Monday, October 28, 2019 / 12:50PM / Bukola Akinyele for Proshare WebTV / Header Image Credit: WebTV
Nigeria's huge infrastructure and housing deficits can be fixed by strategic non-interest financing instruments and frameworks like the Sukuk Bond.
The Deputy Director, Training and Linkages, the International Islamic Banking and Finance Institute, Bayero University Kano, Dr. Aliyu Dahiru, disclosed this at an interview on Proshare's WebTV program "Islamic Finance Weekly."
Dr. Dahiru believed with the impact of the N100bn Sukuk issued by the Federal Government of Nigeria, there are prospects for deepening the socio-economic development of the nation.
The Deputy Director said about 25 nationwide road projects are being financed by the Sukuk, which would strengthen infrastructure across the country when completed.
Dahiru speaking further on Sukuk, said it is one of the major instruments of contemporary Islamic finance globally. Sukuk, according to him, is a certificate like an Islamic bond, which one can invest in and earn profit rather than interest. In line with the Islamic injunction concerning finance, Sukuk is 'Riba'-free and is based on the principle of project profit-sharing and is, therefore, 'Halal' (permissible).
"Sukuk is not only based on money but assets." Dahiru cited an example of an asset-based Sukuk bond by the federal government, which issued a Sukuk in 2017 for road construction and the second issuance in 2018, which was also asset-based, meaning that it relied on future revenue flows.
Giving further insight into Islamic finance, Dahiru described it as an alternative form of financing, based on sharia guidelines.
He said Islamic finance could be divided into two, one which addresses the issue of worship and the other that deals with the matter of transactions.
Speaking on recent developments in Islamic finance, Dr. Dahiru said it started in 1963 in Egypt, where a small microfinance firm felt the need to establish a non-interest financial system for its clients. Other countries that started practicing Islamic finance in the 70s include Sudan and the Dubai finance centres.
He noted that there had been robust competition amongst nations to become the preferred hub for Islamic finance.
From the year 2000, countries like the United Kingdom and Singapore have positioned themselves as hubs for this form of Finance in Europe and Asia, respectively.
In Africa, Dr. Dahiru said that Kenya is taking the lead while Nigeria has a great opportunity to leapfrog and emerge the hub for Africa.
He listed the major components of Islamic Finance to include;
Addressing the misconceptions, Dahiru said the first one was the fact that in Surat Bakarat Chapter 2 vs 275, Allah has prohibited interest (Riba) but in the same place permitted trade. Profit on business is not prohibited, but giving out loans with interest is prohibited either for consumption purposes or for production purposes.
The second misconception, according to him, is that return can be on investment but not in sharing an interest charge with the person, meaning it does not allow interest charges.