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Islamic Banking: Between Ignorance and Hope PDF Print E-mail
Written by Ibrahim Dada   



Why don’t you get me an article and let me see to its publication?” These were the words of a friend in Malaysia who called in seeking my view on the fast growing fears and hostilities from some religious extremists on the introduction of Islamic banking by the Central Bank of Nigeria (CBN). My response to his inquest was sharp and concise: “the outburst is just a celebration of ignorance; their argument lacks any technical content”. And truly, any fervent follower of the trend would agree that the weightiest of their arguments is the claim that the astute CBN Governor, Sanusi Lamido, is implementing the northern agenda. Thus, to me, there was no need to put up a defence on the principles and mechanics of Islamic banking for publication. On the other hand, I recalled that ignorance is a disease, and it does kill miserably, if it is left untreated. Then, I agreed to put up a non-technical but logical expose on this non-interest based banking system.

Olusegun Obasanjo is far from being the best leader Nigeria ever had; not during his tenure between 1976 and 1979 as a military ruler or the ‘Ebora of Owu’ in his 8 years reign in the Aso villa. But, judging by his choice of some political appointments, one would agree that he does have in him a few atoms of sincere intentions to improve the economic wellbeing of an average Nigerian. One of such appointments was Prof. Charles Soludo as the CBN governor. Though, Soludo had his defects, but no one can dispute the fact that Soludo is a master of economics. After obtaining his PhD (Economics) at University of Nigeria Nsuka (UNN), he received further training in University of Cambridge, United Kingdom, as a research Fellow, and as a visiting scholar in University of Warwick. And based on his excellent researches, his University, UNN, had no choice but to confirm him a Professor of Economics, at the age of 38; a record yet to be broken in Nsuka. Thus, Soludo had economics between his index and middle fingers; he could toy with it as he willed. Toward a greater economy was his dream and he was ever ready to learn and borrow from any successful economic system in the world, irrespective of its origin. Then, the Malaysian model became his choicest. Of course, the next question that comes to mind is: “why Malaysia and not the United States, Switzerland or Britain?”

In any field of science, medical, social, political or experimental, to demystify a problem, it is prerequisite that the model of choice must at least be real -if not ideal-, and it must have substantial features and traits that are parallel to the problem at hand. Based on this principle, we all, Christians and Muslims, can now evaluate if Soludo’s choice of Malaysia was a fluke or a product of a sincere research and scholarly effort. Malaysia was a British colony just like Nigeria. This implies that they also endured the British’s economic policies and exploits for years. They achieved independence on August 31st, 1957, just 3 years ahead of Nigeria. So, we are about the same age. It would interest you to know that Malaysia also boasts of natural resources like petroleum, liquefied natural gas (LNG), tin and a few other minerals. But in terms of quantity, the giant of Africa outshines Malaysia in manifolds. In agriculture, we both have products like rubber, cocoa, palm oil, timber, rice, tropical fruits, coconut and fish. Their social life is also similar to ours. Malaysia is multi-racial with numerous ethnic groups and religious divides. They have the Buddhists, Christians, Hindus and the Muslims who have co-existed peacefully for years. So, without prejudice, Malaysia was the perfect model for Nigeria.

On the 31st of August 2007, Malaysia celebrated its first 50 years after independence and there were substantial reasons to celebrate. It had risen from a struggling economy during independence into an economy with US$306 per capita income in 1965. In 1987, it had increased to US$1,810 and US$5,120 in 2004. In the same year, 2004, its economy ranked 37th position in the world with a GNP worth US$112.6 billion. This sharp rate of development within a very short period of time definitely demands festivity as opposed to Nigeria which could not present any economical achievement during its 50 years post independent anniversary. Manufacturing industries were shot down either due to excessive debts or unreasonable cost of production owed to poor power supply. Yet, billions of Naira was spent celebrating failure. The government had told its citizens to be at least thankful since they still co-exist as a nation. What an achievement?!

While Nigeria still struggles to uncover the problems of its power sector, Malaysia was the first country in the world to issue biometric passports in 1998. Would biometrics be conceived if steady electricity was a problem? While Nigeria still begs for ‘bread’ forgiveness and more funds from IMF, Malaysia ranks the 18th largest trading partner of the United States with an annual worth of $33 billion, according to the US department of State. Muathir, the then Prime Minister (1981-2003) had long observed the economic evil and havoc IMF’s interest on loan causes, once you have knocked on its door. As Mark Beeson describes: “not only has Malaysia, under the leadership of its Prime Minister, Muathir Mohamed, refused to adhere to the neoliberal orthodoxy of liberalisation and financial opening, but, the Malaysian government embarked upon a systematic counter-offensive designed to mitigate the influence of external economic forces and retain a degree of national policy autonomy”. Between 1997 and 1998, the South East Asia nations were struck with devastating economic crises which originated from Thailand. While Thailand and its neighbouring countries sought the intervention of the IMF, Malaysia rebuffed IMF and relied on its Islamic financial policies to address the problems. While Malaysia recovered sharply, other countries were further plunged into debts from the loan offered by IMF. On 31st of July 2003, when Thailand fully paid its debt of US$ 14.5 billion, the then Prime Minister went on air and swore never to seek fund from IMF again. These economic successes of Malaysia are quite revealing for the mind to read and the eyes to see. A lot of beautiful researches and treatises have been written by most of the best economist in the world on this success story and none of them is yet to ignore the magical roles played by the principles of Islamic financing.

If Malaysia could survive and thrive economically without the IMF, then its non-interest based financial policies should be eulogised and implemented by any serious developing country. I am not ashamed to declare that the principles of this non-interest based financial system are deeply rooted in Islam. But an Islamic Bank is not a mosque were Muslims observe their 5 daily prayers. It is a financial institution established basically to improve the living standard of every human, Muslim or Christian. Anyone, rich or poor, old or young, man or woman, Muslim or Christian, could walk into any Islamic bank seeking finances for businesses and projects which conform to Islamic ethics. Thus, alcohol and tobacco would not be financed. In Islamic banking, as opposed to conventional banking, the borrower is never allowed to bear the burden of the loan acquired. When profit is made, it is shared fairly between the bank and the entrepreneur; the same happens when loss is made. And to demonstrate the fairness of this financial system, the entrepreneur is provided with all the professional expertise his business needs to excel. On the other hand, a conventional bank lends money without a thorough monitor or professional advice. Whether he succeeds or not is of no concern. The interest to be paid is all that matters. After all, if the borrower defects, his collateral would be sold. Daily, we watch pitifully how properties are being seized and sold by banks because borrowers are incapable of paying their debts. Is this a just system?

Conventional banking has failed and Islamic Banking is now the hope of the world. It is exceptionally shameful that in this age and time, some respected clerics and ‘literates’ could celebrate their ignorance of world economics and finance through press conferences and protests after turning down an offer made by the CBN Governor, Sanusi Lamido, to educate them on the economic benefits of the system. In the world today, the viability of Islamic banking has transcended religious sentiments and debates. It is a powerful current that one cannot afford to swim against. The global chairman, financial services KPMG, Brendan Nelson could not help but declare that at KPMG, we are very conscious of the growing importance of the Islamic finance industry and are pleased to be contributing to its continued advancement”. Today, KPMG is one of the first accountancy organisations to offer Global Islamic Financial Services (GIFS). It would shock any of these religious fanatics to also know that the concepts of Islamic Finance have recently found a comfortable seat in the Association of Chartered Certified Accountants’ (ACCA) syllabus. It would only take a few years before we also begin to clamour for its inclusion in our university curriculum; else, we would be producing graduates who do not meet world’s specification. Currently, every serious country seeks the services of profound and contemporary Islamic scholars for the establishment of the system. The Financial Services Authority (FSA) of England was quick and wise enough in September 2004, to have approved the Islamic Bank of Britain (IBB). The Bank of London and the Middle East (BLME) and European Islamic Investment Bank (EIIB) also blossom with pride today in the UK. RomAsia bank, Devon Bank, Lincoln State Bank, Cole Taylor Bank and Minnesota Housing Finance Agency are a few of the financial institutions offering non-interest financial services in the United States.

As a writer, to me, the origin of any concept or principle is immaterial; the most imperative thing is how beneficial it would be for humanity because poverty is not religiously biased. After all, the stage is open for any thinker to evolve any economic principle that would compete with ours. Karl Marx did, and it is quite obvious that communism has failed. Cuba is probably the only country in the world still struggling with the closest model of communism. Adam Smith’s capitalism is purely an exploitation of the weak and a haven for the rich. Therefore, Soludo did not err. He is not a northerner or a Muslim. He is a Nigerian; a scholar per excellence who knew what was right for the masses. Is Malaysia anywhere compared to Nigeria in any economic sector? Today, the Nigerian community in Malaysia has reached an alarming rate. Have you ever asked why these young minds crave to study and reside there? In my candid view, any antagonist of this lofty system should not only be seen as a diseased ignorant, but an enemy of the masses as well.