Friday, June 05, 2020 /
1:00 PM / Bukola Akinyele for WebTV / Header Image Credit: Independent NG
Short to Long term Islamic Finance
Instruments can play a critical role in supporting the proposed economic
sustainability plan of the Nigerian Government. The CEO of Jaiz Charity
Organization Dr. Abdullahi Shuaib disclosed this in a recent webinar lecture
that discussed the role of Islamic finance in achieving economic development.
According to Shuaib one of the ways of improving the current situation occasioned by the
COVID-19 pandemic is for the wealthy individuals, corporate bodies and
governments to embrace collaboration, solidarity and cooperation to help the
poor and vulnerable by offering financing facilities to MSMEs using IFIs.
He identified the following as some of the Islamic
- Wakalah Investment Deposit
- Ijarah Istisna'
- Sukuk and Takaful.
He cited Mr. Ventje Rahardjo, the Executive Director
of the Indonesian National Committee of Islamic Economic and Finance, who
recently called for the maximization of Islamic Social Finance to combat
the impact of COVID-19 on the global economy.
Speaking further Dr. Shuaib also stated that the
United Nations Development Program, UNDP has highlighted several
sharia-compliant tools that could be part of the "Pandemic Response Plan", PRP including Zakah (Charity), Waqf (Endowments) and Sukuk (Islamic bonds).
The Islamic scholar also supported the position of
Aamir Rehman, Senior Advisor on Islamic Finance at UNDP who pushed the
argument that IFIs can be part of the COVID-19 response through a range of
financing instruments well--suited for each stage of recovery.
He believed that Islamic Finance Instruments could
lend weight to the Environment, Social and Governance (ESG) framework supported
by the United Nations through the "Principles for Responsible Investment" (PRI) with over 2,500 PRI signatories collectively representing more than
$86.3trn in assets that are invested in line with ESG factors.
For the short-term instruments, he mentioned the "Zakah" which serves four purposes spiritual purification from greed, morality,
regulate inordinate urge for excessive accumulation of wealth and social
Also, he noted that Sadaqah (Charity) is another
instrument that can come from Islamic faith-based organizations or the amount
received by Islamic banks during Murabahah financing.
For the medium-term instruments, he listed the
- Murabahah which is working capital finance that
is cost-plus financing in a situation where the seller reveals the cost of
a commodity and the amount of profit to be charged Both the seller and
buyer agree to the cost and mark up of the asset at inception.
- Ijarah: (Leasing): This facility allows the lease
to hire and subsequently purchase assets from the bank at a fixed agreed
amount during the financing tenure and make monthly repayment amounts to
the bank as well as monthly rent payment.
For example, in 2008, the Al-Baraka Banking group
collaborated with UNDP and sought to align over $600million of its financing.
- Mudharabah - This is a silent partnership involving
capital or labour. It may be concluded between investment account holders
as providers of funds and the bank as a Mudharib.
Looking at the classification of the Long-term
instrument he identified the areas below
- Musharaka: (Joint venture/partnership) in which
partners share in the profits and losses of a company according to a
- Wakalah Investment Deposit: is an
instrument used by the depositors to instruct the Wakil (Bank) to invest
their funds in ethical businesses for profit-making at expected profit
rate over the agreed period of the investment
- Istisna: (Project financing/construction) - This
instruct is available to potential customers of the bank who will request
the bank to finance their projects. On this note, Both the bank and the
customer agree on the selling price which is fixed and remain unchanged
until the end of the payment period. This opportunity is available as a
bailout for MSMEs.
- Sukuk: (Islamic bonds) are an important source of
long term capital for governments and companies engaged in the pandemic
response and recovery processes as the COVID-19 has made long term funding
for development very crucial, therefore, governments, individuals and
private investors should give this a thought.
- Waqf: (Endowment) - This instrument can in many
contexts be important contributors to long term resilience(Rehman, 2020)
Financial and non-financial assets such as land or buildings are
permanently dedicated to social purposes. This can be an important way for
stakeholders to contribute to social infrastructure such as hospitals,
schools, etc to help the country recover better in the long term.
- Takaful: Takaful is commonly referred to as
Islamic insurance; this is due to the apparent similarity between the
contract of Kafalah (guarantee) and that of insurance. it is a type of Islamic insurance
wherein members contribute money into a pool system to guarantee each
other against loss or damage. Takaful-branded
insurance is based on sharia or Islamic religious law, which explains how
individuals are responsible to cooperate and protect one another.
Dr. Shuaib stressed that in Nigeria opportunities
abound for Non-Interest banking because Islamic social finance instruments can
be used to drive impact investments and assist the nation as it resets its
How Leveraging The Waqf Institution Supports Economic
Growth - Norfadalizan AbdulRahmon
Deploying Islamic Finance To Support MSMEs And Vulnerable
Nigerians - Babayo Saidu
FGN Sukuk Offer For Subscription
Post COVID-19: How Takaful Can Support The Nigerian
Insurance Sector - Thaibat Adeniran
Over 1 Million People Benefit from Refugee Zakat Fund -
The UNHCR's 2020 Islamic Philanthropy Report
7. Sukuk Still A Viable Instrument for Investments Amidst
COVID-19 Pandemic - Dr. Mohammed Dabiri
COVID-19: How Islamic Finance Supports The Economy
Through Waqf Crowd Funding - Dr. Aliyu Dahiru
How The IsDB Supports OIC Members Through The COVID-19
10. Sukuk Fait Accompli and Foresight in the Time of
Liquidity Stress Highlights Importance of Effective
Sharia-Compliant Repo Market
12. We Need To Structure Non-Interest Products Around
Commodities - Ayodeji Balogun
13. ISDB Sets Up $500m Transform Innovation Fund To Combat
14. Zakat Distribution As A Stabilizer During COVID-19
15. How To Use Non-Interest Finance To Solve Housing Sector
Problem In Nigeria
16. #Coronanomics: ISDB Redoubles Efforts With $2bn Funding
For OIC Members