Harnessing Islamic, Ethical Financing to Empower Nigeria's Economy

Harnessing Islamic, Ethical Financing to Empower Nigeria’s Economy

There is need to balance views on Islamic finance in order to reap benefits associated with it. Rather than by principle, there is unhealthy competition between the two leading faiths around the world.

Unfortunately, many of the  advanced economies have transcend religious views when it comes to common goals, and are already ahead of their emerging market counterparts in harnessing Islamic and ethical financing to empower their economies.

In some parts of Africa, there are two issues-trigger factors that have proved difficult to be managed.

They are religion and ethnicity, on these people holds divergent views as they try to protect their interests.Harnessing Islamic, Ethical Financing to Empower Nigeria's Economy

However, Islamic finance has come to stay, and market await Christian finance to set the competitive space right, once and for all.

Back to the real discussion, Overall market engagement for Islamic finance products is still weak.

Though, there are banks that are delivering services in that line but level of awareness is still very much weak.

At the macro level, Nigeria government is trying to catch up in the recent time, but hope abounds with recent success recorded in Sukuk bond.

FBNQuest in its note said that Islamic and Ethical Finance in Nigeria hold great potential, especially in this era where more stakeholders and investors are fully aware of the direct benefits.

This is unknown to quite a number of people that see religion as a threat to common goals, either by interpretation or erroneous insinuation.

Usually, such person position is often driven by past experience,historical incidence and perhaps various uncensored discussions.

To FBNQuest however, the development of the Islamic and Ethical Finance Industry within the Capital Markets, is vital to economic empowerment as it provides funding for corporate financing and other capital-intensive projects.

In its note, FBNQuest said that this advancement can likely be attributed to the growing preference for ethical products and services, as well as the level of transparency and accountability amongst experts and key policy makers in this industry.

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Bringing the discussion back home, the firm said that the Nigerian Government at both the Federal and State levels are playing key roles in ensuring that this method of financing is embraced.

With the launch of the FGN Sukuk bonds three years in a row; and with key financial institutions also harnessing this asset class as a new method of investing or obtaining financing for large projects.

It noted that the regulatory bodies in place have also provided a strong supervisory framework which is critical to the growth of the sector. These factors have encouraged visible progress in this new asset class, which is crucial to the socio-economic growth of the country.

Sukuk bond is having its way in the capital market. When analyzing the success of such asset classes in Nigeria.

It is important to note that the Sukuk Bond issued in the Nigerian market has been widely accepted, a case in point is Osun state – which was oversubscribed by about 11.4%.

FBNQuest reckoned that the FGN Sukuk I and II have also seen between 5-30% over-subscription, which means that the demand for ethical finance instruments is high.

The firm however projected that with consistency and the right practices, the sector will witness a boost which will impact economic growth.

“If properly harnessed, Islamic and Ethical Finance could be a key source of corporate financing, and capital raising for large projects such as funding for infrastructure development, development of the Capital Markets.

And, even foster increased financial inclusion – as more individuals who had not been a part of the capital markets investing community are slowly being introduced to, and are adopting Islamic and ethical finance services”, FBNQuest stated.

According to Oluseun Olatidoye, Head, Debt Capital Markets, FBNQuest Merchant Bank Limited, who spoke at the recently held IFN (Islamic Finance News) Nigeria Forum;

He said a growth in the adoption of Islamic and Ethical Financing is key to profitability in the Nigerian economy as the capital generated by investors from these products can be used to close deficits in the country.

He stressed that the opportunities within the Nigerian Islamic and Ethical Finance market must be harnessed, as ethical assets are gaining momentum as an alternative investment avenue both locally and internationally.

“There has been an uptake in financial assets recently, especially with the Sukuk, both from Muslims and non-Muslims.

“Some financial institutions can attest to the fact that these products have been oversubscribed and in some cases, there has been a challenge by financial institutions to meet the demand.

“For Muslims, Islamic and Ethical Finance is a more acceptable form of investment, as there are no interest charges on their investments which complies directly with the tenets of The Quran”, he stated.

Olatidoye encouraged value seeking Islamic and Ethical investors to invest in the products offered, and for more financial services institutions, to issue more of these products.

He further highlighted that FBNQuest Merchant Bank remains committed to deepening Islamic and Ethical Financing in Nigeria.

Having acted as Joint Financial Advisers to the Debt Management Office (DMO) of the Federal Government on its recent Sukuk Issuance, which was dedicated to economic development across the six geopolitical regions.

With more opportunities to raise funding such as this, there will be capital readily available to fund infrastructural deficits in Nigeria.

He enjoined the Federal Government to continue in its support for Islamic and Ethical Financing, with more avenues such as the IFN Forum where key stakeholders such as regulators and market leaders can engage in discourse around prospects and impediments to the development of new asset classes in the industry.

Sukuk however is one of the various Islamic finance products that are available.

Others are Musharakah, Murabah ah, Mudarabah, Ijarah, Salam and Istisna.

Harnessing Islamic, Ethical Financing to Empower Nigeria’s Economy