GOING by the oversubscription to the $100m sukuk issued by the African Finance Corporation there seems to be strong appetite for Islamic Banking or non-interest banking products. What are the factors stimulating this appetite?
There is the current awareness on the part of investors to invest in projects which not only impact the society but are also ethical. Investors are now more than ever literate with respect to financial decision making. This we have seen playing out in the successful outcome of sukuks. Of importance too is the issuer, where the reputation of the issuer is above board it is a critical success factor in the launch of any product.
In addition to the above is need for diversification of portfolio particularly in view of its ethical and faith alignment. Also such product is very attractive to Arab GCC regions that have petrodollars that are yearning for investment outlet that aligns to Islamic Commercial jurisprudence.
How would you assess the response of Nigerians to non-interest banking products?
The response so far has not been too encouraging; more needs to be done by way of awareness programmes to onboard new clientele.
In spite of the below expectation responses which is unique to Nigeria, the outlook is very bright with the need for the infrastructure finance growing, the demand for Shariah compliant financing for housing and other household needs are growing by the day.
A very good case in point is the oversubscription of the Osun State Sukuk and despite the tradability status granted to such the holders of such are not willing to trade or let go of their holdings.
Besides Stanbic IBTC and few other banks, most Nigerian banks seem uninterested in offering Islamic and non-interest banking products? What is behind this apathy?
Lack of skilled manpower and increased compliance costs has been the major factors militating against getting new players. It is important to note that there are other financial institutions offering this product without the requisite licence – I don’t think it is necessary to mention that other institutions are practicing without license.
The below expected responses from the market mention above is also a factor as a number of financial institutions have adopted the wait and see status in order to avoid the first mover disadvantage.
Awareness and notion
The awareness and notion that such product and services are for a specific faith as opposed to same being opened to all irrespective of faith has also contributed.
For Nigerians who are interested in these products, what are the available options in the Nigeria financial sector?
The complete suite of products is available within the current list of approved players and with the Takaful coming on board risk in portfolios are diversified. I think that the complete list should be shared here.
The product are numerous as they range from consumer finance, working capital, stock/inventory, Contract/LPO, property, project and real-estate finance as well as infrastructure finance of both short, medium and long-term nature.
What is your projection for the non-interest banking market in Nigeria and Africa in 2017 and beyond?
With the product and services diversification by the players, the prospects has been improving year on year so are the balance sheets of the players. We are looking forward to more player joining within the year or next.
Besides the CBN guidelines on non-interest banking, what other policy or government initiative would recommend to boost stimulate interest in and boost the market for non-interest banking products in Nigeria?
A review of Tax and Property Laws would go a long way to boosting the industry. Provision of Non-interest based intervention fund as conventional banking counterpart is currently enjoying such tenured fund at single digit will also go a long way as a number of Nigerians have been excluded from accessing such fund due to absence of a sharia compliant counterpart.