FG Mulls Non-Interest Window to Finance Key Projects in Nigeria
By Patience Ikpeme
The Federal Government of Nigeria is considering adopting a non-interest finance window to fund key infrastructure and green projects in the country.
This decision follows the government’s participation at COP 28 in Dubai. The Minister of Finance and Coordinating Minister of the Economy, Mr. Wale Edun, made this announcement at an international forum on strengthening the development of the non-Interest finance segment in Nigeria.
The forum was jointly organized by the Securities and Exchange Commission (SEC) and the Islamic Financial Services Board of Malaysia.
Edun emphasized the need for alternative financing mechanisms that do not rely on interest, but rather on equity participation. He stated that this approach is critical in addressing the global debt crisis and promoting rapid inclusive growth.
Edun also highlighted the importance of financing green projects and reducing reliance on foreign direct investment. He mentioned the production of electric vehicles and mass transit vehicles as examples of projects that align with the global climate action agenda.
The Director-General of the SEC, Mr. Lamido Yuguda, highlighted the vast opportunities in the Islamic financial market. He regretted Nigeria’s underutilization of this economic opportunity.
The Islamic Finance Industry was estimated to have a market size of $3.25 trillion in 2022, with global sukuk issuances valued at $182.72 billion. In Nigeria, the Islamic finance segment reached an estimated size of $2.9 billion at the end of 2022.
However, this accounts for only 0.9% of the global non-interest market, indicating the need for further growth. Yuguda emphasized the transformative growth of the non-interest capital market in Nigeria and its potential role in the country’s economic development.
Sukuk, a type of non-interest capital market instrument, was identified as a suitable structure for infrastructure financing. Its asset-backed arrangement allows issuers to clear their balance sheets of debt, as investors own the financed assets and share in the gains. Yuguda encouraged corporates and governments to explore sukuk as an alternative mode of financing, particularly due to the high debt-service to revenue ratio.
Dr. Bello Lawal Dambatta, the Secretary-General of the Islamic Financial Services Board, highlighted the alignment between non-interest finance and public-private partnerships in the infrastructure sector.
He emphasized the flexibility offered by the non-interest finance window, including the diverse structures available for financial backing. While the non-interest and Shariah-compliant finance industry has experienced significant global growth, it has only marginally contributed to climate action.
Dambatta emphasized the need to catalyze the transition of non-interest finance towards climate and sustainable finance principles to mobilize industry assets for climate action and promote green, inclusive, and resilient economic growth.
