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Summary: With the Federal Executive Council’s approval of the new Nigeria Economic Sustainability Strategy, a plan to bridge the gap between underdevelopment and poverty, the Non-Interest Finance Market has expressed interest in supporting the Economic Sustainability Plan (ESP’s) implementation. The Non-Interest Finance Market would contribute to the achievement of the ESP goals by providing financial support to agribusiness, implementing mass affordable housing projects across the country, financing infrastructure development, creating a vehicle for funding MSMEs’ growth, financially supporting dig-tech innovations, and promoting gas-led industrialization and large-scale investments.
With the roll out of the Economic Sustainability Plan of the Federal Government of Nigeria, the Non-Interest Finance Market has the capacity to support its implementation in ways that can reset the economy and achieve inclusive growth for the nation.
The Group Head, Non-Interest Banking of Sterling Bank, Dr Basheer Oshodi made this assertion as a guest during the special edition of the WebTV “Islamic Finance Weekly”, anchored by Bukola Akinyele.
According to him, recent data from the National Bureau of Statistics showed that Nigeria had a poverty rate of 40.1% implying that about 82.9m people are poor. However, the Non-Interest market has the instruments that can be deployed to bridge the gap of under-development in the country.
Speaking on the Economic Sustainability Plan (ESP), Dr. Oshodi believed the opportunities in the industry are enormous, and it is time for effective collaboration amongst stakeholders to support the economy.
From the ESP of the current administration he identified seven (7) key areas the Non-Interest Finance Market can support the governmentâ€™s plan to stimulate socio-economic activities in the country.
The areas identified for strategic intervention include:
- Affordable Housing
- MSME Development
- Digital Technology
- Gas Expansion
With Agriculture touted as a major anchor of the revenue diversification plan of the Buhari administration, he said instruments like the Ijara and Musharakah can be deployed to support leasing and mechanized equipments in the agro sector. Speaking further, he said that Non Interest Financial Institutions can create value and provide a financing vehicle for smallholder farmers for a period of one year or 6months.
This will enable the creation of markets for them to sell their products, serving as the intermediaries which will improve the quality of their lives and incentivize them to produce massively.
He believed, there is need for non interest financial institutions to get more involved in Agri-Business and support the sector post pandemic, exploring partnership transactions for smallholder farmers through the off-takers/ out-growers schemes.
With Nigeria’s current unemployment rate as 23.1% according to the NBS, there’s a need to address the burden of more than 50% of Nigerian adults who do not have a source of income. There should also be investments in farm estates to boost agro-based industrialization and processing.
2. Affordable Housing
Considering the housing deficit of over 17m and the fact that Nigeria is ranked among the countries with a large population living in Slums by the UN Habitat, Dr. Oshodi emphasized the need for the Non-Interest Banking stakeholders to collaborate and cooperate more to explore “Retail Sukuks”, that can create specific projects targeted at mass housing projects across the country that are affordable for Nigerians.
He also suggested Non-Interest finance initiatives like the “Real Estate Sukuk” in the nation.
3. Transportation Infrastructure
With the third successful Ijara N150bn Sukuk bond issuance by the Federal Government, the Islamic Finance expert was of the view that the over 400% subscription showed the wide level acceptability of the instrument for financing infrastructure in the country.
With several major highways already earmarked for financing by the Ijara Sukuk, the Group Head of Non-Interest Banking in Sterling Bank maintained that it remained a veritable source of alternative financing for the Federal Government.
Effective infrastructure especially link expressways across the nation are enablers for socio-economic activities.
4. MSME Support and Development
Statistics quoted from the Small Medium Enterprises Development Agency of Nigeria, SMEDAN shows that there are about 41million MSMEs in the country, who contribute over 70% of economic activities in the country.
Dr. Basheer Oshodi notes that 90% of the MSMEs in Nigeria are operating at the micro-business level seeking robust financing measures to scale their operations.
He made a strong case for Non-Interest Finance Institutions to explore how they can create a vehicle for providing funding to key growth MSMEs that can transform the economy and create more jobs, with a view to supporting them.
Islamic Finance Institutions can support the Federal Government’s plan to provide more industrial clusters for MSMEs in the country.
5. Digital Technology
In the age of the fourth Industrial revolution driven by digital technology, nations must reposition themselves to invest in the infrastructure and processes that can unlock the opportunities in the digital economy.
With the focus of the Economic Sustainability Plan on deepening the digital technology space, Islamic Finance institutions can provide capital for digital tech SMEs, supporting their innovations and products.
He also advocated for Non-Interest institutions to have equity investments in technology companies, forging a formidable partnership with them.
Oshodi urged stakeholders in the industry to partner and fund strategic tech hubs in the country.
6. Gas Expansion
In this area he believed initiatives like “Private Sukuks” can help to finance projects like Gas expansion across the nation, thereby driving a Gas-led industrialization that will also help to boost the power and energy situation in the country.
This according to him will lead to an effective utilization of the Natural Gas resources in Nigeria, that can support other industries including manufacturing petrochemical, Agro amongst others.
The COVID 19 Pandemic revealed the fragile healthcare infrastructure in Nigeria and the need for more large scale investments in research, innovation and capacity building.
“Strategic and well designed Mutli-billion naira “Healthcare Sukuks” focused on the healthsector, can help to provide financing for improving the landscape of the sector in the country, and the upgrading of medical equipments and the building world-class hospitals in the country” He said .
N150bn Ijara Sukuk Oversubscription
On the massive subscription of the Ijara N150bn Sukuk, Dr Oshodi said “the pricing at 11.2% and the alignment with the current economic realities in Nigeria led to massive reception of the bond in the market”.
Prospects For the Growth of Non-Interest Finance Market In Nigeria
Giving his perspective, the Islamic Finance scholar said that currently Africa in total accounted for 1% of the Global Islamic Finance Market, which leaves a lot of room for scaling, innovation and the need to deepen the market.
Speaking further he said Africa is doing very well in regulation but needs more players in the market
He acknowledged the fact that there was liquidity in the Non-Interest finance market that was not asset backed and called for innovative products and instruments like “FX Assets”.
Key Recommendations: Agribusiness, Affordable Housing, MSME Growth, Transportation, Digital Technology, Gas Expansion, and Healthcare all require the help of the Non-Interest Finance Market to build a sustainable economy.
About The Author: Dr. Charles Chukwuma Soludo, CFR is an Economics Professor and a former Governor and chairman of the board of directors of the Central Bank of Nigeria (CBN). Dr. Soludo had cumulative four years of post-doctoral training in some of the world’s most prestigious institutions, including: The Brookings Institution, Washington, DC; University of Cambridge, UK, as Smuts Research Fellow and Fellow of the Wolfson College; the UN Economic Commission for Africa as a Post-Doctoral Fellow; University of Warwick as a Visiting scholar and Visiting Research Scholar at Center for African Economies, University of Oxford.
Keywords: Non-Interest Finance, Economic Sustainability, Agri-business, Digital Technology, Healthcare, Infrastructure