By MICHAEL EBOH
Even as the dust on the CBN clampdown of five banks yet to settle, Mallam Lamido Sanusi says Islamic banking is around the corner in Nigeria to help in preventing irregularities facing conventional banks.
In this interview, Dr. Mashhud Fashola, a lecturer in the Department of Economics at the University of Lagos and head of the Ahmadiyya Muslim Community in Nigeria, speaks about the current crisis in the Nigerian banking sector, the actions of CBN and supported calls for the introduction practice of Islamic Banking, because of its benefits to the economy, especially in the area of promoting speedy economic development. Excerpts.
WHAT are your views about the current issues in the Nigerian banking sector?
The banks are public institutions, they are not private institutions because they have the license and the authority to create money, and it is real money, although we call it credit. It is money that has positive power. So, if they do not behave in accordance with the monetary authority guidelines, it can damage the economy and create disaster for the whole of us. The bankâ€™s power to create money is enormous and it will affect the growth of money supply in the economy. Growth of money supply in the economy will affect the price stability, if the growth of money supply is too rapid, much more rapid than the growth of supply of goods and services, it will result in inflation – rapid inflation, and that will cause tremendous socio-economic injustice. Workers will be getting poorer, because, if inflation is going at 20 per cent per year, it means that within two to three years, the real income of workers will become half, then the economy will its competitive ability in the world market, because the product of the economy will be getting more expensive and unable to compete with imported goods. Even local consumers will patronise the imported goods that are not rising in prices as the local goods.
You can already see that already in Nigeria, that imported foods, as expensive as it is, is being patronise more than the locally produced foods, because local goods has gone up in prices, much faster and is getting more expensive than imported foods. By the time you search for a place to buy yam, you will see more than 20 places where they are selling bread, because of importation of wheat from the United States. Or, you might see where there are selling rice imported from Asia. In the villages and rural areas, people are eating bread and rice. That is the consequences of inflation, that is, in fact, destroying the economy. The fact that some people are directors in a bank, does not give them the liberty to create credit or give loans in an irresponsible manner, because their actions will spell doom for all of us. What Sanusi is doing is highly commendable, other people have closed their eyes in the past to the evils going on in the society, and the problem is that the laws are not enforced against the highly placed, the privileged and the rich. The arm of the law is only long, most especially, to the poor and the weak, and this happens in all communities, even within the Muslim communities. They bring the idea of sharia and they want to cut off the hands of those who stole goats, but the Muslim leaders who stole billions of naira in the country, they are not talking about cutting their hands.
The economy will make a lot of progress when we start to sanitise the economy and ensure probity, accountability, responsible behaviour in the management of the economy. We are all managers of the economy, but the most critical managers are those who regulate money supply, those who give credit and keep money. We are talking about the fact that we are all managers of the economy, but government and all its institutions are the regulators of the way we all behave and the manner or how efficient the manager of the whole Nigeria manages the economy, it will determine how we can develop and grow, it will determine our prosperity. The banks are in a very critical position, because the control the currency, the money, the means of exchange, means of store of wealth, means of accounting. Their actions have tremendous effect on the whole economy and so, they have to keep to rules as determined by the monetary authority, the Central Bank of Nigeria (CBN). The CBN has its policy of maintaining price stability and promoting employment – an act of expansion, and that requires that money supply should grow in a particular manner at a particular rate.
Do you support the actions of the CBN this far, especially with its injection of N420 billion into the troubled banks and the controversy it has generated?
I support the CBN actions, because it is not good for the economy for any bank to become distressed. It will affect many other things in the economy. Confidence of the society, of businesses, of consumers, depositors must be jealously protected. When people go to these banks they may be afraid, might become jittery and might want to withdraw their money. But when CBN injects money into these banks, they will be able to get their money when they want it. If some banks collapse and become distressed, it is going to affect the economy and all other banks, therefore, it is good to ensure that the banks are healthy, buoyant and secured. But that has nothing to do with the sacking of the directors, what the CBN is doing is to ensure that things are put in place to protect the future of banks. It is good to anticipate the problem and not wait until we are inside the problems.
There have been calls recently, by the CBN governor for the introduction and practice of Islamic banking, what are your opinions in this regard. Do you think it would have helped in checkmating the crisis witnessed presently.
If you call it Islamic banking, some people may have prejudice, because you are bringing in religion. But sometimes we can call it joint venture banking in the sense that what Islamic economic system is proposing, is a banking system where the banks give out money to the users on the basis of joint venture, so that they share the profit or loss. Not on the basis of interest, not on the basis of the banks, earning returns without seeing whether the project has made any profit. Interest is based upon income that is not yet assured. What we are saying now is that you give money out for a project, whether or not the project is making profit or loss, you are already making something out of it, you are making some income from it. It is not a tidy way. You can draw income from a project that is not generating income, it is going to affect the economy negatively, it will lead to inflation. You have given money for a project and it is not generating anything and someone is drawing income, that income will only swells the demand side, not supply side, and it leads to inflation.
When demand is growing and supply is not growing, there is going to be inflation. In a joint banking system or Islamic banking system, the bankers give out money or loans on a joint venture basis, asking the entrepreneur to go and do business with it, agreeing to monitor the business and ensure that the money is used in accordance with the feasibility study given to it. The bank will ensure that the money is managed in an efficient manner and that the rules of accountability and transparency are observed. Therefore, Islamic banking promotes healthy businesses and the banks will share from the profits. The banks that are good in doing this will make much more profit than those that are not good. If you start Islamic banking system or joint venture system, it will directly promote development, the banks will now put that money down for project that are viable, because they know that if it fails they will suffer, so they are bound to ensure that the project succeeds, because they have a stake in it.
Finally, what do you think are the factors hindering the growth of Islamic banking in the country and what advice would you give to the authorities in this regard?
The major obstacle, is that we are a former colony of western countries, and we are following their economic system. We are used to the western economic ideology and there is that indoctrination of western economic ideology. It is difficult to break away from that indoctrination. Another factor, is that fact that the powers that be, the influential, the wealthy, seems to be benefiting from this arrangement, whether or not they are Muslims, and of cause you know a lot of Muslims too, got some of this loans, they got billions of naira that can not be accounted for.
That can not be got under the Islamic banking system. The major obstacle remains that we are indoctrinated to the western economic ideology, and it is very difficult for us to break away fromÂ our indoctrination. Every thing is based on that.
Another factor is that people are benefiting from the status quos. To change it will be difficult, because changing it means you want to promote those who want to work hard those who have the intelligence and not those who are well connected. You know, giving opportunities to upright people and not just anybody that is well connected. If you are a graduate and you are brilliant, you come with very brilliant idea, the bank studies your feasibility and find it very interesting, then, they give you some money,Â they will promote you.
But as you can see, today, you do not need toÂ have brain, any intelligence to make money in Nigeria, you only need connection, political connection or connections with those who have powers, who owns these banks. Merit has no place in the system, corruption has a free playground, corruption has freedom, because the system encourages corruption, but with the Islamic banking system, the banks that are not performing will be seen, the one that is performing will be seen.