Much Ado about Islamic Banking

A lot of hot air has been blowing over the recent pronouncements of the CBN regarding Islamic Banking in Nigeria. With many commentators and analysts - who should know better - mentioning it as evidence of a sinister religious and/or northern agenda at play in the ongoing banking sector reforms. Although it is commonly said that there is no smoke without fire, I am convinced trhat that there is no fire in the smoky discussions - or much better: allegations, surrounding the CBN Governor's pronouncemnets on Islamic Banking.

First of all, the CBN is not trying to "introduce" islamic banking into Nigeria, as this form of banking has already been introduced and tested in Nigeria decades ago. Habib Bank (now part of Bank PHB) was licensed to carry out Islamic Banking activities- among other things - in Nigeria in 1981. Furthermore, Jaiz Bank International Plc has already obtained the greenlight - conditional upon meeting the minimum capital requirements - from the CBN to operate non-interest banking in Nigeria since 2004. That the go-ahead was obtained in 2004, under the stewardship of Joseph Sanusi - a Southern Christian - should allay the fears of cynics who view slamic Banking through the biased lenses of tribal and religious sentiments.

Secondly, an important characteristic of democracy is the opportunity it gives various segments of a pluralistic society - such as ours - to express themselves. A large number of Nigerians are muslim and many of them are desiropus of financial products, systems and institutions that are compliant with the dictates of their religion. To deny them of this opportunity - because some people are uncomfortable with the sound of the name - is not only undemocratic it is condescending and near paternalistic. Islamic Banking is one of the fastest growing fields of modern finance, with conservative estimates of assets in the field now exceeding US$ 500 Billion. Shariah-compliant financial products now cut across Investment Banking (i.e. Sukuk Bonds), non-interest bearing deposits and asset management products. Matter of fact, a Shariah compliant equity fund has been offered in Nigeria since 2008 and is even listed on the Nigerian Stock Exchange.

Lastly, one thing is clear: the decision to offer (or not offer) Islamic Banking is a business decision. For an Islamic Bank to kick off - or even raise private capital - a legitimate business need must exist for it and this legitimacy cannot be legislated into existence by lawmakers or the regulators. If there is no consumer base for Islamic Banking in Nigeria to justify its practice, then it will fail. That is the simple law of the business jungle!. Islamic Banking has been growing the world over, because it has found a ready customer base and it is serving legitimate business needs. Even non-Islamic issuers - such as the very German state of Saxony-Anhault - have found Sukuk Bonds to be an attractive and cost-effective financing tool.

I think the tribal and religious sentiments being whipped up in the wake of the Nigerian Banking sector is despicable and indicative of a worrying trend towards abondoning logical arguments in favour of sensationalism. I agree that this trend is not specific to Nigeria, even American critcics of Barack Obama's reform agenda have accused him of wanting to "Kill Grandma!". A discussion outside of the facts of the case is wrong and the people who should know better but keep on whipping these dark sentiments are doing the entire nation a disservice.

This argument should not be about a "northern agenda" or an "islamic agenda" or an attempt to "snatch the banking system from southerners". What is material to this discussion is whether or not certain executives at the helm of our financial institutions have acted in contravention of established laws or regulation and by so doing earned their day in court. It should be about whether or not certain executives at the helm of our financial system have acted in ways that put the Nation's financial at serious risk. I don't have answers to these questions and I think the accused people should be assumed innocent until proven guilty. However, I am certian that painting the CBN governor's action in a sinister and sectarian manner does everybody a lot of harm. Let's have an enlightened discussion please!