The Central Bank of Nigeria (CBN) says it will charge protection
fees from investors in its Non-Interest Asset Backed
Securities.
![image](/2020/10/lawreport.jpg")
One of the features of the CBN Non-Interest Asset Backed
Securities (CNI-ABS), contained in a draft framework issued
recently by the Apex bank on Non-Interest Asset Backed Securities,
is that “the CBN shall charge Wakala fee”
![image](/2020/10/NWLRland.jpg")
According to the online library, “Wakalah literally means
protection, delegation, or authorization.”
Legally, wakalah refers to a contract in which a person who has
complete legal capacity authorizes another to conclude a certain
well‐defined permissible contract on behalf of that person.
Wakalah is a term in Islamic finance that denotes an agency
contract, where one party appoints another to conduct a defined
legal action on his behalf, for a specified fee or commission.
From the 2021 if the contents of the draft framework appeals to
individuals or institutions interested in the CBN Non-Interest
Asset-Backed Securities (CNI-ABS), the CBN plans to charge: 10.00
per cent of the underlying return for 1 to 30 days investment; 7.50
per cent for 31 to 90 days; 5.00 per cent for 91 to 180 days; and
2.50 per cent for 181 to 365 days.
The circular covering the draft framework signed by Angela A.
-Ejembi (PhD), Director, Financial Markets Department stated that
“the increased investments in Sukuk issued by multilateral
organisations and the rising participation of non-interest
financial institutions at the CBN windows has made it mandatory
that the CNI-ABS to be operationalized”.
Angela A. -Ejembi stated that “the Central Bank of Nigeria
developed the CBN Non-Interest Asset Backed Securities (CNI-ABS) to
deepen the Nigerian financial markets, increase financial inclusion
and provide a liquidity management instrument that is compliant
with the principles of non-interest finance in Nigeria”.
The CBN is now asking for “observations and comments” on the
exposure draft of the framework for the operationalization of the
Central Bank Of Nigeria Non-Interest Asset Backed Securities. These
observations and comments are expected to be with the CBN on
Friday, 8th January, 2021.
The structure of the CBN Non-Interest Asset Backed Securities
(CNI-ABS) include: Full or partial conversion (into local currency)
of the value of CBN investments in Islamic Development Bank (IsDB)
and/or International Islamic Liquidity Management Corporation
(IILM) sukuk, or any other sukuk from multilateral organisations
where Nigeria is a member.
Other structures of the CNI-ABS are: Securitisation of the value
of CBN investment based on the maturity profile of the underlying
security which shall serve as the issue account, for auction
purposes; auction of the securitised assets to eligible
institutions; transfer allotment of auction amount to eligible
institutions based on their subscription; and transfer of earnings
received related to the securitised assets to eligible institutions
based on their holdings, less all amounts outstanding. This shall
be net of applicable charges as may be approved from time to
time.
Others are: the assets shall meet the condition of tradability
in shariah; the investor shall enter into a unilateral binding
undertaking to sell the nominal to the CBN at maturity; upon
exercise of unilateral binding undertaking, the asset becomes
exclusively owned by the CBN who reserves the right to hold or
reissue it to the market.
The draft framework also stated that “the bid applications shall
not carry any rate. All successful bids shall be satisfied at a
rate of return corresponding to the earnings on the underlying
security. The rate of return shall be based on tenor and amount
invested, and shall be subject to applicable (Wakala)
charges/fees.
A single exchange rate will apply (based on Wa’d) for issuing,
maturity and return of each issue relative to the underlying asset
and will be determined at the beginning of each auction.
Another interesting thing investors have been asked to assess is
the settlement terms. According to the CBN, “settlement shall be on
a T+0 basis. Auction shall take place on any approved business day,
while cash settlement and securities allotment shall take place on
the next business day.”
On the settlement day, the CBN is expected to: debit the
operating accounts of all successful institutions at the auction;
credit CBN designated account with the value; debit CNI-ABS issue
account and credit the institution’s securities account. The CBN
shall be the depository of the securities.
The CNI-ABS will have the following features: It shall be a
tradable instrument; its rate shall be determined by the returns on
the underlying asset; its maturity shall be on any day of the week
and shall be matched with the coupon payment date of the underlying
asset; it shall qualify as a liquid asset for the eligible
institution’s assets.
Other features are that: returns received during the period but
before maturity of an issue shall be held in trust in an account
that does not yield any interest to the CBN; where an issue matures
before receipt of coupon by the CBN, the Bank shall pay the accrued
return as advance/loan at zero interest rate in anticipation of
expected return.
The Central Bank of Nigeria (CBN) says it will charge protection
fees from investors in its Non-Interest Asset Backed
Securities.
One of the features of the CBN Non-Interest Asset Backed
Securities (CNI-ABS), contained in a draft framework issued
recently by the Apex bank on Non-Interest Asset Backed Securities,
is that “the CBN shall charge Wakala fee”
According to the online library, “Wakalah literally means
protection, delegation, or authorization.”
Legally, wakalah refers to a contract in which a person who has
complete legal capacity authorizes another to conclude a certain
well‐defined permissible contract on behalf of that person.
Wakalah is a term in Islamic finance that denotes an agency
contract, where one party appoints another to conduct a defined
legal action on his behalf, for a specified fee or commission.
From the 2021 if the contents of the draft framework appeals to
individuals or institutions interested in the CBN Non-Interest
Asset-Backed Securities (CNI-ABS), the CBN plans to charge: 10.00
per cent of the underlying return for 1 to 30 days investment; 7.50
per cent for 31 to 90 days; 5.00 per cent for 91 to 180 days; and
2.50 per cent for 181 to 365 days.
The circular covering the draft framework signed by Angela A.
-Ejembi (PhD), Director, Financial Markets Department stated that
“the increased investments in Sukuk issued by multilateral
organisations and the rising participation of non-interest
financial institutions at the CBN windows has made it mandatory
that the CNI-ABS to be operationalized”.
Angela A. -Ejembi stated that “the Central Bank of Nigeria
developed the CBN Non-Interest Asset Backed Securities (CNI-ABS) to
deepen the Nigerian financial markets, increase financial inclusion
and provide a liquidity management instrument that is compliant
with the principles of non-interest finance in Nigeria”.
The CBN is now asking for “observations and comments” on the
exposure draft of the framework for the operationalization of the
Central Bank Of Nigeria Non-Interest Asset Backed Securities. These
observations and comments are expected to be with the CBN on
Friday, 8th January, 2021.
The structure of the CBN Non-Interest Asset Backed Securities
(CNI-ABS) include: Full or partial conversion (into local currency)
of the value of CBN investments in Islamic Development Bank (IsDB)
and/or International Islamic Liquidity Management Corporation
(IILM) sukuk, or any other sukuk from multilateral organisations
where Nigeria is a member.
Other structures of the CNI-ABS are: Securitisation of the value
of CBN investment based on the maturity profile of the underlying
security which shall serve as the issue account, for auction
purposes; auction of the securitised assets to eligible
institutions; transfer allotment of auction amount to eligible
institutions based on their subscription; and transfer of earnings
received related to the securitised assets to eligible institutions
based on their holdings, less all amounts outstanding. This shall
be net of applicable charges as may be approved from time to
time.
Others are: the assets shall meet the condition of tradability
in shariah; the investor shall enter into a unilateral binding
undertaking to sell the nominal to the CBN at maturity; upon
exercise of unilateral binding undertaking, the asset becomes
exclusively owned by the CBN who reserves the right to hold or
reissue it to the market.
The draft framework also stated that “the bid applications shall
not carry any rate. All successful bids shall be satisfied at a
rate of return corresponding to the earnings on the underlying
security. The rate of return shall be based on tenor and amount
invested, and shall be subject to applicable (Wakala)
charges/fees.
A single exchange rate will apply (based on Wa’d) for issuing,
maturity and return of each issue relative to the underlying asset
and will be determined at the beginning of each auction.
Another interesting thing investors have been asked to assess is
the settlement terms. According to the CBN, “settlement shall be on
a T+0 basis. Auction shall take place on any approved business day,
while cash settlement and securities allotment shall take place on
the next business day.”
On the settlement day, the CBN is expected to: debit the
operating accounts of all successful institutions at the auction;
credit CBN designated account with the value; debit CNI-ABS issue
account and credit the institution’s securities account. The CBN
shall be the depository of the securities.
The CNI-ABS will have the following features: It shall be a
tradable instrument; its rate shall be determined by the returns on
the underlying asset; its maturity shall be on any day of the week
and shall be matched with the coupon payment date of the underlying
asset; it shall qualify as a liquid asset for the eligible
institution’s assets.
Other features are that: returns received during the period but
before maturity of an issue shall be held in trust in an account
that does not yield any interest to the CBN; where an issue matures
before receipt of coupon by the CBN, the Bank shall pay the accrued
return as advance/loan at zero interest rate in anticipation of
expected return.