Islamic finance can close gaps in financial inclusion

The role of Islamic banking in closing the financial inclusion gap cannot be overemphasised. This is because Islamic banking has an interest free strategy that is fast making imprints on the financial market of Africa’s most populous nation.

With over 80 million Muslims out of 170 million total population of people living in the country, experts believe Islamic banking will be one major driver of economic growth within the shortest possible time.

Islamic finance can target non-Muslim population. The demographic of people shut out of the financial circle is equally interesting.

The total adult population of Nigeria is 93.5 percent of which 60.5 percent are financially served and 39 percent remain excluded from the financial system.

According to a recent survey by Enhancing Financial Innovation and Access (EFIA), 30 percent of Muslims desire Sharia compliant financial products and another 50-60 percent will use them if they are price competitive (representing around 21-60 million). Today, there is only one full-fledged Islamic bank in Nigeria and just 400,000 (0.4 percent of the adult population) have a non-interest banking product.

Nigerian Islamic industry’s total asset size has reached N40 billion (about US$125.35 million) while deposits reached about N65 billion (US$203.69 million).

The year 2016 witnessed the upgrading of Jaize Bank, the only fully fledged bank, from a regional bank to a national lender.

Some new insurance Islamic firms (Takaful) have granted license by the National Insurance Commission to start operations and develop more market penetrating products.

Experts are of the view that the huge infrastructure deficit besetting the growth of the country is an opportunity for Islamic banking to make an inroad into the country’s economic and financial system.

That is, they can issue infrastructure bonds to finance huge government projects.

The sovereign sukul, a form of bond issuance, will be made ready by the first quarter of 2017. The only sukul issued so far is the $62 million yielding 14.75 percent, issued by the cocoa producers in Osun, South Western State of Nigeria.

In spite of the recession that hit Nigeria in the third quarter of 2016, federal government is optimistic that the industry will thrive as the central bank granted license to Taj Bank.

Globally, the Islamic finance industry has grown at double digits despite the weak global economic environment. By 2020, the Islamic finance industry is projected to reach $3 trillion in total assets with 1 billion users.

“This entails addressing aspects of interventions relating to peace building, stability and social cohesion; support critical productive infrastructure and service delivery; and provide capacity building and program management support in national, state and local government institutions,” said Kemi Adeosun, Minister for Finance.

BALA AUGIE