Nigeria’s top Islamic (non-interest) bank, Jaiz Bank Plc, intends to issue a N150 billion Sukuk, a ground-breaking move that might transform the market for corporate non-interest bonds.

The anticipated Sukuk will be the biggest issue of non-interest bearing bonds on the Nigerian capital market.

The bank’s board of directors has wrapped up preliminary deliberations over the issuance of a N150 billion Sukuk and has set the N150 billion Sukuk for consideration and approval at the bank’s annual general meeting next month.

In order to raise up to N150 billion in new capital through the issuance of Sukuk, shareholders are expected to give the board of directors their approval. Either all at once or in phases, the issuance is possible.

N1.77tn Sukuk fund Raised between 2017 and 2021- FG

Additionally, shareholders are anticipated to direct the board of directors to take all necessary actions and transactions to help the bank meet its short- and long-term growth goals and improve its competitiveness. These actions and transactions could consist of acquisitions, new investments, restructuring, capital raising, expansion, and other commercial agreements that support the bank’s expansion.

Sukuk issuances this year

With a slightly more optimistic outlook than the previous year, S&P Global Ratings predicted that the overall amount of Sukuk issuances in 2022 might range between $145 billion and $150 billion.

According to the analysis, issuance volumes of sukuk would at best remain unchanged in 2022 due to decreased and more expensive global and regional liquidity, increased complexity, and reduced financing needs for some key Islamic finance countries.

S & P Global Ratings noted that opportunities created by the energy transition in core Islamic finance countries, higher environmental, social and governance (ESG) awareness from regional issuers, and stronger automation using fintech solutions as likely to support future Sukuk market growth.

“On a positive note, we see opportunities created by the energy transition in core Islamic finance countries, higher environmental, social and governance (ESG) awareness from regional issuers, and stronger automation using fintech solutions as likely to support future Sukuk market growth,” S & P Global Ratings indicated.

Sukuk’s importance for everyone

The significance of Sukuk as a financing tool for the public and private sectors in the West African region and beyond had been emphasized by Mr. Hassan Usman, managing director of Jaiz Bank Plc.

He asserts that many West African countries and companies may fall back on Sukuk to raise non-interest funds to finance infrastructural development and corporate growth plans.

As a major leverage for their national development, he predicted that there could soon be a frenzy of Sukuk issuance in West Africa as more countries discover the potential of Sukuk.

He claimed that 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.

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

Usman has also emphasized the need for the Federal Government to devise a regular Sukuk issuance programme to secure much-needed capital to boost infrastructural development and end the menace of abandoned projects.

Nigeria to Play Major Role in Global Islamic Banking Growth, Market to hit $4.94 trillion by 2025- Report

More Sukuk bond issuance, in his opinion, would provide government with pool of capital finance infrastructural projects across the country while asset-based nature and financial discipline that come with Sukuk bonds will ensure timely completion of any identified project.

Because there is always a structure to guide the process, he added, Sukuk ensures discipline in the management of resources. Therefore, issuance of more Sukuk bonds will not only provide the huge quantum of funds needed to address infrastructural problems in the country but help to improve efficiency in public finance.

“We have so many things that we need to address, from roads to railways, seaports, airports, hospitals, education and so many other things yearning for attention; which the normal budgeting system cannot address. We need to raise quantum of funds to address them. Issuing Sukuk gives you two things-you get the resources and get disciplined around it. Money from Sukuk is dedicated for what it is intended for. It is very unlikely for that money to be diverted out of those projects,” Usman said.

He continued by saying that issuance of Sukuk will help Nigeria to address both financial inadequacy and structural deficiencies in public administration as every issuer of Sukuk will need to have a definitive structure in place for the utilization of the fund, which must be followed to the letter.

“That for me is something Nigeria needs, because it would mean the end of abandoned projects. Before you raise Sukuk, you must have done your homework – you have gotten the contractors, you have done the bills of quantity- money is available and the contractor would go to the site and every certificate is paid for. So, Sukuk for me is the way to go to address many of our challenges,” Usman said.

Islamic Finance Presents a Financial Market for Public and Private Partnerships – Finance Minister

In September 2017, the Federal Government issued its first sovereign Sukuk, a N100 billion, seven-year issue with a rental rate of 16.47 percent. By 5.8%, there was an oversubscription. Government issued a N100 billion, seven-year Sukuk Al Ijarah (Lease) in 2018 with an annual rental rate of 15.743%. Additionally, it had a high demand. An oversubscription of N519.12 billion was achieved for Nigeria’s third N150 billion sovereign Sukuk sale, continuing a trend that began with the country’s first issuance in 2017. A N150 billion seven-year Ijarah Sukuk with a rental of around 11.200% annually was issued by the federal government in June 2020.

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