Nigerian state to issue Sub-Saharan Africa’s largest Sukuk

The Nigeria state of Lagos is considering the issuance of Sukuk for the benefit of its people. Sukuk enables economies to generate funding lines and raise funds for infrastructural development and infrastructural projects. The state of Lagos seeks to achieve its objectives of financial inclusion and utilizing alternatives in the ethical financial market.

Lagos State DMO indicated that the state is considering launching Sukuk that will register as Sub-Saharan Africa’s largest sub-national Sukuk. Lagos is Nigeria’s most economically contributing state currently and it will be playing a key role in Nigeria’s economic well-being as well. The state is the most active sub-national issuer of capital market instruments but this Sukuk will go a long way in Nigeria’s attempt to promote and utilize Islamic Finance.  Nigeria will be trailing just behind Osun state in terms of launching capital market instruments for the alternative ethical finance segment.

In late August, the state indicated it was concluding arrangements to source about N185 billion from the Nigerian capital market through new debt issuance.

More Sukuk and Islamic Capital Market news here.

Dr, Rabiu Otowo who is currently serving as the Commissioner for Finance in Lagos State, stated that the funds gathered from net proceeds of the newly issued bonds would be used judiciously to ensure that the locals enjoy more benefits of democracy and the government’s agenda is further implemented.  He went on further to state that Lagos has shown exemplary use of proceeds from its previous bonds and made a good portfolio for itself as shown in its ratings. Furthermore, the new bonds will foster further development in line with Governor Babajide Sanwo-Olu’s T.H.E.M.E.S. Agenda.

He emphasized that the current administration is fully committed to a better Lagos by ensuring that funds from bonds and loans are fully utilized for the benefit of the people.

Analysts globally expected an increasing shift to ethical issuance, driven by the global quest for inclusive and amenable capital and increasing emphasis on principles of environment, safety, and governance (ESG). CEO of Nigerian Exchange (NGX) Limited, Mr Temi Popoola said the potential for Sukuk and green bonds remains huge and is likely to expand over the years underpinned by new markets, products and issuers, and healthy investor investors’ appetite.

According to him, NGX will continue on its quest to provide an efficient and liquid market for investors and businesses in Africa so that ethical and sustainable development goals can be achieved through compliant capital and investments.

 “We promise to continue our collaboration with all market stakeholders, to collectively contribute towards the enhancement of this exciting asset class, and ultimately towards the growth of green and Sukuk bonds in Nigeria and Africa at large,” Popoola said.

Director-General, Securities and Exchange Commission (SEC), Lamido Yuguda said the alternative ethical finance segment is unique and boasts of the full potential that can facilitate the deepening of financial systems while spurring the growth of the economy.

Assistant Director, Securities Issuance Unit, Debt Management Office, Mr. Adamu Mohammed pointed out that investors were increasingly demanding socially responsible investment and have expressed a strong appetite for green bonds evidenced by subscription rates in Nigeria’s sovereign green bonds increasing to 220 percent in 2019 over the 110 percent at the debut issuance.

Preceding year’s Islamic Finance Development Report was a joint effort of the Islamic Corporation for the Development of the Private Sector (ICD) and Refinitiv, one of the world’s largest providers of financial markets data and infrastructure. ICD is the private sector development arm of the Islamic Development Bank (IsDB). One of the report’s major findings was the increase of 14 percent to $2.88 trillion in Islamic Finance Assets for the year 2019. This was the highest recorded growth for the industry since the global financial crisis.

Furthermore, global Islamic finance assets increased by 14 per cent year-on-year totaling $2.88 trillion in 2019. Islamic Finance assets of Gulf Cooperation Council (GCC) reached $1.2 trillion in 2019, followed by the Middle East and North Africa (MENA) at $755 billion, excluding the GCC, and Southeast Asia at $685 billion.

Islamic Finance Market:

Global Islamic finance assets are expected to rise to $3.69 trillion by 2024 as data showed a major surge in Islamic finance. The 2020 Islamic Finance Development Report projected that global Islamic finance assets might rise to $3.69 trillion by 2024 after posting its recent highest growth of 14 percent to close 2019 $2.88 trillion.

The Islamic banking sector contributes the bulk of the global Islamic finance assets. The sector grew 14 percent in 2019, equating to $1.99 trillion in global assets. This compares with just one percent growth in 2018 and average annual growth of five percent over the period from 2015 to 2018.

The report indicated that the top five developed countries in Islamic finance were Malaysia, Indonesia, Bahrain, United Arab Emirates (UAE), and Saudi Arabia. Indonesia recorded one of the most notable improvements in the Islamic Finance Development Indicator (IFDI), moving into second place for the first time due to its high knowledge and awareness ranking.

The report covered 135 countries and was based on five key metrics comprising of quantitative development, knowledge, governance, awareness, and corporate and social responsibility (CSR).

According to the report, green and socially responsible investments (SRI) increased in the UAE and Southeast Asia in 2020. The pandemic was a game-changer as several Islamic banks reported losses and reduced profits throughout the year. The pandemic has also led to growth in some areas of the industry as some regulators turned to Islamic finance to mitigate the economic impact.

Corporate Sukuk issuance has also picked up after a cautious halt in the first quarter of last year. The report indicates that companies are taking advantage of low borrowing costs to shore up their finances, while the pandemic continues to batter trade and economies.