‘Islamic banks facing identity crisis’
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.