• Wednesday, July 17, 2024
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FG to leverage non-interest financing to curb rising debt- Edun

FG unveils central revenue system to boost accountability

Wale Edun, Minister of Finance and coordinating minister of the economy, said on Wednesday that the Federal Government is considering adopting a non-interest finance window to fund key infrastructure and green projects in the country.

Edun said this is because non-interest financing has become a viable tool to tame Nigeria’s growing debt crisis as the alternative model could unlock significant economic opportunities and mitigate the nation’s dependence on conventional borrowing.

Edun spoke at the 1st Securities Exchange Commission (SEC) Nigeria- Islamic Financial Services Board (IFSB) International Forum on Non-interest Capital Markets, held in Abuja and jointly organized with the Islamic Financial Services Board of Malaysia. The international forum focused on strengthening the development of Nigeria’s non-interest finance segment.

He said the decision was key to the government’s participation at COP28 in Dubai, UAE.

Edun emphasized the need for alternative financing mechanisms that do not rely on interest but on equity participation, noting that this approach is critical in addressing the global debt crisis and promoting rapid, inclusive growth.

“Our revenue to debt service ratio is so high and is constrained. There is fiscal exhaustion in many parts of the world.

There is a debt crisis; of course, the answer is non-debt. The answer is equity, financing mechanisms that do not mean that you will have to pay interest. Still, you will have the participatory opportunity that equity and non-interest financing give,” he stressed.

Edun also highlighted the importance of financing green projects and reducing reliance on foreign direct investment. He mentioned the production of electric vehicles and mass transit vehicles as examples of projects that align with the global climate action agenda.

Read also Edun, Senate differ on extra borrowing for 2024 budget

In his remarks, Olayemi Cardoso, Governor of the Central Bank of Nigeria (CBN) reiterated that the apex bank remains in support of key stakeholders in the non-interest banking ecosystem in ensuring that the sector evolves and fosters ongoing efforts to build a one trillion dollar economy as proposed by President Tinubu.

Lamido Yuguda, Director-General of the SEC, highlighted the vast opportunities in the Islamic financial market but regretted that Nigeria could not utilize this economic opportunity effectively.

He noted that the Islamic Finance Industry was estimated to have a market size of $3.25 trillion in 2022, with global sukuk issuances valued at $182.72 billion. However, Nigeria’s Islamic finance segment reached an estimated $2.9 billion at the end of 2022, accounting for a mere 0.9% of the global non-interest market, indicating the need for further growth.

Yuguda emphasized the transformative growth of the non-interest capital market in the country and its potential role in its economic development.

“Sukuk, a non-interest capital market instrument, was identified as a suitable structure for infrastructure financing. Its asset-backed arrangement allows issuers to clear their balance sheets of debt, as investors own the financed assets and share in the gains,” Yuguda explained as he encouraged corporates and governments to explore the instrument as an alternative mode of financing, particularly in the face of high debt-service to revenue ratio.

Bello Lawal Dambatta, the Secretary-General of the Islamic Financial Services Board, who also spoke at the event highlighted the alignment between non-interest finance and public-private partnerships in the infrastructure sector.

Emphasizing the flexibility offered by the non-interest finance window, including the diverse structures available for financial backing, he noted that while the non-interest and Sharia-compliant finance industry has experienced significant global growth, it has only marginally contributed to climate action.

He further spoke on the need to catalyze the transition of non-interest finance towards climate and sustainable finance principles to mobilize industry assets for climate action and promote green, inclusive, and resilient economic growth.

His words: “It is well known that Shariah-compliant financial conventions are especially well-suited for infrastructure development. They establish an asset-oriented system of ethical financial intermediation founded on risk-sharing principles in lawful (halal) activities rather than seeking gains through rent.

“Investors adopting this “entrepreneurial” approach are incentivised to maintain high transparency and closely monitor projects. This, in turn, enhances efficiency in the construction and operation of infrastructure.

“The non-interest financial system, emphasising risk-sharing, asset-backed arrangements, and project-specific execution, naturally aligns with public-private partnerships in the infrastructure sector.”