Banking and finance experts yesterday agreed that non-interest banking was not designed for political campaigns and hotel financing.
The banking model, they said, can finance manufacturing, leasing, beneficence loans, deferred payment, prepaid purchases, amongst others.
Those that made presentations at the ongoing seminar of the Central Bank of Nigeria (CBN) on non-interest banking in Nigeria included Abubakar Sadiq Abdulkarim, head, non-interest banking, Keystone Bank, who said the banking model would not finance political campaigns due to their speculative nature, just as it was not designed to finance Casinos, hotels or businesses that have to do with pornography.
In his paper entitled “Sources and Application of Funds in Non-Interest Banking Regime”, Abdulkarim said that the concept of Islamic banking, though a new phenomenon in Nigeria, is expected to grow with the recent licensing of Jaiz Bank, a full-fledged non-interest bank and Stanbic IBTC to operate a window of non-interest banking with some other banks that have shown interest to operate the model.
He said: “Islamic banks get their deposits by offering current, savings or investment deposit products that are compliant with Islamic jurisprudence. Besides their own capital and equity, Islamic banks rely on two main sources of funds – a transaction deposit, which is risk-free but yields no return, and investment deposits, which carry the risks of capital loss for the promise of variable.
He listed the types of accounts under the model to include current account and savings account where deposits are collected under various principles, namely, Al-Wadiah – similar to current account except that it does not have any cheques facility; Al-Wadiah and Mudharabah, alternative to Al-Wadiah savings – where the bank is not supposed to give any returns; a hybrid of Al-Wadiah and Mudharabah (profit and loss sharing principle) deposit product was introduced.
He explained that Mudharabah is a type of savings account where the investor would be entitled to some profits based on agreed profit-sharing ratio pre-determined on placement of the funds.
Other types of account are general investment account, an investment account with pre-determined profit sharing ratio and maturity period, and the specific investment account, which he described as a unique investment product where depositors will be advised on where the funds would be invested, the minimum amount that they can invest, projected returns and attendant risk.
Relating his United Kingdom experience, Omar Sheikh of Islamic Finance Council, Glasgow, said Islamic banking has fared relatively well in the midst of the global financial crisis across the world due to their non-exposure to speculative ventures.
He disclosed that the banking model, which is based on the principle of ethical screen and non-interest, is asset-backed and prevents speculation and uncertainty, and informed that it has attracted billions of pounds in investment from the Arab states to the United Kingdom.
While calling for continuous stakeholder engagement, Sheikh said that “acquiring knowledge of the banking model will take at least a decade , given its dynamic nature in different parts of the world”. He, however, warned that Islamic banking was undergoing imitation and adaptation instead of innovation based on Islamic principles.
The 16th CBN Seminar for Finance Correspondents and Business Editors is taking place in Yola, Adamawa State.