repositioning and strategizing islamic...

International Conference on Aqidah, Dakwah And Syariah 2015 (IRSYAD2015), Kuala Lumpur, 12th – 13th October 2015

Seminar Antarabangsa Akidah, Dakwah Dan Syariah 2015 (IRSYAD2015), Kuala Lumpur, 12-13 Oktober 2015

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REPOSITIONING AND STRATEGIZING ISLAMIC BANKING

INDUSTRY IN NIGERIA: SHARIAH ISSUES IN PERSPECTIVE

NDAGI ALHAJI GBATE

Department of Islamic Studies, Fct College of Education,

Zuba, Abuja, Nigeria

08038626111,08055230118

[email protected]

ABSTRACT

Banking in the conventional way was ushered into the Nigeria economic system

with establishment in 1894 of the bank of British west Africa (BBWA) presently known

as first bank. In 1991, Banks and other financial institution Decree (BOFID) was

promulgated to pave ways for the establishment of profit and loss sharing

(PLS) banking. In 1992, Habib Nigeria Bank Limited started her interest free

banking window. The focus of this paper therefore, is to provide an Islamic

alternative to the present system of conventional banking in Nigeria. The writer tries

to examine the ugly effects of interest (riba) on Nigeria economy and how interest

free bank can operate effectively in the present economic reform. Hence the need

to reposition Islamic Banking system is advocated for in this paper.Some cogent

strategies that will ensure the stability, growth socio economic viability are

equally discussed. A number of practicable schemes that are shariah compliance are

considered under the umbrella of Maqasid Al- shari‟a such as Uqud al-muawadat

(contracts of exchange) or „uqud al-tabaru‟at (gratuitous contracts)or „uqud al-

amanat (trust based contracts). Thus, we find contracts such as buyu‟ (sales), shirkah

(partnership), ijarah (lease or tenancy) rahn (mortgage), wakalah (agency),

hawalahh (assignment, and sulh (reconilation) falling under Al-muawadat.

Contracts of waqf (endowment) qard (loan) Hibah (gift),kafalah (guarantee) and

wasiyyah (testment) are categorized under al ta–baru-at. And contacts like al

tawliyyah (cost price sale), al-wad‟ah (less-cost sale) and al-wadah (deposit)

are classified under al-amanat , amongst others. The likely problems that could

face Islamic banking system are equally noted. In conclusion, recommendation/

suggestion are proffered with a view to achieving Sharia compliance for economic

and national development.



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Introduction

Over the last few decades, the Muslins have been trying to restructure their lives on the basis of

Islamic principles. They strongly feel that the political and economic dominance of the west

during past centuries have deprived them of the divine guidance especially in the socio-

economic fields. In the economic filed it was the biggest challenge for such Muslim to reform

their financial institutions to bring them in to harmony with the dictates of shari‟ah. In an

environment where the entire financial system was based on interest, it was a formidable task to

structure the financial institutions on an interest free babsis. Muslims are prohibited by their

religion to deal in interest (riba) in any way. Giving and receiving as well as witnessing are all

prohibited. Thus an Islamic banking system cannot pay any interest to its depositors; neither can

it demand or receive any interest from the borrowers. Nor could the bank witness or keep

account of these transactions. The purpose of this paper therefore is to re-examine the present

banking sector as to re assess the present work on Islamic banking and to see to the possibility of

repositioning and re strategizing it to enable it meet up or live up to the expectation of the

Muslims in their socio economic development and the nation at large.

Conventional Commercial Banking The main functions of the modern conventional commercial banks as they exist today include

providing what is called current account facilities, money transfers services, advances facilitating

import-export transactions and buying and selling foreign currency (Safiya 2010).

Current account facilities include accepting cash deposits into your account allowing you to

withdraw from it when you require the whole of it or portion. You can also use a cheque to

instruct the bank to pay another person or entity stated amount of money and debit the same from

your deposit in the bank. Similarly, you can receive payment made by other into your account.

Private individual use the current account to receive their salaries and wages as to pay their bills.

Businesses and institutions use the current account to make payments for the goods and services

received and to receive payments for the goods and services provided. It saves time, and it is safe

and less expansive. The transactions through cheques can be made whether the payer and the

receivers use the same bank or different bank and whether the concerned banks are miles away in

the same country or continents away in different countries money can be transferred from one

person to another even without having a current with a bank, through the banks money transfer

arrangement- money orders pay orders, bank drafts, mail and telegraphic transfer, electronic

transfer etc, both within and outside the country. There are also bank guaranteed payment

facilities especially the letter of credits and bills of exchange which greatly facilities import-

export trade. In fact, such trade is practically impossible without this facility. It is obvious that all

the a fore mentioned services rendered by conventional banking sectors are never free of interest

and thus serves as profit to the banks. It is this aspect that Islam has seen as ugly and has great

concern about.

Imperatives of Islamic Banking:

The main concern of Muslim community is its desire to avoid dealing in riba, because riba is

strictly prohibited in Islam Q2:27 as far as money is concerned. The extent of evil of interest

(Riba)as rightly pointed out by Olajide (2010), is manifested in the example of Nigeria‟s debt. A

breakdown shows that in 1985 the country debt was$5billion, over the years $16billion was paid

and the country still owned $28billion.This simply mean that$29billion was interest rate



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calculated over$5billion debt. But according to the Islamic instruction as rightly observed by Al-

Umar Abdul Haq (1996)”Among the most important teachings of Islam for establishing justice

and eliminating exploitation in business transactions is the prohibition of all sources of

unjustified enrichment(akla mali nnas bil batil”. The Glorious Qur‟an instructs Muslims

emphatically not to acquire each other‟s property bil batil

(wrongfully).Qur:2:188,4:29,4:161,9:34.

Evolution of Islamic Banking:

Muslim Intellectuals in Islamic Countries especially in Egypt and Pakistan started studying the

aspects of Islamic Economy according to the instructions, injunctions and guidance from Qur‟an,

Sunnah and Fiq in order to get alternative to the conventional banking. Abdullah (1999). The

first modern experiment with Islamic Banking was undertaken in Egypt under cover without

projecting an Islamic image for fear of being seen as a manifestation of Islamic fundamentalism

which was anathema to the political regime. (Arift 1988). These banks during that time they

functioned essentially as a saving investment institution and took the form of savings. These

banks which neither charged nor paid interest, invested mostly by engaging in trade and industry,

directly or in partnership with others and shared the profits with their depositors (Saiqi

1988).The Islamic development bank (IDB) come into existence in 1974 by the organization of

Islamic countries (OIC) at Saudi Arabia, but it was primarily an inter governmental bank aimed

at providing funds for development projects in member countries. The IDB operations are free

of interest (Jaiz 2006).

In 1973, seven Arab nations banded together and form the Islamic development bank which will

act like the world-bank in promoting economic development, region trade and Islamic financial

markets but to do so in a way that was acceptable to Islamic Ethnics (Safiya 2010)

In Nigeria the popular Banking sector Jaiz came into existence in Nigeria in 2003, to operate the

Islamic banking option which provide non interest financial services. According to Bintube in his

paper titled” World Economic Meltdown: Islamic perspective/ solution” he said Islamic banking

thrive on buying and selling a pure moral and ethical business transactions, devoid of interest and

speculation wrecking the world economy today. He said:

“a society where there is no gambling, alcohol and prostitution is the type Islam seeks to project

and not imaginary profit. It also seeks to project greater justice in human society as without

justice the society declines and leads to self destruction” (Bintube, 2009)”

Aim and objective of Islamic Banking:- Islam being a complete way life, has goals for

everything, and how one live his live religiously, socially politically as well as economically:

Islam sets a guiding principles of earning and living so also how the wealth is spent. It is from

there the Islamic banking sector derives its objectives as follows:-

Offering contemporary financial services in conformity with Islamic shariah

Helping to ensure an equitable distribution of income amongst participating parties viz

deposits, financial intermediaries and the entrepreneur.

Investing within an Islamic context in order to generate and maximize net lawful profit.

Promoting and consolidating cooperation among Muslims and to exhibit the beauty of

Islam to non-Muslims.

Promoting social and economic development especially within the rural populace with

views of mobilizing rural funds toward meaningful investment that is to be within the

Islamic dictates.



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Serving as an alternative to the corrupted conventional banks especially in Nigeria where

corruption has taken deep into the system.

Principles of Islamic Banking: Muslim Jurists contributed immensely in the explanation of principles governing good business

transaction-within the confines of Qur‟an and sunnah. (Iqbal 1997) .These includes the

following:

Prohibition of interest, avoidance of rick, sharing money as potential capital prohibition of

speculative behavior, sanctity of contract and shariah activities. However the key Islamic

financial instrument used to maximize the benefits of the fore mentioned principles includes the

following:-

Mudarabah: The capital provider or rabbulmal may invest through an entrepreneur

borrower or Mudarib, hence the name of the structure; profits are shared on agreed basis

but losses, if any are wholly suffered by the rabbulmal. It is also some times referred to as

Musharaka.

Ijarah:- simply, it is a form of leasing something on rent.” It means to employ the services

of a person on wages given to him as a consideration for his hired services “the employer

is called Musta‟jir while the employee is called “Ajrah”. And the transaction between the

two is termed as Ijarah: the wages paid to the”Ajir is called Ujrah. In this form of contract

a bank agrees to buy a building undertaking from the client to make additional payments

in form of an investment account he keeps with the bank. Profits are added to the

installments paid monthly or yearly until such time the amount agreed upon is

settled.”Muslims are bound by their mutual agreements unless they hold a permissible as

prohibited or a prohibited thing as permissible”(Taqi‟u.1999).

Alwadiah:-It refers to retail. It allows the depositors to withdraw their money on demand

and permit the bank to use the depositors money.

Murabaha:- In this type of transactions, the banks finance the purchase of an asset

buying it on behalf of its client. Other schemes adopted by Islamic banks include „Uqud

al Mu‟awadaat (Contracts of exchange) or „Uqud al Tabaru‟aat (Gratuitous contracts) or

„Uqud Al-Amanaat (Trust based contracts).Thus, we find contracts such as Buyu (Sales),

Shirka (Partnership), Ijarah (Leasing or Tenancy), Rahn (Mortgage), Wakalah (Agency),

Hawalah (Assignment), and Sulhu (Reconciliation) falling under Al-Muawadaat.

Contracts of Waqf (Endowment) Qard (Loan), Hibah (Gift), Kafalah (Guarantee), and

Wasiyyah (Testament) are categorized under Al-Tabaruat. And contracts like Al-

Tawliyyah (cost-price sale) and Al-Wadah (deposit) are classified under Al-Amanat

(trust), among others. The aforementioned shows how encompassing Islamic Shariah is.

Prospects of Islamic Banking

Realizing the ugly effect of ribah in the economy of the so called developed nation the

call for the acceptance of Islamic banking which serves as an alternative to existing

conventional banking system becomes inevitable. Allah says in the Glorious Qur‟an.

“God will deprive usury of all blessing, but will give increase for deeds of charity: For He loveth

not creatures ungrateful and wicked”.Q2:276.

Increase in faith of the Muslims, who want to ensure that their earnings conform to the

dictates of Allah since they are going to account for all the wealth acquired in this world

in the day of Judgement.

Qur‟an says:



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The Mutual rivalry for pilling up (the good things of this world) diverts you (from the more

serious things). Until ye visit the graves, but nay, ye soon shall know (the reality). Again, ye soon

shall know! Nay, were ye to know with certainty of sight! Then shall ye be questioned that Day

about the Joy (ye indulged in).Qur‟an 2:102.

Understanding by the Non-Muslims that interest is a set back in the growth of wealth. For

example the highest contributors of funds in Jaiz today in Nigeria are Non-Muslims; this

is so because of safety and zero Interest that is operational in the bank.

Effective Risk Management:- It is only Islamic banks that managed risk effectively

without cheating the other party. Interest on loan involves no risk, because a fixed

percentage of money could be agreed upon without considerations to either the business

succeed or not. But in Islam the level of losses are identified and shared accordingly.

Sanctity of Contracts:- Islamic banking is not interest free banking, it means

banking in consonance with ethos and values system of Islam (Masri, 1981). Interest free

banking, by contrast is a narrower concept denoting a number of banking instruments or

operations which avoid interest. Islamic banking is expected that all transactions and

financing operations must be in consonance with Islamic law ie Shariah. It does not

involve in any forbidden contracts, sale and trading of certain commodities, such as wine

or alcohol products, pork products e.t.c. since these are all prohibited in Islam – these

may however be a profitable business for non interest banking. Sincerely of purpose is

quite evident in Islamic banking. Quran 61: 1 & 2.

This contractual agreement could be made verbally (Bilkalam), or in writing (Bil

Kitabah), or through message (Bil - Risalah). It could also be through sign language in

the case of deaf and dump (BIl - Isharah). It could also be by conduct (Bilfil) or (Amal).

Doi (1990). The best amongst the above mentioned is the one done through writing (Bil

Kitabah) (Qur‟an 2:234 - 285).

Limitation of Islamic Banking

Lack of enough professionals in this area, this is as a result of serious attention that is not

paid to it by the Government.

The scheme has to consider a lot of possibilities of maximizing the profit, since there is

not interest in it.

It requires proper attention of the honest people to manage it effectively.

It may not be acceptable to all part of the country, since the benefit cannot be easily

determined.

The likely unwillingness on the part of those who have the funds to invest in it even

though they are Muslims.

Lack of trust by some wealthy Muslims as to whether the bank will survive or not.

Recommendations

It will be very important if the managers of Islamic banking are well informed about the

moral ethos of Islamic economy so as to help the proper implementation of the banks.

The Nigeria Constitutions have accepted the establishment of Islamic Banking, it

therefore a call for both Muslims and Non- Muslims alike to have confidence in the bank

in order to enhance proper footing of the banks.



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The few branches they have now should be proper established so that the patronage by

the people will be encouraging.

Copycat of the countries that are already operating Islamic banking is very important so

as to borrow from what exists there such countries as Malaysia, Pakistan, and India etc.

Public enlightenment as to how is the module operandi of the Islamic Bank is necessary

so that the citizens will be well acquainted on how it operates and the benefit expected.

Moderation in all its activities is very paramount.

Accountability and Justice should be the watch dog in all ramifications.

References

Abdullahi M.A.T (1999): Al-Bunick Islamiyyah (In Arabic) A Dissertation submitted to

King Saudi University.

Al – Omar .F and Abdul Haq. M. (1996): Islamic Banking. Theory, Practice

and Challenges. London.

Aliyu, U. (2010): Islamic Banking: The Hidden Treasures. The Guardian 15th

Dec,

2010.

Dol. A.R.I (1990): Shariah “The Islamic Law” Ibadan Iskan Islamic Publishers PP

355 – 357.

Iqbal .Z and Mirakhor A. (1987): Islamic Banking. Occational paper 49. International

Monetary fund Washington D.C USA.

Iqbal, Z (1997): Financial and development (a quarterly) publication of

international Monetary fund and the world Bank, Vol. 34 No.2,

P,42.

Muh‟d T.U (1999): An introduction to Islamic finance. Ad-dawatul Islamiyyah, Book

centre 29, Oshodi Road, Lagos.

Olajide B. (2010): Islamic Banking: The Treasures. The Guardian 15th

Dec., 2010.

Sadiqhi M.N (1966): Islamic Banking Theory and Practiced. (Unpublished Paper).

Safya I.K (2010): A Journal of the School of Arts and Social Sciences FCT, College

of Education Zuba – Abuja.

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