June 26, 2022

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How Non-Interest Finance Institutions Support Corporate Governance in Nigeria

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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