Nigeria eyes increased Islamic finance instrument issuances

Guardian Nigeria

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00:00 Nigerian exchange and a bid to further deepen the capital market engagement is

00:05 targeting increased issuances of Islamic finance instruments especially from

00:11 corporates. Jude Chiameka, Executive Director Capital Markets at the

00:15 Nigerian exchange joins me now to discuss partnerships with Islamic

00:20 Development Bank Institute and near-term outlook for the market. Jude, thank you

00:24 for taking the time out to join us today. Thank you very much for having us.

00:28 It's always a pleasure. Right, let's get right to it. Now the NGX and the Islamic

00:32 Development Bank Institute recently held a capacity building workshop for

00:37 issuers and investors with the aim of deepening the Nigerian capital

00:41 market of course through the issuance of Islamic finance instruments. I'd like you

00:45 to just very briefly talk to us about some of the highlights and outcomes of

00:49 that particular meeting and how it's being received from corporates. Thank you

00:57 very much. As you know Islamic finance is really high on the agenda of the SEC.

01:02 As clearly articulated in the capital market master plan, the SEC is looking to

01:08 establish a 25% of all listed entities should have Sharia compliance in that

01:18 format. So as part of our commitment to deepen the market we had this capacity

01:25 building workshop with Islamic Development Bank Institute and the whole

01:32 idea is just to ensure that corporates have a better understanding of all the

01:36 various elements associated with Islamic capital markets and also to draw from

01:44 case studies across different jurisdictions where Islamic finance has

01:50 really helped to drive financial inclusion as well as help to finance

01:55 infrastructure notably in Malaysia, Indonesia, as well as Saudi Arabia. So a

02:03 lot of the corporates that were present had opportunity to interact with

02:07 industry experts just to deep dive into all the various elements around product

02:13 development and how they can actually utilize Islamic finance to finance all

02:18 the various gaps that they have. We have also state governments in attendance and

02:24 the idea again is to ensure that these states have a good understanding of how

02:27 Islamic products can help just raise the capital that they need to address

02:32 infrastructural gaps in their economies. Now within the Islamic finance

02:38 instruments, I mean just looking at how it's segmented it would appear that the

02:42 SEC appears to be the most popular. I mean the federal government is

02:47 already on its sixth SECCUC issuance so far but just wondering about the

02:52 others you know and the viability and how they can also be utilized in the

02:57 Nigerian capital markets and especially more particular about the corporates.

03:03 Yes I mean you're right SECCUC largely globally, I mean if you think about Islamic

03:08 finance it's about four trillion dollars globally and it's estimated to rise to

03:15 5.6 by 2026 and that figure 800 billion is SECCUC. So SECCUC largely dominates

03:25 Islamic finance in terms of for corporates even for governments

03:30 utilizing it to finance gaps in their infrastructure development. So Nigeria is

03:37 not an exception as well if you look at the size of the SECCUC markets in Nigeria

03:41 is largely dominated by the SECCUC. The federal government have been able to raise

03:45 close to a trillion Naira just for the insurance of SECCUC that have been used

03:51 utilized in the roads they are trying to reform. And the first SECCUC that was

03:55 even issued in Nigeria was done by the state, Ocean State, which was close to

04:01 62 million dollars by 2013 which was also used for construction of schools.

04:09 So SECCUC is a major component of Islamic finance and also have the Islamic

04:16 banks which is also a category and then insurance. And so the the idea was just

04:23 to curate and allow corporates to understand all the various elements and

04:27 how they can utilize this instrument to really raise capital. At the end of the day

04:33 it draws on the larger conversation which is really around the commitment of

04:38 this SEC around Islamic products. Nigeria fortunately has a very well established

04:46 Islamic framework for these corporates to utilize. There's a rule in place already

04:52 from the SEC as well as the NGX who also curated rules around how corporates can

04:59 utilize this instrument to raise capital. So this is just part of our efforts to

05:03 deepen the markets, create more products, create more awareness, but more

05:07 importantly allow investors also to understand the need for investing in

05:13 this instrument. A lot of the ethical investors may not find the vanilla bonds

05:20 attractive, but they certainly will be interested in this sort of Islamic

05:26 instruments that drives its origin from the Islamic core principles of

05:34 Sharia law compliance so that they will feel comfortable making the best use of these instruments.

05:41 Right, now in your conversations with the, I mean there is an attendance, the

05:46 investors potential would-be issuers, did they share any concerns with you or was

05:51 it very clear and did you get a sense that going forward and also tying this

05:56 to my next question, your outlook for the market or for each future issuances, how

06:01 optimistic are you? How soon do you see these issuances coming from corporates?

06:08 We're quite optimistic. We do have some operators that are actually going through the process of issuing more

06:14 instruments largely around the bond side, which is the Sukuk. But this also provided them an

06:21 opportunity to consider other areas. The large percentage of the conversation

06:27 will probably be seen as positive. Obviously just on the back of the desire

06:33 of the SEC to increase issuances, the target is around five trillion, market

06:39 capital five trillion and the NGX we are currently at 849 billion. So there's a lot of

06:45 room for improvement and we believe that this workshop will certainly

06:50 help to address that. Right, thank you so much Jude, we'll leave you there. Thank you for

06:53 sharing that insight with us here. Jude Chiameka, Executive Director

06:57 capital markets at the Nigerian exchange.

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