By Michael Eboh
SOME experts have backed the plan to introduce  Islamic Banking and Finance into the Nigerian financial system, urging people to embrace it.

According to the experts, Islamic finance will help check the spate of sharp practices in financial institutions and will help promote ethical conduct and practices in the Nigerian financial landscape.

Islamic finance is simply finance under Islamic law or Shar’iah principles, and it has as its central features, the prohibition of speculation and the payment and receipt of interest in commercial transactions.

According to Mrs. Hajara Adeola, Managing Director, Lotus Capital, Islamic banking is a non-interest banking business in trading, investments and commercial activities, that is concerned with the provision of financial products and services, in accordance with the principles and rules of Islamic commercial jurisprudence.

She noted that it is considered ‘Haram’ or forbidden, under the Islamic banking model, if transaction and contracts involve interest; uncertainty or ambiguity relating to the subject matter, terms or conditions; gambling; speculation; unjust enrichment; or exploitation/unfair trade practices.

According to a report, there are numerous Islamic banking institutions all over the world, with total assets of over  US$200 billion.
The report stated that they manage over $250 billion of assets, and according to the accounting firm KPMG, reached a US$1 trillion industry by 2009.
The report noted that a number of reputable conventional financial institutions worldwide, offers Islamic banking services to their clients — muslim and non-muslim alike. Companies such as HSBC, ABSA Bank, Citibank among others.

In Nigeria, a number of financial institutions now offer Islamic banking products and services, including majority of the commercial banks, microfinance banks, finance houses, investment houses. Among these is Lotus Capital, a leading promoter of Islamic banking services.

Lotus Capital is a full-service, Halal investment management boutique specialising in Shari’ah compliant asset management, private wealth management advisory services and financial advisory Services.

On the workings of the Islamic banking and finance system, Adeola said, “In an Islamic mortgage transaction, instead of loaning the buyer money to purchase the item, a bank might buy the item itself from the seller, and re_sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments.

“However, the fact that its profit cannot be made explicit and therefore there are no additional penalties for late payment. In order to protect itself against default, the bank asks for strict collateral. The goods or land is registered to the name of the buyer from the start of the transaction. This arrangement is called Murabaha.

“Another approach is Ijara wa Iqtina, which is similar to real-estate leasing. Islamic banks handle loans for vehicles in a similar way (selling the vehicle at a higher-than-market price to the debtor and then retaining ownership of the vehicle until the loan is paid).

“There are several other approaches used in business deals. Islamic banks lend their money to companies by issuing floating rate interest loans. The floating rate of interest is pegged to the company’s individual rate of return.

“Thus the bank’s profit on the loan is equal to a certain percentage of the company’s profits. Once the principal amount of the loan is repaid, the profit_sharing arrangement is concluded. This practice is called Musharaka.

Also speaking, Mr. Sani Danbatta said, “Although the N25 billion Capital base is one condition for the establishment of an Islamic bank in Nigeria, but we see that there is more to meeting this CBN condition.

“The most important required conditions are: Managerial commitment, sharia supervisory board, safeguarding Muslim investor’s fund and compliance with AAOIFI standards. Managerial commitment:

“The management must be fully convinced of the concept and fully committed and dedicated to it.”

Unless the entire management is committed and convinced, the business activities and the enterprise will not be foul free or will not escape irregularities and deviation.

“Regardless of how strict and stringent fatwa and contracts are, this will not ensure sound practices if there is no one sufficiently sincere and committed to implement the principles.”