Buhari resorts to Islamic Bond to fund his budget

As the pressure on federal revenue mounts following steady decline in oil revenue and lack of reasonable economic policy, President Buhari's government would be resorting to an Islamic Bond for funding the widening budget deficit.

The bond known as Sukuk, is a financial certificate, similar to the traditional government bond, but complies with Sharia, Islamic religious law.

The Debt Management Office, DMO, and Securities and Exchange Commission, SEC, are collaborating in an effort to issue the Nigerian sovereign Islamic bonds this year.
  Details of the expected revenue from the bond is not yet disclosed but officials said they expect significant bridging of the 2016 budget deficit which has exceeded the initial N2.2 trillion estimate.

According to DMO “issuing a sovereign Sukuk will attract significant amounts of affordable capital from the Gulf countries and other established Islamic markets around the world into Nigeria.”


Though Nigeria would be the third West African country to issue Sukuk after Senegal and Cote d’ Voire, Osun State had rolled out USD62 million Sukuk in 2013.

Because the traditional bond comes with interest paying structure which is not permissible under the Islamic financial system, the issuer of a Sukuk bond would sell the certificate to an investor group, who then rents it back to the issuer for a predetermined rental fee.

The issuer also makes a contractual promise to buy back the bonds at a future date at par value.

Islamic bonds are structured in such a way as to generate returns to investors without infringing Islamic law that prohibits interest.

Sukuk  represents undivided shares in the ownership of tangible assets relating to particular projects or special investment activity.

The Sukuk option in federal government finance will be coming in addition with other unconventional budget funding strategies of the President Muhammadu Buhari’s first budget