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Thursday, December 29, 2011


          As sub Saharan African second largest economy and most populous country in Africa, the decision by Nigerian authorities to introduce Islamic finance into the country financial sector should be welcome by the global investment and Islamic banking and finance community. With the seventh largest population in the world, Nigerian market is large enough to attract any type of financial market players to participate in her increasingly sophisticated financial industry. The history of the introduction of ethical finance into the Nigerian economy can be traced back to the period of colonialism when an institution that did not engaged in any interest related dealing was established to cater for the need of Muslim pilgrimage for an ethical vehicle through which they can channel their saving toward the annual pilgrimage.  The agency popularly known as WAPA, though not a bank as the term is commonly understood, in some ways perform the bank job of deposit taking and also perform the functions of bureau de change. But the actual effort to established a fully pledge Islamic bank can be traced to the 1980s after the liberalization of the banking sector and establishment of what are today called new generation banks. The promulgation of Bank and other financial institution degree (BOFIA) of 1991 acted as watershed as it provided the legal and constitutional background for the establishment of Islamic banks in the country. Thereafter, the establishment of community banks everywhere across Nigeria paved way for some interested Muslims to apply for the establishment of zero-interest charging community banks. Habib Bank Nigeria limited (an affiliate of Habib bank Pakistan) was the first big conventional bank to open a window that cater for Islamic finance in 1996. Because of the absent of full support from the regulatory authorities no any other Nigerian bank followed the example of Habib bank for some years to come. After the return of democracy in 1999, a more concrete effort to establish a fully pledge Islamic bank was initiated. This time around, because of the initial positive posture of the authorities towards the scheme, shares of the proposed Islamic bank (called Jaiz) was opened for the general public to subscribe, which was later oversubscribed to signal to you how eager Nigerian public are for this system. But the decision of the then new central bank governor (Soludo) to increase the capital base of banks from N2.5 Billion (as at 2003) to N25 Billion did a lasting blow to this effort and delayed it for some nine years time.
Sanusi Lamido’s banking reforms
    Since becoming Nigeria’s central bank governor in May 2009 (after a short span as managing director of one of Nigeria’s largest bank) Sanusi Lamido has introduced far reaching reforms that led to the transformation of the Nigerian banking landscape. At the period Sanusi assumed duty as governor of the CBN, Nigerian banking sector was passing through the devastating impacts of the last global financial crisis that left Nigerian financial sector in a protracted coma. There was the wide spread fear that some major Nigerian banks were facing threat of total collapse with major repercussions for the Nigerian economy as whole. This left Sanusi with difficulties concerning alternatives to chose from, should he allowed these banks to collapse (about eight of them) or should he allowed the government to rescue them? He took the last alternative by providing government rescue money, but before that he made sure he sacked all the managing directors of these banks who most people blame for the situations in their banks. Sanusi later introduced far reaching corporate governance reforms that include limiting of bank’s MDs tenure to only two terms of five years, Central banks screening of who is going to be appointed as director in a bank, bringing an end to the cult of family own bank, banning of former CBN governors from holding strategic positions in banks until long time after, and new succession guidelines. Other reforms introduced by Sanusi includes, uniform financial year ending, replacing of universal banking model with differentiated banking model that allowed for the establishment of specialized banks including Islamic banks, establishment of asset management company of Nigeria to buy toxic assets from Nigeria’s banks, new rules on result publication, cashless economy road map, curtailing banks lending to capital market, establishment of credit bureaus among others. Today in Nigeria, CBN intervention of 2009 is hailed as the only banking intervention that ordinary depositors do not loose their money and one in which the confidence of the Nigerian public in the financial system was enhanced.
How the reforms affect Islamic finance industry?
    Before the coming of Sanusi there was only the intent to establish Islamic banks in the country as there was no any realistic time table on when the banking system is going to be introduced. Soludo (the CBN governor before Sanusi) has compiled some policy documents on Islamic banks but his other policies like the sudden introduction of higher capital ration for all categories of banks proved a stumbling block to the system. In addition, Soludo has refused to put the needed regulatory and legal requirements for the establishment of Islamic banks. Despite these, Soludo introduced Nigeria into Islamic Financial Service Board (IFSB) in January 2009. But, Sanusi is credited with using the BOFIA degree of 1991 to restructure his non interest specialized banks in 2010 to confirm with Islamic Banking requirements. With the dismantling of universal banking model, the capital requirement for the establishment of Islamic bank was reduced from 25 billion naira to 5 billion Naira for a regional bank, and 10 billion Naira for a national bank. The Nigerian Deposit Insurance Corporation (NDIC) also joined CBN by releasing draft framework for non interest (Islamic) deposit insurance scheme. Central bank under Sanusi also joined the International liquidity Management Corporation based in Malaysia in October 2010. Sanusi also introduced the office of adviser to the CBN governor on Islamic banking, in addition to sending the staff of the apex bank for training in and outside the country on various aspects of Islamic banking. All these led to drastic changes in the Islamic Banking environment, despite the opposition it experienced from some quarters.  Currently, Jaiz bank plc has been registered to operate as a full pledge Islamic bank, making it the first Islamic bank in the country. Stanbic IBTC Nigeria limited (a subsidiary of standard bank of South Africa) has been given the licenses to operate a window of Islamic banking. Many other existing conventional banks operating in Nigeria are also planning to enter the lucrative market. Lotus capital plc has been registered since 2008 to operate as Islamic fund management firm. There are also a lot of micro finance institutions that are operating some kind of windows of Islamic banking across the country. In the area of Islamic insurance (Takaful) there are some significant progress that has been recorded among which is the introduction of Takaful products by existing conventional insurance firms such Africa alliance, Niger insurance, and Royal insurance among others.
Opportunities and potentials for Islamic banking in Nigeria
  The opportunities for all categories of Islamic finance products is enormous in Nigeria, with a very big religious population (according to many cross country survey) Nigeria boost of large population of religiously conscious people. Like most developing countries, the number of the unbanked Nigerians is very substantial, according to the Economist magazine (the special report on international banking, May 14, 2011) about 67 million of the adult population are out of the formal banking system. It is believed by many analyst that the introduction of Islamic banking into the country financial system will lead to the deepening of the financial system, thereby, reducing the total number of the unbanked in the country. Islamic insurance and fund management in particular have already started making headway into the country formal financial sector. Nigeria hopes to become the hub of Africa financial transaction, a kind of Africa International financial centre (IFC), hence the lunching of financial system strategy (FSS) 20:2020 in 2005. It was realized (though reluctantly) that for Nigeria to be included among the 20 largest economies in the world by 2020 it must include some kind of Islamic (non interest) banking both for the attraction of foreign investment and to help increase financial deepening. The FSS 20:2020 has further help to spur the potentials of Islamic banking in the country. The existing conventional bank that originated from Nigeria are listed among the largest banks in Africa, some of them have operations across many African countries. There is no doubt that Lagos (Nigerian financial capital) is the biggest financial centre in the whole of west Africa; with the third biggest economy in the whole of Africa ( following after South Africa and Egypt, respectively) there is no doubt that the potential for Islamic banking in Nigeria is enormous. Nigeria also hopes to become Africa hub of international Islamic finance transactions.
Conclusion and Recommendations
   But there are still important things that Nigerian authorities need to do to help the opening up of the Nigerian financial market to Islamic finance. Most important among these is speedy introduction of new legislations that are favorable to Islamic banking and finance, because some of the existing legislations still act as barrier to some aspects of Islamic finance for example Sukuk issuance. Next is the creation of Islamic money market, as some of the instrument currently traded in the conventional money market cannot be bought by the Islamic bank, and not doing this will put Islamic financial institutions at greater disadvantage compared to their long established conventional competitors. On this issue Nigeria should borrow from Malaysia on how favorable environment was provided for Islamic banks to compete with their conventional rivals. The central bank of Nigeria should as a matter of necessity collaborate with the more established countries in the field around the world; such countries should include Malaysia, Bahrain and Pakistan. Investors in the Islamic finance industry (to some extent) are just like there conventional counterparts, before committing their money in any country they first calculate the risk and benefit of doing so, thus Nigerian authorities should include these facts as they Endeavour to establish Nigeria as centre of Islamic finance in Africa. Lastly, is greater enlightenment of the Nigerian public, as there are still many people that are ignorant of the workings of Islamic finance; hence, the recent opposition to it introduction from some quarters.

Abdullahi, S. A. (2011), “Islamic banking in Nigeria: the journey so far”, people daily Nigeria (, May 3, 2011
The Economist; May 14th 2011,
The Nation, Nigeria; June 7, 2011
Sanusi, S.L. (2011), “Islamic finance in Nigeria: issues and challenges”, Lecture delivered at Markfield institute of higher education, Leicester, UK

Tuesday, December 27, 2011


      Some few days back, President Goodluck Jonathan was at the joint National assembly special session, where he presented his 2012 budget. And, it is not surprising to any one that fuel subsidy removal has been given such a prominence in 2012 budget. Going by the actions and utterances of Jonathan top government officials any good guesser can guess that in order to make fuel subsidy removal a reality, this government will make 2012 budget so depended on it that it will go into crisis if it is not implemented. For an economic team that is filled to brink by neo liberal thinkers and pro capitalist technocrats any one who is hoping for continuation of subsidy of any kind is wasting his thinking moments. The word ‘subsidy’, any subsidy be it in the power sector, toll gates, fertilizer, education, etc., is out of this management team point of reference. That is why protesters such as ASUU and Lekki toll gate protesters will find it difficult to actualize their missions. When the economic management team is composed of people who shared the philosophy of the IMF and World Bank, I bait you my last Kobo, that severe economic restructuring has come to stay. In 1980s Nigerians vehemently opposed taking loan from the IMF together with it austerity measures, but when it was later on smuggle in as the so called home grown economic policy, the notorious structural adjustment program (SAP), Nigerians did not realized what hit them until years later. Today SAP is remembered as the beginning of Nigerians suffering and lost of focus. But it is not everything that is associated with SAP that is negative, in fact, the problem is not SAP (an economic policy as it was) but the Nigerian leadership, and as some may say the Nigerian mentality as at then. The same set of economic policy was adopted by our neighbour Ghana, today Ghana is better for it and it is being celebrated as one of Africa’s emerging economic success stories. 

     Put a little bit higher than 2011 budget, 2012 budget of N4.749 trillion is a budget that betrays government commitment to fiscal prudence. Allocating 72% of the budget (N2.472 trillion) to recurrent expenditure seems to me very outrageous, and a move away from government mantra of fiscal prudence. Though, as one analyst observes that it is not easy to cut recurrent expenditure in one full swoop, this government should have done better than this. The implication of this is that while trillions of Naira is being cut as fuel subsidy, the same amount is being move to finance government expenses such as transport and stationary allocation for president and vice president, legislative and ministerial expenses, etc.  There is little in the way of prudence in a budget in borrowing about 22.3% of the total budget to finance mostly recurrent expenses. I do not have problem with government borrowing, but the budget should have been budget of infrastructural consolidation. About N1.059 trillion of the total budget amount of N4.749 trillion is to come from borrowing from China, Japan, Indian and France, as well as domestic borrowings, this is about a quarter of the overall budget. In a global period characterized by an unrivaled global debt crisis it seem unwise to borrow money to finance expenses like salary, allowances, and over bloated ministerial budgets. At a time major countries around the world are drastically cutting their budgetary expenses we are increasing our own. While 2011 is an election year, therefore, some expenses will naturally comes, 2012 is not an election year and still we are not in a full war. 

    What are the other implications of this 2012 budget? The monetary implication of increase government borrowing for the economy is to increase the rate of interest charged by lenders, and also to reduce the amount of credit that will be available to the private sector in the year 2012.  For an expansionary budget such as that of 2012 a little bit of high inflation should be expected, despite government conservative forecast of 9.5%. This is more so with the expected removal of fuel subsidy from the economy and resultant devaluation in value of Naira, consistent with this government economic agenda. The $75 bench mark price for crude oil in the budget is predicted on the stability of the international price of crude oil, which may come under threat looking at the current turmoil in the global economy. In any way one look at it government should have intensify diversification of it revenue source not only by the current revert to borrowing, but also by looking for other sources of exporting Nigeria’s other natural resources. The expected increase in the recurrent expenditure will further increase our import bills, by putting pressure on the demand for imported goods and services. With little in the way of infrastructural development, increase interest and inflation rates, increase in the cost of energy, not much should be expected in the area of industrial growth and welfare. Despite the huge amount budgeted to tackle insecurity in the country, the major challenge to smooth implementation of 2012 budget will remain security, not only by the recent increase in threat from militant groups, but also from rising crimes, robbery, and ethno-religious crisis. Corruption far more than any other factor will continue to pose challenges to any development programme in Nigeria.

Tuesday, December 20, 2011


      In one of its special reports: The News Industry, July 9th 2011, The Economist of London look critically at the future of print media (newspaper). It observed that the internet, especially, the social media (Blogs, Twitter, Facebook, Google, etc.) has revolutionarised news as we knew it, and warns that more changes are in the offing. The survey observed that there is a gradual decline in the news paper business in the developed parts of the world, while emerging countries such as India, China, Brazil, and South Africa are experience growth in the sector. This, the special report observed, is partially because of the penetration of the internet and economic growth. While developed countries economies are passing through tumultuous period, those of the emerging countries are prospering. While the use of internet is high in the developed countries, it is lower in the emerging world.  The internet revolution has also had a propound effect on advertisement revenue, the most important source of funds for most papers, by reducing the amount of advert revenue that is going to print media; as more of advertising moves in the direction of internet advertisement. To quote the words of the Survey, “Clearly something dramatic has happened to the news business. That something is, of course, the internet, which has disrupted this industry just as it has disrupted so many others. By undermining advertising revenue, making news reports a commodity and blurring the boundaries between previously distinct news organizations, the internet has upended newspapers’ traditional business model.”

    Though Nigeria media industry falls under the emerging economies group, who are experiencing high economic growth, the industry will no doubt be affected by the internet revolution, in fact this is happening as we discuss. The increase in the number of online media such as Gamji, Sahara reporters, Nigerian village square, and others like Nigerians in America is a pointer to this trend, not to mention the hundreds of blogging sites that appear on the horizon. Recently, Nigeria was ranked among the top five countries with dominance in internet usage by means of mobile devises. This is another indication of the many threats internet can bring to the Nigerian newspaper industry. As the power supply improves and major telecommunication companies in Nigeria made the promised infrastructural investment to boost internet access, the percentage of Nigerians with access to the internet will jump making Nigeria to follow in the examples of China and India. With this scenario taking place, local internet giants will spring up in Nigeria, like is currently happening in China, India, and Russia; making the migration of advert to internet more prominent. TV, radio and out door advert have, for many years, been  the major competitor to the print media in term of advert generation, and looking at demography and socio-economic set up of Nigeria, they will continue to be in the foreseeable future.  The fact that about two third of Nigerian newspapers income is coming from advertising will continue to make soliciting for advert highly competitive and unethical practices in order to get advert the order of the day.

      But, one major stumbling bloc that continues to act as hindrance to the development of unbiased media in Nigeria is the ability of advertisers to use their power to influences editorial content in many of Nigeria’s newspapers. Because of the fear of reduction in advert revenue many papers allowed politicians and corporate bodies to influence their news reportage. This must stop if the Nigeria media industry is to maintain it good name, which put it above   other media industries across Africa, who are held hostage by their country’s governments. Despite the grim future for the print media world wide, as a result of competition from the internet, Nigeria’s print media is going to witness growth in advert revenue. This is for the simple fact that Nigerian economy is currently witnessing growth, and as the economy prosper the number of advertisement placed by corporate bodies and government will increase, putting the print media in better position to generate more revenue and jobs. Another major area for growth in revenues is circulation, as the economy moves forward as expected; the number of middle income earners will increase thereby boosting the number of people with pocket power to buy a daily newspaper. This scenario is currently taking place in India and China, where millions of people are being lifted out of poverty, giving them the power to buy luxury things such as a daily newspaper. Though, Nigerian newspapers relied on advert for most of their incomes, circulation is going to provide increasing revenue for those that made the critical investments necessary to tap it. For example, more than 70% of newspapers revenues in Japan comes from daily circulation not advert, but this did not come as a surprise, as one of Japan top daily papers has a daily circulation of up to 10 million copies.

      Like is currently been experimented elsewhere around the world, very soon we will start to see Nigerian papers charging for some aspect of their online news, despite the not so successful experimentation of the Punch Newspaper. But as we are witnessing now, competition for online advert will intensify concurrently with that of the print paper. As the industry grows and competition intensifies, one may not rule out the possibility of merger and acquisition in the print media, as investor pours money to benefit from the expected profits. The special report of the Economist concluded, thus: “The biggest shift is that journalism is no longer the exclusive preserve of journalist. Ordinary people are playing a more active role in the news system, along with a host of technology firms, news start-ups and not for profit groups. Social media are certainly not a fad, and their impact is only just beginning to be felt ,……, Successful media organizations will be the ones that accept this new reality. They need to reorient themselves towards serving readers rather than advertisers, embrace social features and collaboration, get off political and moral high horses and stop trying to erect barriers around journalism to protect their position. The digital future of news has much in common with its chaotic, ink-stained past.”

Thursday, December 15, 2011


      I vividly recall the devastating ASUU strikes of Obasanjo era the longest of which lasted for almost nine month, but despite the autocratic nature of Obasanjo he was brought to submission by those strikes especially towards 2003 election period. The education sector and from there the whole of the economy suffered because of Obasanjo insensitivity and ASUU greed. Perennial strike by ASUU has become part and parcel of Nigerian university education, hardly a full year pass without ASUU threatening to go on strike. And, hardly a month pass without government breaking her promises be it to labour unions such as ASUU or the Nigerian masses. Nigeria is unique indeed, unlike her giant continental rivals (South Africa and Egypt) her education sector is in serious comatose condition that it requires nothing less than revolutionary overhauling to make it to catch with those of these rivals. While Nigerian government has been busy talking of putting measures in place to make her economy surpass that of South Africa and become the biggest economy in the continent by 2015, her neglect of the education sector will make that difficult if not impossible to achieve. No economy in the world reach the level the South African economy attained without sound university education system.  While South Africa and Malaysia (another middle income giant) have a couple of universities in the world top 200 ranking Nigeria has none. While the federal government take most of the responsibility for the continue strike in Nigeria, ASUU too has it own share of the blame. Many analysts have become tied of some of these ASUU endless excuses for embarking on their strikes. For example, some of these lecturers themselves are not doing their job according to contract of their employment, as they engage in their personnel businesses and endless travels. These habits of the academicians have contributed in no small way in the present problems our university system is facing. In a country where her universities churn out half bake graduates, the economy suffers as a result. In developed countries around the world, nations are proud of their graduates (as they are up to any task) but the same cannot be said here in Nigeria. These scenarios left many employers with the task of spending millions of Naira in giving training to these graduates before putting them into a proper task. While some employers resort to employing secondary school leavers and given them the training needed, and at the end paying lower monthly payment to them than graduates.  Skill labour is the most important component of rapid economic growth and development at the heart of East Asian success stories, which was made possible by massive educational investments of these countries over the years. Thus, there is a direct connection between economic development and educational growth. The monetary cost of any lost working day lost to the current ASUU strike is huge as it runs into billions of Naira, both in term salaries and wages, as well as lost productivity. 

        Despite the poor research and innovation capability of our present set of universities, incessant strike will continue to jeopardize the little research they are undertaking. The kind of research and development activities that can put Nigeria in the league of developed nation cannot take place in a disruptive environment like the one we are currently witnessing in our universities. It is, therefore, clear that the current ASUU strike will have negative effect on our industries and from there our Gross Domestic Products (GDP). As Daily Trust argued in her editorial of Tuesday December 13, 2011, ‘the physical structure of many universities are substandard, books are either out of date or not available, the conduct of examinations does not meet minimum requirement, and the standard of learning, especially of English, is atrocious.’ No concrete learning and research can take place in atmosphere such as this, hence, the sympathy that ASUU continue to generate from the Nigerian public, and people condemnation of federal government's 'I don’t care attitude' towards the education sector. But, at the same time we have to acknowledge the fact that ASUU continue resort to strike is jeopardizing the very sympathy they have garnered so far from the public. What is the way out? First and far most federal government must realize that it vision of taking Nigeria into the league of 20 largest economies in the world cannot be realistic without the simultaneous empowering of our education sector and the power supply, two key raw materials for boosting economic growth in Nigeria. Like the federal government is giving it self a target of putting Nigeria in the league of 20 largest economies, it should also give itself the target of putting the best of Nigerian universities into the league of top 100 universities in the world. This however, will not be realistic without both ASUU and federal government coming to the understanding that they both have a stake in this endeavor. Federal government is in this case undermining it own economic agenda by neglecting to strike a compromise with ASUU, likewise the academic union cannot achieved what it set to achieve without bringing the federal government into buying its idea of reforming the education sector. It is a shame that despite the return to democracy in 1999, Nigerian government cannot move up it budgetary allocation into the education sector beyond the range of 2-4%, when our West African neighbours such as Ghana are allocating up to 20%. Ghanaian economy is today one of the most dynamic in Africa and is on the road to achieving emerging market status, depending on the angle from which you view the matter.