Q1.  How can the Sukuk market evolve to better protect investors?

A1.   Naturally, investors are protected depending on the nature of the contract used. For example, in a lease contract, the assets belong to the SPV and naturally belongs to the investors. Therefore, it is secured. You can also ask prospective issuers to provide all the necessary guarantee to ensure that whenever they are going to pay their rentals, there is guarantee attached to it. This is important so that if rentals are not paid, the guarantee can be called open.


Q2. Can a private firm float Sukuk?

A2.  Yes. Private companies can also raise Sukuk. However, if it is a limited liability company that wants to come to the public to raise Sukuk, it must be subjected to the Securities and Exchange Commission (SEC) review. According to the Investment and Securities Act (or the SEC rules?), the SPV to be incorporated cannot be a limited liability company. It must be incorporated as a PLC. It is the SPV that will be considered as the issuer. On the other hand, if an issuer do not want to go through SEC and also incorporates an SPV as a limited liability company, then it is not under the purview of SEC and by implication cannot be a public issuance. Such issuances are private where you can only privately market potential investors, usually HNI’s.


Q3. Is the interest rate for Sukuk constant or is based on current market prices?

A3. It depends on the contract again. If the contract is a lease contract because you already take your assets and lease to a third party, that 3rd party know that he will be paid an amount as agreed in the lease contract consistently, therefore it is a fixed return. However, if it is a joint venture, that is where the return will be restricted to the fluctuation or the cash flow from the assets.


Q4. Please explain more on AAOIFI.

A4. AAOIFI is Accounting and Auditing organisation of Islamic Financial Institutions, meaning it provides standards in line with the Sharia as well as accounting and auditing with respect to all the necessary activities of the financial institutions that are in non-interest finance. If you going to do Sukuk, all the principles that you are going to maintain that are Sharia compliant are all provided in AAOIFI. It is based in Bahrain and they have countries that are members and also financial institutions that are members too. There is a comprehensive compendium of all standards with respect to all Islamic contracts. The CBN and SEC are all members of AAOIFI as well as Islamic Financial Service Board in Malaysia which are similar organisation providing standards.


 Q5. Can legislative change improve the competitiveness of Sukuk?

A5.   It all depends on the political environment. With respect to the legal regulations, we have all the necessary rules and regulation that are provided. Firstly, SEC being the apex regulator in the capital market which also regulates the issuance of Sukuk, have their rules and regulation since 2013 and that is why Osun State Government assessed the market. Also, the Investment and Securities Act (ISA) has given the SEC the mandate to amend such rules or issue them. Hence, SEC has done the amendment in line with the Act.  Also, we also have the CBN guidelines that have been provided to all the banks and as a result they also recognise Sukuk issuances that can be done by the banks themselves or that can be invested by the banks in line with the regulations. We also have the PenCom that has provided guideline to the Pension Fund Administrators that they can invest in Sukuk, and this investment is recognised by PenCom. Sukuk has legal backing with respect to all the authorities in the financial sector in Nigeria.


Q6. Sukuk have really assisted for economic development in Nigeria, however, what are risk that could affect the implementation of development which could be from either contractor or users

A6. Since Sukuk is asset based, there must be an asset attached to the Sukuk and this has direct impact to the real sector. It also has multiplier effect that will provide growth and development in the economy. Likely risk might be where a structure is not provided; who is the originator(obligor) that is going to responsible to pay as at when due? Is the originator capable of paying? What are the enhancements provided in respect of the structure? In the event the obligor defaults in payment, what other options do you have? Is it going to be an ISPO or a guaranty by another party reputable to honour as at when due? All these safety pins and enhancement can be provided and these could mitigate the likelihood of a default in any Sukuk that could ruin the integrity of the capital market.


Q7. What are your Sharia non-compliance challenges?

A7. Where some issuers of Sukuk decide to go private, they are not subjected to SEC reviews. it is only when it is reviewed by SEC that it can be subjected to Financial Regulation Advisory Council of Experts (FRACE), the Sharia advisers of the CBN, to review it and make sure it is Sharia compliant for public consumption. However, if it is a limited liability company, it cannot follow this trend. We have some private issuances in the market and has unfortunately received some queries nationally and internationally that it is not compliant to Sharia standards and this is because it was not subjected to FRACE review.



Q8. On the Family Home Fund where the Family Homes is appointed as agent. Will the Family Homes be paid any amount for the agency or any other additional services they will rendered in the contract?

A8. Because it is an Ijara, which is a lease contract, as long as you rent your house to a lessee attendant, it is expected that if there is a damage to the house, the owner of the house should come and take care of the damages. In the case of Ijara, the SPV will be responsible because the houses belong to the SPV. The SPV has the right to appoint persons to manage the property. This services of managing the property was given to the Family Homes and thus if Family Homes executed any such repairs in managing the houses, it has to reimbursed.


Q9. An educative presentation by Mallam Maccido. He mentioned that Sukuk contracts can be in short term. What are the examples of money market sukuk instruments we have in our jurisdiction most especially to satisfy liquidity needs of the PFAs, particularly for Fund VI subscribers?

A9. In a conventional finance, if an instruments tenure is less than 365 days, it is tagged a money market instrument. In non-interest finance, even if it is a CP but is structured as a Sukuk, it is considered a Sukuk but a short-term Sukuk. We have the International Islamic Liquidity Management Instrument (IILMI) that is based in Malaysia and have been providing short term liquidity management instrument in the industry globally. The provide short term instruments and its being tagged Sukuk. It is generally as liquidity management instrument for non-interest financial institutions. In Nigeria, we are yet to be there but if the CBN and Banks are interested, they can provide a short term Sukuk that can take care of their liquidity management needs.


Q10. I want to confirm if Nigeria is member of AAOIFI?

A10. We confirm that Nigeria is a member of AAOIFI.


Q11. How do one invest please?

A11. There are several Sukuk Issuances structured by Investment Banks (Financial Advisers) on behalf of State Governments, Federal Government parastatals and Corporations. You can either invest by subscribing to the Offer from the primary market through an Issuing Houses or by buying from the secondary market when the Sukuk Issuance is listed on any of the Exchanges.

There are also some open-ended Islamic Faith based Mutuals funds known as Halal Funds managed by Asset Management Companies where you can invest from time to time.

Kindly reach out to STL Trustees Limited for further guidance.

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