Achieved Project Works of the Society

Products/Service

- YAT Satchet and Bottled Water
- Al-hayat Microfinance Bank
- Golden Estate and Mortgage
- Murabahah, Musharak, Mudarabah

ISLAMIC BANKING : CHALLENGES AND PROSPECTS
Being A Paper Presented at The One Day Colloquium Organized by The Nigeria Institute of Advanced Legal Studies Held on Monday 6th June 2011, at The University of Lagos, Akoka, Yaba. Lagos, Nigeria.

INTRODUCTION
The topic of this Colloquium:
Islamic Banking in Nigeria has been so over flogged and Nigerians seem to be paying lip service to its practical implementation. A lot of theories have been postulated as to the challenges and prospects of Islamic Banking in Nigeria. There seems to be no practical approach to its implementation. According to Sule Ahmed Gusau, there is nothing new about the idea of Islamic Banking. It has been in the literature over 60 years and many volumes have been written in that respect. (Gusau 1993). To him, what is new is applying the concept to a vast territory like Africa with its diverse ethnic groups, races, colour and religion.
A few attempts which have been made to initiate little practical operations have been stalled by Nigerian government policies which are not favourable to the whimps and caprices of Islamic Banking. For instance, Jaiz investment made a giant stride about eight years ago to make a bold move in this direction. Jaiz went as far as selling shares to Nigerians, individuals and corporate bodies to raise fund to meet the Central Bank of Nigeria condition which has been changed over times. Up till this moment, Jaiz is yet to commence operation because of the Nigerian environment which is believed not suitable for Islamic Banking.
Some look at the introduction of Islamic Banking in Nigeria as an attempt to Islamize Nigeria and Nigerians. It is our opinion that those who have this feeling will change their opinion at the end of today’s colloquium.


BACKGROUND TO THIS TOPIC
Our interaction with members of our immediate environment still shows that a large number of Nigerians lack knowledge of Islamic economy and this makes them to always raise opposition against its introduction and implementation in Nigeria.
Concept of Banking: According to Advanced Learners Oxford Dictionary, Bank is an establishment for keeping money and valuables safely, services rendered by bank in Conventional way are: savings, financing projects, giving out loans on interests basis, carrying out housing schemes and the likes.
However, the interests charged on loans given out to individuals and corporate bodies and the bottle neck associated with the loans have been a bone of contention in the growing economy like Nigeria. The interests charged on loans have been the bane of all our problems in Nigeria and have dastardly affected our economy. Gusau expresses the view that banks and companies in Africa since their inception during the colonial era based their investment operations on norms which are devoid of ethical philosophy. Their operational methodologies are not subjected to any moral value and their ultimate objective is to achieve gains no matter whether tools and methods employed conform to ethical axioms cherished by the society.
Individuals and corporate bodies who think they can make enough money on interests prefer to lodge their money in fixed accounts where interests will accrue on them without using the money to do anything. The resultant effect of this is that, large sum of money that could have been used in creating jobs by individuals and corporate bodies have been indolent. This results in high rate of unemployment in Nigeria and because many young and able bodied Nigerian have no work to do, some of them have turned to robbers, some to hired assassins and some to professional prostitutes.
Hence, money circulate among few individuals who monopolize the economy, exploit others and oppress their subordinates because of the high interest which they have to pay on the money loaned from the banks. This has led to corruptive practices among the young and the old, because the system further enriches the rich and impoverish the poor. These atrocities are so enormous that one cannot exhaust the list. Gusau supporting the above expresses the view that investment philosophy of African banks and companies concede elements of deceit and exploitation and so hoarding and all forms of usurious dealings characterize the western economic institutions.
Islamic Banking: Bank in the Islamic terminology is seen as an establishment where money and valuable properties are kept for safety. Azeez (2007) defines bank as an establishment for keeping money and valuables while banking is a business of running a risk. Uzair sees bank as important financial institutions that mobilizes savings and idle funds in an economy and makes them available to those who can make better and fuller use of them. (Azeez 2007).
Western Banks, the Islamic Banks equally carry out similar services. Services rendered to people are paid for by the people in the Islamic banks. One major difference between the Islamic banks and western type of banking is the issue of interest or usury which western banks charge on money loaned out to people which Islamic banking abhors . This is based on the verse of the Quran where Allah says “ interest is unlawful and trade is lawful”. A confusion arises here where majority of the people confuse interest as profit made on money invested.
Islamic law does not allow trading with money for money i.e a situation where one gets #5 and sells it for #6 to make #1 profit for whatever reasons. This practice will make money to be idle, encourage laziness, promote hoarding, aggravate inflation and may lead to eventual famine or shortage of food and essential commodities in any society. It also leads to the loss of the value of the currency of the nation where more money in one nation may not make meaning in other nations. Supporting this, Roshash (1993) says, Islamic investment is devoid of deceit, dishonesty, ambiguity, usury and exploitation. (Gusau 1993).
Islamic banking in an attempt to curb these evils promotes trading, investments on business and agriculture and giving out of loans on interest free basis to enable people work conscientiously for the money collected with less anxiety of any accumulated interest. The issue of giving out loan on interest free basis is what many Nigerians see as utopian which can never work or be practiced in an environment like Nigeria. It is on this premise that we have decided to fashion out a topic like the Practical Implementation of Islamic Economic Theories of Al-Hayat Relief Foundation as an experiment of Islamic finance currently in operation in Nigeria.
This foundation has attempted to practicalise some Islamic Economic theories in its fourteen years of existence which has proved that Islamic banking can thrive in Nigeria irrespective of all odds. Al-Hayat Relief Foundation was established on March 15th 1997, was registered with the Corporate Affairs Commission as a foundation in the year 2000 with Registration No CAC /IT/NO 18559. The foundation has as its objectives to carry out all the pillars of Islam and more importantly to champion the course of Islamic Economic system and to grant interest free loans to registered members of the foundation.
Presently, the foundation has 36 branches across Ogun, Lagos, Oyo, Osun, Ondo, and Kwara states of the Federation with a population of about 4500 members.

Products of the foundation:
The foundation carries out the following among members:
1. Interest free loans
2. Self Development Interest free loans
3. Takaful- Self Managed Group Life Insurance Scheme
4. Qard Hassan - Benevolent Interest free loans
5. Murababah – Cost + Profit trading business scheme among members.
6. Musharakah – Partnership business scheme among members
Interest free loans:
Members enjoy interest free loans to the tune of one million naira. Loans between #1000 and #200,000 are repaid within twenty months, loans between #200,000 and one million naira are repaid within thirty months. Also, members enjoy Self Development Interest free loans of #20,000 payable within ten months. Loans above #200,000 attract the bank transaction charge of COT/VAT depending on the amount charged by the bank on the varied amounts of loans granted by the foundation. The foundation runs its activities with a sum of #50 development levy paid monthly by members.
Takaful – The foundation manages a Group Life Insurance Programme for members for initial five years. Members pay a premium of #1000 per year and on eventual death of a member, the foundation gives a compensation of between #20,000 and #60,000 to the relatives of the deceased depending on the number of years for which the member had paid premiums to the foundation.
Qard Hassan: This is a benevolent token loan given to some members for upkeep and feeding to keep soul and body together depending on when their economic situation will improve. It is the belief of the Board of Trustee of AL-Hayat that the living must be catered for and that we should not wait until members die before we start to pity and mourn them.
Zakat and Sadaqah :
The foundation has a committee who collects and disburses Zakat and Sadaqat funds. All monies collected are receipted and financial reports of how the money is expended is given yearly.
Yat Water Factory:
The foundation succeeded in establishing a pure water factory in the year 2009. The rationale for mentioning this is not to showcase our achievement but to practically portray Islamic economic enhancement for members and the future financial sustainability of members’ children.
Golden Estate:
The foundation also succeeded in acquiring about 23 acres of land at Ilefun along Iperin Ijebu ode, Ibadan Road. No loan was taken to finance this gigantic project, branches subscribe to acquire the land and work is gradually commencing on the area.
Business :
Business is the life wire of AL-Hayat. The foundation runs Murabahah—cost + profit type of business and Musharakah – Partnership business, rental, transport and a host of others to generate money and profits made are shared among members based on the amount of shares they have in their accounts. These shares are used purely for businesses and are not added to savings when granting loans. The term Mudarabah according to Muhammad Sharif Chaudhry (2003) is seen as a special kind of business partnership where one partner gives money to another for investing it in a commercial enterprise. This investment comes from the first partner who is called rabbul mal while the management and work is an exclusive responsibility of the other, who is called “mudarib”.
Muhammad Nejatullah Siddiqi (2005), defines Mudarabah as a contract in which one party; the owner (Rabbul-Mal) provides capital while the other party (Darib) provides labour and effort on the basis of a profit sharing in some pre-determined proportions.
Most of these activities are operated at two levels: {i] National level where the National Executive Council takes care of the branches.
{ii} Branches level – where the branches take care of individual members. The foundation uses the branch levels to get to the grassroots where the needs of individual members would be met and catered for.

Challenges:
Challenges facing AL-hayat in its fourteen years of operation could serve as eye – opener or test grounds for Islamic Banking in Nigeria.
a] Defaulters on Loans :
A few percentage of members does not pay back loans taken as at when due. This sometimes delays other intending loan seekers to get theirs on time. The foundation has put debt recovery committee in place to address this issue and this has done wonders because it is helping in reducing the problem. It is important to note that Al-Hayat has not recorded any bad debt in its past fourteen years of operation.
[b] Betrayal of Trust :
Some leaders betray the trust repose on them ,they become insincere and act against the oaths they took before Allah and members by mismanaging the money put in their care and using it to their personal advantage.
Such leaders where detected are immediately removed from office and are made to pay back the money mismanaged. A particular case is worth mentioning here of a chairman of a branch who mismanaged about 1.207million naira in the 2009 - 2010 financial year.
The foundation’s lawyer was charged with the responsibility of charging him to court. The case is still in court and the chairman has been paying back the money mismanaged.
[c] Misconception of Islamic Economic Programmes by Members:
A large number of members still have wrong perception of Islamic finances. They conceive the western economic practices as same with Islamic finances which are not parallel to each other. What the management of the foundation does to correct this impression and wrong notion is to organize seminars ,lectures, workshops and training for members to educate, enlighten and re- orientate their psyche to Islamic finances.
[d] Establishing branches at Distant places. Another challenge facing the foundation is the inability to meet demands for request of branches in distant areas. For instance requests came Gboko in Benue state and Abuja for the inauguration of AL- Hayat Relief Foundation branches. We have not been able to meet this because, where ever we put up a branch, we send a chairman there to build the branch in our unique way for at least a duration of two years. It is a big challenge to get personnel for Islamic banking in Nigeria presently.
[e] Bank Policies and Regulations :
The foundation faces a little challenge from our bankers. The foundation does not have a bank of its own presently, we have an asset close to three hundred million naira , we give out loans through these banks. For instance ,in the last financial year that ended march 2011,the consolidated account of all the branches revealed that a total sum of 152 million naira interest free loan was given out to members . Most of these banks charged COT and VAT on cheques issued to members amounting to #685,985.This was the amount paid to banks even when we gave out interest free loans. There is no doubt that if we have Islamic bank, the challenge will be easily overcome for it will serve as clearing house for all the existing members of Al-Hayat Relief Foundation.
[f] Non – Muslim Membership :
The foundation presently cannot register non-Muslim members because of freedom of religion and in other not to lord our religious policy on them. Our Christian counterparts who have seen the beauty in this interest free operations have been agitating to become members. But we still cannot accommodate them because of our constitutional provision. If however Islamic banking can be established, this will easily accommodate them because the operation will not be restricted to Muslims alone. A good example is the case of Islamic Bank International of Denmark which is thriving well in a non –Muslim environment.(Gusau 1993).

Prospect of Islamic Banking in Nigeria:
The past fourteen years of AL- Hayat Relief Foundation’s experiences have shown that Islamic Finance, Islamic Banking inclusive can flourish and thrive well in our country .The foundation’s practical experience reveals that many Nigerians are ready and are willing to do good if the suitable environment and good leadership are provided.
The prospects of Islamic bank in Nigeria include:
a. Building of Trust / Transparency :
Islamic financing is aimed at the building of trust. This can be guaranteed where transparency is exhibited .
b. Tranquility of Mind :
Islamic banking will promote tranquility of mind in the sense that loanees will have little anxiety which characterize interest loans of the western banking system.
c. Creation of more Job Opportunities :
Islamic banking will assist in the creation of job opportunities. This is because before loans are granted, the bank which is not after interest alone but also after the utilization of loans and after easy ways of paying back will guide and advise loanees before taking up loans .The Islamic bank will also monitor that the loan is judiciously used.
d. Reduction on inflation :
Possibility of hiking price will be reduced to the bearest minimum. This is because loans taken if invested on a business, the loanee will not have to pay a dine above the amount of loan collected.
e. Circulation of wealth among many people:
Islamic banking will take care of low income traders since the priority is not to make interest but to build the citizenry economically. It will make the economy grow because the individual economy contributes to the societal economy. It will assist in getting in touch with people at the grassroots level, it will discourage monopoly of business transactions, breaks up hoarding of essential commodities by a few individual and it will make development direct to all and sundry.
Today, through the practical implementation of a few of the banking or Islamic financial services in AL –Hayat, many people who never thought they could own a car have become car owners, those who never thought they could build houses have now becomes landlords and many widows through self development interest free loans and assets left behind in AL-Hayat by their husbands have become small scale business women to mention a few.


SUGGESTION:
Our suggestion is that it is high time we move away from postulation of theories but to take further steps in the area of practical implementation. The fear we have that it might not succeed should be put aside and follow the Quranic ayat that says “ whoever makes a move on our path, we shall make him succeed on the path”. Efforts should equally be made to complement Al-Hayat initiatives and moves towards realizing Islamic banking services in Nigeria. Like minds and bodies should work together to have a concerted efforts which could make it easier and quicker in floating an Islamic bank in the country.


CONCLUSION :
Islamic Banking no doubt is long overdue in Nigeria. Nigeria is a democratic country where we have freedom to do everything that is lawful. AL-Hayat as a body uses this medium to appeal to the government to provide a suitable an conducive level play grounds for all in the banking industry to thrive. Uniqueness of Islamic Banking is to be put into consideration when formulating policies and setting standards and guidelines for intending banking operators in the country.


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