The paucity of funds to execute contending projects has seen governments around the world resorting to varied forms of borrowings.
Over the years, the international and domestic capital markets, in exploring various forms of funding options, have facilitated the prominence of ethical-based debt financing.
In recent times, the government and corporate entities in Nigeria have increasingly been accessing the capital markets to attract funding from investors inclined to a peculiar form of ethical-based debt instruments known as Sukuk.
Sukuk is sharia-compliant financial instruments representing undivided interests in the ownership of defined assets.
It is based on prescribed principles of Islamic law and proportionate interest of the holders in the ownership of tangible assets and services.
It also involves investment in the assets of particular projects and activities that adhere to the principles of Sharia.
When it was introduced in 2017, the Soveriegn Sukuk was received with suspicion by some stakeholders, due to its Sharia-compliant model.
However, over time, it appears to have gained accepted by Nigerians across ethnic and religious divides.
The Minister of Works and Housing, Babatunde Fashola, was one government official who dismissed insinuation that followed the sourcing of infrastructure funds from Sukuk, which assumed that it was part of the plan to Islamise the country.
Speaking at the inauguration and handing over of some completed roads in Benue recently, Fashola said that several road projects were currently funded under the Sukuk programme.
He said that the completed roads would positively impact the lives of the host communities, commuters, and the general public.
“These projects represent major investment in road transport infrastructure, which is a commitment of the Buhari administration as a driver for economic growth and prosperity.
“They are visible and incontrovertible assets in proof of what Nigeria’s resources are invested in from a combination of our earned resources and borrowings.,” he said.
Fashola was also present at the handing over of N250 billion 2021 Sukuk proceeds to the Ministries of Works and Housing, Federal Capital Territory and Niger Delta Affairs, for the implementation of various road projects, across the country.
He commended the Debt Management Office (DMO) for the Sukuk initiative, which, he said, was heavily criticised by some members of the public.
According to him, some calm came when the Federal Government explained that the first N100 billion was going to be applied equally to all the six zones of Nigeria.
“Meaning that each zone was going to get about N16. 6 billion and that any zone that felt that it was an attempt to islamise Nigeria should indicate that they don’t want the funds and that was the beginning of our journey,” he said.
He described the Sukuk option as a method of Public Private Partnership that had become successful in the country.
He said that the first Sukuk of N100 billion was deployed to 25 roads and delivered a total of N482 km
He added that the second Sukuk in 2018 was deployed to 28 roads and it delivered a total of 643 km.
“The third one in 2020, of N162 billion was deployed to 44 roads and delivered 757 km .
“Many of these roads had been awarded before we came but were not funded. Each year Sukuk came we were told the number of kilometres that we must deliver with this money,” he said.
Fashola said that part of the impact of Sukuk is that “it created jobs for 97 construction and contraction companies who are keeping people at work.
“They are demanding supplies of diesel, bitumen, asphalt and that is how the money is moving round the economy.
“When you pass any of these roads, say a prayer for DMO, say a prayer for the Ministry of Finance and say a prayer for the members of the National Assembly, because in government, nobody can do it alone, ” he said.
The Minister of the FCT, Muhammed Bello said that Sukuk had become a veritable means of funding infrastructure projects with private funds.
He said that the inclusion of FCT as beneficiary in the Sukuk funds, would facilitate completion of some critical roads, which would significantly ease traffic gridlock across the territory.
In 2017, the Federal Government, through the DMO raised N100bn seven-year debut Sukuk bond for the financing of 25 road projects across the six geo-political zones of the country.
The N100bn sukuk bond, which had a subscription of N105.88bn, was oversubscribed by about six billion Naira by investors including pension fund administrators, banks, and fund managers.
The DMO disclosed that some of the roads financed by the bond included the Abuja-Abaji-Lokoja Road, the Obajana-Okene Road, the Suleja-Minna Road, the Kaduna Eastern Bypass Road, Ibadan-Ilorin Road, Kolo-Otuoke-Bayelsa-Palm Road, Enugu-Port Harcourt Expressway, Kano-Maiduguri Road, and Damaturu-Potiskum Road.
In 2018, the DMO received over N132bn subscriptions from 2,073 investors for its N100bn seven-year 15.74 per cent, second Sukuk offer.
In 2020, the N150bn, third Sukuk offered to investors was also oversubscribed by N519.12bn.
The offer attracted a total subscription of N669.12bn, representing a subscription level of 446 per cent.
The DMO, again, offered N100 billion in its fourth Sukuk offer, at N1,000 per unit in November.
That, too, recorded about 165 per cent oversubscription.
According to the Director-General of the DMO, Patience Oniha, Sukuk bond offerings are designed to improve roads infrastructure, develop the financial market and also promote financial inclusion.
Oniha said that the Sukuk bond was significant in the sense that it provided the opportunity to raise that quantum of funds just for roads and bridges.
“The Sukuk has become a product that sells itself, but we will be happy to have a lot more people invest in it.
“We have several other products that both local and foreign investors can invest in, but the Sukuk has an added advantage in that it is financing infrastructure, driving retail investors and promoting financial inclusion.
“We are developing the financial market and also giving Nigerians more investment opportunities,” she said.
She added that the Sukuk was a product that Nigerians were demanding.
“Even the contractors are interested because they want to work, and once they are assured of payment they go to site and begin to work,” she said.
Oniha said that the recently issued N100billion Sukuk, which was issued at a rental rate of 15.64 per cent, brings the total Sovereign Sukuk issuance, since inception in 2017, to N752, 557 billion.
“The level of subscription is evidence of investors’ confidence in the use and impact of Sukuk in the construction and rehabilitation of road infrastructure across the country.
“The proceeds of the 2022 Sovereign Sukuk, like the previous Sukuk proceeds, will be used solely for the construction and rehabilitation of key road projects.
“The strong participation of retail investors, ethical funds and non-interest financial institutions in the Sukuk offering attest to the fact that the government’s objective of promoting financial inclusion is being achieved,’’ she said.
She said that the Sukuk funds had so far funded construction and rehabilitation of 71 roads and six bridges across the country, measuring 1,881 kilometres.
She assured that the DMO would work to sustain laudable achievements recorded so far in the use of Sukuk proceeds for the construction and rehabilitation of Nigerian roads.
The success of the Sukuk offers by the DMO has also encouraged some private financial institutions to embrace the model.
In September, TAJ Bank, a non-interest bank announced the commencement of its N10 billion 15 per cent Sukuk issuance programme.
According to the TAJBank’s Managing Director, Mr Hamid Joda, the Sukuk bond issuance is a very important milestone in the history of Nigeria’s capital market.
“I believe that after this issuance, we will see a number of companies in the Nigerian market coming out to issue Sukuk bonds and that will lead to deepening of the non-interest market and eventually economic development of Nigeria,” he said.
