If you have driven past Eko Atlantic in the last eighteen months, you might have noticed a prominent billboard indicating that the federal government raised sukuk bonds to construct the road (Ahmadu Bello way).
Sukuk bonds are pretty new in Nigeria, introduced to serve as an alternative funding source for the federal government’s capital projects, particularly roads and bridges.
Asides from this funding benefit, sukuk bonds are structured to boost financial inclusion as they attract investors who want to keep to the ethos of their religious practices. In addition, issuing these bonds leads to more liquidity and depth in Nigeria’s capital market.
Sukuk bonds have significantly reduced the cost and time previously experienced in actualising road projects and driven retail participation in the financial market, fuelling the confidence needed to replicate the sukuk success with other capital projects.
About 44 critical road projects, including Ota-Abeokuta, Lagos-Ota, Enugu-Portharcourt, and Kaduna-Maiduguri, are also being rehabilitated and constructed with sukuk.
Road projects are the most visible benefits of these relatively new and unique financial instruments. But this is not the only benefit of sukuk. The government optimises for three distinct goals whenever it issues a sukuk bond.
The three bond goals
According to the Debt Management Office (DMO), the agency responsible for issuing and managing government debt, the goals are: financial inclusion, financial market deepening, and an alternative funding source for capital projects.
From an inclusion perspective, sukuk bonds make sense. Nigeria is home to the most prominent Islamic population in sub-Saharan Africa—about half of its 200 million population are Muslims. Therefore, traditional bonds, which typically charge interest rates, are not classified as ethical investments for roughly 50% of the country’s population. Sukuk bonds change the game here.
Secondly, issuing and listing sukuk bonds in the domestic