Friday, November 13, 2020 / 1:00 PM / Bukola Akinyele for WebTV / Header Image Credit: WebTV
Islamic Equity Financing will unlock the growth and development of Micro, Small and Medium Enterprises, MSMEs if adopted in Nigeria.
Mr. Shefiu Badamasi, the Founder of Islamic Crescent Cooperative Society Limited in Abuja disclosed this in a recent as a guest on the discourse on Non-Interest Finance in the country.
He believed that it was time to explore how to deploy Islamic finance products for micro and medium scale enterprises, by getting more suitable product for them which is equity financing that will help the MSME to thrive and grow.
Speaking further he said that equity financing is unsecured based on the moral hazard such as third party and the risk involve. He noted that moral hazards can be mitigated by doing joint or several guarantees by group financing in order to mitigate the risks involved.
By lifting millions of Nigerians out of poverty, the Islamic Crescent C0-founder said there is need to use Islamic equity financing , while government participation is key.
He also acknowledged the CBN guidelines that makes provisions for government to fully own Islamic Micro finance banks, as laudable which can be established at the state and local government level. Such provisions from his perspective can address the rising tide of poverty in the country.
Another model he highlighted for adoption is the public private partnership approach. The PPP model will reposition the country's microfinance institutions, to support and empower millions of Nigerians.
The government according to him has a role to play, even as the microfinance institutions will have to develop some products especially based on equity financing and not debt financing.
On the side of the current size of Islamic Microfinance in Nigeria (In terms of valuation) and what can be done to unlock more opportunities and deepen its activities in the country, the Islamic Microfinance expert said the current Islamic microfinance banks are still operating the same license in a conventional way.
He stated that there is no separation in valuation from the standpoint of the Central Bank of Nigeria as one key area to look at is capitalization.
For Tier-One unit Microfinance banks the capitalization is up to N200m while Tier- two unit Micro finance bank is N50m, State level is N1bn and the National N5bn.
In the South West region, there are only two Islamic microfinance institutions Al-Hayat and Al-Baraka Microfinance Banks, while the North has several MFBs.
He called for a review of the guidelines and policy for Islamic microfinance banks in order to make them vibrant and effective.
Shefi'u Badamasi called on the CBN to allow the market through its guidelines feel the impact of Islamic microfinance banks. A lot can be achieved according to him if Islamic Microfinance banks prioritize MSMEs.
Currently the CBN guidelines have identify three major factors that are affecting conventional microfinance such as high cost of transactions, illegality of interest and unethical investment.
Speaking on how he will assess the current regulations developed by the CBN for MFB/OFIs. He said Nigeria assessment has to do with the implementation of policies and the guidelines. He said, government have not been supportive in terms of giving enough capital and funding to finance the small scale industry or entrepreneurs.
On the side of products, he stressed the need for Islamic Microfinance Institutions to deepen financial inclusion in Nigeria, especially the North-West region that is predominantly Muslim, he insisted that equity financing such as 'Mudaraba' and 'Musharaka', and micro Islamic insurance which can insure the product/the commodity are critical for the market.
He stressed that the Islamic microfinance institutions need to provide micro takaful for the funding they are giving to micro entrepreneurs.
Mr. Shefi'u Badamusi said the Islamic Crescent Co-operative Society Limited can support through collaborations with Islamic Finance Institutions in Nigeria.