Bonds are one of the government-backed and most secure investments. They could either be corporate, investment-grade, high-yield, or municipal, which the government backs. One of the major types of municipal bonds is Sukuk bonds.
Sukuk bonds are generally structured to generate returns to ethical investors without infringing on the Islamic principles which forbid interest payments. It also represents an ownership interest in the asset to be financed rather than in a debt obligation. It is one of the major instruments in the fast-developing world of Islamic finance.
NSE At Forefront Of Bonds
The Nigerian Exchange Limited has been at the forefront of promoting opportunities offered by Islamic finance products and instruments in recent time. Driven by its belief in the growth potential of the Islamic financial model, the Nigerian bourse has also organised numerous sensitisation workshops to educate stakeholders on the growth potential of such instruments and products.
The CEO of APT Securities and Funds Limited, Mallam Garba Kurfi says that Sukuk are certificates issued to investors representing a tangible asset, service, project business or joint venture. The asset must be Shariah-compliant. Sukuk has been issued so far by Osun State and three times by the federal government.
Difference Between Sukuk Bonds And Conventional Bonds
Kurfi says “Sukuk bonds represent ownership of assets, while conventional bonds represent a pure debt obligation. Funds raised from Sukuk bonds can only be used for ethical purposes, while you can use conventional bond funds for any legal finance purposes. Sukuk bonds sell interest from an investment in an asset, while conventional bonds sell debt. At maturity, Sukuk bonds pay rental income on all assets while conventional bonds pay interest.
Benefits Of Investing In Sukuk Bonds
The benefits of investing in Sukuk bonds are: they pay regular rental income every six months to holders, tax-free rental income, being backed by the full faith of the federal government makes it safe and secured to invest in, it allows you to diversify your portfolio with minimal risk.
Also, Sukuk bonds can be used in financial institutions as collateral for loans, it is a highly liquid asset, listed on the Nigerian Exchange therefore holders can buy or sell on any business day and it is a complete ethical investment.
Sukuk Bonds Are Open To The Public
He notes that there are a lot of investors and many who are non-Muslim invest because of the returns on investment, stating the wide acceptability of the products across the country
In conclusion, the APT MD adds, Sukuk bonds are an ethical type of investment, designed to for specific purposes in a country. It is very secure, therefore one of the best risk-free ways to diversify your portfolio. Sukuk bonds can also be traded on the stock market or used to get loans from banks.