NIGERIA Should Embrace Islamic Finance

• Says Shariah Expert, Prof. ABDUL-RAZZAQ ALARO

Prof. Abdul-Razzaq Abdul-Majeed Alaro, is a Shariah expert, a Barrister and Solicitor of the Supreme Court of Nigeria, and an internationally certified arbitrator, ACIArb, MCIArb (United Kingdom) and CIAE (Dubai). His area of specialization is Islamic Financial Transactions, with emphasis on banking, insurance and capital market, and has published in reputable peer-reviewed journals across the world.

Currently, he is Professor of Islamic Law in the Faculty of Law, University of Ilorin, Nigeria, where he has been teaching for over a decade Islamic Law of Contract, Islamic Property Law, Islamic Company Law, Islamic Medical Law & Ethics and Principles of Islamic Jurisprudence (Usul al-Fiqh). In addition, Prof Alaro is a member of the Central Bank of Nigeria’s Financial Regulation Advisory Council of Experts, and the National Insurance Commission’s Takaful Advisory Council. He has also served as advisor/consultant to the Debt Management Office, Securities & Exchange Commission and National Pension Commission, among others.

He was one of the panellists invited to speak at a conference where he made an insightful presentation on the topic; Islamic finance, values, and potential growth. He therefore took time to explain why Nigeria and other African countries should embrace the Islamic Finance System to boost their economy. Below are excerpts:

“My topic of discussion, as you can see on the screen, is to talk about Islamic finance, values, and potential growth. globally.But I will place some emphasis on the continent of Africa, bearing in mind that this is a conference that is African-centred, it’s African, and non-interest finance. And because of the time constraint, which permits me to skip, this is the agenda that I have, the items that I intended to run through, but I will have to skip the preliminary slides because of the time constraint. Issues relating to definition of Islamic finance, the growth, the size currently of Islamic financial market worldwide.

By the time you get the full presentation, you can access all that. When we talk of values of Islamic finance, yes. Islamic finance is actually value-oriented.

It’s guided by core values that are all derived from the Sharia principles, based on the authorities of Al-Quran and Sunnah. And these principles that are guiding the operations of Islamic finance, they offer a range of benefits and opportunities, not only to individuals, but even to businesses, corporate entities, governments, and the society at large. I have identified about five of those values for my presentation this afternoon, and I will go through them one after the other.

The first value of Islamic finance is that it is a socially responsible investment. This is very important. Yes, I had one of the speakers this morning mentioning the fact that Islamic finance is not a religious institution.

It’s actually a profit-oriented institution that is there to do business with the intention of generating profits. But it is not a free-for-all investment that we allow under Islamic finance. It’s actually guided by this value of looking for what will be socially responsible, what will be ethical, conscious.

When you put your money in an investment, you must never do it in a way that will be detrimental or harmful for the well-being and welfare of the society. So that is the first major value of Islamic finance, that it actually promotes only socially responsible investment. And when we talk of ethical or socially responsible investment, it has its own market as well.

And that is why, as Africans, we stand to gain by attracting those investors that actually prioritize environmental sustainability, fair labour practices, and community welfare wherever they put their money. So it’s an opportunity to attract that class of investors when we accommodate Islamic finance on the continent. The other value is that when we talk of Islamic finance principally, we are talking of a risk-sharing mechanism.

What do we mean by that? It actually states that, based on a principle of Sharia that says, profit, dividend, and losses or risks, they are actually inseparable. They cannot separate one from the other. Wherever you stand to gain, you must also be prepared to share part of the loss, if any.

That is the true essence of Islamic finance. It promotes risk-sharing. And this is a conference organized by a Takaful entity.

Takaful, as a product of Islamic finance, is actually a good illustration of the risk-sharing mechanism that is promoted by Islamic finance. When we talk of Takaful, it is different, principally from conventional insurance, because in conventional insurance, risks are actually transferred. But in Islamic Takaful insurance, risks are actually shared among the participants or policyholders. So this is an important value of Islamic finance. It is a financial system that takes very, very important the issue of risk-sharing among the players.

Value number three is that Islamic finance looks after financial inclusion and ultimately economic empowerment. That is why it ensures that individuals from all socio-economic backgrounds or structure of the society are actually accommodated and given access to financial services. One unique characteristic of financial inclusion under Islamic finance is that Islamic finance does not see financial inclusion as an end on its own. It actually looks at it as a goal leading to an end. And what is that end? It is economic empowerment of the sole included population. So we should always bear this in mind as a value of Islamic finance. We include people financially with a view to empowering them.

And how do you achieve that? Through a number of steps. Products of Islamic finance that are geared towards financial inclusion must actually make sure that the poor, the less privileged in the society are considered as economic actors. They are given access to relevant markets. They are also exposed to suitable investment opportunities and they are given supporting infrastructure, appropriate funding and creation of smart partnerships for them. And also building their capacity. If we do all this, we will actually be moving from financial inclusion as a means to an end, which is economic empowerment. And that is how the value of financial inclusion manifests actually under Islamic finance.

Value number four of the values of Islamic finance is sustainable and ethical investment. And that is why you will realize that when we talk of, let’s take SDGs, the sustainable development goals, the 17 goals of SDGs, which are usually summarized under ESG, environmental, government and social. You will see that all these align with the overall objectives of Sharia, known as Maqasidu Shariah. And by extension, with the overall objectives of Islamic finance. Look at all these social, environmental goals of SDGs or ESG. They are actually either to protect our lives, protect our wealth, protect our procreation by way of ensuring the continuity of human race and to protect our intellect. These are the five major objectives of Sharia, which by extension become the five fundamental objectives of Islamic finance. So it’s a value of Islamic finance that it takes care of investment. It’s only interested in investments that are sustainable and are ethical in nature.

And lastly, prohibition of Interest. It’s an important value that cannot be glossed over when we are talking of Islamic finance. This is an identifier, one of the major identifiers of Islamic finance. Yes, it prohibits dealing in Riba either by way of giving or by way of taking. Why? Because Riba is considered to be interesting, it’s considered to be exploitative. And I can’t see a better statement to illustrate this fact than what we have.

A statement made by the former president of the Federal Republic of Nigeria.

President Obasanjo in 2000 lamented that Nigeria borrowed $5 billion, ended up paying $16 billion, and yet was owing $28 billion. And he concluded by saying, if you ask me what the worst thing in the world is, I would say it is compound interest.

So it’s a value, it’s a major value of Islamic finance that it actually prohibits dealing in Interest. Now, if we apply all these values that I’ve just enumerated, they must lead us to a destination. And that destination is to see the impact on the society, meaning that wherever or whenever we are not seeing some of this impact that I’m going to mention now, it means we have to look back and see whether we are holding dearly, whether we are actually implementing, applying the true values of Islamic finance.