Connect with us
Advertise With Us





By Abubakr Siddeeq Muhammad

Today we resume our series of the lecture presented by Alhaji Ahmed ‘Tunde Popoola during the 57th Nigerian Independence Anniversary Celebration Programme organised by the Nigerian Supreme Council for Islamic Affairs (NSCIA) held at the Conference Hall. Abuja National Mosque on Friday, September 29th, 2017. Enjoy:


The ERGP is the blue-print of the present administration to address the fundamental challenges we face and put us on the path of sustainable growth and development. As the government formulates plans and policies to grow the economy on a path of inclusiveness and sustainability after the recession, there is a lot to adopt from Islamic economics and principles. The primary objectives of Islamic principles and economic system are equitable distribution of wealth and social justice. Islamic fiscal policy is used to achieve the objectives of economic stability, growth and acceptable distribution of wealth. Islam establishes a high degree of economic equality and conscious avoidance of wealth concentration. Secondly, since Islam prohibits payment of interest on loans, it implies that interest rate cannot be manipulated or become the instrument to achieve equilibrium in the money market. Islamic economic principles can help and they are worth considering in the following areas:
Providing and funding public infrastructure
Promoting free enterprise – SMEs and agriculture
Financial inclusion and social safety nets
Tackling corruption.
Human capital development.

Providing and Funding Public Infrastructure
Economic literature has identified reflation through government spending and restoring production and consumption capacities to the private sector and households as the way out of recession. Governments have resorted to borrowing from the local and international financial institutions and multilateral agencies and governments. In the last four years, total government borrowings have increased from N8.5 trillion in 2013 to N14.06 trillion and US$15.05 billion as at June 2017. This is expected in time of recession as government needs to spend to stimulate and reflate the economy.

However, servicing the debt becomes a challenge especially when they are foreign currency denominated. With the current exchange rate regime, funds required to service the debt currently represents about 23% of 2017 national budget, translating to spending about N23 out every N100 earned in debt servicing. If not carefully managed, we may find the country in another debt trap, which we exited in the past through debt forgiveness and write-off.

Islamic finance is an alternative option worth exploring to raise funds for public works and to support the private sector’s access to finance. Worldwide, Islamic finance is no more peripheral to conventional finance. It is being operated in over 75 countries, including the western nations. The United Kingdom issued its first Sukuk on 2nd July, 2014 for the sum of £200 million to build residential homes. Hong Kong and South Africa are among nations that have issued Sukuk in the past. South Africa’s US$500 million Sukuk was four times over-subscribed. Part of the objectives of UK for the issuance was to position the UK as an international hub for Islamic finance and tap Sharia compliant investors. South Africa’s motive was to become Africa’s Islamic finance hub.
Islamic financial system is based on justice for the parties. Rather than Islamic banking dealing with borrowers and lenders, the system is based on buyers and sellers. Conventional banking is biased in favour of the seller, whereas Islamic finance attempts to level the ethics between the two parties.

Besides, Islamic finance system does not allow investment that harm people or the environment, thereby promoting sustainable finance. The fantastic options that Islamic finance offer for funding both public infrastructure and empowering small businesses should be explored to achieve sustainable development.
As we raise funds from international markets to invest in public works and infrastructure, Sukuk comes highly recommended to various governments. Sukuk is like bonds but its benefits outweigh those of bonds. Sukuk are backed by tangible assets rather than debt. While bond indicates a debt obligation, Sukuk holders are asset owners. The country will benefit from application of funds to specific projects rather than the situations where we have debts piling up on assets that may not be substantiated. Sukuk can be used to finance projects such as road, rail, housing, power and energy, agriculture irrigation systems, etc. without falling into interest-based debt.

I am glad to see that the Federal Government has embraced the issuance of Sukuk. Osun State had floated a N11.4 billion Sukuk in 2013. Just this month, the federal government issued a 7-Year N100 billion FGN Sovereign Sukuk due in 2024.

It is worthy of commendation by all Nigerians because Nigeria as a country will reap bountifully all the benefits associated with Sukuk. With this, the Federal Government has further diversified the sources of government funding, as it is offering opportunity not just to Muslims, but to all ethical investors to invest in government-issued securities. This important milestone is capable of helping to position Nigeria as a financial hub for sub-Sahara Africa. We cannot aim to become a financial hub if we are hostile to a particular form of investment option for local and international investors.
The greatest benefit, as far as I am concerned, is the expansion of the financial landscape to achieve a higher level of financial inclusion. Before now, investment opportunities in government securities were limited only to interest rate-priced products such as Treasury Bonds, Treasury Bills and Certificates. Significant number of Nigerian Muslims have long been excluded from the investment opportunities as it violates their religious beliefs and injunctions.

In addition, often, the projects to which the proceeds of such government securities are deployed are not disclosed and this makes some ethical investors to also abstain. The N100 billion Sukuk was raised for the construction and rehabilitation of sections of specifically named key economic roads across Nigeria, including:
Ibadan-Ilorin Road (Oyo-Ogbomoso axis)
Kolo-Otuoke-Bayelsa-Palm Road (Yenegwe Road Junction)
Enugu-Porthacourt Expressway (Enugu-Lokpanta)
Kaduna Eastern By-Pass
Kano-Maiduguri Road (Potiskum-Damaturu)
Bridge works for the Loko-Oweto bridge over River Benue.
Muslims and indeed all Nigerians and international investors seized the opportunity and invested in the Sukuk. It is gratifying and encouraging to learn that it was over-subscribed when it closed this week.

Promoting Free Enterprise – especially SMEs and Agriculture
Islam encourages commerce and frown at usury; it grants dignity to professionals and labourers. Adults should be enabled to find it easy to work and run their business. We should all commend the initiatives of this government in the practical support for agriculture and with the creation of the Presidential Enabling Business Environment Council (PEBEC). There is no doubt that agriculture is receiving attention through various initiatives especially the Anchor Borrowers’ Programme, the Rice revolution with the possibility that we may no longer import rice by 2018 and the boost in exports for cash crops especially cocoa and cashew. I understand that a lot of Nigerian Muslim farmers went on this year’s hajj with savings from farming rather than the past practice of government sponsorship. This is the typical example of teaching people how to fish and not just give them fish.

Similarly, the challenges around ease of doing business is receiving attention at the highest level. The promotion of SMEs is also receiving attention.
However, some state governments are paying lip service to the development of SMEs, as a lot of their projects and supports for SMEs are mere propaganda and political sloganeering. There is the need to separate SMEs development from poverty alleviation programmes. They look similar but they are not the same. Most of the SMEs support programmes of state governments are towards poverty alleviation. SMEs development requires helping start-ups to commence and overcome the challenges of early death; the focus should be to help build sustainable businesses. The business environment, access to market, capacity development and friendly regulations are all important to achieve this. While I do not discourage the idea of giving grants and subsidized loans to SMEs, a re-evaluation of the effectiveness of the various schemes is important. Besides, an important aspect of such programmes must be how to mainstream such beneficiary businesses into main line access to finance in loans and equity.
Nigeria should give special attention to innovation-driven SMEs in agriculture, ICT, tourism and fashion. These sectors are capable of absorbing SMEs, reward innovation, provide employment and promote necessary linkages. And this will also address poverty. When the states formulate policies, and provide infrastructure that stimulate the setting up and growth of small businesses, it will improve employment opportunities. In the medium and long term, when the productive sectors are virile, internally generated revenue will increase.
I have also observed that the federal government and most states established various initiatives and schemes to support access to finance for SMEs and those who would like to go into business. There are special intervention funds with considerable generous reduced interest rates either directly by governments or through special vehicles or agencies created for that purpose, such as the Bank of Industry, and Bank of Agriculture at the federal level and the Lagos State Employment Trust Fund by Lagos State. In all of these, there have been no role or consideration for non-interest finance.

States government should support SMEs by establishing enterprise agencies or in collaboration with private entities to address non-finance issues confronting micro and small businesses. Governments should support SMEs by encouraging the special vehicles created to introduce non-interest products such as Murabaha (trade with mark-up or cost-plus sale), Ijarah (operational and financial leasing contracts), Mudaraba (trustee financing contracts), Musharaka (equity participation contract) and deferred payment and deferred delivery sales. Banks such as the Bank of Industry, Bank of Agriculture and the newly established Development Bank of Nigeria should be encouraged to develop Islamic or interest-free finance products to increase access to finance and help wealth creation, especially among those who do not believe in interest-based loans, no matter the level of concessions. It is thus a veritable strategy of enhancing financial inclusion and equitable availability of funds.



%d bloggers like this: