Araoye: $1bn Islamic Bank Fund Will Curb Infrastructure Deficit, Reduce Pressure on Naira

*IsDB boss says global economy will require $15tn to finance long-term projects
Ugo Aliogo in Riyadh, Saudi Arabia

The Managing Director, Lotus Bank, Kafilat Araoye, has stated that the Islamic Development Bank (IsDB) could provide a $1 billion capital support funding facility to Nigeria that could help fix some of the country’s infrastructure deficit and reduce the pressure on the Naira.

Araoye disclosed this yesterday at the 2024 IsDB Group Annual Meetings and the 50th Anniversary of the Bank with the theme: “Cherishing Our Past, Charting Our Future: Originality, Solidarity, and Prosperity.”
“IsDB can provide funding for Nigeria to the tune of $1 billion to catalyse growth in critical sectors of the economy. If they gave us $1 billion, it would not be sufficient, but you know what it will do for us.

“It will put infrastructure, businesses in place and it will reduce the pressure on the Naira because we will generate foreign exchange from some of the things that we will use the money for. What we require is monitoring,” she stated.
Araoye noted that solving the infrastructure problem in Nigeria requires monitoring as was done with the Sukuk fund project that was implemented with a high level of trust and discipline, explaining that the Sukuk fund is an equity instrument, not a debt, contrary to what people think.
She further explained that the funding support should not come through the federal government, even though there could be some portion given to government since it is in charge of infrastructure.

However, the lending, she said, could come through financial institutions which could help monitor and ensure trust and discipline.
“When you invest money in Sukuk fund, all you are saying is that you are partnering in the project, and it is a project that is monitored from beginning to the end and what the money will be used for. So, the fund is helping us to have infrastructure that we didn’t have in Nigeria before,” Araoye said.
She urged the IsDB to identify projects and also areas where Nigeria has competitive advantage, so that they can fund them in order to drive economic growth in the country.

The Lotus bank MD remarked that one of the goals of the bank at the conference is to advocate for more funding, while also aiming to engender trust with the IsDB and understand how Lotus bank can collaborate better with the IsDB to grow the economy of Nigeria.
 “The Islamic Development Bank is into oil and gas. We have lithium, we need to start mining, lithium and selling. In terms of the capital funding support, there are three broad areas.

“There is the sustainability, where you are concentrating on the key areas of sustainability, women, education, environment and others. Then, there is also the side that has to do with reducing the pressure on foreign exchange, to generating foreign exchange, the export side of the businesses (export mining) and commodity generally.

“The third aspect is infrastructure. There is no way we can grow as a country without opening our roads, there are too many bad roads, and connection must be easy. Just as we are having rail lines in Lagos, we need to have connected rail across the country.
“Most people are concerned about their returns on investments, but the fact lies that as you invest, you get your returns in the investment. The Islamic Development Bank is development-focused and geared towards the development of member countries.

“We are here because we cannot leave out Islamic Development Bank in the progress of non-interest banking in the world. They are the largest development bank in the world that is into non-interest banking, and financing. We are one of the four banks today, that are presently non-interest in Nigeria and we realised that we still need a lot of multilateral funding for the country to grow, government cannot do it alone, we all have to play a role,” she said.
Araoye argued that even though non-interest banking is for everybody, it still must concentrate on on-boarding those who are yet to be fully enlightened because their faith  has stopped them from using the conventional banking.

“What this will do for us is that if we are able to partner well with the Islamic Development Bank, there will be a lot of growth in those areas we are yet to see growth such as mining, agriculture and others,” she said.
On his part, the President of IsDB, Dr. Muhammad Al Jasser, stated that the global economy would need $15 trillion to finance long-term solutions and sustainable infrastructure projects.

 He maintained that the world needs long-term solutions and sustainable infrastructure projects, and financing the projects requires a paradigm shift, stating that estimates suggest the staggering infrastructure financing gap by 2040.
Speaking at a side event with the theme: ‘‘Leveraging Islamic Finance for Developing Sustainable and Resilient Infrastructure” at the 2024 IsDB Group Annual Meetings, Al Jasser remarked that the traditional public financing mechanisms fall short of meeting the growing demand for infrastructure projects.

He revealed that to address these challenges and mobilise sufficient funding for long-term investments, there was the need for a fresh approach, adding that this is where Islamic finance emerges as a ray of light.
He averred that the bank’s asset-based and risk-sharing principles perfectly align with the needs of least-developed countries for long-term infrastructure projects.

Al Jasser further explained that the Islamic finance, with its emphasis on environmental responsibility, is perfectly positioned to support these endeavours.
He pointed out that for the last five decades, the bank has championed Islamic finance, noting that its strategy revolves around forging strong partnerships, fostering financial markets, and empowering the private sector.

“Asset-based and risk-sharing financial products for infrastructure financing remain a niche area within the overall financial system. Multilateral Development Banks can play a vital role in developing the necessary financial infrastructure to attract private capital flows toward developing countries. A collective effort by MDBs can significantly boost investor confidence.

“The Islamic Development Bank Group stands ready to lead the charge. Together, let us unlock the potential of Islamic finance and bridge the infrastructure financing gap. Let us build a future that is not only prosperous but also sustainable and equitable for all.

“We stand at a crossroads. COVID-19 exposed vulnerabilities in infrastructure, draining public resources and reversing development progress. One-third of least-developed countries is now worse off than pre-pandemic. Without immediate action, their development outlook could further deteriorate.

“Least-developed countries hold tremendous economic potential waiting to be unleashed. Boosting investments in social and physical infrastructure is key to reducing poverty, enhancing health and education, and creating jobs. It also strengthens resilience against future shocks, such as pandemics and climate change,” he said.