Review of Governance and Sharī‘ah Structure of Non-Interest
(Islamic) Financial Institutions in Nigeria.
A case study of JAIZ Bank, TAJ Bank and Lotus Bank.
By
ADEOYE, KAZEEM ADEWALE University of
Lagos Business School (ULBS) Executive Master of
Non- Interest Finance (EMNIF)
Abstract
Non-Interest (Islamic) Financial Institutions (NIFIs) in Nigeria are governed by two boards: Boards
of Directors (BoDs) and the Advisory Committee of Experts (ACE). This governance structure is in
alignment with the global best practice and it is a unique and fundamental differentiating feature of
Islamic Financial Institutions corporate governance system in the world. This unique governance
system may not be unconnected with strong institutional resilience and sustainable control
mechanism the NIFI enjoys. The ACE as referred to by the Central Bank of Nigeria (CBN)
is synonymous to Shari’ah Supervisory Board (SSB) by the Accounting and Auditing Organization
for Islamic Financial Institutions (AAOIFI). Thus ACE and SSB will be used interchangeably. ACE
is a panel of Shari’ah scholars who act independently from other organs. This research work looks at
the governance structure of the three full-fledged NIFIs in Nigeria, and the relationship of the
Advisory Committee of Expert (ACE) otherwise called Sharia’h Supervisory Board (SSB) with other
organs as it relates to the independence of ACE. It further evaluate its compliance with the Central
Bank of Nigeria (CBN) guideline and, AAOIFI Standard. It finds the model of the governance
structures and identify the membership of the organs for the three selected institutions - Jaiz Bank Plc,
Taj Bank, and Lotus Bank
Page 1 of 10
Introduction
Non-Interest (Islamic) banking is becoming increasingly popular as a viable option to conventional
banking system. While conventional banking system is popularly known as interest-based banking
system, Islamic banking system is popular for being a non-Interest banking financial system which
prohibits all forms of interest, avoids unethical investments in all forms, and adopts profit-and-loss
sharing principle. Thus, Islamic Bank is a model of non-interest financial system which form of
services and activities is consistent with the principles of Islamic commercial jurisprudence and its
application through the development of Islamic economics. [1] Further to the global economic crisis
of 2004 -2005 which affected mostly conventional banks with marginal or no impact on Islamic
banks and the sustainable profitability tendences of Islamic banks as established by the International
Monetary Fund (IMF), the Federal Government of Nigeria through the Central Bank of Nigeria
(CBN) being the highest regulatory body in the Nigerian banking sector decided to join the race like
its counterparts in United Kingdom, USA, Australia, Malaysia and South Africa to dualize the
Nigerian banking sector by granting license to banks to offer non-interest financial services, either
full-fledge or its subsidiary. [1] A decade ago, Islamic model of banking was officially introduced
to dualize the financial sector in Nigeria to expand the Nigerian capital markets for emerging
economics among other reasons. [1] On Monday June 20, 2011, CBN announced the issuance of
Approval-in-Principle to Jaiz Bank Plc as the first fully fledged non-interest (Islamic) financial
institution in Nigeria while Taj Bank and Lotus Bank became the second and third Non-interest
(Islamic) financial institutions in Nigeria respectively. Within 10 years, the industry has grown
tremendously and have gained popularity. One of the unique features of the Non-Interest financial
Institution in the world is its corporate governance and shari’ah structure. This fundamental
uniqueness underscores the inseparability of the operation of Islamic financial institution from the
principle of Islamic Jurisprudence (Shari’a).
Shari’ah Governance Structure and Compliance
Sharī‘ah governance is defined in the IFSB Sharī‘ah Governance Standard number
10 issued in December 2009 as a set of institutional and organisational arrangements
through which an Islamic Financial Institutions ensures effective independent
oversight of Sharī‘ah compliance over the following structures and processes:
•
•
•
Issuing Sharī‘ah resolutions.
Dissemination of information on Sharī‘ah resolutions to management.
Sharī‘ah compliance review and audit
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Compliance with the principles of Islamic Commercial Jurisprudence is a critical element of noninterest (Islamic) banking and finance. A framework for ensuring such compliance is therefore
imperative for strengthening the regulatory and supervisory oversight of the industry and nurturing a
pool of competent experts in this field [2]. Consequently, all institutions offering non-interest
(Islamic) financial services under the purview of the Central Bank of Nigeria (CBN), herein
designated as Non-Interest Financial Institutions (NIFIs) in Nigeria are required by CBN to establish
an advisory body as part of their governance structure to be known as “Advisory Committee
of Experts” (ACE)[2]. To ensure regulatory compliance, CBN has developed the guideline for
the governance of the Advisory Committee of Experts for non-interest(Islamic) financial
Institutions (NIFIs) in Nigeria. As stipulated in the guideline , to effectively play its role, the ACE
shall operate as an independent body, with the principles of competence, integrity, confidentiality and
consistency properly enshrined in its operations. It is expected that an independent ACE will engender
public confidence, thereby promoting the growth and development of the industry.[2] The ACE
are otherwise known as the Sharī‘ah Supervisory Board (SSB).
Apart from the model of operation and fundament guiding principle, corporate governance is another
major differentiating factors of Islamic financial system from conventional system. Corporate
governance deals with the structural arrangement, inter-relationship and interdependences of these
governing bodies and other associated stakeholders including the shareholders as it relates to the way
the system is controlled and directed towards achieving the organizational vision and mission. Unlike
in the Conventional Financial Institution, Islamic Financial Institutions (IFIs) are governed by two
boards: the Board of Directors (BoD) and the Sharī‘ah Supervisory Board (SSB). The SSB is a panel
of Sharī‘ah scholars who act independently from other governance organs [3]. The SSB plays both
supervisory and consultative roles for all the stakeholders which include advisory, approval and audit
roles. The ACE majorly ensure that all activities of the bank comply with the objectives of Maqasid
Shari’ah which includes preservation of religion (Islam), preservation of life, preservation of intellect,
preservation of wealth and property, and lastly the preservation of progeny. ACE has the final say on
matters that has to do with Islamic jurisprudence which is principle guiding the operation of the Noninterest (Islamic) financial Institutions.
Role of Shari’ah Advisory Board
The SSB plays both supervisory and consultative roles for all the stakeholders which include
advisory, approval and audit roles. Besides normal audits, Lotus Capital subjects itself to a regular
Shari’ah review of operations carried out by an independent Shari’ah Advisory Board. This review
ensures that we do not use funds for prohibited activities and also guides the development of new
products and services. The members of the Shari’ah Advisory Board are Islamic scholars, well
versed in Islamic laws, principles, and traditions relating to trade, finance, and economics. The
Shari’ah Advisory Board confirms whether, in their opinion, current and proposed investments are
acceptable from an Islamic perspective [4]. The purpose of the SSB is twofold:
1. Financial institutions need to ensure that the products and services they offer are genuinely
Sharī‘ah compliant and are in line with the institutions’ standards, principles and shareholders’
requirements.
2. Investors’ and clients’ need to be able to ensure their investments are in line with Sharī‘ah .
Ultimateresponsibility for Sharī‘ah compliance remains with senior management of
the organisation. [5]
Page 3 of 10
Models of Corporate governance and Shari’ah Compliance
Independence of the Shari’ah Supervisory Board (SSB) otherwise known as Advisory Committee of
Experts is an important element in the corporate governance of Non-interest Financial Institutions
(NIFIs) in Nigeria. The extent of the independence is dependent on the established relationship
between the other governance organs such as the Board of Director, Executive Management and the
Shareholders. The degree of the independence of ACE can only be appreciated through the review of
the respective organization structure of the NIFI vis-a-viz the hierarchical position of the ACE (SSB)
in the chart. From the literature review, there are three possible relationship model between the ACE
(SSB) and other organs. The models are illustrated in the figures below.
Figure 1. The SSB hierarchical position in the organization chart (first model)
Figure 2. The SSB hierarchical position in the organization chart (second model)
Page 4 of 10
Figure 3. The SSB hierarchical position in the organization chart (third model)
In the model 1, SSB is located higher than the Board of Directors and this is the highest position for
SSB in the NIFI structure. This model allows for maximum independence of ACE. In model 2, SSB
is below the Board of Directors but at the same level with the executive management. In this model,
ACE reports directly to the board and has a dotted line to the executive management. Research has
shown that the executive management has some form of influence in the independence of the SSB in
model 2. In model 3, ACE reports to executive management which indicate lack of independence of
the SSB. In this model, SSB will most likely exhibit the characteristics of the internal Sharī‘ah audit
department. The third model is therefore undesirable to foster the independence of the Sharī‘ah
Advisory board or advisory Committed of Experts.
Conceptual review of the Governance and Sharī‘ah Structure of the selected NIFIs in Nigeria
The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) regulates the
work of IFIs and addressed the SSB independence in its first standard (AAOIFI governance standard,
No. 1, 2008). The standard emphasizes that SSB members have to be non-management directors with
no ownership in the IFI. In addition, the AAOIFI governance standard (No. 5, 2008, Para 2) defines
the SSB independence as
“An attitude of mind which does not allow the viewpoints and conclusions of its possessor to become
reliant on or subordinate to influences and pressures of conflicting interests. It is achieved through
organizational status and objectivity”. This definition emphasizes the internal side of
independence (attitude of mind) as well as the external side (organizational status). El-Khelaifi
(2005) defines the independence of the SSB as
“The authority that enables the SSB to conduct its tasks with objectivity and complete freedom”.
This definition emphasizes SSB independence in achieving its role and conducting its tasks with no
pressure from other governance organs..
Page 5 of 10
This research work looked at the relationship of the ACE (SSB) with other organs, evaluate
its compliance with the Central Bank of Nigeria (CBN) guideline and compare the membership of the
organs for the three selected institutions namely; Jaiz Bank Plc, Taj Bank, and Lotus Bank.
Reporting Relationship of ACE with other Organs.
The relationship between the ACE and the other governance organs characterizes the ACE
independence and reporting line(s). In compliance with the CBN guidelines on the governance of
advisory committees of experts for non-interest (islamic) financial institutions in Nigeria , all the
three selected NIFIs in Nigeria have the same governance structure with respected to their ACE in
line with CBN requirements. Section 9.1 of the CBN guidelines stipulates that the ACE shall report
to the Board of Directors of the NIFI and have a dotted reporting line relationship to the MD/CEO.
Thus, figure 4.0 below illustrates the common position of ACE in the organization charts of all the
three selected NIFIs. The structure is similar to the second model in figure 2.0 above but it
is differentiated with the addition of dotted reporting line to the MD/CEO as required by the CBN.
Figure 4. The ACE hierarchical position in the organization chart of Jaiz Bank, Taj Bank and Lotus Bank
From the research finding as illustrated in the figure 4, it shows that all the three selected NIFIs are
structured based on the CBN requirements. Further research is required to determine the effect of
this structure on the independence of ACE and their effectiveness.
Page 6 of 10
Membership of the Governance Organs
The table 1.0 below identifies and compares the membership composition of the board of directors of
the three selected NIFIs.
Table 1.0: List of members of Board of Directors of Jaiz Bank, Taj Bank and Lotus Bank
S/N
1
NIFI BOARD OF DIRECTORS COMPOSITION AS AT AUGUST 22, 2022.
JAIZ BANK PLC [6]
TAJ BANK [7]
LOTUS BANK [8]
ALHAJI (DR.) UMARU ABDUL
ALHAJI TANKO ISIAKU
HAJARA ADEOLA
MUTALLAB, CON (CHAIRMAN)
GWAMNA (CHAIRMAN)
(CHAIRMAN)
2
3
HASSAN USMAN (MD/CEO)
ABDULFATTAH OLANREWAJU
AMOO
HAMID JODA MD/CEO
SHERIF IDI
KAFILAT ARAOYE (MD/CEO)
TOYIN KEKERE-EKUN
4
5
SIRAJO SALISU PhD
AHMED A. HASSAN
TATA SHAKARAU OMAR
BARRISTER HABIB ALKALI
ESQ
ADEOYE FADEYIBI
NURUDEEN LEMU
6
DR. AMINU ALHASSAN
DANTATA, CON
MARIAM IBRAHIM
GEN. SANSADEEN AWOSANYA
7
8
SEEDY NJIE MOHAMMED
ALHAJI (DR.) MUHAMMADU
INDIMI, OFR
AHMED JODA
ADEKUNLE JAMES AWE
MUHAMMED BABANGIDA
ALHASSAN ABDULKARIM
9
10
MALLAM FALALU BELLO, OFR
HRH, (ENGR.) BELLO
MOHAMMED SANI, OON
ALHAJI (DR.) MUSBAHU
MOHAMMAD BASHIR
ALHAJI (DR.) UMARU
KWAIRANGA
ALHAJI MUKTHAR SANI HANGA
ALHAJI IBRAHIM MAMUN
MAUDE
DR. ABDULLATEEF BELLO
MRS. AISHA WAZIRI UMAR
CHARLES EBIENANG
KOGIS JONATHAN LUKA
MOINUDDIN MALIM
NURATU BATAGARAWA
MR. LAWAL GARBA, FNIQS
MUHAMMED ATIKUABUBAKAR
ALH. MUSTAPHA ADO
MUHAMMAD
11
12
13
14
15
16
Table 2.0: List of members of Advisory Committee of Experts (ACE) of Jaiz Bank, Taj Bank and Lotus Bank
NIFI ADVISORY COMMITTEE OF EXPERTS MEMBERSHIP AS AT AUGUST 22, 2022.
S/N JAIZ BANK PLC [9]
TAJ BANK [10]
LOTUS BANK [8]
1
PROF. MONZER KAHF (Chairman)
ASST PROFESSOR ZIYAAD
PROFESSOR AHMAD
MAHOMED
MURTALA
2
DR. MUHAMMAD ALHAJI ABUBAKAR
PROF. MUHAMMED TABIU
3
SHEIKH ABDULWAHAB ABDALLAH
MUHAMMAD
DR. SA’ID ADEKUNLE MIKAIL
4
DR. AHMAD BELLO DOGARAWA
TESLEEM O. I. AKOSILE *
DR. MARJAN BINTI
MUHAMMAD
SHAYKH HAYTHAM
TAMIM
Note: *Teslim Akosile is no longer with Taj Bank. This is the finding from the research work.
Page 7 of 10
Table 3.0: List of Management Team of Jaiz Bank, Taj Bank and Lotus Bank
MANAGEMENT TEAM
S/N
JAIZ BANK PLC [11]
TAJ BANK [12]
LOTUS BANK [8]
1
HASSAN USMAN
HAMID JODA
USMAN OKOYA
2
ABDULFATTAH
OLANREWAJU AMOO
SHERIF IDI
BABATUNDE
LAWAL
3
SIRAJO SALISU PhD
SAHEED ADELUOLA EKEOLERE
FUNSO TOOKI
4
AHMED A.HASSAN
TAJUDDIN AHMED MAHJOUB
BIYI OGUNDEPO
5
MALAM ISMAILA ADAMU
USAMA SALEH
UYOYOU EWHE
6
MUSA ZARA IBRAHIM
MR. AMINU HABU ALKASSIM
7
RUKAYAT O. DAHIRU
FAJIMI OLUSOLA ADEWALE
RISKIAH ADAMADEDIMEJI
OLUSESAN AJAYI
8
ABDULLAHI USMAN
FRANKLIN OKWUDILI EBOAGWU,
ACIPM, HRPL
9
MUHAMMAD KABIR
MUHAMMAD*
OLADELE ADEWUNMI
10
MUSA POTISKUM
MICHAEL ODIM
11
MR. SHEHU MOHAMMED
OLA BAKARE
Findings from table 1.0. reveals that Jaiz Bank has the highest number of Board members of
16 members, followed by Lotus Bank with 12 members and Taj Bank with 11 Board members. Only
Lotus Bank has a female Board Chairman. Each Bank has MD/CEO as board member. There is no
information that suggest that performance of the bank in line Sharī‘ah principle has relationship the
number of board members.
From table 2.0., all the three selected banks have the minimum number of 3 ACE members as required
by the Central Bank of Nigeria. Only Jaiz Bank has the highest of four ACE members.
Table 3.0. comprises the members of the executive management of the three banks. From the
information source, which is the website of each bank, all the Bank have MD/CEO as a member of
the executive management except for Lotus Bank. The exception might not be unconnected to the
unreliability of the data from the website.
A personal and independent interaction with members of the internal Sharī‘ah Audit of the Banks
reveal that there is harmonious relationship between the Internal Sharī‘ah Audit unit and the
management in terms of independence of their roles. Abdulrahman Murtala Muhammad and Lukman
Raji of Jaiz Bank and Lotus Bank Internal Sharī‘ah Audit respectively were reached out to. During
the research, it was found out that Taj Bank has a new Head, Internal Sharī‘ah Audit – Usama Saleh.
Effort to reach him via his direct line proved abortive. As part of the internal Sharī‘ah audit plan and
in compliance to ACE guidelines, Internal Sharī‘ah Audit of the banks conduct Sharī‘ah audit twice
in a year.
Page 8 of 10
Recommendation and Conclusion
It was found out that the governance and Sharī‘ah structure adopted by the Banks is based on and in
compliance with the CBN requirements. However, the relationship of Advisory Committee of Expert
as prescribed by Central Bank of Nigeria does not guarantee the required independence of Advisory
Committee of Experts. A structure where the ACE reports to Board of Directors and equally in a
dotted line to the MD/CEO will, to some extent, undermine the independence of the ACE.
For stronger independence of ACE to ensure effective independent oversight of Sharī‘ah compliance
it is recommended that ACE should report only to the Board of Directors while playing a discretionary
consultative role to the Managing Director and/or the Executive Management team. Since the
MD/CEO is an automatic member of the Board of Directors, having a statutory reporting line to the
MD/CEO amounts to duplication. MD/CEO can seek clarification on Sharī‘ah issue from the ACE
through the internal Sharī‘ah Audit. This will accord more recognition to the Internal Sharia Audit of
the Banks.
The most current CBN guidelines with respect to the governance of Non-Interest Financial Institution
is dated 2015. This guideline requires review to amend view regulations and introduce new ones for
currency and continuous improvement.
To avoid the risk of breaching the regulatory requirement with respect to the members of Advisory
Committee of Experts, the Banks are advised to ensure minimum of 4 ACE members as against the
minimum three required by CBN. In the event of sudden exit of a member, the Banks will not be
exposed to regulatory sanction. Younger ACE members should also be encouraged for succession
planning. Banks are also advised to constantly update the information on their website to ensure
members of the public are adequately and accurately informed.
For capacity building, Banks as part of their corporate social responsibility should support the training
and development of human capacity in the area of Islamic finance in order to develop
sufficient resources and capabilities that will ensure will have locally trained qualified scholar as
members of ACE. There is need for capacity building as the study reveals there are equal or more
foreigners in the compositions of ACE members than Nigerians.
Page 9 of 10
References
1. M. Nabiebu & M.T. Otu “The Legal Conundrum of Non-Interest Banking. A Case Study of
Islamic Bank in Nigeria,” International Journal of Scientific Research and Management
(IJSRM) (|Volume||07||Issue||07||Pages||LLA-2019-141-152||2019||)
2. (Samy N. & Chris P, 2010)
“The Independence of the Sharī‘ah Supervisory Board in the Islamic
Financial Institutions Of The GCC Countries” Corporate Board: Role, Duties & Composition
/ Volume 6, Issue 2, 2010
3. “Guidelines on the Governance of Advisory Committees of Experts for Non-Interest (Islamic)
Financial Institutions in Nigeria” Financial Policy & Regulation Department, Central Bank of
Nigeria, Abuja. February 20, 2015.
4. https://www.lotuscapitallimited.com/who-we-are/Sharī‘ ah -board/
5. Lecture Note of Sharī‘ah Audit & Compliance on Sharī‘ah Supervisory Board, a course material
of the University of Lagos Business School presented by the Module Instructor, Larry Sharafa.
6.
7.
8.
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10.
11.
12.
https://jaizbankplc.com/about-jaiz-bank/board-of-directors/
https://www.tajbank.com/about-taj-bank/board-of-directors/
https://www.lotusbank.com/our-team
https://jaizbankplc.com/about-jaiz-bank/advisory-committee/
https://www.tajbank.com/about-taj-bank/ace-members/
https://jaizbankplc.com/management-team/
https://www.tajbank.com/about-taj-bank/senior-management/
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