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StandPoint

The Central Bank of Nigeria: For God or Country?


August 21, 2011

The Central Bank of Nigeria (CBN) has become the epicenter of the nation's reform agenda. Sweeping changes to the way banks are owned and operated have resulted in the prosecution of once-untouchable bank executives for financial crimes. Billionaire debtors have been named and shamed; and fiscal responsibility has become a buzzword for corporations large and small.

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In recent times, however, the CBN has found itself embroiled in poisoned debates on the merits of an Islamic banking model. The Islamic banking agenda has resulted in threats and counter-threats by religious leaders on both sides of the divide. This is coming at a time when Nigerians are living fearfully under the shadow of a violent, ultra-religious group that wants an autonomous Islamic nation and when divisive religious and ethnic rhetoric is filling up our public sphere

Islamic banking itself is not a misnomer in secular states (in fact, many developed nations have since incorporated it as part of their national banking policies). The error of judgment in the Nigerian instance is the attempt to insinuate religious constructs and structures like the Sharia Advisory Council into the CBN, a wholly secular, Federal Government establishment.

The Bank of England regulates UK Islamic banks under non-interest banking regulations, and then takes guidance from the Islamic Financial Services Board, a non-governmental organization headquartered in Malaysia. Nigeria is a full member of the IFSB and has access to those same guidelines. There is no reason why the CBN cannot regulate Islamic banking under the previous, non-controversial non-interest banking regulations.

The CBN cannot afford to develop and implement policies in a vacuum, especially when such policies can potentially lead to national instability. The Central Bank of Nigeria must never forget that its allegiance (above any other consideration - politics, economics or religion) is to the Federal Government of Nigeria and all its citizens.


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Re: The Central Bank of Nigeria: For God or Country?
Papadonkee posted on 08-22-2011, 12:02:21 PM
QUOTE:
Papadonkey,

How DARE you..
I'm asking how DARE you?

\"You have idea what 'prudential regulation is' and \"Never heard of the phrase before\" but here you are making guesses and passing judgement as an expert.

What the heck are you jumping up and down about?

Until you go educate yourself and get grasp of what it is SHUT UP.
Why should I debate with a clown and a coward who presents himself and knowing everything when infact you're clueless.


Moi? Try to pass myself off as an expert?

You're pissing in the wind, bro. I make it a point to display my ignorance when I'm not sure of a fact, or a subject. In fact I just posted a thread 'Sanusi's Naira Devaluation Rollercoaster' in which I state:

QUOTE:
I'm no economist, but I have observed the steady policy merry-go-round Sanusi's CBN has taken Bureau de Change operators on...Can anyone shed more light on this? I have no idea what I'm yapping about - the only thing I'm sure about is that Sanusi is a first class numpty


Note how I admit my ignorance. Note how I display my bias against Sanusi. Note how I ask for clarity from experts.

It's my M.O. I even did it when I admitted I had never heard of 'prudential regulation'. So for you to accuse me of misrepresenting my expertise or knowledge...

PDP!!!

1. Before I forget, you accused me of calling for no CBN regulation. I'm waiting for your link to the post in which I said that.

2. A clown? Maybe. A coward? Tell me how, exactly.

3. Just googled Prudential Regulation. If nothing else, you can proudly boast that you taught me a lesson

4. Lying Pr*ck.

Goooooooood doggie. Who's a pwetty boy. You are - yes you are!
Re: The Central Bank of Nigeria: For God or Country?
Ikoyiesho1 posted on 08-22-2011, 12:44:42 PM
Papadonke call me prick or whatever as many times as you like....
I will always be happy to educate you as many times as you display your ignorance on this issue which I'm certain you have limited knowledge about.

Now that you understand Prudential regulation. I'm sure if you will acknowledge that Sanusi is well ahead of many western nations in terms of financial regulation and sound regulatory environment. In case you want more. You can goggle Basel III Accord.

But hey, If you must be a social or political analyst.

It is your epistemic duty to get your concrete facts together and educate yourself adequately on issues before passing judgements.

Another lesson for you:

Go goggle Epistemic Duty and once you understand ....I'll ask Superego to teach you from there.

Peace.
Re: The Central Bank of Nigeria: For God or Country?
Denker posted on 08-22-2011, 12:49:36 PM
mallam, ikoyiesho1, you dey make laugh...with all dis knowledge wey ya dey show here..you no fit find money to buy GARRI...nnah, dis one pass moi self...allah have mercy on ya poor soul...lol!
Re: The Central Bank of Nigeria: For God or Country?
Papadonkee posted on 08-22-2011, 13:24:34 PM
QUOTE:
1. Papadonke call me prick or whatever as many times as you like....

2. Now that you understand Prudential regulation. I'm sure if you will acknowledge that Sanusi is well ahead of many western nations in terms of financial regulation and sound regulatory environment. In case you want more.

3. You can goggle Basel III Accord.

Another lesson for you:

4. Go goggle Epistemic Duty and once you understand ....I'll ask Superego to teach you from there.

Peace.


1. Thanks. Pr*ck.

2. Prudential Regulation...ahem...is the regulation of deposit-taking institutions and supervision of the conduct of these institutions and set down requirements that limit their risk-taking. The aim of prudential regulation is to ensure the safety of depositors' funds and keep the stability of the financial system (thanks, Wikipedia :wink. Pray tell how this justifies inserting a Sharia Council into a Central Bank?

3. Never heard of the Basel III Accord either till today. Like you suggested, I googled it and it appears to be a global regulatory standard on bank capital adequacy and liquidity. Again, how does this support Sanusi's actions?

4. Epistemic Duty?

No need for google here, sorry. I actually went to a catholic school, and I had heated debates with my headmaster-priest over this very concept. It's the search for truth, and the abandonment of previously held beliefs when confronted with a superior truth, isn't it?

Do you see the irony in your mentioning epistemic duty?

Articulate an argument (without using your thesaurus) that explains how having a Sharia Council in the CBN is the best way forward. Then I'll stop calling you a limp pr*ck. Deal?

PDP!!!

And no one likes a whiny pr*ck. You called me a joker, clown and coward. So take your lumps like the shemale you are.

Woof!
Re: The Central Bank of Nigeria: For God or Country?
Denker posted on 08-22-2011, 13:39:40 PM
papadonkey, nnah, sofry sofry on dat bushdoctor, mallam, ikoyiesho1...lol!
Re: The Central Bank of Nigeria: For God or Country?
Kemet posted on 08-22-2011, 14:41:37 PM
PapaDonkee,

Good point about the Sharia Council at the CBN. However, it is rather curious that nobody seems to ask that acclaimed risk-managing "genius", our honourable Emir of the CBN the following question. Namely, why is the minimum capital requirement for setting up Islamic banks (aka "non-interest") about 50% the requirements for conventional ones?

This concept seems to go against what is generally accepted by most finance professionals. Assets with the characteristics of debt (like normal bank loans) are generally less risky than equity-like ones (like profit sharing). Without going into a sophisticated explanation, if you take uncertainty as a proxy of risk; interest amounts for debt is more certain than the big IF with profit sharing (i.e. profit needs to be first made plus the amount is uncertain).

Most cynical people will say that the apparently inverse relationship (in this instance) between potential risk and capital requirement can only be understood by favouritism. They will point out to Jaiz Bank, which could not make the minimum capital requirement during Soludo's Bank consolidation exercise but now has both the minimum capital requirement barriers lowered but also potential competitors either nationalised or forced to sell.

I am not one of those cynical people above. The Emir is just an articulate, over-rated noise bag. Such conspiracy is beyond him. Or maybe not.
Re: The Central Bank of Nigeria: For God or Country?
Superego posted on 08-22-2011, 14:56:50 PM
QUOTE:
PapaDonkee,

Good point about the Sharia Council at the CBN. However, it is rather curious that nobody seems to ask that acclaimed risk-managing \"genius\", our honourable Emir of the CBN the following question. Namely, why is the minimum capital requirement for setting up Islamic banks (aka \"non-interest\") about 50% the requirements for conventional ones?

This concept seems to go against what is generally accepted by most finance professionals. Assets with the characteristics of debt (like normal bank loans) are generally less risky than equity-like ones (like profit sharing). Without going into a sophisticated explanation, if you take uncertainty as a proxy of risk; interest amounts for debt is more certain than the big IF with profit sharing (i.e. profit needs to be first made plus the amount is uncertain).

Most cynical people will say that the apparently inverse relationship (in this instance) between potential risk and capital requirement can only be understood by favouritism. They will point out to Jaiz Bank, which could not make the minimum capital requirement during Soludo's Bank consolidation exercise but now has both the minimum capital requirement barriers lowered but also potential competitors either nationalised or forced to sell.

I am not one of those cynical people above. The Emir is just an articulate, over-rated noise bag. Such conspiracy is beyond him. Or maybe not.


Cuz the risk of Islamic financing(WHICH IS +++++ MORE THAN NON INTEREST BANKING *sigh*) is about 1% that of conventional. Gosh!!!!!

user posted image
Re: The Central Bank of Nigeria: For God or Country?
Ikoyiesho1 posted on 08-22-2011, 15:36:40 PM
Papadonkey,

I don't intend to be showy about my knowledge of financial jargon or clich├ęs when I asked about Basel accord and prudential regulation. Far from it, the reason you were posed those questions were because one would expect that you at least have basic knowledge of those themes to be able to pass sound judgement or to understand the rationale behind some of Sanusi's decisions.

Epistemic duty came in because even if you don't know; which is not a crime, it is your duty to seek out knowledge rather than make assumptions and uneducated guesses about it is and what not.

I think Kemet also raised a very good question which I have tried to answer below.

The questions asked by you and Kemet have been asked before by some other internet intellectual warriors. Below is a question and answer which answers all your concerns.

A Question which is similar Kemet's.


1. the FSA classes organisations by virtue of their risk, ie the class of risk they undertake, now if the risks for both conventional and islamic banks are roughly the same, or islamic banks even more because of the major liquidity risk in islamic/sharia banking, why then should a national sharia bank have a reduced capital requirment of 10bn compared to its conventional counterpart of 50bn. how did our CBN gov arrive at such a reduced capital base for his pet project?

My Response:

I'm also yet to read any document or news from the central bank which rationalises a smaller capital base for Islamic banks in contrast to their conventional counterparts. However, one very sure fact is that such decision must in line with prudential regulation.

Yes, Islamic banks have the same risks and infact unique risks which would make anyone ask the same question but it is important to note that the determination of capital adequacy for Islamic banks in all countries around the world is based on their mixture of assets and liabilities. Now, one thing about Islamic banks is that the nature of deposits renders them significantly incompatible with conventional benchmarks for the assessment of capital base as they have a totally different nature of asset and liability management.

An author I once read summarizes - as thus: "Only a benchmark that would tie Islamic banks' capital more closely to the risks they hold would be compatible" (Noibi, 2004). More so, the Basel 11 framework http://en.wikipedia.org/wiki/Basel_II which guides the international regulation of banks allows for central authorities like the CBN to have a flexible structure in which Banks would be subject to supervisory review and adopt approaches that best fit their risk profile.

The last time I checked, the Islamic Bank of Britain started with just £75 million or thereabout which is far different from what conventional banks are required to have in Britain. Finally, let's bear in mind that Islamic banks are classified under the CBN's specialised banking unit which is different from the commercial banking unit under which conventional banks are based.

It would be worthy of note that micro-finance banks and development banks are all based under specialised units as Islamic banks. Capital bases are therefore based on the nature and risk profile of each unit as deemed best by the Bank. Note that Micro-finance Banks have higher risk ratios than Islamic banks but have lower capital base. Why?


Question similar to Papadonkey's.

2. if the economy is the main focus of the cbn governor, why does it take a public outcry for him to realise that non-interest banking as enshrined in our constitution, requires broad regulatory oversight, from an impartial umpire as against, his famous pronouncement of setting up a "sharia advisory panel".


My Response:

Let's first understand what Islamic banking is: (I hate to quote Wikipedia but hear what it says), "Islamic banking (or participant banking) is banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics".


Please look at the diagram above provided by Superego, you will note that non-interest financial institutions have two classes (Islamic financial institutions and other non-interest financial institutions). Islamic banks will be supervised by the (Sharia Advisory Committee) to ensure that they comply with the Sharia jurisprudence under which their licenses were granted. Other forms of non-interest banking would have another supervisory board which would ensure compliance with the CBN supervisory regulation. For example, if there is to be Christian non-interest banking tomorrow which is strongly based on Biblical ethics, the CBN will need to set-up a board or committee to supervise the operational activities of the Christian banks in line with the ethics or jurisprudence, under which it was licensed.

It would be very reckless and irresponsible indeed in this epoch of global financial risk to use "a one size fit all" approach to banking regulation by using the same board or committee to watch over Islamic banks and Christian banks and Amadioha banks. Or let's say Islamic banks and microfinance banks as it is. Prudential management would mean that the CBN understand the need and ethics of each banking model and tailor its management approach in line with the need and nature of the banking model.

For example, why don't we have the same board or committee that coordinates Jerusalem and Hajj pilgrim for Muslims and Christians each year? I'm sure anyone would agree it won't work because the Christians need a board of committee who are also Christians and who understands the whole essence of Jerusalem. Given this explanation, it would be very essential to have an Sharia board to advice the CBN on what is happening in the Islamic macro environment.

Should it up its regulation?
Are there more risks than thought?
How should risks be managed?
Will the banks survive any future crisis?
Etc.
Re: The Central Bank of Nigeria: For God or Country?
Papadonkee posted on 08-22-2011, 17:29:24 PM
QUOTE:
Papadonkey,

I don't intend to be showy about my knowledge of financial jargon or clich├ęs when I asked about Basel accord and prudential regulation. Far from it, the reason you were posed those questions were because one would expect that you at least have basic knowledge of those themes to be able to pass sound judgement or to understand the rationale behind some of Sanusi's decisions...


First of all, thank you for the return to civility. Give me a sec while I crawl out of the gutter and put on a thin veneer of respectability.

It might interest you to know that under the new CBN guidelines, all islamic banks are required to have sharia advisory councils. Every single one, with membership criteria determined by the CBN.

And that's as it should be. If every private sector islamic bank has an islamic council overseeing its operation, then the CBN doesn't need one.

The argument has been made at home and abroad for lower capital limits for islamic banks, which are competing with a different set of rules (and risks) from commercial banks. The CBN classifies non-interest banks as specialised banks, along with Primary Mortgage Institutions, Microfinance Banks, and Development Banks. They all have lower capital limits as well. And that's all well and good.

All that's left to say is thanks to the NVS Editorial Team for chosing to bite this bullet. May you live long and prosper.

PDP!!!
Re: The Central Bank of Nigeria: For God or Country?
Patcho posted on 08-22-2011, 17:35:06 PM
@Denker;
Not that I'm so much interested in what Ijaw gets but in the process of Obama freeing the Oil, they will hand me Ala-Igbo.
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