I was tempted to delve into this discourse by the seeming controversy that followed the central bank of Nigeria (CBN) introduction of Islamic Banking otherwise called non interest banking into the county’s banking industry. As many commentators have already argued the controversy is unnecessary or to use the words of national planning minister Shamsudden Usman ‘a storm in a tea cup’. First of all, Islamic banking is only one of the many branches of the discipline of finance, what make it to differ from the rest is not much, for example, having some parts of its doctrines to come from Islamic jurisprudence, that is all, do not add or subtract anything. For example, the same mathematics, statistics and other analytical tools employed in conventional field of finance are the same as those uses in Islamic finance. In fact most of the academician currently contributing to the field of Islamic finance started as conventional economists and they still are. In term of the actual practice of the system for instance, the same current account that is obtain in conventional banking is the same as in Islamic banking, the difference is not much. Like wise the concept of customer care, information technology as back borne of the industry as well as human resources management. The central differing factor as even the name ‘non interest’ donates is that Islamic banking does not accept any transaction that involves interest. Instead of interest the system replace it with profit and loss sharing where profit or loss are shared between the parties to a transaction. Unlike in conventional banking, Islamic banks are restricted in the nature of their investments, they are not allowed to put their money or that of their customers in any transaction that has the elements of gambling, speculation or is highly risky like derivatives. They are also not to trade in alcohol, pork, pornography, and prostitution. To ensure that Islamic banks comply with all these an independent board must be constituted, called ‘Shariah board’ saddle with the responsibility of ensuring the observance of all these Shariah guidelines concerning financial transactions.
Secondly, the geographical distribution and the nature of the growth of the industry world wide might have not warrant the controversy when look at critically. Even though the first Islamic bank to start operation originated from Egypt during the early 60s, the practice of Islamic banking has become a global phenomenon that is found in all the four corners of the globe. There is today no highly global international financial institution worth it name that is not engaged in the practice of Islamic banking or other aspect of Islamic finance, or considering going into the practice soonest. Big global brand like HSBC, City group, Barclay bank, BNP Paribas, Bank of America, Deutsche Bank, Chase, Union Bank of Switzerland to mention just a few have been involved in the practice in the last two decades. International financial institutions like the World Bank and IMF are in the forefront of those promoting the practice; in fact these two institutions between them have produced over hundred working papers on Islamic finance and Economics over the last three decades. Some of the most outstanding contributors to the field of Islamic finance are either current or former staffs of these institutions. That is why it did not surprise me when Ngozi Okonjo-Iweala gives her approval of the practice because of her background as ex staff of the World Bank. From few million Dollars in asset when it started, Islamic finance has grown to reach trillion dollars water shed today. Growing in the range of fifteen to twenty five percent annually, Islamic finance is currently the fastest growing segment of international finance.
Thirdly for those that are familiar with investment terminologies there is what is called portfolio diversification, the theory try to explain that in order to avoid a situation where investor will put all his eggs in one basket, thereby expose to high degree of risk; by dividing the eggs and putting them in difference baskets the degree of risk will have been reduced. The global investment community has come to realized that Islamic finance has been providing that environment by allowing investors to diversify their investment away from the kind of toxic assets that caused the last global financial crisis. The above explain the reason why significant numbers of those patronizing Islamic finance are non Muslim world wide. Fourthly, with more than half of Nigerian public still not transacting anything with our existing banks (as is seen in some countries with many similarities to Nigeria) Islamic banking will help bring substantial number of these unbanked into the formal banking stream. Thus, helping in increasing the over all financial deepening in the economy, thereby accelerating economic growth and development of the nation. Islamic micro finance institutions have been hailed world wide including by a recent IMF study as comparatively stronger than their conventional counterparts. The introduction of these Islamic micro finance institutions will help in assisting government to achieve it objective of financing small and medium scale enterprises. Some branches of Islamic finance, for example Sukuk has been hailed as a highly innovative financial product that is currently seen as competing with any similar product the conventional economic and finance can offer. As at now Sukuk is a hot cake that is embraced by governments around the world in order to manage their fiscal problems.
Lastly, Islamic economic and finance is seen (especially by it promoters) as solution to the current economic ills around the world, caused by no other thing than capitalism. One needs no better example to drive this argument home other than the last global financial crisis that caused substantial havoc around the world. Capitalist finance with it unethical philosophy of ‘beggar thy neighbor’ that has greed as it ‘motto’ and self interest the driving force need some kind of ethical injections into it main body before it throw the world into far more destruction than the world have seen last. Eminent personalities around the world have (not quite a long) argued along these lines among them past Nobel laureates, politicians and theologians from different religious back ground. Here in Nigeria as the country moves toward achieving economic growth and development I am quite sure the introduction of this novel scheme of non interest finance will immensely contribute towards achieving that. The argument that Islamic banking is an agenda to Islamize Nigeria is not true because doing the same did not Islamize other countries that introduce the system before us. As ethical financial arrangement I am confidence that Islamic finance will help Nigeria in reducing the notorious problems of economic and financial scams that Nigeria is commonly associated with. But before all these, CBN and other relevant agencies must educate the Nigeria public first about this novel scheme.