Last week, the federal government issued a seven-year N100 billion Sukuk bond. Patience Oniha, director general of the Debt Management Office (DMO), said proceeds from the bonds would be used to finance the construction of 25 major roads across the six geopolitical zones in the country.
Nigerians were still trying to study and understand the concept when the Christian Association of Nigeria (CAN) announced its opposition to it. The religious pressure group said the introduction of the bond was “a violation of the constitution”.
But the Muslim Rights Concern (MURIC) accused CAN of playing up sentiments, saying Sukuk is purely for business purposes. The Nigeria Supreme Council for Islamic Affairs (NSCIA) also faulted the claims made by CAN.
FIRST, WHAT IS SUKUK?
Sukuk is an Arabic term which simply means “certificates”. According to the rules and regulations of the Securities and Exchange Commission, 2013, it refers to “investment certificates or notes of equal value which evidences undivided interest/ownership of tangible assets, usufructs and services or investment in the assets of particular projects or special investment activity using Shariah principles and concepts and approved by the SEC”.
It is a form of Islamic banking and its securities are structured to comply with Sharia by paying profit — not interest — generally by involving a tangible asset such as land in the investment.
CLAIM NO. 1: SUKUK VIOLATES THE CONSTITUTION
According to CAN, “by promoting a sectional religious financial policy (in the name of Sukuk), the government is violating both the spirit and the letter of section 10 of the constitution.”
Section 10 of the 1999 constitution simply states thus: “The government of the federation or of a state shall not adopt any religion as state religion.”
While the constitution was not specific on what constitutes a state religion, it also did not exclude the option of the federal government taking up a form of Islamic financing in its financial operation.
The section 313(6) of the Investments and Securities Act 2007, however, gives room for a new provision to be made which may in effect accommodate the introduction of Sukuk.
The section states that “notwithstanding the provisions of subsection (1) of this section, the commission may, from time to time, amend or revoke rules or regulations for purposes of giving effect to the provisions of this Bill and the rules and regulations made thereunder”.
The subsection 1 in question states that SEC “may, from time to time, make rules and regulations for the purpose of giving effect to the provisions of this Act and may in particular and without prejudice to the generality of the foregoing provisions, make rules and regulations; to alter or modify, from time to time, in consultation with the minister, the provisions of the Second Schedule to this Act [among other provisions]).”
However, CAN is seeking that this section of the act be repealed.
CLAIM No. 2: SUKUK VIOLATES IMF RULES
There is also the question of the backing of the International Monetary Fund (IMF) on the operational basis of Sukuk in non-Islamic states/countries.
CAN quoted the IMF as saying the issuance of Sukuk by non-Islamic states/countries violates the country’s religiosity and as such “a breach of the religious neutrality of the government of such state”.
CAN did not make reference to where it got its information from but on the IMF website, the organisation said the global issuance of Sukuk is “expanding with remarkable international reach of issuers and investors and that the trend is expected to continue, driven, in particular, by strong economic growth countries with large and relatively unbanked, Muslim populations”.
The financial body also said “Sukuk resembles public-private partnership financing whereby investors finance the assets and then own them which leads to real securitisation (a process of pooling/repackaging the non-marketable assets into tradable certificates of investment) after which they transfer them at maturity to the government”.
The question then is: are there implications of Islamic financing of these roads and their subsequent ownership by the Sukuk holders? CAN fears that the Islamic financial institutions will own the 25 major roads after construction. There is yet no answer to that fear.
A study carried out by a team of IMF staff on Islamic financing showed that issuance of Sukuk around the world has increased significantly in Africa, East Asia and Europe – and several non-Muslim countries.
CLAIM NO. 3: SUKUK WILL LEAD TO ISLAMISATION
CAN also raised the alarm that Sukuk will bring about “two laws for one nation as it shall also be construed in accordance with the Islamic law of Mu’amalatmaliyyah in addition to the established laws of Nigeria”.
However, looking at the non-Muslim countries that have issued sovereign Sukuk after Britain became the first country outside the Islamic world to do so in 2014, CAN might find it difficult to make a strong case. These countries are Hong Kong, Kenya, Germany, Luxembourg, South Africa, Italy, Tanzania, Russia, China, Singapore, France, Japan, South Korea, among others. They operate the bond with their official laws intact – they have not been Islamised.
The problem, however, is that some of these non-Muslim countries practising Islamic financing do not have Islamic securitisation law and there is a world of difference between Islamic and conventional securitisation concepts.
A study carried out by a team of economic experts on “legal and regulatory issues in issuing Sukuk in Muslim-minority countries” in Hamad Bin Khalifa University, Qatar, showed that there are existing conflicts in the application of Islamic securitisation.
Another issue that needs to be taken into cognisance is the fact that the funds raised from Sukuk issuance must be used ONLY for ethical purposes, according to information on the DBO website.
That is to say that whatever projects the government intends to use funds generated from Sukuk for must be ethical.
But then, is there really a clear definition of the adjective “ethical”?
CONCLUSION: CAN has strong claims on keeping Nigeria’s secular nature intact, especially as the controversy over Nigeria’s membership of the Organisation of Islamic Conference (OIC) in 1986 remains a sore point. Nevertheless, there is no conclusive evidence that Sukuk will lead to the Islamisation of Nigeria — or that it violates the constitution. One question needs to be answered though: will the Islamic financial institutions control the roads to be constructed with the bond in order to recover their money under the PPP-like arrangement?