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BANKING & FINANCENEWSLETTER

CBN Sets 10% Investment Limit on Islamic Bonds

Bond

The Central Bank of Nigeria, CBN, has fixed commercial banks’ investment limit in Islamic bonds issued by state governments at 10 per cent of the total amount on offer.

The apex bank Director, Financial Markets Department, Angela Sere-Ejembi, said the CBN also fixed a maximum tenor of 10 years for the bonds.

Sere-Ejembi said:“In view of the need to foster financial system and economic growth and development, as well as complement the efforts of government at various levels, the CBN has approved “Guidelines for Granting Liquid Asset Status to Sukuk Instruments Issued by State Governments”, to enhance the diversification of sources of funding for development at the sub-national levels.”

She said financial deepening is gradually gaining ground in the Nigerian financial landscape with the introduction of new financial products, including non-interest financial instruments, to cater for the diverse financial needs of the populace and government at various levels.

The adoption of Sukuk issuance by state governments in Nigeria, as an alternative means of financing public expenditure, will contribute to the deepening of the financial system. In the same light, it is expected that other levels of government as well as interested supra-national financial organisations may get involved in Sukuk structuring at some time in the future.

She said to ensure the sustainability of this development, the CBN has considered the need to enhance the quality of Sukuk instruments, by issuing these guidelines to provide for eligibility for the grant of liquidity status to Sukuk issued by state governments at its discount window as well as for the purpose of liquidity ratio computation. This will further deepen the market and promote investment and secondary market activities.

According to her, the Sukuk issuance shall be backed by a law enacted by the relevant House of Assembly, specifying that a sinking fund to be fully funded from the consolidated revenue fund account of the state be established.

 

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