N100bn Sukuk: Achieving Financial Inclusion for Economic Growth

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By Wale Suleiman 

Nigeria recently joined countries like the United Kingdom, Hong Kong, Malaysia and South Africa when the Debt Management Office, DMO, launched the Offer for the N100 billion Sukuk- a non interest asset-based security. The Sukuk has a seven year tenor with a price of N1, 000 per unit. The minimum subscription is N10, 000, which is 10 units at N1, 000 per unit and in multiples of N1, 000 (1unit) thereafter. The rental payment would be made semi-annually while the redemption would be a bullet payment of invested funds at maturity.

For those not familiar with this non-interest instrument, it may be useful to state that its main difference from the conventional bonds that are always on offer at the capital market is that it represents ownership interest in assets while bonds represent a pure debt obligation due from the issuer. In addition, the funds raised from Sukuk issuance must be used only for ethical purposes while bonds can be issued to finance any item that is considered legal. The sale of Sukuk represents the sale of the holder’s interest in an asset while the sale of a bond is the sale of a debt.

The Sukuk is an instrument structured in line with the tenets of Islam to generate returns for investors without infringing Islamic law that prohibits interest.

Sukuks have become extremely popular since 2000, when the first Sukuk was issued by Malaysia, and many countries are tapping in to this huge source of funding to achieve financial inclusion and grow their economies.

The success of the Sukuk has made it attractive to all segments of the investing public locally and internationally. All categories of investors, including retail investors, high net worth individuals, institutional investors such as commercial banks, insurance/takaful companies, pension funds, asset managers, private banks and others are keying in and taking advantage of its unique offer. Also, ethically inclined investors, cooperative Societies, religious bodies, state investment companies and foreign investors are increasingly finding Sukuk really attractive.

The N100 billion Sukuk was unveiled by the Debt Management Office (DMO), in a nationwide roadshow that started last week in Lagos and went on to Port Harcourt, Abuja, Kano and Kaduna. The Director-General of the DMO, Ms. Patience Oniha, alongside officials of the Federal Ministry of Power, Works and Housing in the delegation told stakeholders the debut N100 billion is dedicated to constructing and rehabilitating critical road infrastructure in the country.

The roadshow was a commendable effort to sensitise Nigerians on the value of the Sukuk and how it is one of the avenues the federal government intends to raise funds for capital projects.

 The Sukuk will  diversify the sources of government funding, offer ethical investors an opportunity to invest in government-issued securities, achieve a higher level of financial inclusion and serve as a reference for pricing Sukuk issued by other entities, especially private sector issuers.

The N100 billion would be used to fund critical road projects across the country. The Federal Ministry of Power, Works and Housing, listed 25 road projects spread across the six geo-political zones of the country which the N100 billion Sukuk capital will be used for.  These include the Loko-Oweto Bridge, dualisation of a section of the Abuja-Lokoja road, dualisation of the Suleja-Minna road, the dualisation of the Kano-Katsina road (phase 1), rehabilitation of the Onitsha – Enugu Expressway, and the Enugu-Port Harcourt road (section 1-3). Others are the Ibadan-Ilorin Road (Oyo-Ogbomosho), Kolo-Otuoke-Bayelsa-Palm Road (Yenagoa Road Junction), Kaduna Eastern By-Pass and Kano-Maiduguri Road (Potiskum-Damaturu).

 Stakeholders in the capital market have expressed optimism that this new product will open new opportunities and new investments flows following in the pattern set by other financial instruments such as the FGN Bond, Savings Bond being offered by the DMO. Analysts have listed benefits of investing in the Sukuk to include safety of investment, regular income which are tax free and liquidity as they will be listed and traded on The Nigerian Stock Exchange and the FMDQ OTC Securities Exchange Plc.

The debut Sovereign Sukuk is for N100 billion with a tenor of Seven years, and has been certified as ethically compliant by the Financial Regulation Advisory Council of Experts of the Central Bank of Nigeria. The product is also useful as collateral to access loans from banks.

Commenting on the N100 billion Sukuk, Maimuna Bello, president of Federation of Muslim Women in Nigeria, Rivers State Chapter, described it as a bold initiative to cater for a critical segment of the country and urged the DMO to deepen its awareness drive. A former executive director of the NNPC, Ibrahim Waziri, who welcomed the development expressed the hope that the funds raised would be deployed to the listed projects, and stressed that as an ethical financial instrument, investors are assured of timely rental returns.

–Suleiman wrote in from Lagos