![\"Sukuk](\"https:\/\/nigerianfinder.com\/wp-content\/uploads\/2018\/12\/Sukuk-Bond-Nigeria.jpg\")
<\/p>\nIn this post, you will learn about the Sukuk Bond in Nigeria including every information you need to know.<\/p>\n
But first, let\u2019s define what ‘sukuk’ really means.<\/p>\n
<\/p>\n
Sukuk is an Arabic term which simply means \u201ccertificates.\u201d The history of Sukuk can be traced to the classical Islamic period when Islamic communities used Sukuk as \u2018papers\u2019 to represent financial commitments that originate from trade and other economic transactions. The first Sukuk transaction took place in Damascus, Syria in the 7th Century AD.<\/p>\n
The concept is a conventional means of securitization, a process in which ownership of an underlying asset\/project or transaction is transferred to a large number of investors through certificates representing a proportionate value of the relevant assets.<\/p>\n
The fundamental principle behind Sukuk, popularly known as an Islamic or Shariah-compliant \u201cBond\u201d, is that the holder has undivided ownership right in a particular asset and is therefore entitled to the return generated by that asset.<\/p>\n
In recent times, the resurgence of Sukuk has been propelled by renewed recognition of the concept by the Islamic FIQH Academy of the Organization of Islamic Countries (OIC) and the Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI). These institutions are standard setting organizations in the Islamic finance industry and have enabled Sukuk structures to be developed leading to the first successful issuance of Sukuk by the Malaysian Government in 1983.<\/p>\n
The first attempt of the FG to raise funds through the non-interest capital market was via the issuance of the FGN Sukuk.<\/p>\n
The Sukuk issue is usually targeted at infrastructure development and financial inclusion. The offer will be deployed to the construction of twenty-five major federal roads and bridges across Nigeria\u2019s six geopolitical zones.<\/p>\n
This offer is the culmination of several years of pioneering efforts by financial service regulators \u2013 the Central Bank of Nigeria, the Securities and Exchange Commission, the Federal Inland Revenue Service, the National Insurance Commission and the National Pension Commission.<\/p>\n
Generally, prior to the issuance of the Sukuk alongside other non-interest products and services, it is required that these products are reviewed and certified as compliant with the principles of Islamic law by a Shariah board composed of scholars knowledgeable in non-interest finance prior to issuance.<\/p>\n
The FGN Sukuk has been certified as Shari\u2019ah compliant by the Financial Regulation Advisory Council of Experts of the Central Bank of Nigeria (CBN).<\/p>\n
Now let\u2019s answer some frequently asked questions about Sukuk<\/p>\n
First, the Sukuk is secured by the full faith and credit of the Federal Government of Nigeria and it qualifies as a bond issued by the Federal Government of Nigeria.<\/p>\n
If you are an investor in Sukuk and you need to cash out your investment in the Sukuk before maturity, you can trade it on the floor of the Nigerian Stock Exchange and FMDQ OTC Securities Exchange for immediate cash.<\/p>\n
Additionally, the Sukuk qualifies as a security in which Pension Fund Administrators may invest under the Pension Reform Act, Cap P4, LFN 2004; or a security in which trustees can invest under the Trustee Investment Act; or even a liquid asset in the estimation of the liquidity ratios of banks by the Central Bank of Nigeria.<\/p>\n
Sukuk are issued with specific maturity dates just like conventional bonds. Also, they are both tradable securities which means they can be sold to a willing buyer.<\/p>\n
An SPV is a company incorporated for the purpose of financing a Sukuk based project originated by an obligor i.e company or government seeking to raise fund.<\/p>\n
Sukuk can be categorized as either product based or issuer-based<\/p>\n
For the product-based sukuk, the AAOIFI issues standards on accounting, auditing, governance, ethical, and Shariah standards has laid down 14 different types of Sukuk. The common ones include Ijara (Lease) Sukuk, Murabaha (Cost-plus-profit margin sale) Sukuk, Musharaka (Profit & Loss Sharing Partnership) Sukuk, Mudaraba (Profit sharing & Loss bearing Partnership) Sukuk, Istisna (Construction\/Manufacturing Financing) Sukuk and Salam (Sale with spot payment but deferred delivery) Sukuk.<\/p>\n
On the other hand, issuer-based include issuers like Sovereign, company and financial institutions can raise funds through the issuance of Sovereign, Sub-national or corporate Sukuk respectively.<\/p>\n
Asset-backed Sukuk involve granting the investor (Sukuk holder) a share of a tangible asset or business venture along with a corresponding share of the total risk in line with his\/her level of investment.<\/p>\n
Typically, assets remain under the ownership of investors throughout the maturity period and returns are linked to the performance of the assets. In the event of default, Sukuk holders have recourse to assets. If the returns fail to arise, the Sukuk holders suffer the losses. Examples of Asset-Backed Sukuk include Musharaka and Mudaraba.<\/p>\n
The return provided to Sukuk holders by the SPV comes in the form of profit from a sale, rental or a combination of both.<\/p>\n
Anybody can invest in sukuk from households, small business to large institutions<\/p>\n
Some of the varied risks that can affect sukuk include:<\/p>\n
This is due to Sukuk certificates being exposed indirectly to interest rate fluctuations. Investment profit is tied to benchmarked interest rate and most sukuk issue has fixed payment. Thus, when the market interest rate rises, sukuk value drops.<\/p>\n
This risk has to do with the fact that Sukuk certificates tend to be held until maturity due to the absence of a well structured and sufficiently liquid secondary market.<\/p>\n
This risk of loss of asset value results from failure\/negligence of issuer to adhere to the rules and principles of Shar\u012b\u02bbah throughout the duration of Sukuk issuance.<\/p>\n
This happens when adverse changes in market rates unfavorably affect the creditworthiness of the issues.<\/p>\n
This has to do with unfavorable exchange rate fluctuations will invariably have an effect on the assets in the Sukuk pool and in the currency of denomination in which the Sukuk funds are accumulated.<\/p>\n
This is associated with a fall in asset value.<\/p>\n
This is the loss\/damage of the underlying asset.<\/p>\n
Refers to the risk related to the ability and desirability of the buyer\/debtor to pay the debt as at when due. It involves the probability that an asset or loan becomes irrecoverable due to a default or delay in settlements. It is also related to the delivery of sub-standard goods\/projects or delay by the Supplier as against the contract\u2019s specifications.<\/p>\n
This applies to the possible failure\/negligence of SPV to reimburse the Sukuk holders<\/p>\n
This is the inability of the SPV to dispose of the asset\/business at the end of the contract.<\/p>\n","protected":false},"excerpt":{"rendered":"
In this post, you will learn about the Sukuk Bond in Nigeria including every information you need to know. But … <\/p>\n