Friday, August 06, 2021 / 11:00 AM / by Bukola Akinyele-Yisau for
WebTV / Header Image Credit: LinkedIn; Ummahani Amin
Non-Interest Finance can support improvement in corporate governance practices. Mrs. Ummahani Amin, Managing Partner, The Metropolitan Law Firm highlighted the point while making contributions to the discussion on strengthening corporate governance in Nigeria's non-interest finance market.
According to Amin, non-interest finance already has its framework to promote good corporate governance practices. She mentioned regulators like the Accounting and Auditing Organization for Islamic Financial Institutions, AAOIFI that established principles for the board in Nigeria with regulations that are of high standards.
Speaking on the adoption of corporate governance in non-interest financial institutions, Ummahani explained that it is similar to the conventional corporate governance practice. Non-interest finance according to her is also subject to the Nigerian code of corporate governance of 2018.
She said the non-interest financial institutions are unique, as their activities and products are shariah compliant. This covers the distribution of income to shareholders and guides investment options for account holders.
It also focuses on providing guidance to the NFIs on the wider social role. According to her, there is also a national shariah board with the overall authority of the shariah governance framework policy.
According to her, the non-interest financial institution's corporate governance is guided by the shariah supervisory board, that carries out the necessary oversight functions.
She acknowledged the fact that key regulators like the Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), National Insurance Commission (NAIC) and the National Pension Commission (PENCOM) have provided guidelines for non-interest finance operations. This she noted has enabled the harmonization and standardization of the practices of NFIs in accordance with shariah principles.
On the standard business governance ethos that shapes Shariah-based enterprises, she said Islamic finance is consistent with the principles and encourages effective mobilization of capital for the benefit of the real economy.
She added that non-interest finance is a pro-real sector and promotes risk-sharing in all its financial transactions. Islamic finance according to her focuses on credit risk, unlike conventional finance that disconnects itself from the real sector.
Discussing the provisions around the law of contracts in Nigeria, the lawyer explained that the law of contract allows individuals to agree upon the manner they want to transact with one another.
For the non-interest finance ecosystem, she said "It is common to see contractors stating that the contract should be governed in accordance with the laws of Islamic finance commercial law transactions. This is acceptable and common in all secular economies that have adopted the Islamic finance system".
According to her the rise in the adoption of alternative finance structures in Nigeria is mainly governed by contracts that are in alignment with Islamic principles. This also ensures that parties to a transaction simply agree to engage in Ijarah, Salam or Istina in line with relevant Shariah standardized contracts.
She noted that in the application of Islamic laws of a contract in a nation like Nigeria, the law is enforceable by the court and in the financial sector, the standardization of Islamic contract is in the pipeline with the development of a regulatory framework for using Islamic finance structures.
Taking on the advocacy role she emphasized the fact that the Nigerian government legislative and regulatory approach towards non-interest finance, is designed to facilitate a level playing ground, that enables the large Muslim demography to practice finance in accordance with their faith.
Differentiating between non-Interest finance and conventional finance she said the latter gives loans, demands collateral for loans and continues to charge interest and if the customer defaults, the lender would charge a compound default penalty. For Islamic financial institutions, there is a loan agreement and where there is a default, it would equally come with a penalty that does not go to the lender but to charity.
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