The Special Adviser to the Governor of the Central Bank of Nigeria (CBN), Dr. Bashir Umar, has said that the proposed introduction of Islamic banking in the country would stimulate the growth of the real sector in the country.
Umar said this while presenting a speech titled: "Overview of Conceptual Issues of Non-Interest Banking in Ngeria," at the 16th CBN annual seminar for journalist in Yola.
He also stressed that the specialised form of banking would further deepen Nigeria's financial market, adding that it would lead to the introduction of institutional players in the market.
Umar also reiterated that non-interest Islamic financial services would help bring in a large number of the country's population that had hitherto steered away from the organised conventional financial services due to their aversion to interest and interest-based products.
He also argued that the product would arouse new competition in the banking industry.
"Non-Interest financial services is expected is expected to enhanced oversight and regulation through an added component of corporate governance, which is the supervisory board or committee of experts in Islamic jurisprudence.
There would be enhanced investment in the critical sectors of the economy through the use of Sukuk, a new financing instrument.
"Non-Interest Islamic financial services would also help to attract foreign direct investment (FDI) especially from the middle East and South East Asia, where a lot of investors have funds waiting to be invested in Shariah-compliant financial products as is evidenced by the exponential growth in international Sukuk, which are Islamic investment certificates that share some of the characteristics of convential bonds.
This is true especially with the current crisis in the Euro zone and the flight from the US dollar and the increasing interest in emerging markets economies," he added.
On his part, a Senior Lecturer at the Department of Economics and Financial Studies, Fountain University, Osogbo, Osun State, Mr. Ishola Hakeem Mobolaji, argued that Islamic banking, due to its low or zero interest rate structure, would reduce the cost of governance.
He also insisted that the product would also bring about a drastic reduction in capital flight.
"For non-interest banking to fully realise its potentials and impact more on the economy, some of the following challenges have to be attended to. These include well structured regulatory framework to guide against abuses and ensure uniformity in practices.
The framework should equally spell out clearly the relationship between these banks and other conventional banks. The money market has to be restructured to accommodate transactions of assets in a non-interest bearing modes.
"In the same vein, the capital market may be rearranged to allow non-interest banks to seek for long term medium funds and provision of non-interest bonds would facilitate further financial intermediation.
Other challenges include dearth of specialist, competition with other conventional banks, poor public awareness, and unstable macroeconomic environment, standardisation of accounting procedure among others. All these challenges are however surmountable, considering the relative importance of this sector," Mobolaji added.
Mobolaji maintained that non-interest banking remained an effective route to ideal financial sector in Nigeria. He further argued that the specialised form of banking would encourage emerging small and medium enterprises through mutual risk sharing, reduces asymmetry information and promote entrepreneurship.
He added: "Non interest banking provides an alternative financial intermediary for mobilising and allocating resources. Through its operational modalities, it enhances financial inclusion, financial depth and breadth and capable of improving financial effectiveness and efficiency which are needed for national economic development."