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Friday, April 18, 2014

ISLAMIC BANKING IN NIGERIA: THE FUTURE OF THE SYSTEM AFTER SANUSI LAMIDO SANUSI


   


      The suspension of Sanusi Lamido Sanusi from his position as the governor of the Central Bank of Nigeria by Nigerian President Goodluck Jonathan and the appointment of a new governor Mr Godwin Emefiele who was former Managing Director of Zenith Bank Plc has left many people wondering about the future of Islamic Banking and finance in Nigeria. The movement for the establishment of a fully pledge Islamic Bank (Ja'iz Bank) in the country has been on for almost a decade before the coming of Sanusi Lamido as CBN governor. But, it was only after he became CBN governor that that dream was realised with the starting of operation of Ja'iz Bank plc in January 2012. Before him other Central bank governors (especially Soludo) have made noises about how they wanted to see the realisation of the bank, including drafting policy documents, but up to the time they left the apex bank Islamic banking had remain on papers locked inside CBN headquarters. Now that the person who has put into practice what had been locked in archives of the apex bank has left the bank, what is next for Islamic Banking? Which direction will it possibly take? Would its growth and dynamism be sustained looking at the controversies that trailed the establishment of the system in the last two years and the antecedent of the new governor? These are some of the questions we will be looking at here, because no body can tell you the agenda of the new CBN governor and whose interest he is there to protect.

   Mr Emefiele spent most of his 26 years in commercial banking business with Zenith Bank Nigeria Plc. He is not very well known outside the banking industry or known to harbor any animosity against Islamic finance. But, that is where it stops as stakeholders in the industry have to watch his move closely (now) to see whether he will continue from where Sanusi stopped. Already Ja'iz bank plc has seen multiplications in its capital base and deposits, and has continued to open new branches almost on monthly basis hoping to became a national bank in the nearest future, from it current position of a regional bank. On April 17-19 this year, precisely at the time of the writing of this article, the international institute of Islamic Banking and finance (IIIBF) Bayero University Kano is holding an international conference on Islamic Banking and Finance. This effort no matter how small it is, is commendable as it will go along way in keeping the fire of Islamic finance in Nigeria burning. If the past pronouncement of the current finance minister Dr. Ngozi Okonjo-Iweala is anything to go by it shows that the minister appreciated the contributions of Islamic finance to the global economy. Thus, the Islamic banking and finance industry in Nigeria has not much to fear from her. As a matter of fact her former employer, the World Bank has recognized the contributions of Islamic Economics and finance to the global economy for over two decades now; and has commission a lot of research works on the area.



   Nigerian Wealthy, academics and professional bankers has not done enough for the development of Islamic banking in Nigeria. Imagine the fact that the richest man on the continent is a Muslim from northern Nigeria, but despite that he has done little for Islamic finance because of fear of being seen as Islamic enthusiast by non Muslims. Other wealthy Nigerian Muslims are in abundance but only handful of them has shown any desire to contribute to the field, if not for the sake of God then for the sake of profit or both. This will go a long way to tell you that most of the Nigerian Muslim communities are ignorant of the workings of the system and the profitability hidden their. Many recent studies have shown that on average Islamic banking is more profitable than conventional banks and more risk averse (Hassan and Dridi, 2010). Despite efforts to establish Islamic banks in Nigeria dating back to over two decades ago, there is only one Islamic Bank in Nigeria today. But take for example in the D8 group where Nigeria is a member, all the rest of the seven members countries (including secular Turkey) has more than one Islamic Bank and their numbers is fast increasing. The reasons for the rapid growth in the Islamic financial sector in these countries are not difficult to fathom. First, the authorities has provided the enable environment for the sector to grow; second, elites have recognised the advantages inherent in getting involve in the system; third, the general populace are being educated about the workings of the system.

   Nigerian academics are slow in catching up with their counterparts around the world in the area of making scholarly contributions towards the development of the field. When compared with any other member of D8, the number of scholarly papers on Islamic economics and finance produced in Nigeria in a year is insignificant; it is not up to the volume produced by a single university in Malaysia or Pakistan. This is very worrying looking at the fact that more than half of the population of Nigeria is Muslim and the fact that there are more than 30 universities in Muslim dominated states, half of them offered some economics, finance or management courses. The number of Muslim economists who are actually interested in Islamic economics and finance and are ready to contribute their quarter to the field is insignificant. Most are afraid of the field for fear of discrimination in Nigeria's charged labour market, where being associated with a particular religious thing is seen as being sensitive matter. Though, the coming on stream of Ja'iz bank has changed that perception a little bit by bringing Islamic finance into the main stream and demonstrating to the non Muslims in Nigeria that they have nothing to fear, a lot need to be done. Among the current employees, shareholders, and customers of Ja'iz Bank Plc there are many non Muslims who are happy to be associated with the bank and who feel at home when dealing with it. 



   With only one Islamic bank, two conventional banks operating a window of Islamic bank, and a shariah base Mutual Fund Company, it is just the beginning of Islamic banking in Nigeria as there is more room for growth. Without the will on the part of the authorities in the apex bank the continuous rapid growth the sector has witnessed in the last three years will be jeopardized. Hence, the need on the part of Muslim leaders in the country to make it clear to the authorities the fact that they need Islamic banking or their (Muslim) economic and religious interest will be jeopardized. Sanusi's tenure as CBN governor has done a lot in laying the foundations for the take off of a robust Islamic Banking industry; what remains is for stakeholders in the industry to insure that nobody comes and take them backward. First, the rich Nigerian Muslims should join hand together with Muslim banking professionals to establish another Islamic bank. This will ensure that unnecessary pressure is not mounted on Ja'iz and that a partner bank is provided to Ja'iz which will help to ensure that authorities provide the necessary infrastructures needed for the development of Islamic banks such as Islamic liquidity facilities. Second, more capital should be invested in Ja'iz and more Muslims should patronized the bank in order to make it more profitable and ensure that additional investors both within and outside the country bring their money to the industry. 

NOTE:
Hassan, M. and Dridi, J. (2010), “The effects of the global crisis on Islamic and conventional Banks: A                                                              Comparative study", IMF working papers, WP/10/201

Saturday, April 12, 2014

MINTs, PINEs, and NIGERIA'S NEWLY REBASE GDP NUMBERS





Last Sunday the 7th of March 2014, Nigeria announced it newly re-base GDP figure last revised in 1990. This year January Jim O'Neil, a British economist and former employee of the investment Bank Goldman Sachs came out with the new acronym of MINT (Mexico, Indonesia, Nigeria, and Turkey) more than a decade after he coined the popular acronym BRIC (Brazil, Russia, India, and China). Very recently come PINE (Philippines, Indonesia, Nigeria and Ethiopia) another acronym that added Philippines and Ethiopia as possible important players in the global economy or the region of the world they are located. Now that Nigerian economy is the biggest in Africa and 26th in the world, the important of Nigeria inside MINT and similar groups will increase. Nigeria's journey to the present has been thorny full of up and down and some time threats of breaking up into pieces. Some time during the tenure of President Obasanjo an American forecast saw Nigeria breaking up in 2015, other different forecasts saw Nigeria entering the league of 20 biggest economies in the world, 3rd most populous country in the world, etc. MINT and PINE acronyms are among the positive predictions on Nigeria that see it as playing a positive role in the global economy.


     The last re-basing of Nigeria's GDP have shown the world the potentiality of the Nigeria economy different from the picture the outside world has been relaying on in the past that show Nigeria as a slow growing economy and extremely comatose. Though, the re basing has changed nothing on the ground, neither the poverty level nor the absence of electric power has improved. But, the fact that it has provided a new reality, a new way of looking at things, from the point of both the authority and the business world, is a welcome development. Nigerians will now be sure that their governments have not been doing enough to improve their lot, looking at the size of the GDP and the enormous potentiality on the ground. Already a trend has become clear that shows consistent government in ability to direct the economy in the right direction. The main question to ask is what next after the re-basing? Should Nigerians go to sleep knowing that their nation is now the biggest economy on the continent? The answer is absolute no, if anything this newly release GDP figure is a call to duty for the authorities to rise up to the expectation and do the needful to take the country to where it truly belong. Instead of talking and making noise about our potentials which has been the norm since after Independence we should pay more emphasis to seeing that we realized those God given potentials. 

   With a big population such as ours Nigeria should have utilized the opportunity to modernize its retail sector, instead; just like with most other sectors of the economy the retail sector has been the way it was in the last 30 years with little changes. Government should have encouraged the rapid modernization of the sector embark on by some few foreign retailers as well as pockets of our local retailers. Just last three weeks, the ancient city of Kano witnessed the opening of its first modern retail market when Ado Bayero Mall was opened to the public with retailers such as South Africa Shoprite among it first tenants, with others such as  Massmart (a subsidiary of Walmart) joining them in the next few weeks. With population of over 10 million people, Kano and Lagos are the places to be for any retailer who wants to get across to the Nigeria's growing population of the middle class. When you compare Nigeria with some members of these groupings (MINT, PINE, even D8) you will find out that Nigeria has a lot of ground to cover. Take for example Mexico, it is already a manufacturing hub that exports automobiles, electronics, etc., to countries such as United States; Turkey Exports the same category of things to the European Union, the same thing cannot be said of Nigeria. Even Indonesia cannot be compared to Nigeria in term of manufacturing, they are ahead of us in this area. In fact for some years, made in Indonesia products have been all over Nigerian market. 



         Already an argument has been growing in the country on the newly released GDP figure with many Nigerians questioning the accuracy of the figure given as our new GDP number, as well as our position of being the biggest economy on the continent ahead of South Africa. On my part, i am not in any way doubting the figure, the fact that IMF and World Bank are involved in the re-basing program gives it some authenticity. But, the reality of our poverty is also real, world Bank has just released it study on global poverty where Nigeria is ranked third. This did not in any way contradicted the earlier released GDP figure, just like it is in the case of China and India. China is the 2nd largest economy in the world ahead of Japan, Germany, France and UK; but, at the same time it is grouped alongside Nigeria and India among the countries with largest concentration of poor in the world. Just as i read one Nigerian government official disputing the world Bank study, arguing that Nigeria is not as poor as the World Bank put it. I don't think this highly place government official is going around the country, it is most likely that he lives most of his live in Abuja luxury where life is like in other big world cities. He has forgotten that here in Kano city people spend a week without seeing electric light; Nigerians in rural areas have adjusted to the live of penury and hardship, and have lost any hope that government will remember them one day. Therefore, for those disputing the World Bank study that ranked Nigeria number three should please have a rethink and travel to their villages back home so as to share time with their people and feel how it is like to live their.