The Roadmap to
Guided Growth
of the Nigerian
NICM
2014-2024
PROGRESS REPORT OF THE NICMP MASTER PLAN COMMITTEE
Presented at the 1st quarter 2014 CMC meeting, 26th March, 2014
1
Presentation Coverage
• Mandate
• Need for NICM in Nigeria
• Vision
• Current State
• Growth Potentials
• Growth Impediments
• Strategic Objectives and Initiatives
• Recommendations
• Outstanding Work plan
2
The Mandate
3
THE MANDATE
•
On 9th September, 2013,
the SEC set up a technical
committee and approved
the
mandate
for
the
NICMPs Master plan
4
TERMS OF REFERENCE

Review the current legal/regulatory framework for NICMPs to align with
international best practice.

Review and recommend an appropriate structure of over-sight bodies e.g.
(Shariah Advisory Council) for NICMPs where necessary.

Identify ways of using such NICMPs e.g. (Sukuk) as a tool for financing
infrastructure in Nigeria having considered the experience of other notable
jurisdictions (Malaysia, Dubai etc.)

Identify the tax issues and other incentives that will attract participants toward
NICMPs e.g. tax neutrality incentives for interest expenses to develop an
appropriate market structure for such products.

Identify and examine any other factors that might affect the development of a
robust basket of NICMPS and make appropriate recommendations.

Design/recommend appropriate capacity building programme for both the
regulators and the market operators that would encourage financial inclusion.
5
BROAD GOALS OF THE NICM

ensuring financial inclusion - product
offerings to attract both conventional
and Islamic investors

national and regional economic growth
and development - meet domestic
needs and establish Nigeria’s NICM
market internationally, particularly in
Africa.
6
Goals of the NICM Master Plan

To set the foundations for the NICM
segment of Nigeria’s capital market
and to provide its strategic direction
over the next 10 years

To build a NICM that would be
competitive in meeting the country’s
funding and investment needs and
contributes
to
the
long-term
development of the country
7
THE TECHNICAL COMMITTEE MEMBERS AND SPONSOR
S/N NAME
ORGANISATION
FUNCTION
Rt. Hon. Zakawanu I. Garuba
SEC
Regulator
Lotus Capital Ltd
Fund Management
3
Mrs. Hajara Adeola
(Chairperson)
Alh. Rasheed O. Yussuff
Trustyields Securities Ltd
Stockbroking
4
Mrs. Oluwatoyin Sanni
Association Of Corporate Trustees
Trustees
5
Mr. Kasimu G. Kurfi
APT Securities Ltd
Stock Broking
6
Dr. Timi Austen-Peters
Timi Austen-Peters & Co.
Solicitors
7
Mr. Dipo Omotosho
NSE
SRO
8
Mr. Dimeji Salaudeen
KPMG
Professional services
CBN
Regulator
NAICOM
Regulator
PENCOM
Regulator
Lotus Capital
Fund management
Sterling Bank
Banking
DMO
Debt Management
Accacia Holdings Ltd
Portfolio Management
16
Mr. Okosu D. Napoleon
(Co-opted)
Mr. Ahmad U. Kollere
(Co-opted)
Mr. Ibrahim Shehu Kangiwa
(Co-opted)
Mr. Masud Balogun
(Co-opted)
Dr. Basheer Oshodi
(Co-opted)
Mrs. Patience Oniha
(Co-opted)
Mr. Attahiru Maccido
(Co-opted)
Mr. Abass Abdulkadir
SEC
SEC
17
Mrs. Mary E. Ekwo
SEC
Head, Secretariat
1
2
9
10
11
12
13
14
15
18
Mr. Mohammed Salihu
19
Mr. Daniel Okonji
SEC
SEC
Secretariat
Secretariat
8
The Need for NICMPs in Nigeria
9
The Alternative route …beyond traditional
investments

Because it is asset based, it promotes transparency ,
accountability and consequently , good corporate governance.

NICMPs promote financial stability by linking the financial sector
with the real sector of the economy, hence making it attractive for
infrastructure financing.

Conventional and alternative models can and do co-exist and
enhance product depth and financial inclusion.

Following the slow growth in developed markets, it is critical to
diversify our sources of investment capital and NIMCPs provides
that opportunity.

A key prospect for this diversification is the concentrated wealth in
the rising Asian Tigers and the GCC zone (Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia, UAE) which tracks shari’ah compliant
10
investment instruments
The Alternative route …beyond traditional
investments

By issuing alternative capital market products, the
Nigerian sovereign and corporate organisations can
access a new investor base . This will widen the liquidity
available for investment in infrastructure and other
priority projects

The market provides an investment platform to attract
petrodollar investment potentials in the gulf Arab region
which are expanding their investment focus to Africa to
tap into the high returns in the African markets

The market will capture local investors who are seeking
ethical-compliant investments and opportunities and
thereby ensuring financial inclusion
11
ATTRACTIVENESS OF NICMPs

Priced competitively

Mostly rated instruments

Compliant
principles

Inclusive

Typically less volatile
with
Islamic
ethical
12
VISION
Against these background, Nigeria has a
significant potential to develop NICM that can
contribute about 25% of the overall capital
market capitalization within the next 10 years.
2014
2024
Overall Capital Market
Overall Capital Market
NICM
Non-Interest
Capital
Market
13
Vision: Sukuk 15% of Bond Market
N Trillions
60
50
40
Sukuk
30
Overall Debt
Market
20
10
0
2014
2024
14
NICMPs …The Current State
Malaysia
Nigeria
•Sukuk
•Mutual fund
•Index
•Indices
•Mutual funds
•REITs
•Ethical bonds (Sukuk)
•Structured products
•Futures
•Exchange Traded
Funds
• Ethical Venture capital
and PE
15
The Growth Potential
16
The Growth Potentials

Huge infrastructure deficit:
◦ According to ADB, Nigeria has an infrastructure need
deficit of $360 billion
◦ Construction growth in Nigeria will be the fastest of all
markets, according to the latest 10-year forecast from
Global Construction Perspectives and Oxford
Economics

Huge investment appetite of the Asian and
GCC countries.
◦ Substantial amounts of investment capital are
currently invested according to ethical principles.
◦ The estimated size of ethical assets was USD1.067
trillion globally.
17
The Growth Potentials

Large population and seventh most populous
country in the world – 170 million (2012 World
Bank est.)

Size of the economy:

The country has maintained an annual GDP growth of between 56% over the past decade.
18
The Growth Impediments
19
Huge potentials … underutilized
market
Awareness gap
Knowledge gap
Limited legal and regulatory framework
Dearth of market players
Product deficit
Lack of secondary market
20
STRATEGIC OBJECTIVES AND
INITIATIVES
21
STRATEGIC OBJECTIVES AND
INITIATIVES
Strategic Objectives
Strategic Initiatives
To build a strong regulatory foundation for 
NICM

Strengthen the institutional capacity of SEC
Strengthen coordination among regulatory authorities
within the financial sector
To encourage the development of NICM 
market stakeholders



Regulatory authorities to engage stakeholders
Conduct public awareness and education programmes
Build capacity of stakeholders
Ease entry into the NICM
To encourage the development of NICM 
products
Ensure availability of NICMPs that meet the regulatory
requirements of non-interest banks, takaful, PFAs, assets
managers and other fund/portfolio managers
Ensure availability of NICMPs that attract retail investors
in order to achieve financial inclusion
Regulatory authorities to engage stakeholders to
address tax issues related to new products


To create a regional NICM hub




Promote and enhance cross listing
Promote and enhance multi-currency listing
Rationalize cost of listing/issuance
Ensure active promotion of NICM
22
RECOMMENDATIONS
23
RECOMMENDATIONS
To Build a Strong Regulatory Foundation for NICM
SEC to:
• establish PMO to train and build internal capacity
on NICM
• Fast-track the review of guidelines on NICM
• standardize operational guidelines in line with
international best practice
24
RECOMMENDATIONS
SEC to:
• foster synergy among regulators in the Non-interest
financial sector through the Financial Services
Regulation Coordinating Committee.
• accept independent internationally recognized
Shariah advisors in addition to existing SEC rule
requiring Shariah advice to be obtained from the
operator/issuer.
• set robust minimum criteria for qualification of Shariah
advisers or advisory council for the operator/issuer
25
RECOMMENDATIONS
SEC to:
• Engage with NSE to understand structures and agree
on classifications of NICMPs
• engage PENCOM to amend guidelines for PFA’s
assets selection criteria to be risk-based rather than
the current approach which differentiates between
alternative (non-interest) products or conventional
products by removing specificity in guidelines such as
Sukuk and focus on broad asset class and risk e.g
fixed income, variable income and REITs
26
RECOMMENDATIONS
SEC to:
•
work actively with other relevant regulators
and the industry to initiate further measures to
improve the incentives and avenues for
exercising good corporate governance
•
SEC to develop an enforcement framework to
prevent market manipulation
•
SEC to use short term incentives to promote
NICM development
27
RECOMMENDATIONS
CBN to:
• amend BOFIA to accommodate the use of its assets
to create non interest liquidity instruments.
• consider restructuring the
Advisory Council of Experts
Financial
Regulatory
• provide optional generic NIB contracts template as a
guide.
• Issue non interest t-bills/OMO instruments and allow
sub-sovereign/sovereign sukuk as liquidity instruments
28
RECOMMENDATIONS
NAICOM to:
 consider
restructuring
Council of Experts
the
Takaful
29
RECOMMENDATIONS
To encourage the development of NICM market
stakeholders
SEC to:
• spearhead
initiatives
to
enhance
the
awareness of the market at domestic and
international levels through a comprehensive
educational and promotional programme,
including presentations and conferences.
•
establish a PMO to train management and
staff on the rudiments of NICM in the next12-18
months.
30
RECOMMENDATIONS
SEC to:
 educate retail
financially excluded investors on
importance of the NICMPs through mosques and
churches.

organize a roundtable on ethics and finance as a
strategy to enlighten the public.

organise inter-faith roundtable/forum on the importance
of NICMPs (e.g. NAIREC)
31
RECOMMENDATIONS
SEC to:
•
work with market stakeholders to define training
programmes and certification requirements for
licensing and continuous education of market
participants

work with ministry of education to incorporate
NICM as part of education syllabus in schools.

The SEC and SROs should commit a defined
minimum of their budget for investor education.
32
RECOMMENDATIONS
SEC to:
• revive the NCMI in collaboration with
qualified institutions to initiate and
consolidate efforts towards providing
training to enhance the technical
knowledge and skills of CMOs and other
stakeholders
33
RECOMMENDATIONS
To encourage the development of NICM
CBN to:
 issue non-interest T-Bills and short term papers
 explore the use of national institutions to
create assets
 Accept sovereign and sub-sovereign sukuk as
liquidity instruments
DMO to:
 issue sovereign sukuk to establish a benchmark
yield curve for Nigeria as there are no
impediments in its Act
34
RECOMMENDATIONS
SEC to:
 encourage operators to develop and offer
a broad range of NICM products such as
Islamic ETF, Islamic REITs and services on a
sustained basis to cater for a wider
domestic and foreign issuer and investor
base.

promote the development of new
products to mirror the conventional capital
market instruments
35
RECOMMENDATIONS
SEC to:
 work closely with the investment management
industry to facilitate the introduction and
promotion of a wider range of non-interest
collective investment schemes.

Collaborate with the tax authorities to
accelerate the process of addressing tax
provisions
that
may
impede
product
development and innovation, or discourage
participation in non-interest capital market
transactions.
36
RECOMMENDATIONS
SEC to:
 collaborate with stakeholders to pursue the
amendment of LUA to make the process for
perfection and transfer of title easier.

engage
the
Governors
and
relevant
stakeholders in the land registry to create a
level playing field for property acquisition using
non-interest
structure
together
with
conventional structure, and dispense with the
challenge of seeking double consent
37
RECOMMENDATIONS
SEC to:
 Liaise with Federal Mortgage Bank and other
stakeholders to put in place adequate
regulation in relation to primary mortgage
institutions offering non-interest mortgages
and also increase its services in the area of
non-interest financing.

Promote the establishment of a functional
commodity exchange with islamic index to
encourage the trading of screened
commodities
38
RECOMMENDATIONS
To create a regional NICM hub
SEC to:
 Encourage DMO to issue sovereign
sukuk to establish the long term yield
curve for the sukuk market.
39
RECOMMENDATIONS
SEC to:
 spearhead
focused
promotional
programmes
directed
towards
international markets

pursue
beneficial
synergistic
relationships with other major Noninterest capital markets such as
Malaysia, UAE and UK
40
RECOMMENDATIONS
SEC to:
 actively work with domestic and international
financial institutions to ensure listing of Nigerian
Non-interest equity funds on major world
exchanges

Collaborate with stakeholders to conduct
international road shows on NICM

create rules to encourage the establishment of
market makers on NICMPs to enhance market
liquidity.
41
RECOMMENDATIONS
SEC to:
 develop guidelines on Good Corporate
Governance for NICMPs in tandem with
International Standards

Liaise with FIRS to reinterpreted conventional
tax law such that interest receivable is akin to
‘income’
in
non-interest
finance
products/contracts
42
RECOMMENDATIONS
SEC to:
• In the interim, push for the implementation of the
provision of section 23(2) of the corporate income
tax(CIT) to ameliorate some tax inequality.
The President of Nigeria may exempt or order:
“Any company or class of companies from all or any of
the provisions of this Act; or from tax of all or any profit
of any company or class of companies from any
source, and on any grounds which appears to him
sufficient”.

In the long run, pursue of tax statute to create laws
covering certain contracts relating to NICMPs.
43
RECOMMENDATIONS
Governance

It is expedient to adopt a de-centralised
Shariah decision-making structure in line with
global best practice as follows:
i.
Appointment of qualified Shariah advisers
at industry level
i.
Non establishment of Shariah Advisory
Council at regulatory level
44
RECOMMENDATIONS
Governance
SEC to:
 adopt NAICOM’s provision that stipulates the
qualification for shariah scholars on a shariah
board.


create educate programmes for shariah
boards to improve their knowledge based on
finance

Amend SEC rule to permit leverage of any
other shariah mechanism.e.g. outsourced
45
RECOMMENDATIONS
Ongoing Assessment

For effective implementation of the
master plan reports, the mechanism for
reviewing
progress
should
be
institutionalized (e.g using the CMC
platform to monitor progress and
periodically
obtain
stakeholders’
perspectives)
46
OTHER RECOMMENDATIONS
To
facilitate
the
implementation
framework of NICMPs, SEC to:
•
collaborate with FIRS to ensure that FIRS
draft guidelines and regulation on noninterest transactions is released as a
matter of urgency to further give
confidence to investors
47
THE OUTSTANDING WORK PLAN
48
The Process of Developing the
Master Plan

In drafting the master plan, we have had series of
brainstorming meetings and a review session with
Mr. Omar Shaikh of IFC.

Some of the documents reviewed include:
SEC rules on Sukuk and Islamic Finance
Management
CBN guidelines on Non-interest banking
NAICOM guidelines on Takaful
PENCOM guidelines on multi-fund
Report of the Technical Committee on
Alternative Finance (Sukuk) in Nigeria
49
The Outstanding Work plan for
formulation of the Master Plan Report
Deliverables
Timeline
Consultation with relevant government
Ministries and institutions: DMO, NSE,
ICRC, FIRS, NSIA, NNPC, ICRC, CSCS,
CBN, PENCOM, NAICOM, NCC, Ministry
of Information, Ministry of Agriculture,
and Ministry of Trade and Industry
April – May 2014
Harmonize and intergrate the metrics of
NICM master plan with the other master
plan committees
Finalize NICM market master plan report
June 2014
End of June 2014
50
THANK YOU
51