The Role of Takaful in Sovereign Sukuk Issuance in Nigeria

This study the role of Takaful in sovereign sukuk issuance in Nigeria. It was driven by the fact that even with continued sovereign issuance of Sukuk and high subscription rates, Nigeria still had an incomplete institutional structure in Islamic capital market, owing to lack of Shari'ah uniform insurance structures. The research took an approach of qualitative case study design based on a documentary review of the sovereign Sukuk prospectuses, regulatory documents and the literature. It developed an interpretive analytical model to conceptualise the sovereign Sukuk risk exposure and investor protection as complex institutional functions with respect to the extent of Takaful integration. The results showed that there were chronically high construction, regulatory and enforcement risks, and low indemnification cover as well as low enforcement assurance of Sukuk investors. Integration between Takaful in consecutive sovereign Sukuk issues was identified to be insignificant, which was a manifestation of regulatory inertia and path dependency by institutions. Analytical simulations showed that even partial integration of Takaful would result in statistically significant decreases in sovereign Sukuk exposure to risk, and respective increases in coherence of investor protection. The study ended by concluding that the lack of Takaful was the first order institutional inadequacy that compromised the ethical as well as financial viability of the sovereign Sukuk market in Nigeria. It hence claimed that Takaful is not an extraneous adjunct but an instrumentally required tool to achieve the Islamic finance edifice in Nigeria and stabilise investor confidence.