IFN Monthly Article on Nigeria: December 2019 Issue

What does 2020 hold?

Nigeria’s Islamic finance industry looks set to continue its journey of expansion in 2020. New operators threw their hats into the ring in the banking and takaful segments at the tail end of 2019, while the assets under management of Islamic fund managers witnessed accelerated growth with the addition of a new fund.

My optimism is well earned. For one, the Federal government has returned to a January to December fiscal cycle. To this end, it has already rolled out an expenditure plan for 2020, which is news in itself. To fund capital projects this year, the government plans to issue Sukuk in the first quarter so it can hit the ground running on project execution. The government has also indicated its willingness to upscale the Sukuk offer size by 50% to as much as N150 billion ($492mn).

On the asset management front, we expect funds under management to grow in 2020. Shari’ah asset management was one of the most active segments of the market in 2019 with the emergence of a second Shari’ah fixed income fund. Islamic asset managers were able to complement the marketing efforts of Islamic banks in driving retail awareness and investor education and this should continue to pay off in 2020 with more asset managers signaling their intention to launch Islamic funds. Also, the increased adoption of digital services has enabled deeper penetration of Islamic funds particularly among the younger demographic. Nigeria’s young population of ages 15 – 34 years, forms approximately half of the workforce and they are a key target for digitally distributed Islamic funds and banking products. For swathes of Nigerian territory with poor internet services, some fund managers are deploying innovative fintech solutions to reach subscribers.

In the takaful segment, we envisage that more players will come on board this year. The insurance regulator, while announcing licensing approvals for two takaful operators late last year disclosed that, there were other pending applications for takaful licenses awaiting the regulator’s green-light.

The Islamic banking segment will not be left behind. A new regional Islamic bank opened in the northern region in November 2019. It is not unlikely that others will follow, given the size of the potential market. We expect the new entrants to drive innovation and competition across these regions to give Islamic finance a stronger foot print in the Nigerian market. The collateral benefit of the new entrants is a budding institutional Islamic banking and finance market place.

Clearly Islamic finance market looks set to expand. It is not unlikely that by the end of 2020, the Islamic finance landscape in Nigeria will bear no semblance to its current status. Interesting times ahead.

Hajara Adeola

CEO/Managing Director

Lotus Capital Limited – the Pioneer Islamic Financial Institution in Nigeria