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By Nkiruka Nnorom

The need to expand the depth of the Nigerian capital market through introduction of more products has been at the heart of the repositioning efforts of the regulators of the market led by the apex regulatory body, the Securities and Exchange Commission (SEC) since the 2008 crash. In line with this, the Commission is considering developing the non-interest capital market to ensure that the market fulfils its role of financing infrastructure development in the country.

Mounir Gwarzo, SEC, DG

The erstwhile director general of SEC, Ms Arunma Oteh, had argued in different fora that the federal government cannot finance the huge infrastructure gap in the country alone. According to her, bridging the gap and revolutionising the economy requires leveraging instruments offered by the capital market, of which non-interest Islamic products is one.

Explaining the reason for the renewed interest in Islamic finance, DG SEC, Mr. Mounir Gwarzo, said the development of Islamic capital markets has been a key concern of global securities regulators since the turn of the 21st century. “In 2002, the International Organizations of Securities Commissions (IOSCO) set up a Committee on Islamic Capital Market in which Nigeria actively participated. Since then, the SEC has implemented a number of reforms aimed at deepening the non-interest capital market” he said.

Accordingly, the SEC in 2013 set up an industry-wide committee of experts to develop a strategic blueprint for the growth and development of Nigeria’s non-interest capital market. Their recommendations have been incorporated in the 10-year Capital Market Master Plan which is currently being implemented by the SEC.

Why non-interest products

Non Interest (Islamic) Finance, despite its name, is not a religious product/service restricted to Muslims alone but a series of financial products developed to meet the requirements of specific group of investors. Non-Interest (Islamic) Finance is built on principles that uphold a positive ethical message derived from the holy Quran and the Sunnah, moral considerations, fair and just trading practices. This includes the avoidance of ribah (interest and gharar), contractual and legal uncertainty, as well as leniency to debtors where the borrower can prove mitigating circumstances.

Also avoided are investments in forbidden commodities such as alcohol, tobacco and companies whose debt exceeds one – third of  their assets. Islamic Finance therefore broadly refers to financial market transactions, operations and services that comply with Islamic rules, principles, philosophy and code of practices. As part of principles of Islamic Finance, wealth  must be generated from legitimate trade and asset based, while risk should be shared between the capital provider and the expertise.

Efforts by SEC

The SEC has in the last two weeks organised two major events in an effort to boost the non-interest capital market. In the first meeting with Lord Mayor of London, Alderman Alan Yarrow, recently, the SEC’s Director General, Mounir Gwazor, pledged the readiness of his management to ensure that size of non-interest capital market is grown to a quarter of the entire market capitalisation. He said the SEC plans to build a strong regulatory regime for non-interest products, encourage stakeholders in the non-interest capital market and ensure the emergence of Nigeria as a prominent non-interest capital market hub both at the regional level and globally.

He further stated that modalities for setting up a Sharia Advisory Council as a body of experts to advice on non-interest product applications is being considered by the Commission.  Only last week, it also organised a roundtable at Kano State, where the Commission reaffirmed its commitment to deepening the capital market through issuance of ethical products, especially the sukuk.

Speaking at the event, Gwarzo called on the state governors to leverage Islamic sukuk to finance projects in their various states. For him, the success rate of Islamic products is high in Nigeria on account of huge Muslim population in the country, which he put at over 80 million. He said”The global sukuk market continues to witness remarkable growth since after the 2008 global financial crisis as annual issuances have grown from $15 billion in 2008 to almost $120 billion in 2014.

“In fact, last year is widely considered a landmark year for Islamic finance, especially with landmark debut sukuk issuances by countries such as the UK, Hong Kong, Senegal, South Africa,   and Luxemburg. Of course, the year witnessed continued strong interest from key markets of Malaysia, Saudi Arabia and the United Arab Emirates (UAE) and emerging markets like Turkey and Indonesia. There is no doubt that the sukuk market is emerging on a global scale as a viable alternative source of funding”.

While describing Malaysia, Saudi Arabia, UAE, Kuwait and Qatar as the top five largest Islamic finance markets in the world as they account for the highest sukuk issuances and contribute more than half of the total assets under management in the industry, Gwarzo said that with Nigeria’s population which is far more than all five countries put together, the country should be a major market for global Islamic finance market.

“With over 80 million Muslims, Nigeria is home to far more Muslims than all the five countries put together. Additionally, Nigeria has a larger economy than them, with the exception of Saudi Arabia. There is therefore no reason why Nigeria should not be a major global Islamic finance market” he said. Speaking in the same vein, Emir of Kano, Mallam Muhammadu Sanusi II,  described non-interest banking as the only panacea for the dwindling global economy as it will impact positively on many developing economies.

Sanusi said non-interest banking was conceived to serve as a force of mediation in circumstances where the need for bridging the deficit of infrastructure was most needed, adding that non-interest capital market could only flourish with the Islamic banking becoming fully operational.