Problems and Prospects of Islamic Banking in Nigeria

 Islamic banking is very common in Arab countries and in the Northern states of Nigeria but it originated from Pakistan and Egypt. Islamic banking and other forms of banking are of related purpose except that it operates using Sharia rules known as Figh al-Muamalat (rules for Islamic transactions). Notable concepts in Islamic banking are safekeeping (Wadiah), joint venture (Musharakah), cost plus (Mubarahah), leasing (Ijarah), profit sharing (Mudharabah).

       FEATURES OF ISLAMIC BANKING 

• Musharakah (Joint venture): in this type of venture the finances investments in the business is provided by the owner, while extra finance is provided to the party which may be an individual or group that already have some funds for investment.     

Additional funds is made available with a condition of sharing profits realized in the business by the provider of the finance with the ratio of sharing  based on fixed and predetermined which is also made known to all concerned.

• Mudharabah(Profit sharing) : This financing technique is the one in which the owner of the capital makes funds available to the capital user for some productive activity on the condition that the generated profits will be shared between them.

The loss of the business is bear by the capital owner while the predetermined and fixed ratio for the sharing of profit is also in place. Islamic banks have a norm which is to access the profitability of a project, back projects with higher profit rates and this is taken to be safest and most beneficial for the society.

• (Ijarah) Leasing: This is a financial technique in which an individual who is short of funds may approach another with a surplus (financier) in order to fund the purchase for the productive asset involved.

This can be done by renting or buying it out to the one who needs the asset which enables the investor to overcome the financial difficulties that has to do with purchasing the required asset.

• Ijarah wa l iqtina(Higher Purchase): This involved a higher purchase agreement between the clients and its banks. Inwhich, the bank agrees to rent or buy a building, equipment or other facility for the client in union with the undertaking that is signed by the client to make incremental payments into an account.

However, profits are added to the paid installments at the end of the year in order to purchase the facility or equipment but the owner of the financed equipment becomes the client at the end of the contract.

• Bai ’al Mu’ajjal (Deferred Payment):  in this terms there is immediate delivery of goods, inputs or implements while the agreed price is paid by the purchaser at a particular date in the future. The components of the price include the cost, plus the reasonable margin that covers the administrative costs.

Other features include

o   Reduction on bank exploitation by charging interest

o   Attraction of idle money

o   Promotion of employment

o   Promotion of the Nigerian economy through non-interest banking

o   Adoption of asset-backed finance

PROBLEMS OF ISLAMIC BANKING IN NIGERIA

• Inefficient Support From Central Bank: The Islamic banking system in Nigeria is yet to receive effective support from the Central Bank Of Nigeria. These have reduced the impact of this banking system on the Nigerian economy and their development.
• Low Western Patronage:  Islamic banks are yet to be given proper assistance from banks like the World Bank as they give to conventional banks.
• Legal Factor: Most Islamic banks in Nigeria operate without using an Islamic name as a result of the Banking Decree which has been preventing banks from using direct Islamic names as bank names.