The approval given by the Central Bank of Nigeria (CBN) for the operation of Islamic banking in the country is generating disquiet in the polity. Reasons for this are not difficult to fathom.
Until now, Islamic banking, also known as Sharia banking, was a little known non-interest mode of banking alien to the conventional banking system widely accepted in the country. Besides, its operation and framework are strictly based on Islamic law of economics with its peculiar rules and regulations that forbid financial speculation and other risk-taking common with conventional banking.
The apex bank, apparently unimpressed by reservations expressed on the initiative in some quarters, last week, announced its approval in principle of an operating licence for Jaiz Bank International Plc as the first Islamic Bank in Nigeria. The CBN, however, gave the institution a period of six months to comply with certain terms before a final licence would be given.
Details of these terms have not been made public. In addition, no publicity been done to enlighten the people on the benefits to be derived from the newly approved banking mode. It is, however, clear that the CBN Governor, Mr. Lamido Sanusi, has not hidden his desire to introduce Islamic banking in the country since his appointment two years ago. Jaiz International Plc, which will pioneer Islamic banking in Nigeria, has a former chairman of First Bank Nigeria Plc, Dr. Umaru Abdul Muttallab, as chairman. Sanusi has also been reported to say Nigeria will soon float her first Islamic bond, the sukuk, while the nation, by the end of the year will have five banks operating Islamic windows, and also look at developing an Islamic money market.
To smoothen operation of the new banking mode, the CBN recently adjusted the regulation and supervision framework on Islamic banking. This may not be unconnected with the uneasiness that trailed the former structural framework. For instance, a circular from the CBN has clarified the framework for the regulation and supervision of institutions offering non-interest financial services in Nigeria, and explained that Islamic banking is not the only form of non-interest banking product in the country. CBN's circular also warned against any discrimination against customers by the Islamic banks to be so licensed, on any grounds.
The circular became necessary to allay fears by some groups and professional bodies in the banking sector following earlier guidelines rolled out by CBN which gave the impression of likely bias in the mode and nature of Islamic banking whenever it takes off. In addition to the new guidelines, CBN has fixed N10 billion as the minimum capital base requirement for any Islamic bank seeking for licence to operate nationwide, and N5 billion for regional licences. According to the CBN's Deputy Governor, Financial Systems Stability, Dr. Kingsley Moghalu, the decision is in line with the CBN Act and Bank and other Financial Institutions Act (BOFIA).
Altogether, we think both the CBN and the initiators of Islamic Banking in the country have not done enough to educate the people on this mode of banking before pushing the approval into the public domain. There has been little or no publicity to allay the fears of those who are understandably worried about the new banking mode. Though Islamic banking is said to have some benefits that will appeal to Muslims, those who feel uneasy about the idea of a religious bank also have genuine fears. This is more so as the bank is coming at a time when religious fundamentalists are unleashing terrorist attacks in the Northern part of the country. One of the fears that have been expressed in some quarters is the possibility of the bank being used as a conduit for illegal transfer of funds for terrorist activities.
We think the CBN has to give firm assurances on these worries and also institute safeguards to ensure that the Islamic banks to be licensed do not derail from the rules and regulations guiding banking operations. The CBN should consider calls in some quarters that the Northern states be used as testing ground for the operation of the new system.
Even then, every bank, whether conventional or Islamic, must attain the necessary benchmarks required to operate. No worrisome trends should be allowed to defeat the lofty objectives behind the philosophy of banking. Again, the zeal and determination with which Lamido is pursuing the Islamic banking affair is surprising. Is this system of banking the panacea to the serious problems in the Nigerian banking sector? The CBN has not said this. We, therefore, advise caution. Let the banking watchdog tread carefully on this Islamic banking crusade. Let all Nigerians be carried along on the virtues and desirability of this banking mode to ensure its acceptance and smooth operation if it must be.