interest-free banking in Nigeria: Reps Unveil Plans, passes finance bill for third reading

As part of it’s efforts to stimulate the Nigeria’s economy the House of Representatives has unleashed plans to adopt non-interest banking services in the nation.

The resolution followed a motion sponsored by Rep. Kabir Tukura on Thursday.

The lawmaker, in the course of reading his motion, stressed the need for Federal Ministries of Finance, Agriculture and Commerce to provide a deliberate policy that will encourage Bank of Industry (BOI), Bank of Agriculture (BOA), Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Micro Finance Banks and other Government-owned Financial Institutions to provide non-interest banking to their customers.

He observed that “non-interest banking has become acceptable globally as it is seen to be highly efficient and beneficial, expressed optimism adoption of a non-interest banking (NIB) system will stimulate the nation’s economy”, as he urged the “Central Bank of Nigeria (CBN) to review its current policy on non-interest banking and direct Federal Government Development Bank and Commercial Banks to integrate same into their systems, with the view to allow Commercial Banks carry it out as a product rather than having to acquire a separate license for non-interest banking as is obtainable currently”.

The motion noted that” non–interest banking, also known as Profit and Loss Sharing (PLS) banking system prohibits the payment of interest in all ramifications and then adopts the principle of profit and loss sharing between the parties.

“The House also notes that under non–interest banking, both the investor and the entrepreneur are seen as partners, thus when profit or losses are made, same is shared according to the formula that reflects their level of financial participation.

“The House further notes that non-interest banking encourages asset banking as financial transactions are tied to tangible assets like real estate investment or investment on goal, which usually appreciates over time and does not depreciate.

“The House is concerned that conventional banking is an interest-based system whose relationship with their customer is that of creditor and borrower, where interest is fixed in advance and risk or loss is only incurred by the borrower.

“The House is also concerned that a large number of Nigerians, especially those from the Northern part of the country, do not take loans with interest due to religious concerns, which thus short changes them from benefitting from Federal Government policies and stimulus packages and is constituting one of the major reasons for the slow economic growth of the region.

The motion raised concerns “ that Nigeria’s lending rate, in conventional banking, is one of the highest in the world, and creates serious hardship, particularly on low–income earners, most especially in this period of the COVID–19 pandemic.

“The House is disturbed that with higher interest rates, interest payments on credit cards and loans are more expensive, consequently discouraging people from borrowing and spending with the attendant decrease in consumption.

“The House is cognizant that the Central Bank of Nigeria, which is the apex regulatory body for banks and other financial institutions have not done enough in encouraging non-interest banking which would provide another palliative measure in this season of COVID–19 pandemic.

“The House is also cognizant that few commercial banks that embraced non-interest banking have made profits with high returns to the investors and at the same time, created better opportunities for access to funds for business purposes with very low risk,”.

However, in his contribution, Rep. Uzoma Nkem-Abonta who opposed the motion argued that as Nigeria operates a capitalist economy, and banks go into business to make a profit, it would be counterproductive for the House to now force non-interest banking on banking institutions.

He stated that in the instance that a bank fails, it could make excuses that it was forced into non-interest banking and couldn’t cope, adding that asking the Central Bank of Nigeria to mandate banks to operate non-interest banking can turn out to be economically harmful in the long term.

While noting that the choice of banking style should be a matter of personal policy on an individual basis of the banks, he urged that the motion should be stepped down for further legislative input.

While ruling, the Speaker, Hon. Femi Gbajabiamila who observed that there is need to subject the motion to further legislative scrutiny, referred the motion to the House Committee on Banking and Currency to investigate the need to adopt the non-interest banking system and report back to the House within 8 weeks for further legislative action.

Also at plenary, the House passed through Second Reading a bill for an Act to amend the Capital Gains Tax Act, Companies Income Tax Act, Personal Income Tax Act, Tertiary Education Trust Fund (Establishment) Act, Customs and Excise Tariff, etc. Consolidated) Act, Value Added Tax (VAT) Act, Federal Inland Revenue Services (Establishment) Act, Nigerian Export Processing Zone Act, Oil and Gas Export Free Zone Act, Fiscal Responsibility Act, Companies and Allied Matters Act, 2020, Public Procurement Act, in order to make further provisions in connection with the Federal Government financial management, public revenue and for related matters.

In his lead debate, the Majority Leader, Hon. Alhassan Ado-Doguwa explained that the proposed bill seeks to bring various Acts of Parliament up to date with the realities of the times, just as he expressed optimism that the proposed Finance bill will strengthen the legal framework to ensure they meet international and global financial management practices.

In her remarks, Hon. Lynda Ikpeazu who expressed support for the bill, argued that the proposed amendments when passed into law will promote the ease of doing business in the nation, attract investors and expand the wealth creation drive of the government as well as boost the national economy.

To this end, the bill was referred to the House Committee on Finance for further legislative action.

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