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Christians Resist Islamic Banking   
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The decision by the World Bank Group to push for Islamic banking as a more sustainable alternative to conventional banking practices has met opposition from some Christian leaders, who argue that the move could increase religious violence in countries whose population is almost evenly divided between Muslims and Christians.

Many Christian delegates at the just-ended 2015 World Bank/IMF Spring meeting in Washington DC, USA told Business Day that promoting Islamic finance at a time when security forces across the globe are battling Islamic fundamentalists could be dangerous to the world economy at large.

Bishop Fred Anyansi from Nigeria stated: “We have too many religious tensions in terms of Islam against Christians. The policies for Islamic banking are good in the sense where there is no loan and interest. But what we are trying to say is that the world is not mature for it now.”


How Islamic Banking works

Islamic banking, which implies the avoidance of interest, has become a substantial industry during the last four decades. The industry, which exists in more than 50 countries, is estimated to be worth around $1 trillion and has the potential to eventually be worth $5 trillion in the next three years, according to international credit ratings agency, Moody's.

As an increasing number of people are dissatisfied or sceptical about the banking services they receive, and see them as exploitative or even unethical, many view the emergence of Islamic banking as a curiosity, and perhaps even a business opportunity, and one that lends itself to dialogue between Westerners and Muslims.

Spread across the Middle East and other parts of the world, a slew of Islamic financial institutions have been offering interest-free services that advocates say can provide a more sustainable alternative to conventional banking practices.

Charging and paying interest is not allowed in Islamic finance because it is prohibited under Sharia law. Instead, if a bank is providing finance for an infrastructure project, for example, the bank and customer agree to share the risk of investment and divide any earnings.

Madam Hajara Adeola, Managing Director of Lotus Capital, one of the groups helping to pave the way for Islamic finance in Nigeria told Business Day: "One of the most well-known principles is the lack of interest, so you can't own a return simply for having money. You would have to somehow employ that money into productive use and then you can earn a return on that money.”

Islamic banks are also not allowed to trade in financial risk areas or deal in mortgage-backed securities or credit-default swaps. Investing in Islamically unacceptable businesses such as alcohol and cigarette makers, casinos and adult-entertainment companies is also forbidden.

According the International Monetary Fund (IMF), Islamic finance assets grew at double-digit rates during the past decade, from about $200 billion in 2003 to an estimated $1.8 trillion at the end of 2013.

A new IMF study compares the performance of Islamic banks and conventional banks during the recent financial crisis, and finds that Islamic banks, on average, showed stronger resilience during the global financial crisis.

Ernst & Young, a consultancy and accounting firm, estimates that Islamic banking assets grew at an annual rate of 17.6% between 2009 and 2013, and will grow by an average of 19.7% a year to 2018.

Mr. Khalid Howladar of Moody’s, a rating agency, calls this “a landmark year” for Islamic finance, in that it is moving from “a very obscure asset class to one that’s more global.”


Criticism from Christians

Research from Lotus Capital Limited in Nigeria shows there is a growing appetite for Islamic finance as approximately 30% of the Muslim population around the world would be interested in Islamic finance. However, many Christian leaders said this could inflame religious violence.

Andrea Williams, one of the delegates from United Kingdom said: “This is terribly short sighted.”

The Christian Association of Nigeria recently said the introduction of Islamic banking could stir up religious tensions at a time when security forces are fighting Islamic fundamentalists who want an independent state in northern Nigeria ruled by Islamic law.

Britain's enthusiastic support for Islamic banking raised concerns in Washington that the City of London could become a centre of terrorist funding.  Washington was also keen to discover whether British regulators and anti-corruption investigators had the capacity and effectiveness to monitor Islamic banks.

Information on the types of customers who have accounts with these banks was also requested. Research in 2009 found that Britain's Islamic banking sector is the biggest in Europe, and larger than many Muslim nations, including Pakistan.

However, Madam Hajara Adeola, Managing Director of Lotus Capital, one of the groups helping to pave the way for Islamic finance in Nigeria told Business Day that Islamic finance is not a threat and can appeal to the country's Christian community as well Muslims.

"Islamic finance is universal," she says, adding that, there is nothing about it that offends anyone or offends their faith or their principles.

Madam Adeola continued: “If anything, there are many Christians who like to invest with us because it's also in line with their own ethical values.”

In Nigeria, Jaiz Bank International became the first group to be allowed to open a Shariah-compliant bank in Nigeria after gaining an approval in principal from the country's Central Bank.

Home to some 70 million Muslims, Nigeria is stepping up efforts to capitalize on the growing popularity of one of the world's fastest-growing financial sectors: Islamic banking.

“Islamic banks also, deliberately, we don't finance anything that is harmful to society. So we only look for projects that make positive impact in people's lives,” Mohammed Mustapha Bintube of Jaiz Bank International has said.


Setting up Islamic Bank in Ghana

In Ghana, the Banking Act is being reviewed to incorporate the concept and governance of Islamic Banking and Finance in the country. This is to pave the way for the establishment of banking practice in the country, particularly with regards to the changing of high interest charges by the conventional banks.

Presently, two applications for the establishment of Islamic banks in Ghana are pending before the central bank awaiting approval to kick start what will see a different dimension of banking and finance in the 58-year history of the country.

The move, according to Bank of Ghana sources, is to provide funding options to businesses and creditors who are reeling under high interest rates by the conventional banks.

The Head of Banking supervision of the Bank of Ghana, Franklyn Belnye, said: “the banking act, 2004, (Act 673) was being revised to establish a framework for undertaking consolidated supervision of banks, including the yet to be approved Islamic banking and finance.”

Speaking at a seminar on Islamic banking in Accra last year, the Deputy Governor of the Bank of Ghana, Dr. Abdul- Nashiru Issahaku, was upbeat about the success of the concept of Islamic banking when introduced in Ghana.

Apart from Nigeria, Islamic bank has gained grounds in some African countries such as Tunisia, Algeria, Egypt and Morocco.


IMF’s position on Islamic Banking

The Islamic banking segment has increased its penetration in many International Monetary Fund (IMF) member countries.

It has become systemically important in Asia and the Middle East, while the global issuance of Sukuk - the Islamic equivalent of bonds - is expanding with remarkable international reach of issuers and investors. This trend is expected to continue, driven, in particular, by strong economic growth in countries with large, and relatively unbanked, Muslim populations.

Reflecting the importance of Islamic finance for many of its members, the IMF has had a long-standing interest in its implications for macroeconomic and financial stability, and played a key role in the establishment of the Islamic Financial Services Board (IFSB).

The IMF has also engaged its members on the implications of Islamic finance, in the context of its policy advice and capacity development efforts, notably in the areas of regulation and supervision of Islamic banks, and development of domestic Sukuk markets.

This recent growth of Islamic finance has led to increased demand on the IMF. To foster its preparedness, the IMF has formed an Interdepartmental Working Group with the objectives to develop an institutional view on the industry, build in-house expertise and better coordinate with different stakeholders.

This working group has stepped up the analytical work on Islamic finance in key areas, including Islamic banking regulation and supervision, macro-prudential policy, safety nets, resolution, financial inclusion, consumer protection, monetary policy, Sukuk markets, public financial management, and tax policy.

For instance, Islamic banking outperformed conventional banking over the past decade, increasing its penetration rate above 15 percent in a dozen countries in the Middle East and Asia. Over the same period, Sukuk issuance increased twenty-fold to reach $120 billion in 2013, and its issuer base is broadening with new issuances in Africa, East Asia and Europe.

Nevertheless, the operations of Islamic banks give rise to a unique set of risks, in addition to the standard risks associated with banking activities such as credit, market, liquidity, operational and legal risks. The industry also faces additional risks related to the business model and the nascent nature of the industry. For instance, managing liquidity risk is more difficult for Islamic banks when there are limited or no Shari’ah compliant financial markets and Lender of Last Resort facility.

According to IMF, Islamic banking also has the potential to foster greater financial intermediation and inclusion, especially among Muslim populations that may be underserved by conventional banks, and to facilitate lending in support for small- and medium-sized enterprises, while Sukuk can facilitate investment in public infrastructure projects.

The Fund however said, for this potential to be realized and to allow this industry to develop in a safe and sound manner, it will be important, among other measures, that countries adapt their regulatory, supervisory, and consumer protection frameworks to address the unique risks in Islamic finance, take further steps to develop Shari`ah-compliant financial markets and monetary instruments, and strengthen the international architecture for the growing cross-border operations.
Source: Felix Dela Klutse, Washington DC, USA

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