Raising funds for Nigeria’s large infrastructure deficit has become critical to the country’s productivity across all sectors of the economy.
According to reports, Nigeria’s infrastructure deficit is estimated to be 100 billion dollars (N41.12 trillion) annually.
Indeed, President Muhammadu Buhari, during the 2021 United Nations Climate Change Conference, COP26, told world leaders that Nigeria would need 1.5 trillion dollars in 10 years to be able to tackle current realities, infrastructure inclusive.
The federal government and stakeholders in the financial services sector have since come to the realisation that leveraging capital market instruments is the only way to raise capital to tackle the country’s infrastructure deficit.
One of such capital market instruments is the sovereign bond,specifically Sukuk, a non-interest financing product, which has caught on since 2017.
It is on record that Nigería is the first to embrace Sukuk in Africa and among the top five countries worldwide.
So far, through the issuance of Sukuk, first in 2017, second in 2018 and third in 2020, the Debt Management Office (DMO) has raised N362.57 billion to rehabilitate and construct critical roads across the six geo-political zones.
The DMO reaffirmed that the proceeds of the N250 billion Sukuk bond, fourth in its series, with a 10-year tenure, would be used to finance the rehabilitation and reconstruction of road projects across the six geopolitical zones and the Federal Capital Territory.
According to the Director-General of DMO, Ms Patience Oniha, the N250 billion Sukuk, which opened on Dec. 16, 2021 and closed on Dec. 23, 2021,
was oversubscribed by 346 per cent.
Oniha explained that the existing capital market master plan recognised non-interest banking, initiated by the Central Bank of Nigeria (CBN), followed by the capital market, which also recognised non-interest financial products.
Sukuk increases the level of participation by a more diverse and larger number of investors to grow the domestic investor base and promote financial inclusion.
It aims at growing and developing Islamic finance industry within the Nigerian economy to facilitate the growth of a new asset class in the industry.
Dr Tajudeen Yusuf, founder and president of the Institute of Islamic Finance Professionals, said Islamic financing was an unstudied/untapped area in the capital market/debt capital market ecosystem.
According to him, if a bank lends money, it must be part of the business, the lender and the lendee will engage in profit sharing, and if there is a loss, they both share the loss on an agreed formular.
Yusuf, who is also an Associate Prof., Department of Actuarial Science and Insurance, University of Lagos, said all transactions must be asset based or asset backed as it did not encourage speculation.
“That is why the several Sukuk obtained by the federal government is really working, it was over subscribed because it was meant for infrastructural development (for roads, bridges).
“People who obtain that certificate are being paid regularly by the government and that is just a tip of the opportunities embedded in Islamic finance for the Nigerian economy and any economy of the world.
“Islamic financing is very beneficial especially to those in the formal sector, there must be something you are producing or doing that will add value to people’s lives; you must be doing something tangible that is asset based and backed,” he said.
He also said the University of Lagos Business School planned to start a Post-graduate Diploma and Masters in non-interest finance beginning this year, for certification and awareness.
Mr Temi Popoola, the Chief Executive Officer of NGX, in one of the many virtual awareness programmes on Islamic financing by the Exchange, said there was a need to find ways to explore the role Islamic financing could play in the current challenging economic climate.
Popoola said the Islamic Finance Developement Report 2020 forecast that global Islamic finance assets would reach 3.69 trillion dollars by 2024.
“The report attributed the strong growth in 2019 to the large issuance of Sukuk in the traditional Islamic finance market of Saudi-Arabia, Malaysia, Iran and others.
“In Nigeria, the Islamic financial market continues to grow with increased interest from market participants and a growing number of players including two Islamic banks.
“Following the devastating effects of the COVID-19 in the global economies, the Islamic finance industry has played a critical role in the global economic recovery.
“In 2020, the Islamic Development Bank raised 1.5 billion dollars with its first Sukuk of sustainability designed to help in the recovery of COVID-19 in its member countries.
“In Nigeria, Islamic finance presents an opportunity for both corporates and the government to raise capital for economic growth,” Popoola said.
He added that the assets of the Islamic finance industry grew by 14 per cent in 2019 returning to its long-term pattern of strong growth after the slowdown in 2018 when the industry expanded by a moderate two per cent.
Mr Norfaselizan Rahman, the Managing Director, Taj Bank, said the market penetration of Islamic finance was currently low but fast growing.
“There will be some growth or learning curve in Nigeria with its own pattern of growth of Islamic finance development. The market penetration is low but it is growing very fast.
“Going by the financial inclusion of government, the unbanked population are in the North and North-East specifically,” he said.
According to a capital market scholar, Prof Uche Uwaleke, there is a need for the federal government to finance budget deficits through the capital market.
Uwaleke, president, Capital Market Academics of Nigeria, advised the federal government to fund the budget deficit by accessing the capital market for Green Bonds, securitisation and privatisation of some of its entities.
In June 2021, the Family Homes Funds Ltd. issued a seven-year N10 billion corporate Sukuk, the first ever in the country, also the first Sukuk to be registered by the Securities and Exchange Commission (SEC) and certified by the Financial Regulation Advisory Council of Experts (FRACE) of the CBN.
The issue for a seven-year and 13 per cent bond will be due in 2028 under Family Homes Fund N30 billion Sukuk programme, which was over subscribed by 2.1 per cent.
According to the firm, the net proceeds will be used to finance and develop affordable homes for low-income earners.
Mr Femi Adewole, Chief Executive Officer of Family Homes, said the debt capital market had allowed the company to diversify its funding: “We are very proud of this landmark transaction, which is the first ever certified corporate Sukuk issued in Nigeria.”
As at Dec. 2021, the CBN had licensed only three Non-Interest Banks in Nigeria. They are: Jaiz Bank Plc, Lotus Bank Ltd. and TAJ Bank Ltd.
The rise of Islamic finance is giving Nigerians a choice and in a way, achieving the financial inclusion mantra of CBN.
There are also those who do not want to engage in interest, gambling and others, who believe in ethical products; Islamic finance provides that for Nigerians.
Also, Islamic finance is not religion biased. Muslims, Christians can go into any Islamic finance institution, obey the rules, and they will not be asked the the religion they practice.
Indeed, there is need for robust awareness and capacity drive to promote Islamic financing by leveraging capital market instruments for Nigeria’s financial inclusion drive, and overall economic growth. (NAN)
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