuk) is a new kind of government financial securities that go in line with Islamic sharia and aims to attract Egyptian and foreign investors who abstain from investing in traditional financial and debt servicing securities currently on the market," it added.

Currently, Malaysia, Saudi Arabia, Indonesia, Britain, the United Arab Emirates, Turkey and Bahrain are some of the countries that already issue sukuk.