Pension investment in Sukuk reaches N580bn in five years

Nigeria’s pension industry has increasingly turned to Sukuk, with investment in the Islamic financial instrument hitting N580 billion in five years.

Pension Fund Administrators (PFA) interests in Sukuk, the Shari’ah compliant instrument aligns with their strategy to diversify investment portfolios and align with ethical and sustainable financial practices.

Between 2020 -2024, investments in Sukuk have shown notable fluctuations but overall demonstrate substantial growth, reflecting a strategic shift towards more socially responsible and ethical investments, Agudah Oguche, chief executive officer, Pension Fund Operators Association (PenOp) of Nigeria said.

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“The pension industry has demonstrated a growing commitment to diversifying its investment portfolio through Sukuk, an Islamic financial instrument aligned with Shari’ah principles.”

Oguche analysing allocation to Sukuk said, in 2020, the industry’s investment in Sukuk stood at N104.51 billion, laying a solid foundation for subsequent years. However, in 2021, there was a notable dip, with investments totalling N73.80 billion. This decline may have been influenced by broader economic conditions and shifts in market dynamics during the period, he said

According to him, he trend reversed significantly in 2022, with Sukuk investments surging to N137.91 billion, marking a resurgence in the adoption of this asset class. “By 2023, investments reached a new high of N154.76 billion, underscoring the growing confidence of pension fund administrators (PFAs) in Sukuk as a viable and secure investment vehicle.

“This steady increase, particularly in the last two years, highlights the pension industry’s recognition of Sukuk’s potential to deliver steady returns while adhering to ethical investment standards.

The rising adoption also aligns with the broader global trend of integrating Islamic finance into mainstream financial markets, fostering financial inclusion and sustainability, the PenOp CEO said.

Saadu Jijji, chief executive officer, Pal Pensions Limited, speaking on the impact of pension funds on infrastructure development and economic growth during a Round Table with National Assembly Members in Lagos said a lot of funding has been made in the sector without much noise being made about it.

According to him, PFA are the largest investors in Nigerian Infrastructure Debt Fund (NIDF), the biggest infrastructure fund in Nigeria that invests in projects from power to student hostels.

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Jajji said PFAs also invested in Dangote Refinery and Petrochemicals when in 2022, the Dangote Industries issued a N300 billion bond for the completion of the refinery.

“PFAs have invested in ACTIS Real Estate fund that has acquired Jabi Lake Mall and will acquire Ikeja City Mall.

Other infrastructure investments by PFAs are State Bonds, Novare Real Estate, MTN, Niger Delta Exploration and Production Plc, Lagos Free Zone and the Nigeria Mortgage Refinancing Company (NMRC) where it invested N26 billion from N100 billion guarantee.

Joy Ojakovo, vice president of the Pension Fund Operators Association of Nigeria, said the Contributory Pension Scheme (CPS) has brought many benefits to individuals and the nation and the industry needs to continue to work with stakeholders to improve the scheme.

“Nigeria’s pension industry has been the fulcrum for a lot of development that has happened in the country over the last 15 years and this fact is not lost on us as pension fund managers. We realise this and we take this responsibility very seriously.”