Federal Govt Taps Non-interest Finance To Achieve $1trn GDP Growth

Minister of finance & coordinating minister of the economy, Mr Wale Edun has said federal government will tap into non-interest finance market to drive its $1 trillion GDP growth target by investing massively in infrastructure. “The funding that has to be raised, non-interest financing will be a critical part of it,” Mr Edun said yesterday at the 1st SEC Nigeria-IFSB International Forum on Non-Interest Capital Markets in Abuja.

He said the answer to Nigeria’s debt crisis is non-debt, equity financing mechanisms that do not need Nigeria to bear interest, rather, the financing opportunity non-interest finance gives. He said to achieve the inclusive economy goal of President Bola Tinubu, Nigeria needs to have green projects or green investments. 

The 2-day 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.

Director-general of the Securities and Exchange Commission (SEC) Lamido Yuguda said SEC is fully committed to fostering market development and innovation, maintaining a regulatory framework that ensures stability and fairness.

The DG and other speakers at the event, including the Secretary-general of Islamic Financial Service Board (IFSB)

Dr Bello Lawal Danbatta, said Nigeria has a lot to gain from growing the non-interest segment of its financial sector. Yuguda said Nigeria has the potential to join the league of global Islamic finance jurisdictions if it could address issues, such as inadequate awareness, regulatory harmonisation, and enactment of legislations that enhance legal certainty. An important area is the potential foreign exchange inflows from international investors to be attracted by Sukuk.

“This is a call to collaborate to grow and develop the West African capital markets and, by extension, 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,” he said.

Danbatta said the common objective is to ensure that disruptions associated with emerging trends are well-managed, increasing competition, productivity, and innovation in the non-interest financial system while ensuring financial stability.

According to him, emerging trends offer non-interest finance a new frontier for growth, focusing on value-driven finance and the ability to provide financial solutions that bridge sustainable development gaps and address financial inclusion issues. It is important to strategise for the protection of people, ensuring the resilience and sustainability of the financial system. Balancing different and competing needs and implementing appropriate safeguards will be essential to emerge stronger and better positioned to provide solutions in this new environment.

As we move into a transformed and more uncertain global environment, it becomes even more crucial for the industry to keep pace with global trends and be well-positioned to respond to changing demands. Non-interest and Shariah-compliant financial institutions have tremendous potential to navigate emerging challenges and remain relevant in this fast-changing domestic and international environment.

Like Danbatta, the managing director of Nigeria Deposit Insurance Corporation Hassan Bello common objective is to ensure that disruptions associated with emerging trends are well-managed, increasing competition, productivity, and innovation in the non-interest financial system while ensuring financial stability. 

He said it was imperative for various stakeholders, including industries, policymakers, governments, and regulatory bodies, to acknowledge the necessity of adapting to the evolving conditions. 

“It is not a stretch to say non-interest and Shariah-compliant finance holds great potential to support the global sustainability agenda,” Danbatta stated.

Those present at the conference said radical transition to climate finance and sustainable finance presents a great opportunity for the non-interest finance industry to tap into a vast and untapped global investor base interested in sustainable and responsible investment options. The observed diversification of capital market investors into non-interest finance products in recent years confirms the appeal when the products are structured as green or climate finance.

The Nigerian non-Interest finance market valued at $2.3 billion represents just about 0.52 per cent of Nigerian 2021 GDP. Nevertheless, the Nigerian non-interest finance market is coming of age with participants operating in most segments of the financial market. The market has demonstrated that it can support significant financial intermediation in various segments of the economy including commodities.

The global non-interest finance industry is expected to exceed $4.94 trillion by 2025 – an average growth of eight per cent yearly with a heavy concentration in banking, similar to conventional finance (IFDI, 2021). The Nigerian non-interest finance market is valued at $2.30billion at the end of 2021, ranking 13th on the Islamic Finance Development Indicator. Nigeria’s non-interest Finance Market significantly lags behind peers, representing just 0.075 per cent of the global Islamic Financial market which was valued at $3.06trillion at the end of 2021.

Nigeria’s Islamic banking assets – valued at $732 million – as a share of total banking assets is estimated at just 1 percent, the same level as Sri Lanka and Tanzania. This is relatively low compared to others like Bangladesh: 26.30 percent, Pakistan: 18.60 per cent, Libya: 6.10 per cent, Senegal: 5.00 per cent, Egypt: 4.00 per cent, Kenya: 1.00 per cent.