Nigerian financial operators have identified Sukuk Islamic bond as a major tool that can be used in closing the country’s gap on infrastructural deficit.
Raising from the two days 2nd international conference on Islamic Finance which opened on the 30th Nov and closed 1st of Dec 2015 in Abuja, financial experts from the country’s public and private sector having exhaustively deliberated with their international global counter parts, resolved to urgently turn up the volume on enlightenment campaigns so as to create the required awareness to investors and operators on the potentials of Sukuk.
Sukuk as a tool in the Islamic Finance system has accrued an asset base of about $300 billion, while its mother body the Islamic Development bank peaks at $2.1 trillion dollars just within its existence of 2010 to 2014*.
The non interest policy of the Islamic banking system as prescribed from the Sharia law gives it an edge over the conventional banking system, this has also robbed off on Sukuk bond, where both the operator and investor of the bond take equal responsibility of the gains and losses of the infrastructure. The Financial Times defines it as “Islamic bonds, structured in such a way as to generate returns to investors without infringing Islamic law (that prohibits riba or interest).
Sukuk represents undivided shares in the ownership of tangible assets relating to particular projects or special investment activity. A Sukuk investor has a common share in the ownership of the assets linked to the investment although this does not represent a debt owed to the issuer of the bond. In the case of conventional bonds the issuer has a contractual obligation to pay to bond holders, on certain specified dates, interest and principal. In contrast, under a Sukuk structure, the Sukuk holders each hold an undivided beneficial ownership in the underlying assets.
Consequently, Sukuk holders are entitled to a share in the revenues generated by the Sukuk assets. The sale of sukuk relates to the sale of a proportionate share in the assets”.
The Bond since the year 2000 has become an important Islamic financial instrument in raising funds for long-term project financing, such as in Malaysia were it was first issued in 2000, Bahrain followed suit in 2001. Since then, Sukuk have been used by both the corporate sector and states for raising alternative financing.
Even though the 2011 global financial crunch affected the issuance of Sukuk its popularity has continued to soar- the United Kingdom in 2014 issued its first sovereign Sukuk of £200m, South Africa also cued in with $500m and its African brothers; Senegal, Gambia and recently Cote d’Ivoire is investing $244m.
Nigeria, the biggest economy in Africa unfortunately isn’t commensurate in terms of infrastructure, worst still is the dwindling prices in the oil market which is its major source of revenue, suggests that it could do with alternative way of boasting the economy.
At the opening ceremony of the conference, the emir of Kano who was also the former governor of the country’s Central Bank of Nigeria, His Royal Highness Muhammad Sanusi II, made the first call “the fall in oil prices and the dwindling government revenues, coupled with the decay of our infrastructure and the long age inherited infrastructure deficit have joined together to necessitate the need to explore alternative sources of funding for capital projects. This is where the Islamic Finance with its asset class of Sukuk, the nomenclature equivalent of conventional bonds finds significant relevance”.
