THE global business community is now looking up to Nigeria to deploy approprate policy mix to unlock the potentials of its capital market.
But how well this expectation is delivered will depend on the political will of regulators to implement competitive policies that will themarket play in the global turf.
Already Securities and Exchange Commission (SEC) understands that Nigerian capital market has amazing potential to serve as a catalyst for getting more people into the financial services industry. Its financial inclusion projects, deepening non-interest finance plans, campaign on e-dividend, push to get power companies and telecom firms listed on the Nigerian Stock Exchange (NSE) are all parts of the initiatives of the commission to unlock Nigeria’s economic potentials and create wealth for the people. Writes James Umeh
The Director General of Securities and Exchange Commission (SEC), Mounir Gwarzo, already understands that the potentials of the Nigerian financial market are enormous and have to be unlocked early to create wealth for the country.
That is why he is implementing key policy initiatives meant to deepen the Nigeria financial market, boost investors’ confidence and drive investment with new technologies.
Like the Central Bank of Nigeria (CBN), SEC is aware of the consequences of bringing more people into the financial market by creating seamless dealing platforms that raise confidence level in the market with sustain investors’ interest but deepen the financial market.
Judging by the infrastructural constraints facing the country a whole lot of people are looking up to institutions like SEC provide direction. Many believe that the very first step to achieving this will be to bring back the disenchanted retail investors and develop new policies that will attract many others to the market.
The e-dividend management system, which was launched last year by the commission in collaboration with the CBN and the Nigeria Interbank Settlement System (NIBSS) designed to enable investors have direct access to their dividends, has enjoyed some level of compliance from the investing public.
Gwarzo said the commission’s concern was to bring back retail investors to the nation’s capital market. “Our prayer is that in the next 10 years we will raise the participation of the retail investors to 45 per cent from less than two per cent presently,” he said.
He is also aware of the need to attract cheap funds into the financial market and get key sectors of the economy including power, telecom, oil and gas listed on the local bourse to not only create more tax net for the country, but to serve as engine room for economic development.
The SEC boss has said the Nigerian capital market has amazing potential to serve as a catalyst for financial inclusion. Speaking at the second Regional Roundtable on Non-Interest Capital Market in Sokoto, he stated that while most people identify capital markets as important sources of medium-to-long term capital, few realise their amazing potential to serve as catalysts for bringing so many people into the financial services sector in the interest of the economy.
“SEC is determined to unlock this potential of the Nigerian capital market. In particular, we are aware of the need to deepen the non-interest capital market space. This is to enable millions of Nigerians and people of faith to invest savings ethically. Investors worldwide are increasingly allocating their resources into Islamic finance products,’’ Gwarzo said.
Deepening Islamic finance market
The SEC boss also has interest in deepening the non-interest banking segment of the economy. He disclosed that total assets under management in the global Islamic finance industry had surpassed $2 trillion (N394 trillion) by the end of 2014, adding that the global sukuk market continued to witness remarkable growth since after the 2008 global financial crisis with annual issuances growing from $15 billion in 2008 to almost $120 billion in 2014 hence the need for Nigeria to key into it.
It was this development that propelled the Osun State to floatthe country’s first Islamic bond, taking a major step towards developing an Islamic finance industry in the country. Analysts said the Nigerian sharia-compliant bond issued by the state while relatively small at $62 million, signalled the start of a trend.
Last year was widely considered a landmark year for Islamic finance, especially with debut sukuk issuances by countries such as the United Kingdom, Hong Kong, Senegal, South Africa and Luxemburg.
There is no doubt that the sukuk market is emerging on a global scale as a viable alternative source of funding. In Nigeria, SEC has implemented a number of reforms aimed at deepening the non-interest capital market. For example, Gwarzo said the commission focused on the regulatory framework, reviewing the rules and introducing new ones.
“In particular, we issued rules on Islamic Fund Management as well as rules on sukuk issuance. These two legal frameworks have encouraged Islamic product innovation with the registration of five ethical/shariah compliant funds and the issuance of Nigeria’s first ever sub-national Ijara Sukuk by the Osun State government in 2013, which was oversubscribed. We are also considering modalities for setting up a Sharia Advisory Council as a body of experts to advise SEC and the market on non-interest products and their applications,” the SEC DG said, adding that state governments could leverage on the sukuk market to raise funds for developmental projects.
“We are working closely with the Debt Management Office (DMO) to ensure Nigeria issues her first sovereign sukuk that will provide the needed benchmark for other categories of issuers. We are hopeful there will be a significant progress on this front before the end of 2016,” he said.
Meanwhile, an international expert on Islamic finance, Sheik Abdulkader Thomas, said deposits from non-interest banking could be deployed into infrastructure funding and other developmental projects.
Thomas, who is an American living in Kuwait, described Nigeria as a huge market for non-interest banking given its large population base. He said the banking concept is a viable means of gathering huge deposits, adding that although Nigeria’s infrastructure is seen as a weakness, deposits from non-interest banking can be used to fix it.
He said, “Nigeria has very large population. We believe that non-interest banking will be very important to gather savings from the grassroots population,” he said.
Similarly, a Lagos-based stockbroker, Kingsly Ayoola, said prospects for Islamic finance are very bright. He said the finance system has become necessary since a very significant proportion of Nigeria’s population strongly believe that based on the nature of the capital market and the dictates of their religion, they cannot invest in the market.
He said there is, therefore, need to develop products that are attractive to these set of investors to allow easy flow of their funds into the market.
Aside the need to deepen Islamic finance market, the SEC said it would bear the cost of e-dividend registration for investors that register on time. It said that within three months, the commission has achieved over 4,000 per cent growth in the number of investors that registered to have access to their dividends.
SEC noted that the e-dividend management system meant to enable investors have direct access to their dividends, has enjoyed high level of compliance from the investing public. The commission has also embarked on various initiatives like e-Dividend, Direct Cash Settlement, National Investors Protection Fund (NIPF), among others, to attract retail investors to the market.
“As a country, we have only less than 2 per cent participation of retail investors in our market. Malaysia has 9 per cent, South Africa, 19 per cent, United States of America, 43 per cent, and United Kingdom, 13 per cent. So our market is highly less being participated by the retail investors. Due to the dominance of foreign investors, anytime they move out of the market, the market goes down. Our effort is to see that in the next five to10 years, we raise the level of involvement of the retail investor to at least five per cent,” Gwarzo said.
Power, telecom sectors’ listing
SEC is also leading moves to get the power generation and distribution companies as well as the telecommunications firms operating in the country quoted on the NSE and/or the NASD OTC securities market. The continued absence of the companies from the NSE and NASD, analysts said, was making the country to lose huge revenue through taxation.
They believe that very high percentage of taxes paid to the government comes from quoted firms hence it would be in the interest of the country that these companies and more are listed on these markets.
The SEC DG said the call for listing by the firms was hinged on the need to give the capital market the required depth to drive economic growth for the country.
In the areas of financial inclusion, it is on record that the SEC, CBN and other stakeholders are already addressing regulatory gaps and market structures hindering financial inclusion for the unbanked Nigerians and this collaboration is expected to improve the number of Nigerians that are financially included.
It would be recalled that the Lagos Business School (LBS), supported by the Bill and Melinda Gates Foundation, launched a multi-million dollar research project to deepen financial inclusion projects.
Deputy Director, Bill and Melinda Gates Foundation, Kosta Peric, said the foundation’s collaboration with LBS reflects its vision for Nigeria. For him, having an account or financial wallet is the first step for the poor unbanked population to move out of poverty line and any policy that discourages this step is distasteful.
Peric called on banks and government to avoid any steps that would discourage poor Nigerians from embracing banking services. “Our goal is to ensure that all people, especially those with the fewest resources, have access to the opportunities they need to succeed in life,” he said.
LBS don, Dr. Enase Okonedo, agrees with Peric that financial inclusion is a key driver for economic development and growth even as access to financial services improve the lives of the poor. She called for a broadening of the reach of low-cost digital payment systems, particularly in poor and rural areas so that by 2020, the rate of financial inclusion in Nigeria will grow from the present 60 per cent to 80 per cent.
“There are numerous challenges to overcome if Nigeria is to meet its goal. It means at least 18 million new users of financial services must be signed on in the next four years. But achieving this will require government and banks making banking attractive to the poor and avoiding policies that discourage grassroots banking,” she said.