Nigeria is gradually opening up to Islamic finance, a move that could bring non-interest banking to over 80 million Muslims and develop one of Africa’s fastest-growing consumer and corporate banking sectors.
Home to the largest Muslim population in sub-Saharan Africa, Nigeria is trying to establish itself as the African hub for Islamic finance, which follows religious principles such as bans on interest and gambling.
In recent months, a string of regulatory initiatives have set the groundwork for products such as Islamic bonds (sukuk), insurance (takaful) and interbank lending products, although there is still only a small number of local market participants.
“The potential is there but the market is negligible in Nigeria because we have only one Islamic bank and one window — but it has potential to grow,” said Bashir Aliyu Umar, special adviser on non-interest banking to the central bank governor.
Islamic banking is currently offered by the Islamic window of Stanbic IBTC, a unit of South Africa’s Standard Bank, and Jaiz Bank, a full-fledged Islamic lender which has operated since 2012.
Abuja-based Jaiz now plans to obtain a national licence to expand operations beyond Nigeria’s north, which has been hit by an Islamist insurgency.
“That was where the security challenges started last year, that really affected the roll-out of the products,” Umar said.
Despite the challenges, Jaiz has grown its branch network to 10 from an initial three, with ambitious expansion plans calling for 100 branches by 2017.
It completed a capital raising in August, attracting investors such as the Jeddah-based Islamic Development Bank. As of June, it had total assets of 20.6 billion naira ($129 million) and capital of 10 billion naira.
Sterling Bank has been granted approval in principle for an Islamic window, while two more lenders have expressed interest in obtaining licences to operate Islamic windows, according to a central bank official.
The market needs the competition. A November report by Efina, a Lagos-based development organisation, estimated that 34.8 per cent of Nigerian adults who did not use non-interest banking products were likely to take them up if they were available.
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