The need to reassess the opportunities provided by the Islamic finance system in combating the current financial crisis is a welcome development.
The collapse of leading Wall Street institutions, notably Lehman Brothers, and the subsequent global financial crisis and economic recession, are encouraging economists around the world to consider alternative financial solutions. Nigeria has however stuck to its traditional western styled banking system.
Until recently discussions on Islamic banking and finance as an alternative model have been in muted tones and the reason is simple. Nobody wanted to stir the hornet nest and spun religious jingoism.
In real terms, Islamic banking is actually an economic practice that has proven successful even in the United Kingdom and United States of America among others.
It is to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics.
It is one of the most misunderstood banking models by mostly Islamophobic Nigerian elite class.
The religious teaching underpinning Islamic finance is concerned with justice in financial contracts to ensure that none of the parties is being exploited.
Riba (interest or usury) in Islamic banking is one source of exploitation, especially, as in the case of sub-prime lending, the highest rates were charged to lower earners.
Such discriminatory charging by conventional banks was justified as being a reflection of the risks involved.
In contrast with conventional finance methods, Islamic financing is not centred only on credit worthiness and ability to repay the loans and interest; instead the worthiness and profitability of a project are the most important criteria of Islamic financing while the ability to repay the loan is sub-segmented under profitability and that is what Nigeria needs to fire the kiln of the productive sector and homes.
Islamic banking is less prone to inflation and less vulnerable to speculation, which are currently being fuelled by the presence of huge quantities of debt instruments in the market
But the position of Nigeria CommunicationsWeek is that Islamic banking provides a viable alternative to conventional banking and is less cycle prone.
The spread of Islamic finance into western markets demonstrates that it now being treated seriously by regulators and finance ministries
In adopting Islamic banking however the CBN, must ensure that the new banks are clear departure from the greed ridden conventional institutions.
The apex must require them to establish and operate special funds for specific purposes including a fund for assistance to non-Muslim communities in the country.
The banks should also eliminate the barrier between those who save and those who invest, and bring them closer to the real market unlike the current practice.