Islamic banking!
Even
though a draft framework for non-interest banking was issued in March
2009 by the Central Bank of Nigeria (CBN), its position on Islamic
banking did not become much of an issue until a few months ago when the
final guidelines were released.
According
to the acting director of banking supervision at the CBN, D.A. Eke,
"The objective of the framework is to provide minimum standards for the
operation of non-interest banking in Nigeria while serving as an
exposure for comments, suggestions and/or inputs by stakeholders."
The
suggestions and/or inputs from stakeholders never came. More than two
years after, the CBN released the final guidelines which cover only
non-interest banking according to Islamic commercial law and
jurisprudence ‑ and all hell was let loose.
The
furore was such that the regulator could not ignore even though a few
weeks before the CBN governor, Lamido Sanusi, had said the complainants
were in the minority.
Doing
a volte-face, Mr Sanusi said he has instructed that the guidelines be
re-written and re-issued after examining all of the criticisms that have
trailed the initial guidelines, as it was capable of being
misinterpreted to mean that Islamic banking is the only type of
non-interest banking that is allowed.
"It
was never our intention to restrict non-interest banking to Islamic
banking but we understand why it would be viewed that way," Mr Sanusi
said.
Revised guidelines
In
the revised guidelines, the CBN recognised two types of non-interest
banking: non-interest financial products and services based on
principles of Islamic commercial jurisprudence, as well as financial
products and services based on any other established rules and
principles. The regulator added that in line with its objective of
promoting financial inclusion in Nigeria, it will issue guidelines
pertinent to other types of banking to individuals and groups wishing to
practice non-interest banking based on established rules and principles
other than Islamic.
The
Central Bank said it was introducing Islamic banking in order to open
up the financial space to those who were locked out. "Financial
inclusion is a major challenge. Almost 50 percent of adult Nigerians do
not have access to capital. What is keeping them out? Many things. But
to the extent that non-interest banks can address some of the reasons
for their staying out, we should encourage them," said CBN deputy
governor (financial systems stability), Kingsley Moghalu, while assuring
Nigerians on the genuine intentions of introducing the variant of
non-interest banking.
At
a seminar organised by Apostles in the Market Place (AiMP), a group of
Christian professionals, in Lagos last week, Mr Moghalu said the CBN was
open to receive applications from other firms that wish to operate
other variants of non-interest banking. "I like to very clearly reassure
Nigerians that non-interest banking is part of our plans to increase
the inclusion into the financial system of those who have stayed out of
the banking system for various reasons. I like to assure Nigerians very
clearly that there is no agenda. It is simply finance; it is not about
religion." Participants agreed that while there was a need to redefine
the function of capital, it was equally necessary to ensure that such
redefinition is not seen to favour one religion over another.
Capacity and the lack of it
One
of the speakers, Brett Johnson, founder of Institute for Innovation,
Integration and Impact, said the impact of the global financial crisis
has necessitated a re-purposing of capital in order to correct some of
the negative fallout of the crisis. Tracing the history of
profit-and-loss sharing banking to faith-based financing starting in
Biblical times, he said the concept of exorbitant interest payments was
responsible for the current global economic glut.
He
said that while Nigeria is excited to join other countries in Islamic
financing, it may not offer an automatic solution unless the regulator
steps up its regulatory prowess. He alluded to capacity as a constraint
in Nigeria, adding that, "Islamic banking has not necessarily produced
great returns." Referring to a report last June by the New York-based
World Street Journal, he said the regulators must do a thorough job
before approving any application for non-interest banking, or Islamic
banking for that matter. According to the report, Sharia-compliant
banking products have been a flop in Britain. Quoting Junaid Bhatti,
part of the team that set up Islamic Bank of Britain (IBB), the first
Sharia-compliant bank approved by the Financial Services Authority, he
said the sector has been a big disappointment.
"As
we now approach the sixth anniversary of IBB's launch, I'm sad to
finally have to admit that Islamic finance in the UK has been a huge
flop," he said. "IBB may still be limping on as probably the last
bastion of the cause, but it's difficult to imagine it holding out for
much longer," Bhatti said.
Back
in Nigeria, given the place of regulatory failure in the financial
crisis two years ago, it may be too soon to jump into another game. This
is particularly so as just a few competent hands currently exist in the
field. According to Hajara Adeola, the chief executive officer of Lotus
Capital, an ethical investment firm specialising in Sharia-compliant
asset management, capacity crunch is crucial, "even at the Sharia
advisory board level. At the operator level, training can take care of
it. It will take time, so I don't think any institution should rush into
this business."
Mr
Moghalu said the Central Bank was aware of the problem of capacity
which is why it has stepped it up in-house in order to match the demand
of the market. "This is a new thing in Nigeria. We have thought of
capacity and have equipped our regulatory officers. We have sent them on
a lot of training. So we are addressing the issue of capacity in the
industry."
