June 04, 2021 / 1.00PM / Bukola Akinyele-Yisau for WebTV/Header Image Credit: AbdulAzeez Oguntoyinbo
As Islamic finance evolves in frontier markets like Nigeria, retail and institutional investors are showing increasing interest in Shariah-compliant funds because of their ethical nature.
One of such funds is the Halal fund which has three (3) investment vehicles operating at the moment in the Nigerian capital market. Mr. AbdulAzeez Oguntoyinbo, Chief Executive Officer HalalVest Limited recently provided this observation in a comment on Halal Funds and opportunities for investors and key issues around regulation.
According to Oguntoyinbo the need for having a Halal fund that is regulated by the Securities and Exchange Commission (SEC) is in line with the draft released in April 2020 to regulate the crowdfunding and fund management industry, using fintech start-ups and fintech companies.
He said the requirement was to have a minimum paid-up capital of N100million by fund managers in line with regulation.
Speaking further he said to operate an ethical Halal fund there was a need for an advisory council of experts made up of Islamic scholars. The process he added must be clear and consistent with Islamic principles, as investors are required to comply with Islamic principles, concerning the ownership of assets and risk-sharing to ensure that the funds are managed ethically.
On the recent regulatory action by SEC Nigeria to issue a cease and desist order on the â€œCrowdyvest Halal fundâ€ Oguntoyinbo said the regulator was working to sanitize the industry as some organisations presenting themselves as funds managers were promoting Ponzi schemes.
He noted that due to the activities of some organisations several people had lost money to unregulated fund programmes.
SEC Nigeria according to him had the role of sanitizing the industry and making it compulsory for operators of Halal funds to comply with stipulated regulatory requirements.
Explaining the requirements for fund management he said that fund managers were required to have N100million as paid-up capital to run a collective investment scheme, while medium businesses must have up to N100million, with small businesses raising N70million, and micro-businesses N50million.
He said SEC Nigeria provided the guidelines to protect the public. Also for the argument of Crowdyvest who registered their Halal fund under the cooperative, he said one can set up a multipurpose cooperative society by registering the members to save, invest, get loans and have access to secure assets on a loan to the home scheme. He noted that it is covered under cooperative law from a different state, and some bylaws govern how they operate the funds, manage their members, and the entire end-to-end process.
Oguntoyinbo reiterated the importance of investor protection which is a mandate of SEC Nigeria, also stating that cooperative laws are legitimate, but the scope of the investment determines the right and provisions of regulations.
SEC Nigeria has the regulatory provision for Collective Investment Schemes (CIS) like the Halal fund.
Defining Halal fund, he said Halal is an Arabic word that relates to something being lawful or permitted. While the mutual fund is funding with people who have access to come together, set up an investment vehicle made up of a pool of funds collected from many investors. Similar investment goes to investing in different instruments and assets. The profit made from the investment is distributed to investors according to their contribution to the pool.
Halal fund from his perspective are funds that are managed in a Shariah-compliant way throughout the entire life cycle in product development, collective investment, and returns.
He added, "Any individual can invest in Halal fund, whether Muslim or non-Muslim but the processes must be done by Islamic finance professionals and Shariah Advisory Scholars".
In his presentation, the CEO of Halalvest explained that Halal funds have rules that are binding by ensuring diligence and transparency.
He said Halal investment presents an inclusive option particularly Muslims that considered social welfare and moral standards when investing.
He highlighted the following as major types of Halal investments:
Speaking on the regulatory environment for the Halal fund market in Nigeria, Oguntoyinbo said the environment was friendly but as an ethically financial sector it was important to note that there are risks and it was based on the principles of Shariah. Investments need proper monitoring and management.
He concluded by giving the benefits of Halal fund to investors which are;