The word Sukuk is an Arabic term which simply means certificates. Sukuk history can be traced back to the classical Islamic period when Islamic communities used Sukuk as papers which is used to represent financial commitments that originate from trade and other economic transactions. From history, the first Sukuk transaction took place in Damascus, Syria in the 7th Century AD.

This Sukuk issue is normally targeted at infrastructure development and financial inclusion. However, this offer will be deployed to the construction of twenty-five major federal roads and bridges across the six geopolitical zones in Nigeria.

Although generally, prior to the issuance of the Sukuk alongside other non-interest products and services, it is however required that these products are reviewed and certified as compliant with the principles of Islamic law by a Shariah board that is composed of scholars knowledgeable in non-interest finance prior to issuance.

Here Is How Sukuk Works

You need to understand that Sukuk represent certificates of equal value that evidence undivided ownership or investment in the assets using Shariah principles and concepts that is endorsed by the Shariah Advisory Council. However, once you invest in Sukuk, your money is put into the assets of a project or investment in order to get profit. All investor receives a margin of that profit based on a pre-agreed ratio.

Anytime an investor buys Sukuk and become Sukuk investment holders, all investors will receive a certificate from the issuer to evidence ownership, and you are entitled to receive periodic profit payments on the principal amount that was invested. Once matured, the Sukuk holder will get back the principal amount of investment.

Other Things You Need To Know About Sukuk In Nigeria

In our country, FGN Sukuk has been certified as Shari’ah compliant by the Financial Regulation Advisory Council of Experts of the Central Bank of Nigeria (CBN).

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The Reasons To Invest In The FGN Sovereign Sukuk

It is good to know that the Sukuk is secured by the full faith and credit of the Federal Government of Nigeria and it qualifies as a bond which is issued by them.

Additionally, the Sukuk qualifies as a security in which Pension Fund Administrators may invest under the Pension Reform Act, Cap P4, LFN 2004; or a security in which trustees can invest under the Trustee Investment Act; or even a liquid asset in the estimation of the liquidity ratios of banks by the Central Bank of Nigeria.

The Similarities Between Sukuk And Conventional Bond

Note that Sukuk are issued with specific maturity dates just like conventional bonds. Although, they are both tradable securities which means they can be sold to anyone willing to buy.

The Asset-backed Sukuk

The Asset backed by Sukuk however involves granting the investor (which are Sukuk holder) a share of a tangible asset or business venture along with a corresponding share of the total risk in line with the level of investment.

Although, the assets remain under the ownership of the investors throughout the maturity period and returns are linked to the performance of the assets. For the case of default, Sukuk holders have recourse to assets. In case the returns fail to arise, the Sukuk holders suffer the losses.

Who Can Invest In Sukuk

Everyone can invest in sukuk from households, small business to large institutions.

The Interest Rate Risk The interest rate risk is to Sukuk certificates being exposed indirectly to interest rate fluctuations. All investment profit is tied to benchmarked interest rate and also most sukuk issue has fixed payment. So, when the market interest rate rises, sukuk value drops.


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