By Udeme Clement
The bid by the Central Bank of Nigeria (CBN), to introduce Islamic banking in the country has sparked controversy. In this interview, the Director- General, West African Institute for Financial and Economic Management (WAIFEM), owned by Central Banks of Anglo-speaking West African countries, Professor Akpan Ekpo, speaks on the banking innovation and ATM fraud.
How far do you think Nigeria would go on Islamic banking system, if CBN finally implements the policy?
First of all, we need to fully understand the meaning of Islamic banking, how it works in other countries and the economic benefits, before we begin to condemn CBN on the policy.
For instance, WAIFEM is owned by Central Banks of Anglo-speaking West African countries, with the mandate to build capacity in macro-economic management, financial and debt management in member countries. At present, we have a course on the rudiments of Islamic banking inWAIFEM. Nigeria’s economy should not be in isolation from other economies. Whether we call it Islamic or non-interest banking, what Nigerians should do is to look at the product and see what it has to offer the economy.
The policy does not prevent non-Muslims from participating. Islamic banking is just another type of banking technique that should join the existing operations in the industry, so that anyone interested could participate. In other countries, there is what is called Christian bank and people are getting the product to do business. There is the need for us to understand what Islamic banking means, so that we do not just criticise what we don’t know.
Also, a large number of Nigerians are Muslims and if there is a type of bank that could add to the efficiency of banking in Nigeria, why are people against it? For me, the CBN governor should not even call it non-interest banking, he should call it Islamic banking, straight to the point, because that is what it is called everywhere in the world.
Has CBN taken into consideration the fact that Nigeria is a multi-religious country and highly sensitive to sectarian politics?
May be, that is why CBN is calling it non-interest banking. The policy, if well implemented, would give credit choice to people. For instance, if you do not like bank A, B, or C, you could go to Islamic bank. Nigeria is missing a lot for not participating in this thing, because there is what is called Islamic Development Fund all over the world, where projects are being financed and our economy is not benefiting from it.
What is your comment on the intention of CBN to sanction banks on the incessant cases of ATM fraud?
There is fraud everywhere not only in Nigeria . So, CBN and commercial banks should minimise fraud in the system through security measures. CBN has the right to check ATM fraud because it is a serious issue and must not be allowed to escalate.
It is a major issue because it could discourage foreign investors from coming to put money in the economy. For instance, when the foreign investors come to our country, they come with Master cards as well as ATM cards because they do not carry cash everywhere. If they are not able to use these cards here due to fraud, it becomes a serious problem not only in the banking industry but in the entire economy. In United States of America, after getting ATM card and the pin number, you have to go back to the bank and pick a security code that only you could access to protect your account.
Some stakeholders are of the opinion that the on-going banking reforms are impacting negatively on the economy, with strong multiplier-effect on every sector, do you share this opinion?
I do not share such opinion in any way. I don’t think they have any empirical evidence that the reforms are impacting negatively on the economy. I would rather say that the reforms are designed to help the economy to develop. What people forget is that banking reform is only an aspect of the whole economy. All the sectors should be reformed.
The civil service, industry, transport and agriculture need strong impetus for the economy to thrive. If you say the reforms are impacting negatively, how come the economy is growing at eight per cent?
If the economy is growing at eight per cent, why is it not creating jobs?
When Sanusi, came on board, he discovered some problems in the banking industry. He realised that largeness does not mean efficiency. The N25 billion capital base for the banks was good at that period it was implemented. Aside, there were a lot of corporate governance problems which the on-going reform has addressed. CBN is keeping to its mandate of price stability.
Last year, CBN made known its intention to phase out universal banking system initiated by its former governor, Professor Charles Soludo. Do you see such policy working out well?
Years ago, we had what were called merchant banks. The CBN must have realised that the crisis in the industry occurred because banks did not focus on their mandate. They went into insurance, pension and other businesses outside core-banking. The initiative of CBN was to return banks into core-banking operations. There is nothing wrong with a bank having equity in another company handling insurance and pension.
We are going to have regional, national and banks that could play internationally. So, you could pick what you think is best to do. This is how an economy operates. Managing an economy is a daily thing. So, CBN manages the economy with the information its gets on daily basis.
For instance, I was a member of CBN’s board for five years. I could tell you from experience how CBN operates. The new governor is trying to solve the crisis he discovered in the industry. He saw the data available and realised that most banks were not doing core-banking.
For instance, look at a situation where a bank would give people loans to buy stocks and shares in the companies they own, instead of granting loans to entrepreneurs to build factories to create jobs for the economy to develop. CBN meant well for the economy and banks should keep to their mandate, in order to grant loans to the real sector. Banks should be able to finance long-term investments.
Now Nigeria is talking about a gap in infrastructure development without power and good roads, these are long-term projects that banks should finance. So, I am not against the reforms in any way.
The 2011 budget with a bench mark of $65 per barrel of crude oil has generated controversy among industry players in different sectors, are you satisfied with the fiscal document released recently by the Ministry of Finance?
The bench mark price of $65 per barrel is the best for Nigeria as a developing economy. During forecasting or projection, there are three scenarios, but the worst scenario is often taken into consideration because oil is the major revenue source for Nigeria and the price of crude oil is subject to regular fluctuation. It implies that the Ministry of Finance must have taken the worst scenario into consideration in putting the 2011 budget bench mark on $65 per barrel of crude, such that if the money remains, it would be put into the excess crude account.
For me, the government is even taking a risk to plan the entire economy on income from oil. What if the oil finishes or the price crashes, what happens to our economy in such a situation?
Another problem in Nigeria is fiscal rascality, which involves excessive spending. Government should borrow money to finance capital projects and not borrowing to fund salary payment. Government should look at the capital expenditure and the amount allocated for infrastructure development. Also, any project entering the budget should undergo thorough feasibility study to determine the viability of such project.
Excessive spending must be minimised especially in an election year because such practice could lead to inflation, which is not good for a developing economy like Nigeria. Another issue is that, aside from the Federal budget, Nigeria has 36 states and the Federal Capital Territory (FCT). So, even if expenditure is controlled at the Federal level, what happens to expenditure of the states and councils within these states? This is an issue that must be addressed. Government should evaluate the current budget in comparison with the one of 2010.
For instance, government said it spent more money on capital projects last year. How far have those projects gone? Was the 2010 budget fully implemented in terms of the capital side? These are also issues that the government needs to address.
What would you advise government to do in order to stop mono-cultural economic practice?
The truth is that we can’t depend totally on crude oil because it could dry up one day. The government should use the oil money to invest in other areas like infrastructure development, agriculture, creating enabling environment for the private sector to invest in the industry.
What is the way out of the alarming rate of unemployment in Nigeria?
The rate of unemployment especially among the youths is a national crisis. The Nigeria Bureau of Statistics put the figures at about 22 per cent, which is very high and even higher than that among youths. Government should create what is called public sector jobs by directing the states and councils to expand employment capacity, because the private sector may not do it since it is profit oriented.
Look at what the governor of Lagos State, Babatunde Raji Fashola, is doing in Lagos. He took the area boys away from the streets and engaged them meaningfully in tree planting and road cleaning.