The Nation Newspaper

Tag: sukuk

  • DMO: Sukuk, green bonds’ll promote financial inclusion

    The Debt Management Office (DMO) yesterday said the issuance of Sukuk and green bonds, also known as ethical investments, by the Federal Government will promote financial inclusion and increase investment in ethical financial products.

    Speaking at a business rountable in Abuja, its Director-General, Ms. Patience Oniha said based on the experience garnered from issuing oversubscribed Sukuk bonds in recent times, government was favourably disposed to invest in ethical products to swell its investment products base.

    “The experience from the issuance of Sukuk bonds has been beneficial to the government. The Sukuk is one of the landmark achievement not only in terms of fund but the projects being implemented. We will like to do more with Sukuk because it’s transparent but the major issue for us now is to increase the investor base for ethical products,” Oniha said.

    Another speaker at the roundtable and Managing Director of Sigma Pensions, Mr. Dave Uduanu called for the broadening of ethical investments in the country to help government achieve its financial inclusion drive.

    Uduanu said:  “While there have been increasing penetration of financial solutions, the ethical investment space had yet to be fully developed. Despite the under developed nature of ethical investments, there are significant opportunities for growth and innovations in that segment of the economy.”

    He highlighted some of the opportunities and benefits of ethical investment to include: “vibrant ethical financial system will help crowd in a new class of institutional and retail investors into the Nigerian financial system which will help deepen the breadth and sophistication of the fund management industry.

    Read also: Finance, DMO approve N195bn to exporters for EEG settlement

    “A key tenet of robust financial markets is the existence of many players on both demand and supply having diverse opinions, desires and needs which allow for a more efficient price setting mechanism.

    “It will help drive greater financial inclusion and pension enrollment. Nigeria’s financial exclusion rate at the end of 2018 was estimated at 37 per cent with large exclusion observed in the northern regions.

    “Among other reasons, the reluctance towards the formal financial sector in the north likely reflects unease with conventional products.

    “With the option of retirement savings products suited to ethical preferences, it is easy to see a ready outlet for raising financial inclusion.”

    Holding the roundtable discussion he said has become necessary “to provide a platform to attract fresh investors and drive increased market participation by investors looking to maintain their values and principles while building their portfolios.”

     

  • Aregbesola has redefined Osun politics – Ataoja

    ….we will complete payment of loans next year, says Aregbesola

     

    The Ataoja of Osogbo, Oba Jimoh Olanipekun has said that the administration of Governor Rauf Aregbesola in Osun has brought a halt to killings and destructions that had hitherto characterised Osun politics.

    ‎This was even as Governor Aregbesola disclosed that Osun government would by next year complete the refund on the sukuk and conventional loans taken to execute basic infrastructural projects in the state‎.

    The duo stated this at the Ataoja’s palace during the goodwill visit of governor Aregbesola to Oba Olanipekun to mark the grand-finale of the sensitisation tours to the nine Federal Constituencies in the state.

    ‎The Ataoja held that the peace and sanity that Aregbesola and the All Progressives Congress (APC) have brought to politics in the state is a monumental achievement in the annals of politicking in Osun.

    ‎The monarch also lauded Aregbesola’s legacies in every sector of the economy, saying his government has changed the face of governance in the state.

    He described Aregbesola’s government as the best in the history of the state, stressing that Osogbo and the entire people of Osun would continue to be grateful to God for giving the state a personality like him.

    Oba Olanipekun called on the people of the state to reflect soberly on the coming governorship election and elect a worthy successor that will continue with the good works, after the expiration of the term of the present administration.

    In his words, “to me, the greatest achievement of this government is the peace it has brought to politics and the state. It is with the coming of this administration that we know that politics can be done without killing and destruction.

    “Before now in Osun, we all think politics is associated with brigandage and violence, but Aregbesola and APC have brought such thing to its knees; we can now all sleep with our eyes closed.

    “Aregbesola is a governor who listens to the voice of the masses at all times and that is why he has been able to fulfil most of his campaign promises to the people of Osun in the last seven and half years.

    “I want to use this medium to let you know the voice of Osogbo elders and this includes those who don’t even have sympathy for the APC, they always tell me that Aregbesola has done really well for our state”, Ataoja stressed.

    ‎Responding, Governor Aregbesola assured the people of Osun that the debt profile of the state would soon reduce drastically just as revenue inflow to the state would also take a turn for the better.

    He described the loans taken by the state as a ‘necessity’ to rescue Osun from the shackles of backwardness and poor governance he met on assumption of office.

    The governor regarded as baseless and unfounded the insinuations that the state had borrowed beyond its capacity, saying the debt profile of the state has been adjudged as moderate by the National Bureau of Statistics and several other relevant agencies.

    He said his administration went borrowing to stimulate the economy of the state and as well as provide for the people the required basic infrastructure of development in all aspects of life.

    “We thank God that Osun is moving forward through us and we are grateful to God for this. The opposition members are going about saying we are indebted. We don’t have a problem with that because the fact remains that we did not spend the debts on frivolities but rather on developmental projects that are everywhere for all to see.

    “Osun will definitely clear the debts and our developmental projects will remain for the benefit of all.  I am happy to inform you that the coast is getting clearer because by 2019 our SUKUK and conventional loans would have been cleared”, he enthused.

    Read Also: ‘Aregbesola has set high standard, legacy in Osun’

  • Sukuk heat in Niger

    A N21 billion Sukuk loan plan by the Niger State government has pitted the residents against one another, reports JUSTINA ASISHANA

    The controversy is not really about Sukuk itself, an alternative financing package popular in Muslim countries for their interest-free benefits. In Niger State the plan to take a N21.5 Sukuk bond is generating enormous heat because many question its necessity in addition to the concern that the loan will further increase the debt burden on the state. The fear is that the state will be in perpetual debt, a situation that will mortgage its future. Some say there is nothing wrong with the planned bond.

    Ever since the Governor, Alhaji Abubakar Sani Bello indicated interest in taking the bond by seeking approval from the House of Assembly, the state has not been the same. Reactions and counter-reactions have trailed the bond plan.

    The House played safe by setting up a special committee to look into the component of the bond and get explanations from relevant ministries where necessary.

    Maybe, if the projects of the Sukuk bond were people-oriented and evenly distributed, it would have gained unflinching acceptance. The people are not comfortable with the projects being said would be executed by the bond which would be paid with direct deductions from the federal allocations to the state and all the local government areas.

    With N8.2 billion of bond debt inherited by the administration still hanging on the state government, one would think the government would be careful to avoid bringing more debt burden on the state.

    The proposed Sukuk bond which would be released in two phases is expected to fund the construction of Minna township roads, trailer park in Suleja, reconstruction of Kontagora General Hospital, Kontagora water works, Marita modem market and Mining city development.

    Although the Sukuk bond comes with no interest, however, the state Commissioner of Finance,  Honorable Zakari Abubakar has said that the loan is expected to attract interest rate of 17 per cent which would be repayable in seven years explaining that although the loan comes with no interest but every investor is expected to make gain while investing, this is what gave rise to the 17 per cent interest.

    This development has not only been a matter of discourse for the elites, it has also split the youths in the state as they no more speak as one, this is because one group is praising the government for wanting to take the loan while the other group is accusing the governor of being biased

    The state House of Assembly seems suspicious of this loan. When the special committee met with the commissioners from various ministries that would benefit from the bond, the chairman of the committee, Honorable Abdul-Malik Muhammad Kabir asked the commissioners if they thought the projects to be undertaken were people-oriented, there was no answer to that.

    The Commissioners who defended themselves during the special committee explained that most of the projects have been in the  budget which is why it was put into the Sukuk bond.

    One of the main concerns is the Minna township road, one wonders how many loans would be used to fix the road because even the past administration had collected bond to fix the road but nothing came of the the projects. This is probably why the people wonder why the Minna township road is among projects to be done under the Sukuk loan.

    But the Commissioner of Finance said that since it is the the city capital, the government has the right to fix all the roads.

    He said, “No amount is too much to spend in ensuring the city capital is of world class standard.”

    But the legislators have a different thought, according to the Chairman of the Special Committee on Sukuk, Abdul-Malik Muhammad Kabir.

    “Minna has benefitted from these township roads in the past. We have not seen any balance in the sharing of the projects. The projects are expected to be paid by public funds, so it is natural for the people to raise eyebrows if it is not evenly distributed, five road projects in Minna alone is a serious concern.”

    The members of the House of Assembly are not the only ones having doubts about the bond. The Senator representing Niger East Senatorial District, Senator David Umaru is also not comfortable with the loan in any way as he feels the loan would mortgage the future of the state.

    Umaru, who was very outspoken about this, said the intention of the state government to collect the N21.5 billion Sukuk loan is an exhibition of the financial recklessness of the administration as the administration of Governor Sani Bello is determined to plunge Niger state into outrageous indebtedness and possible bankruptcy.

    He questioned the ability of the government to manage the loan especially when it has not given adequate account of the billions accruing from statutory allocation to the state. He said that the loans, including $226 million bond from the Islamic Development Bank and $330 million from Kuwait Fund for Arab Development is meant to further impoverish the state which is yet to recover from the comatose condition imposed by the huge debt bonds borrowed from the capital market by the previous administration.

    “It is sad and unfortunate that while the people of the state are still groaning under the heavy debt burden incurred by the past administration, the APC-led administration of Governor Sani Bello has chosen to add to their pains, hardship and trauma with another huge debt from Sukuk, Islamic Development Bank and Kuwait Funds for Arab Development. “

    The Senator said he is unimpressed and disturbed by reasons canvassed by the government for taking such loans while frowning at the way and manner the projects were distributed just as he called on the members of the State House of Assembly to withhold approval on the loan request saying that this would save the state from further impoverishment, “history will not be kind to our House members if they do otherwise. Future generations of Nigerlites and indeed the present generation will hold our lawmakers responsible for mortgaging their future.”

    The Niger state youths, not left out of this Sukuk saga have been split into two factions over how the state government intends to utilise the N21.5 billion Sukuk loan it applied for.

    One of the youth groups accused the state government of skewing the utilisation of the fund in favour of one of the senatorial districts in the state, the other group rose in defence of the administration, saying “it has been fair to all the zones”.

    The Niger State Coalition in Defence of Transformation led by Muhammed Muhammed  said Governor Abubakar Sani Bello shared the projects equally among the three senatorial zones, “a careful look at these shows an even spreading of projects across the 3 geo-political zones of the state”.

    Apart from the Sukuk, Muhammed praised the state government for seeking alternative source of funding of infrastructural projects in the entire state, “when these projects are completed it will increase the state IGR by 70% which is in line with the vision of the Abubakar Sani Bello administration of creating alternative source of revenue for the state to reduce over dependence on Federal Allocation”.

    However, another youth group led by Dr Ndagi Abdullahi Muhammed accused the governor of marginalising the Nupe speaking areas of the state in the distribution of projects to be executed with the Sukuk loan. Ndagi advised the government to redistribute the projects in the interest of fairness, equity and fair play.

    Some elders are also not taking this lightly in any way,  as a group of elders in the state under the Ena-Eyelo Foundation submitted the their stand against the government taking the sukuk loan to the Speaker of the House of Assembly.

    The Chairman of the Foundation, Professor Muhammad Daniya questioned the necessity of the loan and the specific projects the loans are meant for while stating that this does not tally with the immediate needs of the people especially as the current debt burden of the state do not warrant taking more loans or bonds.

    “How can any government take loan on behalf of the entire state and distribute the intended projects in just two out of three senatorial zones in the state. Projects to be initiated under the sukuk bond are glaringly skewed in favor of Zone B and C and virtually mine for A. This Sukuk bond is expected to be paid for with funds for all the people and LGAs in Niger State, so why a particular zone should be meant to share the brunt of loan burden without benefiting from the loan in the first place? “

    Daniyan urged the state House of Assembly members to look into the request of the governor without bias and make decisions that would be in the overall interest of Nigerlites and Niger State.

    “History and your democratic mandate impose upon you the solemn responsibility to do the needful on this matter,” he said.

    With the House Committee on Sukuk which have sat and delineates upon this bond, the state waits with abated breathe to hear their resolutions regarding the bond. The onus on this bond now falls on the legislators who may or may not give their consent for the governor to take this bond that have caused tension in the state for the past two weeks.

  • Contractors handling Sukuk road projects to be paid soon-DMO

    Contractors handling Sukuk road projects to be paid soon-DMO

    Director General of the Debt Management Office (DMO), Mrs. Patience Oniha has assured that the agency was processing the release of funds to contractors handling some federal road projects being funded by proceeds of the Sovereign Sukuk.

    Mrs. Oniha said the funds was being processed for release based on documents received from the Federal Ministry of Power, Works and Housing, the government agency implementing the project.

    The statement said that with this development, work on the roads will be further accelerated in line with the plans of the Federal Ministry of Power, Works and Housing to provide a better driving experience for motorists during the December festivities.

    It would be recalled that, based on the structure for Sukuk financing, which is required to be asset-backed and the approval received from the sole regulatory body for non-interest financial products in Nigeria – the Financial Regulatory Advisory Council of Experts (FRACE), payment to the contractors constructing and rehabilitating any of the Sukuk Roads can only be made based on the achievement of milestones, which would be supported by appropriate documentation.

    The introduction of the Sukuk by the Federal Government as a financing instrument has been endorsed by a lot of Nigerians because of the direct link between borrowing and project implementation.

  • Sukuk has great potential, says Jaiz Bank chief

    Many West African countries and companies may fall back on Sukuk bonds to raise non-interest funds to finance infrastructural development and corporate growth plans.

    Managing Director, Jaiz Bank Plc, Mr. Hassan Usman, said there could soon be a frenzy of the facility issuance in West Africa as more countries discover the potential of facility as a major leverage for their national development.

    Nigeria recently issued its maiden sovereign Sukuk. It successfully raised N105 billion for its N100 billion Sukuk, fuelling optimism about the depth of the market.

    Usman, who spoke at the two-day National Convention of the Moshood Abiola Polytechnic Abeokuta Muslim Alumni (MAPAMA) held at Lagos Airport Hotel, Ikeja, Lagos, said the envisaged scramble for Sukuk issuance in the nearest future could make the non-interest capital market grow bigger and faster than its banking counterpart.

    “This is due to the inherent linkage of Sukuk to an underlying asset. The IMF asserts that with Sukuk, African nations could tap into growing Islamic financial markets to meet infrastructure financing needs instead of using conventional financing from international finance institutions such as the World Bank or the African Development Bank, or relying on borrowed Chinese funds,” Usman said.

    According to him, non-interest banking (NIB) in West Africa has a lot of potential due to a number of positive indicators including the economic growth in many West African nations supported by improving fundamentals, growing domestic demand and stronger regional integration.

    He added that with a population of about 329 million people, the emerging middle-class segment of the region is expected to boost demand for NIB retail banking, takaful and Islamic funds.

    He noted that with financial literacy improving across the region, greater understanding of the benefits and dynamics of NIB products shall usher in greater up-take of the products and help to deepen financial inclusion.

    “Most importantly, NIB’s growth in the region is heavily going to be influenced by its infrastructure deficit -mainly new airports, power plants, roads and railways and the urgent demand for creative and alternative approaches to funding the gap, which is common to all the countries without exception,” Usman said.

    He pointed out that Islamic finance has a lot of opportunities for young professionals and even those in mid-career, noting that Islamic finance system is a complete universe or ecosystem that goes beyond Islamic banks to include other areas such as Islamic capital market which has Sukuk as its most popular instrument, Takaful or Islamic insurance, Islamic wealth management and Islamic private equity.

    According to him, as the market for Islamic Finance develops in Nigeria, each segment of the market will sprout out and branch out to provide potential career paths for young and middle-level professionals.

    He outlined that specific specialised careers could include Sharia’ah advisory and auditing, Islamic treasury management, Islamic accounting and reporting, Islamic risk management, Islamic product development and Islamic asset management.

    He, however, noted that harnessing the opportunities in the Islamic finance market might take some time because the ecosystem is currently narrow with only one full-fledged bank, one window operation, one capital market operator and two Takaful operators.

    He urged young  professionals to position themselves to take the opportunities that would definitely emerge from the sector by pursuing degrees and certifications in Islamic finance while awaiting the development of the Islamic finance.

  • FG to release proceeds of N100bn Sukuk bond to Ministry

    FG to release proceeds of N100bn Sukuk bond to Ministry

    The Minister of Finance, Kemi Adeosun, has disclosed that proceeds of the N100 billion Islamic bond, Sukuk, will be released to the Ministry of Works on Thursday.

    Adeosun made this known when she appeared before the Joint Committee on Finance and Appropriation of the Senate on Tuesday in Abuja to brief it on level of implementation of the 2017 budget.

    She said that the Federal Government ( FG ) successfully completed the Sukuk bond last week and raised N100 billion, which would be released on Thursday.

    “The Sukuk funds are earmarked for roads and will be released on Thursday this week.

    “We have kept the capital spending going to ensure that efforts to improve the economy are continuous and seamless.

    ”There was no interruption in the activities of Ministries, Department and Agencies to ensure that they continued with their projects.

    ”The N100 billion Sovereign Sukuk, which debuted last month, has a tenor of seven years, and has been certified as ethically compliant by the Financial Regulation Advisory Council of experts of the Central Bank of Nigeria ( CBN ),” she said.

    The minister noted that of the N2.18 trillion 2017 budget for capital expenditure, N341billion had so far been released.

    She said that the cumulative releases on current expenditure so far was N1.5 trillion, adding that N129 billion had been released for statutory transfers and N38 billion for pensions.

    She added that N92 billion had been released for overhead cost while Service Wide Votes was N224 billion.

    The 2017 Budget of N7.44 trillion has Statutory Transfers provision of N434 billion, N1.8 trillion for Debt Servicing, N177.5 billion for Sinking Fund for Maturity Bonds and N2.99 trillion for Recurrent Non-Debt Expenditure.

    NAN

  • N100b Sukuk boosts financial inclusion

    Financial investors across the country have commended the federal government over the N100 billion Sukuk, non-interest, unveiled by the Debt Management Office (DMO), in a nationwide roadshow.

    The Sukuk offer will be listed and traded on The Nigerian Stock Exchange and the FMDQ OTC Securities Exchange Plc, with offer for subscription slated for September 14.

    Director-General of the DMO, Patience Oniha alongside officials of the Federal Ministry of Power, Works and Housing told stakeholders in Lagos, Port Harcourt and Abuja that the debut N100 billion Sukuk offer will be deployed to infrastructure building.

    The debut Sovereign Sukuk is an ethical based investment in which rent is based on the investment bi-annually and the principal sum paid at the end of the seven year tenor.

    Oniha at the various stops on the roadshow assured potential investors that the Sukuk is backed by the full faith of the federal government and was one of the avenues at which it intends to raise funds for capital projects. “This is one of several efforts to raise funds for specific projects and this is backed by the full faith of the Federal Government. This is a rental product to cater for segment of our society that requires such services.”

    The Assistant Director, Planning and Development, of the Federal Ministry of Power, Works and Housing, Danlele Yila, listed 25 road projects spread across the six geo-political zones of the country which the N100 billion Sukuk capital will be used. Some of the projects include the Loko Oweto Bridge, dualization of a section of the Abuja-Lokoja road, dulaization of the Suleja-Minna road as well as the Kano-Maiduguri road.

    Others include dualization of the Kkano-Katsina road (Ohase 1), rehabilitation of the Onitsha – Enugu Expressway, and the Enugu-Port Harcourt road (section 1-3), dualisation of the Ibadan-Ilorin road (section 2).

    Tunde Adama of Citibank, one of the placement agents, expressed optimism on the Sukuk.

    “This is a new product which means new opportunities, new investment. I am confident that it would do well same with other financial instruments such as the FGN Bond, Savings bond and the others the DMO has always put on offer.”

    The president of Federation of Muslim Women in Nigeria, Rivers State Chapter, Hajia Maimuna Bello, described the offer as a bold initiative to cater for a critical segment of the country, but urged the DMO to deepen its awareness drive.

    In Abuja, a former executive director of the NNPC, Ibrahim Waziri, who welcomed the development expressed the hope that the raised funds will be deployed to the listed projects, stressing that as an ethical financial instrument, investors are optimistic of timely rental returns.

    Benefits of investing in the Sukuk, according the DMO include; safety, regular income which are tax free and liquidity as they will be listed and traded on The Nigerian Stock Exchange and the FMDQ OTC Securities Exchange Plc.

  • AFC issues $150m maiden Sukuk

    AFC issues $150m maiden Sukuk

    Africa Finance Corporation (AFC), a leading pan-African multilateral development finance institution and project developer, has issued its maiden Sukuk, the highest-rated ever Sukuk issuance from an African institution.

    Following high levels of investor interest, the initial target of $100 million was more than twice oversubscribed, resulting in the transaction being upsized to $150 million and a final order book of approximately $230 million. In addition to being the first Sukuk transaction of 2017, it is also the first Sukuk to be issued by an African supranational entity.

    The Sukuk is AFC’s second foray into Islamic finance; the corporation accepted a-$50 million 15-year line of financing from the Islamic Development Bank (IDB) in 2015 to finance Islamic Finance-compliant projects located across the numerous African IDB member countries.

    The privately placed 100 per cent Murabaha Sukuk, which has been awarded an A3 senior unsecured rating by Moody’s Investors Service, has a three year tenor and will mature on 24 January 2020. Emirates NBD Capital, MUFG and RMB acted as Joint Bookrunners and Joint Lead Managers with Emirates NBD Capital also acting as the Sole Global Coordinator.

    Speaking on the development, President and CEO of AFC,Andrew Alli, said: “The core values of Islamic finance, the need to invest ethically in assets that have a tangible positive social impact, made a Sukuk issuance a natural choice for us. We offer global investors the chance to be involved in high-impact infrastructure projects that not only promote social and economic development across Africa but also generate economic returns for our investors.

    “This Sukuk represents a milestone in our financing activities, a milestone that will enable us to further diversify our funding sources, to build new relationships with key investors in international markets and help us diversify our portfolio of projects to continue delivering real impact across the continent.”

    Ahmed Al Qassim, CEO of Emirates NBD Capital, also said: “Emirates NBD Capital is delighted to have supported the inaugural $150 million three-year Sukuk issuance. The successful completion of the transaction is a testament to AFC’s standing with the international investor community and AFC’s commitment to develop new sources of funding.

    “As the Sole Global Coordinator for the Sukuk, Emirates NBD Capital continues to lead the development of international Sukuk as a product and providing our clients with unique solutions to meet their funding requirements.”

    AFC has a diverse funding base, with a range of funding from sources across different markets. Last year the corporation issued its debut Swiss Franc denominated long three-year bond, raising CHF 100 million, and accepted a $150 million 15 year loan facility from KfW Development Bank. In 2015 AFC’s inaugural 144A/Reg S, $750 million five-year international bond was more than six times oversubscribed at over $4.7 billion, attracting institutional investors from across Asia, Europe, Middle East and the United States.

  • AFC mulls dollar sukuk

    Apan-African multilateral institution based in Nigeria, Africa Finance Corporation (AFC), is likely to make a debut United States (U.S.) dollar sukuk issue by early February, banking sources  have said.

    If AFC makes a final decision to go ahead with the proposed debt sale in the coming days, the sukuk will be issued in two or three weeks through a private sale, a banking source familiar with the transaction said.

    At least one of the banks arranging the transaction is based in the United Arab Emirates (UAE), the source added.

    A spokeswoman at AFC declined to comment.

    A private placement normally requires less documentation than a bond listed on a public exchange.

    The sukuk would be structured with a murabaha format, a popular cost-plus structure in Islamic finance, and use Nasdaq Dubai’s platform for murabaha transactions, according to a report by Moody’s Investors Service, which assigned a provisional A3 credit rating to the Cayman-domiciled special purpose vehicle.

    “We will see more sukuk issuance from Africa-based issuers over the next few years” as borrowers seek to expand their investor bases, said Dr. Mohamed Damak, global head of Islamic finance at S&P Global Ratings.

    “Another reason for issuers in Africa to choose the sukuk route is that sometimes sukuk can be cheaper than (conventional) bonds in terms of cost of funding, especially when it attracts significant interest from the market.”

    AFC obtained a 15-year, $50 million line of financing from the Saudi Arabia-based Islamic Development Bank in 2015. It issued a debut $750 million conventional bond in 2015, a five-year deal that offered a 4.375 per cent coupon.

    Last year, it issued a 100 million Swiss franc bond. That paper, with a maturity of three years and 150 days, pays a 0.85 percent coupon and was arranged by Deutsche Bank and UBS.

  • Sukuk and Aregbesola’s education story

    Osun State raised a sukuk bond worth N10 billion (some $62 million) from the capital market to fund educational development – the first of such by Africa’s biggest economy. Governor Aregbesola is aware that Islamic financial instruments such as sukuk have been used to finance infrastructure projects in countries like Malaysia and Indonesia, and in the Middle East, and could attract investors from such countries. The governor knows that Islamic finance requires a clear link with real economic activity and transactions have to relate to a tangible, identifiable asset, which comes in handy in the case of infrastructure financing.

    After the recent trend of Eurobond issuance by African countries, the Osun’s offering was sowing the seeds for more African sukuk.  Prior to Osun, only Gambia and Sudan had issued local-currency short-term domestic notes (Sudan sold local currency sukuk worth $160 million in 2012).

    Aregbesola had worked hard to introduce a sustainable framework, including training quality staff destined for Islamic finance industry. “The huge demand for Islamic finance products had prompted the Osun government to introduce new bond laws with provisions to establish Sharia-compliant bonds. Aregbesola believes that the potential of Islamic finance can also attract investors, operating in Middle East market to come and invest in Osun. By introducing Islamic bonds in finance market, Osun will be favorably positioned to become a hub of resilient and robust Islamic finance in Africa.

    In March 2013, the Securities and Exchange Commission (SEC) approved new guidelines for the issuance of sukuk bonds to Osun State only months after new guidelines were also approved for the operation of takaful (Islamic insurance). A local credit ratings agency, Agusto and Co, was given the note – to be listed on the Nigerian Stock Exchange – an A rating. The seven-year bond was issued through “a book-building process,” which would earn returns for sukuk holders through a semi-annually paid rent structure called the Ijara.

    The funds were used to finance construction of education projects, among other development initiatives with which Governor Aregbesola hopes to lay a solid foundation for the future of the state. Eleven High Schools with a total of 720 classrooms are at various stages of completion across the state. Two other High Schools are proposed for construction in Osogbo to accommodate the total population of high school students in Osogbo metropolis. There are 11 schools in all to be financed by the sukuk bond.  The bond is exclusively for high school development.

    The High Schools are: Wole Soyinka High School, Ejigbo, Ataoja High School, Osogbo, Fakunle Unity High School, Osogbo, Oduduwa High School, Ile Ife, Ila High School, Ila-Orangun, Adventist High School, Ede, Iwo High School, Iwo, Akinorun High School, Ikirun and  Ayedaade High School, Ikire.

    The planned seven-year paper would be the first sukuk bond to be issued by Africa’s largest economy. Aregbesola’s story is that Osun State was pioneering the alternative and less burdensome financial service in Nigeria. Ìcun State’s planned multibillion naira sukuk fund for education represents Nigeria’s most innovative and ambitious attempt thus far to promote Islamic finance. The move came within the context of ongoing efforts to attract Middle East investors and consolidate Nigeria’s latest foray into alternative financial services. It is a very commendable step in our drive to buy into alternative financial services, which will in turn attract investors from the Islamic world and Asia.

    Aregbesola believes that globally, the sukuk market has experienced tremendous growth. Though sukuk market issuances declined in 2008 as a result of global market turmoil, long-term prospects for the sukuk market remain strong.  Global sukuk outstanding rose to more than USD231.4 billion at the end-2012.

    This decade has witnessed the accelerated development of the global sukuk market. The global sukuk market which has now reached USD$270 billion outstanding is evolving to become a distinct platform for fostering greater international economic and financial linkages. The success of the sukuk market reflects its ability to meet the changing and differentiated demands of the modern economy, to develop innovative and cutting edge structures and products, and to achieve such issuances at competitive pricing.

    Aregbesola has exposed Nigeria to the sukuk market which has drawn increasing interest from sovereigns, multilateral institutions, multinational and national corporations both from developed and emerging economies to finance investments in a wide range of economic activities and development projects. The geographical reach of the sukuk market has also become more extensive, with the global sukuk outstanding now being domiciled in more than 20 countries, while the investor base that spans from Asia, the Middle East and Europe.

    There is clear indication of the growing relevance and importance of the sukuk market in Osun State, with the growing interest from both emerging and developed jurisdictions and the strategic approaches taken to diversify the funding sources through the sukuk market by Governor Rauf Aregbesola.  The overall direction and potential of the global sukuk market are certainly well recognised, particularly in its role in contributing towards greater economic development of Osun State. There is significant potential for the sukuk, in particular to fund infrastructure projects. This is particularly relevant for the Osun State and African region given the infrastructure needs going forward. This would contribute towards building deeper and more liquid, efficient and effective global sukuk market. The dynamism of the sukuk market also contributes towards strengthening financial stability and in facilitating the expansion of inter-regional investment flows. As we move towards increasing this internationalisation of Islamic finance, and thus towards greater global financial integration, it will contribute towards a global growth process and financial stability that will be mutually reinforcing.

    When Governor Aregbesola adopted Sukuk, an Islamic bond to help the state execute it projects, his critics were calling for his head. Many said it was part of his ploy to islamize Osun. Not quite long, the government of United Kingdom also stated its resolve to obtain Islamic bond, Sukuk to execute government projects.

    With this calibre of governments following suit to obtain Sukuk, it is now crystal clear that Aregbesola is not just a leader, but a leader that set positive pace globally.

     

    • Donald, a public affairs analyst writes from Benin City.