No doubt, the CBN guidelines on non-interest finance have been long awaited due to the fast growing scale and demand for Islamic banking globally as Islamic finance is now practiced in Europe, America and Asia. Britain established the Islamic Bank of Britain in August 2004 and major banks such as HSBC, Citibank and Lloyds Bank created subsidiaries or banking windows to provide Islamic banking services to customers in the UK and around the world.
There are at least eight major Islamic banks in Britain (HSBC Amana Finance, Barclays Capital, Islamic Bank of Britain, ABC International, Citibank, Lloyds Bank, Halal Financial Services, and Ahli United Bank), four in the United States (Amana Mutual Funds Trust, LARIBA Bank, MSI Financial Services, and Manzil USA), two in Germany (Arab Bank and FAI WEBER), one in France (Arab Bank Corporation), and more than eight in Malaysia (Standard Chartered, OCBC Al-amin, HSBC Amanah Malaysia, RHB Islamic Bank, Unicom Bank, Hong Kong Islamic Bank, Asian Finance Bank, Public Islamic Bank, amongst others). Nigeria, with a large Muslim population of about 70 million, and a macro-economic strategy of situating Africa’s financial hub, cannot lag behind in such a strategically important sector of the global banking and financial industry.
In 2013, Osun State raised infrastructure funds using a sukuk (bond) which was listed in the Nigerian Stock Exchange and given an A rating by Agusto & Co, a credit rating agency. The role of Shariah-compliant asset fund managers, capital market solicitors and issuers in the sukuk issuance in Osun State and its oversubscription at 60 percent are illustrative of not only the promising growth rate of the sector but a call for a more codified regulatory framework and guidelines by the Securities and Exchange Commission aimed at promoting future sukuk issuance and protecting investors’ interest in Shariah-compliant investments.
The regulatory framework should also provide for increased but regulated licensing requirements for Islamic fund managers, provisions for corporate governance, enhanced operational standards, enterprise-wide risk management, accounting, audit and disclosure requirements, advisory council of experts (Shariah Advisory Board) requirement, rendition of periodical regulatory return on Shariah compliance and prudential guidelines relating to fund reserve, liquidity ratio and provision for asset losses.
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The regulatory framework will also instil confidence in foreign investors, particularly those from the Middle East who own some of the world’s largest sovereign wealth funds. Most of these sovereign wealth funds are currently exploring opportunities in emerging markets and are inclined to Islamic finance principles. The Islamic Corporation for the Development of the Private Sector (ICD), a subsidiary of the Islamic Development Bank (IDB), has expressed its commitment to expand its investments in Africa. The ICD and IDB have joined to launch a project facility fund, with $4.5 million initial funding aimed at 10 projects in Africa. ICD has also extended a $100 million line of financing to Nigeria to fund SMEs in the country which are being disbursed through four local Nigerian banks.
Standard Chartered Bank (SCB) made its entry into Kenya in April 2014, capitalising on its existing network of 28 conventional banking branches in the country where enquiries about and demand for Shariah-compliant financial products have been increasing and using its unit in Nairobi to spearhead its Islamic finance activities into other African countries. One may wonder why SCB chose to launch its debut operations in Kenya rather than South Africa or Nigeria, the two largest economies in Africa. One of the major drivers of SCB’s decision to use Kenya as a hub is the country’s adoption of the Capital Markets Master Plan (CMMP) which, though still under consultation for review, has detailed proposals for developing an Islamic finance and capital market synergy in Kenya both in the short and medium term. (African Banker, 2nd Quarter 2014, Issue 28).
It is evident today that the growth of Islamic finance in Nigeria requires legal practitioners (both internal and external), regardless of their faith, to scale up their knowledge and exposure to Islamic banking and finance. They will create the viable synergy between Islamic finance and the Nigerian capital market. They will prepare Islamic commercial contracts for businesses and ensure Shariah and business compliance. The pending applications to the CBN from conventional banks for non-interest banking licences testifies to the avalanche of demand soon to visit the financial market for lawyers who have gained expertise in Islamic finance. Would the present Islamic finance lawyers be sufficient to quench the demand of the industry? Should we secure the services of lawyers overseas as is currently the case when we can and must develop local capacity? This growing niche market prospect is an opportunity for lawyers to once again demonstrate our versatility and creativity as an indispensable driver in the growth of modern-day commerce.
Kazim O. Yusuf
