‘Is­lamic banks fac­ing iden­tity cri­sis’

Daily Trust - - BUSINESS -

Is­lamic bank­ing, oth­er­wise known as non-in­ter­est bank­ing, has grad­u­ally been mak­ing in­roads into the Nige­rian bank­ing sys­tem. But as a renowned Is­lamic fi­nance and risk man­age­ment ex­pert and Reg­is­trar of the Is­lamic In­sti­tute of Ac­count­ing and Fi­nance in Nige­ria (IIAF), Dr. Busari Shaam­sud­deen Akande told the in this in­ter­view in Cal­abar, there are grey ar­eas in the strict prac­tice of Is­lamic bank­ing. Is­lamic banks, Dr Akande as­serts, suf­fer from an iden­tity cri­sis in prac­tis­ing the sys­tem

Crit­ics of non-in­ter­est bank­ing seem to look more at it from the reli­gious an­gle than from its var­i­ous ben­e­fits. What is your take on this?

It is al­ready a gen­eral knowl­edge that non-in­ter­est bank­ing op­er­a­tions are driven by the Shari’ah, which de­fines the na­ture and char­ac­ter of the de­posits mo­bi­lized and fi­nanc­ing pro­vided. So the era of what Is­lamic bank­ing is or is not, or why non-in­ter­est bank­ing is now in Nige­ria is a story of the past. I was in­stru­men­tal to the ap­proval and ac­cep­tance of Jaiz Bank in Nige­ria be­cause of the lecture I de­liv­ered at the Nige­ria In­sti­tute of In­ter­na­tional Af­fairs con­fer­ence in 2011, which fa­cil­i­tated the re­lease of the Jaiz Bank li­cence in 2012.

You men­tioned the Jaiz Bank now. But to which financial in­sti­tu­tion does the pi­o­neer­ing credit of the non-in­ter­est bank­ing prac­tice in Nige­ria truly goes, con­sid­er­ing there had been ef­forts be­fore Jaiz Bank came up?

Jaiz Bank owns that credit be­cause it has been the fron­trun­ner since 2004 or so. Al­though some old or de­funct banks like the Habib Bank at­tempted some­thing like that in the 1990s, I still be­lieve the Jaiz team de­serves the glory.

To what ex­tent do banks prac­tis­ing non-in­ter­est bank­ing do not take risk?

Non-in­ter­est bank­ing is more of a busi­ness risk than financial. The prin­ci­ple is man­i­fested by an ex­change of money with un­der­ly­ing as­sets, while a con­tract of in­ter­est-bear­ing loan en­tails an ex­change of money for more money. What le­git­imises profit in Is­lam is risk-tak­ing, ef­fort and re­spon­si­bil­ity, and mainly it must have pos­i­tive im­pact on the gen­eral wel­fare of the peo­ple.

What un­der­lies the pa­per ti­tled, “Eth­i­cal Chal­lenges and Prod­uct In­no­va­tion Cri­sis for Is­lamic Banks”, which you de­liv­ered at the South-South Sum­mit on Is­lamic bank­ing?

At the In­sti­tute of Ac­count­ing and Fi­nance in Nige­ria where I am the Reg­is­trar, we take the lead as the pioneer pro­fes­sional body in Africa that fo­cuses on Is­lamic ac­count­ing and fi­nance. Five years ago, all our ef­forts were tar­geted to­wards mak­ing Nige­ri­ans know that the pro­mot­ers of Is­lamic bank­ing meant well for the na­tion. We have thank­fully passed that stage, us­ing rea­son­able, in­tel­lec­tual de­bates.

Is­lamic bank­ing in the world is over 40 years. In Nige­ria, it is just three years old. In South Africa it is 26 years, Malaysia 30 years and the United Arab Emi­rates 40 years, to men­tion just few. What ac­tu­ally prompted our sum­mit was for the pro­fes­sion­als in busi­ness to un­der­stand that while Is­lamic banks have demon­strated that they are, in­deed, dif­fer­ent from their con­ven­tional coun­ter­parts, there is a cri­sis be­tween the­ory and prac­tice of Is­lamic bank­ing. The ma­jor cri­sis is that Is­lamic bank­ing prod­ucts are mod­elled af­ter ex­ist­ing con­ven­tional bank prod­ucts, which our emer­i­tus pro­fes­sor, Mo­hammed Ariff puts as “for ev­ery con­ven­tional prod­uct there is a cor­re­spond­ing Is­lamic sub­sti­tute with Shari’ah com­pli­ance.”

The sum­mit was to awaken prac­ti­tion­ers of Is­lamic bank­ing in the coun­try to be proac­tive in the process be­cause the sys­tem’s pro­cesses are in three stages. We have passed the first stage, which was evo­lu­tion. The next stage is shift­ing fo­cus prod­uct dif­fer­en­ti­a­tion (Shari’ah com­pli­ant) to dis­tinctly dif­fer­ent or dis­sim­i­lar (Shari’ah-based) prod­ucts that will have no bear­ing on cur­rent con­ven­tional prod­ucts. And of course, the fi­nal stage is a vi­sion­ary fo­cus that will un­veil in­no­va­tive home-grown prod­ucts based on re­search and de­vel­op­ment ef­forts. And for this to be achieved, Is­lamic banks will have to leap into a new de­vel­op­ment en­tirely.

It took sev­eral cen­turies say 800 years for con­ven­tional bank­ing to evolve into what it is to­day. Is­lamic bank­ing has a long way to go. Even af­ter 40 years, Is­lamic bank­ing is still on prod­uct dif­fer­en­ti­a­tion.

What is your ad­vice to Jaiz Bank own­ers with ref­er­ence to your above as­ser­tions?

I be­lieve that both own­ers and man­agers of Jaiz are pro­fes­sion­als with a wealth of bank­ing ex­pe­ri­ence. I would like to state here that Jaiz is now mov­ing into the growth stage from in­tro­duc­tory stage, hav­ing suc­ceeded in se­cur­ing a na­tional li­cence from the Cen­tral Bank of Nige­ria. The im­pli­ca­tion of this li­cence is that it will be hav­ing more branches and cus­tomers. This is where Jaiz Bank must be care­ful. They should know that there are sev­eral cus­tomers out­side which can be termed as the loy­al­ists, the skep­tics, the prag­ma­tists and the op­por­tunists. So they need to ori­ent their staff in their var­i­ous branches not to fall prey to them.

Jaiz Bank started with a sin­gle whole­some Is­lamic bank en­joy­ing an en­vi­able mo­nop­oly po­si­tion and de­void of com­pet­i­tive pres­sures. Sud­denly, there came the emer­gence of Is­lamic win­dows in some con­ven­tional banks, amidst con­cerns from some of us that funds might get mixed up in com­mon kitchens. We all know what can hap­pen in Nige­ria.

The CBN had been, for years, used to reg­u­lat­ing con­ven­tional banks, but now it has non-in­ter­est bank­ing to add to its port­fo­lio. How would you say the reg­u­la­tor has fared so far in this new chal­lenge?

They are reg­u­la­tors. They should live to the ex­pected stan­dard in grant­ing li­cences to banks to open Is­lamic win­dows by putting a ma­chin­ery in place to checkmate banks and by ap­point­ing qual­i­fied pro­fes­sion­als in Is­lamic fi­nance as its ex­perts. All this means that, to be sure, the prod­ucts of Is­lamic sub­sidiaries of con­ven­tional banks are no less Is­lamic than those of whole­some Is­lamic banks.

I won­der if the Is­lamic banks owned by con­ven­tional banks are as zeal­ous or pas­sion­ate about Is­lamic prin­ci­ples.

Are you in­sin­u­at­ing that con­ven­tional banks are not up to the task?

No! It’s a per­sonal view, be­cause I won­der where all th­ese banks were when the heat on Jaiz Bank was hot. It is just a ques­tion of whom amongst them takes Is­lamic bank­ing to the next level. They can do it to­gether only if they equally share the zeal.

What is the role of your In­sti­tute to prob­lems that could arise in the Is­lamic bank­ing prac­tice?

Our role is unique. We are a knowl­edge-based in­sti­tute and very ready to work things out for pos­i­tive re­sults. We have made our­selves a vol­un­tary whistle­blower in Africa and will never keep quiet if things are not right. Is­lamic banks are fac­ing iden­tity cri­sis be­cause nowa­days the term lenders and financiers are used in­ter­change­ably, al­though there is a dif­fer­ence. All lenders are financiers but not all financiers are lenders. Is­lamic banks do not lend but do pro­vide fi­nanc­ing. The above iden­tity has led un­for­tu­nately to un­in­tended con­se­quences.

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