Sukuk bond deepen Islamic banking operations in Nigeria 

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Islamic banking has gained a lot of traction thanks to the introduction of Sukuk bond, which is one of the innovative non-interests products, from which the federal government raised funds to finance major road infrastructure across the country. Ibrahim Apekhade Yusuf examines the pros and cons

WHEN the federal government first broached the subject around Sukuk bond few years ago, it was one issue hotly debated considering the nation’s volatile religious sentiments.

What Suskuk is all about?

Sukuk are bonds structured to generate returns to ethical investors without infringing on the Islamic law which forbids interest payments. It represents an ownership interest in the asset to be financed rather than a debt obligation.

Crux of the matter

At issue at the time was that as a secular state the government tried to hurt the peoples’ sensibilities and willfully promoting a so-called Islamic product.  But two years down the line, that narrative has changed.

Acceptance of Sukuk

Following the success recorded with the initial listing of the Sukuk bond, the Nigerian Stock Exchange (NSE) announce the listing of the N100billion, 7-year, Federal Government Ijarah Sukuk with a rental rate of 16.47% on the floor of the Exchange April 10, 2018, by the Debt Management Office.

The federal government received over N132 billion subscriptions from 2,073 investors for its N100 billion 7-year 15.74 per cent Sukuk offer, the Debt Management Office (DMO) has said.

In his welcome remarks at the Facts Behind the Listing presentation by the DMO, the Chief Executive Officer of the NSE, Mr. Oscar N. Onyema, said, “this listing lends credence to our commitment to championing and advocating for the growth of our debt capital market. It is a further affirmation of our unique platform to help both the Federal Government and businesses access capital. With a diversified investor base, our market offers issuers and their products access to capital and visibility, while delivering a transparent and liquid market to investors.

“Today’s listing has strong implications for emerging and frontier markets which continually seek to unlock dormant pools of capital needed for economic growth and development, particularly as these economies have larger infrastructural deficits and relatively stronger demographics in favour of Islamic Finance, than developed markets.”

The DMO said that the high success rate of the Sukuk, which is the second by the federal government, showed investors’ appetite for government securities.

The debt management office added that it showed the investors’ interest in the fact that the proceeds would be used to improve the state of road infrastructure in the country.

The bond which is aimed at funding road infrastructure across the six geo-political zones is payable semi-annually.

The federal government had in 2017, raised a N100 billion 7-year debut Sukuk bond for the financing of 25 road projects across the six geo-political zones of the country.

The Director General of the Debt Management Office, Mrs Patience Oniha has given what may better be described as a word of commendation to non interest banking, saying its benefits are wide and varied.

Fielding questions from journalists in Lagos, on the outcome of the Sukuk bond, which is one of the innovative non-interests banking under Islamic finance, from which the federal government raised funds from the public to finance major road infrastructure across the country, the DMO boss said the success rate of the instrument is high.

Specifically, she said the government had proposed to sell just about a hundred billion worth of the bond in 2017, but sold over hundred billion. The same feat was replicated in 2018, she said.

“In 2017, we proposed N100billion but recorded N104billion. In 2018, we offered N100billion and was able to raise N132billion,” she recalled.

Upbeat, she said, “The success rate of the non interest banking as far as the Sukuk instrument is concerned, was a huge success. In the two times we went to the public it was oversubscribed. That tells you that the finance window is gaining acceptance so there is no question about whether it is good or not. It’s the way to go. When you have a working formula, you can only step up efforts.”

Pressed further, the DMO boss stressed that what needs to be done is to increase the level of awareness about non interest banking instruments, especially amongst the financially excluded in order to expand its reach.

According to the Director General, DMO, Ms. Patience Oniha, the listing of the FGN Ijarah Sukuk bond is about financial inclusion and deepening of the country’s financial market. “The Sukuk will encourage financial inclusion by providing an avenue for non-interest investors to participate in the fixed income market. In addition, the Sukuk p rovides an opportunity to further develop the savings culture in Nigeria, particularly among individuals and other retail investors”.

She also noted that the FGN Ijarah Sukuk was designed to finance critical road infrastructure across the country. “The proceeds will be used to further support the construction and rehabilitation of 25 roads across the six geopolitical zones of the country.”

Networth of Islamic-based assets

To say that Islamic finance has come a long way is simply stating the obvious. From a relatively unknown portfolio, Islamic finance based assets is estimated at $250billion and held by an estimated 1 billion Muslims worldwide, according to HSBC. In addition, Islamic oil-producing states in the Middle East are flush with cash thanks to record petroleum prices.

Other characteristics of Sharia-compliant finance include the elimination as far as possible of risk and uncertainty, and the idea that transactions must be fair, honest and equitable. There are clear distinctions between Islamic and conventional finance, although it could be argued that in the pursuit of innovative products and growth these distinctions are becoming a little blurred.


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