By Adedapo Adesanya
Nigeria issued six sovereign Sukuk worth N1.1 trillion ($657.6 million) to finance 124 federal road projects covering over 5,820 kilometres across the six geopolitical zones of the country in 2024.
Sukuk, also known as Islamic bonds, are financial instruments compliant with Islamic tenets that generate returns for investors. They donโt involve interest payments, which are prohibited.
The Director General of the Securities and Exchange Commission (SEC), Mrย Emomotimi Agama, while speaking at the 2nd International Islamic Capital Market Conference in Karachi, Pakistan, a few days ago, said the success rate makes the Islamic Capital Market (ICM) stand out as a resilient and innovative tool for mobilising resources in the country, where funding is needed.
Mr Agama described the issuance of sovereign Sukuk since 2017 as a key pillar responsible for the growth of the ICM in Nigeria adding that these issuances have consistently been oversubscribed, with subscription rates reaching as high as 441 per cent, adding that sub-national and corporate Sukuk issuances are also growing in Nigeria.
Notable examples include Osun and Lagos states, Family Homes Ltd, and TAJ Bank Plc, along with private Sukuk issuances by three other sub-nationals, saying that these instruments have been instrumental in funding school infrastructure, housing and a first of its kind in Nigeria, tier 1 capital for a bank and underscores the versatility of Sukuk as a financing tool.
โBeyond Sukuk, the ICM segment in Nigeria offers diverse investment opportunities. From one registered fund in 2008, the segment currently boasts of 14 registered Halal mutual funds with a net asset value exceeding โฆ105 billion as of November 2024. The NGX Lotus Islamic Index tracks 11 Shariah-compliant equities, while Nigeriaโs first Islamic Real Estate Investment Trust โ ChapelHill N-REIT โ highlights the potential of real estate investments.
โThe prospects for Nigeriaโs Islamic finance industry are underpinned by key growth drivers, both global and domestic. Globally, demographic trends, economic diversification efforts in oil-dependent economies, and regulatory support have spurred demand for Sharia-compliant products.
โLocally, Nigeriaโs large Muslim population, government-backed Sukuk initiatives, and growing investor awareness are driving market expansion. Emerging innovations in fintech also present further opportunities for market development. In that regard, the SEC-registered the first Robo advisory firm in the Nigerian Capital Market in 2022. This Robo Advisor is focused on Shariโah-compliant investments,โ he said.
Mr Agama said the success of the ICM in Nigeria is deeply rooted in its strategic focus on infrastructure financing, financial inclusion, and sustainability as the SECโs engagement with the ICM dates back to 2004, when the SEC joined the Islamic Finance Task Force of the International Organization of Securities Commissions (IOSCO).
The SEC boss said this commitment was followed by the issuance of Islamic fund and Sukuk Rules in 2010 and 2013, respectively and later solidified in the Non-Interest Capital Market Master Plan (2015โ2025), which outlines a 10-year roadmap for expanding the marketโs depth and diversity.
Adopted in 2015 as part of the broader Nigerian Capital Market Master Plan (2015โ2025), the Non-Interest Capital Market Master Plan (NICMMP) has been central to the development of the ICM segment in Nigeria. โ
The document sets out a vision for the Islamic Capital Market โ otherwise known as the Non-Interest Capital Market (NICM) in Nigeria โ to contribute 25 per cent of total market capitalization by 2025, with Sukuk accounting for 15 per cent.
โThe masterplan was further reviewed in 2021, to provide a renewed focus on deepening the ICM, through targeting 50 listings of sharia-compliant products with market capitalisation of at least N5 trillion ($11 billion) by 2025.
โThe performance of the NICM Masterplan has been remarkable. Of the 15 initiatives outlined in the roadmap, nine had been fully implemented as of 2022, representing a 70 per cent success rate. Key achievements include improved public awareness, increased retail participation in Sukuk, and the introduction of the Non-Interest Pension Fund (Fund VI) through collaboration with the National Pension Commission (PenCom).
โAnother key achievement was the release of guidelines for taxation of Non-Interest transactions, in collaboration with the FIRS. This solved the challenge of double taxation hindering such transactions,โ he said.