As the Islamic investment landscape is still tiny in Nigeria, asset manager Norrenberger sees domestic pension funds as being important to catalyze growth for this industry.
Asset Management Business Head Pabina Yinkere shared with IFN Investor: “The size of the entire industry for mutual funds is about NGN3.6 trillion (US$2.15 billion) and only NGN51 billion (US$30.41 million) or so would be in Shariah compliant funds.”
“The pension fund industry is NGN22 trillion (US$13.12 billion) and as of the last time I checked, the non-interest pension funds total was valued at around NGN60 billion (US$35.77 million). So that would account for less than 0.3% of the AuM (assets under management) of pension funds.”
Shariah compliant pension fund investments in Nigeria are governed by the Operational Framework For Non-Interest Fund, in force since September 2021 – creating a new category called Fund VI, which is available to both active and retired contributors.
While Fund VI cannot be invested in the production or trading of alcohol, pornography, weaponry, gambling/betting, speculation, interest-earning ventures and other ventures of similar nature contrary to Shariah principles, Nigeria’s regulator National Pension Commission recognizes a phasing-in period.
The Framework’s clause 2.4.3 allows Fund VI assets to be invested in conventional assets where an asset manager is unable to find approved non-interest instruments – and “the conventional assets are to be phased out as more approved non-interest instruments become available”.
Clause 2.4.5 further outlines: “The conventional securities to augment Shariah compliant assets could be interest bearing but should not be in sectors/business whose underlying assets/products do not meet the basic ethical principles.”
As such, Pabina estimated: “Of the NGN60 billion in Fund VI, I think the compliance level is maybe around 10%. The main reason is the lack of enough Islamic assets for Fund VI to invest in.”
With the Norrenberger Islamic Fund listed on the Nigerian Exchange on the 29th October 2024, Pabina said Fund VI managers now have an additional Shariah compliant investment option. “Part of the pension fund requirement for investing in a mutual fund is that it has to be listed.”
As an open-ended Halal fund currently valued at about US$1 million, with exposure limited to within Nigeria and only in fixed income instruments, no equities, Pabina noted that access to Shariah compliant assets in the market continues to be a problem – even for this relatively small fund.
To sidestep such supply constraints, which has resulted in Islamic funds offering lower returns while conventional assets are providing far higher yields, the Norrenberger fund also invests in Mudarabah contracts.
“We have to be more creative, we have to do more product developments, do much more transactional structuring in-house so that we can provide better returns than what is available from market options. So that’s why we are focusing also on (complementary input from) the private portfolios of our group.
“It’s a strong selling point for the pension funds … as it gives them the opportunity to get more than what they would have gotten from just investing in the market because the pension fund regulation is very stringent.”
