Edun: Nigeria to Strengthen Ties with Islamic Financial Markets

* IFSB scribe prescribes non-interest financing option to strengthen naira 

Ndubuisi Francis in Abuja 

The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, has stated that non-interest financial market also known as Islamic financial market offers a cheaper and more sustainable way to raise funding for major infrastructure, hinting that Nigeria would need to play deeper in the global non-interest market.

Edun, who spoke in Abuja Wednesday  at the opening of an international forum on  non-interest (Islamic) capital markets 

jointly organised by the Securities and Exchange Commission (SEC Niferia) and the Islamic Financial Services Board (IFSB), identified the huge potential inherent in the global non-interest financial market.

Citing the impact that the introduction of the Sukuk financing mix into Nigeria had made in road infrastructure funding, the minister explained that Nigeria needed to increase its participation in the global non-interest financial market to tap from its potential.

The finance minister stressed that developing the economy was not just dependent on foreign direct investment or domestic sources.

He added that his expectation was that the outcome of the forum would “not only strengthen the ties between the Islamic finance community around the world, but would also lead to us taking more advantage of the huge funds that are available in the non-interest world so as to have a viable way of financing the green sustainable growth which is the agenda of Nigeria”.

According to him, leveraging more on the non-interest financing would “attract the investments that would increase the productivity of the economy, grow the economy, create jobs, reduce poverty and help the president meet his promise to Nigerians; a better life for all”.

In his address at the forum, the Director General, SEC Nigeria, Lamido Yuguda, 

stated that the commission was fully committed to fostering market development and innovation, maintaining a regulatory framework that ensures stability and fairness. 

Citing the International Islamic Financial Market (IIFM), Yuguda said in 2022, the Islamic finance industry had an estimated size of $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.

“The Non-Interest (Islamic) Capital Market 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. 

“The NICM contributes to the diversity of our financial markets in line with our revised capital market master plan 2021 -2025,” he said.

Yuguda recalled that since the debut of Sukuk in Nigeria in 2017, the Debt Management Office (DMO) had raised almost N1 trillion to finance over 5,000 kilometres of critical roads and bridges with all such issuances oversubscribed. 

“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,” he said, adding that the non-interest capital markets have a huge role to play in the current economic programme being pursued by the administration of President Bola Ahmed Tinubu.

The nation’s economy, he stated, cannot reach its target size without a lot of investments in critical infrastructure, adding that with the high debt-service to revenue ratio, Sukuk presents a viable alternative to other modes of financing.

In his keynote address at the event, the IFSB General Secretary, Bello Lawal Danbatta, a Nigerian, said the global non-interest financial sector was expected to grow by 10 per cent in 2023-2024 year-on-year.

With its huge population, he said Nigeria can lead the African continent in exploring the potential presented by the non-interest financial sector.

“We have the opportunity to be able to cut down on the excessive devaluation of our currency through the leveraging of Islamic capital market or non-interest capital market to build our desired infrastructure.

He lamented that Nigerians source for  virtually every need, ranging from textile, automobile and education, among others from abroad thereby putting unnecessary pressure on the local currency, with the attendant depreciation in its value.

According to him, many countries with some of the best infrastructure in the world developed such assets through non-interest financing.

He noted that 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, adding that it offers flexibility, demonstrated by the diverse structures available for those seeking financial backing.

“For example, it can be transformed into marketable credit instruments, such as Sukuk, linked to specific assets,” he explained.