Non-Interest Finance should Support Economic Sectors that Have Major Social Impact

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Friday, October  15, 2021 / 11:00 AM / by Bukola Akinyele-Yisau for WebTV / Header Image Credit: WebTV


Non-Interest Finance institutions have been asked to support the real sector of the Nigerian economy, which has a more profound impact on the lives of citizens. Dr. Mustapha Abubakar, Co-Founder, Intellectical Consulting Limited, said this while discussing "Benchmarking Non-Interest Finance Credit Product Prices".


According to him, the essence of giving credit is to stimulate economic activities and allow citizens to scale their businesses or ventures in the country.


Concerning how Islamic finance credit could support the growth of the real sector, he explained that this could happen in two ways; trade/financing arrangement and technology adoption.


 

The framework would involve deploying financing arrangements in three categories: trade-based category of products, participatory mode of financing, and rental-based financing modes to spur economic activities. 



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The second way was by adopting technology as an advantage to reach out to various economic agents. This can be in terms of creating awareness and the use of fintech and capital market instruments.  These instruments could support Islamic finance products in promoting economic growth.  



He advised Islamic banks to subscribe to Sukuk issuances that create opportunities that will lead to the development of the economy.


 

Highlighting some of the sectors that non-interest financial institutions could support the Nigerian economy, Dr. Abubakar listed the following;


  • Agriculture
  • Solid Minerals
  • Renewable Energy
  • Textile Industry 

 

Giving insight into how non-interest product pricing could work in Nigeria, he recommended that;


  • Islamic banks should negotiate and agree on individual rates with their clients; banks should be compelled or incentivized by the Central Bank to submit these rates daily, which would form the benchmark to be produced by the CBN.
  • Government should avoid determining risk-free rates but rather near risk-free rates. Instead of saying there should be a risk-free transaction, why not stick to a near risk-free transaction?
  • Islamic inter-bank benchmark should list under long interest-free rates

 

According to Islamic Finance scholars, benchmark or reference rates remain essential for all types of businesses. Their relevance is determined by the sector, industry or market where a particular company operates.


There is a need for alternative benchmarks in Islamic finance. While it is relatively straightforward to create a pricing mechanism on a project basis, deeper understanding and, most importantly, a desire to develop a suitable nation-based benchmark is required.


He further stated that benchmarking Islamic finance products has received more attention because of the phasing out of the existing London Interbank Offer Rate (LIBOR). 


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