2021: A Year of Growth Opportunities for Islamic Finance - Proshare Nigeria Limited

Saturday, January 23, 2021 / 1:00 PM /Bukola Akinyele– Yisau for WebTV / Header Image Credit: Growth Business

One
of the bright spots for the growth of Islamic Finance globally is Malaysia, a
South-East Asian economic tiger that has provided an enabling environment and
leveraged the instruments to develop its economy.

Another
positive development is the volume of Sukuk issuance, which
according to the Fitch-ratings report increased by +12.
9% year-on-year to $118. 6bn at Q4,2020 of which about 33.6% is
estimated to mature in 2021 -2023.

According to Moody’s Investors
Service, Malaysia remains the biggest Islamic finance market in Southeast Asia.
Moody’s says the industry’s market share of total financing (excluding that of
DFIs) in the country stood at 35.6% as at end-June, 2020 compared with
34.9% in 2019 and 23.2% in 2013.

Islamic
finance from an economic perspective has played a critical role in
infrastructure financing, funding for health, education and sustainable
development which has brought significant impact for nations that adopted it.
Nigeria, Africa’s frontier economy is currently touted as the potential hub for
Islamic Finance on the continent.

To
achieve this the nation needs to set out a clear vison to reach and explore
ways of increasing collaborations with countries like
Malaysia, Indonesia, Qatar and United Arab Emirate, which are countries
that are strategic hubs for Islamic Finance.

Malaysia
has done a remarkable work of serving as a gateway for Islamic Finance and
pivoting its growth across Asia, Nigeria can learn from this and develop a
robust policy framework and regulation that encourages the growth of
Non-Interest finance in Africa.

In
2021 there are three potential accelerators for the Islamic Finance industry,
which include;

Inclusive standardization
Fintech- such as the usage of the blockchain
technology for structuring sukuk
ESG- Financial inclusion and social responsible
investment

Key Expectation for Islamic finance In 2021;

The harmonization of Shariah principles with
Islamic finance guidelines across jurisdictions.
More interaction between Islamic scholars and IFN
practitioners
The integration between Islamic finance, Takaful,
Islamic banking, the capital market with critical mass in the society.
Leveraging fintech to position Islamic Finance as a
tool for financial inclusion
Capacity building for regulators on the value of
Islamic finance
Liquidity Management and the Right Infrastructure
Adoption of Islamic-equity based financing to unlock
the growth of MSMEs
Expanding the scope of
the Sukuk instrument to support the provision of public
infrastructure
Utilizing Sadaqah,
Waqf, and Zakat as tools for Addressing the housing
deficits in
emerging and frontier economies

It
is important for all stakeholders to take the responsibility for emphasizing
the value proposition of Islamic finance.

Islamic
finance has the instruments that can assist a nation in fulfilling
their social intervention objectives.

Fintech
will really drive the development of Islamic finance but it will come
through technologies such Blockchain, AI, Robotics amongst others.

Financial inclusion is necessary and the application of technology in
delivering Islamic Financial services is very important. There is need
for proper assessment as technology is deployed to deepen Islamic
financial inclusion.

Fintech
and financial inclusion should be the key driver for Islamic finance industry
as there are several Muslim populations that are unbanked.

The
expectation is that the Islamic banking industry will show low mid-single
digit growth in 2021 after +11.4% in 2019 following
the strong Sukuk market performance, also COVID-19 offered high degree of
standardization and social Islamic finance instruments, and Fintech will
enhance the industry.

Look
out for our upcoming #IslamicFinanceWeekly video, an exclusive interview with
the Head, Fixed Income FBN Quest Asset Management, Ifeoluwa Dixon, where she will discuss: “Islamic Finance, Economic Empowerment & Financial Inclusion”