Sanusi's Many Controversies

I supported Lamido Sanusi’s initial actions, though with some reservations. I shared his concern for better governance, transparency and risk management and believed regulators and economy managers needed action to prevent future systemic crisis. Against charges of “Northern agenda”, I wrote that “knowing Sanusi, I find it difficult to think that he would act essentially driven by parochial considerations” and cautioned commentators against the impression that “while we complain about public sector corruption, we are more tolerant or ambivalent about private sector corruption” concluding that “…there is no Southern agenda of fraud, ostentation, corporate abuses or financial misdemeanour”. I complained however about “…wholesale criminalisation of borrowing, entrepreneurship or venturing”-it was unnecessary to advertise the names of persons in newspapers simply because they borrowed money from a bank!

I identified the challenge of “what to do with the eight banks now under government control” and warned against “nationalisation” arguing that “Given our history with nationalised banks in the 1970s and 1980s, this would be a severe error”. I urged the CBN to “move towards recapitalisation of these banks by their owners, a quick off load to other acceptable international private core investors or a merger or acquisition of these institutions” and urged the CBN “to accept a negotiated solution with the bank owners that preserves the regulators original goals”. I also suggested that “CBN over-dramatised its actions in relation to the sector and could have minimised disruptive emotions” (erring bank CEOs have been removed without undue publicity on at least four earlier occasions) and argued that “the systemic implications could have been better anticipated and counter-cyclical measures adopted in advance rather than as a reaction?” I feared that the CBN overreached itself in taking over management of the banks rather than simply removing erring CEOs; exercising its power to accept or reject replacements; mandating required loan write-offs; and requiring re-capitalisation within a given period.

In assessing probable consequences of Sanusi’s intervention, I stressed that “whatever it takes, we must get the banking sector to resume lending…” or a credit crunch was imminent. Indeed Sanusi publicly dismissed that possibility, arguing that the bank owners looted their institutions’ funds anyway, so their lending would not be missed in the economy! Since then, all data from CBN itself has confirmed significant contraction in private sector credit in 2010 and two months of 2011!!! Sanusi has subsequently gone from one (unnecessary) controversy to another-dismissing the need for rating agencies!; accusing the National Assembly (wrongly) of spending 25% of Nigeria’s “overheads”, recurrent expenditure or total annual budget. I avoided that controversy because I shared public revulsion at the legislators’ unsavoury self-awarded income, but the facts were simply that in 2010, the National Assembly’s budgets were 1% of capital; 5% of recurrent and 3% of the nation’s budgets.

I however support Lamido’s cash policy which commences in June 2012 allowing for a period of planning and preparation; at inception, it covers selected locations-Lagos State; Aba; Port Harcourt; Abuja and Kano where infrastructure is better; after the policy becomes operational, it does not totally prohibit cash transactions above the specified thresholds of N150,000 and N1,000,000 but imposes a penalty, which by-and-large ensures the person who transact high volume cash bears the cost rather than pass it to the rest of us. Beyond these, I believe the policy could help in curbing corruption and money laundering, which are facilitated through cash transactions and reducing interest rates and other financial charges.

Sanusi’s biggest controversy is over Islamic banking! No one who read the guidelines on Non-Interest Financial Institutions (NIFI) issued by Sanusi in January 2011 would accept Sanusi’s subsequent posturing that this is about finance and economics! The framework defined a NIFI as one who conducts business “in accordance with Shariah principles and rules of Islamic commercial jurisprudence” and defined Shariah principles as “the divine guidance as given by the Holy Qu’ran and the Sunnah of the Holy Prophet and embodies all aspects of the Islamic faith, including beliefs and practices”. Those guidelines were irresponsible and insensitive apart from being blatantly unconstitutional! It also contained terms such as “Shariah-compliant products and services”, Arabic terms such as “Istitna”, “Ijarah”, Ijarah wa iqtina”, “Mudharabah”, “Salam”, “Sukuk” and many others; requires all licensed NIFIs to establish “an internal Shariah compliance review mechanism and a Shariah Advisory Committee” and shockingly required the CBN to establish a “CBN Shariah Council” to “advise the CBN on Shariah matters”!!!

These guidelines were withdrawn in June in the face of imminent legal challenge, but it is impossible after reading them to regard Sanusi as merely a technical financial sector regulator interested only in economics and finance. The revised guidelines merely attempted to escape blatant illegality, re-naming the “CBN Shariah Council” as “CBN Advisory Council of Experts” and providing for two types of NIFIs-those “based on principles of Islamic commercial jurisprudence” and “any others”! The document then proceeded to discuss only the ones based on Islamic commercial jurisprudence!!! Section 61 of the Banking and Other Financial Institutions Act (BOFIA) defines NIFI as “a profit and loss sharing bank” which is “a bank which transacts investment or commercial banking business and maintains profit and loss sharing accounts”. Sanusi’s guidelines purport to re-define what the law has already defined.