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Boosting Financial Inclusion With Ethical Retirement Savings

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The National Pension Commission (PenCom) recently  approved the first non-interest Retirement Savings Account fund also known as Fund VI. BUKOLA IDOWU looks at how this will impact on the financial inclusion rate in the country.

Over the years, non-interest financial services have been growing within the Nigerian economy as companies offer more alternatives for individuals who seek products and services that align with their moral ethics.

With the introduction of ethical or non-interest financial services in the county, Nigeria now has two non interest banks with several offering non-interest and ethical financial products while more non-banking  financial institutions continue to develop products to meet the needs of those in that spectrum.

According to the chief executive officer of Enhancing Financial Innovation and Access (EFInA), Modupe Ladipo, non-interest financial services are considered as a potential innovative approach to increase access to finance for the unbanked.

According to the 2020 Access to Finance survey by EFInA, nearly half of Nigerian adults do not use any formal (regulated) financial services and more than  one out of three Nigerian adults remain completely financially excluded. The survey puts the financial exclusion rate in the country at 35.9 per cent with the North-West and North-East regions of the country most affected with an exclusion rate of 68 and 50 per cents respectively.

This is a region where religion and moral ethics play a crucial role in financial decisions and experts say providing financial alternatives that will address this will further boost the financial inclusion rate in the country.

Speaking at the launch of the Non-Interest RSA Fund VI, which provides a retirement savings aligned with moral beliefs and values skewed towards ethical investing, chairman Board of Directors of Sigma Pensions, Mark Collier noted that despite having a large population, the Nigerian financial system historically had very little engagement with individuals who desired a product consistent with their moral beliefs and values.

“As at the end of 2020, assets managed along these values stood at just under $3 trillion. This progress reflects a standardization of the regulatory and legal framework across non-interest finance, increased sovereign sukuk issuance as well as strong demand for non-interest products.


“In Nigeria, the work towards greater inclusion in the financial sector began with the release in 2011 of non-interest banking guidelines by the Central Bank of Nigeria (CBN) and the establishment of an advisory body called the Financial Regulation Advisory Council of Experts (FRACE) to guide regulation. These developments spurred the creation of the first set of non-interest banks in Nigeria.

“Obviously, a viable non-interest fund management industry cannot happen without the availability of investible products to suit various needs. In its drive toward greater inclusion, the National Pension Commission (PenCom) released the operational framework for the take-off of the non-interest RSA fund (also known as Fund VI) on 21 June 2021.

“The operationalization of Fund VI is consistent with the objective of the multi fund structure which seeks to align each RSA contributor’s beliefs, values and risk appetite with their pension fund management.” Sigma Pensions become the first pension fund administrator to provide this unique product to the Nigerian market.

Speaking on the Sigma Fund VI, Collier said it would have active and retiree components and we believe it has the potential to unlock a large amount of retirement savings into non-interest instruments. In this regard, we challenge financial market regulators, market enablers and product developers to continue expanding the breadth and depth of non-interest offerings.

“We believe strongly in Nigeria and find strength in its ethnic and religious diversity and with Fund VI, we believe we have a product that meets the desire of a long-underserved segment of the Nigerian population to actively plan for their post-work lives by taking advantage of a tailored financial market product consistent with their beliefs.

“Having a vibrant non-interest pension offering will help deepen the breadth and sophistication of the domestic pension and non-pension fund management industry. A key tenet of robust financial markets is the existence of many players on both demand and supply having diverse opinions, desires and needs which allow for a more efficient price setting mechanism” he said

According to Collier, it will help drive greater financial inclusion and pension enrollment. Nigeria’s financial exclusion rate is estimated at 37 per cent with large exclusion observed in the northern regions. “Among other reasons, the reluctance towards the formal financial sector amongst certain Nigerians likely reflects unease at the absence of a recognition of their ethical principles in the design of banking and finance products. With the option of retirement savings products suited to non-interest preferences, it is easy to see a ready outlet for raising financial inclusion.”

On his part, the managing director, Sigma Pensions Mr. Dave Uduanu, said “the launch of the Sigma Pensions Non-Interest RSA Fund VI marks another first by Sigma Pensions as we continue to trailblaze in the Nigerian Pension industry. This product is particularly unique because for the first time ever in our market, it allows pension account holders to be able to have pension solutions that aligns with their beliefs and values. We thank the National Pension Commission for opening up this window to foster financial inclusion in our country.

“Particularly, this fund seeks to invest pension savings in assets that are not interest yielding, into the production or trading of alcohol, pornography, weaponry, gambling/betting, speculation and other ventures of similar nature.

“In the course of our market research, we discovered that worldwide, on average non-interest investments have provided better risk adjusted returns than conventional investments.

“Even in our local market, we see that non-interest investment options have provided better risk adjusted returns. Take for example, the NGX Lotus Islamic Index, since inception in 2012, the index has generated annualized returns of 12 per cent which compares to the NGX Pension index annualized returns of 10 per cent.”