By Matthew Denis
The Director General of Securities and Exchange Commission (SEC), Mr. Lamido Yuguda has disclosed that in Nigeria the Islamic finance segment of the financial industry reached an estimated size of US$2.9 billion as at the end of 2022, with outstanding sukuk forming the largest part at 57 percent, followed by Islamic banks at 42 percent (total assets).
He made the disclosure during his opening remark at the SEC Nigeria- Islamic Financial Service Board (IFSB) International Forum held in Abuja on Wednesday.
Speaking at the event, he said, “The Securities and Exchange Commission (SEC), in its continuous commitment to fostering the development of a robust Non-Interest Capital Market (NICM), collaborates with the Islamic Financial Services Board (IFSB), an international standard-setting body.
“The IFSB plays a pivotal role in ensuring stability and resilience in the Islamic finance segment globally noting that SEC Nigeria and indeed all other IFSB members in Nigeria have greatly benefited from the IFSB’s services, including capacity building, technical support, and global visibility.”
The DG revealed that the SEC is fully committed to fostering market development and innovation, maintaining a regulatory framework that ensures stability and fairness. Today’s collaboration with the IFSB is a testament to our belief in open discussions and the exchange of ideas on vital matters for the benefit of our economy and the nation at large.
He quoted the International Islamic Financial Market (IIFM) that in 2022 the Islamic Finance Industry had an estimated size of US$ 3.25 trillion, with global sukuk issuances valued at US$182.72 billion.
“In Nigeria, the Islamic finance segment of the financial industry reached an estimated size of US$2.9 billion as at the end of 2022, with outstanding sukuk forming the largest part at 57 percent, followed by Islamic banks at 42 percent (total assets), and the remaining 1 percent split between Islamic funds (total assets) and takaful (total contributions).
“This shows that the Nigerian market makes up just 0.9 percent of the global non-interest market, indicating the dire need for more growth. With the country boasting a large population and a significant proportion unbanked, the long-term potential for Islamic finance in Nigeria is immense.” Mr. Yuguda stressed that the Non-Interest (Islamic) Capital Market in Nigeria has undergone transformative growth, becoming an integral part of our financial framework, offering a distinctive platform for ethical and Shariah-compliant investments.
“The NICM contributes to the diversity of our financial markets in line with our revised capital market Master plan 2021 -2025 since the debut of Sukuk in Nigeria in 2017, the Debt Management Office has raised almost N1.0 trillion to finance over 5,000 kilometers of critical roads & bridges with all such issuances oversubscribed.
“The oversubscription of the most recent 6th Federal Government of Nigeria Sukuk by 435 percent underscores investor confidence, showcasing the strategic role of Sukuk in infrastructure development and financial inclusion.
“We are all aware that sukuks backed by assets promote risk sharing in high-risk projects, offer flexibility in project stages and foster public-private partnerships. “Therefore, Sukuks are a good structure for infrastructure financing, as they clear the issuer’s balance sheet of debt, given that the investors own the assets to be financed and share in the gains from such assets.
“This is really an attractive capital market instrument to be explored by both corporates and governments at all levels.The non-interest capital markets have a huge role to play in the current economic program being pursued by the administration of His Excellency, President of the Federal Republic of Nigeria, Chief Bola Ahmed Tinubu, GCFR.
He said, “We are of the belief that the country’s economy cannot reach its target size without a lot of investments in critical infrastructure. Indeed, with the high debt-service to revenue ratio, sukuks present a viable alternative to other modes of financing.”
According to him, “Nigeria has the potential to join the league of global Islamic finance jurisdictions if we could address issues, such as inadequate awareness, regulatory harmonisation, and enactment of legislations that enhance legal certainty and clarity similar to what prevails within the conventional financial architecture.
Speaking on the benefits to Nigeria, he explained that it has a lot to gain from growing the non-interest segment of its financial sector. An important area is the potential foreign exchange inflows from international investors to be attracted by sukuks.
“With the current foreign exchange liquidity challenges facing the country, an opportunity to attract greater foreign exchange inflows must be explored using the non-interest finance market.
“International investors are also attracted to environmental and climate related initiatives. As such, there is a desirability for our subsequent Sukuk issuances to look at this as an important area.
“The Pension Industry Fund VI is presently not able to find enough instruments to fill its demand. This means that there is ready demand for sukuk issuances. With so many benefits of the non-interest finance market, then the question is why have we not been maximizing their potential? This brings us to the challenge of low awareness.
“This is one of the reasons for this forum and other efforts the SEC and other regulatory bodies attending this forum must continue to work towards exploring the full potential of this segment of the market.
“The SEC Nigeria has a 10-year (2015-2025) Capital Market Masterplan which was revised in November 2022. The Masterplan has special provision for developing the Non-Interest Capital Market with the aim of making Nigeria to be a regional hub for NICM in Africa amongst other targets.”
He revealed that the attainment of the Masterplan targets by 2025 remains a challenging distance. These targets encompass the introduction of 100 retail Shari’ah-compliant products, the attracting at least 1 million retail investors in Shariah-compliant products, the securing of at least N5 trillion in investments from institutional investors in Shariah-compliant products, and the facilitation of 50 listings of Shariah-compliant products with a market capitalisation of no less than N5 trillion by 2025. These are substantial milestones that requires our collective and dedicated efforts to actualize.
The DG noted that the Forum aims to leverage the opportunities and resources present among the esteemed participants to identify key challenges, explore regional initiatives, and promote sustainability and climate-related considerations in the Non-Interest Capital Market. It seeks to generate new ideas and promote global cooperation in transforming the non-interest finance space.
“Today, we are happy to have with us the Secretary General of AMF-UMOA, the capital market regulator of the UEMOA region. The UEMOA market is going through the same challenges as Nigeria is. “This is a call to collaborate to grow and develop the West African capital markets and, by extension, the economy. It is an opportunity to create cross-border products and build a market ecosystem for the non-interest segment of our capital markets.
“This would include equipping market players with the knowledge and skills they would need to participate optimally in the market. The SEC Nigeria, being an Associate Member of IFSB has benefited greatly from IFSB from capacity building, leveling on their standards to enhance regulations especially on Sukuk and Islamic Fund management and relying on the back of IFSB to have global visibility.”
He added, “I am optimistic that our discussions will lead us toward realizing the goals and objectives for the Non-Interest segment of the Nigerian capital market and the Nigerian economy.”
The highlights of the event was signing the Memoranda of Understanding (MoU) between SEC Nigeria and IFSB. Also Goodwill messages from stakeholders like NDIC, NAICOM, CBN among others.