Faced with the challenge of utilising a large chunk of its revenue to service debts, the Federal Government may be leveraging on Islamic finance to fund most of its development of green projects.
The Minister of Finance and Coordinating Minister for the Economy, Wale Edun who disclosed this on Wednesday at the First Annual SEC Nigeria – IFSB International Forum on Non-Interest Capital Market, added that the government has commenced discussions on the production of electric vehicles in the as part of its green projects.
Edun said that patronising non-debt financing was the best option open to the government, and the administration is poised to leverage Islamic financing for the execution of infrastructure projects like its currently doing with the Sukuk.
Lamido Yuguda, Director-General of the Securities and Exchange Commission (SEC) in his welcome address said that already “In Nigeria, the Islamic finance segment of the financial industry has reached an estimated size of $2.9 billion as at the end of 2022, with outstanding sukuk forming the largest part at 57 percent, followed by Islamic banks at 42 percent (total assets), and the remaining 1 percent split between Islamic funds (total assets) and takaful (total contributions).”
According to Yuguda, the International Islamic Financial Market (IIFM), stated that in 2022 the Islamic Finance Industry had an estimated size of $3.25 trillion, with global Sukuk issuances valued at $182.72 billion.
He said, “This shows that the Nigerian market makes up just 0.9 percent of the global non-interest market, indicating the dire need for more growth. With the country boasting a large population and a significant proportion unbanked, the long-term potential for Islamic finance in Nigeria is immense.”
He pointed out that the Non-Interest (Islamic) Capital Market in Nigeria has undergone transformative growth, becoming an integral part of the country’s financial framework, and offering a distinctive platform for ethical and Shariah-compliant investments.
“Since the debut of Sukuk in Nigeria in 2017, the Debt Management Office has raised almost N1.0 trillion to finance over 5,000 kilometers of critical roads & bridges with all such issuances oversubscribed.
“The oversubscription of the most recent 6th Federal Government of Nigeria Sukuk by 435 percent underscores investor confidence, showcasing the strategic role of Sukuk in infrastructure development and financial inclusion,” Yuguda disclosed.
He explained that Sukuks backed by assets promote risk sharing in high-risk projects, offer flexibility in project stages and foster public-private partnerships.
The SEC, Yuguda stressed in its continuous commitment to fostering the development of a robust Non-Interest Capital Market (NICM), collaborates with the Islamic Financial Services Board (IFSB), an international standard-setting body, adding that the IFSB plays a pivotal role in ensuring stability and resilience in the Islamic finance segment globally.
He explained that the SEC Nigeria and indeed all other IFSB members in Nigeria have greatly benefited from the IFSB’s services, including capacity building, technical support, and global visibility, assuring that the SEC is fully committed to fostering market development and innovation, maintaining a regulatory framework that ensures stability and fairness.
The collaboration with the IFSB, he noted is a testament to the SEC’s belief in open discussions and the exchange of ideas on vital matters for the benefit of our economy and the nation at large.
In his Keynote address, Dr. Bello Lawal Danbatta, Secretary-General of IFSB said the focus of the forum centers on the various dimensions of the non-interest capital markets, touching upon market trends, sustainable finance initiatives, infrastructure financing, and regulatory challenges.
He added that this underlines some of the important global shifts that are taking place and reshaping the financial services industry, as well as the potential role of this financial sector in the broader economic and societal dynamics of the economy.
“The future of non-interest capital markets is intricately linked to the themes addressed at this forum. In 2023, S&P projected a 10% growth in 2023-2024 for the Islamic financial services industry (IFSI), consistent with sustained momentum and a year-on-year growth rate of 11.3% we recorded in IFSB’s 2022 Stability Report. This growth is underpinned by continuous improvement in financial infrastructure and ecosystems, facilitated by international organisations like the IFSB,” Danbatta stated.
According to him, the continuous nurturing and enhancement of financial infrastructure and ecosystems have made the growth of the non-interest and Sharia-complaint financial services industry possible.
He noted that the presence of international organisations like IFSB, where prudential and governance standards have been developed, facilitates the orderly development and growth of the Islamic financial services industry while ensuring its soundness and stability.
The SEC Nigeria and IFSB signed an MoU, launched the IFSB Annual Report, and the SEC pledged to be a full-fledged member of IFSB instead of the associate membership that it presently enjoys.
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