Sukuk: An Appraisal of the Performance of the Lagos State- Nigeria Sukuk Ijarah

Abstract

This study is positioned to do a critical review of a quasi-sovereign sukuk in Nigeria; the Lagos State government Sukuk performance; based on its financial returns, risk attributes, project implementation performance and adherence to Shariah principles, within the context of conventional subnational bonds issued in Nigeria. The research is a quantitative and ex-post facto, research design was taken from Lagos state in Nigeria, which is purely quantitative and it is based on a secondary data collected by studying sukuk offer documents, capital markets publications, and official records of the Lagos state government finance. The yield to maturity and the volatility indicators were used to measure financial performance and the outcome of project delivery was measured using efficiency ratios that were based on the timelines, that the project was expected to be completed and actual time that the project was completed. The Shari'ah compliance was measured by the structural conformity measures based on asset backing, project linkage and non interest-based cash flows.
The results indicated that the Lagos State Sukuk had slightly lower nominal yields as compared to the traditional sub-national bonds, but the returns differences were not statistically significant. The sukuk was much less volatile and it performed better in terms of risk adjustment, which means that it is more stable in terms of its returns. There were high efficiencies in the project delivery outcomes as sukuk financed projects were delivered within the estimated timelines. The Shari'ah compliance assessment has shown that the adoption of Islamic finance principles is high, supporting the integrity of ethics and structure of the instrument. Overall, in the results, it was shown that the performances of the Lagos State Sukuk were competitive in terms of financial, developmental and compliance aspects, and the model could be utilized as a sustainable instrument of subnational financing across Africa.