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Tag: sukuk

  • SEC, DMO collaborate to issue Nigeria’s First Sovereign Sukuk

    SEC, DMO collaborate to issue Nigeria’s First Sovereign Sukuk

    Nigeria moved a step closer to issuing her first sovereign sukuk as the Securities and Exchange Commission (SEC) and the Debt Management Office (DMO) agreed to collaborate towards realizing that goal.

    A statement from the SEC issued Tuesday evening said this was the major outcome of the visit to the DMO by the SEC Director General, Mr. Mounir Gwarzo.

    In November last year, the DMO Director General, Dr. Abraham Nwankwo, paid a courtesy call on Mr. Mounir Gwarzo during which the two chief executives agreed to reinforce partnership to deepen the domestic bond market. “The latest visit, the second meeting in less than three months, is a clear sign of a closer working relationship the two government agencies now enjoy,” the statement read.

    Dr. Nwankwo of DMO highlighted the importance his agency attaches to the non-interest products space and revealed that a sovereign sukuk issuance has been part of the institution’s strategic plan drawn up three years ago.

    He solicited support from the SEC, especially in the area of capacity building in order to realize the goal of issuing Nigeria’s first sovereign sukuk within the year 2016.

    In his response, Mr. Gwarzo assured the DMO of continued support, pledging to take measures that will help enhance the capacity of relevant staff of the DMO including establishing regular interfaces between the DMO and key staff of SEC who are very knowledgeable in the area of non-interest finance.

    The SEC, Gwarzo said “will equally enable nominated staff of DMO to participate at the Capital Market Committee sub-committee on non-interest products to further deepen their capacity.”

    Mr. Gwarzo noted that “the continued decline in the prices of crude oil in the international markets, attendant drop in both foreign exchange and government revenues as well as fragility of growth from major emerging markets like China, the need for alternative sources of capital to finance infrastructure becomes increasingly more compelling.”

    Both government agencies therefore agreed on the urgent need to begin mobilizing capital in order to address the Nation’s investment needs. Particularly, issuing a sovereign sukuk will attract significant amounts of affordable capital from the Gulf countries and other established Islamic markets around the world into Nigeria.

    According to the SEC Director General, issuing a sovereign sukuk will send a much needed positive message to the market amidst the negative investor sentiment that persists currently. He expressed confidence that Nigeria’s maiden sovereign sukuk will be oversubscribed as both domestic and foreign investors have appetite for exposure to Nigeria.

    He therefore urged the DMO to take advantage of this unique opportunity to make a mark on the sukuk market in spite of the challenging times.

    When the SEC released rules on sukuk issuance in 2013, the State Government of Osun took advantage of the robust regulatory framework to issue Nigeria’s first sukuk in which it raised N11.4 billion.

  • SEC moves to widen Sukuk bond issuance in Nigeria

    Securities and Exchange Commission (SEC) has launched a major initiative to expand the scope of alternative finance, especially issuance of Sukuk bond, in the Nigerian capital market.

    Unlike interest-paying conventional bond issue, Sukuk makes returns to the investors through sharing of profit or cash flow from the underlying asset with them in addition to redemption of the principal upon maturity.

    SEC’s Rules on Sukuk Issuance in Nigeria underline that Sukuk shall be structured as Sukuk Ijarah – leased contract; Sukuk Musharakah– sharing contract; Sukuk Istisnah–  exchange contract; Sukuk Murabahah– financing contract; and any other form of contract that may be approved by the Commission.

    According to the rules, eligible issuers of Sukuk include public companies including Special Purpose Vehicles (SPVs), State Governments, Local Governments, and Government Agencies as well as multilateral agencies.

    The rules stipulate that any issue, offer or invitation of Sukuk by a public company which is capable of being converted or exchanged into equity with the intention of being listed shall be subjected to the additional requirements stipulated in the listing requirements of a securities exchange.

    SEC on Monday hosted a regional round table on non-interest capital market in Kano with the theme: Financing Development through Islamic Capital Market – A Viable Alternative.

    Director General, Securities and Exchange Commission (SEC), Mounir Gwarzo, said the apex capital market regulator would work to deepen the nascent Sukuk bond market noting that Nigeria has the potential to be a major issuer of Sukuk bonds. Nigeria currently has only one Sukuk bond issued by the Osun Sate Government.

    According to him, SEC would focus on Sukuk, one of the most important components of the Islamic financial system. The global sukuk market continues to witness remarkable growth since after the 2008 global financial crisis as annual issuances have grown from $15 billion in 2008 to almost $120 billion in 2014.

    “In fact, last year is widely considered a landmark year for Islamic finance, especially with landmark debut sukuk issuances by countries such as the UK, Hong Kong, Senegal, South Africa,  and Luxemburg. Of course the year witnessed continued strong interest from key markets of Malaysia, Saudi Arabia and the United Arab Emirates (UAE) and emerging markets like Turkey and Indonesia. There is no doubt that the sukuk market is emerging on a global scale as a viable alternative source of funding”.

    While describing Malaysia, Saudi Arabia, UAE, Kuwait and Qatar as the top five largest Islamic finance markets in the world as they account for the highest sukuk issuances and contribute more than half of the total assets under management in the industry, Gwarzo said that with Nigeria’s population which is far more than all five countries put together, the country should be a major market for global Islamic finance market.

    “With over 80 million Muslims, Nigeria is home to far more Muslims than all the five countries put together. Additionally, Nigeria has a larger economy than them, with the exception of Saudi Arabia. There is therefore no reason why Nigeria should not be a major global Islamic finance market” Gwarzo said.

    He reiterated the Commission’s commitment to deepening the non-interest capital market space so as to enable millions of Nigerians and people of faith to invest their savings ethically.

    He noted that investors worldwide are increasingly allocating their resources into Islamic a finance products adding that by the end of 2014, total assets under management in the global Islamic finance industry surpassed $2 trillion.

    Gwarzo said while most people identify capital markets as an important source of medium-to-long term capital flow, there is also an amazing potential of capital markets to serve as a catalyst for financial inclusion adding that going forward, the SEC will focus on massive public enlightenment and also stronger capacity building initiatives.

    He outlined that SEC had in 2013 set up an industry-wide committee of experts to develop a strategic blueprint for the growth and development of Nigeria’s non-interest capital market and their recommendations have been incorporated in the 10-year capital market master plan which is currently being implemented by the SEC.

    According to him, the master plan sets a strategic direction for the non-interest capital market in Nigeria to attain at least 25 per cent of total market capitalization.

    “The development of Islamic capital markets has been a key concern of global securities regulators since the turn of the 21st century. In 2002, the International Organizations of Securities Commissions (IOSCO) set up a Committee on Islamic Capital Market in which Nigeria actively participated. Since then, the SEC has implemented a number of reforms aimed at deepening the non-interest capital market” Gwarzo said.

    Governor of Kano state, Dr Abdullahi Umar Ganduje commended the efforts of the Commission in the area of promoting depth in non-interest capital market.

    He said Kano State would like to be seen as a base of Islamic banking and finance for financial market development.

    Former Governor of Central Bank of Nigeria and the Emir of Kano, Muhammad Sanusi II, said the apex bank had been able to put some solid structures in place for non-interest banking system in the banking industry.

    He said the CBN, under his leadership, put in place appropriate frameworks, rules and institutions to ensure that the emerging alternative finance market stands on a sound footing.

    He therefore called on the policy makers to realise and appreciate the role of non-interest capital market in bridging the gaps in the nation’s financial institutions.

     

  • Osun, sukuk (Islamic bond) and relentless critics

    Osun, sukuk (Islamic bond) and relentless critics

    The plan by Osun to issue N10bn Islamic bond called sukuk has predictably come under fire from Christians in the state and, as expected, the opposition Peoples Democratic Party (PDP). By some global estimates, Islamic finance, a $1.2trn market, is growing at some 50 percent more than conventional banking and could rise to become a $2.7trn market in the next three or four years at its current rate of growth. Sukuk runs on sharia principles, prohibiting interest and instead offering stakes in investments. If the bond is successfully raised, Osun will become a leader in the patronage of Islamic finance in Nigeria.

    The Director of Publicity, Research and Strategy of the All Progressives Congress (APC) in Osun, Kunle Oyatomi, was indeed right to point out that sukuk does not invariably translate into an agenda to Islamise the state, especially considering the fact that the United Kingdom is also planning to issue sovereign sukuk of about $323m. I also think that those who issue or buy sukuk have the forcible conversion of any state or people to Islam as the last thing on their minds. It is simply an economic activity whose profile is rising in the international financial market for its durability and ability to withstand global fluctuations.

    However, Mr Oyatomi’s rebuke of Christians and the opposition PDP over the sukuk matter gives the worrisome impression that the state is both unduly combative whenever it encounters opposition to its policies, and also fanatically desirous of winning every argument. But in a pluralistic society, elected officials thrive only when they are able to persuade the opposition by reason, not by browbeating them. For, indeed, whether the party in office is right or not, opposition exists to win over the electorate. After all, in the end, everything in a democracy boils down to winning votes.

    More crucially, Osun officials appear to have a rose-coloured idea of what governance is all about. Whether in the case of sukuk or the declaration of Hijrah holiday or the schools reform being undertaken by the state, Osun officials have approached matters legalistically, and have, perhaps inadvertently, further ossified the growing sectarian fractures in the state. They seem unable to appreciate that the problem is not that they are wrong to reform schools, or declare holidays as they deem fit, or take sukuk bonds at no interest in order to finance infrastructural development. The problem is that these issues all have religious overtones, are controversial, as Egypt’s Muslim Brotherhood’s failure to raise sukuk showed, and follow hard on one another. In a country where religious sensibilities have been stretched to breaking point, elected officials have a responsibility to weigh lawfulness against expediency.

    Osun gives the impression it has the courage of its convictions, and is determined to strive at all times to do what it believes is right. There is a sense in which this kind of approach to governance is refreshing, edifying and noble. But the state must not be surprised by the opposition it attracts now, or will attract in the coming months, as the public begins to bellicosely exercise its right to judge whether by being the first to daringly declare a holiday for traditional religion worshippers and adding a Hijrah holiday to other national Islamic holidays (among other things like schools reform), the state is not elevating courage disproportionately over wisdom and restraint.