The case of using Islamic finance as a tool for economic development

Friday, December 25, 2020 / 13:00 / Edited by Bukola Akinyele-Yisau for WebTV / Image title: Belt and Road News

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The Muslim population makes up almost 50% of the Nigerian population, Islamic finance and banking in the country have great potential thrive if deployed effectively. The Islamic financial industry has been growing steadily since its founding in the 1970s.

The global rating agency S&P estimated that the $ 2.4 trillion industry is expected to achieve single-digit growth in 2020 and 2021, amid the economic crisis fueled by the COVID-19 pandemic.

From the perspective of the investment community, Sukuk it has also expanded to several sovereign states and financial institutions from Hong Kong, the United Kingdom, Malaysia, Indonesia, Pakistan, the GCC countries, and Turkey. The emergence of new Islamic banks in the Philippines, Algeria and Afghanistan, as well as the development of new liquidity tools in the UK and Pakistan, have helped grow the existing Islamic banking market.

In Nigeria, the state of Osun N10bn 7yr Ijara Sukuk in 2013 and an appetite for increasing ethical finance in Nigeria, brought to the fore 3 successful Sukuk emissions with a total of N350 billion by FGN from 2018 to date, which are largely subscribed.

Islamic banking is beginning to take shape in Nigeria with the emergence of new regulations and markets that support the growth of the industry, and this has resulted in an increasing number of players resulting in two Islamic banks, four Takaful insurance companies, several microfinance banks and managed funds. This has led to the emergence of new Islamic banks in the Philippines, Algeria and Afghanistan, as well as the development of new liquidity tools in the UK and Pakistan that have helped grow the existing Islamic banking market.

The African continental agreement needs a free trade agreement (AfCFTA) to take place in January 2021. The Islamic financial market must explore opportunities to promote continental trade by providing products to finance trade in accordance with sharia law. This also includes launching a trade development program to shift more attention to the social impact, sustainability and innovation in trade finance after a pandemic, Islamic finance in Nigeria and the wider world must work for more integrated and transformative growth through digitalization.

Financial technology such as smart contracts, tokenized assets, and crowdfunding platforms would facilitate a larger number of Islamic financial assets at the bottom of the investment pyramid. Also, Islamic financial institutions should provide more points of contact for MSMEs with better standardized processes.

According to Salaam Gateway, the value of Islamic finance assets rose 13.9% in 2019 from $ 2.52 trillion to $ 2.88 trillion. Due to the impact of the COVID-19 crisis, the value of Islamic finance assets is not expected to show growth in 2020, but is expected to bounce and grow at a five-year CAGR of 5% from 2019 onwards and reach 3.69 billion dollars by 2024 The COVID-19 pandemic halted the growth of the Islamic financial sector this year, but spurred the development of more comprehensive and socially driven finance, whether through crowdfunding, public-private partnerships or support for small and medium-sized enterprises.

Sukuk has become one of the most prominent Islamic financing mechanisms used in recent years and is an important tool for financing infrastructure development for global emerging markets.

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