Experts Look at Repositioning Nigeria As Africa's Leading Hub for Islamic Finance

Friday, November 27, 2020 / 1:00 PM / Bukola Akinyele-Yisau  for WebTV / Header Image Credit: Ecographics

Experts and Representatives of Non-Interest Finance Multilateral Institutions believe Nigeria has the potential to emerge the leading hub for Islamic Finance in Sub-Saharan Africa.

This was part of the key takeaways at the IFN Nigeria On Air Forum 2020 webinar hosted in collaboration with the Nigeria Stock Exchange (NSE) to explore "Opportunities for Islamic Finance, Banking and Investment to Flourish in Nigeria".  

Mr. Ahsan Ali Head of Islamic Origination, Standard Chartered Bank giving an overview of recent development in international Islamic Finance and Sukuk market. 

Speaking on how the pandemic has affected Islamic finance industry especially in relation to the Sukuk market. Ali said Islamic finance is integrated with global conventional financial industry which is not new to the shocks in the system. Both on the banking side as well as the capital market on Sukuk side the pandemic did have an effect.

According to him, there was a moratorium and restructuring on the banking side announced by the Central Bank for small and medium-sized companies (SMEs).

In terms of the Sukuk market,  he said it flourished in January to February 2020 but from March to May 2020 there was a global downturn in Sukuk activities, however, due to liquidity injection by global Central Banks there was a surge in money supply which helped the Sukuk market.  

On his part, Mr. Boubakari Ake, Head of Sub Sahara African Unit, ICD of the Islamic Development Bank Group (IsDB) stressed the need for a realistic assessment of Islamic finance in West Africa. He noted that it was important for Nigeria to understand the factors that influence the attraction of Shariah-compliant capital to the region; and what determines the flow of private equity, Sukuk funds , trade finance and real estate investment funds to emerging markets.

Ake said there was a budding market in Sub-Saharan Africa, but the potential was not being properly explored despite 41% of Africa's population being Muslims.

The banker was of the view that Islamic finance was important for Muslims while being optional for non-Muslim.

"The market attracts more customers daily, also the ethical nature of Islamic finance attracts more non-Muslim customers. ICD banks in Sub-Saharan Africa are among banks with a large customer-base from the catholic church, which shows that the there is a large market potential" the IsDB official said.

Speaking on Nigeria, he said the country is one of the pioneering nations that  established the Islamic finance regulatory framework in the region, while the West Africa Central Bank just followed suit 18 months ago and launched their regulatory framework on Non-Interest Finance on  June 2018. Despite this Nigeria has only two full-fledged Islamic banks and two others set up with an Islamic window.

According to him, in May 2020 out of N37trn of Nigerian banks total assets, Non-Interest institutions accounted for N159bn which was less than 2% of the total asset value of the sector.

In the stock market out of N30trn of local Nigerian debt, the Sukuk bond market was estimated at N211bn which is 0.69% of the total size. The Sukuk issuance has always been oversubscribed which signifies a large demand potential.

Speaking on the role Nigeria could play in the region, Ake said Nigeria had always been the driver of Sub-Sahara Africa in terms of the size of the country and opportunities. He believed Nigeria could reposition itself as the capital of Islamic finance the way Malaysia did in the Asian region. The banking expert believed what was required was flexibility in the interpretation of Shariah when it comes to acceptability of products and harmonization of regulatory frameworks when it comes to regions.

He added "Africa is unique as we don't have a dominant Muslim population, flexibility needs to be considered when it comes to adopting non-interest finance products".

The Director, DDCAP DIFC Limited Mr. Cassim Docrat in his presentation explored the "Role of Multilateral Financial Institutions" in both Islamic and Conventional finance.

Speaking on the multilateral institutions, Mr. Cassim Docrat said on the IsDB website  Nigeria comes out on the fourth in terms of capital provided to the Islamic Development Bank, but in terms of disbursement $6.9bn while the funding it has received is $1.5bn.

He said, this is an under-utilised multilateral organization and Nigeria is one of the founding members.

According to him, less than 30% of advances from IDB are made to African countries, ISDB has 57 members and half of them are African countries. There is under-utilized use of capital available and the multilateral organizations will be happy to support Nigeria's project and close the imbalance.

Also, he informed stakeholders that the Africa Development Bank (AfDB) has developed an Islamic finance corporation and plans to collaborate with IsDB particularly in trade finance on the continent.

He was of the view that IsDB is a great marketing tool for the African region for deepening non-interest finance across Africa.

Looking into the future he urged the Fintech community in Nigeria to collaborate with Islamic finance institutions, to create digital platforms to bridge the divide. This will help to create Islamic banking branches all over the country driving digital services.

The goal according to him is for Nigeria to upgrade its digital channels to get the IFN market across Asia, UAE, and the Gulf Region.

Stakeholders at the webinar agreed on the need to develop a strong Takaful insurance company at the regional level to cover all sorts of financial risks.

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