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CBN Fixes N10bn Capital for Islamic Banks

23 Jun 2011

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Sanusi Lamido, CBN Governor

By Kunle Aderinokun and Obinna Chima

Despite the controversy surrounding the move by the Central Bank of Nigeria (CBN) to introduce Islamic banking into the Nigerian banking system, the apex bank Wednesday announced a capital base requirement of N10 billion for any Islamic bank applying for licence to operate nationwide. 

The regulator insisted that it derived its power to license Islamic banks in Nigeria from the CBN Act and Bank and Other Financial Institution Institutions (BOFIA), which was duly passed into law by the National Assembly. It also prescribed N5 billion capital requirement for an Islamic banking licence for regional authorisation.

These were made known in Lagos by CBN’s Deputy Governor, Financial System Stability (FSS), Dr Kingsley Moghalu, at a seminar organised by the Apostles in The Market Place (AiMP) with a theme: “Re-Purposing Capital: Non-interest Banking in Nigeria.”

The CBN had on Monday disclosed that it had granted approval in principle to Jaiz Bank International Plc – the first Islamic bank in the country - and the following day (Tuesday), issued a revised guideline on non-interest banking to clarify some contentious areas in the rules released earlier.

Moghalu stated that Islamic banking and other forms of non-interest banking were part of the banking watchdog’s drive to stimulate financial inclusion in the country.

“Let us know that non-interest banking is not new banking model. It is a form of banking under the specialised banking model. The reason for an expert advisory council in the guideline is because of the nature of non-interest banking under the principle of Islamic commercial jurisdiction. All banks that are Islamic banks have that type of council. So the regulator in this context felt the need to have a council that advises it on the compliance of the products that those banks will issue with the principle of Islamic commercial jurisdiction.

“I will like to very clearly assure Nigerians that non-interest banking is part of our plans to increase the inclusion into the financial sector, people who have stayed out of the financial system for various reasons. There is no agenda; it is simply finance and not about religion. I want to further assure Nigerians very clearly that non-interest banking is open to people of all faith and all types of non-interest bank application are welcomed at the CBN,” he explained.

Earlier, the Chief Executive Officer, Pharez Consulting, Mr Eghes Eyieyen, argued passionately that the introduction of Islamic banking was against the provisions in BOFIA.

He contended that before such form of banking could be introduced into the financial system, BOFIA should be amended.

Eyieyen queried: “What is the inordinate drive and ambition behind the introduction of Islamic banking? To me, it seems as if the CBN is in a hurry to introduce it and why does the CBN think it is going to be a major driver of financial inclusion? It is not about religion, it is about the law and professionalism. Why has the CBN not given such passion and priority to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)? You cannot use a small provision in the BOFIA that gives you the power to regulate, to now begin to legislate.”

Similarly, an Associate Professor of Law and Security Studies, Babcock University, Dr Bankole Sodipo, also argued that the CBN Act and BOFIA, in issuing out regulation on non-interest banking, did not support Islamic banking, saying that the banking sector regulator must ensure that the National Assembly legislate on the form of non-interest banking.

Sodipo said: “The way forward is to look at the BOFIA and ensure that the move is in line with the Act. On the Advisory Council, there is no way they can delegate the decision making of the body to another body because the National Assembly doesn’t give them that power. The law does not regulate that form of banking because it shut some people out. You don’t give what you don’t have and so you cannot give out what is not your own. What it means is that the CBN wants to introduce a form of banking through the backdoor.”

Responding to submissions and questions, the CBN deputy governor stated: “There is a level playing field and there is no discrimination. What the BOFIA says is that except with the permission of the CBN governor, no bank can be named with the name ‘Islamic, biblical, Qur’an and right now in Nigeria, no bank is named as such.

“We are looking at the area of capacity in the area of the advisory council. This is a new thing. It is not established in Nigeria and I'm sure there will be challenges, including challenges of capacity. We have talked about that. We have equipped our regulatory officers and banking supervisors. We have sent them on a lot of training and so we are addressing the issue of capacity in the industry.”   

According to Moghalu, “the CBN has been passionate about SMEs, power and the economy at large and that is why we gave out the N500 billion loans. We believe it is part of our mandate to jumpstart the economy. We have been passionate about banking reforms, corporate governance and financial inclusion.”

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  • The agenda of this CBN governor is not yet exposed. this guy is trying to radicalize our banking system......being an islamic cleric, he is seriously pushing forward an islamic agenda in a federated nation like Nigeria.i wonder what our state of the union will look like in the next 10-20 years with such people dumping out their ideologies from such a sensitive position.....we might end up being an islamic nation but God forbid!!! unfortunately i give kudos to the moslem brothers for hatching such an interest free idea. our so called christian pastors are busy enriching themselves and flying around in private jets without knowing how important and beneficial a CHRISTAIN BANK is to their teeming followers.

    From: chuba

    Posted: 3 years ago

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  • Hmmmmmmmm, Sanusi finally delivered a long thought-out agenda ......... It will remain controversial, but let's see how it goes. I wont patronize it, I sure wont.

    From: John Abiodun Olaitan

    Posted: 3 years ago

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  • Am sure you are one of the selfish stake holders of interest oriented banking that's why you have no support for well wisher man of award.And I also believed one of your families is among the scape goat of the recent bank fraud......any way! it is a matter of choice........................ more cudos to you our governor.

    From: sulaimon

    Posted: 3 years ago

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  • The CBN Govs is rather too hast in his approach on islamic bank. It's like he is been pressurized by powerful forces from the Islamic groups across the world. The model is sentimental. mark this word, it would work.

    From: Ojies

    Posted: 3 years ago

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  • We all know Sanusi has an hidden agenda right on time, and that agenda is directed to the benefit of the Islamic community. He came first with an attack on south and eastern banks, covering banks like bank PHB looting cash, now he's on Islamic banking, the same thing he wanted to introduce during Soludo's time. Well, I guess he knows his time is almost up, so he wants to get it done asap...but Mr. Sanusi, what stops you from enriching SME's to the fullest, must it be Islamic banking?...

    From: Kestain Clerk

    Posted: 3 years ago

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  • I would say that this is a great kudos to the Nigerian financial system...it shows that the Nigerian Financial System is maturing...to seek plausible alternatives where the conventional banking system had failed to provide is indeed a laudable effort....interest (usury) has indeed been prohibited and condemned by all divine religions....the success of islamic banking (non-interset banking) in Europe,Midle East, and some Asian countries is glaring for every right thinking person to see....

    From: Nurudeen

    Posted: 3 years ago

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  • It is obvious that the CBN needs to enlighten the public the more. If the principle (Islamic banking) is all "about sharing risks and opportunities'', I will patronise them. Is the present system with high interest rate not killing? Why do we have so many debts which have crumbled the financial systems world over.

    From: John Michael

    Posted: 3 years ago

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  • I am certainly not surprise at responses here so far especially from critics. It is obvious some of Nigeria Christians don’t know their religion and will definitely not be interested in learning about those of others. Interest is forbidden by both Islam and Christianity; I therefore see non-interest banking as a safeguard (an alternative) to conventional banking practice which is against the two religions. We all seem to be carried away by worldly material possession or greed to posses through illegitimate means so much that we don’t longer want to hear or see anyone reminding us of what is or are from God.
    It is a piety that as Christian you ignore the following in the old testament:
    [Exodus 22:25] If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.
    [Leviticus 25:36] Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee.
    [Leviticus 25:37] Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase.
    [Deuteronomy 23:19] Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury:
    [Deuteronomy 23:20] Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it.
    There are other clear evidences from Qur’an and Bibles prohibiting usury. Perhaps your dissatisfaction is because the word Islam is used or because Sanusi is a Muslim. If I were you I will consider the cost and benefit to the majority rather than criticizing the move blindly or seek clarfication and call for sentisization of public as Michael suggested. Sanusi is not proposing Scrap of conventional banking system, so you still have alternative.
    ADVICE: I strongly advice both Muslims and Christians to work together for the betterment of Nigeria stop subscribing to criticisms from illiterates (our politicians), kick against any preacher who seek to brain wash or set us against each other for their own whim and caprices. For it is obvious today we are leaving together with so much hatred for one another, and the pathetic side of it is that the learned have joined the race. How can we correct persons with Boko Haram mindset in both religions this way?

    From: m-square

    Posted: 3 years ago

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  • Chuba, thank you for objective analysis. It then means, someone somewhere will accept "muhammed" as he lord and saviour before securing a loan. all these hiding agenda should be properly address before nose will turn against mouth. if not, analyse this statement "under the principle of Islamic commercial jurisdiction". Senusi should govern well so that, there will no controversy in the banking sector.

    From: Sam.

    Posted: 3 years ago

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  • Based on information that I'm privy, I don't know if the CBN or BOFIA incorporates the licensing of Islamic banking. However, if we take out time to reflect on the conventional banking system and the level of confidence they have ripped from the investing public world wide, I feel it is only prudent for us to leave religious sentiments out of this and paint a brighter picture of the benefits and moral attached to the Islamic banking system.

    Islamic banking is not only practiced in only Muslim dominated countries. There are several Islamic banks in Europe and US. As a matter of fact, HSBC, which is one of the biggest financial institution just recently introduced an Islamic arm in its operations. The reason being they (Visionaries) saw the benefits of this form of banking and how well it fared during the global crisis of 2007-2008.

    The main cause of the crisis is something Islamic banking system frowns at (Leverage) or put simply amplifying debt. Leverage can be viewed as a double edged sword as it is used by both banks and borrowers. An increase in leverage leads to a higher return for both bank and borrower. However, it also increases the risk of default of both parties.

    I will implore us Nigerians to look at the benefits of the banking model and put behind our religious sentiments so as to transform this country of ours.

    From: Mobolaji Etiko

    Posted: 3 years ago

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  • Hi! The interest charged by the conventional banks are killing ordinary people who are poor in the first instance b4 going to borrow in the banks.
    This is a great relieve! Let us open our accounts today and start reaping the reward of intelligence from Lamido. God bless you, Sanusi!

    From: abdus

    Posted: 3 years ago

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  • Why must Islamic bank be deemed a hidden agenda. For long muslims have endured the 'Christian' banks that has prooved ruinous, taxing the poor through high interest and enriching the rich through declaration superfluous dividend while the economy suffered. Thank God Islam has a better alternative that shares profit and loss equitably. Kudos to Sanusi for coming to the rescue of the poor masses.

    From: Dan Azumi

    Posted: 3 years ago

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  • why do sum of us do put sentiment in everything in this our nation, do we really want to move forward with the global village?

    From: SAS

    Posted: 3 years ago

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  • Please why Islamic bank ,Mr sanusi so you don't have another better name for banking system? why using religion for our banking system?

    From: culture

    Posted: 3 years ago

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