Uganda’s first Sukuk bond: A bold strategy for infrastructure financing

Uganda is set to issue its first-ever sovereign Sukuk bond—valued at EUR 405.5 million to finance 15% of Phase 1 of the Standard Gauge Railway (SGR), a 272-kilometre line from the Kenya boarder at Malaba to Kampala. This move marks a major shift in how the government is diversifying its funding mix.

Future phases of the SGR will extend to the northern corridor along with western routes linking Uganda to Rwanda, the Democratic Republic of Congo, and Tanzania. The entire construction is expected to last seven years and to cost over EUR 2.7 billion (UGX 11 trillion / USD 2.9 billion). The trains will carry both passengers and cargo.

With an estimated useful life of over 30 years, the SGR promises to lower the cost of doing business in Uganda through a 35% reduction in freight charges, faster transit times, improved reliability, and reduced emissions compared to the current ageing metre-gauge railway.

According to the Ministry of Works and Transport, the SGR’s speeds of up to 120 km/h for passenger trains and 100 km/h for cargo could help cut the travel time from Mombasa to Kampala from 14 days to about 1 day. The project is also expected to reduce pressure on roads, ease congestion, and strengthen intercontinental trade in line with the African Union’s Agenda 2063.

To ensure local participation, the Ministry of Works and Transport has set a 40% local content target (approx. UGX 4.3 trillion), with specific goods and services ring‑fenced for Ugandan firms.

Why a Sukuk bond—and why now?

Uganda is operating amidst tightening global credit markets, competing demands for social and infrastructure spending, with public debt projected to reach 55.5% by 30 June 2026.  

A Sukuk issuance offers an alternative financing channel to help diversify government funding sources while managing debt sustainability because unlike most credit sources, a Sukuk is not a debt instrument. With this bond, the government could also tap into the global Islamic finance market and attract investors seeking Shariah-compliant, stable and asset-backed instruments, an investor base normally excluded with conventional bonds.

Globally, the appetite for Sukuk has been rising. According to S&P, global Sukuk issuance grew by 25% in 2025 by over US$ 300 billion, raising the total outstanding value to over US$ 1 trillion. In Africa, in 2025, sukuk issuance surged from $112 million in 2024 to nearly US$3 billion, driven mainly by Egypt’s US$2.8 billion sukuk in October 2025. 

Following Uganda’s operationalisation of Islamic banking in 2023, the subsequent licensing of Salaam Bank, and the recent launch of Tamini General Insurance to offer Takaful (Islamic insurance), Uganda’s financial ecosystem is now well positioned to support a Sukuk issuance.

How a Sukuk differs from a conventional bond

While both instruments are used to raise capital, they are fundamentally different.

A conventional bond represents debt. Investors receive interest payments over a fixed period, and do not own the underlying asset.

Sukuk investors on the other hand own a share of the underlying asset; and earn a profit or rental income over the lifetime of the asset instead of interest.

For Uganda’s SGR Sukuk, investors will earn rental income from the railway once operational. The principal amount will be repaid at maturity when the Special Purpose Vehicle (SPV) sells the financed portion of the SGR back to the government. The SPV will be a Ugandan entity responsible for receiving the sukuk proceeds and holding the asset on behalf of investors.

Under the Income Tax Act, any amount earned by the sukuk investor over the original investment is classified as interest income. This income will be exempt from income tax in Uganda, as listed infrastructure bonds with maturities over ten years are tax-exempt.

The how, and the when

The Ministry of Finance has indicated a minimum investment amount of UGX 1 million (about US$265) for each sukuk certificate; and plans to list the Sukuk on the Uganda Securities Exchange, with secondary listings abroad; with subscription expected to open in the next few weeks.

This aims to broaden local and international participation.

Given the short timelines, several legal, governance, and operational structures and processes must be finalised, including:

• Establishing and operationalising the SPV;
• Constituting an independent Shariah advisory board;
• Finalising governance, risk, and control frameworks to provide investor confidence and assurance; and
• Conducting public sensitisation, and investor outreach locally and internationally to boost uptake.

In the interim period to listing, government may consider broadening public awareness and sensitisation and engaging extensively to strengthen investor confidence to build demand. Also, lowering the minimum investment for Ugandan citizens could further boost local participation and stimulate domestic savings.

A trans-generational investment opportunity for Ugandans

For ordinary Ugandans, this SGR Sukuk presents a rare opportunity to diversify their investment portfolios by investing in a trans-generational stable, asset-backed, state-supported infrastructure project that also provides opportunities for local participation and knowledge and skills transfer.

Beyond individual returns, the Sukuk will support a transformative project central to Uganda’s ambition to achieve ten-fold GDP growth to US$500 billion by 2040.

In conclusion, Uganda’s debut Sukuk bond represents far more than an innovative and diversified financing tool. It signals a strategic, decisive and bold shift toward innovative, asset backed‑ financing reshaping how the country funds mega‑projects. With stronger governance preparation, this Sukuk has the potential to be a true game changer in Uganda’s development trajectory.