A Critical Analysis of “SHARIAH BANKING” in Nigeria

By Eghes EYIEYIEN
Group CEO, Pharez Ltd
Lagos, 20th January, 2011.

The Central Bank of Nigeria released a guideline on 13th January, 2011, which it called
“FRAMEWORK FOR THE REGULATION AND SUPERVISION OF INSTITUTIONS OFFERING
NON-INTEREST FINANCIAL SERVICES IN NIGERIA” (the Framework).

The first paragraph of the Framework read, “Further to our circular reference No.
BSD/Dir/Gen/NIB/01/008 dated March 4, 2009 on the above subject and following
extensive consultation and receipt of comments/inputs by stakeholders, the Central Bank
of Nigeria hereby releases the Framework for the Regulation and Supervision of
Institutions Offering Non- Interest Financial Services in Nigeria as well as the following
supporting guidelines:.....”.

If there was ever a CBN Circular or Guideline which required wider consultation
beyond the banking industry itself, this was it.

Unlike the regular and conventional banking guidelines and regulations which the CBN
issues from time to time to operators, the Framework has implications well beyond the
banking industry and the financial services sector. The CBN should, therefore, have
sought inputs during its consultation process from religious bodies, civil society groups,
the legislature and the general public.

Some Background
The Draft Framework issued by the Prof. Chukwuma Soludo-led CBN in March, 2009,
was restricted in circulation. Many financial journalists were not even aware of it and so
only few reported its release then.

I personally only saw it sometime late 2010 and commented on in a chat I had with a
Thisday journalist - comments it used in its rather belated story on the Draft Framework.

I was certain then that the CBN would still expand the discourse on the Draft Framework
before finalising it. This did not happen and we now have a “final” Framework!

The Current Framework

The problem with the Framework is not that it seeks to establish “Shariah Banking” in
Nigeria. The issue is that the CBN is attempting to do so apparently being
unmindful that “Shariah Banking” is actually, as of today, both unconstitutional
and illegal.

The Framework for Non-Interest Banking defined a Non-Interest Financial Institution

(NIFI) as "a bank or Other Financial Institution (OFI) under the purview of the Central
Bank of Nigeria (CBN), which transacts banking business, engages in trading, investment
and commercial activities as well as the provision of financial products and services in
accordance with Shariah principles and rules of Islamic commercial
jurisprudence".

Further, the Glossary of Terms, which as an appendix to the Framework, states that
"Shariah Principles" refers to “the divine guidance as given by the Holy Qur’an
and the Sunnah of the Holy Prophet and embodies all aspects of the Islamic
faith, including beliefs and practices”.

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This is a worrisome development since the Banks and Other Financial Institutions Act
1991 as amended (BOFIA), which is the main legislation governing banking in Nigeria,
already made provision for Non-Interest Banking in Nigeria but not as "Shariah-
compliant" banking. What is legally specified in the BOFIA is "Profit and Loss
Sharing Banks".

What the BOFIA Says

The BOFIA specifically defines what a “Profit and Loss Sharing Bank” is.

It states in Section 61, “Profit and Loss Sharing Bank” means a bank which
transacts investment or commercial banking business and maintains profits and
loss sharing accounts”.

This is the ONLY legal definition of a Non-Interest Bank known to the Nigerian statute
books till date.

When the CBN granted an Approval-in-Principle Licence to Jaiz International Bank

PLC, which has among its promoters Dr. Rilwan Lukman, Dr. Umaru Abdul Mutallab and
Prof T.A. Adebiyi, the licence was issued for it to carry on business as a Profit and Loss
Sharing Bank.

The BOFIA was issued in 1991 as a decree and signed into law by the then Head of
State, Gen. Ibrahim Badamasi Babangida. Though a committed Muslim, Gen. Babangida
was obviously sensitive to the religious sensibilities of Nigerians, especially with the
near-crisis the country was thrown into over the issue of Nigeria’s membership of the
Organisation of Islamic Countries (OIC), and his government thought it imperative to
include an unambiguous statutory provision in Section 39 (1) of the BOFIA which would
ensure that no religious colouration is given in any guise to banking in the country.

Section 39 (1) stipulates that

“Except with the written consent of the Governor (a) no bank shall, as from the
commencement of this Decree, be registered or incorporated with a name
which includes the words “Central” “Federal,” “Federation,” “National”, “Nigeria”,
“Reserve”, “State”, Christian”, “Islamic”, “Moslem”, “Quaranic”, “Biblical”.

Obviously, the law anticipated that the Governor of the Central Bank of Nigeria would
not be swayed by religious considerations to grant a waiver to allow the use of those
religious appellations even though it invested him with that power.

Does this not underscore the spirit and letter of the law that makes the introduction of
“Shariah Banking” at this time most awkward?

Curiously, the new CBN Framework even re-affirmed this statutory provision, while it
speaks of "Shariah Banking" all through the circular, it states in Section 10.1 under the
heading “Branding”:

“In line with the provisions of Section 39 (1) of BOFIA 1991 (as amended),
NIFIs shall not include the word “Islamic” as part of their registered or licensed
names. They shall, however, be recognized by a uniform symbol designed by the CBN.

All the signages and promotional materials of NIFIs shall bear the symbol to facilitate
recognition by customers and the general public”.

Consequently, any reader who may already be suspicious of CBN’s motives would no
doubt wonder if this provision is not rather superfluous and possibly an attempt to feign
compliance with the law.
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Already, many non-Muslims have, understandably and expectedly, read religious motives
to the issuance of the Framework; more so, when it is being introduced by the CBN
under the purview of its current Governor, Mallam Sanusi Lamido Sanusi, who is known
to also be an Islamic Scholar with expertise in the Shariah Law.

I personally have no reason to adduce motives to Mallam Sanusi. But I believe it is

rather inauspicious and even insensitive that he would deem the introduction of
Shariah Banking the CBN’s priority at this time especially when the
constitutional and legislative footing for it is non-existent.

There are very serious implications for the Nigerian banking industry and the economy at
large which warrant that the CBN immediately revisits it and withdraw the Framework
accordingly:

1. The CBN has, by this Framework, effectively redefined the business of Non-Interest
Banking as “Shariah or Islamic Banking” contrary to the spirit and letter of the BOFIA.

2. By insisting that Non-Interest Banking products must be “Shariah compliant”, the CBN
has effectively and unjustly excluded non-Muslim Nigerians from the emerging Non-
Interest Banking business sub-sector.

For instance, our Consulting Company, Pharez Ltd, has non-Muslim clients who have, as
far back as 2003, indicated that they want to invest in Non-interest Banking in Nigeria
and we had written to the CBN on their behalf since 2007 requesting for CBN's
requirements for the issuance of a licence to establish a Profit and Loss Sharing Bank in
line with the provisions of the BOFIA. Ironically, the Director of Banking Supervision in
the CBN at that time, Mr. Ignatius Imala, had told me that they were still working on the
regulatory framework for Profit and Loss Sharing Banking and that they would revert to
us after the Guidelines are finalised by the CBN. We have not received a formal response
to our request from the CBN till date!

3. By the proposed plan to establish the CBN Shariah Council, which would obviously
comprise only Muslims, the CBN would be breaching the Federal Character Principle
entrenched in the Constitution of the Federal Republic of Nigeria and its provision that no
state religion would be adopted by the country.

Why is the CBN dabbling into the murky waters of religious controversy by even
suggesting it would have a "Shariah Council in the CBN"?

4. As I have already established, by instituting "Shariah Banking", the CBN has

breached the spirit and letter of the Banking and Other Financial Institutions
Act which prohibits the use of the word "Islamic" or "Quranic" in the name of a bank in
Nigeria.

Conclusion
Non-Interest Banking predated Islam and is an area of banking business which is not the
exclusive reserve of Muslims. There are Nigerian entrepreneurs who have interest in
conducting Non-Interest financial services that would be unjustly excluded should the
business be only about Shariah-compliance.

The emerging Non-Interest Banking sub-sector of the financial services industry holds
much promise and a level playing field should be available to ALL Nigerian business
people no matter their religious beliefs.

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What the CBN should be doing is to apply itself innovatively to develop the business and
enact regulations and prudential guidelines that are not religion-specific.

Nigeria does not have to implement the model of Non-Interest Banking being practised
in Islamic countries and by Muslims in the west.

We have the capacity to lead the way in this regard by making our own system of Non-
Interest banking, based on the Principle of “Profit and Loss Sharing” enshrined in the
BOFIA, the mainstream best practice and watch the other countries of the world follow
our example.

God Bless Nigeria!

EGHES EYIEYIEN, author, is the Group CEO, Pharez Ltd. All opinions on this page/site constitute the authors
best estimate/judgement as of this date and are subject to change without notice. Proshare Limited, its
employees and analysts accept no liability for any loss arising from the use of this information. All enquiries
should be directed to eghes@pharezgroup.com and egheseyieyien@yahoo.co.uk or info@proshareng.com. He
can be reached on Telephone via 0805 506 7906, 0704 099 9881.

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