Reps to investigate merits, demerits of non-interest banking system

The House of Representatives on Thursday mandated its Committee on Banking and Currency to analyse the merits and demerits of adopting a non-interest banking system in Nigeria.

This was sequel to the adoption of an amendment raised by House Minority Leader, Rep. Ndudi Elumelu (PDP/Delta) during debate on a motion by Rep. Kabir Tukura (APC/Kebbi) on the need to for the country adopt non-interest banking system.

Moving the motion, Rep. Tukura said that the non–interest banking, also known as profit and loss sharing banking system prohibits the payment of interest in all ramifications.

According to him, the system adopts the principle of profit and loss sharing between the parties, explaining that under the non– interest banking system, both the investor and the entrepreneur are seen as partners.

He added that when profit or loss is recorded, it is shared based on the level of financial participation by parties.

According to him, 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 conventional banking is an interestbased system whose relationship with the customer is that of the creditor and a borrower, where interest is fixed in advance and risk or loss is only incurred by the borrower.

“A large number of Nigerians, especially those from the north do not take loans with interest due to religious concerns, which thus short -changes them from benefitting from Federal Government policies and stimulus packages.

“It is constituting one of the major reasons for the slow economic growth in the region; 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,” he said.

The lawmaker said that the Central Bank of Nigeria (CBN) being the apex regulatory body for banks and other financial institutions had not done enough in encouraging non-interest banking in Nigeria.

Rep. Tukura said that the few commercial banks that embraced non-interest banking have made profits with high returns for investors, while at the same time the banks had created better opportunities for access to funds for business purposes with very low risk.

He prayed the House to urge the ministries of finance, agriculture and commerce to initiate deliberate policies that will encourage Bank of Industry (BOI) and Bank of

Agriculture (BOA) among others to provide non-interest banking to their customers. However, Rep. Nkem Abonta (PDP/Abia) said that Nigeria was operating a capitalist economy and expressed worry over Rep. Tukura’s proposal.

Rep. Abonta argued that some banks were already willingly practicing non-interest banking system in the country, asserting that to ask the CBN to review its policy by integrating non-banking system would be setting a dangerous precedence.

According to him, if commercial banks fail, they will easily blame it on noninterest banking system forced on them.

READ ALSO: COVID-19: Why Nigeria needs noninterest banking in financial sector

He therefore, submitted that the forces of demand and supply should be allowed to operate, urging the house to step down the bill.

At this point, Rep. Elumelu moved for an amendment of the motion to delete all the prayers and mandate the House Committee on Banking and Currency to investigate why Nigeria should adopt the system.

Speaker Femi Gbajabiamila in his ruling mandated the committee to investigate and report back to the House for further legislative actions.