AMIDST growing public realisation that his handling of the looming distress in five banks occasioned by huge debts would inflict serious unintended economic damage, Central Bank Governor, Sanusi Lamido again chose the wrong time and inappropriate forum to announce government's mere commitment to a far-from-ready introduction of Islamic financial services and to seek preliminary advice on how to even proceed. The timing was wrong because the country had just witnessed the violent eruption of the Boko Haram Islamic sect in some Northern states and the precautionary disbandment of the Daruslam sect in Niger State while the banking sector had become unsettled.
To proceed, as Sanusi did, to interject therein the imminence of Islamic banking operations that were unfamiliar could not but alarm ordinary non-Moslems. Also a Ramadan symposium, being a religious forum, is not the right occasion for the apex bank governor of a secular country whose responsibility is national in scope to table an otherwise purely mundane proposal that happens to bear Islamic appellation.
It is worth noting that an Islamic Bank delegation visited and met the then Finance Minister Ngozi Okonjo-Iweala, a non-Moslem, in 2006 while the draft policy framework towards the establishment of the Islamic finance industry was issued last March with the apex bank again still under a non-Moslem. Therefore, the Islamic banking initiative should not be credited to Moslems alone just as its financial services will not be credited to Moslems alone. Islamic finance is for all.
Now, Islamic banking is relatively new: the first Islamic bank was established in 1975. From 2000, Islamic finance witnessed very rapid growth especially in the Middle East, Malaysia and Indonesia. However, it has been estimated that in 2007 Islamic banking assets accounted for only about 0.5 per cent of the world's total. Hence the Islamic finance industry, whatever its benefits and appeal in the wake of the global financial meltdown, will more likely complement than supplant the conventional banking system even in its home base of the Middle East. While the number and spread of stand-alone Islamic banks are on the increase, access to Islamic financial services is much wider based because some conventional banks operate sections dedicated to that purpose.
Nonetheless, the success of global Islamic finance should not be taken for granted in the country. Because conventional banks charge high lending rates of up to 35 per cent, the advent of Islamic non-interest and profit-sharing system will appear to be a veritable godsend. In reality, however, after the realisable normal profit of a given project is shared, the profit margin for either financier or borrower would be dwarfed by the persistently high inflation rates: the project would not yield positive return for the financier. The losses would be compounded if it were decided to repatriate any funds owing to the constant and fast depreciation of the naira. Thus fully aware that Islamic banking cannot thrive under existing conditions, the CBN governor invited from the symposium workable suggestions and strategies that would engender a conducive and enabling environment for attracting the multi-billion dollar global Islamic finance to the country.
The CBN call is either hypocritical and insincere or an attempt to project double standard and to attribute to a Kaduna-based Islamic movement the irrefutable solution to Nigeria's 31-year-long economic malaise. For, there is no gainsaying the fact that Nigeria possesses on an annual basis multi-billion dollar funds for transforming the economy that would render as a minor supplement any combined amounts that Islamic finance and other foreign direct investors could ever bring into the country. Instead of making Nigeria's multi-billion dollar earnings beneficial to the country, the CBN has collaborated over the years to waste them. Yet, if only the CBN abides by Sections 2 and 38 of the CBN Act 2007, which economic best practice also demands, the prevalent inhospitable economic environment will disappear; stable and competitive conditions will set in.
As recent experience has shown, the CBN and other relevant agents will be expected to adequately regulate and properly supervise the operations of conventional and Islamic (if finally introduced) banking systems. Indeed, Sharia-compliant products are said to be more complex than conventional ones. Besides the above, we do not consider it as the role of the apex bank to promote, popularise and sensitise the general public on the benefits to be gained from Islamic banking. That aspect is the business of institutions that elect to offer the financial services.
Finally, we do not really need to institute Islamic banking or have to await Islamic solution to our chronic economic woes. The real solution is known: it is to adopt the foreign exchange-infusion method employed in the world's leading economies since the 1970s. Therefore, CBN Governor, Sanusi should spare us the pretence of putting individual economic sectors in good condition.
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