Nigeria’s aim to be a hub for Islamic finance is failing to materialise as a shortage of skilled and knowledgeable operators and lack of products combine to slow the sector’s take-off.
“We have very few professionals, such as lawyers and accountants who are conversant with Islamic Finance,” said Kazim Yusuf, CEO of Kord Capital, a Shariáh compliant investment company, in an interview with BusinessDay in Lagos.
“Liquidity management in our industry is also a big problem, due to a lack of products,” Yusuf said.
Nigeria, Africa’s largest economy and home to some 80 million muslims, had planned to sell its first Islamic debt three years ago, as part of a bid to become the continent’s center for Shariah-compliant financing.
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“Nigeria will be the Islamic hub by 2020,” former Central Bank governor, Lamido Sanusi said in 2010.
The Nigerian government is however yet to issue a sukuk (a type of bond under Islamic finance), even as South Africa and Senegal move ahead with issuances.
South Africa sold $500 million of 5.75-year securities in September 2014 priced with a coupon of 3.9 percent, while Senegal sold 100 billion CFA francs ($208 million) of the debt in June.
Global sovereign Islamic bond issuance will rise 30 percent this year to $30 billion, dominated by emerging-market sales, according to Moody’s Investors Service.
In 2013, the Nigerian Securities and Exchange Commission (SEC) established a Non-Interest Capital Market 10-year Masterplan Committee, to develop strategies to foster the Sharia compliant sector.
“According to SEC Rules, “Public companies (including Special Purpose Vehicles), State Governments, Local Government, and Government Agencies, as well as multilateral agencies, are eligible to issue, offer or make an invitation of sukuk, upon seeking the Commission’s approval under set rules.”
There has been some progress although activities in the sector are way below potential, say analysts.
Nigeria’s Osun state sold N10 billion ($61 million) of Islamic debt in September 2013, the first state in the country to sell sukuk.
Lotus Halal ETF, a non-interest capital market product which tracks the NSE Lotus Islamic Index (NSE-LII) was launched back in August.
The NSE-LII index tracks the performance of 15 Sharia-screened equities listed on the stock exchange. Some of the companies comprised in the index include Cadbury Nigeria, Dangote Cement and Unilever.
“Interest has been strong,” says Hajara Adeola, the managing director of Lotus Capital, in an interview.
On the other hand, a lack of growth in the sector may be stifling the operations of the few active operators.
“It is very difficult for a standalone Islamic bank to operate within an economy that operates mostly interest based financial services industry,” said Babback Sabahi, Senior Counsel at the US Securities and Exchange Commission.
Jaiz Bank Plc is Nigeria’s only Islamic bank, according to Central Bank data. It was granted a license in November 2011.
Sanusi said in 2010 he expected the nation to have as many as three Islamic banks by the end of 2011.
There are few banks that operate so-called Islamic windows and companies offering Shariah-compliant insurance.
Stanbic Ibtc one of such banks, with an Islamic finance window, has about N3 billion in Sharia compliant assets it manages, according to sources.
“The potential for the sector is much greater than what is currently on ground,” said Yusuf. “The operators need to engage the public better, as there is a lot of misunderstanding about what Islamic finance entails out there.”
PATRICK ATUANYA
