Friday, December 25, 2020 / 1:00 PM / OpEd by Bukola Akinyele-Yisau for WebTV / Header Image Credit: Belt and Road News
The Muslim population makes up almost 50% of the Nigerian population, Islamic finance, and banking in the country has great potential to thrive if deployed effectively. The Islamic finance industry has recorded steady growth since its inception in the 1970s.
The S&P global rating agency estimated that the $2.4trn industry is expected to achieve single-digit growth in 2020 and 2021, amidst the economic crises fueled by the COVID-19 pandemic.
From the investment community perspective, the Sukuk also expanded with several sovereigns and financial institutions from Hong Kong, UK, Malaysia, Indonesia, Pakistan, GCC Countries, and Turkey participating. The emergence of new Islamic banks in the Philippines, Algeria, and Afghanistan as well as the development of new liquidity tools in the UK and Pakistan, aided the growth of the existing Islamic banking market.
In Nigeria, the State of Osun N10bn 7yr Ijara Sukuk in 2013 and the appetite of increasing ethical finance in Nigeria, has brought to the fore 3 successful Sukuk issuances with a total of N350bn by the FGN from 2018 till date which has been largely oversubscribed.
Islamic banking is beginning to take shape in Nigeria with the emergence of new regulations and markets to support the industry growth, and this has resulted in a growing number of players resulting in two Islamic banks, four Takaful insurance companies, several microfinance banks, and managed funds. This led to the emergence of new Islamic banks in the Philippines, Algeria, and Afghanistan as well as the development of new liquidity tools in the UK and Pakistan that aided the growth of the existing Islamic banking market.
For the African Continental needs Free Trade Agreement (AfCFTA) which will happen in January 2021, the Islamic finance market needs to explore opportunities to promote continental trade by providing shariah compliance trade finance products. This also involves deploying trade development programs to shift greater attention to socio impact, sustainability, and innovation in trade finance post-pandemic, Islamic finance in Nigeria and the World at large must work towards more integrated and transformative growth through digitization.
Financial technology such as smart contracts, tokenized assets, and crowdfunding platforms would facilitate a greater number of Islamic finance assets at the bottom of the investment pyramid. Also, Islamic financial institutions should provide more touchpoints with MSMEs with better-standardized processes.
According to Salaam Gateway, the value of Islamic Finance assets increased by 13.9% in 2019 from $2.52 trillion to $2.88 trillion. Due to the impact of the COVID-19 crisis, the value of Islamic Finance assets is expected to show no growth in 2020 but is expected to rebound and grow at a 5-year CAGR of 5% from 2019 onwards to reach $3.69 trillion by 2024. The COVID-19 pandemic halted the growth of the Islamic Finance sector this year but stimulated the development of more inclusive and socially driven finance, whether through crowdfunding, public-private partnerships, or support for SMEs.
Sukuk has become one of the most prominent Islamic finance funding mechanisms utilized in recent years and is a significant infrastructure development financing tool for emerging markets globally.