Conventional banking and Islamic banking have the same aim, except that Islamic banking perfoms in accordance with the rules of Sharia, called Fiqh al-Muamalat (Islamic rules on dealings). The basic principle of Islamic banking is the “sharing of profit and loss” and the prohibition of riba´ (interest). Amongst the common Islamic concepts used in Islamic banking are profit sharing (Mudharabah), safekeeping (Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah).
In an Islamic mortgage transaction, a bank may buy the goods itself from the seller, and re-sell it to the buyer at a profit, while allowing the buyer to pay the bank in installments, instead of lending the client money to buy the goods. However, the profit cannot be made definite and therefore there are no extra fine for late payment. In order to protect itself against default, the bank asks for strict confirmative. The goods or land is registered to the name of the client from the beginning of the dealing. This arrangement is called Murabaha.
Another approach is ”Ijara wa Iqtina”, which is alike real-estate leasing. Islamic banks deal with lendings for vehicles in a similar way that selling the vehicle at a higher price than market price to the client and then keeping possession of the vehicle until the loan is repaid. There are also various other methods used in trade deals. Islamic banks lend their money to companies by issuing drifting rate interest loans. The drifting rate of interest is fixed to the company’s individual rate of return. Thus, the bank’s gain on the loan equals to a definite proportion of the company’s gain. When the principal amount of the lending is repaid, the profit-sharing arrangement is closed. This method is called Musharaka. Moreover, Mudaraba is risky capital funding of an enterpriser who supplies labor while financing is provided by the bank so that both profit and risk are shared. Such contributory organizations between capital and labor show the Islamic view that the borrower must not bear all the risk or cost of a failure, resulting in an equal distribution of profit and not allowing loaner to dominate the economy. Lastly, Islamic banking is limited to islamically admissible deals, which reject those including alcohol, pork, gambling, etc. Thus, ethical investing is the only acceptable type of investment, and moral gaining is supported. JAIZ International is trying to notice that it has founded an Islamic bank in this country, however with the review of Capital sufficiency in Nigerian banks, the Islamic bank is postponed. Although the N25B Capital base is one condition for the foundation of an Islamic bank in Nigeria, but we realize that there is more to encounter this CBN requirement. The most important necessary conditions are: Managerial commitment, sharia supervisory board, safeguarding Muslim investor’s fund and compliance with AAOIFI standards.
Managerial commitment: The administration must be fully persuaded of the concept and fully committed and devoted to it. Unless the entire administration is committed and devoted, the trade activities and the enterprise will not be foul free or will not avoid irregularities and deviation. In spite of how firm and though fatawa and contracts are, this will not assure sound practices if there is no one sufficiently sincere and committed to perform the principles.
Sharia Supervisory Board: There should be a sharia supervisory board for any Islamic bank, and that board should consist of reliable scholars who are well trained to issue fatawa on financial dealings.
Considering our current position in the Muslims now, how do we comprise the members of the board? Another matter is trust from the clients who might use the bank’s fund, when it comes to profit sharing. Last but not the least is enlightenment, many persons even within the Muslims are not informed of how Islamic banks work. Therefore there is an immediate need for a serious enlightenment to the public on functional modalities and necessity of an Islamic bank. Other choices that may be considered by jaiz or even states like ; sokoto, kano borno, katsina, etc is to establish an Islamic micro finance at local government grade. The lately confirmed Micro finance banks can be modified to an Islamic one. In a symposium, held at Harvard University on “Financing the poor”: on way to Islamic Microfinance some time last year, Nazim Ali has signalized that Microfinance is not arriving at the poorest of the poor, although this is its aim, and lendings are going to activities unconnected to enterprise. Islamic finance could correct these defects, in both practice and principle. Robert Annibale,who is the international director of microfinance for Citigroup, shared his perceptions into both Islamic finance and microfinance. He explained microfinance institutions as self-styled “bankers of the poor “, originally anchored in domestic, local markets but expanding into larger markets and providing a wider range of services. He added that the high operational costs, passed on to the client in the form of high interest rates, are a barrier for the poor. He believed that this was where there is potential for Islamic finance to make a difference. Under conventional microfinance, risk is taken by borrowers and almost never held by the foundations. Islamic finance focuses on interest-free methods of supplying capital, because the shari’ah holds lending to be a strictly charitable exercise, rather than a way of making a profit, Islamic finance is also familiar to methods of risk-reward sharing between the institution and the borrower. Islamic microfinance banks have grown importantly in countries such as Pakistan, Indonesia, Malaysia, and Bangladesh. In fact, Islamic microfinance institutions delight greater entrance than traditional commercial banks in Bangladesh. It is peak time for us here in Nigeria (especially in the North, because the south have already started) to begin introducing Islamic microfinance banks which will grade to a full bank in future.