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Harnessing the Islamic Finance Sector

In another landmark event in the Nigerian Islamic finance industry, Islamic Finance News (IFN), in collaboration with the Nigerian Stock Exchange and key capital market stakeholders, held its highly anticipated maiden IFN Nigeria Forum in June 2019. The event was aptly themed “Harnessing the Islamic Finance Sector for Infrastructure Development and Economic Growth”, and it attracted high profile participants including representatives of the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC). The keynote address highlighted Nigeria’s desire to become a hub for non-interest finance in West Africa and noted the huge opportunities for infrastructure development and strong investor appetite for Sukuk.

The Director General of the Debt Management Office (DMO), Ms. Patience Oniha, during a panel discussion, commended the SEC, the Central Bank of Nigeria (CBN), the Federal Inland Revenue Service (FIRS) and other regulatory agencies for having laid the groundwork that culminated in the success of the Sovereign sukuk issuances. Ms. Oniha expressed the DMO’s willingness to issue a third sukuk before the end of the year. The DMO head also mooted the possibility of using sukuk to structure and issue shorter term Shari’ah complaint debt instruments for the non-interest financial institutions. When speaking on the challenges in the sector, Ms. Oniha highlighted the high marketing expenses incurred on retail investor education given Nigeria’s multilingual society, low technology penetration and the wide geographic dispersion of potential investors.

The forum revealed several ongoing initiatives to address the challenges in the industry such as the planned development of a digital platform for securities distribution by the NSE. In response to concerns on investor participation, Dr. Farouk Aminu of the National Pension Commission, promised that an operating framework for a new Shari’ah compliant pension fund would be released before year – end.

There remained a general consensus that the Nigerian Islamic Finance Industry is in need product diversification across contract types, issuers and tenors to improve secondary market liquidity. Market operators were nevertheless excited by the flow of conversations and expressed deep interest in innovative sukuk structures outside the plain vanilla Ijara. In particular, operators expressed interest in short-dated Shari’ah complaint debt instruments by Blue Chip Nigerian corporates. Operators however raised concerns on the opaque tax regime of Shari’ah compliant instruments and were somewhat relieved when the tax regulator gave assurances that relevant tax matters were receiving attention and would be addressed in the near term.

Overall, the inaugural IFN Forum in Nigeria was a huge success and recorded impressive participation from a cross section of industry players interested in growing the Islamic segment of the Nigerian capital market. Participants acknowledged the huge growth potential in Nigeria where approximately 50% of the circa 180mn population is estimated to be Muslim. Calls were made for collective efforts among capital market stakeholders to address investor education and product innovation. The forum ended in high tempo and the NSE promptly set up a working committee to follow through on the action points of the sessions. The IFN forum couldn’t have come at a better time to help maintain the momentum in potentially Africa’s largest Islamic finance market.