No interest in Islamic Finance?

Aliya Ram claims that sukuk bonds may sound like a more moral way of banking, but they’re a rhetorical sham.

No interest in Islamic Finance?

No interest in Islamic Finance?

The antagonism between the theory and practice of Islamic finance will lead to the disinterest of the West. How could a financial system regress to a set of principles whose modern manifestations are a complete farce? Take sukuk bonds, for example, which have been in the news ever since David Cameron announced in October that the UK was going to issue £200 million worth.

Sukuk bonds enable investors to borrow against their future income by buying an asset from an investor and then renting it to them for a pre-determined price and on the condition that they (the issuer) will later buy it back. The issuer still gets interest but the interest has been refigured as profit: loans have been disguised as the more rustic ‘exchange of goods’.

A sentimental comment about sukuk bonds in the Arab News exposes the logical fallacy: “money ceases to be a commodity in itself and used as it ought to be – only as a medium”. But we have to ask author of the piece Alsir Sidhamed what, if not money, is being mediated when the purpose of a transaction is to give someone money they don’t have. And is it really more moral if just anyone can do it that way?

The real absurdity of the sukuk charade lies in how public the sham is. Even many of the most devout Muslims do not practice Islamic finance because they can see that the project is more about hammy rhetoric than actual financial practice.

The discussions about Islamic banking happen in negative terms: the debate, in the East at least, is precisely about rejecting the ways of the West. London will of course always cater to the preferences of investors with money, but it’s impossible that Islamic finance will become still more institutionalised than that.

For one, there’s no coherent moral landscape in the UK – and although there isn’t in a country like Saudi Arabia either, the UK actively encourages polyphony and secular politics, rendering impossible the homogeneity of a moralising financial industry.

The UK has lived that period of history already, and given our teleological conceptualisation of progress, it would be far too regressive to go back. No, if there’s going to be a reaction to what has happened in the last five years, it will be in pursuit of a present we have never seen and that is as yet an ideal.

Cameron’s £200 million sukuk issue is really just a token gesture.That Islamic banks are doing well is not indicative of anything significant. They are doing well because they are behaving just like normal banks, but are trading in an environment that is less financially toxic than that in Britain.

Much of the conversation about Islamic banking can be put down to the nationalistic politics that always follow a bad recession.

People reject individuation because it was alone that they suffered – and the charging of interest is saturated with the language of individuation. ‘Interest’ itself invites us to think about loans as the manifestation of a set of interests or advantages; ‘usury’, from the Latin word usura, essentially means to use, or exploit.

It would be too tragic to deal with the possibility that we are ourselves individuisers, and so we project them onto the monstrous ‘other’: Jews, bankers, “capitalism” – as though capitalism isn’t what happens each time our present self puts its own joy over the joy of our future self by spending into an overdraft.

British governments encourage the construction of this ‘other’ because it disguises their own partiality, or interests, and allows them to adopt passive neoliberal attitudes to financial questions.

But British banks will never restructure along Islamic lines. For one thing, Islamic finance also relies on the visible presence of a failing ‘other’. This is, currently, us: “some scholars argue that sukuk could be considered as one of the tools that should help in addressing some of the woes inflicted on capitalist societies as clearly exemplified in what happened to Greece, Spain, Ireland and to some extent Italy,” writes Sidahmed.

More importantly, adopting Islamic finance would have enormous implications for the UK’s global allegiances. We would alienate the US and no doubt lose all our major American financiers. We wouldn’t be able to justify the loss because we would still be doing the same kinds of banking, but now with more – and more unknown – procedural bureaucracies.

The failure of Islamic banks to delimit capitalism under transcendent Shari’ah values reveals an unpleasant truth about the Darwinism that structures our exchange relations.

The British financial sector will continue to change in the aftermath of the long recession, but the changes will involve reconstituting what we already have.

Islamic Bank, Jaiz, Opens Doors to the Public

After months of controversy generated by the introduction of the non-interest banking in the country, also known as Islamic banking, Jaiz Bank Plc quietly opened its doors for business on Friday, January 6, 2011 in Abuja, the Federal Capital Territory (FCT).

The bank, which has its head office in Kano House, Central Business District, Abuja, has been offering banking services for about a month, ditto its branches in Kaduna and Kano which were also opened simultaneously.

The commencement of interest-free banking business has obviously ended months of speculation and suspense associated with the birth of a new form of banking in the country. Indeed, the controversy surrounding interest-free banking may have caused Jaiz Bank to open without the usual pomp and ceremony associated with conventional banking marketing gimmicks, to herald commencement of business.

Jaiz’s eventual emergence follows repeated failures in the past to begin operations more than five years after it launched itself into the public consciousness to raise funds from the capital market. The bank, which has as one of its promoters a former chairman of First Bank of Nigeria Plc, Alhaji Umaru Mutallab, was actually incorporated on April 1, 2003 as a public limited liability company with an authorised share capital of N2.5 billion.

The Central Bank of Nigeria (CBN) eventually announced on June 20, 2011 that it had issued Jaiz Bank an approval-in-principle to operate as an Islamic bank – the first financial institution to be so licensed. It was thereafter, given six months to comply with the apex bank’s capitalisation requirement, among other criteria, in order to receive the final licence.

But much furore arose from the introduction of Islamic banking last year when the CBN Governor, Sanusi Lamido Sanusi, lent his support to the project, arguing that it was no different from conventional banking, with the non-interest banking service as a product niche. Controversy, however, was stirred when he said banks that offer such products would have to adhere to the tenets of Islamic commercial jurisprudence and must have a Sharia Advisory Committee

THISDAY, however, learnt that Jaiz Bank may have hastily commenced business under pressure and may not have been fully prepared to market its presence in the Nigerian economy. This, it was gathered, has impacted on the bank, resulting in the low patronage in its Abuja banking hall which was unusually quiet when THISDAY visited Wednesday.

When this newspaper visited the bank’s head office which also houses its Abuja branch, there were only two banking product offerings: the corporate account and individual current account while other offerings such as internet banking and saving accounts, among others were said to be on hold for now.

Sources at the bank said it intends to also operate the children’s account, fixed deposit account as well as offer a range of services including internet banking and ATMs among others.

The CBN’s decision to introduce Islamic banking in the country had been greeted with criticisms from members of the public, especially Christian leaders who suspect that it was a ploy to Islamise the country.

Amidst the heated debate, some persons had suggested that the word “Islamic” be replaced with a more receptive phrase such as “non-interest” banking in order to douse the anxiety of those who were uncomfortable with it.

THISDAY checks further revealed the CBN has also encouraged the amendment in the nomenclature for Islamic banking by using the phrase, “non-interest banking” more often. But a marketer with the bank, who would not want to be named said: “Whether you call it non-interest or Islamic banking, the fact still remains that the principles cannot be changed because our model is firmly rooted in Islamic principles.”

But there are yet other hurdles to cross for Jaiz and other non-interest banks to follow suit. The source added that Jaiz is at the moment running skeletal services because it still needs to get some approvals from the CBN before it can proceed full steam ahead.

The source further explained that a good number of Nigerians were yet to fully comprehend the basic principles of the institution, adding that some still see the bank as strictly an Islamic affair.

According to him, the bank would not be interested in investing in start up businesses and would also shun “unethical” ventures such as prostitution, beer-selling business, gambling, and cigarette manufacturers, among others.

Although Managing Director/Chief Executive Officer of the bank, Alhaji Mustapha Bintube, could not be reached for comments, the source said the bank’s operations would be consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics which prohibits fixed or floating payment or acceptance of specific interest (usury) or fees for loans.

The source also admitted that further public enlightenment would be needed to create awareness so Nigerians could take advantage of interest-free services to actualise their target economic objectives.

But whether Jaiz has fully started commercial services or not, by opening its doors, a definitive statement has been made: Islamic or non-interest banking has become a reality in Nigeria and has come to stay.

‘Islamic Banking Not For Political Campaign’

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.

Islamic banking is against all forms of haram

Muslims have been urged to patronise the Islamic banking initiative of the Central Bank of Nigeria. This plea was made by Luqman Abdur-Raheem, the registrar of Yaba College of Technology, at the fourth Wahab Iyanda Folawiyo’s memorial Ramadan Lecture which held recently.

Mr Abdur-Raheem, who is also an Islamic scholar, said that the concept of Islamic banking is different from that of non-interest banking because while the former “is against all forms of haram (unlawful) financial system,” the latter “is only free from any form of interest but can be involved in haram enterprise.” He said that the importance of Islamic banking has been “a form of worship because it is an investment in the cause of Allah,” adding that it helps in the establishment of small and medium scale enterprises and assists the real sector while it also creates job opportunities for Muslims.

However, Mr Abdur-Raheem said there are some challenges hindering the establishment of the Holy cause; among which are “the uproar by some people not to establish the bank, Islamaphobia (fear and hatred of Islam),

Muslims’ apathy to the banking system and the fact that most of the experts in the field are non-Muslims.” Meanwhile, he urged Muslims to be convinced of the importance of Islamic banking, educate those who are ignorant of the system, patronise the banks when established, and be whistle blowers of evil deeds.

Imperative of consensus building over proposed Islamic banking

I believe that, as Nigerians, we should welcome everyopportunity to broaden the base of popular participation in economic activities. Poverty has persisted in the country for so long because the economic space has excluded many disadvantaged groups like the Niger Delta.

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This is part of the explanation of the violence that has continued to blight our national life, to the extent that the very fabric of the nation is currently under serious threat.

On this score, the introduction of non-interest banking would appear to be a welcome addition to innovative efforts to bring otherwise marginalised populations into the mainstream of economic activity. However, every good thing always has its down side. It seems to me that the down side to the concept of Islamic banking is the religious colouration. Continue reading

Islamic Banking – Christian groups may apply for own licence

HAVING failed so far to convince the Central Bank of Nigeria (CBN) to withdraw its current guidelines on Islamic Banking, there are indications that some Christian groups may have decided to use a new approach to challenge the apex bank on the issue.


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Investigations by The Moment revealed that instead of continuing to protest against what they perceive to be the CBN’s attempt to use the guidelines to promote Islam over other religions, the Christian groups are now planning to apply to the apex bank for a non-interest banking licence that would allow them set up a bank that would operate in accordance with Christian principles. Continue reading

ICRC boss seeks Islamic finance guideline for N32tr infrastructure

Following the successful use of Islamic finance to fund infrastructure globally, Director General of the Infrastructure Concession Regulatory Commission, Mansur Ahmed, is seeking a regulatory framework to help bridge Nigeria’s N32 trillion infrastructure deficits.

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Approval by the Central Bank of Nigeria (CBN) for the operation of the first Islamic bank in Nigeria, has been trailed by vehement opposition to the banking policy, which President of the Christian Association of Nigeria (CAN), Ayo Oristajafor, believes, is an attempt to Islamize the country in contravention of the constitution.  Continue reading

Islamic banking ‘ll threaten national unity – Cleric

By Wale Akinola

LAGOS – Amid the controversy triggered by the decision of the Central Bank of Nigeria, CBN, to introduce Islamic banking in the country, Bishop John Alagbala Osa-Oni of Vineyard Christian Centre, Lagos, has said the banking model was a potential threat to national unity.

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Osa-Oni consequently wants the CBN authorities to drop the idea of the non-interest banking system. Continue reading

Falalu Bello – Bible, Quran support non-interest banking

There is nothing controversial in non-interest banking otherwise known as Islamic banking because Christianity and Islam abhor usury or interest banking, former Managing Director of Unity Bank Plc, Alhaji Falalu Bello has said

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He said both Muslims and Christians can participate in the non-interest bank since the two holy books are against usury.

He added that the introduction of the banking system is not aimed at promoting any religion in Nigeria, but to provide a more conducive atmosphere for financial institutions to operate. “I don’t see anything controversial about Islamic banking.

The banking laws in Nigeria as far back as 1991, made it legal to have profit and loss banking in Nigeria, so whoever has a problem with it should have gone to court to challenge it when it was promulgated by the supreme military council,”

he said.

Evolution and trends in Islamic banking

By Omoh Gabriel
Non interest banking, Islamic banking or participant banking is banking  activity that is consistent with the principles of Islamic law  (Sharia) and its practical application through the development of Islamic economics . Sharia prohibits the payment or acceptance of specific interest or fees known as Riba  or usury  for loans of money. Investing in businesses that provide goods or services considered contrary to Islamic principles is also Haraam  (forbidden). Interest-free banking seems to be of very recent origin. The earliest references to the reorganisation of banking on the basis of profit sharing rather than interest are found in Anwar Qureshi (1946), Naiem Siddiqi (1948) and Mahmud Ahmad (1952) in the late forties, followed by a more elaborate exposition by Mawdudi in 1950.

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