How Nigeria's Non-Interest Finance Market Can Grow in 2022

Wednesday, January 26, 2022 / 1:58 PM /  by Bukola Akinyele-Yisau for WebTV / Header Image Credit: Muslim Village

Despite global economic uncertainties, the Islamic Finance industry will continue to attract new players in 2022 and beyond, creating more value and supporting economic stability.

This hinges on an improvement in the market through innovative products, increased Sukuk issuance at federal and sub-national levels, and synergy between non-interest financial institutions and educational institutions in the country.

Currently, the Size of the Nigerian Islamic Finance industry, according to Fitch Ratings,  is estimated to have reached $2.3bn at the end of 2021, with outstanding Sukuk being the largest segment at 66%, followed by Islamic banks at 32% (total assets), and the remaining 2% between Islamic funds (total assets) and takaful (total contributions).

Since the rolling out of the Non-Interest banking window by the Central Bank of Nigeria in 2012, the country has witnessed the emergence of Jaiz, Taj, Lotus and recently the approval of the Sterling Alternative Bank.

Also, 5 takaful insurance companies: Jaiz Takaful Insurance Plc, Noor Takaful, Hilal Takaful, Salam Takaful, and African Alliance Plc. The Islamic ethical funds are Lotus Capital Limited, One17 Capital, and Marble Capital.

At the moment, the non-interest micro finance institutions are: Tijarh Microfinance, I-Care Microfinance and Halal-Credit Microfinance.

The Nigeria Islamic finance industry needs to back by robust regulations, a sound supervisory structure and a practical legal framework.

The Islamic finance industry in Nigeria is still at its early stages of development but has growth potential.  The view is based on Nigeria being the most populous country in Africa, with the world's fifth-largest Muslim population and rising government support for the industry and large financing requirements.

The Islamic banking sector benefits from increased awareness of Islamic products, a broad branch and digital banking network, government support in an enabling regulatory framework and the availability of Islamic liquidity-management instruments.  

To support growth, Nigeria's Securities and Exchange Commission (SEC) has targeted the non-interest capital market to contribute at least 25% to the overall market capitalization by 2025, as part of their 2015-2025 Master Plan.  

On critical trends that will continue to shape the non-interest finance market in Nigeria, the Sukuk market would be a significant driver; this hinges on effective structuring,  government support, increased investor participation, and collaboration between operators & stakeholders.

The key sectoral challenges of the Islamic Finance industry are similar to their conventional counterparts, including a challenging economic environment and the already concentrated nature of the Nigerian banking system.  

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