PREAMBLE
The Central Bank of Nigeria foisted on the nation a needless controversy when, in its inordinate ambition and misplaced over-zealousness to establish Islamic Banking in Nigeria, it purported to assume legislative powers which it does not have and introduced provisions in its Framework on Non-Interest Financial Institutions (NIFI) issued on 13th January, 2011, which are illegal, unconstitutional, unjust, inequitable and blatantly discriminatory against non-Muslim Nigerians.
The CBN Guideline, the Framework for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria (NIFI Framework), essentially redefined Non-interest Financial Institutions as Islamic Banking contrary to the spirit and letter of the Banks and Other Financial Institutions Act (BOFIA) of 1991 as amended ostensibly in the mistaken belief that only Muslims are interested in that form of financial services.
WHY THE CBN NIFI FRAMEWORK IS ILLEGAL AND UNCONSTITUTIONAL
The NIFI Framework stated that: “A Non-Interest Financial Institution (NIFI) means 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.” The Glossary of Terms of the CBN’s NIFI Framework states that: Shariah Principles refers to “the divine guidance as given by the Holy Qur’an and the Sunnah of the Holy Prophet and embodies all aspects of the Islamic faith, including beliefs and practices”.
The only legally valid definition is stated in Section 61 of the Banks and Other Financial Institutions Act of 1991 which speaks of a “Profit and Loss Sharing Bank”. That is, “a bank which transacts investment or commercial banking business and maintains profits and loss sharing accounts”. Profit and Loss Banking has always been the interpretation and understanding of Non-Interest Financial Services in Nigeria. When the CBN granted an Approval-in-Principle Licence to Jaiz International Bank PLC in 2004 while Chief Joseph Sanusi was the CBN Governor, the licence was issued for it to carry on business as a Profit and Loss Sharing Bank. Curiously, the present CBN Governor, Mallam Sanusi Lamido Sanusi, was widely reported in the mass media to have announced on Monday, 20th June, 2011, at a Conference on Islamic Banking in Dakar, Senegal, that the CBN had issued (?) Jaiz International Bank PLC an Approval-in-Principle as the “first Islamic Bank in the country”. Jaiz Bank was unable to operate as a Profit and Loss Sharing Bank not because there was no Islamic Banking Guideline but simply because it was unable to raise the minimum capital requirement of N25Billion. The CBN has now inexplicably lowered the capital requirement for Islamic Banks to just N10Billion to achieve “National Bank” status as against the N25Billion it stipulated for Deposit Money Banks. Why is the Sanusi Lamido Sanusi-led CBN unduly eager to make life easier for Jaiz International Bank and other proposed Islamic Banks?
By insisting that Non-Interest Banking products must be “Shariah compliant”, the CBN had also unjustly excluded non-Muslim Nigerians from the emerging Non-Interest Banking business sub-sector contrary to Section 16 1(d) of the 1999 Constitution of the Federal Republic of Nigeria (as amended) which states that “without prejudice to the right of any person to participate in areas of the economy within the major sector of the economy, protect the right of every citizen to engage in any economic activities outside the major sectors of the economy”.
Another shocking and offensive aspect of the NIFI Framework was that it provided for the creation of “the CBN Shariah Council”. The CBN Shariah Council was to “advise the CBN on Shariah matters for the effective regulation and supervision of NIFIs in Nigeria”. Since such a body must necessarily comprise only Muslims, the CBN would be flouting fundamental provisions of the Nigerian Constitution as follows:
i. Contravening the Federal Character Principle entrenched in Section 14(3) which states that “The composition of the Government of the Federation or any of its agencies and the conduct of its affairs shall be carried out in such a manner as to reflect the federal character of Nigeria and the need to promote national unity, and also to command national loyalty, thereby ensuring that there shall be no predominance of persons from a few State or from a few ethnic or other sectional groups in that Government or in any of its agencies”.
ii. Contravening the secularity of Nigeria enshrined in Section 10 of the Constitution of the Federal Republic of Nigeria which states that “The Government of the Federation or of a State shall not adopt any religion as State Religion”;
iii. Contravening the constitutionally guaranteed freedom of religion as stated in Section 38 (1) that “every person shall be entitled to freedom of thought, conscience and religion”.
But unarguably the most significant issue is that fact that the CBN was introducing religion into Nigerian banking contrary to the spirit, letter and intendment of Section 39(1) of BOFIA which states: “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 “Central” “Federal,” “Federation,” “National”, “Nigeria”, “Reserve”, “State”, “Christian”, “Islamic”, “Moslem”, “Quaranic”, “Biblical” ”.
The BOFIA was originally issued in 1991 as a decree and signed into law by the then Military President, Gen. Ibrahim Badamasi Babangida. The Governor of the CBN at the time was Alhaji Abdulkadir Ahmed. Though committed Muslims, Gen. Babangida and Alhaji Ahmed were obviously sensitive to the religious sensibilities of Nigerians, especially with the crisis the country was thrown into over the issue of Nigeria’s membership of the Organisation of Islamic Countries (OIC) at that time. The Babangida government saw that it was imperative to include an unambiguous statutory provision in Section 39(1) of the BOFIA which would ensure that no religious colouration was given in any guise to banking in the country.
Obviously, the anticipation and intendment of the law was 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. Some have erroneously argued that the present CBN Governor has now exercised that power by introducing Islamic Banking! Is this expedient? What was the over-riding and compelling reason for this exercise of the Governor’s discretion? What has changed in Nigeria between 1991, when Gen. Babangida signed the BOFIA into law, and 2011 when we are now confronted with even more extreme religious zealotry and fundamental Islamic terrorism with the advent of Boko Haram?
Even more strange is that the CBN NIFI Framework even re-affirmed the statutory provision in Section 39(1) of BOFIA in Section 10.1 of the NIFI Framework under the heading “Branding”. That section states:
“In line with the provisions of Section 39 (1) of BOFIA 1991 (as amended), NIFIs shall not include the word “Islamic” 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”.
Is this then not superfluous? What is in a name after all, one might argue. Clearly, the law is really not as concerned about names as it is with keeping religion out of Nigerian banking.
Already, many non-Muslims have, understandably and expectedly, read religious motives to the issuance of the Framework and the passion with which the CBN is pursuing the establishment of Islamic Banking in Nigeria. This is more so since it is being introduced by the CBN under the purview of its current Governor, Mallam Sanusi Lamido Sanusi, who is known to be an Islamic Scholar with expertise in the Shariah Law having obtained a degree in that regard from the University of Africa, Khartoum, Islamic Republic of Sudan.
UNDERSTANDING NON-INTEREST BANKING
It is important they we have an accurate understanding of Non-Interest Financial Services.
Non-Interest Banking dates back to about 1444 B.C. It has its origin in the Jewish practice of lending money by an Israelite to a fellow Israelite without charging usury or interest as commanded in Exodus 22:25 and Deuteronomy 23: 19- 20.
Exodus 22:25.... “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury”.
Deuteronomy 23:19-20.... “Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest. Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the LORD thy God may bless thee in all that thou puttest thy hand unto, in the land whither thou goest in to possess it”.
So clearly, Non-Interest Banking pre-dated Islam. It cannot, therefore, be the exclusive preserve of Muslims or Islam. Non-Interest Banking is NOT SYNONYMOUS with Islamic Banking.
In modern times, the principle of Non-Interest Banking is evident in Venture Capital and Private Equity firms where projects and businesses are financed through equity funds after the financier has assessed the risk as acceptable. Non-interest banking works essentially on the principle of RISK SHARING between the capital provider and the user. The profit or loss arising from the transaction is shared on an agreed basis. Non-Interest Banking enables persons (and projects) whose credit risk is high and unattractive to conventional lenders and who have no adequate collateral for loans to access capital.
Islamic banking as we know it today is actually a recent innovation and begun in Egypt just about 50 years ago. The first Islamic Bank, the Dubai Islamic Bank, only commenced business in 1975. So Islamic Banking is merely a sub-set of Non-Interest Banking.
There are successful models of Non-Interest Banking in the world that are not “Shariah-compliant” or in line with “Islamic jurisprudence.” The JAK Members Bank of Sweden (please visit http://jak.aventus.nu/22.php) is one. The co-operative society Jord Arbejde Kapital (JAK) was founded in Denmark during the Great Depression in 1931. The experiments with JAK banking in Denmark inspired a group in Sweden to develop a non-profit named Jord Arbete Kapital - Riksförening för Ekonomisk Frigörelse (National Association for Economic Emancipation) in 1965. This pioneers' group developed the mathematical system based on saving points, called "balanced saving system". The association has been operating as an interest-free savings and loans system in Sweden since 1970 but eventually received a banking licence from the Swedish Financial Supervisory Authority at the end of 1997.
THE REVISED CBN NIFI GUIDELINE
After initially defending the guideline astutely and vehemently for over six months, the CBN finally agreed its NIFI Framework was faulty and required to be revised. On 21st June, 2011, it re-issued its NIFI as the “Guidelines for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria”. While it is commendable that the CBN has yielded to superior reasoning on the subject, sadly, the new guideline only made merely cosmetic modifications of the previous NIFI Framework and seeks to perpetuate most of the illegal, discriminatory and unconstitutional provisions which caused the controversy in the first place.
The highlights of the revised NIFI Framework are as follows:
• Established two categories of NIFIs:
v Islamic Financial Institutions; and
v “Other Non-Interest Financial Institutions”.
• The illegal, unconstitutional, unjust and discriminatory exclusion of non-Muslims from owning and operating NIFIs now addressed. The revised NIFI Guideline now states “Islamic banking as one of the models of non-interest banking, serves the same purpose of providing financial services as do conventional financial institutions save that it operates in accordance with principles and rules of Islamic commercial jurisprudence that generally recognises profit and loss sharing and the prohibition of interest, as a model”.
So, in essence, the previous NIFI Framework has been retained as is but only applicable to Islamic Financial Institutions.
• CBN is to licence “Other Non-Interest Financial Institutions if it receives applications.
• CBN Shariah Advisory Council renamed “Advisory Council of Experts”
But these provisions do not address the fundamental issue that Islamic Banking as of today remains ILLEGAL and UNCONSTITUTIONAL in Nigeria given the provisions of the Banks and Other Financial Institutions Act of 1991 as amended and the Nigeria Constitution.
UNANSWERED QUESTIONS AND CONTENTIOUS ISSUES
Very many questions remain unanswered:
• Why the special and illegal treatment of Islamic banking in contravention of Section 39(1) of BOFIA and the Nigerian Constitution?
A special CBN NIFI Framework for Islamic Banking contravenes the secularity of Nigeria enshrined in Section 10 of the Constitution which states that “The Government of the Federation or of a State shall not adopt any religion as State Religion”.
· Why introduce religion into Nigerian banking in contravention of the spirit and letter of Section 39(1) of BOFIA?
· Why have an “Advisory Council of Experts”?
· Who are these “experts” in Islamic Banking?
· The Advisory Council of Experts if comprised of Muslims alone is in contravention of the constitutional provision regarding Nigeria’s secular status and the Federal Character Principle?
Section 14(3) of the Nigerian Constitution: “The composition of the Government of the Federation or any of its agencies and the conduct of its affairs shall be carried out in such a manner as to reflect the federal character of Nigeria and the need to promote national unity, and also to command national loyalty, thereby ensuring that there shall be no predominance of persons from a few State or from a few ethnic or other sectional groups in that Government or in any of its agencies”.
· Why is CBN a member of the Islamic Financial Services Board (IFSB)?
Even the United Kingdom and the United States of America which the CBN puts forward as some kind of examples of “best practice” in the area of Islamic Banking and tolerance are not even Observer Members of the IFSB. In North and Sub-Saharan Africa, the only “Full Members” of the IFSB are Egypt, Sudan and Djibouti.
Who made Nigeria a “Full Member” of the IFSB?
· Why will CBN surrender bank regulation to Muslim clerics?
· Will CBN also have councils for every other faith-based NIFI?
· What is CBN’s competence to delve into religious matters which are subjective and open to various interpretations?
AN ALTERNATIVE NIFI FRAMEWORK
The CBN should have a uniform NIFI Framework which is not religion-specific in line with BOFIA. In the education sector, for instance, the Federal and State Ministries of Education set guidelines for private sector participation which stipulate UNIFORM licensing/registration requirements, standards for required infrastructures, and a uniform curriculum in line with the nation’s National Education Policy. The regulatory guidelines in the education are not religion-specific yet promoters and investors who wish to establish faith-based educational institutions do so without breaching the law or regulation. Why is it difficult for the CBN to adopt a religion-neutral NIFI Framework as envisaged by the extant banking law if the motivation is not religious?
Consequently, the CBN NIFI Framework should focus on the following issues:
1. Minimum Paid-up Capital and Licensing Requirements;
2. Corporate Governance;
3. Acceptable characteristics of products that qualify for NIFI status;
4. Enhanced operational standards for banks and other financial institutions that offer NIFI;
5. Enterprise-wide Risk Management
6. Accounting, Audit and Disclosure Requirements;
7. Rendition of Periodic Regulatory Returns; and
8. Prudential Guidelines with regard to:
i. Capital Adequacy Ratio;
ii. Cash Reserve and Liquidity Ratio; and
iii. Provisioning for Asset Losses.
CONCLUSION
Non-Interest Banking is a veritable means of providing access to capital to the un-banked and those who would ordinarily not qualify for debt financing. It can provide leverage for Nigeria’s economic development and must be encouraged. BUT NON-INTEREST BANKING MUST NOT BE RELIGION-SPECIFIC. This is not about religion. This is really about the rule of law, constitutionality, equity and justice in a plural state.
Eghes Eyieyien,
CEO, Pharez Consulting
24th June, 2011
