Elementary concept in Islamic Banking dates back to the mid-1940s. Comprehensive details appeared in the late 1960’s. The first experiment was set up undercover in MitGhamr Egypt, 1963 (the model was German Savings bank modified with Islamic principles. Islamic Development Bank was established in 1974. Since then, other Islamic banks were established such as; Dubai Islamic Bank in 1975, Faisal Islamic Bank in 1977, Egyptian Bank and Islamic Bank of Jordan 1978, Islamic Bank of Investment and Development, Luxembourg, Europe, among others.
According to report, Islamic finance now accounts for about 1% of the global market. As a matter of fact, Majid Dawood, Chief Executive of Yasaar, a Dubai-based Sharia financing consultancy disclosed that: “We had expected it to be at 12 percent of the global market by 2025, but now with this financial crisis, we expect to get there much faster,”
To this end, in 2008, the Islamic Finance Working Group was formed. Supported by EFInA (Enhancing Financial Innovation and Access), this group brought together the main stakeholders, which include the NDIC, NAICOM, PENCOM, DMO, market operators interested in offering Islamic finance products and the a representative of the Central Bank as an observer. In January 2009, the Central Bank of Nigeria joined the Islamic Financial Services Board(IFSB) as a full council member. In July 2011, Central Bank of Nigeria issued a license to Stanbic IBTC to operate a full-fledged Islamic Banking in Nigeria.
One of the promises that bank berthed with is that, the solution lies in a shift to equity-based financing, which is the primary characteristic of Islamic Finance. The global credit crisis presents the $1 trillion Islamic finance industry with an opportunity to expand its appeal beyond Muslim investor.
Though, people read different meanings to it because of the word Islamic based on the fact that Nigeria is a country that is religious sensitive, the initiative seems to have a head way at the end. For example, the Senior Pastor of Latter Rain Assembly, Pastor Tunde Bakare, at a time said that, “my sympathy for Islamic banking, otherwise known as non-interest banking, is not because of my background as a Muslim but because I am a businessman and I know one will do better without excessive interest. I will be one of the first people that will quickly open an account there, no matter the name you call it because I prefer to share profit and losses with such bank rather than stay under the yoke of paying interest for the rest of my life”.
The Islamic Development Bank (IDB) also promised to work with Nigerian officials to develop a comprehensive plan for the reconstruction of Northern Nigeria. This was made known by the President of the Bank, Mr. Ali in Jeddah, the headquarters of IDB, when he received a high level delegation of five governors from the Northern Nigerian States Governors Forum (NSGF).The delegation, led by the Governor of Borno State, KashimShettima, included AbdullahiGanduje of Kano State, Nasir El-Rufai of Kaduna State, Umar Al-Makura of Nassarawa State and Muhammad Abubakar of Jigawa State.
“We will work together to come up with a comprehensive and constructive plan to support northern Nigeria”, Mr. Ali said. “We will start with education, particularly bilingual education and other areas such as job creation.”
“Before you leave Jeddah, I would like to have a list of your priority areas, from education, power to agriculture and so on.”
In his remarks, the leader of the delegation, Governor KashimShettima of Borno, stated that in Nigeria, “poverty wears a northern face”, therefore the purpose of their visit to IDB is to explore credible avenues to enhance developmental activities.
Mr. Shettima told the President of IDB that the region is suffering from joblessness, low access to education and healthcare facilities, despite the abundant resources in the region.
The Governor of Kaduna State, Mr. El-Rufai told the IDB President that the North-eastern region requires urgent intervention in education, electricity supply and poverty reduction as, according to him, a major cause for the insurgency is poverty.
Speaking on this issue, a financial analyst, Musa Shuaib, told Economic Confidential that “as the developing countries are gearing towards achieving their sustainable development goals (SDGs), it is also important for countries like Nigeria to identify with bodies like the Islamic development bank to in order to monitor their progress and ensure that they are part of countries that will meet with their SDGs.”
According to him, “poverty remains an uphill task in Nigeria, and fighting poverty is one of the cornerstones for liberation. Thus, with Nigeria being member of the Islamic Development Bank, things will become easier for the masses than before. The burden of alleviating poverty is challenging.For instance in 2010, it was estimated that about 360 million people lived on $1.25 per day, out which 60% of the people were from the sub-Saharan Africa. It is also estimated that US$300 billion is needed to eradicate poverty in member countries and IDB will have triple its approval to US$22 billion per annum from the current level of US$7 billion if it is to maintain its relative share.”
Continuing, he stated that: “Former President Obasanjo, speaking in 2000 about Nigeria’s mounting debt to international creditors said, ‘all that we have borrowed up to 1985 was around US$5 billion, and we have paid about US$16 billion. Yet we are still being told that we owe about US$28 billion. The US$28 billion came about because of the injustice in the foreign creditors’ interest rates. If you ask me what the worst thing in the world is, I will say it is compound interest.’ Well it is both simple and compound interest that is evil. On this basis, Nigeria membership of the Islamic Development Bank will be in the good interest of the country.”
Also speaking, a public affairs and financial analyst, Wale Okoya, said: “This concept of financial inclusion is what informed the UK government decision to support the development of Islamic finance in the UK (Mohammed Amin, British Government Policy on Islamic Finance, 6th World Islamic Economic Forum, May 2010), and it also informed the decision of the FSS 20:2020 of Nigeria vision to include the development of Islamic Finance as one of its initiatives as will be mentioned later.”
“There is also a manifest upward momentum of its assets and revenue growth, which indicates as the Banker Magazine says, ‘that Islamic finance is not simply weathering the financial storm, it is moving forward to a new level of industry maturity that will test the long-term viability of the industry and the sustainability of the institutions engaged in Sharia-compliant finance”,he said.
Meanwhile, the Islamic Development Bank is considering making Nigeria its regional operational hub as part of a decentralization strategy revealed at its annual meeting in Jeddah.
The bank’s office in the Nigerian capital of Abuja was opened earlier this year and could act as a focal point for its operations in West and Central African member states.
“We have completed an extensive study of decentralization that included field visits to some development institutions that applied this approach to maximize benefits and avoid draw-backs,” said the bank’s president Bandar Mohammed Hajjar.
“Greater powers would be devolved on regional offices to support them with specialized staff and the transfer there of many operations from the main centre.”
West and Central African nations account for the majority of the bank’s 27 African members. Abuja would serve as a gateway for countries such as Burkina Faso, Cameroon, Gabon, Guinea, Niger, Mali, Senegal and Uganda.
At a side event at the annual meeting, the Bank’s private sector arm, the Islamic Corporation for the Development of the Private Sector (ICD) announced a strategic agreement with China-Africa Development Fund (CADFund), a Beijing-based private equity firm and subsidiary of the China Development Bank, which focuses on Africa.
The deal is intended to mobilise investment in the African Islamic Infrastructure Financing Fund, which will be established by CADFund and the ICD.
ICD Chief Executive Officer and General Manager, Khaled Al Aboodi, commented: “ICD and CADfund share the vision of promoting foreign direct investment, trade, and inclusive economic growth on a continent which is full of potential. By joining forces, we can better combine our expertise and commitment to achieve greater economic prosperity for the benefit of all. Additionally, ICD’s commitment to accelerate infrastructure development in Africa and specifically sub-Saharan Africa will bring at least the basic level of energy, transportation, medical and educational needs of citizens of African member countries.”
In all these, analysts are of the view that while the initiative will aid growth and development, it is also for the bank to be known in other regions of country so that it will not be a northern affair alone, owing to the fact that there large number of Muslims in other parts of the country.