Industry is burgeoning and there is a lot of room for growth, but limited competition is holding Islamic finance back in Nigeria…
Nigeria has a Muslim population of close to 80 million, but the Islamic finance industry is extremely under developed. Over the past few months, however, Nigerian authorities have been studying and announcing new regulations that will allow the Islamic finance to grow and develop in the country. Nigeria’s banking sector has been the fasted growing in Africa, both in consumer and corporate sectors; it is also home to the largest Muslim population in Sub-Saharan Africa.
Over the past few months Nigerian authorities have announced a number of regulatory initiatives that will prepare the landscape for the development of a strong Islamic finance hub. Though there are only two institutions that currently provide Islamic finance services in Nigeria and only a limited number of products are available.
“The potential is there but the market is negligible in Nigeria because we have only one Islamic bank and one window — but it has potential to grow,” said Bashir Aliyu Umar to Reuters, who is a special adviser on non-interest banking to the Nigerian Central Bank governor. At the moment only Stanbic IBTC, a subsidiary to South Africa’s Standard Bank, and Jaiz Bank, a local Islamic finance only institution founded in 2012 operate in the market in Nigeria.
Islamic financial institutions have been spreading fast around the world, particularly in the Middle East and North Africa. Islamic investments differ from traditional investments in that they must offer interest-free services, adhering to certain Islamic religious values. The industry has already spread to over 50 countries, and is estimated to be worth over $1trn annually, according to Moody’s.
As charging and paying interest is banned under Sharia law, Islamic finance institutions instead invest in infrastructure or other types of projects and share risk and earning with the clients. Islamic finance institutions are not allowed to deal in financial risk markets or participate in the sale or purchase of mortgage-backed securities, or any type of credit default swap, either. Investing in industries such as cigarettes and alcohol manufacturing, casinos and adult entertainment companies, all of which are not tolerated under Sharia law, is also forbidden.
But in Nigeria there is room for the market to grow, despite its innate restrictions. Research by local group Efina has suggested that close to 35 percent of Nigerians that do not invest in non-interest banking products were likely to do so if these services were available to them.
Since its inception in 2012, Jaiz Bank has already increased its branches from three to ten, and has announced plan to open 100 branches before 2017. However, the market is lagging behind in competition. Sterling Bank, another local institution, has recently been granted approval in principal to launch an Islamic finance arm, and a further two institutions have expressed interest in the market, according to the central bank. However, for the time being Jaiz and Stanic are the only Islamic finance providers.
*This article was published by WorldFinance.com. Read the original article here.