Sharia banking creates multiple consumers of financial services

Collins Nweze Available at: http://thenationonlineng.net/web3/business/money/25865.html

The move by the Central Bank of Nigeria (CBN) to introduce Sharia banking is generating divergent views. Former Executive Director of Bank PHB, Richard Obire, said it made sense for the CBN to increase the scope of banking choice.

According to him, the platform creates multiple consumers of financial services as it will make banking available to more target markets. He said it can also benefit the economy as sizeable portions of the population are Muslims. “I think the Sharia banking plan will take banking to more people, especially, the Muslim population,” he said.

A financial commentator based in Abuja, Martins Obi, said the concept of Sharia banking is a welcome development as long as it remains an option to bank customers. “I have no problem with this banking concept as long as it is targeted at those whose religious faith encourages them to do so,” he said. He said it should be voluntary and not enforced on any customer or institution. He said that the CBN has done well by taking a look at that type of banking system.

Special Adviser to the CBN Governor on Sharia Banking, Dr. Bashir Aliyu Umar, said Islamic Finance is a socially inclusive financial system. Within a large segment of the Muslim community, compliance of financial services with Shariah rules and principles is a primary concern for the users of these services.

Umar, who spoke in Bauchi during a training programme organised by Nigeria Deposit Insurance Corporation (NDIC), said there is a plan underway to enhance the access of Muslim communities and societies to these services but the success of the plan will depend, among other factors, on the extent of the compatibility of these services to their religious beliefs. ‘’In other words successful, financial sector development in countries with such communities requires the promotion of Islamic financial services within appropriate regulatory frameworks. Such strategies will enable a much larger proportion of the population across the world to participate actively and effectively in the process of economic development,” he said.

He said Shariah-compliant financial services could appeal to other segments of the population so long as the quality of these services is at least comparable with other alternatives.

Umar explained that in Islamic banking model, deposits are not interest-based but come as profit and loss sharing or as interest-free loans. Banks get a share of the profit from the business venture to which it is a party, and in case of loss without any negligence on the part of the bank, the investor forgoes the reward for the activity during that period. Losses are shared based on the equity participation, while profit is shared based on a pre-agreed profit sharing ratio.

Besides, the managers of this line of business are not permitted to deal in unlawful goods and services. No provision to charge any extra money from loan defaulters while the bank pays the annual prescribed alms when it becomes obligatory. There is a provision for the establishment of Shariah Supervisory Board to ensure that all business activities are in line with the Islamic law requirements especially auditing.

He said the introduction of non interest banking in Nigeria would herald the entry of new market and institutional players such as the Islamic Money Market, Islamic asset management companies, Islamic insurance companies and will no doubt, deepen the financial market. The entry of non interest banks is expected to bring about healthy competition in the industry with positive impacts in the economy.

But part of the challenges facing this line of banking is that it cannot hold conventional treasury bills or other interest bearing securities and therefore cannot participate in conventional Open Market Operations. This has implication for monetary policy and in the development of appropriate liquidity management products. Non interest banks cannot benefit from such a facility because such funds are usually provided on the basis of interest. There are taxation issues that need to be addressed when dealing with the products and services offered by non-interest banks, in order to avoid double-stamp duty.

The CBN recently unveiled an operational structure for running Islamic banking otherwise called non-interest banking in the country. The framework, allows Islamic bank owners to operate as a regional and national banks based on their ability to meet up with specified conditions.

The statement from the Acting Director, Financial Policy and Regulation Department, CBN, Chris Chukwu, said a non-interest bank with regional banking authorisation shall be entitled to carry on its banking business operations within a minimum of six and a maximum of 12 contiguous states of the Federation, lying within not more than two geo-political zones, as well as within the Federal Capital Territory (FCT).

The apex bank says it was the increasing number of requests from persons, banks and other financial institutions desiring to offer Shariah compliant products and services in Nigeria that prompted the development of this framework. The rule requires that non-interest bank with national banking authorisation shall be entitled to carry on banking business operations within every state of the federation including the Federal Capital Territory (FCT), Abuja.

Chukwu said the new framework also covers guidelines on Shariah Governance for Non-Interest Financial Institutions in Nigeria as well as those on Non-Interest Window and Branch Operations of Conventional Banks and Other Financial Institutions. The new framework dated January 13 defines Non-Interest Financial Institution (NIFI) as a bank or Other Financial Institution (OFI) under the purview of the CBN, which transacts banking business, engages in trading, investment and commercial activities as well as the provision of financial products and services in accordance with Shariah principles and rules of Islamic commercial jurisprudence.

It stipulates that transactions, instruments and contracts under this type of services are non-permissible if they involve interest; uncertainty or ambiguity relating to the subject matter, terms or conditions, gambling, speculation and unjust enrichment among others. All NIFIs are required to comply with this and any other guidelines that may be issued by the CBN from time to time. The objective of the framework is to provide minimum standards for the operation of institutions offering non-interest banking and financial services

Regards
ZULKIFLI HASAN