azoo:

I may not know anything in economkcs but a first class graduate of biochemistry sure should know something about many thingss,
couple of months back while Iwas in osun state, I was watching a program on NTA osogbo about some enterprenuers and how their businesses suffer cos of debt servicing,  the least lending band lends at an interest rate of about 14% and for them to stay in business they cant pay all their debts at at time but still have to increase commodities' prices. Then Sanusi came with bank of industries that lend money to these Guys at 7% interest rate,  you can imagine how these peeps were happy and praising CBN for establishing BOI, they said they can pay debt a lot easily and an even reduce the prices of their produce and make more profit,  thats just reducing interest by 50%,  now imagine what would happen if you can borrow from a bank that will lend to you at 0% interest rate,  even YOU will enjoy from it cos you'll uy a lot cheaper than now,, hence Economic stability is imminent, 

your first class in biochemistry and your lack of analytical depth only expose the problems of our education system. You need to take your time to understand issues first before rushing to brag about a mediocre certification from a probably mediocre University.
It is very important for people to understand that the Islamic banking model is a subset of NON-Interest banking. The issue here is not with the product but the motive. Why emphasize on Islamic banking instead of non-interest banking? Why should the CBN governor be promoting Islamic banking, holding Islamic conferences to promote the cause at the expense of other forms of non-interest banking? When Soludo gave licence in principle to JAIZ bank, an Islamic bank that never took off, he did not make any exclusive guidelines alone for Islamic banking like Sanusi is doing. Unlike Sanusi, Soludo issued the licencing to Jaiz giving thesame guidelines for all Non-Interest banking models. Why spend state resources organizing conferences and hiring experts on Islamic banking, exclusively to Islamic banking model when that should be in the purview of private practioners of any of the models if they want to sharpen their competetive edge.
Does it not smack of an agenda to bring in islamasize the financial system given the utmost importance that the CBN management has put on just one model in the presence of many? When was the last time you checked the Naira notes for any of  Yoruba-Hausa-Igbo inscriptions? It has reverted to arabics since Sanusi.
In terms of economic benefits of islamic banking, can you without mincing words state clearly any economy that has succeded due to the presence of Islamic banks and the strict adherance to its principles. In real sense, there is realy no difference between their non-interests claims and the mark-up charges they levy on loans except that they put themselves more at risk than conventional banks will want to do. Seriously, what are their success stories? It is all good to talk about lending without interest charges but what happens when the business fails? Do you know that the bank almost entirely bear the brunt of the failure and put people's deposits with them in jeopardy. Mr first Class grad, I am not an economics either, neither did I graduate with a first class but I don't think it takes a super-brain to figure out the obvious with Sanusi- he is way over his head and is confused as to how to handle the job, he is just gropping in the dark and I personally think he has been infilterated by islamist fundamentalist.

I may not know anything in economkcs but a first class graduate of biochemistry sure should know something about many thingss,
couple of months back while Iwas in osun state, I was watching a program on NTA osogbo about some enterprenuers and how their businesses suffer cos of debt servicing,  the least lending band lends at an interest rate of about 14% and for them to stay in business they cant pay all their debts at at time but still have to increase commodities' prices. Then Sanusi came with bank of industries that lend money to these Guys at 7% interest rate,  you can imagine how these peeps were happy and praising CBN for establishing BOI, they said they can pay debt a lot easily and an even reduce the prices of their produce and make more profit,  thats just reducing interest by 50%,  now imagine what would happen if you can borrow from a bank that will lend to you at 0% interest rate,  even YOU will enjoy from it cos you'll uy a lot cheaper than now,, hence Economic stability is imminent

First, let me state that the bank of industry (boi) is not a creation of the CBN under SLS.I expect that you know that there are other things that made it impossible or difficult for the traders to pay back there loan order than the interest rate.The cost of doing business in Nigeria is very high coupled with the decaying infrastructure, power problem and the likes.So, high interest may not necessarily be the reason for default in loan repayment, if so, why do advanced countries of north america and europe developed even in the face of high interest rates?

Then, i said, from the evidence so far regarding the practice of islamic banking world over, in what way has the islamic banking contributed in alleviating the poverty of the poor countries?The modern day revolution with its attendant consequences are mainly in islamic countries, where the practice of islamic banking is wide spread.If islamic banking is the panacea why are those people still poor?

You made reference to UAE, Oatar etc as evidence of the success of islamic banking, i laugh.These countries you mentioned trade mainly oil products, and most of this transactions are done through conventional banks.They gain alot from increases in oil price.And most of the advancements in those economies can never be attributed to islamic banking, i stand to be corrected.So, why do we need it in Nigeria?

[b]your first class in biochemistry and your lack of analytical depth only expose the problems of our education system. [/b]You need to take your time to understand issues first before rushing to brag about a mediocre certification from a probably mediocre University.
It is very important for people to understand that the Islamic banking model is a subset of NON-Interest banking. The issue here is not with the product but the motive. Why emphasize on Islamic banking instead of non-interest banking? Why should the CBN governor be promoting Islamic banking, holding Islamic conferences to promote the cause at the expense of other forms of non-interest banking? When Soludo gave licence in principle to JAIZ bank, an Islamic bank that never took off, he did not make any exclusive guidelines alone for Islamic banking like Sanusi is doing. Unlike Sanusi, Soludo issued the licencing to Jaiz giving thesame guidelines for all Non-Interest banking models. Why spend state resources organizing conferences and hiring experts on Islamic banking, exclusively to Islamic banking model when that should be in the purview of private practioners of any of the models if they want to sharpen their competetive edge.
Does it not smack of an agenda to bring in islamasize the financial system given the utmost importance that the CBN management has put on just one model in the presence of many? When was the last time you checked the Naira notes for any of Yoruba-Hausa-Igbo inscriptions? It has reverted to arabics since Sanusi.
In terms of economic benefits of islamic banking, can you without mincing words state clearly any economy that has succeded due to the presence of Islamic banks and the strict adherance to its principles. In real sense, there is realy no difference between their non-interests claims and the mark-up charges they levy on loans except that they put themselves more at risk than conventional banks will want to do. Seriously, what are their success stories? It is all good to talk about lending without interest charges but what happens when the business fails? Do you know that the bank almost entirely bear the brunt of the failure and put people's deposits with them in jeopardy. Mr first Class grad, I am not an economics either, neither did I graduate with a first class but I don't think it takes a super-brain to figure out the obvious with Sanusi- he is way over his head and is confused as to how to handle the job, he is just gropping in the dark and I personally think he has been infilterated by islamist fundamentalist.

Guy, you wicked o. But come o, you mean the hause, igbo and yoruba inscriptions on the naira have been reverted?Something is really wrong somewhere.God help this country in the hands of this bigot of a man.

This has been a fine thread. Katsumoto - Well done.

azoo:

I may not know anything in economkcs but a first class graduate of biochemistry ,

Stop bragging here. If you are really gifted, why didn't you study medicine. I guess you failed to secure admission to study medicine. Therefore you opted for Biochemistry.

rhymz:

your first class in biochemistry and your lack of analytical depth only expose the problems of our education system. You need to take your time to understand issues first before rushing to brag about a mediocre certification from a probably mediocre University,

You said it all

chamber2:

Guy, you wicked o. But come o, you mean the hause, igbo and yoruba inscriptions on the naira have been reverted?Something is really wrong somewhere.God help this country in the hands of this bigot of a man.

My N500 & N200 note which was printed in 2010 bears Arabic inscription

freepeople:

You said it all
My N500 & N200 note which was printed in 2010 bears Arabic inscription

That's because they've not gone polymer with those notes. I am looking at the polymerized N5, N10, N50, and they have the Hausa/Igbo/Yoruba and no Arabic. The ones I have are all signed by SLS.

I don't know what this Sanusi of a man is doing.Whatever it is, has it had any postive impact on the economy?Has it strenghtened the Naira? Has it curbed unemployment?Those are the questions.And the answer is an emphatic "NO" to all.The noise he has been making and his sacking of the bank MDs have only succeeded in dealing a crushing blow to the capital market, investors have lost confidence in the market.Now, he is promoting a controversial Islamic banking, will this islamic banking solve the economic problems we are facing in this country? And some people still open their stinking mouth to defend this man.The man is not an economist but an islamic scholar and  would be better of as the Chief Imam of Northern Nigeria than the Governor of Central Bank of Nigeria.

i can see the hands of erastus, cecilia, et al in this post

being someone that has read more than 3 dozens of Sanusi's articles written over a period of 10 years
https://www.nairaland.com/nigeria/topic-700308.0.html

This is a quote from Jarus. I must confess that I'm disappointed with NL that deemed  a person in the character of Jarus worthy of being their moderator. Mr Jarus is more a political hack than a moderator. I challenge Jarus to post links to those articles written by Sanusi.

@chaber2;

I think Sanusi is more celebrated internationally than insideNigeria. Perhaps the mediocrity celebration , if there is, can be placed more accurately.

I think Sanusi is more celebrated internationally than insideNigeria. Perhaps the mediocrity celebration , if there is, can be placed more accurately.

which international celebration are you talking about?SLS is not celebrated any where.

chamber2:

Guy, you wicked o. But come o, you mean the hause, igbo and yoruba inscriptions on the naira have been reverted?Something is really wrong somewhere.God help this country in the hands of this bigot of a man.

As I am reading this, I took N50 note out of my pocket. It bears the following
the signature of Sanusi Lamido as Governor
Naira Hamsin
Naira Iri Ise
Aadota Naira

I took out N1,000 note. It bears the following:
the signature of Charles Soludo
Arabic inscription

Do the test. it is simple Don't just believe fiction because somebody has said it

In fact nothing has changed on our currency notes since Sanusi took over except the signature of the Governor
Again, for the purpose of clarification since the time of Soludo
for N50 notes and below, the denominations have Hausa, Yoruba and Igbo written on them
for N100 notes and above, the denominations have Arabic inscription of Hausa names written

As I am reading this, I took N50 note out of my pocket. It bears the following
the signature of Sanusi Lamido as Governor
Naira Hamsin
Naira Iri Ise
Aadota Naira

I took out N1,000 note. It bears the following:
the signature of Charles Soludo
Arabic inscription

Do the test. it is simple Don't just believe fiction because somebody has said it

In fact nothing has changed on our currency notes since Sanusi took over except the signature of the Governor
Again, for the purpose of clarification since the time of Soludo
for N50 notes and below, the denominations have Hausa, Yoruba and Igbo written on them
for N100 notes and above, the denominations have Arabic inscription of Hausa names written

Don't mind my ignorance.I have been out of the country for awhile.

If Sanusi had taken 6 six years out of banking to work as a Pentecostal Pastor and not anything Islamic, we would be hailing him today as a really good man (of God).


I don't know whether taking time out to do something you really like constitutes incompetence.

chamber2:

First, let me state that the bank of industry (boi) is not a creation of the CBN under SLS.I expect that you know that there are other things that made it impossible or difficult for the traders to pay back there loan order than the interest rate.The cost of doing business in Nigeria is very high coupled with the decaying infrastructure, power problem and the likes.So, high interest may not necessarily be the reason for default in loan repayment, if so, why do advanced countries of north america and europe developed even in the face of high interest rates?

Then, i said, from the evidence so far regarding the practice of islamic banking world over, in what way has the islamic banking contributed in alleviating the poverty of the poor countries?The modern day revolution with its attendant consequences are mainly in islamic countries, where the practice of islamic banking is wide spread.If islamic banking is the panacea why are those people still poor?

You made reference to UAE, Oatar etc as evidence of the success of islamic banking, i laugh.These countries you mentioned trade mainly oil products, and most of this transactions are done through conventional banks.They gain alot from increases in oil price.And most of the advancements in those economies can never be attributed to islamic banking, i stand to be corrected.So, why do we need it in Nigeria?

Its so unfortunate that a run-off-the-mill, middle-of-the-road like u still exist, Its people like u that actually give Nigerian education a bad name, what can be more analytical than what I said, the funny thing is thgat u were just making statements that lack statistics and no  explanations but just the percieved facts of your underdeveloped brain,
look at ur words that I highlighted, u said these countries trade oil, are you saying ur point of argument is that the banking system should be the only revenue for a country cos I see no reason why their trading in oilshould be a point here, go back research and come back, does Nigeria not trade in oil, are we a success what about venezuela thats one of the world oil giants that even practice the conventional banking system are they any better before you rain abuses, use ur fish brain to think, even ask yourself what have u been saying since cos you seem to make no point at all, and I'm very sure u finished with a 3;1 OR 4:1 COS ITS SO OBVIOUS,

freepeople:

Stop bragging here. If you are really gifted, why didn't you study medicine. I guess you failed to secure admission to study medicine. Therefore you opted for Biochemistry.

I am very sure u are amongst those idiots thgat their parents force to study medicine or law and fail to choose other career paths, I chose Biochemistry without the option of medicine cos I know what it entails and its fulfilling, My mentioning my discipline was not to brag but just to tell u that even if I'm not an accounting or economics graduate watching that program still made me know that Islamic banking is still the best, whats there to brag about at least I aint the only one in the world,


My N500 & N200 note which was printed in 2010 bears Arabic inscription
this is because of the hausas who are majorly arabic literates, atleast they are Nigerians too, please, if u want a sect that understands hebrew< I'm sure they'ld have used it too,

manny4life:
Voodoo economics?

I laugh in Swahili,

Besides, based on what u said, since SLS took such decisive actions to check excesses of bank execs, inflation rate shouldn't have surpassed when he took office, I guess that's inevitable. I guess the way to salvage banks was to pump about 10% more money in circulation pushing inflation to same amount of injection.

Katsumoto:
You are very funny. How will 5 banks failing increase the money in supply?  Money can only be increased through the actions of a Central Bank.

Both of you guys don't fool me for a minute. Your posts above suggest that you are ignorant of the causes of inflation by telling us that it was the money which sanusi and CBN pumped into bailing out the banks that are responsible for pushing inflation upwards. This technique of yours amounts to lying with statistics. Yes money supply affects inflation, you however conveniently blame Sanusi's injection for inflation while ignoring the other 2 money supplies (so-called M2 & M3) and several other major factors.  Your monetarists explanation of the cause of the 10% inflation is selective at best and probably intellectually dishonest.

You all do not need to be educated in Economics so I am not going to waste my time.  You all come across as overfed Sanusi haters and elitists, who cannot stand the successes and international recognition  achieved by an ordinary Mallam who does not belong to your PhD elitist club.

Sausi cannot be said to have done creditably well when he was at the helms of affair at the first bank,

let us not forget that he started off in First bank as the head of risk management which recorded a bad debt profile of N=200 billion and he turned a blind eye to this mess as the CBN governor. why?

Pls can somebody answer this question because i really need to know.

Its so unfortunate that a run-off-the-mill, middle-of-the-road like u still exist,  Its people like u that actually give Nigerian education a bad name,  what can be more analytical than what I said,  the funny thing is thgat u were just making statements that lack statistics and no  explanations but just the percieved facts of your underdeveloped brain,
look at your words that I highlighted, u said these countries trade oil, are you saying your point of argument is that the banking system should be the only revenue for a country cos I see no reason why their trading in oilshould be a point here,  go back research and come back,  does Nigeria not trade in oil, are we a success what about venezuela thats one of the world oil giants that even practice the conventional banking system are they any better  before you rain abuses, use your fish brain to think,  even ask yourself what have u been saying since cos you seem to make no point at all,  and I'm very sure u finished with a 3;1 OR 4:1 COS ITS SO OBVIOUS,

You are obviously a clown.I mean, how did a fool like you manage to graduate from the university?What empirical evidence do you have to suggest that islamic banking is the best for us?You are truly a mediocre.The only reference you could make was a group of traders in Osun state.How does that relate to the experience of other states and countries?You need statistics to believe what i am saying, just google it or are you lazy to do simple research even with your useless first class?Maybe, you think we will feel intimidated if you say you have a first class.

IMO, CBN under Adamu ciroma was better than CBN under Prof Soludo, leave all those bloody theories and lets face reality, Southern Nigerians will never accept that a northerner can do anything right. while the iweala's and soludos with their havard degrees will continue to sell us to western institutions like the IMF, those institutions can never mean well for the third world, The akingbolas et al have all the credentials yet are the biggest thieves, that is y prof charles soludo will finish his tenure and go running to be a governor, something no CBN governor has ever done, Nigeria needs people with Guts and that is what sanusi stands for

chamber2:

You are obviously a clown.I mean, how did a fool like you manage to graduate from the university?[s]What empirical evidence do you have to suggest that islamic banking is the best for us?[/s]You are truly a mediocre.The only reference you could make was a group of traders in Osun state.How does that relate to the experience of other states and countries?You need statistics to believe what i am saying, just google it or are you lazy to do simple research even with your useless first class?Maybe, you think we will feel intimidated if you say you have a first class.

I could have sworn the idea is being promoted only as an ALTERNATIVE which off-course comes with the unequivocal choice stance

Pls mr chamber2 can you help and educate me on this question :



When sanusi was in First bank as the head of risk management which recorded a bad debt profile of N=200 billion and he turned a blind eye to this mess as the CBN governor. why?

Pls can somebody answer this question because i really need to know.

Both of you guys don't fool me for a minute. Your posts above suggest that you are ignorant of the causes of inflation by t[b]elling us that it was the money which sanusi and CBN pumped into bailing out the banks that are responsible for pushing inflation upwards.[/b] This technique of yours amounts to lying with statistics. Yes money supply affects inflation, you however conveniently blame Sanusi's injection for inflation while ignoring the other 2 money supplies (so-called M2 & M3) and several other major factors.  Your monetarists explanation of the cause of the 10% inflation is selective at best and probably intellectually dishonest.

You seem to be missing something very important.Money supply simply means the total amount of money in an economy at a given time.This includes currency in circulation and demand deposits.For your information, Money supply has a great impact on the price level, inflation and the business cycle.There is a direct relationship b/w longterm price inflation and money supply growth.Though this relationship is still being questioned by some economists, but empirical findings seem to support the claim.

So, when the CBN injects a huge amount of money into circulation through the banks, where do you think this money ultimately goes?Ultimately, the money finds itself to the economy.Also, when we say a bank is distressed what it means is that the bank is unable to meet it's customer's financial obligations.So, when the cbn pumps money into these banks in the form of bailout the money ultimately finds its way into the economy, part remains in the bank and that is what constitutes the money supply.These activities of increased money supply if not matched with increase in the productive capacity of the economy leads to inflation.And this is the case of Nigeria.

I could have sworn the idea is being promoted only as an ALTERNATIVE which off-course comes with the unequivocal choice stance

You are right sir, but the way SLS is parading the idea of islamic banking leaves one in doubt as in its ultimate objective

When sanusi was in First bank as the head of risk management which recorded a bad debt profile of N=200 billion and he turned a blind eye to this mess as the CBN governor. why?

That is why most people still think that SLS has ulterior motives in this whole brouhaha

@beta things
just brought out a some notes from my wallet and i noticed majority of the notes ie 100,200 and 500 signed by Sanusi have got arabic inscribtions,
so whats going on,some notes have the nigerian languages while some have arabic and all were signed by sanusi.

Chei, you guys are still at it?


Don't you guys have jobs to be at this morning?

chamber2:

You seem to be missing something very important.Money supply simply means the total amount of money in an economy at a given time.This includes currency in circulation and demand deposits.For your information, Money supply has a great impact on the price level, inflation and the business cycle.There is a direct relationship b/w longterm price inflation and money supply growth.Though this relationship is still being questioned by some economists, but empirical findings seem to support the claim.

So, when the CBN injects a huge amount of money into circulation through the banks, where do you think this money ultimately goes?Ultimately, the money finds itself to the economy.Also, when we say a bank is distressed what it means is that the bank is unable to meet it's customer's financial obligations.So, when the cbn pumps money into these banks in the form of bailout the money ultimately finds its way into the economy, part remains in the bank and that is what constitutes the money supply.These activities of increased money supply if not matched with increase in the productive capacity of the economy leads to inflation.And this is the case of Nigeria.

This epistle of yours was unnecessary and should have been saved for your freshmen students. Can you people read at all, who is saying that the money injected did not go into the money supply? The point you misssed was that, that injection alone cannot be blamed for the inflation rate of 10%. olodo.

@ Rhymz,

Fantastics posts on SLS' handling of the Islamic Banking mess.

Akanbi_edu:

I am surprised Jarus has not contributed to this bad-belle debate.

It appears the most sensible people can loose their calm when it comes to religion or tribe. All this wahala because of Islamic banking. Shior.

Personalising issues only means you have got no leg to stand on.

ndu_chucks:

Both of you guys don't fool me for a minute. Your posts above suggest that you are ignorant of the causes of inflation by telling us that it was the money which sanusi and CBN pumped into bailing out the banks that are responsible for pushing inflation upwards. This technique of yours amounts to lying with statistics. Yes money supply affects inflation, you however conveniently blame Sanusi's injection for inflation while ignoring the other 2 money supplies (so-called M2 & M3) and several other major factors.  Your monetarists explanation of the cause of the 10% inflation is selective at best and probably intellectually dishonest.

You all do not need to be educated in Economics so I am not going to waste my time.  You all come across as overfed Sanusi haters and elitists, who cannot stand the successes and international recognition  achieved by an ordinary Mallam who does not belong to your PhD elitist club.

You really think you can lecture me on Economics? You are too funny? You simply don't understand the basics of Money classifications and you want to lecture someone else. Whether M1, M2, M3 (US) or MO, M4 (UK), an increase in the supply of money results in higher inflation; this is the 9th principle of Economics.

BTW, I didn't blame SLS for the high inflation in Nigeria; I blamed him for increasing the money supply to save Banks that did not have liquidity problems in the short term in an economy with double digit inflation. Your name calling serves no purpose and only exposes your inability to deal with facts and engage in polite debate.

manny4life:

Chei, you guys are still at it?


Don't you guys have jobs to be at this morning?

No need to cast aspersions; no one really knows the others.

This epistle of yours was unnecessary and should have been saved for your freshmen  students. Can you people read at all, who is saying that the money injected  did not go into the money supply? The point you misssed was that, that injection alone cannot be blamed for the inflation rate of 10%. olodo.

Who is the olodo here?One of the attributes of a good economist is the ability to present facts in a simple and understandable format.You just made a statement and then leaves the reader, who may be a non professional, to figure it out.So, you are the real olodo

You really think you can lecture me on Economics? You are too funny? You simply don't understand the basics of Money classifications and you want to lecture someone else. Whether M1, M2, M3 (US) or MO, M4 (UK), an increase in the supply of money results in higher inflation; this is the 9th principle of Economics.

Don't mind that empty thing.

@Katsumoto

Sorry my brother, I was only saying you know, IMO I think this argument is getting everyone worked up.

WOW! I have just spent the last 6 hours reading every post on this topic. (I'm at work so I've been doing other things in between).

A few points:

1 If you come onto a public forum and start abusing/insulting people, it speaks much of your upbringing.
2 RISK has been confused by some for the literal meaning of it. There's need to properly define and understand concepts being discussed
3 The poster asked questions which no one has been able to answer

My opinion on SLS:

In any other country, a New CBN governor whose actions (barely 2 months into the job) leads to serious unemployment, inflation, capital flight, lack of confidence, etc, will loose his job / or be expected to honourably resign.

Clearly, for a CBN governor, strong grasp of marco-economics is a must. The tools at his disposal are macro-economic in nature. And yes, my first degree is in Economics.

Islamic Banking: If the law that establishes them guarantees that we (tax payers) will not bail them out when they fail, then why not? But this can never be the case.

Even if we ignore all the aforementioned, Sanusi is on record to have said bankers should be tied to the stake and shot. This utterance alone, in a civilised society, would have earned him the sack.

The question really is, when he was selected, was he the best man for the job? Is he the best man for the job? Is he doing a good job?

With the fear of God in heart, try to answer these questions.

manny4life:

@Katsumoto

Sorry my brother, I was only saying you know, IMO I think this argument is getting everyone worked up.

Everyone lacking sleep?

Please excerpts from a book, Interest-free Banking by A.L.M. Abdul Gafoor. I have broken into two to avoid the spambot; I will post the other half as well.

4.3 Problems in implementing the PLS scheme

Several writers have attempted to show, with varying degrees of success, that Islamic Banking based on the concept of profit and loss sharing (PLS) is theoretically superior to conventional banking from different angles. See, for example, Khan and Mirakhor (1987). However from the practical point of view things do not seem that rosy. Our concern here is this latter aspect. In the over half-a-decade of full-scale experience in implementing the PLS scheme the problems have begun to show up. If one goes by the experience of Pakistan as portrayed in the papers presented at the conference held in Islamabad in 1992, the situation is very serious and no satisfactory remedy seems to emerge. In the following paragraphs we will try to set down some of the major difficulties.

4.3.1 Financing

There are four main areas where the Islamic banks find it difficult to finance under the PLS scheme: a) participating in long-term low-yield projects, b) financing the small businessman, c) granting non-participating loans to running businesses, and d) financing government borrowing. Let us examine them in turn.
4.3.1.1 Long-term projects

Table 1 shows the term structure of investment by 20 Islamic Banks in 1988. It is clear that less than 10 percent of the total assets goes into medium- and long-term investment. Admittedly, the banks are unable or unwilling to participate in long-term projects. This is a very unsatisfactory situation.
Table 1
Term Structure of Investment by 20 Islamic Banks, 1988
Type of Investment                      Amount* % of Total
Short-term                               4,909.8 68.4
Social lending                                 64.2 0.9
Real-estate investment               1,498.2 20.9
Medium- and long-term investment 707.7 9.8
   Source: Aggregate balance sheets prepared by the
   International Association of Islamic Banks, Bahrain, 1988.
   Quoted in: Ausaf Ahmed (1994). * Unit of currency not given.

[b]The main reason of course is the need to participate in the enterprise on a PLS basis which involves time consuming complicated assessment procedures and negotiations, requiring expertise and experience. The banks do not seem to have developed the latter and they seem to be averse to the former. There are no commonly accepted criteria for project evaluation based on PLS partnerships. Each single case has to be treated separately with utmost care and each has to be assessed and negotiated on its own merits. Other obvious reasons are: a) such investments tie up capital for very long periods, unlike in conventional banking where the capital is recovered in regular instalments almost right from the beginning, and the uncertainty and risk are that much higher, b) the longer the maturity of the project the longer it takes to realise the returns and the banks therefore cannot pay a return to their depositors as quick as the conventional banks can. Thus it is no wonder that the banks are averse to such investments.[/b]

4.3.1.2 Small businesses

Small scale businesses form a major part of a country’s productive sector. Besides, they form a greater number of the bank’s clientele. Yet it seems difficult to provide them with the necessary financing under the PLS scheme, even though there is excess liquidity in the banks. The observations of Iqbal and Mirakhor14 is revealing:

   Given the comprehensive criteria to be followed in granting loans and monitoring their use by banks, small-scale enterprises have, in general encountered greater difficulties in obtaining financing than their large-scale counterparts in the Islamic Republic of Iran. This has been particularly relevant for the construction and service sectors, which have large share in the gross domestic product (GDP). The service sector is made up of many small producers for whom the banking sector has not been able to provide sufficient financing. Many of these small producers, who traditionally were able to obtain interest-based credit facilities on the basis of collateral, are now finding it difficult to raise funds for their operations.

4.3.1.3 Running businesses

Running businesses frequently need short-term capital as well as working capital and ready cash for miscellaneous on-the-spot purchases and sundry expenses. This is the daily reality in the business world. Very little thought seems to have been given to this important aspect of the business world’s requirement. The PLS scheme is not geared to cater to this need. Even if there is complete trust and exchange of information between the bank and the business it is nearly impossible or prohibitively costly to estimate the contribution of such short-term financing on the return of a given business. Neither is the much used mark-up system suitable in this case. It looks unlikely to be able to arrive at general rules to cover all the different situations.

Added to this is the delays involved in authorising emergency loans. One staff member of the Bank of Industry and Mines of Iran has commented:

   Often the clients need to have quick access to fresh funds for the immediate needs to prevent possible delays in the project’s implementation schedule. According to the set regulations, it is not possible to bridge-finance such requirements and any grant of financial assistance must be made on the basis of the project’s appraisal to determine type and terms and conditions of the scheme of financing.

The enormity of the damage or hindrance caused by the inability to provide financing to this sector will become clear if we realise that running businesses and enterprises are the mainstay of the country’s very economic survival.

4.3.1.4 Government borrowing

In all countries the Government accounts for a major component of the demand for credit -- both short-term and long-term. Unlike business loans these borrowings are not always for investment purposes, nor for investment in productive enterprises. Even when invested in productive enterprises they are generally of a longer-term type and of low yield. This latter only multiplies the difficulties in estimating a rate of return on these loans if they are granted under the PLS scheme. In Iran,16

   , it has been decreed that financial transactions between and among the elements of the public sector, including Bank Markazi [the central bank] and commercial banks that are wholly nationalised, can take place on the basis of a fixed rate of return; such a fixed rate is not viewed as interest. Therefore the Government can borrow from the nationalised banking system without violating the Law.

While the last claim may be subject to question, there is another serious consequence:17

   Continued borrowing on a fixed rate basis by the Government would inevitably index bank charges to this rate than to the actual profits of borrowing entities.

4.3.2 Legislation

Existing banking laws do not permit banks to engage directly in business enterprises using depositors’ funds. But this is the basic asset acquiring method of Islamic banks. Therefore new legislation and/or government authorisation are necessary to establish such banks. In Iran a comprehensive legislation was passed to establish Islamic banks. In Pakistan the Central Bank was authorised to take the necessary steps. In other countries either the banks found ways of using existing regulations or were given special accommodation. In all cases government intervention or active support was necessary to establish Islamic banks working under the PLS scheme.

In spite of this, there is still need for further auxiliary legislation in order to fully realise the goals of Islamic banking. For example, in Pakistan,

   , the new law has been introduced without fundamental changes in the existing laws governing contracts, mortgages, and pledges. Similarly no law has been introduced to define modes of participatory financing, that is Musharakah19 and PTCs. It is presumed that whenever there is a conflict between the Islamic banking framework and the existing law, the latter will prevail. In essence, therefore, the relationship between the bank and the client, that of creditor and debtor is left unchanged as specified by the existing law. , The existing banking law was developed to protect mainly the credit transactions; its application to other modes of financing results in the treatment of those modes as credit transactions also. Banks doubt whether some contracts, though consistent with the Islamic banking framework, would be acceptable in the courts. Hence, incentives exist for default and abuse.

In Iran, although the law establishing interest-free banking

   , is comprehensive, the lack of proper definitions of property rights may have constrained bank lending. Thus far there has been no precise legislative and legal expression of what is viewed as “lawful and conditional” private property rights. This may also have militated against investment lending in agricultural and industrial sectors and thus encouraged increased concentration of assets in short-term trade financing instruments.

Iran and Pakistan are countries committed to ridding their economies of riba and have made immense strides in towards achieving it. Yet there are many legal difficulties still to be solved as we have seen above. In other Muslim countries the authorities actively or passively participate in the establishment of Islamic banks on account of their religious persuasion. Such is not the case in non-Muslim countries. Here establishing Islamic banks involves conformation to the existing laws of the concerned country which generally are not conducive to PLS type of financing in the banking sector. We will see some of these problems below in section 4.4.

4.3.3 Involvement in specialised non-bank activities

Dr Hasanuz-Zaman, lists the traditional tasks of the bank and then questions its ability to take on the additional functions it is called upon to perform under the PLS scheme:21

   It is due to historical reasons that banks have evolved purely as a financial institution. They are suited to attract money, keep it in safe custody, lend it under safety, invest it profitably and enjoy the capacity to create the means of payment. A bank has to maintain a balance between income, liquidity and flexibility. While allocating its funds it has to be meticulously sensitive about the factors like capital position and rate of profitability of various types of loans, stability of deposit, economic conditions, influence of monetary and fiscal policy, ability and experience of bank’s personnel and credit needs of the area. So far these banks thrive on a fixed rate of return a portion of which is passed on by them to the depositor. Thus the entire effort of a bank is directed towards money management and it is not geared to act as an entrepreneur, trader, industrialist, contractor or caterer.

   The question arises: with all these limitations can a bank claim any competence in trading or entrepreneurship which is necessary for musharakah or mudarba contract, or can it act as an owner of a large variety of heavy machinery, transport vehicles or real estate to take the position of a lessor or, can it act as a stockist to buy and resell the entire stock of imports and exports that are needed by genuine traders?

Then he raises the even more serious question:

   In case the bank is historically and practically not competent to do all these jobs, its claim to share a portion of profits as a working partner, trader or lessor becomes questionable.

Traditional banks do perform a certain amount of project evaluation when granting large medium- and long-term loans. But doing such detailed evaluation as would be required to embark on a PLS scheme, such as determining the rates of return and their time schedule, is beyond the scope of conventional banks. So is the detailed accounting and monitoring necessary to determine the actual performance.

Under Islamic banking these exercises are not limited to relatively few large loans but need to be carried out on nearly all the advances made by the bank. Yet, widely acceptable and reliable techniques are yet to be devised. This is confounded by the fact that no consensus has yet been reached on the principles. Both the unprecedented nature of the task as well as the huge amount of work that need be done and the trained and experienced personnel needed to carry them out seems a daunting prospect.

4.3.4 Re-training of staff

As was seen in the previous section, the bank staff will have to acquire many new skills and learn new procedures to operate the Islamic banking system. This is a time consuming process which is aggravated by two other factors. One, the sheer number of persons that need to be re-trained and, two, the additional staff that need to be recruited and trained to carry out the increased work.

Principles are still to be laid down and techniques and procedures evolved to carry them out. It is only after the satisfactory achievement of these that proper training can begin. This delay and the resulting confusion appears to be among the main reasons for the banks to stick to modes of financing that are close to the familiar interest-based modes.