Recently, the Nigeria government via FGN Roads Sukuk Company 1 Plc issued a 7-Year N100bn Sukuk (bond). This has generated many debates especially from faithful of Islam and Christain religions.

Sukuk is an Arabic term which simply means “certificates”. Also referred to as Islamic Bond, It is a financial instrument structured to generate returns to ethical investors without infringing on the Islamic law which forbids interest payments.

Amid a fast growing global sukuk market and the benefits it offers, this issuance increases the popularity of Sukuk as an alternative funding source on the African Continent. Kenya, South Africa, Sudan, Niger, Cote d’Ivoire, and Togo hav e all issued Sukuk. 

In Nigeria, the government  has so far in 2017 issued $1.5bn Eurobonds, $300mn worth of Diaspora Bonds and monthly Savings Bonds in a bid to plug budget deficits. Also, N100bn Sukuk is offered at N1,000/unit (minimum of N10,000 or 10 units) like a regular bond but represents an ownership interest in the asset to be financed rather than a debt obligation.

With the latest move, participants will be paid a semi-annual, tax-free rental income (not coupons) of 16.47% on a pro-rata basis. The issuance is open to all investors but specifically offers ethical investors an opportunity to partner with the FGN to fund the developmental projects. Some of the roads to be funded by the bond include the Ibadan-Ilorin Rd, Kolo-Otuoke-Bayelsa-Palm Rd, Enugu-P/Harcourt Rd, Kaduna Eastern By-Pass, Kano-Maiduguri Rd. and Loko-Oweto Bridge over River Benue. 


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.

Secure return through an ethical investment

Sukuk commonly refers to the Islamic equivalent of bonds. However, as opposed to conventional bonds, which merely confer ownership of a debt, Sukuk grants the investor a share of an asset, along with the commensurate cash flows and risk. As such, Sukuk securities adhere to Islamic laws sometimes referred to as Shari’ah principles, which prohibit the charging or payment of interest.

The emergence of Sukuk has been one of the most significant developments in Islamic capital markets in recent years. Put simply, Sukuk instruments act as a bridge. They link their issuers, primarily sovereigns and corporations in the Middle East and Southeast Asia, with a wide pool of investors, many of whom are seeking to diversify their holdings beyond traditional asset classes. In this way, funds raised through Sukuk can be allocated in an efficient and transparent way to infrastructure initiatives and other deserving projects in the 56 member countries of IDB, as well as communities in over 100 non-member countries.

Both domestic and foreign investors buy Sukuk having various structures approved by Shari’ah boards of Islamic scholars. Sukuk issuance has proven its resilience during recent periods of turbulence in global capital markets. Sukuk issuance increased from US$ 14.9 billion in 2008 to US$ 23.3 billion in 2009, with Asia showing particular strength. Even so, the Sukuk market is still a niche one, with huge potential for growth. The Sukuk growth rate is currently 10-15% in global financial markets.

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. The sukuk offer will be deployed to the construction of twenty five 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.

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). A copy of the certificate is included in the prospectus.

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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