The Case for Nigerian Sukuk

The offer for Nigeria’s debut sovereign Sukuk in the sum of N100 billion opened on September 14, 2017. This followed a roadshow, which took the Debt Management Office (DMO), Ministry of Power, Works and Housing, Central Bank of Nigeria (CBN) and the transaction parties to Lagos, Port Harcourt, Abuja, Kano and Kaduna to engage with prospective investors on the issuance.
This first issuance of a Sukuk by the Federal Government of Nigeria has attracted a lot of interest as well as some questions from the public, hence the need to throw more light on the Sukuk’s issuance.
By way of background, the Sukuk is one of the financial instruments (bonds) used by governments and organisations to raise funds. However, unlike conventional bonds whose proceeds can be used for a wide variety of purposes including recurrent expenditure, funds realised from a Sukuk issuance can only be deployed to assets such as infrastructure. Furthermore, investors in Sukuk receive income, based on those assets rather than interest, as is the case with conventional bonds.
Prior to this time, the FGN had borrowed in the domestic market through conventional bonds namely, Nigeria Treasury Bills, FGN Bonds and the FGN Savings Bond.
The issuance of a new instrument (the Sukuk) by the government at this time is another landmark in the domestic market that is of immense benefit for the FGN, the capital market, investors and the Nigerian populace for various reasons.
One of the three broad strategic objectives of the Economic Recovery and Growth Plan (2017-2020) is to build a globally competitive economy and one of the plans for achieving this is by investing in infrastructure; thus, every avenue towards developing Nigeria’s infrastructure must be explored. The use of the Sukuk to raise funds to finance infrastructure contributes directly to achieving this objective.
The proceeds from the issuance of the N100 billion Sukuk will be used to construct and rehabilitate 25 roads in Nigeria’s six geopolitical zones. These roads have been selected by the power, works and housing ministry because of their strategic economic importance. The deployment of the Sukuk proceeds to these projects would improve road infrastructure, which because of the multiplier effect of good infrastructure, will translate to many benefits all over the country.
Good roads are important for Nigeria’s economic development; they connect different parts of the country, facilitate trade, provide access to markets for farmers and link remote areas to essential social services such as education and health.
Many of the prospective investors that the DMO met during the roadshow were very interested in the fact that the Sukuk is tied to projects and enquired about the specific roads towards which the N100 billion Sukuk would be applied. The level of disclosure and transparency for Sukuk financing which requires the issuer to present full details of how funds will be utilised gives investors information that will guide their investment decision whilst also giving them the ability to monitor the utilisation of the Sukuk proceeds after investing, to confirm that funds have been applied as proposed.
To provide additional comfort to investors, the FGN has appointed two trustee firms registered with the Securities and Exchange Commission (SEC) that will, on behalf of the investors in the Sukuk, monitor the utilisation of the proceeds and the quality of work. 
The Sukuk also provides an opportunity for the federal government to diversify its sources of funding by introducing a product that is more acceptable to ethical investors who would ordinarily not invest in interest-bearing instruments. The Sukuk effectively provides an avenue for ethical investors to also contribute to the development of the nation in a manner consistent with their investment preferences. The Sukuk will thus expand and diversify the FGN’s investor base.
The debut Sukuk offer will also encourage financial inclusion by providing an avenue for non-interest investors to participate in the fixed income market. In addition, it provides an opportunity to further develop the savings culture in Nigeria, particularly among individuals and other retail investors. For this purpose, the minimum subscription amount for this debut offer has been set at N10,000 to make it accessible to all categories of investors. It is expected that financial institutions, social and religious organisations, co-operative societies, trust funds and retail investors will take advantage of this opportunity.
It is important to add that the issuance of the sovereign Sukuk will also deepen Nigeria’s financial market by increasing the variety of instruments available for issuers and investors. The DMO expects that the sovereign Sukuk will serve as a benchmark for the pricing of future Sukuks that may be issued by other tiers of governments, corporate institutions and multilaterals. For this purpose, the DMO will be extending the developmental role it played in the capital market using FGN Bonds to the non-interest bearing segment of the market.
Significant highlights of the N100 billion Sovereign Sukuk include the rental income, which will be paid to investors in the bond every six months at a rate of 16.47% per annum. It is a safe low-risk investment, as it is a direct obligation of the FGN, which is fully responsible for the payment of the rental income and the repayment of the principal at maturity. It is also backed by the full faith and credit of the federal government.
The CBN has conferred a liquid asset status, meaning that the low risk of the Sukuk and the liquid asset status make it relatively easy for investors to use the Sukuk holdings as collateral.
To encourage the investment culture and mobilise savings, the rental income on the Sukuk is tax-exempt and will be listed on The Nigerian Stock Exchange (NSE) and the FMDQ OTC Securities Exchange to provide an avenue for investors that may wish to sell part or all of their investment in the Sukuk before maturity.
• Ms. Oniha, Director-General of the Debt Management Office (DMO), writes from Abuja
  • Evans

    It is high time we started to ask our leaders to be accountable. What kind of bond is this sukuk bond?

  • Victor Onanubi

    Sukuk was proudly described as non-interest bond BUT earns bi-annual RENTAL INCOME at the rate of 16.4% per annum on the target infrastructure while the principal are paid at maturity.

    Describing the important of using fund for importance infrastructures and so-called non-diversion is the problem of governance and should not be used to manipulate our reasoning. However, madam DMO (of today) must answer these questions:

    Firstly, is there anything wrong with the normal FGN Bond championed by our noble commercial banks? Are these banks tired, broke or suddenly becomes unreliable and undependable?

    In what way does the so-called “Sukuk” become better means of gathering fund than what works in all developed countries of the world?

    Doesn’t RENTAL INCOME at 16.4% another word for INTEREST at 16.4% with co-ownership mentality. Who is fooling who?

    Earning INTEREST termed as RENTAL INCOME with the mentality of co-ownership simply indicate deeper and dangerous interest in the targeted investment.

    Who is renting what? Who owns or becomes co-owner of what? It practically looks like a deceptive plan to sell all major infrastructures to people that belongs to a particular religion or the Arab nations when such bond becomes international.

    Which income is being expected from infrastructures and other government responsibilities? Most likely there are plans to issue Sukuk for police and ministry of defence?

    Was it stated in our constitution or passed at both parliaments?

    Ma, can you tell all Nigerians the initiator of this “so-called” wonderful financial instrument?

    Finally, Government MUST be neutral on culture, tradition and religion divides. Those tampering with these volatile components by mixing them with politics are playing “yoyo” with destructive explosives.

    All the recent religiously sentimental policies are becoming more glaring to be calculated religious alignments towards political victory on coming elections. Every unending way anywhere in the world actually started on such pedestal. With due respect to all our leaders; PLEASE separate politics completely from Culture, Tradition and most dangerously RELIGION. Stay NEUTRAL on anything that promote or boast any of these dangerous and active

    • “Korede

      I have read your comment and I found it tempting to reply.

      You should come out of your religion bigotry and read like an ordinary Nigerian.

      Quoting from your response thus

      “In what way does the so-called “Sukuk” become better means of gathering fund than what works in all developed countries of the world?”

      I will answer with the quote from the piece as below

      “However, unlike conventional bonds whose proceeds can be used for a wide variety of purposes including recurrent expenditure, funds realised from a Sukuk issuance can only be deployed to assets such as infrastructure. Furthermore, investors in Sukuk receive income, based on those assets rather than interest, as is the case with conventional bonds.”

      “The debut Sukuk offer will also encourage financial inclusion by providing an avenue for non-interest investors to participate in the fixed income market. ”

      I came to my conclusion on your religion bigotry with the quote below.

      “Finally, Government MUST be COMPLETELY neutral on culture, tradition and religion divides. Those tampering with these volatile components by mixing them with politics are playing “yoyo” with destructive explosives.Every unending way anywhere in the world actually started on such pedestal”

      Even if the Sukuk is coming from any religion, will that change your faith?

  • Assoc Middlebelt Ethnicnationa


    by James Pam, June 06, 2016,

    Nigerian newspapers have, in the last one year, have reported that meetings have been taking place between Alhaji Mounir Gwarzo, the Director General (DG) of the Securities & Exchange Commission (SEC), and Dr. Abraham Nwankwo, the Director General (DG) of the Debt management Office (DMO). Gwarzo is reported to have urged Nwankwo to explore the possibility of the DMO issuing Sukuk Bonds on behalf of the Federal Government of Nigeria. The idea is for the Federal Government to utilize this Sharia-compliant debt instruments to raise funds for the execution of Federal Government projects.
    Sukuk bonds are financial instruments that are designed to meet the dictates of Sharia Law. Sukuk (plural for the singular form sakk) are, therefore, debt instruments similar in principle to conventional Bonds except that they are Sharia-compliant.
    According to Dr. Tahmoures A. Afshar, School of Business, Woodbury University, USA, Sharia Law prescribes that all Islamic financial transactions must be free of the following:
    (a) The payment or acceptance of interest (Riba) for a loan is absolutely forbidden. The word Riba means excess or addition and implies excess compensation without due consideration (Islamic Banking, Wikipedia, 2011, p.2). Accordingly, imposition of late payment penalty of rentals and loans is forbidden since it is considered as Riba. (The Journal of Global Business Management Volume 9, Number 1, February 2013, pg. 45)
    (b) Trading under uncertainty (Gharar) in financial transactions must be eliminated. The Sharia defines Gharar as a situation whose consequences are hidden or are unknown. Accordingly, undertaking transactions with insufficient knowledge of the market or product and thereby incurring an excessive risk or interest is forbidden.
    (c) Under Islamic Law, money is not an asset; it is merely a medium of exchange and a measuring unit of value. An individual or an institution should not be able to generate income from money. This self-generation of money from money qualifies as Riba, which is absolutely forbidden in Islam. Accordingly, the trading/selling of debts or receivables (without an underlying asset) for anything other than its par value is not permissible (Howladar, 2010, p.7)
    (d) In Islam, a return on capital is justified only when the capital has taken the form of real (non-monetary) assets.
    (e) Islamic finance distinguishes between the time-value of money as a measure of investment efficiency and as a means of determining yield. Therefore, yields are either based on profit or loss sharing in the enterprise or negotiated price for sale or lease transactions.
    (f) Conventional insurance and reinsurance are not allowed.
    (g) Any transaction (buying, selling or distribution) that involves alcoholic beverages, pork, prohibited drugs, gambling, pornography, and weapons is forbidden.
    Afshar defines two basic types of Sukuk – the Asset-based Sukuk and the Asset-backed Sukuk. Under the Asset-based Sukuk, the Sukuk holders have beneficial ownership in the asset. Under Asset-backed Sukuk, the Sukuk holders own the asset and as a result do not have recourse to the asset but to the originator when there is a shortfall in payment.

    In a publication, ‘The Sukuk Handbook’ by Latham and Watkins LLP, the authors list eight popular variations of the Sukuk in use: Sukuk al-ijara, Sukuk al-wakala, Sukuk al-mudaraba, Sukuk al-musharaka, Sukuk al-istithmar, Sukuk al-manafa’a, Sukuk al-istisna’a and Sukuk al-murabaha. They also opine that there are regional peculiarities between the Middle Eastern countries and Asian countries. Country to country differences within these regions do exist. They explain that these differences arise due to differences in the treatment of tax and zakat and how conservative or liberal a country is in its interpretation of Sharia Law.

    In view of the afore-mentioned complexities, it became necessary to set up a specialised accounting and auditing body to assist participants. This body is the AAIOFI (Accounting and Auditing Organization for Islamic Financial Institutions), a non-profit organization, which was established in March 1991 to maintain and promote Sharia standards in the Islamic financial industry. It is supported by 155 members and the Central Banks of 40 Islamic countries (Nigeria not included).

    In terms of performance, the Sukuk market enjoyed healthy growth between 2001 and 2007 when it grew in sales volume from USD 500 million to USD 60 billion. In 2008 the number of Sukuk issued globally declined by 50% as compared to 2007 according to Afshar. Market experts and commentators blamed the global financial crisis of 2007, lack of standardization in the market and some high-profile Sukuk defaults by originators (Chance, pg 89). Others placed the blame on criticisms by Sheik Muhammad Taqi Usmani, a prominent scholar, who declared that 85% of Gulf Sukuk did not comply with Sharia Law.

    This writer was only able to find one cogent reason why some Nigerians and foreign investors might insist on Sukuk. Afshar gave this single reason as, “Sukuk is an ideal choice as compared with the conventional bonds for the Islamic investor. This is because Sukuk are Sharia-compliant instruments and therefore free from unpermitted transactions.”

    With such complications and uncertainties, why does the DMO still want to dabble into Sukuk? After all, just a tiny fraction of the country’s credit needs would be met through it. Nigeria already attracts credit from the world’s biggest international financiers. In April 2016, our President went to China to seek for a loan of $2.0 billion but was surprisingly offered a $6.0 billion line of credit.

    The DMO has had to set up a very large committee made up of CBN, SEC and DMO senior staff just to work around these Sukuk complexities. Nwankwo had hoped that the committee would be finished by the first quarter of 2016, but this date has had to be shifted to the third quarter.
    It is near impossible for the DMO to monitor funds raised via Sukuk and pumped into the Bank of Industry or Railways or youth employment to be monitored in order to work out profit earned so that it can be shared the Sharia way. It is also very difficult to monitor such funds to ensure that the projects financed by the BoI have nothing to do with pigs or pork or gambling (approved lotteries) or insurance businesses in hundred and thousands of micro, small and medium scale enterprises. How will Corporate Tax, Withholding Tax, VAT, etc be avoided and still comply with extant Tax laws and Accounting conventions?

    An issue for the promoters of Sukuk to consider is the fact that the Christian population, which is about fifty percent of Nigeria’s populace, will be disqualified from participation of benefiting this Nigerian scheme unless they will be forced to comply with the dictates of a religion not theirs. They will read it as an overt move to lord Sharia law on all Nigerians.

    Rightly or wrongly, the current Government has been accused by some of subtly attempting to Islamize the through policies, biased employment and legislation. The view that everything ‘conventional’ or ‘Western’ is Christian is not true. If the Government insists of some of these very controversial and highly volatile issues, it will be announcing that Christians and Muslims cannot live together in Nigeria. After all, Islamic banking is thriving in the country. Sharia-compliant financial services are available for those interested. Our main banking legislation, BOFID 1992, has adequate provision for interest-free or profit/loss sharing banking.

    We have led the developing world in Foreign Direct Investment (FDI) inflows for years until 2016. Our Dollar-denominated bonds via conventional vehicles have always been oversubscribed. The $6 Billion line of credit placed at our disposal by China takes care of 54% of the proposed deficit of N2.2 Billion ($11.1 Dollars) in the 2016 Budget. The necessity for Sukuk is therefore not there.

    The DMO would be well advised not to venture into the already turbulent waters of Nigerian religious controversies.


    AAIOFI (2008). “Shari’ah Resolution: Issues on Sukuk.”

    Afshar, T. A. “Compare and Contrast Sukuk (Islamic Bonds) with Conventional Bonds, Are they Compatible?” School of Business, Woodbury University, USA. Published in The Journal of Global Business Management, Volume 9, Number 1, February 2013.

    Chance, C. “Sukuk Guidebook”, Dubai International Financial Center (DIFC), pp.1-95.

    Howladar, K. (2009). “The Future of Sukuk: Substance over Form? Understanding Islamic Securitisation, Asset-backed and AAIOFI Principles”. Moody’s Investors Service, pp. 1-13.

    Islamic Banking, Wikipedia, 2011, p.2
    www. May 20, 2016
    www. February 17, 2016

    www. April 13, 2016

  • pius pumpum

    This Sukuk federal government bond is as nebulous as most government policies lately,the source or the method of returns is even more confusing,what is Rental Income?when we were told that the funds raised will be used on identified road projects and this roads are not tolled….So rent from where?or the roads are going to be rented to FGN under which constitutional backing?I was watching Madam DMO yesterday on life Television her body language even shows that she doesn’t believe in what she is trying to sale.I’m sure it was foisted on her by powers to satisfy some religious and political idiosyncrasies . From my assessment this product is not borne out of deep commercial analysis supported by indepth fact the number of people due to their faith will be interested in this kind of product visa viz its viability.It is still that dangerous mix of religion,culture and governance that have held us down.People in power don’t make objective decisions that lead to policies based on empirical facts rather by Religious,Cultural and Political expediencies.Africa will continue to be her own albatross until governance is extricated from Culture,Religion and politics.

    • Ibrahim Mohammed Malum

      Please understand the difference between interest and rent income. It’s call rental income because the way sukuk work is as follows. Assuming you want to build a house or you have Started building a house and you could not proceed with the project because of short of fund. So you now estimate the actual amount of money needed to complete that project and issues a sukuk of value of the property in question in form of sale receipt to Who so ever want to invest in that property. So the investor who buy such sukuk has now become the owner of such property. But the fact that the asset is with the issuer of the sukuk, it is as good as he is using the asset and he should pay you a rent for using such asset. Up to the time he felt the work on the asset will be over and thereby repay you the face value of the sukuk from the revenue of assets or property in question. So the rental income is the amount paid by the government to the sukuk holder because it is tied to the road project which is assume the federal government is using the road of which the sukuk holder is the owner.

  • Wole Akpose

    An interesting concept. One question that has gnawed at me for quite some time now is why Nigeria has not decided to become master of its own destiny. Think infrastructure, Nigeria locally retains all the raw materials required for building roads and bridges. While it is now necessary to import the machineries, there is no reason why those too cannot be locally sourced — Nigeria after all has iron ore is excess, and the blueprint for most of these equipment are now openly available — the internet is a great thing.

    Nigeria has great Universities, eager students and tons of unemployed people (young and older) who will readily resource a massive infrastructure project. So the question is how will this be funded. The answer lies in the American experiment in the lead up to the second world war and during the decades post war. The Federal government simply printed dollars — here, the Nigerian government would print the Naira.

    It is interesting that almost a hundred years after broad availability of electricity, Nigeria continues to import almost all essential electricity generation, distribution and transmission equipment. Why can these not be locally sourced. What is wrong with incentivising local manufacturers and charging a cluster of Nigerian Universities to become the power -engineering base for the nation. Nigerian is rich in iron ore, tin, aluminium, copper and of course wood. The country knows how to make transformers, relays, rods (iron, aluminium etc) and rubber. The nation is capable of making all the components for different types of energy generation and has abundant natural resources including access to the ocean, large supply of wastes, open windy desert lands, abundance of natural gas and of course petroleum — all ingredients of every known source of electricity. Nigeria has large deposits of plutonium, some uranium, columbite, tin and other rare minerals. Why hasn’t the government commission local power sector that is fully indigenous. It can be done.

    If the government commits to power and infrastructure, it can incentivise local food production. A key missing element to food security includes a robust food processing and crop preservation infrastructure, and a reliable food transportation network. Just like above, the blue print for food processing is daily available online as is the blueprint for railway network.

    Nigeria can build its now railway network, and its own regional food processing plants. Again, all the necessary raw materials are available in the country.

    It is true that Nigeria may not have immediate access to the latest technologies and how to for modern (i.e. year 2000 and beyond) manufacturing technologies. But for patents older than 20 years, the blueprints are available online and most of them for free. To be successful, Nigeria need not implement America’s or European’s current technologies. Even technologies of 20 years ago will help the nation leapfrog it’s current malaise and set it on the path to prosperity.

    Imagine a scenario where the federal government decides to ignore the world bank, IMF and other Brenton wood organisations, and instead focus on developing home grown capabilities by using open source resources, printing it’s own monies and putting millions of Nigerians to work making the things the nation needs. The nation can mobilise up to 5 million people, most of them highly educated, to design and build the required infrastructure and in the process create wealth, develop new and enduring industries, strengthen local food production and set up the economy for long term success.

    Another critical issue of course will be force modernisation and regulation. The Nigeria police may have to be disbanded and rebuilt from scratch. Of course that may not require firing every current police officer, but it will require retraining them all and creating enforceable set of new rules for policing. It may require partnering with local institutions of higher education to ensure that every police man or woman has at least two years of post secondary education that includes a lot of training on human interaction, the role of the rule of law and due process and how to properly engage with civil society. It may be appropriate to disband the local mobile police and rethink the role of policing in the society. Would a regional police be better than the current national police structure? If the police is reformed, armed robbery, one of the bane of the Nigerian society will be largely tamed. Today, the police represent one of the biggest security threats. Remove that threat, or better yet, turn it into strength, and you will give the Nigerian economy some breathing room.

    Many years ago, almost 30 years ago, then General Buhari’s administration resorted to force and the treatment of the populace like some second hand slaves with his then War against Indiscipline. He and others in his government missed the point. Today, he is attempting to achieve the same objective, but without resorting to the barbaric antics of old. And the results have been mixed, at best. The problem is not that the people are undisciplined. The problem is that people are trying to survive. Give them a fighting chance, constant rules and treat everyone equally (meaning punish officials who disobey the law as well as ordinary citizens) and people will respect the law and behave themselves. Make corruption obsolete by making the cost of corruption very high indeed.

    All of these can be done. It just takes some political will. And the Nigerian presidency is strong enough to effect these changes. They will lead the path to a successful, and hopefully, a peaceful nation.