I support the case, for reasons of financial inclusion, for providing non-interest banking for those who for reasons of faith, find conventional interest-based banking objectionable. However this must be done in line with BOFIA and our Constitution, rather than by creating a precedent that could lead towards Nigeria’s “Sudanisation”. The problem as I see it is that Sanusi seeks to take his regulatory framework from Malaysia, Bahrain and other officially Islamic nations, rather than countries that insulate their laws and Constitution from religion! The Central Banks in UK, USA, South Africa, Singapore, Hong Kong and those other places the CBN touts as having Islamic banking products, certainly would not accept banking guidelines which blatantly infringe on the separation of state and Church or Mosque!
The Banking and Other Financial Institutions Act (BOFIA) enacted by two Muslims, Ibrahim Babangida and Abdulkadir Ahmed as President and CBN Governor respectively, made provision since 1991 for non-interest banking as a constitutional and non-divisive means of allowing those Nigerians who abhorred interest to create and/or patronise non-interest financial institutions(NIFI). Section 61 of 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”. Jaiz International Bank received an approval-in-principle to conduct non-interest banking several years ago, until Soludo’s N25billion minimum capital proved an obstacle. There was no objection then to Jaiz’s imminent license, until CBN’s January guidelines which introduced religion into banking regulation. Sanusi, it must be noted, has since re-introduced Arabic lettering on the Naira and now seeks to float sovereign Islamic bonds (“Sukuk”) so his critics can legitimately point to a trend!
As I pointed out last week, Sanusi’s January 2011 guidelines contained several inappropriate provisions- it defined a NIFI as one who conducts business “in accordance with Shariah principles and rules of Islamic commercial jurisprudence”; 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”; contained terms such as “Shariah-compliant products and services”, Arabic terms such as “Istitna”, “Ijarah”, Ijarah wa iqtina”, “Mudharabah”, “Salam”, “Sukuk” and many others; required all licensed NIFIs to establish “an internal Shariah compliance review mechanism and a Shariah Advisory Committee”; and required the CBN to establish a “CBN Shariah Council” to “advise the CBN on Shariah matters”!!! With those guidelines, Sanusi put to question his credentials as a technical financial sector regulator and public servant in a multi-religious entity like Nigeria.
The June amendment according to one commentator was “clever(er) by half”. Instead of a “CBN Shariah Council”, you now have a “CBN Advisory Council of Experts”; Arabic words are omitted; and instead of a mono-definition of NIFI based on “Shariah principles and rules of Islamic commercial jurisprudence”, it created two categories-those based on “Islamic commercial jurisprudence” and “any other established rules and principles”. The document prescribed modalities for the “Islamic” ones while the CBN promised to “subsequently issue guidelines governing the provision of non-interest financial services based on established principles other than Islamic finance”. These guidelines remain problematic as they purport to redefine NIFI other than as specified in BOFIA and establish “Islamic Financial Institutions” contrary to the letter and spirit of BOFIA and our Constitution. They may also be discriminatory, prescribing capital requirements for Islamic banking lower than for conventional ones for equivalent coverage. As pointed out by others, the CBN should have simply issued operating guidelines which are faith-neutral (like those for private universities or broadcast stations by NUC and NBC) and allow individual institutions set up internal mechanisms (in this case such as product papers; credit and risk management policies; ethical guidelines; corporate governance and corporate social responsibility principles; memorandum and articles of association; and other institution-specific governance mechanisms) to fulfil their mission.
Beyond the Islamic banking controversy, it is necessary to caution the current Central Bank against getting involved in political, religious or socio-economic disputations. Unlike most global central bankers, Sanusi has tended to court controversy-at his Senate confirmation hearings, he criticised the governance agenda of the government that appointed him; he took on errant bank owners at a point calling for their public execution; he once declared that Nigeria’s stock exchange operated like a casino; disagreed openly with the International Monetary Fund (IMF); launched a blistering attack on the national legislature; and urged the public not to believe bank rating agencies, which are licensed by the CBN! Some months back, he publicly threatened to liquidate the 8 “intervened” banks if they didn’t recapitalise by September 30, 2011, recently altering the threat to nationalisation. It would be inconceivable that any of these statements could be made by US Federal Reserve Chair, Ben Bernanke or Bank of England Head, Mervyn King!!!
The CBN has fundamental challenges to deal with-indices on access to credit; unemployment; financial deepening; financial sector stability; and exchange rate management are all going negative. All these economic limitations can be remedied. It would be sad however if the manner of introduction of non-interest banking leads Nigeria further in the direction of Sudan, Yugoslavia or Indo-Pakistan!
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