the agbero type and upside down arguments and analysis going on this days on the above topic in nairaland has made me questioned if those comenting have the slightest understanding of finance or economics. These arguments confuse even me, even though i have Bachelors in Economics Masters in Finance and Investment and a C F A second level.

hence i set up this thread for only financial and economic views P L E A S E no religious or ethnic analysis (there r more than enough threads for those)
consider these as guides to the discussion.

1 what are the economic impact of interest free banking?

2 Quotation should only be from accademic sources (e.g President of Bank of England, Nouriel Roubini) and not religios (Pentecostal Bishop or Sokoto Imam)

3. Be objective as possible

4 If u cant fulfill the above just read, learn or ask, but dont post rubbish.

so guys let he who is without sin cast the first stone,

i think one advantage of this model is that it will help banks tap into the unbanked population especially as most of the grievances has been about interest (either charged or paid).

NB i just heard stanbic has been licenced for interest free banking i wont be suprised if they out do the so called J A I Z islamic bank, as stanbic already has a deep understanding of islamic finance from their mother ship- standardbank southafrica. but we shall see.

I heard the CBN governor saying[b] Islamic[/b] banking should not be interpreted from a religious point of view but strictly as financial and economic affair. Na wa o. I'm confused o. I am not an economist but the little I know is that financial and economic affairs think gain/interest as primary objective. Abeg, somebody help me out. I no know book o

Interest free banking will be the best possible option for small businesses to expand thereby creating jobs,

The problem that may arise is big corporations trying to tap into it when they already make maxi profits with interest banking,

This option should be only for home owners, small businesses and big corps that needs immidiate rescue. But then the wall street mentality is already there which means big companies will file bankruptcy when infact the management of the company is corrupt thereby  causing stricter laws to be introduced and this will affect the home owners and small businesses,

This interest free banking should be seen as an economic stimulus package! I fully support it if no religious interest is attached and is open to all without spiritual affiliation being a factor,

Nigeria urgently needs this type of banking but only for home owners and small businesses because those are some of the root stem of our economy.

Although Nigerians are not open to credit, and a very huge percentage of Nigerians don't buy mortgages, this will encourage them to and will give many Nigerians reason to own a home and start businesses which will create jobs and things start circulating!!

correct me if I'm wrong because I graduated as a first class philosopher not economist lol!!

as somebody said in another thread islamic finance has transcended religious discourse thats why it is been treeted under finance and economics in western universities and not religion.

now on your question of the focus of finance being interest/gain. Although u r not entirely wrong but u would be more correct if u look at the focus of finance on a risk/reward basis. that is reward (expected/mean/average return on investments) and risk (volatility of these returns)
now on the above note islamic finance views risk/reward relationship from profit/loss aspect (strictly return on investment) while conventional finance is more focused on interest as u said, but thats not its only focus.

i hope that helps.

@olumide i think the system if well regulated is robust enough can accommodate big corporation given every body's mtivation to engage in interest free banking differs.

As u said small biz and individuals might be motivated(although there r other motivations) by cheap credit and straight forward mortgages. the big corps also have their unique needs and risks to hedge against, say currency fluctuations especially for multinationals. Islamic finance has a different approach to Forex trade. Although i dont think Nigerias islamic finance involves islamic derivatives. as derivative trade is virtually non existent even in our conventional model.

Bottom line i think the ship is big enough to accommodate even the big boyz in biz

BIGER BOY:

@olumide i think the system if well regulated is robust  enough can accommodate big corporation given every body's mtivation to engage in interest free banking differs.

As u said small biz and individuals might be motivated(although there r other motivations) by cheap credit and straight forward mortgages. the big corps also have their unique needs and risks to hedge against, say currency fluctuations especially for multinationals. Islamic finance has a different approach to Forex trade. Although i dont think Nigerias islamic finance involves islamic derivatives. as derivative trade is virtually non existent even in our conventional model.

Bottom line i think the ship is big enough to accommodate even the big boyz in biz

Big boiz are too greedy mehn! They'll end up getting interest free money to invest in high interest loaning. Now that's a new business init?

I think we should start with small businesses first honestly!!

Let's have small businesses expand first if not they won't enjoy this stimulus and big corps will be smiling double!!

I'm one big enemy of Multi national corps whose majority don't annex their profits into the nation's economy!!

If is not an Islamic thing, why not just call it non-interest banking and should simply be a department in the existing banks? Why create a new bank just to give free loan and you are calling it an ISLAMIC Bank?

good question why call it islamic banking? so far from my readings and research only islam has has a well structured theoretical framework for non interest banking, i dont say others dont exist but not as detailed conceptually as the islamic model. hence the synonymic nature of interest free and islamic. Now if u have a problem with just the name, that i cant help u, but if ur problem is in the conceptual framework or technical operations i believe we can talk more and there r lots more pple who can talk on that here too.

now on the issue on just being a department of the bank, i think that will be a fundamental contradiction of principles. non interest banking under islamic finance dissociates itself with any direct and indirect dealings with interest (paid or charged) and the proceeds there from. thus u see the contradiction of having it as a department in the bank.

here is a quick example i used to be with stanbic (there is the bank, the pension managers etc) now stanbic pension was forbidden according to P E N C O M to have its office within stanbic bank, as the pension arm is supposed to be independent of the bank. In fact in my region b4 the stanbic pension office was built, the staffs had to have their offices in Zenith bank even though the stanbic bank could accomodate them (the zenith guys kept complaining they dont want stanbic guys in their bank but they could do nothing it was pencom rule).

in light of above i once read a cbn directive on conventional banks wanting to partake in islamic banking would need something like an entire branch seperately for that just like the pension saga.

i think this is to protect unsuspecting clients from banks selling products that r just islamic by name and not in nature

one thing i have noticed from the discussion on interest free banking here is that, if u set up a thread to attack peoples personality, religious analysis or ethnic finger pointing then every one is an expert and has something to say, but when you ask for objective analysis on pressing issues then every one keeps quiet,

BTW, i just read on one of the papers today prof Pat Utomi given his informed take on the subject, quite interesting, I wish the the religious leaders will keep quiet and let the experts debate this issue by telling us the benefits and costs of the proposed system, just my thought.

Is it only Islamic banking that can give interest free loans? Why can't NAPEP and Bank Of Industries do it?

we need to realise that interest free loan is just one aspect of islamic banking, there are other aspects like IJARA, MURABAHA, MUDARABA, SUKUK etc. it will be good if u found out more about all these concepts then u will realise islamic finance is as complex as conventionaL finance

www.vanguardngr.com/2011/07/we-don’t-want-islamic-banking/

tell us something we dont know

What is Islamic banking?

Scholars have seen Islamic economies as part of dynamic and universal ways of life that promotes social interaction at the highest possible level. It says that wealth must be distributed in ways that earn pleasure of the one who provides it and prohibits earnings like return of interest or sale of immoral products and services.

Islamic or non-interest finance focuses on the existence of a real and tangible asset. The rental of money (interest), the trade of currency for anything except at par, is not permissible as it is seen as exploitation to some of the parties in the transaction.

Features of Islamic Banking

The philosophy of the Islamic financial institution is based on religious injunctions preached by all monotheist religions including Hinduism, Christianity and Islam. It prohibits usury, gambling, cheating, among others.

1. Prohibits predetermined payment over and above the actual amount of principal.

The concept allows only one kind of loan whereby the lender does not charge any interest or additional amount over the money lent. This prohibition applies to any advantage or benefits that the lender might secure out of the loan. It emphasises that associated or indirect benefits are prohibited.

2. The lender shares in the profits or losses

It encourages Muslims and other people to invest their money and to become partners in order to share profits and risks in the business instead of becoming creditors. Islamic finance is based on the belief that the provider of capital and the user of capital should equally share the risk of business ventures, whether those are industries, farms, service companies or simple trade deals.

3. Making money from money is not acceptable

Islamic financing sees money as only a medium of exchange, a way of defining the value of a thing; it has no value in itself, and therefore should not be allowed to give rise to more money, via fixed interest payments, simply by being put in a bank or lent to someone else.

The human effort, initiative, and risk involved in a productive venture are more important than the money used to finance it.

4. Uncertainty, Risk or Speculation are prohibited

Any transaction entered into should be free from uncertainty, risk and speculation. Contracting parties should have perfect knowledge of the counter values intended to be exchanged as a result of their transactions.

Also, parties cannot predetermine a guaranteed profit. This is based on the principle of ‘uncertain gains’ which, on a strict interpretation, does not even allow an undertaking from the customer to repay the borrowed principal plus an amount to take into account inflation. The rationale behind the prohibition is the wish to protect the weak from exploitation.

5. Investments should only support practices or products that are not forbidden

Trade in alcohol, for example would not be financed by an Islamic bank; a real-estate loan could not be made for the construction of a casino; and the bank could not lend money to other banks at interest.

Advantages of Islamic banking

Islamic finance forges a closer link between real economic activity that creates value and financial activity that facilitates it.

Islamic finance does not allow creating new risks to profit thereby.

Islamic finance is global and cosmopolitan.

Islamic finance is open to any innovations that are in congruence with its fundamentals.

It is not a closed system. It has no regional, ethnic or class affiliations.

Islamic banking and the finance industry is growing at an annual rate of 20 percent. Many international as well as local institutions have stepped into this multi-billion dollar booming industry by establishing its Islamic wings and units.

The underlying principle of Islamic banks is the principle of justice which is an essential requirement for all kinds of Islamic financing.

In contrast with conventional finance methods, Islamic financing is not centered 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.

One of the unique and salient characteristics of Islamic banks is the integration of ethical and moral values with its banking operation.