Islamic finance, if explored, presents significant financing opportunities for businesses, writes Obinna Chima
Islamic finance development has become a centrepiece in many countries in the African region. A number of market development and regulatory efforts have taken place in the region in recent years.
Specifically, Nigeria, Sudan, South Africa and Senegal, Kenya, Morocco and Niger among others have put in place necessary legal and regulatory frameworks to enable Islamic banking offerings in their respective jurisdictions.
According to a report by the Malaysia World’s Islamic Finance Marketplace titled: ‘Islamic Finance in Africa: Impetus for Growth,’ a lot of conventional banks across the continent have started offering Shariah-compliant banking products through Islamic window set-up.
In the sukuk segment, the report showed that countries such as Senegal, Nigeria, Mauritius, Gambia had issued sukuk.
A recent milestone in this space was the maiden sukuk issuance by the Africa Finance Corporation, a leading pan-African multilateral development finance institution.
In fact, Islamic finance development in Africa region is in tandem with the emerging interest of Islamic finance globally. Based on the current growth momentum of the global Islamic finance, the global Islamic financial services industry had been estimated to reach $6 trillion in assets by the year 2020 with a growing number of new market entrants.
That was why the Managing Director/Chief Executive Officer of the Islamic Banking and Finance Institute of Nigeria (IBFIN), Sani Aminu Dutsinma, last week stressed the need for Nigerians to take advantage of the opportunities created by this banking instrument.
According to him, Islamic banking and finance instruments have the potential to check greed, high handedness, selfishness and corruption, not only in the banking and finance industry, but also in the public sector.
Dutsinma, while speaking at a sensitisation seminar organised by his organisation for journalists, pointed out that Islamic banking and finance, being asset-based, should, in principle be less prone to financial crime.
According to him, the Islamic finance industry had expanded rapidly over the past few decades, growing between 10 to 20 per cent annually, as shariah-compliant financial assets are estimated at about $2 trillion, covering bank and non-bank financial institutions.
Islamic banking assets have been grown faster than conventional banking assets, he said, adding that there has been an increased interest in Islamic finance from countries such as the United Kingdom, Luxembourg, South Africa and Hong Kong.
Within sub-Saharan Africa, he revealed that South Africa leads in terms of Islamic finance, with one of the largest international Islamic banking conglomerates namely Al-Baraka Banking Group, he disclosed.
Allaying the Fears
Dutsinma noted that since the introduction of Islamic finance in Nigeria some 18 years ago, concerns and apprehension have been voiced that the introduction might be a ploy to Islamise Nigeria.
“However, as at today, we are yet to receive any report of religious discrimination as regards access to any shariah-compliant products or services.
“Islamic finance is not reserved for Muslims only. It is not a “Muslim finance. There is no such tag on Islamic finance products either in Nigeria or in any part of the world. The products are designed according to defined principles and are vetted by learned scholars.
“It is high time Nigerian policy makers recognised Islamic finance can significantly contribute to economic development, given its direct link to physical assets and real economy,†he added.
According to Dutsinma, the use of profit-and-loss sharing arrangement encourages the provision of financial support and generates jobs.
He said the emphasis on tangible assets ensures that the industry supports only transactions that serve a real purpose, thus discouraging financial speculation.
“Furthermore, Islamic finance helps promote financial sector development and broadens financial inclusion. By expanding the range and reach of financial products, Islamic finance could help improve financial access and foster the inclusion of those deprived of financial services.
“Islamic finance emphasises partnership-style financing, which could be useful in improving access to finance for the poor and small businesses. It could also help improve agricultural finance, contributing to improve food security,” he added.
Also, a legal practitioner, Dr. Abdulqadir Abikan, pointed out that globally, there is scarcity of resources and as such individuals and policymakers try to ensure efficient allocation of their resources.
He said in Islamic economics, there are principles that guide activities, adding that the principles of Islamic finance emanated from Islamic economics.
“When you know that you stand the risk of losing money, you want to work hard to ensure that your customer succeeds.
“Islamic banking tries to maximise profit by doing all you can to enlighten the customers to do more in the business. Islamic finance has the relationship between partners (buyers and sellers).
“Islamic finance encourages asset-based financing. Once you take Islamic finance, you must use that money according to laid down principles,†he explained.
Unlocking Opportunities
The Islamic finance industry has been progressing rapidly since its inception nearly four decades ago. The industry, particularly in advanced Islamic finance markets, witnessed rapid growth and sustainable market drives enabling the system to be commercially viable and competitive industry to operate in parallel with the conventional financial system.
For instance, the Malaysia World’s Islamic Finance report showed that using Malaysia as a case in point, the corporate sukuk had outpaced the corporate bond whereby corporate sukuk issuance was RM64.8 billion, 75.7 per cent of the 2016 total corporate bonds and sukuk issuances in the country.
The global Islamic banking industry was projected to surpass $3 trillion mark by 2020.
“Apart from the Asian and the GCC driving the industry, a number of new markets especially in the African region have established necessary framework to support growth of Islamic banking development in their countries.
“Finance development in Africa has an important role in unlocking the region’s untapped potential in various sectors in order to boost its prosperity.
“The growth of Islamic finance will provide the region access to enrich offerings of its financial instruments and also provide the opportunity to greater access of liquidity pools across the Middle East and Asia particularly from markets with ready pool of investors looking for Shariah-compliant investment opportunities,†the report stated.
Africa has almost 60 per cent of the world’s uncultivated land and vast natural resources.
The continent is endowed with large oil, gas and mineral deposits. Home to over 1.2 billion population, Africa is currently the second most populous continent on earth and the total population is expected to double by the year 2050. The growing population provides an excessive demand on local economies including a ready market for agricultural business and has the potential to expand its food exports. Natural and economic resources mobilisation as well as economic diversification activities is among the drives to improve the economic growth the region.
With these, there is clearly potential for Islamic finance to play a role in especially in African countries which intend to diversify their sources of funding.
The demographic of Africa provides potentially strong demand for Islamic financial services and products such as credit, savings and insurance.
Financial inclusion includes provision of appropriate and quality financing which is accessible and affordable to low-income and other vulnerable households to reduce poverty; reduce inequality in prosperity sharing and provide enough opportunity for vulnerable groups to improve their living standards.
“Globally, two billion adults do not have a bank account including five per cent in developing economies and 25 per cent in countries with almost exclusively Muslim populations do not have a bank account due to religious reasons. “Financial inclusion through Islamic finance could increase account ownership and facilitate financing needs in these areas,†the report added.
