SEC rules on sukuk issuance


Tuesday, November 12, 2013  Contributed by Udo Udoma & Belo-Osagie


First sukuk

The Osun state government recently issued the first sukuk on the Nigerian capital market in the form of a N10 billion lease due in 2020. The sukuk has an A rating from Nigerian credit rating agency Agusto & Co and will be listed on the Nigerian Stock Exchange. The issuance of the Osun state sukuk is the first issuance under the regulations published earlier this year by the Securities and Exchange Commission (SEC) on the issuance of sukuks (for further details please see "All change for listed companies: two sets of amended rules come into force"). The new instrument is expected to encourage the issuance of sukuks in Nigeria, thus improving the Nigerian capital market.


Although the population of Nigeria is estimated at about 160 million, approximately 70% of the population do not use banks and an even higher percentage do not participate in the capital market. A survey carried out by the Enhancing Financial Innovation and Access group revealed that the figure representing the non-banking population would be lower if the country had a banking platform that complied with the religious beliefs of Muslims, who make up about 50% of the population. The survey based this conclusion on the fact that a high proportion of the non-banking population resided in the north of the country, which is pre-dominantly Muslim. In the same regard, it may well be said that a dearth of Sharia-compliant instruments, particularly debt instruments, may not be unconnected to the low level of participation in the Nigerian capital market.


Developing Islamic finance products

The financial sector regulators are in the process of following a financial inclusion agenda, which is intended to increase participation in the financial sector. In line with this agenda, the SEC is promoting the development of Islamic finance products. Further to this agenda, on February 28 2013 the SEC released its rules on sukuk issuance in Nigeria – such rules apply to all sukuks offered by local and foreign entities within the SEC's regulatory ambit. The rules define 'sukuks' as:

"investment certificates or notes of equal value which evidence undivided interest/ownership of tangible assets, usufructs and services or investments in the assets of particular projects or special investment activity using Shariah principles and concepts approved by the SEC."


The rules cover all sukuks, whether listed, convertible, exchangeable, redeemable or otherwise, and whether denominated in naira or in foreign currency.


Regulatory approach     

The regulatory approach adopted by the SEC as evidenced by the sukuk rules is both prescriptive and proactive. It is prescriptive in the sense that sukuk issued in Nigeria are required to comply not only with applicable laws on regulated securities, but also with Sharia principles. This approach differs from that adopted by many secular countries (eg, the United Kingdom and South Africa), where the regulator focuses more on compliance with securities law than with Sharia principles. Under the sukuk rules, compliance with Sharia principles is fundamental. The rules require the appointment of a Sharia adviser registered or recognised by the SEC to advise on all sukuks. The rules go on to list the qualification requirements that a Sharia adviser must meet and the role to be played by that adviser in a sukuk transaction. Fund managers registered with the SEC and non-interest (Islamic) banks or institutions licensed by the relevant regulator are among the persons and entifies permitted to act as Sharia advisers.


The rules are also proactive and expressly provide for a number of Sharia principles that are applicable to sukuk issuance. For example, every sukuk must have an underlying asset, the use of which must comply with Sharia principles. In addition, the use of the funds received pursuant to the sukuk issuance must comply with Sharia principles. The rules specifically provide for the manner in which sukuks can be structured and prescribe certain principles underpinning the following structures:

  • sukuk Ijarah (a leased contract);
  • sukuk musharakah (a sharing contract);
  • sukuk istisnah (an exchange contract); and
  • sukuk murabahah (a financing contract).


An omnibus clause allows for the registration of any other form of contract approved by the SEC. Apart from the requirement to comply with Sharia principles, sukuks are required to comply with the SEC rules on the issuance of securities. Such rules expressly provide for rating requirements, disclosure of material information, underwriting and the establishment of sukuk programmes. They provide for early redemption of sukuk and prescribe a procedure for revising the terms and conditions and for offering sukuk under a shelf registration.


Therefore, an issuer must appoint an issuing house which will ensure compliance with the SEC rules on securities, just as the Sharia adviser ensures compliance with Sharia principles.


For further information on this topic please contact Ogonna Chinedu-Eze at Udo Udoma & Belo-Osagie by telephone (+234 1 263 4831), fax (+234 1 263 4541) or email ( The Udo Udoma & Belo-Osagie website can be accessed at   .

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