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Tuesday, June 19, 2012

THE NSE-LOTUS ISLAMIC INDEX


    Last Wednesday June 13, 2012, the agreement that will usher in the lunching of an Islamic stock index on the Nigerian stock exchange was signed between the management of the Nigerian stock exchange and Lotus capital, a premier Islamic fund manager in Nigeria. Before this day there were various speculations on the possible date of lunching the index or whether the index will be introduced at all looking at the controversies generated by the introduction of Islamic banking into the country. The development of Islamic finance around the world is a story of phenomenal grows of a concept that was initially greeted with skepticism and opposition. But, today thank to the hard work and initiative of the earlier pioneers of the concept Islamic finance is the fastest growing segment of international finance. The total asset under Islamic finance is put at over $1 Trillion that comprises such assets as banking, equity, and insurance. With over 1.2 billion Muslim in the world the potential for Islamic finance globally is enormous; this is in addition to it fast rising acceptability among the non Muslim population around the world. Today, there are many non Muslim countries in the world that are welcoming the system, those in the fore front include United Kingdom, United States, Germany, Switzerland, Russia, Japan, Australia, France, to mention just a few.  Islamic index like any other share index in the stock exchanges around the world comprises the list of shares of quoted companies, and one unique feature of the Islamic index being that shares listed on them most confirm to certain Shariah guidelines. That includes avoidance of Riba (interest), casino business (gambling), Alcohol, Pork making business, weapons industries, Pornography, etc. 


       The Dow Jones Islamic index is pioneer in this area, it made it debut in 1999 promising to make selection of stock out of about 5,000 listed on the New York exchange who also confirm with Islamic ethical finance requirements. Today, there are many other indexes around the global that attempt to filter the numerous companies listed on their respective stock exchanges in order to select the ones that are allowed by Shariah. An attempt is also currently been made to create a unified Islamic stock index for member countries of the Organisation of Islamic cooperation (OIC), this will provide a single plat form where all quoted companies on the exchanges of participating countries that confirm with the Shariah guidelines will be selected and put into one global index. Like with the Islamic banks, investing into the fool generated by the index is not restricted to the Muslim only, as non Muslim investors are also allowed to participate. There are many advantages to such Islamic index, one, it will provide avenue for stock exchanges to increase the flow of investment into them, both from domestic and foreign investors. Two, it will provide a means of portfolio diversification and as a hedge against certain risks that are apparent with the conventional indexes. Though, the Nigeria stock exchange has entered numerous up and down since the peak of the global financial crisis as evidence from it inability to recover from it current woos, the introduction of the Islamic index is a sign that the management of the exchange are now setting things in order. The introduction of NSE-Lotus Islamic index will definitely increase the attraction of the stock exchange to the fool of investors within and outside Nigeria.  


  Lotus capital becomes the first financial investment firm to introduce the concept of Islamic finance into the Nigerian financial landscape back in 2008. It came out as Islamic fund management firm that help Muslims and other ethically conscious members of the public to invest their money according to the dictate of Islamic law. Since that time the company has made a lot of progress that include the very recent lunching of an Islamic index in cooperation with the Nigerian stock exchange. On the Shariah board of lotus capital are respected Islamic scholars that included Professor Monzer Kahf a respected Islamic scholar and one of the earlier contributors to the development of Islamic economics. He has a working career that spans many years and countries, and contributed to major journals conferences, and books in the area of Islamic economics and finance. Another respected authority on the board is my lecturer at Usman Dan Fodio university, Sokoto professor Muhammad Lawan Ahmed Bashar himself an authority on Islamic economics and finance and one of the pioneers of the program here in Nigeria together with late Sule Ahmed Gusau of bless memory. He has received his education in Nigeria, India and Saudi Arabia (under Professor Najatullah Siddiqi in the 1980s), and he was also part of the team that produced the blue print on setting up Jaiz bank, the first fully pledge Islamic bank in Nigeria. While on the board of the Lotus capital are Fola Adeola, a respected banker and pioneer manager director of Guarantee trust bank, Mr. Muhammad Nurudeen who is with Minna base Islamic Education Trust. It has become the tradition world wide for private Islamic firms to partner with exchanges or major players in the market to establish Islamic index. Prominent examples here includes, BSE TASIS sharia 50 in India, Thomson Reuters Crescent wealth Islamic Australia index, MSCI Islamic index, and many others. These like I mention earlier provide ethically conscious investors with avenue to invest their money.


     The announcement of the lunching of the index did not include the mentioning of the caliber of scholars that will be on the Shariah board, and the screening procedure to be followed, so as to be able to analyze which listed companies on the NSE will make it to the list. Currently there are over 200 listed companies on the Nigerian stock exchange, of this lists there are over 20 interest base banks, number of breweries, Hotels, and insurance companies. Some of the general screening criteria for selection elsewhere around the world include the percentage of interest base debt in the companies’ assets, percentage of account receivable to total assets, in addition to the requirement of the main business of the firm being Islamic. With an economy that is fast growing at a rate of about 7% and annual GDP of over $400 billion, the introduction of an ethical index into the economy is going to boost the volume of investment coming into the Nigeria. Not only that the number of companies who do there businesses according to the Sharia guidelines and seeking to be listed on the exchange will increased. One other factor that investors should watch out for is the potential opposition from the members of Nigerian public that are opposed to the introduction of Islamic finance. But, even if opposition emerges like we have seen with the introduction of Islamic banking, it would surely fizzle out later. In Nigeria nothing comes, out no matter how beneficial it is to the people, without some sections of the country making noise about nothing.