Non-Interest Banking In Nigeria: Tax Issues (I)

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The storm surrounding the introduction of Non-Interest Banking (NIB) commonly called Islamic banking is gradually settling down and it is important to begin to exhume the challenges that might crop up in its operations with particular reference to the taxation of the sub-sector by the relevant tax authorities, especially the setting of standards for the type of taxes that apply and that are to be collected from the transactions.

As the name implies, Non-Interest Banking (NIB) is a system of financial services that provide unique services in accordance with Islamic religious jurisprudence and Sharia principle and fully regulated by the relevant regulatory authorities as provided for in sections 9, 23 and 52 of the Banks and other Financial Institution Act (BOFIA) 1991 as amended. The CBN is empowered by law, to issue licenses to appropriate entities for the establishment of non-interest banks provided they meet the regulatory requirements.

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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

Islamic Bank: Global asset worth 750bn US dollars

The global asset of Islamic banking industry has been estimated at 750 billion United States dollars, an Islamic financial expert and Chief Executive, Metropolitan Skills Ltd, Abuja, Hajia Ummahani Amin, has said.

She spoke in Kano at a workshop entitled: Fundamentals in Islamic Finance Workshop for International Islamic Economics and Management of Sciences Project. She observed that the quoted estimate above is without some major Sukuk issues and structured deals, which analysts estimate will run into trillions of dollars in the years to come.

She explained that Islamic banking practices have taken root in the Middle East and Malaysia, while adding that Europe and North America have recorded giant strides in offering Shariah acceptable products in an attempt to satiate an ever-increasing demand for interest-free banking and profitable returns that fall within the parameters of the Islamic law.

She maintained that the quest for Islamic banking is currently moving towards the African continent, pointing out that, at present, only a handful of countries in the continent have an effective Islamic banking infrastructure even though the scope of the section is immense.

She noted that, “in Nigeria, the banking system is about experiencing a proliferation of Islamic banks as the Central Bank of Nigeria is about to introduce new measures that will encourage and facilitate the existence of Islamic banks.”
She argued that Nigeria has an approximately 50 per cent Muslim population, adding that providing a banking framework that would be acceptable to their belief system would not only increase the bankable population but would bring about the benefits of social responsibility and economic empowerment.

She noted that the integration of Islamic Economics has been successfully implemented in Islamic schools in South Africa in the last two years while adding that Kenya, Tanzania and Mauritius have expressed interests in its implementation. She urged the Federal Government, which she said had taken interest in this project, to introduce the Islamic Economics in the educational policy of the country.

source : sunnewsonline

Nigeria: Experts to Brainstorm on Islamic Finance

Investors, analysts, bankers and other financial operators will be exposed to the benefits of Islamic banking in a workshop staged by the Chartered Institute of Bankers of Nigeria and Lotus Capital Limited.

The workshop on Islamic finance and investment products put together by CIBN and Lotus Capital, according to a statement, is scheduled for 22 – 26, March, 2010, at Colonades, Ikoyi, Lagos, at 9.00 am.

It said, participants will have the rear opportunity of not only discussing and appreciating such critical issues and Sub-topics in Islamic Banking as “The Road Ahead: Realizing the Potential of Islamic Finance and Investment”; “Islamic Finance Contracts”; Successful Shari’ah Complaint Product Structuring”; “Islamic Finance: An Alternative Approach to Project Finance and Infrastructure Development” and “Creating Interest Free Bonds” but also hear directly from seasoned Islamic banking experts from Nigeria and abroad.

Top on the list of the high profile discussants include: Professor Dr. Monzer Kahf, of Qatar faculty of Islamic Studies, a Professional Lecturer, Trainer, Consultant and advisor of international repute in Islamic banking and Investment and Mrs. Hajara Adeola, Managing Director, Lotus Capital Limited, a convertible Bond Research Analyst of BNP Paribas, London and an accomplished Consultant at Andersen (now Accenture).

It is expected that at the end of the workshop, participants would be able to reasonably “understand the new global wave of Islamic finance and investment banking”, “learn the Islamic finance instruments and structured products and their relationships with Conventional financing instruments” “understand Islamic Finance contracts”, “Provide with an in-depth understanding of the growing Islamic investment funds, their structure and growth” and “Know how to structure Islamic insurance/Takaful products”.

source : allafrica

Islamic Bank Holds Business Forum in Nigeria

The Islamic Development Bank (IDB) will hold its first business and investment forum in Nigeria this month, Senior Economist, Operations Planning and Services Department of the Bank Abdallah Kiliaki has said.

He made the remarks in Abuja when he led some officials of the bank on a visit to the Nigerian Investment Promotion Commission (NIPC).

He said the forum which is scheduled for 23rd and 24th of February this year in Abuja will enable the bank to interact with the relevant stakeholders in Nigeria’s public and private sectors.

He said: “Our coming to NIPC is basically to discuss with the authority on our intention to organize a business forum in Nigeria to introduce the Islamic Development Bank group to stakeholders in Nigeria in the public sector as well as the private sector.”

He said that though the bank reflected Islam in its name, its operation has nothing to do with religion, adding that it only operates with Islamic ethics and code.

He explained that the Bank does not finance mosque or religious activities, adding that membership is opened to both Muslim and Christian nations.

He said that all the goals and objectives of the bank are geared towards poverty reduction and economic development without any political attachment, saying it operates like the World Bank and IMF.

He said: “We are not coming to establish a bank but to partner with the government and corporate bodies to finance project, though the bank is not after profit making but the loan is not totally free.

“The interest on loan is so minute compare to other banks. We use Islamic code of finance. It does not mean that the loan is free but we are more compassionate, we do charge a mark up which varies from project to project.”

He said the bank had already invested a whopping $200 million in Nigeria for the financing of several projects since the country became a member in 2005 which include among others, food security, education, health, trade and financing.

In his remarks, the Executive Secretary of NIPC, Engr. Mustapha Bello said the visit of the team to Nigeria came at the right time when country needs financing at both private and public sector of the economy.

Represented by Stephen Amase, Director of Finance and Administration, the Executive Director said the Islamic Development Bank will be of much benefit to Nigerians as it would be offering long term financings which are not derivable from the commercial banks.

source : allafrica