By Eghes EYIEYIEN
Group CEO, Pharez Ltd
Lagos, 20th January, 2011.
The Central Bank of Nigeria released a guideline on 13th January, 2011, which it called FRAMEWORK FOR THE REGULATION AND SUPERVISION OF INSTITUTIONS OFFERING NON-INTEREST FINANCIAL SERVICES IN NIGERIA (the Framework).
The first paragraph of the Framework read, “Further to our circular reference No. BSD/Dir/Gen/NIB/01/008 dated March 4, 2009 on the above subject and following extensive consultation and receipt of comments/inputs by stakeholders, the Central Bank of Nigeria hereby releases the Framework for the Regulation and Supervision of Institutions Offering Non- Interest Financial Services in Nigeria as well as the following supporting guidelines:
If there was ever a CBN Circular or Guideline which required wider consultation beyond the banking industry itself, this was it.
Unlike the regular and conventional banking guidelines and regulations which the CBN issues from time to time to operators, the Framework has implications well beyond the banking industry and the financial services sector. The CBN should, therefore, have sought inputs during its consultation process from religious bodies, civil society groups, the legislature and the general public.
Some Background
The Draft Framework issued by the Prof. Chukwuma Soludo-led CBN in March, 2009, was restricted in circulation. Many financial journalists were not even aware of it and so only few reported its release then.
I personally only saw it sometime late 2010 and commented on in a chat I had with a Thisday journalist – comments it used in its rather belated story on the Draft Framework.
I was certain then that the CBN would still expand the discourse on the Draft Framework before finalising it. This did not happen and we now have a Framework!
The Current Framework
The problem with the Framework is not that it seeks to establish Shariah Banking in Nigeria. The issue is that the CBN is attempting to do so apparently being unmindful that Shariah Banking is actually, as of today, both unconstitutional and illegal.
The Framework for Non-Interest Banking defined a Non-Interest Financial Institution (NIFI) as “a bank or Other Financial Institution (OFI) under the purview of the Central Bank of Nigeria (CBN), which transacts banking business, engages in trading, investment and commercial activities as well as the provision of financial products and services in accordance with Shariah principles and rules of Islamic commercial jurisprudence”.
Further, the Glossary of Terms, which as an appendix to the Framework, states that “Shariah Principles” refers to the divine guidance as given by the Holy Quran and the Sunnah of the Holy Prophet and embodies all aspects of the Islamic faith, including beliefs and practices.
This is a worrisome development since the Banks and Other Financial Institutions Act 1991 as amended (BOFIA), which is the main legislation governing banking in Nigeria, already made provision for Non-Interest Banking in Nigeria but not as “Shariah-compliant” banking. What is legally specified in the BOFIA is “Profit and Loss Sharing Banks”.
What the BOFIA Says
The BOFIA specifically defines what a Profit and Loss Sharing Bank is.
It states in Section 61, Profit and Loss Sharing Bank means a bank which transacts investment or commercial banking business and maintains profits and loss sharing accounts.
This is the ONLY legal definition of a Non-Interest Bank known to the Nigerian statute books till date.
When the CBN granted an Approval-in-Principle Licence to Jaiz International Bank PLC, which has among its promoters Dr. Rilwan Lukman, Dr. Umaru Abdul Mutallab and Prof T.A. Adebiyi, the licence was issued for it to carry on business as a Profit and Loss Sharing Bank.
The BOFIA was issued in 1991 as a decree and signed into law by the then Head of State, Gen. Ibrahim Badamasi Babangida. Though a committed Muslim, Gen. Babangida was obviously sensitive to the religious sensibilities of Nigerians, especially with the near-crisis the country was thrown into over the issue of Nigeria’s membership of the Organisation of Islamic Countries (OIC), and his government thought it imperative to include an unambiguous statutory provision in Section 39 (1) ofthe BOFIA which would ensure that no religious colouration is given in any guise to banking in the country.
Section 39 (1) stipulates that
Except with the written consent of the Governor (a) no bank shall, as from the commencement of this Decree, be registered or incorporated with a name which includes the words National, Nigeria Reserve, State, Christian, Islamic, Moslem Quaranic Biblical.
Obviously, the law anticipated that the Governor of the Central Bank of Nigeria would not be swayed by religious considerations to grant a waiver to allow the use of those religious appellations even though it invested him with that power.
Does this not underscore the spirit and letter of the law that makes the introduction of Shariah Banking at this time most awkward?
Curiously, the new CBN Framework even re-affirmed this statutory provision, while it speaks of “Shariah Banking” all through the circular, it states in Section 10.1 under the heading Branding:
In line with the provisions of Section 39 (1) of BOFIA 1991 (as amended), NIFIs shall not include the word as part of their registered or licensed names. They shall, however, be recognized by a uniform symbol designed by the CBN.
All the signages and promotional materials of NIFIs shall bear the symbol to facilitate recognition by customers and the general public.
Consequently, any reader who may already be suspicious of CBN’s motives would no doubt wonder if this provision is not rather superfluous and possibly an attempt to feign compliance with the law.
Already, many non-Muslims have, understandably and expectedly, read religious motives to the issuance of the Framework; more so, when it is being introduced by the CBN under the purview of its current Governor, Mallam Sanusi Lamido Sanusi, who is known to also be an Islamic Scholar with expertise in the Shariah Law.
I personally have no reason to adduce motives to Mallam Sanusi. But I believe it is rather inauspicious and even insensitive that he would deem the introduction of Shariah Banking the CBN’s priority at this time especially when the constitutional and legislative footing for it is non-existent.
There are very serious implications for the Nigerian banking industry and the economy at large which warrant that the CBN immediately revisits it and withdraw the Framework accordingly:
1. The CBN has, by this Framework, effectively redefined the business of Non-Interest Banking as Shariah or Islamic Banking contrary to the spirit and letter of the BOFIA.
2. By insisting that Non-Interest Banking products must be Shariah compliant, the CBN has effectively and unjustly excluded non-Muslim Nigerians from the emerging Non-Interest Banking business sub-sector.
For instance, our Consulting Company, Pharez Ltd, has non-Muslim clients who have, as far back as 2003, indicated that they want to invest in Non-interest Banking in Nigeria and we had written to the CBN on their behalf since 2007 requesting for CBN’s requirements for the issuance of a licence to establish a Profit and Loss Sharing Bank in line with the provisions of the BOFIA. Ironically, the Director of Banking Supervision in the CBN at that time, Mr. Ignatius Imala, had told me that they were still working on the regulatory framework for Profit and Loss Sharing Banking and that they would revert to us after the Guidelines are finalised by the CBN. We have not received a formal response to our request from the CBN till date!
3. By the proposed plan to establish the CBN Shariah Council, which would obviously comprise only Muslims, the CBN would be breaching the Federal Character Principle entrenched in the Constitution of the Federal Republic of Nigeria and its provision that no state religion would be adopted by the country.
Why is the CBN dabbling into the murky waters of religious controversy by even suggesting it would have a “Shariah Council in the CBN”?
4. As I have already established, by instituting “Shariah Banking”, the CBN has breached the spirit and letter of the Banking and Other Financial Institutions Act which prohibits the use of the word “Islamic” or “Quranic” in the name of a bank in Nigeria.
Conclusion
Non-Interesting Banking predated Islam and is an area of banking business which is not the exclusive reserve of Muslims. There are Nigerian entrepreneurs who have interest in conducting Non-Interest financial services that would be unjustly excluded should the business be only about Shariah-compliance.
The emerging Non-Interest Banking sub-sector of the financial services industry holds much promise and a level playing field should be available to ALL Nigerian business people no matter their religious beliefs.
What the CBN should be doing is to apply itself innovatively to develop the business and enact regulations and prudential guidelines that are not religion-specific.
Nigeria does not have to implement the model of Non-Interest Banking being practised in Islamic countries and by Muslims in the west.
We have the capacity to lead the way in this regard by making our own system of Non-Interest banking, based on the Principle of Profit and Loss Sharing enshrined in the BOFIA, the mainstream best practice and watch the other countries of the world follow our example.
God Bless Nigeria!
EGHES EYIEYIEN, author, is the Group CEO, Pharez Ltd. All opinions on this page/site constitute the authors best estimate/judgement as of this date and are subject to change without notice. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use of this information. All enquiries should be directed to eghes@pharezgroup.com and egheseyieyien@yahoo.co.uk or info@proshareng.com. He can be reached on Telephone via 0805 506 7906, 0704 099 9881.
