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Islamic Banking: CBN is just confusing us

By Ikeddy ISIGUZO, Chairman, Editorial Board

PONDER for a moment how confused the Central Bank of Nigeria, CBN, is about why it wants to start Islamic banking! Also, note the statements CBN Governor Sanusi Lamido Sanusi made on Islamic banking at different occasions in the past week –

“Islamic banking proposal began from the period of former CBN Governor Charles Soludo, and all the processes and procedures for its formation were arranged before my coming as Governor of the CBN.

I inherited the idea. A committee on the formation of Islamic bank was appointed and this was led by a deputy governor of the CBN Mr. Tunde Lemo…. The committee was fully satisfied with the proposal and formation. So, this is not my idea. I met it on ground,” Sanusi said at a public lecture in Kano last week. Is it possible Soludo is forcing Sanusi to issue licences for Islamic banking?

“The history of Islamic banking in Nigeria dates back to 1991 with the promulgation of BOFIA, Banking and Other Financial Institutions Act which provided the legal guidelines for the regulation of non-interest of profit/loss sharing banking in the country ,”

Sanusi told an international conference in Abuja on Monday. Was Soludo CBN governor in 1991?

Contradictory utterances like these are part of a larger confusion Sanusi has imposed on banking since he stepped into office almost two years ago. In that spell, he has seized eight banks, spending most of his time threatening their owners, announcing number of bank officials he will jail and making utterly repetitious statements on sale of the banks, forced banks to withdraw off location ATMs – they are now being asked to re-install them.

Sanusi does not care about costs. His boss, the President is in the same boat with him. Banks have stopped lending in the past two years. They have fired staff, re-called loans, and the Economic and Financial Crimes Commission, EFCC, goes after individuals and organisations that obtained loans under normal business terms. The economy has stalled. Rot in banks is promoted as if Sanusi, who was a managing director of a bank, never knew about it.

Interestingly, the same banks that failed, and into which Sanusi is pumping trillions of public funds to rescue, have shareholders who want to re-capitalise the banks. Sanusi is not interested in their providing funds to revive banks that nobody would buy because the Sanusi-installed teams have scared away their customers and inflicted additional costs on the banks that are running at more losses than two years ago.

Who should not be concerned on learning that Sanusi is venturing further, into an area of revolving confusion? Islamic banking has tasked its practitioners because of challenges of standardisation and scarcity of the human resources and expertise that it requires. Muslim countries like Pakistan and Iran where Islamic banking evolved by law more than 25 years ago still face these challenges.

If CBN cannot effectively supervise conventional banking, how would it manage the more demanding supervision of Islamic banking? “Traditional banks do perform a certain amount of project evaluation when granting large medium- and long-term loans. But doing such detailed evaluation as would be required to embark on a PLS scheme, such as determining the rates of return and their time schedule, is beyond the scope of conventional banks. So is the detailed accounting and monitoring necessary to determine the actual performance,” A. L. M. Abdul Gafoor noted in Interest-free Commercial Banking.

“Under Islamic banking, these exercises are not limited to relatively few large loans but need to be carried out on nearly all the advances made by the bank. Yet, widely acceptable and reliable techniques are yet to be devised. This is confounded by the fact that no consensus has yet been reached on the principles. Both the unprecedented nature of the task as well as the huge amount of work that need be done and the trained and experienced personnel needed to carry them out seem a daunting prospect ,” he concluded in the 1995 book that evaluated 10 years of Islamic banking in Pakistan.

Fears about Islamic banking are more than its religious tone. They have something to do with the unrelenting ambitions of the CBN to do things differently without deep thoughts about consequences. If Sanusi cannot explain the need for Islamic banking and is already blaming others for starting the process, he wants us to know that other Nigerians, not Sanusi, foisted the policy on us. There are many things to worry about when our CBN governor abdicates responsibility for his actions.

Evolution and trends in Islamic banking


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