Reading time:3 min read

13 Things To Know About Sukuk

Recently, the Federal Government of Nigeria successfully repaid its first-ever Sovereign Sukuk of N100bn, issued in 2017, thus fulfilling all obligations to investors and reinforcing its commitment to transparent and responsible debt management.

Here are thirteen things to know about Sukuk:

1. Sukuk is a non-interest-based investment and financing instrument that is part of Islamic finance.

2. It adheres to Shari'ah principles but is not restricted to Muslims, as its ethical principles are universally applicable.

3. Sukuk is an investment certificate or note that evidences proportional ownership in tangible assets or investments in specific projects or activities that comply with Shari'ah principles.

4. The holder has an undivided ownership right in a particular asset and is entitled to the return generated by that asset.

5. Sukuks are structured based on a specific contract that involves the exchange of Shari'ah-compliant assets. These contracts can be made through the sale and purchase of assets, leasing of specific assets, or participation in joint-venture businesses.

6. Financing and investment in Sukuk must comply with Islamic law and ethical standards referred to as Shariah principles.

7. Sukuk can be categorized as product-based and issuer-based.

8. Sukuk structuring typically involves the packaging of pools of Shariah-compliant assets/projects which have to be reviewed and approved by Shariah advisers to ensure compliance with Shariah.

9. A Special Purpose Vehicle (SPV) in Sukuk Transaction is a company incorporated for the purpose of financing a Sukuk based project originated by an obligor i.e company or government seeking to raise funds.

10. Sovereign Sukuk is a certificate evidencing ownership of an asset or its usufructs issued by an SPV backed up by the Sovereign entity.

11. Sub-national Sukuk is a certificate evidencing ownership of an asset or its usufructs issued by an SPV backed up by state government.

12. Corporate Sukuk is a certificate evidencing ownership of an asset or its usufructs issued by an SPV backed up by a company.

13. Supranational Sukuk is a certificate evidencing ownership of an asset or its usufructs issued by an SPV backed up by a supranational institution.