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As the first ever Nigerian sovereign Sukuk issued in 2017 matured and was finally settled. This is another Milestone in Islamic Finance Industry in Nigeria, according to Prof. AbdulRazzaq AbdulMajeed Alaro.
Sukuk, a form of Public Private Partnership (PPP), was among the funding options adopted by the Federal Government (FG) under former President Muhammadu Buhari to fund the construction of critical roads in Nigeria. Nigeria’s first Sukuk bond of N100 billion, which was issued on September 26, 2017, has matured on September 26, 2024. This is according to the 2023 Annual Activity Report of the Financial Markets Department of the Central Bank of Nigeria (CBN). However, Nigeria has been paying rentals at a rate of 16.47% on this bond every March 26 and September 26 as a form of debt service before its maturity date, report said.
Confirming this development, Prof. AbdulRazzaq AbdulMajeed Alaro, mni Monday said, “A few days ago, the first ever Nigerian sovereign Sukuk issued in 2017 matured and was finally settled. What this implies is that the underlying assets of the 100 billion Naira sukuk (FGN Sukuk 1 roads in the six geopolitical zones) have been successfully reacquired from the investors.”
The Professor of Islamic Law of Banking and Finance, University of Ilorin and Member, Financial Regulation Advisory Council of Experts, Central Bank of Nigeria noted that, “it also means that FGN as the originator/obligor in this case, has not defaulted in its obligation under the sukuk contract, and this is especially important for boosting both domestic and international investors’ confidence in the emerging Nigerian Sukuk market. Congratulations to all.”
The application of Sukuk is not a recent phenomenon, it is as old as Islam. Prior to the modern period, Islamic communities used Sukuk as ‘papers’ to represent financial commitments that originate from trade and other economic transactions. The first Sukuk transaction took place in Damascus, Syria in the 7th Century AD. Modern resurgence of Sukuk has been propelled by renewed recognition of the concept by the Islamic FIQH Academy of the Organization of Islamic Countries (OIC) and the Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI). These institutions are standard setting organizations in the Islamic finance industry and have enabled Sukuk structures to be developed leading to the first successful issuance of Sukuk by the Malaysian Government in 1983. The rationale behind the creation of Sukuk is to provide an alternative to conventional bond in a Shariah complaint.
Nigeria through the DMO has raised about N1.092 trillion through six issuances of Sovereign Sukuk. The most recent issuance saw the offering of N150 billion for 10-year Ijarah Sukuk, however, the DMO recorded a subscription of N652.827 billion, representing an oversubscription of N502.827 billion. The DMO then allotted N350 billion worth of the Sukuk at a rental rate of 15.75% per annum and a tenor of 10 years. The first Sukuk issued by the DMO was an N100 billion 7-year Ijarah Sukuk with a rental rate of 16.47% per annum issued in September 2017. Though the offer was oversubscribed, DMO allotted N100 billion.
The second Sukuk issued was an N100 billion 7-year Ijarah Sukuk with a rental rate of 15.43% per annum issued in December 2018. It was oversubscribed by N32 billion but N100 billion of the Sukuk was allotted by the DMO. The third Sukuk issued was a N150 billion 7-year Ijarah Sukuk with a rental rate of 11.2% per annum issued in June 2020. DMO allotted N162.557 billion after recording a subscription of N669.124 billion. The fourth Sukuk issued was a N250 billion 10-year Ijarah Sukuk with a rental rate of 12.8% per annum issued in December 2021. DMO recorded a subscription of N865 billion for this Sukuk, however, N250 billion was allotted.
Read More: Fed Govt Sukuk Bond Offer Over-subscribed, Raises N652billion