Nigeria – Lotus Halal ETF, a non-interest capital market product which tracks the NSE Lotus Islamic Index (NSE-LII) was launched back in August.
The NSE-LII index tracks the performance of 15 Sharia-screened equities listed on the stock exchange. Some of companies comprised in the index include Cadbury Nigeria, Dangote Cement and Unilever.
The fund was launched with the aim of providing alternative ethical investment in Nigeria and caters to investors seeking to invest in ethical products, avoiding companies involved in the production of goods and services such as alcoholic beverages, interest-driven financial services, and adult entertainment.
The fund targets the Muslim population of about 88 million that have a preference for Sharia-compliant finance practices such as non-interest financing.
“Interest has been strong,” says Hajara Adeola, the managing director of Lotus Capital in an interview. “We expect that the offer will be fully subscribed”.
On a broader note, the Islamic finance industry, supported by the government, continues to enjoy a more profound profile.
In 2013, the SEC established a Non-Interest Capital Market 10-year Master plan Committee, to develop strategies to foster the Sharia compliant sector.
The Debt Management Office has also given a time frame through 2017 for the debut of a Nigerian sovereign Sukuk.
A ‘Sukuk’ is the Islamic equivalent of a bond.
Differing from the typical bond which grants ownership of a debt asset, a Sukuk will grant the investor a share of the underlying asset, along with equal cash flows and an equal amount risk.
Typically banning interest, the Islamic bond will pay the returns from proceeds of the underlying asset in order to comply with Islamic law.
In September 2013, Osun state, in the Cocoa producing hub, sold about $64 million or N10 billion naira of Sukuk; becoming the first state in Nigeria to explore this alternative form of financing.
In June this year, Senegal issued $208 million of debt, beating both Nigeria and South Africa, which are yet to issue national Islamic bonds.
Hong Kong, on Friday, 11th September, issued $1 billion sovereign Islamic bonds, in its first ever issue.
The issue generated a demand 4.7 times greater than the planned offer. Hong Kong’s offer of $1 billion received orders worth $4.7 billion.
In the UK, ‘Sukuk’ bonds were sold for the first time in June this year.
The UK, along with Hong Kong vies for the position of top Sharia-compliant global financial hub.
Globally, Islamic bond offerings rose 27 percent to $24 billion in 2014 from last year, according to Bloomberg data. Islamic banking assets this year have hit the $2 trillion mark.
South Africa, which has the largest stock and bond market in Africa, plans to issue a sukuk this year, its National Treasury said in April.
According to SEC Rules, “Public companies (including Special Purpose Vehicles), State Governments, Local Government, and Government Agencies as well as multilateral agencies are eligible to issue, offer or make an invitation of sukuk upon seeking the Commission’s approval under set rules.”
To formally sell Islamic debt, key legislative amendments will have to be made to address issues such as double taxation on capital gains.
Originally published on businessdayonline.com