Infrastructure Financing through Islamic
Finance in the Islamic Countries
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fund managers, institutional and retail players, and the tax incentives accorded to the Sukuk
also contributed to its oversubscription by about 5.8% (COMCEC 2018).
The Federal Government of Nigeria (FGN) incorporated an SPC, the FGN Roads Sukuk
Company 1 PLC (“Issuer/Trustee”), to issue the Sukuk on its behalf. The FGN issued a letter of
allocation of specific sections of land to the Issuer/Trustee for the construction and
rehabilitation of identified Federal Highways. The FGN through the Federal Ministry of Power,
Works and Housing (“FMPWH”) executed a Forward Ijarah Agreement with the Issuer/Trustee
to lease the constructed roads. A unilateral Purchase Undertaking was executed by the FGN to
purchase constructed roads from the Issuer/Trustee at maturity. The Issuer/Trustee declared
a trust over the Roads to be constructed in favour of the Sukuk holders under a Declaration of
Trust Deed and appointed FBN Trustees and STL Trustees (the “Delegate Trustees”) to carry
out its functions as a Trustee under the trust. Investors subscribed to the offer and the
Issuer/Trustee issued electronic investment certificates through the CBN as registrar. The
Issuer/Trustee entered into a Construction Agency Agreement with FMPWH to appoint
contractors to construct/supervise the roads. The Issuer/Trustee also entered into a Service
Agency Agreement with the FMPWH to undertake major repairs on the roads after
construction. The Issuer/Trustee paid the contractors through the FMPWH for
construction/rehabilitation of roads from the Sukuk proceeds after the work done by the
contractors was certified by the FMPWH and the Delegate Trustees. The contractors delivered
the completed roads to the Issuer/Trustee through the FMPWH. The Issuer/Trustee (as
Lessor) then leased the Roads to FGN (as Lessee) in line with the Forward Ijarah Agreement.
The FGN pays periodic rentals for the use of the roads and purchase amounts at maturity to
the FGN Sukuk Repayment Account with the CBN. The CBN, therefore as a Paying Agent,
transfers the periodic distribution amounts to Sukuk holders as per the scheduled dates. At the
maturity of the Sukuk, the Roads will be purchased by the FGN (Prospectus, 2017). The Sukuk
structure was certified as Shari’ah compliant by the FRACE (Shari’ah Board of the financial
sector’s regulatory agencies).
4.3.5.4. Social Sector (waqf , hajj funds)
The hajj funds are short term funds as they are mobilized and used by the Hajj Commission
within one year. As such, they are not ideal for infrastructure financing. The act of Waqf,
though not institutionalized, has been in Nigeria for a fairly long period of time. The prospect
for Waqf in Nigeria is promising as various States in the North have continued to set up Waqf
funds. Zamfara State, being the first State to institutionalize the act of Waqf, has set up an
Endowment Board which is empowered by law to collect one-percent contract deductions for
every approved contract in the State. Similarly, Bauchi State has set up a Commission to
manage waqf and, as part of its efforts to realize the full potential of waqf in the State the
Commission, has introduced various waqf accounts for different categories of people.
Furthermore, 9 States in the north have already enacted laws to legislate the act of waqf with
more States expected to follow (Obaidullah and Shirazi 2015).
The Zamfara State government established Waqf Fund in 2003 with about USD 6,867.23. This
grew to USD 1.31 million by 2013. Similarly, the Bauchi State government also introduced
various waqf accounts for different categories of people, particularly the High Net Worth
individuals and the Funds and have so far received Cash Waqf amounting to about USD
16,448.65. (Obaidullah and Shirazi 2015). The Waqf funds are largely used for developing