How Islamic Fintech Can Reduce Poverty and Unemployment in Nigeria – Abdul Majeed Muhammad
As Nigeria worries about the twin effects of poverty and unemployment, Islamic Fintech has seen it as an opportunity to provide solutions to these issues.
Mr. AbdulMajeed Muhammad, Co-Founder Islamic Knowledge Foundation in Nigeria, and a volunteer at Al Huda Center of Islamic Banking and Economics in Pakistan made this point by discussing Islamic fintech and financial inclusion in Nigeria.
Sharing his thoughts, Muhammad said that Islamic fintech could provide support for Nigerian households and MSMEs. He said, as far as unemployment and poverty were concerned, fintech could reduce the scourges with the help of instruments such as easy payment and settlement solutions, remittances, person-to-person (P2P) lending, crowdfunding, and prudent investments.
According to the finance scholar, Islamic Microfinance that is shariah-compliant could be used to mitigate poverty or reduce the country’s unemployment rate. “Qard-Al Hasan can be used for charity and Murabaha that require buying and selling a commodity as well as Profit & loss sharing Mudarabha or Musharaka known as a partnership where the investor will be exposed to credit and market risk of the transaction along with the entrepreneur,” he said.
On the current Shariah Compliant fintech funds that could support the ecosystem and activities of Islamic crowdfunding, he noted that Zakat, Waqf, Sadaqat Takaful Technology fund could be used to ensure that people are enabled to fulfill their daily needs. The aim is to lift people from poverty in a way they can invest. Muhammad believed that Islamic fintech could support these initiatives.
Speaking on the guidelines released by the Securities and Exchange Commission (SEC), Nigeria for crowdfunding and how it would attract investments into Nigeria, the finance teacher called for broader regulations that would take into consideration the unique types of Islamic pooled funds or collective investment schemes.
He stressed that the draft regulation for Crowdfunding issued in 2020 by SEC which required SMEs to be established for two or more years, before accessing crowdfunding opportunities was a bad regulatory decision and could harm viable small and medium-sized businesses.
The lecturer cited Malaysia as a country that has an enabling regulatory environment for startups, which Nigeria could emulate to attract new investments.
He called on Nigeria to develop an Islamic crowdfunding platform for startup companies, which could provide funds in sectors like agriculture. Muhammad suggested a Qard-al Hassan model should be considered which would combine two characteristics such as being a charity and being independent and it will be placed under nonprofit crowdfunding. He concluded that Qard-al Hassan could work perfectly for start-up companies in Nigeria.
Looking at Islamic fintech operations for crowdfunding in 2020 and the prospects for 2021, Muhammad believed that Islamic fintech in Nigeria could tap into the population that is financially excluded and provide services to them that increased their financial participation.
He noted that from available statistics, Nigeria with over 126m internet users from 92.7m in 2015 provides immense opportunities for the growth of Islamic fintech, especially given the fact that the country has an impressive family and friends network and is adopting technology effectively.
Giving his perspectives on how Islamic fintech could support Nigeria’s quest at improving financial inclusion, he said that Islamic finance was a fast-growing segment of global finance, serving a population of over 2bn Muslims. He said the role of Islamic finance in growing MSMEs was undeniable.
He saw fintech as an emerging concept that uses technology to disrupt financial services, operations, businesses model, and customer engagement while financial inclusion can be seen as a process to ensure the accessibility, availability, and usage of formal financial services. According to Muhammad, this shows that every member of society should participate in the economy and use financial services at an affordable cost based on their need.
He said, since 2012 the National Financial Inclusion Strategy that targeted 80% financial inclusion by 2020, as in 2018 saw only 63.2% of the 99.6m adult population having access to financial services.
The Islamic fintech expert acknowledged the fast growth of fintech companies. According to him, in 2019 the financial technology companies raised $135bn across 2,693 deals globally for their innovation. He concluded that Fintech will play a vital role in promoting financial inclusion.
He said regulation is one of the challenges facing crowdfunding in Nigeria and advocated better understanding/ awareness of Islamic Crowdfunding. He added that Crowdfunding could be used to raise funds and drive enterprise development.
The Co-Founder Islamic Knowledge Foundation in Nigeria called on the government to educate people on the model in the country and strengthen the domestic cyber-security framework to tackle internet fraud.