• Tuesday, July 23, 2024
businessday logo


Expert wants Nigeria to maximise opportunities in global non-interest economy     

As Nigeria grapples with declining revenue from the oil sector, which is affecting the nation’s ability to fund its development objectives, a Kano-based expert on Islamic finance, Bashir Aliyu Umar, has urged the Federal Government to explore the huge funds available in global non-interest economy in addressing the developmental needs.
Umar, a PhD holder, who is a former special adviser to the CBN governor on Non-Interest Banking, and currently a member of the Council of Experts on Islamic Finance of the Central Bank, and National Insurance Commission of Nigeria (NICON), said exploring the global non-interest financial window is the best option for the nation now.
Speaking exclusively with BDSUNDAY in Kano, the expert noted that financial resources generated from such window should be used to fund capital projects in sectors like education, health, and transportation.
Umar identified the issue of lack of diversification of the mode of financing development activities in the country, as one of the greatest challenges hampering the quest to holistically develop the nation socially and economically.
“The issue confronting us as a nation today is that of diversification; we need to diversify the sources of our resources, and we also need to diversify in order to deepen our market, and one of the ways that we can diversify our sources of finance is through Islamic finance.
“This is a new form of financial intermediation that has found acceptance globally, all international financial centres are offering it, and everybody is trying it because it has a new asset class, and it is a kind of paradigm shift in terms of how to do financial intermediation, and it has proved quite resilient in its short time of existence, registering compound average growth rate of between 15 to 20 percent.
Moreover, institutions are exploiting it, and it is being studied, and it has become mainstream, actually.
“As it is today, many global financial centres are struggling to become the hub of this Islamic finance. In 2013, David Cameron, said he wanted London to become the hub of Islamic finance, not only in Europe, but in the whole world. On account of this, last year, they issued a Sukuk, which is a form of financial instrument,” he stated.
Umar disclosed that Nigeria needed to diversify its economy in order to get other alternative complementary sources of funds, especially with the dwindling oil revenue, and also because of challenges that it is facing.
“The need for this kind of diversification has become imperative as government is doing everything possible to block financial leakages in the system. We also need to attract more foreign direct investments because of our infrastructure deficit, and Islamic finance has proved to be very successful in terms of financing infrastructure development.
“This is the kind of funding used to finance international projects, like the famous expressway that ran across Malaysia from extreme north to extreme south, and it was what was also used to fund the construction of the Terminal three of Dubai Airport, and others in other countries, so it has proved quite very effective in financing infrastructural projects, all the Saudi Arabian Electricity Power Generation Companies, were financed through this kind of financial instrument.
“There are funds there, the only things is that people investing in Islamic financial products only want to invest in things that does not violate their tents and ethical values, just like any other ethical investors, that are committed to things that are based on ethical principles; so for us to be able leverage on the industry, we need to diversify, and in doing that we have already laid the structure in Nigeria.
“The Central Bank has come with regulations; Securities Exchange Commission (SEC) has also come with its own instruments, and it is also putting in place the necessary infrastructure to create Islamic capital market in Nigeria; the National Insurance Commission is licensing Islamic insurance companies, and put in Islamic insurance instruments, all that remains now is for the authorities to create the fiscal environment for the industry to fully operate in the country by issuing sovereign bonds,” Umar explained.
He noted that Nigeria’s economic managers must put in place Sovereign bonds that are equity-based, rather than the current conventional bonds that are debt-based, if it wants to access the financial resources available on global non-interest window.
“We have already a state-issued bond that is equity-based. Osun State has once issued such bond, which was used to build 14 high schools. This bond was over- subscribed; they wanted N10billion, and they got N11.6 billion, and our banks were in need of such instrument and they bought into it.
“I am talking about conventional banks, not just Jaiz Bank. So, the appetite is there; so government should tap into it. If issued this kind of Sukuk, investors outside Nigeria will tap into it. When South Africa last year issued its $500 billion Sukuk, 60percent of those who invested into it were from the Middle East, and this kind of investors are not just only in the Middle East, you have them in Europe, you also have them in US, we have them there that will only invest in Islamic products.
“So we have the potential there, and domestically, the market is waiting for this kind of product. Take the case of Jaiz Bank for example, they have surplus funds now, waiting for instrument, where they will invest them, they cannot invest in the current mode of instrument in the banking system by regulation of CBN. Jaiz cannot buy into them, although NDIC has started putting in place Premium for them to be able to accept this kind of instruments, so we are waiting for the equity sovereign instrument in the country that will enable the Islamic Insurance entities to spring up.
“PENCOM is also there to do off balance sheet financing of this kind of instrument, people ready to buy into it, they way they the Osun State own, was that the government raised the fund, and got the law of the State Assembly to that effect, and the investors contributed the fund, and own the schools built with it, and eventually government leases the schools, and at six month interval, government is purchasing schools, and this will run into a seven-year period,” Umar said.
Adeola Ajakaiye