Sukuk: Nigeria Needs Standardization and Improved Regulation


Friday, July 30, 2021 / 1:11 PM / Bukola Akinyele-Yisau for WebTV / Header Image Credit: WebTV

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Despite three successful Sukuk Issues, there is a need for standardization and a stronger regulatory framework for Nigeria's Non-Interest capital market debt Issues. This would enable the growth of the Sukuk fixed income market and improve its local scale.

Mrs. Adaeze Uzor-Kalu, Head, External Relations, FMDQ Group, made this point at a recent Webinar presentation on "Islamic Finance and the Development of Nigeria's Debt Markets".

She acknowledged the fact that Nigeria was one of the pioneering nations that established the Islamic finance regulatory framework in the West African region.

Speaking further she said Sukuk would play a critical role in FMDQ Group's strategic drive to develop a vibrant and viable Nigerian debt capital market beyond 2021.

According to her, the Nigerian Islamic financial market penetration was less than 1%, which showed that there was ample room for growth of the market.

On developing a dynamic non-interest finance market in Nigeria, she highlighted the following areas for attention;

  • The need for government and regulatory incentives to drive participation in the Islamic finance sector
  • The need for more market issuances, Islamic friendly products, and Islamic   commercial papers
  • The need for more awareness and market education
  • The need for capacity building in the capital market for people, to understand that it is not only for Muslims but all investors.
  • The need to enhance liquidity in the market.

Providing further insight she noted that the tenet and concept of Islamic finance are about finding the real sector in alignment with shariah principles.   

Uzor-Kalu described Sukuk as an alternative source of financing, which was open to all investors without discrimination. She said the instrument could be used to finance Nigeria's infrastructure deficits, support economic growth and deepen the domestic capital market.

In taking a look at global Sukuk Issues, she said Malaysia, Bahrain Qatar, Indonesia, and Saudi Arabia are leading markets. According to Uzor-Kalu the global Sukuk reached $715.2bn in Q1 2021 and provides growth opportunities. She said there has been a lot of innovation around Sukuk as it leaned into the green bond and Environment, Social and Governance (ESG) initiatives of global capital markets.

The FMDQ official also brought to light the opportunities for Sukuk funds, to be channeled into renewable energy, low carbon production, construction, waste management, land infrastructure, and transportation. 

Reviewing recent developments in the Islamic finance market in Africa, Uzor-Kalu said Morrocco issued new legislation to support Islamic banks and enable private firms to issue Islamic debt, also Morocco issued its first sovereign Sukuk of $166m in 2018. This was channeled into renewable energy, transportation, and infrastructure.

Senegal issued its first sovereign Sukuk to the tune of CFA100bn in 2014, while Cote'd'ivoire issued about CFA150bn as its debut sovereign Sukuk in 2015, and returned with a second Sukuk for the value of CFA150bn in 2016.

For  Nigeria, she said the Central Bank established a central advisory body, with a financial regulation advisory council expert to ensure all Islamic banking products conform with Shariah principles. 

As regards the pillars driving growth in Africa, she said it was driving activities like financial inclusion, economic activities, and addressing infrastructure funding.  

She advised Nigeria to learn from developed Islamic Debt Capital Markets like Malaysia and Saudi Arabia. She said the kingdom of Saudi Arabia is the second-largest market issuer of Sukuk with a total of 15 issuances valued at $1.12bn.

Malaysia which is the global leader has developed its economy through Sukuk and Islamic finance, with an active secondary market aligning with the Environment, Social and Governance, ESG principles.

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