Sukuk Ijarah is one of the alternative instruments in Islamic finance which is frequently offered around the world. It has also received encouraging responses in the Nigerian capital market. It is a means of raising funds and capital liquidity for economic growth. This article examines how Sukuk Al-ijarah can be used to close the housing infrastructure deficit in Nigeria.

The Concept of Sukuk Al-ijarah

Ijarah is lease financing form that may be applied to a particular asset. Upon maturity, the lessor sells the asset to the lessee once all lease payments have been made. Like other classes or types of Sukuk, Sukuk Ijarah bears a similarity to bonds. For Sukuk Ijarah to be issued there has to be an underlying asset in which the Ijarah Sukuk holder can hold equity. Certificates of equal value are issued, representing a common share in the ownership of objects, usufructs or services in an investment project that are tradable in the secondary market.

Sukuk Ijarah is considered to be a flexible structure and can be used for multiple financing needs. Various ijarah-based financing models or structures have been proposed and implemented for different purposes around the world. Some of these structures or models include:

ijarah muntahia bittamleek: Lease ending with the transfer of ownership. This is a contemporary practice by Islamic financial institutions whereby it provides an option to the customer to acquire the ownership of an asset with a low price at the end of a specified period.

ijarah wa iqtina: Lease with acquisition. Ijarah wa iqtina is a lease together with a promise by the lessee to purchase the asset at the end of the lease term. It is therefore effectively very similar to a conventional finance lease or hire purchase agreement.

Ijarah Mawsufah Fi Al-Zimmah: Forward Lease. This is an Islamic home loan based on the concept of Forward Leasing, suitable to finance the purchase of property which is under construction. Simply put, the monthly mortgage repayments are considered as ‘rental’ until the final payment is made.

Al-ijarah thumma al-ba’i: Lease followed by sale. This is combination of two concepts of Ijarah “leasing” and bay “buy”. The difference between this structure and ijarah muntahia bittamleek is that under ijarah muntahia bittamleek, the lease agreement is associated with the option (khiyar) to own the leased asset at the end of the lease period while in ijara thumma bay’, the agreement incorporates the sale of the leased asset at the end of the lease period.

The Structure of Sukuk Al-ijarah

The following six stages make up the structure of sukuk ijarah:

  1. The Originator identifies the underlying project asset.
  2. The originator transfers the underlying asset to the SPV to raise funds.
  3. SPV issues sukuk, collect funds from investors and gives sukuk certificates to the investors. Funds generated from the investors are made available to the Originator.
  4. SPV enters into a rental agreement with the originator for periodic repayment.
  5. The rental amounts earned by SPV from the originator is distributed to the investors.
  6. At time of maturity, the SPV sells the underlying asset of Ijarah to originator with agreed price to redeem the sukuk certificate

Sukuk Al-ijarah under the Nigerian Law

A. SEC Rules

The Rules were issued by SEC pursuant to its powers under Section 313 (6) of the Investment and Securities Act, 2007 to regulate every sukuk issuer in Nigeria whether government, private, indigenous or foreign entities so long as the entity is eligible to issue sukuk.

Key terms under the SEC Rules

  1. Sukuk Ijarah: The SEC rules describe Ijarah Sukuk as “certificates of equal value which evidence undivided ownership on the leased asset and/or usufruct and/or services and rights to the rental receivables from the said leased asset and/or usufruct and/or services.”
  2. Ijarah thummabai (lease to purchase): The Rules describe this class of Ijarah Sukuk as “a contract which begins with an Ijarah contract to rent out a lessor’s asset to a lessee. Consequently, at the end of the lease period, the lessee will purchase the asset at an agreed price from the lessor by executing a purchase contract.”

The Rules also permit issuance of forward leases with clear terms and conditions for such a contract.
B. The Financial Markets Dealers Quotations (FMDQ) OTC Securities Exchange.

The SEC-registered self-regulatory over-the-counter securities exchange also issued its listing rules for Sukuk in 2017 which provide detailed criteria and regulations for Al-ijarah Sukuk issuance among other classes of Sukuk. To be eligible for listing under the FMDQ Listing Rules, the Ijarah Sukuk must meet the criteria outlined in Rules 1, 2, 3 and 4 of the Rules.

Development of Sukuk Al-Ijarah in Nigeria

Parallel to the increasing interest in the use of Islamic products globally, sukuk has been identified as an alternative instrument for financing and investment. The most commonly used and widely subscribed class of Sukuk is the Ijarah Sukuk. The first Sukuk issuance in Nigeria was Al-ijarah Sukuk by the Osun State Government in 2013 which is also the first of its kind in sub-Sahara Africa. The NGN60 Billion issuance was meant to fund the development of 20 High Schools, two middle level schools and two elementary schools in Osun State, Nigeria. Similarly, in 2016 the Federal Government of Nigeria (FGN) followed suit by issuing NGN100 billion sukuk ijarah for 25 road infrastructure projects throughout the federation. The sukuk attracted an oversubscription of NGN105.9 billion, indicating investors’ desire and demand for sukuk. This first sukuk issued by FGN has raised a lot of enthusiasm resulting in two additional issuances by the FGN raising up to NGN362.5 billion through the three different issuances. Two sub-sovereign issuances were also made by Katsina State Government and most recently the Gombe State Government NGN 35billion Sukuk Al-ijarah. This means that the issuance of sukuk through concept of Ijarah is able to drive the development of Islamic capital market industry in Nigeria and the country’s infrastructure development.

Use of Ijarah Sukuk for Affordable Housing 

Nigeria’s housing deficit is currently estimated to be between 17 to 20 million housing units, the potential cost of overcoming the deficit is stated to be about NGN 6trillion. The fact that Islamic Finance has a strong ethical focus and that so many of its core contracts are asset-based makes property and infrastructure projects, particularly those with a social element such as housing, very attractive to investors and institutions.

The practical application of Ijarah Sukuk considered herein is the potential for its use in the provision of low-cost home ownership. Malaysia, for example, has successfully introduced and implemented Islamic Public-Private Housing Co-operative (IPHCM) the model which is based on integration of the Ijarah Contract and other ethical contracts. The IPHCM is a collaboration between public and private sectors. The private sector construct low- and middle-income households whereas public sector represents the Malaysian Federal Government and state governments.

Conclusion and Recommendation

Sukuk Al-ijarah is a competitive alternative that can be used to address the concerns of affordable housing in Nigeria. The vast deficit in the housing sector can be closed through the issuance of ethical financial instruments by the Federal Government or the States. Joint venture agreements can be executed between the Federal Mortgage Bank of Nigeria and the sub-sovereign states, with the states bearing 90% of the equity contribution to be funded through Sukuk issuance particularly Al-ijarah Sukuk because of its acceptability in the market. Once the infrastructure is developed, sales from the units of houses will pay back the Sukuk with a surplus to the Government. This funding method has indirectly made countries such as Singapore, UAE, Saudi Arabia, Morocco, Egypt, Senegal, etc. hubs or centres that are capable of providing profitable investment opportunities that are competitive for investors around the world.


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  2. AAOIFI. (2018). Shari’ah Standard No. (17). Accounting and Auditing Organization for Islamic Financial Institutions.
  3. AbdulKareem, I.A, AbdulGaniyy, A.F, Mahmud, M.S, & Yazid, A.S . (2020). Alternative Way to Reducing Poverty and Inequality in Nigeria from Islamic Perspective. Journal of Islamic Banking and Finance, 37(2), 73–83.
  4. M. Abdul Jalil and Z. Abdul Rahman, ‘Sukuk investment: Comparison of the Profits Obtained by Using Ijarah and Musharakah Mutanaqisah Principles with Long Term Tenure’ Qualitative Research in Financial Markets, Vol. 4 Iss: 2/3, pp.206 – 227.
  5. FMDQ OTC Securities Exchange Sukuk Listing Rules, 2017.
  6. Report of the Technical Committee on the Prospect of Alternative Finance (SUKUK) for Nigeria.
  7. SEC Rules and Regulations on Sukuk Issuance in Nigeria, 2013.
  8. S. Nchi, ‘Alternative Public Infrastructure Financing in Nigeria’ available at accessed 5th May, 2022.


Laura Alakija 
Managing Partner

Mu’awiya Yunusa

Eyewuene Murphy-Akpieyi
Amir Albushra
Oluwatoyin Fadoju