Why AfDB Should Integrate Islamic Finance in its Economic Agenda for Africa

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Friday, October 22, 2021 / 11:30 AM / By Bukola Akinyele-Yisau for WebTV / Header Image Credit: WebTV

 

The African Development Bank (AfDB) has been advised to integrate Islamic Finance as an alternative source of funding for its economic development agenda for the continent.


Mr. Zubair Mughal, the CEO, AlHuda Center of Islamic Banking and Economics, Pakistan, made this point while speaking on "Islamic Banking, As a Catalyst to Africa's Regional Economic Growth."


He believed that the multilateral bank AfDB should explore policies that will help promote Islamic banking and finance in Africa.


Mughal said Islamic Finance was an innovative source of funding that can unlock the growth and development of the region through infrastructure, sustainable development, financial inclusion and insurance. 


According to Mughal, Islamic banking and Finance have witnessed significant growth across the globe, as the total asset of Islamic Finance is about $2.9trn.  He said it is operational in more than 100 countries cutting across Africa, Europe, Australia and the U.S.A.


He said the Islamic finance industry has seven significant components, with Islamic Banking as the critical segment. He further explained that 81% of the Islamic finance industry assets belong to Islamic banking followed by Islamic Capital Market, Takaful, Microfinance, Islamic indices, Ijarah Mudarabah companies, and Islamic fintech.


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According to him, in Nigeria, the primary motivation for Islamic banking and Finance is the high demand. Islamic banking is emerging worldwide, and one of its significant impacts is financial inclusion. He charged all the non-interest financial institutions to utilize Islamic banking technology.


Speaking on the growth of the global Islamic finance market, the AlHuda CEO said the Islamic banking and finance industry is emerging by all indications in different continents and showing a solid market from Malaysia to Indonesia. He said the new emerging markets are Africa and Central Asia.


Zubair Mughal said in Africa, Nigeria, Senegal, Gambia, Ivory Coast, Burkina Faso, and some other countries are emerging as markets for Islamic Finance, while in North Africa, Morocco, Algeria, and Tunisia have a good indicator for Islamic banking and Finance.


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In East Africa, he noted that Kenya, Tanzania, Uganda, and Ethiopia are emerging Islamic finance hubs, while South Africa already has a good indicator. For Central Asia, Uzbekistan, Pakistan, Kazakhstan, and Kafiristan are the key markets.


He listed Germany, Italy, France, and the United Kingdom as nations with good market experience. He said there were limitations in South America. Still, in North America, there are 53 Islamic financial institutions, while in Canada, there are Islamic mortgage companies and other Islamic capital market products.


Mughal concluded that globally there are good indicators on Islamic financial services. He was optimistic that in the next five years, Islamic Finance would operate in more than 150 countries through fintech and insurtech. He projected that Islamic banking would have no limitation to any geographical boundaries.  


Speaking on areas Islamic banking and finance could support the African region's economic growth and development, he mentioned Sukuk as a good instrument for the government and corporations to raise funding and utilize it for different infrastructure or business projects. He believed that Islamic microfinance was a system that Muslims and non-Muslims could use to alleviate poverty but raised the need to remove the misconceptions on Islamic finance products.


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According to Zubair, quality human resources are required to boost the curriculum in educational institutions on Islamic banking and finance. Also, he stressed the need for Africa to develop unique Islamic banking products for the region.


Speaking on the role Islamic banking and finance could play in reducing rising poverty in Africa, he re-emphasized the need for innovative, dynamic, and relatable Shariah-compliant products.


He noted that 40% of poverty is in Islamic countries, with the global Muslim population between 20 and 23% of the world population. 


"Islamic Finance should also focus on francophone countries with a large Muslim population but do not have Islamic banking infrastructure. Attention should help achieve scale for the industry and provide the opportunity for more innovative products in the regional market," he added.


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