25 July 2011

Nigeria: Islamic Banking ; Why Not?


So much noise has been made in recent times over the issue of Islamic banking. As it is often the case in Nigeria, the matter has divided the country very sharply, assuming the dangerous and regrettable north versus south, Christians versus Muslims divide with each side wielding cudgels of animosity and ill will. The positions are hardening dangerously.

In this pointless crisis, the protagonists, most of them Muslims from the North, including the loquacious Governor of the Central Bank of Nigeria (CBN), Mallam Lamido Sanusi, are as guilty as the antagonists. Needless to say that some of the most trenchant opponents are Christians from the south.

So, if Islamic banking eventually becomes a reality, the battle cry will be that those who allegedly swore many years ago to dip the Koran in the Atlantic Ocean must not be allowed to succeed in their quest to Islamise Nigeria. Such a refrain will not only resonate loudly here, but also stoke the latent embers of Christian fundamentalism. If the project fails, it will yet be another proof to a section of the country that Christians are opposed to their way of life as dictated by their religion.

Whichever way the pendulum swings, one thing is certain. The religious and ethnic fault lines that have been the bane of the country's unity and progress will widen treacherously and become a chasm. Yet, here is a purely economic issue that should be viewed strictly from that prism.

Islamic banking or participant banking, according to Wikipedia, the free encyclopaedia, "Is banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics."

The underlying principle is the belief that "Islamic law prohibits usury, the collection and payment of interest, also commonly called riba. In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haram (such as businesses that sell alcohol or pork, businesses that produce media such as gossip columns or pornography, which are contrary to Islamic values." Simply put, the payment or acceptance of such specific fees for loans of money is perceived as haram, something that is forbidden according to Islamic injunction. The aim, it is claimed, "Is to engage in only ethical investing and moral purchasing."

The word riba means excess, increase or addition, which according to Sharia terminology implies any excess compensation without due consideration. But it is interesting to note that here consideration does not include time value of money, which is at the core of all interests charged in conventional banking activities.

Islamic banking has had phenomenal growth over the years. Although it is more popular in countries with majority Muslim population, it has also spread to countries with predominant Christian population, growing at a rate of 10-15 percent per annum. The result is that today, Islamic banks have more than 300 institutions spread over 51 countries, including the United States of America. It is estimated that almost $1 trillion sharia-compliant assets are managed worldwide by Islamic banks. According to CIMB Group Holdings, Malaysia's second largest financial services provider and fifth largest in Southeast Asia by total assets, Islamic finance is the fastest-growing segment of the global finance system and sales of Islamic bonds may have risen by 24 percent to $25 billion last year.

But it is worth noting that these impressive figures, as huge as they are, represent less than one percent of total world financial assets today. The implication is that Islamic banking still takes the back seat in global finance. The majority of the banking community still prefers the conventional banks.

But there is no gainsaying that the idea of Islamic banking and its underpinning principle cannot be ignored. Perhaps, that explains why the Vatican, the seat of the Catholic Church, at the height of the global financial crisis admonished the conventional banks to look at the rules of Islamic finance to restore confidence amongst their clients. "The ethical principles on which Islamic finance is based may bring banks closer to their clients and to the true spirit which should mark every financial service," the Vatican's official newspaper Osservatore Romano said in an article in March 2009.

This admonition should resonate loudest in Nigeria. If there is any country that needs financial institutions driven by the principles that govern Islamic banking, it is Nigeria where conventional banks, having been blinded by greed and penchant for shady deals, have repudiated all known industry etiquette. The quest for unearned profit has created financial institutions without human face, banks that would rather be undertakers of businesses rather than serve as catalyst for industrial growth.

I would rather deal with a financial institution that pays attention to the human dimension of the economy which is totally lacking now in the country. It is bad news for business when banks pay paltry four percent interest on deposits but charge 22 percent on loans. A financial system that guarantees unsecured facilities to politicians because of the "quick returns on investment" but denies genuine businessmen same is bad enough. But it is double jeopardy for the country and its economy if the same vested interests are allowed to hound "interest free banks" out of the economic space.

And come to think of it, is there any law in Nigeria that forbids interest free banking? How does Islamic banking negate Nigeria's secularity?

Will I be required, as a Christian, to convert to Islam before obtaining loan from the bank? Even if that is the case, will I no longer have a choice?

Unless there is a proof that Islamic banks will be veritable sources of slush funds for terrorists, it is tantamount to red herring for some Christian leaders to cry wolf, knowing full well there is none.

But Sanusi has not helped matters. In his usual penchant to grab the headlines, he has made himself the issue in this controversy. Not many people remember again that the policy was actually initiated by his predecessor, Professor Chukwuma Soludo.

Through his characteristic indiscretion, he has not only nudged the country, once again, to the religious edge, but also created the false impression that Islamic banking is the answer to all the economic woes of Nigerians.

Yet, he knows that in reality there is no such interest-free banking anywhere in the world in the sense it is being promoted here because it is a fact that Islamic banks charge for the time value of money, which is the common economic definition of interest.

If Islamic banking is the talisman used in exorcising poverty, how come that over 60 percent of Muslims living in countries such as Egypt, Pakistan, Bangladesh, etc live in abject poverty? Was it not poverty that triggered the "Arab awakening," the revolution that has swept away many sit-tight leaders in Arab world and threatening some others?

Religious merchants profiteering from the misery of their fellow countrymen and women must stop fanning the embers of religious discord because it is an evil wind that won't do anyone any good. Let Islamic banking be if it must. And let the multi-billionaire Christian pastors apply for licence and go into Christian banking if they must.

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