Nigeria needs more Shariah-compliant mutual funds, equity funds and even exchange-traded funds, ETFs. The creation of these asset classes would deepen the capital market, attract more ethical retail investors and boost liquidity. Mohammed Mustapha Ja’afar, a Capital Markets & Islamic Finance lawyer, made the observations while giving his views on “Leveraging Islamic Finance to Develop a Sustainable Capital Market in Nigeria.”

According to Ja’áfar, the Islamic capital market has addressed the needs of investors who want to diversify their investments. He said over the past decade, there has been significant growth in the Islamic capital market from the Sukuk bond used for infrastructural renewal in Nigeria.

He acknowledged that Islamic finance has improved and diversified investment opportunities in Nigeria from a business perspective allowing the conventional investors to diversify the risk of their portfolios. 

The lawyer called on other economic sectors to explore issuing more non-interest securities to help portfolio diversification. He cited the example of the PENCOM 2021 Fund IV, which provides opportunities for administrators to invest pension funds in Shariah-compliant products. 

He believed this would drive demand from the PFAs, encouraging more Islamic capital market issuances. Ja’áfar explained that, to a large extent, Islamic finance offers alternative investment opportunities that meet people’s various appetites.  

He noted that Islamic finance products had supported the growth of Nigeria’s capital market, emphasizing that globally, Islamic banking and Sukuk account for the largest share of the Islamic finance sector. He added that the two instruments had gained the most traction. 

The capital market lawyer noted that from one Islamic banking window to three full-fledged ones, the industry had provided products like Murabaha, Wakala, asset-backed products like the Ijarah contract, and structured financing such as Istisna or investment accounts like Mudaraba. 

On how Islamic Finance could develop a sustainable capital market in Nigeria, he preferred to look at sustainability from a social perspective rather than an environmental one. He believed the Nigerian economy should adopt ecological issues at the highest standards. 

“Islamic finance could provide sustainability in the financing of projects, especially through infrastructure and other critical structured finance.”

“Islamic finance fits well into the sustainability framework as it promotes fairness, equality and morality. It promotes the public interest and is not involved in unethical business practices.”

He tasked the industry to portray Islamic finance better, aligning it with sustainable objectives. 

According to him, the United Kingdom has positioned itself as a global strategic hub for Islamic finance, which is demand-driven. This has led to several start-ups offering products to ethical investors. He called on the Nigerian Islamic finance industry to leverage technology and develop products that appeal to young people.

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