By Kadiri Abdlurahman, News Agency of Nigeria (NAN)
The paucity of funds to execute contending projects has seen governments around the world resorting to varied forms of borrowings to meet their funding needs.
Over the years, the international and domestic capital markets, in exploring various forms of funding options, have highlighted the need for ethical-based debt financing.
In recent times, governments and corporate entities in Nigeria have been accessing the capital markets to raise funds from investors inclined to a peculiar form of ethical-based debt instruments known as Sukuk.
Sukuk is a Sharia-compliant financial instrument representing undivided interests in the ownership of defined assets.
It is based on prescribed principles of Islamic law and proportionate interest of the holders in the ownership of tangible assets and services.
It also involves investment in the assets of particular projects and activities that adhere to the principles of Sharia.
When it was introduced in 2017, the Sovereign Sukuk was received with suspicion by some stakeholders, due to its Sharia-compliant model.
However, over time, it appears to have gained acceptance by Nigerians across ethnic and religious divides.
The Minister of Works and Housing, Mr Babatunde Fashola, had dismissed insinuations that followed the sourcing of infrastructure funds from Sukuk, because of Islamic background.
Speaking at the inauguration and handing over of completed roads in Benue recently, Fashola said that 44 road projects were funded under the Sukuk programme.
He said the completed roads would positively impact the lives of the host communities, commuters, and the general public.
“These projects represent major investment in road transport infrastructure which is a commitment of the Buhari administration as a driver for economic growth and prosperity.
“They are visible and incontrovertible assets in proof of what Nigeria’s resources are invested in from a combination of our earned resources and borrowings,” he said.
Fashola was also present at the handing over of N250 billion 2021 Sukuk proceeds to the ministries of Works and Housing, Federal Capital Territory and Niger Delta Affairs, for the implementation of various road projects, across the country.
He commended the Debt Management Office (DMO) for the Sukuk initiative, which, he said, was heavily criticised by some members of the public.
According to him, some calm came when the Federal Government explained that the first N100 billion was going to be applied equally to all the six zones of Nigeria.
“This means that each zone is going to get about N16. 6 billion and that any zone that felt that it was an attempt to Islamise Nigeria should indicate that they don’t want the funds and that was the beginning of our journey,” he said.
He described the Sukuk option as a method of Public Private Partnership that had become successful in the country.
He said that the first Sukuk of N100 billion was deployed to 25 roads and delivered a total of N482 km
He also said that the second Sukuk in 2018 was deployed to 28 roads and it delivered a total of 643 km.
“The third one in 2020, of N162 billion was deployed to 44 roads and delivered 757 km.
“Many of these roads had been awarded before we came but were not funded. Each year Sukuk came we were told the kilometre that we must deliver with this money,” he said.
Fashola said that part of the impact of Sukuk is that “it created jobs for 97 construction and contraction companies who are keeping people at work.
The Minister of the FCT, Muhammed Bello said that Sukuk had become a veritable means of funding infrastructure projects with private funds.
He said that the inclusion of FCT as a beneficiary in the Sukuk funds would facilitate the completion of some critical roads which would significantly ease traffic gridlock across the territory.
In 2017, the Federal Government, through the DMO raised N100bn seven-year debut Sukuk bond for the financing of 25 road projects across the six geo-political zones of the country.
The N100bn Sukuk bond, which had a subscription of N105.88bn, was oversubscribed by about six billion naira by investors including pension fund administrators, banks, and fund managers.
The DMO said some of the roads financed by the bond are Abuja-Abaji-Lokoja Road, the Obajana-Okene Road, the Suleja-Minna Road, the Kaduna Eastern Bypass Road, Ibadan-Ilorin Road, Kolo-Otuoke-Bayelsa-Palm Road, Enugu-Port Harcourt Expressway, Kano-Maiduguri Road, and Damaturu-Potiskum Road.
In 2018, the DMO received over N132bn subscriptions from 2,073 investors for its N100bn seven-year 15.74 per cent, second Sukuk offer.
In 2020, the N150bn, the third Sukuk offered to investors was also oversubscribed by N519.12bn.
The offer attracted a total subscription of N669.12bn, representing a subscription level of 446 per cent.
The DMO, again, offered N100 billion in its fourth Sukuk offer, at N1,000 per unit in November.
That, too, recorded about 165 per cent oversubscription.
According to the Director-General of the DMO, Patience Oniha, Sukuk bond offerings are designed to improve road infrastructure, develop the financial market and also promote financial inclusion.
Oniha said Sukuk bond was significant because it provided the opportunity to raise that quantum of funds to build roads and bridges.
“Even the contractors are interested because they want to work. Once they are assured of payment they go to the site and begin to work,” she said.
Oniha said that the recent N100 billion Sukuk, which was issued at a rental rate of 15.64 per cent, brings the total Sovereign Sukuk issuance since inception in 2017 to N752, 557 billion.
She said that the Sukuk funds had so far funded the construction and rehabilitation of 71 roads and six bridges across the country, measuring 1,881 kilometres.
In September, TAJ Bank, a non-interest bank announced the commencement of its N10 billion 15 per cent Sukuk issuance programme.
According to TAJBank’s Managing Director, Mr Hamid Joda, the Sukuk bond issuance is a very important milestone in the history of Nigeria’s capital market.
“I believe that after this issuance, we will see a number of companies in the Nigerian market coming out to issue Sukuk bonds and that will lead to deepening of the non-interest market and eventually economic development of Nigeria,” he said.
Given the success of Sukuk-funded projects so far, Nigerians are expectant that the government at all levels should explore it in their quest to bridge the road infrastructure gap in the country.
There is no better time than now to think outside the box in the bid to meet the nation’s road network needs.
