Many Nigerians, and indeed people all around the world, are only now hearing about non-interest financing, despite the fact that it appears to be based on non-interest banking that has previously gained traction in the public sphere.
Non-interest financial instruments, in general, have played a key role in the creation and evolution of the Nigerian capital market ecosystem.
Mr Akeem Oyewale, a finance specialist, has provided insight into the product lines and potential in this burgeoning financial services sub-sector, which is primarily based on Islamic financial principles.
Oyewole who is the Chief Executive of Marble Capital, spoke extensively at a webinar previous week on the topic: “Islamic Finance And the Investment Opportunities in the Capital Market”.
According him, the Islamic finance segment of the financial market presents numerous opportunities for enhancing the economic fortunes of Nigeria, and over 80 countries have adopted this.
He said the non-interest finance instruments, assets, and products had been identified as catalysts for leading and developing economies globally.
Looking at the Islamic Finance and Investment Opportunities in the Capital Market, Oyewale highlighted significant investment opportunities in the non-interest capital market. According to him, the Islamic capital market products available include;
Sukuk Bonds: Sukuk are certificates issued to investors representing a tangible asset, service, project business or joint venture. The asset must be Shariah-compliant. Sukuk has been issued so far by Osun State and three times by the Federal Government.
Sukuk is the most used instrument in Islamic finance, making investors own a piece of certificate in an asset. Islamic finance operators encourage investments in fixed assets. Oyewale noted that if non-interest investments were in the capital market, the last financial crisis would have been averted.
He added that the Islamic capital market allows individuals/investors to invest based on tangible assets, and Sukuk is a common way of representing that. The instrument has benefitted more than the conventional bond because it is asset-backed and asset-based.
Equities: Another Islamic capital investment is equity, such as the lotus Halal fund or Lotus Islamic index listed on the Nigerian Stock Exchange. This allows investors in the capital market to invest in Halal-compliant stocks. From the analysis, this has performed better in terms of dividend yield, actual capital appreciation than the relatively non-Halal stocks.
Commodities: Commodities involve investing in securitized products that are asset-backed and not prohibited under the ShariÃ¡h law. Akeem explained that the commodities are Halal compliant. Investors need to be aware that the opportunities to invest in shariah-compliant commodities exist to take advantage of the securities like agricultural products.
Mutual Funds: The Islamic mutual funds are open-ended investments that pull investor’s finances together to invest in various Shariah-compliant securities, like Islamic equities commodities and Sukuks or a mix of multiple securities.
It allows individuals to invest a small amount of money and diversify their asset classes from N10,000 investment. These include Stanbic IBTC Shariah-compliant fund, United Capital Sukuk fund, Lotus fund, amongst others.
Islamic Unit Trust: This is similar to a mutual fund, and it is the type of investment used to plan for Hajj pilgrimage, marriage, or mortgage.
Islamic Exchange Traded Fund (ETFs): These are also open-ended baskets of securities that track an index (es) / sector or commodities or other assets, but which can be purchased or sold on a stock exchange like a regulator stock. The Islamic ETF product is not yet in Nigeria.
Islamic Derivatives: Derivatives are contracts that derive their value from the underlying asset and agreement and are helpful for risk management. This fundamental agreement is called hedging and is a forward contract. It is preferred for commodities investments.
Timelines on Islamic Finance in Nigeria
In 2011, the guidelines for the regulation and supervision of the non-interest institutions offering non-financial services in Nigeria;
In 2013, Osun State Sukuk bond was issued and oversubscribed;
In 2016, Jaiz Bank emerged the first Islamic bank in Nigeria and it upgraded to a National Bank;
In 2017 September, the FGN N100billion Sukuk Bond was issued;
In 2017, the CBN issued the guidelines for the regulation and supervision of non-interest Islamic Microfinance banks;
In 2018 December, the FGN issued N100billion Sukuk Bond;
In 2019, TajBank Limited commenced its operation as the second non-interest Islamic bank in Nigeria;
In 2020, the FGN N150billion Sukuk Bond Issuance witnessed 446% oversubscription, and Osun State Sukuk was fully repaid to investors.
In 2021, the Central Bank of Nigeria granted Lotus Bank a license to commence non-Interest Banking, becoming the third in Nigeria’s Islamic banking licenses.
In Islamic finance, all investments must adhere to Islamic rules of investments and also comply with the regulations governing the conventional counterparts.
Oyewale believed that the Islamic Finance industry was well poised for growth and should be well utilized by all entities, individuals, organizations and government.