The Gains Of Islamic Finance Revealed

• Shariah Expert, Prof. ABDUL-RAZZAQ ALARO Reveals A Lot

Let’s talk briefly about the impact that Islamic finance should have. The first impact that we expect to see in the society if we truly implement what Islamic finance is, is that it must result in Poverty alleviation and social welfare, especially through what we call Islamic social finance.

An internationally reputed organization, UNHCR, that is United Nations High Commission for Refugees, it stated in its report in 2022 that in 21 countries and impacting about 1.5 million refugees and IDPs through the instrument of Zakat and Sadaqah.

You can see the statistics, including some African countries, Nigeria and other African countries, that people were actually impacted, especially the poor and the less privileged, through the instrument of Zakat and Sadaqah as a product of Islamic finance.

We also expect to see in society an impact for the implementation of the values of Islamic finance that Women who are usually considered in every society as having lesser opportunities to economic advantages. We want to see the empowerment of women. So women empowerment is actually a major impact that we should expect to see if we bring on board all the values of Islamic finance.

Number three, even in terms of Education and Healthcare initiatives, there is another product of Islamic finance that we call WAQF. WACF has been used all over the world to establish schools, universities, hospitals, and other institutions that have a lot of benefits to society. And at this point, because this is a Takaful (Solidarity or Mutual guarantee form of insurance, a type of Islamic insurance that allows individuals to pool their money together to insure against losses or damages.), essentially a Taqaful-centered conference, I want to throw up a challenge for the operators in Nigeria. We are talking about the impact of Islamic finance in the area of education and healthcare initiatives. I don’t know what is keeping you away up to today as far as my findings are concerned. I’ve not seen any Taqaful operator venturing into the healthcare product of Takaful, using Taqaful for healthcare. All that I’ve seen in circulation, either NHAIS, that is the national one, or state-based one, are all conventional insurance-based.

Why? Taqaful is a good product that can work effectively by letting people see the benefits and the real values of Islamic finance. So that is a challenge for our Takaful operators, and I think we have a golden opportunity at a conference like this to throw up such a challenge. This is another impact that automatically we should expect to see by way of supporting small and medium enterprises.

I have given the figures that are coming from IDB, Islamic Development Bank, mentioning the billions of dollars that have been spent on intervention in various areas, energy, agriculture, by way of supporting SMEs through Islamic financial products. Sustainable development initiatives, particularly when we talk of green support that have been issued all over the world today, is part of the way of seeing the impact of Islamic financial values implemented in the society. Social impact is also part of it.

Social impact of Islamic finance is also a good way of seeing the impact. Recently, a few days ago, I read an online news item announcing that a UK-based firm actually launched a social impact support for housing, bridging housing deficit in the UK. And if the UK is thinking in this way of trying to bridge the housing deficit, I don’t know where we will be in Africa.

The truth of the matter is that the housing deficit is a global phenomenon, a global challenge, but it’s felt more on the continent of Africa. The reason being that many studies have established this. One of the major contributors to the housing deficit in the world is what we call rural-urban migration.

And this is happening at a very large scale on the continent of Africa. But there is a study by UN-Habitat that states that by year 2025, just two years from today, almost half of the population of Africans will be living in urban centres. So we will have more problems in this area.

And for those who will argue that we have no deficit, we will have no deficit, there are houses. I think we should look at the scientific definition of the housing deficit on its own. How do we arrive at a conclusion in any country that you have a deficit or we don’t have? We have two parameters to that. It’s either you have affordable housing that is inadequate, or you have adequate housing that is unaffordable. Either way, there is a deficit. Deficit does not mean we don’t have enough houses.

You can have adequate housing or sometimes you can have affordable housing but they are not inadequate. So I think this should be an eye-opener. If the UK is thinking that way, I think we have a bigger challenge in terms of housing deficit.

And social impact could be a circle in that regard for us on the continent of Africa. At the last lap of the presentation, we want to talk of the values as well as the potential growth, particularly in Africa. Here I’ve identified, but before I go there, I think I mentioned something.

In 2017, Bank Negara Malaysia, that is the Central Bank of Malaysia, released findings of a study on Islamic finance in Africa. It identified three key pillars that are driving Islamic finance in Africa. Namely, financial inclusion, simulation of economic activities, especially through funding and financing of SME activities and infrastructure funding. These are the three key pillars of Islamic finance on the continent of Africa. But beyond that, we can also explore other potential, other key factors that could contribute to the growth of Islamic finance on the continent. I’m going to mention about five of them, speedily.

Number one is the rapidly expanding market. Africa is a natural market for Islamic finance. I’m happy I had Aladji Carey mention this morning that Muslim population on the continent is in the region of 300 million men and women. When you have such a huge market, a natural market for you, that should be an opportunity that should be explored and exploited towards enhancing the introduction of Islamic finance on the continent.

Number two, we have many untapped potentials. What do we mean by that? We go back to the issue of financial inclusion. If you look at the rate of inclusion on the continent of Africa, it’s one of the lowest in the world. It’s like a parable that was given this morning that nobody is wearing shoes here. Here is a market for you to sell shoes.

In Africa, we have a very high rate of financial exclusion. People are excluded financially. I’ve given some of the statistics here. Like in Niger, our neighbour here, the financially included adult population in Niger is just only 3.5%. It’s only 10.9% in Congo. It’s only 7.9% in Somalia. It’s only 19% in Tanzania and 17.2% in Zimbabwe.

I didn’t omit Nigeria, but Nigeria is doing fairly well these days. We have about 44%, 44.2% rate. As I mentioned in my inaugural lecture delivered about two years ago, studies upon studies have established this.

Introduction of Islamic finance is a major driver of financial inclusion, the growth in financial inclusion that the country is experiencing. There is no doubt about that one. We can take that beyond Nigeria, look at markets where we still have a very large percentage of people that are financially excluded. That could be an opportunity to introduce Islamic finance to such markets.

Number three of the factors that could boost the growth of Islamic finance on the continent is that we have very, very friendly. I’m almost done. Very, very friendly regulatory environment on the continent. I don’t think they have it on other continents, maybe Asia. But in Africa, we have a very friendly regulatory environment. Many countries are coming up now to introduce one form or another of regulation of Islamic finance.

They are ready for you. About two, three months ago, I was privileged to be invited by the Central Bank of Nigeria as a resource person for staff from Tanzania. The Central Bank of Tanzania, Bank of Tanzania, sent a team to Nigeria to come and under-study us how we are regulating Islamic finance in Nigeria to replicate the same at home.

Uganda has even liked a new law of regulating their financial sector with a view to accommodating Islamic finance. So we have a very friendly regulatory environment which I termed as being the government support for the growth of Islamic finance.

Number four is that we have diverse economies on the continent. It’s not limited to banking. You can come through banking, come through insurance, come through the capital market, come through microfinance initiatives. So there are a lot of opportunities in Africa.

And finally, one of the potentially major drivers in future, in the next few years, of the growth of Islamic finance in Africa is the emerging market of Islamic fintech. This is a new and emerging market. And I’m happy it’s part of what is being discussed here in this conference. It’s an emerging market. But Africa is still playing minimally in that market. Africa is still being led by Indonesia with 20%.

Imagine, surprisingly, followed by the UK. The UK is following in Islamic fintech. I’m not saying fintech generally. Islamic fintech. Fintech meant for Islamic finance. The UK has a 15% share of that market, followed by UAE with 14%, and Saudi Arabia with 13%. We have some players from Africa, but I said minimally. Saudi Arabia each has 2% of the share of that market. So we need to do more.

It will become another booster for the growth of Islamic finance on the continent. In conclusion, by tapping into Africa’s potential for Islamic finance growth, financial institutions can strategically position themselves to benefit from the continent’s expanding Muslim population, untapped opportunities, friendly regulatory environment, diverse economies, and the emerging fintech market. Ultimately, all this will contribute to inclusive and sustainable economic development for all, and I thank you for listening.