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Published On:09 July 2011
Posted by Indian Muslim Observer

Islamic banking is a plus

By Jamal A. Elbaff

Faith and finance have been inseparable from the beginning of time, even though religion and state had been separated by secularism. In Islam, interest which is a form of ‘riba' is severely condemned by the Holy Qur'an. Because of this, millions of Nigerian Muslims are excluded from the financial system which is based on interest. The obvious implication of this is that a large share of the national savings is not channelled through the formal financial system, meaning less capital available to financial institutions and investors. The resultant negative effect of this is that capital becomes costly (bankers call it ‘expensive funds') thus diminishing investment and thwarting the economic growth and development of the nation.

The recent global financial crisis has also given more credence to Islamic finance. A study conducted by some IMF researchers in 2009 reveals that Islamic financial institutions have shown more resilience than their conventional counterparts (interest-based financial institutions) during the global financial crisis. According to the authors of the report, this excellent performance is attributed to the business model Islamic banks use, which ‘prohibits' them from engaging in complex derivative financial instruments and other speculative activities (which in plain language means ‘gambling with other people's money').

It is interesting to point out the case of countries which have in operation a dual banking system (i.e. both the interest-based and non-interest banking systems). Malaysia, for instance, is one such country and it has fared extremely well during the global financial-crisis, whereby the effects of the crisis on the overall economy were neutralised by the good performance of the Islamic financial institutions.

From this brief analysis, therefore, it is safe to assert that the introduction of the Islamic variant of the non-interest banking model in Nigeria has potential for enormous economic benefits in the form of better environment for investment as a result of more capital in the financial system, a more diversified source of fund (indeed, a well-grounded economic theory established a direct relationship between diversified sources of funding and economic-growth) and most importantly, a more stable and resilient financial system.

From the political perspective, the issue is much simpler (to any rational-thinking person) because the Act governing the conduct and operations of the Central Bank of Nigeria (CBN), the Banking and Other Financial Institutions Act (BOFIA) explicitly provides for the licensing of non-interest banks (NIBs). However, owing to complaints from certain segments of the society who feel that they also want to operate non-interest banking but NOT based on Islamic commercial jurisprudence principles, the CBN in its recently revised version of the Framework for the Regulation and Supervision of institutions offering non-interest Financial services in Nigeria, categorises the non-interest financial institutions into two broad models: the provision of non-interest financial products and services based on the principles of Islamic commercial jurisprudence, and the provision of non-interest financial products and services based on any other established rules and principles.

With this categorisation, citizens who have need for an alternative mode of non-interest financial services and such ‘alternative' is based on globally established principles, are entitled to demand from the CBN for the provision of a framework for its regulation and supervision. Now if this isn't fairness, then ‘fairness' has no meaning!

Indeed, ANY man-made law is meant to protect the legitimate right of all the members of the community. The right of those who want to (continue) undertaking their financial dealings based on interest is by no means more sacred than that of those who want to avoid interest (‘riba') in all its forms. Nigeria is a secular state, but the right of its citizens to abide by what their faith states is enshrined in its constitution.

While attending a seminar jointly organised by a group called Apostles in the Market Place (AiMP) and BusinessDay Newspaper in Lagos on June 22, 2011, I heard Kingsley Moghalu, the CBN Deputy Governor in charge of Financial Sector Surveillance explain that BOFIA (1991) clearly empowers the CBN to grant licences and issue guidelines for the regulation and supervision of non-interest financial institutions in Nigeria.

Mr Moghalu added that the CBN had been inundated with numerous applications from Nigerians over the past 20 years, for the issuance of the (Islamic) non-interest banking licence. And it is in response to such numerous requests (in addition to the attendant benefits the introduction of this mode of financial service will yield to the Nigerian economy) that the CBN began the process of developing a framework and guidelines for the regulation and supervision of non-interest financial institutions in Nigeria since 2007, way before Sanusi Lamido Sanusi even dreamt of becoming CBN Governor. As Mr Sanusi said in a recent chat he had with the BBC World Service, all those who have an issue with CBN's action should go to court for the proper interpretation of BOFIA.

Any man-made law or its interpretations which attempt to impose on a set of people a ruling that contradicts their belief is inherently unjust and bluntly provocative.

(Courtesy: 234Next.com)

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Posted by Indian Muslim Observer on July 09, 2011. Filed under , , . You can follow any responses to this entry through the RSS 2.0. Feel free to leave a response

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