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Islamic financing: With these advantages, Nigerians should embrace it

Nigerians again have been encouraged to embrace the Islamic finance packages in view of the current economic situation and its quest for solving its financial problems.

Acting President of the Institute of Islamic Finance Professionals of Nigeria (IIFP), Dr Tajudeen Yusuf, during the induction 118 new members, said, Islamic finance is the only tool that can provide ethical finance that can solve societal problems.

He urged Muslims to develop passion for Islamic finance by engaging in researches, capacity building, structuring Islamic product to solve societal problems.

Chairman Advisory Board, IIFP, Alhaji Umar Abdul Mutallab, also encouraged Nigerians to embrace the benefits of Islamic finance irrespective of religious affiliations.

“The advent of Jaiz Bank PLC, Jaiz Takaful Insurance Plc., An-Nour Takaful Insurance Plc and the recent N100 billion Federal Government’s Sukuk Bond among others are few potentials of Islamic finance in Nigeria,” Mutallab said.

Gaining a stronger foothold

Islamic finance is today considered a very promising field within the banking sector in many countries. There has been an increase in market penetration, perception, knowledge and intent of consumers towards Islamic banking.

Survey results have shown that the appeal of Islamic banking and finance is growing among Muslim and non-Muslims consumers according to Islamic Banking Index.

Last month, First National Bank Botswana (FNBB), re-launched its offering of Islamic banking which it introduced into the local market a decade ago.

FNBB explained that, with the overarching practice of interest proscription, Islamic banking uses unique financial structures or arrangements to provide a liable alternative. This includes lease agreements in which the bank and the depositor (individual or business) enter into a joint partnership over a specified fixed term. This agreement works for either car or home purchase in which for the agreed period the bank owns the said items whereas the depositor exercises the right to use them and at the end of the fixed term ownership of the object will be transferred to the depositor. The FNBB car offering is available to individuals and businesses with a repayment period of up to 72 months and the home purchase offering has terms between 5 and 20 years, and for commercial properties between 5 to 10 years.

What’s to gain?

In a global market that predominantly operates through the conventional financial system, Islamic finance began its journey about 40 years ago. Initially its patronage was limited to the Middle East. But over the years, Islamic finance has grown progressively and has spread to over 70 countries and has become a $2 trillion market at the global level.

It comes with certain unique advantages which have made many countries including non-Muslims to embrace and venture into the market.

 

Accelerating economic development

Islamic finance companies certainly have profit creation and growth as their objectives, for which, they choose to invest in businesses based on their potential for growth and success. Thus in the Islamic banking industry, each bank will invest in promising business ventures and attempt to out-perform its competitors in order to attract more funds from its depositors. This will eventually result in a high return on investments both for the bank and the depositors. This is unlikely in a conventional bank where depositors redeem returns on their deposits based on a pre-determined interest rate.

 

Promotes the principle of financial justice

Financial justice is a basic requirement for the functioning of Islamic finance products. Western or conventional financing looks forward to profit through interest payments and makes the beneficiary completely liable for any risk. Contrary to this, Islamic financing paves way for the sharing of net profit/loss and the risk involved in a proportional manner between the lender and the beneficiary. Therefore, if a financier is expecting a claim on profits of a project, it is necessary that he/she should also carry a proportional share of the loss of that project.

It assists in financial inclusion

The conventional banking system is based on paying interest at a pre-determined rate on deposits of money. As both payment and receipt of interest is prohibited by the Sharia law, some Muslims generally abstain from banking. Through Islamic banking, financial inclusion can be promoted and a larger pool of savings can be brought into the economy.

 

Encouraging stability in investments

In Islamic finance, investments are approached with a slower, insightful decision-making process, when compared to conventional finance. Companies whose financial practices and operations are too risky are usually kept away by Islamic financing companies. By performing intensive audits and analyses, Islamic finance promotes the reduction of risk and creates the space for greater investment stability.

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