A MAJOR legal battle in the banking sector is on the way, no thanks to the new guideline on Non-Interest Financial Institutions (NIFI) by the Central Bank of Nigeria (CBN).
The guideline, which became operational on January 13, 2011, and signed by the Acting Director, Financial Policy and Regulation Department of the apex bank, Chris.O. Chukwu, introduced religion into Nigerian banking, contrary to the Banks and Other Financial Institutions Act 1991 (as amended).
Already, four Senior Advocates of Nigeria (SAN) have been engaged by some Nigerians to fight the new guideline at the Federal High Court, Abuja.
One of the SANs, who disclosed that the matter would be filed “any moment from now”, said: “We know that it is the right of the CBN to regulate the banking sector, but with this new guideline, what they have simply done is to shut out Buddhists, Animists, Atheists, Christians and others from Non-Interest Financial Institution business by saying you must be Sharia-compliant before you can engage in this type of business or to get licence.
“Nobody is against Islamic Banking or Muslims but what we are saying is that you can’t tell me to be Sharia-compliant to engage in this business in a secular state. There is Islamic banking in Europe and other places, but you can’t find it in their laws that you must be Sharia-compliant”.
Chukwu’s letter reads: “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:
•Guidelines on Shariah Governance for Non-Interest Financial Institutions in Nigeria; and
•Guidelines on Non-Interest Window and Branch Operations of Conventional Banks and Other Financial Institutions
“All enquiries should be forwarded to the Ag. Director, Financial Policy and
Regulation Department, Central Bank of Nigeria, Central Business District, Abuja.”
To opponents of this guideline, Section 61 of the Banks and Other Financial Institutions Act (BOFIA) of 1991 (BOFIA) has already defined a Non-Interest Bank in Nigeria as a “Profit and Loss Sharing Bank”. That is, “a bank which transacts investment or commercial banking business and maintains profit and loss sharing accounts”.
So, the CBN has, through the framework, ‘illegally’ re-defined a Non-Interest Financial Institution as a bank or Other Financial Institution, which transacts banking business “in accordance with Shariah principles and rules of Islamic commercial jurisprudence”.
The stakeholders, in a letter circulated at the weekend, said that the new guidelines “also introduced religion into the Nigerian banking, contrary to the spirit and letter of BOFIA.
Section 39 (1) of the BOFIA 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”.
They added: “Unconstitutional exclusion of non-Muslims from non-interest banking by insisting that Non-Interest Banking products must be Shariah compliant, the CBN has unjustly excluded non-Muslim Nigerians from the emerging Non-Interest Banking business sub-sector, contrary to Section 16 1(d) of the 1999 Constitution (as amended), which states that “without prejudice to the right of any person to participate in areas of the economy within the major sector of the economy, protect the right of every citizen to engage in any economic activities outside the major sectors of the economy.
“By the proposed plan to establish the CBN Shariah Council, which would obviously comprise only Muslims, the CBN would be contravening the Federal Character Principle entrenched in Section 14(3), which states that ‘The composition of the Government of the Federation or any of its agencies and the conduct of its affairs shall be carried out in such a manner as to reflect the federal character of Nigeria and the need to promote national unity, and also to command national loyalty, thereby ensuring that there shall be no predominance of persons from a few states or from a few ethnic or other sectional groups in that government or in any of its agencies’.
“Contravening the secularity of Nigeria enshrined in Section 10 of the Constitution of the Federal Republic of Nigeria, which states that ‘The Government of the Federation or of a State shall not adopt any religion as State Religion’; Contravening the constitutionally-guaranteed freedom of religion as stated in Section 38 (1) that “every person shall be entitled to freedom of thought, conscience and religion’.
Below are the highlights of CBN’s framework for Non-Interest Financial Institutions:
DEFINITION OF NIFI: “A Non-Interest Financial Institution (NIFI) means 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.”
The Glossary of Terms of the CBN’s NIFI Framework states that:
Shariah Principles refer 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”.
NON-PERMISSIBLE TRANSACTIONS:
Interest;
•Uncertainty or ambiguity relating to the subject matter, terms or conditions;
•Gambling;
•Speculation;
•Unjust enrichment;
•Exploitation/unfair trade practices;
•Dealings in pork, alcohol, arms & ammunition, indecency and;
•Other transactions, products, goods or services, which are not compliant with Shariah rules and principles.
•LICENSING PRE-CONDITIONS:
•Evidence of a technical agreement executed by the promoters of the NIFI with an “established and reputable non-interest bank or financial institution”. This, in practical terms, implies compulsory partnership with an existing Islamic bank.
•NIFI’s Memorandum and Articles of Association (MEMART) to state that its business operations will be conducted in accordance with Shariah principles and practices.
•ELIGIBLE TRANSACTIONS:
•Murabahah: Sale of an asset by the financial institution to a customer at cost plus a profit margin.
•Mudarabah: A profit sharing contract where one party contributes his entrepreneurial efforts, while the other provides capital.
•Musharakah: A partnership contract between two or more parties, each contributing capital.
•Ijarah: Lease transaction.
•Salam: Forward sale contract.
•Istisna: Manufacture/construction order contract for manufacture of goods and commodities allowing cash payment in advance and future delivery according to specifications given in the contract agreement.
•Wadia: An amount deposited whereby the depositor is guaranteed his/her fund in full.
•Wakalah: Agency agreement assigning management of funds to a manager for fees.
•Sukuk: Certificates of equal value representing undivided share in ownership of tangible assets.
•Any other financing mode or structure that is Shariah-compliant and approved by the CBN.
CORPORATE GOVERNANCE:
•All licensed NIFIs are to have an internal Shariah compliance review mechanism and a Shariah Advisory Committee (SAC) as part of their governance structure.
ESTABLISHMENT OF CBN SHARIAH COUNCIL:
An advisory body on non-interest banking and financial services to be established at the CBN to be called the CBN Shariah Council (CSC), which is to advise the CBN on Shariah matters for the effective regulation and supervision of NIFIs in Nigeria.
•BRANDING: NIFIs shall not include the word “Islamic” as part of their registered or licensed names. They shall, however, be recognised by a uniform symbol designed by the CBN.
•AUDIT, ACCOUNTING AND DISCLOSURE REQUIREMENTS: NIFIs are required to comply with the relevant standards on disclosure issued by standards setting organisations, including the following:
•Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI);
•Islamic Financial Services Board (IFSB); and
•Nigerian Accounting Standards Board (NASB).
All NIFIs are required to carry out an internal Shariah audit on a periodic basis to examine and evaluate the extent of compliance with Shariah rules.
•LIQUIDITY MANAGEMENT:
•Liquid assets shall be held in line with the provision of section 15 of BOFIA 1991 provided they are Shariah-compliant.
•NIFIs shall not invest their funds in interest-bearing securities or activities. They are required to invest their funds in eligible Shariah-compliant instruments for the purpose of meeting the CBN prescribed minimum liquidity ratio.
•RISK MANAGEMENT:
NIFIs are to comply with the Islamic Financial Services Board’s Guiding Principles of Risk Management for Institutions Offering Only Islamic Financial Services.
The guideline, which became operational on January 13, 2011, and signed by the Acting Director, Financial Policy and Regulation Department of the apex bank, Chris.O. Chukwu, introduced religion into Nigerian banking, contrary to the Banks and Other Financial Institutions Act 1991 (as amended).
Already, four Senior Advocates of Nigeria (SAN) have been engaged by some Nigerians to fight the new guideline at the Federal High Court, Abuja.
One of the SANs, who disclosed that the matter would be filed “any moment from now”, said: “We know that it is the right of the CBN to regulate the banking sector, but with this new guideline, what they have simply done is to shut out Buddhists, Animists, Atheists, Christians and others from Non-Interest Financial Institution business by saying you must be Sharia-compliant before you can engage in this type of business or to get licence.
“Nobody is against Islamic Banking or Muslims but what we are saying is that you can’t tell me to be Sharia-compliant to engage in this business in a secular state. There is Islamic banking in Europe and other places, but you can’t find it in their laws that you must be Sharia-compliant”.
Chukwu’s letter reads: “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:
•Guidelines on Shariah Governance for Non-Interest Financial Institutions in Nigeria; and
•Guidelines on Non-Interest Window and Branch Operations of Conventional Banks and Other Financial Institutions
“All enquiries should be forwarded to the Ag. Director, Financial Policy and
Regulation Department, Central Bank of Nigeria, Central Business District, Abuja.”
To opponents of this guideline, Section 61 of the Banks and Other Financial Institutions Act (BOFIA) of 1991 (BOFIA) has already defined a Non-Interest Bank in Nigeria as a “Profit and Loss Sharing Bank”. That is, “a bank which transacts investment or commercial banking business and maintains profit and loss sharing accounts”.
So, the CBN has, through the framework, ‘illegally’ re-defined a Non-Interest Financial Institution as a bank or Other Financial Institution, which transacts banking business “in accordance with Shariah principles and rules of Islamic commercial jurisprudence”.
The stakeholders, in a letter circulated at the weekend, said that the new guidelines “also introduced religion into the Nigerian banking, contrary to the spirit and letter of BOFIA.
Section 39 (1) of the BOFIA 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”.
They added: “Unconstitutional exclusion of non-Muslims from non-interest banking by insisting that Non-Interest Banking products must be Shariah compliant, the CBN has unjustly excluded non-Muslim Nigerians from the emerging Non-Interest Banking business sub-sector, contrary to Section 16 1(d) of the 1999 Constitution (as amended), which states that “without prejudice to the right of any person to participate in areas of the economy within the major sector of the economy, protect the right of every citizen to engage in any economic activities outside the major sectors of the economy.
“By the proposed plan to establish the CBN Shariah Council, which would obviously comprise only Muslims, the CBN would be contravening the Federal Character Principle entrenched in Section 14(3), which states that ‘The composition of the Government of the Federation or any of its agencies and the conduct of its affairs shall be carried out in such a manner as to reflect the federal character of Nigeria and the need to promote national unity, and also to command national loyalty, thereby ensuring that there shall be no predominance of persons from a few states or from a few ethnic or other sectional groups in that government or in any of its agencies’.
“Contravening the secularity of Nigeria enshrined in Section 10 of the Constitution of the Federal Republic of Nigeria, which states that ‘The Government of the Federation or of a State shall not adopt any religion as State Religion’; Contravening the constitutionally-guaranteed freedom of religion as stated in Section 38 (1) that “every person shall be entitled to freedom of thought, conscience and religion’.
Below are the highlights of CBN’s framework for Non-Interest Financial Institutions:
DEFINITION OF NIFI: “A Non-Interest Financial Institution (NIFI) means 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.”
The Glossary of Terms of the CBN’s NIFI Framework states that:
Shariah Principles refer 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”.
NON-PERMISSIBLE TRANSACTIONS:
Interest;
•Uncertainty or ambiguity relating to the subject matter, terms or conditions;
•Gambling;
•Speculation;
•Unjust enrichment;
•Exploitation/unfair trade practices;
•Dealings in pork, alcohol, arms & ammunition, indecency and;
•Other transactions, products, goods or services, which are not compliant with Shariah rules and principles.
•LICENSING PRE-CONDITIONS:
•Evidence of a technical agreement executed by the promoters of the NIFI with an “established and reputable non-interest bank or financial institution”. This, in practical terms, implies compulsory partnership with an existing Islamic bank.
•NIFI’s Memorandum and Articles of Association (MEMART) to state that its business operations will be conducted in accordance with Shariah principles and practices.
•ELIGIBLE TRANSACTIONS:
•Murabahah: Sale of an asset by the financial institution to a customer at cost plus a profit margin.
•Mudarabah: A profit sharing contract where one party contributes his entrepreneurial efforts, while the other provides capital.
•Musharakah: A partnership contract between two or more parties, each contributing capital.
•Ijarah: Lease transaction.
•Salam: Forward sale contract.
•Istisna: Manufacture/construction order contract for manufacture of goods and commodities allowing cash payment in advance and future delivery according to specifications given in the contract agreement.
•Wadia: An amount deposited whereby the depositor is guaranteed his/her fund in full.
•Wakalah: Agency agreement assigning management of funds to a manager for fees.
•Sukuk: Certificates of equal value representing undivided share in ownership of tangible assets.
•Any other financing mode or structure that is Shariah-compliant and approved by the CBN.
CORPORATE GOVERNANCE:
•All licensed NIFIs are to have an internal Shariah compliance review mechanism and a Shariah Advisory Committee (SAC) as part of their governance structure.
ESTABLISHMENT OF CBN SHARIAH COUNCIL:
An advisory body on non-interest banking and financial services to be established at the CBN to be called the CBN Shariah Council (CSC), which is to advise the CBN on Shariah matters for the effective regulation and supervision of NIFIs in Nigeria.
•BRANDING: NIFIs shall not include the word “Islamic” as part of their registered or licensed names. They shall, however, be recognised by a uniform symbol designed by the CBN.
•AUDIT, ACCOUNTING AND DISCLOSURE REQUIREMENTS: NIFIs are required to comply with the relevant standards on disclosure issued by standards setting organisations, including the following:
•Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI);
•Islamic Financial Services Board (IFSB); and
•Nigerian Accounting Standards Board (NASB).
All NIFIs are required to carry out an internal Shariah audit on a periodic basis to examine and evaluate the extent of compliance with Shariah rules.
•LIQUIDITY MANAGEMENT:
•Liquid assets shall be held in line with the provision of section 15 of BOFIA 1991 provided they are Shariah-compliant.
•NIFIs shall not invest their funds in interest-bearing securities or activities. They are required to invest their funds in eligible Shariah-compliant instruments for the purpose of meeting the CBN prescribed minimum liquidity ratio.
•RISK MANAGEMENT:
NIFIs are to comply with the Islamic Financial Services Board’s Guiding Principles of Risk Management for Institutions Offering Only Islamic Financial Services.
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