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					            ISLAMIC BANKING AND THE NIGERIAN FINANCIAL SYSTEM



                                                 By

                                           ‘Tayo Fakiyesi

                                       Professor and Head,

                                    Department of Economics

                                        University of Lagos




                          Presented at the Round-Table Workshop at

                          Nigeria Institute of Advanced Legal Studies,

                                        University of Lagos.

                                            Akoka-Yaba




                                        Date: 06 June 2011




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I acknowledge the generous effort of KB Ajide my colleague in the Department in producing this
manuscript, any error is mine.
            ISLAMIC BANKING AND THE NIGERIAN FINANCIAL SYSTEM



                                                 By

                                           ‘Tayo Fakiyesi

                                       Professor and Head,

                                    Department of Economics

                                        University of Lagos




Introduction

Islam means „submission‟ which points out that a believing Muslim should submit to the will of
Allah. It might be worth mentioning that the expression „the will of Allah‟ has a quite different
meaning to the true Muslim than to the secularized Western citizen. The superiority of Allah in
the eyes of the Muslims forms the foundation for both Islam and Islamic banking. The Qurian is
the holy book of Islam and to be seen as the true words of Allah. (Samuelsson,2000). Thus,
Islamic banking is a banking system that is based on Islamic tenets and practices. The so called
tenets and practices are derived from the scriptural book (the holy Quran) and prophetic Sunnah.
Any deeds that goes contrary to the established and laid down tenets and principles are totally
unacceptable.. Given this background, the interest rate which forms the core of the conventional
financial system is totally prohibited in Islamic backing. The sharia which is the basis upon
which this Islamic banking is based does not allow certain condition as interest (riba) and
gambling or speculation (maysir). From a sharia point of view, business and investments made
by Muslims must be conducted in a responsible and committed way. (Archer and Abdel Karim,
2002). As such, Islamic banking is being practiced on interest-free basis. In the light of the brief
overview, it shows that for any nation to practice Islamic banking, such nation implicitly must
have come to terms with the laid down principles and tenets as enshrined in holy book and
Sunnah. It is on this basis that this paper is interested in evaluating Islamic banking vis-à-vis
Nigerian financial system. The paper is organized as follows, while section presents the

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introductory aspect, section two considers the history and evolution of Islamic banking and
conceptual issues are examined in section three. Section four describes the financial system in
Nigeria and in section five Islamic banking in Nigeria and the challenging issues in the Nigerian
financial system and section six gives the concluding remarks.




                        History and Evolution of Islamic banking

During the Islamic Golden Age, early forms of proto-capitalism and free markets were present in
the Caliphate, where an early market economy and an early form of mercantilism were
developed between the 8th-12th centuries, which some refer to as "Islamic capitalism". The
monetary economy of the period was based on the widely circulated currency the dinar, and it
tied together regions that were previously economically independent.

A number of economic concepts and techniques were applied in early Islamic banking, including
bills of exchange, partnership (mufawada) such as limited partnerships (mudaraba), and forms of
capital (al-mal), capital accumulation (nama al-mal), cheques, promissory notes, trusts (see
Waqf), transactional accounts, loaning, ledgers and assignments. Organizational enterprises
independent from the state also existed in the medieval Islamic world, while the agency
institution was also introduced during that time. Many of these early capitalist concepts were
adopted and further advanced in medieval Europe from the 13th century onwards.

Interest-free banking seems to be of very recent origin. The earliest references to the
reorganisation of banking on the basis of profit sharing rather than interest are found in Anwar
Qureshi (1946), Naiem Siddiqi (1948) and Mahmud Ahmad (1952) in the late forties, followed
by a more elaborate exposition by Mawdudi in 1950.The writings of Muhammad Hamidullah
1944, 1955, 1957 and 1962 should be included in this category.They have all recognised the
need for commercial banks and their perceived "necessary evil," have proposed a banking system
based on the concept of Mudarabha - profit and loss sharing.

In the next two decades interest-free banking attracted more attention, partly because of the
political interest it created in Pakistan and partly because of the emergence of young Muslim
economists. Works specifically devoted to this subject began to appear in this period. The first
such work is that of Muhammad Uzair (1955). Another set of works emerged in the late sixties
and early seventies. Abdullah al-Araby (1967), Nejatullah Siddiqi (1961, 1969), al-Najjar (1971)
and Baqir al-Sadr (1961, 1974) were the main contributors.

The early 1970s saw institutional involvement. The Conference of the Finance Ministers of the
Islamic Countries held in Karachi in 1970, the Egyptian study in 1972, the First International
Conference on Islamic Economics in Mecca in 1976, and the International Economic Conference
in London in 1977 were the result of such involvement. The involvement of institutions and
governments led to the application of theory to practice and resulted in the establishment of the
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first interest-free banks. The Islamic Development Bank, an inter-governmental bank established
in 1975, was born of this process.

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
that was anathema to the political regime.The pioneering effort, led by Ahmad Elnaggar, took
the form of a savings bank based on profit-sharing in the Egyptian town of Mit Ghamr in 1963.
This experiment lasted until 1967 (Ready 1981), by which time there were nine such banks in
country. In 1972, the Mit Ghamr Savings project became part of Nasr Social Bank which,
currently, is still in business in Egypt. In 1975, the Islamic Development Bank was set up with
the mission to provide funding to projects in the member countries. The first modern commercial
Islamic bank, Dubai Islamic Bank, opened its doors in 1975. In the early years, the products
offered were basic and strongly founded on conventional banking products, but in the last few
years the industry is starting to see strong development in new products and services.

Islamic Banking is growing at a rate of 10-15% per year and with signs of consistent future
growth.Islamic banks have more than 300 institutions spread over 51 countries, including the
United States through companies such as the Michigan-based University Bank, as well as an
additional 250 mutual funds that comply with Islamic principles. It is estimated that over
US$822 billion worldwide sharia-compliant assets are managed according to Economist. This
represents approximately 0.5% of total world estimated assets as of 2005. According to CIMB
Group Holdings, Islamic finance is the fastest-growing segment of the global financial system
and sales of Islamic bonds may rise by 24 percent to $25 billion in 2010.

The Vatican has put forward the idea that "the principles of Islamic finance may represent a
possible cure for ailing markets."

Shariah-compliant assets reached about $400 billion throughout the world in 2009, according to
Standard & Poor‟s Ratings Services, and the potential market is $4 trillion. Iran, Saudi Arabia
and Malaysia have the biggest sharia-compliant assets

In 2009 Iranian banks accounted for about 40 percent of total assets of the world's top 100
Islamic banks. Bank Melli Iran, with assets of $45.5 billion came first, followed by Saudi
Arabia's Al Rajhi Bank, Bank Mellat with $39.7 billion and Bank Saderat Iran with $39.3
billion.[20][21] Iran holds the world's largest level of Islamic finance assets valued at $235.3bn
which is more than double the next country in the ranking with $92bn. Six out of ten top Islamic
banks in the world are Iranian. In November 2010, The Banker published its latest authoritative
list of the Top 500 Islamic Finance Institutions with Iran topping the list. Seven out of ten top
Islamic banks in the world are Iranian according to the list

              THE CONCEPTUAL ISSUES IN ISLAMIC BANKIING
The term “Islamic banking” refers to a system of banking or banking activity that is consistent
with Islamic law (Shariah) principles and guided by Islamic economics. In particular, Islamic

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law prohibits usury, the collection and payment of interest, also commonly called riba in Islamic
discourse. In addition, Islamic law prohibits investing in businesses that are considered unlawful,
or haraam (such as businesses that sell alcohol or pork, or businesses that produce media such as
gossip columns or pornography, which are contrary to Islamic values). In the late 20th century, a
number of Islamic banks were created to cater to this particular banking market.

Islamic banks‟ general objective is to develop the economy within and according to Islamic
principles. The banks can therefore under no circumstances engage in the payment and receipt of
interest, in alcoholic beverage trade, in the gambling industry or in the pork meat trade, or any
other activities explicitly prohibited by the sharia(Al-Omar et.al, 1996)

Islamic banks operate on the basis of profit and not on paying and receiving interest. The banks
can earn profit from three areas: trading, leasing and by direct financing in profit-loss-sharing
contracts. Different instruments are devised to earn profit in any of these ways. The structure and
conditions of these transactions must conform to the sharia and fulfill its devised objectives. This
means that Islamic banks can extend loans only if interest or return is not earned on it. The only
way to finance consumption activities, if at all, is through cost plus the capital, since there is no
profit to be earned or shared. The banks advance money for commercially productive activities
on the basis of profit-sharing principles. (Al-Omar et.al, 1996)

There are four principles of special importance for Islamic banking (Al-Omar et,al., 1996, p 24)

   1. There must be some risk, whether funds are used in commercial or productive venture
   2. All funds should preferably finance socially productive activity:
   3. Financial risk must lie solely with the lender of the capital and not with the manager or
      agent who works with the capital;
   4. Interest is forbidden in that it is a predetermined, fixed sum owed to the lender
      irrespective of the outcome of the business venture in which the fund is used.

The Islamic banking system aims at developing new financial instruments to deal with the
problems of the Muslim communities. This can be done by mobilising internal resources into a
banking system conforming to Islamic teaching and principles. The main objective is to make the
financial system an efficient medium for intermediation between savings and investments.
(Zineldin, 1990). The relationship between the bank and its clients is not the same for Islamic
banks as for conventional banks. In the former it is one of direct trading or equity participation
while in the latter it is that of lender/borrower. Islamic banks do not trade in debts as
conventional banks do.

                 BASIC PRINCIPLES IN ISLAMIC BANKING PRACTICE


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The basic underlying of Islamic banking generally includes the followings:

Prohibition of Interest/Usury: under Islamic banking system interest is completely prohibited,
be it simple of compound interest charge on productive or unproductive consumption loans.
Simply, interest is a predetermined return on money deposited or lent and it is vehemently
prohibited by shariah.The prohibited is supported by various chapters of the holy Qurian. Eg like
chapters 30: 39; 4: 161, 3:130 and 2 : 281. For example in chapter 3 verse 130, it is stated as
thus:

‘’ O you who believe, devour not riba, doubled and multiplied, but fear Allah that you may
prosper”.

“ O ye who believe, fear Allah, and give up what remains of your demand for usury, if ye indeed
believers. If ye do not, take notice of war from Allah and His messenger: but if ye turn back, ye
shall have your capital sums; deal not unjustly, and ye shall not be dealt with unjustly’’.
(Chapter 2 verses 278-279).

Profit and Loss Sharing: Economic agents involve in any financial transaction must share from
the associated profit and loss of the transaction entered into. The sharing ratio should be spelt out
in the terms and conditions that apply to such transaction at the onset of the business.

Ban on Uncertainty: Uncertainty in terms and conditions of all transactions is prohibited and
should not be allowed. All the terms and conditions of the associated profit and loss should not
only be clearly spelt out but be thoroughly understood by all parties to the financial transaction,
also at the take-off of the business.

Prohibition of Unethical Investment: Financing of industries that are into the production of
alcoholic products, pornography, and gambling, pork-based products must be discouraged. These
activities result in increased social vices when allowed in a society as against the engagement of
resources in productive activities.

Asset backing: Under Islamic banking system, each financial transaction must be tied to a
tangible, identifiable underlying asset. This is because money is not considered as asset class; it
is not tangible and hence, may not earn a return. The rationale is to transform all assets into gold
standard or its equivalents whose value do not deteriorate over time.

Today, Islamic is estimated to be managing funds or US$ 200 billion. Its clientele is not confined
to Muslim countries but are also spread over Northern Africa, the far East, Europe and United
States. Islamic banking continues to grow. Islamic bankers, keeping pace with sophisticated
techniques and latest developments have evolved investment instruments that are both profitable


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and ethically motivated. Today more than 250 Islamic financial institutions are operating
worldwide. (www.islamic-banking.com).

                          Some of the Islamic Banking Products
Mudarabah
"Mudarabah" is a special kind of partnership where one partner gives money to another for
investing it in a commercial enterprise. The investment comes from the first partner who is called
"rabb-ul-mal", while the management and work is an exclusive responsibility of the other, who is
called "mudarib". The Mudarabah (Profit Sharing) is a contract, with one party providing 100
percent of the capital and the other party providing its specialist knowledge to invest the capital
and manage the investment project. Profits generated are shared between the parties according to
a pre-agreed ratio. Compared to Musharaka, in a Mudaraba only the lender of the money has to
take losses.

Murabahah
This concept refers to the sale of goods at a price, which includes a profit margin agreed to by
both parties. The purchase and selling price, other costs, and the profit margin must be clearly
stated at the time of the sale agreement. The bank is compensated for the time value of its money
in the form of the profit margin. This is a fixed-income loan for the purchase of a real asset (such
as real estate or a vehicle), with a fixed rate of profit determined by the profit margin. The bank
is not compensated for the time value of money outside of the contracted term (i.e., the bank
cannot charge additional profit on late payments); however, the asset remains as a mortgage with
the bank until the default is settled. This type of transaction is similar to rent-to-own
arrangements for furniture or appliances that are common in North American stores.

Musharakah

Musharakah (joint venture) is an agreement between two or more partners, whereby each partner
provides funds to be used in a venture. Profits made are shared between the partners according to
the invested capital. In case of loss, each partner loses capital in the same ratio. If the Bank
provides capital, the same conditions apply. It is this financial risk, according to the Shariah, that
justifies the bank's claim to part of the profit. Each partner may or may not participate in carrying
out the business. A working partner gets a greater profit share compared to a sleeping (non-
working) partner. The difference between Musharaka and Madharaba is that, in Musharaka, each
partner contributes some capital, whereas in Madharaba, one partner, e.g. A financial institution,
provides all the capital and the other partner, the entrepreneur, provides no capital. Note that
Musharaka and Madharaba commonly overlap.

Musawamah

Musawamah is the negotiation of a selling price between two parties without reference by the
seller to either costs or asking price. While the seller may or may not have full knowledge of the
cost of the item being negotiated, they are under no obligation to reveal these costs as part of the

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negotiation process. This difference in obligation by the seller is the key distinction between
Murabahah and Musawamah with all other rules as described in Murabahah remaining the same.
Musawamah is the most common type of trading negotiation seen in Islamic commerce.

Wadiah

In Wadiah, a bank is deemed as a keeper and trustee of funds. A person deposits funds in the
bank and the bank guarantees refund of the entire amount of the deposit, or any part of the
outstanding amount, when the depositor demands it. The depositor, at the bank's discretion, may
be rewarded with Hibah (see above) as a form of appreciation for the use of funds by the bank.

Wakalah
This occurs when a person appoints a representative to undertake transactions on his/her behalf,
similar to a power of attorney.


                               The Nigerian Financial System
Many different types of institution make up the financial sector from banks to building societies.
They are jointly known as financial intermediaries. They all have the common function of
proving a link between those who wish to lend and those who wish to borrow. In other words,
they act as the mechanism whereby the supply of funds is matched to the demand for funds. As
financial intermediaries these institutions provide four important services. These are: expert
advice, expertise in channeling funds, maturity transformation and risk transformation. The
different financial intermediaries can be grouped according to the types of deposit taking and
lending in which they specialize.

   (i) Retail Banks: these are banks operating excessive branch networks and dealing directly
           with the general public with published interest rates and charges.
   (ii) Wholesale Banks: banks specializing in large scale deposits and dealing directly mainly
           with companies.
   (iii)Building Societies: these specialize in granting loans (mortgage) for house purchase.
           They compete for the saving of the general public through a network of high street
           branches.
   (iv) Finance Houses: These specialize in providing hire-purchase finance for the purchase of
           consumer durables such as cars and electrical goods. Their main sources of funds are
           banks, but they do also receive deposits from the general public.
   (v) Discount Houses: They specialize in lending and borrowing for short term periods of
           time-one day to up to about three months.



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At the heart of the financial system of a country is the central bank which is known as Central
Bank of Nigeria (CBN). Its role is to oversee and regulate the activities of the different financial
institutions. It has the task of ensuring the stability and efficiency of the financial system. It also
has the task of carrying out the government‟s monetary policy.

The financial system in Nigeria was a prototype of western-type of financial system which was
largely driven by interest rate resulting from financial intermediation. Financial intermediation
facilitates the savings and investment process through the mobilization of savings from the
surplus units to investment by the deficit units. Van Wijnbergen (1990) notes that interest rate,
among others, is a major policy instrument with the most influence on savings. According to
him, private, portfolio choice/allocation is also a function of interest rate. In Nigeria however,
interest has been used over the centuries and still seen as an important monetary policy
instrument in monetary management by monetary authorities (like central or national banks) in
most countries of the world. For instance, in Nigeria the Monetary Policy Rate (MPR) of the
Central Bank of Nigeria (CBN) benchmarked the expected lending and deposit rates in the
money market of the Nigerian financial sector. Principally, this is why the conventional banking
scholars are opposed to the adoption of Islamic banking system under which interest is
prohibited out rightly. The key role of interest as argued by the proponents of conventional
banking is that it encourages efficient and effective allocation of funds through increased savings
and borrowing amongst the people, and thus, it is a reward for money kept or lent to someone for
whatever purpose (production or consumption loan). However, it should be noted that besides
the prohibition of interest, other major principles of Islamic banking includes prohibition of
uncertainty in contractual terms and conditions; parties are to share both profit and loss
associated with each transaction; prohibition of unethical investment investing in alcohol,
pornography, gambling, etc; and each transactions must be tied to a tangible and identifiable
underlying asset.

ISLAMIC BANKING IN NIGERIA

The practice of Islamic banking in Nigeria is viewed from two main perspectives namely formal
and informal. The formal practice are those backed by law of the country while the informal are
the modes of financing though not prohibited but not covered under the formal law.

Formal Islamic Banking Practice

Nigeria has laid the foundation for the increased practice of Islamic banking in response to the
ongoing global trend of Islamic banking inclusion into the global financial system. In the history
of the Nigerian banking law, provision (for the first time) were made for a banking system that
deviate from the conventional banking in the banks from the conventional banking in the Banks
and other financial institutions Decree (BOFID) No. 25,1991. In its categorization of banks in

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Nigeria, BOFID provides that the president of the Federal Republic of Nigeria on the
recommendation of the Central Bank shall, from time to time, determine, as he may deem
appropriate, the minimum paid-up share capital of each category of banks. It then made profit
and loss sharing bank a category of the Nigerian banks with minimum paid-up share capital, for
the time being, of N50,000,000.

Following the promulgation of the BOFID, Habib Nigerian Bank limited (now Bank PHB Plc )
was licensed in 1992 to offer non-interest banking services on a “window basis” but actually
commenced operations in 1999. Some of its pioneering products include non-interest current
account, non-interest savings account, general purpose investment, etc. the first proposed full-
fledged Islamic bank in Nigeria is the Jaiz International bank plc. In 2004, the bank was granted
approval in principle pending its meeting of the then newly required minimum capital base of
N25.0 billion during the banking consolidation exercise as against N2.0 billion minimum capital
base when the license application was filed with the CBN. It is important to note that during the
bank‟s initial public offer, the shares were oversubscribed (115.98 per cent). Recently, the first
full-fledged Islamic microfinance bank Al-Barakah microfinance was recently commissioned
and has commenced operations in April, 2010 in Lagos (Mohammed 2010)

There are some bon-bank financial intermediation institutions like Hududullah micro-credit
company headquarters in Yola, Adamawa State, which has been practicing a business financing
system „close‟ to mudarabah arrangement since 1995 when it commenced operation. They lend
money to their clients on profit sharing basis, but they do not share loss with the client in case of
any. Also, the clients in turn deposit with the company part of their shared profit from the
„Mudarabah-like‟ business as a strategy for self capital accumulation. The lotus capital limited‟s
halal fund established in 2004 (an ethical investment fund), is yet another dimension of Islamic
financing practice in Nigeria because it is shariah compliant. The over subscription of the halal
fund public offer was an indication that there is huge potential market for Islamic financing
products.

Informal Islamic Banking Practice
From participatory observation, there are so many informal financial transactions that are
shariah-compliant. There are several kinds of groups formed by people of same community,
tribe/ethnic, trade interest, etc that informally practice mudarabah and musharakah modes of
financing because such agreements are not written down but rather based on a gentleman‟s
agreement. These groups usually make periodic monetary contributions to a purse, mainly as a
pool, where people in need borrow at no interest while they also arrange rotational receipt for
members of equal amount. For instance, in the northern region we have what is called „Adashe‟,
which is periodic contribution (daily, weekly or monthly). In addition, there are business
financing arrangements where a finance owner, finances a business activity with agreement to
share from the proceeds there from (basically informal mudaraba, muzara‟a and musharakah
agreements because the agreement are reduced to writing). This is mostly practiced in the
agricultural sector and in trading activities.

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   Islamic Banking and the Challenging Issues in Nigeria’s Financial System

Banking Laws

The establishment and practice of Islamic banking in Nigeria is provided for both in BOFID
No.25 of 1991 and by extension the Nigerian constitution of 1999, section 315 (4) (b). But the
regulatory and supervisory frameworks were not in place until March, 2009 when the first draft
was released by the CBN under Professor Soludo Charles Chukwuma. This implied that the then
Habib Banks Nigeria Plc (now Bank PHB) had practiced interesting free banking for a decade
without an adequate operational framework. Secondly, the framework is yet to be put to test to
ascertain its efficiency and effectiveness. Nigeria could learn from Malaysian experience where
the conventional banks operate side by side with the Islamic banks.

Relationship with CBN (Apex Monetary Authority)

The CBN regulates and supervises the banks operating in Nigeria and it serves as the lender of
last resort to the banks. Its operations are interest based either in accepting deposits from banks
or lending to them. For instance, making deposits and withdrawals from their accounts with the
CBN should supposedly be interest driven. In addition, the CBN has to put into consideration the
peculiarity of the operations of the Islamic banks when it comes to the issue of their supervision.
Therefore the issue of charting mode of relationship between the CBN and the prospective
Islamic banks is a challenging one.

Participation with Conventional and Other Banks

Islamic banks relationship with other banks is yet another issue of concern. The conventional as
well as microfinance banks‟ operations are interest-based in Nigeria. Since the Islamic banks
cannot operate in a vacuum, finding a platform for their interaction becomes paramount for
harmonization their activities in the financial markets as well as in the clearing House.

Participation in the Money Market (Liquidity Market)

Activities in the money market mainly involve transactions in intangible assets like treasury bills,
commercial papers, savings deposits accounts, time deposits accounts, certificates of deposits,
bankers‟ acceptances, treasury certificates, etc which are principally interest driven. The Islamic
banks will face the challenge of participating in the market since they neither give nor receive
under whatever circumstance.

Participation in the Capital Market

This market is meant for intermediation of medium to long-term funds through the issuance of
and trading in equities might not pose serious problems to the Islamic banks; issuance and


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trading in debt instruments and bonds) by the Islamic banks will be highly challenging because
the debt instruments are mostly interest-based.

Participation in the Foreign Exchange Market

The Islamic banks will have little or no problems in participating in the foreign exchange market
as trading in different currencies is allow under shariah (it is trading in same currency that is
prohibited).

Liquidity Issue

Islamic banks will find it extremely challenging when they are faced with liquidity squeeze
because the available avenues for sourcing liquidity (financial markets and inter-bank lending) in
the system is associated with interest. However, in case of excess liquidity the Islamic banks can
easily make deposits to available sources without demanding for interest but they will be worried
over the use of such funds. For instance, the receiving bank can lend such fund out at interest or
even finance unethical investments.

Environmental Constraints

The Islamic banks will operate within two environments namely internal and external. Internally,
they will operate within their immediate environment comprising shareholders, management and
staff as well as internal customers (account holders). Externally, government policies, diverse
socio-cultural belief of the citizenry, political dimensions of the country, trend of globalization,
technological advancement, etc are uncontrollable and will be challenging foe the Islamic banks
to deal with. The Islamic banks will require dedicated and God fearing shareholders,
management and staff who also understand the basic principles of Islamic banking.

High Business Risk Due To Ethical Issues

The cardinal watch dog that endangers public confidence in Islamic banking is trust/honesty.
Unfortunately, our country is characterized with wide spread immorality, materialism,
corruption, „419‟, lack of transparency and accountability in our dealings, etc which might be the
root cause of conventional banks, as revealed by the special audit of Nigerian banks under the
on-going banking sector reform.

Competitiveness

The competitiveness of the Islamic banks vis-à-vis the conventional banks in an economy such
as Nigeria is being widely questioned. So many people believed that the Islamic banks may not
withstand the conventional banks because of the wide use of interest elements which is also a
major source of income to the banks including the CBN.


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Inadequate Experience Manpower

There are no adequate experienced Islamic banking professionals for the advancement of the
practice of Islamic banking in Nigeria. Practical experiences matters greatly in the successful
establishment of Islamic banking in Nigeria. So far there are few public education/enlightenment
campaigns which were majorly at a fee that discourage large participation. Currently, no single
educational institution offers full fledged certificate, diploma or degree program in Islamic
financing. Though, institutions like Usmanu Danfodiyo University, Sokoto; Bayero University,
Kano; and Ahmadu Bello University, Zaria offer Islamic financing course at undergraduate and
postgraduate levels and with so many projects written in the area up to doctoral degree level.
Thus, manpower development by prospective Islamic banks as well as the CBN has to be
painstakingly pursued.

Level of Public Awareness

Currently, Islamic banking in Nigeria is facing the problem of general acceptability because
many are not familiar with the various Islamic modes of financing. More efforts have to be made
in enlightening the general public of the advantages and disadvantages of Islamic banking to the
growth of individual business and the economy in particular.

Issue of Accounting and Auditing Standards

Standardization of accounting and auditing procedures of the operations of Islamic banks is one
big problem in the adoption of Islamic banking/financing paradigm in Nigeria. Issues of revenue
realization, valuation, revenue and expenditure matching, etc are associated with a lot of
uncertainties.

Concluding Remarks

Islamic banking though is a relatively new in Nigeria but has gained a momentum across the
globe. It has advanced in the Middle East and some other parts of the world like United
Kingdom, United States of America, Switzerland, South Africa, Morocco, Libya etc. One of the
major pre-conditions for its success stories is that the country must be ready to be shariah
compliants. The Nigerian being a secular country does not preclude it from practicing Islamic
banking as long as those tenets and principles are ready to be complied with. The recent global
financial crises have made several countries in the world to reconsider the practice of Islamic
banking alongside the conventional banks. The workability of Islamic banking in Nigeria
depends mainly in the realigning the identified challenges with its tenets and laid principles as
enshrined in shariah.




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References

Al-omar,F and A.Mohammed (1996) Islamic banking; theory, practice and challenges London;
         Zed books Ltd.

Archer, S and A. K. R. Ahmed (eds). (2002) Islamic finance: innovation and growth. London:
          Euromoney Books.

Mohammed, S (2010): Islamic microfinance Bank Launched, a report in the Daily Trust
       Newspaper, 15th April.

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    14
I acknowledge the generous effort of KB Ajide my colleague in the Department in producing this
manuscript, any error is mine.

				
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