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Banking and Taxation in the Name of God and the Law
TAOFEEQ ABDULRAZAQ
The Central Bank of Nigeria on Tuesday 21st June 2011 issued new guidelines for the regulation and supervision of institutions offering non-interest financial services in Nigeria. The CBN stated that the emphasis of this guideline is on non – interest financial institutions operating under the principles of Islamic Commercial Jurisprudence, one of the categories of non- interest financial institutions.
These guidelines, according to the CBN, are issued pursuant to the non- interest banking regime under section 33(1) (b) of the CBN Act 2007; section 23(1);52, ;55(2); 59(1) (a); and 61 of the Banks and Other Financial Institutions Act (BOFIA) 1991(as amended) and section 4(1)(c) of the Regulation on the Scope of Banking Activities and Ancillary Matters, No 3, 2010. It shall be read together with the provisions of other relevant sections of BOFIA 1991(as amended), the CBN Act 2007, Companies and Allied Matters Act (CAMA) 1990 (as amended) and Circulars/Guidelines issued by the CBN from time to time.
The guidelines further provides that Institutions Offering Islamic Financial Services (IIFS) may charge such commissions or fees as may be necessary in accordance with the principles under this model and the funds received as commissions and fees shall constitute the bank's income and shall not be shared with depositors.
In addition, the guideline provides that there shall be compliance with prescribed Audit, Accounting and Disclosure Requirement such as the Nigerian Accounting Standards Board (NASB) and that where there is a conflict between the local and international standards, the provisions of the local standards issued by NASB shall apply to the extent of the inconsistency. This is an interesting provision and one may ask, what will happen if there is a conflict between NASB standards and those of the Islamic Financial Services Board (IFSB) or with those of the Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI)? Will NASB standards prevail? Are the IFSB and AAOIFI international standards by virtue of location or principles? If it is by location, are the Islamic principles, it espouses not local? Do these principles extend to taxation?
Presumably, the commissions and fees which constitute the bank's income as well as the profit sharing investment accounts will be subject to Nigerian taxation. What taxation standards will be applicable? Would it be those of IFSB, AAOFI, NASB or those of the Chartered Institute of Taxation? Could it even be those of the Relevant Tax Authority who are empowered under both section 62 of CITA LFN 2004 and section 52 PITA LFN 2004 to require in writing that a taxpayer keep such records, books and accounts as maybe considered adequate in such form and in such language (Arabic?) as maybe specified in the said notice? How are the Islamic financial products to be taxed?
While the idea of facilitating faith- based finance may seem economically rational, a fundamental question similar to those asked and resolved by Brett Freudenberg and Mahmood Nathie with respect to Australia,a similar federation to Nigeria, in their work on '' The Constitution and Islam: Are Tax Reforms Possible To Facilitate Islamic Finance?'' needs to be asked in Nigeria and addressed: Is it appropriate for Nigeria's tax laws to be amended to facilitate what may be construed to be the furtherance of any religion? In other words, should the products of Islamic Banking be taxable by the principles of Islamic taxation?
The recognition of taxation in Islam generally follows the traditions in Judeo-Christian teachings, albeit with some differences. The equivalent of tithes in Islam is the ushr, or a tenth of gross agriculture output - a tax calculated taking into account for instance, whether the land is irrigated naturally or by man. In Islam this tithe is only due when there is a produce, to the extent that when the produce is destroyed by the acts of God, its payment lapses. Thus ushr is a form of tax on income in the sense that it is value of goods (produce) that become the basis of taxable income. The Caliph (the Head of State today) 'has the right to levy on the people the amount needed if funds are not available in the public treasury'. The ushr was a fixed levy, but the Jurist, Abu Yusuf, in his treatise on taxation in Islam proposed a model of proportional taxation and not fixed levy.
A different variant of the ushr known as the ushur also exists – one introduced by the second Caliph Umar- that resembled a type of sales tax. It was charged to traders who entered the Islamic state to conduct trade.
A third form of taxation in Islam is what is known as kharaj or land tax payable to the state- irrespective of who owns the land. The implications of these tax impositions is that the state's right to tax is legitimized- although this right is not to be assumed to be unfettered.
While Islam does allow the levying of taxes to a reasonable extent to meet all necessary and desirable state expenditures, it does not permit an unjust tax structure which penalizes honesty and creates an un- Islamic tendency of evading taxes.
A country has the right to raise resources through tax collection:
This right is defended on the basis of the Prophetic saying that ' in your wealth there are also obligations beyond the zakat' , and one of the fundamental principles of Islamic Jurisprudence is that 'a small benefit may be sacrificed to attain a larger benefit and a smaller sacrifice may be imposed in order to avoid a larger sacrifice'. Most Jurists have upheld the right of the State to tax. … If the resources of the State are not sufficient, the State should collect funds from the people to serve the public interest because if the benefit accrues to the people it is their obligation to bear the cost.
While taxation has been accepted as an institutionalized function in the monotheistic faiths ,it remains to be seen how these functions converge in Nigerian law.
The norms that characterize Islamic finance may be classified into two dimensions- a moral and ethical dimension, and an economic dimension. The first deals predominantly with socio-economic justice and equitable distribution through tax by way of Zakat(obligatory alms) and the prohibition of trading in forbidden objects and hoarding. The economic dimension incorporates a number of distinct elements namely:
Freedom to contract; Freedom from riba (interest); Gharar or excessive speculation and uncertainty; Freedom from al-qimar (gambling) and al-maysir (unearned income); Trading and investment in forbidden acts and objects (such as gambling, pornography and alcohol) Duality of risk (parties must share risk); and Asset – based financial transactions, based on the condition that identifiable and tangible underlying assets should underpin financial transactions.
The juristic principles underpinning these elements are vast and extant and transcend into very fine detail over which there is no unanimity among the four leading Islamic juristic schools. Thus, as a means of standardizing these principles, the Islamic Financial Services Board and the Accounting and Auditing for Islamic Financial Institutions (AAOIFI) have compiled detailed guidelines for practitioners to follow in the application of Islamic finance.
Among the financial products frequently referred to in Islamic financial contracts are murabaha or (cost-plus) financial transactions; ijara contracts (leasing contracts); mudarabah contracts (trustee partnership); musharaka contracts (forms of limited partnership); sukuks (Islamic bonds); and takaful (mutual insurance arrangement).
The practical manifestation of these products within Islamic banking institutions is accomplished with the assistance of both sharia scholars and conventional legal practitioners. This additional regulatory layer is meant to guide financial institutions to ensure compliance with the sharia in their financial activities. For this reason, Islamic banks are required in many jurisdictions to establish sharia supervisory boards or committees.
The influence of religion in our corporate existence as a nation is illustrated by the existence at the beginning of the 1999 Nigerian Constitution of a preamble which may be described as a 'constitutional obeisance to God'. The preamble reads:
`` We the people of the Federal Republic of Nigeria, having firmly and solemnly resolve, to live in unity and harmony as one indivisible and indissoluble sovereign nation under God''.
It appears that wording of the preamble was intended to appeal to those voters of religious conviction for the formation of a Federation.
Another very clear connection between the Nigerian State and religion are the current practices at State functions where each function begins with two prayers- one an Islamic prayer and the other the Christian prayer. This practice of prayer commencing State functions is not unique to Nigeria, as other common law jurisdictions such as Australia, New Zealand, Canada, the UK and the United States also do this.
A clear example of the influence of religion and the provision of preferential treatment are the tax concessions available to religious organizations. For example, section 25(4) CITA 2004 LFN exempts from tax the income of charitable, religious, scientific or public educational institutions.
Some argue that the present tax dispensation is 'inequitable'; that it does not reflect present-day realities in the marketplace; that religious tax exemptions impose cost imposts on the public generally and, the benefits are for the purpose of advancing religion and the national interest. These sentiments are based on the premise that as Nigeria is a secular state, there is no need to advance any religion. This tension was also recognized in Australia by Kirby J (dissenting) in FCT v World Investments [2006] FCA 144,250, that;
'' A taxation exemption for religious institutions, so far as it applies, inevitably affords effective economic support from the Consolidated Revenue Fund to particular religious beliefs and activities of some individuals. This is effectively paid for by others… a cross-transference of economic support. The courts must recognize that this is deeply offensive to many non-believers, to people of different faiths and even to some people of different religious denominations who generally share the same faith''.
Kirby J (supra) went on to emphasize the importance of equity between taxpayers that:
''charitable and religious institutions should share with other taxpayers the liability to pay income tax upon their income. Exemptions needs to be clearly demonstrated as conformable to law''
Further, non-religious groups argue that section 10 of the 1999 Nigerian Constitution which provides that the Government of the Federation or of a State shall not adopt any religion as State religion was intended to make Nigeria a secular state and that reality ought to be reflected in denying preference to religion in tax exemptions privileges or business ventures .
The necessity for tax and regulatory reform to be binding and comprehensive in relation to Islamic finance in Nigeria was demonstrated in the South African High Court case of Registrar of Banks v Islamic Bank of South Africa Ltd (in liquidation) (Case No 25286/97) in October 1997. The regulator approved the granting of a banking license to the respondent based on shariah principles in the absence of appropriate banking and tax law. Further, the court – appointed inspector's Report in this case revealed serious misunderstanding and lack of consistency over tax treatment of so – called shariah compliant financing contracts.
Thus following the bank's collapse, the liquidator simply set aside the shariah construction of depositors' claims as well a clients debt obligations to the bank and applied conventional banking laws in the liquidation proceedings. This demonstrates the necessity for a comprehensive set of laws for regulatory authorities to apply in their governance duties and that religions tenets will not over ride the law. It is therefore necessary, proper and required that tax reforms be introduced to provide and regulate faith-based transactions ,particularly Islamic Finance.
A more interesting prospect would be the application of Islamic Criminal Law to the offence of tax evasion in the matter of Islamic Finance. The result of this application would of necessity be quite ``handful''. We may even begin to look forward to having Shariah Departments in the different Relevant Tax Authorities.
In the matter of banking and taxation in the name of God and the law in Nigeria, perhaps, in the words of Seneca-----
`` Our fears are more numerous than our dangers and we suffer more in our imagination than in reality''.
Finally, and in the mean time, we shall await the Relevant Tax Authorities to issue their information circular on the tax treatment of Islamic Financial Transactions in Nigeria.
*Professor Taofeeq Abdulrazaq is a Tax Partner at Saffron Professional Services.
Source: Business Day, 7th July 2011.
Anglicans kick Against Islamic Banking
BY CHIDI NKWOPARA
OWERRI— Angry reactions have continued to trail the planned introduction of Islamic banking system in the country by the governor of Central Bank of Nigeria, CBN, Mallam Sanusi Lamido Sanusi.
The condemnation was part of a 14-point communiqué issued at the end of the third session of the first synod of the Diocese of Oru, Anglican Communion, and signed by the Bishop and Synod Secretary, Rt. Rev. Geoffrey Chukwunenye and Ven. H.U Nnaoma respectively.
"The synod unequivocally condemns the current changes initiated by the Governor of CBN, which promote Islamic/Sharia banking in Nigeria. This is contrary to Section 10 of the 1999 Constitution of the Federal Republic of Nigeria," the Diocese stated.
The church reminded the CBN governor that Nigeria was a secular state and implored the federal government and National Assembly to be mindful of the implications of imposing Islamic banking on this nation.
The conferees urged government and the lawmakers to prevail on Sanusi to drop this proposal, saying it infringed on the fundamental rights of all the faith-based organizations in the country.
Condemning the spate of violence in some parts of the North, which claimed precious lives and property, the synod demanded that churches destroyed in the mayhem be rebuilt by government and all the victims adequately compensated.
Source: Vanguard, 7th July 2011.
Muslim Lawyers Commend Sanusi on Islamic Banking
BY CHIMEZIE ENYIOCHA
The Muslim Lawyers Association of Nigeria (MULAN) has commended the Central Bank of Nigeria (CBN) governor Sanusi Lamido Sanusi for continuing with the foundation laid by his predecessor Chukwuma Soludo on Islamic banking.
The group dismissed the allegation that the CBN governor is introducing the non-interest banking as part of the alleged northern agenda, as baseless and totally uncalled for, stating that Islamic banking will not Islamise the country but rather will be beneficial to all.
In a statement signed by its national president, Tajudeen Olaseni Oladoja, the group encouraged Muslims and other people to invest their money and to become partners in order to share profits and risks in the business instead of becoming creditors.
While noting that Islamic finance is based on the belief that the provider of capital and the user of capital should equally share the risk of business ventures, such as industries, farms, service companies or simple trades deals, it stated that Islamic banking is about removing the practice of interest which is not only unique to Islam.
"Islam is not the only religion that denies or prohibits usury; it is perhaps because the rules of prohibition are quite prescriptive and structured that it has achieved world prominence in a short space of time.
"Islamic financial institution is based on religious injunctions preached by all monotheist religions including Hinduism, Christianity and Islam. It prohibits usury, gambling, cheating, among others," the statement said.
According to the organisation, Islamic banking has entered a sphere of finance and economics that has been unexplored for the last two centuries and has evidently become the fastest growing sector in finance all over the world.
The statement further pointed that the non-interest banking was approved by the former CBN governor Chukwuma Soludo before the emergence of Mr Sanusi in 2009 and therefore condemned in strong terms the unwarranted condemnation of the CBN governor over the introduction of Islamic banking in Nigeria.
"A calm and thorough reading of the clear provisions of section 9, 23, and 52 of Banks and other Financial Institutions Act, Cap B3 LFN 2004 provided for the establishment of Islamic banking in Nigeria. It was in consequence of these provisions that, the former Habib Bank now Bank PHB was given an approval in 1992 to operate a window of Islamic banking, which is still operational," it said.
Source: Next, 7th July 2011.
Islamic Banking is Retrogressive, Imo Christians Insist
By Uche Nwosu Correspondent, Owerri
Christians in Imo State have condemned the planned establishment of Islamic banking in Nigeria, describing it as an impossible construct and unmitigated effrontery to the nation's constitutional secularity.
"Nigerian is a secular state that allows different groups to pursue their religions without molestation," Christians in Imo State through the chairman of Christian Association of Nigeria (CAN), Imo state chapter, Bishop Cosmos Iluchukwu posited.
In an interview in Owerri, Iluchukwu dismissed the notion by the governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Mohammed Sanusi that Nigeria is a multi-religious country and argued that the nation is rather a secular one that recognizes and respects the multi-religiosity of its citizens.
"To allow Islamic banking in the country is an invitation to chaos as other religious groups can also call for their referred banking system. One is compelled to ask whether Sanusi is an Islamic cleric or a professional banker hired by the government to oversee the banking sector of our economy." He therefore urged the Federal Government to stop the planned Islamic banking as well as all religiously motivated divisive actions disguised as banking reforms; even as he contended that in the countries where the Islamic banking has been operational, they have remained largely under developed.
"It will destroy our economy. Secondly, there is no country in the world where the banking system is practiced that can be considered progressive in any way", he added.
On jumbo pay for lawmakers, Iluchukwu warned that no arm of government should be allowed to set salaries and allowances for itself, adding that the national emolument commission should be allowed to do this.
The cleric warned against allowing legislators at the federal level to go home with N45 million quarterly. He rather suggested that the N18, 000 minimum wage should be paid by all state government without delay and without conditions.
Source: Daily Independent, 7th July 2011.
Islamic Banking: CBN Rejects Al Qaeda Request for Banking Licence
…Says Islamic banking politicized
…Asks antagonists to go to court
Emma Ujah, Abuja Bureau Chief
Amidst fears that the proposed Islamic banking system, may create an avenue for terrorist financing in Nigeria, the Governor of Central Bank of Nigeria, CBN, Mallam Sanusi Lamido Sanusi, Monday revealed that a group had earlier in the 1990s, applied for licence to establish an Al Qaeda Bank in the country but was not approved
The CBN chief who disclosed this at the opening of an international conference on Islamic Banking in Abuja, said that the group's application was turned down for failing to meet requirements for banking licence.
Another group that applied for licence to establish another Islamic Al Barka Bank, was equally turned down, Mallam Sanusi said.
His words, "in the early 1990s two applications were received and processed for Islamic banking licence: Al Barka Bank and Al Qaeda Bank. However, those two banks could not meet the requirement for the grant of a final licence".
But the governor insisted that he would pursue the current move for the establishment of Islamic banks in the country unless stopped by a law court, as according to him, the history of Islamic banking dated back to 1991.
"The history of Islamic Banking in Nigeria dates back to 1991 with the promulgation of BOFIA, Banking and Other Financial Institutions Act which provided the legal guidelines for the regulation of non-interest of profit/loss sharing banking in the country", he said.
Mallam Sanusi added that by 1996, the then Habib Bank sought and obtained CBN approval to operate Islamic banking model.
Also Jaiz, a company that has been promoting Islamic banking in Nigeria, "got an approval in principle in 2004 but could not take off due to lack of capital".
He said that the CBN under his administration was not promoting Islamic banking but only doing its duties of providing necessary guidelines to ensure adequate regulation for its operations.
His words, "we have the responsibility to continue to explain that the CBN is neither promoting nor establishing an Islamic bank. The CBN is licensing and regulating Islamic banking and that is under the law".
Mallam Sanusi said critics of Islamic banking were politicizing the issue based on religion rather than looking at it from the economic perspective.
"I think it is because of Nigerian politics- highly divided, highly sectarian. I think we are in the habit of using every opportunity to exploit religion or ethnic difference for political ends", he said.
The governor said that the CBN was acting within the Provisions of the Banks and Other financial Institutions Act, BOFIA, and that those who felt otherwise should go to court.
"Anybody who feels Islamic banking is illegal should go to a court of law because it is only the court that decides if something is illegal or not. If a court says it is illegal, we will stop it.
"But we don't think the court will say so because we know it is within the realms of the law. It is only a court of law that can make a pronouncement on the legality of anything".
In his welcome address, the CBN Deputy Governor , Financial System Stability, Dr. Kingsley Moghalu made effort at convincing the audience that Islamic banking was not a ploy to Islamize the nation.
He said the banking model existed in countries with Muslim minorities such as the United States of America and the United Kingdom.
He said the risk sharing principle would lend the bank's resources for huge infrastructure projects in the power and transportation sector.
He said that Nigeria had become an Executive member of the Board of the Islamic Development Bank, IDB, and would benefit from the near $ 1 trillion assets of Islamic banks across the globe. Mr. Isamil Toure who represented the President of the IDB, Dr. Ahmed Ali said that with the population of Nigeria, it would become the largest market for Islamic banking as well as IDB financing.
Source: Vanguard, 5th July 2011.
NON-INTEREST BANKING CONTROVERSY
NON-INTEREST banking, otherwise known as Islamic banking has understandably generated a lot of controversy in the country as a result of the policy equivocation that witnessed its introduction.
IN spite of the various amendments to the initial guidelines on the establishment of non-interest banking by the Central Bank of Nigeria (CBN), the disquiet and scepticism among Nigerians have refused to abate.
AS enshrined in the Banks and Other Financial Institutions Act (BOFIA) 1991, as amended, the establishment of a non-interest banking institution which is legally specified as "profit and loss sharing banks" is absolutely constitutional. Section 29(1) stipulates that "Except with the written consent of the Governor of the Central Bank of Nigeria (a) no bank shall, as from the commencement of this Decree, be registered or incorporated with a name which includes the words "Central", "Federal," "Federation", "National", "Nigeria", "Reserve", "State", "Christian", "Islamic", "Quranic", "Biblical".
THIS act, despite its unrestraining power to the Central Bank Governor in the granting of licence for the incorporation of commercial banks, must have anticipated that such approving officer like the Central Bank Governor should have been imbued enough with the wisdom of considering the religious sensibilities of Nigerians.
THE initial guidelines issued by the Central Bank of Nigeria (CBN), on the incorporation of the Islamic Banking Institution, we observe, contained a lot of religious connotations, which are visibly anathema to the constitutional secularity of the country. Even the expunction of the troubling aspects of the guidelines has not totally removed the anxiety of some Nigerians as to the ulterior motives of this Islamic banking project.
FOR the Central Bank Governor, who is a highly rated Muslim scholar and sharia expert, to have introduced this banking system at a volatile period in the annals of Nigeria, we say, cannot expect less suspicion from non-Muslims and even moderate - Muslims. Despite the highly hyped advantages of the non-interest banking, we are sure that the governor is not unaware of the attendant problems associated with its practicability in a secular state like Nigeria. First, Islamic banks do not hold government securities as part of their liquid assets; this singular shortcoming, among others, will naturally precipitate holding substantial non-income earning cash reserves, which will ultimately reduce the banks' returns on accumulated assets. Even the use of monetary policies to achieve economic equilibrium will be dampened, as bank rate which relies on the manipulation of interest rates cannot be applicable to the Islamic banking.
IN fact the controversy among the Muslim economists as to the Quranic interpretation of interest charging is still very potent. While some strongly argue that the Quran only forbids usury (excessive interest) and not riba (interest), many believe that interest charging on loans is a mortal sin that should be abhorred with all tenacity.
THE introduction of Islamic banking into the highly organised Western economy, despite its initial enthusiasm and expectations of attracting petro-dollar and capital funds was discovered to be a disaster as it was noted that interest-free banking could not meet corporate financing on the basis of profit and loss sharing relationship. That non-interest banking could only, at best sustain the trade financing in form of mark-up and to some extent, higher purchase and in most cases leasing. With the plethora of banking reforms embarked upon by the Central Bank, coupled with Nigeria's weak banking culture, we wonder if the system will be strong enough to withstand completely new banking arrangements without totally dislocating the economic pedestal?
HOWEVER, without prejudice to the aspirations of the promoters of the non-interest banking in Nigeria, we like to admonish that the composition of Board of Directors must be such that will reflect genuinely the secular nature of Nigeria. Employment opportunities must not be based on religious adherence as this will be a clear vitiation of the country's constitution which forbids employment on the basis of religion, creed or colour.
THE monetary authorities must be very cautious in ensuring that the funding of the proposed non-interest banking is not from doubtful sources, especially the fanatical groups who may want to advance their religious cause at the expense of the country's stability.
MOST importantly, the CBN needs to embark on aggressive public enlightenment to disabuse the religious stigma already attached to this project, which, of course, emanated from the suspicious but needless haste with which, the monetary authorities chose to force Nigerians with this alien financial system.
THE consideration of these conditions and other unifying factors, we believe, are the sine qua non of the country's economic and sovereign solidity.
Source: Tribune, 4th July 2011.
CAN Faults Introduction of Islamic Bank
By Frank Akatakpo, Warri
The Christians Association of Nigeria, Delta State chapter, has faulted the introduction of Islamic Bank in Nigeria, saying as a secular country Nigeria was not ripe for the mode of banking.
The group led by a frontline Christian leader Archbishop Goddowell Avwomakpa, who is the state Chairman of CAN and National Vice President Christians Association of
Nigeria South-South carried out a protest march in the oil city of Warri over the weekend.
The group, who later converged at the headquarters of Word of Life Bible Church, in their desire to voice their protests to the National President of CAN, Pastor Ayo Oritsejafor, was received by Professor (Pastor) Gabriel Yomere who promised to express their grievances to the appropriate quarters.
Source: The Nation, 4th July 2011.
CAN Fears Nigerian Islamization via Banking
Thursday, July 7
LAGOS, NIGERIA (Worthy News)– The Christian Association of Nigeria said a proposal by the Central Bank of Nigeria to introduce Islamic Banking is part of a hidden agenda by Muslims to Islamize the nation.
Bishop Goddy Okafor, CAN Chairman, Abia State Chapter, called on President Goodluck Jonathan to prevent this "evil proposal," claiming that Islamic banking would create chaos in Nigeria.
"Nigeria is a secular state," he said. "Islamic banking should be practiced purely in Islamic countries; it is not acceptable to us here. If we must remain one Nigeria, this must not happen … to introduce a banking system to a particular group is dividing the country. Tomorrow, if allowed, they will divide schools. Nigerians and President Jonathan should not allow it, else they are calling for chaos."
Okafor also raised the alarm about the violent activities of the Islamist sect Boko Haram; he called for immediate action to stop both it and its sponsors no matter how highly connected in the government they are.
Source: Worthy News , 4th July 2011
Nigeria: CBN is Not Establishing an Islamic Bank - Governor
Central Bank of Nigeria (CBN) Governor, Malam Sanusi Lamido Sanusi, has explained that the apex bank is in no way promoting or establishing an Islamic bank in Nigeria, contrary to speculations in some quarters.
Sanusi made the clarification on Monday in Abuja, at a two-day International Conference on Non-Interest Islamic Banking.
"The Central Bank is not promoting or establishing Islamic bank, the Central bank is simply licensing and regulating an institution that is allowed to exist under the law.
"To the extent that this bank is not allowed to deny anyone the opportunity to be a stakeholder and to the extent that they do not deny anyone to set up his own bank.
"There is absolutely no discrimination. We have to continue making that point, hopefully, people will get to understand with time," he said.
Sanusi's clarification came on the heels of the defense of Secretary-General, Nigeria Supreme Council of Islamic Affairs (NSCIA), Lateef Adegbite who described criticisms trailing the move to set up an Islamic banking system in the country as non-objective and uninformed.
Adegbite, who expressed his views in a press statement made available to the News Agency of Nigeria (NAN) on Monday in Lagos, said the criticism rife with religious intolerance.
According to him, Islamic banks provide an alternative banking facility for those who do not patronize conventional banks because of the interest charged by the latter.
He said that the facility would allow Nigerians "to access a less intimidating banking system that is ethical in its operations and guarantee returns".
He urged the critics to embrace the truth, understand and have mutual trust in their Muslim counterparts in the interest of harmonious co-existence in the country.
Yet CBN governor maintained that those who felt that what the apex bank was doing was illegal, should go to the court of law.
According to him, the bank will stop the establishment of non-interest Islamic banking if the court says it is illegal.
"But we don't think the court will say so because we know we are acting within the realm of the law but it is only the court of law that can make a pronouncement on the legality of anything.
"So if anybody says it is illegal, then he should go to the court of law and let the law pronounce the legality or illegality of it," he said.
Sanusi said that the non-interest banking had been practiced in about 435 institutions and in about 75 countries in the world.
He said that with the guidelines in place, Nigeria was set to join the league of other countries to benefit from the non-interest banking.
To ensure effective operations, he said, Nigeria had joined the Islamic Financial Service Board and ensured collaboration between Securities and Exchange Commission (SEC) and Nigeria Deposit Insurance Corporation (NDIC).
He added that the apex bank had also signed a Memorandum of Understanding with Bank of Malaysia on issues of "regulator cooperation and collaboration."
He said that ethno-religious diversity of Nigeria called for mass awareness, as misconception of the concept might jeopardise the process.
"For us in the CBN, we will like this conversation at the conference not to be a conversation between Muslim and Christians because Islamic banking is a universal product.' We will like it to be conversation on finance, economics; it is about deepening the financial system and enhancing financial system stability and financial access," he said.
Mr Kinsley Moghalu, CBN Deputy Governor, Financial System Stability, said that there was no need to express fear about the introduction of the non-interest Islamic banking in the country.
He said that the operation was based on pure business preposition and universal accessibility for all purpose irrespective of religion, culture, race or gender.
"As a value proposition, it is faith, gender and religious blind. Non- interest Islamic banking is offered in western and financial centres such as London, Japan and Singapore," he said.
He said that global institutions such as Citi Bank and Standard Chartered Bank were among the foremost providers of the non-interest banking in the world.
Moghalu said that the establishment of the non-interest banking was in line with the financial system strategy of the Federal Government aimed at strengthening the sector.
He added that establishing the non-interest banking was an opportunity for artisans who could not fit into the conventional banking to benefit and contribute to the growth of the sector.
Moghalu gave an assurance that the apex bank would comply strictly with guidelines and proffer a level playing ground for smooth operation of the bank.
Also speaking, Mr Danladi Kifasi, the Permanent Secretary, Federal Ministry of Finance, said that non-interest banking was all about profit and loss and ability to develop trust.
He said that it was not a religious product and would be another potential avenue for employment creation in the country.
Adegbite had contended that Islamic banking would usher in a new era of economic wellbeing in the country and provide attractive returns by way of profit sharing as opposed to interest taking.
Adegbite urged critics to support its introduction, saying the bank would neither discriminate nor operate as a closed shop but would be open to all in terms of ownership and patronage.
Source: Daily Champion, 4th July 2011
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CBN Allays Fears on Islamic Banking
By Demola Akinyemi
Ilorin— The CentralBank of Nigeria, CBN, has allayed fears that the introduction of non-interest banking into the system would turn Nigeria into an Islamic country, stressing that Islamic banking is one of so many non-interest banking systems contained in the CBN laws.
Deputy Governor, Economic Policy of CBN, Mrs Sera Omotunde Alade, said this, weekend, in Ilorin while speaking with newsmen at a retreat organised for the Financial Market Department with the theme: "Transforming the Nigerian Financial Market: Prospects and Challenges.''
According to her, apart from the Islamic banking, which is a non interest banking system contained in the laws of the bank, there are other forms of non-interest banking for which interested parties can come forward to get licence.
She said what was contained in the law is non-interest banking which is synonymous to Islamic banking but that giving licences to operate Islamic banks does not have anything to do with changing the country into an Islamic nation.
Alade also said what the country was interested in was how to change the face of banking in a way that the economy could grow for the betterment of all Nigerians.
She urged all Nigerians to see the licensing of the non-interest banking in the country as a new step to move the country's economy to a greater height.
She also called on those who are interested in other forms of non- interest banking to come forward for licence from the apex bank.
On the issue of financing agriculture by the CBN, the deputy governor said the bank had been assisting commercial farmers with the aim of producing in large quantity for export.
In his address, Director of the Finance Market Department of CBN, Mr Olajide Owolabi, said the CBN created the financial market department in 2010 with the aim of creating a world class market in Nigeria, adding that the department had within this short period achieved a moderate effort in the areas of successes recorded.
He said the retreat would further assist the department and the bank in reviewing their performance and address the challenges created in order to further improve on the efficiency of the financial market .
Earlier in his address of welcome, Branch Controller, Ilorin Branch, Mr Onoriode Monday Olotewo, said the theme of the conference could not be discussed at a place that is more appropriate than the retreat based on the global meltdown in the recent past that had affected the financial market.
He said the Nigerian financial market was not insulated rom such problems as as it had been faced with many challenges.
He urged the participants at the retreat to make good use of the opportunity in ensuring that the challenges facing the financial market are overcome .
Source: Vanguard, 27th June 2011.
Islamic Banking: CBN May Face Legal Battle
By Obinna Chima
Just like the process leading to the recapitalisation of the rescued banks, there are strong indications that the planned i
ntroduction of Islamic banking into the country may be trailed by a barrage of legal tussle.
THISDAY gathered that various pressure groups and even religious bodies have concluded plans to drag the apex bank to court over the form of non-interest banking.The source who maintained that the decision to establish the first Islamic bank in Nigeria was against the unity of the country, added that his association will ensure that they throw spanner in the works of the CBN.
According to the source, the proposal is completely against the Federal Character Principle entrenched in Section 14(3) which states that: "The composition of the Government of the Federation or any of its agencies and the conduct of its affairs shall be carried out in such a manner as to reflect the federal character of Nigeria and the need to promote national unity, and also to command national loyalty."
Islamic Banking is a non-interest type of banking that is different from the conventional banking in so many ways. It is based on Islamic law of economics and works in such a framework that follows certain rules and regulations. This form of banking also proscribes usury, trading in financial risk (gambling) and investing in such businesses that are against the general principles of ethics.
Chief Executive Officer, Pharez Consulting, Mr. Eghes Eyieyen, stated that with the proposed introduction of Islamic banking, the CBN plans to foist on the nation, a needless controversy.
Eyieyen who said this in a report e-mailed to THISDAY, also argued that with the move, the apex bank purportedly assumed legislative powers which it does not have.
CBN Deputy Governor, Financial System Stability, Dr. Kingsley Moghalu, had assured Nigerians the CBN did not have any ulterior agenda in it plans to introduce Islamic banking.
Moghalu had explained: "I will like to very clearly assure Nigerians that non-interest banking is part of our plans to increase the inclusion into the financial, people who have stayed out of the financial system for various reasons. There is no agenda; it is simply finance and not about religion. I want to further assure Nigerians very clearly that non interest banking is open to people of all faith and all types of non-interest bank application are welcomed at the CBN."
Source: This Day, 29th June 2011.
CBN Stirs Fresh Dust Over Islamic Banking
BY UDEME CLEMENT
The plan by the Central Bank of Nigeria (CBN) for Islamic banking in the country notwithstanding the opposition in some quarters has taken a new dimension with the pronouncement of N10 billion capital base requirement for any Islamic bank applying for licence to operate nationwide even as it further announced N5 billion capital requirement for an Islamic banking licence for regional operations. The CBN explained that it has the power to license Islamic banks in the country as stated in the CBN Act and Bank and Other Financial Institutions (BOFIA), duly passed into law by the National Assembly.
Accordingly, the Banks and Other Financial Institutions Act (BOFIA) 1991 as amended in Sections 9, 23 and 52, provide for the establishment of Islamic banking in the country. In that capacity, the former Habib Bank was granted an approval in 1992 to operate a window of Islamic banking which is still operational with Bank PHB. Thus, the approval by the CBN under former CBN Governor Charles Soludo saw the emergence of the proposed JA'IZ Bank, which has been working to raise 25 billion naira capital base as required (under BOFIA), showing that Islamic banking system was already in Nigeria years before the emergence of Sanusi as governor of the CBN.
The apex bank had, on December 31, 2010 and January 12 2011, published the guidelines on Shariah governance for non-interest financial institutions.
The policy framework as stated by the monetary authority aims at providing minimum standards for the operation of institutions offering non-interest banking and financial services in the industry to stimulate massive investments in the country. While some stakeholders are of the opinion that non-interest banking would bring long terms economic benefits to Nigeria, others said that such business practice must be condemned to prevent religious sentiments and division in the country, especially as Nigeria is highly sensitive to sectarian politics and religious conflict. Stakeholders who spoke with Sunday Vanguard expressed their views:
Non-interest banking would benefit Nigeria's economy in many ways – Santigie Charles Conteh: Ministry of Finance Sierra Leone.
What people should realise is the fact that Islamic banking has a lot of incentives for countries practising it. This type of banking technique is not totally new to the system, but it is just a banking model that is interest rate free and people are also free to make use of what product they want in the financial sector. Non-interest banking is a unique form of banking under the specialised banking model designed to promote development of Small and Medium Enterprises (SMEs).
This is because the entrepreneurs who are into SMEs operate on a smaller scale, sometimes with low capital for investment especially in the areas of start-up. This type of banking model would help them because they do not have to pay high interest rate charged by the commercial banks doing business in the country. What Nigerians should do is to carefully evaluate the new product to see what it entails and what the economy stands to benefit in the long-run.
CBN should not implement Islamic banking in a hurry – Rechard Tinubu, management and financial consultant to Osun State Government.
Because it is called Islamic banking, there is tendency for people to bring religion into it. For me, the CBN should not be in a hurry to introduce the model. The apex bank should allow time for people to examine the new banking system to see how it would benefit investors and government in the long-run expectation.
The apex bank is an agency of government charged with the responsibility of regulating the financial sector, which is a continuous process and an institution of the state. So, for effective policy implementation and for the leadership to continue to create wealth among the citizenry, government must continue to look inward with a view to satisfying the yearnings of the people in the area of welfarism geared towards infrastructure renewal. Hence, the apex bank should carry the people along in introducing new banking model.
In a developing economy like Nigeria, the government needs to invest in infrastructure, public goods and capital projects to stimulate economic growth and development. This requires efficient banking industry capable of financing capital projects in different locations across the country. The government should continue to develop the nation's domestic bond market in such a way that the private sector players could borrow to invest and finance projects with long term benefits. This could pave way for sustainable growth in the economy.
There should be level -playing field – Silas Onuoha Igwe: Non-interest banking model should not be introduced for the muslims only. The monetary authority should ensure a level playing field for all investors to benefit from the new banking model. The non-interest banking system should be adequately structured to promote development of small and medium enterprises in the country.
This is because Nigeria has a population of over 140million people and majority are youths, so CBN should give priority to SMEs to enhance jobs creation. If adequately implemented, the new model would be a way of encouraging entrepreneurial development in the economy. The moment this is done, most people would become employers of labour and this would further tackle the problem of unemployment in the country. Government should as a matter of urgency map out a structural framework to diversify the economy into non-oil export sector in order to develop the agricultural sector, which has the capacity to create thousands of jobs for the citizens.
The CBN should also look at the statistics in the area of small and medium scale operators – Boniface Amobi of National Bureau of Statistics, Presidency, Abuja: The initiative by the CBN to introduce a new model, which would bring additional product to the banking industry should not be condemned because the economy needs holistic growth.
I commend the effort of CBN in financing data production in the country. Economic growth and development requires credible data to help government in making decision on what basic infrastructures are needed and appropriate locations to put public goods for the benefit of the citizens. Government should make data production a national issue with sufficient revenue allocated for it and not just a project financed by the Central Bank of Nigeria (CBN) alone. The apex bank should ensure adequate use of data in the on-going banking reforms.
Source: Vanguard, 26th June 2011.
Bishop to CBN Boss: Your Job or Islamic banking
From NOAH EBIJE, Kaduna
Chairman, Pentecostal Fellowship of Nigeria (PFN), Kaduna State chapter, Bishop David Bakare, has advised Governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi, to resign from office before advocating the introduction of Islamic banking in the country.
In a statement yesterday in Kaduna, Bishop Bakare said that Sanusi would be better off in the Islamic banking agenda if he (Sanusi) were a religious leader.
The fire-spitting cleric therefore, advised the CBN boss to choose between the idea of Islamic banking and his job at the nation's apex bank, saying that advocating for a religious banking at this time of political crisis in the country could aggravate the tensed situation.
According to the statement, "Honestly, if Governor Sanusi Lamido Sanusi had done this advocacy for Islamic banking as a religious leader, it would have made a better sense than as a government official. Therefore, Sanusi should come out and tell the nation whose errand he is running and for who he speaks; is it for himself, Islam, or government of Nigeria?
"The PFN, Kaduna State, strongly condemns the Central Bank governor's Islamic banking agenda at a time like this in Nigeria when we are still battling to douse the tension created by the last 'political' crisis with all the evident religious manifestations."This obviously is an insensitive and reckless act of the highest order coming from such a high ranking officer of the Federal Republic of Nigeria.
"No right thinking Nigerian would ordinarily venture into such a sensitive matter at any time in such a nation like Nigeria without an evil motive to create more tension in the nation or worse still to start another religious fighting such as had never been before in this nation."Somebody, please, help tell Sanusi to let the sleeping dog lie, and not put the nation into another avoidable distraction and dangerous crisis. We call on President Goodluck Jonathan not to wait until trouble begins before acting," Bishop Bakare said.
Source: Sun, 26th June 2011.
Sanusi, PFN disagree over Islamic banking
Written by Hassan Ibrahim
The governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, has said that those opposed to the introduction of Islamic banking in Nigeria are not conversant with current happenings in the world as the system is being practised in the United Kingdom and other countries of the world dominated by Christians.
He spoke on the BBC Hausa service monitored in Kaduna at the weekened, even as the Kaduna State chapter of the Pentecostal Fellowship of Nigeria (PFN) expressed concern over moves to introduce Islamic banking in the country.
The PFN while condemning the move said the action of the CBN governor at a time when Nigerians were still battling to douse the tension created by political and religious crises was unfortunate.
However, Sanusi explained that the move for the introduction of the JAIZ Bank in Nigeria had been on even before he assumed leadership in the CBN and disclosed that other superior officers in the CBN who were Christians had no problem with Islamic banking in Nigeria.
According to him, a major stakeholder in the JAIZ Bank was an Igbo businessman who saw the prospects and had since invested a lot towards the noble cause.
Nigerians, he said, should not be afraid of Islamic bank as it was going to be a non-interest banking which had been practised successfully in many parts of the world.
But the PFN in a statement by its chairman, Bishop David Bakare, said that the action of the CBN governor would further polarise the nation along religious lines as well as raise suspicions about his intention no matter how good it could be.
"Honestly if the CBN governor had embarked on this advocacy for Islamic banking as a religious leader it would have made a better sense than as a government official. Therefore, he should come out and tell the nation whose errand he is running and for whom he speaks. Is he speaking for himself, Islam, or for the government of Nigeria?
" Sanusi should please be advised not put the nation into another avoidable distraction and dangerous crises. We call on the president not to wait until trouble begins before acting," he said.
Source: Tribune, 26th June 2011.
Much ado about Islamic banking
By Ibrahim Apekhade Yusuf
The rash of criticisms notwithstanding, proponents of the Islamic banking model in the country are convinced that it is a welcomed development owing to its socio-economic benefits, reports Ibrahim Apekhade Yusuf
Perhaps, as a manifestation of the apex bank's commitment to its "new found love", it subsequently issued a revised guideline on non-interest banking as well as prescribed a capital base requirement of N10 and N5 billion for all prospective Islamic banks applying for national and regional licences respectively in the country on Wednesday.
ABC of Islamic banking
But what really is Islamic banking all about?
Global acceptance
Islamic banking and finance practice according to Adegbite, who was a former Attorney General of the old Western region: "Is no longer limited to the Arab and the Muslim worlds but has spread to the Far East, Asia, Europe, America and Africa. It is estimated that there are more than 200 non-interest financial institutions operating in about 75 countries across the globe.
Market size
Though it is said to constitute less than five per cent of the global financial market, the Islamic banking and finance market was growing between 15-20 per cent before the world economic recession of 2008 and thereafter at an average of 15 per cent p.a. In the last four decades, the system has evolved from a small niche visible only in Islamic countries to a profitable, dynamic and resilient competitor at an international level.
Regulation
Although there are still challenges regarding uniform regulation of Islamic banking and finance, a lot has been achieved by countries that have been in the forefront such as Bahrain, Malaysia, UK, as well as other organizations purposely established to help regulate and standardize Islamic finance practice.
Benefits/opportunities
The basic principle of Islamic banking is the sharing of profit and loss as opposed to charging of usury (interest). For example, when it comes to the profit from the financing of a project, the financier and the beneficiary share the actual or net profit/loss rather than throwing the risk burden only to the entrepreneur.
Arguments against Islamic banking
Laudable as this initiative may seems, the irony, however, is that a barrage of criticisms has greeted what many proponents of this new scheme described as a "welcomed addition" to the country's financial system.
A case for Islamic banking
Despite the welter of criticisms against the Islamic banking, its promoters are unfazed by this development, as they believe that it is an idea whose time has come.
According too Adegbite: "Countries all over the world are falling over themselves to establish the banking product. Nigeria therefore cannot be an exception. Indeed as we aspire to be among the twenty leading Economies of the world, we need to equip our financial system adequately by providing the facilities which the extremely mobile world investors would require anytime and anywhere, they find themselves in the conduct of their businesses."
Expatiating, he said: "Indeed, such is the status of Nigeria in the world that she must not lag behind in financial creativity and must avail itself of all opportunities the global financial system has to offer. In Population, Nigeria is sixth largest Muslim Country in the World coming after Indonesia, Pakistan, India, Bangladesh and Egypt. Such a leading Muslim nation cannot rightly carry on without Islamic Banking System for her teaming Muslim population, and a good number of non-Muslim Nigerians and non-Nigerians alike who desire to have access to non-interest banking.
"In as much as the Islamic banking system envisaged for Nigeria would be non-discriminatory, making its facilities open to and available to all Nigerians regardless of faith, the institution would be legal and constitutional. It should be emphasized that the pioneer non-interest Bank which Jaiz International Plc is poised to establish in Nigeria as soon as it receives a banking licence from the Central Bank of Nigeria, may be Islamic in concept and nature, it is certainly not a closed shop, available to Muslims only.
"Rather it would be a bank owned by Muslims and non-Muslims; its customers will also be drawn from all sectors of the community regardless of faith", Adegbite submitted.
Apparently throwing its weight behind the new policy regime, CBN said the new phase of reforms will positively impact on the provisions and requirement of Islamic banking, and ultimately hasten the progress of that arm of banking.
Mohammed Abdullahi, spokesperson for the CBN, shed more light on this while clearing the air on insinuations that Islamic banking was an agenda of Sanusi-led CBN.
"This policy has been on for about three years and has been approved in principle for some time now. I can recall that Jaiz International Bank Plc has been given approval in principle to operate as an Islamic Bank. All that the Central Bank is waiting for them to do is to mobilise their capital base of N25 billion required for operations in the Nigerian banking system", he recalled.
He also noted that under the current reforms, banks have been falling in line with the CBN requirement, adding that the recent announcement on the categorisation of Nigerian banks for bank specific solutions will boost Islamic banking operations.
"I believe that Islamic banking or zero interest banking would fare very well under that arrangement and it is possible that they may not be required to raise exactly | 25 billion before they can start operating. Islamic banking and the Central Bank are trying to introduce a supervisory framework for easy supervision," he said.
He added that the CBN will rely much on the success and experience of the Negara of Malaysia. "They have gone far in the operations of Islamic banking and I believe we have a lot to learn from them, and we hope to use their experience to develop our own locally. As soon as that is done, everything would become clearer. Islamic banking has been provided for in the Banks Act and Approval-in-Principle has already been given during Soludo's time," he said.
Apart from Jaiz International, he also revealed that BankPHB was also given approval in principle to operate Islamic banking, and has been operating the system for some time now.
Bank PHB offers the classic Bank PHB interest free account. A statement on the bank's website said, "This product is designed for Muslim faithful desiring banking services without compromising their religious beliefs."
Considering the raging controversy over the propriety or otherwise of Islamic banking, this may not be the end of this tempestuous episode.
Evidence that the new CBN's baby did not gained wide acceptance emerged on Wednesday at a public forum in Lagos, with many of those averse to it raising their voices above the din, in apparent show of discomfiture.
The event was at a seminar orgainsed by the Apostles in The Market Place (AiMP), where the CBN's Deputy Governor, Financial System Stability (FSS), Dr. Kingsley Moghalu, had a hectic time trying to convince the aggrieved parties on the propriety of the idea of Islamic banking.
Moghalu who spoke on the theme: 'Re-Purposing Non-interest Banking in Nigeria', emphasised that Islamic banking and other forms of non-interest banking were part of effort by the apex bank to stimulate financial inclusion in the country.
Non-interest banking is not new banking model he said, adding: "It is a form of banking under specialised banking model. The reason for an expert advisory council in the guideline is because of the nature of non-interest banking under the principle of Islamic commercial jurisdiction. All banks that are Islamic banks have that type of council. So the regulator in this context felt the need to have a council that advises it on the compliance of the products that those banks will issue with the principle of Islamic commercial jurisdiction.
"I will like to very clearly assure Nigerians that non-interest banking is part of our plans to increase the inclusion into the financial sector, people who have stayed out of the financial system for various reasons. There is no agenda; it is simply finance and not religion. I want to further assure Nigerians very clearly that non-interest bank application is welcomed at the CBN", he further explained.
But the Chief Executive Officer, Pharez Consulting, Mr. Eghes Eyieyen, who spoke earlier argued matter-of-factly that the introduction of Islamic banking was against the provisions in Banks and Other Financial Institutions Act (BOFIA).
Raising a poser, Eyieyen said: "What is the inordinate drive and ambition behind the introduction of Islamic banking? To me, it seems as if the CBN is in a hurry to introduce it and why does the CBN think it is going to be a major driver of financial inclusion? It is not about religion, it is about the law and professionalism. Why has the CBN not given such passion and priority to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)? You cannot use a small provision in the BOFIA that gives you the power to regulate, to now begin to legislate."
Echoing the same views, an Associate Professor of Law and Security Studies, Babcock University, Dr. Bankole Sodipo, also argued that the CBN Act and BOFIA, in issuing out regulation on non-interest banking, did not support Islamic banking, saying that the banking sector regulator must ensure that the National Assembly legislate on the form of non-interest banking.
"The way forward is to look at the BOFIA and ensure that the move is in line with the Act. On the Advisory Council, there is no way they can delegate the decision making of the body to another body because the National Assembly doesn't give them that power. The law does not regulate that form of banking because it shut some people out. You don't give what you don't have and so you cannot give out what is not your own. What it means is that the CBN wants to introduce a form of banking through the backdoor", Sodipo argued.
Another group that has vehemently opposed the introduction of Islamic banking is members of the Christian community.
One of these critics, the Anglican Bishop of Enugu, Rt. Rev. Emmanuel Chukwuma who spoke to newsmen in Enugu recently, also warned the CBN not to approve the establishment of the bank, insisting that the emergence of a religious bank would pose serious threat to the unity of the country.
Chukwuma, the bishops and the Primate of the Anglican Church, Most Rev. Nicholas Okoh, had rejected Islamic bank after their meeting recently, saying that they did so because of its "religious connotation."
The bishops also argued that the CBN was not constitutionally empowered to establish an Islamic bank, pointing out that the bank would contravene the CBN Act.
Bishop Chukwuma disclosed that the Anglican Church would embark on a protest if the apex bank ignores its position on the issue, warning that they would equally pass a vote of no confidence on CBN if it approves the bank.
He insisted that there was no need to establish an Islamic bank in a multi-religious country like Nigeria, saying that the coming of the bank would only cause confusion in the country.
"Nigeria is not an Islamic country. Islamic bank is unconstitutional because it is not in the CBN Act. We reject the establishment of the bank. It has religious connotation. The Senate and House of Representatives should not pass the bill," he said.
To many financial pundits, Islamic banking and finance has many benefits and opportunities for the entire population of Nigeria, including Muslims and non-Muslim faithful alike.
Some of these include ethical, transparent, non-discriminatory financial offering, high potential market size with Muslims making up over 50 per cent of the population of the 155million population.
Besides, it is capable of encouraging the large unbanked and informal sector, estimated to contribute at least 55 per cent to the country's GDP, just as it has the potential to offer over 30% return on equity.
Citing a recent IMF study, Adegbite recalled that the global body revealed that Islamic banks performed better in 2008 in terms of profitability, credit and asset growth compared to most of the conventional banks worldwide.
Malaysia has been developing the necessary infrastructure to support the legal and regulatory framework for Islamic finance industry since the 80's. The Islamic Banking Act was enacted in 1983 and Takaful Act in 1984. The UK (FSA) has also reviewed some of its statutes to accommodate Islamic Finance since 2003.
The industry has also developed self regulatory bodies such as the Accounting and Auditing Organisation for Islamic Finance Institutions (AAOIFI), the Islamic Financial Service Board (IFSB), International Islamic Financial Markets (IIFM) and International Islamic Rating Agency (IIRA) among others.
The AAOIFI which is based in Bahrain issues standards governing accounting, auditing, corporate governance and capital adequacy for the industry. Similarly the IFSB is an international body headquartered in Malaysia with more than 150 members including the IMF, IDB, World Bank for International Settlements, Central Banks, market players and professional firms.
The body issues Standards and Guidelines on risk management, capital adequacy, corporate governance, etc.
In Nigeria, as part of the ongoing reforms of the banking industry, the Central Bank (CBN) has abolished the Universal Banking Model (of the one-size-fit-all minimum capital of N25bn introduced in 2005) and released new guidelines for different categories of conventional banks as well as that of the Non-interest Banking (NIB) or Islamic banking.
The size of Islamic banks around the world was estimated to be close to US $850 billion at the end of 2008. While Islamic banking remains the main component of the Islamic financial system, the other elements, such as Takaful (Islamic Insurance), Mutual Funds and Sukuk (Islamic bonds and financial certificates), have witnessed strong global growth, too.
According to a reliable estimate, the Islamic financial industry now amounts to over US $1 trillion and projected to hit $1.6tr by 2012. Given its fast-growing nature the industry is estimated to double in size in less than a decade – other things being equal.
"Global financial institutions offering Islamic Banking services include HSBC, Citigroup, Deutsche Bank, Standard Chartered Bank, Barclays Capital and ABN Amro. These institutions are leveraging on their skills, resources, expertise and access to capital to drive the Islamic finance industry to higher levels.
"There are also other local/regional banks especially in the GCC countries which have started to expand their operations across their borders into other countries. These include Al-Rajhi Bank of Saudi Arabia, Dubai Islamic Bank, Kuwait Finance House, and Al Baraka Group. In Africa, the countries that have embraced Islamic Banking include South Africa, Egypt, Senegal, Gambia, Niger, Kenya, Tanzania, Algeria, Tunisia, and Benin Republic."
Dr. Abdullateef Adegbite, the Secretary General of the Nigerian Supreme Council for Islamic Affairs (NSCIA), a man who should know better, gave a bird's eye view of the pros and cons involved in Islamic banking at a public forum earlier this month.
The event was at the Nigerian Institute of Advanced Legal Studies' colloquium on Islamic banking in Lagos, where the NSCIA scribe spoke on the challenges and prospects.
According to Adegbite, "As most of us know, Islamic banking and finance is based on the principles of Shari'ah, and this notwithstanding, its application and benefits do not discriminate between Muslims and non-Muslims. In fact, its ethical and transparent nature, its simplicity, and its emphasis on fairness and accountability, etc endear it to many.
"Three most distinguishing factors that make Islamic finance unique from the conventional system are: (a) Prohibition of Riba (interest) in all its forms; (b) Risk-sharing; (c) Asset-backed. The last factor eliminates speculation, extreme uncertainty, etc in financing and encourages growth of the real economy – this made it (Islamic Banking & Finance) more resilient during the world economic meltdown!
"Islamic Banking and Finance has become very popular and widely accepted as a reliable financial system that has been integrated into the global financial system. For over three decades it has appeared on the world scene as an active player."
Source: The Nation, 26th June 2011.
Sanusi, PFN disagreee over islamic banking
By Agency Reporter
The Governor of Central Bank, Mallam Lamido Sanusi, and the Pentecostal Fellowship of Nigeria on Saturday disagreed over the decision by the apex bank to introduce Islamic banking in the country.
While the CBN governor said those kicking against the initiative were not conversant with the current happenings across the globe, the PFN said the timing was wrong.
Sanusi who spoke on the Hausa Service of the British Broadcasting Corporation monitored in Kaduna, argued that the move to introduce the JAIZ Bank in Nigeria had been on even before he assumed the leadership of the apex bank, adding that high-ranking officers of the CBN who are Christians were not opposed to the idea.
He noted that a major stakeholder in the new bank was an Igbo businessman who saw the prospects and had since invested in it.
Sanusi enjoined Nigerians not to entertain any fear about the initiative, saying it was going to operate on a non-interest banking as is done in many parts of the world.
However, the Kaduna State PFN Chairman, Bishop David Bakare, in a statement, said the action of the apex bank would further polarise the country along religious line.
Source: Punch, 26th June 2011.
'Islamic Bank, Plot to Islamize Nigeria'
By Omon-Julius Onabu
Delta State chapter of the Christian Association of Nigeria (C.A.N.) has alleged that the decision to establish the first Islamic bank in Nigeria was in furtherance of the plot to Islamize the country.
The state branch of the authoritative umbrella of Christian groups in Nigeria further accused the Governor of the Central Bank of Nigeria (CBN), Alhaji Lamido Sanusi of planning to destabilize the country's banking sector through the unwarranted establishment of an Islamic bank.
The CAN located leaders said they would not mince words in expressing their strong misgivings about the action of the CBN governor and vowed to protest the development through all legal avenues possible.
Speaking at a press conference, Thursday evening in Warri, Delta State CAN Chairman, Arch Bishop God-do-well Avwomakpa, disclosed that CAN was planning a protest march to Abuja to register its strong opposition to establishment of the religious bank.
The leaders addressed the press shortly after rising from an executive meeting of the state CAN.
The CBN governor was obviously intent on Islamizing Nigeria by using his privileged office to establish the contentious bank, the Christian leaders said unanimously.
Sanusi has by his action acted outside the laws of the land by disregarding the constitutional provisions that affirm the secularity of Nigeria , the CAN leader claimed.
"It is so disheartening that the removal of competitive and influential banks' managing directors has culminated in the establishment of Islamic banking in Nigeria ."
"This is a huge surprise to Nigerians who thought that the CBN governor was overhauling the banking system for effective and efficient banking", he lamented.
Source: ThisDay, 25th June 2011.
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