Nigeria: SUKUK As Alternative Source Of Infrastructure Finance In Nigeria

Last Updated: 18 February 2019
Article by Mu’awiya Yunusa


This article explores the opportunities that abound in the use of Sukuk instruments for infrastructure finance in Nigeria and also provides an overview of the legal and regulatory framework for the issuance of Sukuk in Nigeria.


Sukuk is a suite of financial instruments that are used for raising funds, and they are considered financial instruments for the purposes of resource mobilisation, in both public and private sectors1. Sukuk can be defined as "certificates of equal value representing undivided shares in ownership of tangible assets, usufructs, and services or (in the ownership of) the assets of particular projects or special investment activity2. Sukuks can be issued under different structures to accommodate the unique nature of different transactions. Some of these structures include: 

  1. Salam: a structure based on spot payment with future delivery of asset.
  2. Ijarah: a sukuk structure involving the sale and lease-back of assets in existence   e.g. real estate, plant & machinery, aircraft, ships. Other tangible assets can also be structured as a master lease/sub lease. 
  3. Mudaraba: a partnership/fund management contract between an investor (Rab-ul-mal) and a manager (Mudarib).
  4. Musharaka: sukuk structure involving a partnership between the Special Purpose Vehicle Entities (SPV) and obligor to jointly own either ready assets or to construct/manufacture assets (real estate/project financing).
  5. Murabaha: sukuk structure based on a cost plus financing contract whereby the asset is delivered now with a deferred payment3

The Nigerian Securities and Exchange Commission ("SEC"),4, the apex regulator of all securities related transactions in Nigeria, explicitly recognizes the following Sukuk structures under Rule 571 of the SEC Rules5:

Sukuk Ijarah – (lease contract) Sukuk Musharakah– (sharing contract) Sukuk Istisnah– (exchange contract) Sukuk Murabahah– (financing contract).


Nigeria's population of approximately 178 million6 citizens continues to rise and is expected to reach about 287 million by 2050. The country is urbanising at one of the fastest rates in the world7 and this has led to development of large-scale urban infrastructure projects, as well as  a significant demand for the renewal and modernisation of aging infrastructure, making the Nigerian construction growth one of the fastest in the world8.

In view of the foregoing, the major justification for Sukuk issuance in Nigeria is the need to close the vast infrastructure funding gaps across the country. Historically, the US, Europe and recently China have been Nigeria's leading funding partners and provided the largest sources of infrastructure financing. However, amidst the Eurozone crisis and the political conditions attached to accessing these funds that come with these funding, it is imperative for Nigeria to diversify its sources of funding. It is in this regard that Sukuk is deemed to be relatively advantageous compared to other sources of infrastructure financing, because it is asset-based or project-based, which promotes financial stability by linking the financial sector with other real sectors of the economy9.


The regulatory framework which governs the issuance of Sukuk in Nigeria are derived from  a body of legislations which include the Investments and Securities Act (ISA) 2007, the SEC Rules and Regulations 2013 and relevant Bond Laws which are required to be passed by the State and National Assemblies to authorise a sovereign Sukuk bond issuance.

In line with its objective of developing the Islamic capital market in Nigeria, the SEC introduced new rules to regulate the issuance of sukuk in Nigeria on February 8, 2013, pursuant to its powers under Section 313 (6) of the ISA, 2007. Rule 572 of the SEC Rules makes all public companies (including Special Purpose Vehicles), state governments, local governments, and Government agencies as well as multilateral agencies eligible to issue, offer or make an invitation of Sukuk subject to the SEC's approval. The Rules apply to any:  

  1. Sukuk which are offered by local or foreign entities that are within the regulatory purview of SEC;
  2. Sukuk which are denominated in Naira or in foreign currencies; and
  3. Sukuk which are listed, convertible, exchangeable, redeemable or otherwise. 10   

Also, in addition to the advisers who advise on bond issuances11 an issuer of Sukuk must appoint a Shariah adviser who shall: 

  • advise on all aspects of the Sukuk including documentation and structuring; 
  • issue  shariah certification which outlines the basis and rationale of the structure and mechanism of the Sukuk issue, the applicable Shariah principles used for the Sukuk issue and relevant shariah matters relating to the documentation of the Sukuk issue;
  • ensure that the applicable shariah principles and any relevant resolutions and rulings endorsed are complied with; and
  • Apply ijtihad (reasoning) to ensure all aspects relating to Sukuk issuance are in compliance with shariah principles. 12

The FMDQ OTC Securities Exchange, a SEC registered self-regulatory OTC securities exchange has also issued its listing rules for Sukuk. To be eligible for listing under the FMDQ Listing Rules, the Sukuk must meet the criteria outlined below:

  • Must be issued through Auction, Private Placement, Syndication, Reverse Enquiry and such other method as may be permitted by FMDQ and the SEC.
  • Must be issued within the framework of the below named structures:

(a) Sukuk Ijarah.

(b) Sukuk Musharakah.

(c) Sukuk Mudharabah

(d) Sukuk Murabahah (Memorandum Listing)

(e) Such other Sukuk structures as may be approved by the Commission

  • All Sukuk expressly prohibited by Shari'ah law and in accordance with the AAOIFI   

Standards from being traded would automatically qualify for Listing under the  Memorandum Listing, and shall be admitted to the FMDQ Platform and be declared non-tradable.

  • The minimum size of the single Issue shall be N1,000,000,000.00 (one billion

naira) and where the Sukuk is issued under a Programme through a Shelf Registration, the minimum size of the Programme shall not be less then N5,000,000,000.00 (five billion naira).


Over the last decade (the first issuance of sovereign Sukuk bonds in Nigeria was in 2013 by Osun State Government), the Federal Government of Nigeria, state governments, government-owned enterprises and private sector companies have been involved in the successful issuance of Sukuk Bonds. These Bonds have, in some instances, been oversubscribed by the Nigerian public and the proceeds dedicated to infrastructure financing projects across the country.

Sukuk Bonds have been utilised for notable infrastructure projects in Nigeria, such as:

  • Construction of Luxurious Apartments in Ikoyi–Lagos by Lotus Capital Ltd using N1 billion Private Sukuk of Al-Istisna.
  • Construction of 26 Schools by Osun State Government using Ijarah Sukuk of N11.4 billion.
  • Construction of Roads by FGN using Ijarah Sukuk of N100 billion

Sukuk Bonds may also be used for any of the following infrastructure projects13:

Sample projects

Mass Housing

Road, Railway and Airport construction


Construction of Schools, hospitals etc

Acquisition of meters for DISCOs, and

equipment for generating companies 

Suitable contract

Musharaka (Joint Ventures)

Istisna (Construction Financing) Non-oil export


Murabaha and Ijarah


Nigeria as an emerging economy in Africa has the potential to be among the 20 largest economies in the world14 but its lack of infrastructure has deprived its citizens of massive development opportunities. A number of emerging African countries such as Gambia, Senegal and Kenya etc, have in recent years utilised Sukuk bonds to build infrastructure and achieve their development goals. An increase in the use of funding generated from Sukuk may therefore become the solution to Nigeria's long-term infrastructure development quagmire.


* Sukuk in Takaful Investment Its 2013 Mohammed Al Sharaf, MBA, Business Development Manager – Thomson Reuters available at   accessed 25/1/2019


3 B. Aquil, and I. Mufti, "Innovation in the Global Sukuk Market and Legal Structuring Considerations", in Ali (ed.), Islamic Finance, loc.cit., p. 101

4 The Securities and Exchange Commission is the government agency mandated to regulate and develop the Nigerian capital market.

5 Rule 571,  SEC Rules and Regulations on Sukuk Issuance in Nigeria

6 Nigerian Population Commission website: accessed 25/1/2019 at 3:36 pm.

7 Solow R. (1956). A Contribution to the Theory of Economic Growth, Quarterly Journal of Economics, 70: 65-94.

8 Global Construction Perspectives and Oxford Economics Report available at accessed 25/1/2019.

9 Report of the Technical Committee on the prospect of alternative Finance (SUKUK) for Nigeria

10 Rule 570(1) of the SEC  Rules

11 Advisors are the Issuing Houses, brokers, reporting accountants, rating agencies legal advisers to the sukuk bond etc

12 Rule 574 of the SEC Rule

13 Ibid p. 10

14 Solow R, op cit p.26.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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