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5.0 Conclusion Risk management

Nobody is sure of what is going to happen in the future. Therefore, there is the need to take time to understand, plan and strategise prior to se-lecting any specific investment products. The Prophet (PBOH) is reported in one of his sayings to have advised an Arab who had left his camel untied because he said he put his trust in God to tie his camel first; and then put his trust in Allah. This shows how risks are managed to reduce risk of loss or calamities. There are many Quranic verses and Hadiths which can serve as a lesson for Muslims and Non-Muslims who wish to reduce risk. The history of Prophet Muhammad, Prophet Yaqub, Prophet Yusuf, etc is full of lessons on how risks can be managed.

As a way of reducing risks, periodic progress reports, say, weekly, monthly, quarterly, yearly etc to minimize information asymmetries must be given. To reduce risk associated with Salam and Istisnaa‘, parallel Salam and parallel Istisnaa‘ respectively can be contracted or arranged so as to avoid the risks of having unsold stocks in one’s warehouse. Another way by which risks are reduced is to have a strong monitoring committee to oversee the implementation of the contract In order to ensure that the seller or the creditor gets his claims back safely and with ease, Kafaalah (guarantee), ha-waalah (assignment of debt) and rahn (collateral security) are allowed in an Islamic economy. The implication of Kafaalah is that if an obligor is unable to pay a debt or deliver a property, the liability falls upon the guarantor to pay up the amount guaranteed. The Quran(Q12:72 establishes the concept of Kafaalah as regards the story of prophet Yusuf when his brothers were

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promised a camel load for any person who produced the missed (golden) bowl of the King (Q12:72). Virtually, all Muslim jurists supported the issue of Kafaalah on the basis that that would prevent or reduce defaulting on the part of the debtors and give creditors the rest of mind of getting their funds back intact. Hawaalah (Assignment of debt) is another way of guarantying a debt in Islam. It means transferring of debt from the liability of original debtor to the liability of another person. (Zali F, 1318). Hawaalah is like negotiable instruments in the sense that it guarantees the payment of debt to the creditor. Ar-Rahn (Collateral Security) is one of the ways by which a seller is assured of getting his money as and when due. The legality of Ar-Rahn is confirmed in the Qur’an (Q2:283 ;Q52:21 and Q74:38) and Hadith.

One of the ways by which risk is managed in an interest free system is to appoint one’s client as one’s agent to purchase the commodities the client wants the Islamic bank to finance to avoid the risk of rejection. Another ways by which risks are managed in an interest free system is to ensure credit worthiness of the users of the fund and their proven records of suc-cessful business experience. The Islamic bank can also invest in highly credit-rated businesses in as much as such businesses are sharii‘ah compli-ant and are devoid of charging interest. Another measure to discourage cli-ents from defaulting is to ask them to pay some amounts into the purse of a charitable organization for the purpose of taking care of indigent people. The funds should not be used by the bank (Zaidi, 1983).

If the Islamic financial products are used, they can have a more positive impact on real macroeconomic aggregates, such as the growth rate, the prod-uct mix of the GDP or the income distribution than credits modes. Therefore, to choose credit modes as a way of financing or investments is suboptimal (Siddique, M.N. 1991). They can boost the economy of a society and create employments for employable people, who are unemployed, generate income, eliminate criminal activities in our society and give rise to all the good mul-tiplier effects of such an arrangement.

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SUMMARY

Nigeria got her independence in 1960 and since that time various DFIs were established at both the national and state levels in Nigeria to cater for economic de-velopment of some specific sectors. The anticipation was that the DFIs would be able to cover the areas neglected by the commercial banks because of the huge fi-nancial requirements of the different sectors in the economy. It is also believed the DFIs would become specialist in their various fields to the extent that they exert greater positive impacts on the standard of living of people, infrastructural facilities, socio-economic development, etc than the commercial banks. However, hope has not been met up till today. Our roads are full of pot-holes, power supply is epileptic;

most of the population live in de-humanizing housing environment while those that have access to average housing do so at abnormal cost.

This paper set out to answer the question “why has DFIs in Nigeria remained passive and irrelevant in the drive towards development of the Nigerian Nation de-spite all restructuring and reforms of the institute over the years?” In this paper we reviewed the evolution and development of DFIs in Nigeria between 1964 and 2010 as well as the overview of the structure of the Nigeria financial industry. We dis-cussed the major Islamic financial products and services such as Mudaarabah, Mu-shaarakah, Muraabahah, Ijaarah, Istisnaa‘, Salam etc. in relation to national

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