₦100B Sukuk Islamic Bonds Part Of Buhari’s Agenda To Islamise Nigeria – CAN

by Ike Obudulu Posted on September 20th, 2017

Abuja, Nigeria. Sept 20th: The Christian Association of Nigeria, CAN, in a statement on Tuesday in Abuja by its General Secretary, Rev. Musa Asake, opposed the floating of the Sukuk Islamic bond by the Federal Government, alleging it is part of Buhari’s agenda to Islamise Nigeria through the back door. The Christian Association of Nigeria, CAN, demanded the abrogation of the laws and framework behind the bond and threatened to seek legal redress if that was not done.

The Christian Association of Nigeria said the FG was trying to sell the nation to Arab countries through the Sukuk Bond, arguing that the government was pursuing an Islamisation agenda.

According to the Christian body, Nigeria is a secular state and the government is expected to be neutral on issues involving religion. It argued that the promotion of a sectional religious financial policy was a violation of the Constitution.

The Christian Association of Nigeria, CAN, said:

“The Christian Association of Nigeria has been protesting against this aberration since the Osun State Government, under Governor Rafiu Aregbesola, embarked on this violation of the Constitution.

Rather than stand in the defence of the constitution, it is disappointing to note that the Federal Government is pursuing what is an outright confirmation of an Islamisation agenda.

The recent floating of Sukkuk Bond by the government is not only sectional but illegal and a violation of the Constitution. Every law that has been promulgated to back the Sukuk issuance and promote an Islamic banking system in Nigeria is ultra vires, illegal, null and void.”

The Christian Association of Nigeria, CAN, said there was never a time Nigeria held a referendum or convened a Constituent Assembly that passed a resolution that the nation had transmute into an Islamic State.

“Therefore, the manipulations and scheming to smuggle the country into a full blown Islamic state should stop; these manipulations became apparent with the smuggling of Nigeria into the Organisation of Islamic Conference in 1986 by the Ibrahim Babangida military junta,”

The Christian Association of Nigeria, CAN, added that the International Monetary Fund had stated that the issuance of Sukuk by non-Islamic countries was a breach of the religious neutrality of the government of such states.

“The FG must dismantle all legal and institutional framework established to promote Islamic financing in Nigeria.

We affirm that the territorial integrity of Nigeria is undermined through the issuance of Sukuk in the country. We hope that the government shall desist from its policies of unbridled religious sectionalism.”

But the Federal Government in its reaction denied any plan to Islamise country. The Minister of Information and Culture, Lai Mohammed, said the financial initiative was borne out of the need to include people who are opposed to interest-yielding enterprises.

Sukuk: Nigeria Launches Pre-Offer Roadshow For ₦100B Islamic Bonds

Abuja, Nigeria. Sept 8th: A sukuk is an Islamic financial certificate, analogous to a bond in Western finance, that is based on Sharia, Islamic religious law. Nigeria’s Debt Management Office, DMO, has kicked off activities preparatory to the Issuance of a N100 billion sovereign sukuk with a 7 year tenor. A statement by the office said a National Roadshow  led by the Director-General of the Office, Ms. Patience Oniha, commenced on Thursday, and will visit major cities in Nigeria including, Kano, Kaduna, Lagos and Port Harcourt. The Team will be accompanied by its Financial Advisers, Lotus Capital Financial Services Limited and FBN Merchant Bank Plc. The Roadshow is to create awareness about the Sovereign Sukuk and sensitize target investors about the features and benefits of the Sovereign Sukuk. The Offer for Subscription will open in the week after the Roadshow and will be advertised in major newspapers.

The DMO had announced its intention to issue a Sovereign Sukuk in the domestic market as part of measures to fund the 2017 budget deficit. Nigeria’s  Islamic bonds, structured in such a way as to generate returns to investors without infringing Islamic law (that prohibits riba or interest) can be purchased by an investor for a minimum of ₦10000.
The statement said:

“Apart from serving as alternative source of funding for the Government, the Sukuk will also serve to diversify the investor base for FGN Securities, promote financial inclusion and deepen the domestic capital market.

Sukuk are asset-based securities, not debt instruments, and represents ownership in a tangible asset, service, project, business or joint venture’. This is why Sukuk fits into the DMO debt strategy of borrowing to finance capital projects contained in the budget. This ensures that Government borrowings are used to finance development projects which have multiple economic and social benefits for citizens”.

The debut Sovereign Sukuk is for ₦100 billion with a tenor of Seven (7) years, and has been certified as ethically compliant by the Financial Regulation Advisory Council of Experts of the Central Bank of Nigeria.

Benefits to be derived from investment in the Sukuk, according the DMO include “safety, 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 product is also useful as collateral to access loans from banks.

What is a Sukuk

A sukuk is an Islamic financial certificate, similar to a bond in Western finance, that complies with Sharia – Islamic religious law. Since the traditional Western interest-paying bond structure is not permissible, the issuer of a sukuk sells an investor group a certificate, and then uses the proceeds to purchase an asset, of which the investor group has partial ownership. The issuer must also make a contractual promise to buy back the bond at a future date at par value.

Anatomy of a Sukuk

Islamic law prohibits what’s known as “riba,” or interest. Therefore, traditional, Western debt instruments cannot be used as investment vehicles. To circumvent this, sukuks were created in order to link the returns and cash flows of debt financing to a specific asset being purchased, effectively distributing the benefits of that asset. This allows investors to work around the prohibition outlined under Sharia and still receive the benefits of debt financing. However, because of the way that sukuks are structured, financing can only be raised for identifiable assets.

Thus, sukuks represent aggregate and undivided shares of ownership in a tangible asset as it relates to a specific project or a specific investment activity. An investor in a sukuk therefore does not own a debt obligation owed by the bond issuer, but instead owns a piece of the asset that’s linked to the investment. This means that sukuk holders, unlike bond holders, receive a portion of the earnings generated by the associated asset.

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.

There are various types of sukuk structures relating to the nature of the underlying asset. The most commonly used is where the sukuk relates to a partial ownership of an asset (sukuk al-ijarah). Other types of these bonds relate to partial ownership in in a debt (sukuk murabaha), project (sukuk al-istisna), business (sukuk al-musharaka), or investment (sukuk al-istithmar).

Examples of Sukuks

The most common form of a sukuk is a trust certificate. Surprisingly, these certificates are governed by Western law. However, the structure of this type of sukuk is fairly complicated. The organization raising funds first creates an off-shore special purpose vehicle (SPV). The SPV issues trust certificates to qualified investors and puts the proceeds of the investments toward a funding agreement with the issuing organization. In return, the investors earn a portion of the profits linked to the asset.


Photo: Sukuk

Sukuks structured as trust certificates are only applicable if the SPV can be created in an off-shore jurisdiction that allows trusts. This is sometimes not possible. If an SPV and trust certificates can’t be created, a sukuk can be structured as an alternative civil-law structure. In this scenario, an asset-leasing company is created in the country of origin, effectively purchasing the asset and leasing it back to the organization in need of financing.

Origin of Sukuks

Sukuks have become important Islamic financial instruments in raising funds for long-term project financing since 2000, when the first sukuk was issued by Malaysia. Bahrain followed suit in 2001. Since then sukuk have been used by Islamic corporations and state-run organizations alike for raising alternative financing.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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