By
Bello Sani Yahuza
Bayero University, Kano
December 31, 2021
Recently on December 16, 2021, The Federal Government of Nigeria issues its fourth Sukuk. The forward-Ijrarah Sukuk is worth N250billion with 10-year tenor at 12.8% rental payment payable half yearly installments. The FGN Sukuk attract a massive subscription of over N865 billion which is oversubscribed by 346%. Following the conclusion of the offering week, the Sukuk was repriced at 13% increasing 0.2% return for investors.
As it is, the Sukuk was structured based on the contract of Ijara or Shari’ah compliant lease.
As per the terms and conditions of Ijarah contract, an asset may be leased to a person named lessee by the owner of the asset named lessor. The lessee is entitled to use the asset within the period of leasing contract and pay in return rental payment for his use of the asset named usufruct. In legal terms, ijarah is a contract of selling beneficial ownership of an asset, hence the lessee is considered a beneficial owner of the asset throughout the leasing period.
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According to Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) Shari’ah Standards No. 17, Forward-Ijarah Sukuk is define as Certificates of ownership of usufructs of described future assets of equal value issued for the purpose of leasing out tangible future assets and for collecting the rental from the subscription revenue so that the usufruct of the described future asset passes into the ownership of the holders of the certificates. In the FGN Sukuk the Sukuk holders own the usufruct of highways, which they rented them to the FGN. The issuer of these certificates is the seller of usufruct of an asset to be made available in the future as per specification. The subscribers are buyers of the usufruct, the funds mobilized through subscription are the purchase price of the usufruct. The certificate holders become joint owners of the undivided usufruct sharing its benefits and risks.
Sukuk is generally a financial instrument used for raising funds for financing budget deficit, infrastructural project for public sector; or enhancing liquidity or increasing capital adequacy for financial institutions and so on; and or for investment opportunity for individuals and corporate entities. For the same reason, the FGN venture into Sukuk market to raise fund nd issue Forward-lease Ijarah Sukuk to the public. Regarding this, dual requirements are needed for this ijarah sukuk, the guiding Shari’ah principles of a valid ijarah contract on one hand, and the Nigerian financial system laws (legal, regulatory and prudential guidelines) on another. Therefore, two components are essential in understanding this FGN sukuk. The first is the capital raised (N250billion) which is used by the issuer to buy the asset (the highways) and leased it to FGN through Federal Ministry of Works and Housing. In the agreement, the FGN sell the asset to the investors (Sukuk holders) and collect their money to reconstruct the highways with irrevocable condition of taking it as lease upon which the FGN will pay the whole funds invested with their return on installments.
The second component, is the return of the investors’ fund agreed at 13% of the capital which stands at N32.5billion. Now, the FGN through CBN as paying agent will complete payment at end of the 10-year tenor of the Sukuk life the total N282.5billion to the sukuk holders to settle the principal and return as well. The AAOIFI Shari’ah Standard provides that, the lease rental may be in cash or in kind (goods) or benefit (service). It must be specified, either as a lump sum covering the duration of the Ijarah contract, or by instalments for parts of the duration. It may also be for a fixed or variable amount, according to whatever designated method the two parties agree upon. This return is termed according to Shariah principles as profit for a valid contract. In this case, the ijarah or any other contract, there is no issue of violating or non-compliance in setting out terms of paying rental return at any given percentage.
Meanwhile, in all our transactions, whether we calculate them on percentages or not, are just the profits we earn together with the principal sum the total of the capital we have in a business venture. Thus, the percentages according Shari’ah rules, are just means/instrument (wasilahi) for counting and calculations no more no less. It helps in knowing clearly what is the amount one owns or owed in a given transaction. And in the spirit of proper record keeping in line with the Qur’anic guidance. Which enjoins writing down in clear terms whatever is there in a transact such as this one. (Qur’an 2: 282). Percentage in such cases clarifies monetary rights and claims better.
The fact that the conventional system always use percentages for their interest rates computation of returns, does not make counting percentage on our business transactions, agency agreement or partnership contracts invalid from Shari’ah view point.
I conclude by this noble Hadith in which The Prophet Peace Be Upon Him says:
“المسلمون على شروطهم الا شرطا أحل حراما، أو حرم حلالا”
“Muslims are freely bound by their conditions and stipulations, except, a condition permitting prohibited, or prohibiting permitted act”. reported by Abu Dawud, Tirmudhy, Ibn Majah and others.
BELLO SANI YAHUZA, currently a PhD candidate in the International Islamic University, Malaysia (IIUM) working on Sharī’ah and application of Maqāṣid-Based Green Sukuk financing for agricultural Development and achieving sustainable food security as his main area of research. He works with Bayero University, Kano Nigeria as an academic lecturer since 2012 in the Department of Islamic Studies & Sharī’ah and The International Institute of Banking & Finance (IIIBF) where he acquired both his B. A. Islamic Studies & M. Sc. Islamic Banking & Finance in 2010 and 2015 respectively. He thought many courses at both degree and master’s levels as well as professional training. He is a Certified Halal Executive (CHEX) by International Halal Research and Training Malaysia (INHART). He attended various international and local conferences and presented many papers therein. Other areas of interest are Islamic Jurisprudence and commercial transaction. ORCID ID: https://orcid.org/0000-0002-8155-7104 Email: bsyahuza.iiibf@buk.edu.ng +2348034431772 University/Organization: International Islamic University Malaysia (IIUM).
