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?
Source: www.thecable.ng
