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… seek more scheme awareness for more growth & Development
… regulatory harmonization, and enactment of legislations that enhance legal certainty
The Securities and Exchange Commission (SEC), has outlined the plausible value addition of the Non-Interest (Islamic) Capital Market (NIMC) scheme to the growth and development of critical infrastructure in the domestic economy.
The Director General of SEC, Mr. Lamido Yuguda, who made this remark on Wednesday while hosting the 1st International Forum on Non-Interest Capital Markets, jointly organized with IFSB, however bemoan NICM scheme low awareness.
According to him, “the NICM contributes to the diversity of our financial markets in line with our revised capital market Master plan 2021 -2025.Since the debut of Sukuk in Nigeria in 2017, the Debt Management Office has raised almost N1.0 trillion to finance over 5,000 kilometers of critical roads & bridges with all such issuances oversubscribed.
Mr. Lamido, who explained that the NICM in Nigeria has undergone transformative growth, becoming an integral part of our financial framework, offering a distinctive platform for ethical and Shari’ah-compliant investments, noted, more have to be done for full benefits of the scheme to be felt.
“According to the International Islamic Financial Market (IIFM), in 2022 the Islamic Finance Industry had an estimated size of US$ 3.25 trillion, with global sukuk issuances valued at US$182.72 billion.In Nigeria, the Islamic finance segment of the financial industry reached an estimated size of US$2.9 billion as at the end of 2022, with outstanding sukuk forming the largest part at 57%, followed by Islamic banks at 42% (total assets), and the remaining 1% split between Islamic funds (total assets) and takaful (total contributions).
“This shows that the Nigerian market makes up just 0.9% of the global non-interest market, indicating the dire need for more growth. With the country boasting a large population and a significant proportion unbanked, the long-term potential for Islamic finance in Nigeria is immense.
Mr. Lamido still on NICM scheme as a veritable vehicle in infrastructure financing, said, the oversubscription of the most recent 6th Federal Government of Nigeria Sukuk by 435% underscores investor confidence, showcasing the strategic role of Sukuk in infrastructure development and financial inclusion.
“We are all aware that sukuks backed by assets promote risk sharing in high-risk projects, offer flexibility in project stages and foster public-private partnerships. Therefore, Sukuks are good structure for infrastructure financing, as they clear the issuer’s balance sheet of debt, given that the investors own the assets to be financed and share in the gains from such asset.
“This is really an attractive capital market instrument to be explored by both corporates and governments at all levels.The non-interest capital markets have a huge role to play in the current economic program being pursued by the administration of President of the Federal Republic of Nigeria, Chief Bola Ahmed Tinubu.
“We are of the believe that the country’s economy cannot reach its target size without a lot of investments in critical infrastructure. Indeed, with the high debt-service to revenue ratio, sukuks present a viable alternative to other modes of financing.Nigeria has the potential to join the league of global Islamic finance jurisdictions if we could address issues, such as inadequate awareness, regulatory harmonization, and enactment of legislations that enhance legal certainty and clarity similar to what prevails within the conventional financial architecture.
“Nigeria has a lot to gain from growing the non-interest segment of its financial sector. An important area is the potential foreign exchange inflows from international investors to be attracted by sukuks. With the current foreign exchange liquidity challenges facing the country, an opportunity to attract greater foreign exchange inflows must be explored using the non-interest finance market.
“International investors are also attracted to environmental and climate related initiatives. As such, there is a desirability for our subsequent Sukuk issuances to look at this an important area.
“The Pension Industry’s Fund VI is presently not able to find enough instruments to fill its demand. This means that there is ready demand for sukuk issuances. With so many benefits of the non-interest finance market, then the question is why have we not been maximizing their potential?
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“These are substantial milestones that requires our collective and dedicated efforts to actualize.This Forum aims to leverage the opportunities and resources present among the esteemed participants to identify key challenges, explore regional initiatives, and promote sustainability and climate-related considerations in the Non-Interest Capital Market. It seeks to generate new ideas and promote global cooperation in transforming the non-interest finance space.
“This brings us to the challenge of low awareness. This is one of the reasons for this forum and other efforts the SEC and other regulatory bodies attending this forum must continue to work towards exploring the full potential of this segment of the market.
“The SEC Nigeria has a 10-year (2015-2025) Capital Market Masterplan which was revised in November 2022. The Masterplan has special provision for developing the Non-Interest Capital Market with the aim of making Nigeria to be a regional hub for NICM in Africa amongst other targets.
“The attainment of the Masterplan targets by 2025 remains a challenging distance. These targets encompass the introduction of 100 retail Shari’ah-compliant products, the attracting at least 1 million retail investors in Shari’ah-compliant products, the securing of at least N5 trillion in investments from institutional investors in Shari’ah-compliant products, and the facilitation of 50 listings of Shari’ah-compliant products with a market capitalization of no less than N5 trillion by 2025.
Earlier in his keynote address, Dr. Bello Lawal Danbatta, Secretary-General of Islamic Financial Services Board (IFSB), said the non-interest financial system, with its emphasis on risk-sharing, asset-backed arrangements, and project-specific execution, naturally aligns with public-private partnerships in the infrastructure sector.
He noted that, non-interest finance offers flexibility, demonstrated by the diverse structures available for those seeking financial backing, adding that, it can be transformed into marketable credit instruments, such as Sukuk, linked to specific assets.
According to him, “It is not a stretch to say non-interest and Shariah-compliant finance holds great potential to support the global sustainability agenda, by adhering to high ethical standards and considers the well-being of all stakeholders, broader society, and the environment when making financial decisions. However, despite being a fast-growing finance and investment industry globally, it has only marginally contributed to climate action to date.
He said, the transition of non-interest and Shariah-compliant finance toward climate and sustainable finance principles is natural and must be catalysed to mobilise industry assets for climate action and foster green, inclusive, and resilient economic growth.
“It is therefore imperative for various stakeholders, including industries, policymakers, governments, and regulatory bodies, to acknowledge the necessity of adapting to the evolving conditions. For the financial services sector, this involves recognising and addressing both new opportunities and risks.
“Equally crucial is the creation of an enabling environment that supports sustainable economic activities and inclusive development for the benefit of all.Responsibility and accountability lie in striking the right balance between acknowledging existing challenges and opportunities while safeguarding the security and stability of the financial system. It is incumbent upon all stakeholders to respond effectively to the emerging landscape and contribute to the establishment of a resilient and sustainable global economy.
Meanwhile, it should be recall, the objective of the forum is to bring all critical stakeholders together to analyse issues and challenges confronting the sector and profer solutions for the overall development of the Nigerian economy.
Discussion at the forum which had in attendance, government functionaries, capital market Operators, policy markers amongst others, revolve around issues such as; inadequate capacity within the industry, lack of awareness and education, paucity of human capital and expertise, limited availability of Sharia-compliant products including short-term Shariah-compliant liquidity instruments, the harmonization of regulatory and supervisory standards, and the integration of NICM with the conventional financial system amongst others.
