Compliance with Sharia Principles Crucial to Improving Ratings of Assets - Bashar Al Natoor


Friday, February 05, 2021 / 1:00PM / Bukola Akinyele-Yisau for WebTV / Header Image Credit: WebTV

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Compliance with Shariah-based finance principles and standardization of products are enablers to effective and seamless ratings of Islamic Finance assets globally. Mr. Bashar Al-Natoor Fitch Rating's Global Head of Islamic Finance said this while reviewing the "Fitch Ratings Assessment of Islamic Finance Growth in Nigeria and Africa".


Speaking on the opportunities for non-Interest banking products in frontier economies like Nigeria, the Fitch Rating's global head of Islamic finance said there are large potentials for the non-interest finance market in Nigeria, but that there were many ways to achieve growth in the market using different models.


He classified the models as top-down and bottom-up models. According to him, the top-down models are the countries that have an agenda to grow their Islamic Finance industry and are having milestones, strategies, and world-class agendas to achieve that.

He cited Malaysia as a country with an Islamic finance market that has evolved for over 15 years. The other model according to him is the bottom-up which is demand from customers, the corporates, and investors to grow an Islamic finance industry, with stakeholders as drivers growing transactions and the business. He also gave an example of the Saudi Arabian banking sector where Islamic Finance accounts for 80% of the financing and banking windows.


For Nigeria, he noted that Islamic Finance is at an early stage and many other Africa countries are also laying the framework for the industry. He said, there was a need to support the growth of the market in the sub-Saharan Africa (SSA) region.


"The majority of countries where Islamic Finance is active, do not have a well-developed debt-capital market. Malaysia has seen a lot of development due to its focus on the local fixed-income and the international dollar issuances markets" he said.

The finance expert called for increased awareness in Nigeria on Islamic banking operations alongside its guiding framework. He recognized the fact that Nigeria still had a long way to go in deepening Islamic Finance penetration.


He tasked the government and stakeholders to sustain efforts in deploying the right tools to attract customers and woo investors. 

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Considering Nigeria's population size, he believed that with a relatively large number of unbanked Muslims, there was an opportunity for Islamic banking to serve as a vehicle for financial inclusion.


For Investors concerned about calculating overall portfolio yields from non-interest financing, he explained that some jurisdictions allow only Islamic banking to operate while others allow Islamic banking and conventional financing, to operate windows that offer Islamic products.

He was of the view that Islamic banking thrives where there is a legal framework, proper awareness, and investor education.

Concerning the challenges in rating Islamic finance assets globally, Al Natoor said that Islamic finance and its instruments need to comply with sharia principles. He said the key challenge in Islamic finance is the lack of standardization.

Looking at Islamic finance in Nigeria, he admitted that it was at an infancy stage and trying to gain traction. He said the government has done its best by issuing a few local Sukuk but does not have any international Issuances.


He said, Islamic finance would thrive through product innovation that embraced technology and took cognizance of Shariah-based principles, whether in the insurance sector, banking industry, or capital market.

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