Islamic Banking in Nigeria : Can Nigeria do it?


Abuja — What is Islamic finance and banking?

Islamic finance generally is a mode of financing project through Islamic legal means. It is brought out of the main Islamic economics. Islam is a complete way of life, therefore there is no demarcation between social, political or economic life of a Muslim and every Muslim is expected to adhere to the tenets of Islam to guide his way of life. The economic aspect of life deals with the legality, the Islamic do’s and don’ts regarding occupation, economic interactions, what to do; what not to do, what to sell; what not to sell, what to profit and not to be profiteering, usury and other things.

The global economic system is secular in nature, I will not say it is Christian in nature because I believe even in Christianity usury is not condoned. Therefore the global financial system is secular; it does not recognises any religion and that hurts a lot of Muslims because they are affected. As Muslims they are suppose to lead their lives as ordained by God and they have been warned vehemently to desist from interest related activities.

Islamic mode of financing is the one that is done without involvement of usury and at the same time it is the one that goes with the tenets of Islam. You can profit but you cannot exploit others because that is the essence of Islam.

Now, when you come to banking, the same thing applies. The global banking system is also a secular system that is based on interest and the reality is that interest is pervasive and it has never helped even the global economic system. Even now it is badly affected because of the inability of so many people that have taken loans with high interest to pay back. And this is what Islam foresaw and prohibits interest. But you can build economic relationship on commission or on profit or sharing of loss. Islamic banking is based on that principle. Instead of predetermine; because interest is a predetermined amount and it has not ever been affected by the risk. So if you collect bank money and no matter how badly affected you are by whatever circumstance you have to pay back plus the interest. Islam is a sympathetic religion, it prohibits that. It created a situation where there must be profit and loss sharing. There must be an agreement between the customer and the bank; you go on profit and loss sharing. That, principally in a nutshell what Islamic finance and banking means.

Can Nigeria do it?

There are several factors that may inhibit the full implementation of Islamic banking. The legal factor is there, the political factor, the social factor and even the economic factor. Now when we look at the legal factor we can see that the banking decree in Nigeria does not allow the establishment of any bank with a religious name but a compromise has been reached that you can open an interest free banking. There is some significant difference between an Islamic banking and an interest free banking. An interest free banking is banking without interest but the mode of operation or the institutions it may use in its operation might not necessarily be Islamic. It may even have some Islamic window, for example Bank PHB has an Islamic window; you can transact interest free if you like but that does not mean the bank will not transact with other non Islamic institutions like brewery and other things.

So a bank can be an interest free but its instrument cannot be Islamic. It doesn’t deal directly with interest but the instruments or the people it gives loans may have some elements of unIslamic practices. A pure Islamic banking is the one that does not deal with interest as well as all its instruments, purely Islamic. They will not invest in gambling, brewery and any kind of trade that is un Islamic.

Economic environment is seriously required for an Islamic banking because you will need especially the development of micro small and medium enterprises. Even the conventional banking is finding it very difficult to attract this group of beneficiaries because of the high rate of interest .Therefore; it is really very difficult for the economy to regain itself operating under this system.

Socially every banking system whether secular or Islamic is based fundamentally on one aspect-trust. You can see this in the banking system where a breach of trust is leading us to poverty and usury. Islamic banking system is primarily base on trust. To share profit and loss is extremely tied to trust. People must be trustworthy for them to actively participate in an Islamic banking. But unfortunately, given the circumstances in the Nigerian economy; considering the social scenario, the level of distrust and dishonesty in the system may make it become very difficult for an Islamic banking to operate. For example there is a social account in the Islamic banking where those people that are so weak, you don’t need any collateralisation; you don’t even need much agreement. You give them money, when they trade and fail they don’t pay anything and if they succeeded, they repay the money. In the case of Nigeria this social account might be misused because nobody will be willing to bring back the money even if he succeeded in the business.

When you look at the political situation, it is always hue and cry when you mention Islam; once you mention anything Islamic is like a repellent in the Nigerian economy. Even mentioning of OIC somebody will be saying Nigeria will be Islamized. Look at how an Arabic inscription on our currency was scaring some people.

So people become unnecessary scared by mentioning anything Islamic. So the moment you say Islamic banking, some people will start saying the Muslims want to create their own financial system in the country. The hue and cry is unnecessary because Muslims in Nigeria also have a right and the right of someone ends where he infringes on the rights of others. So these are the inhibiting factors to the establishment of Islamic banking.

Assuming Islamic banking is established in Nigeria, how would it help the economy?

All the problems we are witnessing in terms of poverty and other things are as a result of interest. For the past one thousand four hundred years Muslims have been warned against interest. No economy, no human relationship can survive on interest and therefore it is a major generator of poverty because it takes more from the weak and gives to the powerful. Whoever is giving out has more, that is why he is borrowing and by the time he is exploiting the borrower, two things happen-either he pays all the loan and makes nothing out of it or he will fail to pay back because the interest will be accumulating. This begets a lot of poverty. The access to finance will be limited to only people that have so much money and will be able to satisfy the demand of interest. Those micro, small and medium scale enterprises that create the greater part of employment have been denied access to credit simply because of interest and that leaves people with low capital and when people are left with low capital, their ability to invest is being tarnished. if people cannot invest then it simply means people cannot generate production and without production there will be high level of inflation and unemployment which means there will be low level of income and with low level of income there will be low level of savings again and without savings you have created a problem of another under production and without production and investment you are in a vicious circle of poverty.

So the Islamic banking will do a lot in ameliorating these kinds of problems by providing easy and accessible loans to small and medium scale enterprises which are the backbone of any economic growth.

Could it have prevented the global economic credit crunch?

You see, the financial meltdown affected almost every economy that has direct or indirectly linkage with Western Euro- American countries. And the problem is that these countries have net worked their economy with the global economy, such that whatever happen to them will have a similar effect on the other countries. They have succeeded in doing that and that is why they can proudly tell you that if America sneezes other countries catch cold. But where the economy is delinked with the so-called global economy, countries developing their economy based on their needs and problems, the less the effect it will have on them.

Why is it difficult to raise funds for JAIZ bank?

It is the socio-political problem and it is a disappointment that Nigerian Muslims cannot raise N25 billion for the JAIZ bank. There are so many men in Nigeria who can single headedly finance the establishment of JAIZ but the economic land scale is such that it makes them feel sceptical. Because of that social stigma or political relationship they sometimes feel unsecured to invest and they are not even very sure whether this kind of banking system can be practicable. So the reality is that Muslims must unite to develop a financial system that will satisfy the yearning and aspirations of the Muslims.

source : daily trust