Deploying Islamic Finance To Support MSMEs And Vulnerable Nigerians - Babayo Saidu


Friday, May 22, 2020 / 01:00PM / Bukola Akinyele for WebTV / Header Image Credit: WebTV


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Islamic Finance if deployed effectively can support the growth and development of Micro, Small and Medium Enterprises and have a far-reaching effect on the poor and vulnerable in the country. Mr. Babayo Saidu, the Chief Operating Officer of SunTrust Bank Nigeria Limited, made the remark while speaking on WebTV's Islamic Finance Weekly program.


Speaking on a virtual platform, Saidu stressed the importance of  Islamic finance in mediation between charity and zakat fund providers. He noted that Islamic finance can play the role of intermediary amongst funds designed to reduce poverty and government agencies equally committed to reducing indigency.


He said the Non-Interest Islamic Finance institutions  have  distribution channels that will  make  work easier for the government in addressing the plight of low-income earners and those displaced and adversely affected by the COVID 19 pandemic.


On intervention funds that have been created by the Central Bank of Nigeria (CBN), Saidu said that Islamic finance provides opportunities for driving inclusive economic growth.  


According to the banker, micro, small, and medium enterprises (MSMEs) play a significant role in the economy  and the current CBN intervention fund was a welcome development which  should be clearly targeted. 


He explained that MSMEs contribute to over 60% of the national gross domestic product (GDP) and the  highest number of jobs in the country. According to him, if  MSMEs are properly supported with finance and infrastructure, they would have significant multiplier effects on the overall economy.


Speaking further, he said in addition to the CBN  intervention, Islamic finance's social funds  like the  Sadaqah and Zakat can be channelled to MSMEs to strenghten economic activities in the country.

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The COO of SunTrust Bank Nigeria Limited also believed that Non-Interest banking principles could be factored into intervention funds meant for the MSMEs in the country, because unlike the conventional financial institutions there exists a deeper level of risk-sharing. "In Islamic Finance there is reduced risks and uncertainties, which is important in stabilizing businesses and empowering them to make the best investment decision," he said.


He noted that MSMEs can benefit from exploring funds like the Zakat, charity and intervention funds to provide financing for their businesses which would lead to a reduction in poverty.  According to him, Islamic finance businesses are asset-based which enhances domestic productivity as assets are turned into cash flow generating businesses.

Saidu, noted that the only challenge Islamic finance faces currently,  particularly during the COVID 19 period, was that intervention funds did not meet  the Non-Interest finance compliance level as the intervention fund particularly the NIRSAL fund  and the health care support fund are interest-based.


Speaking on financial institutions, he emphasized the need for them to be free to determine the rate given a maximum limit that  is currently 5% for the next one year but would likely go back to 7-9% later.


He called for intervention funds at zero interest rate, which could be used  to support failing businesses, and assist the poor by way of capacity building and by way of capital injection in order spur economic growth.


Saidu suggested the need for innovative approaches to Shariah-compliant market instruments. He estimated that the Global Zakat Fund was between US$200bn and US$1trn, while that of Nigeria was in the range of N100bn.  


"The beauty of  Non-Interest finance and Non-Interest banking is not just the management but involvement of  the Shariah board. Whatever money that comes will be judiciously used for the purpose of what it was intended under the supervision of  the advisory council of experts who have been approved by the CBN." he said.


The Islamic finance specialist  highlighted Partnership, Trading, Leasing and Providing services for free as some of the elements of Islamic Banking that could generate value for the business environment and economy.


Going back to intervention fund, he said it could be used in the area of trading which is known as Murabaha by looking at the working capital requirement of MSMEs and sell goods to them on a cost plus basis.  Or machinery/equipment could be acquired and leased to them which is called Ijara.


Speaking on healthcare, he said Islamic finance could play the same role mentioned earlier for MSMEs through the following;

  •  Islamic Finance could provide capital for rejuvenation and growth of the healthcare
  • Islamic Finance could provide other social services that would make healthcare accessible to the poor
  • Islamic Finance could provide financing for working capital and fixed assets to support the growth and development of healthcare sector



He emphasized the need for Non-Interest financing principles to be adopted for MSMEs and the healthcare sector as well as to support the informal sector which comprises several vulnerable Nigerians.


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