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Articles

Understanding sukuk

“Sukuk” is an Arabic term which simply means “certificates”
The origins of sukuk can be traced to the classical Islamic period during which papers representing financial obligations from trade and other commercial activities were issued.
In its present form, a sukuk issue is akin to the conventional concept of securitization - a process in which ownership of an underlying asset/project or transaction is transferred to a large number of investors through certificates representing proportionate value of the relevant assets.
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) defines sukuk as “certificates of equal value representing common shares in ownership of tangible assets, usufruct and services or (in the ownership of) the assets of a particular project or a specific investment activity.”
The sukuk has swiftly emerged as an alternative financing mode for sovereigns and corporates alike (regardless of faith) and is now popularly termed the flagship instrument of the Non interest Finance industry

The FGN sovereign sukuk

The FGN’s sukuk issuance is the first attempt by the FG to raise funds through the non interest capital market. The sukuk issue is targeted at infrastructure development and financial inclusion
This offer is the culmination of several years of pioneering efforts by financial service regulators – the Central Bank of Nigeria, the Securities and Exchange Commission, the Federal Inland Revenue Service, the National Insurance Commission and the National Pension Commission to the sukuk offer will be deployed to the construction of twenty six major federal roads and bridges across Nigeria’s six geopolitical zones. Information on the use of proceeds is provided in greater detail in the prospectus (coming soon…)
Below is a high level summary of the transaction details.

Compliance with Islamic law

All non-interest products and services including sukuks are required to be reviewed and certified as compliant with the principles of Islamic law by a Shariah board composed of scholars knowledgeable in non-interest finance prior to issuance.
The FGN sukuk has been certified as Shari’ah compliant by the Financial Regulation Advisory Council of Experts of the Central Bank of Nigeria (CBN). The certification is available on the website of the Debt Management Office at https://www.dmo.gov.ng/.

Why you should invest in the FGN Sovereign Sukuk

  • The sukuk is secured by the full faith and credit of the Federal Government of Nigeria
  • The sukuk qualify as bonds issued by the Federal Government of Nigeria and as such, the rental income is exempt from taxes - companies’ income, personal income, capital gains, and value added taxes.
  • Investors who wish to cash out their investment in the sukuk before maturity can trade the sukuk on the floors of the Nigerian Stock Exchange and FMDQ OTC Securities Exchange for immediate cash.
  • The sukuk qualifies as:
    • securities in which Pension Fund Administrators may invest under the Pension Reform Act, Cap P4, LFN 2004;
    • securities in which trustees can invest under the Trustee Investment Act;
    • liquid assets in the estimation of the liquidity ratios of banks by the Central Bank of Nigeria;
    • government securities within the meaning of Company Income Tax Act (“CITA”) and Personal Income Tax Act (“PITA”)
 
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