L-R: CBN Governor, Mr. Lamido Sanusi, Minister of Finance, Mr. Olusegun Aganga
Non-interest banking has taken a centre stage. Stakeholders in Nigeria’s financial sector may have endorsed this, but poor implementation may scuttle the project, IFEANYI ONUBA reports By some measure, the global financial crisis has brought about a renewed consciousness in the area of non-interest banking and finance, which began in Dubai, the United Arab Emirates in 1975.
This is so because the non-interest banking, also known as Islamic banking, has been proved as one of the fastest growing sectors in the world.
Islamic banking is a financial banking practice that is consistent with the principles of the Shari’ah (Islamic law). And unlike the conventional banking model, it is non-interest based.
Unlike the conventional banking model that charges interest from all funds borrowed by customers, this model frowns at such practice.
Rather, the non-interest model seeks to promote the financing of long term infrastructure by making funds available to customers for developmental purposes.
Currently, there are about 500 Islamic banks worldwide controlling assets that are worth about $1tn. The figure, according to analysts, could rise to about $4tn by 2020.
To underscore the importance of this concept of banking, the regulators of the financial sector in Nigeria have begun the process of implementing the framework in the country.
Already, the Central Bank of Nigeria has issued regulatory and supervisory guidelines for the commencement of the banking model in the country.
The apex bank had said all banks offering such financial products or services should have a Shariah compliance review mechanism and a Shariah Advisory Committee as part of their governance structure.
The CBN guidelines stipulate, ”In line with the provisions of Section 39 (1) of BOFIA 1991 (as amended), banks offering non-interest banking products and services shall not include the words ‘Islamic‘ as part of their registered or licensed name.
”They shall, however, be recognised by a uniform logo to be designed and approved by the CBN. The CBN shall require all the banks‘ signage and promotional materials to carry the logo to facilitate recognition by consumers.”
The guidelines also state that non-interest banks shall be licensed in accordance with the requirements for new banking licence issued by the apex bank from time to time. These include a non-refundable application fee of N500,000 and a deposit of minimum capital of N25bn with the regulator.
According to the guidelines, six months after the grant of approval-in-principle, the promoters of a proposed bank must also submit application for the grant of a final banking licence with a non-refundable licensing fee of N5m payable to the CBN.
Mindful of the importance of this model to the Nigerian economy, the Nigerian Deposit Insurance Corporation last week held a stakeholders‘ conference in Abuja as part of efforts aimed at fine-tuning strategies for the effective take off of the model.
Speaking at the event, the NDIC Acting Managing Director, Alhaji Umaru Ibrahim, said that the corporation would soon release guidelines for the implementation of the Deposit Insurance Scheme for the proposed model.
Ibrahim noted that already, a draft framework for the implementation of the scheme had been forwarded to stakeholders for inputs.
He said the workshop, with the theme, ”Protecting depositors to build confidence in non, interest (Islamic) banking in Nigeria” was aimed at helping the corporation achieve that objective.
Ibrahim noted that the current efforts to establish the non, interest banking in the country had been in consonance with the principle of financial inclusion, adding that with the high interest rate in the country, the model would be a viable alternative to conventional banking.
He said, ”Right from the inception, the NDIC was designed as a risk minimiser and not merely a pay box. We have thought it fit at this crucial moment to design a non-interest deposit insurance scheme in view of the realisation that non — interest banks will be involved in deposit-taking whenever they are licensed and commence operations.
”This seminar is one out of several initiatives on the part of the corporation to prepare its staff and indeed stakeholders for the successful implementation of non-interest deposit insurance scheme in Nigeria.”
He added, that the corporation had already developed a draft framework for the implementation of the NDIS in Nigeria, which had been forwarded as a consultative paper to stakeholders for comments and “we” have received encouraging comments from a lot of the insured institutions.”
The NDIC boss argued that the corporation‘s determination to extend deposit insurance cover to non-interest banks was in line with its statutory mandate and the new banking licensing regime of the CBN.
Currently, the corporation as a means of promoting depositor confidence in the banking system has guaranteed to pay insured depositors of universal banks N200,000 each while depositors of microfinance banks and primary mortgage institutions would get N100,000 each in the event of a failure.
Ibrahim pointed out that the practice of non interest banking had reached a level where both local and multinational western banks such as Citigroup, BNP Paribas and Standard Chartered were now practising.
Speaking on investment prospects for the model, the Director-General, Debt Management Office, Dr. Abraham Nwankwo said that there was need to forestall manpower challenge both from operators and regulators that might arise as a result of the new model.
He said, ”No doubt, there is a dearth of reliable professionals who are well grounded in both banking and the knowledge of Shariah in Nigeria to drive the proposed regime.
”It has been widely acknowledged that there is a global shortage of experience professionals in the Islamic finance sector to feed the industry and the regulators. This, no doubt, would be a glaring challenge for Nigeria.
”In addition, there would still be the challenge of having qualified and competent shariah scholars with good grounding in Islamic finance and jurisprudence. This would be a critical issue during implementation, since most of the instruments and services would have to be cleared by each firm‘s shariah board.”
The DMO boss also pointed out that there was need to address the legal and regulatory environment to ensure smooth take off of the proposed regime.
Also speaking at the event, the Chairman, Senate Committee on Banking and Other Financial Institutions, Senator Nkechi Nwaogwu, expressed confidence that the model, when fully adopted, would help to drive down the high interest rate in the country.
Source:punchng.com
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