Why Non-Interest Finance Market will Continue to Attract New Players in 2022

LAGOS: Despite global economic uncertainties, the Islamic Finance industry will continue to attract new players in 2022 and beyond, creating more value and supporting economic stability.

Mr. Ndako Mijindadi, the Head, Investments and Research, Lotus Capital Limited, made this point while providing his views on “Non-Interest Finance Market and Nigeria’s Sustained Economic Recovery in 2022”.

Providing further insight on what would constitute success for Islamic finance and investments in Nigeria, Mijindadi believedIslamic finance was on an upward trajectory. He noted that it has evolved into key segments like insurance, banking, pensions, microfinance and capital market investments. Mijindadi believed that the market would continue to expand with a favourable regulatory environment.  

On key trends that will shape the non-interest finance market in Nigeria, Mijindadi was optimistic that the Sukuk market would be a significant driver, and this also hinges on effective structuring.

According to him, “With proper structuring of the Sukuk market, there will be multiple issuance from the national and subnational governments, more innovative products and a significant growth in the asset management space”.

Speaking on the new variant and how it affected the global and national markets, he described Islamic finance, also known as the non-interest finance market, as resilient regardless of the pandemic. He noted that the institutions and the industry have continued to grow despite the challenges that came with the COVID 19 induced lockdowns and slowdown in economic activities.

In 2020 and 2021, he said that Nigeria witnessed significant growth in the asset management segment, an increase in the numbers of asset management firms operating non-interest finance products due to the pandemic. There was also an increase in savings for some people restricted from travelling, as they deployed their funds in areas that created value for them.

Also, in the banking space, other non-interest finance institutions were operating in the market, the takaful companies performed well amongst operators. In contrast, the Sukuk market continued to achieve momentum in the capital market space.

Speaking from a fiscal standpoint, he acknowledged the nation’s revenue challenge and high debt cost. He noted that a lot of work is needed to improve Nigeria’s revenue base through the effective implementation of the national development plan 2021-2025.

“Through this development plan, revenue to GDP ratio should increase from 8%. Also, tax revenue needs to increase to create a sustainable base for the country” – Mijindadi added.    

On the side of challenges facing investors participating in Sukuk issuance, he admitted that the level ofoversubscription in the Sukuk market shows an appetite for the non-interest market.  He stressed the need for more issuances and improved liquidity in the rapidly growing market.

Looking at the performance of Mutual funds in Nigeria in the previous year, the halal equity index compared with the ASI and the prospects in 2022.  He said it was an exciting year for the equities market. In Q1 2021, he noted that the All Share Index (ASI) was down by 5.8%, and the Islamic lotus index was also down by 3%, which showed more resilience than the broad market by half-year (H1,2021).   

From Q3, 2021, the analyst highlighted that the Islamic index was back positive by 2%, while the broad market index was still negative. The Islamic index finished 2021 with 5.74%, which marked the second consecutive year that it recorded gains.  He explained that this would continue in 2022 as some of the major drivers of the activities in the Islamic component index that range from the telecommunication market players like MTN, industrial goods segment players, and those from the consumer goods will continue to serve as significant components of the Islamic NGX Index.   

 

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