Subsequently, two licenses were granted in 1992 but unfortunately, none could commence operation until the former habib nigeria bank limited now bank phb pioneered a non interest banking window in 1999 umar, 2011. Central bank of nigeria guidelines on electronic banking in nigeria preamble. Nigeria banks lending rates, interest rate in nigeria. Non interest banking window of a conventional bank. Salim salihu muhammed nigerias quest for a virile banking reform had led to the adoption of several policies and strategies that would truly give the nations economy an edge towards growth and sustainability. Specialised banks include noninterest banks, microfinance banks, development. Cbn to introduce three types of banks in 2011 vanguard news.
The proposal was contained in the draft framework for the regulation and supervision of non interest banks in nigeria, issued by the cbn to banks for their comments, suggestions and inputs towards the final. Nigerian under president olusegun obasanjo joined the islamic development bank as a fullmember. In owoyemi 2003, noninterest banking was defined as. A non interest bank means a bank which transacts banking business, engages in trading, investments and commercial activities, as well as the provision of financial. Read more success of nigerias demutualised stock exchange hangs on governance. Nigeria, being a secular country does not preclude it from practicing non interest banking as long as those tenets and principles are ready to be complied with. Ogun state, nigeria abstract the central bank of nigeria cbn approval of a noninterest islamic banking in nigeria has. Interestingly, since the cbn issued guidelines for the operation of non interest banking in nigeria in 2011, jaiz bank plc emerged the first fullfledged bank in nigeria in november 2011. The banks balance sheet has grown from n12 billion in 2012 to about n62 billion, with asset financing of over n30 billion. Islamic banking, also known as non interest banking, is a banking system that is based on the principles of islamic or sharia law and guided by islamic economics. Keywords interest free banking, cbn, nonmuslim nigerians, christian precepts.
In 2011, the cbn issued the guidelines for fx derivatives in the nigerian financial markets. The central bank of nigeria development finance initiatives involve the formulation and implementation of various policies, innovation of appropriate products and creation of enabling environment for financial institutions to deliver services in an effective, efficient and sustainable manner. The principal mission of the development bank of nigeria is to increase financial inclusion by improving access to credit finance. Non interest banking has been described distinctly by many scholars. Under the agreement, suntrust bank and saudibased icd agreed to facilitate information and expertise exchange in order to setup a window that incorporates. Suntrust bank nigeria signs deal to create noninterest banking window nigeria has a burgeoning market for islamic financial products given the countrys 70 millionstrong muslim population. As it stands, it is fair to say that interestfree banking system and islamic banking system refers to the same policy as they operates in line to the provisions and jurisdictions of the islamic shariah system. It is true that the cbn had emphasized on its readiness to establish or give licence to banks wishing to operate interest free banking system which is popularly known by. Noninterest banking in nigeriatax issues i vanguard news. The banking system in nigeria is regulated through the central bank of nigeria.
As the name implies, non interest banking nib is a system of financial services that provide unique services in accordance with islamic religious jurisprudence and sharia principle and fully. In view of this ugly development, a new dawn for banking operation in nigeria came to limelight when the central bank of nigeria cbn recently enacted new provisions for the proper establishment and operation of islamic banking through what it conceptualized as noninterest financial institutions nifi. Noninterest income is bank and creditor income derived primarily from fees including deposit and transaction fees, insufficient funds nsf fees, annual fees, monthly account service charges. The initiatives are mainly targeted at agricultural. It directed all non interest banks to transact business. Dec 15, 2016 the practice of interest free banking is still a novelty in nigeria. Islamic banking and profit and loss sharing banking. Noninterest islamic liquidity management in the nigerian. Why regulate banks, history of banking regulation, banks, bank holding companies, and financial holding companies, regulation for depositor protection and monetary stability, regulation. Jaiz bank plc is a national bank and a quoted public company owned by over 26,000 shareholders spread over the six geopolitical zones of nigeria. A lot of people have heard about it, but most do not really know what it is all about. However, since there was no framework for non interest banking in the country, the attempt did not register a significant success nor growth. Web site information and links to other web sites should be verified for accuracy and functionality. Sarah alade, deputy governor of the central bank of nigeria, announced that five nigerian bank ceos were being dismissed in august 2009.
Challenges facing the acceptability of islamic banking in nigeria. The effects of noninterest banking on entrepreneurship in. An alternative to conventional market is emerging in form of islamic banking and noninterest banking. Current nigeria banks lending rates as published by centreal bank of nigeria cbn. Jun 18, 2009 nigeria promotes noninterest banking in a recent speech before the senate, lamido sanusi who is the governor of the nigerian central bank cbn governor, emphasized that it is important to ensure that banks do not claim to offer islamic banking products when they are in fact running a conventional banking business. Jan 06, 2011 habib bank plc opened a non interest banking window offering a limited number of shariahcompliant products. Central bank of nigeria cbn releases guidelines for non interest microfinance bank nimfbs. Dec 25, 2016 islamic banking products and challenges in nigeria in january 2012, the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interest free bank in northern. This paper examined the prospects and challenges of operating an islamic non interest banking system in nigeria. The effects of noninterest banking on entrepreneurship in nigeria. This was a strong signal to seek for alternative banking system. Central bank of nigeria cbn releases guidelines for non. Interest free banking and islamic banking in nigeria by. Rather, general guidelines should be issued, to accommodate interest free banking according to the precepts of any of the religions in nigeria.
The guidelines regulate the activities of authorised dealers of foreign exchange i. It is the wish of majority of banks in nigeria to reach more customers. Noninterest banking and the enabling nigerian laws academia. A read is counted each time someone views a publication summary such as the title, abstract, and list of authors, clicks on a figure, or views or downloads the fulltext. The implication is that non muslims are currently excluded from the ambit of a non interest banking license. Banks, lending and interest rates the guardian nigeria. Bello 2009 describes non interest banking as a system of banking activity which is consistent with the practices and principles of islamic sharia law and its application. Prior the current banking reformation programme by the federal government, there were about 82 approved commercial and merchant banking institution in nigeria by the central bank of nigeria cbn even after the era of distress syndrome that swept away the industry in the mid 1990s leading to the collapse of many banks and finance houses. Non interest banking branch of a conventional bank or non interest banking branches which could be established in line with extant cbn regulation on bank branch expansion.
As a result of that, jaiz bank became the first and the only fullfledged islamic banking in nigeria. Issues in banking and finance is a recommended text for university undergraduates, polytechnic students and professional students of banking and finance, accounting, business administration, economics, insurance, stockbroking and related fields. Furthermore, as defined by abdul gafoor in his book titled interestfree commercial banking, 1995, islamic banking is a banking system. Non bank institutions may own atms, however such institutions must enter. Alao esther monisola babcock university, ilishan remo. One way that they can do this is by establishing more banks in the rural areas as the banking needs of rural dwellers continue to increase in nigeria. However, nigeria as well as any other country wishing to practice interest free banking may design a module that fits its economy, so long as its applications do not go contrary to the islamic. Central bank of nigeria cbn will in january 2011, introduce three classes of banking licences. In june, 2011, the central bank of nigeria cbn issued a new framework for the regulation and supervision of non. Monetary policy mpc mandate the legal backing for monetary policy by the bank derives from the various statutes of the bank such as the cbn act of 1958 as amended in cbn decree no. Non interest banking licenses testifies to the avalanche of demand soon to visit the financial.
Suntrust bank nigeria sbn and the islamic corporation for the development of the private sector icd have signed an agreement to establish a new non interest banking window in nigeria. Cbn, to establish interestfree islamic banking in nigeria, against the backdrop of the countrys. This paper examined the prospects and challenges of operating an islamic noninterest banking system in nigeria. Bank fixed deposit interest rates bank lending interest rates company registrars company results nse naira exchange rates stock market daily reports. Interest free banking evolved as a result of islamic view about money that it should not be priced as it is done by western or conventional banks operating around. However, they all seem to agree on the overall meaning of the concept as portrayed by each one of them. The central bank of nigeria, cbn new banking model authorizes the establishment of the following banking structures as defined under the banks and other financial institutions act bofia 1991 as amended. Pdf the prospects and challenges of operating an islamic. The central bank of nigeria cbn approval of a noninterest islamic banking in nigeria has. Oct 21, 2019 graph and download economic data for bank non performing loans to gross loans for nigeria ddsi02nga156nwdb from 1998 to 2016 about nigeria, nonperforming, gross, loans, banks, and depository institutions. The central bank of nigeria cbn on thursday released guidelines for the regulation and supervision of noninterest islamic microfinance bank nimfbs in the country. The controversy over noninterest banking system in nigeria alao, david oladimeji ph. Islamic banking products and challenges in nigeria sahara. Interestfree banking and islamic banking in nigeria by.
The bank s balance sheet has grown from n12 billion in 2012 to about n62 billion, with asset financing of over n30 billion. The central bank of nigeria cbn is proposing a minimum core capital of n25 billion for establishing a non interest bank in the country. Owing to this a research study on the issue is necessary. Subsequently, the nasir social bank in egypt was declared as an interestfree commercial bank in 1971, although its charter made no reference to islam or. The book further provides a perspective on how banking regulation developed and the specific reasons or purposes for regulating banks. Interestfree banking and islamic banking in nigeria. The reform also addresses excessive banking interest by the creation of a non interest bank. Islamic banking products and challenges in nigeria. Some of these scholars see it to mean the same thing, while some try to differentiate it from interest charged in the conventional banking. Interest free banking in nigeria welcome islamic banking. The banking industry in nigeria started during the colonial era with the establishment of colonial banks, with the primary aim of meeting the commercial needs of the colonial government.
For a customer dealing in trading, sterling alternative finance may opt for the option of purchase and resale at a markup. As part of government financial inclusion policy, jaiz bank is founded to tap the existing banking. In general, islamic banking and finance has been described as having the same purpose as conventional banking but operating in accordance with the rules of shariah law institute of islamic banking and insurance, or having the same basic objective as other private entities, i. The operational challenges of islamic banks and its. Islam, christianity, bank, non interest banking, ethics and poverty alleviation introduction one of the agonizing experiences that one can encounter in nigeria is the decision to transact business with most commercial banks in nigeria particularly if it has to do with loan. This is a list of commercial banks with national authorization in nigeria, arranged alphabetically. The launching of islamic banking in nigeria has generated a lot of issues from some eminent nigerians. The effects of non interest banking on entrepreneurship in. Salim salihu muhammed nigeria s quest for a virile banking reform had led to the adoption of several policies and strategies that would truly give the nations economy an edge towards growth and sustainability. The recent global financial crises have made several countries in the world to reconsider the practice of non interest banking alongside the conventional banks. Such manipulations result in excess charges which the central bank of nigeria cbn has been helping bank customers to recover from the perpetrating banks. Non interest banking uses various modes of contracts such as partnership, lease and sales to meet customers financing needs. Interest free banking in nigeria papers in the ssrn.
Habib bank ltd now keystone bank ltd in 1999, united bank for africa uba and stanbic ibtc in 2008 and intercontinental bank started non interest savings account in 2010. The existence of banks in nigeria dates back as far as 1862 when the first nigerian bank came into being. The central bank of nigeria, cbn new banking model authorizes the. In january 2012, the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interestfree bank in northern nigeria. It is significant to note that by the time of this research the only fullfledged non interest bank in nigeria is jaiz bank plc. Customers perception of noninterest banking services by. Arising from the three major roles of the cbn in the areas of monetary policy, financial system stability and payments system oversight, the cbn. Keywords secularism, islamic banking, interest, bank deposits. There is apparently low a wareness of the islamic bankin g concept in nigeria. Challenges and solutions to islamic banking system in a. Apr 07, 2017 central bank of nigeria cbn releases guidelines for noninterest microfinance bank nimfbs.
Elements of banking download book free computer books. All that is needed is a careful and extensive capacity building through collaboration among various stakeholders to develop cognate expertise in non interest banking, development of an adequate regulatory and supervisory framework for the effective operation of non interest banking in nigeria. The interest free banking principle in islam allows only one kind of loan and that is guardel literally good loan whereby the lender the bank also shares in the profits or losses arising out of the enterprise which the money was lent. Pdf the central bank of nigeria cbn had on 4th day of march 1998. The recent development of insolvency of many conventional banks in nigeria made the central bank of nigeria central bank of nigeria to initiate the acquisition of some banks while others were ordered to merge. The availability of the instrument is a sine qua non in the banking system. This can be understood in the following definitions from different. As part of government financial inclusion policy, jaiz bank is founded to tap the existing banking opportunity. Interest free banking evolved as a result of islamic view about money that it should not be priced as it is done by western or conventional banks operating around the world. Central bank of nigeria guidelines on electronic banking in nigeria preamble the cbn recognizes that electronic banking and payments services are still at the early stages of development in nigeria. An alternative to conventional market is emerging in form of islamic banking and non interest banking.