The rash of criticisms notwithstanding, proponents of the Islamic banking model in the country are convinced that it is a welcomed

development owing to its socio-economic benefits, reports Ibrahim Apekhade Yusuf Perhaps, as a manifestation of the apex banks commitment to its "new found love", it subsequently issued a revised guideline on non-interest banking as well as prescribed a capital base requirement of N10 and N5 billion for all prospective Islamic banks applying for national and regional licences respectively in the country on Wednesday. ABC of Islamic banking But what really is Islamic banking all about? Global acceptance Islamic banking and finance practice according to Adegbite, who was a former Attorney General of the old Western region: "Is no longer limited to the Arab and the Muslim worlds but has spread to the Far East, Asia, Europe, America and Africa. It is estimated that there are more than 200 non-interest financial institutions operating in about 75 countries across the globe. Market size Though it is said to constitute less than five per cent of the global financial market, the Islamic banking and finance market was growing between 15-20 per cent before the world economic recession of 2008 and thereafter at an average of 15 per cent p.a. In the last four decades, the system has evolved from a small niche visible only in Islamic countries to a profitable, dynamic and resilient competitor at an international level. Regulation Although there are still challenges regarding uniform regulation of Islamic banking and finance, a lot has been achieved by countries that have been in the forefront such as Bahrain, Malaysia, UK, as well as other organizations purposely established to help regulate and standardize Islamic finance practice. Benefits/opportunities The basic principle of Islamic banking is the sharing of profit and loss as opposed to charging of usury (interest). For example, when it comes to the profit from the financing of a project, the financier and the beneficiary share the actual or net profit/loss rather than throwing the risk burden only to the entrepreneur. Arguments against Islamic banking Laudable as this initiative may seems, the irony, however, is that a barrage of criticisms has greeted what many proponents of this new scheme described as a "welcomed addition" to the countrys financial system.

A case for Islamic banking Despite the welter of criticisms against the Islamic banking, its promoters are unfazed by this development, as they believe that it is an idea whose time has come. According too Adegbite: "Countries all over the world are falling over themselves to establish the banking product. Nigeria therefore cannot be an exception. Indeed as we aspire to be among the twenty leading Economies of the world, we need to equip our financial system adequately by providing the facilities which the extremely mobile world investors would require anytime and anywhere, they find themselves in the conduct of their businesses." Expatiating, he said: "Indeed, such is the status of Nigeria in the world that she must not lag behind in financial creativity and must avail itself of all opportunities the global financial system has to offer. In Population, Nigeria is sixth largest Muslim Country in the World coming after Indonesia, Pakistan, India, Bangladesh and Egypt. Such a leading Muslim nation cannot rightly carry on without Islamic Banking System for her teaming Muslim population, and a good number of non-Muslim Nigerians and nonNigerians alike who desire to have access to non-interest banking. "In as much as the Islamic banking system envisaged for Nigeria would be non-discriminatory, making its facilities open to and available to all Nigerians regardless of faith, the institution would be legal and constitutional. It should be emphasized that the pioneer non-interest Bank which Jaiz International Plc is poised to establish in Nigeria as soon as it receives a banking licence from the Central Bank of Nigeria, may be Islamic in concept and nature, it is certainly not a closed shop, available to Muslims only. "Rather it would be a bank owned by Muslims and non-Muslims; its customers will also be drawn from all sectors of the community regardless of faith", Adegbite submitted. Apparently throwing its weight behind the new policy regime, CBN said the new phase of reforms will positively impact on the provisions and requirement of Islamic banking, and ultimately hasten the progress of that arm of banking. Mohammed Abdullahi, spokesperson for the CBN, shed more light on this while clearing the air on insinuations that Islamic banking was an agenda of Sanusi-led CBN. "This policy has been on for about three years and has been approved in principle for some time now. I can recall that Jaiz International Bank Plc has been given approval in principle to operate as an Islamic Bank. All that the Central Bank is waiting for them to do is to mobilise their capital base of N25 billion required for operations in the Nigerian banking system", he recalled. He also noted that under the current reforms, banks have been falling in line with the CBN requirement, adding that the recent announcement on the categorisation of Nigerian banks for bank specific solutions will boost Islamic banking operations. "I believe that Islamic banking or zero interest banking would fare very well under that arrangement and it is possible that they may not be required to raise exactly 25 billion before they can start operating.

Islamic banking and the Central Bank are trying to introduce a supervisory framework for easy supervision," he said. He added that the CBN will rely much on the success and experience of the Negara of Malaysia. "They have gone far in the operations of Islamic banking and I believe we have a lot to learn from them, and we hope to use their experience to develop our own locally. As soon as that is done, everything would become clearer. Islamic banking has been provided for in the Banks Act and Approval-in-Principle has already been given during Soludos time," he said. Apart from Jaiz International, he also revealed that BankPHB was also given approval in principle to operate Islamic banking, and has been operating the system for some time now. Bank PHB offers the classic Bank PHB interest free account. A statement on the banks website said, "This product is designed for Muslim faithful desiring banking services without compromising their religious beliefs." Considering the raging controversy over the propriety or otherwise of Islamic banking, this may not be the end of this tempestuous episode. Evidence that the new CBNs baby did not gained wide acceptance emerged on Wednesday at a public forum in Lagos, with many of those averse to it raising their voices above the din, in apparent show of discomfiture. The event was at a seminar orgainsed by the Apostles in The Market Place (AiMP), where the CBNs Deputy Governor, Financial System Stability (FSS), Dr. Kingsley Moghalu, had a hectic time trying to convince the aggrieved parties on the propriety of the idea of Islamic banking. Moghalu who spoke on the theme: Re-Purposing Non-interest Banking in Nigeria, emphasised that Islamic banking and other forms of non-interest banking were part of effort by the apex bank to stimulate financial inclusion in the country. Non-interest banking is not new banking model he said, adding: "It is a form of banking under specialised banking model. The reason for an expert advisory council in the guideline is because of the nature of non-interest banking under the principle of Islamic commercial jurisdiction. All banks that are Islamic banks have that type of council. So the regulator in this context felt the need to have a council that advises it on the compliance of the products that those banks will issue with the principle of Islamic commercial jurisdiction. "I will like to very clearly assure Nigerians that non-interest banking is part of our plans to increase the inclusion into the financial sector, people who have stayed out of the financial system for various reasons. There is no agenda; it is simply finance and not religion. I want to further assure Nigerians very clearly that non-interest bank application is welcomed at the CBN", he further explained.

But the Chief Executive Officer, Pharez Consulting, Mr. Eghes Eyieyen, who spoke earlier argued matterof-factly that the introduction of Islamic banking was against the provisions in Banks and Other Financial Institutions Act (BOFIA). Raising a poser, Eyieyen said: "What is the inordinate drive and ambition behind the introduction of Islamic banking? To me, it seems as if the CBN is in a hurry to introduce it and why does the CBN think it is going to be a major driver of financial inclusion? It is not about religion, it is about the law and professionalism. Why has the CBN not given such passion and priority to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)? You cannot use a small provision in the BOFIA that gives you the power to regulate, to now begin to legislate." Echoing the same views, an Associate Professor of Law and Security Studies, Babcock University, Dr. Bankole Sodipo, also argued that the CBN Act and BOFIA, in issuing out regulation on non-interest banking, did not support Islamic banking, saying that the banking sector regulator must ensure that the National Assembly legislate on the form of non-interest banking. "The way forward is to look at the BOFIA and ensure that the move is in line with the Act. On the Advisory Council, there is no way they can delegate the decision making of the body to another body because the National Assembly doesnt give them that power. The law does not regulate that form of banking because it shut some people out. You dont give what you dont have and so you cannot give out what is not your own. What it means is that the CBN wants to introduce a form of banking through the backdoor", Sodipo argued. Another group that has vehemently opposed the introduction of Islamic banking is members of the Christian community. One of these critics, the Anglican Bishop of Enugu, Rt. Rev. Emmanuel Chukwuma who spoke to newsmen in Enugu recently, also warned the CBN not to approve the establishment of the bank, insisting that the emergence of a religious bank would pose serious threat to the unity of the country. Chukwuma, the bishops and the Primate of the Anglican Church, Most Rev. Nicholas Okoh, had rejected Islamic bank after their meeting recently, saying that they did so because of its "religious connotation." The bishops also argued that the CBN was not constitutionally empowered to establish an Islamic bank, pointing out that the bank would contravene the CBN Act. Bishop Chukwuma disclosed that the Anglican Church would embark on a protest if the apex bank ignores its position on the issue, warning that they would equally pass a vote of no confidence on CBN if it approves the bank. He insisted that there was no need to establish an Islamic bank in a multi-religious country like Nigeria, saying that the coming of the bank would only cause confusion in the country.

"Nigeria is not an Islamic country. Islamic bank is unconstitutional because it is not in the CBN Act. We reject the establishment of the bank. It has religious connotation. The Senate and House of Representatives should not pass the bill," he said. To many financial pundits, Islamic banking and finance has many benefits and opportunities for the entire population of Nigeria, including Muslims and non-Muslim faithful alike. Some of these include ethical, transparent, non-discriminatory financial offering, high potential market size with Muslims making up over 50 per cent of the population of the 155million population. Besides, it is capable of encouraging the large unbanked and informal sector, estimated to contribute at least 55 per cent to the countrys GDP, just as it has the potential to offer over 30% return on equity. Citing a recent IMF study, Adegbite recalled that the global body revealed that Islamic banks performed better in 2008 in terms of profitability, credit and asset growth compared to most of the conventional banks worldwide. Malaysia has been developing the necessary infrastructure to support the legal and regulatory framework for Islamic finance industry since the 80s. The Islamic Banking Act was enacted in 1983 and Takaful Act in 1984. The UK (FSA) has also reviewed some of its statutes to accommodate Islamic Finance since 2003. The industry has also developed self regulatory bodies such as the Accounting and Auditing Organisation for Islamic Finance Institutions (AAOIFI), the Islamic Financial Service Board (IFSB), International Islamic Financial Markets (IIFM) and International Islamic Rating Agency (IIRA) among others. The AAOIFI which is based in Bahrain issues standards governing accounting, auditing, corporate governance and capital adequacy for the industry. Similarly the IFSB is an international body headquartered in Malaysia with more than 150 members including the IMF, IDB, World Bank for International Settlements, Central Banks, market players and professional firms. The body issues Standards and Guidelines on risk management, capital adequacy, corporate governance, etc. In Nigeria, as part of the ongoing reforms of the banking industry, the Central Bank (CBN) has abolished the Universal Banking Model (of the one-size-fit-all minimum capital of N25bn introduced in 2005) and released new guidelines for different categories of conventional banks as well as that of the Noninterest Banking (NIB) or Islamic banking. The size of Islamic banks around the world was estimated to be close to US $850 billion at the end of 2008. While Islamic banking remains the main component of the Islamic financial system, the other elements, such as Takaful (Islamic Insurance), Mutual Funds and Sukuk (Islamic bonds and financial certificates), have witnessed strong global growth, too.

According to a reliable estimate, the Islamic financial industry now amounts to over US $1 trillion and projected to hit $1.6tr by 2012. Given its fast-growing nature the industry is estimated to double in size in less than a decade other things being equal. "Global financial institutions offering Islamic Banking services include HSBC, Citigroup, Deutsche Bank, Standard Chartered Bank, Barclays Capital and ABN Amro. These institutions are leveraging on their skills, resources, expertise and access to capital to drive the Islamic finance industry to higher levels. "There are also other local/regional banks especially in the GCC countries which have started to expand their operations across their borders into other countries. These include Al-Rajhi Bank of Saudi Arabia, Dubai Islamic Bank, Kuwait Finance House, and Al Baraka Group. In Africa, the countries that have embraced Islamic Banking include South Africa, Egypt, Senegal, Gambia, Niger, Kenya, Tanzania, Algeria, Tunisia, and Benin Republic." Dr. Abdullateef Adegbite, the Secretary General of the Nigerian Supreme Council for Islamic Affairs (NSCIA), a man who should know better, gave a birds eye view of the pros and cons involved in Islamic banking at a public forum earlier this month. The event was at the Nigerian Institute of Advanced Legal Studies colloquium on Islamic banking in Lagos, where the NSCIA scribe spoke on the challenges and prospects. According to Adegbite, "As most of us know, Islamic banking and finance is based on the principles of Shariah, and this notwithstanding, its application and benefits do not discriminate between Muslims and non-Muslims. In fact, its ethical and transparent nature, its simplicity, and its emphasis on fairness and accountability, etc endear it to many. "Three most distinguishing factors that make Islamic finance unique from the conventional system are: (a) Prohibition of Riba (interest) in all its forms; (b) Risk-sharing; (c) Asset-backed. The last factor eliminates speculation, extreme uncertainty, etc in financing and encourages growth of the real economy this made it (Islamic Banking & Finance) more resilient during the world economic meltdown! "Islamic Banking and Finance has become very popular and widely accepted as a reliable financial system that has been integrated into the global financial system. For over three decades it has appeared on the world scene as an active player."