The experience of many African countries show that the public sector cannot provide sufficient resources to bridge the infrastructure financing gap estimated at over $1.5 trillion per annum for infrastructure development in developing countries (World Investment 2014). The prevailing development model based on public borrowing to finance investments cannot be sustainable with currency fluctuations and the inefficiency of public spending. Islamic finance offers innovative financing mechanisms to leverage private capital into infrastructure and to alleviate the debt burden on the public sector.

In recent years, Islamic finance has experienced exponential growth throughout the world, including in Muslim minority countries such as the United Kingdom, Luxembourg, Hong Kong and South Africa. Total Islamic asset across all sectors of banking, sukuk, funds and takaful was estimated to be valued at USD$2.19 trillion in 2018 – IFSB Stability Report 2019.Islamic financial assets enjoyed an impressive Compound Annual Growth Rate of 21% between 2007 and 2010, a growth rate that far exceeds that of the conventional financial industry. In Nigeria, and Africa at large, Islamic finance is still in its infancy stage but is exponentially gaining ground as a viable alternative and a complementary service to conventional finance services.

The sector caters to a large portion of the population in search of an interest-free and ethical finance alternative, and to narrow the gap of unbanked population for financial inclusion. The history of Sukuk issuance in Nigeria dates back to the Osun State Government Sukuk of 2013 for N11.4 billion for construction of Schools. Federal Government Nigeria capped it up by issuing the Sovereign Sukuk of N100 billion, each, in July 2017 and December 2018 for construction of roads, and a third issuance of N150 billion in 2020. Both the Osun State and FGN Sukuks were heavily oversubscribed, an indication of the strong demand for such instruments within our jurisdiction.

The legal and regulatory framework for the sector is also being rapidly developed. The Securities and Exchange Commission has provided Sukuk Rules while the Central Bank Nigeria has granted liquid asset status to Sukuk issued by State Governments. PenCom approved Sukuk issued by an eligible issuer as investable instruments for Pension Fund Assets. Also, Sukuk issued by State Government must be backed by ISPO or other Guarantee enhancement for it to have liquidity status of the Central Bank Nigeria or to be invested by Pension Fund Administrators.

Mobilizing private investment to infrastructure development using Islamic financial instruments would require legal, financial and institutional arrangements taking into consideration the high complex nature of most investments in infrastructure as well as the long term and risk profile of infrastructure projects. The reality shows that the dearth of Islamic finance knowledge among sovereign and sub national governments, legal and financial experts, institutions and other relevant industry stakeholders remains an impediment to the advancement of Islamic finance in Africa.