Central Bank of Nigeria Proposed Islamic Banking – The Way Forward
A banking institution is a place where individuals or corporate organizations deposit their money for personal or business transactions for the purpose of savings, current or fixed transactions that would generate profit over a period of time. Nigeria, being one of the developing economies in the world, has taken the right step to restructure the banking system in the country. Dating back to 2005 when all existing banks were mandated to recapitalize to a minimum balance of twenty five billion naira or risk losing their licenses to operate during the leadership of Prof. Charles Chukumeka Soludo, the then Governor of the largest bank of Nigeria, Central Bank of Nigeria.
Interestingly, this paved the way for an organized and flourishing banking sector where some of the banks met the expected benchmark while others merged and a few remained on the sidelines. Nevertheless, this reform created a free flow of capital funds for banks to play with – the introduction of universal banking. One will not forget the role that banks played in the capital market during the boom era when investors took loans or applied for margin loans from these banks at interest rates ranging from 7% to 20% to extract lavish profits from their appraised invested shares. Unfortunately, the proliferation of any transactions in our capital market over time is due to the downturn in the economy. It should also be mentioned that Africa was not alone in this economic impasse as most countries in the world suffered the same fate including the United States of America.
In an effort to restore the good old days, economic experts and global scientists have proposed solutions to revive the economy. Nigeria was not left out of the fray. With the emergence of Malam Sanusi Lamido Sanusi as the next Governor of the Central Bank of Nigeria succeeding Prof. Charles S. Soludo, he swung into action to continue the good works of his predecessor. Between 2009 and 2010, around five bank bosses were indicted and prosecuted for misuse of depositors’ funds, ranging from misappropriation of funds, unauthorized unsecured loans and wasteful spending. While others are currently on trial. After seeing the good works of the new governor of the Central Bank of Nigeria, the presidency recently established the Asset Management Corporation of Nigeria. The Asset Management Corporation of Nigeria aims to acquire “toxic” assets of troubled banks and will take a majority stake in failing banks after plugging their capital shortfalls. Public commentators have praised the government for this initiative, which has gradually restored the confidence of investors to invest in both the money and capital markets. No wonder that on April 26, 2011, the prestigious Times magazine honored Sanusi Lamido Sanusi as one of the 100 most influential people in the world at a spectacular Time Gala Awards ceremony held in the United States of America. Although, as much as the reforms may appear to stem excess banking operations, the adverse effects are quite frightening as the capital and money markets are currently witnessing low investor confidence following the successive purchase of three banks (Afribank, BankPHB and Spring Bank ) of three relatively unknown companies (Main street, Keystone and Enterprise) respectively on 5 August 2011 by the Sanusi-led Central Bank of Nigeria.
However, in early 2011, Malam Sanusi Lamido Sanusi resumed the implementation of interest-free banking, popularly known as Islamic banking, which was initially introduced by his predecessor as one of the verifiable tools to revive the negatively skewed economy. According to Wikipedia, the world’s free encyclopedia, “interest-free banking appears to be of recent origin, in which a working partner receives a larger share of the profits than a dormant (non-working) partner” This simply means that both banks and investors (working partner ) would receive a larger share of the profit after a particular business transaction. One would ask if this will build the economic growth of the nation as practiced in UK, Malaysia etc.? It would certainly contribute to the well-being of our economy, but what we are doing is technically wrong. Please read Business Day Online from June 29, 2011 for more explanation. The CBN governor has the right to talk about the benefits of any product or scheme the apex bank rolls out, but attaching more religious sentiments than professional and economic gains would lead the country to a very heavy edge.
This proposed style of banking has sparked heated arguments and debates in various parts of the country. Remember that Nigeria is a secular country with almost equal numbers of Christian and Muslim believers in the population, not to mention other religious and traditional groups. For example, the leadership of the Christian Association of Nigeria (CAN) strongly opposed the implementation of Islamic banking, citing some misguided approaches by the Sanusi-led Central Bank of Nigeria such as using state funds to promote the implementation of the scheme without recourse to other religious groups in the country. The country still faces serious security threats arising from kidnappings, militancy and most alarmingly, terrorist attacks by the dreaded sect, Boko Haram especially in the federal capital (Abuja) and other northern parts of the country. It is surprising to know that the presidency is silent on the matter which needs urgent intervention to correct the facts as the masses want better governance in terms of economic and socio-political gains.
Whatever the outcome of the proposed Islamic banking by the Central Bank of Nigeria, the apex body should consider the following points as a way forward:
1. That the implementation processes of interest free (Islamic) banking should be carried out in strict compliance with the established procedures of the regulatory body – the Central Bank of Nigeria.
2. It should also have greater benefits for Islamic banking investors without directly or indirectly affecting other interest banking investors in the same sector.
3. That the Central Bank of Nigeria should continue to create more public awareness on interest-free (Islamic) banking by holding a round table discussion with all stakeholders which includes: religious sects, economic experts, legislators, government officials and the media to remove any misconception of the proposed scheme.
The fact that interest free (Islamic) banking with its many economic benefits as practiced by some countries around the world, the Central Bank of Nigeria under its current leadership must convince the over-educated 55% Nigerians of its benefits without adversely affecting the other stakeholder for economic growth and peace.
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