In 2013, former Governor Rauf Aregbesola of Osun State introduced Sukuk to Nigeria as a tool for national economic development, and it has since been embraced by Nigerians. Aregbesola deserves national recognition for pioneering this innovative financing instrument in the country.
The issuance of Sukuk attracts domestic investment capital, which is deployed in compliance with Islamic principles. Sukuk ensures that every financial activity is backed by real economic activity, thereby promoting financial stability and sustainable economic development.
The Securities and Exchange Commission (SEC) recently disclosed that the Federal Government has issued six Sovereign Sukuk worth ₦1.1 trillion ($657.6M) to finance 124 federal road projects spanning over 5,820 kilometres across Nigeria’s six geopolitical zones. SEC’s Director General, Dr. Emomotimi Agama, made this announcement during the 2nd International Islamic Capital Market Conference in Karachi, Pakistan.
Read also: Economic crises: Event planners rely heavily on ‘committee of friends’ to raise funds
A statement from the SEC highlighted that the success of Sukuk underscores its resilience and innovation as a tool for mobilising resources. Dr. Agama described the issuance of sovereign Sukuk since 2017 as a cornerstone for the growth of the Islamic Capital Market (ICM) in Nigeria, with oversubscription rates as high as 441 percent.
The role of sub-national and corporate Sukuk
Sukuk issuance has extended beyond federal projects to subnational and corporate levels in Nigeria. Examples include Sukuk bonds issued by Osun and Lagos States, Family Homes Ltd, and TAJ Bank Plc, as well as private Sukuk issuances by other entities. These bonds have funded school infrastructure, housing projects, and even tier-1 capital for banks, showcasing Sukuk’s versatility as a financing tool.
Critics of Sukuk, including the Christian Association of Nigeria, initially expressed concerns that its introduction in Osun State was part of an alleged agenda to Islamise the state. However, the success of Sukuk projects across the country has dispelled these fears. Osun State utilised Sukuk funds to build two structural steel and nine high schools, which included 216 classrooms, three ICT halls, 18 laboratories, and additional facilities capable of enduring harsh conditions.
It is now evident that Sukuk is an alternative means of raising funds for infrastructure projects. Former Governor Aregbesola has been vindicated, as subsequent administrations, including those of former President Muhammadu Buhari and President Bola Ahmed Tinubu, have embraced Sukuk.
A global perspective on Sukuk
The dynamism of the Sukuk market contributes to financial stability and facilitates inter-regional investment flows. As Islamic finance continues to internationalise, it plays a significant role in global financial integration, fostering growth and stability.
The Federal Government’s use of proceeds from the first ₦100 billion Sukuk bond to fund 25 key economic road projects exemplifies this potential. The then Minister of Finance, Mrs. Kemi Adeosun, handed over the funds to the then Minister of Power, Works, and Housing, Babatunde Fashola. The bond, issued in September 2018, was oversubscribed at ₦105.87 billion, reflecting confidence in Nigeria’s economy and leadership.
Mrs. Adeosun highlighted that the Sukuk proceeds were allocated to critical infrastructure projects, including the construction and rehabilitation of 25 federal roads across all six geopolitical zones. Each zone received ₦16.67 billion, with projects like the Lokoja-Benin Road, Abuja-Abaji-Lokoja Road, and the Oju-Loko-Oweto Bridge benefiting from these funds.
Addressing misconceptions about Sukuk
Concerns that Islamic financial institutions would own completed infrastructure projects have been debunked. The Federal Government’s Sukuk issuance is aimed at fostering financial inclusion and addressing Nigeria’s infrastructure deficit. Critics are encouraged to visit Sukuk-funded projects to witness their transformative impact.
For example, the Northeast region benefited from projects such as the dualisation of the Kano-Maiduguri Road and the construction of the Kaduna Eastern Bypass. Similarly, in the Southeast, the rehabilitation of the Enugu-Port Harcourt Dual Carriageway and Onitsha-Enugu Motorway were funded through Sukuk. These projects demonstrate the equitable distribution of funds across the nation.
Read also: FG advocates geospatial innovation to spur economic growth
The case for expanding Sukuk
Given Nigeria’s significant infrastructure deficit and declining oil revenues, alternative financing techniques like Sukuk are essential. Sukuk offers immense potential for raising capital and addressing infrastructure needs, as demonstrated by the issuance of the first state Sukuk by Osun Sukuk Company Plc.
Sukuk has gained international acclaim, enhancing its integrity and attracting foreign direct investment. With the right team of professional advisers, Nigeria can leverage Islamic finance products to accelerate economic growth and infrastructure development.
Sukuk is a proven tool for fostering economic development and financial inclusion. Its adoption has facilitated life-changing projects across Nigeria, from roads and schools to housing and ICT facilities. Former Governor Rauf Aregbesola deserves commendation for his foresight in introducing Sukuk to Nigeria, setting the stage for its acceptance at both state and federal levels.
Nigeria must continue to explore the opportunities presented by Islamic finance, ensuring that Sukuk remains a cornerstone of its development strategy. With the right policies and professional guidance, Sukuk can significantly contribute to Nigeria’s rapid economic transformation.
Inwalomhe Donald writes via [email protected]
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
