Diversification of Islamic Financial Instruments
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3 CASE STUDIES IN DIVERSIFICATION OF ISLAMIC FINANCIAL
INSTRUMENTS
The following chapters, from 3.1 to 3.10, examine ten (10) different countries, as mentioned in
the Introduction, as case studies in the diversification of Islamic financial instruments at
present, in Islamic banking, Islamic capital markets and Takaful segments in these countries.
3.1 CASE STUDY: NIGERIA
3.1.1 SUMMARY
The Islamic finance sector of Nigeria comprised of active players in the Islamic banking,
Takaful and Islamic capital market segments. Even though it is a relatively new concept
compared to the conventional finance, it has high prospects for growth and development as
evidenced by the increasing number of institutions as well as the impressive growth rate. An
analysis of the sector revealed that most of the basic Islamic financial contracts are offered by
the Islamic financial institutions however the following contracts dominate: Qard Hasan,
Mudharabah, Murabahah and Ijarah. The sector is also being challenged by lack of adequate
Islamic finance architecture which poses threat to its growth and development. The legal and
regulatory environments are still not fully developed to effectively support its workings.
Additionally, the Islamic financial institutions are constrained largely by lack of knowledge and
expertise to come up with sophisticated Islamic financial instruments beyond the traditional
instruments. These factors have adversely affected the ability of the institutions to innovate
thereby limiting the diversification of Islamic financial instruments in Nigeria. There is
however great expectations that over time we will begin to see innovations in the development
of the Islamic financial instruments as there are some educational institutions offering courses
in financial engineering in Islamic finance in the country. This will expectedly bridge the
knowledge gap of the operators and facilitate innovations in product developments. For
proper development of diversified Islamic financial instruments, some key recommendations
in the areas of regulations, capacity development and legal requirements are made in the
paper.
Nigeria is located in West Africa and has a total area of 923,768 square kilometers. It shares
land borders with four (4) Countries: Chad, Niger, Benin, Cameroon and a water border with
the Atlantic Ocean. It is a political federation consisting of 36 autonomous States with Abuja as
its Capital. It runs a presidential system of government and has multi- ethnic, religion and
cultural identities. According to the World Bank, Nigeria’s population is currently estimated at
about 184 million inhabitants accounting for 47% of West Africa’s population, and a 50%
Muslim population (2015)16 – with the Muslims population in Nigeria being quite large. It is
this huge Muslim population and the fastest growth of Islamic financial institutions that make
Nigeria a great potential for Islamic Finance.
16According to the CIA’s World Fact book 2016, the religion distribution of Nigeria was: Muslim 50%, Christian 40% and
indigenous beliefs 10%