Tuesday, December 15, 2020 / 3:00 PM / Bukola Akinyele-Yisau
for WebTV / Header Image Credit: Zawya/Ecographics
The Evolution of Islamic finance started in the early 70s mostly in Muslim countries but started fully in Egypt in 1963.
Since then, it has emerged as a notable alternative source of financing in the globe, and has spread to Malaysia, Indonesia and United Kingdom who are now major centers for Islamic Finance.
In Nigeria, Non-Interest finance started in 2008 when there was a global financial crisis which affected the market.
Jaiz Bank was the first noninterest banking licensed on the 11th of November 2011 on the Nigeria Stock Exchange trading list.
But Jaiz Bank commenced its full operations in 2012, while TajBank became the second licensed Non-Interest finance bank in 2019, also four (4) Takaful firms also known as Islamic Insurance have been licensed alongside and other funds management.
The Osun State N10bn 7yr Ijara Sukuk in 2013 was the first to be issued in this segment and the appetite for ethical finance in Nigeria increased, and led to 3 successful issuances in Nigeria with a total of N350bn by the FGN from 2017 till date which has been largely oversubscribed.
Nigeria's first Shariah compliant Real Estate Investment Trust (REIT) came to the market a few weeks ago. The debut US$52 million Islamic REIT offer opened to the Nigerian investing public seven years after the last conventional REIT issuance.
From the analysis, Islamic banking is beginning to take shape in Nigeria with the emergence of new regulations and markets to support the industry growth.
Islamic finance is a long-established financial transaction system involving all forms of economic assets that complies with the Islamic law (Shariah) principles and is guided by Islamic economic principles. It is based on the concept of fair distribution of resources and social justice.
It is an equity-based, asset-backed, ethical, sustainable, environmentally, and socially responsible type of financing which promotes risk sharing, connects the financial sector with the real economy, and emphasizes financial inclusion and social welfare in the economy. Islamic finance is prone to sustainable growth, development, and wealth sharing in the society.
The four components in Islamic finance include:
Key principles of Islamic Banking and Finance Include:
Islamic banking has far-reaching implications for finance and economic development in the globe, through the following outcomes:
The benefits of Islamic Finance include enhancing infrastructural development, deepening financial inclusion, and providing investments in social projects like green-based projects. The Nigerian regulators like the Securities and Exchange Commission, SEC, Central Bank of Nigeria, CBN, National Insurance Commission, NAICOM, and National Pension Commission, PENCOM over the years have rendered their support to the growth of Islamic Finance and its instruments in the country.
Here is a breakdown of the Islamic Finance segments in the Nigerian economy
According to Salaam Gateway, the global size of Islamic Finance as at 2019 was $2.88trn and is expected to reach $3.69trn in 2024
Source: Islamic Finance Development Indicator