New Telegraph

Non-interest financing relevant to economic growth

As investors worldwide are increasingly allocating their resources into Islamic finance products, there is need for market stakeholders to buy into the initiative in order to quicken the pace of development in the country. CHRIS UGWU writes

In most part of the world, the Islamic capital market has become one of the viable alternative investment windows in the world as it has created an investment opportunity in some of the emerging markets, such as Dubai, China, India, Brazil and Russia, among others. These markets have, over the years, been witnessing a steady growth and development and some analysts are optimistic about them given the structural changes they have brought in these economies. However, with the current growth, market watchers believe it has come at a crucial stage where it needed to redefine and establish the enabling environment that will spur its next phase of growth of the market.

Islamic finance had developed, not only in traditional Muslim markets like the Middle East, but also in conventional markets and financial centres such as the UK, with a growing number of jurisdictions across the globe at various stages of developing their capabilities in Islamic finance. Nigeria is also leveraging the potential of the market, good example being the recent sovereign issuances of Sukuk by the Nigerian Debt Management Office (DMO).

Fitch sees global Sukuk

resilient Global Sukuk supply is expected to accelerate in 2021 following a resilient 2020 as issuers seek to refinance maturing debt and fund large budget needs, Fitch Ratings says. The easing of GCC investment restrictions following the normalisation of relations between Qatar and its neighbours will also contribute to higher volumes. According to the rating agency, innovative and diverse issuances like green, sustainable, transition and hybrid sukuk are likely to continue to attract wider investor demand. “Sovereigns in key Islamic finance jurisdictions are expected to remain major contributors to overall sukuk volumes.

Issuance from first-time sovereign issuers, financial institutions and corporates are set to increase as they face challenging conditions and take advantage of the current lower cost of funding. Qatari sukuk volumes are expected to gradually rise after the normalisation of relations between Qatar and its GCC neighbours, and the eventual easing of investment restrictions for Islamic investors based in countries such as Saudi Arabia and UAE. “Sukuk issuances with maturities of more than 18 months from the GCC region, Malaysia, Indonesia, Turkey and Pakistan fell slightly by 1.9 per cent yo- y to reach USD41.3 billion in 2020.

The volume of total outstanding Fitch-rated sukuk reached USD118.6 billion, 12.9 per cent higher y-o-y. Green & Sustainable sukuk supply increased sharply by 96.2 per cent y-o-y to reach $8.4 billion,” the agency noted . It noted however that the rating outlook for sukuk remains challenged.

Sovereign Sukuk on NGX

The Debt Management Office (DMO) recently listed a N162.557 billion, sevenyear, FGN Ijarah Sukuk with a rental rate of 11.20 per cent on the floor of the Nigerian Exchange (NGX) Limited. The third Sovereign Sukuk was issued on June 16, 2020, and will finance the rehabilitation and construction of key economic road projects across the six geopolitical zones in the country. With this listing, members of the general public who invested in the 2020 Sukuk bonds can now sell their investments and those who wish to invest in Sukuk can equally do so. Speaking about the listing of the third Sovereign Sukuk, the Director- General, DMO, Ms. Patience Oniha, stated: “We are excited that the trading of this Sukuk is now permissible having fulfilled the condition for listing stipulated by the Financial Regulatory Advisory Council of Experts (FRACE) of the Central Bank of Nigeria (CBN). “The FGN Sukuk may only be listed for trading on relevant exchanges after the commencement of works on the Road project for the construction of the Sukuk assets.

This is in order to create a pool of assets consisting of non-financial and financial assets that could be freely traded while avoiding the prohibition of dealing in interestbased transactions arising out of sale of debt and exchange of currency not at par.” According to the Exchange, NGX Limited welcomes the listing of the third Sovereign Sukuk on the bourse, which will provide exit opportunity for existing investors and further deepen the Nigerian capital market, particularly the relatively nascent Sukuk market.

The issuance and subsequent listing of the Sovereign Sukuk on NGX underscore the Federal Government’s drive for the development of critical infrastructure needed to unlock economic growth by leveraging innovative and cost-effective financing structures. The Exchange continues to deliver on its commitment to provide a platform for issuers and investors to meet their investment objectives. By enhancing access to the Federal Government and the private sector, NGX has promoted and supported the growth of the debt market in Nigeria with listings worth over N2.6 trillion in 2020.

Potential in non-interest segment

The Director-General, Securities and Exchange Commission, Lamido Yuguda, had stated that the non-Interest finance segment held great potential in furthering the development of the capital market and the growth of the nation’s economy. The SEC DG, who spoke at a one-day Webinar with the theme: “The Imperative of Non-Interest Capital Market for Pension Industry,” said this product had been judged as one of the most appropriate for the funding of long-term infrastructure.

Yuguda said the event was the first in a series and it is aimed and providing a conducive platform for knowledge and experience sharing among participants and to enlighten them on this way of investing and financing. He described the pension industry as one of the fastest growing sectors in the nation’s economy with assets under management at N13 trillion as at the end of September 2021, adding that of this impressive amount, less than N80 billion is invested in sukuk, representing a little less than one per cent of total pension assets under management.

“This calls for more innovative financial products to deepen our market and sustain the growth in the industry especially in the non-interest segment. We strongly believe that the capital market has a leading role to play in this regard by providing a variety of longterm investable products to service the needs of the pension industry as well as other investors with similar focus.

“It is encouraging that the National Pension Commission has taken concrete steps to improve the regulatory framework for the investment of pension funds in the non-interest capital market by the introduction of operational framework for the non-interest fund.

“This will, no doubt, provide an additional opportunity for retirement savings account holders and retirees to invest their savings in financial instruments that are aligned with their goals and objectives. Indeed, the operationalization of the funds definitely accelerates the national financial inclusion agenda while increasing the quantum of investible funds by unlocking the untapped capital.”

Yuguda stated that as at September 2021, the total assets stood at N7.79 billion, constituting of about 0.059 per cent of total pension assets under management expressing the hope that the fund assets will grow with robust public awareness, education programmes and capacity building of stakeholders through seminars, workshops and programs such as this.

“SEC, in realisation of the potential of the non-interest segment of the capital market, has a veritable avenue for providing long-term capital launched its 10-year capital market masterplan with a very strong focus on the development of the non-interest capital market segment through awareness creation, capacity building, review of regulatory framework and development of noninterest projects and services. “I am happy to report that a significant number of its strategic initiatives have been achieved as several sharia/ ethical funds have been registered by SEC. In addition, SEC collaborated with MO towards providing a framework for the issuance of the first FGN Sukuk in 2017 and two other issuances of sukuk have followed.

“However, we believe that more work still needs to be directed towards achieving other critical initiatives of non-interest in our capital market plan. “At SEC, we have been approached by a number of potential corporate issuers of scope and we have registered the first issuer of scope, we are aware that a number of corporate issuers are interested in issuing sukuk, but some of them have noted that they will like clarity on the neutrality of the sukuk vis-a-vis corporate bonds. “The increased supply of scope will hasten the development of the non-interest capital market because I am confident that the non-interest finance experts gathered here today will invoke the interest and attention of participants and enhance their knowledge of the subject to eventually lead to the birth of promoters and on takers of non-interest products of the capital marke.”

In a goodwill message, Director General of the National Pensions Commission (PenCom), Haji Aisha Dabir Umar, commended SEC for organising the webinar on the Imperative of non-interest capital market products for the pension industry. Represented by Commissioner Administration, PenCom, Dr. Umar Farouk Aminu, the PenCom boss acknowledged with appreciation, the collaborative efforts of Pencom and SEC, which have over the years laid acceptable values and good governance standards in their investments of pension funds in the Nigerian capital market. She said: “As you may be aware, Pencom recently released a list of operational quidelines for non-interest funds. It is our belief that this singular act will promote financial inclusion in Nigeria, and particularly drive enrolment in the macro pension fund.

It is my call that industry practitioners gathered here will come up with practical measures to facilitate the issuance of non-interest instruments in the market.” She stated that PenCom remains resolute in ensuring that all instruments meet this requirement before pension investment and commended the collaboration between PenCom and SEC towards deepening the capital market to sustainably introduce non-interest products. In his remarks, Secretary General of the Islamic Financial Services Board, Dr. Bello Danbatta, described Islamic finance as a complementary system, adding that no system would be able to develop without integrating it in its financial system. He said: “Sustainable finance is not complete without integrative finance and integrative finance is only possible when you have non-interest and interest-based finance.”

Last line

There is need to intensify public awareness to showcase benefits of noninterest banking practice in the country. Such enlightenment will improve the volume of patronage as well as stimulate overall economic development.

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