Islamic Finance Can Support Nigeria's Economic Stabilization Through Capital Flows - Ifeoluwa Dixon


Friday, January 29, 2021 / 1:42PM / Bukola Akinyele-Yisau for WebTV / Header Image Credit: WebTV

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As Nigeria seeks to attract capital inflows to stabilize its economy in 2021, Islamic Finance has been seen as a strategic source for mobilizing funds to broaden financial markets and improve financial inclusion in the country. The Senior Vice President and Head, Fixed Income Portfolio Management at FBNQuest Asset Management Limited, Ifeoluwa Dixon, made this point in a recent discussion on "Islamic Finance, Economic Empowerment, and Financial Inclusion".


Speaking on the role that Islamic finance could play in supporting economic sustainability in countries like Nigeria, she said the lockdown of global economies nudged many governments to introduce countervailing economic programmes to head off a recession.


Referring to what Islamic finance could do to help governments in economies such as Nigeria, she noted that Islamic finance could channel funds to strategic sectors of the real economy such as investing in local infrastructure.  Dixon referred to FBNQuest Asset Management's Halal funds as an opportunity to support the health, education, and transportation sectors.


Concerning increased awareness of non-interest finance in 2021, Dixon explained that Islamic finance instruments are structured as ethics-based instruments for individuals and institutions with ethics-based investment codes regardless of their religious persuasions.

The asset manager said there was a need for greater awareness and sensitization by way of conferences, seminars, and community collaborations, and media programs for investors and the general public to understand the benefits and value of Islamic finance.

FBN Quest Asset Management's fixed-income boss noted that Islamic finance could leverage digital tools to deepen its mandate and improve inclusion. According to her, there was a need to introduce digital delivery of products and services to make Islamic finance grow, she said. Achieving this would require collaborating with fintech firms to design products that address retail markets and provide new product options for the presently underserved segments of society. Such products could also take into account green, ethical, and environmental sensitivities.

Dixon noted that in delivering non-interest finance products, partnering with Fintechs would go a long way in enabling Islamic finance to deliver digital solutions.

Giving insight into opportunities for investors in Nigeria, Dixon highlighted instruments such as 'Halal' and 'Sukuk', she described Halal as investing in Shariah-compliant products and services, while Sukuk is a Sharia-compliant financial certificate which entitles the holder to undivided ownership in a particular asset.

Sukuk according to her can be seen as an instrument while Halal is a practice. She emphasized the opportunities Halal could give investors such as investing in ethical Sharia-compliant assets, diversification of portfolio and risk, in addition to risk transparency and accountability.

She said that transparency and accountability were vital for Halal. Speaking further, she noted that aside from the traditional asset classes, Islamic finance could open the door to alternative investments such as those that could be used for trade finance, commodities, agriculture, and leasing which some conventional mutual funds are not allowed to do.

"The diversification of risk is a linchpin in Islamic finance model it ensures that investors would not bear business risks individually contrary to conventional instruments, the issuer or the borrower would equally bear the risk in the non-interest finance transactions and share loss and profit as agreed".

Also, she stressed that Islamic finance opens opportunities for diversification, transparency, and accountability which is key to any investors and also helps to boost confidence. 

Sharing her thoughts on how Islamic Fintech can support the nation's financial inclusion strategy, she said embracing technology is the best option for Islamic finance.  She brought to the fore the World Bank report that about 2bn adults are currently unbanked and don't have access to financial solutions.

She advocated for the deployment of Waqf, Zakat, Sadaqah, compliant crowdfunding, peer-peer shariah-compliant funds, and also the Mutual Funds in the country through technology.

On key developments that will shape Islamic Finance In 2021, she highlighted the fact that there was a significant slowdown in 2020 due to the pandemic, as both conventional and Islamic finance were affected.

"2021 will bring a positive outlook as the S & P global ratings on Islamic finance is projected at an annual +11.4% growth compared to what we saw in 2020, and about $155bn will be issued in Sukuk which is higher than what we witnessed in previous years and lower what we experienced in 2019," Ifeoluwa said.

She added "There is optimism that Islamic finance will grow globally and also the signing of the BOFIA Act by the federal government of Nigeria shows the confidence that Islamic banking has come to stay in Nigeria.  Also, the PENCOM reform act of 2014 that allows RSA to invest in a Shariah-compliant way, are part of the regulations that will spur the growth of the non-interest finance market in Nigeria".

Assessing the market she observed that technology could deepen the financial landscape and emphasized the need to channel funds to the real sector as Islamic finance is also based on funding infrastructure development. 

For FBNQuest Asset Management's focus for 2021, she said there will be continuous sensitization of the public, demystifying the needs around Islamic finance for people to believe that it is not just for Muslims, but for the public to make the right investment decisions.

She said FBNQuest in 2021 will be engaging in Islamic finance products like Islamic mutual funds, Waqf endowment, SadaqahZakat amongst others.

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