An assessment of Nigerian regulation and policies on financial inclusion : a case for Islamic equity financing for northern Nigeria

Abstract

The promotion of planned and balanced economic development was enjoined on the Federal Government of Nigeria by Section 16(2) of the Constitution of the Federal Republic of Nigeria, 1999 (as amended) as one of the fundamental objectives and directive principles of State policy. This objective aligns with the objectives of the Shari’ah and the Sustainable Development Goals (SDGs). The Central Bank of Nigeria (CBN) pursued this objective through the financial inclusion initiative, among others, and in the process utilized its delegated legislative powers to license the operation of Islamic banking in Nigeria in 2011. The CBN aimed to financially include the largely Muslim northern Nigeria and achieve 80% financial inclusion by the year 2020. The access to finance survey report of 2023 reveals that 56% are formally financially included, while 11% are informally financially included. This results in a total of 67% financially included and indicating a shortfall of 13% from the 2020 financial inclusion target. Extensive use of debt-based financing contracts by Islamic banks in Nigeria is said to continue to keep away the conservative northern Nigerians from accessing the available financing products, despite the financial inclusion efforts by the CBN. This situation arises because most northern Nigerians see little or no difference between conventional and Islamic banks in their financing operations. This study thus appraises the regulation and policy development for financial inclusion in the northern states of Nigeria and how Islamic equity financing can deepen the financial inclusion in these states. The study relies on primary data sourced from interviews, and official publications, as well as secondary data from working papers, articles, e-books, websites, and online resources. ATLAS.ti 24 software is used for coding and in analysing interviews’ results. This study adopts qualitative research approaches which consist of content analysis of relevant literature, and qualitative analysis of interview outcomes. The content analysis is used to define the status of financial inclusion in Nigeria, regulation and policy development around financial inclusion in Nigeria, the preference for and suitability of Islamic equity financing contracts as veritable tools for furthering financial inclusion in northern Nigeria. The interviews provide insights on: (i) the effectiveness of the regulations and policies on financial inclusion in northern Nigeria; and (ii) the wider preference for and suitability of Islamic equity financing contracts for financial inclusion in the northern region of Nigeria. The main findings of this study are: (i) due to CBN’s efforts and initiatives there is an appreciable awareness about financial inclusion, but more efforts are still needed to be done in northern Nigeria; (ii) Islamic equity contract is used mostly for deposit mobilization, but sparsely used for financing; and (iii) there is positive perception of, and preference for Islamic equity financing contract in northern Nigeria. Thus, this study recommends that Islamic Banks in Nigeria should increasingly use Islamic equity financing contracts in their financial asset creation. Furthermore, the CBN, as the key regulator of Nigeria’s financial industry, should issue and enforce regulations and guidelines that will facilitate the expansion of the country’s financial inclusion drive, which can be done through Islamic equity financing and contracts.