Islamic Banking Discussions get ugly!

August 3, 2011

When I first read Dr. Ajetunmobi’s very enlightening presentation of Islamic Banking, thanks to Dr. Lai Opawoye, I was really excited and felt it was – it still is – a needed breath of fresh air on a little-understood but widely-commented subject.  I decided to record the discussions here not as a coordinator or rapporteur – I think the Doctor is, by default – but as a note-taker of sorts.

Quite a few of the contributors have taken Ajetunmobi on apparently in good faith but it seems there are always glitches to even the simplest of things Nigerian.  I’m no scholar but even at the very ordinary discussion level, I believe a contribution calls for the name of the contributor or group of people submitting a point of view to be identifiable as well as avoiding pouring of invectives on others.

Unfortunately, things seem to have reached a point like those sponsored blogs on Nigerian news site.  Points are made by faceless entities and individuals and, for a serious topic like this very divisive subject of Islamic Banking, it is a troubling aspect.

Please read these last discussions in which Dr. Ajetunmobi “begs”, almost, for understanding of the facts on the ground – as we are fond of saying in these parts – about the real practice of Islamic Banking which is the title:  whether or not Islamic Banking suitable for Nigeria and if it is true it charges no interest. It becomes interesting when we consider the fact that these discussants are mostly all Moslems.

At one point, I had asked AJETUNMOBI  whom I do NOT know who, and we all subsequently received an automated response saying they would get back to us shortly before a “J. Abdallah” came up as securehuda!

Dr. Ajetunmobi signs off with the last essay below, and so I must stop after this but PLEASE, read the final exchanges.  This country seems to be heading nowhere.  Please read part today and if you are busy, read the remaining part tomorrow.

I’ll leave this posting for Wednesday 3rd and Thursday, 4th, with the hope of letting more people get a chance to find out  the fact that Islamic Banking is NOT different from conventional banking no matter how it is presented.  On Friday, 5th, it’ the problems of getting Nigerian passports for Nigerians in Diaspora.  TOLA ADENLE.

AJETUNMOBI in reponse to Gasali:

Friday, July 29, 2011 11:39 PM

The statement that “Islamic Banking ? is based on Profit and Loss Sharing (PLS)” conveys only half the truth, i.e. the theory. The other half, i.e., the practical, involves non-profit and loss sharing (non-PLS) financing such as murabaha (markup or cost-plus sale) or ijara (lease) and, this non-PLS form constitutes the actual Islamic banking practices. Support for this disclosure comes from, yet again, ultrasound probe, the worked example produced by already established Islamic banks.

For instance, Al Rajhi Bank (the world’s largest Islamic Bank, operating almost exclusively in Saudi Arabia with a few branches in Kuwait), Kuwait Finance House (Kuwait’s largest Islamic Bank, operating mainly in Kuwait, Turkey and the Persian Gulf region, with a small presence in Malaysia), the Dubai Islamic Bank (the largest Islamic Bank in the UAE, with a small presence in the rest of the Middle East and Pakistan), and the Bank Islam Malaysia (Malaysia’s largest Islamic Bank, operating mainly in Malaysia with a small presence in the UK), altogether rely overwhelmingly on non-PLS financing. Even the Islamic Banks in Pakistan, Sudan and Iran, whose governments have fully Islamised their banking operations, also rely on non-PLS financing forms. So, given their overwhelming use of non-PLS financing modes after more than three decades since the introduction of Islamic banking, can Islamic banks then be considered a risk-sharing banking outfits in any meaningful sense?

A self-assurance statement is also made that ?Islamic Banking is a product that offers non-interest facilities to the interested customers.? That statement is not valid. A change of terminology, i.e., the substitution of ‘interest rate’ for ‘commission’, ‘profit margin’ or ‘markup’ by an Islamic bank does not make such a bank any different from a conventional bank. Indeed, in a recent “2nd World Conference on Riba,” held on the 26th and 27th July, 2011 in Kuala Lumpur, Malaysia, which was reportedly attended by General Muhammadu Buhari, the Presidential Candidate for the Congress for Progressive Change (CPC) in the last elections, a questioner asked during the discussion session that: “Since Finance deals with Riba exclusively & inclusively, is there truly such a thing as ‘Islamic Finance’?” In responding to this question, a number of technicalities and concepts were highlighted by a Muslim scholar to demonstrate that Islamic banking transactions mimic conventional, collateralised debt contracts very closely, often right down to actually using current market interest rates as pricing benchmarks. The scholar then remarked: “Understanding the technicalities of these theories & concepts may guide us to expose the deceptions in the so-called ‘Islamic’ banking & finance products that Muslims unquestionably and willingly accept and use throughout their lives.” (For details of this discussion entitled, ?Riba’ in Finance,? [[ click here: World Riba Conference 2011) ]]

The above seems to confirm, once again, that Islamic banking practice in its key operations does not resemble what its advocates say it is supposed to be. Given information asymmetry inherent in all financial transactions, as acknowledged by the above highlighted Islamic banks that have wholly adopted non-PLS financing, how can anyone accept for a second that the proposed Islamic banking in Nigeria would single-handedly overcome information asymmetry problem and thus concentrate only on PLS financing when those already operating for years are incapable of doing so. In fact, as noted in the last e-mail under reference, the “near absent of trust and serious corruption in our system” are substantial moral hazard against any implementation of PLS financing. In a few words therefore, no matter how much a pious Muslim may wish to avoid interest-based transaction, this is not in reality possible under any currently operating Islamic bank anywhere. Let’s be frank with ourselves, by engaging in debt-like instrument (non-PLS) as the main mode of its financing, Islamic banking, toto caelo conforms to the conventional banking norms.

A. Ajetunmobi

AJETUNMOBI in responses to Abdullah (and others)

With reference to your e-mail (reproduced below), I’ve already provided evidence of the potentialities of “Venture Capital” or PLS-based mode of financing in Europe in my previous correspondence, for instance, when I cited  the growth of companies such as Netscape, Hewitt-Packard, Sun Microsystems, Google, Apple, and Cisco which were largely financed by the venture capital industry to entrepreneurs, engineers and scientists, and which now employ directly and indirectly millions of people around the world. Let’s take Google as a case study: Google was started in 1997 by two graduate students in computer science at Stamford University. They came up with a simpler and faster way to conduct searches on the Internet. To finance their venture they raised $100,000 from an angel investor and later were able to secure $25 million in venture capital financing which is akin to mudaraba or musharaka from two venture capital firms in the Silicon Valley in exchange for a 10% stake in the company. Today, about 70% of the searches on the Internet first take place on Google. The company employs more than 4000 people and has a market capitalisation of about $80 billion. This story is only one of many.

Against this backdrop, two questions need to be asked: Islamic banks, by claiming to stay away from interest, though using codenames such as ‘mark-up,’ ‘commission’ and ‘cost plus profit’ for interest, and by claiming to share risk with their clients, though up to-date the actual practice of Islamic banks are far from this model, were supposed to help make the economic system more just, fair, equitable, and honest. Second, implicitly they were supposed to promote economic development of the Islamic world. Have the banks achieved any of these goals and objectives since being in existence for the past 30 years? NO.  Or, do you or anyone else have evidence that the Islamic banks (anywhere) have made any contribution in either of these areas?

Well, I must advise that we should avoid making wild guesses as to whether or not, as someone else has written, “Islam forbids ostentitious bragadocios.” It is a capital mistake to theorise before you have all the evidence. Qur’an urges: “Bring your proof if you are truthful” (2.111). The Bible similarly reads: “Present your case,” says the LORD. Bring forth your strong reasons, says the King of Jacob  …” (Isaiah 41:21-24). Islamic bank is not a cult organisation and so could not have encouraged the hoarding of information. For example, assets in Islamic finance, or figures on Islamic banks’ investment potential could be obtained from Statistical, Economic and Social Research and Training Centre for Islamic Countries (Sesric) or Annual Reports published by each Islamic bank respectively. Indeed, the 36th Annual Report 1431H (2010-2011) of Islamic Development Bank (IDB) has just been published and is on online for anyone to peruse. Perhaps your or someone else may wish to appraise this Report and find out how many PLS modes of financing IDB actually undertook in the previous year in contradistinction to my position as stated above.

My aim, like Pilate’s (John 18:38), is to find the truth. In this respect, you may send me details of your workshop and, after due consideration, I’ll get back to you of my decision. However, I’m sorry I’m unable to continue with further online discussion on Islamic banking or any other related matter at this stage with you (or someone else) as suggested. I have tried to show enthusiasm in the beginning, digging out what I’ve considered to be the truth and, accordingly, engaging “the proponents of the [Islamic] bank in sincere dialogue to discover the hidden riches of the concept for the benefit of mankind worldwide” for the past few months or so. Even the keenest knife is blunted by overuse. To be candid, I’ll be very busy this month onwards to attend to my academic works here in the UK. Nonetheless, if you (or others) have any cogent information or intellectual material on Islamic banking that you (or they) feel I should be aware of, I will be glad to consider such. Belated apology: I deliberately threw myself upon your indulgence by allowing the person who intimated me of your existence, Dr. Opawoye ( and few others as listed above to be aware of this transpiration. Hope you’re not offended by this action. Please, kindly note, once again, that I’ll not be able to respond to any e-mail on Islamic banking or on any other matter of any kind any longer, other than to read and note such down for the records.

Many thanks, A. Ajetunmobi.


Dear Mr Ajetunmobi, Ramadan Kareem

Thank you for educating me on your thought process and your comparison of Islamic Banking with conventional venture capital operation. You have asked for statistical evidence on Islamic banking however you have not provide same for Venture capital, It will sound more logical to me if you have done that. However I will like to engage you in an intellectual discussion rather that an argument ( since you have describe Sanusi Lamido as argumentative) If this is ok, we can invite you for a workshop, we can also discuss it online as you chose either directly with all the people in your list or between both of us.

Regards, J.Abdullah.

In a message dated 31/07/2011 21:18:10 GMT Daylight Time, writes:

Sorry Sir I sont seems to understand your line of argument, you may need to educate me more.



Dear Mr Abdullah,

Firstly, I being a Yoruba person, I’m reminded by one Yoruba aphorism, roughly translated as this: if you propose a medicine to cure my illness, I’m required to, first and foremost, ask you whether you have been afflicted with the same illness before and that the medicine you’re proposing to me has actually cured you of that illness. In this context, my line of argument is that Islamic banking advocates claim that it offers a radically different alternative to conventional finance. But I maintain that, as it is currently being practised around the world, Islamic banking simply replaces conventional banking terminology with terms from Classical Arabic and offers near-identical services to its clients, albeit, at a higher cost. However, since no one has monopoly of knowledge, and to satisfy my yearning as a Yoruba person, what I’m simply asking for now is a statistical evidence of the real (not theoretical) competitive advantages of Islamic banking comparative to its conventional counterpart.

A. Ajetunmobi


Although I’ve decided to move on from Islamic banking discourse to something else, I just quickly want to respond to your current e-mail …

You made the point, rightly so, that we should “labour less on the messenger and concentrate more on the message.” In fact, there is a maxim in Islamic thought made very famous by the Mufti of Saudi Arabia, the late Sheikh Ibn Baz: the criterion lies in what is said, not by whom it is said (al ibratu bi maa qaal, laa bi man qaal)  Yet, in your earlier comment on my article in the Punch, you branded me with deprecatory epithets, and now again, instead of analysing and attempting to understand my point of view in response to Mr. Kola’s e-mail, you took the easy way out by judging my intentions and classifying them accordingly. That is not in keeping with labouring less on the messenger and more on the message.

Presumably you are a Muslim. But on the matter of debate about certain issues, Qur’an asks all Muslims that they should produce decisive proof (burhaan), to prove their point. Indeed, Qur’an incessantly reproduces the arguments of idol-worshippers in Makkah and hypocrites in Madinah and rebuts them with proofs and with alternative arguments. Obviously, this Quranic methodology should be a lesson for any Muslim worthy of that name. That is, a worthy Muslim must form the habit of exposing falsehoods and confirming the truth. The methods of suppression and slander are alien to the methods of truth.

Furthermore, you bestowed great praise upon Islamic banking, noting that “the benefits to be derived far outway any premordial sentiments.” This is just an expression of personal opinion which anyone may find objectionable or worthy of criticism because the person can see no aspect of truth nor any factual substance therein. Factual information is different from making personal opinion. Factual information is subject to the test of scrutiny, verification or justification to ascertain its epistemological origin. In the context of Islamic banking therefore, evidence must be produced to show that Islamic banks, by claiming to share risk with their clients, though up to-date the actual practice are far from this model, have promoted economic development of the Islamic world. Similarly, evidence must be produced also to show that Islamic banks, by claiming to stay away from interest, though uses codenames such as ?mark-up,? ?commission? and ?cost plus profit? for interest, have, in reality, made the economic system of Muslim countries operating them more just, fair, equitable, and honest. People of the knowledge care only to look at the facts and not the outside picture. If ”the workings” of Islamic banking elsewhere, as “the alternative banking system” in Nigeria, cannot be scrutinised, verified,  corroborated and presented to the wider public as evidence to confirm their prospective benefits, any bestowal of praise on Islamic banking is, in my view, specious and self-justifying nonsense.

A. Ajetunmobi

>>> Nurudeen Akinyemi 02/08/11 1:30 PM >>>

Thanks for this your very ‘schorlarly” response to the ‘supposed” benefits derivable from the Islamic banking in Nigeria as observed by Mr. Kola.  However, I like to submit that the Islamic alternative banking system has enormous advantages and benefits isn’t in contention.  Infact, it has gained wider acceptance both in Europe and America both continents mostly dominated by non-muslims.  You’d agree with me that the practice had been subjected to ‘ultra sound” at the conception stage by experts in these two non-muslim places; outcome of their “ultra sound” examination was that the benefits to be derived far outway any premordial sentiments hence they have licensed the alternative banking system and as you can confirm, it has been tremendously flourishing even in the thick of the recent global economic meltdown.

In Islamic banking, the bank and the loanee partner on the running of the project hence when profit is made, it is shared in an agreed ratio so also loss unlike the conventional interest-based banking where the bank continues to charge interest regardless of profit or loss situation thereby grounding productivity.  Many people and businesses have untimely died as a result of inability to service the compounded interests.  As regards your take on commission and charges, you know too well that apart from the “killing interests”, the banks also charge commissions, processing and management fees which are paid upfront by the loanee …

You are a lawyer and I guess you have a limited knowledge on banking, this is evident in your arguments against the Islamic banking.  I think you need more education on the workings of the alternative banking system.  I would want to advise that we labour less on the messanger and concentrate more on the message.  This issue is generating this noise because of Sanusi who happens to be a muslim forgeting that the noble idea was conceptualised under Soludo, a christian and former CBN governor.

I just fear a situation that you allow youself to be used by enemies of Islam to fight against the will of the people -muslims and non muslims.  I suppose you are a muslim at least judging from your name …



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