Islamic Finance Can Act as a Buffer Against Financial Volatility – Mallam Attahiru M. Maccido

Mallam Attahiru M.Maccido, Managing Director/CEO of One17 Capital Limited, is an International expert in Islamic finance and capital markets. His exemplary career has spanned regulatory, advisory, financial innovation, and strategic leadership in the Islamic finance and market sector of Nigeria’s economic sector.

Maccido’s expertise continues to shape ethical investment frameworks in Nigeria, and the Islamic finance sector focusing on Sharia-compliant products and portfolio management by Islamic finance institutions.  He has made significant contributions to the development of Nigeria’s Islamic financial system, including his role in structuring Nigeria’s first private Sukuk Al-Istisna in 2010 and the groundbreaking Ijara Sukuk for Osun State in 2013, His efforts have earned national and international recognition underscoring his impact in promoting ethical finance as a tool for economic development. One of the awards earned him the Africa Deal of the Year Award.

In this interview with PEACE Magazine in Abuja, he explains how Islamic Finance can be a buffer against economic challenges in developing nations.

Excerpts.

How can Islamic finance provide sustainable funding solutions for long-term infrastructural development in the modern economy, particularly in developing countries?

Islamic finance can provide sustainable funding through asset-backed instruments like Sukuk (Islamic bonds), ensuring that funds are tied to tangible assets and aligned with ethical investment principles. These mechanisms promote transparency and risk-sharing, reducing excessive speculation and debt accumulation. For long-term infrastructure projects, such as roads, energy, or housing, Sukuk offers a Shari’ah-compliant funding option that attracts both domestic and international investors, these include the FGN Sukuk series (I to VI) issued by the Federal Government of Nigeria, as well as state Sukuk issuances from Osun, Sokoto, Gombe, and Lagos. Similarly, corporations like Family Homes have utilized Sukuk (I & II) to raise funds, demonstrating the instrument’s versatility across public and private sectors.

What innovative financial products or services can Islamic capital markets offer to promote inclusivity, especially in underserved populations?

Islamic capital markets (ICM) offer a range of innovative financial products and services designed to promote inclusivity and provide access to finance for underserved populations. These products are primarily focused on ethical and sustainable financing, often utilizing Islamic principles to address the needs of marginalized communities. For example, Micro-Sukuk are affordable to low-income individuals and crowdfunding platforms, that reduce barriers to financing for small-scale entrepreneurs and enhance access to growth capital, allowing them to reinvest in their communities. Islamic Socially Responsible Investment (SRI). These funds empower underserved communities through investments that improve their living standards, education, and access to essential services. Green Sukuk, specifically to fund sustainable projects in underserved regions, such as clean water facilities, eco-friendly housing, or renewable energy is another innovative option.

Can the Islamic capital market surpass conventional capital markets in developing economies?

The Islamic capital market (ICM) has the potential to gain significant traction in developing economies, offering a complementary and ethical alternative to conventional capital markets rather than competing directly.  In markets like Nigeria, the rising issuance of Sukuk and the growth of Islamic banking demonstrate that the ICM is becoming a formidable force in finance. This momentum can lead to greater financial inclusion and diversification in investment options. While it may not necessarily surpass conventional markets, the ICM is positioned to play a crucial role in shaping a more sustainable and responsible financial landscape in developing economies. Its growth can enhance overall economic development, promote ethical business practices, and offer investors a wider array of choices aligned with their values.

What potential does Sukuk hold for fostering long-term development in underdeveloped nations?

Sukuk (Islamic bonds) hold significant potential for fostering long-term development in underdeveloped nations by mobilizing large-scale investments in key sectors. Attracting Foreign Investment: Financing Critical Infrastructure: Promoting Ethical and Sustainable Investments: Lowering Risk and Enhancing Stability:  Boosting Public-Private Partnerships: (PPPs) in sectors like infrastructure and energy.

In practical terms, what are the key differences between Sukuk bonds and conventional bonds?

Sukuk (Islamic bonds) and conventional bonds are two distinct financial instruments that serve different purposes and operate under different principles. Islamic bonds adhere to Islamic principles, avoiding elements such as riba (interest), gharar (excessive uncertainty), and maisir (gambling). It has strict Compliance with Shari’ah Law. On the other hand, conventional bonds are not subjected to Shari’ah compliance and can involve interest-based transactions. Since Sukuk returns are linked to the performance of tangible assets, investors may benefit from higher returns if the projects perform well compared to fixed interest payments from conventional bonds. By investing in Sukuk, investors contribute to financing projects that promote economic development and social welfare, such as infrastructure and renewable energy projects. This aligns with ethical investment goals and enhances their social impact. The asset-backed nature of Sukuk means that investors have recourse to tangible assets in case of default. This provides an additional layer of security compared to conventional bonds, where bondholders may only have a claim against the issuer’s creditworthiness.

What are the Benefits of Risk-Sharing in Sukuk for Investors?

The risk-sharing model ensures that all parties involved have aligned interests in achieving the success of the underlying asset or project. This promotes responsible management practices and encourages transparency.  Similarly, it has a potential for Higher Returns, Reduced Risk of Default, Support for Economic Development: and Diversification Opportunities. Sukuk can provide investors with diversification opportunities within their portfolios by including asset-backed investments that behave differently than traditional equities or fixed-income securities.

Can Islamic finance act as a buffer against financial volatility in developing countries?

Yes, the risk-sharing nature of Islamic finance can act as a buffer against financial volatility in developing countries, as evidenced by its performance during the 2008 Global Financial Crisis. Countries operating within an Islamic financial system were better positioned to withstand the negative impacts of the crisis. Research shows that Islamic finance, by prohibiting excessive leveraging and promoting equity financing, mitigates the risks associated with conventional debt-based systems. In developing countries, where economic shocks are common, this shared risk reduces excessive risk-taking and speculative behaviour, fostering a more resilient financial system.

Is the current structure and practice of Islamic banking in Nigeria truly aligned with Islamic principles? and where do you see room for improvement?

Currently, the Central Bank of Nigeria (CBN) has guidelines specific to non-interest financial institutions, providing the regulatory support needed for the sector to operate. Islamic financial institutions operate under frameworks that prohibit riba (interest), gharar (excessive uncertainty), and unethical investments.  In addition, they offer Shari’ah-compliant products, such as Murabahah (cost-plus financing), Mudarabah (profit-sharing), Musharakah (partnership), and Ijara (leasing). These products provide viable alternatives to conventional banking services, focusing on risk-sharing and asset-backed. Each Islamic financial institution in Nigeria is required to have an Advisory Committee of Experts (ACE) to ensure compliance with Islamic laws and principles. This helps maintain the integrity of financial products and operations. However, there are areas for Improvements. There is a need for broader product offerings that cater to different segments of the population. Innovative Islamic financial products that address sectors like microfinance, agriculture, and SMEs could improve financial inclusion and economic development, especially in rural areas. Also, more transparency is needed in how Islamic banks manage profit-sharing agreements and operational risks. Straightening governance mechanisms and improving report standards will help increase public trust. In this regard, strengthening internal and external Shariah audits will help ensure that Islamic banks remain compliant with Islamic principles in both spirit and practice. Ongoing audits can also prevent the risk of “Shariah-washing,” where institutions claim compliance without fully adhering to the principles. There is still a significant knowledge gap among the public regarding Islamic finance. Many people are unaware of how it differs from conventional banking or its benefits. Greater investment in public awareness campaigns and educational programmes will help build trust and encourage broader adoption.

There is a concern that the Muslim Ummah is not investing enough in the human capital needed to foster Islamic finance in Nigeria. What is your view on this?

The concern is valid and reflects a significant challenge for the sector’s growth. Islamic finance requires a workforce with specialized knowledge of both Shariah principles and modern finance. This dual expertise is critical for developing, managing and regulating Shariah-compliant financial products and services. Key Challenges are: a shortage of qualified professionals with a deep understanding of both Islamic jurisprudence and contemporary financial practices. This talent gap hinders the development of innovative Islamic financial products and weakens the sector’s ability to compete with conventional financial institutions. Another is limited educational resources, dedicated programs or certifications in Islamic finance.

What steps should be taken to address these Concerns?

There is a need for more targeted training programs that cater to both entry-level professionals and experienced bankers seeking to transition into Islamic finance. Financial institutions should collaborate with international organizations, such as the Islamic Development Bank (IsDB) or the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), to offer workshops and certifications tailored to local market needs. Furthermore, Universities and higher education institutions in Nigeria should introduce degree programmes and certifications focused on Islamic finance. Collaborations between universities, Shariah scholars, and financial institutions will help design curricula that balance theoretical knowledge with practical applications. International partnerships can also help align these programmes with global best practices. To encourage more members of the Muslim Ummah to pursue careers in Islamic finance, there should be public awareness initiatives that highlight the importance of this sector in Nigeria’s economic development. Campaigns could focus on career opportunities, the ethical and social impact of Islamic finance, and the role of financial inclusion in promoting shared prosperity. By creating internship programs, mentorship opportunities, and joint ventures between the academic and business sectors, Nigeria can build a pipeline of talent that is well-versed in both Shariah compliance and modern financial practices.

How do profit-sharing models like Mudarabah and Musharakah benefit small and medium-sized enterprises (SMEs)?

These structures offer several benefits that are particularly advantageous for SMEs like Reduced Financial Burden. Unlike conventional financing that requires fixed interest payments, profit-sharing models allow SMEs to avoid the burden of debt repayment during challenging financial periods. This flexibility is crucial for businesses with fluctuating cash flows, enabling them to allocate resources to growth and operational needs rather than servicing debt. The profit-sharing nature of Islamic finance fosters a supportive environment for entrepreneurs. This can lead to increased funding opportunities and financial backing for innovative ideas. Under Mudarabah and Musharakah, the financier and the entrepreneur share in both profits and losses. This shared risk encourages investors to provide capital, as they have a vested interest in the success of the business. In contrast, conventional loans often place the entire risk on the borrower. With Mudarabah, the financier provides capital while the entrepreneur manages the business, allowing both parties to focus on their strengths. The financier has the incentive to provide guidance and support to ensure the business succeeds, aligning interests toward achieving profitability and Success: However, in practice, SMEs face challenges accessing Islamic financing due to their perceived higher risk and often limited resources to meet formal financing requirements. Addressing these challenges requires improving risk assessment methods and expanding advisory support to make Islamic finance more accessible to SMEs.

What does One17 Capital Limited represent in Nigeria’s Islamic finance market, and what role do you envision?

One17 Capital Limited serves as a pivotal player in Nigeria’s Islamic finance market by embodying principles of integrity, innovation, and sustainable finance. Its mission is to bridge the divide between conventional finance and Shariah-compliant solutions, fostering an environment that emphasizes ethical investments and financial inclusion.  In the future, One17 Capital aims to lead the development of Shari’ah-compliant products tailored to meet the dynamic needs of clients. By remaining steadfast in its commitment to Islamic principles while embracing innovation, One17 is well-positioned to drive the growth of Islamic finance in Nigeria. This includes expanding access to financial services for underserved populations and contributing to the overall economic development of the region. As the market evolves, One17’s role will be crucial in shaping a more inclusive and sustainable financial landscape.

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