2023 FGN Sukuk Offer Opens for Subscription, Closes on October 11, 2023- DMO

The Sukuk is a powerful tool that will enable the State mobilize resources directly towards critical infrastructure. On behalf of the Federal Government of Nigeria (FGN), the Debt Management Office (DMO) are offering the Sovereign Sukuk at 15.2% per annum.

According to DMO, offer opens today and closes October 11, 2023. To invest, visit www.dmo.gov.ng or contact enquiries@dmo.gov.ng or +2348158197240. The DMO was established on 4th October, 2000 to centrally coordinate the management of Nigeria’s debt, which was hitherto being done by a myriad of establishments in an uncoordinated fashion.

Sukuk

Infrastructure development is a cornerstone of economic growth and prosperity for any region. The funds raised through Sukuk can be channeled directly into infrastructure projects, leading to tangible improvements in the state’s transportation network, healthcare, and education facilities.

The Sukuk are gaining increasing importance globally for many reasons, atop of which the expansion of markets dealing with this financial tool worldwide and the high turnout for it. Experts said that the global circumstances have brought the Islamic Sukuk to the front burner as an effective financial alternative in the emerging markets and developing countries.

The Sukuk have emerged as an alternative tool to finance sustainable development projects and to meet financial needs of developing countries in light of the turbulence in the global financial market.

Here are detailed explanation on the difference between a Sukuk (Halal for Muslims) vs Conventional bonds

1. Nature of the Instrument:
• Sukuk: Sukuk are Islamic bonds that represent ownership in a tangible asset, project, or service. When you invest in sukuk, you are essentially buying a share of the underlying asset or project. Sukuk comply with Islamic Shariah principles, which prohibit the payment or receipt of interest (usury).
• Conventional Bonds: Conventional bonds are debt securities that pay periodic interest to bondholders. They do not have a direct link to any specific asset or project and are based on the concept of paying interest (coupon) to bondholders.

2. Interest vs. Profit-and-Loss Sharing:
• Sukuk: Sukuk adhere to the Islamic principle of profit-and-loss sharing. Instead of receiving fixed interest payments, sukuk holders receive a share of the profits generated by the underlying asset or project, if any. In the event of losses, sukuk holders also share in those losses.
• Conventional Bonds: Conventional bonds involve the payment of fixed or variable interest (coupon) to bondholders, regardless of the issuer’s financial performance.

3. Risk and Ownership:
• Sukuk: Sukuk holders have a degree of ownership in the underlying asset or project, which means they also bear the associated risks. If the asset or project performs well, sukuk holders may receive higher returns, but they also share in potential losses.
• Conventional Bonds: Bondholders do not have ownership in any specific asset, so they are primarily creditors of the issuer. Their returns are based on the interest payments promised by the issuer.

4. Regulatory Framework:
• Sukuk: Sukuk issuance must comply with Islamic finance principles, as governed by Shariah boards. There are specific guidelines and criteria for structuring sukuk to ensure they are Shariah-compliant.
• Conventional Bonds: Conventional bonds are issued under established legal and regulatory frameworks, with interest rates determined by market conditions.

In summary, the main difference between sukuk and conventional bonds lies in their underlying structure, compliance with Islamic finance principles, and the way returns are generated. Sukuk are designed to be Shariah-compliant, asset-backed, and based on profit-and-loss sharing, while conventional bonds involve interest payments and do not have a direct link to specific assets or projects.