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Finance | Islamic Finance

Recommendations for the Growth of Islamic Finance in Nigeria

May 15, 2022   •   by Bukola Akinyele-Yisau   •   Source: WebTV   •   eye-icon 530 views

Sunday, May 15, 2022 / 8:26 PM / by Bukola Akinyele-Yisau for WebTV / Header Image Credit: Africa Housing News

 

Islamic finance has improved financial inclusion in Nigeria with the attendant benefits to the nation's economy. Prof AbdulRazzaq Alaro, a Professor of Islamic Law, University of Ilorin, made this point during a recent conversation on the "Prospects for Islamic Finance in Nigeria." 

 

According to him, it has generated thousands of direct and indirect jobs created in the last 10 years across the various sectors of the Islamic finance industry.  Income tax paid by this large number of employees and employers has also generated revenue for this nation's government.

 

He said many Nigerian Islamic finance institutions' staff, management and board members are not Muslims, which makes Islamic finance a significant contributor to interfaith harmony and peaceful co-existence. 

 

The scholar said a Central Bank of Nigeria (CBN) report showed that a total of 29,500 Nigerians (46% Female and 54% Male) have benefited from the FGN non-interest developmental financing, disbursed through the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) in the last six months August 2021-January 2022.

 

Limitations of Islamic Finance 

Speaking further, he highlighted the following as limitations facing the industry:

 

  1. The market share of the Islamic finance industry compared to the conventional market is still very low. Islamic banking in Saudi Arabia has a total asset of $100bn, $75bn in the United Arab Emirates and less than $1bn in Nigeria, representing less than 1% of the total asset of the conventional banks. He called for proactive steps from the key stakeholders. The challenge, according to him, has hindered the non-interest bank in Nigeria from penetrating large markets and financing big-ticket transactions due to inactive capital. Also, the same challenge is facing Takaful companies (Islamic insurance) with 0.5% capitalization compared to conventional insurance in Nigeria.

 

  1. Lack of adequate liquidity management instruments in the Nigerian market. The market share of Sukuk, he pointed out,  is still meagre and not as frequent as the conventional debt issuances. 

 

  1. The legal constituency: He said Nigeria's shariah law only relates to Islamic personal law, such as money or inheritance. 

 

 

Prospects of Islamic finance in Nigeria

In the area of prospects, the University Don harped on the need for the Nigerian Islamic finance industry to define its pattern of operation. He said that today's world aligns with market-driven and Shariah-driven patterns. 

 

The market-driven pattern is championed by Malaysia, while the core states are practicing the Sharia-driven design.  Nigeria Islamic banks need to have their product patterns.

 

Recommendations

Professor Alaro made key recommendations, including:

 

  • The need to increase capital for the Islamic finance industry in Nigeria cannot be over-emphasized. A few measures should be taken to attract more investments into the sector, including government patronage where necessary. 
  • Regulators and operators of Islamic finance should support universities and academic centers to facilitate capacity building for the industry through the endowment of professions.
  • Muslim scholars and preachers who are not Islamic finance experts should desist from making pronouncements capable of eroding people's confidence in the operation of Islamic finance. 
  • Non-interest financial institutions in Nigeria should invest heavily in Fintech, the future of banking services. 
  • CBN should collaborate with the National Judicial Institute to train Judges on the intricacies of Islamic finance. 
  • FGN and other stakeholders should explore other innovative structures of Sukuk and make it more frequent and regular.  It is time for Nigeria to start issuing dollar-denominated Sukuk to attract foreign investments and take advantage of cross-border African locations. Sukuk is a long-term investment. 
  • SEC should step up with oversight functions in regulating Islamic capital market products.    

 

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