Beware of Haram “Sukuk” from the secondary market.

By | October 16, 2018

Without sounding too technical, Sukuk in general may be understood as a shariah compliant ‘Bond’. In its simplest form sukuk represents ownership of an asset or its usefulness. The claim embodied in sukuk is not simply a claim to cash flow but an ownership claim. This also differentiates sukuk from conventional bonds as the latter proceed over interest bearing securities, whereas sukuk are basically investment certificates consisting of ownership claims in a pool of assets. (Culled from, Islamic Bonds (Sukuk): Its Introduction and Application By Shariq Nisar)

The issuance, purchase and sales of Sukuk is something that is rightfully legislated in the Islamic Financial world and agreed to by all scholars of Islam in as much as all the rules are adhered to. It is obvious that the 100 Billion FGN Sukuk issued by the Federal Government of Nigeria in 2017 followed the due process required by the Sharia to make it halal for Muslims to partake in.

However, there are some strange things that is happening in the market today that the innocent Muslims needs to be aware of, else they will fall prey of Sukuk that are obviously Haram but has been packaged to them as Halal. Before going into that we must understand how the sukuk works without sounding too technical so that we can appreciate where the illegality that has been introduced is coming from.

For an investor who purchased the FGN sukuk they will receive about 114.80% return on investment over a period of 7 years which is 16.47% annually, breaking this down it implies that:

  1. If you purchase 1 Million Naira worth of sukuk you will be paid 164,700 Naira yearly for 7 years this translates to 1,152,900 Naira.
  2. By end of the 7th year, your initial investment of 1 Million Naira will be paid back.
  3. This implies that after 7 years you would have received the total sum of 2,152,900 Naira for investing 1 Million Naira 7 years ago.

This is how sukuk works and its Halal by all standards when all the enabling rules and regulations are adhered to using the FGN Sukuk as a case study. The nature of the Sukuk also give room for the investor to cash out before the maturity of the sukuk tenor which is 2024 in the case of the FGN sukuk and what that means is that you can sell your sukuk certificate at the secondary market – the stock exchange market. To make this clear I will also give an example below:

  1. If I invested 1 Million in sukuk in 2017 and by 2019 which is 2 years later, I would have received 329,400 Naira (164,700 Multiply by 2 for 2 years)
  2. If I chose to sell out all my sukuk certificate at that time (2019) via the secondary market I will get back my 1 Million naira less whatever charges that the stock booker will take for this service.
  3. This implies that I have made 1,329,400 Naira or a little less than that (given the stock broker service charge) in 2 years for investing 1 Million Naira.
  4. The new owner of the 1 Million Sukuk certificate that I sold would start receiving payout on the sukuk he/she brought from me for the next 5 years and would still get the initial 1 Million Naira invested for the purchase of the sukuk from me at the end of the 7th year because at the time of maturity he would be the rightfully owner of the sukuk certificate.

This is what is Halal if practiced across board in the same manner, it means the issuance, purchase and sales of sukuk certificates will remain compliant with the Sharia principles throughout the value chain. Therefore, the question is where is the haram element coming from?

The haram bit of the sukuk value chain that Muslim investors in Nigeria should be aware of comes in when the sukuk certificate reaches the secondary market, that is, after the initial sukuk offer has been completed. Below is the depiction of what happens for a better clarity of the issues.

  1. When the sukuk is issued, the big companies such as the discount houses, stock broking firms and equity companies make a massive purchase of the sukuk certificates running into hundreds of millions if not billions all in their name.
  2. When the certificates are now allowed for trading at the secondary market these company now sell to investors.
  3. Using the FGN sukuk as an example, what we have seen in the market is that these companies will sell the certificate to the would-be investors and promise them a return of about 12% meanwhile they will get 16.47% and only payout 12% to the new investors, by so doing they are withholding about 4.47% from what should legitimately belong to the new investor.
  4. What these companies are doing is that they sell out their share of the sukuk and will still be getting returns illegally on what is not rightfully theirs. This violates one of the core principles under a valid sale in Sharia, which is complete transfer of ownership inclusive of liabilities and claims of the sold asset to the new owner.
  5. In this case there is no real transfer of ownership from the seller to the buyer.
  6. This is very possible because of the weak regulatory and lack of transparent structures that exist in the Nigeria stock exchange market and largely because the financial sector in Nigeria do not follow rules to the letter and weak governance structure.
  7. They have imported their illegality as they do in the trading of shares and bonds into the sukuk secondary market which is purely Halal thus making it haram for innocent investors.

This is a wake-up call to the regulators and particularly the Muslim Investors not to patronize this illegality so as not to encourage the perpetrator and being cut in the web of haram while thinking that they are doing what is halal. If you have to buy from the secondary market you must insist that you get the full advertised return on investment which is 16.47% else, you should jettison the offer. Furthermore, there must be a verifiable evidence of full ownership transfer of the sukuk certificate to you such that when the biannual payout is being done your account is credited directly by the SPV company in charge of the FGN sukuk which is FGN Roads Sukuk Company 1 PLC.

If you need more clarity on this, where and how to purchase halal sukuk from the secondary market we can provide you with guidance. Just email:


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