Islamic banking under the existing laws in Nigeria : problems and prospects

Abstract

For the first time in the history of the Nigerian Banking Laws, Banks and Other Financial Institutions Decree (BOFID No. 25), 1991 permitted the establishment of Profit and Loss Sharing (PLS) banking which is the hallmark of Islamic Banking system. However, 16 years after the promulgation of the Decree, the establishment of the banking system has been made unrealisable by the bottleneck constituted by the same law and other banking related laws, governmental policies and the attitude of the Muslim populace amongst others. This state of affairs runs riot to the historic past, the acclaimed religiosity and the dominant population of the Nigerian Muslim ordinarily justifying the demand for the establishment of Islamic banking system in the country. This research, therefore, investigates the problems and prospects of Islamic banking system in Nigeria. It was conducted vide qualitative and quantitative research methodology. Data were obtained from the primary and secondary sources in the library, questionnaires were also administered and scheduled interviews conducted with bank practitioners, and stakeholders in Islamic Banking practice on the field. Descriptive, narrative and contextual analysis research techniques were adopted in processing the gathered information. At the end of the research, it was found that the agitation by the Nigerian Muslims for a return to full application of Shará?ah including establishment of Islamic banking system has relationship with the heritage of the caliphate system which would have on its own evolved the banking system if not for the colonial intervention. It was revealed that although PLS banking system is approved by the main Nigerian banking law, yet, its provisions are restrictive and lacking in comprehensiveness requisite of the system’s smooth operations. Interest based economic system and fiscal policies of the government, pervading corruption, porous legislative process, the prevailing religious bigotry and judicial crises were identified as threats not only to the establishment but also to the smooth operations of Islamic banking system in Nigeria. On the other hand, the renewed trends of Islamic consciousness, the gradual sanity of the banking industry accompanying the government’s tackling of corruption; and the enactment of some Islamic laws by some states are positive indices already vanquishing the threatening factors. In the same way, the strong capital base, resultant of the banking reform; the recent government’s subscription to membership of Islamic Development Bank; and the loss of public confidence, due to failure of the conventional banks were revealed to be factors creating enabling environment for the establishment and smooth operations of Islamic banking system in the country. The significance of the research lies in the identification and appreciation of the foregoing problems and the solutions proffered to avert or curtail their negative consequences. The prospects that could be taken advantage of, to enhance the possibility of the establishment and operations of the banking system were as much highlighted.