An Abuja federal high court declares the operation of Islamic banking in Nigeria unlawful and inconsistent with the provisions of the CBN Act and the Banks and other Financial Institutions Act

From the onset, Islamic banking was a ‘child’ of controversy. It was conceived in controversy and delivered in a controversial circumstance. That is the story of Islamic banking in Nigeria. The story is a reflection on the character of Sanusi Lamido Sanusi, governor of the Central Bank of Nigeria, CBN, and the architect of the Islamic banking system, who is a man of controversies. For the past three years, he has held forte in the apex bank, his policies and actions have been dogged by controversies.

When he sacked eight bank chiefs in one fell swoop in 2009, for financial recklessness, his mode of execution drew the ire of a cross section of Nigerians. To date, the banking sector is still feeling the pangs of that action.

Again, without notice, he came up with the cash withdrawal limit policy which pegs daily withdrawal limits of individuals and corporate bodies to N150, 000 and one million Naira, respectively in the name of promoting a cashless society. Expectedly, the policy generated an outcry by Nigerians prompting him to readjust it to N500,000 for individuals and three million Naira for corporate organisations.

So, when the Kano-born risk expert announced his intention to approve the operation of Islamic banking in Nigeria in 2010, the issue sparked off spontaneous reactions among Nigerians. Since the banking concept has a religious connotation, majority of those  opposed to it were Christians. Ayo Oritsejafor, president, Christian Association of Nigeria, CAN, Anthony Cardinal Olubunmi Okogie, archbishop of the Catholic diocese of Lagos, and Peter Akinola, immediate past Primate of Church of Nigeria, Anglican Communion, all Christian clerics, led the flanks of the opposition. Their contention was that Nigeria, being a secular state, if Sanusi was allowed to have his way, the Islamic banking was a time bomb that could ravage the country. They were particularly disturbed by the timing of the policy which they argued was a “follow up to the demands of Boko Haram for the application of Sharia law all over Nigeria.”

But the mounting opposition did not deter Sanusi from going on to licence Jaiz International Bank on June 20, 2011, to operate Islamic banking in Nigeria. But on Friday June 15, 2012, the controversies that have been trailing the licencing of the bank,  promoted by prominent Nigerians including Umaru Abdul Muttalab, former chairman of First Bank of Nigeria PLC, Fallalu Bello, former managing director of Unity Bank and Abdullateef Adegbite, secretary-general, Supreme Council for Islamic Affairs took another twist.

A Federal High Court in Abuja, Federal Capital Territory, presided over by Justice Gabriel Kolawole, declared that any operation licence granted by the CBN to any Islamic commercial jurisprudence bank under the non-interest financial services, was ‘illegal, unlawful, ultra vires, null and void.’ “There are no provisions in the CBN Act and the Banks and other Financial Institutions Act, BOFIA, that empowers the CBN governor, Sanusi Lamido Sanusi, to issue licence for a non-interest financial institution to operate under the principles of Islamic jurisprudence without the approval of the head of state through the minister of finance.

“Unlike the other specialised banks, the Jaiz International Bank PLC can only be established in the country with the intervention of the National Assembly by amending the BOFIA,” the judge ruled.

The court further held that the specialised banks mentioned in the BOFIA are government banks, such as the Federal Mortgage Bank, Peoples Bank and National Industrial Bank and that the Act does not contemplate a bank with religious connotation, such as the Islamic banking. He said Section 10 of the Constitution says government should not adopt any religion.

“The so-called non-interest bank under the guise of Islamic banking has to come by an Act of the National Assembly. The CBN does not have the power to designate Islamic Bank as specialised bank,” Kolawole held. He further said that the guidelines issued by the CBN upon which the Islamic banking licence was issued had no statutory basis which its legality could be substantiated. According to him, as at the time the licence was granted, there was no substantive minister of finance who was vested with the power for approval under the Banks and Other Financial Institutions Act CAP 82 Laws of the Federation of Nigeria 2004.                            

The judge ruled that but for the fact that the plaintiff, Godwin Sunday Ogboji, who, he said, lacked the locus standi to institute the action, the licence issued to the Jaiz International Bank PLC to carry out Islamic banking in the country would have been nullified. “If not that the plaintiff has no locus standi to maintain this action, I would have nullified the illegal licence issued to Jaiz International Bank PLC by the CBN to operate a non-interest banking under the principles of Islamic jurisprudence,” he clarified.

He struck out the case on that ground but admonished Mohammed Adoke, attorney- general of the federation to ensure that the CBN and Sanusi act only within the powers vested in them. He advised Adoke to put a machinery in place to check the trend.

Ogboji, an Abuja-based lawyer, had asked the court to declare the licence issued to Jaiz by the CBN illegal, null and void.

He also prayed the court to hold the CBN’s guidelines for the regulation and supervision of institutions offering non-interest financial services in Nigeria under Islamic commercial jurisprudence last year as ultra vires, illegal, null and void.

Furthermore, Ogboji had further asked the court to maintain that only the National Assembly can lawfully designate the other banks provided for in the BOFIA Act, chapter B2 L.F.N. 2004 to the exclusion of any other body or institution.

But the CBN had asked the court to dismiss the suit on the grounds that the plaintiff had failed to disclose how the licence and issuance of the guidelines had adversely affected him. It argued that Section 33 (1)(b) of the CBN Act empowers the CBN governor to issue licence for the operation of commercial banks. The 1st and 2nd defendants (CBN and Sanusi) further maintained that Section 66 (b) of BOFI Act gives the CBN the power to issue licences to specialised banks, such as the Jaiz International Bank.

The court ruling has elicited reactions from Nigerians. Rasheed Yusuf, managing director of Trust Yields Securities, agrees with the judge that the National Assembly must no longer tolerate the usurpation of its legislative functions by public servants. But Ugochukwu Okorafor, director, Corporate Communications of CBN, maintained that the apex bank acted in accordance with the provisions of the law. He stressed that the ruling vindicated the prayers of the CBN that the plaintiff had no locus standi to prosecute the case. Okorafor said the apex court would react formally when it receives the details of the judgement. As at press time, there was no formal reaction from Sanusi on the ruling.

Although Jaiz International Bank did not have its licence revoked by the Court because the plaintiff lacked locus standi and for not joining the bank as a defender, the ruling has pointed out that the future of Islamic bank in Nigeria is gloomy.

For those on the side of opposition, the ruling has rekindled their hope that the law will always take its course against unpopular actions of public servants. When the introduction of the Islamic banking system in the country generated an uproar, the CBN reiterated the fact that Islamic banking was not the brain child of Sanusi but that of Chukwuma Soludo. That Jaiz Bank was earlier given licence under Soludo to practice non-interest banking but could not muster the N25 billion minimum capital base stipulated at that time. The CBN had argued that the idea was not a novelty as termed by some people because former Habib Bank now Keystone Bank, was given approval in 1992, to operate a window of Islamic banking.

The CBN guidelines on the operation of Islamic banking state that a non-interest financial institution with regional banking authorisation shall be entitled to carry on its banking business operations within a minimum of six and a maximum of 12 contiguous states of the federation lying within not more than two geopolitical zones as well as the within the Federal Capital Territory. The apex bank pegged the minimum capital base for this category of banks at five billion Naira.

In the case of a non-interest financial institution with national banking authorisation, the guidelines stated that it shall be entitled to carry on banking transactions within every state of the federation including the FCT. The minimum capital base for this category of Islamic bank is N10 billion. The guidelines also stipulated that compliance with the Sharia principles is a critical element of non-interest banking and finance.

The guidelines also provided for a Sharia review and advisory framework as imperative in ensuring such compliance. Accordingly, they  stipulated that  Islamic banking institutions under the purview of the CBN were required to establish a Sharia advisory body known as the Sharia Advisory Council as part of their governance. Islamic Banking otherwise known as Sharia banking, is a non-interest banking system that is different from the conventional banking. It is based on Islamic law of economics and works in such a framework that follows certain rules and regulations.

Islamic form of banking proscribes usury, trading in financial risk otherwise known as gambling and investing in such businesses that are against the general principles of ethics.

The regulatory framework of Islamic banking proscribes transactions that involve interest, gambling, unjust enrichment and exploitation. Other non-permissible transactions include dealings in pork, arms, ammunition, alcohol and pornography as well as in products or services which are not in compliance with Sharia rules and principles. In Sharia banking, the bank provides a loan without interest but shares in the profit of the business that the fund is used to finance.