DEPT: MARKETING
FACULTY: MANAGEMENT
SCIENCES
COURSE
TITLE: INTRODUCTION
BUSINESS FINANCE
COURSE CODE: BAF 101
TABLE OF CONTENTS
Definition of Islamic Banking 1
Sharia
Supervisory Board 5
RISK AND CHALLENGES OF ISLAMIC BANKING
1. Religious Crisis 8
* Mohammed
Dauda 11
* Paul Aggrey 11
* Felicia
Amuzie 12
2. The Social Variant of Islamic Banking 13
References 18
DEFINITION OF ISLAMIC BANKING
Is a Banking system that is based on
the principles of Islamic law (also known as Shariah) and guided by Islamic Economics?
Two basic principles behind Islamic
banking are the sharing of profit and loss and significantly, the prohibition
of the Collection and payment of interest. Collecting interest is not permitted
under Islamic law.
Investopedia Explains Islamic Banking
here an example of how the Islamic banking system uses methods of profit and
loss sharing to facilitate financial transaction:
For
some types of loans, the borrower only needs to pay back the amount owed to the
lender, but the borrower can choose to pay the lender a small amount of money
to serve as a gratuity.
Since
this system of banking is grounded in Islamic principles, all the undertakings
of the banks follow Islamic morals.
Therefore, it could be said that
financial transactions within Islamic banking are a culturally distinct form of
ethical investing (for example investments involving alcohol, gambling, pork,
etc are prohibited). The Dubai Islamic Bank has the distinction of being the
world’s first full-fledged Islamic bank formed in 1975.
Islamic banking has the same purpose
as conventional banking except that it is operating in accordance with the rules
of Sharia, known as “Figh al-Muamalat” (Islamic rule son transactions)
The basic principles of Islamic
banking is the sharing of profit and loss and the prohibition of riba
(interest)
Amongst this common Islamic concepts
used in Islamic banking are profit sharing (Mudharabah), safe keeping (wadiah)
joint venture (Musharakah) cost plus (Murabahah) and leasing (Ijarah).
In an Islamic mortgage transaction,
instead of loaning the buyer money to purchase the item, a bank might buy the
item itself from the seller, and re-sell it to the buyer to pay the bank in
installments. However, the fact that It is profit cannot be made explicit and
therefore there are no additional penalties for late payment. In order to
protect itself against default, the banks asks for strict collateral. The goods
or land is registered to the name f the buyer from the start of the
transaction. This arrangement is called Murabaha.
Another approach is ijara wa Iqtina,
which is similar to real-estate leasing. Islamic banks handle loans for
vehicles in a similar way (Selling the Vehicle at a-than-market price to the
debtor and then retaining ownership of the vehicle until the loan is paid.
There are several other approaches used in business deals. Islamic banks lend
their money to companies by issuing floating rate interest lions. The floating
rate of interest is pegyed to the company’s individual rate of return.
Thus the banks profit on the loan is
equal to a certain percentage of the company’s profits. Once the principal
amount of the loan is repaid, the profit-sharing arrangement is concluded. This
practice is called Musharaka.
Further, Mudaraba is venture capital
funding of an entrepreneur who provides labor while financing is provided by
the bank so that both profit and risk are shared.
Such participatory arrangements
between capital and labor reflect the Islamic view that the borrower must not
bear all the risk/cost of a failure, resulting in a balanced distribution of
income and not allowing lender to monopolize the economy. And finally, Islamic
banking is restricted to Islamically acceptable deals, which exclude those
involving alcohol, pork, gambling, etc.
Thus ethical investing is the only
acceptable form of investment and moral purchasing is encourage.
JAIZ international is trying to Su that it has establish an Islamic
Bank in this country, however with the review of capital adequacy delayed. Although the N2513 capital base is
one condition for the establishment of
an Islamic bank in Nigeria, but we see that there is more to meeting. This CBN
conditions are:
Managerial
commitment, Sharia supervisory board, safeguarding Muslim investors fund and
compliance. The management must be fully convinced of the concept and fully
committed and dedicated to it, unless the entire management is committed and
convinced. The business activities and the enterprise will not be foul free or
will no escape irregularities and stringent fatwa and contracts are, this will
not ensure sound practices if there is no insufficient sincere and committed to
implement the principles.
SHARIA SUPERVISORY BOARD:
There should be a Sharia supervisory
board for any Islamic Bank and that board should consist of trustworthy
scholars who are highly qualified to issue fatawa on financial transactions.
Giving
our present situation within the muslins today how do we constitute the members of the board?
Another issue is Trust form the customers who may use the bans fund when it
comes to profit sharing. Last but not least is ENLIGHTEMENT. Many people even
within the Muslim are not aware of how Islamic bank operates.
Therefore there is urgent need for a
serious enlightenment to the public on operational modalities and requirement
of an Islamic bank.
Other options that may be considered
by JAIZ or even states like SOKOTO, KANUO BORMO, KASTIMA ETC is to establish an
Islamic micro finance at local government level. The recently approved MICRO
FINANCE BANKS can be converted to an Islamic one. In a symposium held at
Harvard University on FINANCING THE POOR. Towards Islamic Micro finance
sometime last year, Mazim Ali has pointed out that micro finance is not
reaching the poorest of the poor, even though this is its purpose and loans are
going to activities unrelated to entrepreneurship. Islamic fiancé could, in
principle and in practice, correct these defects.
Robort Annibale, global director of
micro-finance for ciligroup, shared his insights into both Islamic finance and
Microfinance institutions as micro finance Institutes as self-styled “bankers
of the poor originally rooted in domestic local markets but increasing
expanding into larger markets and offering a boarder range of services.
He noted that the high operating
costs, posed on to the customer in the form of high interest rates are a hurdle
for the poor. He felt that this was where there is potential for Islamic
finance to make a difference. Under conventional microfinance risk is borne by
borrowers and rarely held by the institutions. Islamic fiancée focuses on
interest-free method f providing capital because the Shariah held lending to be
a purely charitable exercise, rather than a means of making a profit.
Islamic finance is also accustomed
to method of risk-reward sharing between the institution and the borrower. Islamic
microfinance banks have grown sufficiently in countries like Pakistan,
Indonesia, Malaysia, and Bangladesh. In fact, Islamic microfinance institutions
enjoy greater penetration than traditional commercial banks in Bangladesh, it
is high time for us here in Nigeria (particularly in the North because the
south have stated) to start introducing Islamic micro finance banks which will
graduate to a full bank in future.
RISK AND CHALLENGES OF ISLAMIC BANKING
1. RELIGIOUS
CRISIS:
Since the Governor of Central Bank
of Nigeria (CBN, Mallam Sanusi Lamido Sanusi, began moves to introduce the
Islamic banking system the product has attracted so much anger in the Christian
fold to the extent that the little achievements Sanusi made in the industry
almost fizzled out.
Some of his crities reasoned that
Nigeria is a secular state and so the introduction of Islamic baking Smacks of
Islamizing the State. They believe that the introduction of the Sharia banking
system now is not appropriates in view of the destructive activities of book
Haram. To his effect, Nigeria’s, who lost relations or were injured, mined or
frustrated by the unscrupulous behaviour of Boko Haram from the bulk of crities
of Islamic banking. Some prominent Christian leaders say it will further
inflame religious violence.
According
to Father Paul Anyansi:
“We have too
much religious tension and so, it could stirrup some more. This is not the time
for it. The policies for Islamic banking are good in the sense that there is no
interest. It doesn’t go against the beliefs of the Islam. But what we are trying
to day is that this country’s is not mature for it now”.
Anyansi
argues that although Islamic banking is community banking, it portends more
dangers that it’s benefits. Said he. “It could be as effective as it is in
England, America, Malaysia or countries where it is operated but for now, we
are still growing. A lot of people are not accepting their brothers as their
brothers. They are not accepting the differences between religions. It will
create more problems, than gains”.
The president of Christian Association
of Nigeria (CAN), pastor Ayo Oritsejeafor, also condemned the introduction of
the banking system because it is a ploy to introduce Islamism into the country.
Many are of the view that CBN. Which is the regulatory authority did not do
much sensitization before it was thrown at Nigerians with the result that some
of the crities of the system do it form a position of ignorance. However,
Sanusi maintained that the product was an initiative of his predecessor
professor Chukwuma Soludo, who is a Christian and his deputy governor, Mr.
Tunde lemu, who is a pastor. According to him, he only implemented a project
left behind by his predecessor.
He also posited that Nigeria is
introducing Islamic banking to bring more of the nation’s estimated 70 million
Muslims, who had remained unbaked, into the economy. Islamic law prohibits
paying or receiving interest or investing in business that provides goods or
service that are contrary to Islamic principles.
This belief has led to the creation
of interest-free, Islamic banking in more than 50 nations where customers share
in profits and losses. In an Islamic mortagage, for example, the bank buys the
house,
Then results it at a higher price,
allowing the new homeowner to pay in installment.
In a recent Islamic banking summit,
organized by the CBN, in Abuja, Ziyad Muhammad of the Islamic finance institute
of south Africa told his audience that Islamic banking was about creating
wealth for the community. “the ultimate objective is to ensure that anything
that is introduced by the entrepreneur is done for the benefit of the community
at large” he said.
The
CBN governor asserted that the project has reached a level where, it was
irreversible and that any aggrieved person could go to court since it is only
the Court that can remorse it. Other Nigerians spoke to Daily sun.
MOHAMMED DAUDA:
“WHAT
IS WRONG WITH Islamic Banking? I don’t know why whenever people hear about
Islam, they are jittery. Is Islamic banking not a system of banking just as
first Bank and oceanic Bank”.
PAUL AGGREY:
“Nigerians
are not mature to host such banks in view of the Boko Haram activities in the
country now. It is not advisable to introduce such a thing in Nigeria now?
FELICIA AMUZIE”
“don’t
we have enough banks in Nigeria. It
is a Muslim Bank? Well, let the Moslem patronize it. As for me I have my own
Bank? Jaiz international Bank an Islamic Bank was licensed to operate since
2009, but yet to take off.
2. THE
SOCIAL VARIANT OF ISLAMIC BANKING
(Onyebuichi
Onyegbule)
The debate on introducing Islamic
Banking (IB) outcome will effect people, its social implications therefore are
Central this piece isn’t about the good/evil, beauty awkwardness of the scheme but its meaning to the people and
the nation they belong to.
Majority of the supporters of 1B
come from the North which is pronominally Muslim, it’s opponents come mainly
from the South which is predominantly Christian. So already there’s a divide
along religious lines in a secular state. The question now is, what does the
state say? The south says, it’s dangerous to make prominent a particular
religion in financial operators designed to serve all faith and more still, an
affront to inscribe its impressions on the currency bill in other words, keep
religion where it belongs and money were it belong.
It’s permanents argue that what’s
important is what IB brings to the common man not it’s name. It we go the way
we presently are, the economy will till towards polarization along religious
lines and perhaps spread to other sectors. In the end, serve find themselves
many from beneficiaries to gladiators.
The founders of this country
understood the hidden five in our distinct diversities and proffered a secular
state as the preferred extinguisher. An indicator of such social five is
polarization which is already in place. Our best response therefore, is to get
the extinguisher ready. Secularity is it, we should need it in accordance with
the vision of the founders and the constitutional provision of the land. Right
form the beginning, it was possible for the founders to slot in IB but they
opted for caution. Then as now, the sensitive remain the answer. If we focus
mainly on the benefit of the scheming may err because it is people at peace
that talk about economic benefits. What if after defeating the opponents
through organs of governance like recently in the House of Reps but they
continue to see this as a belief not economy challenge and resort to other
means to assert their position, where will the country be reap benefits? I say
so because violence is already in our midst and we can’s pretend otherwise.
What rulers them is perception that is what they think, the picture in their
head.
That’s what determines their
response /action not necessarily the rightness wrongness of the scheme. If
that’s the case, how intensive has it’s education /enlighten warrant been to
improve the thriving mind-picture? What time has been to make sure the message
has been understood? Rather, what we’ve been hearing form CBN-chief is comments
in finality-some thing like on Islamic banking, no going back, no court can
stop me”.
Such comments, rather than thorn
light, point to the battle lines with an air of arrogance. The response of the
opposite party turns nothing short of resistance. By then, we won’t Ni talking
economy but security. The other question is, why push Islamic banking with such
Zest at a time the nation is under threat of its corporate existence?
The opponents have found it easy to
relate Islamic Banking to the Islamisation drive book Haram
Invariable
Sanusi is perceived as its arrow head from the monetary end. That may not be
the ease but it’s the picture and it determines the response.
The backside of all these is the
paradoxical practice of our banking institutions. In a country where people are
squeezed for borrowing to do business and banks come declaring obscene profits
is to say the least obtuse. This perhaps is the driving force behind the IB
option.
But
we won’t in causes of fleeing from our predatory banks Jump into fire. What the
Central Bank. Should do for us is to see how to peg bank profits to reduce the
cost of borrowing without necessarily Islamizing the system. There must be some
monetary policies that address this.
What’s Scaring is the threat of
religion in our national life and Sanusi Can’t explain it enough that Islamic
banking isn’t about Islamizing Nigeria.
Already, he is a suspend and the
more he explains it, the loss it’s understood and if he forces it through, at
some point it will be resisted. So why do we harm to go that path?
What’s presently prevailing is
positional reasoning- a kind of, my way of the highway which ends in
ego-defense without an acceptable solution. Once were here, issue shifts form
problem-solving to defending held positions with less regard for it’s
consequences-what’s needed how is a middly-ground that satisfies all parties,
not perfectly but acceptability.
REFERENCES
“Islamic
Banking in Nigeria” By Sani Adamu Danbatta.
Daily
Champion, 23rd August 20211
Sun,
29th August 2011
Business
Day. 29th July 2011.