Islamic Banking: Issues and Concerns

Luqmaan K. O. Babalola

Recently it has become a matter of public discourse that the Central Bank of Nigeria has approved of non-interest financial institutions in Nigeria and issued the necessary guidelines for their operations. The news and the reactions that greeted it call for attention in some ways: to salute the new government of President Goodluck Jonathan for its foresight and desire for improving the economy in all good ways possible and thus belling the cat; two, to explain the basic concepts of interest-free economy and finally to dispel the doubts of the doubting Thomases, remove the phobia of the shariah-phobic and dispel the insinuations and misgivings of the safsa?aaees (a group of people not ready or willing to accept the truth from even their mothers and fathers as long as it opposes their whims, let alone from an enemy – real or imagined).alt

First, for fear that the Nigerian public be misinformed by sentimentalist, it becomes necessary that the Muslims of this country explain the basic concepts of Islamic banking in a way as to leave no one in doubt that the system of banking according to the tenets of Shariah does not equate with Islamizing the country as it is being peddled in certain quarters. The principles and practices of Islamic banking derive from Islam's total prohibition of interest-bearing transactions. Islam makes it clear without iota of ambiguity that Allah, the Almighty, Creator of humans and their intellects, in His infinite wisdom, has permitted trade and profit-making while totally forbidding interest in any form. There is, no doubt, a great wisdom in the permission of trades and profit-making as well as in the forbiddance of interest. The wisdom regarding permission of trades and profit-making may not be far from the reach of the ordinary person. However, many especially the bourgeois money-lenders, may find some difficulty in seeing the wisdom in the prohibition of interest as they naturally incline to thinking that they are "helping" the poor by lending them their money.

When examined deeply, the inhumanity in the practice of imposing interest on lending will become clear. The borrower is usually someone in need. He is sometimes so hard-pressed that he agrees with any lending condition due to his state of need. He thus becomes a victim of the callousness of his supposed helper as bad as having to pay interests over accumulating interests if he is not able to pay in good time. This is exactly the fundamental basis of modern interest-based banking and other financial institutions. Because modern banking system often envisages failure of the borrowers to be able to pay back, it demands heavy collaterals to indemnify the borrowing. And when it happens as envisaged, the bank goes after the collaterals, stripping off its poor victims of their little belongings. The clear manifestation of the system is that the rich get richer while the poor suffers in perpetuity! The society pays dearly for it as a result. There is widespread criminality across the land. Unemployment is high and the economy rigmaroles at the lowest ebb. This is the situation with interest-based economy. Muslims, especially the conscious one, are seriously averse to this practice and have shown much apathy and resentment towards interest-based banking. They know that they are prohibited to receive interest on lending or pay it on their borrowings or act as scribe for transactions involving it or witness the process of its consummation. So, they only get involved, reluctantly, to the extent of their (modern day) needs – transfers and so on.

The zero-interest business transaction as offered by Islam, on the other side, seeks a justly balanced society where the rich can assist the needy without inflicting any injury in the process. Established on this foundation, Islamic economics in general recognizes three basic main forms of capital investments, namely private business, partnership in contract and cooperation. In private business the reward of investment consists, in legal point of view, of ‘actual profit' due to the private business owner to the extent of his investment of capital and ‘wage' due on account of his management roles. Partnership entitles each partner to a share of the reward of the investment as ‘profit', on the one hand, up to the extent of his share of the working capital, and ‘wage', on the other hand, up to the extent of his participation in the management of the business. By cooperation it is meant cooperation between capital and organisation. That is, one party invests the capital for, and the other the organisation of, the business. The reward of the respective investments is ‘profit' for capital and ‘wage' for the organisation. All of these forms of investment have common denominators – zero-interest and joint risk-bearing of profit and loss.

As the needs of modern-day Muslims to deal with banks become dire, the intellectuals among them began to scrutinise the modern banking system and from there, construct an acceptable platform for harnessing the good part of it without necessarily having to resort to the forbidden business – interest. This is historical and has continued to receive attention in many parts of the world. It goes without saying that the Islamic approach to banking has got its own challenges. In spite of these, more and more determinations sink into marrying human needs at any time with the dictates of faith. At no point in the history of Islamic banking have the Muslims deviated from the real essence of it. They have no clandestine or ulterior motive in asking for government approval to do banking according to the dictates of their religion. They only desire practising their religion and living their lives accordingly.

If our president has been made to see these points and has so seen and appreciated them, he deserves great commendations. I say kudos to Mr. President. He specially deserves this for many reasons. He is a Christian who knows too well that the concept of non-interest financial instruments all over the world has its origin in Islam. It is the brainchild of the Muslims, and in fact it is an economic system whose second name or synonym is Islamic. He probably would have come under harsh criticisms from religious bigots for daring to leverage anything Islam in spite of his Christianity. Thank you, Mr. President, for this show of exemplary and all-inclusive leadership.

Now, from the few interest groups among the Christian community of this country, who have expressed fears (founded or not) about the new idea, may we ask: are Muslims (about half the nation's population) not entitled to do their businesses their own way, especially when no part of the Nigerian constitution is contravened? Are they (Christians) prevented from asking for Christian banking system (if any) and staying away from anything Islam? Do they not know that even in places with minority Muslim population, the Muslims are being allowed a chance to practice the banking they (the Christians) dread so much out of unbridled hate? You know what? Imagine a Muhammadu Buhari had been returned elected in the April polls and sworn in. Then these individuals who see nothing good in Islam would have taken to the street protesting that he has begun the process of Islamizing the country. Nigerians by now would have been at crossfire against one another. Here is a country whose people throw scruples into the wind at any slight opportunity.

A group among them argued that "the initial (Jan 2011) NIFI framework was limited in its application as it equated NIB to Islamic Banking, in effect, barring potential non-Muslim or non-Shariah-compliant investors and participants from tapping into the benefits of NIB." In truth, non-interest banking may be equated to Islamic banking as it originated from nowhere else other than Islam. However, that it bars anyone from tapping from its benefits is absolutely untrue. Islamic banking system is all-embracing as it does not bar anyone willing to key into its operational ethics, rules and regulations from so doing. Nonetheless, the CBN has issued new guidelines accommodating all interest groups with ideas of running such banks to come forward for licensing. This, in my opinion and in fairness to the Christian community, is better if they have any such idea or can borrow from the only existing prototype. Ultimately, we can together achieve a wealth-balanced society. However, they should be obligated to know and be informed that the earlier guidelines by the CBN do not imply that the apex bank is setting up Islamic banks in the country. Rather it has only prepared the frameworks within which intending operators of the system can operate.

Let me say that the present disposition of those Christian groups to Islamic banking is similar to that which led them in the early nineties to asking the Federal Government of Nigerian for enabling enactments for Christian pilgrimage, its type never found in any other part of the world till date. It occurs to me that if they had their way they perchance could have wanted the FGN to sanction pilgrimage to Mecca by Nigerian Muslims! Their disposition also presupposes that had they not been licensed to operate private universities before the Muslims, they sure would have objected to Islamic private universities as likely breeding grounds for "terrorism and boko-haramism". Very honestly, it would have been the best option if they asked for Christian banking rather than decrying the legitimate rights of their Muslim fellows.

The Christian community in Nigeria, like their counterparts in the United States and United Kingdom, should learn to respect the rights of Muslims of about half the population of this country, to transact their businesses including banking according to the dictates of their religion. They should know that instead of trying to stamp out these rights by all manners of name-calling, the better they challenge themselves, their professionals and clergies, to concentrate on modeling and packaging a new type of non-interest financial institution which is suitable to their needs and capable of competing well with Islamic economics and finance. Archbishop Dr. John O. Onaiyekan, former president of the Christian Association of Nigeria is he who said: "what Nigerians need is the understanding of individual peculiarities, and not tolerance". The better we understand ourselves and the peculiarities of adherents of faiths in this country, the better for peaceful coexistence.

Even the respected Guardian newspaper could not exercise restraint in respect of this matter. Otherwise how would anyone accommodate the editorial of The Guardian Newspaper of 8th June 2011 titled "CBN and non-Interest Financial Institutions" in which its editors sought to disparage Islam, its people and the alternative way out of the economic doldrums of the present world. The Guardian editors strongly opposed to the use of words like "Moslem" or "Qur'an" particularly identifying the new system with Islam. For God's sake, the Guardian editors should be asked what is wrong with Muslims running their affairs in their own way. Is it not as clear as the daylight that, just as no one is under any compulsion to transact business with a particular conventional bank, no one (not even a Muslim) is compelled to deal in any way with the Islamic banking system?

The position of the Guardian editorial is particularly worrying that, in spite of acknowledging that Islamic banking is gaining acceptance the world over, even in societies with minority Muslim population, the editors went off track arguing against choice of words like "Islamic", "Moslem", "Qur'an" and "Shariah" in the CBN guidelines. The newspaper has demonstrated, unbelievably and unfortunately, lack of knowledge of the fact that its suggested alternative words or phrases ("non-interest" or "profit and loss sharing") were mere interpretations of the original concepts firmly rooted in the creed of Islam. The western worlds understand these, and have thus found no objections to their use to retain the originality of the concept of non-interest banking.

The newspaper continued that "in countries where Islamic banks have been in existence since 1975 and elsewhere with growing presence of non-interest financial products and services, these offerings are not exclusionary." May we ask the editors of "Conscience nurtured by truth" if non-exclusionariness of products, services and public participation precludes exclusionariness of ownership, ownership structures, operational modalities and their rights of choice of words which are technically peculiar to their operation. The Guardian newspaper also veered away from fair-play, condescending low to the use of derogatory and gutter language calling Islamic scholars "Mullahs" who should not be given official roles of "teleguiding" the chief executives of our financial institutions. The newspaper should know that expertise in Islamic matters can only be found in scholars deeply taught in Islamic jurisprudence, not white-collar economists or academics. It is the reason such scholars are indispensable in such all-important issues as Islamic banking. More so, the main body of Islamic knowledge is housed till the present day in the medium of Arabic language – the reason a people not blinded by bigotry are not opposed to employing the medium of Arabic language where necessary as against the objection of the Guardian newspaper.

We do know, in fairness, that interest-based transaction is also forbidden in the bible, but sadly to say the least, majority of the Christians do not see anything wrong in it. Rather they encourage it by all means, as evidenced by the posturing of their mouthpieces (including The Guardian Newspaper) in this matter. Then how on earth will anyone come out arguing that Muslims should not operate non-interest banking nor call ideals of their own heritage by the names they are well known by? I hope this is not a new terrorism. I am afraid, it so portends!

Babalola teaches Pure Mathematics at the University of Ilorin, Ilorin, Nigeria.

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