Legislators in various jurisdictions should be more directly involved in the global Islamic finance industry because without them not much can progress in terms of the drafting and adoption of enabling laws and guidelines, said Sir Chukwudi Jones V. Onyereri, Chairman of the Committee on Banking and Currency of the House of Representatives (Parliament) in Nigeria.

"Yes we are one of the biggest stakeholders but I think the problem is that there is too much concentration on engaging largely with central banks and regulatory authorities. If we as legislators do not understand or engage with any financial market segment, not much legislation will be drafted or adopted," he said.

In an exclusive interview, Sir Chukwudi stressed that for an emerging economy it is important to have a developing banking sector that eventually offers a full spectrum of products and services. Non-interest finance, albeit a niche market, is growing at a phenomenal rate globally and Africa seems to be no exception.

Sir Chukwudi supports the opening of the Nigerian financial market to new licenses whether conventional or non-interest. "There are no limits to the number of licenses. The basic thing is that if any promoter meets the requirements as recommended by the regulators, of which the Central Bank of Nigeria is the key, then they won’t have any reason not to give your license. That’s the way to go as a developing economy. We need anyone who is fit and proper and has the adequate resources and requisite business plan, to come to Nigeria to help us develop," he explained.

He is adamant that he and his colleagues on the Banking and Currency Committee are "coming to terms" with the non-interest banking phenomenon. This follows an "initial misconception to do with the nomenclature".
In fact, the initial law and guidelines referred to Islamic Banking, which was subsequently changed to Non-interest Banking, following so-called concerns from a few Church groups.

"When it was introduced, I think there was the erroneous notion that it was purely an Islamic setting. The banking law doesn’t allow any bank to be classified under any religious name. So I think that was the initial mistake. It came to the public as Islamic banking, which offended some sensibilities. As such, the CBN quickly changed it to its original concept, which is Non-interest Banking," he maintained.

Sir Chukwudi, a Christian, may have an important point. Nigeria, despite the misplaced political sensitivities relating to non-interest finance (the Nigerian euphemism for Islamic finance), has in recent months upped its profile in this matter. Non-interest banking under the new laws and guidelines is open to anyone irrespective of race, religion and ethnicity.

Earlier this year, Jaiz Bank Plc, Nigeria’s sole non-interest- bank, started operations at its head office in the Nigerian capital, Abuja. The bank, which is licensed under the Banks and Other Financial Institutions Act (BOFIA), also has two operating branches in the northern cities of Kaduna and Kano.

The bank is the successor to Jaiz International plc which was incorporated in 2003 as a public limited liability company with an authorized share capital of N2.5 billion.

Last year, following the introduction of the country’s non-interest banking regulatory and legal framework, the Central Bank of Nigeria (CBN) issued a full-fledged commercial banking license to the company, which has subsequently launched Jaiz bank plc, in which the Jeddah-based Islamic Development Bank (IDB) has a $ 6.5 million equity stake.

According to Managing Director and Chief Executive Officer of Jaiz Bank, Alhaji Mustapha Bintube, the bank started operations with two products - corporate accounts and current accounts - and plans to introduce a series of products including savings accounts; ATM and card services; a children’s savings account and trade finance services.

According to Nigerian bankers, two more interest-free banking licences are on the cards, including one to promoters from the Gulf Cooperation Council (GCC) countries.

Similarly, Nigeria has substantially increased its equity subscription to the IDB which in fact gives Abuja a permanent seat on the IDB’s Board of Governors together with Saudi Arabia.

The CBN has also since then given a license to Stanbic IBTC, the Nigerian subsidiary of South Africa’s Standard Bank, to open a dedicated Non-interest Banking Window.

In fact, according to Sir Chukwudi, it was the Banking and Currency Committee that proposed the above change in nomenclature.

However, he maintains that the non-interest banking regulatory and legal framework in Nigeria remains incomplete and every effort must be made to introduce legislation to close the above gaps. Nigeria. For instance, is finalizing the legal and regulatory guidelines relating to the issuance of Sukuk, and has engaged two top international consultancy firms to help in this respect.

Once these guidelines are in place, it would be up the federal government and the ministry of Finance to decide whether the Treasury should raise funds from the international markets. Albeit subject to the right market conditions and pricing.

Similarly, as part of its ethical compliance, non-interest banking (at least of the Islamic variant) does require such transactions to be screened for adherence to Shariah principles, normally done by Shariah Supervisory or Advisory Boards.

Sir Chukwudi acknowledges the need for Supervisory Boards, although in the Nigerian context such boards would be called Ethical or Legal Supervisory Boards, which he stresses should be regulated and governed by requisite legislation, as in Malaysia.

However, any emulation of Malaysia’s dual banking model, where a conventional system operates side-by-side a non-interest one, is far too premature.

But how well entrenched is support for non-interest finance among the Banking and Currency Committee members? "As you are aware in the National Assembly," he added, "we have members from different faiths. In my committee we have Muslims and non-Muslims members. So for the Muslims, you would expect that they would back non-interest banking a hundred percent. The non-Muslims members don’t really have anything against non-interest banking, because they see it as an alternative form of banking. There may be two or three of them who have yet to get a full grasp of what non-interest banking is all about. With more information for their education, I think they will have a better understanding."

He expects non-interest finance to help contribute to the development of the Middle Class in Nigeria and to finance small-and-medium-sized enterprises (SMEs) and to promote microfinance.

Sir Chukwudi agrees that sukuk could be an important finance raising tool for Nigeria - both the government and corporates - especially if they are linked to financing real economy projects and infrastructure, and thus contributing to poverty alleviation and economic growth. "With a developing economy with a high level of poverty and all that, proven alternative forms of financing is worth looking at, given the turmoil in the global financial crisis which has impacted so badly on developing countries. So, people wish to explore these alternatives such as non-interest financing, then they will move in that way. It is our job to ensure that the requisite regulatory and legal framework is in place to protect all stakeholders," he concluded.

The Nigerian government’s own estimate of the current infrastructure funding deficit is 32 trillion naira in sectors such as transportation, power, water supply, education, housing and health. Both sovereign Nigeria and corporate issuers can go to the market to raise financing based on asset-based or asset-backed sukuk structures. But to do this and to attract investors from abroad, the Ministry of Finance, according to market players, needs to introduce more enabling legislation to facilitate the introduction of sukuk including trust laws, SPV (special purpose vehicles) laws; and tax neutrality measures for sukuk issuance especially those involving real estate assets.

Nigeria has a potential market of over 150 million people, of which half are Muslim. A survey conducted by Enhancing Financial Innovation and Access (EFInA), a financial sector development organization funded by the United Kingdom’s Department for International Development (DFID) and The Bill and Melinda Gates Foundation, suggested that just under 30 percent of the total adult population of Nigeria would use non-interest banking products when they are introduced in the country. This translates into an immediate market of about 23 to 30 million people.