Ijarah and Economic Opportunities for Nigeria


Friday, September 03, 2021 / 11:00 AM / By Bukola Akinyele-Yisau for WebTV / Header Image Credit: WebTV

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Ijarah is considered a critical vehicle for achieving economic empowerment and infrastructural development in Nigeria. The Managing Director of One 17 Capital Limited, Mr. Attahiru Maccido, made this point while speaking on "Ijarah and its Economic Benefits to Nigerians".


He agreed that Nigeria's huge infrastructure deficit requires long-term capital and sustainable financing. 


One area that has provided immense opportunities is 'Leasing', also known as Ijarah in the non-interest finance market.

He believed the concept of Ijarah, unlike the 'conventional' lease, refers to the operating and financial lease.

An operating lease is where the lessor legally owns the asset and does not transfer the title to the lessee. However, a finance lease would automatically transfer asset title to the lessee. In Islamic Finance Ijarah, he said the asset belongs to the lessor, and there would not be two contracts to the Ijarah, such as the sale contract and the Ijarah. The asset would be the legal property of the lessor.

Speaking on the types of Ijarah and how they apply to Nigeria, he mentioned the Ijarah where the asset exists and Ijarah for services.

Also, he added that there are a series of Ijarah used for services like education and healthcare. In terms of documentation and legal framework to effectively operationalize Ijarah in compliance with Shariah principles, Maccido noted that the legal framework was critical and that Nigeria has the basic framework through the Central Bank of Nigeria (CBN) and SEC Sukuk guidelines released in 2013. The fund rules and regulations of SEC mention Ijarah in the regulatory framework. He stressed the fact that Nigeria has a legal framework for non-interest finance.

On Investors' concerns over expenses incurred in Ijarah, he explained that Ijarah expenses are important, specifically for the financing institution, as they need to get an Islamic insurance facility to cover the assets.  All the expenses go back to the asset's cost, hence creating concern for customers and investors.

He pointed out that the Islamic banks protect their investments by registering the asset, licensing it, insuring it and putting all the expenses on the Ijarah asset before leased out.  

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This will ensure that the customer can finance, purchase, and pass the vehicle to Ijarah contracts. The securitization issue covers the cash flow from the Ijarah asset to the financial institutions involved. The lender, which is the financier, will bear the risk. 

On the significant risks of Ijarah and its adoption in Nigeria, the non-interest finance expert said there are risks in contracts in Islamic finance. In a case like Ijarah, he highlighted the fact that there are risks that the financier and the lessors need to look at and analyze when it comes to mitigating risks. 

Exploring the opportunities around leveraging Sukuk for housing and construction in Nigeria, he explained that the housing deficit is huge in Nigeria, and financiers have many opportunities. According to him, many organizations are coming through a Private Sukuk to improve financing.

He cited Manzur ventures who recently approached the Nigerian Immigration Services to build 4,000 housing units for which the money will later be deducted from the participants off-takers. At the same time, there is also a witness of Family Home Funds Limited for social housing to raise N10bn to build affordable houses.

The Islamic Banking and Finance consultant said the Federal Mortgage Bank of Nigeria, FMBN, is building its capacity and raising Sukuk for affordable houses and the Nigeria Mortgage Refinancing Company, NMRC.

He was optimistic that all these entities are coming in due to the challenges and are looking for ways to use Suku to raise funds for affordable housing in Nigeria.

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