By Aduragbemi Omiyale
Though the Nigerian Sukuk market is still in its infant stage, it has the potential to grow bigger because of the large population of Muslims in the country.
This was the view of Fitch Ratings in an article published recently, where it noted that the local Sukuk market share of the global space still remains less than 0.5 per cent, according to International Islamic Financial Market’s 2020 Sukuk database.
In 2017, Nigeria launched the first sovereign Sukuk and since then, it has raised up to N362.5 billion ($918 million at N394/$1), representing 2.3 per cent of the country’s total domestic debt stock.
Last year, the sovereign Sukuk issue was 4.4 times oversubscribed and investors included pension funds, Islamic banks, insurance companies, retails investors, and asset managers. Notably, retail investors comprise a sizeable proportion of the investor base (17.3 per cent of the 2018 sovereign Sukuk).
Fitch said when these data are analysed, it is certain that the Sukuk market has a bright future in Nigeria, which is the fifth-largest Muslim population in the world.
The Securities and Exchange Commission (SEC) is also working to support the growth of the Sukuk space in Nigeria by ensuring that the non-interest capital market contributes at least 25 per cent to the overall capital market capitalisation by 2025.
“We expect local-currency Sukuk issuance to pick up as domestic investor appetite for such instruments is growing and the sovereign continues to seek alternative funding sources, as it faces heavy fiscal pressures due to the lower oil prices and the economic disruption caused by the coronavirus pandemic,” Fitch said.
Also, efforts are being made to popularise the Islamic finance industry in Nigeria and utilise the different products from the sector like the takaful, non-interest banking and others to boost the financial market.
According to Fitch, the total assets of the two fully-fledged Islamic banks in Nigeria; Jaiz Bank Plc and TAJBank, reached N214.8 billion ($564 million) in the first half of 2020 or less than one per cent of total banking industry assets, according to Islamic Financial Services Board data.
The sector’s growth has been similar to that seen in Indonesia and Turkey, countries with large Muslim population, where sovereign support helped Islamic banking to expand from a low base to a domestic market share of about 6 per cent. The African continent’s share of the global Islamic banking and Sukuk market was less than 2 per cent at end-2019.
