4th December, 2015
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”.
Shaik Ziyaad Mahomed a world known expert on Islamic Finance and the founder of Islamic Institute of Southern Africa (IFISA) while presenting his paper titled: Islamic Wealth Management Trends; Driving social and financial Return, identified the Agricultural Infrastructure as a potential market for Sukuk in Nigeria saying that Nigeria could adopt a model which has worked in Malaysia and Sudan “with the success of agriculture-based Sukuk issuance in Malaysia (the largest Sukuk issuer in the world), innovative structures for this type of investment class are rapidly gaining ground. Indonesia as well as Sudan has experience in this agriculture-based Sukuk that can take a variety of forms through the application of underlying classical Islamic contracts.
For example, the use of Salam Sukuk allows for the forward sale investment in agricultural produce that will be harvested and sold at a later stage. This financing will allow farmers to meet their working capital requirements including seedlings and labor costs whilst providing investors (Sukuk-holders) with a return from the sale of the produce based on a spread in a parallel salam transaction.
Besides Salam, equity-based options for agriculture Sukuk also exist. Muzara’ah Sukuk (land and farming skill partnerships) encourage the harvesting of fertile land whilst benefiting both the land-owners and the farmers, in turn providing a dividend to investors in the project”.
Abdulkadir Abbas of the Security and Exchange Commission of Nigeria added that Sukuk is a strategy tool which Nigeria could use to improve the Power sector “for instance Kano state with its huge population can invest in Sukuk to improve electricity supply in the state”.
The conference moving forward agreed that Nigeria with a population of 80 million Muslims plus an organized capital market would achieve much more than the smaller countries, which have used Sukuk successfully. Attesting to this position the Security and Exchange commission of Nigeria pointed out that the commission has developed robust rules on Sukuk issuance which enabled one of the state governments, Osun state to issue the country’s very first Sukuk. The Osun State bold initiative on Sukuk Islamic bond was in a way, a litmus test that proved that Nigerians were interested in Sukuk “the award winning issuance was oversubscribed to show the degree of appetite for such product in the country”.
The commission represented by Abdulkadir Abbas explained that it has being running sensitization campaigns across the region of Nigeria to stimulate growth of non investment banking and is also working with other Financial regulatory agencies which include the Central Bank of Nigeria with whom it is working to obtain liquity status for non -interest products such as Sukuk. With PenCom it is finalizing guide lines specifying non interest products as investible asset in order to attract substantial part of the N4.5 trillion of pension asset into the non-interest or ethical proodcuts.SEC also is in the works with the Debt Management office to get the federal government to issue a sovereign Sukuk to benchmark for other categories of issues.
Furthermore the conference veyed for a scientific and systematic team made up of financial experts, legal experts and Sharia scholars to come together and embark on market research for Sukuk, this team, participants at the conference believe will come out with a more effective action plan that will stimulate market growth faster than the government programmes.
Although commendation continued to flow on the contributions of Nigeria’s only Islamic Bank, Jaiz Bank, the conference sought for more Islamic Banks to come into the industry, Alhaji Umaru Mutallab the chairman of Jaiz Bank pledge the Bank’s unflinching readiness to help facilitate the Sukuk bond market “Jaiz Bank is strategically ready and positioned to play critical role in this direction” he told the conference through a representative.
The conference also disabused the minds of Nigerians on the false notion that Islamic Finance is out to Islamized the country or that it was only meant for Muslims, Shaik Ziyaad of IFISA quoted the pope during his presentation saying “the ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every service”.
Ummahani Ahmad Amin the convener of the conference simply puts that “Islamic banking is just a product that can be patronized by anybody irrespective of religion; Islamic Finance is striving in countries with less Muslims such as the USA, UK, Japan, Hong Kong and South Korea which all have just 0.4% of Muslims population”.
The use of social media and mobile phones was also drummed up as means to be used to reach out to the public for awareness particularly the young adults between the age of 18 whom have lame information about Islamic finance, Modupe Ladipo of Enhancing Financial Innovation & Access made the charge based on the survey which her organization carries out every two years on non interest financial market in Nigeria.
The conference also recognized and appreciated individuals whom have contributed immensely in Islamic banking in Nigeria and globally, they include; the Emir of Kano, His Royal Highness Muhammad Sanusi II, Prof Charles Soludo both former governors of Nigeria’s Central Bank, Hajara Adeola of Lotus Capital Limited, Mr Chidi Izuwa of Infrastructure Concession Regulatory Commission (ICRC) Nigeria, Dr Wale Bolorunduro of Sukuk Isuuance in Osun state, Alhaji Nuru Islam former MD Jaiz Bank.
Government finance agencies also got the awards; Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), National Insurance Commission (NAICOM).
The private institutions include Stanbic IBTC Bank, Jaiz Bank, Cornerstone Insurance, Albarka Microfinance Bank.
Participants scored the conference high for having assembled experts such as: Dr Aishath Muneeza Maldives’s deputy minister of Finance & Treasury whose paper gave Nigeria some lessons from the Maldives Islamic finance experience; Mr Michael McMillen’s Americas, Europe, the middle East and Asian experiences; Omar Shaik of the Islamic Finance Council, UK and Dr Bashir Aliyu of the Centre for Islamic civilization, Kano among many others as paper presenters and panellists, exhaustively opened up the concept of Islamic Banking. Participants were drawn from Nigeria’s public and private financial players; capital market, insurance, commercial banks, microfinance banks, academias.
The conference was put together by The Metropolitan Skills Limited and hosted in partnership with Islamic Financial Council (IFC) UK, Finance Institute of Southern Africa (IFISA), The International Institute of Islamic Banking and Finance, Bayero University-Kano (IIBU).