Nigeria will continue to explore Islamic finance tools such as the Sukuk to tap into local and international investments, Kashim Shettima, the country’s vice president, has said.
This, according to him, is because Islamic finance has proven to be a viable option for development funding as evidenced in the recent federal government’s 6th sovereign sukuk issuance which received about 435% subscription. In the deal, the government had offered N150 billion but eventually raised over N625 billion.
“This shows an increase in the level of public trust and awareness about the financial product,” Shettima said in a keynote address at the 6th African International Conference on Islamic Finance (AICIF) which was held in Abuja.
The event, which was organized by the Metropolitan Law Firm and the Metropolitan Skills in collaboration with the Africa Finance Corporation (AFC), and the Security Exchange Commission (SEC), had the theme, “Towards a Just Transition”.
With global assets under management exceeding $2 trillion and the growing demand for alternative sources of financing, Islamic finance is central to both financial deepening and financial diversification in Nigeria.
However, the Vice President raised concerns that despite its demographic composition and increasing demand for alternative sources of finance, Nigeria’s fast-growing Islamic finance assets remain largely insignificant in the over $2 trillion Islamic finance global market.
He assured that the government will design policies targeted at financial deepening and diversification in order to unlock private sector capital since available resources are hardly enough to meet developmental needs.
Represented by Tope Fasua, special adviser to the president on economic matters, Shettima also noted that Non-interest banking and microfinance could also potentially serve as a tool to drive industrialization, SME growth and micro-credit activities.
He further assured that considerations will be made to enhance the visibility of the Islamic finance market in line with global trends and within national policy goals for financial literacy, inclusion and the transition of millions of Nigerians to the formal economy in the near future.
These interventions, he noted, are not just geared towards funding sustainable development projects but also to enable the Islamic financial markets to contribute to a clean and sustainable future for the country.
In his keynote speech, Muhammad Sanusi II, former Emir of Kano and governor, Central Bank of Nigeria (CBN) said the United Nations Sustainable Development Goals targeting poverty, hunger, health, education, climate change, gender inequality, water, sanitation, energy, the environment and social justice, offer solutions to the most critical social and environmental global challenges.
However, available resources from government and philanthropy are insufficient, therefore private capital is essential.
“It is not only complimentary, it is integral,” he stated, calling for more impactful investments, which Islamic finance aligns with.
According to him, the convergence between Islamic finance and socially responsible investing (SRI) including impact investing is growing.
He also noted that the abhorrence of speculative transactions that only enrich investors without connection to the real economy is common.
He cited the social impact bonds, Green Sukuk and SRI Sukuk issued by Malaysia and Value-Based ‘intermediation Strategy (VBI) by the Bank Negara Malaysia, which focuses on creating an ”optimum allocation of resources to productive economic activities” by using impact-based assessment considering the environment, society and the economy, as initiatives that further illustrate this convergence.
“The two Immunization Sukuks issued by the International Finance Facility for Immunization (lFFm) that raised USD 700 million from both traditional Sukuk investors and conventional investors, including those with a socially responsible investment focus, also prove that the convergence of Islamic finance and conventional sustainable investing is very possible.
Speaking specifically to the theme of the event, he noted that since the industrial revolution, fossil fuels have powered extraordinary growth and development, however, with huge costs which have directly led to the climate emergency.
Consequently, there is a growing concern to radically transition to a sustainable, net-zero future, which needs to happen fast, but also in a fair and inclusive way that benefits everyone.
Ummahani Amin, convener and conference chair, who also spoke, noted some systematic structural deficiencies which inhibit a just transition process in Africa, including limited private sector participation, increasing debt vulnerability of African countries as well as lack of transparency and accountability in financial flows, among others.
She maintained that given its nature, and with over N2 trillion in global assets, Islamic finance offers a sustainable financing system to tackle some of these deficiencies and deliver Africa’s just transition process.
“Sukuk and Islamic finance lending are two financial products which can be used to deliver clean energy infrastructure and large-scale programs in African countries, particularly to aid the promotion of natural gas as a transition fuel in countries that can access it,” Amin, who is the founder of Metropolitan Law Firm explained
“Sukuk presents low risks and guaranteed returns for investors,” she added.