CHAPTER ONE

1.0 Introduction
This chapter is meant to provide a general background to the study with a
view to explaining the purpose for undertaking the research work. It attempts to
justify the merits of the work and explains its delimitation as well as the
methodology employed. The evolution of banking system in Nigeria is also
expatiated.

1.1 Background to the study

Islm to Muslims is a complete way of life. That is, it established the

framework for our way of living in which every aspect of life is catered for; be it
socio-religious, political and economic aspect of our lives. Qurn says:

..
..We have neglected nothing in the Book (of decree).
Then to their Lord will they all be mustered. (Q6:38)
Socially, Islm preaches brotherhood, social justice and condemns secession.
Politically, it enjoins justice and equity and discourages tyranny. Economically, it
encourages even distribution of wealth, engagement in lawful business and forbid
riba.
Islm is human submission to divine will. Islm provides moral values such
as justice, benevolence, equality, freedom and brotherhood. Its source of
inspiration for mankind for active and positive moral conduct. It caters for human
welfare by providing harmony of moral, materials and spiritual needs of human
beings. Hence, the basic moral values and principles of Islmic economics are
contained in the Qurn and in the teaching of Prophet Muhammad (SAW).1
Islm establishes the boundaries, the four corners within which we practice
all our transactions and interactions. These frameworks are the Usool (the basic

1
principles) under which all branches of jurisprudences are defined 2. These Usool
(basic principles) serve the objectives of Sharih, the reason which Allh (SWT)
revealed Islm to mankind.
Generally, Islmic Economic System is founded on following key principles,
namely:
I. Restore humans live in every walk of life to its natural behavior.
II. Tazkiya Nafs (purification of inner self by improving ethics and moral
standards in society.
III. Justice and equality, by demolishing elite-class system and providing equal
opportunity and justice.
IV. Equal distribution of wealth amongst all members of Jammat and
prohibition of hoarding amongst the elite few.
V. Prohibition of exploitation and injustice by protecting the rights of peasants
and ordinary low income members of society.
VI. Balance between Right to own/trade and Right of Jammat in ones wealth
Mawdudi identified three key objectives of Islmic Economic System:3
I. Freedom for citizens are utmost priority, and the bounds are implemented
only when absolute necessary in the interest of collective benefit of
mankind. In this context, it includes mans right to own and right to do
business with equal opportunity and access. The items that are haram to
consume are also considered haram to sell, as they are harmful to the society
(e.g. Khamr, Rib)
II. Balance between moral values and material accumulation i.e. Islm highly
focuses on building a moral sense and responsibility through elm
(education), iman (faith) and tazkiya (cleansing of inner self), so that the
mindset (of me first and give me more) is replaced with honesty, compassion
and need for collectivity (Jammat first).
III. Harmony and cooperation between members of Jammat because Islm is
absolutely against creating Classes in a society (e.g. the classes created by

2
 feudal system, or by western capitalist system). And it brings harmony
between the natural classes of the society (i.e. between poor and rich,
orphans, etc.) by enforcing laws to create equality and opportunity among
them.
Islmic economic system promotes compassion and it discourages self-
centeredness. It states that one is free to do trade and make wealth as much as he
likes, but the society has a right to portion of his wealth. This right of society is
legislated by Allh (SWT) by the way of charity, zakat, hibba, inheritance and
Baitul Mal (Welfare system of the community).4

Although Qurn says:

And whosoever does not judge by which Allh has revealed,

those are the transgressors (Q.5:45)
A deviation from Allhs path and non-adherence to His rulings has
manifested in our lives especially in the economic sector as we know that among
the Islmic economic principles is justice and equality by repelling elite-class
system and providing equal distribution of wealth among all.

Banking is an important financial intermediary and vital institution in the

economic structure of any country. The basic services rendered by bank include;
receiving, collecting, transferring, paying, exchanging, lending, investing and
safeguarding money for its customers.5 Banking as a financial institution has done
a lot to the modern economy like what the advent of money did to the primitive
economy when the latter was the means of exchange. It has contributed greatly to
the growth and development of modern industrial society. It has facilitated
exchange which helps in capital formation and production on a vast scale.6

3
 The banking system that can be found in almost every country in the world
is the conventional banking system. It is interest-based banking. The whole credit
system is built upon the institution of interest. To them, interest is a gain or profit.
Under the system, the borrower is obliged to pay a predetermined rate of interest
on the amount borrowed even though he may have incurred losses. The
relationship between the bank and its client is therefore that of the creditor and
debtor. This had led to so many economic and social evils among other things.

Islm encourages and allows us to engage in legal business, seek wealth

from lawful means or sources and transactions that are devoid of Haram
(prohibited business like dealing in alcohol), Garar (deception or fraud) Maysir
(gambling) and Ar-Rib (usury/interest). There are several Qurnic verses,
Prophetic Ahdith and opinions of scholars that prohibit these. Interest (Rib) has
been characterized as the very backbone of modern and capitalistic economy. The
web of interest encompasses banking and finance, business and commerce,
industry and agriculture. Interest has gradually and surreptitiously crept into all
aspects of modern life so much so that one is often reminded of the aptness of the
Prophets (PBUH) saying

A time will come over people when not a single person will
remain who does not devour Rib, and if there be any who
refrains from it still its vapour will overtake him (Abu Daud,
Sunan Kitab-al-Buyu, Bab fi ijtinab-al-Shubukat).
The prohibition of Rib is one of the basic features of the economic percepts
cherished by the Glorious Qurn and the Sunnah of the Glorious Prophet
(PBUH)7.

Much has been written on the interpretation of the term Rib; the wisdom
underlying its prohibition, its economic and social implications and the practical

4
aspects of the Islmic economy which is supposed to work without interest. It is
explained that the people not conversant with principles of Islm and economic
philosophy of Islm believe that elimination of Rib from banks and financial
institutions makes them charitable, rather than commercial concerns which offer
financial services without a return. This is their wrong assumption that interest free
loan is meant for cooperative and charitable activities and not normally for
commercial transactions. On the contrary, it is clear and evident that elimination of
interest from financial activities does not mean that lender cannot earn profit. If
financing is made for commercial purpose, it can be based on the concept of
musharakah and mudarabah. Islm animated novel systems which were beyond
the reach and perception of human beings to think and develop. Rib creates an
imbalance.

Ar-Rib is an Arabic word derived from the verb Rab that literarily means
to grow or to expand or increase or inflate or excess. Ar-Rib is
translated in English as usury or interest. Technically in Sharih, it refers to the
premium that must be paid by the borrowers to the lender along with the principal
amount as a condition for the loan or an extension in its maturity. The bone of
contention in the case of Rib is that, in Sharih Ar-Rib is not limited to loan
alone but it at times occurs in business dealings.8

This dissertation therefore intends to examine Ar-Rib (usury/interest) in the

Islmic and conventional Banking systems in Nigeria, with particular reference to
Jaiz Bank Plc and First Bank of Nigeria.

1.2 Objectives of the Study

5
 The main aim of this dissertation is to examine Ar-Rib (usury/interest) in the
transactions and activities of Islmic banking system in Nigeria vis-a-vis
conventional banking system. The objectives of the study include

1. Identify the difference between Ar-Rib and profit on trade

2. Examine the similarities and differences between the Islmic and
Conventional Banking Systems in Nigeria
3. Identify and analyze the businesses of Jaiz Bank and that of First Bank of
Nigeria
4. Examine the effects of Ar-Rib on Banking Systems in Nigeria as well as on
economic lives of Nigerians
5. Suggest and recommend ways by which Ar-Rib can be totally avoided by
Islmic banks and utterly prevented by Conventional Banks in Nigeria

1.3 Justification for Study

The study will be of great importance due to the fact that it will help in
identifying Ar-Rib in business transactions and activities of Islmic Banking and
Conventional Banking Systems in Nigeria, thereby creating awareness for the
populace to identify what banks use their money for and make choice.

It will also help the Islmic and conventional bankers to identify Ar-Rib in
their banking activities so as to avoid it completely in their banking system.

It will as well provide avenue for the customers to make choice out of the
available products of the banks.

1.4 Literature Review

Many writers have written on Islmic Banking System in Nigeria while

some have written on Ar-Rib or prohibition of Rib in Islm, but none has carry

6
out a study of Rib in Islmic and Conventional Banking Systems in Nigeria. And
if there is, it may not be in respects to Jaiz Bank and First Bank in Nigeria.

Writers like, Adebayo9, Oladimeji and Otuyo10, Ajagbe and Brimah11, and
12
Jumuah , among others wrote on the Islmic bank and its products with
emphasis on Rib as a distinct between the Islmic Banking and that of
Conventional ones. Some also wrote on the viability of Islmic Banking in Nigeria
as well as the motivational factors. Some even wrote on challenges confronting
Islmic Banking in Nigeria as well as its prospects.

Furthermore, Abikan13 wrote on the evolution and constitutionality of

Islmic Bank in Nigeria. He traced the evolution of banking system to pre-colonial
era, and that of Islmic bank to the aftermath of Usman Dan- Fodio Jihad of 1804.

Among the leading proponents of Islmic banks is Muhammad Nejatullah

Siddiqi14 and Muhammad15 who wrote on Rib and rational behind its prohibition
including jurists divergent opinions on Rib. However, they did not link it to
Islmic Banking system. Even Abu Umar and Hassan16, in their paper titled Rib
and Islmic Banking, treated the concepts separately and not jointly as may be
expected.

In this research work therefore, effort will be made to study Rib in the
Islmic and Conventional Banking Systems in Nigeria with emphasis on the
activities of Jaiz Bank plc and First Bank of Nigeria. This becomes imperative as it
is wrong to insinuate that all the activities of Conventional Banking System are not
in conformity with Islmic teachings and one can not speculate that Islmic banks
adhere totally to Sharih guidelines.

1.5 Scope of the Study

7
 The research work is limited to the study of Ar-Rib (usury/interest) in the
Islmic and Conventional Banking Systems in Nigeria with emphasis on activities
of Jaiz Bank and First Bank of Nigeria.

1.6 Methodology Adopted

The researcher will adopt analytical and comparative method. The sources of
data for the researcher include conduction of structured interviews, relevant books,
journals, and researched works and internet materials.

1.7 The Evolution of Banking System in Nigeria

Due to the nature of this research work it is pertinent to examine how

Conventional Banking System was introduced in Nigeria hitherto the Islmic
Banking System. Long before the advent of the colonialists, the traditional African
society had adopted methods of saving their surplus capital particularly cowry
shells. These were kept in gourd shaped clay pot and buried in the ground with
secret mark serving as security password for easy identification when there was
need to withdraw or save more.17

In the pre-colonial Nigeria, especially within the caliphate, there were

various means by which business capitals were generated. Practice of money
lending was evidenced in Sokkwwato Township as far back as 1903. Credit facility
was also given in form of goods being sold by traders who paid the principal sum
with a mark-up or share of profit, only after sale. Individuals bound by common
interest also pooled their resources together to form partnership at a predetermined
share of profit or loss18. All these activities which were practiced under a strict
rib-free policy of the caliphate19 and continued long after the evolution of the
Conventional Banks are what an Islmic Bank would set out to do today.

8
 A case was reported of a successful Hausa business man in the 1930s-40s,
Al-hajj al-Hassan, who used to find outlets for surplus capital. He advanced money
to one men of sound business acumen requesting them to pay to him half their
profit, or less or none at times, if no profit was made. When he eventually banked
with the Conventional Banks, he was reputed to be one of the gilded men of Kano
who for religious reasons stipulated that their deposit account shall be non-interest
bearing but would only receive good customer gift each year if given20.
Of the various activities relating to those offered by banks carried out in the
caliphate only that of bait al-ml (Islmic treasury) was institutional. Although,
there is no clear evidence of how the institution was run in the caliphate except in
the area of collection and distribution of zakh, which in itself is an act of financial
intermediation, yet is was confirmed that the institution was not only existent but
also properly administered21. This, coupled with the trend of development in the
caliphate, makes it safe to suggest that it would have performed many functions of
especially contemporary central banks. The fact that the status of shakhiyyah
itibriyyah (Juristic Artificial Personality) accorded bait al-ml is gaining wide
acceptance among the contemporary scholars22 lends credence to this proposition.
The status makes bait al-ml an entity with perpetual succession, right to own
property, to sue and be sued, responsibility to discharge obligations and powers to
lend and borrow money.
All the same, the traditional way of saving surplus capital was predominant
before and long after the colonial incursion. The process was to stock cowry shells
in guard shaped clay pot; dig the ground and burry the pot therein putting a mark
on that spot to ensure identification for withdrawal. This method was also
applied to the coin currency introduced by the colonialists albeit with introduction
of spreading yam flour on each layer of the money to avoid corrosion23.

9
 In other parts of the country, activities similar to those performed by the
present day banks like lending, safe deposit, guaranteeing, and agency function in
respect of sales were carried out before the colonialists intervention, but they were
not coordinated as banking business of the present.
Banking in the conventional way was ushered into the Nigerian economic
system with the establishment in 1894 of the Bank of British West Africa (BBWA)
later known as Standard Bank and now First Bank of Nigeria Plc. This bank was
the principal importer of currency from the British treasury until West African
24
currency Board was established in 1912 . The Anglo-Africa Bank which later
became Bank of Nigeria was established in 1899. These were later joined by the
Colonial bank in 1917. it was later become Barclays Bank in 1925 and now Union
Bank of Nigeria Plc.25 and British and French Bank, now United Bank for Africa in
1948. The setup clearly shows the monopoly of the banking system by foreign
banks whose main concerns were to serve the expatriates and the colonial
interests26.

The spirited attempt made by the indigenous entrepreneur cum patriots to

break the foreign banks monopoly resulted in proliferation of establishment of
locally-owned banks. By 1914, Indigenous banks started springing up with the
establishment of industrial and commercial Bank, Nigerian Merchant Bank in
1931, National Banks of Nigeria in 1933, Agbomogbe Bank and Nigerian Penny
Bank in1945, African Continental Bank and the Nigerian farmers and commercial
bank in 1947 in between 1951 and 1952 about seven to nine indigenous bank were
established27.There was neither financing requirement nor regulations to restrict
and control establishment and operation of banks. The few operating indigenous
banks were discriminately suffocated out of business. The situation caused some
reactions from the nationalists and resulted in the enactment of the first Banking

10
Ordinance in 1952, to regulate banking operations. Further agitations against the
discrimination of the foreign banks resulted in the draft of CBN Ordinance and
Banking Acts in 195828.

In 1991, Central Bank of Nigeria Decree No. 24 and Banks and other
Financial Institutions Decree No. 25 were promulgated. The thrust of their
promulgation was to bring the new banks and other financial institutions emerging
as a result of 1987 financial liberalization and deregulation under control. The two
Decrees were amended by Decrees No. 3 & 4 of 1997 respectively; only to remove
the limited autonomy granted the CBN by the 1991 Decrees. The two Decrees
were further amended by Decrees No. 37 & 38 of 1998 and Decrees No. 41 and 40
of 1999 respectively29. If anything was constant in the activities of the conventional
banks since the colonial time to date, it is no other than the charges and payment of
interest by both the central and the commercial banks on all deposits and loans. In
fact before 1991, it was not permissible to operate banking business in Nigeria
without taking or charging interest30.
That was not all, since its attainment of independence in 1960, the nations
economy has remained tied to the apron string of the colonialists through interest
system. This was ensured by contracting on behalf of Nigeria, an external interest
based debt of USD28 million for railway construction in 1958. The interest on this
loan has been the means of siphoning the nations abundant resources31.

Generally speaking, it is not a ruse saying that Islmic Banking System was
firstly introduced in Nigeria before the convention ones. This is because, the
Islmic laws on Rib was promulgated during the life of Prophet Muhammad. So
wherever Islm goes such laws go with it, Nigeria experience is not excempted.
Islmic banking therefore is not a new phenomenal in Nigeria.

Notes and References

11
1. Muhammad Arif, Ashiq Hussain and Muhammad Azeem. Rib Free
Economy Model. International Journal of Humanities and Social Science
Vol.2 No6 march 2012, p143.
2. Mohammad, Razi. Rib in Islm: Fiqh of Contemporary Issues. Toronto,
Canada May 2008. Retrieved from www.kantakji.com/ Rib in Islm
20/09/2015, 03:05pm, p5
3. Abu Ala, al- mawdudi. Maa shiyat Islm(Economic System of
Islm).Lahore: Islmic Publication,1970, p143
4. Mohammad, Razi. p6
5. The Nigerian voice, Problems and Prospects of Islmic Banking. Retrieved
from http://m.thenigerianvoice.com 20 Jan., 2016, 12:00pm
6. Aliagan, R.F. An Assessment of Product and Pricing of Islmic Banking in
Nigeria. A Case Study of Jaiz Bank plc. Long Essay, Ahmadu Bello
University, Zaria 2014, p1
7. Muhammad Arif, Ashiq Hussain and Muhammad Azeem. p142.
8. Abu Umar, faruq Ahmad. Rib and Islmic Banking. Journal of Islmic
Economic, Banking and Finance,(nd) p2
9. Adebayo, .R.I. The Motivational Factors for the Liability of Islmic Banking
in Nigeria. Journal of Islmic Banking and Finance.Vol.27, No.2. 2010
10.Oladimeji, L.F. and I.J., Otuyo. The Establishment of Jaiz Bank in Nigeria;
Prospects and Challenges. A paper presented at the International Workshop
on Islmic Banking Organized by the International Research Training
Institute (IRTI), in Collaboration with the University of Ilorin, Nigeria and
Al-Hikmah University, Nigeria 6th-8th, 2015
11. Ajagbe, T.S and Brimal A.N. Islmic Banking Development and
Evaluation: Current Issues and Future Prospects. Journal of Research In
International Business and Management Vol.3, 2013
12.Yusuf, Kolawole Jimoh. Islmic Banking: Socio-Economic Advantages and
Challenges to Nigeria. Springboard Journal No.1 Vol.5, Al-Hikmah
University, Ilorin Nigeria, 2013.
13.Abikan, A.I. Constitutionality of Islmic Banking in Nigeria in
Contemporary Issues in Islmic Jurisprudences. Benin: Rawel Fortune
Resources, 2009.
14. Muhammed, Nejatullah Siddiqi. Rib, Bank Interest and the Rationale of
Its Prohibition. Jeddah: Islmic Development Bank, Islmic Research and
Traning Institutes, 1425AH/2004
15. Muhammed, Razi.
16. Abu Umar, faruq Ahmad.
17. Adebayo, .R.I. p 93

12
 18. Malami, U.H. Economic Principles and Practices of the Sokoto Caliphate.
Sokoto: The Institute of Islmic Science, 1998, p99.
19. Trimingham, J.S. Islm in West Africa. London: Oxford University Press,
1959, p194
20.Trimingham, J.S.p194
21. Abikan, A.I. p98
22. Nyazee, I. A. K., Islmic Jurisprudence. Islmabad: International Institute
of Islmic Thought (IIIT), 2003, p116
23.Abikan, A.I.p98
24.Abikan, A.I.p98
25.Abikan, A.I.p98
26.Igweke K.I. Law of Banking and Negotiable Instruments. Onitsha: Africana
Fep Publishers Ltd, 1991, p1
27.Abikan, A.I.p99
28. Abikan, A.I.p99
29.Abikan, A.I.p99
30.Abikan, A.I.p99
31.Abikan, A.I.p99
CHAPTER TWO

AN OVERVIEW OF RIB (USURY/INTEREST)

In this chapter emphasis will be laid on the definition of Ar-Rib, the

position of Ar-Rib before Islm especially in the previously revealed books;
Taorah and Injil as well as the position of Ar-Rib in the Jahiliyyah period. Islmic
concepts of Ar-Rib and its types will be seen to and differences between Ar-Rib
and trade will be examined. More so, the Qurnic and the Sunnah perspectives on
Ar-Rib will be looked into including the jurists divergent opinions on Ar-Rib as
well as rationale behind the prohibition of Ar-Rib in Islm.

2.1 Definition of Ar-Rib

Rib is an Arabic word derived from the verb raba that literally means to

grow or expand or increase or inflate or excess. 1 The same meaning is also

13
unanimously indicated in all classical Arabic dictionaries2 and in the commentaries
(tafsir)3 of al-Qurn as well as fiqh books4. This literal meaning has occurred in
many places of al-Qurn as well:

Allh uses Rib to mean growing,

But when We send down water on it, it is stirred (to life),

and it swells and puts forth every lovely kind (of growth).
(Q. 22:5).
Also Allh uses Rib to mean plentiful in Suratu an-nahl

. ..

because one community is more plentiful [in number

or wealth] than another community (Q.16:92)
Rib is used to mean increase.

Allh destroys Rib and gives increase for charities
(Q2:276)
Yurbi here means increasing.

It is also used as high or raised ground.

and sheltered them within a high ground [Q.23:50]

In context of interest/usury, the word Rib is used as increase in wealth:
Allh says in the glorious Qurn.

and give up what remains [due to you] of interest [Q.2:278]

14


But if you repent, you may have your principal [Q.2:279]

Here Rib (interest) is over and above the principal amount loaned.

In suratu-ur-Rum verse 39 Allh says

And that which you give in Rib, in order that it may increase
from other people's property, has no increase with Allh
In the view of Ibn Kathir this means that which is given as a gift to others
in the hope that they will give back more than they were given. There is no reward
for this with Allh. Here it is clear that Rib is what is in excess to original
(principal) amount5.

Rib is translated into English as usury or interest. Interest is the rental

payment for the use of credit by borrowers in return for parting with liquidity by
lenders6. It is the money paid by a borrower to a lender for a credit or a similar
liability. It is the charge for the privilege of borrowing money. Usury is the practice
of charging an illegal rate of interest for the loan of money. It is immoral monetary
loans that unfairly enrich the lender7. Originally, usury meant interest of any kind.
A loan may be considered usurious because of excessive or abusive interest rates or
other factors8.

Technically, Rib therefore in its basic meaning, can be defined as anything

(big or small), pecuniary or non-pecuniary, in excess of the principal that must be
paid by the borrower to the lender along with the principal as a condition
(stipulated or by custom) of the loan or for an extension in its maturity 9.

15
According to a consensus of fuqaha (Islmic jurists), it has the same meaning and
import as the contemporary concept of interest10.

Rib technically refers to the premium that must be paid by the borrower to

the lender along with the principal amount as a condition for the loan or for an
extension in its maturity11. In fiqh terminology, Rib means an increase in one of
two homogeneous equivalents being exchanged without this increase being

accompanied by a return.12

Rib refers to the addition in the amount of the principal loan according to

the time for which it is loaned and the amount of the principal of a loan according
to the time for which it is loaned 13. It is unanimously agreed that Rib means an
increase or growth. Some insist it is the increase imposed on the debtor at the
maturity of the debt in case he/she fails to pay it and wants to roll it over 14. They
say so because they think the predominant form of transactions involving Rib was
sale on credit in which case the (deferred) price was already higher than the spot
price in lieu of deferment and the need for an explicit increase arose only in case of
further postponement of payment. The majority of scholars, however, thinks that it
covers the interest stipulated at the time of the contract in case of loans as well as
the subsequent increases in case the loan or the debt arising from sale on credit is
rolled over because the debtor does not pay it at the time stipulated in the
contract15.

Siddiqi concluded that unanimous view of Muslims throughout history

remained and is any excess charge in a contract of loan is Rib16

From the above explanations, one will note that rib comprises three features:

I. It involves excess or surplus over and above the loan capital;

16
 II. The condition of the transaction on the payment of predetermined surplus;
and
III. The determination of the surplus over and above the capital or the principal
in relation to time.

2.2 Ar-Rib before Islm

The position of Rib before Islm could be seen in two ways i.e. Rib in the
previously revealed books and Rib in the Jahiliyyah period. These will be
discussed one after the other.

2.2.1 Ar-Rib in the Previously Revealed Books

There are four prominent revealed books and each was given to specific
prophet; they are Taorah (Old Testament) which was given to prophet Musa, Injeel
(New Testament) which was given to prophet Issa, Zabbur (Psalm) which was
given to prophet Daud and the Glorious Qurn which was given to Prophet
Muhammad. Each of these books was also attached to certain people or followers
of those Prophets like Taorah and Injeel were attached to Jew and Christians
respectively and Qurn is regarded as books for the Muslims. Also most of these
books have been consolidated into one another as one can easily find Taorah,
Injeel and Zabbur in the todays bible

Rib is not condemned by Islm alone; similar condemnations are found in

religious texts from Buddhism, Judaism and Christianity (the term is Rib in
Arabic and ribbit in Hebrew).17 Historically, many nations from ancient China to
ancient Greece to ancient Rome have outlawed loans with any interest. Though the
Roman Empire eventually allowed loans with carefully restricted interest rates, the
Christian church in medieval Europe banned the charging of interest at any rate (as
well as charging a fee for the use of money, such as at a bureau de change).18

17
 Jews are forbidden to use usury in dealing with fellow Jews; however, they
are permitted to charge interest on loans to non-Jews. This is outlined in the Jewish
scriptures known as the Torah19. The following are the references from Taorah (Old
Testament).

If thou lend money to any of My people, even to the poor with

thee, thou shalt not be to him as a creditor; neither shall ye lay
upon him interest. Exodus 22:24 (25)
Take thou no interest of him or increase; but fear thy God; that
thy brother may live with thee. Leviticus 25:36
Thou shalt not give him thy money upon interest, nor give him
thy victuals for increase. Leviticus 25:37
Thou shalt not lend upon interest to thy brother: interest of
money, interest of victuals, interest of anything that is lent
upon interest. Deuteronomy 23:20 (19)
Unto a foreigner thou mayest lend upon interest; but unto thy
brother thou shalt not lend upon interest; that the LORD thy
God may bless thee in all that thou puttest thy hand unto, in
the land whither thou goest in to possess it. Deuteronomy
23:21 (20)
that hath withdrawn his hand from the poor, that hath not
received interest nor increase, hath executed Mine ordinances,
hath walked in My statutes; he shall not die for the iniquity of
his father, he shall surely live. Ezekiel 18:17
He that putteth not out his money on interest, nor taketh a
bribe against the innocent. He that doeth these things shall
never be moved. Psalm 15:5
A careful look at the above verses reveals that interest is condemned let alone the
usury

The New Testament contains references to usury, notably in the Parable of

the talents20. These include;

18
 Well then, you should have put my money on deposit with the
bankers, so that when I returned I would have received it back
with interest..Matthew 25:27
Out of thine own mouth will I judge thee, thou wicked
servant. Thou knewest that I was an austere man, taking up
that I laid not down, and reaping that I did not sow. Wherefore
then gavest not thou my money into the bank, that at my
coming I might have required mine own with usury?Luke
19:22-23
Despite that, lending is encouraged. The following verses teach about lending:

Give to the one who asks one, and do not turn away from the
one who wants to borrow from you.Matthew 5:42
And if you lend to those from whom you expect repayment,
what credit is that to you? Even sinners lend to sinners,
expecting to be repaid in full. But love your enemies, do good
to them, and lend to them without expecting to get anything
back. Then your reward will be great, and you will be children
of the Most High, because he is kind to the ungrateful and
wicked.Luke 6:34-35
Give, and it will be given to you. A good measure, pressed
down, shaken together and running over, will be poured into
your lap. For with the measure you use, it will be measured to
you.Luke 6:38
With the above references from Taorah and Injeel is glaring that both religions
(Jew and Christianity) condemned charging interest on loaning.

To buttress this Pope Benedict XIV21 gives the reasons why usury is sinful:

The nature of the sin called usury has its proper place and
origin in a loan contract which demands, by its very nature,
that one return to another only as much as he has received.
The sin rests on the fact that sometimes the creditor desires
more than he has given, but any gain which exceeds the
amount he gave is illicit and usurious.

19
 One cannot condone the sin of usury by arguing that the gain is not great or
excessive, but rather moderate or small; neither can it be condoned by arguing that
the borrower is rich; nor even by arguing that the money borrowed is not left idle,
but is spent usefully.

2.2.2 Ar-Rib in the Jahiliyyah period

The term Jahilliyyah originated from the Arabic language jahila. It means not
knowing or not having knowledge22. In the Qurn

Do they then seek the judgement of (the days of) ignorance
and who is better in judgement than Allh for a people who
have firm faith. (Q5:50)

The term Jahilliyyah refers to the pre-Islmic society in the Arabian

Peninsula. They were a society plagued with ignorance, rejected Allh SWT
guidance, had no moral values, had no civilization, could not read or write and
were disobedient to the laws of Allh SWT23.

The goals of socio-economic justice and equitable distribution of income

and wealth are integral parts of the moral philosophy of Islm. However, one of the
socio-economic reforms made by Islm was the prohibition of Rib (interest). The
Glorious Qurn has emphatically instructed Muslims not to acquire each others
property wrongfully.

..
And eat up not one another's property unjustly (in any illegal
way, e.g., stealing, robbing, deceiving..

In pre-Islmic Arabia, Rib was responsible for the effective enslavement of

substantial numbers of people, whose debts mounted exponentially following a
20
single default. The purpose of the Qurnic ban must have been the elimination of
this potent source of inequality and communal friction.

Interest based transactions were the common feature of pre-Islmic Arabian

life. All rich people were engaged in interest dealings. Hazrat Abbas bin Abdul
Muttalib, a chief of the Quraysh and uncle of the Prophet (PBUH) was a renowned
businessman and carried the reputation for trading in interest before his conversion
to Islm. However, at the eve of last sermon delivered by the Prophet (PBUH), all
the amount of interest of Hazrat Abbas accumulated on the loans given to different
people was declared as written off and Hazrat Abbas accepted the decision of the
Noble Prophet without any hesitation24.

Rib was a common practice in the Arabian Peninsula at the advent of Islm
and that it mainly took the form of loans of commodities, cattle or money and/or of
sales either by direct barter or on credit. In the case of direct barter, the exchange
of articles of the same and sometimes of different kind gave rise to an increase,
excess or inequality of spot exchange; in the case of sales on credit or loans, the
failure to fulfill a contract at the time of maturity led to the continuous
multiplication of the obligation in kind (or may be money)25.

This was kind of Rib prohibited in strong words in Qurn: 3:130

O you who have believed, do not consume Rib, doubled and

multiplied, but fear Allh that you may be successful.
Ibn Khatir26 explains that during the time of Jahiliya, when the debt came to
term, the creditor would say to the debtor, "Either pay now or interest will be
added to the debt.'' Ibn Qayyim27 said when one increase the period for loan
payment and take interest for extension (commonly known as interest or usury

21
today). Imam Ahmed said this is Absolute form of Rib. This is the most common
form of Rib that is spread today in world, where interest is charged on credits and
in every transaction.

2.3 Islmic Concept of Ar-Rib

Rib is an Arabic word, derived from the verb raba that literally means to
grow or expand or increase or inflate or excess. Rib in the Shari`ah,
technically refers to the premium that must be paid by the borrower to the lender
along with the principal amount as a condition for the loan or for an extension in

its maturity.28 In fiqh terminology, Rib means an increase in one of two

homogeneous equivalents being exchanged without this increase being

accompanied by a return29. Some Muslim scholars attempts to define Rib seem

to be closer to the sense implied in the verses of the Qurn and ahadith. They
defined Rib as an increase or excess which, in an exchange or sale of a
commodity, accrues to the owner (lender) without giving in return any equivalent

counter-value or recompense to the other party.30

In the pre-Islmic and early Islmic era, Rib signified the increase of
money in consideration for an extension of the term of maturity of a loan. The pre-
Islmic and early Islmic Arabs used to pay the money on loans and received a
certain sum leaving the principal sum untouched. When the maturity date expired,
they would claim the principal sum from the debtor; if it was not possible for the
debtor to repay, they would increase the principal sum and extend the term. Thus,
there were transactions with a fixed time limit and payment of interest, as well as
speculations of all kinds that formed an essential element in the trading system of
the pre-Islmic era31.

22
 It is unanimously agreed that Rib means an increase or growth. Some insist
it is the increase imposed on the debtor at the maturity of the debt in case he/she
fails to pay it and wants to roll it over. They say so because they think the
predominant form of transactions involving Rib was sale on credit in which case
the (deferred) price was already higher than the spot price in lieu of deferment and
the need for an explicit increase arose only in case of further postponement of
payment. The majority of scholars, however, thinks that it covers the interest
stipulated at the time of the contract in case of loans as well as the subsequent
increases in case the loan or the debt arising from sale on credit is rolled over
because the debtor does not pay it at the time stipulated in the contract.32

2.4 Types of Ar-Rib

Although the Qurn did not specify any particular kind of Rib, it is
generally held that the word al-Rib in the Qurn is that kind of dealing which

had been in vogue during the pre-Islmic days 33. Muslim jurists have classified
Rib in two types though they give different names but still mean the same. Only
imam Shafihi categorised Rib into three types. The Shafiiyyah divided Rib into
three categories. First, Rib al-fadl which includes Rib on loans, as the lender
extending a loan of twenty guineas on the condition that he will receive in return
an advantage, like the borrower purchasing a commodity from the lender, or
marrying the lender's daughter, or receiving a monetary benefit as discussed under
void transactions (al-bay al-fasid); second, Rib al-nasiah as mentioned; and
third, hand-to-hand Rib which means selling two homogenous commodities like
wheat, without reciprocal possession on spot34. The most common name to them
is Rib al-nasiahs and Rib al-fadl.

23
 Rib An-Nasiah

The term nasiah means to postpone or to wait and it refers to the time
period that is allowed for the borrower to repay the loan in return for the addition
of the premium35. Hence it refers to the interest on loans. The prohibition of Rib
al nasiah essentially implies that the fixing in advance of a positive return on a

loan as a reward for waiting is not permitted by the Shariah36. This kind of Rib
to Ibn Qoyyim37 is Rib Jahiliyyah. Its also called Rib al-Qurn, Rib
Jahiliyyah and Rib an-nasiah.

Ibn Qoyyim said this is prohibited to protect (mankind) from great harm.
This is same type of loan that existed in Jahiliya (Rib Jahiliya), i.e. increase the
period for loan payment and take interest for extension (commonly known as
interest or usury today). This was levied on poor people who spent their entire live
but couldnt repay it as it kept increasing. Hence, it deserved that prohibited it all
together. This was prohibited in strong words in Qurn: 3:130

O you who have believed, do not consume Rib, doubled and

multiplied, but fear Allh that you may be successful.
Ibn Khatir38 explains that during the time of Jahiliya, when the debt came to
term, the creditor would say to the debtor, "Either pay now or interest will be
added to the debt.'' Imam Ahmed said this is Absolute form of Rib.
This is the most common form of Rib that is spread today in world, to the
banks or an individual, where Interest is charged on Credits. This Rib is
absolutely haram, and no Scholar ever disputed this. This Rib is explained in
Qurn: 2:278-9
O you who have believed, fear Allh and give up what
remains [due to you] of interest, if you should be believers.
2:279 And if you do not, then be informed of a war [against
you] from Allh and His Messenger. But if you repent, you

24
 may have your principal [thus] you do no wrong (be unjust),
nor are you wronged (unjust)
Mawdudi39 said, this verse was revealed after the conquest of Makka,
although interest was objectionable earlier, but after revelation of this verse
interest-bearing transactions became a punishable offence in Islm. The Prophet
(pbuh) warned the Arab tribes through his officials that war would be declared
against them if they did not give up interest-bearing transactions.
Ibn Khatir said, Ali bin Abi Talhah said that Ibn `Abbas said about: (And if
you do not, then be informed of a war [against you] from Allh and His
Messenger), "Whoever kept dealing with Rib and did not refrain from it, then the
Muslim Leader should require him to repent. If he still did not refrain from Rib,
the Muslim Leader should cut off his head.'' Allh swt then says, (But if you
repent, you shall have your capital sums. Deal not unjustly) by taking the Rib,
meaning, your original capital will not diminish. Rather, you will receive only
what you lent without increase or decrease. Ibn Abi Hatim recorded that `Amr bin
Al-Ahwas said, "The Messenger of Allh gave a speech during the Farewell Hajj
saying:
Verily, every case of Rib from the Jahiliyyah is completely
annulled. You will only take back your capital, without
increase or decrease. The first Rib that I annul is the Rib of
Al-`Abbas bin `Abdul-Muttalib, all of it is annulled.40
Rib Al-Fadl

This is the excess over and above the loan paid in kind. It lies in the payment
of an addition by the debtor to the creditor in exchange of commodities of the same
kind41. It is Selling or exchanging same kind of item with more/less. The excess
payment when items of same kinds are exchanged is called Rib al-Fadl42. The
Prophet (pbuh) declared that prohibited. The following tradition of the Prophet
Muhammad (SAW) is cited as evidence. It is related that Abu Said al-Khudri said:

25
 The Prophet Muhammad (saw) has said that gold in return for
gold, silver for silver, wheat for wheat, barley for barley, dates
for dates and salt for salt, can be traded if and only if they are
in the same quantity and that is should be hand to hand. If
someone gives more or takes, then he is engaged in Rib and
accordingly has committed a sin.43
Islm, however, wishes to eliminate not merely the exploitation that is
intrinsic in the institution of interest, but also that which is inherent in all forms of
unjust exchange in business transactions.

To Ibn Qoyyim44 it is refer to Rib al-khafiy (veiled, disguised): This is

prohibited because it leads to the blocking the means. This is same as in Hadith it
said do not sell one dirham for two dirham. And such sale will occur only when
items are of same kind but there is different in their types, e.g. Dates but type is
either in quality, quantity or weight. Hence, prohibited it all together (i.e. selling
same for same) both as cash or credit.
If two items are exchanged (or sold) of same kind, and buy pays more than
seller or vice versa, then any excess payment is considered Rib al-Fadl. This is
regarded as Rib al-hadith or Rib al-buyuh because its references considered to be
found only in The Nas (text) from Prophet (SAW). There are many hadiths in
various books of Hadith including Bukhari, Muslim, Ahmed, Nisai, Ibn Maja, Abi
Dawood refering to Rib al-fadil. The Prophet (SAW) said
Gold is to be paid for by gold, silver by silver, wheat by
wheat, barley by barley, dates by dates, salt by salt, like for
like and equal for equal, payment being made hand to hand. If
these classes differ, then sell as one wish if payment is made
hand to hand45
The hadith involves two parts, i.e. exchange in transaction involves:
i. when classes items are of same kind (e.g. gold for gold)
ii. when classes of items differ (e.g. wheat for barley, gold for dollar)

26
 The basic explanation of this hadith is that if the classes of items differ (e.g.
buy gold for dollar), then sell as one wish, provided that payment is made on the
spot. But if the items being exchanged are of same kind, then rule of equal for
equal will apply, i.e. for 100 unit of gold, return 100 unit of gold, nothing more
and nothing less46.
Narrated Abu Bakra: Allh's Apostle said,
Don't sell gold for gold unless equal in weight, nor silver for
silver unless equal in weight, but one could sell gold for silver
or silver for gold as one like47
'Uthman b. 'Affan also reported from Allh's Messenger (pbuh) saying: Do not
sell a dinar for two dinars and one dirham for two dirhams 48. In another hadith
Abu Said narrated from the Prophet
We used to be given mixed dates (from the booty) and used to
sell (barter) two Sas of those dates) for one Sa (of good dates).
The Prophet said (to us), "No (bartering of) two Sas for one Sa
nor two Dirhams for one Dirham is permissible", (as that is a
kind of usury).[Sahih al-Bukhari]49
To sum up, Rib al-nasiah and Rib al-fadl are both covered by the verse,
Allh has allowed trade and prohibited Rib (2:275), while Rib-al nasiah
relates to loans and Rib al-fadl relates to trade. Although trade is allowed in
principle it does not mean that everything in trade is allowed.
2.5 Difference between Ar-Rib and Trade

Allh swt says

That is because they say, "Trade is [just] like interest." But

Allh has permitted trade and has forbidden interest. [al-
Baqarah: 2:275]

27
 The term Rib was common amongst Arabs long before the advent of
Islm. They knew what it meant. They considered it a legal and practiced it. It was
well known and popular. Hence, Qurn stated to them that Allh had forbidden
Rib and they must leave it. They made similarities between Rib and Trade,
whereas, Allh swt made strong statement that Rib and trade are not same, and
Allh forbids Rib and allows trade50.

Trade is defined as the act or process of buying, selling, or exchanging

commodities, at either wholesale or retail. In context, trade is process which starts
when the Seller brings his goods, either produced by him or by acquiring them to
sell in the market by adding his profit. The Seller puts a price offer for his produce
and Buyer accepts the price to close the sale. Seller in turn makes profit on the
sales price. Here the Seller earns his profit as he either produce to goods or acquire
them, in either case, he spend him money, time and effort to bring the goods to
market for trade. Hence, the profit he receives in return in justified income for his
efforts. Some of the items that are always present in trade are:

I. Goods are either produced by Seller or he acquires them. Either case, he is

the real owner of these goods.
II. Once the sale is complete, the transfer of ownership is passed on to the
Buyer.
III. The Seller received his sale price which includes his manufacturing cost +
profit for his efforts51

Rib: Usury is defined as the lending or practice of lending money at an

exorbitant interest, or Interest as A charge for a loan, usually a percentage of the
amount loaned. In Rib transaction, a person lends his money to another person as
a loan on the condition that he will return it in certain timeframe with addition. So
the deal is that Lender is giving his money and timeframe for return, but when

28
the debtor returns the money, he returns original money back, and additional
money in lieu of timeframe 52. This additional money is Usury or Interest.
Some of the items that are present in Rib are following:

I. Usury or Interest always presents in this transaction

II. Timeframe of return is always present, and the Interest (additional money to
be returned) is linked to timeframe.
III. Owner ship of good (i.e. money in this case) is never transferred.

Now, one can see the different between the two is clear as crystal:

The differences between Rib and trade as asserted by Muhammad razi53 are
as follow;

1. Transfer of ownership: In trade, ownership of produce is transferred to Buyer.

While in Rib, ownership is not transferred at all, and the debtor returns the
produce to the owner. In fact, in additional to returning his produce, the debtor
ends up returning twice as much as he took as loan.

2. Profit taking is only once in trade, the Seller only makes his profit once, i.e.
during the sale. But Profit taking is recurring In Rib, the lender continues to make
profit until the money is return, and interest rate is tied to the length. In addition,
further interest is taken on unpaid interest. Hence, the interest compounds (or as
Qurn states double and multiplied)

3. In trade, Profit is earned. The Seller either produces his goods or acquires them.
Either case, he spend his time, money, efforts and also to mention his skills to bring
these goods to the market. But In Rib, Interest is not earned. The lender doesnt
take any risk; neither put his time and effort or skills to create income from the
money. He only takes his guaranteed profit without putting any effort. On other
hand, if debtor is taking loan to fulfill his personal or family basic needs, then he is

29
not even earning any money on this lend amount. This amount to total injustice and
plundering families those are already in crises.

With aforementioned point its quiet cleared that trade is different from Rib
and trade money for money is Rib except if they are of the same quantity or
quality.

2.6 Ar-Rib from the Qurnic Perspective

The Glorious Qurn emphasizes the need for justice, which is beneficial for
both parties involved. Either both of them should have profit or none should have
profit. Like other gravious sins such as zina, and alcohol. The prohibition of Rib
in al-Qurn developed gradually and appeared in four revelations. These are the
following; First Revelation (Surah Al-Rum, verse 39)

That which ye give in Rib in order that it may increase on

(other) peoples property hath no increase with Allh; but that
which ye give in charity, seeking Allhs countenance, hath
increase manifold.
Second Revelation (Surah Al-Nisa, verse 161)



That they took Rib, though they were forbidden; and that
they devoured mens substance wrongfully. We have prepared
for those among them who reject faith, a grievous
punishment.
Third Revelation (Surah Al-Imran, verses 130-2)

30


O ye who believe! Devour not Rib, doubled and multiplied;
but fear Allh; that ye may (really) prosper. fear the fire,
which is prepared for those who reject faith. And obey Allh
and the Prophet; that ye may obtain mercy.

Fourth Revelation (Surah Al-Baqarah, verses 275-281)

Those who devour Rib will not stand except as stands one
whom the evil one by his touch hath driven to madness. That
is because they say: Trade is like Rib. But Allh hath
permitted trade and forbidden Rib. Those who after receiving
direction from their Lord, desist, shall be pardoned for the
past; their case is for Allh (to judge). But those who repeat
(the offence) are companions of the fire; they will abide
therein (forever)

Allh will deprive Rib of all blessings, but will give increase
for deeds of charity; for He loveth not creatures ungrateful and
wicked.


Those who believe, and do deeds of righteousness and
establish regular prayers and regular charity, will have their
reward with their Lord: on them shall be no fear, nor shall they
grieve.
(

O ye who believe! fear Allh and give up what remains of
your demand for Rib, if ye are indeed believers. (278)

31
 (


If you do not do so, then take notice of war from Allh and His
Messenger. But if you repent you can have oner principal
sums. Neither should you commit injustice not should you be
subjected to it.

if the debtor is in difficulty, grant him time till it is easy for
him to repay. But if ye remit it by way of charity, that is best
for you, if ye only knew.



And fear the day when ye shall be brought back to Allh. Then
shall every soul be paid what it earned, and none shall be dealt
with unjustly.
From the above verses one can denotes that the money lending transactions
involving usury and interest were prevalent among the Arabs for a long time and
had taken deep roots in their society. The injunctions of Rib in the Glorious
Qurn were revealed in a period spread over a number of years. The above
Qurnic verses refer that the contents of Surah Al-Rum, verse 39, are merely of an
advisory nature and do not in fact prescribe any punishment. The Almighty Allh
in His infinite wisdom tells his followers that wealth does not in fact increase by
interest earnings. This verse also motivates people to give more and more to the
poor and needy and Allh assures that with his blessings, the wealth of a person,
giving charity, will increase manifold. This point has again been emphasized in
Surah Al-Baqarah verse-276, wherein Allh says that he deprives Rib of all
blessings but blesses charity. This is also true from social, economic and moral
points of view.
Further in Surah Al-Imran Verses130-2, Allh prohibits Muslims to take
usury (compound interest) and promises prosperity to people who obey the orders.
In Surah Al-Baqarah, verse-275, it has been clearly mentioned that the thinking

32
that trade is like Rib, is incorrect and that Allh has permitted trade and
forbidden Rib. The return on capital invested by an entrepreneur in the business is
either positive or negative depending upon the operational results. In case,
however, of interest on loan including bank interest, a positive return is assured and
a negative return or risk of a negative return is not shared by lender. The basic
difference between trade of commodity and trade of money as prevalent today
(Rib, usury or interest) is that in the former case, there is no guarantee of a
positive return, whereas in the later case, there is a certainty of a positive return at
a fixed rate. In the context of above discussion Rib, usury and interest, have one
and the same meaning and have a common factor of predetermined positiveness.
This obviously is in sharp contrast to trade. It is crystal clear that according
to the verses of the Glorious Qurn referred to above, Rib usury and interest are
strictly prohibited, in all forms and intent. The Surah Al-Baarah verse 279 has
warned that those who do not forego Rib which was already accrued and do not
desist from taking it any further, then they are at war path with Allh and His
Prophet (PBUH). It is however, significant to note that Rib which had already
been recovered before revelation of this verse of the Glorious Qurn was also not
justifiable due to obvious reason that Rib was prohibited in earlier religions also,
as well as in the earlier revelations of the Glorious Qurn. Allh however, did not
declare it illegal, as it would have opened a pandoras box in the form of endless
litigations between parties.
It is significant to note that the verse (2:278) of the Glorious Qurn
specifically says that: Give up what remains of oner demand for Rib and the
verse (2:279) says, One shall have oner capital sums. In view of this clear and
unambiguous directive of the Glorious Qurn, all the arguments that prohibition
of Rib does not cover bank interest, do not merit any consideration and are
automatically invalidated. There is, therefore, no doubt left that according to the
33
injunctions of the Glorious Qurn, in money lending transactions, anything
recovered in excess of the principal amount is prohibited, by whatever name it is
called, Rib, usury or interest. According to Surah Al-Baqarah verse (280) Allh
permits the lenders to take back only the amount advanced and no more.
It is, however, laid down that if the borrower is in difficulty he should be
given extension in repayment date and in fact, believers have also been motivated
to forego the principal amount as charity, if the circumstances so warrant. Finally,
there is a reminder from Allh in the Glorious Qurn Surah Al-Baqarah verse
(281), to be fearful of Him and that when they will go back to Him on the day of
Resurrection, each one of them will be dealt with in a just and equitable manner.
However, the absolute prohibition of Rib in al-Qurn is a command to establish
an economic system from which all forms of exploitation are eliminated, in
particular, the injustice of the financier being assured of a positive return without
sharing the risk, while the entrepreneurs, in spite of their management and hard
work, is not assured of such a positive return. The prohibition of Rib in al-Qurn
is therefore, a way to establish equity between the financiers and entrepreneurs. So,
any attempt to treat the prohibition of Rib as an isolated religious injunction and
not as an integral part of the Islmic economic order with its overall ethos, goals
and values is bound to create confusion.

Abdullah Yusuf Ali54 in his commentary on the Glorious Qurn mentioned

that usury is condemned and prohibited in the strongest possible terms. There can
be no question about the prohibition. Owing to the fact that interest occupies a
central position in modern economic life, and especially since interest is the very
life blood of the existing financial institutions, a number of Muslim countries have
been inclined to interpret it in a manner which is radically different form the

34
understanding of Muslim scholars throughout the last fourteen centuries and is also
sharply in conflict with the categorical statements of Prophet Muhammad (saw).

2.7 Ar-Rib from the Sunnah Perspective

Al-Qurn neither defines Rib nor provides any detailed explanation about
Rib. The hadiths that deals with the subject are numerous, although sometimes
the content of a particular hadith is slightly different from one narrator to another.
So it will be sufficient to mention only some of them. The Ahadith containing the
directives of Prophet Muhammad (SAW) have been narrated by authorities. These
hadiths are presented bellow under the following headings.

General Hadith
From Jabir (RAA) The Prophet, (saws) may curse the receiver
and the payer of interest, the one who records it and the two
witnesses to the transaction and said: They are all alike [in
guilt] (Muslim, Tirmidhi and Musnad Ahmad).

Jabir Ibn AbdAllh (RAA) giving a report on the Prophets

Farewell Pilgrimage, said: The Prophet, (PBUH), addressed
the people and said All of the Rib of jahiliyyah is annulled.
The first Rib I annul is our Rib that accruing to Abbas ibn
Abd al-Mutalib (the Prophets uncle]; it is being cancelled
completely. (Muslim, Musnad, Ahmad).

From Abdullah Ibn Hanzalah (RAA) the Prophet (PBUH),

said: A dirham of Rib which a man receives knowingly is
worse than committing adultery thirty six times (Mishkat al-
Masabih, Kitab al Buyu, Bab Ar-Rib, on the authority of
Ahmad and Daraqutni). Bayhaqi has also reported the above
hadith in Shu ab al-imam with addition that Hell befits him
whose flesh has been nourished by the unlawful.

From Abu Hurayrah (RAA): The Prophet, (PBUH), said: On

the night of Ascension I came upon people whose stomachs
were like houses with snakes visible from the outside I asked
35
 Gabriel who they were. He replied that they were people who
had received interest. (Ibn Majah, Kitab al-Tijarat, Bab al-
taghlizi fi al-Rib; also in Musand Ahmad).

From Abu Hurayrah (RAA): The Prophet, (PBUH), sad Rib

has seventy segments, the least serious being equivalent to a
man committing adultery with his own mother. (Ibn Majah).

From Abu Hurayrah (RAA): The prophet, (PBUH), said :

There will certainly come a time for mankind when everyone
will take Rib and if he does not do so, its dust will reach him.
(Abu Dawud, Kitab al Buyu, Bab fi ijtinabi al-shubuhat; also
in Ibn Majah).
From Abu Hurayrah (RAA): The Prophet, (PBUH), said: God
would be justified in not allowing four persons to enter
paradise or to taste its blessings: he who drinks habitually, he
who takes Rib, he who usurps an orphans property without
right, and he who is undutiful to his parents (Mustadrak al-
Hakim, Kitab al-Buyu).
Hadith on Rib al-Nasiyah
From Usamah ibn Zayd (RAA): The Prophet, (PBUH), said:
There is no Rib except in Nasiyah [waiting]. (Bukhari,
Muslim and Musnad Ahmad) There is no Rib in hand to
hand (spot) transactions: (Muslim, and Nasai).

From Ibn Masud (RAA): The Prophet, (PBUH), said: Even

when interest is much, it is bound to end up into paltriness.
(Ibn Majah and Musnad Ahmad).

From Anas ibn Malik (RAA): The Prophet, (PBUH), said:

when one of one grants a loan and the borrower offers him a
dish, he should not accept it; and if the borrower offers a ride
on an animal, he should not ride, unless the two of them have
been previously accustomed to exchanging such favours
mutually. (Sunan al-Bayhaqi).

From Anas ibn Malik (RAA): The Prophet, (PBUH), said: if

a man extends a loan to someone he should not accept a gift.

36
 (Mishkat, on the authority of Bukharas Tarikh and Ibn
Taymiyyahs al Muntaqa).

From Abu Burdah ibn Abi Musa (RAA). I came to Madinah

and met AbdAllh ibn Salam who said, One live in a
country where Rib is rampant; hence if anyone owes one
something and presents one with a load of hay, or a load of
barley, or a rope of straw, do not accept it for it is Rib.
(Bukhari).

Fadalah ibn Ubayd (RAA) said that The benefit derived

from any loan is one of the different aspects of Rib. (sunan
al-Bayhaqi) This hadith is mawquf implying that it is not
necessarily from the Prophet; it could be an explanation
provided by Fadalah (RAA) himself, a companion of the
Prophet, (PBUH).
Hadith on Rib al-Fadl
From Umar ibn al-Khattab (RAA). The last verse to be
revealed was on Rib and the Prophet, (PBUH), was taken
without explaining it to us; so give up not only Rib but also
raibah [whatever raises doubts in the mind about its
rightfulness]. (Ibn Majah,)

The Prophet, (PBUH) said, Sell gold in exchange of

equivalent gold, sell silver in exchange of equivalent silver,
sell dates in exchange of equivalent dates, sell wheat in
exchange of equivalent wheat, sell salt in exchange of
equivalent salt, sell barely in exchange of equivalent barley,
but if a person transacts in excess, it will be usury (Rib).
However, sell gold for silver anyway one please on the
condition it is hand to hand (spot) and sell barley for date
anyway one please on the condition it is hand to hand (spot).

From Abu Said al-Khudri (RAA): The Prophet, (PBUH) said,

Do not sell gold for gold except when it is like for like, and
do not increase one over the other; do not sell silver for silver
except when it is like for like, and do no increase one over the
other; and do not sell what is away (from among these) for

37
what is ready. (Bukhari, Muslim, Tirmidhi, Nasai and
Musnad Ahmad).

From Ubada ibn al-Samit (RAA): The Prophet, (PBUH),

said: Gold for gold, silver for silver, wheat for wheat, barely
for barely, dates for dates, and salt for salt-like for like, equal
for equal, and hand to hand; if the commodities differ, then
one may sell as one wish, provided that the exchange is hand
to hand. (Muslim and Tirmidhi).

From Abu Said al-Khudri (RAA): The Prophet, (PBUH),

said: Gold for gold, silver for silver, wheat for wheat, barely
for barely, dates for dates, and salt for salt like for like, and
hand to hand. Whoever pays more or takes more has indulged
in Rib. The taker and the giver are alike [in guilt]. (Muslim
and Musnad Ahmad).

From Abu Said and Abu Hurayrah (RAA). A man employed

by the Prophet, (PBUH), in Khaybar brought for him janibs
[dates of very fine quality]. Upon the Prophets asking him
whether all the dates of Khaybar were such, the man replied
that this was not the case and added that they exchanged a sa
(a measure) of this kind for two or three [of the other kind].
The Prophet, (PBUH), replied, Do not do so. Sell [the lower
quality dates] for dirhams and then use the dirhams to buy
janibs. [When dates are exchanged against dates] They should
be equal in weight. (Bukhari, Muslim and Nasai)

From Abu Said (RAA). Bilal (RAA) brought to the Prophet,

(PBUH), some barni (good quality) dates whereupon the
Prophet asked him where these were from. Bilal (RAA)
replied, I had some inferior dates which I exchanged for
these-two sas for a sa. The Prophet (PBUH) said, Oh no,
this is exactly Rib. Do not do so, but when one wish to buy,
sell the inferior dates against something [cash] and then buy
the better dates with the price one receive. (Muslim and
Musnad Ahmad).

From Fadalah ibn-Ubayd al-Ansari (RAA): On the day of

khaybar he bought a necklace of gold and pearls for twelve
38
 dinars. On separating the two, he found that the gold itself was
equal to more than twelve dinars. So he mentioned this to the
Prophet, (PBUH), who replied, It (jewelry) must not be sold
until the contents have been valued separately. (Muslim,
Tirmidhi and Nasai)

From Abu Umamah (RAA): The Prophet, (PBUH), said:

Whoever makes a recommendation for his brother and
accepts a gift offered by him has entered Rib through one of
its large gates. (Bulugh al Maram, reported on the authority
of Ahmad and Abu Dawud).

From Anas ibn Malik (RAA): The Prophet, (PBUH), said:

Deceiving a mustarsal [an unknowing entrant into the
market] is Rib. (on the authority of Sunan al-Bayhaqi).
2.8 Jurists Opinions on Ar-Rib

Rib is prohibited in Islm as it appears explicitly in the Glorious Qurn.

There is complete unanimity among all Islmic schools of thought regarding the
prohibition of Rib. Since the Qurn is the undisputed source of guidance in Islm
for all Muslims, there is unanimous agreement on the fact that Islm has forbidden
the practice of Rib.

There is no difference among Muslim jurists about the prohibition of Rib

al-Nasiah. It is indisputably one of the major sins. This is established by the
Glorious Qurn, the Sunnah of His Prophet, and the consensus of the Ulammah.

The Muslim jurists of all schools of thought extensively studied and analyzed
this hadeeth in order to develop their rulings for solving their contemporary
problems55. Their rulings may be briefly summarized as follows:
According to al-jasiri56 they divided the six commodities into 2 groups:
a) commodoties that are measured by weight such as gold & silver.

39
b) commodoties that are measured by volume such as wheat, barley, dates & salt.
they ruled that Rib applies only to commodities that fall under these two groups
and by analogy, they added other commodoties that can be measured by weight or
volume such as rice, beans, seeds, iron, raisins, copper, etc they exempted from
Rib all other commdities that are not measured by weight or volume, such as
bricks, eggs, cloth, swords, tools, etc
The Hanafi School exempted from Rib the money that is made of materials
other than gold& silver called (floos) & said, "it is acceptable for example to
exchange twenty naira (or twenty dolar) with twenty one naira (or Forty dolar) to
be paid on a later day.
The Hanbali School of Thought exempted the money that is made of
materials other than gold & silver (floos) from Rib& said it is acceptable to buy
thirty naira for fourty naira to be paid on a later day.
The Shafi and Maliki Schools of Thought divided the six commodoties into
two groups:
a) Money (noquood - made of gold & silver)
b) Food (stable commodoties ).
They ruled that Rib applies only to commodities that fall under these 2 groups and
by analogy, they added other commodoties such as rice, beans, and corn they
exempted from Rib all other commodoties that are not food stable or noquood.
The Shafi School Thought is of opinion that the money that is made of
materials other than gold and silver (floos), there is no Rib in them, so it is
acceptable to sell twenty naira for fifty half naira to be paid after one month.
The Maliki School viewed that the floos (money) that is made of metals
other than gold and silver is like trade merchandise, and there is no Rib in them.

40
 The Zahiri School stated that Rib applies only to the 6 commodoties
mentioned in the hadeeth of the prophet (saw), and should not be applied to other
commodities.
It should be noted that is obvious from the sayings of the prophet & the
rulings of different jurists that money in Islm is meant to be from gold and silver
as a tangible commodity that may be used as a measure (yard stick) for pricing
other commodities and hence it should be exchanged in equivalent kind, quality
and weight in order to avoid any tampering with the yard stick. That is to say to
keep and maintain the measuring standard intact. The prophet picked also four
other commodities that may be used as measures or yardsticks. These commodities
were the most common & most utilized in that time as money & food stables. It
was not strange to pay wages with commodities and the Roman Empire for some
time used to pay the salary of its soldiers by salt. The word salary, in fact was
extracted from salt. When the Islmic state expanded beyond arabia and jurists
were exposed to different environments, economies and cultures that were utilizing
many other essential commodities that were not known in arabia, the jurists used
the analogy criteria to add other commodoties to the six identified by the prophet.
Muslims continued for centuries to apply all these rulings of the different schools
of thought in their dealings depending on their locations and times. As long as
Muslims were using the gold dinar and the silver dirham as their money, they
continued to avoid Rib in their dealings and trades. They prospered and their
economies and their golden dinar were stable for centuries.
Conclusively therefore, jurists exercise their potentialities only on Rib al-
fadl and they have divergent opinions on the mentioned commodities in sayings of
the prophet.

2.9 Rationale behind the Prohibition of Ar-Rib in Islm

41
 The principal reason why the Qurn has delivered such a harsh verdict
against interest is that Islm wishes to establish an economic system where all
forms of exploitation are eliminated, and particularly the injustice perpetuated in
the form of the financier being assured of a positive return without doing any work
or sharing in the risk, while the entrepreneur, in spite of his management and hard
work, is not assured of such a positive return. Islm wishes to establish justice
between the financier and the entrepreneur.
As opined by al-Qaradawi57 in reference to al-Razi's assertion. He listed four
rationales behind the prohibition of Rib. His four arguments includes:
I. Unfair exchange (taking something from a party without giving him
something in return);
II. Economic argument: similar to Mawdudi's58 idle class argument;
III. Moral argument: Undermining of charitable attitude among people; and
IV. Social argument: Lenders are usually wealthy and borrowers are generally
poor, a disparity leading to exploitation and undermining of human kindness
and charity59.
Rationales for the Prohibition of Rib according to Mudzaffar abubakar60 are;
1) To promote economically just, socially fair and ethically and correct
economic behavior. Inequality is exemplified in the situation where the
lender is guaranteed a positive return without assuming any share of the
borrowers risk whilst the borrower takes upon himself all sorts of risks in
addition to his efforts, skills and labour.
2) Rib violates the principle of property rights. Money lent on interest is
used either productively that it creates additional wealth or otherwise. When
money used (together with labour and entrepreneurial skills) to produce
additional wealth, such money lent cannot have any property rights claim to
the incremental wealth because there was no prior bargain over it. Instead
interest, demanded a guaranteed return regardless of the enterprise.

42
 3) Promotion of profit-and-risk-sharing. The sharing of risks and uncertainties
of the enterprise is fundamental to Sharih contracts. Sharih condemns the
act of guaranteeing (even by the entrepreneur) to restore the invested funds
intact.
4) Act of lending is an act of charity. Lending should be a benevolent act.If
money is needed other than for commercial purposes (thus, risksharing),
such need should not be exploited where the borrower is put under undue
burden. Verse 57:11 Who is he that will lend unto Allh a goodly loan, that
He may double it for him or his may be a rich reward
Sidiqqi61 on the rationale behind the prohibition of Rib as indicated in Qurn.
Even though we do not get the reason in the form of a direct statement, a number
of reasons can be inferred from the texts read in their context. He listed five such
reasons;

Rib corrupts society.

Rib implies improper appropriation of other peoples property.

Ribs ultimate effect is negative growth.

Rib demeans and diminishes human personality.

Rib is unjust.

These according to sidiqqi are explained below

The first reason reveals itself when we read the above mentioned verse from
chapter 30, sura Rum, along with some of the preceding and following verses.
These read:

See they not that Allh enlarges the provision for whom He
will, and straitens (it for whom he will). Lo! Herein indeed are
portents for folk who believe. So give the kinsman his due and
to the needy, and to the wayfarer. That is best for those who

43
 seek Allhs countenance. And such are they who are
successful. That which one give in usury in order that it may
increase in other peoples property has no increase with Allh;
but that which one give in charity, seeking Allhs
countenance, has increase manifold. Allh is He Who created
one and then sustained one, then causes one to die, then gives
life to one again. Is there any of oner (so called) partners (of
Allh) that does aught of that? Praised and exalted be He
above what they associate with him. Corruption does appear
on land and sea because of (the evil) which mens hands have
done, that He may make them taste a part of that which they
have done, in order that they may return. (30: 37-41)
The association of charging interest with fasad, translated as corruption by
M. M. Pickthal quoted by Sidiqqi, is significant. Within the framework of the
general message that fasad in society results from mens own (wrong) behavior, we
can clearly read the sub-message that charging interest is one of those wrong
behaviors that corrupt the society. As the experts say, this may have been the first
time, chronologically speaking, that Rib was mentioned in Qurn. It was in the
fitness of things to highlight its negative social role long before the practice of
charging interest was banned. What is meant by fasad in the above verse, and in
what way charging interest on loans could be related to it? The numerous verses in
which the word has occurred in the Qurn give an idea of its dimensions. What is
interesting in the context is the inclusion into the concept of fasad, of destruction
of crops and people (2: 205), severing the ties of kinship (47: 22), dividing
people into classes and discriminating between them (28: 4), shedding bloods
(2:30), giving people less than full measure and wronging them in their goods (11:
85; 26: 183), arrogance borne of enormous wealth (28: 77) and sexual perversion
(29: 28-30).

The second reason, Rib amounting to unlawful appropriation of other

peoples property is indicated in the verse from chapter four, sura al-Nisa quoted

44
above. In that verse the Jews are admonished for taking usury when they were
forbidden it, and of their devouring peoples wealth by false pretences (4: 161).
There lies a hint as to a generic connection between Rib and akl bil batil.
Significantly, Qurn relates the tendency to appropriate other peoples wealth
without any justification to some more serious crimes. In (9: 34) it is associated
with hoarding and (4: 29) seems to put it at par with murder.

Considering the serious dimensions of fasad and akl bil-batil to which Rib
has been related, the message seems to be: charging interest belongs to a mind-set
that leads to disruption of civil society.

As rightly pointed out, interest on money is regarded as representing an

unjustified creation of instantaneous property rights: unjustified, because interest is
a property right claimed outside the legitimate framework of recognized property
rights; instantaneous, because as soon as the contract for lending upon interest is
concluded, a right to the borrowers property is created for the lender.

The third reason is implied in the declaration that Rib is subject to

destruction [mahq] (2: 276) which means decrease after decrease, a continuous
process of diminishing. That sounds a little odd as it runs counter to the commonly
observed fact of people growing rich by doing the business of lending on interest.
Once we leave out the improbable interpretation of individual wealth amassed
through Rib business being subject to continuous decrease, we have to turn to the
social wealth. Rib, even when it is increasing in numerical terms, fails to spur
growth in social wealth. That role is played by charitable giving mentioned in the
next half of verse 2: 276. Charitable giving transfers purchasing power to the poor
and the needy who spend it. The destination of interest is not that certain.

45
 One needs being reminded that the concept of mahq or the implied decrease
in social wealth may not necessarily refer to national income in dollars. It could
very well be referring to some real measure of human felicity. And that takes us to
the next reason.

The fourth reason behind prohibition of Rib is inferred from verse 2:275
quoted above. This verse draws a picture of those who devour usury as well as
states the reason why they got into that pitiable mould. That reason is their being
trapped into a false economics that equates tradethe act of selling and buying -
with the practice of charging interest. (However, it would not be far-fetched to
surmise that this trap was invented for the simple folk as we note below). We
intend to discuss the rejection of this economics below at some length. At this stage
we would like to draw attention towards the interesting phenomenon of how
having oner economics wrong can doom one!

We would also like to note that some scholars think the picture painted of
the one who takes Rib belongs to the Day of Judgment, in the hereafter, not in this
world. But that still leaves the main question unanswered: what is so wrong about
taking interest to deserve that fate? The answer to that question has to be in line
with the cause given in the later part of the verse itself: That is because they say:
Trade is just like usury. It is obvious that the cause lies in the behavior arising
from the mindset revealed by that saying, not in the mere act of saying. If that is
so, the behavior should show its effect in this world too. It is, therefore, better not
to confine the picture to the hereafter. Let it cover both the personality of the Rib-
eater in this life on earth as well as his/her condition on rising from the grave in
afterlife to face the Day of Judgment.

46
 Regarding the impact of taking interest on personality, the question arises:
How can this apply to millions of small savers who receive interest on saving
accounts? As we shall see later, a plausible answer lays in the generally rising level
of anxiety in modern interest based societies. The fact of the matter is that in the
complex modern economy the relationship between the one who pays interest and
the one who receives interest is not direct and visible as in the primitive
agricultural societies or merchant communities of the old. It is mediated by
numerous agencies and institutions, which fact makes it entirely impersonal. Also,
it is invisible. It appears as credit or debit entries in ones bank account. The same
person may be receiving interest as well as paying interest in the same period of
time. There is no way of understanding the impact of this practice of charging
interest on loans taken or of interest paid on loans obtained other than analyzing
the system as a whole. It is only with reference to modern interest based system of
banking, finance and monetary management as a whole that the effects of Rib on
human personality mentioned in verse 2: 275 or that on society mentioned in verse
30: 39 can be understood.

The last, but not the least important, reason of prohibiting Rib is its being
unjust, as the verse 2: 279 implies. It clearly states that taking an amount in excess
of the principal would be unfair, unjust. It also recognizes the right of the
lender/creditor to the principal without any decrease as that too would be unfair,
unjust. The Qurn does not argue further as to why it is unfair to take an excess in
case of loan. Presumably it relies on the notions of equality and reciprocity
inherent in the concept of justice as indicated in the first chapter above. The
unacceptability of injustice and unfairness was never in dispute between the
Qurn and its audience. It continues to be so in the modern times. What is not
acceptable to many is the Qurns stand that taking any thing in excess of the

47
 principal amounts to injustice. To resolve this dispute we have to turn back to the
difference between trade and interest-based transactions. That was the bone of
contention between Makkan traders opposing the Islmic injunction and the
Prophet, as reported in verse 2: 275.

Conclusively, Islm prohibited Rib in order to ensure egalitarian society

free of injustice, exploitation and overriding of poor people by well-to-do people in
the society. Interest (Rib) has been characterized as the very backbone of modern
and capitalistic economy. The web of interest encompasses banking and finance,
business and commerce. Interest has gradually and surreptitiously crept into all
aspects of modern life so much so that one is often reminded of the consequences
of this great sin. Its impact is manifest in all our spare of life. Every person in our
society now Muslims or non-Muslims feel the impact of this evil practices

Notes and References

1 Ibn Manzur, Muhammad ibn Mukarram. Lisan al-Arab.Beirut: Dar Sadir li al-
Tabaah wa al-Nash, 1968, Vol. 1, p 82
2 Ahmad, Muhammad al-Fayumiy. Al-Musbahu Al-Munir. Cairo: Maktabah al-
Asriyah. Retrieved from www.raqamiya.org on 20/10/2015 02:15 pm
3 Qutb, S. F Z ill al-Qurn. (6ed.) Dar- al- Shurq, 1980. Al-Qurtub, A. Al-Jami
liAh kam Al-Qurn (Tafsr al-Qurt.ub). Beirut: Dar Al-Kutub Al-Ilmiyyah.
1996. Al-Imam Al-Tabar.. Jami Al-Bayan f Tawl Al-Qurn (Tafsr Al-T
abar). Beirut: Dar Al-Kutub Al-Ilmiyyah. 1992
4 Ibn Qudamah, A. Al-Mugn. Riyadh: Dar Alm al-Kutub. Vol. 7 1999 p492
5 Ibn Kathr. Tafsr al-Qurn al-Azm. Beirut: Dar al-Fiqr. 1997 p551
6 Mubarak, Ademola Naibi. The Concept and Practice of Islmic Banking. National
Open University, School of Arts and Social Sciences, 2014, p 131
7 www.wikipediafreeencyclopedia/chaptertwo/usury/htm . Retrieved on 20/10/2015
02:15 pm
8 www.wikipediafreeencyclopedia/chaptertwo/usury/htm
9 Okereke, V.O.S and Ojukwu U.G. The Political Economy of the Proposed Islmic
Banking and Finances in Nigeria Prospect and Challenges. Kuwait: Journal of
Business and Management Review vol. 1, March 2012, p 20

48
10 Iqbal, M and Molyneux P. Thirty Years of Islmic Banking: History, Performance
and Prospects. New York: Palgrave Macmillan, 2005 p190
11 Sayyid Sabiq. Fiqh sunah.n.d n.p. Retrieved from www.mktaba.org on 15/11/2015
12 Al-Jaziri, `Abdal-Rahman. Kitab al-Fiqh `ala al-Madhahib al-`Arba`ah. Beirut:
Darul Kutub Al-Ilimiyyah, 2009, p.245
13 Aliagan, R.F. An Assessment of Product and Pricing of Islmic Banking Nigeria. A
Case Study of Jaiz Bank plc. Long Essay, Ahmadu Bello University, Zaria, 2014 p
15
14 Muhammed, Nejatullah Siddiqi. Rib, Bank Interest and the Rationale of Its
Prohibition. Jeddah: Islmic Development Bank, Islmic Research and Traning
Institutes,1425AH/2004, p 37
15 Badawi, Ibrahim Zaki el-ddin. Nazariyat al-Ribl Muharram. Cairo: Al-Majlis al-
Ala li Ri ayet al-Funun wal-Aadab wal Ulum al-Ijtima iyah, 1964, p36
16 Muhammed, Nejatullah Siddiqi. p39
17 www.wikipediafreeencyclopedia/chaptertwo/usury/htm
18 www.wikipediafreeencyclopedia/chaptertwo/usury/htm
19 A Holy Book Revealed to Prophet Musa known as Old Testament. It is a book of
jew
20 www.wikipediafreeencyclopedia/chaptertwo/usury/htm
21 www.wikipediafreeencyclopedia/chaptertwo/usury/htm
22 Cowan, J.M. A Dictionary of Modern Western Arabic. London; Macdonald and
Event LTD, 1981
23 Mahmud, Syakir. Al-Tarikh al-Islmiy Qabl al-Bithah, vol. 1, Beirut: Al-Maktab
al-Islmiy, 1991, p10
24 Al-Misri, Rafiq Yunus. Al Islm wal Nuqud, Jeddah: King Abdulaziz University,
1981, p34
25 Abu Umar, faruq Ahmad. Rib and Islmic Banking. Journal Of Islmic Economic,
Banking And Finance,(nd) p2
26 Ibn Kathr. p552
27 Ibn Qayyim, al-Jawziyya. I'lam al-muwaqqa'in 'ala rabb al-'alamin, ed.Taha 'Abd
al-Ra'uf Sa'd. Beirut: Dar al-Jil, 1973, p153-4
28 Chapra, M. Umar, Towards a Just Monetary System. Leicester, 1986, p.56-57
29 Al-Jaziri,`Abdal-Rahman.p.245.
30 Haque, Zia-ul-. Islm and Feudalism: The Moral Economics of Usury, Interest and
Profit. Lahore: Vangard Books, 1985, p.16.
31 Abu Umar, faruq Ahmad. p3
32 Muhammed Nejatullah Siddiqi.p 37
33 Badawi, Ibrahim Zaki el-ddin. Nazariyat al-Ribl Muharram. Cairo: Al-Majlis al-
Ala li Ri ayet al-Funun wal-Aadab wal Ulum al-Ijtima iyah , 1964, p36

49
34 Muhammad idrees, al-Qurshiy (Imam Safihi). Al-Umu. Cairo: Dar al-Mahruf
Vol.3, 1393A.H, p 15
35 Al-Jaziri, `Abdal-Rahman. p.245
36 Zahid, Zamir. Prohibition of Interest (Rib) in Islm. The Social, Moral and
Economics Rationale (part 1) (n.d) (n.p). p4
37 Ibn Qayyim al-Jawziyya. p153-4.
38 Ibn Kathr. p552
39 Mawddi, S. A. (trans). Towards Understanding the Qurn. Leicester: The Islmic
Foundation, 1999, p 340
40 Ibn Kathr. p552
41 Zahid, Zamir. p4
42 Al-Harran, S. Islmic Finance: Partnership Finance. Kuala Lumpur, Malaysia:
Pelanduk Publications, 1993, p.6
43 Mohammad, Razi. Rib in Islm: Fiqh of Contemporary Issues. Toronto, Canada
May 2008. Retrieved from www.kantakji.com/ Rib in Islm 20/09/2015,
03:05pm, p5
44 Ibn Qayyim, al-Jawziyya.p. 154
45 Al-Qushayr, M. Sahih Muslim. Cairo: Maktabah al- mn bi al-Mansrah, 2001.
46 Mohammad, Razi. p21
47 Muhammad, Al-Bukhari. Sahh al-Bukhari. Cairo: Dar al-Minr, 1986
48 . Al-Qushayr, M. p 156
49 Al-Bukhar.p. 212
50 Mohammad, Razi. p30
51 Mohammad, Razi. p30
52 Mohammad, Razi. p30
53 Mohammad, Razi. p30
54 Ali, Abdullah Yusuf. The Meaning of the holy Qurn, Commentary. Brentwood,
Maryland, USA: Amana Corporation, 1992, p.115
55 www.laRib.com/pdf/Rib and paper money. Retrieved on 12/11/2015
56 Al-Jaziri, `Abdal-Rahman. p.245
57 Muhammad Arif, Ashiq Hussain and Muhammad Azeem. Rib Free Economy
Model. International Journal Of Humanities And Social Science, Vol.2 No6, march
2012, p142
58 Mawdudi, Abul 'A`la, Al-Rib, trans. Muhammad `Asim al-Haddad, Beirut: Dar al
Fikr, 1970 p. 34
59 Al-Qardawi, Y. Fiqh al-Zakh: A Comparative Study. London: Dar at-Taqwah
Ltd., 1999, p.22
60 Mudzaffar, Abubakar. Broad Distinction between Islmic and Conventional
Banking Seminar on Islmic Finance. Malaysia: Malaysia Press Institute, 2010,
p6-7
50
61 Muhammed Nejatullah Siddiqi. p41-45

CHAPTER THREE
AR-RIB IN ISLMIC AND CONVENTIONAL BANKING SYSTEMS
This chapter examines Ar-Rib in Islmic and conventional banking systems
with emphasis on concept of conventional banking systems, the position Ar-Rib in
conventional banking systems and how interest is practiced in the conventional
banking systems as well as the adverse effects of the conventional interest on the
economic life of a Muslim. So also, the concept of Islmic banking systems will be
seen to including the position of Ar-Rib in Islmic banking systems and the
challenges as well as prospects of non interest bank in Nigeria.
3.1 The Concept of Conventional Banking System

51
 The word bank is said to have been derived from the Italian word, banco 1.
The original meaning of which is shelf, Bench. It was extended to that of
counter, money-changers table upon which medieval European money lenders
and money-changers used to display their coins, whence bank 2. None of the
statutory definitions of bank is completely general. The New York state banking
law defines bank as

Any domestic moneyed co-operation other than a trust

company authorized to discount and negotiate promissory
notes, drafts, bill of exchange and other evidence of debts, to
receive deposit of money and commercial papers, to lend
money on real or personal security and to buy and sell gold
and silver bullion foreign coins or bills of exchange.3
Bank can be seen as any financial institution that mobilizes saving and
channels same to productive units4. It also represents any financial industry that
mobilizes saving and idle fund in an economy and makes available to those who
can make a better and full utilization of the funds. Banking institution also makes
possible a more convenient device to make payments through cheque facilities and
render many other subsidiary services5.

The term Conventional refers to something that is common or widely

acceptable. Conventional banking system therefore, refers to a banking system
based on the institution of interest rate, less humane in outlook and exploitative in
practice6. It also represents the financial system that is based on a fixed returns
payment on capital borrowed7. This kind of banking system owes its orientation to
secular humanism as an ideology of a non-religious philosophy and liberal human
values8. It also connotes a banking system that renders formal financial services
including saving, credits, insurance and payments through formal financial
intermediaries at an affordable cost9.

52
 The pattern of conventional banking varies from one country to another. In
Anglo-Saxon countries, like Nigeria, United States etc, commercial banking
dominates while in Germany, Switzerland, the Netherlands, and Japan, universal
banking is the rule.

Universal bank is a banking system in which banks provide a wide variety of

financial services, including both commercial and investment services. In the
United States, however, banks are required to separate their commercial and
investment banking services. Proponents of universal banking argue that it helps
banks better diversify risk. Detractors think dividing up banks' operations is a less
risky strategy10. Commercial bank therefore is a financial institution that provides
services such as accepting deposits, giving business loans and auto loans, mortgage
lending, and basic investment products like savings accounts and certificates of
deposit.

From the above, we can deduce that commercial banks services are done by
those universal banks but some of universal banks activities are not done by those
commercial banks. Universal banks are wider than commercial banks. Therefore
we see a conventional bank comprises both universal and commercial banks. Some
writers take the name of conventional banks as same as commercial banks.

Conventional banking in summary can be seen as a banking system that is

widely accepted and interest oriented institution or agents that are free from
religion bigotries and financial services to its customers at an affordable rates. It is
of various types.11 These are;

Central banks are normally government-owned and charged with quasi-

regulatory responsibilities, such as supervising commercial banks, or

53
 controlling the cash interest rate. They generally provide liquidity to the
banking system and act as the lender of last resort in event of a crisis.

Commercial banks: the term used for a normal bank to distinguish it from an
investment bank. It refers to a bank, or a division of a bank that mostly deals
with deposits and loans from corporations or large businesses.

Community banks/Micro Finance Bank: locally operated financial

institutions that empower employees to make local decisions to serve their
customers and the partners.

Credit unions or co-operative banks: not-for-profit cooperatives owned by

the depositors and often offering rates more favourable than for-profit banks.
Typically, membership is restricted to employees of a particular company,
residents of a defined area, members of a certain union or religious
organizations, and their immediate families.

Offshore banks: banks located in jurisdictions with low taxation and

regulation. Many offshore banks are essentially private banks.

Building societies and Landesbanks: institutions that conduct retail banking.

A direct or internet-only bank is a banking operation without any physical

bank branches, conceived and implemented wholly with networked
computers.

Investment banks "underwrite" (guarantee the sale of) stock and bond issues,
trade for their own accounts, make markets, provide investment

54
 management, and advise corporations on capital market activities such as
mergers and acquisitions.

Merchant banks were traditionally banks which engaged in trade finance.

The modern definition, however, refers to banks which provide capital to
firms in the form of shares rather than loans. Unlike venture caps, they tend
not to invest in new companies.

Islmic banks adhere to the concepts of Islmic law. This form of banking
revolves around several well-established principles based on Islmic canons.
All banking activities must avoid interest, a concept that is forbidden in
Islm. Instead, the bank earns profit (markup) and fees on the financing
facilities that it extends to customers.

Mortgage banks This kind of bank deals with housing finance

Conventional banks offer several activities as an important financial

institution in the economy. These activities are divided into two groups: Primary
and Secondary functions12. Primary functions of conventional (commercial) banks
include:

a) Accepting deposits; and

b) Granting loans and advances.

Besides the primary functions of accepting deposits and lending money, banks
perform a number of other functions which are called secondary functions. These
are;
a) Issuing letters of credit, travelers cheque, circular notes etc.

55
b) Undertaking safe custody of valuables, important documents, and securities by
providing safe deposit vaults or lockers;
c) Providing customers with facilities of foreign exchange;
d) Transferring money from one place to another; and from one branch to another
branch of the bank;
e) Standing guarantee on behalf of its customers, for making payments for
purchase of goods, machinery, vehicles etc;
f) Collecting and supplying business information;
g) Issuing demand drafts and pay orders; and,
h) Providing reports on the credit worthiness of customers.

All these functions are carried out by the banks so as to maximize the profit.
As an indispensable link in the economy of a country, it serves as intermediaries
between the owner of the money and user of the money. In the words of Agger
through its creation of loan-able funds, the bank has thus made possible the
speedy transfer of capital goods from the maker to the users, from him who has no
use for them to him who has a use 13 with the amount of accumulated saving and
the proportion of money not used for consumption nor invested somewhere, some
more production can result instead of being idle.

It also economizes the use of money. With the technological advancement,

bank can now do the transactions involving heavy amount smoothly and easily and
at the same time swiftly and safety through internet bank or mobile banking.
Transfer of money has not only economized the use of money but economized the
time and risk as well.

Another important service that the banks perform is the fact that people need
not bother about the safety or the liquid money (capital liquidity). It is well

56
protected and the same time can be had any moments, or can be handed over to the
party or his behalf to which he would have required to pay in the cause of his usual
expenditure.

3.2 Ar-Rib in Conventional Banking Systems

The conventional banks being interest oriented banks, the conventional bankers do
not believe there is something called Rib. To them what is considered as Rib is
profit on business or dividend on investment. The main objective of conventional
banks is profit making. Whatever activity it does must bear profit. The profit
should be only for the trader, who earns his profits as he either produces the goods
or acquires them. In either case, he spends money, time and effort to bring the
goods to market for trade. Hence, the profit he receives in return is justified income
for his efforts. The reverse is the case in conventional banking system, as
somebody can sit back in his house and earns money without putting any effort.

Rib therefore in its basic meaning, refers to the premium that must be paid by
the borrower to the lender along with the principal amount as a condition for the
loan or for an extension in its maturity 14. According to a consensus of fuqaha
(Islmic jurists), it has the same meaning as the contemporary concept of
interest15/usury. In conventional banking system, interest is charge on any service
rendered and is paid on deposits entrust to them. This is so rampant to the extent
that these bankers now advertise their products with interest or loan and higher
interest rate on deposits.

3.3 The Practice of Interest in the Conventional Banking Systems

As Muslehuddin16 put it, the principal function of a bank (conventional ones) is to
bring into a common fund or pool, the idle money of the general public for the

57
purpose of making advances to others, to gain a return in the form of interest and
dividends.
Among the sharp practices of conventional banking system is to mobilize deposits
from the public. People who have surplus income and savings find it convenient to
deposit the amounts with banks. Depending upon the nature of deposits, funds
deposited with bank also earn interest. Thus, deposits with the bank grow along
with the interest earned. If the rate of interest is higher, customers are motivated to
deposit more funds with the bank.
Another way of earning interest in conventional bank is to grant loans and
advances. Such loans and advances are given to members of the public and to the
business community at a higher rate of interest than allowed by banks on various
deposit accounts. The rate of interest charged on loans and advances varies
depending upon the purpose, period and the mode of repayment. The difference
between the rate of interest allowed on deposits and the rate charged on the loans is
the main source of a banks income. These kinds of loans include;
Loans
A loan is granted for a specific time period. Generally, commercial banks grant
long-term and short-loans. Long-term loans are loan for more than a year. The
borrower may withdraw the entire amount in lump sum or in installments.
However, interest is charged on the full amount of loan. Loans are generally
granted against the security of certain assets. A loan may be repaid either in lump
sum or in installments.

Advances
An advance is a credit facility provided by the bank to its customers. It differs from
loan in the sense that loans may be granted for longer period, but advances are
58
normally granted for a short period of time. Furthermore, the purpose of granting
advances is to meet the day to day requirements of business. The rate of interest
charged on advances varies from bank to bank. Interest is charged only on the
amount withdrawn and not on the sanctioned amount.
Cash Credit
Cash credit is an arrangement whereby the bank allows the borrower to draw
amounts up to a specified limit. The amount is credited to the account of the
customer. The customer can withdraw this amount as and when he requires.
Interest is charged on the amount actually withdrawn. Cash Credit is granted as per
agreed terms and conditions with the customers.
Overdraft
Overdraft is also a credit facility granted by bank. A customer who has a current
account with the bank is allowed to withdraw more than the amount of credit
balance in his account. It is a temporary arrangement. Overdraft facility with a
specified limit is allowed either on the security of assets, or on personal security, or
both.
Discounting of Bills
Banks provide short-term finance by discounting bills. That is, making payment of
the amount before the due date of the bills after deducting a certain rate of
discount. The party gets the funds without waiting for the date of maturity of the
bills. In case any bill is dishonored on the due date, the bank can recover the
amount from the customer.

3.4 The Adverse Effects of the Conventional Interest on the Economic Life
of a Muslim
The framework of the Rib-based banks (RBBs) is based on the exploitation
of the vast majority of people by the few rich. The banks have remained urban-
59
friendly, leaving the teaming masses is the rural areas in abject poverty or in the
shackles of money lenders. According to CBN (2005), the average banking density
in rural areas in Nigeria is one financial institution outlet to 57, 000 inhabitants,
which means less than 2% of rural households have access to financial services.
The RBBs do not offer loans to viable clients who could not give collateral
securities or to priority sectors, considered to be the engine of development. Many
industries could not access loans from the banks because they cannot afford to pay
high interest rate, which is over and above their normal profits. On the
international scene, the World Bank in collaboration with the International
Monetary Fund (IMF) has continued to siphon the meager resources of the poor
countries through interest/contractual debt service obligations. For instance, the
contractual debt service obligation for Nigeria was estimated at about U.S $3.7
billion per annum in 2001.17
The adverse effects of the conventional interest on the economic life of a
Muslim can be best known through the statement of former Nigeria president
Olusegun Obasanjo on compound interest he said;

In the years up to 1985 Nigeria had borrowed $5 billion, paid

back $16 billion but still owed $28 billion. "If one ask me
what is the worst thing in the world", he told the press, "I will
say it is compound interest.18
In this modern world, interest (Rib or usury) has plays an important role in
modern and capitalistic economy. Interest plays a major role in our todays life.
Almost all-economic structure today is laid on interest which affects all the aspects
of life. The web of interest engaged in most economic sectors including financial
services, industrial, business and agriculture. Interest has secretly crept into all
aspects of mans life, according to Prophets (PBUH) saying,
A time will come over people when not a single person will
remain who does not devour Rib, and if there be any who
60
 refrain from it still its vapour will overtake him (Abu Daud,
SunanKitab-al-Buyu,Bab fi ijtinab-al-Shubukat).
The adverse effects of Rib on the socio-economic lives of Muslims could be
viewed in many ways;

Morally, interest generates such vices as miserliness, selfishness and petty-

mindedness. Charity on the other hand develops such virtues as self-sacrifice,
sympathy and magnanimity. The former are certainly a form of regression and the
latter are signs of progress. Qurn says

Allh destroys interest and gives increase for charities

(Q2:276)

Socially, a society in which selfishness and self-interest are the prime values
and people instead of dealing with one another on the basis of consideration are
bent upon taking advantage of the pressing needs of each other will always remain
victim of chaos and disunity. In contrast, if members of a society are considerate
and wish each other well, the society will make rapid progress.

From an economic point of view, interest results in even more serious losses.
According to Lord Keynes capital investment depends on the one hand on the rate
of interest and on the other on MEC (Marginal Efficiency of Capital). The process
of investment in a country will continue as long as MEC is higher than the interest
rate or at least at par with it. As soon as MEC falls below the interest rate, the
process of investment will come to a halt. Suppose the interest rate is low and the
profit on investment is high, people will prefer to invest rather than keeping their
money idly at bank with expectation of interest. For instance, if the interest rate is
18% and an investment of 10 million Naira is made on which the MEC is 24%,

61
since MEC is higher than the interest rate, investment is profitable. At this point
the only hurdle in the way of investment is the interest rate. Further investment will
continue only if the interest rate is reduced. In other words, interest prevents a
society from achieving the level of full employment.

Interest also causes inflation. When interest (as compensation for capital) is
used as a factor of production, it becomes part of the cost of production. Its burden
is consequently shifted to the consumer. Moreover, interest is not added to the price
once only, but it continues to be added to the price at several stages as in the case
of manufacturing of cloth, In the first place, the farmer will add interest to the price
of cotton. Interest will again be added to the cost of production of yarn. It will be
added to the cost of weaving, then to the cost of dyeing and finally to the price of
finished cloth. Thus at every stage of production, interest enhances the price of
goods which is totally unjustified. Interest by increasing the real price manifold
causes inflation.

The distribution of wealth in a society becomes inequitable due to interest.

Interest is an overhead charge which does not form part of any factor of
production. Interest is received by the capitalist who continues to use his wealth to
earn more wealth. Hence instead of circulating in the society, wealth is
concentrated in the hand of the capitalist class. This causes an unjust distribution of
wealth in the society. In this way due mainly to interest the rich in the society get
richer and the poor, poorer.

Interest creates trade cycles also. It plays a special role in bringing about a
slump in the market. According to Hawtrays Monetary Theory, the banks issue
loans with a free hand when the trade is brisk but as soon as signs of a slump
appear they start trade cycles recovery of the loans. In this way capital shrinks and

62
the slump starts declining to its lowest level. People draw the scale preference
when the price of commodities in the market is high so the necessities will be
given priority.19
In business dealings, the capitalist fixes his share (interest rate) at the time of
investment in business. Since his profit is guaranteed under all circumstances, he
has no active interest in the business. He does not care if the business earns profit
or incurs a loss. The running of business is entirely the responsibility of the
management. A class of financiers thus comes into existence who supplies money
and then sits idle. If interests are abolished, the financier class will take an active
part in the economic struggle and the pace of economic development in the country
will be accelerated.
Interest has ill-effects on the efficiency of the people in general. The people
who take loans to fulfill private needs are especially burdened with constant
anxiety and mental depression. This condition has an adverse effect on their
efficiency. Their interest in work is half-hearted because they are constantly
nagged by the thought that a major portion of their earnings will get to pay the
interest. Worry and depression weaken their physical health and their efficiency
progressively deteriorates.
On the economic instability interest/usury takes a credit. Interest/usury
destabilizes the economy. The well-known American Economist Milton Friedman
relates economic ups and downs to rise and fall in interest rate. A high rate of
interest creates conditions of extreme uncertainty in investment market. It causes
constant ups and downs in the gross profit (interest + profit) on total investment
and makes it very difficult to take reliable decisions about long term investment.
Interest/usury is used to maximize profit by the rich taking advantages of poor. The
capitalist economy is virtually based on loans. So we can call it debt based
economy. Individual or home consumption, private or public sector, economic
63
activities in all spheres revolve round interest-based credit. During the past two
hundred years policies for economic development have used loans not only for
physical development but also as instruments for financial expansion. The
developing countries suffer heavy loss due to the dominance of interest-based
economic order in the world20. As debtors the developing countries have to tolerate
the interference of the advanced countries in their internal affairs. Economically
also the developing countries undergo a great loss because a large portion of their
meager resources is utilized in returning loans with interest.

3.5 Concept of Islmic Banking Systems

The concept of Islmic banking and interest-free banking are synonymously
used in Islmic economics literature as an alternative banking framework to the
interest-based conventional banking practice. Although in technical terms, there is
a difference between an interest-free bank and an Islmic bank but they are
sometimes used interchangeably. Islmic bank is a financial and social institution
whose objectives and operations as well as principles and practices must conform
to the principles of Sharih and which avoid the use of interest in any of its
operations. It stands for an alternative financial system based on Islmic ideals. It
is not only a financier but also a partner in productive economic development. 21 It
is an interest-free financing system essentially based on profit and loss sharing.
And its operations are in conformity with Sharih22. It is therefore, the cornerstone
of the Islmic Economic System which is by definition Interest-Free.
Furthermore, Siddiqi conceived an Islmic bank as a financial intermediary
mobilizing savings from the public on the basis of Mudaraba (profit and loss
sharing contract) and advancing capital to entrepreneurs on the same basis. The
bank shares the profits of the enterprise according to a mutually agreed percentage
and shares these profits with depositors according to a percentage announced by

64
the bank in advance23. It is a banking activity that is consistent with the principle of
sharia (Islmic law) and its practical application through the development of
Islmic economics. As such, a more correct term for Islmic banking system is
Sharih compliant finance24
Islmic banking system refers to business of financial intermediation imbued
with Islmic principles, practices, procedures and instruments which help in the
maintenance and dispensation of justice, equity and fairness25. It can be defined
also, as the business of financial intermediary mobilizing savings from the public
on the basis of partnership and profit and advancing capital to entrepreneurs on the
same basis26. Iqbal observed that Islmic banking system is founded on the
absolute prohibition of the payment or receipt of any predetermined guaranteed
rate of return known as interest in Western concept, and as Rib in Islmic tenet27.
The Islmic banking system denotes a financial system based on Shariah (Islmic
Legal System), where banks clients are regarded as partners, investors and traders
as against the conventional banks relationship of debtors and creditors28. It is well
an interest-free bank system whose objective is fair distributions of wealth and just
treatment of human beings. The aim of Islmic banking is to promote modern
banking services and facilities in strict compliance with Shariah and to mobilize
and channel investment into projects and business operations to obtain Halal
(Lawful) profit for clients29. Islmic Banking is virtually cost-free service as
Islmic Banks do not pay interest or deposit but depositors share in the profit, if
any30.

While stating the difference between Islmic Banking and Interest-Free

Banking, Gusau31 argued that Islmic banking system is supposed to operate
completely within the Sharih in all its activities both in sourcing of funds and
disbursement of the funds. It not only avoids interest in all its ramifications but

65
also avoids all other Islmically prohibited activities. Interest-free banking system
on the other hand, does not engage in interest but there is no reason to suppose that
all its other activities will be done strictly according to Sharih. From the above,
three things have become clear, namely: Islmic Bank must;
1) Charge no interest

2) Conform to Sharih principles in all its operation

3) Promote Islmic ideals

Thus, it can be seen that interest-free operation is a necessary but not a
sufficient condition for a bank to qualify as an Islmic Bank. In addition to non-
interest charges, the bank must promote Islmic ideals.
Islmic banking or Islmic finance is a term that reflects banking business or
financial business that is not contradictory to the principles of Islmic law 32.
Islmic banking products are products of conventional banking, insurance and
finance by Islmizing and removing the features prohibited by Sharih and
applying Sharih principles to achieve the same or similar effects 33. Islmic
banking aims to promote and develop the application of Islmic principles, law and
traditions to the transactions, financial banking, related business and commercial
affairs34. It promotes business and commercial activities that are acceptable to and
consistent with, Sharih principles, safeguarding the Islmic communities and
societies from activities which are forbidden in Islm35.
Islmic Banking has been described as a system of banking that is consistent
with the principles of Islmic law (Sharih) and its application through the
development of Islmic economics36. The most important features of Islmic
Banking to include: the abhorrence of interest rate, gambling, consumption or
transactions in alcohol, pornography, all economic activities that are socially or
morally injurious to the society and all items deemed forbidden by Sharih

66
(haram). Islmic banking operates on profit and loss sharing between the providers
of funds (investors) and the user of the funds (entrepreneur). In Islm bank should
share in the risk with the entrepreneur...Islmic banking implies zero rate of
interest but not zero rate of return...37
Islmic banking (participant banking) refers to a system of banking or
banking activity that is consistent with the principles of the Sharih (Islmic law)
tailored and protected by Islmic economics. The principle deals with universal
appeal and lay emphasis on moral and ethical values in all dealings of human
transactions. In particular, Islmic ruling (Sharih) prohibits the collection and
payment of interest charge called Rib. Islmic jurisdiction prohibits investing in
businesses that are considered unlawful or known as haraam and are contrary to
Islmic values. More also, contracts where ownership of a good depends on the
occurrence of a predetermined, uncertain and speculative transactions are
prohibited by Islmic law because all involve excessive risk and it supposed to
foster uncertainty and fraudulent behaviour38.
Siddiqi39 defined Islmic banking as the business of financial intermediation,
mobilizing savings from the public on the basis of partnership and profit and
advancing capital to entrepreneurs on the same basis. Islmic banking therefore, is
a system of banking that complies with the principles of Shariah (Islmic law) and
its practical application through the development of Islmic economics. Shariah
forbids the payment or acceptance of interest fees for the lending and accepting of
money respectively. This is known as Rib (usury).
Islmic banking is a unique type of banking system that devoids all forms of
transactions that are prohibited in Islm. So for any bank to be classified as
Islmic, the following basic principles must be adopted for its operations40:
a) Prohibition of interest (Rib). Interest means a fixed predetermined amount in
addition to the principal. It is prohibited in Islm. So for any bank to be called
67
Islmic bank, it must not engage in any interest related transactions, but rather,
profit and loss sharing transactions.
b) Prohibition of speculation (gharar). The term gharar literally means hazard.
More so, it means transactions that have too much risk and are therefore linked to
gambling. Since Islm prohibits speculation, a potential Islmic bank will avoid all
transactions with excessive risk.
c) Profit, loss, and risk sharing. Since interest is prohibited in Islm, the providers
of funds and the entrepreneur in an Islmic banking settings share the business risk
and profits based on mutual agreement. This act will equitably distribute income,
enhance social justice, alleviate poverty etc.
d) Shariah approved activities. Islmic banking is a banking system that is based
on Shariah. So any transactions that are prohibited by Shariah in the likes of
alcohol, gambling etc. are avoided in Islmic banking. Islmic banks can only
partake in transactions or activities that are approved by the Shariah advisors.
e) Social Justice. Islm prohibits Muslims from any transactions leading to
injustice and exploitation of any kind. So, Islmic banks can not engage in any
transactions that will lead to exploitation of any party.
f) Compulsory payment of zakat. It is mandatory for an Islmic bank to pay zakat.
Zakat is one of the five pillars of Islm.
g) Overseen by Shariah advisors. Every Islmic bank must be regulated by
experts in Islmic law who will have to audit the operations of Islmic banks and
its products to make sure that they comply with Shariah guidelines.
h) Making money from money is not Islmically acceptable41. That is, without
putting effort or investment, making money from such transaction is haram
The objectives of Islmic banking are: first, to provide financial facilities as
provided for by the conventional banking system but in accordance with the
dictates of the Sharah. Secondly, it is to assist in realizing the Islmic concept of
68
socio-economic development. This Islmic concept of socio-economic
development is divided into two types. The first one is the increment of economic
welfare of the Muslims while the second one is the achievement of a balanced
economic development through social justice and equitable distribution of wealth.
The Islmic bank is to assist in achieving Islmic concept of socio-economic
development by increasing the economic welfare of Muslims since all sources of
wealth have been created for the benefit of man. In view of this, Muslims are
enjoined to strive for the improvement of their lives and the material standards.
Welfare does not only comprise the quantitative improvement of the physical well
being but qualitative development of the individual. The Islmic bank is also to
achieve a balanced economic development through social justice and equitable
distribution of income and wealth as all resources are considered as gifts from
Allh. In that light, Islm guarantees every member of the society a fair share in
these resources. The Islmic state or community is to ensure the minimum standard
of the basic necessities of life for everyone while considering the fact that people
cannot be rewarded equally since human ability and activities are not equal. The
monetary and fiscal policy of Islm is to aim at the redistribution of wealth through
the institution of zakat. Among the benefits of Islmic banking system as opined
by Onisabi42 are;
1) There is a need for an alternative to conventional finance whose interest-based
factor has promoted capitalism rather than alleviating poverty.

2) It reduces exploitation of the conventional bank that charges interest.

3) It attracts other idle money, many Muslims do not see saving their money in
conventional banks as an important task. Now that Islmic banking is operating,
they will be encouraged to bring in their money and consequently more money to
the economic development.
69
4) It enhances creation of employment, owing to its mode of operation which gives
more chance to investors to get direct access to financial opportunity more than
conventional banks through Musharakah, Mudarabah, Ijarah, etc.

5) Islmic banking finance adopts asset backed finance. This involves the transfer
of assets and is not based on making money from money alone as is the case with
interest-based transactions. Namely, these were Musharakah, Mudarabah, Salam,
Istisna, Murabana and Ijarah.

6) Analysts have always believed that non interest banking would have significant
impact on the Nigerian baking system and the economy as a whole by encouraging
investment thus creating more employments and more capital.

7)The introduction of non interest banking will herald the entry of new market and
institutional players such as Islmic Money Market, Islmic Asset Management
Companies, Takaful (Islmic insurance) companies and so on, thus deepening the
financial market.

8) It allows a larger proportion of the Nigerian population to actively and

effectively participate on economic development, owing to its nature and ability to
offer an array of products and services that cater for the financing needs of the
banking public

9) An interest-based economy has a built-in tendency towards inflation because the

creation of money is not linked to productive investment. By contrast, in the
Islmic banking system, so Islmic economists claim, inflation will be at its lowest,
since the monetary supply will be proportionate to and correlated with economic
activities. For example, Mudarabah and Musharakah techniques finance production
not consumption and so will not contribute to inflation.

70
10) Islmic finance, though based on a religious law, is not just a religious activity
whose adherents are the only expected people who engage in it. It is a business
activity opens to all segments of the society.

11) Islmic bank provides opportunity for businessmen and investtors by financing
their projects through partnership (Musharakah, Mudarabah, ijarah, etc.). Thus, it
contributes or generates employment opportunities.

12) Poverty does not only depend on resource endowments, population size,
economic and social policies, but also on the kinds of economic activities that are
being undertaken. What is significant is the sort of policies, which are formulated
to eradicate poverty, and to what extent their implementations are sufficiently
successful in meeting the objectives43. Thus, Islmic Banking, based on its
economic activities such as Zakah etc., is capable of reducing or eliminating
poverty in the society.

3.6 Ar-Rib in Islmic Banking Systems

It is believed in some quarter that it is difficult to avoid the practice of Rib
(usury) in todays financial transactions. Conventional banks and insurance
companies are adopting the practice as a means to gain profits, otherwise known as
banking interest. Consumers are obliged to absorb Rib automatically in any
transaction or dealing, such as loans or insurance products, set by conventional
banks and insurance companies. Rib is the practice of making unethical or
immoral monetary loans intended to enrich the lender by imposing additional
means over a property, principal or capital unfairly. It is a form of prejudiced
intrusion on peoples property without having to work to earn profits.

71
 Islm forbids the practice of Rib so as to maintain consumers dignity. In
Islm, the philosophy of loans is to meet the needs of deserving individuals, and to
foster and nurture affection among Muslims.44 The practice of Rib that imposes
additional, unjustified charges may obscure these values and propagate exploitation
against the needy. The modern banks charge interest regardless of any loss or profit
to businessmen. It would therefore, be seen that under a capitalist economy an
organized attempt is being made to further the interest of the rich, thereby
eliminating the possibility of establishing economic equilibrium in society. As
against this, Islm has tried to bring about economic equality in the state by
imposing Zakat on surplus funds. In short, banks are regarded by Islm as one of
the boldest means for the economic prosperity of a nation.

Islmic banking is also work ethics, wealth distribution, social and economic
justice and creates a prominent role for the state in economic affairs. This is so
because Islm prohibits interest that has nothing to do with influencing the volume
of saving as it makes depression chronic, it aggravates the problem of
unemployment, and finally, it encourages unequal distribution of wealth 45.The
scope of Islmic bank is so wide and its role is to mobilise saving on a large scale,
pool money from savers with different sums to invest, for different periods at
different risk levels through its various products46.

The fundamental difference between Islmic banking and conventional or

mainstream banking is the fact that an Islmic bank must operate in accordance
with the principle of Islmic law which prohibits the charging of interest on
lending and payment of interest on deposit, these are described as Rib or usury in
Islmic jurisprudence47. It also prohibits investing in business that provides
services or produces goods that are not in conformity with Islmic principles.
Engaging in such activities is forbidden i.e. haram, and they include gambling

72
(games of chance), production and sales of alcoholic drink, hard drug and pork.
Thus, the objectives of Islmic banking is to ensure that Muslims engage in any
ethical investing, moral purchasing and avoid usury/interest (Rib).The word Rib,
in sharia, is any excess compensation without due consideration. In classical
Islmic jurisprudence, Rib means surplus value without counterpart or to ensure
equivalency in real value.48

In a nutshell, Sharih prohibits either fixed or floating fees or specific

interest on loan of money or deposit rather, profit and lost sharing principle
(formula) is encouraged. Rib therefore to Islmic banking is a great foe, unwanted
phenomenon and detestable factor which cannot be allowed in Islmic banking
system.
3.7 Financing Modes and Instruments of Islmic Banking
Islmic banking aims at evolving an equitable economic order relevant to the
specific resource endowments of each and every person and individual country.
The main objective of the establishment of Islmic banking system is obedience to
the commandments of Allh (SWT) that there should be justice in financial
transactions. One of the subsidiary objectives is to convert all Rib-based (interest-
bearing) production loans to investments under profit-and-loss-bearing (PLS) and
priority sector loans and consumption loans to Qard Hasan (QH). Therefore,
Islmic banking eliminates interest, exploitation, corporate prostitution, financial
shenanigans and all forms of Gharar (gambling) from banking businesses and
replaces them with a variety of Sharih-compliant financing techniques. These
techniques are operated through products whose vehicular nature is the same as the
Rib-based products. The techniques are relevant to both service and real sectors of
the economy49. These techniques include;

Bai' al 'inah (sale and buy-back agreement)

73
 Literally, this means A loan in the form of a sale". 50 Bai' al inah is a
financing arrangement where the financier buys an asset from the customer on spot
basis, with the price paid by the financier constituting the "loan". Subsequently the
asset is sold back to the customer with deferred payment made in installments,
constituting paying back the loan. There are differences of opinion amongst the
scholars on the permissibility of Bai' al 'inah. However this is practised in
Malaysia.51

Bai' bithaman ajil (Deferred Payment Sale)

This concept refers to the sale of goods on a deferred payment basis at a

price, which includes a profit margin agreed to by both parties. Like Bai' al 'inah,
this concept is also used under an Islmic financing facility. Interest payment can
be avoided as the customer is paying the sale price which is not the same as
interest charged on a loan. The problem here is that this includes linking two
transactions in one which is forbidden in Islm. The common perception is that this
is simply straightforward charging of interest disguised as a sale.52

Bai' muajjal (Credit Sale)

Literally bai' muajjal means a credit sale. Technically, it is a financing

technique adopted by Islmic banks that takes the form of murabahah muajjal. It is
a contract in which the bank earns a profit margin on the purchase price and allows
the buyer to pay the price of the commodity at a future date in a lump sum or in
installments. It has to expressly mention cost of the commodity and the margin of
profit is mutually agreed. The price fixed for the commodity in such a transaction

74
can be the same as the spot price or higher or lower than the spot price. Bai'
muajjal is also called a deferred-payment sale53.

Mudarabah (Silent Partnership)

A Mudarabah transaction is an investment partnership. In a

mudarabah arrangement, the contract is between an investor (or
financier) and an entrepreneur or investment manager known as
the Mudarib. Risk and rewards are shared. In the case of a profit,
both parties receive their agreed-upon share of the profit. In the
case of a loss, the investor bears any loss of capital while the
Mudarib loses his time and effort54. The Mudarabah is a contract,
with one party providing 100 percent of the capital and the other
party providing its specialized knowledge to invest the capital and
manage the investment project. Profits generated are shared
between the parties according to a pre-agreed ratio. If there is a
loss, the first partner "rabb-ul-mal" will lose his capital, and the
other party "mudarib" will lose the time and effort invested in the
project. The profit is usually shared according to agreed plan

In this procedure of investment, bank contributes all the financing (and

customer contributes only his managerial efforts or labour) and gets a gain on
agreed proportion of the profit actually realized. In both mudarabah and
musharakah, both sides stand to incur any profit depending on the actual
performance of the operation. The bank that has financed the capital bears all the
finance risks. This financial risk justifies the bank to claim his share in the profit.
The client is however held responsible for loss of capital, should this be the result

75
of his negligence or willful act. To guard against this, the bank may require a
security from the customer.
Murbaah(Cost-Plus Sale Contract)

A Murabahah transaction is a sale at a stated profit. In a

Murabahah transaction, the bank purchases an asset from a third
party and sell it to the client at a stated profit on a spot or
deferred payment basis. In this way, the client can buy something
without taking an interest-based loan 55. This concept refers to the
sale of good(s) (such as real estate, commodities, or a vehicle)
where the purchase and selling price, other costs, and the profit
margin are clearly stated at the time of the sale agreement. 56
With the rise of Islmic banking since 1975, Murabahah has
become "the most prevalent" Islmic financing mechanism.
Murabahah works as finance when the lender/buyer pays the
bank/seller for the good(s) over a period of time, compensating
the bank/seller for the time value of its money in the form of
"profit" not interest.57 With a fixed rate of profit determined by the
profit margin for the purchase of a real asset, this is a fixed-
income loan. The bank is not compensated for the time value of
money outside of the contracted term (i.e., the bank cannot
charge additional profit on late payments); however, the asset
remains as a mortgage with the bank until the default is settled.

Musawamah

76
 If the exact cost of the item(s) sold to the lender/buyer cannot be or are not
ascertained, a financial transaction cannot be done on the basis of Murabahah, it is
called musawamah (bargaining).58 Musawamah is the negotiation of a selling price
between two parties without reference by the seller to either costs or asking price.
While the seller may or may not have full knowledge of the cost of the item being
negotiated, they are under no obligation to reveal these costs as part of the
negotiation process. This difference in obligation by the seller is the key distinction
between Murabahah and Musawamah with all other rules as described in
Murabahah remaining the same. Musawamah is the most common type of trading
negotiation seen in Islmic commerce.

Bai Salam (post-delivery sale):

Bai Salam is also refered to as Forward Trade Contract. It is a sale where the
seller undertakes to supply some specific goods to the buyer at a future date that is
specified in exchange of an advanced price fully paid at spot. This mode of
financing is widely used to finance the agricultural sector 59. Bai salam means a
contract in which advance payment is made for goods to be delivered later on. The
seller undertakes to supply some specific goods to the buyer at a future date in
exchange of an advance price fully paid at the time of contract. It is necessary that
the quality of the commodity intended to be purchased is fully specified leaving no
ambiguity leading to dispute. The objects of this sale are goods and cannot be gold,
silver, or currencies based on these metals. Barring this, Bai Salam covers almost
everything that is capable of being definitely described as to quantity, quality, and
workmanship.

77
Basic Features and Conditions of Salam

1. The transaction is considered Salam if the buyer has paid the purchase price
to the seller in full at the time of sale. This is necessary so that the buyer can
show that they are not entering into debt with a second party in order to
eliminate the debt with the first party, an act prohibited under Sharia. The
idea of Salam is normally different from the other either in its quality or in
its size or weight and their exact specification is not generally possible.

2. Salam cannot be effected on a particular commodity or on a product of a

particular field or farm. For example, if the seller undertakes to supply the
wheat of a particular field, or the fruit of a particular tree, the Salam will not
be valid, because there is a possibility that the crop of that particular field or
the fruit of that tree is destroyed before delivery, and, given such possibility,
the delivery remains uncertain. The same rule is applicable to every
commodity the supply of which is not certain.

3. It is necessary that the quality of the commodity (intended to be purchased

through salam) is fully specified leaving no ambiguity which may lead to a
dispute. All the possible details in this respect must be expressly mentioned.

4. It is also necessary that the quantity of the commodity is agreed upon in

unequivocal terms. If the commodity is quantified in weights according to
the usage of its traders, its weight must be determined, and if it is quantified
through measures, its exact measure should be known. What is normally
weighed cannot be quantified in measures and vice versa.

5. The exact date and place of delivery must be specified in the contract.

78
 6. Salam cannot be effected in respect of things which must be delivered at
spot. For example, if gold is purchased in exchange of silver, it is necessary,
according to Shari'ah, that the delivery of both be simultaneous. Here, Salam
cannot work. Similarly, if wheat is bartered for barley, the simultaneous
delivery of both is necessary for the validity of sale. Therefore, the contract
of Salam in this case is not allowed.

7. This is the most preferred financing structure and carries higher order
Sharih compliance.

Trading of Islmic bonds using the Salam format was disallowed by

Accounting and Auditing Organisation for Islmic Financial Institutions (AAOIFI)
in 2007. But in Iran's debt market, Salam is a common form of sukuk.60

Hibah (gift)

This is a token given voluntarily by a debtor in return for a loan. Hibah

usually arises when Islmic banks pay their customers a 'gift' on savings account
balances, representing a portion of the profit made lending funds from savings
account balances. Unlike interest and like dividends on shares of stock, Hibah
cannot be guaranteed. Additionally, it is not time bound.61

Istisna (Partnership in Manufacturing)

It is a mode of financing where the commodity involved is

manufactured to the specifications of the purchaser. This is widely
used in the housing finance sector, where the client seeks finance
for the construction of a house. The financier may undertake to
construct the house on a specified land either belonging to the

79
 client or purchased by the financier, on the basis of Istisna', with
payment fixed in whatever manner the parties may wish. It is also
widely used in infrastructure finance 62. It is refers to a process
where payments are made in stages to facilitate the work of
manufacturing / processing / construction. An installment of
Istisna, for example, may enable a construction company to
finance construction of sections of a building or help
manufacturers pay for an order of raw materials. Istisna helps use
of limited funds to develop higher value goods/assets in different
stages / contracts.The bank can utilize Istisna'a in two ways:

It is permissible for the bank to buy a commodity under Istisna'a contract

and sell it on receipt of cash installment or deferred payment basis.

It is also permissible for the bank to enter into Istisna'a Contract in the
capacity of seller to those who demand a purchase of a particular commodity and
then draw a parallel Istisna'a Contract in the capacity of a buyer with another party
to make (manufacture) the commodity agreed upon in the first contract.63

Ijarah (LEASE, RENT):

Ijarah means lease, rent or wage. Generally, the Ijarah concept refers to
selling the benefit of use or service for a fixed price or wage. Leasing practiced in
Islmic banks is similar to its conventional practice. During the life of the asset, the
risk of ownership remains with the bank, while the lessee is liable for misuse of the
asset. Under this concept, the Bank makes available to the customer the use of
service of assets / equipment such as plant, office automation, motor vehicle for a
fixed period and price. The bank purchases an asset and leases it to a client for

80
fixed monthly payments. An ijarah may include an option for the lessee to buy the
asset at the end of the lease, which is a way for Islmic banks to provide finance
for ownership of goods and services64. IJARA transaction covers leasing and hire
purchase arrangement or such goods as vehicle; aircraft or computer equipment
essentially the same as obtained in the conventional bank. The only difference is
that, the leased assets must be put to productive use than simply using the lease to
produce a paper profit.

Ijarah thumma al bai' (hire purchase)65

Parties enter into contracts that come into effect serially, to form a complete
lease/ buyback transaction. The first contract is an Ijarah that outlines the terms for
leasing or renting over a fixed period, and the second contract is a Bai that triggers
a sale or purchase once the term of the Ijarah is complete. For example, in a car
financing facility, a customer enters into the first contract and leases the car from
the owner (bank) at an agreed amount over a specific period. When the lease
period expires, the second contract comes into effect, which enables the customer
to purchase the car at an agreed to price. The bank generates a profit by
determining in advance the cost of the item, its residual value at the end of the term
and the time value or profit margin for the money being invested in purchasing the
product to be leased for the intended term. The combining of these three figures
becomes the basis for the contract between the Bank and the client for the initial
lease contract.

Ijarah-wal-iqtina66

A contract under which an Islmic bank provides equipment, building, or

other assets to the client against an agreed rental together with a unilateral
undertaking by the bank or the client that at the end of the lease period, the
81
ownership in the asset would be transferred to the lessee. The undertaking or the
promise does not become an integral part of the lease contract to make it
conditional. The rentals as well as the purchase price are fixed in such manner that
the bank gets back its principal sum along with profit over the period of lease.

Musharakah (joint venture)

Musharakah sometimes refers to Equity Partnership. This involves partners
providing funds for a venture, with profits shared according to an agreed ratio, and
the loss is borne by them in accordance with their capital contributions. 67
Musharakah is a relationship between two parties or more that contribute capital to
a business and divide the net profit and loss pro rata. This is often used in
investment projects, letters of credit, and the purchase or real estate or property. In
the case of real estate or property, the bank assesses an imputed rent and will share
it as agreed in advance68. All providers of capital are entitled to participate in
management, but not necessarily required to do so. The profit is distributed among
the partners in pre-agreed ratios, while the loss is borne by each partner strictly in
proportion to respective capital contributions. This concept is distinct from fixed-
income investing (i.e. issuance of loans). Here the banks and their clients agree to
join in a temporary participation (not quite different from joint venture) for
effecting a certain operation within an agreed period of time. Both parties
contribute to the capital of the operation (meanly assets and managerial expertise
working capital etc.) in varying degrees and agree to divide the net profit in
proportions agreed upon in advance. There is no set formula for profit sharing and
each case is dealt with on its own merits.69

Types or forms of Musharaka partnerships70

There are many types of Musharaka ranging from traditional types of
partnerships to modern corporations. Musharaka could either be:
82
 Permanent musharaka: An Islmic bank participates in the equity of a
project and receives a share of the profit on a pro rata basis. The time length of the
contract is specified, making it suitable for financing projects where funds are
committed over a long period.
Diminishing musharaka: This allows equity participation and sharing of
profits on a pro rata basis, and provides a method through which the bank keeps on
reducing its equity in the project, ultimately transferring ownership of the asset to
the customer. The contract provides for payment over and above the bank's share in
the profit for the equity held by the bank. Simultaneously the entrepreneur
purchases some of the banks equity, progressively reducing it until the bank has
no equity and thus ceases to be a partner.
Muzaraah

This is a type of transaction designed for agriculture financing. The bank

enters into partnership with the farmer or an agricultural enterprise. While the bank
purchases and supplies the necessary equipment and seeds, the farmer or
agriculture enterprises contributes land and labour to the venture. Whenever the
transactions relate specifically to the land as in the financing or irrigation projects,
it is called MUSAQAT71.

Qard Hassan/Qardul Hassan (good loan/benevolent loan)

Qard Hasan is charitable loans free of interest and profit-sharing margins;

repayment by installments72. Qard Hassan is a loan extended on a goodwill basis,
with the debtor only required to repay the amount borrowed. However, the debtor
may, at his or her discretion, pay an extra amount beyond the principal amount of
the loan (without promising it) as a token of appreciation to the creditor. In the case
that the debtor does not pay an extra amount to the creditor, this transaction is a

83
true interest-free loan. Some Muslims consider this to be the only type of loan that
does not violate the prohibition on 'Rib, for it is a loan that truly does not
compensate the creditor for the time value of money73.

Sukuk (Islmic bonds)

Sukuk, Arabic name for financial certificates that share some

similarities with conventional bonds hence are also commonly
referred to as Islmic Bonds. A major difference between
conventional bonds and sukuk is the structure of sukuk removes
interest based elements which is replaced by an asset based
income structure using most typically Ijara or Wakala contracts.
Similarities are found at the issuance stage where Sukuk issuance
in terms of documentation and regulation such as Reg S /144A
and Reg S resembles closely that of a bond 74. According to data
published by the Islmic Financial Services Board, 75 total
outstanding sukuk as of end of 2014 was $294 Billion, of which
$188 Billion was from Asia, and 95.5 Billion from the countries of
the Gulf Cooperation Council.

Tawarruq

(Literally "turns into silver") A product where a client customer buys an asset at a
marked up price that is easily saleable and quickly sells the asset to raise cash. For
example a client might buy $1,000 worth of a commodity like iron from a bank, on
condition he/she does not have to pay for it until 12 months later and then
immediately sell the metal back to the bank for $900 to be paid immediately. (This
would be the equivalent of borrowing $900 for a year at an interest rate of 11 per
cent.) The product allows clients to raise money quickly and easily, in theory
84
without breaking Muslim bans on interest76. Although the technique is
controversial as Sharia scholars, who have to approve all Islmic financial products
and services, have had much discussion about tawarruqs because of their similarity
to interest-bearing loans. They began to question the instrument more closely when
they noticed the billions of dollars of commodity-based tawarruq transactions,
which did not match with an equivalent amount of the commodity being traded.

Takaful (Islmic insurance)

Takaful- Islmic insurance with joint risk-sharing.77 Takaful is an alternative

form of cover that a Muslim can avail himself against the risk of loss due to
misfortunes. Takaful is based on the idea that what is uncertain with respect to an
individual may cease to be uncertain with respect to a very large number of similar
individuals. Insurance by combining the risks of many people enables each
individual to enjoy the advantage provided by the law of large numbers.

Wadiah (safekeeping)

Wadiah deposits, including current accounts 78. In Wadiah, a

bank is deemed as a keeper and trustee of funds. A person
deposits funds in the bank and the bank guarantees refund of the
entire amount of the deposit, or any part of the outstanding
amount, when the depositor demands it. The depositor, at the
bank's discretion, may be rewarded with Hibah (gift) as a form of
appreciation for the use of funds by the bank.

Wakalah (power of attorney)

Waklah is a derivative from the verb wa-ka-la which means to entrust,

assign, commission, charge (with) or put someone in charge of something or

85
somebody. Waklah on its own means representation, deputyship, proxy, full
power of attorney, management and agency. Wakala is the agency contract which
is used widely in Islmic Finance. Its applications ranging from brokerages
services in permissible activities, like certain stocks, as well as to be the agent in a
Murabaha transaction. The client, who wants to be financed, acts as agent of the
bank to acquire the asset, then sold to him on credit installments. Agents can be
compensated for their assignment with a fixed, variable or performance model,
which is frequently used to influence pay outs and cash flows in financial
engineering79.
It is the acting or managing of an individual, group of individuals or
corporate organisation on behalf of others in designated affairs which require
representation. This could be in the area of politics, litigation and commerce
among others. Allh permits waklah in the Qurn while discussing the recipients
of zakh (almsgiving). There, He mentions the agents of the Imams who assist him
in administering zakh. He says
Alms are for the poor and the needy and those employed to
administer it (the funds). For those whose hearts have been
(recently) reconciled (to truth), for those in bondage and in debt,
in the cause of Allh and for the wayfarer (Thus is it) ordained
by Allh and Allh is full of knowledge and wisdom. (Q9:60).
This occurs when a person appoints a representative to undertake
transactions on his/her behalf, similar to a power of attorney.
In sum, all banks in Nigeria including the Islmic banks must operate under close
supervision of the Nigeria Central Bank whose objective is mainly based on capital
certainty for depositors and certainty as to the rate of return of deposits. The strict
compliance of all banks with the Central Bank rules made the real practice of
Islmic Banking System difficult in the country80.

3.8 The Challenges and Prospects of Non Interest Bank in Nigeria

86
Challenges Facing Islmic Banking in Nigeria
The most recent and significant development in the banking industry is the
emergence of Islmic Banking System and Interest-Free Banks (IFBs) in both
developing countries and developed countries of the world. This is in response to
the failure of the conventional interest based banking system to cater for the
developmental needs of most countries, particularly the developing economies81.
Within a span of five decades, Islmic Banking has been successfully developing
into a viable alternative banking framework all over the world. Of recent, it has
been reported that there are approximately 500 Islmic Banks World wide
controlling about one trillion worth of assets and the figure is estimated to reach
four trillion dollars by the year 202082. Also, Mamman83 states that there are over
75 countries operating Interest-Free Banks (IFBs) with an annual growth rate of
12-15% per annum. However, despite the global upsurge in the development of
Islmic Banking and interest free Banking, its practical operation in Nigeria has
been limited due to a number of challenges. There are a number of challenges that
have to be addressed for the successful implementation of Islmic banking in
Nigeria. As observed by Sanusi84 that there are many challenges that confront
interest free banking (Islmic) banking in secular environments. Some of these
challenges are presented as follows:
1. Dearth of knowledge, skills and technical capacity to regulate, and supervise
Islmic banks. There is problem of shortage of professionally qualified personnel
to operate interest free banks in Nigeria85. In fact it has been widely acknowledged
that there is a global shortage of experienced professionals in Islmic finance
sector to feed the industry and the regulators. This no doubt would be a glaring
challenge for Nigeria. Also, Malami86 points out that there is the need for staff
development in Shariah, economics and accounting based on Islmic principle in
order to overcome such challenge.
87
2. Absence of Islmic insurance (Takaful) and capital market to protect investments
of Islmic banks against unforeseen hazards and smooth the progress of the growth
of the industry respectively. Closely connected with this challenge is the lack of a
deposit insurance scheme for the protection of depositors of Islmic banks87.
3. High Rate of Borrower Delinquency: It has been observed in some jurisdictions
having Islmic banks that the Mudarabah and Musharakah modes of operation,
which are considered most meaningful by Islmic scholars, account for a very
small proportion of the total investment portfolio of the banks, while Murabaha,
Bai muajjal, Ijarah and Ijara wa-iktina formed the bulk of the total. However the
failure of customers to make prompt payments can pose a great threat to the
operations of the Islmic banks. This is because late payments cannot be penalized,
in contrast to the conventional banking system where delayed payments would
automatically mean increased interest payments88.
4. Low Consumer Lending: Lending does not attract interest in Islmic banks and
thus consumer loans are therefore unattractive. Hence, experience from abroad
shows that Islmic banks deliberately avoid consumer lending. One very important
requirement for an ideal Islmic bank environment is an inflation-free economy.
Inflation erodes the real value of money, meaning that when a person gives a sum
of money on the loan and receives the same amount back after one year, he has
made a net loss. Unfortunately, the banks are not in a position to guard against
inflation. Islmic scholars disapprove the indexation of indebtedness to inflation
and explain this prohibition within the framework of qard-elhassan. According to
those scholars, the creditor advances the loan to win the blessings of Allh and
expects to obtain the reward from Allh alone89.
5. Lack of knowledge of accounting and auditing standards pertinent to Islmic
financial institutions. The balance-sheet structure of Islmic banks is unique, and
even though the work of the Accounting and Auditing Organisation for Islmic
88
Financial Institutions (AAOIFI) on accounting and auditing standards for Islmic
banking products is available, there is the need to train conventional accountants
and auditors in the application of the standards. Additionally, lack of robust and
comprehensive legal framework, especially at the level of adjudication of conflicts
involving Islmic finance contracts, products or entities as Malami 90 observed that
the existing banking laws in many so called secular countries like Nigeria which is
mainly applicable to the interest based conventional banks constitute the most
serious challenge to the operation of interest free banking. He opined that Islmic
banking operations in Nigeria will largely be inhibited by a number of banking
laws and regulatory directives such as companies Act, Banking Act, and Central
Bank 0rdinances. For instance the banking laws prevented the Daral- Maal- al-
Islmi (D.M.I) from establishing an Islmic bank in Nigeria in 1980.
6. In fulfillment of its traditional role of lender of last resort, the CBN provides
loans to banks at times of liquidity crisis. Islmic banks cannot legitimately benefit
from such a facility because such funds are usually provided on the basis of
interest. There is therefore, the need to devise and implement an interest-free
framework for such assistance91.
7. Dearth of Shariah scholars knowledgeable in conventional economics, law,
accounting, banking and finance, which places severe constraints on the regulatory
Shariah-compliance mechanism92.
8. Ethical vulnerability: the tendency of corruption and unethical practices by
Nigerians had been identified as one of the challenges that can negatively impede
the success of the interest free banks just like their conventional counterparts.
Interest free banks are morally driven since they are based on ethical values such
as truthfulness, justice, and fear of God. Islmic banking system could be
negatively affected by fraudulent practices from clients 93. This is an issue which
involves immorality such as concealment of truth in declaration of the quantum of
89
profits by clients and loan defaults. Some clients may also approach Islmic banks
for Qard Hasana loan with the aim of default. These problems can be reduced by
moral training and effective management, auditing and supervision.
9. Tax Regulation: Another important consideration is the tax procedures in non-
Muslim nations. While interest is a positive income, profit is an earned income
which is treated differently. Tax laws are against the Islmic philosophy and pose a
great challenge.94
10. Double taxation that would be levied on Islmic banks as a result of stamp
duties and capital gains tax that is deductable upon asset transfer. Islmic banks
face a tremendous challenge in this respect because their financial intermediation is
asset based. In home financing for example, the Islmic banks take possession of
the asset either through sale or construction contract, and they pay stamp duty for
that. When they resell the asset to a customer through a mark-up sale or a lease
ending with ownership contract, another stamp duty is charged for the asset
transfer95. Other jurisdictions, including the UK and Luxembourg have modified
their tax laws to exempt Islmic banks from double taxation on assets they acquire
for financing purposes.
11. There is a lot of misperception about Islmic banking in Nigeria, and with the
ethno religious diversity of Nigeria, it makes it imperative to create mass
awareness and acceptance. This is in view of the fact that religion has become a
volatile issue over the years. Misinterpretation of the concept might jeopardise its
success due to lack of standard interpretation on various instruments by the various
jurists96. Currently, there is much confusion regarding which transactions that are
allowed and which are not because of the different rulings by various religious
boards. Currently, such boards do not even exist in Nigeria. Islmic institutions
elect their own religious board consisting of religious scholars from the various

90
schools of opinion. Therefore, a transaction may be considered Islmic at one
institution and may not be at another, hence causing confusion and incompatibility.

Prospects for Islmic Banking in Nigeria

Islmic Banking, based on the Qurn prohibition of charging interest, has
moved from theoretical concept to embrace more than 100 banks operating in 40
different countries with multi-billion dollar deposit world-wide and is widely
regarded as the fastest growing sector in the Middle Eastern Financial services
marker97. Islmic Finance offers a reliable alternative to the conventional mode of
financial intermediation globally. A recent study by the IMF (2010)98, compares the
performance of Islmic banks and conventional banks during the recent financial
crisis, it was discovered that the Islmic banks, on average, showed strong
resilience during the financial crisis over the conventional counterparts. Broadly,
NIFI offer opportunities for flow of cross border capital, financial market
deepening, and financial inclusion in both Muslim minority and majority countries,
enhancing product offering, promotion of monetary policy effectiveness and
employment opportunities99.
The following prospects and opportunities are easily discernible in Nigeria:
1. The Banks and Other Financial Institutions Act (BOFIA) 1991 (as amended)
provides for the establishment and regulation of profit and Loss Sharing banks in
Nigeria (Sections 9, 23 and 52). Islmic banks fall under the category of profit and
loss sharing banks.
2. Nigeria is the most populous black nation in the world with a population of
about 150 million. With significant proportion of the Muslim and Non-Muslim
crave for Islmic financial services.100

91
3. Development funds: This will allow Nigerian Government and corporate
organizations to have access to Islmic Development funds available in the
international community to finance infrastructural projects.
4. The Islmic finance industry is a multi-billion dollar industry developing a
global reach and momentum101. Following the banking sector consolidation,
Nigerian banks have developed a heightened enthusiasm to operate on the global
stage which raises the prospect of strategic partnerships and linkages with other
global financial institutions offering Islmic financial services.
5. The governments determination to revamp Nigerias ailing infrastructure and
the massive investment in such critical sectors as Power, Roads, Railways etc as
well as the emphasis on Public Private Partnership (PPP) offers opportunities for
Islmic banks to participate using various Shariah compliant financing modes
especially sukuk102.
6. Nigeria and Nigerian businesses are making giant strides aimed at tapping vast
capacities at the Islmic Development Bank (IDB) and other avenues for long term
capital flow through sukuk market103. On sukuk opportunities, Abdullahi104 argues
on why Nigeria should access funds from the market stating that with interest
bearing bond becoming increasingly costlier and difficult to arrange, sukuk with its
elimination of interest and substituting it with rent or profit-sharing arrangement, is
cheaper and tailored to benefit both sides, that is, both issuer and investor.
7. The on-going financial sector reforms have significantly stabilized and restored
confidence in the Nigerian financial system. Islmic banks are expected to benefit
from this renewed confidence and stable financial environment105.
8. Feasibility of Project: A major advantage of Islmic banking at least in theory is
that unlike conventional banking, it is concerned about the viability of the project
and the profitability of the operation but not the size of the collateral. Islmic banks
place less emphasis on collaterals than conventional banks. Good projects which
92
might be turned down by conventional banks for lack of collateral would be
financed by Islmic banks on a profit-sharing basis106.
The concept of Islmic banking is based principally on the principle of profit
sharing-and-loss (PSL), thus making the investments of Islmic banks depend on
the usefulness and feasibility of the projects in which the money is invested107
9. The interest free system in Islmic banking offers a veritable incentive and
attractive option for investors who are strangle by the high lending rates charged
by interest based financial institution108.
10. There is a growing preference for ethical investments, products and services by
discerning Muslims and Non-Muslims alike. Islmic banking is considered
compatible with the ethical orientation and beliefs of this class of people109.
11. The high number of Nigerians who out of religious belief choose to keep the
money outside the formal banking system has contributed to the high level of cash
outside the banking system. This further raises the prospect and opportunity for
Islmic banks to thrive in Nigeria due largely to its conformity to the religious
beliefs of Muslims.
12. Monetary Stability and Diversification of Risks Islmic banking discourages
excessive speculation and risk taking110. Studies have shown that due to the nature
of Islmic banking, which is asset-linked as compared to the interest-based system
which is subject to fluctuations in interest rate levels, an interest-free monetary
system is more likely to lead to monetary stability111.
Conclusively, having discussed the concept of Islmic and conventional
banking systems, the position of Rib in both systems, the adverse effects of
conventional interest on the economic life of Muslims, and the rationale behind the
prohibition of Rib as well as mode of financing in Islmic banking system. With
afformentioned and discussed prospects, the challenges confronting Islmic bank

93
in Nigeria will be overcommed, thus, its goals and onjectives will be successfully
realized.
Notes and References
1. Munns G.G Encyclopedia of Banking and Finance, McGraw-Hill
Publishing Co., 1991. P.30
2. Muslehudin, M. Banking and Islmic Law. New Delhi: Adam Publishers and
Distributors, 2011, p 1
3. Muslehudin, M. p 1
4. Yusuf, Kolawole Jimoh. Islmic Banking: Socio-Economic Advantages and
Challenges to Nigeria. Springboard Journal No.1 Vol.5.Al-Hikmah
University, Ilorin Nigeria, 2013, p. 103.
5. El-Gousi, A.M. Rib, Islmic Law and Interest. Unpublished Doctorate
Dissertation, Philadelphia Temple University, Pennsylvania, 1982, p. 21.
6. Mobolaji, A.H. Ec onomic of Interest-free Banking in Nigeria. Fountain
University, Oshogbo, Osun State Nigeria, 2010 p. 5.
7. Mobolaji, A.H.p5
8. Alanamu, S.A.K. Islmic Banking: Theory and Practice. Ilorin Nigeria:
Amour International, 2003, p. 5.
9. Yusuf, Kolawole Jimoh.p. 103
10.Universal Banking. Retrieved from www.investopedia.com 26-12-2015
15:45 pm
11. Bank; www.wikipedia.com. Retrieved on 28/12 2015 11:10am.
12.Function of Commercial Banks, https://en.m.wikipedia.org/wiqi/
Commercial Bank Functions Retrieved on 28/12/2015 4:02pm
13.Agger, E.E. Organized Banking (n.d.) (n.p), p 69
14.Chapra, M. Umar, Towards a Just Monetary System. Leicester: Islmic
Foundation, 1986, p.56-57
15.Iqbal, M and P, Molyneux. Thirty Years of Islmic Banking: History,
Performance and Prospects. New York: Palgrave Macmillan, 2005, p190
16.Muslehudin, M. p 1
17.Soludo, C.C. Debt, Poverty, and Inequality: Toward as Exist Strategy for
Nigeria and Africa, in Okonjo-Iweala. N, Soludo. C.C and Mukhtar M (eds),
Debt Trap in Nigeria: Towards a Sustainable Debt Strategy. Asmara: Africa
World Press, Inc, 2003, p23
18.Debt relief can leave the poor worse off, say aid the tablet (26 th august,
2000 p 26) www.thetablet.co.uk. visited 31st dec.2015

94
19.Muhammad, Hussain and Mahammad Azeem. Rib Free Economic Mode.
International Journal of Humanities and Social Science. Vol. 2 No.6 March,
2012 p149.
20.Muhammad, Hussain and Mahammad Azeem. P150
21.Ahsan, A.S.M. Islmic Banking in Perspective in Molla, R.I. et al., (eds.)
Frontiers and Mechanics of Islmic Economics. Sokoto: University of
Sokoto Press, 1988, p28
22.Mannan. M.A. Islmic Theory of Capital and Interest. Karachi: Darul Irshad
Publishers, 1976, p36
23.Siddiqi, M. N. Issues in Islmic Banking. Lencester: The Islmic
Foundation, 1983, p11
24.Khan, Ajaz. Shariah Complaints Finance. Retrieved from
www.halalmank.com on 28/12/2015, 03:45 pm
25. Iqbal, Z. Islmic Financial System in Finance and Development. Vol. 34,
issue 2, 1997. P42
26.Siddiq, M.A. Banking without Interest. London: Islmic Foundation Trust,
1983, p5.
27.Siddiq, M.A. p5.
28.Sandani, A. Islmic Banking and Murabahah. Pakistan: Daru-Ishaat Karach,
2008, p11.
29.Alanamu, S.A.K. p36
30.Yusuf, Kolawole Jimoh. p. 112
31.Gusau, S.A. Interest-Free Banking System: Theory and Practice. A Paper
Presented in a Seminar on the Prospects and Problems of Interest-Free
Banking System in Nigeria, Organized by the SIA Management Consultants,
at the Royal Tropicana Hotel, Kano. 1st 3rd August, 2000, p 2
32. Mohd, Daud Bakar. Sharih Approaches to Product development and
product Enhancement in Islmic banking & finance: An Appraisal in Mohd
Daud B. et al (eds.) Essential Reading in Islmic Finance. Malaysia: CERT
Publications, 2008, p.113-114
33.Dato, Abdulhamid Bin Haji Mohammed, Chief Justice Federal Court of
Malaysia in forward to Mohd D.B et al (eds.) Essential Reading in Islmic
Finance, CERT Publications Sdn, Bhd, Malaysia 2008, p v
34.Olokooba, Saka Muhammad. Taxation of Islmic Banking Product under the
Nigeria Law: Issues, Problems and Prospects. Ilorin Journals of Religion
Studies, IJOURELS vol.4 No1, 2014, p 71
35.Olokooba, Saka Muhammad. p 71
36. Lawal, Yekini Olawaiye. Islmic Economics the Cornerstone of Islmic
Banking. Journal of Economics and Engineering, ISSN: 2078-0346, 4,
December, 2010, p95
95
37. Abikan, I.A. Islmic Banking as Non-Interest Banking: Fact or Fiction?.
The Jurist, Vol. 17, 2011 p. 3
38.Ajagbe, I.S and A.N. Brimah. Islmic Bank Development and Evolution:
Current Issues and Future Prospects. Journal of Research in International
Business and Management (ISSN: 2251-0028) Vol. 3(2), Feb., 2013 p. 74
39.Siddiqi, M. N. p12
40.Audu, Bello and Mikailu Abubakar. Challenges and Solutions to Islmic
Banking System in a PluralisticSecular Country like Nigeria.
Mediterranean Journal of Social Sciences MCSER Publishing, Rome-Italy
Vol 5 No 6April 2014
41.Lasisi, Maruf Adeniran. Operationalizing of Islmic Banking in Nigeria.
Challenges and Opportunities. Economic and Finance Review vol.3 April
2014. Retrieved online at http://www.business journals.org/efr. On
25/12/2015 02:56 pm, p21-27.
42.Onisabi, A.S. Islmic Banking in Nigeria: Prospects, Benefits and Effects
Feb. 23rd 2013. Retrieved online www.wordpress.com//onisabisblog.htm.
On 25/12/2015 03:16 pm
43.Dogarawa, A. B. Poverty Alleviation through Zakah and Waqf
Institutions: A Case for the Muslim Ummah in Ghana. A Paper Presented
at the First National Muslim Summit Organized by Al-Furqan Foundation,
Tamale. 3rd October, 2009, p.2
44.Life is better without the practice of Rib
www.naqiyIslmicsolution.com/life. Visited 2/01/2016, 12:33 pm
45.Abdul Mannan, M. Islmic Economics: Theory and Practice. Cambridge:
Holder and Stoughton 1986, p. 171-172.
46.Lawal, Hussani. Essentials of Successful Islmic Banking the Muslim World.
League Journal 9th Oct., 1994, Vol.22, p45
47.Oladimeji, L.F. and I.J. Otuyo. The Establishment of Jaiz Bank in Nigeria;
Prospects and Challenges. A Paper Presented At The International Workshop
on Islmic Banking Organized By The International Research Training
Institute (IRTI), In Collaboration with The University of Ilorin, Nigeria and
Al-Hikmah University, Nigeria 6th-8th Jan., 2015p3
48.Oladimeji, L.F. and I.J. Otuyo. P4
49.Sulaiman, Abdullahi Karwai and Mukhtar Nasir Gatawa. Mode of Financing
in Islmic Banking in S.A. Karwai, A.G. Habib and B. T. Jirbil (Ed).
Islmic Economic: A book of Reading. Kano: The International Institute of
Islmic Thought, p135.
50.Abu Umar, Faruq Ahmad. Theory and Practice of Modem Islmic Finance:
The case Analysis from Australia. Florida: Brown Walker, 2014, p. 308.

96
51.http://www.azmilaw.com/Article/Article 8&9. Retrieved on 10th Jan,
2016, 4:40 pm
52.Islmic Banking and finance- www.en.wikipedia.org. Retrieved on 2 nd Jan,
2016. 12:20 pm
53.Islmic Banking and finance- www.en.wikipedia.org
54.Makiyan, S. N. The Role of Rate on Loans in Islmic Banking System in
Iran. International Journal of Islmic Financial Services. Vol. 3 2001, p62
55.Khan, T. & M. U. Chapra. Regulation and Supervision of Islmic Bank.
Jeddah: Islmic Research and Training Institution- Islmic Development
Bank. 2000, p36
56.Usmani, Taqi. An Introduction to Islmic Finance. Retrieved from
http://attahawi.files.wordpress.com on 29th September, 2015. 02:12pm
57.Usmani, Taqi.
58.Usmani, Taqi. Islmic Finance: Instruments and Markets. Bloomsburg
publishing, 2010, p 131 Retrieved from http://ifresources.com 29 Sept.
2015.
59.Khan, T. & M. U. Chapra. p40
60.Islmic Banking and finance- www.en.wikipedia.org.
61.Islmic Banking and finance-www.en.wikipedia.org.
62.Visser, A.M. and Mcintosh A. A Short Review of the Historical Critique of
Usury, Accounting, Business and Financial History, 1998. Retrieved from
www.en.wikipedia.org/wiki/Islmic_banking on 12nd Jan, 2016. 12:20 pm
63.Istina-www.barakaonline.com 16th Dec., 2015, 03:10 pm
64.Khan, T. and M. U. Chapra.p42
65.Islmic Banking and finance-www.en.wikipedia.org
66.Islmic Banking and finance-www.en.wikipedia.org
67.Visser, W.A.M. and A. Mcintosh.
68.Nomani, Farhad Rahnema Ali. Islmic Economic System. New Jessy: Zed
Book Limited, p.99-101.
69.Muhammad, Obaidullah. Islmic Financial Services. Jeddah: Islmic
Economic Research Centre, King Abdulaziz University, p 45.
70.Introduction to Islmic Banking @www.guifafricabank.com 2nd Jan. 2016.
03:19pm
71.Hadi, Atanda Mashood. A General Appraisal of Islmic Banking System.
Ilorin Journal of Humanities (IJOH) Vol. 3, No. 6, 2003 p. 43.
72.Visser, W.A.M. and A. Mcintosh.
73.www.irf.org/articles/articles-301-300/is Islmic Banking Islmic.htm. 15th
January, 2016. 03:09pm
74. www.Islmicfinance.com// Sukuk Issuance. Retrieved on 15th January,
2016. 03:43pm
97
75.Islmic Finance Market Size www.Islmicfinance.com/. Retrieved on 15TH
January 2016.
76.Muhammad Naveed, lexicon.ft.com/Term. Retrieved on 15th January, 2016.
03:43pm
77.Visser, W.A.M. and A. Mcintosh.
78.Visser, W.A.M. and A. Mcintosh.
79.wiki.Islmicfinance.de/indexphp/wakalla. Retrieved on 16TH January 2016.
05:10 pm
80. Yusuf, Kolawole Jimoh. p. 117
81.Ahmed, A.Y. Islmic Banks: Bases, Mechanism and Proposals for Better
Performance. A Journal of International Institute of Islmic Economics.
Vol.3. No. 4, International Islmic University, Islmabad, Pakistan. 2000, p5
82.Aliyu, C.U. Sharih and Corporate Governance in Non-Interest (Islmic)
Banking. A Paper Presented at one-day sensitization Seminar on Non-
Interest Banking in Nigeria, Organized by Nigerian Deposit Insurance
Corporation (NDIC), held at Transcorp Hilton Hotel, Abuja, November,
24th. 2010, p24
83.Mamman, A. Non-Interest Banking: A Viable Alternative to Conventional
Banking. Kaduna: Joyce Publishers, 2005, p56
84.Sanusi. L.S. Islmic Finance in Nigeria: Issues and Challenges. Lecture
Delivered at Markfield Institute of Higher Education (MIHE), Leicester,
United Kingdom. June, 2011. P14
85.Adegbite, L. Islmic Banking: Challenges and Prospects. Text of Speech
Delivered at the Colloquies on Islmic Banking at Ayo-Ajomo Auditorium,
University of Lagos on June 6, 2011. P11
86.Malami, H.U. Prospects of Islmic Banking in the Muslim Minority
Communities. In Journal Institute of Muslim Minority Affairs, XIII (II),
1992, p310
87.Dogarawa, A.B. Global Financial Crisis and the Search for New Financial
Architecture: Can Islmic Financial Provide Alternative? Paper Presented at
the 1st African Accounting and Finance Conference, Accra, Ghana. 2011,
p12
88.Dogarawa, A.B. p12
89.Dogarawa, A.B. p13
90.Malami, H.U. p311
91.Lasisi, Maruf Adeniran. p24.
92. Lasisi, Maruf Adeniran. P24.
93.Aliyu, C.U. 18
94.Abdul Gafoor, A. L. M. Interest-free Commercial Banking. Groningen, the
Netherlands: Apptee Publications, 1995, p41
98
95.Lasisi, Maruf Adeniran. p24.
96.Lasisi, Maruf Adeniran. p24.
97.Saddiqi, M. N.
98.Lasisi, Maruf Adeniran. p21-27.
99.Lasisi, Maruf Adeniran. p21-27.
100. Adegbite, L. 15
101. Sanusi, L.S. 17
102. Sanusi, L.S. 17
103. Aliyu, C.U. 18
104. Abdullahi, S. I. Sukuk as an Alternative source of funds for the
Nigerian Government. Retrieved from groups.google.com on 21/01/2016
01:22 pm
105. Uhomoibhi, T.A. and Felix, A. Islmic Banking: Theories, Practices
and Insights for Nigeria, 2009 p333
106. Uhomoibhi, T.A. and Felix, Ap334
107. Dogarawa, A.B. Economic Potentials of Islmic Banking in Nigeria
and the Challenges of Introducing it into the Conventional Financial
System. A Paper Presented at the 5th Brainstorming session on Islmic
Banking in Nigeria and International Relations, Nigeria Institute of
International Affairs, Lagos, 2011, p3
108. Orisankoko, A.S.The Propagation of Non-Interest Banking in
Nigeria: An Appraisal of the Ideological Risk. 2010. Retrieved from
http://lawlib.wlu.edu/lexopus/works// on 21/01/2016 01:22 pm
109. Orisankoko, A.S.
110. Lasisi, Maruf Adeniran. p25.
111. Lasisi, Maruf Adeniran. p25.

99
 CHAPTER FOUR
Position of Ar-Rib (Usury/Interest) in Jaiz and First Bank of Nigeria
Under this chapter, the historical origin of JAIZ Bank will be traced, its aims
and objectives, mode of operations, products and services as well as how cordial or
otherwise is the relationship with its customers will be examine. So also the
Islmic features in the operational systems of the bank, challenges and
achievements of the bank will be seen to. More so, the establishment of the First
Bank of Nigeria will be traced, including its aims and objectives, operational
mode, products and services, the relationship between the bank and the customers
as well as the level of the contribution of the interest-oriented banks in the
economic development of the nation as well as challenges and achievements of the
bank
4.1 The Establishment of JAIZ Bank

Non-Interest banking is a profit growing global phenomenon practiced in

nearly 70 countries all over the world including the United Kingdom, Canada, the
United States of America, the United Arab Emirates, Malaysia, China, Singapore,
South Africa, and Kenya etc. Global Banks like HSBC, Citibank, Barclays Bank
etc. are also offering it. It is an alternative financial service offering which is open
to all irrespective of race or religion1.

It is based on the ethical principles of fairness, transparency and objectivity.

Non-Interest banking offers almost all the services of conventional banks. The
difference is that non-interest Islmic bank does not give or receive interest, nor
finance anything that is harmful to society like alcohol, tobacco, gambling etc. It
also seeks to avoid gharar-speculation, uncertainty deception and more2.

100
 Islmic Banking history in Nigeria is of only recent past. At the time of
independence of Nigeria in 1960, Muslim Bank West Africa Limited was operating
in Lagos. The bank was closed in 1962 on the closure order of the then Minister of
Finance. Two provisional licenses were granted in 1992, but neither of the licensed
banks lasted long. Habib Bank was granted license to operate Islmic Banking
window in 1996, but due to poor information and absence of framework for non-
interest banking, it could not register significant success3.

Mallam Sanusi Lamido Aminu Sanusi assumed office in 2009; several non-
interest banking products were launched. Zamfara State Government planned to
establish an Islmic Bank as part of its policy of application of fully fledged
Islmic Law. It however dropped the idea before it was implemented and supported
a private player Jaiz International Bank to successfully pool resources4.

Jaiz is an Arabic word that connotes to allow, to permit, and to make

something possible5. Technically, Jaiz bank is the only onset and presently full-
fledged non- interest Islmic bank in Nigeria. The institution called Jaiz bank was
initiated and founded in 2003, as Jaiz International Plc. On11 November 2011,
Jaiz International received a license from the Central Bank of Nigeria, the only
apex bank in Nigeria and National Banking Regulator, to operate as a regional
bank. On 6 January 2012, the institution commenced business as Jaiz Bank Plc in
offices and branches in Abuja, Kaduna and Kano6 and had since then expanded its
branch network to 18 with additional 16 scheduled for opening before the end of
2015. The banks ultimate objective is to expand beyond the shores of Nigeria in
line with its vision7. It is an unquoted public company owned by over 3000
shareholders spread over the six geographical zones of Nigeria.8

101
 The regional license allows the bank to operate geographically in a third of
the country. Also, based on recommendations from Islmic Development Bank
(IDB), a shareholder of the bank, Jaiz Bank PLC has partnered with Islmic Bank
Bangladesh (IBBL) for Technical and Management Assistance9.

In a nutshell, Jaiz bank plc as a non-interest banking is a profit and loss

sharing arrangement where the mode of financing is mostly on mark-up, leasing
and partnership basis.

The Bank, be the first full-fledged non-interest Bank in Nigeria is basically

an ethical banking system that is based on the principles of profit and loss sharing,
and, most importantly, the prohibition of collection and payment of interest 10.
Therefore, it is a true partnership between the bank and its clients where risks
shared according to mutually agreed ratios. For example, instead of providing a
facility to finance import, Jaiz bank subscribes to what Islmic Bank does buying
the product and sell to the importer at a mark-up. It can also go into partnership
with a Real Estate Developer, Build Houses, Industrial Estates, etc, and share in the
profit according to an agreed proportion. It is called Ethical bank because some of
the tenets of Jaiz Bank have to do with the idea of fair trading, spending of wealth
judiciously, and well-being of the community as a Whole. These principles result
in an exacting ethical standards relating to investment11.

Jaiz bank plc is licensed by the central bank of Nigeria as a non-interest

bank based on Islmic commercial jurisprudent model12. The bank is currently,
operating as a regional non-interest bank in Nigeria, and aspires to be a national
lion-interest bank. The entry of Jaiz bank in to market was intended to provide a
feasible substitute to conventional banking offerings; By seizing the first mover
advantage in the offering of full non-interest banking products and services ahead

102
of incoming competitors, Jaiz Bank hopes to occupy the prime position in this
unique segment While also helping to achieve the CBNs goal of increasing
financial inclusion13.

4.2 The Aims and Objectives of the Bank

The objective of Islmic banks in general is to promote, foster and develop
the application of Islmic principles, law and tradition to the transaction of
financial, banking and related business affairs and to promote investment
companies, enterprise and concerns which shall themselves be engaged in business
activities as are acceptable and consistent with Islmic principles, laws and
traditions and in no event engaged in the alcoholic beverages trade, the receipt of
interest forbidden by Islm, the gambling industry or the pork meat or any other
un-Islmic activities.

But specifically the Goals and Philosophy of Jaiz bank could be seen in their
vision, mission and philosophy of the bank. These are;

4.2.1 Business Philosophy14: To deliver world class Shariah compliant financial

services to our clientele irrespective of class, creed, race or religious belief and to
contribute to the socio-economic upliftment of humanity.

4.2.2 Vision and Values15: Jaiz Bank intends to be Nigeria's premier wholly
interest-free bank providing efficient and innovative services to its customers,
creating value for its shareholders and making a lasting positive contribution to
society. The Bank's long term vision is "to be the dominant non-interest financial
services provider in Sub-Saharan Africa". The vision is driven by the company's
mission statement which is to provide innovative, value-added, ethical, non-
interest financial services to our clientele employing the best people, supported by
technology. Jaiz Bank has articulated the following key guiding principles, in order
103
to further clarify its vision, characterize its essence and provide the focus and
context for managing the Bank going forward.

4.2.3 What the Bank Will Be 100% Shari'ah compliant, highly ethical, with best
practice corporate governance and sound risk management framework, proactive
and innovative towards customer's needs, best-practice operations and functional
framework, customer-centric, socially responsible, fair to all stakeholders, ideal
business partner.16

On the other hand the Bank Will Not Be religious bias, offer all things to all
people, mediocre performer, imitate other banks, sacrifice Shari'ah principles for
profit.17

Its Core Values therefore include Quality ServiceCustomer First, team Spirit,
respect for Individual, ethics, trust, partnership, entrepreneurship18

4.3 Operational Mode and Products

The bank operates varieties of products and services ranging from personal
banking, corporate banking, retail financing product, corporate and trade financing.
Under these it has some products which include: Current Account, Savings
Products, Card Products, Non Interest Finance, Investment Accounts, Electronic
Banking, Business Current Account, Business Savings, Trade Finance, Financial
Advisory Services, Non Interest Finance, Jaiz Auto Financing (Jaf), Jaiz
Household Appliances (Has), Jaiz Home Finance, Murabaha (Cost Plus
Financing), Jaiz Ijara-Wa-Iqtina (Lease To Own/Acquisition Finance), Jaiz
Current Account, Jaiz Mudaraba Savings Account. Details of these products are
given bellow;

104
Current Account19

Jaiz Current Account is a Naira current account tailored for customers who
carry out frequent transactions and would require unlimited access without any
restrictions on withdrawal while enjoying a host of professional services from the
Bank. This account allows one the peace of mind of having oner money safely
deposited with the additional comfort that the Bank is investing the same in an
ethical and responsible manner. Jaiz Current Account can be opened by
Individuals, Sole-Proprietorships, Partnerships, Companies and other registered
organizations.

Savings Products20

The Savings Deposit Accounts will operate similar to conventional savings

accounts, with balances payable on demand. However, under the Mudaraba
arrangement, the depositor may allow the Bank to invest deposits in short term
initiatives and thus share in a proportion of the generated profits.

Jaiz Mudarabah Savings Account

Jaiz Hajj Savings Account

Jaiz Mudarabah Deposit Account

Jaiz Kids Savings Account

Jaiz Mudarabah Savings Account21

Jaiz Mudarabah Saving Account is an account that allows customers earn

profit on their savings. On agreeing to become a Saving Account holder, the

105
customer enters into a contract based on Mudarabah with Jaiz Bank. Under this
relationship, the customer is an Investor (Rab-ul-Maal) and the Bank is the
Manager (Mudarib) of the funds deposited by the customers. The Bank allocates
the funds received from the customers to a deposit pool; funds from the pool are
invested on ethical and responsible manner. The Jaiz Saving Account can be use
specific for purposes such as Children's savings, Adult savings, Hajj etc.

Jaiz Hajj Savings Account22

Jaiz Hajj Saving Account is an ideal deposit product for customers who wish
to save for the purpose of performing the Glorious Pilgrimage. One can take
advantage of this special Mudarabah based Deposit account (available in six
months to twenty years plan) for Umrah and Hajj where one will also be entitled
for profit share on the deposited amount.

On agreeing to become a Hajj Saving Account holder, one will enter into the
contract of Mudarabah with the Bank. Under this relationship, one will be the
Investor (Rab-ul- Maal) and the Bank will be the Manager (or Mudarib) of the
funds deposited by one in the Deposit pool. One has the added comfort that these
funds will be invested in an ethical and responsible manner.

Jaiz Mudarabah Deposit Account23

This is a Tenured Profit Sharing Account where funds are invested for a
minimum of 30days under the principles of Mudarabah. In this arrangement, one
will be the Investor (Rab-ul- Maal) and the Bank will be the Manager (or Mudarib)
of the funds deposited by one in a Deposit pool. These funds will be invested in an
ethical and responsible manner. Oner money is invested ethically. They invest only
in ethical ventures, for example, the bank does not invest in alcohol or tobacco.

106
Jaiz Kids Savings Account24
Jaiz Kids Saving Account gives one a helping hand in watching oner childs
savings grows. The account will be opened in the child's name with the
parent/guardian acting as a trustee to the account. When the child reaches 18 years
of age they may have access to withdraw funds from their account.
On agreeing to become a Kids Savings Account holder, one will enter into
the contract of Mudarabah with the Bank. Under this relationship, one will be the
Investor (Rab-ul- Maal) and the Bank will be the Manager (or Mudarib) of the
funds deposited by one in the Deposit pool. One has the added comfort that these
funds will be invested in an ethical and responsible manner. Card Issuance Charge
(N1000) (Optional and available only to teenagers)

Hire purchase with Shirkatul-Milk (Jaiz Home Acquisition Plan)25

Under the Jaiz Home Acquisition Plan (JHAP), the Bank partners with one
in owning the home of oner choice (Shirkatul-Milk). The Bank will transfer
ownership over an agreed period through a Hire Purchase arrangement where one
agree to a monthly payment of which a percentage/portion is for the use of the
home (rent), and another for oner equity share (i.e. reducing the Bank's share). In
fact, the total monthly payment is reduced as oner share in the property increases.
After making full payment as agreed from the onset, one becomes the sole owner
of the property with full title.
Jaiz Auto Ijara26
This product is ideal for individuals or corporate customers looking for car
financing. It enables a customer acquire a car on the principle of Ijara (lease) for
rental payments. Under this arrangement the Bank purchases the car and leases it
out to the customer for a period not more than 4 years. After the lease period the
customer gets ownership of the car against his initial security deposit. In addition

107
to leasing of new cars, Jaiz Bank also provides a unique opportunity of leasing
second hand vehicles. This feature is designed to enable more Nigerians afford a
care of their choice. This lease facility is made available at a minimum-security
deposit of 30%. Financing of used cars are subject to a selection criteria.
Investment Accounts27
Investment accounts are likened to fixed term accounts as offered by
conventional banks. Here, monies are deposited with the Bank for a certain period
of time. The Bank will offer two variants of Investment Accounts: Joint Investment
Accounts and Specified Investment Accounts. Under the former, depositors will
enter into Mudaraba contracts with the Bank, whereby depositors are jointly
considered as Mudarib (lenders). The depositors will authorise the Bank to select
suitable investments and projects. Profits are shared according to agreed profit
sharing ratios between the Bank and the investing depositors. Losses (if any) shall
be borne by the investing depositors and the bank, each in proportion to the
contribution made unless the Bank is demonstrably negligent or in violation of
agreed terms. As regards the later, The Bank will receive monies from depositors
desiring to appoint the Bank as an agent to investing their deposits in specific
projects or in a specified manner on the basis that the Bank will receive a part of
the net profits realised, but will not be liable for any loss which is not attributable
to any violation or fault by the Bank.

Al Wakala Letter of Credit28

Al-Wakalah means 'agency' whereby a bank will act as an agent on behalf of

a company or an individual. Al-Wakalah Letter of Credit is a written undertaking
by a bank, given to a seller at the request and on the instructions of the buyer, to
make payment to the seller on behalf of the buyer at sight or at a determinable
future date, up to a stated sum of money within a prescribed time limit and against
108
stipulated documents and in compliance with the terms and conditions of the letter
of credit. This facility will also improve the credibility of oner business on a
worldwide scale and efficient payment arrangement.

Al Murabaha Trust Receipt29

Murabahah can be defined as 'deferred lump sum sale or cost plus profit
sale. This is a contract where the commodity exchanged for is delivered
immediately and the price is paid in a lump sum at a later date.

Under Murabahah arrangement, the bank appoints the customer as its agent
to purchase the required goods on its behalf. The bank would then remit payment
for settlement to the supplier and simultaneously sell the goods to the customer at a
new selling price comprising of its cost and profit margin for settlement on a
deferred term. Hence Murabahah Trust Receipts facilitates one as a buyer/importer
to take delivery of oner goods almost immediately on arrival while payment is paid
in a lump sum at a later date. It facilitates convenient cash flow management of a
business and serves as a prudent and reliable basis in the preparation for the
projection of business, since oner import cost will not be affected by fluctuation in
the Base Lending Rate as well as helping in harmonizing credit sales and collection
of debts, and thus provides a reasonable aging of credit terms for business.

Jaiz Auto Financing (JAF)30

The Jaiz Auto Finance is designed for salary account holders in public,
private and other reputed organizations. It operates under the principle of Ijarah
wa iqtina (a lease to own). Under this arrangement, the vehicle is jointly purchased
and owned by both the bank and the customer. Then Bank leases its part to

109
customer against an agreed rental plus banks share payable on monthly installment
basis after which, the customer owns the vehicle.
Jaiz Household Appliances (HAS)31
This is a consumer financing product based on the principle of Murabaha
(cost plus mark-up) and Bai-Muajjal (sale on credit). Under this arrangement, the
bank purchases the asset (household appliance) and sells to the customer with a
profit (mark up). The customer pays the Banks sale price for the asset over an
agreed period usually on a monthly repayment plan.
Jaiz Home Finance32
This is a home finance product that enables customers acquire, build or
complete a home under the principle of Ijarah wa iqtina (a lease to own). The
asset/property is purchased/constructed and owned by both the bank and the
customer jointly. The Bank then leases its part to customer against an agreed rental
plus banks share over an agreed period with the flexibility of a monthly, quarterly,
biannual or annual repayment plan. With maximum tenor of 10 years
Murabaha (Cost Plus Financing)33

This product is tailored for short term finance requirements such as trading,
working capital or any asset the customer wishes to acquire. The bank purchases
the asset/good and sells to the customer at a profit mark-up. The payment is
structured on deferred basis payable for an agreed period in either in lump sum or
by fixed installment.

Jaiz Ijara-wa-Iqtina (Lease to Own/Acquisition Finance)34

This is a co-ownership arrangement (partnership, lease and sale) whereby

both the customer and the Bank purchase and own an asset jointly. The Bank will
sell its ownership (shareholding) in Units over an agreed period to the customer

110
who will also rent the portion of the Bank which is yet to be bought. Thus, the
monthly payment is made up of two (2) components: a purchase of the Banks
share and a rental on portion yet to be purchased. Upon full payment of both,
ownership is fully transferred to the customer.
Jaiz Current Account35
Jaiz Bank Current account operates under principle of qard (Non-Interest
Loan Current Account). It offers the flexibility of having a chequing account which
enables one to carry out routine banking transactions with other parties. It allows
one access to oner funds through our various real time electronic channels.
Al Kafalah Shipping Guarantee36

Al-Kafalah Shipping Guarantee is an undertaking by the Bank to the

shipping owner/agent of vessel, to release goods to the importer pending receipt of
the original Bill of Lading. This will help the importer to clear the purchased goods
under our Al-Wakalah Letter of Credit while awaiting shipping documents being
presented. It saves one from storage charges levied by the port authorities due to
late arrival of oner shipping documents/delays in clearance of oner goods.

Al Murabaha Working Capital Financing37

To enhance oner business cash flow, MWCF can be extended to finance cash
purchase of oner trading items or raw materials for oner production. A deferred
payment arrangement under the Islmic contract of Al-Murabaha or cost-plus
profit sales allows one to pay oner cost upon realization of the sales proceeds.

For purchases of stock or raw materials, one as the Bank's Buying Agent shall
identify oner requirement and present the purchase documents to us for financing.
The documents must evidence the current transaction and payment will be remitted

111
direct to the supplier for full invoice value. Payment of the bank's selling price
shall be deferred to the pre-agreed date.

Oner usance sales can be financed as soon as the goods are delivered to oner
buyer. As the goods are sold first to us at the agreed price, the proceeds of Al-
Murabaha sales financing will be credited into oner account. One will then
undertake to collect payment from the buyer on maturity of the financing period.

Import & Export Documentary Collections38

Through more than 1,000 correspondent agents worldwide, we can assure

oner import and export transaction settlement can be carried out efficiently
at minimum charges.

Islmic Export Credit Refinancing39

Islmic Export Credit Refinancing facilities are offered to domestic
manufacturers, suppliers and trading companies who are involved in direct and
indirect export of eligible goods, at a low and attractive cost.

Pre-shipment IECR is available to finance oner working capital requirements

for production of oner merchandise upon receiving export orders for goods. Post-
shipment IECR gives one immediate funds after oner goods have been shipped out
on credit terms. It would release oner tied-up cash-flow.

Jaiz Mudaraba Savings Account40

Jaiz Mudarabah Savings Account enables customers to earn profit on their

savings. Upon opening an account, the customer automatically enters into a
partnership contract called Mudaraba with the Bank. Under this relationship, the
customer is an investor (Rabbul Maal) and the Bank is the Manager (Mudarib).
112
The customers deposit is placed in a pool and the bank uses its expertise to invest
the funds in viable ethical investment outlets. Profit earned there from is shared
between depositor and the bank based on agreed ratios. However, if there is a loss
due to any unforeseen circumstances and without any misconduct or negligence or
breach of investment mandate on the part of the Bank, the loss will be borne by the
Customer.

Risk Management41

Jaiz Bank is focused on improvement of its Risk Management platform and

practices with the aim of optimal protection to the wealth of its shareholders in line
with Non Interest Financial Institution (NIFI) mandate and Shariah jurisdictions.
The mandate considers a holistic approach in managing its assets and liabilities.
Risk management division is responsible for the establishment of policies and
procedures geared towards enhancement of our capacity to provide greater value to
shareholders while effectively dealing with risk and uncertainties associated with
our business thereby enhancing our competitive advantage. The Risk management
group consists of: Investment Risk Department, Market and Liquidity Risk
Department, Sharih Non-compliance and Other Unique Risk Department, and
Operational Risk Department

Investment Risk Department

It is the risk of loss resulting from the failure of a customer or counter party
to meet its obligations under a financial contract; it arises principally from lending,
trade finance, treasury and leasing activities. Investment risk can also arise as a
result of crystallization of any of Jaiz off balance sheet transactions. Their
Investment risk department verifies and manages the credit process from

113
origination to recovery; monitoring and controlling all such risk by adhering to
sound policies and processes that have been laid down to guard against their (risk)
manifestation in tandem with product specific risk associated with the NIFI
mandate. The departments responsibilities include proper treatment of equity
(shirkat) investment together with sale (bai) and rental (Ijarah) based financing.
Equity investment (Musharakah and Mudarabah) risk is also included in this
department.

Market and Liquidity Risk Department

The market risk unit of Jaiz bank allows disciplined risk taking within a
frame work of well-defined risk appetite that enables the bank to enhance
shareholders wealth while retaining its competitive advantage. As NIFI, The bank
is exposed to rate of return risk in the context of their overall Balance sheet
exposures. An increase in benchmark rates may result in Investment Account
Holders (IAH) having expectations of a higher rate of return failure of which can
turn to a Displaced Commercial Risk (DCR). Liquidity Risk on the other hand, it is
the risk that the bank does not have sufficient financial resources to meet its
obligations as they fall due, or will have to meet the obligation at excessive cost.
This risk arises from mis-matches in the timing of cash flows. Funding risk (a form
of liquidity risk) arises when the liquidity needed to fund illiquid asset positions
cannot be obtained at the expected terms and when required. As a protective
measure against liquidity risk, the bank solicits and attracts various sources of
funds to channel to their financing and investment activities in Shariah compliant
instrument of money and capital market. The bank, in conjunction with the
regulators, is working on the modalities and access to this market is expected soon.

114
Shariah non-compliance and other unique risks department

Shariah non-compliance risk is the risk that arises from failure to comply
with the rules of Shariah and its principles determined by the Banks Advisory
Committee of Experts (ACE) and Central Banks Financial Regulatory Advisory
Council of Experts (FRACE). Shariah Compliance is critical for NIFIs operations
and such compliance requirements must permeate throughout the organizations and
their products and activities. The bank is strictly determined to comply with
Islmic Commercial jurisprudence in all its risk activities.

Other unique risks, as follows, are exclusively associated with NIFIs that the
Bank manage by dint of well-accomplished follow-up and nursing pre and post
disbursement modalities.

a. Risk of continuity of usufruct in Ijarah since a fundamental ethical axiom

in Ijarah is that rent is a price of usufruct; it is due as long as usufruct
exists the same is also applicable to Musharakah may happen due to
probability inferior valuation.

b. Reputational risk due to breach of Shariah compliance which may result

to loss of shareholders and IAHs confidence.

c. Ownership Risk that risk associated with owning a property, asset or

commodity especially in Murabaha and Ijarah modes.

d. Legal, fiduciary and regulatory risks are also managed appropriately.

115
 e. Displaced Commercial Risk as discussed in market and liquidity risk is
very unique to Jaiz as NIFI that arise due to failure to meet IAHs
expectation that may result into deposit withdrawal.

f. Rate of Return Risk is under Market Risk.

Operational Risk Department

It is the risk of loss resulting from inadequate or failed internal processes,

people, systems and external events. This definition includes legal risk but
excludes reputational risk. Due to its status as a Non Interest Financial Institution,
Jaiz Bank also considers incorporating possible causes of loss resulting from
Shariah Non-compliance and the failure in their fiduciary responsibilities.
4.4 Relationship between the Bank and the Customers
The people who attach importance to capitalist system, giving value to
conventional banking system, perpetual awful deprivation in the business, wide-
spread fraud, corruption, increasing marginalization of justice and righteousness,
criticize the coming of Jaiz bank in Nigeria while the people who are attaching
importance to moral values, beliefs and ethics in society criticize the conventional
financial system as relying heavily on capitalistic methods. Conventional financial
system maneuvers the charging of high interests on loans, forcefully occupys
premise if loans are not repaid, mishandles the defaulters, etc. Clients are reluctant
to deal with institutions which do not give due cognizance to moral values and
ethics. Investment by financial institutions in unethical activities and activities
detrimental to society is increasingly abhorred by clients42.

In the state where Jaiz has been operated, they were being supported by
growing affluence. With this growth, customers are seeking Jaiz products that will
provide opportunities to invest and borrow according to Islmic ethical principles
116
as defined in Shariah law, while still offering the benefits of diversification and a
full range of banking products. Jaiz bank is growing rapidly due to the importance
that it records to the moral beliefs and society. The Islmic law is driven by ethical
values that are good for mankind; hence, it is well accepted by not only Muslims
but also non-Muslim communities.

The relationship between the bank and its customer is cordial; the cordiality
could be seen in term of its goodwill messages to the banks customers during their
birthdays, national and special anniversaries like Eids festival, Hijra celebration
for their Muslims customers, Charismas and Easter celebration for non-Muslims
customers. Most of their customers interviewed commended the banks
managements for their unrelenting services, transparency and dedication. To some,
it is of no difference to conventional banks as most of their services are the same as
that of other bank. The only noticeable difference in their investment account is
glaring seen and easily identified as a non-interest bank.

Most of the customers who deal with them with prior aim at obtaining
consumption loan were disappointed because the only available product for that
under Islmic banking system which is qord hassan (benevolent loan) is yet to be
offered by Jaiz bank plc. The customers were rather advised to go for commercial
loan or investment opportunities under Mudaraba, Musharakah or Murabaha as
the case may be.
So also the customers needs are handled with utmost care and their complaits
were seen to in earnest. According to the chairman of the bank during their 2014
annual report
A total of 69 major complain were received for the year-end
December, 2014. These were centered mostly on ATM dispense
error, loss of ATM Cards, inability to log on to the internet

117
 banking platform etc. However, all issues were successfully
resolved.43
Most of their customers also commend the diplomatic ways by which their
staffs welcome them to the bank for any transactions and the way they resolve
complains or issue with courtesy.

4.5 The Islmic Features in the Operational Systems of the Bank

The first noticeable Islmic feature in the operational system of Jaiz bank plc is
the inscription44 which portrait their zero tolerance for charging or giving interest
rather profit on investment.

This is believed to be their watchdog throughout their endeavours. Their

available products are in compliance with tenets of Shariah while their
convetional products such as current account, saving account, investments
accounts etc. are moderated so as not to be in conflict with shariah. No hiden
charges and investors are assured of maximum return of their investment plus
reasonable profit. They are as well noticed and made aware in case of any
eventuality.
Supervision of Sharicah Board
Another compliance of Jaiz bank products could be seen in consistitution of
shariah board whch serves as supervisory committee for the bank. Under the
guideline of CBN, THE SHARICAH BOARD was named Financial Regulatory
Advisory Council of Expert (FRACE)45. The purpose of this body is to regulate
and supervise the institutions offering non-interest financial services based on

118
compliance to the principles of Islmic commercial jurisprudence. Also to ensure
that products and services offered by the non-interest financial institutions satisfy
the requirements for compliance to the principles underpinning their mode of
operation, so as to meet the expectation of their stakeholders, which is a concern
for regulators. It is also expected to prevent arbitrage opportunities for these
institutions to the disadvantage of conventional ones, where the non-interest
institutions would unfairly draw away customers and depositors from the market in
the name of compliance with Islmic commercial jurisprudence while in the real
sense they are offering the same interest-based products with different names under
the guise of compliance. The Governor in his remarks highlighted some of the
duties of the FRACE which include advising not only the CBN on matters referred
to it, but also availing its expertise to other regulatory agencies in the Nigerian
financial sector in the area of Islmic financial services if they choose to refer to it
matters under the FRACEs expertise. The names of the members of FRACE
though on part-time bases, thus:
1. Sheikh Sheriff Ibrahim Saleh, as Chairman

2. Sheikh Adam Idoko as Member

3. Dr. Abdulrazaq Abdul-Majeed Alaro as Member

4. Dr. Bashir Aliyu Umar as Member

5. Dr. Muhammad Akram Laldin, the Executive Director of the International

Sharicah Research Academy of the Bank Negara Malaysia as Member

6. Dr. Ahmad Ali AbdAllh, the Secretary-General of the Sharicah

Supervisory Board of the Central Bank of Sudan as

Specifically the Jaiz bank has the following as its Advisory Committee of Experts46

119
Prof. Monzer Kahf Chairman
Prof. Muhammed L. Basha Member
Dr. Muhammad Alhaji Abubakar Member
Sheik Abdulwahab A. Mohammad Member
Dr. Ahmad Bello Dogarawa Member
Shariah Compliance of Jaiz Bank Products Types
An overview of the bank products shows that they were the common
products offered by Islmic Bank (Free Interest Banks) around the World. As
obtained from the bank website47 these are Islmic instruments used by the bank
includes:

Wadiah (Safekeeping) In Wadiah, a bank is deemed as a keeper and trustee of

funds. This is similar to the normal savings account. A person deposits funds in the
bank and the bank guarantees refund of the entire amount of the deposit, or any
part of the outstanding amount, when the depositor demands it. The depositor, at
the bank's discretion, may be rewarded with a 'hibah' (gift) as a form of
appreciation for the use of funds by the bank.

Murabaha (Cost-plus financing) a profit and loss-sharing system. This is a

contract which involves purchase of goods by a bank, which sells them to its client
at an agreed mark-up. Repayment is usually in installments.

Musharaka (Joint Venture/Equity financing), a profit-sharing joint venture.

Here, a bank joins another entity to set up a joint venture, both parties participating
in various aspects of the project in varying degrees. Profits and losses are shared in
a pre-arranged fashion.

Mudaraba (Trust financing) a profit-sharing agreement. The bank contributes the

finance, while the client provides the expertise, management and labour. Profits are
120
shared in a pre-arranged manner. However, when a loss occurs, it is completely
borne by the bank.

Istisna: supplying industrial products to client's orders. This is a contract for the
acquisition of manufactured goods, by specification or order, where the price is
paid gradually in accordance with the progress of the job. The technique can be
used for real estate development.

Wakalah (Agency). This occurs when a person appoints a representative to

undertake transactions on his/their behalf, similar to a power of attorney.

Ijara (Lease/Hire purchase), which is a globally recognized mode of leasing.

Here, the bank buys an item for the client and leases/hires it to him at an agreed
amount and period. At the end, the client automatically becomes the owner.

Sukuk or Muqarada (Islmic bonds/ financial certificates). These are Islmic

Bonds floated to finance a specific project. Investors take a share of the profits of
the project being financed but also share in the risk of unexpectedly low profits or
even losses. They have no say in the management of the project. Instruments have
been developed to serve part of the investment industry that were previously off
limits to the Islmic investor, such as the international bond markets, in which
sukuks are fast becoming a visible feature. These certificates bear a resemblance to
conventional bonds, but unlike their western counterparts, they are backed by
tangible assets.

Interest-free banks world-wide also offer other fee-based retail services and
adopted by the jaiz bank including:

Checking accounts

121
 Spot foreign exchange transactions

Funds transfer services

Letters of Credit

Bills for collection services

Letters of guarantee

Securities safekeeping investment management services

Financial Advisory services

Other traditional banking services to the extent Shari'ah rules and regulations
may permit.

4.6 Challenges and Achievements

Challenges
According to Muhammad Nurul Islm, the immediate past managing
director/chief executive officer, Jaiz Bank plc48, on challenges confronting Jaiz
bank he said
When I joined the bank, I discovered that there was no
compliance mechanism for deploying our excess liquidity, but
we are consulting with CBN in this regard. This is a huge
challenge, as we dont have today, a liquidity management
instrument that is non-interest banking compliant to manage
our excess liquidity. We hope to overcome it just as we did in
Bangladesh.

122
Jaiz bank was welcomed by many Muslim populations especially from the
Northern part of Nigeria at inception. It is however faced with some challenges due
to low profitability. The challenges include;

1. Confidence Issue.

The bank registered thousands of customers, majority of who are depositors in

savings account expecting some profit. Majority of the customers or depositors
who opened such accounts not only opened them for the sole purpose of making
savings, rather as an investment opportunity as advertised nationwide that the bank
will share profit with its customers. The fact that no instrument is available for
investment by the non-interest banks meant there will be very small or no profit is
paid to these customers. This invariably leads to confidence issue49.

2. Lack of equal support from the regulators,

The second challenge is lack of equal support from the regulators, especially
the Central Bank of Nigeria (CBN). As the lender of last resort, it is expected that
the apex bank will provide such support as it gives to conventional banks when in
need. For conventional banks, the CBN can lend money on interest and provides
treasury bills for purchase by banks and interest is paid at maturity. All these
options are not acceptable for a non-interest banking institutions and therefore
become necessary for the central bank to ensure that an alternative is provided to
them in order to help them survive. Although, three products were introduced but
not operational due to nagging Shariah issues e.g. treasury bills, lender of
resorts50.

3. Religious Hallucination or bigotry

123
 Nigeria is a country where everybody is struggling to uphold and present to
the world that his/her religion is the best and not minding to criticize others in
favour of his faith. There are lots of misconceptions and misrepresentations about
Jaiz. Some Nigerians believe that Jaiz bank is meant for the Muslims alone and as
such question like why Islmic bank without having Christian bank is often asked.
It is worthy of note that the idea of Islmic bank in Nigerian was brought by
Muslim under the administration of President Olusegun Obasanjo who joined the
International Financial Services Board (IFSB) as full member 51. We should note
also that IFSB is an international standard setting organization for the Islmic
finance industry based in Malaysia. It is constituted by Central Bank of several
countries and other regulatory and supervisory bodies. Nigeria membership was
achieved in 2009 under the governorship of Prof. Charles Chukwuma Soludo. At
about the same time, the Islmic Development Bank also allowed Nigerians to be
trained under its institution52. Despite all these, some Christians perceived licensing
of Jaiz bank as a means of Islmizing banking system. All these resulted in low
patronage of Jaiz bank.

4. Problem of Competition

Problem of competition is not peculiar to Jaiz bank of Nigeria but is

globally-with the present of conventional interest based banks, which are well
established. Interest free bank as a new entrant may find it difficult to compete
favourably with the existing big and strong banks in the short run. It has been
observed that the most challenging issue facing the implementation of an Islmic
financial system is the development of risk bearing instruments that can provide
the investor with sufficient degree of liquidity, security and profitability to
encourage their holdings. Islmic banks face the challenges of standard Islmic
instrument that would meet up both long and short term liquidity. Islmic bank will

124
be struggling to meet up with their conventional counterpart in term of production
and at the same time make recourse to Shariah compliance. The product must
remain within the frame-work of Shariah53.

5. Moral risk/Hazard

Today, with wide-spread of fraud and corruption and increasing

marginalization of justice and righteousness by Nigerians, it will not be incorrect to
state that the country cannot be a home for ethical bank such as Jaiz that needs
trustworthy customers who are ready to bank ethically. Islmic Bank (Jaiz) could
be negatively affected by fraudulent practices from its clients. This is an issue
which involves immorality such as hiding of truth in declaration of the quantum of
profits by clients and loan defaults. Moral hazard is one of the major factors that
have high tendency of inhibiting the successful operation of interest free bank in
Nigeria54.

6. Inadequate Legal Framework

Central Bank of Nigeria being the supervisor and regulatory of the banking
industry is expected to come up with details of regulations governing the operation
of Islmic banking in Nigeria (legal framework) that conforms to the principles of
Qurn and Hadith of Prophet Muhammad. But due to the fact that Nigeria is a
secular state and the bank (i.e. Jaiz) is a baby bank, becomes a great challenge. In
addition to this, the exiting legal framework in Nigeria is also a major setback to
Islmic banking due to the fact that it is designed to suit the conventional settings.
Islmic banking cannot adequately operate if there is no special legal framework
for its institutions. This can be understood from the fact that as Islmic banking
operates on Shairah basis, the enforcement of such operations in the court of law
is another problem without implementing Islmic laws in Nigerian legal system.

125
The only way out is for the introduction of special laws for the operation of Islmic
banking in Nigeria55.

Furthermore, Islmic banking has religious dimension and financial

innovations in this institution needs to meet Shairah requirements. That is, any
new financial products in Islmic banking cannot be adopted until it is approve by
the Shariah advisory board and also followed by post Shariah auditing. However,
this act delays Islmic banking ability to take advantage of changing financial
environment due to the fact that time has to be wasted before it is finally approve
by the Shariah board. This act is very vital for Islmic banking in order to protect
their clients confidence in the institution. So Islmic banking should have varieties
of financial instruments as well as products that have been approved in advance by
the Shariah board in order to overcome any delay that changes brought about in
the financial environment may cause in its adopting new products and instruments
in the future56. However, the policy framework should be such that the Islmic
banks will be competitive with conventional banks. More importantly, the
justification for the existence of an alternative is to quench the thirst of Muslim
faithful for banking facilities that will be in total adherence to the law of Islm.

7. Inappropriate Institutional Framework

The Islmic banking in Nigeria is challenged by the current institutional

framework that supports conventional banking. This is because the current
institutional framework is structure in the line of conventional financial system
which is against Islmic banking. The step forward is for Central Bank of Nigeria
to wither modifies the exiting framework or introduce special framework for
Islmic banking in order to provide adequate support for the establishment and

126
operation of Islmic banking in Nigeria. The Central Bank of Nigeria has really
tried in this aspect but still needs to do more57.

8. Lack of Equity Institution

It is generally accepted that the need for long term finance cannot be
overestimated in any financial institution. This is another challenge that Islmic
banking in Nigeria may need to address in order t o enhance its operations. This is
because the existing institutions that provide such facilities operate on interest
basis which is against Islmic banking principle. For Nigeria Islmic banking to
operate effectively, there should be institutions that will provide long term finance
such as bonds and equity on Shariah principle58.

9. Disparity in Accounting Standard

Islmic banking in Nigeria may be challenged by the disparity in their

accounting standard as experience all over the world. However, the existing
commercial banking system has similar accounting standard which enable easy
supervision and regulation of their operations by the Central Bank of Nigeria. This
issue has been reduced by the standard set aside by the Accounting and Auditing
Organization for Islmic Financial Institutions (AAOIFI). In that case, the Central
Bank of Nigeria should prescribe and implement this standard to all potential
Islmic banks in Nigeria in order to ease its supervision and regulation59.

10. Lack of Short-Term Financial Instruments and Institutions

The lack of inter-bank transactions among Islmic banking due to their

fewness leads to inadequate short term financial institutions and instruments.
Islmic banking is however, in high need of short term institutions and instrument

127
for effectively and efficient operations. For Nigerian Islmic banking to effective
flourish, there should be more participants in Islmic banking in Nigeria in order to
enhance inter-bank transactions based on Shariah principles60.

11. Lack of Awareness

There is apparently low awareness of the Islmic banking concept in

Nigeria. Hence, for interest free banking system to work efficiently in Nigeria,
there is a great need for sensitization of all the stakeholders (government/public,
government and individuals) by Islmic professional scholars and Muslim
economists. This is borne out of the fact that Nigeria is a secular state. Hence,
government should not be seen as trying to Islmize the countrys
financial/banking system. This means that the tendency of the non-Muslim to
misconstrue the ideology because of its religious colouration calls for nation-wide
awareness61.

Achievements
In the statement of Muhammad Nurul Islm62, on achievements of Jaiz bank
he said:
The First of all, I congratulate the shareholders, I congratulate
the depositors, I congratulate my colleagues at the bank for their
untiring spirit. The concept is totally new to Nigeria but they are
trying their best to make it successful and it will succeed Gods
willing because the potentials are enormous. Worthy of note is
the fact that non-interest Islmic banking system is not just for
profit only, but rather the underlining objective is to ensure
socio-economic welfare for all humanity irrespective of race or
religion.
If one cannot bring positive change in the lives of people around
one through oner activities, then, one are not practising Islmic
banking; one are not practising non-interest financial banking.
The core concept and very foundation of Islmic banking is to
render all forms of financial services, complying with Islmic

128
 Shariah, but the basic target is to enhance the welfare of
humanity. This is my message to my colleagues everywhere I go
and to the public in general.
To exemplify this, we have spent a huge amount of money in
setting up Insurgency Victims Support Programme aimed at
alleviating the sufferings of the victims. We have also set up the
Jaiz Foundation to serve as a platform for our social
responsibility initiatives.
So, in terms of development during my journey at Jaiz, I have
given more and more attention to the enhancement and
expansion of our IT platforms so that we can render service by,
by-passing the brick and mortar of regular office spaces to reach
distant and remote customers and prospects. In the first quarter
of 2015, we will start our mobile banking services. I think if we
achieve this target, we will be accelerating the realisation of the
CBN financial inclusion policy.

Jaiz Bank commenced operations with three branches in Abuja, Kaduna and
Kano states in 2012, after it received license from the Central Bank of Nigeria
(CBN) on the 11November 2011 to operate as a non-interest bank. Currently the
bank operates in eight states with eighteen branches. The Paid up Capital as on
31st December 2014 was # 11,829,700,000. The bank plans to operate in all 36
states by upgrading and availing national operating license and increasing the share
capital base to N15 billion (USD $78 million). The Central Bank of Nigeria has
granted a national license and a waiver on the reduction of its liquidity ratio from
30% to 10%. The bank have massive expansion plan and intends to open 100
branches in first five years63.
Jaiz Bank is now operating in 21 locations. Jaiz Bank has obtained
Approval-in-Principle for a license from the Central Bank of Nigeria to operate
nationwide. Managing Director and Chief Public Limited Liability Company,
incorporated in 2003. Commenced non-interest commercial banking activities on
January 6, 2012

129
 Executive Officer of (Nigeria Deposit Insurance Corporation) NDIC, Alhaji
Umaru Ibrahim informed the Jaiz Bank team that the Corporation had developed a
non-interest banking deposit insurance fund framework in May 2015 designed to
create a level playing field and provide deposit protection for depositors involved
in non-interest banking and protect them against any possible losses. He further
explained that the benefits of profit and loss banking are a mutually rewarding
partnership among all participants in the Islmic Banking in line with its business
practices. Being a profit and loss banking Jaiz Bank Plc. is likely to benefit of
these initiative. Jaiz Bank has recently granted Islmic infrastructure bond facilities
to some state governments in the Country64.
Jaiz Bank recorded gross earnings of #79.56 million and operating loss of
#1.07 billion in its first year of full-fledged operation as non-interest bank in 2012.
Chairman65 of the bank mentioned at the maiden Annual General Meeting of the
bank that the bank realised #3.29 billion as deposits in the period under review. He
attributed the lackluster performance of the bank to lack of shariah-compliant
liquidity management instruments and hiccups experienced in joining the
settlement and clearing system. He said that investments made by the bank in the
year amounted to #1.9 billion, while shareholders funds rose by 53 per cent from
#6.45 billion to #10.1billion. The chairman attributed the increase to the recently
concluded private placement exercise conducted by the bank which was successful.
The whole idea of this banking option is to bring more people into banking in
Nigeria that provides banking without interest, the bank chairman, Alhaji Umar
Mutallab, told the banks inaugural Annual General Meeting. He added that the
bank would adopt adequate strategies, including aggressive deposit drive,
investment in the real sector of the economy and agriculture, to enable it achieve
its set objectives66.

130
 Within two years, Jaiz Bank attained breakeven point and generated profit in
2014. The bank witnessed remarkable growth with total assets moving in double-
digits by about 24%0 from #33.9billion in 2013 to #42billion in 2014, total earning
assets by about 114% from #11.5billion in 2013 to #24.5billion in 2014 while total
income increased by 220% from #0.91billion in 2013 to #2.9billion in 2014. The
Bank's Total Income took a massive leap of about 221% from # 0.915billion in
2013 to #2.94billion by December 2014 keeping the expenditure growth restricted
to only 20% 4Total income in 2014 was #2,901,719,000 against #915,849,000 in
2013 while total expenses were #2,774,897,000 and #2,311,723,000 respectively.
Notwithstanding the expansion in the Bank's operations and branch network which
witnessed a 50% increase in 2014. The bank generated a modest Profit before Tax
of #157.7million. The profitability was driven by continuing revenue growth,
disciplined cost management and lower financing impairment expenses.
One of the investors, Islmic Bank of Bangladeshi (IBBL) is said to have
signed a memorandum of Understanding with the promoters to invest in Jaiz Bank
and also bring along other off-shore investors. In addition, IBBL will provide
technical management service with emphasis on skills development as soon
approval is obtained from the CBN. The IBBL with over 20 years experience in
Islmic banking is said to have an asset base of over $2billion and is rated the best
bank in Bangladesh in terms of capital, management and assets67.
In August 2015, representatives of Jaiz Bank Plc and Islmic Development
Bank (IDB) signed a Memorandum of Understanding authorizing Jaiz Bank as the
sole collector of Hadaya (Qurbani or animal sacrifice) collections from intending
pilgrims to Saudi Arabia. Managing Director of Jaiz Bank Muhammad Nurul Islm
and the Company Secretary Rukayat Salaudeen signed the agreement on behalf of
Jaiz bank, while Ahmed Reheimi and Mansur Noibi signed for IDB68.

131
Jaiz International PLc also hopes to raise further capital from local investors to
compliment the contribution from IBBL, the aim being to surpass the minimum
capital base. The Securities and Exchange Commission (SEC) approved in October
2015, the rights issue of 2.957,424,930 billion ordinary shares of each #1.00 at
price #1.30 per share69. This was opened on 7th Dec. 2015 and closed on Jan.11
201670.
In the area of Community Involvement and development The Bank has an arm
responsible for community involvement and development. This arm would provide
charitable services to the communities in which we operate and the country in
general. The bank would finance all the community through income it considers
non-halal (not permissible) to its activities. This would have tremendous impact on
the environment in general, and would help in creating symbiotic relationship with
the populace. In addition, the Bank directly supported Bayero University Kano by
donating 1million for construction of Mosque.71
4.6 The Establishment of the First Bank of Nigeria

The Bank traces its history back to 1894 the then Bank of British West Africa.
The bank originally served the British shipping and trading agencies in Nigeria.
The founder, Alfred Lewis Jones, was a shipping magnate who originally had a
monopoly on importing silver currency into West Africa through his Elder
Dempster shipping company. According to its founder, without a bank, economies
were reduced to using barter and a wide variety of mediums of exchange, leading
to unsound practices. A bank could provide a secure home for deposits and also a
uniform medium of exchange. The bank primarily financed foreign trade, but did
little lending to indigenous Nigerians, who had little to offer as collateral for
loans72.

132
 In 1957, Bank of British West Africa changed its name to Bank of West Africa
(BWA). After Nigeria's independence in 1960, the Bank began to extend more
credit to indigenous Nigerians. At the same time, citizens began to trust British
banks since there was an 'independent' financial control mechanism and more
citizens began to patronise the new Bank of West Africa73.

In 1965, Standard Bank acquired Bank of West Africa and changed its
acquisition's name to Standard Bank of West Africa. In 1969, Standard Bank of
West Africa incorporated its Nigerian operations under the name Standard Bank of
Nigeria. In 1971, Standard Bank of Nigeria listed its shares on the Nigerian Stock
Exchange and placed 13% of its share capital with Nigerian investors. After the
end of the Nigerian civil war, Nigeria's military government sought to increase
local control of the retail-banking sector. In response, now Standard Chartered
Bank reduced its stake in Standard Bank Nigeria to 38%. Once it had lost majority
control, Standard Chartered wished to signal that it was no longer responsible for
the bank and the bank changed its name to First Bank of Nigeria in 1979. By then,
the bank had re-organized and had more Nigerian directors than ever. In 1982 First
Bank opened a branch in London, which it converted into a subsidiary, FBN Bank
(UK), in 2002. Its most recent international expansion was the opening in 2004 of
a representative office in Johannesburg, South Africa. In 2005 it acquired FBN
(Merchant Bankers) Ltd. PaRibs and MBC International Bank Ltd.; a group of
Nigerian investors had founded MBC in 1982 as a merchant bank, and it became a
commercial bank in 200274.

The subsidiaries of First Bank of Nigeria include the following:75

FBN Bank (UK) London, United Kingdom 100% shareholding savings

products sold under FirstSave brand

133
 FBN Bank UK FBN Bank (UK) Paris, France, a branch of the subsidiary
in the UK

FBN Bank (DRC) Formerly Banque International de Credit (BIC)

Kinshasa, Democratic Republic of the Congo 75% shareholding

FBN Bank (China) Beijing, China representative Office

FBN Bank (UAE) Abu Dhabi, United Arab Emirates representative Office

FBN Bank (South Africa) Johannesburg, South Africa representative

Office

FBN Bank (Ghana) Accra, Ghana 100% shareholding

FBN Bank (Guinea) Conakry, Guinea 100% shareholding

FBN Bank (Gambia) Banjul, Gambia 100% shareholding

FBN Bank (Sierra Leone) Freetown, Sierra Leone 100% shareholding

FBN Bank (Senegal) Dakar 100% shareholding

FBN Holdings76
Due to changes in Nigerian banking laws, following the Great Recession of
2007-2009, FBN re-organized itself into four business groups under a holding
company called FBN Holdings. Bello Maccido, who was executive director (retail,
north), was nominated to be the CEO of the new parent company. The shares of the
holding company are listed on the Nigerian Stock Exchange. FBN Holdings is the

134
parent company of all companies in the First Bank Group. The four business
groups of FBN Holdings are:

1. Commercial Banking includes First Bank of Nigeria and all its commercial
banking subsidiaries listed in the previous section.

2. Investment Banking and Asset Management includes FBN Capital

Limited, FBN Securities Limited, First Funds Limited and First Trustees
Nigeria Limited.

3. Insurance includes FBN Insurance Limited, FBN General Insurance

Limited and FBN Insurance Brokers Limited.

4. Other Financial Services consists of FBN Microfinance Bank Limited.

First Bank of Nigeria Ltd has Mr. UK Eke (MFR), as Group Managing Director.
Mrs. Ibukun Awosika as the Chairman, and Dr. Adesola Adeduntan, Managing
Director77

4.8 The Aims and Objectives of the Bank

The First Bank of Nigeria recognises the immutable merits of maintaining a
One first mindset and culture, as a critical component of its business strategy. Its
brand has evolved over the years, with strengthened brand muscles to match the
constantly evolving expectations of its customers. Since launching in 1894, First
Bank has established itself as a brand of strength and dynamism, with the vision to
be the leading international banking group in Sub Saharan Africa. The banks
brand is at the heart of the holistic experience it seek to deliver to its stakeholders
perpetually, which is essential to retaining patronage and the competitive edge that
keeps the bank at the coveted position of the market leader78.

135
 The banks brand purpose is to always put its stakeholders, customers and
partners at the heart of the business, even as it poised to standardise customer
experience and excellence in financial solutions across Sub Saharan Africa, in
consonance with the brand vision To be the partner of first choice in building
oner future. The banks brand promise is thus to always deliver the ultimate
gold standard of value and excellence. Its financial services knowledge and
practices lead the market in ensuring that it understand its customers and surpass
expectations by seeking for a better way of delivering first class serviceThe One
First experience79. This dedication to delivering the gold standard is anchored on
the banks inherent values of passion, partnership and people, to position One
First in every respect. In putting One First it promises to be80.

4.9 Operational Mode and Products

The First Bank of Nigeria has varieties of products and services to its
customers. These products and services are categorised into five categories these
are;
Consumer Banking Products81includes; Asset Products, Home Loan (Mortgages),
Personal Loan Against Salary, Auto Loan, etc.

Wholesale Banking Products82: Advanced Payment Guarantee (APG), Bonds &

Guarantees, Bills for Collection , Letter of Credit, Telecom Distributorship
Finance, etc.

Payments & Collections Products83: FirstPay Direct Debit, FirstPay Marketing

Tips, Customs Duty Collection, TV Subscription Collections , Federal Inland
Revenue Serve (FIRS) Collections, PHCN Collection, Federal Road Safety
Collection (FRSC) Fines , etc.

136
Agricultural Finance Products84: Agricultural Growth Enhancement Support
Scheme, Commercial Agricultural Credit Scheme, Multi-Channel Agricultural
Finance Scheme, FirstBank Farm Machinery and Equipment Finance (FirstTrac),
Agricultural Development Trust Fund Scheme, etc.

Money Transfer Products85: Western Union Money Transfer, MoneyGram

International Money Transfer, Ria Money Transfer, First Domestic Transfers (FDT),
etc.

The above products and services are mostly rendered under the following accounts:

Generic Savings Account86

This is the regular savings account that allows the safe-keep of customers funds
while yielding interest.

First Savings Plus87

It is the same as Generic Savings Account but differs in that its minimum
opening /operating balance of #50, 000as against #2000 for the Generic Savings
Account

Generic Domiciliary Account88

This is a regular foreign currency account for the day-to-day personal and
business needs of the Banks customers. The account is available in US Dollar ($),
British Pound (), and the Euro ().

First Dom Plus89 requires minimum opening/operating balance $5, 000; 5,000;
3, 000, this makes it different from Generic Domiciliary Account.

Hifi Oneng Savers Account90

137
This is a type of saving account designed mainly for children

First Premium Term Deposit91

First Premium Term Deposit is a premium term deposit product which offers
higher interest rates than the conventional term deposit. It has fixed tenures of
either 6 months or one year, with correspondingly more attractive interest rates.

First Instant Savings Account92

First Instant Account is designed for the low income and unbanked/underbanked
segments of the market

Generic Current Account93

It is the regular current account for day-to-day use by individuals and businesses
with Minimum opening balance for individuals N5, 000

First Current Plus94

Designed to meet the needs of corporate and upwardly mobile customers

with minimum opening/operating balance for individuals, associations, town
unions, churches, sole-proprietorships & joint account holders is N500, 000
and minimum opening/operating balance for corporate customers (Private and
Public Limited Companies) is N5m

First Current Business Account95

It is a fixed charge current account that addresses the needs of the micro to
medium current account customer base. It is developed to help enterprises control
their banking charges while at the same time growing the Banks demand deposit
portfolio. The product has 3 distinct variantsPremium, Silver and Gold

138
Premium features a fixed monthly charge of N2,000, a maximum monthly debit
turnover of N5m, minimum account balance N15,000 and free daily cash lodgment
of up to N1.5m

Silver on the other hand, has a fixed monthly charge N5,000, maximum monthly
debit turnover of N20m, minimum account balance N20,000 and free daily cash
lodgment of up to N3m

Gold: Fixed monthly charge of N10,000, maximum monthly debit turnover of

N50m, minimum account balance of N50,000 and free daily cash lodgment of up
to N4m

4.10 The Relationship between the Bank and the Customers

Since its establishment in 1894, FirstBank has consistently built
relationships with customers focusing on the fundamentals of good corporate
governance, strong liquidity, risk management and leadership.
The relationship between the bank and the customers could be described as a
pair of compasses that one cannot do without the other. It is the belief of the bank
that customer is like fuel to their engine without who bank cannot stand. To them,
the popular saying that customer is king work mostly in bank as their products
are meant for the customers so everything to please them is their priority. The bank
exercises this through the good will message to their customers during their
birthday, anniversaries and festival.
It is also reported that a kind gesture in form of financial assistance is given
to customer that notify the bank of his/her marriage, naming ceremony etc.
Some of the customer interviewed regards the first bank as most strong bank in
Nigeria. Some said their belief in the bank make them to still bank with them till
now. Some said they have been with them for not less than 20 to 30 years and till

139
today the bank have not fail them. Some even testify to their goodwill messages
and kind gestures. Some customers also confirmed the financial assistance
rendered to customers that wed or do naming ceremonies.
Despite some challenges confronting them especially the constant network
failure, their quick response to any complaints lodged make their customer have
faith in them and always give kudos for their efficiency in dealings
4.11 The Level of the Contribution of the Interest-Oriented Banks in the
Economic Development of the Nation
Economic development is about enhancing the productive capacity of an
economy by using available resources to reduce risks, remove impediments which
otherwise could lower costs and hinder investment. The banking system plays the
important role of promoting economic growth and development through the
process of financial intermediation. Many economists have acknowledged that the
financial system, with banks as its major component, provide linkages for the
different sectors of the economy and encourage high level of specialization,
expertise, economies of scale and a conducive environment for the implementation
of various economic policies of government intended to achieve non-inflationary
growth, exchange rate stability, balance of payments equilibrium and high levels of
employment.96
The role of finance in economic development is widely acknowledged in the
literature. In particular, Schumpeter (1911) put the role of financial intermediation
at the center of economic development. He argued that financial intermediation
through the banking system played a pivotal role in economic development by
affecting the allocation of savings, thereby improving productivity, technical
change and the rate of economic growth. He believed that efficient allocation of
savings through identification and funding of entrepreneurs with the best chances

140
of successfully implementing innovative products and production processes are
tools to achieve this objective97.
Banks and other institutions play a critical role in any nations economy by
performing services essential to the functioning of any economy. Safeguarding,
transferring, lending, and exchanging money in various forms, along with
evaluating creditworthiness of customers, are the main functions that banks
perform. Each of these roles has a ripple effect in the economy that helps keep
money moving98. These roles include;

Spreading the Wealth99:

Banks are critical to the economy. The banking industry is a vital component
to individual, business, national, and global financial well-being. Although there
are many ways that money moves around the economy, banks play a central role in
establishing the financial environment. Transferring money to provide growth and
stabilizing the monetary supply are important functions performed by banks. This
industry builds and maintains financial relationships with customers of all sizes to
supply financial products and services that stimulate economic growth. Lending by
banks makes money available to consumers and businesses to make purchases they
might not otherwise be able to make.

Issuing Money100:

Banks issue money in the form of banknotes and current accounts subject to
check or payment at the customer's order. These claims on banks can act as money
because they are negotiable or repayable on demand, and hence valued at par. They
are effectively transferable by mere delivery, in the case of banknotes, or by
drawing a check that the payee may bank or cash.

141
Payment Agents:101

Banks borrow money by accepting funds deposited on current accounts, by

accepting term deposits, and by issuing debt securities such as banknotes and
bonds. Banks lend money by making advances to customers on current accounts,
by making installment loans, and by investing in marketable debt securities and
other forms of money lending. Banks act as payment agents by conducting
checking or current accounts for customers, paying cheques drawn by customers
on the bank, and collecting cheques deposited to customers' current accounts.

Money Transferring102:

Banks move money. They move it between banks, between banks and
individual customers, between banks and industry, between banks and
governments, and sometimes between governments. Sometimes the sums involved
are huge. This motion of money throughout the nation and the world allows
businesses to have access to capital. With capital to invest, businesses expand, job
creation occurs, products are manufactured, services are performed, and the
economy grows.

Distribution of Funds103:

The industry players produce an assortment of services from savings

accounts to home and business loans and mortgages. Money is a medium of
exchange and the basis of the modern economy. Banks play a huge role in the
distribution of funds throughout society. Although there are many institutions
involved in the movement of money today, banks remain fundamental to the flow
of money that maintains local, national, and global economies.

142
Safeguarding Money104:

Safeguarding the holdings of people may be the oldest bank function. Long
before banks existed, people looked for ways to secure their valuables, whatever
the medium of exchange. Many of these one may easily imagine. Banks are
generally accepted and believed to me a safer place for parking money. In some
societies, such as Babylonia about 2000 B.C., people began to store money in
temples, perhaps because they thought others would be less likely to steal from
houses of gods. Ancient records indicate that about 4,000 years ago temples were
in the business of lending and exchanging money. At that time, temples were acting
as banks. One may think of a bank vault or a safe-deposit box when one think of
safeguarding money, and those onsite measures are certainly ways of protecting
valuable assets. Banks also offer locker facilities which is a guarded strong room
where people can keep their valuables on paying a small amount of fee for hiring
lockers.

Record Keeping105:

Record keeping is an important part of securing oner money. Banks devote

much time and attention to both the practice and technology of maintaining and
storing accurate records. If banks expect one to let them hold and use oner money,
one expects them to keep careful track of it. The same principle applies to large
transactions between banks and industry and between banking institutions and the
government.

Security & Identification106:

Identification is an important security function of banking. Obviously, one

do not want unauthorized people walking in and taking money from oner account,

143
but the issue of security and identification goes far beyond the local branch.
Identifying theft is a growing concern in the economy, and bank officials work
closely with technology experts and law-enforcement agencies to prevent various
forms of identity theft.

Identity theft occurs when someone achieves financial gain by using another
person's personal information to unlawfully assume the identity of the other
person. An identity thief conducts transactions illegally for personal gain. With the
increased reliance on the Internet for financial transactions, identity theft
protections extend beyond conventional checking accounts to include online
banking, automatic bill pay, and online shopping.

Enforcement107:

Enforcement is a part of safeguarding money that involves catching those

who attempt to take it. Not only does this function involve physical security, but it
also includes tracking down fraud, making collections, and pursuing legal actions
against those who inflict losses on the bank. Robbers, white-collar embezzlers, or
people who default on loans are all included in the group targeted by enforcement
efforts.

Plastic Money108:

Transfer security is important to banks. Although cash is still an important

part of bank transactions, most money moves merely on computer screens. High-
tech security measures are increasingly more critical to banking operations
between banks and customers, between banks and banks, and between banks and
the government. As all financial intermediaries become more dependent on
electronic banking, technological security takes a on a more significant role.

144
Sound Business Practices109:

Sound business practices also safeguard oner money. Most of these involve
good judgment and management of daily bank operations. Banks invest time and
money to train employees in procedures and practices. Training goals include
ensuring accuracy, encouraging good decision-making regarding creditworthiness
of perspective customers, and teaching how to make sound financial decisions.
Federal and/or state bank examiners closely review the records of banks to protect
consumers. Their examinations include not only the accuracy of records but also
the prudence of banks' policies.

Exchange Rates110:

In international banking, exchange rates measure the relative strength of one

form of currency against another. These variable rates are often indications of the
strength of a nation's economic position. The ability to transfer sums of money
between financial institutions safely and effectively depends on the stability of the
institutions, the stability of the countries where the banks reside, and the security of
the money supply itself.

Evaluating Creditworthiness111:

Banks play an important role in a productive economy, helping businesses

and consumers take appropriate risk. Appropriate risk means that banks must lend
money only to those who'll be able to repay those loans. A creditworthy customer
has a good credit rating, sufficient collateral for loans, and an ongoing income
source sufficient to make timely loan payments. Evaluating the creditworthiness of
customers, whether they are large industries, governments, or individual
consumers, is a critical banking function that affects the economy. Banks lend

145
money to ordinary commercial and personal borrowers (ordinary credit quality),
but are high quality borrowers by evaluating loan applications carefully.

Guaranteeing the Money112:

Banks must contribute to implementing positive changes to ensure consumer

protection, transparency, and responsible lending. They need to work closely with
regulatory bodies to help shape initiatives and regulations. They must also ensure
they take appropriate risks in their lending activities. In most countries, banks and
the government work together to form the banking system and to make sure the
money supply is adequate, appropriate, and trustworthy. Much of this guarantee is
backed through the central banking function of the Central Bank of the Country.
Individual banks also work with the government to implement monetary policy,
perform exchange functions for citizens, defeat counterfeiters of currency, and
prevent identity theft.

The Substance of Society113:

The functions that banking institutions perform do more than move money
through the economy. They also provide a common economic system that is built
primarily on trust. A great part of an economic system is psychological. It is our
belief and trust in the financial system that keeps the financial system going.

4.12 Challenges and Achievements

Challenges

Network problem: one of the great challenges confronting first bank is the
network problem. This occurrs as a result of its upgrading of operating software
146
called FINACLE. The bank upgraded from FINACLE 7 TO FINACLE 10. The
peculiar problem or fault associated with this FINACLE 10 is constant network
failure. This problem does jeopadises their activities due to the fact that with the
level of technological development most of the activities of the bank involve using
internet or network service and when the network is down their activities are down
as well. It sometimes leads to delay in the bank activities114.

Government policy: another cog to the wheel of First Bank of Nigeria as a bank is
constant change in government policies. Although this challenge is not peculiar to
first bank alone, other banks do complain about this. It is a situation where the
government formulates a policy may be for security reason or to curb fraud. These
mostly affect the bank customers and make them terminate the transaction un-
matured. A good instance is the policy on report of any transaction of 10 million
and above to EFCC. This policy was made to curb fraud but is not go down well
with the bank customers especially the first bank of Nigeria who saw this as an
invasion into their transaction or the bank is exposing them. Whereas, if the bank
fails to report such transaction and the EFCC should eventually know, the bank
will be fined. To avoid this, the bank does report any of such transaction and even
punishes the officer of the bank that does such transaction without reporting it.

In relation to that, in the recent policy of the government, an embargo was laid on
domiciliary account that bank should not pay anybody in dollar. Even if dollar is
deposited into such an account, the bank should pay in naira since dollar is not
Nigeria currency. Many customers frown at this policy and the effect of this is still
felt till today115.

Persistent Fraud: Another challenges confronting First Bank of Nigeria is

persistent fraud. There is no gain saying fraud is a great challenge in banking

147
sector. This is not peculiar to First Bank of Nigeria alone but other financial
institutions in the country. Many banks have been liquidated because of this while
many banks staffs and officers have been jailed, sacked fined or demoted because
of this menace. This sometimes happens during the transition or upgrading from
one operating-software to another, such as from finacle 7 to finacle 8 or during
transferring of data from one operating system to another.116

Customer un-satisfaction: according to one of the staff of the bank he said one
may not see customer un-satisfaction as a challenge but to the banks is a great
challenge. Human-being naturally they are Oliver Twist. They always ask for
more. This makes it difficult for the bank to satisfy them. Customers do complain
about their services and policies. Even if the policy was made to satisfy them, they
will sill complain about it. For instance, during maintenance of the operating
system, network must be shut to avoid fraud and this time may be the best time for
a customer to transact especially on e-banking services (internet banking, mobile
banking and ATM, POS. etc). This may lead to frustration from the customer who
will complain bitterly about the bank service, Unknown to such customer that
maintenance is crucial for improvement in customer satisfaction. In an attempt by
the bank to listen to most of complains from the customer, the more problem ensue
thus customer un-satisfaction.117

Bad debts: bad debt has been a headache for banking sectors in Nigeria and most
of the debtors are individuals who have the capacity to pay but have refused to do
so. A debt is said to be bad when there is no hope of receiving the amount from the
debtor. This has impacts negatively on bank performance, though the bank still
makes huge profits from its operation and hence considerable increase in its
investment rate over the years considered. Of recent is the publication of the names
of the debtors of which first bank of Nigeria claims 92 debtors who owned the

148
bank a total of 45 billion. Prominent among listed debtors are: Shield Petroleum
Limited #6.9 billion, Ajaokuta Steel Company Ltd #6.1 billiom, Starcomms #5.5
billion, C&M Ltd #2.3 billion, Sunmit Investment and Property Ltd #1.8billion,
Forgo Petroleum and Property Ltd #1.7 billion, B G L Securities #1.6 billion, Grant
Properties #1.5 billion, Astera Engineering #1.4 billion, Nigeria Agip Oil
Company Port Harcourt Staff Cooperatives #967 million, Sanshek Nigeria Ltd
#698 million, White Plains British Schools Ltd #682 million, Calat Service Ltd
#674 million, Discover and Company Ltd #531 million.118

Achievements

The achievements of the First Bank could be traced to the inception of the
bank. As The Bank First Bank of Nigeria Plc was founded by Sir Alfred Jones, a
shipping magnate, in 1894, First Bank of Nigeria Plc has provided excellent
banking services and hence, contributed to the economic advancement and
development of Nigeria for over 122 years. Incorporated as a limited liability
company with its head office originally in Liverpool, First Bank commenced
business on a modest scale in the premises of Elder Dempster and Company
Limited in Lagos under the name Bank of British West Africa (BBWA) with paid-
up capital of 12,000.00 (Twelve Thousand Pounds). This was after absorbing its
predecessor, the African Banking Corporation, which was established in 1892, the
Bank also acquired its first competitor, the Bank of Nigeria (previously called
Anglo-African Bank) which was established in 1899 by the Royal Niger
Company.119
In its early years, the Bank worked closely with the colonial governments of
British West Africa by performing the traditional functions of a central bank,
including the issue and distribution of specie in the West African sub-region.
Consequently, the Bank recorded impressive growth, opening its first branch office

149
in Accra, Ghana in 1896, and a second branch in Freetown, Sierra Leone, two
years later (1898). These marked the beginning of the Banks international banking
operations120. By 1963, the Bank had 114 branches in West Africa, 59 of these were
in Nigeria, 41 in Ghana, 11 in Sierra Leone, 1 in The Gambia and 2 in Cameroon.
In 2002, the Bank established a wholly owned banking subsidiary in the United
Kingdom, FBN Bank (UK) Limited, regulated by the Financial Services Authority
(FSA).
In this respect, the Bank is the first Nigerian bank to own a banking
subsidiary in the UK. It also has a representative office in South Africa 121. Wide
Branch Network Since its incorporation, First Bank has recorded very impressive
growth and currently occupied a pre-eminent position in the Nigerian banking
industry. The Bank opened its second branch in Nigeria in Calabar, in 1900 and
twelve years later, extended its services to Northern Nigeria by opening its Zaria
branch. The Kano branch was opened in 1928. Currently with 408 branches, the
Bank has one of the largest networks of sales outlets in Nigeria122.
Nigerias leading retail and most valuable bank brand, FirstBank has been
officially recognized as the first financial institution in the country to achieve a
transaction volume of 100 million transactions in a month, by Interswitch
Transnational, Africas leading integrated payment and transaction processing
company. This milestone feat was achieved in the month of December 2015 and
represents the total transactions processed by FirstBanks Front End Processor
running on the Interswitch transaction switching platform which seamlessly links
all financial institutions in Nigeria to facilitate better and quicker transactions
across all platforms. As Nigerias leading financial institution with over 10 million
customers, this achievement by FirstBank clearly aligns with its strategic intent to
promote financial inclusion, support the cashless policy drive of the Central Bank

150
of Nigeria and boost economic growth via e-payments across Nigeria and the
African continent123.

Over the years, the Bank has led the financing of private investment in
infrastructure development in the Nigerian economy by playing key roles in the
Federal Governments privatisation and commercialisation schemes. With its
global reach, FirstBank provides prospective investors wishing to explore the vast
business opportunities that are available in Nigeria, an internationally competitive
world-class brand and a credible financial partner124. The Bank has been named
The Best Bank Brand in Nigeria four times in a row 2011, 2012, 2013, 2014
by the globally renowned The Banker Magazine of the Financial Times Group;
and Most Innovative Bank in Africa in the EMEA Finance African Banking
Awards 2014. FirstBanks brand purpose is to always put its customers, partners
and all stakeholders at the heart of its business, even as it is poised to standardise
customer experience and excellence in financial solutions across Sub Saharan
Africa, in consonance with its brand vision To be the partner of first choice in
building oner future. Our brand promise is to always deliver the ultimate gold
standard of value and excellence. This commitment is anchored on FirstBanks
inherent values of passion, partnership and people, to position our customers first
in every respect125

FirstBanks growth strategy is anchored on leveraging the windows of

opportunity presented by the ongoing reforms in the industry and the global
economies, which have allowed it to better position its strengths and value
proposition, while raising the industrys competition stakes. The Banks strategy is
driven by the two critical imperatives of modernisation and growth. With over 550
business locations in Nigeria, the Bank has one of the largest domestic sales
networks in the country, all on-line and real time. As a market leader in the
151
financial services sector, FirstBank pioneered initiatives in international money
transfer and electronic banking in the country, and is arguably Nigerias most
diversified financial services group, serving more than 4.2 million customers126.

FirstBank has been the winner of the Best Bank in Nigeria, Best Trade
Finance Bank in Nigeria, and Best Foreign Exchange Bank in Nigeria for five
(5) consecutive years - awarded by the US-based Global Finance magazine. These
are in addition to receiving The Nigerian Stock Exchange Award of Excellence as
the Quoted Company of the Year 2007, and The Nigerian Stock Exchange Merit
Award for the best presentation, quality and depth of the Banks Annual Report and
Accounts for the Year 2007, to mention a just a few127.

As of December 2014, the Bank had assets totaling approximately US$23.4

billion (NGN:4.336 trillion). The Bank's profit before tax, for the twelve months
ending 31 December 2014 was approximately US$486.5 million (NGN:90.1
billion). At that time, the bank maintained a customer base in excess of 10 million
individuals and businesses. First Bank of Nigeria has solid short and long term
ratings from Fitch, the Global Credit Rating Company, partly due to its low
exposure to non-performing loans. The Bank has strong compliance with financial
laws and maintains a strong rating from the Economic and Financial Crimes
Commission of Nigeria128.

With these great achievements, there is no doubt that the bank has
consolidated its position in Nigeria and sits in a very strong position from which to
grow, both domestically and outside Nigeria. Not only is FirstBank the largest
Nigerian bank by assets, but it has also consolidated its reputation for world class
corporate governance and a conservative approach to risk management. All built
on a platform of 120 years heritage of national development.

152
153
 Notes and References
1. Muhammad, A.U. and M.G Gulani. Challenges Facing the Acceptability of
Islmic Banking in Nigeria. International Journal of Economic Development
Research and Investments. Vol.4 No.3 December 2013, p. 33
2. www.jaizbankplc.com. 5th Jan., 2016, 03:20 pm
3. http://Islmicbanking.asia/wp-content/uploads/2014/12/April-June-2014.pdf. 5th
Jan., 2016, 03:20 pm
4. Vrajlal Sapovadia. Jaiz Bank, Nigeria: A Case Study on Non-Interest Bank.
Munich Personal RePEC Archive. Retrieved from http://mpra.ub.uni-
muenchen.de/68763/ on 20th Jan 2016, 05:20 pm,
5. www.jaizbankplc.com
6. Ishaq, Laaro Yusuf. Jaiz Bank: Its Prospects and Challenges. Unpublished
Dissertation, University Of Ilorin, 2015. P 28
7. www.jaizbankplc.com
8. www.jaizbankplc.com
9. www.jaizbankplc.com
10.Adeniyi, Y. Non-Interest Banking and Inclusion. Paper presented at the
International Conference On Non-Interest Organization By Central Bank Of
Nigeria In Collaboration With Islmic Development Bank (I.D.B), Transcop
Hotel, Abuja, Nigeria, 2012 P4
11.Rahman, M.M. Potential, Operational, and Business Challenges of Islmic
Banking in Nigeria: A Policy Analysis. Kano: Amanal Publisher House 2010 p.
8
12.Rahman, M.M. P8
13.Rahman, M.M. P9
14.www.jaizbankplc.com
15.www.jaizbankplc.com
16.www.jaizbankplc.com
17.www.jaizbankplc.com
18.www.jaizbankplc.com
19.www.jaizbankplc.com
20.www.jaizbankplc.com
21.www.jaizbankplc.com
22.www.jaizbankplc.com
23.www.jaizbankplc.com
24.www.jaizbankplc.com
25.www.jaizbankplc.com
26.www.jaizbankplc.com
27.www.jaizbankplc.com

154
28.www.jaizbankplc.com
29.www.jaizbankplc.com
30.www.jaizbankplc.com
31.www.jaizbankplc.com
32.www.jaizbankplc.com
33.www.jaizbankplc.com
34.www.jaizbankplc.com
35.www.jaizbankplc.com
36.www.jaizbankplc.com
37.www.jaizbankplc.com
38.www.jaizbankplc.com
39.www.jaizbankplc.com
40.www.jaizbankplc.com
41.www.jaizbankplc.com
42.Ishaq, Laaro Yusuf. p.74
43.2014 Jaiz Bank Annual Reports And Account p.51
44.www.jaizbankplc.com
45.www.vanguardngr.com/2013/01/Islmic-banking-cbn-inaugurates-advisory-
council Retrieved on 23rd Jan. 2016, 05:33 pms
46.2014 Jaiz Bank Annual Reports And Account p.11-12
47.www.jaizbankplc.com
48.In this exclusive interview with Business Day, Muhammad Nurul Islm,
managing director/chief executive officer, Jaiz Bank plc, published on Mon.
Jan.19th,2015 Available @ http://businessdayonline.com and
th
www.jaizbankplc.com accessed on 24 Jan 2016
49.An oral interview with Mallam Auwal Ado staff of Jaiz bank plc the bank
headquarter, Abuja 26th January, 2016
50.Mallam Auwal Ado
51.Dangdago, Muhammad, and U.A. Oseni. Essential of Islmic Banking and
Finance in Nigeria. Zaria: Bench Mark Publishing House. 2013, p26
52.Rahman. M.M. 8
53.An an oral interview with Tauhidur-Rahman the Chief Risk Officer Of Jaiz
Bank plc. At the bank headquarter, Abuja. On 26rd Jan. 2016 26th January, 2016
54.Tauhidur-Rahman
55.Tauhidur-Rahman
56.Ishaq, Laaro Yusuf. p.79
57.An an oral interview with Ibrahim Ali Alikali a Staff of Jaiz Bank plc
Headquarter Management Department on 27th Jan. 2016
58.Ibrahim Ali Alikali.
59.Ibrahim Ali Alikali.
155
60.Ibrahim Ali Alikali
61.Ibrahim Ali Alikali
62.Muhammad Nurul Islm.
63.Vrajlal, Sapovadia.
64.Vrajlal, Sapovadia.
65.Chairman, of the Bank. Alhaji (Dr) Umaru Abdul Mutallab
66.Vrajlal, Sapovadia.
67.Vrajlal, Sapovadia.
68.Vrajlal, Sapovadia.
69.Vrajlal, Sapovadia.
70.Nse Anthony-Uko. Jaiz Bank offers N2.4bn Right Issue. The leadership
newspaper 7th Dec. 2015. http://leadership.ng/news/481254/jaiz-bank-offers-n2-
4bn-right-issue . Retrieved on 28th Feb., 2016 02:11 pm
71.2014 Jaiz Bank Annual Reports And Account p. 51
72.en.m.wikipedia.org/wiki/list of banks in Nigeria accessed on 25 th Jan. 2016
4:02pm
73.en.wikipedia.org/wiki/first-Bank-of-Nigeria
74.en.wikipedia.org/wiki/first-Bank-of-Nigeria
75.en.wikipedia.org/wiki/first-Bank-of-Nigeria
76.en.wikipedia.org/wiki/first-Bank-of-Nigeria
77.http://www.premiumtimesng.com/business/189686-first-bank-nigeria-appoints-
new-management-team.html accessed on 20 feb 2016 04:02pm
78.www.firstbanknigeria.com/home/brand refresh/the brand-story. Retrieved on
18/02/2016 4:02pm
79.www.firstbanknigeria.com/home/brand refresh/the brand-story.
80.www.firstbanknigeria.com/home/brand refresh/the brand-story.
81.First bank of Nigeria: Products Handbook p. 2
82.First bank of Nigeria: Products Handbook p. 31
83.First bank of Nigeria: Products Handbook p. 66
84.First bank of Nigeria: Products Handbook p. 108
85.First bank of Nigeria: Products Handbook p. 121
86.First bank of Nigeria: Products Handbook p. 19
87.First bank of Nigeria: Products Handbook p. 20
88.First bank of Nigeria: Products Handbook p. 21
89.First bank of Nigeria: Products Handbook p. 22
90.First bank of Nigeria: Products Handbook p. 23
91.First bank of Nigeria: Products Handbook p. 24
92.First bank of Nigeria: Products Handbook p. 25
93.First bank of Nigeria: Products Handbook p. 26
94.First bank of Nigeria: Products Handbook p. 27
156
95.First bank of Nigeria: Products Handbook p. 28
96.Sanusi, Lamido Sanusi. Banks in Nigeria and National Economic
Development: A Critical Review. A keynote address delivered at a seminar on
Becoming An Economic Driver While Applying Banking Regulations
organized by the Canadian High Commission in joint collaboration with the
Chartered Institute of Bankers Nigeria (CIBN) and Royal Bank Of Canada
(RBC), Lagos on 7th march, 2011 p. 1
97.Sanusi, Lamido Sanusi.
98.www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking. Retrieved on 18/02/2016 4:02pm
99.www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
100. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
101. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
102. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
103. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
104. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
105. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
106. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
107. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
108. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
109. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
110. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
111. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
112. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
113. www.technofunc.com/index.php/domain-knowledge-2-/banking-
domain/item/economic-benefits-of-banking.
157
114. Interview with Mallam Musa, Tajudeen, former staff of First Bank of
Nigeria. 15th Febuary , 2016
115. Mallam Musa, Tajudeen.
116. Mallam Musa Tajudeen.
117. Mallam Musa Tajudeen.
118. This Day. Chronic Debtors Own First Bank, Access Bank 49bn 4th August,
2015. Available at www.thisdaylive.com. Accessed on 18 Feb., 2016. 2:04pm
119. Olalere, Titilope Olusegun (mrs.) and Adesoji Adetunji Adenuga. Human
Capital Development in First Bank of Nigeria Plc. Mediterranean Journal of
Social Sciences. University of Rome: MCSER-CEMAS-sapienza Published by
vol.4 No2. May, 2013. Pp 786-787. www.mcser.org(jornal/index.php/mjss)
120. Olalere, Titilope Olusegun (mrs.) and Adesoji Adetunji Adenuga. P786
121. Olalere, Titilope Olusegun (mrs.) and Adesoji Adetunji Adenuga. P786
122. Olalere, Titilope Olusegun (mrs.) and Adesoji Adetunji Adenuga. P787
123. First Bank achieves 100m e-Banking transactions per month. Dailypost.
on February 17,2016 www.dailypost.ng/2016/02/17/ 3:45pm
124. Eromosele, Abiodun. Nigeria Bank as Catalyst to Economic Growth.
thisdaylive 20 may, 2015. www.thisdaylive.com accessed on 28 jan. 2016
2;50pm
125. www.firstbankofnigeria.com/aboutus accessed on 28 jan., 2016 Retrieved on
18/02/2016 4:02pm first-bank-of-Nigeria-plc.html? 04:20pm
126. http//www.corporate-nigeria.com/index/banking-finance-insurance/in-focus-
127. http//www.corporate-nigeria.com/index/banking-finance-insurance/in-focus-
first-bank-of-Nigeria-plc.html?
128. http//www.corporate-nigeria.com/index/banking-finance-insurance/in-focus-
first-bank-of-Nigeria-plc.html?

CHAPTER FIVE
Summary, Conclusion and Recommendations
5.1 Conclusions
Ar-Rib stands as distinct factors between Islmic banking and conventional
transactions. It sometimes mistook as profit especially in western (capitalist)
worlds where anything could be done to maximize profit either through
exploitation, injustice or fraud.

158
 Rib is generally translated into English as usury or interest. Interest is
the rental payment for the use of credit by borrowers in return for parting with
liquidity by lenders. It is the money paid by a borrower to a lender for a credit or a
similar liability. It is the charge for the privilege of borrowing money. Usury is the
practice of charging an illegal rate of interest for the loan of money. It is immoral
monetary loans that unfairly enrich the lender. Originally, usury meant interest of
any kind. A loan may be considered usurious because of excessive or abusive
interest rates or other factors.
Rib is of two type two types though scholars give different names but still
mean the same. The Shafiiyyah categorized Rib into three categories: First, Rib
al-fadl which includes Rib on loans, as the lender extending a loan of twenty
guineas on the condition that he will receive in return an advantage, like the
borrower purchasing a commodity from the lender, or marrying the lender's
daughter, or receiving a monetary benefit as discussed under void transactions (al-
bay al-fasid); second, Rib al-nasiah as mentioned; and third, hand-to-hand Rib
which means selling two homogenous commodities like wheat, without reciprocal
possession on spot.
The most common names to them are Rib al-nasiah, and Rib al-fadl. The
term nasiah means to postpone or to wait and it refers to the time period that is
allowed for the borrower to repay the loan in return for the addition of the
premium. Rib al-fadl, on the ther hand, is the excess over and above the loan paid
in kind. It lies in the payment of an addition by the debtor to the creditor in
exchange of commodities of the same kind. The Glorious Qurn emphasizes the
need for justice, which is beneficial for both parties involved. Either both of them
should have profit or none should have profit. Like other gravious sins such as
zina, and alcohol. The prohibition of Rib in al-Qurn developed gradually and
appeared in four revelations as discoursed. The hadiths that deal with the subject
159
are numerous, although sometimes the content of a particular hadith is slightly
different from one narrator to another.
The principal reason why the Qurn has delivered such a harsh verdict
against interest is that Islm wishes to establish an economic system where all
forms of exploitation are eliminated, and particularly the injustice perpetuated in
the form of the financier being assured of a positive return without doing any work
or sharing in the risk, while the entrepreneur, in spite of his management and hard
work, is not assured of such a positive return. Islm wishes to establish justice
between the financier and the entrepreneur.
Other reasons include (1) Unfair exchange that is taking something from a
party without giving him something in return. (2) Indolence class argument which
is to earn money or profits without any effort (3) Undermining the charitable
attitude among people; and (4) social argument this simply means lenders are
usually wealthy and borrowers are generally poor, a disparity leading to
exploitation and undermining of human kindness and charity.
Conventional banking system therefore, refers a banking system based on
the institution of interest rate, less humane in outlook and exploitative in practice.
It also represents the financial system that is based on a fixed returns payment on
capital borrowed. This kind of banking system owes its orientation to secular
humanism as an ideology of a non-religions philosophy and liberal human values.
The concept of Islmic Banking and Interest-Free Banking are synonymously used
in Islmic Economics literature as an alternative banking framework to the interest-
based conventional banking practice. It stands for an alternative financial system
based on Islmic ideals. It is not only a financier but also a partner in productive
economic development. It is an interest-free financing system essentially based on
profit and loss sharing.

160
 Jaiz bank is the only onset and presently full-fledged non-interest Islmic
bank in Nigeria. The institution called Jaiz bank was initiated and founded in 2003,
as Jaiz International Plc. On11 November 2011, Jaiz International received a
regional license from the Central Bank of Nigeria, to operate as a regional bank.
On 6 January 2012, the institution commenced business as Jaiz Bank Plc in offices
and branches in Abuja, Kaduna and Kano and had since then expanded its branch
network to 18 with additional 16 scheduled for opening before the end of 2015.
The Bank First Bank of Nigeria Plc was founded by Sir Alfred Jones, a shipping
magnate, in 1894. First Bank of Nigeria Plc has provided excellent banking
services and hence, contributed to the economic advancement and development of
Nigeria for over 122 years.
These two banks are with numerous challenges, though the challenges of
Jaiz bank could be because of being a baby bank and first of its kind in Nigeria. So
it is believed that as times goes on these challenges will be seen to. The Jaiz bank
offers almost the products and renders many services as conventional bank but in
accordance with the dictate of sharial. Despite this, the bank still making profit and
has achieved much within the short period of its inception.
5.2 Summary
This research work titled a study of Ar-Rib (usury/interest) in the Islmic
and conventional bankiny systems with particular references to Jaiz Bank Plc And
First Banking Of Nigeria plc comprises of five chapters. The first chapter
introduces the research work with general background to the study and the purpose
for undertaking the research work. Merits of the work and its delimitation as well
as the methodology employed were explained while the evolution of banking
system in Nigeria is traced up to the time of introduction of Islmic banking
system.

161
 The chapter two of the work deals with an overview of Rib (usury/interest).
In this chapter emphasis was laid on the Definition of Ar-Rib, the position of Ar-
Rib before Islm especially in the previous revealed books; Taorah and Injil
(Bible) is that both books condemn Rib in totality. While the position of Ar-Rib
in the Jahiliyyah period is that it was in vogue during this period as popularly
known that Islm came to condemn all the erroneous practices during the
jahiliyyah period these includes Rib.

The Ar-Rib is generally translated into English as usury or interest.

Interest is the rental payment for the use of credit by borrowers in return for parting
with liquidity by lenders. It is the money paid by a borrower to a lender for a credit
or a similar liability. It is the charge for the privilege of borrowing money. Usury is
the practice of charging an illegal rate of interest for the loan of money. It is
immoral monetary loans that unfairly enrich the lender. Originally, usury meant
interest of any kind. A loan may be considered usurious because of excessive or
abusive interest rates or other factors. Technically, it refers to the premium that
must be paid by the borrower to the lender along with the principal amount as a
condition for the loan or for an extension in its maturity. Its types were seen to and
differences between Ar-Rib and trade were also examined.

More so, the Qurnic and the Sunnah perspectives on Ar-Rib were looked
into including the jurists divergent opinions on Ar-Rib as well as rationale behind
the prohibition of Ar-Rib in Islm critically analysed.

The chapter three of the study focused on Ar-Rib in Islmic and

Conventional Banking Systems with emphasis on concept of conventional banking
systems which refers to a banking system based on the institution of interest rate,
less humane in outlook and exploitative in practice. It also represents the financial

162
system that is based on a fixed returns payment on capital borrowed. This kind of
banking system owes its orientation to secular humanism as an ideology of a non-
religions philosophy and liberal human values. Ar-Rib in conventional banking
systems is a profit that is the reason why interest is charged on almost every
products and services rendered. The adverse effects of the conventional interest on
the economic life of a Muslim this include morally, Interest generates such vices as
miserliness, selfishness and petty-mindedness, economically Interest also causes
inflation this is because when interest (as compensation for capital) is used as a
factor of production it becomes part of the cost of production. Its burden is
consequently shifted to the consumer.
Psychologically, Interest has ill-effects on the efficiency of the people in
general. The people who take loans to fulfill private needs are especially burdened
with constant anxiety and mental depression. This condition has an adverse effect
on their efficiency. Their interest in work is half-hearted because they are
constantly nagged by the thought that a major portion of their earnings will got to
pay the interest. Worry and depression weaken their physical health and their
efficiency progressively deteriorates, were also expatiated in the chapter.
So also, the concept of Islmic banking systems which is an interest-free
financing system essentially based on profit and loss sharing and its operations are
in conformity with Sharih, the position of Ar-Rib in Islmic banking systems,
its challenges as well as prospects of non interest bank in Nigeria were vividly
examined.
Chapter four devoted to the Position of Ar-Rib (Usury/Interest) in Jaiz and
First Bank of Nigeria. Under this chapter, the historical origin of JAIZ Bank was
traced, its aims and objectives, its mode of operations, Products and Services as
well as How cordial or otherwise is the Relationship between the Bank and its
Customers were examined. The institution called Jaiz bank was initiated and
163
founded in 2003, as Jaiz International Plc. Commenced business as Jaiz Bank Plc
in branches in Abuja, Kaduna and Kano on 6 th January 2012. The Islmic features
in the operational systems of the Bank could be seen in its operational mode and
products. An overview of the bank products shows that they were the common
products offered by Islmic Bank (Free Interest Banks) around the World. Be a
maiden bank it is confronted with many challenges and within a short period of its
existence, it has achieved a lot.
More so, the First Bank of Nigeria traces its history back to 1894 the then
Bank of British West Africa. The bank originally served the British shipping and
trading agencies in Nigeria, Incorporated as a limited liability company with its
head office originally was in Liverpool and now in Lagos. Its Aims and Objectives,
Operational Mode, Products and services, The Relationship between the Bank and
the Customers as well as The Level of the Contribution of the Interest-Oriented
Banks in the Economic Development of the Nation which includes safeguarding,
transferring, lending, and exchanging money in various forms, along with
evaluating creditworthiness of customers, are the main functions that banks
perform. Each of these roles has a ripple effect in the economy that helps keep
money moving.
The last chapter which is chapter five entails conclusion, summary, research
findings or observations, suggestions and recommendations, suggested areas for
further research.

5.3 Research Findings/Observations

While conducting this research work, the researcher consulted both
published and unpublished materials such as textbooks, thesis, dissertation,
journals, seminar papers and internet materials that are relevant and related to the
research topic. Structured interview was conducted to correct the erroneous

164
assumption and to ascertain some facts. Through these the following were
observed.

Ar-Rib remains a distinguishable and indelible factor that differentiates the

Islmic banking system from conventional banking system. The former does not
charge interest but the later does.

The research shows that most of conventional Banking products are also
offered by Islmic Bank. So the case of Jaiz bank Plc and first bank of Nigeria is
not different. An example of such products is Current Account. The operation of
current account is not different in all banks in Nigeria as all the charges on current
account were directives from CBN. Other products like Saving Accounts product,
Investments Accounts and other deposits were moderated by Jaiz banks. Thus
interest charged is converted to investment profit.

The research also revealed that there is low awareness about the Jaiz bank
products and services this is because most of their customers were either heard
about the bank from friend or those who have heard about Islmic banking even
before the advent of Jaiz bank Plc.

Another observation from research is that most of customers of Jaiz bank

were lower or middle class people. That is, well to do Muslims have not been
patronizing them. Most of the customers who do business with the bank purposely
to obtain consumption loan were disappointed because the only available products
for such loan has not be offered by the Jaiz bank. Make them equating jaiz bank to
other commercial or interest oriented bank because their goal is not meant.

Furthermore, it was revealed that people in Nigeria believed that one cannot
do without interest especially working class or middle class people. For the fact the

165
salary is meager and without loan one cannot do certain things like, building a
befitting house, riding luxurious cars, etc.

The research also revealed that despite that Jaiz bank is not charging interest,
is also doing good and making profit like other commercial banks in Nigeria.
Though the bank is confronted with many challenges most of these challenges
were not peculiar to Jaiz bank alone but to most Islmic banks in the world. While
those challenges that were peculiar to Jaiz bank may be because it is a baby bank.

It is also established in this work that Jaiz bank be an Islmic banking, its
services open to all irrespective of race or religion. In contrast to insinuation in
some quarters that Jaiz bank is for Muslim only. Other religion adherent should
embrace the bank and do business with them.

5.4 Recommendations
Through this research the following recommendations are suggested. Rib
(interest/usury) should be totally avoided either small or much in any transaction.
Since Ar-Rib is condemned by the Qurn, Sunnah, the Jurist and even the
common sense due to its negative impact on the lives of people. Investment should
be encouraged because Allh forbids Rib, and made profit on investment or
business lawful. Allh says

But Allh has permitted trade and has forbidden interest.
(2:275)
An investments profit is even competitive compare to interest that enhance the
wrath of Allh.

Well-to-do people in the society especially Muslim should endeavour to do

business with Jaiz banks. It is believed that Muslims were the majority in Nigeria

166
so also, Muslims take large percentage among the rich men in the country hence
this should be an added advantage for Jaiz bank. It is of belief that if these people
do business the Jaiz banks, will enable it prospers in the society and its goals will
be realized in earnests.

It is also recommended that Jaiz bank Plc should be more transparent and
avail the products that are people oriented. This will garner more customer hence
more profits.

It is recommended further that first Bank of Nigeria should strive harder and
convert their interest oriented products to profit oriented business. Since bank is
meant to mobilize saving and circulate the idle money in the society. Conversion of
interest to profit can help in this direction therefore people that do not bank
because of interest or religion affiliation can do business with the bank.

Lastly, conventional banks should be more transparent, ethical and

participatory in their dealings rather than encourage indolence or taking advantages
of vulnerable masses.

5.5 Suggested Areas for Further Research

In as much as this study is carried out on Jaiz bank and First Bank of
Nigeria, it is therefore suggested that future researcher should carry out similar
work on other conventional banks in Nigeria with Jaiz banks, especially banks like,
Keystone Bank, U.B.A etc. that offer Islmic banking window products.

In addition, a similar study should be carried out in bank like, Stanbic IBTC
Bank as a leading bank now in Nigeria that offer both conventional and Islmic
banking window products.

167
 BIBLIOGRAPHY

Arabic sources
A, Ibn Qudamah. Al-Mugn. Riyadh: Dar Alm al-Kutub, 1999.
Abu Ala, al-Mawdudi. Maa shiyat Islm (economic system of Islm).Lahore:
Islmic Publication, 1970.
Ahmad, Muhammad al-Fayumiy. Al-Musbahu Al-Munir. Cairo:
Maktabah Al-Asriyah (n.d)
Al-Imam, Al-Tabar. Jami Al-Bayan fTawl Al-Qurn (Tafsr Al-Tabar).
Beirut: Dar Al-Kutub Al-Ilmiyyah, 1992.
Al-Jaziri, `Abdal-Rahman. Kitab al-Fiqh `ala al-Madhahib al-`Arba`ah. Beirut:
Darul Kutub Al-Ilimiyyah, 2009
Al-Misri, Rafiq Yunus. Al Islm wal Nuqud. Jeddah: King Abdulaziz University,
1981
Al-Qardawi, Y. Fiqh al-Zakh: A Comparative Study. London: Dar at-Taqwah Ltd,
1999
Al-Qurtub, A. Al-Jami liAh kam Al-Qurn (Tafsr al-Qurtub). Beirut:
Dar Al-Kutub Al-Ilmiyyah, 1996.
Al-Qushayr, M. Sahih Muslim.Cairo: Maktabah al- mn bi al-Mansrah,2001.
Badawi, Ibrahim Zaki el-ddin. Nazariyat al-Ribl Muharram, Cairo: Al-Majlis
al-Ala li Ri ayet al-Funun wal-Aadab wal Ulum al-Ijtima iyah,
1964.
Ibn Kathr. Tafsr al-Qurn al-Azm. Beirut: Dar al-Fiqr, 1997
Ibn Manzur, Muhammad ibn Mukarram. Lisan al-Arab. Beirut; Dar Sadir li
al-Tabaah wa al-Nash 1968.
Ibn Qayyim, al-Jawziyya. I'lam al-muwaqqa'in 'ala rabb al-'alamin, ed.Taha
'Abd al-Ra'uf Sa'd. Beirut: Dar al-Jil, 1973.
Mahmud Syakir. Al-Tarikh al-Islmiy Qabl al-Bithah, Jld. 1. Beirut:
Al-Maktab al-Islmiy, 1991
Mawdudi, Abul 'A`la, Al-Rib. Trans. Muhammad, `Asim al-Haddad. Beirut:
Dar al-Fikr, 1970.
Muhammad, Al-Bukhari. Sahh al-Bukhri. Cairo: Dar al-Minr
Muhammad, Idrees al-Qurshiy (Imam Safihi). Al-Umu. Cairo: Dar al-Mahruf,
1393.
Qutb, S. F Z ill al-Qurn. Egypt: Dar- al- Shurq, 1980.
Sayyid Sabiq. Fiqh sunah.n.d n.p www.mktaba.org

168
Conference papers

Adegbite, L. Islmic Banking: Challenges and Prospects. Text of Speech Delivered

at the Colloquies on Islmic Banking at Ayo-Ajomo Auditorium,
University of Lagos on June 6, 2011.
Adeniyi, Y. Non-Interest Banking and Inclusion. Paper presented at the
International Conference On Non-Interest Organization By Central
Bank Of Nigeria In Collaboration With Islmic Development Bank
(I.D.B), Transcop Hotel, Abuja, Nigeria
Aliyu, C.U. Sharih and Corporate Governance in Non-Interest (Islmic)
Banking. A Paper Presented at one-day sensitization Seminar on Non-
Interest Banking in Nigeria, Organized by Nigerian Deposit Insurance
Corporation (NDIC), held at Transcorp Hilton Hotel, Abuja,
November, 24th. 2010
Dogarawa, A.B. Global Financial Crisis and the search for New Financial
Architecture: Can Islmic Financial Provide Alternative? Paper
Presented at the 1st African Accounting and Finance Conference,
Accra, Ghana. 2011.
-Poverty Alleviation through Zakah and Waqf
Institutions: A Case for the Muslim Ummah in Ghana. A paper
presentedat the First National Muslim Summit organized by Al-
Furqan Foundation, Tamale. 3rd October, 2009.
-Economic Potentials of Islmic Banking in Nigeria and the
Challenges of Introducing it into the Conventional Financial System.
A Paper Presented at the 5th Brainstorming session on Islmic
Banking in Nigeria and International Relations Nigeria Institute of
International Affairs, Lagos, 2011.
Gusau, S.A. Interest-Free Banking System: Theory and Practice. A Paper
Presented in a Seminar on the Prospects and Problems of Interest-Free
Banking System in Nigeria, Organized by the SIA Management
Consultants, at the Royal Tropicana Hotel, Kano. 1st 3rd August,
2000.

169
Oladimeji, L.F. and I.J., Otuyo. The Establishment Of Jaiz Bank In Nigeria;
Prospects and Challenges. A Paper Presented At The International
Workshop On Islmic Banking Organized By The International
Research Training Institute (IRTI), In Collaboration With The
University Of Ilorin, Nigeria And Al-Hikmah University, Nigeria 6 th-
8th Jan., 2015.
Sanusi, L.S. Islmic Finance in Nigeria: Issues and Challenges. Lecture Delivered
at Markfield Institute of Higher Education (MIHE), Leicester, United
Kingdom. June, 2011.
-Banks in Nigeria and National Economic Development: A Critical
Review. A keynote address delivered at a seminar on Becoming An
Economic Driver While Applying Banking Regulations organized by
the Canadian High Commission in Joint Collaboration with the
Chartered Institute of Bankers Nigeria (CIBN) and Royal Bank Of
Canada (RBC), Lagos on 7th March, 2011 p. 1

Dictionaries
J.M., Cowan. A Dictionary of Modern Written Arabic. London: Macdonald and
event LTD, 1981.

Encyclopedia
Munn, G.G. Encyclopedia of Banking and Finance. New York: The Bankers
Publishing Company, 1949
English Sources
Abdul Mannan, M. Islmic Economics: Theory and Practice. Cambridge Holder
and Stoughton, 1986.
Abikan, A.I. Constitutionality of Islmic Banking in Nigeria in Contemporary
Issues in Islmic Juspridences. Benin: Rawel fortune resources 2009.
Abu Umar, Faruq Ahmad. Theory and Practice of Modem Islmic Finance:
The Case Analysis from Australia. Florida: Brown Walker, 2014.
Agger, E.E. Organized Banking (n.d.) (n.p)

170
Ahsan, A.S.M. Islmic Banking in Perspective.
Alanamu, S.A.K. Islmic Banking: Theory and Practice. Ilorin Nigeria:
Amour International 2003
Al-Harran, S., Islmic Finance: Partnership Finance. Kuala Lumpur, Malaysia:
Pelanduk Publications, 1993.
Ali, Abdullah Yusuf. The Meaning of the Holy Qurn, Commentary. Brentwood,
Maryland, USA: Amana Corporation, 1992.
Chapra, M. Umar, Towards a Just Monetary System. Leicester: Islmic
Foundation, 1986.
Dangdago, Muhammad, and U.A. Oseni. Essential of Islmic Banking and
Finance
in Nigeria. Zaria: Bench Mark Publishing House, 2013.
Gafoor, A. I. and M. Abdul. Interest-free Commercial Banking. Groningen, the
Netherlands: Apptee Publications 1995
Haque, Zia-ul-, Islm and Feudalism: The Moral Economics of Usury, Interest and
Profit. Lahore: Vangard Books, 1985,.
Igweke K.I. Law of Banking and Negotiable Instruments Onitsha: Africana Fep
Publishers Ltd, 1991.
Iqbal, M. and P, Molyneux. Thirty Years of Islmic Banking: History, Performance
and Prospects. New York: Palgrave Macmillan. 2005
Iqbal, Z. Islmic Financial System in Finance and Development, 1997.
Karwai, and A.G. Habib & B. T. Jirbil (Ed). Islmic Economic: A book of
Reading. Kano; The International Institute of Islmic thought
Khan, T. and M. U. Chapra. Regulation and Supervision of Islmic Bank: Jeddah:
Islmic Research and Training Institution- Islmic Development
Bank. 2000
Malami, U.H. Economic Principles and Practices of the Sokoto Caliphate.
Sokoto: The Institute of Islmic Science, 1998.
Mamman, A. Non-Interest Banking: A Viable Alternative to Conventional

171
 Banking. Kaduna: Joyce Publishers. 2005
Mannan, M.A. Islmic Theory of Capital and Interest. Karachi: Darul Irshad
Publishers, 1976.
Mawddi, S. A. (trans.) Towards Understanding the Qurn.
Leicester: The Islmic Foundation, 1999
Mobolaji, A.H. Econmic of Interest-free Banking in Nigeria, Department of
Econmics, Fountain University, Oshogbo, Osun State Nigeria 2010
Mohd D.B et al (eds.) Essential Reading in Islmic Finance. Malaysia: CERT
Publications Sdn, Bhd, 2008.
Mohd Daud Bakar. Sharih Approaches to Product Development and Product
Enhancement in Islmic Banking & Finance: An Appraisal
-Essential Reading in Islmic Finance. Malaysia: CERT Publications
sdn, Bhd, 2008.
Molla, R.I. et al., (eds.) Frontiers and Mechanics of Islmic Economics.
Sokoto: University of Sokoto Press, 1988.
Mubarak, Ademola Naibi. The Concept and Practice of Islmic Banking. National
Open University School of Arts and Social Science ISL 433. 2014.
Mudzaffar, Abubakar. Broad Distinction between Islmic and Conventional
Banking Seminar on Islmic Finance. Malaysia: Malaysia Press
Institute, 2010.
Muhammad, Obaidullah. Islmic Financial Services. Jeddah: Islmic Economic
Research Centre. King Abdulaziz University,
Muhammed, Nejatullah Siddiqi. Rib, Bank Interest and the Rationale of Its
Prohibition. Jeddah: Islmic Development Bank, Islmic Research
and Training Institutes. (1425AH/2004
Muhammed, Razi. Rib in Islm: Fiqh of Contemporary Issues. Toronto. Canada.
(2008) LearnDean.com
Muslehudin, M. Banking and Islmic Law. New delhi: Adam Publishers

172
 and Distributors, 2011.
Nomani, Farhad Rahnema Ali. Islmic Economic System. New Jessy: zed Book
Limited
Nyazee, I. A. K., Islmic Jurisprudence, Islmabad: International Institute of
Islmic Thought (IIIT), 2003.
Okonjo-Iweala. N, Soludo. C.C and Mukhtar M (eds), Debt Trap in Nigeria:
Towards a Sustainable Debt Strategy. Asmara: Africa World Press,
Inc, 2003.
Rahman, M.M. Potential, Operational, and Business Challenges of Islmic
Banking in Nigeria: A Policy Analysis. Kano: Amanal Publisher
House, 2010.
Sandani, A. Islmic Banking and Murabahah. Pakistan: Daru-Ishaat Karach. 2008
Siddiq, M.A. banking without interest. London: Islmic Foundation Trust, 1983.
Siddiqi, M.N. Issues in Islmic Banking. Lencester: The Islmic Foundation, 1983.
-Issues in Islmic Banking: Selected Papers. Leicester. The Islmic
Foundation, 1993.
Soludo, C.C. Debt, Poverty, and Inequality: Toward as Exist Strategy for Nigeria
and Africa.
Trimingham, J.S., Islm in West Africa, London: Oxford University Press, 1959.
Uhomoibhi, T.A. and Felix, A. Islmic Banking: Theories, Practices and Insights
for Nigeria. 2009.
Zahid, Zamir. Prohibition of Interest (Rib) in Islm. The Social, Moral and
Economics Rationale (part 1) (n.d) (n.p)

Internet Sources
First Bank achieves 100m e-Banking transactions per month. Dailypost.
Retrieved on February 17, 2016 www.dailypost.ng/2016/02/17/ 2:30
pm

173
2014 Jaiz Bank Annual Reports and Account. Retrieved www.Jaizbankplc.com on
5th Jan., 2016, 03:20 pm, p.51
Onisabi, A.S. Islmic Banking in Nigeria: Prospects, Benefits and Effects. 2013.
Retrieved from www.wordpress.com//onisabisblog.htm on 21 sept.,
2015, 04:55 pm
Abdullahi, S. I. Sukuk as an Alternative source of funds for the Nigerian
Government. 2011. Retrieved from groups.google.com/ on 21 Nov.,
2015, 04:01 pm
Bank; www.wikipedia.com. Retrieved on 28/12 2015 11:10am.
en.m.wikipedia.org/wiki/list of banks in Nigeria accessed on 25th Jan. 2016 02:20
pm
Eromosele, Abiodun. Nigeria Bank as Catalyst to Economic Growth. thisdaylive
20 may, 2015. www.thisdaylive.com accessed on 28 jan. 2016 01:33 pm
Mohammad, Razi. Rib in Islm: Fiqh of Contemporary Issues. Toronto, Canada
May 2008. Retrieved from www.kantakji.com/ Rib in Islm
20/09/2015, 03:05pm,
Function of Commercial Banks, https://en.m.wikipedia.org/wiqi/ Commercial
Bank Functions Retrieved on 28/12/2015 4:02pm
http//www.corporate-nigeria.com/index/banking-finance-insurance/in-focus-first-
bank-of-Nigeria-plc.html? Retrieved on 18/02/2016 4:02pm
http://Islmicbanking.asia/wp-content/uploads/2014/12/April-June-2014.pdf.
5th Jan., 2016, 02:20 pm,
http://www.azmilaw.com/Article/Article 8&9. Retrieved on 10th Jan, 2016,
4:40 pm
Introduction to Islmic Banking @www.guifafricabank.com 2nd Jan. 2016.
03:19pm
Islmic Banking and finance- www.en.wikipedia.org. Retrieved on 2nd Jan, 2016.
12:20 pm
Istina-www.barakaonline.com 16th Dec., 2015, 03:10 pm
Khan, Ajaz, Sharih complaints finance in www.halalmank.com
Retrieved on 15th January, 2016. 03:43pm
SKhan, Ajaz. Shariah Complaints Finance. Retrieved from www.halalmank.com
on 28/12/2015, 03:45 pm
Orisankoko, A.S.The Propagation of Non-Interest Banking in Nigeria: An
Appraisal of the Ideological Risk. 2010. Retrieved from
http://lawlib.wlu.edu/lexopus/works// on 21/01/2016 01:22 pm
Sayyid Sabiq. Fiqh sunah. Retrieved from www.mktaba.org on 15/11/2015
This Day. Chronic Debtors Own First Bank, Access Bank 49bn 4th August, 2015.
www.thisdaylive.com. Accessed on 18 Feb., 2016. 01:22 pm
174
Universal Banking. Retrieved from www.investopedia.com 26-12-2015 15:45 pm
Usmani, Taqi. Islmic Finance: Instruments and Markets. Bloomsburg publishing
Retrieved from http://ifresources.com 29 Sept. 2015.
Usmani, Taqi. An Introduction to Islmic Finance. Retrieved from
http://attahawi.files.wordpress.com on 29th September, 2015. 02:12pm
Visser, A.M. and Mcintosh A. A Short Review of the Historical Critique of Usury,
Accounting, Business and Financial History,1998. Retrieved from
www.en.wikipedia.org/wiki/Islmic_banking on 12nd Jan, 2016. 12:20
pm
Vrajlal Sapovadia. Jaiz Bank, Nigeria: A Case Study on Non-Interest Bank.
Munich Personal RePEC Archive. Retrieved from http://mpra.ub.uni-
muenchen.de/68763/ 20th Jan 2016, 05``:20 pm
Visser, W.A.M. and A. Mcintosh. A short Review of the Historical Critique of
Usury. Accounting, Business and Financial History, 1998. Retrieved
from www.en.wikipedia.org/wiki/Islmic_banking. 16TH January
2016. 05:10 pm
wiki.Islmicfinance.de/indexphp/wakalla. Retrieved on 16TH January 2016. 05:10
pm
www.firstbanknigeria.com/home/brand refresh/the brand-story.
Retrieved on 12th Feb., 2016 05:10 pm

www.firstbankofnigeria.com/aboutus Retrieved on 28 Jan., 2016 03:50 pm

www.interesjournals.org(JRIBM) Retrieved on 2 Jan., 2016 01:33 pm
www.irf.org/articles/articles-301-300/is Islmic Banking Islmic.htm. 15th
January, 2016. 03:09pm
www.Islmicfinance.com/ Islmic Finance Market Size. Retrieved on 15TH January
2016 03:09pm
www.Islmicfinance.com// Sukuk Issuance. Retrieved on 15th January, 2016.
03:43pm
www.jaizbankplc.com. Retrieved on 15th January, 2016.
03:13pm

175
www.laRib.com/pdf/Rib and paper money. Retrieved on 12/11/2015 01:44pm
Life is better without the practice of Rib.www.naqiyIslmicsolution.com/life
Retrieved on 2/01/2016, 12:33 pm
www.technofunc.com/index.php/domain-knowledge-2-/banking- .
domain/item/economic-benefits-of-banking Retrieved on 12/02/2015
01:10pm
www.wikipediafreeencyclopedia/chaptertwo/usury/htm . Retrieved on 20/10/2015
02:15 pm
Journal
Abikan, I.A. Islmic Banking as Non-Interest Banking: Fact or Fiction?
The Jurist, Vol. 17, 2011 p. 3
Abu Umar, faruq Ahmad. Rib and Islmic Banking. Journal of Islmic
Economic, Banking And Finance,(nd)
Abu umar, F.A and Kabir H. Rib and Islmic Banking. Journal of Islmic
Economic, Banking And Finance.(nd)
Adebayo, R.I. The Motivational Factors for the Liability of Islmic Banking in
Nigeria. Journal of Islmic Banking and Finance.Vol.27 No.2, 2010.
Ahmed, A.Y. Islmic Banks: Bases, Mechanism and Proposals for Better
Performance. A Journal of International Institute of Islmic
Economics. Vol.3. No. 4, International Islmic University, Islmabad,
Pakistan, 2000.
Ajagbe, I.S and A.N. Brimah. Islmic Bank Development and Evolution: Current
Issues and Future Prospects. Journal of Research in International
Business and Management (ISSN: 2251-0028) Vol. 3(2) , February,
2013.
Audu, Bello and Mikailu Abubakar. Challenges and Solutions to Islmic Banking
System in a PluralisticSecular Country like Nigeria. Mediterranean
Journal of Social Sciences MCSER Publishing, Rome-Italy Vol 5 No
6April 2014.
Hadi, Atanda Mashood, A General Appraisal of Islmic Banking System.

176
 Ilorin Journal of Humanities (IJOH)Vol. 3, No. 6, 2003.
Lasisi, Maruf Adeniran. Operationalizing Islmic Banking in Nigeria. Challenges
and opportunities. Economic and finance Review vol.3 April 2014
Lawal, Hussani. Essentials of Successful Islmic Banking. The Muslim World
League Journal, vol.22 9th oct., 1994
Lawal, Yekini Olawaiye. Islmic Economics the Cornerstone of Islmic Banking.
Journal of Economics and Engineering, ISSN: 2078-0346, 4,
December, 2010.
Makiyan, S. N. The Role of Rate on Loans in Islmic Banking System in Iran.
International Journal of Islmic Financial Services, Vol. 3 2001.
Malami, H. U. Prospects of Islmic Banking in the Muslim Minority Communities.
Journal Institute of Muslim Minority Affairs, XIII (II), 1992.
Muhammad, A.U and M.G Gulani. Challenges Facing the Acceptability of Islmic
Banking in Nigeria. International Journal of Economic Development
Research and Investments. Vol.4 No.3 December, 2013.
Muhammad Arif, Ashiq Hussain and Muhammad Azeem. Rib Free Economy
Model. International Journal of Humanities and Social Science Vol.2
No6 march 2012.
Okereke V.O.S and Ojukwu U.G. The Political Economy of the Proposed Islmic
Banking and Finances in Nigeria Prospect and Challenges. Kuwait
Chapter of Arabian Journal of Business and Management Review vol.
1, March 2012.
Olalere, Titilope Olusegun (mrs.) and Adesoji Adetunji Adenuga. Human Capital
Development in First Bank of Nigeria Plc. Mediterranean Journal of
Social Sciences, MCSER-CEMAS-sapienza Publisher, University of
Rome vol.4 No2. May, 2013.
Olokooba, Saka Muhammad.Taxation of Islmic Banking Product under the
Nigeria Law: Issues, Problems and Prospects. Ilorin Journals of
Religion Studies, IJOURELS vol.4 No1, 2014
Saddiqi, M. N. (1985)Partnership and Profit sharing in Islmic law. Leicester:

177
 The Islmic Foundation Economics and Finance Review Vol. 3(06),
April, 2014
Yusuf, Kolawole Jimoh. Islmic Banking: Socio-Economic Advantages and
Challenges to Nigeria. Springboard Journal No.1 Vol.5.Al-Hikmah
University, Ilorin Nigeria 2013 pp. 103.
Newspapers
The Nigerian voice, Problems and Prospects of Islmic Banking. Retrieved from
http://m.thenigerianvoice.com 20 Jan., 2016, 12:00pm
Eromosele, Abiodun. Nigeria Bank as Catalyst to Economic Growth. thisdaylive
20 may, 2015. www.thisdaylive.com accessed on 28 jan. 2016 01:33 pm
http://www.premiumtimesng.com/business/189686-first-bank-nigeria-appoints-
new-management-team.htmlRetrieved on 20 Feb., 2016 4:02pm
http://businessdayonline.com Retrieved on 24th Jan 2016 4:20pm
www.mcser.org(jornal/index.php/mjss)http://leadership.ng/news/481254/jaiz-bank-
offers-n2-4bn-right-issue.on 28th Feb. 2016 03:10 pm
www.thisdaylive.com. Retrieved on 18th Feb., 2016 4:02pm.
www.vanguardngr.com/2013/01/Islmic-banking-cbn-inaugurates-advisory-
council. Retrieved on 23rd Jan. 2016, 01:44pm

Unpublished
Aliagan, R.F. An Assessment of Product and Pricing of Islmic Banking Nigeria.
A Case Study of Jaiz Bank plc. A Long Essay, Ahmadu Bello
University Zaria, 2014
El-Gousi, A.M. Rib, Islmic Law and Interest. Unpublished Doctorate
Dissertation Philadelphia Temple University, Pennsylvania, 1982
First bank of Nigeria: Products Handbook
Ishaq, Laaro Yusuf. Jaiz Bank: Its Prospects and Challenges. Unpublished
Dissertation, University of Ilorin, 2015.
List of Interviewers

Names Place of Occupation Date

Interview
Ibrahim Ali Bank Staff of Jaiz 27th Jan. 2016
Alikali Headquarter, Bank plc

178
 Abuja Headquarter
Management
Department
Tauhidur- Bank Chief Risk 26rd Jan. 2016
Rahman Headquarter, Officer of Jaiz
Abuja Bank plc
Mallam Auwal Bank Staff of Jaiz 26rd Jan. 2016
Ado Headquarter, Bank plc the
Abuja Bank
Headquarter,
Abuja
Mallam Musa, Al-Hikmah Former staff of 15th Feb.,
Tajudeen University, First Bank of 2016
Ilorin Nigeria

179